Failure of a party to an Arbitration proceeding to disclose the factum of sanction of a scheme under Section 230 of the Companies Act, 2013 would not result in termination of the proceedings: Delhi HC

Harshit Sharma | Amity Law School, Madhya Pradesh | 1st January 2020

Jindal Stainless Limited V/s. Moorgate Industries Private Limited., OMP (I) (COMM.) 333/2016

FACTS OF THE CASE

1. In April 2012, Moorgate via its predecessor-in-interest Stemcor India Pvt. Ltd had entered into a job works contract with Jindal Stainless Steel Ltd (JSL).
2. Under the contract, JSL was required to convert coal supplied by Moorgate into coke at JSL’s Coke Oven Facility situate at Kalinga Nagar Industrial complex, Duburi, Jaipur, Odisha.
3. Thereafter, disputes arose between Stemcor and JSL and in June 2013, a sole arbitrator was appointed in terms of Section 9 of Arbitration Act, with consent of the parties.
4. Meanwhile, JSL, for its own reasons, moved the Punjab & Haryana High Court for sanctioning a scheme of arrangement between itself and its sister concerns which included Jindal Coke Ltd (JCL).
5. This scheme involved demerger and transfer of the Coke Oven Facility to JCL and was sanctioned by the Punjab & Haryana High Court in September 2015 and October 2015. The scheme also received the requisite clearance from Odisha Industrial Infrastructure Development Corporation (IIDCO).
6. As per the records, JCL authorized JSL to realise and pay all monies and to complete, enforce or discharge all pending contracts, arrangements and obligations in relation to the business undertaking “in trust” for JCL.
7. It is in this background that in January 2017, JSL lodged a claim with the arbitrator for Rs.100.42 crores from Moorgate. Moorgate, in turn, filed a counter-claim against JSL amounting to Rs.13.85 crores.
8. After Moorgate became aware of the scheme sanctioned by the Punjab & Haryana High Court, it moved an application before the arbitrator for the termination of arbitration proceedings under Section 32 of the Arbitration Act on the ground that JSL now had no locus with respect to the subject business undertaking.
9. After the application was rejected, Moorgate Industries Pvt. Ltd. moved the Delhi High Court.

ISSUES RAISED

1. Whether the failure on the part of JSL to disclose the factum of sanction of the scheme by Punjab & Haryana High Court should result in termination of the arbitration proceedings?

RULING OF THE COURT/ THE COURT HELD THAT

The Delhi High Court has held that failure of a party to an arbitration proceeding to disclose the factum of sanction of a scheme under Section 230 of the Companies Act, 2013 would not result in termination of the proceedings, and observed the following:

1. “The court, while sanctioning the scheme, is required to examine, not its commercial wisdom, but whether or not it is violative of any provision of law or is unconscionable or contains provisions which are contrary to public policy. Once the court reaches to a conclusion that the scheme preferred does not violate any statutory provision and is not unfair to those who would be impacted by the scheme .. and, therefore, is neither unconscionable nor otherwise contrary to public policy, it puts its imprimatur on the scheme. The scheme operates as law and upon being sanctioned binds third parties as well.”
2. Given the nature of the scheme at hand, the Court opined that whether JSL disclosed the fact that the scheme had been sanctioned by the Punjab & Haryana High Court mattered “very little”.
3. “..in the eyes of law, all rights, obligations and liabilities, as envisaged under the scheme qua business undertaking No.3 stood transferred in favour of JCL. Further steps that had to be taken to effectuate the transfer were ministerial… Therefore, the only entity in my view which could have the carriage of proceedings would be JCL irrespective of the fact whether JSL disclosed this aspect to this court or the arbitral tribunal.”

Thus, for the foregoing reasons, the Court found no merit in the petition preferred by Moorgate and the same was dismissed.