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TMI Blog2022 (4) TMI 1634X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and confusion that prevailed due to the letter issued by SEBI directing the Plaintiff to give investors the option to withdraw from the public issue and the withdrawal of subscriptions thereafter cannot be the sole responsibility of the Underwriters. The Plaintiff also appears to have contributed by its own conduct in the loss suffered by it, as is evident from the facts on record, though no criminal culpability may have been found by the investigating authorities. Moreover, the Ld. Arbitrator ought to have considered if the Plaintiff made any bona fide attempt to mitigate its losses. Based on the facts and circumstances that have emerged, the question that would arise is what is the reasonable compensation or damages to be awarded against the Underwriters. This Court is of the opinion that a large number of Underwriters have already settled their disputes with the Plaintiff, even during pendency of arbitral proceedings. After passing of the Awards, several parties have settled. The Plaintiff has to clearly shoulder a substantial part of the blame for the losses which it may have suffered. The liability to pay compensation/damages qua the Underwriters ought to thus be reduced t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plaintiff-Company in 1995. The background of the cases is the same but the underlying facts vary from case to case, hence, separate judgements are being delivered. Background and Summary of the Proceedings 2. The background of the disputes is that the Plaintiff had launched a public issue sometime in 1995 for issuance of Fully Convertible Debentures (hereinafter FCDs ) to public in India as well as Non-Resident Indians. The public issue was underwritten by various Underwriters, including the Defendant herein. The public issue was closed on the earliest closing date on the basis that it was over-subscribed. However, subsequently SEBI found some irregularities and directed the Plaintiff to give an option to all the subscribers to either continue their offers or withdraw the same. Pursuant thereto, several subscribers withdrew the offers and the issue was under- subscribed. The Plaintiff then sought to raise a demand against the Underwriters to subscribe to their respective portions of the underwritten FCDs. The Underwriters partially subscribed, which led to disputes between the Plaintiff and the Underwriters. There was an arbitration clause in the Underwriting Agreements which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debentures. Each debenture was to have a face value of Rs. 199/-. No interest was payable thereon. 5. 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 over-subscription 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. 6. The entire issue was underwritten, insofar as the component offered to the Indian public for subscription was concerned. The clause relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. (USHA NARAYANAN) DIVISION CHIEF 11. The above letter is disputed by the Plaintiff. However, from the contemporaneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 14. 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. 15. In respect of 103 Respondents in the arbitration proceedings 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. 16. In the case of the present Defendant, the ld. Arbitrator pron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respondents were liable to pay for the devolved FCDs till the date of filing of the claim on 11.7.2007 comes to Rs. 10,92,582/-. Thus the total reasonable damages along with interest till the filing of the claim petition comes to Rs. 15,90,342/-. 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. 15,90,342/- 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. 15,90,342/- for 4 years and 10 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 20. In the present case, apart from the main suit wherein the Plaintiff seek pronouncement of judgment, an application being I.A. No. 12747/2012 under Section 28 of the Arbitration Act, 1940, has also been filed. I.A. No. 12747/2012 (under Section 28 of the Arbitration Act, 1940) 21. The present application was filed by the Plaintiff under Section 28 of the Arbitration Act, 1940, seeking post-facto extension of time for conclusion of arbitration proceedings from 20th August, 2007 till 23rd May, 2012 i.e., the date on which the Award was pronounced by 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. 22. The submission of Mr. Pavan Sachdeva, Promoter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d petitions were entertained in various proceedings. For example, in Tomorrowland Technologies Exports Limited v. Jethalal Ramji CS (OS) 2159/2012, the application under Section 28 of the Arbitration Act, 1940 for ex-post facto extension of time for passing of Award by the Ld. Arbitrator was allowed, vide order dated 2nd September, 2014. In the said order, the ld. Single Judge notices the fact that there were a large number of claims before the Ld. Arbitrator, and that even an Amicus Curiae was appointed. 24. Similar orders have also been passed in Tomorrowland Technologies Exports Limited v. Pressman Advertising Limited [CS (OS) 2094/2012] and Tomorrowland Technologies Exports Limited v. Hemdev Securities (India) Pvt. Ltd. [CS (OS) 2070/2012] on 14th October, 2014 and 24th October, 2016 respectively. It is further submitted that vide order dated 24th March, 2014 in M/s MS Shoes East Ltd. v. Madhukar Khosla [CS (OS) 2061/2012], decree has also been passed after allowing the application under Section 28 of the Act. Similarly, more than 50 decrees have been passed, where the applications under Section 28 were allowed, though in most of them the Defendants have been proceeded against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, 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. 