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Issues: (i) Whether a petition alleging oppression, mismanagement, prejudice to the company and public interest under Sections 397, 398 and 402 of the Companies Act, 1956 could be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996; (ii) Whether the arbitral tribunal could grant the reliefs claimed in such a petition and whether part of the dispute could be split and referred to arbitration; (iii) Whether the company and the directors impleaded in their fiduciary capacity, but not as signatories to the arbitration agreement, could be treated as parties common to the arbitration agreement.
Issue (i): Whether a petition alleging oppression, mismanagement, prejudice to the company and public interest under Sections 397, 398 and 402 of the Companies Act, 1956 could be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
Analysis: Proceedings under Sections 397 and 398 are statutory proceedings with special and exclusive forum-based remedies. The jurisdiction under these provisions is not merely contractual, but extends to protection of the company and public interest, with mandatory notice to the Central Government and wide remedial powers under Section 402. Such matters are reserved for the statutory forum and are not displaced by an arbitration clause merely because some underlying disputes may arise out of agreements between the parties.
Conclusion: The petition under Sections 397, 398 and 402 was not referable to arbitration under Section 8.
Issue (ii): Whether the arbitral tribunal could grant the reliefs claimed in such a petition and whether part of the dispute could be split and referred to arbitration.
Analysis: The reliefs sought included declarations invalidating corporate acts, restoration of amounts allegedly siphoned, setting aside resolutions, and other measures that fall within the wide preventive and corrective powers of the statutory forum. An arbitrator cannot exercise powers reserved by statute to the Company Law Board, nor can the subject matter be bifurcated so that only a part of the controversy is sent to arbitration when the overall action is one composite statutory complaint.
Conclusion: The arbitral tribunal was not competent to grant the reliefs, and partial reference or bifurcation was impermissible.
Issue (iii): Whether the company and the directors impleaded in their fiduciary capacity, but not as signatories to the arbitration agreement, could be treated as parties common to the arbitration agreement.
Analysis: The arbitration clause in the shareholders' agreement was confined to disputes between the promoters/shareholders. The company was not shown to be a party to the arbitration agreement in the relevant sense, and the directors were impleaded because of their role and alleged fiduciary breaches in the statutory complaint. Necessary parties to a derivative and oppression proceeding cannot be forced into arbitration without consent merely because they are connected with the underlying transaction.
Conclusion: There was no sufficient commonality of parties to attract Section 8.
Final Conclusion: The statutory oppression and mismanagement complaint remained within the exclusive domain of the Company Law Board, and the refusal to refer the parties to arbitration was upheld.
Ratio Decidendi: A dispute arising from statutory oppression and mismanagement proceedings, where the forum is expressly vested with exclusive powers and wide remedial authority affecting the company and public interest, is non-arbitrable under Section 8 even if related contracts contain an arbitration clause; the court must also refuse bifurcation and reference of only part of such a composite statutory dispute.
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