TaxTMI 
TaxTMI 
2022 (4) TMI 1634
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.... was underwritten by various Underwriters, including the Defendant herein. The public issue was closed on the earliest closing date on the basis that it was over-subscribed. However, subsequently SEBI found some irregularities and directed the Plaintiff to give an option to all the subscribers to either continue their offers or withdraw the same. Pursuant thereto, several subscribers withdrew the offers and the issue was under- subscribed. The Plaintiff then sought to raise a demand against the Underwriters to subscribe to their respective portions of the underwritten FCDs. The Underwriters partially subscribed, which led to disputes between the Plaintiff and the Underwriters. There was an arbitration clause in the Underwriting Agreements which was invoked by the Plaintiff. A ld. Single Judge of the Delhi High Court had appointed a Sole Arbitrator - Justice (Retd.) Ms. Manju Goel to adjudicate the disputes between the Plaintiff and all the Underwriters who were 267 in number. Several of the Underwriters settled their disputes during arbitral proceedings. However, the Defendant in the present 27 disputes herein, for various reasons, did not appear or remained ex parte in the arbitra....
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....etters of Allotment / Debentures Certificate(s) /Share Certificate(s) were to be delivered within three months from the date of allotment. In the event of over-subscription, the allotment was to be made by the Board in consultation with the Regional Stock Exchange at Delhi and a SEBI nominated representative was to be associated in the process of finalisation of the basis of allotment, in case of over-subscription by more than two times. In case of non-allotment of the debenture(s) applied for, the excess amounts were to be refunded to the concerned applicants within 70 days from the closing of the Subscription List. 6. The entire issue was underwritten, insofar as the component offered to the Indian public for subscription was concerned. The clause relating to underwriting in the prospectus reads as under: "UNDERWRITING The entire issue of 1,75,84,800 Zero Interest Unsecured Fully Convertible Debentures of Rs. 199 each aggregating Rs. 3,49,93,75,200 offered to Indian Public for subscription in terms of this Prospectus has been fully underwritten as under:......" 7. There were 267 Underwriters in total, including the above named Defendant- S.K. Nahata & Co. The prospectus s....
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....on of any kind and also that they are actually despatched to the successful applicants along with the allotment letter. You had indicated that the issuer company has agreed to do so. The person/agency to whom the letter requesting refund should be addressed, must be specifically indicated in the letter. Lead Manager should also ensure that arrangements are made for immediate refund of monies to those who opt to do so. We would like to add that SEBI reserves to itself the right to take appropriate action against the issuer company and the lead manager for their lapses in this regard. Please arrange to acknowledge receipt of this letter and also keep us informed of the action taken by the Company. (USHA NARAYANAN) DIVISION CHIEF" 11. The above letter is disputed by the Plaintiff. However, from the contemporaneous evidence available on record, there is no doubt that, in fact, letters were addressed by SEBI to the Plaintiff directing it to give an option to the investors to get refund of money paid by them with interest. Public announcements/notifications were also issued by SEBI asking the company to refund application monies to all those who wanted to withdraw from the pub....
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....y be borne by the petitioner to form part of the main cause. 16. The parties to appear before the learned Arbitrator on 21.4.2007 at 11.00 A.M." 14. Thereafter, by order dated 22nd April, 2010 in CS(OS) No. 1199A/1998, similar disputes were also referred to the same Ld. Arbitrator. Cumulatively, there were total of 267 claim petitions, which were referred to the ld. Arbitrator. 15. In respect of 103 Respondents in the arbitration proceedings against whom claims were settled and withdrawn, awards were passed on 25th September, 2010. Similar awards were passed qua 3 Respondents on 14th May, 2011 and qua 34 Respondents on 21st January, 2012. The awards under challenge in the present 27 connected suits before the Court were passed on various dates between May to July, 2012. 16. In the case of the present Defendant, the ld. Arbitrator pronounced the award on 23rd May, 2012 by which the Ld. Arbitrator awarded a total sum of Rs. 15,90,342/- along with pendente lite and future interest, in favour of the Plaintiff-Company in the following terms: "27. The law is that the claimant is entitled to reasonable damages whether or not actual damages suffered is proved. The liability of the....
