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2020 (6) TMI 809
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....ency and Bankruptcy Code, 2016 ('IBC'), seeking to initiate corporate insolvency resolution process ('CIRP') against Indus Biotech (P.) Ltd. [CIN: U24231MH1995PTC085656], on the ground that the corporate debtor had failed to redeem the optionally convertible redeemable preference shares ('OCRPS') on or before 15th April, 2019 in terms of the share subscription and shareholders agreement ('SSSA') dated 20th July, 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. The date of default is stated to be 16th April, 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 (P.) Ltd. The Kotak group consisted of the following:- (1) Kotak India Venture Fund-I (the petitioner herein); &nb....
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....ak group entities sought to apply a calculation formula which would give them approximately thirty per cent of the total paid-up share capital of the respondent, whereas according to the respondent and in line with the reports of the auditors, independent valuer and agreed conversion formula, the Kotak group would be entitled to approximately ten per cent 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 20th September, 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., 20th September, 2019, by virtue of section 21 of the Arbitration and 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 r....
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....he converted stake would range between ten and thirty per cent of the equity share capital of the applicant-corporate debtor post-conversion. While it is not in dispute that the parties agreed to go for an IPO, the dispute pertains only to the calculation and conversion formula to be followed. 2.4 Mr. Mustafa Doctor contended that the Kotak group entities sought to apply a calculation formula which would give them approximately thirty per cent 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 per cent 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 respond....
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.... Supreme Court has reiterated this legal principle in a number of judgments. 2.10 Mr. Mustafa Doctor submitted that the underlying company petition is in the nature of a 'dressed-up' petition, inasmuch as the real dispute between the parties is with regard to matters pertaining to the agreement reached between the parties and interpretation of its various clauses. The respondent-financial creditor is not a financial creditor of the 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 and 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'....
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....#39;ble Supreme Court in Booz Allen & Hamilton Inc v. SBI Home Finance Ltd. [2011] 5 SCC 532, decided on 15th April, 2011, in support of his argument that only where the subject-matter of the suit is 'arbitrable' can the parties be referred to arbitration (para 20 of the judgment). He also submitted that para 34 of the judgment lays down the test for arbitrability, which are as follows:- (a) Whether the disputes are capable of adjudication and settlement by arbitration? (b) Whether the disputes are covered by the arbitration agreement? (c) Whether the parties have referred the disputes to arbitration? If the cause/dispute is in arbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration under section 8 of the Arbitration and 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 (supra) 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 t....
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.... 7 IBC petition, the claim itself may be disputed. The fact of the dispute is irrelevant for a section 7 petition, though it may assume significance for a petition under section 9 of the IBC. It is the contention of the respondent-financial creditor that there is a right of redemption under the contract if the investment is not redeemed by the QIPO date. Further, the QIPO date was to be on a mutually agreed valuation. The valuation failed. Therefore, the respondent-financial creditor exercised the right of redemption. 3.11. Mr. Fredun DeVitre further submitted that the notice for redemption was given on 31st March, 2019.[10] At that point of time, there was no reference to arbitration. The first reference to arbitration came only on 20th September, 2019, after the filing of the section 7 petition on 16th August, 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 senior counsel for the applicant-corporate debtor in reply 4.1. Mr. Mustafa Doctor, in his arguments in reply submitted that in Malhotra (supra),....
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....ll disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not, however, a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable". 5.4. The hon'ble Supreme Court added a seventh category to the six categories of cases in Booz Allen (supra), vide its judgment in Vimal Kishor Shah v. Jayesh Dinesh Shah [2016] 8 SCC 788, decided on 17th August, 2016. The hon'ble Court held that cases arising out of trust deed and Trusts Act cannot be decided by arbitration (para 54 of the judgment). 5.5. Be that as it may, the question that really needs to be answered is this: Will the provisions of the Arbitration and Conciliation Act, 1996 prevail over the provisions of the Insolvency and Bankruptcy Code, 2016? If so, in what circumstances? 5.6. It is settled law that generalia specialibus non derogant-special law prevails over general law. 5.7. In Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. [2008] 4 SCC 755, decided on 13th March, 2008, the hon'ble Supreme Court held that the Arbitratio....
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.... no presumption that the later law repeals the earlier law. The rule making authority while making the later rule is deemed to know the existing law on the subject. If the subsequent law does not repeal the earlier rule, there can be no presumption of an intention to repeal the earlier rule. (2) When two provisions of law-one being a general law and the other being special law govern a matter, the court should endeavour to apply a harmonious construction to the said provisions. But where the intention of the rule making authority is made clear either expressly or impliedly, as to which law should prevail, the same shall be given effect. (3) If the repugnancy or inconsistency subsists in spite of an effort to read them harmoniously, the prior special law is not presumed to be repealed by the later general law. The prior special law will continue to apply and prevail in spite of the subsequent general law. But where a clear intention to make a rule of universal application by superseding the earlier special law is evident from the later general law, then the later general law, will prevail over the prior special law. (....
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....and conversion formula and fixing of QIPO date are all arbitrable, since they involve valuation of the shares and fixing of the QIPO date. Therefore, we feel that an attempt must be made to reconcile the differences between the parties and their respective perceptions. Also, no meaningful purpose will be served by pushing the applicant-corporate debtor into CIRP at this stage. 5.16. We further note that the arbitration petition bearing Arbitration Case No. 48/2019 filed by the applicant-corporate debtor is pending consideration before the hon'ble Supreme Court for appointment of an arbitrator. 6. Order 6.1. For all the above reasons, the present IA No. 3597/MB.I/2019 is allowed. 6.2. As a natural corollary, the underlying company petition bearing CP No. 3077/MB.IV/2019 is incapable of being admitted at this stage, and is, accordingly, dismissed. 6.3. Ordered accordingly. [1] 8A. Power to refer parties to arbitration where there is an arbitration agreement.- (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first sta....