Ashapura Minechem Ltd.

NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
)
In re: 	) 	Chapter 15
)
ASHAPURA MINECHEM LTD., 	)
)
Case No. 11-14668 (JMP)
Debtor in a Foreign Proceeding. 	)
)
)
BENCH DECISION GRANTING PETITION FOR RECOGNITION OF FOREIGN
PROCEEDING 1
APPEARANCES:
BAKER & MCKENZIE
Attorneys for Foreign Representative Ashapura Minechem Ltd.
1114 Avenue of the Americas
New York NY 10036
By: 	Ira A. Reid (argued)
Kathryn M. Ryan
EATON & VAN WINKLE LLP
Attorneys for Respondent Armada (Singapore) Pte Limited
3 Park Avenue
New York, NY 10016-2078
By: 	Robert K. Gross (argued)
Edward W. Floyd
FREEHILL HOGAN & MAHER, LLP
Attorneys for Respondent Eitzen Bulk A/S
80 Pine Street
New York, NY 10005
By: 	Michael E. Unger (argued)
Lawrence J. Kahn
1 	This is a slightly revised version of a bench ruling that was read into the record at a hearing held on
November 21, 2011 – one business day following an evidentiary hearing that took place on November 18,
2011. This memorandum decision constitutes findings of fact and conclusions of law with respect to this
contested Petition for Recognition. The Court has expedited its ruling on the petition in order to comply
with the directive contained in Section 1517 of the Bankruptcy Code which provides that “a petition for
recognition of a foreign proceeding shall be decided upon at the earliest possible time.” 11 U.S.C. §
1517(c).
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JAMES M. PECK
UNITED STATES BANKRUPTCY JUDGE:
The chapter 15 petition filed on October 4, 2011 by Chetan Shah (“Mr. Shah”) in his
capacity as foreign representative seeks recognition as a foreign main proceeding of an
insolvency 	proceeding 	voluntarily 	commenced 	in 	India 	on 	May 	31, 	2011 	by 	Ashapora
Minechem Ltd. ("Ashapura"). 	Ashapura is a mining and industrial business headquartered in
Mumbai, India. It is a public company whose shares are listed on the Bombay Stock Exchange.
Mr. Shah is managing director of Ashapura, one of the company’s most influential shareholders
and an individual who has personally guaranteed obligations owed by Ashapura to its lenders.
Mr. Shah has an undisguised personal economic motivation to protect his investment and
personal exposure although it is not clear at this early stage of Ashapura’s chapter 15 case
whether that motivation may also conflict with his responsibilities as foreign representative.
The proceeding in India is pending before the Board for Industrial and Financial
Reconstruction (the “BIFR”), an agency authorized to function as an administrative tribunal
under the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”). 	There is no
dispute that if this Court were to grant the petition for recognition it would be appropriate for
Ashapura’s proceeding under SICA (the “SICA Proceeding”) to be recognized as a foreign main
proceeding within the meaning of Section 1502(4) of the Bankruptcy Code. Ashapura is
incorporated under the Indian Companies Act, its principal assets are in India, and it has its
registered office in Mumbai. See 11 U.SC. § 1516(c). That India is the center of main interest
for Ashapura is one of the few issues relating to recognition that is not in controversy.
The version of the SICA statute currently applicable to this SICA Proceeding has been
repealed, but implementing legislation for a new and improved statute to replace it has not yet
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been formally enacted. The unusual procedural posture presented is of a foreign insolvency case
that is being administered in its home jurisdiction under the authority of an insolvency regime
that appears to have been rejected by the Indian legislature as fundamentally flawed and
inadequate but that is still functioning for the time being as a residual and apparently legitimate
means, but not the only means, to obtain relief for companies like Ashapura that are in financial
distress.
The anomaly here is that the foreign insolvency law applicable to this case is suspect and
has been openly criticized as deficient and subject to abuse by thoughtful observers of Indian
commercial law. 	These criticisms have led to repeal of the very same statute that governs
Ashapura’s SICA Proceeding. This largely discredited law will continue in force until the Indian
legislature takes the necessary action to formally enable the new version of SICA to become
effective. 	The reason for the delay in implementing the new law has not been adequately
explained and is a curiosity that adds uncertainty to the current proceeding. 	Despite that
uncertainty, there is no doubt that the SICA law in its original form is still being followed in
India and, on its face, constitutes a law that relates to insolvency or adjustment of debt within the
meaning of Section 101(23).
