The Delhi High Court granted an ad interim stay of the termination of a founding promoter's employment and shareholding, holding that termination effected in flagrant violation of the Shareholders Agreement and Promoter Employment Agreement warrants interlocutory relief under Section 9 of the Arbitration and Conciliation Act, 1996, preserving the status quo pending arbitration.
Background & Facts
The Dispute
The petitioner, Mr. Pulkit Baldev, a founding promoter holding approximately 30.39% of the equity share capital of Respondent No. 1-company, challenged his termination for "Cause" by the Board of Directors on 21.09.2026, alleging that the termination violated the Shareholders Agreement dated 10.02.2025 and the Promoter Employment Agreement dated 11.03.2022, and was effected without proper notice or prior written consent of the Majority Investor.
Key Facts
- The petitioner has been associated with the company since 2021 and is one of three founding promoters.
- All of his 4,564 fully paid-up equity shares vested as ‘Released Shares’ on 16.03.2026 upon expiry of the restriction period under Clauses 8.1.1 and 8.1.2 of the Shareholders Agreement.
- In March/April 2026, the petitioner was gradually excluded from important business decisions.
- On 20.08.2026, he emailed Respondent Nos. 2 and 3 (the other two promoters) raising concerns and proposing an amicable exit.
- On 21.09.2026, the petitioner received notice of a Board of Directors meeting scheduled for 07:30 PM at the company’s corporate office in Gurugram, Haryana; the notice was received at 07:02 PM, leaving approximately 28 minutes to attend.
- At the meeting, the Board resolved that the petitioner’s conduct constituted “Cause” and terminated his employment with immediate effect.
- The termination letter was digitally signed by Respondent No. 2 at 07:50 PM and by Respondent No. 3 at 08:22 PM on the same day and dispatched to the petitioner.
- The petitioner contends that prior written consent of the Majority Investor was required for his removal or any change in material terms of his employment, which was not obtained.
- He further alleges that the Board meeting was held without proper notice, contravening Section 173(3) of the Companies Act, 2013.
- The petitioner asserts that he was neither informed of the alleged breach nor given 30 days to rectify it, and that the allegations of misconduct required a hearing in accordance with natural justice.
- He argues that termination for “Cause” may result in the transfer or buyback of his shares at the lowest permissible value, loss of voting rights, and exclusion from Board meetings, to the benefit of Respondent Nos. 2 and 3.
- The petitioner maintains that the dispute is subject to arbitration under Clause 15.9 of the Shareholders Agreement and Clause 13 of the Promoter Employment Agreement.
Procedural History
- The petitioner filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 seeking ad interim ex-parte relief of protection pending arbitration.
- The application was heard after the termination on 21.09.2026.
- The Court reserved its order on 09.10.2026 and pronounced judgment on 14.10.2026.
- As an interim measure, the implementation and effect of the Board resolution dated 21.09.2026 and the termination letter dated 21.09.2026 were stayed till final disposal of the application.
- Respondents were directed to file their replies within four weeks of service; any rejoinder by the petitioner to be filed two weeks thereafter.
- Arguments on the application under Section 9 of the Act were re-notified for 08.12.2026.
Relief Sought
The petitioner sought an ad interim injunction restraining the respondents from transferring, buying back or extinguishing his shares, and protection of his shareholding pending arbitration.
The Legal Issue
The central question was whether an ad interim injunction can be granted under Section 9 of the Arbitration and Conciliation Act, 1996 to restrain implementation of a termination of a founding promoter’s employment and shareholding where the termination is alleged to be in flagrant violation of the Shareholders Agreement and Promoter Employment Agreement, and whether such termination constitutes a dispute amenable to arbitration.
Arguments Presented
For the Petitioner
The petitioner relied on the Single Judge judgment in Dr. Sharad Sahai v. Dio Digital Implant India Pvt. Ltd. & Ors., OMP (I)(COMM) 87/2021, where similar facts warranted an ad interim injunction. He contended that the termination violated the Shareholders Agreement and Articles of Association, lacked prior written consent of the Majority Investor, was effected without proper notice under Section 173(3) of the Companies Act, 2013, and denied him a hearing as required by natural justice. He argued that the termination would cause irreparable harm to his shareholding, voting rights, and participation in Board meetings, and that the dispute is arbitrable under the relevant agreements.
For the Respondent
The respondent’s counsel opposed the grant of an ad interim injunction, submitting that a terminable contract, even if terminated for “Cause”, cannot be enforced by way of an injunction, and that a contract of personal service cannot be specifically enforced against the employer’s will. He cited Percept D’Mark (India) (P) Ltd. v. Zaheer Khan, (2006) 4 SCC 227; Chem Academy Pvt. Ltd. v. Sumit Mehta, 2021 SCC OnLine Del 4985; and Krishna Kumar Singh v. TUI India Pvt. Ltd., 2021 SCC OnLine Del 4902 in support of this position.
The Court's Analysis
The Court examined the principles governing ad interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, namely the existence of a prima facie case, balance of convenience favoring the applicant, and the risk of irreparable injury if relief is not granted. It noted that the termination was not merely that of an employee simpliciter but of a founding promoter whose shareholding and rights under the Shareholders Agreement were seriously affected. The Court found the manner and speed of service of the Board meeting notice - received at 07:02 PM for a 07:30 PM meeting - demonstrated a blatant disregard for procedural fairness. Referring to Dr. Sharad Sahai (supra), the Court observed:
"It was held that when the termination of employment of petitioner is in flagrant violation of the Promoter Employment Agreement, an interlocutory injunction can be granted."
The Court concluded that the stark facts - flagrant violation of the Promoter Employment Agreement, inadequate notice, and the imminent risk of irreparable harm to the petitioner’s shareholding and voting rights - left no hindrance to granting an interim stay. Accordingly, it stayed the implementation and effect of the Board resolution dated 21.09.2026 and the termination letter dated 21.09.2026 pending final disposal of the application, while clarifying that the order is purely interim and subject to review upon final adjudication.
The Verdict
The petitioner succeeded in obtaining an ad interim stay. The Court held that implementation and effect of the Board resolution dated 21.09.2026 and the termination letter dated 21.09.2026 are stayed till final disposal of the application under Section 9 of the Arbitration and Conciliation Act, 1996. Respondents must file their replies within four weeks of service; any rejoinder by the petitioner is to be filed two weeks thereafter. Arguments on the application are re-notified for 08.12.2026.
What This Means For Similar Cases
Interim Relief Available for Flagrant Breach of Shareholders Agreements
- Where a promoter’s termination is shown to be in flagrant violation of the Shareholders Agreement or Promoter Employment Agreement, an ad interim injunction under Section 9 of the Arbitration and Conciliation Act, 1996 may be granted to preserve shareholding rights.
- The balance of convenience tilts in favor of the promoter when the termination threatens immediate and irreparable loss of voting rights, Board participation, and share value.
Notice Period and Natural Justice Are Critical in Promoter Terminations
- Service of Board meeting notice must afford a reasonable time for attendance; notice received less than half an hour before a meeting is procedurally inadequate and may invalidate any resolution passed.
- Allegations of misconduct must be communicated and a reasonable opportunity to rectify provided, failing which the termination may be deemed violative of natural justice.
Arbitration Clauses Preserve Status Quo Pending Resolution
- When disputes concerning promoter termination are subject to arbitration, courts may intervene at the interim stage to maintain the status quo, preventing unilateral actions that could frustrate the arbitral process.
- Practitioners should promptly invoke arbitration clauses and seek interim relief to restrain share transfers, buybacks, or extinguishment pending final arbitral award.
