Delhi High Court - Orders
Koyenco Autos Pvt. Ltd vs Bmw India Financial Services Private ... on 6 September, 2022
Author: V. Kameswar Rao
Bench: V. Kameswar Rao
$~1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB.P. 870/2021
KOYENCO AUTOS PVT. LTD ..... Petitioner
Through: Mr. Koshy John, Adv.
Mr. Vipin Vincent, Resolution
Professional
versus
BMW INDIA FINANCIAL SERVICES PRIVATE LTD
& ANR. ..... Respondents
Through: Mr. Diwakar Maheshwari and
Mr. Aditya V. Singh, Advs. for
Respondents
CORAM:
HON'BLE MR. JUSTICE V. KAMESWAR RAO
ORDER
% 06.09.2022
1. This petition has been filed by the petitioner under Section 11(5) of the Arbitration and Conciliation Act, 1996 ('Act of 1996', for short) for appointment of a Sole Arbitrator.
2. The petition is primarily directed against two respondents; (i) BMW India Financial Services Private Limited; and (ii) BMW India Private Limited. Pursuant to the order dated July 26, 2022, Mr. Vipin Vincent, Resolution Professional appointed by NCLT (Cochin) with regard to the proceedings initiated against the petitioner by the respondent No.1 was present in the proceedings held on August 22, 2022. At his request the matter was adjourned for today.
3. The counsel for the petitioner has taken me through the petition in support of the prayers made.
Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:024. According to him on May 9, 2008, respondent No.2 appointed Platino Classic Motors India Pvt. Ltd. (formerly known as Koyenco Prestige Motors Pvt. Ltd. and hereinafter referred to as 'Platino') as a dealer in the State of Kerala to sell the cars manufactured by the respondent No2. The dealership was extended on many occasions up to December 31, 2018.
5. It is the case of the petitioner that Platino made large scale investments. Respondent No.2 introduced respondent No.1, a related party to provide loan facilities to Platino. Platino accordingly entered into various agreements like Floor Plan Agreement dated September 24, 2010, Credit Facility Agreement November 30, 2011, Spare Part Financing Agreement dated January 14, 2015. According to him, the purpose of the aforesaid agreements was to purchase cars and spare parts from respondent No.2. As Platino was in need of additional funds, the respondent No.1 agreed to extend the same, provided the petitioner herein would be co-borrower in such facilities. Accordingly, a Term Loan Agreement dated May 17, 2017 was executed between the petitioner, Platino and the respondent No. 1 for availing the facility to the extent of ₹13 Crores. Simultaneously, an Addendum Agreement dated May 17, 2017 was executed wherein the petitioner was made a co-borrower in the pre-existing agreements between the Platino and respondent No.1.
6. The petitioner herein created mortgage in favour of respondent No.1 in respect of land owned by the petitioner. It is stated that despite being fully aware that the petitioner herein had invested a lot of money for expansion of business, the respondent No.2 intentionally appointed another dealer for the region of Kerala, thereby hampering the business of Platino, even though the dealership was subsisting till December 31, 2018. Platino Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 demanded compensation for abrupt termination of dealership.
7. It is stated in the petition that the respondents paid no heed to the request. In fact, respondent No.1 issued a notice calling upon the petitioner and Platino to pay the outstanding amount. Platino replied to the notice disputing the claims. Subsequently, the parties entered into a Settlement Deed dated September 4, 2019.
8. Later, the petitioner invoked Clause 25 of the Floor Plan Agreement; Clause 18.1 of the Credit Facility Agreement, Clause 24 of the Spare Part Agreement and Article 30.1 of the Term Loan Agreement and issued notice dated July 26, 2021 requesting the respondent to refer the disputes to the arbitration with its seat in Delhi. Through separate replies, the respondent Nos. 1 and 2 rejected the demand, resulting in filing of the present petition.
9. Written submissions have also been filed by the petitioner wherein a reference is made to the NCLT proceedings inasmuch as Corporate Insolvency Resolution Process ('CIRP' for short) has commenced against Platino pursuant to order dated March 8, 2021 in IBA 25/2020 by the NCLT, Kerala. It is also stated that the respondent No.1 filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ('IBC' hereinafter) against the petitioner before NCLT, Kochi. Reference is also made to an application filed under Section 8 of the Act of 1996. The application under Section 7 of the IBC has been admitted vide order dated October 6, 2021 by the NCLT, Kochi and application under Section 8 of the Act of 1996 was held to be infructuous.
