AI Drafter 
TaxTMI 
TaxTMI 
2022 (4) TMI 1634
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....ll as Non-Resident Indians. The public issue 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 no....
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....hi Stock Exchange was obtained for allotment. The Letters 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, incl....
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....sure 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" 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 announceme....
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....or the Arbitrator to fix the sitting fee, subject to a total fee of Rs. 2.00 lacs, apart from the out-of-pocket expenses. The fee of the Arbitrator shall initially 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....
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....er annum. The claimant himself raised loans at that time on interest @18.5%. The claim for interest is based on Interest Act and not on contract. The learned amicus curiae suggested that interest @ 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 ....
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....of time under Section 28 of the Act; c) That on merits, the obligations of all the Underwriters stood discharged as the issue was fully subscribed, and it was not even kept open for the entire period. This issue has not even been 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 b....
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....xample, in Tomorrowland Technologies Exports Limited v. Jethalal Ramji CS (OS) 2159/2012, the application under Section 28 of the Arbitration Act, 1940 for ex-post facto extension of time for passing of Award by the Ld. Arbitrator was allowed, vide order 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 judg....
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....e, or within such further time as the Court may allow. The said clause reads as under: "3. The arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement 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.....
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....t has to exercise its discretion in a judicial manner....No useful purpose will be served in remanding the case to the trial court for deciding whether the time should be enlarged in the circumstances of this case. In view of the policy of law that the arbitration proceedings should not be unduly prolonged and in view of the fact that 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 ....
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....the power of Court under Section 28 of the Act is so wide that the time can be extended, even if the award is made beyond four months. In Rajora Builders v. Municipal Corporation of Delhi (Administration) & Ors. [61 (1996) Delhi Law Times 194], one of the parties had taken an objection to the ld. Arbitrator continuing the proceedings. In Hindustan 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 Plain....
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.... circumstances demand extension of time. In view of the fact that there were nearly 267 claims, to be dealt with by the arbitrator, I am of the view that this is a fit case in which the time ought to be extended, as prayed for. It is ordered accordingly. The prayer made in the application is allowed. The time for rendering the award stands extended. 6. The application stands disposed 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 decr....
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....is being briefly dealt with below. 43. Mr. Sachdeva submits that the Defendants were all along aware of the reference as also proceedings before the ld. Arbitrator. The Defendants were duly served. Repeated notices were issued by the ld. Arbitrator to the Defendants. Analysis and Discussion on Service 44. The following documents show that service was effected upon the Defendant: 1) Copy of the Process Server Report, addressed to S.K. Nahata & Co., Bothra Building, 2nd Floor, M.S. Road, 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....
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....w arises is to the legality and validity of the impugned award. Submissions of the Defendant on Merits 47. The principal objection raised by the Defendants in challenging the impugned award, is that there was no devolution of liability upon the Underwriters, after the public issue was closed on the earliest closing date and once the issue was admittedly, fully subscribed. It is submitted that there was an obligation in the underwriting agreement to keep the public issue open for at least 10 calendar days. The company on its own chose to close the public issue on 18th 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 ....
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....d is contrary to the terms of the Underwriting Agreement and the law governing the liability of underwriters and accordingly, deserves to be remitted back for reconsideration. Submissions of Plaintiff on Merits 52. On the other hand, Mr. Pawan Sachdeva submitted that the earliest closing date as per the prospectus, which had been sent to all the Underwriters and also approved by SEBI, was 18th February, 1995. Once the issue was subscribed for more than 90%, it was mandatory for the issue to be closed and therefore, the stand of the Underwriters, that the issue should have been 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 submit....
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....t, if there is any delay in the said refund, interest is also liable to be paid. 56. A third proposition, which is assailed is that allotment of shares is not a direct step, immediately upon the subscription. There are three stages i.e., creation of the shares, issue of the shares and allotment of shares. It is only upon the final allotment being made that the underwriters' obligation is discharged. It is submitted that the letter dated 6th March, 1995, which is not admitted by the Plaintiff, wrongly uses the word 'allotment', whereas in fact at that stage, the allotment was yet to take 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-sub....
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....further submitted that the impugned award specifically records in paragraphs 2 and 3, the facts leading up to the closure of the issue and the responsibilities of the underwriters. According to him, the finding of the ld. Arbitrator is that since the public issue was under-subscribed, the underwriters had to make good the loss suffered by the claimant-Company. Reliance is also placed upon paragraphs 6 and 7 of the Award, wherein the Arbitrator concludes that within 35 days of intimation by the company, the underwriters have to procure subscriptions and if they fail to do so, the Company is free to take 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" m....
