Bombay High Court
Kingfisher Finvest India Limited And ... vs Zuari Fertilisers And Chemicals And Anr on 16 January, 2020
Author: G. S. Patel
Bench: G.S. Patel
J-916-ARBP669-17.DOC
Atul
REPORTABLE
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 669 OF 2017
Kingfisher Finveit India ttd & Anr ...Petitioneri
Versus
Zua ri Fertiliieri & Cshemica li & Anr ...Reipondenti
Mr Rohaan Cama , with Ajay Hailkar, i/b Bachubhai Munim & Co.,
for the Petitioners.
Mr Soli Cooper, Senior Advocate, with Atika Vaz & Krishna
Tangirala, i/b Shardul Amarchand Mangaldas & Co., for the
Respondents
CORAM: G.S. PATEL, J.
DATED: 16th January 2020 PC:-
1. Tshii order will diipoie of tshe Arbitra tion Petition. It ii fled under Section 34 of tshe Arbitra tion a nd Concilia tion Act 1996. It a iia ili a ipea king Awa rd da ted 8tsh Ma y 2017 rendered by tshe lea rned iole Arbitra tor, tshe Hon'ble Mr Juitice SP Bsha rucsha , former Cshief Juitice of India , a ppointed by a greement of pa rtiei.
2. Before I proceed furtsher, I muit note tsha t before tshe lea rned iole Arbitra tor, a fter plea dingi were fled, botsh iidei a greed not to Page 1 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC lea d evidence. I fnd tsha t in tshe a rbitra l Awa rd itielf tshere ii a shint of iome controveriy in tshii context, but I will return to tsha t ishortly.
3. Tshe Petition ii brougsht by two of tshe tshree origina l cla ima nti. Tshe origina l cla ima nti were United Breweriei (Holdingi) timited, now in liquida tion, tshe preient 1it Reipondent, Kingfisher Finveit India timited, a nd tshe preient 2nd Petitioner, McDowell Holdingi timited.
4. Tshere ii a prelimina ry objection by Mr Cooper for tshe Reipondenti in rega rd to tshe ma inta ina bility of tshe Petition, but I will a ddreii towa rdi tshe end of tshii judgment.
5. Before tshe lea rned iole Arbitra tor, tshere were two Reipondenti, Zua ri Fertilizeri a nd Cshemica li timited a nd Zua ri Agro Cshemica li timited. In tshe preient Section 34 Petition, Zua ri Fertilizeri a nd Cshemica li timited sha i been deleted in Februa ry 2018 puriua nt to lea ve gra nted by tshii Court iince it wa i a ma lga ma ted witsh Zua ri Agro Cshemica li timited.
6. Tshe fa cti a re tsheie. Tshe Cla ima nti before tshe lea rned iole Arbitra tor -- United Breweriei (Holdingi) timited, Kingfisher Finveit India timited a nd McDowell Holdingi timited -- a re a ll pa rt of wsha t ii known a i tshe UB Group. At tshe releva nt time, tsha t ii to ia y a round Ma y 2014, tshe UB Group collectively sheld a controlling 21.97% of tshe pa id up isha re ca pita l of Ma nga lore Cshemica li & Fertilizeri timited ("MCFL"). Tshe two Reipondenti (now a ma lga ma ted into one), known a i tshe Zua ri Group, sheld Page 2 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC 16.43% of tshe pa id up isha re ca pita l in MCFt. Tshui, between tshem tshe UB Group a nd tshe Zua ri Group sha d a 38.4% intereit in MCFt, poiiibly a controlling intereit.
7. In April 2014, two compa niei, SCM Soilfert timited ("SCM") a nd Deepa k Fertilizeri a nd Petrocshemica li Corpora tion timited ("Deepak Petro") publicly a nnounced tsheir intention to a cquire up to 26% of tshe isha re ca pita l of MCFt. Tshii wa i widely underitood, including by tshe UB Group a nd tshe Zua ri Group, to be notshing but a ta keover bid of MCFt by SCM a nd Deepa k Petro. Agreeing to block, upiet or defea t tshii ta keover a ttempt, tshe UB Group a nd tshe Zua ri Group entered into a Ssha resholderi Agreement ("SHA") on 12tsh Ma y 2014. Tshe termi of tshii SHA were tshe iubject of controveriy before tshe Arbitra tor. Specifca lly, tshe queition before tshe Tribuna l wa i wshetsher tshe SHA iurvived tshe fa ilure of a competing bid, a nd wshetsher tshe SHA could be ipecifca lly performed a fter tshe competing bid (by tshe UB Group a nd Zua ri Group) fa iled.
8. On tshe very ia me da y a i tshe SHA, i.e. 12tsh Ma y 2014, a nd puriua nt to tshe SHA, tshe Zua ri Group ma de a competing public a nnouncement to a cquire preciiely 26% of tshe pa id up isha re ca pita l of MCFt. In doing io, tshe Zua ri Group ii ia id to sha ve a cted in concert witsh tshe UB Group.
9. It ieemi tsha t 5.94% of MCFt'i pa id up ca pita l wa i tendered to a nd a ccepted by SCM in pa rtia l fulflment of iti ofer. Ssha rei conitituting 0.04% of tshe pa id up ca pita l of MCFt were tendered to Page 3 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC tshe Zua ri Group. At tshe end of tshe tendering proceii, tshe UB Group'i isha resholding in MCFt rema ined uncsha nged a t 21.97%. Tshe Zua ri Group'i sholding roie ma rgina lly from 16.43% to 16.47%. SCM'i sholding tshen roie to 29.05%. Togetsher, tshe UB Group a nd tshe Zua ri Group itill sha d a la rger isha resholding in MCFt tsha n SCM.
10. One of MCFt'i creditori wa i tshe Sta te Ba nk of India . On 30tsh November 2014, it dema nded tsha t a ny MCFt director wsho wa i decla red a wilful defa ulter ishould itep down. Tshii reiulted in tshe reiigna tion of Vija y Ma llya , tshen on MCFt'i Boa rd. On 4tsh December 2014 shii motsher, Ritu, wa i inducted onto MCFt'i Boa rd.