10. I must state here, in the submissions of the respondents, reference is made with regard to the proceedings before the Kerala High Court in W.P.(C) 22280/2021, which was decided on November 16, 2021, wherein it Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 is recorded that an appeal has already been filed before the NCLAT against the order dated October 6, 2021. The Court continued the interim order for a period of three weeks for the petitioner in the writ petition to get necessary orders from the NCLAT in the meanwhile.
11. I must state here that no reference is made during the submissions as to what happened to the appeal before the NCLAT. Mr. Vincent, the Resolution Professional has appeared in the proceedings and it is not his case that there is a stay of the order dated October 6, 2021. The submissions on behalf of the petitioner are the following:
i. Unilateral appointment of the Arbitrator is not valid. ii. Non signatory can be made party to the arbitration proceedings.
iii. Pendency of application under Section 8 would not bar the remedy under Section 11 of the Act of 1996. iv. Question of joinder of third parties to the arbitration proceedings can be decided by the Arbitral Tribunal under Section 16 of the Act of 1996.
12. In so far as the plea that a non-signatory can be made a party in the arbitration proceedings, learned counsel for the petitioner has relied upon the e-mail dated June 21, 2019 of the respondent No.1 wherein the respondent No.1 has referred to the e-mail of the petitioner dated June 11, 2019, wherein it is inter alia stated that the respondent No.2 is a related party of the respondent No.1. According to him, respondent No.2 being a related party, petitioner can seek reference qua the said respondent. He has also referred to the pleadings in the petition, more particularly at page 12 of Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 the petition wherein the petitioner has referred to the respondent No.2 as a sister concern of the respondent No.1. The submissions of the petitioner also state that the following elements stand satisfied for a reference with regard to both the respondents:
a. Commonality of the subject matter.
b. Inter-connected and inter-related agreement where one agreement cannot be enforced without the aid and execution of other agreement.
13. A reference in this regard has been made to Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water Purification, 2013 (1) SCC 641; Cheran Properties Limited v. Kasturi and Sons Limited 2018 (6) SCC 413, Ameet Lalchand Shah vs Rishabh Enterprises, 2018 SCC OnLine SC 487. On the plea that pendency of the application under Section 8 would not be a bar for the petition under Section 11 of the Act of 1996 is concerned, reliance is placed on the Judgment in the case of Vijay Kumar Sharma v. Raghunandan Sharma, 2010 4 SCC 486. Similarly, on the question of joinder of third parties, it is stated, it can be decided by the Arbitral Tribunal under Section 16 of the Act of 1996. Reliance is placed on the Judgment of this Court in the case of STCI Finance Limited v. Sukhmani Technologies Pvt. Ltd., 2016 235 DLT 350.
14. On the other hand, the learned counsel appearing for the respondents would, separately, with regard to both the respondents, contest the petition. In the absence of the respondent No.2 being a party in all the four agreements, the petition is not maintainable qua the said respondent. He also states that respondent No.2 is a separate and distinct legal entity. He Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 also relies upon the Judgments of Vijay Kumar Sharma (supra); Jagdish Chander v. Ramesh Chander & Ors., 2007 5 SCC 719; S.N.Prasad v. M/s Monnet Finance Ltd.& Ors., 2011 1 SCC 320.
15. He also, by referring to the order dated October 6, 2021 of the NCLT states, the present petition is barred by principle of res judicata inasmuch as the petitioner had filed an application under Section 8 of the Act of 1996 seeking reference of the disputes to an Arbitral Tribunal. The said application has been held to be infructuous by the NCLT while admitting the application under Section 7 of the IBC. In this regard, he relies upon the Judgment of the Supreme Court in the case of Indus Bio-Tech Pvt. Ltd. v. Kotak India (Offshore) Fund, Arbitration Petition (Civil) No. 48/2019 as according to the counsel, the Court held the outcome of the insolvency application would anyway befall on the application under Section 8.
