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2021 (3) TMI 1178
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....ed in Special Leave Petition. 2. The Arbitration Petition is filed by 'Indus Biotech Private Limited' under Section 11(3) read with Sections 11(4) (a) and 11(12)(a) of the Arbitration and Conciliation Act, 1996 ('Act, 1996' for short) seeking the appointment of an Arbitrator on behalf of the respondent Nos. 1 to 4 so as to constitute an Arbitral Tribunal to adjudicate upon the disputes that have arisen between the petitioner and the respondent Nos. 1 to 4 herein. The petition filed before this Court is due to the fact that the respondent No.1 is a Mauritius based Company and the dispute qualifies as international arbitration. The respondents No. 2 to 4 though are Indian entities, they are the sister ventures of respondent No.1. Further, according to the petitioner the subject matter involved is the same, though under different agreements, the arbitration could be conducted as a single process, by a single Arbitral Tribunal. Hence a common petition is filed before this Court, instead of bifurcating the causes of action and availing their remedy before the High Court in respect of similar disputes with respondents No.2 to 4. 3. The petition seeking constitution of the Arbitral ....
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....any is a profitmaking company and is engaged in its daytoday activity. Since the parties themselves had not resolved the issue, the petitioner company contends that the said dispute is to be resolved through Arbitration by the Arbitral Tribunal. 6. On the said issue, the respondents No. 1 to 4 would however contend that the fact of the respondents No. 1 to 4 herein having subscribed to the OCRPS is not in dispute. In such event, on redemption of the same, the amount is required to be paid by the petitioner company. The respondents No. 1 to 4 contend that on redemption of OCRPS, a sum of Rs. 367,08,56,503/( Rupees Three Hundred Sixty Seven Crore Eight Lakh Fifty Six Thousand Five Hundred Three) became due and payable. The respondents No. 1 to 4 having demanded the said amount and since the same had not been paid by the petitioner company, it is contended that the same had constituted default. It is contended that as the debt had not been paid by the company it had given a cause of action for the respondents No. 1 to 4 herein to invoke the jurisdiction of the Adjudicating Authority, NCLT by initiating the Corporate Insolvency Resolution Process ('CIRP' for short) provided under th....
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....sion for arbitration in Clause 20.4 of the SS and SA agreement dated 20.07.2007 shall apply to the supplemental agreement is also evident. If in that context the matter is looked at, there would be no need for this Court to advert to any other aspect in the petition filed under Section 11 of the Act, 1996 since in the normal circumstance, on constitution of the Arbitral Tribunal all other issues are to be gone into by the Arbitral Tribunal relating to the above noted dispute between the parties. However, the nature of Arbitral Tribunal will have to be considered since one is international arbitration and the other are domestic. 12. Despite the said position, before concluding on the Arbitration Petition filed by Indus Biotech Private Limited, keeping in perspective the objection raised by the Kotak India Venture relating to the petition having already been instituted before the NCLT under Section 7 of the IBC and also keeping in perspective the order dated 09.06.2020 passed by NCLT disposing of the application filed under Section 8 of the Act, 1996; the matter requires deeper consideration on that aspect since Dr. Abhishek Manu Singhvi, the learned senior counsel for the Kotak I....
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.... 'corporate debtor' before the Adjudicating Authority when 'default' has occurred. The provision, therefore, contemplates that in order to trigger an application there should be in existence four factors: (i) there should be a 'debt' (ii) 'default' should have occurred (iii) debt should be due to 'financial creditor' and (iv) such default which has occurred should be by a 'corporate debtor': On such application being filed with the compliance required under sub-Section (1) to (3) of Section 7 of IB Code, a duty is cast on the Adjudicating Authority to ascertain the existence of a default if shown from the records or on the basis of other evidence furnished by the financial creditor, as contemplated under sub-Section (4) to Section 7 of IB Code. 15. This Court had the occasion to consider exhaustively the scheme and working of the IB Code in the case of Innoventive Industries Limited vs. ICICI Bank and Another (2018) 1 SCC 407. The proceeding under Section 7 of the IB Code and the scope thereof is articulated in paras 27 to 30 which read hereunder, "27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is ....
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.... or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-Section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. ....
