Delhi High Court
Shrenuj Investment And Finance Private ... vs Stci Finance Limited on 13 April, 2022
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
$~46
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 13.04.2022
+ O.M.P. (COMM) 182/2022 & IA No.5794/2022
SHRENUJ INVESTMENT AND FINANCE
PRIVATE LIMITED ..... Petitioner
Through: Mr Rajat Aneja, Mr Dhaval
Mehrotra and Mr Sudhanshu Sikka,
Advocates.
Versus
STCI FINANCE LIMITED ..... Respondent
Through: Mr Saurabh Kirpal, Senior
Advocate with Mr Tanmaya Mehta
and Mr Abhishek Agarwal,
Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
VIBHU BAKHRU, J. (ORAL)
1. The petitioner has filed the present petition under Section 34 of the Arbitration & Conciliation Act, 1996 (hereafter the 'A&C Act') impugning the Arbitral Award dated 18.12.2021 (hereafter the 'impugned award') delivered by the Arbitral Tribunal comprising of a Sole Arbitrator.
2. In terms of the impugned award, the Arbitral Tribunal has awarded a sum of ₹10,22,32,677.56/-, in favour of the respondent. The same includes the principal amount of ₹5,85,13,784.07/-; interest at the rate of 15.5% per annum quantified at ₹2,84,86,453.12/-; pendente lite interest at the rate of 5% per annum quantified at Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 1 of 9 ₹1,25,14,440.37/-; and costs including arbitral fee quantified at ₹27,18,000/-.
3. The petitioner had availed certain financial facilities from the respondent in terms of two separate loan agreements (hereafter referred to as the 'First Agreement' and 'Second Agreement' respectively). In terms of the First Agreement dated 19.10.2012, the respondent had advanced a loan for a sum of ₹15,00,00,000/- (Rupees Fifteen Cores) on interest at the rate of 14% per annum with a further stipulation of levy of penal interest at the rate of 2% in the event of default. In terms of the Second Agreement dated 28.01.2013, the respondent had granted an additional loan for a sum of ₹15,00,00,000/- (Rupees Fifteen Crores) on interest at the rate of 14.5% per annum with a further stipulation of penal interest at the rate of 2% per annum in the event of default.
4. The loans advanced by the respondent in terms of the First Agreement and Second Agreement were, inter alia, secured by pledge of equity shares including unencumbered equity shares of the petitioner held by its Directors / Promoter Shareholders.
5. The petitioner claims that in addition, it had also mortgaged two plots of land located at Khandala, Maharashtra by depositing title deeds of the said properties with the respondent.
6. In respect of the First Agreement, several documents were executed, inter alia, to secure the facility extended by the respondent. The same included the Share Pledge Agreement dated 28.01.2013 Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 2 of 9 between the respondent, the petitioner, Mr Shreyas Doshi, Ms Geeta Doshi, Mr Kirtilal Doshi, Ms Suman Doshi and Ms Anjali Pradeep Mehra for creating a pledge over the unencumbered shares of the petitioner company, in favour of the respondent. In addition, the said individuals also executed other Agreements such as Deed of Guarantee, Undertaking-cum-Indemnity and Declarations. The concerned persons also executed irrevocable Powers of Attorney to enable the respondent company to deal with the shares pledged. Similar documents were also executed in respect of the Second Agreement. The shares of other listed companies were also pledged to secure the loan advanced by the respondent to the petitioner. The loans granted were renewed in terms of the Letter of Renewal dated 15.01.2014. The term of the loan under the Second Agreement was extended for a further period with interest at the rate of 15.5% per annum with the stipulation of penal interest at the rate of 2% per annum in the event of default.
7. Undisputedly, in terms of the Agreements between the parties, the petitioner was required to maintain a margin at the rate of 50%; that is, 200% of the asset coverage in respect of the securities pledged with the respondent. It is not disputed that in the event the value of the securities fell below the margin as agreed, the petitioner was required to take steps to pledge further securities or to make sufficient payment to ensure that the security cover is maintained.
8. The Arbitral Tribunal noted that the petitioner had continued to service the loans by paying interest regularly till the month of Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 3 of 9 December, 2014. However, there were certain delays in making payments thereafter. After the month of June, 2015, the petitioner stopped making payments resulting in accumulation of overdue interest.
9. By a notice dated 01.09.2015, the respondent called upon the petitioner to make the outstanding payment on or before 05.09.2015 failing which it would invoke the pledge in respect of the securities pledged with it.
10. The security cover fell below the threshold level on 17.11.2015. Consequentially, Margin Call Notices were issued by the respondent calling upon the petitioner to pay the margin money. The respondent also put the petitioner to notice that it would sell the pledged shares. The Arbitral Tribunal had noted that in response, the petitioner issued a letter dated 18.11.2015 assuring the respondent that it would pay the outstanding amounts by 27.11.2015 and requesting the respondent to refrain from selling the pledged shares. However, the petitioner had failed to repay the outstanding amounts by 27.11.2015. The Arbitral Tribunal noted that there was also a subsequent communication dated 04.02.2016, whereby the petitioner had requested the respondent to sell the pledged shares other than those of the petitioner company and to appropriate the sale proceeds towards the outstanding due under the First Agreement. It had also assured the respondent that it would be depositing a sum of ₹25 lakhs to ₹50 lakhs each week towards repayment of the dues under the Second Agreement and close the account before 31.03.2016.
Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 4 of 911. It is relevant to note that there is no dispute or controversy that the petitioner had defaulted in its payment obligations under the First Agreement and Second Agreement as subsequently renewed. There is also no cavil that the respondent had issued notices for invoking the pledge of shares.
