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AJAY SINGH, SPICEJET LIMITED Versus KAL AIRWAYS PRIVATE LIMITED AND ORS

2017 (7) TMI 1078 - DELHI HIGH COURT

Proceedings under Arbitration and Conciliation Act, 1996 - Held that:- In the opinion of the court, the absence of material to establish that it would be irreparably prejudiced or that balance of convenience would be against it can only mean that it failed to substantiate its contentions. A contrary finding, that they would not be prejudiced in any manner, sans documentary materials on the record, but only based on press reports and interpretation of balance sheet for a given year available in t .....

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petitioners is a specific one, ends of justice would be met with by securing it in the form of cash deposit to the extent of ₹ 250 crores and securing the balance ₹ 329 crores through a bank guarantee to the satisfaction of the Registrar of this court. The said amount of ₹ 250 crores shall be deposited by the appellant on or before 31stAugust, 2017; the bank guarantee for ₹ 329 crores shall be furnished to the satisfaction of the Registrar on or before 31st July, 2017. Th .....

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the Registrar General for compliance with the directions in the preceding paragraph, on 10th July, 2017. The appeals are dismissed, but subject to the modification in the impugned order, to the extent indicated - FAO(OS)(COMM) 61/2016, C.M. APPL.28195/2016, FAO(OS)(COMM) 62/2016, C.M. APPL.28197/2016 - Dated:- 3-7-2017 - HON'BLE MR. JUSTICE S. RAVINDRA BHAT AND HON'BLE MR. JUSTICE YOGESH KHANNA Sh. Atul Sharma, Sh. Anand Srivastava, Sh. Abhishek Sharma, Sh. Abhinav Sharma and Sh. Kashis .....

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urt. The respondents to this appeal moved the applications (hereafter referred to as the petitioners ). 2. The petitioners were the shareholders of SpiceJet, the original first respondent (hereafter called the company or SpiceJet ) owning 35,04,28, 758 equity shares, constituting 58.46% of the share capital of which 26,73,70,826 Equity Shares were free from all encumbrances and 8,30,57,932 equity shares were encumbered with different lenders. In 2013-2015, SpiceJet faced acute financial crisis t .....

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,830/- (Rupees ten crore forty lakh eighty three thousand eight hundred and thirty only) from the loan amount provided under the First Agreement and utilize that sum towards the payment of exercise of option attached to 1,91,69,000 warrants issued on preferential basis to the Petitioner by the company. Accordingly, the outstanding loan amount under the First Agreement stood at ₹ 64,59,16,170/- (Sixty Four Crore Fifty Nine Lakh Sixteen Thousand One Hundred and Seventy only). Later, another .....

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pplied to the Bombay Stock Exchange (BSE). The company was still under the control and management of the Petitioner and KAL Airways Private Limited. The general meeting of the company had approved the issuance of the warrants at a conversion price of ₹ 16.30 per Equity Share. The resolution also recorded that the issuance of Warrants would be in accordance with the SEBI Disclosure regulations. On 15.01.2015 the company presented a scheme to the Ministry of Civil Aviation for transferring o .....

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e Sale Purchase Agreement ("SPA") was executed between both the petitioners and the appellants on 29.01.2015.By the SPA, the appellant had acquired 35,04,28,753 equity shares in the company i.e. 58.46% share capital of both petitioners, i.e. Kalanithi Maran and KAL Airways Pvt. Ltd. in SpiceJet by paying ₹ 2 (two). Each share of the company was around ₹ 16.30/- at the time of entering into the SPA (the value of the said equity shares was about ₹ 765 crores at that tim .....

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eby the parties agreed that the 8,16,80,629 and 10,74110,749 warrants of the Company issued to the Sellers (the petitioners) in terms of details set forth in Schedule D ("Warrants''), were convertible into Equity Shares in the Financial Year 2015-16 and Financial Year 2016-17, respectively. The Warrants were to be converted at a conversion price of ₹ 16.30 per Equity share, as per the price arrived in accordance with SEBI Disclosure Regulations, for which the Sellers were requ .....

