A company's contractual documents may contain an arbitration clause, but the existence of the clause does not oust the NCLT's jurisdiction to order winding up. The NCLAT has held that merely because there is an arbitration clause in an agreement, the arbitrator would have no jurisdiction to pass a winding-up order on the just and equitable ground, which falls within the exclusive domain of the Tribunal under Section 271(e).
The Exclusive Jurisdiction
The winding-up jurisdiction is a statutory jurisdiction that affects the company as a whole, not merely the bilateral rights of the contracting parties. An arbitral tribunal cannot order the winding up of a company, and it cannot grant the remedies that the NCLT can grant under Section 271. The arbitration clause governs the contractual disputes between the parties, but it does not displace the NCLT's statutory jurisdiction.
The Devas Multimedia Case
The NCLT Bengaluru ordered the winding up of Devas Multimedia under Sections 271 and 272 on the ground that the company's affairs had been conducted in a fraudulent manner and that the company was formed for a fraudulent and unlawful purpose. The existence of an arbitration clause in the agreement between Devas and Antrix did not bar the winding-up petition, because the ground was the fraudulent conduct, not the contractual dispute.
The Limits
The NCLT's jurisdiction is not unlimited. The Tribunal cannot adjudicate disputed contractual claims during winding up if the contract contains an arbitration clause, and the NCLAT Chennai has held that a liquidator cannot seek adjudication of a disputed contractual claim if the contract provides for arbitration. The winding-up jurisdiction is confined to the statutory grounds, and it is not a substitute for the arbitral process.
Call to Action
Anuj Desai & Associates advises companies and creditors on the interaction between arbitration clauses and winding-up proceedings—from the exclusive jurisdiction of the NCLT to the limits of arbitrability and the Devas Multimedia principles. If you are considering a winding-up petition despite an arbitration clause, we can help you assess the position.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
🔗 linkedin.com/in/ca-anuj-desai-122547230
Article 131