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TMI Blog2022 (7) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.04.2021 i.e. the date the FA was entered. The passing of the board resolution dated 29.08.2020 in relation to scheme of arrangement to MDA group being alleged to be in violation of the EA Order has no connection with the Financial Creditor and the allegation of collusion of the Lenders with Corporate Debtor and MDA group seems to be baseless, since, at the time of voting by the secured creditors, the Financial Creditor and the other Lenders had opposed the scheme of arrangement, same has been admitted by the intervenor himself. The onus to prove the existence of fraud is on the party alleging the same and in the present case, the applicant had miserably failed to establish the same - there is no injunction against the Lenders from exercising their contractual rights or statutory rights. Further, the banks are exercising their statutory rights in accordance with law as they are not party to the arbitration proceedings. Moreover, the Applicant is not even a stakeholder in respect of the Corporate Debtor and, a complete third-party to the proceedings before this Tribunal and has no locus standi to question initiation of proceedings under Section 7 of the Insolvency and Bankruptc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-leases, sub-licenses, use or occupation of the retail stores ( Retail Assets ). (b) A shareholder s agreement dated 22.08.2019 ( FCPL SHA ) was executed amongst the Applicant, FCPL and the Biyanis. Under the FCPL SHA, the rights granted to FCPL under the FRL SHA were to be exercised for the benefit of the Applicant. (c) A share subscription agreement dated 22.08.2019 ( SSA ) was executed amongst the Applicant, FCPL and the Biyanis which recorded the understanding between the parties in relation to the Applicant s investment into FCPL, for the ultimate benefit of FRL. 3. The Applicant has submitted that as per Section 10.2 of the FRL SHA agreement read with Section 14.2 of the FCPL SHA agreement, FRL was prohibited from transferring/disposing off its Retail Assets without the consent of the Applicant. Moreover, as per Section 10.3 of the FRL SHA agreement read with Section 14.3 of the FCPL SHA agreement, FRL was prohibited from transferring/encumbering/disposing of its Retail Assets either directly or indirectly to a Restricted Person . The list of Restricted Persons under the FRL SHA and the FCPL SHA agreements included the MDA Group (Reliance Retail Ventures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any financing, directly or indirectly, from any Restricted Person that will be in any manner contrary to Section 13.3.1 of the FCPL SHA; (e) the orders in (a) to (d) above are to take effect immediately and will remain in place until further order from the Tribunal, when constituted. (f) the Claimant is to provide within 7 days from the date hereof a cross undertaking in damages to the Respondents. If the Parties are unable to agree on its terms they are to refer their differences to me qua EA for resolution; and (g) the costs of this Application be part of the costs of this Arbitration. The Applicant has also included to his submission that the EA order is an order passed in terms of Section 17(1) and 17(2) of the Arbitration and Conciliation Act, 1996 which is deemed to be an order of the Court and thereby, enforceable in terms of the Code of Civil Procedure and subsequently, the same was challenged by way of an application seeking vacation of the EA Order which was rejected by the Arbitral Tribunal vide order dated 21.10.2021. 5. The Ld. Senior Counsel present for the Applicant submits that despite being the EA order binding on FRL, FRL proceeded with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Hon ble Delhi High Court. In the said appeals, the Division Bench of the Delhi High Court stayed the EA Enforcement judgement vide order dated 22.03.2021. 6. The Applicant challenged the Hon ble Delhi High Court orders dated 08.02.2021 and 22.03.2021 before the Hon ble Supreme Court of India, by means of Special Leave Petition (Civil) Nos. 2586-2587 of 2021, 6113-6114 of 2021 and 6169-6170 of 2021. In the aforesaid petitions, the Hon ble Supreme Court, vide its judgment dated 06.08.2021, set aside the Hon ble Delhi High Court orders dated 08.02.2021 and 22.03.2021 (DB Stay Orders) and affirmed the order dated 02.02.2021 and the EA Enforcement Judgment passed by the Delhi High Court in the EA Enforcement Proceedings. In this the Hon ble Supreme Court expounded on the conduct of FRL, FCPL and the Biyanis as follows: 2.6 The Biyani Group thereafter went ahead with the Impugned transaction, describing the award as a nullity and the Emergency Arbitrator as coram non judice in order to press forward for permissions before statutory authorities/regulatory bodies. FRL, consistent with this stand, did not challenge the Emergency Arbitrator s award under Section 37 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law. It is a power which nobody on whom the law is not conferred can exercise. None of these judgments are applicable in- the fact situation of the present case. On the contrary, we have pointed out that no party, after agreeing to be governed. 42. We, therefore, answer the first question by declaring that full party autonomy is given by the Arbitration Act to have a dispute decided in accordance with institutional rules which can include Emergency Arbitrators delivering interim orders, described as awards . Such orders are an important step in aid of decongesting the civil courts and affording expeditious interim relief to the parties. Such orders are referable to and are made under Section 17(1) of the Arbitration Act. 76. The second question posed is thus answered declaring that no appeal lies under Section 37 of the Arbitration Act against an order of enforcement of an Emergency Arbitrator s order made under Section 17(2) of the Act. As a result, all interim orders of this Court stand vacated. The Impugned judgments of the Division Bench dated 8 February, 2021 and 22nd March, 2021, are set aside. The appeals are disposed of accordingly. 