2015 (7) TMI 1223 - HC - Indian Laws

Court permits Petitioner in CDR, vacates Receiver, Respondents to disclose asset dealings.

The Court allowed the Petitioner to participate in the Corporate Debt Restructuring (CDR) package or be kept informed about its progress. The Court ... Attachment before judgment - interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 - analogy to Order 38 Rule 5 and Order 39 Rules - insufficiency of stamp duty and admissibility of documents - suppression or misstatement as bar to equitable relief - Corporate Debt Restructuring (CDR) scheme - viability and protection of scheme - first pari passu charge - winding up petition - discretionary admission and regard to creditors' wishes - participation and information rights of a creditor under a CDR monitoring arrangementInsufficiency of stamp duty and admissibility of documents - suppression or misstatement as bar to equitable relief - Whether objections based on alleged insufficiency of stamp duty on the Term Loan Agreement and alleged suppression/misstatement by the Petitioner bar consideration of the interim application. - HELD THAT: - The Court observed that the Term Loan Agreement had been acted upon by the parties and the obligation to pay stamp duty was cast on Respondent No.1, but proceeded on the basis that reliance on the document was unnecessary because the existence of the debt, the arbitration agreement and its invocation were admitted by the Respondents. An incorrect averment as to place of execution did not amount to deliberate falsehood intended to deceive the Court. A payment made by Respondent No.1 during pendency was acknowledged in an affidavit, and therefore did not constitute suppression warranting denial of equitable relief. In these circumstances the preliminary objections did not preclude the Court from considering the interim application. [Paras 5, 6, 7]Objections on grounds of insufficiency of stamp duty and alleged suppression/misstatement rejected for the purpose of considering the interim application.Attachment before judgment - interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 - analogy to Order 38 Rule 5 and Order 39 Rules - first pari passu charge - Corporate Debt Restructuring (CDR) scheme - viability and protection of scheme - participation and information rights of a creditor under a CDR monitoring arrangement - Whether interim relief in the nature of attachment before judgment or an injunction should be granted to the Petitioner pending the arbitration reference in the face of an approved CDR Scheme. - HELD THAT: - The Court applied the principles that Section 9 reliefs may be guided by the tests underlying Order 38 Rule 5 and Order 39 Rules 1 and 2 but must be moulded to preserve the arbitral process. There was a prima facie, enforceable money claim, but the claim was secured by a first pari passu charge over current assets shared with other secured creditors and a final CDR package (including substantial restructuring and fresh infusion of funds) was under implementation under RBI/ CDR supervision. Granting an attachment or injunction that would jeopardise the CDR Scheme - monitored in the public interest and involving substantially larger creditor exposure - would be disproportionate to the prejudice to the Petitioner. The balance of convenience favoured allowing the CDR Scheme to operate, while protecting the Petitioner's interests by permitting it to join the Scheme or, if it declined, to be kept informed by the Monitoring Institution and to apply for appropriate reliefs on notice of any disposal. [Paras 10, 11, 12, 13, 14]No attachment, receiver or injunction prejudicial to the CDR Scheme is granted; instead the Petitioner may participate in the CDR package or, if it opts out, shall be kept informed by the Monitoring Institution and may apply for reliefs in respect of any disposal of assets. The court receiver and prior injunction are ordered to be vacated (with brief transitional provisions).Winding up petition - discretionary admission and regard to creditors' wishes - Corporate Debt Restructuring (CDR) scheme - viability and protection of scheme - Whether the Company Petition for winding up should be admitted notwithstanding the existence and implementation of the CDR Scheme. - HELD THAT: - The Court reiterated that admission to winding up is discretionary and the wishes of creditors (and the overall viability and consequences of winding up) are matters the Company Court may consider at the admission stage. Precedents recognizing that a CDR package does not ipso facto bar a winding up petition were examined and distinguished on the facts: where a final CDR package is being actively implemented, with substantial sacrifice and fresh funding by secured creditors and supervision by the Monitoring Institution/ CDR Cell, admission at a sensitive juncture may prejudice the collective revival effort and the interests of all stakeholders. Given the substantial secured debt being restructured, the monitoring arrangements and the limited prejudice to the Petitioner (a secured creditor with pari passu charge whose interests are protected by participation/information directions), the Court concluded that admission would be