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in

(2024) ibclaw.in 507 HC

IN THE HIGH COURT OF DELHI

Ajay Singh
v.
Kal Airways Pvt. Ltd. and Anr.

FAO(OS) (COMM) 179/2023 with FAO(OS) (COMM) 180/2023

Decided on 17-May-24

Coram: Mr. Justice Yashwant Varma and Mr. Justice Ravinder Dudeja

Add. Info:

For Appellant(s): Mr. Amit Sibal, Sr. Adv. with Mr. K.R. Sasiprabhu, Mr. Goutham Shivshankar, Mr.
Tushar Bhardwaj, Mr. Vinayak Maini, Mr. Kartikeya Asthana, Mr. Vishnu Sharma, Mr. Manan
Sishodia and Md. Ilyas, Advs.

For Respondent(s): Mr. Maninder Singh, Sr. Adv. with Ms. Nandini Gore, Ms. Sonia Nigam, Mr.
Prabhas Bajaj, Mr. Ajay Sabharwal, Mr. Rajat Dasgupta & Mr. Akarsh Sharma, Advs.

Judgment:

JUDGMENT

YASHWANT VARMA, J.

S. No. Particulars Paragraph Nos.

A. INTRODUCTION 1–2
B. BROAD FACTUAL MATRIX 3–9
C. SUBMISSIONS OF THE APPELLANTS 10 – 48
D. SUBMISSIONS ON BEHALF OF THE RESPONDENTS – KAL AND KM 49 – 78
E. EVALUATION OF THE RIVAL SUBMISSIONS 79 – 124

A. INTRODUCTION

1. The appellants question the correctness of the judgment rendered by a learned Single Judge of
the Court dated 31 July 2023 and in terms of which the challenge to the Arbitral Award under
Section 34 of the Arbitration and Conciliation Act, 19961 as mounted has come to be dismissed.
The petitions before the learned Single Judge had impugned the Arbitral Award dated 20 July 2018
as corrected vide order dated 20 September 2018 of the Arbitral Tribunal2.

2. The claim before the AT had been brought by KAL Airways Private Limited3 along with Mr.
Kalanithi Maran4 , and in which the appellants – SpiceJet Limited5 and Mr. Ajay Singh were
named as the respondents. The AT had upon consideration of the claims as laid by KAL and KM as

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well as the counterclaims which had been filed by the appellants herein framed the following
operative directions:-

“60. ….. In conclusion, we hold as follows:-

(1) The Claimants are entitled to refund of Rs.308,21,89,461 /- from the Respondents.

(2) The parties shall explore the possibility of giving effect to and exercise the option as
described in detail. In case the efforts do not fortify, the Respondents shall within a
period of one month thereafter refund the amount in question i.e. Rs. 270,86,99,209/- to
the Claimant No. 2 (which is arrived at after adjusting the counter claim of Rs. 100
Crores which has been allowed)

(3) Since the amount covered by conclusion (1) was with the Respondents since
November 2015, they would have become liable to pay interest on the same. Though,
interest at the rate of 18% per annum has been claimed, we are of the view that since
Respondent No.1 Company took over a huge liability and also paid interest on the tax
amount payable by the Claimants, interest at the rate of 12% on Rs.308,21,89,461/-
would be appropriate. The amount has to be accordingly calculated for about 30 months.
Additionally, in view of the finding relating to the CRPS claim and the proved position
that the Respondents have paid interest / servicing charges of around Rs.29 Crores, the
counter claim to that extent is allowed.

(4) So far as costs are concerned, in view of the factual scenario involved, both parties
are directed to bear their respective costs. The Cost of Arbitration (fee of Arbitrators,
expenses including travel , hotel expenses etc. of the Arbitrators, venue and Secretarial
assistance) shall be borne equally by the parties.

(5) In case the payments, as directed, to be made by the Respondents are not so made
within two months from the relevant date, the Claimants shall be entitled to interest @
18% from the last date of the due date in terms of this Award.

(6) Claims / counter claims other than those dealt with above and specifically granted
stand rejected.

(7) The parties have furnished stamp papers of Rs.500/- each with undertaking to pay
the deficit, if any, as and when called upon to do so.”

B. BROAD FACTUAL MATRIX

3. In order to appreciate the challenge which stands raised, we deem it apposite to notice the
following essential facts. The case before the AT emanates from a transaction involving the takeover
of SpiceJet by Ajay Singh from KAL and KM. The appellants contend that at the time when they took
over SpiceJet, it was a company mired in debt to the extent of approximately INR 2200,00,00,000/-
and the transaction essentially was aimed at taking over the debt-ridden company and absolving KM
of the personal guarantees submitted as security for the repayment of loans taken with respect to
SpiceJet.

4. It is submitted that in consideration of the aforesaid offer, the entire shareholding of KAL and KM

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in SpiceJet was to be transferred to the appellant – Ajay Singh for a consideration of INR 2/-.
Additionally, KAL and KM were obligated to bring in “Committed Support” of INR 450 crores in
SpiceJet. It is alleged by the appellants that KAL and KM failed to abide by their contractual
obligations and ultimately infused only INR 350 crores. The takeover, which occurred in February
2015 was founded upon a Share Sale and Purchase Agreement6 dated 29 January 2015. The
various steps liable to be undertaken in terms of the SSPA are explained by the appellants in the
following terms:-

“The SSPA broadly envisaged the following:

a. Step 1: Transfer of entire shareholding held by KAL and KM in SJ to AS for a nominal

consideration of Rs. 2.

i. See Clause 2 of SSPA

ii. Details of Sale Shares are at Schedule A of SSPA

b. Step 2: Issuance of Warrants to KAL and KM as stipulated in Schedule D of the SSPA,

subject to necessary approvals being obtained. As per Clause 3.1 of the SSPA, these Warrants
could be converted into equity shares at a conversion price of Rs. 16.30 per equity share.
Consideration for the Warrants was broken up into the following parts:

i. The total consideration was Rs.308,21,89,461/- only. It is not in dispute that the entire
sum was paid, but the warrants were not allotted. See [See Paragraph 6 of the Award
(pgs 170) (PDF pgs 174)]

ii. Part of the consideration had already been paid by KM even prior to entry of the SSPA
by way of SSPA by way of adjustments towards loans that had been advanced by KM to
SJ.

iii. Thus, what was remaining to be paid was the “Balance Warrant Payments” as
provided at Schedule D of the SSPA

c. Step 3: Issuance of Tranche 1 and Tranche 2 CRPS

i. The SSPA contemplated issuance of non-convertible redeemable preference shares

(“CRPS”) of face value of Rs. 1000/- in two tranches.

ii. The terms and conditions of the CRPS that were to be issued are at Schedule B of the
SSPA. The CRPS were essentially conceived as debt-like instruments having a coupon
rate of 6 % and were redeemable only after 8 years. The terms also made it clear that
dividend would become payable only subject to availability of profits in the company.

iii. The total consideration for CRPS of Rs. 370,86,99,209/- was broken up into:

1. Tranche 1 CRPS Amount Rs. 320,86,99,209/-

2. Tranche 2 CRPS Amount Rs. 50 crores

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The said amounts are defined in Clause 1.1 of the SSPA”

5. As per the appellants, the issuance of Share Warrants7 and Non-Convertible Redeemable
Preference Shares8 were to follow the adjustments made to loan amounts and unsecured advances
amounting to INR 229 crores, a Committed Support of INR 450 crores being brought in by KAL and
KM and the last part of the said Committed Support amounting to INR 100 crores being completed
with the release of a fixed deposit of an equivalent amount standing in the personal name of KM into
Designated Account 2. The appellants assert that disputes inter partes arose consequent to a failure
on the part of KAL and KM to infuse INR 450 crores and as a result of a failure on the part of the
Bombay Stock Exchange9 to approve the issuance of Warrants.

6. It is their case that the Warrants could not be issued since the approval of BSE could not be
obtained despite all bona fide efforts being made by SpiceJet and Mr. Ajay Singh. They would
contend that the non-issuance of Warrants thus cannot possibly be viewed as a breach of the SSPA
either by SpiceJet or Mr. Ajay Singh.

7. They additionally argue that the CRPS transaction could not be completed since KAL and KM
failed to pay the full consideration as per the terms of the SSPA. According to the appellants, there
was an admitted failure on the part of KAL and KM to effect a deposit of INR 100 crores and thus
they being liable to be held in breach of the contract terms. The aforesaid aspect has been duly
noted by the learned Single Judge who has found that out of a total consideration of INR
220,02,93,039, KAL and KM had failed to place INR 100 crores in the Designated Account 2. Before
us, the challenge stood confined to the direction framed by the AT for a refund of an amount of INR
270,86,99,209/- paid by KAL and KM for issuance of CRPS, the imposition of 12% interest pendent
lite on Warrants as well as post-award interest at the rate of 18% from the last date of the due dates
in terms of the Arbitral Award.

8. The primary ground of attack to the Award appears to have been directed against the direction
for refund with it being apparently contended that the same is violative of the provisions contained
in Section 65 of the Indian Contract Act, 187210. The appellants asserted that the aforesaid
direction clearly amounted to a rewriting of the contract itself since the SSPA had not envisaged any
refund of funds received in respect of CRPS. It was additionally urged that once the AT had found
that it was KAL and KM who were guilty of breach, the refund was clearly unjustified. It was these
submissions which appear to have been addressed before the learned Single Judge.

9. The learned Single Judge while dealing with the aforesaid issue, has essentially come to the
following conclusions:-

“79. The learned Tribunal, while referring to the claims of the respondents herein, observed
that the respondents were required to make the payment of Rs. 220,02,93,039/-, which stood
paid. While coming to conclusion the Arbitral Tribunal also noted that out of the total
consideration of Rs. 220,02,93,093/- to be paid by the respondents. towards the Tranche-I
CRPS amount, the respondents had made a total payment of Rs. 120,02,83,038/-, leaving Rs.
100 Crores to be payable. The Arbitral Tribunal was of the view that since, the payment
towards Tranche-1 was made by the respondents herein, but the supplementary obligation of
issuance of the CRPS was not fulfilled by the petitioners, the petitioners were liable to pay
back and refund the sum so deposited by the respondent after deducting the sum of the
amount which remained uncredited, i.e., Rs. 100 Crores.

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80. In accordance with the Agreement, the respondents herein were to make a fixed deposit of
Rs. 100 Crores. However, it was observed that the said amount was never found to be
deposited in the designated bank account in terms of the agreed mutual terms of the
Agreement between the parties. The Counter-Claim pertaining to the said amount was, hence,
decided in the favour of the petitioners herein and was deducted from their liability towards
the respondents amounting to Rs. 370,86,99,209/- From a bare perusal of the aforesaid, it is
evident that the learned Tribunal has provided adequate reasoning as to the issue of refund of
Rs 270,86,99,209/-.

81. It has been further argued on behalf of the petitioners that all obligations were fulfilled by
them in accordance with the Agreement, however, the Tribunal, upon appreciation of the
entire circumstances as well as the material and record before it, found that the CRPS were
not issued in terms of the Agreement.

82. The course of procedure taken by the Arbitral Tribunal as well as the findings as
reproduced above are evidently not in contravention of any of the provisions under the
Arbitration Act or even any substantive law. There is nothing in the observations in the
impugned Award to suggest that the Tribunal contravened or went beyond the terms of
Agreement executed between the parties. The Tribunal provided reasons for the findings
delivered and there is no perversity which is either apparent on the face of the record or which
goes to the root of the matter. Therefore, the impugned Award cannot said to be patently
illegal.

83. To test the validity and legality of the impugned Award and the observations made therein
the test of fundamental policy of law was also before this Court, however, upon a perusal of
the Award, this Court does not find that the Award suffers from nonapplication of mind. Not
only did the Tribunal go into elaborate details of the claims raised and submissions thereto
made by the parties, it also appreciated the material on record and passed an Award which is
supported by reasons. The inference drawn by the Tribunal based on the reasons provided by
it do not constitute an interference which on the face of it is untenable or unreasonable. Under
the scope of Section 34 of the Arbitration Act, this Court is to be concerned only about the
aforementioned considerations to make an observation qua the impugned Award, without
entering the merits of the case and the evidence in the matter, and in view of the findings of
the Arbitral Tribunal with respect to the claims raised against refund of the amount, this Court
is of the opinion that there is nothing perverse in the impugned Award to say that it is against
the fundamental policy of law.”

C. SUBMISSIONS OF THE APPELLANTS

10. Assailing the view so taken, Mr. Sibal, learned senior counsel appearing in support of the
appeals, addressed the following submissions. It was firstly contended that the grant of refund is
clearly contrary to the terms of the SSPA and amounts to the AT undertaking an exercise to reinvent
and rewrite the terms of the SSPA which is clearly impermissible in law.

11. It was submitted that the CRPS was conceived to be a debt instrument carrying a coupon rate of
6% and redeemable only after eight years. The dividend on the CRPS, Mr. Sibal explained, would
have become payable subject to availability of surplus profits in the hands of SpiceJet. According to
learned senior counsel, the underlying construct of the issuance of the CRPS was based upon the

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infusion of funds in SpiceJet and which would be available for utilization for a period of eight years
and thus facilitate its revival. It was Mr. Sibal‘s submission that no stipulation of the SSPA
contemplated an expedited or premature refund of the amounts paid towards the CRPS.

12. The direction for refund, according to Mr. Sibal, is rendered even more untenable, when one
bears in mind the fact that undisputedly KAL and KM had failed to comply with the requirement of
ensuring the infusion of INR 450 crores into SpiceJet. It was further submitted that as per the SSPA,
the interest burden relating to CRPS would not have exceeded INR 130.10 crores when computed at
the rate of 6% spread over a period of eight years. However, it was submitted that the Award has led
to the appellants being placed under a liability to pay more than INR 184.64 crores as interest for
CRPS alone.

13. It was Mr. Sibal‘s submission that the Award which stood impugned before the learned Single
Judge and insofar as it unsettled the express stipulations of the contract between the parties falls
foul of the well settled tenets as propounded by the Supreme Court in the decisions of PSA SICAL
Terminals Private Ltd v. Board of Trustees of V.O Chidambranar Port Trust Tuticorin &
Ors11 and Indian Oil Corporation Ltd v. Shree Ganesh Petroleum Rajgurunagar12.

14. In PSA SICAL, learned senior counsel submitted the Supreme Court had in unequivocal terms
held that an AT is mandated to act within the terms of a contract and that it would tantamount to
acting beyond its jurisdiction if it were to travel outside the contractually agreed stipulations.
Relying on this principle, Mr. Sibal cited the following paragraphs of the said decision for our
consideration:

“86. After referring to various international treaties on arbitration and judgments of other
jurisdictions, this Court in Ssangyong Engineering and Construction Company Limited (supra),
observed thus:

“76. However, when it comes to the public policy of India, argument based upon “most
basic notions of justice”, it is clear that this ground can be attracted only in very
exceptional circumstances when the conscience of the Court is shocked by infraction of
fundamental notions or principles of justice. It can be seen that the formula that was
applied by the agreement continued to be applied till February 2013 — in short, it is not
correct to say that the formula under the agreement could not be applied in view of the
Ministry’s change in the base indices from 1993-1994 to 2004-2005. Further, in order to
apply a linking factor, a Circular, unilaterally issued by one party, cannot possibly bind
the other party to the agreement without that other party’s consent. Indeed, the Circular
itself expressly stipulates that it cannot apply unless the contractors furnish an
undertaking/affidavit that the price adjustment under the Circular is acceptable to them.
We have seen how the appellant gave such undertaking only conditionally and without
prejudice to its argument that the Circular does not and cannot apply. This being the
case, it is clear that the majority award has created a new contract for the
parties by applying the said unilateral Circular and by substituting a workable
formula under the agreement by another formula dehors the agreement. This
being the case, a fundamental principle of justice has been breached, namely,
that a unilateral addition or alteration of a contract can never be foisted upon
an unwilling party, nor can a party to the agreement be liable to perform a
bargain not entered into with the other party. Clearly, such a course of conduct

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would be contrary to fundamental principles of justice as followed in this

country, and shocks the conscience of this Court. However, we repeat that this
ground is available only in very exceptional circumstances, such as the fact
situation in the present case. Under no circumstance can any court interfere with an
arbitral award on the ground that justice has not been done in the opinion of the Court.
That would be an entry into the merits of the dispute which, as we have seen, is contrary
to the ethos of Section 34 of the 1996 Act, as has been noted earlier in this judgment.”

[emphasis supplied]

87. As such, as held by this Court in Ssangyong Engineering and Construction Company
Limited (supra), the fundamental principle of justice has been breached, namely, that a
unilateral addition or alteration of a contract has been foisted upon an unwilling party. This
Court has further held that a party to the Agreement cannot be made liable to perform
something for which it has not entered into a contract. In our view, re-writing a contract for
the parties would be breach of fundamental principles of justice entitling a Court to interfere
since such case would be one which shocks the conscience of the Court and as such, would fall
in the exceptional category.

88. We may gainfully refer to the following observations of this Court in Bharat Coking Coal
Ltd. v. Annapurna Construction.

“22. There lies a clear distinction between an error within the jurisdiction and error in
excess of jurisdiction. Thus, the role of the arbitrator is to arbitrate within the terms of
the contract. He has no power apart from what the parties have given him under the
contract. If he has travelled beyond the contract, he would be acting without jurisdiction,
whereas if he has remained inside the parameters of the contract, his award cannot be
questioned on the ground that it contains an error apparent on the face of the record.”

89. It has been held that the role of the Arbitrator is to arbitrate within the terms of the
contract. He has no power apart from what the parties have given him under the contract. If
he has travelled beyond the contract, he would be acting without jurisdiction.

90. It will also be apposite to refer to the following observations of this Court in the case of
Md. Army Welfare Housing Organization v. Sumangal Services (P) Ltd.

“43. An Arbitral Tribunal is not a court of law. Its orders are not judicial orders. Its
functions are not judicial functions. It cannot exercise its power ex debito justitiae. The
jurisdiction of the arbitrator being confined to the four corners of the agreement, he can
only pass such an order which may be the subject-matter of reference.”

91. It has been held that an Arbitral Tribunal is not a Court of law. Its orders are not judicial
orders. Its functions are not judicial functions. It cannot exercise its powers ex debito justitiae.
It has been held that the jurisdiction of the arbitrator being confined to the four corners of the
agreement, he can only pass such an order which may be the subject-matter of reference.

92. In that view of the matter, we are of the considered view, that the impugned Award would
come under the realm of ‘patent illegality’ and therefore, has been rightly set aside by the

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High Court.”

15. In Indian Oil Corporation Ltd., the Supreme Court reiterated the said principle, namely that an
AT is required to act within the terms of the contract and that an award would suffer from “patent
illegality”, if it either travels beyond the contractual arrangement or ignores specific terms of a
contract. The relevant paragraphs of the said decision are set out hereinbelow:

“43. An Arbitral Tribunal being a creature of contract, is bound to act in terms of the contract
under which it is constituted. An award can be said to be patently illegal where the Arbitral
Tribunal has failed to act in terms of the contract or has ignored the specific terms of a
contract.

xxxx xxxx
xxxx

46. In Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ)
204] , this Court held that an award ignoring the terms of a contract would not be in public
interest. In the instant case, the award in respect of the lease rent and the lease term is in
patent disregard of the terms and conditions of the lease agreement and thus against public
policy. Furthermore, in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 :
(2015) 2 SCC (Civ) 204] the jurisdiction of the Arbitral Tribunal to adjudicate a dispute itself
was not in issue. The Court was dealing with the circumstances in which a court could look
into the merits of an award.

xxxx xxxx
xxxx

50. In PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust [PSA Sical Terminals (P)
Ltd. v. V.O. Chidambranar Port Trust, 2021 SCC OnLine SC 508] this Court referred to and
relied upon Ssangyong Engg. & Construction [Ssangyong Engg. & Construction Co. Ltd. v.
NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213] and held : (PSA Sical Terminals case [PSA
Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust, 2021 SCC OnLine SC 508] , SCC
para 85)

“85. As such, as held by this Court in Ssangyong Engg. & Construction [Ssangyong
Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 : (2020) 2 SCC (Civ) 213] ,
the fundamental principle of justice has been breached, namely, that a unilateral
addition or alteration of a contract has been foisted upon an unwilling party. This Court
has further held that a party to the agreement cannot be made liable to perform
something for which it has not entered into a contract. In our view, re-writing a contract
for the parties would be breach of fundamental principles of justice entitling a court to
interfere since such case would be one which shocks the conscience of the Court and as
such, would fall in the exceptional category.”

51. In PSA Sical Terminals [PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust,
2021 SCC OnLine SC 508] this Court clearly held that the role of the arbitrator was to
arbitrate within the terms of the contract. He had no power apart from what the parties had
given him under the contract. If he has travelled beyond the contract, he would be acting

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without jurisdiction.

