INDUS BIOTECH PRIVATE LIMITED versus KOTAK INDIA VENTURE (OFFSHORE) FUND (EARLIER KNOWN AS KOTAK INDIA VENTURE LIMITED) & ORS.

Citation: [2021] 7 S.C.R. 112 · Decided: 26-03-2021 · Supreme Court of India · Bench: S.A. BOBDE, A.S. BOPANNA, V. RAMASUBRAMANIAN · Disposal: Case Partly allowed

Cited by 3 judgment(s) · cites 6 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2021] 7 S.C.R.
INDUS BIOTECH PRIVATE LIMITED
v.
KOTAK INDIA VENTURE (OFFSHORE) FUND (EARLIER
KNOWN AS KOTAK INDIA VENTURE LIMITED) & ORS.
(Arbitration Petition (Civil) No. 48 of 2019)
MARCH 26, 2021
[S. A. BOBDE, CJI, A. S. BOPANNA AND
V. RAMASUBRAMANIAN, JJ.]
Insolvency and Bankruptcy Code, 2016 – s. 7 – Arbitration
and Conciliation Act, 1996: s. 8 – Dispute between petitioner and
respondents as regards calculation and conversion formula to be
applied in converting the preference shares of respondent no. 1 to
4 invested in petitioner company, into equity shares – Respondents
sought certain sum, on redemption of Optionally Convertible
Redeemable Preference Shares-OCRPS, but the petitioner company
failed to redeem the OCRPS – Respondent sought initiation of
Corporate Insolvency Resolution Process u/s. 7 of the Code – In
the said petition, application u/s. 8 of the 1996 Act filed by the
petitioner seeking direction to refer the parties to the arbitration –
NCLT allowed the application filed by the appellant u/s. 8 of the
1996 Act – Justification of – Held: Justified – Dispute will be non-
arbitrable when a proceeding is in rem and a IB Code proceeding
is to be considered in rem only after it is admitted – If there is default
and the debt is payable, due to which the Adjudicating Authority
proceeds to admit the application u/s. 7, the proceeding is in rem
and the arbitrability of the insolvency proceeding would not arise
– If the Adjudicating Authority is satisfied that there is no default
committed by the company, the petition u/s.7 would stand rejected
and the parties can secure appointment of the Arbitral Tribunal in
an appropriate proceedings – In the instant case, petition u/s. 7
was yet to be admitted, thus, had not assumed the status of
proceedings in rem – Conclusion reached by NCLT cannot be faulted
in view of the document produced by the petitioner indicating that
the allotment of equity shares against the OCRPS was still a matter
of discussion between the parties and no conclusion had been
arrived at so as to term it as default – Thus, since the conclusion by
[2021] 7 S.C.R. 112
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the NCLT is that there is no default, the dismissal of the petition u/s
7 of IB Code at this stage is justified – Though application u/s. 8 of
the Act, 1996 is allowed, subject to the consideration of the petition
filed u/s.11 of the Act, 1996 – Said disputes to be resolved by the
Arbitral tribunal consisting of same members but separately
constituted in respect of each agreement.
Dismissing the appeal and allowing the Arbitration Petition,
the Court
HELD: 1.1 In a fact situation of the instant nature when the
process of conversion had commenced and certain steps were taken
in that direction, even if the redemption date is kept in view and the
clause in Schedule J indicating that redemption value shall constitute
a debt outstanding is taken note; when certain transactions were
discussed between the parties and had not concluded since the point
as to whether it was 30 per cent of the equity shares in the company
or 10 per cent by applying proper formula had not reached a
conclusion and thereafter agreed or disagreed, it would not have
been appropriate to hold that there is default and admit the petition
merely because a claim was made by the respondent as per the
originally agreed date and a petition was filed. In the process of
consideration to be made by the Adjudicating Authority the facts in
the particular case is to be taken into consideration before arriving
at a conclusion as to whether a default has occurred even if there is
a debt in strict sense of the term, which exercise in the instant case
has been done by the Adjudicating Authority. [Para 20][130-F-H;
131-A]
1.2 In such circumstance if the Adjudicating Authority finds
from the material available on record that the situation is not yet
ripe to call it a default, that too if it is satisfied that it is profit
making company and certain other factors which need consideration,
appropriate orders in that regard would be made; the consequence
of which could be the dismissal of the petition under Section 7 of IB
Code on taking note of the stance of the corporate debtor. As
otherwise if in every case where there is debt, if default is also assumed
and the process becomes automatic, a company which is ably running
its administration and discharging its debts in planned manner may
also be pushed to the Corporate Inso

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