Aditya Birla Finance Ltd vs Mcleod Russel India Ltd. & Ors
2022 Latest Caselaw 1609 Cal/2

OD-2
                               ORDER SHEET

                                AP/254/2022

                     IN THE HIGH COURT AT CALCUTTA
                      Ordinary Original Civil Jurisdiction
                               ORIGINAL SIDE
                           [COMMERCIAL DIVISION]

                       ADITYA BIRLA FINANCE LTD.
                                  VS
                    MCLEOD RUSSEL INDIA LTD. & ORS.


BEFORE:
The Hon'ble JUSTICE MOUSHUMI BHATTACHARYA
Date : May 17, 2022.

                                                                         Appearance:
                                                         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.
                                                                   ...for the petitioner

                                                           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

Mr. Ratnanko Banerji, Sr. Adv.

Mr. Rishad Medora, Adv.

Ms. Ramya Harihara, Adv.

Mr. Soumava Mukherjee, Adv.

Ms. Asmita Rakhecha, Adv.

...for IL&FS The Court :

1. The petitioner prays for a direction on the respondents to forthwith

tender 16,63,289 shares of Eveready Industries India Ltd. in the Open Offer in

respect of a takeover bid of Eveready (the Target Company) by three Acquirer

Companies (the Burman Group) as indicated in a public announcement dated

28.02.2022 in relation to the Open Offer.

2. The right to seek such prayer is based on a charge registered on the said

block of shares on 23.07.2019. The petitioner also relies on a Consent Order

recorded in the arbitration between the petitioner and the respondents in the

Minutes dated 15.07.2019 and an affidavit affirmed by respondent nos. 1, 4 to

9 Companies recording certain rights in favour of the petitioner in connection

with the said 16.63 lakh Eveready shares held by the said respondents. The

arbitration arose out of a claim made by the petitioner on the petitioner's

investment in Compulsorily Convertible Preferential Shares of the respondent

no. 2 (McNally Bharat Engineering Company Limited) in March 2018 with a Put

Option on respondent nos. 3 - 5, exercisable after 12 months. The Put Option

was secured by certain transaction documents executed by and between the

parties. Since there was a margin deficiency in security cover under the

agreement in relation to the put option, the petitioner claimed additional

security and other reliefs on the transaction documents. The petitioner also

claims the relief on the strength of an interim Award dated 30.06.2020 made in

an application by the petitioner under section 31(6) of The Arbitration and

Conciliation Act, 1996 by which, inter alia, the respondents, jointly and

severally, were directed to make payment of INR. 81,68,22,672.87/- within a

certain time frame in case of non-performance of the obligations under the put

option agreement. The respondent no. 1 (Mcleod Russel India Limited) applied

for stay of the interim Award and by an order dated 04.08.2020 passed by the

learned judge of this Court, as his Lordship then was, the interim Award was

directed to remain stayed upon the respondent no. 1 furnishing security of Rs.

40 crores. The order of stay records that the petitioner was already secured to

the extent of 40 crores in terms of an order passed in the arbitration.

3. The submissions made by learned counsel appearing for the petitioner,

the respondents and IL&FS Infrastructure Debt Fund can be summed up thus.

The petitioner relies on the charge of the 16.63 lakh shares created in its

favour and the affidavit affirmed by the respondent nos. 1, 4 to 9 in the

arbitration by which the respondents undertook to grant certain rights to the

petitioner in respect of the said shares. The respondents oppose the relief

claimed in the present application on the ground of the limited right given to

the petitioner in respect of the 16.63 lakh shares as also the mode through

which such relief is claimed. According to counsel, the interim Award is an

executable award and the petitioner cannot clam interim protection of the

nature as prayed for by way of an application under section 9 of the Act. IL&FS

has been served with a copy of the application although not being a party to

the arbitration proceedings and has been represented in the application.

According to counsel, IL&FS has a prior right to the same block of shares in

terms of a Non Disposal Undertaking (NDU) and also a subsisting order passed

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.

4. I have considered the submissions made on behalf of the petitioner, the

respondents and IL&FS. The adjudication of the matter should be made on two

counts; First, whether the relief claimed can be made in an application under

Section 9 of The Arbitration and Conciliation Act, 1996 Act; and second,

whether the facts established on record support the relief claimed by the

petitioner. These issues are being dealt with in sequence.

I. Can the petitioner claim the relief for sale of the shares/monetising the

shares under Section 9 of the 1996 Act?

