GPE (India) Ltd, Rep. by its authorized signatory, Mr. Abhinav Jain, Mumbai and others v. Twarit Consultancy Services Private Limited, Chennai and others on 5th January 2023 - Judgment (2023)

(Sentence: Petition filed pursuant to Sections 47 to 49 of the Arbitration and Conciliation Act 1996, pleased to (a) declare that the judgment dated 7 January 2021 has been accepted by the Court of Arbitration appointed by the Center for Singapore International Arbitration; (b) Order the Defendants to pay (i) INR 1,00,19,78,640 to Claimant #1, INR 68,96,48,700 to Claimant #2 and INR 25,83,72,660 to Claimant #3 with interest of 7.25 % per annum from July 21, 2017 until the payment date; (ii) the sum of SGD 3,72,754.79 to the Claimants in respect of arbitration costs plus interest of 7.25% per annum from the date of the judgment until the date of payment and (iii) the sum of INR 3,54,10,661 and SGD 42,557.16 to the petitioners in respect of the legal and other costs of the petitioners together with interest at the rate of 7.25% per annum from from the date of payment pending payment and (iv) for an amount of SGD $39,000 as costs only and (c) the Respondent instructs the petitioners to pay the costs of this petition)

1. The first and second petitioners are companies incorporated in Mauritius. The third petitioner is a limited liability company incorporated in India which is the trustee of Gaja Capital India Fund-I, a venture capital fund registered with SEBI.

2. An application has been filed to declare the final judgment of January 7, 2021 (the foreign judgment) enforceable, maintaining it as a judgment of that court pursuant to Section 49 of the Arbitration and Conciliation Act, 1996 (the foreign judgment ). of Arbitration). . Consistent instructions were also requested for the defendants to jointly pay the amounts referred to in paragraph 5 of the action. Petitioners have submitted the following interim requests: O.A.No.76 of 2022 to prevent the First Accused from using the sum of INR 265 crore from the funds transferred by the Third and Fourth Accused; and A.No.67 of 2022 for an instruction to deposit the sum of INR 265 crore in a separate account with marked escrow.

background

3. Petitioners are shareholders of Haldia Coke and Chemicals Private Limited (the Company). 100 Common Shares (payment of INR 10,000) and 11.09.37,000 Mandatory Convertible Preferred Shares (CCPS) (payment of INR 110,93,70,000) of the Company, representing 100% of the CCPS issued and paid, were subscribed by the first and second. second applicants in Shares and Shareholders Subscription Agreement dated 31st May 2010. In addition, 100 Common Shares (payment of INR 5,000) and 1,40,63,000 Optional Convertible Preferred Shares (OCPS) (payment of INR 14,06,30,000 ) of the Company, representing 100% of the OCPS issued and paid, were acquired by the Third Claimant through a share subscription and shareholders' agreement dated May 31, 2010. These contracts are almost identical, referred to separately as the first and second SSHA, respectively, and collectively as SSHA. SSHA provides several exit options in Section 15.2. These exit options include an initial public offering, a strategic sale, a repurchase and the exercise of a put option.

4. During 2015, discussions and negotiations took place between the Petitioners and the Respondents to purchase the aforementioned CCPS, OCPS and shares on behalf of each Petitioner. In connection therewith, each Plaintiff entered into a separate Stock Purchase Agreement dated September 28, 2015 (separately the First, Second and Third SPAs and together the SPAs) with the defendants identified herein, the Purchasers, the Company and two other non-resident companies. . Separately from the SPAs, on September 28, 2015, Defendants and Plaintiffs entered into a written agreement (the Written Agreement). The written settlement provides, among other things, for the consequences of non-payment of the SPAs by the defendants to the petitioners. Section 3 of the Letter of Agreement refers to Section 15.2 of the SSHA, which sets out exit options. Clause 3 also defines buyer default.

5. In addition to the above SPAs, a Share Purchase Agreement dated 28 September 2015 (the Fourth SPA) was entered into between the Petitioners and SVL Limited. The object of the Fourth SPA is the purchase by the Petitioners of SVL Limited's shares in Shriram EPC Limited (now SEPL). The indicated sale price is INR 65,00,00,000. The Fourth SPA also provides that, subject to applicable law, SVL Limited may require applicants to purchase additional shares of Shriram EPC Limited by transfer from SVL Limited or by subscription for an amount not exceeding INR 10,00,00,000. A written agreement dated September 28, 2015 (the Second Written Agreement) has also been signed between the Petitioners, the Company, SVL Limited and other parties. The second settlement letter documents the commercial understanding between the parties that the petitioners would invest INR 75,000,000,000 in Shriram EPC from the amounts received pursuant to the fourth and fifth SPA closures. Both the Fourth SPA Agreement and the Second Letter provide for the resolution of disputes through arbitration, and the arbitration clause is identical to that in the SPAs and the Letter of Agreement.

