[Aishwarya Singh is a 4th year student at Jindal Global Law School]
The Bombay High Court (HC) in the case of Rakesh Malhotra v. Rajinder Kumar Malhotra (2014) had held that oppression and mismanagement claims are not arbitrable because the arbitral tribunal does not have the power to grant all the statutory reliefs available in a minority oppression claim. On the other hand, the Singapore Court of Appeal (SGCA) in the case of Tomolugen Holdings Ltd. and another v. Silica Investor Ltd. (2015) adopted a different reasoning to hold that minority oppression claims are arbitrable, even if the arbitral tribunal cannot grant the full range of remedies. This post attempts to contrast the rationale of the two judgements to argue that the approach adopted by the SGCA is legally sound and pragmatic.
Two Positions
In the case of Rakesh Malhotra, the Court observed that under section 8 and section 45 of the Arbitration and Conciliation Act, 1996 the expression “matter” indicates that the subject matter of the dispute that has to be referred to arbitration should be capable of being arbitrated. However, a matter relating to minority oppression “action” had, under the erstwhile dispensation, invoked the power of Company Law Board (CLB) including its powers to make orders under section 402 of the Companies Act, 1956.[1] Under the said section, the CLB could pass orders that cover third parties and are not purely in personam. The Court did hold that a “dressed up” petition, falsely invoking the jurisdiction of CLB under a minority oppression claim to oust an arbitration clause, can be referred to arbitration.
The Court further held, relying on Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya (2003), that even if some reliefs sought under the minority oppression claim are arbitrable, the application under sections 8 and 45 of the Arbitration Act for reference to arbitration will not succeed. The Court reasoned that it will lead to a bifurcation of the subject matter of the suit. The court in Sukanya Holdings had stated: “The words “a matter” [section 8 of the Act] indicate that the entire subject-matter of the suit should be subject to arbitration agreement.”
I will now discuss the position on arbitrability under the law of Singapore. The SGCA in Tomolugen Holdings was not convinced that the “the arbitrability of the remedy sought could affect the arbitrability of the claim”. The court reasoned that the fact that the arbitral tribunal cannot grant certain remedies, for instance winding up of the company, is a jurisdictional limitation rather than an issue of arbitrability.
The Court further relied on the judgement of Hong Kong SAR High Court in Re Quiksilver Glorious Sun JV Ltd. [2014] 4 HKLRD 759, where a winding up petition was stayed for the resolution of the underlying factual dispute through arbitration. The Court held that the factual dispute can be resolved by arbitration, although the tribunal cannot grant the reliefs sought. The SGCA stated that once the factual dispute has been decided the parties can approach the court for grant of the appropriate relief, though they will be bound by the findings of the arbitral tribunal and cannot litigate the matter afresh.
Comment
It is interesting to compare the position adopted by Bombay High Court and the SGCA because they both address the question of arbitrability in relation to the inadequacy of the arbitral tribunal to grant certain reliefs. It is submitted that the SGCA correctly characterises the question of reliefs that an arbitral tribunal can grant as a question of jurisdiction and not of arbitrability. It will be useful to quote the following illustration from Lord Mustill & Stewart C Boyd, Commercial Arbitration: 2001 Companion Volume to the Second Edition (Butterworths, 2001) at p. 73, relied upon by SGCA:
An arbitrator whose powers are derived from a private agreement between A and B plainly has no jurisdiction to bind anyone else by a decision on whether a patent is valid, for no-one else has mandated him to make such a decision, and a decision which attempted to do so would be useless. But this is a question of jurisdiction, not of arbitrability, and we can see no reason why an arbitrator cannot conclude the issue of validity as between A and B if the issue is one which they have mandated him to decide.
The above illustration can be reconciled with the holding of the Indian Supreme Court in Booz-Allen & Hamilton Inc v. SBI Home Finance Ltd, where the court held that “generally…disputes in relation to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration.” The Court clarified that “actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property.” It is to be noted that though an arbitral tribunal cannot bind third parties claiming an interest in a certain property, it can decide the dispute relating to the said property among the parties themselves, the latter action will still be an action in personam as elucidated by the abovementioned illustration.
It is further submitted that it is erroneous to hold the type of relief sought as the primary consideration for deciding the arbitrability of the subject matter of the dispute. When a section 8 application is made, the desired relief is yet to be granted by the tribunal or it may not be granted at all. It will open a gate for parties to ignore their contractual obligation to arbitrate to pursue reliefs that cannot be granted by the tribunal.
Further, the SGCA has attempted to strike a balance between the right of a petitioner to pursue certain remedies that can be granted only by a court and upholding the agreement of the parties as to how the dispute is to be resolved. It stated that once the tribunal has resolved the underlying factual dispute, the party can approach the court for the grant of the appropriate remedy, like a winding up order, depending on the award. In such a scenario, the arbitrator is not arrogating the power for herself to decide whether a winding up order should be made as that would be an award in rem. The arbitrator only has the power decide between the parties themselves “whether it would be appropriate for winding up proceedings to take place or whether the complainant should be limited to some lesser remedy.” The complainant may only pursue a winding up remedy if the tribunal decides, having regard to its findings, whether such a course of action can be pursued.
Though this involves a procedural complexity wherein the party has to return to the court for the remedy, it will uphold the contractual bargain. In any case, procedural complexity cannot be relevant in deciding subject matter arbitrability as held by the SGCA. However, one issue that comes up is whether such a procedure would be in contravention of Sukanya Holdings. It is humbly submitted that there is no bifurcation of the subject matter of the suit. When the parties approach the court for the grant of remedy, it is in continuance of the subject matter arbitrated before a tribunal. The parties will be bound by the findings of the tribunal and cannot relitigate the matter. There is no “splitting the cause or parties and referring the subject matter of the suit to the arbitrators” as stated in Sukanya Holdings.
– Aishwarya Singh
[1] The powers under section 402 of the Companies Act, 1956 have been re-codified under section 242 of the Companies Act, 2013 exercisable by National Company Law Tribunal.
