The High Court of Delhi has appointed former Supreme Court judge, Justice L Nageswara Rao, as sole arbitrator in the case related to the dispute between Essel Corporate, Zee Enterprises, Siti Networks and Aditya Birla Finance.
The Single-Judge Bench of Justice V. Kameswar Rao passed the order on a petition filed by Aditya Birla Finance, alleging that Siti Networks, a part of Subhash Chandra-owned Essel Group, had defaulted on the payment of Rs 150 crore loan extended to it by the Aditya Group.
The petitioner further contended that Siti had admitted to its failure of repayment before the National Stock Exchange and the Bombay Stock Exchange.
The High Court ordered Nageaswara Rao to give his disclosure under Section 12 of the Arbitration and Conciliation Act, 1996 and fix the fee to conduct arbitration proceedings in consultation with the Counsel for the parties.
The Single-Judge Bench was apprised that Siti had gone into insolvency.
It was argued that two letters of guarantee were issued by the respondents to the petitioner for the loan.
While the first letter was issued by Zee and signed by its promoter and Managing Director, Punit Goenka (son of Subhash Chandra), the second was signed by Himanshu Mody, Head – Group Finance and Strategy of the Essel Group.
Aditya Birla Finance demanded that since Siti, Zee and Essel belong to the same group of companies and have a single economic identity, therefore, all of them should be referred to the adjudicatory process of arbitration.
However, Zee and Essel argued that they were non-signatory to the arbitration clause enumerated in the facility agreement and the credit arrangement letter (CAL) and therefore, they cannot be compelled to arbitrate in the absence of the mutual intent of the parties.
The High Court referred to the Supreme Court verdict in Chloro Controls India (P) Ltd, which ruled that non-signatory or a third party could be subjected to arbitration without their prior consent in exceptional cases.
The Single-Judge Bench noted that there could not be any denial that respondent Siti and Zee were part of Essel Group of companies and as such, they were a single economic entity and related party.
It noted that the two letters claimed by Aditya Birla Finance to be letters of guarantee could not be called so in terms of the Indian Contract Act and could only be considered as letters of comfort.
However, since the petitioner was seeking compliance/performance of these letters, such a claim could be maintainable before the arbitrator only when the respondent Numbers 2 (Zee) and 3 (Essel) were parties before the arbitrator, added the Single-Judge Bench.
The content of the letters has revealed that the respondent numbers 2 (Zee) and 3 (Essel) had confirmed respondent number 1 (Siti) that they would ensure respondent number 1 repaid the facility on relevant due dates. These statements were made in the midst of a commercial transaction, which were also promissory in character and thus enforceable, noted the High Court.
It referred to the Supreme Court verdict in the Godhra Electricity Co. Ltd. vs The State of Gujarat & Ors case and observed that there was an intention to create a legal relation by the parties as the conduct of the parties was always a guide to the construction of a contract.
The High Court also considered the second application filed by Aditya Birla Finance, seeking direction to Siti Networks for payment of outstanding amount of Rs 134 crore and restraining them from making any further payments and/or transferring any assets to respondent Zee prior to making payments to the petitioner.
The Bench ruled that since an arbitrator had been appointed in the matter, the petition would now be treated as an application under Section 17 of the Arbitration and Conciliation Act and decided by the arbitrator along with two other applications filed by the petitioner seeking withdrawal of the amount deposited by the respondent.
It also said that the arbitrator would further decide on Zee’s application seeking modification/clarification of the order, wherein the court had directed it to refrain from making any payments to its related parties.
Directing the Siti Networks to continue depositing the amount, the High Court observed that the orders passed by this Court in this petition from time to time would also continue, till the Arbitrator took a decision on the matter.
Aditya Birla Finance was represented by Senior Advocate Raj Shekhar Rao, along with Advocates Aseem Chaturvedi, Ravitej Chilumuri, Mihika Jalan, Raddhika Khanna, Pragya Dahiya and Aanchal Tikmani.
Senior Advocate Joy Basu, along with aAdvocates Ritwika Nanda, Akshita Salampuria and Kanak Bose, appeared for Siti Networks.
Zee was represented by Senior Advocates P. Chidambaram and Sandeep Sethi, along with Advocates Aman Raj Gandhi, Vardaan Bajaj, Bindi Dave and Pranay Tuteja.
Advocates Samar Singh Kachwaha, Shivangi Nanda and Kavita Vinayak appeared for Essel.