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....est @ 18% would be reasonable. Awarding interest @ 18% the claim of the claimant towards interest for 146 months 10 days from 02.05.1995, the date when the respondents were liable to pay for the devolved FCDs till the date of filing of the claim on 11.7.2007 comes to Rs. 10,92,582/-. Thus the total reasonable damages along with interest till the filing of the claim petition comes to Rs. 15,90,342/-. 30. The claimant is entitled to interest pendente lite and future till recovery. Since the nature of the claim is commercial, the interest pendente lite and future till recovery can also be awarded @ 18%. Hence I pass an award for Rs. 15,90,342/- with pendente lite and future interest @ 18% from the date of filing of the claim petition till realization in addition to costs calculated hereunder Interest pendente lite on Rs. 15,90,342/- for 4 years and 10 months comes to Rs. 13,83,597/-. COST: 31. The claimant is entitled to cost of the proceedings. The respondents did not pay even his share of the fees of the Arbitration, which the claimant has paid. The claimant incurred further expenses on behalf of the Arbitration towards service of notice and publication in the newspaper. Th....
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....en considered by the ld. Arbitrator; d) That the computation of damages and award of interest is not as per law. 20. In the present case, apart from the main suit wherein the Plaintiff seek pronouncement of judgment, an application being I.A. No. 12747/2012 under Section 28 of the Arbitration Act, 1940, has also been filed. I.A. No. 12747/2012 (under Section 28 of the Arbitration Act, 1940) 21. The present application was filed by the Plaintiff under Section 28 of the Arbitration Act, 1940, seeking post-facto extension of time for conclusion of arbitration proceedings from 20th August, 2007 till 23rd May, 2012 i.e., the date on which the Award was pronounced by ld. Arbitrator, as the time taken by the Ld. Arbitrator to pronounce the Award took more than the 4 months prescribed in Rule 3 of the First Schedule of the Act. 22. The submission of Mr. Pavan Sachdeva, Promoter-in-person, is that the Ld. Arbitrator had a humongous task before her, owing to the large number of parties in the arbitral proceedings. Vide the initial order dated 14th March, 2007 in CS (OS) No. 1299A/1997 and CS(OS) No. 845-1076/2006 (under Section 20 of the Arbitration Act, 1940 for reference of disputes....
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....er dated 2nd September, 2014. In the said order, the ld. Single Judge notices the fact that there were a large number of claims before the Ld. Arbitrator, and that even an Amicus Curiae was appointed. 24. Similar orders have also been passed in Tomorrowland Technologies Exports Limited v. Pressman Advertising Limited [CS (OS) 2094/2012] and Tomorrowland Technologies Exports Limited v. Hemdev Securities (India) Pvt. Ltd. [CS (OS) 2070/2012] on 14th October, 2014 and 24th October, 2016 respectively. It is further submitted that vide order dated 24th March, 2014 in M/s MS Shoes East Ltd. v. Madhukar Khosla [CS (OS) 2061/2012], decree has also been passed after allowing the application under Section 28 of the Act. Similarly, more than 50 decrees have been passed, where the applications under Section 28 were allowed, though in most of them the Defendants have been proceeded against ex parte. 25. Mr. Sachdeva then relies upon the judgment in Mahadeolal v Administrator General of WB [1960] 3 SCR 578 to argue that since various Single Judges have already allowed the applications under Section 28, in respect of the same awards, the same would be binding on this Court. Reliance is also pla....
