Arbitrability of Oppression

PROJECT WORK
ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND PREJUDICE CLAIMS

IN INDIA: NEED FOR RE-THINK
SUBMITTED TO: SUBMITTED BY:
Ms. Mukta Jangir Vivek Ghalyan (17RU1032)
Assistant Professor Student
School of Law School of Law
Raffles University Raffles University
Table of Contents
TABLE OF CONTENTS
1. INTRODUCTION
2. LAW RELATING TO OPPRESSION AND MISMANAGEMENT IN INDIA
a. HISTORICAL BACKGROUND
b. OPPRESSION AND MISMANAGEMENT CLAIMS UNDER THE

COMPANIES ACT,
3. 2013
a. RELIEF IN CASES OF OPPRESSION, MISMANAGEMENT OR PREJUDICE

CLAIMS:
4. POWERS OF THE NATIONAL COMPANY LAW TRIBUNAL
a. COMMON INSTANCES OF OPPRESSION, MISMANAGEMENT AND

PREJUDICE
5. CLAIMS IN INDIA
a. SUMMARY OF LAW OF OPPRESSION AND MISMANAGMENT IN INDIA
6. ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND PREJUDICE

CLAIMS IN INDIA.
7. SUMMARY OF LEGAL FRAMEWORK GOVERNING ARBITRATION IN INDIA
8. PRINCIPLES GOVERNING ARBITRABILITY OF DISPUTES UNDER THE INDIAN
9. ARBITRATION ACT, 1996
10. ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND UNFAIR
PREJUDICE
11. CLAIMS IN INDIA
12. CONCLUSION
INTRODUCTION
According to the Corporate Governance Committee Report of the Securities and Exchange Board
of India published on October 5, 2017 (‘Uday Kotak Committee Report’), there are broadly two
styles of running a company in India – the “Raja”1 (i.e. Monarch) model and the “Custodian” (i.e.
Trusteeship) model. 2 Under the “Monarch” model, the management, promoters and the board
expend their energies towards advancing the interest of the promoters of the company even if it is
at the expense of the other stakeholders. 3 This is but natural considering that the board and
management personnel depend on the patronage of the promoters/majority shareholders of the
company for re-election as board members or continuance of their employment with the company
(as the case may be). In contrast, under the “Custodian” model, the promoters, boards and
management of the company wear the hat of “trustees” and act in the interests of all stakeholders
– minority shareholders, investors, employees, customers, et al., keeping stakeholder interests
before interests of the promoters of the company. Unfortunately, the “Monarch” model of running
a company is more prevalent than the “Custodian” model in India.4
In order to redress the ill-effects of majority opportunism inherent in the “Monarch”

model of running a company, Indian lawmakers like their counterparts in other jurisdictions have
adopted the following three broad techniques: (i) Formulating procedural rules mandating
decisions on some important matters to be taken by super-majorities (i.e. seventy five percent
voting power) to reduce incidence of unfair prejudice being caused to the minority shareholders of
the company; 5 (ii) Improving standards of corporate governance by inter alia providing for
safeguards and disclosures pertaining to related party transactions, 6 the composition and
1
The use of the term “Raja” by Uday Kotak Committee Report’s use of the term “Raja” is inappropriate to describe
despotic promoters who place their interests before the interests of other stakeholders of the company. The use of the
term “Raja” to describe despotic promoters only perpetuates an inaccurate and disparaging cultural stereotype. The
“Raja” and “Rani” or kings and queens in ancient India were not all absolutist rulers, and were bound by various
commandments that tempered or limited the exercise of their powers. For instance, Kautilya’s political treatise
‘Arthashastra’ authored during the Mauryan period (i.e. 3 B.C.E -2 B.C.E) and Shantiparva of the Mahabharatha
extensively dealt with ‘Rajadharma’- duties of kings and queens in India. Therefore, the authors use ‘Monarch’, a
term which is culturally and gender neutral, to describe despotic promoters in this article.
2
SECURITIES AND EXCHANGE BOARD OF INDIA, Report of the Committee on Corporate Governance (October, 2017),
available at https://www.sebi.gov.in/reports/reports/oct-2017/report-of-the-committee-on-
corporategovernance_36177.html (last visited on July 22, 2018).
3
Id.
4
Id.
5
See The Companies Act, 2013, §§ 5, 13, 48, 66.
6
See The Companies Act, 2013, § 188.
independence of the board of directors,7 independence of companies’ auditors and improving the
quality of audit of its financial statements8; (3) Empowering courts/specialized tribunals in India
to review the decisions of the majority shareholders of the company on the grounds that they are
oppressive to the interests of minority shareholders in the company.9
In addition, the minority shareholders of Indian public sector enterprises can invoke
public law remedies to redress the ill-effects of majority opportunism. For instance, the public laws
of India safeguard persons from arbitrary action of governments and their instrumentalities.9 The
Indian courts inter alia have taken a view that any enterprises in which the Indian Government
(i.e. Federal government) or any of its constituent federal units (i) hold significant share capital; or
(ii) exercise deep and pervasive control, would be regarded as ‘instrumentalities’ of the
Government.10 Therefore, the minority shareholders of such companies, in addition to remedies
under private laws, can turn to public law remedies to protect their proprietary rights as
shareholders. This assumes significance because public sector enterprises are important vehicles
of wealth generation in the Indian economy.11
Further, sophisticated minority investors involved in joint venture, private equity,

venture capital and similar corporate investments transactions enter into shareholders’ agreement
that confer rights and protections above and beyond provided by statutory law. Mainly, these
shareholders’ agreements confer rights relating to (i) board representation; (ii) veto rights to ensure
involvement in major business decisions; (iii) anti-dilution rights to protect equity stake in the
company being improperly diluted by subsequent share issues; (iv) dividend rights to ensure proper
distribution of profits of the company; (v) information rights to ensure adequate access to
7
See The Companies Act, 2013, §§ 149, 151,163,164, 166.
8
The Companies Act, 2013, §§ 139-148. 9
The Companies Act, 2013, §§ 241-246.
9
The Constitution of India, 1950, Art. 14; M P JAIN, INDIAN CONSTITUTIONAL LAW, Vol.1 1291 (6th ed., 2010) (‘M P
Jain’).
10
See generally JAIN, supra note 10, 1202.
11
See generally MINISTRY OF HEAVY INDUSTRIES AND PUBLIC ENTERPRISES, DEPARTMENT OF PUBLIC ENTERPRISES,
Public Enterprises Survey 2016-17 Vol. 1 7-9 available at
https://dpe.gov.in/sites/default/files/PE%20ENG%20Volume-1%20FINAL%20web.pdf (Last visited July 22, 2018);
PRESS INFORMATION BUREAU, GOVERNMENT OF INDIA, Contribution of PSUs in GDP (November 23, 2016) (Also,
as per the information given by the Minister of State in the Ministry of Heavy Industries and Public Enterprises in
November 2016, the gross turnover of Central Public Sector Enterprises to the Gross Domestic Product (‘GDP’) of
India at current prices in 2014-15 amounted to 15.9%.)
information regarding the affairs of the company; (vi) exit provisions to enable the minority
investors to exit the company; and (vii) dispute resolution provisions.12
The enforceability of the said covenants contained in the shareholders’ agreements,

but not incorporated into the constitutional documents of the company, has been vexed question
under Indian law.13 Accordingly, in order to avoid uncertainty, most minority investors in Indian
companies ensure the incorporation of the shareholders’ covenants into the company’s articles of
association.11415 This has resulted in protections provided in the shareholders’ agreement including
dispute resolutions clauses being replicated in the articles of association of the company.
In many instances, the minority shareholders of Indian companies pursue statutory

remedies of oppression, prejudice or mismanagement under the Companies Act, 2013 to enforce
these rights enshrined in the shareholders’ agreement and articles of association of the company.16
In some cases, the promoters/ majority shareholders in Indian companies seek to avoid such
proceedings by seeking reference of the underlying dispute to arbitration.
The purpose of this article is to examine the ‘arbitrability’ of such oppression,

prejudice and mismanagement claims under Indian law, taking into account the developments in
other common law jurisdictions such as the United Kingdom and Singapore. The authors have
chosen to benchmark the question of ‘arbitrability’ of oppression, mismanagement and prejudice
claims in India against UK and Singaporean law because (i) of the similarities between the law
relating to oppression, mismanagement and prejudice claims in these three jurisdictions;17 and (ii)
12
See generally I. Hewitt, S. Howley & J. Parkes, Minority Investment and Protection in HEWITT ON JOINT VENTURES
221-232 (5th ed., 2016).
13
See generally V. Niranjan & Umakanth Varottil, Enforceability of Contractual Restrictions on the Transfer of
Shares, (2012) 5 SCC (J) 1; IndiaCorpLaw Blog, Shareholder Agreements: Clauses and Enforceability, December
31, 2010, available at https://indiacorplaw.in/2010/12/shareholders-agreements-clauses-and.html (Last visited on May
14
, 2018)
15
International Bar Association, IBA Guide on Shareholders’ Agreement, available at
http://www.shareholderagreementweb.com/form/415828012-Raja-Sujith (last visited May 5, 2018).
16
The Companies Act, 2013, §§ 241-244.
17
These similarities are explained in greater detail in Part IV of the article. See generally, GOVERNMENT OF INDIA,
Report of the Company Law Committee, ¶¶ 199-203 (1952), available at
http://reports.mca.gov.in/Reports/22Bhabha%20committee%20report%20on%20Company%20law%20committee,
%201952.pdf (Last visited May 8, 2018) (‘Bhabha Committee Report’); Tomolugen Holdings Limited & Another v.
Silica Investors Limited and Other, [2015] SGCA 57, ¶¶ 85-89.
most of the Indian parties choosing to arbitrate their disputes with the aid of foreign arbitral
institutions seated in Singapore and UK.18
In order to accomplish the aforesaid objective, the authors will examine the Law of
oppression, prejudice and mismanagement claims in India in Part II of the paper. Part III of the
paper will discuss the general principles governing the arbitrability of disputes in India including
claims relating to oppression, prejudice and mismanagement claims. Part IV of the paper will
analyse the considerations governing the arbitrability of oppression and mismanagement claims in
Singapore and UK. Thereafter, in Part V of the paper, the authors will express their views on the
approach that could be adopted by courts and parties in India on arbitrability of oppression,
prejudice and mismanagement claims in India.
LAW RELATING TO OPPRESSION AND MISMANAGEMENT IN INDIA

