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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 and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, a judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide Black's Law Dictionary.)

The non-arbitrable Disputes.

Following are the well-known examples of disputes that are non-arbitrable

  1. disputes relating to rights and liabilities which give rise to or arise out of criminal offences;

  2. matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;

  3. guardianship matters;

  4. insolvency and winding-up matters;

  5. testamentary matters (grant of probate, letters of administration and succession certificate); and

  6. eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

A matter which is covered under Section 241 is pertaining to, undoubtedly, the exclusive jurisdiction of the Tribunal. The Tribunal, empowered under Section 242 (2) of Companies Act, 2013 may, with a view to bring to an end the matters complained of, make such order as it thinks fit. On a plain reading of Section 242, it is manifestly clear that the facts should justify the making of a winding up order on just and equitable grounds. Arbitrator would have no jurisdiction to pass a winding up order on the ground that it is just and equitable which falls within the exclusive domain of the Tribunal under Section 271(e). It is also indisputable that the statutory powers and plenary jurisdiction vested in the Tribunal renders it the appropriate forum to deliver result oriented justice. Admittedly, the statutory jurisdiction vested in the Tribunal cannot be exercised by the Arbitrator. [2019] 111 297 (NCL-AT)/[2019] 156 SCL 824 (NCL-AT)

So based on the above, it can be concluded that the disputes covered under section 241 are relating to rights in rem and hence the said matters are non-arbitrable and are undoubtedly falling under the purview of Tribunal.

Bijoy P Pulipra FCS,IP,RV

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