Bombay High Court
Sekura Roads Limited vs Ilandfs Transportation Networks ... on 13 October, 2021
Author: G. S. Patel
Bench: G.S. Patel
3-IAL21879-2021 IN COMSL21864-2021.DOC
Arun
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
INTERIM APPLICATION (L) NO. 21879 OF 2021
IN
COMMERCIAL SUIT (L) NO. 21864 OF 2021
Sekura Roads Ltd ...Plaintiffs
Versus
IL&FS Transportation Networks Ltd & Ors ...Defendants
Mr Viraag Tulzapurkar, Senior Advocate, with Dinyar Madon,
Senior Advocate, Raj Panchmatia, Jyoti Sinha, & Harsh Salgia,
i/b M/s. Khaitan & Co., for the Plaintiffs.
Mr Aspi Chinoy, Senior Advocate, with L Vishwanathan, Abhijeet
Das, Adarsh Saxena, Drishti Das, & Varun Srinivasan, i/b
Cyril Amarchand Mangaldas, for Defendant No. 1.
Mr Ashish Kamat, with L Vishwanathan, Abhijeet Das, Adarsh
Saxena, Drishti Das, & Varun Srinivasan, i/b Cyril Amarchand
Mangaldas, for Defendant No. 2.
CORAM: G.S. PATEL, J
DATED: 13th October 2021
PC:-
ARUN
RAMCHNDRA
SANKPAL 1. This Suit is for specific performance of a Share Purchase
Digitally signed by
ARUN
Agreement ("SPA") dated 10th December 2020. A short
RAMCHNDRA
SANKPAL
Date: 2021.10.14
background is necessary.
09:48:55 +0530
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2. By the SPA, the Plaintiff ("SRL"), a limited company. was to
acquire the entirety of the shareholding of the 1st Defendant
("ITNL") in the 3rd Defendant ("JSEL"). The 2nd Defendant,
("IL&FS") holds the controlling equity in ITNL.
3. Some time in 2018, ILFS and its several group entities ran
into severe trouble. This led, inter alia, to proceedings under
Sections 241 and 242 of the Companies Act 2013 against ILFS in
the NCLT Mumbai. On 15th October 2018, the NCLAT issued a
'stay' of all proceedings anywhere by anyone against IL&FS or any
of its group entities. I have had occasion to address this order in a
previous proceeding that was carried in appeal; more on that a little
later.
4. The relevant portion of the NCLAT stay order is at page 76 of
the Plaint. The NCLAT stayed 'the institution or continuation of suits
or any other proceedings by any party or person or bank or company etc
against ILFS and its 348 group companies in any Court of
Law/Tribunal/Arbitration Panel or Arbitration Authority'. There were
other directions with which I am not concerned.
5. There began then a process before the NCLT and NCLAT of
restructuring ILFS and some of its group entities as a part of a
resolution process through the Companies Act 2013. On 4th
January 2019, expressions of interest were invited from bidders to
acquire ILFS's controlling stake (or that of its group companies)
inter alia in domestic road assets. JSEL is one such. It was
concerned with a road construction project, the details of which are
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not immediately relevant. This process of inviting and evaluating
bids went through a fairly complex process involving a Committee of
Creditors, resolutions of the board of JSEL, approval by Mr Justice
DK Jain (Retd) -- appointed separately to oversee this process --
and so on. All this ultimately culminated in ILFS issuing a Letter of
Intent on 13th November 2020 confirming SRL as the successful
bidder for, and the purchaser of, ITNL's shareholding in JSEL. This
led to the execution of the SPA in question on 10th December 2020
between SRL, ILFS, ITNL and JSEL, i.e. all the parties to the
present Suit.
6. The SPA has a concept of what was called a 'Long Stop Date'
(or, in the spirit of things today, "LSD"). There is a corresponding
concept of an Initial Long Stop Date or ILSD and an Extended Long
Stop Date or ELSD. The LSD is extendable in certain
circumstances. One of the conditions required of ILFS was that it
had to obtain permission from the NCLT. There is no doubt that the
LSD was once extended. ILFS and ITNL have since refused SRL's
request for a second extension although ILFS has applied to the
NCLT well in time for the necessary permission even before the
ILSD expired. What ILFS says is that since a further extension can
only be by mutual consent according to the SPA, it is entitled to not
consent. If the LSD is not extended then not just the LSD but, with
it, the SPA also lapses. The argument, therefore, is that since the
LSD has passed, the SPA has lapsed and there is nothing now to
specifically perform. SRL may have a remedy in damages but that is
all.
