TaxTMI 
TaxTMI 
2023 (3) TMI 1482
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....wed. The delay of 6 days in filing reply to 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 ....
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.... 3, is no more a party to the present petition as his name has been deleted from the array of parties 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 (s....
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....proceedings would be conducted in English and the award provided by the arbitrator would be final and binding on all parties." 13. It is primarily the case of the 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 ....
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....nt No. 2 would provide a letter, to guarantee, assure and ensure that the respondent No. 1 would make payments under the Facility Agreement on the relevant due dates, and that the respondent No. 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 Gu....
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....ches as in breach of Clause 16.25 (iii) of the Facility Agreement. Therefore, the petitioner alleged this to be an event of default ('EOD') under Clause 19.2 of the Facility Agreement and demanded the respondent No. 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. Thu....
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....ontents of the former Notice. 35. In response to Legal Notice 2, on May 24, 2019, the respondent No. 1 issued another letter to the petitioner ('Reply Letter 2') inter alia stating that the respondent No. 1 is regular in payment 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 gran....
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.... making any payments to its related parties. The relevant extract of the order of this Court is reproduced below: "6. There is no dispute that respondent No. 1 had entered into the Facility Agreement dated 23.02.2017. Therefore, it is directed that in the 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,....
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.... 2, and 3 are group companies. 51. It is his submission that even the Annual Reports for 2016-17 and 2018-19, (i.e. during the relevant points in time when the Facility was granted and Letter of Guarantees were issued, respectively), published by the respondent No. 2 has classified respondent 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 b....
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.... at the time of entering into the Facility Agreement and also at the time of issuance of the Letter of Guarantees, indicating that there was a direct relationship between the two entities. 59. He substantiated this by stating that the beneficial owner of the No. 2 is Amit Goenka, who is the son of Subhash Chandra, 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%....
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....he respondent No. 2 (being a non-signatory to arbitration agreement) by placing reliance upon the said doctrine is itself under a cloud. 68. He further submitted that since the petitioner has a remedy available under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('the SARFAESI 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,....
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.... in another company; Bb) That the Board of Directors, Managing Director or Manager of the respondent No. 2 do not act in accordance with the advice, directions or instructions of the board/directors of respondent No. 1 and vice versa. The respondent No. 2, therefore does not have control or significant influence over respondent No. 1 and vice versa; Bc) That 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 ....
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....rent contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. He submitted that there should be special reference which shall indicate the mutual intent of the parties to incorporate the arbitration clause from another contract into the contract under consideration, which is clearly absent in the instant case. (D) Furthermore, it was submitted that the payments 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. ....
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....nate claim' has been defined in the Facility Agreement and which is reproduced as follows: "Subordinated Claims, means all present and future Financial Indebtedness incurred by the Obligers (Other than the Facility) from any entity of the group whether direct or indirect, including interest payment, or any payment on account of any default or acceleration or any premature payment, charges, cost, fees expenses, indemnities, however, evidenced, whether, as a principal, surety, guarantor, 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 legall....
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....e submitted that the Supreme Court has time and again clarified that the intention of a non-signatory to be bound by the arbitration clause ought to be express and specific. This is clearly not the case in relation to respondent No. 3. He has relied upon the following judgments to contend the same: (a) M.R. Engineers & Contractors (P) Ltd.(Supra); (b) S.N. Prasad Hitek Industries (Bihar) Limited v. Monnet Finance Limited and others (2011) 1 SCC 320; (c) MSTC Ltd. v. Omega Petro Products Pvt. Ltd. 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 t....
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....ndent No. 3 (being a non-signatory to arbitration agreement) in the captioned matter, placing reliance on the said Group of Companies doctrine is wholly misplaced and thus the instant petition deserves to be rejected on this ground alone. 84. He submitted that de hors Cox and Kings Limited (Supra) Judgment, the reliance of the petitioner on the Group of Companies doctrine is misplaced and, the said doctrine is not applicable to respondent No. 3 for the following reasons:- (A) That respondent No. 3 is not only a non-signatory but also never participated 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 b....
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....39;Financing Document' and therefore, there is nothing on record that binds the respondent No. 3 to CAL and the Facility Agreement. 88. It is also the submission of Mr. Kachwaha that the LoC sent by the respondent No. 3 does not fall under any of the enlisted categories for it to be considered as 'security document' or document creating a 'Security Interest'. So, he submitted that it cannot be said that the said LoC though not designated by the petitioner as a Financing Document still qualifies as a Financing Document. 89. It is also his case that the petitioner never 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. ....
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....ligation of any Person; or (ii) the effect of discharge of any sum owed or payable to any Person. (D) He submitted that Letter of Guarantee 2 is a preferential arrangement, as under it, respondent No. 3 has assured and ensured the payment of the sums owed by respondent No. 1 to the petitioner on the relevant due dates in preference to other secured or unsecured creditors, in consideration for and in exchange of, the reduction in interest rate from 16% to 13%. Hence, Letter of Guarantee 2 has a similar effect of securing the obligation of respondent No. 1 to the petitioner. (E) He also submitted that at the very least, respondent No. 3 has, by undertaking 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 o....
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....ment uses words of widest amplitude while explaining the disputes that are to be referred to arbitration i.e., "any dispute arising out of or in connection with" the Facility Agreement. (Hd) He further argued that the arbitration clause envisages arbitration as a mode for resolving disputes under CAL and/or Facility Agreement as well as Financing Documents. In terms of the CAL and the Facility Agreement, Financing Documents include Security Documents i.e., those documents which create a Security Interest. As enunciated aforesaid, the Letter of Guarantee 2 which was executed on behalf of respondent No. 3 for creating a Security Interest is a Security Document and hence a Financing Document, under the CAL 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 Agree....