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....any direct or indirect benefit from underwriting the issue other than the commission or brokerage payable under an agreement for underwriting. (2) The total underwriting obligations under all the agreements referred to in clause (b) of rule 4 shall not exceed twenty times the net worth referred to in regulation 7. (3) Every underwriter, in the event of being called upon to subscribe for securities of a body corporate pursuant to an agreement referred to in [clause (b) of sub-regulation (1) of regulation 9A] shall subscribe to such securities within 45 days of the receipt of such intimation from such body corporate." 65. The Code of Conduct for Underwriters is 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....
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.... 1. If the issue is undersubscribed, the underwriting obligation, shall be determined in the manner set out hereunder, provided that under no circumstances, the Underwriter's obligation to subscribe / procure subscription to shares shall exceed the amount mentioned in clause 1 above. 2. The following applications for shares shall be treated protanto in or towards satisfaction of the Underwriter's obligation under this agreement namely - a) Applications which have been accepted excluding those withdrawn before allotment; and b) applications received from the underwriter or any of his sub-underwriters including those applications which bear the stamp of the underwriter or any of his-underwriters. 3. After making adjustments as provided in sub- 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....
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....eration of the underwriter agreeing to underwrite the shares/debentures as mentioned in clause (1) above, the company shall pay to the underwriter a commission @ 1% on the amount underwritten by them and subscribed by the Public. In case, of devolvement the Company shall pay to the underwriter a commission at the rate of 2.5% on the issue price of the shares for the amount underwritten and devolving on them. 2. The underwriting commission shall be payable by the company within 15 days from the date of finalisation of allotment and proof of such payment within the specified time should be available with the company. The obligation to pay underwriting commission shall arise only upon the Underwriter fulfilling his underwriting obligation and duly subscribing to the shares, if any, devolved on him. 14. Obligation of the Company 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 amoun....
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....te of the Agreement. The issue, unless fully subscribed, was to be kept open for a maximum period of ten calendar days. It is only if the issue remained undersubscribed that the underwriting obligation was to be triggered as per Clause 10 of the Underwriting Agreement. However, under Clause 11 of the Agreement, the manner in which the Underwriters would be discharged of their obligations was clearly prescribed. As per Clause 11, the total number of shares which were unsubscribed was to be communicated to the Underwriter within 30 days of the closure of public issue subscription. On the basis of the unsubscribed shares, the shares that were to be procured by the Underwriter were to be pro-rata distributed among all the Underwriters. The manner in which the computation of the Underwriters' obligation was to take place was to be furnished by the auditors of the company, who had to issue notices 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 obligat....
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....ions to subscribe to their shares of the FCDs and submit the application along with the amounts in terms of the Underwriting Agreement. The said devolvement notices were also issued to the Underwriters within the 30 days as prescribed i.e., on 15th March, 1995. 72. The factum of the devolvement notice having been issued is not disputed by the Defendant. It is also not the case of the Defendant that it terminated the agreement due to any incorrect information which was referred to it as per the prospectus or other related documents. No document has been placed on record to show that upon receiving the devolvement notice, the Defendant refuted the claim of the Plaintiff. The only submission canvassed on behalf of the Defendant is that since the issue was closed within four days after being launched and it was more than 90% subscribed, the obligation of the Underwriter was automatically discharged under 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 ....
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....er: 77. The above flow chart makes it clear that it is only after the closure of the subscription list that the company has to communicate to the Underwriters within a period of 30 days, as to whether any liability has devolved upon the Underwriters and if the obligations of the Underwriters are to be discharged or not. The said letters have to be accompanied with the auditor's certificate showing the computation. After receiving the said letters, the Underwriters have to take the necessary steps to subscribe within 30 days. 78. Thus, as per the Underwriting Agreement, it is clear that the obligations of the Underwriters are not discharged simply upon the issue being fully subscribed in the first instance. Various steps have to be followed through to determine as to whether the issue is fully subscribed or not. In this case, though the impression at the initial stage when the public issue was closed was that the 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 ....
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.... The respondent as well as the other underwriters failed to perform their part of the contract by not paying for the said FCDs that devolved on them. This led to sale of FCDs falling below 90% of the issue. According to instructions of the SEBI (exhibit PW1/60) the claimant had to refund all the application monies received from the subscribers. The registrar of the issue MAS accordingly refunded the money received to all those who had actually subscribed. In other words the issue failed. xxx xxx xxx 20. The claimant claims that the amount of damages for breach stipulated in the contract is the total amount underwritten as if it was the liquidated damages. In fact the contract says that the company would be entitled to claim damages suffered by the company by reasons of failure on the part of the underwriter to subscribe to the debentures as aforesaid without mentioning any liquidated amount. 21. The claimant submits that the claimant is entitled 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 b....