Considering that this paper seeks to examine the arbitrability of oppression and
mismanagement claims in India, this Part will briefly examine: (A) the historical background
leading to oppression, prejudice and mismanagement claims being introduced in Indian
companies’ law; (B) the general principles relied on by courts to adjudge oppression,
mismanagement and prejudice claims of the minority shareholders; (C) scope and the powers of
the National Company Law Tribunal (hereinafter ‘NCLT’) to provide relief in cases of oppression,
mismanagement and prejudice claims; (D) common instances wherein minority shareholders
invoke remedies of oppression, prejudice or mismanagement; and (E) Summary.
A. HISTORICAL BACKGROUND
The remedies against oppression and mismanagement in India were first introduced
in Indian companies’ law through an amendment in 1951 to the Companies Act, 1913 (‘1913
Act’).19 These provisions were based on §210 of the UK Companies Act, 1948, which in turn was
18
The statistics have been examined in greater detail in Part IV of the article. See generally Singapore International
Arbitration Centre, Annual Report 2017, available at
http://siac.org.sg/images/stories/articles/annual_report/SIAC_Annual_Report_2017.pdf (last visited on July 11,
2018); London Court of International Arbitration, Facts and Figures: 2017 Case Report, available at
http://www.lcia.org/lcia/reports.aspx (last visited on July 12, 2018).
19
A. RAMAIYA, GUIDE TO THE COMPANIES ACT, Vol. 3 4003 (8th ed., 2015) (‘Ramaiya’); Shanti Prasad Jain v. Kalinga
Tubes, AIR 1965 SC 1535, ¶ 13.
based on recommendations of the Cohen Committee20 set up to recommend amendments to the
companies’ law of the United Kingdom.21
One of the major issues before the Cohen Committee was how to devise effective
means for the protection of minority shareholders against the “oppression” of the majority. 22 For
instance, the restrictions on the transferability of shares in the articles of association of a private
company resulted in great hardship to the legal representatives of the minority shareholders. The
legal representatives had to usually raise money to pay estate dues.23 The directors of a company
who were usually the majority shareholders, sometimes refused to register the transfer of shares to
outsiders.24 This resulted in executors being compelled to realize the testators’ shares by selling
the shares to persons approved by the directors, who were usually majority shareholders, at prices
much lesser than the value assessed by tax authorities.25 Another abuse which was found to occur
was that the directors would absorb an undue proportion of the profits of the company in
remuneration for their services and so that little or nothing was left to be distributed among the
shareholders as dividends.26 This was especially detrimental to the minority shareholders because,
in most cases, the majority shareholders would expropriate all the profits of the company as
directors’ remuneration.
Prior to the enactment of §210 of the UK Companies Act, 1948, the only effective
remedy against such oppressive acts by the majority shareholders was to file a petition for
windingup under the “just and equitable” clause of §168 of the UK Companies Act, 1929.27 The
remedy was, however, very often worse than the disease. For, in practice, it generally meant that
the business of the company in liquidation would have passed into the hands of the majority
20
BOARD OF TRADE, Report of the Committee on Company Law Amendment (1945), available at
http://reports.mca.gov.in/Reports/17-
Justice%20Cohen%20committee%20report%20of%20the%20committee%20on%20company%20law%20amendme
nt,%201943.pdf (last visited 8 May 2018) (‘Cohen Committee Report’).
21
Shanti Prasad Jain v. Kalinga Tubes, AIR 1965 SC 1535, ¶ 13; Bagree Cereals (P) Ltd. v. Hanuman Prasad Bagri,
(2001) 105 Comp Cas 465, ¶ 66.
22
Bhabha Committee Report, supra note 17, ¶ 199.
23
Estate tax or estate dues were levied on the legal heirs of the deceased in some common law jurisdictions at the time
of inheriting an asset of the deceased under a will or under the laws of succession (in case the deceased died intestate).
See, e.g., United Kingdom Finance Act, 1894.
24
Cohen Committee Report, supra note 20, ¶ 58.
25
Id., ¶ 60.
26
Id., ¶ 58.
27
Id., ¶ 59.
shareholders who would ordinarily be the only available purchasers of the business.28 As a result
of the winding-up proceedings, the business would be taken over by the majority against whose
conduct the minority had sought to obtain redress, without the latter being compensated in any way
for their interest.29 Further, the rule of law, under which the Courts administered the provisions,
generally precluded the making of winding-up order in cases where alternative remedy was
available.30 Therefore, in order to remedy this situation, the Cohen Committee recommended that,
the Courts should, in addition to the power to wind-up the company, have a right to impose
whatever settlement they deemed necessary to put an end to the oppressive acts of the majority
shareholders of the company.31 Thus, §210 was introduced in the UK Companies Act, 1948. Under
this Section, the Court, if satisfied that a winding-up order would not do justice to the minority
shareholders would be empowered, to make such other order as it deemed fit on finding that the
‘acts’ or/and ‘omissions’ of the majority shareholders (i) were oppressive, and (ii) justified
winding-up of the company on fair and equitable grounds.32
These provisions relating to oppression came to be materially incorporated in the Indian

Companies Act, 1913, and subsequently adopted in §397 of the Indian Companies Act, 1956.33
Additionally, §398 of the Indian Companies Act, 1956, was enacted to make any gross
mismanagement of the affairs of the company actionable on an application by members of the
company. This provision has no comparable provision in other common law jurisdictions. 34
Viewed from a historical standpoint, this provision may have been enacted by the Indian
lawmakers to deal with the exploitative system of managing agents that plagued Indian companies
during the colonial period and early years of India’s independence (i.e. post-1947). Under the
managing agency system, Indian companies entrusted individual/firms to run the business of the
company under the supervision of the board. These managing agents/ entities had often abused
their positions to enrich themselves at the expense of the shareholders of the company. 35 Thus, it
appears that in order to remedy the said situation, mismanagement was made actionable by the
members of the company.
Later, the Indian Companies Act, 1956, was repealed and replaced by the Indian Companies Act,
2013. The provisions relating to oppression and mismanagement have been reenacted with certain
modifications under Chapter XVI of the Indian Companies Act, 2013. The next section will
examine the law relating to oppression and mismanagement claims as set out in Chapter XVI of
the Indian Companies Act, 2013.
B. OPPRESSION AND MISMANAGEMENT CLAIMS UNDER THE COMPANIES ACT,

2013
Chapter XVI of the 2013 Act inter alia empowers members holding 1/10th of the
issued share capital of the company or 1/10th of the members of the company to file a claim of
‘oppression’ or ‘mismanagement’ in the National Company Law Tribunal (‘NCLT’) – the statutory
body conferred with special powers to deal with such cases.28 While these remedies were available
to the minority shareholders even under the erstwhile Indian Companies Act, 1956, the Indian
Companies Act, 2013, also enables members to file a petition under Chapter XVI of the said
legislation even if the acts of the majority shareholders are ‘prejudicial to his/her interest as
members’ or ‘prejudicial’ to the interests of the company.
1. Relief of ‘Oppression’ under the Indian Companies Act, 2013
In cases of oppression, the NCLT has the power to make such order as it deems fit,
if it comes to the conclusion that (i) the affairs of the company are being conducted in a manner
“oppressive” to any member or members; and (ii) to wind up the company, if it would unfairly
prejudice such member or members, but that otherwise the facts might justify the making of a
winding-up order of the company on just and equitable grounds. 29 The law, however, has not
defined ‘oppression’ and gives wide discretion to the NCLT to determine on the facts of each case
whether such conduct amounts to ‘oppression’ under the Act.
Over a period of time, courts in India have adopted broad tests based on
jurisprudence in other common law jurisdictions to determine whether acts amount to ‘oppression’
under Indian companies’ law.30 In Shanti Prasad Jain v. Kalinga Tubes Limited,31 the Supreme
28
The Companies Act, 2013, §§ 241, 244.
29
The Companies Act, 2013, § 242.
30
Shanti Prasad Jain v. Kalinga Tubes, AIR 1965 SC 1535, ¶¶ 16-20; Needle Industries (India) Limited & Ors. v.
Needle Industries Newey (Holdings) Limited and Ors., (1981) 3 SCC 333, ¶¶ 46-54.
31
Shanti Prasad Jain v. Kalinga Tubes, AIR 1965 SC 1535, ¶¶ 16-20.
Court of India relying on English and Scottish decisions32 interpreted the term “oppression” to
mean a series of events that showed that the affairs of the company were being conducted in a
manner that was burdensome, harsh and wrongful to the minority shareholders of the company.
Furthermore, such conduct necessarily involved an element of lack of probity or fair dealing
towards the minority shareholders, who had entrusted their capital to the company. But, mere lack
of confidence in the majority shareholders would not per se be regarded as “oppressive” under
Indian companies’ law.
In other words, the minority shareholders complaining of “oppression” have to

