TMI Blog2021 (4) TMI 1324X X X X Extracts X X X X X X X X Extracts X X X X ..... r any other petition that properly comes before this Court under the Arbitration and Conciliation Act 1996. Indeed, I do not even see how the NCLAT has such control over arbitral tribunals. The NCLAT can make no order under Section 9, Section 11, Section 34, Section 37 or any of the other provisions of the Arbitration and Conciliation Act 1996. Notably, Section 9 of the Arbitration Act--and indeed no provision of that Act--is made subject to the provisions of the Companies Act 2013. This in itself is a telling circumstance. It is enough for the present order to hold that the NCLAT order cannot and does not come in the way of this Court making an appropriate order under Section 9 of the Arbitration and Conciliation Act 1996. When and how that arbitration is to be commenced is another matter, one with which I am not presently concerned. Everything in the Arbitration Act is founded on a contract; and this necessarily means that to claim an equitable and discretionary relief, a Section 9 petition is not to be handled like a regular civil suit invoking a non-contractual civil remedy. The Respondent must be shown to be in wrongful conduct. Its actions must be shown to ones in viola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital undertaking to provide the necessary funds should there be any payment default by Champion Agro World. 4. In 2015, Champion Agro World defaulted. In 2016, IFIN filed Commercial Suit No. 469 of 2016 in this Court against Champion Agro World and the personal guarantors. 5. Meanwhile IFIN approached Bay Capital on the basis of this Comfort Letter and sought enforcement, that is to say, it called upon Bay Capital to pay the amount of the default. A similar demand was made to Mehta, a promoter of Bay Capital. Mehta and Bay Capital did not have sufficient funds to meet this demand. This led to a restructuring of the original finance facility. IFIN was to assign Rs. 30 crores of the original Rs. 40 crores finance facility to Zon, together with the proportionate right, title and interest for a purchase consideration of Rs. 33.60 crores. Zon would, in turn, appoint IFIN as its collection agent to manage and recover the finance facilities to Champion Agro World. IFIN would subscribe to 44 Optionally Convertible Debentures ( OCDs ) of Bay Capital aggregating to Rs. 44 crores by way of a private placement. The proceeds of these OCDs were to be used solely and exclusively to secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the financial year 2018 were not produced. Lastly, it said that the hypothecation charge that was agreed to be created was not registered. In paragraph 5, IFIN then said that since Bay Capital had continuously failed and neglected to cure all events of default within the cure period, in accordance with clause 33 of the annexure to the subscription agreement, the entire amount under that agreement had become due and payable. In short, it accelerated the repayment. The total amount claimed was Rs. 47,46,81,650/-. The note below that also said that other charges including penal interest will continue to run. IFIN called upon all the obligors to make payment of the outstanding amount within seven days. 11. Leaving aside for a moment the merits of this EoD notice, a material circumstance that intervened is an order made by the National Company Law Appellate Tribunal on 15th October 2018, i.e., before the EoD notice of 23rd July 2019. This was in a proceeding between the Union of India and IL FS Ltd. and some 348 other entities in the IL FS group. There It seems to be an accepted position at present that IFIN is one of those group concerns. Invoking the provisions of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance, an act of which it is not reasonably clear that it will be a nuisance; (g) to prevent a continuing breach in which the plaintiff has acquiesced; (h) when equally efficacious relief can certainly be obtained by any other usual mode of proceeding except in case of breach of trust; (i) when the conduct of the plaintiff or his agents has been such as to disentitle him to the assistance of the court; (j) when the plaintiff has no personal interest in the matter. (Emphasis added) 14. In paragraph 8 of Cotton Corporation, the Supreme Court unraveled the underlying intendment of Section 41(b) in these words: 8. It is, therefore, necessary to unravel the underlying intendment of the provision contained in Section 41 (b). It must at once be conceded that Section 41 deals with perpetual injunction and it may as well be conceded that it has nothing to do with interim or temporary injunction which as provided by Section 37 are dealt with by the Code of Civil Procedure. To begin with, it can be said without feat of contradiction that anyone having a right that is a legally protected interest complains of its infringement and seeks relief through court must have an un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpetual injunction only and Section 37 read with Order 39 of the Code of Civil procedure being confined to temporary injunction, an unnecessary grey area will develop. It is indisputable