2023 (2) TMI 488 - HC - Corporate Laws

Enforcement and execution of the final Award passed by Foreign Arbitral Tribunal - genesis of the entire dispute between the parties originates from the dealings of two groups, one being “Sakthi Group” and the other being “Aapico Group” - Alleging defaults in the loan agreements - non-compliance of terms and conditions of Kotak Mahindra Bank's (KMB) loan sanction letter - HELD THAT:- The Arbitral Tribunal has not passed any order with regard to the prior approval of KMB. In the present case, the claim was filed for the change of management, shareholdings, Directorship, ownership, etc. The main prayer in the claim statement was with regard to the change of management, directorship, shareholdings, etc. When such being the case, merely withdrawing the prayer in the counter claim by the respondent would not deny the right to make objections to the main prayer in the claim statement. Since the petitioners have agreed for the terms and conditions of the loan sanction letter of KMB, the said loan sanction letter has to be read with the SHA. Conjoint reading of the SHA and the loan sanction letter makes it clear that the petitioners, who are the parties to the SHA have agreed for the loan sanction letter. Therefore, when the petitioners intend to change the shareholding pattern, directorship, ownership, etc., it is their bounded duty to get prior approval from KMB as per the terms and conditions of the said loan sanction letter. This vital fact was not at all considered by the Tribunal - it is clear that the rendering of Award is conflict with the most basic notion of the justice and also against the public policy of India. Therefore, this Arbitration award is liable to be rejected on this ground and for this reason, this Court is not inclined to grant any approval for enforcement of the subject foreign Award.

Respondent unable to present its case before SIAC - HELD THAT:- In the present case, the petitioner failed to comply with the second procedural order, by not producing the documents as if the petitioners did not have the documents. However, the petitioners had the relevant documents and the same were traced out in the discovery proceedings before the UK Court, subsequent to the pronouncement of the award. The acts of the petitioners, ultimately proved the various fraud played in the course of the transfer of shares in SGAH, managing the company and valuing the shares, which are all well within the scope of agreement as the same would reflect in the step down subsidiaries of SGAH. Due to the non-availability of these documents, the respondent was not in a position to present his case before the tribunal. Therefore, the present award is liable to be suffered on the ground mentioned in Section 48(1)(b) of the Act. Hence the enforcement of the award is liable to be rejected on this ground also.

Fraud - whether the present Award is suffered by fraud? - HELD THAT:- Aapico deliberately withheld and concealed the documents and it amounts to fraud within the meaning of Explanation at 1(i) to Section 48(2)(b) of the Act. Therefore, this Court is of the view that the enforcement of the present award is also liable to be rejected on this ground as well.

Violation of RBI regulations and commission of fraud in the valuation of shares of SGAH (respondent holding company) - HELD THAT:- In the present case, the petitioners enforced its rights of transfer of shares by virtue of invocation of pledge, in the respondent holding company namely Sakthi Global Auto Holdings Limited (SGAH). In the said company originally, ABT Auto holds 50.01% shares and 80% of the share of the said ABT Auto held by the ABT investment (India) Private Limited, which means SGAH is a step down subsidiary of Indian company - merely for the procedural violation, which are all curable in nature without affecting the parties interest, the Foreign Awards cannot be refused to be enforced.

In the present case, whether loss of the foreign exchange occurred to the exchequer due to the play of fraud, violation of FEMA and contravention of the under valuation of the shares by the Aapico at the time of execution and enforcement of the pledge of shares in SGAH, are not curable? - HELD THAT:- As per the FEMA Regulations, in the event of any transaction of securities, it should be at the fair market price or value. In the present case, the petitioners valued on its own through the FTI Consulting. It has valued the shares of SGAH for its holding company, who holds 50.01% as 27 Million USD. The total valuation of SGAH by the FTI was 55 Million USD - as per the Regulations of FEMA, in the event of transfer of shares in foreign entities, the shares have to be valued and transferred based on the Fair Value Method. Fair Value means that it should be valued based on the market value, that means by following the DCF method. At any cost, whatever the method adopted by the parties ultimately it should not affect the interest of the country and also it should be in accordance with the RBI Regulations without affecting the parties interest also.

Since the basic information, which are required for arriving at the valuation in the Market Multiple Method were not available, the Think Capital adopted DCF method and valued SGAH as on May 2019 at 274.42 Million USD, whereas the total value arrived at by the FTI based on the multiple method is about 55 Million USD. The total difference between the DCF and multiple method is 219.42 Million USD - If the dollar rate in the year 2019 is considered as 75 Rupees, the loss of foreign exchange through the step down subsidiary for India is a sum of Rs.822.98 crores INR.

The petitioners have concealed various documents and failed to produce the same, subsequent to the second procedural order passed by the Tribunal and by concealing all these documents the award was obtained and the present award came to be passed under the above circumstances. Thus, this Court is of the view that the foreign award is suffered with the infirmities, as narrated. Therefore, the enforcement of the award is liable to be rejected for the reason that violation of the FEMA Regulations coupled with commissions of fraud on part of the petitioner in valuing the SGAH shares, which are not curable in nature, apart from the other instances that are narrated.

The prayer sought for enforcement of the foreign Award dated 06.10.2021 passed by the Tribunal SIAC, is liable to be rejected - Petition dismissed.