2021 (6) TMI 1112 - AT - Companies Law

Seeking a temporary injunction to restrain the Opposite Party No. 1 and 2 (Appellants herein) and any person acting on their behalf from in any manner initiating continuing arbitral proceedings commenced under the purported Drag Notice and purported Conversion Notice - Whether the impugned orders are against the settled principles governing the law on Anti-Arbitration Injunctions? - Whether the impugned orders are ultra virus the scope of Sections 241 and 242 of the Companies Act 2013? Validity of the Order passed by the National Company Law Tribunal in issuing Anti-Arbitration Injunction Order which restrains the Appellants from initiating commencing and continuing of Arbitration proceedings - HELD THAT - In the instant case the Learned NCLT has yet not decided to refer the matter to Arbitration. However both the parties have placed reliance on several cases of the Hon ble Supreme Court on reference to the Arbitral Tribunal. Whether dispute should be referred to Arbitral Tribunal or not this is not the issue in this Appeal. The issues in the Arbitration proceedings are relating to the enforcement of contractual provisions. In contrast the issues in the Investors Petition deals with oppression and mismanagement by Promoter Respondents who are in the majority on the Board of Respondent No. 6 and allegedly abused their majority to the detriment of other Shareholders. The Promoter Respondents have failed to show a commonality of issues between the proceedings. Since the issues raised in the proceedings before the NCLT and Arbitration are distinct and separate there is no question of any commonality of issues within the Investors Petition and Arbitration proceedings. The powers of the NCLT under the Sections 241 and 242 of the Companies Act operate in a different realm compared to an Arbitral Tribunal under the Arbitration and Conciliation Act 1996. The NCLT under the Companies Act is concerned only with the affairs of the Company and does not have the jurisdiction to deal with the issues relating to the enforcement of contractual provisions between the parties. Therefore there does not exist any commonality of issues in the proceedings in the NCLT due to the dressed-up Petition filed by the Promoter Respondents i.e. Promoters petition - It is pertinent to mention that in the Investor s Petition no prayer or relief with respect to the breach of rights pertaining to the conversion notice has been sought by the appellants. This was a subsequent event and not within the scope of the Investor Petition. The fact was merely brought to the attention of the Learned NCLT in the rejoinder to the Investors Petition to demonstrate the conduct of the Promoter Respondents. The Appellant s legitimately exercised their rights under the Arbitration Agreement. Since the issues arising out of the Investors Petition and the Arbitration are distinct a party invoking the jurisdiction of the NCLT and contending oppression and mismanagement under the Companies Act cannot be held to waive its rights to arbitrate a contractual dispute arising out of an Agreement. Even otherwise assuming that the appellants have waived their rights to arbitrate the said determination cannot be made by the NCLT. It can only be decided by an Arbitral Tribunal in keeping with the principles of Kompetenz-kompetenz - There are ample precedents to suggest that averments concerning the maintainability of the Petition and the fact that the action covered in the Petition is subject of an Arbitration Agreement thereby seeking reference to Arbitration raised at the 1st instance i.e. in the response filed by the Respondents qualified as a valid Application in terms of Section 8 of the Act. There is no requirement to file a separate Application to this effect. The impugned Order granting an Anti Arbitration Injunction and further passing an order that Interim Application shall be decided along with Company Petition after disposal of the Company Appeals are arbitrary self-contradictory. The 1st of the impugned Order grants an interim order to understand that the matter would be finally heard on the next date - the illegality is compounded by containing the interim Order endlessly. Therefore such an order is grossly unjust and illegal and cannot be sustained in law. Therefore the impugned orders are against the settled principles governing the law on Anti-Arbitration Injunctions and are ultra virus the scope of Section 241 and 242 of the Companies Act 2013. The impugned orders are against the settled principles that govern Section 8 of the Arbitration and Conciliation Act 1996. Thus the NCLT erred in holding that in the absence of either party filing an Application under Section 8 of the Arbitration and Conciliation Act it would not be able to refer the matter to Arbitration. The NCLT further held that parties cannot be permitted to initiate arbitration ; it is contrary to the settled principles of law which mandates a judicial authority to refer the matter to Arbitration if a valid arbitration agreement existed between the parties - Appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of NCLT to issue Anti-Arbitration Injunction.
2. Commonality of issues between Arbitration proceedings and NCLT proceedings.
3. Waiver of right to arbitrate by the Appellants.
4. Validity of Anti-Arbitration Injunction under Section 241 and 242 of the Companies Act, 2013.
5. Application of Section 8 of the Arbitration and Conciliation Act, 1996.

