Delhi High Court
Manikaran Power Limited vs Valuehunt Advisors Llp on 6 April, 2021
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw, Amit Bansal
$~1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 6th April, 2021
+ FAO (COMM) 5/2021 & CM APPL. 33109/2020 (for stay)
MANIKARAN POWER LIMITED ..... Appellant
Through: Mr. Abhijeet Swaroop, Advocate.
Versus
VALUEHUNT ADVISORS LLP ..... Respondent
Through: Mr. Dhruv Banerji, Advocate.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
HON'BLE MR. JUSTICE AMIT BANSAL
JUDGMENT
RAJIV SAHAI ENDLAW, J.
1. This appeal, under Section 37 of the Arbitration and Conciliation Act 1996, impugns the judgment dated 5th December, 2020 of the Commercial Court - 02, Patiala House Court, New Delhi of dismissal of OMP (COMM) 60/2019 under Section 34 of the Arbitration Act, preferred by the appellant with respect to the arbitral award dated 17th December, 2018, of payment of Rs. 24,75,000/- with interest, by the appellant to the respondent.
2. The appeal came up before a Single Judge of this Court on 16th December, 2020, but after several adjournments, was ordered to be placed before the Commercial Appellate Division Bench, which alone under Section 13(1A) of the Commercial Courts Act, 2015 is authorised to hear the appeal. The appeal accordingly came up before a Bench comprising of FAO (COMM) 5/2021 Page 1 of 11 one of us (Rajiv Sahai Endlaw, J.) sitting with Justice Sanjeev Narula, on 1st February, 2021 when, though notice of the appeal had not been issued till then, but the counsel for the respondent appeared on advance notice.
3. On 1st February, 2021, on enquiry, whether the appellant had deposited the arbitral award amount, this Court was informed that only 25% of the amount had been deposited. While listing the appeal for today for hearing on admission, the appellant was directed to deposit the entire arbitral amount awarded, in the Execution Court, and we are today informed that the entire arbitral award amount has been deposited in the Execution Court. We have heard the counsel for the appellant and the counsel for the respondent appearing on advance notice.
4. The parties entered into an agreement dated 22nd March, 2016, whereunder the respondent agreed to provide advisory services to the appellant for preparation and sanction of a financing package. As per the terms and conditions of the agreement, (i) the appellant agreed to pay non- refundable engagement fee of Rs. 1,00,000/- to the respondent and which was adjustable against the fee payable at the final milestone; (ii) the appellant further agreed to pay 0.75% of the quantum of working capital facility arranged by the respondent for the appellant, with 25% of the fee amount being payable on receipt of sanction letters and the remaining 75% being payable at the time of first disbursement of the working capital; (iii) "if due to any reasons" the appellant decided "not to proceed with the sanctions or does not involve" the respondent "in the completion of balance activities", the respondent was nevertheless entitled for the entire success fee; (iv) the clause in the agreement regarding payment of professional fee was to remain valid for a period of four months from the date of signing of FAO (COMM) 5/2021 Page 2 of 11 the agreement and during which time the respondent was to act as exclusive financial advisor to the appellant; (v) the appellant agreed not to approach directly or indirectly the investors/institutions/bankers or any other parties introduced to it by the respondent, from the date of acceptance of such contract and until a period of 12 months after the expiry of the contract; (vi) the professional fee/expenses were to be paid by the appellant to the respondent within 7 days of respondent raising an invoice; (vii) if at any stage the appellant decided not to go ahead with the project/transaction or defer or abandon the project/transaction, the amount due to the respondent up to that stage was agreed to be paid; and, (viii) in case of early termination, respondent was to remain entitled to receive payment from the appellant for the services performed up to the date of such termination.
5. Besides the aforesaid commercial clauses, the parties also agreed as under:-
"All disputes or differences between the parties arising out of or in connection with execution of the assignment shall be attempted to be settled through mutual negotiation. In the event of such differences or disputes are not settled through mutual negotiations, the differences/disputes shall be referred to arbitration. The arbitration shall be conducted at Delhi in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and any statutory modification thereof. Notwithstanding the existence of any disputes referred to Arbitration, the parties shall continue to perform their respective obligations under this Proposal."
