National Company Law Appellate Tribunal
Macquarie Sbi Infrastrucutre Pte Ltd vs Sadananda Shetty on 22 June, 2021
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
CHENNAI BENCH
Company Appeal (AT) (CH) No. 01 of 2021
[Arising out of orders dated 22nd December 2020 read with 07th January
2021, passed by the Adjudicating Authority/National Company Law
Tribunal, Bengaluru Bench, Bengaluru in IA. No. 445 of 2020 in CP. No.
77/B.B./2020]
IN THE MATTER OF:
1. Macquarie SBI Infrastructure Investments
Pvt. Ltd.
(Respondent No.1 in IA 445 of 2020 filed in
CP 77/2020)
Regd Office 9, Straits View,
321-07 Marina One,
West Tower, Singapore 018937
2. SBI. Macquarie Infrastructure Trustee Pvt
Ltd/ (Respondent No 2 in IA 445 of 2020
filed in CP 77/2020)
Regd Office at 92, Level 9, North Avenue,
Maker Maxity, Bandra Kuria Complex,
Mumbai 400051 represented by authorised
signatory Mr Abraham George ...Appellants
Versus
1. Mr K Sadananda Shetty / (Applicant No 1 in
IA 445 of 2020)
No.16, SahasraSree, I Main, I Block,
RMV Extension, Stage II,
Bengaluru 560094.
2. Mr Sanjith S Shetty / (Applicant No 2 in IA
445 of 2020)
No.16, SahasraSree, I Main, I Block,
RMV Extension, Stage II,
Bengaluru 560094.
3. Mr Suchindra S Shetty / (Applicant No 3 in
IA 445 of 2020)
No.16, SahasraSree, I Main, I Block,
RMV Extension, Stage II,
Bengaluru 560094.
Company Appeal (AT) (CH) No. 01 of 2021 1 of 59
4. Mrs Sujatha S Shetty/ (Applicant No 4 in IA
445 of 2020)
No.16, SahasraSree, I Main, I Block,
RMV Extension, Stage II,
Bengaluru 560094.
5. Encon Systems Pvt Ltd
37, R.M.J., Mandoth Towers, 7th Cross,
Vasant Nagar, Bengaluru 560025.
6. Soham Renewable Energy India Pvt Ltd
37, Ground Floor, R.M.J.,
Mandoth Towers, 7th Cross,
Vasant Nagar, Bengaluru 560025
7. Ambuthirtha Power Pvt Ltd
Ground Floor, R.M.J., Mandoth Towers,
7th Cross, Vasant Nagar, Bengaluru 560052
8. Soham Mannapitlu Power Pvt Ltd
Ground Floor, R.M.J.,
Mandoth Towers, 7th Cross,
Vasant Nagar, Bengaluru 560052
9. Sohan Phalguni Renewable Energy Pvt Ltd
Man doth Towers, 7th Cross,
Vasant Nagar, Bengaluru 560052
10. Sahasralingeswara Power Pvt Ltd
Ground Floor, R.M.J.,
Mandoth Towers, 7th Cross,
Vasant Nagar, Bengaluru 560052.
11. MSG Power Pvt Ltd
Ground Floor, R.M.J.,
Mandoth Towers, 7th Cross,
Vasant Nagar, Bengaluru 560094
12. Soham Kolavuru Renewable Energy Pvt Ltd
Ground Floor, R.M.J.,
Mandoth Towers, 7th Cross,
Vasant Nagar, Bengaluru 560094
13. Ocean Deity Investments Holdings Limited
PCC, (Mauritius) Limited PLC.
Regd Office: IMM Ltd. 4th Floor,
Les Cascades Building, Edith Cavell Street,
Port Louis, Republic of Mauritius)
Company Appeal (AT) (CH) No. 01 of 2021 2 of 59
14. Abhishek Poddar,
1604, Tower B, Omkar 1973 Off
Annie Besant Road, Worli, Mumbai 400049.
Mobile - +919811212281
E-Mail: [email protected]
15. Abraham George
A-306, Dosti Elite,
Sion-Koliwada Road, Sion, Mumbai 400022 ...Respondents
Present:
For Appellant : Mr Arun Kathpalia, Learned Sr Counsel
Mr Krishnendu Datta, Learned Sr Counsel
Mr Thriyambak Kannan, Advocates.
For Respondent : Mr Satish Parasaran, Learned Sr Counsel
Mr Pradeep Nayak, Learned Advocate - R1-R5
Ms Nithya Kalyani, Learned Advocate - R6-12
Mr RV Goutham, Learned Advocate - R13
J U D G M E N T
[Per; V. P. Singh, Member (T)] This Appeal emanates from the orders dated 22nd December 2020 read with Order dated 07th January 2021, passed by the National Company Law Tribunal, Bengaluru Bench, Bengaluru in IA. No. 445 of 2020 in CP. No. 77/B.B./2020, whereby the Adjudicating Authority/N.C.L.T. has passed an Anti-Arbitration Injunction Order, restraining the Appellants from initiating or commencing the arbitration proceedings. The original parties status in the Company Petition represents them in this Appeal for the sake of convenience. Brief facts as stated in Appeal
2. Appellant No. 1 is a Company incorporated under the laws of Singapore. Appellant No. 2 is a Company incorporated under the Companies Act 1956 and is the trustee of SBI Macquarie Infrastructure Trust. Appellant No. 1 and Company Appeal (AT) (CH) No. 01 of 2021 3 of 59 2 are engaged in investing in the infrastructure sector and are equity shareholders of Respondent No. 6, Soham Renewable Energy India Private Ltd holding 5000 equity shares each, and also 10,85,00,00 and 4,15,00,000 Lacs Compulsory Cumulative Convertible Preference Shares (from now on referred as 'CCPS'), respectively. Respondent No's 1 to 5 are the Promoters of the Respondent No. 6, 'Soham Renewable Energy India Pvt Ltd' (SREIPL), had filed Company Petition (CP 77/B.B./2020) ("Promoters Petition") under Section 241 and 242 of the Companies Act, 2013 ("Act") against the Appellants herein, who happens to be Investor Shareholders in the Company.
3. During the pendency of the Company Petition, CP No.77/B.B./2020 filed U/S 241 and 242 of the Companies Act 2013, IA. No. 445 of 2020 was filed by K. Sadanand Shetty and four others U/S 242 (4) of the Companies Act 2013 r/w Rule 11 and 32 of NCLT Rules, 2016, inter-alia seeking a temporary injunction, in favour of the Applicants against the Opposite Parties to restrain the Opposite Party No. 1 and 2 (Appellants herein)and any person acting on their behalf from in any manner, initiating, continuing arbitral proceedings commenced under the purported Drag Notice and purported Conversion Notice under the Arbitration Clause in 2015 SHA.
4. The Learned NCLT had passed the impugned Order in IA No. 445 of 2020. The relevant Part of the Order reads as under;
"When the matter is subjudice, the parties cannot be permitted to initiate Arbitration, and that too, without there being an appropriate application filed by the concerned party under the provisions of Arbitration and Conciliation Act. Therefore, it Company Appeal (AT) (CH) No. 01 of 2021 4 of 59 would be just and proper to direct the respondents to maintain status quo on the impugned action until further orders pending final decision in the instant Application.
For the aforesaid reasons and circumstances, we hereby direct the respondents to maintain the status quo in respect of impugned action in the instant Application with reference to arbitral proceedings initiated pursuant to the purported drag notice and purported conversion notice pursuant to Arbitration Clause under 2015 SHA, pending disposal of the instant Application."
(verbatim copy)
5. Respondent No.6, Soham Renewable Energy India Private Limited (from now on referred to as 'SREIPL' is a Company engaged in power generation business through Hydroelectric Power Plants. Respondents No. 1 to 5 are Promoters and Shareholders of Respondent No. 6. Additionally, Respondent No. 1 is the erstwhile Chairman, Respondent No. 2 is the erstwhile Managing Director, and Respondent No. 3 is the erstwhile Director of Respondent No. 6. Respondent No. 7 to 12 are companies controlled by Respondent No. 6, while Respondent No. 13 is an investor in Respondent No. 6 Company.
6. Respondent No. 14 and 15 were the nominee directors appointed by the Appellants to the Board of Directors of Respondent No. 6 when filing the Company Petition. While Respondent No. 14 continue to serve on the Board of Respondent No. 6. Respondent No.15 has been added to the capacity as the erstwhile nominee Director and a party to the proceedings before the NCLT. Respondent No's 14 and 15 have been arrayed as Respondents in the present Company Appeal (AT) (CH) No. 01 of 2021 5 of 59 Appeal as they are parties to the 'Promoter Petition' but are not contesting Respondents concerning the present Appeal.
7. Pursuant to the investment, the Appellants subscribed to CCPS and equity shares of Respondent No. 6 by Shareholders Agreement (1st SHA) and also the Share Subscription Agreement (1st SSA) dated 25th June 2011 disputed between the Appellants the Respondent No. 6.
8. Subsequently, by a share Subscription Agreement dated 18th October 2014 (2nd SSA), Appellants No. 1 and 2 subscribe to additional CCPS in order to satisfy additional capital requirements of Respondent No. 6. The 2nd SSA was later amended through a Deed of Amendment dated 13th February 2015. The same day, the 1st SHA was substituted and replaced with an amended and restated Shareholders Agreement executed by Appellant No. 1 and 2, Respondents No. 1 to 6 and Respondent No.13.
9. Subsequently, the disputes arose in January February 2020. Respondents No. 1 to 5 misused the majority of the Board to usurp control of Respondent No. 6 without any consideration for the interests of Appellant's No. 1 and 2, rendering their rights insignificant, having made the largest investment in the Company. The actions of Respondent No. 1 to 5 were prejudicial to Appellant No. 1 and 2, and therefore, Appellant No. 1 and 2 filed Company Petition CP/78/B.B./2020 before NCLT under Sections 241 and 242 of the Companies Act 2013 on 18th March 2020 (Investor Petition) along with various interim Applications. The Investor Petition is pending adjudication which could not be listed on account of pandemic Covid 19.