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....or within such extended time as the Court may allow." 28. Further, Section 28 of the Arbitration Act, 1940 reads as under: "28. Power to Court only to enlarge time for making award: - (1) The Court may, if it thinks fit, whether the time for making the award has expired or not and whether the award has been made or not, enlarge from time to time the time for making the award. (2) Any provision in an arbitration agreement whereby the arbitrators or umpire may, except with the consent of all the parties to the agreement, enlarge the time for making the award, shall be void and of no effect." 29. It is relevant to note that there were three orders by which reference was made to the ld. Arbitrator i.e., orders dated 14th March, 2007, 8th August, 2007 and 22nd April, 2010 qua various Respondents. The same Sole Arbitrator was appointed in all the references. The ld. Arbitrator was called upon to adjudicate claims filed against more than 260 Respondents. The ld. Arbitrator commenced sending issuance of notices since 2007 onwards and finally the award came to be passed in May 2012 to July, 2012. In respect of several of the Respondents, the disputes were settled. In case of a l....
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....hat the parties have been taking willing part in the proceedings before the arbitrator without a demur, this will be a fit case, in our opinion, for the extension of time. We accordingly extend the time for giving the award and the award will be deemed to have been given in time." 32. This principle of law has been reaffirmed in Campagnie De Saint Gobain v. Fertilizer Corporation of India Ltd., (1970) ILR Delhi 927, wherein it was observed as follows: "33. The learned counsel have cited a number of judgments for and against the grant of the prayer for enlargement of time; but all of them are based on the fact of each individual case. There can be no doubt that the enlargement of time for making the award is entirely within the discretion of the court. In Kanhayalal Dugar v. Askaran Kishanlal AIR1957Cal658, it was observed that the court's power under section 28 to extend time are entirely discretionary and are not limited.. The court can enlarge time for making the award even after the award has been made and even after the time has expired. It was also held that one of the persuasive consideration before the court would be, "that after all the time, expense and trouble in ....
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....tan Steel Works Construction Limited v. C Rajashekhar Rao [(1987) 4 SCC 98], the above legal position is again reiterated that the ld. Arbitrator can extend the time with the consent of the parties but the Court has the discretion to extend the time, which has to be exercised in a judicial manner. 36. On an application of the decisions cited above to the facts of the present case, the Court cannot help but notice that the arbitral proceedings in these cases under consideration were not ordinary proceedings. They were proceedings which were conducted by the ld. Arbitrator in relation to more than 260 claims. This Court takes judicial notice of the fact that the awards passed by the ld. Sole Arbitrator have been the subject matter of multiple petitions and applications before this Court. A large number of awards passed in favour of the Plaintiff have been resolved due to settlements against several underwriters. 37. It is also noticed that ld. Single Judges in the case of CS(OS) 2159/2012, CS(OS) 2070/2012 and CS(OS) 2094/2012 have already granted extension under Section 28 of the Act. Illustratively, the order dated 2nd September, 2014 in CS(OS) 2159 of 2012 is set out below: " ....
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....ed of." 38. Since in respect of these very arbitral proceedings, extensions have already been granted in cases involving other underwriters and in the unusual facts and circumstances of these cases considering the large number of parties and large volume of claims, this Court is of the opinion that this is a fit case for ex-post-facto grant of extension under Section 28 of the Arbitration Act, following the settled legal position as set out above. 39. I.A 12747/2012 is accordingly allowed and disposed of. CS (OS) 2082/2012 of 2012 (under Sections 14 and 17 of the Arbitration Act) and Objections filed by the Defendant under Section 16 of the Arbitration Act 40. The present suit has been filed by the Plaintiff under Sections 14 & 17 of the Arbitration Act, 1940 seeking judgment and decree in terms of the award dated 23rd May, 2012 passed in the arbitration case being M/s M.S. Shoes East Ltd. v. Clarity Financial Services Ltd. The Defendant has filed objections under Section 16 of the Arbitration Act, broadly raising the following objections: a) That no notice was received by the Defendant of the arbitration proceedings. b) That no notice was received by the Defendant inform....
