Bombay High Court
Arcelor Mittal Nippon Steel India Ltd. ... vs Essar House Pvt. Ltd on 10 December, 2020
Author: G.S. Patel
Bench: G.S. Patel
22-CARBPL-6602-2020.DOCX
Shephali
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION (L) NO. 6602 OF 2020
Arcelor Mittal Nippon Steel India Limited ...Petitioner
Versus
Essar House Private Limited ...Respondent
Dr Birendra Saraf, Senior Advocate, with Dr Abhinav Chandrachud, Mr Rishab Gupta, Mr Sairam Subramanian, Mr Rishabh Jogani and Mr Gourav Mohanty, i/b Shardul Amarchand Mangaldas & Co, for the Petitioner. Mr Vikram Nankani, Senior Advocate, with Mr Ashish Kamat, Mr Ameet B Naik, Mr Abhishek Kale, Mr Avdhoot Prabhu and Ms Mansi Nair, for the Respondent.
CORAM: G.S. PATEL, J
(Through Video Conference)
DATED: 10th December 2020
PC:-
1. Heard through video conferencing.
Shephali
Mormare
2. There is an Affidavit in Reply. I have heard Dr Saraf for the Digitally signed by Shephali Petitioners and Mr Nankani for the Respondent. The Petition is for Mormare Date: 2020.12.11 11:01:46 +0530 urgent protective interim orders pre-arbitration under Section 9 of the Arbitration and Conciliation Act 1996.
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3. The Petitioners seek a deposit of Rs. 35,81,89,875/- as security for their claim in arbitration. This is said to be a refundable security deposit payable to the Petitioner under a Business Centre Agreement dated 17th September 2018. That agreement contains an arbitration clause that is quoted at pages 9 and 10 of the petition itself. This is clause 7 and it states that any disputes and differences under the agreement are to be referred to a three-member arbitral tribunal in the usual manner, with each side appointing one Arbitrator and the two Arbitrators then appointing a presiding Arbitrator. The arbitration is to be held in Mumbai.
4. Before I proceed to the merits of the Section 9 Petition, both sides have taken instructions and state that they are agreeable to a reference of their disputes to the sole arbitration of Mr Soli Cooper, learned Senior Advocate of this Court. I am making it clear that I am not making an order under Section 11 of the Arbitration and Conciliation Act 1996. I am noting the agreement between the parties to so refer their disputes to the sole arbitration of Mr Cooper.
5. Both sides will file a joint statement reflecting their agreement as conveyed through their Counsel to refer their disputes to the sole arbitration of Mr Cooper.
6. The question then is what, if any, should be the protective relief pending arbitration or pending the disposal by the sole Arbitrator of an appropriate application for interim relief by either side under Section 17 of the Arbitration and Conciliation Act 1996.
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7. The Petitioner was formerly known as Essar Steel India Limited and is now Arcelor Mittal Nippon Steel India Limited. Pursuant to a resolution process under the Insolvency and Bankruptcy Code 2016 the entire shareholding of Essar Steel was acquired by Arcelor Mittal India Private Limited. This is undisputed.
8. The Petitioner manufactures iron and steel and has various production facilities and units. The Respondent is Essar Housing Private Limited or EHPL. It is a real estate company. It buys, sells, rents and operates self-owned or leased real estate of various types and descriptions.
9. On 1st April 2016, Essar Steel entered into a rental agreement with Essar Housing. This was to occupy the ground floor, podium and 20 upper floors of a structure at 11, Keshavrao Khade Marg, Opposite the Race Curse, Mahalakshmi, Mumbai 400 034. This is called Essar House. The agreement was of a leave and license, and was extended by consent to operate until 31st March 2019. Under the agreement in question, the licensee, then Essar Steel, was obliged to place an interest-free refundable deposit of Rs. 25.80 crores. This is provided in clause 3 of the rental agreement.
10. Essar Steel did in fact make this deposit under the agreement. This was carried forward as part of a security deposit under a Business Centre Agreement dated 17th September 2018 as well.
11. There is indeed no dispute about the receipt or the making of this interest-free refundable security deposit. Before the Resolution Page 3 of 12 10th December 2020 22-CARBPL-6602-2020.DOCX Professional appointed of Essar Steel, the Respondent admitted that such a security deposit had been placed and made.
12. On 2nd August 2017, the Ahmedabad Bench of the National Company Law Tribunal admitted company petitions filed by various creditors against Essar Steel.
13. On 17th September 2018, Essar Steel entered into the Business Centre Agreement for the Corporate Insolvency Resolution period with the Respondent, EHPL, to avail of business centre facilities on six floors of Essar House. This agreement subsumed the rental agreement. Under the Business Centre Agreement, EHPL permitted Essar Steel the use of the business centre on floors 10, 12, 13, 15, 16 and 17 along with the right to use common areas as also various facilities such as cafeteria facility services, security, house-keeping and so on. The Business Centre Agreement was effective from 1st July 2018, was said to be retrospective and was to continue for the entire insolvency resolution process period.