Company Appeal (AT) (CH) No. 01 of 2021 6 of 59
10. After that, it came to the knowledge of the Appellant's that Respondent No's 1 to 5 had already filed a Company Petition No.77/B.B./2020 (Promoters Petition), which was never served on the Appellants.
11. Meanwhile, during the pendency of the Company Petition No.78/BB/2020, the Appellants exercised their independent rights under the SHA by issuing a notice dated 19th June 2020 calling upon Respondent No. 6 to convert 'CCPS' amounting to Rs 150 crores held by the Appellants to 150 crores equity shares of Respondent No. 6 (conversion notice).
12. It is the contention of the Respondents No.1 to 5/Promoters, who have wide-ranging rights under the Articles of Association ("AOA") and Shareholder's Agreement, dated 13th February 2015 ("SHA"), that the Appellants have abused their rights, stifling the growth of the Company, and prejudicing the interests of other Stakeholders. After filing the 'Promoters Petition', the Appellants had also filed a Petition under Section 241 and 242 (CP 78/B.B./2020) ("Appellants Petition"), alleging oppression and mismanagement by the Promoters.
13. Respondents No. 1 to 5, in response to conversion notice, sent a Reply dated 17th July 2020, refusing to honour the conversion notice on the ground that no drag event had occurred and that the determination of the arguments of drag event was the still subject matter of proceedings pending before the NCLT.
Company Appeal (AT) (CH) No. 01 of 2021 7 of 59
14. After that, a Board meeting of Respondent No. 6 was conducted on 20th July 2020, wherein the purported conversion of 'CCPS', held by the Appellants, into equity shares was voted upon. Respondents No. 1 to 4, i.e. the Directors representing the promoter group of Respondent No. 6, voted against the resolution to convert 'CCPS' held by Appellants into equity shares.
15. The Appellant alleges that Respondent No. 1 to 5 were misusing their majority in the Board to usurp control of Respondent No. 6, without any consideration for the interests of Appellant No. 1 and 2, rendering their rights insignificant, despite them having made the most significant investment in the Company, Respondents acted in breach of the 'SHA' and the 'AOA' and call upon them to remedy the breach and honour the conversion notice.
16. The disputes have arisen between the parties in relation to the contractual obligation under the SHA, which could have been resolved under SHA. However, instead of participating in the dispute resolution process, Respondent's No. 1 to 5 started to escalate issues and evade the dispute resolution process by making technical objections. The Respondent's No. 1 to 5 stated that as issues between the parties were sub-judice before the NCLT, Arbitration could not be sought. Respondents No. 1 to 5 further objected to the letter dated 30th September 2020 on the pretext that the only receipt of a physical copy of letters would amount to compliance of the SHA, and mere emails will not suffice.
17. The Appellant contended that Respondent No. 1 to 5 failed to discharge their obligations under the drag notice along with the conversion notices. The Company Appeal (AT) (CH) No. 01 of 2021 8 of 59 Appellant further contends that the Arbitration had not yet been invoked, and the Appellants had only been engaged with Respondent No. 1 to 5 in a bid to resolve the disputes amicably.
18. The Appellant contends that they had exercised their rights under SHA and submitted a request for Arbitration to the London Court of International Arbitration (LCIA) on 17th November 2020. The 'LCIA' issued a letter dated 19th November 2020 to all parties stating that Arbitration will be treated to have commenced on 18th November 2020.
Grounds of Appeal
19. The Appeal is filed on the following grounds;
1. The Arbitral Tribunal has the power to decide its jurisdiction, and the NCLT cannot injunct arbitration proceedings.
2. The impugned orders are ultra-vires the scope, powers and jurisdiction of NCLT because NCLT has by the impugned Order injuncted another Tribunal (not subordinate to it) from exercising jurisdiction conferred upon it by a special Act.
3. The NCLT has erred in observing that the Appellants have not pleaded for referring the matter to Arbitration, erroneously insisting on a standalone Section 8 Application, while ignoring the pleadings taken by the Appellants in the statement of objections.
4. A status quo order has the effect of an injunction on the Arbitration proceedings, which has been granted without giving the Appellant's an opportunity of being heard.
Company Appeal (AT) (CH) No. 01 of 2021 9 of 59
5. The NCLT erroneously made the disposal of the Anti-Arbitration Application subject to the disposal of an unconnected lis, while holding that the subject matter of the Anti-arbitration Application is sub-judice before this Appellate Tribunal and NCLT.
6. The arbitration proceedings, which are time-bound in nature, have been stayed indefinitely, defeating the object of the Arbitration Act and contrary to the mandate of Section 8 (3) of the Arbitration Act. Appellants Submission
20. The Learned Counsel for the Appellant contended that adverting to the principles enshrined in the Code of Civil Procedure; the NCLT has not only failed to provide an opportunity of being heard to the Appellants in terms of Section 420 of the Companies Act read with Rule 37 and 146 of the NCLT Rules but has also refused to dispose of the Anti-Arbitration Applications till the pendency of unconnected lis. The impugned orders are thus arbitrary and extremely prejudicial to the Appellants. The impugned Order has been passed in grass violation of the principles of natural justice. The Appellants have not given an opportunity of being heard before granting an injunction, adversely affecting the rights and in continuing the ex-party interim Order endlessly until the final disposal of appeals before this Tribunal against a wholly unconnected order and then further delaying the hearing on the Application till the final disposal of the main Petition before the NCLT itself. Such an order is grossly unjust given that the NCLT by such an order has stalled Arbitration Company Appeal (AT) (CH) No. 01 of 2021 10 of 59 proceedings conducted under the London Court of International Arbitration Rules.
21. The Learned Counsel for the Appellant further argued that the NCLT has failed to consider that Arbitration proceedings are time-bound in nature and have to be progressed expeditiously. The Learned NCLT has abdicated its responsibility by refusing to dispose of the Anti-arbitration Applications until the main Petition and, in the same breath, granting an injunction on the Arbitration proceedings without even hearing the Appellants.
22. The Appellant further contends that the NCLT passed the injunction in effect against another Tribunal, stopping such Tribunal from exercising jurisdiction. It derives from a specialised statute and has expressly been vested in it by the parties to dispute. The passing of the impugned Order is Perse an overreach on the Part of the learned NCLT and beyond the scope of its powers.
23. Appellant further contends that the Learned NCLT erred in holding that it cannot hear and determine the Anti-Arbitration Applications as the subject matter is pending before the New Delhi Bench of this Appellate Tribunal. This reasoning is manifestly wrong as there is no Appeal on this subject matter pending before the New Delhi bench of this Hon'ble Tribunal. Equally, there are no pending proceedings before the Learned Tribunal, which causes an impediment in adjudicating the said Anti-arbitration Applications. Therefore, Company Appeal (AT) (CH) No. 01 of 2021 11 of 59 there is no justification for refusing to hear the said Anti-Arbitration Application when the matter was scheduled for the final hearing of the same.
24. The Appellant further contends that all parties impleaded in the Promoters Petition have not been impleaded in the Applications, especially Respondent No. 6. The impleadment of other parties was necessary to decide the Interlocutory Applications. The rights and obligations as sought to be examined and adjudicated upon under SHA are disputed among the Promoters and Investors of Respondent No. 6. Respondent No. 6 settings out the inverse relationship of the parties to it. Thus the Respondent No.6 was a necessary party for the adjudication of the Anti-arbitration Applications. Therefore the NCLT should have dismissed the Interlocutory Applications ex facie for this reason alone.
25. It is further contended that Respondents No. 1 to 5 sought to injunct the Appellants from exercising their rights under a valid and subsisting contract. However, Section 242 (4) of the Companies Act empowers the NCLT to grant interim orders regarding a company's affairs. The reliefs sought in the Interlocutory Application, i.e. an injunction on the continuance of arbitral proceedings, do not concern companies' conduct. As such, the Application is liable to be dismissed.
26. It is further contended that the NCLT could not have granted such relief by exercising its inherent powers under Rules 11 and 32 of the NCLT Rules as inherent powers can only be exercised in aid of powers that are expressly Company Appeal (AT) (CH) No. 01 of 2021 12 of 59 stipulated which is not the case in the present matter. However, the NCLT cannot grant reliefs that supersede the provisions of the Specific Relief Act, 1963, even while exercising its inherent powers. Accordingly, by an Interlocutory Application, reliefs can not be granted beyond the statute in an attempt to stall proceedings under the statute.
27. Only an Arbitral Tribunal and no other "Court" can exercise powers under Section 16 of the Arbitration Act to rule on its competence of adjudicating the dispute when prima facie a valid Arbitration Agreement exists.
28. The Learned Counsel for the Appellant further submits that, under Section 5, read with Section 2(e) of the Arbitration and Conciliation Act, only a Court has the power to supervise or injunct the commencement and continuation of the Arbitral proceedings. When the statutory provision itself provides for a mechanism of supervision over the jurisdiction of an Arbitral Tribunal, the Application before the NCLT is not maintainable.
29. The Learned Counsel submits that the NCLT is not a "Court" for the 'Arbitration and Conciliation Act' purposes. It does not possess the power to restrain any party from proceeding with the Arbitration, which power is solely exercisable by a Court. As such, the Application is liable to be dismissed.
30. It is a settled position of law that only a "Seat" Court can exercise supervisory jurisdiction concerning an arbitration proceeding. Since the NCLT Company Appeal (AT) (CH) No. 01 of 2021 13 of 59 is not the "Seat" Court in terms of the Arbitration Agreement, the Learned NCLT does not have any power to grant an Anti-arbitration injunction.
31. The Learned Counsel for the Appellant further submits that the NCLT failed to consider that the subject matter of the proposed Arbitration proceeding is neither Part of the Promoters Petition nor the Investor Petition and is subject to the exclusive jurisdiction of the Arbitral Tribunal. The disputes that arise between the parties after the filing of the Company Petition have not been pleaded before the NCLT and thus are not Part of the lis pending before the NCLT or the New Delhi Bench of the Hon'ble Tribunal.