52. In PSA Sical Terminals [PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust,
2021 SCC OnLine SC 508] this Court referred to and relied upon the earlier judgment of this
Court in Army Welfare Housing Organisation v. Sumangal Services (P) Ltd. [Army Welfare
Housing Organisation v. Sumangal Services (P) Ltd., (2004) 9 SCC 619] and held that an
Arbitral Tribunal is not a court of law. It cannot exercise its power ex debito justitiae.

53. In Satyanarayana Construction Co. v. Union of India [Satyanarayana Construction Co. v.

Union of India, (2011) 15 SCC 101 : (2014) 2 SCC (Civ) 252] , a Bench of this Court of
coordinate strength held that once a rate had been fixed in a contract, it was not open to the
arbitrator to rewrite the terms of the contract and award a higher rate. Where an arbitrator
had in effect rewritten the contract and awarded a rate, higher than that agreed in the
contract, the High Court was held not to commit any error in setting aside the award.”

16. The direction for refund was vehemently assailed and questioned with Mr. Sibal drawing our
attention to the principle of restitution as embodied in Section 65 of the 1872 Act. It was at the
outset pointed out that a direction for refund could not have been framed de hors the principles
underlying Section 65. It was contended that unless a case for restitution had been duly made out,
the AT would be wholly unjustified in framing a direction for refund. Emphasis was laid on the fact
that Section 65 rests on it being found that the agreement between the parties is discovered to be or
becomes void. Our attention was drawn to the findings as returned by the AT and which had
specifically observed that the SSPA could not stricto senso be held to be void. Mr. Sibal specifically
referred us to Para 26 of the Arbitral Award which is extracted hereinbelow:-

“26. Nevertheless, the alternative plea of Claimants premised on Section 65 of the Contract
Act is on terra firma (though contractual arrangements stricto senso cannot be termed as
void). It would be relevant to note that in its proposal dated 20.11.2015, the Respondents had
suggested that the consideration for warrants would be returned by the Company. Though by
Annexure C-41 dated 20.11.2015, the Respondents had suggested that the consideration for
warrants would be returned by the Company, the Claimants did not agree to the same. The
amount involved is Rs.308,21,89,461 /-. This amount is to be refunded to the Claimants.”

17. It was then submitted that curiously even though the AT had found KAL and KM to be in breach
of the SSPA as a consequence of a failure to ensure the infusion of INR 100 crores, the appellants
have been held liable to effect refunds. Mr. Sibal in this regard drew our attention to the following
observations as appearing in the Award:-

“51. The rival stands have been considered. As per amended structure of Schedule H of the
SPA, second closing under Clause 7.1 was to be achieved by 15.02.2015 which was amended
to 24.02.2015. Seller 2 was mandated to bring in Rs.100 Crores to Designated Account No. 2.
The admitted position is that Rs.100 Crores did not come to Designated Account No. 2.
Personal guarantees by way of mortgages given to CUB were to be releasedby 24.02.2015. The
release of guarantees was to be back by fixed deposit of Rs.100 Crores with CUB. The same is
claimed to have been done but Rs. 100 Crores as noted above did not come to Designated
Account No. 2. If one looks at the requirements of Clause 6.3.2, they are as follows:

(1) Fixed Deposit of Rs. 100 Crores;

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(2) Release of personal guarantees; and

(3) Seller No. 2 to CUB in the matter of released to the Company.

The first two steps appear to have been done, but not the third one. The Inflow of Rs.450
Crores included Rs.320 Crores for Tranche-1 shares. There was a requirement for deposit of
Rs.220 Crores in to the Designated Account No 2. It is clear from a reading of Clause 6.3.2 (b)
that two consents were required which depended on conditions relating to Clause 7.2.1 (b). As
noted above, CUB had time from 15.04.2015 till 11.05.2015 when ED’s order was received.
The evidence of Mr Dorai of UCB was that the bank had knowledge about the attachment from
media reports. Much stress had been led by the Claimants on the certificate of the Bank issued
to the Claimants vide Exhibit C-63 relating toirrevocable security. Neither the bank official nor
the Claimants could explain as to why this certificate was necessary if instructions claimed to
have been given were already there

52. There are two options which are available to the parties (1) As noted supra, the
Respondents have stated that they are still willing to issue the CRPS on the same terms
subject to the Claimants fulfilling their part of obligations as detailed above. Let the Claimants
take decision on the present offer made by the Respondents and such terms as may be
mutually acceptable to them within two months. If no effective solution is found within a
period of two months, thereafter, the Respondents shall return the amount of money received
in the manner laid down in the SPA for issuance of CRPS. Since the Tranche-2 payment of
Rs.100 Crores has not been made. the Respondent No.1 has raised a counter claim of Rs. 100
Crores. (2) In effect if the arrangement indicated above does not work out, the Respondents
shall return the amount as may be worked out relating to the funds brought in by the
Claimants within two months of the failure, if any, to work out the solution. To put it
differently, the Claimants will be entitled to Rs 270,86.99,209/- after deduction of the counter
claim amount of Rs.100Crores.”

18. According to Mr. Sibal, the fact that the appellants could not have possibly been viewed to be in
breach is evident from their counterclaim for INR 29 crores having itself been allowed. It was
submitted that the grant of the counterclaim was liable to be countenanced as an award for damages
for breach of contract as opposed to one for compensation. This, since according to Mr. Sibal, the
grant of the counterclaim cannot possibly be understood as being a measure of restitution, since it
did not restore any advantage that the appellants may have obtained from either KAL or KM. Mr.
Sibal submitted that the findings as rendered by the AT would in fact establish that the counterclaim
came to be allowed, consequent to the AT acknowledging the loss suffered by SpiceJet while
servicing interest on the loan of INR 100 crores extended by City Union Bank13, which could not be
liquidated consequent to the failure of KM to bring in the last tranche of payments as per the terms
pertaining to Committed Support.

19. According to Mr. Sibal, the grant of the counterclaim is in fact tacit acknowledgement of the
SSPA subsisting and it neither having been breached by the appellants nor being void in the eyes of
law. In light of the aforesaid, it was Mr. Sibal‘s submission that the AT could have at best considered
granting of relief of specific performance, subject of course to the requisite conditions underlying
that relief having been met.

20. However, and Mr. Sibal laid emphasis on the fact, that KAL and KM had never sought specific

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performance, and had at no stage of the proceedings evinced any desire to provide the balance
consideration of INR 100 crores in accordance with the Committed Support stipulations. Contrary to
the above, Mr. Sibal highlighted the fact that the appellants had in all fairness offered to issue the
CRPS subject of course to the outstanding amount of INR 100 crores being tendered by KAL and
KM. Our attention in this respect was invited to the following recordal of submissions by the AT in
the Award:-

“50. In the counter claim, the Respondents have claimed Rs. 100 Crores in addition to the
interest paid by the Respondents to CUB for the loan of Rs. 100 Crores. So far as the plea of
specific performance is concerned, the foundation therefore is the readiness and willingness to
do what was required to be done by the person who seeks the relief of specific performance.
Nothing has been pleaded by the Claimants in this regard. Additionally, it is a fundamental
requirement that one who seeks the relief of specific performance must come with clean
hands. The admitted position being that the interest was being credited to the personal
account of Claimant No. 2, the conduct is not only suspicious but shows ulterior motives.
Alternatively, it has been stated that the Respondents are still willing to issue the CRPS on the
same terms subject to the Claimants fulfilling their part of the obligations. It is pointed out
that there was a committed support undertaken by the Claimants to bring in Rs.450 Crores.
That part of the arrangement has not been fulfilled by the Claimants. The question of any
compensation, therefore, does not arise in the absence of the requisite conditions of specific
performance of contract having been fulfilled.”

21. Mr. Sibal submitted that restitution as a matter of principle and a direction for refund would
have to be premised on the party having “received an advantage” under an agreement. According to
Mr. Sibal, one must acknowledge the distinction which the law recognizes to exist between the
words “advantage” and “benefit”. Mr. Sibal in this regard drew our attention to the following
passage as appearing in the treatise of Pollock & Mulla on the Indian Contract and Specific
Relief Acts14:

” ‘Advantage’ appears to suggest not the benefit derived by each party, but the relative
benefit. The word ‘advantage’ is stated to be narrower in scope than benefit, since it suggests
more strictly either a material benefit, or things won in competition against an opponent. The
word ‘benefit’ means profit, gain, future good, whereas the advantage means a condition or
circumstance that gives one superiority or success (especially when competing with others).”

22. It was then contended that the Arbitral Award also fails to quantify the value of the alleged
“advantage” that may have been derived by the appellants. The imperatives of quantification were
sought to be highlighted by relying upon the following observations as appearing in the decision of
the Privy Council in Govindram Seksaria (A Firm) and Anr v. Edward Radbone15 :-

“Apart from the terms of certain documents, which will be considered later, their Lordships
feel no doubt that the decision of Blagden J. was correct. The result of section 65 of the Indian
Contract Act was that, as from the September 3, 1939, each of the parties became bound to
restore to the other any advantage which the restoring party had received under the contract
of sale. In their Lordships’ view, the Custodian could not recover any sum in his action, as
pleaded, unless he proved that the value of the “advantage” which the appellants had received
under the contract, i.e., of the machinery which had been delivered to them, was greater than
the sum of 83,875 Reichmarks, that sum being admittedly an “advantage” which the Custodian

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had received under the contract. Moreover, in their Lordships’ view, the value of the
machinery which was delivered to the appellants, for the purposes of s. 65 of the Act, must be
taken to be the value of that machinery in India immediately after the contract had become
void by reason of section 65. In estimating that value, a Court would have to take into account
the fact that the balance of the machinery contracted to be supplied could not be supplied
from Germany, and the fact that the appellants could no longer have the services of a qualified
erector sent from Germany and of the sellers’ Chief Chemist. Further, the Court would have to
consider the question whether or not the appellants were able to procure from other sources
the balance of the machinery contracted to be sent from Germany, and, if so, at what price and
within what period of time, and what quantity and quality of products could be produced by
the plant so assembled.

xxxx xxxx
xxxx

The appellants also called one witness, who gave evidence to the effect that the appellants
bought the missing parts of the machinery, and that their factory “was made to run
continuously on July 27, 1941”. He offered to produce a statement showing how the machinery
worked in 1941 and 1942, but the Advocate-Greneral, who appeared for the Custodian,
objected to the production of this statement and it was never in fact produced. At the
conclusion of his judgment Blagden J. said:—

“The fact is that I have no satisfactory evidence in the present case that the defendants-
purchasers or either of them have received an advantage under the contract which
became void by the start of this war. They might have or might not. For the price they
paid they got a part of what they contracted for. Whether on the whole they put into
their pockets more than they paid of I think it is impossible to say. But if it were
necessary for me to do so on this evidence I should be inclined to think that they did not,
but it is sufficient to say that on the evidence in this case it is not proved that they have.”

Their Lordships read this passage as meaning that in the view of the trial Judge the Custodian
had failed to prove that the advantage which the appellants had received under the contract of
sale was of a greater value than 83,875 Reichmarks. With this view they agree.”

23. It was then submitted that out of the total amount of INR 350 crores that was received by
SpiceJet in terms of the SSPA, a substantial part thereof was utilized and deployed to the benefit of
KM. Out of the aforesaid sum, Mr. Sibal pointed out INR 105 crores was utilized towards payment of
taxes, overdue instalments owed to banks and creation of margins with financial institutions. It was
submitted that it was the aforesaid utilisation of funds and for the purposes aforenoted which led to
the release of personal guarantees and collaterals of KM.

24. In addition to the above, Mr. Sibal submitted that INR 245 crores was utilized towards meeting
the operational expense requirements of SpiceJet. The aforesaid utilization of funds was explained in
further detail as per Annexure 2 to the Written Submissions which were tendered on 29 November
2023 and which is reproduced hereinbelow:-

“Details of Amount paid by KM and KAL

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Name of
the Party Utilization
How the amount
Date Amount (in Rs.) who paid Actual Utilization
was brought in
the
Amount CRPS Warrants
Utilised by Spicejet
Loan Agreement Limited under the
dated December ownership,
Mr.
December 18, 2013 amended management and
64,59,16,170.00 Kalanithi 64,59,16,170.00 –
, 2013 by Loan Amended control of Mr.
Maran
Agreement dated Kalanithi Maran and
November 7, 2014 KAL Airways Private
Limited.
Utilised by Spice jet
Limited under the
August KAL ownership,
Advance towards
2014 to Airways management and
50,49,72,500.00 subscription of – 50,49,72,500.00
November Private control of Mr.
warrants
2014 Limited Kalanithi Maran and
KAL Airways Private
Limited.
Utilised by Spice jet
Limited under the
ownership,
Mr. Loan Agreement
November management and
1,14,00,00,000.00 K a l a n i t h i dated November 36,24,90,000.00 77,75,10,000.00
, 2014 control of Mr.
Maran 21, 2014
Kalanithi Maran and
KAL Airways Private
Limited.
Utilised by Spice jet
Mr. Advance towards for ordinary
February
94,79,64,450.66 Kalanithi subscription of 94,79,64,450.66 – operations of the
24, 2015
Maran CRPS Company as per
Schedule H of SSPA
Utilised by the
KAL
Advance towards Respondent No. 1 for
February Airways
1,00,00,00,000.00 subscription of – 1,00,00,00,000.00 ordinary operations
24, 2015 Private
warrants of the Company as
Limited
per SSPA
(a)Rs.89,16,82 ,799
utilised towards
KAL payment of Income
Advance towards
February Airways Tax liabilities (being
79,97,06,961.00 subscription of – 79,97,06,961.00
24, 2015 Private the principal amount
warrants
Limited of Tax Deducted at
source) as on January
31,2015 (b) Rs.
9,45,11,635.09
utilized towards
KAL overdue instalment of
Advance towards
February Airways term loan facility
20,02,93,039.00 subscription of 20,02,93,039.00 –
24, 2015 Private availed from Yes
CRPS
Limited Bank and (c) Rs.
6,58,41,115.25
utilized towards
creation of margin
with Yes Bank in form
Mr. Advance towards
February of fixed deposit to
5,20,35,549.34 Kalanithi subscription of 5,20,35,549.34 –
24, 2015 enable release of
Maran CRPS
personal guarantee of
Mr. Kalanithi Maran.
Utilised by Spice jet
Mr. Advance towards
June 3, for ordinary
50,00,00,000.00 Kalanithi subscription of 50,00,00,000.00 –
2015 operations of the
Maran CRPS
Company as per SSPA

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Total 5,79,08,88,670.00 2,70,86,99,209.00 3,08,21,89,461.00

Mr. To be utilized towards repayment of
February
1,00,00,00,000.00 K a l a n i t h i Not Paid 1,00,00,00,000.00 – the financing facility obtained by the
24, 2015
Maran Company from the City Union Bank”

25. The direction for refund, Mr. Sibal then submitted was further unmerited bearing in mind the AT
itself having found the conduct of the appellants lacking in bona fide and alluding to the same as
suspicious conduct. According to learned senior counsel, once the AT had come to such a conclusion,
the same was sufficient to disentitle respondents to the relief of restitution. Mr. Sibal in this respect
drew our attention to Paras 49 and 51 of the Arbitral Award which are reproduced hereinbelow:-

“49. Certain peculiar features need to be noted at this stage is that there was a request for
closing of the loan but there was no response from CUB. Interestingly, CUB closed the account
of Make my trip and select cargo. If the ED’s order was within its knowledge, no explanation is
coming forthwith as to how the account was closed. Similarly, if there was no instruction in
terms of Clause 6.3.2 as there is no reference as to who would get the interest. Another
interesting feature is that the interest was being credited to the account of Claimant No. 2 and
it was being automatically credited to the personal account Further, if the account was to be
held as security and the interest was to be paid on maturity. It is quite suspicious that when
instructions were already there as to the nature of the security of the deposit, what occasioned
the certificate of the Bank, Exhibit C-63 to the Claimants.

xxxx xxxx
xxxx

51. The rival stands have been considered. As per amended structure of Schedule H of the
SPA, second closing under Clause 7.1 was to be achieved by 15.02.2015 which was amended
to 24.02.2015. Seller 2 was mandated to bring in Rs.100 Crores to Designated Account No. 2.
The admitted position is that Rs.100 Crores did not come to Designated Account No. 2.
Personal guarantees by way of mortgages given to CUB were to be released by 24.02.2015.
The release of guarantees was to be back by fixed deposit of Rs.100 Crores with CUB. The
same is claimed to have been done but Rs. 100 Crores as noted above did not come to
Designated Account No. 2. If one looks at the requirements of Clause 6.3.2, they are as
follows:

(1) Fixed Deposit of Rs. 100 Crores;

(2) Release of personal guarantees; and

(3) Seller No. 2 to CUB in the matter of released to the Company.

The first two steps appear to have been done, but not the third one. The inflow of Rs.450
Crores included Rs.320 Crores for Tranche-1 shares. There was a requirement for deposit of
Rs.220 Crores in to the Designated Account No 2. It is clear from a reading of Clause 6.3.2 (b)
that two consents were required which depended on conditions relating to Clause 7.2.1 (b). As
noted above, CUB had time from 15.04.2015 till 11.05.2015 when ED’s order was received.
The evidence of Mr. Dorai of UCB was that the bank had knowledge about the attachment
from media reports. Much stress had been led by the Claimants on the certificate of the Bank
issued to the Claimants vide Exhibit C-63 relating to irrevocable security. Neither the bank

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official nor the Claimants could explain as to why this certificate was necessary if instructions
claimed to have been given were already there.”

26. Mr. Sibal then proceeded to assail the grant of pendent lite interest at the rate of 12% on the
refunded amount relating to Warrants and canvassed the following contentions. It was his
submission that the award of interest at the rate of 12% was clearly unjustifiable bearing in mind the
indubitable fact that neither SpiceJet nor Mr. Ajay Singh had breached the terms of the contract. It
was submitted that the AT had itself found that the Warrants could not be issued in circumstances
clearly beyond the control of the appellants.

27. Mr. Sibal submitted that the grant of pendent lite interest should have been guided by Clause
17.6 of the SSPA and which had while dealing with a contingency where a particular stipulation of
the SSPA became impossible or incapable of performance, parties were obliged to negotiate in good
faith and substitute it with a workable provision. It was submitted that although the appellants had
proffered a solution and mooted a proposal for the cancellation of the prior issue of Warrants and
substitution by fresh alternative instruments, the same was declined by KAL and KM.

28. Mr. Sibal submitted that the AT also woefully failed to consider the fact that the amounts
pertaining to the Warrants during the pendency of proceedings before the AT stood either deposited
in Court or secured by way of bank guarantees. The sums, therefore, according to learned senior
counsel, were not even available for use by SpiceJet for a substantial period and during the
pendency of the arbitral proceedings. This was sought to be explained with reference to the
following salient events which are reproduced in a tabular form hereinbelow:-

“Date Event
29-01-2015 SSPA entered into by Parties.
Pursuant to SSPA, a total of Rs. 300 Crores were brought in by KAL and
24-02-2015
KM as advance as advance to Warrant and CRPS subscription.
Further Rs. 50 crores was brought in as advance towards CRPS
03-06-2015
subscription by KM.
Order of Delhi High Court in OMP (1) 71/2016 and 72/2016 directing
29-07-2016
deposit of Rs. 579 crore with Court.
D e c e m b e r Arbitral Tribunal was constituted to adjudicate upon the disputes between
2016 the Parties.
Order of Division Bench disposing of FAO (OS) (Comm) 61/2016 and
62/2016 modifying above direction. The modified requirement required SJ
03-07-2017
and AS to furnish Bank Guarantee for INR 329 crores and make a cash
deposit of Rs. 250 crores.
The Order of the Ld. Division Bench was upheld by Supreme Court.
31-07-2017 Direction was given to comply with deposit and bank guarantee in
2weeks.
Bank Guarantee for Rs. 329,00,00,000/- taken with ICICI Bank Limited.
11-08-2017 This was subsequently replaced by another BG issued on 12.09.2017 by
Yes Bank Limited with the permission of the Court.

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Towards the direction to deposit Rs. 250 Crores, and FD was taken in the
name of Spice Jet Limited for the said amount with Yes Bank Limited with
13-09-2017
lien marked in favour of Registrar, Delhi High Court. This meant that
interest earned on the FD was credited to Spice Jet’s account.
30-07-2018 Arbitral Award pronounced.”

29. Since the amount stood deposited in Court, Mr. Sibal relied upon the principles laid down in
H.P. Housing & Urban Development Authority vs. Ranjit Singh Rana16 that liability for post-
award interest ceases once the amount is deposited in Court, and submitted that by applying the
same yardstick, the grant of pendente lite interest by the AT was liable to be set aside by the learned
Single Judge. Reliance in this regard was placed on the following paragraphs of the aforesaid
decision:-

“11. Whether 24-5-2001 when the entire award amount was deposited by the appellants into
the High Court is the date of payment?

