01Facts
The 1st Respondent filed a claim petition following a High Court order in A.R. No. 169/2024 appointing an Arbitrator
p. 4The dispute arose from a Memorandum of Understanding (MOU) between two brothers (Respondents 1 and 2) regarding the division of assets and liabilities of three private limited companies
p. 4The Petitioner, a minority shareholder in said companies but not a signatory to the MOU, was impleaded in the arbitration
p. 5The Petitioner filed an application under Section 16 of the Arbitration and Conciliation Act, 1996, contending that the Arbitrator lacked jurisdiction as the disputes involved company restructuring and shareholding, which fall under the exclusive jurisdiction of the National Company Law Tribunal (NCLT)
p. 5The Arbitrator rejected this plea via Ext.P7, holding that the tribunal could decide ownership and shareholding matters
p. 502Issues
i.1. Whether the High Court can exercise jurisdiction under Article 227 against an order of an Arbitrator upholding their jurisdiction under Section 16(2) of the Act
p. 3, para 1ii.2. Whether disputes involving the restructuring, division of assets, and shareholding of companies registered under the Companies Act, 2013, are arbitrable
p. 17, para 2103Law Applied
The Court applied Section 5 of the Arbitration and Conciliation Act, 1996, which limits judicial intervention
p. 11, para 9Section 16, which empowers a tribunal to rule on its jurisdiction
p. 10, para 7It relied on Deep Industries Ltd. v. ONGC, which permits Article 227 intervention in cases of patent lack of inherent jurisdiction
p. 12, para 11Bhaven Construction v. Executive Engineer, which restricts such interference to "exceptional rarity"
p. 13, para 13Regarding arbitrability, the Court applied the four-fold test from Vidya Drolia v. Durga Trading Corp.
p. 18, para 23The "actions in rem" principle from Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.
p. 17, para 22It also invoked Sections 241 and 242 of the Companies Act, 2013, which vest exclusive power in the NCLT for matters of oppression, management, and restructuring
p. 20, para 25Provisions in the judgment · 8 · Linked ones open on LawLens
Arbitration and Conciliation Act, 1996 Section 5Section 11Section 16Section 34Section 37
Companies Act, 2013 Section 241Section 242Section 244
04Reasoning
The Court first determined that while Section 37 of the Act does not provide an appeal against the rejection of a jurisdictional plea, a petition under Article 227 is maintainable if the tribunal "patently lacks inherent jurisdiction"
p. 12, 14On the merits, the Court observed that the reliefs sought—restructuring companies, selling assets to third parties, and allotting shares—directly impact the statutory framework of the Companies Act
pp. 15-16The Court reasoned that since the companies were not signatories to the personal MOU between the brothers, and because the NCLT is a specialized forum with exclusive jurisdiction over intra-company disputes and actions in rem, the matter was non-arbitrable
p. 24, para 26The Arbitrator’s finding that she could divide shares was held to be a legal error as it encroached upon the NCLT’s statutory powers under Section 242
p. 23, para 2505Holding
The Court held that the dispute concerning the three companies is non-arbitrable and that the Arbitrator lacked jurisdiction to adjudicate matters reserved for the NCLT
p. 24, para 26The Court partly allowed the petition, set aside Ext.P7, and terminated the arbitral proceedings specifically regarding the three companies
pp. 25-26, para 28Original Court PDF
PURUSHOTHAMAN THITTAvsPOTHAN RAJAN
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