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TMI Blog2017 (7) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of cash deposit to the extent of ₹ 250 crores and securing the balance ₹ 329 crores through a bank guarantee to the satisfaction of the Registrar of this court. The said amount of ₹ 250 crores shall be deposited by the appellant on or before 31stAugust, 2017; the bank guarantee for ₹ 329 crores shall be furnished to the satisfaction of the Registrar on or before 31st July, 2017. This court is of the opinion that this modification is essential, not because the petitioners were unable to establish a strong prima facie case, but because of the unpredictable nature of the likely injury that may be caused to the commercial operations of the company and the appellants, if the entire amounts were secured through deposit in court. The appeals are bereft of merit; however, the impugned order is modified to the extent indicated above. Parties are directed to be present before the Registrar General for compliance with the directions in the preceding paragraph, on 10th July, 2017. The appeals are dismissed, but subject to the modification in the impugned order, to the extent indicated - FAO(OS)(COMM) 61/2016, C.M. APPL.28195/2016, FAO(OS)(COMM) 62/2016, C.M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereinafter Second Agreement ). 3. Through a Board of Directors resolution of the company on 21.08.2014 the warrants were to be issued in accordance with Regulation 76 of the SEBI (Issue of Capital Disclosure Requirements) Regulations, 2009 ... (hereafter SEBI Disclosure Regulations ). As a result, the company applied to the Bombay Stock Exchange (BSE). The company was still under the control and management of the Petitioner and KAL Airways Private Limited. The general meeting of the company had approved the issuance of the warrants at a conversion price of ₹ 16.30 per Equity Share. The resolution also recorded that the issuance of Warrants would be in accordance with the SEBI Disclosure regulations. On 15.01.2015 the company presented a scheme to the Ministry of Civil Aviation for transferring of shares from the Petitioner and KAL Airways Private Ltd.(hereinafter KAL ) to the appellant. On 22.01.2015 the Civil Aviation ministry approved the scheme of reconstruction and revival for takeover of the ownership, management and control of SpiceJet Ltd (hereafter the Scheme ). 4. After discussions and with a view to restore operations and regain the company s market p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al covenants set out herein, the Sellers agree to subscribe on or before the Second Closing Date and the Company agrees to thereafter, issue and allot on a preferential basis, the Tranche 1 CRPS Shares, the particulars of which are set forth in Schedule B, free and clear from all and any Encumbrance, together with all rights and advantages now and hereafter attaching or accruing thereto such that the Sellers shall, upon allotment of the Tranche 1 CRPS Shares in their name, receive full legal and beneficial ownership and all shareholder rights relating thereto. 6. Other consequential stipulations were agreed to by the parties, relating to the issue of shares that were to be subscribed to by the petitioners, on a preferential rights basis, upon receipt of the Tranche 2 CRPS Amount to be delivered in a single tranche in immediately available funds to a designated account (No 1), the Tranche 2 CRPS Shares, the particulars of which were set out in Schedule B, free and clear from all encumbrances, together with all rights and advantages to enable the appellants full beneficial ownership of such shares. Under clause 12.3 of the SPA, the appellant indemnified, ensured and undertook to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and convertible in the financial year 2015-2016; ii) ₹ 43,84,70,000/- (Rupees Forty Three Crore Eighty Four Lakh Seventy -Thousand -only) from the outstanding loan amount of ₹ 114,00,00,000/- (Rupees One Hundred and Fourteen Crore only) to be utilized for the subscription to 269,00,000 warrants to be issued by the company and convertible in the financial year 2016-2017; iii) The balance loan amount ₹ 36,24,90,000/- (Rupees thirty-six crore twenty-four lakh ninety thousand only) to be utilized for the future subscription to the non- convertible redeemable cumulative preference shares of face value of ₹ 1,000/-(Rupees One Thousand only) per share of the company. 8. By letter dated 14th February 2015, the first closing date under clause 5.1 of the SPA was amended and the date was extended to 24th February, 2015. By letter dated 17th February, 2015 the SPA was amended and extension of closing dates were agreed upon; by a similar letter of 23rd February, 2015, the SPA was further amended and the dates were again extended. The petitioners, in terms of the SPA, paid ₹ 100,00,00,000/- (Rupees Hundred Crores only) under Clause 3.2 towards balance warr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act to preserve the subject matter of the disputes arising on failure of the appellants to honour their contractual obligations under the Share Sale and Purchase Agreement dated 29.01.2015 (hereinafter referred to as SPA ). The defaults complained of against the appellants was their failure to issue the 'Warrants' in terms of Clauses 3.1 and 3.2 of the SPA; failure