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High Court of Delhi
G. ROHINI & RAJIV SAHAI ENDLAW, JJ.
C.V. Rao & others
Versus
Strategic Port Investments KPC Ltd. & others
FAO (OS) Nos. 203, 204 & 205 of 2014
Decided On : 01-09-2014
Arbitration and Conciliation Act, 1996 -Section 9, 37 - Civil Procedure Code, 1908 - Order 39 Rules 1, 2 - Order 38 Rule 5 - Arbitration - Agreement - Jurisdiction - Disputes raised by the respondent No.1 relate to breach of terms and conditions of the Investment Agreement - Action of KPCL in proposing to incur excess debt of Rs. 1000 Crores for further capital expenditure without the consent of respondent No.1 - Non-disclosure of information sought by the respondent No.1 - Failure to make the payment of put consideration - Respondent No.1 was aware of KPCL's proposal to raise additional debt - It was only after seven months the respondent No.1 invoked the jurisdiction of the Court under Section 9 of the Act - Petition under Section 9 of the Act is absolutely silent about the prejudice if any caused to the respondent No.1 in the interregnum - Held, absence of any plea as to the probability of alienation of assets of KPCL or its shareholders, the impugned directions are unjustified - Order under appeal cannot be sustained - It is accordingly set aside.
Arbitration and Conciliation Act, 1996 -Section 9, 37 - Civil Procedure Code, 1908 - Order 39 Rules 1, 2 - Order 38 Rule 5 - Investment Agreement - Non-payment of consideration in full - Injunction - Scope of - Respondent invested Rs. 803.50 crores and acquired compulsorily convertible preference shares worth Rs. 700 crores and equity shares worth Rs. 103.50 crores - 1st respondent exercised the Put Option and called upon the appellants to purchase its shareholdings - Since the put consideration was not paid to the respondent No.1 - It issued a dispute notice to the appellants - Disputes remained unresolved under Section 9 of the Act for the interim reliefs - Prohibitory injunction would not only harm the reputation and goodwill of the appellants - Damage likely to be caused to respondent No.1 by incurring of additional debt by the appellant a company would be only in quantifiable monetary terms - Balance of convenience would be in favour of the appellants - It is the KPCL which faces the threat of imminent shutdown and irreversible harm to its reputation - Loss/damage the respondent No.1 apprehends to suffer cannot be said to be irreversible - Impugned orders of injunction would result in causing huge financial harm and prejudice to the interests of KPCL as well as its shareholders if ultimately the Arbitral Tribunal disallows the claim of respondent No.1.
G. Rohini, J.
1. Aggrieved by the common order dated 31.03.2014 passed by the learned Single Judge in I.A. Nos. 4493 and 4494 of 2014 in OMP No. 218 of 2014, all these appeals are preferred under Section 37 of the Arbitration and Conciliation Act, 1996 (for short the Act).
2. Strategic Port Investments KPC Ltd. which is arrayed as respondent No.1 in all the appeals, is the petitioner in OMP No. 218 of 2014 filed under Section 9 of the Act seeking various directions to the respondents therein pending resolution of disputes through arbitration.
3. By the order under appeal, the learned Single Judge issued certain directions and aggrieved by the same, the present appeals are filed.
4. The appellants in FAO (OS) 203 of 2014 are Mr. C.V. Rao and 8 others who are arrayed as respondents No. 2 to 5 and 7 to 11 in OMP No. 218 of 2014.
5. The appellant in FAO (OS) 204 of 2014 is the respondent No. 1 in OMP No. 218 of 2014.
6. The appellant in FAO (OS) 205 of 2014 is the respondent No.6 in OMP No. 218 of 2014.
7. The facts in brief are as under:-
8. The appellant in FAO (OS) 204 of 2014, is a company by name Krishnapatnam Port Company Ltd. (hereinafter referred to as KPCL). It is a Public Limited Company registered under the Companies Act, which owns and operates Krishnapatnam Port, a port located on the East Coast and is spread over a vast land bank of approximately 6,900 acres. The appellant No.1 in FAO (OS) 203 of 2014 - Mr. C.V. Rao is the Chairman of KPCL whereas the other appellants in the said appeal as well as the appellant in FAO (OS) 205 of 2014 are the promoters and shareholders of KPCL who are holding 86.45% of the issued Capital Equity of the company. According to the appellants, 4.07% of the issued capital shares of KPCL are owned by corporate entities affiliated to Mr. C.V. Rao.
9. Coming to the respondent No.1 in all the appeals, i.e., the petitioner in OMP No. 218 of 2014, it is a company incorporated under the laws of the Republic of Mauritius. It is pleaded that the said company is owned by 3i India Infrastructure Fund, US$ 1.2 billion fund managed by the 3i group, investing in a diversified portfolio of investments in India, focussing on the port, airport, road and power sectors.
10. On 19.02.2009 an Investment Agreement was entered into between KPCL, its promoters & shareholders and the respondent No.1 under which it was agreed by the respondent No.1 to subscribe to 6,978,260 (Six Million Nine Hundred and Seventy Eight Thousand Two hundred and sixty) equity shares at a subscription price of Rs.148.32 per share for an aggregate consideration of Rs.1,03,50,00,000/-. Respondent No.1 had also agreed to subscribe to 70,00,00,000 compulsorily convertible cumulative participatory preference shares of a face value of Rs.10/- each at a time subscription price of Rs.10/- per preference share for an aggregate consideration of Rs.700,00,00,000/-.
11. Clause 14 of the said Investment Agreement dated 19.02.2009 provided for a Put Option. As per Clause 14.1, respondent No.1 at any time after 31.03.2013 but before the end of business hours on 31.09.2013 will have the right to issue Put Notice to the shareholder parties and the KPCL requiring to purchase/buy back all the shares invested by them at a price with a compounded internal rate of return of 18% per annum from the date of investment until 31.03.2013 after reducing the sale proceeds received by respondent No.1 from the sale of its shares acquired pursuant to the Investment Agreement and calculated from the sale of investment until 31.03.2013 on the aggregate monies invested by respondent No.1 in the KPCL. In the event of not issuing in writing such Put Notice before 31.09.2013, the investor, i.e., respondent No.1 shall be deemed to have been issued the Put Notice exercising its Put Option on 30.09.2013. Clause 14.3 further clarified that in the event of respondent No.1 intimating KPCL and its promoters & shareholders in writing that it does not propose to exercis
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