Delhi High Court
Tommorrowland Limited vs Hdfc Bank Ltd on 20 February, 2026
$~69 to 96
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 03.11.2025
Judgment pronounced on: 20.02.2026
+ FAO(OS) 38/2022
TOMMORROWLAND LIMITED .....Appellant
versus
HDFC BANK LTD. .....Respondent
+ FAO(OS) 45/2022
TOMMORROWLAND LIMITED .....Appellant
versus
SHARMA AND CO. AND OTHERS .....Respondents
+ FAO(OS) 46/2022
TOMMORROWLAND LIMITED .....Appellant
versus
V. JETHALAL RAMJI SHARE BROKERS PVT LTD & ORS.
.....Respondents
+ FAO(OS) 47/2022
TOMMORROWLAND LIMITED .....Appellant
versus
HARYANA STATE INDUSTRIAL AND
INFRASTRUCTURE DEVELOPMENT CORPORATION
LTD. .....Respondent
+ FAO(OS) 85/2022, CM APPL. 31837/2022 and CM APPL.
35794/2025
HDFC BANK LIMITED .....Appellant
versus
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 1 of 88
Signing Date:24.02.2026
19:34:10
TOMORROWLAND LIMITED .....Respondent
+ FAO(OS) 48/2022
TOMMORROWLAND LIMITED .....Appellant
versus
ESSAR CAPITAL LTD. NOW KNOWN AS VAJRESH
CONSULTANT LIMITED .....Respondent
+ FAO(OS) 49/2022
TOMMORROWLAND LIMITED .....Appellant
versus
JALAN AND CO. .....Respondent
+ FAO(OS) 50/2022
TOMMORROWLAND LIMITED .....Appellant
versus
STERLING HOLIDAY FINANCIAL SERVICES LTD
.....Respondent
+ FAO(OS) 51/2022
TOMMORROWLAND LIMITED .....Appellant
versus
VEERHEALTH CARE LTD .....Respondent
+ FAO(OS) 52/2022
TOMMORROWLAND LIMITED .....Appellant
versus
NICCO UCO ALLIANCE CREDIT LTD .....Respondent
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 2 of 88
Signing Date:24.02.2026
19:34:10
+ FAO(OS) 53/2022
TOMMORROWLAND LIMITED .....Appellant
versus
ANALYSIS TRADE CONSULTANCY LLP .....Respondent
+ FAO(OS) 54/2022
TOMMORROWLAND LIMITED .....Appellant
versus
NAVODAY MANAGEMENT SERVICES LIMITED
.....Respondent
+ FAO(OS) 55/2022 and CM APPL. 24638/2025
TOMMORROWLAND LIMITED .....Appellant
versus
PRESSMAN ADVERTISING LIMITED .....Respondent
+ FAO(OS) 57/2022
TOMMORROWLAND LIMITED .....Appellant
versus
REAL GROWTH FINANCIAL SERVICES LTD NOW RGF
CAPITAL MARKETS LTD .....Respondent
+ FAO(OS) 58/2022
TOMMORROWLAND LIMITED .....Appellant
versus
SANCHAY FINVEST LIMITED .....Respondent
+ FAO(OS) 59/2022
TOMMORROWLAND LIMITED .....Appellant
versus
R. N. AHUJA AND CO. .....Respondent
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 3 of 88
Signing Date:24.02.2026
19:34:10
+ FAO(OS) 60/2022
TOMMORROWLAND LIMITED .....Appellant
versus
HEMDEV SECURITIES INDIA PVT. LTD. .....Respondent
+ FAO(OS) 61/2022
TOMMORROWLAND LIMITED .....Appellant
versus
PRASAD AND CO. AND OTHERS .....Respondents
+ FAO(OS) 62/2022
TOMMORROWLAND LIMITED .....Appellant
versus
S. K. NAHATA AND CO. & ORS. .....Respondents
+ FAO(OS) 63/2022
TOMMORROWLAND LIMITED .....Appellant
versus
DCM FINANCIAL SERVICES LTD .....Respondent
+ FAO(OS) 64/2022
TOMMORROWLAND LIMITED .....Appellant
versus
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 4 of 88
Signing Date:24.02.2026
19:34:10
CLARITY FINANCIAL SERVICES LTD. .....Respondent
+ FAO(OS) 65/2022
TOMMORROWLAND LIMITED .....Appellant
versus
MANOJ BHARGAVA AND CO. .....Respondent
+ FAO(OS) 66/2022
TOMMORROWLAND LIMITED .....Appellant
versus
DWARKADAS HARINARAYAN MAHESHWARI & ORS.
.....Respondents
+ FAO(OS) 69/2022
TOMMORROWLAND LIMITED .....Appellant
versus
DOLF LEASING LIMITED .....Respondent
+ FAO(OS) 70/2022
TOMMORROWLAND LIMITED .....Appellant
versus
SHAKTI AND CO. & ORS. .....Respondents
+ FAO(OS) 116/2022 and CM APPL. 44208/2022
HARYANA STATE INDUSTRIAL AND
INFRASTRUCTURE DEVELOPMENT CORPORATION
LTD .....Appellant
versus
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 5 of 88
Signing Date:24.02.2026
19:34:10
TOMMORROWLAND LIMITED .....Respondent
+ FAO(OS) 125/2022, CM APPL. 47561/2022, CM APPL.
47562/2022 and CM APPL. 47564/2022
DOLF LEASING LTD. .....Appellant
versus
TOMMORROWLAND LIMITED .....Respondent
+ FAO(OS) 140/2022, CM APPL. 52288/2022, CM APPL.
52290/2022 and CM APPL. 52291/2022
DCM FINANCIAL SERVICES LTD. .....Appellant
versus
TOMMORROWLAND LIMITED .....Respondent
Appearances:
Mr. Raman Kapur, Senior Advocate with Mr. Rishab Raj Jain
and Ms. Kirti Garg, Advocates for Respondent/HDFC Bank
Ltd. in FAO(OS) 38/2022
Mr. Raman Kapur, Senior Advocate with Mr. Rishab Raj Jain
and Ms. Kirti Garg, Advocates for Appellant/HDFC Bank Ltd.
in FAO(OS) 85/2022
Mr. Sachin Chopra, Ms. Astha Gupta, Ms. Aakriti Jain,
Advocates for Respondent in FAO(OS) 63/2022
Mr. Sachin Chopra, Ms. Astha Gupta, Ms. Aakriti Jain,
Advocates for Appellant in FAO(OS) 140/2022
Mr. Pawan Sachdeva, (in person) with Mr. Ishan Sachdeva and
Mr. K.K.R. Dass, Advocates for Respondent in FAO(OS)
85/2022, FAO(OS) 116/2022, FAO(OS) 125/2022 and
FAO(OS) 140/2022
Mr. Rajesh Banati, Mr. Ashish Sareen, Mr. Adil Asghar, Mr.
Aditya Mishra, Mr. Ankit Banati, Advocates for Respondent in
FAO(OS) 53/2022
Mr. Sudhansu Palo, Mr. Rajesh Palo, Mr. Rakesh Palo, Mr.
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 6 of 88
Signing Date:24.02.2026
19:34:10
Budhadev Palo and Ms. Ipsita Behura, Advocates for
Respondent in FAO(OS) 58/2018
Mr. Prashant Katara and Ms. Sakshi Jain, Advocates for
Respondent in FAO(OS) 602022
Ms. Noopur Singhal and Ms. Sanchari Debnath, Advocates for
Respondents in FAO(OS) 47/2022
Ms. Noopur Singhal and Ms. Sanchari Debnath, Advocates for
Appellant in FAO(OS) 116/2022
Mr. Vijyant Singh Kundu, Proxy Counsel for Appellant in
FAO(OS) No. 55/2022.
Mr. Rahul Gupta, Mr. Arav Kapoor, Mr. Arav Kapoor, Mr.
Mridul Vats and Mr. R.P. Rao, Advocates for Respondent in
FAO(OS) 52/2022
Mr. Indranil Gosh, Ms. Mrinal Chaudhry, Advocates for
Respondent in FAO(OS) No. 55/2022
Mr. Sameer Nandwani and Ms. S. Arora, Advocates for
Respondent No.1 in FAO(OS) 50/2022
Mr. Aaditya Vijay Kumar, Ms. Akshita Katoch, Mr. Anirudh
Anand, Advocates for Respondent in FAO(OS) 66/2022
Mr. Kunal Manav and Mr. Yatender Bhardwaj, Advocates for
Petitioner in FAO(OS) 125/2022
Mr. Kunal Manav and Mr. Yatender Bhardwaj, Advocates for
Respondent in FAO(OS) 69/2022
CORAM:
HON'BLE MR. JUSTICE ANIL KSHETARPAL
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
JUDGMENT
HARISH VAIDYANATHAN SHANKAR, J.
1. With the consent of the parties, the present batch of twenty-
eight appeals was heard together. After extensive and prolonged
hearings conducted on various dates, these appeals are now being
finally disposed of by way of this common judgment.
PROLOGUE
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 7 of 88
Signing Date:24.02.2026
19:34:10
2. The present appeals have been preferred under Section 39 of the
Arbitration Act, 1940 1 , and all pertain to disputes involving
Tommorrowland Ltd. These appeals arise from various judgments
rendered by the learned Single Judge of this Court in suits instituted
under Sections 14 and 17 of the 1940 Arb Act by Tommorrowland
Ltd., seeking judgments and decrees in terms of distinct arbitral
awards. By the respective Impugned Judgments, the learned Single
Judge decreed the suits in favour of the plaintiff therein, namely
Tommorrowland Ltd., while making certain modifications to the
arbitral awards passed by the learned Arbitrator.
3. Each suit instituted by Tommorrowland Ltd. before the learned
Single Judge arose from a distinct arbitral award and was adjudicated
independently by separate judgments. Aggrieved by the modifications
made by the learned Single Judge, Tommorrowland Ltd. has preferred
twenty-four separate appeals, which form the subject matter of the
present adjudication. In these appeals, the challenge is narrowly
confined to the limited extent to which the learned Single Judge, while
otherwise affirming the arbitral awards, modified the same,
specifically with respect to the alteration of the quantum of damages
and the disallowance and reduction of interest awarded by the learned
Arbitrator.
4. In addition thereto, in respect of four of the said judgments, the
respective opposite parties, namely the Underwriters, having felt
aggrieved, have filed four separate appeals. These appeals are in the
nature of cross-appeals corresponding to four out of the twenty-four
appeals preferred by Tommorrowland Ltd.
1
1940 Arb Act
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 8 of 88
Signing Date:24.02.2026
19:34:10
5. For the sake of clarity and convenience, a consolidated chart
indicating the appeals and the corresponding cross-appeals, wherever
applicable, which are before us for adjudication, is set out
hereinbelow:
CROSS APPEALS
S. CASE NO. APPELLANT RESPONDENT
NO. BEFORE
THIS COURT
1. 1A. FAO(OS) Tommorrowland HDFC Bank Ltd.
38/2022 Limited
1B. FAO(OS) HDFC Bank Ltd. Tommorrowland
85/2022 Limited
2. 2A. FAO(OS) Tommorrowland Haryana State Industrial
47/2022 Limited and Infrastructure
Development
Corporation Ltd
2B. FAO(OS) Haryana State Industrial Tommorrowland
116/2022 and Infrastructure Limited
Development
Corporation Ltd
3. 3A. FAO(OS) Tommorrowland
DCM Financial Services
63/2022 Limited Ltd
3B. FAO(OS) DCM Financial Services
Tommorrowland
140/2022 Ltd Limited
4. 4A. FAO(OS) Tommorrowland
Dolf Leasing Limited
69/2022 Limited
4B. FAO(OS) Dolf Leasing Limited
Tommorrowland
125/2022 Limited
APPEALS BY TOMMORROWLAND
5. FAO(OS) Tommorrowland Sharma And Co. and
45/2022 Limited Others
6. FAO(OS) Tommorrowland V. Jethalal Ramji Share
46/2022 Limited Brokers Pvt Ltd & Ors.
7. FAO(OS) Tommorrowland Essar Capital Ltd. Now
48/2022 Limited Known as Vajresh
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 9 of 88
Signing Date:24.02.2026
19:34:10
Consultant Limited
8. FAO(OS) Tommorrowland Jalan And Co.
49/2022 Limited
9. FAO(OS) Tommorrowland Sterling Holiday
50/2022 Limited Financial Services Ltd
10. FAO(OS) Tommorrowland Veerhealth Care Ltd
51/2022 Limited
11. FAO(OS) Tommorrowland Nicco Uco Alliance
52/2022 Limited Credit Ltd
12. FAO(OS) Tommorrowland Analysis Trade
53/2022 Limited Consultancy LLP
13. FAO(OS) Tommorrowland Navoday Management
54/2022 Limited Services Limited
14. FAO(OS) Tommorrowland Pressman Advertising
55/2022 Limited Limited
15. FAO(OS) Tommorrowland Real Growth Financial
57/2022 Limited Services Ltd Now RGF
Capital Markets Ltd
16. FAO(OS) Tommorrowland Sanchay Finvest
58/2022 Limited Limited
17. FAO(OS) Tommorrowland R. N. Ahuja and Co
59/2022 Limited
18. FAO(OS) Tommorrowland Hemdev Securities India
60/2022 Limited Pvt. Ltd
19. FAO(OS) Tommorrowland Prasad And Co. And
61/2022 Limited Others
20. FAO(OS) Tommorrowland S. K. Nahata And Co. &
62/2022 Limited Ors
21. FAO(OS) Tommorrowland Clarity Financial
64/2022 Limited Services Ltd.
22. FAO(OS) Tommorrowland Manoj Bhargava And
65/2022 Limited Co.
23. FAO(OS) Tommorrowland Dwarkadas Harinarayan
66/2022 Limited Maheshwari & Ors.
24. FAO(OS) Tommorrowland Shakti And Co. & Ors.
70/2022 Limited
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 10 of 88
Signing Date:24.02.2026
19:34:10
6. Upon a careful consideration of the record, we find that all the
arbitral awards in question were rendered by the same learned
Arbitrator and are founded upon a substantially identical line of
reasoning while granting relief in favour of Tommorrowland Ltd. The
factual substratum of each dispute arises from almost identical
agreements, involving common obligations, similar allegations of
breach, and identical issues that culminated in reference to arbitration.
7. Likewise, while adjudicating the suits under Sections 14 and 17
of the 1940 Arb Act, the learned Single Judge, mutatis mutandis,
adopted an identical reasoning in the Impugned Judgments, subject
only to minor variations dictated by the facts of the individual awards.
8. In these circumstances, we propose to examine the present
batch of appeals in a composite manner. We shall initially undertake a
detailed examination of one appeal filed by Tommorrowland Ltd. and
the corresponding appeal filed by the opposite party arising out of the
same Impugned Judgment. Upon arriving at conclusions on the issues
raised therein, the same reasoning would be applied to the remaining
appeals, as far as permissible in law, as the broader factual
background, legal issues, and grounds of challenge urged by the
parties are substantially identical.
9. Notably, even during the course of oral submissions, the parties,
in the connected matters, largely adopted the arguments advanced by
the lead counsel, with only minor variations on certain residual
aspects in a few appeals. We therefore consider it appropriate, and
indeed judicially expedient, to hear and decide these appeals together,
which would facilitate a clearer understanding of the disputes and
ensure consistency in adjudication.
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 11 of 88
Signing Date:24.02.2026
19:34:10
10. During the course of arguments, Tommorrowland Ltd.
addressed its principal submissions in FAO(OS) 38/2022, while the
corresponding appeal preferred by the opposite party, namely,
FAO(OS) 85/2022, arising from the same Impugned Judgment, was
treated as the lead matter from the underwriters’ side.
11. With the consent of all parties, these two appeals were taken as
the lead cases, and the submissions advanced therein were, to a
substantial extent, adopted in the remaining appeals. Accordingly, for
the purposes of convenience, brevity, and clarity, we propose to first
examine one set of cross-appeals arising out of the same Impugned
Judgment, namely, FAO(OS) 38/2022, filed by Tommorrowland
Ltd., and FAO(OS) 85/2022, filed by HDFC Bank Ltd.2.
FAO(OS) 38/2022 & FAO(OS) 85/2022, CM APPL. 31837/2022
and CM APPL. 35794/2025
12. These cross appeals, filed under Section 39 of the 1940 Arb
Act, challenge the Judgement and Decree dated 27.04.20223 passed
by the learned Single Judge in CS(OS) 2152/2012 titled
„Tommorrowland Limited (formerly Tommorrowland Technologies
Exports Limited) vs. HDFC Bank Ltd.‟.
13. The aforesaid suit was instituted under Sections 14 and 17 of
the 1940 Arb Act seeking a Judgment and Decree in terms of the
Arbitral Award dated 30.05.2012, along with future interest and costs.
