On 4th November 2022, the Supreme Court in a Division Bench comprising of Justice M.R. Shah and Justice Krishna Murari observed that the proceedings at the instance of the respondent as minority shareholder for oppression and mismanagement is pending before the NCLT is concerned, on the pendency of such proceedings the application under Section 11(6) of the Act, 1996 cannot be dismissed. (VGP Marine Kingdom Pvt Ltd & Anr. Vs. Kay Ellen Arnold)
Facts of the Case:
That the appellants herein approached the High Court under Section 11(6) of the Act, 1996 by way of O.P. No. 304/2019 to appoint an arbitrator so that the arbitral tribunal can be constituted in terms of clause 17.1.2 of the Share Subscription and Shareholders Agreement entered into between the appellants and the respondent at Chennai on 27.04.2016. By the impugned judgment and order the High Court has dismissed the said application and refused to appoint an arbitrator mainly on the grounds that at the time when the application under Section 11(6) of the Act, 1996 was filed in the year 2019, the matter was already referred to the arbitral tribunal with respect to agreement dated 27.04.2016, subsequent amendment agreement dated 06.12.2017 and addendum agreement dated 28.05.2018 and also on the ground that the proceedings were pending before the National Company Law Tribunal (NCLT) initiated by the respondent for various acts of oppression and mismanagement as a minority shareholder. Aggrieved by the same appellants preferred the instant appeal.
Contentions of the Appellants:
The counsel for the appellants submitted that “there is a different Share Subscription and Shareholders Agreement dated 27.04.2016 which contains the arbitration clause in case of any dispute between the parties (clause 17.1.2 of the Share Subscription and Shareholders Agreement). In view of the dispute between the parties the appellants issued notice of termination of the Second SHA (Shareholders Agreement), the same was served to the respondent invoking the arbitration clause 17.1.2.
However, there was a failure on the part of the respondent to nominate an arbitrator which compelled and/or constrained the appellants approaching the High Court for appointment of an arbitrator under Section 11(6) of the Act, 1996. Now so far as the proceedings pending before the NCLT initiated by the respondent with respect to the oppression and mismanagement as a minority shareholder is concerned, pendency of such proceedings cannot be a ground to not to refer the dispute between the parties and appoint an arbitrator.” The case of Vidya Drolia and Ors. Vs. Durga Trading Corporation was referred.
Contentions of the Respondent:
The counsel for the respondent submitted that “all the three agreements are/were inter-linked and therefore, in view of earlier award with respect to other two agreements the present dispute with respect to the third agreement shall not be maintainable.” The case of Booz Allen & Hamilton Inc. Vs. SBI Home Finance Ltd., Chloro Controls India Private Limited Vs. Severn Trent Water Purification Inc. and Vidya Drolia were referred.
Observations and Judgment of the Court:
The hon’ble court observed:
"From the impugned judgment and order it appears that the HC has refused to appoint an arbitrator, inter¬alia, on the ground that at the time when the application was filed there were already arbitral proceedings pending between the parties and the award was passed and also on the ground that the proceedings were pending before the NCLT at the instance of the respondent on the allegation of mismanagement and oppression which was filed by the respondent as minority shareholder."
"As far as this ground is concerned, it is required to be noted that according to the appellant, appellant was not a party to the said proceedings and the present Share Subscription and Shareholders Agreement dated 27.04.2016 is an independent agreement and it is the case on behalf of the respondent that all the three agreements are inter-linked and therefore, in view of the above declared award with respect to the other two agreements the present application shall not be maintainable."
"Moreover, it should be left to the arbitrator to consider the entire aspect. The dispute is with respect to the Share Subscription and Shareholders Agreement which is altogether different from the allegations of mismanagement and oppression at the instance of minority shareholder initiated by the respondent. Unless on the facet it is found that the dispute is not arbitrable and if it requires further/deeper consideration, the dispute with respect to the arbitrability should be left to the arbitrator.”
The appeal is allowed and the issue with respect to the arbitrability of the dispute is left to be decided by the learned Arbitrator.
Case: VGP Marine Kingdom Pvt Ltd & Anr. Vs. Kay Ellen Arnold
Citation: Civil Appeal No. 6679 Of 2022
Bench: Justice M.R. Shah and Justice Krishna Murari
Date: November 04, 2022
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