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ays of receipt of all the necessary approvals including the Governmental Approvals required for the same. Clause 3.3 of the SPA stated that subject to other terms and the simultaneous payment of the Tranche 1 CRPS Amount to the Company in the manner set out in this Agreement, and in consideration of the mutual covenants set out herein, the Sellers agree to subscribe on or before the Second Closing Date and the Company agrees to thereafter, issue and allot on a preferential basis, the Tranche 1 C .....

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ubscribed to by the petitioners, on a preferential rights basis, upon receipt of the Tranche 2 CRPS Amount to be delivered in a single tranche in immediately available funds to a designated account (No 1), the Tranche 2 CRPS Shares, the particulars of which were set out in Schedule B, free and clear from all encumbrances, together with all rights and advantages to enable the appellants full beneficial ownership of such shares. Under clause 12.3 of the SPA, the appellant indemnified, ensured and .....

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First Closing Date or Representatives of the Sellers as well as existing Directors on the Effective Date .from any penal action, liability or claim due to non-payment of statutory dues stated in Schedule I in relation to the Company. " The company also issued a letter dated 24.02.2015 to the Petitioner and KAL, indemnifying, ensuring and undertaking to take all steps to defend and hold harmless the Petitioner and KAL from any penal action, liability or claim due to non-payment of statutory .....

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7; 64,59,16,170/- (Rupees Sixty Four Crore Fifty Nine Lakh Sixteen Thousand One Hundred and Seventy only) and discharged the company from payment. It was also agreed that the said outstanding loan amount of ₹ 64,59,16,170/- (Rupees Sixty Four Crore Fifty Nine Lakh Sixteen Thousand One Hundred and Seventy only) shall be utilized for the future subscription to the non-convertible redeemable cumulative preference shares of the company. 7. The petitioner, in terms of the arrangement, by anothe .....

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pees Forty Three Crore Eighty Four Lakh Seventy -Thousand -only) from the outstanding loan amount of ₹ 114,00,00,000/- (Rupees One Hundred and Fourteen Crore only) to be utilized for the subscription to 269,00,000 warrants to be issued by the company and convertible in the financial year 2016-2017; iii) The balance loan amount ₹ 36,24,90,000/- (Rupees thirty-six crore twenty-four lakh ninety thousand only) to be utilized for the future subscription to the non- convertible redeemable .....

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rms of the SPA, paid ₹ 100,00,00,000/- (Rupees Hundred Crores only) under Clause 3.2 towards balance warrant payments defined under clause 3.1 on 24.02.2015; Tranche 1 CRPS amount payment of 100,00,00,000/- (Rupees Hundred Crores only) under Clause 3.2 of the SPA; payment of ₹ 20,02,93,039/- (Rupees Twenty Crore Two Lakh Ninety Three Thousand and Thirty Nine only) in terms of Clause 3 .3 of the SPA on 24.02.2015;Tranche 2 CRPS Amount payment of ₹ 94,79,64,450/- (Ninety Four Cro .....

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ause 7.2.1 of the SPA into the designated accounts on 24.02.2015; Payment of the Fixed Deposit amount of ₹ 100,00,00,000/-(Rupees One Hundred Crore only) in City Union Bank Ltd., Maildaveli in lieu of the release of collaterals on 24.02.2015; Tranche 2 CRPS Amount payment of ₹ 50,00,00,000/- (Rupees Fifty Crore only) into the Designated accounts on 03.06.2015. 9. The appellants were obliged to seek approval of the Competition Commission of India for the sale and purchase of the equit .....