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7. In a departure perhaps from the usual manner of addressing
such cases, I choose to place at the forefront Mr Chinoy's
arguments on behalf of ILFS and ITNL in opposition to the
application. This will, I think, better provide the necessary context.
He says that this is not a normal, plain vanilla or garden-variety
contract for purchase of shares. This is clear from the history of the
SPA, one that was arrived at as a part of a resolution process
intended to optimize the value of ILFS/ITNL assets. It is for this
reason, he submits, that the SPA was very tightly bound to time-
constraints and schedules. The alternative, in his submission, was
unthinkable. It would necessarily mean that once there was the SPA,
IL&FS and ITNL were locked into it with no end date in sight.
While matters or litigations wound their way through the hierarchy
of Courts, IL&FS and ITNL would have to wait and not receive the
required inflow of funds. This was not the purpose of the SPA or the
resolution process. SRL's bid was indeed higher than the reserve
price and was the highest bid when it was made. But that is no
longer true, for today there are significantly higher valuations
available for SRL. It would defeat the purpose of the resolution
process, i.e. the foundation of the SPA, he says, if parties were to be
held to an earlier bid well below current valuations. Therefore, in his
submission, not only were ILFS and ITNL entitled to not consent to
a a LSD-extension request, but the want of a mutual extension had
inevitable contractual consequences, namely, that the SPA itself
lapsed. It is now, in his submission, incapable of performance.
8. The other argument, of course, is based on the NCLAT-
declared stay or moratorium. I will come to that a little later.
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9. He finally argues that an application of this kind should best
be made to apply to the NCLT or the NCLAT. I should not, in
exercise of my jurisdiction, at an ad-interim or interim stage on the
original side of the High Court, pre-empt a possible order by the
NCLT on the application SRL has made. Nor should I pass an order
that more properly the NCLT or NCLAT could do. His submission
is that an application of this nature, to this Court, is in fact barred by
Section 430 of the Companies Act 2013 and will not lie in this Court
at all.
10. I turn first to a few clauses of the SPA itself. There are
definitions of the Long Stop Date and its variations. There is a
definitions clause 1.1 that runs into about seven pages. Rather
unhelpfully, none of the definitions are themselves numbered.
Fortunately, they are arranged alphabetically. The definitions of
Long Stop Date (page 480), Extended Long Stop Date (page 479)
and Initial Long Stop Date (Page 479) read thus:
"Extended Long Stop Date" means such extended period,
as may be mutually determined, in writing, by the Seller and
the Purchaser.
"Initial Long Stop Date" means the date failing on the
expiry of 180 (one hundred and eighty) days from the
Agreement Date, or any other date as may be mutually
determined, in writing, by the Seller and the Purchaser.
"Long Stop Date" means the Initial Long Stop Date or the
Extended Long Stop Date, as the case may be."
11. The next relevant clause relates to the conditions precedent to
be performed by the seller. Obviously, the seller in this context is
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ITNL and it is so described at the head of the SPA at page 474. The
controlling portion of Clause 4.2 at page 492 reads thus:
4.2 The Company and the Seller, as applicable, shall
ensure that the following conditions are satisfied to the
reasonable satisfaction of the Purchaser prior to the Closing
Date, which date shall, in any event not be later than the
Long Stop Date (or waiver of such conditions(s) by the
Purchaser, if agreed between the Purchaser and
ITNL/IL&FS in writing and permitted under Law)(the
conditions under this Section 4.2 to be fulfilled by the
Company and the Seller shall be collectively referred to as
"Sellers' Conditions")"
12. Clause 4.2 (b) at page 493 says:
(b) receipt of order from the NCLT approving and
providing for: (a) the sale of the Sale Shares free from all
Encumbrances upon payment in accordance with Section 3;
and (b) extinguishment of all claims against and liabilities,
whatsoever, or the Sale Company, relating to a period up to
and including the Cut-Off Date (October 15, 2018);
13. For completeness, I note clause 4.8 to which Mr Chinoy has
drawn attention at page 496.
"4.8 In the event, any Party becomes aware of anything
which shall or may prevent any of the Sellers' Conditions
and/or the Purchaser's Conditions from being satisfied on
or before the initial Long Stop Date, the relevant Party
shall, along with documentary evidence, promptly notify
the other Parties in writing, and this Agreement, if so
agreed to by the Parties, shall stand extended from the
Initial Long Stop Date to the Extended Long Stop Date. In
the event the Parties are unable to agree on the Extended
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Long Stop Date, then the Initial Long Stop Date shall be
deemed to be the Long Stop Date."
14. Mr Tulzapurkar points out that clause 13 at pages 514-515 is
important because it provides for a termination but this termination,
exhaustively defined and spread over four pages, is only termination
for cause. There is no provision for an automatic termination. SRL
has the right to terminate.