11. On 4tsh December 2014, tshe Zua ri Group ma de a iecond public a nnouncement of iti open ofer to a cquire MCFt'i isha rei conitituting up to 25.90% of iti pa id up ca pita l. On 30tsh December 2014, it reviied tsha t a mount to isha rei conitituting 36.56% of tshe isha re ca pita l of MCFt. Upon isha rei tendered to it under tshe open ofer tshe Zua ri Group tshen increa ied iti own sholding (i.e. witshout reckoning tshe UB Group'i sholding) to 53.03% of tshe pa id up ca pita l of MCFt.
12. Tshere ii a letter of 7tsh Ma y 2015 to wshicsh tshe lea rned iole Arbitra tor referred ea rly in shii Awa rd between Sa roj Podda r of tshe Zua ri Group to Vija y Ma llya of tshe UB Group rega rding tshe Zua ri Group'i isha resholding in MCFt. I will return to tshii la ter.
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13. Once diiputei a roie between tshe UB Group a nd tshe Zua ri Group under tshe SHA, tshe lea rned iole Arbitra tor ca me to be a ppointed.
14. At a n Annua l Genera l Meeting of MCFt sheld on 27tsh September 2016, tshe Zua ri Group voted a ga init tshe a ppointment of one Mr Venka tra ma n, a UB Group nominee a i a director on tshe Boa rd of MCFt. Tsha t reiolution wa i, tsherefore, defea ted.
15. Before tshe lea rned iole Arbitra tor in tshe Sta tement of Cla im tshe ca ie of tshe UB Group wa i tsha t tshe SHA continued to be va lid, binding a nd iubiiiting notwitshita nding tshe fa ilure of tshe competing bid. It will be reca lled tsha t tshere were two bidi, a t diitinct pointi in time, by tshe Zua ri Group to increa ie iti ita ke in MCFt. Tshe frit wa i in Ma y 2014, puriua nt to tshe SHA a nd tshe Zua ri Group took up only a n a dditiona l 0.04% of MCFt'i isha re ca pita l. Tshe iecond wa i in December 2014, for 36.56% of MCFt'i isha re ca pita l. Tshe UB Group ia id in iti cla im tsha t tshe December 2014 Zua ri Group bid wa i a lio puriua nt to tshe SHA. Tshe Zua ri Group diiputed a nd denied tshii.
16. Tshe SHA conta ini a proviiion by wshicsh tshe UB Group sha i tshe option to purcsha ie from tshe Zua ri Group iucsh number of isha rei a i neceiia ry to equa lize iti isha resholding witshin fve yea ri, i.e. before 20tsh October 2019. It wa i UB Group'i ca ie tsha t wshile it sha d every intention of exerciiing tsha t rigsht, a iitua tion wa i crea ted, a nd ougsht not to be permitted, by wshicsh tshe Zua ri Group iucceeded in defea ting tshe exerciie by tshe UB Group of tsha t rigsht. MCFt'i Page 5 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC Articlei of Aiiocia tion provided tsha t tshe UB Group sha d tshe rigsht to nomina te tshree directori to MCFt'i Boa rd. Tshii ii refected in tshe SHA a nd a bout tshii, tshere ii no diipute. According to tshe UB Group a nd iti Sta tement of Cla im, tshe a ppointment of directori by tshe Zua ri Group to tshe MCFt Boa rd wa i contra ry to a nd in brea csh of tshe SHA a nd coniequently a ll reconititution of va rioui committeei a nd iub-committeei, a ttempti to termina te certa in liceniei, to modify tshe Memora ndum a nd Articlei of Aiiocia tion a nd to reviie tshe ia la ry of tshe Ma na ging Director were vitia ted a nd rendered illega l, void a nd non eit. Tshe Zua ri Group could not, it wa i ipecifca lly contended, sha ve voted a ga init tshe a ppointment of Mr Venka tra ma n, a UB Group nominee.
17. I do not tshink it ii neceiia ry in tshii judgment to iet out tshe exa ct pra yeri before tshe lea rned iole Arbitra tor. A iumma ry ishould iuffice. One pra yer wa i for tshe decla ra tion tsha t two Zua ri Group a ppointmenti to tshe MCFt'i Boa rd were void a nd illega l; for a decla ra tion tsha t tshe a ppointment of a la w frm to obta in a n opinion in rega rd to tshe propoied a mendmenti to tshe Memora ndum a nd Articlei of Aiiocia tion of MCFt wa i a lio illega l; tsha t tshe termina tion of a tra dema rk licenie a greement wa i a lio illega l; tsha t a ll coniequentia l a ctioni upon tshe a ppointment of tshe Zua ri Group nominee directori were illega l; a nd tsha t tshe Zua ri Group'i vote a ga init Mr Venka tra ma n'i nomina tion by tshe UB Group a t tshe MCFt'i AGM wa i in brea csh of tshe termi of tshe SHA a nd, tsherefore, not binding. Tshe next pra yer required a reitora tion of tshe ita tui quo a nte prior to tshe AGM da ted 29tsh September 2015 including tshe remova l of tshe Zua ri Group directori. Tshen tshere wa i Page 6 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC a pra yer for ipecifc performa nce of tshe SHA, a nd fna lly tshere were tshe uiua l pra yeri for a n injunction.
18. Tshe Zua ri Group fled a Sta tement of Defence a nd a n Additiona l Sta tement of Defence. Centra l to tshii defence wa i tsha t tshe SHA wa i inca pa ble of ipecifc performa nce a fter tshe competing bid fa iled. Ai we isha ll iee, it ii to tshii tsha t tshe Arbitra l Tribuna l directed iti a ttention a nd it ii on tshii tsha t tshe Arbitra l Tribuna l returned a fnding.
