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TMI Blog2023 (7) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... hich 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. - HON BLE BHARATI DANGRE, J. For the Appellant : Mr. Sharan Jagtiani, Senior Advocate a/w Mr. Dharam Jumani a/w. Mr. Mihir Nerulkar, Ms. Sneha Patil i/b. Maniar Srivastava Associates For Respondent No. 1 : Mr. Ashish Kamat, Senior Advocate a/w. Mr. Prathamesh Kamat a/w. Mr. Vishal S. Shriyan and Mr. Arsalan Thaver i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a third party to buy the same in accordance with the Transaction Documents and this resulted in the applicant issuing the demand notice upon the respondent no.2 to comply with respondent no.1 s obligations. The applicant even approached this Court by filing Commercial Arbitration Petition (L) No. 87 of 2020, seeking interim measures under Section 9 of the Arbitration and Conciliation Act, 1996, which resulted in an order being passed on 22/01/2020, where certain disclosures were directed at the end of respondent nos.1 and 2. It is the specific case of the applicant, that despite the assurance to repay the amounts, there was a failure to abide by the said assurance and this constrained the applicant to invoke arbitration on 17/11/2020, both under the Agreement dated 12/04/2018 and under the Deed of Guarantee of the same date. 4 The invocation notice clearly set out the claim and name of the nominee arbitrator on behalf of the applicant was suggested and the respondents were called upon to appoint their nominee arbitrator within a period of 30 days from the date of receipt of the said notice. A response dated 16/12/2020 followed the said notice, addressed by the respondent no.2, spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim is prima facie and highlighting the position of law in respect of pre- referral jurisdiction, he would submit that referral course must not undertake a full dressed enquiry of the contested facts, but it must only be confined to a primary first review and let facts speak for themselves. Though the limited scrutiny through the eye of the needle, is necessary and compelling. Inviting my attention to the agreement entered between the applicant in the capacity as Investor and the respondent no.1, referred to as Promoter , the learned senior counsel would not dispute that the applicant is a Bank within the meaning of Banking Regulation Act, 1959 and engaged in it s pre-dominant activity of lending money, generating interest that creates proceeds for the bank and its customers. As a financial institution, it is licensed to accept deposit and to make loans, but apart from this, he would submit that the applicant is also engaged in other activities which would include investment. In the wake of it s role as a banking institution, the applicant invested in the respondent no.1 company, which has the authorized equity share capital of McNally Bharat Engineering Company Ltd to the tun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall occur as promptly as practicable, but in no event later than 15 (fifteen) days after receipt by the Promoter of the Option Exercise Notice ( Put Date ), provided that, if the purchase of the Put Shares is subject to the Promoter making an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code ), the 15 (fifteen) day period (mentioned above), shall be extended till the earliest possible time period within which the transfer of the Put Shares can be completed in accordance withakeover Code The sale and purchase of the Put Shares shall take place on a spot delivery basis 2.5 If the Promoter fails to purchase the Put Shares for any reason, is may cause a third party to purchase the Put Shares from the investor within the aforesaid Put Date. If the Promoter falls to purchase the Put Shares or cause a third party to purchase the Put Shares from the Investor, then the Investor shall have the right to transfer all or any of the Investor Shares to any person on such terms and conditions as it deems fit or sell the investor Shares on any stock exchange. However, in the event the investor sells the Investor Shares to a third party or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the (Indian) Arbitration and Conciliation Act, 1996 (as amended from time to time) (b) Within 15 (Fifteen) Business Days after the Claimant(s) has served a Dispute Notice, the Claimant(s) shall appoint 1 (one) arbitrator and the other disputing Party(ies) shall collectively appoint 1 (one) arbitrator. The 2 (two) arbitrators so appointed shall appoint a third arbitrator within 7 (seven) Business Days of the appointment of the last of the two arbitrators. 11 Relying upon the aforesaid clauses in the Agreement, Mr. Jagtiani would submit that the applicant is a equity shareholder in the company, and as per the understanding recorded in the agreement, he has an option to exercise within the operation period, which is coupled with a Put Option in the case of occurrence of a Put Event, when the investor shall exercise the option, on any date during the option period, and any time during the term of the agreement and upon such Put Event, and the Put Right being exercised, the promoter either by itself or through a third party is duty bound to purchase, at the option of the Investor, part or all of the Investor shares in one or multiple tranches. The learned senior counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into consideration the object of the act. On perusal of the aforesaid authority cited