to issue and allot the Tranche 1 and Tranche 2 CRPS Shares in terms of Clauses 3.3, 3.4, 7.2.2 and 8.1 of the SPA; the appellants failure to utilize the amounts in the Designated Account 2 in order to pay the outstanding statutory dues in terms of Clause 12.2 of the SPA. Failure of the appellants to issue the Collaterals in terms of Clauses 4.1.3(b), 7.2.3 and 8.2.3 of the SPA was also pleaded. The petitioners highlighted that inspite of the fact that statutory dues were to be paid by 12.02.2015, the company applied to the Central Board of Direct Taxes for waiver of interest leviable under Section 201 (1A) of the Income Tax Act, 1961 in terms of Section 119 of the said Act. This was after two complaints were filed against the company, by the revenue under Section 200 of the Code of Criminal Procedure, 1973 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evailing facts and circumstances. The petitioners did not initiate any action to challenge/appeal the stand taken by SEBI and BSE by the parties. Therefore, having accepted the position that the Warrants cannot be issued, the petitioner is not entitled to any relief and the same ought to be dismissed with costs. It was not in the control of the respondents to insist upon the SEBI and BSE to allot the warrants. The appellants also urged that in view of the requirements of 42 (3) of the Companies Act, 2013, the company cannot make an invitation for fresh offer of securities unless and until the offer or invitation for issue and allotment of securities made earlier have been completed or that offer or invitation has been withdrawn or abandoned by it. Consequently, until the close of the issuance of the Warrants and completion of the obligations of the petitioner under the SPA, the company would be in violation of applicable laws and the terms of the SPA, if it issued CRPS Shares; issuance of CRPS Shares would, therefore, be illegal and irregular. 13. It was contended that the subject matter of the dispute did not concern the shares of the company because, due to non-compliance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly ₹ 2 (two) when the value of the said stake was at least ₹ 765 crores, the appellants contractual responsibility to issue the warrants (in Tranche 1 and Tranche 2 under the SPA) at an agreed price of ₹ 16.30/- per share remained unfulfilled. It was held that prima facie, amounts received/adjusted by the appellants were lying with them, and no warrants and CRPS shares were allotted. Therefore, they were liable to refund the said amount to the petitioners. Such amount was ₹ 579 crores. The impugned order noted, however, that the claimed losses, i.e. ₹ 403 crores were a subject matter of arbitration and, therefore, had to be preserved by the appellants. Further, the learned single judge felt that prima facie since the company accepted the consideration for the CRPS in violation of Section 42 (6) of Companies Act, 2013, it was statutorily liable to return the monies to the respondents in terms of that provision. The learned single judge noted the mandate of the said provision, which requires that if a company is not able to allot the securities within the prescribed period of fifteen days from the date of completion of sixty days it shall be liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstallments shall be deposited on every succeeding month. Till the time all five installments are deposited, the interim order shall continue. As and when the amount is deposited, the petitioners would be at liberty to file the application for releasing of amount, the same would be considered on merit as well as the issue of interim orders. 114. Both the parties shall take the necessary steps for the purpose of constitution of Arbitral Tribunal and once the Tribunal is constituted, it is expected that Arbitral Tribunal would publish the award within the period of twelve months. Liberty is also granted to move the application under Section 17 of the Act before the Arbitral Tribunal if so necessary or under any change of circumstances. 16. The appellant submits that Section 9 of the Arbitration and Conciliation Act, 1996 ( the Act ) does not allow passing of an order as an interim measure which would result in enormous, far-reaching and devastating effects on thousands of persons and public institutions also, apart from numerous consumers. It is submitted that no interim order can be passed in a private dispute between the company and the erstwhile promoters who reduced the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion passed while the Petitioners were in control and management was already pending before the BSE. The learned senior counsel argues that it is, therefore, wholly incorrect to assume that the Appellant was aware that the process of issuance of warrants, the genesis of which is at the time of the control and management of the petitioners would not fructify and become an impossibility at a later stage. 