Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
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Reserved on: 10 February, 2022
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Pronounced on: 14 February, 2022
+ OMP (I) (COMM.) 290/2021
ZOSTEL HOSPITALITY PVT. LTD. ..... Petitioner
Through: Mr. Amit Sibal, Sr. Adv along
with Mr.Abhishek Malhotra,
Ms. Shilpa Gamnani, Ms.
Atmaja Tripathy, Mr. Vinamra
Kopariha, Mr. Kaustubh
Prakash, Mr. Vinay Tripathy ,
Ms. Anjali Tiwari, Advs.
versus
ORAVEL STAYS PRIVATE LIMITED & ANR... Respondents
Through: Mr. Mukul Rahatagi, Sr. Adv.
with Ms. Anuradha Dutt, Mr.
Lynn Pereira, Mr. Avimukt
Dar, Mr. Mayank Mishra, Ms.
Suman Yadav, Mr. Haaris
Fazili, Ms. Vaishnavi Rao, Mr.
Ayush Dhawan, Mr. Kunal
Dutt, Ms. Shivangi Sud, Ms.
Prerna Sharma, Advocates
CORAM:
HON'BLE MR. JUSTICE C. HARI SHANKAR
J U D G M E N T
% 14.02.2022
(By Video Conference on account of COVID-19)
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1. What, exactly, is the “fruit” of an arbitral proceeding?
2. In a somewhat intricate fashion, this question arises for
consideration in the present case, which presents an interesting
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conundrum regarding the scope of Section 9(1)(ii) of the Arbitration
and Conciliation Act, 1996 (“the 1996 Act”), when invoked at a post-
arbitral stage.
3. Section 9 provides for grant of interim measures of protection
by a Court. It is well known that the provision is, more often than not,
invoked at the pre-arbitral stage, before arbitral proceedings
commence. This, however, is a case where an arbitral award stands
rendered, and the petitioner, claiming to be the successful litigant
before the learned arbitrator, seeks interim protection after the award
has been rendered.
4. The vast majority of judgements on Section 9 relate to its scope
and ambit at the pre-arbitral stage. The peripheries of Section 9
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9. Interim measures, etc., by Court.—
(1) A party may, before or during arbitral proceedings or at any time after the making of the
arbitral award but before it is enforced in accordance with section 36, apply to a court –
(ii) for an interim measure of protection in respect of any of the following matters,
namely: –
(a) the preservation, interim custody or sale of any goods which are the
subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing
which is the subject matter of the dispute in arbitration, or as to which any
question may arise therein and authorising for any of the aforesaid purposes any
person to enter upon any land or building in the possession of any party, or
authorising any samples to be taken or any observation to be made, or
experiment to be tried, which may be necessary or expedient for the purpose of
obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the Court
to be just and convenient, and the Court shall have the same power for making
orders as it has for the purpose of, and in relation to, any proceedings before it.
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jurisdiction, when invoked at a post-award stage, stand delineated in
the following extract from the judgement of the High Court of
Bombay (through Dr Chandrachud, J., as he then was), in Dirk India
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Pvt Ltd v. Maharashtra State Power Generation Co. Ltd :
“The second facet of Section 9 is the proximate nexus
between the orders that are sought in the arbitral proceedings.
When an interim measure of protection for sought before or
during the arbitral proceedings, such a measure is a step in aid
of the fruition of the arbitral proceedings. When sought after
an arbitral award is made but before it is enforced, the
measure of protection is intended to safeguard the fruit of the
proceedings until the eventual enforcement of the award.
Here again the measure of protection is a step in aid of
enforcement. It is intended to ensure that enforcement of the
award results in a realisable claim that the award is not
rendered illusory by dealings that would put the subject of the
award beyond the pale of enforcement.”
This passage has received the imprimatur of the Supreme Court,
having been cited, approvingly, in Hindustan Construction Co Ltd v.
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U.O.I. , as correctly delineating the scope of Section 9 jurisdiction,
when invoked at a post-award stage.
5. Interestingly, both sides, before me, rely on this extract from
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Dirk India . Mr. Sibal, learned Senior Counsel for the petitioner,
contends that if interim protection, as sought in this petition, is not
granted, the award, rendered in favour of his client by the learned
arbitrator, would be rendered unenforceable. This, according to him,
justifies grant of interim protection, premised on the above
enunciation of the law. Mr. Rohatgi, learned Senior Counsel for the
respondent contends, per contra , again relying on the afore-extracted
2
2013 (7) Bom CR 493
3
AIR 2020 SC 122
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passage, that post-award protection, under Section 9, is “intended to
safeguard the fruit of the proceedings”. The award, on the basis of
which the present petition has been filed by the petitioner, according
to Mr. Rohatgi, grants no “fruits” to the petitioner, which could be
safeguarded. In fact, Mr. Rohatgi went to the extent of stating that the
award grants the petitioner, effectively, nothing at all, despite
containing various observations favouring the petitioner. The final
direction in the litigation alone is enforceable, submits Mr. Rohatgi,
and not mere observations, howsoever favourable they may appear to
be. Absent any enforceable corpus, submits Mr. Rohatgi, the present
petition cannot be maintained at all.
Facts
6. Having thus identified the issue under consideration, albeit
abstractly, one may proceed to the facts.
7. Zostel Hospitality Pvt Ltd (“Zostel”) and one of its investor-
shareholders Orios Venture Partners (“Orios”) decided to enter into a
contract with Oravel Stays Pvt Ltd (“Oravel”), whereunder,
essentially, Zostel would transfer its hotel business to Oravel and
Orios, against which Oravel would, inter alia , transfer, to Zostel,
“identified assets” which included 7% of its shareholding. The terms
of this proposed arrangement were reduced to writing, in the form of a
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Term Sheet dated 26 November 2015. The opening recital in the
Term Sheet read thus:
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“This preliminary term sheet (“Term Sheet”) sets forth the
current intent with regard to the acquisition of identified
assets of Zostel Hospitality Private Limited (“Target”) by
Oravel Stays Private Limited (“Acquirer”) (“Acquisition”).
This Term Sheet is non-binding and is intended solely as a
summary of the current terms that are proposed by the parties;
provided that the paragraphs opposite the headings
“Confidentiality”, “Approvals”, “Expenses”, “Exclusivity”
and “Governing Law and Arbitration” shall be legally binding
provisions. The parties do not intend to be bound until they
enter into Definitive Agreements regarding the subject matter
of this Term Sheet, and either party may, at any time prior to
execution of such Definitive Agreements, unilaterally
terminate all negotiations pursuant to this Term Sheet without
any liability to the other party.”
8. The Term Sheet contained, among others, the following clauses:
S.
NO.
ITEM DESCRIPTION
3 Acquisition The Acquirer will acquire the
identified assets of the Target, which
would include intellectual property
rights (trademarks and domain
names), software, certain key
employees and other assets
(" Assets") of the Target.
For purposes of the acquisition of
Assets, the Acquirer shall pay the
'minimum permissible price by law
to the Target.
4 Closing The closing shall be conditional
upon fulfilment of the following
conditions: (i) completion of limited
legal and financial diligence of the
Target; (ii) the Target obtaining all
corporate, governmental,
management, third party, exchange
control and other regulatory
approvals that are necessary or
advisable; (iii) conditions identified
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under Annexure I; and (iv) any other
conditions in the Definitive
Agreements ("Closing").
It is hereby clarified that the term
losing, in case of a Merger
Framework, shall mean the filing of
the scheme of merger with the court.
Upon Closing:
(a) Preference shareholders of the
Target shall be entitled to acquire
preferred securities (which may
include equity with contractual
rights) ("Preferred Stock") in the
Acquirer.
(b) Equity shareholders of the Target
shall be entitled to acquire equity
shares in the Acquirer.
The total shares issued including,
Preferred Stock and equity shares
shall not exceed 7% of the fully
diluted shareholding of the Acquirer.
Upon completion of the post-closing
obligations as set-out in Annexure
II ("Post Closing Obligations"),
Founders shall be entitled to a
payout of US$ 1 million.
5 Shareholder
Rights
Preemptive Rights:
If the Acquirer proposes to offer
equity securities to any person, then
Tiger and Orios, (pari passu with
other right holders of the Acquirer)
shall have a pro-rata right to
subscribe to such new securities to
maintain their respective
shareholding in the Acquirer.
Exceptions and the treatment of
securities not subscribed for by
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shareholders who have a right to do
so, as mutually agreed between the
parties, shall be set forth in the
Definitive Agreements.
Liquidation Preference:
In the event of any liquidity event
(as defined in the shareholders
agreement dated July 25, 2015
entered by and between the Acquirer
and its shareholders ("OYO SHA")),
the preference shareholders of the
Target will have liquidation
preference on the amount actually
invested by them in the Target. The
proceeds will be distributed pari
passu to the Series A Shares, Series
A1 Shares, Series B Shares, Series C
Shares and Preferred Stock, in an
amount equal to the higher of (i)
their pro-rata share of the proceeds
and (ii) their original price plus all
accrued and unpaid dividends.
The balance of the liquidation
proceeds to be paid to the holders of
equity shares.
Anti-Dilution Protection
Subject to exceptions as provided
under the OYO SHA, the conversion
ratio for the Preferred Stock shall be
1:1 ("Conversion Ratio"). The
Conversion Ratio shall be adjusted
on a broad based weighted average
basis, in the event the Acquirer
raises a further round of financing at
a valuation which is less than US$
400 million.
Limited Information Rights
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The Acquirer shall provide limited
and reasonable information (subject
to confidentiality restrictions) to the
Target Shareholders (in a mutually
agreed format) for the purposes of
facilitating a sale of their respective
securities.
Co Sale Right
Tiger and Orios shall have a pro rata
co-sale right (pari passu with other
right holders of the Acquirer).
In the event that Tiger and/or Orios
acquire any of the shares held by the
Founders within 12 months of
Closing, they shall be entitled to
exercise Preemptive and Co-Sale
Rights in respect of such shares.
7 Definitive
Document
Subject to the conditions set forth in
this Term Sheet, the parties shall
mutually agree, execute the
following documents and such other
documentation as the parties may
deem necessary (hereinafter referred
to as the "Definitive Agreements"):
(a) Share Subscription Agreement/
Merger Framework Agreement
(Acquirer);
(b) Shareholders Agreement
(Acquirer);
(c) Asset/ Business Transfer
Agreement;
(d) Non-Compete, Non Solicitation
Agreement with the Founders;
and
(e) Settlement and Release
Agreement executed between the
Acquirer and Target.