12. “Payment” is not defined in the Act. Concise Oxford English Dictionary (10th Edn.,
Revised) defines “payment”:

“Payment.—(1) The action of paying or the process of being paid. (2) An amount paid or
payable.”

13. Webster Comprehensive Dictionary (International Edn.) Vol. 2 defines “payment”:

“Payment.—(1) the act of paying.

(2) Pay; requital; recompense.”

14. The Law Lexicon by P. Ramanatha Aiyar, 2nd Edn. Reprint, inter alia, states:

“payment is defined to be the act of paying, or that which is paid; discharge of a debt,
obligation or duty; satisfaction of claim; recompense; the fulfilment of a promise or the
performance of an agreement; the discharge in money of a sum due”.

15. The word “payment” may have different meaning in different context but in the context of
Section 37(1)(b); it means extinguishment of the liability arising under the award. It signifies
satisfaction of the award. The deposit of the award amount into the court is nothing but a
payment to the credit of the decree-holder. In this view, once the award amount was deposited
by the appellants before the High Court on 24-5-2001, the liability of post-award interest from
24-5-2001 ceased. The High Court, thus, was not right in directing the appellants to pay the
interest @ 18% p.a. beyond 24-5-2001.

16. The appeal is, accordingly, allowed in part. The impugned order of the High Court is
modified and it is directed that the appellants shall be liable to pay interest @ 18% p.a. for the
post-award period from the date of award until 24-5-2001. After 24-5- 2001, the appellants are
not liable to pay any interest on the award amount under Section 37(1)(b) of the Act.”

30. Mr. Sibal submitted that not only is the award of pendente lite interest at the rate of 12%
excessive, the AT has also failed to assign any reasoning in support of the said relief. It was

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submitted that it was incumbent upon the AT to assign reasons in support of a rate of interest being
found to be reasonable and justified as was explained by the Supreme Court in Executive Engineer
(R and B) & Ors vs. Gokul Chandra Kanungo (Dead) Through his LRs17:-

“10. The provisions of Section 31(7)(a) of the 1996 Act fell for consideration before this Court
in many cases including in the cases of Hyder Consulting (UK) Limited (supra) and Delhi
Airport Metro Express Private Limited v. Delhi Metro Rail Corporation. A perusal of clause (a)
of subsection (7) of Section 31 of the 1996 Act would reveal that, no doubt, a discretion is
vested in the arbitral tribunal to include in the sum for which the award is made interest, on
the whole or any part of the money, for the whole or any part of the period between the date
on which the cause of action arose and the date on which the award is made. However, it
would reveal that the section itself requires interest to be at such rate as the arbitral tribunal
deems reasonable. When a discretion is vested to an arbitral tribunal to award interest at a
rate which it deems reasonable, then a duty would be cast upon the arbitral tribunal to give
reasons as to how it deems the rate of interest to be reasonable. It could further be seen that
the arbitral tribunal has also a discretion to award interest on the whole or any part of the
money or for the whole or any part of the period between the date of cause of action and the
date on which the award is made. When the arbitral tribunal is empowered with such a
discretion, the arbitral tribunal would be required to apply its mind to the facts of the case and
decide as to whether the interest is payable on whole or any part of the money and also as to
whether it is to be awarded to the whole or any part of the period between the date on which
the cause of action arose and the date on which the award is made.

11. A perusal of the award as also the judgment and order of the District Judge as well as the
High Court would reveal that no such exercise has been done. The learned Arbitrator, without
assigning any reasons, has awarded the interest at the rate of 18% per annum for the period
during which the proceedings were pending and also at the same rate after the award was
made till the actual payment.”

31. The Award was also assailed insofar as the grant of interest for the period post its
pronouncement is concerned, with it being argued that interest at the rate of 18% was again granted
without any reasons being assigned or recorded. Our attention in this respect was drawn to the
significant statutory amendments introduced in Section 31 of the Act, and more particularly Section
31(7)(b) which came into effect from 23 October 2015 vide the Arbitration and Conciliation
(Amendment) Act, 201518 and which reads as follows:-

“31. Form and contents of arbitral award.

xxxx xxxx
xxxx

(7)(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for
the payment of money, the arbitral tribunal may include in the sum for which the award is
made interest, at such rate as it deems reasonable, on the whole or any part of the money, for
the whole or any part of the period between the date on which the cause of action arose and
the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs,

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carry interest at the rate of two per cent higher than the current rate of interest prevalent on
the date of award, from the date of award to the date of payment.

Explanation.—The expression “current rate of interest” shall have the same meaning as
assigned to it under clause (b) of Section 2 of the Interest Act, 1978 (14 of 1978).”

32. Mr. Sibal submitted that the aforesaid statutory provision obliged the AT to bear in mind the
“current rate of interest” and which was prevalent on the date of the Award. Our attention was also
drawn to the definition of the expression “current rate of interest” in the Interest Act, 197819 and
which reads as follows:-

“2. Definitions. —In this Act, unless the context otherwise requires,—

xxxx xxxx
xxxx

“(b) “current rate of interest” means the highest of the maximum rates at which interest may
be paid on different classes of deposits (other than those maintained in savings account or
those maintained by charitable or religious institutions) by different classes of scheduled
banks in accordance with the directions given or issued to banking companies generally by the
Reserve Bank of India under the Banking Regulation Act, 1949 (10 of 1949).”

33. It was vehemently argued that the Arbitral Award fails to assign any reason or refer to any
cogent material in support of an interest rate of 18% being accepted as correctly representing the
“current rate of interest”.

34. Mr. Sibal, in support of the aforesaid submission also placed for our consideration details
gleaned from the official web portal of the State Bank of India and which stands encapsulated in the
shape of the following chart:-

35. The judgment of affirmance as rendered by the learned Single Judge was questioned with Mr.
Sibal submitting that although it elaborately takes note of the various contentions which were urged
by the appellants, it fails to either deal with the same or assign any reasons for negation of the
challenge as it stood raised and thus causing irreparable prejudice to the appellants.

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36. Mr. Sibal in this respect took us through the impugned judgment and highlighted the following
aspects. In order to appreciate the breadth of the submissions which were addressed for the
consideration of the learned Single Judge, Mr. Sibal firstly referred to Para 7 and which represents
the recordal of the appellants‘ contention with respect to CRPS amounts being repayable only at the
end of eight years. Para 7 is extracted hereinbelow:-

“7. The learned senior counsel submitted that in terms of Schedule B of the Agreement, the
CRPS is a debt instrument issued at a nominal coupon rate of 6%, repayable at the end of 8
years. The refund was awarded in favour of the respondents without considering that in
accordance with the terms of the Agreement, CRPS is essentially a debt instrument, which
could have been redeemed only after the expiry of a period of eight years from the date of
subscription and is an amount which is not payable in praesenti. Moreover, in terms of the
Schedule B, the dividend on the CRPS becomes payable only subject to the availability of
profits of the Company. Therefore, on the face of the record, the Arbitral Tribunal failed to
consider and appreciate that CRPS could have only been redeemed by the respondents after
the expiry of a period of 8 years from the date of allotment of such CRPS in accordance with
the terms of the SSPA.”

37. Mr. Sibal further argued that before the learned Single Judge, the appellants had also urged that
the direction for refund came to be granted despite the AT finding that it was KAL and KM who were
in breach of the SSPA. This, according to learned senior counsel, is manifest from a reading of Para
8 which is reproduced hereinbelow:-

“8. It is further submitted that the said refund was awarded in favour of the respondents
despite the finding that they were in breach of the Agreement having failed to bring in Rs. 100
Crores, i.e., the Tranche-I of the total amount, in terms of Clause 6.3.1. and also, the petitioner
Company’s claim to the extent of Rs. 129 Crores was allowed on account of such breach.
Therefore, now the respondents cannot take undue advantage of their breach.”

38. The fact that the grant of reliefs as ultimately framed would amount to a rewriting of the
contractual terms also was a contention which was specifically raised before the learned Single
Judge, as would be evident from the reading of Paras 11 and 12 of the impugned judgment and
which are reproduced below:

“11. It is submitted that the entire amount of Rs. 370 Crores, which was to be brought into the
petitioner Company as part of the committed support, was to stay with the airline for a period
of 8 years as per the terms of the Agreement and therefore, the Arbitral Tribunal could not
have rewritten the terms of the contract by awarding return of Rs. 270 Crores, modifying the
nature of the transaction in the Agreement.

12. Relying upon the judgments passed in Indian Oil Corporation Limited vs. Shree
Ganesh Petroleum Rajgurunagar, (2022) 4 SCC 463 and Union of India vs. Jindal Rail
Infrastructure Ltd., 2022 SCC OnLine Del 1540, it is submitted on behalf of the
petitioners that the Arbitral Tribunal rewrote the terms of the contract between the parties by
converting the petitioner Company’s offer into an arbitral award. The Hon’ble Supreme Court
in Shree Ganesh Petroleum Rajgurunagar (Supra) observed that:

“45. The Court does not sit in appeal over the award made by an Arbitral Tribunal. The

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Court does not ordinarily interfere with interpretation made by the Arbitral Tribunal of a
contractual provision, unless such interpretation is patently unreasonable or perverse.
Where a contractual provision is ambiguous or is capable of being interpreted in more
ways than one, the Court cannot interfere with the arbitral award, only because the
Court is of the opinion that another possible interpretation would have been a better
one.

46. In Associate Builders [Associate Builders v. DDA. (2015) 3 SCC 49: (2015) 2 SCC
(Civ) 204], this Court held that an award ignoring the terms of a contract would not be in
public interest. In the instant case, the award in respect of the lease rent and the lease
term is in patent disregard of the terms and conditions of the lease agreement and thus
against public policy. Furthermore, in Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] the jurisdiction of the Arbitral Tribunal to
adjudicate a dispute itself was not in issue. The Court was dealing with the
circumstances in which a court could look into the merits of an award.

*****

49. In Ssangyong Engg. & Construction Co Ltd. v. NHAI [Ssangyong Engg. &
Construction Co. Ltd. v. NHAI. (2019) 15 SCC 131: (2020) 2 SCC (Civ) 213], this Court
held: (SCC pp. 199-200, para 76)

“76. However, when it comes to the public policy of India, argument based upon
“most basic notions of justice”, it is clear that this ground can be attracted only in
very exceptional circumstances when the conscience of the Court is shocked by
infraction of fundamental notions or principles of justice. It can be seen that the
formula that was applied by the agreement continued to be applied till February
2013- in short, it is not correct to say that the formula under the agreement could
not be applied in view of the Ministry’s change in the base indices from 1993- 1994
to 2004-2005. Further, in order to apply a linking factor, a circular, unilaterally
issued by oneparty, cannot possibly bind the other party to the agreement without
that other party’s consent. Indeed, the circular itself expressly stipulates that it
cannot apply unless the contractors furnish an undertaking/affidavit that the price
adjustment under the circular is acceptable to them. We have seen how the
appellant gave such undertaking only conditionally and without prejudice to its
argument that the Circular does not and cannot apply. This being the case, it is
clear that the majority award has created a new contract for the parties by
applying the said unilateral circular and by substituting a workable formula under
the agreement by another formula dehors the agreement. This being the case, a
fundamental principle of justice has been breached, namely, that a unilateral
addition or alteration of a contract can never be foisted upon an unwilling party,
nor can a party to the agreement be liable to perform a bargain not entered into
with the other party. Clearly, such a course of conduct would be contrary to
fundamental principles of justice as followed in this country, and shocks the
conscience of this Court. However, we repeat that this ground is available only in
very exceptional circumstances, such as the fact situation in the present case.
Under no circumstance can any court interfere with an arbitral award on the
ground that justice has not been done in the opinion of the Court. That would be

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an entry into the merits of the dispute which, as we have seen, is contrary to the
ethos of Section 34 of the 1996 Act, as has been noted earlier in this judgment.”

50. In PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust [PSA Sical Terminals
(P) Ltd. v. V.O. Chidambranar Port Trust, (2021) 18 SCC 716 2021 SCC OnLine SC 508)
this Court referred to and relied upon Ssangyong Engg. & Construction [Ssangyong
Engg& Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131: (2020) 2 SCC (Civ) 213] and
held (PSA Sical Terminals case [PSASical Terminals (P) Ltd. v. V.O. Chidambranar Port
Trust, (2021) 18 SCC 716: 2021 SCC OnLine SC 508], SCC para85)

“85. As such, as held by this Court in SsangyongEngg. & Construction

[SsangyongEngg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 (2020) 2
SCC (Civ) 213], the fundamental principle of justice has been breached, namely,
that a unilateral addition or alteration of a contract has been foisted upon an
unwilling party. This Court has further held that a party to the agreement cannot
be made liable to perform something for which it has not entered into a contract.
In our view, re-writing a contract for the parties would be breach of fundamental
principles of justice entitling a court to interfere since such case would be one
which shocks the conscience of the Court and as such, would fall in the exceptional
category”

51. In PSA Sical Terminals (PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port
Trust, (2021) 18 SCC 716: 2021 SCC OnLine SC 508] this Court clearly held that the role
of the arbitrator was to arbitrate within the terms of the contract. He had no power
apart from what the parties had given him under the contract. If he has travelled beyond
the contract, he would be acting without jurisdiction.

52. In PSA Sical Terminals (PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port
Trust, (2021) 18 SCC 716: 2021 SCC OnLine SC 508) this Court referred to and relied
upon the earlier judgment of this Court in Army Welfare Housing Organisation v.
Sumangal Services (P) Ltd. [Army Welfare Housing Organisation v Sumangal Services
(P) Ltd. (2004) 9 SCC 619) and held that an Arbitral Tribunal is not a court of law. It
cannot exercise its power ex debito justitiae

53. In Satyanarayana Construction Co v. Union of India (Satyanarayana Construction Co.

v. Union of India, (2011) 15 SCC 101: (2014) 2 SCC (Civ) 252) a Bench of this Court of
coordinate strength held that once a rate had been fixed in a contract, it was not open to
the arbitrator to rewrite the terms of the contract and award a higher rate. Where an
arbitrator had in effect rewritten the contract and awarded a rate, higher than that
agreed in the contract, the High Court was held not to commit any error in setting aside
the award.”

39. Mr. Sibal then submitted that the appellants had additionally argued that penal interest could
not have been awarded in the absence of a finding of breach, and more so when the amounts had
been utilized for the purposes of resurrection of a debt-ridden airline. This, according to Mr. Sibal is
evidenced from Paras 13, 14 and 18 of the impugned judgment which are extracted below:-

“13. The learned senior counsel for the petitioners submitted that the Arbitral Tribunal

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wrongly awarded interest of 12% on the aforesaid refund amount. It is submitted that
Agreement between the parties does not entitle the respondents to claim any interest in case
of refund of amount for non-issuance of Warrants and CRPS. Moreover, the interest has been
awarded despite the specific finding that the petitioners were not in breach of any of the terms
of the Agreement. Referring to Paragraph 25 and 51 of the impugned Award, the learned
senior counsel submitted that since there is no breach on the part of the petitioner Company
for issuance of Warrants or CRPS as also held by the Arbitral Tribunal, the interest awarded
on the refund of Warrants amounting to Rs. 308 Crores is incorrect and ought to be set aside.

14. It is further submitted that the Arbitral Tribunal awarded interest of 12% on refund of Rs.
308 Crores, in total disregard of the proposal made by the petitioners and the fact that Ajay
Singh took over the liabilities of Rs. 2200 Crores and ensured that the infused amount of Rs.
350 Crores was utilized towards discharge of liabilities of the Company and release of personal
guarantees of the respondent no. 2.

xxxx xxxx
xxxx

18. It is further submitted that the petitioner company and Ajay Singh are not in breach of
their obligations under the SSPA including obtaining discharge of the personal guarantees and
mortgages of the respondents, which was a condition precedent for the infusion of ‘committed
support’ in terms of the Offer. The Arbitral Tribunal despite holding that respondents liable for
the breach of their obligations under SSPA awarded refund of the sums towards CRPS in
favour of the respondents.”

40. Mr. Sibal then submitted that the appellants had specifically argued before the learned Single
Judge that the rate of interest as granted was clearly exorbitant and in violation of the Act and which
submission stands noticed in Paras 15 and 17 of the judgment impugned before us. Those
paragraphs are reproduced hereinbelow:-

“15. It is further submitted that the interest of 12% awarded by the Arbitral Tribunal on the
amounts refunded towards Warrants and 18% thereon is not only in violation of Section 28 (3)
and Section 34 (2)(b)(ii)of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as
“the Arbitration Act”) but also is exorbitant and unreasonable.

xxxx xxxx
xxxx

17. It is further submitted that interest rate of 12% imposed by arbitral award on the amount
of Rs. 308,21,89,461/- towards Warrants and 18% if the sums are not paid within stipulated
time are exorbitant, and unreasonable. It is further submitted that such interest rate is in
contradiction to the terms of the SSPA which does not provide for any such understanding.
Further, this interest rate is in violation of Sections 28(3) and 34(2)(b)(ii) of the Arbitration
Act, 1996.”

41. Mr. Sibal also relied upon various decisions of the Supreme Court to contend that the grant of
interest at the rate of 18% by an AT is excessive and unjustified and that such a prescription has
been repeatedly set aside by courts. Reliance in this regard was firstly placed on Vedanta Limited

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v. Shenzhen Shandong Nuclear power Construction Company Ltd 20 , and where it was
observed:-

“7. Section 31(7) is in two parts: clause (a) pertains to the award of interest for the pre-
reference and pendente lite period, which is subject to the agreement between the parties.
This would be evident from the opening words of Section 31(7)(a) — “unless otherwise agreed
by the parties”. Absent an agreement between the parties, the Arbitral Tribunal has the
discretion to award interest; as it deems reasonable. Interest may be awarded either on the
whole, or any part of the sum awarded.

8. Section 31(7)((b) pertains to the post-award period i.e. from the date of the award to the
date of realisation, and is not subject to party autonomy or an agreement between the parties.
This would be apparent from the manner in which clause (b) of Section 31(7) is framed. The
phrase “unless otherwise agreed by the parties” is absent from this provision. The statutory
rate of interest is 2% higher than the current rate of interest prevalent on the date of the
award.

9. The discretion of the arbitrator to award interest must be exercised reasonably. An Arbitral
Tribunal while making an award for interest must take into consideration a host of factors,
such as : (i) the “loss of use” of the principal sum; (ii) the types of sums to which the interest
must apply; (iii) the time period over which interest should be awarded; (iv) the internationally
prevailing rates of interest; (v) whether simple or compound rate of interest is to be applied;
(vi) whether the rate of interest awarded is commercially prudent from an economic
standpoint; (vii) the rates of inflation; (viii) proportionality of the count awarded as interest to
the principal sums awarded.

10. On the one hand, the rate of interest must be compensatory as it is a form of reparation
granted to the award-holder; while on the other it must not be punitive, unconscionable or
usurious in nature.

xxxx xxxx
xxxx

14. In the present case, the Arbitral Tribunal has adopted a dual rate of interest in the award.
The award directs payment of interest @ 9% for 120 days post award; if the amount awarded
is not paid within 120 days’, the rate of interest is scaled up to 15% on the sum awarded.

15. The dual rate of interest awarded seems to be unjustified. The award of a much higher rate
of interest after 120 days’ is arbitrary, since the award-debtor is entitled to challenge the
award within a maximum period of 120 days’ as provided by Section 34(3) of the 1996 Act [
“34. (3) An application for setting aside may not be made after three months have elapsed
from the date on which the party making that application had received the arbitral award or, if
a request had been made under Section 33, from the date on which that request had been
disposed of by the Arbitral Tribunal: Provided that if the Court is satisfied that the applicant
was prevented by sufficient cause from making the application within the said period of three
months it may entertain the application within a further period of thirty days, but not
thereafter.”] . If the award-debtor is made liable to pay a higher rate of interest after 120 days,
it would foreclose or seriously affect his statutory right to challenge the award by filing

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objections under Section 34 of the said Act.

16. The imposition of a high rate of interest @ 15% post-120 days is exorbitant, from an
economic standpoint, and has no co-relation with the prevailing contemporary international
rates of interest. The award-debtor cannot be subjected to a penal rate of interest, either
during the period when he is entitled to exercise the statutory right to challenge the award,
before a court of law, or later. Furthermore, the Arbitral Tribunal has not given any reason for
imposing a 15% rate of interest post 120-days.

xxxx xxxx
xxxx

19. The respondent/claimant has, in fact been awarded 105% of the costs incurred under the
EPC contracts by the Arbitral Tribunal. The award of interest @ 9% on the Euro component of
the claim is unjustified and unwarranted. The levy of such a high rate of interest on a claim
made in a foreign currency, would result in the claimant being awarded compensation,
contrary to the conditions stipulated in the contract.