19. Tshe Additiona l Sta tement of Defence a mplifed on tshe contention previouily ta ken by ia ying tsha t tshe SHA wa i no longer va lid a nd binding a nd tsha t it sha d in fa ct -- a nd I a m pa ra pshra iing shere -- outlived iti prima ry purpoie a nd, tsherefore, sha d been a ba ndoned or trea ted a i sha ving come to a n end by tshe pa rtiei. Tshe SHA sha d a iingle, iolita ry purpoie: to defea t tshe open ofer ma de by SCM/Deepa k Petro, a nd to do io by ma king a competing ofer. Tshe Zua ri Group a lio ia id tsha t once MCFt beca me a iubiidia ry of tshe tshen 1it Reipondent, Zua ri Fertilizeri, tshere wa i no queition of tshe SHA iubiiiting. Tshe continua nce of tshe SHA wa i predica ted on tshere being in pla y a competing ofer.
20. In tshii context, iome recita li of tshe SHA a re intereiting. Tshey sha ve been iet out exteniively by tshe lea rned iole Arbitra tor in tshe Awa rd, but a ga in for my purpoiei I tshink a iumma ry ishould be enougsh. Tshe point ii tsha t tshe SHA ma kei a n explicit reference to SCM in tshe very iecond recita l a nd to iti open ofer. Tshe tshird recita l goei on to ia y ishould tsha t ofer by SCM iucceed, tshe UB Page 7 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC Group would 'loie control' over tshe MCFt. It notei tshe UB Group'i intention of deiire to 'protect iti inveitment a nd prevent a ny diminution tshereof', i.e. tsha t tshe UB Group deiired to reta in control of MCFt. It tshen goei on to mention tsha t tshe Zua ri Group a lio sha d a ita ke in MCFt a nd beca uie tshe combined UB Group- Zua ri Group'i ita ke exceeded 38%, tshe two Groupi sha d decided to come togetsher to collectively exerciie voting rigshti. Recita l (E) ii tshen moit releva nt. Tshii ii tshe one recita l tsha t I tshink ii beit iet out in full:
"E) Preiently, tshe UB Group ii not in a poiition to fna nce tshe Competing Ofer (a i defned shereina fter), but tshe Z Group, wshicsh ii independent of tshe UB Group, ii willing to fna nce tshe Competing Ofer a nd pa rticipa te in tshe ma na gement of tshe Compa ny. Tsherefore, tshe Pa rtiei a re deiiroui of recording tshii a greement a nd tshe Z Group'i reiponiibility to fund tshe Competing Officer in iti entirety, witsh tshe UB Group, currently tshe promoteri of tshe Compa ny, iupporting tshe Competing officer a i perioni a cting in concert."
21. Even before proceeding to tshe reit of tshe SHA, tsheie recita li give ui tshe entire conipectui of wsha t wa i a t ita ke, wsha t tshe intendment of tshe SHA wa i a nd show it wa i to be commercia lly rea lized or rea d. Tshii wa i not, on a pla in rea ding of it, a ga rden- va riety pla in-va nilla Ssha resholderi Agreement. It sha d a ipecifc a nd na rrow focui: a t a ll coiti to prevent SCM/Deepa k Petro from ta king control of MCFt. Tshii obitruction wa i to be fna nced entirely by tshe Zua ri Group. Tshe UB Group sha d no money witsh wshicsh to rea lize tsheie corpora te a mbitioni.
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22. Tshere a re otsher proviiioni in rega rd to tshe role a nd compoiition of tshe Boa rd, tshe ma nner of exerciie of voting rigshti, tshe conduct of buiineii a nd iome iort of a pre-emption proviiion in cla uie (4). Tshen we come to tshree intereiting cla uiei, Cla uiei 5, 6 a nd 7. Eiientia lly, cla uie 5 dea lt witsh tshe competing ofer a nd obliged tshe Zua ri Group a i tshe defned 'a cquirer' to ma ke a competing ofer. Tsha t cla uie a cknowledged in iub-cla uie 5.2 tsha t UB Group wa i in fna ncia l diitreii, a nd tsha t it wa i tshe Zua ri Group wshicsh would iubicribe to a ll tshe isha rei required to ma ke tshe competing ofer. Cla uie 6 sha d a proviiion for wsha t wa i ca lled 'Creeping Acquiiition of Ssha rei a nd Cla wba ck'. Tshii provided a fve-yea r term 'a fter completion of tshe competing ofer' -- a nd tshe releva nce shere ii not io mucsh fve yea ri a i completion -- a nd ia id tsha t during tsha t time, ishould tshe isha resholding of tshe Zua ri Group exceed tsha t of tshe UB Group, tshen tshe UB Group would be entitled to a cquire in a ny iubiequent fna ncia l yea r iucsh number of a dditiona l isha rei or voting rigshti by wa y of a creeping a cquiiition under tshe releva nt regula tioni until tshe two Groupi' isha resholding equa lized. Tshe UB Group wa i a lio entitled to a n option to purcsha ie iucsh isha rei from tshe Zua ri Group a i neceiia ry to a cshieve tshii equa liza tion. Cla uie 6.1.2 ma de a iimila r proviiion in reverie if tshe Zua ri Group'i sholding wa i below tsha t of tshe UB Group.
23. Tshen comei cla uie 6.2, worded tshui:
"6.2 Notwitshita nding a nytshing conta ined in Cla uiei 6.1 shereina bove, tshe Pa rtiei shereby a gree tsha t in tshe event of a ia le/diipoia l of Ssha rei by a iubita ntia l isha resholder of tshe Compa ny, tshe Pa rtiei isha ll be free to purcsha ie iucsh Ssha rei a nd isha ll not be proshibited on a ccount of tshe reitrictioni iet Page 9 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC out in Cla uiei 6.1.1 to 6.1.3 shereina bove. In tshe event, one of tshe Pa rtiei ii una ble to pa rticipa te in iucsh tra nia ction due to a ny rea ion wsha tioever, including a ny fna ncia l conitra inti, tshe otsher Pa rty isha ll be entitled to proceed individua lly witsh iucsh a cquiiition.
