On August 24, low-cost airline SpiceJet faced two cases arising out of the same arbitral award before two different benches of the Delhi High Court. However, the airline could not obtain a favourable order in either of the cases.
While one case, before the division bench, challenged the validity of certain portions of the arbitral award, the other one, before a single judge, was an execution petition filed by media baron Kalanidhi Maran. The cases will now come up for hearing in September and October, respectively.
The arbitral award was passed in 2018 in a dispute between SpiceJet and its erstwhile controlling stakeholder Kalanidhi Maran. It has been contested in the Supreme Court and Delhi High Court ever since, with multiple cases filed by both sides.
While the case itself has most likely reached its last leg in the Delhi High Court, how SpiceJet got to appear in two cases arising from the same order, on the same day, needs to be understood from the perspective of the law. Moneycontrol explains the difference between a challenge to an award and its execution, and how these cases can be heard by the courts simultaneously.
SpiceJet Vs Maran arbitration
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.
According to the award, SpiceJet had to pay Rs 308 crore in cash together with 12 percent interest for 30 months, as well as Rs 270 crore, either in the form of compulsory redeemable preference shares or through the return of money in terms of a Share Purchase Agreement. If the company failed to adhere to the timeline, Maran was entitled to interest of 18 percent.
SpiceJet and Maran challenged the validity of the award in the Delhi High Court, while Maran also filed a petition for execution of the award to recover the money awarded to him. Meanwhile, in 2020, the execution court had ordered SpiceJet to deposit Rs 242 crore within six weeks. SpiceJet challenged this in the Supreme Court and obtained a stay that lasted for 2.5 years.
In February 2023, the SC vacated the stay and directed SpiceJet to pay Rs 75 crore to Maran in three months alongside permitting the media baron to encash a bank guarantee of Rs 250 crore. In May, SpiceJet sought an extension to pay the Rs 75 crore. However, in July 2023, the SC refused to grant any extension and ordered that the arbitral award be executed.
Challenges to arbitral awards
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 before it is finally 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, the Supreme Court, through many judgments, has restricted the extent to which courts can interfere with an arbitral award.
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.
SpiceJet cofounder and chief Ajay Singh had sought to set aside the portion of the award that directed them to refund Rs 270 crore to KAL Airways and Kalanithi Maran. Additionally, they sought to waive the 12 percent interest on warrants and set aside the 18 percent interest granted in the award.
KAL Airways and Maran also requested the court to invalidate the portion of the award that included interest on the amount of Rs 270 crore for the non-issuance of compulsory redeemable preference shares.
On July 31, a single judge of the Delhi High Court dismissed both these petitions and upheld the validity of the arbitral award. However, SpiceJet and Ajay Singh challenged this order before a two-judge bench of the high court.
On August 24, a division bench of the Delhi High Court refused to stay the order and dismissed SpiceJet’s application for an interim stay. The main case will now come up for hearing on October 31.
Execution of arbitral award
When there are financial implications on a party in an arbitral award, the law also provides for a mechanism to recover the money. The Arbitration Act permits the use of a provision of the Civil Procedure Code (CPC), 1908, which deals with civil litigation in general.
Execution proceedings are different from appeal proceedings, as execution deals with recovery of the money as per the arbitral award and an appeal challenges the validity of the arbitral award as a whole. These proceedings are usually heard by two judges and deal with two aspects of an arbitral award, one being merit and the other being recovery.
According to the Arbitration Act, if the operation of the arbitral award is not stayed by the court hearing Section 34, there is no bar on the court hearing execution proceedings.
Hence, in SpiceJet’s case when the division bench of the High Court refused to stay the operation of the award, the execution court heard the case and directed SpiceJet and Ajay Singh to pay Rs 100 crore to Maran.
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