Companies ActNCLATRulingsTribunal & Appellate

NCLAT mandates to comply with Company Act procedures while executing arbitral award

Drafted by Akshita Parti

NCLAT, Delhi mandates necessary compliances under the Companies Act, 2013 while giving effect to the arbitral award. NCLAT further clarifies that just because parties consented about the execution of arbitration award, it does not mean to go – bye the legal requirements to be followed under the Companies Act for transfer of shares etc. NCLAT mandates the parties should either mutually comply/get complied with all the requirements under the Act for transfer of shares and due resignation from the Directorship etc. or it would be necessary to have recourse to the execution procedure.

In Raj Singh Chopra vs. Jagat Singh Chopra, Freyaship Services Private Limited (Respondent No. 1 ) and Raj Singh Chopra (Respondent No. 2) filed company petition against the order passed by NCLT Kolkata wherein  the impugned order cancelled the purported allotment of 26000 equity shares which were made in favour of the Respondent No. 2.

In the present scenario, Chopra family were running a business. Their business was running smoothly till the end of December, until disputes arose. Jagat Singh Chopra and Vikram Singh Chopra (Petitioners) and Respondent No. 2 agreed to refer to the disputes for settlement in the presence of independent persons. Accordingly, a family settlement was entered.

On 22nd January, 2016, the Arbitrators with the consent of the Apellant-1 and Respondent No. 1/2 passed an award containing directions for division of several family assets and properties and also division of the existing family business including the companies and firms. These parties accepted the award and had to take steps to implement the same. As per the award, Respondent No. 2 was allotted the present Company (Freyaship Services Private Limited) to the exclusion of the Original Petitioners. The appeal claims that the Company Petition was filed making false and baseless claims.

Respondents filed the petition in NCLT thereafter appealed NCLAT with the question whether Respondents still hold the position as directors in the said Company or not. Thereafter, NCLAT observes the following undisputed facts

1.) That, both the parties entered into an arbitration proceedings and agreed to comply with the same.

2.) That, the respondents even moved to HC of Kolkata for execution of the award.

3.) That, in the said award, the Company was allotted to Appellant-1 and was duly accepted by respondents.

After observing the above facts, NCLAT holds that it will not interfere with NCLT order.  NCLAT further states that, “It cannot be that moment a document is executed, the party goes and takes over the Companies and starts doing whatever he likes without following any procedure for transfer of shares, administration etc. Till the Petitioners resigned as Directors or were removed under established procedure under the Companies Act, or in execution, it will not be permissible not to send any notices to them and declare that they have not attended meetings and they discontinued to be Directors under Section 167 of the New Act.”

NCLAT further directs that the parties should cooperate with each other and comply with the Arbitration Award as has been passed between the signatory parties and do the necessary legal compliances as per the Arbitration Award for implementation/execution of the same. If it is done mutually, execution would not be necessary, otherwise the aggrieved parties would naturally have the option of the execution of the award. Till that time, it is necessary for the parties not to commit such acts as would attract violation of the provisions of the Companies Act, 2013.

Accordingly, dismisses the petition.

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