Mr. Shah’s petition has been controverted vigorously by two of Ashapura’s largest
creditors, 	Armada 	(Singapore) 	Pte 	Limited 	(“Armada”) 	and 	Eitzen 	Bulk 	A/S 	(“Eitzen”)
(collectively the "Objectors"). 	The Objectors have questioned Mr. Shah’s motives, alleged
conflict of interest and lack of good faith and have asserted that SICA does not satisfy the
definition of a foreign proceeding in Section 101(23) as “a collective judicial or administrative
proceeding….” 11 U.S.C. § 101(23). 	Armada also argues that the affairs of Ashapura are not
subject to control or supervision within the meaning of that section.
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Armada and Eitzen are shipping companies engaged in the international shipment of
cargo. The Objectors are based respectively in Singapore and Denmark. 	Each has obtained
judgments against Ashapora arising out of separate arbitration awards that were entered in their
favor against Ashapura in London. 	The arbitrations sought substantial damages resulting from
alleged breaches by Ashapura of certain maritime contracts relating to shipments of bauxite from
India to foreign ports. 	For reasons that have been neither fully developed nor explained on the
current record, Ashapora made the decision not to defend these arbitrations on grounds that the
contracts should be treated as void under the doctrine of force majeure. Regardless of the merits
of that legal position, Ashapura's conscious choice to ignore the arbitrations and not to defend
them has proven to be a strategic error of colossal proportions.
The consequences of ignoring the arbitrations have been disastrous. The foreign debtor is
exposed to judgments that together total more than $100 million and is involved in an ongoing
fight with the Objectors in multiple tribunals, all in an effort to avoid the consequences of its
own failure to deal with the arbitrations in a commercially reasonable manner or to engage the
Objectors in good faith negotiations to resolve issues arising out of the underlying maritime
contracts. Whether this results from arrogance, ignorance or simply a lack of good judgment on
the part of Mr. Shah and his advisors is not clear. 	What does seem clear is that Ashapura
unwisely adopted arbitration strategies that have resulted in massive judgments against the
company that threaten its viability, and it now finds itself in the midst of a terribly nasty cross
border fight for strategic advantage and ultimately for its own corporate survival.
The arbitration awards were converted into judgments against Ashapura in the United
States and the Objectors are in the process of doing everything in their power to locate assets and
collect on these judgments. For its part, Ashapora is trying hard to escape its obligations under
these judgments that it belatedly asserts are substantially overstated in amount due to the failure
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of the arbitration awards to reflect appropriate reductions based on the alleged obligation to
mitigate damages. 	For purposes of the contested petition for recognition, the Court does not
address the ability of Ashapura to now challenge the quantum of these judgments in the SICA
Proceeding. Suffice it to say that the Objectors assert that the current chapter 15 case is the latest
example of Ashapura's coordinated efforts to frustrate their rights as judgment creditors and is
another indication that Mr. Shah and Ashapura are not acting in good faith.
An order recognizing a foreign proceeding shall be entered if the proceeding is a foreign
main or nonmain proceeding, the foreign representative is a person or body and the petition
meets the requirements of Section 1515 concerning the petition and accompanying documents.
The test does not call for the exercise of much discretion by the bankruptcy court. However, the
decision to grant recognition is expressly subject to Section 1506, the public policy exception.
This section provides that “[n]othing in this chapter prevents the court from refusing to take an
action governed by this chapter if the action would be manifestly contrary to the public policy of
the United States.” 11 U.S.C. § 1506.
Therefore, the questions to be decided are: (1) whether Mr. Shah’s petition satisfies the
statutory standards for recognition under chapter 15; and (2) whether the Objectors have
established that recognition should not be granted on grounds that to do so would be manifestly
contrary to the public policy of the United States.
