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IN THE HIGH COURT OF JUSTICE No. HC10CO2701
CHANCERY DIVISION [2013] EWHC 103 (Ch)
Between:
R. P EXPLORER MASTER FUND Claimant
v.
(1) RAVI CHILUKURI
(2) SPICE INTERNATIONAL GROUP LTD. Defendants
JUDGMENT
Introduction
1. The claimant is an investment fund organised in the Cayman Islands. It
seeks to invest both its own capital and that of affiliated funds and
investors in potentially profitable developments around the world. It is
associated with various other similar entities, and where in the course of
this judgment it is immaterial which entity is acting I shall refer to them
simply as ‘RP’. Otherwise I shall specifically refer to the claimant as ‘the
claimant’.
2. The Second defendant, ‘SIGL’, is a company incorporated in the Seychelles.
Mr. Chilukuri was the holder of the entire shareholding in SIGL, and its sole
director. It is and was associated with a loose grouping of a number of
companies, called alternatively the ‘Spice Group’ or the ‘Spice Energy
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Group’ and wealthy individuals, which and who were in 2007 looking to
exploit potentially valuable investment opportunities.
3. The First defendant, Mr. Ravi Chilukuri is a qualified accountant. He spent
fourteen years working for PricewaterhouseCoopers, becoming a partner in
1999 and leaving in 2006 to take part in other business ventures, including
(as a promoter with others) ventures with Spice Group. He played the role
in effect of the CEO for Spice Group, although that was not a formal
appointment and he was directly remunerated in his role as a director of a
particular company in the Spice group called CALS. He was regarded as one
of the promoters of the companies in the Spice Group. I use the description
of him as a ‘promoter’ in no technical sense. He, with others, promoted the
opportunities presented by the various Spice Group companies, and they
expected to benefit from the anticipated coming to fruition of those
opportunities through their interests in the relevant companies.
4. This action concerns an investment made in late 2007 of some $81 million
by the claimant, by way of purchase of Global Depository Receipts (‘GDRs’),
in an Indian company, CALS Refinery Ltd (‘CALS’) which is a company listed
on the Bombay Stock Exchange and which was also a company in the Spice
Group.
5. A GDR is a transferable security which represents ownership of a given
number of a foreign company’s shares and can be listed and traded
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separately from the underlying equity. I understand that in the present case
one GDR represented an underlying one hundred ordinary shares in CALS.
6. The investment was part of a scheme that included the acquisition and
construction of a petrol refinery in India, as well as a larger follow-on
scheme to develop various significant assets involving bitumen and iron ore
in the Bas-Congo region of the Democratic Republic of Congo (‘DRC’).
Clients and associates of RP were interested in a number of these assets,
and there was a potential mutual benefit both to the Spice Group and to RP
arising from such a joint project. That larger scheme, called ‘Project Loha’,
required the acquisition on terms to be agreed of some very significant and
potentially costly assets.
7. In view of the potential uncertainty of the fulfilment of the larger scheme,
as part of the initial transaction (the purchase of the GDRs) the claimant
took various forms of obligation to ensure repayment of its investment if
the scheme did not proceed. This claim concerns those obligations.
8. The claimant received a put option dated 19th
. December 2007 from SIGL in
respect of the investments it had purchased. That provided for SIGL to
repurchase the GDRs for the purchase price plus interest, reasonable costs
and (if completion were late) interest at 16%. That put option was to be
secured by a 40% shareholding in SRM Infrastructure Private Limited (‘SRM
Infrastructure’), an Indian company, together with ancillary rights. The
value of the shareholding was enhanced by two further agreements
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entered into as regards SRM Infrastructure, a shareholders agreement and
share acquisition agreement which were designed to protect the value of
the 40% shareholding, and to ensure that it was realisable.
9. The other form of obligation was an escrow deed dated 19th
. December
2007 executed by Mr. Chilukuri, in respect of his 26% shareholding in
another Indian company called SRM Exploration PVT Limited (‘SRM
Exploration’). That deed broadly provided that Mr. Chilukuri’s shareholding
was to be transferred to a Guernsey based nominee company called
Confiance, which was to hold it to the claimant’s instructions. The escrow
deed contained a power of attorney enabling the claimant to act, in certain
circumstances, on Mr. Chilukuri’s behalf in respect of his 26% shareholding
in SRM Exploration. In effect the deed provided RP with further security
against a failure to comply with the Put Option.
10. The scheme, entered into as it was relatively shortly before the 2008 global
financial crisis, did not in fact proceed. The investments lost a substantial
part of their value. The put option was exercised on 1st. December 2008,
but has not been completed by SIGL. It ought to have been completed by
30th
. January 2009. It has been suggested that SIGL has no or no significant
assets, although it defends these proceedings. The claimant asserts that it
has not been able to rely on its security either in respect of the put option
(because it has in fact been frustrated by the other shareholders and
directors of SRM Infrastructure), or pursuant to the escrow deed because
Mr. Chilukuri has not delivered his shares in escrow to Confiance. RP wishes
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to recover damages for the failure of SIGL and Mr. Chilukuri to comply with
their respective obligations to put the security in place and in the case of
SIGL to comply with its obligations under the put option.
11. These claims are contested on a multitude of different grounds. As far as
the obligations of SIGL are concerned, SIGL argues that the claimant is not
entitled to recover damages for its failure to complete the put option, and
that its only remedy is to pursue the security provided, namely the
shareholding in SRM Infrastructure. Had it done so, it would have obtained
whatever value that security had; but says SIGL the claimant has failed to do
so and so has failed to mitigate such loss as otherwise might have been
caused.
12. As far as Mr. Chilukuri’s obligations are concerned under the escrow deed,
he argues first that he has provided the security stipulated, which is the
26% shareholding in SRM Exploration Limited, either by way of his initial
transfer of documentation to Confiance in December 2007 (when he
purported to transfer a copy of the shareholder register together with a
signed letter of instruction), or by the despatch of a share transfer form
executed by Mr. Chilukuri on 28th
. March 2012; a stamped list of allottees
verifying the allotment, itself dated 2nd
. April 2012, and stamped transfer
forms signed as to some shares by Mr. Chilukuri and as to others by his
wife to the claimant under cover of a letter from his solicitors, Fasken
Martineau LLP on 4th
. May 2012. The claimant disputes these assertions,
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and the parties have adduced expert evidence on Indian law to seek to
resolve this issue.
13. Alternatively Mr. Chilukuri asserts that the terms of the escrow deed put it
out of his capability to constitute the security, and vested that right entirely
in RP. Therefore he is not in breach of any obligations thereafter, as he
could not comply with them.
14. Next, he argues that his failure to comply with the terms of the escrow
deed by constituting the security does not give the claimant a right to
damages, but only a contractual right to certain remedies specifically set out
in the escrow deed. This reflects one of the arguments mounted by SIGL in
its defence.
15. More broadly, the parties are substantially in dispute as to the underlying
value of the shareholding in SRM Exploration that was to be held by way of
security. The claimant asserts that the realisable value as at June 2009
(when the put option expired) was $11,539,206, of which approximately
$10.1 million relates to the valuation of a bitumen asset in the DRC. Mr.
Chilukuri for his part argues that the shares were worthless. They have
deployed expert valuation evidence to seek to resolve this.
16. One further specific dispute that has arisen relating to the value of Mr.
Chilukuri’s shareholding in SRM Exploration is as to the effect of a winding
up petition based on a guarantee given in 2007 by Mr. Chilukuri on behalf
7
of SRM Exploration to secure a debt of 230 million Czech Koruna (or
Crowns), when the exchange rate was approximately 30 CzK to the Pound
Sterling or 18.6 CzK to the US Dollar. Mr. Chilukuri contends that a full
discount should be made for that indebtedness; RP, noting that SRM
Exploration did not show it as a debt in its accounts, and that litigation over
the validity of the guarantee continues in India, contend that it should not.
17. Before I consider the evidence more closely I shall refer to the relatively
undisputed material and information in the case.
Spice Group
18. The investment scheme for CALS was promoted by members of the Spice
Group. The Group appears to have been a loose grouping of individuals
substantially based or with interests in India, who portrayed themselves as
being of very high net worth (and I have no reason to doubt that was so
and indeed is so) and being interested in a large number of companies. Mr.
Chilukuri referred to the members as being, certainly at one stage, thought
to be worth in excess of two billion US dollars. The promoters of the Group
were or included Mr. Chilukuri, Sanjay Malhotra, Bhulo Kansaga, Mohinder
Verma and Gagan Rastogi.
19. Some of the companies in the Spice Energy Group are in part intituled
‘SRM’. Those are the initials of Mr. S. R. Malhotra, who is the father of one
of the promoters of the Group (Sanjay Malhotra), and was a director and
shareholder of SRM Infrastructure. One of the companies in the group is
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well known for running a budget airline, known as Spice Jet. It appears that
the promoters all have some significant interest in some or all of these
various companies, and that they are grouped together by a broad
commonality of commercial interest. The three companies that are
particularly involved in the present dispute are SRM Exploration Limited,
SRM Infrastructure Private Ltd., and CALS.
20. SRM Exploration as at 5th
. December 2007 was recorded in company
documents as being substantially (98.73%) owned by Mr. Chilukuri. I refer
to the ownership in this somewhat elliptical way because the evidence
discloses a certain confusion as to the validity of the allotment of those
shares. The initial subscribers for the shares had been Mr. & Mrs. Malhotra.
Between 5th
. and 18th
. December further shares were issued to Mr. & Mrs.
Malhotra; Mr. Chilukuri’s wife; and Gagan Rastogi (who appears to be the
same person as Mr. Deep Rastogi), reducing Mr. Chilukuri’s interest to 26%
of the share capital. Exploration owned 51% of a joint venture to develop a
bitumen resource on the Democratic Republic of Congo, a 14.5% interest
in CALS; and an interest in an oil and gas field in Nagaland State in India
and refinery land at Haldia, India. The directors were Mr. & Mrs. S. R.
Malhotra, who resigned and were replaced by Mr. Deep Rastogi and Mr.
Kishan Gupta in the year to 31st. March 2007.
21. The shareholding in SRM Infrastructure Private Limited was held by Mr.
Chilukuri, a Mr. Verma, and Mr. & Mrs. Malhotra; and all four were also
directors of the company. SRM Infrastructure had been established for the
9
purpose of developing and constructing a multi-purpose special economic
zone at Mewat, Haryana. On 12th
. December 2007 Mr. Chilukuri and Mr.
Verma resigned from their directorships.
22. CALS is one of the companies in the Spice Group. Mr. Chilukuri was a
director of CALS until he resigned in January 2011.
The Scheme
23. The initial part of the scheme involved the purchase and dismantling of an
oil refinery, which was then situated in Ingolstadt, Germany; its carriage to
Haldia, West Bengal, India; and its subsequent construction and operation
there. The refinery would have a capacity of processing some 5 million
metric tons of oil per annum, and the projected cost of this scheme was
about $950 million. The scheme was to be carried out by CALS. It was to be
funded by taking on indebtedness as to 75% of the cost, and as to the
balance to be funded by equity, and this equity element was to be raised by
the issue of GDRs in respect of shareholdings in CALS on the Luxembourg
Stock Exchange.
‘Project Loha’
24. As well as negotiations over the investment of RP into the refinery project,
the parties were discussing the possibility of a more significant deal
between Spice Group and RP in respect of the exploitation of rights to mine
substantial bitumen deposits in DRC. The plan was set out in what was
described as a ‘Term Sheet’ executed by the claimant and Mr. Chilukuri on
10
behalf of Spice Energy Limited (a company within the Spice Group) on 12th
.
November 2007. It is common ground between the parties that this was
not a binding agreement, but a statement of intention by the parties.
25. The salient provisions of the Term Sheet were that:
(1) the claimant had the right to exploit bitumen deposits of some 200 million
tonnes. It would transfer that right to CALS.
(2) A client of the claimant would sell to CALS the right to exploit iron ore
deposits for at least $3 billion by 15th
. February 2008. The purchase price
was to be paid as to $1 billion in cash, of which $750 million would be re-
invested in CALS, and $ 2 billion in additional shares to be issued by CALS.
(3) CALS would raise between $200 and $250 million by the issue of GDRs on
the Luxembourg Stock Exchange by 26th
. November 2007, and the
claimant would invest between $30 and $50 million.
(4) If CALS did not acquire the iron ore asset by 15th
. February 2008, then the
claimant would have the right to require Spice Energy Ltd. to purchase its
GDRs at the cost of acquisition plus interest and associated costs.
(5) The parties would agree suitable security for the exercise of its right to sell
the GDRs to Spice Energy Ltd.
The claimant was considering purchasing a significant proportion of the
issued GDRs.
26. On 13th
. November the claimant and Spice Energy Limited executed a
further Term Sheet which provided for the purchase of GDRs in CALS from
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named transferees including Mr. Chilukuri, Mr. Kansagara, their friends and
relatives and Spice Energy India Limited.
27. As part of the transaction as indicated by the Term Sheets and indeed by
the various communications between the parties, the claimant required
security for its investment, in case Project Loha did not proceed.
28. The parties adduced a substantial quantity of evidence both by way of
correspondence passing between them and their respective solicitors; e-
mails, drafts of uncompleted agreements and direct evidence in witness
statements as to their negotiations. It is not necessary to set it out in detail
because the parties agree that such evidence of negotiations is not
admissible material in construing the actionable agreements that they
subsequently entered into. There is no application for rectification of those
agreements. As is often the case, this material has been put before me so
that I can have regard to what is urged to be the relevant factual matrix,
and business reality underlying the agreements. At the commencement of
the trial, the parties agreed that part of Mr. Chilukuri’s witness statement,
which dealt with the prior negotiations, would be redacted to remove
material that was objectionable because it was irrelevant, and I am grateful
to them for undertaking that task.
29. A sufficient flavour of the negotiations, and RP’s insistence on the
availability of good security, is shown by some communications that took
place on the 11th
. December 2008. Mr. Chilukuri referred me in evidence to
12
e-mails passing between RPs agents and himself that stressed the
importance of this security. Thus in an e-mail of 11th. December 2007 from
a Mr. Nemeth, RP asserted that:
‚For avoidance of doubt [the Claimant] is not allowed to invest in the
GDRs unless the security interest is created, i.e. shares in SRM
[Infrastructure] issued to Rajan Cosmetics. Regards, Peter‛.
The same day, a solicitor at Simmons & Simmons (the claimant’s solicitors)
e-mailed asking for the date of GDR issue so that they could:
‚plan for signing and completion of the Put Call agreement, the
Framework Agreement, and more importantly, the ‘security’ documents
together with all related completion documents. RP will require as a
matter of fact to have certainty that the Indian documents including the
share purchase agreement and shareholders agreement will be effective
no later than simultaneously with the GDR issuance.‛
30. Although it may be necessary to refer to other specific communications in
due course, from the evidence that I have seen and heard I would readily
conclude that the relevant factual matrix that formed the background to
the agreements reached on the 19th
. December 2007 was: that these were
agreements entered into under a little pressure of time (the issue of the
GDRs that was due to fund the initial stage of the project had in fact taken
place on 12th
. December 2007); that the parties to the transaction were
represented by highly professional and skilled legal advisers; that the
transaction that was being entered into was even in 2007, and without the
benefit of hindsight arising from knowledge of the world wide financial
13
difficulties that occurred in 2008, viewed by RP and the defendants and
indeed by Spice Group as one with significant risk; and that the claimant
was unwilling to invest a significant amount of money unless it obtained
acceptable security in respect of its repayment in the event that the project
stalled. It seems to me that these are unexceptional conclusions as to the
background matrix of fact in respect of an international funding deal of this
nature.
31. Mr. Cavender QC who represented the defendants has made the point that
none of the other investors in the issue of GDRs obtained security against
the failure of the project. That may be so, but that does not seem to me to
be a material background fact as far as the construction of these
agreements are concerned, still less is it a reason for construing security
provisions adversely to the claimant. Agreements of this sort function (or
indeed are not entered into) because each party assesses and negotiates its
own terms to reflect its perception of risk and benefit. I do not see why the
claimants should be penalised simply because they were, with hindsight,
more cautious or astute than other investors.
32. Those arrangements had not been finalised by the time CALS announced its
issue of GDRs on the 12th
. December 2007, and that issue was fully
subscribed without the involvement of the claimant. It was common ground
at the trial that the claimant was aware that it would be purchasing GDR’s
on the secondary market, and that it would therefore purchase them at
whatever their market value was at the time of purchase. If, as happened,
14
the value of the GDRs rose between the date of issue and the subsequent
purchase, then the initial subscribers and transferees of the GDRs stood to
make a significant profit.
33. On the 19th
. December 2007 various agreements relating to scheme were
entered into: the Mass II Agreement, the Option Deed and the Escrow
deed. The parties and their associates executed a share allocation
agreement and a shareholders agreement on the 27th
. December 2007.
These latter two agreements were drafted by the 19th
. December 2007, and
were part of the security package that RP was seeking and that the
defendants were willing to see given. It is appropriate therefore that they
are construed together.
Mass II Agreement
34. The ‘Mass II Agreement’ was entered into between Mass II Limited a
company incorporated in the Cayman Islands, and SIGL. Mass II is a
company associated with the claimant. By the agreement Mass II agreed to
transfer the iron ore assets (which were referred to in the agreement and in
evidence as ‘the B1 Assets’) to CALS for at least $3 billion, of which $1
billion was to be paid in cash and $2 billion in GDRs subject to CALS having
raised at least $200 million pursuant to the listing of GDRs on the
Luxembourg Stock Exchange on 12th
. December 2007, and the claimant
having bought GDRs.
15
35. The Mass II agreement is not thereafter of any relevance in construing the
other more material agreements; it does however demonstrate the
somewhat unspecific and large scale nature of Project Loha, and hence the
risk as well as the potential benefits that might flow from it. I note in
particular that the obligation to pay for the iron ore assets was an
obligation to pay ‘at least’ $3 billion. There appeared to be no mechanism
for calculating the relevant price, and so it seemed to me that it was not
really an obligation to pay a sum at all, but rather a stipulation as to a
contingency as to whether the security agreements might become
enforceable. Neither party has asked me to consider the effect of this
further, and I do not.
The Option Deed
36. SIGL and the claimant also executed the Option Deed. This granted the
claimant an irrevocable option to require SIGL to buy the GDRs the claimant
had just purchased. The entitlement to require SIGL to buy the GDRs was
conditional on CALS not purchasing the iron ore assets (the B1 Assets‛) as
provided by the Mass II agreement by 15th
. March 2008. The Option Deed
also granted SIGL a call option in respect of the GDRs in certain
circumstances.
37. I now set out the relevant terms of the Option Deed, substituting ‘the
claimant’ and ‘SIGL’ where they are otherwise described in the document. It
provided as follows:
16
‚Background
The claimant has agreed to grant to SIGL an irrevocable option to
purchase and SIGL has agreed to grant to the Claimant an
irrevocable option to require SIGL to purchase the Option GDRs on
the terms of this Deed.
2. Grant of Options and Option Terms
2.1 Grant
In consideration of £1.00 now paid by the claimant to SIGL ... SIGL
hereby grants to the claimant an irrevocable option to require SIGL
to purchase or procure the purchase of the Option GDRs (the ‘Put
Option’....
2.2 Option Price
(A) The Put Option Price for each Option GDR covered by
the Put Option, as exercised, shall be the cash sum of the
subscription price of each option GDR, plus interest
accruing at LIBOR on the amount of the Put Option Price
from the Date of Exercise to the date of Completion,
grossed up in accordance with clause 2.3, plus, if
applicable, a Charge, plus all reasonable costs of, and
incidental to, the exercise of the Put Option (which for the
avoidance of doubt, includes any stamp duty or stamp duty
reserve tax payable in connection therewith) incurred by the
claimant for each Option GDR, or where the Option Price
falls to be adjusted in accordance with clause 5 such sum as
shall be agreed by the parties or failing such agreement
within one month determined as in clause 5.
(B) The Call Option Price shall in respect of each option
GDR be the one month volume weighted average market
17
price of the option GDRs, as recorded on the Luxembourg
Stock Exchange, immediately on the Date of Exercise or
failing such agreement determined as provided in clause 5
and in any event, grossed up in accordance with clause 2.3
2.3 Gross-up
(A) Any payment made by SIGL or procured to be paid by
SIGL under clause 2.2 shall be made gross, free of any right
of counterclaim or set-off and without deduction or
withholding of any kind.
(B) If SIGL makes or procures the making of a deduction or
withholding required by law from any payment under
clause 2.2, the sum due from SIGL or procured due by SIGL
shall be increased to the extent necessary to ensure that,
after the making of any deduction or withholding, the
claimant receives a sum equal to the sum it would have
received had no deduction or withholding been made.
(C) If any amount paid or due to the claimant pursuant to
clause 2.2 is a taxable receipt, then the amount so paid or
due (the ‘Net Amount’) shall be increased to an amount
which, after subtraction of the amount of any tax on such
increased amount which arises shall equal the Net Amount.
The claimant shall use its reasonable endeavours to ensure
that any amount paid or due to the claimant pursuant to
clause 2.2. does not include a taxable receipt.
(D) SIGL shall indemnify and reimburse the claimant for any
cost incurred or loss suffered by the Claimant or Rajan (in
the claimant’s sole discretion) that relates directly or
indirectly to the sale of shares in SRM Infrastructure,
including in connection with any later costs of repatriation
of funds from India, to or at the direction of the claimant.
The claimant shall use its reasonable endeavours not to
18
incur any cost or suffer any loss in relation to this clause
2.2(D),‛
The reference to ‘Rajan’ is to Rajan Cosmetics (Madras) Private Ltd, an Indian
company that the claimant wished to use to hold the shares in SRM
Infrastructure on its behalf.
‚2.5 Security
SIGL shall enter into or procure the entry into of the security
documents in Agreed Form on or before the Subscription Date, as
security for the obligation of SIGL to the claimant under the Put
Option.