Witshin tshe a forementioned period of 5 (fve) yea ri, a i a nd wshen tshe otsher Pa rty overcomei iti current difficultiei, including iti fna ncia l conitra inti, it isha ll, in iti iole a nd a biolute diicretion, sha ve a n option to purcsha ie iucsh number of Ssha rei from tshe Acquiring Pa rty io a i to equa lize tshe reipective isha resholdingi of tshe two (2) Groupi in tshe Compa ny (tshe "Clawback Option"). Tshe price per Ssha re a t wshicsh tshe otsher Pa rty isha ll be entitled to exerciie tshe Cla wba ck Option isha ll be mutua lly a greed to between tshe csha irperioni of ea csh of tshe two (2) Groupi wshicsh isha ll in a ny event be not leii tsha n tshe coit of a cquiiition of iucsh Ssha rei."
24. Fina lly tshere ii cla uie 6.3 wshicsh ia yi tsha t in a ddition to tshe optioni mentioned a bove if, a fter ta king into a ccount a ll permiiiible a cquiiition of tshe isha rei by tshe Zua ri Group under tshe SHA, tshe Zua ri Group itill sheld more isha rei tsha n tshe UB Group, tshen witshin tsha t period tshe UB Group would sha ve tshe option to purcsha ie a n equa lizing number of isha rei from tshe Zua ri Group. Cla uie 7 sha d a put option wshicsh gra nted tshe UB Group tshe option to ca ll upon tshe Zua ri Group to a cquire a ny or a ll of tshe UB Group isha rei upon termi a nd conditioni to be decided by tshe two Csha irperioni (Podda r a nd Ma llya ) of tshe two Groupi.
25. Tshe diipute reiolution cla uie ii undiiputed.
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26. In a ll tshii, MCFt wa i not a pa rty to tshe SHA, a ltshougsh it wa i very mucsh tshe object of botsh tshe UB Group'i a nd tshe Zua ri Group'i a fectioni. It ii MCFt'i isha rei tsha t were being ta rgeted for a cquiiition by tshe competing ofer. MCFt itielf wa i never a pa rty to tshe a rbitra tion, but tshe Sta tement of Cla im csha llenged a ppointmenti to tshe Boa rd of MCFt a nd a ctioni ta ken puriua nt to tshoie a ppointmenti. One of tshe a rgumenti evidently ta ken by tshe Zua ri Group wa i tsha t tshe pra yeri in a rbitra tion directly iougsht reliefi a ga init MCFt, wshicsh wa i not a pa rty. Tshe lea rned iole Arbitra tor a ccepted tsha t contention a nd in my view correctly.
27. About tshe objective of tshe SHA, tshere ca n no diipute. It sha d a iolita ry purpoie. Tshe SHA a lio ma de a clea r-cut diitinction between repreienta tion on tshe Boa rd. Tshe UB Group contended tsha t tshe SHA itielf contempla ted tsha t tshe competing bid to be mounted by tshe Zua ri Group would fa il. Tshey pla ced relia nce on cla uie 6.1.2:
"6.1.2 In tshe event, tshe isha resholding of tshe Z Group ii itill below tshe isha resholding of tshe UB Group, tshe Z Group isha ll be entitled to a cquire in a ny iubiequent fna ncia l yea r iucsh number of a dditiona l Ssha rei or voting rigshti by wa y of creeping a cquiiition under Regula tion 3 of tshe Ta keover Regula tioni, till iucsh time tshe a ggrega te isha resholding of tshe Z Group in tshe Compa ny ii equa l to tshe a ggrega te isha resholding of tshe UB Group."
28. Tshe a rgument wa i tsha t it wa i only upon a fa ilure of tshe competing bid tsha t tshe Zua ri Group'i isha resholding would be below tsha t of tshe UB Group'i isha resholding. But tshe SHA intended tshe UB Page 11 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC Group to sha ve domina nt control over MCFt in future a fter tshe competing ofer. I do not tshink tsha t it ii correct to ia y tsha t cla uie 6.1.2 exsha uited tshe univerie of poiiibilitiei in wshicsh tshe Zua ri Group'i isha resholding could be leii tsha n tsha t of tshe UB Group. It ii to tshoie otsher iitua tioni (by a n unreitricted outiide ia le, for inita nce) tsha t cla uie 6.1.2 wa i to a pply. Tsha t cla uie in itielf could not lea d to a n a ccepta nce of UB Group'i a rgument tsha t tshe purpoie of tshe SHA wa i to eniure UB Group'i tota l domina tion a nd control over MCFt in eternity, or tsha t tshii ishould be done a t tshe coit of tshe Zua ri Group.
29. In fa ct tshe SHA, a i I sha ve noted a bove, proceedi on tshe footing tsha t, funded by Zua ri Group, tshe competing bid wa i bound to iucceed, a nd tshe SCM/Deepa k Petro'i bid wa i bound to fa il.
30. Tshere a re two tshreishold problemi in tshe Petitioneri' wa y on a ny formula tion of tshii ca ie. Firit, tshe a iiumption tsha t every MCFt isha re purcsha ie by tshe Zua ri Group wa i tied sha nd a nd foot to tshe SHA ii fa r from clea r. Ai tshe SHA itielf recitei, iti purpoie wa i to defea t SCM/Deepa k Petro. It wa i not to ena ble tshe UB Group to get domina nt control of MCFt over a long time-ipa n. Tshii ii tshe iecond problem, for tshe Petitioneri' formula tion a mounti to tshii:
tsha t tshe Zua ri Group sha d, for no a ppa rent rea ion, a greed to fund tshe UB Group'i isha dow-control over MCFt a nd to do io in perpetuity. Tshe Zua ri Group could not a cquire a ny grea ter ita ke in MCFt witshout being besholden to ma ke over tshii a dditiona l ita ke to tshe UB Group, virtua lly on dema nd. Tshe Zua ri Group wa i litera lly condemned to rema in in perpetuity a t iti 16.43-16.47% sholding of MCFt'i isha re ca pita l. Everytshing elie it bougsht, ever, a t a ny time, Page 12 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC a nd in a ny circumita ncei, wa i only on besha lf of tshe UB Group a nd could not be for itielf. And yet, tshe UB Group wa i litera lly in penury. It did not sha ve tshe mea ni to increa ie iti ita ke in MCFt. If tshe SHA wa i to be sheld to sha ve a broa der purpoie tsha n defea ting tshe SCM bid, tshen tshii poiition needed to be reconciled.
