Armada (Singapore) Pte Ltd. v. Shah (In re Ashapura Minechem Ltd.)

• Decision Date: 28 June 2012
• Docket Number: Nos. 11–14668 (JMP), 12 Civ. 257 (SAS).,s. 11–14668 (JMP), 12 Civ. 257 (SAS).
• Citation: 480 B.R. 129
• Parties: In re ASHAPURA MINECHEM LTD., Debtor. Armada (Singapore) Pte Ltd., Appellant, v. Chetan Shah, in his Capacity as the Foreign Representative of Ashapura Minechem Ltd., Appellee.
• Court: U.S. District Court — Southern District of New York

480 B.R. 129

In re ASHAPURA MINECHEM LTD., Debtor.Armada (Singapore) Pte Ltd., Appellant,

v.Chetan Shah, in his Capacity as the Foreign Representative of Ashapura Minechem Ltd., Appellee.

Nos. 11–14668 (JMP), 12 Civ. 257 (SAS).

United States District Court, S.D. New York.

June 28, 2012.

Robert K. Gross, Esq., Alan Van Praag, Esq., Edward W. Floyd, Esq., Eaton & Van Winkle LLP, New York, NY, for Appellant.

Ira A. Reid, Esq., Joseph Samet, Esq., Kathryn Ryan, Esq., Baker & McKenzie LLP, New York, NY, for Appellee.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. INTRODUCTION

Appellant Armada (Singapore) Pte Ltd., (“Armada”) appeals pursuant to section 158 of Title 28 of the United States Code from a Bench Decision of the Bankruptcy Court for the Southern District of New York granting Appellee Ashapura Minechem Ltd.'s (“Ashapura”) petition for recognition as a foreign main proceeding of an insolvency proceeding voluntarily commenced in India by Ashapura. For the reasons set forth below, the Bench Decision is affirmed.

II. BACKGROUND

Appellee Chetan Shah is the Managing Director of Ashapura Minechem Ltd., a mining and industrial business headquartered in Mumbai, India.¹ He was appointed Foreign Representative by Ashapura's Board of Directors for the purpose of these U.S. proceedings.² The greater part of Ashapura's assets are situated in India, as are all of its employees.³

In the conduct of its business, Ashapura entered into maritime Contracts of Affreighment (“COAs”) to ship minerals to foreign ports with several international shipping companies including Appellant Armada (Singapore) Pte Ltd. (“Armada”), based in Singapore, and Eitzen Bulk A/S (“Eitzen”).⁴ However, when the government of Gujarat, the Indian state where Ashapura conducts its mining activities, placed an indirect embargo on the export of bauxite, Ashapura failed to fulfill its part of the contracts. ⁵ Armada sought and in February 2010 obtained an arbitration award against Ashapura totaling sixty-five million dollars.⁶ Eitzen obtained a separate award as well.⁷ Ashapura opted not to defend these arbitrations on the ground that the contracts were void ab initio under the doctrine of force majeure.⁸

In June 2010, Armada filed a petition in the Southern District of New York for an order converting its arbitration award into a judgment against Ashapura. ⁹ The petition was granted and the court entered a judgment for Armada in excess of seventy million dollars.¹⁰

In May 2011, Ashapura initiated proceedings before India's Board for Industrial and Financial Reconstruction (“BIFR”) to rehabilitate its finances under The Sick Industrial Companies Act (“SICA”) of 1985.¹¹ That proceeding is still pending before the BIFR.¹² Pursuant to section 22 of SICA, Ashapura obtained a stay of all actions and proceedings against it in India.¹³ However, this foreign insolvency law has encountered mounting criticism and led to a repeal of the statute that governs the BIFR proceeding. ¹⁴ The SICA Repeal Act of 2003 would eliminate section 22 stays on unsecured creditors' collection efforts.¹⁵ However, the current iteration of SICA will remain in force until the Indian legislature formally enacts implementing legislation for SICA's substitute.¹⁶ The Indian legislature had not done so by the time the Bankruptcy Court made its ruling and the parties have not notified this Court of any change.

In October 2011, Ashapura's Board of Directors authorized Shah to seek relief in bankruptcy court under Chapter 15 of Title 11.¹⁷ Shah's initial request for a preliminary injunction against creditor claims was denied. ¹⁸ Subsequently, Shah filed a petition for recognition of the SICA proceeding as a “foreign proceeding” or “foreign main proceeding” pursuant to Chapter 15 of Title 11.¹⁹ A hearing was held on November 18, 2011 during which an Indian attorney at law Mayur Bhatt testified on behalf of Ashapura.²⁰ Bhatt is Ashapura's counsel in the BIFR proceedings and has experience handling other SICA cases.²¹ Armada did not call any witnesses, but instead offered various exhibits into evidencethat were downloaded from internet sites.²²

Following that hearing, the bankruptcy court granted recognition as a foreign main proceeding and relief pursuant to section 1521(a) to Ashapura and granted a stay against the order enforcing the arbitration award-rulings which Armada now appeals.²³

