Union Of India vs Himachal Futuristic ...
2013 Latest Caselaw 925 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI
%                      Date of Judgment:25.02.2013
+             FAO(OS) NO.113/2013
UNION OF INDIA                                         ..... Appellant
                         Through:     Mr.Rajeev Mehra, ASG with
                                      Ms.Swati Sinha and Mr.Sumeet
                                      Pushkarna, CGSC.
                  versus
HIMACHAL FUTURISTIC COMMUNICATIONS LTD. .. Respondent
                  Through: Mr.Bishwajit Bhattacharya, Sr.
                           Advocate with Mr.Chandra Chur
                           Bhattacharya, Advocate.
    CORAM:
    HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
    HON'BLE MS. JUSTICE INDERMEET KAUR

INDERMEET KAUR, J. (Oral)

Cav. No.161/2013 (Caveat) Counsel for the respondent has entered appearance. Caveat stands discharged.

CM No. 3292-93/2013 (Exemption) 1 Exemption allowed subject to all just exceptions.

FAO (OS) No. 113/2013 & CM Nos.3291/2013 (stay) & 3294/2013 (for calling the record) 2 The impugned order dated 05.12.2012 had dismissed the

objections filed by the objector/Union of India under Section 34 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred to as the

„Act‟).

3 M/s Hindustan Teleprinters Limited (HTL) was incorporated for

manufacturing teleprinters to cater to the needs of the erstwhile post and

telegraph department. In 1997, the Disinvestment Committee of the

Government of India classified HTL in the non-core category and

recommended the sale of either 100% or 50% of its shares through a

competitive bidding. Government of India vide its decision dated

16.12.1998, decided to disinvest 50% of the equity in HTL to a strategic

partner and on 26.05.2000 74% of the equity in HTL was disinvested.

On 27.09.2001, bids were received by the Government from various

applicants; valuation report was also submitted by the KMPG (global

adviser) based on various pricing methodologies. As per the discounted

cash flow (DFC) methodology, the appellant reconsidered the reserve

price for the 74% equity value of HTL at Rs.38.802 crores. Himachal

Futuristic Communication Limited (HFCL) one of the successful

bidders offered Rs.55 crores for 74% of the equity shares in HTL.

4 Accordingly on 16.10.2001, a Share Purchase Agreement (SPA)

was entered into between the appellant, HFCL and HTL. It is not in

dispute that HFCL paid a sum of Rs.55 crores to the appellant pursuant

to this SPA. M/s S.R. Batliboi & Co. was appointed as Auditor for

preparing the closing date statement and in terms of their report, the

HFCL submitted a claim of Rs.3803.36 lakhs from the appellant on the

basis that the net assets of HTL had become Rs.607.68 lakhs as on

16.10.2001 as against Rs.5747.36 lakhs as on 31.03.2001. However

according to the appellant, since some advisory service had been

rendered by the said Auditors to HFCL in the past and there being a

conflict of interest, M/s Ray and Ray, Kolkata was appointed for

preparing the closing date statement. They submitted their final report

on 07.08.2002 in terms of which on the closing date Net Asset Amount

(NAA) was (-) Rs.1886.57 lakhs as on 16.10.2001 instead of Rs.5747.36

lakhs as on 31.03.2001; the reduction in NAA was therefore (-)

Rs.7633.93 lakhs.

5 M/s HFCL raised a claim by seeking a refund of Rs.56.49 crores

which was more than sale consideration of Rs.55 crores; the appellant

refused to entertain this claim. Matter was referred to arbitration. Award

dated 12.10.2007 was pronounced by the Arbitral Tribunal wherein it

was held that the report filed by M/s Ray and Ray was consistent with

the provisions of the SPA; it was also noted that the preparation of this

report was highly technical and appellant had failed to call any witness

in this regard. Appellant was held liable to pay to the claimants

Rs.55,00,00,000/- with simple interest @ 9% per annum till payment or

realization; cost of arbitration was quantified at Rs.5,00,000/- with

simple interest @ 9%.

6 Against this Arbitral Award objections were filed by the Union of

India before the learned Single Judge. The impugned order has

dismissed these objections.

