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

Insufficient stamped agreement - reference of matter to arbitration - non-joinder of the Special Purpose Vehicle (SPV) namely Orissa Steel Expressway Private Limited which a party to the Option Agreement containing the arbitration clause - Corporate Insolvency Resolution Process (CIRP) commenced on March 30 2017 that is after the Option Right accrued in favour of the petitioner on January 13 2017 - exercise of option - HELD THAT - From the definitions as provided in the Option Agreement itself there cannot be any doubt that the agreement under Clause 10(a) was to be effective from the date of execution and was to remain in full force and effect until the earlier of three contingencies. It is undisputed that out of the three contingencies the first being expiration of the Option Period was the earliest since there was no settlement date or mutual termination - the Option Period as per Clause 1.1.26 means the period starting from the Option Start Date and ending immediately after the completion of the Concession Period. The notice dated July 29 2011 on which the petitioner seeks to rely was long before the Option Period. As such the same cannot count by any stretch imagination as the exercise of Option under the Option Agreement. In the present case the petitioner having admittedly not done so the question of applicability of Clause 10(b) does not arise at all. Hence the argument of the petitioner that upon service of the notice on July 29 2011 the obligations under the Agreement crystallised and were to continue in force until fulfilment even though such obligations may fall beyond the Option Period falls flat. In the absence of any notice being served within the time as contemplated in the agreement there did not arise any question at any point of time for the obligations under the agreement to continue. Hence the petitioner s argument of its rights having crystallised with the notice dated July 29 2011 is not tenable in the eye of law and in the context of the agreement. Such unilateral notice of the petitioner did not even constitute any agreement between the parties to give rise to obligations on the part of the respondent. Following the principles in Vidya Drolia 2020 (12) TMI 1227 - SUPREME COURT the dispute sought to be raised by the petitioner is not maintainable and hence non-arbitrable. Even by limiting the interference of Court under Section 11 to a prima facie review of the dispute the dispute sought to be referred is patently deadwood and non-arbitrable. Thus a reference to arbitration of such a dispute which is ex facie not maintainable would merely be a futile exercise. Insofar as the non-impleadment of the SPV Orissa Steel Expressway Private Limited is concerned the same could be termed as a curable defect. Although the SPV was a signatory to the Option Agreement and a proper party to the present application the question of curing such defect became infructuous ab initio in view of the application under Section 11 not being maintainable. The present application under Section 11 of the Arbitration and Conciliation Act 1996 is not maintainable in law and in terms of the Option Agreement itself as amended - Application dismissed.

Summary

Issues Involved:
1. Insufficient Stamp Duty
2. Non-joinder of Special Purpose Vehicle (SPV)
3. Claim Barred by Limitation
4. Corporate Insolvency Resolution Process (CIRP)
5. Relevance of NCLT Order
6. Arbitrability of the Dispute

Summary:

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.