In a recent case, the National Company Law Tribunal (Chennai) was called upon to decide on a ticklish point of law—whether an ‘oppression and mismanagement’ issue would fall within the purview of an arbitration clause of an investment agreement between Indian and foreign shareholder groups. 

The Tribunal decided that it doesn’t. On another point of dispute, related to allotment of shares, the Tribunal also held the foreign investors to be in contempt of the court. 

The case was a dispute between Dr Ravindranath Kancherla, promoter of Ravindranath GE Medical Associates (RGE), which operates a hospital chain under the ‘Global Hospitals’ brand, and IHH Healthcare Berhad of Malaysia, which also offers healthcare services, under various brands, including Parkway and Gleneagles. It may be remembered that IHH had acquired Fortis hospitals of India in 2018. 

In 2015, IHH Parkway picked up 74.76 per cent stake in Global Hospitals (ie., RGE). According to papers filed in the courts by Dr Kancherla, the Indian promoter was not happy with the way Global Hospitals was run by IHH Parkway. Revenues fell, from ₹1,726 crore in June 2019 to ₹927 crore in June 2020. Dr Kancherla believed that IHH was more interested in its other brands in India, to the detriment of Global Hospitals, and even alleged “poaching” of doctors. In the meantime, Global Hospitals need to raise money via a rights issue. Dr Kancherla believed that IHH Parkway proceeded to allot themselves the unsubscribed portion of the right issue, despite a court order against it. 

On both counts, Dr Kancherla has won victories. 

IHH Parkway argued that the dispute should never have come to NCLT in the first place, because there was an arbitration clause in the Investment Agreement—any dispute should have been referred to an international arbitrator in Singapore. 

The other side argued that the ‘oppression and mismanagement’ issue lay outside the purview of the arbitration clause. They said that the case was one of “violation of minority shareholder rights as conferred by the Articles of Association; management affairs cannot be settled by arbitration.” 

The NCLT Bench, comprising Justice S Ramathilagam and expert member, B Anil Kumar, noted that the “neither the Memorandum of Association nor the Articles (of Association) contemplate for an arbitration clause;” only the investment agreement does. 

Tellingly, the NCLT observed: “It is reiterated that in relation to issues pertaining to ‘oppression and mismanagement’, only the NCLT has the exclusive jurisdiction to hear the dispute and the said power is conferred by the statute and the law of the land (emphasis added).” 

It further said, “The jurisdiction of the Companies Act, 2013, being supreme, cannot be ousted by any agreement or arbitration clause.” 

Allotment of unsubscribed shares

On the issue of IHH allotting to itself the unsubscribed portion of the rights issue, it is seen that the NCLT had, on November 10, 2020, stayed such allotment till November 22, 2020, on the understanding that the case would be heard by the Tribunal on November 23, 2020. The order used the words “till this bench takes up the interim applications for hearing” and ordered the case to be listed for hearing on November 23. 

However, due to the pandemic, the hearing could not take place. 

IHH Parkway took a narrow view of the order and allotted itself the shares on November 23, thereby raising its stake in the company. Dr Kancherla sued for contempt. 

It is evident from the Tribunal’s order that it was distinctly unhappy with IHH Parkway. It said: “If the respondents (IHH Parkway) were fair and law-abiding persons, they would have approached this Tribunal by way of an application seeking early hearing of the matter.”

IHH Parkway, it said, acted in a manner contrary to the order of this Tribunal and prejudicial to the interests of justice.” It ordered the respondents to deposit ₹25,000 to the Prime Minister’s Relief Fund. 

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