The evidentiary record of the hearing held on November 18, 2011 primarily consists of
the testimony of an Indian attorney at law named Mayur Bhatt who traveled to New York to
testify on behalf of the foreign debtor and various exhibits offered by the foreign debtor and the
Objectors. Mr. Bhatt has experience in handling SICA cases before the BIFR and is counsel for
Ashapura in the SICA Proceeding. Mr. Bhatt acknowledged that the SICA statute does not by its
literal terms provide a formal mechanism for participation by unsecured creditors, but he did
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note that in practice unsecured creditors were given a voice, in the discretion of the BIFR, could
receive distributions under an arrangement with creditors and had the ability to appeal adverse
determinations made by the BIFR and to have their appeals heard within the Indian judicial
system. 	Although the appellate process admittedly is time consuming, the availability of
appellate review and the ability of creditors to participate before the BIFR demonstrate that
systemically SICA functions as a collective process that allows for creditor participation.
Furthermore, Ashapora offered exhibit “Debtor 2”, a written summary of proceedings held
before the BIFR on July 25, 2011. 	This exhibit lists the names of creditors, including Eitzen,
that attended the hearing held on that date and supports the testimony of Mr. Bhatt concerning
the participation of unsecured creditors in SICA cases. The fact that unsecured creditors are not
as involved as they would be in a chapter 11 case in the United States does not mean that the
SICA proceeding in India is not a collective administrative proceeding as defined in Section
101(23).
A proceeding is collective in nature pursuant to 11 U.S.C. § 101(23) if it "considers the
rights and obligations of all creditors." In re Betacorp Ltd., 400 B.R. 266, 281 (Bankr. D. Nev.
2009); see also In re Gold & Honey, Ltd., 410 B.R. 357, 369 (Bankr. E.D.N.Y. 2009). 	Such a
collective proceeding "is in contrast, for example, to a receivership remedy instigated at the
request, and for the benefit, of a single secured creditor." Betacorp, 400 B.R. at 281. “The 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
re British Am. Ins. Co. Ltd., 425 B.R. 884, 902 (Bankr. S.D. Fla. 2010). 	While notice to
creditors, including unsecured creditors, may play a role in the court's analysis of whether a
proceeding is collective, in determining whether a particular proceeding is collective, "it is
appropriate to consider both the law governing the foreign action and the parameters of the
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particular proceeding …." Id. at 902 (finding that a foreign proceeding alleged to be for the sole
benefit of a single class of creditors was a collective proceeding, despite no notice to general
unsecured creditors of the appointment of the judicial manager or of actions brought before the
court, where all policyholders and creditors would receive notice at the winding up phase and the
relevant foreign law allowed parties, including creditors, to be heard in the judicial management
process); see also In re ABC Learning Centres Ltd., Case No. 10-11711, 2010 Bankr. LEXIS
4091, *20-23 (Bankr. D. Del. Nov. 16, 2010) (finding unpersuasive objection of party that
Australian proceeding was not collective in nature because U.S. creditors did not have adequate
notice where notice was proper under Australian law, party had actual notice of the second
secured creditor's meeting and the ability to seek redress from the Australian court).
The Court’s finding that the SICA proceeding is collective in nature is consistent with
this case authority and with the position expressed by the United Nations Commission on
International Trade Law – UNCITRAL. 	"The notion of a 'collective' insolvency proceeding is
based on the ability of a single insolvency representative to control the realization of assets for
the purposes of pro rata distribution among all creditors (subject to domestic statutory priorities),
as opposed to a proceeding designed to assist a particular creditor to obtain payment or a process
designed for some purpose other than to address the insolvency of the debtor." U.N. Comm’n on
Int’l Law, The UNCITRAL Model Law on Cross-Border Insolvency: the judicial perspective
[pre-release] (July 2011) at 19, http://www.uncitral.org/pdf/english/texts/insolven/pre-judicial-
perspective.pdf.
The Objectors called no witnesses, although they did cross examine Mr. Bhatt and did
offer various exhibits into evidence that were downloaded from various internet sites. 	These
documents appear calculated to emphasize the repeal of the SICA statute and highlight various
criticisms of the law, but these exhibits failed to show that the process itself was not collective.
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More importantly, none of the evidence offered by the Objectors succeeded in proving the key
point in dispute – namely that it would be manifestly contrary to the public policy of the United
States to recognize the petition. Counsel for Armada acknowledged during his argument that the
Objectors had the burden of proof on this issue. 	The Court finds that they failed to carry their
burden. As a result, the public policy exception does not apply as a basis to refuse the grant of
an otherwise appropriate petition for recognition.