6. From the first to the third SPA, the acquisition of CCPS or OCPS, as the case may be, is contemplated by the defendants, for the following consideration: the first SPA for INR 102,76,70,400; the second SPA at 70,73,32,000 INR; and the third SPA for 26,49,97,600 INR. In total, the consideration that the Defendants had to pay to purchase the CCPS and OCPS from the Petitioners was INR 200,00,00000. It was agreed that said consideration will be paid jointly in 14 tranches between September 30, 2015 and June 30, 2018. The transfer of each tranche is known as closing. After receiving partial consideration, the pro rata number of the CCPS or OCPS must be forwarded to the Defendants.

7. After payment of the first installment of INR 5,00,00,000 between 19th November 2015 and 14th December 2015, the payment of all remaining installments was in default. In a decision dated October 12, 2017, the petitioners detailed the defendants' failures and urged them, among other things, to initiate talks and negotiations to resolve the dispute. In the absence of a response from the Respondents, the three Petitioners addressed the Notice of Arbitration dated December 14, 2017 to the Singapore International Arbitration Center (SIAC) pursuant to clause 6 of the SPA and clause 4(f) of the contract in writing. To whom. The Notice relating to disputes arising under the First to Third SPAs (SPAs) and the Letter of Agreement, all of which provide for arbitration in accordance with the SIAC Rules and specify the seat of arbitration in Singapore. The law governing SPAs and the written contract is Indian law.

8. At the Petitioners' request, the SIAC Tribunal agreed to combine the four arbitrations into a single proceeding pursuant to Rule 8.5 of the SIAC Rules. First, the Respondents raised objections to the jurisdiction of the arbitral tribunal. With the decision of February 14, 2019, the jurisdictional claims were rejected. Thereafter, the parties completed their arguments in court and the evidence was gathered. After analysis of the allegations, evidence and presentations, the foreign judgment was rendered, determining that the petitioners are entitled to compensation for the violation of the SPA by the defendants. The foreign arbitration award was challenged by the defendants here at the International Commercial Court of Singapore on approximately five grounds. The challenge was dismissed by sentence of December 24, 2021.

panties

9. Having determined that the foreign arbitration award fully complies with the requirements of the Arbitration Act and that the conditions set forth in Section 48(1) and (2) are not met in this case, the present application is made. Defendants then filed their Statement of Objections to this. In the Statement of Objections, the Defendants alleged that the Arbitrator's conclusion that clause 3(c) of the Letter of Settlement provided for liquidated damages was erroneous; that the consideration and award of an alternative award justifies the interference because the basis for it has not been asserted; that the parties entered into four SPAs and two written agreements on the same date and that those agreements constitute a composite and integrated set of agreements.

10. The Defendants also claimed that the foreign arbitral award could be adversely affected as it has the effect of enforcing contracts contrary to public policy within the meaning of Sections 23 and 24 of the Contracts Act of India 1872 (the Contracts Act). According to the interviewees, ZEPs violate public order in two ways. Firstly, the Fourth SPA was also signed on September 28, 2015 by and between the petitioners, on the one hand, and SVL Limited, on the other, and said SPA contemplated the purchase of 62.92% of the share capital of Shriram for EPC Limited (now SEPC Limited), the second defendant here, for SVL Limited for the plaintiffs here. Thus, the purpose and consideration of the SPAs was, in the Defendants' opinion, the indirect financing of the acquisition of the 2nd Defendant's shares), which violates article 67, paragraph 2, of the 2013 Corporate Law. (CA 2013) and therefore violates Articles 23 and 24 of the Contracts Act. Second, the defendants alleged that the SPAs were designed to circumvent the provisions of the Foreign Exchange Management Act 2000 (FEMA) and specifically the Foreign Exchange Management (Transfer or Issuance of Securities by a Non-Indian Person) Regulations. . 2000 (Securities Transfer Regulation). They claim that FEMA and securities transfer regulations do not allow a non-resident investor in the equity of an Indian company to secure a return on that investment at the time of investment or exit and only allow an exit at fair market value at the time. of departure. As SPAs guarantee a rate of return at a price well above fair market value, it is argued that the enforcement of these contracts is contrary to law and public policy.

attorney charges

11. The oral arguments were presented in this order: by Mr. Satish Parasaran, lead counsel for the Defendants, and Mr. P.S. Raman, lead counsel for the petitioners.

