TaxTMI 
TaxTMI 
2023 (3) TMI 1482
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.... the application is condoned and the reply is taken on record. Application is disposed of. I.A. No. 7938/2022 in O.M.P.(I) (COMM.) 414/2021 (by the respondent No. 2 seeking condonation of 3 days delay in filing written submissions and for taking written submissions on record) For the reasons stated in the application, the same is allowed and delay of 3 days in filing the written submissions is condoned. The written submissions are taken on record. Application is disposed of. Arb.P. 474/2022 & O.M.P.(I) (COMM.) 414/2021 1. By this order, I shall decide the above two petitions as the facts and the subject matter of the petitions arise from the same agreement(s) and the parties in both the petitions are common except to the extent that respondent No. 3 in ARB.P. 474/2022 is Essel Corporate LLP. Further, some of the submissions advanced are common to both the petitions. It may be stated that the submissions advanced by the counsels for the parties and the analysis of the Court shall be narrated separately. FACTS IN ARB. P. 474/2022 2. The petitioner has preferred the instant petition under Section 11 of the Arbitration and Conciliation Act, ('Act of 1996') with the foll....
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....es and thus, the Essel Corporate LLP, which is a limited liability partnership incorporated under the Limited Liability Partnership Act, 2008 and which forms a part of the Essel Group of Companies, which was initially impleaded as respondent no. 4, has now become respondent No. 3 in the present petition, after filing of the amended memo of parties by the petitioner. 9. It is stated that the present Petition has been filed under Section 11 of the Act of 1996 on behalf of the petitioner seeking appointment of a Sole Arbitrator for adjudication of the disputes and differences which have inter alia arisen in relation to the term loan of ` 150,00,00,000/- ('Facility/Term Loan') extended by the petitioner to the respondent No. 1 under the Credit Arrangement Letter dated January 16, 2017 ('CAL') read with the Facility Agreement dated February 23, 2017 ('Facility Agreement'), and Letters dated June 26, 2018 issued by the respondent No. 2, signed by the MD of the respondent No. 2 (allegedly, 'Letter of Guarantee 1') and issued on behalf of respondent No. 3 (signed by one, Mr. Himanshu Mody) (allegedly, 'Letter of Guarantee 2'). 10. It is the case of....
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.... petitioner that both the CAL and the Facility Agreement are binding upon both the parties. 14. It is further stated that the respondent No. 1 had approached the petitioner for financing requirements and pursuant to such request, the petitioner issued the CAL in respondent No. 1's favour and thereby a credit facility of ` 150,00,00,000/- was sanctioned and disbursed to the respondent No. 1. 15. The initial Interest Rate under the Facility Agreement was as per Schedule I of the Facility Agreement, which was 11% p.a. and with the agreed interest, the entire Facility Funds were duly disbursed to the respondent No. 1. 16. It is the case of the petitioner that the respondent No. 1 has defaulted in the payment of the term loan. On August 31, 2021, September 30, 2021, October 31, 2021 and November 30, 2021, the respondent No. 1 had submitted Disclosure Letters ('Disclosure Letters') to National Stock Exchange of India Limited and BSE Limited ('the Stock Exchanges') inter alia admitting the default in the payment of the Term Loan to the petitioner and also admitting that the total outstanding amount payable to the petitioner is ` 134,00,00,000/-. 17. It is stated th....
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....1 would reduce the exposure by making payment of ` 75,00,00,000 on or before December 31, 2018. 22. It is stated that pursuant to this, the respondent Nos. 2 and 3 issued the alleged Letters of Guarantee dated June 26, 2018 to the petitioner, inter alia stating the following: a. "We are aware that Aditya Birla Finance Limited (ABFL) has sanctioned and disbursed a Rupee Term Loan Facility of INR 150,00,00,000 (Rupees One Hundred and Fifty Crore) ["Facility"]to our group company, Siti Networks Limited, pursuant to Credit Arrangement Letter dated January 16, 2017 bearing reference number ABFL/PFSG/CAL/000894, Facility Agreement dated February 23, 2017 and other transaction documents in connection therewith. b. Pursuant to our discussions, we hereby assure you and confirm that we shall ensure that Siti Network Limited services and repays the Facility on the relevant due dates." (Emphasis Supplied) 23. It is the case of the petitioner that the alleged 'Letter of Guarantee 1', issued by the respondent No. 2 was signed and executed by one Punit Goenka, i.e., the MD and promoter of the respondent No. 2. Whereas, the alleged 'Letter of Guarantee 2' was signed by one H....
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....o. 1 to make payment of the entire Secured Obligations on an immediate basis. 27. On the same day, the respondent No. 1 issued a reply to the petitioner stating that all the companies of respondent No. 2 including the respondent No. 1 are performing well. It was further stated by the respondent No. 1 that the downgrade of credit rating by ICRA/CARE is due to decline in share price of other Group Entities and is not based on the performance of the respondent No. 1; It is the case of the petitioner that the respondent No. 1 had expressly acknowledged that its credit rating by ICRA/CARE has dropped by three notches and that the respondent Nos. 1 and 2 are group companies. 28. On February 11, 2019, the petitioner sent another recall notice to the respondent No. 1 ('Recall Notice 2') inter alia stating that credit rating by ICRA/CARE has to be maintained at all times and downgrade is an EOD under Clauses 16.25 and Clause 19.2 of the Facility Agreement. Thus, the petitioner requested the respondent No. 1 to repay the entire Term Loan along with the Interest Rate and Default Interest on an immediate basis. 29. Thereafter, on February 12, 2019, the petitioner issued a recall not....
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.... of its financial commitments and there are no overdues and also reiterated the submissions made in Reply Letter 1. 36. As a final attempt, on October 18, 2021, the Advocates on behalf of the petitioner issued a letter ('Legal Notice 3') to the respondent No. 2 inter alia calling upon the respondent No. 2 to ensure that the respondent No. 1 makes payment of all outstanding dues under the Facility Agreement. However, it is the case of the petitioner that till date the respondent No. 2 has neither made any payment on behalf of the respondent No. 1 nor ensured that the respondent No. 1 makes the payment of the outstanding amount. 37. On October 27, 2021, the respondent No. 2 issued a letter in response to Legal Notice 3 ('Reply Letter 3') addressed to the Advocates of the petitioner, inter alia denying that it was liable to make any payments on behalf of the respondent No. 1 and also that it was a guarantor for the Facility granted to the respondent No. 1. 38. It is the case of the petitioner that as the respondent No. 2 has failed to ensure that the respondent No. 1 makes payment on the relevant due dates and fulfil its obligation under the Letter of Guarantee 1 an....
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....he meanwhile, respondent No. 1 shall not make any payments to any related party in terms of Clause 16.20(iii) of the Facility Agreement dated 23.02.2017, without the express consent of the petitioner." 43. During the pendency of the afore-said petition, the petitioner invoked the arbitration vide its advocates' notice dated March 23, 2022('Arbitration Notice'), in accordance with Clause 12 of CAL read with Clause 33 of the Facility Agreement, and nominated a retired Judge of the Supreme Court of India as the nominee Ld. Sole Arbitrator and thereby called upon the respondents to confirm the same in order to adjudicate the disputes and differences which had arisen between the parties under the Facility Agreement and other Financing Documents. 44. It is the case of the petitioner that the respondents have not issued any reply to the said Arbitration Notice, therefore, another notice was sent on April 20, 2022, whereby the respondents were warned by the petitioner to an extent that if they would not reply to the said notice then the petitioner would be constrained to take necessary steps for the purposes of appointment of an arbitrator. 45. So as per the petitioner, it i....