3. Exercise of an Option
3.1 Notice
(A) Notice of exercise of the Put Option may be given by
the claimant between March 15, 2008 and March 29, 2008
(or such later date as agreed in writing between Spice and
the claimant) in respect of the Option GDRs (or any of
them), provided that the Company has not completed the
Acquisition by that date, unless completion of the
Acquisition has not taken place by reason of a material
default on the part of Mass II Limited under the Framework
Agreement. If both parties under the Framework
Agreement agree that the purchase price of the B1 Assets
is less than USD 3 billion, the claimant shall not be
permitted to exercise the Put Option. The notice of exercise
shall, except to the extent circumstances may otherwise
require, be in the form set out in schedule 2 and shall
specify the number of Option GDRs to which it relates.
19
Completion shall take place not more than 180 days after
the Date of Exercise.‛
....
4. Completion
4.1 Completion
Except where clause 5.3 applies, Completion of the sale and
purchase of Option GDRs pursuant to the exercise of an Option
hereunder shall take place at a location to be agreed between the
parties and, failing such agreement, at the office of Zurich
Financial Services, 1 Castle Street, St Helier, JE4 9SR, Jersey, on the
date for Completion. SIGL shall notify the claimant in writing of
the date of Completion at least 5 Business Days prior to such date.
On Completion all (but not part only unless the parties shall so
agree) of the following business shall be transacted (in the order as
set out below):
(A) SIGL shall pay to or procure payment to the claimant
the Option Price (in accordance with clause 2.2(A)) in
respect of the Option GDRs by a banker’s draft drawn on
and made payable to the claimant or as the claimant may
direct .... (payment reference: RP Explorer Master Fund) and
SIGL shall give to the claimant at least 48 hours prior
written notice of such payment;
......
4.2 Effect of Completion
If a notice of exercise of an Option is given by the claimant or SIGL
in accordance with clause 3.1 and SIGL satisfies its obligations
under clause 4.1(A), the claimant shall procure that Rajan
renounces its rights to participate in the SRM Rights Issue in favour
of the SRM shareholders (other than Rajan) to the extent required
to dilute the shareholding of Rajan in SRM to a shareholding of
one per cent. (1%) of issued share capital on a fully diluted basis.
the claimant shall procure that Rajan transfers its shares in the
20
capital of SRM to SRM shareholders (other than Rajan) free from
any Encumbrances save for any Encumbrances that were created
over any shares in SRM in cooperation with the SRM shareholders
(other than Rajan).
4.3 Effect of non-Completion
If a notice of exercise of an Option is given by the claimant or SIGL
in accordance with clause 3.1 and SIGL does not satisfy its
obligations under clause 4.1(A):
(A) SIGL shall procure that each of the shareholders of
SRM (other than Rajan) renounces their respective rights to
participate in the SRM Rights Issue in favour of Rajan to the
extent required (on Rajan fully taking up on such rights) to
increase the shareholding of Rajan in SRM to fifty per cent.
(50%) of issued share capital on a fully diluted basis. SIGL
shall procure that SRM issues to Rajan the number of shares
in SRM required to increase Rajan’s shareholding to fifty per
cent of the fully diluted issued share capital of SRM; and
(B) in the event that Rajan exercises its right to sell its
shareholding in SRM, the claimant shall procure that Rajan
shall reimburse SIGL for the difference, if any, between the
amount of the proceeds of the sale of its shares in SRM less
the reimbursement or indemnity amount due or payable to
the claimant and Rajan under clause 2.3(D) (‚Sale
Agreement‛) and the amount of the Option Price (which,
for the avoidance of doubt, is grossed up in accordance
with clause 2.3), providing the Sale Amount exceeds the
Option Price as at the date of sale. If the Sale Amount is
less than the amount of the Option Price (which, for the
avoidance of doubt, is grossed up in accordance with
clause 2.3), SIGL shall procure that the shareholders of
SRM, other than Rajan, shall pay to the claimant or Rajan
21
the amount of the shortfall (grossed up in accordance with
clause 2.3).‛
.....
‚8. Special Economic Zone
8.1 SIGL shall procure that SRM and its shareholders (other than
Rajan) will use reasonable efforts to do and continue to do all
things necessary
(A) to ensure SRM is granted special economic zoning
approval in respect of the proposed purchase of the 2,500
acre property in Delhi, India (‘Property’) by SRM and
(B) to complete the purchase by SRM
(together the ‘SEZ Asset’)
8.2 SIGL shall procure that:
(A) to the extent that any of the subscribers for GDRs in the
capital of CALS (other than the claimant) are offered
security for any of their respective GDR interests in CALS,
the claimant or Rajan will contemporaneously be offered
security on the same terms (and for the avoidance of
doubt, on no less favourable terms) than the other
subscribers; and
(B) except for the security arrangements granted to Rajan in
respect of the shares in SRM and its interest in the SEZ
Asset, no other security will be grated over the issued share
capital of SRM or the SEZ Asset.‛
By clause 10.8 the option agreement was to be governed by English Law,
and by clause 10.9 exclusive jurisdiction was conferred on English courts.
38. The assets of SIGL in 2008 were of uncertain value. The put option
therefore (at clause 2.5) provided for security to be given over 40% of the
shareholding in SRM Infrastructure Ltd.
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39. By reason of Indian regulatory requirements it was not thought possible for
the claimant to acquire a shareholding in SRM Infrastructure directly.
Therefore it sought to do so by Rajan, which was a company entirely
controlled by RP. Mr. Chilukuri resigned his directorship of Infrastructure on
12th
. December 2007, and transferred his shareholding in the company to
Mrs. Meenakshi Malhotra, Sanjay Malhotra’s mother.
Share Acquisition Agreement
40. A share acquisition agreement executed on 27th
. December 2007 by SRM
Infrastructure, Rajan, and Mr. & Mrs. Malhotra transferred 40% of the
issued shares in SRM Infrastructure from members of Sanjay Malhotra’s
family to Rajan. Those shares were partly paid up. The Agreement stated
(by way of recital) that:
‚.... SRM Infrastructure has been established by Mr. & Mrs. Malhotra for
the purpose of, amongst others, the development of a multi-purpose
special economic zone project at Mewat, Haryana (‚Project‛)‛
The ‘project’ has been generally referred to as the ‘SEZ Project’, and the
value of that project represents SRM Infrastructure’s only significant asset.
Shareholders’ Agreement
41. On the same day, Rajan, Mrs. & Mrs. Malhotra and SRM Infrastructure
executed the shareholders agreement. In summary this provided that:
(1) By clause 2.1, Rajan’s shareholding was to be maintained at a level of 40%;
save that:
23
(2) On the earlier of fifteen days after an Event of Default, or the first
anniversary of the agreement, the shareholding was to increase to 50%
(clause 11). An ‘Event of Default’ was defined as being a material breach by
Mr. & Mrs. Malhotra or SRM Infrastructure of the terms of the shareholders’
agreement, or an un-remedied breach of any of the agreements entered
into by them in relation to the SEZ Project.
(3) The board would comprise four directors, two nominated by the claimant
and two by Mr. & Mrs. Malhotra, the parents of Sanjay Malhotra;
(4) Certain decisions of SRM Infrastructure required the consent of the
directors appointed by each party for their validity; this included the right to
make a call on shares (clause 4.6(u));
(5) If the claimant wanted to sell its shares in SRM Infrastructure it had the right
to require Mr. & Mrs. Malhotra to sell their shares as well (a so-called ‘drag
along right’), so that the claimant’s shares would not be devalued on sale
(clause 8);
(6) By clause 8(f) if the sale proceeds of the Sale Shares and the Dragged
Shares were less than or equal to 3,300,000,000 Rupees (about
£33,000,000) then RP would be entitled to the entire net proceeds; if more
than that, then the excess was to be distributed pro rata to the
shareholders. The consequence of this provision was that on sale, Mr. &
Mrs. Malhotra ran the risk that their own equity in the company would be
paid in whole or in part to RPs benefit.
(7) Mr. Malhotra acknowledged that he had entered into various agreements
in relation to the Mewat Land, and held the benefit of those agreements
24
for SRM Infrastructure (clause 10.6) and granted Rajan the right to require
Mr. Malhotra to perfect those agreements (clause 10.7);
(8) The governing law is Indian, and jurisdiction is conferred on the court at
Delhi (clause 15).
The Escrow Deed
42. The escrow deed was made between the claimant, Mr. Chilukuri and
Confiance Limited, a custodian company incorporated in the Channel
Islands, which was to act as the holder of Mr. Chilukuri’s 26% shareholding
in SRM Exploration on behalf of the claimant.
43. The Escrow Deed provided:
‚Background
Mr. Chilukuri owns 26 per cent. of the fully diluted issued share
capital of SRM Exploration Private Limited as at the Execution
Date...Confiance agrees to hold the Shares in escrow on the terms
set out in this Deed.
2. Obligations of Confiance
....
2.2 Confiance shall, within 3 business days after written notice is
given by the claimant, release and transfer or procure the release
and transfer of the Shares to the claimant (or as the claimant
directs), if:
25
(A) SIGL does not comply with its obligations under
clauses 4.1(A) and/or 4.3 of the Option Deed and SIGL has
not, within 180 days after the date of Completion (as
defined under the Option Deed), procured that the
shareholders of SRM Infrastructure Private Limited (other
than Rajan (as defined under the Option Deed)) reimburse
the claimant for the difference between the Option Price
(as defined under the Option Deed) as the Sale Amount (as
defined under the Option Deed) In accordance with clause
4.3(B) of the Option Deed (‚Reimbursement Amount‛); or
(B) RC does not comply with any of its obligations
under this Deed,
and the written notice by the claimant will be conclusive evidence
of such non-compliance under clauses 2.2(A) or 2.2(B).
‚3. Rights of Parties
3.1 the claimant shall have the right to sell, transfer or
otherwise dispose of all or any part of the Shares to any person or
entity such that the amount of the proceeds of such sale amounts
to:
(A) the sum due or payable to the claimant under clause
4.3 of the Option Deed, if clause 2.2(A) of this Deed
applies; or
(B) the costs incurred by the claimant as a result of RC’s
non-compliance with clause 2.2(B), if clause 2.2(B) of this
Deed applies,
and the claimant shall use its reasonable endeavours to obtain a
fair price for the sale of any all or any part of such sale of the
Shares.‛
44. Clause 4 grants a power of attorney in favour of the claimant :
26
‚Mr. Chilukuri hereby irrevocably and unconditionally appoints the
claimant to be the true and lawful attorney of Mr. Chilukuri and in
the name and on behalf of Mr. Chilukuri, to do and execute and
do all other instruments, acts, deeds and things which the attorney
considers necessary or proper for or in connection with the Shares,
including the power to sell, transfer or exercise voting rights in
respect of all or part of the Shares. The claimant’s rights and
powers under this clause 4 immediately come into effect on and
from the date in which the claimant specifies in the written notice
under clause 2.2 of this Deed.‛
45. Clause 5 provided for the constitution of the escrow:
5. Constitutional Documents
5.1 Within 14 days after the Execution Date, Mr. Chilukuri
undertakes that it (sic) shall procure that SRM Exploration:
(A) and the shareholders (other than the claimant) shall
enter into or amend a shareholders’ agreement with the
claimant that sets out the rights and obligations of each of
the shareholders including but not limited to the rights of
the claimant under this Deed; and
(B) shall create or amend the articles of association of SRM
Exploration to reflect the rights of the claimant under this
Deed
5.2 Within 14 days after the Execution Date, Mr. Chilukuri shall
transfer the Shares to Confiance to which the Shares will be held
in escrow in accordance with the terms of this Deed.
5.3 From the Execution Date to the date of transfer under clause
5.2, Mr. Chilukuri represents and warrants that it (sic) has legal
and beneficial title to and physical possession of the Shares and
the legal documentation relating to them.
27
6. General Provisions
6.1 Mr. Chilukuri warrants that the Shares are free from any
encumbrances, mortgage, charge, pledge, lien, assignment,
hypothecation, security interest, title retention or other security
agreement or arrangement.
6.2 Mr. Chilukuri indemnifies Confiance and the claimant against
any loss suffered or cost incurred by each respective party, in
connection with this Deed, for their wilful breach of their
obligation or their gross negligence.‛
46. There was some discussion as to what the second part of clause 6.2
actually meant. Both parties agreed that it did not make sense if read
literally. It appears that the escrow deed was the last piece of security
sought by the claimant, and the drafting may have been hurried. I
consider the true meaning of this provision below.
‚6.4 No failure to exercise or delay in exercising any right or
remedy under this Deed shall constitute a waiver thereof and no
waiver by any party of any breach of non-fulfilment by the other
party of any provision of this Deed shall be deemed to be a waiver
of any subsequent or other breach of that or any other provision
thereof. No single or partial exercise of any right or remedy under
this Deed shall preclude or restrict the further exercise of any such
right or remedy. The rights and remedies provided in this Deed are
cumulative and not exclusive of any rights and remedies provided
by law.
....
28
6.7 This Deed shall be governed by and construed in accordance
with the laws of England and Wales. The parties hereby submit to
the exclusive jurisdiction of the courts of England and Wales.‛
47. The claimant bought the GDRs from the transferees on 20th
. December
2007, paying $77,501,325.
Initial acts by SRM Infrastructure
48. At a board meeting held on 27th
. December 2007 at which Mr. & Mrs.
Malhotra only were present, the Board agreed to allot 9,035,335 partly
paid up shares in SRM Infrastructure to Rajan, on the footing that Rajan
was investing with the company in the development of a multi-purpose
special economic zone at Mewat, Haryana, India. It also appointed Mr.
Abishek Saxena and Mr. Saket Shukla as directors of the company
pursuant to the terms of the share acquisition agreement, and accepted
the resignation of Mr. Chilukuri and Mr. Mohindar Verma as directors.
The Company also resolved to adopt revised articles of association in
conformity with the requirements of the share acquisition agreement,
subject to the approval of the members. Thus far, matters were
proceeding as contemplated by the parties.
Mr. Chilukuri’s dealing with his shareholding in SRM Exploration
49. The Escrow Deed required Mr. Chilukuri to transfer his shareholding in
SRM Exploration to Confiance. A large proportion of the oral evidence
heard in the case concerned the steps that Mr. Chilukuri took, if any, in
29
order to comply with this requirement, either before the 19th
. December
2007 or subsequently.
50. Considering first the position prior to 19th
. December, I heard evidence
from Mr. Peter Nemeth. Mr. Nemeth was the in house counsel for RP
Capital UK Limited, an investment advisory company, at the relevant time.
He also provided legal advice to the claimant. His evidence broadly related
to the circumstances leading to the various agreements; the difficulties
that the claimant had in obtaining Mr. Chilukuri’s shareholding in SRM
Exploration; the reasons why it did or did not take certain steps to obtain
that shareholding, said to be relevant to mitigation of loss; and matters
relating to the valuation of the joint venture asset held by SRM
Exploration.
51. Mr. Nemeth appeared to me to be uncomfortable in certain parts of his
evidence, but given the close scrutiny that was being applied to decision-
making with which he was, at the least, significantly involved that had
not turned out well this was not so surprising. For my part I found him to
be a straightforward and thoughtful witness who had a good recollection
of material and who was willing to give as full and as accurate an answer
as he could.
52. Mr. Chilukuri’s shareholding in SRM Exploration had been a matter of
some concern to RP prior to 19th. December. They had initially been
informed (by production of a resolution of the Board of SRM Exploration
30
dated 18th. December) that the 26% shareholding had been allotted to
an entity called ‘Tokara Trust’, and SRM Exploration noted that they were
held for the instructions of Confiance, but in terms that did not reflect
the provisions of the escrow Deed:
‚b. the Company do take note of the investments of 26% in the
equity capital of the Company by Tokara Trust on behalf and to
the benefit of Mr. Ravi Chilukuri, which is held for the instructions
of Confiance Limited...acting as Trustee on behalf of Tokara
Trust.‛
The Tokara Trust appears to be an entity existing for the benefit of Mr.
Chilukuri’s relatives; and the resolution was inaccurate because there
was no trust relationship between Confiance and the Tokara Trust, or
indeed anyone.
53. Mr. Nemeth insisted that the shares were to be issued to Mr. Chilukuri
personally. The board passed a further resolution on the 18th. December
2007 that stated that the 26% shareholding had been allotted to Mr.
Chilukuri, and that it was held for the instructions of Confiance, in the
following terms:
‚a. On request of Mr. Ravi Chilukuri to undertake to amend the
shares in his personal name, the company decided to amend and
replace the decision pursuant to the previous Board Meeting held
on 18 December 2007 with the following decision.
31
The Company does take note of the investments of 26% in the
equity capital of the Company by Mr. Ravi Chilukuri, which is held
for instructions of Confiance Limited...‛
54. Notwithstanding this clarification, on 19th. December Mr. Rastogi sent
Mr. Nemeth an e-mail enclosing the Tokara Trust resolution of the 18th
.,
and a letter addressed ‘to whom it may concern’ stating that the
shareholder register would be updated to include Tokara Trust.
55. Mr. Nemeth then e-mailed Mr. Vivek Mittal (who was acting on behalf of
Spice Group and Mr. Chilukuri) to say that:
‚We are act[ing] with the understanding that Ravi Chilukuri is the
owner of 26% of shares in SRM such shares being without delay
delivered to Confiance. We expect to receive upon such transfer of
shares to Confiance a written confirmation that the share[s] were
delivered to them and will be released in accordance with the
Escrow Deed.‛
Mr. Nemeth was anticipating the receipt by Confiance of share
certificates in respect of this shareholding.
56. According to Mr. Chilukuri, shares amounting to 26% of the issued
shareholding in SRM Exploration had been allotted to him by SRM
Exploration by the 19th
. December 2007.
32
57. Mr. Chilukuri said he sent the share transfer forms from Singapore (where
he happened to be) to India for stamping, and for onwards transmission
to Confiance. They were to be sent to Confiance together with ‘the
shares’. He asked his secretary to send to Confiance a copy of the
shareholders’ register showing his shareholding, and a signed letter of
instructions to SRM Exploration authorising Confiance to deal with his
shareholding. This, he said, would be sufficient to enable Confiance to
carry out its obligations as required. Although these documents would
have been sent from India to Confiance under a covering note, there is
no secondary evidence by way of copies or some other record that these
documents were in fact sent.
58. In a reply to a Part 18 request made of him by the claimant, he had
described the documents that he sent as a ‘letter of instructions’ together
with the shareholder register’. He told me that the share transfer form is
a document in standard form downloadable from the internet, and it was
that he was referring to as a ‘letter of instructions’. I do not find that very
convincing. A letter of instructions is I would have thought a bespoke
direction to a party subject to a power. A share transfer form is a
standard form document that is executed and sent to the company.
59. Mr. Rastogi, who was a director of SRM Exploration, sent a signed
declaration on behalf of Exploration to Confiance dated the 18th
.
December 2007, confirming that Mr. Chilukuri had such a shareholding.
But the claimant had two problems. The first was that as a result of this
33
information it was unsure as to whether the shares had ever been validly
allotted to Mr. Chilukuri. The second was whether he had in fact
complied with his obligation to put them into Confiance’s possession.
60. The matter became more complicated when RP’s Indian lawyers, Trilegal,
informed it that the resolutions of 18th. December 2007 were invalid.
They drafted amended resolutions and sent them to Mr. Mittal for
execution. Despite numerous chasing telephone calls, letters and e-mails,
up to the end of November 2008 there was no satisfactory response. By
way of example, on 6th. February 2008 Mr. Mittal e-mailed RP to
apologise for the delay; explained that Mr. Rastogi was travelling; and
that the documents would be dealt with on his return. On 25th. February
2008 Mr. Mittal explained that he had conveyed the urgency of the
matter to the directors of SRM Exploration. In March Mr. Chilukuri had
promised an RP associate, Mr. Rajan, that the documents would be taken
care of when he was in India the following week. But there were no
further relevant documents executed until 2012.
61. Mr. Chilukuri accepted that he in fact did nothing. He told me this was
because he was leaving it to SRM Exploration to deal with RP as
necessary. Although he received copies of further chasing e-mails, his
response would simply to have been to ask Mr. Rastogi to deal with the
request. The impression that I was left with was that Mr. Chilukuri was
willing to give RP and its agents the impression that he was taking or
would take steps to deal with matters, as Mr. Chaudhry made clear in his
34
e-mail to Mr. Mittal of 6th
. March 2008, but that he did very little. His
explanation was that he was very busy trying to rescue Project Loha, and
there were many other calls on his time; and he thought that others such
as Mr. Rastogi would act. He never stated that he would not act; on the
contrary he gave the impression that he would. Mr. Chilukuri told me
that there came a time after the exercise of the put option when he was
advised that it would be unwise, if not improper, for him to take steps
under the escrow deed as he risked infringing the claimant’s rights by so
doing and acting inconsistently with the claimant’s interests. It was
indeed an issue in this case (until the hearing itself) whether the grant of
the power of attorney in the escrow deed barred Mr. Chilukuri himself
from taking any steps to perform personally his obligations under the
escrow deed. For present purposes what is notable is that he took no
steps to inform RP when being asked to carry out such steps, that he
could not; or at the very least that he was not going to.
62. Equally, when asked to provide information relating to SRM Exploration
he did not comply with the request, or on occasion respond at all. The
flavour of the correspondence is shown by an e-mail from Mr. Chaudhry
of RP to Mr. Chilukuri dated 24th.November 2008, which attached three
draft documents for execution. It said:
‚Dear Ravi,
Further to your meeting with SR last week where he requested that
the copies of the following documents be provided as soon as
possible, these items are long outstanding and I would kindly ask
35
you to confirm when these will be sent to me at the address
below.‛
The letter then set out the three documents required: a form confirming
the resignation of Mr. Verma and Mr. Chilukuri from SRM Infrastructure;
an extract from a resolution by the Board of SRM Exploration; and
corresponding minutes.