12. Mr. Satish Parasaran opened his allegations by referring to the law established by the Hon. Supreme Court in Vijay Karia et al v Prysmian Cavie Sistemi SRL et al (Vijay Karia), (2020) 11 SCC 1 Referring to paragraph 43 of which it held that a challenge that a foreign arbitration award was contrary to the public order of India would be decided in the same manner as a challenge under Section 34 of the Arbitration Act. Referring to the SSHAs held on May 31, 2010, he noted that the purpose of the SSHAs was to pay the subscription fee of INR 10,000/- and INR 5,000/- for the subscription of shares and INR 125,00,00,000/- for the subscription to CCPS and OCPS. In effect, he alleged that the petitioners had invested in the company's common and preferred stock under the terms set forth in the SSHA. He also noted that SSHA provides several exit options in SSHA Section 15.2. These exit options include an initial public offering, a strategic sale, a repurchase and the exercise of a put option.

13. From and out of exit options, focused attention on the put option. Clauses 15.2.3 (as amended by the Contract Amendment dated November 15, 2011) and 15.2.4 dealing with put and put options and repurchase income are set out below:

“15.2.3 Repurchase

(a) The investor is entitled to receive an IRR of at least 24% (twenty four percent) of the total value of his investment exercising any of the rights provided for in clause 15.2.4, 15.2.3 or 15.2.5 (" Put Repurchase Redemption”).

The investor has the right to request the Company to purchase/repurchase all or part of the Shares held by the investor ("Share Repurchase") for an amount equal to the Sales Repurchase Income."

15.2.4

put option:

(a) The Investor shall, subject to the terms set forth herein, have the right (at its option) (i) to require the Sponsors and/or Shriram Minerals to purchase all or any number of Shares held by it or to cause any purchase by the Investor in the Company ("Put Notes"), and the Sponsors and/or Shriram Minerals are obligated to purchase, or cause to be purchased, the Put Notes ("Put Option") at any price the investor can buy for a return equal to the put option's repurchase yield (the "Put Price"). For clarity, the fair market value determination process as set out in clause 15.2.5(e) below does not apply to the sale price determination."

He noted that the put option offers the investor a guaranteed return with a standard IRR of 24%, which FEMA prohibits. As a result, SSHAs violate FEMA and its regulations.

14. Scholar's senior counsel argued that the investors/plaintiffs wanted a guaranteed return on their investment and not fair market value. To guarantee the guaranteed return on investment, he indicated that on 09/28/2015 four SPAs were executed. These SPAs provided for the purchase by the interviewees here of the share capital, CCPS and OCPS that the applicants had in the company. This purchase is not to be made at fair market value but at a total price of INR 200 crore for the first to third SPA. The first SPA was between the first plaintiff and the Defendants, the second SPA between the second plaintiff and the Defendants, and the third SPA between the third plaintiff and the Defendants. In effect, he argued that the purpose and purpose and consideration of SPAs are contrary to public policy, since these agreements are intended to provide petitioners with a certain or guaranteed return on investment. Referring to Section 3 of the Letter of Agreement, he noted that it provides for suspension of rights under the SSHA until a default by Buyer occurs. Furthermore, it sets out the parties' rights and obligations if the buyer's default occurs after paying at least $1.25 billion.

15. According to an experienced lawyer, the foreign arbitral award can be impaired for several reasons. The first reason is that the purpose and consideration of the SPA is contrary to public policy. Therefore, SPAs are void under Sections 23 and 24 of the Contracts Act. Second, SPAs violate Regulation 3 of the Securities Transfer Regulations. Referring specifically to Regulation 9 of the Securities Transfer Regulations, as amended on 5/23/2014, senior counsel noted that the guiding principle behind the regulations is that a non-resident investor is not guaranteed a guaranteed exit price. that moment. deed becomes an investment and this exit must be at the prevailing price at the time of exit. Unless the transfer from a non-resident to a resident is in line with regulations, he argued, prior consent from the RBI was required. In this case, he found that no prior RBI approval was sought or obtained for the purchase of the common and preferred shares by the Defendants at the price guaranteed by the SPAs.

16. It further argued that the interference with the foreign judgment was justified because the petitioners had not exercised any of the exclusionary options under the SSHA. Failing that, the arbitral tribunal went beyond the frame of reference in finding that the petitioners exercised the put option under the SSHA. Since the award of damages is based on this erroneous assumption, the foreign arbitration award should not be recognized or considered enforceable.