Chapter 15 promotes predictability and reliability “by establishing a simple, objective
eligibility requirement for recognition....” 	In re Bear Stearns High-Grade Structured Credit
Strategies Master Fund, Ltd., 389 B.R. 325, 333 (S.D.N.Y. 2008). 	While “recognition under
Section 1517 is not to be rubber stamped by the courts … the process of recognition of a foreign
proceeding is a simple single step process incorporating the definitions in Sections 1502 and
101(23) and (24) to determine recognition as either a main or nonmain proceeding or
nonrecognition.” 	In re Bear Stearns High-Grade Structured Credit Strategies Master Fund,
Ltd., 374 B.R. 122, 126 (Bankr. S.D.N.Y. 2007) (citations omitted).
This Court must make an independent determination as to whether the SICA proceeding
meets the definitional requirements of Sections 1502 and 1517 of the Bankruptcy Code, but “the
determination is a formulaic one.” 	Id.; see also In re Bear Stearns High-Grade Structured
Credit Strategies Master Fund, Ltd., 389 B.R. 325, 333 (S.D.N.Y. 2008) (explaining that
recognition “turns on the strict application of objective criteria” (citing 11 U.S.C. § 1517))
(additional citation omitted), In re Metcalfe & Mansfield Alt. Invs., 421 B.R. 685, 697 (Bankr.
S.D.N.Y. 2010) (citations omitted) (noting that “recognition of [a] foreign proceeding turns on
the objective criteria under §1517 …”), In re Atlas Shipping A/S, 404 B.R. 726, 738 (Bankr.
S.D.N.Y. 2009) (citations omitted) (same), In re Basis Yield Alpha Fund (Master), 381 B.R. 37,
45 (Bankr. S.D.N.Y. 2008) (explaining that §1517 “sets forth the requirements for an order
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granting recognition, and sets forth a statutory directive that … when those requirements have
been satisfied, a recognition order shall be entered”).
Here the petition for recognition appears designed to obtain the benefits of the automatic
stay that comes into effect upon recognition. See 11 U.S.C. 1520(a)(1). The evident purpose is
to stay the Objectors from taking any further steps to enforce their judgments in the United States
to the potential detriment of Ashapora. This has been an objective of the foreign representative
from the outset of the case when he first sought a temporary restraining order against the
Objectors. The Court issued a TRO and scheduled a hearing for October 17, 2011 on the request
for a preliminary injunction and entered a further Order continuing the hearing to October 24,
2011. 	The motion for a Preliminary Injunction was denied due to a failure of proof without
prejudice to Ashapura's right to seek injunctive relief at some future time. No such motion was
ever filed. In the interim and in the absence of any stay (and to the apparent dismay of Eitzen),
Armada succeeded in obtaining approximately $687,356 from a garnishee in Illinois. In the case
of Armada, the automatic stay is being imposed under Section 1520(a)(1) too late to preserve the
status quo at least as to that asset.
As for Eitzen, it continues to pursue remedies against Bank of India as part of its ongoing
efforts to collect on its judgment against Ashapora. 	The automatic stay, upon recognition, will
apply to those efforts.
Based on the record of the recognition hearing that took place on November 18, the Court
grants the petition but does so with the admonition that periodic status conferences shall be held,
approximately once every 60 days, regarding the progress of the SICA Proceeding and without
prejudice to the rights of the Objectors or other affected creditors to show that the SICA
Proceeding, in actual practice, are prejudicing the rights of the Objectors and of other unsecured
creditors similarly situated to the Objectors.
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The Court reserves the right under Section 1517(d) to grant relief from the automatic stay
to the Objectors for cause shown or to take other appropriate action, including modification or
termination of recognition, in the interests of justice. 	The Court also strongly encourages the
parties to stop posturing and to start talking to each other in a manner that may lead to a
compromise of the Objectors’ claims. The Court notes that both sides have a great deal to gain
by meeting and conferring, perhaps with a mediator, in an effort to bring these long simmering
disputes to a mutually acceptable resolution.
Dated: New York, New York
November 22, 2011
s/ James M. Peck
Honorable James M. Peck
United States Bankruptcy Judge
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