Courts and judicial authorities in India generally hold that claims of oppression and mismanagement are not arbitrable because they involve real rights and involve the interests of the company and the public at large. They invented the following tests to determine whether the claim is arbitrable:

Testing the necessary parts:

This test was planned in Sidharth Gupta v. Getit Info Services Pvt. Ltd.. ^{Depending on the necessary test of the parties, courts and judicial authorities determine two key factors: (i) whether an effective order can be made in cases of oppression, mismanagement and harm, and (ii) whether a complete adjudication and finality of the dispute can be made. carried out without the participation of a party not bound by the arbitration agreement. If a party involved in the dispute who is not a signatory to the arbitration agreement does not meet the “necessary parties” test, the matter will be submitted to arbitration.}

Testing of remedies:

The test for remedies is that the NCLT has been vested with special statutory powers to grant just and equitable relief. Since the arbitral tribunal is created from a contract, it has limited powers and can only decide disputes in accordance with the terms of the contract.

This test was developed in Jugnar Processors Pvt. Ltd. v. Rohtas Jugalkishore Gupta. This case revolved around allegations of improper allocation of shares and appointment of an administrator without proper notice to the applicant. Thus, the petitioner sought to set aside the additional shares allotted to respondent Nos. 3 to 6. The court held that these disputes involved questions of fact and statutory rights which could not be referred to arbitration. The jurisdiction of the court conferred under section 402 of the Companies Act is exclusive and cannot be replaced by an arbitration agreement. The court further ruled that since the parties involved in the arbitration agreement were not the same as those in the company’s petition and the disputes were not arbitrable, the petition under the Article 8 of the Arbitration Act could not be accepted.

Totality test:

The totality test is used to determine whether a request has been made in such a way as to circumvent the arbitration clause, when in reality the subject matter is in fact arbitrable. Under this test, courts must assess whether the petition has been fabricated to appear as a dispute involving oppression and mismanagement in order to avoid arbitration. If the application is found not to relate to matters which fall exclusively within the jurisdiction of the NCLT, it will be referred to arbitration.

This test was invented in the case of Rakesh Malhotra v. Rajinder Kumar Malhotra and Others, ^{in which the court held that if a petition is found to be a “disguised” attempt to circumvent an arbitration clause by falsely representing it as a case of oppression and mismanagement under sections 241 and 242 of the Act on companies, the application must be referred to arbitration. A “colorful petition” is one in which the petitioner seeks to avoid arbitration by falsely representing a contract dispute as one involving statutory oppression and mismanagement. When such motions are made, courts must consider the grounds and relief requested to determine whether the petitioner’s goal is to avoid arbitration. In case the subject matter of the dispute is found to be arbitrable and does not fall within the exclusive jurisdiction of the NCLT, the court shall refer the matter to arbitration. The totality test ensures that parties do not disguise arbitrable disputes as statutory issues in order to avoid arbitration.}

Thus, disputes related to oppression and mismanagement are generally not arbitrable. This can be determined from the following:

1. Disputes have a statutory character: Disputes relating to oppression and mismanagement being governed by the Companies Act, they cannot be considered arbitrable. Such disputes are not mere contractual disputes between two parties but rather involve the interests of the company as a whole and the public in general.
2. The public interest at stake: The functioning of companies and the protection of minority shareholders being a matter of public interest, the principles of corporate governance require that such disputes be decided by the NCLT, which can provide remedies which could not otherwise be provided for in a proceeding arbitration.
3. Judicial precedents: Indian courts have established that disputes relating to oppression and misrule are not arbitrable because they involve rights. in real and require regulatory oversight.
4. Existence of a criminal character: Since disputes relating to oppression and mismanagement have a criminal element, they are considered non-arbitrable.
5. Exclusive Jurisdiction of NCLT: Since the NCLT has been given exclusive jurisdiction to adjudicate complaints of oppression and mismanagement under the Companies Act and the remedies it can offer are broad and regulatory in nature, such disputes cannot not be subject to arbitration.

Although arbitration is an essential tool for resolving commercial disputes, it cannot be used to resolve disputes related to oppression and mismanagement. The NCLT has been vested with exclusive jurisdiction to adjudicate such disputes and powers to ensure that companies operate in accordance with the law and in the best interest of all stakeholders.

Authors: Apeksha Lodha (partner) and Prajjwal Gour (partner) at Singhania & Co. Opinions are personal.