19. Learned counsel submits that the provisions of Section 9 have to be applied having regard to the principles underlying Order 38, Rule 5, CPC. For this, he relies on Goel Associates v. Jivan Bima Rashtriya Avas Samiti 114 (2004) DLT 478 and Rite Approach Group Ltd. v. Rosoboron Export 2004 (111) DLT 816. It is urged on behalf of the appellant that while issuing directions to deposit amounts, pending adjudication in arbitration, the court should be alive to the degree of harm and the likelihood of irreparable injury, such a direction would result in. Therefore, the court should be satisfied that conditions governing exercise of power under Order 38, i.e. the likelihood of the party fleeing or avoiding jurisdiction of the court and the eventuality of its defeating a decree, are sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hand, au contraire, it is argued- again by the appellant, that the CRPS shares cannot be issued as the warrants could not be allotted, and in the absence thereof, they would be in violation of Section 42 of the Companies Act, 2013. 23. It is argued that the appellants in their reply (in the Preliminary Objections) have stated that the issuance of warrants has become an impossibility in law. Therefore, in view of the submissions of BSE/SEBI and also the appellants statement supported by an affidavit, it is clear that the issuance of warrants at ₹ 16.30/- per share is an impossibility. Remarkably on one hand the appellants argue that it is impossible in law to issue warrants but on the other hand also argue that the petitioner should have challenged the order of BSE by filing an appeal. It is the appellants who received the consideration from the petitioners and it therefore cannot be comprehended as to why they should litigate with BSE or SEBI who are strangers to the SPA, particularly when it was the appellants obligation. Reasoning and conclusions 24. The first question which the court addresses is the one adverted to by the appellant, that principles underly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ashok Traders Anr v Gurumukh Das Saluja Ors (2004) SCC 155, the Supreme Court observed that: 13. ..The Relief sought for in an application under Section 9 of the A C Act is neither in a suit nor a right arising from a contract. The right arising from the partnership deed or conferred by the Partnership Act is being enforced in the Arbitral Tribunal; the court under Section 9 is only formulating interim measures so as to protect the right under adjudication before the Arbitral Tribunal from being frustrated..... 26. Though apparently, there seem to be two divergent strands of thought, in judicial thinking, this court is of the opinion that the matter is one of the weight to be given to the materials on record, a fact dependent exercise, rather than of principle. That Section 9 grants wide powers to the courts in fashioning an appropriate interim order, is apparent from its text. Nevertheless, what the authorities stress is that the exercise of such power should be principled, premised on some known guidelines - therefore, the analogy of Orders 38 and 39. Equally, the court should not find itself unduly bound by the text of those provisions rather it is to follow the unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any (58% to be exact) for an overall cost of ₹ 2/-. This cost carried with it, the obligation to step in and discharge the petitioners guarantee to their creditors and issue share warrants at a pre-agreed price, on predetermined dates; it also obliged them to issue preference shares. In exchange, the appellants got ₹ 579 crores (in addition they were to, but did not get a further ₹ 100 crores). The parties agree that the share warrants were not issued; nor were the preference shares. The appellants say that this situation came about because of lack of statutory approval by the SEBI and the lack of permission by BSE. The appellants also did not discharge the statutory tax liabilities, but applied for waiver, after prosecution through complaint was launched. Their defence to non-refund or payment is that the petitioners have to establish their claims (including the claim for compensation). However, their pleadings categorically amount to a prima facie admission that the obligations they had undertaken were rendered impossible (on account of lack of regulatory approval). Niceties apart, the appellants pleadings as to the justification for their retaining the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it before tax for the year ending 31.03.2016 reported by the company was ₹ 579.04 crore. 31. In the opinion of the court, the absence of material to establish that it would be irreparably prejudiced or that balance of convenience would be against it can only mean that it failed to substantiate its contentions. A contrary finding, that they would not be prejudiced in any manner, sans documentary materials on the record, but only based on press reports and interpretation of balance sheet for a given year available in the public domain, would be fraught with difficulty. At the same time, the court is aware that there is a possibility that compliance with the impugned directions can result in strapping the company severely and impairing its commercial operations. In these circumstances, while upholding the substantive reasoning of the learned single judge, the court is of the view that a modification of the order is necessary to meet the overall ends of justice. 32. Given the fact that the amount paid by the petitioners is a specific one, ends of justice would be met with by securing it in the form of cash deposit to the extent of ₹ 250 crores and securing the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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