Thursday, August 25, 2016

Ruling on Shareholder Rights to Inspect Company Records

[The following guest post is contributed by Dheeraj Kumar Sharma, who is a Manager at Vinod Kothari & Company]


The Mumbai Bench of the Company Law Board (‘CLB’), through its order dated April 16, 2015 in the case of Mr. Anil Kumar Poddar v. Bonanza Industries Limited, dismissed the application of a shareholder who demanded copies of records of a company and sought inspection of the register, minutes, annual returns, and the like, on the ground that such an application was mala fide and frivolous.

Facts of the Case

In the present case, the applicant is a professional shareholder named Mr. Anil Kumar Poddar (hereinafter referred to as the ‘Applicant’) who holds 5 to 10 shares in various listed companies and, exercising shareholders’ rights, demands copies of the company records, registers, minutes, etc. Bonanza Industries Limited is the company against whom the present application has been filed (hereinafter referred to as the ‘Defendant’), which states that the shareholder complaint is a vexatious one and that the shareholder harbours mala fide intention in his acts.

While responding to the application, that the Defendant submitted that the Applicant holds a very nominal or negligible shareholding in various listed companies spread all across the country. Being a shareholder, the Applicant has various rights, which include right to obtain copies of records being maintained by the companies and to seek inspection thereof. The Applicant has adopted a modus operandi to slap notices under section 20 of the Companies Act, 2013 (hereinafter referred to as the “Act”) to the companies seeking various records, including minutes, registers, annual returns and financials of the companies against payment of charges for providing such records. However, the intention has never been that of a genuine shareholder who is being concerned of the performance of the company as his shareholding of 5-10 shares in each company shows a contrasting picture. For this purpose the Defendant cited the case of Reliance lndustries Ltd, and Ors. v. Anil Kumar Poddar, in which the Bench of the CLB had observed that the Applicant approached with unclean hands and as a black mailer seeking finance in cash/cheque, therefore making it an application filed with ulterior motive, which was consequently was rejected. The Defendant submitted that the Applicant also gave warning that non-fulfillment of his demands may lead to dire consequences.

CLB’s Findings

The Hon’ble Bench observed the case in light of approximately 150 other such applications which were filed by the Applicant and were pending before the Bench. The Bench also considered the ruling pronounced by the Calcutta High Court in the matter of Phillips Carbon Black Limited & Ors. V. Anil Kumar Poddar & Anr., where the Applicant was barred from exercising his rights as a shareholder along with his accomplices. The Bench reiterated that to prevent the abuse of the process of the Court, the CLB is entitled to pass such orders as may be necessary having regard to the facts of the case, and since the information demanded by the Applicant is available in public domain as it is a matter common knowledge that the statutory records of all companies are available on MCA portal, hence the Bench concluded that the Applicant is in the habit of making such frivolous applications and is apparently not a bona fide applicant.

Provisions of Law

Section 20, which deals with the mode of service of documents to and by the company, reads as follows:


(1) Xxx

(2) Save as provided in this Act or the rules made thereunder for filing of documents with the Registrar in electronic mode, a document may be served on Registrar or any member by sending it to him by post or by registered post or by speed post or by courier or by delivering at his office or address, or by such electronic or other mode as may be prescribed:

Provided that a member may request for delivery of any document through a particular mode, for which he shall pay such fees as may be determined by the company in its annual general meeting.


Arguments by both the Parties


It was argued by the Applicant who appeared in person before the Hon’ble Bench that the Defendant has made wrong allegations of harassing the management through unfair means just to malign the image of the Applicant and hence the intentions of the Defendant are mala fide. He demanded inspection of the records of the company and the copies of such records in his capacity as a shareholder, as such right is vested in him by the statute.


However, counsel representing the Defendant argued that the shareholder holds only 10 shares in the Defendant and has been harassing the company and the management by illegally demanding copies of the records of the Company, despite the fact that the records which he demands can easily be obtained through the portal of the Ministry of Corporate Affairs, website of the stock exchange where the shares of the company are listed or even on the Company’s website. Attention was drawn by the Defendant towards the fact the Applicant had filed 14 more applications against different companies, which were enlisted for hearing on the same day of this hearing, to bring to light the fact that the acts of the Applicant are frivolous in nature and hold no substance. Hence, the Defendant made a request that the application be quashed by the Bench.

