Case Note & Summary
The petitioner, Tata Capital Financial Services Ltd., a non-banking financial company, granted a term loan of Rs. 50 crores to the first respondent, Unity Infraprojects Ltd., with the second and third respondents as guarantors. The loan was secured by a hypothecation deed and personal guarantees. The respondents defaulted, and the petitioner recalled the loan, invoked guarantees, and initiated arbitration. The petitioner filed an arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim relief, including attachment before judgment and an injunction against disposal of assets. Additionally, a company petition was filed for winding up of the first respondent under Section 433(e) of the Companies Act, 1956 for inability to pay debts. The petitioner alleged that the respondents were attempting to dispose of assets through a Corporate Debt Restructuring (CDR) scheme to defeat the arbitral award. The respondents contended that the CDR scheme was under consideration and the debt was disputed. The court held that the petitioner failed to establish a prima facie case for interim relief under Section 9, as the CDR scheme indicated that the respondents were not disposing of assets but restructuring debts. The winding up petition was also dismissed because the debt was bona fide disputed and the CDR process was ongoing. The court emphasized that interim relief under Section 9 requires a strong prima facie case and balance of convenience in favor of the applicant, which was absent here. The petitions were dismissed with no order as to costs.
Headnote
A) Arbitration - Interim Relief under Section 9 - Prima Facie Case - The court held that where a Corporate Debt Restructuring (CDR) scheme is under consideration and the debt is disputed, no prima facie case for interim relief is made out. The petitioner failed to show that the respondents were disposing of assets to defeat the award. (Paras 4-10)
B) Company Law - Winding Up - Inability to Pay Debts - Sections 433(e) and 434 of the Companies Act, 1956 - The court held that when a CDR scheme is pending and the debt is bona fide disputed, a winding up petition is not maintainable. The company's inability to pay must be clear and the debt must be undisputed. (Paras 11-15)
Issue of Consideration
Whether the petitioner is entitled to interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, and whether the company should be wound up under Section 433(e) of the Companies Act, 1956 for inability to pay debts.
Final Decision
Both the arbitration petition and the company petition are dismissed. No order as to costs.
Law Points
- Section 9 of the Arbitration and Conciliation Act
- 1996
- Section 433(e) and 434 of the Companies Act
- 1956
- Prima facie case
- Balance of convenience
- Irreparable loss
- Corporate Debt Restructuring (CDR) scheme
- Winding up on inability to pay debts
Case Details
2015 LawText (BOM) (07) 80
Arbitration Petition No. 800 of 2014 with Company Petition No. 443 of 2014 with Company Application (L) No. 746 of 2014 in Company Petition No. 443 of 2014 with Chamber Summons (L) No. 404 of 2015 in Arbitration Petition No. 800 of 2014
Mr. D.D. Madon, Senior Advocate, i/b. Hiren Mehta, for Petitioner. Mr. Navroze Seervai, Senior Advocate a/w. Mr. Ashish Kamat, Mr. S.G. Roy, and Ms. Chinmayee Pendse, i/b. Vidhii Partners, for Respondent No.1. Mr. Sagar Divekar, for Respondent Nos.2 and 3. Mr. Kevic Setalvad, Senior Advocate, i/b. M/s. M.V. Kini & Co., for Applicant in CHSL 405/2015.
Tata Capital Financial Services Ltd.
Unity Infraprojects Ltd. & Ors.
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Nature of Litigation
Arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim protection and company petition for winding up under Section 433(e) of the Companies Act, 1956.
Remedy Sought
Petitioner sought deposit order, attachment before judgment, and interim injunction restraining respondents from selling or dealing with assets.
Filing Reason
Respondents defaulted on a term loan of Rs. 50 crores; petitioner alleged respondents were arranging affairs to defeat arbitral award.
Issues
Whether the petitioner is entitled to interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.
Whether the company should be wound up under Section 433(e) of the Companies Act, 1956 for inability to pay debts.
Submissions/Arguments
Petitioner argued that respondents were disposing of assets through CDR scheme to defeat award and that hypothecated assets were insufficient.
Respondents contended that CDR scheme was under consideration, debt was disputed, and no prima facie case for interim relief or winding up existed.
Ratio Decidendi
For interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, a strong prima facie case, balance of convenience in favor of the applicant, and likelihood of irreparable loss must be shown. Where a CDR scheme is under consideration and the debt is bona fide disputed, no such case is made out. Similarly, for winding up under Section 433(e) of the Companies Act, 1956, the debt must be undisputed and the company's inability to pay must be clear; a pending CDR scheme and disputed debt preclude winding up.
Judgment Excerpts
The Petitioner is a nonbanking financial company who has granted a credit facility by way of term loan of Rs.50 crores to the Respondents.
The Petitioner, in the premises, seeks a deposit order and in default of such deposit, an order for attachment before judgment and in the alternative, an interim injunction restraining the Respondents from selling their movable and immovable assets or even dealing with them as part of the CDR Scheme.
Procedural History
The arbitration petition under Section 9 of the Arbitration and Conciliation Act, 1996 and the company petition for winding up under Section 433(e) of the Companies Act, 1956 were filed together. They were heard together and disposed of by a common order on 6 July 2015.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 9
- Companies Act, 1956: Section 433(e), Section 434
