When arbitration clauses meet oppression petitions: Lessons from USAR Commerce Technologies v. Utsav Soi

The NCLT Chandigarh Bench's order dated April 29, 2026 in USAR Commerce Technologies Private Limited v. Utsav Soi (Order) presents a collision between carefully negotiated contractual arbitration regimes and the statutory jurisdiction of the NCLT under Sections 241-242 of the Companies Act, 2013 (Companies Act).

USAR Commerce Technologies Private Limited (company) operates an AI-driven fashion technology platform under the trade name "Shoppin'" which was co-founded in June 2024 by Mr. Utsav Soi and Mr. Shlok Bhartiya. In July-August 2024, the founders and their institutional investor, IE Venture Investment Fund II (InfoEdge), executed a Share Subscription Agreement (SSA), a Shareholders' Agreement (SHA), and an Employment Agreement (EA) appointing Mr. Soi as Chief Product and Technology Officer (CPTO). Each of these three "Transaction Documents" contained broad arbitration clauses. The EA provided for the seat as Gurugram, and the SHA and SSA provided for the seat at New Delhi.

As highlighted in the Order, the SHA contained consequential provisions that were to operate automatically upon termination of a Promoter's employment: automatic vacation of directorship, Board empowerment to require acquisition of the terminated Promoter's shareholding, and suspension of voting rights. In June 2025, the company terminated Mr. Soi's employment "without cause" under the EA. What followed was a cascading series of corporate actions: the directorship was treated as automatically vacated; an EGM was convened on July 1, 2025 with only one Director present, appointing a new Non-Executive Director; Form DIR-12 was filed; CCPS were issued diluting Mr. Soi's stake from 35% to approximately 24%; a Call Option was invoked to acquire his stake (worth approximately INR 28.8 crores) for INR 50,000; and, notably, a Delaware company (Shoppin Commerce Inc.) was incorporated to which the company's intellectual property and technology assets were allegedly diverted.

Mr. Soi subsequently filed a petition under Sections 241–242 of the Companies Act alleging oppression and mismanagement. The company responded by filing an application under Section 8 of the Arbitration and Conciliation Act, 1996 before the NCLT, seeking reference of all disputes to arbitration. The NCLT dismissed the application filed by the company.

The tribunal's analysis rested on three pillars.

Substance over form: The "dressed-up petition" argument

The company argued that every relief in the petition traced its origin to the contractual termination under the EA and was therefore a "dressed-up" contractual dispute. The NCLT rejected this, holding that the termination was merely the trigger, not the substance, of the oppression. The acts that followed i.e. the procedurally defective EGM, the DIR-12 filing, transfer of IP, dilution of shareholding, and the call option were characterised as independent statutory violations each capable of standing on its own as a ground of oppression under Sections 241–242 of Companies Act.

Non-arbitrability of oppression and mismanagement proceedings

Drawing on Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., the tribunal held that the reliefs sought were related to rights in rem going to the corporate governance and ownership structure of the company as a whole, placing them squarely within the category of proceedings reserved by the legislature for public fora. The tribunal further relied on Section 430 of the Companies Act which bars civil courts from entertaining matters the NCLT is empowered to determine and held that an arbitral tribunal, deriving its jurisdiction from the consent of parties in substitution of a civil court, could not be vested with jurisdiction over matters from which civil courts are expressly excluded. The tribunal also relied on the Bombay High Court's reasoning in Rakesh Malhotra v. Rajinder Malhotra, that composite reliefs involving rights in rem and in personam are inseparable and cannot be severed for arbitral reference.

Estoppel, composite parties, and the bifurcation of proceedings 

The company invoked estoppel, pointing out that Mr. Soi had himself issued a notice invoking arbitration on July 29, 2025 and filed a Section 11 petition before the Punjab and Haryana High Court on the same date as the petition filed by the Company. The NCLT was unpersuaded: relying on CIT v. MRP Firm Muar, it held that the doctrine of approbate and reprobate cannot operate against a statutory jurisdiction. Since both filings were simultaneous, there was no prior conscious election. The tribunal further noted that a newly appointed Director of the company was a party to none of the transaction documents and Section 8 could not be invoked where all reliefs cannot be referred or where a party is not bound by any arbitration agreement. Since bifurcation would risk conflicting judgments, the entire dispute was retained before the NCLT.

Arbitration clauses in founder agreements cannot displace the NCLT's exclusive jurisdiction

The most fundamental takeaway is structural: no matter how broadly drafted, an arbitration clause in a SHA, SSA, or EA, cannot compel arbitration of a dispute that a founder frames as oppression and mismanagement under Sections 241-242 of the Companies Act. Hence, it becomes critical to bear in mind that the NCLT's jurisdiction in matters of oppression and mismanagement is statutory and exclusive and cannot be ousted by contract.

The "trigger vs. substance" distinction is critical in structuring post-termination mechanics

The company's argument that all disputes flowed from the contractual termination was compelling on paper and would have been decisive had the post-termination conduct been limited to exercising SHA-mandated call options and share acquisition rights. The NCLT's refusal to accept that argument was driven entirely by the additional conduct i.e. the procedurally defective EGM, the undervalued call option, dilution of shareholding, and incorporation of Shoppin Commerce Inc. This serves as a reminder that post-termination mechanics must be executed with extreme care and procedural compliance; any deviation from statutory requirements converts a contractual enforcement into evidence of oppression.

Reserved matters clauses and board composition must be aligned 

Two of the most potent arguments raised and left unresolved by the NCLT at this stage were that: (a) no valid Board resolution could have been passed for the removal of a KMP under Section 179(3)(e), given the two-member Board; and (b) the SHA classified termination of a Key Employee as a reserved matter requiring InfoEdge's prior written consent. It is pertinent to ensure internal consistency between the Board composition contemplated by the SHA, the quorum and KMP-removal requirements under the Companies Act, and the reserved matters. Where a termination requires investor consent as a Reserved Matter, that consent must be obtained and documented before any termination notice is issued.

Enforcing arbitration agreement against non-signatories 

The presence of Respondent No. 3 who was a Director against whom relief was claimed but who was bound by no arbitration agreement proved independently fatal to the Section 8 application. This is a recurring structural vulnerability in startup disputes: new directors, brought in after the founding documents are executed, are rarely parties to the original SHA or SSA. Hence, companies should consider requiring all future directors and senior officers to execute joinder agreements to the relevant transaction documents at the time of their appointment or the provisions related to the dispute resolution framework shall be incorporated in the Articles of Association of a company, ensuring that all directors and shareholders are bound by the dispute resolution framework.

Conflicting ‘seats’ in transaction documents compound the problem 

The EA had its seat at Gurugram while the SHA and SSA had their seat at New Delhi, a detail that may appear minor at drafting stage but created a significant procedural difficulty when the Company sought a composite reference. Though the order was limited to conclusion on the non-arbitrability of the subject matter, it is important to ensure that the seat of arbitration across all transaction documents is consistent to prevent disputes about composite references.

This order is a timely reminder that the NCLT's jurisdiction under Sections 241–242 is a statutory floor that contractual provisions cannot displace. This case demonstrates how a termination that is, in isolation, contractually routine can become the foundation of an oppression narrative if it is followed by procedurally defective corporate actions, structural dilution, and asset diversion. The learning lies in understanding that merely drafting robust transaction documents is not enough, but also ensuring that post-termination execution is procedurally impeccable, investor consents are obtained where required, and the dispute resolution framework is consistent across all agreements and extended to all relevant parties.

About the authors: Vartika Koolwal is a Partner and Abhinav Gupta is a Principal Associate at RegFin Legal.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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