TaxTMI 
TaxTMI 
2020 (6) TMI 747
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.... under section 7 of the Insolvency & Bankruptcy Code, 2016 (IBC), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Indus Biotech Private Limited [CIN: U24231MH1995PTC085656], on the ground that the Corporate Debtor had failed to redeem the Optionally Convertible Redeemable Preference Shares (OCRPS) on or before 15.04.2019 in terms of the Share Subscription and Shareholders Agreement (SSSA) dated 20.07.2007. Schedule 'J' of the SSSA is at p.272 of the Paper Book details the terms of the OCRPS. 1.3. The Petitioner has alleged that there was a default on the part of the Respondent in redeeming the OCRPS, which, according to the Petitioner, works out to Rs.367,07,50,000/- (Rupees three hundred and sixty-seven crore seven lakh and fifty thousand only). The date of default is stated to be 16.04.2019. 1.4. The facts germane to the determination of the present Application is as follows: (a) In 2007-08, the Kotak Private Equity Group showed interest in subscribing to the share capital of Indus Biotech Private Limited. The Kotak Group consisted of the following:- (1) Kotak India Venture Fund-I (the Petitioner herein); (2) Kotak India....
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....nversion formula, the Kotak Group would be entitled to approximately ten percent of the total paid-up share capital of the Respondent. (f) Some months after this dispute emerged and was ongoing, the Petitioner contended that they were entitled to trigger provisions relating to early redemption of OCRPS in a sum of Rs.367,08,56,503/-. (g) Since this was the gist of the dispute, the Respondent invoked the arbitration agreement under the SSSA by its letter dated 20.09.2019, seeking to refer the disputes between the parties to arbitration. The Respondent contends that the arbitral proceedings are deemed to have commenced on that date, i.e., 20.09.2019, by virtue of section 21 of the Arbitration & Conciliation Act, 1996.^2 1.5. Mr Mustafa Doctor and Mr Fredun E DeVitre, learned Senior Counsel appeared for the Applicant/Corporate Debtor and the Respondent/Financial Creditor respectively. They advanced their arguments without prejudice to their contentions in the main CP. 2. Arguments advanced by Mr Mustafa Doctor, learned Senior Counsel for the Applicant/Respondent 2.1. Mr Mustafa Doctor took us through the provisions of the SSPA dated 20.07.2007.^3 Article 20.....
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....n formula which would give them approximately thirty percent of the total paid-up equity share capital of the Applicant/Corporate Debtor. However, this is at variance with the value arrived by two different, independent auditors and valuers, who have relied on the SSSA and prepared the audited financials for the years 2017-18 and 2018-19 on the basis that the Kotak Group would be entitled to approximately ten percent of the total paid-up equity share capital of the Applicant/Corporate Debtor. Mr Mustafa Doctor submitted that the QIPO process itself was stalled as a result of this dispute, which is reflected in over eighty-five correspondences exchanged between the parties. 2.5. Even while the parties were engaged in correspondence with regard to the dispute pertaining to conversion, the Respondent/Financial Creditor, vide its letter dated 07.12.2018,^6 unilaterally proposed to fix a new QIPO date of 30.12.2018, and called upon the Applicant/ Corporate Debtor to provide the Respondent/Financial Creditor with an exit as on that date, i.e., 30.12.2018. The Applicant/Corporate Debtor replied vide letter dated 24.12.2018,^7 denying the right of the Respondent/Financial Creditor to fi....
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....Applicant. The claim of the Respondent/ Financial Creditor is only a misconceived attempt to pressurise the Applicant/Corporate Debtor to succumb to extortionate demands, and the claim can be determined by arbitration. The provisions of the IBC ought not to be used as a pressure tactic to extort money from profitable companies. The Applicant/Corporate Debtor has a right under section 8 of the Arbitration & Conciliation Act, 1996, to make an application at the first available opportunity before a judicial forum, to seek a reference to arbitration, Mr Mustafa Doctor submitted. The present IA is in this context. 2.11. In support of his contention regarding 'dressed up' petition, Mr Mustafa Doctor relied on the judgment of the Hon'ble Bombay High Court in Rakesh Malhotra vs Rajinder Kumar Malhotra,^8 wherein it was held that the power to refer the disputes in a petition that is mischievous, vexatious, mala fide and 'dressed up' to arbitration is always retained. 3. Arguments of Mr Fredun E DeVitre, learned Senior Counsel for the Respondent/Financial Creditor 3.1. Mr Fredun E DeVitre, learned Senior Counsel for the Respondent/ Financial Creditor, submitted that the only issue t....
