Rewriting Commercial Contractual Terms Is Fatal To An Arbitral Award: Delhi High Court

The Delhi High Court has ruled that where the parties agree to enter into a mutual consultation in the future, for making amendments to an original agreement, the same would only constitute an "agreement to agree", which is not enforceable in law. The Court held that the finding of the arbitral tribunal that though the amendment contemplated by the "Amendment to the Share Holders Agreement" was not in fact carried out by the parties, however, the original Share Holders Agreement stood altered, extinguishing the liability of the party, was erroneous in law. The Single Bench of Justice C. Hari Shankar ruled that rewriting of a contract between two parties, especially a commercial contract, is completely impermissible in law and that rewriting of commercial contractual terms is fatal to an arbitral award. The Bench added that the finding of the Tribunal that a party was no longer obligated to comply with the obligations contained in the agreement, in view of the shift in control over an enterprise, amounted to rewriting the agreement. Calcom Cement India Ltd. (Calcom) was incorporated by the Bawri Group along with the Assam Industrial Development Corporation (AIDC), to build and operate a cement plant in Assam. Subsequently, Dalmia Cement (Bharat) Ltd. (Dalmia Cement) joined the parties for collaboration. The parties, along with Saroj Sunrise Pvt. Ltd. (SSPL), a company of the Bawri Group, executed various agreements, including a Share Pledge Agreement (SPA) and a Share Holders Agreement (SHA). Thereafter, the parties executed an "Amendment to the Share Holder Agreement (SHA)". As per the "Amendment to SHA", the voting rights of Dalmia Cement on the board of Calcom were enhanced, as a result of which Dalmia Cement took over control of Calcom. In compliance with the terms of the agreements executed between the parties, Dalmia Cement made certain payments to the Bawri Group. However, Dalmia Cement allegedly failed to make the payment of additional consideration. After certain disputes arose between the parties, the Bawri Group initiated arbitral proceedings against Dalmia Cement and Calcom. The Bawri Group, in its statement of claims filed before the Arbitral Tribunal, claimed the amounts due from Dalmia Cement as per the relevant agreement executed between them. In the counter-claims filed before the Arbitral Tribunal, Dalmia Cement alleged that the Bawri Group had failed to comply with the Project Conditions, as stipulated in the original Share Holders Agreement (SHA). Hence, it contended that the amounts claimed by the Bawri Group were not payable by it. To this, the Bawri Group contended that the original SHA had been rendered unenforceable and ineffective by the "Amendment to SHA". The Arbitral Tribunal opined that the Project Conditions, as enumerated in the relevant clause of the original SHA, were required to be fulfilled by the Bawri Group only so long as they retained control of Calcom. Since, the control over Calcom, which was initially held by the Bawri Group, shifted to Dalmia Cement, the Arbitral Tribunal ruled that the Bawri Group was no longer obligated to comply with the Project Conditions as specified in the original SHA. Further, the Tribunal held that, in view of the shift in control over Calcom, the responsibility of fulfilling the Project Conditions became the obligation of Dalmia Cement. The Tribunal further noted that as per the 'Amendment to SHA', the parties had agreed to amend, by mutual negotiations, the relevant clause contained in the original SHA, pertaining to the Bawri Group's obligation to comply with the Project Conditions. The Tribunal observed that though the said amendment relating to the Bawri Group's obligation, as envisaged by the 'Amendment to SHA', was not made; however, it did not mean that there was no alteration in the original SHA. Hence, the Tribunal held that the requirement of fulfilling the Project Conditions, as contemplated in the original SHA, stood eviscerated and waived off. Thus, the Arbitral Tribunal passed an award in favour of the Bawri Group. Challenging the arbitral award, the parties, including Dalmia Cement, filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court. The petitioner/ Dalmia Cement submitted before the High Court that the relevant clause of the original SHA specifically required that all the amendments to the SHA be made in writing and be duly signed by all the parties to the SHA. Therefore, it argued that there could be no deemed amendment of the SHA. Dalmia Cement referred to the finding of the Arbitral Tribunal, that though there was no formal amendment made to the relevant clause of the SHA, pertaining to the Bawri Group's obligation to comply with the Project Conditions, the said clause, however, stood altered. The petitioner argued that the said finding...

Rewriting Commercial Contractual Terms Is Fatal To An Arbitral Award: Delhi High Court

Parina Katyal

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