16. The learned counsel for the respondents states as the application under Section 8 is not pending, the question of liberty contained in Section 8(3) of the Act i.e., the liberty for an arbitration to be commenced or continued and an arbitral award made when an application under Section 8(1) of the Act, is pending would no longer arise. He relies on the judgment in the case of Anil v. Rajendra, (2015) 2 SCC 589 to contend that in a suit, the order passed by the civil court that it was well within its jurisdiction to try the suit, despite the objection regarding the existence of a clause for arbitration, having become final, jurisdiction of the Chief Justice under Section 11(6) of the Act of 1996 cannot be invoked by either party. The principle of res judicata will also be attracted in such a case.
17. According to the learned counsel for the respondents, by referring to paragraphs 25 to 27 of the judgment in the case of Indus Bio-Tech (supra), Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 the NCLT having come to a conclusion to admit the application under Section 7 of the IBC, the proceedings get transformed into a proceeding in rem, having erga omnes effect, due to which the question of arbitrability of the so-called inter-se dispute sought to be put forth would not arise. But on the other hand, on such consideration made by the adjudicating authority, if the sanction is recorded that there is no default committed by the company, the petition would stand rejected, which would leave the field open for the parties to secure the appointment of the Arbitral Tribunal in appropriate proceedings as contemplated in law.
18. He states the Addendum Agreement dated May 17, 2017 executed between the respondent No.1 i.e., BMW India Financial Services Private Ltd., Platino Classic Motors India Private Limited and the petitioner, i.e., Koyenco Autos Pvt. Ltd., the following was agreed to:
"A. The Parties have entered into a Floorplan Facility Agreement on 06.09.2010, Working Capital Agreement on 13.12.2010, Spare Parts facility agreement on 14.01.2015 and its subsequent amendments whereunder BMW Financial Services has granted finance to Borrower In the capacity of a borrower (together referred to as "Agreement").
B. The Borrower is desirous to ado Co-borrower as the Co- borrower and the Co-Borrower is desirous of being added as Co-Borrower to the aforesaid Agreement.
C. All the rights and obligations under the Agreement remains the same and be jointly and severally shared by the Borrower and Co-borrower.
D. In order to give effect to the amendment thereof, Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 Borrower has requested BMW Financial Services to consider tho same on the terms and conditions contained herein."
19. The Addendum Agreement dated May 17, 2017 further reads as under:
"1. With effect from 17.05.2017 Co-Borrower shall assume as Co-borrower, the rights, interests and liabilities of Borrower to the Agreement referred to above. Co-Borrower undertakes to comply with all the terms and conditions specified in the Agreement along with the Schedules and related documents executed along with the Agreement and to be bound by the terms and conditions of this addendum.
2. Co-Borrower hereby agree that all rights and obligations of borrower under the Agreement shall also vest with himself alongwith Borrower and be shared jointly by both.
3. With effect from the date as specified in clause 1 above, Co-Borrower shall be treated as if it had originally been a party to the Agreement and all references in the Agreement and documents executed along with the Agreement, in any capacity shall be read and construed as if they were references to the Co-borrower;
4. Borrower and Co-borrower agrees to release, indemnify and keep indemnified from and against any liability Incurred as a result of any action, demand, claim or proceeding against BMW Financial Services at any time by any party under or in respect of the Agreement relating to any act or omission of the Borrower and Co-borrower at any time (including prior to the Date of this addendum).
5. The following definitions shall be added to Article 2 "SARFAESI" means the Securitisation and Reconstruction Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 of Financial Assets and Enforcement of Security Interest Act 2002 as amended from time to time; and"
(J "DRT" means the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 as amended from time to time"
6. Article shall be amended and restated as follows:
"Any dispute, controversy or claim arising out of or relating to this Financing Agreement or any related agreement or other documents or the validity, Interpretation, breach or termination thereof ("Dispute"), Including claims seeking redress or asserting rights under applicable law, shall be resolved and finally settled in accordance with the provisions of the Arbitration and Conciliation Act. 1996 as amended from time to time (the "Arbitration Act"). The Parties consent to a single, consolidated arbitration for all Disputes that may at the time exist. The arbitral tribunal shall comprise or a sole arbitrator to be appointed by the BMW Financial Services. The arbitration proceedings shall be conducted in English. The arbitration shall be conducted In Delhi. The arbitral tribunal shall determine the Dispute in accordance the law or India and the award passed by the Arbitral Trtounal shall be final and binding on the Parties.