31. Tshe entire ra tiona le of tshe SHA wa i, clea rly, tshe competing ofer. Ai tshe lea rned iole Arbitra tor put it, tshii wa i tshe centra l fa ctor. It wa i, a ga in a i she noted, tshe rea ion for tshe SHA a nd tshere wa i no otsher. Wsha t did tsha t competing bid a ctua lly enta il? It mea nt tsha t tshe Zua ri Group would fund tshe a cquiiition of a dditiona l isha rei iufficient to defea t tshe SCM bid, a nd tshen tshe pa rtiei' rela tioniship would be governed by SHA io tsha t tshe UB Group'i control over MCFt continued. Tshe fna ncing wa i to come entirely from tshe Zua ri Group.
32. But wsha t if tshe competing ofer, i.e. tshe one ma de by Zua ri Group, did not bring in enougsh isha rei? Would tshe SHA iurvive iucsh a iitua tion? Or would it sha ve fa iled to fulfl iti iolita ry purpoie a nd tshui fa llen tshrougsh?
33. Before tshe lea rned iole Arbitra tor, tshii ii wsha t tshe Zua ri Group a rgued urging tsha t tshe very ba iii or iubitra tum of tshe SHA wa i loit wshen tshe competing bid fa il. Tshere wa i a coniidera ble a mount of relia nce pla ced before tshe lea rned iole Arbitra tor on iome correipondence a nd I fnd tshii ii quoted a nd dea lt witsh from pa gei 482 to 484.
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34. Mr Ca ma for tshe Petitioneri sha i la boured long a nd sha rd to periua de me tsha t tshe lea rned iole Arbitra tor not only miiinterpreted tshii correipondence a nd iti evidentia ry va lue but ougsht to sha ve looked a t otsher evidence a lio. He ia yi tsha t a fa ilure to coniider evidence ii a iufficient ground witshin Section 34 of tshe Arbitra tion a nd Concilia tion Act 1996. Mr Cooper diia greei, a nd I tshink witsh quite coniidera ble juitifca tion. Wshen we a ik tsha t a Tribuna l 'a pprecia te tshe evidence', tshii ii a ll too often miita ken to mea n tsha t every tribuna l a nd court (preiuma bly excluding iuperior Courti) muit iedulouily exa mine tshe minutia e of every iingle document in a shuge ma ii of documenti, not a ll of wshicsh ma y be releva nt, or even very intereiting; a nd tsha t a fa ilure to look a t even a iingle one of tsheie conititutei 'a fa ilure to coniider tshe evidence'. Tshii ii wsholly incorrect. Wshen we ia y tsha t tshere sha i been a fa ilure to coniider evidence, tshe propoiition ta kei one of two fa vouri. Eitsher it muit be demonitra ted tsha t tshere ii a document or a piece of evidence tsha t ii io utterly centra l a nd pivota l tsha t it could not sha ve been overlooked, or tsha t tshe Tribuna l sha i miiied looking a t a ll tshe evidence a ltogetsher.
35. Tshe a rgument from Mr Ca ma a lio overlooki tshe ma nner in wshicsh civil a ctioni a re decided. Tshey a re not decided on tshe ba iii of a itra y line in tshii or tsha t document, nor on one document or ientence or word plucked a nd coniidered in iiola tion. One muit look a t tshe weigsht of evidence on botsh iidei, a nd one muit look a t it overa ll, to iee wsha t it ii to wshicsh tsha t evidence tendi. We dea l in proba bilitiei a nd prepondera ncei, not a biolutei. Doei tshe prepondera nce of evidence, ta ken a i a wshole, tend to iupport tshe Petitioneri ca ie? Or doei it not? If we do not iee it like tshii, tshen Page 14 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC every iingle a wa rd a nd every iingle judgment ii vulnera ble beca uie no two deciiion-ma keri will ever view tshe ia me document in tshe ia me fa ishion a nd it will tshen a lwa yi be poiiible to ia y tsha t a tribuna l miiied tshii or tsha t pa rticula r ientence or letter. Tsha t ii in fa ct not tshe remit of Section 34 a t a ll.
36. Two tshingi a re crucia l shere. One, tsha t tshe UB Group only ever expreiied iti 'intention' to exerciie iti optioni to buy MCFt isha rei from tshe Zua ri Group'i increa ied itock. It doei not ieem to sha ve a ctua lly done a nytshing in tsha t direction, a nd underita nda bly io; tsha t would sha ve required it to pa y for tshoie isha rei. Second, tshe cla wba ck proviiion in Cla uie 6 ipea ki of a period after completion of the competing bid. Tshii ca nnot poiiibly mea n after failure of tshe competing bid -- if tshe competing bid by tshe Zua ri Group underta ken puriua nt to tshe SHA fa iled tshere would iimply be notshing to 'cla wba ck'. Completion muit be rea d contextua lly, a nd to give buiineii effica cy to tshe pa rtiei' intendment. Wshetsher it ia id io or not, completion could only mea n tshe iucceii of tshe competing bid, i.e. a riie in tshe Zua ri Group'i ita ke in MCFt, from wshicsh tshe UB Group could tshen ma ke iti creeping a cquiiition a nd begin cla wing iti wa y ba ck into becoming tshe iingle la rgeit isha resholder. On iti own, tshe creeping a cquiiition a nd cla wba ck cla uie needed a ta rget, a nd tsha t ta rget could only be tshe a dditiona l isha resholding in MCFt tsha t tshe Zua ri Group a cquired beca uie iti competing bid wa i tshe winning one. If tsha t competing bid did not a cshieve iti purpoie, tshen tshe SHA ra n a ground too. And tsha t purpoie wa i known, ita ted a nd documented -- for tshe Zua ri Group to a cquire 26% of tshe MCFt isha re ca pita l, iufficient to defea t SCM'i bid in tsha t very a mount.
