Delhi High Court
M/S Db Corp Ltd. vs M/S Chd Developers Ltd. on 3 October, 2018
$~56
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Judgment: 3rd October, 2018
+ FAO(OS) (COMM) 225/2018
M/S DB CORP LTD. ..... Appellant
Through Mr. Dhruv Mehta, Senior Advocate
with Ms. Nikita Chitale, Advocate
versus
M/S CHD DEVELOPERS LTD. ..... Respondent
Through Mr. Jeevesh Nagrath and Mr. Chandan
Dutta, Advocates
CORAM:
HON'BLE MR. JUSTICE G.S. SISTANI
HON'BLE MS. JUSTICE SANGITA DHINGRA SEHGAL
G.S. SISTANI, J. (ORAL)
CAV.PET.919/2018
1. Counsel for the caveator has entered appearance.
2. The caveat petition stands disposed of.
CM.APPL41080/2018(Exemption)
3. Exemption allowed, subject to all just exceptions.
4. The application stands disposed of.
FAO(OS) (COMM) 225/2018
5. The present appeal is filed under Section 37 of the Arbitration and
Conciliation Act, 1996 (hereafter the "Act")read with Section 13 of
the Commercial Courts, Commercial Division & Commercial
Appellate Division of the High Court Act, 2015 directed against the
order dated 31.08.2018 passed by the learned Single Judge of this
Court, by which the objections to the Award stand dismissed.
6. Some necessary facts which are required to be noticed for the disposal
of the present appeal are that the appellant is a public listed company,
which is engaged in the business of publishing newspaper from
different states in the country whereas the respondent is a public listed
company engaged in the business of the real estate. The respondent
approached the appellant with the proposition of publishing
advertisements for the respondent in the appellant's newspaper for the
period of three years, in exchange of receiving the respondent's equity
worth Rs. 3,00,00,000/- (Rupees Three Crores only) at the rate of Rs.
40/- per share (Rs. 2 nominal value + Rs. 38 premium per share).
Pursuant to which, the parties entered into two agreements, viz., Share
Subscription Agreement (SSA) and Advertising agreement dated
12.02.2008.
7. As per the agreement, the appellant made the payment of Rs.
3,00,00,000/- (Rupees Three Crores only) to the respondent on
18.02.2008, in return the respondent paid Rs, 3,00,00,000/- (Rupees
Three Crores only) as advance against the advertising agreement. As
per clause 2.7 of the advertisement agreement, in case of termination
under no circumstances, the respondent would be entitled to claim
refund of the money paid by it to the appellant towards the agreement.
8. According to this advertising agreement, the respondent was to place
advertisements of the value of Rs.3.0 crores in the following manner:
Sub-Term Annual Commitment(Rs.)
First Year-Term 1,00,00,000
Second Year-Term 1,00,00,000
Third Year-Term 1,00,00,000
Total 3,00,00,000
9. The appellant contented that it commenced publication of
advertisement from April, 2008. Around November 2009, the equity
share price of the respondent company dropped down to Rs. 5 per
share and since then, it has been fluctuating around Rs. 5/-. It is urged
before us that appellant's consideration for advertising depend entirely
on the assurance and representation provided by the respondent
regarding high mark-up of the allotted equity shares. The appellant
communicated its concern about the dropping share price of the
respondent company vide e-mail dated 28th November,2009 and
intimated the respondent that it has decided to withhold publication of
their advertisements until a concrete proposal is put-forth by the
respondent as to how it proposes to overcome the said financial crisis,
thus terminating the agreement. On the other hand, the respondent
failed to come up with any concrete proposal to overcome its
precarious financial position, rather the respondent invoked the
arbitration clause in the advertisement agreement and submitted a
Statement of Claims on 14.03.2013.