28. Further, Section 28 of the Arbitration Act, 1940 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. 29. 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 32. 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 AIR1957Cal658, it was observed that the court's power under section 28 to extend time are entirely discretionary and are not limited.. The court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond four months. In Rajora Builders v. Municipal Corporation of Delhi (Administration) Ors. [61 (1996) Delhi Law Times 194], one of the parties had taken an objection to the ld. Arbitrator continuing the proceedings. In Hindustan Steel Works Construction Limited v. C Rajashekhar Rao [(1987) 4 SCC 98], the above legal position is again reiterated that the ld. Arbitrator can extend the time with the consent of the parties but the Court has the discretion to extend the time, which has to be exercised in a judicial manner. 36. 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. 37. It is also noticed that ld. Single Judges in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time ought to be extended, as prayed for. It is ordered accordingly. The prayer made in the application is allowed. The time for rendering the award stands extended. 6. The application stands disposed of. 38. 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. 39. I.A 12747/2012 is accordingly allowed and disposed of. CS (OS) 2082/2012 of 2012 (under Sections 14 and 17 of the Arbitration Act) and Objections filed by the Defendant under Section 16 of the Arbitration Act 40. The present suit has been filed by the Plaintiff under Sections 14 17 of the Arbitration Act, 1940 seeking judgment and decree in terms of the award dated 23rd May, 2012 passed in the arbitration case being M/s M.S. Shoes East Ltd. v. Clarity Financial Services Ltd. The Defendant has filed objections under Section 16 of the Arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that service was effected upon the Defendant: 1) Copy of the Process Server Report, addressed to S.K. Nahata Co., Bothra Building, 2nd Floor, M.S. Road, Gauhati - 781001, in respect of Suit no. 1299 of 1997, duly signed as received for the Defendant, dated 19th August, 1997/16th July, 1997. Along with this, the Vakalatnama filed by the Defendant authorising an advocate is also annexed. 2) Copy of the Underwriting Agreement which bears the same address of S.K. Nahata Co., Bothra Building, 2nd Floor, M.S. Road, Gauhati 781001. 3) Copy of the notice dated 6th July, 2007 issued by the counsels for the Plaintiff to the Defendant at the address given on the Underwriting Agreement, regarding the arbitration proceedings informing them of the venue of the proceedings. Also annexed are the postal receipts. The notice was sent by registered post and was returned. 4) Copy of the first page of the claim petition, along with courier receipts issued by Blazeflash Couriers Ltd. 5) Copy of the publication informing the next date of the proceedings made in the newspaper named The Sentinel , Gauhati (now Guwahati ) 6) Copy of the order dated 24th May, 2008 passed by the Ld. Arbitrator, where the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eep the public issue open for at least 10 calendar days. The company on its own chose to close the public issue on 18th February, 1995 as it was over-subscribed. 48. Mr. Aaditya Vijaykumar, ld. Counsel appearing for the Defendants submitted that the obligation of all the underwriters is only to cover the losses due to undersubscription. He relies upon clauses 2, 10 11 to submit that the agreement provided for a scheme under which if there was any undersubscription of the IPO, notice had to be given by the company to the underwriters within 15 days. Such a notice was never issued by the company in the present case. It is submitted that SEBI found various irregularities in the IPO and on 6th March, 1995 directed the company to write to the allottees and give them the option to withdraw from the same. It was only due to the intervention of SEBI through which it found fraudulent practices by the company that the company was forced to return the allotment money to various subscribers. It is submitted that it was after SEBI s intervention that the allottees withdrew their allotments leading to reimbursement of money to the said allottees. The first letter written by the company to the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for the issue to be closed and therefore, the stand of the Underwriters, that the issue should have been kept open for the full period of 10 days is incorrect. He further submitted that the Lead Manager to the public issue had submitted two reports first at the end of 7 days, and again at the end of 45 days. It is his submission that the underwriters obligation would continue till the final report of the Lead Manager is received. The first report dated 17th February, 1995 at the end of 7 days had stated that the issue is over- subscribed/subscribed more than 90%, whereas the report dated 4th April, 1995 received at the end of 45 days clearly stated that the issue was undersubscribed. 