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.... No. 1 as: "Other Related parties consists of companies controlled by key management personnel and its relatives with whom transactions have taken place during the year and balance outstanding as on the last day of the year". Further, the respondent No. 1 has also admitted in its Annual Reports for 2016-17 and 2018-19 that the respondent No. 2 is a related party. 52. Furthermore, in the annual report of financial year 2020-21, respondent No. 2 has admitted that it had provided commitments for funding shortfalls in Debt Service Reserve Account (DSRA guarantee) in relation to certain financial facilities availed from banks by respondent No. 1. 53. So, it is his primary submission that from the public record it can be ascertained that the respondent Nos. 1 and 2 are group companies and related entities, forming part of the Essel Group of Companies. 54. He substantiated his submission by submitting that the majority of the partners of the respondent No. 3 have disclosed in their respective consent forms their email addresses, which includes their domain name as either esselgroup.com and zee.esselgroup.com. He submitted that this indicates that all partners of the respondent No. 3 ar....
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....andra, and who is also the Promoter of the respondent No. 1. He submitted that such beneficial ownership is evident from 'Form Ben-1', dated November 30, 2019 and 'Form Ben-2' dated December 19, 2019 filed by Amit Goenka and the respondent No. 1 respectively, with the Registrar of Companies. 60. He submitted that the financial obligations and financial commitments made by the respondents on behalf of the respondent No. 1 and vice versa, coupled with the cross-shareholdings, manifests that the respondent No. 1 and respondent No. 2, are but a single economic entity as such commitments cannot be made unless the respondents are a single economic entity. 61. He also submitted that the emails dated June 26, 2018 and June 27, 2018, sent by the representatives of the respondent No. 2, also demonstrates that the entire basis of reduction of interest rate from 16% to 13% was because of the representations and commitments made by the respondents Nos. 2 and 3. Furthermore, in an email dated June 27, 2018, the representatives of the respondent No. 2 had themselves committed for the part pre-payment of the Facility amount. 62. So, in a nutshell, one of the many submissions of ....
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....ARFAESI Act') and The Recovery of Debts due to Banks And Financial Institutions Act, 1993 ('the RDDBFI Act'), so it cannot be permitted to take recourse to the arbitration proceedings. To substantiate this argument, he relied upon Clause 33 of the Facility Agreement, which has already been reproduced above in paragraph 12. Whilst relying upon this Clause, he submitted that recourse to arbitration is available to the petitioner only in cases where the petitioner has no remedy either under the RDDBFI Act or the SARFAESI Act and as long as even one of the two statutory remedies is available with the petitioner, the recourse to arbitration proceedings is invalid. 69. He substantiated his afore-mentioned argument by submitting that the petitioner is a Non-Banking Financial Company ('NBFC') and as per the notification dated February 24, 2020, issued by the Ministry of Finance, an NBFC, defined under Section 45 - I (f) of the Reserve Bank of India Act, 1934, having assets worth ` 100 crores and above, is entitled to enforce its security interest in secured debts of ` 50 Lakhs and above, as financial institutions for the purposes of the said Act, i.e. SARFAESI Act. 7....
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....hat the respondent No. 2 and respondent No. 1 are neither holding/subsidiaries nor associate companies and also do not fall under Section 2(76)(viii) of the Companies Act, 2013; Bd) That since the sanction of the loan by the petitioner to respondent No. 1 in January 2017, there have been neither any common directors nor any common key managerial persons ('KMPs') in respondent No. 1 and respondent No. 2. Further, none of the KMPs of respondent No. 2 have been directors in respondent No. 1 and vice versa. (C) That the letter dated June 26, 2018 alleged to be a Letter of Guarantee, is merely a Letter of Comfort ('LoC') and even the loan transactions are not part of a composite transaction. He substantiated this in the following manner: Ca) That bare perusal of the LoC would show that the limited assertion made by the respondent No. 2 was to an extent that it shall ensure that the respondent No. 1, services and repays the Facility on the due dates and the respondent No. 2 never took upon itself the obligation to service or repay the debt in the event of respondent No. 1's failure to do so, which is a key ingredient under Section 126 of the Indian Contract Act,....
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....yments made by the respondent No. 1 to respondent No. 2 were in the ordinary course of business and in terms of their inter se contractual obligations. To crystallize this, he raised the following arguments: Da) That the respondent No. 2 is a broadcaster and a global media and entertainment conglomerate, which broadcasts media content. On the other hand, respondent No. 1 is a Distribution Platform Provider (hereinafter, 'DPO') to various broadcasters, including respondent No. 2. In terms of the Telecommunication (Broadcasting & Cable) Services Interconnection (Addressable Systems) Regulations, 2017 ('Inter-connection Regulations'), Interconnection Agreements have been executed between respondent No. 1 and respondent No. 2. As part of its business operations, respondent No. 1 avails signals of television channels of respondent No. 2, for retransmission of the same to consumers/subscribers, for consideration in terms of the subscription fees. The transaction between respondent No. 1 and respondent No. 2 are undertaken at arm's length basis and as mandated under the Inter-connection Regulations. Db) That during the FY 2020 - 2021, the respondent No. 1 paid a su....
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....uarantor, or otherwise." Further, the monies owed to respondent No. 2 are not in the capacity of being the principal/surety/guarantor. He submitted that the expression "or otherwise" under the said definition ought to be interpreted in light of the principles of ejusdem generis, and the said term cannot be interpreted to include vendor payments. Lastly, he submitted that the respondent No. 2 is not a group entity of respondent No. 1 and therefore, the monies owed by respondent No. 1 to respondent No. 2 are not covered within the scope of the definition. SUBMISSIONS ON BEHALF OF RESPONDENT NO. 3 72. It is also the primary case of the respondent No. 3 that the present petition is not legally maintainable specifically against it. 73. It is the case of the respondent No. 3 as contended by Mr. Samar Singh Kachwaha, learned counsel appearing on behalf of the respondent No. 3, that the respondent No. 3 being a non-signatory to any of the agreements executed between the petitioner and the respondent No. 1, it cannot be impleaded in the instant petition. 74. He submitted that the petitioner in December 2021 had filed a petition under Section 9 of the Act of 1996, bearing OMP (Comm.) 41....
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....And Ors. (d) STCI Finance Ltd. v. Shreyas Kirti Lal Doshi And Anr. (e) STCI Finance Ltd. v. Sukhmani Technologies Pvt. Ltd. and Ors. 77. He has also majorly relied upon the judgment of the coordinate bench of this Court in Sukhmani Technologies Pvt. Ltd. and Ors.(Supra) to contend that once a non-signatory is dragged to arbitral proceedings by a signatory party, there must be very clear evidence that the non-signatory is, in law, bound by the arbitration agreement. Substantially, reliance has also been placed upon another judgment of this Court in Shreyas Kirti Lal Doshi and Anr.(Supra) to contend that the respondent No. 3 cannot be sent to the process of arbitration. 78. He further submitted that respondent No. 3 was nowhere in the picture at the time of sanction of the alleged term loan to respondent No. 1 and finds no reference in the original facility documents/agreements. In fact, a perusal of the CAL and the Facility Agreement would reveal that the Comfort Letter/alleged guarantee from respondent No. 3 did not even exist at the time of execution of the aforesaid agreements. Accordingly, it is his submission that the issuance of the said LoC had no bearing on the transac....
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....ated in the negotiation process during the drafting/execution of the agreements between the petitioner and respondent No. 1; (B) That there was no express or implied consent or mutual intention of respondent No. 3 to be bound by the arbitration agreement between respondent No. 1 and the petitioner. In this regard, it is submitted that neither the correspondence exchanged between the parties, nor the circumstances surrounding the loan transaction between respondent No. 1 and the petitioner, nor the initial transaction documents like CAL and/or the Facility Agreement demonstrate any intention of respondent No. 3 to be bound by any arbitration agreement; (C) That the petitioner has misconstrued the LoC to be a guarantee, which does not indicate any undertaking or specific reference by respondent No. 3 to be bound to an arbitration agreement; (D) That there was no composite transaction involving the petitioner, respondent No. 1 and respondent No. 3 as the LoC finds no reference in the original facility documents and was given much later in time and had no bearing on the loan transaction between the petitioner and respondent No. 1. The said letter did not constitute a security and....