by the learned counsel, the facts could be gleaned to the effect that the appellant bank had filed a Suit in the Calcutta High Court, against three defendants for recovery of debt from one of them and certain ancillary and incidental reliefs against the others and during the pendency of the proceedings the DRT Act came into force and the Suit stood transferred to the Tribunal, established under the Act, and the question was whether the Tribunal had jurisdiction to decide the claim. The High Court answered in the negative, interalia, on the ground that the claim was of an undetermined amount and was therefore not a debt. The Apex Court reversed the said finding by focusing on the object with which the parliament passed the enactment and the primary one, being expeditious adjudication and recovery of debts due to banks and financial institutions and in that context, the Apex Court held that the term debt has to be given a widest meaning to cover any liability, which is alleged to be due from any person to a bank, during the course of any business activity undertaken by it and which is legally rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted or narrow meaning. The legislature has used general terms which must be given appropriate, plain and simple meaning. There is no occasion for the Court to restrict the meaning of the word any liability . any person and particularly the words in cash or otherwise. Under Section 2(g), a claim has to be raised by the Bank against any person which is due to the Bank on account of/ in the course of any business activity undertaken by the Bank. In the present case, the Bank had admittedly granted financial assistance to Respondents 2 and 3, who in turn had hypothecated the goods, plants and machinery in favour of the Bank. There cannot be any dispute before us that the goods in question have been sold by the appellant without the consent of the Bank. Respondents 2 and 3 have hardly raised any dispute and resistance to the claim of the Bank. In fact, even before this Court there is no representation on their behalf. The documentary and oral evidence on record clearly established that the Bank has raised a financial claim upon the principal debtor, as well as upon the person who had inter-meddled and/or at least dealt with the charged goods without any authority in law. Not only this, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Right is exercised by the investor, and it shall then purchase either by itself or through a third party, at the option of the investor, part or all of the Investor shares, and in this connection, the consideration to be paid for the Put Shares, as prescribed under the agreement was to be higher of the fair market value, or a price equal to a sum of INR 62 per equity share plus IRR @ 16% per annum from the execution date till the date of Option Exercise Notice, being the Put Price. While stretching his argument ahead, he submit that the applicant has invested the amount of Rs. 14,88,00,000/- in the Company and acquired 24,00,000 shares thereof and in terms of the Put Option, it was imperative on part of the respondent no.1 to buy the shareholding at Rs.62/- per share plus 16% IRR per annum and this transaction was secured by a Deed of Guarantee executed by respondent no.2. However, when the Put Option was exercised, the company failed to buy the shares and/or cost the third party to buy the same in accordance with the Transaction Documents and this constrained the Bank, which by the demand notice dated 2/12/2019, asked the respondent no.2 to comply with the first respondent s obli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how this exposition of law, assist the respondents, as though the term debt would mean any liability, which is claimed as due from any person by a bank, the arrangement between the parties will have to be given its due effect, as it may not cover every situation, where money is due and payable to a bank. It is only when the amount becomes due and payable on account of the bank being a lender and the other party, being a borrower and when the amount advanced is due and payable to the bank in the course of its lending activity or any other act incidental thereupon, it would fall within the term Debt . In order to construe whether the liability contemplated is a debt , it is imperative that the pleadings in the plaint should be analyzed, and from its examination, if it is possible to hold that the jurisdiction of the Tribunal is ousted, then the issue of non- arbitrability cannot be pressed into service. Though the term debt intent to cover an existing obligation to pay a sum of money now or in future, it is not every obligation which would fall within its ambit. 