The Starting Point: Arbitrability Is Not Presumed
The Supreme Court in Vidya Drolia v. Durga Trading Corporation held that arbitrability is not a matter of party choice alone. A dispute is arbitrable only if it is capable of being resolved by a private adjudicator and does not involve rights and obligations that the state has reserved for a statutory tribunal exercising public functions. The NCLT’s oppression jurisdiction is a statutory remedy, and the NCLT exercises it in the public interest, not merely as a forum for the parties’ private dispute.
The Oppression Petition Is Not Ordinarily Arbitrable
An oppression and mismanagement petition under Section 241 is not a contractual claim. It alleges that the company’s affairs are being conducted in a manner prejudicial to members or to the public interest. The relief under Section 242 includes buyout, regulation of the company’s affairs, and directions that bind the company—relief that an arbitral tribunal cannot grant in the same form. The NCLT’s jurisdiction is exclusive, and an arbitration clause in a shareholders’ agreement does not oust it.
The Contractual Claims That Are Arbitrable
A shareholders’ agreement may contain arbitration clauses governing breach of the agreement, valuation disputes, deadlock resolution, or exit mechanics. Those claims are arbitrable, even if they arise between the same parties who are also shareholders. The distinction is between a claim for breach of contract (arbitrable) and a claim for statutory oppression (not arbitrable). A petitioner who seeks both remedies may have to pursue them in separate fora.
The Anti-Arbitration Injunction
Where a party commences arbitration in breach of the NCLT’s exclusive jurisdiction, the other party may seek an anti-arbitration injunction from the NCLT or the High Court. The injunction is granted sparingly, and the applicant must establish that the arbitration is vexatious or oppressive, or that the dispute is not arbitrable. The NCLT’s power to restrain arbitration is an aspect of its exclusive jurisdiction, but it should be exercised with caution.
The Strategic Choice
The forum choice should be made before the dispute crystallises. If the shareholders’ agreement contains a broad arbitration clause, the parties should consider whether the clause covers the type of dispute that has arisen. If the grievance is oppression, the NCLT is the correct forum; if the grievance is breach of contract, arbitration may be faster and more confidential. A “belt and braces” strategy of filing both is likely to attract an abuse-of-process objection.
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