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....ing up matters are nonarbitrable. In that background, the nature of transaction under the SS and SA was referred. It is in that regard contended that the agreement provides for the manner of redemption as also the redemption value. The date of redemption is fixed as 31.12.2018. The OCRPS when redeemed is payable, within 15 days from the date of redemption. In such situation, there is no other issue which require resolution by arbitration. Further, it is contended Clause 5.1 and 5.2 in Schedule J to the agreement provided that the redemption value shall constitute a debt outstanding by the Company to the holder. Hence the amount being debt on the redemption date, if not paid within 15 days of redemption constituted default. In that background, when the petition under Section 7 of IB Code was filed the Adjudicating Authority ought to have looked into that aspect alone and the consideration of an application filed under Section 8 of the Act, 1996 is without jurisdiction is the contention. 17. The procedure contemplated will indicate that before the Adjudicating Authority is satisfied as to whether the default has occurred or not, in addition to the material placed by the financial ....
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....d claim, is not due. A debt may not be due if it is not payable in law or in fact." 19. In the instant case, Dr. Singhvi, as noted earlier has referred to clause 5.1 and 5.2 contained in Schedule J to the agreement to contend that the OCRPS would become due within 15 days from the redemption date and the parties are agreed that it shall constitute a debt outstanding by the company to the Holder. The question would be; whether that alone was sufficient to come to a conclusion that there was default as well in the fact situation of the present nature. It is no doubt true that the original period of the OCRPS was up to 31.12.2018, on which date it could be redeemed. In that background, Mr. Shyam Divan, learned senior counsel for Indus Biotech Private Limited has drawn our attention to Clause 4 and 6 of the very same document to indicate that it provides for early redemption under the circumstances stated therein. Vide clause 6 thereof it has provided that the OCRPS could be converted into equity shares of the company in the circumstances provided therein, which is also on the occurrence of QIPO or Strategic Sale, provided that the OCRPS shall be converted in the manner indicated. R....
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...., a company which is ably running its administration and discharging its debts in planned manner may also be pushed to the Corporate Insolvency Resolution Process and get entangled in a proceeding with no point of return. Therefore, the Adjudicating Authority certainly would make an objective assessment of the whole situation before coming to a conclusion as to whether the petition under Section 7 of IB Code is to be admitted in the factual background. Dr. Singhvi, however contended, that when it is shown the debt is due and the same has not been paid the Adjudicating Authority should record default and admit the petition. He contends that even in such situation the interest of the corporate debtor is not jeopardised inasmuch as the admission orders made by the Adjudicating Authority is appealable to the NCLAT and thereafter to the Supreme Court where the correctness of the order in any case would be tested. We note, it cannot be in dispute that so would be the case even if the Adjudicating Authority takes a view that the petition is not ripe to be entertained or does not constitute all the ingredients, more particularly default, to admit the petition, since even such order would r....
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.... 76.6. However, the aforesaid principles have to be applied with care and caution as observed in Olympus Superstructures (P) Ltd. [Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651] : (SCC p. 669, para 35) "35. ... Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, which cannot be referred to arbitration. It has, however, been held that if in respect of facts relating to a criminal matter, say, physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir v. Leeman [Keir v. Leeman, (1846) 9 QB 371 : 115 ER 1315] ). Similarly, it has been held that a husband and a wife may refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter. 77. Applying the above principles to determine nonarbitrability, it is apparent that insolvency or intracompany disputes have to be addressed by a centralised forum, be the court or a special forum, which would be more efficient and has complete....
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....rastructure (supra) wherein the observations contained in para 39 though in the case of Real Estate Development was laid down. The relevant portion which has been referred to, reads as follows: " Thus, any allottee/home buyer who prefers an application under Section 7 of the Code takes the risks of his flat/apartment not being completed in the near future, in the event of there being a breach on the part of the developers. Under the Code, he may never get refund of the entire principal, let alone interest. This is because, the moment a petition is admitted under Section 7, the resolution professional must first advertise for and find a resolution plan by somebody, usually another developer which has then to pass muster under the Code, i.e. that it must be approved by at least 66 per cent of the Committee of Creditors and must further go through challenges before NCLT and NCLAT before the new management can take over and either complete construction or pay out for refund amounts." The underlying principle, therefore, from all the above noted decisions is that the reference to the triggering of a petition under Section 7 of the IB Code to consider the same as a proceeding....