17. The next allegation from a Senior Senior Advisor was that the SPAs also violated Section 67(2) of the Companies Act 2013 (CA 2013) as the obligations imposed by it amounted to financing the purchase of shares in Shriram EPC. In support of this claim, senior counsel referred to the fourth SPA and Second Charter Agreement, stating that it demonstrates that, upon receipt of the fourth and fifth tranche of consideration, the petitioners consented to its use under the first by the third SPA , such consideration to purchase Shriram EPC shares for INR 75 crore. The final complaint concerned the argument that the granting of interest under Singapore law is contrary to established principles. Since contracts are governed by the substantive law of India and a claim for interest is substantive, the arbitral tribunal should have considered applicable Indian law such as the Interest Act.

18. Mr. P.S.Raman, senior adviser with experience, presented opposing arguments. Regarding both SSHAs and SPAs, he noted that these contracts were concluded after extensive negotiations. In particular, he referred to the guarantees given herein by the Respondents regarding their applicability. He also referred to the defendants' contention that the application and enforcement of the SSHA did not violate Indian law. He further stated that only the first to third SPAs and the Letter of Agreement were subject to arbitration. Referring to Sections 87 and 88 of Vijay Karia, he argued that a paradigm shift occurred when FEMA replaced the Foreign Exchange Regulation Act of 1973. In acknowledging that transition, he noted that the Supreme Court ruled in Section 88 of Vijay Karia that transactions that violate FEMA cannot be voided because any FEMA violation is recoverable. Therefore, he argued that the Supreme Court had concluded that a foreign arbitral award could not be considered unenforceable because of such a remediable violation.

19. Referring to clause 4(c) of the written contract, he argued that it was a complete contract clause. Consequently, he stated that the Fourth SPA could not be telescopic within the other three SPAs. To emphasize the abusive behavior of respondents, he noted the following. Defendants placed the company in voluntary liquidation to terminate the plaintiffs' rights under the SSHA and SPA. At the request of the petitioners, the National Court of Corporate Appeals (NCLAT) overturned the relevant order of the National Corporate Court (NCLT). Although the defendants appealed the NCLAT decision to the Supreme Court, the decision was not overturned.

20. Regarding the granting of indemnities, Mr. Raman noted that the Arbitral Tribunal granted them by interpreting the relevant clauses of the contract. Referring to the arbitral tribunal's reasoning and conclusions, he noted that the arbitral tribunal concluded that Section 74 of the Contracts Act provided for adequate compensation. It also noted that the arbitral tribunal accepted the defendants' contention that, in the event that a purchaser of shares fails to complete the purchase of shares, the measure of damages would normally be the difference between the market price of the shares at the time of the breach and the agreed consideration for the shares. After the Arbitrator determined that the provision in Section 3(c) of the Written Agreement exceeded the total consideration of INR 200 crore for the Sale Actions under the First to Third SPAs, the Arbitrator considered the alternative claim for damages and damages under the First SPAs for Third Party. Ultimately, the arbitral tribunal awarded the specified total amount of the second to fourteenth tranches in respect of the Shares for sale as damages in paragraph 260 of the foreign award. As the foreign judgment was based on a reasonable interpretation of the Letter of Settlement, the SPAs and the SSHAs, senior counsel advised that no interference in public policy was justified. In support of this claim, it referred to paragraph 39 of Vijay Karia and paragraphs 33 and 34 of Renusagar Power Co. Ltd v. General Electric Co (Renusagar) (1984) 4 SCC 679. He concluded his remarks by noting that the arbitration The arbitral tribunal shall have authority to award interest pursuant to Section 20 of the Singapore International Arbitration Act, which is applicable because the seat of the arbitration was in Singapore.

21. In response, Mr. Satish Parasaran suggested that the four SPAs be read together. Referring to clause 4(c) of the Second Letter of Agreement, he noted that said clause stipulated that the entire commercial understanding of the parties was contained in the Second Letter of Agreement and the Transaction Documents. According to Mr. Satish Parasaran, the transaction documents also contained the fourth SPA. By reference and reliance on paragraph 27 of Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 (Associate Builders) and paragraphs 33-36 of Ssangyong Engineering and Construction Company Limited v National Highways Authority of India (Ssangyong), (2019) 15 SCC 131 stated that the breach of Substantive Law of India violates the basic policy of Indian law. As the Security Transfer Regulations required prior approval from the RBI, he stated that the FEMA violation was not a correctable error.