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....he case of M.D. Frozen Foods Exports Pvt. Ltd. & Ors. vs. Hero Fincorp Ltd., to contend the same. 93. Mr. Rao further submitted that the arbitration clause envisages arbitration as a mode for resolving disputes under CAL and/or Facility Agreement, as well as Financing Documents. In terms of the CAL and the Facility Agreement, Financing Documents include those documents which are designated by the lender. In the present case, the alleged Letter of Guarantee 1, dated June 26, 2018 which was executed on behalf of the respondent No. 2 by reason of being designated by the petitioner as a financing document under its letter dated December 02, 2021, is a Financing Document under the CAL read with the Facility Agreement and therefore the disputes 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 im....
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.... control and are responsible for the day-to-day management of respondent No. 2 and take the policy decisions on behalf of respondent No. 2. (G) It is also admitted that Mr. Chandra is the Promoter of respondent No. 1. (H) At the time of the Facility Agreement in February 2017 as well as at the time of issuance of the Letter of Guarantee, the promoter shareholding was more than 70% and 65.68%, respectively, in respondent No. 1 and was approximately 43.07% and more than 40% respectively, in respondent No. 2. 98. It is also the case of Mr. Rao that both the respondent No. 1 as well as the respondent No. 2 are related parties. To substantiate this argument, he pointed out that in the financial statements of the respondent No. 1 as well as the financial statements of respondent No. 2, respondent 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 a....
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.... relationship as a "related party" in the financial statements would have to be construed as admission regarding their relationship as "related party" under the Companies Act 2013. 102. In order to substantiate that respondent No. 1 and 2 are related parties, Mr. Rao made the following submissions: (A) That the respondent No. 1 is a body corporate whose board of directors managing director/manager is accustomed to act on the advice, directions and/or instructions of Mr. Punit Goenka, the Managing Director and CEO of respondent No. 2 as well as Mr. Subhash Chandra, the Chairman Emeritus of respondent No. 2. He submitted that this fact is evident from a bare perusal of the Letter of Guarantee, which has been signed by Mr. Punit Goenka himself. He submitted that it could have been impossible for Mr. Goenka to provide assurances 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.o....
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....parties reflects that the parties, including respondent Nos. 2 and 3 always had the intention to be bound by the arbitration clauses under Clause 12 of CAL read with Clause 33 of the Facility Agreement. In order to crystallize this submission, he has relied upon the following judgments: (a) Oil and Natural Gas Corporation Limited vs. M/s. Discovery Enterprises Private Limited [Civil Appeal No. 2042 of 2022, decided on April 27, 2022]; (b) Eveready Industries India Limited vs. KKR India Financial Services Limited and Ors.; (c) Cheran Properties Limited vs. Kasturi and Sons Limited and Others; (2018) 16 SCC 413. (d) Fernas Construction Co. Inc. vs. ONGC Petro Additions Limited; (e) Mahanagar Telephone Nigam Ltd. vs. Canara Bank & Anr. (2020) 12 SCC 767. 104. It is also the case of Mr. Rao that the letters of guarantee have allowed multiple benefits to the whole 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 ....
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....Mr. Rao submitted that in the said letter respondent No. 2 had specifically undertaken obligations on behalf of respondent No. 1 and also expressly stated that it assures and ensures that respondent No. 1 will make payments on the relevant due dates. He submitted that it is a settled law that while determining whether a Comfort Letter imposes contractual obligations upon the issuer, the test is to ascertain the true intention of the parties from a close textual analysis of the terms of the letter and while doing so the ordinary rules of construction and interpretation relating to contracts would apply. To substantiate this contention, reliance has been placed upon the following set of judgments: (a) Tiong Woon Project and Contracting PTE. Ltd. vs. Naftogaz India Pvt. Ltd. and Ors. (b) Lucent Technologies Inc. vs. ICICI Bank Ltd. & Ors. (c) Yes Bank Ltd.(Supra) 108. He further submitted that it is also a 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 i....
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.... of the terms of the Facility Agreement, being Clauses 15.3, 16.4, 16.20, and 16.21. (C) At the time of Interconnection Agreement, which was entered into much after (i) the Facility Agreement, (ii) Deed of Hypothecation and (iii) Letter of Guarantee, parties were aware of their obligations under the Facility Agreement and their obligations under Clause 6.5 of Deed of Hypothecation. The assets of respondent No. 1 including monies of respondent No. 1 were charged to the petitioner under the Deed of Hypothecation. The assets are charged to petitioner and utilisation of the proceeds therefrom can be done as per the instruction of the petitioner in terms of the Deed of Hypothecation. The charge filings with the Registrar of Companies (as CHG-1 form) has been done in accordance with the Companies Act, 2013. Section 80 of the Companies Act, 2013 specifically sets out that any person acquiring property or assets over which charge has been registered in accordance with Section 77, such person 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 re....
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....use 16.21(i) of the Facility Agreement, respondent No. 1 has undertaken on its own behalf as well as other members of the Group (including respondent No. 2), that the Financial Indebtedness incurred by it from respondent No. 2 are subordinate to the Secured Obligations (inter alia being the repayment of Facility) of the petitioner under the Facility Agreement. (B) Under Clause 16.21(iii) of the Facility Agreement, if any amounts are received by entity of the Group towards payment of Subordinate Claims, prior to the payment of Facility and other Secured Obligations to the petitioner, such amounts that are received would be held in trust for and on behalf of the petitioner and shall be handed over to the petitioner. Therefore, any amounts payable by respondent No. 1 to respondent No. 2 under any agreement including the Interconnection Agreement, would be Financial Indebtedness and thus Subordinate Claims. (C) While payments may be due to respondent No. 2 for any reason whatsoever, any payments made by respondent 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 ....