32. The Appellant contends that the disputes are in respect of the breach of Drag along with Right and Conversion Right as stipulated under Clauses 10 of the SHA and Clause 6 (a). Clause 7.1 of Schedule 3 and Clause 6 (a) and Clause 7 (a) Schedule 5 of SHA arose due to Respondents No. 1 to 5 to do or cause such acts as they had been obligated to do under the SHA. Accordingly, this breach of contractual obligations resulted in a dispute that Arbitral Tribunal can adjudicate.
33. It is a settled position of law that the scope of the powers of the NCLT u/s 241 and 242 of the Companies Act, 2013 is limited to the functioning and affairs of the Company. As such, the NCLT does not possess any powers concerning any contractual disputes between the parties. The proceeding before the Arbitral Tribunal relates only to the personal rights and obligations of the parties. The NCLT does not have jurisdiction to decide the contractual Company Appeal (AT) (CH) No. 01 of 2021 14 of 59 rights of Shareholders, nor does it have the power to determine the claims which are the subject matter of Arbitration. The NCLT could not have prevented an Arbitration from proceeding when the Arbitral Tribunal is exclusively vested with the power to determine its jurisdiction.
34. The Drag along right and conversion right, as such, are independent Arbitrable disputes. The conversion right was exercised only on 19th June 2020, i.e. post-filing of the Investor Petition, giving rise to a new cause of action and warranting initiation of separate proceedings. The cause of action based on Drag along right and conversion right accrued when conversion right was exercised, i.e. only on 19th June 2020. However, the Investor Petition subject matter, i.e. CP No. 78/BB/2020, more specifically, even the Promoter Petition CP No. 77/BB/2020 does not cover the reliefs sought in the Anti- Arbitration Application.
35. The Learned Counsel for the Appellant further submits that they have already made a prayer to the effect of referring the matter to Arbitration in reply to the Promoters Petition. The Application preferred by Respondents No. 1 to 5 is a mere attempt to render the Appellants' rights infructuous.
36. The Learned Counsel for the Appellant further emphasised that the impugned orders are against the settled principles which govern Section 8 of the Arbitration and Conciliation Act. Therefore, the NCLT erred in holding that in the absence of either party filing an Application under Section 8 of the Arbitration and Conciliation Act, it would not be able to refer the matter to Company Appeal (AT) (CH) No. 01 of 2021 15 of 59 Arbitration. The NCLT further held that "parties cannot be permitted to initiate Arbitration". This is contrary to the settled principles of law, which mandates a judicial authority to refer the matter to Arbitration if a valid Arbitration Agreement existed between the parties. Notably, the Appellant is at the very 1st instance, that is, in the statement of objections to the Promoters Petition filed on 08th July 2020, filed a primary objection against the said Petition by stating that the said Petition is squarely covered by the Arbitration Clause of 'SHA' and prayed for the matter to be referred to Arbitration. However, the learned NCLT erred by citing the non-filing of an Application under Section 8 of the Arbitration Act when the substance of an Application under Section 8 of the Arbitration Act is already on record.
37. The Appellant's Counsel further argues that when there was no dispute regarding the validity of the contract between the parties, i.e. SHA, which contain the Arbitration Clause. Therefore, no injunction could have been granted to restrain from the initiation, commencement or continuation of such proceedings. Respondent No. 1 to 5 have also failed to make out any extraordinary case of the Arbitration proceedings being unconscionable to their detriment. Even the balance of convenience rests in favour of the Appellants.
38. It is further submitted that the impugned orders are arbitrary and are self-contradictory. The 1st of the impugned Order grants an interim order, with the view that the matter would be finally heard on the next date. The Learned NCLT, however, on the next date, refuses to hear the Anti Arbitration Company Appeal (AT) (CH) No. 01 of 2021 16 of 59 Application and posts that the Applications would be heard after the disposal of the matter before the New Delhi Bench of this Hon'ble Tribunal, in matters which are unconnected to the said issue. Further, it is held that the hearing on the Applications will be along with the hearing on the main Petition. In addition, the illegality is compounded by continuing the interim Order endlessly. Such an order is grossly unjust and illegal and cannot be sustained in law.
Respondent's submission
39. Respondent contends that the present Appeal, against an ad-interim order, is not maintainable as the Application before the NCLT has not been finally decided. The scope of powers of this Hon'ble Tribunal is limited to the powers as provided under Section 421 (4) of the Companies Act 2013, i.e. this Hon'ble Tribunal may only pass orders "confirming, modifying or setting aside the order appealed against". Thus, the present Appeal is not maintainable as it seeks to invoke the jurisdiction to decide disputes pending final determination before the NCLT.
40. In any event, in the light of the decision of this Appellate Tribunal in CA (AT) No. 134 and 135 of 2020 ("earlier Appeals"), the impediments cited by the NCLT for final hearing IA for 445 no longer exists. In fact, in terms of the Order of the NCLT dated 5th February 2021, the Appellant's were at "liberty to make a mention" and seek a final hearing on the interim Application. Accordingly, until such final determination by the NCLT, the Appellant cannot effectively Company Appeal (AT) (CH) No. 01 of 2021 17 of 59 seek transfer of the adjudication of IA No. 445 of 2020 from the NCLT to this Hon'ble Appellate Tribunal, as sought for in the present Appeal.
41. The disputes in the Promoters Petition and the Appellant's Petition (including the claims raised in the Arbitration notice) are governed by special legislation (Companies Act, 2013), which provides for a special statutory remedy (Sections 241 and 242) and expressly bars the jurisdiction of Civil Courts (Section 430). In cases where the jurisdiction of Civil Court is barred by a special statute that creates a special Tribunal for such a dispute, such disputes are not arbitrable.
42. The Appellant's had requested Arbitration against wrongful denial of the exercise of conversion rights and drag rights. The prayers sought also include directions against the Company for giving effect to the conversion notice, including the issuance of equity shares to the 1st Respondent and consequential rectification of the register of members. The request for Arbitration cannot be proceeded with for the following reasons;
(a) In the Promoters Petition before the NCLT, the question regarding the wrongful exercise of SHA rights is in dispute. The said Company Petition was admitted, and the admission order has been affirmed in the Appeal. The Appellants have themselves choose to raise the issue of jurisdictional conflict before the NCLT. The appellants only issued the request for Arbitration after raising such jurisdictional objection before the NCLT.
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(b) The Appellants have not applied to Section 8 of the Arbitration
and Conciliation Act, 1996. Therefore, having already submitted to the jurisdictional of the NCLT. The Appellants are now estopped from seeking to apply kompentenz-kompetenz.
(c) The Appellants challenged the Order of admission of the Promoters Petition by filing CA (AT) No. 135 of 2020, which was disposed of on 16th June 2020, with the observation that there was no flaw in the Order of admission. Thus the maintainability of the Company Petition has been tested, and the principles of estoppel apply, and the Appellants are estopped from simultaneous proceedings with Arbitration.
(d) By filing the Petition ('Appellant's Petition'), the Appellants have themselves submitted to several of the same issues regarding breach of SHA, the alleged failure to honour exits rights and drag rights in the Company Petition, over which the NCLT exercises exclusive jurisdiction. These issues are now pending adjudication under Sections 241 to 245 of the Companies Act 2013. Moreover, the ground of relief sought in the Proposed Arbitration requires rectifying the register of members under Section 59 of the Act for which the NCLT is the designated adjudicatory forum.
(e) The Respondent further relied on the Hon'ble Supreme Court decision in Shashi Prakash Khemka v NEPC Micon, (2019) 18 SCC 569 Company Appeal (AT) (CH) No. 01 of 2021 19 of 59 wherein Hon'ble Supreme Court has held that the civil remedies barred in relation to the disputes proposed to be referred to Arbitration.
(f) The Respondent further relies on the decision of the Hon'ble Supreme Court in the case of Emmar MGF Land Ltd v Aftab Singh, (2019) 12 SCC 751, wherein it is held that where specific statutory remedy has been provided and opted for, reference to Arbitration ought to be refused.
43. The Respondent contends that disputes relating to operation and mismanagement are not arbitrable given the law laid down by the Hon'ble Supreme Court in Vidya Drolia v Durga Trading Corporation, 2020 SCC online SC 1018. It is contended that such Company disputes involved the exercise of wide-ranging powers by the NCLT, which would affect the rights of Shareholders and other Stakeholders in the Company. The judgement above recognises the in rem nature of an action for oppression and mismanagement.
44. The Respondent further emphasised the plea of waiver of the Arbitration Agreement and contends that the Appellants have filed the Petition (Investors Petition) while being fully aware that there is an Arbitration Agreement under the SHA and unequivocally submitted to the jurisdiction of NCLT for breach of SHA. The conduct of parties submitting to the Court's jurisdiction constitutes a waiver under Section 8 of the Arbitration and Conciliation Act. Therefore, by approaching the NCLT for the same cause of action, the Arbitration Agreement is rendered inoperative by the waiver.
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45. The issues as proposed to be referred to Arbitration can only be determined by the Arbitral Tribunal after deciding whether the terms of SHA are valid and whether the Appellant's conduct is oppressive or vexatious. Thus, the validity of the right and the invocation of the right has to be decided by the NCLT before the enforcement of these rights by the proposed Arbitral Tribunal.
46. Furthermore, several of the same issues are raised in the proposed Arbitration reference before the NCLT. The Anti-Arbitration Injunction can be granted to prevent multiplicity of proceedings. In such cases, the functionality test is to be adopted to determine the similarity of proceedings. (UOI v CIPLA, (2017) 5 SCC 262.
47. In the instant case, there is substantial Commonality between the Arbitration proceedings and the Company Petitions pending before the NCLT. The Promoters Petition raises an objection to the exercise of the contractual right of Drag and conversion. The Appellant's Petition also raises objections to the Promoters refusal to give effect to the Appellant's contractual rights of Drag. The reliefs sought in the Appellant's request for Arbitration also assert the right to drag and conversion even if some of these issues could be referred to Arbitration, bifurcation of the cause of action not permissible. (Sukanya Holdings v Jayesh Pandya (2003) 5 SCC 531).