During the pendency of the suit before the learned Single Judge, three
Interlocutory Applications were filed, which are as follows:
2
Cross appeal/ First set of cross appeal
3
Impugned Judgement
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By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 12 of 88
Signing Date:24.02.2026
19:34:10
(i). I.A. No. 19050/2012 (filed by the Defendant therein under
Section 151 of the Civil Procedure Code, 1908 4 , seeking
enlargement of time to file objections to the Award within 30
days of receiving notice of the filing of the Original Award
before the Court);
(ii). I.A. No. 12965/2012 (filed by the Plaintiff therein under
Section 28 of the 1940 Arb Act, which pertains to the power of
the Court only to enlarge time for making an award); and
(iii). I.A. No. 3610/2013 (filed by the Defendant therein under
Sections 30 and 33 of the 1940 Arb Act).
14. By the Impugned Judgment, the learned Single Judge allowed
I.A. No. 19050/2012 and I.A. No. 12965/2012, and substantially
rejected I.A. No. 3610/2013, and consequently decreed the suit in
favour of the plaintiff. While doing so, the Learned Single Judge:
(a). reduced the damages awarded by the learned Arbitrator from
Rs. 80 per Fully Convertible Debenture5 to Rs. 20 per FCD;
(b). disallowed the interest awarded for the pre-reference period
and for the duration of the arbitral proceedings;
(c). reduced the post-award interest from 18% p.a. to 7% p.a. from
the date of the Award until the date of the Impugned
Judgment; and
(d). directed that in the event of default in payment within eight
weeks from 27.04.2022, the decretal amount shall thereafter
carry interest at 4.5% p.a.; and
(e). while doing so, the learned Single Judge did not interfere with
the costs awarded by the learned Arbitrator.
4
CPC
5
FCD
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 13 of 88
Signing Date:24.02.2026
19:34:10
15. For the sake of clarity, brevity, and convenience, the parties
concerning this cross appeal shall hereinafter be referred to as
―Tommorrowland‖ and ―Underwriter‖.
Brief Facts:
16. The factual background underlying all the appeals is broadly
similar, subject to minor variations in certain aspects. The learned
Single Judge has succinctly and accurately recorded the material facts,
so far as they relate to the present cross-appeals, from the inception of
the disputes up to the adjudication of the suit, in the Impugned
Judgment. We therefore consider it unnecessary to reformulate the
entire factual narrative herein, as doing so would only render the
present adjudication unduly cumbersome. For ease of reference, the
relevant portion of the Impugned Judgment pertaining to the present
cross-appeals is extracted below:
―2. The Plaintiff launched a public issue for 1,75,84,800 zero
interest unsecured Fully Convertible Debentures (hereinafter,
‗FCDs’) of Rs.199 each for cash and at par aggregating to
Rs.349,93,75,200/- to the public and issue of 31,28,500 FCDs of
Rs.250/- each for cash at par aggregating to Rs.78,21,25,000/- to
non-resident Indians / persons of Indian origin resident abroad /
OCBs on firm allotment basis together aggregating to
Rs.428,15,00,200/- (hereinafter ‗public issue’). The disputes in
these cases relate only to FCDs issued to the public in India. The
issue was publicized along with a prospectus, which was duly
vetted by the Securities and Exchange Board of India (hereinafter
‗SEBI’).
3. The issue was opened on 14th February, 1995 and the
closing date for the issue was to be not later than 24th February
1995. The earliest closing date was 18th February, 1995. The
Lead Managers to the issue were SBI Capital Markets Ltd.,
Tourism Finance Corporation of India Limited, Lloyds Finance
Limited, Indian Merchant Banking Services Ltd. and Bank of
Baroda. The Registrar to the issue was MAS Services Pvt. Ltd.
The FCDs, which were to be allotted to the subscribers, were to
be compulsorily and automatically converted into one equity
share of Rs. 10/- each fully paid up, at a premium of Rs. 189/- in
the case of Indian public, on the date of conversion i.e. on the
Signature Not Verified
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By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 14 of 88
Signing Date:24.02.2026
19:34:10
expiry of seventeen and a half months from the date of allotment
of these debentures. Each debenture was to have a face value of
Rs.199/-. No interest was payable thereon.
4. Until the allotment of shares, no rights and privileges were
to be enjoyed by the debenture holders. The sums received in
respect of the public issue were to be retained in a separate bank
account and the Company would not have access to the fund
unless the approval of the Delhi 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 oversubscription 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.
5. 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:……”
6. There were 267 Underwriters in total, including the
abovenamed Defendant HDFC Bank Ltd. (formerly known as
20th Century Finance Corporation Ltd. at that time). The
prospectus specified the exact amount which was underwritten by
each of the Underwriters. It was certified by the Board and the
Lead Managers that the resources of the Underwriters are
adequate to meet their respective underwriting obligations.
7. In the case of the present Defendant, the amount which was
underwritten was to the tune of Rs.4,99,99,000/- (2,51,256 FCDs
of Rs. 199/- each for cash at par aggregating to the total figure of
Rs. 499.99 lakhs) by Underwriting Agreement dated 10th
January, 1995.
8. The public issue opened on 14th February, 1995, as
scheduled. On 17th February, 1995, a communication was issued
by the Registrar and Lead Manager to the issue informing the
Plaintiff that the issue was fully subscribed. Accordingly, on 18th
February, 1995, an advertisement was issued by the Plaintiff in
Signature Not Verified
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By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 15 of 88
Signing Date:24.02.2026
19:34:10
various print outlets stating that the issue would be closed on the
said date and the issue was closed on the earliest closing date i.e.,
18th February, 1995.
9. However, SEBI noticed certain anomalies in the public
issue offer price of Rs.199/- and accordingly directed the
Plaintiff-Company to disclose to the public that the shares were
quoted on cum-rights basis, which means that it was not adjusted
for the higher equity that would result from a rights issue that was
scheduled to follow the public issue. Corrigenda are stated to
have issued by the Plaintiff on 13th February, 1995, prior to the
opening of the issue. However, some advertising continued to
allegedly reflect the market price. SEBI is then stated to have
issued a letter dated 6th March, 1995 addressed to the Lead
Manager of the issue, directing that an option be given to
investors to either withdraw their applications or continue to
subscribe to the issue. 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 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 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.
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA FAO(OS) 38/2022 & connected matters Page 16 of 88
Signing Date:24.02.2026
19:34:10
Please arrange to acknowledge receipt of this letter
and also keep us informed of the action taken by the
company.
Company.
(USHA NARAYANAN)
DIVISION CHIEF”
10. 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 public issue. Subsequent to the said direction, a large
number of the subscribers withdrew their applications and the
subscription fell below the minimum of 90% of the total issue
stated in the prospectus.
11. Devolvement notices were issued by the Plaintiff to all the
Underwriters on 15th March, 1995, informing them that the issue
had been undersubscribed, and hence, the underwriters’
obligations as per the Agreements entered into therewith, are
triggered. Again, on 24th March, 1995 and 17th April, 1995,
letters/notices were sent by the Plaintiff-Company to the
Underwriters informing them of their liability. Since the
Underwriters did not subscribe and pay the said amount within
the stipulated period of 60 days after the closure of the issue, the
Plaintiff-Company had to refund the entire application money
collected from the public.
12. The Plaintiff then sought the intervention of the Delhi
Stock Exchange and requested for reference of the disputes
between the Plaintiff and the Underwriters to arbitration, vide
letter dated 2nd May, 1995. However, vide letter dated 26th
April, 1997, the Delhi Stock Exchange refused to conduct the
arbitration proceedings, which led the Plaintiff-Company to file
petitions under Section 20 of the Arbitration Act, 1940 before the
High Court of Delhi. Vide the initial order dated 14th March,
2007 in two suits filed by the Plaintiff under Section 20 of the
Arbitration Act, 1940 i.e., CS (OS) No. 1299A/1997 and CS(OS)
No. 845-1076/2006, Hon’ble Ms. Justice (Retd.) Manju Goel was
appointed as the ld. Sole Arbitrator. The relevant extract of the
order dated 14th March, 2007 reads as under:
“13. I am in full agreement with the aforesaid view
and deem it appropriate that the matter has to go to
arbitration since the arbitration clause is not
disputed.
14. the respondents having been called upon to refer
the dispute to arbitration and having failed to do so,
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have lost their right to appoint an arbitrator. In fact,
respondent no. 1 is stated to have specifically
declined to appoint an arbitrator.
15. In view of the aforesaid, Hon‟ble Ms. Justice
(Retd.) Manju Goel, B-6, Dr. Zakir Hussain Marg,
New Delhi (Phone No. 2378-2616) is appointed as
the sole Arbitrator. It will be for 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.”
13. 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.
14. In respect of 103 Respondents 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.
15. In the case of the present Defendant, the Ld. Arbitrator
pronounced the Award on 30th May, 2012, by which the Ld.
Arbitrator awarded a total sum of Rs.4,94,11,776/- along with
pendente lite and future interest in favour of the Plaintiff-
Company in the following terms:
“28. If the loss quantified in paragraph 26 above is
proportionately distributed over the deficit
procurement of shares viz 1,06,42,000 (exhibit
PW1/54), the amount comes to Rs. 76.30 per
defaulting share approximately. However, keeping
in view the fact that the claimant’s actual damages
would have been much higher, it will not be
altogether wrong to assess reasonable damages at
Rs. 80/- per share that the defaulting underwriters
failed to pay for when the FCDs devolved on them.
In this case since the respondent was required to
take 193317 shares that devolved on him, I assess
reasonable compensation at 193317 *Rs. 80
amounting to Rs. 1,54,65,360/-. I am conscious of
the fact that the claimant has settled his claim
against some of the underwriters against whom he
had filed his claim before this tribunal. The claimant
submits in a statement that he has recovered Rs.
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2.45 crores from the settled claims in suit no.
1299A/97 and Rs. 0.35 crores in suit no. 1199A/98
i.e. a total amount of Rs. 2.80 crores against
commitment of Rs. 349.93 crores. Clearly the
claimant has settled with those who offered to do so
at a rather low figure. However, the deficiency
caused by such concessional settlements cannot be
made good by receiving any extra amount from
those who have not settled. The calculation of
reasonable damages per share, rather than per
underwriter takes care that each underwriter is
burdened with reasonable damage recoverable from
him and no one is burdened with the damage caused
by others who may have contracted to underwrite
different numbers, of FCDs.
29. The claimant is entitled to interest on this
amount till the filing of claim petition. The claimant
has asked for interest @ of 24% per 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 respondent was liable
to pay for the devolved FCDs till the date of filing of
the claim on 11.7.2007 comes to Rs.3,39,46,416/- .
Thus the total reasonable damages along with
interest till the filing of the claim petition comes to
Rs. 4,94,11,776/-.
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. 4,94,11,776/- 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. 4,94,11,776/- for 4 years and 10 months and 7
days comes to Rs. 4,31,61,179/-.
COST:
31. The claimant is entitled to cost of the
proceedings. The respondent 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.
The venue for the Arbitration has always been the
PHD House at Khelgaon, August
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Kranti Marg and total expenses towards venue
charges comes to Rs. 5,05000/-. Further Amicus
Curiae was also engaged to ensure that no injustice
is done to any respondent who is proceeded exparte.
Further there have been costs involved for keeping
records and bringing them to the venue. The
claimant has assessed such cost per respondent at
Rs. 11,050/- which I assess as reasonable. Further
an administrative cost of Rs. 2500/- is also being
assessed for the Arbitrator for the entire
proceedings since throughout the course of this
matter no such cost has been charged by the
Arbitrator. Further the stamp paper of Rs. 92,680/-
is annexed to the award. Hence the total cost is
assessed at Rs. 1,06,230/- payable by the respondent
to the claimant for the entire proceedings. Needless
to say that the administrative cost of Rs. 2500/-is
initially payable by the claimant to the Arbitrator.”
16. Similar awards have been passed against all the
Underwriters who are Defendants in the 27 suits presently being
decided. The said awards are sought to be enforced by the
Plaintiff under Sections 14 and 17 of the Arbitration Act, 1940,
seeking pronouncement of judgment and decree in terms of the
respective Awards for the aforesaid amount along with interest
@18% p.a. till the date of realisation of payment.
17. The Defendants/Respondents, upon being served, have
resorted to filing two different types of objections to the Awards.
One set of Respondents have filed objections under Section 16 of
the Arbitration Act, 1940, challenging the legality of the award
and other Respondents have filed applications under Sections 30
and 33 of the Act, seeking setting aside of the awards and
opposing the prayer for pronouncement of judgment in terms of
the awards.
18. The broad grounds raised by the Respondents are:
a) That the Respondents were not properly served
in the arbitral proceedings;
b) That the time period for passing the award had
expired and no ground exists for extension 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.
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19. In the present case, apart from the main suit seeking
pronouncement of judgment under Sections 14 and 17 of the Act,
the following three applications have also been filed
a) I.A. No. 19050 of 2012 (for enlargement of time)
b) I.A. No. 12965 of 2012 (under Section 28 of the
Arbitration Act, 1940)
c) I.A. No. 3610 of 2013 (under Sections 30 and 33 of the
Arbitration Act, 1940).‖
17. During the proceedings before the learned Single Judge, the
Underwriter filed its objections under Sections 30 and 33 of the 1940
Arb Act, by way of I.A. No. 3610/2013. Two additional applications
were also filed during the pendency of the suit. The first was I.A.
19050/2012, filed by the Underwriter, seeking enlargement of time to
file objections against the Impugned Award. The second was I.A.
12965/2012, filed by Tommorrowland under Section 28 of the 1940
Arb Act, seeking post-facto extension of the time for conducting the
arbitration proceedings from 20.08.2007 to 30.05.2012, the date on
which the Award was ultimately pronounced by the learned
Arbitrator.
18. While adjudicating I.A. 19050/2012, the learned Single Judge
considered the Underwriter’s request for extension of time to file
objections within 30 days of receiving notice of the filing of the
Original Award in Court. The Court observed that although the
Underwriter was at all times aware of the arbitral proceedings, it chose
not to participate. However, the restructuring processes and mergers
undergone by the Underwriter may have contributed to delays. The
Court also noted that the application had been pending for several
years, and that the objections to the Award had already been
incorporated in the Underwriter’s reply to Tommorrowland’s suit,
wherein the Award was opposed. It being a settled principle that
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Courts should endeavour to decide matters on merits where possible,
the learned Single Judge held that the circumstances justified
enlargement of time. Accordingly, the application was allowed.
19. With respect to the application seeking post-facto extension of
time under Section 28 of the 1940 Arb Act, the learned Single Judge
allowed the request after considering the peculiar facts of the case.
The learned Arbitrator had been required to adjudicate claims
involving more than 260 Underwriters, had held over 50 sittings over
a five-year period, and had dealt with the disputes extensively. In view
of these circumstances, and since such extension is permissible in law,
the application was allowed.
20. Thereafter, the learned Single Judge partly decreed the suit in
favour of Tommorrowland, disposed of I.A. No. 3610/2013 filed by
the Underwriter, and, in doing so, adjudicated the issues raised, which
may be summarized as follows:
a. Non-service of arbitral proceedings and ex parte Award: The
learned Single Judge rejected the Underwriter’s contention that
notices in the arbitral proceedings were not duly served and that
the learned Arbitrator had wrongly proceeded ex parte. It was
held that the Underwriter’s counsel had duly entered appearance
and that multiple notices had been issued through counsel,
calling upon the Underwriter to participate in the proceedings.
The arbitral record further showed that the learned Arbitrator had
repeatedly passed directions which the Underwriter failed to
comply with. In these circumstances, the plea of non-service and
the challenge to the Award on the ground that it was ex parte
were found to be untenable and were accordingly decided.
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b. Devolution of liability on the Underwriter and consideration
of the issue by the learned Arbitrator: While addressing the
objection concerning devolution of liability, the learned Single
Judge examined the relevant clauses of the Underwriting
Agreement between the parties. It was held that the
Underwriter’s stand that its liability stood discharged upon the
initial closure of the issue on the earliest closing date, was
contrary to the scheme of the said Agreement and therefore liable
to be rejected. On the second limb, the learned Single Judge
rejected the Underwriter’s argument that the learned Arbitrator
had proceeded on the basis of an incorrect letter. This plea had
never been raised during the arbitral proceedings. Moreover, the
record showed that the learned Arbitrator was aware of the letter
of the Securities and Exchange Board of India6, and had noted
Tommorrowland’s compliance, and had even framed an issue
pertaining to the letter. Among the other things, on these
grounds, the objection was rejected.
c. Computation of damages and award of interest: While
considering the question of reasonable compensation payable by
the Underwriter, the learned Single Judge noted that several
Underwriters had settled their disputes with Tommorrowland at
different amounts and interest rates. It was also held that
although Tommorrowland suffered losses, it too bore some
responsibility for those losses. Taking into account the overall
circumstances, the learned Single Judge held that the
compensation payable by the Underwriter warranted reduction.