Judgment of CLB, Mumbai

The CLB Bench of Mumbai observed that the Applicant is in the habit of making such applications. Acknowledging the Defendant’s submission regarding the availability of records of companies on various websites of regulators and records of the Registrar of Companies (“RoC”) and yet the act of the Applicant filing such applications makes him appear to be a non-bona fide applicant. The Bench dismissed the application stating - “the rights of inspection of documents should be exercised in good faith and taking into consideration the company’s best interest.” It therefore advised the Applicant from resisting himself from filing such frivolous and mala fide applications. However, the Bench also observed that pursuant to the powers vested by the CLB Regulations upon it, it is not competent to pass an order for investigation into charges levelled by the Company.


Shareholders’ rights have been now discussed in length and at par at various forums. However, it was in the year 1930 in the matter of Johnson Ranch Royalty v. Hickey that the shareholders’ rights were magnified. In that case, it was held that the fundamental principle is that the shareholders own the corporation, including all property possessed by the corporation, including all the information and all the records. Those in charge of the corporation are merely the agents of the stockholders who are the real owners, and the owners are entitled to information as to the manner in which the corporate business is conducted. While the corporation holds the legal title to its property, the stockholders are deemed the real and beneficial owners thereof and, as such, are entitled to information concerning the management of the property and business they have confided to the officers and directors of the corporation as their agents. A stockholder's assertion of right to inspect the corporation's books and records is sometimes said to be one merely for the inspection of what is his own. Further, it was declared in the same case that the right to inspect corporate books and records exists so that the shareholder may “ascertain whether the affairs of the corporation are properly conducted and that he may vote intelligently on questions of corporate policy and management.”[1]

The intent of introducing the concept of demanding inspection and copies of records of the company was to facilitate more transparency and governance in the interest of the shareholders where a matter may affect their rights. The same was also introduced to give shareholders control over the company as its their money which is invested in the company and they should have right to obtain information on how their investment is being channelized by the company so as to see if they will get their desired returns from the company or not. However, on the contrary, a ruling pronounced in Guthrie v. Harkness, 199 U.S. 148 (1905) by the United States Supreme Court noted that courts will not compel the inspection of a bank's books under all circumstances. “In issuing the writ of mandamus the court will exercise a sound discretion, and grant the right under proper safeguards to protect the interests of all concerned. The writ should not be granted for speculative purposes, or to gratify idle curiosity, or to aid a blackmailer, but it may not be denied to the stockholder who seeks the information for legitimate purposes.” Though the ruling was pronounced for inspection of a bank’s records, but the intent is to safeguard the records from going into wrong hands.

However, vexatious shareholders have been misusing the rights, which could create unnecessary problems for the companies. The Act missed out on the provisions which could require that a shareholder hold a minimum number shares before exercising the shareholders’ right for inspection of documents and other similar rights. In their absence, such rights could be misused by some shareholders to make vexatious demands without legitimacy, including before the judicial platforms and drag companies into unnecessary litigation.

Carve out for companies to avoid vexatious shareholders

The companies, when faced with such vexatious claims, find themselves in a difficult situation. The Act has vested the shareholders with such rights, and the companies do not have the option to avoid them but to treat their request and act upon it. The lack of power in the hands of companies to fix a minimum threshold of shareholding for exercising the rights of shareholder has left the companies without ammunition in the war with such vexatious members.

In the era of e-governance and with the various regulators requiring companies to make continuous disclosures with changes on their websites, there seems to be less need for a shareholder demanding documents as in the instant case. Moreover, copies of records are also available to the portal of the Ministry of Corporate Affairs from where one can seek information and copies, so there seem less reasons why a shareholder would have to walk to the company’s offices and ask for copies/information.

