Purushothaman Thitta v. Pothan Rajan (2026): why company restructuring and shareholder oppression are not arbitrable

In Purushothaman Thitta v. Pothan Rajan, a single judge of the Kerala High Court, Easwaran S., J., was asked a deceptively narrow procedural question and used it to draw a firm line between what arbitrators may decide and what only the National Company Law Tribunal may decide. Two brothers had signed a Memorandum of Understanding to divide the assets of three private companies between them. When one brother tried to enforce that division through an arbitrator, a minority shareholder who was not a party to the MOU objected that the whole subject matter belonged before the NCLT. The Court agreed, and in doing so applied the now-settled framework for arbitrability laid down by the Supreme Court in Booz Allen and Vidya Drolia.

The facts in brief

The dispute arose out of three companies registered under the Companies Act, 2013 — Pioneer Cars India Private Limited, Pioneer Motors (Kannur) Private Limited and Wayanad Vehicles Private Limited. Pothan Rajan and Suresh Pothan, two brothers, had entered into a Memorandum of Understanding dated 17 September 2021 providing for a division of assets and liabilities across these companies.

To give effect to that division, an application under Section 11 of the Arbitration and Conciliation Act, 1996 was filed, and the High Court appointed a retired District Judge as sole arbitrator. Before the arbitrator, the claimant sought, in substance, to record the division of the companies' assets and liabilities as set out in the MOU — relief that extended to restructuring the companies, changing the Managing Director and dividing the companies' assets, including by sale to third parties.

Purushothaman Thitta — a minority shareholder who figured as the second respondent in the arbitration and was not a signatory to the MOU — applied under Section 16 of the Arbitration Act to drop the proceedings as against the companies, contending that the arbitrator lacked jurisdiction because the subject matter vested exclusively in the NCLT. The arbitrator rejected that objection, reasoning that no winding up or dissolution was sought and that questions of ownership, shareholding and the division of shares were within his competence. It was that order rejecting the jurisdictional objection that the shareholder challenged before the High Court.

The question

Two questions stood one behind the other. The threshold question was procedural: can the High Court exercise its supervisory jurisdiction under Article 227 of the Constitution against an arbitrator's order that upholds his own jurisdiction on a Section 16(2) application — given that such an order is not appealable under Section 37 of the Act, and the only ordinary remedy is to wait for the final award and then move under Section 34?

Behind it lay the substantive question: is a claim that seeks to restructure companies and divide their assets — and which, on the objector's case, engages the oppression-and-mismanagement jurisdiction under Sections 241–242 of the Companies Act, 2013 — capable of being referred to and decided by an arbitrator at all, or is it non-arbitrable because the legislature has carved it out for a specialised statutory forum?

What the Court held

On the procedural question, the Court held that it could intervene. Where an arbitral tribunal assumes jurisdiction over a dispute that is inherently non-arbitrable, a party need not be made to wait for the final award; the High Court's power under Article 227 is available to terminate proceedings that the tribunal has no business entertaining.

On the substance, the Court held the claim — insofar as it related to the three companies — to be non-arbitrable. The relief sought went to the functioning, restructuring and re-division of the assets of the companies, which the Court held to be statutory in character and within the exclusive jurisdiction of the NCLT under Sections 241 and 242:

The Court reinforced the conclusion with two further points. First, the company itself was not a signatory to the MOU, which was an arrangement between two brothers; the dispute was "essentially an intra-company dispute." Second, the very existence of a specialised statutory forum vested with exclusive power over disputes "touching upon the structure of the company and the rights of a minority shareholder" was, in the Court's words, "a clear indication that the subject matter of the dispute is non-arbitrable" — and such a claim constituted an action in rem, not in personam.

The Court therefore allowed the petition in part. It interfered with the arbitrator's order to the extent it had rejected the jurisdictional objection in relation to the three named companies, and directed that the arbitral proceedings against those entities stand terminated — while carefully confining that termination to the three companies and leaving the arbitration otherwise intact as against parties properly amenable to it.

