Back
IN THE HIGH COURT OF DELHI
Prathiba M. Singh, J.
Tommorrowland Limited - Appellant
Versus
Pressman Advertising Ltd. - Respondent
CS (OS) 2094 of 2012 & I.A. 13651 of 2013
Decided On : 27-04-2022
Underwriters remain liable under a contract for obligations past initial subscription unless formally released; obligations persist even when an issue appears fully subscribed if subsequent circumstances lead to under-subscription.
Headnote:(A) Arbitration Act, 1940 - Sections 14, 30, 33 - Dispute involving underwriting of Fully Convertible Debentures (FCDs) and associated liabilities - Plaintiff launched public issue which was initially over-subscribed, but subsequently under-subscribed due to withdrawals prompted by SEBI directives, leading to disputes with underwriters. (Paras 1-100)
(B) Underwriting Agreements - Underwriters have obligations that are not automatically discharged upon closure of an issue deemed over-subscribed; obligations persist until confirmed post-evaluation of subscriptions, inclusive of SEBI's direction. (Paras 50-62)
(C) Liability of Underwriters - The court found the Defendant jointly liable for underwriting obligations, having failed to subscribe post-devolvement notices. Damages of Rs.1,94,440 awarded with interest of 7% from date of the award. (Paras 98-100)
| Table of Content |
|---|
| 1. background of disputes and public issue details (Para 1 , 2 , 3 , 4 , 5) |
| 2. underwriting details as per prospectus (Para 6 , 7 , 8) |
| 3. issues arising due to sebi's intervention (Para 9 , 10 , 11 , 12) |
| 4. arbitration process initiation (Para 13 , 14 , 15) |
| 5. arbitrator findings and awards summary (Para 16 , 17) |
| 6. defendant objections overview (Para 18 , 19) |
| 7. arguments regarding service of notice (Para 20 , 21 , 22) |
| 8. merits of the defendant's case (Para 27 , 28 , 29) |
| 9. defendant's allegations of fraud (Para 30 , 31) |
| 10. plaintiff's counterarguments (Para 32 , 33 , 34) |
| 11. legal standards for underwriting obligations (Para 44) |
| 12. implications of sebi's directions on subscriptions (Para 50 , 52) |
| 13. determining underwriter obligations (Para 56 , 61) |
| 14. computation of damages and interest awarded (Para 86 , 88 , 99) |
| 15. final orders and judgment summary (Para 100 , 101 , 102) |
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 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 the year 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