The parties may pursuant to mutual
discussions agree upon execution of
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one or more. agreements to capture
the entire understanding arrived at
amongst them.
9 Due
Diligence
Following execution of this Term
Sheet, the Acquirer shall have the
opportunity to conduct a diligence
on the Target. The Target shall
provide all such information,
documents and material about the
business and affairs of the Target as
listed in the Exhibit to this Term
Sheet.
10 Non-
compete, &
Non-
solicitation,
Non-
Disparagem
ent
Agreement
Founders shall enter into a non-
disparagement agreement, non-
compete and non-solicitation
agreement with the Acquirer and the
Founders agreeing not to engage
directly/indirectly in any business
anywhere in the world which
competes with the business of the
Acqui.rer and/ or the Target
(including hostel/ apartments/
alternate accommodation business)
for a period of 5 years from the date
of Closing. No separate
consideration shall be payable to the
Founders for this non-compete and
non-solicitation agreement. It is
clarified that the family of Dharam
Veer Singh (one of the Founders)
owns hotel properties as part of a
traditional hotel business. The
Founders undertake to ensure that
such business does not compete with
the business carried on by the
Acquirer.
The Target Shareholders agree not to
directly (or through an affiliate)
invest in any business that is
determined by the Board of the
Acquirer as a competing business (in
accordance with the list of such
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competitors) till such time as they
are shareholders of the Acquirer.
The parties agree that the restriction
contained in this Clause shall only
come into force on the date of
execution of the Definitive
Agreements and shall fall away on
the long-stop date as agreed in the
Definitive Agreements in the event
the Closing has not occurred by such
date. It is clarified that Tiger and
Orios shall be free to invest in any
business they have already invested
in prior to signing of this Term
Sheet.
16 Governing
Law &
Arbitration
This Term Sheet will be governed by
Indian 1aw.
Any dispute between the parties
arising from or relating to this Term
Sheet which cannot be amicably
resolved between the parties shall be
referred to arbitration in New Delhi
in accordance with the Arbitration
and Conciliation Act , 1996. The
Tribunal shall consist of 1 arbitrator
to be agreed upon between the
parties. The language of the
arbitration shall be English and the
decision of the arbitrator shall be
final and binding on the parties. The
law of the arbitration shall be the
laws of India.
Annexures I and II to the Term Sheet read thus:
“ANNEXURE I
Closing Obligations
1. Withdrawal of all cases by the Target against the
Acquirer, including but not limited to CS (OS) No.
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2093/2015, contemporaneously and simultaneously with the
Acquirer withdrawing its cases against the Target, including
but not limited to CS (OS) 1058 of 2015, pursuant to a certain
Settlement and Release Agreement executed in a mutually
acceptable form and manner.
2. Transfer the consumer traffic by redirecting all calls,
website, phone based application and any other consumer
traffic generating system to the respective channels of the
Acquirer, reasonable costs of which shall be borne by the
Acquirer.
3. Transfer Assets reasonable costs of which shall be
borne by the Acquirer.
4. Send an appropriate written, mutually agreed
communication to all the stakeholders of the Target, including
but not limited to the property owners, customers and the
employees intimating about the closure of operations of the
Target and the Acquisition by the Acquirer.
5. Hand over to the Acquirer all the data base and records
related to customers, hotel owners, including contracts
pertaining to live property and property yet to go live along
with the relationship contacts, subject to confidentiality norms
and privacy related concerns.
6. Execute all documents (to the satisfaction of Acquirer)
to ensure that employee/ option holder liabilities are satisfied
after Closing.
ANNEXURE II
Post-Closing Obligations
Post-Closing the Target shall:
1. Facilitate, on a best efforts basis, to bring all properties
of the Target comprising of live and new signed properties in
the Acquirer's network, subject to a mutually agreed
minimum threshold.
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2. Reduce the total amount of minimum guarantee to be
paid to the property owners in relation to the aforesaid
properties to a mutually agreed amount per month.
3. Within 30 days, fulfil all obligations towards its
employees, including obligations towards those employees
who have been employed by the Acquirer.
4. Take steps to wind up the company and subsidiaries in
a form and manner deemed suitable to the parties.”
9. Claiming that, owing to defaults on the part of Oravel, Zostel
was unable to acquire the assets of Oravel, Zostel initiated arbitration
proceedings against Oravel. An eminent former Chief Justice of India
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arbitrated culminating in an arbitral award dated 6 March, 2021.
Zostel claims to have sought the relief, in the present petition, to
ensure that the arbitral award is not frustrated and Zostel is not
rendered unable to enforce the award. The concluding, operative para
of the arbitral award reads as under:
“In view of the above findings, this Tribunal holds that
Claimant is entitled to Specific Performance of the
Respondent’s obligations under Term Sheet dated 26.11.2015.
However, as Definitive Agreements have yet to be executed,
the Tribunal holds that the Claimant is entitled to take
appropriate proceedings for Specific Performance and
execution of the Definitive Agreements as envisaged, for
itself and its shareholders under the Term Sheet.
Further, the Claimant is entitled to costs in the cause.”
10. Oravel has challenged the arbitral award before this Court, by
way of OMP (Comm) 151/2021, which is presently pending, and was
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listed along with the present petition on 9 February, 2022. With
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consent of both sides, however, the present petition was taken up for
hearing, as Zostel seeks urgent interim relief.
11. The Court, seized with a post-award Section 9 petition, cannot
revisit the award. The prayer for interim protection has to be
examined, treating the award as correct and binding. Acknowledging
this position, Mr. Rohatgi, learned Senior Counsel for Oravel submits,
on instructions, that, despite the fact that Oravel’s challenge to the
award is pending, the present post-award Section 9 petition may be
decided assuming the award to be correct and binding.
12. In passing the present judgement, therefore, I have proceeded
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on the premise that the award, dated 6 March, 2021, is a valid award,
binding on the parties.
13. Given this position, it is necessary to understand what exactly
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the award dated 6 March, 2021 says, so that the Court could identify
the “fruits” thereof, that the petitioner may seek to take away, and of
which the petitioner may legitimately seek protection.
The Award, condensed
14. The grievance ventilated by Zostel before the learned Arbitrator
was that it had complied with all its obligations under the Term Sheet
and transferred its hotel business to Oravel. Owing, however, to the
recalcitrant attitude adopted by Oravel, Zostel complained that the
Definitive Agreements – the drafts of which had been forwarded by
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Zostel to Oravel and which were on the cusp of execution – could not
be executed, and, as a result thereof, Oravel reneged on its obligations
towards Zostel under the Term Sheet.
15. Zostel therefore prayed, before the learned arbitrator, inter alia ,
that
(i) Oravel be directed to specifically perform its obligations
under the Term Sheet by transferring/issuing, in the name of
Zostel’s shareholders, 7% of Oravel’s shareholding, on a pro
rata basis depending on the respective shareholding of Zostel,
(ii) Oravel be directed to pay, to Zostel’s founders, US $ 1
million.
(iii) Oravel be directed to pay damages for loss of goodwill
and reputation as well as inconvenience caused to Zostel and its
shareholders, to the tune of US $ 17 million, and
(iv) in the alternative, Oravel be directed to pay an amount
equivalent to 7% of the value of Oravel’s shareholding as per
the last round of funding, along with US $ 1 million.
16. The learned arbitrator framed the following issues, as arising for
consideration:
“1. Whether the Arbitral Tribunal has jurisdiction to
consider or entertain the claims of Claimants Nos 3 to 17?
2. Whether Claimant Nos. 2 and 3 have waived their
rights to raise any claims in the present arbitration and hence
their claims are not maintainable?
3. In the event of Claimant Nos. 2 to 17 not being entitled
to maintain their claim, whether Claimant No. 1 is entitled to
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claim/pray for the relief of allotment of shares from the
Respondents to Claimant Nos. 2 to 17 and the payment of
USD 1 million to Claimants No. 4010?
4. Whether the term sheet dated 26.11.2015 is non-
binding as stated in it or whether it is abiding, valid and
enforceable agreement in terms of the acts of the parties as
alleged by the Claimants?
5. Whether there was consensus ad idem between the
parties on the Draft Definitive Agreements stipulated under
clause 7 of the Term Sheet dated 26.11.2015?
6. Whether is asserted by the Claimants they were ready
and willing to perform their obligations under the Term Sheet
dated 26.11.2015 and to execute the draft definitive
agreements contemplated under the Term Sheet?
7. Whether the transaction(s) as contemplated in the Term
Sheet dated 26.11.2015 has been consummated and the
Claimants have performed conditions detailed in the Term
Sheet dated 26.11.2015?
8. Whether the Claimant is proved that there was a breach
of contract in terms of the Term Sheet dated 26.11.2015 by
the Respondent?
9. Whether the Claimants are entitled to specific
performance of the Term Sheet dated 26.11.2015 by directing
the Respondents to issue 7% of the present shareholding of
the Respondent in favour of Claimant No. 2 to 17 pro-rated to
their respective shareholding of Claimant No. 1?
10. Whether the Claimant is No 4 to 10 are entitled to the
payment of USD $ 1 million?
11. Whether as an alternative to specific performance,
Claimants are entitled to an amount equivalent to 7% of the
value of the Respondent as per the last round of funding
received by the Respondent along with USD $ 1 million to
Claimant Nos. 4 to 10?
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12. Whether Claimants No. 4 to 10 are entitled to interest
on the amount of USD 1 million from the date of execution of
the Term Sheet, if so what period and at what rate?
13. Whether the Claimant is proved loss of goodwill and
are entitled to damages to the extent of 17 million USD?
14. Whether the Claimant No. 1 he is entitled in the
alternative for payment of USD 8,89,22,768/-, as claimed in
the Replication?
15. Who should bear the cost and if so to what amount?
16. To what reliefs are parties entitled?”
Of these, for the purposes of the present petition, and the dispute
herein, Issues 1, 2 and 3 are not of particular relevance.
17. On the remaining issues, the learned arbitrator held thus:
18.1 Qua Issue 4
18.1.1 Issue 4 addressed the question of whether the Term Sheet
constituted a valid and binding contract. Zostel contended that the
Term Sheet was a binding and valid contract, whereas Oravel, relying,
inter alia , on the preambular recital in the Term Sheet, submitted that
it was not binding and was merely exploratory.