Notwithstanding anything contained in this Financing Agreement including in particular this clause, the Parties agree that the BMW Financial Services (i) is a "financial institution" under SARFAES1 and (ii) shall at all times retain and have the benefit of all its rights under SARFAESI and DRT relating to the enforcement of its security interests relating to this Agreement."
7. All of the terms and provisions as stated in the Agreement except as herein modified are to remain in full force and effect during the term of agreement."
20. The learned counsel for the respondents has also referred to the Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 arbitration clause in the Addendum Agreement being clause 6, which I have reproduced above. He submits, clause 6 governs the petitioner and the respondent No.1 only.
21. According to the counsel, the plea for appointment of an Arbitrator, when the application under Section 8 has been held to be infructuous, shall amount to circumventing the order already passed and as such, the plea need to be rejected on the ground of res judicata.
CONCLUSION
22. Having heard the learned counsel for the parties, insofar as the first submission of the learned counsel for the respondents that the petition qua the respondent No.2 is not maintainable as the respondent No.2 is not a party to the agreement is concerned, it is a fact that all the agreements of which reference has been given above, have been executed between the petitioner and / or Platino Classic Motors India Private Limited and the respondent No.1. But the case of the petitioner is that the respondent No.2 is a related party / sister concern of the petitioner.
23. I find, except the aforesaid representation, nothing further has been stated in the petition to invoke the Doctrine of Group of Companies / Related Party Argument. Surely, foundation should have been laid, in the petition in confirmity with law, to establish that, both the respondents are required to be referred to arbitration as, without either of them, the dispute cannot be resolved. Suffice to state, this Court in the case of KKR India Private Financial Services Limited & Anr. v. Williamson Magor & Co. Limited & Ors, O.M.P.(I) (COMM.) 459/2019, decided on November 23, 2020, has, on the basis of law laid down by the Supreme Court, culled out the following principles that are required to invoke the above doctrine / Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 argument as under:
1. „Group Companies Doctrine‟, is an exception whereby arbitration agreement binds a non-party or a non-signatory as well;
2. The arbitration agreement entered into by one of the companies in the group and the non-signatory affiliate, or sister, or parent concern is held to be bound by the arbitration agreement, if the facts and circumstances of the case indicate a mutual intention of all parties to bind both the signatories and non-signatory affiliates in the group, or;
3. This Doctrine gets attracted when a non-signatory entity on the Group, was engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, or;
4. In cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality, especially when funds of one company is used to financially support or re- structure other members of the group, or;
5. Doctrine can be invoked to bind non-signatory affiliate of a parent company or inclusion of a third party to arbitration, where there is a direct relationship between the party which is a signatory to the arbitration agreement or there is direct commonality of the subject matter.
6. Even if all parties to the lis were not signatory to all the agreements, but none of the Companies was a stranger to these transactions; parties intended, executed and implemented a composite transaction."
24. In the case in hand, the respondents are separate legal entities. The facility advanced was by the respondent No.1. The terms of the facility extracted above are very clear, that, the petitioner is a co-borrower with Platino. There is nothing in the agreement (s) to bind respondent No.2, except stating that respondent No.2 introduced respondent No.1. There is no averment in the petition that respondent No.2 was engaged in negotiation or Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 performance of the contract. No financial link between the respondents has been pleaded. There is also no commonality of subject matter except the loan was taken to finance the purchase of spare parts from respondent No.2. So it follows, the petition qua respondent No.2, who is not a signatory to the above agreements shall not be maintainable.