that temporary injunction is granted during the pendency of the proceeding so that while granting final relief the court is not faced with a situation that the relief becomes infructuous or that during the pendency of the proceeding an unfair advantage is not taken by the party in default or against whom temporary injunction is sought. But power to grant temporary injunction was conferred in aid or as auxiliary to the final relief that may be granted. If the final relief cannot be granted in terms as prayed for, temporary relief in the same terms can hardly if ever be granted. In State of Orissa v. Madan Gopal Rungta (1952) SCR 28: AIR 1952 12: 1951 SCJ 764, a Constitution Bench of this Court clearly spelt out the contours within which interim relief can be granted. The Court said that 'an interim relief can be granted only in aid of, and as ancillary to, the main relief which may be available to the party on final determination of his rights in a suit or proceeding'. If this be the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter: Provided that the applications under this sub-section, in respect of such company or class of companies, as may be prescribed, shall be made before the Principal Bench of the Tribunal which shall be dealt with by such Bench. (3) Where in the opinion of the Central Government there exist circumstances suggesting that-- (a) any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust; (b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; (c) a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case; (f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e): Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; (g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any of the directors of the company; (i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister the same. (8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both. (Emphasis added) 17. It is true that these sections, especially the portions emphasized above in Sections 242(2)(m) and 242(4) confer a wide discretion on the NCLT and NCLAT, but can that discretion extend in this manner to passing an order that is ex facie in the teeth of the statutory prohibition contained in Section 41 of the Specific Relief Act as interpreted and explained by Cotton Corporation? That is the question Mr. Sakhardande poses. 18. Mr. Sakhardande would have me hold that the order of the NCLAT is per incuriam. The law on this is well-settled. He invites attention to my recent decision (in the context of a copyright infringement action) in Sanjay Soya Pvt. Ltd. v. Narayani Trading Company, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a moment that the NCLAT has the power to stay arbitrations, it certainly does not have the authority to stay the hands of this Court in hearing a petition under Section 9 or any other petition that properly comes before this Court under the Arbitration and Conciliation Act 1996. Indeed, I do not even see how the NCLAT has such control over arbitral tribunals. The NCLAT can make no order under Section 9, Section 11, Section 34, Section 37 or any of the other provisions of the Arbitration and Conciliation Act 1996. Notably, Section 9 of the Arbitration Act--and indeed no provision of that Act--is made subject to the provisions of the Companies Act 2013. This in itself is a telling circumstance. 21. For the present purposes, I need not go further into this question. It is enough for the present order to hold that the NCLAT order cannot and does not come in the way of this Court making an appropriate order under Section 9 of the Arbitration and Conciliation Act 1996. When and how that arbitration is to be commenced is another matter, one with which I am not presently concerned. 22. The objection, therefore, at the threshold by Dr Saraf that the arbitration being stayed and the NC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ever said that any of its terms are fraudulent or barred by any of the provisions of the Contract Act. 26. In a commercial Court these pleas are of very little persuasive value. They will only carry heft if it is shown that there is no breach on the part of the Petitioner, and the invocation by the Respondent is totally unlawful. Merely claiming it to be undesirable is useless. Section 9 is not meant to aid parties clearly in breach of their contracts. Everything in the Arbitration Act is founded on a contract; and this necessarily means that to claim an equitable and discretionary relief, a Section 9 petition is not to be handled like a regular civil suit invoking a non-contractual civil remedy. The Respondent must be shown to be in wrongful conduct. Its actions must be shown to ones in violation of the contract. A respondent seeking to enforce its contractual rights will suffer no injunction unless it is shown that the Respondent itself is in breach or has acted contrary to the contract. Once a breach by the Petitioner is not only demonstrated but is accepted, equity will not operate in its favour. Conversely, where there is a demonstration of a breach by the Respondent, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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