18.1.2 The learned Arbitrator held, at the outset, that the
construction of the Term Sheet had to be attempted by reading it as a
whole, and not by merely reading the preamble and ignoring its main
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clauses. The learned Arbitrator went on, thereafter, to reproduce
Clause 4 of the Term Sheet and observed thus:
“ A reading of Clause 4 and Annexure-I shows that completion
of the due diligence process, obtaining approvals and
fulfilment of conditions under Annexure-I our requirements
that ought to be fulfilled in order to close the transaction. In
other words, closing of the transaction (i.e., Acquisition of
Claimant No. 1 by the Respondent) is the natural and only
consequence of compliance of these conditions.
Clauses 4(iii) and (iv) of the Term Sheet show that fulfilment
of the conditions stated in Annexure-I are essential and
conditions stated under Definitive Agreements have to be
fulfilled in addition to the conditions laid down in clauses 4(i)
to 4(iii).”
(Emphasis supplied)
Observing, thereafter, that the Term Sheet required Zostel to perform
several “closing obligations”, apart from the conditions mentioned in
the Definitive Documents, towards closing of the transaction, the
learned Arbitrator held that the Term Sheet could not be treated as a
mere exploratory document. It was further observed that Clause 7 of
the Term Sheet, which stipulated that the execution of the Definitive
Documents was “subject to the conditions set forth in the Term
Sheet”, and, thereby, encompassed the conditions set out in Clause 4,
indicated that execution of the Definitive Documents was not
independent of the Term Sheet. The learned Arbitrator also noted that
Zostel had, in order to fulfil the obligations enlisted in Annexure-I to
the Term Sheet, (i) facilitated transfer of its employees, (ii) facilitated
transfer of the properties in its network to Oravel’s network, (iii)
facilitated the process of consumer migration, (iv) facilitated the
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st
process of transfer of future bookings w.e.f. 31 December, 2015 and
(v) provided the consumer data of Oravel to Zostel.
18.1.3 “Without expressing any opinion or the consequences of
the (said) act (which was subject matter of other issues)”, the learned
Arbitrator observed that, had the Term Sheet not been binding, there
was no reason for Oravel to have entertained communications from
Zostel, informing it of performance of the above acts. Following this
discussion, the learned Arbitrator held that “the parties were acting
upon the Term Sheet and the Term Sheet (was) a binding document”.
18.2 Qua Issue 5
18.2.1 This issue addressed the question of whether there was
consensus ad idem between the parties on the Draft Definitive
Agreements, which had been forwarded by Zostel to Oravel.
18.2.2 The learned Arbitrator relied, in the first instance, on the
following definition of consensus ad idem , in Mayawanti v.
4
Kaushalya Devi (in para 18 of the report):
“The specific performance of a contract is the actual
execution of the contract according to its stipulations and
terms, and the courts direct the party in default to do the very
thing which he contracted to do. The stipulations and terms of
the contract have, therefore, to be certain and the parties
must have been consensus ad idem. The burden of showing
the stipulations and terms of the contract and that the minds
were ad idem is, of course, on the plaintiff. If the stipulations
and terms are uncertain, and the parties are not ad idem,
4
(1990) 3 SCC 1
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there can be no specific performance, for there was no
contract at all. Where there are negotiations, the court has to
determine at what point, if at all, the parties have reached
agreement. Negotiations thereafter would also be material if
the agreement is rescinded . ”
(Emphasis supplied)
18.2.3 Relying on Clause 7 of the Term Sheet, in conjunction
with communications between the parties and the Board Resolution of
Oravel, the learned Arbitrator held that “it (was) clear that at the very
least, parties were ad idem in respect of acquisition of identified assets
of Claimant No. 1 by the Respondent”. The learned Arbitrator
observed that finalisation of the Definitive Agreements was hindered
by an objection by Venture Nursery, one of the shareholders of
Oravel, and the observations and findings of the learned Arbitrator in
that regard are of considerable significance:
“Admittedly, Due Diligence was conducted in December
2015. Parties began exchanging drafts of various Definitive
Agreements in the month of December 2015, and by January
2016 several revised drafts were shared based on comments of
the parties. In view of the arguments advanced by both
parties, it is clear that after nearly 8 of January 2016, the
drafts were being commented upon and traditions were being
made accordingly. However, it was only on January 26, 2016
that 1 of the partners of Sequoia Capital (Respondent’s
Shareholder and Investor) addressed an email to Claimant No.
1’s Shareholder stating that:
“Oyo team has been working relentlessly to finalise the
docs. we are nearly there but a minority investor has
held up the process by asking for a new and
unreasonable rights in the SHA and generally being
unsupportive.
Just wanted to let you know that we are trying to
resolve asap while minimising any long-term
risks/issues.”
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Several drafts were shared thereafter. Meetings took place
between the parties regarding the issues raised by Venture
Nursery and its objections in respect of the deal. Ex. C-57
captures the position existing as on 22.03.2016 and highlights
that:
a. Venture Nursery was not supporting the deal
and has written to the Board of Directors stating this.
b. OYO was reluctant to do anything which could
put the indicated financing at risk.
c. OYO’s team stated that going forward they
would attempt to do a quid pro quo with Venture
Nursery. The terms being that if existing or new OYO
investors are ready to give VN exit, the VN would
have to agree to stop being signatories to future SHAs
and amendments thereto. Their idea is to bring out the
irrationality at Venture Nursery’s any by offering them
a deal which would be fair.
d. It was decided by all parties that revised
Framework Agreement would be signed at the earliest.
Though Ex. C-57 has been denied by the Respondent being an
internal document of the Claimant, RW-1 (Mr. Abhishek
Gupta) relying on the said email in his cross-examination and
stated that some items discussed in the meeting were
documented in Ex. C-57. In view of RW-1’s testimony,
Respondent’s objection, Ex. C-57 is not sustainable.
Ex. C-53 (Colly) is a WhatsApp communication between Mr.
Dharamveer Chauhan and Mr. Ritesh Agarwal and shows that
Claimants were regularly seeking updates on the Venture
Nursery Issue. The said communication clearly shows that the
parties were waiting for the exit of Venture Nursery to
complete the transaction.
Ex. C-48 (Colly) shows that it was on the instructions of the
Respondent that the Claimants bought the Stamp papers. This
leads to a natural conclusion that the respondent was inclined
to close the transaction.
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Documents placed on the record show that the parties were
inclined to close the deal. It is evident that the revision of
Definitive Documents and that finalisation was significantly
affected by the events pertaining to the issues raised by
Venture Nursery. Objections raised by Venture Nursery
disturb the normal course of finalisation of the Definitive
Documents. No documents had been placed on record, which
suggest a contrary view.
It was essential that Definitive Agreements be amended to
include the changes necessitated in view of the objections
raised by Venture Nursery. However, such documents never
came to be finalised by the parties. Therefore, in view of the
documents placed on record and the pending issue with
Venture Nursery that remained to be resolved by the
Respondent, this Tribunal holds that there could not have
been complete consensus ad idem on the Draft Definitive
Agreements.”
(Emphasis supplied)
18.3 Qua Issue 6
18.3.1 Addressing the issue of whether Zostel was ready and
willing to perform its obligations under the Term Sheet and to execute
the draft Definitive Agreements, the learned Arbitrator held that there
was merit in Zostel’s submissions that
(i) Zostel had performed all closing obligations under the
Term Sheet,
(ii) the obligations that remained unfulfilled (i.e. execution of
the finalised Definitive Documents and withdrawal of pending
litigations) were solely on account of the failure, on the part of
Oravel, to perform its obligations pursuant to the Term Sheet,
despite Zostel’s willingness and readiness to perform the same,
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(iii) it was after the transfer of Zostel’s hotel business and
employees to Oravel that Zostel was informed about the issues
raised by Venture Nursery,
(iv) Zostel had purchased Stamp papers at the instruction of
Oravel,
(v) Zostel had, on multiple occasions, sought response from
Oravel regarding the status of the transaction after the exit of
Venture Nursery,
(vi) Zostel’s witness had testified that, while Zostel was
willing to transfer whatever Oravel desired, for many items,
they had received “no instructions”,
(vii) though efforts were made towards amicably resolving
pending litigations between the parties, which was a Closing
Obligation under the Term Sheet, Zostel failed to do so owing
to Oravel’s failure to adhere to its obligations, in terms of
payment of consideration in view of transfer of the business of
Zostel and
(viii) Zostel attempted to close the transaction even in October
2017, after the transfer of its hotel business to Oravel in January
2016.
18.3.2 Finding merit in the submissions of Zostel, the learned
Arbitrator held that Zostel was ready and willing to perform its
obligations under the Term Sheet and execute the draft Definitive
Documents.
18.4 Qua Issue 7
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18.4.1 Issue 7 addressed the question of whether the transactions
under the Term Sheet had been consummated and whether Zostel had
performed its obligations thereunder. On both the issues, Zostel,
needless to say, asserted in the affirmative, whereas Oravel disputed
the contention.
18.4.2 The learned Arbitrator held thus:
“Parties have been heard. The Term Sheet shows that the
transaction i.e. acquisition of Claimant No. 1 by the
Respondent consisted of several steps that were listed in
Annexure I and Annexure II of the Term Sheet is Closing and
Post-Closing Obligations. The pleadings and documents
placed on record show that Claimant No. 1 did perform some
of the conditions stated therein on the instructions of the
Respondent. These inter alia included termination of
contracts with hotel properties, transfer of Consumer Traffic
to the Respondent, said the appropriate ‘mutually agreed
communication to stakeholders of the target intimating them
about closure of operations of the target and acquisition by the
acquirer and handing over database and records relating to
customers and hotel owners. It is also observed that
obligations such as withdrawal of pending suits was to be
done simultaneously by both parties and was not carried out
in view of the turn of events and the issues raised by the
Respondent’s shareholder, Venture Nursery. Some conditions
remained unfulfilled on the part of Claimant No. 1 due to the
absence of instructions from the Respondent.
A perusal of the pleadings and evidence placed on record,
shows that the Claimant perform part of its obligations under
the Term Sheet as instructed by the Respondent. The said
obligations were performed in compliance of the Term Sheet
which was binding on the parties (as failed in Issue No. 4) and
were not gratuitous acts. There is no document on record
which shows that the Respondent instructed Claimant No. 1 at
any stage, to stop taking steps towards fulfilment of the
obligations stipulated under the Term Sheet. In fact,
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Communications placed on record show that the Respondent
was instructing and coordinated with Claimant No. 1
regarding various aspects of the transaction. This Tribunal
holds that Claimant No. 1 carry out all facts within its control
to consummate or the transactions contemplated in the Term
Sheet and fulfil the obligations stipulated under the Term
Sheet as instructed by the Respondent. The Claimant cannot
be held responsible for the obligations that could not be
fulfilled due to lack of instructions on the part of the
Respondent or due to complications that arose due to the
dispute raised by the Respondents minority shareholder,
Venture Nursery.”
