NCLT Mumbai: Tribunal Is A Judicial Authority With Power To Refer Matter To Arbitration If Dispute Falls Within Scope Of Arbitration Agreement

Background Facts:

Chaitra Gowdar Chidanand (Petitioner) had filed a Company Petition before NCLT, Mumbai Bench under Sections 241 and 242 of the Companies Act, 2013 alleging oppression and mismanagement in respect of the affairs of Get Simple Technologies Pvt. Ltd. (Respondent No.1).

The Petitioner had submitted that the restructuring of Respondent No. 1 was done pursuant to a clause in the Shareholders’ Agreement (‘SHA’) dated 14.07.2017, to which the Petitioner is a party. Therefore, this is a contractual dispute arising out of relation to the SHA. The SHA provides a widely-worded arbitration clause and the subject matter of the disputes raised in the Company Petition falls squarely within the purview of the arbitration clause.

Therefore, the Applicant filed a Section 8 Application seeking a reference of the disputes in the Company Petition to arbitration; and consequently, the dismissal of the Company Petition.

The grievance of the Petitioner was the non-allotment of shares in Respondent No.4 company because of delayed remittance by her, as well as the type of share offered for subscription to her. This allotment was to be done, in consequence of the restructuring contemplated in SHA amongst the Shareholders of Respondent No.1 company, to have mirror shareholding in Respondent No. 4 company.

NCLT Verdict:

The NCLT placed reliance on Vidya Drolia & Ors. Vs. Durga Trading Corporation wherein the Supreme Court discussed that the issue of non-arbitrability can be raised at three stages.

The Tribunal observed that the disputes regarding the restructuring of Respondent No. 1 are purely contractual in nature and relatable to the SHA as the Resolution passed was squarely to give effect to the terms of the SHA. Further, since this issue arises from the SHA i.e. Reincorporation plan of Respondent No.1 and consequential rights of the Petitioner under that reincorporation, there is no need for repudiation of the resolutions passed in the Extraordinary General Meeting and the Board Resolution.

Also, the issue pertaining to the right of the Petitioner to claim mirror shareholding in the Respondent No.4 company despite her belated remittance is a factual issue that can certainly be looked into by the mediator/arbitrator as contemplated in clause 7(d) of SHA.

The NCLT noted that sufficient explanation and opportunity were granted to the Petitioner to decide whether to subscribe to the Respondent No. 4 shares. It held that the Petition is curated to make contractual disputes as disputes pertaining to oppression and mismanagement to avoid the binding arbitral clause since no violation of any shareholder rights except for merely a single act arising from the SHA agreement is given.

It held that neither NCLT nor Arbitrator can not direct Respondent No. 4 and its shareholders, other than signatories to SHA, who are not a party to it, to have shares allotted to the Petitioners in terms of SHA, even if come to the conclusion that the present petition is not a dressed up petition and has to be dealt with in accordance with Section 241-242 of the Companies Act, 2013.

The Tribunal highlighted that in substance, the claim of the Petitioner pertains to the equitable treatment to her qua Applicant, who was the initial founder of the business of Respondent No. 1, having been transferred to Respondent No. 4’s subsidiary. In other words, she claims that she must have been offered Class B shares, as were offered to Applicant, and she ought to be allotted shares at the initial offered price, even though she failed to remit the money because there was no cut-off date prescribed for making such remittance.

In conclusion, it observed that the issue arises purely from the SHA, and between two parties i.e. Petitioner and Applicant that can be referred to the Arbitrator by either of the parties and not by NCLT to decide.

Case Title: Nityanand Sharma Case

Case No.: CA-67/2022 IN CP.09(MB)2022

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