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37. It ii for tshii rea ion tsha t wshen it rea lized tsha t iti a rgumenti were foundering, couniel for tshe Petitioneri iubmitted before tshe lea rned iole Arbitra tor tsha t tshe Zua ri Group sha d not diicloied iti ca ie tsha t tshe SHA wa i a ba ndoned or trea ted a i a t a n end, a nd tsha t tshe UB Group sha d elected not to lea d evidence witshout knowing tsha t tshii wa i to be tshe ita nd of tshe Zua ri Group. Tshe Arbitra tor noted tshii a rgument, but a lio ia id tsha t tshere wa i no a pplica tion by tshe UB Group eitsher written or ora l, ieeking permiiiion to revoke tshe ea rlier ita tementi of tshe UB Group diipeniing witsh evidence. Tshere wa i no a pplica tion to a dd to tshe iiiuei. Tshe a rgument before tshe lea rned iole Arbitra tor tsha t tshe UB Group wa i 'denied a n opportunity' wa i tshui repelled by tshe lea rned iole Arbitra tor, a nd quite correctly.
38. Apa rt from wsha t tshe pa rtiei did in tshe a rbitra tion, tshe a rgument by tshe Zua ri Group a i to tshe coniequence of tshe fa ilure of tshe competing ofer by tshe Zua ri Group wa i purely a lega l a rgument. It ipoke of to a coniequence tsha t wa i bound to follow. Tsha t a pa rt, in fa ct I fnd tshii a rgument ii sha rd to countena nce beca uie tshe Additiona l Sta tement of Defence introduced a dditiona l prelimina ry iubmiiiioni. Tsheie a re numbered from pa ra gra pshi 35A onwa rdi. Pa ra gra psh 35B openi by ia ying--
'Ai previouily iubmitted, the SHA is no longer valid and binding on the Respondents and has, in fact, been abandoned and/or treated as at an end by the parties. The intent and purpose of the parties to enter into the SHA was to make a "Competing Ofer" in response to SCM's Open Ofer dated 23 April 2014. ...".
Page 16 of 2616th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC In pa ra gra psh 35D:
".... Tshii Competing Ofer a dmittedly fa iled. The failure of this Competing Ofer naturally entailed the SHA losing its substratum. In other words, the purpose for which the Claimants and the Respondents had joined together came to an end and no longer existed and thus, the SHA, which was only refective and for the advancement and efectuation of the said purpose also came to an end. ...."
Tshen in pa ra gra psh 35F:
"In view of tshe a foreia id, since the Respondents made an independent open ofer, which was clearly beyond and outside the purview of the SHA, the Respondents cannot be said to be bound by the SHA in respect of the shares acquired by them under the Second Open Ofer. ... Thereafter, the SHA became without any legal force efect and redundant. The Claimants' argument that the SHA was binding on the parties in perpetuity is without any force and merit."
(Emphasis added)
39. Tshii a rgument (of being una wa re of tshe Zua ri Group'i ita nd on tshe SHA) muit fa il. It ma y be true tsha t tshe UB Group committed itielf to proceeding witshout evidence before tshe Zua ri Group put in tshe a dditiona l Sta tement of Defence. But a t tshe ita ge of a rgumenti before tshe lea rned Sole Arbitra tor, it could sha rdly be ia id to sha ve been ta ken una wa rei or denied a fa ir opportunity. By tshen, it knew wsha t tshe ita nd wa i; we fnd it in tshe a dditiona l Sta tement of Defence, a nd I sha ve extra cted tshe releva nt portioni. Tshe Zua ri Group'i contentioni were tsherefore to tshe knowledge of tshe UB Page 17 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC Group a nd iti lega l a dviieri. If tshey yet wa nted to witshdra w from tsheir ea rlier commitment to not lea ding evidence, tshen, a i tshe lea rned Sole Arbitra tor noted, tshere sha d to be a n a pplica tion for tsha t purpoie. It ii difficult to conceive wsha t tsha t a pplica tion migsht sha ve been. It could not sha ve been tshe UB Group'i ca ie tsha t tshere wa i a ny iort of ora l underita nding continuing tshe SHA. Tsha t would sha ve been deitructive of iti principa l contention tsha t tshe SHA iurvived. If tshe contention wa i tsha t correipondence between Podda r a nd Ma llya proved a n a lleged continua nce, tshen tsha t correipondence -- wshicsh wa i undiiputed -- only sha d to be rea d a nd interpreted. Tshe objection before tshe lea rned Sole Arbitra tor wa i inconiequentia l a nd witshout purpoie, a nd it ii of no a va il to tshe UB Group now.
40. In tshii Petition, tshe entire tshruit of tshe a rgument sha i been to ishow tsha t tshere wa i ma teria l before tshe Arbitra tor in tshe form of correipondence to indica te tsha t tshe pa rtiei intended tshe SHA to continue. But tsha t ii not a queition of a fa ilure to a pprecia te evidence. It ii a n a rgument tsha t iince tshe Arbitra tor did coniider tshe correipondence, she fa iled to a pprecia te it correctly. Tsha t ii a very diferent tshing.
