The importance of full and correct disclosure when seeking discretionary relief, and the need for clean hands in approaching the court.

JUDGMENT :

Navin Chawla, J.

I.A.7211/2023 (exemption)

1. Allowed, subject to all just exceptions.

O.M.P.(I) (COMM.) 119/2023

2. This petition has been filed by the petitioner under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) praying for the following reliefs:

“a. Direct the Respondents to maintain status quo with respect to the shares, shareholding, other securities, as well as its assets and properties during the pendency of arbitration proceedings between the parties;

b. Direct the Respondents to maintain status quo on the conversion of the CCDs of the Petitioners as well as other CCD holders;

c. Direct the Respondents to provide the financial reports, term sheet of the international investor, details of other CCD holders, notes of meetings with other CCD investors and other relevant information as being sought by the Petitioner.”

3. It is the case of the petitioner that the petitioner had invested 50,000 USD in the respondent no. 1 company pursuant to the Debenture Subscription Agreement dated 16.07.2015 executed between the parties. Clause 6.1 of the said Agreement provided for automatic conversion of the Compulsorily Convertible Debenture (CCDs), and reads as under:

“6.1 Automatic Conversion.

Each Investor CCD shall stand mandatorily converted into fully paid-up Equity Shares on the occurrence of the earlier of:

(i) Upon the occurrence of the Qualified Financing (defined hereinafter); or

(ii) At the expiry of 1.5 (One and a half) years from the date of issuance of the Investor CCD, in the manner set forth below whichever is earlier.”

4. Clause 6.2.1 to 6.2.4 of the Agreement provided for the conversion rate in an eventuality where prior to the expiry of one and a half years from the closing date, the respondent no. 1 consummates the financing and issues equity or quasi-equity securities to a third party. Clause 6.2.5 is the default clause in case the respondent no. 1 is not able to obtain the qualified financing. Clause 6.2 reads as under:

“6.2 Conversion Rate

6.2.1 In the event the Company consummates, prior to the expiry of 1.5 (One and a half) years from the Closing Date, a financing pursuant to which it issues equity or quasi-equity securities to a third party (“Qualified Financing Securities”) amounting to a minimum of USD 1,000,000/- (United States Dollars One Million only) with the principal purpose of raising capital (a “Qualified Financing”), then the Investor CCDs will convert in accordance with Sections 6.2.2, 6.2.3, 6.2.4 and 6.2.5.

6.2.2 If the pre-money valuation in the Qualified Financing is les; than or equal to USO 15,000,000 (US Dollar Fifteen Million only), the Investor CCDs shall automatically convert into a number of Equity Shares determined by dividing the total principal outstanding under the Investor CCDs by the conversion price equal to the Applicable Discount (defined hereinafter) applied to the lowest per Equity Share purchase price paid for the Securities issued in the Qualified Financing, with such quotient rounded off to the nearest whole number.

6.2.3 If the pre-money valuation in the Qualified Financing is more than USD 15,000,000 (US Dollar Fifteen Million only) the Investor CCDs shall automatically convert at a conversion price determined as if the pre-money valuation in such Qualified Financing is USD 15,000,000 (US Dollar Fifteen Million only).

6.2.4 For the purpose of this Section, Applicable Discount shall be determined with reference to the Investment Subscription Amount, in accordance with the table below:

6.2.5 In the event of non-occurrence of a Qualified Financing (amounting to a minimum of USD Million) within a period of 1.5 (one and a half) years from the date of issuance of the Inve