22. Concluded by stating that the SSHAs, the four SPAs, and the two Charter Agreements constitute a composite set of agreements, stating that the consideration specified in the SPAs clearly violated Section 67 of the AC 2013 with section 23 of the agreement in breach of law. .

Discussion, analysis and conclusions

23. Article 48 of the Arbitration Law establishes the hypotheses for refusing to enforce a foreign arbitral award. That provision is set out below:

''48. Requirements for the Enforcement of Foreign Arbitral Awards.-

(1) Enforcement of a foreign arbitral award may be denied at the request of the party against whom it is asserted only if that party proves in court that:

a) The parties to the contract referred to in article 44 are incapable under the terms of the law applicable to them, or the said contract is invalid under the law to which the parties have submitted it or, failing that, the law of the country in which the prize was awarded; any

(b) the party against whom the award is asserted was not duly informed of the appointment of the arbitrator or the arbitration or was otherwise unable to present its case; any

(c) the award deals with a dispute not provided for or not contemplated in the Terms of Submission to Arbitration, or contains decisions on matters that go beyond the scope of the Submission to Arbitration: provided that decisions on Matters submitted to arbitration can be separated from those not presented, the part of the award containing decisions on matters submitted to arbitration may be enforced; any

(d) the composition of the arbitration authority or the arbitration procedure was not agreed by the parties or, in the absence of such agreement, was not in accordance with the law of the country in which the arbitration took place; any

(e) the award is not yet binding on the parties or has been set aside or suspended by a competent authority of the country in which or under whose law the award was made.

(2) Enforcement of an arbitral award may also be denied if the court determines that:

(a) the matter in dispute cannot be resolved by arbitration under Indian law; any

(b) the execution of the sentence would be contrary to public order in India.

Clarification 1: For the avoidance of doubt, a judgment is contrary to Indian public policy only when:

(i) the award of the award was obtained or influenced by fraud or corruption, or violated Section 75 or Section 81; any

(ii) violates the basic policies of Indian law; any

(iii) is contrary to the most basic notions of morality or justice

Clarification 2: For the avoidance of doubt, the determination of whether there has been a violation of basic Indian law policy does not imply a review of the dispute.

(3) If an application for setting aside or suspending the award has been made to a competent authority pursuant to paragraph (1)(e), the court may, if it deems it appropriate, stay the decision to enforce the award and may further , at the request of the Party requesting the execution of the arbitration award, demand a reasonable guarantee from the other party.”

24. In the Vijay Karia case, the Hon. The Supreme Court has categorized and classified the grounds contained in Section 48 into three groups. The first group is made up of reasons that affect the jurisdiction of the arbitral tribunal; the second group is composed of reasons related exclusively to the interests of the parties; and the third group consists of Indian public policy reasons, as explained in Note 1 to Section 48(2). With regard to the jurisdictional grounds for the challenge, the Supreme Court concluded in paragraph 49 of Vijay Karia that if the court finds that the arbitral award lacks jurisdiction, the court has no discretion and must refuse to enforce the arbitral award. With regard to reasons related exclusively to the interests of the parties, such as the inability of a party to present its case before the arbitral tribunal, the Honorable Supreme Court concluded that the court can enforce the foreign arbitration award even if such a reason is stated. There is also no discretion with respect to the third category, violating Indian public order.

25. As for the grounds for challenge now set, there is no doubt that there is no challenge in court. The challenge is limited to the third category in section 58 of Vijay Karia. Explanatory Note 1 to Section 48(2) clarifies that there are only three circumstances under which an arbitral award would be contrary to public policy in India. The first circumstance exists when the issuing of the judgment was caused or affected by fraud or corruption or violated article 75 or article 81. It is not true that the foreign judgment is tainted by fraud or corruption. The second circumstance mentioned in Explanatory Note 1 is when the foreign judgment is contrary to India's basic policy. The third circumstance is when the foreign judgment conflicts with the most elementary notions of morality or justice. The claim that the foreign price contradicts basic ideas of morality or fairness was not supported by respondents. Therefore, the foreign Award must be examined from the point of view of whether it violates the basic policy of Indian law.

26. As an experienced senior adviser to the petitioners correctly pointed out, the basic policy of Indian law must be understood in the strict sense in which it was interpreted in Renusagar. Unless the foreign judgment violates a fundamental and inalienable principle or value, enshrined in law or otherwise, denial of recognition is not justified. Even an incorrect interpretation of the law would not count as grounds for denying recognition. This request must be decided taking into account the aforementioned legal framework.