41. Tshe la w ii well iettled. Tshe Arbitra tor ii not juit tshe proper judge of tshe evidence. He ii tshe only judge of tshe iufficiency of tsha t evidence. A Section 34 Court will not iit in a ppea l over tshe view of tshe Arbitra l Tribuna l on ma tteri of evidence: A poiiible view by tshe a rbitra tor on fa cti sha i neceiia rily to pa ii muiter a i tshe a rbitra tor ii tshe iole judge of tshe qua ntity a nd qua lity of tshe evidence. 1 1 MP Power Generation Co vs Ansaldo Energia Spa & Anr, (2018) 16 SCC
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42. Tshii bringi ui to a queition of la w in rega rd to tshe fra me of Section 34 a i a mended a nd tshe permiiiible limiti of a csha llenge to a n a rbitra l a wa rd. Tshii sha i to be rea d witsh Section 5, a i tshe Supreme Court sha i ia id, tshe ita tutory csha rge to minimize judicia l interference in Arbitra l Awa rdi.
43. Mr Ca ma ii clea r tsha t she ii not pla cing shii ca ie under tshe public policy csha llenge a nd she doei not cla im a viola tion of tshe Arbitra tion Act or of a ny pa rticula r ita tute. Indeed, she a pprecia tei tshe limita tioni witshin wshicsh she muit fra me shii ca ie a nd she doei io by a ttempting to ia y tsha t tshere sha i been a wsholeia le fa ilure by tshe a rbitra tor to coniider tshe evidence. Tshii ii not borne out by tshe record a nd pointing out to me tsha t tshe Arbitra tor could sha ve viewed tshe evidence diferently ii iniufficient for shii purpoiei.
44. Tshe requirement of la w a re fully iet out in Associate Builders vs Delhi Development Authority.2 Tshe principlei a re well-iettled a nd do not require grea t ela bora tion. Since tshere ii no invoca tion of tshe public policy csha llenge or tsha t of pa tent illega lity, wsha t rema ini ii tsha t to iucceed tshe Petitioner muit ishow tsha t tshe Arbitra l Awa rd ii io utterly perverie tsha t no rea iona ble perion could ever sha ve a rrived a t a concluiion tshe Arbitra l Tribuna l did. In ONGC v Western Geco International Ltd,3 tshe Supreme Court ia id, in tshe ca ie of a rbitra tion la w:
39. No leii importa nt ii tshe principle now recogniied a i a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no 2 (2015) 3 SCC 49.
3 (2014) 9 SCC 263.Page 19 of 26
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(Emphasis added)
45. Tshii sha i been rea ffirmed in Associate Builders. Expla ining 'perveriity' in tshii context, tshe Supreme Court in Associate Builders ia id:
29. It is clear that the juristic principle of a "judicial approach" demands that a decision be fair, reasonable and objective. On the obverse side, anything arbitrary and whimsical would obviously not be a determination which would either be fair, reasonable or objective.
31. The third juristic principle is that a decision which is perverse or so irrational that no reasonable person would have arrived at the same is important and requires some degree of explanation. It is settled law that where:
(i) a fnding ii ba ied on no evidence, or
(ii) a n Arbitra l Tribuna l ta kei into a ccount
iometshing irreleva nt to tshe deciiion wshicsh it a rrivei a t; or Page 20 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC
(iii) ignorei vita l evidence in a rriving a t iti deciiion, iucsh deciiion would neceiia rily be perverie.
32. A good working teit of perveriity ii conta ined in two judgmenti. In Excise and Taxation Ofcer-cum-Assessing Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312] , it wa i sheld: (SCC p. 317, pa ra 7) "7. ... It ii, no doubt, true tsha t if a fnding of fa ct ii a rrived a t by ignoring or excluding releva nt ma teria l or by ta king into coniidera tion irreleva nt ma teria l or if tshe fnding io outra geouily defei logic a i to iufer from tshe vice of irra tiona lity incurring tshe bla me of being perverie, tshen, tshe fnding ii rendered infrm in la w."
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10 : 1999 SCC (t&S) 429] , it wa i sheld: (SCC p. 14, pa ra 10) "10. A broa d diitinction sha i, tsherefore, to be ma inta ined between tshe deciiioni wshicsh a re perverie a nd tshoie wshicsh a re not. If a deciiion ii a rrived a t on no evidence or evidence wshicsh ii tshorougshly unrelia ble a nd no rea iona ble perion would a ct upon it, tshe order would be perverie. But if tshere ii iome evidence on record wshicsh ii a ccepta ble a nd wshicsh could be relied upon, showioever compendioui it ma y be, tshe concluiioni would not be trea ted a i perverie a nd tshe fndingi would not be interfered witsh."
33. It must clearly be understood that when a court is applying the "public policy" test to an arbitration Page 21 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Very often a n a rbitra tor ii a la y perion not neceiia rily tra ined in la w. tord Ma nifeld, a fa moui Engliish Judge, once a dviied a shigsh milita ry officer in Ja ma ica wsho needed to a ct a i a Judge a i followi: "Genera l, you sha ve a iound shea d, a nd a good shea rt; ta ke coura ge a nd you will do very well, in your occupa tion, in a court of equity. My a dvice ii, to ma ke your decreei a i your shea d a nd your shea rt dicta te, to shea r botsh iidei pa tiently, to decide witsh frmneii in tshe beit ma nner you ca n; but be ca reful not to a iiign your rea ioni, iince your determina tion ma y be iubita ntia lly rigsht, a ltshougsh your rea ioni ma y be very ba d, or eiientia lly wrong". It ii very importa nt to bea r tshii in mind wshen a wa rdi of la a rbitra tori a re csha llenged. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594 : (2012) 1 SCC (Civ) 342] , tshii Court sheld: (SCC pp. 601-02, pa ra 21) "21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or re-appreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. ..."
