Justice L Nageswara Rao appointed arbitrator by Delhi High Court in loan dispute involving Essel, Zee, Siti, Aditya Birla Finance

Justice L Nageswara Rao appointed arbitrator by Delhi High Court in loan dispute involving Essel, Zee, Siti, Aditya Birla Finance

Cites the decision of the Supreme Court in previous cases

A dispute involving Essel Corporate, Zee Enterprises, Siti Networks, and Aditya Birla Finance has been referred to arbitration by the Delhi High Court.

In the matter pertaining to the dispute regarding Siti’s failure to repay the term loan of Rs.150 crores extended by Aditya Birla, former Supreme Court judge Justice L Nageswara Rao was appointed the sole arbitrator.

The order of Justice V Kameswar Rao said, "The court appoints Justice L Nageswara Rao, a former judge of the Supreme Court of India as the sole arbitrator, who shall adjudicate the disputes between the parties, through claims and counterclaims, if any. He shall give his disclosure under Section 12 of the Arbitration and Conciliation Act, 1996. The arbitrator can fix the fee to conduct arbitration proceedings in consultation with the counsel for the parties.”

The bench directed the companies to be referred to arbitration after Aditya Birla approached the court stating that Siti, a part of the Subhash Chandra-owned Essel Group, defaulted on the payment of the loan. It had also been admitted to the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

The court was apprised that Siti had gone into insolvency.

The two letters of guarantee were issued by the respondents to the petitioner for the loan. While the first was issued by Zee and signed by its promoter and managing director, Punit Goenka (son of Subhash Chandra), Himanshu Mody, the head of group finance and strategy at the Essel Group, signed the second.

Aditya Birla demanded that since Siti, Zee and Essel belonged to the same group of companies and had a single economic identity, they should be referred to the arbitration’s adjudicatory process.

However, Zee and Essel argued that they were non-signatory to the arbitration clause enumerated in the facility agreement and the credit arrangement letter (CAL). Thus, they could not be compelled to arbitrate in the absence of the parties’ mutual intent.

The bench stated that as per the judgment of the Supreme Court in the Chloro Controls India (P) Ltd case, a non-signatory or third party could be subjected to arbitration (in exceptional cases) without their prior consent.

Justice Rao said it could not be denied that the respondents (Siti and Zee) were part of the Essel Group of companies. Therefore, they were a single economic entity and related party.

The court maintained that the two letters (claimed to be letters of guarantee) could not be termed so in the Indian Contract Act, 1872. They could only be considered as letters of comfort, as the petitioner was seeking compliance/performance. Such a claim was maintainable before the arbitrator only if the respondents were parties before the arbitrator.

The court further held, "The contents of letters being that the respondent Nos.2 (Zee) and 3 (Essel) assure and confirm to respondent No.1 (Siti) that they shall ensure respondent No.1 repays the facility on the relevant due dates, are the statements made in the midst of a commercial transaction; which are also promissory in character and thus enforceable. In that sense there was an intention to create a legal relationship by the parties as the conduct of the parties is always a guide to the construction of a contract as held by the Supreme Court in the case of The Godhra Electricity Co. Ltd. vs The State of Gujarat & Ors.”

Aditya Birla had filed another plea seeking direction to Siti to deposit the outstanding amount of Rs.134 crore and to restrain it from making any further payments and/or transferring any assets to the respondent (Zee) prior to making payments to the petitioner.

The bench ruled that since an arbitrator had been appointed, the petition would be treated as an application under the Arbitration and Conciliation Act, 1996. It would be decided by the arbitrator along with two other applications filed by the petitioner seeking withdrawal of the amount deposited by the respondent.

Justice Rao said that the arbitrator would also decide Zee’s application seeking modification/clarification of the order wherein the court had directed it to refrain from making any payments to its related parties.

The court stated, “Till the applications are decided by the arbitrator, the orders passed by the court in this petition from time to time, shall continue. It is made clear that the amount deposited by respondent No.1 in the court shall continue to be deposited, till the decision of the arbitrator.”

Senior advocate Raj Shekhar Rao along with advocates Aseem Chaturvedi, Ravitej Chilumuri, Mihika Jalan, Raddhika Khanna, Pragya Dahiya, and Aanchal Tikmani appeared for Aditya Birla Finance.

Siti was represented by senior advocate Joy Basu along with advocates Ritwika Nanda, Akshita Salampuria, and Kanak Bose.

Senior advocates P Chidambaram and Sandeep Sethi, along with advocates Aman Raj Gandhi, Vardaan Bajaj, Bindi Dave, and Pranay Tuteja, guided Zee.

Advocates Samar Singh Kachwaha, Shivangi Nanda, and Kavita Vinayak appeared for Essel.