18 August, 2016
In Sidharth Gupta and others v Getit Infoservices Private Limited, the Company Law Board, New Delhi Bench dismissed a petition alleging oppression and mismanagement under sections 397 and 398 of the Companies Act 1956 (the “Companies Act”) and referred the parties to arbitration under the SIAC Rules.
The petitioners were promoters of Getit Infoservices Private Limited (the “Company”), who had entered into a shareholders’ agreement (the “SHA”) with an investor, who acquired a 50.1% shareholding in the Company. The SHA contained an arbitration clause providing for disputes between the parties to be referred to arbitration under the SIAC Rules. Subsequently further shares were issued to the investor, thereby raising its shareholding in the Company to 76%. This prompted the petitioners to file a petition before the Company Law Board claiming oppression and mismanagement against the Company and the investor. The petitioners alleged, amongst other things, that the price at which the shares had been issued to the investor was substantially lower than the true value of the shares, and that the issuance had diluted the petitioners’ shareholding. The petitioners further argued that the dispute could not be referred to arbitration since the reliefs for oppression and mismanagement could only be granted under the Companies Act.
The Company Law Board held that the reliefs sought by the Petitioners in this case were squarely covered by the arbitration clause in the SHA, as the petitioners’ allegations, if proved, amounted to contractual violations only and were not tantamount to oppression under the Companies Act. It accordingly dismissed the petition, leaving the petitioners to commence arbitration proceedings in order to advance their claims.
For further information, please contact:
Nicholas Peacock, Partner, Herbert Smith Freehills
nicholas.peacock@hsf.com
