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IN THE HIGH COURT OF DELHI
Prathiba M. Singh, J.
Tommorrowland Limited - Appellant
Versus
Veerhealth Care Ltd. - Respondent
CS (OS) 2074 of 2012 & I.A. 8771 of 2016
Decided On : 27-04-2022
The court held that underwriters' obligations remain despite initial subscription rates due to subsequent withdrawals, highlighting the need for proper service and adherence to arbitration agreements.
Headnote:(A) Arbitration Act, 1940 - Sections 14, 30, 33 - Public issue - Underwriting obligations - The Plaintiff launched a public issue of Fully Convertible Debentures in 1995, which was initially over-subscribed but later led to withdrawals directed by SEBI, thereby undersubscribing the issue. The obligation of the Defendants as Underwriters to cover the shortfall had to be determined post-closure of the subscription list, invoking the arbitration clause. The arbitral award was contested, focusing on the legality of service and discharge of underwriting responsibilities. The court found the Underwriters' obligations not discharged despite the initial over-subscription due to subsequent withdrawals. Key issues included the propriety of service and the appropriateness of the damages awarded by the arbitrator. The damages were reduced by the court to 1/4th of the originally awarded amount, with a modification in the applicable interest rate. (Paras 2, 16, 47, 100, 102)
| Table of Content |
|---|
| 1. overview of the connected suits and disputes. (Para 1 , 2) |
| 2. details on the public issue of fcds. (Para 3 , 4) |
| 3. underwriting agreement obligations defined. (Para 5 , 6 , 7 , 8) |
| 4. regulatory intervention by sebi affecting subscriptions. (Para 10 , 11) |
| 5. communications and arbitration initiation. (Para 12 , 13) |
| 6. arbitral awards and responses of defendants. (Para 14 , 15 , 16) |
| 7. legal objections raised against arbitral awards. (Para 20 , 21) |
| 8. arguments on merits regarding underwriters' obligations. (Para 31 , 32 , 34 , 36) |
| 9. computation of damages and compensation principles. (Para 84 , 88 , 91) |
| 10. final judgment and decree modifications. (Para 102 , 103 , 104) |
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 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 Fe