53. It is submitted that upon the Lead Manager reporting under- subscription, the auditors computed the obligation of the underwriters and made pro-rata distribution. The exact amount, which devolved on each of the underwriters as their responsibility, was communicated on 24th March, 1995 within 35 days of the closure of the issue. Thereafter, on 30th March, 1995 the Auditor Certificate was also sent. However, devolvement notices, which were issued, were not replied to by the underwriters, which its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrongly uses the word allotment , whereas in fact at that stage, the allotment was yet to take place. As per the judgment in Morgan Stanley v Kartick Das (1994) 2 CTJ 385 (SC) (CP), the Supreme Court of India has clearly held that shares come into existence only when the allotment takes place. 57. The fourth proposition, which is canvassed, is that the closure of the issue being mandated upon 90% subscription, the underwriters argument that the issue ought to have been kept open for 10 days is completely contrary to the rules. Reliance is placed on Bharat s Compendium of SEBI Capital Issues Listing, 3rd Edition by Dr. K.R. Chandratre to argue that it is only if the issue is under-subscribed, that the subscription should be left open for the entire period. As per the schedule, the earliest closing date was 18th February, 1995. Thus, closing of the issue after 90% subscription on 18th February, 1995 was as per prescribed and agreed schedule. 58. Mr. Sachdeva relied heavily upon a judgment of the Division Bench of this Court in MS Shoes East Ltd. v. R. K. Singh and Co., RFA(OS) 83/2008: MANU/DE/2710/2015, specifically on paragraphs 12 and 22-24. The submission of Mr. Sachdeva was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to procure subscriptions and if they fail to do so, the Company is free to take measures against the underwriters. Analysis and Discussion on Merits 62. The facts leading up to the public issue have already been captured in the introductory paragraphs hereinabove. In 1995, when the subject public issue was launched, Underwriters were governed by SEBI (Underwriters) Regulations, 1993, under which they were registered. As per the said Regulations, underwriter and underwriting are defined as 2.(f) underwriter means a person who engages in the business of underwriting of an issue of securities of a body corporate; (fa) underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them; 63. As per the above Regulations all Underwriters have to be duly registered under these Regulations, in order to conduct their businesses as Underwriters. The SEBI, after taking into notice the relevant criteria under Regulation 6 grants the Certificate of Registration under Regulation 8. Such criteria include necessary infrastructure, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Conduct for Underwriters is prescribed in Schedule III, some of the relevant Clauses of which are set out below: 1. An underwriter shall make all efforts to protect the interests of his clients. 2. An underwriter shall maintain high standards of integrity, dignity and fairness in the conduct of its business. . 4. An underwriter shall endeavour to ensure all professional dealings are effected in a prompt, efficient and effective manner. 5. An underwriter shall, at all times, render high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgment. 66. In order to appreciate the objections raised against the award, it is necessary to note some of the important clauses in the Underwriting Agreement. In the present case, the Underwriting Agreement dated 30th December, 1994 was entered into by the Defendant with the Plaintiff on 10th January, 1995. Some of the clauses of the Underwriting Agreement are as under: 1. We hereby record that we (hereinafter referred to as the Underwriter ) have agreed to underwrite / procure subscription to 12,560 (sic 12,558) Fully Convertible Debentures of Rs. 199/- each for cash at par aggregating to Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligation of the underwriter and other underwriters shall be subject to following further adjustments. a) The applications received from the public independently i.e. those applications not covered under sub-clause (2) above, shall be apportioned amongst all the underwriters, where underwriting obligations have not been fully satisfied after adjustments under sub- clause (2) above in proportion to their respective underwriting obligations and to that extent their respective underwriting obligation shall stand reduced. b) If, after the adjustments made under sub- clause (2) and (3) (a), above, it is found that the shares available for adjustments are in excess of the shares required to be subscribed in fulfilment of the underwriting obligations of one or more individual underwriters, then such excess amount required to meet the underwriting obligations of any underwriter shall be further apportioned amongst such other underwriters, whose underwriting obligations have not been fully discharged, in proportion to their respective underwriting obligations. 11. Procedure for effecting / discharge of underwriting obligations The underwriting obligations as determined under clause 10 shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take expeditious steps for processing the application and complete the allotment within the time limit prescribed under the Companies Act, 1956 and also comply with other listing requirements. 