15. That there was a first extension of the LSD to 6th August
2021 -- which became the first ELSD -- is not in dispute.
16. On 18th August 2021, ILFS wrote to SRL (page 650 to 651)
referring to SRL's request of 6th August 2021 for a further
extension of the Long Stop Date. In clauses 2, 3 and 4 of its letter (at
page 651) ILFS said this:
""2. As you are aware, any extension of the Extended
Long Stop Date beyond August 6, 2021 can only be done by
mutual agreement of the Parties as contemplated under
Clause 4.8 of the JSEL SPA. Since there has been no
acceptance by IL & FS or ITNL on extension of the
Extended Long Stop Date beyond August 6, 2021, the
JSEL, SPA has lapsed by efflux of time. This is in fact also
acknowledged in your August 6 Letter, in terms of which
Sekura has requested for an extension of the Extended Long
Stop Date beyond August 6, 2021.
3. Without prejudice to the above, please note that
IL&FS and ITNL, are fully cognizant of their
responsibilities under the "Resolution Framework" and
have taken all actions which are consistent with the terms of
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the JSEL, SPA and we reserve the right to respond to your
letters in more detail as we deem fit.
4. We also note that Sekura has offered to renegotiate
its offer in terms of its letters referred to above. As you may
be aware, the board of IL&FS has been tasked with, amongst
others, the objective of maximizing value for the creditors of
the members of the IL&FS group and will accordingly
decide on the final resolution of JSEL in due course in
accordance with the provisions of the "Resolution
Framework" relating to the IL&FS Group and applicable
law."
17. Mr Tulzapurkar has tendered draft amendments to the IA
(and the Plaint). These are taken on record and marked "X1" and
"X2" for identification with today's date. The amendments are
permitted. They are to be carried out by 20th October 2021 without
need of re-verification.
18. The prayer that Mr Tulzapurkar presses at this stage for
interim relief is in terms of the amended prayer (a-1) allowed in the
draft tendered and marked "X2". This reads:
"(a-1) Pending the hearing and final disposal of this Suit,
this Hon'ble Court be pleased to grant an order and
injunction restraining the Defendants from in any manner
disposing of or encumbering or transferring or, alienating or
creating any third-party right or interest in the shares, assets
and properties of the Defendant No.3, JSEL, except in
performance of the SPA in favour of the Plaintiff;"
19. As to the jurisdiction of this Court, Mr Tulzapurkar's
submission is that the NCLT does not have jurisdiction to decide
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specific performance actions. That, in his submission, is a complete
answer to the objection based on Section 430 of the Companies Act
2013.
20. On the question of the stay issued by the NCLAT on 15th
October 2018, and to which I referred earlier, Mr Tulzapurkar has a
few submissions to make. The first is to refer to my order of 9th
April 2021 in Arbitration Petition (L) No. 10089 of 2020 (Bay
Capital Advisors Pvt Ltd & Ors v ILFS Financial Services Ltd). At
that time, I considered this very NCLAT stay, and I held it to be
without jurisdiction. I did so on the basis inter alia of the decision of
the Supreme Court in Cotton Corporation of India Ltd v United
Industrial Bank Ltd & Ors.1 I referred to paragraph 8 of Cotton
Corporation in the Bay Capital order. Four lines from the end of
paragraph 7 of Cotton Corporation and the whole of paragraph 10 are
also important. I reproduce the relevant passages below:
"7. ....
As a necessary corollary, it would follow that the court is
precluded from granting an injunction restraining any
person from instituting or prosecuting any proceeding in
a Court of coordinate or superior jurisdiction. This
change in language deliberately adopted by the legislature
after taking note of judicial vacillation has to be given full
effect.
"8. It is, therefore, necessary to unravel the underlying
intendment of the provision contained in Section 41 (b). It
must at once be conceded that Section 41 deals with
perpetual injunction and it may as well be conceded that it
has nothing to do with interim or temporary injunction
1 1983 (4) SCC 625.
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which as provided by Section 37 are dealt with by the Code
of Civil Procedure. To begin with, it can be said without
feat of contradiction that anyone having a right that is a
legally protected interest complains of its infringement
and seeks relief through court must have an unhindered,
uninterrupted access to law courts. The expression
'court' here is used in its widest amplitude
comprehending every forum, where relief can be
obtained in accordance with law. Access to justice must
not be hampered even at the hands of judiciary. Power to
grant injunction vests in the court unless the Legislature
confers specifically such power on some other forum. Now
access to court in search of justice according to law is the
right of a person who complains of infringement of his
legally protected interest and a fortiori therefore, no
other court can by its action impede access to justice.
