In a filing made before the Commercial Court at Bengaluru, Elior India has challenged the interim arbitral award prohibiting sale of Elior India assets. The current dispute between Elior India and its former CEO underway for nearly 2 years has since taken a decisive turn with this interim order by the arbitration tribunal.

The three-member arbitral tribunal, presided by one of India's leading national and international arbitrator, Honorable Justice RV Raveendran and consisting of two other former Supreme Court judges, Honorable Justice Shivraj Patil and Honorable Justice Gopala Gowda, passed this unanimous interim order dated 15th Dec 2022, prohibiting Elior India from selling any of its business/assets/contracts till such time it furnishes a bank guarantee of INR 9 crores.

The unanimous interim order of the Tribunal states: “The First Respondent is prohibited from alienating or transferring its business/assets/contracts to any party till the disposal of this arbitration”, the First Respondent being Elior India.

This order comes as a big setback as Elior India was proposing to sell off its assets to Compass India, subsidiary of the Compass Group headquartered in UK, even as the litigation remains underway.

The structure of the sale transaction with Compass India as reported elsewhere seems would have left the Elior India as a shell entity with no employees and assets making it very difficult for the former CEO of Elior India to then be able to recover his dues as the matter would have been dragged through the courts in India and then in France where the Elior Group is headquartered.

It is interesting to note that in its order the arbitral tribunal has also pointed out several irregularities in the financial conduct of Elior India, including non-filing of financial statements for 2021, on which the Tribunal observed “….. that the First Respondent has not produced the audited financials for the year 2021. It has however produced audited financials for the year 2022 which is dated 31.10.2022 prepared after the Claimant made the application for interim measure dated 13.10.2022…”

The Tribunal also observed that there was a prima facie case of payments due to former CEO and in its interim order has outlined the non-compliance of Elior India for not having determined the amounts due to him, whilst in employment with the company and in line with the terms set out in the employment contract.

The Tribunal further observes that Elior India “having failed to have the amount calculated by an expert within two months following the date on which the annual accounts relating to the financial year ended on the maturity date, cannot take advantage of its own failure by contending that no amount is shown to be due…”

This interim arbitral award directing a company to furnish a bank guarantee of INR 9 crores failing which it cannot proceed with a sale is a landmark ruling in India’s corporate legal history where a listed foreign entity has been restrained from selling its assets and the arbitral tribunal has found irregularities in its functioning, governance, and adherence to local regulatory practices.

Elior has been trying hard to exit the market in India and it seems in the backdrop of this litigation Compass India saw an opportunity to lap up these contracts at an attractive price even though it is unclear if such a transaction would stand legal scrutiny as the transfer of assets would have been undertaken while the issue was subjudice.

Industry sources estimate that Elior India would have spent almost Rupees 5 crores on the litigation even as it refused to discuss a settlement with the former CEO who had offered to settle the dispute amicably hoping to avoid the huge litigation costs.

Elior India is yet to disclose its status regarding the sale of its assets to Compass India and since the matter is subjudice it is unclear as to who would be responsible to comply with the order of the Tribunal.

Whilst it is unusual for the courts to intervene in arbitration matters, it remains to be seen now what the outcome of the appeal filed by Elior India in the Commercial Court at Bengaluru will be, in the weeks ahead.