Delhi High Court: Injunction Under Arbitration Act Cannot Restrain Board Meeting for Director’s Removal

The Delhi High Court has ruled that interim injunctions under Section 9 of the Arbitration and Conciliation Act, 1996 cannot be used to restrain a company from holding board or shareholder meetings relating to the removal of a director, especially where such relief would interfere with statutory rights under the Companies Act, 2013.

Justice Anil Kshetarpal, presiding over the appeal under Section 37(1)(b) of the Arbitration Act, set aside a previous order passed by the District Judge that had restrained the appellant company from holding a Board Meeting (15-04-2025) and EGM (12-05-2025) for considering the removal of the respondent director.

Background of the Case

The respondent, a Director in the appellant company, was overseeing marketing, franchise growth, and operations. He alleged abrupt denial of access to company systems, non-payment of salary, and insufficient notice regarding board meetings concerning his removal.

He invoked arbitration clauses in the Employment and Shareholders’ Agreement and approached the Commercial Court under Section 9, seeking interim relief to halt the proposed meetings.

The District Judge granted relief, restraining the company from acting on the agenda related to the respondent’s removal.

High Court’s Analysis

The Court examined whether such restraint under Section 9 was legally permissible. It held:

• The remedy under Section 9 is discretionary and equitable, not meant to interfere with internal governance unless essential to preserve the subject matter of arbitration.
• Section 169 of the Companies Act ensures a right to be heard before removal, but Section 173(3) allows board meetings at shorter notice in urgent matters.
• The company cited serious allegations like financial irregularities and obstruction of audits as the basis for urgent meetings, which the Court found to be legitimate.

Further, the District Judge’s order lacked key findings such as:

• Existence of a prima facie case
• Balance of convenience
• Irreparable harm to the respondent

The High Court emphasized that courts must avoid granting interim reliefs that effectively decide the final issue, particularly where statutory corporate powers are involved. Restraining a board meeting was viewed as overreach into corporate autonomy.

Court’s Verdict

The Court concluded that the order of the District Judge amounted to a pre-emptive adjudication on contested facts and unduly froze corporate governance functions. The injunction was set aside as it:

• Infringed the company’s statutory rights
• Lacked sufficient legal and factual foundation
• Resembled final relief, not interim protection

Legalspace Viewpoint

This decision reinforces a critical corporate law principle: courts must not use interim arbitration relief to bypass company law procedures. The verdict strikes a balance between director protection and corporate governance autonomy.

At Legalspace, we see this as a guiding case for disputes involving shareholder-director conflicts where arbitration intersects with corporate law. Legal professionals should be cautious when seeking interim injunctions that potentially override statutory rights under the Companies Act, 2013.

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