Rithwik Projects Private Limited vs Mbl Infrastructures Limited
2023 Latest Caselaw 1255 Cal/2

                       In The High Court at Calcutta
                         Original Civil Jurisdiction
                               Original Side

The Hon'ble Justice Sabyasachi Bhattacharyya


                          AP NO.67 OF 2023
                 RITHWIK PROJECTS PRIVATE LIMITED
                                 VS.
                   MBL INFRASTRUCTURES LIMITED


For the petitioner          :    Mr. Sayantan Bose, Adv.,
                                 Mr. Arjun Mookerjee, Adv.
                                 Ms. Ankita Chowdhury, Adv.

For the respondent           :   Mr. Ratnanko Banerjee, Sr. Adv.,

Mr. Shaunak Mitra, Adv., Mr. Kaniskh Kejriwal, Adv., Ms. Pritha Bassu, Adv., Ms. J. Sabbah, Adv., Ms. Anita Agrahari, Adv., Mr. D. Chakraborty, Adv.

Hearing concluded on        :    11.05.2023

Judgment on                 :    05.06.2023

The Court:

1. The present application has been filed under Section 11 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred to as, "the

1996 Act") for reference to arbitration of the dispute which has arisen

between the parties in connection with an Option Agreement dated

October 18, 2010, as amended on July 29, 2011, which contains an

arbitration clause.

2. Such contention is disputed by the respondent, inter alia, on the

ground that the Agreement is insufficiently stamped. It is argued that

as per Item No.5(b)(ii) of Schedule 1A of the West Bengal Amendment

of the Indian Stamp Act, the stamp duty payable for the Option

Agreement is at least above Rs.23,00,000/-, whereas the said

Agreement has been recorded on a stamp paper of Rs.100/- only. In

view of Section 38 of the Indian Stamp Act, 1899 (in brief, "the 1899

Act") the court cannot refer the matter to arbitration. In such context,

the learned Senior Advocate appearing for the respondent cites N.N.

Global Mercantile Private Limited Vs. Indo Unique Flame Ltd. And

others, reported at 2023 SCC OnLine SC 495.

3. Next, it is argued that the application is misconceived and bad for

non-joinder of the Special Purpose Vehicle (SPV), namely Orissa Steel

Expressway Private Limited, which a party to the Option Agreement

containing the arbitration clause.

4. Clauses 5.2 and 7(b) imposes certain obligations and undertakings on

the said SPV. Hence, it is argued that any order or award passed in

an arbitration arising out of the Option Agreement would affect the

SPV and its rights. The SPV may refuse to register any transfer of

shares inter se the parties as under Section 58 of the Companies Act,

2013 (for the sake brevity, "the 2013 Act") and the private company

may refuse the transfer of any securities in pursuance of the

company‟s powers under its Articles or otherwise. Thus, the

application is not maintainable in its present form for non-

impleadment of the SPV.

5. The learned Senior Advocate for the respondent next argues that the

claim sought to be referred to arbitration is ex facie barred by

limitation. The right to exercise Option as per the Agreement-in-

question accrued on January 13, 2017 with the termination of the

Concession Agreement with the National Highways Authority of India

(NHAI), which initiated the project. The Option Period, as per the

Option Agreement, also expired on the same date in terms of Clause

1.1.27 and 1.1.20 respectively, read with Clause 3.1 of the Agreement.

Clause 10 of the Agreement clearly stipulates that the same would

remain in force and in effect until expiration of the Option Period and

it was clarified that the notice would have to be served on or prior to

expiry of the Option Period, whereas the right of Option has been

exercised first only on June 1, 2002, much after the expiry of the

limitation period. Thus, in the absence of any invocation by a notice

and/or claim being made by the petitioner during the relevant period

or within the period of limitation, the claim stands ex facie time-

barred. In such context, learned senior counsel cites Vidya Drolia and

others Vs. Durga Trading Corporation, reported at (2021) 2 SCC 1.

