Supreme Court Terms Delhi HC View "Paradoxical," Says Rockland Promoters Can't Defer Consent Award Liability Till Final Appeal

The Supreme Court on Monday held that obligations undertaken by promoters of Rockland Hospitals (now Medeor Hospitals) under a consent arbitral award are immediately enforceable and cannot be deferred until confirmation by the highest court of appeal.

Setting aside the Delhi High Court's judgment, the Court termed its interpretation “paradoxical” for deferring the promoters' liability until confirmation by the 'Highest Court of Appeal'.

A Bench of Justices S.V.N. Bhatti and Prasanna B. Varale held that such an interpretation would render the undertaking under the consent award a nullity, which “cannot be the intention of the parties”.

“The High Court's interpretation produces a paradox. If liability is payable only after confirmation by the Supreme Court, the Promoters can choose not to pursue the appeal to the Supreme Court, so no liability is confirmed against the Promoters. This would render the undertaking under Paragraph 32(a) meaningless. Nullity cannot be the intention of the parties to the Consent Award”, the court observed.

The dispute arose from a Share Purchase Agreement dated June 29, 2016, under which VPS Healthcare acquired 100% equity in Rockland Hospitals Limited (subsequently renamed Medeor Hospitals Limited) from its promoters Prabhat Kumar Srivastava and Rishi Srivastava, who were promoters of Rockland Hospitals Limited (now Medeor Hospitals Limited).

Prior to the transaction, Rockland had entered into a Professional Services Agreement dated August 11, 2015 with Ernst & Young LLP (EY).

Disputes between the parties led to a Deed of Compromise dated February 2, 2019, which was converted into a consent award by the Singapore International Arbitration Centre on March 1, 2019.

Under Paragraph 32(a) of the settlement, the promoters undertook to defend specified proceedings, including the EY arbitration claim, at their own cost and to “ensure” that no liability arising from such proceedings would be recovered from VPS/Medeor.

Subsequently, an arbitral award dated August 17, 2021 in the EY dispute resulted in a liability that led Medeor to deposit Rs 15,86,17,808 to secure a stay on execution.

To obtain the stay, the Delhi High Court, by order dated March 4, 2022, directed deposit of the awarded amount, which VPS/Medeor deposited on May 17, 2023 to avoid coercive recovery.

VPS Healthcare Private Limited and Medeor Hospitals Limited then approached the Delhi High Court under Section 36 of the Arbitration and Conciliation Act, 1996 seeking enforcement of the consent award. However, the High Court deferred its enforcement, holding that the promoters' obligation had not matured as the underlying arbitral award remained under challenge.

Challenging this, VPS/Medeor contended before the Supreme Court that the settlement created an absolute obligation to shield them from liability, which was triggered once they were compelled to deposit the amount.

In contrast, the promoters argued that their obligation was contingent and would arise only after final appellate confirmation, characterising the clause as operating in the nature of a “backstop guarantee."

Rejecting this interpretation, the Court held that the High Court had adopted a self-contradictory approach by rejecting the promoters' narrow reading of “forum” while still deferring liability until final confirmation.

"The High Court contradicts itself within the same paragraph. It rejects the promoters' argument that “Forum” means only the Highest Court of Appeal by applying the contractual definition. Yet it adopts the promoters' conclusion that liability is payable only after confirmation by the Highest Court of Appeal. This is the conclusion that would flow if “Forum” meant only the Supreme Court. On one hand, the construction of “Forum” is as per the definition in the Compromise Deed; on the other hand, the outcome accepted by the High Court contravenes that conclusion,” the Court noted.

Clarifying the nature of the obligation, the court held that even if the clause contained elements of indemnity, it was not contingent or deferred but became enforceable once liability crystallised.

It emphasised that the deposit of Rs 15,86,17,808 itself constituted a crystallised liability, triggering immediate enforcement of the promoters' obligation.

“Purposive construction is unavailable in the present case because a literal and plain reading of Paragraph 32(a) of the Consent Award, taking every limb together and none in isolation, ensures an immediate enforceable obligation. The present case is one of discharge of a crystallised liability, and it is not a case of indemnity that matures only upon the confirmation by the Highest Court of Appeal,” the Court held.

Accordingly, the court set aside the Delhi High Court's judgment and directed the promoters to pay Rs 15,86,17,808 within 30 days

For Petitioner (VPS Healthcare Private Limited & Medeor Hospitals Limited): Advocate Anirudh Bhatia.

For Respondent (Prabhat Kumar Srivastava & Rishi Srivastava): Advocate Diya Kapur.