Delhi HC Keeps Promoter-Shareholder’s Termination On Hold, Bars Board Role And Shields His 14% Stake From Dilution Pending Section 9 Decision

Respondent No. 1, a founding promoter and shareholder holding approximately 14% of the appellant company, challenged the termination of his employment following a Board resolution.

He contended that his position and rights were governed not only by an Employment Agreement but also by a Shareholders’ Agreement, and that the agreements had to be read together.

The company relied on alleged cause for termination, including absenteeism, and argued that the Employment Agreement was a contract for personal service.

In proceedings under Section 9 of the Arbitration and Conciliation Act, 1996, the Single Judge stayed the effect of the Board resolution and termination pending the petition. The company appealed under Section 37(1)(b) of the Act.

Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 provides the basis for an appeal from an order granting or refusing interim measures under Section 9; Section 9 empowers the court to grant interim measures in aid of arbitration.

The Court noted that authorities concerning injunctions against termination of contracts for personal service—including Percept D’Mark (India) (P) Ltd. v. Zaheer Khan, Chem Academy Pvt. Ltd. v. Sumit Mehta and Krishna Kumar Singh v. TUI India Pvt. Ltd.—were not applicable because Respondent No. 1 was not an employee “in a strict sense”.

The Court did not finally determine the validity of the termination or lay down a final rule on the parties’ contractual rights; it made an interim arrangement pending the Section 9 decision.

The Court considered that the dispute required a proper reading of both the Employment Agreement and the Shareholders’ Agreement, and that the termination affected a founding promoter who held a substantial minority stake.

It therefore declined to apply the cited personal-service authorities and did not disturb the interim stay.

Given that Respondent No. 1 held 14% of the shares, while the other promoters, investors and third parties held the remaining 86%, the Court balanced his position against the need to avoid disruption to the company’s business.

During that period, Respondent No. 1 may not participate in Board meetings or company decision-making; his shareholding may not be diluted in percentage or value; and, if he attends the office, he must not disrupt the company’s operations.

The Court expressed no opinion on the merits.