6. It is next argued by the respondent that a Corporate Insolvency

Resolution Process (CIRP) commenced on March 30, 2017, that is,

after the Option Right accrued in favour of the petitioner on January

13, 2017. A Resolution Plan was ultimately approved by the National

Company Law Tribunal (NCLT) on April 18, 2018. However, the

petitioner did not file any claim during the course of the CIRP, thus

leading to its claim being extinguished upon approval of the Plan.

Hence, the subject-matter and claim are demonstrably „deadwood‟.

Learned senior counsel places reliance, again, on Vidya Drolia (supra)

in support of such proposition.

7. The learned Senior Advocate, while dealing with the petitioner‟s

reliance on an order dated August 30, 2022 passed by the NCLT,

Cuttack Bench in an application under Section 8 of the 1996 Act,

argues that the said proceeding and the order passed therein have no

relevance to the instant case.

8. The subject-matter of the proceeding before the NCLT, Cuttack Bench

was wholly different and did not relate to the purported Option Right

of the petitioner, it is argued. It was the respondent herein who had

filed proceedings under Sections 58, 59, 241 and 242 of the 2013 Act

in relation to the affairs of the SPV, complaining of acts of oppression

and mismanagement. The present application under Section 11,

however, is founded on a totally separate and independent footing,

that is, the exercise of Option Right by the petitioner under a private

arbitration agreement.

9. Moreover, the order passed under Section 8 of the Cuttack Bench only

refers some disputes in the Company Petition to arbitration, which do

not pertain to the exercise of Option Right by the petitioner. It is

further argued that the Company Petition was filed in 2020 whereas

the exercise of Option Right purportedly took place only in the year

2022. Thirdly, it is argued that the NCLT order is at present under

challenge in an appeal pending before the NCLAT and no finality can,

thus, be attached to the same.

10. It is contended by the respondent that, on the above grounds, the

application under Section 11 of the 1996 Act ought to be dismissed.

11. Learned counsel for the petitioner submits that the claim is not ex

facie time-barred. It is argued that the obligations under the Option

Agreement requiring the petitioner to exercise its Option stood novated

by the petitioner‟s letter dated July 29, 2011, by which the petitioner

waived all rights or claims towards Option Premium paid to the

respondent as consideration for acquiring the right to purchase the

Option Shares, which were to be transferred by the respondent

without any further act on the part of the petitioner.

12. Clause 10 of the Agreement provides that the Agreement would

remain binding and effective until the fulfilment of obligations by the

respondent, that is, by the transfer of the Option Shares to the

petitioner. Hence, the said Agreement cannot be deemed to have

lapsed but is alive till the said shares are delivered to the petitioner.

13. No time was fixed for completion of the transfer of the Option Shares

in terms of the letter dated July 29, 2011. Hence, the stipulation of

obligations of the parties under the Option Agreement, which were to

come to an end on the expiry of the Option Period, stood novated.

14. It is further argued by the petitioner that the respondent had, at no

material point of time, communicated its refusal to perform its

obligations under the said agreement. Only upon the respondent

initiating the company petition bearing CP No.09/TTB/2020 on or

about January 6, 2020 before the NCLT, Cuttack Bench, it became

apparent that the respondent was trying to avoid its obligations under

the Option Agreement. The filling of the company petition was an

implied refusal by the respondent to perform its obligation. Hence,

the cause of action for enforcing the petitioner‟s right under the

Agreement cannot be said to have arisen before January 6, 2020, the

date of filling of the company petition. As such, the petitioner‟s

invocation of the arbitration clause vide Notice dated October 29,

2022 cannot be said to be barred by limitation.

15. Article 54 of Schedule I of the Limitation Act, 1963 (for short, "the

1963 Act"), it is submitted, prescribes the period of limitation for

specific performance of contract to be three years from the date fixed

for performance or, in the absence of such date being fixed, when the

plaintiff has notice that performance is refused.

16. In the present case, since the time fixed for performance under the

Option Agreement stood novated by the letter dated July 29, 2011,

there remained no fixed time for the performance of obligations by the

respondent and the time for the petitioner started to run only when

the petitioner first had the notice of refusal.

17. Hence, the limitation period started running from January 6, 2020

and not from January 13, 2017.

