The High Court of Calcutta has held that no direction can be passed to sell property to third party in Section 9 petition of the A&C Act
The Single Bench of Justice Moushumi Bhattacharya has held that a direction to sell the subject property to an outsider who was not a party to the arbitral proceedings would result in the property going out of the girdle of the arbitration and the purpose of a Section 9 application itself would be defeated.
The Court further held that a party should not resort to the remedy under Section 9 to enforce a part of the award when it has a clean and unobstructed path for enforcing the award under Section 36 of the Act.
The petitioner invested in the Compulsorily Convertible Preferential Shares of the Respondent No. 2 in March 2018 with a Put Option on respondent nos. 2 & 3 exercisable after 12 months. The right of the petitioner to exercise the put option was secured by certain transaction documents. There was a marginal deficiency in the security cover in regards to the put option, consequently, a dispute arose between the parties that were referred to arbitration.
A consent order dated 15.07.2019 was passed based on an affidavit filed by respondent no. 1, 4-9 creating a charge in favour of the petitioner in respect of the aforementioned shares.
The arbitral tribunal passed an interim award dated 30.06.2020 on an application filed by the petitioner under Section 31(6) of the A&C Act. The respondents, jointly and severally, were directed to make a payment of Rs. 81,68,22,672.87/- to the petitioner in case of non-performance of the obligation under the put option.
Therefore, the petitioner filed the application for interim relief under Section 9 with a prayer for a direction on the respondents to immediately tender the subject shares in the Open Offer to the acquirer companies.
The Contention Of The Parties
The petitioner claimed interim relief for a direction on the respondents to tender the subject shares on the following grounds:
- The respondents have filed an affidavit creating a charge in favour of the petitioner on the basis of which a consent order has also been passed.
- The petitioner has an interim award in its favour wherein the respondents have been directed to pay an amount equivalent to the monetary value of the shares.
- The Offer Price of Rs.320 per share is the best option available for the petitioner as the Lender and is required to be monetised during the period of the Open Offer.
The respondent prayed for the dismissal of the application on the following grounds:
- The interim m Award is an executable award and the petitioner cannot claim interim protection of the nature as prayed for by way of an application under section 9 of the Act.
- IL&FS has a prior interest over the subject shares in terms of Non-Disposal Undertaking executed between the respondent and IL&FS and the court has passed an order in a suit and an interlocutory application filed by IL&FS by which the respondents were restrained from creating any third-party rights on the said shares without obtaining leave of the court.
Analysis By The Court
The Court observed that the object of interim protection under Section 9 of the A&C Act is the preservation of the subject matter of the arbitration. The interim relief is granted to prevent the subject matter from being wasted or dissipated to ensure the execution of the award. Therefore, the relief can only be in aid of the arbitration.
A relief that would take the subject matter out of the girdle of arbitration cannot be granted by the court exercising power under Section 9 of the A&C Act.
The Court held that the relief claimed by the petitioner to direct the respondent to tender the subject shares for acquisition by a third-party would result in the subject shares getting out of the girdle of the arbitration and the proposed sale would be an antithesis to the object of the interim protection of the Act.
The Court further held that the petitioner is seeking to enforce a part of the interim Award by resorting to a Section 9 route when the petitioner has a clean and unobstructed path for enforcing the Award under Section 36 of the Act.
The Court held that the right of the petitioner on the shares is not equivalent to a pledge on the shares which allows the pawnee to sell the thing pledged. Secondly, the charge on the shares, as defined under section 100 of The Transfer of Property Act, 1882, and under section 2(16) of The Companies Act, 2013, does not give the petitioner the right to direct the respondents to sell the shares to an outsider/Acquirer Company.
Moreover, the balance of convenience is also not in favour of the petitioner since IL&FS also has an equivalent prior right on the subject shares under the Non-Disposal Undertaking.
The Court held that even if the right of the petitioner is equated with a simple mortgage over the subject share, the remedy of sale of such shares would fall within the scope of Order XXXIV Rule 4 of the CPC.
The Court further rejected the argument of the petitioner that there is an urgent requirement of selling the shares as the Offer Price of Rs.320/offer share is the best option available for the petitioner as the Lender. The Court held that the subject shares have hit a peak of Rs. 400 per share twice and there is every possibility of a rise in the valuation of the shares.
The Court held that whereas the respondents have been restrained from creating any third-party rights in the subject shares, the petitioner invites this court to do the very opposite i.e., directing the respondents to sell the shares to a third party.
Accordingly, the Court dismissed the application.
Case Title: Aditya Birla Finance Ltd v. Mcleod Russel India Ltd. and Ors, AP/254/2022
Case Citation; 2022 LiveLaw (Cal) 189
Counsel for the Petitioner: Mr. S. N. Mookherji, Sr. Adv. Mr. Rudraman Bhattacharyya, Adv. Mr. Dwaipayan Basu Mallick, Adv. Ms. Suchismita Ghosh Chatterjee, Adv. Mr. Avishek E. Kisku, Adv. Mr. Subhankar Das, Adv. Ms. Amrita Mukherjee, Adv.
Counsel for the Respondent: Mr. Abhrajit Mitra, Sr. Adv. Mr. Jishnu Chowdhury, Adv. Mr. Rajarshi Dutta, Adv. Mr. Ritoban Sarkar, Adv. Mr. Prasun Mukherjee, Adv. Mr. Deepak Agarwal, Adv. …for the respondent nos. 1, 3 to 9 and Mr. Ratnanko Banerji, Sr. Adv. Mr. Rishad Medora, Adv. Ms. Ramya Harihara, Adv. Mr. Soumava Mukherjee, Adv. Ms. Asmita Rakhecha, Adv. …for IL&FS