18.5 Qua Issue 8: On the issue of whether Oravel had breached the
Term Sheet, the learned Tribunal held in favour of Zostel, thus:
“Parties have been heard. In view of the arguments advanced,
evidence led by the parties and the findings in Issue Nos 4, 5,
6 and 7, this Tribunal holds that while the Claimant was ready
and willing to fulfil the obligations mentioned in the Term
Sheet and also formed part of the obligations, the Respondent
failed to do so. On being requested by the Claimant’s for
performance of simultaneous obligations such as finalisation
and signing of the Definitive Documents, the Respondent kept
assuring that the same would be done once Venture Nursery’s
concerns were addressed. Claimant No. 1 continued to
perform its obligations in compliance of the Term Sheet.
There is no document on record which shows that the
Respondent instructed Claimant No. 1 to stop taking steps
towards fulfilment of the obligations stipulated under the
Term Sheet at any stage. Therefore, there was a legitimate
expectation on the part of the Claimant that the Respondent
would also perform its part of the obligations under the Term
Sheet. However, as the Respondent fails to perform its
obligations, this Tribunal holds that Respondent committed
breach of its obligations under the Term Sheet.”
18.6 Qua Issue 9:
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18.6.1 Issue 9 addressed the pivotal question of “whether the
Claimants are entitled to specific performance of the Term Sheet dated
26.11.2015 by directing the Respondent to issue 7% of the present
shareholding of the Respondent in favour of Claimant No. 2 to 17 pro-
rated to their respective shareholding of Claimant No. 1”.
18.6.2 In addressing this issue, the learned Arbitrator took stock
of Clause 4 of the Term Sheet, which made the entitlement of Zostel,
to 7% of the shareholding of Oravel, consequential “upon closing”
and, thereafter, proposed to answer the issue thus:
“Clause 4 shows that it is only upon ‘closing’, that the
preference and equity shareholders of Claimant No.1 would
have been entitled to a total of 7% of the fully diluted
shareholding of the Acquirer/Respondent. ‘Closing’ was
conditional upon fulfilment of certain conditions, 1 of which
was fulfilment of obligations under the Definitive Documents.
This Tribunal has held (Issue No. 5) that parties could not
arrive at consensus ad idem in respect of the Definitive
Documents and the same were not finalised on account of the
objections raised by Respondent’s shareholder Picture
Nursery, which was to be resolved by the Respondents.
The Term Sheet was a binding document and the Claimant
did everything within their control to complete their
obligations under the same. The Claimant cannot be held
responsible for the accident omissions of the Respondent
and/or its shareholders by virtue of which sum of the
obligations could not be fulfilled by the Claimant. This
Tribunal has held that Claimant No. 1 is entitled to claim/prey
for the relief of allotment of shares from the Respondents to
Claimant Nos. 2 to 17.
It is clear that Definitive documents could not be executed
because of a problem created by the shareholder of the
Respondent (Venture Nursery); the Term Sheet is a binding
document and parties were acting on it; some of the pending
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obligations could not be carried out due to lack of instructions
from the Respondent; the Respondent has committed a breach
of its obligations under the Term Fee and the Claimant did
everything within its control to complete its obligations under
the Term Sheet. Thus the Claimant cannot be held responsible
for the accident omissions of the Respondent and/or its
shareholders by virtue of which sum of the obligations under
the Term Fee could not be fulfilled by the Claimant. Hence,
the Claimant is entitled to Specific Performance of the
Respondents obligations. However, as Definitive Agreements
had yet to be executed, the Tribunal holds that the Claimant is
entitled to take appropriate proceedings for Specific
Performance and execution of the Definitive Agreements as
envisaged for itself and its shareholders under the Term
Sheet.”
(Emphasis supplied)
18.7 Qua Issues 10 and 12
18.7.1 Issue 10 addressed the prayer of Zostel, for a direction to
Oravel to pay US $ 1 million, whereas Issue 12 dealt with the right of
Zostel to interest on the said amount.
18.7.2 The learned Arbitrator noted that the entitlement of
Zostel (or, rather, of its founders) to a payout of US $ 1 million arose
under Clause 4 of the Term Sheet and was consequent “upon closing”.
Having reproduced Clause 4, therefore, the learned Arbitrator held
that “the Tribunal (could not) grant the relief at this stage as the same
(was) dependent on the fulfilment of post-closing obligations which
stage will be reached only after the Definitive Agreements are
executed”. Resultantly, on Issue 12, the learned Arbitrator held that
Zostel was not entitled to any interest.
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18.8 Qua Issue 11
Inasmuch as the prayer of Zostel, covered by this Issue, was for 7% of
the value of Oravel as per the last round of funding received by Oravel
along with US $ 1 million “as an alternative to specific performance”,
the learned Arbitrator held that, in view of his finding that Zostel was
entitled to specific performance, this alternative relief became
redundant.
18.9 Qua Issue 13
This issue dealt with the claim of Zostel for damages to the extent of
US $ 17 million, on the ground of loss of goodwill. The learned
Arbitrator held, on this issue, as under:
“ The Tribunal has held that the Claimant is entitled to
Specific Performance. Hence, on Specific Performance, the
goodwill of Claimant would also be transferred to the
Respondent. Therefore, the Tribunal does not deem it fit to
grant relief in respect of loss of Goodwill to the Claimant.
The same will be dependent on the outcome of the
proceedings for Specific Performance .”
(Italics and underscoring supplied)
18.10 Qua Issue 14
Zostel prayed, in the alternative, from Oravel, US $ 8,89,22,768/–, on
the principle of quantum meruit . The learned Arbitrator held that the
principle of quantum meruit , statutorily recognised in Section 70 of
the Indian Contract Act, 1872, applied only in the case of relationships
resembling contract, and not where a binding contractual relationship
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existed between the parties. Ergo, the learned Arbitrator held that as a
binding contract, in the form of the Term Sheet, was in existence
between Zostel and Oravel, no relief could be granted on the basis of
the quantum meruit principle.
18.11 Qua Issue 15
On the aspect of costs, the learned Arbitrator held that, as Oravel had
benefited by acquiring Zostel’s hotel business and had “committed
deliberate breach of contract”, it was the defaulting party in the
transaction and was liable, therefore, to bear the costs of the dispute,
for which purpose the learned Arbitrator relied on Section 31A of the
1996 Act. Zostel was, therefore, held to be entitled to costs in the
cause.
18.12 Qua Issue 16
Issue 16 was the standard concluding issue in every lis , viz., the relief
to which the parties were entitled. The finding of the learned
Arbitrator, on this Issue, constitutes the concluding para of the Award,
and, though it already stands reproduced earlier in this judgement,
merits reproduction, once again, thus:
“In view of the above findings, this Tribunal holds that
Claimant is entitled to Specific Performance of the
Respondents obligations under Term Sheet dated 26.11.2015 .
However, as Definitive Agreements have yet to be executed ,
the Tribunal holds that the Claimant is entitled to take
appropriate proceedings for Specific Performance and
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execution of the Definitive Agreements as envisaged , for itself
and its shareholders under the Term Sheet.”
(Italics and underscoring supplied)
Rival Submissions
Zostel’s Submissions
19. Arguing for Zostel, Mr. Amit Sibal contends that, the learned
Arbitrator having held Zostel to be entitled to specific performance of
the Term Sheet, Oravel could not be allowed to take any steps as
would frustrate the enforcement of the award by Zostel. He took me
through the findings of the learned Arbitrator, to which this judgement
has already alluded, in detail. He pointed out that there was a specific
finding, by the learned Arbitrator, that Zostel had already transferred
its hotel business to Oravel and had, therefore, performed its part of
the bargain under the Term Sheet. The learned Arbitrator specifically
found Oravel to be in default and in breach of its obligations under the
Term Sheet, which itself constituted a binding contract, by failing to
execute the Definitive Agreements and transfer 7% of its shareholding
to Zostel. The entitlement of Zostel, to execution of the Definitive
Agreements, and even to transfer of 7% of the shareholding of Oravel
in its favour had, points out Mr. Sibal, been positively found in favour
of Zostel by the learned Arbitrator. The only hurdle in execution of the
Definitive Agreements, the drafts of which had been forwarded by
Zostel to Oravel and had been accepted by Oravel, was the objection
of Venture Nursery, which did not survive once Venture Nursery
exited as a shareholder of Oravel.
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20. Mr. Sibal also invoked, for the purpose of the relief sought by
5
him, Order XXI Rule 34 of the CPC. He further submits that,
holistically read, the Award does not indicate any circumstance, short
of setting aside of the Award itself, in which 7% of its shareholding
would not be transferable by Oravel to Zostel. In view of the findings
in the Award which, till date, are undisturbed, Mr. Sibal submits that
the execution of the Definitive Agreements and the transfer of 7%
shareholding of Oravel to Zostel is a foregone conclusion, the
entitlement of Zostel to which has been affirmed, many times over, by
the learned Arbitrator in the Award.
21. Floating of the IPO by Oravel, submits Mr. Sibal, would
irreversibly render execution of the Award an impossibility, as the
5
34. Decree for execution of document, or endorsement of negotiable instrument . –
(1) Where a decree is for the execution of a document or for the endorsement of a negotiable
instrument and the judgment-debtor neglects or refuses to obey the decree, the decree-holder may
prepare a draft of the document or endorsement in accordance with the terms of the decree and
deliver the same to the Court.
(2) The Court shall thereupon cause the draft to be served on the judgment-debtor together
with a notice requiring his objections (if any) to be made within such time as the Court fixes in this
behalf.
(3) Where the judgment-debtor objects to the draft, his objections shall be stated in writing
within such time, and the Court shall make such order approving or altering the draft, as it thinks fit.
(4) The decree-holder shall deliver to the Court a copy of the draft with such alterations (if
any) as the Court may have directed upon the proper stamp-paper if a stamp is required by the law
for the time being in force; and the Judge or such officer as may be appointed in this behalf shall
execute the document so delivered.
(5) The execution of a document or the endorsement of a negotiable instrument under this
rule may be in the following form, namely:—
“C.D., Judge of the Court of
( or as the case may be ), for A.B., in a suit by E.F. against A.B.”,
and shall have the same effect as the execution of the document or the endorsement of the
negotiable instrument by the party ordered to execute or endorse the same.
(6) (a) Where the registration of the document is required under any law for the time
being in force, the Court, or such officer of the Court as may be authorised in this behalf
by the Court, shall cause the document to be registered in accordance with such law.
