JUDGMENT

% 08.11.2021

1. This appeal, under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996, assails order dated 8^th June, 2020, passed by the learned Arbitrator, in two cases pending before him. The claimants before the learned Arbitrator are the respondents in the present appeal, and the respondent before the learned Arbitrator is the appellant herein.

2. Respondents 2 to 5 are directors of Respondent 1, and signatories to the Pledge Agreements dated 31^st March, 2017 and 12^th June, 2017, executed with the appellant.

Facts

3. The Contractual Documents:

3.1 The contractual relationship between the parties to the present appeal revolves around two Loan Agreements and four Pledge Agreements, dated 31^st March, 2017 and 12^th June, 2017, and an Escrow Agreement dated 31^st May, 2017. The two Loan Agreements were between the appellant and Respondent 1, the four Pledge Agreements were between the appellant and Respondents 2 to 5, each agreement being executed between the appellant and one of the respondents. The Escrow Agreement was between the appellant, Respondent 1 and M/s IndusInd Bank Ltd. (“the Bank”), which was the Escrow Agent.

3.2 Respondent 1 is the owner of the Radisson Hotel in Mysore and the “Mall of Mysore”. Under the two Loan Agreements dated 31^st March, 2017, the appellant lent, to Respondent 1, facility amounts/loans of ₹ 100 crores and ₹ 85 crores respectively.

3.3 The Loan Agreements:

3.3.1 The Loan Agreements were identical. Clause 2.2 of the Loan Agreements required Respondent 1 to repay the appellant, as per payment schedule in Schedule II to the Loan Agreements. Clause 2.3 dealt with the interest payable by Respondent 1 to the appellant. Sub- Clauses (i) and (ii) of Clause 2.3 dealt with normal interest payable by Respondent 1 on the loan advanced by the appellant. Sub-Clause (iv) required Respondent 1, in the case of default in payment of any amount, under the Loan Agreements, on the respective due dates, to further pay interest at the stipulated default rate.

3.3.2 Clause 2.13 of each Loan Agreement required Respondent 1 to provide securities, to secure the loans advanced by the appellant, as described in Schedule III to the concerned Loan Agreements, and also to comply with the escrow mechanism stipulated in Schedule IV. The clause reads thus:

“2.13 The Borrower/Security Provider shall provide Securities as described in Schedule III and undertakes to comply with the escrow arrangement/waterfall mechanism set out in Schedule IV. The Security shall be monitored in the manner set, out in Schedule IV.”

3.3.3 Schedule III required the following securities to be provided by Respondent 1:

(i) equitable mortgage of

(a) the hotel and mall located at Mysore and

(b) a farmhouse located at Delhi,

(ii) hypothecation, to the appellant, of

(a) all revenue generated at the mall,

(b) all revenue generated at the hotel,

(c) present and future current assets and movable fixed assets located at the hotel and the mall and

(d) escrow account of the hotel and the mall,

(iii) collateral security of the following nature:

(a) pledge over

(i) Category I listed shares of minimum ₹ 120 crores,

(ii) shares of ZF Steering Gear (India) Ltd. of ₹ 40 crores,

(iii) 62.02% shares of Respondent 1, held by M/s Respondent 1G Finance & Investments Pvt. Ltd., and Respondent 2 and his family, and

(iv) 100% shares of BDS Developers Pvt. Ltd,

(b) personal guarantees of the persons named in the Schedule,

(c) corporate guarantees by the entities named in the Schedule,

(d) Shortfall undertaking, and

(e) a demand promissory note by Respondent 1.

3.3.4 The “Escrow Mechanism for Receipt of Mall and Hotel Revenue” in the Loan Agreements required Respondent 1 to open, establish and maintain two Escrow Accounts with a Bank acceptable to the appellant and to deposit all revenues generated from the mall and the hotel in the Escrow Account.

3.3.5 The Schedule further provided, in Clause (e) titled “Collateral Security” under the head “Security Monitoring process”, thus:

“In the eve