demonstrate that they were constrained to submit to continuous acts or omissions which were (i)
unfair; (ii) lacked in probity; and (iii) prejudiced the exercise of their legal and proprietary rights
as shareholders of the company.41 Further, legality or illegality of the action does not have a bearing
on adjudging whether the act would be regarded as oppressive. Conduct which is perfectly legal
can be “oppressive” whereas conduct which is illegal and in the interests of the company may not
be regarded as “oppressive”.33 Therefore, while adjudging oppressiveness, the courts need to look
at the business realities of the situation and not confine themselves to a narrow legalistic view.43
Nevertheless, it is not enough to show that the conduct of the affairs of the company
is ‘oppressive’ to some members of the company. The minority shareholders of a company have
to further prove that there are ‘just and equitable’ grounds for winding-up company, but the passing
of such an order will cause unfair prejudice to them. 34 This requirement again has been
incorporated in Indian companies’ law from UK companies’ law and other common law
jurisdictions.35 As a result, Indian courts and tribunals have relied on the UK and other common
32
George Meyer v. Scottish Co-operative Wholesale Society Limited, [1954] SC 381; Scottish Co-operative
Wholesale Society Ltd. v. Meyer, [1958] 3 All E.R. 56; In Re: H. R. Harmer Limited, [1938] 3 All E.R. 689. 41 Needle
Industries (India) Limited & Ors. v. Needle Industries Newey (Holdings) Limited and Ors., (1981) 3 SCC 333, ¶ 46.
33
Needle Industries (India) Limited & Ors. v. Needle Industries Newey (Holdings) Limited and Ors., (1981) 3 SCC
333, ¶ 51; S M Ganpatram v. Sayaji Jubilee Cotton v. Jute Mills Co., [1964] 34 Comp. Cas. 830-831 (Guj.). 43 Needle
Industries (India) Limited & Ors. v. Needle Industries Newey (Holdings) Limited and Ors., (1981) 3 SCC 333, ¶ 46.
34
Shanti Prasad Jain v. Kalinga Tubes, AIR 1965 SC 1535, ¶ 18; Hind Overseas Limited v. Raghunath Prasad
Jhunjhunwala & Anr., (1976) 3 SCC 259, ¶ 37.
35
The Companies (Consolidation) Act, 1908, § 129 (The United Kingdom); The Companies Act, 1910, § 127
(Barbados); The Companies Act, 1862, § 79 (The United Kingdom); The Companies Act, 1948, § 222(f) (The United
Kingdom).
law jurisdictions to expound instances that are regarded as ‘just and equitable’ grounds for
winding-up of the company.36
Common law jurisdictions including India have recognized the fact that ‘just and
equitable’ grounds for winding-up a company are fairly wide and they cannot be reduced to a sum
of particular instances.37 However, over a period of time, courts in common law jurisdictions have
formulated broad tests to determine whether acts or omissions give rise to ‘just and equitable’
grounds for winding-up the company. They have discussed in greater detail below.
a. Lord Clyde’s ‘just and equitable test
In Baird v. Bees,38 Lord Clyde attempted to set out some of the considerations that
could be taken into account by courts while determining whether there were ‘just and equitable’
grounds for winding-up the company. He noted that shareholder puts his money into the company
on certain conditions. They were:
1. Objects test: The business in which the shareholder invests shall be limited to certain
defined objects in the constitutional documents of the company. Under the Indian
Companies Act, 2013, it is pre-requisite for the company to set out the defined objects for
which it is being established before it is incorporated under the Act. 39 In the past, Indian
courts have taken a view that acts ultra vires the constitutional documents are void and
delinquent officers are personally liable to compensate the company for any losses resulting
from such actions.40
2. ‘Management and control’ test: The business of the company shall be carried on by certain
persons elected by the shareholders of the company in a specific way. Under the Indian
Companies Act, 2013, the Board of Directors of a company is entitled to do all such acts
36
See generally Hind Overseas Limited v. Jhunjuhunwalla & Anr., (1976) 3 SCC 259.
37
See generally Ebrahami v. Westbourne Galleries Limited, 1973 AC 360; Symington v. Symington Quarries Limited,
(1905) 8 F.121; In Re Yenidje Tobacco Company Limited, [1916] 2 Ch. 426; Hind Overseas Limited v.
Jhunjuhunwalla & Anr., (1976) 3 SCC 259, ¶ 34.
38
Baird v. Lees, 1924 SC 83, 92.
39
The Companies Act, 2013, §§ 4(c), 7.
40
See generally A. Lakshmanaswami Mudaliar & Ors. v. Life Insurance Corporation of India & Ors., AIR 1963 SC
1185.
and things to carry on the business of the company.41 Such board of directors is elected by
the shareholders of a company and is under an obligation to carry on the business in
accordance with articles of association of the company.42
3. ‘Statutory compliances’ test: The business shall be conducted in accordance with certain
principles of commercial administration defined in the statute, which provide guarantee of
commercial probity and efficiency. As noted earlier, the Indian Companies Act, 2013,
provides for various safeguards to improve the standards of corporate governance in a
company such as disclosures pertaining to related party transactions,43 composition and
independence of board of directors,44 etc.
According to Lord Clyde, if the shareholders found that these conditions or some
of them are deliberately and consistently violated and set aside by actions of member(s) or officials
of the company who wielded overwhelming voting power resulting in extrication of their rights
as shareholders, it would be ‘just and equitable’ for the company to be wound up.45
b. Ebrahmi’s ‘just and equitable’ test
In Ebrahimi v. Westbourne Galleries Limited,46 which was subsequently relied on

by the Supreme Court of India in Hind Overseas Limited v. Jhunjhunwala,47 the House of Lords
noted that ‘just and equitable’ ground would justify an order of winding-up even when the business
of the company was being conducted in accordance with the principles of commercial
administration in company law and constitutional documents, but in breach of
understanding/agreement between the shareholders. However, such a presumption was to be
limited to cases where the association formed continued on the basis of a personal relationship and
mutual confidence.48 This is because, in such situations, all the expectations and obligations of the
41
The Companies Act, 2013, § 179(1).
42
See generally The Companies Act, 2013, § 179(1); The Companies Act, 2013, Chapter XI.
43
44
The Companies Act, 2013, §§ 149, 151, 163, 164, 166.
45
Id.
46
Ebrahimi v. Westbourne Galleries Limited, 1973 AC 360 (HL) (per Wilberforce L.J.) affirmed by the Supreme
Court of India in Hind Overseas Limited v. Jhunjuhunwalla & Anr., (1976) 3 SCC 259.
47
Hind Overseas Limited v. Jhunjuhunwalla & Anr., (1976) 3 SCC 259, ¶ 34.
48
Ebrahimi v. Westbourne Galleries Limited, 1973 AC 360 (HL) (per Wilberforce, L.J.).
parties were not exhaustively set out in the constitutional documents of the company. Therefore,
the exercise of legal rights as set out in law or constitutional documents might result in unjust or
inequitable treatment of the minority shareholders of the company.
The authors briefly examine common instances regarded as ‘just and equitable’ in
common law jurisdictions below:
1. Loss of substratum of company’s business: A case in which circumstances occur which

have the effect of knocking the bottom of company’s business. 49 For instance, a company
was formed to work a patent which turned out to be invalid.60 The Court’s order required
the winding-up of the company on ‘just and equitable’ grounds because the main object for
which the company was incorporated had become impossible.50
2. Deadlock in affairs of the management: A case in which business of the company is

brought to a deadlock by some cause which does not consist merely in a dispute between
two bodies of shareholders with regard to policy which the company has to pursue. 51 For
instance, in Re Yenidje Tobacco Company Limited,52 two persons carrying on independent
businesses incorporated a private company. Under the constitution of the company, both
the persons had equal voting powers, both at the board and the shareholder level.53 Certain
differences arose between the gentlemen and the relationship of trust and confidence
deteriorated to such an extent that they did not speak to each other and an intermediary had
to convey communications between them.54 The court ordered winding-up of the company
on ‘just and equitable’ grounds because there was a complete deadlock in the affairs of the
management and the company was in a state not contemplated by the parties at the time of
its formation.55
49
See generally Baird v. Bees, 1924 SC 83; Symington v. Symingtons’ Quarries Limited, (1905) 8 F. 121, 129; In Re
Yenidje Tobacco Company Limited, [1916] 2 Ch. 426 (per Cozens Hardy L.J.); Hind Overesas Private Limited v.
Raghunath Prasad Jhunjhunwalla & Anr., (1976) 3 SCC 259, ¶ 34. 60 In Re Suburban Hotel Co., L.R., 2 Ch. 737.
50
Id.
51
Baird v. Lees, 1924 SC 83, 90 (per Clyde LJ).
52
In Re Yenidje Tobacco Company Limited, [1916] 2 Ch. 426, 429-432.
53
Re Yenidje Tobacco Company Limited, [1916] 2 Ch 426, 430.
54
Re Yenidje Tobacco Company Limited, [1916] 2 Ch 426, 434.
55
Re Yenidje Tobacco Company Limited, [1916] 2 Ch 426, 433, 436.
3. Complete loss of confidence: A case in which the minority shareholders can demonstrate
a complete lack of confidence in the conduct of the management of company’s affairs by
the board of directors.56 However, such dissatisfaction must not spring from being outvoted
on the business affairs, but on account of lack of confidence rested on lack of probity in the
conduct of company’s affairs. 57 For instance, in Loch v. John Blckwood Limited, the
majority shareholder’s acts inevitably led to the conclusion that he regarded the company
as the product of his own labors and tried to buy out the minority shareholders at an
undervalue.58 In such a scenario, the Court ordered winding-up of the company on account
of loss of confidence in the conduct of management of company’s affairs because principles
of commercial administration set out in the statute were totally disregarded.59
Thus, in order to successfully bring a claim of oppression, the minority shareholders

have to demonstrate that (i) the affairs of the company are being conducted with lack of probity in
a burdensome, harsh and wrongful manner; and (ii) it would be ‘just and equitable’ for the
company to be wound up, but such an order will prejudice them. It is not possible to exhaustively
set out the various situations justifying winding-up of company on ‘just and equitable’ grounds,
but ordinarily ‘loss of substratum of company’s business’, ‘deadlock’ or ‘complete loss of
confidence’ are regarded as situations giving rise to winding-up on ‘just and equitable’ grounds.
The next sub-Section will briefly set out the other remedies available to minority shareholders
under Chapter XVI of the Indian Companies Act, 2013.
2. Mismanagement
As noted earlier, the remedy of ‘mismanagement’ is peculiar to Indian companies’

law and it has no counterpart in UK companies’ law or other common law jurisdiction.60 In order
to successfully prosecute a claim of mismanagement, the minority shareholders will have to
demonstrate that (a) a material change has taken place in the management of the company; and (b)
consequently, the affairs of the company will be conducted in a manner prejudicial to the interests
56
Hind Overesas Private Limited v. Raghunath Prasad Jhunjhunwalla & Anr. (1976) 3 SCC 259, ¶ 33; Loch v. John
Blackwood Limited, [1924] AC 783.
57
Loch v. John Blackwood Limited [1924] AC 783.
58
Loch v. John Blackwood Limited, [1924] AC 783,794.
59
Loch v. John Blackwood Limited, [1924] AC 783, 795-797.
60
Ramaiya, supra note 19, 4079.
of the company or all or some of its members.61 Such material change may be effected in any
manner including by an alteration of the board of directors, manager and ownership of company’s
shares. However, a material change in the management brought in the interests of creditors,
including debenture holders or any class of shareholders of the company will not be actionable as
mismanagement under Indian companies’ law.62
In this regard, it is pertinent to note that a strict literal interpretation of the Indian Companies Act,
2013, seems to suggest that the minority shareholders bringing a case of mismanagement will also
have to demonstrate that it is ‘just and equitable’ for the company to be wound up.63 However,
from a perusal of the parliamentary and other expert committee reports that preceded the enactment
of the Indian Companies Act, arguably – it does not appear to be the intention of the legislature.64
That said, like oppression, mismanagement cannot be reduced to a set of specific

