Case Note & Summary
The Bombay High Court, in its Ordinary Original Civil Jurisdiction, heard Execution Application No. 161 of 2009 filed by Sahara Airlines Limited & Others (decree holders) against Jet Airways (India) Limited (judgment debtor) seeking enforcement of a consent award dated 12 April 2007. The award, passed by an Arbitral Tribunal comprising Lord Steyn, Justice S.P. Bharucha, and Justice B.P. Jeevan Reddy, resolved disputes arising from a Share Purchase Agreement of 18 January 2006 for the sale of the entire share capital of Sahara Airlines Limited. Under the consent terms, the original consideration of Rs.2000 crores was reduced to Rs.1450 crores, payable by Jet in four annual installments of Rs.137.50 crores each, 'without any deduction and set off', with time being the essence. A default clause provided that any failure to pay an installment would automatically withdraw the concession and restore the original price of Rs.2000 crores. The dispute arose when Jet, claiming income tax liabilities for the pre-acquisition period were the selling shareholders' responsibility under the SPA, deducted Rs.37.08 crores from the first installment (paid on 31 March 2008) and Rs.50 crores from the second installment (paid on 30 March 2009). Sahara contended that these deductions violated the consent terms, triggering the default clause and making Jet liable for the restored amount of Rs.999.58 crores after adjusting payments already made. Jet resisted execution, arguing that the deductions were justified as indemnity and that the consent award was not executable. The court examined the extensive correspondence, the earlier Section 9 proceedings (including a Supreme Court transfer order), the release of escrow monies, and an interim order dated 31 March 2009 by Justice S.C. Dharmadhikari restraining execution of the warrant of attachment on condition that Jet not alienate its assets. Senior advocates Harish Salve and Fali Nariman appeared for the respective parties. The judgment, as excerpted, details the factual and procedural background but does not capture the court's analysis or final holding.
Issue of Consideration
Whether the execution application is maintainable; whether Jet was entitled to deduct tax amounts from installment payments despite the consent terms stipulating 'without any deduction and set off'; whether such deductions constituted default triggering automatic restoration of the original consideration of Rs.2000 crores; whether the consent award was executable as a decree; whether Jet's attachment of properties was justified
Law Points
- Execution of consent award under Section 36 of the Arbitration and Conciliation Act
- 1996
- payment without deduction or set-off
- automatic withdrawal of concession upon default
- adjustment of tax liability not permitted under consent terms
- executing court cannot go behind decree
Case Details
2011 LawText (BOM) (05) 12
Execution Application No.161 of 2009 with Chamber Summons Nos.551/09, 729/09, 603/10 & 477/11 and Notice No.734 of 2009 in Arbitration Award dated 12 April 2007
Harish Salve, Janak Dwarkadas, Zal Andhyarujina, Chetna Rai, R.J. Gagrat, Suman Khaitan, Sheetal D. Sabnis, Mohan Salian, G.T. Mestha, Ipsita Sen, Neha Mirajgaokar, Fali Nariman, Percy J. Pardiwala, Pradeep Sancheti, Satish Kishanchandani, Jatin Pore, Neha Shah, Tanu Banerji
Sahara Airlines Limited & Others
Jet Airways (India) Limited
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Nature of Litigation
Execution of a consent award passed by an Arbitral Tribunal under the Arbitration and Conciliation Act, 1996, arising from a Share Purchase Agreement for the sale of shares of Sahara Airlines Limited.
Remedy Sought
Sahara (second claimants/decree holders) sought execution of the consent award by payment of Rs.999.58 crores (the restored original consideration of Rs.2000 crores minus amounts already paid) from Jet, on the ground that Jet had defaulted by deducting tax amounts from installments.
Filing Reason
Sahara alleged that Jet defaulted in paying installments without deduction, triggering the clause that automatically restored the original purchase price.