10. The Arbitral Tribunal on 28.10.2014 after recording the evidence and
hearing the parties passed the award in favour of the respondent by
awarding Rs. 1,22,91,376/- (Rupees One Crore Twenty Two Lakhs
Nineteen Thousand and Three Hundred Seventy Six only) with
interest at the rate of 12 % per annum from November 2009, along
with the awarding cost of Rs. 5,00,000/-(Rupees Five Lakh only) for
litigation expenses. Simultaneously, by dismissing the counter-claim
of the respondent in its entirety. The learned Single Judge further
upheld the award, giving rise to the present appeal.
11. Some of the terms of the advertising agreement, which has been relied
upon by Mr. Mehta, learned Senior Counsel for the appellant are being
reproduced below to appreciate the submissions made before this
Court.
"2.1. The Company hereby agrees to advertise only its
Products, services and Brands in accordance with
DBCL's extant policies prevailing at the time of the
advertisement and DBCL hereby agrees to carry such
advertisements in DBCL Media in accordance with the
terms and conditions set out in this Agreement. Provided
that in respect of the advertisement spend of the
Agreement, only the incremental advertisement spend
(being any advertisement spend over and above the spend
incurred by the previous owner of such products/brands
in DBCL) computed on a yearly basis shall be deemed to
be part of the Aggregate Commitment as defined in
Article 2.2 below, that can be utilized by the Company.
2.2 The Company hereby agrees to place advertisements of
the value of Rs.3,00,00,000/- (Rupees Three Crores Only)
net of agency commission in the DBCL Media (the
"Aggregate Commitment") during the First Year Term,
the Second Year Term, the Third Year Term, (in each
year term, the "Annual minimum Commitment") in the
manner set out below:
2.3
Sub-Term Annual Commitment(Rs.)
First Year-Term 1,00,00,000
Second Year-Term 1,00,00,000
Third Year-Term 1,00,00,000
Total 3,00,00,000
Minimum commitment for any Year will be Rs.100.00 Lacs.
In case of any unutilized amount for any year, the same may
be carried forward to the next Year. At the end of 3 years, if
there is any un-utilised amount, the same will be forfeited by
DBCL after a grace period of 6 months.
2.4 The Company hereby agrees to make the payment for the
entire amount of the Aggregate Commitment on or before the
Commencement Date ("Aggregate amount"). Such payment
shall be made by a pay order or demand draft or cheque
drawn on a recognized bank or such other means that is
acceptable to DBCL.
.....
2.7 The Company, to the extent permitted by law, hereby
expressly and in writing waives all and/or any of its right to
claim any refund of any part of the Aggregate Amount upon
the termination of this Agreement, for any reason whatsoever
and/or the expiration of this Agreement.
.....
7.11 Specific Performance
Notwithstanding anything stated in the Agreement, each of
the Parties acknowledges and agrees that irreparable damage
would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly
agreed that the Parties shall be entitled to preliminary relief to
prevent or cure breaches of the provisions of this Agreement
and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which they may
be entitled by law or equity."
12. Counsel for the appellant submits that a back to back Share
Subscription Agreement dated 12.02.2008 (hereinafter referred to for
short as 'SSA') was also executed between the parties. The respondent
company received a sum of Rs.3.0 crores from the appellant for
purchase of 7,50,000 shares at a price of Rs.40/- per share. The
respondent placed advertisements with the appellant company for
almost 1½ years, during which period there was no dispute between
the parties. However, the price of shares of the respondent company
which had been purchased at Rs.40/- per share dropped to Rs.5/- per
share, which led to disputes between the parties. The appellant
refused to release the advertisements which led to the respondent
approaching this Court by filing a petition under Section 11 of the
Arbitration and Conciliation Act, 1996. (The arbitrators were
appointed by the Court.)
13. Mr. Mehta, learned Senior Counsel for the appellant submits that both
the arbitral tribunal and the learned Single Judge erred by interfering
with the clear and unambiguous conditions of the agreement by
misinterpreting Clause 2.7 of the advertisement agreement, where the
plain reading of the said clause clearly manifested the intentions of the
party to disclaim/ waive any right to recover monies or claim refund
under any circumstances. Mr. Mehta further submits that the tribunal
cannot pass an award allowing claims, which are prima facie barred by
the conditions of the agreement, as the Clause 2.7 of the agreement
clearly manifest the intent of the parties behind executing such
agreement. Clause 2.7 does not permit a claim for refund on account
of termination, the effect and the consequences of the said clause
cannot be rejected merely by interpreting it in a manner so as to defeat
its very intent, object and purpose as intended by the parties.