27. The main reason for the controversy is that the object and consideration provided for in the first to third SPA are contrary to public policy. The first basis for this claim is that FEMA and the securities transfer regulations written under FEMA do not allow a non-resident securities investor to exit at a guaranteed price. Given this statement, the question arises as to whether the item or consideration specified in the SPAs violates FEMA and specifically the Securities Transfer Regulations. Before proceeding, a caveat is necessary: ​​the relevant treaties and laws are examined in the following sections for the sole purpose of proving whether fundamental policies of Indian law are violated, and not to draw definitive conclusions regarding them. validity and applicability.

28. SSHA manages the investment of two non-resident companies and a venture capital fund registered with SEBI in an Indian company. The investment was made in shares, CCPS and OCPS and the total investment was around R$ 1.25 million. According to FEMA, Section 3 contains a general prohibition on dealing in foreign currency or making or receiving payments from non-residents. This is subject to other FEMA regulations and the rules and regulations contained therein. Securities transactions are classified as capital account transactions and are generally subject to more regulation than current account transactions. The main regulations governing securities transactions involving non-residents are the securities transfer regulations. Regulation 5 permits the purchase of shares in an Indian company by a non-resident under the Foreign Direct Investment (FDI) Scheme set out in Schedule 1 and provides for investment via what is known as an automatic route (i.e. without the need expressed RBI). approval) if the requirements of Annex 1 are met.

29. As such a transaction will involve an inflow of foreign currency, the price of the Shares must not be less than fair market value (determined by an internationally acceptable market pricing methodology for valuing the Shares, duly certified by a Chartered Accountant or commercial banker registered with SEBI). In other words, fair market value acts as a reserve price. For a long time there was uncertainty about the admissibility of a clause allowing a foreigner not to participate. This has been clarified by an amendment to the Securities Transfer Regulation dated 23 May 2014, which allows for exit options on the condition that the exit occurs at a price that does not exceed the price defined by a pricing methodology. to market standard. The determined base is duly certified. by a statutory auditor or commercial banker registered with SEBI. Therefore, unlike entry to exit, unless the RBI has given its express consent, the market-to-market price should serve as the upper limit. The underlying principle is this: As with all equity investments, a non-resident investor in the equity of an Indian company receives a package that includes unlimited upside and downside risk. In short, the investment must ostensibly and effectively be an equity investment and not debt subject to a different and stricter regulatory regime disguised or disguised as an equity investment.

30. SSHAs in operation prior to the amendment specified exit options in Section 15.2 of the amendment. Clause 15.2.4 provides for a put option as an exit option. The relevant clauses, extracted earlier in paragraph 13 of this dispatch, provide for a guaranteed initial price at an IRR of 24% on the investment. Since FEMA restrictions in conjunction with the Securities Transfer Regulations are intended, among other things, to prevent currency outflows due to stock transactions at prices that exceed fair market value at the time of the non-resident's departure, under the SSHA by the non-resident resident at a price above market value must not have been permitted without the prior consent of the RBI. The position assumed is that none of the SSHAs' exit options were exercised and, therefore, there was no outflow of currency between the SSHAs.

31. Returning to the SPAs (First to Third SPAs), these SPAs provide for the purchase by the Defendants of the Claimants' securities at a fixed total price of INR 200 crore, which is the cumulative consideration for the sales. Said consideration will be paid in 14 tranches. SPAs do not disclose the basis on which the purchase price arose. The Letter of Agreement was also signed at the same time and deals with the purchase by the Defendants of 12,49,98,800 shares (called Subscription Shares). Sections 3(a) to (c) of the Written Agreement are set out below:

"3. Rights under existing SSHA:

(a) The parties to this Written Agreement have agreed that the Investor's rights under Section 15.2 of the existing SSHA will be suspended for a period from the date of signature of the Transaction Documents until the Purchasers, or either of them, are in default of any of your payment obligations under the applicable terms of the SPAs ("Buyer Default"). For the avoidance of doubt, in the event of default by Buyer, Investors' rights under Section 15.2 of the existing SSHA will be immediately restored and may be exercised by Buyer without any notice or action required by Buyer. Investors and/or any other party to the existing SSHA or written agreement.

(b) If, on the date of occurrence of a Buyer Default ("Buyer Payment Date"), Investors have received an amount of at least Rs to pay Investors an amount equal to the difference between the total payable amount paid by Buyers to Investors under the SPAs and the amount actually received by Investors on the date of Buyer's default.

