2025 (6) TMI 1603 - AT - Companies Law

Preference shareholders cannot initiate NCLT proceedings under Section 55(3) due to binding arbitration clause

The Appellate Tribunal dismissed a preference shareholder's petition and appeal under the Companies Act, 2013. The Tribunal held that preference ... Challenge to proceedings which were held under Sub Section 3 of Section 55 of the Companies Act, 2013 - Preference Shareholder has individually enforceable statutory rights under Sub Section (3) of Section 55 of the Companies Act, 2013 or not - HELD THAT:- The Forum of the learned NCLT and the consequentially preference of the Appeal before this Tribunal under Section 421 of the Companies Act, 2013, would not be available to him in the exclusive admitted status of being a “Preference Shareholder’’, as Shareholders being investors, have no right, the issue which has been settled by the larger Bench, in Clarion Health Food LLP v. Goli Vada Pav Pvt. Ltd., through Interim Resolution Professional [2024 (11) TMI 1050 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] where it was held that 'we are of the view that the appellant being a shareholder of the company is not the “aggrieved party” as per the provisions of the Code. The appellant has no locus to file this appeal and the same is not maintainable. Accordingly, the appeal is dismissed.' Hence, the findings, which has been recorded by the learned Adjudicating Authority do not suffer any apparent legal vices, which may call for an interference by this Appellate Tribunal in the exercises of its Appellate Jurisdiction under Section 421 of the Companies Act, 2013. Conclusion - Exclusively, because of the fact that the present proceedings at the behest of the “Preference Shareholder’’, would not be maintainable, as having no sustainable and legally enforceable rights. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:(a) Whether a Preference Shareholder has individually enforceable statutory rights under Sub Section (3) of Section 55 of the Companies Act, 2013, that can be invoked before the National Company Law Tribunal (NCLT) in a Company Petition.(b) Whether the existence of a binding Shareholders Subscription Agreement containing an arbitration clause precludes the Preference Shareholder from initiating proceedings under Section 55(3) before the NCLT, requiring the shareholder instead to seek remedies through arbitration as per the contractual terms.(c) Whether the Appellant's claim that the Shareholders Agreement was flagrantly disregarded could render the NCLT proceedings maintainable despite the arbitration clause and statutory restrictions.(d) The extent to which the Appellant, as a Preference Shareholder, is entitled to invoke the jurisdiction of the NCLT or the Appellate Tribunal under Section 421 of the Companies Act, 2013, in light of established precedents regarding shareholder locus standi.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Enforceability of Statutory Rights by a Preference Shareholder under Section 55(3) of the Companies Act, 2013Relevant legal framework and precedents: Section 55(3) of the Companies Act, 2013, provides a statutory mechanism for enforcement of rights attached to preference shares. However, the Tribunal referred to a larger Bench precedent which clarified that shareholders, including preference shareholders, do not possess individually enforceable statutory rights under this provision to initiate proceedings before the NCLT. The precedent cited was from a recent ruling which held that shareholders are not 'aggrieved parties' under the Code and thus lack locus standi to file appeals or petitions under the Companies Act.Court's interpretation and reasoning: The Court held that the Appellant, in the capacity of a Preference Shareholder, does not possess grafted statutory enforceable rights under Section 55(3) that can be enforced before the NCLT. The Tribunal emphasized that the statutory framework does not confer on preference shareholders a direct cause of action before the NCLT for the reliefs sought.Key evidence and findings: The admitted status of the Appellant as a Preference Shareholder was uncontested. The Tribunal found no statutory provision or precedent supporting the maintainability of the Company Petition initiated by the Appellant under Section 55(3).Application of law to facts: Applying the legal principle that shareholders do not have individual statutory rights enforceable before NCLT, the Tribunal concluded that the Company Petition was not maintainable on this ground.Treatment of competing arguments: The Appellant argued that the petition was maintainable due to violation of rights. The Tribunal rejected this, noting that such issues must be addressed through the