This principle is deducible from the Constitution which
seeks to set up a society governed by rule of law. As a
corollary, it must yield to another principle that the
superior court can injunct a person by restraining him
from instituting or prosecuting a proceeding before a
subordinate court. Save this specific carving out of the
area where access to justice may be impeded by an
injunction of the court, the Legislature desired that the
courts ordinarily should not impede access to justice
through court. This appears to us to be the equitable
principle underlying Section 41 (b). Accordingly, it must
receive such interpretation as would advance the
intendment, and thwart the mischief it was enacted to
suppress, and to keep the path of access to justice
through court unobstructed."
"10. Mr Sen, learned counsel for the respondent-Bank,
contended that Section 41 (b) is not at all attracted because it deals with perpetual injunction and the temporary or interim injunction is regulated by the Code Page 10 of 16 13th October 2021 3-IAL21879-2021 IN COMSL21864-2021.DOC of Civil Procedure specially so provided in Section 37 of the Act. Expression 'injunction' in Section 41 (b) is not qualified by an adjective and therefore, it would comprehend both interim and perpetual injunction. It is, however, true that Section 37 specifically provides that temporary injunctions which have to continue until a specified time or until further order of the court are regulated by the Code of Civil Procedure, But if a dichotomy is introduced by confining Section 41 to perpetual injunction only and Section 37 read with Order 39 of the Code of Civil procedure being confined to temporary injunction, an unnecessary grey area will develop. It is indisputable that temporary injunction is granted during the pendency of the proceeding so that while granting final relief the court is not faced with a situation that the relief becomes infructuous or that during the pendency of the proceeding an unfair advantage is not taken by the party in default or against whom temporary injunction is sought. But power to grant temporary injunction was conferred in aid or as auxiliary to the final relief that may be granted. If the final relief cannot be granted in terms as prayed for, temporary relief in the same terms can hardly if ever be granted. In State of Orissa v. Madan Gopal Rungta (1952) SCR 28 : AIR 1952 12 : 1951 SCJ 764, a Constitution Bench of this Court clearly spelt out the contours within which interim relief can be granted. The Court said that 'an interim relief can be granted only in aid of, and as ancillary to, the main relief which may be available to the party on final determination of his rights in a suit or proceeding'. If this be the purpose to achieve which power to grant temporary relief is conferred, it is inconceivable that where the final relief cannot be granted in the terms sought for because the statute bars granting such a relief ipso facto the temporary relief of the same nature cannot be granted. To Page 11 of 16 13th October 2021 3-IAL21879-2021 IN COMSL21864-2021.DOC illustrate this point, let us take the relief which the Bank seeks in its suit. The prayer is that the Corporation be restrained by an injunction of the Court from presenting a winding-up petition under the Companies Act, 1956 or under the Banking Regulation Act, 1949. In other words, the Bank seeks to restrain the Corporation by an injunction of the court from instituting a proceeding for winding-up of the Bank. There is a clear bar in Section 41 (b) against granting this relief. The court has no jurisdiction to grant a perpetual injunction restraining a person from instituting a proceeding in a court not subordinate to it, as a relief, ipso facto temporary relief cannot be granted in the same terms. The interim relief can obviously be not granted also because the object behind granting interim relief is to maintain status quo ante so that the final relief can be appropriately moulded without the party's position being altered during the pendency of the proceedings."
(Emphasis added)
21. My order was taken in Appeal. Mr Chinoy points out that by an order of 4th May 2021, in paragraph 5 the Division Bench said:
""5. The order of learned Single Judge rejecting the plea of maintainability of the Arbitration Petition (L) No. 10089 of 2020 in the impugned order is stayed. Parties would be at liberty to apply for early hearing of this Appeal after the issue raised before the Hon'ble Supreme Court arising out the order passed by the NCLAT is decided."
22. Mr Chinoy, therefore, submits that the stay of the NCLT issued on 15th October 2018 holds and is operative. He points out Page 12 of 16 13th October 2021 3-IAL21879-2021 IN COMSL21864-2021.DOC that it has been carried to the Supreme Court but has not been stayed by the Supreme Court.
23. In answer to this, Mr Tulzapurkar points out that a 'stay' of an order is not equivalent to a setting aside or a reversal. 2 He also points out that a Full Bench of our own High Court has in Export Credit Guarantee Corporation of India Ltd v Annamma Philips 3 held, following Cotton Corporation, that an order in restraint of legal proceedings before another tribunal or Court not subordinate to the Court issuing the stay is impermissible.
