Interim Injunction U/S 9 Of Arbitration Act Cannot Be Granted To Prevent Convening Of Meeting For Removal Of Director: Delhi High Court

The Delhi High Court bench of Justices Anil Kshetarpal and Harish Vaidyanathan Shankar has observed that an interim injunction under section 9, Arbitration and Conciliation Act, 1996 (“ACA”) cannot be granted to prevent convening of extraordinary general meeting for removal of a director as it effectively amounts to grant of final relief and impinges upon statutory powers conferred to a Company under the Companies Act, 2013. Facts The present appeals were filed by the Appellant Company under Section 37(1)(b), ACA read with Section 13(1A) of the Commercial Courts Act, 2015, assailing the Order(s) dated 09.06.2025 (“Impugned Order”) passed under Section 9, ACA by the District Judge, (Commercial Court)-01, South-East District, Saket Courts, New Delhi, whereby the Appellant Company was restrained from convening Board Meetings dated 15.04.2025 and 12.05.2025 concerning the proposed removal of the Respondent(s) from the Directorship of the Appellant Company. Upon the incorporation of the Appellant Company, the Respondent was appointed as a Director by way of an Executive Employment Agreement dated 19.10.2023, entitling him to monthly remuneration and certain shareholding rights, as further detailed in a Shareholders‟ Agreement dated 08.11.2023. In March 2025, several disputes arose between the parties. The Respondent was denied access to his official email systems, his salary was withheld and he was served with short notice communications for board meetings without any details about the agenda of those meeting which included the consideration of his removal from directorship. The Respondent contended that despite repeated requests, he was not furnished with any documentation substantiating the alleged financial irregularities or operational mismanagement cited against him. On 09.04.2025, a special notice and agenda were issued for convening a Board Meeting on 15.04.2025, the stated purpose of which was the proposed removal of the Respondent and another Director. Feeling aggrieved, the Respondent approached the Commercial Court under Section 9 of the Act, seeking interim relief restraining the Appellant Company from proceeding with the said Board Meeting. After hearing both sides, the District Judge vide the Impugned Order, granted interim protection to the Respondent by restraining the Appellant Company from acting upon the agendas of the Board Meeting and the EGM scheduled for 15.04.2025 and 12.05.2025, respectively, insofar as they pertained to the proposed removal of the Respondent from the Board. Contentions The Counsel for the Appellant contended that the Impugned Order is legally unsustainable, as it grants what is, in effect, final relief under the guise of interim protection under Section 9 of the Act. It was contended that the right to remove a Director is a statutory power conferred upon the shareholders and the Board under the Companies Act, 2013, and that the injunction granted by the District Judge effectively restrains the Company from exercising such right, thereby interfering with its internal governance without adjudication on merits. The Counsel for the Appellant placed reliance on the judgment of the Delhi High Court in Ravinder Sabhawal and Another v XAD Inc and Others (2018) SCC OnLine Del 1148 to submit that injunctive relief under Section 9, ACA cannot be granted so as to restrict the statutory rights of shareholders to seek removal of a Director, particularly where the foundational disputes are arbitrable and the petitioner has failed to demonstrate any grave and irreparable harm. The Counsel for the Respondent supported the Impugned Order as the notices issued by the Appellant were in violation of the mandatory requirements under Section 169 and 173(3), Companies Act, 2013 and that the Respondent was not afforded any reasonable opportunity of being heard prior to the proposed action. Additionally, it was contended that the impugned Board Meeting notices failed to disclose any specific allegations or documentary material in support of the proposed resolution for removal. The Counsel for the Respondent placed reliance on the judgment passed by the Delhi High Court in Jai Kumar Arya v. Chhaya Devi & Another 2017 SCC OnLine Del 11436 (“Jai Kumar Arya”) to submit that the interim protection under Section 9, ACA may be granted in cases involving procedural impropriety in the proposed removal of directors particularly where statutory safeguards under the Companies Act, 2013 are alleged to be violated. Observations The court observed that the principal issue for consideration before it was whether the interim injunction granted by the District Judge under Section 9 of the Act, restraining the Appellant Company from acting on the agenda of proposed Board and General Meetings concerning removal of the Respondent as a Director, was warranted in the facts and circumstances of the case. ...

Interim Injunction U/S 9 Of Arbitration Act Cannot Be Granted To Prevent Convening Of Meeting For Removal Of Director: Delhi High Court

Arpita Pande

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