14. Mr. Mehta, learned Senior Counsel for the appellant has strongly
relied upon Clause 7.11 of the advertising agreement to submit that the
learned Single Judge erred in reading Clause 7.11 out of the context
and the only remedy available with the respondent was to seek specific
performance. Mr. Mehta further submits when Clause 7.11 is read
with Clause 2.7, it clearly reflects that the parties intended to foreclose
their right with regard to claiming of refund.
15. Learned Senior Counsel for the appellant further submits that the
reason of foreclosing the respondent's right to claim refund is not
valid because no money was paid by the respondent out of its pocket
towards publication of the advertisement. Thus, it was stated in the
agreement that the respondent shall not claim any refund under any
circumstances. Mr. Mehta submits that the purpose of Clause 2.7 was
only to ensure a continuous flow of advertisement by the respondent to
the appellant during the stipulated period of the agreement. Clause 2.7
nowhere specifies that it will be triggered only when the respondent
terminates the agreement and not vice versa. Counsel further submits
that the learned Single Judge has failed to appreciate the main
grievance of the appellant with regard to Clause 2.7 being an
unambiguous manifestation of the intention of the parties and being
subject to the interpretation, when there is no ambiguity traced in the
plain reading of the said clause.
16. Learned Senior Counsel labored hard to submit that in fact, both the
agreements are not only signed on the same date, but they are also
back to back agreement and upon the price of share falling low to
Rs.5/- per share from Rs.40/- per share, the appellant was well within
its right to terminate the agreement and forfeit the amount. As per
clause 2.7 which was the express understanding between the parties,
neither the Arbitral Tribunal nor the learned Single Judge could have
read into the agreement and granted the relief so claimed.
17. Mr. Jeevesh Nagrath, learned counsel for the respondent has opposed
this appeal. It is contended that except the fact that both the
agreements were signed on the same date there is no other connection
and no consideration was passed between the parties, there is no co-
relation between both the agreements and thus, cannot be treated as
back to back agreements. There is no reference of SSA in the
advertising agreement or vice versa and neither there was no co-
relation in any of the clauses of advertising agreement and SSA. In
effect, they are completely independent agreements. Reliance is
placed on clause 7.4 of the advertising agreement, which we reproduce
below, wherein it has been agreed between the parties that the present
agreement would supersede all prior discussions and agreements
between the parties and it contains the sole and entire agreement
between the parties.
"7.4 Entirety
This Agreement supersedes all prior discussions and
agreements between the Parties with respect to the subject
matter of this Agreement (together with any amendments or
modifications thereof and policies referred to), and contains
the sole and entire agreement between the Parties hereto with
respect to the subject matter hereof."
18. In response to the submissions of Mr. Mehta, learned counsel for the
appellant, Mr. Jeevesh Nagrath, learned counsel for the respondent
submits that the entire clause should be read as a whole. He relies on
clause 2.6, which we reproduce below:
"2.6 The Company acknowledges and recognizes that based
on the Aggregate Commitment given by it under Article
2.2 of this Agreement, DBCL shall make necessary
arrangements to ensure that the advertising space in
DBCL Media, will be available to the Company for the
advertisement of its Products, services and Brands during
the Term of this Agreement as per and subject to the
terms hereof. In view of the said arrangement to be made
by DBCL, the Parties hereby agree that any failure by the
Company to meet its Aggregate Commitment, will cause
considerable loss to DBCL and to mitigate such loss, the
Company has agreed that it shall not be entitled to refund
of any part of the Aggregate Amount paid under this
Agreement under any circumstances whatsoever and such
amount shall only be set off against the advertisements to
be placed in DBCL Media in the manner provided herein.