5. The petitioner has prayed for a direction on the respondents to forthwith

tender 16,63,289 shares of Eveready Industries in the Open Offer to the public

shareholders of Eveready by the acquiring Companies for acquisition of a

certain number of fully paid-up equity shares of Eveready. The petitioner has

also prayed for the sale proceeds of the said shares to be kept in a separate

account until further orders and alternatively, for a direction on the respondent

nos. 1, 3 to 9 to deposit an amount equal to the value of 16,63,289 Eveready

shares at the rate of Rs.320/share amounting to Rs.53,22,52,480. In essence,

the petitioner has prayed for a direction on the respondents to offer their

Eveready shares for sale to the Acquirers in the Open Offer or in the alternative

for securing the value of the 16 lacs shares to the credit of the petitioner upon

monetising the same.

6. The question is whether relief of this nature can be made in an

application under Section 9 of the 1996 Act.

7. Section 9 of the 1996 Act contemplates the grant of interim measures

before/during the arbitral proceedings or after making of the arbitral award

but before the award is enforced under Section 36 of the Act. The five sub-

clauses to 9(1)(ii) provide for a wide spectrum of interim measures for

protection of the subject matter of the arbitral proceedings until the award is

put into execution by the award holder. The finite sense of the words "interim

measure of protection" is reinforced by 9(1) where the application for interim

relief by a party may only be made until the award is enforced under Section

36. The array of interim reliefs which are available to a party include

preservation, interim custody or sale of any goods as well as securing the

amount which is in dispute in the arbitration. The options also extend to

detention, inspection of any property and interim injunction and appointment

of a receiver. The last sub-clause, 9(1)(ii)(e), stretches the possibilities of the

interim measure of protection to cover every other instance of threat to the

subject matter of the arbitration limited only by the discretion of the Court.

8. The extended bouquet of protection contemplated under Section 9 are for

the protection and preservation of the property which is the subject matter of

an arbitration which is to commence or is continuing or has even concluded

with publishing of the award. The intended benefit is to the party who has

enforced or opposed an arbitration agreement and participated in the arbitral

proceedings or has obtained (or suffered) an arbitral award. The protection is

for the prevention of the property in dispute from being wasted or dissipated

before the award holder can put the execution process in motion. In other

words, the property which has undergone the adjudication process through

arbitration should not be reduced in value until the whole of the property is

subjected to enforcement proceedings. Each of the five sub-clauses for interim

protection, read separately and together, reinforce the aforesaid.

9. In the present application, the petitioner seeks a direction on the

respondents to put their Eveready shares for sale in the Open Offer. The

consequence of such a direction is for the Acquirer Companies to purchase

these shares in aid of their bid to takeover the Target Company - Eveready

Industries. The sale of the shares held by the respondents in Eveready to the

Acquirers would hence be sale of the shares to an outsider who was not a party

to the arbitral proceedings. Admittedly, the shares would go out of the girdle of

the arbitration to a third party and the sale would therefore be an antithesis of

the protection envisaged under Section 9 of the Act. As of today, the

respondents hold the shares of Eveready without any evidence of the

respondents seeking to divest themselves of such shares to a third party. Had

the petitioner prayed for a restraint on the respondents from selling these

shares to the Acquirers, such prayer would have been in line with the object of

Section 9.

10. The alternative prayer for keeping the monetary equivalent of the 16.63

lakh Eveready shares in a separate account is a consequential relief which can

only be granted if this court is convinced that the petitioner has made out a

prima facie case for grants of reliefs in the present application.

11. This Court is therefore of the view that the relief claimed in the present

application for a direction on the respondents to tender 16,63,289 Eveready

shares in the Open Offer is in conflict with and sits unhappily with Section 9 of

the Act.

12. The other point is the time frame. The petitioner has an interim Award in

its favour from 30.06.2020. By the said interim Award, the respondents, jointly

and severally, were directed to pay INR.81,68,22,672.87 to the petitioner in

default of the respondents failing to perform their obligations under the Put

Option Agreement. The petitioner was also given the liberty of recovering the

amount by enforcing the Award under the Put Option Agreement. The

respondent no.1 applied for stay of the interim Award and by an order dated

04.08.2020, a learned Single Judge of this Court, as His Lordship then was,

directed to furnish an additional security of 40 crores; the petitioner already

being secured to the extent of 40 crores. The Supreme Court, by an order dated

12.10.2020, directed the parties to maintain status quo as on the date of the

order. Thus, the interim Award remained inert till the Special Leave Petition of

the respondent no.1 was withdrawn on 02.05.2022. As of today, the petitioner

has an interim Award in its favour, without any stay of the said Award and is

at liberty of enforcing the interim Award under Section 36 of the 1996 Act.

Although, the petitioner is yet to take steps for enforcement, the interim Award,

doubtless, is an enforceable award without the fetter envisaged under Section

36; that of stay of the award under Section 36(3) read with the proviso.