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.... Lyka Labs Ltd. acquisition by IPSA laboratories Limited: e. Heineken Group acquisition of United Breweries Limited (UBL); f. Arcelormittal acquisition of Essar Steel India Limited (ESIL). 119. He further submitted that the captioned Section 9 Petition under the Act of 1996, was filed on December 21, 2021 and mere reading of the definitions will make it clear that, on that date, respondent No. 2 was not an affiliate; the promoters of Essel Group had no control over respondent No. 2; respondent No. 2 was not a member of the Essel Group; respondent No. 2 was not an obliger; respondent No. 2 did not create any security obligation; respondent No. 2 did not create any security interest in favor of the petitioner (lender) and respondent No. 2 was not a security provider. 120. He submitted that as far as the Deed of Hypothecation dated February 23, 2017 is concerned; what is hypothecated are the properties mentioned in Schedule II thereto. Schedule II refers to the current assets of respondent No. 1 (which is the borrower). The amounts payable by respondent No. 1 to respondent No. 2 are not the current assets of respondent no. 1; they are the current liabilities of....
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....1996. The mere reference in the letter of comfort to the Facility Agreement will not attract the arbitration clause in the Facility Agreement. Reliance has been placed upon the following judgments to contend the same: (a) M.R. Engineers & Contractors (P) Ltd.(Supra); (b) Shreyas Kirti Lal Doshi and Anr.(Supra); (c) MSTC Ltd.(Supra) 127. He submitted that the respondent No. 2 is not a related party to respondent No. 1. He further submitted that it is true that in the annual reports of respondent No. 2 and respondent No. 1, there is a reference of each being a related party of the other. Nevertheless, the Facility Agreement defines related party as having the meaning in the context of the Companies Act, 2013 and Section 2(76) defines the same. It his submission that no part of that definition applies to respondent No. 2 in its relationship with respondent No. 1. Moreover, the opinion of an independent firm of auditors, namely Ernst & Young, after an elaborated analysis, on April 04, 2022, has come to the conclusion that respondent No. 1 and respondent No. 2 are not related parties. Similar opinion has been obtained by respondent No. 1 from another charte....
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....e a calcitrant corporate entity and hold it accountable, for when it seeks to escape the dragnet by citing its independent juristic identity. But it is only in a grave case of egregious fraud or gross impropriety that a corporate entity is chased, its corporate veil is lifted and its identity barred. However, in the present case, there are no acts or allegations of egregious fraud or gross impropriety on part of respondent No. 2 133. He concluded by submitting that the petitioner has sought to implead respondent No. 2 in the instant petition despite being a non-signatory solely with an intent to exert pressure because of its proposed merger with Sony Pictures. He contended that though the facts of the case have no direct or indirect relationship with respondent No. 2's merger with any entity still the petitioner has sought prayer for an injunction upon respondent No. 2 from entering into any merger. This clearly shows malice on the part of the petitioner. FACTS AND SUBMISSIONS ON BEHALF OF PETITIONER IN OMP (I) (COMM.) 414/2021 134. The present petition has been filed by the petitioner under Section 9 of the Act of 1996, seeking inter alia, the following interim relief....
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.... and enforcement of Award therein, restrain the Respondents from entering into any merger, compromise, restructuring, change of control, scheme or other arrangement which has a direct or indirect bearing on the assets, liabilities or cash flow of the Respondent Nos. 1 or 2 in any manner, without the permission of this Hon'ble Court; (vii) pending the hearing and final disposal of the arbitration proceedings and enforcement of Award therein, restrain Respondent No. 1 from making any further payments to Respondent No. 2 and/or transferring any assets to Respondent No. 2, prior to making payments towards the Secured Obligations of Respondent No. 1 under the Facility Agreement to the Petitioner; (viii) pending the hearing and final disposal of the arbitration proceedings and enforcement of the Award therein, restrain Respondent No. 2 from appropriating/receiving any funds from Respondent No. 1; (ix) pending the hearing and final disposal of the arbitration proceedings and enforcement of Award therein, restrain the Respondents, acting by themselves or through their servants, agents, representatives, and/or all other persons claiming by, through or under th....
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....etitioner and so contended by Dr. Abhishek Manu Singhvi and Mr. Darpan Wadhwa, learned senior advocates, appearing on behalf of the petitioner in this petition, that under the Facility Agreement the amounts due and payable, on behalf of respondent No. 1, to its group companies (including respondent No. 2) are Subordinated Claims and till the full and final payment of Secured Obligations is made to the petitioner, respondent No. 1 cannot make payments towards such Subordinated Claims. It is also their case that payments to respondent No. 2 can only be made after respondent No. 1 discharges its obligations and makes full payment of the Secured Obligations to the petitioner. 139. It is stated that the respondent No. 2 has siphoned funds away from respondent No. 1 by making payments of huge amounts to itself and has thus deliberately prevented respondent No. 1 from making any payments towards the Secured Obligations. 140. It is further stated that from the date of entering into Facility Agreement, respondent No. 1 and respondent No. 2, have entered into various transactions with group companies, wherein respondent No. 1 has made payment of huge amounts (at least ` 108 crores) to ....
