The Delhi High Court has dismissed a petition by GVK Airport Holdings Limited seeking to restrain Bid Services Division (Mauritius) Limited from offering or selling its shareholding in Mumbai International Airport Limited to any person other than the Petitioner (GVK).
The judgment was passed by a Single Judge Bench of Justice Sanjeev Narula in a plea by GVK Airport Holdings Limited.
The petitioner, GVK Airport Holdings and the respondent, Bid Services Division, along with ACSA Global Ltd and the Airports Authority of India (AAI) are the shareholders of Mumbai International Airport Limited (MIAL) in terms of a Shareholders Agreement (SHA) dated April 4, 2006.
As per Clause 3.7.1 of the SHA, the petitioner had a right of first refusal (ROFR) in respect of the shares of Respondent, if the same were desired to be sold. Pursuant to the ROFR Clause, the respondent offered its entire shareholding of 16,20,00,000 shares i.e. 13.5% stake in the MIAL for sale to the petitioner for an aggregate consideration of not less than Rs 1248,75,00,000.
It was the petitioner’s stance that the offer was accepted resulting in a binding agreement between the parties for the sale of shares. Yet, the shares were subsequently offered to the AAI by the respondent.
Following disputes with respect to the sale of shares and ROFR which spanned over three months and included a series of communication between the parties, the petitioner invoked the arbitration clause of the SHA by way of a notice dated April 25, 2019.
The petitioner also invoked Section 9 of the Arbitration Act seeking to restrain the respondent from selling the shares to third parties until the arbitration is disposed of.
The petitioner argued that the scope of powers of the Court under section 9, at the stage of grant of injunction as interim relief, was limited and that it should only focus on not rendering the arbitration proceedings infructuous.
It was contended that plea merely sought preservation of the subject matter of the arbitration i.e. the shares, till the arbitral tribunal is constituted. Once the arbitration proceedings were set in motion, the parties could invoke Section 17 to seek appropriate reliefs including modification or variation of the orders passed under Section 9 of the Act, it was added.
The petitioner further argued that at this stage, the test of specific performance and the attending attributes for grant of interim order need not be applied as it was not seeking specific performance of any affirmative agreement.
Instead, the injunction pertained to the enforcement of a negative agreement i.e. not to create third party rights or offer to sell the subject shares to any other party within the meaning of Section 42 of the Specific Relief Act.
The petitioner also stated the requirement of having available funds for establishing that petitioner was “ready and willing” was not applicable in the present case.
Stressing that there was a concluded contract between the petitioner and respondent for the transfer of the shares, the petitioner further claimed that the respondent had delayed completion of the transaction by not performing its reciprocal obligations while the petitioner had always been ready and willing to perform its part of the obligations.
The petitioner, therefore, concluded that the balance of convenience lied in favour of the petitioner and irreparable injury would be caused to it if the respondent was not restrained from offering its shares to a third party.,
The respondent, on the other hand, argued that the balance of convenience did not lie in favour of the petitioner as the transfer of the shares to AAI would not happen instantaneously. It was contended that the Petitioner’s ROFR had lapsed since the transaction was not completed within the period stipulated in the agreement. The Respondent also argued that the petitioner could not evade the burden of establishing its financial capacity to complete the transaction.
After hearing the parties, the Court observed that the Court while exercising its power under Section 9 of the Act for grant of interim measures could decide the petition de hors the context of the arbitration proceedings.
“Sub Section (3) of section 9 of the Act read along with amended Section 17 of the Act cannot be construed to mean that the Court’s jurisdiction under Sub Section (1) of Section 9 is reduced or curbed. From the reading of the amended Section 9 and/or Section 17 it cannot be interpreted that the Court while deciding the petition under Section 9 of the Act should apply a different standard, only because the arbitral tribunal is now empowered to pass orders of interim nature that are enforceable as an order of the Court.”
It thus stated that the scope of Section 9 could not be limited only to the extent of preservation of the subject matter.
Preservation of the “subject matter” may be necessary, however, that cannot be granted on the asking of a party, it said.
The Court also rejected the petitioner’s contention that the rigours of the grant of interim relief in a case relating to specific performance would not apply while dealing with petitions under Section 9.
“..the Court is of the considered opinion that a party applying under Section 9 of the Act, has to establish the well-known attributes that are necessary for grant of the equitable relief of injunction. The general rules that govern the Court while considering the grant of interim injunction, are equally applicable while dealing with a petition under Section 9 of the Act.”
It added that the threshold of prima facie case had to be rigidly applied and should be shown to exist in favour of the petitioner.
It consequently held that the petitioner could not be relieved of its burden to establish prerequisite obligation to show readiness and willingness to perform its obligations for obtaining the relief of specific performance.
After analyzing the petitioner’s conduct, the Court concluded that it had failed to discharge this obligation.
It observed,
“..Petitioner (GVK Airport Holdings Limited) did not show any genuine inclination to complete the transaction.. In chamber hearing, a general discussion took place regarding the manner in which the Petitioner proposed to make a payment for the shares, but the same was not acceptable to Respondent No. 1. Be that as it may, the Petitioner has chosen not to place on record any material to show its financial means and capacity to complete the transaction.. There is undeniably no genuine exhibition of readiness which could show that the Petitioner is serious in completing the transaction. There is not even an iota of evidence before the Court to substantiate the plea of readiness..
The facts as they have been unfolded, come across to the Court to show that the Petitioner has merely inflated the expectation of its readiness. Perhaps, the Petitioner is still struggling to get the ready funds. This is the blatant truth of the matter. Petitioner may be extremely ambitious to purchase the shares, but the enormity of the transaction amount requires the Court to be satisfied that the Petitioner has sufficient funds.”
The Court also added that prima facie there appeared to be no consensus on certain key terms of the agreement and it was thus doubtful that the contract stood concluded.
In view of these circumstances, the Court held that the balance of convenience did not lie in favour of the Petitioner.
“..granting an injunction can lead to a situation where the value of the property/subject matter would be altered. On the other hand even if the shares are not freely tradeable, the Petitioner would still have the remedy in the form of the damages and it is not that the Petitioner would be rendered remediless. More importantly, its conduct disentitles it to inequitable relief of injunction as it has not exhibited that it possesses adequate financial capacity to complete the acquisition of the shares.”, it said.
While dismissing the petition, the Court clarified that its opinion was merely a prima facie view and would not be binding on the Arbitral Tribunal.
“.. contentions of the parties and merits of the claims and/or counterclaims shall be examined uninfluenced by the observations made in this judgment. “, it said.
GVK Airport Holdings Limited was represented by Senior Advocate Rajiv Nayar with Advocates Kartik Nayar, Sarthak Malhotra and Rishab Kumar.