2. If the company fails to receive 90% of the issue amount including the amount received from the Underwriter's towards devolvements, within 60 days from the date of closure of subscription list, the company shall refund the amount paid by the underwriter in fulfillment of his underwriting obligations. The obligation to refund the moneys shall be without prejudice to the disputes if any in regards to the underwriting obligation of the underwriter. In such event, it will however, be obligatory for the company to pay the underwriter, underwriting commission payable in terms of clause 13(1) and (2) thereof. xxx xxx xxx 16. Right of termination under special circumstances- Notwithstanding anything contained herein, the underwriters shall have the option, to be exercised by him, at any time prior to the opening of the issue as notified in the prospectus of terminating this agreement under any or all of the following circumstances - i) If any of the representations / statements made by the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the `devolvement notice which sets out the responsibility that devolves upon each of the Underwriters. Upon receipt of such a notice, not later than 30 days, the Underwriter has the obligation to subscribe to the shares and submit the same along with the application money to the company. As per Clause 11(d) of the Agreement, if the Underwriter does not make such an application, the company would have the right to claim damages for any loss suffered due to such failure. Furthermore, if 90% of the issue is not subscribed, even after receiving the Underwriters application money, then the company is to refund the amount to the respective Underwriters as per Clause 14(2) of the Agreement. If as per the Underwriter, any of the representations or statements made by the company either in the application forms, negotiation clause, prospectus agreement or any other documents are found to be incorrect, the Underwriter has the right to terminate the agreement itself. 68. On 17th February, 1995, the Registrar of the subject Public Issue communicated to the Lead Manager that on the basis of figures communicated, the issue has been subscribed for more than 90%. Accordingly, the company closed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwriter stood discharged, the scheme of the Underwriting Agreement is relevant. It is well-settled that an Underwriting Agreement is in the nature of an insurance contract wherein the Underwriter performs the role of an entity providing insurance to the public issue i.e., if the issue fails for any reason, the Underwriter is bound to subscribe to the FCDs/shares. The nature of the Underwriting Agreement is clearly set out in the aforementioned Regulations which defines underwriting as extracted above. As per the said definition, if the public does not subscribe to the securities offered to them, the Underwriter has to subscribe to the same. In Naini Gopal Lahiri and Ors. v. State of Uttar Pradesh [1965] 35 CompCas 30 (SC), the Supreme Court, while considering the nature of an underwriting agreement observes: .An underwriter is a person who agrees with the company in consideration of a commission payable to him, that if all or a particular number of the company s shares are not taken up by the public, he will make up the deficiency and make up the total number of shares underwritten by him. Underwriting is in the nature of an insurance against the possibility of inadequate subscrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f them withdrew their applications. Thus, the issue remained unsubscribed. 79. It is in order to cater to such kind of situations and for reducing the various risks involved in a public issue, that Underwriting Agreements are entered into. Underwriters who are in the business of underwriting are fully aware of the various steps that are to be completed before the Underwriters are finally discharged of their obligations. 80. In any Underwriting Agreement, either of the following has to happen in order for the Underwriter s obligations to be discharged: a) Closure of subscription list and the issue being fully subscribed with the entire amounts being received from the subscribers; b) Partial subscription by the public and partial subscription devolving upon the Underwriters, which is effected; c) 90% of the issue remaining unsubscribed even after the devolvement upon the Underwriters, then all subscription amounts received have to be refunded under Clause 14(2) of the Agreement. 81. Unless and until any of the above events occurs, the Underwriters obligations cannot be held as having been discharged. The stand of the Defendant that the Underwriter s obligation would be discharged upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will lead to an absurd result of benefitting the claimant by awarding the entire amount of the issue without having to issue the corresponding shares. I am not able to agree either with the claimant or with the learned amicus curiae. This is not a suit for specific performance of a contract where the parties have to fulfill their mutual obligations. Had the claimant sued for a specific performance, it would have been required to handover the requisite number of FCDs. The claimant has asked for damages. The damages may or may not be equal to the value of FCDs undertaken to be sold in the market by the underwriters. In fact the standard form for the underwriting agreement has a clause saying that the damages payable by an underwriter in case of breach could be liquidated at a multiple of the value of the FCDs undertaken to be sold or applications for them obtained. 22. Nor can I accept the claimant's proposition since the respondents are not in absolute breach of the agreement. It has not entirely failed to act on the contract. It has actually sold some FCDs but not the entire number stipulated. As per the notice issued by the claimant on the instructions of the Registrar, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved letter to be issued by M.S. Shoes East Limited along with the letter of allotment. Please ensure that the letter 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. (USHA NARAYANAN) DIVISION CHIEF 85. It is relevant to notice that one of the issues framed by the ld. Arbitrator vide order dated 6th December, 2008 was as under: Did SEBI, vide its letter dated 6th March, 1995, addressed to M/s SBI Capital Markets Limited, one of the Lead Mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire claim of the Plaintiff is based on the fact that since the issue was not subscribed, the Underwriters are liable to pay damages. Thus, denying the letter of SEBI dated 6th March 1995 would be a self-contradictory stance of the Plaintiff. 