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TMI Blog2017 (2) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... ease deed dated 14th January, 2008. IT Infrastructure Park Private Limited („ITIPPL‟) i.e., Respondent No. 3 having its registered office at D-922, New Friends Colony, New Delhi had a co-development agreement with Sarv Mangal for co-development of an SEZ for Information Technology/Information Technology Enabled Services in respect of the allotted land in the ratio of 45:55. Sarv Mangal executed a sub-lease deed dated 4th March, 2008 in favour of ITIPPL in respect of a portion of the allotted land i.e., land admeasuring 45,202 sq.mts. or thereabouts („Galaxia Project Land‟). 3. Respondent Nos. 1 and 2 are corporate entities incorporated under the laws of Cyprus engaged in the business of investment in the real estate sector. In relation to the Galaxia Project Land, a Share Holders Agreement („SHA‟) and a Share Subscription and Purchase Agreement („SSPA‟), both dated 21st March, 2008 were executed between the Petitioners and the Respondents. Admittedly, as on 16th September 2008, Respondent Nos. 1 and 2 („Investors‟) and the Petitioners („Promoters‟) held 50% shareholding each in Respondent No. 3. 4. The Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Facility were to be subject to the written approval of the Investors i.e., Respondent Nos. 1 and 2. 7. Further, under Clause 4.2 of the RSHA the Promoters were, on the date of payment of the share subscription money by the Investors (Respondent Nos. 1 and 2) to Respondent No. 3, to provide a bank guarantee issued by a bank approved by the Investors (Respondent Nos. 1 and 2) to Respondent No. 3 in the format given in Schedule VII of the Agreement for Rs. 13.47 crores. This amount was equivalent to the remaining cost of the project land payable by Respondent No. 3 to Noida Authority i.e., guaranteeing thereby that in case the Petitioners failed to ensure execution of the Facility Agreement and disbursal of the first instalment of a sum not less than Rs. 13.47 crores of the Term Loan Facility on or before 31st August, 2009 (Long Stop Date) or such later date as may have been agreed to by Respondent Nos. 1 and 2 in their sole discretion, then the bank would pay the aforesaid amount to Respondent No. 3 on demand. The Petitioners acknowledged and agreed that the execution and delivery of the bank guarantee was a material inducement to Respondent Nos. 1 and 2 in executing the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the share certificates pertaining to the Put Option Shares to the Promoters." Under Clause 2.4 of the RSHA, the Investors were obliged to repay the remaining amount of the Investors' share subscription money to Respondent No. 3 and the Investors' purchase consideration to the Promoters within 10 days from the date of receipt by the Investors of all documents evidencing the fulfilment of the conditions precedent to closing to the complete satisfaction of the Investors. 11. Clause 15 of the RSHA stipulated that the board of directors would have four directors, two each appointed by the Investors and Promoters respectively. Further, the Investors were entitled to appoint the Chairman of the Board as well as the Chief Financial Officer whereas one of the promoter's nominee directors would be appointed as the Managing Director. 12. Under Clause 3.3 of the RSSPA, the Investors were to remit an amount of Rs. 11 crores to the Petitioners to acquire 10,000 Class A share held by Respondent No.3 (Promoters Sale Shares). In terms of Clause 3.4 of the RSSPA, the Investors were to pay Rs. 34 crores for the subscribed shares to Respondent No. 3. Both the RSHA and the RSSPA stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Bank Account contemplated by RSHA. Clause 5.2 of the SA provided that the Designated Bank account would be operated by two joint signatories, one nominated by the Investors/Respondents and the other by the Promoters. 17. The SA is also stated to have dispensed with the requirement of the Petitioners having to provide a bank guarantee to ensure payment of lease rentals of Rs. 13.47 crores under Clause 4.1 of the RSHA. Clause 3.4 read with Clause 5.2 of the SA obliged only Respondent No. 3 to secure the Term Loan Facility. Under the SA, Respondent Nos. 1 to 2 were to be the sole signatories of the bank account of Respondent No. 3, referred to by the parties as the HSBC account. Sums invested by the Respondent Investors 18. It is stated that thereafter the Investors paid a sum aggregating to Rs. 11 crores to Petitioner Nos. 1 to 4 towards Investors Purchase Consideration as referred in Clause 3.3 of RSSPA. The Respondents also paid a sum of Rs. 34,00,27,747 towards Investors Share Subscription Money for issue and allotment of the shares of Respondent No. 3 in terms of Clause 3.4 of RSSPA. Thus, a sum of Rs. 34,00,27,747 was paid to the bank account of Respondent No. 3 which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 12th February, 2010 to the counsel for the Respondents. They noted that the two arbitrators were yet to confer about the appointment of the Presiding Arbitrator. In other words, the Petitioners at the above stage did not raise any issue regarding appointment of M1 as Arbitrator on behalf of the Respondents. 23. On 1st April, 2010, ICC wrote to the parties reminding them of the time limit for the coordinators to jointly nominate the Chairman of the AT. On 14th April, 2010, counsel for the Petitioners wrote to the ICC for grant of extension of time to file a reply. Here again, there was no objection raised as regards the nomination of M1 as an Arbitrator by the Respondents. One more reminder was sent to the parties by the ICC for two nominated Arbitrators to appoint a third Arbitrator. 24. At that stage, on 28th May, 2010, a Settlement Agreement was entered into between the Respondents and the Petitioners, Clause 2.3 of which reads as under: "2.3 Notwithstanding anything to the contrary as may be contained in this Agreement or as may be otherwise agreed between the parties herein, it is clearly agreed and understood between the parties that in the event that all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Petitioners for the first time challenging M1 on the ground that he did not possess the special qualification required to act as Arbitrator. The Respondents pointed out that the said challenge was time barred since M1 was appointed as an Arbitrator on 6th February, 2010. 