20. The award has granted a uniform rate of 9% SI on both the INR and the EUR component.
However, when the parties do not operate in the same currency, it is necessary to take into
account the complications caused by differential interest rates. Interest rates differ depending
upon the currency. It is necessary for the Arbitral Tribunal to coordinate the choice of
currency with the interest rate. A uniform rate of interest for INR and EUR would therefore
not be justified. The rate of 9% interest on the INR component awarded by the Arbitral
Tribunal will remain undisturbed. However, with respect to the EUR component, the award-
debtor will be liable to pay interest at the Libor rate + 3 percentage points, prevailing on the
date of the award.

21. In light of the abovementioned discussion, the interest awarded by the Arbitral Tribunal is
modified only to the extent mentioned hereinbelow:

21.1. The interest rate of 15% post 120 days granted on the entire sum awarded stands
deleted.

21.2. A uniform rate of interest @9% will be applicable for the INR component in entirety till
the date of realisation.

21.3. The interest payable on the EUR component of the award will be as per LlBOR + 3
percentage points on the date of award, till the date of realisation.”

42. Mr. Sibal then submitted that in Indian Railway Construction Company Limited v. National
Buildings Construction Corporation Limited21 the Supreme Court had held that the grant of
interest at the rate of 18% was excessive and the interest rate was ultimately modified to 12%, being
found to be a reasonable rate of interest. The relevant extracts of the said decision are reproduced
hereinbelow:

“24. Now, so far as quashing and setting aside the award passed by the Arbitral Tribunal
awarding interest @18% on advance for the hypothecation of equipment, by the learned Single
Judge confirmed by the Division Bench is concerned, at the outset, it is required to be noted

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that the Division Bench of the High Court has upheld the order passed by the learned Single
Judge quashing and setting aside the interest awarded by the learned Arbitral Tribunal on
advance for the hypothecation of equipment on the ground that there is no such stipulation in
the agreement/contract. However, the High Court has not at all considered Section 31(7)(a) of
the Arbitration Act, which permits the arbitrator that unless otherwise agreed by the parties,
where and insofar as an arbitral award is for the payment of money, the Arbitral Tribunal may
include in the sum for which the award is made interest, at such rate as it deems reasonable,
for the whole or any part of the period between the date on which the cause of action arose
and the date on which the award is made. Thus, unless there is a specific bar under the
contract, it is always open for the arbitrator/Arbitral Tribunal to award pendente lite interest.

25. Identical question came to be considered by this Court in Raveechee [Raveechee & Co. v.
Union of India, (2018) 7 SCC 664 : (2018) 3 SCC (Civ) 711] . In the said decision, it is observed
and held by this Court that an arbitrator has the power to award interest unless specifically
barred from awarding it and the bar must be clear and specific. In the said decision, it is
observed and held that the liability to pay interest pendente lite arises because the claimant
has been found entitled to the same and had been kept out from those dues due to the
pendency of the arbitration i.e. pendente lite.

26. Aplying the law laid down by this Court in the aforesaid decision in Raveechee and Co.
[Raveechee & Co. v. Union of India, (2018) 7 SCC 664 : (2018) 3 SCC (Civ) 711] to the facts of
the case on hand, once it was found that the advance amount was paid for hypothecation of
equipment and thereafter when the Arbitral Tribunal awarded the interest on advance for
hypothecation of equipment, the same was not required to be interfered with by the learned
Single Judge in exercise of the powers under Section 34 of the Arbitration Act and even by the
Division Bench of the High Court while exercising the powers under Section 37 of the
Arbitration Act. However, at the same time to award the interest @18% can be said to be on a
higher side. In the facts and circumstances of the case, if the interest is awarded @ 12% on
advance for the hypothecation of equipment, the same can be said to be reasonable interest.”

43. According to Mr. Sibal, even though the appellants had assailed the validity of the Award insofar
as the grant of interest was concerned on the basis of an abject failure on the part of the AT to
assign reasons, no findings or conclusions have come to be rendered by the learned Single Judge
while dismissing the petition under Section 34. Mr. Sibal in this respect referred to Para 16 which
reads thus:-

“16. It is submitted that the Arbitral Tribunal failed to provide any reasons for the grant of
interest and the same in itself is a substantial ground for setting aside the impugned Award to
this extent. It is submitted on behalf of the petitioner that the arbitral award suffers from
patent illegality as it directed the refund of Rs. 270,86,99,209/- towards the amount paid for
CRPS despite holding that the respondents are in breach of their obligation to bring
committed support of Rs. 450,00,00,000/-. It is further submitted that the amounts paid by
petitioner towards CRPS have been directed to be refunded to the respondents without
considering the fact that CRPS is a debt instrument which can be redeemed only after the
expiry of 8 years from the date of subscription and the amount is not payable in praesenti.”

44. The submission in essence was that although the impugned judgment faithfully records various
submissions, the learned Single Judge has clearly failed to either evaluate the same or assign any

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reasons which may be viewed as a conclusion drawn upon a just evaluation of the contention. It was
submitted that the learned Single Judge has proceeded to dismiss and reject the challenge by merely
alluding to the broad contours of the Section 34 jurisdiction. According to Mr. Sibal, the learned
Single Judge has thus clearly failed to deal with the pointed submissions pertaining to “patent
illegality” and perversity which were raised by the appellants.

45. Mr. Sibal submitted that while the narrow contours of the Section 34 jurisdiction are well
recognized, the same cannot absolve the court from adjudging and ruling on arguments pertaining
to “patent illegality” and manifest perversities. Learned senior counsel submitted that the appellants
had elaborately chronicled the manifest and patent illegalities which beset the Award and that the
learned Single Judge had clearly erred in failing to consider its setting aside under Section 34.

46. Learned senior counsel submitted that the impugned judgment fails to accord any consideration
on the fundamental flaws which were highlighted and assailed. It was in the aforesaid backdrop that
Mr. Sibal submitted that not only do the appeals merit being allowed and the impugned judgment
being set aside, the Arbitral Award itself and to the extent noted above must be quashed.

47. The last aspect which the learned senior counsel highlighted was of the financial impact which
the challenge as mounted by way of the instant appeals would have insofar as the Award is
concerned. It was pointed out that as on 29 November 2023 (the date on which the Written
Submissions were drawn), the appellants had paid the principal amount of INR 579,08,88,670 in its
entirety along with an additional sum of INR 100 crores towards interest. It was submitted that if the
appellants were to succeed in the present appeals and the Court were to ultimately set aside the
direction for refund of the CRPS amount as well as the entirety of interest awarded, they would in
turn become entitled to a refund of approximately INR 400 crores. It was submitted that even if the
appellants were to find success on the question of interest alone, the appellants would become
entitled to a refund of INR 129 crores. It was in the aforesaid light that Mr. Sibal submitted that
grave and manifest injustice has been caused to the appellants on account of the perfunctory
dismissal of the Section 34 petition by the learned Single Judge.

48. The solitary additional ground which was urged in the Ajay Singh appeal [FAO(OS) COMM
179/2023] pertained to the personal liability of the appellant – Mr. Ajay Singh under the Award. It
was submitted by Mr. Sibal that the AT has manifestly erred in holding Mr. Ajay Singh personally
liable for the liabilities arising from the impugned Award, even though and undisputedly the
individual appellant was neither the recipient of funds nor did any stipulation of the SSPA attach a
personal liability upon him. It was submitted that the directions ultimately framed and insofar as the
AT proceeded to hold Mr. Ajay Singh as personally liable is wholly perverse and consequently liable
to be set aside to the aforesaid extent.

D. SUBMISSIONS ON BEHALF OF THE RESPONDENTS – KAL AND KM

49. Appearing for KAL and KM – the respondents herein, Mr. Maninder Singh, learned senior
counsel at the outset raised a preliminary objection with respect to the right of the appellants to
pursue the instant appeals on the ground that they had failed to abide by the directions issued by the
Executing Court as well as the Supreme Court from time to time. It was submitted that despite
peremptory orders passed by this Court in the course of execution as well as by the Supreme Court,
the appellants had failed to deposit the entire awarded amount along with interest. We were
apprised of the admitted fact that this Court had in terms of its order of 24 August 2023 declined the

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prayer for grant of interim relief of staying the execution of the Award. The Supreme Court, Mr.
Singh pointed out, had in terms of its two orders dated 13 February 2023 and 07 July 2023 in
unambiguous terms provided that in case the appellants were to fail to comply with the terms and
conditions of deposit, the entire amount payable under the Award would become executable.

50. Mr. Singh submitted that since and undisputedly the appellants had failed to abide by those
directions, the instant appeals under Section 37 itself should not be heard till such time as the
appellants remain in default. Mr. Singh submitted that Articles 141 and 144 of the Constitution
would warrant this Court declining to examine the challenge on merits.

51. Mr. Singh submitted that the appellants had not only failed to comply with the repeated
directions for deposit of the entire awarded amount, they had also failed to file their affidavit of
assets. This, according to Mr. Singh, would constitute an additional ground for the appellants being
deprived of the indulgence of this Court and a hearing on the instant appeals.

52. Without prejudice to the above, Mr. Singh firstly highlighted the limited contours of Section 37
of the Act to submit that the Court would clearly not have the jurisdiction to consider the merits of
the Award. It was Mr. Singh’s submission that undisputedly the jurisdiction which is exercised by a
Court while considering a challenge referable to Section 34 stands limited to aspects of “patent
illegality” and perversity. However, and it was so contended, when the matter reaches the stage of
an appeal under Section 37, the scope of scrutiny becomes further circumscribed and the appellate
court being confined to considering whether the court trying the Section 34 petition had examined
the validity of the Award in accordance with the grounds of challenge as permissible in law. The
aforesaid aspects were highlighted with Mr. Singh firstly referring to the decision in MMTC
Limited vs Vedanta Limited22 where the Supreme Court had observed as under:

“14. As far as interference with an order made under Section 34, as per Section 37, is
concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond
the restrictions laid down under Section 34. In other words, the court cannot undertake an
independent assessment of the merits of the award, and must only ascertain that the exercise
of power by the court under Section 34 has not exceeded the scope of the provision. Thus, it is
evident that in case an arbitral award has been confirmed by the court under Section 34 and
by the court in an appeal under Section 37, this Court must be extremely cautious and slow to
disturb such concurrent findings.”

53. Mr. Singh then drew our attention to the judgment in UHL Power Company Limited vs. State
of Himachal Pradesh23 where the Supreme Court while examining the scope of Section 37 made
the following pertinent observations:

“16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is
fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act,
the jurisdiction of an appellate court in examining an order, setting aside or refusing to set
aside an award, is all the more circumscribed. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v.
Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] the reasons for vesting such a
limited jurisdiction on the High Court in exercise of powers under Section 34 of the Arbitration
Act have been explained in the following words : (SCC pp. 166-67, para 11)

“11. As far as Section 34 is concerned, the position is well-settled by now that the Court

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does not sit in appeal over the arbitral award and may interfere on merits on the limited
ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of
India. As per the legal position clarified through decisions of this Court prior to the
amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes
a violation of the fundamental policy of Indian law, a violation of the interest of India,
conflict with justice or morality, and the existence of patent illegality in the arbitral
award. Additionally, the concept of the “fundamental policy of Indian law” would cover
compliance with statutes and judicial precedents, adopting a judicial approach,
compliance with the principles of natural justice, and Wednesbury [Associated Provincial
Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness.
Furthermore, “patent illegality” itself has been held to mean contravention of the
substantive law of India, contravention of the 1996 Act, and contravention of the terms
of the contract.”

17. A similar view, as stated above, has been taken by this Court in K.Sugumar v. Hindustan
Petroleum Corpn. Ltd. [K. Sugumar v. Hindustan Petroleum Corpn. Ltd., (2020) 12 SCC 539],
wherein it has been observed as follows: (SCC p. 540, para 2)

“2. The contours of the power of the Court under Section 34 of the Act are too well
established to require any reiteration. Even a bare reading of Section 34 of the Act
indicates the highly constricted power of the civil court to interfere with an arbitral
award. The reason for this is obvious. When parties have chosen to avail an alternate
mechanism for dispute resolution, they must be left to reconcile themselves to the
wisdom of the decision of the arbitrator and the role of the court should be restricted to
the bare minimum. Interference will be justified only in cases of commission of
misconduct by the arbitrator which can find manifestation in different forms including
exercise of legal perversity by the arbitrator.”

18. It has also been held time and again by this Court that if there are two plausible
interpretations of the terms and conditions of the contract, then no fault can be found, if the
learned arbitrator proceeds to accept one interpretation as against the other. In Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd. [Dyna Technologies (P) Ltd. v. Crompton
Greaves Ltd., (2019) 20 SCC 1], the limitations on the Court while exercising powers under
Section 34 of the Arbitration Act has been highlighted thus: (SCC p. 12, para 24)

“24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an
award only on the grounds provided therein or as interpreted by various Courts. We
need to be cognizant of the fact that arbitral awards should not be interfered with in a
casual and cavalier manner, unless the Court comes to a conclusion that the perversity
of the award goes to the root of the matter without there being a possibility of
alternative interpretation which may sustain the arbitral award. Section 34 is different in
its approach and cannot be equated with a normal appellate jurisdiction. The mandate
under Section 34 is to respect the finality of the arbitral award and the party autonomy
to get their dispute adjudicated by an alternative forum as provided under the law. If the
Courts were to interfere with the arbitral award in the usual course on factual aspects,
then the commercial wisdom behind opting for alternate dispute resolution would stand
frustrated.”

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54. Proceeding along these lines, Mr. Singh also drew our attention to the judgment in Konkan
Railway Corporation Limited vs. Chenab Bridge Project Undertaking24 and more particularly
to the following passages of that decision:

“18. At the outset, we may state that the jurisdiction of the court under Section 37 of the Act,
as clarified by this Court in MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4
SCC 163 : (2019) 2 SCC (Civ) 293] , is akin to the jurisdiction of the court under Section 34 of
the Act. [Id, SCC p. 167, para 14:”14. As far as interference with an order made under Section
34, as per Section 37, is concerned, it cannot be disputed that such interference under Section
37 cannot travel beyond the restrictions laid down under Section 34. In other words, the court
cannot undertake an independent assessment of the merits of the award, and must only
ascertain that the exercise of power by the court under Section 34 has not exceeded the scope
of the provision.”] Scope of interference by a court in an appeal under Section 37 of the Act, in
examining an order, setting aside or refusing to set aside an award, is restricted and subject to
the same grounds as the challenge under Section 34 of the Act.

19. Therefore, the scope of jurisdiction under Section 34 and Section 37 of the Act is not akin
to normal appellate jurisdiction. [UHL Power Co. Ltd. v. State of H.P., (2022) 4 SCC 116, para
15: (2022) 2 SCC (Civ) 401. See also: Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.,
(2019) 20 SCC 1, paras 24, 25.] It is well-settled that courts ought not to interfere with the
arbitral award in a casual and cavalier manner. The mere possibility of an alternative view on
facts or interpretation of the contract does not entitle courts to reverse the findings of the
Arbitral Tribunal. [Ibid; Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131
: (2020) 2 SCC (Civ) 213; Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam
Ltd., (2019) 7 SCC 236, para 11.1 : (2019) 3 SCC (Civ) 552] In Dyna Technologies (P) Ltd. v.
Crompton Greaves Ltd. [Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC
1], this Court held : (Dyna Technologies case [Dyna Technologies (P) Ltd. v. Crompton Greaves
Ltd., (2019) 20 SCC 1] , SCC p. 12, paras 24-25)

“24. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an
award only on the grounds provided therein or as interpreted by various courts. We need
to be cognizant of the fact that arbitral awards should not be interfered with in a casual
and cavalier manner, unless the court comes to a conclusion that the perversity of the
award goes to the root of the matter without there being a possibility of alternative
interpretation which may sustain the arbitral award. Section 34 is different in its
approach and cannot be equated with a normal appellate jurisdiction. The mandate
under Section 34 is to respect the finality of the arbitral award and the party autonomy
to get their dispute adjudicated by an alternative forum as provided under the law. If the
courts were to interfere with the arbitral award in the usual course on factual aspects,
then the commercial wisdom behind opting for alternate dispute resolution would stand
frustrated.

25. Moreover, umpteen number of judgments of this Court have categorically held that
the courts should not interfere with an award merely because an alternative view on
facts and interpretation of contract exists. The courts need to be cautious and should
defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the
award is implied unless such award portrays perversity unpardonable under Section 34
of the Arbitration Act.”

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xxxx

25. The principle of interpretation of contracts adopted by the Division Bench of the High
Court that when two constructions are possible, then courts must prefer the one which gives
effect and voice to all clauses, does not have absolute application. The said interpretation is
subject to the jurisdiction which a court is called upon to exercise. While exercising
jurisdiction under Section 37 of the Act, the Court is concerned about the jurisdiction that the
Section 34 Court exercised while considering the challenge to the arbitral award. The
jurisdiction under Section 34 of the Act is exercised only to see if the Arbitral Tribunal’s view
is perverse or manifestly arbitrary. Accordingly, the question of reinterpreting the contract on
an alternative view does not arise. If this is the principle applicable to exercise of jurisdiction
under Section 34 of the Act, a Division Bench exercising jurisdiction under Section 37 of the
Act cannot reverse an award, much less the decision of a Single Judge, on the ground that they
have not given effect and voice to all clauses of the contract. This is where the Division Bench
of the High Court committed an error, in re-interpreting a contractual clause while exercising
jurisdiction under Section 37 of the Act. In any event, the decision in Radha Sundar Dutta
[Radha Sundar Dutta v. Mohd. Jahadur Rahim, 1958 SCC OnLine SC 38 : AIR 1959 SC 24] ,
relied on by the High Court was decided in 1959, and it pertains to proceedings arising under
the Village Chaukidari Act, 1870 and Bengal Patni Taluks Regulation of 1819. Reliance on this
judgment particularly for interfering with the concurrent interpretations of the contractual
clause by the Arbitral Tribunal and Single Judge under Section 34 of the Act is not justified.”

55. The aforesaid position in law also finds resonance in the following observations as were
rendered recently by the Supreme Court in Larsen Air Conditioning and Refrigeration
Company vs. UOI & Ors.25 as would be evident from Para 15 thereof:

“15. The limited and extremely circumscribed jurisdiction of the court under Section 34 of the
Act, permits the court to interfere with an award, sans the grounds of patent illegality, i.e.,
that “illegality must go to the root of the matter and cannot be of a trivial nature”; and that the
tribunal “must decide in accordance with the terms of the contract, but if an arbitrator
construes a term of the contract in a reasonable manner, it will not mean that the award can
be set aside on this ground” [ref : Associate Builders (supra)]. The other ground would be
denial of natural justice. In appeal, Section 37 of the Act grants narrower scope to the
appellate court to review the findings in an award, if it has been upheld, or substantially
upheld under Section 34. It is important to notice that the old Act contained a provision which
enabled the court to modify an award. However, that power has been consciously omitted by
Parliament, while enacting the Act of 1996. This means that the Parliamentary intent was to
exclude power to modify an award, in any manner, to the court. This position has been iterated
decisively by this court in Project Director, National Highways No. 45E and 220 National
Highways Authority of India v. M. Hakeem:

“42. It can therefore be said that this question has now been settled finally by at least 3
decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181],
[Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ)
106], [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021)
7 SCC 657] of this Court. Even otherwise, to state that the judicial trend appears to
favour an interpretation that would read into Section 34 a power to modify, revise or

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vary the award would be to ignore the previous law contained in the 1940 Act; as also to
ignore the fact that the 1996 Act was enacted based on the Uncitral Model Law on
International Commercial Arbitration, 1985 which, as has been pointed out in Redfern
and Hunter on International Arbitration, makes it clear that, given the limited judicial
interference on extremely limited grounds not dealing with the merits of an award, the
“limited remedy” under Section 34 is coterminous with the “limited right”, namely,
either to set aside an award or remand the matter under the circumstances mentioned in
Section 34 of the Arbitration Act, 1996.”

56. In view of the aforesaid, it was Mr. Singh’s submission that since the validity of the Arbitral
Award has been elaborately examined by the learned Single Judge, there is neither any scope nor
justification for interference with the impugned judgement. According to learned senior counsel, the
various contentions which were addressed before us essentially require us to undertake an exercise
of re-appreciation of the Award and to delve into the merits of the case and which would clearly be
beyond the scope of Section 37 of the Act.

57. Mr. Singh then submitted that undisputedly the appellants have not challenged the direction of
the AT for the amount of INR 308.21 crores being refunded and which pertained to the issuance of
Warrants. It was pointed out that the dispute stands confined to the refund of INR 270,86,99,209/- in
relation to CRPS and the grant of pendente lite interest at the rate of 12% on Warrants and future
interest at the rate of 18% from the last of the due dates in terms of the Award.

58. On the issue of refund of INR 270,86,99,209/- relating to CRPS, it was submitted that the said
finding clearly merits no interference bearing in mind the fact that both KAL and KM had complied
with all obligations as flowing from the SSPA. It was in this respect submitted that apart from
depositing the amount of INR 270,86,99,209/-, KAL and KM had also created a fixed deposit of INR
100 crores with CUB and issued irrevocable instructions for creation of a lien. According to learned
senior counsel, once that deposit came to be created and appropriate instructions were issued to
CUB, the control over the aforesaid deposit on 24 February 2015 came to be placed absolutely and
without any fetter with the appellants. It was pointed out that upon completion of the aforesaid
steps, the collateral securities which stood created came to be released.

