2023 (6) TMI 252 - HC - Insolvency and Bankruptcy

Court dismisses arbitration application under Section 11, citing non-arbitrability, time-bar, and CIRP impact.

The court dismissed the application under Section 11 of the Arbitration and Conciliation Act, 1996, without costs. The court found the dispute ... Arbitrability and reference under Section 11 of the Arbitration and Conciliation Act, 1996 - option period and time bar for exercise of option - deadwood doctrine / ex facie non maintainable claim - specific performance - limitation (Article 54 of the Limitation Act, 1963) - novation and effect of unilateral undertakings - effect of CIRP and sanctioned resolution plan on pre existing claims - non joinder of necessary/proper party (SPV) and curability - insufficiency of stamp duty and its relevance to reference to arbitrationOption period and time bar for exercise of option - specific performance - limitation (Article 54 of the Limitation Act, 1963) - Whether the petitioner's claim was time barred because the Option had to be exercised during the Option Period and no notice was served within that period. - HELD THAT: - The Court construed the Option Agreement and its defined terms. Clause 1.1.27 made the Option Start Date the earliest of three contingencies, the earliest being termination of the Concession Agreement on January 13, 2017. Clause 1.1.26 therefore fixed the Option Period as commencing and ending with the completion/termination of the Concession Period, so that the Option Period in fact comprised the single date January 13, 2017. The agreement obliged the exercising party to issue a notice during the Option Period (Clauses 2.1, 3.1 and 3.2). Clause 10(b) preserves obligations only where a notice has been served on or prior to expiry of the Option Period; read with Clause 3.1, that requires service during the Option Period. The petitioner did not serve any notice on January 13, 2017; the communications relied upon by the petitioner (including the 2011 letter and notices of 2022) were either antecedent to or beyond the Option Period and therefore did not constitute exercise of the Option within the contractual time. Consequently the claim could not be sustained as a live enforceable right under the contract and is time barred/ex facie not maintainable. [Paras 57, 58, 59, 60, 61]The petitioner's entitlement to exercise the Option was confined to January 13, 2017 and no valid notice was served within the Option Period; the claim is therefore time barred and cannot be sustained.Deadwood doctrine / ex facie non maintainable claim - arbitrability and reference under Section 11 of the Arbitration and Conciliation Act, 1996 - Whether the dispute sought to be referred to arbitration is ex facie 'deadwood' and therefore non arbitrable at the Section 11 stage. - HELD THAT: - Applying the contractual construction above and the principles in Vidya Drolia and related authority, the Court held that the dispute is manifestly untenable - a proverbial 'deadwood' - because the Option could only have been exercised on January 13, 2017 and no valid exercise occurred. Given that the claim is patently non maintainable on its face, referring such a dispute to arbitration would be futile. The Court therefore declined to make a reference under Section 11, limiting its prima facie review to determine that the claim was ex facie not arbitrable. [Paras 62, 63, 64, 65, 66]The dispute is ex facie 'deadwood' and non arbitrable; reference under Section 11 is refused.Effect of CIRP and sanctioned resolution plan on pre existing claims - deadwood doctrine / ex facie non maintainable claim - Whether the petitioner's claim was extinguished or otherwise affected by the respondent's CIRP and the approved Resolution Plan. - HELD THAT: - The Court observed that the CIRP commenced on March 30, 2017 and a Resolution Plan was sanctioned on April 18, 2018. The Court noted that the petitioner did not present a claim during the CIRP and, assessing the matter in the light of authorities dealing with the effect of CIRP and sanctioned plans, held that the petitioner's claim is also rendered dead by reason of non claiming in the CIRP. The Court treated this as an additional ground supporting the conclusion that the claim is not maintainable and has been extinguished/ceased to be a live dispute. [Paras 6, 66, 67]The petitioner's claim was not pursued in the CIRP and, read with the contractual defect, is extinguished/constitutes 'deadwood' for present purposes.Non joinder of necessary/proper party (SPV) and curability - Whether non impleadment of the SPV (Orissa Steel Expressway Private Limited) renders the Section 11 application incompetent or incurable. - HELD THAT: - The Court acknowledged that the SPV was a signatory