Gokul Patnaik v Nine Rivers Capital Ltd

• Jurisdiction: Singapore
• Judge: Sir Vivian Ramsey IJ
• Judgment Date: 12 November 2020
• Neutral Citation: [2020] SGHC(I) 23
• Year: 2020
• Date: 12 November 2020
• Published date: 17 November 2020
• Hearing Date: 25 June 2020,26 June 2020
• Plaintiff Counsel: Ramachandran Doraisamy Raghunath and Josiah Fong Ren Jing (Peter Doraisamy LLC)
• Defendant Counsel: Joseph Lopez, Vanathi Eliora Ray, and Kyle Yew Chang Mao (Joseph Lopez LLP)
• Court: High Court (Singapore)
• Citation: [2020] SGHC(I) 23
• Docket Number: Originating Summons No 4 of 2020 and Summons No 830 of 2020

Vivian Ramsey IJ:Introduction

In these proceedings (SIC/OS 4/2020), the applicant (“Mr Patnaik”) applies under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) to set aside SIAC Award No. 073 of 2019 dated 24 June 2019 (the “Award”) made in arbitration proceedings ARB133/17/KRW (the “Arbitration”).

Mr Patnaik seeks to set aside the Award on three grounds:that the Award contained decisions on matters beyond the scope of the submissions to arbitration and so should be set aside under Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”);that there was a breach of the rules of natural justice in connection with the making of the Award and so should be set aside under s 24 of the IAA; and/orthat the Award is contrary to the public policy in Singapore and so should be set aside under Article 34(2)(b)(ii) of the Model Law.

In support of the application under Article 34(2)(b)(ii) of the Model Law, Mr Patnaik has filed an expert affidavit on Indian law by Justice Ananga Kumar Patnaik (“Justice Patnaik’s Affidavit”). The respondent (“Nine Rivers”) has applied to strike out that affidavit (“the Strike Out Application”) on the ground that the affidavit deals with issues of Indian law and public policy and is irrelevant to an application under Article 34(2)(b)(ii) of the Model law, which concerns the question of whether the Award is in conflict with the public policy of Singapore.

Background

The background to the Arbitration has been set out in the Award and I summarise it as follows.¹ In 2009, the parties to the Arbitration were involved in completing an investment of 300 million Indian Rupees (“INR”) to be made by Nine Rivers into Global Agrisystem Private Limited (“GAPL”), a company incorporated under the laws of India.

Ultimately this led to an investment being made pursuant to a Share Subscription and Shareholders Agreement dated 4 March 2010 (“the SSSA”). Pursuant to the SSSA, Nine Rivers, as “Investor”, subscribed to the following “Investor Securities” in GAPL:²100 equity shares of face value INR 10, each at a premium of INR 15.7, for an aggregate sum of INR 2,570 (“Investor Equity Shares”);3,000,000 Cumulative Compulsorily Convertible Preference Shares of GAPL (“CCPS”) bearing 6.67% dividend per annum, having a face value of INR 30 each at a premium of INR 70 per CCPS (“Investor CCPS”).

The SSSA defined GAPL as the “Company”. Each of Mr Patnaik, an Indian citizen, and Katra Finance Limited (“Katra Finance”), a company incorporated under the laws of Mauritius, were defined as a “Promoter”. Gokul Patnaik Associates Private Limited, a company incorporated under the laws of India; Gokul Patnaik (HUF), duly constituted and recognised as a Hindu undivided joint family under the laws of India; Mr Sunil Kumar Sharma, an Indian citizen; Katra Holding Private Limited, a company incorporated under the laws of India (“KHPL”); and Mr Ramesh Vangal, a resident of Singapore (“Mr Vangal”), were defined as the “Promoter Group”.³

In the Arbitration, Nine Rivers, as claimant, made each Promoter and each member of the Promoter Group a respondent. However, substantive relief was only sought against the Promoters, Katra Finance and Mr Patnaik, in their role as Promoters, among other things. No relief was sought against the members of the Promoter Group other than in respect of costs.

Section 20 of the SSSA provided for the Parties agreeing to undertake to commit themselves to all actions necessary to cause an initial public offering of the “Equity Shares” of GAPL or to seek a “Strategic Sale”, viz sale to any third party to change control of GAPL, satisfying each of various specified conditions. This was defined in the SSSA as a “Qualified Exit”. One of the conditions for the Qualified Exit was that the minimum value should be INR 4,000,000,000.⁴

Section 16.5 of the SSSA provided that, in the event that the Qualified Exit was not accomplished by 31 March 2014, Nine Rivers, as Investor, would have the right to:⁵sell all, or a portion, of its securities to any Third Party purchaser of its choosing without the Right of First Refusal to the Promoter(s); and/orby service of a Notice in the specified form, to drag along all or a portion of the securities held by the Promoter(s) to offer the same to the Third Party purchaser, provided that the securities of the Promoter(s) that are dragged along should be sold to any Third Party purchaser on the same terms and conditions as those of the Investor (“Drag Along Right”).