59. Mr. Singh submitted that although a no-objection from Export Development Canada26 was
received by the appellants on 11 March 2015, they omitted to instruct CUB to transfer the amount of
INR 100 crores to Designated Account 2. In view of the above, it was his contention that KAL and
KM cannot possibly be held to be in breach of the SSPA. According to Mr. Singh, it is the aforesaid
undisputed facts which informed the decision of the AT to direct refund of INR 270,86,99,209/-.

60. Mr. Singh then submitted that the contention that the AT had found KAL and KM to be in breach
of the contract is misconceived and untenable since no finding or part of the Arbitral Award can
possibly be read as evidencing the AT having reached such a conclusion. In fact, according to Mr.
Singh, it becomes apparent from a reading of Paras 51 and 52 of the Award that the AT had taken
due notice of the fixed deposit of INR 100 crores having been made and consequently KAL and KM
having fully discharged their contractual obligations. According to Mr. Singh, the failure to transfer
the fixed deposit to Designated Account 2 was on account of the omission on the part of the
appellants and thus no wrongdoing or a failure to perform can be attributed to either KAL and KM.

61. It was in this regard further submitted that from 11 March 2015 onwards, the amount remained

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under the control of the appellants who omitted to take further steps and thus the breakdown of the
SSPA being attributable solely to a failure on the part of the appellants to issue appropriate
instructions to CUB. It was submitted that on 24 February 2015 itself, KAL and KM had created the
fixed deposit and thereby complied with the obligations flowing from Clauses 6.3.2, 7.2.1(b) and
7.2.3 of the SSPA. Our attention was also drawn to the communication dated 25 February 2015 and
which had acknowledged the discharge of the obligations by KAL and KM and SpiceJet consequently
releasing the collaterals to KAL and KM. It was further pointed out that EDC had given its no-
objection to SpiceJet for the closure of credit facilities on 11 March 2015 itself. The amount
deposited came to be clouded by virtue of a provisional attachment order passed by the Enforcement
Directorate only on 11 May 2015. It was in the aforesaid backdrop that Mr. Singh submitted that at
least between 11 March 2015 up to 11 May 2015, no constraint or fetter operated upon the
appellants from taking further steps in accordance with the stipulations contained in the SSPA.

62. Mr. Singh submitted that the AT has duly taken into consideration the aforesaid aspects and
ultimately rendered the Award based on a plausible consideration of the terms of the SSPA and the
obligations of respective parties flowing therefrom. Those conclusions, according to Mr. Singh, can
neither be viewed as perverse nor can they be said to suffer from any “patent illegality” so as to
have warranted interference under Section 34 of the Act.

63. Mr. Singh then submitted that the reliance placed on Section 65 of the 1872 Act is not only
misplaced but clearly misconceived since the aforesaid submission proceeds on the basis that a
direction for refund must be based upon a particular provision of that statute. It was submitted that
the reliance on Section 65 fails to bear in mind that the 1872 Act is a consolidating statute and thus
need not be viewed as being the sole repository of a power to frame a direction for refund. It was
submitted that the 1872 Act is neither an exhaustive code nor does it attempt to provide for all types
or nature of rights that may be asserted or reliefs that may be claimed. It was Mr. Singh‘s
submission that courts have consistently held that where statutory provisions including those which
may be enshrined in the 1872 Act fail to deal with a particular contingency, it would be the
principles of the common law which should be applied.

64. Mr. Singh submitted that the fact that the 1872 Act does not exhaustively codify the entire law
in relation to contracts is a proposition which is well settled and came to be enunciated by the Privy
Council way back in 1891 in Irrawaddy Flotilla Company Limited vs. Bugwandass 27 . Our
attention in this respect was drawn to the following passages of that decision:

“The Act of 1872 does not profess to be a complete code dealing with the law relating to
contracts. It purports to do no more than to define and amend certain parts of that law. No
doubt it treats of bailments in a separate chapter. But there is nothing to show that the
Legislature intended to deal exhaustively with any particular chapter or sub-division of the law
relating to contracts. On the other hand, it is to be borne in mind that at the time of the
passing of the Act of 1872, there was in force a statute relating to common carriers, which, in
connection with the common law of England, formed a code at once simple, intelligible, and
complete. Had it been intended to codify the law of common carriers by the Act of 1872, the
more usual course would have been to have repealed the Act of 1865 and to reenact its
provisions, with such alterations or modifications as the case might seem to require. It is
scarcely conceivable that it could have been intended to sweep away the common law by a side
wind, and by way of codifying the law to leave the law to be gathered from two Acts which
proceed on different principles, and approach the subject, if the subject be the same, from

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different points of view.

At the date of the Act of 1872, the law relating to common carriers was partly written, partly
unwritten, law. The written law is untouched by the Act of 1872. The unwritten law was hardly
within the scope of an Act intended to define and amend the law relating to contracts. The
obligation imposed by law on common carriers has nothing to do with contract in its origin. It
is a duty cast upon common carriers by reason of their exercising a public employment for
reward. “A breach of this duty,” says Dallas, C.J., Bretherton v. Wood7 , “is a breach of the law,
and for this breach an action lies founded on the common law which action wants not the aid
of a contract to support it.” If in codifying the law of contract the Legislature had found
occasion to deal with tort or with a branch of the law common to both contract and tort, there
was all the more reason for making its meaning clear. Passing from these general
considerations to the language of the Act of 1872, its is to be observed that the Act of 1865 is
not merely left unrepealed by the later Act. As it is not “expressly repealed” nothing in the Act
of 1872 is to “affect” its “provisions.” It seems a strong thing to say that the provisions of an
Act are not affected, when the whole foundation upon which the Act rests is displaced, and
almost every section assumes a different meaning, or comes to have a different application.
Moreover, there is certainly one provision in the Act of 1865 which is deprived of much of its
original significance, and, so far, at least, is rendered nugatory, if the Appellants’ view is
correct. The combined effect of sects. 6 and 8 of the Act of 1865 is that, in respect of property
not of the description contained in the schedule, common carriers may limit their liability by
special contract, but not so as to get rid of liability for negligence. On the Appellants
‘construction the Act of 1872 reduces the liability of common carriers to responsibility for
negligence, and consequently there is no longer any room for limitation of liability in that
direction. The measure of their liability has been reduced to the minimum permissible by the
Act of 1865.

xxxx xxxx
xxxx

When the Act of 1872 was passed, the Act of 1865 had been in operation for seven years, and
it may be presumed that common carriers, in some cases, at least, had taken advantage of the
Act of 1865 in settling their rates. It seems hardly fair that common carriers should be relieved
from the liability of insurers, without any provision pointing to a re-adjustment of their
charges, and without distinct notice of a change affecting so materially the interests of the
public.

Then the Act of 1872 provides that nothing in the Act contained shall affect any usage or
custom of trade. It was said that the liability of common carriers as insurers was not a usage
or custom of trade. That may be conceded. But it is certainly singular that, according to the
Appellants’ arguments, usages and customs of trade, which are local and partial, are not to be
affected, while a custom so universal as to be a custom of the realm, or, in other words, part of
the common law, is not treated with the same respect”

65. Mr. Singh submitted that in Jwaladutt R. Pillani vs. Bansilal Motilal28 , the Privy Council
again recognized the position of the 1872 Act being merely a consolidating statute as opposed to
being an exhaustive code dealing with all aspects pertaining to contracts. This, Mr. Singh submitted,
would be evident from the following observations as appearing in that decision:

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“Also the Indian Contract Act is not a code. The preamble so states “Whereas it is expedient to
define and amend certain parts of the law relating to contracts”; and Lord Macnaghten in the
case of Irrawaddy Flotilla Company v. Bugwandas, [(1891) 18 Cal. 620, at p. 628; L.R. 18 I.A.
121 at p. 129.] says (p. 628):—

“The Act of 1872 does not profess to be a complete code dealing with the law relating to
contracts. It purports to do no more than to define and amend certain parts of that law.
No doubt it treats of bailments in a separate chapter. But there is nothing to show that
the Legislature intended to deal exhaustively with any particular chapter or subdivision
of the law relating to contracts.”

And although the section does occur in a fasciculus of sections devoted to partnership, it is
clear that the fasciculus is not exhaustive of all questions which can be raised in connection
with partnership.

Taking into account all these considerations their Lordships do not think they would be
justified, in view of the ambiguity of the expression used, to give effect to a view which would
upset what has been considered by the commercial community as the law for such a long
period

66. Reliance was then placed on a judgement rendered by the Punjab and Haryana High Court in
Punjab National Bank Ltd. vs. Arura Mal Durga Das & Ors29, where the aforesaid position came
to be reiterated in the following terms:

“The question which arises is, whether the Bank can claim to exercise the Banker’s lien in
these circumstances. Section 170 of the Indian Contract Act refers to general lien of Bankers
and other in respect of goods bailed to them which runs as under:-

The language of this section limits its scope to goods bailed. There are other sections in
the Contract Act which deal with other kinds of lien such as that of the finder of the
goods (see section 168), bailee’s particular lien under section 170; the lien of pawnee
under sections 173 and 174 and lastly the lien of agents on principal’s property under
section 221.

The statutory law in India does not expressly refer to the Banker’s lien in respect of cash
deposits, but the cases of different kinds of liens dealt within the Contract Act are not all
inclusive. The Indian Contract Act does not profess to be a complete code dealing with
the law relating to contracts. It only defines and amends certain branches of that law.
This Act is not exhaustive of the entire law relating to contracts. The preamble of the
Indian Contract Act clearly provides “whereas it is expedient to define and amend
certain parts of the law relating to contracts; it is hereby enacted as follows:—Where the
statutory provisions do not cover a particular matter, the principles of English law, in so
far as they embody the rules of justice, equity and good conscience may be applied,
—vide The Irrawaddy Flotilla Company v. Bugwandas [l.L.R. 18 Cal. 620 (628)] and
Jwaladutt R. Pillani v. Bansilal Motila[l l .L.R. 53 Bom. 414 B.C. 418]”

67. Mr. Singh then contended that our Courts have adopted and applied various precepts known to
exist in the common law, including the principle of promissory estoppel. According to Mr. Singh, if

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the contention of the appellants were to be accepted, the precept of promissory estoppel would also
not apply to contracts. It is in the aforesaid light that Mr. Singh contended that the arguments
addressed on this score are wholly misconceived and liable to be negatived. The submission of
learned senior counsel was that fundamental principles existing in the common law including those
which represent the principles of promissory estoppel and forfeiture would apply, notwithstanding
specific provisions in that respect not being found to be explicitly present in the 1872 Act. Viewed in
that light, it was Mr. Singh‘s submission that a direction for refund could be justifiably framed
irrespective of the restrictions and pre-conditions pertaining to restitution which are found in
Section 65. It was thus submitted that KAL and KM would be entitled to an order of refund even
though no breach of contract may have been found or the contract having been held to have become
void.

68. It was further submitted that directions for refund have been framed by courts even in situations
where it be found that the contract could not be performed. In support of the aforesaid proposition,
Mr. Singh relied upon the judgment rendered by the Patna High Court in Jagdishpur Metal
Industries vs. Vijay Oil Industries Ltd.30 and to the following paragraphs of the report:

“22. Then remains the question as to the refund of money that had been paid in advance by
the-plaintiff to the defendants in two instalments as part payment of the total
consideration—the first a sum of Rs. 5,000/-, which was paid on the 17th July, 1949, when the
agreement of sale was executed and the other a sum of Rs. 3,000/-, which was paid on the 27th
of July, 1949, thus, in all, a sum of Rs. 8000/-. The case of the plaintiff is that even if it be held
that the contract had been broken by reason of any default on its part, it is still entitled to get
back this total advance of Rs. 8,000/- which it had paid to the defendants in part satisfaction of
the entire consideration.

23. The trial court has accepted its case and has found:

“Therefore in conclusion I hold that there was no breach of contract on the part of the
defendants but in spite of that the plaintiff is entitled to a refund of the advance and his
advance is not liable to be forfeited.”

xxxx xxxx
xxxx

26. In my opinion, this finding is based on a fallacy. It presupposes that money paid in
advance, may it be by way of earnest money or may it be in the nature of part satisfaction of
the total consideration, is, as a rule, refundable by the vendor as contemplated under Sections
64 and 65 of the Indian Contract Act unless it is proved and established that he is entitled to
certain damages as contemplated under Section 73 of the Contract Act or to liquidated
damages as contemplated under Section 74 of the Indian Contract Act or unless there is any
specific stipulation between the parties as to the forfeiture of such money paid in advance.

27. In other words, it assumes that as a rule any sum named in a contract as money paid in
advance is penal and, therefore, it by Section 74 of the Contract Act. I think either on principle
or on law such an assumption is not justified. Section 64 deals with the consequences of
rescission of voidable contract and lays down that

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“the party rescinding a voidable contract shall, if he has received any benefit thereunder
from another party to such contract, restore such benefit, so far as may be to the person
from whom it was received.”

28. This section, therefore, on the very face of it, is not applicable to the present case as the
breach of contract here, as found above, was committed not by the defendants but by the
plaintiff itself.

29. Therefore, at least under this section the plaintiff cannot claim any refund of the money
which it may have paid in advance by way of part satisfaction of the total consideration.
Section 65 deals with the obligation of a person who has received advantage under void
agreement or contract that becomes void. It is true that their Lordships of the Privy Council in
Satgur Prasad v. Hamarain Das, AIR 1932 P.C. 89 & Mohan Manucha v. Manzoor Ahmad, AIR
1943 P.C. 29 have held that the words “when a contract becomes void” are wide enough to
cover the case of a voidable contract which has been avoided.

30. But in the case of an agreement, such as the one before us, it cannot be said either that it
was ab initio void or that though it was possible of performance at the time it was entered into,
it became impossible of performance subsequently or that at its inception it was a voidable
contract which was subsequently avoided by any party thereto. On the contrary, the case
admitted here is that the agreement was a valid agreement and that it continued to remain
valid to the last until the plaintiff had broken it and at no stage it was a voidable agreement
which had been subsequently avoided by the defendants.

31. That being so, Section 65 of the Indian Contract Act also does not come into play here.
Further it has to be remembered in the case of an earnest money the doctrine of forfeiture is
not based either on the principle of penalty or on the principle of recompense for the loss
incurred by one party to a contract as a result of any breach of it by the other. In my opinion,
the doctrine of forfeiture in the case of an earnest money is based on a principle completely
independent of the considerations that are laid down in Sections 64, 65, 73 or 74 of the Indian
Contract Act.

32. In fact, an earnest money, belonging as it does to a class of its own, namely, that of
deposit, is regulated and controlled by considerations which are peculiar to that class alone.
Therefore where the agreement is unequivocal and it is specifically agreed upon thereunder
that what has been paid in advance towards a contract is nothing but an earnest money, as
understood in law, then it has to be dealt with in the light of the principles which apply to such
deposits and not in the light of those that generally apply to restitution, penalty or liquidated
damages.

33. But in most cases difficulty arises due to the fact that though payments are made in
advance as a part of the total consideration of the contract of sale, there is no specification
made thereunder as to whether the payment so made is an earnest money or is penalty named
therein for any breach of contract or is an advance simpliciter paid to suit the convenience of
the vendor. In such cases, apart from surrounding circumstances, reliance has to be placed on
the main characteristic that as a rule constitutes an earnest money or a deposit. Now in order
that a sum paid under a contract may be deposit, it has to fulfil two requirements.

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xxxx

50. In my opinion, the mere absence of such a description in the agreement is neither decisive
nor crucial. On the contrary, it is immaterial whether the deposit so made is or is not
described in the agreement which it bears to the sum contracted for is rather large. In other
words, what in fact constitutes an earnest money is the inherent character of the deposit made
and not the name given to it though it is true that while the matter is still under investigation
these factors may be usefully relied upon as proper guide. In the present case, however, as
already found above, there is no doubt that Rs. 5,000/- was paid as earnest money.

51. Then comes the second item, namely, that of Rs. 3,000/-, which was paid on 27-7-1949. As
to this amount. I think, it has to be conceded that it does not stand on the same footing as the
one which was paid on the first occasion. On the contrary I find that in the case of this item
there are certain considerations which not only distinguish it from the former but also takes it
out completely from that class of payments which are known in law as earnest money.

52. The one broad feature is that it was paid long after the agreement had been finalised and
executed & the second is that there is no material or circumstances on the record to suggest
that this amount also was paid as a part of the earnest money or as a guarantee for the
fulfilment of the agreement, rather it appears to me, which is more likely on the facts of the
case, that it was paid in response to the needs of the vendor who was then hard pressed for
money or it may be which is also not quite improbable, that the vendee thought it advisable
that he should go on advancing as much money towards the total price as he may find it
convenient to do, so that at the final stage the contract might not fail for the paucity of fund.

53. That being so, the probabilities are more in favour of the conclusion that this latter amount
of Rs. 3,000/- was not paid as a guarantee for the fulfilment of the contract but merely as a
part payment of the price which had been agreed upon to be paid for the property. That being
so, the position of that amount is that of a sum received by the defendants for the use of the
plaintiff and had the contract been completed it would have been rightly appropriated by them
towards the purchase price.

54. But the contract having failed there is no justification left either in law or in fact for the
defendants to retain that money even thereafter.

55. Therefore, I think, the plaintiff’s claim for the refund of Rs. 3,000/- is fully justified in law
and to that extent the decisions in 38 Ind Cas 915: (AIR 1916 Nag 104); AIR 1929 Nag 30 (2);
Krishna Chandra v. Mamud Bepari, AIR 1936 Cal 51 : Madan Mohan v. Jawala Prasad, AIR
1950 EP 278 and Mohd. Zafar v. Hamida Khatoon, AIR 1945 All 70, give full support to the
claim of the plaintiff.”

69. It was submitted that the principles enunciated in the aforenoted decision were reiterated and
followed by the Allahabad High Court as would be evident from the observations appearing in De-
Smet (India) Private Ltd. vs. B.P. Industrial Corporation (P.) Ltd.31 :

“7. Sri Rajeshwari Prasad, learned counsel for the plaintiff respondent supported the findings
recorded by the trial court and contended that the plaintiff had paid Rs. 100,000 to the

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defendant as part payment for the plant which was to be supplied by the defendant in advance.
It was not paid as earnest money and was not liable to be forfeited. Accordingly, when the
contract was not being performed the defendant was not entitled, even if there was breach of
contract on plaintiff’s part to retain the amount paid to it as advance.

8. In this case it is not disputed that the plaintiff had paid a sum of Rupees 100,000 to the
defendant as part payment of the price of the plant agreed to be supplied by the defendant in
advance and that it was not paid as earnest money. In the case of Chiranjit Singh v. Har
Swarup, AIR 1926 PC 1 the purchaser had paid Rs. 20,000 as earnest money and he also paid
a further sum of Rs. 1,45,000 towards part payment of the purchase price. Thereafter he failed
to meet his commitment of paying the balance of purchase price. It was held that as the
purchaser was guilty of committing breach of contract the earnest money amounting to Rs.
20,000 paid by him was liable to be forfeited, but, notwithstanding the breach committed by
him the purchaser was entitled to repayment of Rs. 1,45,000.

9. The decision in the cases of Ballabhdas v. Paikaji, AIR 1916 Nag 104. Abas Ali v. Kodhu Sao,
AIR 1929 Nag 30 (2) (FB). Krishna Chandra v. Khan Mahmud Bepari, AIR 1936 Cal 51. Madan
Mohan v. Jawala Prasad, AIR 1950 East Punj 278. Mohd. Jafar v. Hamida Khatoon, AIR 1945
All 70. J. Metal Industries Ltd. v. V. Oil Industries, AIR 1959 Pat 176. Dasu Rattamma v.
Krishnamurthi, AIR 1928 Mad 326, show that the view taken by various High Courts in this
country is that where the advance payment is not made by the purchaser as guarantee for
fulfilment of the contract but is made merely as part payment of the purchase price agreed
upon between the parties, it has to be, when the transaction falls through, refunded to the
purchaser even though the purchaser himself may be responsible for committing breach of
contract.

10. In the instant case, as the contract between the parties has admittedly fallen through and
the defendant did not receive the sum of Rs. 100,000 as earnest money, the defendant is,
notwithstanding the fact that the breach of contract might have been committed by the
plaintiff, is liable to refund the money received by him.

xxxx xxxx xxxx

17. In this view of the matter it is not necessary for us to go into the question as to which of
the two parties was guilty of committing breach of the contract this case. As the sum of Rs.
1,00,000 paid by the plaintiff to the defendant was not earnest money, and as admittedly the
transaction between the parties had fallen through the defendant has been rightly held to be
liable to refund the said amount to the plaintiff.”