Accordingly, the compensation was reduced to one-fourth of the6
SEBI
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amount awarded. The learned Single Judge further disallowed the
interest awarded for the pre-reference period and for the duration
of the arbitral proceedings. The learned Single Judge also
reduced the post-award interest from 18% per annum to 7% per
annum from the date of the Award until the date of the Impugned
Judgment; and directed that in the event of default in payment
within eight weeks from 27.04.2022, the decretal amount would
thereafter carry interest at 4.5% per annum. The costs awarded
by the learned Arbitrator were not interfered with.
Submissions by Tommorrowland:
21. On behalf of Tommorrowland, the following submissions have
been made:
(i) In re: Merit of its appeal
(a) It is submitted on behalf of Tommorrowland that the learned
Single Judge exceeded the permissible scope of interference
under Section 15(b) of the 1940 Arb Act. Section 15(b)
empowers the Court only to correct typographical, clerical,
or arithmetical errors; and it does not authorise the Court to
substitute or alter the learned Arbitrator’s reasoning,
findings, or conclusions. The changes made by the learned
Single Judge, namely, altering the quantum of damages and
reducing the rate of interest, were substantive modifications
and not clerical corrections. Such interference amounts to a
rewriting of the Award, which is legally impermissible.
Furthermore, while doing so, the learned Single Judge
misplaced its reliance on Atlanta Ltd. v. Union of India7.
(b) It is further submitted that it is well settled that the
7
(2022) 3 SCC 739
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determination of the amounts payable between parties falls
squarely within the learned Arbitrator’s jurisdiction. In
support of this principle, reliance is placed on the
judgements of the Hon’ble Supreme Court in Hindustan
Vidyut Products Ltd. v. State of Rajasthan 8 , Ravindra
Kumar Gupta & Co. v. Union of India 9 and Arosan
Enterprises Ltd. v. Union of India10.
(c) It is also submitted that the learned Single Judge correctly
upheld the learned Arbitrator’s finding that the Underwriter
failed to discharge its contractual obligations. It has also
been rightly affirmed that the learned Arbitrator had
properly applied Sections 73 and 74 of the Indian Contract
Act, 1872 11 to determine reasonable compensation. The
Award was neither held to be perverse nor vitiated by legal
misconduct. Having upheld the Award on merits and
confirmed the Underwriter’s liability, the learned Single
Judge could not thereafter modify the damages from Rs. 80
to Rs. 20 per FCD, deny pre-arbitration interest, or alter the
post-award interest. Once the Court held that the Award was
free from jurisdictional, factual, or legal infirmities under
Sections 16 and 30 of the 1940 Arb Act, no substantive
modification was permissible.
(d) It is submitted that the law is now well settled that an
Arbitrator has the power to award interest for the pre-
reference period, and for this purpose, reliance is placed on
8
(1999) 3 SCC 536
9
(2010) 1 SCC 409
10
(1999) 9 SCC 449
11
IC Act
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the judgments of the Hon’ble Supreme Court in Irrigation
Deptt., Govt. of Orissa v. G.C. Roy 12 , and Dhenkanal
Minor Irrigation Division v. N.C. Budharaj13.
(ii) In re: Maintainability of the Underwriter’s appeal
(a) It is submitted that a judgment passed under Sections 14 and
17 of the 1940 Arb Act can be challenged only in the
manner prescribed under Section 17. Section 17 expressly
provides that no appeal shall lie from such a decree except
on the ground that it is in excess of, or not in accordance
with, the Award. Since the Underwriter’s appeal does not
invoke the limited grounds permitted under Section 17, the
appeals are not maintainable.
(b) It is further submitted that under Section 17, an appeal
challenging the Award on grounds identical to those already
rejected under Section 33 is barred, both by the express
language of Section 17 as well as by Section 39 of the 1940
Arb Act. Section 17 recognises a limited right of appeal but
restricts it solely to the two grounds mentioned in the latter
part of the provision.
(c) In support of this proposition, reliance is placed on the
Division Bench judgment of this Court in Mahanagar
Telephone Nigam Ltd. v. Unibros14 and on the Kerala High
Court’s decision in State of Kerala and Ors. vs. K.V.
Abraham15.
(d) It is also contended that, insofar as the decree is a money
12
(1992) 1 SCC 508
13
(2001) 2 SCC 721
14
2008 SCC OnLine Del 1349
15
1998 SCC OnLine Ker 19
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decree, the present appeal is not maintainable as the
appropriate court fee has not been paid by the Underwriter.
(iii)In re: On merit of the Underwriter’s appeal
(a) In response to the Underwriter’s appeal on merits,
Tommorrowland adopts and reiterates the reasoning of the
learned Single Judge and supports the findings recorded
therein.
(b) With respect to the issue of service of notices by the learned
Arbitrator, reliance is placed on Section 42 of the 1940 Arb
Act. It is submitted that the findings of the learned Single
Judge, forming the foundation of the Impugned Judgment,
are correct. Additional reliance is placed on Union of India
v. Bhatia Tanning Industries16 and Kapoor and Sons v. Raj
Kumar Khanna17.
Submissions by Underwriter:
22. In response to the maintainability objections raised by
Tommorrowland, it is submitted that the present Appeal has been filed
under Section 39 of the 1940 Arb Act and not under Order XLI of the
CPC. Section 39 directly applies in this case because the Impugned
Judgment modifies the Arbitral Award, and an appeal against such a
judgment lies before the court competent to hear appeals from original
decrees of that court. The Impugned Judgment was not passed in a
civil suit under Section 9 of the CPC; it was passed in a petition
(though titled as a civil suit) under Sections 14 and 17 of the 1940 Arb
Act.
23. The Underwriter’s submissions on merits, in substance, are as
16
1984 SCC OnLine Del 303
17
1955 SCC OnLine Punj 57
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follows:
(i) Improper ex parte proceedings
(a) It is submitted that the arbitral proceedings were vitiated
due to serious procedural impropriety. After the merger, no
notice of the arbitral proceedings was ever issued to or
served upon the Underwriter. The learned Arbitrator
proceeded ex parte solely on the basis of the appearance of
an advocate who represented the predecessor-in-interest of
the Underwriter. The learned Single Judge failed to
appreciate the advocate’s affidavit stating that he had never
been appointed by the Underwriter.
(b) It is further submitted that the learned Arbitrator’s decision
to proceed ex parte was contrary to law and resulted in an
erroneous Award in favour of Tommorrowland. It is argued
that Tommorrowland intentionally withheld service on the
Underwriter, despite having been directed by the learned
Arbitrator on 13.01.2009 to take necessary steps.
Consequently, the Impugned Award and Judgment violate
the Principles of Natural Justice and deserve to be set aside.
(c) To support this contention, reliance is placed on Lovely
Benefit Chit Fund and Finance Pvt. Ltd. Vs. Puran Dutt
Sood & Ors.18 and Ram Ram Niranjan vs Union of India
& Ors19.
(ii) Award passed beyond the statutory time without the Court’s
extension
(a) The Award dated 30.05.2012 was passed five years after the
reference was made. Rule 3 of the First Schedule to the
18
23 (1983) DLT 261
19
AIR 2001 Del 424
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1940 Arb Act mandates delivery of the Award within four
months unless the Court grants an extension. No such
extension was sought during the arbitral proceedings.
Hence, the learned Arbitrator lacked jurisdiction to render
the Award.
(b) It is submitted that the learned Single Judge erred in
allowing the post facto application under Section 28 of the
1940 Arb Act to extend the time. The learned Single Judge
overlooked that Tommorrowland deliberately avoided
seeking extension during the arbitral proceedings in order to
evade service on the Underwriter. The reasons cited for
seeking post facto extension are also stated to be frivolous.
(c) To support this contention, reliance is placed on several
judicial authorities, including, Union of India vs. Peeco
Hundrulic Prv. Ltd. 20 , Chanderkan & Co. vs. DDA &
Anr 21 , Hari Krishna Wattal vs. Vaikunth Nath Pandya
(Dead) by LRs & Anr22 and Jatinder Nath vs. Chopra Land
Developers (P) Ltd. & Anr23.
(iii)Wrongly held the Underwriter liable despite no underwriting
liability
(a) It is contended that neither undersubscription nor the
withdrawal of subscribers can be attributed to the
Underwriter. Investors withdrew because Tommorrowland
itself issued letters offering them the option to withdraw.
The SEBI letter dated 06.03.1995 triggered the under-
subscription, due to Tommorrowland’s fraudulent and
20
189 (2012) DLT 264
21
2014 SCC OnLine Del 2692
22
(1973) 2 SCC 510
23
2007 11 SCC 453
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misleading conduct, not due to any default by the
Underwriter, and the learned Single Judge failed to notice
this fact.
(b) It is further contended that the obligations of the
Underwriter under the SEBI (Underwriters) Regulations,
1993, stood discharged once the public issue was fully
subscribed. This aspect was erroneously disregarded by the
learned Single Judge.
(c) It is submitted that although the learned Single Judge noted
several instances of misconduct by Tommorrowland, the
learned Single Judge nevertheless decreed the claim in
Tommorrowland’s favour, albeit with partial modification.
(d) It is also submitted that the learned Single Judge failed to
appreciate the malpractices committed by Tommorrowland,
which are evident from the record.
(e) To support this contention, reliance is placed on Grid
Corporation of Orissa Ltd. & Anr. vs. Balasore Technical
School24 and Gujarat Water Supply and Sewerage Board
vs. Unique Erectors (Gujarat) Pvt. Ltd.25.
(iv) On the issue of powers of the court under Sections 30 and 33 of
the 1940 Arb Act
(a) It is submitted that the learned Single Judge failed to
consider that the Award suffers from legal misconduct
under Sections 30 and 33 of the 1940Arb Act. The
Arbitrator did not address core issues central to the dispute,
including whether underwriting obligations stood
discharged upon full subscription, the legal implications of
24
2000 (9) SCC 552
25
1989 (1) SCC 532
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SEBI’s refund directions, whether the contract was vitiated
by fraud or misrepresentation, and the proper basis for
quantifying any alleged loss.
(b) It is further submitted that the learned Single Judge
overlooked that the Award does not even consider Clause 2
of the Underwriting Agreement, which governs termination
of underwriting liability upon full subscription within the
specified 10-day period. Instead, the Award proceeds on
general observations without applying the contractual terms
that actually determine liability. The learned Arbitrator
awarded damages despite acknowledging the absence of
quantified proof of actual loss or any material explaining the
alleged financial deficit. The Award also grants interest for
periods when the Underwriter was not before the learned
Arbitrator, including delays attributable to the learned
Arbitrator, an approach that is legally impermissible.
(c) To support this contention, reliance is placed on several
judicial authorities, including, Naini Gopal Lahiri vs. State
of U.P.26, Satwant Kumar Sandhu vs. New India Assuance
Co. Ltd.27 and K.P. Poulose vs. State of Kerala & Anr28.
(v) Arbitration agreement and claim vitiated by fraud
(a) It is submitted that the entire dispute is tainted by fraud on
the part of Tommorrowland, including the circulation of a
misleading prospectus, leading to SEBI investigations and
criminal proceedings. The Greater Mumbai Special Judge’s
order dated 30.09.1998 acknowledges breaches of SEBI
26
1965 (35) CompCas 30 (SC)
27
2009 (8) SCC 316
28
1975 (2) SCC 236
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guidelines. The learned Arbitrator as well as the learned
Single Judge failed to consider these material facts and
documents, rendering the Award unsustainable.
(b) To support this contention, reliance is placed on Republic of
India vs. Agusta Westland International Ltd 29 , Ameet
Lalchand Shah & Ors. vs. Rishabh Enterprises & Ors30, N.
Radhakrishnan vs. Maestro Engineers & Ors 31 and
Ayyasamy vs. A. Paramasivam & Ors32.
Analysis:
24. We have heard the learned counsel for both parties and, with
their valuable assistance, examined the entire record of the Appeal as
well as the documents placed before us, including the written
submissions and other documents filed during the hearing.
25. Having due regard to the nature and scope of the challenges
raised by the respective parties, we consider it appropriate to examine
the issues arising for our determination under distinct and sequential
heads. The issues shall be addressed in an order of priority, keeping in
view that the findings returned on one issue may have a bearing on, or
spill over into, the consideration of the subsequent issues.
In re: Maintainability of the Underwriter’s appeal
26. We find no substance in the objection raised by
Tommorrowland regarding the maintainability of the Underwriter’s
appeal. It is an undisputed fact that the Underwriter had filed an
application under Sections 30 and 33 of the 1940 Arb Act, which
came to be substantially rejected when the learned Single Judge29
2019 SCC OnLine Del 6419
30
(2018) 15 SCC 678
31
(2010) 1 SCC 72
32
2016 (10) SCC 386
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passed a decree in terms of the Award, albeit with certain
modifications.
27. It is apposite to note that Section 39 of the 1940 Arb Act,
circumscribes the appellate jurisdiction in arbitration matters in clear
and unambiguous terms. In particular, clauses (iii) and (vi) of Section
39(1) expressly provide that an appeal shall lie from the nature of
orders enumerated therein, to the Court authorised by law to hear
appeals from original decrees of the Court passing such orders. The
categories of appealable orders specifically include orders modifying
or correcting an arbitral award, as well as orders setting aside or
refusing to set aside an award. For ready reference, Section 39 of the
1940 Arb Act is reproduced below:
“39. Appealable orders. (1) An appeal shall lie from the following
orders passed under this Act (and from no others) to the Court
authorised by law to hear appeals from original decrees of the
Court passing the order: –
An order-
(i) superseding an arbitration;
(ii) on an award stated in the form of a special case;
(iii) modifying or correcting an award;
(iv) filing or refusing to file an arbitration agreement;
(v) staying or refusing to stay legal proceedings where there is an
arbitration agreement;
(vi) setting aside or refusing to set aside an award;
Provided that the provisions of this section shall not apply to any
order passed by a Small Cause Court.
(2) No second appeal shall lie from an order passed in appeal under
this section, but nothing in this section shall affect or take away any
right to appeal to the [Supreme Court].‖
(emphasis supplied)
28. In the present case, while adjudicating the application filed by
the Underwriter under Sections 30 and 33 of the 1940 Arb Act, the
learned Single Judge has, in substance, refused to set aside the arbitral
award, albeit while making certain limited modifications thereto. Such
an order squarely falls within the ambit of Section 39(1)(vi) of the
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1940 Arb Act and, therefore, satisfies the statutory threshold for
maintainability of the present appeals.
29. Further, Tommorrowland’s reliance on Mahanagar Telephone
Nigam Ltd. (supra) is misplaced. In that case, the Court specifically
noted that the application under Sections 30 and 33 had not yet been
decided, and therefore, an appeal under Section 39 was not
maintainable. In contrast, in the present case, the Underwriter’s
application has been adjudicated and substantially rejected by the
learned Single Judge. The relevant observations from Mahanagar
Telephone Nigam Ltd. (supra) are as follows:
―11. Keeping in view the aforesaid submissions, we are of the view
that an appeal is maintainable against only those orders which are
mentioned in Clauses (i) to (vi) of Section 39 of the old Arbitration
Act, 1940 and from no other orders. In fact, in view of the
categorical judgment of this Court in Hard Shankar’s case (supra),
we are of the view that no appeal is maintainable against an order
of the learned Single Judge dismissing or allowing a petition under
Sections 14 and 17 of the Arbitration Act, 1940.
12. In our view, an appeal under Section 39(1)(vi) would certainly
lie; against an order setting aside or refusing to set aside an award.
However, in the present instance, we find that learned Single Judge
has not dismissed the application bearing IA No. 3170/2002 filed
under Sections 30 and 33 of the old Arbitration Act. The learned
Single Judge has only treated the Appellant’s application filed
under Sections 30 and 33 of the old Arbitratior Act as having been
filed under Section 34 of the new Arbitration Act, 1996. This
order, in our view, cannot be treated as having refused to set aside
award. We do not agree with Mr. Tripathi’s submission that by
virtue of the impugned order the objections to the Award filed by
the Appellant under Section 30 & 33 had been dismissed or set
aside by the learned Single Judge.
13. Since we did not find any ground in the appeal challenging the
conversion of Appellant’s application under Sections 30 and 33 of
the of Arbitration Act to Section 34 of the new Arbitration Act,
1996 we asked the learned Counsel for the Appellant to show if
there was any specific ground challenging the conversion or
treatment of the Appellant’s application being I.A. No. 3170/2002.