25. Having said that, even the alternative argument of the learned counsel for the respondents that in view of the dismissal of the application under Section 8 of the Act of 1996 filed by the petitioner, the dispute, if any, cannot be referred to the arbitration, is appealing. The Supreme Court in paragraphs 25 to 27 of Indus Bio Tech (supra) which are reproduced as under, has clearly held, "in such event, the consequence of the consideration made therein on Section 7 of IB Code application would befall on the application under Section 8 of the Act, 1996":
"25. As noted, the issue which is posed for our consideration is arising in a petition filed under Section 7 of IB Code, before it is admitted and therefore not yet an action in rem. In such application, the course to be adopted by the Adjudicating Authority if an application under Section 8 of the Act, 1996 is filed seeking reference to arbitration is what requires consideration. The position of law that the IB Code shall override all other laws as provided under Section 238 of the IB Code needs no elaboration. In that view, notwithstanding the fact that the alleged corporate debtor filed an application under Section 8 of the Act, 1996, the independent consideration of the same dehors the application filed under Section 7 of IB Code and materials produced therewith will not arise. The Adjudicating Authority is duty bound to advert to the material available before him as made available along with the application under Section 7 of IB Code by the financial creditor to indicate default along with the version of the corporate debtor. This is for the reason that, keeping in perspective the scope of the Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 proceedings under the IB Code and there being a timeline for the consideration to be made by the Adjudicating Authority, the process cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process. In that view, even if an application under Section 8 of the Act, 1996 is filed, the Adjudicating Authority has a duty to advert to contentions put forth on the application filed under Section 7 of IB Code, examine the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not. While doing so the contention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default. If the irresistible conclusion by the Adjudicating Authority is that there is default and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties indisputably contains an arbitration clause.
26. That apart if the conclusion is that there is default and the debt is payable, due to which the Adjudicating Authority proceeds to pass the order as contemplated under subsection 5(a) of Section 7 of IB Code to admit the application, the proceedings would then get itself transformed into a proceeding in rem having erga omnes effect due to which the question of arbitrability of the so-called inter se dispute sought to be put forth would not arise. On the other hand, on such consideration made by the Adjudicating Authority if the satisfaction recorded is that there is no default committed by the company, the petition would stand rejected as provided under sub-section 5(b) to Section 7 of IB Code, which would leave the field open for the parties to secure appointment of the Arbitral Tribunal in an appropriate proceedings as contemplated in law and the need for the NCLT to pass any orders on such application under Section 8 of Act, 1996 would not arise.
27. Therefore, to sum up the procedure, it is clarified that in any proceeding which is pending before the Adjudicating Authority under Section 7 of IB Code, if such petition is admitted upon Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 the Adjudicating Authority recording the satisfaction with regard to the default and the debt being due from the corporate debtor, any application under Section 8 of the Act, 1996 made thereafter will not be maintainable. In a situation where the petition under Section 7 of IB Code is yet to be admitted and, in such proceedings, if an application under Section 8 of the Act, 1996 is filed, the Adjudicating Authority is duty bound to first decide the application under Section 7 of the IB Code by recording a satisfaction with regard to there being default or not, even if the application under Section 8 of Act, 1996 is kept along for consideration. In such event, the natural consequence of the consideration made therein on Section 7 of IB Code application would befall on the application under Section 8 of the Act, 1996."
26. There is no dispute that an application under Section 7 of the IBC has been admitted by the Adjudicating Authority recording the satisfaction with regard to the default and the debt being due from the corporate debtor, i.e., the petitioner herein. In such a situation, the Supreme Court held that the application under Section 8 of the Act of 1996 shall not be maintainable. On the NCLT admitting the application under Section 7 of the IBC, the proceedings get transformed into a proceeding in rem due to which the question of arbitrability of the dispute would not arise. But if the Adjudicating Authority records satisfaction that there is no default by the Company then the application under Section 7 of the IBC would stand rejected, leaving the field open for the parties to secure the appointment of the Arbitral Tribunal. So in that sense, the present petition for appointment of Arbitrator shall not be maintainable till such time the NCLT is seized of the matter. It is not the case in the petition, that the application under Section 7 of the IBC has been rejected. The plea of the counsel for the respondents that the attempt of the petitioner is to circumvent the order of Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02 the NCLT dated October 6, 2021, to seek appointment of the Arbitrator is appealing. The counsel for the respondents are justified in placing reliance on the Judgment of the Supreme Court in Anil (supra) to state that once application under Section 8 of the Act of 1996 has been held to be infructuous, in the facts as governed by law laid down by the Supreme Court in the case of Indus Bio-Tech (supra), the present petition cannot be entertained. Accordingly, the prayer as sought for in the present petition cannot be granted and the petition is closed, but with no order as to costs.
V. KAMESWAR RAO, J.
SEPTEMBER 6, 2022/aky/jg Signature Not Verified Digitally Signed By:ASHEESH KUMAR YADAV Signing Date:15.09.2022 15:25:02