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...., Gauhati - 781001, in respect of Suit no. 1299 of 1997, duly signed as received for the Defendant, dated 19th August, 1997/16th July, 1997. Along with this, the Vakalatnama filed by the Defendant authorising an advocate is also annexed. 2) Copy of the Underwriting Agreement which bears the same address of S.K. Nahata & Co., Bothra Building, 2nd Floor, M.S. Road, Gauhati - 781001. 3) Copy of the notice dated 6th July, 2007 issued by the counsels for the Plaintiff to the Defendant at the address given on the Underwriting Agreement, regarding the arbitration proceedings informing them of the venue of the proceedings. Also annexed are the postal receipts. The notice was sent by registered post and was returned. 4) Copy of the first page of the claim petition, along with courier receipts issued by Blazeflash Couriers Ltd. 5) Copy of the publication informing the next date of the proceedings made in the newspaper named "The Sentinel", Gauhati (now "Guwahati") 6) Copy of the order dated 24th May, 2008 passed by the Ld. Arbitrator, where the Defendants were proceeded against ex parte. 7) Copy of the notice issued by the ld. Arbitrator to S.K. Nahata & Co., along with its partn....
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....th February, 1995 as it was over-subscribed. 48. Mr. Aaditya Vijaykumar, ld. Counsel appearing for the Defendants submitted that the obligation of all the underwriters is only to cover the losses due to undersubscription. He relies upon clauses 2, 10 & 11 to submit that the agreement provided for a scheme under which if there was any undersubscription of the IPO, notice had to be given by the company to the underwriters within 15 days. Such a notice was never issued by the company in the present case. It is submitted that SEBI found various irregularities in the IPO and on 6th March, 1995 directed the company to write to the allottees and give them the option to withdraw from the same. It was only due to the intervention of SEBI through which it found fraudulent practices by the company that the company was forced to return the allotment money to various subscribers. It is submitted that it was after SEBI's intervention that the allottees withdrew their allotments leading to reimbursement of money to the said allottees. The first letter written by the company to the underwriters is dated 15th March, 1995 by which it was claimed that the issue was undersubscribed, and the underwrit....
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....n kept open for the full period of 10 days is incorrect. He further submitted that the Lead Manager to the public issue had submitted two reports - first at the end of 7 days, and again at the end of 45 days. It is his submission that the underwriters' obligation would continue till the final report of the Lead Manager is received. The first report dated 17th February, 1995 at the end of 7 days had stated that the issue is over- subscribed/subscribed more than 90%, whereas the report dated 4th April, 1995 received at the end of 45 days clearly stated that the issue was undersubscribed. 53. It is submitted that upon the Lead Manager reporting under- subscription, the auditors computed the obligation of the underwriters and made pro-rata distribution. The exact amount, which devolved on each of the underwriters as their responsibility, was communicated on 24th March, 1995 within 35 days of the closure of the issue. Thereafter, on 30th March, 1995 the Auditor Certificate was also sent. However, devolvement notices, which were issued, were not replied to by the underwriters, which itself shows that the underwriters were well aware of their obligations due to under-subscribed issue. 5....
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.... place. As per the judgment in Morgan Stanley v Kartick Das (1994) 2 CTJ 385 (SC) (CP), the Supreme Court of India has clearly held that shares come into existence only when the allotment takes place. 57. The fourth proposition, which is canvassed, is that the closure of the issue being mandated upon 90% subscription, the underwriters' argument that the issue ought to have been kept open for 10 days is completely contrary to the rules. Reliance is placed on Bharat's Compendium of SEBI Capital Issues & Listing, 3rd Edition by Dr. K.R. Chandratre to argue that it is only if the issue is under-subscribed, that the subscription should be left open for the entire period. As per the schedule, the earliest closing date was 18th February, 1995. Thus, closing of the issue after 90% subscription on 18th February, 1995 was as per prescribed and agreed schedule. 58. Mr. Sachdeva relied heavily upon a judgment of the Division Bench of this Court in MS Shoes East Ltd. v. R. K. Singh and Co., RFA(OS) 83/2008: MANU/DE/2710/2015, specifically on paragraphs 12 and 22-24. The submission of Mr. Sachdeva was that the underwriters could bring in subscriptions until 60 days of the closure of the issue.....