48. The Respondent further contends that Section 41 of the Specific Relief Act is applicable and, in any event, does not prohibit grant of relief. The power Company Appeal (AT) (CH) No. 01 of 2021 21 of 59 of the NCLT to issue Anti-Arbitration and Anti-Suit Injunctions stems from Rule 11 of the National Company Law Tribunal Rules, 2013. It follows that the NCLT is not bound by the provisions of the Civil Procedure Code, 1908 and is instead governed by the Act and Rules thereunder. The NCLT is also conferred with the power to regulate its procedure. Further, it has been held that unless there is an intention in the statute to the contrary, the statutory Tribunal ought to be considered as endowed with such incidental or ancillary powers for discharging its functions effectively.
49. The Learned Counsel for the Respondent further placed reliance on the decision of Hon'ble Supreme Court in ONGC v Western company of North America (1987) 1 SCC 496 wherein the decision of Hon'ble Supreme Court in case of Cotton Corporation of India v United Industrial Bank (1983) 4 SCC 625 is clarified. Hon'ble Supreme Court has held that Section 41 (b) of the Specific Relief Act creates a bore about the Court of coordinate or superior jurisdiction. That is why the Hon'ble High Court of Bombay, in the case of Bay Capital Advisors Private Limited v ILFS. Financial Services Ltd held that the NCLT/NCLAT does not have the power to restrain a party from initiating proceedings U/S 9 of the Arbitration and Conciliation Act, 1996. It is indisputable that the judgement in the Bay capital case proceeded on the basis that the High Court is "neither subordinate to the NCLAT, nor subject to its superintendence". The power of the NCLT to grant an Anti-arbitration injunction has not been considered or determined in this case. The power of Company Appeal (AT) (CH) No. 01 of 2021 22 of 59 the NCLT to grant Anti-Arbitration Injunctions has been affirmed in various decisions. (PPN power v PPN (Mauritius), (2004) SCC Online Madras 668.
50. Based on the pleadings of the parties following question arises for the determination of this Appeal;
1. Whether the impugned orders are against the settled principles governing the law on Anti-Arbitration Injunctions?
2. Whether the impugned orders are ultra virus the scope of Sections 241 and 242 of the Companies Act 2013?
51. We have heard the Argument of the Learned Counsel for the parties and perused the record.
Issue No 1& 2
52. The Learned Counsel for the Appellant contends that the NCLT, while claiming to be a specialised forum exercising exclusive jurisdiction, has in effect injuncted another Tribunal, which is not subordinate to it, from exercising jurisdiction conferred upon it by a special Act. The NCLT is not a Court superior to the Arbitral Tribunal and has no Supervisory Jurisdiction to stall Arbitration proceedings. The impugned orders are thus contrary to Section 41 (b) of the Specific Relief Act 1963. The Learned Counsel placed reliance on the decision of the Hon'ble Supreme Court in the case of Cotton Corpn. of India Ltd. v. United Industrial Bank Ltd., (1983) 4 SCC 625 at page
631. Hon'ble Supreme Court in the above case has held that the Court has no jurisdiction either under Section 41 (b) of the Specific Relief Act 1963 or Company Appeal (AT) (CH) No. 01 of 2021 23 of 59 under its inherent power under Section 151, CPC to grant a temporary injunction restraining a person from instituting any proceeding which such person is otherwise entitled to institute in a Court not subordinate to that from which the injunction is sought. Hon'ble Supreme Court has further explained the rationale of Section 41 (b) of the Specific Relief Act 1963.
53. Hon'ble Supreme Court has held that the equitable principle underlying Section 41 (b) is that access to Court in search of justice according to law is the right of a person who complains of infringement of his legally protected interest and a fortiori therefore, no other Court can by its action impede access to justice, except the Superior Court which can injunct a person by restraining him from instituting are prosecuting proceeding before a Subordinate Court. A Subordinate Court is excluded from granting an injunction restraining any person from instituting or prosecuting any proceeding in a Court of Coordinate or Superior Jurisdiction. Section 41 (b) has curtailed the power to grant an injunction in personam. Moreover, Section 41(b) was enacted to avoid the inevitable multiplicity of proceedings. The expression "injunction" in Section 41 (b) is not qualified by an adjective, and therefore, it could comprehend both interim and perpetual injunction. A temporary injunction is granted during the pendency of the proceeding so that while granting final relief, the Court is not faced with a situation that the relief becomes infructuous or that during the pendency of the proceeding, an unfair advantage is taken by the party in default or against whom the temporary injunction is sought. But the power to grant a temporary injunction was Company Appeal (AT) (CH) No. 01 of 2021 24 of 59 conferred in aid or as auxiliary to the final relief that may be granted. If the final relief cannot be granted in terms of prayer, temporary relief in the same terms can hardly be granted.
54. Hon'ble Supreme Court has further observed that the Court can, in appropriate cases, grant a temporary injunction in the exercise of its inherent power in cases not covered by Order 39 CPC. But inherent powers of the Court cannot be involved to nullify or stultify a statutory provision. Therefore, while exercising this inherent power, the Court should not overlook the statutory provision, such as Section 41(b), which indicates that an injunction to restrain initiation of proceeding in a Superior Court cannot be granted.
55. Hon'ble Delhi High Court in case of McDonald's India private limited v Vikram Bakshi and others 2016 SCC online Delhi 3949 has held;
"40. It is important to note that the present case pertains to an Anti-Arbitration Injunction and the principles governing the present case cannot be the same as one governing a case of an Anti-Suit Injunction. This is so because of the principles of autonomy of Arbitration and the competence-competence (Kompetenz-kompetenz) principle. For the present, it is necessary to note point numbers 6 and 7 in the extract from the Supreme Court decision in Modi Entertainment Network (supra). It has been observed that when one of the parties to a contract containing a jurisdiction clause approaches the Court of choice in which exclusive or non-exclusive jurisdiction is created, the proceedings in that Court cannot per se be treated as vexatious or oppressive. Furthermore, the Company Appeal (AT) (CH) No. 01 of 2021 25 of 59 burden of establishing that the proceedings in the forum of choice are oppressive or vexatious would be on the party so contending to aver and prove the same.
41. The only principle on which the respondents' case is based is that the arbitration proceedings at London would be vexatious or oppressive. But, as pointed out in Modi Entertainment Network (supra), merely because an arbitration is proceeded with at the place of choice (London), would not, per se amount to a vexatious or oppressive proceeding. The onus would be on the respondents to establish that the arbitration proceedings are oppressive or vexatious. We may also note that the learned counsel for the respondents had categorically stated that it is not the place of Arbitration or the expenses which would be incurred for the conduct of arbitration proceedings at London, which is the objection on their Part. The objection is to the forum of Arbitration itself being vexatious. In other words, the grievance of the respondents is not with regard to the place of Arbitration, but to the arbitration proceedings itself ! ******
60. Our focus is on the question whether an anti- arbitration injunction could at all have been granted in the facts and circumstances of the present case. We have already explained as to how, if the arbitration agreement was taken to be one which was covered under Section 44 of the 1996 Act, the arbitration proceedings could not be injuncted because the same was neither null or void, inoperative or incapable or being performed. Even if we assume that Part I of the 1996 Act was to apply, then also, because of the provisions of Section 8, the judicial authority would be obliged to refer the Company Appeal (AT) (CH) No. 01 of 2021 26 of 59 parties to Arbitration. We may point out that Section 8 and, in particular, sub-section (1) thereof has been recently amended with retrospective effect from 23.10.2015 to read as under: -
"8. 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.
xxxx xxxx xxxx xxxx xxxx"
61. Thus, there is now a mandate to refer the parties to Arbitration unless the Court finds that prima faice no valid arbitration agreement exists. This is clearly not the case here. Therefore, in any eventuality, in the facts and circumstances of the case and applying the principles, as indicated above, the learned single Judge could not have restrained the Appellant from pursuing the arbitration proceedings before the arbitral Tribunal.******
63. Courts need to remind themselves that the trend is to minimise interference with arbitration process as that Company Appeal (AT) (CH) No. 01 of 2021 27 of 59 is the forum of choice. That is also the policy discernible from the 1996 Act. Courts must be extremely circumspect and, indeed, reluctant to thwart arbitration proceedings. Thus, while courts in India may have the power to injunct arbitration proceedings, they must exercise that power rarely and only on principles analogous to those found in sections 8 and 45, as the case may be, of the 1996 Act. We have already indicated that the circumstances of invalidity of the arbitration agreement or it being inoperative or incapable of being performed do not exist in this case."
(Verbatim copy with emphasis supplied)
56. Hon'ble Supreme Court in case of World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd., (2014) 11 SCC 639 has held;
"22. We are unable to accept the first contention of Mr Venugopal that as Clause 9 of the Facilitation Deed provides that any party may seek equitable relief in a court of competent jurisdiction in Singapore, or such other Court that may have jurisdiction over the parties, the Bombay High Court had no jurisdiction to entertain the suit and restrain the arbitration proceedings at Singapore because of the principle of comity of courts. In Black's Law Dictionary, 5th Edn., Judicial Comity, has been explained in the following words:
"Judicial comity.--The principle in accordance with which the courts of one State or jurisdiction will give effect to the laws and judicial decisions of another, not as a matter of obligation, but out of deference and respect."
Company Appeal (AT) (CH) No. 01 of 2021 28 of 59 Thus, what is meant by the principle of "comity" is that courts of one State or jurisdiction will give effect to the laws and judicial decisions of another State or jurisdiction, not as a matter of obligation but out of deference and mutual respect. *******
25. The language of Section 45 of the Act quoted above makes it clear that notwithstanding anything contained in Part I or in the Code of Civil Procedure, a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to Arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. Thus, even if, under Section 9 read with Section 20 CPC, the Bombay High Court had the jurisdiction to entertain the suit, once a request is made by one of the parties or any person claiming through or under him to refer the parties to Arbitration, the Bombay High Court was obliged to refer the parties to Arbitration unless it found that the agreement referred to in Section 44 of the Act was null and void, inoperative or incapable of being performed. In the present case, the Appellant may not have made an application to refer the parties to Arbitration, but Section 45 of the Act does not refer to any application as such. Instead, it refers to the request of one of the parties or any person claiming through or under him to refer the parties to Arbitration. In this case, the Appellant may not have made an application to refer the parties to Arbitration at Singapore but has filed an affidavit-in-reply to the notice of motion and has stated in Paras 3, 4 and 5 of this Company Appeal (AT) (CH) No. 01 of 2021 29 of 59 affidavit that the defendant had already invoked the arbitration agreement in the Facilitation Deed and the arbitration proceedings have commenced and that the suit was an abuse of process of Court. The Appellant had thus made a request to refer the parties to Arbitration at Singapore which had already commenced.
