Arbitrator – Appointment at the instance of Bank as financial investor
Judgment dated 17.7.2023 of the High Court of Bombay
Arbitrator – Appointment at the instance of Bank as financial investor
Important legal issues – Whether the amount invested by the Bank as a financial investor in a company for purchase of equity shares is “Debt” and dispute of its recovery is “non-arbitrable, inasmuch as, the remedy to recover the same is the Debt Recovery Tribunal, whether the guarantor is amenable to arbitration and whether the agreement is properly stamped?
The applicant Bank invested Rs.14,88,00,000/- in the respondent no.1 Company by acquisition of 24 lakh equity shares under the agreement & deed of agreement both dated 12.4.2018 and became equity share holder of the Company. The agreement allowed “put option” to the Bank exercisable at its option between 15 to 30 months from the date of the agreement. Respondent no.2 is the Chairman and one of the promoters of respondent no.1. Respondent no.2 had executed guarantee deed, which, however, did not contain arbitration clause.
However, the respondent no.1 failed to buy the applicant’s share. As a result, the applicant had obtained interim measures under Section 9 of the AA vide order dated 22.1.2020.
Thereafter, the applicant invoked the arbitration on 17.11.2020.
Two of three preliminary objections to the maintainability of the petition for appointment of Arbitration was – “the amount of the Bank invested in the Bank is “debt”, dispute of its recovery is non-arbitrable and therefore, the remedy for its recovery is Debt Recovery Tribunal”.
Second objection was that the respondent no.2 being a guarantor is not amenable to the arbitration as per the agreement between the Bank and the respondent no.1.
HELD, on detail consideration of the agreement and clause 11 relating to the dispute resolution through arbitration in 37-pages judgment, that the Bank is not only a lender but it had acted as financial investor. Moreover, it is not only a claim for recovery of debt but for specific performance which may not be competent for the Debt Recovery Tribunal to deal with under section 19.
It was held that the guarantee deed is a tripartite agreement between the guarantor, investor Bank and the promoter company as continuous security to the Bank till final discharge of obligations of the guarantor. It was, therefore, umbrella of the master agreement.
It was further held that the agreement was properly valued and suffers from no legal infirmity.
In view of this, petition was allowed and the Arbitrator was appointed.
Commercial Arbitration Application No.107 of 2021 – Kotak Mahindra Bank Ltd. Vs. Williamson Magor and Co. Ltd and another
