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2021 (3) TMI 1178 - SC - Companies Law


Issues Involved:
1. Appointment of an Arbitrator under the Arbitration and Conciliation Act, 1996.
2. Dispute regarding the conversion formula of OCRPS into equity shares.
3. Jurisdiction of NCLT under Section 7 of the Insolvency and Bankruptcy Code (IBC).
4. Arbitrability of disputes amidst insolvency proceedings.

Detailed Analysis:

1. Appointment of an Arbitrator under the Arbitration and Conciliation Act, 1996:
The Arbitration Petition was filed by Indus Biotech Private Limited under Section 11(3) read with Sections 11(4)(a) and 11(12)(a) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an Arbitrator to adjudicate disputes with the respondents. The disputes arose from Share Subscription and Shareholders’ Agreements (SS and SA) and Supplemental Agreements, involving the conversion of OCRPS into equity shares. The petitioner argued that a single Arbitral Tribunal could handle the arbitration as a single process due to the common subject matter under different agreements.

2. Dispute regarding the conversion formula of OCRPS into equity shares:
The core dispute involved the calculation and conversion formula for converting OCRPS into equity shares. The respondents claimed entitlement to 30% of the total paid-up share capital, while the petitioner contended it should be approximately 10% based on auditors' and valuers' reports. This disagreement led to the contention that the matter should be resolved through arbitration.

3. Jurisdiction of NCLT under Section 7 of the Insolvency and Bankruptcy Code (IBC):
Respondents contended that the petitioner defaulted on redeeming OCRPS, leading to a debt of ?367,08,56,503. Consequently, the respondents initiated the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC before the NCLT. The petitioner countered by filing an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to refer the dispute to arbitration. The NCLT, Mumbai Bench IV, allowed the application under Section 8, dismissing the Section 7 petition under IBC. The respondents challenged this order in the Supreme Court.

4. Arbitrability of disputes amidst insolvency proceedings:
The Supreme Court examined whether the dispute was arbitrable given the pending insolvency proceedings. It was noted that the NCLT had to ascertain the existence of default under Section 7 of the IBC. The Court emphasized that an application under Section 7 becomes a proceeding in rem only upon admission, which was not the case here. The Court held that the NCLT rightly concluded that no default had occurred, making the dispute arbitrable.

Conclusion:
The Supreme Court upheld the NCLT's decision, dismissing the Section 7 IBC petition and allowing the arbitration petition. The Court clarified that the NCLT must first determine the existence of default before considering an application under Section 8 of the Arbitration Act. The Court appointed Mr. Justice V.N. Khare and Mr. Justice R.M. Lodha as arbitrators, directing them to mutually appoint a third arbitrator. The decision ensures that disputes with unresolved conversion formulas and valuation issues are arbitrated, while insolvency proceedings are appropriately managed under the IBC framework.

 

 

 

 

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