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2022 Supreme(Del) 2068
IN THE HIGH COURT OF DELHI
Prathiba M. Singh, J.
Tommorrowland Limited - Appellant
Versus
Analysis Trade Consultancy LLP - Respondent
CS (OS) 2154 of 2012 & I.A. 8769 of 2016
Decided On : 27-04-2022
Headnote:(A) Arbitration Act, 1940 - Sections 30, 33 - Underwriting liability -Plaintiff initiated claims against Defendants for failing to fulfill their underwriting obligations for a public issue of Fully Convertible Debentures, resulting in losses - Court examined service of notices, binding nature of arbitrator's decisions, and specified terms of underwriting agreement. (Paras 1-39, 52-106)
(B) Public offer process - Proper procedure and obligations of Underwriters in cases of under-subscription highlighted - Implications of irregularities in public issue under SEBI directives discussed. (Paras 4-12, 52-60)
(C) Damages - Assessment of damages must contemplate both parties’ actions and the inherent risks in underwriting agreements - Modifications to originally awarded compensation based on settlement records and market conditions justified on appeal. (Paras 104-108)
Facts of the case:
The Plaintiff initiated arbitration after multiple underwriting Defendants defaulted on subscription obligations following a public offering from February 14-18, 1995, subsequently attributed irregularities prompting investor withdrawals.
Findings of Court:
The court noted inadequacies in service to some Defendants and clarified that the Underwriters remained responsible despite the closure of the issue being marked as fully subscribed.
Issues: The legality of the awards concerning the underwriting obligations and validity of SEBI's intervention instigating subscriber withdrawals were examined.
Ratio Decidendi: The court found the arbitrator's determinations concerning the underwriting obligations were sound, noting that contractual obligations were triggered subsequent to SEBI's directives leading to undersubscription; the court also reduced awarded damages and interest consistent with market practices.
Result: The awarded amount modified to Rs.7,54,000/- with interest at 7% per annum from the award date.
| Table of Content |
|---|
| 1. overview of connected suits involving underwriting disputes. (Para 1 , 2) |
| 2. details of the public issue and underwriting agreements. (Para 3 , 4 , 5 , 10 , 11) |
| 3. procedural history leading to arbitration and ex parte awards. (Para 12 , 13 , 16 , 19) |
| 4. arguments regarding service and completion of arbitration process. (Para 18 , 24 , 33) |
| 5. court's view on liability and contractual obligations of underwriters. (Para 52 , 63 , 70) |
| 6. assessment of damages and interest according to contractual law. (Para 80 , 88 , 106) |
| 7. final order and decrees in response to arbitration outcomes. (Para 108 , 109 , 110) |
JUDGMENT
Prathiba M. Singh, J. The present suit is one of 27 connected suits, all of which relate to disputes between the Plaintiff-M/s MS Shoes East Ltd. (now known as Tommorrowland Limited) and various Defendants/Respondents who were Underwriters of a public issue brought out by the Plaintiff-Company in 1995. The background of the cases is the same but the underlying facts vary from case to case. Hence, separate judgments 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 only partially subscribed, which led to disputes between the Plaintiff and the Underwriters. There was an arbitration clause in the Underwriting Agreements which was invoked by the Plaintiff. A ld. Single Judge of the Delhi High Court had appointed a Sole Arbitrator-Justice (Retd.) Ms. Manju Goel to adjudicate the disputes between the Plaintiff and all the Underwriters who were 267 in number. Several of the Underwriters settled their disputes during arbitral proceedings. However, the Defendants in the present 27 disputes herein, for various reasons, did not appear or remained ex parte in the arbitral proceedings, resulting in ex parte awards being passed against them. The said awards are the subject matter of the batch of cases being currently dealt with by the Court. The Plaintiff has filed suits seeking judgment in terms of the awards and the Defendants have resisted the same. Some of the Defendants have raised objections under Sections 30 and 33 of the ARBITRATION ACT , 1940 (hereinafter, "Act") and some Defendants have sought remand under Section 16 of the Act.
Brief Facts of the Present Case
3. The Plaintiff launched a public issue for 1,75,84,800 zero interest unsecured Fully Convertible Debentures (hereinafter, `FCDs') of Rs.199 each for cash and at par aggregating to Rs.349,93,75,200/- to the public and issue of 31,28,500 FCDs of Rs.250/- each for cash at par aggregating to Rs.78,21,25,000/- to non-resident Indians/persons of Indian origin resident abroad/OCBs on firm allotment basis together aggregating to Rs.428,15,00,200/- (hereinafter `public issue'). The disputes in these cases relate only to FCDs issued to the public in India. The issue was publicized along with a prospectus, which was duly vetted by the Securities and Exchange Board of India (hereinafter `SEBI').
4. The issue was opened on 14th February, 1995 and the closing date for the issue was to be not later than 24th February 1995. The earliest closing date was 18th February, 1995. The Lead Managers to the issue were SBI Capital Markets Ltd., Touris
