Reconciling Contractual Autonomy and Public Policy in Indian Arbitration

[Maitri and Kavya are students at National Law University Odisha.]

The Delhi High Court (DHC) on 1 September 2025 in Roger Shashoua and Others v. Mukesh Sharma and Others expressed its position on arbitral tribunal’s power to order transfer of shares in a joint venture (JV) that reflects a significant shift in Indian arbitration jurisprudence. This stance potentially reshapes shareholder dispute resolution in India. The central issue that the court dealt with was whether the arbitral tribunal had such powers, a remedy conventionally associated with company law proceedings. By upholding the foreign arbitral award directing such a transfer, the court expressly affirmed that arbitral tribunals can grant this relief.

This article delves into the court’s reasoning and its implications on contractual remedies with primary focus on two key attributes. First, it reinforces India’s pro-arbitration position by acknowledging that arbitral tribunals are not confined to awarding damages. They can also go ahead and grant specific reliefs to resolve the deadlock. Second, it clarifies that public policy exception does not impede enforcement of contractual mechanisms aimed at resolving deadlocks. 

The Joint Venture fallout: Background

A cross-border JV, formalized through a shareholders agreement (SHA) on 1 July 1998 was entered into, by Roger Shashoua, a British businessman and Mukesh Sharma, an Indian entrepreneur. The collaboration was established to develop an exhibition centre in Noida through International Trade Expocentre Limited (ITEL). The JV was precisely structured with both Shashoua and Sharma agreeing to hold 50% shareholding each. The SHA had a comprehensive governance mechanism to ensure that neither party could unilaterally change the management or control without the consent of the other, thereby maintaining a delicate balance.

Restructuring activities spanning over a period of 1999 to 2004, which involved transfer of shares, led to the dilution of ownership structure which was originally equal. This dilution of Shashoua’s stake to effectively around 25% became the root cause of emerging tensions. Compounding the conflict, Shashoua established a competing enterprise, India Exhibition Management Private Limited in 2004 which contravened the non-compete clause inherent in the JV agreement. This led to a series of litigations and injunction applications with ITEL attempting to restrain this competing business, which later steered towards arbitration, pursuant to the SHA’s binding dispute resolution clause. 

The parties engaged in arbitration proceedings at the International Chamber of Commerce in London which led to multiple awards directing Mukesh Sharma and related entities to transfer the shares back to the Shashoua’s group along with costs and other reliefs. Further, Mukesh Sharma challenged the enforcement in Indian courts on the grounds that the dispute involved allegations of oppression and mismanagement which lie exclusively within the purview of company law tribunals and that the compelled transfer of shares is against public policy. However, the petitioner Shashoua disputed these claims.

Contractual Arbitrability v/s Statutory Company Law Powers

The DHC astutely distinguished between the two categories of the disputes arising from the SHA. It underpinned that the allegations of oppression or mismanagement fall within the exclusive jurisdiction of company law tribunals. However, these allegations do not curtail the jurisdiction of the arbitral tribunal to address the issues centered on breach, interpretation or implementation of the contract.

The DHC noted that the arbitral tribunal, being a creature of the contract, derives its jurisdiction from the agreement between the parties. Once there is a deadlock and the arbitral tribunal is vested with the jurisdiction to resolve the deadlock, it cannot later be argued that the deadlock was not capable of settlement by arbitration. It recognized that the enforcement of mere paper awards which afford only theoretical rights instead of a tangible relief, severely dilute the utility of arbitration as an effective dispute resolution mechanism.

Streamlining Public Policy in Indian Arbitration

The DHC through this decision has progressively streamlined the scope of public policy as a ground for resisting the enforcement of foreign arbitral awards. The respondent, Mukesh Sharma, claimed that being forced to transfer their shares went against public policy. The DHC, however, disagreed, ruling that the share transfer was part of parties’ own contract and necessary to resolve the deadlock. 

In fact, it emphasized that the award was well within the public policy of India to allow a foreign investor, who has invested in an Indian JV company and has in effect been duped of the entire investment, to be allowed to take over the business and turn it into a successful venture. Since the award fosters business continuity and safeguards investments, it was found to be perfectly aligned with principles of commercial fairness and public policy. 

Critical Analysis and Implications

The DHC’s approach is reflective of the evolving jurisprudence mandating arbitral awards to not only be legally sound but also commercially consequential reflecting equitable considerations.

