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2020 (6) TMI 747 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor had failed to redeem the Optionally Convertible Redeemable Preference Shares (OCRPS) on or before 15.04.2019 in terms of the Share Subscription and Shareholders Agreement (SSSA) - existence of debt and dispute or not - HELD THAT - It is settled law that generalia specialibus non derogant special law prevails over general law. In HINDUSTAN PETROLEUM CORPN. LTD. VERSUS PINKCITY MIDWAY PETROLEUMS 2003 (7) TMI 493 - SUPREME COURT the Hon ble Supreme Court held that where an arbitration clause exists the court has a mandatory duty to refer dispute arising between the contracting parties to arbitrator. It quoted with approval the decision of the same court in P. ANAND GAJAPATHI RAJU ORS. VERSUS PVG. RAJU (DIED) ORS. 2000 (3) TMI 1068 - SUPREME COURT wherein it was held that the language of section 8 of the Arbitration Conciliation Act 1996 is peremptory and the court is under an obligation to refer parties to arbitration. In a section 7 petition there has to be a judicial determination by the Adjudicating Authority as to whether there has been a default within the meaning of section 3(12) of the IBC - In the present case the dispute centres around three things (1) The valuation of the Respondent/Financial Creditor s OCRPS; (2) 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; and (3) Fixing of the QIPO date. All of these things are important determinants in coming to a judicial conclusion that a default has occurred. The invocation of arbitration in a case like this seems to be justified. The default has not occurred. It is noted that 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 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. Application allowed.
Issues Involved:
1. Whether the disputes between the parties should be referred to arbitration under Section 8 of the Arbitration & Conciliation Act, 1996. 2. Whether the underlying Company Petition under Section 7 of the Insolvency & Bankruptcy Code, 2016 (IBC) is maintainable. 3. Whether the claim by the Financial Creditor is a "dressed-up" petition to pressurize the Corporate Debtor. Issue-Wise Detailed Analysis: 1. Referral to Arbitration: The primary issue was whether the disputes should be referred to arbitration under Section 8 of the Arbitration & Conciliation Act, 1996. The Applicant/Corporate Debtor argued that the Share Subscription and Shareholders Agreement (SSSA) contained an arbitration clause that mandated arbitration for any disputes arising out of the agreement. The arbitration clause was broad enough to cover the disputes, including valuation of OCRPS, the right to redeem OCRPS, and fixing the QIPO date. The Applicant emphasized that courts should enforce arbitration agreements as per the parties' bargain, citing the Hon’ble Supreme Court’s judgments supporting arbitration. 2. Maintainability of the Company Petition under IBC: The Respondent/Financial Creditor contended that a Section 7 IBC petition, which deals with insolvency, is a matter in rem and cannot be referred to arbitration. The initiation of Corporate Insolvency Resolution Process (CIRP) is not for debt recovery but for dealing with insolvency, either for revival or liquidation. They cited the Hon’ble Supreme Court’s judgment in Pioneer Urban Land and Infrastructure Limited & another v Union of India & others, which held that matters in rem are inherently incapable of being referred to arbitration. 3. Allegation of "Dressed-Up" Petition: The Applicant/Corporate Debtor argued that the underlying Company Petition was a "dressed-up" petition aimed at pressurizing the Corporate Debtor. They contended that the real dispute pertained to the agreement's terms and interpretation, which could be resolved through arbitration. The Applicant highlighted that the Corporate Debtor was a solvent, debt-free, and profitable company, and the IBC should not be used as a pressure tactic. Findings: The Tribunal noted that the subject matter of the IA was res integra and examined the legal principles and case laws cited by both parties. The Tribunal referred to the Booz Allen judgment, which laid down tests for arbitrability, and recognized that insolvency and winding-up matters are non-arbitrable. However, the Tribunal also considered the specific circumstances of the case, including the valuation dispute, the right to redeem OCRPS, and fixing the QIPO date, which were arbitrable issues. The Tribunal concluded that the disputes were arbitrable and that referring the parties to arbitration was justified. They emphasized that pushing a solvent, debt-free company into insolvency was not desirable. The Tribunal also noted that an Arbitration Petition for the appointment of an arbitrator was pending before the Hon’ble Supreme Court. Order: 1. The IA No.3597/MB.I/2019 seeking reference to arbitration was allowed. 2. The underlying Company Petition bearing CP No.3077/MB.IV/2019 was dismissed as it was incapable of being admitted at this stage. 3. The Tribunal ordered accordingly.
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