instances. It can occur in a wide variety of ways. However, generally, conditions that prevent the
proper functioning of the company in accordance with Indian Companies’ law will qualify as
‘mismanagement’ under the Indian Companies Act, 2013.76
3. Prejudice claims
Under the Indian Companies Act, 2013, members are also empowered to approach
the NCLT in the event that the affairs have been conducted in a manner ‘prejudicial to the interests
of the company’ or members.65 This provision seems to have been introduced at the instance of the
Bombay Chamber of Commerce and Industry. 66 The underlying intent for introducing this
additional remedy seems unclear. However, in all likelihood, the provision seems to be inspired
by development in companies’ law in the United Kingdom. The Jenkins Committee was
constituted in the UK to consider amendments to the UK Companies Act, 1948, in 1959. It
61
The Companies Act, 2013, § 241(b).
62
Id.
63
The Companies Act, 2013, § 241(b), 242; See generally Ramaiya, supra note 19, 4079.
64
See generally Ministry of Corporate Affairs, Concept Paper- Note on Approach (August 4, 2004), available at
http://www.mca.gov.in/Ministry/pdf/conceptpaper.pdf (last visited on May 11, 2018); Expert Committee on Company
Law, Report on Company Law, (May 31, 2005) available at
http://www.primedirectors.com/pdf/JJ%20Irani%20Report-MCA.pdf (last visited on May 11, 2018); STANDING
COMMITTEE ON FINANCE, Fifteenth Lok Sabha, Companies Law Bill, 2011, Fifty Seventh Report (June, 2012). 76
Ramaiya, supra note 19, 4082.
65
The Companies Act, 2013, § 241(a).
66
STANDING COMMITTEE ON FINANCE, Fifteenth Lok Sabha, Companies Law Bill, 2009, Twenty First Report (August,
2010).
considered the law relating to oppression and mismanagement in United Kingdom in 1962 (i.e.a
§210 of the UK Companies Act, 1948) and drew attention to a number of defects and suggested
changes to remedy them.67 They were:
1. Necessity of establishing ‘fair and equitable’ grounds for relief of oppression or unfair
prejudice: The Jenkins Committee noted that there was no justifiable reason to require
minority shareholders in ‘oppression’ claims to establish that there were justifiable reasons
for winding-up the company on ‘fair and equitable’ grounds before granting any relief.80
2. ‘Legality’ and ‘oppression’ claims: Second, the Jenkins Committee noted that, it was
unclear as to whether, for acts to be regarded as ‘oppressive’, there was need for the
petitioners to establish actual illegality or it was satisfied by conduct which without being
illegal could nevertheless be justly described as reprehensible.68
3. ‘Isolated’ acts and ‘oppression’: Third, the Jenkins Committee noted that oppression
claims did not cover isolated acts but rather the conduct of a continuing nature.69
In order to remedy these defects, the Jenkins Committee recommended that the UK
Companies Act, 1948, be amended inter alia to (1) make it clear that UK Companies Act, 1948
covered ‘isolated’ acts as well as a course of conduct; (b) extend to cases where the affairs are
being conducted in a manner ‘unfairly prejudicial to the interests of some part of the members and
not merely in a “oppressive” manner’. This recommendation was adopted by the British
Parliament in §75 of the UK Companies Act, 1985, and reproduced with minor amendments in
§459 of the UK Companies Act, 1985, and the present §994 of the UK Companies Act, 2006.70
In Re Saul D Harrison & Sons Plc.,84 Neill LJ, after examining the historical
background leading to introduction of the erstwhile §459 of the UK Companies Act, 1985, noted
that the scope of protection afforded in case of ‘unfair prejudice’ claims was far wider than the
67
BOARD OF TRADE, Report of the Company Law Committee, ¶¶ 200-212 (1962), available at
http://www.takeovers.gov.au/content/Resources/other_resources/downloads/jenkins_committee_v2.pdf (last visited
11 May 2018) (‘Jenkins Committee Report’) 80 Jenkins Committee Report, supra note 79, ¶ 201.
68
Jenkins Committee Report, supra note 79, ¶ 203.
69
Jenkins Committee Report, supra note 79, ¶ 202.
70
Re Saul D Harrison & Sons Plc. [1994] BCC 475, 488 (per Hoffman LJ) 84
Re Saul D Harrison & Sons Plc., [1994] BCC 475, 499 (per Neill LJ).
relief of ‘oppression’ under the English Companies Act, 1948. However, like ‘oppression’, ‘unfair
prejudice’ needed to be applied flexibly and could not be reduced to a set of particular
circumstances. Further, he held that, in order to successfully prosecute an ‘unfair prejudice’ claim,
conduct must be both prejudicial (in the sense of causing harm to the relevant interest) and also
unfair. 71 Additionally, the use of word “unfairly” indicated that, the court needed to take into
account not only the legal rights of the petitioners, but also their legitimate expectations. However,
such legitimate expectations were limited to the legal rights enshrined in the articles of association
of the company save in circumstances where (a) an association was formed or continued on the
basis of personal relationship; (b) agreement or understanding all or some of the members would
participate in the management of the company; or (c) restrictions upon the transfer of members’
interest in the company.72
Therefore, from the aforesaid analysis, one may argue that presently, the terms
‘prejudicial to the interests of the company or members’ in Chapter XVI of the Indian Companies
Act, 2013, are to be given the same meaning as in UK companies’ law.
Accordingly, in order to demonstrate that the acts are “prejudicial to the interests
of the company or members”, one need not establish that the conduct is of a continuing nature.
Isolated acts are also actionable under the 2013 Act. Lastly, like in cases of “oppression”, conduct
which is strictly legal may still be regarded as ‘prejudicial to the interests of the company or
members' in certain select circumstances. However, that said, while relying on UK cases to
interpret the aforesaid nascent provision, one needs to carefully examine the conditions and
circumstances of the present Indian society and evaluate whether a somewhat different approach
needs to be adopted.73
The next section will briefly examine the powers of the NCLT in cases of such
oppression, mismanagement or prejudice claims by the minority shareholders of a company.
71
72
73
Kilpest Private Limited & Ors. v. Shekhar Mehta, (1996) 10 SCC 696.
C. RELIEF IN CASES OF OPPRESSION, MISMANAGEMENT OR PREJUDICE CLAIMS:
POWERS OF THE NATIONAL COMPANY LAW TRIBUNAL
The 2013 Act has constituted the NCLT, a specialized tribunal, to inter alia deal
with matters relating to oppression, mismanagement or prejudice claims.74 Any party aggrieved by
the order of the NCLT, can file an appeal before the National Company Law Appellate Tribunal
(‘NCLAT’), and thereafter before the Supreme Court of India.75 Further, the 2013 Act excludes
the jurisdiction of the civil courts to entertain any suit or proceeding in respect of any matters that
are within the purview of the NCLT and the NCLAT. 76 Accordingly, under the 2013 Act, the
NCLT and NCLAT have been conferred with exclusive jurisdiction to deal with matters relating
to oppression, mismanagement or prejudice claims brought by the minority shareholders of a
company.
In terms of §242 of the 2013 Act, the NCLT/ NCLAT (as the case may be), can
pass any order if it deems fit to bring an end to the matters complained of, if it is satisfied that: (i)
the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to
the members or prejudicial to the interests of the company or public interest; and (ii) that to windup
the company would unfairly prejudice the interests of members, but otherwise the facts justify an
order of winding-up on fair and equitable grounds.
In this regard, it is pertinent to note that §242 of the 2013 Act is pari materia to
erstwhile §402 of the Indian Companies Act, 1956. While interpreting §402, Courts in India have
taken a view that the relief under §402 can be granted even if the petitioners fail to prove oppression
or mismanagement provided that the minority shareholders establish there are ‘just and equitable’
grounds for winding-up the company.77 Therefore, the NCLT/ NCLAT (as the case may be) can
grant any relief it deems fit under §242 of the 2013 Act to bring an end to the affairs complained
of, even if the minority shareholders only establish ‘just and equitable’ grounds for winding-up the
company. These reliefs can be in the nature of (i) regulation of the affairs of the company in
74
75
76
77
Hanuman Prasad Bagri & Ors. v. Bagress Cereals Private Limited, (2001) 4 SCC 420, ¶ 3; Needle Industries (India)
Limited & Ors. v. Needle Industries Newey (India) Holdings and Ors., (1981) 3 SCC 333, ¶ 173; MSDC
Radharamanan v. MSD Chandrasekara Raja, (2008) 6 SCC 750, ¶¶ 22-23.
future;78 (ii) purchase of shares or interests of the members of the company; 79 (iii) termination,
setting aside or modification of any agreement between the company and managing director, other
directors or manager upon such terms and conditions as it deems fit;80(iv) removal of the managing
director, manager, or any other director of the company;81 (v) altering the articles of association of
the company;82 (vi) assess damages against delinquent managers, directors and officers of the
company for fraudulent conduct, misfeasance, breach of trust etc.;83 and (vii) any other reliefs
deemed ‘just and equitable’ by the tribunal.
Furthermore, the 2013 Act provides various safeguards in the Act to ensure that
orders of the NCLT/NCLAT (as the case may be) are complied with in letter and spirit. For
instance, (i) if any alteration of the constitutional documents of the company is ordered by the
NCLT/ NCLAT, they can be amended subsequently only with the permission of the Tribunal;84
(ii) any order of the NCLT/NCLAT directing termination or modification of any agreement
executed by the company will not give rise to compensation claims; 85 and (iii) no managing
director, manager or other director whose agreement is terminated under §242 of the 2013 Act can
be re-appointed except with the permission of the NCLT/NCLAT.86 The NCLT/ NCLAT have
also been vested with the power to punish parties acting in contempt of their orders.87 Thus, it is
evident that NCLT/ NCLAT virtually enjoy unbridled powers while dealing with oppression,
mismanagement and prejudice claims, under the 2013 Act. The next section will identify common
instances wherein minority shareholders invoke the remedy of oppression, mismanagement and
prejudice claims in India.
D. COMMON INSTANCES OF OPPRESSION, MISMANAGEMENT AND PREJUDICE