7 Before this Court, only one argument has been canvassed;

submission being that the contract i.e. the SPA being without any

consideration was void; it is hit by Sections 10 & 25 of the Contract Act.

Submission being that in the absence of any consideration, the complete

contract being a nullity, the parties cannot be bound by the Award as the

entire Award is based on this contract; submission being that the learned

Single Judge has in fact noted the submission of the appellant that the

question whether the SPA was one without any consideration or not

does not appear to have been specifically considered by the Arbitral

Tribunal and to advance this submission attention has been drawn to

para 17 of the impugned order. Further submission being that the Award

is also opposed to public policy and is thus liable to be set aside.

8 Record shows that this whole submission which has been

advanced before us was also noted by the learned Single Judge who had

in the aforenoted para (para 17) recorded the finding that the plea raised

by the appellant that the SPA being without consideration had not been

specifically answered by the Arbitral Tribunal. The learned Single Judge

however thought it fit to examine the plea himself. Since this was only a

legal plea emanating from the documentary evidence already available

with the learned single Judge and based on the terms of the SPA, it only

required an interpretation of the aforenoted clauses coupled with the

submission of the learned counsel for the appellant on the definition of

„consideration‟ as has been defined under Section 2 (d) of the Indian

Contract Act. There was no bar to this task having been taken upon it by

the learned Single Judge.

9 The definition of „consideration‟ is contained in Section 2(d) of

the Indian Contract Act and reads as under:-

2(d) When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

It is a reasonable equivalent or other valuable benefit passed by

the promisor to the promisee or by the transferor to the transferee; it

must be material and not imaginary; it must not be superficial. Monetary

sums alone do not qualify as a „consideration‟. In its broader and wider

sense „consideration‟ also includes any liability that may pass on to a

party who is a beneficiary under the contract. The learned Single Judge

had the occasion to examine the clauses of the SPA; a fact finding was

returned that with the purchase of 74% shares by HFCL, the HFCL had

taken over the HTL with all its liabilities as reflected in its balance-

sheets and books of account. Under Article 5.3 (b)(v) one of the

obligations was "to comply with all loan agreements, leases and other

contracts or instruments to which it is a party or to which any of its

assets are bound". Article 8 was also examined. Clause 9 of the

„Guidance Note on Terms used in Financial Statement‟ and definition of

„liability‟ as contained therein having been examined, the learned Single

Judge had noted that the purchase of 74% shares by HFCL resulted in

not only taking over the assets of HTL but also its liabilities. As on

31.03.2001, the price for the 74% shares at the time execution of the

SPA was on the basis of the DCF method and both parties were

conscious of this fact. Valuation report in terms of Article 2.4 was also

prepared at the askance of the appellant and the respondent which would

be final and binding between the parties. It was a result of this exercise

that it was found that on the closing date, the NAA was less than the

reserve price and as such it was obligatory on the part of the appellant to

pay HFCL the differential amount, since the HFCL was taking over a

company saddled with the liabilities outstanding as on the closing date

which as per the report of M/s Ray and Ray were Rs.364.6687 crores.

10 In this background and keeping in view the amplitude which is to

be afforded to the definition of „consideration‟ which sets out an act or

an abstinence or a promise on the part of promisee; it can in no manner

be said that the SPA was without consideration.

11 This submission is thus wholly without any merit.

12 A bald submission made by the learned counsel for the appellant

that such a contract would be opposed to the public policy has not really

been advanced in the course of arguments. The whole argument being

coined on the definition of the word „consideration‟. This Court is not in

agreement with the learned counsel for the appellant on this score. Until

and unless there is a patent illegality or a perversity on the face of the

record, interference is not warranted under the scope of objections under

Section 34 of the said Act. The learned Single Judge has noted that the

approach adopted by the Arbitral Tribunal was a plausible approach;

award being a reasoned award, it rightly did not call for any interference

on any count.

13    Appeal is without any merit. Dismissed.

14    In view of the order passed in the appeal, pending applications

have become infructuous; they are accordingly disposed of.

INDERMEET KAUR, J.

SANJAY KISHAN KAUL, J.

FEBRUYARY 25, 2013/A