Learned Counsel for the Appellant fairly stated that there was no
specific ground in the appeal challenging the conversion of the
Appellant’s application.
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14. Consequently, we are of the view that since the Appellant’s
objections to the Award under Sections 30 and 33 under the old
Arbitration Act have not been refused, the present appeal is not
maintainable. In case, the Respondents were to raise the plea that
the Appellant’s objections under Section 34 of the new Arbitration
Act, 1996 were beyond limitation, the Appellant would be well
advised to take all its defences including the plea that the issue of
limitation already stood settled by the learned Single Judge’s order
by converting or treating the Appellant’s objections filed by way of
IA No. 3170/2002 under Section 34 of the new Arbitration Act,
1996. Moreover, in case, the Appellants are still aggrieved by any
subsequent order, they would be at liberty to challenge the same.
15. Consequently, the present appeal is dismissed as not
maintainable, but with no order as to costs.‖
(emphasis supplied)
30. Similarly, the judgment in K.V. Abraham (supra) of the Kerala
High Court does not assist Tommorrowland. In that case, the
application under Section 30 of the 1940 Arb Act was dismissed on
the ground of delay, not on the merits. Instead of challenging that
dismissal order, the appellant in that case directly filed an appeal
under Section 39, which was held to be impermissible. The Court
made it clear that where the challenge is to the judgment and decree
making the Award rule of court, the remedy lies under Section 17, and
that an appeal under Section 39 is maintainable only against the
specific orders enumerated therein. The relevant portion of K.V.
Abraham (supra) is reproduced below:
―5. When the matter came up for hearing learned Government
Pleader advanced arguments setting aside the Award under Section
30 of the Arbitration Act, 1940. We are of the view all these
appeals are incompetent and not maintainable. We have already
indicated that the court below has already dismissed the
applications preferred by the State for setting aside the Award of
the Arbitrator against which they have not filed appeal under
Section 39(vi) of the Act. Under Section 39(vi) of the Act State is
attempting to challenge the Judgment and Decree passed by the
court below. We are of the view such an order passed by the court
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Judgment and Decree could be challenged only on the grounds
available under Section 17 of the Act. Section 17 reads as follows:
17. Judgment in terms of Award.–Where the
Court sees no cause to remit the Award or any of the
matters referred to arbitration for reconsideration or
to set aside the Award, the Court shall, after the time
for making an application to set aside the Award has
expired, or such application having been made, after
refusing it, proceed to pronounce Judgment
according to the Award, and upon the Judgment so
pronounced a Decree shall follow, and no appeal
shall lie from such Decree except on the ground that
it is in excess of, or not otherwise in accordance with
the Award.
Since State has not filed appeal against the Judgment and Decree
on the-grounds available under Section 17 of the Act these appeals
are not maintainable. These appeals are not maintainable on Anr.
ground as well. Appeal under Section 39 is maintainable only
against those orders mentioned therein. In the instant case the State
has not challenged those orders dismissing the petition for
condonation of delay and the order dismissing the application for
setting aside the Award. Though court fee was paid in M.F.A.
482/98 and M.F.A. 647/96, no challenge was made against the
order dismissing the application for condoning delay and the order
refusing the application for setting aside the Award. In this
connection we may refer to some of the Judgments pronounced on
the point. The Calcutta High Court in Union of India v. N.P.
Singh A.I.R. 1936 Cal 1, considered a similar issue. The Court
held as follows:
Where the grounds of appeal do not suggest that the
Decree is either in excess of or not in accordance
with the award but on the contrary the grounds urge
that the Decree is in terms of the Award which is
bad, then such an appeal is not entertainable under
Section 17 of the Act. Under Section 17 of the Act
aground of appeal which goes to challenge an
Award on the very same ground on which an
application to challenge an Award under Section 33
has already failed is, barred both by the express
language of the conditions mentioned in Section 17
of the Act as well as by Section 39 of the Act.
A Division Bench of the Allahabad High Court in Ram Babu v.
Lakshmi Narain and Anr. MANU/UP/0075/1963: A.I.R. 1963 All
252, has considered the scope of Sections 17, 39(2) and 41 of the
Act and held as follows:
Section 41 of the Arbitration Act makes the
provisions of the Code of Civil Procedure applicable
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to proceedings under the Arbitration Act and the
result is that a Decree passed under Section 17 of the
Arbitration Act could be challenged by a first appeal
under Section 96 of the Code of Civil Procedure and
on appropriate grounds in a second appeal under
Section 100 of the Code of Civil Procedure. Section
17, however, places some limitations on this right of
appeal by laying down that ‘no appeal shall lie from
such Decree except on the ground that it is in excess
of, or not otherwise in accordance with the Award.
This clause contained in Section 17 thus recognised that a Decree
passed under Section 17 is subject to right of appeal by the party
aggrieved but places a limitation on that right. The right is curtailed
to the extent that an appeal can be filed only on the grounds
mentioned in this clause, viz., it is in excess of or not otherwise in
accordance with the Award. If such grounds do not exist, the right
of appeal, which otherwise exists, is taken away by this clause. The
right of appeal which is recognised in this clause of Section 17 of
the Arbitration Act, is clearly the right conferred by Part VII of the
Code of Civil Procedure and, consequently, proceeded to lay down
the limitation in Section 17 on that right of appeal. The language of
the clause contained in this section is clearly in the form of a
limitation on an existing right of appeal and does not by itself
create any independent right of appeal. If the Legislature had
intended that a Decree passed under Section 17 of the Arbitration
Act was not to be appealable under Section 96 of the Code of Civil
Procedure and a special provision should be made for an appeal
against such a Decree, the language instead of being in the negative
form would have been in the positive form conferring a right of
appeal.
*****
6. Almost identical question came up for consideration before
Andhra Pradesh High Court in Hindustan Steel Works
Construction Ltd. v. N.V. Chowdary and Anr. 2001 (1) ALR 291.
The court considered the scope of Sections 14, 17, 30 and 39 of the
Arbitration Act and held that a reading of the above provisions it is
discernible that Sub-section (1) of Section 39 of the Act provides
for an appeal before the Division Bench against an Order passed by
the learned Single Judge, if the order appealed against, falls within
the six categories enumerated thereunder. The court found that the
Impugned Award passed by the learned Single Judge under
Sections 14 and 17 of the Arbitration has not been enumerated
under any of the above six clauses provided under Section 39(1) of
the Act. Consequently the appeal was dismissed as not
maintainable. While dealing with the scope of Section 39 the apex
court in State of West Bengal v. Gourangalal Chatterjee 1993 (2)
ALR 95, held that the Order passed by the learned Single Judge
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does not fall in any one of the sis categories of appealable orders
under Section 39(1), Consequently appeal was found not
maintainable.
7. The above-mentioned judicial pronouncements would positively
indicate that if a party is aggrieved by the Judgment and decree
passed by a Sub Court making the Award Rule of the Court the
same could be challenged only under Section 17 of the Act. Appeal
has to be filed under Section 17 on specific ground mentioned
therein. If party is aggrieved by an order dismissing an application
for setting aside the Award the same has to be challenged under
Section 39(vi) of the Act. We have found in this case State
preferred M.F.A. 482/98 and 647/96 challenging the Judgment and
decree passed by the Sub Court making the Award Rule of the
Court. Appeal was filed under Section 39 of the Act and paid court
fee also. State failed to challenge the order dismissing the delay
condonation petition as well as the consequent dismissal of the
application for setting aside the Award. That order was not
challenged by the State though court fee has been paid. Instead of
challenging the said order State has mistakenly challenged the
Judgment and Decree making the Award Rule of the Court under
Section 39. Procedure adopted by the State is illegal. This shows
the callous manner by which arbitration cases are being filed and
conducted. Since the challenge is against the Judgment and Decree
of the court below grounds available under Section 17 alone could-
be raised even if it is stated there is a misquoting of this section.
Under such circumstance these appeals are not maintainable.‖
(emphasis supplied)
31. Further, the objection raised by Tommorrowland with regard to
the insufficiency of court fee also does not merit acceptance. Schedule
II, Article 17(iv) of the Court-Fees Act, 1870, unequivocally
prescribes a fixed court fee in respect of applications filed “to set
aside an award”. The determinative factor for the purpose of court fee
is the nature of the relief sought and the character of the proceedings,
and not the consequential effect of the decree that may follow upon
adjudication.
32. Merely because the arbitral award results in a monetary
liability, or because the decree passed thereon partakes of a monetary
consequence, the proceedings do not ipso facto assume the character
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of a money suit or a money decree for the purposes of court fee. Thus,
the submission advanced on behalf of Tommorrowland rests on an
erroneous understanding of the statutory scheme governing court fees
and overlooks the settled legal position that challenges to arbitral
awards under the 1940 Arb Act attract a fixed court fee as prescribed
under Schedule II, Article 17(iv). This objection is, therefore, devoid
of merit and is accordingly rejected.
33. For all the aforesaid reasons, we hold that the objection raised
by Tommorrowland to the maintainability of the Underwriter’s appeal
is unfounded and unsustainable. The objection is accordingly rejected.
Issue of wrongly proceeding ex-parte against the Underwriter
34. Before examining the merits further, it is necessary to refer to
the relevant portion of the Impugned Judgment, wherein the learned
Single Judge dealt with the Underwriter’s contention regarding
wrongful ex parte proceedings. The learned Single Judge in the
Impugned Judgement observed as under:
―44. The present suit has been filed by the Plaintiff under Sections
14 and 17 of the Arbitration Act, seeking judgment and decree in
terms of the Award passed by the ld. Sole Arbitrator, dated 30th
May, 2012 passed in arbitration case being M/s MS Shoes East
Limited v. Centurion Bank Ltd. (now HDFC Bank). The Defendant
has filed an application under Sections 30 and 33 of the Arbitration
Act, 1940, seeking setting aside of the impugned award. One of the
objections raised by the Defendant is in respect of service in the
arbitral proceedings and for having been proceeded ex-parte. The
short submission on behalf of the Defendant is that though the
Defendant was initially represented before the ld. Sole Arbitrator,
on 13th January, 2009, the Advocate appearing on behalf of the
erstwhile Centurion Bank of Punjab had informed the ld. Arbitrator
that Centurion Bank of Punjab had merged with HDFC Bank Ltd.
It is submitted that the entity which engaged the Advocate no
longer existed, and therefore, the Advocate did not have
instructions to appear on behalf of the new entity i.e. the Defendant
herein. It is further submitted that despite the factum of merger
having been informed to the ld. Arbitrator, no notice was issued to
the Defendant. There was a duty upon the Ld. Arbitrator to issue
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notice to HDFC Bank Ltd. and for the claimant to take steps under
Order XXII Rule 10 to implead the new entity. The affidavit of the
lawyer has also been placed on record to argue that since he was
not appointed as a counsel by HDFC Bank Ltd., he could not
appear in the matter. It is finally submitted that even at the time
when the order proceeding ex parte was passed, it was against
Centurion Bank of Punjab and not HDFC Bank Ltd., as HDFC
Bank Ltd. was not even impleaded. Thus, according to the Ld.
Senior Counsel for the Defendant, the entire proceeding was
vitiated qua the Defendant/Respondent therein and the non-
issuance of further notice to HDFC Bank Ltd. constitutes legal
misconduct on part of the ld. Arbitrator. Hence, the impugned
Award is liable to be set aside.
46. A perusal of the records in the present case would show that
Centurion Bank of Punjab Limited was initially served in CS (OS)
1299/1997 i.e., the suit filed under Section 20 of the Arbitration
Act, 1940, where the arbitrator was appointed. A Vakalatnama was
also filed on its behalf. Thereafter, once the ld. Arbitrator had
entered reference, notice was issued on 6th July, 2007 to the
address contained in the Underwriting Agreement by registered
post. The registered post was returned back with the remark ―left
without address‖. The claim petition was then again sent by courier
to Centurion Bank of Punjab Ltd. on 7th September, 2007, which
was duly acknowledged. The acknowledgment of the courier has
also been placed on record. Ld. Counsel for the Respondent in the
arbitral proceedings appeared before the ld. Arbitrator on 13th
January, 2009, and it was recorded as under:
“Mr. Dharam Dev, Advocate for HDFC Bank says
that Centurion Bank of Punjab has merged in the
HDFC Bank. The claimant filed a claim against 20th
Centurion Finance Corporation Ltd. The 20th
Centurion Ltd. merged in the Centurion Bank of
Punjab. The claimant has to take appropriate
steps.”
47. On 9th May, 2009, the same Advocate was present on behalf of
HDFC Bank Ltd. and was directed to produce documents relating
to the merger. On 23rd May, 2009, the ld. Arbitrator records that
the said merger related documents had not been filed. Another
opportunity was granted for filing of the said documents on 11th
July, 2009, on which date as well the Advocate for HDFC Bank
Ltd. was present. However, the documents were not filed. Hence
on 24th April, 2010, the ld. Arbitrator proceeded with the erstwhile
20th Century Finance Corporation Ltd. (now HDFC Bank Ltd.) –
Respondent No.5 as ex parte.
48. The proceedings dated 13th January, 2009 extracted above
clearly show that the Advocate who was appearing on behalf of
Respondent No. 5 in the arbitral proceedings, did not appear only
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on behalf of the Centurion Bank of Punjab Ltd. but his appearance
was recorded as ‗Advocate for HDFC Bank’. This clearly shows
that HDFC Bank had notice of the initial suit where the reference
order was passed. It also had complete notice of arbitral
proceedings where it was duly represented by an Advocate. It is
further pertinent that even after the factum of the merger was
conveyed to the Ld. Arbitrator, the same Advocate continued to
appear for Respondent No. 5, which shows that HDFC Bank Ltd.
was represented in the proceedings. However, after a few dates, the
Advocate chose not to appear and the Respondent chose not to be
represented before the ld. Arbitrator. Finally, the ld. Arbitrator sent
the notice of passing the impugned Award dated 30th May, 2012
vide communication dated 6th June, 2012 to the Respondent,
which was also acknowledged by the Respondent. The ld.
Arbitrator had confirmed to the Plaintiff that the copy of the award
was supplied and the files and records of the ld. Arbitrator were
also inspected by the Defendant/Respondent.
49. In the initial part of the award, the ld. Arbitrator records as
under:
“The respondent appears through Mr. Sharm
(Dharm) Dev Advocate on several dates and stated
that the respondent had merged in the HDFC Bank
but on demand failed to produce the relevant
document regarding merger and despite
appearances through its counsels did not file any
pleadings and was proceeded exparte on 24.4.2010.
An amicus curie was appointed in view of the nature
of the case. The claimant led evidence. Arguments
were heard.”
50. Thus, the Defendant/Respondent having had adequate notice,
this Court holds that the ld. Arbitrator was not expected to continue
issuing notices to an entity, which voluntarily chose not to appear
before her. The impugned Award does not deserve to be set aside
due to any such alleged legal misconduct on part of the ld.
Arbitrator. In fact, the records and the proceedings show to the
contrary that the ld. Arbitrator had repeatedly passed directions,
which were not complied with by the Respondent. The objection as
to service is therefore completely untenable and is rejected.
51. The principal question that now arises is to the legality and
validity of the impugned award.‖
35. It is evident that, after thoroughly examining the arbitral and
judicial record, the learned Single Judge rejected the Underwriter’s
objection regarding the ex parte proceedings. The Court held that the
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Underwriter had adequate notice of the arbitral proceedings and that
the learned Arbitrator was not required to continue issuing notices
when the party, despite repeated opportunities, chose not to participate
in the proceedings concerning Tommorrowland’s claim.
Consequently, the allegation of legal misconduct was found to be
meritless, and the objection regarding non-service was rejected.
36. While examining this issue, we find that certain material facts
are not in dispute. The predecessor-in-interest of the present
Underwriter was admittedly a party to the reference proceedings
before the learned Single Judge. It is also an undisputed position that,
subsequent to the merger dated 23.05.2008, learned counsel, who had
been appearing on behalf of the predecessor-in-interest, entered
appearance before the learned Arbitrator on 13.01.2009 and expressly
apprised the learned Arbitrator of the factum of such merger.
Therefore, it stands established that the predecessor-in-interest of the
present Underwriter had due and effective notice of the arbitral
proceedings.
37. We further note that the learned Single Judge, in the Impugned
Judgment, recorded that service in the arbitral proceedings had been
duly effected and acknowledged by the predecessor-in-interest. The
learned Single Judge also noted that the learned counsel appeared on
13.01.2009 as well as on subsequent dates, during which the learned
Arbitrator directed the filing of the merger documents. In the present
appeal, the Underwriter has neither disputed these categorical findings
nor raised any specific ground challenging these factual conclusions.
No evidence has been placed before us to demonstrate that the learned
Single Judge’s findings are incorrect.