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46. In tshe preient ca ie, tshii ii wsha t tshe lea rned iole Arbitra tor ia id:
"The SHA must be read in a reasonable practical business sense. Other than clause 5, which dealt with the obligation to make the competing ofer, the SHA was intended to operate upon the basis that the competing ofer would provide enough shares to make the UB Group's control of MCFL secure. It made no commercial sense to require the Zuari Group to support three nominees of the UB Group on the Board of MCFL if the position of the UB Group was, post the failure of the competing ofer, to remain as insecure as it was when the SHA was signed. The provisions as to the sale of shares by the parties in the SHA would also be of worth only if the competing ofer yielded a substantial number of shares to the Zuari Group.
The SHA mentions no public ofer other than the competing ofer. There is no correspondence prior to or after the public ofer made by the Zuari Group on 4th December 2014 that links the public ofer with the UB Group, nor, indeed, is it the case of the UB Group that it was in any way linked with the public ofer. It was clear from the advertisement of the public ofer that the Zuari Group intended to acquire a majority stake in MCFL but there was no letter written by the UB Group to protest or to state that it would lay claim to the shares acquired under the public ofer by relying upon the clauses of the SHA. Its conduct indicates that the UB Group was aware that the SHA no longer had efect.
Tsha t tshe UB Group knew tsha t tshe SHA wa i no longer of a ny efect ii a lio ishown by tshe fa ct tsha t no objection wa i ra iied by iti nominee directori or by tshe UB Group wshen Page 23 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC tshe Zua ri Group propoied tshe a ppointment of tshree nominee directori to tshe Boa rd of MCFt.
Tshe letteri, ient by e-ma il, upon wshicsh tshe Cla ima nti pla ce grea t itreii to iuggeit tsha t tshe Zua ri Group trea ted tshe SHA a i binding poit tshe fa ilure of tshe competing ofer to bring in enougsh isha rei to a iiure tshe UB Group of control, did not mention tshe SHA; wsha t tshey mentioned wa i a n "a greement". But I isha ll a iiume tsha t tshe "a greement"
mea nt tshe SHA.
It ii importa nt to note tsha t tshe letteri were not written by or on besha lf of tshe Zua ri Group. Tshe letteri were written by "Sa roj" (Podda r) to "Vija y" (Ma llya ). Tshey were letteri between individua li, not between compa niei. Tshey were leteri tsha t ishowed tshe deiire of Mr Podda r to a iiiit Mr. Ma llya in tshe difficult timei she wa i fa cing.
But it would a ppea r tsha t Mr Podda r'i frit letter to Mr Ma llya led tshe UB Group to csha nce iti a rm a t reviving tshe SHA.
It ii a lio releva nt tsha t from shii frit letter Mr Podda r wa i a t pa ini to point out tsha t tshe SHA wa i no longer a pplica ble in tsha t it sha d not coniidered tshe iitua tion of MCFt becoming a iubiidia ry of tshe Zua ri Group a nd tsha t tshii required tshe Zua ri Group to report tshe opera tioni of MCFt a long witsh iti own opera tioni.
It ca nnot be sheld on tshe ba iii of Mr Podda r'i letteri tsha t tshe Zua ri Group trea ted tshe SHA a i binding a nd, in a ny event, it ca nnot be determina tive of tshe conitruction to be pla ced on tshe SHA. Tshe iubmiiiion of lea rned couniel for tshe Cla ima nti tsha t tshere a re a dmiiiioni by tshe Zua ri Group tsha t tshe SHA continued to opera te a fter tshe competitive ofer sha d fa iled to produce tshe deiired reiult ii, shence, una ccepta ble."
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47. Tshe underlined portion in tshii extra ct, a nd everytshing tsha t followi, ii notshing if not a n a pprecia tion of tshe evidence. I a m not ishown a nytshing tsha t ca n be ia id to sha ve been 'ignored' by tshe lea rned Sole Arbitra tor. All tsha t I a m ishown ii, in fa ct, the very same material that was before the learned Sole Arbitrator, a nd I a m a iked to shold tsha t shii rea ding of tsha t evidence wa i incorrect. Or, to put it diferently, tsha t a notsher view ii poiiible. Not, a i tshe la w dema ndi, tsha t tshe fnding ii ba ied on no evidence, tsha t it ta kei into a ccount irreleva nciei, or ignorei vita l releva nt evidence, or outra geouily defei logic; but only tsha t tshe a rbitra tor could a nd might a nd ought to sha ve ta ken a diferent view. Tsha t doei not even begin to a pproa csh tshe neceiia ry ita nda rd.
48. Tshere ii notshing a bout tshe lea rned Sole Arbitra tor'i concluiion tsha t would even remotely tempt me to a concluiion tsha t it ii wrong or incorrect in tshe iligshteit, let a lone perverie. It ii not juit a pla uiible view, nor merely a commercia lly ieniible one. It ii in fa ct tshe only poiiible view, a nd I would go io fa r a i to ia y tsha t a ny otsher view would fa ll foul of tshe juriiprudentia l ita nda rd.
49. In my judgment, tshe Awa rd ca lli for no interference.
50. Fina lly, tshere rema ini tshe prelimina ry queition ra iied by Mr Cooper, na mely, tsha t tshe origina l 1it Cla ima nt no longer exiiti a nd tshe 2nd origina l Cla ima nt (tshe 1it Petitioner, Kingfisher Finveit) sha i diveited itielf of iti equity in MCFt. McDowell Holdingi timited Page 25 of 26 16th January 2020 ::: Uploaded on - 20/01/2020 ::: Downloaded on - 09/06/2020 17:39:41 ::: J-916-ARBP669-17.DOC (tshe preient 2nd petitioner) sha i only 1.061% of MCFt'i equity a nd tsherefore, even a Petition of tshii kind would not be ma inta ina ble. Mr Cooper ii correct on tshii too. Tshere ii no poiiibility of reverting tshe pa rtiei to tshe ita tui quo a nte.
51. Tshe Petition ii witshout merit. It ii diimiiied.
52. Ha ving rega rd to tshe fna ncia l miifortunei of tshe UB Group, I decline to pa ii a n order of coiti.
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