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....ly provided for in Clause 11(d) of the Agreement. The ld. Arbitrator further notes that no provision for liquidated damages has been made in the Agreement. Thus, it cannot be said that the ld. Arbitrator failed to decide the issue as to whether the Underwriters' obligations were discharged or not. 84. Enormous emphasis has been laid on the fact that the ld. Arbitrator did not discuss the letter dated 6th March, 1995 and the effect thereof. This letter dated 6th March, 1995 is subject of vehement contest between the parties. Firstly, it is the Plaintiff's case that this letter was never produced before the ld. Arbitrator, though the Underwriters place enormous reliance on the same. The said letter allegedly issued by SEBI to the Lead Manager has been filed in these proceedings. The language of the said letter reads as under: "Securities and Exchange Board of India Ref: IMID/; XX/95 March 6, 1995 The General Manager SBI Capital Markets Limited New Delhi, Sir, 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 he....
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....HI Reg: MS Shoes East Ltd. - Public Issue of FCDs With reference to the captioned issue, we forward herewith for your information and necessary action, copy of letter No. PMD/PVK/95 dated April 21, 1995 received from SEBI stating inter alia that as the Company has failed to receive 90% of the minimum subscription amount within 60 days of the closure of the issue, as mentioned in the prospectus, it has become incumbent upon the Company to refund the entire amount forthwith to all the applicants. Kindly ensure compliance of the instructions of SEBI contained in the aforesaid letter. Deputy General Manager 88. This letter of the Lead Manager was on record of the ld. Arbitrator which confirms two facts - a) That SEBI had informed the Lead Manager that the Plaintiff - Company had failed to receive 90% of the minimum subscription amount; b) That the entire amount was to be refunded forthwith to all the Applicants. 89. Post the closure of the public issue on the ground that it was more than 90% subscribed, the above situation arose because SEBI had directed the Plaintiff to give an option to subscribers to withdraw if they so choose. Upon....
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....ticulars and same has to be proved by cogent evidence. There cannot be any inference contrary to record. As the evidence on record discloses that fraud, as pleaded, was not established, in absence of any necessary pleading giving particulars of fraud, we are of the view that no case is made out to interfere with the well reasoned judgment of the High Court." 93. Thus, allegations of fraud would require the parties to specifically plead and then lead evidence before the ld. Arbitrator, which has admittedly not happened in the present case. Allegations of fraud also go to the root of the matter on whether the dispute is arbitrable. However, it has been well- settled by the Supreme Court in its judgment of Ayyasamy v. A. Paramasivam (2016) 10 SCC 386 that- "the mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. It is only in those cases where the Court, while dealing with Section 8 of the Act (1996 Act), finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such co....
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....section (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court: Provided that any time so fixed may be extended by subsequent order of the Court. (3) An award remitted under sub-section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed." 97. The main grounds on which the Defendant has invoked Section 16 are that the discharge of the underwriters' liability under the Underwriting Agreement has not been discussed in detail by the Ld. Arbitrator and that illegality is apparent on the face of the award. 98. Insofar as the objection as to non-consideration of the obligations of the underwriters are concerned, the same has already been discussed above. The settled legal position under Section 16 is that if a specific question is referred to the Arbitrator, Courts would not usually interfere unless and until it is found that the Arbitrator has acted illegally in reaching the decision or if the decision is based on inadmissible evidence or principles of construction of law that cannot be countenanced. In Seth Thawardas Pherumal v. Union of Indi....
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....mitted by the arbitrator or umpire on the face of the record on going through such reasons. The arbitrator or umpire shall have to give reasons also where the court has directed in any order such as the one made under Section 20 or Section 21 or Section 34 of the Act that reasons should be given or where the statute which governs an arbitration requires him to do so." 100. A Constitution Bench of the Supreme Court in Goa, Daman & Diu Housing Board v. Ramakant V.P. Darvotkar [AIR 1991 SC 2089] observed in the context of Section 16 of the Arbitration Act as under: "11. Before considering the question whether the directions made by the High Court in remitting the award to the Arbitrator for giving reasons do fall within the purview of Section 16 of the Arbitration Act, 1940, it is appropriate to set but the relevant provisions of Section 16(1): Section 16(1): The Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit-- (a) where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referre....
