A Contract Must Be Read as a Whole – Selective Interpretation Cannot Create Rights: Bombay High Court

In a detailed judgment delivered on February 25, 2025, the Bombay High Court dismissed the suit filed by Special Situation Advisors (India) Pvt. Ltd. against Bank of India, rejecting the plaintiff’s claim for higher financial advisory fees amounting to ₹7.55 crores. In Special Situation Advisors (India) Pvt. Ltd. v. Bank of India (Commercial Summary Suit No. 57 of 2022), the Court upheld the Bank’s contractual discretion to determine the applicable success-based fee structure, emphasizing that contracts must be interpreted holistically and not in a skewed manner favoring one party’s commercial interests.

The dispute arose from a financial advisory engagement where Bank of India empaneled the plaintiff as a Financial Advisor (FA) for the sale of its Non-Performing Assets (NPAs) through an Expression of Interest (EOI) issued on June 21, 2017. The plaintiff was selected, and the Mandate Letter dated July 1, 2017, formalized the engagement, specifying two separate success-based fee structures:

Option (a): 0.50% of the cash received from the bidder (excluding Bank Security Receipts or SRs).
Option (b): 0.0749% of the total sale amount received from the bidder (including Bank SRs).
The dispute arose because the plaintiff raised invoices at a higher fee rate of 0.50% (Option a) on 100% cash-based sales of NPAs, while the Bank insisted that it retained discretion to apply the lower 0.0749% rate (Option b) even in 100% cash sales. The plaintiff’s claim for the additional amount of ₹7.55 crores was based on its interpretation that once the Bank opted for a 100% cash sale, only Option (a) was applicable, and the higher commission rate of 0.50% became mandatory.

"The Bank Retains Discretion in Fee Structure" – Court Rejects Plaintiff’s Selective Interpretation

The plaintiff contended that the Bank had exercised its discretion at the outset when deciding the mode of sale (cash or cash + SR) and could not later change the applicable fee structure. The Court firmly rejected this argument, ruling that:

"The Mandate Letter explicitly states that the Bank, at its discretion, may choose between Option (a) and Option (b) for payment of fees. There is no clause restricting this discretion to the stage of selecting the sale structure."

The Court criticized the plaintiff’s attempt to extract commercial benefits from a selective reading of the contract, stating:

"Contracts must be read as a whole, and clauses cannot be interpreted in isolation to suit one party’s commercial convenience. The discretion to apply either fee structure was retained by the Bank and not contingent upon the nature of the sale transaction."

"No Additional Effort Justifies Higher Fees" – Plaintiff Fails to Prove Business Efficacy Argument

The plaintiff argued that securing a 100% cash sale required greater effort, justifying a higher commission rate. However, the Court found that there was no evidence to establish that additional efforts were required for cash sales compared to sales involving SRs.

"Mere assertion that 100% cash sales require more effort does not amount to proof. No evidence has been led to show that the plaintiff performed extra work justifying a higher success-based fee."

The Court ruled that the Bank was free to exercise discretion in selecting the lower fee structure (0.0749%) even in transactions involving 100% cash sales, unless there was an explicit contractual prohibition, which was absent.

"Business Common Sense Must Prevail – No Windfall Gains for the Plaintiff"

The Court further held that the plaintiff’s interpretation would lead to an unreasonable commercial outcome, where the Bank would be forced to pay nearly 7 times higher fees for choosing a 100% cash sale over a mixed cash-SR sale.

"A party cannot be allowed to claim windfall profits merely by exploiting an ambiguity in contractual language. The plaintiff’s attempt to extract an exponentially higher fee simply because the Bank opted for a 100% cash sale is commercially absurd."

The Court cited precedents such as Nabha Power Ltd. v. Punjab State Power Corporation Ltd. (2018) and Rainy Sky S.A. v. Kookmin Bank (UKSC, 2011), reaffirming that contracts must be interpreted in a manner that upholds business efficacy rather than leading to commercially unreasonable results.

Final Verdict: Suit Dismissed, Plaintiff Not Entitled to Additional Fees

The High Court dismissed the plaintiff’s suit, upholding the Bank’s interpretation of the contract and ruling that the plaintiff had already received the full amount due under the agreement.

"The Bank’s discretion to apply either fee structure stands validated. There is no basis for compelling the Bank to pay ₹7.55 crores in additional fees when it has already fulfilled its contractual obligation."

This judgment reaffirms the principle that contractual discretion, where explicitly granted, must be respected unless there is clear evidence of abuse. The Court has refused to allow commercial opportunism at the cost of contractual fairness, setting a precedent that:

A contract must be read in its entirety—selective interpretation cannot create rights.
Where discretion is contractually provided, courts will not rewrite the contract to favor one party.
Windfall commercial gains based on ambiguous interpretations will not be entertained.
The Bank of India successfully defended its contractual position, ensuring that its discretion in financial arrangements was upheld and preventing an unjustified financial liability.

Date of Decision : February 25, 2025