CLAIMS IN INDIA
Unfortunately, unlike in other jurisdictions, there are no detailed statistical studies
78
The Companies Act, 2013, § 242(2)(a).
79
The Companies Act, 2013, § 242(2)(b).
80
The Companies Act, 2013, § 242(2)(e).
81
The Companies Act, 2013, § 242(2)(h).
82
See generally The Companies Act, 2013, § 242(5).
83
84
The Companies Act, 2013, § 242(5).
85
The Companies Act, 2013, § 243(a).
86
The Companies Act, 2013, § 243(b).
87
in India examining the specific grounds on which the minority shareholders of the company bring
oppression, mismanagement and prejudice claims. However, on a perusal of reported decisions, it
appears that the jurisdiction of the NCLT is often invoked in cases where there is (i) exclusion
from management; (ii) dilution of shareholding; (iii) mismanagement of company’s assets.
1. Exclusion from management
Most of the companies in India continue to be run by business families.88 In many

of these family run companies, family members actively participate in the day-to-day management
of the company along with holding an ‘ownership interest’ as a shareholder. Ordinarily, exclusion
of a family member from active management of such companies has been regarded as
“oppressive”.89
Furthermore, even in cases where the relationship between the members of the
company is in the nature of (i) partnership; or (ii) based on personal relationship involving mutual
trust and confidence, exclusion from management is averred as a ground for ‘oppression’. For
instance in Vikram Bakshi v. Connaught Plaza Restaurants Limited, 90 the petitioner Vikram
Bakshi and McDonald’s India Private Limited (‘McDonald’s India’) entered into a joint venture
agreement (‘JVA’) to form Connaught Plaza Restaurants Limited (‘Connaught’) to establish
McDonald’s India outlets in New Delhi and other places in India. Mr. Vikram Bakshi was
appointed as the Managing Director of Connaught. The JVA required McDonald’s India and its
nominees to vote for re-election of Mr. Bakshi as Managing Director on continued fulfillment of
certain conditions.91 If his employment as Managing Director of the company was terminated,
McDonald’s India had a right to purchase all his and affiliates’ shares. 92 McDonald India’s
nominee directors did not vote for re-election of Mr. Bakshi.93 Consequently, he ceased to be the
Managing Director of the Company. Furthermore, McDonald’s India exercised its right to
88
Forbes India, It’s all in the family (business), February 15, 2018, available at
http://www.forbesindia.com/article/indias-family-businesses/its-all-in-the-family-(business)/49443/1 (last visited on
May 16, 2018).
89
Ramaiya, supra note, 4028; See generally TAM Athavan v. Sun Freight Systems Private Limited & Ors., (2004) 4
CompLJ 593 CLB.
90
Vikram Bakshi & Ors. v. Connaught Plaza Restaurants Limited & Ors., [2017] 140 CLA 142. The decision is
pending before the National Company Law Appellate Tribunal. Thereafter, the parties entered into a settlement and
thus may be withdrawn in the near future.
91
Vikram Bakshi & Ors. v. Connaught Plaza Restaurants Limited & Ors., [2017] 140 CLA 142, ¶ 13.
92
93
purchase the Mr. Bakshi and his affiliates’ shareholding in the company. 94 The NCLT held that
the non-election of Mr. Bakshi as Managing Director of the company was oppressive as it was
based on extraneous consideration of purchasing the shares of Mr. Bakshi at throw away prices.95
Therefore, it passed an order reinstating him as Managing Director of the company.
2. Dilution of shareholding
A member who holds the majority of shares in company is entitled by virtue of his
majority to control, manage and run the affairs of the company in accordance with company law.
However, in many instances, these rights of the majority shareholders are diluted by issue of
additional capital, rights issue and various other nefarious mechanisms, which in effect, reduce
their majority shareholding to a minority. Such conduct is usually regarded as “oppressive” under
the Indian Companies Act, 2013. For instance, in Dale & Carrington Invt. (P) Ltd. v. PK
Prathapan,96 the managing director of the company issued and allotted additional share capital to
himself without following either any proper legal procedure or justification. This resulted in the
majority shareholders of the company being reduced to a minority. 97 The Supreme Court of India
held that such conduct amounted to “oppression” and set aside the allotment of additional shares
in favor of the Managing Director.98
However, every additional issue of share capital will not be regarded as

“oppressive”. If the power to issue shares has been exercised to create sufficient number of
shareholders to enable the company to exercise statutory powers, or to enable it to comply with
legal requirement or in the larger interest of the company, it will not amount to oppression even if
it incidentally leads to the majority shareholders losing control over the company. 99 For instance,
in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd.,100 the Supreme
Court of India held that issue of additional share capital (via rights issue) was not oppressive
because it was issued to ensure the continuance of development activities of the company that had
94
95
Vikram Bakshi & Ors. v. Connaught Plaza Restaurants Limited & Ors., [2017] 140 CLA 142, ¶¶ 21, 22.
96
Dale & Carrington Invt. (P) Ltd. v. PK Prathapan, (2005) 1 SCC 212.
97
Dale & Carrington Invt (P.) Ltd. & Anr. v. PK Prathapan & Ors., (2005) 1 SCC 212, ¶ 12.
98
Dale & Carrington Invt (P.) Ltd. & Anr. v. PK Prathapan & Ors., (2005) 1 SCC 212, ¶¶ 15-30, 38.
99
Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd., (1981) 3 SCC 333, ¶ 118; Tea
Brokers (P) Ltd. v. Hemendra Prosad Barooah (1998) 5 CompLJ 463; Dale & Carrington Invt (P.) Ltd. & Anr. v. PK
Prathapan & Ors., (2005) 1 SCC 212, ¶¶ 15-27.
100
Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd., (1981) 3 SCC 333.
stood frozen on account of non-compliance with exchange control laws of India. Thus, the
consequent result of the majority shareholders being reduced to a minority would not be
“oppressive”.
3. Mismanagement of company’s assets
Sale of assets of the company without compliance with the provisions of Indian
companies law resulting in loss of substratum of the business of the company are some of the other
grounds on which oppression and mismanagement claims are pressed by minority shareholders in
India.101
E. SUMMARY OF LAW OF OPPRESSION AND MISMANAGMENT IN INDIA
The law relating to oppression, mismanagement and prejudice claims in India has
developed in a unique corporate cultural environment and has thus far applied remedies
recognizable in other common law jurisdictions. In order to succeed in a claim of oppression, the
applicants have to demonstrate that (a) affairs of the company have been conducted with a lack of
probity in a burdensome, harsh and wrongful; and (b) there are ‘just and equitable’ grounds for
winding-up a company, but such an order will prejudice the interests of the applicants.
Similarly, in order to successfully prosecute a case of mismanagement, the

applicants have to demonstrate that a material change has taken place in the management of the
company, and in all likelihood, such change will result in the affairs of the company being
conducted in a manner prejudicial to its interests.
In the event that the minority shareholders succeed in proving either oppression or
mismanagement, the NCLT has been vested with wide powers to pass any orders it deems fit
(including winding-up) to bring an end to such mismanagement or oppressive conduct. With the
promulgation of the Indian Companies Act, 2013, even acts which ‘prejudice’ the interests of the
members or company are actionable under Indian companies’ law.
The next Part will examine the arbitrability of such oppression and mismanagement claims in
101
See generally Ramaiya, supra note 19, 4083-4084.
India.
ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND PREJUDICE

CLAIMS IN INDIA
The Arbitration and Conciliation Act, 1996 (‘Indian Arbitration Act, 1996’) is the
enactment governing arbitration including the arbitrability of disputes in India. Accordingly, in
order to determine the arbitrability of oppression, mismanagement and unfair prejudice claims in
India, the author will (A) firstly, provide a brief overview of the Indian Arbitration Act, 1996; (B)
secondly, deal with the general tests adopted by the courts in India to determine the arbitrability of
disputes; and (C) lastly, analyse the Indian legal position relating to arbitrability of oppression,
mismanagement and prejudice claims in India.
In this regard, it is pertinent to note that, the term ‘arbitrability’ has different
meaning in different contexts. It may mean that:
1. disputes are not covered by the arbitration agreement between the parties;
2. disputes being covered by the arbitration agreement between the parties, do not fall within
the scope of submission to the Arbitral Tribunal; or
3. disputes are incapable of adjudication and settlement by arbitration and fall within the
exclusive domain of the public fora such as courts and tribunals.102
In the present context, the author uses the term ‘arbitrability’ to refer to the category
of disputes that are incapable of adjudication by arbitration and are reserved exclusively for public
forums such as courts and tribunals.
A. SUMMARY OF LEGAL FRAMEWORK GOVERNING ARBITRATION IN INDIA
Prior to the enactment of the Indian Arbitration Act, 1996, arbitration in India was
governed by three enactments, namely, the Arbitration Act, 1940; the Arbitration (Protocol and
Convention) Act, 1937, and the Foreign Awards (Recognition and Enforcement) Act, 1961. 103104
102
Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others, (2011) 5 SCC 532, ¶ 34.
103
See generally Arbitration and Conciliation Act, 1996, § 85; Bharat Aluminium & Ors. v. Kaiser Aluminium
Technical Services Inc., (2012) 9 SCC 552, ¶ 68 (‘BALCO’); The Arbitration and Conciliation (Amendment) Bill,
104
,176 of 2001, Cl. 176.5 (‘LCI: Report 176’).
The Arbitration (Convention and Protocol) Act, 1937, was enacted to give effect to
the Geneva Protocol, 1923,105 and the Geneva Convention, 1927106. Similarly, the Foreign Awards
(Recognition and Enforcement) Act, 1961 was enacted to give effect to the New York Convention
on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’).107
The provisions of both these enactments have now been consolidated and re-enacted in Part II of
the Indian Arbitration Act, 1996.108
As far as the Arbitration Act, 1940, that dealt with domestic arbitration was
concerned, it was widely felt that it had become outdated and was not responsive to the
contemporary needs of the Indian economy. 109 Further, around the same time, the General
Assembly of the United Nations had recommended that all countries give due consideration to
United Nations Commission on International Trade Law (‘UNCITRAL’) Model Law on
International Commercial Arbitration (‘UNCITRAL Model Law’), 110
in order to provide a
uniform legal framework for settlement of disputes arising out of international commercial
arbitration. 111 Thus, the Indian Arbitration Act 1996 was enacted to re-cast the law governing
arbitration in India after taking into account the recommendations in UNCITRAL Model Law.
However, unlike the UNCITRAL Model Law, the Indian Arbitration Act 1996 applies to both –
domestic arbitration and international commercial arbitration, i.e., where at least one party is not
an Indian national and also to arbitrations where all parties are Indian nationals.112
The Indian Arbitration Act, 1996 is divided into four parts. Part I (i.e. Sections 1 to
43) is headed ‘Arbitration’; Part II is headed ‘Enforcement of Certain Foreign Awards’ (i.e. §§
105
Protocol on Arbitration Clauses, 24 September, 1923, 27 League of Nation Treaty Series 157.
106
Convention on Execution of Foreign Awards,26 September, 1927, 92 League of Nations Treaty Series 301.
107
New York Convention on the Recognition and Enforcement of Foreign Awards, 10 June 1958, 330 UNTS 3.
108
O.P. MALHOTRA, THE LAW & PRACTICE OF ARBITRATION AND CONCILIATION 1569-1572 (Indu Malhotra, 3rd ed.,
2015).
109
BALCO, supra note 117, ¶ 68.
110
The Arbitration and Conciliation Act, 1996, Preamble; LCI: Report 176, supra note 117, ¶176.5; BALCO, supra
note 117, ¶ 68.
111
BALCO, supra note 117, ¶ 68; The Arbitration and Conciliation Act, 1996, Preamble.
112
LCI: Report 176, supra note 117, ¶176.5; Konkan Railways Corpn. And Others v. Mehul Constructions Co. (2000)
7 SCC 201, ¶ 4.
44-60); Part III is headed ‘Conciliation’ (i.e. §§ 61-81) and Part IV being supplementary provisions
(i.e. §§ 82-86). 113 Since Part III and IV of the Indian Arbitration Act, 1996, do not contain
provisions specifically dealing with arbitration, the author will only deal with Part I and Part II of
the Indian Arbitration Act, 1996.
Part I titled ‘Arbitration’ comprises of two categories of provisions. The first