18. Learned counsel for the petitioner also places reliance on Vidya Drolia

(supra) to argue that the court, at the reference stage, can interfere

only when it is manifest that the claims are ex facie time-barred and

dead or there is no succeeding dispute.

19. In the very least, the Option Agreement, as amended, including all

documents executed pursuant to the amendment dated July 29,

2011, has to be interpreted to ascertain whether there was any fixed

time for performance or whether the time originally fixed ceased to

exist by reason of the amendment of July 29, 2011. The effect of the

letter dated July 29, 2011 on the Option Period is also to be explored

by interpreting the contract documents, which is beyond the scope of

an application under Section 11 of the 1996 Act.

20. The claim of the petitioner, it is argued, cannot be classified as

deadwood. Hence, the reliance placed by the respondent on the

judgment of this Court in B.K. Consortium Engineers Private Limited

Vs. Indian Institute of Management, reported at AIR 2023 Cal 125, is

misplaced.

21. Learned counsel for the petitioner reiterates reliance on the letter

dated July 29, 2011 whereby the petitioner expressly undertook to

exercise all its obligations under the Option Agreement, as amended.

It is argued that the effect of the letter was that the parties agreed that

the respondent would be obligated to transfer the Option Shares

without the petitioner being required to undertake any further act.

Hence, the same was sufficient exercise of the option. In any case, it

is contended, the question as to whether the said letter constitutes a

valid exercise of option or a novation of the provisions of the original

Option Agreement is required to be adjudicated by the Arbitral

Tribunal and not the Court on an application under Section 11 of the

1996 Act.

22. The petitioner next deals with the argument of the respondent that the

Option Agreement was not enforceable in view of the respondent

having been admitted to CIRP and Resolution Plan having been

approved. Such contention is misconceived for two reasons :

23. First, the petitioner was not a creditor of the Company, either

financial, operational or otherwise on the date of commencement of

the CIRP within the contemplation of Committee of Creditors of Essar

Steel India Limited through authorised signatory Vs. Satish Kumar

Gupta and others, reported at (2020) 8 SCC 531.

24. Secondly, the petitioner does not fall within the classes of persons

mentioned in Section 31 of the IBC who are bound by the Resolution

Plan, once sanctioned.

25. In order to qualify as a creditor, the petitioner had to have a „debt‟ due

to it by the respondent on the date of admission of the respondent to

CIRP. To be a creditor, the debt had to arise as a result of liability or

obligation arising out of a claim within the meaning of the IBC. The

definition of claim under Section 3(6) of the IBC does not apply to the

present case.

26. The petitioner is a holder of an option to call upon the respondent to

effect delivery of certain shares, which does not give rise to a claim in

money, especially since the Option Agreement itself provides that it is

specifically enforceable (Clause 8 of the Agreement).

27. Section 31 of the IBC is also not satisfied inasmuch as the petitioner

is neither an employee nor a member nor a creditor, nor the Central or

State Government or local authority to whom a debt in respect of the

payment of dues under law in force has arisen. The petitioner is also

not a guarantor or stakeholder of the respondent involved in the

Resolution Plan. Hence, Section 31 does not operate as a bar against

the petitioner‟s claim against the respondent.

28. As such, the judgments of Ghanashyam Mishra and Sons Private

Limited through the authorised signatory Vs. Edelweiss Asset

Reconstruction Company Limited through the Director and others,

reported at 2021 SCC OnLine SC 313 and Essar Steel India (supra), it

is argued, do not affect the petitioner‟s claim.

29. The agreement between the parties forming the subject of the present

dispute is not rendered unenforceable by reason of the CIRP. Learned

counsel for the petitioner also places reliance on the definitions of

„creditor‟ in Section 3(10), „debt‟ in Section 3(11) and „claim‟ in Section

3(6) of the IBC. In addition, it is argued that in CP No.09/CTB/2020,

the NCLT, Cuttack Bench recorded in the order dated August 30,

2022 that the petitioner had sent a letter for effecting the Option

Shares to the respondent and that the respondent had filed a

Company petition in retaliation. The NCLT, despite having noticed the

CIRP and approval of Resolution Plan, had expressly held that the

disputes between the parties were arbitrable and fell within the scope

of the arbitration agreement in Clause 11(f) of the Option Agreement

dated October 18, 2010.