26. Section 45 of the Act quoted above also makes it clear that even where such request is made by a party, it will not refer the parties to Arbitration, if it finds that the agreement is null and void, inoperative or incapable of being performed. As the very language of Section 45 of the Act clarifies the word "agreement" would mean the agreement referred to in Section 44 of the Act. Clause (a) of Section 44 of the Act refers to "... an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies".
(emphasis supplied)
57. It is apparent that in the instant case, CP No. 77/BB/2020 was listed for the final hearing of IA No. 445 of 2020 for the Anti-arbitration injunction against Respondent. However, the NCLT, instead of disposing of IA No. 445 of 2020, passed an order that" respondent number 3 and 4 have preferred appeals CA (AT) 134 of 2020 and CA (AT) 135 of 2021 before the NCLAT on the subject issue, which is pending for disposal and the issue in question is subjudice before this Tribunal as well as the Appellate Tribunal, IA No 445 of 2020 cannot be decided in isolation and thus we are inclined to take up this IA along with the main CP when the appeals are decided. Therefore, the interim Company Appeal (AT) (CH) No. 01 of 2021 30 of 59 Order passed on 02nd December 2020 in IA No. 445 of 2020 is hereby extended until further orders."
58. The Learned Counsel for the Respondent argues that to see the validity of the Order of NCLT to pass an Anti arbitration injunction; it is irrelevant whether or not the Tribunal falls within the definition of the 'Court' under the Arbitration Act, as the IA No. 445 of 2020 does not involve the jurisdiction of the Court in terms of Arbitration Act. The power to grant an Anti arbitration injunction arises from inherent powers of the Court/Tribunal to prevent abuse of the process of law. Such injunction can be granted inter alia by the party seeking an injunction, demonstrating that the Arbitration Agreement is null and void, inoperative, incapable of being performed. This includes instances where the parties waive Arbitration by failing to properly invoke the Arbitration Agreement, such as in the present case. The learned NCLT has the power to grant an Anti arbitration injunction under Section 242 of the Act read with Rule 11 of the NCLT Rules 2016.
59. Furthermore, the Appellant's have also wrongly submitted that the Arbitral Tribunal has the exclusive power to rule on its own jurisdiction. Such an argument is in stark contradiction of recent judgements wherein it was held that the question of arbitrability must be considered before the parties are referred to Arbitration and parties must not be referred to Arbitration if it is ex-facie evident (as in this case) that the underlying dispute is not arbitrable. It has also been held in clear, specifically in unambiguous terms, that intracompany disputes such as the present must be determined by a Company Appeal (AT) (CH) No. 01 of 2021 31 of 59 special forum (here, the NCLT) which has exclusive jurisdiction to efficaciously and fully dispose of the entire matter, and are therefore not arbitrable.
60. The Learned Counsel for the Respondents has also placed reliance on the judgement of Hon'ble Supreme Court in the case of World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd., (2014) 11 SCC 639, PPN Power Generating Company Limited v PPN (Mauritius) Company, 2004 SCC Online Madras 668 and Vidya Drolia and Others v Durga Trading Corporation, 2020 SCC online SC 1018.
61. In reply to the above Learned Counsel for the Respondent contended that the subject matter of the proposed Arbitration entirely overlaps with the issues pending determination before the Tribunal in the 'Promoters Petition' and the 'Investors Petition'. The Appellants have initiated the proposed Arbitration in relation to the purported breach of their drag right and their conversion rights regarding their compulsory convertible preference shares (CCPS) under the 2015 SHA and the AOA. Each of these is squarely covered with the scope of the 'Promoters Petition' as well as the 'Investor's Petition'.
62. It is submitted that the Appellants and the promoters have independently already invoked the jurisdiction of the NCLT with respect to both issues with the Appellants intent to submit to Arbitration. Therefore, the subsequent attempt of the Appellant's to submit these disputes to Arbitration is an attempt to frustrate the proceedings in the Promoters Petition and is an Company Appeal (AT) (CH) No. 01 of 2021 32 of 59 attempt at forum shopping by avoiding adjudication by a specialised Tribunal which has extraordinary powers to deal with such intracompany disputes. The NCLT had exclusive jurisdiction to determine the issues intended to be referred to Arbitration.
63. The subject matter of the Promoters Petition relates to the continuing oppressive conduct of the Appellants in managing the affairs of the Company, which actions have stifled the growth of the Company, resulting in great prejudice to the Company and the Promoters. In other words, such a determination is not limited to the terms of 2015 SHA but extends to the Appellant's conduct in relation to affairs of the Company, which are oppressive. Under Sections 241 and 242, read with Section 430 of the Companies Act 2013, the Learned Tribunal has exclusive jurisdiction to deal with the affairs of the Company, including the subject matter of the Promoters Petition and the Arbitration proposed to be initiated by the Appellants. It is also pertinent to note that recently, a three-judge Bench of the Hon'ble Supreme Court in Vidya Drolia v Durga Trading Company has held that intracompany disputes are not arbitrable and are within the exclusive jurisdiction of a statutory tribunal which can effectively resolve all the disputes.
64. The Learned Counsel for the Respondents further submits that the Appellants have waived the Arbitration Agreement. In any event, the Appellant's, having submitted to the jurisdiction of the NCLT in the Promoters Petition of their own volition, have not filed any separate/standalone Company Appeal (AT) (CH) No. 01 of 2021 33 of 59 Applications under Section 8 of the Arbitration and Conciliation Act ("Arbitration Act") as is mandated by law. Moreover, the Appellants have also invoked the jurisdiction of the NCLT about the same disputes in the Investor Petition and have, therefore, waived of/abanded the Arbitration Agreement. The NCLT has exclusive jurisdiction to determine the issues intended to be referred to Arbitration. The Learned Counsel for the Respondent placed reliance on the following case laws:
Hon'ble Supreme Court in case of Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : 2020 SCC OnLine SC 1018 at page 59 has held that:
"49. Exclusion of actions in rem from Arbitration, exposits the intrinsic limits of Arbitration as a private dispute resolution mechanism, which is only binding on "the parties" to the arbitration agreement. The courts established by law on the other hand enjoy jurisdiction by default and do not require mutual agreement for conferring jurisdiction. The Arbitral Tribunals not being courts of law or established under the auspices of the State cannot act judicially so as to affect those who are not bound by the arbitration clause. Arbitration is unsuitable when it has erga omnes effect, that is, it affects the rights and liabilities of persons who are not bound by the arbitration agreement. Equally Arbitration as a decentralised mode of dispute resolution is unsuitable when the subject- matter or a dispute in the factual background, requires collective adjudication before one Court or forum. Certain disputes as a class, or sometimes the dispute in the given facts, can be efficiently resolved only through collective litigation proceedings. Contractual and consensual nature of Arbitration Company Appeal (AT) (CH) No. 01 of 2021 34 of 59 underpins its ambit and scope. Authority and power being derived from an agreement cannot bind and is non-effective against non-signatories. An arbitration agreement between two or more parties would be limpid and inexpedient in situations when the subject-matter or dispute affects the rights and interests of third parties or without presence of others, an effective and enforceable award is not possible. Prime objective of Arbitration to secure just, fair and effective resolution of disputes, without unnecessary delay and with least expense, is crippled and mutilated when the rights and liabilities of persons who have not consented to Arbitration are affected or the collective resolution of the disputes by including non-parties is required. Arbitration agreement as an alternative to public fora should not be enforced when it is futile, ineffective, and would be a no result exercise. ***
50. Sovereign functions of the State being inalienable and non-delegable are non-arbitrable as the State alone has the exclusive right and duty to perform such functions. **For example, it is generally accepted that monopoly rights can only be granted by the State. Correctness and validity of the State or sovereign functions cannot be made a direct subject-matter of a private adjudicatory process. Sovereign functions for the purpose of Arbitration Act would extend to exercise of executive power in different fields including commerce and economic, legislation in all forms, taxation, eminent domain and police powers which includes maintenance of law and Order, internal security, grant of pardon, etc. as distinguished from commercial activities, economic adventures and welfare activities. [Common Cause v. Union of India, (1999) 6 SCC 667: 1999 SCC (Cri) 119 and Agricultural Produce Market Committee v. Ashok Harikuni, (2000) 8 SCC 61.] Similarly, decisions and Company Appeal (AT) (CH) No. 01 of 2021 35 of 59 adjudicatory functions of the State that have public interest element like the legitimacy of marriage, citizenship, winding up of companies, grant of patents, etc. are non-arbitrable, unless the statute in relation to a regulatory or adjudicatory mechanism either expressly or by clear implication permits Arbitration. In these matters the State enjoys monopoly in dispute resolution.
51. Fourth principle of non-arbitrability is alluded to in the Order of reference [Vidya Drolia v. Durga Trading Corpn., (2019) 20 SCC 406] , which makes specific reference to Vimal Kishor Shah [Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 : (2016) 4 SCC (Civ) 303], which decision quotes from Dhulabhai [Dhulabhai v. State of MP, (1968) 3 SCR 662 : AIR 1969 SC 78], a case which dealt with exclusion of jurisdiction of civil courts under Section 9 of the Civil Procedure Code. The second condition in Dhulabhai [Dhulabhai v. State of MP, (1968) 3 SCR 662 : AIR 1969 SC 78] reads as under : (AIR p. 89, para
32) "32. ... (2) Where there is an express bar of the jurisdiction of the Court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil Court.
Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about Company Appeal (AT) (CH) No. 01 of 2021 36 of 59 the said right and liability shall be determined by the tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not."
53. Dhulabhai case [Dhulabhai v. State of MP, (1968) 3 SCR 662 : AIR 1969 SC 78] is not directly applicable as it relates to exclusion of jurisdiction of civil courts, albeit we respectfully agree with the Order of reference [Vidya Drolia v. Durga Trading Corpn., (2019) 20 SCC 406] that Condition 2 is apposite while examining the question of non-arbitrability. Implied legislative intention to exclude Arbitration can be seen if it appears that the statute creates a special right or a liability and provides for determination of the right and liability to be dealt with by the specified courts or the tribunals specially constituted in that behalf and further lays down that all questions about the said right and liability shall be determined by the Court or tribunals so empowered and vested with exclusive jurisdiction. Therefore, mere creation of a specific forum as a substitute for civil Court or specifying the civil Court, may not be enough to accept the inference of implicit non-arbitrability. Conferment of jurisdiction on a specific court or creation of a public forum though eminently significant, may not be the decisive test to answer and decide whether arbitrability is impliedly barred.
54. Implicit non-arbitrability is established when by mandatory law the parties are quintessentially barred from contracting out and waiving the adjudication by the designated Court or the specified public forum. There is no choice. The person who insists on the remedy must seek his remedy before the forum stated in the statute and before no other forum.
***********
Company Appeal (AT) (CH) No. 01 of 2021 37 of 59
55. Doctrine of election to select Arbitration as a dispute resolution mechanism by mutual agreement is available only if the law accepts existence of Arbitration as an alternative remedy and freedom to choose is available.***** When Arbitration cannot enforce and apply such rights or the award cannot be implemented and enforced in the manner as provided and mandated by law, the right of election to choose Arbitration in preference to the courts or public forum is either completely denied or could be curtailed. In essence, it is necessary to examine if the statute creates a special right or liability and provides for the determination of each right or liability by the specified Court or the public forum so constituted, and whether the remedies beyond the ordinary domain of the civil courts are prescribed. When the answer is affirmative, Arbitration in the absence of special reason is contraindicated. The dispute is non-arbitrable."
66. In the case of Vidya Drolia (supra), Hon'ble Supreme Court has held that Arbitration being a matter of the contract, the parties are entitled to fix boundaries so as to confer and limit jurisdiction and legal authority of Arbitrator and though the Arbitration Agreement may be valid, yet Arbitral Tribunal, in view of the will of the parties expressed in Arbitration Agreement, may not have jurisdiction to adjudicate the dispute.
67. Hon'ble Supreme Court has further held that there is a difference between a non arbitrable claim and non- arbitrable subject matter; the former may arise on account of the scope of the arbitration agreement and also when the claim is not capable of being resolved through Arbitration; while generally non-arbitrability of the subject matter would relate to non- arbitrability in law.
Company Appeal (AT) (CH) No. 01 of 2021 38 of 59
68. Hon'ble Supreme Court in ONGC v. Western Co. of North America, (1987) 1 SCC 496 at page 515 has held:
"18. In the result we are of the opinion that the facts of this case are eminently suitable for granting a restraint order as prayed by ONGC. It is no doubt true that this Court sparingly exercises the jurisdiction to restrain a party from proceeding further with an action in a foreign court. We have the utmost respect for the American Court. The question however is whether on the facts and circumstances of this case it would not be unjust and unreasonable not to restrain Western Company from proceeding further with the action in the American Court in the facts and circumstances outlined earlier. We would be extremely slow to grant such a restraint order but in the facts and circumstances of this matter we are convinced that this is one of those rare cases where we would be failing in our duty if we hesitate in granting the restraint order, for, to oblige ONGC to face the aforesaid proceedings in the American Court would be oppressive in the facts and circumstances discussed earlier. But before we pass an appropriate order in this behalf, we must deal with the plea that the High Court does not have the jurisdiction to grant such a restraint order even if the proceeding in the foreign Court is considered to be oppressive. Counsel for the Respondent has placed reliance on Cotton Corporation of India v. United Industrial Bank [(1983) 4 SCC 625 : (1983) 3 SCR 962 : (1984) 55 Com Cas 423] in support of this plea. In Cotton Corporation case [(1983) 4 SCC 625 : (1983) 3 SCR 962 : (1984) 55 Com Cas 423] the question before the Court was whether in the context of Section 41(b) of the Specific Relief Act, the Court was justified in granting the injunction. The said provision runs thus:
Company Appeal (AT) (CH) No. 01 of 2021 39 of 59
"41. An injunction cannot be granted--
(b) to restrain any person from instituting or
prosecuting any proceeding in a court not subordinate to that from which the injunction is sought;"
(emphasis added) This provision, in our opinion, will be attracted only in a fact- situation where an injunction is sought to restrain a party from instituting or prosecuting any action in a court in India which is either of co ordinate jurisdiction or is higher to the Court from which the injunction is sought in the hierarchy of courts in India. There is nothing in Cotton Corporation case [(1983) 4 SCC 625 : (1983) 3 SCR 962 :
(1984) 55 Com Cas 423] which supports the proposition that the High Court has no jurisdiction to grant an injunction or a restraint order in exercise of its inherent powers in a situation like the one in the present case. In fact this Court had granted such a restraint order in V/O Tractoroexport, Moscow v. Tarapore & Company [(1969) 3 SCC 562 : AIR 1971 SC 1 : (1970) 3 SCR 53] and had restrained a party from proceeding with an arbitration proceedings in a foreign country (in Moscow). As we have pointed out earlier, it would be unfair to refuse the restraint order in a case like the present one for the action in the foreign Court would be oppressive in the facts and circumstances of the case. And in such a situation the courts have undoubted jurisdiction to grant such a restraint order whenever the circumstances of the case make it necessary or expedient to do so or the ends of justice so require. The following passage extracted from para 1039 of Halsbury's Laws of England, Vol. 24, at p. 579 supports this point of view:
Company Appeal (AT) (CH) No. 01 of 2021 40 of 59 "With regard to foreign proceedings, the Court will restrain a person within its jurisdiction from instituting or prosecuting proceedings in a foreign court whenever the circumstances of the case make such an interposition necessary or expedient. In a proper case the Court in this country may restrain a person who has actually recovered judgment in a foreign court from proceeding to enforce that judgment. The jurisdiction is discretionary and the Court will give credit to foreign courts for doing justice in their own jurisdiction."
It was because this position was fully realised that it was argued on behalf of the Respondent that the action in the US Court could not be considered as being oppressive to ONGC. We have already dealt with this aspect and reached a conclusion adverse to Western Company. There is thus no merit in the submission that the High Court of Bombay has no jurisdiction in this behalf.
And now we come to the conclusion. While we are inclined to grant the restraint order as prayed, we are of the opinion that fairness demands that we do not make it unconditional but make it conditional to the extent indicated hereafter. There are good and valid reasons for making the restraint order conditional in the sense that ONGC should be required to pay the charges payable in respect of the user of the rig belonging to Western Company at the undisputed rate regardless of the outcome of the Petition instituted by ONGC in the High Court for setting aside the award rendered by the umpire. India has acceded to the New York Convention. One of the objects of the New York Convention was to evolve consensus amongst the covenanting nations in regard to the execution of foreign arbitral Company Appeal (AT) (CH) No. 01 of 2021 41 of 59 awards in the concerned nations. The necessity for such a consensus was presumably felt with the end in view to facilitate international trade and commerce by removing technical and legal bottlenecks which directly or indirectly impede the smooth flow of the river of international commerce. Since India has acceded to this Convention it would be reasonable to assume that India also subscribes to the philosophy and ideology of the New York Convention as regards the necessity for evolving a suitable formula to overcome this problem. The Court dealing with the matters arising out of arbitration agreements of the nature envisioned by the New York Convention must therefore adopt an approach informed by the spirit underlying the Convention. It is no doubt true that if the arbitral award is set aside by the Indian Court, no amount would be recoverable under the said award. That however does not mean that the liability to pay the undisputed amount which has already been incurred by ONGC disappears. It would not be fair on the Part of ONGC to withhold the amount which in any case is admittedly due and payable. Western Company can accept the amount without prejudice to its rights and contentions to claim a larger amount. No prejudice will be occasioned to ONGC by making the payment of the admitted amount regardless of the fact that Western Company is claiming a larger amount. And in any case, ONGC which seeks an equitable relief cannot be heard to say that it is not prepared to act in a just and equitable manner regardless of the niceties and nuances of legal arguments. These are the reasons which make us take the view that the restraint order deserves to be made conditional on ONGC paying the undisputed dues at an early date subject to final adjustments in the light of final determination of the dispute."
Company Appeal (AT) (CH) No. 01 of 2021 42 of 59 Hon'ble Supreme Court in the case of Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 : (2018) 5 SCC (Civ) 652 : 2018 SCC OnLine SC 2771 at page 783;
"62. This Court held in Vimal Kishor Shah case [Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 : (2016) 4 SCC (Civ) 303] that disputes within the trust, trustees and beneficiaries are not capable of being decided by the Arbitrator despite existence of arbitration agreement to that effect between the parties. This Court held that the remedy provided under the Arbitration Act for deciding such disputes is barred by implication. The ratio laid down in the above case is fully applicable with regard to disputes raised in consumer fora."
Hon'ble Supreme Court in the case of Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 : (2018) 5 SCC (Civ) 652 : 2018 SCC OnLine SC 2771 at page 778 held;
50. In Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya [Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531], this Court had occasion to consider the ingredients of Section 8. This Court noticed certain circumstances, where matter was not required to be referred to the Arbitral Tribunal. In paras 12, 13 and 15, the following has been held: (SCC pp. 535-36) "12. Further, the matter is not required to be referred to the Arbitral Tribunal, if: (1) the parties to the arbitration agreement have not filed any such application for referring the dispute to the Arbitrator; (2) in a pending suit, such Application is not filed before submitting first Company Appeal (AT) (CH) No. 01 of 2021 43 of 59 statement on the substance of the dispute; or (3) such application is not accompanied by the original arbitration agreement or duly certified copy thereof.