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....ake measures against the underwriters. Analysis and Discussion on Merits 62. The facts leading up to the public issue have already been captured in the introductory paragraphs hereinabove. In 1995, when the subject public issue was launched, Underwriters were governed by SEBI (Underwriters) Regulations, 1993, under which they were registered. As per the said Regulations, "underwriter" and "underwriting" are defined as "2.(f) 'underwriter' means a person who engages in the business of underwriting of an issue of securities of a body corporate; (fa) "underwriting" means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them; 63. As per the above Regulations all Underwriters have to be duly registered under these Regulations, in order to conduct their businesses as Underwriters. The SEBI, after taking into notice the relevant criteria under Regulation 6 grants the Certificate of Registration under Regulation 8. Such criteria include necessary infrastructure, office space, equipment, manpower, past experience, no earlier di....
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....s prescribed in Schedule III, some of the relevant Clauses of which are set out below: "1. An underwriter shall make all efforts to protect the interests of his clients. 2. An underwriter shall maintain high standards of integrity, dignity and fairness in the conduct of its business. .... 4. An underwriter shall endeavour to ensure all professional dealings are effected in a prompt, efficient and effective manner. 5. An underwriter shall, at all times, render high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgment." 66. In order to appreciate the objections raised against the award, it is necessary to note some of the important clauses in the Underwriting Agreement. In the present case, the Underwriting Agreement dated 30th December, 1994 was entered into by the Defendant with the Plaintiff on 10th January, 1995. Some of the clauses of the Underwriting Agreement are as under: "1. We hereby record that we (hereinafter referred to as "the Underwriter")" have agreed to underwrite / procure subscription to 12,560 (sic 12,558) Fully Convertible Debentures of Rs. 199/- each for cash at par aggregating to Rs. 2....
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....- clause (2) above, the underwriting obligation of the underwriter and other underwriters shall be subject to following further adjustments. a) The applications received from the public independently i.e. those applications not covered under sub-clause (2) above, shall be apportioned amongst all the underwriters, where underwriting obligations have not been fully satisfied after adjustments under sub- clause (2) above in proportion to their respective underwriting obligations and to that extent their respective underwriting obligation shall stand reduced. b) If, after the adjustments made under sub- clause (2) and (3) (a), above, it is found that the shares available for adjustments are in excess of the shares required to be subscribed in fulfilment of the underwriting obligations of one or more individual underwriters, then such excess amount required to meet the underwriting obligations of any underwriter shall be further apportioned amongst such other underwriters, whose underwriting obligations have not been fully discharged, in proportion to their respective underwriting obligations. 11. Procedure for effecting / discharge of underwriting obligations - The underwritin....
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.... 1. The company shall immediately after the closure of the subscription list, take expeditious steps for processing the application and complete the allotment within the time limit prescribed under the Companies Act, 1956 and also comply with other listing requirements. 2. If the company fails to receive 90% of the issue amount including the amount received from the Underwriter's towards devolvements, within 60 days from the date of closure of subscription list, the company shall refund the amount paid by the underwriter in fulfillment of his underwriting obligations. The obligation to refund the moneys shall be without prejudice to the disputes if any in regards to the underwriting obligation of the underwriter. In such event, it will however, be obligatory for the company to pay the underwriter, underwriting commission payable in terms of clause 13(1) and (2) thereof. xxx xxx xxx 16. Right of termination under special circumstances- Notwithstanding anything contained herein, the underwriters shall have the option, to be exercised by him, at any time prior to the opening of the issue as notified in the prospectus of terminating this agreement under any or all of the fo....
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....s to the Underwriters. The said notice, which is to be issued within 30 days of closure, is referred to as the `devolvement notice' which sets out the responsibility that devolves upon each of the Underwriters. Upon receipt of such a notice, not later than 30 days, the Underwriter has the obligation to subscribe to the shares and submit the same along with the application money to the company. As per Clause 11(d) of the Agreement, if the Underwriter does not make such an application, the company would have the right to claim damages for any loss suffered due to such failure. Furthermore, if 90% of the issue is not subscribed, even after receiving the Underwriters' application money, then the company is to refund the amount to the respective Underwriters as per Clause 14(2) of the Agreement. If as per the Underwriter, any of the representations or statements made by the company either in the application forms, negotiation clause, prospectus agreement or any other documents are found to be incorrect, the Underwriter has the right to terminate the agreement itself. 68. On 17th February, 1995, the Registrar of the subject Public Issue communicated to the Lead Manager that on the basis....
