Delhi High Court Sets Aside Orders Upholding Arbitral Award In Favour of Kalanithi Maran In SpiceJet Dispute, Quashes ₹270 Crore Payment Directive

The Delhi High Court division bench of Justice Yashwant Varma and Justice Ravinder Dudeja set aside a Single-judge decision that upheld an arbitral tribunal's decision requiring the cash-strapped SpiceJet and its chairman, Ajay Singh, to refund ₹ 270 crore plus interest to media baron Kalanithi Maran and his company, KAL Airways. The arbitral award directed SpiceJet to refund ₹ 270 crore to Maran, with additional interest rates of 12% per annum on warrants and 18% per annum on the awarded sums if not paid timely. On July 31, 2023, Justice Chandra Dhari Singh upheld the tribunal's award and held that SpiceJet failed to demonstrate any illegality in the arbitral decision. The court dismissed Maran's request to reinstate his 58.46% stake in SpiceJet and his demand for damages. Thereafter, SpiceJet and Ajay Singh appealed the decision of the Justice Chandra Dhari Singh. Brief Facts: The claim before the Arbitral Tribunal (AT) was brought by KAL Airways Private Limited and Mr. Kalanithi Maran against the appellants, SpiceJet Limited and Mr. Ajay Singh. The AT considered the claims laid by KAL and Mr. Maran as well as the counterclaims filed by the Appellants. The dispute arose from a transaction involving the takeover of SpiceJet by Ajay Singh from KAL and Mr. Maran. The Appellants contended that at the time of the takeover, SpiceJet was burdened with debts amounting to approximately INR 2200 crore, and the transaction aimed at taking over the debt-ridden company and absolving Mr. Maran of the personal guarantees provided as security for the repayment of loans related to SpiceJet. The Appellants submitted that in consideration of the takeover offer, the entire shareholding of KAL and Mr. Maran in SpiceJet was to be transferred to Ajay Singh for a nominal consideration of INR 2. Additionally, KAL and Mr. Maran were obligated to bring in "Committed Support" of INR 450 crore to SpiceJet. The Appellants alleged that KAL and Mr. Maran failed to fulfil their contractual obligations, ultimately infusing only INR 350 crore. The takeover, which occurred in February 2015, was based on a Share Sale and Purchase Agreement (SSPA) dated January 29, 2015. According to the Appellants, the issuance of Share Warrants and Non-Convertible Redeemable Preference Shares (CRPS) was contingent upon adjustments to loan amounts and unsecured advances totalling INR 229 crore, a Committed Support of INR 450 crore from KAL and Mr. Maran, and the final part of the Committed Support amounting to INR 100 crore, to be completed with the release of a fixed deposit of an equivalent amount in the name of Mr. Maran into Designated Account 2. The Appellants argued that disputes arose due to KAL and Mr. Maran's failure to infuse the full INR 450 crore and the Bombay Stock Exchange's (BSE) refusal to approve the issuance of Warrants. They argued that the Warrants could not be issued despite all bona fide efforts by SpiceJet and Mr. Ajay Singh, and therefore, the non-issuance of Warrants should not be viewed as a breach of the SSPA by SpiceJet or Mr. Ajay Singh. The Appellants also argued that the CRPS transaction could not be completed because KAL and Mr. Maran failed to pay the full consideration as per the terms of the SSPA. The Appellants' challenge in the Delhi High Court (“High Court”) focused on the AT's direction for a refund of INR 270,86,99,209 paid by KAL and Mr. Maran for the issuance of CRPS, the imposition of 12% interest pendent lite on Warrants, and post-award interest at the rate of 18% from the last due date in terms of the Arbitral Award. The Appellants contended that the direction for a refund violated Section 65 of the Indian Contract Act, 1872, arguing that it amounted to a rewriting of the contract since the SSPA did not envisage any refund of funds received for CRPS. They further argued that AT's finding that KAL and Mr. Maran were guilty of breach made the refund unjustified. These submissions were addressed before the Single Judge of the High Court, who held that the AT provided adequate reasoning for the refund, noting that out of the total consideration of INR 220,02,93,039, KAL and Mr. Maran had failed to deposit INR 100 crore. The Single Judge found that the Tribunal's decision did not contravene the Arbitration Act or any substantive law and that the Tribunal had provided sufficient reasons for its findings. The court observed that the Tribunal's conclusions were not perverse and did not violate the fundamental policy of law, and thus, the Award could not be deemed patently illegal. Feeling aggrieved, Spice Jet and Mr. Ajay Singh appealed the decision of the Single Judge. Contentions of the parties: The Appellants challenged the arbitral award on several grounds, arguing that the direction for a refund violated the SSPA and improperly altered its terms. They contended that the award effectively rewrote the SSPA by mandating...

Delhi High Court Sets Aside Orders Upholding Arbitral Award In Favour of Kalanithi Maran In SpiceJet Dispute, Quashes ₹270 Crore Payment Directive

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