Accordingly, any part of the Annual Commitment
unutilized and/or unadjusted in terms of Article 2.2
above, shall stand forfeited and DBCL shall not be liable
to refund the same to the Company under any
circumstances whatsoever. It is specifically agreed that
any termination of the Agreement for any reason other
than a material breach by DBCL of its obligations under
this Agreement in terms of Article 6 or expiry of the
Term of this Agreement shall result in the forfeiture of
the Aggregate Commitment remaining unutilized and/or
unadjusted at the time of such termination or expiration,
as the case may be and DBCL shall not be liable to refund
the same to the Company under any circumstances
whatsoever."
19. Mr. Jeevesh Nagrath submits that reading of clause 2.6 would show
that parties had specifically agreed that any termination of the
agreement for any reason other than a material breach by the appellant
herein of its obligations under the terms of the agreement or on expiry
of the term of the agreement, would result in forfeiture. The counsel
further submits that the respondent has not waived its right of refund
under Clause 2.7 of the Advertisement Agreement. In effect, the
benefit of Clause 2.7 would accrue in favour of the appellant only in
case of breach by the respondent and not in case of breach by the
appellant. Mr. Nagrath further submits that Clause 2.7 is to protect the
interests of the appellant, only to ensure that the respondent would not
stop issuing advertisements midway or terminate the Advertisement
Agreement and claim refund of the amount for which the
advertisements had not been issued till termination, or expiration of
the Agreement. Whereas, in the present case the breach is on the part
of the appellant. According to the counsel for the respondent, Clause
2.7 did not vest the appellant with any authority to terminate the
Advertisement Agreement or refuse to print the advertisements worth
Rs. 3 crores during the stipulated period of three years or link the same
with fluctuation in the price of the equity shares. It is also contended
that in case of any ambiguity with respect to the terms of the
agreement, it is settled law that a clause prior would override the
subsequent clause which has led to the ambiguity.
20. Additionally, the counsel for the respondent submits that it is
contended that the scope of an appeal under Section 37 of the
Arbitration and Conciliation Act, 1996 is narrower than the hearing
under Section 34 of the Arbitration and Conciliation Act, 1996. He
has placed reliance on a judgment in the case of NHAI v. M/s. BSC-
RBM-Pati Joint Venture, reported at 2018 SCC OnLine Del 6780,
more particularly paragraphs 66 and 74, which is reproduced below:
"66.We have already highlighted, hereinabove, the limited
arena of the jurisdiction of this Court, in the matter of
interference with arbitral awards, under Sections 34 and 37 of
the Act. The position that emerges from the law, as it stands
crystallized today, is, clearly, that findings, of fact as well as of
law, of the arbitrator/Arbitral Tribunal are ordinarily not
amenable to interference either under Sections 34 or Section
37 of the Act. It is only where the finding is either contrary to
the terms of the contract between the parties, or, ex facie,
perverse, that interference, by this Court, is necessary. The
arbitrator/Arbitral Tribunal is the final arbiter on facts as well
as in law, and even errors, factual or legal, which stop short of
perversity, do not merit interference under Sections 34 or 37 of
the Act. Insofar as the ultimate view of the learned arbitrator/
Arbitral Tribunal, on any issue is concerned, so long as the
view is plausible, and not merely possible, this Court would be
loath to interfere therewith. We may usefully make reference,
in this regard, to the following postscript, entered by this Court
in its judgment in P.C.L Suncon (JV) v N.H.A.I.,
MANU/DE/3364/2015:
"As a postscript, this Court believes that it is imperative to
sound a word of caution. Notwithstanding the considerable
jurisprudence advising the Courts to remain circumspect in
denying the enforcement of arbitral awards, interference
with the awards challenged in the petition before them has
become a matter of routine, imperceptibly but surely erasing
the distinction between arbitral tribunals and courts. Section
34 jurisdiction calls for judicial restraint and an awareness
that the process is removed from appellate review.