(c) If Investors have received less than Rs 125,000,00,000 (Rs one hundred and twenty-five crore only) from Purchasers under the SPAs on the date of breach of contract by Purchaser, Purchaser shall pay Investors all amounts due pay under the existing SHA less amounts paid by Buyers under the SPAs through the date of Buyer's default. For purposes of this written agreement, the term Transaction Documents means:

(i) SPAs; Y

(ii) this contract in writing.”

32. The accepted position is that the Defendants only paid INR 5,00,00,000 to the Plaintiffs under the SPAs and the Letter of Settlement. Therefore, the Plaintiffs did not transfer the Shares to the Defendants. Under these circumstances, the Petitioners invoked the Arbitration Agreement and filed a claim with the Arbitration Court for INR 401 Crore (which is an IRR of 24% on INR 125 Crore) for damages pursuant to Clause 3(c) of the Written Agreement attached with interest at 18% per annum or, alternatively, an amount of INR 195 crore or such other amount as determined by the Arbitrator.

33. In view of the above claim, the arbitral tribunal considered whether clause 3(c) of the Letter of Settlement provides for a genuine predetermination of damages (damage) or a penalty and concluded in paragraphs 215 to 225 of the foreign award that this case is a punitive disposition because INR 401 crores exceeds the losses suffered by the petitioners themselves according to their expert. Taking note of the Supreme Court decision in Fateh Chand v. Balkishan Das (1964) 1 SCR 515, the Court of Arbitration ruled that claimants were only entitled to equitable compensation not exceeding the specified amount. The conclusion of the Arbitral Tribunal that the device is punitive in nature cannot be questioned, since the nature of the device must be examined by examining whether the agreed indemnity is proportional to the expected damage in case of non-compliance.

34. In order to determine equitable relief under the Alternative Action, which corresponds to the nature of a claim for non-precipitate damages under Section 73 of the Contract Act, the Arbitral Tribunal accepted the Defendants' contention that the difference between the agreed price under the Share Purchase Agreement and the market price on the date of default would be the appropriate level for adequate compensation. This conclusion is unquestionable as it is the appropriate action in any contract for the sale of goods. Considering the evidence in the file, including the dates of installments two to fourteen and the oral and documentary evidence relating to the fulfillment of the purchase obligation and the extensions granted to it, the arbitral tribunal also concluded that the date of default was July 11 July 11, 2017. The logical follow-up question was: What was the share price on July 11, 2017? With regard to this aspect, the Arbitral Tribunal issued the following determinations in paragraph 246 of the foreign award:

"246. I accept Mr. Mayal's indisputable evidence that the market value of Haldia shares in July 2017 and thereafter was likely to be negligible. I am satisfied that the market value of Haldia shares was nil as of July 2017."

35. Considering that the market value of the Company's shares at the time of default was zero, the Arbitral Tribunal found in paragraphs 247 and 258 of the foreign judgment that the loss caused by the default was the total unpaid amount of INR 195 crores. This amount must be paid to the three petitioners as follows: INR 1.00.19.78.640 to petitioner No. 1; INR 68,96,48,700 for petitioner #2; and INR 25,83,72,660 for Claimant #3. The conclusion as to the market value of the Company's shares at the time of default was reached on the basis of evidence and cannot be considered contrary to the principles of Indian law.

36. The arbitral tribunal reviewed the conflicting claims of FEMA's alleged failure to comply with its obligations under the SSHA, SPA and charter agreements and presented its analysis and conclusions in paragraphs 126-174 of the foreign award Reproduced in paragraph 88 by Vijay Karia, cited below:

"88. We recommend this argument. Mainly, FEMA, unlike FERA, refers to the country's policy of administering foreign exchange rather than policing foreign exchange, the official being the Reserve Bank of India under FERA. It is It is important to remember that Section 47 of the FERA no longer exists in FEMA, so transactions that violate FEMA cannot be voided. If a specific act violates a FEMA provision or the rules contained therein, it may seek retroactive approval from the Reserve Bank of India if such violation can be tolerated. Therefore, neither the prize nor the agreement signed by the prize can be considered invalid. For this reason, a violation correctable by FEMA can never be considered as a violation of the basic policies of Indian law Even supposing that the Rule 21 of the Non-Debt Instruments Rules require a resident of India to sell shares to a non-resident for an amount other than If the shares sell below market value and one feels If a foreign arbitration agency requires shares to be sold for less than market value, the Reserve Bank of India can step in and order the above shares to be sold only at market value and not at discounted value, or tolerate such a breach. Even if the Reserve Bank of India were to act under FEMA, non-enforcement of a foreign judgment for violation of a FEMA rule or rule would not occur because the judgment was not overturned on that ground. The basic policy of Indian law as set out in Renusagar [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] must constitute a breach of some legal principle or legislation, what is fundamental to Indian law is that it cannot be compromised. “Core Policies” refers to the fundamental values ​​of public policy in India as a nation, which can be expressed not only in laws but also in the sacred principles followed by the courts. From this point of view, it is clear that no objection can be made to the enforcement of a foreign arbitral award on this basis.”