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....lauses of the agreement are being relied upon by the Defendant. In light of the above, the grounds raised by the Defendant for seeking remitting of the award back to the Ld. Arbitrator for reconsideration are not sustainable. The only outstanding issue would be the question of damages and the interest which has been awarded. Computation of Damages and Interest in the Award 103. On the question of computation of the damages and interest awarded by the Ld. Arbitrator, Mr. Sachdeva submitted that the said issue falls within the domain of the Arbitrator and the Court cannot interfere in the same. The judgment of the Hon'ble Supreme Court in Arosan Enterprises Ltd. v. Union of India (UOI) & Ors. [AIR 1999 SC 3804] was relied upon. 104. It is submitted that the calculation of the total damages, which were awarded, can be easily explained by the manner in which the ld. Arbitrator has divided the total FCDs into 'subscribed' and 'under-subscribed' FCDs. The ld. Arbitrator has, after considering the various amounts, merely awarded Rs. 15.85 crores, and in respect of the remaining amount of FCDs, the disputes already stand settled with other Underwriters. 105. It was further submitt....
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..... Counsel urges that in the absence of any evidence, as required under Sections 73 & 74, even the damages could not have been awarded. Reliance is placed on Kailash Nath Associates v. Delhi Development Authority & Anr. (2015) 4 SCC 136 to argue that where it is possible to prove actual damages/losses such proof cannot be dispensed with by the Ld. Arbitrator. It is further submitted that under Section 29 of the 1940 Act, interest can be awarded only from the date of decree and pre-suit interest cannot be awarded. It is thus put forth that the Ld. Arbitrator has, clearly, erred in awarding not just interest pendente lite but also prior to the filing of the claim petition i.e. 2nd May, 1995, which according to ld. counsel is completely contrary to the Act. 108. On the issue of damages, a perusal of the impugned award shows that the ld. Arbitrator has considered the claims of the Plaintiff under Sections 73 and 74 of the Indian Contract Act, 1872. The Ld. Arbitrator rightly observed that since the contract made no provision for liquidated damages against the respondents/underwriters in the event of failure of the issue, the tribunal had to assess the 'reasonable damages/compensation....
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....res. By fixing the amount of compensation as Rs. 80 per FCD/share, the Ld. Arbitrator calculated damages as Rs. 4,97,760/- along with the interest. 111. Upon conclusion of submissions, both parties have submitted that disputes with a large number of the underwriters had been settled by the Plaintiff, at much less the amount than what was claimed. The Plaintiff was accordingly directed to place on record charts showing the amounts which were recovered during settlements with various Underwriters. A perusal of the same shows that during the course of arbitral proceedings, the Plaintiff settled with 66 parties against whom claims were awarded. The Plaintiff further settled with 26 Underwriters during the course of pendency of petitions for pronouncement of judgment / objections. 112. Moreover, during the pendency of the present suit, a without prejudice offer dated 8th February, 2017 was made by the Plaintiff to the Defendant in the following terms: "Sub: Offer of out of court settlement without prejudice to our rights in the suit/ application and without prejudice to our contentions in the reply to the objections filed by you. SETTLEMENT OFFERED WITHOUT PREJUD....
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.... every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract. (4) In some contracts, it would be impossible for the court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, the court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation." 115. For the purpose of assessing unliquidated damages under Section 73 of the Act, it would be pertinent to refer to the locus classicus English judgment in Hadley v. Baxendale [1854] EWHC J70, wherein the principle embodied in Section 73 was enunciated as under: - "Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usua....
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....f Underwriters have already settled their disputes with the Plaintiff, even during pendency of arbitral proceedings. After passing of the Awards, several parties have settled. The Plaintiff has to clearly shoulder a substantial part of the blame for the losses which it may have suffered. The liability to pay compensation/damages qua the Underwriters ought to thus be reduced to a reasonable amount i.e., 1/4th of the losses per share as computed by the ld. Arbitrator i.e., Rs. 20/- per FCD/share. Further, the award of 18% interest p.a. by the Ld. Arbitrator is highly onerous and unsustainable, especially considering the prevalent market conditions. The said rate is also liable to be reduced to a reasonable percentage. 119. In a petition for pronouncement of judgment in terms of the Award under Sections 14 and 17 of the Arbitration Act, 1940, and while considering objections under Section 16, it is the settled legal position that the Court has to apply its mind to arrive at the conclusion whether there is any cause to modify the award under Section 15 of the Arbitration Act, 1940 (Union of India v. Manager, M/s Jain and Associates (2001) 3 SCC 277). It has further been held by the ....