TMI Blog2020 (6) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... nt-corporate debtor into CIRP at this stage. It is further noted that the arbitration petition bearing Arbitration Case No. 48/2019 filed by the applicant-corporate debtor is pending consideration before the hon'ble Supreme Court for appointment of an arbitrator. Petition admitted. - IA No. 3597/2019 and CP (IB) No. 3077/2019 - - - Dated:- 9-6-2020 - Rajasekhar V.K., Member (J) and Ravikumar Duraisamy, Member (T) For the Applicant/ Corporate Debtor: Mr Mustafa Doctor, Sr Advocate, Mr Chaitanya D Mehta, Ms Sonali Aggarwal, Ms Sairica Raju i/b Dhruve Liladhar Co, Advocates For the Respondent/ Financial Creditor: Mr Fredun E DeVitre, Sr Advocate, Mr Sharan Jagtiani, Mr Jatin Pore, Ms Ankita Agrawal, i/b DSK Legal, Advocates ORDER Rajasekhar V.K., Member (J) 1. Preamble 1.1. The single-point reference in the interlocutory application ('IA') is that this Adjudicating Authority refer the parties in the main CP (IB) No. 3077/2019 to arbitration for settling their disputes. The IA has been filed under section 8 of the Arbitration and Conciliation Act, 1996. [1] 1.2. The underlying company petition has been filed by Kotak India Ventur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of Capital and Disclosure Requirements) Regulations, 2018 ['SEBI ICDR Regulations'], any company which has any outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares of the issuer, is not entitled to make a qualified initial public offering ('QIPO'). Accordingly, it was imperative for the Kotak group entities to convert their respective preference shares into equity shares. Therefore, the petitioner opted for and chose to convert the OCRPS into equity shares. (e) During the QIPO process, a dispute arose between the respondent and the petitioner and the other entities of the Kotak group with regard to the calculation and conversion formula to be followed while converting the respective entities' preference shares into equity shares of the respondent. The Kotak group entities sought to apply a calculation formula which would give them approximately thirty per cent of the total paid-up share capital of the respondent, whereas according to the respondent and in line with the reports of the auditors, independent valuer and agreed conversion formula, the Kotak group would be entitled to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor's OCRPS; (b) The right of the respondent-financial creditor to redeem such OCRPS when it had participated in the process to convert its OCRPS into equity shares of the applicant-corporate debtor; (c) Fixing of the QIPO date. The parties have exchanged extensive correspondence from August 2018 onwards in this regard. [4] 2.3. Mr. Mustafa Doctor submitted that it is not in dispute that for the purposes of a public listing, the respondent-financial creditor opted for and chose to convert the OCRPS into equity shares of the company, in line with the requirements of the SEBI ICDR Regulations. The conversion of the outstanding preference shares was to take place according to the conversion formula defined in Schedule J of the SSSA. [5] Depending on the valuation, the converted stake would range between ten and thirty per cent of the equity share capital of the applicant-corporate debtor post-conversion. While it is not in dispute that the parties agreed to go for an IPO, the dispute pertains only to the calculation and conversion formula to be followed. 2.4 Mr. Mustafa Doctor contended that the Kotak group entities sought to apply a calculation formul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent-financial creditor was in the share capital of the company, by way of preference shares. This is also reflected as such in the financial statements of the respondent-financial creditor. On law 2.9 On the point of law, Mr. Mustafa Doctor, learned senior counsel appearing for the applicant-respondent, drew our attention to the provisions of section 8 of the Arbitration and Conciliation Act, 1996, and stated that it is mandatory in nature. The undisputed fact is that the SSSA contains an arbitration clause which is wide enough to cover the dispute between the parties. This is in the nature of a commercial dispute. It is settled law that courts must always lean in favour of enforcing arbitration agreements, since that is the bargain struck by the parties. He submitted that the hon'ble Supreme Court has reiterated this legal principle in a number of judgments. 2.10 Mr. Mustafa Doctor submitted that the underlying company petition is in the nature of a 'dressed-up' petition, inasmuch as the real dispute between the parties is with regard to matters pertaining to the agreement reached between the parties and interpretation of its various clauses. The respondent- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the exclusive mandate of this court. The existence of an arbitration clause can never affect a section 7-Application, which has to be decided independently by this Authority, Mr. Fredun DeVitre submitted. 