Disputes relating to oppression and mismanagement are arbitrable?

Updated: Sep 12, 2020

Section 241 of the Companies Act 2013 deals with Oppression and Mismanagement. If the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to a member or any other members or in a manner prejudicial to the interests of the company. Similarly the material change has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of member, that will also amount to oppression.

Interestingly the Act does not define the words “oppression” and “mismanagement” anywhere in the Act. According to Concise Law Dictionary, the “oppression” has not acquired a strictly technical meaning, and may be taken in its ordinary sense, which is an act of cruelty, or severity. The oppression is defined as an act of cruelty, severity, un-lawful exaction, domination or excessive use of authority. The word “oppressive” means unjustly severe, rigorous or harsh [CPC(5 of 1908) ,O,XI,R.7]. An act or omission may also amount to oppressive conduct if it is designed to achieve an unfair advantage(Sec 397 of Companies Act, 1956). The person complaining of oppression must show that he had been constrained to submit to a conduct which is unfair to him and which cause prejudice to him in the exercise of his legal and proprietary rights as a shareholder. [N.I.I Ltd v.N.I.I.H.Ltd., AIR 1981 SC 1298,132]

If an application is filed under section 241 by eligible applicants before the tribunal, based on the facts and other evidences, will form an opinion on  whether the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company and also check that as per the grounds of the application it is just and equitable to order the winding up the company. If there above circumstance exist, then the next question in front of Tribunal is whether the winding would unfairly prejudice the member or members including the petitioner. If the answer to the same is affirmative, then the Tribunal shall, with an intention to bring an end to the matters complained of, make such orders as it thinks fit.

Whether the allegations of oppression and mismanagement are arbitrable?

Arbitral Tribunals as private forums chosen by the parties to the dispute to adjudicate their disputes. This is an alternative platform to the public forums such as Courts and Tribunals. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private forum. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Arbitration and Conciliation Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject- matter of the case, whereas actions in rem refer to actions determining the title to property an