‚These were part of the discussion between Vivek [Mittal] and Peter
Nemeth in December 07 when we were closing the Cals
transaction. At the time Vivek promised us to have the documents
re-executed by the relevant company representatives re: issuance of
shares to Ravi.
Subsequent to PN emails I chased Vivek for these and then Vishal
who all promised that we would get them; this was in late June
2008. Would kindly ask you to send these to me as soon as
possible and please let me know if I should also chase Vishal and
Vivek directly as well but I have not had much luck in the past on
getting these documents.‛
63. Mr. Chilukuri accepted that he had had a meeting with Mr. Rajan at
which he had given Mr. Rajan the impression that he would produce
these documents. His evidence was that he must have asked Mr. Rastogi
to produce them, but he could not recall doing so. When asked whether
there was any documentary evidence suggesting that he had ever asked
any third party to produce the documentation that he was being asked
by RP to produce, he said there was none.
36
64. The other issue, and the next to arise, was as to the transfer of possession
of the shares to Confiance. On 24th
. November 2008 Mr. Nemeth
enquired whether Confiance had received the Exploration share
certificates. At trial the claimant produced a witness statement from Mr.
Le Page, a director and shareholder of Confiance. Mr. Le Page was not
cross-examined on his statement, and gave evidence that he made
enquiries of Mr. Chilukuri as to the delivery of the shareholding; was
advised that the share certificates had been sent by him to Confiance in
December 2007; told him that they had not been received, and asked
him to consider sending duplicate certificates. On 17th
. December 2008
Mr. Le Page forwarded to Mr. Chilukuri the notice of non-compliance
under the escrow deed, and asked him to advise Confiance on the
whereabouts of the share certificate. He has heard nothing from Mr.
Chilukuri.
65. According to Mr. Chilukuri, when Mr. Le Page wrote to him to tell him
that the documentation had not been received, he appreciated that this
was a very serious matter. He informed the directors of SRM Exploration
that ‘the share certificates had not been received by Confiance’. Pausing
there, it is difficult to see how Confiance could have received the share
certificates when Mr. Chilukuri had not sent it to them and never had it
to send, and they were apparently only to hold Mr. Chilukuri’s letter of
instruction (or share transfer form) giving them the power to deal with his
shares. His response was to notify the directors of SRM Exploration, but
37
not to respond to Mr. Le Page. SRM Exploration did not respond to him.
This was, he suggested, because the administration at Spice was a large
one and it was not easy to discover who had dealt with the documents
that he sent. He would have followed the matter up when he was next in
India, but before his return he received a notice of non-compliance. Once
that notice had been served, he was advised that it was then a matter for
the claimant, and not for him, to deal with the transfer of shares.
Thereafter, notwithstanding further letters of inquiry from RP, he did
nothing. The lawyer said that he would deal with it. Mr. Chilukuri did not
respond to any of these letters, even to refer RP to his own lawyers. He
said that he did not think to do so. It does not appear that Mr. Chilukuri’s
lawyers ever responded, either. One explanation given for not
investigating the matter is that it would have taken a lot of time; and for
not getting on with the investigation was that there were other matters
to be concerned with in this difficult time. None of these explanations
really deals with the total silence from Mr. Chilukuri.
66. It is therefore not in dispute that Confiance did not receive any
documentation from Mr. Chilukuri or SRM Exploration sufficient to
discharge Mr. Chilukuri’s obligation to transfer his shares in SRM
Exploration at least before 4th
. May 2012.
67. Mr. Chilukuri was cross-examined over a meeting he had with Mr.
Nemeth and others in London on 12th. January 2009, and I found this
exchange illuminating. Mr. Nemeth had given evidence that Mr. Chilukuri
38
at that meeting was asked to, and agreed to transfer his SRM Exploration
shares to RP. In his own evidence Mr. Chilukuri first said that he did not
remember the content of the meeting; then did not recall being asked to
transfer shares; accepted that he was handed a letter (in which the
request was formally made) but said that he neither read it nor indeed
accepted it but left it on the table. The impression that I was left with, as
Mr. Lord put it in cross-examination, was that Mr. Chilukuri was making it
up as he went along. The letter that was sent to Mr. Chilukuri the next
day recording the discussions corroborated Mr. Nemeth’s evidence. I have
no doubt that Mr. Chilukuri had agreed to perfect the security as
requested by Mr. Nemeth. Had he declined to do so he would have had
to have given a reason for so refusing. He did not. Tellingly, when Mr.
Lord put the letter of 13th. January to him as evidencing an agreement,
his response (picking up the particular wording on the letter, where it
suggested that the parties should ‘ move in [a] positive direction as
discussed’) was to say that there was no agreement, only discussion. Of
course, that was inconsistent with his earlier stance on the point in cross-
examination, where he sought to give the impression that the point was
not discussed at all.
68. I would also note that Mr. Le Page’s evidence referred to enquiries being
made as to Mr. Chilukuri’s share certificates in SRM Exploration, and as to
the response from Mr. Chilukuri in respect of these documents which
referred simply to shares – Mr. Le Page took this, in my view
understandably, to refer to the share certificates that his enquiry referred
39
to. Given that the parties have been in sharp disagreement as to the
nature of the documentation that is necessary for Mr. Chilukuri to
provide (if it is necessary for him to provide anything) that seems to me to
be evidence that is potentially material in this case. Both Mr. Le Page and
Mr. Chilukuri understood that their discussions related to the provision of
share certificates.
69. In his defence as to the claim as initially served in October 2010 Mr.
Chilukuri said that:
‚[He] is seeking to get the shares reissued and thereafter transferred
to Confiance pursuant to the terms of the Escrow Deed‛
But he admitted that he had done no more than seek a further share
transfer form. His explanation was that the claimant had initially brought
the claim in fraud, seeking freezing relief. He was therefore under great
stress when he pleaded his defence, and the Defence was not accurate.
Findings
70. I found Mr. Chilukuri’s evidence entirely unconvincing in a number of
material areas. It is a fact that no communication was received by
Confiance at all. It is of course possible that post may go astray. Mr.
Chilukuri’s evidence is that he left the task to an efficient employee.
There is no record of any such task having been undertaken. It is unlikely
that such formal documents would have been sent to Confiance without
the benefit of a covering letter, or some formal record being made.
However no such secondary documentation has been disclosed.
40
According to Mr. Chilukuri there was no covering letter; the
documentation was simply sent under cover of a compliments slip. That
appears to me to be inherently unlikely. Further, the communication was
procured at a time when Mr. Chilukuri was away from India. Although
there is much evidence that Mr. Chilukuri was happy to communicate by
e-mail (when he was happy to communicate at all) his evidence was that
this particular instruction was given orally by telephone. Under cross-
examination, his suggestion that it was difficult to locate relevant
documentation because of the size of Spice’s administrative operation I
am afraid appeared to me to be evasive. I note also the contrast between
the lack of any supporting detail or secondary evidence in evidence, and
the precision with which Mr. Chilukuri put the matter in his pleadings. He
stated that ‘The shareholder register together with a signed letter of
instruction was sent to Confiance by the last week of December 2007 by
first class pre-paid post’. In evidence he said he had no knowledge as to
how the documents had been sent; this was his assumption.
71. More generally I look at Mr. Chilukuri’s subsequent behaviour, when
Confiance and RP were seeking to obtain the share certificates. It varied
between ignoring the communications, and as at the meeting held in
London between Mr. Chilukuri, Mr. Rajan of RP and others on the 12th
.
January 2009 agreeing that he would procure the transfer of the
shareholding to the claimant. I reject Mr. Chilukuri’s account of that
meeting where it differs from the content of Mr. Rajan’s letter to him
dated 13th
. January 2009.
41
72. Mr. Chilukuri as I have noted above sought to explain his decision not to
become involved with the shareholding once the power of attorney had
been exercised by reference to legal advice that he had received that he
should not do so. If he received such advice (and Mr. Cavender, as he
was entitled, sought privilege in respect of such advice on behalf of his
client; Mr. Lord did not press for disclosure or argue waiver of privilege)
then I do not accept that it extended to advising him that he was obliged
to stonewall or refuse to respond to requests for compliance at all. At the
very least one would have expected Mr. Chilukuri to have asserted that
he could not so act; or that he had been advised that he could not so act.
If the matter was as straightforward as he asserted, then the position
would have been made clear. But he did not.
73. Nor do I accept Mr. Chilukuri’s explanation that his failure to respond was
caused by his being extremely busy with other matters. Whilst accepting
that he was in fact extremely busy with other matters, this was a matter
that related to his own personal obligations and to a valuable
shareholding of his own. Some proper response to correspondence
would have been provided by him, but none was. In the circumstances I
conclude that no effective response was made because there was none to
make. Mr. Chilukuri had not constituted Confiance as custodian of the
shares, and I find that he knew that he had not, at the latest when
Confiance wrote to him on the 17th
. December 2008. If it is necessary to
make a finding on the point, I conclude that no letter was sent by him (or
42
at his direction) to Confiance in the last week of December 2007, and
that he gave no instructions that this be done.
74. My overall assessment of Mr. Chilukuri was that he was superficially
plausible, but when pressed on matters of factual dispute was
unconvincing. His explanation for many months’ inactivity in the face of
requests to transfer his shareholding in SRM Exploration to Confiance I
find unlikely to be true. I think it likely that he was simply avoiding
complying with his obligations in the hope that something would turn
up. It did not. I am take particular note of the difference in his evidence
with Mr. Nemeth as regards the meeting on 12th
. January 2009. I found
his evidence on this point lacking in credibility. Where his evidence differs
from that of Mr. Nemeth, I prefer the evidence of Mr. Nemeth.
Extension of Time for Performance
75. On the 18th
. March 2008 the claimant and SIGL entered into an
agreement to amend the terms of the Option Deed, extending the time
for the triggering of the rights under the options until the 29th
. April
2008.
76. The claimant was at this time negotiating with Spice Energy Group and
Mr. Chilukuri to deal with the bitumen rights in certain ways. Although
various proposals were produced, none were followed through into a
binding agreement.
43
77. In April 2008 RP agreed to take direct control of the Bitumen Asset in the
DRC, and entered into a Term Sheet to that effect expressed to be
between RP Capital Partners Cayman Islands Limited, SRM Exploration’s
shareholders, identified as Mr. & Mrs. Malhotra, Mr. G. Rastogi and Mr.
Chilukuri. In relation to this agreement he, on behalf of the shareholders,
paid the claimant £15,000 by cheque. No further steps were taken by the
claimant, and neither has it reimbursed the £15,000. I was puzzled by
this evidence. The Term Sheets that the parties executed elsewhere are
plainly non-binding heads of agreement, and this document is expressly
stated to be non-binding. The payment appears to have been made or at
least to have been treated as a payment on account of legal fees –
according to an e-mail sent by Mr. Vaish of RP to Mr. Chilukuri on the 8th
.
April 2008. There is no counterclaim for the sum.
78. On the 21st. April 2008 the claimant and SIGL entered into a second Deed
of Amendment to the Option Deed, which further deferred the parties’
rights to exercise the put and call options by reason of non-purchase of
the iron ore assets until 31st. August 2008.
79. According to Mr. Chilukuri Spice Energy Group carried out investigations
into the quality of the RP Iron Ore asset, and by March 2008 found it to
be worth very much less than RP had initially indicated. It was for this
reason that Project Loha did not proceed, because it did not make
economic sense for CALS to acquire it. I gained the impression that Mr.
Chilukuri (whose evidence this was) put it forward in order to be critical
44
of RP. I do not consider it to be relevant to the present issues. The only
slight relevance may be that there was no suggestion that Project Loha
collapsed because of concerns over the viability of the Bitumen Joint
Venture.
80. A third Deed of Amendment delaying the right to the 31st. January 2009
was executed on 27th
. August 2008. By this time it appears that RP was
taking a more pro-active role in seeking to market and develop Project
Loha. There were negotiations going on with the Dubai Investment
Group for investment into CALS, and what was said to be an alternative
equity investment. SIGL was to procure a purchase of GDRs from the
claimant, and RP was appointed an adviser to SIGL in respect of
financing.
The Conduct of SRM Infrastructure
81. As I have indicated above, part of the security for the exercise of the put
option was a shareholding in SRM Infrastructure Ltd., the other directors
and shareholders of which were Mr. & Mrs. Malhotra, the parents of
Sanjay Malhotra. It is the claimant’s case that they, and SRM
Infrastructure, have been seeking, improperly, to prevent Rajan from
exercising any of its rights in SRM Infrastructure through a policy of
removing its directors, undoing the various agreements entered into by it
and forfeiting its shareholding, on essentially contrived grounds.
45
82. The claimant points to acknowledged ties of friendship between Mr.
Chilukuri and Sanjay Malhotra as tending to show that, even if Mr.
Chilukuri was not in agreement with these steps, he knew of them.
83. I stress that I have not heard from Mr. & Mrs. Malhotra or Mr. Sanjay
Malhotra in connection with this aspect of the dispute. They are not
parties to this litigation, and that the comments and findings I make
derive solely from the information that has been put before the Court.
84. The documentation relating to Infrastructure that I have seen shows that
on the 15th. August 2008 it purported to give notice of a board meeting
to be held on 24th
. August 2008. At that meeting Mr. & Mrs. Malhotra
noted that Rajan’s directors had not attended the meeting, and that
there had been no communication with them since the execution of the
shareholders’ agreement. The meeting went on to consider routine
administrative matters.
85. On the 21st. March 2009 SRM Infrastructure purported to give notice of a
board meeting on 31st. March 2009. At that board meeting Mr. & Mrs.
Malhotra purported to remove Mr. Saxena and Mr. Shukla as directors of
Infrastructure, by reason of their continued absence from board meeting
and the company generally. They also resolved to reinstate the original
Articles of Association of Infrastructure, prior to the amendments made
to them pursuant to the Shareholder Agreement of the 27th
. December
2007. The claimant’s case is straightforward – their directors and
46
nominees never received notification of any of these meetings, and it had
no notice of them either.
86. On 7th
. April 2009 Rajan, apparently oblivious to what was taking place
as regards the management and ownership of SRM Infrastructure, wrote
to Infrastructure requiring it to allocate a further 10% of shares to Rajan
pursuant to clause 11.1 of the Shareholders’ Agreement, and asking for
copies of all board resolutions since the date of the Shareholders’
Agreement. There was no response from Infrastructure.
87. On 11th
. August 2009 Rajan issued a notice of sale to Infrastructure
pursuant to clause 11.2 of the Shareholders’ Agreement. There was no
direct reply, but the effective response by Infrastructure (of which the
claimant says that it and Rajan were unaware) was on 30th
. September
2009 to pass a resolution to reinstate its pre-Shareholder Agreement
Articles of Association.
88. On the 5th
. February 2010 Infrastructure wrote to Rajan requiring it to
fully pay for the shares it had been issued, asking for a sum of about £1
million. It is noteworthy, first, that SRM Infrastructure was able to
communicate with Rajan for this purpose, but was apparently not able or
willing to respond to them in respect of Rajan’s earlier communications;
and secondly that the sequence of events, with the removal of Rajan’s
nominee directors followed by the making of the cash call on the shares
was a method of circumventing the restriction on making cash calls
47
without Rajan’s directors’ consent by reason of clause 4.6(u) of the
shareholder agreement. In any event, Rajan asserted that the call was
ineffective. Notwithstanding this, in March 2010 Infrastructure resolved
to forfeit the Rajan’s shares for non payment of the call.
89. As far as these matters are concerned, the claimant has relied on a
witness statement from Mr. Saxena, who is a partner in Phoenix Legal, an
Indian legal firm, and who was at the relevant time a partner in Trilegal,
an Indian legal firm that had advised the claimant. Mr. Saxena and Mr.
Shukla had been appointed to the board of SRM International pursuant
to the terms of the Shareholders Agreement. According to Mr. Saxena,
neither he nor Mr. Shukla were aware of the board meetings. They had
not received any notification of such meetings. Mr. Saxena only became
aware of the board meetings in 2008 and 2009 after Rajan filed a
petition against Infrastructure before the Company Law Board in India.
Infrastructure has provided copies of the Notices of Board Meetings, and
certificates of posting for each.
90. I have not been informed of the state of the litigation before the
Company Law Board, save that it is continuing.
91. Mr. Chilukuri said that he had no connection with what Mr. & Mrs.
Malhotra were doing. Mr. Cavender commented, in his skeleton
argument, that Mr. Chilukuri accepted Mr. Saxena’s evidence because the
defendants were not in a position to and had no evidence to contest it.
48
Although that undoubtedly accurately reflects the factual position of Mr.
Chilukuri at the commencement of the trial, it is not a complete answer
to the point. There are provisions in the Civil Procedure Rules that enable
evidence to be taken from witnesses who are overseas. There is as far as I
can see no reason why, if Mr. & Mrs. Malhotra were acting in good faith
as regards their obligations to Rajan, they could not have been asked to
explain themselves. Part of the issues in this case revolve around the
relationship between Mr. Chilukuri and other members of the Spice
Group, and in particular Mr. & Mrs. Malhotra; and the motivation of Mr.
& Mrs. Malhotra towards Mr. Chilukuri and towards RP. I have no reason
to suppose that they could not have given evidence and (in those
circumstances) had they been asked they would have been willing to do
so. Given the pre-existing relationship between the Promoters of the
Spice Group, if anyone was to take the step of obtaining such evidence, it
should have been the defendants. That they did not leads me to infer
that they did not wish to do so for fear of what might be revealed.
92. The defendants elected not to cross-examine Mr. Saxena (who therefore
did not attend the hearing), and so for the purposes of the present
litigation I accept that neither he nor Mr. Shukla received the notices of
board meetings in question, or had any knowledge of Infrastructure’s
removal of them as directors prior to early 2010.
93. Mr. Chilukuri had some involvement in these events. He told me that he
is still a friend of Sanjay Malhotra, but does not discuss any of the
49
litigation with him. He does not talk to Mr. & Mrs. Malhotra, last
discussing business with them when he resigned from the board of SRM
Infrastructure in December 2007. It was put to him that he had dealt with
the proposed mandate for the SEZ land, which was an asset of SRM
Infrastructure, in December 2008, when Mr. Vaish on behalf of RP had
sent him a mandate letter for signature by Mr. & Mrs. Malhotra and
Infrastructure. His response was that he was simply a conduit for the
document, and could not remember what he did with it.
94. When RP through Rajan had become entitled to increase its shareholding
in SRM Infrastructure to 50%, it had e-mailed Mr Chilukuri on 13th
.
January 2009 asking him to arrange this. Mr. Chilukuri suggested that he
had been sent this communication as a matter of record, because he was
not in fact involved with SRM Infrastructure at this time. He accepted that
he did not respond to the e-mail, or inform RP that he had nothing more
to do with SRM Infrastructure.
95. In May 2009 there was an exchange of e-mails between Mr. Rajan of RP
and a Mr. Dewan of KB Chawla & Co. legal advisers to SRM
infrastructure, asking about the current position of the SEZ land. Mr.
Dewan said that because Mr. Malhotra was unwell, Mr. Rajan could
discuss the matter either with Sanjay Malhotra or with Mr. Chilukuri. Mr.
Chilukuri suggested that his name might have been put forward because
Mr. Dewan knew of his friendship with Sanjay Malhotra. This document
certainly gives the impression that Mr. Chilukuri was in practice
50
knowledgeable about the affairs of SRM Infrastructure. Mr. Lord put to
Mr. Chilukuri that he always had the power to ‘call the shots’ with the
SRM companies, because he was a promoter of Spice Group. Mr.
Chilukuri denied that he had such a power, and Mr. Lord did not suggest
where the basis of this power lay.
96. Mr. Chilukuri’s stance in respect of these events was, essentially, that it
was nothing to do with him. He accepted that he retained a social
friendship with Sanjay Malhotra, but Sanjay Malhotra was not financially
interested in SRM Infrastructure.
97. As far as the dealings with SRM infrastructure are concerned, I conclude
that the steps taken by Mr. and Mrs. Malhotra must have been made as
part of a scheme to remove any interest that RP, through Rajan, had in
the company. It is surprising that the only purported communication
between directors would have been though formal notification of board
meetings. Had the removal of the directors and the subsequent
repudiation of the shareholders agreement, and forfeiture of the call on
Rajan’s shareholding, been steps taken in good faith I would have
expected to see evidence of other attempts to contact Mr. Shukla and
Mr. Saxena; or to contact RP (who Mr. & Mrs. Malhotra must have
known were the ultimate owners of the shareholding). They could have
been readily contacted through Mr. Chilukuri. Their failure to seek to
contact RP or its associated personnel is both inexplicable and
unexplained.
51
98. My conclusions on this aspect of the case are that:
(1) Mr. Saxena and Mr. Shukla did not receive the documentation
purportedly sent to them relating to their removal or the rescission of
the shareholders agreement and share allocation agreement;
(2) Mr. & Mrs. Malhotra were aware that Mr. Saxena and Mr. Shukla had
not received any notification of the relevant meetings or resolutions;
(3) Mr. & Mrs. Malhotra were conducting a scheme to remove all interest
and influence of RP and Rajan from SRM Investments, and since 2009
have done all they can to obstruct RP from exercising its interest in the
company.
(4) Mr. Chilukuri was likely to have known what Mr. & Mrs. Malhotra
were doing.
Notices to enforce the securities
99. On the 28th
. November 2008 the claimant sought to exercise its put
option by serving notice on SIGL. It asserted that the date of exercise was
1st. December 2008, and the completion of the put option was to take
place within 60 days which would have taken it to the 30th
. January
2009. It was not in the form stipulated by the option deed which was
substantially more brief (see Schedule 2) but it contained all of the
stipulated information, and no point has been taken as to its validity.
52
100. On the 15th
. December 2008 the claimant served a letter on
Confiance asserting non-compliance by Mr. Chilukuri with his obligations
under the escrow deed. The letter:
(1) Asserted that Mr. Chilukuri had failed to transfer the shares to
Confiance pursuant to clause 5.2 of the escrow deed;
(2) Purported to give notice to Confiance under clause 2.2(B) of the
escrow deed requiring it to release and transfer, or procure the release
and transfer of the shares to the claimant.