Citing, among others, Vijay Karia, the arbitral tribunal concluded that the SSHAs are not invalid and that even the transfer of shares to exercise options under the SSHAs could be done with the consent of the RBI. Paragraph 139 of the foreign judgment is of particular importance and is set out below:

"139. In other words, it is not the rights and obligations themselves that violate FEMA rules, it is the transfer of interest in the sale that allegedly violates FEMA rules. I concur with Defendants' analysis in paragraph 88 of their Written Opinion, subject to the qualification that the parties are free to obtain RBI approval for a transfer not expressly permitted by FEMA rule."

37. With respect to the SPAs, the Panel concluded that the objection that the SPAs were unenforceable was belatedly raised by the Defendants in their final written submissions invoking Regulations 3 and 10(B) of the Securities Transfer Regulations. The arbitral tribunal subsequently took note of the evidence in the form of the email and accompanying attachments in relation to the RBI's approval and payment of the first installment of the Sales Shares and concluded that the obligations under the SPA could have been fulfilled with the approval of the RBI. The conclusions of paragraphs 172 and 173 are presented below:

"172. This demonstrates that the contemplated transactions of the first to third SPAs were expressly approved under the FEMA regime or, as noted above, the parties were able to obtain RBI approval before the transactions were completed.

173. In other words, SPAs 1 to 3 have been shown to be implementable. If defendants have failed to fulfill their obligations under the first through third SPAs, plaintiffs are entitled to damages for breach of contract. For the sake of completeness, there is no indication that Defendants attempted to obtain RBI approval to perform the first through third SPAs and that such approval was not obtained."

38. The conclusion that SSHAs and SPAs are not void is substantially consistent with the law set forth in Vijay Karia. However, it must be recognized that the consequence of the nullity of a contract is that the contract and the rights, responsibilities and obligations imposed by it survive. The consequence is not that said contract is necessarily enforceable. The arbitral tribunal was well aware of this, as can be seen from the conclusions of margin n. 128, 139 and 172 shows that the relevant shares could have been transferred with the consent of the RBI. Therefore, such conclusions do not contradict the basic orientation of Indian law. It remains to be determined whether awarding INR 1.95 billion in damages to non-resident companies for breach of contract in connection with the purchase of shares violates FEMA and therefore basic policy under Indian law, and I return to this topic below.

39. The Arbitral Tribunal awarded damages totaling Rs. Indeed, any unpaid consideration under the SPAs was ordered to be paid in damages. As mentioned above, the arbitral tribunal considered the amount of INR 195 crore as adequate compensation, accepting evidence that the market value of the shares was zero at the time of default. In particular, in this factual context, if the obligations of the SPAs had been fulfilled, the respective parties to the SPA could not have paid or received a total of INR 200 crore in consideration for these actions without the approval of the RBI. Indeed, as noted above, the Arbitral Tribunal was aware of the RBI approval requirement, but concluded that the lack of such approval can be remedied by obtaining approval and will not result in the SSHA or SPA being voided.

40. The Court of Arbitration also accepted the judgment of the Delhi High Court in NTT Docomo v. Tata Sons Limited (NTT Docomo) 2017 SCC OnLine Del 8078/ (2017) 241 DLT 65, where the court found that RBI approval was not required because the amount was awarded as damages. NTT Docomo was a case where the relevant shareholders' agreement required the Indian partner to find a buyer for the subscribed shares of NTT Docomo at fair value as of a given date or 50% of the investment, whichever is greater. If this obligation was not met, NTT Docomo initiated arbitration proceedings and the arbitral tribunal awarded damages. Eventually, the parties to the dispute reached an agreement and the court ruled the issue in favor of settlement, overruling the RBI's objections.

41. Since FEMA is a law intended to regulate currency trading, I believe that receiving compensation for the total unpaid sale price of INR 195 crore under the Overseas Breach of Contract Award to purchase shares for a total of INR 200 crore if the market value of the shares was zero at the time of default requires prior approval from RBI. In undertaking this exercise, the RBI would do well to bear in mind that an Indian company received investment in securing and securing this approval.