7. Meanwhile on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a matter of prudence. Moreover, two days prior to the execution of the Framework Agreement (i.e., on April 24, 2021), the Applicant addressed a letter notifying FRL s lenders about its contractual rights under which FRL could not transfer its Retail Assets without the Applicant s prior written consent. The Applicant argued that in the Writ Petition filed by FRL seeking to restrain its lenders from invoking the event of default provisions under the Framework Agreement, FRL has admitted that it had expressly informed and explained the Respondent Nos 2-27 (i.e., FRL, FCPL and the Biyanis) of the orders of Injunctions passed in arbitration and related proceedings initiated by Amazon.com NV Investments Holdings LLC . The Financial Creditor, in its reply to the Writ Petition, also admitted that the Binding Injunctions restraining disposal/alienation of the Retail Assets existed prior to the execution of the Framework Agreement wherein it stated that the initiation of disputes and the resultant EA order of the SIAC were much prior in time to execution of the Agreement, and was known to the Petitioner No. 1 (i.e. FRL) at the time of assuming the obligations under the Agreement. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity or performance of any of the Financing Documents (to which the Borrower is a party), which as per the terms hereof should have been executed or obtained prior to the date on which the representation is being made or repeated. In relation to this applicant submits that the aforesaid acts committed by FRL and its lenders (including the Financial Creditor herein) are aimed to intentionally injure the Applicant and destroy the substratum of its investment and thereby, constitute a tort of unlawful means conspiracy . In light of the aforesaid circumstances and under Section 65 of the Code, the present Petition is void and inter alia warrants a dismissal. In this regard, the Applicant places reliance on the judgment of Mannalal Khetan and Ors. Vs. Kedarnath Khetan and Ors, (1977) 2 SCC 424 (Para 22) wherein the Supreme Court observed that if a statute penalizes an act for the purpose of preventing commission of such an act, then the prohibited act, if done, would be considered to be void. In light of the said judgment, it is clear that the scope of Section 65 of the Code includes dismissal of a petition which is filed fraudulently or maliciously for purposes other than re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FRL defaulted in payment towards lease rent for various retail stores, many lessors issued termination notices as well as filed suits for recovery and eviction from their properties. FRL further disclosed that MDA Group reached out to these landlords and has signed fresh lease deeds in respect of such properties and sub-leased the said leases on leave and license basis to FRL. FRL also stated that since the last week of February 2022, the MDA Group has unilaterally terminated such sub-leases and has forcefully taken control of hundreds of retail stores. FRL has stated that FRL s Board has taken a strong objection against the forcible takeover of Retail Assets by the MDA Group. The relevant portion of the March 16 Disclosure is extracted herein below: FRL's Board has taken strong objection to of such action by Reliance Group and has put Reliance Group to notice to reconsider all other actions initiated over the last few days. It is pertinent to note that March 16 disclosure failed to give any material details as to when and why such purported lease/sub-lease arrangements were entered into between the MDA Group and FRL were never disclosed and FRL has not taken any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Applicant against FRL wherein the EA Order has been passed restraining FRL from disposing off its Retail Assets. Hence, the Petition, having been filed by the Financial Creditor alleging financial debt arising from the Framework Agreement is an act of collusion aimed at fraudulently and maliciously initiate CIRP against FRL in order to defeat the Applicant s rights. In view of the aforesaid position, the Applicant submits that this Hon ble Tribunal ought to delve into such allegations of fraud and collusion made by the Applicant against FRL, the Biyanis and the MDA Group in order to avoid a sheer misuse of the provisions of the Code. Further submitted that the present proceedings initiated under Section 7 of the Code are liable to be terminated and consequently, an appropriate order of penalty of Rupees One Crore as envisaged under Section 65(1) of the Code should be imposed on Financial Creditor and FRL, collectively. 11. In response to this intervention petition, the financial creditor has filed a brief reply and a written submission stating that the allegations made by the Applicant are wholly baseless and speculative in nature. The Intervention Application ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has failed to satisfy the requirements of Section 65. Further, while the initiation in the present case is not for any fraudulent purpose, Section 65 cannot be read in a disjunctive manner as argued by Amazon in its opening oral submissions. The Hon'ble Supreme Court held in Embassy Property Developments Pvt. Ltd. v. State of Karnataka Ors. (2020) 13 SCC 308 that Section 65 (1) deals with a situation where CIRP is initiated fraudulently for any purpose other than for the resolution of insolvency or liquidation . In fact, the Ld. Senior Counsel for Amazon, subsequently accepted that the test under Section 65 of the Code requires fraudulent initiation for the purpose other than resolution of insolvency. It is submitted that the Section 7 petition has been filed in terms of the Code, the provisions of which bind all the stakeholders under the applicable law and therefore, the question of defeating of any party's rights does not even arise when the process will be conducted in accordance with the Code under the aegis of this Hon'ble Tribunal. The Financial Creditor further insisted to note that the basis of the Applicant's intervention is its investment in FCPL w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors of FRL on 29 August 2020 in relation to the Disputed Transaction, including but not limited to filing or pursuing any application before any person, including regulatory bodies or agencies in India, or requesting for approval at any company meeting; (b) the Respondents are injuncted from taking any steps to complete the Disputed Transaction with entities that are part of the MDA Group; (c) without prejudice to the rights of any current Promoter Lenders, the Respondents are injuncted from directly or indirectly taking any steps to transfer/dispose/alienate/encumber any FRl's Retail Assets or the shares held in FRL by the Promoters in any manner without the prior written consent of the Claimant: The entire edifice of Amazon's challenge to the Section 7 proceedings is solely posited on a plea that the FA breaches Para 285(c) of the EA Order and the status quo orders of the Hon ble High Court of Delhi on account of Clause 5.1.1. The same is vehemently denied by the Financial Creditor and submitted that the FA has been signed within the four corners of the RBI Circular by all the 26 Lenders. It did not warrant or result in any breach of any judicial or quas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of any injunctions does not arise. Further in relation to Amazon's argument that no consent has been taken from it, the Financial Creditor submitted that the arguments itself is without any merit, since no sale of any assets has happened pursuant to Clause 5.1.1 of the FA, therefore the stage of FRL seeking consent of Amazon under Clause 5.1.2 was not reached. 14. In relation to FA, the Financial Creditor further argued that FA does not violate the EA Order or the orders of the Hon'ble High Court of Delhi, it is submitted that the two orders of the Single Judge of the Hon'ble High Court of Delhi - (i) dated02.02.2021 (directing FRL to maintain status quo with respect to its assets); and (ii) dated 18.03.2021 (holding that EA Order is enforceable in India and directing FRL to not act in contravention thereof) relied upon by Amazon were not operative on 26.04.2021 i.e. the date the FA was entered into on account of stay granted by the Hon'ble Division Bench. In fact, Amazon did not plead or even bring on record and deliberately suppressed the orders dated 08.02.2021 and 22.03.2021 passed by the Division Bench of the Hon'ble High Court of Delhi staying the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Lenders. Amazon has taken contrary stands in its pleadings. On one hand, Amazon has attempted to show collusion of the Lenders with the Corporate Debtor and MDA Group on account of the scheme of arrangement and on the other, it has categorically admitted in its pleadings that the scheme of arrangement stood rejected by the secured creditors. Therefore, Amazon has failed to establish any involvement of the Lenders with the scheme of arrangement between FRL Group and MDA Group, the entire assertion of Amazon that the Lenders somehow had something to do with the Scheme of Arrangement is rendered completely baseless in view of its admission that the Lenders voted against the Scheme of Arrangement. The said contrary stand clearly shows the falsities which are replete in Amazon's Intervention Application. 16. Amazon's contention that FRL was advised to obtain NOC from the MDA Group but not from Amazon in the meeting held on 01.01.2022 and the same amounts to shows that there is active collusion between the Lenders and the Corporate Debtor to sell the stores to the MDA Group. In this regard, Financial Creditor has submitted that the Lenders had suggested to FRL in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to appoint an IRP/ RP at the earliest who will upon such appointment takeover the management of the Corporate Debtor. The appointment of the IP who would take charge of the assets of the Corporate Debtor would in fact be the most effective way of protecting Corporate Debtor's assets. The entire basis of the Intervention Application is speculative in nature and remains unsubstantiated with evidence, documentary or otherwise. The Intervention Application is riddled with speculations insofar the Applicant has contended that, it appears that the lender Banks are not only silent spectators but willing collaborators in the fraud. The speculative nature of the Intervention Application is further evident from the submission that various media reports suggest that the Retail Assets of the Corporate Debtor would be taken over by entities belonging to the MDA Group during the insolvency resolution process. If this is indeed the case, it would tantamount to using the present proceedings as a tool to circumvent the binding injunctions operating against the Corporate Debtor. Similarly, the Applicant further suggests in para 64 of the present Application that the CIRP would result in ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative as on 26.04.2021 i.e. the date the FA was entered. The passing of the board resolution dated 29.08.2020 in relation to scheme of arrangement to MDA group being alleged to be in violation of the EA Order has no connection with the Financial Creditor and the allegation of collusion of the Lenders with Corporate Debtor and MDA group seems to be baseless, since, at the time of voting by the secured creditors, the Financial Creditor and the other Lenders had opposed the scheme of arrangement, same has been admitted by the intervenor himself. The onus to prove the existence of fraud is on the party alleging the same and in the present case, the applicant had miserably failed to establish the same. As per Para 285 of the EA Order, there is no injunction against the Lenders from exercising their contractual rights or statutory rights. Further, the banks are exercising their statutory rights in accordance with law as they are not party to the arbitration proceedings. Moreover, the Applicant is not even a stakeholder in respect of the Corporate Debtor and, a complete third-party to the proceedings before this Tribunal and has no locus standi to question initiation of proceedings un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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