101. On the 30th
. January 2009 the claimant (by Mr. Saradhi Rajan)
wrote to SIGL (by Mr. Chilukuri) noting the exercise of the put option,
and SIGL’s failure to make payment. The letter stated that it thereby
served notice of the default, and required payment to be made
accordingly in the sum of $80,531,201.
Initial litigation between the parties
102. The claimant’s first step by way of litigation in England was to seek
disclosure of pre-action documents, seeking relief under the Norwich
Pharmacal jurisdiction. That application was refused by Tugendhat J.
103. The claimant subsequently sought a Freezing Injunction, alleging
that its investment in the scheme had been procured by fraudulent
misrepresentations made by Mr. Chilukuri and SIGL. The order was
granted by Peter Smith J. on 18th
. August 2010, but was discharged by
Lewison J. on 4th
. November 2010 on the basis first that the evidence
53
relied upon did not demonstrate a sufficiently strong case in deceit; and
secondly by reason of the claimant’s serious non-disclosure of relevant
material. The present claim I should clearly state does not raise a claim in
deceit against either defendant. The present basis of each claim is in
contract or covenant.
The Present Claim
104. The Claim asserted by the claimant by its Amended Particulars of
Claim (which document is headed ‘Particulars of Claim’, but which is an
amendment of the original claim by complete substitution) asserts as
against SIGL that it is in breach of its obligation to complete the put
option, and to repurchase the GDRs (by repaying the purchase price, and
paying the Charge, and interest). It also asserts that SIGL has failed to
procure that the SRM Infrastructure renounce their rights to participate in
any rights issue; that Rajan be granted 50% of SRM Infrastructure’s share
capital; and that SIGL should procure the payment from the shareholders
in SRM infrastructure of the difference between the sum payable under
the put option and the actual sale price of the SRM Infrastructure shares,
notwithstanding that Rajan has been unable to sell those shares.
105. As against Mr. Chilukuri the claim was for damages for breach of
clauses 5.1, 5.2 and 6.2 of the escrow deed. The damages sought are
said to be ‘a sum equivalent to the market value of the shares’ (paragraph
48(v)).
54
106. As I have noted above, the claim was substantially amended after
the discharge on 4th
. November 2010 by Lewison J. of the freezing
injunction previously obtained.
107. I note two points about this pleading. The first is that it does not
precisely reflect the relief sought by the Claim Form. That document
(which was issued on 18th
. August 2010 and has not been amended)
claimed against Mr. Chilukuri damages and specific performance, and
against SIGL US$80,531,201. This may be of relevance to a point that Mr.
Cavender takes for the defendants on the absence of any acceptance of
any repudiatory breach by Mr. Chilukuri.
108. Secondly, the claim against SIGL is pleaded in the alternative as a
claim in debt as well as damages. Such a claim in debt would have had
the advantage of side-stepping any defences based on want of
mitigation, or giving credit for the shareholding retained by the claimant.
By the time of closing submissions however Mr. Lord QC (who appeared
with Miss Dilnot for the claimants) took the view that the claim in debt
arising out of the obligation to pay the stipulated price under the put
option was not one he wished to argue. That seems correct to me as the
entitlement related to the performance of a bilateral obligation. Given
that the claimant cannot perform that obligation (because it has sold
most of the GDRs on the open market) it is not obvious how it could
recover the price. In the event, the claim by the claimant against each
defendant was put as one for damages.
55
The Construction of the Agreements
109. As a precursor to their various submissions on the meaning of the
agreements, the parties argued over the applicability and relevance of the
maxim of construction that contracts should be construed contra
proferentem. According to the defendants, these documents were
essentially creatures of RP and its legal advisers, and were created to
obtain a benefit for RP. It is undoubtedly the case that where a deed
contains a provision put forward by one party for his own benefit, in the
case of ambiguity the Court may derive assistance from the sentiment
that that party should not get the benefit of the doubt – see the
comments of Lord Mustill in Tam Wong Chuen v. Bank of Credit and
Commerce Hong Kong Ltd. [1996] 2 BCLC 69 at 77:
‚... the basis of the contra proferentem principle is that a person
who puts forward the wording of a proposed agreement may be
assumed to have looked after his own interests, so that if words
leave room for doubt about whether he is intended to have a
particular benefit there is reason to suppose that he is not.‛
110. This point rather faded as the case went on. The factual position
that was well demonstrated by the contemporary evidence is that these
documents were negotiated at arms length by professionally and well
advised businessmen of substantial experience. It seems to me that it
makes very little difference to the proper construction of these
documents that they may confer a greater or lesser benefit on one party.
In the context of the present case I would concur with the comments of
56
Gloster J. in CDV Software Entertainment AG v Gamecock Media Europe
Ltd [2009] EWHC 2965, where her ladyship stated that the principle was
‚of uncertain application and little utility in the context of commercially
negotiated agreements.‛ The conclusion that I reach is that the maxim if
applicable is of relatively little weight in the circumstances of this case.
However I do bear in mind that the provisions in dispute are essentially
security provisions imposed for the protection of the claimants.
111. I consider first the claim against SIGL, and then the claim against
Mr. Chilukuri.
Does a remedy in damages exist for failure to complete the Put Option?
112. Mr. Cavender contended that RPs claim for damages against SIGL
failed at the outset. He submitted that on the true construction of the
option deed, it provided a self-contained code for performance of the
obligation to fulfil the put option on the part of SIGL. The remedy, and
the only remedy, that was open to the claimant was to pursue its security
pursuant to clause 4.3 of the Deed. He buttressed his submission by
noting that SIGL was a company that was plainly not good for the money
at the time the agreement was entered into, and that the parties must
have intended recourse only to the security expressly provided. I was
referred to Chitty on Contracts (30th
. ed.) para. 26-001 as authority for
the proposition that:
‚....the parties to a contract may themselves specify in their
contract the remedy available to the innocent party following the
57
others breach. In the absence of any such ‚tailor-made‛ clause on
the remedy, the law on damages fills the gap with standard-form
provision on the assessment of money compensation which apply
to all types of contract‛..
113. This citation sets out no authority for the proposition, but may be
linked to the text at para. 26-0121 in a discussion on liquidated damages.
There the editors comment that:
‚At common law, the right of a contracting party to claim
damages for a breach of the contract may be excluded by the
express terms of the contract, provided that the language
employed to do so is plain‛.
114. I agree with the contention of Mr. Lord that the terms of the
Option Deed do not exclude the ability of RP to sue for damages. In my
view the proper analysis of the terms of the deed leads to three
conclusions. The first is that the requirement on SIGL to complete the put
option when exercised is, properly so called, an obligation; the second is
that the ordinary remedy for breach of a contractual obligation is or
includes damages; and thirdly on its true construction the terms of the
option deed do not exclude that right.
115. More specifically:
(1) Clause 4.1 which contains the put option is in mandatory terms
(‘Except where clause 5.3 applies, Completion of the sale and
purchase of Option GDRs shall take place....’). It specifically sets out
58
the manner in which completion shall take place. The statement as to
what shall happen on the date specified for completion is expressed
to be obligatory.
(2) The provisions as to the giving of Notice in clause 3.1 certainly imply
that the claimant is giving a notice to bring about a specific result,
namely the exercise of the put option. That clause states that
completion shall take place not more than 180 days after the Date of
Exercise, and appears to specify a limited period within which SIGL will
purchase the GDRs.
(3) If the apparent requirement that SIGL purchase the shares does not
give rise to a right to recover damages, then it would not be an
obligation at all. Subject to some argument that there might be an
entitlement to specific performance but not damages (which would
be something of an oddity) its function would be simply that of a
contingency, rather than an obligation. On that construction, if SIGL
chooses not to purchase the GDRs then the sole consequence would
be that RP may enforce the security. In essence it gives SIGL a choice
as to whether to pay the money or allow the shares to be used to
discharge the obligation, to the extent that they are able. If that was
what was really intended, the wording of clauses 3.1 and 4.1 would
have been quite different; professional draftsmen are well aware of
the drafting formulae that bring about such an outcome, and they
have not been used here. The wording of clause 4.1 of the Deed
relating to completion is inconsistent with such a construction.
1 Now paragraph 26-004 of the 31
st. edition.
59
(4) In order for a contract to function properly or at all there must usually
be a consequence attached to non-compliance with an agreed
obligation, otherwise it is meaningless to describe it as an obligation.
Although equitable remedies may be available to compel
performance, the common law has always permitted the obligee to
sue the obligor for damages on breach, either in addition to or (in the
case of a breach that leads to the termination of the agreement)
instead of performance. So once one finds a contractual obligation,
there exists a prima facie right to claim damages for its breach.
(5) It is possible for contracting parties to stipulate (subject to statutory
inhibition or control, such as that found in the Unfair Contract Terms
Act 1977) that a particular legal remedy, such as damages, shall either
be restricted or limited or shall not be available in the case of any
particular breach or type of breach of obligation.
(6) A right to sue for damages where there is a breach of a contractual
obligation is both valuable and well understood by contracting
parties. Indeed it is usually assumed. That is all the more so where the
contracting parties are sophisticated, well advised, and operating in
the business context as was the case here. Therefore plain words, or a
very necessary inference, must be established before a party is to be
taken to give up such rights – see Gilbert Ash (Northern Ltd.) v.
Modern Engineering (Bristol) Limited [1974] AC 889 at 717H per Lord
Diplock, in a case where the issue was whether a sub-contract for
works had by its terms precluded the contractor from setting-off
60
unliquidated damages from an obligation to pay a certified cost for
services:
‚in construing such a contract [where the provisions seek to prevent
parties from relying on common law rights] one starts with the
presumption that neither party intends to abandon any remedies for
its breach arising by operation of law, and clear and express words
must be used in order to rebut this presumption. To rebut that
presumption one must be able to find in the contract clear
unequivocal words in which the parties have expressed their
agreement that this remedy shall not be available in respect of
breaches of that particular contract.‛
(7) The typical case in which the right to damages at common law is
removed by implication arises where the parties have provided for a
genuine pre-estimate of loss by way of a liquidated damages clause.
Unless such clauses are to operate at the wronged party’s option (in
which case they would probably not have the necessary give and take
to amount to a genuine pre-estimate of loss) it is a necessary
inference that their agreement excludes the right for the wronged
party to seek to do better by relying on the common law damages
claim. The position is different here where the nature of the remedy
expressly provided is that of a security, which is a secondary remedy
on non-performance of the primary obligation. There is, as a matter of
principle, nothing to prevent the victim from electing to sue for
monetary compensation rather than relying on his secondary remedy
if he so chooses.
61
(8) There is no express wording to this effect to be found in the option
deed.
(9) The attempt to construct such a limitation by way of necessary
inference does not in my view succeed. The structure of the option
deed allows RP to enforce a security in the event that the obligation to
purchase the GDRs is not satisfied. The provision of a security for such
an obligation is not inconsistent with a right to sue for damages. The
security gives the obligee rights additional to the primary obligation to
purchase the GDRs, or the secondary rights to seek damages.
(10) Mr. Cavender describes the security provisions as a ‘tailored
remedy’. The strongest point in his argument in my view is that clause
4.3(B) envisages a sale and then an obligation to procure payment of
any shortfall from the Option Price from the shareholders of SRM
Infrastructure other than Rajan. If SIGL is to be under an obligation to
comply with the put option, and pay damages if it does not, why
would it be under a separate specified obligation to procure such a
payment? If there was a shortfall, the claimant could recover it by
reason of the secondary liability to pay damages. I do not regard
these pointers as sufficient to demonstrate a plain intention that
damages not should be recovered for breach of the obligation to
complete. In my view they are a yet further belt and braces remedy,
demonstrating that SIGL will be liable for any shortfall in the event
that the claimant chooses to enforce this security. It is not obliged to,
even in the event of non-completion. I can see no obvious reason why
the obligation was framed as an apparently absolute obligation to
62
procure that the other shareholders pay the shortfall, rather than a
simple obligation on the part of SIGL to pay it. Had the shareholder
agreement or the share allocation agreement included a commitment
on the part of the other shareholders to pay the shortfall one might
understand it more readily, but they did not.
(11) The detailed provision as to the basis of calculation of the sum
payable by SIGL, with corresponding obligations on the part of the
claimant to minimise the sums payable (see clauses 2.3(C) and (D))
gives the impression that the obligation is strict, with machinery and
obligations imposed on both parties to provide a fair outcome by
reason of SIGL’s obligation to comply with the put option, and not a
mere matter of choice for SIGL.
(12) I note also that the obligation to complete if the call option is
exercised is to be found in clause 4.1 of the option deed, and it is
plain that this is a primary obligation with a right to sue for damages
should the claimant not complete. The inference is likely to be that
the same rights (together with the additional negotiated security)
apply if SIGL is in breach of its obligation to complete.
(13) One might foresee difficulties arising if, say by reason of funding
difficulties, SIGL was delayed in fulfilling its obligations. If clause 4.1
creates an obligation, rather than a contingency, then late
performance after the due date would be permissible; but on Mr.
Chilukuri’s contention, RP would be unable to claim damages for any
loss it had suffered due to the late performance. Given that the
subject matter of the obligation (the GDRs in CALS) is an artificial
63
security relating to the shareholding in a new company engaged in a
new and potentially speculative venture, it is readily foreseeable that
RP might be caused substantial loss by any such delay. The reasonable
construction of the agreement should provide for the recovery of
damages for breach of the obligation.
(14) It seems to me to be immaterial that SIGL has few assets at the
time of the agreement. Such a consideration is not a reason for
considering that the contract would not provide RP with a right to sue
in damages; it simply means that RP might not choose to do so if
there was a default. There is no loss to RP from having such a right.
Equally, if it were the case that SIGL’s financial position was to
improve (which I accept would not be very likely if the put option
were being exercised, but could be possible), then the right to sue for
damages could be a valuable one.
(15) Mr. Cavender asks rhetorically what the consequence would be for
the shareholding held as security if damages were recovered. It seems
to me that the answer to that is that it operates as security for the
monetary sum due under the put option that has not been recovered
either by the purchase of the GDRs by SIGL, or the payment of
damages. A payment of full damages has the practical effect of
completion of the transaction, and therefore the consequences set
out in clause 4.2 would follow.
(16) This construction is in my view more likely to correlate to a
reasonable construction of the option agreement than that put
forwards by SIGL. The underlying arrangement is that of an
64
obligation, performance of which is secured by an asset. Most
businessmen would regard such security as an additional, and not and
exclusive right on non-performance of the obligation.
Is SIGL in breach of its obligations under clause 4.3A of the Option
Deed?
116. Mr. Cavender submitted that the obligation on the part of SIGL
under clause 4.3A was simply to procure the execution of the
shareholders agreement and the share acquisition agreement in respect
of Rajan’s intended interest in SRM Infrastructure. Mr. Lord and Miss
Dilnot disputed this, asserting that SIGL’s obligation was to procure the
vesting of the 50% shareholding into Rajan.
117. It is a matter of the construction of the option deed as to whether
SIGL’s obligation was limited to causing SRM Infrastructure to enter into
the two ancillary agreements. In my view, it was not. The structure of the
option deed provides that SIGL should procure two events. The first
related to the renunciation by the existing shareholders of SIGL of their
rights to participate in a rights issue on the increase of Rajan’s
shareholding to 50%. This obligation was complied with by his procuring
the execution of the share allocation agreement and the shareholders
agreement, and the amendment of SRM Infrastructure’s articles of
association. However the second obligation was to procure that SRM
issued to Rajan sufficient shares to increase its shareholding to 50%. The
circumstances in which that was to happen were set out in clause 11 of
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the shareholders agreement. That did not occur, and SIGL were in breach
of that obligation.
Is an actual sale of the of the shares in SRM Infrastructure a condition
precedent to SIGL’s obligation to procure payment of the put option
price from the shareholders of SRM Infrastructure under clause 4.3B of
the Option Deed?
118. SIGL’s obligation under clause 4.3(B) of the Option Deed is to
procure the payment by the shareholders (that is, Mr. & Mrs. Malhotra) to
Rajan of the difference if any between the proceeds of sale of the
shareholding and the Option Price. Mr. Lord submits that this does not
require there to have been a sale in fact. He submits that there might be
a good reason why Rajan could not sell the shares; and that in the events
which happened any sale price would be substantially below the Option
Price. As I understand it, Mr. Lord’s contention is that the Court should
treat the obligation under clause 4.3(B) where a sale has not taken place
as if it provided for a hypothetical or deemed sale at a nil value. If that is
right, then he relies on the obligation to procure payment of the
difference as being (in effect) an obligation to procure the payment of the
Option Price.
119. I am at something of a loss to follow Mr. Lord’s arguments here as
a matter of construction. The wording of the clause is quite plain. The
obligation on the part of SIGL under clause 4.3(B) cannot be quantified or
assessed without there having been a prior sale of the shareholding,
66
whether the value of those shares was high or low. In the absence of
such a sale SIGL would not know what it was that it had to procure. It
follows that the sale of the shareholding was a precondition to SIGL
falling under a liability to pay the difference.
120. Mr. Lord further submits that this is not correct in the
circumstances of this case, because the only reason why that obligation
cannot be quantified is that SIGL is in breach of its own obligation to
procure the vesting into Rajan of the 50% shareholding in SRM
Infrastructure. He relies on the principle of policy, enunciated by the
House of Lords in Alghussein v. Eton College [1988] 1 WLR 587 that a
contract should be construed so as to prevent a party from taking
advantage of his own wrong.
121. The first difficulty for the claimant is not that Rajan does not have
50% of the shares; it is that it does not have any and so cannot obtain a
sale. That inability does not derive from breach of obligation by SIGL, but
arises from misconduct by the Malhotras and/or by SRM Infrastructure in
wrongfully seeking to divest Rajan of its shares. If one were to imply a
term to the effect that on failure of SIGL to procure the extension of
Rajan’s shareholding in SRM Infrastructure to 50%, the parties would
deem the sale to be of that 50% shareholding, such a term would still
require a sale. The sort of term that the claimant would require in order
to succeed in the present circumstances would be a term that SIGL
procure a 50% shareholding for Rajan and procure that Rajan is able at
67
the time of its choosing to sell the shares it is otherwise entitled to hold. I
see no basis for the implication of such a term.
122. There is continuing litigation between Rajan and SRM
Infrastructure in India relating to the shareholding. The position appears
to be that Rajan is seeking to vindicate its shareholding. If that is
successful, then a sale may take place at some time in the future. If it
does, then the condition precedent to the operation of clause 4.3(B) of
the option agreement may then take place. To the extent that the
claimant has not recovered its entitlement to damages arising from the
non-completion of the put option, then it would be entitled to the
proceeds of such a sale.
123. The second difficulty is that it requires me to find that the failure
on the part of SRM Infrastructure to honour the Shareholders’ Agreement
was a breach of obligation on the part of SIGL. Mr. Lord’s approach here
appeared to me to be a broad one – to rely on the personal and historic
business connection between Mr. Chilukuri and Mr. & Mrs. Malhotra to
conclude that such misconduct as I may consider should be laid at Mr. &
Mrs. Malhotra’s door should also be attributed to Mr. Chilukuri and
hence SIGL. (because Mr. Chilukuri was the sole director and shareholder
of SIGL). The legal mechanism for finding this breach of obligation was
not discussed in detail. For the doctrine set out in Alghussein to come
into play, it does require the defendant to be in breach of a legal
obligation. The specific obligation asserted related to the failure to
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procure the vesting of the 50% shareholding, and I have considered that
above. More generally the complaint appears to be that Mr. Chilukuri
(and SIGL) was party to the Malhotras’ design to wrongfully frustrate the
contract. Whilst I would have been willing to imply into the put option an
obligation on the part of SIGL not to do anything to prevent the Share
Allocation Agreement or the Shareholders’ Agreement from being carried
out according to its terms, I do not consider that the evidence
demonstrates that Mr. Chilukuri was an active party in or procurer of
SRM Infrastructure’s wrongful acts. I asked Mr. Lord whether he sought a
finding that Mr. Chilukuri was a party to the Malhotras course of
conduct. He said he did not – his contention was rather that Mr.
Chilukuri knew full well what was going on in SRM Infrastructure. I do
find that Mr. Chilukuri knew what Mr. & Mrs. Malhotra were doing; but
that is in my view not sufficient to bring the Alghussein principle into
play.
Whether the breach (if any) on the part of SIGL has caused the claimant
a loss, and if so the extent of that loss
124. I next consider SIGL’s liability in damages for its breach of the put
obligation in the option deed. After exercise, completion of the put
option should have taken place on 30th
. January 2009. Had it completed
the put option, it would have paid the claimant $93,416,193, and the
claimant would have transferred the GDRs to SIGL. The only evidence of
the value of the GDRs at any time is the price that the claimants have
obtained when selling them, which they did in 2010 and 2011. Thus far
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they have sold (up until the date of the hearing) GDRs at a value of
$6,473,690. They still held GDRs which had a market value as at the
hearing of £848,747. The net loss to the claimant therefore amounts to
$86,073,756.
125. I turn next to the damages arising from the failure to procure that
Rajan obtained 50% of the shareholding in SRM Infrastructure. Such loss
as may flow from this if any would be recoverable in the alternative to the
damages claim that I have assessed above. But in my view, even had SIGL
complied with its obligation, SRM Infrastructure would have done what it
could to ensure that the claimant could not have realised them. I have no
reason to believe that the parties, and the litigation, would not have been
in the same position as they presently are, which is that of litigating to
establish the claimant’s interest in SRM Infrastructure. I do not know
what stage that litigation has reached; or who may succeed; and it is
quite impossible to have regard to it in valuing the shareholding.
However as I have indicated above on the evidence I have seen SRM
Infrastructure’s stance appears to be both wilful and wrongful.
