2023 (7) TMI 1497 - HC - IBC

Tenability of the application - Nomination of an arbitrator on behalf of the Respondent in terms of the Transaction Documents - HELD THAT - There are no merit in the submission of Respondent that the document is not adequately stamped and therefore, an arbitration clause contained in the said agreement cannot be acted upon. Apart from this, it would be sufficient to note that the stamp duty will have to be determined on the basis of the transaction and its value indicated in the instrument and not on the prospective value as Section 21 of the Maharashtra Stamp Act, clearly prescribe that when an instrument is chargeable with ad-valorem duty in respect of any stock, or of any marketable or other security, such duty shall be calculated on the value of such stock or security according to the average price or value thereof, on the day of execution of the instrument. The instrument/ document in question dated 12/04/2018, which is the basis for invoking arbitration is affixed with adequate stamp duty and suffers from no legal infirmity. In the wake of the existing arbitration clause in the agreement dated 18/04/2018 and since arbitration has been invoked by the applicant by appointing his nominee and the respondents having been called upon to appoint theirs, the applicant seek appointment of the nominee arbitrator on behalf of the respondent so that the two arbitrators so appointed shall nominate the third arbitrator. At this stage, learned counsel for the respondent seek stay of the judgment pronounced today, which must be necessarily declined, since the matter is considered on merits and found the preliminary objection to be untenable and found the circumstances involved justifying the appointment of the nominee arbitrator on behalf of the respondents. The prayer for stay is rejected.

Summary

Issues Involved:

1. Arbitrability of the dispute under the Recovery of Debts and Bankruptcy Act, 1993.
2. Inclusion of respondent no.2 in the arbitration proceedings.
3. Adequacy of stamp duty on the agreement containing the arbitration clause.

Issue-Wise Detailed Analysis:

1. Arbitrability of the Dispute:

The primary issue was whether the dispute was arbitrable or should be resolved by the Debt Recovery Tribunal (DRT) under the Recovery of Debts and Bankruptcy Act, 1993. The applicant argued that the claim was not merely for recovery of debt but for specific performance of the agreement dated 12/04/2018. The applicant, a bank, invested in the respondent company with a 'Put Option' allowing it to sell shares back to the promoter. The applicant contended that this transaction was not a simple debt recovery but involved specific performance of contractual terms. The court examined whether the claim fell within the definition of 'debt' under Section 2(g) of the RDBA. The court noted that the term 'debt' is broadly defined but concluded that the specific performance sought by the applicant did not fall within the ambit of a debt recovery action. Thus, the court rejected the objection that the dispute was non-arbitrable.

2. Inclusion of Respondent No.2 in Arbitration:

The second issue was whether respondent no.2, who was not a signatory to the arbitration agreement, could be compelled to arbitrate. Respondent no.2 had executed a 'Deed of Guarantee' in favor of the applicant, which was part of the transaction documents. The court found that the deed of guarantee was a tripartite agreement involving the guarantor, the promoter company, and the investor. It was determined that the guarantor had agreed to secure the obligations of the promoter company, and the guarantee was a continuous obligation. The court held that the guarantor was bound by the arbitration agreement as the guarantee was integral to the transaction documents. The court dismissed the argument that the absence of an arbitration clause in the deed of guarantee excluded respondent no.2 from arbitration, noting previous court orders that recognized the interconnectedness of the agreements.

3. Adequacy of Stamp Duty:

The third issue concerned whether the agreement containing the arbitration clause was adequately stamped under the Maharashtra Stamp Act, 1958. The agreement was stamped with Rs. 15,000, and the deed of guarantee with Rs. 500. The respondent argued that the documents required higher stamp duty based on their monetary value. The applicant contended that the agreement related to the purchase or sale of shares and was correctly stamped under Article 5(c) of the Maharashtra Stamp Act. The court agreed with the applicant, finding that the agreement involved the purchase or sale of shares and was adequately stamped. The court concluded that the arbitration clause could be acted upon, as the document did not suffer from any legal infirmity regarding stamp duty.

Conclusion:

The court found that the dispute was arbitrable, respondent no.2 was bound by the arbitration agreement, and the agreement was adequately stamped. Consequently, the court appointed a nominee arbitrator for the respondents under Section 11(6) of the Arbitration and Conciliation Act, 1996, to adjudicate the disputes arising from the transaction documents. The court declined the respondent's request to stay the judgment.