(b) Where the registration of the document is not so required, but the decree-holder
desires it to be registered, the Court may make such order as it thinks fit.
(c) Where the Court makes any order for the registration of any document, it may
make such order as it thinks fit as to the expenses of registration.”
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Term Sheet was predicated on the premise that Oravel is a pre-IPO
Company. Once an IPO is floated by Oravel, Mr. Sibal submits that
Zostel would no longer be able to obtain specific performance of the
Term Sheet, which would render the Award completely unenforceable
in law. Mr. Sibal invited my attention, in this context, to Clause 7.1 of
the Draft Share Holders Agreement, which was one of the Draft
Definitive Agreements forwarded by Zostel to Oravel, which read
thus:
“ 7. EXIT
7.1 The Company shall consummate a Qualified IPO at
any time within 6 (Six) years from the Closing Date (“ Exit
Period ”). The Board shall, with the prior Requisite Investors
Approval and in consultation with the firm of independent
merchant bankers, and subject to such statutory guidelines as
may be in force, decide on
7.1.1 The method of listing their Equity Securities,
i.e. either:
(i) Through a public issue of fresh Equity
Securities; or
(ii) Through an offer of existing Equity
Securities by some or all the Shareholders
(“ Offer of Existing Securities ”); or
(iii) A combination of (i) and (ii).
7.1.2 The price and other terms and conditions of the
Qualified IPO.
7.1.3 The timing of the Qualified IPO.
7.1.4 The Recognised Stock Exchange on which the
Equity Securities are to be listed.
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7.1.5 Any other matters related to the Qualified IPO.”
22. Mr. Sibal also places reliance on Regulation 5(2) of the
Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2018 (“the ICDR
Regulations”), which reads as under:
“ 5. Entities not eligible to make an initial public offer
*
(2) An issuer shall not be eligible to make an initial
public offer if there are any outstanding convertible
securities or any other right which would entitle any
person with any option to receive equity shares of the
issuer:”
Mr. Sibal submits that this provision operates both ways, to disentitle
Oravel from issuing an IPO at this stage. As Zostel is, under the
arbitral Award, entitled to receive 7% of the equity shares of Oravel,
Oravel is not eligible, at this stage, to make an IPO. Equally, if Oravel
were to make an IPO, it would result in Zostel becoming disentitled
from receiving the equity shares of Oravel, which would frustrate the
Award and render it incapable of execution. The proposed IPO,
therefore, submits Mr. Sibal, places Zostel’s right to specific
performance, which has been repeatedly emphasised in the Award by
the learned Arbitrator, in jeopardy.
23. In this context, Mr. Sibal also drew my attention to the Draft
Red Herring Prospectus (DHRP) filed by Oravel as a precursor to the
th
making of the IPO, on 30 September, 2021 (which, as he points out,
was published, after notice had been issued by this Court, in the
th
present petition, on 25 August, 2021), which provided that, upon
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consummation of the IPO, the Shareholders Agreement would stand
terminated. This was reinforced, Mr. Sibal points out, by Clause 22.1
of the Draft Shareholders Agreement, which provided for termination
of the said Agreement “with respect to each Party hereto, upon
consummation of the IPO”.
24. As there was consensus, between Zostel and Oravel, regarding
all key terms and conditions of the Definitive Agreements, Mr. Sibal
submits that Oravel could not be permitted to renege from its
obligations under the Term Sheet and, instead of executing Definitive
Agreements, make an IPO and thereby render the Term Sheet
incapable of enforcement.
25. The “proceedings for specific performance” to which the
concluding para in the arbitral award alludes, submits Mr. Sibal,
would necessarily be the proceedings for execution of the Award,
which Zostel has already taken out, and which are pending before this
Court. The learned Arbitrator could never have intended that Zostel
would be driven to file a fresh suit for specific performance. Even if
it were to do so, such a suit, submits Mr. Sibal, would be barred by res
judicata , in respect of the findings already returned by the learned
6
Arbitrator. Besides, such a suit would also be barred by Section 8(1)
7
of the 1996 Act as well as by Section 47 of the CPC.
6
8. Power to refer parties to arbitration where there is an arbitration agreement .—
(1) A judicial authority, before which an action is brought in a matter which is the subject of
an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through
or under him, so applies not later than the date of submitting his first statement on the substance of
the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court,
refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
7
47. Questions to be determined by the Court executing decree .—
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26. In fact, submits Mr. Sibal, the learned Arbitrator chose not to
award the alternate or claims for damages on account of loss of
goodwill, etc., solely on the ground that he had held Zostel to be
entitled to specific performance of the Term Sheet. It could not,
therefore, be contended that the learned Arbitrator had not directed
specific performance. The intent, at any rate, he submits, was
unequivocally to do so.
27. To support his submissions, Mr. Sibal places reliance on the
8
judgements of this Court in K.S.L. Industries Ltd v. N.T.C. Ltd and
2
of the High Court of Bombay in Dirk India , drawing attention to the
following passages from the said decisions:
8
para 75 from the report in K.S.L. Industries :
“75. The aspect whether the contract is such that it would
require constant supervision is a matter to be considered by
the learned arbitrator based on the merits of the case. Prima
facie , the view has to be based on the MOU working itself to
extinction in terms of clause 2.1 and 5.1, i.e. till the execution
of the definitive agreements and no further. To my mind, such
a process would not require constant supervision. In cases
where specific performance has been decreed by a court and
documents/instruments are required to be executed for
satisfying the decree, a party is not relieved by merely
alleging that execution of a definitive instrument is not
possible, and the courts are not rendered powerless. Order 21
Rule 34 of CPC deals with such situations.”
2
para 13 from the report in Dirk India :
(1) All questions arising between the parties to the suit in which the decree was passed, or
their representatives, and relating to the execution, discharge or satisfaction of the decree, shall be
determined by the Court executing the decree and not by a separate suit.
8
2012 SCC OnLine Del 4189
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“13. Two facets of Section 9 merit emphasis. The first
relates to the nature of the orders that can be passed under
clauses (i) and (ii). Clause (i) contemplates an order
appointing a guardian for a minor or a person of unsound
mind for the purposes of arbitral proceedings. Clause (ii)
contemplates an interim measure of protection for: (a) the
preservation, interim custody or sale of any goods which are
the subject-matter of the arbitration agreement ; (b)
securing the amount in dispute in the arbitration ; and (c) the
detention, preservation or inspection of any property or
thing which is the subject-matter of the dispute in
arbitration ; (d) an interim injunction or the appointment of a
receiver; and (e) such other interim measure of protection as
may appear to the Court to be just and convenient. The
underlying theme of each one of the sub-clauses of clause (ii)
is the immediate and proximate nexus between the interim
measure of protection and the preservation, protection and
securing of the subject-matter of the dispute in the arbitral
proceedings. In other words, the orders that are contemplated
under clause (ii) are regarded as interim measures of
protection intended to protect the claim in arbitration from
being frustrated. The interim measure is intended to safeguard
the subject-matter of the dispute in the course of the arbitral
proceedings. The second facet of Section 9 is the proximate
nexus between the orders that are sought and the arbitral
proceedings. When an interim measure of protection is sought
before or during arbitral proceedings, such a measure is a step
in aid to the fruition of the arbitral proceedings. When sought
after an arbitral award is made but before it is enforced, the
measure of protection is intended to safeguard the fruit of the
proceedings until the eventual enforcement of the award. Here
again the measure of protection is a step in aid of
enforcement. It is intended to ensure that enforcement of the
award results in a realisable claim and that the award is not
rendered illusory by dealings that would put the subject of the
award beyond the pale of enforcement. Now it is in this
background that it is necessary for the Court to impart a
purposive interpretation to the meaning of the expression “at
any time after the making of the arbitral award but before it is
enforced in accordance with section 36”. Under Section 36, an
arbitral award can be enforced under the Code of Civil
Procedure in the same manner as if it were a decree of the
Court. The arbitral award can be enforced where the time for
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making an application to set aside the arbitral award under
Section 34 has expired or in the event of such an application
having been made, it has been refused. The enforcement of an
award enures to the benefit of the party who has secured an
award in the arbitral proceedings. That is why the
enforceability of an award under Section 36 is juxtaposed in
the context of two time frames, the first being where an
application for setting aside an arbitral award has expired and
the second where an application for setting aside an arbitral
award was made but was refused. The enforceability of an
award, in other words, is defined with reference to the failure
of the other side to file an application for setting aside the
award within the stipulated time limit or having filed such an
application has failed to establish a case for setting aside the
arbitral award. Once a challenge to the arbitral award has
either failed under Section 34 having been made within the
stipulated period or when no application for setting aside the
arbitral award has been made within time, the arbitral award
becomes enforceable at the behest of the party for whose
benefit the award enures. Contextually, therefore, the scheme
of Section 9 postulates an application for the grant of an
interim measure of protection after the making of an arbitral
award and before it is enforced for the benefit of the party
which seeks enforcement of the award. An interim measure of
protection within the meaning of Section 9(ii) is intended to
protect through the measure, the fruits of a successful
conclusion of the arbitral proceedings. A party whose claim
has been rejected in the course of the arbitral proceedings
cannot obviously have an arbitral award enforced in
accordance with Section 36. The object and purpose of an
interim measure after the passing of the arbitral award but
before it is enforced is to secure the property, goods or
amount for the benefit of the party which seeks enforcement.”
(Emphasis in original)
Oravel’s Submissions
28. Arguing in response, Mr. Mukul Rohatgi, on behalf of Oravel,
submits that the award, on the basis of which Zostel has approached
this Court under Section 9 of the 1996 Act, grants Zostel precisely
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nothing. He submits that enforcement can be sought of the operative
portion of the Award, and not of the observations contained in the
body thereof. What the Award of the learned Arbitrator holds, submits
Mr. Rohatgi, is that Zostel would have to take out proceedings for
specific performance. The Award does not direct specific
performance, and cannot be enforced as though it were a decree for
specific performance. Mr. Rohatgi submits that proceedings for
specific performance had to abide by the discipline of the Specific
Relief Act, 1963. They have to be, therefore, by way of a substantive
suit. An enforcement petition, he submits, cannot be in the nature of
proceedings for specific performance. Order XXI Rule 34, submits
Mr. Rohatgi, applies where there is a decree for specific performance.
In the present case, he submits that there is none. Indeed, he submits,
the learned Arbitrator can hardly be faulted for not directing specific
performance, as there still remains to be consensus ad idem , between
Zostel and Oravel, regarding the terms of the Definitive Agreements.