30. As regards the argument of non-joinder of the SPV, it is contended

that the SPV is neither a necessary nor a proper party to the present

petition. The dispute herein arises solely on account of breach of

obligations on the part of the respondent under the Option Agreement

and the petitioner does not, at the present juncture, have any claim

against the SPV.

31. Moreover, as per the Option Agreement, reciprocal obligations and

duties were agreed between the petitioner and the respondents

specifically, and no contractual relationship was established between

the petitioner and the SPV.

32. Clause 8 of the Option Agreement contemplates only the petitioner

and the respondent suffering due to non-fulfilment of the respective

obligations vis-à-vis the other. The SPV is neither affected, nor has

any right or liability under the Agreement.

33. As regards the respondent‟s contention of insufficient stamp duty, the

same is argued to be fallacious by the petitioner. In terms of Section 4

of the 1899 Act, in case of several instruments used for completing a

sale, only the principal instrument is chargeable with applicable duty

and the remaining documents are chargeable with a duty of Re.1.

Sub-section (2) of Section 4 of the said Act also provides that the

parties shall determine for themselves which of the instruments shall

be treated as a principal instrument. In the present case, the transfer

of shares pursuant to the Option Agreement and the share transfer

agreement is to be given effect to by execution of transfer deeds which

have been treated, if not expressly, by implication, as the principal

instrument chargeable with duty. The share transfer agreement, the

Option Agreement and the transfer deeds are all documents

constituting a single transaction and cannot be treated as

independent transactions.

34. Without prejudice to the above argument, the petitioner also

undertakes to produce the original agreement for impoundment in

terms of Sections 33 and 35 of the 1899 Act, if so directed.

35. As such, it is argued that none of the objections of the respondents

are tenable in the eye of law. The dispute arisen between the parties

is squarely arbitrable as per Clause 11(f) of the Option Agreement

dated October 18, 2010 and the respondent does not have any cogent

ground for refusing to nominate its Arbitrator.

36. Upon hearing learned counsel for the parties, it is of utmost

importance to look into the plain meaning of the relevant clauses of

the Option Agreement dated October 18, 2010.

37. In Clause 1.1.26, "Option Period" is defined as the period starting from

Option Start Date and ending immediately after the completion of the

Concession Period.

38. Clause 1.1.27 provides that "Option Start Date" shall mean the earlier

of the date (a) immediately after the completion of the lock-in period,

(b) on which NHAI permits the transaction contemplated in the

agreement and/or (c) of termination of the Concession Agreement.

39. Clause 1.1.32 defines "settlement date" as a date on which the Option

Shares are transferred from the respondent and/or its

affiliate/associates to the exercising party and the exercising party is

registered as the owner of such Option Shares in the Registrar of the

Company and shall not be later than two days from the Notice Date.

40. Clause 2.1 of the Agreement provides that the exercising party shall

have the right but not the obligation to acquire all the Option Shares,

during the Option Period, from the respondent and/or its

affiliates/associates in accordance with the terms and conditions of

the agreement.

41. Clause 3.1 provides that the petitioner shall exercise the Option during

the Option Period.

42. Clause 3.2 stipulates that the issuance of the Notice shall constitute

an irrevocable binding obligation on the respondent and its

affiliates/associates to sell to the exercising party the identified Option

Shares, simultaneously with the payment of the residual Option Price

by the exercising party.

43. Clause 4.1 provides that, subject to the completion of the undertaking

by the parties, the sale and purchase of the identified Option Shares

shall take place on the Settlement Date.

44. Clause 8 stipulates that both parties agree that either party would

suffer irreparable loss and injury in the event any provisions of the

Agreement were not performed in accordance with the terms and

conditions therein. The parties also agreed to be entitled to an

injunction to prevent breach of agreement or to enforce specifically the

terms and conditions thereof in any court of competent jurisdiction.

45. Importantly, Clause 10 provides for Effective Date and Duration of the

Obligations.