13. Secondly, there is no provision in the Act that when the subject-matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to Arbitration. There is also no provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators. ***
15. The relevant language used in Section 8 is: 'in a matter which is the subject of an arbitration agreement'. The Court is required to refer the parties to Arbitration. Therefore, the suit should be in respect of "a matter"
which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced -- "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of Application of Section 8. The words "a matter" indicate that the entire subject-matter of the suit should be subject to arbitration agreement."
(emphasis in original) Discussion and Finding
69. By the impugned Orders Learned, NCLT directed the Appellants to maintain the status quo regarding the Arbitration proceedings, stalling the Arbitration process in effect while citing the pendency of unconnected lis between the parties. Consequently, the Arbitration proceedings have come to Company Appeal (AT) (CH) No. 01 of 2021 44 of 59 a halt as a consequence of the impugned orders, and even the Arbitral Tribunal could not be constituted.
70. After going through submissions of both the parties and considering the relevant citations relied on, it appears that the issue before us is only limited to the extent of validity of the Order passed by the National Company Law Tribunal in issuing Anti-Arbitration Injunction Order, which restrains the Appellants from initiating, commencing and continuing of Arbitration proceedings. In the instant case, the Learned NCLT has yet not decided to refer the matter to Arbitration. However, both the parties have placed reliance on several cases of the Hon'ble Supreme Court on reference to the Arbitral Tribunal. Whether dispute should be referred to Arbitral Tribunal or not this is not the issue in this Appeal. So at present, we are dealing with the limited issue of the validity of the Anti-Arbitration Injunction order passed by the learned NCLT.
71. The Respondent/Promoters have primarily raised the following contentions;
The Commonality of issues between the Arbitration proceedings and the proceedings pending before NCLT (Promoters Petition as well as Investors Petition) The Appellants have waived the right to arbitrate by firstly filing a Petition under Sections 241 and 242 of the Companies Act, Company Appeal (AT) (CH) No. 01 of 2021 45 of 59 2013 before the NCLT and then submitting to the jurisdiction of the NCLT in the Promoter's Petition.
There is no standalone Application under Section 8 of the Arbitration and Conciliation Act, 1996.
An intra-company dispute is not arbitrable given the law laid down by the Hon'ble Supreme Court in Vidya Drolia v Durga Trading Corporation (2020 SCC online SC 1018).
72. The Learned Counsel for the Appellant submits that the Arbitral Tribunal has the power to decide its jurisdiction, and the NCLT cannot injunct the Arbitration proceedings. It is contended that Section 16 of the Arbitration Act provides that the Arbitral Tribunal has exclusive power on its jurisdiction to adjudicate upon matters referred to it under a valid Arbitration Agreement. If any objections to the jurisdiction are to be agitated before the Arbitral Tribunal, the Competent Authority, decides such issues. The only Courts that can supervise the Arbitral Tribunal is Courts having jurisdiction over the seat of Arbitration under the Arbitration act and having supervisory authority over the Arbitral Tribunal.
73. The learned counsel for the Respondent has laid much emphasis on the point of Commonality of issues in the arbitration proceedings and the proceedings pending before the NCLT in the Promoters as well as in the Investors Petition.
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74. The Promoter Respondents have submitted that there purportedly exists a Commonality of issues between the Arbitration proceedings and the Company Petitions being CP No.77/BB/2020 (Promoters Petition) and the CP No. 78/BB/2020 (Investors Petition).
75. The Appellants have contended that Promoters Petition under Sections 241 and 242 of the Companies Act 2013 is a dressed-up petition wherein the Promoter Respondents have sought reliefs regarding matters that are contractual (in nature). Promoters petition does not purport to contend that the rights as Promoter Shareholders are being infringed or prejudiced. Further, the Promoters Petition does not deal with the affairs of the Company being prejudiced on account of the Appellant's conduct. The grievance is limited to allegations that exit rights exercised or contracted in favour of the Appellant's, are violated by the Appellant's, are vitiated by the Appellant's conduct. In the background, the attempt to exercise the exit rights is prejudicial to the Promoter Respondents.
76. The issues raised in the Promoters Petition are couched to give the impression of the oppression, when in fact, the issues emanate from and relate only to contractual rights and their impact on the Promoter Respondents when exercised by the Appellants. These are issues with the parties have agreed upon to be adjudicated by an Arbitral Tribunal. There is no commonality of issues within the Promoters Petition and the Arbitration proceedings, which the NCLT can adjudicate.
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77. The issues in the Arbitration proceedings are relating to the enforcement of contractual provisions. In contrast, the issues in the Investors Petition deals with oppression and mismanagement by Promoter Respondents who are in the majority on the Board of Respondent No. 6 and allegedly abused their majority to the detriment of other Shareholders. The Promoter Respondents have failed to show a commonality of issues between the proceedings. Since the issues raised in the proceedings before the NCLT and Arbitration are distinct and separate, there is no question of any commonality of issues within the Investors Petition and Arbitration proceedings.
78. The powers of the NCLT under the Sections 241 and 242 of the Companies Act operate in a different realm compared to an Arbitral Tribunal under the Arbitration and Conciliation Act, 1996. The NCLT under the Companies Act is concerned only with the affairs of the Company and does not have the jurisdiction to deal with the issues relating to the enforcement of contractual provisions between the parties. Therefore, there does not exist any commonality of issues in the proceedings in the NCLT due to the dressed-up Petition filed by the Promoter Respondents, i.e. Promoters petition.
79. It is pertinent to mention that in the Investor's Petition, no prayer or relief with respect to the breach of rights pertaining to the conversion notice has been sought by the appellants. This was a subsequent event and not within the scope of the Investor Petition. The fact was merely brought to the attention of the Learned NCLT in the rejoinder to the Investors Petition to Company Appeal (AT) (CH) No. 01 of 2021 48 of 59 demonstrate the conduct of the Promoter Respondents. The Appellant's legitimately exercised their rights under the Arbitration Agreement.
80. It is also important to point out that Promoter Respondent to expand the scope of their Petition in a mala fide manner by agitating this issue through an additional affidavit, which was duly countered by the Appellant's who reiterated their rights under the contract between the parties and therefore is not an issue covered in the Promoters Petition.
81. The Learned Counsel for the Respondent vehemently argued that there exists waiver of rights to Arbitration by the Appellants. Promoter Respondents have submitted that the Appellants have waived their right to arbitrate by allegedly submitting to the jurisdiction of the NCLT in the Promoters Petition and by invoking the jurisdiction of NCLT in the Investor Protection.
82. The Appellants have challenged the Promoters Petition's maintainability at the very 1st stage and have prayed that the disputes raised in this Petition be referred to Arbitration. A special submission to this effect has been made in the statement of objections, which is sufficient in compliance with Section 8 of the Arbitration and Conciliation Act, 1996 for referring the matter to the Arbitral Tribunal.
83. The Appellants in the Investors Petition have raised disputes which relate to the management of the Respondent No. 6 Company which is distinct from the dispute raised in the Arbitration proceedings.
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84. Since the issues arising out of the Investors Petition and the Arbitration are distinct, a party invoking the jurisdiction of the NCLT and contending oppression and mismanagement under the Companies Act cannot be held to waive its rights to arbitrate a contractual dispute arising out of an Agreement. Even otherwise, assuming that the appellants have waived their rights to arbitrate, the said determination cannot be made by the NCLT. It can only be decided by an Arbitral Tribunal in keeping with the principles of Kompetenz- kompetenz. The Learned NCLT can only decide/examine to satisfy itself on a prima facie basis regarding the existence of an Arbitration Agreement and cannot use the Arbitral Tribunal's jurisdiction to decide if arbitral proceedings are barred or not maintainable. The Arbitration and Conciliation Act 1996 empower the Arbitral Tribunal to decide its own jurisdiction, and Promoter Respondents have the liberty to raise the issue before the Arbitral Tribunal under Section 16 of the Act. Therefore, the averment of the Promoter Respondents that the Appellants have waived their right to arbitrate is unfounded and without any merit.
85. The Learned Adjudicating Authority has also observed in the impugned Order about the non-submission of Application under Section 8 of the Arbitration and Conciliation Act 1996. Under Section 8 of the Act, Judicial Authorities refer the dispute to Arbitration upon the determination of the existence of an Arbitration Agreement. In the instant case, the Promoter Respondents have not disputed the existence of an Arbitration Agreement.
Company Appeal (AT) (CH) No. 01 of 2021 50 of 59 Therefore, it is untenable to contend that the NCLT had rightly not referred the dispute to the Arbitration.
86. There are ample precedents to suggest that averments concerning the maintainability of the Petition and the fact that the action covered in the Petition is subject of an Arbitration Agreement, thereby seeking reference to Arbitration, raised at the 1st instance, i.e. in the response filed by the Respondents, qualified as a valid Application in terms of Section 8 of the Act. There is no requirement to file a separate Application to this effect.
87. The Learned counsel for the Promoter Respondents relying on the judgement of Hon'ble Supreme Court in Vidya Dolia (supra) emphasised that Intracompany disputes are not arbitrable disputes. The Promoter Respondents contend that the present dispute is not arbitrable as it is an intracompany dispute.
88. In response to the argument advanced by the Learned Senior Counsel for the Respondent, the Learned Counsel for the Appellant placed reliance on the judgement of Hon'ble High Court of Delhi in the case of Himachal Sorang Power Private Limited v The NCC Infrastructure Holdings Ltd 2019 SCC online Delhi 7575, wherein Parameters for grant of anti-arbitration injunctions has been laid down. Hon'ble High Court has held;
"82. This is, especially so, as what HSPL and TAQA, in effect, seek in terms of relief, both in the interlocutory Application and the suit, is an anti-arbitration injunction. The Courts, ordinarily, have been very slow in granting injunctions Company Appeal (AT) (CH) No. 01 of 2021 51 of 59 whereby arbitration proceedings are brought to a standstill. The fundamental reason for this appears to be that the parties by entering into a contract would have necessarily agreed, as in this case, that all issues connected with or arising from the agreement entered into between them, would be tried by an Arbitral Tribunal duly constituted in terms of the agreement and, therefore, any sort of injunction granted by the Court would tantamount to aiding breach of the arbitration agreement.