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....ver addressed any communication to Mr. Punit Goenka concerning the alleged amounts due to it under the CAL or the Facility Agreement. The letters, communications and legal notices that were addressed by petitioner to respondent No. 1 neither mentions respondent No. 3 nor the LoC issued by respondent No. 3. So, he submitted that no cause of action accrues in favour of the petitioner against respondent No. 3 for the petitioner never asserted to have any right/claim against the respondent No. 3. It was for this reason that Mr. Punit Goenka was also not made a Party to the Section 9 petition. 90. So, it is his submission that the grounds raised by the petitioner to invoke arbitration against respondent No. 3 are insufficient and thus it should not be referred to arbitration. REJOINDER SUBMISSIONS 91. Submissions made by Mr. Rao to demonstrate that the respondent No. 3 should also be sent to arbitration are in the following manner: (A) That prima facie perusal of the CAL read with the Facility Agreement for any disputes arising out of and in relation thereto and the Financing Documents, i.e., Letter of Guarantee 2, shows that there is a clear intent to arbitrate and an agreement to....
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....rtaking that respondent No. 1 would make payment on relevant due dates, provided a preferential arrangement, having the similar effect as to the discharge of sums payable to the petitioner. (F) So it his submission that the Letter of Guarantee 2 is a document creating a Security Interest and is thus a Security Document and a Financing Document, in terms of the Facility Agreement. (G) He submitted that any allegations that failure to implead respondent No. 3 in the proceedings under Section 9 of the Act of 1996 reflects that respondent No. 3 has no connection to the case and/or that no case is made out against respondent No. 3, is incorrect. It is his case that the petitioner had sought interim protection against respondent Nos. 1 and 2 under Section 9 petition, as respondent No. 2 had been fraudulently siphoning funds away from respondent No. 1, in breach of its obligations under the Facility Agreement and the Letter of Guarantee 1. At that stage, the petitioner opted to not seek any interim protection against respondent No. 3, but the same does not, in any manner, dilute the obligations of respondent No. 3 under Letter of Guarantee 2. (H) He further submitted that the respon....
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....read with the Facility Agreement and therefore the disputes in relation to the same may be referred to arbitration. So, it is his case that there is a valid and binding arbitration clause between the petitioner and respondents for referring the present disputes to arbitration under the CAL read with the Facility Agreement. (I) He submitted that even though respondent No. 3 is a non-signatory, it is bound by the arbitration Clause in CAL read with the Facility Agreement as the parties are a part of the same group and there is implied intent of the parties to arbitrate. He contended that respondent No. 1 and respondent No. 3 have a direct relationship as they form a part of the same Group of Companies i.e., the Essel Group of Companies. Moreover, Essel Group of Companies has a tight group structure, and is under the common control of certain individuals who direct the policies of the various group companies including respondent No. 1 and 3. (J) He also submitted that in the instant case the respondent No. 3 had assured and ensured the payments on behalf of respondent No. 1 and it had also undertaken to make payments on behalf of respondent No. 1 upon the failure of respondent No.....
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....utes in relation to the same may be referred to arbitration. 94. With regards to the contention of Mr. Chidambaram that since respondent No. 2 is non-signatory to the arbitration agreement thus cannot be impleaded in this arbitration petition, Mr. Rao staunchly argued that despite respondent No. 2 being non-signatory to the arbitration agreement, it is still bound by the arbitration clause as the parties are part of the same group and there is implied intent of the parties to arbitrate. 95. He submitted that the terms of the Facility Agreement including Clause 16.21, makes the intent ex-facie clear that it was the Essel Group of Companies, including respondent No. 1 and 2, which were bound with respect to various obligations under the Financing Documents. The Facility was sanctioned and disbursed inter-alia on the mutually agreed premise that no payment shall be made by respondent No. 1 to respondent No. 2 till the repayment of the Facility. Further, even if any such amount is received by respondent No. 2 from respondent No. 1, such amounts were to be held in trust for and on behalf of the petitioner and paid to the petitioner on demand. The intention to bind respondent No. 2 apa....
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....espondent No. 2 has been identified as a related party of respondent No. 1 and vice versa. 99. He submitted that the law as it stands today in relation to group of companies doctrine is well settled and would continue to be binding. It is his submission that the interest of justice cannot be kept at bay pending the final adjudication of an issue. To contend this, he has taken the aid of the following judgments: (a) K.P. Remadevi and Anr. vs. Veena U Nair 2021 SCC Online Ker 338; (b) State of Rajasthan v. M/s. R.S. Sharma & Co. (1988) 4 SCC 353; (c) Ashok Sadarangani and Ors. vs. Union of India AIR 2012 SC 1563. 100. He further submitted that under the Companies (Accounts) Rules, 2014 (enacted pursuant to Sections 129 and 133 of the Companies Act 2013), the financial statements have to be in the form specified in Schedule III to the Companies Act, 2013 and comply with Accounting Standards or Indian Accounting Standards ("Ind AS") as applicable. The Central Government has notified the Indian Accounting Standards ("Ind AS") under Section 133 of the Companies Act 2013, which are prescribed as the applicable accounting standards under Rule 3 of the Companies (Indian Accounting S....
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....regarding the payment obligations of respondent No. 1, if the board of directors of respondent No. 1 was not accustomed to act in accordance with the with the directions and/or instructions of Mr. Goenka and/or his family. (B) That the email dated June 27, 2018 sent by representatives of the respondent No. 2 from domain of zee.esselgroupc.om in which respondent No. 2 has assured prepayment from respondent No. 1, could only be made if respondent Nos. 1 and 2 have been acting jointly. So, he submitted that the respondent No. 2 exercises influence over respondent No. 1, and respondent No. 1 is accustomed to act on advice, instructions, or directions of respondent No. 2. (C) That the Annual Reports of respondent No. 1 notes that respondent No. 2 is one of the "Enterprises owned or significantly influenced by Promoter/Promoter Group," identified under the head "Related party transactions". (D) That the Board of Directors/managing director/manager of respondent No. 1 is accustomed to act in accordance with advise or direction or instruction of Mr. Puneet Goenka and/or Mr. Subhash Chandra, which fact is also evident from the profiles of the directors/manager of respondent No. 1. He ....
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....ole Essel Group. According to him, in furtherance of reduction in interest rate of 3% per annum, Essel Group has gained about Rs 20,00,00,000/- by saving on interest till date. He submitted that after enjoying the benefits of said Rs 20,00,00,000/- on the basis of issuance of the alleged Letters of Guarantee, respondent No. 2, now cannot be allowed to wriggle out of its obligations. He argued that the alleged Letters of Guarantee, allowed continued enjoyment of the Facility by respondent No. 1 and it is only on the basis of the issuance of Letter of Guarantee 1 by respondent No. 2 that the respondent No. 1 has continued to enjoy the Facility granted by the petitioner. So, he concluded that undeniably, the Letter of Guarantee 1 issued by respondent No. 2 forms part of the composite transaction of the granting Facility to respondent. No. 1 by the petitioner. 105. He further submitted that the respondent No. 1's credit rating rationale is on the basis of the market capitalization of the listed entities of Essel Group (which includes respondent No. 2). Hence respondent No. 1 has raised various credit facilities on the basis of strength of the financials of its Group, including th....