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....hat owing to failure of respondent No. 1 in making any payments towards any of its loans, on June 26, 2020, the lenders of respondent No. 1 sought to convene a meeting to discuss the restructuring plan ('Restructuring Plan 1') for respondent No. 1. 145. That on April 26, 2021, Lenders of respondent No. 1, had meetings to discuss Restructuring Plan 1 'for the transfer of exposure of respondent No. 1, to National Asset Reconstruction Company Limited and also to give haircuts to the Lenders'. However, the Lenders unanimously rejected that proposal. 146. Thereafter, on September 03, 2021, Edelweiss proposed a revised restructuring plan ('Restructuring Plan 2') for respondent No. 1. In the Restructuring Plan 2, there was no undertaking for upfront payment and the loan was sought to be restructured with a tenure of 6 to 16 years. Whereas, sustainable debt was sought to be paid at 8% interest and unsustainable debt with 16 years tenure at zero coupon interest rate. Therefore, on the above-terms, the petitioner along with other Lenders rejected the proposed Restructuring Plan 2. 147. It is their submission that, as on date, no debt restructuring plan has be....
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.... That from the Annual Report of respondent No. 1, it is evident that the valuation of the Hypothecated Properties is - INR 750 crores. The total outstanding debt of respondent No. 1, including the term loan (principal only) and the working capital (principal only) is -INR 902 crores. Hence, as on March 31, 2021, the security cover is 0.83x, which is less than the Minimum Security Ratio of 1:25:1, that is required to be maintained by respondent No. 1 under the Facility Agreement. (Ac) Further, respondent No. 1 has failed to provide the compliance certificate to reflect that respondent No. 1 has maintained a Minimum Security Ratio of 1:25:1, even though the petitioner has requested it to do so. So, it is their case that the failure to maintain Minimum Security Cover Ratio of 1:25:1 under Clause 16.28 of the Facility Agreement is in breach of Clause 19.2 of the Facility Agreement and hence it is also an EOD. (B) Failure to maintain ISRA (Ba) That under Clause 16.15 of the Facility Agreement, respondent No. 1 was required to maintain ISRA ('Interest Service Reserve Amount'), which is defined as follows: "Interest Service Reserve Amount" means....
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....f the Facility Agreement. Therefore, this is also an EOD under Clause 19.17(iii) of the Facility Agreement. (G) Breach in Material Terms of the Facility Agreement by respondent No. 2 (Ga) That in clear breach of the terms of the Facility Agreement, respondent No. 2's group companies have diluted its shareholding in respondent No. 1 from staggering 73.57% (at the time of the Facility Agreement), to a mere 6.10% presently. The dilution of respondent No. 2's shareholding in respondent No. 1 also clearly depicts mala fide on the part of the parties. (Gb) That respondents No. 1 and 2, together, have committed the following breach of the material terms of the Facility Agreement: Under the Facility Agreement, payments to the petitioner for the Secured Obligations have to be made in priority to any payments to respondent No. 2 and the claims of respondent No. 2 are subordinate to the Secured Obligations of respondent No. 1, in light of the Clauses 16.20 and 16.21 of the Facility Agreement; The aforesaid Clause 16.21 is binding on respondent No. 2 (even though it is not a signatory to the Facility Agreement) in light of the definitions of....
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....ave regularly conducted multiple 'Joint Lenders' Meetings'. 157. Furthermore, the Minutes of the Joint Lenders Meeting, dated April 15, 2021, manifests that the petitioner had given its in principle approval for proceeding with a resolution plan. 158. It has also been submitted that the petitioner in the instant Petition has deliberately failed to disclose the fact that on behalf of the Joint Lenders, including the petitioner, the Lenders have appointed 'KPMG India Private Limited' as an 'ASM', for undertaking specialised monitoring assignment of the respondent No. 1. 159. That on August 28, 2020, the Axis Bank on behalf of the seven lenders had appointed the ASM. In terms of the appointment, the ASM examined the accounts of the respondent No. 1 from March, 2020 onwards. 160. It is further submitted that the ASM had been bestowed with the following scope of work: i. Review of historical cash flow; ii. Analyse source and application of funds; iii. Cash Outflow Monitoring: - Analyse utilization in creditor's repayment/repayment of Term borrowings, Loans and Advances. - Analyse capital drawings, i....
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.... Authority of India Act, 1997 ('TRAI Act') and the business of the respondent No. 1 and the respondent No. 2 in respect of transmission and re-transmission of signals are highly regulated under the aegis of the TRAI Act and the regulations framed thereunder. Moreover, the regulatory framework under the TRAI Act is founded on the principles of non -discrimination, non - exclusivity, non - arbitrariness, fair play and level playing field. It is his submission that in terms of the mandate of the 'Telecommunication (Broadcasting & Cable) Services Interconnection (Addressable Systems) Regulations, 2017' ('Interconnection Regulations') issued under the TRAI Act and the regulations framed thereunder, every broadcaster like the respondent No. 2 is obligated to provide signals to every distributor of channels like the respondent No. 1, save and except for reasons as provided in the Interconnection Regulations. Likewise, every distributor of channels like the respondent No. 1 is obligated to carry the channels of any broadcaster like the respondent No. 2, save and except for reasons as provided in the Interconnection Regulations. 165. So, it is his case that as per....
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.... is obligated under the Interconnection Agreement/Reference Interconnect Offer to pay monthly subscription dues to the respondent No. 2. Furthermore, in terms of the Interconnection Regulations, the respondent No. 1 can at best be entitled to 35 % of the MRP of the channels and not a penny more. It is submitted that any relief restraining the respondent No. 1 from making any subscription payment to the respondent No. 2 would render the respondent No. 1 retaining 100 % of the MRP, which is in gross violation of the Interconnection Regulations. 173. It is also his submission that the reliefs as sought by the petitioner, inter alia seeking restraint on the payment of any dues including subscription dues by the respondent No. 1 to the respondent No. 2, if granted, shall frustrate the very objective and fundamentals of the TRAI Act, the regulations thereunder and the Interconnection Agreement/Reference Interconnect Offer. 174. He also argued that construing and reading the Clauses of the Facility Agreement, in a manner so as to place a complete embargo on subscription payments by the respondent No. 1 to the respondent No. 2, thereby allowing the respondent No. 1 to retain 100 % of....