III. LEGAL STANDARDA. Appellate Jurisdiction

This court has jurisdiction to hear appeals from final orders issued by the Bankruptcy Court under sections 158(a)(1) and 1334 of Title 28.²⁴

B. Standard of Review

A district court functions as an appellate court in reviewing judgments rendered by bankruptcy courts.²⁵ Findings of fact are reviewed for clear error ²⁶ whereas findings that involve questions of law, or mixed questions of fact and law, are reviewed de novo.²⁷ Credibility determinations by bankruptcy courts are reviewed for clear error, as are decisions resting on physical or documentary evidence or inference from other facts.²⁸ A finding of fact is clearly erroneous if the court is “ ‘left with the definite and firm conviction that a mistake has been committed.’ ” ²⁹

C. Recognition of a Foreign Insolvency Proceeding

Chapter 15 of Title 11 governs all cross-border insolvency disputes, and specifically petitions for the recognition of foreign insolvency proceedings in the United States.³⁰ The purpose of Chapter 15 is “to incorporate the Model Law on Cross–Border Insolvency,” adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1997. ³¹ “Recognition [under section 1517] is not a rubber stamp exercise, and any such presumption is rebuttable upon the Court's examination of any and all relevant facts.” ³²

As a threshold matter, the appointed representative of a foreign debtor seeking recognition must establish that the proceeding is a “foreign proceeding” under the meaning of section 101(23).³³ The foreign representative thus carries the burden of proving each of seven criteria:

(i) [the existence of] a proceeding; (ii) that is either judicial or administrative; (iii) that is collective in nature; (iv) that is in a foreign country; (v) that is authorized or conducted under a law related to insolvency or the adjustment of debts; (vi) in which the debtor's assets and affairs are subject to the control or supervision of a foreign court; and (vii) which proceeding is for the purpose of reorganization or liquidation.³⁴

Failure to meet the burden of proof on any one of the definitional elements requires denial of the petition.³⁵

1. A Collective Proceeding

To be entitled to Chapter 15 recognition, petitioner must prove that the proceeding at issue was collective in nature. First and foremost, “[a] collective proceeding is one that considers the rights and obligations of all creditors” ³⁶—that is for the general benefit of creditors.

[T]he word ‘collective’ ... contemplates both the consideration and eventual treatment of claims of various types of creditors, as well as the possibility that creditors may take part in the foreign action.... In determining whether a particular foreign action is collective ... it is appropriate to consider both the law governing the foreign action and the parameters of the particular proceeding as defined in, for example, orders of a foreign tribunal overseeing the action.³⁷

“A collective proceeding is designed to provide equitable treatment to creditors, by treating similarly situated creditors in the same way, and to maximize the value of the debtor's assets for the benefit of all creditors....” ³⁸ Indeed, among Chapter 15's objectives is the “fair and efficient administration of cross-border insolvencies that protects the interests of all creditors.” ³⁹ Further, UNCITRAL's Guide to Enactment “suggests that a foreign proceeding must contemplate the ‘involvement of creditors collectively.’ ” ⁴⁰ However, to be for the general benefit of creditors, a proceeding need not ensure that all creditors receive a share of the distribution.⁴¹

Other characteristics of a collective proceeding include: adequate notice to creditors under applicable foreign law,⁴² provisions for the distribution of assets according to statutory priorities,⁴³ and a statutory mechanism for creditors to seek court review of the proceeding. ⁴⁴ However, the standard for notice is not a demanding one.⁴⁵

2. Debtor's Assets and Affairs Subject to Foreign Court's Control or Supervision

Petitioner must also prove that the debtor's assets and affairs are subject to a foreign court's jurisdiction. Section 1502 of the Bankruptcy Code defines “foreign court” as “a judicial or other authority competent to control or supervise a foreign proceeding.” ⁴⁶ The body conducting the proceeding can be considered a foreign court. ⁴⁷ Case law confirms that this is a dual requirement—both the debtor's assets and affairs must be subject to judicial control or supervision in the proceeding.⁴⁸ Ashapura does not contest the duality of this requirement.⁴⁹

Supervision or control of the company's affairs is not a demanding standard. The foreign court need not control the day-to-day operations of the debtor.⁵⁰ It is sufficient, for instance, that the body monitor compliance with the repayment plan negotiated between the debtor and creditors. ⁵¹ One court has held that the mere fact that a commission was granted authority from a Spanish court to recover a set-off from an arbitration proceeding for distribution to creditors “plainly demonstrate[d] that the [court] maintains control of [both the debtor's] assets and affairs”⁵² By contrast, the fact that actions in a foreign court related to the proceeding are typically initiated by interested parties and that liquidators proceed with most of their duties without court involvement was found “not [to] undermine the ... court['s] supervisory role.” ⁵³

3. Proceeding Under a Law Related to Insolvency

Petitioner also carries the burden of proving that the SICA...