Read Time: 06 minutes

Supreme Court Bench led by Chief Justice Bobde made significant observations in a matter seeking appointment of Arbitrator, where Application under Section 7 IBC has already been moved.

Arguments on behalf of the Petitioners were made by Learned Senior Advocate(s) Mr. Shyam Divan, Mr. C.A. Sundaram and Mr. Mukul Rohatagi.

Respondents were represented by Senior Counsel Mr. Abhishek Manu Singhvi and Mr. Khambata.

Petitioners vehemently submitted that;

NCLT has no jurisdiction to entertain an application under Section 7 IBC as the very ingredients of the same are not met; There are three “Jurisdictional Fact” under Section 7 that must be proved; existence of a “Corporate Debtor”, occurrence of a “Default” on the part of such Corporate Debtor and a “Financial Creditor” applying for initiation of Corporate Insolvency Resolution Process.

Bharat Biotech cannot be called a “Corporate Debtor” as per Section 3(8) IBC, 2016 as it has been paying dividends around 19 Crores to the Respondents and as a well-known matter of fact, the same is arising out of its profits.

“By no stretch of imagination are we an Insolvent Company. We are a debt free company with around 200 patents”, submitted Mr. Divan.

“IBC cannot be used to push a profit making company into Insolvency for commercial gain or when the shares cannot be redeemed at an appropriate time,” Learned Senior Counsel added.

Neither Kotak India can be called a “Financial Creditor” as per Section 5(7) IBC, 2016. The position is that Kotak India had subscribed for Equity Shares and Optionally Convertible Redeemable Preference Shares of Bharat Biotech. The company wants to go for an IPO for which SEBI Regulation mandates conversion to Equity shares. The dispute, which essentially is a subject matter of Arbitration is, difference is percentage claim over Equity share capital.

As for matter of “Default”, there was unanimity on the fact that no Insolvency proceedings can commence unless there is an identifiable default by the Corporate Debtor, which as per the Petitioners, is a subject matter of the Arbitration Agreement.

On the contrary Learned Senior Counsel, Mr. Singhvi submitted that the determination of “default” falls within exclusive domain of the NCLT.

At this juncture, CJI enquired “what is the basic character of the money which is invested by a shareholder. Will that money be counted as a debt/loan?”

Learned Senior Counsel Mr. Rohtagi made a limited submission that number of shares which the respondents may get if the petitioners launch an IPO, cannot be an issue under IBC.

Reliance was placed on Vidya Drolia v. Durga Trading Corporation, CIVIL APPEAL NO. 2402 of 2019 and Booz Allen v. SBI Home Finance Ltd., (2011) 5 SCC 532, Innoventive Industries v. ICICI Bank.

Arguments for Respondents listed on Tuesday.