appropriate forum agreed upon contractually, not through Section 55(3) proceedings.Conclusion: The Tribunal dismissed the petition on the ground that the Appellant lacked statutory enforceable rights under Section 55(3) of the Companies Act, 2013.Issue (b): Effect of the Arbitration Clause in the Shareholders Subscription Agreement on Maintainability of NCLT ProceedingsRelevant legal framework and precedents: The Shareholders Subscription Agreement dated 26.12.2008 contained an arbitration clause (Clauses 13.1 and 13.2) which mandated arbitration as the exclusive forum for dispute resolution arising from the agreement. Under Indian law, arbitration clauses are binding and preclude parties from initiating parallel proceedings in courts or tribunals.Court's interpretation and reasoning: The Tribunal held that since the parties were governed by the Shareholders Agreement containing an arbitration clause, the Appellant was obliged to seek remedy through arbitration. The existence of this agreement and clause was a bar to the maintainability of the Company Petition before the NCLT.Key evidence and findings: The Shareholders Subscription Agreement was an admitted document. The Tribunal noted that the Appellant's rights, if any, were protected under the arbitration mechanism provided therein.Application of law to facts: The Tribunal applied the principle that parties bound by an arbitration agreement must resort to arbitration for dispute resolution, and cannot bypass this by invoking statutory forums prematurely.Treatment of competing arguments: The Appellant contended that the Agreement was flagrantly disregarded, implying that arbitration might not be a viable remedy. The Tribunal clarified that any such challenge to the Agreement's terms must be raised within the arbitration forum, not before the NCLT.Conclusion: The Tribunal concluded that the Company Petition was not maintainable due to the binding arbitration clause, and the Appellant must invoke the agreed forum for redressal.Issue (c): Whether Alleged Violation of Shareholders Agreement Could Render NCLT Proceedings MaintainableRelevant legal framework and precedents: Contractual disputes arising from Shareholders Agreements are generally subject to the dispute resolution mechanism stipulated therein. Courts and tribunals have consistently held that allegations of contract violation must be adjudicated in the forum agreed by the parties, especially when arbitration clauses exist.Court's interpretation and reasoning: The Tribunal emphasized that the question of whether the Shareholders Agreement was violated would be a matter exclusively for the arbitration forum. The NCLT or Appellate Tribunal cannot entertain such disputes in the presence of an arbitration agreement.Key evidence and findings: The Tribunal found no basis to entertain the Appellant's factual assertions regarding flagrant disregard of the Agreement outside the agreed arbitration forum.Application of law to facts: The Tribunal refrained from examining the merits of the alleged violations, leaving all such issues open for determination in arbitration or other appropriate forums.Treatment of competing arguments: The Appellant's argument that the Agreement was violated was acknowledged but held to be irrelevant for the maintainability of the present petition before the NCLT.Conclusion: The Tribunal held that alleged violations of the Shareholders Agreement do not confer jurisdiction on the NCLT or Appellate Tribunal to entertain the petition, which must be pursued through arbitration.Issue (d): Locus Standi of Preference Shareholder to Invoke Appellate Jurisdiction under Section 421 of the Companies Act, 2013Relevant legal framework and precedents: Section 421 of the Companies Act, 2013, provides for appeals against orders of the NCLT. However, established precedent clarifies that shareholders, including preference shareholders, do not qualify as 'aggrieved parties' under the Code and thus lack locus standi to file appeals or petitions under the Companies Act.Court's interpretation and reasoning: The Tribunal relied on a recent authoritative ruling which held that a shareholder is not an aggrieved party entitled to invoke appellate jurisdiction under the Companies Act. This principle was applied to dismiss the present appeal.Key evidence and findings: The Tribunal noted the Appellant's admitted status as a Preference Shareholder and found no statutory or judicial support for his locus to appeal.Application of law to facts: Applying the precedent, the Tribunal concluded that the Appellant's appeal was not maintainable and was liable to be dismissed.Treatment of competing arguments: The Appellant's submissions on maintainability were considered but found insufficient to