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he company are listed and admitted to trading on the Bombay Stock Exchange. 10. The petitioners contended that they paid the entire amount towards their contractual obligations under the binding SPA including the amounts which were dues of the company to the statutory authorities. They claimed that the appellants received the amount of ₹ 679 crores till 23.02.2015 but failed to honour any contractual commitments under the binding SPA. With these pleas, they filed applications under Section .....

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of the SPA; the appellants failure to utilize the amounts in the Designated Account 2 in order to pay the outstanding statutory dues in terms of Clause 12.2 of the SPA. Failure of the appellants to issue the Collaterals in terms of Clauses 4.1.3(b), 7.2.3 and 8.2.3 of the SPA was also pleaded. The petitioners highlighted that inspite of the fact that statutory dues were to be paid by 12.02.2015, the company applied to the Central Board of Direct Taxes for waiver of interest leviable under Sectio .....

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mmons by order dated 20.07.2015. The petitioners alleged that in terms of clause12.2 of the SPA read with Schedule-H and I, all amounts were deposited by them in the designated Accounts, which were to be utilized for settlement of the statutory dues of the company- including Income Tax liabilities, service tax etc. with respect to which the criminal proceedings were initiated. However, the respondents failed in their obligation. In these circumstances, the petitioners, by letter dated 24.09.2015 .....

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the other hand, the Petitioners' money was used to run the company and pay the statutory dues. 11. The respondent/appellant denied liability and stated, inter alia that the petitioners were aware that the application made to the BSE may not fructify. They relied on the condition in the SPA executed between the parties that warrants would be issued within 15 days "of receipt of all the necessary approvals including the Governmental Approvals required for the purpose. It was urged that t .....

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BSE and the SEBI have made their stand clear that in light of the SEBI Regulations the Warrants cannot be issued in the prevailing facts and circumstances. The petitioners did not initiate any action to challenge/appeal the stand taken by SEBI and BSE by the parties. Therefore, having accepted the position that the Warrants cannot be issued, the petitioner is not entitled to any relief and the same ought to be dismissed with costs. It was not in the control of the respondents to insist upon the .....

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the SPA, the company would be in violation of applicable laws and the terms of the SPA, if it issued CRPS Shares; issuance of CRPS Shares would, therefore, be illegal and irregular. 13. It was contended that the subject matter of the dispute did not concern the shares of the company because, due to non-compliance with certain regulations, it was unable to issue Warrants. Since the shares of the company to which the petitioner would have been entitled to upon conversion of the Warrants have not e .....

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erms of the SPA. As such, an amount of ₹ 278 crores out of the total ₹ 308 crores is already accounted for and therefore, the entire dispute, if any, pertains to ₹ 30 crores. 14. The appellants urged that the issuance of warrants at the earlier price has become an impossibility. Consequently, it was contended that the petitioners claim could be one for restitution, which would in turn amount to a money claim which has to be decided by a tribunal in arbitration proceedings becau .....

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he interim relief granted by this Court should be vacated. 15. The learned single judge noted that the principal disputes raised on behalf of the petitioner in the present matters are about (i) non issuance of warrants and (ii) non-convertible redeemable cumulative preference shares ("CRPS") (iii) failure to compound the offences under the Income Tax Act. The impugned order dealt with each issue separately, having regard to the materials, pleadings and parties contentions. Each head wa .....

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t prima facie, amounts received/adjusted by the appellants were lying with them, and no warrants and CRPS shares were allotted. Therefore, they were liable to refund the said amount to the petitioners. Such amount was ₹ 579 crores. The impugned order noted, however, that the claimed losses, i.e. ₹ 403 crores were a subject matter of arbitration and, therefore, had to be preserved by the appellants. Further, the learned single judge felt that prima facie since the company accepted the .....

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e expiry of the sixtieth day: . The company s failure and that of the appellant, according to the learned single judge, exposed them to penal action under Section 42 (10) of the Companies Act. The operative part of the learned single judge s directions in the impugned order is as follows: 110. The petitioners at this stage are also claiming compensation and interest on the amount which is in possession of by the respondents. However, in the facts and circumstances of the present case, the entire .....