46. Sub-clause (a) of Clause 10 stipulates that the agreement shall be

effective from the date of execution and shall remain in full force and

effect until the earlier of (i) the expiration of the Option Period, (ii) the

settlement date on which the entire Option Shares are transferred by

the respondent and its associates/affiliates, (iii) the mutual

termination, in writing, by the parties.

47. Sub-clause (b) of Clause 10 provides that if a notice has been served

on or prior to the expiry of the Option Period, the agreement shall

continue in force until the fulfilment of all obligations by the parties in

relation to the notice (even though such obligations may fall beyond

the Option Period).

48. Clause 11(f) contains the arbitration clause which can be invoked if

the dispute cannot be settled within thirty days of mutual conciliation.

49. The petitioner has repeatedly asserted its claim on the basis of the

letter dated July 29, 2011 (Annexure D at page 130 of the application).

The same was a unilateral undertaking and irrevocable confirmation

by the petitioner that if the petitioner and/or AMRCL fails to make the

payment of the balance amount of Option Premium to the respondent

on the same business day on which the petitioner and AMRCL

respectively receives payment from the Rithwik-AMR-MBL JV/OSEPL

out of the first disbursement made by the Senior Lenders to OSEPL,

the Rithwik-AMR-MBL JV shall not release any further

funds/payments to the petitioner, AMRCL and/or on their behalf, till

the payment of the aforesaid balance amount of Option Premium is

paid to the respondent. Certain other related undertakings were also

made by the petitioner.

50. The next relevant communication by the petitioner is Annexure E at

page 132 of the application, dated July 2, 2022, whereby the

petitioner sought to invoke the provision of mutual conciliation as per

Clause 11(f) of the Option Agreement and indicated that in case of

failure, the petitioner would seek resolution of the dispute by invoking

arbitration.

51. Another communication dated October 29, 2022 has been annexed by

the petitioner to its application mentioning the dismissal of the

company petition filed by the respondent and referring to an

application under Section 8 of the 1996 Act being allowed by the

Tribunal vide order dated August 30, 2022. Accordingly, the

petitioner invoked the arbitration clause.

52. From the definitions as provided in the Option Agreement itself, there

cannot be any doubt that the agreement, under Clause 10(a), was to

be effective from the date of execution and was to remain in full force

and effect until the earlier of three contingencies. It is undisputed

that out of the three contingencies, the first, being expiration of the

Option Period, was the earliest, since there was no settlement date or

mutual termination.

53. The Option Period, as per Clause 1.1.26, means the period starting

from the Option Start Date and ending immediately after the

completion of the Concession Period.

54. Clause 1.1.27 stipulates the Option Start Date to mean the earlier of

three eventualities. Since no question arose of completion of the lock-

in period or NHAI permitting the transaction, Clause (c), that is,

termination of the Concession Agreement, was the earliest of the three

eventualities.

55. As such, the Option Start Date was the date of termination of the

Concession Agreement, that is, January 13, 2017. Since the Option

Period under Clause 1.1.26 ends immediately after the completion of

the Concession Period, which is also January 13, 2017, the Option

Period in the present case, in reality, comprised of a single date, that is,

January 13, 2017, on which date the Concession Agreement was

terminated and which was the single date on which the Option Start

Date and end of Option of Period coincided.

56. The notice dated July 29, 2011, on which the petitioner seeks to rely,

was long before the Option Period. As such, the same cannot count,

by any stretch imagination, as the exercise of Option under the Option

Agreement.

57. Insofar as the Notices dated July 2, 2022 and October 29, 2022 are

concerned, both the said dates were far beyond the Option Period.

Clause 2.1 of the Option Agreement clearly provides that the

exercising party shall have the right to acquire all the Option Shares

during the Option Period.

58. Clause 3.1 also stipulates that the petitioner shall exercise the Option

during the Option Period by issuing a notice.

59. Clause 10(a) is specific on the effective date and duration of the

obligations of the parties under the Option Agreement. As per sub-

clause (a) of Clause 10, the Agreement was to be effective from the

date of execution and was to remain in full force and effect until the

earlier of three possible dates. Out of the three, admittedly Clause (i),

that is, the expiration of the Option Period, was the earliest. As per

the above discussion, the Option Period started and ended with the

termination of the Concession Agreement on January 13, 2017, on

which date the petitioner did not issue any notice whatsoever.