3.3. Mr. Fredun DeVitre invited attention to the judgment of the hon'ble Supreme Court in Haryana Telecom v. Sterlite Industries (India) Ltd. [1999] 5 SCC 688, decided on 13th July, 1999. The ratio decidendi of that judgment was that while deciding the scope of a section 8-Petition under the Arbitration and Conciliation Act, 1996, was that only such disputes or matters which an arbitrator is competent or empowered to decide, can be referred to arbitration, Mr. Fredun DeVitre submitted. 3.4. Mr. Fredun DeVitre also drew the court's focus to the judgment of the hon'ble Supreme Court in Booz Allen Hamilton Inc v. SBI Home Finance Ltd. [2011] 5 SCC 532, decided on 15th April, 2011, in support of his argument that only where the subject-matter of the suit is 'arbitrable' can the parties be referred to arbitration (para 20 of the judgment). He also submitted that para 34 of the judgment lays down the test for arbitrability, which are as follows:- (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as conferred on the respondent. 3.9. Further, in March 2018, there were discussions between the parties for a QIPO. The agreement provided that the range of conversion would be between ten and thirty per cent, dependent on the valuation which the agreement itself provides. The agreement further provides that if the QIPO does not take place by the QIPO date, then a fifteen-day notice period shall be given. At the end of this fifteen-day period, the investment will be redeemable at the IRR of thirty per cent. If not redeemed, then it will be treated as a 'debt.' [9] It is normal that a Rs. 19 crore investment for twelve years compounded annually will come to that figure. 3.10. Mr. Fredun DeVitre next submitted that for a section 7 IBC petition, the claim itself may be disputed. The fact of the dispute is irrelevant for a section 7 petition, though it may assume significance for a petition under section 9 of the IBC. It is the contention of the respondent-financial creditor that there is a right of redemption under the contract if the investment is not redeemed by the QIPO date. Further, the QIPO date was to be on a mutually agreed valuation. The valuation failed. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes. In para 38, the judgment further notes that generally and traditionally, all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not, however, a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable . 5.4. The hon'ble Supreme Court added a seventh category to the six categories of cases in Booz Allen (supra), vide its judgment in Vimal Kishor Shah v. Jayesh Dinesh Shah [2016] 8 SCC 788, decided on 17th August, 2016. The hon'ble Court held that cases a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the law relating to domestic arbitration ..... as also to define the law relating to conciliation.... 5.10. Section 238 of the IBC reads as follows:- 238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 5.11. The rules of interpretation are fairly well-settled:- (1) When a provision of law regulates a particular subject and a subsequent law contains a provision regulating the same subject, there is no presumption that the later law repeals the earlier law. The rule making authority while making the later rule is deemed to know the existing law on the subject. If the subsequent law does not repeal the earlier rule, there can be no presumption of an intention to repeal the earlier rule. (2) When two provisions of law-one being a general law and the other being special law govern a matter, the court should endeavour to apply a harmonious construction to the said provisions. But where the intention of the rule making authority is made clear either expressly or impliedly, as to which law should p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this seems to be justified. 5.15. Looking at the contention raised, and that the facts are not in dispute, we are not satisfied that a default has occurred. We note Mr. Mustafa Doctor's statements that the applicant-corporate debtor is a solvent, debt-free and profitable company. It will unnecessarily push an otherwise solvent, debt-free company into insolvency, which is not a very desirable result at this stage. The disputes that form the subject-matter of the underlying company petition, viz., valuation of shares, calculation and conversion formula and fixing of QIPO date are all arbitrable, since they involve valuation of the shares and fixing of the QIPO date. Therefore, we feel that an attempt must be made to reconcile the differences between the parties and their respective perceptions. Also, no meaningful purpose will be served by pushing the applicant-corporate debtor into CIRP at this stage. 5.16. We further note that the arbitration petition bearing Arbitration Case No. 48/2019 filed by the applicant-corporate debtor is pending consideration before the hon'ble Supreme Court for appointment of an arbitrator. 6. Order 6.1. For all the above reasons, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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