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....settled law that prima facie, in respect of commercial transactions, there is a presumption that the parties have intention to create legal relations and the onus of proving the absence of such, rests with the party who asserts that no legal effect is intended. 109. It is his submission that in the Letter of Guarantee 1, the respondent No. 2 has not only provided a comfort letter to the petitioner but has also given an assurance to the petitioner regarding the payments of respondent No. 1. To decipher the term 'assurance', reliance has been placed upon the Black Law's Dictionary [SIXTH EDITION], where, the word 'assure' has been defined in the following manner: "Assure. To make certain and put beyond doubt. To declare, aver, avouch, assert, or ensure positively. To declare solemnly; to assure to any one with design of inspiring belief or confidence. Used interchangeably with "insure" in insurance law. In real property documents it means a warranty; and in business documents, generally, it means a pledge or security. Utilities Engineering Institute v. Kofod, 185 Misc. 1035, 58 N.Y.S.2d 743, 745." 110. He submitted that in Ramanatha Aiyyar's Law Lexicon, t....
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....n shall be deemed to have the notice of the charge from the date on which the charge was registered. Hence, it is his submission that respondent No. 2 was aware of the fact that the assets of respondent No. 1 including monies of respondent No. 1 had been charged to petitioner and hence it could not have any claim over it. (D) That under Facility Agreement, Subordinate Claims include all present and future amounts owed and due by respondent No. 1 from any entity of Group (including respondent No. 2). For a claim to be a Subordinate Claim, it is not limited to payments being made to a principal/surety/guarantor. The word "including" makes the clause illustrative and not exhaustive. The words "or otherwise" in no manner limits the clause to payments being made to a principal/surety/guarantor as it would render payments in relation to costs, fees, indemnities in the said clause, otiose. (E) That in any event, any allegation that payments to respondent No. 2 were approved through ASM - KPMG are false as there was no intercreditor agreement executed and/or no proposal for restructuring the respondent No. 1's debt was accepted. He submitted that written permission was given by pet....
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.... No. 1 to respondent No. 2 including but not limited to the amounts admitted or disclosed in the Annual Report for FY 2020-21 of ` 108,00,00,000 are held in trust for the petitioner. As such, it is the legal obligation and liability of the respondent No. 2, to return such sums (held in trust for the petitioner), to the petitioner. ADDITIONAL SUBMISSIONS ON BEHALF OF RESPONDENT NO. 2 115. According to Mr. Chidambaram, the entire claim of the petitioner is based on three documents: (a) CAL dated January 16, 2017, between the petitioner and respondent No. 1; (b) Facility Agreement dated February 23, 2017, between the petitioner and respondent No. 1; and (c) Deed of Hypothecation dated February 23, 2017 by respondent No. 1 in favor of the petitioner and the respondent No. 2 is not a party to any of these three documents. 116. That the petitioner has dragged respondent No. 2, into this litigation based on a letter dated June 26, 2018 issued by it. It is his submission that such a letter is a mere letter of comfort. It is not a letter of guarantee within the meaning of Section 126 of the Indian Contract Act 1872 and the same letter of comfort was issued one year and five months after ....
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.... respondent No. 2 are not the current assets of respondent no. 1; they are the current liabilities of respondent No. 1 and hence are not included and could not be included, in Schedule II. 121. As far as the letter of comfort dated June 26, 2018, is concerned, the petitioner in its Recall Notice 1 dated February 07, 2019 and Recall Notice 2 dated February 11, 2019, issued notices only to respondent No. 1. It is only the Recall Notice 3 dated February 12, 2019 which was marked to respondent No. 2 and, even in this notice, the petitioner only requested respondent No. 2 to ensure that payments are made by respondent No. 1 to the petitioner. It is in the 4th Recall Notice dated December 02, 2021 that the petitioner purported to refer to the letter of comfort as a financing document without specifically designating the said letter as a financing document. 122. It is his submission that the petitioner in the Section 9 petition, by a sleight of hand, has claimed that the Recall Notice 4 dated December 02, 2021, designated the letter of guarantee as a financing document. He submitted that the letter dated June 26, 2018 was not, at all, designated as a financing document. 123. He further....
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....een obtained by respondent No. 1 from another chartered accountant firm, namely, DNS Associates. Both firms/experts have analyzed the issue of related party under the (i) the Companies Act, (ii) SEBI LODR (Listing Obligations and Disclosure Requirements) and (iii) the Indian Accounting Standards and reached the conclusion that both respondent No. 1 and respondent No. 2 are not related parties. Whereas, Mr. Sandeep Sethi, learned Senior Advocate, also appearing on behalf of the respondent No. 2 has made the following submissions: 128. He submitted that the if the petitioner's and respondent No. 1 's intent was to bind respondent No. 2 in relation to the loan transaction, they could very well have done at the time of advancement of loan, however, they chose not to do so, which clearly demonstrates that respondent No. 2 is not a party to the loan transaction with respondent No. 1. 129. He further submitted that the LoC has created no legal obligations and such a letter is not actionable and thus no reliefs can be claimed in terms thereof before the Arbitrator and/or in Court. 130. He submitted that a deed of guarantee is required to be stamped under the provisions of the ....
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....ia, the following interim reliefs:- "In light of the above facts and circumstances, pending the completion of the arbitration proceedings and making and implementation of the arbitral award, it is respectfully prayed that this Hon'ble Court may be pleased to: (i) Pending the hearing and final disposal of the arbitration proceedings and enforcement of the Award therein, this Hon'ble Court be pleased to direct Respondents Nos. 1 and 2 to deposit the Overdue Principal Amount as per the terms of the Facility Agreement read with Letter of Guarantee, and as admitted by Respondent No. 1 in the Disclosure Letters, with this Hon'ble Court; (ii) that in the alternative and pending the hearing and final disposal of arbitration proceedings and enforcement of the Award therein, direct the Respondents to deposit bank guarantees for Overdue Principal Amount under the Facility Agreement, and as admitted by Respondent No. 1 in the Disclosure Letters, with the Hon'ble Court; (iii) In meanwhile and pending the grant reliefs clauses (a) and (b) above, let no bank accounts of the Respondent No. 1 and Respondent No. 2 be allowed to be dealt with for any amounts; (iv) that in th....
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....ting relinquishing or creating any third-party rights or interests including charges in respect of all their assets, whether held directly or otherwise; (x) pending the hearing and final disposal of the arbitration proceedings and enforcement of Award therein, direct the Respondents to disclose on oath details of all assets, moveable or immoveable, tangible or intangible, in which the Respondents have any direct or indirect interest whatsoever, and to disclose their respective Income Tax Returns, Statement of Account of all 110 bank accounts held by each of the Respondents and Statement of Holdings in any DEMAT Accounts held by each of the Respondents, for the past 3 (three) financial years.; (xi) Pass ad-interim reliefs in relation to prayers (a) to (j); (xii) Grant costs of this Petition; and (xiii) Pass such further or other orders as maybe necessary in the facts and circumstances of the present case." 135. It is apposite to mention here that the facts as noted in the Arb. P. 474/2022, being common to this petition, they are not being reiterated. It is only facts and submissions which are distinct and confined to the nature of the reliefs sought in the instant petition ....
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....to the petitioner. It is their submission that payment of these amounts to respondent No. 2 by respondent No. 1 is not only in blatant breach of the Financing Documents but also unjustified considering the substantial haircuts proposed to the petitioner in the restructuring process of respondent No. 1. Moreover, both the respondents have been acting in concert to transfer and siphon the funds available with respondent No. 1 to respondent No. 2 to prevent the petitioner from recovering the amounts due under the Facility Agreement. It is further their case that the respondent No. 2 has unjustly enriched itself at the expense of respondent No. 1 and has left no funds at the disposal of respondent No. 1 to service the Term Loan and hence the respondent No. 2 has been directly responsible for respondent No. 1 's failure to service the Term Loan. 141. It is also stated that respondent No. 2, despite being aware of the terms of Facility Agreement and knowing that any payments made to itself are Subordinated Claims, that can only be paid after servicing the Term Loan, has continued to blatantly divert the funds of respondent No. 1 to itself. As such, respondent No. 2 has acted in a ma....