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....der Clause 2 of the Underwriting Agreement. 73. In order to answer whether the obligation of the Defendant- Underwriter stood discharged, the scheme of the Underwriting Agreement is relevant. It is well-settled that an Underwriting Agreement is in the nature of an insurance contract wherein the Underwriter performs the role of an entity providing insurance to the public issue i.e., if the issue fails for any reason, the Underwriter is bound to subscribe to the FCDs/shares. The nature of the Underwriting Agreement is clearly set out in the aforementioned Regulations which defines underwriting as extracted above. As per the said definition, if the public does not subscribe to the securities offered to them, the Underwriter has to subscribe to the same. In Naini Gopal Lahiri and Ors. v. State of Uttar Pradesh [1965] 35 CompCas 30 (SC), the Supreme Court, while considering the nature of an underwriting agreement observes: "..........An underwriter is a person who agrees with the company in consideration of a commission payable to him, that if all or a particular number of the company's shares are not taken up by the public, he will make up the deficiency and make up the total number....
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.... issue was fully subscribed; when the subscribers were given the option to withdraw, as per the directions of SEBI, a large number of them withdrew their applications. Thus, the issue remained unsubscribed. 79. It is in order to cater to such kind of situations and for reducing the various risks involved in a public issue, that Underwriting Agreements are entered into. Underwriters who are in the business of underwriting are fully aware of the various steps that are to be completed before the Underwriters are finally discharged of their obligations. 80. In any Underwriting Agreement, either of the following has to happen in order for the Underwriter's obligations to be discharged: a) Closure of subscription list and the issue being fully subscribed with the entire amounts being received from the subscribers; b) Partial subscription by the public and partial subscription devolving upon the Underwriters, which is effected; c) 90% of the issue remaining unsubscribed even after the devolvement upon the Underwriters, then all subscription amounts received have to be refunded under Clause 14(2) of the Agreement. 81. Unless and until any of the above events occurs, the Underwrite....
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....d to the full amount underwritten, i.e. value of 12558 FCDs totaling to Rs. 24,99,000/- Learned Amicus Curiae concludes that this cannot be granted as this will lead to an absurd result of benefitting the claimant by awarding the entire amount of the issue without having to issue the corresponding shares. I am not able to agree either with the claimant or with the learned amicus curiae. This is not a suit for specific performance of a contract where the parties have to fulfill their mutual obligations. Had the claimant sued for a specific performance, it would have been required to handover the requisite number of FCDs. The claimant has asked for damages. The damages may or may not be equal to the value of FCDs undertaken to be sold in the market by the underwriters. In fact the standard form for the underwriting agreement has a clause saying that the damages payable by an underwriter in case of breach could be liquidated at a multiple of the value of the FCDs undertaken to be sold or applications for them obtained. 22. Nor can I accept the claimant's proposition since the respondents are not in absolute breach of the agreement. It has not entirely failed to act on the contr....
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.... RE: PUBLIC ISSUE OF M.S. SHOES EAST LIMITED Please refer to your fax message dated February 20, 1995 and your subsequent discussion at SEBI. We are herewith sending a draft of the approved letter to be issued by M.S. Shoes East Limited along with the letter of allotment. Please ensure that the letter ensure that the letter is issued in the form in which it has been approved by us without modification of any kind and also that they are actually despatched to the successful applicants along with the allotment letter. You had indicated that the issuer company has agreed to do so. The person/agency to whom the letter requesting refund should be addressed, must be specifically indicated in the letter. Lead Manager should also ensure that arrangements are made for immediate refund of monies to those who opt to do so. We would like to add that SEBI reserves to itself the right to take appropriate action against the issuer company and the lead manager for their lapses in this regard. Please arrange to acknowledge receipt of this letter and also keep us informed of the action taken by the Company. (USHA NARAYANAN) DIVISION CHIEF" 85. It is relevant to notice that one of ....
