Arbitration - Disputes brought before the Company Law Board invoking Sections 397, 398 & 402 of the Companies Act, 1956 cannot be referred to Arbitration

Recently, the Hon'ble Bombay High Court in its detailed judgement in Rakesh Malhotra Vs Rajinder Kumar Malhotra & Others made it crystal clear that the disputes before the Company Law Board invoking provisions of Sections 397, 398 & 402 of the Companies Act, 1956 cannot be referred to private tribunal viz., arbitral panel for resolution. Disputes may be referred when such Petitions are filed with mala fide intent to avoid arbitration. The operative portion of the judgment is extracted herein under;

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(a) As to whether the disputes in a petition properly brought under Sections 397 and 398 read with Section 402 of the Companies Act, 1956 can be referred to arbitration, the answer is no, subject to the caveat that I have noted regarding a mala fide, vexatious or oppressive petition and one that is merely ‘dressing up’ to avoid an arbitration clause.”