National Company Law Tribunal Holds Exclusive Jurisdiction Over Company Restructuring and Asset Division
In a landmark decision, the Kerala High Court, presided by Justice Easwaran S., has clarified the limits of an arbitrator's jurisdiction concerning intra-company disputes, restructuring, and division of assets. The judgment, delivered on June 1, 2026, in the case of Purushothaman Thitta v. Pothan Rajan, underscores the exclusive jurisdiction of the National Company Law Tribunal (NCLT) under Sections 241 and 242 of the Companies Act, 2013, for such matters.
The case arose when Purushothaman Thitta, the petitioner, challenged the arbitrator's authority to adjudicate on issues related to the division of assets and liabilities of certain companies based on a Memorandum of Understanding (MOU) signed by the respondents. The petitioner argued that such disputes fall within the exclusive purview of the NCLT and are non-arbitrable. The arbitrator had earlier held that the proceedings could continue, a decision which was challenged by Thitta under Article 227 of the Indian Constitution.
In its judgment, the Kerala High Court emphasized that disputes concerning the restructuring and division of company assets are actions in rem and thus non-arbitrable. The Court relied on the fourfold test laid down by the Supreme Court in Vidya Drolia and Others v. Durga Trading Corporation to determine the non-arbitrability of disputes. The judgment further highlighted that the presence of a specialized statutory forum like the NCLT indicates that such disputes require centralized adjudication and cannot be resolved through arbitration.
The Court also addressed the scope of judicial intervention, noting that while Section 5 of the Arbitration and Conciliation Act, 1996, limits judicial interference, the High Court retains the power to intervene under Articles 226 and 227 of the Constitution in cases where an arbitrator acts beyond jurisdiction or addresses non-arbitrable matters.
Ultimately, the Kerala High Court terminated the arbitration proceedings concerning the three companies involved, recognizing the NCLT's exclusive jurisdiction. The decision allows for the continuation of arbitral proceedings only against parties amenable to arbitration, reserving the rights of all parties to pursue appropriate remedies before the NCLT.
This ruling serves as a critical reminder of the boundaries between arbitration and statutory adjudication forums, reinforcing the NCLT's role in company law matters.
Bottom line:-
Arbitration - Jurisdiction of Arbitrator - Disputes concerning intra-company issues, restructuring, and division of assets of companies are non-arbitrable, as they fall within the exclusive jurisdiction of the National Company Law Tribunal under Section 241 read with section 242 of the Companies Act, 2013.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 5, 11, 16, 34, 37; Companies Act, 2013 Sections 241, 242; Constitution of India Articles 226, 227
Purushothaman Thitta v. Pothan Rajan, (Kerala) : Law Finder Doc id # 2913111