90. The ld. Arbitrator, instead of referring to the letter dated 6th March, 1995, which was a disputed letter, has referred to the letter of the Lead Manager dated 21st April, 1995 in arriving at her conclusion. The letter dated 21st April 1995 was a consequence of directions issued by SEBI vide letter dated 6th March 1995. The purport and intent of both the letters i.e., the letter of SEBI and letter of Lead Manager being identical, the question whether SEBI s letter was considered by the ld. Arbitrator or not would become an academic issue, as it was well within the knowledge of the ld. Arbitrator that SEBI had issued directions which were complied with by the Plaintiff. 91. The Underwriters cannot be seen to argue that the correct letter was not considered by the ld. Arbitrator as they did not make any submissions before the ld. Arbitrator and it is also not clear whether the said letter was even filed before the ld. Arbitrator or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the suit on merits. The allegations in the present case were not of such a nature which involve or require a complex investigation. Moreover, the Plaintiff has not been held guilty of any criminal offence. The Defendants have failed to make out a case for non-arbitrability of the disputes. 94. Similar awards, as are under challenge in the present proceedings, have been passed by the ld. Arbitrator in a large number of cases. Such awards have also been satisfied or settled before this Court in various proceedings and no allegation of fraud has been made in the arbitral proceedings or before the Court. The allegations raised by the Defendants are not tenable and would not constitute valid grounds for remand of the award under Section 16 of the Act. 95. It is also pertinent to note that as per the Underwriting Agreement, the Defendant had the option of terminating the Agreement under Clause 14, if any of the facts disclosed by the Company in the Prospectus or related documents were found to be incorrect. However, despite receiving the devolvement notice, termination was not resorted to. Moreover, the Defendant did not even reply to the devolvement notice. The Defendant also chos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent upon the face of it . This covers cases in which an error of law appears on the face of the ward. But in determining what such an error is, a distinction must be drawn between cases in which a question of law is specifically referred and those in which a decision on a question of law is incidentally material (however necessary) in order to decide the question actually referred. If a question of law is specifically referred and it is evident that the parties desire to have a decision from the arbitrator about that rather than one from the Courts, then the Courts will not interfere, though even there, there is authority for the view that the Courts will interfere if it is apparent that the arbitrator has acted illegally in reaching his decision, that is to say, if he has decided on inadmissible evidence or on principles of construction that the law does not countenance or something of that nature. See the speech of Viscount Cave in Kelantan Government v. Duff Development Co. at p. 409. But that is not a matter which arises in this case. 99. Again, in Raipur Development Authority Ors. v. Chokhamal Contractors Ors (1989) 2 SCC 721., the position was settled by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in three cases specified therein. Clause (c) of Section 16(1) provides that the award shall be remitted to the Arbitrator by the Court where an objection to the legality of the award is apparent on the face of it. Of course, the High Court has come to a finding that the Arbitrator was guilty of misconduct for his failure to give reasons as required. There is, however, nothing to show that the Arbitrator misconducted himself or the proceedings in any other manner nor there is anything to show that the awards have been improperly procured. There is no allegation, far less, any finding, that the Arbitrator was biased or unfair or he has not heard both the parties or he has not fairly considered the submissions of the parties in making the awards in question. In our opinion, it is evident from the four awards made by the Arbitrator that the Arbitrator has considered all the specific issues raised by the parties in the arbitration proceedings and came to his finding after giving cogent reasons. The above awards cannot under any circumstances be considered to be made by the Arbitrator without recording any reasons for the same. Therefore, in such circumstances, it is not proper to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to publication of the issue. Paragraphs 8 and 9 of the Award clearly set out the details of the various exhibits and the expenses incurred by the Company for the purpose of the public issue. It is submitted that it is evident from the impugned award that the ld. Arbitrator has clearly applied her mind as to how damages ought to be computed. 