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2015 (7) TMI 1223 - HC - Indian LawsArbitration petition - injunction - winding up procedure - Held that - CDR package is the final CDR package approved by the Corporate Debt Restructuring Cell; there is a huge debt which is being restructured; such restructuring involves substantial financial sacrifice on the part of the secured creditors; it also envisages infusion of substantial funds into the company by the secured creditors so as to bring the ailing company back on rails; and it is not advisable, in the premises, to rock the boat at this critical and sensitive juncture by admitting the winding up petition against the company. An admission order at this juncture is neither in the interest of the company and its workmen nor in the interest of its creditors including even the petitioning creditor. The need to allow the CDR scheme to have a full play in the interest of all stakeholders far outweighs the private interest of the Petitioner, who is, as noted above, not without a security and whose interests are also sought to be protected to the extent possible in the accompanying arbitration petition, to have the company wound up. (a)Arbitration Petition is disposed of by directing State Bank of India the Monitoring Institution under the CDR Package to allow the Petitioner to participate in the CDR package if it so chooses, by amending the provisions and terms of the package appropriately. In the event the Petitioner does not choose to so participate, State Bank of India is directed to keep the Petitioner informed from time to time about the progress of the implementation of the CDR Scheme and not allow any disposal of assets of the Respondent Company without intimation to the Petitioner. The Petitioner will be at liberty to apply for appropriate reliefs with respect to the disposal, if any, of the assets as and when such intimation is given to it, with a view to protect its interests consistently with the other creditors including the CDR lenders. (b) The Court Receiver appointed as receiver in respect of hypothecated assets described in the Schedule to the Deed of Hypothecation dated 13 July 2010 (Exhibit H to the petition) in the order dated 26 November 2014, which is continued as an adinterim arrangement in terms of the order passed by the Appeal Court on 9 December 2014, shall stand vacated. (c) The injunction granted by the order passed on the Arbitration Petition on 26 November 2014 and continued by way of an adinterim arrangement by the order of the Appeal Court dated 9 December 2014, shall also stand vacated but only with effect from the expiry of the period of 3 weeks from today.
Issues Involved:
1. Interim protection under Section 9 of the Arbitration and Conciliation Act, 1996. 2. Insufficiency of stamp duty on the Term Loan Agreement. 3. Allegations of suppression and misstatement by the Petitioner. 4. Merits of the petition in the face of the CDR Scheme. 5. Admission of the winding-up petition. Detailed Analysis: 1. Interim Protection under Section 9 of the Arbitration and Conciliation Act, 1996: The Petitioner, a non-banking financial company, sought interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, for the properties of the Respondents. The Petitioner had granted a term loan of Rs. 50 crores to the Respondents, who defaulted on repayment, resulting in dues amounting to Rs. 29.68 crores. The Petitioner invoked the arbitration agreement and sought orders for attachment before judgment, or alternatively, an interim injunction restraining the Respondents from selling or dealing with their assets. The Respondents and their secured lenders opposed the application, citing the ongoing CDR Scheme and other grounds. 2. Insufficiency of Stamp Duty on the Term Loan Agreement: The Respondents argued that the arbitration clause in the Term Loan Agreement was insufficiently stamped, making it inadmissible in evidence. The document was executed in Delhi and required additional stamping under Maharashtra law. The Petitioner contended that the obligation to pay stamp duty was on Respondent No.1 and that the document had been acted upon by both parties. The Court referred to the judgment in Aditya Birla Finance Ltd. vs. Coastal Projects Ltd., which distinguished similar cases and held that the obligation to pay stamp duty being on the respondent, the objection lacked merit. The Court concluded that even without relying on the Term Loan Agreement, the existence of the debt and the arbitration agreement were admitted by the Respondents, allowing the Court to consider the interim application. 3. Allegations of Suppression and Misstatement by the Petitioner: The Respondents alleged that the Petitioner falsely stated the execution location of the documents and suppressed the payment of Rs. 10.30 crores made on 30 September 2014. The Court found that the incorrect statement regarding the execution location did not imply deliberate deception. The Petitioner had acknowledged the payment in an affidavit, showing no suppression. Therefore, the Court found no grounds to deny equitable relief to the Petitioner. 4. Merits of the Petition in the Face of the CDR Scheme: The Court considered the principles of Order 38 Rule 5 and Order 39 Rules 1 and 2 of the Code of Civil Procedure, 1908, while deciding on the interim reliefs. The Petitioner argued for attachment before judgment and enforcement of a negative covenant, citing the Respondents' attempts to defeat any potential arbitral award. The Court noted that the Petitioner held a first pari passu charge over the current assets of Respondent No.1, which was recognized by the CDR lenders. The CDR Scheme aimed to revive the company, involving substantial financial sacrifices by the secured creditors. The Court found no case for granting an injunction or attachment that could jeopardize the CDR Scheme. 5. Admission of the Winding-Up Petition: The Petitioner sought the winding-up of Respondent No.1 for its inability to pay debts, arguing that the statutory notice was not complied with, indicating deemed inability to pay. The Court considered the wishes of the majority creditors and the advisability of a winding-up order. The Court referred to the Supreme Court's judgment in Madhusudan Gordhandas & Co. Vs. Madhu Woolen Industries Pvt. Ltd., which emphasized considering the wishes of the majority creditors. The Court found that admitting the winding-up petition at this stage would adversely affect the company's market position and the confidence of stakeholders. The Court decided to allow the CDR Scheme to proceed, with the Petitioner being informed about its progress and allowed to apply for appropriate reliefs if necessary. Order: (a) The Petitioner is allowed to participate in the CDR package or be kept informed about its progress. (b) The Court Receiver in respect of hypothecated assets is vacated. (c) The injunction granted is vacated after three weeks. (d) The Respondents to furnish an affidavit disclosing dealings with hypothecated assets. (e) Chamber Summons (L) No.404 of 2015 is disposed of. (f) Company Petition No.443 of 2014 is dismissed, with liberty to reapply if the CDR Package fails. (g) The Company Application is dismissed. (h) No order as to costs.
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