Case Summaries

Gokul Patnaik v Nine Rivers Capital Limited (Case Summary)

12 November 2020

Case summary

SIC/OS 4/2020 and SIC/SUM 830/2020

Gokul Patnaik v Nine Rivers Capital Limited [2020] SGHC(I) 23

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Decision of the Singapore International Commercial Court (delivered by Vivian Ramsey IJ):

Outcome: SICC disallows application to set aside SIAC arbitral award.

Background

1. Pursuant to a Share Subscription and Shareholders Agreement dated 4 March 2010 (“the SSSA”), Nine Rivers Capital Limited (“Nine Rivers”) subscribed to various investor securities in Global Agrisystem Private Limited (“GAPL”), a company incorporated under the laws of India. Mr Patnaik and Katra Finance Limited (“Katra Finance”), a company incorporated under the laws of Mauritius, were defined as “Promoters” in the SSSA. Under the SSSA, the parties agreed to a “Qualified Exit”, ie that GAPL would undertake an initial public offering of its shares with a valuation of not less than INR 4,000,000,000. In the event that a Qualified Exit did not occur by 31 March 2014, Nine Rivers was entitled to exercise various rights under section 16.5 of the SSSA in order to secure its exit from GAPL.

2. The Qualified Exit did not occur by 31 March 2014. Thus, pursuant to processes under section 16.5 of the SSSA, the parties agreed that Katra Finance would purchase the securities owned by Nine Rivers for a sum of INR 302,500,000 (“the 2014 SPA”). When this did not happen, various amendments were made to the 2014 SPA which included, inter alia, making Mr Ramesh Vangal (“Mr Vangal”) an additional purchaser of the securities (“the 2015 Amendment”). However, neither Mr Vangal nor Katra Finance completed the purchase of the securities in accordance with the 2014 SPA, as amended by the 2015 Amendment.

3. On 16 December 2016, pursuant to section 17.2.2.1 of the SSSA, Nine Rivers called upon Mr Patnaik and Katra Finance, as Promoters of the SSSA, to purchase the securities for INR 1,329,000,000 (“Investor Put Option”). Mr Patnaik and Katra Finance did not complete that purchase either. As a result, Nine Rivers commenced arbitration in the Singapore International Arbitration Centre on 5 May 2017 pursuant to an arbitration agreement contained in clause 11.12 of the 2014 SPA, as amended by the 2015 Amendment (“the Arbitration”). In the Arbitration, Nine Rivers sought payment from certain respondents, including Mr Patnaik and Katra Finance, for the securities that it held in GAPL

4. The arbitrator found that Mr Patnaik and Katra Finance were jointly and severally required to purchase the securities held by Nine Rivers pursuant to the Investor Put Option for INR 1,329,000,000 (“the Award”). Mr Patnaik then commenced the present Originating Summons No 4 of 2020 (“OS 4”), which was heard before the Singapore International Commercial Court, to set aside the Award under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”). Nine Rivers also filed Summons No 830 of 2020 (“SUM 830”) to strike out a new expert affidavit on Indian law filed by Mr Patnaik to show that the SSSA and the 2014 SPA were in breach of Indian law.

The court’s decision

5.The court dismissed OS 4. First, the Award did not contain decisions on matters beyond the scope of the submissions to the Arbitration. The arbitrator correctly found that the arbitration agreement in clause 11.12 of the 2014 SPA, as amended by the 2015 Amendment, was widely drawn to cover disputes arising “out of or in relation to or in connection with the interpretation or implementation of” the 2014 SPA (at [83]). The issues of whether Nine Rivers was entitled to relief under section 17.2.2.1 of the SSSA arose “out of or in relation to or in connection with the implementation of” the 2014 SPA (at [84]–[85]). This is because the failure of Mr Vangal and Katra Finance to meet their obligations under the 2014 SPA amounted to a “Default” under clause 8.1 of the 2014 SPA, and clause 8.1 of the 2014 SPA entitled Nine Rivers to exercise any other rights and remedies under the SSSA – which would include the right to exercise the Investor Put Option under section 17.2.2.1 of the SSSA – upon a “Default” (at [75]). Thus, the Award could not be set aside under Art 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”).

6.Second, there was no breach of the rules of natural justice occurring in connection with the making of the Award. Mr Patnaik submitted that he had been deprived of the right to a fair hearing because the arbitrator did not allow Mr Patnaik to amend his pleadings at the start of the Arbitration. However, the court found that Mr Patnaik’s submission was essentially a challenge to the Arbitrator’s decision not to allow the amendment, rather than a challenge to the fairness of the hearing of the application to amend (at [121]). The amended pleadings were raised late by Mr Patnaik and slipped into opening submissions for the Arbitration. This led to Mr Patnaik having to make an application to amend. The parties were allowed to ventilate their submissions on the amendment application fully, both in writing and orally. The arbitrator allowed one amendment but disallowed two amendments only after hearing submissions from parties (at [122]–[127]). In the circumstances, there was no breach of the rules of natural justice and the Award could not be set aside under s 24(b) of the IAA.

7. Third, the Award was not in conflict with the public policy of Singapore. Mr Patnaik submitted that the SSSA and the 2014 SPA breached Indian law and Indian public policy because they are inconsistent with the Indian Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations (“FEMA Regulations”). Mr Patnaik submitted that it would therefore be a breach of international comity, and thus Singapore public policy, to allow the Award to stand. However, the arbitrator had already found that the SSSA and the 2014 SPA were not contrary to Indian law (at [182]–[186]). These are findings of fact which cannot be reopened by the court (at [187]) and, in any event, the court would not have intervened in the circumstances of this case (at [192]). Furthermore, even if the SSSA and 2014 SPA breached the FEMA Regulations, the threshold under Art 34(2)(b)(ii) of the Model Law is “very high”, and Mr Patnaik had not shown how the alleged breaches of the FEMA Regulations would “shock the conscience” or “violate the most basic notions of morality and justice” (at [201]–[204]). Consequently, the Award could not be set aside under Art 34(2)(b)(ii) of the Model Law. The court therefore allowed the application in SUM 830 and struck out the new evidence of Indian law.

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.