Court finds acquisition deal conditional on due diligence and approvals; ₹23.45 crore advances treated as loans, not purchase consideration; Section 9 petition dismissed for lack of prima facie case
In a significant commercial arbitration ruling dated October 5, 2026, the Bombay High Court, presided over by Justice Amit Borkar, delivered its judgment on a dispute involving Sky One Airways Private Limited and multiple respondents, including Nayan Arun Jagjivan. The case revolved around a contentious company acquisition transaction governed by a Binding Term Sheet and related agreements.
Sky One Airways had petitioned the Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim protection to prevent the respondents from dealing with shares and management of the target company amid arbitration proceedings. The petitioner claimed that the Term Sheet was a final and binding contract entitling it to specific performance and sought injunctions restraining the respondents from transferring shares or managing the company without its consent.
The Court meticulously examined the contractual documents including the Binding Term Sheet dated May 9, 2026, an Addendum, an Inter-Corporate Loan Agreement, a Share Transfer Agreement, and a Share Escrow Agreement. It was held that while the Term Sheet constituted a binding arrangement, it did not amount to an unconditional completed transfer of shares. The acquisition remained subject to several conditions such as due diligence, regulatory approvals from the Ministry of Civil Aviation (MoCA) and Directorate General of Civil Aviation (DGCA), escrow arrangements, fulfillment of pre-conditions, and execution of definitive agreements.
A central issue was whether the petitioner had fulfilled its payment obligations under the Term Sheet. The Court found that the petitioner failed to pay a critical instalment of ₹52.50 lakhs by the due date (30 days from the Term Sheet), and that the ₹23.45 crore advanced by the petitioner was primarily under the Inter-Corporate Loan Agreement and thus constituted loans rather than purchase consideration. The Court further held that the petitioner's readiness and willingness to perform its obligations could not be established by an offer to pay after the contractual deadline had passed.
The Court also noted that the obligations between the parties were reciprocal, with the respondents having certain duties such as furnishing creditor confirmations and facilitating regulatory approvals. Although there were genuine disputes regarding the respondents' performance, this did not absolve the petitioner from its failure to meet its own payment commitments.
Regarding the escrow shares, the Court observed that the respondents had already communicated to the escrow agent to maintain status quo, thereby reducing the risk of immediate harm to the petitioner's interests. Consequently, the Court refused to grant wide-ranging interim reliefs that would restrain the respondents from dealing with shares, managing company affairs, or handling assets and permits during arbitration.
The Court emphasized that the petitioner had not demonstrated a clear prima facie right to immediate completion of the acquisition or irreparable injury warranting the extensive reliefs sought. The matter was left open for the arbitral tribunal to decide all substantive issues, and the parties were free to seek appropriate interim protection before the arbitral forum.
In conclusion, the Section 9 petition was dismissed with liberty to the parties to pursue arbitration remedies. No costs were imposed, and the Court clarified that its observations were confined to the interim relief proceedings.
This judgment underscores the importance of distinguishing binding contractual obligations from conditional arrangements in corporate acquisitions and highlights the judiciary's cautious approach in granting interim reliefs in arbitration-related disputes where complex factual and contractual issues remain to be adjudicated.
Bottom Line:
Arbitration and Conciliation Act, 1996 Section 9 Interim protection in aid of proposed arbitration - Binding term sheet for acquisition of company held enforceable as a binding arrangement, but not an unconditional completed transfer - Where acquisition remained subject to due diligence, regulatory approvals, escrow, pre-conditions and execution of definitive agreements, and petitioner failed to show payment of contractual instalment of Rs.52.50 lakhs and failed to establish that Rs.23.45 crores advanced under inter-corporate loan agreement constituted purchase consideration, wide interim and mandatory reliefs restraining dealing with shares and management of company rightly refused.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9; Indian Contract Act, 1872 Sections 51 to 54
Sky One Airways Private Limited v. Nayan Arun Jagjivan, (Bombay) : Law Finder Doc Id # 2990663
