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2020 (6) TMI 809 - Tri - Insolvency and BankruptcyInvocation of arbitration proceedings - valuation of the respondent-financial creditor s OCRPS - 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 - fixing of the QIPO date - HELD THAT - It is not satisfying that a default has occurred. 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. 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.
Issues Involved:
1. Reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. 2. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). 3. Valuation and redemption of Optionally Convertible Redeemable Preference Shares (OCRPS). 4. Fixing of the Qualified Initial Public Offering (QIPO) date. Issue-wise Detailed Analysis: 1. Reference to Arbitration: The interlocutory application (IA) sought to refer the disputes to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The arbitration clause in the Share Subscription and Shareholders Agreement (SSSA) mandated that any dispute arising out of the agreement should be settled by arbitration. The applicant argued that the disputes were commercial in nature and should be referred to arbitration as per the arbitration agreement. The respondent, however, contended that the reliefs sought in the petition were not arbitrable and that matters under Section 7 of the IBC, being matters in rem, could not be referred to arbitration. 2. Initiation of CIRP: The underlying company petition was filed under Section 7 of the IBC by the financial creditor, seeking to initiate CIRP against the corporate debtor for failing to redeem OCRPS. The financial creditor claimed a default amounting to Rs. 367.09 crore. The applicant argued that the petition was a 'dressed-up' petition aimed at pressurizing the corporate debtor and that the real dispute pertained to the interpretation of the agreement, which should be resolved through arbitration. 3. Valuation and Redemption of OCRPS: The dispute centered around the valuation of OCRPS and the right to redeem them. The financial creditor had opted to convert OCRPS into equity shares as per SEBI ICDR Regulations but later sought redemption, claiming a higher valuation. The applicant contended that the financial creditor's valuation was inconsistent with the independent auditors' and valuers' reports, which entitled the financial creditor to a much lower equity share. The applicant also argued that the financial creditor's demand for redemption was unjustified as the option to redeem had been available since 2011 but was exercised only in 2019. 4. Fixing of the QIPO Date: The fixing of the QIPO date was another point of contention. The financial creditor unilaterally proposed a new QIPO date, which the corporate debtor disputed. The corporate debtor argued that the financial creditor had no right to unilaterally fix the QIPO date and demand redemption based on that date. The dispute over the QIPO date and the calculation formula for conversion of OCRPS into equity shares were crucial in determining whether a default had occurred. Findings: The Tribunal noted that the disputes involved valuation of shares, calculation and conversion formula, and fixing of the QIPO date, all of which were arbitrable. The Tribunal emphasized that pushing a solvent, debt-free company into insolvency was not desirable. The Tribunal decided that an attempt should be made to reconcile the differences through arbitration. The Tribunal also observed that the arbitration petition for the appointment of an arbitrator was pending before the Supreme Court. Order: The Tribunal allowed the IA, referring the disputes to arbitration. Consequently, the underlying company petition under Section 7 of the IBC was dismissed as it was incapable of being admitted at this stage. The Tribunal underscored the importance of resolving commercial disputes through arbitration as agreed upon by the parties in the SSSA.
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