In a significant ruling, the Karnataka High Court has set aside the order of the Commercial Court, which had restrained L&T Infra Investment Partners Advisory Pvt. Ltd. (L&T) from continuing with arbitration proceedings against Bhoruka Power Corporation Ltd. (BPCL) and its promoter shareholders.
The dispute arose from a Compulsorily Convertible Debenture (CCD) Agreement, under which BPCL and its promoters were required to provide an exit to L&T within 60 months, i.e., by June 2018. When no buy-back was made despite notices, L&T declared it as default, sent further notices, and attempted negotiations, but these efforts failed.
Later in 2023, L&T assigned a portion of its CCDs (25,771 out of 32,500) to Phoenix ARC, while retaining 6,729 CCDs. In April 2024, L&T issued a sale notice, demanding that BPCL and its promoters repurchase the retained CCDs and equity shares for an aggregate value of approx. ₹1,324 crore, calculated to ensure an Internal Rate of Return (IRR) of 22% per annum on the investment.
When BPCL and its promoters failed to comply, L&T invoked the arbitration clause and filed a request before the London Court of International Arbitration (LCIA). BPCL objected to it, contending that the arbitration clause under the CCD Agreement contemplated arbitration only under the LCIA India Rules. Since LCIA India, a domestic arbitral institution set up in New Delhi, ceased operations in 2016, they argued that the arbitration clause stood frustrated. They also claimed that arbitration before LCIA, London would be “oppressive” due to high costs and the application of the laws of the UK.
In April, 2024, Commercial Court, while deciding the commercial suit filed by BPCL, granted an injunction restraining L&T from continuing with LCIA arbitration. L&T challenged this order before the High Court.
On L&T’s appeal, the Division Bench Chief Justice Vibhu Bakhru and Justice CM Joshi held that the Commercial Court had erred in issuing such an injunction. The Court emphasised that Section 5 of the Arbitration & Conciliation Act, 1996 (“Act”) bars civil courts from interfering in arbitral proceedings, except where expressly permitted. It further noted that objections to jurisdiction or the validity of the arbitration agreement must be raised before the arbitral tribunal itself under Section 16 of the Act.
The Court rejected the respondent’s argument about the frustration of the arbitration clause and observed that the fact that LCIA India ceased operations does not render the arbitration clause inoperative. Instead, arbitration clause must be read with the amended LCIA Rules 2020, which provide that arbitration will be administered by LCIA London. The Court also dismissed the cost-based objection, holding that higher arbitrator fees alone cannot render the proceedings vexatious or oppressive.
Accordingly, the High Court set aside the injunction and allowed the arbitral proceedings to continue.
Appearances
Appellant- Shri Sri Dhyan Chinnappa, Senior Advocate a/w Sri Mohammed Shameer, Advocate, Ms. Lavanya B. Ananth, Ms. Nidhi & Mr. Sudheesh Kesarkar, Advocates.
Respondent- Sri Udaya Holla, Senior Advocate a/w Mr. Pradeep Dara K., Mr. Yajit Sarna & Mr. Sudev Juneja, Advocates.
