Though Not Directly Enforceable, Order Of Emergency Arbitrator In A Foreign-Seated Arbitration A Supplemental Factor To Be Considered U/S 9 Petition: Calcutta HC

The Calcutta High Court has held that an order of the Emergency Arbitrator in a foreign-seated arbitration, while not directly enforceable under the Arbitration and Conciliation Act (A&C Act) due to the absence of a provision akin to Section 17(2) of the Act in Part II, should nonetheless be considered by the Court as a supplemental factor under Section 9 of the Act. The bench of Justice Ravi Krishan Kapur also held that mere pendency of a petition before the NCLT would not make a dispute non-arbitrable. Facts The parties entered into a Share Purchase Agreement (SPA) dated 20.10.2020 (amended on 20.11.2020 and 04.03.2021). The petitioner, a US company, agreed to become the largest shareholder of the respondent, an Indian company providing healthcare services. The petitioner paid around USD 174.5 million to the respondent under the SPA. Clause 10.2 of the SPA outlined the intention for the petitioner to eventually own 100% of the respondent's shares. The SPA also required the respondent's financial statements to be consolidated with Uphealth Inc.'s (petitioner’s parent company) However, the respondents breached their obligations by not granting the petitioner access to the financial statements, delaying Uphealth Inc.'s consolidated financial statements. The respondents further initiated various proceedings against the petitioner, seemingly to undermine the SPA's rights. Compelled by this, the petitioner invoked the arbitration clause and filed an application before the Emergency Arbitrator on 25 October 2022. On 16 November 2022, the Emergency Arbitrator issued an order asserting jurisdiction, declaring admissibility of requests, directing provision of financial statements, ordering cooperation with an accounting firm, and refraining from accessing funds in the Share Account. Since the respondent failed to comply with the directions issued by the Emergency Arbitrator, the petitioner filed under Section 9 of the A&C Act seeking certain interim reliefs in terms of the order of the Emergency Arbitrator. Contention of the Parties The respondent made the following submissions against the granting of relief as prayed by the petitioner: The orders of the Emergency Arbitrator are not an award which is enforceable under part-I of the Act. The dispute is subject matter of proceedings pending before NCLT, therefore, the same is non-arbitrable and the Emergency Arbitrator could not have passed the order. The petitioner did not fulfil the mandatory pre-arbitration mediation as required by Clause 14.2.2 of the SPA, therefore, the tribunal has become functus officio and cannot continue with the arbitral reference. Analysis by the Court The Court observed that the petitioner in terms of the SPA has invested a substantial sum of money both by way of cash and in the form of equity shares. The petitioner as the single largest shareholder of the respondent no.1 holding approximately 94.5% shares in the respondent no.1 is now being prevented from exercising their rights under the SPA. The Court also observed that the Emergency Arbitrator has directed the respondent to petitioner access to its financial statement and books of accounts, however, the respondent failed to comply with the directions of the tribunal. Further, the Court noted that prima facie the respondent has received the entire funds under the SPA. The Court held that “proceeding before the National Company Law Tribunal is a bar to the arbitration proceedings. The arbitration clause is the bedrock of any arbitration. The words “any dispute, controversy or claim arising under or relating to this agreement” are of wide import and embrace the disputes raised in the present proceedings. Any arbitration agreement is a matter of contract and the sanctity of the same must be given its full effect. To decide whether a claim falls within the arbitration clause, it is the substance of the claim which has to be seen. One cannot get into technicalities or conduct a hair splitting exercise. A holistic and commonsense approach is required to be adopted on the basis of the text of the arbitration clause. On a combined reading of inter alia clauses 4.1.8 and 4.2.15 and 5.2.1 of the SPA, the disputes raised in these proceedings fall within the scope and ambit of the arbitral clause” The Court observed that both parties had participated in the proceeding before the Emergency Arbitrator. The order of the Emergency Arbitrator is reasoned. The parties agreed to be bound by the orders. The orders of the Emergency Arbitrator have not been interfered with nor challenged. There appears to be no illegality nor perversity nor contravention of any law shown in the order of the Emergency Arbitrator. The Court held that an order of the Emergency Arbitrator in a foreign-seated arbitration, while not directly enforceable under the Arbitration and Conciliation Act...

Though Not Directly Enforceable, Order Of Emergency Arbitrator In A Foreign-Seated Arbitration A Supplemental Factor To Be Considered U/S 9 Petition: Calcutta HC

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Though Not Directly Enforceable, Order Of Emergency Arbitrator In A Foreign-Seated Arbitration A Supplemental Factor To Be Considered U/S 9 Petition: Calcutta HC

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