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.... (ii) and (iii), are not maintainable in law. He submitted that the powers exercised by this Court under Section 9 of the Act of 1996, is guided by the underlying principles, which governs the exercise of an analogous power in the Code of Civil Procedure, 1908 ('CPC') under Order XXXIX Rules 1 & 2 and Order XXXVIII Rule 5 of the CPC. (B) He submitted that the reliefs as sought by the petitioner in prayer (i) to (iii) inter alia seeking directions from this Court to secure the alleged outstanding amounts payable by the respondent No. 1 to the petitioner, are in the nature of an order of attachment before judgment and therefore, the guiding principles of the provision of Order XXXVIII Rule 5 of the CPC should govern the adjudication and determination of the aforementioned reliefs. He further submitted that the grant of a relief for securing any amounts, prior to an arbitral award, is in the nature of an order of attachment before judgment, which is a drastic and extraordinary power and therefore, it is imperative that all the necessary conditions and ingredients of Order XXXVIII Rule 5 CPC must be satisfied. He submitted that it is a trite law that twin conditions ar....
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.... the amount cannot be granted by this Court. 182. It is further his case that in the instant petition, the petitioner has failed to establish that it has a prima facie case in its favour. Furthermore, it has also failed to establish, on affidavit or otherwise, that the respondent No. 1 is seeking to dispose/alienate its assets from the local limits of jurisdiction of this Court with the intention of defeating any award/decree, and for reasons thereof, the petitioner is not entitled to any relief which is in the nature of relief as provided under Order XXXVIII Rule 5, CPC. Therefore, it is his case that the instant petition is liable to be dismissed. Reliance has been placed upon the following judgments to contend the same: (A) Adhunik Steels Ltd. vs. Orissa Manganese and Minerals (P) Ltd. (2007) 7 SCC 125; (B) Nimbus Communications Ltd. vs. Board of Control for Cricket in India (C) BMW India Private Limited vs. Libra Automatives Private Limited and Others (D) Tata Advanced Systems Limited vs. Telexcell Information Systems Limited (E) Natrip Implementation Society vs. IVRCL Limited (F) Beigh Construction Company Private Limite....
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....n violation of TRAI Act and the regulations framed thereunder. 189. He substantiated his submission by stating that the payments made to the respondent No. 2 are against the subscription dues towards the subscription of the channels of the respondent No. 2 in terms of the Reference Interconnect Offer/Interconnection Agreement entered in compliance with the Interconnection Regulations issued by the Telecom Regulatory Authority of India and the invoices raised by the respondent No. 2 in terms of said Interconnection Agreement to the respondent No. 1. 190. He submitted that as per the mandate of the Interconnection Regulations and the Interconnection Agreements/Reference Interconnect Offer executed between the respondent No. 1 and respondent No. 2, on the failure of the respondent No. 1 to discharge the outstanding subscription dues towards the respondent No. 2, against the monthly subscription invoices, the respondent No. 2 will be entitled to disconnect the signals/transmission of signals to the respondent No. 1. He submitted that disconnection of the signals by the respondent No. 2 shall immensely and adversely affect the business of the respondent No. 1 in the highly competi....
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....e with the principles laid down by the Courts in the above cases for invoking the Group of Companies doctrine; (F) reliance has also been placed upon the recent judgment of the Supreme Court in the case of Cox and Kings Limited(Supra), to contend that the existing principles pertaining to invocation of Group of Companies doctrine have been referred by the Supreme Court in the afore-said case to a Larger Bench. Therefore, the same doctrine should not be relied upon by this Court, until the Larger Bench decides upon the validity of the same; (G) that the fact of existence of business relations between the respondent Nos. 1 and 2, was known to the petitioner since the loan amount was advanced by the petitioner to the respondent No. 1. The petitioner was also aware about the existence of the Interconnection Agreements between the respondent Nos. 1 and 2; (H) partial payments made by the respondent No. 1 to respondent No. 2, were with the prior approval of the ASM, which was specifically engaged by the Joint Lenders Forum with the responsibility of monitoring overall payments/cash flows of the respondent No. 1; (I) that vide ad-interim order dated Dec....
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....urt in the case of M.R. Engineers & Contractors Private Ltd.(Supra). It has further been submitted that as per the ratio of the afore-said judgment, a mere general reference to another contract cannot be said to be sufficient enough to incorporate an arbitration clause and thereby a reference should of such a nature indicating the mutual intention of the parties to incorporate an arbitration clause from another document into the contract. It is stated that in the instant case, the LoC makes reference to the Facility Agreement only for limited and general purpose. Moreover, he has also taken the aid of the judgment of the High Court of Bombay in the case of MSTC Ltd.(Supra) and the judgment of this Court in the case of Shreyas Kirti Lal Doshi and Anr.(Supra) for the same proposition; (N) that there is no direct commonality of the subject matter, which will demand composite transactions to take place between the respondent Nos. 1 and 2. So, it is amply clear that the transaction between the petitioner and respondent No. 1 is neither of composite nature, nor is of a type wherein the performance of the mother agreement may not be feasible without the aid, execution, and perfor....