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....f to give an option to subscribers to withdraw if they so choose. Upon the option being given by the Plaintiff, a large number of subscribers in fact withdrew their subscriptions, which then led to the Lead Manager to issue the above letter. The entire claim of the Plaintiff is based on the fact that since the issue was not subscribed, the Underwriters are liable to pay damages. Thus, denying the letter of SEBI dated 6th March 1995 would be a self-contradictory stance of the Plaintiff. 90. The ld. Arbitrator, instead of referring to the letter dated 6th March, 1995, which was a disputed letter, has referred to the letter of the Lead Manager dated 21st April, 1995 in arriving at her conclusion. The letter dated 21st April 1995 was a consequence of directions issued by SEBI vide letter dated 6th March 1995. The purport and intent of both the letters i.e., the letter of SEBI and letter of Lead Manager being identical, the question whether SEBI's letter was considered by the ld. Arbitrator or not would become an academic issue, as it was well within the knowledge of the ld. Arbitrator that SEBI had issued directions which were complied with by the Plaintiff. 91. The Underwriters cann....
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....that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit on merits." The allegations in the present case were not of such a nature which involve or require a complex investigation. Moreover, the Plaintiff has not been held guilty of any criminal offence. The Defendants have failed to make out a case for non-arbitrability of the disputes. 94. Similar awards, as are under challenge in the present proceedings, have been passed by the ld. Arbitrator in a large number of cases. Such awards have also been satisfied or settled before this Court in various proceedings and no allegation of fraud has been made in the arbitral proceedings or before the Court. The allegations raised by the Defendants are not tenable and would not constitute valid grounds for remand of the award under Section 16 of the Act. 95. It is also pertinent to note that as per the Underwriting Agreement, the Defendant had the option of terminating the Agreement under Clause 14, if any of the facts di....
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....R 1995 SC 468, the Supreme Court while dealing with Section 16 of the Act held as under : "11. In India this question is governed by Section 16(1)(c) of the Arbitration Act of 1940 which empowers a Court to remit an award for reconsideration "where an objection to the legality of the award is apparent upon the face of it". This covers cases in which an error of law appears on the face of the ward. But in determining what such an error is, a distinction must be drawn between cases in which a question of law is specifically referred and those in which a decision on a question of law is incidentally material (however necessary) in order to decide the question actually referred. If a question of law is specifically referred and it is evident that the parties desire to have a decision from the arbitrator about that rather than one from the Courts, then the Courts will not interfere, though even there, there is authority for the view that the Courts will interfere if it is apparent that the arbitrator has acted illegally in reaching his decision, that is to say, if he has decided on inadmissible evidence or on principles of construction that the law does not countenance or something of....
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.... be separated without affecting the determination of matters referred; or (b) where the award is so indefinite as to be incapable of execution; or (c) where an objection to the legality of the award is apparent upon the face of it. 12. Section 16 empowers the Court to remit the award to the Arbitrator for reconsideration only in three cases specified therein. Clause (c) of Section 16(1) provides that the award shall be remitted to the Arbitrator by the Court where an objection to the legality of the award is apparent on the face of it. Of course, the High Court has come to a finding that the Arbitrator was guilty of misconduct for his failure to give reasons as required. There is, however, nothing to show that the Arbitrator misconducted himself or the proceedings in any other manner nor there is anything to show that the awards have been improperly procured. There is no allegation, far less, any finding, that the Arbitrator was biased or unfair or he has not heard both the parties or he has not fairly considered the submissions of the parties in making the awards in question. In our opinion, it is evident from the four awards made by the Arbitrator that the Arbitrator has....