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....er, it is also their case that it is an admitted fact that respondent No. 1 does not have any assets or sufficient cash flow to make payments towards the Secured Obligations to the petitioner. Despite this, the respondent No. 2 has transferred at least ` 108 crores from respondent No. 1 to itself, to the detriment of the petitioner and completely contrary to its obligations and terms of the Facility Agreement read with the Letter of Guarantee 1. 148. It has been submitted that in the Restructuring Plan 2, the Lenders proposed a plan wherein barely any amounts were recoverable from respondent No. 1 and the lenders would have had to take a massive haircut (ranging from 57% to 75%). 149. Furthermore, it is their submission that while the respondent No. 1 has no funds to service the loans extended by the petitioner, it has been continuously making payments of huge amounts to respondent No. 2, which indicates that respondent No. 2 has been fraudulently entering into related party transactions with respondent No. 1, to siphon funds away from respondent No. 1 and at the same time has defrauded the Lenders by proposing restructuring plans with huge haircuts. 150. In crux, it is their ca....
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....st amount after the Recall Notices were issued and thus it is in breach of the terms of the Facility Agreement. (C) Breach of Debt Cap (Ca) That bare perusal of the Index of Charges, as available on the website of Ministry of Corporate Affairs, indicates that respondent No. 1 has availed/created debt facilities of Rs 2,100,00,00,000/-. Thus, respondent No. 1 has breached the Debt Cap of Rs 1,500,00,00,000/- provided under Clause 17(ii) of the Facility Agreement by incurring and securing debt facilities. (D) Fall in Credit Rating of respondent No. 1 (Da) That under Clause 16.25 of the Facility Agreement, respondent No. 1 was required to maintain a credit rating of 'ICRAA-/CARE A- However, on February 07, 2019, the credit rating of respondent No. 1 got dropped down to three notches. So, it has been submitted that the respondent No. 1 has failed to maintain credit rating of ICRAA-/CARE A-, throughout the subsistence of the Facility, as required under Clause 16.25 of the Facility Agreement and this also constitutes as an EOD under the Facility Agreement. (E) Creation of Security Pledge over shares of corporate Obligors (Ea) That it was being submitted that the increase ....
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....e to group entities) is entirely subordinate to the Secured Obligations. Moreover, upon occurrence of an EOD (which has occurred under the Facility Agreement), no payments was allowed to be made to respondent No. 2 till payment of the Secured Obligations remains outstanding. It is also their case that despite the same, respondent No. 1 has continued to make payments to respondent No. 2, well after the Date of Default and thus respondents No. 1 and 2 are in breach of the Clause 16.20 and 16.21 of the Facility Agreement. 153. It is stated that the respondent No. 1, in the Disclosure Letters, has admitted that a sum of Rs 134,00,00,000/- is outstanding towards the principal amount, under the Facility Agreement against the petitioner. By way of the Recall Letters, the petitioner has recalled the entire outstanding amount under the Facility Agreement and as such admittedly, an amount of Rs 134,00,00,000/- is due and payable to the petitioner. 154. It is further stated that the respondent No. 2 is the primary obligor under the Facility Agreement along with respondent No. 1. Thus, respondent No. 2 is liable for the due discharge of the respondent No. 1's obligations under the Faci....
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.... payments of the company as directed by Lenders iv. Non - cash Parameters. 161. It is his case that the afore-mentioned scope of work demonstrates that all the payments above the threshold amount of ` 50,000/- by the respondent No. 1 are pre - authorised by the ASM. Furthermore, any payments to related parties are also monitored and pre- approved by the ASM. Moreover, the ASM is also required to analyse the utilisation in creditor's repayment/repayment of Term borrowings, Loans and Advances. 162. Therefore, the Lenders including the petitioner through the ASM is already monitoring the accounts and the transactions of the respondent No. 1. It is their submission that even the payments to the Lenders are being approved by the Lenders itself. 163. So, it has been argued that the accounts and transactions of the respondent No. 1 are already under the scrutiny of the Lenders including the petitioner. Furthermore, payments made by the respondent No. 1 in the normal course of business are pre- approved by the ASM. It is further stated that the payments made by the respondent No. 1 to the respondent No. 2, in the normal course of business under contractual liabilities, have also b....
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....greement and/or understanding between the parties, which is in contravention and violation of the TRAI Act and regulations thereunder and/or the fundamental principles of the sector. So, he submitted that no party can seek a relief in the court of law, which potentially frustrates the purpose, principles and provisions of a statutory framework i.e., the TRAI Act. 167. He submitted that in terms of the mandate of the Interconnection Regulations, the respondent No. 2 and the respondent No. 1 have executed the 'Interconnection Agreement/Reference Interconnect Offer' inter alia, for the transmission of the signals of the respondent No. 2 to the respondent No. 1. It is his submission that the respondent No. 1 and the respondent No. 2 are obligated under the Interconnection Regulations to execute an Interconnection Agreement/Reference Interconnect Offer and are bound by the same. 168. That pursuant to the execution of the Interconnection Agreement/Reference Interconnect Offer and in terms thereof, the respondent No. 2 has raised monthly invoices on the respondent No. 1. 169. He further submitted that the payments made by the respondent No. 1 to the respondent No. 2 are in the ....
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....leads to a violation of the law and/or prevents/prohibits two service providers from discharging their obligations under the TRAI Act and the Regulations thereunder. He submitted that in the event that two parties do enter into any such agreement, such an agreement will be void, non-est in law and liable to be struck down. Thus, it has been submitted that the petitioner cannot be entitled to any relief, which leads to the express violation of the Interconnection Agreement and furthermore, which restrains and/or prevents and/or obstructs the respondent No. 1 from discharging its obligations under the TRAI Act, the Regulations framed thereunder and the Interconnection Agreement executed in terms of the regulations. 176. He further submitted that the disconnection of signals by the respondent No. 2 to the respondent No. 1 shall also affect subscribers of the respondent No. 1, as the subscribers shall be prevented from viewing/availing the channels of the respondent No. 2. Furthermore, such an action shall also adversely affect the business of the respondent No. 1 in the highly competitive business environment, as the subscribers may start opting for signals from other MSO/Distributin....
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.... is his submission that for an order, in the nature, as provided under Order XXXVIII Rule 5 CPC, to be passed - this Court has to be satisfied by affidavit or otherwise that: i. The respondent No. 1 has an intention to obstruct or delay the execution of any decree that may be passed against it; ii. And to achieve the aforementioned, the respondent No. 1 is about to dispose of the whole or any part of its property, or, is about to remove the whole or any part of its property from the local limits of the jurisdiction of this Court. 180. He further submitted that the requirement under Order XXXVIII Rule 5 CPC warrants the petitioner to 'establish' that the respondent No. 1 is alienating/disposing of his assets with the intention to defeat any award/decree. It his submission that for the purposes of this provision, mere speculation or bald averments/allegations cannot suffice and only the actual verifiable knowledge at the end of the petitioner with proof thereof will suffice. It is also his submission that the petitioner has failed to establish that the respondent No. 1 is disposing/alienating his assets. In fact, from the averments of the petitioner in the Petition, it s....