Arbitration as a form of alternate dispute resolution, running
parallel to the judicial system, attempts to avoid the prolix
and lengthy process of the courts and presupposes parties
consciously agreeing to submit a potential dispute to
arbitration with the object of actively avoiding a
confrontation in the precincts of the judicial system. If a
court is allowed to review the decision of the arbitral
tribunal on the law or on the merits, the speed and, above
all, the efficacy of the arbitral process is lost.
....
74.Before parting with this judgment, we are constrained to
note that, in case after case, we find that factual findings, in
respect of which the learned Arbitral Tribunal is the final
authority, are being successively challenged, under Section
34 and thereafter, under Section 37 of the Act. This has
effectively reduced the exercise of arbitration to the civil trial,
and petitions under Sections 34 and 37 of the Act to first
appeals and second appeals. In fact, while second appeals
under Section 100 of the Civil Procedure Code, 1908, would
lie only on questions of law, we find that arbitral awards are
being challenged, even on facts, under Section 37 of the Act.
Despite wealth of judicial authority on this point, and repeated
disapproval voiced by the Supreme Court and as well as
several High Courts including this Court thereon, it is almost
invariably seen that every award passed by the
arbitrator/Arbitral Tribunal, especially, where the awards are
commercial in nature, are challenged, first before the Single
Judge and thereafter before the Division Bench merely
because the "aggrieved party" possess the financial
wherewithal to do so. It is a matter of concern that the majority
of such challenges are by public sector undertakings, the
appellant before us being one of the main contributors thereto.
Such attempts contribute, in a great deal to the menace of
"docket explosion", which plagues our Courts and consumes
valuable time which could be used for settling more important
disputes. We unhesitatingly deprecate this practice.
21. We have heard the learned counsel for the parties and considered their
rival submissions, perused the arbitral award and the impugned order
passed by the learned Single Judge and also gone through the matter
placed before us.
22. The learned Single judge has rightly upheld that the agreement does
not speak about any clause, which stipulates that in the eventuality of
the share price of the respondent goes down , the appellant would have
any remedy. The fact that appellant chose to purchase the respondent's
shares automatically makes the appellant entitled to all the rights and
liabilities of the respondent company. Thus, the ground urged by the
appellant regarding the dropping price of the share holds no merits.
23. As far as plea of the appellant with regard to specific performance is
concerned, we find that this issue has not been raised because it has
nowhere been dealt with in the Award and the same cannot be pressed
at this stage. Be that as it may, as it has been raised before us, we may
only say that the specific performance was to be performed out by the
appellant, which the appellant did not volunteer, besides the clause
7.11 if carefully read would show that this is a relief which would be
available to the respondent.
24. We find no infirmity with the view that there is no linkage between the
two agreements, except their common date, as both the agreements
cater the commercial interests of the parties. The bare perusal of both
the agreement nowhere mentions that a fluctuation in the price of the
equity would to impact the rights between the parties. Even otherwise,
fluctuation in the price of the equity is not an abnormal feature,
moreover by purchasing the equity of the respondent, the appellant
exposed itself to the rights and liabilities of the respondent company.
25. Furthermore, Clause 2.7 nowhere states that the respondent had
waived its right to refund rather it acts as a protective measure for the
appellant, in case the respondent terminates the agreement and refused
to give further advertisements before the expiration of the stipulated
period of three years. The aim of Clause 2.7 is to act as a clause to
protect the appellant from the damages and not to act punitive against
the respondent.
26. Additionally, the Supreme Court in M.P. Housing Board vs.
Progressive Writers and Publishers reported at (2009)5SCC678
categorically held as under:-
"30. Interpretation of a contract, it is trite, is a matter for the
arbitrator to determine. Even in a case where the award
contained reasons, the interference therewith would still be not
available within the jurisdiction of the court unless, of course,
the reasons are totally perverse or award is based on wrong
proposition of law.