18 The Banking Regulation Act, 1959 which defines Banking in Section 5(b) is sufficiently indicative as in terms of 5(b) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ICICI Bank Ltd vs. SREI Multiple Asset Investment Trust, which would reveal that the Suit was filed for recovery of debt, and when a point of jurisdiction, based on Section 18 of the Recovery of Debts and Bankruptcy Act, 1993, was raised, the argument premised on assertion that the Suit is nothing but one by ICICI for recovery of debt. The counsel for ICICI Bank accepted that its claim is a debt and covered by Section 2(g) and hence the jurisdictional ouster under Section 18 applied. Considering that the subject matter jurisdiction which goes to the root of the court s jurisdiction, the Division Bench speaking through Justice Patel rightly held that: jurisdictional ouster clauses are not be construed in such a manner as to allow them to constantly bypassed. The argument was, therefore, foreclosed on the issue since the bank accepted its claim to be a debt, and once it was so declared, the Division Bench proceeded on the said footing, as the amount due and payable being the debt and dealt with the jurisdictional ouster under Section 18 by applying the principle laid down in the pronouncement of the Apex Court in case of Eureka Forbes (supra), where it was held that Section 2(g) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Investor Shares is provided with an option exercisable at its sole and absolute discretion, to require the promoter company to purchase all or some of the Investor Shares, subject to the Terms and Conditions set out in the agreement dated 12/04/2018. To the understanding, between the applicant bank as a Investor and the Promoter Company the respondent no.1, the respondent no.2 agreed to act as a guarantor through the deed of guarantee, by particularly agreeing as below: (d) The Guarantor being the Promoter of the Promoter Company has agreed to secure the said Obligations of the Promoter Company by providing an unconditional and irrevocable personal guarantee in favour of the Investor Company. The Guarantor has financial and other interests in the Company and will derive substantial benefit from the subscription of the Shares by the Investor Company. The Deed of Guarantee has incorporated a specific understanding, that the guarantor is intended to be legally bound with his obligations, which shall, at all times, include any debt and monetary liabilities of the promoter company, owed to the investor company under any agreement in any capacity irrespective of whether any debt or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itration is possible against Khaitan. The submission is that the guarantee is personal. Khaitan may have been the chairperson of Williamson Magor. But that is irrelevant. He himself has not signed the principal or master agreement. His guarantee is a separate contract and must be separately construed. While dealing with the said submission, the principle laid down by the Supreme Court in Cholro Controls India Pvt Ltd vs Severn Trent Water Purification INC Ors, (2013) 1 SCC 641 was invoked, to answer, whether Khaitan is bound by the arbitration agreement. While dealing with the document in question i.e. a letter of guarantee and particularly by referring to clause no. 15.2, which specifically stipulated that the guarantee together with the definitive agreement constitutes and contains an entire agreement and understanding amongst the parties with respect to the subject matter and supersedes all previous communications, it was held that the matter squarely fell within the Chloro Control framework, of one document being part and parcel, which is referred to as umbrella or the master agreement . As a consequence of the elaborate decision, the conclusion was derived by Justice Patel in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the third objection of Mr. Kamat in respect of the agreement comprising, of the arbitration clause not having been sufficiently stamped, it is to be noted that the first agreement dated 12/04/2018 is affixed with a stamp of Rs.15,000/-, whereas the deed of guarantee is executed on a non- judicial stamp paper of Rs.500/-. Admittedly, the deed of guarantee do not contain the arbitration clause. 25 The objection of Mr. Kamat is, the document in question must be levied with a stamp duty in terms of Section 5(h)(A)(iv) of the Maharashtra Stamp Act, 1958 and it is apposite to reproduce the said provision: 5. Agreement or its records or Memorandum of an agreement- ... (h) (A) if relating to- (iv) creation of any obligation, right or interest and having monetary value, but not covered under any other article- (a) If the amount agreed does not exceed rupees ten lakhs -0.1 per cent of the amount agreed in the contract subject to minimum of rupees 100 (b) In any other case- 0.2 per cent of the amount agreed in the contract. Mr. Kamat would also invoke Section 18(1) of the Act, which reads thus: 18(1) Every instrument chargeable with duty executed only out of this State may be stamped with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument of investment in Shares of the company. If the instrument involved fall within the purview of 5(c)(ii), it cannot fall within the purview of 5(h)(A)(iv). Hence, I find no merit in the submission of Mr. Kamat 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. Consequently, I hold that 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. 28 By this time, the position of law on the scope of the court at the pre-referral stage under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non- arbitrable. It has been termed as a legitimate Interference by courts to refuse reference in order to prevent wastage of public and private resources. Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator, as explained in DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd In the wake of the aforesaid authoritative pronouncement, I have examined the prima facie case of non- arbitrability as set out by Mr. Kamat and I have arrived at a conclusion that the dispute do not fall within the special statute which has provided remedy for recovery of debts and since it is permissible for me to examine a prima faci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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