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....petitioner again has to satisfy the conditions laid down in Order XXXVIII Rule 5 of the CPC. 184. To substantiate this, he submitted that the petitioner is the part of the Joint Lenders' Meeting, compromising of Seven Lenders of the respondent No. 1 and from the Minutes of Joint Lenders' Meeting as well as the Restructuring Proposal dated September 03, 2021, it follows that the representatives of the petitioner have been actively participating in the Joint Lenders Meeting and was also part of the decision whereby the decision, restructuring the debt of the respondent No. 1 was approved. He submitted that the Lenders of the respondent No. 1 including the petitioner are still even discussing the modalities for the restructuring of the outstanding loans of the respondent No. 1. 185. It is also his case that the ASM appointed by the Joint Lenders, including the petitioner, has approved the payments made by the respondent No. 1 to the respondent No. 2 in the ordinary course of business. 186. Thus, he urged this Court, on the afore-said grounds, that such reliefs as sought by the petitioner should not be granted. 187. He submitted that the relief sought in the prayer clause (....
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....nels to the subscribers which is also done in the larger interest of the public. 192. So, he urged the Court to not to grant such reliefs in favour of the petitioner because of afore-mentioned reasons. SUBMISSIONS ON BEHALF OF RESPONDENT NO. 2 193. Whereas it is the case of respondent No. 2 and so contended by Mr. P. Chidambaram and Mr. Sandeep Sethi, learned Senior Advocates, appearing on behalf of the respondent No. 2, that the instant petition is not legally maintainable specifically against respondent No. 2. So, the following objections have been taken up by them against the maintainability of the instant petition qua respondent No. 2: (A) that respondent No. 2 is neither a signatory nor has it ever expressed any intention to be bound by any arbitral proceedings; (B) that respondent No. 2 being a non-signatory cannot be compelled to arbitrate without a specific arbitration agreement and in the absence of a clear intent by the parties to bind it; (C) instant case does not fall under the exceptional circumstances under which non-signatories can be compelled to arbitrate (or group-company doctrine can be invoked); (D) there is no direct relationship between the responde....
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....LoC provided by the respondent No. 2 to the petitioner and the loan transaction between respondent No. 1 and the petitioner are not a part of the composite transaction; (K) that the performance of the agreements between respondent No. 1 and the petitioner was not predicated on the aid/execution/performance of any obligation by respondent No. 2; (L) that contrary to the petitioner's case, respondent No. 2 did not approach the petitioner to seek concessions and reset of the interest rate and the said letter was not a precondition for reduction in interest rate. In fact, the said LoC had no bearing on the decision of the petitioner, as even after receipt of the said Letter, the petitioner did not revert/reset the interest rate to the original rate of 11 %, but brought it down only to 13%; (M) that the petitioner's contention that the said LoC issued by respondent No. 2 makes a reference to the Facility Agreement, which was entered into between the petitioner and respondent No. 1, is an indicator of the transactions being composite, is meritless. It has been submitted that Section 7(5) of the Act of 1996 also provides that a reference in a contract to a document containin....
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....the petitioner has expressly sought prayers in the petition seeking an injunction on the said merger. Thus, the filing of the instant Petition against respondent No. 2 at such an advanced stage, which is not even a party/guarantor to the loan transaction between respondent No. 1 and the petitioner, makes it evident that the petitioner wants to stall the merger of respondent No. 2 and is trying to hold respondent No. 2 at ransom; (Q) that the recourse to arbitration is available to the petitioner, only in cases wherein it does not have an option of taking recourse under the RDDBFI Act or SARFAESI Act. To contend the same, reliance has been placed upon the judgment of the High Court of Madhya Pradesh in the case of Aditya Birla Finance Ltd. vs. Carnet Elias Fernandes Yemalayam (2019) 1 MPLJ 471. (R) that the petitioner has misconstrued the LoC to be a guarantee. Reliance has been placed upon the judgment of High Court of Bombay in the case of Yes Bank Ltd.(Supra), as well as judgment passed by the Division Bench of High Court of Karnataka in the case of United Breweries (Holding) Ltd.(Supra), to contend that the letter dated June 26, 2018 is merely a LoC and not a Letter of Guara....
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....tee. Furthermore, Section 3 of the Maharashtra Stamp Act 1958, requires every instrument executed within the State of Maharashtra to be stamped at the rates mentioned in Schedule I of the said Act. Therefore, a letter of guarantee' is liable to be stamped as per Article 5(h)(A)(iv)(b) of the Schedule I, and the stamp duty payable on a Letter of Guarantee is as under:- "(b) If the amount exceeds Rupees Ten Lakh 0.2% of the amount agreed in the contract." (U) Also as per Section 34 of the afore-said Act, no instrument chargeable to stamp duty is admissible in evidence or can otherwise be acted upon unless it is duly stamped. Thus, it has been submitted that even if the LoC is construed to be a Letter of Guarantee, it cannot be acted upon by this Court unless the same is duly stamped and thus this Court is duty bound to impound the said document. REJOINDER SUBMISSIONS 194. It is Dr. Singhvi and Mr. Wadhwa's primary submission that the letter dated June 26, 2018 is not mere a LoC, but a Guarantee. To substantiate this submission, he has taken the aid of the following judgments: (A) Tiong Woon Project & Contracting PTE. Ltd.(Supra); (B) Lucent Technologies Inc.(Supra); ....
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....n of (i) the Facility Agreement, (ii) Deed of Hypothecation and (iii) Letters of Guarantee. Further, Interconnection Agreement was extended from time to time, even after the Date of Default. Moreover, at the time of entering into the Interconnection Agreement, respondents No. 1 and 2 were aware about their obligations under the Facility Agreement read with CAL. Moreover, the Interconnection Agreement were in conflict with, (A) Clause 15.3(iii) of the Facility Agreement (as per which respondent No. 1 and respondent No. 2 had an obligation to ensure that the performance of the Financing Documents (including the Facility Agreement) does not come in conflict with any subsequent agreement or instrument at a future date); (B) Clause 16.21 of the Facility Agreement (which provides that until the date of final settlement, all the Subordinated Claims would be deemed to be subordinate to the Secured Obligations payable to the petitioner); (C) Clause 6.5 of Deed of Hypothecation (under which the respondent No. 1 was prohibited from taking any action that would prejudice the rights of the petitioner with respect to Hypothecated Properties i.e., cash flow of respondent No. 1); and (D) Clause 16....
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....ation, it is the case of Mr. Wadhwa, that the provisions of SARFAESI Act provide a remedy in addition to the provisions of Act of 1996 and moreover, SARFAESI proceedings are in nature of enforcement proceedings, while arbitration is an adjudicatory process. So, he argued that the petitioner is within its rights, under the Law as well as under the terms of the Facility Agreement, to take recourse to the process of arbitration. To crystallize this contention, reliance has been placed upon the following judgments: (A) M.D. Frozen Foods Exports Private Limited and Ors.(Supra); (B) Securities and Exchange Board of India vs. Rajkumar Nagpal & Ors.[Civil Appeal No. 5247 of 2022, decided on August 30th, 2022] 201. Moreover, he has taken the aid of the recent judgment of the Supreme Court in the case of N.N. Global Mercantile Private Limited vs. Indo Unique Flame Limited and Others (2021) 4 SCC 379 to contend that even though the Letter of Guarantee, as alleged by the respondents, is unstamped, still the Arbitration Clause contained in the Facility Agreement read with CAL, can be enforced and disputes be referred to arbitration. Moreover, he also taken the aid of the judgment of the Hi....