126. In my view the appropriate manner in which to value this 10%
shareholding is to take 10% of the net asset value of the business as at
the date of breach (in effect the SEZ land at Mewat). The best evidence
the Court has of that is the evidence of the expert valuers, Mr. Haberman
and Mr. Singhi. Mr. Haberman assessed its value as at 30th
. January 2009
70
as being approximately US $7,100,000. Mr. Singhi did not disagree with
this opinion.
127. The loss arising from this particular breach would therefore have
been $710,000.
Has the claimant’s loss been caused by a failure on the part of Rajan to
enforce the shareholders agreement, and/or does this amount to a
failure to mitigate its loss?
128. It is agreed between the parties that, as it claims damages, the
claimant has been under a duty to mitigate its loss. In the present case
SIGL asserts that the loss has arisen because Rajan failed to pursue, either
adequately or at all, its entitlements under the share agreement and the
shareholders agreement. Had it done so it would have been able to
enforce its right of sale, together with its drag along right and various
other rights under clause 8 of the shareholders agreement. That, it is said,
would have reduced the outstanding amount under the put option, and
the claimants damages should be reduced by whatever sum would
otherwise have been recovered. Although the defendants claim is that
Rajan should have acted, given that Rajan was under the entire control of
the claimant at all material times, the situation can be analysed as if the
claimant had direct control of the rights arising under the shareholder
agreement.
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129. The relevant principles of mitigation are not in dispute, and can be
summarised as follows:
(1) A failure to mitigate arises where the clamant unreasonably fails to
take steps that could have the effect of reducing its loss – British
Westinghouse Electric Co. Ltd. v. Underground Electric Railway Co.
[1912] AC 689 at 698 per Viscount Hailsham.
(2) Whether a claimant has taken reasonable steps to mitigate its loss
is a question of fact – Payzu v Saunders [1919] 2 KB 581 CA.
(3) What must be ascertained is whether the claimant has or has not
acted, or has failed to act, reasonably. The onus of proof on the
issue of mitigation is on the defendant – McGregor on Damages,
18th ed., para 7-019
(4) The claimant is only expected to act reasonably and the standard of
reasonableness is not high in view of the fact that the defendant is
an admitted wrongdoer – ibid., para 7-070.
(5) Negotiations with a defendant are relevant to the question of
mitigation – ibid., para 7-046.
130. RP’s stance was that, up until January 2009 it was seeking to
negotiate its way forwards as regards Project Loha, and to that end had
negotiated extensions of the put and call options ultimately to the 30th
.
January 2009. As far as the shareholding in SRM Infrastructure was
concerned it sought to obtain the further 10% by letter dated 7th
. April
2009, and issued a notice of sale by 11th
. August 2009.
131. RPs attitude was a perfectly reasonable one – that it was seeking
to negotiate a further transaction or transactions in respect of its
shareholding. At the time it had no reason to believe that Mr. & Mrs.
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Malhotra were taking steps to render that security nugatory or
ineffective. Whilst it might have acted sooner in seeking to obtain the
additional 10% shareholding, or in enforcing its right to sell its
shareholding, in my view it did not act unreasonably in taking the steps
that it did only when it did.
132. Moreover, it seems to me likely that had such steps been taken
sooner, the only outcome would have been to accelerate the steps taken
by Mr. & Mrs. Malhotra to set aside the shareholders agreement. I
conclude therefore that there was no failure to mitigate its loss through
Rajan; and that even had there been this would have led to the same
outcome.
The Claim under the Escrow Deed
Was the claimant’s remedy in the event of a breach of the terms of the
escrow deed limited to the enforcement of the Power of Attorney
granted by clause 4 of the Escrow Deed?
133. This assertion mirrors that raised by SIGL in relation to the
construction of the Option Deed, and equally as a matter of construction
of the Escrow Deed I am of the view that it obliges Mr. Chilukuri to put
the specified shareholding in SRM Exploration into the possession of
Confiance; that it would be a breach of the terms of the Escrow Deed if
he failed to do so, and that the consequence of failing to do so is that
Mr. Chilukuri would be liable to pay damages.
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134. I come to this conclusion for the following reasons:
(1) Clause 5.2 of the Escrow Deed required Mr. Chilukuri to transfer the
shares to Confiance within 14 days of the Execution Date. There is an
issue between the parties as to what must be transferred to comply
with this requirement. I have considered this in more detail below, but
in my view the requirement to transfer the shares was a requirement
to transfer their physical manifestation to Confiance. That meant that
the share certificates that either had been or should have been issued
to Mr. Chilukuri should be transferred. That was consistent with
Confiance’s position as a custodian holder of the shares, holding the
shares in escrow, and subject to obligations as to subsequent dealings
in the circumstances that happened.
(2) Mr. Chilukuri warranted by clause 5.3 of the Escrow Deed that he had
physical possession of the ‘the Shares and the legal documentation
relating to them’. That wording warranted that Mr. Chilukuri held the
share certificates that would have been issued (see para. 11.4 of the
Report of Mr. Ritin Rai, with which Mr. Sakate Khaitan agreed) when
the shares were allotted to him, and that was consistent with
possession of the share certificates being necessary for the transfer of
the shares to any third part on sale.
(3) The delivery of the share certificates to Confiance would therefore
have provided RP with a degree of security over the shareholding, in
that it would have prevented Mr. Chilukuri from dealing with the
shares inconsistently with RP’s entitlement under the Escrow Deed.
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(4) The requirement that the share certificates be transferred to
Confiance is a contractual obligation (‘...Mr. Chilukuri shall transfer
the Shares to Confiance....’). As such, failure to adhere to the
obligation gives rise, prima facie, to a remedy in damages.
(5) The grant of the Power of Attorney by clause 4 of the Escrow Deed
does not and was not intended to confer an alternative and exclusive
remedy in respect of Mr. Chilukuri’s failure to transfer the share
certificate relating to his shareholding in SRM Exploration to
Confiance. Whilst clause 4 on its face gives the claimant sufficient
legal power to transfer Mr. Chilukuri’s shareholding, that does not
indicate that Mr. Chilukuri should not be liable for the consequences
of failure to comply with an obligation that only he might be in a
factual position to carry out. The requirement to transfer the physical
possession of share certificates is an obligation that the claimant, as
attorney, could not carry out because it did not have physical
possession of those certificates at the outset. It was suggested on Mr.
Chilukuri’s behalf that the claimant might apply to SRM Exploration
for the issue of duplicate certificates, and might constitute Confiance
the holder of the shares in that way. Whilst I consider this is more
detail below when I consider the allegation that the claimant has
failed to mitigate its loss in respect of this breach, for present
purposes it seems to me that this possibility demonstrates that the
remedy by using the Power of Attorney in these circumstances is
potentially unwieldy and slow. It is unlikely to give rise to an inference
that Mr. Chilukuri was either under no obligation to fulfil the
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requirement set out in clause 5.2 of the Escrow Deed, or not liable in
damages for such a failure.
(6) The scope of the wording of clause 4 of the Escrow Deed, with
reference to the claimant being an attorney to do all things ‘which
the attorney considers necessary or proper for or in connection with
the shares, including the power to sell, transfer or exercise voting
rights in respect of all or part of the shares’ appears to be aimed
primarily at the maximisation of the value and utility of the shares as
security for the put option, and in my view is properly to be viewed as
an additional layer of security besides their physical transfer to
Confiance pursuant to clause 5.2.
(7) Clause 6.4 of the Escrow Deed expressly states: ‚The rights and
remedies provided in this Deed are cumulative and not exclusive of
any rights and remedies provided by law.‛ I take that to mean that
insofar as the law of contract provides for remedies (whether
specifically, or generally) then the fact that specific rights and
remedies are provided in respect of those events or contingencies, the
legal rights shall nonetheless subsist. Putting it shortly, it expressly
preserves rights of damages that accrue by virtue of breach of an
obligation, and prevents Mr. Chilukuri successfully asserting that the
other terms of the agreement impliedly preclude the remedy in
damages.
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Was the effect of the grant of authority to the claimant under the
Power of Attorney to disable Mr. Chilukuri from exercising any of his
former rights in respect of his shareholding in SRM Exploration?
135. This was a significant issue in Mr. Chilukuri’s case. Its importance
arose in this way. As I have referred to above when considering the
evidence, from time to time after 2007 the claimant asked Mr. Chilukuri
to comply with his obligation to transfer his shareholding to Confiance,
but he did not. Mr. Chilukuri’s explanation to the Court was that he had
been advised by the Spice Group legal advisers that not only need he not
take steps to comply with that obligation; but that he should not do so,
on the basis that he had granted the claimant a power of attorney which
would entitle it to vest that shareholding in Confiance. It was suggested
that were he personally to take steps to fulfil his obligation, he might be
in breach of an obligation not to interfere with the operation of the
Power of Attorney. The way that Mr. Cavender put it to me was that
once the Power of Attorney became operative, as a matter of
construction of the contract Mr. Chilukuri either lost his power to deal
with the shareholding, including carrying out his obligation under clause
5.2 of the escrow deed, or in any other way, or was restricted from
dealing with his shareholding to the same effect.
136. I am not sure why Mr. Cavender relied on the construction of the
contract to produce this end, rather than putting the point forwards as
arising by way of an implied term. The position appears to me to be that
the Power of Attorney authorises the claimant to act on his behalf as
77
regards the shares. It is not by its terms an exclusive power, which
prohibited Mr. Chilukuri himself from acting as regards the shares. It was
contemplated that the claimant would utilise the power of attorney in its
own interests, for the purpose of utilising the SRM Exploraton
shareholding as security for the obligation to pay for the put option.
137. Whatever the position regarding the possibility of Mr. Chilukuri
giving instructions to SRM Exploration with regard to the shares after
possession of them had been passed to Confiance as trustees, I see no
good reason why Mr. Chilukuri should not continue to be under an
obligation to pass possession of them to Confiance even after the date
upon which the Power of Attorney became operative. The terms of the
Power of Attorney contemplated that this had already taken place. It was
quite incidental that the Power might have been exercised so as to
remedy Mr. Chilukuri’s initial breach. In my view there is no basis for
implying a term, or construing the contract if that be the appropriate
mechanism, so as to prohibit Mr. Chilukuri from taking any steps to fulfil
his obligation under clause 5.2 of the escrow deed after the exercise of
the Power of Attorney.
Did the claimant exercise the Power of Attorney, and if so did this
constitute an election not to sue Mr. Chilukuri for damages?
138. Although this was raised by Mr. Cavender in his list of issues (and
appears at paragraph 17(4) of the Re-Amended Defence), it did not
feature prominently in his final submissions. The pleading asserted that
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the coming into force of the Power of Attorney necessarily amounted to
an election not to pursue any claim for damages. As a matter of
construction of the contract, I have concluded above that the Power of
Attorney is not intended to be the sole remedy available to the claimant.
139. The Escrow Deed provides for the Power of Attorney to become
effective on the service of a notice by the claimant pursuant to clause 2.2
of the Escrow Deed, in respect of non compliance with his obligations
under the deed by Mr. Chilukuri. If the claimant seeks to enforce its rights
under clause 2.2 of the Escrow Deed, then the Power of Attorney is
triggered automatically. The claimant served a notice under clause 2.2B
of the Escrow Deed on 15th
. December 2008. Given that the existence of
the Power of Attorney is not (in my view) inconsistent with the right to
claim damages for the non-compliance with clause 5.2, equally the mere
triggering of that Power of Attorney is not inconsistent with the
enforcement of such a right. ‘Election’ in this sense normally describes the
loss of one right due to the enforcement of an alternative inconsistent
right, typically by way of the repudiation of a contract amounting to an
election not to require further performance (see The Kanchenjunga
[1990] 1 Lloyd’s Rep 391 at 398 per Lord Goff). The effect that Mr.
Cavender seeks to give it is closer to that of a waiver. The two alternative
options open to the claimant under clause 2.2, (A) and (B), are prefaced
by the following words:
‚2.2 Confiance shall, within 3 business days after written notice is
given by the claimant, release and transfer or procure the release
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and transfer of the Shares to the claimant (or as the claimant
directs), if....‛
Action under clause 2.2 is therefore predicated on the shares already
having been transferred to Confiance. What, therefore, is the effect of
the service of a notice under clause 2.2(B) where such shareholding has
not been transferred? The letter purported to be notice of breach of the
obligation under clause 5.2, and required Confiance to:
‚procure the release and transfer of the Shares without any delay
to the ...nominee of RPEMF‛
It seems to me that, assuming that clause 2.2 can be operative where Mr.
Chilukuri has failed to comply with his obligations under clause 5.2
(which I have significant doubt about), the purported exercise of this right
would not waive the claimant’s entitlement to damages arising by reason
of the pre-existing breach of clause 5.2. There is no sensible reason why
the claimant should wish to give up such a right purely because it is
seeking to vindicate its right to possession and sale of the shares by other
means. If it is successful in so doing, then the consequence would be that
such damages might be reduced or eliminated. Clause 3.1(B) provides
that if clause 2.2(B) of the Escrow Deed applies, the claimant may recover
the costs incurred by the claimant as a result of Mr. Chilukuri’s non-
compliance with that sub-clause.
140. It is unlikely and I think an unrealistic suggestion that the parties
would have contemplated replacing the claimant’s right to damages for
non-transfer of the shares to Confiance with a simple and no doubt lesser
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claim entitling the claimant to the costs arising only. I conclude that the
service of a notice under clause 2.2(B) of the escrow deed did not amount
to an election against enforcing any prior breach of the escrow deed, or
indeed a waiver of any such right.
Whether, on a proper construction of the Escrow Deed, if it be the case
that the claimant gave notice to Confiance under clause 2.2(B) of the
Escrow Deed limits the claimant to recovering its costs only
141. I agree with Mr. Cavender’s contention that the effect of the
claimant serving a notice under clause 2.2(B) is to provide for an
entitlement to recover the consequential costs flowing from the operation
of clause 3.1(B), and those costs only. For the reasons I have set out
above that does not affect the claimant’s claim for damages under clause
5.2. I would add that there is no claim for such consequential costs in the
Amended Particulars of Claim.
Whether SRM Exploration was obliged to comply with the directions of
the claimant given pursuant to the Power of Attorney, including an
instruction to issue a duplicate share certificate
142. There is no dispute between the parties as to the effect of the
power of attorney provided for by clause 4 of the escrow deed. It was
effective as between Mr. Chilukuri and the claimant. In the ordinary
course of events the claimant could have used the power of attorney to
deal with the shares in any way open to Mr. Chilukuri.
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143. The particular relevance of the issue relates to the allegation that
the claimant failed to mitigate its loss by requesting SRM Exploration to
issue a duplicate share certificate (and subsequently registering itself as
the shareholder and dealing with it pursuant to its entitlement under the
escrow deed). Was that course of action open to the claimant once the
power of attorney became operative?
144. The claimant relied on the evidence of Mr. Ritin Rai, an advocate in
independent practice in Delhi. The defendants relied on the opinion of
Mr. Sakate Khaitan, senior partner with Clasis Law, Mumbai. Both experts
produced a helpful joint statement of agreement and disagreement dated
5th. May 2012.
145. The issues that Mr. Rai and Mr. Khaitan were dealing with were:
(1) Whether Mr. Chilukuri had been validly issued the shares in SRM
Exploration.
(2) Whether Mr. Chilukuri had complied with his obligation to transfer
his shareholding in SRM Exploration to Confiance.
(3) Did the power of attorney contained in the escrow deed, once
exercised give the claimant the right to require SRM to act in
accordance with its instructions in respect of the shares? And once
exercised, did it prevent Mr. Chilukuri from giving effective
instructions to SRM in respect of the shareholding?
(4) Was the power of attorney valid according to Indian law? In fact,
although both Mr. Rai and Mr. Khaitan gave their opinion as to
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the effect of the execution of the power of attorney, the parties
agreed that the power of attorney in the escrow deed was itself
governed by English law.
146. They gave evidence as to the mechanism that would have had to
have been pursued if RP had sought to transfer title to the shareholding
in the absence of a share certificate. According to Mr. Rai, RP would have
to demonstrate to SRM that the original certificate had been lost, and
that would have required evidence from Mr. Chilukuri, and also an
indemnity from Mr. Chilukuri against loss arising from the issue. Mr.
Khaitan considered that the entitlement of SRM to seek an indemnity was
a matter for its judgment, and not an obligation. Mr. Rai thought that in
a case such as the present, where there is confusion as to the location or
loss of the original shareholding such an indemnity would be required.
147. The difference between the experts is therefore relatively narrow. I
prefer Mr. Rai’s view that, in the circumstances of this case, SRM as a
matter of fact would have required an indemnity from Mr. Chilukuri
before issuing a duplicate share certificate. The consequences of
providing such a duplicate might be substantial, and the obtaining of an
indemnity would be sensible.
148. Although the power of attorney would permit RP to apply for a
duplicate share certificate, it would not have the effect of permitting RP
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to give evidence as to the circumstances of its loss, which would be the
recounting of matters of fact personal to Mr. Chilukuri.
149. This reflects the position in English law. An agent cannot perform
an act that requires the personal performance of the principal (see
Bowstead & Reynolds on Agency (19th
. ed.) at para. 26-001), and Mr.
Chilukuri would have to give his own evidence; the claimant could not do
that on his behalf. In the absence of such information, it is likely that SRM
Exploration would have refused to issue a duplicate certificate. I also
conclude that Mr. Chilukuri would not have given such an indemnity, and
would not have supplied information as to the loss of the share
certificate. I have concluded from the evidence that I have heard that it is
likely that Mr. Chilukuri was keen not to comply with the obligations
arising under clause 5.2 of the escrow deed, and would not have taken
steps to enable the claimant to obtain the 26% shareholding in SRM
Exploration or to sell it.
What steps was Mr. Chilukuri obliged to take in order to comply with
his obligation at clause 5.2 of the Escrow Deed to transfer shares to
Confiance, and did he comply with those requirements in 2007?
150. The parties adduced expert evidence as to the manner in which
the obligation at clause 5.2 might be complied with in respect of a
shareholding in an Indian company. They also considered whether SRM
Exploration’s Articles of Association would prevent the claimant, as holder
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of the power of attorney, from proceeding to a realisation of the
shareholding.
Was Mr. Chilukuri validly allotted his shareholding in SRM Exploration?
151. The experts agreed that there was no effective limitation in the
Articles of Association prohibiting the power of SRM to issue the shares.
Issuing shares requires an effective decision of the Board. Subsequently
SRM should issue a share certificate (in accordance with the Companies
(Issue of Share Certificates) Rules 1960) and file an appropriate return
with the Registrar of Companies within 30 days. SRM had purportedly
issued shares to Mr. Chilukuri on 18th. December 2007. In Mr. Rai’s view
the evidence was insufficient to demonstrate the issuance. A Form 2 had
been issued that purported to record an allotment of 780,000 shares to
Mr. Chilukuri on 5th. December 2007. But there was no evidence of a
board resolution to that effect at that time, and the shares appear to
have been issued to Mr. Chilukuri’s family.
152. There had been a resolution of SRM on 18th. December 2007,
when SRM had recorded its ‘note of the investments of the 26% in the
equity of the Company by Ravi Chilukuri’. This did not sufficiently
evidence an intention to allot a shareholding to be effective. Mr. Rai also
noted first that no Form 2 notice of allotment had been subsequently
filed; and secondly that the company’s documentation referred to the
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decision as on the one hand having been made at a meeting; and on the
other as being a resolution by circulation, without a meeting.
153. In Mr. Khaitan’s opinion, as there is no legal requirement as to the
form in which the resolution needed to be couched, the meaning of the
resolution of 18th. December 2007 was clear. The shareholding referred
to in the Form 2 (780,000 shares) should be treated, by the resolution of
18th. December, as having been issued to Mr. Chilukuri; that resolution
evidences an earlier allotment of the shareholding to Mr. Chilukuri. It
seemed to me that Mr. Khaitan accepted that the resolution of 18th.
December 2007 was not, by itself, effective to allot shares to Mr.
Chilukuri; or was at best doubtful as to its effect.
154. I conclude that for an allotment of shares to be valid the resolution
of the Indian company (however reached) must with reasonable clarity
identify the shareholding that is to be allotted, an intention to allot
shares, and the identity of the shareholder. It is a question of fact
whether such a resolution has been reached. The difficulty in the present
case is that the Court has not been shown a complete record of the
resolutions of SRM Exploration during the relevant period. Ordinarily one
would readily infer from the making of a statutory return evidencing an
allotment of a shareholding that it had in fact been preceded by a
corresponding allotment; and a company return which evidenced an
allotment would itself be strong evidence of a prior allotment.
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155. In the present case however the form 2, which is signed by Mr. D.
K Rastogi under a Declaration warranting the accuracy of the information
given, refers to the allotment having taken place on 5th
. December 2007.
It also contains an accountant’s certificate that he has verified the
particulars from the books of account and records of the company. The
terms of the first resolution of 18th. December did not amount to an
allotment of shares. It stated that the meeting had been convened ‘in
connection with (a) Allotment of 26% of the shares in the company to
Tokara Trust’, which indicates that the Trust was the allottee. It notes that
the investment into the company was made by the Trust on behalf of Mr.
Chilukuri; which again tends to indicate that an allotment is being made
to the trust as the legal owner. Lastly, para. 3(b) states that the equity
capital ‘is held for the instructions of Confiance Limited...acting as Trustee
on behalf of Tokara Trust’.
156. The wording of this resolution indicates strongly to me that
whatever resolution had preceded the filing of the Form 2 on 5th.
December 2007 it was highly unlikely to have been an allotment to Mr.
Chilukuri. Had there existed a valid allotment pre-dating 5th
. December
2007 then that allotment must have been recorded in the documentation
held by SRM Exploration. That no such document has been produced or
obtained I find very surprising.
157. The second resolution passed on 18th
. December 2007 stated, by
contrast, that the meeting had been convened in connection with the
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Allotment of 26% of the shares in the company to Mr. Ravi Chilukuri.’