category regulates the conduct of arbitration proceedings- composition of arbitral tribunal, 114
jurisdiction of arbitral tribunals, 115 pleadings, 116 evidence, 117 making of arbitral awards and
termination of proceedings 118 et al., whereas the second category are ancillary provisions that
support the arbitral process – grant of interim measures prior to constitution of arbitral tribunal,119
assistance of courts for taking evidence,120 setting aside of the arbitral award121 et al.. Thus, Part I
of the Indian Arbitration Act deals with regulation of all stages of arbitration. On the other hand,
Part II titled ‘Enforcement of Certain Foreign Awards’ does not contain any provisions regulating
the conduct of arbitration proceedings or setting aside awards. It merely contains provisions
relating to enforcement and recognition of foreign awards under the New York Convention and
the Geneva Convention.122
In Bharat Aluminum v. Kaiser Aluminum Technical Services Ltd.,123 the Supreme

Court of India held that Part I and Part II of the Act are mutually exclusive of each other, apart
from a few provisions. Further, the Court held that Part I would be mandatorily applicable to all
arbitrations seated in India whereas Part II will only apply to enforcement of foreign awards seated
outside India. Thus, the Indian Arbitration Act, 1996, follows the territoriality principle and the
‘seat’ is deemed to be the centre of gravity under the Indian Arbitration Act 1996.124
113
Rohan Tigadi, The Ghost of Implied Exclusion and Other Related Issues, 12(2) ASIAN INTERNATIONAL
ARBITRATION JOURNAL 183 (2016).
114
The Arbitration and Conciliation Act, 1996, § 10-15.
115
The Arbitration and Conciliation Act, 1996, § 16, 17.
116
The Arbitration and Conciliation Act, 1996, § 23.
117
The Arbitration and Conciliation Act, 1996, §§ 26, 27.
118
The Arbitration and Conciliation Act, 1996, Chapter VI.
119
120
121
The Arbitration and Conciliation Act, 1996, §§ 35, 36.
122
Balco, supra note 117, ¶¶ 122-124.
123
Bharat Aluminum v. Kaiser Aluminum Technical Services Ltd. (2012) 9 SCC 552, ¶¶ 122-124.
124
Tigadi, supra note 126, 183.
In respect of arbitrability of a dispute, §2(3) of the Indian Arbitration Act, 1996,
stipulates that Part I of the enactment “shall not affect any other law for the time being in force by
virtue of which certain disputes may not be submitted to arbitration”. However, there is no specific
provision either in Part I or Part II of the Indian Arbitration Act, 1996, setting out any criteria or
category of disputes – civil or commercial – that would be regarded as ‘inarbitrable’ under the laws
of India.125 However, the issue of arbitrability assumes significance and is of vital importance
while dealing with some of the provisions of the Indian Arbitration Act, 1996. These provisions
have been discussed in brief below:
1. Pre-arbitral judicial interference:
The Indian Arbitration Act, 1996 stipulates various situations wherein the intervention of the Court
is recognized prior to the constitution of the arbitral tribunal.126
a. Domestic seated arbitrations
In case of Indian-seated arbitrations, §8 of the Indian Arbitration Act, 1996,

requires a judicial authority seized of an action which is the subject-matter of arbitration agreement,
to refer the parties to arbitration if a party to the arbitration agreement applies not later than
submitting the first statement on the substance of the dispute. Further, §11 of the Indian Arbitration
Act, 1996, empowers certain institutions such as the High Courts or the Supreme Court of India to
appoint arbitrators if the procedure for appointment of arbitrator in the arbitration agreement fails.
While there is no express requirement in both these provisions requiring courts or

other judicial authorities to determine the arbitrability of the subject-matter of the dispute, they
usually pronounce on the arbitrability or non-arbitrability of the dispute. 127 In Booz Allen and
Hamilton Inc. v. SBI Home Finance Limited,128 the Supreme Court of India seems to have taken a
view that in case of an application for appointment of an arbitrator under §11 of the Indian
Arbitration Act, 1996, the issue of “arbitrability” should be left to the arbitral tribunal for
125
A. Ayyasamy v. P Paramasivam & Ors., (2016) 10 SCC 386, ¶33 (per D.Y. Chandrachud J.).
126
Law Commission of India, Amendments to Arbitration and Conciliation Act, 1996, Report No. 246, 28-30, (August
2014).
127
See generally A. Ayyaswamy v. A Paramasivam & Ors., (2016) 10 SCC 386, ¶ 13 (per Sikri J.); Haryana Telecom
Ltd. v. Sterlite Industries (India) Ltd., (1999) 5 SCC 688, ¶ 4-5; Booz Allen and Hamilton Inc. v. SBI Home Finance
Limited and Others (2011) 5 SCC 532; Swiss Timing Limited v. Commonwealth Games 2010 Organizing Committee,
(2014) 6 SCC 677.
128
Booz Allen and Hamilton Inc v. SBI Home Finance Limited and Others (2011) 5 SCC 532, ¶ 32.
determination. The author disagrees with such a differential approach being followed in relation
to proceedings under §8 and §11 of the Indian Arbitration Act, 1996. First, since §8 and §11
proceedings constitute pre-arbitral judicial interference, there is no reason why differential
approach has to be adopted in case of each of these provisions. Second, if one carefully examines
the text of §8 and §11 of the Indian Arbitration Act, 1996, there is no express language in these
provisions suggesting that the Courts and judicial authorities have the power to adjudicate on
whether the dispute is capable of settlement by arbitration. In fact, according to the author, courts
and judicial authorities derive the power to determine ‘arbitrability’ of the dispute in case of §8
and §11 proceedings from §2(3) of the Indian Arbitration Act, 1996. This provision provides that
any law that renders any dispute incapable of settlement by arbitration will have overriding effect
over the provisions of Part I of the Indian Arbitration Act, 1996 (Part I includes §8 and §11). Thus,
given the source of the power to determine ‘arbitrability’ stems from §2(3) of the Indian Arbitration
Act, there is no reason as to why the issue of “arbitrability” should be left to arbitral tribunal for
determination in case of proceedings under §11, unlike the proceedings under §8 of the Indian
Arbitration Act, 1996.
b. Foreign-seated arbitrations
In case of foreign seated arbitrations, §45 of the Indian Arbitration Act, 1996,
requires courts and other judicial authorities to refer the parties to arbitration if the subject matter
of the dispute is covered by the arbitration agreement and is capable of settlement by arbitration.129
Thus, before referring the parties to arbitration, the Courts and other judicial authorities necessarily
undertake an enquiry regarding the arbitrability of the subject-matter of the dispute.130
2. Arbitral proceedings:
§16 of the Indian Arbitration Act, 1996 empowers the arbitral tribunal seated in
India to rule on its jurisdiction.131 Thus, it is open to any party to such arbitration proceedings to
challenge the jurisdiction of the arbitral tribunal on the ground that the subject-matter of the
arbitration is not capable of settlement by arbitration. Any party aggrieved by rejection of such a
129
The Arbitration and Conciliation Act, 1996, §§ 44, 45 read with Schedule I, Art. II.
130
Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. & Others, (2013) 1 SCC 641, ¶ 64.
131
The Arbitration and Conciliation Act, 1996, § 16(1).
plea of non-arbitrability can make an application for setting aside the award in terms of Section 34
of the Indian Arbitration Act, 1996.132
3. Post award proceedings:
The issue of arbitrability also assumes significance during enforcement

proceedings and setting aside of awards. Under the Indian Arbitration Act, 1996, an arbitral award
may be set aside or refused enforcement if the subject-matter of dispute is not capable of settlement
by arbitration under the laws of India.133
The next section will examine the general tests applied by courts and judicial
authorities in India to determine whether the subject-matter of the dispute is capable of settlement
by arbitration.
B. PRINCIPLES GOVERNING ARBITRABILITY OF DISPUTES UNDER THE INDIAN

ARBITRATION ACT, 1996
The Indian Arbitration Act, 1996 does not lay down any tests or guidelines to
determine whether any dispute – civil or commercial – is capable of settlement by arbitration. It is
not at all surprising since there is no agreement, either internationally or otherwise, about what
arbitrability entails, or about what kind of subject-matter or what kind of disputes, fall within one
or other of the various understanding of the concept.134
Normally, any dispute, civil or commercial, 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 tribunal is excluded either expressly or by necessary
implication.135
In Booz Allen and Hamilton Inc. v. SBI Home Finance,136 the Supreme Court of
India held that – generally and traditionally, all disputes relating to rights in personam were
132
133
The Arbitration and Conciliation Act, 1996, § 34(2)(b)(i); The Arbitration and Conciliation Act, 1996, § 48(2)(a).
134
MICHAEL J. MUSTILL & STEWART BOYD, COMMERCIAL ARBITRATION: 2001 COMPANION VOLUME TO THE SECOND
EDITION 71 (2nd Ed., 1989).
135
Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others, (2011) 5 SCC 532, ¶ 35; A. Ayyaswamy
v. A Paramasivam & Ors. (2016) 10 SCC 386, ¶ 29 (per D.Y. Chandrachud J.).
136
Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others, (2011) 5 SCC 532, ¶ 35-38
considered to amenable to arbitration; and all disputes relating to right in rem were required to be
adjudicated by courts and public tribunals and hence inarbitrable. A right in rem is a right
exercisable against the world at large whereas a right in personam is an interest solely against
specific individuals. Thus, disputes relating to (i) criminal offences; (ii) matrimonial matters
relating to divorce, judicial separation, restitution of conjugal rights etc.; (iii) insolvency and
winding-up proceedings; (iv) testamentary matters, such as grant of probate, letters of
administration and succession certificates; and (v) intellectual property are regarded as
inarbitrable. 137 This is because a decision/judgment under any of these proceedings generally
determines the condition or status of the person or property not only vis-à-vis the parties to the
dispute, but against the world at large (i.e. non-parties). Therefore, arbitration being a consentbased
dispute resolution mechanism is regarded as unsuitable for deciding actions in rem because it
affects the rights of persons not parties to the arbitration.
Further, Dr. D Y Chandrachud J. in his supplementing opinion in A. Ayyasamy v.

