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IN THE HIGH COURT OF DELHI
Prathiba M. Singh, J.
Tommorrowland Limited - Appellant
Versus
Haryana State Industrial & Infrastructure Development Corpn. Ltd. - Respondent
CS (OS) 2272 of 2012 & I.A. 13641 of 2012
Decided On : 27-04-2022
The court ruled that underwriters must fulfill obligations despite initial subscription claims, with damages calculated on a pro-rata basis arising from subsequent under-subscription triggered by regulatory actions.
Headnote:(A) Arbitration Act, 1940 - Sections 14, 17, 28 - Underwriting Agreement - Dispute arising from underwriting obligations after a public issue underwritten by multiple parties - Failure of Underwriters to honor commitments post SEBI intervention led to arbitral awards. (Paras 1, 2, 39, 110)
(B) The court found the Underwriters liable despite initial full subscription due to subsequent withdrawals triggered by SEBI’s directive. The Arbitrator correctly assessed reasonable damages based on Fall in subscriptions with reference to the Underwriting Agreement. (Paras 68, 81, 92)
(C) The court upheld damages and interest award but modified the amount, setting it to Rs. 15,56,080/- with reduced interest rate and timeline for payment. (Paras 110, 112)
(D) Issues addressed included the validity of the arbitration process amidst allegations of fraud by the defendants and the extent of liability under the underwriting contract. (Paras 40, 44, 87) (E) Court's reasoning emphasized that underwriters' obligations persist until proper notice of devolvement given post closure of the issue subscription list, and the Arbitrator had sufficient evidence to conclude ongoing obligations despite perceived subscription statuses. (Paras 50, 72, 110)
Result: Modified damages and upheld interest on liability of underwriters.
| Table of Content |
|---|
| 1. disputes arise from underwriting agreements. (Para 1 , 2 , 3) |
| 2. details of public issue processing. (Para 4 , 5 , 8 , 9) |
| 3. underwriter obligations are specified. (Para 6 , 7) |
| 4. regulatory involvement affects subscription. (Para 10 , 11 , 12 , 13 , 14) |
| 5. arbitration process and its implications. (Para 15 , 17 , 18 , 19) |
| 6. court's authority to extend arbitration timeline. (Para 20 , 21 , 22) |
| 7. assessing damages in arbitration awards. (Para 28 , 29 , 31) |
| 8. evaluation of evidence in arbitration decisions. (Para 38 , 39 , 40) |
| 9. arguments to challenge arbitration award. (Para 41 , 42 , 43 , 44 , 45) |
| 10. plaintiff's obligations and responsibilities. (Para 46 , 48 , 49 , 50) |
| 11. reassessment of damages and interests. (Para 90 , 91 , 92) |
| 12. defendant's counterarguments on damages. (Para 93 , 94 , 95 , 96) |
| 13. court's final order and decree. (Para 110 , 112 , 113 , 114) |
JUDGMENT
Prathiba M. Singh, J.
1. 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 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 B