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....Facility Agreement respectively, which I have already reproduced in paragraphs 11 and 12, reveal normal arbitration clauses for referring the dispute for adjudication by a retired Judge of a High Court or a Supreme Court. 206. At the outset, the plea that needs to be decided is the one raised by Mr. Chidambaram for respondent No. 2, inasmuch as the arbitration clauses are not applicable as the petitioner has a remedy available under the RDDBFI Act and the SARFAESI Act. A perusal of Clause 33 of the Facility Agreement reveals that it is in the eventuality that the lender (petitioner herein) does not have the benefit of the RDDBFI and SARFESI Acts, then, the parties will have a right to refer any dispute arising out or in connection with the Facility Agreement, to the arbitration. In support of his submission, Mr. Chidambaram has relied upon the Notification dated February 24, 2020 issued by the Ministry of Finance which stipulates, an NBFC having assets worth ` 100 Crores and above is entitled to enforce its security interest in secured debts of ` 50 Lakhs and above under the SARFAESI Act. This submission of Mr. Chidambaram was contested by Mr. Rao by stating that the petitioner do....
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....and above, which shall be entitled for enforcement of security interest in secured debts of rupees fifty lakh and above, as financial institutions for the purposes of the said Act. [F. No. 31/52/2018-DRT] VANDITA KAUL, Jt. Secy." 207. The Supreme Court in M.D. Frozen Foods Exports Pvt. Ltd. & Ors.1 (Supra) on which reliance has been placed by Mr. Rao has held, the remedy under SARFAESI Act is in addition and not in derogation to the RDDBFI Act, which is an alternative remedy available to the lender for recovery of money. The Supreme Court also held that the remedy for recovery of money and the remedy under the SARFAESI Act can proceed simultaneously. Hence this submission of Mr. Chidambaram is liable to be rejected. The reliance placed by Mr. Chidambaram on the judgment in the case of Aditya Birla Finance Ltd.(Supra), has no applicability, in view of the judgment of the Supreme Court in M.D. Frozen Foods Exports Pvt. Ltd. & Ors.(Supra). In any case, the said judgment is distinguishable on facts. 208. Now coming to the issue which falls for consideration in this petition, which is, whether all the parties including respondent Nos. 2 and 3 are required to be referred to arbitrati....
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....ory as well; iii. The arbitration agreement entered into by one of the companies in the group and the non-signatory affiliate, or sister, or parent concern is held to be bound by the arbitration agreement, if the facts and circumstances of the case indicate a mutual intention of all parties to bind both the signatories and non-signatory affiliates in the group, or; iv. This Doctrine gets attracted when a non-signatory entity on the Group, was engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, or; v. In cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality, especially when funds of one company is used to financially support or restructure other members of the group, or; vi. Doctrine can be invoked to bind non-signatory affiliate of a parent company or inclusion of a third party to arbitration, where there is a direct relationship between the party which is a signatory to the arbitration agreement or there is direct commonality of the subject matter vii. Even if all parties....
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.... compelled to arbitrate although, they were not original signatories to the arbitration agreement. 28. There exists another set of cases where the Courts have compelled non-signatories to arbitrate by disregarding their corporate facade or where the Courts have found the signatory to be an alter ego of the non-signatory or vice versa. In Barcelona Traction, Light and Power Company Ltd.: (1970) ICJ Rep. 3, the International Courts of Justice had explained the doctrine of piercing the corporate veil in the following words: "the process of 'lifting the corporate veil' or 'disregarding the legal entity' has been found justified and equitable in certain circumstances or for certain purposes. The wealth of practice already accumulated on the subject in municipal law indicates that the veil is lifted, for instance, to prevent misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance, to protect third persons such as creditor or purchaser, or to prevent the evasion of legal requirements or of obligations." xxx xxx xxx 30. Courts in several jurisdictions have drawn heavily on the principle of estoppel and have compelled non-signatorie....
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....n practice. The "group of companies" doctrine indicates the implied consent to an agreement to arbitrate, in the context of modern multi-party business transactions. It was first propounded in Dow Chemical v. Isover-Saint-Gobain [Dow Chemical v. Isover-Saint-Gobain, 1984 Rev Arb 137: (1983) 110 JDI 899], where the Arbitral Tribunal held that: "... the arbitration clause expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise." 10.5. The group of companies doctrine has been invoked by courts and tribunals in arbitrations, where an arbitration agreement is entered into by one of the companies in the group; and the non-signatory affiliate, or sister, or parent concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention ....
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....and the facility agreement and; (2) the effect of the two letters dated June 26, 2018 issued by the respondent Nos. 2 and 3 to the petitioner. On the first issue, the submissions of Mr. Rao are the following:- i. The respondent No. 1 as well as respondent No. 2, have a direct relationship, as they form a part of the same group of companies i.e., the Essel Group of Companies. ii. The Essel Group of Companies has a tight group structure, and is under the common control of certain individuals who direct the policies and employees of various group companies including respondent Nos. 1 and 2. iii. Under the facility agreement the promoters means Mr. Subhash Chandra and/or entities owned and/or controlled by him. iv. The Chairman of the respondent No. 2 as well as respondent No. 3 is Mr. Subhash Chandra and whereas Mr. Punit Goenka, who is the CEO of the respondent No. 2, is the son of Mr. Subhash Chandra. v. The annual reports of 2016-17 and 2018-19 published by the respondent No. 2 have classified the respondent No. 1 as "other related parties consist of companies controlled by Key Management Personnel and its relatives with whom transactions have taken place during year and ....
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....of the respondent No. 2 is Amit Goenka who is a son of Mr. Subhash Chandra, who is also the promoter of respondent No. 1. xvii. The financial obligations and financial commitments made by the respondents on behalf of the respondent No. 1 and vice versa couple with cross shareholding manifest that the respondent Nos. 1 and 2 are but a single economic entity as such commitments cannot be made by these respondents unless they are a single economic entity. xviii. The letters of guarantee issued by respondent Nos. 2 and 3 show that the said respondents have admitted that the respondent No. 1 is the part of a Group. xix. The letters of guarantee issued by respondent Nos. 2 and 3 incorporates similar languages to admit that the respondent No. 1 is a group company of the respondent Nos. 2 and 3. 214. The aforesaid stand of Mr. Rao was contested by Mr. Chidambaram (whose submission have been adopted by Mr. Kachwaha with regard to respondent No. 3) by stating that the respondent No. 2 being non signatory, cannot be compelled to arbitrate in the absence of mutual intent of the parties. According to him, the existence of arbitration agreement is a sine qua non for a reference of dispute....
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....er subsequent judgments. According to them, the same being not a good law, and also the instant petition seeking impleadment of respondent Nos. 2 and 3 by the petitioner placing reliance upon the said doctrine being under the cloud, the same is required to be dismissed qua the said respondents. 219. It is true that in Cox and Kings Limited (Supra), the Court has referred to a Larger Bench, the following questions for consideration:- (A) Whether the Group of Companies doctrine should be read into Section 8 of the Act or whether it can exist in Indian jurisprudence independent of any statutory provision? (B) Whether the Group of Companies doctrine should continue to be invoked on the basis of the principle of "single economic reality"? (C) Whether the Group of Companies doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties? (D) Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the Group of Companies doctrine into operation even in the absence of implied consent? 220. But the fact remains that till such time the Chloro Controls India (P) Ltd.(Supra) and subsequent....
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....oup of companies in both respondent Nos. 1 and 2. So, in that sense, there is indirect shareholding in the respondent No. 1. It is clear from the letters dated June 26, 2018 issued by the respondent Nos. 2 and 3, that they have described the respondent No. 1, as part of their Group i.e., Essel Group of Company. So, the argument advanced by Mr. Chidambaram is at variance with the stand taken in the letter sent by the respondent Nos. 2 and 3 to the petitioner. Moreover, Mr. Rao is also justified in highlighting the following facts to show the inter-se relationship between respondent Nos. 1, 2 and 3: Sl. No. FACTS REVEALING INTER-SE RELATIONSHIP BETWEEN RESPONDENT NOs.1, 2 AND 3 1. Letter dated June 26, 2018 issued by respondent No.2 inter-alia records as follows:- "We are aware that Aditya Birla Finance Limited (ABFL) has sanctioned and disbursed a Rupee Term Loan facility of Rs.150,00,00,000/- (Rupees One Hundred & Fifty crore only) ["Facility"] to our group company, Siti Networks Limited, ..." (emphasis supplied) Even, a similar letter was issued by respondent No.3, which also incorporates the aforesaid language. This reveals that the letters issued by the respondent Nos.2 and....