Although there is no specific carve out available to the companies, care must be taken by the officials of the company to discover the motive of the shareholder seeking such inspection and copies of records from the companies. If there appears to be an ulterior motive, then such a request shall be forestalled by the companies by approaching the tribunal/court.

Impact of Judgement

In my view, this order of CLB will send out a strong message of good corporate governance to the stakeholders and try to curb the fraudulent and mala fide practices being conducted by vexatious shareholders who will also look before they leap. The judgement will surely create an awareness in the corporate world for companies to know and learn the way to tackle such claims and for the investors to equally learn about their rights which are meant to be used in the best interest of the company and the shareholders at large instead of using them for their personal interest or maliciously. Since we are in an era of digitalization, inspection of records and registers shall only be exercised when there is utmost need and matters are serious in nature, so as to avoid the wastage of time and efforts of both the company as well as the shareholders. 

- Dheeraj Kumar Sharma

[1] Note, however, that the notion of ownership rights of shareholders in the property and records of the company may be limited to law as was applicable in the US, and may not necessarily comport with notions of shareholder rights in countries like India.

Sunday, August 21, 2016

Call for Papers: Indian Journal of International Economic Law

[The following announcement is posted on behalf of the Indian Journal of International Economic Law]

The Board of Editors of the Indian Journal of International Economic Law (IJIEL) is pleased to invite original and unpublished manuscripts for publication in Volume 9. 

About the Journal

The IJIEL is a student-edited and peer-reviewed law journal published annually by National Law School of India University, Bangalore (NLSIU). The previous volume of the journal featured contributions by Prof. Raj Bhala (Rice Distinguished Professor, Associate Dean for International and Comparative Law, Kansas School of Law) and Rodrigo Polanco (Researcher, Lecturer and SNIS/SECO Project Coordinator at World Trade Institute) among several others. We have also published articles by luminaries in the field such as Faizel Ismail, Enrico Baffi, Lotta Viikari, Rafiqul Islam, G.R. Bhatia, Michelle Sanson, Jason R. Bonin Dr. Rafael Arcas & Colin Picker; and forewords by Prof. Jagdish Bhagwati and Prof. Stephen Hobe in the past. Further information may be obtained here.


The Journal is an endeavour to encourage scholarship in the field of international economic law. This includes (but is not necessarily limited to) research concerning the WTO, financial institutions, regulatory subjects such as taxation and competition policy, services sectors such as banking and brokerage and international commercial arbitration. Further, the Journal is oriented towards publishing academic work that considers the aforementioned issues from a comparative perspective and/or the perspective of the developing world. 

Submission Categories

1. Articles (5000 to 10000 words, exclusive of footnotes)- Papers that comprehensively analyse  a theme and engage with all the existing literature on it. 

2. Essays (3000 to 5000 words, exclusive of footnotes)- Papers that concisely analyse specific contemporary issues in international economic law.

3. Case notes and/or Legislative Commentaries (2000 to 7000 words, exclusive of footnotes).

Guidelines for Submissions

1. The Journal reviews submissions on a rolling basis. The deadline for sending submissions for the forthcoming volume is February 10, 2017. 

2. Submissions must be made in electronic form to under the subject heading ‘IJIEL Vol. 9 Submission: .

3. All submissions must be in MS Word format (.doc) or (.docx), with Times New Roman font (Main text: 12, footnotes: 10) and double-spaced.

4. All manuscripts must be accompanied by:

(a) A covering letter with the name(s) of the author(s), institution/affiliation, the title of the manuscript and contact information should be provided.

(b) An abstract of not more than 200 words should be provided.

5. Co-authorship (upto 3 authors) is permitted.

6. No biographical information or references, including the name(s) of the author (s), affiliation(s) and acknowledgements should be included in the text of the manuscript, file name or document properties. All such information may be incorporated in the covering letter accompanying the manuscripts.

7. The IJIEL uses only footnotes (and not end-notes) as a method of citation. Submissions must conform to the Bluebook.

For any clarifications, please contact us at

Thursday, August 18, 2016

Arbitrability of Securities Law in India

[The following guest post is contributed by Shreyangshi Gupta, who is a third year B.A., LL.B. student at the West Bengal National University of Juridical Sciences (WBNUJS).