70. It was then contended by Mr. Singh that even our Court in Uma Kapoor & Anr. vs. Kapil
Aggarwal32 had pertinently observed that unless a statute creates a bar or a prohibition against the
grant of any relief, the arbitrator would be entitled to frame directions bearing in mind the facts and
circumstances of the case. Mr. Singh submitted that our Court in Uma Kapoor had on due
consideration of the legal position held that notwithstanding the bar in respect of refund of earnest
money, a direction for refund of part payments made under a contract would be justified. Mr. Singh
relied upon Paras 18, 19 and 20 of the report, which are reproduced hereinbelow:

“18. In our view the legal position would be that sub Section (2) of Section 22 of the Specific

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Relief Act recognizes a rule of procedure that Courts should not grant a relief unless it has
been specifically prayed for. It is trite that a rule of procedure cannot defeat a right which may
flow from a statute or even in equity. Law draws a distinction between a relief which requires
additional pleadings and some more facts to be proved vis-a-vis a relief which is subsumed or
can be granted without proof of any other fact. Law recognizes that though not specifically
asked for, a lesser relief would be included in a main relief prayed for. Thus, in a suit seeking
specific performance, it would be open for a Court to order refund of earnest money if equity
demands so even in the absence of a specific prayer made. In this context we would only refer
to a decision of the Supreme Court reported as (1982) 1 SCC 525 Babu Lal v. Hazari Lal
Kishore Lal wherein the Supreme Court referred to sub Section (2) of Section 22 of the
Specific Relief Act and interpreted the same concerning a suit for specific performance where
there was no prayer made for the defendant to put the plaintiff in possession of the suit
property. The Supreme Court held that notwithstanding a prayer made for possession to be
granted, it was permissible to direct possession to be handed over.

19. In the facts of the instant case, the issue can be looked at very differently. The words used
in clause (b) of sub Section (1) of Section 22 are ‗earnest money or deposit paid‘. The
prohibition under sub Section (2) to the reliefs under clauses (a) or (b) of sub Section (1) of
Section 22 would obviously relate to earnest money or deposit paid.

20. As we have noted above, the agreement in question has not made a reference to any sum
as earnest money or deposit paid. The learned Arbitrator has treated Rs. 25,00,000/- (Rupees
Twenty Five Lacs only) paid at the time of execution as earnest money and has directed
forfeiture thereof. Rs. 75,00,000/- (Rupees Seventy Five Lacs only) paid in instalments
thereafter which has been directed to be refunded is ex-facie neither earnest money or deposit
paid. We draw a distinction between a deposit paid and money tendered in part payment of an
amount payable under an agreement to sell. The later would not be deposit paid. Thus, the bar
of sub-Section (2) of Section 22 of the Specific Relief Act, 1963 in the facts of the instant case
would not come into play.”

71. Mr. Singh then contended that the law would abhor a position where a person may claim to
retain money received and seek to unjustly enrich oneself. In support of the aforesaid proposition,
Mr. Singh sought to draw sustenance from the following principles as enunciated in Fibrosa Spolka
Akcyjna vs. Fairbairn Lawson Combe Barbour Ltd.33 :

“[A]ny civilised system of law is bound to provide remedies for cases of what has been called
unjust enrichment or unjust benefit that is, to prevent a man from retaining the money of, or
some benefit derived from, another which it is against conscience that he should keep. Such
remedies in English law are generically different from remedies in contract or in tort, and are
now recognised to fall within a third category of the common law which has been called quasi-
contract or restitution.“

72. Proceeding then to deal with the challenge to the grant of postaward interest at the rate of 18%,
Mr. Singh submitted that regard must be had to the fact that the AT desisted from awarding any
interest for the pre-reference or pendent lite period on the sum of INR 270,86,99,209/-. It was his
submission that the AT had, in all fairness,required the parties to firstly explore the possibility of an
option being exercised with respect to CRPS and in case no mutual agreement be arrived at,
accorded a further period of two months to the appellants to refund the money. Even up to this

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stage, Mr. Singh highlighted, no interest liability stood imposed upon the appellants.

73. It was contended that in terms of Section 31(7)(b) of the Act, the award of interest is an aspect
which falls clearly within the jurisdiction and discretion of the AT. These aspects, according to Mr.
Singh, have been elaborately dealt with by the learned Single Judge as would be evident from a
reading of Paras 87 to 91 of the impugned judgment.

74. Notwithstanding the above, Mr. Singh submitted that the appellants themselves had prayed for
award of interest at the rate of 18%, and thus consequently they cannot now turn around and assail
the correctness of the decision of the AT to award interest at the rate of 18%. Reliance in this
respect was placed on the following observations as appearing in Para 29 of the judgment of this
Court in WAPCOS Ltd. vs C&C Energy Pvt. Ltd.34:

“29. Insofar as the award of interest is concerned, it is now well settled that the Arbitral
Tribunal has wide discretion in awarding interest (See : Punjab State Civil Supplies
Corporation Limited (PUNSUP) v. Ganpati Rice Mills : SLP (C) 36655 ‘of 2016, decided on
20.10.2021). In the present case, Wapcos had also claimed interest at the rate of 18% per
annum and therefore, it is not open for Wapcos now to contend that the said rate is exorbitant
and onerous. This Court also finds no fault with the learned Commercial Court in declining to
interfere with the impugned award.”

75. Similarly, learned senior counsel submitted that this Court in Morgan Securities and Credits
Pvt. Ltd. Vs. Videocon Industries Ltd.35 had also affirmed the grant of post-award interest @ 18%
as would be evident from Para 26:

“26. When the Award has specifically granted interest @ 18% per annum for the post-award
period on a sum of Rs. 5,00,32,656/- and has confined the rate of interest to 21% per annum
for the prereference period, prior to the date of the demand notice, it shall have to be assumed
that the learned Sole Arbitrator did so with full intent and while doing so, was mindful of the
respective claims of the parties, the relevant merits/ demerits of the pleas taken before him,
the equities required to be balanced between the parties and all other relevant factors for
granting the rate of interest, as awarded. Even otherwise, the present appeal is not merited as
only questions of law are required to be determined by the court at this stage. Under the garb
of questioning the decision of the learned Single Judge upholding the quantum of interest
awarded under the impugned Award, the appellant/Morgan is actually expecting this court to
re-appreciate the evidence, which is impermissible. The view taken by the Sole Arbitrator for
granting interest at a particular rate for different periods cannot be treated as patently illegal
or perverse so as to go to the root of the matter.“

76. It was submitted that the decision of this Court in Morgan Securities and Credits Pvt. Ltd was
ultimately affirmed by the Supreme Court and thus vindicating the directions as framed by the AT.
In justification of the award of interest at the rate of 18%, Mr. Singh also relied upon the following
decisions:

(a) B. Radhakrishna vs. Maharashtra Apex Corporation Ltd.36

(b)UHL Power Company Ltd.

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(c) Larsen Air Conditioning;

(d) M/s Pradeep Vinod Construction Company vs. Union of India37

77. It was lastly submitted that the award of interest and the validity thereof must be tested bearing
in mind the significant principles propounded by the Supreme Court in Secretary, Irrigation
Department, Government of Orissa and Ors vs. G.C. Roy38 , and where it was held that a person
who has been deprived of monies to which he was legitimately entitled to would have a
corresponding right to be compensated for deprivation. Mr. Singh drew our attention to the
following observations as appearing in that judgment:

“43. The question still remains whether arbitrator has the power to award interest pendente
lite, and if so on what principle. We must reiterate that we are dealing with the situation
where the agreement does not provide for grant of such interest nor does it prohibit such
grant. In other words, we are dealing with a case where the agreement is silent as to award of
interest. (On a conspectus of aforementioned decisions, the following principles emerge:

(i) A person deprived of the use of money to which he is legitimately entitled has a right
to be compensated for the deprivation, call it by any name. It may be called interest,
compensation or damages. This basic consideration is as valid for the period the dispute
is pending before the arbitrator as it is for the period prior to the arbitrator entering
upon the reference. This is the principle of Section 34, Civil Procedure Code and there is
no reason or principle to hold otherwise in the case of arbitrator.“

78. Insofar as arguments with respect to the personal liability of Ajay Singh is concerned, Mr. Singh
submitted that it would clearly be impermissible for the appellants to address submissions on that
score since that is not a ground which has been either pleaded or taken in the appeals. It was, and
without prejudice to the above, submitted that Ajay Singh had in his personal capacity signed the
agreement and had been duly identified therein as the “acquirer”. According to Mr. Singh, the fact
that Ajay Singh had unequivocally signed the agreement and become a party thereto would lead one
to the irresistible conclusion that he was bound in his personal capacity.

E. EVALUATION OF THE RIVAL SUBMISSIONS

79. While elaborate submissions were addressed by learned senior counsels appearing for
respective sides, for the purposes of evaluating the challenge which stands raised, we propose to
restrict our discussion to two fundamental questions which appear to arise, namely the validity of
the direction for refund of the sum of INR 270,86,99,209/- and the prescriptions with respect to
pendente lite and future interest payable on the amount awarded.

80. However, before delving into the aforesaid issues, we propose to deal with the preliminary
objection which was raised by Mr. Singh. It becomes pertinent to note that KAL and KM had urged
that a right of hearing and consideration itself should be denied to the appellants bearing in mind
their failure to abide by the orders dated 13 February 2023 and 07 July 2023 passed by the Supreme
Court as well as various directions passed in execution proceedings. Mr. Singh had contended that
since the appellants had failed to comply with the conditions imposed in terms of the orders of the
Supreme Court noted above and had also failed to abide by the directions issued in the interim in the
execution proceedings, they should be denied the right of hearing in the instant appeals.

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81. Having conferred due consideration on the aforesaid objection as raised, we find ourselves
unable to sustain the same for the following reasons. It is pertinent to note that both the execution
proceedings as well as the orders passed by the Supreme Court were concerned solely with the
execution of the Award. The Award which stood impugned was undoubtedly in the nature of a money
decree and thus subject to the rigors of Section 36 as it stands in its amended avatar. However,
notwithstanding the statutory obligation of the Executing Court to treat the Award as any other
decree awarding a sum of money, the same does not detract from the right of a person aggrieved by
an Award to assail it in accordance with law. The enforcement remedy as provided by Section 36 is
not liable to be construed as rendering the Section 34 remedy wholly otiose and illusory. While the
party which has suffered an Award is indisputably liable to securitize or even make deposits as may
be considered just and appropriate, the same is clearly intended to be without prejudice to its right
to challenge the Award.

82. As we read the orders passed by the Executing Court as also those issued by the Supreme Court,
we find ourselves unable to discern any observation or direction contained therein which may be
possibly read or interpreted as denuding the appellant the right to pursue the remedy otherwise
provided for by Section 34. In fact, a reading of the orders passed by the Supreme Court would
indicate that it was conscious of the pendency of the challenge under Section 34 being pending
before this Court. Neither the Court in execution nor the Supreme Court had deprived the appellants
of the right to assail the judgment rendered by the learned Single Judge. We, thus and for reasons
aforenoted find ourselves unable to sustain the preliminary objection as raised.

83. It becomes pertinent to note that the appellants before us have principally contended that the
direction for refund of the aforenoted amounts would have to stand the test of Section 65 of the
1872 Act. The direction for repayment of the aforesaid sum was also assailed and questioned as
being in clear violation of the SSPA and under which the amount was neither stipulated to be
returned, nor was there any other express provision which could be read as compelling the
appellants to make over the part payments which were made. It was further contended that the
direction for the aforenoted sums being refunded would also amount to a rewriting of the
contractual terms bearing in mind the undisputed fact that the appellants would have been placed
under a liability to repay only after eight years.

84. Significantly, KAL and KM before the AT while seeking to argue restitution had themselves
alluded to Section 65 of the 1872 Act. This becomes evident from a reading of paragraph 7 of the
Award which is extracted hereinbelow: –

“7. The Respondents, contrary to their stand, have clearly failed to prove that they made any
effort for obtaining approval of BSE. There is no evidence led and significantly no witness has
been produced from BSE in order to prove such correspondences or any other purported
efforts made by them to pursue the matter. The stand that the application for in-principle
approval was closed by the BSE on account of failure to submit requisite undertakings is
factually incorrect. The two emails dated 11.06.2015 and 15.06.2015 on which the
Respondents placed strong reliance have been denied by the Claimants. The conclusion was
that the Company was not forthcoming to satisfy the requirements as the first application filed
by the Company seeking in-principle approval was treated as closed. Therefore, it has been
clearly established that SpiceJet headed by Mr Ajay Singh failed to pursue the application
which resulted in its closure on 10.07.2015. The Respondents cannot be allowed to attribute
the non-grant of inprinciple approval by BSE to non-issuance of no objection certificates from

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the Banks. The actual reason for closure of the application was deliberate inaction on the part
of the Respondents. In terms of Clause 17.11 of the SSPA, the Respondents were under
obligation to take all possible requisite steps expeditiously for issuance of warrants and CRPS
to the Claimants. They were obligated to take all requisite steps for issuance of warrants and
CRPS expeditiously as time was specifically stipulated to be the essence in the SSPA. The
breach which was voluntary and was resultant of inaction cannot now be styled as
impossibility in law to get out of the obligation to issue warrants and to pay damages for the
inaction. The SSPA did not get frustrated or rendered impossibility by way of operation of law
but because of in-action of the Respondents in pursuing the application as highlighted above.
What is presently being styled as frustration or impossibility in law is a voluntary breach of
contract which is self-induced by the Respondents and they cannot be allowed to take
advantage of their own wrong. Even if it is conceded for the sake of argument, as is
submitted that it is a case of impossibility, the principle of restitution needs to be respected
and the Respondents cannot be allowed to unjustly enrich themselves by retaining the entire
consideration paid / provided by the Claimants in terms of the SSPA without performing its
own side of the bargain i.e. issuance of warrants. Therefore, in terms of Section 65 of the
Indian Contract Act, 1872 (in short “the Contract Act”), all payments made by the Claimants
towards consideration for the warrants has to be directed to be refunded to the Claimants
along with interest, upon restitution of 58.46% shareholding sold by the Claimants to Mr Ajay
Singh. To justify its claim of damages, it is submitted that on account of breach of contract by
the Respondents, the Claimants have suffered huge losses and had SpiceJet pursued the in-
principle application and proceeded to issue the warrants to the Claimants, they would have
acquired 14,13,91,378 and 4,77,00,000 warrants respectively convertible at the agreed price
of Rs.16.30 which is an admitted payment and this could have given the Claimants an equity of
around 24% in SpiceJet with attendant rights under the Companies Act, 2013 (in short “the
Companies Act”). Had the Respondents obtained no objection certificates from the Banks as
required by BSE or had the Respondents assailed the decision of the BSE regarding closure of
the application seeking in-principle approval of BSE, the Claimants would have been entitled
to warrants convertible into equity shares of SpiceJet in the financial years 2015-16 and
2016-17. Further, in terms of the Resolution passed by the Board of Directors of SpiceJet and
the applicable law, had the warrants been allotted to the Claimants they would have been
legally entitled to convert them to equity shares at any time within 18 months from the date of
allotment. On account of non-allotment of warrants to the Claimants due to closure of the
inprinciple application, they have been denied their right to hold 24% of the issued capital of
SpiceJet as on 01.04.2016. With reference to the well accepted principle of “Restitution in
integrum”, it is submitted that the Claimants have suffered loss and they should be placed in
the same position as far as compensation in money can do it, as if the party in breach had
performed his contract or fulfilled his duty. As regards the stand of the Respondents that even
if the equity shares were allotted to the Claimants upon conversion of warrants such equity
shares would have remained under a lock-in for three years and the Claimants would have
been barred from alienating whole or part of such equity shares, it is submitted that under law
it is not necessary to actually suffer a loss in order to claim damages. Therefore, the logical
corollary to this principle is that had equity shares been allotted to the Claimants, it was not
mandatory for the Claimants to incur a loss by way of selling / transferring / alienating any or
whole of such shareholding for claiming damages from the Respondents. Non-allotment of
locked-in equity shares also gives the Claimants the right to claim damages from Respondents.
Strong reliance is placed on several decisions of the Hon’ble Supreme Court and Delhi High

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Court, Maula Bux v. Union of India (1969) 2 SCC 554; Union of India v. Commercial Metal
Corporation (1981) SCC Online Del 230; Saraya Distillery v. Union of India (1984) SCC Online
Del 60) to contend that it is not necessary to actually prove loss caused due to breach of
contract and that the innocent party is still entitled to a reasonable compensation. The stand is
that in order to be entitled to compensation it has to be ascertained as to what is the date of
breach. It is not in dispute that the general / ordinary principle with respect to damages for
breach of contract is that damages are required to be calculated from the date of breach.
There are also cases where there is no readily available market in which an innocent party
could have approached immediately in order to mitigate the damages. In such cases when
there is no readily available market a later date may become applicable. Reliance is also
placed on the Expert Report to substantiate the claim for damages.”

85. It is in the aforesaid backdrop that the appellants assert that KAL and KM have fundamentally
altered their stand and now seek to justify the award of refund based on principles of unjust
enrichment and common law principles, and which undoubtedly fall outside the ambit of the 1872
Act.

86. The fact that the appellants had consistently taken the position that in the absence of a breach,
they could not have been compelled to repay the amounts received becomes starkly evident from the
recordal of submissions by the learned Single Judge itself. As is evident from a reading of paragraph
6 of the impugned judgment, the appellants appear to have asserted that the refund of INR
270,86,99,209/- was clearly unjustified when viewed in light of the AT itself having come to the
conclusion that it was KAL and KM who were in breach of their contractual obligations. This was
again reiterated in the submissions which stand reflected in Paragraph 8. Paragraphs 6 and 8 of the
judgment assailed before us are reproduced hereinbelow: –

“6. It is submitted that the Arbitral Tribunal erred in awarding the refund of the sum of Rs.
270,86,99,209/- towards amounts paid for Non-Convertible Cumulative Redeemable
Preference Shares (hereinafter referred to as “CRPS”) despite coming to the finding that the
respondents are in breach of their obligation to bring in the entire committed support of Rs.
450,00,00,000/- which amount was to be used towards payment of liabilities including
statutory dues and to support the turnaround plan of the petitioner Company, in terms of the
Offer Letter dated 13th January 2015 and the Scheme dated 15th January 2015.

XXXX XXXX
XXXX

8. It is further submitted that the said refund was awarded in favour of the respondents
despite the finding that they were in breach of the Agreement having failed to bring in Rs. 100
Crores, i.e., the Tranche-I of the total amount, in terms of Clause 6.3.1. and also, the petitioner
Company’s claim to the extent of Rs. 129 Crores was allowed on account of such breach.
Therefore, now the respondents cannot take undue advantage of their breach.”

87. The argument of the AT having essentially reworked the terms of the contract is noted in
Paragraph 7 and which reads thus: –

“7. The learned senior counsel submitted that in terms of Schedule B of the Agreement, the
CRPS is a debt instrument issued at a nominal coupon rate of 6%, repayable at the end of 8

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years. The refund was awarded in favour of the respondents without considering that in
accordance with the terms of the Agreement, CRPS is essentially a debt instrument, which
could have been redeemed only after the expiry of a period of eight years from the date of
subscription and is an amount which is not payable in praesenti. Moreover, in terms of the
Schedule B, the dividend on the CRPS becomes payable only subject to the availability of
profits of the Company. Therefore, on the face of the record, the Arbitral Tribunal failed to
consider and appreciate that CRPS could have only been redeemed by the respondents after
the expiry of a period of 8 years from the date of allotment of such CRPS in accordance with
the terms of the SSPA.”

88. The aspect of the CRPS being a debt instrument and thus being redeemable only upon the expiry
of 8 years from the date of subscription was noted by the learned Single Judge in paragraph 16
which is reproduced hereinbelow: –

“16. It is submitted that the Arbitral Tribunal failed to provide any reasons for the grant of
interest and the same in itself is a substantial ground for setting aside the impugned Award to
this extent. It is submitted on behalf of the petitioner that the arbitral award suffers from
patent illegality as it directed the refund of Rs. 270,86,99,209/- towards the amount paid for
CRPS despite holding that the respondents are in breach of their obligation to bring
committed support of Rs. 450,00,00,000/-. It is further submitted that the amounts paid by
petitioner towards CRPS have been directed to be refunded to the respondents without
considering the fact that CRPS is a debt instrument which can be redeemed only after the
expiry of 8 years from the date of subscription and the amount is not payable in praesenti.”