106. Insofar as the award of interest is concerned, Mr. Sachdeva relied upon various judgments to argue that the ld. Arbitrator is entitled to award both interest future as well as pendente lite in view of Section 29 of the Arbitration Act, 1940. He finally urges that in view of the decision in Hindustan Prefab Ltd. v. Union of India [(1987) 2 ArbiLR 123 (127)] the Court would have no jurisdiction to interfere, even if interest was wrongly awarded. Mr. Sachdeva also relied upon the Ex.PW-1/72 to argue that in view of the loans which were taken by the Company where 18% interest was being charged, the Award of the ld. Arbitrator is sustainable, inasmuch as the 18% interest was being paid by the Company itself. 107. On the other hand, the ld. counsels for the Defendant submit that the manner in which damages have been calculated by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferences @Rs. 0.23 crores and bills for advertisements @Rs.6.58 crores) 109. The fact that the Plaintiff was to launch its Hotel project and had already got land allotted for the said purpose, was mentioned in the Prospectus for the public issue itself, which was an admitted document among the parties. The fact that amounts were forfeited by HUDCO and DDA was also not in dispute. The Ld. Arbitrator also observed that the cost of the public issue was available on record, as were the bills for issuing prospectus, bills for conferences, and bills for advertisements approved by the Lead Managers. Thus, contrary to what has been submitted by the Defendants, it cannot be said that actual loss was not proved by the Plaintiff/Claimant, even if such loss was not quantified. The Ld. Arbitrator notes in paragraph 26 of the impugned award that the Claimant may not have brought on record various other bills and expenses as its case was based on the assumption of liquidated damages. Therefore, the Ld. Arbitrator herself proceeds to assess reasonable damages , based on the factors enumerated above. 110. The total loss quantified by the Ld. Arbitrator in paragraph 26 of the Award was proportionat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case shows that the Plaintiff has settled with various underwriters from arbitral proceedings for varying percentages. In some cases, it is at 10% of the awarded amount and in other cases, it is 20% to 25% of the awarded amount. Though such settlements have been entered into with the mutual consent of parties, since the entire dispute has been adjudicated on the basis of obligations of Underwriters and damages have been awarded on a pro-rata basis which has been divided amongst the Underwriters, these out of court settlements would also be relevant in order to determine as to what should be the reasonable damages that ought to have been awarded qua the present Defendants. The ld. Arbitrator has simply proceeded on the basis that qua each share, the assessment of reasonable compensation would be Rs. 80/-. 114. The law on compensation for breach of contract under Sections 73 and 74 of the Indian Contract Act, 1872 has been laid down in a number of judgments. In Oil Natural Gas Corporation Limited v. Saw Pipes Ltd. (2003) 5 SCC 705, Hon ble Supreme Court held in the context of liquidated damages that: 68. From the aforesaid discussions, it can be held that: (1) Terms of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved: there must be a causal connection between the defendant s breach of contract and the plaintiff s loss. The courts have avoided laying down any formal tests for causation: they have relied on common sense to guide decisions as to whether a breach of contract is a sufficiently substantial cause of plaintiff s loss. 117. Therefore, the settled legal position is that a party cannot be made responsible for indirect or remote loss that may have been caused to the claimant as a result of breach on the part of the Respondent/Defendant. In the opinion of this Court, the Underwriters could not have been made responsible for the entire loss suffered by the Plaintiff. The allegations and the history of these litigations shows that there was an interference by SEBI after the public issue for whatever reason, which led to withdrawal of the subscriptions by the initial subscribers. The losses and confusion that prevailed due to the letter issued by SEBI directing the Plaintiff to give investors the option to withdraw from the public issue and the withdrawal of subscriptions thereafter cannot be the sole responsibility of the Underwriters. The Plaintiff also appears to have contributed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples of computation of damages as per settled law as also taking the account the settlements that have been entered into by the Plaintiff with similarly placed underwriters in the interest of justice, the damages awarded qua the Defendant are modified as under: Total number of FCDs devolved upon the Defendant (6,222) x Rs. 20 = Rs. 1,24,440/- 121. Insofar as award of interest is concerned, the Underwriters cannot be held fully responsible for the delay in appointment of arbitrator or for the period when the arbitral proceedings of the present proceedings have remained pending. Accordingly, the amount awarded above as damages, shall be paid along with interest @7% p.a. from the date of pronouncement of the award i.e., 23rd May, 2012 till today. If the entire awarded amount is paid within a period of 8 weeks, no further interest would be liable to be paid. However, in case of non-payment, simple interest on the entire awarded sum [i.e., principal amount + the interest @ 7% per annum from the date of award till today] would be liable to be paid @ 4.5% per annum. The costs of proceedings as awarded by the ld. Arbitrator are upheld. 122. The suit and the objections under Section 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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