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....with the 'commitment' communicated vide the letter dated June 26, 2018, respondent No. 2 has to 'ensure' payment. Notably, the term 'guarantee' was conspicuously absent in the said communication. There was also no demand for the outstanding amount to be paid by respondent No. 2. (Rb) that in a communication dated October 18, 2021, addressed by the Advocates of the petitioner to respondent No. 2, once again respondent No. 2 was called upon to 'ensure' that respondent No. 1 clears all its dues in connection with the Facility Agreement. Once again, the petitioner did not call upon the respondent No. 2 to repay the dues in connection with the Facility. It is a trite law that the liability of a guarantor is co-extensive with the borrower, and hence had respondent No. 1 truly believed the LoC to be a guarantee, it would have called upon respondent No. 2 to repay the alleged dues. The fact that the same was not done, reveals the true understanding of the petitioner qua the said Letter. (S) that as per Section 179(f) of the Companies Act 2013, the board of a company can exercise powers qua giving guarantees in respect of loans, by passing board r....
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.... (C) Fernas Construction Co. Inc.(Supra); (D) Mahanagar Telephone Nigam Ltd.(Supra) (E) Ameet Lalchand Shah and others vs. Rishabh Enterprises and another (2018) 15 SCC 678. 196. Reliance has also been placed upon the judgment of the Supreme Court in the case of Renusagar Power Co. Ltd. vs. General Electric Company and another: (1984) 4 SCC 679, to contend that anyhow, the arbitrator is competent enough to decide its own jurisdiction and it is a trite law that Courts should refer the disputes in case of doubt. 197. It has also been submitted that in any case, relief against third parties can be granted under Section 9 of the Act of 1996. To prove this submission, Mr. Wadhwa has taken the aid of the following judgments: (A) Sterling and Wilson International FZE v. Sunshakti Solar Power Projects Private & Ors.[O.M.P.(I) (COMM.) 460/2018 and I.A. Nos. 9313/2019, 9356/2019]; (B) Blue Coast Infrastructure v. Blue Coast Hotels 198. It has further been argued that the contentions of the respondent No. 2 to the effect that the payments made by the respondent No. 1 to respondent No. 2, were towards the Interconnection Agreement/or were pursuan....
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....ently, no ICA was signed, and as such nothing binds the petitioner in this regard. It is his further submission that no permission was given by petitioner authorizing the Axis Bank to act on the petitioner's behalf by itself or through any ASM in any manner whatsoever. He submitted that even assuming that the said sums were paid by respondent No. 1 to respondent No. 2, after the approval of ASM, nevertheless, the same having been paid prior to the payments to the petitioner, should be held in trust for the petitioner and as such ought to be handed over by respondent No. 2 to the petitioner. So, it his submission that all the monies otherwise due to respondent No. 2 from respondent No. 1 (past and future) (and at the very least ` 108 crores, wrongfully paid by respondent No. 1 to the respondent No. 2) ought to be deposited with this Court, whether by respondent No. 2 (who holds such money in trust for the petitioner) or respondent No. 1. He further submitted that once the monies being deposited, the petitioner ought to be allowed to withdraw the said amounts against a bank guarantee. Additionally, it is his submission that the sums/amounts being deposited with this Court, by res....
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....e of non-stamping of a document cannot have any bearing on a petition filed under Section 9 of the Act of 1996. 202. It is also his submission that the respondent No. 1 as well as respondent No. 2, are part of a same group and thus, the Group of Companies doctrine should be applied in order to seek reliefs even against respondent No. 2. To demonstrate that both the respondents are part of a same group and are also related parties, reliance has been placed upon the following judgments: (A) Chloro Control India Private Limited (Supra); (B) Oil and Natural Gas Corporation Ltd.(Supra); (C) Eveready Industries India Limited (Supra); (D) Fernas Construction Co. Inc.(Supra); (E) Cheran Properties Limited (Supra); (F) Mahanagar Telephone Nigam Ltd.(Supra); (G) KKR India Private Financial Services Limited & Anr. vs. Williamson Magor & Co. Limited & Ors. 203. Submissions have also been made that even though the aspect of Group of Companies doctrine, as enshrined in the judgment of the Supreme Court in the case of Chloro Control India Private Limited (Supra), has been referred to a larger bench in Cox and Kings Limited (Supr....
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....petitioner cannot take recourse to arbitration only when remedies under both the SARFAESI Act and RDDBFI Act are available to it. His submission was, as the remedy of RDDBFI Act is not available and even the SARFAESI Act is only to enforce the security and not recovery of money, and the remedy under SARFAESI is in addition to arbitration and as such the disputes need to be resolved through the process of arbitration. Mr. Chidambaram has not contested the submission of Mr. Rao that the petitioner does not have the remedy under the RDDBFI Act. Even the SARFAESI Act is for enforcement of security and not for recovery of the money due. If that be so, Mr. Rao is justified in laying stress on the fact that under Clause 33, the remedy of arbitration shall be available if the remedy of both the RDDBFI Act and SARFAESI Act are not available to a lender. Even the Notification dated February 24, 2020 as referred to by Mr. Chidambaram which I reproduce hereunder does not really help the case of the respondent No. 2 for relegating the petitioner to the process available under the SARFAESI Act as the notification confer the jurisdiction to certain NBFC to enforce the security interest in secured....
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....herein the Supreme Court has culled out the law as was existing before it rendered the Judgment in Chloro Controls India (P) Ltd.(Supra), wherein the Court evolved the doctrine of Group of Companies and also the subsequent judgments rendered by it on the said doctrine. The Supreme Court in Oil and Natural Gas Corporation Limited (Supra) has in paragraph 26 has culled out the factors for deciding whether a company within a group of companies would be bound by the arbitration agreement in the following manner:- "26 In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors: (i) The mutual intent of the parties; (ii) The relationship of a non-signatory to a party which is a signatory to the agreement; (iii) The commonality of the subject matter; (iv) The composite nature of the transaction; and (v) The performance of the contract. Consent and party autonomy are undergirded in Section 7 of the Act of 1996. However, a non-signatory may be held to be bound on a consensual theory, founded on agency and ass....