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....Ld. Arbitrator by filing detailed affidavits of evidence and also by giving all the relevant documents in respect of the Hotel project and Yarn project that the Plaintiff was to undertake had the issue succeeded. It is submitted that though the claim of the Plaintiff was much higher, the Award is only limited to the Hotel project and expenses related to publication of the issue. Paragraphs 8 and 9 of the Award clearly set out the details of the various exhibits and the expenses incurred by the Company for the purpose of the public issue. It is submitted that it is evident from the impugned award that the ld. Arbitrator has clearly applied her mind as to how damages ought to be computed. 106. Insofar as the award of interest is concerned, Mr. Sachdeva relied upon various judgments to argue that the ld. Arbitrator is entitled to award both interest future as well as pendente lite in view of Section 29 of the Arbitration Act, 1940. He finally urges that in view of the decision in Hindustan Prefab Ltd. v. Union of India [(1987) 2 ArbiLR 123 (127)] the Court would have no jurisdiction to interfere, even if interest was wrongly awarded. Mr. Sachdeva also relied upon the Ex.PW-1/72 to ar....
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.... considered by the Ld. Arbitrator: a) Forfeiture of the Plaintiff's Hotel project by HUDCO owing to the failure of the public issue - Rs. 68.68 crores; b) Similar forfeiture by DDA - Rs. 3.9 crores; c) Total expenses in floating the public issue minus the sum forfeited - Rs. 81.20 crores (including bills for issuing prospectus @Rs. 1.6 crores; bills for conferences @Rs. 0.23 crores and bills for advertisements @Rs.6.58 crores) 109. The fact that the Plaintiff was to launch its Hotel project and had already got land allotted for the said purpose, was mentioned in the Prospectus for the public issue itself, which was an admitted document among the parties. The fact that amounts were forfeited by HUDCO and DDA was also not in dispute. The Ld. Arbitrator also observed that the cost of the public issue was available on record, as were the bills for issuing prospectus, bills for conferences, and bills for advertisements approved by the Lead Managers. Thus, contrary to what has been submitted by the Defendants, it cannot be said that actual loss was not proved by the Plaintiff/Claimant, even if such loss was not quantified. The Ld. Arbitrator notes in paragraph 26 of the impugned a....
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....Days Per Day Interest Total Amount Due as on 28.2.2017 (A + B) Settlement amount offered 20% A B 3,039,146.00 2,561,375.60 (4Yrs 249 Days) 1498.76 5,600,521.60 1,120,104.32 Please consider the above before next date i.e. 1.5.2017 before Hon'ble High Court of Delhi. Thanking you." 113. A perusal of the various settlements already entered into and the settlement offer made in the present case shows that the Plaintiff has settled with various underwriters from arbitral proceedings for varying percentages. In some cases, it is at 10% of the awarded amount and in other cases, it is 20% to 25% of the awarded amount. Though such settlements have been entered into with the mutual consent of parties, since the entire dispute has been adjudicated on the basis of obligations of Underwriters and damages have been awarded on a pro-rata basis which has been divided amongst the Underwriters, these out of court settlements would also be relevant in order to determine as to what should be the reasonable damages that ought to have been awarded qua the present Defendants. The ld. Arbitrator has simply proceeded on the basis that qua each share, ....
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....ble result of the breach of it." 116. The Supreme Court reiterating the principle of remoteness of damages in Kanchan Udyog Ltd. v. United Spirits Ltd. (2017) 8 SCC 237 has relied on paragraph 1785 of Chitty on Contracts 26th edn (1989) Vol. 2, p. 1128- 1129 as extracted below: "The important issue in remoteness of damage in the law of contract is whether a particular loss was within the reasonable contemplation of the parties, but causation must also be proved: there must be a causal connection between the defendant's breach of contract and the plaintiff's loss. The courts have avoided laying down any formal tests for causation: they have relied on common sense to guide decisions as to whether a breach of contract is a sufficiently substantial cause of plaintiff's loss." 117. Therefore, the settled legal position is that a party cannot be made responsible for indirect or remote loss that may have been caused to the claimant as a result of breach on the part of the Respondent/Defendant. In the opinion of this Court, the Underwriters could not have been made responsible for the entire loss suffered by the Plaintiff. The allegations and the history of these litigations shows th....