A shareholders' agreement that contains an arbitration clause creates an apparent conflict with the statutory jurisdiction of the NCLT under Sections 241 and 242. The clause suggests that the parties have agreed to resolve their disputes through arbitration. The statute confers jurisdiction on the NCLT to entertain a petition alleging oppression and mismanagement. The NCLT has consistently held that the arbitration clause does not oust its jurisdiction.
The USAR Commerce Technologies Ruling
The NCLT Chandigarh, in USAR Commerce Technologies Private Limited v. Utsav Soi (order dated April 29, 2026), addressed the collision between a contractual arbitration regime and the statutory jurisdiction under Sections 241-242. The Tribunal held that an oppression and mismanagement petition cannot be pushed to arbitration despite the contractual clauses. The jurisdiction is not merely a private dispute between the shareholders; it is a statutory jurisdiction that is exercised in the public interest.
The Quasi-Public Character of the Jurisdiction
The NCLT's jurisdiction under Sections 241 and 242 is quasi-public and equitable in nature. It extends beyond the disputes strictly inter se between the shareholders. The petition alleges that the affairs of the company are being conducted in a manner oppressive to a member or prejudicial to the company or the public interest. The remedy is not confined to the contractual rights of the petitioner; it includes the regulation of the company's affairs, the buy-out of the petitioner's shares, and the protection of the company itself.
An arbitral tribunal is constituted by the agreement of the parties, and its jurisdiction is confined to the disputes that the parties have agreed to refer. It cannot regulate the company's affairs or grant the statutory remedies under Section 242. The subject matter of the oppression petition is therefore not arbitrable, and the arbitration clause does not apply.
The NCLT Bengaluru Position
The NCLT Bengaluru has taken a similar position, holding that the mere existence of an arbitration clause in a share subscription agreement does not mandate a reference to arbitration. The Tribunal must examine whether the dispute is a statutory oppression claim or a contractual dispute. Where the petition alleges oppression and mismanagement, the statutory jurisdiction prevails.
The Practical Consequences
A shareholder who is a party to an arbitration agreement can still file an oppression petition. The respondent cannot obtain a stay of the proceedings under Section 8 of the Arbitration and Conciliation Act, 1996, because the subject matter is not arbitrable. The petitioner may, however, face a parallel arbitration proceeding on the contractual claims, and the two proceedings may run concurrently.
A company that wishes to avoid the NCLT jurisdiction cannot do so by inserting an arbitration clause in the shareholders' agreement. The statutory jurisdiction is not a matter of contract, and it cannot be waived by agreement.
Call to Action
Anuj Desai & Associates advises shareholders and companies on the interaction between arbitration clauses and NCLT oppression petitions—from the maintainability analysis and the response to a Section 8 application to the strategy for parallel proceedings. If you are facing an oppression claim or considering one, we can help you assess the jurisdictional position.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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