89. The issue of Section 65 and its applicability was one which was noticed by the learned Single
Judge itself, albeit with respect to Warrants as opposed to the CRPS, as would be evident from a
reading of paragraph 73: –

“73. The Arbitral Tribunal very categorically dealt with the fact that the failure to obtain in-
principle approval by the petitioner Company and Ajay Singh would not amount to a breach of
the Agreement even though the issuance of Warrants was pursued by the petitioners. Tribunal
provided reasons for the same observing that the issuance of Warrants as part of obligations
were conditional upon the approval by the BSE but the same could not be granted by the BSE
as granting in-principle approval would have resulted in breach of ICDR Regulations.
However, the Tribunal also observed that the parties were to act in accordance with Section
65 of the Contract Act, which the petitioners failed to, and accordingly, the petitioners were to
pay back and refund the consideration of Warrants to the respondent.”

It thus appears to have been specifically urged that in the absence of the appellants having been
held to be in breach of the SSPA, the direction for refund of INR 270,86,99,209/- was rendered
unsustainable and thus constitutes a “patent illegality”. In this regard, Mr. Sibal also drew our
attention to Para 27 of the Arbitral Award, where it was held that the appellants would not be liable
to pay damages to KAL and KM, in light of there being no finding of breach against the appellants.
Para 27 of the Award is reproduced hereinbelow:

“27. Coming to the question of damages which is linked to the issue of breach, the basic
concept of damages has to be noted. The underlying principles relating to levy of damages
have been highlighted supra.

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As defined by McGregor damage is the pecuniary compensation, obtainable by success

in an inaction, for a wrong which is either a tort or a breach of contract, the
compensation being in the form of a lump sum which is awarded unconditionally, (See
Common Cause, a Registered Society v. Union of India (1999) 6 SCC 667).

A plurality of variants stemming out of a core concept is seen in such words as actual
damages, civil damages, compensatory damages, consequential damages, contingent
damages, continuing damages, double damages, excessive damages, exemplary
damages, general damages, irreparable damages, pecuniary damages, prospective
damages, special damages, speculative damages, substantial damages, unliquidated
damages. But the essentials are (a) detriment to one by the wrong doing of another, (b)
reparation awarded to the injured through legal remedies and (c) its quantum being
determined by the dual components of pecuniary compensation for the loss suffered and
often not always a punitive addition as a deterrent-cum-denunciation by the law, (See
Organo Chemical Industries v. Union of India, A1R 1979 SC 1803). Damages constitute
the sum of money claimed or adjudged to be paid in compensation for loss or injury
sustained, the value estimated in money, of something lost or withheld, (See Divisional
Controller K.S.R.T.C. v Mahadeva Shetty, (2003) 7 sec 197).

The expression “damages” – is neither vague nor over wide. It has more than one
signification of the precise importance in a given context is riot difficult to discern.
Damages fall under two heads; (1) General damages i.e. such damage as the law will
presume to flow from that Which forms the subject matter of the action; and (2) Special
damage i.e. such other damage as can be recovered only if it is specially alleged and
specifically proved. When an action cannot be sustained unless there is special damage,
the subject-matter is described as not being actionable per se.

Damages are either liquidated or unliquidated. Whenever the amount to which the
plaintiff is entitled can be ascertained by calculation or fixed by any scale or other
positive data, it is said to be ‘liquidated’ or made clear’. But when the amount to be
recovered depends on all the circumstances of the case and on the conduct of the parties
and is fixed by opinion or by an estimate, the damages are said to be ‘unliquidated’; (See
Odgers on the Common Law).

Damages, may be further classified as –

(1) Contemptuous Damages, e.g. a farthing verdict in an action for libel, usually
indicating that in the opinion of the jury the action ought never to have been
brought.

(2) Normal Damages, e.g. 40s where no actual damage has been proved and
usually indicating that though the action was a proper one to bring, its object was
not so much the recovering of damages as the establishing a right, (See Nicholls v
EIy Beet Sugar Factory, (1936) 1 Ch 343.)

(3) Substantial Damages, i.e. the fair and adequate compensation which
reasonable men would award in respect of the matters which formed the basis of
the action.

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(4) Vindictive, Retributory or Exemplary Damages, i.e. damages in excess of What

would have been adequate compensation, a n d usually awarded by a jury to mark
their sense of a defendant’s conduct; e.g. the character of a libel, or the mode in
which the subject-matter of.the action arose, e.g. time and place of an assault or
trespass, or the peculiar nature of the wrong or the distress of mind reduced in the
plaintiff, e.g. actions of seduction, false imprisonment breach of promise of
marriage.

(See Hadley v Baxendale, (1954) 32 KH Ex. 179;)

Damages that are remote and contingent cannot be recovered (See Sapwell v Bass, (1910) 2
KB 486) and as to the measure of damages for prospective loss in the case of personal injury,
(See Johnston v G.W. Ry., (1904) 2 KB 250),

In view of the conclusions arrived at on the question of breach or otherwise of the

Respondents, the damages, as claimed, are not accepted.”

90. Mr. Sibal had vehemently argued that although the AT in Para 52 of the Award had held that if
no effective solution were to be found in two months, the appellants would return the money
received in respect of CRPS in accordance with the SSPA, it proceeded to direct refund of the
amount brought in by the respondents within two months of a failure on the part of parties to arrive
at a workable solution. This, according to learned senior counsel, too was a “patent illegality” since
this not only accelerated the repayment of the CRPS amount contrary to the eight year holding
period, it also burdened the appellants with an interest liability at a rate far in excess of 6% as
envisaged therein.

91. However, upon a reading of the impugned judgment, we note that while the learned Single
Judge has undoubtedly undertaken an exhaustive review of the scope and contours of the Section 34
power, the concepts of “patent illegality” as well as when an award could be said to be opposed to
fundamental “public policy”, the judgment clearly fails to deal with specific contentions raised on
behalf of the appellants with respect to the award of refund. We note that the learned Single Judge
has chosen to copiously extract passages from the Award and which had made significant
observations in this respect in paragraphs 23 to 26 and the same have also been reproduced in
paragraph 71 of the impugned judgment.

92. It would, in this regard, be pertinent to recall that the AT had significantly chosen to observe
that the alternative plea of KAL and KM “premised on Section 65″ merited consideration, even
though strictly speaking the contractual arrangements could not be termed as void. The aforesaid
findings and observations as rendered by the AT, in our considered opinion, clearly warranted
further evaluation bearing in mind the indubitable position of Section 65 of the 1872 Act speaking of
the restoration of advantages derived only in a situation where either an agreement is discovered to
be void or has become void.

93. The learned Single Judge also took note of the significant findings which came to be recorded by
the AT in Para 51 of the Award. As was noticed hereinabove, the AT had come to conclude that
although KAL and KM had complied with Clause 6.3.2 of the SSPA in part, they had clearly defaulted
in ensuring the placement of the sum of INR 100 crores in Designated Account 2 and that the said
sum of INR 100 crores was allowed as a counter claim in favour of the appellants. In fact, before the

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AT, elaborate submissions were addressed at the behest of the appellants doubting the bona fides of
the respondents in abiding by the terms of the SSPA. This would be evident from a conjoint reading
of Paras 37, 38, 42, 46, 47, 49 and 50 of the Award which are reproduced hereunder: –

“37. The fixed deposit could not be released into the account of the Company as Claimant No.
2 has failed to issue irrevocable instructions to City Union Bank. The fact that the only
instruction in relation to the fixed deposit of Rs. 100 crores was the request letter dated
24.02.2015 has been admitted by CW-3. Therefore, the requirement under the SSPA was not
fulfilled as no irrevocable instruction in respect of the fixed deposit to be adjusted against the
facility granted by City Union Bank to the Company. The said letter merely instructed the Bank
to create a fixed deposit of Rs. 100 Crores in the name of Claimant No. 2 for a period of three
months and that a lien be marked towards the overdraft account of the company as collateral
in place of the property documents of M/s KAL COMM PRIVATE LIMITED and the personal
guarantee of Claimant No. 2. The said lien was only in the nature of a security and was not in
the line mandated by the SSPA.

38. Significantly the Claimant No. 2 had consented to adjust the sums due for principal and
interest of the fixed deposit towards the satisfaction of the credit facility allowed to the
Company on maturity of the fixed deposit. Strangely in complete disregard of the instruction,
despite the attachment of the fixed deposit by the ED on 01.04.2015, the Bank credited the
interest on the fixed deposit into the account of Claimant No. 2 stated to be on the basis of oral
instructions of Claimant No.2. Even after the release of the attachment on 02.02.2017
Claimant No. 2 did not instruct City Union Bank to release the amount of fixed deposit into the
Designated Account No. 2 as clearly obligated under the SSPA.

The Claimant No. 2, as CW-2, stated that there was no obligation to do so.

xxxx xxxx
xxxx

42. The Claimants are taking contradictory stands on the question whether issuance of CRPS
was sequential to and was independent of the issuance of warrants. Presently, the Claimants
have stated that issuance of CRPS was not a sequential step under the SSPA in relation to
Clause 4.1.4 of the SSPA, the Claimants have clearly stated in their letter dated 18.02.2016
addressed to BSE that though they had subscribed to the preferential shares of the Company,
but are yet to receive the share certificates due to pending warrant matter.

xxxx xxxx
xxxx

46. In the aforesaid background, it is clear that the Claimant No. 2 failed to pay the
Respondents the amount of Rs. 100 Crores and, therefore, is in breach of Clause 6.3.2 of the
SSPA and, therefore, obligated to compensate the Counter claimants for the breach . The
undertaking of Claimants was to bring in Rs.450 Crores as committed support was conditional
upon discharge from Yes Bank and CUB. That both these Banks have discharged is not in
dispute.

47. The original structure was that as per Clause 7.2.1, Rs.320 Crores was to be brought in by

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the Claimants (minus Rs. 100 Crores in cash for Tranche-1) and the Respondents were
required to seek discharges from the Banks. The original understanding as per Schedule H,
therefore, was that the amount was to be deposited to Designated Account No. 1. The
amended position was that the second closure was to be under Clause 7.1 on 24.02.2015
instead of 15.02.2015 and within two days, consent of E DC was to be obtained. Seller No. 2
was mandated to bring in Rs.100 Crores and deposit the same in Designated Account No. 2.
The admitted position is that the sum of Rs. 100 Crores did not come to the Designated
Account No. 2. As per Clause 6.3.2, personal guarantees given to CUB were to be released by
24.02.2015. The Claimants state that release of guarantees for an amount of Rs. 100 Crores
was done with the CUB. According to Respondents, two conditions are envisaged on the basis
of Clause 7.2.1 (6).

xxxx xxxx
xxxx

49. Certain peculiar features need to be noted at this stage is that there was a request for
closing of the loan but there was no response from CUB. Interestingly, CUB closed the account
of Makemytrip and select cargo. If the ED’s order was within its knowledge, no explanation is
coming forthwith as to how the account was closed. Similarly, if there was no instruction in
terms of Clause 6.3.2 as there is no reference as to who would get the interest. Another
interesting feature is that the interest was being credited to the account of Claimant No. 2 and
it was being automatically credited to the personal account. Further, if the account was to be
held as security and the interest was to be paid on maturity. It is quite suspicious that when
instructions were already there as to the nature of the security of the deposit, what occasioned
the certificate of the Bank, Exhibit C-63 to the Claimants.

50. In the counter claim, the Respondents have claimed Rs. 100 Crores in addition to the
interest paid by the Respondents to CUB for the loan of Rs. 100 Crores. So far as the plea of
specific performance is concerned, the foundation therefore is the readiness and willingness to
do what was required to be done by the person who seeks the relief of specific performance.
Nothing has been pleaded by the Claimants in this regard. Additionally, it is a fundamental
requirement that one who seeks the relief of specific performance must come with clean
hands. The admitted position being that the interest was being credited to the personal
account of Claimant No. 2, the conduct is not only suspicious but shows ulterior motives.
Alternatively, it has been stated that the Respondents are still willing to issue the CRPS on the
same terms subject to the Claimants fulfilling their part of the obligations. It is pointed out
that there was a committed support undertaken by the Claimants to bring in Rs.450 Crores.
That part of the arrangement has not been fulfilled by the Claimants. The question of any
compensation, therefore, does not arise in the absence of the requisite conditions of specific
performance of contract having been fulfilled.”

94. The AT, on a consideration of the aforesaid, ultimately observed that there was a clear and
apparent failure on the part of the respondents to abide by the terms of Clause 6.3.2. It then
proceeded to notice the requirement of the sum of INR 220 crores being placed in Designated
Account No. 2. It also doubted the requirement of the certificate from CUB with respect to
irrevocable security. The AT observed that neither CUB nor KAL and KM could explain the necessity
of that certificate if instructions as claimed had already been issued.

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95. The stand of the appellants, however, stands answered by the learned Single Judge in the
following terms: –

“79. The learned Tribunal, while referring to the claims of the respondents herein, observed
that the respondents were required to make the payment of Rs. 220,02,93,039, which stood
paid. While coming to conclusion the Arbitral Tribunal also noted that out of the total
consideration of Rs. 220,02,93,093/- to be paid by the respondents towards the Tranche-I
CRPS amount, the respondents had made a total payment of Rs. 120,02,83,038, leaving Rs.
100 Crores to be payable. The Arbitral Tribunal was of the view that since, the payment
towards Tranche-I was made by the respondents herein, but the supplementary obligation of
issuance of the CRPS was not fulfilled by the petitioners, the petitioners were liable to pay
back and refund the sum so deposited by the respondent after deducting the sum of the
amount which remained uncredited, i.e., Rs. 100 Crores.

80. In accordance with the Agreement, the respondents herein were to make a fixed deposit of
Rs. 100 Crores. However, it was observed that the said amount was never found to be
deposited in the designated bank account in terms of the agreed mutual terms of the
Agreement between the parties. The Counter-Claim pertaining to the said amount was, hence,
decided in the favour of the petitioners herein and was deducted from their liability towards
the respondents amounting to Rs. 370,86,99,209 From a bare perusal of the aforesaid, it is
evident that the learned Tribunal has provided adequate reasoning as to the issue of refund of
Rs. 270,86,99,209.

82. The course of procedure taken by the Arbitral Tribunal as well as the findings as
reproduced above are evidently not in contravention of any of the provisions under the
Arbitration Act or even any substantive law. There is nothing in the observations in the
impugned Award to suggest that the Tribunal contravened or went beyond the terms of
Agreement executed between the parties. The Tribunal provided reasons for the findings
delivered and there is no perversity which is either apparent on the face of the record or which
goes to the root of the matter. Therefore, the impugned Award cannot said to be patently
illegal.”

96. As is manifest from a reading of the aforesaid passages as appearing in the impugned judgment,
it becomes evident that the learned Single Judge has correctly recorded what the AT had found in
this respect. In fact, the learned Single Judge has taken note of the failure on the part of KAL and
KM to effect placement of INR 100 crores in the Designed Account 2 in Para 80 of the judgment. The
learned Single Judge also bore in consideration the fact that the counterclaim of the appellants had
also come to be granted by the AT. However, the argument of inapplicability of Section 65, the
accelerated refund of the amounts payable in respect of CRPS and the penultimate directions framed
by the AT amounting to a rewriting of the contract itself have neither been examined nor any
conclusions in that respect rendered. All that the learned Single Judge has chosen to observe in this
regard is that the AT had provided “adequate reasoning” to justify the refund of INR 270,86,99,209.
The aforesaid observation is clearly erroneous bearing in mind the undisputed position of the AT, at
least on a prima facie evaluation, having failed to assign or render any reasons dealing with these
aspects.

97. An Award would be liable to be termed as a perversity if it were to fail to deal with contentions
which may potentially impact its very foundation. If a party were to assert that a direction of the AT

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is contrary to the terms and conditions constituting the bargain between the parties, the same would
be an aspect which would clearly merit a deeper scrutiny unless, of course, the Section 34 Court
were to find the same to be ex facie fallacious or unsustainable. However, even if that were the
conclusion which the court were to arrive at, it would be the judgment which must speak and reflect
due consideration of such challenges.

98. We are constrained to observe that the arguments which were addressed in challenge to the
award of refund have been summarily and abruptly brushed aside with the learned Single Judge
merely observing that the “course of procedure” as adopted by the AT cannot be said to in
contravention of the provisions of the Act or any other substantive law. As is ex facie evident, the
applicability of Section 65 was neither examined nor evaluated. More fundamentally, the argument
on that score was never answered.

99. We have extensively gone through the judgment impugned in the instant appeals. However, we
have been unable to discern any reasoning that may have weighed upon the learned Single Judge to
reject the contentions which were addressed on the anvil of Section 65 and the finding of the AT that
KAL and KM had failed to abide by their contractual obligations. We take note of the undisputed
position which emerges from the record and which would evidence the appellants having
vehemently urged that it was KAL and KM who had breached the terms of the SSPA and which
aspect had also been duly noticed by the AT. However, the learned Single Judge has clearly failed to
take the aforesaid aspects into consideration. The challenge to the award of refund has thus clearly
gone unanswered.

100. While the scope and ambit of Section 34 and the limited scrutiny to which an Award must be
subjected to cannot possibly be doubted, the same in our considered opinion does not absolve a
court while examining a challenge to an Award to evaluate and consider arguments based on the
assertion of a patent or manifest illegality. The arguments which were raised by the appellants on
this score clearly merited due consideration, and even if the learned Single Judge were to be of the
opinion that no interference with the Award was warranted, reasons should have clearly been
assigned and which would have been indicative of the learned Single Judge having come to the
conclusion that the arguments based on Section 65 coupled with the fact of the SSPA having not
been found to have been invalidated or that the contractual terms had been reworked did not
amount to a “patent illegality”.

101. It becomes pertinent to state that while the challenge to an Award has been universally
accepted to fall within a narrow confine, the power to correct and set right, cannot be reduced to a
mere step in aid of rendering finality. While reticence and reservation would clearly guide, it would
have to be coupled with due examination of the challenge that may be raised. A challenge, whenever
raised, would have to necessarily be examined on principles of manifest and “patent illegality”. It
cannot possibly be guided by a principle of heedless affirmation or a blinded predilection to approve.

102. While it is true that a possible view taken by the AT would not warrant interference, the same
would have to be based on the Section 34 court finding in fact, that the Award has been duly
appreciated and the challenge falling short of a “patent illegality”. The resistance to interfere cannot
override the requirement of an empirical evaluation of the correctness of the view expressed by the
AT. The correctness of the Award would undoubtedly have to be tested on the principle of perversity
and it being tenable.

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103. Of equal significance would be the requirement of the decision upholding the Award being
reasoned and cogent. “Patent illegality” or violation of “public policy” are not mere incantations. The
Award would have to be objectively found to be validly made, not being contrary to the aforesaid
precepts and the judgment being reflective of due application of mind and a just consideration of the
challenge.

104. An Award is not liable to be upheld or affirmed based on a mere or unreasoned reluctance to
intervene or a disinclination to interfere. Viewed in any other light, the remedy of correction would
itself be rendered meaningless. Unless the decision on a challenge to an Award is found to have
been persuasively and convincingly answered, the very purpose of the remedy would be lost. The
decision on a Section 34 petition would have to, thus, answer to the aforesaid precepts and be found
to be reflective of a meaningful consideration and evaluation of the Award itself. With respect, we
find that the judgment impugned before us clearly fails to meet those tests.

105. As we read the impugned judgment, we find that all that the learned Single Judge chose to
observe was that the AT had provided adequate reasons for its findings and the same did not appear
to suffer from any perversity. The aforesaid conclusions clearly fail to evaluate the correctness of
those findings and which were questioned by the appellants on the principle of “patent illegality”.
The appellants thus clearly appear to have been deprived of the salutary remedy of an appellate
forum having examined the correctness of the Award on lines suggested in support of the challenge.
There is an apparent disarticulation between the grounds of challenge and the reasons recorded in
support of affirmation.

106. Similar is the position which emerges when one considers the issue of award for interest. One
of the principal grounds of challenge to the stipulation of interest as addressed before the learned
Single Judge was that the AT had failed to assign even rudimentary reasons while prescribing
interest to be paid at the rate of 12% pendente lite for Warrants and at the rate of 18% for post-
award interest. The appellants appear to have vehemently contended that the AT had abjectly failed
to bear in mind the changed statutory position which came to hold the field consequent to the
amendments introduced in Section 31(7).

107. It becomes pertinent to note that undisputedly 18% represented the default rate of post-award
interest prior to the amendments which came to be ushered in by virtue of the 2015 Amending Act.
The aforesaid position came to be fundamentally altered with Section 31(7) now prescribing the
grant of post-award interest to be at the rate of 2% above the “current rate of interest” prevailing as
on the date of the Award. The phrase “current rate of interest” was ascribed the same meaning as it
appears in Section 2(b) of the Interest Act, 1978. As we, prima facie, read the award rendered by the
AT, there does not appear to be a discussion pertaining to the identification of the “current rate of
interest” which was prevailing on the date of the Award. Whether this would be fatal is an issue
which clearly does not appear to have been examined by the learned Single Judge.

