1. Factual Background and Procedural History
The appeals arose from orders dated 9 June 2025, passed by the learned District Judge (Commercial Court), Saket, New Delhi, under Section 9 of the Arbitration and Conciliation Act, 1996, restraining Drharors Aesthetics Private Limited from convening Board and General Meetings scheduled on 15 April 2025 and 12 May 2025, respectively.
The respondent, a Director of the appellant company, alleged that the meetings were called with the ulterior motive of removing him from the Board without compliance with statutory and contractual safeguards.
The dispute originated from a Memorandum of Understanding (MoU) dated 23 September 2023, followed by an Executive Employment Agreement (19 October 2023) and a Shareholders’ Agreement (8 November 2023). These documents delineated the roles and responsibilities of the directors, including the respondent’s duties relating to business expansion, franchise operations, and marketing.
In March 2025, the respondent alleged exclusion from company systems, non-payment of remuneration, and short-notice meetings proposing his removal from directorship. Invoking Section 9 of the Arbitration Act, he sought interim protection against his removal.
The Commercial Court found prima facie procedural violations under Sections 169 and 173(3) of the Companies Act, 2013, and granted interim injunctions restraining the company from proceeding with the removal process.
Aggrieved, the company filed appeals under Section 37(1)(b) of the Arbitration Act, read with Section 13(1A) of the Commercial Courts Act, 2015, before the Delhi High Court.
2. Identification of Legal Issues
The High Court framed its consideration around the following legal questions:
- Whether the Commercial Court was justified in granting an interim injunction restraining the company from convening Board and General Meetings under Section 9 of the Arbitration Act?
- Whether the notices issued for the meetings violated Sections 169 and 173(3) of the Companies Act, 2013, regarding removal of directors and statutory notice periods?
- Whether judicial interference in the internal management of a company is warranted at the pre-removal stage?
3. Arguments of the Parties
Appellant Company (Drharors Aesthetics Pvt. Ltd.)
- The injunction amounted to final relief disguised as interim protection, effectively paralyzing internal governance.
- The right to remove a director is a statutory power vested in shareholders and the Board under Section 169, and courts should not obstruct such rights unless there is a clear statutory breach.
- The notices were duly issued in compliance with the Articles of Association and the Companies Act, 2013.
- Allegations of financial irregularities, breach of fiduciary duty, and operational obstruction justified the removal process.
- Relief under Section 9 is confined to preserving the subject matter of arbitration, not granting determinative or final relief.
- Relied on:
- Life Insurance Corporation of India v. Escorts Ltd. (1986) 1 SCC 264 – limiting judicial interference in corporate management.
- Ravinder Sabharwal v. XAD Inc. (2018 SCC OnLine Del 1148) – courts cannot restrain shareholders from convening an EGM.
- Life Insurance Corporation of India v. Escorts Ltd. (1986) 1 SCC 264 – limiting judicial interference in corporate management.
Respondent (Debulal Banerjee/Rahul Shawel)
- The notices violated Sections 169 and 173(3) as they failed to provide adequate notice or specify reasons for removal.
- The company acted mala fide by withholding salary, suspending access, and issuing vague notices.
- The respondent had materially contributed to business growth and was being targeted to oust him from management.
- Relied on Chhaya Devi v. Rukmini Devi (2017 SCC OnLine Del 10290) and Jai Kumar Arya v. Chhaya Devi (2017 SCC OnLine Del 11436) to argue that interim relief is warranted to prevent procedural impropriety.
4. Court’s Analysis and Reasoning
The Division Bench (Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar) set aside the injunction, holding that the Commercial Court had misapplied the law governing interim relief and corporate governance.
a. Scope of Section 9 of the Arbitration Act
The Court reaffirmed that Section 9 provides equitable and discretionary relief aimed at preserving the subject matter of arbitration—not to pre-empt lawful corporate processes or grant final relief. Interim orders should not paralyze internal corporate governance unless irreparable harm is demonstrated.
b. Statutory Balance under Sections 169 and 173(3)
While Section 169 ensures a director’s right to a reasonable hearing prior to removal, Section 173(3) expressly allows shorter notice for Board Meetings in cases of urgency. The District Judge erred by overlooking this statutory flexibility and failing to consider the urgency cited by the appellant.
c. Judicial Restraint in Corporate Governance
Relying on LIC v. Escorts Ltd., the Court reiterated that shareholders’ rights to convene meetings are statutory and sacrosanct, and that judicial intervention must be minimal. The proper remedy is to challenge the outcome of such meetings, not to restrain their occurrence.
d. Precedential Clarity
The Court observed that the Commercial Court had incorrectly relied on Chhaya Devi, which had been set aside in Jai Kumar Arya. The latter judgment categorically held that an injunction restraining an EGM is impermissible, as directors can challenge removal only after the meeting’s decision.
Further, Ravinder Sabharwal reaffirmed that interim relief cannot obstruct a company’s statutory functioning, even where alleged procedural lapses exist.
e. Absence of Prima Facie Findings
The Impugned Order failed to establish:
- Existence of a prima facie case;
- Balance of convenience in favour of the respondent; and
- Irreparable harm likely to be caused.
The Court underscored that absence of these findings renders an interim injunction legally untenable.
f. Section 100(4) and Computation of Notice Periods
The judgment also clarified that under Section 100(4) of the Companies Act, 2013, the statutory timelines for convening an EGM exclude the period during which a judicial injunction operates. Thus, temporary restraint does not prejudice shareholders’ rights or the statutory timeframe.
5. Final Conclusion and Holding
The High Court held that the injunction granted by the District Judge was legally unsustainable, as it:
- Impeded statutory governance functions of the company;
- Granted final relief at an interim stage without conclusive findings; and
- Ignored statutory provisions allowing urgent Board action.
The appeals were allowed, and the impugned orders were set aside. The parties were left free to pursue remedies under the Companies Act, 2013, or before the Arbitral Tribunal, once constituted.
FAQs:
1. Can a court stop a company’s board meeting through an injunction?
Generally, no. Courts avoid restraining board or shareholder meetings unless there is a clear violation of law. Remedies lie in challenging the decision taken, not the meeting itself.
2. What rights does a director have before removal under the Companies Act, 2013
Under Section 169, a director has the right to receive notice, a reasonable opportunity to be heard, and the right to present written representations to shareholders before removal.
3. What is the purpose of Section 9 of the Arbitration and Conciliation Act, 1996
Section 9 provides interim protection to preserve the subject matter of arbitration, but it cannot be used to grant final relief or interfere with lawful corporate functions.
4. When can a company hold a board meeting on shorter notice?
Section 173(3) allows a shorter notice period for urgent business, provided at least one independent director is present or ratifies the decision later.
5. How should disputes over director removal be resolved?
Disputes can be pursued through arbitration if covered by a clause in the shareholder or employment agreement, or under remedies available in the Companies Act, 2013.
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