14. The Business Centre Agreement also set out the fees and the security deposit. The monthly fees payable were Rs. 1.78 crores. This was not inclusive of taxes. It was payable monthly. EHPL acknowledged the receipt of Rs. 35,81,89,875/- as a refundable security deposit. Essar Steel's disbursement of this amount of Rs. 35,81,89,875/- included, first, the Rs. 25.80 crores under the previous rental agreement, and an additional amount of Rs. 9,71,89,875/- as a transfer on 17th September 2018 by one Essar Infrastructure Services Pvt Ltd to EHPL on behalf of Essar Steel, the Petitioner.
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15. On 8th March 2019, the National Company Law Tribunal approved the resolution plan submitted by the present Petitioner. This was confirmed in Appeal on 4th July 2019 by the National Company Law Appellate Tribunal or NCLAT.
16. I have already noted clause 7, which is the dispute resolution clause. Clause 8 then stipulates that it is the Courts in Mumbai that would have exclusive jurisdiction in connection with the Business Centre Agreement.
17. There then followed the judgment dated 15th November 2019 of the Supreme Court in the matter of Committee of Creditors of Essar Steel Ltd v Satish Kumar Gupta & Ors.1 At this stage, I must note that paragraph 88 of this decision relied on by Dr Saraf for the Petitioners is relevant in the context of what is being submitted by Mr Nankani. Paragraph 88 of the judgment reads thus:
88. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and 1 2019 SCC OnLine SC 1478.Page 5 of 12
10th December 2020 22-CARBPL-6602-2020.DOCX decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count.
18. On 27th November 2019, EHPL asked Essar Steel/the Petitioner to vacate the premises covered by the Business Centre Agreement. The Petitioner did so. It delivered possession to EHPL on 15th December 2019. Again, there is no dispute that until the time these premises were vacated, the monthly fee for all six floors covered by the Business Centre Agreement had in fact been paid (although it appears that only three floors were under occupation).
19. Obviously, this meant that EHPL was now bound to return the interest-free refundable security deposit. The Petitioner made its demands by various emails between January and March 2020. There was no response. The Petitioner issued a legal notice on 17th June 2020.
20. To this there was a reply on 27th June 2020. What the Respondent now said, after admitting that it had received the security deposit of Rs. 25.80 crores, was that the Respondent had 'taken over' a 'receivable' of Rs. 26 crores from one Marvel Mines and Minerals Pvt Ltd. This was an amount purportedly due from Essar Steel. The Respondent stated that it had adjusted this receivable against the security deposit and, therefore, no amount was refundable.
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21. The Petitioner's Advocates replied to this letter pointing out the relevant facts.
22. After a brief holding reply, some three months later on 12th November 2020, the Respondent wrote back. A copy of that letter is at Exhibit 'M2' and now the Respondent said that there was an inter se agreement between Essar Steel and Marvel Mines to the effect that a portion of the alleged financial assistance availed by Marvel Mines would be used to service the Essar Steel's debt to the HDFC Bank. It is this debt that was alleged to have been discharged in the amount of Rs. 26 crores by EHPL. Then EHPL alleged that Marvel Mines had assigned this receivable to EHPL and, therefore, EHPL's liabilities stood reduced by Rs 26 crores leaving an amount of only Rs. 9,51,89,875/- as repayable or refundable to the Petitioner under the Business Centre Agreement.
23. There is then in this letter what I can only describe, though even at a prima facie stage, as a truly bizarre assertion that EHPL had purportedly 'novated its obligation to make payment of the aforesaid balance amount in favour of another group entity, i.e. Edwell Hazira Limited ("EIHL")'. According to EHPL, Essar Steel was indebted in a very large amount to Edwell Hazira and, therefore, the entire liability of the Respondent to make any repayment or refund of the security deposit was set at naught.
24. In law, I am unable to understand any basis for what appears to me to be an assertion of a unilateral 'novation' of a bilateral Page 7 of 12 10th December 2020 22-CARBPL-6602-2020.DOCX agreement. In the Affidavit in Reply, this is reiterated in paragraphs 6.1 and 6.2 (at pages 464 and 465).
6.1 For the reasons already recorded in the correspondence, the Respondent denies any liability vis-a- vis the Petitioner. Admittedly, payments were made by MMPL on behalf of Essar Steel India Limited ("ESIL") (presently the Petitioner) to HDFC Bank Limited ("HDFC"). The said fact is also acknowledged by ESIL from the reconciliation statement dated 31 March 2017 executed between ESIL and MMPL's authorized representatives. A copy of the reconciliation statement dated 31 March 201 7 and a typed version of the same is annexed hereto as "Exhibit A". Hence, ESIL has been the ultimate beneficiary of the payments so made.