38. Further, the Underwriter has not sought any review of these
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factual findings of the learned Single Judge, even though such a step
would have been the proper course if those factual findings were
indeed erroneous.
39. The Underwriter’s four-fold submission before us is as follows:
(i) that no notice of the arbitral proceedings was served upon
it after the merger;
(ii) that the affidavit filed by the learned counsel was not
considered by the learned Single Judge;
(iii) that Tommorrowland deliberately withheld notices; and
(iv) that Tommorrowland failed to file an amended memo of
parties despite the learned Arbitrator’s direction on
13.01.2009, and therefore, no fresh notice was issued to
the present Underwriter.
40. We are unable to accept these submissions, especially in view
of the fact that the learned counsel continued to appear before the
learned Arbitrator even after the alleged merger. Such continuous
appearance cannot be construed as lack of instructions or absence of
knowledge on the part of the Underwriter.
41. The contention that the affidavit dated 02.07.2014 filed by the
then counsel was not properly considered by the learned Single Judge,
is also without merit. The learned Single Judge examined the entire
record and reached conclusions that were inconsistent with the
assertions in that affidavit. Moreover, the contemporaneous arbitral
record does not show that the learned counsel ever sought a formal
discharge, contrary to what is claimed in the affidavit.
42. As regards the grievance that Tommorrowland did not file an
amended memo of parties despite the learned Arbitrator’s direction,
the omission appears to be a procedural lapse without substantive
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consequence, particularly since the learned counsel continued to
appear before the Arbitrator and the merger documents were not filed
despite directions.
43. For all these reasons, at this stage, we find no basis to differ
from the conclusions of the learned Single Judge. Accordingly, the
contention of the Underwriter regarding wrongful ex parte
proceedings is devoid of merit and is rejected.
Award passed beyond the statutory time without the Court’s
extension
44. Before proceeding further, it is necessary to refer to the relevant
excerpt of the Impugned Judgment wherein the learned Single Judge
examined the Underwriter’s contention relating to the post-facto
extension of time under Section 28 of the 1940 Arb Act. The relevant
portion reads as under:
I.A. No. 12965/2012 (under Section 28 of the Arbitration Act,
1940)
25. The present application was filed by the Plaintiff under Section
28 of the Arbitration Act, 1940, seeking post-facto extension of
time of the arbitration proceedings from 20th August, 2007 to 30th
May, 2012 i.e. the date on which the Award was pronounced by
the 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.
*****
31. Heard. Clause 3 of the First Schedule to the Arbitration Act,
1940 (Implied Conditions of Arbitration Agreements) prescribes
that the ld. Arbitrator shall make the award within four months of
entering on the reference, 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.”
32. Further, Section 28 of the Arbitration Act, 1940 reads as under:
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“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.”
33. 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 large number of Respondents, it is evident from the
arbitral record that service had proved to be a challenge. Since
several Respondents were not served or were not appearing, the ld.
Arbitrator appointed an Amicus Curiae in order to have a fair
hearing and finally passed the awards. In the meantime, various
orders have been passed by the ld. Single Judges of this Court
increasing the fees of the ld. Arbitrator. The ld. Arbitrator has held
more than 50 sittings over the five-year period and dealt with the
matters extensively.
34. The law on Section 28 of the Arbitration Act, 1940 is well
settled. In Hari Shankar Lal v. Shambhunath Prasad & Ors., AIR
1962 SC 78, the Hon’ble Supreme Court had observed as under –
“.. I am, however, inclined to the view that in view of
the provisions of s. 28, it is not possible to say that
the arbitrators are not competent to act after the
expiry of the period of four months from the date of
their entering oh the reference. The provisions of
this section contemplate the arbitrators having made
the award beyond the period of limitation without
having previously obtained the order of the Court
extending the time of making the award. This implies
that the arbitrators would have carried on their
proceedings and would have made the award
subsequent to the expiry of the period during which
they should have made the award. The competency
of the arbitrators to act in pursuance of the
reference arises out of the reference made by the
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parties and is not dependent on the period during
which they ought to make the award. So long as the
power vested in them to decide the dispute between
the parties is not withdrawn, they continue to be
competent to act on the reference in expectation that
the period for making the award would be extended
by the Court.”
35. In State of Punjab v. Hardyal, AIR 1985 SC 920, paragraph 18
reads as under –
“…As I observed earlier, the court has got the
power to extend time even after the award has been-
given or after the expiry of the period prescribed for
the award. But the court 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.”
36. 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 AIR1957
Cal 658, 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 going into
arbitration and actually having the award,
regarding which there is no meritorious objection, it
is it is proper to enlarge the time and make the
award, the fruit of so much time, labour and
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expense, effective and not to frustrate it by refusing
time. Looking to all the facts and circumstance
stated above, I am satisfied that it is a fit case. where
time for making the award should be extended. I,
Therefore, enlarge the time. until 29-9-1969, the
date on which the award was made in this case The
award was, Therefore, made within the time allowed
by law; and is not invalid on the ground of being
made beyond time.”
37. Relying upon the foregoing judgments, a similar view was
taken in Milan Kumar Mondal & Anr. v. Deshbandhu
Chittaranjan Memorial Society (Regd) & Anr.
[MANU/DE/8736/2007].
38. The above judgments clearly lay down the position that if no
objection is taken during the arbitral proceedings, then the time for
passing the award can be extended, even after passing of the award
i.e. ex-post-facto. It is within the discretion of the Court as to
whether the time is to be extended or not and broadly the facts and
circumstances need to be looked into.
****
40. 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.
*****
42. 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.
43. I.A 12965/2012 is accordingly allowed and disposed of.‖
45. Challenging the above finding, the Underwriter’s objection
before us is twofold:
(i) that the Award dated 30.05.2012 was passed nearly five years
after the reference, despite Rule 3 of the First Schedule of the
1940 Arb Act mandating that an award be delivered within four
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months unless extended by the Court, and no such extension
was sought during the arbitral proceedings; and
(ii) that the reasons later cited for seeking post-facto extension are
frivolous and insufficient.
46. Section 28 of the 1940 Arb Act 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.‖
47. A plain reading of Section 28(1) makes it clear that the Court is
empowered to enlarge the time for making an award, irrespective of
whether the statutory period has expired and even after the award has
already been made.
48. The learned Single Judge relied on a catena of judgments of the
Hon’ble Supreme Court, including Hari Shankar Lal v.
Shambhunath Prasad & Ors 33 and State of Punjab v. Hardyal 34 ,
which affirm this position. The Underwriter cited several authorities to
the contrary; however, each of them has been specifically considered
and distinguished in the Impugned Judgment.
49. The Underwriter reiterated the same precedents before us.
However, we find no merit in the argument that post-facto extension is
impermissible in law. None of the authorities relied upon by the
Underwriter supports such an absolute bar. On the contrary, Section
28(1) of the 1940 Arb Act expressly empowers the Court to enlarge
the time for making the award even after the award has been rendered,
33
AIR 1962 SC 78
34
AIR 1985 SC 920
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provided such discretion is exercised judiciously, prudently, and in
accordance with established legal principles.
50. In the present case, we agree with the learned Single Judge that
the arbitration was an unusually large and complex reference
involving more than 260 Respondents/Underwriters. The Sole
Arbitrator conducted more than 50 sittings over several years,
repeatedly dealt with service difficulties, facilitated settlements, and
even appointed an amicus curiae where necessary. These were not
ordinary proceedings; they required exceptional time, coordination,
and administrative management.
51. Furthermore, it is a matter of record that similar extensions had
already been granted in respect of other underwriters arising from the
very same arbitral proceedings, and such extensions continue to
subsist, having neither been set aside nor reversed. In these
circumstances, we find no justifiable basis to hold that a post facto
extension could not be granted in the present case.
52. In view of the foregoing and considering the exceptional
number of parties, the magnitude of claims, and the distinctive
circumstances of this case, the Underwriter’s objection to the post-
facto extension of time is without substance and is accordingly
rejected.
In re: liability of the Underwriter under Underwriting Agreement
53. In its appeal, the Underwriter has extensively asserted that both
the learned Arbitrator and the learned Single Judge erred in holding it
liable, despite, according to the Underwriter, there being no surviving
underwriting obligation. It is argued that once the issue appeared fully
subscribed, the Underwriter’s liability stood extinguished, and that it
cannot be held responsible for subsequent developments allegedly
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arising from Tommorrowland’s own conduct.
54. The Underwriter further submits that the learned Single Judge
failed to appreciate that the Award is vitiated by legal misconduct
under Sections 30 and 33 of the 1940 Arb Act. It is also argued that
the entire dispute is tainted by fraud attributable to Tommorrowland,
including the circulation of a misleading prospectus, which led to
SEBI investigations and criminal proceedings.
55. The learned Single Judge, in the Impugned Judgment, has
comprehensively addressed all relevant factors, including the terms of
the Underwriting Agreement executed between Tommorrowland and
the Underwriter. The key findings recorded in the Impugned Judgment
may be summarised as follows:
(a) The Underwriter failed to discharge its underwriting
obligations, as it did not pay for the FCDs that devolved upon it
after the issue became under-subscribed due to the withdrawal
of investor applications.
(b) The issue ultimately failed because, after SEBI mandated a
withdrawal option, the subscription level fell below the
mandatory 90%, thereby triggering devolvement on the
Underwriter.
(c) The Underwriter’s obligations are not discharged merely
because the issue initially appeared 90% subscribed on the
earliest closing date; the actual status must be assessed after the
statutory 30-day period and the SEBI-mandated withdrawal
process.
(d) The Underwriter did not invoke its contractual right to terminate
the Underwriting Agreement, despite alleging that at the
relevant time, Tommorrowland had made statements that were
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false, incorrect, or misleading.
(e) Allegations of fraud raised by the Underwriter are rejected as
they are neither pleaded nor proved before the learned
Arbitrator; moreover, they did not meet the requisite legal
threshold to render the disputes non-arbitrable.
(f) The learned Arbitrator correctly held that the Underwriter’s
liability was confined only to the number of FCDs that actually
devolved upon it, and not to the full underwritten amount.
(g) Damages were rightly awarded under Clause 11(d) of the
Underwriting Agreement, as the Underwriter’s failure directly
caused financial loss to Tommorrowland; and also the
Underwriting Agreement did not provide for liquidated
damages.
(h) The Court reiterated that it cannot re-appreciate evidence or sit
in appeal over an arbitral award. Interference is permissible
only in cases of errors apparent on the face of the award or
arbitral misconduct, neither of which was found here.
(i) Consequently, the arbitral award was upheld, as the learned
Single Judge found no perversity, illegality, or misconduct
under Sections 30 and 33 of the 1940 Arb Act.
56. It is an undisputed position that at the time the subject public
issue was launched, the field of underwriting was governed by the
SEBI (Underwriters) Regulations, 1993, and that the Underwriter in
the present case was duly registered under the said Regulations.
57. It is further not in dispute that, in accordance with the said
Regulations, the Underwriter and Tommorrowland entered into a
formal Underwriting Agreement, which governed their respective
rights and obligations in relation to the public issue. There is also no
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dispute that both the pre-issue and post-issue relationship between the
parties was required to be regulated strictly in terms of the said
Underwriting Agreement.
58. An underwriting agreement of this nature is, in substance, a
contract of guarantee, akin to an insurance arrangement, whereby the
Underwriter undertakes to protect the public issue by subscribing to
the shares/FCDs to the extent of the underwriting commitment in the
event the issue is not fully subscribed by the public. In effect, the
Underwriter assures the issuer that it will receive the requisite
subscription proceeds up to the agreed threshold if public subscription
falls short. The arrangement enables the issuer to access capital from
the market with the assurance that any shortfall will be covered by the
Underwriter strictly in the manner contemplated under the agreement.
59. Under the Underwriting Agreement, the subscription list was
required to open within three months from the date of execution of the
agreement, which condition stood satisfied in the present case. The
Agreement further stipulated that unless the issue was fully
subscribed, the subscription list would remain open for a maximum
period of ten (10) calendar days.
60. It is further not disputed that the public issue opened on
14.02.1995 and, as per the prospectus, was scheduled to close on or
before 24.02.1995. The prospectus further disclosed 18.02.1995 as the
―earliest closing date‖. Since the issue was subscribed in excess of
90% well before the outer closing date, Tommorrowland exercised its
option and closed the issue on 18.02.1995, in strict conformity with
the terms and disclosures contained in the prospectus.
61. The dispute arose subsequent thereto, consequent upon the
directions issued by SEBI on 06.03.1995. By the said directions, and
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for the reasons recorded therein, which cited certain anomalies arising
due to the acts or omissions attributable to Tommorrowland,
Tommorrowland was mandated to grant its subscribers an option to
withdraw their applications. For the sake of ready reference, the said
letter is reproduced hereunder verbatim:
“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 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 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.
Company.
(USHA NARAYANAN)
DIVISION CHIEF”
62. In compliance with the aforesaid directions, Tommorrowland
extended the option of withdrawal to its subscribers. Pursuant thereto,
a substantial number of subscribers elected to withdraw their
applications, which had the direct and inevitable consequence of
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reducing the overall level of subscription to below 90%. Crucially,
this contingency, namely, a post-closure reduction in subscription
below the stipulated threshold as a result of a regulatory mandate, was
neither envisaged nor provided for under the terms of the
Underwriting Agreement.
63. The Underwriter contends that once the issue had achieved
subscription in excess of 90% within the stipulated period, its liability
under the Underwriting Agreement stood discharged. It is asserted that
subsequent events leading to a fall in subscription could not revive or
extend the underwriting obligation. Reliance is placed on Clause 2 of
the Underwriting Agreement, which, in effect, provides that if the
company closes the subscription list earlier than the maximum
stipulated period, the Underwriter shall not be bound to discharge
underwriting obligations thereafter.
64. The most significant and undisputed aspect, however, is that
pursuant to SEBI’s letter dated 06.03.1995, Tommorrowland
unilaterally permitted subscribers to withdraw their applications. This
unilateral act, undertaken during the subsistence of the Underwriting
Agreement, fundamentally altered the contractual framework
governing the public issue. Notably, such alteration was effected
without the consent of the Underwriter and, indeed, without any prior
intimation thereto. Significantly, the Underwriting Agreement neither
envisages nor fastens any liability upon the Underwriter arising from a
unilateral, post-closure withdrawal of subscriptions permitted by the
issuer, for any reason whatsoever, including pursuant to a regulatory
directive.
65. Thus, while the Underwriting Agreement operated as a limited
contractual assurance against failure of public subscription within the
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stipulated period and in accordance with the terms prevailing at the
time of closure of the issue, it did not extend to, nor could it be
construed as covering, contingencies arising from any unilateral
alteration of the contractual arrangements between Tommorrowland
and the subscribers after the issue had been successfully completed.
66. At this juncture, we find it imperative to underscore that the
controversy in the present case could not have been adjudicated
without a proper application of the principles governing contracts of
guarantee under the Indian Contract Act, 1872 35 . Regrettably,
neither the contesting parties, despite the involvement of more than
260 Underwriters, nor the learned Arbitrator, nor even the learned
Single Judge, addressed the dispute through the correct prism of
statutory contract law. This omission strikes at the very root of the
Impugned Award and the Judgment affirming it, as the legal
relationship between Tommorrowland and the Underwriter is not
merely contractual but is statutorily regulated under Chapter VIII of
the IC Act. For the sake of ready and convenient reference, some of
the relevant statutory provisions having a bearing on the issues arising
in the present case are reproduced hereunder:
―CHAPTER VIII
OF INDEMNITY AND GUARANTEE
126. “Contract of guarantee”, “surety”, “principal debtor” and
“creditor”. – A ―contract of guarantee‖ is a contract to perform the
promise, or discharge the liability, of a third person in case of his
default. The person who gives the guarantee is called the ―surety‖;
the person in respect of whose default the guarantee is given is
called the ―principal debtor‖, and the person to whom the
guarantee is given is called the ―creditor‖. A guarantee may be
either oral or written.
128. Surety’s liability. – The liability of the surety is co- extensive
with that of the principal debtor, unless it is otherwise provided by
35
IC Act
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the contract.
133. Discharge of surety by variance in terms of contract. – Any
variance, made without the surety’s consent, in the terms of the
contract between the principal debtor and the creditor, discharges
the surety as to transactions subsequent to the variance.
134. Discharge of surety by release or discharge of principal
debtor. – The surety is discharged by any contract between the
creditor and the principal debtor, by which the principal debtor is
released, or by any act or omission of the creditor, the legal
consequence of which is the discharge of the principal debtor.
135. Discharge of surety when creditor compounds with, gives
time to, or agrees not to sue, principal debtor. – A contract
between the creditor and the principal debtor, by which the creditor
makes a composition with, or promises to give time to, or not to
sue, the principal debtor, discharges the surety, unless the surety
assents to such contract.