inappropriate. [Paras 17, 18, 19, 20, 21]Company Petition dismissed; petitioner granted liberty to apply for winding up on the same facts in the event the CDR Package fails or cannot be implemented in its existing terms.Final Conclusion: The Section 9 arbitration petition is disposed by directing the Monitoring Institution to permit the Petitioner to participate in the final CDR package or, if it opts out, to keep the Petitioner informed and permit it to apply for relief on notice; the court receiver and prior injunction are vacated with transitional effect. The winding up petition is dismissed, with liberty to reapply if the CDR package fails; no order as to costs. Issues Involved:1. Interim protection under Section 9 of the Arbitration and Conciliation Act, 1996.2. Insufficiency of stamp duty on the Term Loan Agreement.3. Allegations of suppression and misstatement by the Petitioner.4. Merits of the petition in the face of the CDR Scheme.5. Admission of the winding-up petition.Detailed Analysis:1. Interim Protection under Section 9 of the Arbitration and Conciliation Act, 1996:The Petitioner, a non-banking financial company, sought interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, for the properties of the Respondents. The Petitioner had granted a term loan of Rs. 50 crores to the Respondents, who defaulted on repayment, resulting in dues amounting to Rs. 29.68 crores. The Petitioner invoked the arbitration agreement and sought orders for attachment before judgment, or alternatively, an interim injunction restraining the Respondents from selling or dealing with their assets. The Respondents and their secured lenders opposed the application, citing the ongoing CDR Scheme and other grounds.2. Insufficiency of Stamp Duty on the Term Loan Agreement:The Respondents argued that the arbitration clause in the Term Loan Agreement was insufficiently stamped, making it inadmissible in evidence. The document was executed in Delhi and required additional stamping under Maharashtra law. The Petitioner contended that the obligation to pay stamp duty was on Respondent No.1 and that the document had been acted upon by both parties. The Court referred to the judgment in Aditya Birla Finance Ltd. vs. Coastal Projects Ltd., which distinguished similar cases and held that the obligation to pay stamp duty being on the respondent, the objection lacked merit. The Court concluded that even without relying on the Term Loan Agreement, the existence of the debt and the arbitration agreement were admitted by the Respondents, allowing the Court to consider the interim application.3. Allegations of Suppression and Misstatement by the Petitioner:The Respondents alleged that the Petitioner falsely stated the execution location of the documents and suppressed the payment of Rs. 10.30 crores made on 30 September 2014. The Court found that the incorrect statement regarding the execution location did not imply deliberate deception. The Petitioner had acknowledged the payment in an affidavit, showing no suppression. Therefore, the Court found no grounds to deny equitable relief to the Petitioner.4. Merits of the Petition in the Face of the CDR Scheme:The Court considered the principles of Order 38 Rule 5 and Order 39 Rules 1 and 2 of the Code of Civil Procedure, 1908, while deciding on the interim reliefs. The Petitioner argued for attachment before judgment and enforcement of a negative covenant, citing the Respondents' attempts to defeat any potential arbitral award. The Court noted that the Petitioner held a first pari passu charge over the current assets of Respondent No.1, which was recognized by the CDR lenders. The CDR Scheme aimed to revive the company, involving substantial financial sacrifices by the secured creditors. The Court found no case for granting an injunction or attachment that could jeopardize the CDR Scheme.5. Admission of the Winding-Up Petition:The Petitioner sought the winding-up of Respondent No.1 for its inability to pay debts, arguing that the statutory notice was not complied with, indicating deemed inability to pay. The Court considered the wishes of the majority creditors and the advisability of a winding-up order. The Court referred to the Supreme Court's judgment in Madhusudan Gordhandas & Co. Vs. Madhu Woolen Industries Pvt. Ltd., which emphasized considering the wishes of the majority creditors. The Court found that admitting the winding-up petition at this stage would adversely affect the company's market position and the confidence of stakeholders. The Court decided to allow the CDR Scheme to proceed, with the Petitioner being informed about its progress and allowed to apply for appropriate reliefs if necessary.Order:(a) The Petitioner is allowed to participate in the CDR package or be kept informed about its progress.(b) The Court Receiver in respect of hypothecated assets is vacated.(c) The injunction granted is vacated after three weeks.(d) The Respondents to furnish an affidavit disclosing dealings with hypothecated assets.(e) Chamber Summons (L) No.404 of 2015 is disposed of.(f) Company Petition No.443 of 2014 is dismissed, with liberty to reapply if the CDR Package fails.(g) The Company Application is dismissed.(h) No order as to costs.