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....ransaction. 211. That apart, this Court in the case of Shapoorji Pallonji and Co. Pvt. Ltd.(Supra), had referred a non-signatory to arbitration under certain eventualities. In this regard, I deem it appropriate to reproduce paragraphs 23, 25, 26, 27, 28, 30, 31 and 33 of the judgment: "23. In addition to the above, the Supreme Court had also referred to the Group of Companies doctrine and applied the same for compelling certain parties to arbitrate in that case. xxx xxx xxx 25. In several cases, implied consent is used as a basis to hold that non-signatories are bound by the arbitration agreement. It is well settled that in cases where the signatory is an agent of the principal (non-signatory), the principal can be compelled to arbitrate even though it is not a party to the agreement. This rests on the principle that the arbitration agreement may not have been signed by the non-signatory but was executed on its behalf. This principle is applied, essentially, in cases where the agent-principal relationship is established between the signatory and non-signatory and it is established that the signatories had acted under the authority of the principal. The....
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....the court found that a party cannot assert the existence of a valid contract to base its claims and at the same time deny the contract's existence to avoid arbitration. The court observed that "to allow [plaintiff] to claim the benefit of [a] contract and simultaneously avoid its burdens would both disregard equity and contravene the purposes underlying enactment of the Arbitration Act." xxx xxx xxx 33. In addition to the above, the Courts have also applied the Group of Companies doctrine to compel a non-signatory to an Agreement to arbitrate. The Group of Companies Doctrine was first applied in the case of Dow Chemical v. Isover-Saint-Gobain (1984 Rev Arb 137). The said doctrine rests on the concept of a 'single economic reality'." 212. Similarly, in Mahanagar Telephone Nigam Ltd.(Supra), the Supreme Court had applied the Doctrine of Group of Companies and held that the CANFINA (a non-signatory party therein) was undoubtedly a necessary and proper party in the arbitration proceedings. The relevant paragraphs 10.2 to 10.8 are reproduced as under: "10.2. As per the principles of contract law, an agreement entered into by one of the companies....
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.... non-signatory affiliates in the group. The doctrine provides that a non-signatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the non-signatory will also be bound and benefitted by the relevant contracts. 10.6. The circumstances in which the "group of companies" doctrine could be invoked to bind the non-signatory affiliate of a parent company, or inclusion of a third party to an arbitration, if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct commonality of the subject-matter; the composite nature of the transaction between the parties. A "composite transaction" refers to a transaction which is interlinked in nature; or, where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and coll....
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....ar and balance outstanding as on the last day of the year". vi. 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. vii. In the annual report of financial year 2020-21, the respondent No. 2 has admitted that it has provided commitments for funding shortfalls in Debt Service Reserve Account in relation to certain financial facilities availed from banks by respondent No. 1. viii. 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 or Zee.EsselGroup.com. ix. The shareholding pattern for March, 2022 quarter of respondent No. 2, as evident from Bombay Stock Exchange website shows that the respondent No. 3 is a promoter shareholder of the respondent No. 2 with 0.02% shareholding. x. The promoter shareholding in respondent No. 1 at the time of facility agreement in February, 2017 as well as at the time of issuance of letter of guarantees was more than 70% and 65.8% respectively. xi. That one of the promoter companies which is si....
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....ties. According to him, the existence of arbitration agreement is a sine qua non for a reference of dispute under Section 7 of the Act of 1996. 215. The plea of Mr. Chidambaram with regard to Section 7 is clearly unsustainable in view of the judgment of the Supreme Court in Chloro Controls India (P) Ltd.(Supra), wherein the Supreme Court had by noting the position under the English law [wherein the Courts have applied doctrine of Group of Companies by evolving a principle that a non-signatory party could also be subjected to arbitration, provided the transactions were within the Group of Companies and there was a clear intent of the parties to bind both the signatory as well as non signatory parties], held that the non-signatory or third party could be subjected to arbitration without their prior consent in an exceptional case. The Court is required to examine these exceptions from the touchstone of its direct relationship to the party signatory to the arbitration agreement, commonality of the subject matter and the agreement between the parties forming part of a composite transaction. The Court also held that the transaction should be of composite nature where performance of th....
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....n 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 judgments are overruled, the judgment in the Chloro Controls India (P) Ltd.(Supra) shall continue to operate the field and this position of law has been clarified by this Court in the case of Brinda Karat v. State (NCT of Delhi) (2022) 4 HCC (Del) 154, paragraph 123 which I reproduced as under:- ""123. As held in State of Maharashtra v. Sarva Shramik Sangh [State of Maharashtra v. Sarva Shramik Sangh, (2013) 16 SCC 16: (2014) 3 SCC (L&S) 320], it is an established principle of law that until a judgment which has been referred to a larger Bench is overruled, the said judgment occupies the field and continues to operate as a good law. This would continue until the larger Bench decides the matter reliance is placed." (Emphasis supplied) 221. So it follows, the issue with regard to applicability of Group of Companies doctrine has to be considered and decided in terms of the judgment in Chloro Controls India (P) Ltd.(Supra) and other judgments rendered by the Supreme Court and as followed by this Court. 222. In fact, it is ....
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.... 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 3, reflect the admission on the part of respondent Nos. 2 and 3 that respondent No.1 forms part of their Group Company. 2. Mr. Subhash Chandra is the Chairperson Emeritus of the Essel Group of Companies and respondent No.3 forms the part of the same. 3. The perusal of the annual reports of respondent No.2 for the FY-2016-17, 2018-19 and 2020-21 reveal that Mr. Subhash Chandra is also the Chairman Emeritus as well as Key Managerial Personnel of the respondent No.2. 4. Similarly, the annual reports of respondent No.1 for FY-2016-17, 2018-19 and 2020-21 identify Mr. Subhash Chandra as a "Key Management Person" and respondent No.2 as "Enterprises owned or significantly influenced by key management personnel or their relatives". This fact signifies that respondent Nos.1, 2 and 3 are under the common control. 5. There is also a cross shareholding by Essel Group of Companies in respondent Nos.1 and 2, which indicates that there is a direct relationship between the two entities. The fact reveals th....
