Growth of arbitration and its criticism
ADR through arbitration is encouraged to reduce court burden. Arbitration and Conciliation Act 1996 is used for commercial disputes and industry prefers it for speed. But arbitration is criticized when clause is one-sided or forced. Supreme Court in SBP & Co. v. Patel Engg. Ltd laid down principles on section 11 which are extended to section 8 applications. Despite encouragement, clarity is still lacking and reforms are needed. Arbitration is good for industry if parties agree, but it cannot be imposed in matters involving public interest or statutory duties.
Nature of proceedings under 397 398
Section 397/398 deals with oppression and mismanagement. It is not a private dispute alone. CLB has to see overall health of company, interest of minority, other stakeholders and compliance. The remedy is to end matters complained of and regulate future affairs. Because of this wide scope, expertise is needed. That is why special forum like CLB was created. Corporate disputes involve series of acts and mixed questions of law and fact which arbitration clause rarely anticipates.
Why arbitration cannot replace clb in 397 398
Filing section 8 application in 397/398 petition based on arbitration clause has become common. But this approach is problematic. CLB’s role includes investigation, regulation and protecting public interest which arbitrator may not have power to do. Arbitration is between parties to agreement, but 397/398 affects company as a whole. Also, CLB can deal with issues even if they are part of civil suit. If arbitration is allowed to override CLB, the statutory purpose will fail and minority will lose effective remedy. Perception already exists that 397/398 remedy is not effective, and allowing arbitration will worsen it.
Forum shopping and practical approach
Shareholders sometimes prefer CLB over civil court and sometimes over arbitration. CLB has to examine whether dispute is truly covered by arbitration clause and whether reference will serve justice. Even if 397/398 petition is dismissed, parties can still go to arbitration. But that does not mean CLB jurisdiction is automatically ousted. The Board must apply mind and see if arbitration can fulfill object of section 397/398. Mechanical application of arbitration law will harm minority and corporate governance.
Conclusion
397 398 arbitration clause clb jurisdiction cannot be taken away automatically. Arbitration has its place but not in oppression and mismanagement cases where statutory forum with regulatory powers is required. Law must balance encouragement to ADR with protection of minority and public interest under Companies Act 1956.