The resolution recorded was in the following form:
‚a. On request of Mr. Ravi Chilukuri to undertake the shares in his
personal name, the company decided to amend and replace the
decision pursuant to the previous Board Meeting held on 18
December 2007 with the following decision (Board meeting
attached).
The Company does take note of the investments of 26% in the
equity capital of the Company by Mr. Ravi Chilukuri, which is held
for instructions of CONFIANCE LIMITED, a limited company
incorporated in the Channel Islands....‛
158. Although the resolution is evidently about an allotment to Mr.
Chilukuri, it does not purport to allot shares to Mr. Chilukuri. The
resolution simply states that Mr. Chilukuri made the relevant investment;
and that the shares are held ‘for the instructions of’ Confiance. I conclude
that the wording of the resolution of 18th. December 2007 relied on by
Mr. Chilukuri and Mr. Khaitan did not evidence an intention to allot a
shareholding to Mr. Chilukuri. It rather recorded his funding of the
allotment. I conclude therefore that the defendants have not established
that SRM have allotted a shareholding to Mr. Chilukuri prior to 2008.
159. I note that SRM Exploration subsequently filed its annual return
showing Mr. Chilukuri to be the shareholder of 26% of the shares in the
company. But given the slip shod manner in which the board of SRM
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Exploration dealt with its duties of recording the operative decisions that
it made as regards the allotment of shares, I do not think that much
weight can be given to such a document.
Has Mr. Chilukuri complied with his obligation to transfer his
shareholding in SRM Exploration to Confiance?
160. There did not appear to be a great deal of difference between Mr.
Rai and Mr. Khaitan on this issue. If an Indian company allots shares it is
obliged to issue a share certificate to the shareholder, and that share
certificate is prima facie evidence of title to the shares – see Section 84 of
the Companies Act 1956. The procedure for the transfer of shares is set
out in section 108 of the Companies Act, which prohibits registration of
the transfer unless a proper instrument of transfer duly stamped and
executed by the transferor and the transferee has been delivered to the
company together with the share certificate. Control of the share
certificate therefore controls the right to complete a transfer of the shares
at law.
161. Mr. Rai and Mr. Khaitan both considered that clause 5.2 of the
Escrow Deed required Mr. Chilukuri to transfer physical custody of the
share certificates to Confiance, and not transfer legal title to the shares to
Confiance. Whilst the interpretation of the escrow deed is not a matter
for the experts on Indian law, as it is governed by English law, both
experts helpfully agreed that the general practice in India with regard to
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the holding of shares in escrow was that the share certificate would be
held by a custodian for the purpose of the escrow.
162. They agreed that it was usual for the share certificate to be
delivered to the custodian together with a blank transfer form duly
executed by the transferor. It would not be necessary for the form to be
signed in the present circumstances as the escrow deed grants RP the
right to sign the transfer form on behalf of Mr. Chilukuri.
163. The obligation to transfer the shares under clause 5.2 is in
straightforward terms. It obliges Mr. Chilukuri to transfer the shares to
Confiance as a custodian of them. The purpose of this provision was to
put Confiance in the position where it might either cause, or procure, the
claimant to be registered as the holder of the shares for the purpose of
enforcing its right of sale and satisfaction of the put option; alternatively
to enable the claimant to direct an immediate effective transfer of the
shares from Mr. Chilukuri to a purchaser, in order to satisfy the put
option in whole or pro tanto; alternatively to prevent Mr. Chilukuri from
dealing with the security in a manner inconsistent with the terms of the
escrow deed.
164. Such an obligation would be satisfied by the transmission of the
share certificate relating to the shareholding to Confiance, together with
a signed instruction directing Spice Exploration to transfer the
shareholding to any person, such as an instruction in blank.
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What is the true meaning of the indemnity at clause 6.2 of the Escrow
Deed?
165. This was a belt a braces claim by the claimant for monetary
compensation in the event that there was no valid claim for damages for
breach of clause 5.2 subsisting. Clause 6.2 provides:
‚6.2 Mr. Chilukuri indemnifies Confiance and the claimant against
any loss suffered or cost incurred by each respective party, in
connection with this Deed, for their wilful breach of their
obligation or their gross negligence.‛
Both parties agreed that something had gone wrong with the drafting.
166. Mr. Lord contended that the last clause should in fact be a
restriction on what goes before, and the clause should read ‘....save for
such loss caused by their own wilful breach of their obligation or their
gross negligence’. In other words, that the claimant and Confiance could
recover unless (and to the extent that) the loss had been caused by their
own breach of obligation (if that was wilful) or gross negligence.
167. Mr. Cavender for his part submitted that the provision was an
agreement on the part of Mr. Chilukuri not to sue the claimant in respect
of any breach by them which amounted to a wilful breach or gross
negligence (I have taken this formulation from Paragraph 17A of the Re-
Re- Amended Defence).
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168. It is fair to say that Mr. Cavender did not press his construction in
his closing submissions. I cannot see how an indemnity provision which
appears to operate for the benefit of the claimant could have the effect
of preventing Mr. Chilukuri from bringing a claim in respect of more, and
not less, heinous behaviour on the part of the claimant.
169. As far as Mr. Lord’s contention is concerned, it seems to me that
the other possibility is that the agreement should read:
‚6.2 Mr. Chilukuri indemnifies Confiance and the claimant against
any loss suffered or cost incurred by each respective party, in
connection with this Deed, arising out of his wilful breach of their
obligation or gross negligence.‛
The difficulty with this construction is that it would be unusual to provide
for a contractual liability to be dependent on wilfulness or indeed
negligence; and the structure of the clause has the impression of
amounting to a liability followed by a proviso, the proviso limiting the
extent of the liability. In effect what is expressed to be an indemnity
would operate as a limitation on liability. Neither construction can be
adopted without some damage to the wording of the clause. Having
particular regard to the purpose of the clause as an indemnity, I conclude
that Mr. Lord’s construction is correct. Were the alternative plausible
construction correct, then for the reasons that I have set out, I am of the
view that Mr. Chilukuri’s breach (in failing to send the necessary share
documentation to Confiance) was a wilful one. It would follow that Mr.
Chilukuri would have been obliged to indemnify the claimant against the
loss arising thereby.
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Is Mr. Chilukuri’s breach of the Escrow Deed (if any) a repudiatory
breach, and if so has it been accepted by the claimant?
170. This point is significant if Mr. Chilukuri could comply with his
obligations by sending Confiance or the claimant the documents sent on
4th
. May 2012. It is one of the peculiarities of the case against Mr.
Chilukuri that notwithstanding the claim being based on the failure to
send adequate documentation to Confiance, it was only on the 4th. May
2012 that the defendants sent the claimant two share transfer forms, one
signed by Mr. Chilukuri and one by Swaroop Saha (Mr. Chilukuri’s wife),
both presented to the Registrar of Companies, Mumbai on 28th. March
2012, and two corresponding Form 2s dated 2nd. April 2012, in
purported compliance with clause 5.2 of the escrow deed. The need for a
transfer of a shareholding from Swaroop Saha apparently arose because
there had been in the interim some further allotment of shares to other
shareholders; and thus it was necessary for some additional shares to be
transferred in order that Mr. Chilukuri might comply with his obligation
to transfer 26% of the shareholding in SRM.
The effect of the production of documents in May 2012
171. Mr. Chilukuri’s contention is that his obligation to transfer the
shareholding in SRM Exploration continues in the absence of termination
of the obligations under the Escrow Deed, which has not occurred
because RP has not purported to accept any repudiatory breach that Mr.
Chilukuri may have committed. On that basis, the loss for which Mr.
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Chilukuri might be responsible is quantified by the difference in value
between the shareholding as at the date that the obligation should have
been performed (namely July 2009) and the date of actual performance. I
have indicated above that the terms of the escrow deed obliged Mr.
Chilukuri to pass the share certificate into Confiance’s possession. That
has still not taken place. On that footing, the recent tender is not relevant
to the issues in the case. However, in case I am wrong on my view, I shall
go on to consider the position that would arise if the effect of tendering
these documents was to comply with the requirements of clause 5.2 of
the escrow deed.
172. Before I consider that, there are it seems to me two practical
points that arise here. The first is that it appears that RP had no warning
that this procedure was going to be adopted, save possibly for the very
stale pleading of this intention in October 2010. The covering letter from
Fasken Martineau LLP, the defendants’ solicitors, to Farrer & Co. acting
for the claimant, suggested that Mr. Chilukuri was taking these steps in
order to narrow the issues between the parties prior to trial. Given that it
is plain that RP was doing its utmost over a long period to persuade Mr.
Chilukuri to comply with his obligations under the Escrow Deed, it is
bizarre that these documents were produced out of the blue, and the
anodyne characterisation of these steps as narrowing the issues is unlikely
to explain the motivation behind it. It indicates that the relationship
between Mr. Chilukuri and SRM Exploration is closer than he has
indicated.
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173. Secondly the claimant, having predicated its entire case on the
basis of the value of an asset that RP would never come to enjoy, the
defendants sought to press Mr. Haberman to agree that whatever the
valuation of the assets as at July 2009, its value was no different now.
Mr. Haberman was in some difficulty in dealing with that line of
questioning, not because he was unqualified to do so, but because the
situation in DRC in 2012 is potentially very different from that then.
174. What the letter did not state was why Mr. Chilukuri had waited
until a few days before the hearing before sending these documents to
the claimant. If this is a good tender of the documentation, then it will
materially alter the potential quantum of damages. The claimant had
prepared its case and obtained its expert evidence on the footing that by
virtue of Mr. Chilukuri’s failure to render his shareholding into the
possession of Confiance, it had lost the value of the shareholding as at
the due date for performance. Mr. Chilukuri now argued that as he had
performed, albeit late, any damages should be limited to the difference in
value between the date of due contractual performance, and the date of
actual performance. As will be seen, assessing the value of these shares
as at the date of performance has been fraught with uncertainty and
difficulty. The claimant was in no position to assess the value of the
shares as at the 4th
. May 2012. To mix metaphors, this appears to be as
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much an attempt to put a spanner in the works, as it was a bolt from the
blue.
175. It should be borne in mind that Mr. Chilukuri was not seeking to
amend his pleading to raise an historic defence which he had hitherto
failed to raise, but wished to assert a newly arisen case. Mr. Lord’s stance
was that if Mr. Chilukuri’s case was to be made good, then the claimant
would have to adjourn the hearing with directions given for a further
hearing to adduce further expert valuation evidence. It seems to me that
this would indeed be the necessary consequence of such a new case.
176. Was it open to Mr. Chilukuri to perform his obligation at this late
stage? Mr. Cavender asserted that it was. Even though time was not of
the essence of the date of performance (or indeed of compliance with a
notice served under clause 2.2 of the escrow deed) the due date for
performance had passed, and it was not argued that the failure to supply
the necessary documents relating to the shares did not amount to a
repudiatory breach of the escrow deed. In my view the delay was so
egregious, and the importance of the provision of those documents so
significant, that no reasonable person would have thought that Mr.
Chilukuri intended to be bound by the person twenty eight days after his
failure to respond the terms of the letter of 13th
. January 2009.
Thereafter, if not sooner, the claimant could take the failure to respond
as a repudiatory breach of the deed.
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177. The issue here related to the acceptance of the repudiatory
breach. Mr. Cavender reminded me that an unaccepted repudiation is a
thing writ in water, (in the words of Atkin LJ in Howard v. Pickford Tool
Co. Ltd. [1951] 1 KB 417 at 421). He submitted that in order for there to
be an acceptance of a repudiatory breach the breach must be accepted
by unequivocal words or conduct. Here there were no such words; there
was no such conduct. He pointed to the terms of the original writ, which
sought specific performance of the escrow deed. That document had not
been amended, notwithstanding the service of the Amended Particulars
of Claim.
178. Mr. Lord’s submission was that once the claimant had amended
his claim to seek damages, in the context of this litigation it was plain
that it was treating the contract as being at an end.
179. Mr. Chilukuri was in breach of his obligation to send the share
certificate to Confiance by 3rd
. January 2009. Each party made
submissions on the assumption that this failure would have enabled the
claimant to terminate the contract by reason of wrongful repudiation; the
only issue argued was whether the claimant had done so. Given that the
obligation related to the passing of possession of a security for an option;
and that security related to a shareholding in a company whose assets
were of a particularly risky kind, it might be considered that the period for
completion should be impliedly regarded as being of the essence of the
escrow deed; or that by pressing for completion the claimant made time
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of the essence; or that by failing to respond and perform over such a long
period Mr. Chilukuri’s breach amounted to a substantial failure of
performance, or a renunciation of the escrow deed. There comes a point
where the deliberate ducking of performance becomes an eloquent
refusal to perform. On the footing that his failure to perform was (as I
have found) wilful, Mr. Cavender’s stance was both understandable and
realistic. On any of the above bases, it was open to the claimant to accept
the repudiation of the escrow deed by the date of the Amendment of the
Particulars of Claim, the 15th
. April 2011.
180. In order accept a repudiatory breach of contract, the wronged
party must unequivocally communicate to the wrongdoer his decision to
do so. When the litigation commenced the claimant sought specific
performance of the escrow deed. That would amount to an affirmation
of the contract. Mr. Chilukuri’s continued failure to perform thereafter
amounted to a continuing breach, entitling the claimant to accept the
repudiation thereafter.
181. Whether the Amended Particulars of Claim amounted to an
acceptance of the repudiation depends upon whether the terms of that
pleading sufficiently clearly indicated to Mr. Chilukuri that the escrow
deed was being treated thereafter as having come to an end. At the time
that the pleadings were amended, the claimant was entitled to sue for
damages for breach without necessarily bringing the contract to an end.
The date for performance of clause 5.2 had long passed. However, the
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Amended Particulars of Claim sought to recover as damages the market
value of the shareholding as at the date of breach (see paragraph 48(iv)).
Such a claim can only be pursued if the contract is treated as being at an
end. If the claimant had been seeking damages for delayed performance,
it would have been limited to seeking damages for the difference in value
between the date of breach and the date of judgment. It would also be
unusual for such a claim to have been brought without an associated
claim for specific performance, with the claim for damages being ancillary
relief.
182. Mr. Cavender submitted that the writ itself had not been
amended, and it remained as drawn an application for specific
performance. I have no hesitation in concluding that this failure to amend
was an oversight, and would be objectively considered to have been an
oversight. The issue is whether the acts of the claimant make it plain that
it was treating the contract as at an end. I have no doubt that it did. The
context in which the pleading was amended was that there had been no
effective performance under the escrow deed. It is part of the context
that there had been no effective performance of the escrow deed for four
years. The claimant had sought specific performance; by the amendment
that claim had been removed from the Particulars of Claim, and by
complete substitution an Amended Particulars of Claim seeking the
market value of the shares had been served. Viewed objectively, it was
plain that the claimant was treating the contract as being at an end.
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183. The claimant therefore accepted Mr. Chilukuri’s repudiatory
breach, and it was thereafter not possible for Mr. Chilukuri to comply
with his obligations under the escrow deed.
Has Mr. Chilukuri otherwise breached the terms of the Escrow Deed?
184. The contention here is that Mr. Chilukuri was also in breach of
clause 5.1 of the escrow deed (Amended Particulars of Claim, para. 48).
Mr. Chilukuri was also in breach of this provision as SRM Exploration
failed to enter into a shareholders agreement, amend its article of
association to reflect the claimant’s rights under the escrow deed, or to
provide copies evidencing these administrative acts.
185. The legal experts agreed that there might be technical difficulties
in the way of effecting a transfer of the shares from Confiance unless the
Articles of Association of SRM Exploration were amended. First, the pre-
emption provisions contained within Article 11 of the Articles of
Association of SRM would have to be circumvented, either by
amendment of the Articles or by the shareholders giving up their rights.
Secondly, Article 14 gave the directors of SRM the following right:
‚Subject to Section 111 of the [Companies Act 1956], the
Directors may in their discretion, without assigning any reason,
refuse to register the transfer of any shares to any person whom it
shall, in their opinion, be undesirable in the interest if the
Company to admit their membership‛.
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Section 111 provides a right to challenge such a refusal, and according to
Mr. Rai the Company would have to show reasonable grounds to justify
its refusal.
186. Under clause 3.1 of the escrow deed it was stipulated that the
claimant would have the right to (inter alia) sell the shares ‘to any person
or entity’. Such a right would be hampered if the directors could refuse to
transfer the shareholding; and also if the company was entitled to
exercise a right of pre-emption, particularly where the consideration
payable under the right was not equivalent to the consideration paid on
an agreed sale, but rather a fair price.
187. I would conclude that Mr. Chilukuri was in breach of his
obligations under clause 5.1 for failing to cause the Articles to be
amended to avoid these difficulties. As far as I can see, Mr. Chilukuri took
no steps to procure such an amendment at all.
188. It would also appear to be the case (although it is not pleaded as
an actionable breach) that Mr. Chilukuri was in breach of Clause 3.2,
which imposes an obligation on him to procure that the claimant has the
right to appoint two directors to the Board of SRM Exploration; to alter its
articles to ensure that SRM Exploration could not make certain decisions
without the claimant’s consent; and to exercise the voting rights of the
shares, and of clause 5.3, where he warrants that he has physical
possession of the shares and the legal documentation relating to them.
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He did not, because he did not have, and it would seem was never issued
with, the share certificates.
Did Mr. Chilukuri transfer control of the bitumen asset to the claimant
in April 2008?
187. This was a slightly odd issue, which arose out of the evidence that Mr.
Chilukuri made a payment of £15,000 to the claimant subsequent to a
Term Sheet being issued relating to proposed further dealings between
RP and the shareholders of SRM Exploration. Whatever the truth behind
the payment, I have no doubt that control of the bitumen asset was not
thereby transferred to, or agreed to be transferred to, the claimant.
Has the claimant failed to mitigate its loss? Specifically did it fail to
mitigate its loss by failing to invoke the power of attorney against SRM
Exploration?
189. It is agreed that as from the date provided in served on 15th
.
December 2008 under clause 2.2. of the escrow deed on Mr. Chilukuri,
the claimant had the benefit of the power of attorney under clause 4 of
the deed. It is also agreed that that power would have enabled the
claimant to deal generally with Mr. Chilukuri’s shareholding, and that the
claimant has in fact taken no steps to do so.
190. Mr. Cavender contends that the claimant should have sought the
issue of a duplicate share certificate from SRM Exploration. Had it done
so, it would have obtained possession of the shares, and would have
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been able to sell them. There would have been no loss. The effort
involved in seeking the new share certificates would have been trivial in
comparison with the potential loss, and there was no good reason for the
claimant not to have done so. Therefore it had failed to mitigate its loss.
191. Mr. Nemeth acknowledged that RP had not taken steps to exercise
the power of attorney conferred at clause 4 of the Escrow deed so as to
vest Mr. Chilukuri’s shareholding in SRM Exploration into Confiance. He
thought there was little point. Neither Mr. Chilukuri nor Mr. Rastogi had
done what they had been asked. The shareholders and directors of SRM
Exploration were promoters of the Spice Group, and were not going to
comply with the exercise of the power of attorney.
192. Moreover, in 2008 and 2009 RP was trying to retrieve the position
by way of negotiation. The date for the period for the exercise of the put
and call options had been extended to April 2008, then to August 2008,
and then to January 2009. Promises from Mr. Sanjay Malhotra and Mr.
Chilukuri in late 2008 to procure purchasers for the GDRs came to
nothing. The claimant had sought to secure the value of the security
(both the SEZ land and the bitumen deposit). It offered to take over the
management of the bitumen right, as SRM Exploration had encountered
difficulties with its local partner, and to assist in the sale of the SEZ land.
193. He could not say whether the Power of Attorney would have
enabled RP to obtain the SRM Exploration shares. That was speculation.
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They had negotiated with SIGL, and signed non-binding term sheets with
a view to coming to some further arrangement or deal to remedy
matters. But they never made any real progress. They never received any
tangible feedback from Mr. Chilukuri or anyone else. They did not have
the protection that the various securities were supposed to give them.
They focussed on achieving what they could through negotiation, as any
commercial person would have done.
194. The negotiations took place on a without prejudice basis, and so
their content has not been disclosed to the Court.
195. Mr. Nemeth was asked whether RP considered serving a notice
under clause 2.2(A) of the Escrow Deed. He said that they did not do so,
as the breach was obvious. The claimant did not have the shares. There
was no reason for such a notice to be served.
196. In the same vein, there was no point in exercising the Power of
Attorney. I note that the defendants have suggested that Mr. Rastogi, the
director of SRM Exploration, has indicated that he is more likely to be in
the claimant’s camp than the defendant’s (he indicated he was minded to
assist the claimant in connection with the earlier litigation against Mr.
Chilukuri). But here I tend to agree with the view expressed by Mr.
Nemeth, that Mr. Rastogi’s assistance was not all it was cracked up to be.
There is no evidence that Mr. Rastogi is presently in anyone’s camp other
than his own. But the evidence that I have seen in particular relating to
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the relationship between the promoters of the Spice Group (including Mr.
Rastogi and Mr. Chilukuri) and the correspondence between RP and Mr.
Chilukuri relating to the provision of share certificates indicates that there
was a close connection between the two, and no good reason to believe
that this had changed subsequently. Mr. Rastogi had been critical of Mr.
Chilukuri to Mr. Nemeth, but that was not a solid foundation to believe
that Mr. Rastogi would take positive steps to assist RP.
197. Mr. Chilukuri described the relationship between himself and the
shareholders and directors of SRM Exploration and SRM International. Mr.
Rastogi was a wealthy man, who would make his own decisions as
director of SRM Exploration. He accepted however that he gave RP the
impression that he could procure whatever action was necessary to be
done by that company, as well as by SRM Infrastructure. He last dealt
with the Rastogis in January 2011 when he resigned from the board of
CALS.