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....et 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 Ltd.(Supra), which is a Judgment of the Bombay High Court, the Court was concerned with an application filed under Section 8 of the Act of 1996. The case of the defendants therein was that the matter in the summary Suit filed by the plaintiff therein was the subject matter of an arbitration agreement and thus the parties be accordingly referred to arbitration. The summary Suit therein was filed by the plaintiff claiming to be the creditor in an agreement dated August 27, 1998 entered into with defendant No. 1 for purchase of goods along with a Supplementary Agreement dated January 16, 1999. The plaintiffs case under the two agreements was that the liability to repay the loan was owed by the defendant No. 1 to it as a principal debtor while defendant No. 3 was liable under a personal guarantee to secure those dues. The plaintiffs suit was specifically for non-payment of those dues under the main agreement by the defendant No. 1 and also for non-payment of the dues by def....
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....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 respondent Nos. 2 and 3 are non-signatory to the CAL and the Facility Agreement, they cannot be referred to arbitration. Suffice to state that the above judgments have no applicability to the facts of this case, more so, when the reference is sought on the basis of the judgment of the Supreme Court based on Chloro Controls India (P) Ltd.(Supra). 228. Now coming to the issue as to whether the letters dated June 26, 2018, as described by Mr. Rao, are letters of Guarantee, as against the submission of Mr. Chidambaram that they are merely letters of comfort, the position of law being well settled inasmuch as a document has to be read as a whole in a commercial sense and by applying ordinary rules of constructions and interpretation relating to contracts, a letter of comfort can be treated as a letter of guarantee but to be so it must conform to the provisions of Section 126 of the Indian Contract Act, 1872. This Court in Lucent Technologies Inc.(Supra) paragraph ....
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.... 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 Interest Rate from 11% to 16%. However, Siti and Respondent No. 2 requested ABFL to reconsider its decision. ABFL, pursuant to request made by Respondents, had agreed to revise the Interest Rate from 16% to 13% inter alia only on the condition that Mr. Punit Goenka on behalf of Zee gives a letter assuring that Siti services and repays the Facility. Consequently, Zee issued a Letter dated 26 June 2018 (signed by Pun it Goenka) ("Letter of Guarantee"). Letter of Guarantee inter alia stated that "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." Another letter dated 26 June 2018 was also given by Essel Corporate LLP (on behalf of the Essel Group) assuring and confirming payments from Siti Networks towards the Facility. xxx xxx xxx 9. Despite the various opportunities afforded to Siti and Zee in good fa....
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....rat & 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 and as such cannot be construed as a letters of guarantee, is concerned, as I have already held that the letters dated June 26, 2018 are not letters of Guarantee and also it is the conceded case of Mr. Chidambaram and Mr. Sethi that the letters are letters of comfort which do not required to be stamped, this plea of Mr. Sethi is liable to be rejected. 238. In view of my above discussion and the fact that Mr. Basu has not contested the existence of the arbitration clauses between petitioner and respondent No. 1 and the fact that disputes have arisen in terms of CAL/Facility Agreement, the petitioner and the respondent Nos. 1, 2. and 3 are referred to Arbitration. Accordingly, this Court appoints Justice L. Nageswara Rao, a Former Judge of Supreme Court of India (Mob. No. 9810035984), as the sole Arbitrator, who shall adjudicate the disputes between the parties, through claims and counter claims, if any.....
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....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 respondent No. 1 has an outstanding balance of ` 137,30,81,103.80/- against subscription dues to the respondent No. 2; H. The respondent No. 1, in terms of the Interconnection Regulations, can be best entitled to only 35% of the MRP. So, granting any relief restraining respondent No. 1 from making any subscription payment to respondent No. 2 would render respondent no. 1 retaining 100% of the MRP, which is in gross violation of Interconnection Regulation and will also frustrate the very objectives and fundamentals of the TRAI Act; I. No party, by mutual agreement, can enter into an arrangement which prohibits two service providers from discharging their obligations under the TRAI Act and in the event such an agreement/arrangement is entered into, the same shall be void and non-est in law; J. The disconnection of signals by ....
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....he 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 grounds which have already been referred above. 243. Having said that, this Court while considering this petition, had passed various Orders time to time. The relevant Orders in that regard are, Orders dated December 23, 2021, March 28, 2022 and April 29, 2022, which are reproduced as under:- "Order dated December 23, 2021 xxxx xxxx xxxx O.M.P.(I)(COMM.) 414/2021 3. Issue notice to respondent no. 1, returnable on 04.01.2022. 4. No notice is being issued to respondent nos. 2 and 3 in this case as, prima facie, they are not parties to the arbitral proceedings and the petitioner's claim against respondent nos. 2 and 3 appears to be a substantive claim and although linked, an independent cause of action exists against the ....
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.... 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 opposed. 2. It is pointed out that on 22.04.2022, this Court had also directed that no payments would be made by respondent no. 1 to respondent no. 2 till the next date of hearing. However, the said line has not been typed in the said order. It is clarified that till the next date of hearing, respondent no. 1 shall not make any payments to respondent no. 2. 3. List on 20.05.2022." 244. Suffice to state, with regard to maintainability of the petition/prayers on the ground that the respondent No. 2 is not a signatory to the CAL/Facility Agreement is concerned, the said issue has been decided by me while co....