Supreme Court Upholds ICC Arbitration Award in Shareholder Dispute: Shakti Nath vs. Alpha Tiger Cyprus Investment (2020)

Date of the Judgment: 18 February 2020

Citation: (2020) INSC 125

Judges: Uday Umesh Lalit, J. and Indu Malhotra, J.

Can an arbitral award passed in an international commercial arbitration be challenged? The Supreme Court of India addressed this question in a recent case involving a dispute between shareholders. The court upheld the arbitral award, reinforcing the principle of minimal judicial interference in arbitration matters. This case involved a challenge to an International Chamber of Commerce (ICC) arbitration award, with the Supreme Court ultimately affirming the award. The judgment was delivered by a bench comprising Justice Uday Umesh Lalit and Justice Indu Malhotra.

Case Background

The case revolves around a dispute between the Appellants (Promoters) and Respondents No. 1 and 2 (Investors) concerning a project to develop a Special Economic Zone (SEZ) for Information Technology (IT) in NOIDA. The Appellants and Respondents No. 1 and 2 entered into a Shareholders Agreement (SHA) and a Share Subscription and Purchase Agreement (SSPA) on 21 March 2008, to acquire 50% shareholding in Respondent No. 3. This project was to be developed on land sub-leased to Respondent No. 3 by M/s Sarv Mangal Real Tech Pvt. Ltd. The initial agreements were terminated, and a Restated Shareholders Agreement (RSHA) and a Restated Share Subscription and Purchase Agreement (RSSPA) were signed on 2 July 2009. Under the RSSPA, Respondents No. 1 and 2 were to contribute Rs. 45 crore to purchase shares in Respondent No. 3, which they did by 17 December 2009. The Appellants terminated the agreements on the same day, leading to the dispute.

Timeline

Course of Proceedings

Following the termination of the agreements, Respondents No. 1 and 2 invoked arbitration under the RSHA and RSSPA, submitting a Request for Arbitration to the ICC Court. The arbitral tribunal, in a 2:1 majority award dated 20 January 2015, ruled in favor of Respondents No. 1 and 2, awarding them Rs. 45,00,27,747 with 18% interest from 31 October 2011, and 15% interest on all awarded sums until payment. The tribunal also directed the Appellants to pay the costs of arbitration. The Appellants challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court. A Single Judge of the Delhi High Court rejected the challenge on 9 February 2017. The Appellants then appealed to a Division Bench of the Delhi High Court under Section 37 of the Act, which was also rejected on 8 May 2017. The Appellants then filed a Special Leave Petition before the Supreme Court.

Legal Framework

The judgment primarily concerns the interpretation and application of the Arbitration and Conciliation Act, 1996, specifically Sections 34 and 37, which deal with challenges to arbitral awards. Section 34 of the Arbitration and Conciliation Act, 1996, allows for setting aside of an arbitral award on limited grounds, such as the incapacity of a party, improper notice, or if the award deals with matters beyond the scope of the submission to arbitration. Section 37 of the Arbitration and Conciliation Act, 1996, provides for an appeal against an order passed under Section 34 of the Act. The court also considered the terms of the Restated Shareholders Agreement (RSHA) and Restated Share Subscription and Purchase Agreement (RSSPA) in the context of the dispute.

Arguments

The Appellants challenged the arbitral award, arguing that the tribunal had erred in its findings and that the award was against the terms of the agreement. They contended that they were not liable to pay the amount awarded. The Respondents, on the other hand, argued that the arbitral award was valid and consistent with the agreements. They submitted that they had fulfilled their obligations by contributing Rs. 45 crore, and that the Appellants had terminated the agreements soon after the funds were received. The arguments before the Supreme Court focused on the validity of the arbitral award and whether the High Court was correct in upholding it.

Issues Framed by the Supreme Court

The Supreme Court did not frame specific issues in the judgment. However, the main issue before the court was whether the High Court was correct in upholding the arbitral award, and whether there were any grounds to interfere with the concurrent findings of the arbitral tribunal and the High Court.

Treatment of the Issue by the Court

Authorities

The judgment does not explicitly cite any cases or books. However, the court considered the provisions of the Arbitration and Conciliation Act, 1996, specifically Sections 34 and 37, and the terms of the RSHA and RSSPA.

Judgment

The Supreme Court upheld the arbitral award, modifying the interest and penal interest terms with the consent of the parties. The court noted that the Appellants agreed to pay a total of Rs. 107.50 Crores to Respondents No. 1 and 2 as a full and final settlement. The court also facilitated the sale of the Project Land to M/s Good Living Infrastructure Pvt. Ltd. for Rs. 99,44,55,000, with a portion of the sale proceeds going to NOIDA for outstanding dues and the balance to Respondents No. 1 and 2. The Appellants were directed to pay the remaining amount of Rs. 29,17,20,477 within three months, and the injunctions on their properties were lifted to enable them to raise funds. The court also noted that if there was any default in payment, the original arbitral award would be enforceable.

“The Appellants agree to make a total payment of Rs.107.50 Crores (Rupees One Hundred and Seven Crores and Fifty Lacs) to Respondents No. 1 and 2 as full and final settlement of their dues under the award dated 20.01.2005.”

“M/s. Good Living Infrastructure Private Ltd. of the Bhutani Group agreed and undertook to pay Rs.99,44,55,000/ – for the purchase of the entire shareholding of Respondent No.3 – IT Infrastructure Park Pvt. Ltd. from the Appellants and Respondents No.1 and 2.”

“In the event of any default in payment of the amounts by Appellants, the entire amount awarded as per the award dated 20.01.2015, would become enforceable.”

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors. The court emphasized the principle of minimal judicial interference in arbitral awards, particularly in international commercial arbitration. The court also considered the fact that the Appellants had terminated the agreements shortly after receiving the funds from the Respondents. The consent terms agreed upon by the parties also played a significant role in the court’s decision, as they allowed for a resolution of the dispute while ensuring that the Respondents received their dues.

Key Takeaways

• ✓ The Supreme Court reinforced the principle of minimal judicial interference in arbitration matters.
• ✓ The judgment highlights the importance of adhering to contractual obligations and the consequences of breaching them.
• ✓ The case demonstrates the court’s willingness to facilitate settlements and ensure the enforcement of arbitral awards.
• ✓ The court’s decision to modify the interest terms with the consent of the parties shows a pragmatic approach to resolving commercial disputes.
• ✓ The Supreme Court’s intervention helped in facilitating the sale of the project land and ensuring that the dues of all the parties involved were cleared.

Directions

The Supreme Court directed the Appellants to pay the balance amount of Rs. 29,17,20,477 within three months. It also directed M/s Good Living Infrastructure Pvt. Ltd. to deposit the sale consideration in the Registry of the Court as per the agreed terms. The court also lifted the injunctions on the Appellants’ properties to enable them to raise funds for payment.

Development of Law

The judgment reinforces the principle of minimal judicial interference in arbitral awards, particularly in international commercial arbitration. The court upheld the concurrent findings of the arbitral tribunal and the High Court, emphasizing the importance of respecting the arbitral process. The case also highlights the court’s willingness to facilitate settlements and ensure the enforcement of arbitral awards, promoting the effectiveness of arbitration as a dispute resolution mechanism.

Conclusion

The Supreme Court’s decision in Shakti Nath vs. Alpha Tiger Cyprus Investment upheld the arbitral award, reinforcing the principle of minimal judicial interference in arbitration matters. The court facilitated a settlement that ensured the enforcement of the arbitral award while also addressing the financial dues of all parties involved. The case underscores the importance of adhering to contractual obligations and the effectiveness of arbitration as a dispute resolution mechanism.