12. The respondent had after invoking the pledge sold 3,02,890/- shares of listed companies (BSE 100 and Castrol India Limited). In addition, the respondent also sold 2,10,83,400 shares of the petitioner on various dates. According to the respondent, it had received a sum of ₹26,91,52,419.69/- as sale proceeds of the shares pledged with it. In addition, the respondent also acknowledged that it had received an aggregate sum of ₹1,45,00,000/- between the months of September, 2015 to August, 2016. The petitioner claimed that in all, it had recovered a sum of ₹28,36,52,419.69/-. The said amount was appropriated towards discharge of the principal amount outstanding against the First Loan (₹ 15 crores) and sum of ₹1,69,45,511/- against outstanding interest in respect of the First Agreement. With the appropriation of the said amounts, the said loan was closed. Out of the remaining amount, a sum of ₹9,14,86,216/- was appropriated against the outstanding principal in respect of the Second Agreement and ₹2,46,20,692/- was adjusted towards the outstanding interest. The respondent claimed that a sum of ₹8,70,15,642/- was outstanding on account of principal and ₹2,85,01,858/- remained outstanding in respect of the interest. The said amount was required to be paid on or before 28.11.2018. However, the said amounts were not paid.
Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 5 of 913. In view of the above, the respondent issued a notice dated 01.12.2018 under Section 21 of the A&C Act, invoking the Arbitration Agreement.
14. The respondent filed a Statement of Claims before the Arbitral Tribunal claiming (i) an amount of ₹5,85,13,784.07/- towards the amounts due under the Second Agreement; (ii) ₹2,84,86,453.12/- as outstanding interests calculated at 15.5% per annum till 26.02.2019;
(iii) penal interest at an additional rate of 2%, over and above the interest rate quantified at ₹36,75,747.82/- as on 26.02.2019; (iv) pendente lite and post award interest; and, (v) arbitration and legal costs.
15. The petitioner had contested the claims on various grounds. One of the principal disputes raised by the petitioner was with regard to the securities pledged with the respondent as collateral. The petitioner claimed that the same were sufficient to discharge the entire liability.
16. The impugned award indicates that the Arbitral Tribunal examined the rival contentions and framed certain questions for determination. Paragraph 23 of the impugned award is relevant and set out below:-
"The Tribunal has adjudicated the present dispute based only on the oral arguments advanced during the hearing. In my view, the main issues for determination are as follows:
i) Whether this Tribunal has jurisdiction in the present proceedings?Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 6 of 9
ii) Whether this Tribunal may rely on the documents on record, given the alleged deficiency in payment of stamp duty applicable?
iii) Whether the collateral securities were sufficient to discharge the entire liability of the Respondent?
iv) Whether the Claimant is entitled to repayment of the outstanding loan amount?
v) Whether the Claimant is entitled to payment of interest on the outstanding loan amount?
vi) Whether the Claimant is entitled to liquidated damages?
vii) Whether the Claimant is entitled to pendent lite interest?
viii) Whether the Claimant is entitled to costs?"
17. Mr Aneja, learned counsel appearing for the petitioner, has assailed the impugned award, essentially, on two grounds. First, he submits that the issues of determination as mentioned in paragraph no. 23 of the impugned award (as quoted above) were not framed during the arbitral proceedings and the parties had no notice of framing of such issues. He submitted that it was incumbent upon the Arbitral Tribunal to communicate the issues framed to the parties, in order to enable the parties to lead evidence and address the same.
18. Second, he submits that there is ample evidence on record to show that the value of the securities that were pledged were more than sufficient to cover the loans advanced by the respondent. He pointed Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 7 of 9 out that it was admitted that at the time when the securities were pledged, their value was twice the principal amount advanced to the petitioner. He stated that the respondent had thereafter, sold these shares at a value, which was even below the principal amount advanced against the two loans (₹30 crores). He stated that the amounts claimed to have been realized by the respondent could not be accepted at their face value. The respondent had not produced any evidence other than Contract Notes to evidence sale of the pledged shares.
19. The aforesaid contentions are unmerited. It is not disputed that the issues of determination as noted by the Arbitral Tribunal in the impugned award were based on the pleadings filed and the rival contentions advanced, before the Arbitral Tribunal. It is apparent that the Arbitral Tribunal had articulated the said questions to address the disputes raised before it. There is no requirement for an arbitral tribunal to frame issues after completion of pleadings as is required to be done by a court in a suit. Concededly, an arbitral tribunal can render an award based on the pleadings and the material placed before it. Merely because the Arbitral Tribunal has articulated the disputes to be addressed in the form of issues/questions for determination in the impugned award, does not render the impugned award amenable to challenge.
20. The contention that the amount realized by the respondent by sale of shares was not established, is also enumerated. Admittedly, the shares were sold through recognized stock exchanges in open market Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 8 of 9 transactions. The Contract Notes produced by the respondent clearly evidenced the said sales. In the event the petitioner was of the view that the said Contract Notes did not reflect the correct value of the shares sold, it was always open for the respondent to verify the same from the records of the relevant stock exchange. The value of the traded shares is duly reported by the stock exchange. Thus, the petitioner could have easily ascertained the values at which the shares of a particular scrip were transacted on the stock exchange. Mr Aneja contended that the values had been manipulated. Clearly, the onus to establish that there was any fraud or manipulation rested with the petitioner. Admittedly, there is no material or evidence on record to indicate that the value of shares in the stock market had been manipulated or that the respondent is guilty of any fraudulent conduct.
21. The petition is thus, unmerited and, accordingly, dismissed.
22. All pending applications are also disposed of.
VIBHU BAKHRU, J APRIL 13, 2022 'gsr'/pkv Signature Not Verified Digitally Signed By:Dushyant Rawal Signing Date:19.04.2022 OMP(COMM) No.182/2022 Page 9 of 9