198. As I have not heard, directly or indirectly, from Mr. & Mrs.
Malhotra, so I have not heard from Mr. Rastogi. It would have been
helpful to have done so. In the absence of his being called as a witness I
have had to draw my own conclusions as to what SRM Exploration would
have done had the power of attorney been enforced; or perhaps more
properly what the claimant’s reasonable perception of SRM Exploration’s
stance was.
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199. Has Mr. Chilukuri demonstrated that it was unreasonable for the
claimants not to seek to vindicate their rights under the escrow deed by
the use of the power of attorney? The distinct impression that I have
been left with is that the enforcement of apparently effective legal rights
in connection with the securities in India are fraught with difficulties. I do
not say that to suggest any doubt as to the quality of the jurisprudence
that is available. The judgments in connection with the SRM Infrastructure
litigation that I have seen are impressive, and they demonstrate the
litigious nature of the Malhotras, and the difficulties that arise for outside
entities seeking to rely on rights negotiated through Mr. Chilukuri.
Although, as Mr. Cavender said, Mr. Rastogi is not the Malhotras, that is
to ignore the protean nature of the Spice Group. It would be unrealistic
to treat dealings with Mr. Rastogi as being entirely arm’s length dealings
with a party that was not associated with the Malhotras. Mr. Rastogi (or
Messrs. Rastogi) plainly were associated with them through the Spice
Group.
200. The litigation involving Rajan is continuing without any evident
end. Mr. Nemeth was uncertain as to when it would end, or when the
end might be. Part of the difficulty has arisen through the loose
relationship between the parties within the Spice Group. The dispute over
the guarantee turns on the extent of Mr. Chilukuri’s authority. The
conclusion that I draw is that a foreign company in particular would be
very wary of assuming that it could enforce its rights quickly where the
enforceability of those rights was not crystal clear.
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201. Mr. Cavender’s point was not that there would be any recourse to
litigation, but that SRM Exploration would do what was necessary to
ensure that the claimant received Mr. Chilukuri’s shareholding. From the
evidence that I have heard it seems to me that the claimant would be
right to be chary of dealing directly with SRM Exploration as regards these
shares. First, as I have found Mr. Chilukuri’s positive involvement was
required in order that possession of the shares might be obtained.
Secondly, the ownership of those shares (and hence the efficacy of the
power of attorney) was itself unclear. Thirdly the evidence appears to
show that Mr. Chilukuri’s practical connection with SRM Exploration
continued long after 2008. Fourthly I find Mr. Chilukuri’s recent
production of documents relating to the shares inexplicable and
unexplained. It is possible that the explanation for lengthy silence
followed by production of documentation has come about by reason of a
change of legal advice. But the likelier explanation is that Mr. Chilukuri
has considered it to his tactical advantage to stay silent; and has
produced the documents only when compelled to do so by a re-appraisal
of the nature of the impending case. And fifthly, the claimant has what
appears to be an unhappy experience litigating with Infrastructure in the
Companies Court in India. Whilst that is a different action from this, I do
not think it irrelevant. Anyone would have the risk of lengthy litigation in
their mind if they had been through it in connected litigation.
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202. There is also something inherently unattractive in Mr. Chilukuri
complaining that the claimant has not exercised an independent power to
do the very thing that he could have done himself, but has not done. The
court should I think consider critically the suggestion that the claimant
has unreasonably failed to engage in this process.
203. I conclude that the claimants were right to think that an attempt
to exercise the power of attorney would not have been met with ready
compliance, but with a refusal leading, if anywhere, to lengthy litigation.
There was an alternative pursued by the claimant to negotiate a disposal
of the GDRs on beneficial terms, and that course of action required the
involvement of SIGL and Mr. Chilukuri. Enforcing the power of attorney
with a view to enforcing a sale of the security would probably have
meant giving up on such negotiations as there were. I conclude that it
was not unreasonable for the clamant not to seek to obtain Mr.
Chilukuri’s shareholding by exercise of the power of attorney. I also
conclude that had the claimant sought to pursue the SRM Exploration
shareholding by virtue of the use of the Power of Attorney, they would
have been in no better position than they presently are, and most likely
(in terms of legal costs) somewhat worse.
What is the true valuation of the claimant’s loss?
204. The major asset held by SRM Exploration, according to the
claimant, is its interest in the DRC Bitumen joint venture. The claimant
says that it should be valued by way of a discounted cash flow (‘DCF’)
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analysis, which seeks to value a business opportunity by way of an
assessment of its likely future cash flow, and a determination of the
present value of those cash flows. On that basis, say the claimants, the
shareholding had a value of $11.3 million, or possibly $10.1 million if one
adopted a minority and marketability discount to reflect the 26% minority
nature of the shareholding.
205. Mr. Chilukuri has dismissed this suggestion. As at the valuation
date, the prospect of development of a bitumen concession in the DRC
was in effect pie in the sky. There has in fact been no development. So
were the battle lines drawn. Both parties have produced expert
accountants who gave diametrically opposed evidence in a polite,
persuasive and reasoned manner.
Mr. Philip Haberman
206. Mr. Haberman is a Chartered Accountant and a partner in the
Fraud Investigations & Dispute Services department of Ernst & Young. He
is qualified FICA, MICA, MRICS and a founder member of the Expert
Witness Institute. He has been acting as an expert witness on accounting
and quantum issues for over 20 years.
207. He was asked to value three assets, namely:
(1) The value of SRM Exploration’s holding in the Cobit Joint Venture
as at 1st. January 2008 and 1
st. July 2009;
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(2) The 400 acres of land at Haldia owned by SRM Exploration on
which the oil refinery was to be constructed also as at 1st. January
2008 and 1st. July 2009; and
(3) The SEZ land at Mewat, owned by SRM Infrastructure as at 30th
.
January 2009.
208. There was in fact no dispute between the parties as to the value of
the land in India. The land at Haldia was valued (as at 1st. July 2009) at US
$11.8 million. The SEZ land was valued at £7,100,000. There was
however a disagreement as to whether the Haldia land was properly to
be regarded as an asset of SRM Exploration.
209. Mr. Haberman considered that the correct basis of valuation of the
Cobit venture was to adopt a discounted cash flow (‘DCF’) analysis of the
anticipated costs and income from the intended development of the
bitumen deposit in DRC. There was sufficient material available to
construct such an analysis. The asset was unique, and the license to
extract was not obtained through a competitive bidding process, and so it
was inappropriate to value the asset on a cost basis. There was no closely
equivalent comparable asset that might be used to value the DRC
deposit, but evidence of transactions in Madagascar and Canada would
provide a suitable cross-check. The Haldia and Mewat lands were by way
of contrast best valued using market comparables.
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210. Cobit-SRM is a joint venture owned as to 51% by SRM
Exploration, 34% by Congo Bitumen and 15% by the DRC.
211. The material that Mr. Haberman used to produce his valuation
was:
(1) A report by SG Geotechnika for SRM Exploration in January 2007
assessing the extent of the bitumen reserves. This report concluded
that there were 2,000 million tons of bitumen with an anticipated
recovery of 11%. The bitumen available for immediate open cast
mining amounted to 211 million tons, leading to 23.21 million tons
recoverable, or 139.26 million barrels of oil equivalent.
(2) A Summary Exploratory Proposal dated 30th
. April 2007 by Cobit
indicating that 14 million tons of bitumen sand could be exploited
by open cast techniques; giving a local price for such bitumen at
$700 to $900 compared to an international price of $500 per metric
ton; and noting that the DRC intended (with the support of the
World Bank) to develop the very undeveloped road infrastructure of
the DRC. From this document Mr. Haberman obtained information
as to levels of production, operating costs and potential upside
margins.
(3) A Business Plan and Valuation Report drafted by SRM in June 2007
outlining Cobit’s intention. It proposed initially to mine the available
bitumen for road surfacing, and in the longer term to perform
further exploration of the land and to use enhanced oil recovery
methods to produce synthetic crude oil over a period of twenty
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years. Mr. Haberman noted that this draft was both incomplete in
part, and also inappropriate in part, as it made reference to (and
appeared to be based on) an earlier airline venture. He therefore
only used the information as to pricing in this document where he
had tested those assumptions from other sources.
212. He described these as ‘contemporaneous business planning
documents prepared independently’. He acknowledged that it would
have been preferable to have more detail in the documents, to have been
able to test individual assumptions and reasonableness.
213. Mr. Haberman was referred to some documents to establish that
the foreign investment that predicated the bitumen development in the
DRC in 2007 was still being made in 2009. The first was a ‘country plan’
produced by the UK department for International Development. That set
out the construction of a new road system as one of the key strategic
objectives for donors. Further documentation showed that private
investment into the DRC fell from $1.8 billion in 2007 to $1.7 billion in
2008 and just under a billion dollars in 2009. He accepted that the
political situation had worsened in the country in 2009, with insecurity in
the East of the country. Inflation had increased, and the economic
situation had deteriorated, with funding being provided by the IMF and
the World Bank. International donors had granted emergency funds to
the country. Mr. Haberman accepted that there was no specific evidence
of interest from third parties in the bitumen project. Deutsche Bank had
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been involved with SRM in the production of a report from AJM
Petroleum Consultants in 2007/8, but that did not come to fruition.
However, his view was that the project, as viewed through his DCF
analysis, was sufficiently certain and profitable to ensure that funding
would be available.
214. In order to produce his analysis, Mr. Haberman had to adopt a
discount rate to reflect both the time over which the anticipated net
income was to be produced, and also to reflect the uncertainty that the
anticipated cash flows might not materialise. In the present case the most
significant risk was that flowing from the nature and governance of the
DRC itself, which was described as the third most risky country in the
world. Mr. Haberman made an error in his analysis in his original report in
that he took the relevant figures that related to the Republic of Congo,
not the Democratic Republic of Congo. This was a slip. He asserted that
the difference in risk rating between the two countries (which he
accepted) was not material. The experience of Ernst & Young was that
the appropriate range for the discount rate in respect of such proposals
would be between 20 and 25%. In assessing the discount rate Mr.
Haberman relied more specifically on the Capital Asset Pricing Model,
which broke down the risk into three factors – a risk free rate for the DRC
which was based on long-term bonds issued by the Government of DRC;
an equity risk premium for the DRC which was based on comparable
countries with a similar risk rating; and an further factor relating to the
risk applicable to broadly comparable public limited companies referred to
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as ‘beta’. Applying this methodology, the discount rate at January 2008
was 21%, and at 31st. July 2008 was 26%. He then increased the rate by
3 to 4% to reflect the very early stage of the investment, and fact that
the companies used as comparables for the further factor were larger and
more diversified than Cobit. The outcome was a rate of 25 and 30 % on
the respective dates. Mr. Haberman accepted that there would come a
point where the appropriate discount rate was so high that the DCF
model would be inappropriate. He considered that this point would be
reached at a discount rate of 40%.
215. On the anticipated production Mr. Haberman assumed that
production would start a year after the valuation date. He ignored the
intermediate and long term plans in the proposal as being too uncertain,
and adopted the quantities proposed for the first three years in the
Proposal and Business Plan; and then calculated the likely production on
the assumption that the oil extraction machinery then worked to capacity,
with appropriate discounts for the use of extracted bitumen as part of the
cost of production; increase in capacity over time; and downtime for
repairs and servicing. His assumption was that after year four, production
would continue at that level into perpetuity.
216. Mr. Haberman recognised that the price of bitumen was a ‘key
driver’ in his DCF. The plan assumed a market price for bitumen at or over
$550 per metric ton. There was no publicly available African bitumen
price data to consider, and so his evidence was based substantially on
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Canadian bitumen prices, with some reference to African prices in the SG
Geotechnika report and the Draft Business Plan and Proposal. The latter
evidence suggested a price of between $600 and $900 per metric ton,
compared with international prices of $500 to $550 per metric ton. He
decided to adopt a figure of $550 per metric ton as a conservative and
reasonable assumption in 2007. Based on the fluctuations of crude oil
prices (which were Mr. Haberman’s benchmark for the cost of bitumen)
he proposed a price of $550 in January 2008, with the price over time as
from that date expected to decline to $489 in 2012. In June 2009 the
price was $550, and although then expected to increase, it has been
assumed by Mr. Haberman that it would be considered by the market as
remaining constant.
217. Turning next to the cost of operating the business, he adopted the
machinery cost set out in the Draft Business Plan of $15 million per year,
for the entirety of the machinery. Manpower would be $4.5 million per
year, and together with operation expenses of fuel and consumables,
amounted to $91 per ton of bitumen. He thought that the level of detail
in the business plan was reassuring in this regard. Significantly, he
estimated all costs as being in US dollars, and assumed an inflation rate of
2%, based on long term dollar inflation rates.
218. Other costs payable to the Government of DRC comprised a
royalty payment of 9.5% on revenue earned, a ‘signature bonus’ of
$500,000 on the signing of the agreement and a further $250,000 at the
115
fifth year of the agreement, and a land fee at a stated rate per square
kilometre. He had assessed the capital costs of machinery as being
incurred evenly over the first three years of production, and exploration
and infrastructure costs, the costings being taken from the Proposal and
the Draft Business Plan. Tax was assumed at 40% on net income, with no
allowance being made for the carrying forward of losses.
219. Having calculated the income and cash flow, Mr. Haberman
calculated a terminal value by applying a formula called Gordon’s Growth
Factor, applying the discount rate relevant to the valuation date, and
assuming long-term growth of 2%. His result was that, if valued as at 1st.
January 2008 the value of the bitumen deposit was $57.6 million; if
valued as at 31st. July 2008 it was $62.4m. He stressed the conservative
nature of his assumptions, in particular:
- The reasonableness of the assumption as to bitumen pricing;
- The high discount rate adopted
- The conservative treatment of tax
- The restriction of the asset to the bitumen immediately available.
220. In Mr. Haberman’s view the most important factor in the
calculation was the timing of the exploitation of the asset. His analysis
allowed for a year’s delay. If there was a further year’s delay, then the
valuation as at January 2008 would be reduced by a further 20%; that at
July 2009 by 25%, or $46.08 million and $46.8 million respectively.
116
221. The price achieved was cross-checked against a comparison with
the price paid for equivalent assets in the market, as regards a purchase
of a share of a bitumen field in Madagascar in September 2008 and
various transactions relating to Canadian Tar Sands between 2006 and
2009. The results were not inconsistent with the value produced for
Cobit.
222. He was asked to carry out the same valuation exercise as at 4th
.
May 2012, being the date on which Mr. Chilukuri sought to perform his
obligations under the Escrow Deed. His view was the risk and
uncertainties would be the same, (although not surprisingly in the
circumstances) I rather had the view that Mr. Haberman had not given
the question a great deal of thought.
Mr. Anurag Singhi
223. The defendants relied on the evidence of Mr. Anurag Singhi of
Baker Tilley Singhi Consultants Pvt. Ltd. Mr. Singhi is qualified Bachelor of
Commerce (Calcutta), Chartered Accountant since 2007, MBA. He has
over seven years of work experience. He was instructed to value Mr.
Chilukuri’s 26% shareholding in SRM Exploration as at 1st. January 2008
and 31st. July 2009 as was Mr. Haberman; but he was also asked to value
it at 31st. March 2011 and 1st. March 2012. He gave evidence by an
undated report. His report stated that he had considered:
- The Annual Reports of SRM Exploration from 2006-7 to 2010-22;
- Its memorandum and articles of association;
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- The public trading data of CALS
- Exchange rate data between the Indian Rupee and the pound
sterling.
and the instructions of Mr. Chilukuri.
224. He, like Mr. Haberman, had considered whether to value the
interest by reference to the underlying value of its assets; by consideration
of its anticipated income and expenditure; or by reference to the value of
similar businesses in the market. His shortly expressed conclusion was that
he was unable to establish with sufficient certainty the value of cash
flows or benefits to SRM Exploration, and any income based valuation
(including DCF) was therefore inappropriate. His stance was made plain in
the Joint Statement of Expert Accounts, where he said:
‚Until a defined plan to exploit potential is put in place and some
efforts to implement or the willingness to implement are clear, it is
prudent to value assets at cost. Acquisition of profit making assets
only by itself does not increase value to the acquirer, else no
owner of assets would sell them at cost and [would] demand
profit linked valuation without having any intention to do so.‛
His critique of the documentation that he had seen relating to the
underlying assets is relevant to the fundamental dispute between the
experts, as to whether the evidence was sufficiently reliable and extensive
to allow a properly constructed DCF valuation to be relied upon. The
significant points made by Mr. Singhi seem to be to be as follows:
- The AJM mining report was insufficient to establish the available
bitumen reserves, being simply a ‘desktop analysis’;
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- Two of the former promoters of the asset sought in 2008 to
collude with the local owner (of the 49% share in Cobit) to wrest
control of the asset. Although this claim was subsequently
defeated, it would have had the effect of substantially devaluing
the asset in 2009.
- The local owner of Cobit had died, and the devolution of his
interest was a matter of uncertainty.
225. Mr. Singhi told me that the reports that he had been supplied with
were those from Geotechnika and from AJM. He maintained that the
project was in a very early stage, and there was insufficient information as
to the extent of the asset, its anticipated rate of exploitation; and a
schedule of intended and expected costs. He had not sought to carry out
a DCF analysis. The uncertainty was such that he would not recommend
paying in excess of cost for the asset. His view was that a DCF analysis
could be done, but that it would (if correctly performed) probably end up
with a negative value, such were the risks.
226. The only reliable material from which a realistic valuation of SRM
Exploration could be carried out was the company’s annual reports. The
value of the Cobit investment should be taken as the cost of its
acquisition.
227. SRM Exploration had an interest in some oil wells in Nagaland.
Again, the prospects of development were ephemeral and uncertain and
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they were valued at cost. Mr. Haberman had not considered these assets,
and he accepted Mr. Singhi’s valuation of InR 3,524,086 or $74,356
228. In my view Mr. Singhi’s initial report was rather light in its detail
and the strength of its critical analysis. In part this derived from Mr.
Singhi’s initial view that the project was simply too risky to be valued by a
DCF process. However it also reflected the fact that Mr. Singhi had not
been supplied with the material available to Mr. Haberman utilised in his
analysis.
229. Mr. Singhi and Mr. Haberman produced a very useful Schedule of
Agreement and Disagreement on 14th
. May 2012, which contained, in
substance, Mr. Singhi’s detailed critique of Mr. Haberman’s analysis. The
relevant points of disagreement that I take from that document, and the
cross-examination of the experts, are as follows:
(1) As I have mentioned above, Mr. Haberman acknowledged that
he had erred in his DCF by adopting figures from the Republic of
Congo, not the Democratic Republic of Congo, a different
country. Mr. Singhi criticised Mr. Haberman’s assessment of the
country risk for the DRC, and referred to his own figures (from an
expert, Mr. Aswath Demodaran). He suggested that the
differential between the two in terms of risk should be 35%.
However Mr. Haberman asserted that this had no impact because
the risk rating of each was broadly similar.
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(2) Mr. Singhi said that there would be difficulties in arranging
financing for the project. Mr. Haberman had assumed that equity
financing would be used, which would have the effect of
increasing the discount rate and reducing the value. According to
Mr. Singhi, the provision of finance is a requisite of the
development of the project. According to the terms of the joint
venture, this cannot be equity funding, and any third party
funder will have to be paid (at a significant return) before any
profit is seen. The DCF model does not take this into account.
Mr. Haberman responded that his model does provide for the
cost of funding. It provides for funding by way of equity funding
(see Article 6 of the Joint Venture Agreement of 15th
. June 2006)
and that is a conservative basis on which to assess the effect of
funding in the DCF analysis. He had assumed that funding would
be ‘equity funding’, by which he meant funding raised by the
owners of the Cobit joint venture. This was in his view a
potentially more costly means of funding the project, but as he
was unaware what the source of the funding would be, it was
prudent to assume the most costly. He accepted that any funder
would want to have some form of security over the project itself.
(3) Mr. Haberman asserted that although the DRC – Cobit
agreement required Cobit to negotiate with the government, as
to the commercialisation of the asset, there was no further
requirement for governmental permission before work could
start. Mr. Singhi noted that the Presidential Decree was pending.
121
Mr. Haberman was asked to consider the effect of the absence of
the presidential decree that the agreement required. His view
(proffered in re-examination) was that it would depend upon
whether this was regarded as a purely administrative step, or
something more substantive. He had not made any specific
allowance for this factor, and had assumed that the right to
extract bitumen existed as at the valuation date. The absence of a
presidential decree, if a matter of substance, would not be taken
into account in setting the discount rate. One would consider it
as a separate contingency, and consider whether one wanted to
take the risk or not.
(4) Mr. Singhi was of the view that the Business Plan was far too
rough and ready a document on which to base the value of the
deposit. There would inevitably be more than a year’s delay as
the project still needed finance and the acquisition of capital
assets (machinery etc.). He thought that the extra year’s delay in
the commencement of mining that had been factored in was
inadequate; it should have been two or three years
(5) Mr. Singhi suggested that Mr. Haberman had applied his
discount for risk incorrectly, failing to acknowledge the relative
risk of that and other countries. He relied on the work of Mr.
Aswath Damodaran; an authority who was also considered by
Mr. Haberman. The appropriate risk-free discount for the DRC
(before further adjustment) should be closer to 30-35%.
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(6) The absence of steps being taken within the project did not, in
Mr. Haberman’s view, devalue it. Many similar mineral projects
were valuable, but remained dormant awaiting the most
propitious circumstances. He contrasted his valuation of the
Mewat SEZ land, where only 10% of the land necessary for the
completion of the project had been acquired. In those
circumstances the planned steps were so uncertain that a DCF
valuation was not appropriate.
(7) As a substantial proportion of the bitumen extracted would have
been sold locally, payment would have been made in Congolese
francs. Investors would not be interested in being paid in a local
and potentially highly depreciating currency (inflation running at
15-17% for the past ten years). Mr. Haberman responded that
the asset was properly, and usually for a hydrocarbon asset,
valued in dollars. Clause 4.3 of the 2008 DRC-Cobit agreement
guaranteed the international market price. An investor would
value the asset in real terms or in a stable currency, not the highly
inflationary local currency; and in any event the risk of investing
in the DRC is recognised in the discount rate adopted. Mr.