to the Option Agreement and thus a proper party; however, it treated the defect as curable. The Court held that because the primary Section 11 application was, on the substantive grounds of non arbitrability/deadwood, not maintainable, the question of curing non joinder became infructuous ab initio. [Paras 4, 30, 31, 32, 68]Non impleadment of the SPV is a curable defect but rendered moot because the Section 11 application is not maintainable on substantive grounds.Insufficiency of stamp duty and its relevance to reference to arbitration - arbitrability and reference under Section 11 of the Arbitration and Conciliation Act, 1996 - Whether the respondent's objection on account of insufficient stamp duty prevents reference to arbitration. - HELD THAT: - The Court noted the respondent's contention about inadequate stamping and that reliance was placed on N.N. Global. Having found the dispute to be ex facie non maintainable, the Court held that the question of curing any stamp defect (or invocation of the N.N. Global principle) did not arise. The Court recorded the petitioner's undertaking to produce the original document for impoundment if required, but concluded that stamp duty objections were irrelevant once the claim was found to be deadwood and non arbitrable. [Paras 2, 33, 34, 64]Stamp insufficiency objection does not prevent the Court's conclusion that the dispute is non arbitrable; the question of curing any stamp defect does not arise in view of the claim being deadwood.Final Conclusion: The petition under Section 11 of the Arbitration and Conciliation Act, 1996 is dismissed on contest as the dispute is manifestly time barred and 'deadwood', the petitioner's purported Option could only be exercised on January 13, 2017 and no valid notice was served; ancillary objections (non joinder, stamp insufficiency) were either curable or rendered academic. AP No.67 of 2023 is dismissed without costs. Issues Involved:1. Insufficient Stamp Duty2. Non-joinder of Special Purpose Vehicle (SPV)3. Claim Barred by Limitation4. Corporate Insolvency Resolution Process (CIRP)5. Relevance of NCLT Order6. Arbitrability of the DisputeSummary:1. Insufficient Stamp Duty:The respondent argued that the Option Agreement was insufficiently stamped, citing that the stamp duty payable was above Rs. 23,00,000/- whereas the agreement was on a stamp paper of Rs. 100/-. As per Section 38 of the Indian Stamp Act, 1899, the court cannot refer the matter to arbitration. The court found that curing the defect of insufficient stamp as per N.N. Global (2023 SCC OnLine SC 495) does not come into operation since the dispute is non-arbitrable.2. Non-joinder of Special Purpose Vehicle (SPV):The respondent contended that the application was bad for non-joinder of the SPV, Orissa Steel Expressway Private Limited, a party to the Option Agreement. The court noted that although the SPV was a signatory and a proper party, the defect became infructuous as the application under Section 11 was not maintainable.3. Claim Barred by Limitation:The respondent argued that the claim was ex facie barred by limitation as the right to exercise the Option accrued on January 13, 2017, and the Option Period expired on the same date. The petitioner's invocation of the arbitration clause on October 29, 2022, was beyond the limitation period. The court held that the Option Period started and ended on January 13, 2017, and the petitioner did not issue any notice within this period, rendering the claim time-barred.4. Corporate Insolvency Resolution Process (CIRP):The respondent contended that the petitioner's claim was extinguished upon approval of the Resolution Plan by the NCLT on April 18, 2018, as the petitioner did not file any claim during the CIRP. The court agreed, noting that the petitioner, at least, was an operational creditor within the IBC, and the claim was 'deadwood'.5. Relevance of NCLT Order:The petitioner relied on an NCLT order dated August 30, 2022, arguing it supported their claim. The court found that the NCLT order was irrelevant to the present dispute regarding the exercise of Option Rights and did not confer any right on the petitioner.6. Arbitrability of the Dispute:The court concluded that the dispute sought to be referred to arbitration was proverbial 'deadwood', non-arbitrable, and not maintainable. Following the principles in Vidya Drolia (2021) 2 SCC 1, the court held that the dispute was ex facie not maintainable and referring it to arbitration would be futile.Conclusion:The application under Section 11 of the Arbitration and Conciliation Act, 1996, was dismissed on contest without any order as to costs. The court found the dispute non-arbitrable and time-barred, and the petitioner's claim extinguished by the CIRP.