6. The appellant sent a letter dated 27th October, 2016 to the respondent as under:-
FAO (COMM) 5/2021 Page 3 of 11"To Mr. Pranay Agarwal Director Value Hunt Advisor LLP Sub: Termination of Contract for Advisory services for arrangement of Working Capital facility vides Mandate dated 22.03.2016 Dear Sir With reference to the above subject please note that:
1. As per Para 2 of the Mandate, the mandate was given to you for arrangement of Working Capital facility of about Rs.80 Crores (Non fund based facility of about Rs. 70 Crores and Fund based facility of about Rs.10 Crores) on 10% cash Margin and 10% Collateral.
2. As per Para 3.1 the Mandate was valid for four months.
3. As per Para 3.1 non refundable engagement fee of Rs. 1 lakh was payable on signing of this mandate.
As you know that we have received a sanction letter from the State Bank of Hyderabad for Rs.26 Crores only on 25% cash margin and approx 38.46% collateral. The collateral %age has increased from existing 25% to 38.46% which is contrary to the mandate given to you. The sanction done by the bank under these terms is not acceptable to us. Also to bring into notice that the mandate was given to you for a four month period from its signing date, this has already been expired on 21st July 2016. Therefore please consider this letter as a notice of termination of agreement with you with immediate effect.
FAO (COMM) 5/2021 Page 4 of 11As regards the payment we have already paid you the non refundable amount of Rs. 1 lakh on 16.04.2016. On your request we have paid you Rs.50,000 as advance against your fees on 18.08.2016.
You have raised a bill of Rs.1,87,500 through invoice No.2016/17-10-01 dated 22.10.2016. Since the sanction was not done as per the terms of mandate we will not be able to release payment against this invoice and we request you please refund us Rs.50,000 taken as advance against your professional fees.
Thanking you."
7. Disputes and differences having arisen between the parties, arbitration was commenced and in which the respondent raised a claim for Rs.24,75,000/- together with applicable taxes and simple interest against the appellant. The Arbitral Tribunal held the respondent entitled to an amount of Rs.24,75,000/- along with interest @ 12% per annum amounting to Rs.5,31,692/- till the date of Award together with future interest and costs of Arbitral Proceedings.
8. Aggrieved therefrom, as aforesaid, the appellant preferred petition under Section 34 of the Arbitration Act and which has been dismissed by the Commercial Court.
9. The counsel for the appellant started arguing the matter before us, as in an appeal against judgment and decree of the Civil Court. However, on being reminded that the matter under consideration is an appeal against the dismissal of a Section 34 application with respect to the Arbitral Award and the scope of interference wherein is much more limited than even in a Section 34 Petition, as held in Shree Vinayak Cement Clearing Agency Vs. FAO (COMM) 5/2021 Page 5 of 11 Cement Corporation of India (2007) 142 DLT 385 (DB), Thyssen Krupp Werkstoffe GMBH Vs Steel Authority of India MANU/DE/1853/2011 (DB), Jhang Cooperative Group Housing Society Ltd. Vs. PT. Munshi Ram and Associates Pvt. Ltd. (2013) 202 DLT 218 (DB), State Trading Corporation of India Ltd. Vs. Toepfer International Asia PTE Ltd. MANU/DE/1480/2014 (DB), Delhi State Industrial & Infrastructure Development Corporation Ltd. Vs. Rama Construction Company MANU/DE/1518/2014 (DB), Mahanagar Telephone Nigam Limited Vs. Fujitshu India Private Limited MANU/DE/0459/2015(DB)[Special Leave Petition (Civil) No.21831/2015 preferred whereagainst was dismissed on 14th August, 2015 and Review Petition (Civil) No. 3382/2015 preferred whereagainst also dismissed on 3rd November, 2015], LG Electronics India (P) Ltd. Vs. Dinesh Kalra MANU/DE/1379/2018 (DB), M.L. Lakhanpal Vs. Darshan Lal MANU/DE/2159/2018 (DB), Airports Authority of India Vs. Sikka Associates MANU/DE/2988/2018(DB) and MMTC Limited Vs. Karan Chand Thapar & Bros (Coal Sales) Ltd. 2019 SCC OnLine Del 7648 (DB) [Special Leave Petition (Civil) No.9877/2019 preferred whereagainst was dismissed on 29th April, 2019], the counsel for the appellant states that the Arbitral Award allows claims of the respondent under two invoices and though the appellant in the Section 34 application had challenged the Award with respect to both invoices, but in this appeal is not pressing the challenge to the Award in the sum of Rs.1,87,500/-, being the amount of the first invoice and is confining the challenge to the Award only insofar as it allows the amount claimed on account of the second invoice raised by the respondent on the appellant. It is argued that the second invoice was raised after the communication dated 27th October, 2016 FAO (COMM) 5/2021 Page 6 of 11 aforesaid by which the appellant terminated the contract. It is further contended that the appellant had agreed to pay the respondent for services to be rendered till the termination of the Contract and the respondent did not render the services for which second invoice was raised and the Arbitral Award has not considered the said aspect.