29. Mr. Rohatgi submits, albeit without prejudice to the rights of his
client to contest, that the appropriate course of action for Zostel to
follow, following the arbitral Award, would have been to file a suit for
specific performance. Such a suit, he submits, would have been
maintainable, despite the existence of an arbitration agreement
between Zostel and Oravel, as the arbitration clause stood worked out,
and the arbitral Award was an enforceable decree at law. The
enforcement, however, he submits, would have to be by way of filing
of a suit for specific performance. In such a suit, he submits that
Zostel could pray for a direction to Oravel to execute the Definitive
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Agreements. As to whether Zostel would be entitled to such relief, of
course, he submits, would be decided by the Court seized with such a
suit.
30. Adverting to the principles regarding the ambit of Section 9 of
the 1996 Act, when invoked at the post-Award stage, Mr. Rohatgi
submits that the Court, in such a case, would have to determine the
“fruits” of the Award, which it could then protect. In the present case,
however, the Award does not grant, to Zostel, any such fruits.
31. The draft Definitive Agreements, forwarded by Zostel to
Oravel, on which Mr. Sibal places especial reliance are, submits Mr.
Rohatgi, completely irrelevant. They are merely drafts. Even as per
the Award of the learned Arbitrator, consensus ad idem , regarding the
terms of these draft Definitive Agreements, is still wanting. Such draft
Definitive Agreements, on which there is still no complete meeting of
minds between the parties, he submits, can hardly clothe Zostel with
any enforceable right in law. He reiterates his submission that it would
be for Zostel to file a suit for specific performance and establish,
before that Court, that there was, in fact, consensus ad idem between
the parties, regarding the covenants of the Definitive Agreements.
32. Mr. Rohatgi also took me through the covenants of the Term
Sheet. He pointed out that execution of the Definitive Documents was
a contractual precursor to “closing” of the Term Sheet, following
which, alone, Zostel could claim a right to 7% of the shares of Oravel,
as is apparent from the words “upon closing” as contained in Clause 4
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of the Term Sheet. We are, at this point, he submits, far from that
stage. He also points out that Clause 7 of the Term Sheet, which deals
with “Definitive Documents”, envisages execution of such Definitive
Documents by “mutual agreement” between the parties. He further
points out that Clause 7 also envisages the possibility of the parties,
pursuant to mutual discussions, agreeing upon execution of further
Definitive Documents, other than the five Definitive Agreements
enumerated in Clause 7. Such mutual discussions, even as per the said
Clause, are intended “to capture the entire understanding arrived at
amongst them”. In such a situation, where there was yet to be
consensus ad idem regarding the terms of the Definitive Agreements,
Mr. Rohatgi submits that there could never be a clear decree for
specific performance of the Term Sheet. It is for this reason, submits
Mr. Rohatgi, that the learned Arbitrator chose not to award specific
performance in express terms.
33. Mr. Rohatgi thereafter drew my attention to a communication,
th
dated 17 September, 2016, from Zostel to Oravel, which read thus:
“Dear Smriti, Mahinder, Abhishek,
Thanks for arranging the meeting. Capturing below the
understanding of our discussion yesterday. Would request you
to confirm if the understanding is correct. Orios would need
the same for their IC discussion on Monday.
Single shareholder from Zo comes on Oyo’s cap table.
Oyo will acquire Zostel’s SPV through a court approved
merger process. In case, the merger process does not go
through or is getting delayed beyond the agreed long stop
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date, the parties will find an alternate structure which has the
same economic impact on both the parties as the current
structure. Oyo will lead the merger process providing
adequate visibility to Zo into the progress of the same. Stamp
duty needs to be assessed and agreed to.
Post-merger, Oyo will issue common equity shares with free
marketability rights to Zostel with restriction on sale to
competitors (list as decided previously). To support the
merger process, Oyo and SPV need to submit a swap ratio
reports to the High Court. We understand that the value of
SPV and value of equity issued by Oyo upon merger would be
in the vicinity of ₹ 80 crores (subject to study by an
independent valuation expert).
Zo Founders would be paid $ 1 Mn upon completion of
specific obligations as captured in the earlier agreement – Oyo
team to check the understanding captured in the agreement.
In addition, the final deal construct shall ensure Zo
shareholders are not out of pocket (for tax) during any stage
of the process. Maintaining tax consistency for Zo and Zo
shareholders – new structure proposed by Oyo should keep Zo
and its shareholders in different from any income tax point of
view both at the stage of merger and eventual exit and both
the parties would work towards finding an approach to ensure
this is achieved.
Both the parties will work towards completing the deal at the
earliest. As next steps, we will come back to you as soon as
Tiger, Orios confirm the above construct. Post that, we will
sign a term sheet to capture the dual construct following
which we can proceed to finalising the transaction documents
and initiating the merger process .”
(Emphasis supplied)
Thus, submits Mr. Rohatgi, before finalisation of the transaction
documents, a second Term Sheet was envisaged. To the above
communication, Oravel replied thus, on 19 September, 2016:
“Oyo and Zo are agreed that in the present circumstance the
transaction as contemplated in November 2015 is no longer
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viable. Subject to agreeing to the revised proposal, Oyo will
proceed to discuss and agree on mutually agreeable merger
framework agreement.”
This communication, points out Mr. Rohatgi, was interpreted, by
Zostel, as amounting to termination of the Term Sheet. Consequent
th
thereupon, Zostel addressed a legal notice, dated 25 January, 2018 to
Oravel, in which it claimed damages. No case for specific
performance, he submits, was set up.
34. Proceeding from this premise, Mr. Rohatgi submitted, citing for
the purpose, the judgement of the Supreme Court in I.O.C.L. v.
9
Amritsar Gas Service , that, given the nature of the termination clause
in the Term Sheet, it was incapable of specific performance, in view of
Section 14(1) of the Specific Relief Act. Mr. Rohatgi also took me
through various paras of the judgement of the learned Single Judge of
8
this Court in K.S.L. Industries to distinguish the facts of that case
from those of the present. Inter alia , Mr. Rohatgi submitted that, in
view of the peculiar covenants in the Memorandum of Understanding
8
in K.S.L. Industries , this Court held that the MOU was a concluded
contract. Such covenants, he submits, are absent in the case of the
Term Sheet between Zostel and Oravel.
35. In any case, submits Mr. Rohatgi, even if the IPO is floated, the
maximum prejudice that Zostel could claim of, would be reduction in
the value of the 7% shareholding of Oravel, assuming it to be entitled
thereto. Zostel might, in such circumstances, be entitled to claim –
9
(1991) 1 SCC 533
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though Mr. Rohatgi submits that such claim, even if preferred, would
be meritless – the difference between the value that 7% of the shares
of Oravel had prior to the IPO, and their value post-IPO, both of
which were arithmetically computable. No case, therefore, for
injuncting the issuance of the IPO, therefore, exists, in his submission.
Zostel’s submissions in rejoinder
36. In rejoinder, Mr. Sibal once again took me through the various
paras of the arbitral Award, in order to drive home his submission that
the right, of Zostel, for execution of the Definitive Agreements and,
further, to 7% of the shareholding of Oravel, already stands
crystallised, and can be defeated only if the arbitral Award is set aside,
and in no other circumstance.
37. Mr. Sibal submits that Zostel could not prefer a suit for specific
10
performance, in view of Section 36 of the 1996 Act , which provides
10
36. Enforcement . –
(1) Where the time for making an application to set aside the arbitral award under Section 34
has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in
accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same
manner as if it were a decree of the court.
(2) Where an application to set aside the arbitral award has been filed in the court under
Section 34, the filing of such an application shall not by itself render that award unenforceable,
unless the court grants an order of stay of the operation of the said arbitral award in accordance with
the provisions of sub-section (3), on a separate application made for that purpose.
(3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral
award, the court may, subject to such conditions as it may deem fit, grant stay of the operation of
such award for reasons to be recorded in writing:
Provided that the court shall, while considering the application for grant of stay in the
case of an arbitral award for payment of money, have due regard to the provisions for grant of stay
of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908) :
Provided further that where the Court is satisfied that a prima facie case is made out that,
–
( a ) the arbitration agreement or contract which is the basis of the award; or
( b ) the making of the award,
was induced or effected by fraud or corruption, it shall stay the award unconditionally pending
disposal of the challenge under Section 34 to the award.
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for execution of arbitral awards, as if they are decrees of Court. The
1996 Act, he submits, constitutes a complete code, and, once parties to
an agreement bind themselves thereby, relief cannot be sought outside
the 1996 Act. Besides, he submits that, if he were to prefer a suit, the
aspects covered by the arbitral Award would operate as res judicata ,
for which purpose he relies on K.B. George v. Secretary to
11
Government, Water and Power Department. .
38. To a query from the Court as to whether Oravel was proscribed
from seeking any major alteration in the terms of the draft Definitive
Agreements, Mr. Sibal answers in the negative, relying, for that
purpose, on the concluding para of the arbitral Award (already
reproduced hereinabove) which entitles Zostel to take appropriate
proceedings for specific performance and execution of the Definitive
Agreements “as envisaged”. The words “as envisaged”, submits Mr.
Sibal, indicate that Oravel would be bound to execute the Definitive
Agreements as envisaged in the Term Sheet. In such a situation, where
the terms of the agreement are preset by contract, Mr. Sibal submits
that Order XXI Rule 34 of the CPC would squarely apply. The fact
that the transaction between the parties stands consummated, he
submits, has already been determined in Zostel’s favour by the arbitral
Award.
Explanation .—For the removal of doubts, it is hereby clarified that the above proviso shall apply to
all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the
arbitral or court proceedings were commenced prior to or after the commencement of the
Arbitration and Conciliation (Amendment) Act, 2015.
11
(1989) 4 SCC 595
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39. Mr. Sibal also advanced submissions by way of response to the
submission, of Mr. Rohatgi, that the Term Sheet was incapable of
specific performance, in view of Section 14 of the Specific Relief Act.
However, in view of the findings, by the learned Arbitral Tribunal,
that Zostel was entitled to specific performance of the Term Sheet, I
do not propose to enter into that aspect.
Oravel’s submission in surrejoinder
40. Putting in a word by way of surrejoinder, Ms Anuradha Dutt,
learned Counsel for Oravel (who was instructing Mr. Rohatgi)
submitted that, despite the specific submission having been advanced
by Zostel, before the learned Arbitrator, that, after the exit of Venture
Nursery, execution of the Definitive Agreements was a mere
formality, the learned Arbitrator nonetheless held that there was no
complete consensus ad idem regarding the terms of the Definitive
Agreements, which were yet to be finalised.