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.... cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration under section 8 of the Arbitration & Conciliation Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes. 3.5. Mr Fredun DeVitre also drew strength from para 51 of the Booz Allen judgment, in support of his line of argument that if there are some matters which are arbitrable and some matters which are non-arbitrable, even in those cases, it should not be referred to arbitration. The judgment also goes on to quote with approval the view in Sukanya Holdings (P) Ltd v Jayesh H. Pandya,^12 that bifurcation of the subject matter of an action brought before a judicial authority is not allowed (para 52-Booz Allen judgment). 3.6. The second aspect of Mr Fredun DeVitre's argument was on the 'dressed up' petition argument advanced by Mr Mustafa Doctor. 3.7. Mr Fredun DeVitre stated that the understanding was that the Financial Creditor would get an IRR of thirty percent on his investment of Rs.19.98 crore. Hence, when the Respondent/ Financial Creditor asks for a return of thirty percent, it is really not seeking any gra....
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....ition on 16.08.2019. Therefore, the present IA is only an attempt to get out of the clutches of section 7. This is a diversionary tactic to prevent the main Company Petition from being argued. 4. Arguments of Mr Mustafa Doctor, learned Sr Counsel for the Applicant/Corporate Debtor in reply 4.1. Mr Mustafa Doctor, in his arguments in reply submitted that in Malhotra, the Hon'ble Bombay High Court created a window after considering both Booz Allen and Haryana Telecom. The only question is whether the case of Applicant/Corporate Debtor falls within the that window. 5. Findings 5.1. We have given anxious thought to the skilful arguments of the learned Senior Counsel appearing for the parties. We have also perused the pleadings in this behalf. 5.2. At the outset, we must say that the subject matter of this IA - seeking a reference to arbitration in a petition filed under section 7 of the IBC - is something that is res integra. The facts of the case are, however, undisputed, and therefore, we seek to address the points of law that need to be addressed. In our endeavour to arrive at a decision, we have tried to be guided by the decisions of the constitutional courts under o....
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....law prevails over general law. 5.7. In Gujarat Urja Vikas Nigam Limited v Essar Power Limited,^17 the Hon'ble Supreme Court held that the Arbitration & Conciliation Act, 1996 is a general law. The court in that case was considering a question under the Electricity Act. It held that the Electricity Act being a special statute would have overriding effect over the Arbitration & Conciliation Act, which was the general statute. However, this decision was overturned by the Hon'ble Supreme Court in Consolidated Engineering Enterprises v Principal Secretary, Irrigation Department & others,^18 wherein the Hon'ble Court held that the Arbitration & Conciliation Act is a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto. 5.8. In Hindustan Petroleum Corporation Limited v Pinkcity Midway Petroleums,^19 the Hon'ble Supreme Court held that where an arbitration clause exists, the court has a mandatory duty to refer dispute arising between the contracting parties to arbitrator. It quoted with approval the decision of the same court in P Anand Gajapathi Raju & others v PVG Raju (dead) & others,^20 wherein it was held t....
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....s repugnant to or inconsistent with an earlier general law, the later special law will prevail over the earlier general law. 5.12. In Innoventive Industries Limited v ICICI Bank & another,^21 The Hon'ble National Company Law Appellate Tribunal (NCLAT) held that sub-section (5) of section 7 of the IBC provides for admission or rejection of application of a financial creditor where the adjudicating authority is satisfied that the documents are complete or incomplete. The Adjudicating Authority, post ascertaining and being satisfied that such a default has occurred, may admit the application of the financial creditor. In other words, the statute mandates the Adjudicating Authority to ascertain and record satisfaction as to the occurrence of default before admitting the application. Mere claim by the financial creditor that the default has occurred is not sufficient. The same is subject to the Adjudicating Authority's summary adjudication, though limited to 'ascertainment' and 'satisfaction' (paras 57 & 58). 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 o....