On May 17, a division bench of the Delhi High Court set aside the order upholding the validity of the arbitral award against low-cost airline SpiceJet. The earlier order was in favour of South Indian media baron Kalanithi Maran and his company Kal Airways.
A bench of justices Yashwant Varma and Ravinder Dudeja passed the order on a plea file by SpiceJet's chairman and managing Director (CMD) Ajay Singh and the airline against a single-judge order, which in July 2023 affirmed the award.
Interestingly, the court has not gone into the merits of the arbitral award itself but has only found that the single judge needs to rehear the case.
“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,” the judgment said.
This means that the dispute is far from over. As a consequence, even after the single judge passes an order again, the losing party could come back to the two-judge bench, and the case could remain pending for years.
Why was it referred back for reconsideration?
The two-judge bench of the court went through various contentions by both the parties. SpiceJet’s primary argument was that the judgment of the single judge did not provide reasons for upholding the award. The court noted that the single judge did not even consider some arguments by SpiceJet before dismissing the plea. According to the judgement, the single judge should have considered all the contentions raised by the parties so as to come to a comprehensive conclusion.
According to the judgment of the two-judge bench, “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.”
For instance, SpiceJet and Singh had sought to set aside the portion of the award that directed them to refund Rs 270 crore to Kal Airways and Maran. They also sought a waiver of 12 percent interest on warrants and setting aside of the 18 percent interest granted in the award. This portion of the award was upheld by the single judge.
The two-judge bench noted that while arbitators had the power to grant 18 percent interest, the award does not give reasons as to why such an exorbitant interest should be imposed on SpiceJet. The single judge did not analyse this aspect, the judgment stated.
“This too was an aspect which commended due consideration of the learned Single Judge,” the judgment said. The court cited instances in the judgment that required a detailed consideration, but that was not done.
Hence, the two-judge bench ruled, “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.”
The court has, however, clarified that the discussion with respect to the validity of the award in their judgment is confined only to assess the correctness of the single judge’s order and nothing more. “None of those are liable to be viewed or accepted as being determinative of some of the submissions which were addressed on this appeal,” the order said.
What does the law say?
Arbitration is a mechanism to resolve disputes between parties without going to court. A neutral person is appointed to adjudicate the dispute and the judgement of the arbitrator is legally enforceable.
Although it is cheaper than a regular court case, an arbitral award can be appealed in court. So, while an arbitration can end in a matter of months, the challenge to an arbitration order in court can take years to be decided. In the process, the benefit of a speedy arbitration order gets nullified.
Section 34 of the Arbitration Act permits an aggrieved party to challenge an award. Furthermore, Section 37 permits a second appeal if a party is unsatisfied with the order in the first appeal, under Section 34. Thus, there are two appeals allowed against an arbitral award. However, a party can also file an appeal in the Supreme Court against an order passed under Section 37.
In the ongoing case, both Maran and SpiceJet filed Section 34 before a single judge of the Delhi High Court. Maran also simultaneously filed a petition to execute the arbitral award. Even though neither Maran nor SpiceJet succeeded in section 34, SpiceJet filed a section 37 as it had a heavy liability as a consequence of the judgment.
The case has now gone back to the section 34 jurisdiction after which, it can return to the section 37 jurisdiction.
Brief facts:
In February 2015, Maran and KAL Airways, his investment vehicle, transferred their 58.46 percent stake in SpiceJet to Singh. A co-founder of SpiceJet, Singh took on the airline’s liabilities of around Rs 1,500 crore.
As part of the agreement, Maran and KAL Airways said they paid SpiceJet Rs 679 crore for issuing warrants and preference shares. However, Maran alleged that the warrants and preference shares were not allotted and initiated arbitration proceedings against SpiceJet and Singh. In July 2018, an arbitration panel rejected Maran’s claim of damages of Rs 1,323 crore for not issuing warrants to him and KAL Airways but awarded him a refund of Rs 579 crore plus interest.
SpiceJet was permitted to furnish a bank guarantee for Rs 329 crore and make a cash deposit of the remaining Rs 250 crore.
Thereafter, the award was challenged in the courts.
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