The viability of a Corporate Debt Restructuring (CDR) scheme and the interests of the secured creditors may outweigh the interests of a petitioner seeking interim protection under Section 9 of the Arbitration and Conciliation Act, 1996.

1. This arbitration petition, filed under Section 9 of the Arbitration and Conciliation Act, 1996 (“the Act”), seeks interim protection in respect of the properties of the Respondents. It is in the nature of an application for attachment before judgment pending an arbitration reference. The accompanying Company Petition is for winding up of Respondent No.1 Company for its inability to pay debts. The Petitions are heard together and disposed of by this common order.

2. The Petitioner is a non-banking financial company who has granted a credit facility by way of term loan of Rs. 50/- crores to the Respondents. Respondent No.1 is the principal debtor, whilst Respondent Nos.2 and 3, who are directors of Respondent No.1, are guarantors for the advance. The transaction documents for the loan include a term loan agreement dated 24 June 2010 (“Term Loan Agreement”) and a deed of hypothecation dated 13 July 2010, executed by Respondent No.1, and personal guarantees executed by Respondent Nos.2 and 3. The Respondents availed of the loan, but committed defaults in repayment of the same. A sum of Rs. 29.68/- crores is alleged to be due and payable by the Respondents to the Petitioner as of the date of the petition. The Petitioner has recalled the entire finance, invoked the personal guarantees, and also invoked the arbitration agreement contained in the Term Loan Agreement. Referring to the conduct of the Respondents, set out in the petition, and in particular, the attempts of the Respondents and their secured lenders to formulate a CDR scheme, it is the case of the Petitioner that the Respondents are in the process of arranging their affairs and assets in such a manner as to defeat the execution of any arbitral award that the Petitioner may obtain in the reference. The Petitioner further submits that the hypothecated assets, which form its security, are insufficient to satisfy the dues of the Petitioner. The Petitioner, in the premises, seeks a deposit order and in default of such deposit, an order for attachment before judgment and in the alternative, an interim injunction restraining the Respondents from selling their movable and immovable assets or even dealing with them as part of the CDR Scheme.

3. The application is opposed by the Respondents and the consortium of their secured lenders, comprising of 20 banks and financial institutions led by the lead bank – State Bank of India, who have taken out the accompanying Chamber Summons for impleadment in the Arbitration Petition. The Respondents oppose the application on various grounds including insufficiency of stamp on the document containing inter alia the arbitration agreement, the CDR mechanism being put in place and balance of convenience. The Respondents contend that the application lacks merit. They also submit that there is a gross suppression and misstatement on the part of the Petitioner. The Interveners – secured lenders oppose the application on the ground that there is a huge debt of over Rs.3000/- crores owed by the Respondents to the secured lenders, which is sought to be restructured in the CDR Package involving the Respondents and the secured lenders. The CDR Package envisages a further finance to the tune of Rs.341/- crores to be infused in Respondent No.1 towards working capital so as to revive the company from the debt trap and to enable the creditors to recover their dues. As a pre-condition for the Package, it is proposed that all current assets of the company (held as security by the CDR lenders together with the Petitioner) shall be pooled together and a single deed of hypothecation shall be executed in favour of the CDR lenders. It is submitted that the Petitioner as a first pari passu charge holder can continue to hold its security in the current assets of the company, but cannot obtain any blanket injunction or relief in respect of its dues so as to jeopardise the CDR scheme.

4. The Company Petition is filed by the Petitioner on the same facts as are u