60. Clause 10(b) clarifies that if a notice has been served on or prior to the

expiry of the above period, the agreement would continue in force until

the fulfilment of all the obligations, even though such obligations may

fall beyond the Option Period. The expression "on or prior to the

expiry" has to be read in conjunction with the rest of the provisions

discussed above, which unerringly indicate that the Option was to be

exercised during the Option Period by issuing a notice as per Clause

3.1 of the Agreement. Hence, read in such fashion, Clause 10(b) has

to be read to stipulate that the notice was to be served on or prior to

the expiry of the Option Period but, in terms of Clause 3.1, during the

Option Period.

61. In the present case, the petitioner having admittedly not done so, the

question of applicability of Clause 10(b) does not arise at all. Hence,

the argument of the petitioner, that upon service of the notice on July

29, 2011 the obligations under the Agreement crystallised and were to

continue in force until fulfilment even though such obligations may

fall beyond the Option Period, falls flat. In the absence of any notice

being served within the time as contemplated in the agreement, there

did not arise any question at any point of time for the obligations

under the agreement to continue. Hence, the petitioner‟s argument of

its rights having crystallised with the notice dated July 29, 2011 is not

tenable in the eye of law and in the context of the agreement. Such

unilateral notice of the petitioner did not even constitute any

agreement between the parties to give rise to obligations on the part of

the respondent.

62. The NCLT order relied on by the petitioner could not, in any manner,

confer any right on the petitioner to assert the Option Agreement

Rights, if the same otherwise did not arise from the Option Agreement.

Whatever observation was made by the NCLT, was in the context of

the limited dispute raised before it pertaining to alleged oppression

and mismanagement in the company and did not have anything to do

with the present dispute regarding exercise of Option Rights.

63. Thus, on a comprehensive reading of the agreement and its

amendment, the dispute sought to be referred to arbitration is

proverbial „deadwood‟, as often used by the Supreme Court.

64. Hence, the question of curing the defect of insufficient stamp as per

N.N. Global (supra), reported at 2023 SCC OnLine SC 495 does not

come into operation at all.

65. Following the principles in Vidya Drolia (supra), the dispute sought to

be raised by the petitioner is not maintainable and, hence, non-

arbitrable. Even by limiting the interference of Court under Section

11 to a prima facie review of the dispute, the dispute sought to be

referred is patently „deadwood‟ and non-arbitrable. Thus, a reference

to arbitration of such a dispute, which is ex facie not maintainable,

would merely be a futile exercise.

66. The same principle was laid down in B.K. Consortium Engineers

Private Limited (supra) by the co-ordinate Bench of this Court.

67. As far as Ghanashyam Mishra (supra) and Essar Steel India Limited

(supra) are concerned, the same proposition finds iteration, insofar as

the claim of the petitioner was extinguished. Although the only date

on which the notice exercising the Option could be issued was

January 13, 2017, the petitioner chose not to make any claim in the

CIRP which commenced subsequently on March 30, 2017 and the

Resolution Plan therein was accepted on April 18, 2018. The

petitioner, at least, was an operational creditor within the IBC. Hence,

assessing from such perspective as well, the petitioner‟s claim is

„deadwood‟.

68. Insofar as the non-impleadment of the SPV, Orissa Steel Expressway

Private Limited is concerned, the same could be termed as a curable

defect. Although the SPV was a signatory to the Option Agreement

and a proper party to the present application, the question of curing

such defect became infructuous ab initio in view of the application

under Section 11 not being maintainable on the grounds as indicated

above.

69. Thus, the present application under Section 11 of the Arbitration and

Conciliation Act, 1996 is not maintainable in law and in terms of the

Option Agreement itself, as amended.

70. Hence, AP No.67 of 2023 is dismissed on contest, without any order

as to costs.

71. Urgent certified copies of this order shall be supplied to the parties

applying for the same, upon due compliance of all requisite

formalities.

( Sabyasachi Bhattacharyya, J. )