10. On enquiry, under which Clause of Section 34 of the Arbitration Act, the argument aforesaid falls, the counsel for the appellant has drawn attention to Section 34(2)(a)(iv) of the Act which inter alia empowers the Court to set aside the Arbitral Award if deals with the dispute not contemplated by or not falling within the terms of the submission to arbitration or if it contains decision on matters beyond the scope of submission to Arbitration.
11. On further enquiry, which of the aforesaid three alternatives in Section 34(2)(a)(iv) is being invoked, the counsel for the appellant states that the Arbitral Award deals with the disputes not falling within the terms of the submission to arbitration. Attention in this regard is invited to the Arbitration Clause as reproduced above and it is contended that the same does not permit arbitration of claims made after the termination of the contract. However on enquiry, whether such a plea was taken before the Arbitral Tribunal, the counsel for the appellant fairly states that it was not so specifically taken, though was urged in the Section 34 application.
12. Once the appellant, at the contemporaneous time did not consider that the claim of the respondent qua the amount of the second invoice did not fall within the terms of submission to arbitration, the appellant cannot, on change of legal counsel, take such a plea. It cannot be lost sight of that the FAO (COMM) 5/2021 Page 7 of 11 appellant, which itself entered into the contract, according to the counsel for the appellant, without any legal assistance and was thus the best person to know what had been agreed or what was the meaning and purport of the written agreement and what/which claims fell within the terms of submission to arbitration and which did not, when faced with the claim, did not raise such a plea. Merely by invoking law, no new facts can be created. We therefore do not feel the need to delve on the said argument any further.
13. Else, counsel for the appellant has contended that the Arbitral Tribunal has misconstrued the terms of the contract and has referred us to South East Asia Marine Engineering and Constructions Limited Vs. Oil India Limited (2020) 5 SCC 164, wherein it was held that the view taken by the Arbitral Tribunal was not even a possible interpretation of the Clauses of the Contract and the Arbitral Award held to suffer from perversity.
14. We are however unable to agree that the same can apply to the interpretation of the contract between the parties wherein in the subject arbitral award. Under the Clauses of the agreement with the appellant, the respondent remained entitled to its professional fee even in the event of the appellant deciding not to proceed with the sanctions or not involving the respondent in completion of the activities covered by the contract. It cannot be said that the view taken by the Arbitral Tribunal, that the professional fee claimed by the respondent, was indeed due, cannot be said to be such which was not possible on interpretation of terms of the agreement. In fact, hearing the present matter leaves us with an impression that men of trade and commerce, though eager at the time of entering into commercial relationships to provide for arbitration of disputes, are still unprepared to be bound by the Arbitral Award, if against them. Once faced with an adverse FAO (COMM) 5/2021 Page 8 of 11 arbitral award, they want the same procedure, as available in the judicial system of the country and desire to take the matter till the end. It is about time that men of trade and commerce take a call, whether are willing to be bound by the spirit of arbitration i.e. of being bound by the decision of a Tribunal of their own choice, or want their disputes arising from commercial relationship to be adjudicated in the Courts established in accordance with the legal system of the country. Without making a firm choice, arbitration can never be successful in spirit, in the country and it is high time that commercial men give a serious thought thereto.