108. The asserted failure of the AT to provide any reasons for the grant of interest appears to have
been directly addressed before the learned Single Judge as would be evident from a reading of
paragraph 16 thereof. However, while dealing with the aforesaid aspect, the learned Single Judge
has observed as follows: –

“86. The petitioners also raised an objection on the interest levied by the Arbitral Tribunal
submitting to the effect that the interest @12% per annum on the amount to be refunded

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towards Warrants and @18% per annum in case of non-payment within the stipulated time
period is erroneous. The Tribunal awarded interest in favour of the respondents herein as
under:

“(3) Since the amount covered by conclusion (1) was with the Respondents since
November 2015, they would have become liable to pay interest on the same. Though,
interest at the rate of 18% per annum has been claimed, we are of the view that since
Respondent No.1 Company took over a huge liability and also paid interest on the tax
amount payable by the Claimants, interest at the rate of 12% on Rs.308,21,89,461/-
would be appropriate. The amount has to be accordingly calculated for about 30 months.
Additionally, in view of the finding relating to the CRPS claim and the proved position
that the Respondents have paid interest/servicing charges of around Rs.29 Crores, the
counter claim to that extent is allowed.

(5) In case the payments, as directed, to be made by the Respondents are not so made
within two months from the relevant date, the Claimants shall be entitled to interest @
18% from the last date of the due date in terms of this Award.”

109. After noticing the conclusions and the penultimate directions framed by the AT in respect of
the award of interest, the learned Single Judge took note of the various legal precedents which had
recognized the power of an arbitrator to make an award of interest, pendente lite and post-award.
The learned Single Judge thereafter proceeded to observe as follows: –

“87. There is no dispute to the fact that an Arbitral Tribunal has the jurisdiction and power to
make an award pertaining to interest. The Hon’ble Supreme Court has time and again
reiterated that an Arbitrator has sufficient powers to pass an Award on the question of
interest…..

88. Therefore, it is apparent that the Arbitral Tribunal had the jurisdiction and the power to
grant and award an interest while passing the Award, since there existed no prior agreement
between the parties pertaining to such interest. Along with such power and jurisdiction, there
is a vast degree of discretion which is vested with the Arbitral Tribunal. The Hon’ble Supreme
Court explicitly stated in the aforesaid judgment that “It has a discretion to award the interest
or not to award“. Hence, there is not dispute to this effect that since there were no explicit
terms pertaining to the issue of interest decided and agreed between the parties before this
Court, the Arbitral Tribunal was free to exercise its discretion and grant or not grant an award
of interest to the best of its judgment, upon looking into the entirety of the material before it,
while also ensuring that such an award does not render the Award patently illegal.

89. In the instant case, the discretionary power of awarding interest was exercised by the
Arbitral Tribunal and the award of interest was made while keeping in view that there was a
default on the part of the petitioners herein. It was also observed that the interest on the
amount would have been accruable in the month of Novemberin the year 2015, and hence, it
was found just to allow an award of interest @12% per annum, as opposed to the original
claim of 18% raised on behalf of the respondents herein.

90. This observation of the Tribunal also does not invite the vigours of the principles set out
above that warrant an intervention under Section 34 of the Arbitration Act. While passing the

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Award, on merits as well as on the issue of interest, Arbitral Tribunal has taken a judicial
approach while passing the Award and has given sufficient reasoning, backed by the facts and
material. There is also nothing to show that the principles of natural justice were not observed
by the Tribunal since the parties were given sufficient opportunity to put forth their case and
further the Arbitral Tribunal has also considered and appreciated the entirety of the matter
while passing the impugned Award, which is backed by reasons. Such an interest was granted
by the Arbitral Tribunal, in its wisdom being the master of evidence, after appreciation of the
objections, claims and material adduced by the parties.”

110. We are compelled to observe that the authority and jurisdiction of the AT to award interest was
not an aspect which could have possibly been contested. Similarly, the conferment of a discretionary
power in the AT to award interest also cannot possibly be doubted. That is a position which would
emerge from a plain reading of Section 31(7) of the Act itself. The power of the AT to award interest
stands conferred by virtue of Section 31(7) and is available to be exercised “unless otherwise agreed
by the parties”. The statute itself enables the AT to include in the award a sum representing interest
and which is to be computed “at such rate as it deems reasonable”. The AT stands conferred with
further discretion to examine whether interest is to be awarded on the whole or part of the awarded
amount as well as for the period for which it would run. This is evident from Section 31(7)(a)
employing the phrase “on the whole or any part of the money” as well as “for the whole or any part
of the period.…”.

111. Similar is the position which emerges upon a reading of Section 31(7)(b) of the Act. The
statutorily prescribed interest of 2% above the “current rate of interest” operates in the absence of a
decision being taken by the AT to the contrary. Clause (b) of Section 31(7) thus enables an AT to
consider whether to grant post-award interest or to desist from doing so at all. While therefore the
existence of discretion cannot possibly be questioned, the issue which still merited consideration
was whether the AT had exercised the same in accordance with law.

112. We note that the Supreme Court in Gokul Chandra Kanungo had rendered the following
pertinent observations while underscoring the necessity of the AT to assign reasons in the course of
the exercise of its discretion to award interest. This is evident from a reading of paras 10, 11 and 17
of the report which are reproduced hereinbelow: –

“10. The provisions of Section 31(7)(a) of the 1996 Act fell for consideration before this Court
in many cases including in the cases of Hyder Consulting (UK) Limited (supra) and Delhi
Airport Metro Express Private Limited v. Delhi Metro Rail Corporation. A perusal of clause (a)
of subsection (7) of Section 31 of the 1996 Act would reveal that, no doubt, a discretion is
vested in the arbitral tribunal to include in the sum for which the award is made interest, on
the whole or any part of the money, for the whole or any part of the period between the date
on which the cause of action arose and the date on which the award is made. However, it
would reveal that the section itself requires interest to be at such rate as the arbitral tribunal
deems reasonable. When a discretion is vested to an arbitral tribunal to award interest at a
rate which it deems reasonable, then a duty would be cast upon the arbitral tribunal to give
reasons as to how it deems the rate of interest to be reasonable. It could further be seen that
the arbitral tribunal has also a discretion to award interest on the whole or any part of the
money or for the whole or any part of the period between the date of cause of action and the
date on which the award is made. When the arbitral tribunal is empowered with such a
discretion, the arbitral tribunal would be required to apply its mind to the facts of the case and

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decide as to whether the interest is payable on whole or any part of the money and also as to
whether it is to be awarded to the whole or any part of the period between the date on which
the cause of action arose and the date on which the award is made.

11. A perusal of the award as also the judgment and order of the District Judge as well as the
High Court would reveal that no such exercise has been done. The learned Arbitrator, without
assigning any reasons, has awarded the interest at the rate of 18% per annum for the period
during which the proceedings were pending and also at the same rate after the award was
made till the actual payment.

xxxx xxxx
xxxx

17. This Court, in the case of Mcdermott International Inc., has observed thus:

“154. The power of the arbitrator to award interest for pre-award period, interest
pendente lite and interest post-award period is not in dispute. Section 31(7)(a) provides
that the Arbitral Tribunal may award interest, at such rate as it deems reasonable, on
the whole or any part of the money, for the whole or any part of the period between the
date on which the cause of action arose and the date on which award is made i.e. pre-
award period. This, however, is subject to the agreement as regards the rate of interest
on unpaid sums between the parties. The question as to whether interest would be paid
on the whole or part of the amount or whether it should be awarded in the pre-award
period would depend upon the facts and circumstances of each case. The Arbitral
Tribunal in this behalf will have to exercise its discretion as regards (i) at what rate
interest should be awarded; (ii) whether interest should be awarded on the whole or part
of the award money; and (iii) whether interest should be awarded for the whole or any
part of the pre-award period.

155. The 1996 Act provides for award of 18% interest. The arbitrator in his wisdom has
granted 10% interest both for the principal amount as also for the interim. By reason of
the award, interest was awarded on the principal amount. An interest thereon was up to
the date of award as also the future interest at the rate of 18% per annum.

156. However, in some cases, this Court has resorted to exercise of its jurisdiction under
Article 142 in order to do complete justice between the parties.

157. In Pure Helium India (P) Ltd. [(2003) 8 SCC 593] this Court upheld the arbitration
award for payment of money with interest at the rate of 18% p.a. by the respondent to
the appellant. However, having regard to the long lapse of time, if award is satisfied in
entirety, the respondent would have to pay a huge amount by way of interest. With a
view to do complete justice to the parties, in exercise of jurisdiction under Article 142 of
the Constitution of India, it was directed that the award shall carry interest at the rate of
6% p.a. instead and in place of 18% p.a.

158. Similarly in Mukand Ltd. v. Hindustan Petroleum Corpn. Ltd. [(2006) 9 SCC 383:
(2006) 4 Scale 453], while this Court confirmed the decision of the Division Bench
upholding the modified award made by the learned Single Judge, the Court reduced the

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interest awarded by the learned Single Judge subsequent to the decree from 11% per
annum to 7½ % per annum observing that 7½ % per annum would be the reasonable
rate of interest that could be directed to be paid by the appellant to the respondent for
the period subsequent to the decree.

159. In this case, given the long lapse of time, it will be in furtherance of justice to
reduce the rate of interest to 7½ %.”

113. As would be evident from the above, the Supreme Court had deprecated the procedure adopted
by the AT in the facts of that case in failing to assign reasons in support of the award of interest at
the rate of 18%. It had also affirmed the pertinent observations made in Mcdermott International
Inc vs. Burn Standard Co.39 and which had while identifying the factors which an AT would have
to bear in mind while awarding interest alluded to aspects such as rate of interest, whether the same
was liable to be awarded on the whole or any part of the awarded amount as well as the period for
which interest was liable to be awarded.

114. The legal position in this respect stands reiterated in the judgment of the Supreme Court in
40
Morgan Securities and Credits Private Limited vs. Videocon Industries Limited and where
it observed as under: –

“24. The issue before us is whether the phrase “unless the award otherwise directs” in Section
31(7)(b) of the Act only provides the arbitrator the discretion to determine the rate of interest
or both the rate of interest and the “sum” it must be paid against. At this juncture, it is crucial
to note that both clauses (a) and (b) are qualified. While, clause (a) is qualified by the
arbitration agreement, clause (b) is qualified by the arbitration award. However, the
placement of the phrases is crucial to their interpretation. The words, “unless otherwise
agreed by the parties” occur at the beginning of clause (a) qualifying the entire provision.
However, in clause (b), the words, “unless the award otherwise directs” occur after the words
“a sum directed to be paid by an arbitral award shall” and before the words “carry interest at
the rate of eighteen per cent”. Thereby, those words only qualify the rate of post-award
interest.

xxxx xxxx
xxxx

27. The purpose of granting post-award interest is to ensure that the award-debtor does not
delay the payment of the award. With the proliferation of arbitration, issues involving both
high and low financial implications are referred to arbitration. The arbitrator takes note of
various factors such as the financial standing of the award-debtor and the circumstances of the
parties in dispute before awarding interest. The discretion of the arbitrator can only be
restricted by an express provision to that effect. Clause (a) subjects the exercise of discretion
by the arbitrator on the grant of pre-award interest to the arbitral award. However, there is no
provision in the Act which restricts the exercise of discretion to grant post-award interest by
the arbitrator. The arbitrator must exercise the discretion in good faith, must take into account
relevant and not irrelevant considerations, and must act reasonably and rationally taking
cognizance of the surrounding circumstances.”

115. While recognizing the jurisdiction of the AT to award interest, the Supreme Court in Morgan

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Securities significantly observed that the exercise of that discretion must be informed by “good
faith” resting on “relevant considerations” and the obligation of the AT to act “reasonably and
rationally”.

116. In Vedanta Limited as well, the Supreme Court categorically observed that an AT is bound to
exercise its discretion reasonably and take into consideration various relevant factors before
granting interest. The relevant extracts of the aforesaid decision are set out hereinbelow:

“7. Section 31(7) is in two parts: clause (a) pertains to the award of interest for the pre-
reference and pendente lite period, which is subject to the agreement between the parties.
This would be evident from the opening words of Section 31(7)(a) — “unless otherwise agreed
by the parties”. Absent an agreement between the parties, the Arbitral Tribunal has the
discretion to award interest; as it deems reasonable. Interest may be awarded either on the
whole, or any part of the sum awarded.

8. Section 31(7)((b) pertains to the post-award period i.e. from the date of the award to the
date of realisation, and is not subject to party autonomy or an agreement between the parties.
This would be apparent from the manner in which clause (b) of Section 31(7) is framed. The
phrase “unless otherwise agreed by the parties” is absent from this provision. The statutory
rate of interest is 2% higher than the current rate of interest prevalent on the date of the
award.

9. The discretion of the arbitrator to award interest must be exercised reasonably. An Arbitral
Tribunal while making an award for interest must take into consideration a host of factors,
such as : (i) the “loss of use” of the principal sum; (ii) the types of sums to which the interest
must apply; (iii) the time period over which interest should be awarded; (iv) the internationally
prevailing rates of interest; (v) whether simple or compound rate of interest is to be applied;
(vi) whether the rate of interest awarded is commercially prudent from an economic
standpoint; (vii) the rates of inflation; (viii) proportionality of the count awarded as interest to
the principal sums awarded.

10. On the one hand, the rate of interest must be compensatory as it is a form of reparation
granted to the award-holder; while on the other it must not be punitive, unconscionable or
usurious in nature.

xxxx xxxx
xxxx

14. In the present case, the Arbitral Tribunal has adopted a dual rate of interest in the award.
The award directs payment of interest @ 9% for 120 days post award; if the amount awarded
is not paid within 120 days’, the rate of interest is scaled up to 15% on the sum awarded.

15. The dual rate of interest awarded seems to be unjustified. The award of a much higher rate
of interest after 120 days’ is arbitrary, since the award-debtor is entitled to challenge the
award within a maximum period of 120 days’ as provided by Section 34(3) of the 1996 Act [
“34. (3) An application for setting aside may not be made after three months have elapsed
from the date on which the party making that application had received the arbitral award or, if
a request had been made under Section 33, from the date on which that request had been

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disposed of by the Arbitral Tribunal:Provided that if the Court is satisfied that the applicant
was prevented by sufficient cause from making the application within the said period of three
months it may entertain the application within a further period of thirty days, but not
thereafter.”] . If the award-debtor is made liable to pay a higher rate of interest after 120 days,
it would foreclose or seriously affect his statutory right to challenge the award by filing
objections under Section 34 of the said Act.

16. The imposition of a high rate of interest @ 15% post-120 days is exorbitant, from an
economic standpoint, and has no co-relation with the prevailing contemporary international
rates of interest. The award-debtor cannot be subjected to a penal rate of interest, either
during the period when he is entitled to exercise the statutory right to challenge the award,
before a court of law, or later. Furthermore, the Arbitral Tribunal has not given any reason for
imposing a 15% rate of interest post 120-days.

xxxx xxxx
xxxx

19. The respondent/claimant has, in fact been awarded 105% of the costs incurred under the
EPC contracts by the Arbitral Tribunal. The award of interest @ 9% on the Euro component of
the claim is unjustified and unwarranted. The levy of such a high rate of interest on a claim
made in a foreign currency, would result in the claimant being awarded compensation,
contrary to the conditions stipulated in the contract.

20. The award has granted a uniform rate of 9% SI on both the INR and the EUR component.
However, when the parties do not operate in the same currency, it is necessary to take into
account the complications caused by differential interest rates. Interest rates differ depending
upon the currency. It is necessary for the Arbitral Tribunal to coordinate the choice of
currency with the interest rate. A uniform rate of interest for INR and EUR would therefore
not be justified. The rate of 9% interest on the INR component awarded by the Arbitral
Tribunal will remain undisturbed. However, with respect to the EUR component, the award-
debtor will be liable to pay interest at the Libor rate + 3 percentage points, prevailing on the
date of the award.

21. In light of the abovementioned discussion, the interest awarded by the Arbitral Tribunal is
modified only to the extent mentioned hereinbelow:

21.1. The interest rate of 15% post 120 days granted on the entire sum awarded stands
deleted.

21.2. A uniform rate of interest @9% will be applicable for the INR component in entirety till
the date of realisation.

21.3. The interest payable on the EUR component of the award will be as Per LlBOR + 3
percentage points on the date of award, till the date of realisation.”

117. It becomes pertinent to observe that the existence of a power and the discretion conferred on
an AT was never doubted. However, and what the aforesaid decisions bid us to bear in consideration
is the obligation and the duty of the AT to formulate its award of interest based on a sound, reasoned

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and informed judgment. The obligation to assign reasons flows contemporaneously with the exercise
of discretion itself. This too was an aspect which commended due consideration of the learned Single
Judge.

118. We, however desist from rendering any further observations bearing in mind the fact that the
Section 37 jurisdiction constricts us from undertaking a wholehearted review of the award on its
merits. The appellate power conferred by Section 37 is essentially confined to whether, and while
examining a challenge under Section 34, the Court had applied its mind to aspects of “patent
illegality”, of the Award being asserted to be contrary to “public policy” and the various other
grounds which stand statutorily constructed as warranting interference with an award rendered by
the AT. In the instant appeals, however, we find ourselves handicapped since the learned Single
Judge clearly appears to have failed to accord adequate and due consideration to some of the
principal challenges that appear to have been raised before it and were reiterated in these
proceedings.

119. We are thus left with a situation where we have been deprived of the benefit of an opinion duly
rendered by the Section 34 Court and which may have answered the challenge on merits. While, and
in such a situation, a Section 37 Court may, in an appropriate case, deem it expedient and
appropriate to examine a challenge on the merits of the Award itself and notwithstanding a Section
34 Court having failed to render any opinion, we find ourselves unable to tread down that path since
any findings that we may independently record or render may also have the effect of depriving a
particular party of an appellate remedy of first instance. We had, in this context, accorded our
anxious consideration on whether to examine the validity of the Award on merits itself. However, on
balance, we find that the ends of justice would merit a fresh innings being provided to parties

120. In light of the aforesaid and in order to avoid any prejudice, the facts and circumstances of the
instant appeals would, in our considered opinion, merit the matter being remanded for the Section
34 petitions being directed to be considered afresh. This would not only enable respective sides to
address submissions on some of the salient issues which have been noticed by us hereinabove but
also preserve the right of an aggrieved party to assail any judgment that may be rendered
consequent to remit and upon due consideration of the issues pertaining to the award of refund of
the CRPS amount as well as the justification of grant of interest, both pendente lite and post-award.

121. We, additionally and out of abundant caution, deem it appropriate to observe that the
discussion appearing in the preceding parts of this judgment and concerning the validity of the
award of refund and the grant of interest, appears in the context of examining the correctness of the
judgment rendered by the learned Single Judge alone. None of those are liable to be viewed or
accepted as being determinative of some of the submissions which were addressed on this appeal.

122. We only deem it appropriate to observe that while the aspect of personal liability of Ajay Singh
was canvassed before us, the same was neither specifically raised nor assailed in these appeals. We,
therefore, do not find any justification to render any finding in that respect.

123. We are consequently compelled to dispose of these appeals in terms which follow principally
since the learned Single Judge has erred in dismissing the Section 34 petitions without according
due consideration to the challenge which was raised and an apparent absence of reasoning in
support of the decision arrived at.

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124. The appeals shall consequently stand allowed. The impugned judgment dated 31 July 2023 is
hereby set aside. The Section 34 petitions shall in consequence stand restored upon the Board of the
appropriate Court for being considered afresh and bearing in mind the observations rendered
hereinabove.

YASHWANT VARMA, J.

RAVINDER DUDEJA, J.

MAY 17, 2024

References:

1. Act
2. AT
3. KAL
4. KM
5. SpiceJet
6. SSPA
7. Warrants
8. CRPS
9. BSE
10. 1872 Act
11. 2021 SCC Online SC 508
12. (2022) 4 SCC 463
13. CUB
14. Pollock & Mulla, The Indian Contract and Specific Relief Acts, Nilima Bhadbhade, Volume I,
Updated, 14th edition(2014)
15. 1947 SCC Online PC 61
16. (2012) 4 SCC 505
17. 2022 SCC OnLine SC 1336
18. 2015 Amending Act
19. 1978 Act
20. (2019) 11 SCC 465
21. (2023) 7 SCC 390
22. (2019) 4 SCC 163
23. (2022) 4 SCC 116
24. (2023) 9 SCC 85
25. (2023) SCC OnLine SC 982
26. EDC
27. 1891 SCC OnLine PC 11
28. (1929) SCC OnLine PC 18
29. (1960) SCC OnLine Punj 126
30. 1958 SCC OnLine Pat 97
31. [1979 SCC OnLine All 940(DB)]
32. 2014 SCC OnLine Del 4413

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33. [1943] A.C. 32

34. 2022 SCC OnLine Del 3498
35. 2020 SCC OnLine Del 2555
36. 2017 SCC OnLine SC 2181
37. Neutral Citation – 2022:DHC:3616-DB
38. (1992) 1 SCC 508
39. (2006) 11 SCC 181
40. (2023) 1 SCC 602

Original judgment copy is available here.

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