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by the Arbitral Tribunal after evidence and hearing of the parties as there are some disputed facts. Therefore, this Court is not inclined to secure the entire amount as prayed for while deciding the petition under Section 9 of the Act. 111. Barring ₹ 100 crores which is not received by the respondents as informed during the hearing, the respondents are in possession of ₹ 579 crores towards value of warrants and shares of CRPS. The amount was paid towards their contractual obligatio .....

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l be deposited by the respondents without prejudice in five equal monthly installments by way of fixed deposit for twelve months in the name of Registrar General of this Court. The first installment amount shall be deposited by the respondents on or before 7th August, 2016. Thereafter, the remaining installments shall be deposited on every succeeding month. Till the time all five installments are deposited, the interim order shall continue. As and when the amount is deposited, the petitioners wo .....

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cessary or under any change of circumstances. 16. The appellant submits that Section 9 of the Arbitration and Conciliation Act, 1996 ( the Act") does not allow passing of an order as an interim measure which would result in enormous, far-reaching and devastating effects on thousands of persons and public institutions also, apart from numerous consumers. It is submitted that no interim order can be passed in a private dispute between the company and the erstwhile promoters who reduced the Co .....

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erim order, and that too under Section 9 of the Act, can be passed that would have a wide ranging effect on public and financial institutions. 17. The appellant s senior counsel argues that the learned single judge has failed to appreciate that BSE and SEBI refused to grant approval to issuance of warrants on the ground that the promoters of the company had changed. Thus, the non-grant of permission from BSE and SEBI was for a reason contributed by the Petitioners and the responsibility and liab .....

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nces, Clause 17.6 of the SPA is attracted and, therefore, no occasion for the invocation of Section 56 has arisen and secondly, without prejudice, it is submitted that there was no promise from the Appellant or the company to do an act that they knew to be impossible or might have known to become impossible. On the contrary, it is the Respondents No. 1 and 2 who made the offer dated 13.01.2015 to the Appellant by which he undertook all the liabilities of the company on the promise that the petit .....

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SE. The learned senior counsel argues that it is, therefore, wholly incorrect to assume that the Appellant was aware that the process of issuance of warrants, the genesis of which is at the time of the control and management of the petitioners would not fructify and become an impossibility at a later stage. 19. Learned counsel submits that the provisions of Section 9 have to be applied having regard to the principles underlying Order 38, Rule 5, CPC. For this, he relies on Goel Associates v. Jiv .....

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y fleeing or avoiding jurisdiction of the court and the eventuality of its defeating a decree, are satisfied. Learned counsel emphasized that neither of these elements were present in the present case; the impugned order has not even discussed these aspects. On the other hand, compliance with directions would deal a crippling financial blow on the company, which it would be unable to recover from. 20. Learned counsel submitted that the inability of the company to issue the warrants and the prefe .....

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any or the airlines. The impugned order and the directions contained in it would result in financial destruction and eventual bankruptcy of the appellant. 21. During the course of hearing, the appellants counsel had submitted that the impugned judgment may be even suitably modified to enable the appellant to furnish adequate security, in the form of a block of shares, to cover liability and the balance of the amount, to be secured through bank guarantee. The court had granted time to the respond .....

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f execution of agreement dated 29.01.2015, they were fully aware of the pendency of the application. It is contended that arguendo the company is blameless, yet at the same time, it cannot be denied that the warrants were to be allotted to the petitioners and the petitioners paid amounts towards such allotment. On one hand, the appellants allege that the warrants should have been issued and after the prescribed period of time, they were also supposed to issue shares of CRPS. On the other hand, a .....

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is clear that the issuance of warrants at ₹ 16.30/- per share is an impossibility. Remarkably on one hand the appellants argue that it is impossible in law to issue warrants but on the other hand also argue that the petitioner should have challenged the order of BSE by filing an appeal. It is the appellants who received the consideration from the petitioners and it therefore cannot be comprehended as to why they should litigate with BSE or SEBI who are strangers to the SPA, particularly w .....