6.2 Furthermore, the benefit made from such payments being made by MMPL has not only been availed by ESIL but also by the Petitioner, which had to correspondingly pay equivalent lesser amount to HDFC at the time of the resolution plan being sanctioned. Accordingly, adjustments were made towards the Petitioner's claim and the same thereafter did not survive. Accordingly, the Respondent has denied liability qua the Petitioner. The Respondent reiterates the position taken in its communication in this behalf. It is respectfully submitted that the adjustments made are a complex triable issue for which evidence would have to be led. Any interim reliefs ought not to be granted in the Petition, particularly since the Petitioner's claim is only monetary and is unsecured.
25. That is not all. In paragraph 6.3 of the Affidavit in Reply, the Respondent goes on to say this:
Page 8 of 1210th December 2020 22-CARBPL-6602-2020.DOCX 6.3 It is submitted that the Resolution Professional is not an adjudicating authority. Merely because the claim of Marvel Mines Pvt. Ltd. ("MMPL") has not been entertained/rejected by the Resolution Professional, the same would not defeat the veracity of MMPL's claim.
Further, the Respondent has asserted an adjustment against the claim of Edwell Infrastructure Hazira Ltd.("EIHL") against Essar Steel India Ltd. This was not a matter of before the Resolution Professional. The same can be decided only in a trial that would be conducted before the arbitral tribunal that would be eventually constituted. Grant of any reliefs much less a relief in the nature of deposit of monies in the Court would in a manner frustrate the Respondent's claim and the adjustments made.
26. Now this is clearly directly contrary to paragraph 88 of the Supreme Court judgment noted above. I do not see how the Respondent can arrogate to itself the right to adjudicate any claim that Marvel Mines or any other entity may have whether made against the resolution professional or anywhere else. That adjudication has to be by an authority empowered to do so. Marvel Mines is not before the Court. It is not for the Respondent to make any such statement.
27. The 'novation' plea is, even prima facie, entirely untenable.
28. Then in paragraph 7 the Respondent says that other than the 22-floor Essar House at Mahalakshmi, it has no other assets. Essar House itself is mortgaged to India Bulls Housing Finance Ltd, IDBI Trusteeship Pvt Ltd, and India Bulls Financial Services for Rs. 138.38 crores, i.e. Rs. 13,838 lakhs. Mr Nankani only has instructions to state that any rental income being received from Essar House is being used Page 9 of 12 10th December 2020 22-CARBPL-6602-2020.DOCX to service debts and there is nothing that the Respondent can possibly offer as security for this claim of Rs. 35,81,89,875/-.
29. Prima facie it is difficult to discern any cogent defence to the Section 9 Petition. The claim of the Petitioner as set out in the Petition makes out a straightforward prima facie case. There is no doubt that the balance of convenience is with the Petitioner. It is the Respondent that claims to have made unilateral adjustments and effected some sort of unilateral novation. The balance of convenience is clearly with the Petitioner. There is no reason why the Petitioner should be left, pending arbitration, with no security for its claim. I am not, in this order, directing payment by the Respondent to the Petitioner. I am requiring it to provide a security by making a cash deposit in this Court or by furnishing a security to the satisfaction of the Prothonotary and Senior Master. In my view, that is an eminently reasonable relief sought and one that must be granted.
30. I appreciate that it is unlikely, even going by what Mr Nankani has said, that the Respondent will be able to make this deposit within a reasonable period of time. Consequently, the making of that deposit or furnishing of the security there will have to be an order in terms of prayer clauses (b) and (c) as well.
31. Accordingly, the Respondent is ordered and directed to deposit with the Prothonotary and Senior Master an amount rounded off to Rs. 35.5 crores within eight weeks from today. Optionally, the Respondent may furnish a bank guarantee of any nationalized bank for the entire amount along with all interest earned thereon. The bank Page 10 of 12 10th December 2020 22-CARBPL-6602-2020.DOCX guarantee is to be to the satisfaction of the Prothonotary and Senior Master and is also to be furnished within that time period.
32. In addition, the Respondent must within six weeks from today make a disclosure of all its movable and immovable assets including monthly receivables, without exception including financial investments. All liabilities must be disclosed including the nature of the encumbrances, if any. There will have to be an injunction against the Respondents from disposing of, alienating, transferring or parting with possession or creating any third party rights over any of its assets, except in the ordinary and usual course of its business. Should the Respondent wish to make any extraordinary disposal of these assets, it is at liberty to apply to this Court for such relief only after at least one week's written prior notice to the Advocates for the Petitioners.
33. Noting once again the agreement between the parties to refer the disputes to the sole arbitration of Mr Cooper, the Section 9 Petition is disposed of in these terms.
34. The costs of this Petition will be recoverable by the Petitioners as costs in the arbitration.
35. It goes without saying that before the Arbitrator, all issues including jurisdictional issues under Section 16 are expressly kept open (other than existence of the agreement).
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36. All views expressed and observations made are prima facie and only for the purpose of this order on the Section 9 petition.
37. This order will be digitally signed by the Private Secretary of this Court. All concerned will act on production of a digitally signed copy of this order.
(G. S. PATEL, J) Page 12 of 12 10th December 2020