28. The above challenge was rejected by the ICC on 30th June, 2011. An application was filed by the Petitioners under Section 9 of the Act in which an order was passed directing the Petitioners to continue paying Noida Authority the lease rentals till such time the order was modified by the AT. 29. More than a year later on 13th August, 2012, an application was filed by the Petitioners before the AT challenging the appointment of both M1 as well as the Chairman of the AT on the same ground as earlier. This application was rejected by the AT on 23rd January, 2013 on the ground that the appropriate forum to deal with this application was the ICC Court. It was pointed out that the arbitration clause envisages that the ICC Rules shall govern the procedure of arbitration. 30. Not resting with the above two failed challenges, the Petitioners filed a third application on 16th February, 2013 challenging the appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication filed on 16th February, 2013, the Petitioners raised the challenge before the ICC Court regarding appointment of the Chairperson of the AT as well as M1. By its letter dated 14th March, 2013, the ICC Court rejected the challenge but did not disclose the reasons therefor. 36. The Petitioners submit that the ICC Court failed to appreciate Clause 23.22.2 (b) of the RSHA which provides that to the extent the provisions of the clause are inconsistent with the ICC Rules, the former will prevail. Further, according to the Petitioners, Section 16 (5) of the Act mandatorily provides that challenges to the competence and jurisdiction must be heard by the AT itself. Reliance is placed on the decision in Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Limited (2008) 10 SCC 240, Supriya Kumar Saha v. Union of India 2013 SCC Online Cal 22685, Alcove Industries Limited v. Oriental Structural Engineers Limited 2007 SCC Online Del 1709 and Union of India v. M.P. Gupta (2004) 10 SCC 504. It is further submitted that the waiver by the Respondents to the lack of qualifications to M2 would not extend to the Petitioners, who were well within their r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if such date is subsequent to the receipt of such notification." 41. One more rule that requires to be noticed in this connection is Article 33 which talks of waiver and reads as under: "A party which proceeds with the arbitration without raising its objection to a failure to comply with any provision of these Rules, or of any other rules applicable to the proceedings, any direction given by the Arbitral Tribunal, or any requirement under the arbitration agreement relating to the constitution of the Arbitral Tribunal, or to the conduct of the proceedings, shall be deemed to have waived its right to object." 42. The facts relevant to the present case are that the Respondents nominated their Arbitrator on 6th February, 2010. A challenge to him was made for the first time by the Petitioner on 19th May, 2011 i.e., far beyond the period of 30 days of the receipt by the Petitioners of the notification of the appointment of M1. ICC confirmed the appointment of both M1 and M2 by a letter dated 11th March, 2011. Even reckoned by this date, the application under Article 11(2) of the ICC Rules challenging M1 was time barred since it was filed only on 19th May, 2011. 43. There is also mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss bound also by the rules governing the arbitration which too has been agreed between the parties. In the present case, with the parties have agreed that the arbitration will be governed by the ICC Rules. They are bound by the relevant clause in the ICC Rules that dispense with the ICC Court having to give reasons for rejection of their challenge to M1 and the Chairman of the AT. 46. The Court is not satisfied with the submission of the Petitioners that under clause 23.22 of the RSHA, to the extent the provisions of the clause are inconsistent with ICC Rules, the said clause would prevail and that in terms of Section 16 (5) of the Act, the challenge to the competence and jurisdiction of the AT must be decided by the AT itself. Apart from the fact that that does not appear to be a point raised before the AT or the ICC Court, the Petitioners appear to be under a misconception as to the applicable law governing arbitration on which the parties agreed. It was explicit that the ICC Rules that would apply. Clause 23.22 of the RSHA is in a very different context of the law governing the subject matter of the said agreement and does not affect the challenge procedure which continues to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were utilised for the ostensible purchase of the Technova Project and thereby a sum of Rs. 25 crores was remitted back into the account of the Respondents. According to the Petitioners, in December 2009, the Respondents transferred Rs. 34,00,27,747 into an escrow bank account opened for the purposes of funding the Galaxia Project. This escrow account remained under the control of the Respondents. It is further stated that a sum of Rs. 25 crores was transferred by the Respondents from the above escrow account to M/s. V.C. Solutions, an affiliate of the Petitioners, which was the developer of the Technova Project pursuant to an agreement signed between the parties on the record. The Petitioners allege that the Respondents coerced them into buying back the Respondents‟ shares in the Technova Project and as a result a sum of Rs. 25 crores was remitted back into the account of the Respondents. It is claimed that the Respondents "wilfully drained a substantial portion of funds from the Galaxia Project, rendering the development and performance of the Galaxia Project impossible" and subsequently, the Respondents terminated the Galaxia Agreements. 51. In this regard, it is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to bind the parties. Award not an attempt to enforce the put option 55. It is next contended that the AT has failed to appreciate the impact of RBI Circular No. 4 of 2014 dated 15th July, 2014 and the Gazette Notification in respect of Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) (12th Amendment) Regulations, 2014 dated 10th July, 2014. It is pointed out that RBI Circular No. 4 of 2014 dated 15th July, 2014 concerns the transfer of shares and enforcement of "put option". In terms thereof, the transfer of shares shall be at prices worked out as per internationally accepted methodology. The governing principle is that a non-resident investor is not guaranteed any assured exit price and shall exit at the fair price as may be computed. 56. As regards the amount invested by the Respondents, it is submitted by the Petitioners that the selling of the Galaxia Project land was the only method by which the investment could be returned as was ordered by this Court in OMP No.99/2011 in Alpha Tiger Cyprus Investments No. 3 v. Shakti Nath and that the auction has been arranged on 11th April, 2017. 57. The Respondents on the other hand point ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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