Oppression and mismanagement rights cannot be overridden by arbitration or unilateral board action bypassing articles and statutory transfer procedure.

Arbitration did not bar the statutory oppression and mismanagement remedy under the Companies Act, as the company was not a party to the arbitration and no section 8 application had been made in time. The board's approval of transfer of the petitioners' shares was invalid because the company's articles and mandatory statutory requirements for share transfer were not followed, so the petitioners remained members. The purported reversion of the company's premises to the State and the resulting change in management were also invalid, as the company's assets could not be taken over through unilateral shareholder action or an unauthorised board resolution. The impugned resolutions were set aside and board representation restored.

---

---

Issues: (i) whether the petition was liable to be stayed or dismissed because arbitration proceedings had commenced; (ii) whether the board resolution approving transfer of the petitioners' shares and recording cessation of their nominee directors was valid; (iii) whether the purported reversion of the company's premises to the State and the consequential takeover of management could be sustained.

Issue (i): whether the petition was liable to be stayed or dismissed because arbitration proceedings had commenced.

Analysis: The arbitration clause did not oust the statutory jurisdiction under sections 397 and 398 of the Companies Act, 1956. No application under section 8 of the Arbitration and Conciliation Act, 1996 had been filed before submission of the first statement, and the statutory remedy could not be curtailed by invoking inherent powers or section 5 of that Act. The company was also not a party to the arbitration proceedings, and the reliefs in the two fora were not identical.

Conclusion: The petition was not liable to be stayed or dismissed on the ground of pending arbitration.

Issue (ii): whether the board resolution approving transfer of the petitioners' shares and recording cessation of their nominee directors was valid.

Analysis: The Court held that the contractual documents and the articles had to be read together, but the articles controlled the company's internal action. The board acted only on the State's unilateral letter, without examining whether the preconditions for surrender or transfer of shares had been satisfied. The allotment agreement had not been executed, the Articles required company action before any surrender or expulsion, and statutory compliance for transfer of shares was mandatory. Since the share transfer was not effected in accordance with the Articles or section 108 of the Companies Act, 1956, the basis for treating EIH as having ceased to be a member also failed.

Conclusion: The approval of transfer of shares was invalid, and the petitioners had not ceased to be members of the company.

Issue (iii): whether the purported reversion of the company's premises to the State and the consequential takeover of management could be sustained.

Analysis: The premises were the company's asset and could not be appropriated by a shareholder on the strength of a private arrangement. The board had no authority to consent to transfer of the company's only asset without following the company's articles, corporate procedure, and statutory requirements. Since the petitioners' membership and board rights had not lawfully come to an end, the corresponding exclusion of their nominee directors and the appointment of an executive director in their place also lacked foundation.

Conclusion: The purported reversion of the premises and the consequential takeover of management were invalid.

Final Conclusion: The impugned board action was held oppressive and contrary to law, the resolutions of 7 March 2002 were set aside, the petitioners' membership and board representation were restored, and the company was directed to continue as before the impugned meeting.

Ratio Decidendi: A company cannot be deprived of its shares, management representation, or assets by a unilateral shareholder action or board resolution that bypasses the company's articles and mandatory statutory procedure.

---