13. Notably, an application for setting aside of the award under Section 34 is

pending before the Court without any decision in favour of the

respondent/applicant. This Court is of the view 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 petitioner may have been permitted to take this

route had the relief claimed been amenable to the options for interim protection

provided under Section 9.

II. Whether the petitioner is entitled to the relief on merits

14. The entire controversy arises from the rival claims of the parties on the

16,63,289 shares of Eveready held by the respondents. It is evident from the

documents before the court that the petitioner's right to these shares arises

from the affidavit and Consent Order dated 15.07.2019 and the charge created

on the shares in favour of the petitioner. The relevant paragraph of the affidavit

which forms the basis of the petitioner's case should be and is set out below :

"That instead of creation of pledge on the 16,63,289 shares of EIIL, the Respondent No. 9 undertakes and agrees that all receivables, proceeds, cashflow and other rights attached to and / or in connection with the said 16,63,289 EIIL shares including the right to receive dividends, distributions and / or any other accretions thereto, shall be and stand secured/ charged in favour of and for the benefit of the claimant and the claimant shall be the sole and exclusive beneficiary of all rights, titled and interest in relation to the said shares including the right to receive dividends, distributions or any other accretions thereto and of any proceeds arising out of the said EIIL shares."

15. It is clear from the above that the respondent no. 9 (Woodside Parks

Limited) undertook that all receivables and the proceeds including the right to

receive dividends shall stand charged in favour of and for the exclusive benefit

of the petitioner. Although, the words "other rights" have been used without

any specific demarcation, the words can contextually be construed to mean all

benefits, proceeds and profits arising out of the use and existence of the said

shares. The undertaking can also be read as the petitioner being entitled to all

the benefits from the corpus of shares, that is, the usufruct of the shares while

the shares remain in existence. In other words, the right of the petitioner to

these shares would continue to exist as long as the shares, being the source of

the right, remain in the possession of the respondents and charged to the

petitioner. The undertaking also makes it clear that the petitioner's right is to

the extent of the receivables from the shares and does not extend to a pledge

on the said shares.

16. Two things may hence be concluded from the above; First, the

petitioner's right is inferior to a right exercisable under Section 176 of The

Indian Contract Act, 1872 which allows a pawnee to sell the thing pledged

upon giving reasonable notice of the sale to the pawner. Second, 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. It also appears that the beneficial interest in the shares

being given is to ensure that the petitioner investor can choose the time of its

exit from the contractual obligations at the best possible bargain. Further,

Form No. CHG - 1 executed by the respondent no. 1 for creation of charge in

favour of the petitioner on 23.07.2019 describes the type of charge as "

immovable property or any interest therein", as opposed to the un-ticked box of

"movable property".

17. Besides the nature of the right given to the petitioner as discussed above,

this court also finds substance in the contention that even if the petitioner's

right can be equated to a simple mortgage over the said shares, the remedy of

sale of such shares would be available under Order XXXIV Rule 4 of The Code

of Civil Procedure, 1908, under which, in a suit for sale, the Court can pass a

preliminary decree in favour of the plaintiff. Order XXXIV Rule 14 further

makes it clear that the mortgagee who has obtained a decree for payment of

money can only bring the mortgaged property to sale by instituting a suit for

sale in enforcement of the mortgage. The Co-operative Hindusthan Bank Ltd. v

Surendranath De; ILR Vol. LIX 1931 Calcutta 667 and Union Bank of India vs

Eshani Rubber Industries; (1990) 1 Cal LJ 8 support the proposition urged by

the respondents that Order XXXIV should also be applied on mortgages for

movables. Dattatreya Shankar Mote versus Anand Chintaman Datar; (1974) 2

SCC 799 would assist the respondents on the proposition laid down therein

that a decree for sale as in a suit for mortgage should have been passed in a

suit for enforcement of a charge under Section 100 of the T.P. Act read with

Order XXXIV Rule 15 of the CPC. This court is hence of the view that the right

given to the petitioner by way of a charge on the 16.63 lakh shares cannot

extend to a right for sale of the shares to an outsider and that too in the form

of the present application .

III. Balance of convenience

A. The case of IL&FS :

18. IL&FS has a rival claim over the 16,63,289 lakh shares which form the

subject matter of the relief prayed for by the petitioner. These shares were

encumbered by the respondent no.1 by way of a Non-Disposal Undertaking in

favour of IL&FS. This is the admitted position and would be apparent from a

letter of the respondent no.1 to the BSE on 15.7.2021 where the date of the

NDU is stated to be 27.3.2018. There are several other admitted facts which

must be taken into account for deciding the case made out by the petitioner.

