Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 91/2018 & IA No. 2698-2699/2018
SANJEEV SRIVASTAVA & ANR. ..... Petitioners
Through: Mr Vikas Singh, Senior
Advocate with Mr Keshav
Mohan, Mr Rishi K. Awasthi
and Ms Ritu Arora, Advocates.
versus
IDBI TRUSTEESHIP SERVICES LIMITED
& ORS. ..... Respondents
Through: Mr Darpan Wadhwa, Senior
Advocate with Ms Ranjana Roy
Gawai, Ms Vasudha Sen and
Mr Arjun Asthana, Advocates.
CORAM:
HON'BLE MR. JUSTICE VIBHU BAKHRU
O R D E R
% 01.03.2018
VIBHU BAKHRU, J
1. The petitioners have filed the present petition under Section 34
of the Arbitration and Conciliation Act, 1996 (hereafter „the Act‟),
inter alia , praying for setting aside the arbitral award dated 23.11.2017
(hereafter „the impugned award‟) rendered by the Arbitral Tribunal.
The impugned award was rendered in the context of the disputes that
had arisen in respect of the Personal Guarantees issued by the
petitioners for due repayment of loans availed by Assotech Limited
(hereafter „Assotech‟) by issue of debentures.
2. By the impugned award, the Arbitral Tribunal has held that the
petitioners (along with Shri Manoj Shrivastava) are jointly and
severally liable to pay an aggregate sum of ₹25,57,00,000/-to
O.M.P. (COMM) 91/2018 Page 1 of 8
respondent no.1 (hereafter „IDBI‟). Further the petitioners have also
been held to be jointly and severally liable for payment of interest at
the rate of 10% per annum on the principal amount of ₹22,06,00,000/-
with effect from 16.02.2017 till the date of realisation of the amount.
3. Assotech is a company engaged in the business of construction
and development of real estate. Assotech entered into a Debenture
Subscription Agreement (hereafter „DSA‟) with three lenders
(subscribers) for raising funds for meeting expenses in respect of its
various real estate projects, repayment of loans and payment of dues to
NOIDA (New Okhla Industrial Development Authority). In terms of
the said DSA, the three subscribers − namely, Zee Entertainment
Enterprises Limited, Hindustan Composites Limited and Essel Finance
Advisors and Manager LLP – subscribed to 4500 fully secured
redeemable non-convertible debentures of a face value of ₹1,00,000/-
each; Zee Entertainment Limited subscribed to 2900 debentures,
Hindustan Composites Limited subscribed to 300 debentures and
Essel Finance Advisors and Manager LLP subscribed to 1300
debentures. Thus, in aggregate, the three subscribers lent a sum of ₹45
crores to Assotech.
4. On 29.03.2014, Assotech executed a Debenture Trust Deed with
IDBI (IDBI Trusteeship Services Limited − respondent no.1) to act for
the benefit of the subscribers of the 4500 non-convertible debentures
issued by Assotech. Petitioner no.1, who was the Managing Director
of Assotech at the material time, as well as two other Directors
(including petitioner no.2) executed personal guarantees in favour of
O.M.P. (COMM) 91/2018 Page 2 of 8
IDBI.
5. IDBI issued a notice of demand on 01.04.2016 on Assotech as
well as on the guarantors – namely, the petitioners and one Mr Manoj
Srivastava – calling upon them to discharge the dues payable under
the DSA. There is no dispute that Assotech defaulted in due discharge
of its liability under the DSA.
6. Since the said payments were not made, IDBI invoked the
arbitration clause and the Arbitration Tribunal was constituted.
7. IDBI filed its statement of claim on 15.07.2016 and the
petitioners filed their statement of defence on 16.09.2016.
8. It appears that while the arbitral proceedings were pending,
IDBI and Assotech agreed on an arrangement (hereafter „the said
arrangement‟), whereby Assotech agreed that the amounts received
from specified real estate projects (named as Nest and Windsor) would
be deposited in an escrow account. And, only a specified percentage
of the receipts – 77% in case of receipt from Nest and 86% in case of
receipts in respect of Windsor – would be utilised by Assotech from
the said project and the balance would be available for discharging the
dues under the DSA.
9. In the arbitral proceedings, the petitioners filed an affidavit on
10.07.2017; but, the said arrangement was not disclosed in the
aforesaid affidavit as well. However, during the cross-examination of
petitioner no.1, which was conducted on 06.10.2017, he referred to the
O.M.P. (COMM) 91/2018 Page 3 of 8
said arrangement. He also sought to canvas that the petitioners were
discharged from their obligations under the personal guarantees on
account of IDBI entering into the said arrangement with Assotech (the
principal debtor) without their express consent.
10. The petitioners also filed the written submissions before the
Arbitral Tribunal on 09.11.2017, inter alia, contending that in terms of
Section 135 of the Indian Contract Act, 1872 (hereafter „Contract
Act‟), the petitioners were discharged from their obligations under the
DSA, as IDBI had entered into the said arrangement with Assotech for
recovering the dues under the DSA.
Submissions
11. Mr Vikas Singh, the learned Senior Counsel appearing for the
petitioners contended that the impugned award was patently
erroneous, as the Arbitral Tribunal had failed to consider the
petitioners‟ contention that they were discharged of their obligations
under their Personal Guarantees by virtue of Section 135 of the
Contract Act. He contended that the Arbitral Tribunal had erred in
faulting the petitioners for not bringing the said arrangement to the
notice of the Arbitral Tribunal at the material time. He submitted that
this view was erroneous, as the duty to make full disclosure rested
with IDBI as it was the claimant before the Arbitral Tribunal.