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....ention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default. If the irresistible conclusion by the Adjudicating Authority is that there is default and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties indisputably contains an arbitration clause. 26. That apart if the conclusion is that there is default and the debt is payable, due to which the Adjudicating Authority proceeds to pass the order as contemplated under sub-Section 5(a) of Section 7 of IB Code to admit the application, the proceedings would then get itself transformed into a proceeding in rem having erga omnes effect due to which the question of arbitrability of the socalled inter se dispute sought to be put forth would not arise. On the other hand, on such consideration made by the Adjudicating Authority if the satisfaction recorded is that there is no default committed by the company, the petition would stand rejected as provided under sub-Section 5(b) to Section 7 of IB Code, which would leave the field ope....
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....t to this Court. Accordingly, the Adjudicating Authority in para 5.15 has categorically recorded that they are not satisfied that a default has occurred. 29. It would be appropriate to extract the relevant findings recorded by the NCLT which demonstrates that NCLT was conscious that there should be judicial determination by the Adjudicating Authority as to whether there has been a default within the meaning of Section 3(12) while considering a petition under Section 7 of the IB Code. The relevant finding taken note above read as hereunder: " 5.13 Therefore, in a section 7 petition, there has to be a judicial determination by the Adjudicating Authority as to whether there has been a 'default' within the meaning of section 3(12) of the IBC. 5.14 In the present case, the dispute centres around three things -(1) The valuation of the Respondent/Financial Creditor's OCRPS; (2) The right of the Respondent/Financial Creditor to redeem such OCRPS when it had participated in the process to convert its OCRPS into equity shares of the Applicant/Corporate Debtor; and (3) Fixing of the QIPO date. All of these things are important determinants in coming to a judicial conclusi....
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....may be determined by the Board to any category. Further, though in the Extraordinary General Body meeting dated 10.04.2018, the Representative Directors of the Kotak India Venture had obtained leave of absence, the resolution adopted in the said meeting had indicated that the equity shares of the company proposed to be issued and allotted as bonus equity shares shall be subject to the provisions of the memorandum of association and articles of association of the company. The Company Secretary was authorised to do all such acts in that regard. 31. In the letter dated 21.11.2018 addressed by Indus Biotech Private Limited to Kotak India Venture, it was mentioned with regard to the fundamental issue that needs to be addressed regarding conversion and convertible securities into equity shares since the exist process initiated cannot move forward without such conversion. The letter dated 17.12.2018 addressed to Indus Biotech Private Limited by Kotak India Venture in fact refers to the stake in conversion and the dispute being as to whether it should be 10 per cent of the share capital of the company as offered by Indus Biotech Private Limited or 30 per cent as claimed by Kotak India V....
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....ngs before the NCLT and, therefore, the dispute not being arbitrable. However, in the present position the parties would be left with no remedy if the process of arbitration is not initiated and the dispute between the parties are not resolved in that manner as the proceedings before the NCLT has terminated. Mr. Shyam Divan, learned senior counsel for Indus Biotech Private Limited has contended that the transaction between the parties is a common one and as such it would be efficient if the dispute is resolved by a single Arbitral Tribunal. Further in view of the objection raised on behalf of the respondent No.4 (Kotak India Venture) that the arbitration clause has not been invoked in accordance with the requirement therein, since the promoters have to suggest one arbitrator and not the Company, Mr. ANS Nadkarni, learned senior counsel representing the promoters who are arrayed as respondent Nos.5 to 11 in the arbitration petition has pointed out that the affidavit has been filed supporting the petition seeking arbitration and, therefore, the Tribunal be constituted. Though Mr. Neeraj Kishan Kaul, learned senior counsel and Mr. Nitin Mishra, learned counsel had in their argument op....
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....two party-appointed arbitrators. In the event that any party fails to appoint an arbitrator within fifteen (15) days after receipt of written notice of the other party's intention to refer a Dispute to arbitration, or in the event of the two party-appointed arbitrators failing to identify the third arbitrator within fifteen (15) days after the two party-appointed arbitrators are selected such arbitrator shall be appointed by a Court of competent jurisdiction on an application initiated by any party. An arbitral tribunal thus constituted is herein referred to as a "Tribunal". In the event an appointed arbitrator may not continue to act as an arbitrator of a Tribunal, then the party (or the two appointed arbitrators, in the case of the third arbitrator) that appointed such arbitrator shall have the right to appoint a replacement arbitrator in accordance with the provisions of this Section 20.4.1." 36. A perusal of the arbitration agreement indicates that the arbitration shall be held at Mumbai and be conducted by three arbitrators. For the purpose of appointment KIVF I, KEIT and KIVL are to jointly appoint one arbitrator and the promoters of Indus Biotech Private Limited, to appoi....