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....17, 2017-18 and 2020-21 also reveal the same. 11. In their annual reports the respondent No.1 has stated that respondent No.2 is an "Enterprise owned or significantly influenced by promoter / promoter group" and whereas respondent No.2 has stated that respondent No.1 forms a part of ―other related parties consist of companies controlled by key management personnel and its relatives with whom transactions have taken place during the year and balance outstanding as on the last day of the year." 12. Also, the respondent No.2 gave payment commitments on behalf of the respondent No.1, through an email sent by the domain name zee.esselgroup.com. This suggests that respondent No.2, would not have been privy to such information and would not have been able to give such assurances, unless respondent Nos.1 and 2 were operating as a single economic entity and part of the same group. This also suggests that respondent No.1 was accustomed to act as per the advice of Mr. Puneet Goenka and / or Mr. Subhash Chandra and / or respondent No.2 and / or Essel Group. 223. At this stage, a reference is also made to the judgments relied upon by the counsels for the respondents. 224. In MSTC Lt....
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....referring to the Judgment of the Bombay High Court in MSTC Ltd.(Supra), had rejected the said application. 226. Whereas insofar as the judgment in the case of M.R. Engineers & Contractors (P) Ltd.(Supra) is concerned, the said judgment was in the context of incorporating an arbitration clause from the main contract into a sub-contract (which did not contain the arbitration clause). The Supreme Court held that unless a clear or specific indication that the main contract in entirety including the arbitration agreement was intended to be made applicable to the sub-contract between the parties, the arbitration clause in the main contract cannot form part of that sub-contract. Similarly, in S.N. Prasad Hitek Industries (Bihar) Limited (Supra) the Supreme Court rejected the contention that since the liability of the principal debtor and guarantor was joint and several, the guarantor should also be compelled to join the arbitration proceedings, even though it was not a signatory to the loan agreement executed between the creditor and the principal debtor, which stipulated the arbitration clause. 227. The above-judgments have been relied upon by the respondents to contend that since the ....
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....ted June 26, 2018, it can be seen that there is no assurance in the letters that respondent Nos. 2 and 3 shall pay the credit facility to the petitioner on the failure of respondent No. 1 to repay the petitioner. In the absence of such stipulation the letters do not meet the requirement of Section 126 of the Indian Contract Act, 1872. This I say so because the letter only states that the respondent Nos. 2 and 3 shall assure and confirm that the petitioner is repaid the facilities on the relevant due dates. 231. Reading the documents in their plain terms, the intent being clear, the same cannot be construed as letters of guarantee which necessarily requires, as per Section 126 of the Indian Contract Act, 1872, a promise to discharge the liability of a third person in case of his default. 232. Having said, the question still be, whether the respondent Nos. 2 and 3 cannot be referred to arbitration at all. The answer shall be that they can be, because the case of the petitioner in the notice invoking arbitration is the following:- "4. Under the terms of the Facility Agreement, ABFL had the discretion to reset Interest Rate and on 6 April 2018, ABFL issued a letter to reset the Int....
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....o agree with this submission of Mr. Sethi. On facts, as noticed from the letters of comfort dated June 26, 2018, the same were issued after the parties herein had held discussions. The discussions as contended by Mr. Rao entailed in reduction of interest rate by 3% per annum resulting in gain of substantial amount by the Essel Group. Also, the contents of letters being that the respondent Nos. 2 and 3 assures and confirms to respondent No. 1 that they shall ensure respondent No. 1 repays the facility on the relevant due dates, are the statements made in the midst of a commercial transaction; which are also promissory in character and thus enforceable. So, in that sense there was an intention to create a legal relation by the parties as the conduct of the parties is always a guide to the construction of a contract as held by the Supreme Court in the case of The Godhra Electricity Co. Ltd. v. The State of Gujarat & Ors. (1975) 1 SCC 199. 237. Insofar as the submission of Mr. Sethi that the Deed of Guarantee requires to be stamped under the provisions of the relevant Stamp Acts and in this case the letters of comfort are not stamped as per Section 3 of the Maharashtra Stamp Act, 1958....
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....ASM which includes monitoring of related party transactions, i.e., between respondent Nos. 1 and 2, which are also pre-approved and pre-authorized by the ASM; D. The respondent No. 1 is registered as a Multi-System Operator under the Cable Television Network (Regulations) Act, 1995, whereas respondent No. 2 is a broadcaster and both the respondent No. 1 and the respondent No. 2 are 'service providers' as per the regulations promulgated under the TRAI Act. So, the business between both the respondent Nos. 1 and 2 is subject to the compliance of the TRAI Act and the regulations framed thereunder; E. Therefore, no party can seek a relief in the court of law, which potentially frustrates the purpose, principles and provisions of a statutory framework i.e., the TRAI Act; F. In terms of the mandate of the Interconnection Regulations, the respondent Nos. 1 and 2 have executed the Interconnection Agreement and in pursuant thereto, respondent No. 2 has raised monthly invoices on the respondent No. 1. Thus, the payments made by the respondent No. 1 to respondent No. 2 are in the ordinary course of the business which pertains to the Interconnection Agreement; G. Moreover, the ....
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....r and it has also not been established on an affidavit or otherwise that the respondent No. 1 is seeking to dispose/alienate its assets from the local limits of jurisdiction of this Court and more so with the intention of defeating any award or decree that may be passed in favour of the petitioner. So for the reasons thereof, the petitioner is not entitled to any of the reliefs as provided under Order XXXVIII Rule 5 CPC; P. The granting of such reliefs as sought by the petitioner would completely disrupt the business of the respondent No. 1 and the same will also be in violation of TRAI Act and the regulations framed thereunder; Q. The payments made by the respondent No. 1 to the respondent No. 2 are only against the subscription dues towards the subscription of the channels of the respondent No. 2 in terms of the Interconnection Agreement entered between them in compliance with the Interconnection Regulations issued by the Telecom Regulatory Authority of India; 241. On the basis of the aforesaid, respondent No. 1 has sought dismissal of the present petition. 242. Similarly, Mr. Chidambaram and Mr. Sethi have contested the prayers sought against respondent No. 2 on the ground....
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....y under the Companies Act, 2013. He has drawn the attention of this Court to Section 2(76) of the Companies Act, 2013 and submits that on the anvil of this definition, respondent nos. 1 and 2 are not related parties. 4. Issue notice. The learned counsel appearing for the petitioner accepts notice and seeks time to file a reply. Let the same be filed within a period of one week. Rejoinder, if any, be filed before the next date of hearing. 5. List on 22.04.2022. 6. In the meanwhile, respondent no. 1 cannot retain the funds owed to respondent no. 2. Mr. Nayar, learned Senior Counsel appearing for respondent no. 1, states that respondent no. 1 has no difficulty in depositing the amounts owed to respondent no. 2 with the Registry of this Court. It is so directed. All amounts owed by respondent no. 1 to respondent no. 2 be deposited with the Registry of this Court within a period of two weeks from today. 7. Interim order to continue. Order dated April 29, 2022 1. The learned counsel appearing for the respondents requests for further two weeks' time to file his written submissions. It is stated that the counsel is infected with Covid-19. The request for adjournment is not ....