139. Discharge of surety by creditor’s act or omission
impairing surety’s eventual remedy. – If the creditor does any act
which is inconsistent with the rights of the surety, or omits to do
any act which his duty to the surety requires him to do, and the
eventual remedy of the surety himself against the principal debtor
is thereby impaired, the surety is discharged.
142. Guarantee obtained by misrepresentation invalid. – Any
guarantee which has been obtained by means of misrepresentation
made by the creditor, or with his knowledge and assent, concerning
a material part of the transaction, is invalid.
143. Guarantee obtained by concealment invalid. – Any
guarantee which the creditor has obtained by means of keeping
silence as to material circumstances, is invalid.‖
67. Chapter VIII of the IC Act constitutes a complete and self-
contained statutory code governing contracts of indemnity and
guarantee. It exhaustively defines the nature of such contracts,
delineates the respective rights, duties, and liabilities of the parties
involved, and, most importantly, prescribes the precise circumstances
in which a surety stands discharged from liability. Though there may
be a limited conceptual overlap between indemnity and guarantee, the
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scheme of Chapter VIII is primarily concerned with contracts of
guarantee and embodies long-settled principles of equity and
commercial fairness.
68. These principles have been consciously incorporated by the
legislature to ensure that a surety, who undertakes a secondary and
contingent liability, is not exposed to unilateral, unforeseen, or
inequitable enlargement of risk by acts of the creditor or the principal
debtor. The statutory framework thus operates as a protective bulwark,
ensuring that a guarantee remains confined strictly to the terms and
conditions to which the surety has knowingly and expressly
consented.
69. Section 126 of the IC Act lays the statutory foundation of a
contract of guarantee. It defines such a contract as an agreement ―to
perform the promise, or discharge the liability, of a third person in
case of his default‖. The provision further classifies, with precision
and clarity, the legal roles of the three parties to the transaction,
namely, the person who gives the guarantee is the ―surety‖; the person
in respect of whose default the guarantee is furnished is the ―principal
debtor‖; and the person to whom the guarantee is given is the
―creditor‖.
70. These definitions are not merely descriptive or illustrative. They
are mandatory legal classifications that determine, in a definitive
manner, the rights, obligations, and liabilities of each party under the
IC Act. Once these roles are identified, the parties are brought
squarely within the statutory regime of Chapter VIII, and their
relationship must thereafter be governed strictly in accordance with
the provisions of the IC Act. Tested on this statutory framework, there
can be no ambiguity in the present case that the Underwriter
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unmistakably assumes the position of the surety; Tommorrowland
occupies the position of the creditor; and the public subscribers,
whose failure to subscribe adequately would trigger the guarantee,
constitute the principal debtors.
71. Upon fixation of these statutory roles, the subsequent provisions
of Chapter VIII regulate the legal consequences flowing from such a
tripartite relationship. These provisions are not optional, nor are they
merely default rules that can be freely overridden by conduct or
implication. Save and except where the statute itself permits variation
by contract, the protections afforded to a surety are mandatory and
cannot be diluted by unilateral action of the creditor.
72. The legislative intent underlying the law of guarantees is
unequivocal and admits of no ambiguity. A surety’s obligation is
required to be construed strictly, and its liability cannot be enlarged,
extended, revived, or otherwise altered except with its free, informed,
and express consent. This foundational principle is firmly anchored
not only in the statutory framework of the IC Act, but also in long-
settled equitable doctrines which recognise that a surety undertakes a
secondary and contingent liability, ordinarily without any direct
commercial benefit. Consequently, the law accords heightened
protection to a surety against the imposition of unforeseen, expanded,
or implied risks.
73. This principle has been reiterated by a Division Bench of the
Kerala High Court in United Breweries (Holding) Ltd. v. Karnataka
State Industrial Investment and Development Corporation Ltd. 36 ,
placing reliance upon the binding exposition of law by the Hon’ble
36
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Supreme Court in State of Maharashtra v. Dr. M.N. Kaul37. In that
context, the Kerala High Court held as under:
“6. The said letter of comfort nowhere reveals that the appellant
stood as guarantor for the loan disbursed by respondent No. 1 in
favour of respondent No. 2. It merely states that the associate
company (debtor company) will meet the financial and contractual
obligations and that the appellant herein undertakes all reasonable
steps to ensure that the debtor company conducts its operations
efficiently to meet its obligations in the usual course of business.
The comfort letter is more in the nature of recommendatory letter.
If a person has not stood as guarantor or surety, he cannot be
treated a guarantor or surety without there being a specific
undertaking by him that he would discharge the liability of the
third person, in case of his default. In this context, it is relevant to
note the provisions of section 126 of the Indian Contract Act, 1872,
which read thus:
―126. ‗Contract of guarantee’, ‗surety’, ‗principal
debtor’ and ‗creditor’.–A ‗contract of guarantee’ is
a contract to perform the promise, or discharge the
liability, of a third person in case of his default. The
person who gives the guarantee is called the
‗surety’; the person in respect of whose default the
guarantee is given is called the ‗principal debtor’,
and the person to whom the guarantee is given is
called the ‗creditor’. A guarantee may be either oral
or written.‖
7. From the above, it is clear that the contract of guarantee is a
contract to perform the promise or discharge the liability of a third
person in case of his default. If the entire document in question,
i.e., exhibit P14 is read as a whole, the same nowhere reveals that
the appellant has entered into a contract or an agreement with
respondent No. 1 to discharge the liability of respondent No. 2
herein (principal debtor) in case of its default.
8. The apex court in the case of State of Maharashtra v. Dr. M.N.
Kaul reported in AIR 1967 SC 1634, while dealing with the aspect
of the enforceability of the guarantee has observed thus (page 4 of
38 Comp Cas):
―The question is whether this guarantee is
enforceable. That depends upon the terms under which the
guarantor bound himself. Under the law he cannot be
made liable for more than he has undertaken. It is often
said that a surety is a favoured debtor, for in the expressive
phrase of Lord Westbury L.C. in Blest v. Brown, [1862] 437
AIR 1967 SC 1634
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De G.F. and J. 367 at page 376:
‗you bind him to the letter of his engagement.
Beyond the proper interpretation of that engagement
you have no hold upon him.’
These observations have been recalled in cases of
guarantee and suretyship by the Judicial Committee and
also this court. See for example Pratapsing
Moholalbhai v. Keshavlal Harilal Setalvad, 62 I.A. 23 at
page 33; AIR 1935 PC 21 at page 24 and M.S.
Anirudhan v. Thomco‘s Bank Ltd., [1963] 33 Comp Cas
185; [1963] (Supp) 1 SCR 63 at page 77; AIR 1963 SC
746 at page 752. To this there are some exceptions. In
case of ambiguity when all other rules of construction fail
the courts interpret the guarantee contra proferentem, that
is, against the guarantor or use the recitals to control the
meaning of the operative part where that is possible. But
whatever the mode employed, the cardinal rule is that the
guarantor must not be made liable beyond the terms of his
engagement.‖
(emphasis [ Here printed in italics.] supplied)
9. From the above, it is clear that the question as to whether the
deed in question is a deed of guarantee or not depends upon the
terms under which the guarantor binds himself. Under law, he
cannot be made liable for more than what he has undertaken. In our
considered opinion, there is no ambiguity in exhibit P14. Under
exhibit P14 the appellant has not undertaken that he would repay
the loans of respondent No. 2, in case, if respondent No. 2 fails to
discharge its liability. Therefore, the appellant cannot be made
liable for more than what it has undertaken. It is not in dispute that
respondent No. 1 herein has insisted on ―letter of comfort‖ of
appellant herein while disbursing the loan in favour of respondent
No. 2 herein. Accordingly, the appellant herein being the holding
company has given letter of comfort as suggested by the first
respondent.‖
74. The same doctrinal position has been reiterated by the Kerala
High Court in K.P. Kunjan v. Kerala State Financial Enterprises
Ltd.38, wherein it was held that:
―16. In this context, I may note that the rule of suretyship enjoins
that the liability of a guarantor or surety ―cannot be extended by
implication or otherwise beyond the actual terms of his
engagement.‖ The claim against surety is strictissimi juris (the
strictest letter of the law; to be construed strictly).‖
(emphasis supplied)38
2017 SCC OnLine Ker 6697
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75. A Full Bench of the Gauhati High Court, in Chittaranjan
Banerjee v. Deputy Commissioner of Lakhimpur39, has echoed the
same settled legal position and lucidly expounded the jurisprudential
basis for treating a surety as a ―favoured debtor‖. The Court in the said
judgement held as under:
―10. A surety in the eye of law is a ―favoured debtor‖ and the
surety bonds are to be construed strictly; a surety can only be held
to be bound if the condition of liability has been fulfilled. Being a
―favoured debtor‖, a surety is entitled to insist upon rigid
adherance to the term of his obligation by the ―Creditor‖ and
cannot be made liable for more than he has undertaken. The nature
of the contract cannot be equated with that of an insurer or
uberrima fides, it is one ―strictissimi juris‖. We quote a passage
from Halsbury’s Laws of England, 2nd Edition, Vol. XVI, Article
52, p. 59:–
―The surety is regarded as a favoured debtor. He is
entitled, as such, to insist upon a rigid adherence to
the terms of his (the surety’s) obligation by the
creditor, and cannot be ―made liable for more than
he has undertaken; for, though his contract is not,
like that of an insurer, ubenima fides, it is one
strictissimi juris.‖ The principle as to the liability of
a surety has been enunciated by the Privy Council
is Pratapsingh Moholalbhai v. Keshavlal Harilal,
AIR 1935 PC 21. To put the principle in a
microform the law laid down in that a guarantor
cannot be made liable for more than what he has
undertaken. The law laid dawn by the Supreme
Court as to the nature of the liability of a guarantor
or surety may be gathered from the decisions
reported in AIR 1955 SC 478 (State of Bihar v. M.
Homi), AIR 1957 SC 587 (State of
U.P. v. Mohammed Sayeed), and AIR 1964 SC 859
(Kamala Devi v. Takhatmal). The Supreme Court
has ruled that the provisions in a surety bond which
are penal in nature must be very strictly construed.
The above decisions were cited at the bar, but we are
not oblivious of the decisions of the Supreme Court
reported in AIR 1963 SC 746
(Anirudhan v. Thomco‘s Bank Ltd.). AIR 1967 SC
1634 (State of Maharashtra v. Dr. M.N. Kaul) and
39
1978 SCC OnLine Gau 22
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(1972) 3 SCC 85 (State of
Maharashtra v. Dadamiya Babumiya Sheikh). On
a perusal of the aforesaid decisions we are of the
view that when a question crops up as to whether the
guarantee is enforceable or not, it entirely depends
upon the terms under which the guarantor or the
surety bound himself. Under the law a guarantor or a
surety cannot be made liable for more than he has
undertaken. However, there are some exceptions to
the aforesaid Rules, which have been expressed by
the Supreme Court in the State of
Maharashtra v. Dr. M.N. Kaul (supra) in the
following terms:–
―To this there are some exceptions. In case of
ambiguity when all other rules of construction
fail, the Courts interpret the guarantee contra
proferentem that is, against the guarantor or
use the recitals to control the meaning of the
operative part where that is possible. But
whatever the mode employed, the cardinal rule
is that the guarantor must not be made liable
beyond the terms of his engagement‖
76. Section 128 of the IC Act provides that the liability of the
surety is co-extensive with that of the principal debtor, unless it is
otherwise provided by the contract. While this provision establishes
parity in the quantum and immediacy of liability, it does not render
the surety’s obligation absolute or indefeasible in all circumstances.
Co-extensiveness does not imply that the surety remains bound
irrespective of subsequent events or changes in the underlying
transaction.
77. The liability of the surety subsists only so long as the principal
obligation remains intact in law and the foundational terms governing
that obligation are not materially altered without the surety’s consent.
In other words, the concept of co-extensive liability operates within,
and not outside, the broader statutory safeguards provided under
Chapter VIII of the IC Act. Any reading of Section 128 divorced from
the discharge provisions would defeat the carefully balanced statutory
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scheme and expose the surety to precisely the kind of unilateral risk
escalation that the Act seeks to prevent.
78. It is in this context that the statutory provisions governing the
discharge of a surety assume critical significance. Among these,
Sections 133, 134, 135, 139, 142, and 143 of the IC Act are
particularly relevant to the present factual matrix. These provisions
collectively codify the circumstances in which a surety is released
from liability by operation of law, irrespective of the creditor’s intent
or the absence of express termination of the guarantee. They reflect
the legislative recognition that certain acts or omissions of the
creditor, or changes in the contractual landscape, so fundamentally
affect the basis of the guarantee that the law itself intervenes to
discharge the surety.
79. Section 133 embodies one of the most fundamental rules of
guarantee law. It provides that ―any variance‖ made ―without the
consent of the surety in the terms of the contract between the principal
debtor and the creditor‖ discharges the surety as to transactions
subsequent to such variance. The language of the provision is absolute
and admits of no exception. The underlying rationale is both logical
and equitable that a surety consents to guarantee a specific obligation
on defined terms, and it cannot be compelled to stand guarantee for an
obligation which is materially different in its scope, risk profile, or
legal incidents from that which it originally undertook.
80. Sections 134, 135, and 139 of the IC Act further reinforce and
complement this principle. Section 134 provides that the surety is
discharged by any contract between the creditor and the principal
debtor by which the principal debtor is released, or by any act or
omission of the creditor, the legal consequence of which is the
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discharge of the principal debtor.
81. Similarly, Section 135 stipulates that a surety is discharged
when the creditor, without the surety’s consent, compounds with the
principal debtor, gives time to the principal debtor, or agrees not to
sue the principal debtor. Section 139 goes a step further by providing
that if the creditor does any act which is inconsistent with the rights of
the surety, or omits to do any act which his duty to the surety requires
him to do, and the eventual remedy of the surety against the principal
debtor is thereby impaired, the surety stands discharged.
82. Collectively, these provisions crystallise a single, unifying and
mandatory principle of law and that is the creditor cannot, by any
unilateral act, omission, forbearance, or indulgence extended to the
principal debtor, alter the subsisting legal or contractual framework so
as to enlarge, aggravate, or otherwise increase the risk originally
undertaken by the surety, nor can the creditor take any step that
impairs, prejudices, or weakens the surety’s present or eventual rights
of recourse against the principal debtor. Any such unilateral conduct
strikes at the very foundation of the contract of guarantee and, by
operation of law, attracts the statutory consequence of discharge of the
surety.
83. Sections 142 and 143 of the IC Act further fortify the statutory
protection accorded to a surety by declaring that any guarantee
obtained by misrepresentation or concealment of material facts by the
creditor is invalid. These provisions reflect the heightened duty of
candour owed by the creditor to the surety at the inception of the
contract of guarantee. They reinforce the broader statutory philosophy
that a surety’s consent must be informed, voluntary, and directed
towards a clearly defined risk. Any deviation from this standard,
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whether at the stage of formation or during the subsistence of the
guarantee, attracts serious legal consequences.
84. Read as a whole, the scheme of Chapter VIII of the IC Act
leaves no manner of doubt that the liability of a surety is strictly
construed, narrowly confined to the terms originally agreed, and
zealously protected by statute against unilateral alteration. The IC Act
consciously prioritises certainty, predictability, and fairness in
commercial dealings involving guarantees.
85. It further recognises that while guarantees play a vital role in
facilitating commerce, they must not become instruments of
oppression or vehicles for shifting unforeseen risks onto parties who
never agreed to assume them. Any interpretation or application of an
underwriting or guarantee arrangement must, therefore, be firmly
anchored in these statutory principles and must scrupulously respect
the limits imposed by law on the expansion of a surety’s liability.
86. In the backdrop of the aforesaid statutory scheme and the settled
principles governing contracts of guarantee, the facts of the present
case admit of only one inevitable legal conclusion. It is an undisputed
position that the public issue was successfully subscribed beyond the
stipulated threshold of 90% within the prescribed period and stood
validly closed in accordance with the disclosures made in the
prospectus. At that stage, the contingency against which the
underwriting guarantee had been furnished had not materialised.
87. However, subsequent thereto, and solely pursuant to SEBI’s
letter dated 06.03.1995, Tommorrowland unilaterally permitted
subscribers to withdraw their applications. This step was taken
entirely without the knowledge, consent, or concurrence of the
Underwriter. Equally, there was no contractual provision under the
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Underwriting Agreement, nor any statutory mandate under the IC Act,
which authorised Tommorrowland to dispense with the Underwriter’s
consent or to unilaterally modify the contractual framework governing
the issue in a manner affecting the surety’s liability.