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n Act, linking it with provisions of the CPC, nevertheless, the principles underlying exercise of power by courts -in the CPC- are to be kept in mind, while making orders under Section 9. In Arvind Constructions v Kalinga Mining Corporation 2007 (6) SCC 798, the court held as follows: The power under Section 9 is conferred on the District Court. No special procedure is prescribed by the Act in that behalf. It is also clarified that the Court entertaining an application under Section 9 of the Act .....

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special condition for exercise of that power, the general rules of procedure of that court would apply. The Act does not prima facie purport to keep out the provisions of the Specific Relief Act from consideration. No doubt, a view that exercise of power under Section 9 of the Act is not controlled by the Specific Relief Act has been taken by the Madhya Pradesh High Court. The power under Section 9 of the Act is not controlled by Order XVIII Rule 5 of the Code of Civil Procedure is a view taken .....

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ointment of a receiver. 25. Interestingly, in a previous decision, Firm Ashok Traders & Anr v Gurumukh Das Saluja & Ors (2004) SCC 155, the Supreme Court observed that: 13. ..The Relief sought for in an application under Section 9 of the A&C Act is neither in a suit nor a right arising from a contract. The right arising from the partnership deed or conferred by the Partnership Act is being enforced in the Arbitral Tribunal; the court under Section 9 is only formulating interim measur .....

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e authorities stress is that the exercise of such power should be principled, premised on some known guidelines - therefore, the analogy of Orders 38 and 39. Equally, the court should not find itself unduly bound by the text of those provisions rather it is to follow the underlying principles. In this regard, the observations of Lord Hoffman in Films Rover International Ltd. v. Cannon Film Sales Ltd.(1986) 3 All ER 772 are fitting: But I think it is important in this area to distinguish between .....

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il if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been 'wrong' in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle. 27. It was observed later, in the same judgment that: The .....

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ent. If it appears to the court that, exceptionally, the case is one in which withholding a mandatory interlocutory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel a 'high degree of assurance' about the plaintiff's chances of establishing his right, there cannot be any rational basis for withholding the injunction. 28. The question then is was the discretion exercised appropriately by the learned single judge, in the fac .....

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s (in addition they were to, but did not get a further ₹ 100 crores). The parties agree that the share warrants were not issued; nor were the preference shares. The appellants say that this situation came about because of lack of statutory approval by the SEBI and the lack of permission by BSE. The appellants also did not discharge the statutory tax liabilities, but applied for waiver, after prosecution through complaint was launched. Their defence to non-refund or payment is that the peti .....

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ares. On the other hand, the petitioners point out that the share prices have increased (from the agreed of ₹ 16.30/- per share to of ₹ 125/- per share at the time of hearing of the appeal)- a fact not denied. In these circumstances, the petitioners, in the opinion of the court, established prima facie a strong case on the merits of their application, with respect to the amounts they paid towards shares that were not allotted. There is also a statutory basis for this- Section 42 of t .....

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y with the learned single judge s order. There is neither reference to any figure or amount, nor reliance on any balance sheet, nor even the income and expenditure statement of the company, to say that compliance with the impugned order would irreparably injure it. The court notices that the nearly 18 month pendency of this appeal, and the non-compliance with the impugned order, has aggrandized the appellant, which was to have the benefit of the amounts. If there were any difficulties, this inte .....

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ts. The appellants counsel did not deny that, but countered the argument by saying that the wet lease arrangement payments were not through bank or own funding, but rather based on projected increased earnings. The petitioners had urged that the profit before tax for the year ending 31.03.2016 reported by the company was ₹ 579.04 crore. 31. In the opinion of the court, the absence of material to establish that it would be irreparably prejudiced or that balance of convenience would be again .....

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