Delhi High Court Upholds Arbitral Award Directing Flexing It To Convert CCDs Into Equity

The Delhi High Court recently upheld an arbitral award directing Flexing It Services Private Limited to convert investor Colvyn James Harris's compulsorily convertible debentures into equity equivalent to 2% of the company's shareholding as on January 31, 2017. It also upheld the arbitral finding that repeated acknowledgments of liability in correspondence extended the limitation period.

Declining to set aside the award in a challenge under Section 34 of the Arbitration and Conciliation Act, 1996, the Court allowed enforcement proceedings to continue.

Referring to the arbitral tribunal's findings on limitation, the court noted that the tribunal had found that the correspondence “clearly show repeated acknowledgements of the 1st Respondent's obligation to convert the Claimant's CCDs in accordance with the provision of the Agreement.”

The court further noted the tribunal's finding that “a fresh period of limitation would be deemed to have commenced from the date of each such acknowledgement.”

Justice Harish Vaidyanathan Shankar reiterated the limited scope of interference under Section 34, observing that courts do not sit in appeal over arbitral awards and cannot reappreciate evidence.

The dispute arose from a Debenture Subscription Agreement dated July 16, 2015, under which Harris invested Rs. 31,50,000 in Flexing It Services and was allotted 31,500 CCDs.

Under the agreement, the CCDs were to mandatorily convert into equity shares either upon a qualified financing round or by January 31, 2017, whichever was earlier.

It was not disputed that no such financing took place and that the CCDs were not converted by the stipulated date. The parties, however, continued correspondence thereafter regarding the timing and manner of conversion.

By an award dated December 18, 2024, a three-member arbitral tribunal held that Harris's claim was within the limitation and directed conversion of the CCDs into equity shareholding equivalent to 2% of the company's shareholding as on January 31, 2017.

Flexing It Services and its CEO challenged the award, contending that the claim was time-barred and that the communications relied upon were de hors the agreement and could not extend the limitation. It also argued that Harris had waived his rights.

Harris, on the other hand, contended that repeated acknowledgments in emails between 2016 and 2023 extended the limitation and that this finding could not be interfered with under Section 34.

The court upheld the tribunal's finding and found no reason to interfere with the company's contention that the communications were outside the agreement, noting that the tribunal had found that “the correspondences were not de hors the Agreement but were in fact clearly with reference to the obligation of the Respondents to convert the CCDs under the Agreement.”

The court also noted that no amendment to the agreement had been executed in accordance with its terms, and therefore the original contractual provisions continued to govern the parties.

While upholding the award, the court clarified that the conversion would be into 2% of the company's shareholding as on January 31, 2017.

The court ultimately dismissed the challenge and allowed the enforcement proceedings to continue.

For Petitioner (Flexing It Services Private Limited & Anr.): Advocates Essenese Obhan, Ashima Obhan, Anjuri Saxena.

For Respondent (Colvyn James Harris): Advocates Tishampati Sen, Riddhi Sancheti, Anurag Anand.