88. The unilateral permission granted to subscribers to withdraw
their applications fundamentally altered the contractual relationship
between Tommorrowland and the subscribers. This alteration was not
merely procedural or incidental; it went to the very root of the
transaction by retrospectively undermining a successfully completed
public issue. By necessary and inescapable implication, this act also
altered the substratum and legal basis of the contract of guarantee
entered into with the Underwriter.
89. The guarantee was premised on a defined risk, namely, failure
to achieve the minimum stipulated subscription within the prescribed
period. Once that risk had not only ceased to exist but had, in fact,
been conclusively negated by successful subscription and closure of
the issue, any subsequent act which artificially recreated or
reintroduced that risk through unilateral conduct amounted to a
material variance in the terms of the underlying contract.
90. Such variance squarely attracts the operation of Section 133 of
the IC Act, which mandates that any alteration in the contract between
the principal debtor and the creditor, made without the consent of the
surety, results in the automatic discharge of the surety in respect of all
transactions subsequent to such alteration. The discharge in such
circumstances is complete, absolute, and operates by force of law,
independent of intention or equity.
91. The contention that the initial subscription in excess of 90%
somehow preserved or kept alive the underwriting obligation
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notwithstanding subsequent unilateral alterations is legally
unsustainable. In our considered opinion, once a surety stands
discharged by operation of law under Section 133 of the IC Act, such
discharge is final and irreversible. The liability of the surety cannot be
revived, resurrected, or reimposed by any subsequent act of the
creditor, including the issuance of a devolvement notice or the
purported invocation of contractual clauses which, by reason of
statutory discharge, have ceased to have any legal efficacy.
92. To accept such an argument would be to allow the creditor, by
unilateral action or subsequent conduct, to defeat and render otiose the
mandatory statutory protections expressly conferred upon a surety
under Chapter VIII of the IC Act. It would, in effect, permit the
creditor to revive, resurrect, or reimpose a liability which already
stood extinguished by operation of law, notwithstanding the absence
of the surety’s consent and in the face of a clear statutory discharge.
93. In our considered opinion, such an interpretation would not
only undermine the carefully calibrated balance struck by the
legislature between commercial convenience and equitable protection
of a surety but would also strike at the very foundation of the statutory
scheme governing contracts of guarantee. It would run directly
contrary to the letter, spirit, and object of Chapter VIII of the IC Act,
which is designed to ensure that a surety’s liability remains strictly
confined to the risk originally undertaken and is not enlarged, altered,
or revived through unilateral or inequitable conduct of the creditor.
94. This conclusion is further fortified by the express terms of the
Underwriting Agreement itself. As noted earlier, the Agreement
contains no clause whatsoever which contemplates, permits, or
authorises Tommorrowland to unilaterally alter the subscription
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framework after the successful closure of the issue. Equally, the
Agreement does not contain any express waiver by the Underwriter of
the statutory protections available to it under the IC Act, nor does it
evince any intention on the part of the Underwriter to assume liability
for contingencies arising from post-closure regulatory interventions or
unilateral modifications undertaken by the issuer.
95. In the absence of any such express stipulation, the statutory
provisions of the IC Act operate with full vigour and prevail over any
contractual arrangement to the contrary. The law is well settled that
statutory safeguards, particularly those enacted to protect a surety,
cannot be diluted by implication or inference. Consequently, the
unilateral acts of Tommorrowland, howsoever well-intentioned or
regulatory-driven, cannot be used as a basis to fasten liability upon the
Underwriter in the teeth of an automatic statutory discharge.
96. Consequently, once the Underwriter stood discharged by the
express and automatic operation of Section 133 of the IC Act, Clauses
10, 11, and 14 of the Underwriting Agreement, dealing respectively
with the computation of underwriting obligations, the procedure for
issuance of devolvement notices, and the consequences flowing from
failure to achieve 90% subscription, ceased to have any legal force or
application.
97. These contractual provisions are predicated upon the existence
of a valid, subsisting, and enforceable contract of guarantee. Where
the guarantee itself stands extinguished in law by statutory discharge,
the machinery provisions contained in the Agreement cannot survive
independently or be invoked in isolation. In other words, contractual
clauses cannot operate once their foundational premise has been
nullified by operation of statute.
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98. We are therefore of the considered view that once a statutory
discharge of a surety is attracted, such discharge operates
immediately, automatically, and irrevocably in law. It is not
contingent upon any formal declaration, acknowledgment, or
subsequent conduct of the parties. Equally, such discharge cannot be
nullified, reversed, or circumvented by any unilateral, procedural, or
administrative act of the creditor.
99. Consequently, the issuance of a devolvement notice by
Tommorrowland within the stipulated period of 30 days from the date
of closure of the subscription list under Clause 11 of the Underwriting
Agreement, or any alleged omission, silence, acquiescence, or non-
response on the part of the Underwriter thereto, is wholly devoid of
legal consequence and entirely incapable of reviving, re-imposing, or
fastening any liability that had already stood extinguished by the
express and automatic operation of the statutory mandate under the IC
Act.
100. Once a discharge of the surety takes effect in law, the
subsequent invocation of contractual machinery provisions cannot
resuscitate a liability which no longer exists. To hold otherwise would
amount to elevating procedural form over substantive statutory rights,
and would impermissibly allow contractual processes to override,
dilute, or defeat the mandatory protections enacted by the legislature
under the IC Act.
101. Before parting with the matter, it is necessary to emphasise that,
in examining and adjudicating upon the aforesaid issues, this Court
has scrupulously confined itself to the narrow and well-defined
contours of appellate jurisdiction exercisable under Section 39 of the
1940 Arb Act. The scope of interference under the said provision is
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admittedly limited and does not permit an appellate court to sit as a
court of first appeal over the arbitral award. Conscious of this
statutory restraint, this Court has neither embarked upon any re-
appreciation of the oral or documentary evidence on record, nor has it
undertaken a fresh or independent interpretation of the contractual
terms contained in the Underwriting Agreement or any other
connected documents. The factual findings returned by the learned
Arbitrator have not been disturbed merely because another view may
be possible.
102. Our scrutiny has been confined strictly to the application of the
governing principles of law to the admitted and undisputed facts. In
doing so, we have found that the learned Arbitrator, as well as the
learned Single Judge while affirming the Award, failed to apply the
mandatory provisions of the IC Act, particularly those contained in
Chapter VIII governing contracts of guarantee, which squarely and
decisively governed the controversy at hand. The error committed is
not one of appreciation of evidence or interpretation of contractual
clauses, but a fundamental error of law in ignoring and misapplying
statutory provisions which operate by force of law and override
contractual arrangements.
103. It is well settled that where an arbitral award discloses an error
of law apparent on the face of the record, especially where such error
arises from a failure to apply mandatory statutory provisions, the
appellate court is not only empowered but duty-bound to interfere
under Section 39 of the 1940 Arb Act. An award rendered in disregard
of binding statutory mandates cannot be sustained on the ground of
arbitral finality, as arbitral autonomy does not extend to permitting
decisions contrary to law.
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104. In the present case, the manifest errors of law identified herein
go to the root of the matter and have a direct bearing on the very
existence of liability fastened upon the Underwriter. The interference
exercised by this Court is, therefore, neither excessive nor
impermissible, but falls squarely within the settled parameters of
Section 39 of the 1940 Arb Act. Accordingly, the exercise of appellate
jurisdiction in the present case is fully justified, legally sustainable,
and in consonance with long-standing judicial precedent governing
interference with arbitral awards.
105. For all the aforesaid reasons, this Court is of the considered and
unequivocal view that the Arbitral Award, insofar as it fastens liability
upon the Underwriter, suffers from a manifest and patent error of law
apparent on the face of the record. The learned Single Judge
committed the same error in affirming the said Award, having failed
to advert to, appreciate, and apply the mandatory provisions of the IC
Act, which squarely govern and decisively determine the issues
arising in the present case.
106. The findings recorded are, therefore, vitiated by a fundamental
misapplication of statutory law. Consequently, the Appeal preferred
by the Underwriter is allowed; the Impugned Judgment as well as the
Arbitral Award are liable to be set aside; and it is accordingly declared
that the Underwriter bears no liability whatsoever towards
Tommorrowland under or pursuant to the Underwriting Agreement.
In re: merit of Tommorrowland’s Appeal
107. Although the learned Single Judge, by the Impugned Judgment,
affirmed the Arbitral Award, certain modifications were made in the
Arbitral Award while doing so. The Appeal preferred by
Tommorrowland is confined solely to the extent of these
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modifications. In particular, the learned Single Judge:
(i) reduced the damages awarded by the learned Arbitrator from
Rs. 80 per FCD to Rs. 20 per FCD, thereby proportionately
reducing the total award amount;
(ii) disallowed the interest granted for the pre-reference period as
well as for the duration of the arbitral proceedings; and
(iii) reduced the post-award interest from 18% per annum to 7% per
annum, operative from the date of the arbitral award until the
date of the Impugned Judgment.
108. Tommorrowland’s challenge in the present Appeal is, therefore,
narrowly circumscribed and confined solely to the aforesaid
modifications introduced by the learned Single Judge, namely, those
relating to the quantum of damages awarded and the rate and period of
interest granted.
109. However, as has been conclusively and exhaustively determined
in the foregoing analysis, the very foundation upon which the Arbitral
Award proceeded, namely, the existence of a subsisting and
enforceable liability on the part of the Underwriter, stands negated in
law. We have found that the Underwriter was statutorily discharged
from all obligations under the Underwriting Agreement by the express
and automatic operation of the mandatory provisions of the IC Act.
Such discharge operates independently of, and overrides, any
contractual stipulation or arbitral determination to the contrary.
110. Once the existence of liability itself is found to be absent, the
entire superstructure of the Arbitral Award collapses. In such a
situation, any enquiry into the correctness, adequacy, or
proportionality of damages awarded, or into the rate, period, or nature
of interest granted, becomes wholly academic, redundant, and devoid
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of legal consequence.
111. The Arbitral Award, having been rendered in the absence of a
legally enforceable obligation on the part of the Underwriter, is
vitiated at its very inception and suffers from a legal infirmity. An
award which lacks a lawful foundation cannot be sustained even in
part, nor can it be salvaged by modifying or recalibrating the reliefs
granted therein.
112. In these circumstances, no live or justiciable issue survives for
determination in the Appeal preferred by Tommorrowland.
Entertaining the said Appeal would necessarily involve adjudication
upon questions relating to damages and interest which have been
rendered entirely otiose by the prior and decisive finding of statutory
discharge.
113. It is trite law that the Courts do not undertake adjudication of
academic or hypothetical issues, particularly where the underlying
cause of action itself has been extinguished in law. Any exercise
undertaken in this regard would be an empty formality, bereft of legal
utility or practical consequence.
114. Accordingly, and for all the reasons aforestated, we are of the
considered view that the Appeal preferred by Tommorrowland is
liable to be dismissed as infructuous. The Arbitral Award as well as
the Impugned Judgment have already been set aside in their entirety
on the ground that no enforceable liability subsisted against the
Underwriter. Once the principal relief itself stands annulled, no
independent challenge to ancillary or consequential modifications can
survive.
Decision:
115. In light of the foregoing discussion, we find no merit in the
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objections raised by Tommorrowland regarding the maintainability of
the Underwriter’s Appeal, FAO(OS) 85/2022. Upon examination of
the matter on merits, the challenge laid by the Underwriter is found to
be well-founded, and accordingly, FAO(OS) 85/2022 is allowed, and
both the Arbitral Award as well as the Impugned Judgment, insofar as
they fasten liability upon the Underwriter, are set aside.
116. As regards FAO(OS) 38/2022, filed by Tommorrowland, since
the Arbitral Award and the Impugned Judgment have been held to be
unsustainable and non-est in law for being contrary to the provisions
of the IC Act, the said appeal stands dismissed as infructuous.
117. Consequently, both Appeals, along with pending application(s),
if any, are disposed of in the above terms.
FAO(OS) 47/2022, FAO(OS) 116/2022 & CM APPL. 44208/2022,
FAO(OS) 63/2022, FAO(OS) 140/2022 along with CM APPL.
52288/2022, CM APPL. 52290/2022 & CM APPL. 52291/2022,
FAO(OS) 69/2022 and FAO(OS) 125/2022 along with CM APPL.
47561/2022, CM APPL. 47562/2022 & CM APPL. 47564/2022
118. We now turn to the examination of the remaining three sets of
cross-appeals preferred by the respective parties. FAO(OS) 116/2022
(filed by Haryana State Industrial and Infrastructure Development
Corporation Limited), FAO(OS) 140/2022 (filed by DCM Financial
Services Limited), and FAO(OS) 125/2022 (filed by Dolf Leasing
Limited), akin to the appeal filed by HDFC, which has been examined
in the first set of cross appeals, have been instituted by the
Underwriters challenging the separate Impugned Judgments, all dated
27.04.2022, passed by the learned Single Judge in distinct arbitral
awards rendered by the learned Arbitrator.
119. The remaining three appeals, namely, FAO(OS) 47/2022,
FAO(OS) 63/2022, and FAO(OS) 69/2022, are cross-appeals filed by
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Tommorrowland, assailing the respective Impugned Judgments on
limited grounds.
120. Before proceeding to consider the merits of these appeals, it is
necessary to address certain applications filed along with two of the
aforesaid Appeals, namely, CM APPL. 44208/2022 in FAO(OS)
116/2022, and CM APPL. 47561/2022 as well as CM APPL.
47564/2022 in FAO(OS) 125/2022.
121. CM APPL. 44208/2022 has been filed in FAO(OS) 116/2022
seeking condonation of a delay of 38 days in filing the Appeal by the
concerned Underwriter. Similarly, CM APPL. 47561/2022 in
FAO(OS) 125/2022 seeks condonation of a delay of 88 days in filing
the Appeal, while CM APPL. 47564/2022 in the same Appeal seeks
condonation of a delay of 26 days in re-filing the appeal.
122. Having carefully considered the reasons disclosed in the
aforesaid applications, and keeping in view that the delays in question
are neither inordinate nor indicative of any deliberate negligence or
lack of bona fides, we are satisfied that the applicants have shown
sufficient cause within the meaning and scope of Section 5 of the
Limitation Act, 1963. In the interests of substantive justice, the delays
are accordingly condoned.
123. Consequently, for the reasons stated in the respective
applications, the applications seeking condonation of delay in filing
and re-filing the Appeals are allowed.
124. In view of the foregoing, CM APPL. 44208/2022, CM APPL.
47561/2022, and CM APPL. 47564/2022 stand allowed.
125. We now turn to the merits of these Appeals.
126. At the outset, it must be noted that the substantial and
determinative issues forming the very substratum of the disputes
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between the parties have already been comprehensively examined and
conclusively decided by us in the earlier cross-appeals, as discussed in
the preceding paragraphs.
127. In our considered view, the adjudication of those foundational
issues necessarily governs and decisively impacts the outcome of the
present Appeals as well. The factual matrix and the legal questions
arising herein stand substantially covered by, and are inextricably
linked to, the conclusions already reached.
128. In these cross-appeals, on the one hand, Tommorrowland has
challenged the respective Impugned Judgments passed by the learned
Single Judge on grounds identical to those urged in FAO(OS) 38/2022
(the appeal concerning HDFC), limited to the extent that the learned
Single Judge reduced the quantum of damages awarded by the learned
Arbitrator and altered the rate and period of interest. On the other
hand, the respective Underwriters have assailed the very same
Impugned Judgments on the ground that, notwithstanding such
modifications, the learned Single Judge substantially affirmed the
arbitral awards and proceeded to fasten liability upon the
Underwriters, which, according to them, is unsustainable in law.
129. As noted earlier, FAO(OS) 85/2022 and FAO(OS) 38/2022 were
treated as the lead matters, and the arguments advanced by learned
counsel for both sides in those Appeals were, by consent, extended to
and adopted in all the remaining Appeals. Although in certain appeals
some additional or marginally varied submissions were advanced, the
core issues and governing legal principles remain identical.
130. Consequently, the legal principles enunciated and applied in the
lead matters, particularly with respect to the correct applicability of
the statutory provisions governing contracts of guarantee and the
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resultant discharge of the Underwriters, apply mutatis mutandis and
with equal force to these remaining sets of cross-appeals, including
those filed by Tommorrowland challenging the modifications relating
to the quantum of damages and alteration of interest.
131. Insofar as the varied or additional arguments sought to be raised
by the parties in these appeals are concerned, we are of the considered
opinion that they no longer bear any material relevance. Once the fate
of the Appeals turns upon the correct application of mandatory
statutory provisions, any minor factual variations or nuanced
submissions pale into insignificance. Such variations neither alter the
legal position nor warrant any departure from the conclusions already
reached on the foundational issues.