Analysis

The reasoning tracks the two leading Supreme Court authorities on arbitrability, which the Court set out in full. In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. [(2011) 5 SCC 532], the Supreme Court catalogued categories of disputes that are not arbitrable — among them rights and liabilities arising out of criminal offences, matrimonial and guardianship matters, insolvency and winding up, testamentary matters, and certain statutorily protected tenancy disputes. The common thread is that these are matters reserved to specified courts or in rem in nature.

Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1] then supplied a structured fourfold test: a dispute is non-arbitrable when its cause of action and subject matter (1) relate to actions in rem that do not pertain to subordinate rights in personam arising from rights in rem; (2) affect third-party rights, have erga omnes effect, or require centralised adjudication; (3) relate to inalienable sovereign and public-interest functions of the State; or (4) are expressly or by necessary implication rendered non-arbitrable by a mandatory statute. The Court was careful to note, as Vidya Drolia itself did, that these limbs are not watertight compartments but overlap and must be applied holistically.

Applying that framework, the Kerala High Court located this dispute primarily in the first and fourth limbs. A claim to restructure companies, reconstitute their management and divide their assets is an action in rem affecting the company, its creditors and other shareholders — not merely a private quarrel between the two MOU signatories. And it is, by necessary implication, carved out by a mandatory statute: Sections 241–242 confer wide remedial powers on the NCLT in cases of oppression and mismanagement, including powers to regulate the conduct of a company's affairs and to order structural changes that no arbitrator could grant. The non-signatory status of the objecting shareholder and of the companies themselves sharpened the point — an MOU between two brothers cannot, through an arbitration clause, bind a minority shareholder or determine the corporate structure of entities that never agreed to arbitrate.

The procedural holding is equally significant for practice. Section 16 embodies the kompetenz-kompetenz principle — an arbitral tribunal rules on its own jurisdiction — and an order upholding jurisdiction is ordinarily not appealable under Section 37, the aggrieved party's remedy being to await the award and challenge it under Section 34. The Court declined to make the shareholder run that gauntlet where the subject matter was inherently non-arbitrable, treating Article 227 as the appropriate, if sparingly used, corrective.

Why it matters

The decision is a clean illustration of a recurring fault line in Indian commercial litigation: the boundary between contractually agreed arbitration and the exclusive, in rem jurisdiction of a specialised tribunal. Parties frequently paper over corporate arrangements with MOUs and shareholder agreements containing broad arbitration clauses. Purushothaman Thitta confirms that the clause cannot reach disputes whose real substance is the structure of the company and the rights of its shareholders — those belong to the NCLT under Sections 241–242, and an arbitrator who assumes them acts without jurisdiction.

For practitioners, three points carry forward. First, drafting an arbitration clause into an asset-division MOU will not make corporate-restructuring relief arbitrable if the underlying claim engages oppression-and-mismanagement remedies. Second, the non-signatory status of the company and of affected minority shareholders is a strong indicator of non-arbitrability, because the dispute is in rem and binds parties who never consented to arbitrate. Third, where an arbitrator wrongly assumes jurisdiction over such a dispute, a party is not necessarily relegated to a post-award Section 34 challenge — Article 227 remains available in an appropriate case to terminate proceedings before they run their course.

Related on Valkya

• Gloster Limited v. Gloster Cables — Section 60(5)(c) nexus
• Omkara Assets v. Amit Chaturvedi — scheme of arrangement and Section 238
• Pannalal Bhansali v. Bharti Telecom — capital reduction

Sources

• Verdictum, "Company Restructuring Disputes Cannot Be Decided Through Arbitration; NCLT Has Exclusive Jurisdiction: Kerala High Court"
• LiveLaw, "Disputes On Corporate Restructuring Must Be Decided by NCLT, Not Arbitrator: Kerala High Court"
• High Court of Kerala, judgment in O.P.(C) No. 2308 of 2025, Purushothaman Thitta v. Pothan Rajan (2026:KER:37218)