First, this NDU encumbrance created on the shares is prior to the charge

created on the same block of shares in favour of the petitioner by the Minutes

of Meeting and affidavit dated 15.7.2019. Second, IL&FS filed a suit against the

respondents for appropriate relief for giving effect to the NDU in which the

application for interim relief was disposed of by a judgment and order dated

23.2.2021 restraining the respondents from creating any third party rights on

the shares without leave of the court. IL&FS was further given the liberty of

pursuing its claims over the shares in an appropriate forum. The petitioner was

the defendant no.7 in the said suit and was given the liberty of pursuing its

remedies against the respondents in the arbitration. The order has not been

challenged by any of the parties before this Court.

19. IL&FS is not a party to the arbitration but has been made a party to the

present proceeding by reason of an order subsisting in its favour.

B. Urgency :

20. The urgency shown for the relief claimed is the Open Offer which was

due to be concluded on 10.05.2022 and was later extended to 17.05.2022. The

petitioner urges prejudice after closing of the window for the Open Offer.

21. Is this contention supported by the facts on record?

22. It is submitted on behalf of the petitioner that the Offer Price of

Rs.320/offer 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 NSE

Market Summary of Eveready shares as of May, 2022 however shows that the

shares hit a peak of Rs.400/share twice in 2021 and came near to the 400-

Mark in March, 2022. The shares were valued at INR.317.00 as on 9 May,

2022. The apprehension that the market price of the said shares would go

down or that the Offer Price of INR.320/Offer share is the best possible price at

which the shares can be monetised is hence belied from the aforesaid.

23. There is also every likelihood that the valuation of the shares would

increase upon the Acquirers taking over the Target Company. Thus, there does

not appear to be any immediate cause for directing the respondents to put

their shares on the table for sale to the Acquirers when the possibility of the

shares becoming more valuable in the near future cannot be discounted

altogether. Apart from the fact that the petitioner would have the statutory

remedy of enforcement of the interim Award available to it until and unless the

award is stayed, the petitioner can also seek monetisation of the shares at a

better price beyond the period of the Open Offer.

C. Nature of the relief :

24. The nature of the interim relief prayed for cannot also be overlooked. The

interim relief is for a direction on the respondents to forthwith tender the 16.63

Eveready Shares and for the respondent no. 1 to execute all documents in that

respect. The relief is also for the sale proceeds of the shares to be kept

separately until further orders. The interim orders, if granted, would amount to

final relief and an irreversible chain of events. Hence, such relief can only be

considered upon affidavits being called for from the parties who would be

affected from such interim orders. The apprehension that the other

respondents, like the respondent no. 2 McNally Bharat, would also go into

insolvency - the order of the National Law Tribunal Calcutta Bench dated

29.04.2022 has been placed in this regard - is an apprehension that is

speculative and no material has been placed in corroboration of such.

Conclusion:

25. Balance of convenience is all about weighing the comparative gain and

hardship of the parties before a Court in the event an interim order is granted

or refused. In the present case, granting the order as prayed for may also not

inure to the best advantage of the petitioner. The order may result in

irreversible prejudice to the respondents if the respondents succeed in

obtaining a stay of the award or setting aside of the award.

26. Any order passed in favour of the petitioner in the present application

would thus be in conflict with the order passed by the Suit Court subsisting in

favour of IL&FS. While the respondents have been restrained from emanating

the 16.63 lakh shares to a third party, the petitioner invites this court (the

Arbitration Court) to do the very opposite, that is directing the respondents to

offer the 16.63 lakh shares as security for the investment / money lent and

advanced. In the absence of further particulars for deciding who has the better

right on the shares, this court is not inclined to make an order for sale of the

shares when IL&FS continues to have a right on the shares. IL&FS can

therefore also decide when and at what price the shares should be sold to the

acquirers, if at all.

27. These considerations persuade the Court to hold that the petitioner has

not discharged its onus of establishing a case where the balance of convenience

for grant of the interim order tilts definitively towards the petitioner. This Court

therefore sees no ground made out for the direction on the respondents to

tender their Eveready shares for sale within the window of the Open Offer till

17th May, 2022.

28. In view of the above reasons, this court is not inclined to grant the

interim relief as prayed for. The respondents and IL&FS should be given a

chance to bring their defence on record before any irreversible changes are put

in motion. Affidavit-in-opposition within two weeks after the court reconvenes

in June, 2022, Reply within a week thereafter.

29. List this matter on 30.06.2022.

Urgent Photostat certified copies of this order, if applied for, be supplied

to the respective parties upon fulfillment of requisite formalities.

(MOUSHUMI BHATTACHARYA, J) bp./sg