Haberman was pressed with the difficulties that conducting
extraction operations in DRC with regard to the local currency,
and in particular its very high inflation rate and the difficulties
that existed in acquiring foreign currency. He did not regard this
as an insuperable difficulty. Although the business was valued in
dollars, it was only the net profit that needed to be converted
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into dollars for the owners to be able to take their profit in an
acceptable currency. Mr. Singhi agreed that the sale price of
bitumen was linked to its dollar price on the market, and that on
that basis a 2% inflation rate was a correct assumption, but
made the point (that I think Mr. Haberman agreed with) that the
actual sale would be in the local currency equivalent. His further
point was that the government were not bound to pay in dollars,
and convertibility from local currency might not be
straightforward.
(8) The return on short-term Government bonds was 45%. As Mr.
Haberman’s analysis produced a return of 25%, and depended
on sales to the Government, an investor would not sensibly invest
in it. Mr. Haberman’s response was that Mr. Singhi was
comparing apples and pears. Any investor would prefer a return
of 25% in dollars to 45% in Congolese francs.
(9) Mr. Haberman was also referred to some evidence that there was
in March 2008 litigation between SRM Exploration and a
company called SRM Luxembourg as to who was entitled to the
interest in the joint venture. An e-mail dated 4th
. March 2008
from Mr. Chilukuri to a Mr. Cohen and Mr. Rajan asserted that
this was a fraud on the part of a Mr. Verma, and that SRM
Exploration had filed criminal charges Mr. Chilukuri asserted that
the fraud involved an assertion that SRM Luxembourg was
entitled to the 51% stake in the joint venture, for the purpose of
entering into a new agreement by which Mr. Verma would
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personally and substantially benefit. One oddity, according to the
e-mail, was that Mr. Verma was not a director of SRM
Luxembourg, and was only a minority shareholder of it. Mr.
Haberman accepted that an investor would have to consider the
merits of this dispute in trying to put a value of SRM Exploration’s
shares. He treated these sorts of contingency, which related to
SRM Exploration’s ability to exploit the asset, as different in
quality from the DCF analysis. He said that if an investor
considered that there was a material possibility that he would not
be able to exploit the project, then that investor would not invest
at all.
Conclusion – underlying assets
230. The value of the SRM Exploration shares depends on the perceived
net value of the underlying assets at the valuation date. The valuation
date in this case is the 1st. July 2009. It is a truism that an asset is only
worth what someone will pay for it, and that this presupposes the
existence of a market for the asset. One of the difficulties facing the
Court is that it must assess the market (and the experts’ view of it) at a
time when the market was extremely turbulent, and when (as we now
know) that turbulence was going to increase. However it would be
wrong to assess the market with the benefit of or in reliance upon
hindsight.
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231. The experts did not disagree that there was a market for this type
of share, or that there was a market for the type of assets held by SRM
Exploration. The dispute was a more technical one as to how potential
purchasers would go about valuing the assets that it was minded to
purchase. At the bottom of that was a simple difference of opinion
between Mr. Haberman and Mr. Singhi as to whether the market would
have had sufficiently certain information to allow the discounted cash
flow model if applied in this case to be a useful tool to value these shares
as at July 2009.
232. Considering their evidence generally, I prefer the evidence of Mr.
Haberman to that of Mr. Singhi. He has, as was apparent from their
resumes, considerably more experience in the use of the DCF model of
valuations, and indeed in valuations generally than Mr. Singhi. He made
appropriate concessions in his evidence when pressed, and his evidence
struck me as measured, cautious and balanced, both in his assessment of
the material that he was relying on and his application of the various
technical risk factors that underlay his DCF assessment.
233. Mr. Singhi’s approach to the application of the DCF model I found
more dogmatic, and on occasion that led him into technical error. His
comment that the differential risk rating between that of the Republic of
Congo and the Democratic Republic of Congo’s should have been 35%
appears to have arisen from a misunderstanding of the nature of risk
ratings. Both of these countries have relatively high risk ratings, and what
126
appears to be a large statistical difference on a numerical scale is of little
consequence. His approach to the available documentation in respect of
the project seemed to me to be dismissive without good reason. In part
that was because he had not seen all relevant documentation. For
example he had not seen an important letter dated 4th
. March 2008
from SRM Exploration in respect of the valuation of the bitumen deposit
warranting amongst other things that:
- SRM Exploration had satisfactory title to all of the assets;
- No additional information necessary for the valuation of the asset
would have been obtained by a field inspection; and
- All regulatory approvals, permits, and licenses required to allow
production were in place.
His slightly pejorative description of a technical report by AJM Petroleum
Consultants as a desktop study did not reflect that it had been
completed by a professional engineer on site, and that it was considered
sufficient for consideration by Deutsche Bank. On being pressed with this,
Mr. Singhi’s evidence seemed to me to move sideways slightly, and to
raise other difficulties.
234. More specifically I make the following findings:
(1) The assertion that the value of the asset would be devalued by the
existence of the litigation in Luxembourg I find to be adequately taken
into account by Mr. Haberman’s cautious assessment of the risk factor
in the DCF model. The evidence of such a claim, amounting to
correspondence in March 2008, is ephemeral, and I have no doubt
127
that if a substantial asset had been so claimed SRM Exploration would
have litigated the point, and would not have been as assiduous as it
has been in challenging the Czech guarantee claim (which of itself
presupposes that SRM Exploration is of significant value - and I have
not heard it suggested that it has acquired further assets in the
interim). Although Mr. Chilukuri in correspondence referred to
criminal proceedings for fraud being brought, the lack of information
about this claim strengthens my view that it was in all probability a
matter of little weight.
(2) Although production had not commenced by 2009, the terms of the
joint venture agreement provided for the joint venture to continue for
as long as the parties held their company shares in the joint venture
company, The agreement between the company and the DRC
provided that the ‘Date of Entry into Force’ was the date on which the
Presidential Decree was made; the effective period of the agreement
was five years from the Date of Entry into Force. The consequence of
there being no Presidential Decree was that the agreement continued
in force, but the operative period was deferred. That is how the
parties were treating it – an agreement which remained ready to
commence. If the parties had thought that the time for steps required
under the agreement had already passed, then this would have
become apparent during negotiations for further funding or sale of
the GDRs. The point really arose for the first time, as far as I can see,
in cross-examination at trial.
128
(3) The point taken by Mr. Chilukuri that the Agreement required
Presidential Approval to be obtained before it could become effective
sought to raise another uncertain contingency to devalue the asset.
Neither party has asked the DRC whether such approval has been
obtained. The parties appeared to adopt common ground that it had
not been, although the claimant was more cautious – it simply did not
know. But what is the consequence of that? Mr. Cavender described
Mr. Haberman’s evidence, given in re-examination, that the decree
was a mere administrative step, as getting into a lifeboat provided by
Mr. Lord. That rather colourful description is not I think fair. There was
a sound basis for his view. Mr. Haberman is able to give evidence as
to the effect that the absence of such a decree would have on the
market. It seemed to me that Mr. Haberman’s evidence was really no
more than a statement that the market would assume that the decree
would follow as a matter of course. Mr. Chilukuri had in 2008
warranted that SRM Exploration had good title to the asset. It was Mr.
Chilukuri’s evidence that by March 2008 the payment had been
made, and that the presidential decree was therefore due. It appears
to have been the case that DRC was paid $500,000 in respect of that
decree. The DRC was one of the joint venturers, and a party to the
agreement. I have no reason to believe that the Government of DRC
would not issue a decree when asked, having in effect received
money for it. There is no historic suggestion that such a decree would
not be provided on request, nor is there any evidence that it has even
been asked for, still less that it has been refused. In my view Mr.
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Haberman is entitled to take the view that the market would consider
the requirement a matter of administration, and make no further
adjustment to its valuation of the asset.
(4) Turning to the source of funding I accept Mr. Haberman’s contention
that his DCF model properly reflects the cost of equity funding for the
investment, and that such funding complies with the requirements of
clause 6 of the joint venture agreement.
(5) The risk factor contained within the DCF model reflects (in part) as
regards any particular country the perceived risks involved in doing
business in that country. Those risks include the risks arising from the
strength or weakness of that country’s currency. Mr. Singhi’s
complaint is really that the nature and size of the investment was such
that the risk factor did not cater for it. I see no basis for considering
that the risk factor utilised by Mr. Haberman does not adequately
cater for that risk in the present case. Although the investment was
substantial, it is not of an exceptional scale. Secondly, the government
of the DRC held a stake in and was a party in the joint venture
pursuant to its license agreement with the joint venture company. It
was to be a user of the bitumen that was to be produced. It had an
interest in ensuring that its partners enjoyed a proper return. It
received a royalty on bitumen extracted; it would tax the profits of the
venture; and it was also entitled to a share of the joint venture
company’s profits. The evidence does not demonstrate to me that
there was an exceptional or additional risk that had not been taken
into account in Mr. Haberman’s analysis.
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Haldia Refinery Land
235. Mr. Haberman’s instructions were that the Haldia land comprised
400 acres of green field land in Haldia, West Bengal, that were owned by
SRM Exploration; and the Indian Government had granted permission to
construct an oil refinery there. In the joint report, although Mr. Haberman
stated that it appeared that the land was not held by SRM Exploration at
either valuation date, he had valued that land on the basis that that was
what he was instructed to do; the Haldia land comprises 400 acres of
undeveloped land held on a 90 year lease by SRM Exploration, paying a
premium of INR 1.5 million per acre. On 30th
. March 2008 SRM
Exploration assigned its leasehold rights to CALS, on payment of an
annual rent of 0.25% of the premium, being increased by 5% annually,
to the Haldia Development Authority. Mr. Haberman concluded that the
appropriate basis of valuation was the amount that the Haldia
Development Authority charged for the allotment of industrial land at the
valuation date, at the rate of INR 1.5 million per acre. The value was
therefore INR 600 million. It was apparent during Mr. Haberman’s cross-
examination that he was unable to say who owned the land; the land
was properly to be valued on a market basis; and that he was not in a
position to value it.
236. Mr. Singhi in his report asserted that the land was transferred back
to the Haldia Development Authority, although he did not say when this
occurred. At trial he said that the evidence did not support the
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proposition that SRM Exploration held the Haldia land at either valuation
date. He noted that SRM Exploration’s financial statements for the year
end 31st. March 2008 referred to the transfer of the refinery project
(including the right to lease the land) by SRM Exploration to CALS for a
consideration of InR 132.5 million, or about £1,300,000. Mr. Singhi
assessed this to be the value of the land. Mr. Haberman was also relying
on a note in the books of CALS which stated that there was a sum of InR
600 million due to Government in respect of the land; but this was not
evidence of ownership by SRM Exploration. Mr. Singhi thought that CALS
had acquired the land, and that the government had now taken it back.
Again, the basis for this evidence seemed to me to be unclear
237. My conclusion is that it has not been proven that SRM Exploration
owned the Haldia land at either valuation date. There is also very great
uncertainty as to the basis on which any company within the Spice Group
may have been interested in the land. The accountants were in my view
given an unrealistic task with inadequate material to carry it out, which
Mr. Singhi did with more gusto than Mr. Haberman. Therefore I make no
addition to the value of the company by reason of the Haldia land.
Other Assets
238. Mr. Haberman was not in a position to dispute Mr. Singhi’s
valuation of the Naga oil concession and other assets. Mr. Singhi valued
them at book, and I take their value from the 2009/10 accounts as being
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InR 3,524,086 for the Naga concession; InR 8,700,000 for SRM
Exploration’s shareholding in CALS; and InR 18,836,639 for tangibles.
239. There was a short disagreement over the status of money shown
in the company’s accounts as being held as share allocation money
pending allotment. The 2009/10 accounts show some InR 42,683,596 as
at March 2009, but only InR 1,683,596 as at March 2010. Mr. Haberman
explained that this was money that had been paid for shares, but in
respect of which the shares had not yet been allotted. The company
should either repay the money, or issue the shares. On either basis it
seems to me that this money should not be considered an accretion to
the assets of the company. If the company retains it, then more shares
will be issued and Mr. Chilukuri’s shareholding would be devalued.
The value of the assets
240. I conclude therefore that as at 1st. July 2009 SRM Exploration’s
assets amounted to:
51% Interest in Bitumen Deposit, DRC $32m
Naga Concession $74,356
Shares in CALS $183,570
Tangibles $397,452
Total $32,655,378
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SRM Exploration’s Guarantee
241. I consider next a potential liability of SRM Exploration. Mr.
Chilukuri asserts that the value of his shareholding in SRM Exploration at
all material times was devalued by the existence of a guarantee dated
15th
. March 2007 executed by Mr. Chilukuri to discharge an obligation on
the part of a Czech company, Newco Prague s.r.o., to pay N & S & N
Consultants s.r.o 230 million Czech crowns as the price for the sale of
some shares.
242. On 1st. May 2009 N & S & N Consultants s.r.o issued a statutory
winding up notice, and subsequently served a petition for the winding
up of SRM Exploration in the High Court in Delhi, on the ground of its
insolvency as evidenced by the non-payment of the guarantee, and for
the appointment of an interim liquidator. On 4th
. March 2011 the High
Court heard the application for the appointment of an interim receiver.
The Company resisted the application on the grounds that the guarantee
was invalid. The High Court held that it was a valid guarantee. The
Company appealed, and the appeal was dismissed on 21st. March 2012.
243. The claimant complains that it has only recently discovered the
existence of this petition, and that there has been a lack of disclosure as
regards these matters by the defendants. Mr. Cavender QC on behalf of
Mr. Chilukuri says that although Mr. Chilukuri was aware of the
guarantee, having executed it, he was not until very recently aware of the
steps that had been taken to enforce it.
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The Effect of the application to appoint a Provisional Liquidator for
SRM Exploration
244. The legal experts were asked to consider the inferences that might
be drawn from the judicial hearings and continuing judicial process that
had taken place in India in connection with the presentation of a winding
up petition and the application to appoint a provisional liquidator. Mr.
Chilukuri had sought to draw inferences from this process as to the
validity of the guarantee and its effect on the value of his shareholding in
the company. The experts agreed that the transfer of shares would be
prohibited unless the consent of the relevant Tribunal had been obtained;
and that the market would make an appropriate provision for the
perceived worth of the guarantee.
245. In fact, the matter came before Mr. Justice Manmohan sitting in
the High Court of Delhi, and judgment was delivered on 4th. March
2011. SRM Exploration challenged the petition on various grounds, the
pertinent grounds for the present case being the challenge to the validity
of the guarantee on the basis that it was arguable that Mr. Chilukuri was
not authorised to give the guarantee; or that the guarantee was not
properly stamped or sealed; or that foreign exchange requirements had
not been complied with. The learned Judge concluded that Mr. Chilukuri
was duly authorised by SRM to execute the guarantee. He commented
that these defences were ‘clearly moonshine and sham’, basing this
conclusion substantially on the fact that SRM had not referred Mr.
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Chilukuri’s activities to the police, as one might have expected if his acts
had been unauthorised. There was no arguable case that the guarantee
was not valid.
246. SRM Exploration appealed that decision and the appeal was heard
and dismissed by the Court of Appeal on 21st. March 2012. I pause to
note that the two share transfer forms in respect of Mr. Chilukuri’s and
Mrs. Saha’s shareholdings were presented to the Registrar of Companies
28th. March 2012. It is not fanciful to suppose that the decision, on
whoever’s part, to execute such a document might well be connected to
the realisation that the assets of the company are substantially devalued
by the judgement of the Court of Appeal.
247. The Court of Appeal in India required SRM to file an affidavit
disclosing Mr. Chilukuri’s position in SRM and the associated companies.
SRM stated that he was allotted 7,800,000 shares on 5th. December
2007; that he was a director of CALS Refineries Ltd. from 23rd. July 2007
to 24th. January 2011, and had been a director of Spice Energy Ltd. from
5th. May 2008. The judgment of the Court contrasts, with some degree
of scepticism, Mr. Chilukuri’s historic position within the Spice Group,
and his interest in SRM Exploration, with the contention that he was not
authorised to act on SRM’s behalf. It held that SRM had held out Mr.
Chilukuri as authorised to execute the guarantee. Interestingly, the
comment of Manmohan J., that the defence impliedly asserted a fraud on
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the part of Mr. Chilukuri against SRM, had been noted by SRM and was
picked up by the Court of Appeal in the following terms:
‚[14].....Similarly the plea that Mr. Ravi Chilukuri was [only]
authorised to act jointly with Mr. Mohinder Verna is devoid of any
merit. The language of the resolution, if that had been the
intention, would have been different. Also, although a lip service is
sought to be paid by filing a copy of the complaint lodged with
the Police against Mr. Ravi Chilukuri but no serious action for the
folly if any committed by him has been taken. There is nothing to
show that the Board of Directors of the appellant company has
dealt with the matter. Mr. Ravi Chilukuri who continues to be
associated with the appellant company has not come forward to
explain the transaction.‛ (my emphasis)
The tenor of the judgment is that the Court considered that Mr. Chilukuri
and SRM Exploration were and remained closely associated, and that the
plea of want of authority was a transparent and weak device.
248. Mr. Rai told me that he was not aware of the basis on which the
Court of Appeal concluded that Mr. Chilukuri held 30% of the
shareholding in SRM Exploration, and the underlying documentation
produced to the Court of Appeal has not been disclosed in this hearing.
249. By the valuation date, a statutory demand (which was described in
the judgment of Manmohan J., paras. 6 and 19 as a ‘statutory winding
up notice’) had been issued on 1st. May 2009, and I assume served.. Mr.
Lord submitted that a statutory demand served in England on an English
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company would not be a public document; would not (necessarily) be
available to the market; that we have no evidence as to when the petition
was served; and that it should therefore be considered that any share
purchaser on 31st. July 2009 would have bought the shares in ignorance
of the petition, and indeed the claim on the guarantee. Mr. Cavender
made his submissions on the footing that the petition was dated 1st. May
2009.
250. As with so much else in this litigation, important evidence is
sparse. All that we realistically know about this litigation derives from the
two judgments (of Manmohan J. and on appeal) that have been
presented. One would have thought that the date of the petition, for
example, would be a matter of record. Neither side has sought to obtain
evidence of it and to put it before the Court.
251. According to the decision of Manmohan J., at paragraph 5 of the
judgment, the petitioner wrote to SRM Exploration demanding
repayment of the sum outstanding under the guarantee, and also
sending letters requesting payment on 30th
. May 2008 and 14th
. April
2009. The statutory winding up notice was served on 1st. May 2009, and
it sought payment within three weeks. There was no payment, and so the
petition was filed. Tantalisingly, the learned judge does not state when
the petition was filed. It is likely that it was in 2009, as the action is
entitled Co. Pet. 248/2009. The conclusion that I have reached is that the
correspondence referred to by the learned judge demonstrates that the
creditor’s patience had worn thin. There is no evidence of any negotiation
138
or remonstration that might cause delay in serving the petition. It is likely
that the service of the statutory winding up notice, without response, led
to a swift service of the petition, on a date prior to 31st. July 2009. I find
therefore that the market would have been aware of the existence of the
petition, and the putative guarantee, when the claimant sought to sell
Mr. Chilukuri’s shareholding.
252. At that stage it would have been left with the option of
challenging the petition and the underlying liability or they could have
sought to cause SRM Exploration to come to an arrangement with the
creditor company.
253. The valuers have taken diametrically opposed views of the effect
of this petition. Mr. Haberman suggests that the important factor is that
SRM’s 2011 accounts (drawn up after the judgment of Manmohan J. but
before the hearing of the appeal) noted the petition, and made no
provision for it on the basis that the appeal was thought likely to succeed.
The auditors signed off the accounts on a going concern basis, implicitly
indicating their agreement with that stance.
254. Mr. Singhi suggested that some alteration to the consideration
payable for the shares would be called for in the circumstances. He would
have expected a shareholder to have taken legal opinion on the strength
of the claim. He would have made a full provision against the debt.
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255. I agree with Mr. Singhi that a purchaser of shares, properly
advised, and aware of the claim, would have independently investigated
the validity of the claim arising under the guarantee. He would have
reflected the potential liability in his valuation of the shares. He would
have given some weight to the contention of the directors of SRM
Exploration that the guarantee was not valid, but not I think a substantial
amount. He would have regarded the legal arguments as giving an
opportunity to negotiate a settlement of the guarantee at a discount.
Doing the best that I can, I am of the view that he would have assessed
the value of the guarantee at 75% of the sum outstanding, or
161,351,000 CzK. At a dollar exchange rate of 18.5 to the Czech
Koruna, the potential liability would be some $8,721,675.
256. I therefore conclude the net asset value of SRM Exploration as at
the valuation date to be $32,655,378 less $8,721,675, amounting to
$23,933,693. 26% of that sum is $6,222,760-20
Value of shareholding
257. Mr. Haberman suggested, somewhat tentatively, a 10% discount
to reflect the status of the security that Mr. Chilukuri should have given
to the claimant as a minority shareholding. This was inconsistent with the
pleading in the Amended Particulars of Claim, which asserts that the
claimant should have had the benefit of a ‘drag right’ by virtue of para. 3
of Schedule 1 of the escrow deed. Mr. Haberman quite properly held to
140
his view, and I am inclined to follow it and to deduct a minority and
marketability discount of 10%. 90% of $6,222,760-20 is $5,600,484-20.
Decision
258. There will be judgment for the claimant against the Second
defendant, SIGL, for damages in the sum of $86,073,756. Against Mr.
Chilukuri there will be judgment for damages in the sum of $5,600,484-
20.
259. I have not heard submissions about the interest payable. I would
expect SIGL to pay interest from 1st. February 2009 and Mr. Chilukuri to
pay it from 31st. July 2009, but there will have to be submissions made in
the absence of agreement.
Leslie Blohm Q.C.
