According to Lawrence Shore, "Internationally, arbitrability refers to whether specific classes of disputes are barred from arbitration either because of public policy or because they are outside the scope of the arbitration agreement ... arbitrability refers to whether the specific claims raised are of [a] subject matter capable of settlement by arbitration and are not subject to the exclusive jurisdiction of ... courts".1
Arbitrability includes what types of questions can or cannot be brought to arbitration and whether specific forms of cases do not fall before the tribunal and are solely within the jurisdiction of state courts.2 The Model Law includes no clause specifying which conflicts are arbitrable. Article 1(5)3 specifies that it is not meant to influence existing state laws that exclude certain conflicts from arbitration. Therefore, national lawmakers can determine which disputes are arbitrable and which are not arbitrable in the application of the model law.
Section 241(a)4 defines Oppression as the affairs which are conducted in a manner prejudicial to the public interest, members of the company or in a manner, to the interests of the company. Section 241(b)5 defines Mismanagement as any material change which is conducted in a manner prejudicial to the public interest by altering the ownership of the company.
Oppression and mismanagement petitions are governed by Sections 241 to 246 of the Companies Act 2013, which gives power to the shareholders to file a petition in NCLT. In the context of Indian law, the conflict lies between the NCLT and Section 8 of the Arbitration and Conciliation Act 1996, which lays down the authority on the courts to refer the cases to arbitration. Section 8 states that –
Power to refer parties to arbitration where there is an arbitration agreement.
(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
Section 8 does not expressly require the dispute to be arbitrable as a prerequisite to refer it to arbitration. But the matter is such that the tribunal is competent to adjudicate.6 Over the past years, some general tests of 'arbitrability' have been laid down by courts. The authorities often refer to the case of Booz Allen & Hamilton Inc v. SBI Home Finances Ltd7 which lays down the "distinction between the rights in personam and rights in rem concerning arbitrability". The former was held to be arbitrable whereas the latter was held to be non-arbitrable. Prima facie, oppression and mismanagement matters appear to be a "right in personam" as it is filed by the oppressed members, but such claims arise from activities conducted in a manner prejudicial to the public interest which cannot be waived by contractual provisions.8 Thus, oppression and mismanagement matter was referred to the Company law board as only pure contractual matters were adjudicated by the arbitral tribunal. The same position was solidified by the judgment of Rakesh Malhotra v. Rajinder Kumar Malhotra9 , wherein it was held that only those disputes which the arbitrator is competent or empowered to decide can be referred to arbitration. However, in the event, the party has tried to file a petition under the garb of oppression and mismanagement matter, or the petition is frivolous or vexatious, it will not act as an impediment to the matters being referred to arbitration.
In India, judicial authorities are of the view that oppressional mismanagement claims cannot be referred to arbitration on the following tests:
REMEDIES TEST
NCLT, with respect to oppression and mismanagement matters, has extraordinary statutory powers that are not exercisable by regular civil courts. NCLT has extraordinary jurisdiction to issue orders concerning regulation of company's affairs, change the management and make concerned person and directors liable for their delinquency whereas the arbitral tribunals' adjudication on matters is limited to terms of contracts. Limitation on the arbitral tribunal makes it an inappropriate forum for oppression and mismanagement cases.10
CLAIM TEST
The Arbitration Act does not allow bifurcation of claims i.e., if the subject matter is partially covered by arbitration there is no statutory law that allows bifurcating and referring the cases to arbitration. Therefore, in given circumstances even though the subject matter is partially covered by the arbitration agreement, disputes cannot be referred to arbitration if the clause doesn't include oppression and mismanagement as arbitrable.11
NECESSARY PARTIES TEST
As per this test, the courts and judicial authorities examine whether (i) an effective order can be passed in oppression, mismanagement, and prejudice petition; and (ii) a complete and final determination be made without the presence of the party which is not a party to the arbitration agreement. Unless a party to the oppression, mismanagement, and prejudice dispute (not a party to the arbitration agreement) satisfies the 'necessary parties' test, the dispute will be referred to arbitration.12
TOTALITY TEST
While examining whether the petition is dressed up or vexatious, courts and judicial authorities in India have opined that one needs to read the petition with specific emphasis on the grounds and the reliefs claimed in the petition. If on such holistic analysis, the NCLT/ NCLAT concludes that the reliefs in the petition could be granted by an arbitral tribunal and the petition was primarily intended to defeat the arbitration agreement, the parties should be referred to arbitration.13
CONCLUSION
Firstly, one needs to assess if there is any express or implied bar under the Indian Companies Act, 2013, that renders such claims arbitrable. A statute impliedly makes the claim arbitrable if (i) the statute creates any special rights or liability and further confers exclusive jurisdiction on any tribunals; and (ii) if remedies normally associated with arbitration proceedings are prescribed by the said statute. Secondly, it needs to be seen that the claim is arbitrable under the Indian Arbitration Act, 1996, by applying the general tests of 'arbitrability' laid down by courts.
Section 430 of the Indian Companies Act, 2013, confers exclusive jurisdiction on the NCLT/ NCLAT to the exclusion of civil courts to adjudicate on any oppression and mismanagement claims. There is no express provision under the Indian Arbitration Act, 1996, setting out the powers of an arbitral tribunal. However, Indian courts have taken a view that an arbitral tribunal can adjudicate every civil or commercial dispute, either contractual or non-contractual, which can be decided by the court. Considering that the Indian Companies Act, 2013, bars a civil court from entertaining any suit or proceedings concerning oppression, mismanagement, or prejudice claims, one may take a view that it also impliedly results in a bar on the settlement of such claims by arbitration.
Further, the Indian courts and tribunals often refuse to refer oppression and mismanagement claims to arbitration based on the Remedies test, Claim test, Necessary Parties Test, and Totality test.
Footnotes
1. Hanotiau (1996 B) p. 391.
2. V. Reddy & V. Nagaraj, Arbitrability: The Indian Perspective, 19(2) Journal of International Arbitration 117, 119 (2002).
3. Article 1(5), UNCITRAL Model Law on International Commercial Arbitration, 1985.
4. Section 241 (a), Companies Act, 2013.
5. Section 241 (b), Companies Act, 2013.
6. Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd, (1999) 5 SCC 688.
7. (2011) 5 SCC 532.
8. Abdul Waheedkhan Pathan v. Reny Charles Pavey and Anr., AIR 1965 Kant 303.
9. (2015) 2 Comp LJ 288 (Bom).
10. Jugnar Processors (P) Ltd. v. Rohtas Jugalkishore Gupta, 2014 SCC OnLine CLB 160.
11. Punita Khatter v. Explorers Travels and Tours Private Limited, (2017) 136 CLA 0034.
12. Sidharth Gupta v. Getit Infoservices (P) Ltd., 2016 SCC OnLine CLB 10.
13. Rakesh Malhotra v. Rajinder Kumar Malhotra, 2014 SCC OnLine Bom 1146.
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