"4...An error apparent on the face of the records would
not imply closed scrutiny of the merits of documents and
materials on record. "Once it is found that the view of the
arbitrator is a plausible one, the court will refrain itself
from interfering...."
[See Sudarsan Trading Co. v. Govt. of Kerala [1989]1SCR665
and State of U.P. v. Allied Constructions, (2003)7SCC396 at
SCC p.398, para 4. ].
27. Moreover, this court time and again in its earlier judgements, FAO
(OS) (COMM) 86/2016 titled as M/S. L.G. Electronics India Pvt.
Ltd. Vs. Dinesh Kalra, FAO(OS)(COMM) 55/2018 titled as M L
Lakhanpal vs. Darshan Lal & Anr. and in FAO(OS)(COMM)
201/2017 titled as ADTV Communication Pvt. Ltd Vs. Vibha Goel &
Ors., repeatedly mapped the limited scope of intervention in an
appeal under section 37 of the Act held as under:-
"It has been repeatedly held that while entertaining
appeals under Section 37 of the Act, the Court is not
actually sitting as a Court of appeal over the award of the
Arbitral Tribunal and therefore, the Court would not re-
appreciate or re-assess the evidence. In the case of State
Trading Corporation of India Ltd. v. Toepfer
International Asia Pte. Ltd., reported at 2014 (144) DRJ
220 (DB), in para 16 it has been held as under:
"16. The senior counsel for the respondent has in this
regard rightly argued that the scope of appeal under
Section 37 is even more restricted. It has been so held by
the Division Benches of this Court in Thyssen Krupp
Werkstoffe v. Steel Authority of India and Shree
Vinayaka Cement Clearing Agency v. Cement
Corporation of India 147 (2007) DLT 385. It is also the
contention of the senior counsel for the respondent that
the argument made by the appellant before the learned
Single Judge and being made before this Court, that the
particular clause in the contract is a contract of
indemnification, was not even raised before the Arbitral
Tribunal and did not form the ground in the OMP filed
under Section 34 of the Act and was raised for the first
time in the arguments."
In the case of Steel Authority of India v. Gupta Brothers
Steel Tubes Limited, (2009) 10 SCC 63, the Supreme
Court has laid down that an error relatable to
interpretations of the contract by an Arbitrator is an error
within his jurisdiction and such error is not amenable to
correction by Courts as such error is not an error on the
face of the award. The Supreme Court has further laid
down that the Arbitrator having been made the final
arbiter of resolution of disputes between the parties, the
award is not open to challenge on the ground that the
Arbitrator has reached a wrong conclusion. The courts do
not interfere with the conclusion of the Arbitrator even
with regard to the construction of contract, if it is a
plausible view of the matter.
The Apex Court in J.G. Engineers (P) Ltd. v. Union of
India, reported at (2011) 5 SCC 758, demarcated the
boundary while explaining the ambit of section 34(2) of
the Act. The Court in the aforesaid judgement relied upon
the pronouncement of ONGC Ltd. v. Saw Pipes, in
paragraph 19, held as under:--
28.Interpreting the said provisions, this Court in ONGC Ltd. v. Saw
Pipes Ltd. [(2003) 5 SCC 705] held that a court can set aside
an award Under Section 34(2)(b)(ii) of the Act, as being in
conflict with the public policy of India, if it is (a) contrary to
the fundamental policy of Indian law; or (b) contrary to the
interests of India; or (c) contrary to justice or morality; or (d)
patently illegal. This Court explained that to hold an award to
be opposed to public policy, the patent illegality should go to
the very root of the matter and not a trivial illegality. It is also
observed that an award could be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court, as then
it would be opposed to public policy."
29. Resultantly, we find no infirmity in the order dated 31.08.2018 passed
by the learned Single Judge.
30. Accordingly, the appeal stands dismissed.
CM.APPL 41079/2018 (Stay)
31. The application stands dismissed in view of the orders passed in the
appeal.
G.S.SISTANI, J.
SANGITA DHINGRA SEHGAL, J
OCTOBER 03, 2018
pst//