Analysis
1 2
41. As Dirk India and Hindustan Construction Co tell us,
Section 9 of the 1996 Act, when exercised at a post-award stage, is
meant to protect the fruits of the arbitral award and to ensure that the
award is not rendered incapable of enforcement.
42. To what “fruits”, therefore, is Zostel entitled, by virtue of the
th
arbitral Award dated 6 March, 2021?
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43. Mr. Sibal’s submission that the learned Arbitrator has directed
specific performance of the Term Sheet is obviously incorrect. The
th
Award dated 6 March, 2021, contains no such direction. All that it
vouchsafes is the entitlement, of Zostel, to specific performance of
th
Oravel’s obligations under the Term Sheet dated 26 November,
2015. It does nothing more. Following this certification, and noting
the fact that Definitive Agreements had yet to be executed, the Award
entitles Zostel “to take appropriate proceedings for specific
performance and execution of the Definitive Agreements as
envisaged”.
44. The words “as envisaged”, quite clearly, have to be understood
in the context of the Term Sheet and its covenants. Execution of the
Definitive Agreements have to necessarily precede “closing” of the
Term Sheet, and it is only “upon closing” that Zostel would become
entitled to 7% of the shares of Oravel. This is clear from Clause 4 of
the Term Sheet. Though Mr. Rohatgi sought to point out, from Clause
7 of the Term Sheet, that the expression “Definitive Documents” was
wider than “Definitive Agreements” and could include documents
other than the Definitive Agreements”, that distinction, in my view,
may not be of particular significance, as Clause 4 makes “closing”
dependent on execution of “Definitive Agreements”, and not
“Definitive Documents”.
45. Execution of Definitive Agreements has, however, under Clause
7 of the Term Sheet, to be on the basis of “mutual agreement”.
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“Mutual agreement” is but a synonym for consensus ad idem . The
learned Arbitrator has, in the arbitral Award, held, in so many terms,
that consensus ad idem , between Zostel and Oravel, is wanting. As a
party seeking reliefs predicated on the Award, Zostel cannot wish
away this finding. The learned Arbitrator has, in fact, emphasised this
position more than once in the Award.
46. Issue No. 5, as framed by the learned Arbitrator, was,
specifically, whether there was consensus ad idem between the parties
on the draft Definitive Agreements. The manner in which the learned
Arbitrator has dealt with this issue is instructive. After reproducing
rival contentions of learned Counsel, the learned Arbitrator relies on
4
the passage, from the decision in Mayawanti , reproduced in para
26.2.2 supra, on the requirement of consensus ad idem as a necessary
condition for specific performance of the contract. In the said passage,
the Supreme Court holds, in unequivocal terms, that “the stipulations
and terms of the contract have, therefore, to be certain and the parties
must have been consensus ad idem ”. The passage goes on to state,
almost at the cost of repetition, that “if the stipulations and terms are
uncertain, and the parties are not ad idem, there can be no specific
performance, for there was no contract at all ”. The reliance, by the
4
learned Arbitrator, on this passage, from Mayawanti , indicates,
clearly, why the learned Arbitrator did not direct specific performance.
The Supreme Court having held that, absent consensus ad idem , there
could not be specific performance of a contract at all, and the learned
Arbitrator having gone on to hold that, qua the Definitive Agreements,
consensus ad idem between Zostel and Oravel was wanting, the
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reluctance, by the learned Arbitrator, to award the specific
performance was but an inevitable sequitur. The way forward, in such
4
cases, is also shown by the same passage from Mayawanti , by the
observation that “where there are negotiations, the court has to
determine at what point, effect or, the parties have reached
agreement”. That, quite clearly, is a matter of trial.
4
47. Having thus cited Mayawanti , the learned Arbitrator goes on to
note that Clause 7 of the Term Sheet required the Definitive
Documents to be executed subject to the conditions in the Term Sheet.
He then proceeds to hold that, “therefore, one of the primary aspects
on which the parties were ad idem was the acquisition of identified
assets of Claimant No. 1 by the Respondent”. In other words, the
learned Arbitrator holds that Zostel and Oravel were ad idem
regarding the transfer of Zostel’s hotel business to Oravel.
48. The passages, in the arbitral Award, which deal with the aspect
of consensus vis-à-vis the Definitive Agreements, stand reproduced in
para 26.2.3 supra . It is important to read this paragraph carefully. The
learned Arbitrator notes the fact that, till January 2016, drafts of the
Definitive Agreements were being exchanged between Zostel and
th
Oravel. Thereafter, on 26 January, 2016, Venture Nursery threw a
spanner in the works. The learned Arbitrator observes that both parties
were waiting for the exit of Venture Nursery, to complete the
transaction. No doubt, the learned Arbitrator also goes on to hold that
the purchase of stamp papers by Zostel, on the instructions of Oravel,
led to a natural conclusion that Oravel was inclined to close the
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transaction. The learned Arbitrator, in fact, immediately reiterates this
observation by stating that “documents placed on record show that the
parties were inclined to close the deal”.
49. Inclinations, though, howsoever favourable, do not a transaction
make. Having held that Zostel and Oravel were both inclined to close
the transaction and execute the Definitive Agreements, the learned
Arbitrator finds, clearly, categorically and without any equivocation
whatsoever, that the Definitive Documents “never came to be finalised
by the parties”. Issue 5 is concluded, by the learned Arbitrator, with
the finding “that there could not have been complete consensus ad
idem on the Draft Definitive Agreements”.
50. Mr. Sibal contended, with repeated emphasis, that the only
roadblock, in the execution of the Definitive Agreements, was the
objection of Venture Nursery. Once Venture Nursery exited, the draft
Definitive Agreements were to be suitably amended. Therefore,
Oravel had no option but to sign on the dotted line. The execution of
the Definitive Agreements, in the draft form as communicated by
Zostel to Oravel, according to Mr. Sibal, was mandatory, under the
arbitral Award.
51. I find myself unable to agree. It was to elicit a specific response
from Mr. Sibal on this point that I posed a pointed query to him, as to
whether Oravel was completely proscribed from suggesting any
changes in the draft Definitive Agreements, as forwarded by Zostel to
Oravel. His answer was in the affirmative, and he sought to rely, for
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this purpose, on the words “as envisaged”, as contained in the
concluding passage from the arbitral Award. Mr. Sibal himself
acknowledges that the words “as envisaged” have to be understood as
relating to the covenants of the Term Sheet; in other words, as
envisaged in the Term Sheet. The Term Sheet specifically envisages
execution of the Definitive Agreements “as mutually agreed” between
the parties. Mutual agreement or, in other words, consensus ad idem ,
was, therefore, the sine qua non for the Definitive Agreements to be
executed. That consensus ad idem , even according to the arbitral
Award, is lacking. It would not be far from the truth to state that, even
as on date, said consensus is, if anything, still at an inchoate stage.
52. Mr. Sibal sought to contend that there was consensus ad idem
on the “key terms and conditions” of the Definitive Agreements, and
that the only aspect for which there was want of consensus was the
objection raised by Venture Nursery. Once that crease had been ironed
out with the exit of Venture Nursery, he submits, no want of
consensus remains, and the draft Definitive Agreements, as forwarded
by Zostel to Oravel, had necessarily to be inked and signed by Oravel.
53. Unfortunately for Zostel, however, the arbitral Award does not
say so. The learned Arbitrator has not opined, anywhere in the Award,
that, with the exit of Venture Nursery, Oravel was mandatorily
required to execute the draft Definitive Agreements, as there was
complete consensus ad idem regarding all terms thereof. Nor does the
arbitral Award make any particular distinction between the “key terms
and conditions” and other terms and conditions. What is required, for
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any contract and, therefore, for a Court to direct specific performance
4
of a contract, according to Mayawanti , is consensus ad idem
regarding all terms and conditions of the contract. That such
consensus ad idem was lacking, is a specific finding of the learned
Arbitrator, which binds Zostel.
54. The findings of the learned Arbitrator on Issues of 9 and 10
place the matter beyond any pale of uncertainty.
55. Addressing Issue 9, which examined the entitlement of Zostel to
specific performance of the Term Sheet by directing Oravel to issue
7% of its shareholding in favour of the shareholders of Zostel, the
learned Arbitrator observes that it was only “upon closing”, that such
entitlement would arise under Clause 4 of the Term Sheet. “Closing”,
as he pertinently goes on to observe, “was conditional on fulfilment of
certain conditions, one of which was fulfilment of obligations under
the Definitive Documents.” The learned Arbitrator, thereafter,
reiterates his earlier finding that the parties could not arrive at
consensus ad idem in respect of the Definitive Documents. Though,
in the succeeding paragraph, the learned Arbitrator does observe that
Zostel did everything within its control to complete its obligations,
and could not be held responsible for the acts and omissions of Oravel
or its shareholders, owing to which some of the obligations could not
be fulfilled by Zostel, the only sequitur that follows, even as per the
learned Arbitrator, is that Zostel was “entitled to claim/pray for the
relief of allotment of shares from the Respondents to Claimant Nos. 2
to 17”.
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56. A right to claim, or to pray for, allotment of shares, is quite
different from a right to allotment of shares per se . Though Mr. Sibal
sought to wish away this significant distinction by contending that the
words “to claim/pray” were used to denote the right of Zostel to raise
a claim for relief the benefit of which would enure to other Claimants,
the submission cannot undermine the use of the expression “to
claim/pray”, by the learned Arbitrator.
57. Thereafter, the learned Arbitrator, after observing that the non-
execution of the Definitive Documents was because of a problem
created by Venture Nursery, shareholder of Oravel, and that there was
lack of instructions from Oravel to Zostel, and even castigating Oravel
for committing a breach of its obligations under the Term Sheet, for
which Zostel could not be held responsible, stops short of directing
specific performance of the Term Sheet, merely holding that Zostel
was entitled to specific performance. Thereafter, the learned Arbitrator
holds that, as Definitive Agreements were yet to be executed (which,
obviously, has to be read in conjunction with the finding, immediately
prior thereto, that there was lack of consensus ad idem on the terms of
the Definitive Agreements), Zostel was entitled to take appropriate
proceedings for specific performance and execution of the Definitive
Agreements.