132. Save for insignificant factual variations, the substantial factual
background of all these cases is identical.
133. The governing underwriting agreements, including the rights
and liabilities of the parties, are substantially similarly worded; the
factual scenarios in which those agreements operated are identical; the
nature of liability alleged is the same; the underlying basis of the
claims raised by Tommorrowland against the Underwriters is
identical; and the references before the same Arbitrator in each case
were similar, though separate awards were rendered on different dates.
134. Likewise, the challenges before the learned Single Judge were
of the same nature, and although separate Impugned Judgments, all
dated 27.04.2022, were passed, the underlying basis for affirming the
awards and the nature of modifications made therein were also
identical. The substance of the arguments advanced before us in these
appeals is likewise common. In these circumstances, we find no
reason not to apply the underlying reasoning and conclusions reached
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in the first set of cross-appeals to the present set as well. Applying the
same mutatis mutandis, the outcome of these Appeals must
necessarily be governed by, and follow, the same conclusion.
135. At this stage, we may also note that certain factual contentions
were raised, such as alleged defects in service upon the Underwriters
before the learned Arbitrator, or contentions that the proceedings
before the learned Single Judge were not in conformity with the 1940
Arb Act.
136. In our considered opinion, the factual determinations pertaining
to the issue of service do not warrant reopening or re-agitation at the
appellate stage, particularly in the present cases, where such findings
have already been recorded by the learned Single Judge after a
detailed and reasoned examination of the material on record. Further,
having already held that the Arbitral Awards themselves are not in
conformity with the governing legal provisions and are vitiated by
errors apparent on the face of the record, we find no justification to
undertake any fresh or independent factual reappraisal at this stage.
Even otherwise, any reconsideration of the issue of service would be
purely academic in nature, as it would have no bearing whatsoever on
the ultimate outcome of the Appeals as already have been determined
by us in the preceding paragraphs.
137. Equally unpersuasive are the cross-allegations advanced by the
parties contending that the proceedings before the learned Single
Judge were not in conformity with the scheme of the 1940 Arb Act.
Such a contention proceeds on an erroneous understanding of the
scope and nature of jurisdiction exercisable under the 1940 Arb Act.
Unlike the restrictive and narrowly circumscribed jurisdiction
contemplated under Section 34 of the Arbitration and Conciliation
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Act, 1996, the Arbitration Act, 1940, vested the court with a wider
supervisory and procedural jurisdiction. The learned Single Judge,
while dealing with the Arbitral Awards under the 1940 Arb Act, was
fully competent to regulate the proceedings and to adopt such
procedures as were necessary to ensure a fair, effective, and complete
adjudication of the disputes between the parties.
138. It must be borne in mind that the powers of the court under the
1940 Arb Act are to be read harmoniously with, and supplemented by,
the provisions of the CPC. The learned Single Judge was therefore
entitled to exercise not only the express powers conferred by the
statute but also the inherent powers of the court to prevent abuse of
process and to secure the ends of justice.
139. Accordingly, in view of the conclusions arrived at by us in
FAO(OS) 85/2022 and FAO(OS) 38/2022, we are of the considered
opinion that the Appeals preferred by the Underwriters, namely
FAO(OS) 116/2022 (filed by Haryana State Industrial and
Infrastructure Development Corporation Limited), FAO(OS)
140/2022 (filed by DCM Financial Services Limited), and FAO(OS)
125/2022 (filed by Dolf Leasing Limited), are liable to be allowed.
Correspondingly, the Appeals preferred by Tommorrowland, being
FAO(OS) 47/2022, FAO(OS) 63/2022, and FAO(OS) 69/2022, stand
dismissed, having been rendered infructuous in view of the finding
that no enforceable liability subsists against the Underwriters.
140. In view of the foregoing discussion and conclusions, these three
sets of cross-appeals, along with pending application(s), if any, are
accordingly disposed of in the aforesaid terms.
FAO(OS) 45/2022, FAO(OS) 46/2022, FAO(OS) 48/2022,
FAO(OS) 49/2022, FAO(OS) 50/2022, FAO(OS) 51/2022,
FAO(OS) 52/2022, FAO(OS) 53/2022, FAO(OS) 55/2022 and CM
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APPL. 24638/2025, FAO(OS) 57/2022, FAO(OS) 58/2022,
FAO(OS) 59/2022, FAO(OS) 60/2022, FAO(OS) 61/2022,
FAO(OS) 62/2022, FAO(OS) 64/2022, FAO(OS) 65/2022,
FAO(OS) 66/2022, FAO(OS) 69/2022, FAO(OS) 70/2022
141. We now turn to the consideration of the remaining twenty
appeals, all of which have been filed exclusively by Tommorrowland
challenging the respective Impugned Judgments passed by the learned
Single Judge. In each of these Appeals, the challenge is narrowly
confined to specific aspects of the Impugned Judgments wherein the
learned Single Judge, while substantially affirming the respective
Arbitral Awards on merits, proceeded to introduce certain
modifications. In particular, while confirming the awards, the learned
Single Judge:
(i) reduced the damages awarded by the learned Arbitrator from
Rs. 80 per FCD to Rs. 20 per FCD, thereby proportionately
reducing the total award amount;
(ii) disallowed the interest granted for the pre-reference period as
well as for the duration of the arbitral proceedings; and
(iii) reduced the post-award interest from 18% per annum to 7% per
annum, operative from the date of the arbitral award until the
date of the Impugned Judgment.
142. These twenty appeals are identical in nature, scope, and
substance to FAO(OS) 38/2022 (appeal relating to HDFC filed by
Tommorrowland), and have been instituted by Tommorrowland
seeking identical reliefs on identical grounds against the respective
Underwriters. The sole distinguishing feature across these appeals lies
in the variation in financial exposure, which necessarily differs
depending upon the quantum of underwriting obligation allegedly
attributable to each Underwriter.
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143. It is material to note that, unlike the earlier four sets of cross-
appeals, the present twenty appeals are not cross-appeals. In these
cases, the respective Underwriters have consciously chosen not to
challenge the Impugned Judgments passed by the learned Single
Judge. In fact, in certain matters, the Underwriters have accepted the
Impugned Judgments and have even acted in compliance therewith by
making payments to Tommorrowland, which payments have
admittedly been accepted by Tommorrowland.
144. In the absence of any appeals having been preferred by the
respective Underwriters challenging the Impugned Judgments, all
dated 27.04.2022, the scope of examination in the present set of
appeals is, strictly speaking, limited and circumscribed. Ordinarily,
where a party has chosen to accept a judgment and has not invoked
the appellate jurisdiction of this Court, the appellate scrutiny would be
confined to the grounds expressly urged by the appellant alone.
145. However, such procedural limitation cannot operate to denude
this Court of its duty to ensure that the final outcome accords with
settled principles of law and does not perpetuate a manifest illegality.
We cannot remain oblivious to, nor can we disregard the authoritative
findings and conclusions already rendered in the earlier set of cross-
appeals, including FAO(OS) 85/2022 and FAO(OS) 38/2022, which
involved the same issuer, materially identical underwriting
agreements, substantially similar factual matrices, and
indistinguishable legal issues.
146. In those lead matters, we undertook an exhaustive examination
of the statutory framework governing contracts of guarantee under
Chapter VIII of the IC Act, and conclusively held that both the learned
Arbitrator and the learned Single Judge had committed manifest and
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patent errors of law. Specifically, it has been found that the mandatory
provisions governing the discharge of a surety, particularly those
embodied in Sections 133 and 134 of the IC Act, and allied
provisions, had not been correctly applied.
147. As a result, liability was erroneously fastened upon the
Underwriters despite the fact that, by operation of law, they stood
statutorily discharged from their obligations. We further held that the
unilateral acts of Tommorrowland, undertaken subsequent to
successful closure of the public issue, constituted a material variance
in the underlying contractual framework, thereby extinguishing the
surety’s liability in law.
148. Consequently, we have held that the Arbitral Awards, insofar as
they imposed liability upon the Underwriters, were contrary to the
mandatory statutory scheme and suffered from errors apparent on the
face of the record. The Impugned Judgments passed by the learned
Single Judge, which affirmed such awards, albeit with certain
modifications, were likewise found to be legally unsustainable.
149. In view of these foundational defects, the Appeals preferred by
Tommorrowland in those matters were held to be infructuous, the very
substratum of enforceable liability having been extinguished. These
findings, having been rendered after detailed consideration, are not
merely persuasive but are binding and determinative for all matters
arising out of the same transaction and governed by the same legal
framework.
150. The very same legal principles apply with equal force, vigour,
and inevitability to the present twenty appeals. Once it has been
judicially determined by us that no enforceable liability subsists in law
against the Underwriters, there remains no legal basis whatsoever to
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grant any relief to Tommorrowland in the present matters.
151. The mere circumstance that the Underwriters in these cases
elected not to file cross-appeals, or chose to accept the Impugned
Judgments for reasons of commercial expediency or otherwise, cannot
operate to revive a liability which has been held to be extinguished by
statutory mandate. Liability in law cannot hinge upon the fortuity of
whether a party has chosen to appeal, particularly when the issue goes
to the root of jurisdiction and enforceability.
152. To accept Tommorrowland’s contention in this regard would
lead to an anomalous and untenable situation where identically
situated Underwriters, governed by identical agreements and subjected
to identical legal infirmities, would be treated differently solely on the
basis of procedural choices. Such an approach would strike at the very
heart of legal certainty, uniformity, and consistency in judicial
decision-making. It would also offend basic notions of equity, as it
would allow Tommorrowland to derive an unwarranted advantage
merely because some Underwriters elected not to pursue appellate
remedies, notwithstanding the fact that, in law, no liability subsists
against them. Courts cannot permit the perpetuation of an illegality or
the conferment of an unjust enrichment under the guise of procedural
finality.
153. In this backdrop, this Court is fully empowered, and indeed
duty-bound, to exercise its enabling and corrective jurisdiction under
Order XLI Rule 33 read with Section 151 of the CPC. Order XLI Rule
33 confers wide and plenary powers upon the appellate court to pass
any decree or make any order which ought to have been passed in the
circumstances of the case. Significantly, this power may be exercised
notwithstanding that the appeal relates only to a part of the decree, and
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even in favour of parties who have not preferred any appeal or raised
objections. The provision is deliberately couched in broad terms to
enable the appellate court to do complete justice between the parties
and to prevent the miscarriage of justice resulting from technical or
procedural limitations.
154. The underlying object of Order XLI Rule 33 of the CPC is to
ensure that the final adjudication reflects the true legal position and
that substantive justice prevails over procedural form. When read with
the inherent powers preserved under Section 151 of the CPC, the
appellate court, for instance, this court, is vested with ample authority
to mould reliefs, correct manifest errors, and align the final outcome
with the law as correctly understood and applied.
155. In the present case, the invocation of these powers is not merely
permissible but necessary, as the continuation of reliefs in favour of
Tommorrowland would otherwise result in the enforcement of
liabilities which we have already held to be non-existent in law.
Accordingly, the exercise of jurisdiction under Order XLI Rule 33
read with Section 151 of the CPC is fully justified to ensure that the
conclusions reached by this Court are applied uniformly and
consistently across all connected matters arising from the same set of
transactions.
156. As already noted, save for insignificant and immaterial factual
variations, the substantial factual background in all these cases,
including those arising in the earlier four sets of cross-appeals, is
identical. The governing underwriting agreements, including the
rights, obligations, and liabilities of the parties, are substantially
similarly worded; the factual circumstances in which those agreements
were required to operate are the same; the nature of liability alleged
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against the Underwriters is identical; the foundational basis of the
claims raised by Tommorrowland is common; and the references to
arbitration in all cases were made to the same learned Arbitrator.
Although separate arbitral awards were rendered on different dates,
the underlying reasoning, approach, and basis of those awards
remained materially the same.
157. Likewise, the challenges raised before the learned Single Judge
were of an identical nature. While separate Impugned Judgments, all
dated 27.04.2022, were passed, the underlying basis for affirming the
Arbitral Awards and the nature of the modifications introduced therein
were also identical. In these circumstances, we find no reason to
depart from, or decline to apply, the reasoning and conclusions
already reached by this Court. Applying the same mutatis mutandis,
the fate of these appeals must necessarily be governed by, and follow,
the same conclusions.
158. Accordingly, in view of the conclusions already arrived at in the
earlier cross-appeals, we are of the considered opinion that the present
twenty appeals preferred by Tommorrowland stand dismissed, having
been rendered infructuous in light of the finding that no enforceable
liability subsists against the Underwriters.
159. In view of the foregoing discussion and conclusions, these
twenty appeals, along with pending application(s), if any, are
accordingly disposed of in the aforesaid terms.
CONSOLIDATED SUMMARY OF ALL APPEALS
160. The present batch comprises twenty-eight distinct Appeals,
arising out of multiple Impugned Judgments passed in separate
proceedings. Notwithstanding their numerical plurality, all these
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Appeals emanate from a common factual matrix, substantially similar
underwriting arrangements, and overlapping legal issues. For the sake
of analytical clarity, this Court has examined these Appeals under
different heads in the foregoing discussion and has rendered detailed
findings on each of the contentious issues raised.
161. Upon a cumulative consideration of the entire material on
record, the applicable statutory framework, and the binding
conclusions reached by this Court in the connected matters, the
ultimate outcome across all twenty-eight Appeals stands crystallised
beyond any ambiguity. We, therefore, have conclusively held that all
Appeals preferred by the Underwriters deserve to be allowed, whereas
all Appeals instituted by Tommorrowland Limited are liable to be
dismissed. Our conclusion in this Judgement is a direct consequence
of the determination that no enforceable liability subsists in law
against the Underwriters and that the Arbitral Awards, as well as the
Impugned Judgments to the extent they fastened liability upon the
Underwriters, are legally unsustainable.
162. For the sake of convenience, clarity of record, and ready
reference, the final conclusions in respect of each Appeal are
summarised hereunder in a tabular form:
CROSS APPEALS
S. CASE NO. BEFORE APPELLANT OUTCOME
NO. THIS COURT
1. 1A. FAO(OS) 38/2022 Tommorrowland Limited Dismissed
1B. FAO(OS) 85/2022 HDFC Bank Ltd. Allowed
2. 2A. FAO(OS) 47/2022 Tommorrowland Limited Dismissed
2B. FAO(OS) Haryana State Industrial Allowed
116/2022 and Infrastructure
Development Corporation
Ltd
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3. 3A. FAO(OS) 63/2022 Tommorrowland Limited Dismissed
3B. FAO(OS) DCM Financial Services Allowed
140/2022 Ltd
4. 4A. FAO(OS) 69/2022 Tommorrowland Limited Dismissed
4B. FAO(OS) Dolf Leasing Limited Allowed
125/2022
APPEALS BY TOMMORROWLAND
CASE NO. BEFORE RESPONDENT OUTCOME
THIS COURT
5. FAO(OS) 45/2022 Sharma And Co. and
Others
6. FAO(OS) 46/2022 V. Jethalal Ramji Share
Brokers Pvt Ltd & Ors.
7. FAO(OS) 48/2022 Essar Capital Ltd. Now
Known as Vajresh
Consultant Limited
8. FAO(OS) 49/2022 Jalan And Co.
9. FAO(OS) 50/2022 Sterling Holiday
Financial Services Ltd
10. FAO(OS) 51/2022 Veerhealth Care Ltd
11. FAO(OS) 52/2022 Nicco Uco Alliance
Credit Ltd
12. FAO(OS) 53/2022 Analysis Trade
Consultancy LLP
13. FAO(OS) 54/2022 Navoday Management
Services Limited Dismissed
14. FAO(OS) 55/2022 Pressman Advertising
Limited
15. FAO(OS) 57/2022 Real Growth Financial
Services Ltd Now RGF
Capital Markets Ltd
16. FAO(OS) 58/2022 Sanchay Finvest Limited
17. FAO(OS) 59/2022 R. N. Ahuja and Co
18. FAO(OS) 60/2022 Hemdev Securities India
Pvt. Ltd
19. FAO(OS) 61/2022 Prasad And Co. And
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20. FAO(OS) 62/2022 S. K. Nahata And Co. &
Ors
21. FAO(OS) 64/2022 Clarity Financial Services
Ltd.
22. FAO(OS) 65/2022 Manoj Bhargava And Co.
23. FAO(OS) 66/2022 Dwarkadas Harinarayan
Maheshwari & Ors.
24. FAO(OS) 70/2022 Shakti And Co. & Ors.
163. Accordingly, all twenty-eight Appeals stand finally disposed of
in the aforesaid terms.
164. No Order as to costs.
ANIL KSHETARPAL, J.
HARISH VAIDYANATHAN SHANKAR, J.
FEBRUARY 20, 2026/sm/va
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