This post aims at identifying the nature of rights relating to securities law, i.e. if they are of such nature that they can be resolved by a private arbitral tribunal, or whether they are exclusively reserved for adjudication in public fora (courts). By analysing the interplay between court decisions on arbitrability and the securities regime in India, the post highlights the undefined position of law on arbitrability of securities issues.]


A contemporary debate in arbitration deals with the question whether certain ‘public law’ issues involving ‘public interest’ can be settled through ‘alternative, private decision-making processes.’ Such questions are resolved by looking at the ‘arbitrability’ of a dispute i.e. the ability of a dispute to constitute the subject matter of arbitration.

This concept of arbitrability encapsulates three aspects:

- whether the disputes, by virtue of their nature, could be resolved by a private arbitral forum or whether they are exclusively reserved for public fora;

- whether the disputes are covered by the arbitration agreement between parties; and

- whether the parties have referred the disputes to arbitration

Under section 81(1)(a) of the English Arbitration Act, 1996, there exists no clarification if certain disputes are arbitrable or not. Instead, the courts determine arbitrability depending on the facts and circumstances of each case. As held in Fulham Football Club (1987) Ltd v. Richards, a case is not arbitrable if the dispute in question engages ‘third party rights’ or matters of public interest which are incapable of being determined within confines of private contractual processes.

In a nutshell, commercial disputes, both contractual and non-contractual, are capable of arbitration. This includes disputes relating to fraud, intellectual property rights, employment law, consumer rights, as well as certain competition law issues. Insolvency proceedings, by virtue of being subject to a statutory regime, are incapable of arbitration. Similarly, criminal matters and family law issues are also not arbitrable.

With regard to India, the Arbitration & Conciliation (Amendment) Act, 2015 lacks enumeration regarding the categorization of non-arbitrable disputes. Instead, under section 7, it implicitly suggests that all disputes, owing to the presence of any form of legal relationship, are arbitrable regardless of their nature.

However, under section 34(2)(b) of the Arbitration and Conciliation Act, 1996, Indian courts are empowered to set aside arbitral awards or refuse enforcement in case “the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force.”

This ambiguous statutory restriction on arbitrability throws the ball in the court of the judiciary. By means of seminal judgments, certain limitations have been placed on parties’ freedom to arbitrate, resulting in conceptual crystallization of arbitrability to a certain extent.

Judicial Enunciation

In the landmark Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Others, the Supreme Court, while dealing with the issue of arbitrability of disputes, held that arbitral tribunals are ‘private fori’ chosen by the parties, in place of courts or tribunals, the ‘public fori’ as per the laws of the country. All disputes relating to ‘right in-personam’ are arbitrable whereas, all disputes relating to ‘right in-rem’ are unsuited for private arbitration and are to be adjudicated by courts as well as public tribunals.

The Booz Allen case closely reflected norms under English law and addressed pertinent issues relating to arbitrability; however, securities law being a valid subject-matter of arbitration continues to remain relatively unexplored. Thus, for understanding if securities law are arbitrable or not, it is imperative to study certain judgments that expound on the reasoning laid down in Booz Allen.

In Kingfisher Airlines Limited v. Prithvi Malhotra Instructor, the Bombay High Court placed additional restrictions on arbitrability. It held that a dispute regarding any subject-matter would be considered inarbitrable if a particular legislative enactment creates or governs special rights, obligations, as well as accords special powers (including jurisdiction) to subject-matter oriented tribunals. Civil courts are necessarily excluded from the jurisdictions of such specialised tribunals.

Elucidating on this, in HDFC Bank v. Satpal Singh Bakshi, the Delhi High Court analysed the legislative intent behind the formulation of various specialised tribunals as well as the nature of rights and duties vested in them. It was held that the Rent Control Act as well as the Industrial Disputes Act create special rights and give special powers to the industrial adjudicators or tribunals. These powers are not available to civil courts; hence, disputes within the ambit of these statutes cannot be decided by means of arbitral tribunals which are essentially substitutes of civil courts.