24. Mr Chinoy's argument that the NCLAT stay is not against this Court but against parties does not carry the matter further. That is true of every anti-suit injunction. The stay order still runs against Cotton Corporation. The submission also does not address a question fundamental to any form of an anti-suit injunction: subject- matter jurisdiction. If the NCLAT has no jurisdiction to decide a civil suit for specific performance, I do not see how it can stay a party from approaching a court for that relief.
25. Finally, my order in Bay Capital -- and therefore the stay by the Division Bench in appeal -- must necessarily be confined to that litigation and the parties to it; at least until a superior court decides the question as a matter of broader applicability. I made that order in an Interim Application in an Arbitration Petition, a proceeding that is even more narrowly focussed to the parties to the contract and a 2 Shree Chamundi Mopeds Ltd v Church of South India Trust Association, 1992 (3) SCC 1.
3 2010 (5) Mah LJ 659.
Page 13 of 1613th October 2021 3-IAL21879-2021 IN COMSL21864-2021.DOC contractual dispute than a regular suit. The finding there was that the NCLAT stay could not operate against that particular arbitration action; just as it cannot operate to stay this particular specific performance suit (one that the NCLT/NCLAT cannot, in any case, decide).
26. As to the frame of the relief, Mr Tulzapurkar points out, and I think quite correctly, that while I am not being asked to decree specific performance today, even if I were, I would have made such a decree subject to the Plaintiff seeking specific performance obtaining the necessary permissions and clearances.4
27. For completeness, I must note that before the NCLT, ILFS has on 18th/19th December 2020 specifically filed an IA or a proceeding for approval of the sale of shares of JSEL held by ITNL to SRL. For some reason, that application is still pending, that is to say, NCLT has neither granted that relief nor refused it. It is this delay that causes Mr Chinoy to make the submission that the SPA has lapsed.
28. He also points out that under clause 4.8, which I have extracted above, there was an option to one party to notify the other in regard to an extension of any of the LSDs.
29. Mr Chinoy's submission that this is not what he calls "a normal SPA" does not, I think, make it any less contractual. The requirement of obtaining NCLT permission in clause 4.2(b) was 4 Nirmala Anand v Advent Corporation (P) Ltd & Ors, (2002) 5 SCC 481.
Page 14 of 1613th October 2021 3-IAL21879-2021 IN COMSL21864-2021.DOC only consistent with the supervisory process that had gone before and ultimately culminated in the execution of the SPA. It cannot possibly be that a Court from which an order is required must, because of a contract between the parties, itself be put under some sort of a time-constraint or deadline. In other words, it cannot be that if a court does not pass an order within a specific time, then the contract falls apart. If this is the submission, and it seems to me to be precisely the formulation of the Defendants, I find it very difficult to accept. It would amount to placing responsibility for the failure of the contract on the court or the tribunal in question. The provision in clause 4.2(b) must be read reasonably, having regard to the conditions in our tribunals.
30. Mr Chinoy's invocation of a public interest involved in the optimization of the ILFS resolution process, though apparently attractive at first glance, is one that I am not persuaded to accept. This public interest, whatever it be, must, in my view, be subordinated to the much larger and wider public interest that dictates that contracts, once executed, have sanctity. They cannot so easily be allowed to slip their moorings. It is extremely difficult to accept the proposition that a contract, though solemnly entered into, can be given short shrift because a particular order of a Tribunal has not been obtained by a particular date or within a particular time. If parties are required to reasonably extend that time to enable that Tribunal or Court to pass a needed order, they must make the attempt to impress on that tribunal the fact that it what is sought is not contentious, that there is pressing urgency, and that both sides might conceivably be very greatly prejudiced if an order is not made. But that is all that needs -- and needed -- to be done.
Page 15 of 1613th October 2021 3-IAL21879-2021 IN COMSL21864-2021.DOC The NCLT can hardly be expected to divine the finer details of a contractual pre-condition unless something more is done than mere filing.
31. Viewed from this perspective, I cannot accept prima facie that ILFS's refusal to extend the LSD is justifiable on the ground that the NCLT order is not received.
32. Mr Tulzapurkar points out that no one has ever suggested a default by SRL at any stage of the proceedings and Mr Chinoy in fairness does not do so even now.
33. There is a sufficient prima facie case. The balance of convenience is with the Plaintiff to which undoubtedly far greater hardship would be caused if relief is denied.
34. There will be an order in terms of prayer clause a-1 of the IA. This will continue pending the disposal of ILFS's application to NCLT in terms of clause 4.2(b) of the SPA and for one week thereafter.
35. All concerned will act on production of a digitally signed copy of this order.
(G. S. PATEL, J) Page 16 of 16 13th October 2021