Section 16.5.3 of the SSSA provides that, within 21 days of the receipt of a Drag Along Notice, the Promoters had the right to make an unconditional and nonbinding first offer to purchase the Investor Securities (“the ROFO”). If the Promoters chose to exercise the ROFO, they were to notify the Investor of the offer price and provide information related thereto in a form set out in the SSSA.⁶

There was, in fact, no Qualified Exit by 31 March 2014 and, according to Nine Rivers, it exercised its Drag Along Right and Katra Finance elected to exercise its ROFO. This process was then encapsulated within an agreement (“the 2014 SPA”) under which Katra Finance agreed to purchase the “Sale Securities” from Nine Rivers at a “Purchase Consideration” of INR 302,500,000, plus various other amounts.

The Sale Securities were defined in the 2014 SPA as being:⁷

... collectively (i) the Equity Shares, the Seller CCPS and any other Company Equity Securities subscribed to or purchased by the Seller, (ii) any Equity Shares received by the Seller upon Conversion of any Seller CCPS; and (iii) any Company Equity Securities received by the Seller as a result of any Adjustment Event;

The 2014 SPA was signed by Katra Finance, by GAPL and by Mr Patnaik on his own behalf, on behalf of Gokul Patnaik (HUF) and on behalf of the same Promoter Group as defined in the 2014 SPA. Under the 2014 SPA, the Promoters were defined as being only Katra Finance (who is also defined as the Purchaser) and Mr Patnaik and the Promoter Group appeared to play no role.

In the event, Katra Finance did not purchase the Sale Securities from Nine Rivers in accordance with the 2014 SPA and there was a subsequent negotiation which resulted in variations to the payment mechanism and the time for payment. This led to amendments to the 2014 SPA which were recorded in the Addendum Agreement dated 4 December 2015 (“the 2015 Amendment”), which was signed by Mr Vangal on his own behalf and on behalf of Katra Finance and by Mr Patnaik on behalf of GAPL, himself as a Promoter and on behalf of the Promoter Group, as defined in the 2015 Amendment. The Promoter Group in the 2015 Amendment was a smaller group than that contained in the SSSA and the 2014 SPA because Mr Vangal, who was previously part of the Promoter Group, became both a Purchaser and a Promoter for the purposes of the 2015 Amendment.

However, neither Mr Vangal nor Katra Finance completed the purchase of the Sale Securities in accordance with the 2014 SPA or the 2015 Amendment. Between June 2016 and September 2016, Nine Rivers negotiated via email with Mr Vangal and various others in an attempt to secure the sale of the Sale Securities but no sale transpired.

On 7 October 2016, Nine Rivers sent a Notice of Default (“the Notice of Default”) to the respondents in the Arbitration, except for Gokul Patnaik Associates Private Limited, alleging that the “Promoter Group”, as defined in the Notice of Default, had all agreed to purchase the Sale Securities but had defaulted. Nine Rivers called upon that Promoter Group to rectify the default and purchase the Sale Securities for the Purchase Consideration as defined in the 2014 SPA. Nine Rivers accepted that the Notice of Default should have identified only the “Purchasers”, as defined in the 2015 Amendment, as having been obliged to purchase the Sale Securities.

On 16 December 2016, Nine Rivers sent Mr Patnaik, GAPL and Katra Finance a notice pursuant to section 17.2.2.1 of the SSSA (“the Put Option Notice”) calling upon the Promoters to purchase the Investor Securities (as defined in the SSSA) pursuant to the Put Option contained in section 17.2.2.1 of the SSSA (“Investor Put Option”), in an amount of INR 1,329,000,000 (“the Put Option Amount”).

Neither Katra Finance nor Mr Patnaik complied with the Put Option Notice and that led to the Arbitration in which Nine Rivers sought payment of the Put Option Amount, together with other relief.

Nine Rivers commenced the Arbitration on 5 May 2017 pursuant to the arbitration agreement contained in clause 11.12 of the 2014 SPA, as amended by the 2015 Amendment. That provided for arbitration under the Singapore International Arbitration Centre (“SIAC”) Rules, the applicable edition being the SIAC Rules (6th edition), effective from l August 2016. The seat of the Arbitration was Singapore.⁸

By clause 11.9 of the 2014 SPA, it was agreed that:

This Agreement shall be governed and interpreted by, and construed in accordance with, the laws of India and subject to clause 9.12 (Arbitration) [sic], the courts of Mumbai shall have the exclusive jurisdiction in respect of any dispute arising under or in relation to this Agreement.

Mr Charles Peter Manzoni QC, SC was appointed as the sole arbitrator (“the Arbitrator”) by the Vice President of the Court of Arbitration of SIAC on 26 February 2018. Directions were given and a hearing was held in Singapore from 11 to 13 February 2019, followed by written closing submissions. The Arbitrator made his award on 24 June 2019 (“the Award”).

In the Award, the Arbitrator found that:⁹1.The First Respondent, Mr Patnaik, and the Second Respondent, Katra Finance are jointly and severally required to purchase the Investor Securities, as defined in the SSSA, held by the Claimant Nine Rivers pursuant to the Put Option contained in Section 17.2.2.1 of the...