Previous Decisions
Consent award dated 12 April 2007 resolved all disputes; transfer of shares on 20 April 2007. Earlier interim orders: Supreme Court transfer of Section 9 petitions to Bombay High Court on 28 August 2006; High Court order of 22 September 2006 permitting Jet to withdraw Rs.500 crores from escrow against bank guarantee; High Court order of 31 March 2009 by Justice S.C. Dharmadhikari staying execution of warrant of attachment on condition of non-alienation of assets.
Issues
Maintainability of the execution application under Section 36 of the Arbitration and Conciliation Act, 1996.
Whether Jet was entitled to deduct or set off income tax liabilities from the installment payments despite the consent terms specifying payment 'without any deduction and set off'.
Whether the deduction of tax amounts constituted a default triggering the automatic withdrawal of the concession and restoration of the original purchase price of Rs.2000 crores.
Whether the consent award could be challenged on grounds of nullity or fraud in execution proceedings.
Whether the attachment of Jet's properties was warranted.
Submissions/Arguments
Jet contended that income tax demands for pre-acquisition periods were the liability of selling shareholders under the SPA, entitling it to withhold and adjust amounts paid to tax authorities from the installments.
Jet argued that the adjustment was necessary to secure its indemnity rights and that the consent terms did not bar such adjustment for tax liabilities.
Sahara contended that the consent award required payment 'without any deduction or set off', and any deduction constituted a default triggering automatic restoration of the original consideration of Rs.2000 crores.
Sahara argued that the selling shareholders were not liable to indemnify Jet for the income tax demand as it did not exceed the threshold of Rs.50 crores stipulated in the SPA.
Jet sought to raise objections to the executability of the consent award, possibly on grounds of fraud or nullity.
Judgment Excerpts
Jet was liable to pay four annual instalments each of Rs.137.50 crores, “without any deduction and set off” on or before 30 March 2008, 30 March 2009, 30 March 2010 and 30 March 2011, time being of the essence. In the event of any default by Jet in the payment of the instalments, the concession was to stand “automatically withdrawn” and the consideration would stand restored from Rs.1,450/ crores to Rs. 2,000/ crores.
the Consent Terms stipulated that Jet will become liable to pay and “do pay” to the selling shareholders the price originally agreed of Rs.2,000/ crores.
Execution Application 161 of 2009 has been filed by Sahara for the payment of a decretal amount of Rs.999.58 crores. This comprises of the original price of Rs.2000/ crores, less the following amounts paid by Jet to Sahara...
Procedural History
18 January 2006: Share Purchase Agreement entered. 29 March 2006: Amendment agreement extended time for conditions precedent to 21 June 2006. 19 June 2006: Jet claimed SPA terminated due to non-fulfillment of conditions. Various Section 9 applications filed; Supreme Court transferred Lucknow petitions to Bombay High Court on 28 August 2006. 22 September 2006: High Court permitted Jet to withdraw Rs.500 crores from escrow against bank guarantee. 12 April 2007: Consent Terms filed; Arbitral Tribunal passed consent award. 20 April 2007: Shares transferred and management handed over. 23 August 2007: Income Tax demand for AY 2004-05 of Rs.444.5 crores; subsequently annulled on 17 June 2009. 26 March 2008: Jet informed Sahara of paying Rs.37.08 crores tax, sought reimbursement. 31 March 2008: Jet paid Rs.100.42 crores as first instalment (after deducting Rs.37.08 crores). 22 July 2008: Income Tax demand for AY 2005-06 of Rs.520.63 crores. 15 January 2009: Demand for Rs.1,135 crores for AY 2001-02 to 2005-06. 26 March 2009: Execution Application 161 of 2009 filed by Sahara. 30 March 2009: Warrant of attachment issued; Jet deducted Rs.50 crores from second instalment, paid balance Rs.87.5 crores. 31 March 2009: Justice S.C. Dharmadhikari directed that warrant of attachment not be executed until disposal of Chamber Summons, on Jet furnishing undertaking not to alienate assets.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 9, Section 36
- Code of Civil Procedure, 1908: Order 21 Rule 43, Order 21 Rule 64
- Income Tax Act, 1961: Section 156