In Aircel Digilink India Ltd. v. Union of India, the Telecom Disputes Settlement and Appellate Tribunal (‘TDSAT’) held that the Telecom Regulatory Authority of India Act, 1997 was a special legislation aiming to protect the interests of the service providers and the consumers of the telecom sector. Proper functioning of various stakeholders in this sector, as well as speedy adjudication by a specialised tribunal having requisite knowledge and expertise of the sector, such as the TDSAT, was vital for its development. Emphasizing on this, exclusive jurisdiction was accorded to the TDSAT; civil courts and arbitrators had no authority to interfere with this jurisdiction.  

Securities Law

For the purpose of this post, parallels can be drawn between the aforementioned statutes, the functions of the specialised tribunals they create, and the Securities and Exchange Board of India Act, 1992 (“the SEBI Act”).

The Preamble of the latter provides for the establishment of the Securities and Exchange Board of India (‘SEBI’), to protect the interests of investors in securities and promote their development, in addition to regulating business in stock exchanges as well as the securities market. By maintaining oversight, performing functions of auditing, and regulating substantial acquisition of shares or take-over of companies, SEBI is mandated, under Chapter IV of the SEBI Act, to unearth fraudulent and unfair trade practices, such as insider trading. The investigation and exposé of such malpractices ensure investor confidence within the public, which is collectively beneficial for markets and economic progress.

It is evident from the SEBI Act that SEBI performs necessary public functions. SEBI deals with specialised technical matters of securities dealings that have bearing upon a larger section of the public and economic development.

In addition to this, section 15U of the SEBI Act exclusively gives extensive, special powers to the Securities Appellate Tribunal (‘SAT’). The SAT has the same powers as vested with civil courts (including but not limited to appellate powers), but, as per section 15Y of the SEBI Act, the latter has no jurisdiction to entertain any suit or proceeding in respect of any matter. As per HDFC Bank, arbitral tribunals are essentially replacements of civil courts; hence, neither special rights are created in their favour, nor they do they have exclusive jurisdiction.

Unquestionably, the SEBI Act is a special legislation which creates and governs special rights, obligations which are exceptions to the norm of rights in-personam. Thus, keeping in mind the aforementioned decisions (most importantly Kingfisher Airlines), there is an implied bar on arbitration of securities law matters because special powers are granted or governed by specialized tribunals such as the SAT, and the same are lacking with civil courts.

Arbitration and Securities Disputes: The Analysis

However, the solution to the question of arbitrability of securities law disputes is not as straightforward. The matter becomes contentious when there is a dispute between parties bound by a pre-existing, private contractual relationship. The relationship could be in the form of a shareholders’ agreement, or a joint venture or joint cooperation agreement between shareholders or securities owners of any company. In case the agreement contains a clause to refer all disputes arising out of or in connection with that dispute to arbitration, then it may become difficult to adjudge the arbitral tribunal’s scope or jurisdiction in resolving such a subject-matter.

In addition to these agreements, there exist substantive norms permitting arbitration, formulated by the SEBI. A 2013 SEBI press circular lays down guidelines and exhaustive procedures on arbitration mechanism for investor grievance redressal. From the circular, it is palpable that arbitration is the ideal channel for streamlining the investor grievance redressal mechanisms at stock exchanges and increasing overall efficacy in granting investor protection.

Further, the SEBI bye-laws in Chapter VII provide for arbitration as a method to resolve claims, complaints, or disputes etc arising out of trading or settlement, between trading members. The National Stock Exchange (‘NSE’) bye-laws also have similar provisions.

Undoubtedly, the circulars and the bye-laws permit investor-broker arbitration, as well as arbitration between trading members in a stock exchange. These norms implicitly set the trend that at the outset securities issue can be arbitrated upon for effective redressal and investor protection. This goes contrary to the understanding previously derived from an analysis of case laws on arbitrability.