15. The counsel for the respondent, besides reminding us of narrow scope of interference in the proceedings under Section 37 of the Arbitration Act, has contended that in the present case there are concurrent findings in both fact and law in favour of the respondent and are not interfereable at this stage. Attention is drawn to paragraphs 8 to 10 of Reliance Industries Ltd. Vs. GAIL India Limited MANU/DE/0491/2020 (DB) and to MMTC Ltd. Vs. Vedanta Limited (2019) 4 SCC 163. Reference is also made to Bharat Sanchar Nigam Limited Vs. Aksh Optifibre Limited (2021) 277 DLT 348 (DB). It is argued that it has been held therein that a plausible view taken by the Arbitral Tribunal is not to be disturbed.
16. The counsel for the respondent has also contended that appellant had also agreed not to directly or indirectly approach other parties/investors/institutions/bankers introduced by the respondent to the appellant, from the date of acceptance of the contract until a period of 12 months after the expiry of the contract. It is further contended that the financial package for which services were rendered by the respondent to the appellant, was sanctioned soon after the communication dated 27th October, FAO (COMM) 5/2021 Page 9 of 11 2016, reproduced above, of the appellant to the respondent, purporting to terminate the contract. It is contended that the appellant, after knowing of the in-principal approval of the financial package, purported to terminate the agreement with the respondent, to wriggle out of the obligation to pay fees/emoluments agreed to be paid to the respondent. It is argued that the respondent has placed letters and documents before the Arbitral Tribunal, all of which have not even been produced with this appeal by the appellant, and on the basis whereof the Arbitral Tribunal has concluded that the financial package sanctioned in favour of the appellant was indeed owing to the services rendered by the respondent and for which reason the respondent has been awarded the agreed fee therefor. Rather, it is suggested that the termination letter was issued with mala fide intent, after having taken the benefit of the services of the respondent.
17. The counsel for the appellant, in rejoinder has contended that the non- circumvention clause was applicable only qua parties introduced by the respondent to the appellant; the financial package was sanctioned by State Bank of Hyderabad with which the appellant had an existing relationship at the time of agreement with the respondent; it is therefore contended that the respondent cannot claim any credit for the financial package sanctioned, as is evident from the bank not even marking a copy of the sanction letter to the respondent.
18. However, on enquiry whether any of the other letters exchanged between the Bank and the appellant were marked to the respondent, the said plea is not pressed.
19. Having considered all the aforesaid contentions, we are unable to find any ground to interfere, in exercise of our powers under Section 37 of the FAO (COMM) 5/2021 Page 10 of 11 Arbitration Act. The appeal is apparently misconceived with costs of Rs. 50,000/- to the respondent and which, if not paid, shall be recoverable by the respondent from the appellant, in execution.
20. The amounts stated to have been deposited by the appellant with the Executing Court be forthwith released to the respondent.
21. On the appellant and its Directors mentioned in the order dated 1st February, 2021, through counsel undertaking to this Court that the costs will be paid within four weeks to the respondent, the costs imposed are reduced to Rs.25,000/- .
22. The counsel for the appellant expresses apprehension that the respondent may make future claims also against the appellant under the agreement.
23. The counsel for the respondent fairly states that the respondent will not make any further claims against the appellant.
RAJIV SAHAI ENDLAW, J AMIT BANSAL, J APRIL 6, 2021 ak (corrected and released on 14th April, 2021) FAO (COMM) 5/2021 Page 11 of 11