Arbitration Clause In Articles Of Association Operates Independently Of Companies Act: Calcutta High Court

On Monday, 28 September, the Calcutta High Court held that an arbitration clause contained in a company's Articles of Association operates as an independent agreement and does not make disputes covered by the clause subject exclusively to the jurisdiction of the National Company Law Tribunal (NCLT).

A Division Bench comprising Justices Sabyasachi Bhattacharyya and Sandip Kumar De made the observation while allowing an appeal filed by Ambica Beri against the District Judge's refusal to grant interim relief. It observed:

“Since the arbitration clause is an independent contract of its own, it operates beyond the purview of the Articles of Association and is not restricted to the architecture of the 2013 Act.”

The dispute arose from a notice issued by Forum Atmosphere Flat Owner's Association for convening its second Annual General Meeting (AGM) on 26 August 2026. The notice disputed Beri's ownership of an apartment and the validity of her share certificate.

Beri invoked the arbitration clause contained in the Association's Articles by issuing a notice under Section 21 of the Arbitration and Conciliation Act. She subsequently moved the District Judge under Section 9 of the Arbitration Act, seeking permission to participate and vote at the AGM and an injunction restraining the Association from acting on the notice.

She contended that construction of her apartment had been regularised by the Kolkata Municipal Corporation and that she held a valid share certificate. She also relied on Clause 50 of the Articles, which conferred voting rights on members according to their shareholding.

The District Judge refused interim relief, following which Beri approached the High Court.

The Association opposed the appeal, arguing that the dispute fell within the jurisdiction of the NCLT under the Companies Act. It also contended that the Section 9 application had become infructuous after the AGM was conducted on 26 August 2026.

The Division Bench examined the arbitration clause, which covered disputes between the company and its members concerning the Articles, governing statutes and alleged breaches. It observed:

“…the arbitration clause stands on a standalone footing, independent of the other clauses of the Articles of the respondent-Company where it incidentally finds place. Thus, the scope of the arbitration clause need not necessarily be restricted to the alleged breach of the Articles themselves, within the paradigm of the 2013 Act, but also extends to whatever disputes have been mentioned therein to be included within its purview.”

The judges found that the dispute concerning Beri's apartment ownership was also covered by the arbitration clause. They noted that Beri's rights flowed from her alleged ownership of the apartment and her membership as a shareholder of the Association. Her voting rights were therefore directly connected with the dispute concerning her shareholding.

The Court also took note of an order passed by the Kolkata Municipal Corporation's Special Officer (Building), recording that construction of Beri's apartment had been regularised. It further noted that Beri possessed a share certificate issued by the Association.

On this basis, it found that Beri was entitled to participate in the AGM held on 26 August 2026 and in subsequent meetings on the strength of her shareholding and ownership. It rejected the Association's contention that the Section 9 proceedings had become infructuous merely because the AGM had already been conducted. It held:

“The immediate trigger of the application under Section 9 was the notice dated August 3, 2026, which was not restricted merely to the AGM to be conducted on August 26, 2026 but struck at the very root of the ownership of the appellant in respect of the apartment-in-question as well as the status of the appellant as a shareholder of the respondent-Company, thus, coming squarely within the ambit of the arbitration clause.”

Further, the Bench rejected the argument that the dispute could be pursued only before the NCLT in view of Sections 6 and 430 of the Companies Act. It observed:

“Within the ecosystem contemplated in the 1996 Act, in particular Section 7 thereof, an arbitration agreement, is an agreement in its own right, a stand-alone contract independent of the parent agreement of which it is a part, if at all.”

It also held that an arbitration clause remains an independent agreement even when incorporated in the Articles of Association and that its scope is not confined to disputes arising solely from the Articles. It added:

“Hence, the disputes which have arisen between the parties in the present case, pertaining both to the shareholding rights of the appellant and the legality of the construction of the apartment/premise belonging to the appellant and her ownership of the same, come within the ambit of the said clause.”

The judges explained that Section 6 of the Companies Act, which gives the Act overriding effect over a company's Articles, does not override an arbitration clause merely because the clause is contained in the Articles. They further held that Section 430 bars the jurisdiction of civil courts, not arbitration, unless the dispute is inherently non-arbitrable or a statute specifically provides an exclusive forum.

Accordingly, the High Court allowed the appeal and set aside the District Judge's order. It granted an injunction restraining the Association from giving effect to the notice insofar as it prevented Beri from exercising her membership, attendance and voting rights in the Association's meetings, pending disposal of the Section 9 proceedings.

For Appellant: Senior Advocate Rudraman Bhattacharya, Advocates Shuvasish Sen Gupta, Sourojit Dasgupta, Siddhartha Banerjee, Souvik Ganguly and Rajeshwari Prasad

For Respondents: Senior Advocates Jaydip Kar, Krishnaraj Thaker, Advocates Shanuak Mitra and Anwar Hossain