The limits of arbitral jurisdiction in India are well-demarcated. The Supreme Court (SC) in Haryana Telecom v. Sterlite Industries held that matters such as winding-up of companies are non-arbitrable. This is so because they fall within the exclusive statutory jurisdiction of courts or company law tribunals. Likewise, issues dealing with oppression and mismanagement and restructuring are generally for the National Company Law Tribunal (NCLT) to deal with, under the Companies Act 2013. 

However, the landmark case of Vidya Drolia v. Durga Trading Corp. clarified that whether a dispute can be subject to arbitration or not depends on the nature of rights involved. If the right is purely statutory, it cannot be arbitrated upon; however, if it is a contractual right, arbitration is permitted. Further, the decision of the SC in Olympus Superstructures v. Meena Vijay Khaitan affirmed that tribunals can grant reliefs that explicitly or impliedly arise from the contract. It clarified that arbitral tribunals can direct actions such as share transfers if such remedies are contemplated by parties’ contractual arrangements.

Consequently, this nuanced differentiation affirms that, when disputes arise from the breach of SHA, deadlock clauses, or pre-agreed exit mechanisms, the arbitral tribunals possess the authority to grant appropriate relief. However, they should not impinge upon matters explicitly reserved for the statutory forums. Accordingly, the tribunal’s award redirecting the transfer of shares is a legitimate and commercially meaningful remedy. This aimed at restoring the commercial equilibrium between the parties and ensuring enforceability of the contractual rights.

Moving further, enforcing contractual mechanisms to resolve deadlocks like forced share transfers are not considered to be violative of public policy. Section 48(2)(b) of the Arbitration and Conciliation Act 1996 states that a foreign arbitral award maybe refused if it is contrary to the public policy. However, courts have emphasized that it should be applied restrictively. In Renusagar Power Co Limited v. General Electric Co, the SC ruled that public policy for foreign arbitral awards is limited on the grounds that are violative of the fundamental policy of Indian law, affect the interests of India, and opposed to justice or morality.

This raises an important issue of whether arbitral awards that order forced share transfers, exits, or corporate restructuring remedies are said to violate the public policy. Previously, such awards amounted to expropriation, implying wrongful intrusion into the matters exclusively reserved for company law tribunals. However, considering recent judicial decisions, we see a shift in the way public policy is interpreted. Rather than a tool for invalidating corporate arrangements, it is now used in a more business-friendly manner. This transition, reinforces India's pro-enforcement and pro-arbitration stance which aligns Indian jurisprudence with international arbitration standards. 

Such arbitral awards are reflective of the true intent of the parties and uphold the principle of commercial fairness. And a settled position exemplifies that enforcement is the norm and refusal is an exception. Indian public policy places strong emphasis on economic objectives, such as, ease of doing business, rather than making room for companies with substantial foreign investment to slide into liquidation. This evolving outlook boosts investor confidence by ensuring that vague public policy claims cannot be used to derail contractual arbitral remedies. As a result, awards of the tribunal that resolve deadlocks and preserve business continuity are regarded as consistent with the public policy.

This shift specifically recognizes the validity of contractual remedies inclusive of share transfers within the arbitral framework. However, India’s pro-arbitration approach entails challenges with it. Prominent concerns of corporate governance could be neglected in favor of commercial efficacy. For instance, arbitral awards that direct forced share transfers, although seemingly fair at the first blush, could cause disadvantage to the minority shareholders. Moreover, it could lead to blurring of lines between the jurisdiction of arbitral tribunal and the NCLT. This overreliance on arbitral awards may weaken the statutory safeguards intended for the welfare of the vulnerable parties. 

Conclusion 

The judgement of the DHC may at first appear to encroach upon the domain of statutory disputes. However, a thorough understanding reveals that the power and scope of an arbitral tribunal is grounded in the agreement itself. The approach adopted by the DHC goes beyond mere paper awards as analyzed above and puts forth that arbitral tribunals can order substantive awards, including share transfers affecting the rights of the parties emerging out of the contractual framework. The decision clarifies that even if there is an assumption that the award is beyond what was intended in the agreement, it would not invalidate the enforceability of the award passed by the tribunal on the ground of public policy exception. So, this ruling bolsters business continuity and investor confidence but must be used cautiously to ensure that fairness is not compromised.