Issue-wise Detailed Analysis:

1. Jurisdiction of NCLT to issue Anti-Arbitration Injunction:
The NCLT issued an Anti-Arbitration Injunction Order restraining the Appellants from initiating or continuing arbitration proceedings. The Appellants contended that the Arbitral Tribunal has the power to decide its jurisdiction, and the NCLT cannot injunct arbitration proceedings. The NCLT, while claiming to be a specialized forum, effectively injuncted another Tribunal, which is not subordinate to it, from exercising jurisdiction conferred upon it by a special Act. This action is contrary to Section 41(b) of the Specific Relief Act, 1963, which states that no court can grant an injunction to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought.

2. Commonality of issues between Arbitration proceedings and NCLT proceedings:
The Promoter Respondents argued that there was substantial commonality between the Arbitration proceedings and the Company Petitions pending before the NCLT. However, the Appellants contended that the Promoters Petition under Sections 241 and 242 of the Companies Act 2013 is a dressed-up petition wherein the Promoter Respondents have sought reliefs regarding matters that are contractual in nature. The issues in the Arbitration proceedings relate to the enforcement of contractual provisions, while the issues in the Investors Petition deal with oppression and mismanagement by Promoter Respondents. Therefore, there is no commonality of issues within the Promoters Petition and the Arbitration proceedings.

3. Waiver of right to arbitrate by the Appellants:
The Promoter Respondents argued that the Appellants waived their right to arbitrate by firstly filing a Petition under Sections 241 and 242 of the Companies Act, 2013 before the NCLT and then submitting to the jurisdiction of the NCLT in the Promoter's Petition. However, the Appellants contended that they challenged the Promoters Petition's maintainability at the very first stage and prayed that the disputes raised in this Petition be referred to Arbitration. The Appellants in the Investors Petition raised disputes relating to the management of the Respondent No. 6 Company, which is distinct from the dispute raised in the Arbitration proceedings. Therefore, the determination of waiver of the right to arbitrate can only be made by an Arbitral Tribunal in keeping with the principles of Kompetenz-kompetenz.

4. Validity of Anti-Arbitration Injunction under Section 241 and 242 of the Companies Act, 2013:
The NCLT's powers under Sections 241 and 242 of the Companies Act operate in a different realm compared to an Arbitral Tribunal under the Arbitration and Conciliation Act, 1996. The NCLT under the Companies Act is concerned only with the affairs of the Company and does not have the jurisdiction to deal with the issues relating to the enforcement of contractual provisions between the parties. Therefore, the Anti-Arbitration Injunction issued by the NCLT is ultra vires the scope of Sections 241 and 242 of the Companies Act, 2013.

5. Application of Section 8 of the Arbitration and Conciliation Act, 1996:
The NCLT observed that there was no standalone application under Section 8 of the Arbitration and Conciliation Act, 1996. However, the Appellants contended that they had made a prayer to refer the matter to Arbitration in their statement of objections to the Promoters Petition. There are ample precedents to suggest that averments concerning the maintainability of the Petition and the fact that the action covered in the Petition is subject to an Arbitration Agreement qualify as a valid application in terms of Section 8 of the Act. Therefore, the NCLT erred in holding that in the absence of either party filing an application under Section 8 of the Arbitration and Conciliation Act, it would not be able to refer the matter to Arbitration.

Conclusion:
The impugned orders passed by the NCLT granting an Anti-Arbitration Injunction are arbitrary, self-contradictory, and against the settled principles governing the law on Anti-Arbitration Injunctions. The NCLT's actions are ultra vires the scope of Sections 241 and 242 of the Companies Act, 2013. The Appeal is allowed, and the impugned orders are set aside. No order as to costs.