A. Paramasivam 138 observed that disputes which are within the exclusive jurisdiction of
specialized tribunals to the exclusion of ordinary civil courts in pursuance of a specific social
objective may also be inarbitrable under the Indian Arbitration Act, 1996. For instance, disputes
arising out of rent control legislations and consumer protections laws are reserved for exclusive
adjudication by public forums and courts in pursuit of certain specific social and welfare
objectives.139
Additionally, courts in India while determining the arbitrability of a dispute have

also evaluated whether the arbitral tribunal is capable of granting the reliefs prayed by the
parties.140 In this regard, it is pertinent to note that in case of Indian-seated arbitrations, the arbitral
tribunals do not have the power to provide equitable relief unless they are expressly authorised by
the parties.141 While this may not be an issue while dealing with disputes being adjudicated in
ordinary courts, it is of vital importance when the subject matter of the arbitration agreement is a
137
Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others, (2011) 5 SCC 532, ¶ 36; A. Ayyaswamy
v. A Paramasivam & Ors. (2016) 10 SCC 386, ¶ 14.
138
A. Ayyaswamy v. A Paramasivam & Ors. (2016) 10 SCC 386, ¶ 38.
139
A. Ayyaswamy v. A Paramasivam & Ors. (2016) 10 SCC 386, ¶¶ 36-38; Natraj Studios (P) Ltd v. Navrang Studios
(1981) 2 SCR 466; Skypak Courier Ltd. v. Tata Chemical Ltd. (2000) 5 SCC 294; National Seeds Corporation Ltd. v.
M. Madhusudhan Reddy, (2012) 2 SCC 506.
140
Rakesh Malhotra v. Rajender Kumar Malhotra (2015) 2 Comp LJ 288 (Bom.).
141
dispute that lies before equitable forums such as NCLT. In such a scenario, courts and judicial
authorities in India usually demonstrate disinclination towards denuding the parties of their rights
solely on account of an arbitral tribunal being chosen as a forum to adjudicate disputes. Instead,
they refuse to refer the parties to arbitration so as to retain wide and extensive equitable powers to
do complete justice in the matter.
Thus, broadly speaking, disputes which (i) pertain to rights in rem; (ii) fall within
the exclusive jurisdiction of specialized tribunals to the exclusion of ordinary courts in pursuance
of a specialized objective; or (iii) lack effective remedies when adjudicated by arbitral tribunal are
generally regarded as inarbitrable under the Indian Arbitration Act, 1996. The next part will
examine the arbitrability of oppression, mismanagement and unfair prejudice claims in India.
C. ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND UNFAIR PREJUDICE

CLAIMS IN INDIA
As noticed earlier, the issue of arbitrability of the subject-matter of the dispute may
arise in (i) at the pre-arbitral stage; (ii) during arbitration proceedings; or (iii) in post award
proceedings. The author has not come across any reported judgments wherein the issue of
arbitrability of oppression, mismanagement and prejudice claims has been raised (i) before an
arbitral tribunal under §16 to oust its jurisdiction (i.e. during arbitration proceedings); or (ii) for
setting aside or refusing enforcement of arbitral awards (i.e. post award proceedings). Almost all
the challenges relating to arbitrability of the subject-matter of the dispute arise during the
prearbitral stage. Typically, the party aggrieved by oppressive, prejudicial behavior or
mismanagement approaches the NCLT seeking a plethora of reliefs. As a counterblast to these
allegations, the other party moves an application either under §8 or §45 of the Indian Arbitration
Act, 1996 (depending on whether the arbitration is India-seated or foreign-seated) before the NCLT
seeking reference of the dispute to arbitration.142 Therefore, the issue of arbitrability of oppression,
mismanagement and prejudice claims has been determined in Indian jurisprudence solely from the
standpoint of proceedings under §8 and §45 of the Indian Arbitration Act, 1996.
While deciding these applications, courts and judicial authorities in India have
142
See generally Rakesh Malhotra v. Rajender Kumar Malhotra, (2015) 2 CompLJ 288 (Bom.); Das Lagerway Wind
Turbines Ltd. v. Cynosure Investments Private Limited, 2008(1) ArbLR 97 (Madras); Sporting Pastime India Limited
& K K Shivakumar v. Kashturi and Sons Limited, [2007] 141 Comp Cas. 111 (Madras).
taken a view that oppression, mismanagement and unfair prejudice claims, are usually not capable
of settlement by arbitration because of the following reasons:
1. Remedies Test:
Ordinarily, an arbitral tribunal could adjudicate on all disputes that could be

