The Bombay High Court held that the Defendant had the discretion to choose between the two fee options (0.50% or 0.0749%) after the sale was completed, based on the nature of the sale consideration. The Court rejected the Plaintiff’s argument that the discretion was limited to the type of sale.

The Court found that the Plaintiff’s interpretation of the Mandate Letter was flawed and that the Defendant’s interpretation made business sense. The Court also held that the Plaintiff had failed to provide evidence of additional efforts required for 100% cash sales.

The Court dismissed the Plaintiff’s suit with costs, holding that the Defendant had correctly applied the fee rate of 0.0749% for the transactions in question.

Discussion of the main issue regarding the Defendant’s discretion in fee payment.(Para 24-25) Analysis of the Plaintiff’s interpretation of the Mandate Letter and the Court’s rejection of the same.(Para 34-35) Discussion of the doctrine of business efficacy and the Court’s rejection of the Plaintiff’s argument.(Para 58-60) Conclusion and dismissal of the Plaintiff’s suit with costs.(Para 73-76)

Major Acts:

• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) – Sections 5(1), 7(1), and 7(2) – Discussed in relation to Security Receipts (SRs) and their role in the sale of Non-Performing Assets (NPAs).

• Companies Act, 1956 – Plaintiff is a company registered under this Act.

• Reserve Bank of India (RBI) Guidelines – Referred to in the context of NPA sales and the role of Financial Advisors.

Subjects:

• Non-Performing Assets (NPAs) – Financial assets that have ceased to generate income for the bank.

• Security Receipts (SRs) – Quasi-equity instruments issued by Asset Reconstruction Companies (ARCs) backed by impaired assets.

• Success-Based Fee – Fee payable to the Financial Advisor based on the success of the sale of NPAs.

• Mandate Letter – Contractual agreement between the Plaintiff and Defendant outlining the terms of engagement.

• Discretion – The bank’s right to choose between fee payment options.

• Business Efficacy – Principle invoked to interpret contractual terms in a manner that makes business sense.

• Doctrine of Implied Terms – Legal principle used to imply terms in a contract that are not explicitly stated.

Facts:

1. Nature of the Litigation – The Plaintiff, Special Situation Advisors (India) Pvt. Ltd., filed a suit against the Defendant, Bank of India, seeking payment of success-based fees for services rendered as a Financial Advisor in the sale of NPAs. The dispute centered around the interpretation of the fee structure outlined in the Mandate Letter dated 1 July 2017.

2. Remedy Sought – The Plaintiff sought a decree for Rs. 7,55,96,767/- as unpaid fees, claiming that the Defendant had incorrectly applied the lower fee rate of 0.0749% instead of the agreed 0.50% for 100% cash-based transactions.

3. Reason for Filing the Case – The Plaintiff contended that the Defendant had discretion only in choosing the type of sale (100% cash or cash plus SR) and not in selecting the fee rate after the sale was completed. The Defendant argued that it had the discretion to choose between the two fee options post-sale.

4. Previous Decisions – The Plaintiff had initially filed a complaint with the MSME Facilitation Council but later withdrew it and filed the present suit. The Bombay High Court had earlier granted conditional leave to the Defendant to defend the suit, which was upheld by the Division Bench and the Supreme Court.

Issues:

1. Whether the Defendant had the discretion to pay success-based fees at 0.0749% even for 100% cash-based transactions, as per Clause III(2) of the Mandate Letter dated 1 July 2017?

2. If the answer to Issue No. 1 is negative, whether the Plaintiff is entitled to a decree, and if so, for what amount and at what rate of interest?

3. What order, including costs, should be passed?

Submissions/Arguments:

• Plaintiff’s Arguments – The Plaintiff argued that the Defendant’s discretion was limited to choosing the type of sale (100% cash or cash plus SR) and not the fee rate. The Plaintiff contended that the fee rate of 0.50% was applicable for 100% cash sales, and the Defendant could not unilaterally choose the lower rate of 0.0749%. The Plaintiff invoked the doctrine of business efficacy, arguing that the contract should be interpreted in a manner that makes business sense.

• Defendant’s Arguments – The Defendant argued that it had the discretion to choose between the two fee options (0.50% or 0.0749%) after the sale was completed, based on the nature of the sale consideration (cash or cash plus SR). The Defendant contended that the Plaintiff’s interpretation would render the discretion clause in the Mandate Letter meaningless. The Defendant also argued that the Plaintiff had not provided evidence of additional efforts required for 100% cash sales.

Ratio:

• Discretion in Fee Payment – The Court held that the Defendant had the discretion to choose between the two fee options (0.50% or 0.0749%) after the sale was completed, based on the nature of the sale consideration. The discretion was not limited to the type of sale but extended to the fee rate.

• Business Efficacy – The Court rejected the Plaintiff’s invocation of the doctrine of business efficacy, holding that the contract made business sense without implying additional terms. The Court emphasized that the Plaintiff had failed to provide evidence of any implied terms or business practices supporting its claim.

• Interpretation of Contracts – The Court held that the interpretation of the Mandate Letter should be based on the plain language of the contract and not on assumptions or implied terms. The Court also held that the Defendant’s interpretation of the contract was reasonable and equitable.