58. The decision of the learned Arbitrator on Issue 10, which
immediately follows, is of particular significance. Issue 10 addressed
the question of whether Claimants 4 to 10 (the founders of Zostel)
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were entitled to payment of US $ 1 million. The learned Arbitrator
notes that the right of the founders to a payout of US $ 1 million arose
from the somewhat ubiquitous Clause 4 of the Term Sheet and that, as
the said right was “dependent on the fulfilment of post-closing
obligations which stage will be reached only after the Definitive
Agreements are executed”, no such direction could be issued.
59. The decision of the learned Arbitrator on Issue 13, in my view,
additionally serves to discountenance the submission so assiduously
canvassed by Mr. Sibal. The contention of Mr. Sibal that, with the
exit of Venture Nursery, execution of the Definitive Documents, and
the consequent transfer of 7% shareholding from Oravel to Zostel, was
inevitable, is clearly belied by the concluding observation in the
decision of the learned Arbitrator on Issue 13, which dealt with the
claim of Oravel for damages on account of loss of goodwill. The
learned Arbitrator holds, while declining the relief, that “the same will
be dependent on the outcome of the proceedings for Specific
Performance ”. The outcome of the proceedings for Specific
Performance is, therefore, even in the mind of the learned Arbitrator,
indeterminate on the date of passing of the arbitral Award.
60. This, in my view, substantially dilutes the strength of Mr.
Sibal’s contention that specific performance, in the wake of the
arbitral Award, could be sought by Zostel through an Execution
Petition. It also takes the proverbial wind out of the sails of the
contention of Mr. Sibal that, absent setting aside of the arbitral Award,
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execution of the Definitive Agreements and transfer of 7%
shareholding from Oravel to Zostel is a foregone conclusion.
61. That an arbitral tribunal may grant specific performance of a
contract for immovable property stands settled by the judgement of the
Supreme Court in Olympus Superstructures Pvt Ltd v. Meena Vijay
12
Khetan . Zostel, therefore, advisedly sought specific performance
from the learned Arbitrator; the learned Arbitrator, however, equally
advisedly, did not condescend to so direct. Zostel has not chosen to
challenge the arbitral Award, possibly owing to its misconception that
the Award directed specific performance of the Term Sheet. Mr.
Rohatgi is correct in his submission that the arbitral Award, in the
present case, cannot be enforced as a decree for specific performance,
despite, consequent to the amendment of Section 36 of the 1996 Act
rd
with effect from 23 October, 2015, arbitral awards being enforceable
as decrees of Courts.
62. Mr. Sibal has emphasised the position, emerging from Dirk
2
India , that the concern of the post-award Section 9 court should be to
ensure that the award is not rendered incapable of execution, and he is
right. Where Mr. Sibal appears, however, to err, is in his contention
that the arbitral Award, in the present case, directs specific
performance. It does not do so. All it does is to recognize the right of
Zostel to take appropriate proceedings for specific performance,
specific performance of the Term Sheet being, as per the Award,
Zostel’s entitlement. It does not direct Oravel to specifically perform
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the Term Sheet, though this was the prayer of Zostel in the arbitral
proceedings.
63. Zostel cannot, from this Court, either under Section 9 or Section
36 of the 1996 Act, obtain relief in excess of that which the arbitral
award grants. That might have been possible only if Zostel had chosen
to challenge the arbitral Award. It has not done so.
64. Considerable reliance was placed, by Mr. Sibal, on Order XXI
Rule 34 of the CPC. In my considered opinion, the provision does not
apply. Order XXI Rule 34 applies in the case of a decree for the
execution of a document or for the endorsement of the negotiable
instrument, in accordance with the terms of the decree. The arbitral
Award in the present case is not a decree for the execution of the
Definitive Agreements. It is merely a decree enabling Zostel to take
proceedings for execution of the Definitive Agreements and for
specific performance of the Term Sheet. It does not direct execution
of the Definitive Agreements, apparently for the reason that the
learned Arbitrator was of the view that consensus , ad idem , regarding
the terms of the Definitive Agreements, was still wanting. This view,
of the learned Arbitrator, expressed in so many words, has remained
unchallenged by Zostel.
65. Mr. Sibal has sought to contend that, if the IPO is permitted to
be floated, Oravel would acquire the status of a post-IPO company
and, consequently, the Term Sheet would become incapable of
12
(1999) 5 SCC 651
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specific performance. There is nothing, in the Term Sheet, to so
indicate. The contractual covenants, on which Mr. Sibal relies and
which stand reproduced in para 29 supra , are in the Draft Share
Holders Agreement, and not in the Term Sheet. There is, as on date,
no consensus, ad idem , on the terms of the Share Holders Agreement.
An injunction, under Section 9 of the 1996 Act, can hardly be granted
on the basis of a covenant in an unexecuted draft agreement.
66. That apart, in any case, once the arbitral Award reveals itself
merely to be an award permitting Zostel to take appropriate
proceedings for specific performance, the issue of whether,
consequent on Oravel floating an IPO, the draft Definitive
Agreements, in the form in which they were communicated by Zostel
to Oravel, could be executed, ceases to have relevance.
67. Equally misconceived, in my considered opinion, is the
reliance, by Mr. Sibal, on Regulation 5(2) of the ICDR Regulations.
Regulation 5(2) – which stands reproduced in para 30 supra – that
disentitles the making of an IPO if there are any outstanding
convertible securities against the party seeking to make it, as would
entitle any person with an option to receive equity shares from the IPO
applicant. For the reasons already elucidated hereinabove, it cannot be
said that, as on date, the right to receive 7% equity shares of Oravel
has crystallised in favour of Zostel. Though Zostel’s entitlement, in
this regard, stands recognized and, perhaps even certified, by the
arbitral Award, the learned Arbitrator has, nonetheless, hedged in the
certification by the caveat that the right, in that regard, could be
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invoked by Zostel only in terms of Clause 4 of the Term Sheet, “upon
closing”. “Closing” would necessitate a priori execution of the
Definitive Agreements and compliance, by Zostel, of the obligations
envisaged in Clause 4.
68. The learned Arbitrator has even found that Zostel failed to
completely discharge its obligations under the Term Sheet, albeit for
want of instructions from Oravel. Absent fulfilment of its obligations
under Clause 4 of the Term Sheet and execution of the Definitive
Agreements in terms of Clause 7, the right to receive 7% shares of
Oravel continues to remain inchoate. In such a scenario, Regulation
5(2) of the ICDR Regulations cannot operate as to disentitle Oravel
from making an IPO.
69. Mr. Sibal has contended, further, that any suit by Zostel, for
specific performance of the Term Sheet, would be barred by Section 8
of the 1996 Act, as well as by Section 47 of the CPC. Neither
provision, in my considered opinion, would apply. Mr. Rohatgi, in
fact, submitted that a fresh suit for specific performance, at the
instance of Zostel against Oravel would not be barred in law, though,
in his submission, the suit may be vulnerable to dismissal on merits. It
is well settled that parties to an agreement, containing an arbitration
clause, are not constrained to resort to the clause to settle disputes in
every case, and are also at liberty to seek ordinary civil law remedies.
In the event that a party to an agreement, containing an arbitration
clause, moves the civil court for a remedy which would otherwise fall
within the province of the arbitration clause, the party cannot be non-
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suited on the ground of existence of the clause; however, if the
opposite party invokes Section 16 of the 1996 Act, for reference of the
dispute to arbitration, the Court would be bound to do so. Mr. Sibal,
in fact, candidly concedes this legal position, when put to him by the
Court.
70. Section 47 of the CPC deals with the determination of questions
arising between the parties to a suit in which a decree is passed. All
such questions, mandates the provision, would be decided by the
executing court, and not by way of a separate suit. This provision, on
its face, would have no application in a case such as the present, where
the arbitral Award does not direct specific performance, but permits
Zostel to take proceedings for specific performance. The questions
which may arise for consideration in such proceedings, were Zostel to
avail the liberty granted by the arbitral Award and initiated, would
obviously arise for consideration before the forum which is in seisin
thereof. Section 47 of the CPC would not inhibit the exercise.
71. I am also of the opinion that the judgement, of a coordinate
8
Single Bench of this Court, in K.S.L. Industries , cannot assist the
petitioner. The mere fact that, in that case, too, definitive agreements
were to be executed between the parties, cannot render it a useful
precedent. There are several features, in the said case, which
distinguish the position which obtained there, with that which obtains
in the present case. In that case, the MOU between the parties
contained a specific clause, making it valid for 240 days from the date
of its execution or till the execution of Definitive Agreements,
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whichever was earlier. There is no such clause in the present case.
Further, the MOU was, under Clause 41(ii), enforceable against the
parties in express terms. Clause 11 of the MOU, even more
significantly, expressly stated that it “constitutes the entire agreement
between the parties”. In such circumstances, this Court held, relying
on the conduct of the parties, that the MOU was a concluded contract.
It was especially noted by this Court, in para 87 of the report, thus, in
respect of the Definitive Agreements to be executed between the
parties in that case:
“So far as clause (b) of Section 14(1) of the Specific Relief
Act is concerned, the purpose of execution of the MOU was
to secure the execution of the definitive agreements. The
forms of these agreements are annexed to the MOU itself and
the terms and conditions thereof are not open to negotiation.
If one party does not agree to any proposal made by the other
to alter or amend any term of the definitive agreements, the
parties have no option but to proceed to execute the definitive
agreements in the form in which they exist. ”
(Emphasis supplied)
The italicised words, in the afore-extracted passage from K.S.L.
8
Industries serve not only to erode the value of the said decision as a
precedent in the present case; they also highlight why, in the present
case, the relief sought by the petitioner cannot be granted. Unlike the
8
contract in K.S.L. Industries , there is no covenant in the Term Sheet
in the present case, binding either party to mandatorily execute the
draft Definitive Agreements suggested by the opposite party, or
foreclosing the option of negotiation on the draft. That option is
clearly available to the parties, including Oravel, in the present case.
The execution of the Definitive Agreements between Zostel and
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Oravel, in the draft form in which they were forwarded by the former
to the latter cannot, therefore, be regarded as a foregone conclusion in
the facts of the present case, in view of the covenants of the Term
Sheet. This position also stands recognised by the learned Arbitrator.
This Court, in exercise of its limited jurisdiction under Section 9 of
the 1996 Act, cannot revisit either the findings, or the conclusions, of
the learned Arbitrator.
8
72. To reiterate, therefore, K.S.L. Industries cannot help Zostel.
Conclusion
73. In view of the foregoing discussion, no case, for injuncting
making of the IPO by Oravel, can be said to exist.
74. The petition is, therefore, dismissed with no orders as to costs.
C. HARI SHANKAR, J.
FEBRUARY 14, 2022
kr /dsn/SS
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