2018 (2) TMI 26 - HC - Companies Law

Court stays NCLT order, allows company petition to proceed.

The court ruled in favor of the petitioners, staying the NCLT's order and allowing it to proceed independently with the company petition. It emphasized ... Challenging the impugned order passed by the NCLT in arbitration proceedings - Held that:- Though the statutory remedy of filing appeal under Section 421 of the Companies Act is available to the petitioners for challenging the impugned order passed by the NCLT, the said remedy would not be effective or efficacious alternative remedy in the facts and circumstances of the case. As stated herein above the NCLT vide the impugned order has refused to exercise the jurisdiction vested in it under the Companies Act by postponing its decision on the reliefs claimed by the petitioners in the Company Petition filed under the Companies Act till the final outcome of the arbitration proceedings pending between the respondent inter se though the petitioners are not the parties to the said arbitration proceedings. The NCLT has also travelled beyond its jurisdiction by making the reliefs claimed in the Company Petition by the petitioners, dependent on the outcome of such arbitration proceedings. Prima facie there being no arbitration agreement existing between the concerned petitioners and the concerned respondents for resolving the disputes in respect of the shares in question, and the petitioners being not the party to the arbitration proceedings pending before the respondent No.18, the NCLT could not have passed the impugned order holding that the decision on the reliefs “C” “D” E” and “I” shall depend upon the findings of arbitral tribunal regarding the restrictions contemplated on the transfer of shares in SHA and its binding nature, and that the decision on reliefs relating to “A” “B” “F” “G” “H” “J” and “K” is postponed till the decision of the arbitral tribunal. The Court is at loss to understand as to how the findings recorded in the arbitration proceedings pending between the respondents inter se could be made binding to the petitioners who are the strangers to the arbitration agreement and the proceedings. The NCLT is bound to decide the issues raised in the company petition independently and in accordance with law. By passing the impugned order, the NCLT has clearly abdicated its statutory duty cast on it and has refused to exercise the jurisdiction vested in it under the Companies Act. Issues Involved:1. Maintainability of the petition under Article 226/227 of the Constitution of India.2. Jurisdiction of the Arbitral Tribunal over matters affecting petitioners not party to the arbitration agreement.3. NCLT's decision to defer its ruling pending the outcome of arbitration proceedings.4. Petitioners' challenge to the cessation of voting rights and other actions by the respondent company.Detailed Analysis:1. Maintainability of the Petition under Article 226/227:The petitioners challenged the NCLT's order dated 13.7.2017 under Article 226/227, questioning its jurisdiction and decision to defer its ruling until the arbitration proceedings concluded. The petitioners argued that the NCLT refused to exercise its jurisdiction under the Companies Act, 2013, by making its decision contingent upon arbitration outcomes where the petitioners were not parties. The court acknowledged that while statutory remedies like filing an appeal under Section 421 of the Companies Act exist, they may not be effective or efficacious in this case. The court cited precedents where the High Court could intervene under Article 226/227 if the statutory authority acted beyond its jurisdiction or refused to exercise it.2. Jurisdiction of the Arbitral Tribunal:The petitioners sought a writ of prohibition or certiorari against the Arbitral Tribunal (respondent No.18), arguing it had no jurisdiction over matters affecting their rights, as they were not parties to the arbitration agreement or proceedings. The court noted that the Arbitral Tribunal could not adjudicate issues impacting third parties not bound by the arbitration agreement. The court emphasized that the NCLT should independently decide the issues raised in the company petition and not defer to the arbitration tribunal's findings.3. NCLT's Decision to Defer Ruling:The NCLT postponed its decision on the reliefs sought by the petitioners until the arbitration tribunal resolved the disputes between the respondents. The petitioners contended that this deferral was improper as they were not parties to the arbitration. The court agreed, stating that the NCLT abdicated its statutory duty and refused to exercise its jurisdiction by deferring its ruling. The court held that the NCLT must independently address the issues in the company petition without relying on the arbitration tribunal's findings.4. Challenge to Cessation of Voting Rights and Other Actions:The petitioners challenged the cessation of voting rights for 18,00,000 shares and other actions taken by the respondent company. They argued these actions were illegal and violated the Companies Act and the company's Articles of Association. The NCLT had deferred its decision on these issues pending arbitration. The court found that the NCLT should have addressed these challenges independently, without waiting for the arbitration tribunal's decision, as the petitioners were not parties to the arbitration agreement.Conclusion:The court issued a rule, staying the NCLT's order and allowing the NCLT to proceed with the company petition independently of the arbitration proceedings. The court clarified that any findings by the arbitration tribunal would not bind the petitioners, emphasizing the NCLT's duty to exercise its jurisdiction under the Companies Act. The court underscored the importance of judicial review under Article 226/227 when statutory authorities refuse to exercise their jurisdiction or act beyond it.