The arbitrability of disputes for which statutory remedy is provided for becomes a difficult question to answer. Arbitrability refer to whether a dispute could be subjected to arbitration or not.[1] Section 242 and 243 of the Companies Act, 1956 are analogous to sections 397, 398 and 402 of the Companies Act, 1956 which deals with the issue of oppression and mismanagement. In particular, section 242 of the CA, 2013 analogous to section 402 of the CA, 1956 lists down the various remedies that could be provided by the NCLT (formerly known as the Company Law Board). Section 242 gives power to the NCLT to adjudicate upon oppression and mismanagement disputes. Thus, by literal interpretation of this provision, one could state that since the jurisdiction to adjudicate upon O&M disputes is conferred upon the NCLT, this automatically ousts the jurisdiction of the private arbitral tribunal[2]. Well, the solution to this proposition is not this simple and hence resulted in abundance of jurisprudence in this area. Further, section 8 and 45 of the Act, does not explicitly require the arbitrability of a dispute as a prerequisite to refer a particular dispute to arbitration. The matter should be such that an arbitral tribunal is competent to adjudicate upon[3]. This question of law has been further muddled by the decision in the case of Rakesh Malhotra[4].The trajectory of the jurisprudence involved in this question is as follows:
PRE-BOOZ ALLEN ERA:
The Booz Allen decision specifically laid down the test of determination of arbitrability. But, before this decision, any issue related to O&M were handed over to the Company Law Board because of the express statutory conferment. Moreover, if the issue could be decided without reference to the shareholder agreements as it arose from the rights of the members under the 1956/2013 Act or Articles of Association, then the matter would be necessarily handed over to the Company Law Board. Only pure contractual matters could be adjudicated by the Arbitral Tribunal. Thus, O&M matters were kept completely outside the radar of arbitration.
THE BOOZ-ALLEN DECISION:
The Supreme Court in this decision was dealing with the scope of section 8 of the Act. It was examining whether the relief sought in the suit could be granted by an arbitral tribunal. The Court then relied on the case of Haryana Telecom and stated that since winding up of a company involved third party rights, the same should not be amenable to arbitration. Therefore, this decision gave birth to the test f arbitrability in the Booz Allen case. The Court stated that any matter which involved a right in rem could not be subjected to arbitration whereas a right in personam could be. However, this wasn’t a rigid rule and if there were subordinate rights in personam involved in the larger right in rm, the same could be arbitrable. But, bifurcation of causes of action is strictly prohibited. Thus, Booz Allen solidified the position in the pre-booz allen era.
THE RAKESH MALHOTRA FIASCO:
This case complicated the question at hand by providing an exception to the Booz-Allen Test. It stated that though the O&M disputes are non-arbitrable yet if the Court finds the petition to be malafide, vexatious and dressed up to avoid arbitration, then it can certainly be arbitrable. It is the prerogative of the Company Law Board to examine the language and wording of the petition which might sometimes be smartly drafted to outwit the judge. Thus, this decision contributed to a plethora subjectivity in the question of arbitrability of O&M disputes.
CONCLUSION:
The current position of law is that unless malice is spotted, O&M disputes aren’t amenable to arbitration. But this decision has been criticized on very large scale. Firstly, O&M disputes need not necessarily involve a right in rem question. The O&M disputes can simply arise out of a contractual agreement between the shareholders. Thus, the blanket ban on the arbitrability of O&M disputes should be thought over.
[1] V. Reddy & V. Nagaraj, Arbitrability: The Indian Perspective, 19(2) Journal of International Arbitration 117, 119 (2002).
[2] Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd, (1999) 5 SCC 688; Das Lager Way Wind Turbines P Ltd. v. Cynosure Investments P Ltd., (2007) 80 CLA 211 (Mad); O P Gupta v. Sfflv General Finance (P) Ltd., [1977] 47 CompCas 279 (Del); Altek Lammertz Needles Limited v. Lammertz Industrienadel GmbH, [2006] 129 CompCas 108 (CLB).
[3] Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 ,Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd, (1999) 5 SCC 688).
[4] Rakesh Malhotra v. Rajinder Malhotra, (2015) 2 CompLJ 288 (Bom).
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