However, it is to be noted that in the aforementioned regimes, the securities matters are classified as arbitrable simply because they are rights in-personam, or rights of such nature that they have an effect only upon private parties, i.e. particular investors, brokers or trading members in stock exchanges. As opposed to this, a perusal of the aforementioned case laws indicates that the rights dealt with in relation to securities are exceptions to the rights in-personam.

In support of this contention, in cases of oppression and mismanagement, it has been held that any matter relating to the rights of or benefits to the shareholders in their capacity as members of the company is not required to be referred to arbitration, even if the parties have an agreement to submit all disputes to such forums. A petition under sections 241-244 of the Companies Act, 2013 is a proceeding in-rem. It is an action by shareholders for the larger benefit of the company. Similarly, a securities matter will not be arbitrable if the dispute potentially affects public interest or the economy on the whole.

In conclusion, it is indisputable that there exists a dichotomy with respect to the nature of rights that are governed by securities law. There is no clear demarcation as to what exactly constitutes a right in-rem and a right in-personam with regard to securities issues. Thus, it is crucial to have laws establishing a firm position on this, and ultimately answering the question of arbitrability of securities issues, once and for all.

- Shreyangshi Gupta

Call for Submissions - National Law School of India Review, Vol. 29(1)

[The following announcement is posted on behalf of the National Law School of India Review]

The National Law School of India Review (NLSIR) is now accepting submissions for its upcoming issue - Volume 29(1). The NLSIR is the flagship law review of the National Law School of India University, Bangalore, India. The NLSIR is a bi-annual, student edited, peer-reviewed law journal providing incisive legal scholarship on issues that are at the forefront of contemporary legal discourse. For more than 25 years, the NLSIR has regularly featured articles authored by judges of the Indian Supreme Court, senior counsels practicing at the Indian bar, and several renowned academics.

The most recent issue of the NLSIR, Vol. 28(1) and 28(2), will feature contributions by Professor Michael Philip Furmston, Emeritus Professor of Law, Singapore Management University, and Surabhi Chopra, Assistant Professor at the Faculty of Law, Chinese University of Hong Kong, among several others. Moreover, in August 2009, NLSIR attained the unique distinction of being the only Indian student-run law journal to be cited by the Supreme Court of India, in Action Committee, Un-Aided Private Schools v. Director of Education. NLSIR has also recently been cited in Justice R. S. Bachawat's Law of Arbitration and Conciliation, a leading treatise on arbitration law in India.

Papers may be submitted under the following categories:

1. Long Articles: Between 5000 and 8000 words, inclusive of footnotes. Papers in this category are expected to engage with the theme and literature comprehensively, and offer an innovative reassessment of the current understanding of that theme. It is advisable, though not necessary, to choose a theme that is of contemporary importance. Purely theoretical pieces are also welcome.

2. Essays: Between 3000 and 5000 words, inclusive of footnotes. Essays are far more concise in scope. These papers usually deal with a very specific issue, and argue that the issue must be conceptualized differently. They are more engaging, and make a more easily identifiable, concrete argument.

3. Case Notes and Legislative Comments: Between 1500 and 2500 words, inclusive of footnotes. This is an analysis of any contemporary judicial pronouncement or a new piece of legislation whether in India or elsewhere. The note must identify and examine the line of cases in which the decision in question came about, and comment on implications for the evolution of that branch of law. In case of legislative comment the note must analyze the objective of the legislation and the legal impact the same is expected to have.

Authors are requested to note that pieces engaging with a foreign theme or legal development, in any of the above categories, should also explain its relevance in the Indian context, whether by virtue of similar laws or otherwise.

Submissions are preferred in Times New Roman font, double-spaced. Main text should be in font size 12 and footnotes in font size 10. All submissions must be in docx format. The review uses only footnotes (and not end-notes) as a method of citation. Submissions must conform to the Bluebook (19th edn.) system of citation.

The NLSIR only accepts electronic submissions. All submissions should contain the name of the author, professional information, the title of the manuscript, and contact information. The last date for submissions to Volume 29(1) is the 1st of November, 2016. Submissions may be emailed to under the subject heading '29(1) NLSIR – Submissions.'