Banyan Tree Growth Capital L.L.C. v. Axiom Cordages Limited, Responsive Industries Limited and Wellknown Business Ventures LLP

At a glance

Parties

Banyan Tree Growth Capital L.L.C. (Mauritius) v. Axiom Cordages Limited, Responsive Industries Limited and Wellknown Business Ventures LLP (India)

Case no.

Commercial Arbitration Petition No. 476 of 2019 (Put Award) and No. 475 of 2019 (Escrow Award)

Court

High Court of Judicature at Bombay, Ordinary Original Civil Jurisdiction, G.S. Kulkarni, J.

Underlying award(s)

SIAC Arbitration No. 37 of 2016 (Put Award, 15 January 2019, as corrected) and SIAC Arbitration No. 36 of 2016 (Escrow Award, 15 January 2019, as corrected)

Forum and rules

Enforcement under Sections 47–49, Part II of the Indian Arbitration and Conciliation Act 1996 (New York Convention); underlying arbitrations under the SIAC Rules 2013, seated in Singapore

Treaty

Contract: Put Option Deed and Escrow Agreement (2008), governed by Indian law

Sector

Private equity investment; synthetic ropes manufacturing

Outcome

Both foreign awards declared binding and enforceable as decrees of the Court (30 April 2020). The respondents' request for a stay was refused.

Amount

Put Award: USD 11,140,000.00 in damages, with interest at 5.33% compounded annually from 20 September 2015 to the award and 6% thereafter; costs of USD 493,135.15, SGD 143,106.35 and INR 302,975.00; the respondents to bear SGD 468,467.81 in arbitration costs. Court proceedings: no order as to costs.

The dispute

Banyan Tree, a Mauritian closed-ended fund, invested in Axiom Cordages, an Indian maker of synthetic ropes. The investment was made under a Share Subscription Agreement and a Put Option Deed, both dated 12 September 2008, and an Escrow Agreement dated 30 September 2008. Axiom's promoters, Responsive Industries and Wellknown Business Ventures, granted Banyan Tree a put option as an exit. The option price was set by reference to a target annual yield of 15% (or 20%) in USD terms. The promoters' Responsive shares were held in escrow as security. In 2014 Wellknown moved the escrow shares out of the escrow account without authority. When Banyan Tree exercised the put on 21 August 2015, the promoters refused to pay, saying the Put Option Deed was illegal under FEMA and the SCRA. A SIAC tribunal upheld the deed and awarded damages. In the Bombay High Court, the respondents resisted enforcement on four grounds: the deed was insufficiently stamped under the Maharashtra Stamp Act 1958; it was an illegal derivative or forward contract under the SCRA; it gave an assured return in breach of FEMA; and enforcement would be contrary to the public policy of India.

Key holdings

1. Stamp duty objection rejected. The respondents raised it for the first time in an additional affidavit after ten years of treating the deed as duly stamped. They had paid the stamp duty themselves and did not deny Banyan Tree's account that Rs. 300 was paid. Once the tribunal admitted the deed in evidence, Section 35 of the Maharashtra Stamp Act barred the objection. SMS Tea Estates and Garware Wall Ropes concern Section 11 appointments and do not apply at the enforcement stage. ¶¶ 48–55
2. No illegality under the SCRA. The put option is an exit arrangement between shareholders, not a speculative contract. A contract for the sale of securities came into existence only when the option was exercised in 2015. The option could not be traded on an exchange, so it is not a contract in derivatives caught by Section 18A. The SEBI notification of 3 October 2013 recognises such options, and the Court followed MCX Stock Exchange v. SEBI and Edelweiss v. Percept Finserve. ¶¶ 70–83
3. No breach of FEMA. The deed gave no open-ended assured return. Only the fair market value under the FDI regulations was to be remitted abroad; any excess was to be paid into a nominee account in India. FEMA regulates foreign-exchange transactions and does not void contracts. Following Cruz City v. Unitech and Vijay Karia v. Prysmian, a FEMA violation is not a ground to refuse enforcement of a foreign award. ¶¶ 85–93
4. No conflict with public policy. Under Section 48(2)(b), public policy is read narrowly (Renusagar; Shri Lal Mahal). None of the objections fell within the fundamental policy of Indian law, the interests of India, or justice or morality. The Court found that the respondents had treated the proceedings as if they were an appeal. ¶¶ 94–97
5. The Put Award (SIAC ARB 37 of 2016) is declared binding under Section 46 and enforceable as a decree of the Court. The Escrow Award (SIAC ARB 36 of 2016) was challenged on the same grounds and is declared enforceable for the same reasons. No order as to costs. ¶¶ 98–104
6. The respondents' oral request to stay the judgments was refused as premature, because execution proceedings had not yet been filed. ¶¶ 105–106

Procedural history

1. 12 September 2008Share Subscription Agreement and Put Option Deed executed. The Escrow Agreement followed on 30 September 2008.
2. 19 March 2014Wellknown transferred the escrow shares out of the escrow account without authority. The cash account was closed on 23 July 2014.
3. 5 May 2015The Bombay High Court, under Section 9, ordered Responsive and Wellknown to maintain the status quo over the shares.
4. 21 August 2015Banyan Tree served the Put Exercise Notice, with a Put Settlement Date of 20 September 2015. The promoters denied liability on 30 September 2015.
5. 29 December 2015Banyan Tree filed its notice of arbitration with SIAC. The arbitration commenced under the SIAC Rules 2013.
6. 15 January 2019The tribunal issued the Put Award and the Escrow Award in Banyan Tree's favour. A memorandum of corrections was issued on 25 February 2019.
7. 30 April 2020The Bombay High Court allowed both enforcement petitions and refused a stay.

Tribunal, counsel and experts

Decided by

• G.S. Kulkarni Judge, High Court of Judicature at Bombay

For the claimant

AZB & Partners

For the respondent

Link Legal India Law Service

Experts

MZSK & Associates (claimant) · BDO India LLP (claimant)

Run a conflict check on these names →

Keywords

• enforcement of foreign award
• New York Convention
• Section 48 Arbitration and Conciliation Act
• public policy of India
• fundamental policy of Indian law
• put option
• Securities Contracts (Regulation) Act
• Section 18A SCRA
• derivatives
• spot delivery contract
• FEMA
• assured return
• foreign direct investment
• stamp duty
• Maharashtra Stamp Act
• SIAC
• escrow
• private equity

Summary generated with AI from the published documents — refer to the award for the authoritative text.