adjudicated by regular civil courts. However, claims relating to oppression and mismanagement
stand on a different footing because the NCLT – the forum adjudicating oppression and
mismanagement claims – has been vested with special statutory powers that were not exercisable
by regular civil courts. For instance, the NCLT can pass orders to regulate the affairs of the
company, supplant the management, assess damages on delinquent directors, managers and
officers of the company for fraudulent conduct, misfeasance, fraud, etc., or any other relief deemed
fit to bring an end to oppression and mismanagement. Thus, given the fact that an arbitral tribunal
does not enjoy such wide powers, courts and tribunals in India usually treat oppression,
mismanagement and prejudice claims as incapable of settlement by arbitration.143 In this regard, it
may be noted that, an arbitral tribunal, being a creature of a contract, can only adjudicate disputes
in accordance with the terms of the contract.157 Further, in case of India seated arbitrations, the
arbitral tribunal cannot adjudicate dispute applying principles of equity unless such powers are
specifically conferred by the parties.144
Interestingly, in one reported judgment, a NCLT bench seems to have taken a view
that the jurisdiction of the NCLT/NCLAT cannot be ousted even with the consent of the parties.145
Therefore, any agreement that seeks to oust the jurisdiction of the NCLT/NCLAT is void to that
extent.
2. Bifurcation of Claims Test
While the Indian Arbitration Act, 1996, requires a judicial authority seized of an
action covered by the arbitration agreement to be mandatorily referred to arbitration, it does not
permit bifurcation of claims.146 In this regard, it is pertinent to note that, in terms of §8 and §45 of
143
See generally Jugnar Processos Pvt. Ltd v. Rohtas Jugalkishore Gupta & Ors., MANU/CL/0082/2014; Rakesh
Malhotra v. Rajender Kumar Malhotra (2015) 2 CompLJ 288 (Bom.). 157 See generally The Arbitration and
Conciliation Act, 1996, § 28(3).
144
See generally The Arbitration and Conciliation Act, 1996, § 28(2).
145
Punita Khatter v. Explorers Travels and Tours Private Limited, (2017) 136 CLA 0034, ¶¶ 10-11.
146
Sukanya Holdings (P) Ltd.v. Jayesh H Pandya and Another, (2003) 5 SCC 531, ¶¶ 12-17.
the Indian Arbitration Act, judicial authorities in India are under an obligation to mandatorily refer
the parties to arbitration if the subject matter of the dispute is covered by the arbitration
agreement.147 However, if the subject-matter of the dispute is partially covered by the arbitration
agreement, there is no provision in the Indian Arbitration Act, 1996, requiring the claim covered
by the arbitration agreement to be bifurcated and referred to arbitration. 148 Thus, the Indian
Arbitration Act, 1996, does not permit bifurcation of claims or splitting of the parties for reference
to arbitration under §8 and §45 of the Indian Arbitration Act, 1996. Given this settled position of
law, courts and other judicial authorities in India refuse reference of the dispute to arbitration if (i)
the subject-matter of the oppression, mismanagement and prejudice petition is not wholly covered
by the arbitration agreement; or (ii) there is no commonality between the parties to the arbitration
agreement and parties to the petition.149
However, Courts and judicial authorities are sensitive to the fact that parties may
resort to filing vexatious, malicious and ‘dressed-up’ oppression, mismanagement and prejudice
petitions to oust bona fide arbitration clauses.164 Thus, they have cautioned against a straight-jacket
formula being adopted while adjudicating §8 or §45 applications. In this regard, it is pertinent to
note that a two-pronged test could be deciphered from the decisions of Indian Courts and judicial
authorities for determining whether an oppression, mismanagement and unfair prejudice claim has
been initiated bona fide. They are:
1. Necessary Parties Test
As noted earlier, courts and judicial authorities will ordinarily refuse to refer the
disputes to arbitration if there is no commonality between the parties to the dispute and parties to
the arbitration agreement. Thus, in many oppression, mismanagement and prejudice claims, legal
strangers to the cause of action are added as parties to defeat the arbitration agreement. For instance
in some cases, the directors of the company, who are not parties to the arbitration agreement, are
added as parties to the oppression, mismanagement and prejudice petition solely to avoid reference
147
P Anand Gajapathi Raju v. PVG Raju, (2000) 4 SCC 539, ¶ 8; Hindustan Petroleum Corporation Limited v.
Pinkcity Midway Petroleums, (2003) 6 SCC 503, ¶¶ 13-16; Chloro Controls India Private Limited v. Severn Trent
Water Purification Inc. and Others, (2013) 1 SCC 641, ¶ 69.
148
Sukanya Holdings (P) Limited v. Jayesh H Pandya and Another, (2003) 5 SCC 531, ¶¶ 12-17.
149
See generally Punita Khatter v. Explorers Travels and Tours Private Limited, (2017) 136 CLA 0034, ¶ 10-11. 164
Rakesh Malhotra v. Rajender Kumar Malhotra, (2015) 2 CompLJ 288 (Bom.); Siddharth Gupta v. Getit Infoservices
Private Limited and Ors. MANU/CL/0010/2016.
of the dispute to arbitration. In order to check such despicable methods adopted by some of the
parties, courts and judicial authorities in India have adopted the ‘necessary parties’ test. 150 As per
this test, the courts and judicial authorities examine whether (i) an effective order can be passed in
an oppression, mismanagement and prejudice petition; and (ii) a complete and final determination
be made without the presence of the party which is not party to the arbitration agreement. Unless
a party to the oppression, mismanagement and prejudice dispute (not party to the arbitration
agreement) satisfies the ‘necessary parties’ test, the dispute will be referred to arbitration.
However, the legality of the ‘necessary parties’ test is debatable. In this regard, it
is pertinent to note that, the Law Commission of India had recommended an amendment to §8 of
the Indian Arbitration Act, 1996, which in effect gave express legislative sanction to the ‘necessary
parties’ test.151 However, the recommendation of the Law Commission of India was not accepted.
Given the fact that the proposed amendment was neither clarificatory nor intended to codify
existing law, one could argue that the ‘necessary parties’ test is not sanctioned by the Indian
Arbitration Act, 1996. Thus, if there is no commonality between the parties to the dispute and the
parties to the arbitration agreement, the oppression, mismanagement and unfair prejudice petition
need not be referred to arbitration.
2. Totality test
While examining whether the petition is dressed up or vexatious, courts and judicial
authorities in India have opined that one needs to read the petition as a whole with specific
emphasis on the grounds and the reliefs claimed in the petition.152 If on such holistic analysis, the
NCLT/NCLAT comes to the conclusion that the reliefs in the petition could be granted by an
arbitral tribunal and the petition was primarily intended to defeat the arbitration agreement, the
parties should be referred to arbitration.153
Thus, from the aforesaid analysis, it is clear that disputes relating to oppression,
150
See generally, Siddharth Gupta v. Getit Infoservices Private Limited and Ors., MANU/CL/0010/2016 (Company
Law Board, New Delhi).
151
Law Commission of India, Amendments to Arbitration and Conciliation Act, 1996, Report No. 246, 42, 43 (August
2014).
152
See Rakesh Malhotra v. Rajender Kumar Malhotra, (2015) 2 CompLJ 288 (Bom.) ¶ 86.
153
Rakesh Malhotra v. Rajender Kumar Malhotra, (2015) 2 CompLJ 288 (Bom.); Jugnar Processos Pvt. Ltd v. Rohtas
Jugalkishore Gupta & Ors., MANU/CL/0082/2014.
mismanagement and unfair prejudice are considered to be inarbitrable in India because (i)
NCLT/NCLAT are vested with specialized statutory powers that are not ordinarily exercisable by
an arbitral tribunal; and (ii) the Indian Arbitration Act, 1996 does not permit bifurcation of the
dispute or mandate reference of the parties to arbitration when there is no commonality of parties.
The next Part of the paper will examine the position of arbitrability of oppression,
prejudice and mismanagement disputes in Singapore and United Kingdom to determine whether
developments in these jurisdictions warrant a re-think of the issue in India.
CONCLUSION
At the outset, it may be noted that §2(3) read with §44 of the Indian Arbitration Act,
1996, gives precedence to any law that renders certain disputes incapable of being submitted to
arbitration. Thus, before determining whether oppression, mismanagement and prejudice claims
are arbitrable under the Indian Arbitration Act, 1996, applying the general tests of ‘arbitrability’
laid down by courts, one needs to evaluate whether there are any express or implied restrictions
under the Indian Companies Act, 2013, that renders such claims inarbitrable. The reference to
Indian Companies Act, 2013, is but natural considering that the entire scheme relating to
oppression, mismanagement and prejudice claims is contained in the said enactment. Since there
is no express bar under the Indian Companies Act, 2013, it is necessary to consider whether there
are any implied restrictions against arbitrability of such claims. While determining whether there
are any implied restrictions on arbitrability of disputes in legislations, Indian courts, as illustrated
above, usually need to examine whether (i) the statute creates any special rights or liability and
further confers exclusive jurisdiction on any tribunals; and (ii) whether remedies normally
associated with arbitration proceedings are prescribed by the said statute. If either of these tests is
satisfied, it is an indication that the statute impliedly prohibits settlement of disputes by arbitration.
In this regard, it may be noted that §430 of the Indian Companies Act, 2013, confers
exclusive jurisdiction on the NCLT/NCLAT to the exclusion of civil courts to adjudicate on any
oppression, mismanagement and unfair prejudice claims. There is no express provision under the
Indian Arbitration Act, 1996, setting out the powers of an arbitral tribunal. However, as shown
previously, Indian courts and judicial authorities have taken a view that an arbitral tribunal can
adjudicate every civil or commercial dispute, either contractual or non-contractual, which can be
decided by the court. Considering that the Indian Companies Act, 2013, bars a civil court from
entertaining any suit or proceedings in relation to oppression, mismanagement or prejudice claims,
one may take a view that it also impliedly results in a bar on settlement of such claims by
arbitration.
Further, the NCLT has been clothed with extensive powers under §242 of the
Companies Act, once it finds that the affairs of the company have been mismanaged or are
conducted in a manner prejudicial or oppressive to some of the members. For instance under
subclause 2(e) and 2(f) of the provision, it can modify, terminate or set aside, any contract between
the company and its managing director, manager or any other person, under sub-clause 2(a) of the
provision, regulate the conduct of the affairs of the company in future, under sub-clause 5 of the
provision – to alter the articles of association, and under sub-clause (m) of the provision, to supplant
the management of the company and pass such orders that it deems just and equitable to bring an
end to the mismanagement, oppressive or prejudicial conduct. All these reliefs are not necessarily
associated with arbitration proceedings as they not only bind the parties to the dispute (rights in
personam), but hold good against the world at large (rights in rem). Therefore, on account of the
aforesaid factors, one may take a view that oppression, mismanagement and prejudice claims are
inarbitrable under Indian law.
However, the Courts and judicial authorities in India must guard against
entertaining any frivolous, vexatious and ‘dressed up’ oppression, prejudice and mismanagement
petitions that are filed by scrupulous parties to avoid arbitration of any bona fide dispute. In order
to thwart such attempts, the NCLT should consider the oppression, mismanagement or prejudice
claim as a whole with specific emphasis on the reliefs sought in the petition. If it comes to the
conclusion that the petition merely seeks enforcement of contractual rights of parties covered by
the arbitration agreement and nothing more, it should refer the parties to arbitration and not abet
circumvention of the arbitration agreement.
Further, as noted earlier, Indian courts and tribunals often refuse to refer disputes
to arbitration because there is no commonality between the parties to the dispute and parties to the
arbitration agreement. In order to prevent such a scenario, any shareholder agreements, investment
agreements or articles of association can include potential respondents in oppression,
mismanagement or prejudice petition as parties to the arbitration agreement. A perusal of the
Indian Companies Act, 2013 from §241 to §244 makes it amply clear that apart from shareholders
and members, even board members, managing director, manager and other officers of the company
could be potential respondents in an oppression, mismanagement or prejudice petition. Therefore,
in the event that oppression, mismanagement or prejudice petition is found to be (i) ‘dressed up’;
(ii) frivolous; (iii) vexatious and (iv) lacks commonality between the parties, it will not act as an
impediment to the matters being referred to arbitration.

Arbitrability of Oppression

Uploaded by

Copyright:

Available Formats

Arbitrability of Oppression

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Arbitrability of Oppression

Uploaded by

Copyright:

Available Formats

PROJECT WORK

ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND PREJUDICE CLAIMS

SUBMITTED TO: SUBMITTED BY:

Ms. Mukta Jangir Vivek Ghalyan (17RU1032)

Assistant Professor Student

School of Law School of Law

Raffles University Raffles University

b. OPPRESSION AND MISMANAGEMENT CLAIMS UNDER THE

a. RELIEF IN CASES OF OPPRESSION, MISMANAGEMENT OR PREJUDICE

a. COMMON INSTANCES OF OPPRESSION, MISMANAGEMENT AND

a. SUMMARY OF LAW OF OPPRESSION AND MISMANAGMENT IN INDIA

6. ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND PREJUDICE

In order to redress the ill-effects of majority opportunism inherent in the “Monarch”

Further, sophisticated minority investors involved in joint venture, private equity,

The enforceability of the said covenants contained in the shareholders’ agreements,

In many instances, the minority shareholders of Indian companies pursue statutory

The purpose of this article is to examine the ‘arbitrability’ of such oppression,

LAW RELATING TO OPPRESSION AND MISMANAGEMENT IN INDIA

These provisions relating to oppression came to be materially incorporated in the Indian

B. OPPRESSION AND MISMANAGEMENT CLAIMS UNDER THE COMPANIES ACT,

1. Relief of ‘Oppression’ under the Indian Companies Act, 2013

In other words, the minority shareholders complaining of “oppression” have to

a. Lord Clyde’s ‘just and equitable test

b. Ebrahmi’s ‘just and equitable’ test

In Ebrahimi v. Westbourne Galleries Limited,46 which was subsequently relied on

1. Loss of substratum of company’s business: A case in which circumstances occur which

2. Deadlock in affairs of the management: A case in which business of the company is

Thus, in order to successfully bring a claim of oppression, the minority shareholders

As noted earlier, the remedy of ‘mismanagement’ is peculiar to Indian companies’

That said, like oppression, mismanagement cannot be reduced to a set of specific

prejudice claims in India.

D. COMMON INSTANCES OF OPPRESSION, MISMANAGEMENT AND PREJUDICE

Unfortunately, unlike in other jurisdictions, there are no detailed statistical studies

1. Exclusion from management

Most of the companies in India continue to be run by business families.88 In many

However, every additional issue of share capital will not be regarded as

3. Mismanagement of company’s assets

E. SUMMARY OF LAW OF OPPRESSION AND MISMANAGMENT IN INDIA

Similarly, in order to successfully prosecute a case of mismanagement, the

ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND PREJUDICE

A. SUMMARY OF LEGAL FRAMEWORK GOVERNING ARBITRATION IN INDIA

Part I titled ‘Arbitration’ comprises of two categories of provisions. The first

In Bharat Aluminum v. Kaiser Aluminum Technical Services Ltd.,123 the Supreme

1. Pre-arbitral judicial interference:

a. Domestic seated arbitrations

In case of Indian-seated arbitrations, §8 of the Indian Arbitration Act, 1996,

While there is no express requirement in both these provisions requiring courts or

3. Post award proceedings:

The issue of arbitrability also assumes significance during enforcement

B. PRINCIPLES GOVERNING ARBITRABILITY OF DISPUTES UNDER THE INDIAN

Normally, any dispute, civil or commercial, contractual or non-contractual, which

Further, Dr. D Y Chandrachud J. in his supplementing opinion in A. Ayyasamy v.

Additionally, courts in India while determining the arbitrability of a dispute have

C. ARBITRABILITY OF OPPRESSION, MISMANAGEMENT AND UNFAIR PREJUDICE

Ordinarily, an arbitral tribunal could adjudicate on all disputes that could be

2. Bifurcation of Claims Test

1. Necessary Parties Test

You might also like