*********** Parameters for grant of anti-arbitration injunctions
127. Thus, if I were to attempt an encapsulation of the broad parameters governing anti-arbitration injunctions, they would be the following:
i) The principles governing anti-suit injunction are not identical to those that govern an anti-arbitration injunction.
ii) Court's are slow in granting an anti-arbitration injunction unless it comes to the conclusion that the proceeding initiated is vexatious and/or oppressive.
iii) The Court which has supervisory jurisdiction or even personal jurisdiction over parties has the power to disallow commencement of fresh proceedings on the ground of res judicata or constructive res judicata. If persuaded to do so the Court could hold such proceeding to be vexatious and/or oppressive. This bar could obtain in respect of an issue of law or fact or even a mixed question of law and fact.
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iv) The fact that in the assessment of the Court a trial
would be required would be a factor which would weigh against grant of anti-arbitration injunction.
v) The aggrieved should be encouraged to approach either the Arbitral Tribunal or the Court which has the supervisory jurisdiction in the matter. An endeavour should be made to support and aid Arbitration rather than allow parties to move away from the chosen adjudicatory process.
vi) The arbitral Tribunal could adopt a procedure to deal with "re-arbitration complaint" (depending on the rules or procedure which govern the proceeding) as a preliminary issue."
89. In the case mentioned above, the Hon'ble High Court has held that only the Court is that can supervise or regulate the arbitration proceedings are 'Courts' having jurisdiction over the seat of Arbitration under the Arbitration Act and having supervisory jurisdiction over the arbitral Tribunal. The Hon'ble High Court has further laid down the parameters for grant of Anti-arbitration injunction in the case mentioned above. Accordingly, it is held that the Court with supervisory jurisdiction or even personal jurisdiction over the parties has the power to disallow commencement of fresh proceedings on the ground of res judicata or constructive res judicata.
90. The Learned Counsel for the Appellant has further placed reliance on the judgement of the Hon'ble Supreme Court in the case of Cotton Corporation of India v United Industrial Bank Ltd, (1983) 4 SCC 625. In this case, Hon'ble Supreme Court has held that;
Company Appeal (AT) (CH) No. 01 of 2021 53 of 59 "7. Part III of the Act bears the heading "Preventive Relief"
and fasciculus of sections therein included provide for injunctions generally. Section 36 provides that preventive relief is granted at the discretion of the Court by injunction, temporary or perpetual. Section 37 specifies the nature and character of temporary and perpetual injunctions. Temporary injunctions are such as are to continue until a specified time, or until the further Order of the Court, and they may be granted at any stage of a suit, and are regulated by the Code of Civil Procedure, 1908. Permanent injunctions can only be granted by the decree made at the hearing and upon merits of the suit and thereby defendant in the suit is perpetually enjoined from assertion of a right or from commission of an act, which would be contrary to the rights of the plaintiffs. Section 38 sets out situations in which the Court can grant a perpetual injunction to the plaintiff to prevent the breach of an obligation existing in its favour, whether expressly or by implication. Section 38 is thus an enabling section which confers power on the Court to grant perpetual injunction in situations and circumstances therein enumerated. Section 41 caters to the opposite situation. It provides that an injunction cannot be granted in the situation and circumstances therein set out. The Corporation relies on Section 41(b) in support of its contention that the Court had no jurisdiction to grant temporary injunction because perpetual injunction could not have been granted by the Court in terms in which temporary or interim injunction was sought Section 41(b) reads as under:
"41. An injunction cannot be granted:
(a) * * *
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(b) to restrain any person from instituting or
prosecuting any proceeding in a court not subordinate to that from which the injunction is sought;
* * *"
The predecessor of Section 41(b), Section 56(b) of the Specific Relief Act of 1887 repealed by 1963 Act read as under:
"56. Injunction cannot be granted:
(a) * * *
(b) to stay proceeding in a court not subordinate to that from which the injunction is sought."
A glance at the two provisions, the existing and the repealed would reveal the legislative response to judicial interpretation. Under Section 56(b) of the repealed Act, the Court was precluded by its injunction to grant stay of proceeding in a court not subordinate to that from which the injunction was sought. In other words, the Court could stay by its injunction a proceeding in a court subordinate to the Court granting injunction. The injunction granting stay of proceeding was directed to the Court and the Court has to be the court subordinate to the one granting the injunction. This is postulated on the well recognised principle that the superior Court can regulate proceedings in a court subordinate to it. It is implicit in this assumption and the language used in Section 56(b) that the Court could 'not grant injunction under Section 56(b) of the repealed Act to stay proceeding in a court superior in hierarchy to the Court from which injunction is sought. But by judicial interpretation, a consensus was reached that as injunction acts in personam while the Court by its injunction cannot stay Company Appeal (AT) (CH) No. 01 of 2021 55 of 59 proceedings in a Court of superior jurisdiction, it could certainly by an injunction restrain a party before it from further prosecuting the proceeding in other courts may be superior or inferior in the hierarchy of courts. To some extent this approach not only effectively circumvented the provision contained in Section 56 of the repealed Act but denuded it of its content. The legislature took notice of this judicial interpretation and materially altered the language of the succeeding provision enacted in Section 41(b) replacing Section 56(b) of the repealed Act while enacting Specific Relief Act of 1963. The legislature manifestly expressed its mind by enacting Section 41(b) in such clear and unambiguous language that an injunction cannot be granted to restrain any person, the language takes care of injunction acting in personam, from instituting or prosecuting any proceeding in a court not subordinate to that from which injunction is sought. Section 41(b) denies to the Court the jurisdiction to grant an injunction restraining any person from instituting or prosecuting any proceeding in a court which is not subordinate to the Court from which the injunction is sought. In other words, the Court can still grant an injunction restraining a person from instituting or prosecuting any proceeding in a court which is subordinate to the Court from which the injunction is sought. As a necessary corollary, it would follow that the Court is precluded from granting an injunction restraining any person from instituting or prosecuting any proceeding in a Court of coordinate or superior jurisdiction. This change in language deliberately adopted by the legislature after taking note of judicial vacillation has to be given full effect."
(emphasis supplied)
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91. In the above-mentioned Hon'ble Supreme Court has laid down the law that the equitable principle underlying Section 41(b) is that access to Court in search of justice according to law is the right of a person who complains of infringement of his legally protected interest and a fortiori therefore, no other court can by its action impede access to justice, except the superior Court which can injunct a person by restraining him from instituting or prosecuting a proceeding before a subordinate Court. A subordinate Court is precluded from granting an injunction restraining any person from instituting or prosecuting any proceeding in a Court of coordinate our superior jurisdiction. Section 41(b) has curtailed the power to grant injunction in personam. Moreover, Section 41(b) was enacted in order to avoid the inevitable multiplicity of proceedings.
92. Accordingly, Section 41(b) must receive such interpretation as would advance the intendment, and thwart the mischief it was enacted to suppress, and to keep the path of access to justice through court unobstructed. Access to justice must not be hampered even at the hands of judiciary.
93. Neither under this Section 41 (b) and Section 37 of Specific Relief Act, 1963, nor under Section 151 and Order 39 Civil Procedure Code, 1908 Court has jurisdiction to grant a temporary injunction restraining a person from instituting any proceeding, where such person is otherwise entitled to institute in a court, not subordinate to that, from which the injunction is sought. In this case, Hon'ble Supreme Court has laid down the rationale of Section 41 (b) of Specific Relief Act 1963.
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94. Hon'ble Supreme Court has further clarified that Section 41 (b) and Section 37 of a Specific Relief Act, 1963 covers perpetual injunction as well as temporary injunctions. If final relief cannot be granted, a temporary injunction cannot be availed of either under Section 151 in the exercise of inherent powers or under Order 39 of CPC. Hon'ble Supreme Court, in clear language, has said that a subordinate Court is precluded from granting an injunction restraining any person from instituting, prosecuting any proceeding in a court of coordinate or superior jurisdiction. Section 41 (b) has curtailed the power to grant an injunction in personam. Moreover, Section 41 (b) was enacted in order to avoid the inevitable multiplicity of proceedings.
95. Based on the above discussion, we find that the impugned Order granting an Anti Arbitration Injunction and further passing an order that Interim Application shall be decided along with Company Petition after disposal of the Company Appeals are arbitrary self-contradictory. The 1st of the impugned Order grants an interim order to understand that the matter would be finally heard on the next date. The Learned NCLT, however, on the next date, refuses to hear the Application and posts the applications to be heard after the disposal of the matter before the Appellate Tribunal in matters which are unconnected to the said issue and in addition also holds that the hearing on the Applications will be only along with the hearing on the main Petition. In addition, the illegality is compounded by containing the interim Order endlessly. Therefore, such an order is grossly unjust and illegal and Company Appeal (AT) (CH) No. 01 of 2021 58 of 59 cannot be sustained in law. Therefore, we are of the considered opinion that the impugned orders are against the settled principles governing the law on Anti-Arbitration Injunctions and are ultra virus the scope of Section 241 and 242 of the Companies Act 2013
96. Therefore, we hold that the impugned orders are against the settled principles that govern Section 8 of the Arbitration and Conciliation Act, 1996. Thus, the NCLT erred in holding that in the absence of either party filing an Application under Section 8 of the Arbitration and Conciliation Act, it would not be able to refer the matter to Arbitration. The NCLT further held that "parties cannot be permitted to initiate arbitration"; it is contrary to the settled principles of law, which mandates a judicial authority to refer the matter to Arbitration if a valid arbitration agreement existed between the parties.
ORDER In fine, we allow the Appeal and set aside the impugned orders--no order as to costs.
[Justice Venugopal M.] Member (Judicial) [V. P. Singh] Member (Technical) NEW DELHI 22nd JUNE, 2021 pks Company Appeal (AT) (CH) No. 01 of 2021 59 of 59