Reasons and Conclusion
12. There is no dispute that the petitioners had executed personal
O.M.P. (COMM) 91/2018 Page 4 of 8
guarantees for due discharge of Assotech‟s liability towards the
lenders. It is also well settled that the liability of a surety is co-
terminus with the liability of the principal debtor. Thus, there is no
infirmity with the Arbitral Tribunal holding the petitioners to be
jointly and severally liable for the liability of Assotech under the DSA.
13. The principal controversy that falls for consideration of this
Court is whether the decision of the Arbitral Tribunal to not examine
the petitioners‟ contention that they were discharged by virtue of the
said arrangement renders the impugned award susceptible to challenge
under Section 34 of the Act.
14. There is no dispute that the petitioners were fully aware of the
said arrangement at the material time but had taken no steps to amend
their Statement of Defence, which was filed prior to Assotech and
IDBI entering into the said arrangement. Concededly, the first time
any reference was made to the said arrangement was during the cross-
examination of petitioner no.1. The contention that the petitioners
were discharged from their obligations as guarantors on account of
Assotech and IDBI entering into the said arrangement also finds place
in the written submission filed on behalf of the petitioners before the
Arbitral Tribunal.
15. This Court is of the view that since the petitioners had failed to
take the appropriate steps to amend the Statement of Defence, the
Arbitral Tribunal cannot be faulted for not considering the same.
Concededly, all the grounds urged by the petitioners in the Statement
O.M.P. (COMM) 91/2018 Page 5 of 8
of Defence have been considered by the Arbitral Tribunal.
16. The contention that it was incumbent upon IDBI to disclose the
said arrangement before the Arbitral Tribunal and the Arbitral
Tribunal was obliged to consider its effect, is unpersuasive. The fact
that Assotech and IDBI had entered into the said arrangement was
within the knowledge of the petitioners and it was for them to urge the
same in their defence to the claims, if they so desired. Having failed to
amend their Statement of Defence, it is not open for the petitioner to
contend that the Arbitral Tribunal was obligated to consider such
defence. Thus, this Court finds no ground to interfere with the Arbitral
Tribunal.
17. Having stated the above, it is also relevant to state that the
defence sought to be urged by the petitioners – that is, that they are
discharged as guarantors on account of Assotech entering into an
arrangement with IDBI – is also unmerited. The Personal Guarantees
furnished by the petitioners specifically provided that any arrangement
entered into between the principal debtor and the creditors would not
absolve the petitioners (guarantors) of their liability under the
Guarantees. Clause 5.1.5 of the Personal Guarantees is set out below:-
“5.1.5 The Debenture Trustee shall have the full
liberty, without notice to the Guarantors and
without in any way affecting this Guarantee,
to exercise at any time and in any manner any
power or powers reserved to the Debenture
Trustee under the Debenture Documents, to
enforce or forbear to enforce payment of the
Secured Debenture Obligations payable to the
O.M.P. (COMM) 91/2018 Page 6 of 8
Finance Parties under the Debenture
Documents or any part thereof or interest or
other monies due to the Debenture Trustee
from the Issuer or any of the remedies or
securities available to the Debenture Trustee,
to enter into any composition or compound
with or to grant time or any other Indulgence
or facility to the Issuer/to give/grant temporary
or extra overdrafts or other advances/credit
facilities to the issuer and the Guarantors shall
not be released by the exercise by the
Debenture Trustee of their liberty in regard to
the matters referred to above or by any act or
omission on the part of the Debenture Trustee
or by any other matter or thing whatsoever
which under the law relating to sureties would
but for this provision have the effect of so
releasing the Guarantors and the Guarantors
hereby waive in favour of the Debenture
Trustee so far as may be necessary to give
effect to any of the provisions of this
Guarantee, all the suretyship and other rights
which the Guarantors might otherwise be
entitled to enforce and the Guarantors hereby
irrevocably and unconditionally waive all
rights ad remedies available to a guarantor in
law, contract or in equity or otherwise
howsoever and particularly those provided in
sections 132, 133, 134, 135, 136, 137, 138,
139 and 141 of the Indian Contract Act,
1872.”
18. The petitioners having specifically waived the right to claim any
discharge by virtue of Section 135 of the Contract Act cannot be
permitted to urge this defence. Thus, notwithstanding that the Arbitral
Tribunal cannot be faulted for not considering this defence, the claim
of the petitioners that they are discharged by virtue of Section 135 of
O.M.P. (COMM) 91/2018 Page 7 of 8
the Contract Act is plainly unmerited and cannot be accepted (see T.
Raju Setty v. Bank of Baroda : AIR 1992 Kant 108 ; also see State
Bank of India v. Dharam Kumar & Anr. (1998) 2 MLJ 774 ).
19. Mr Singh did not dispute the aforesaid position either. He,
however, stated that it would always be open to the petitioners to
challenge the Clause 5.1.5 of the Personal Guarantees on the ground
that it was a standard format clause and was unconscionable. The said
contention is also bereft of any merit.
20. In view of the above, this Court finds no ground to interfere in
the impugned award. The petition is, accordingly, dismissed. The
pending applications also stand disposed.
VIBHU BAKHRU, J
MARCH 01, 2018
RK
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