Calcutta High Court
Hindustan National Glass & Industries ... vs Ganesh Kumar Agarwal on 8 January, 2010
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
1
GA No. 1881 of 2009
GA No. 2506 of 2009
CS No. 205 of 2009
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
HINDUSTAN NATIONAL GLASS & INDUSTRIES LIMITED
-Versus-
GANESH KUMAR AGARWAL
For the Plaintiff: Mr Abhrajit Mitra, Adv.,
Mr Sakya Sen, Adv.
For the Defendant: Mr Surojit Nath Mitra, Sr. Adv.,
Mr Rajan Kali, Adv.
Heard on: January 6, 2010.
BEFORE
The Hon'ble Justice
SANJIB BANERJEE
Date: January 8, 2010.
SANJIB BANERJEE, J. : -
The first petition in point of time, GA No. 1881 of 2009 is the plaintiff's
principal interlocutory petition in this suit for specific performance of an
agreement to transfer a mining lease. GA No. 2506 of 2009 is the defendant's
vacating application that is now irrelevant as the plaintiff's application has
ripened for final hearing. The defendant's application for revocation of leave
granted under clause 12 of the Letters Patent on the ground that this is a suit for
land has recently failed.
The plaintiff refers to a memorandum of understanding of August 4, 2008.
The first recital records that the defendant has a mining lease for an area of
466.67 hectare in district Sikar, Rajasthan. There is a reference to an annexure
2
"A" in the first recital. The first clause of the memorandum of understanding
records as follows:
"1. The understandings, as expressed in terms of these presents, shall
commence from the date hereof and shall remain in force initially for a
period of two months. The said understandings may thereafter be renewed
for a further period as may be mutually agreed and reduced in writing by
the Parties hereto."
The first limb of the second clause records that the defendant would obtain
the requisite permission from the State Government and others (by "using his
contacts or otherwise") for transferring the mining lease in favour of a company
incorporated specifically for such purpose or in favour of the plaintiff, "if not
barred or prevented due to some extraneous factors which are beyond the control
of" the defendant. The second limb of the second clause (complete with the
ubiquitous euphemism of "using his contacts or otherwise") stipulates that the
defendant would also obtain the mining lease in respect of 67 hectare of land
recently surrendered by the defendant in favour of the proposed company or the
plaintiff, unless prevented by extraneous factors beyond the defendant's control.
The third clause provides for the defendant "using his contacts or otherwise" to
help the plaintiff set up a large cement plant. The fourth clause requires the
defendant to keep the plaintiff informed of the measures taken by the defendant
in terms of the understanding on a fortnightly basis. The fifth clause is a
representation by the defendant as to the quality and quantity of mineral. The
sixth clause relates to the plaintiff undertaking geological prospecting to satisfy
itself as to the quality and quantity of mineral available. The second sentence of
the sixth clause is of some significance:
"6. ... Once the geological report is obtained (the plaintiff) shall pay
advance money as mutually agreed between the Parties hereto."
The seventh clause of the memorandum records a negative covenant to the
effect that the defendant would not transfer the mining lease as contemplated by
3
the memorandum during the currency thereof without the written consent of the
plaintiff. The eighth clause specifies the consideration of Rs.36.5 crore. It also
records the payment of a sum of Rs.5 lakh by way of advance, against the
security of a post-dated cheque for an equivalent amount. The ninth clause
reveals that if the permission for transfer of the mining lease was not obtained,
the parties would evolve a lawful arrangement for grant of the mining and selling
rights to the plaintiff or its nominee. The tenth clause is the confidentiality clause
and the last states that the relationship between the parties were on principal to
principal basis and neither could accept any contract or incur any obligation on
behalf of the other.
The plaintiff claims that the initial period of the agreement of two months
has been mutually extended by the parties and that the same would appear from
the dealings and transactions. The plaintiff insists that the memorandum is valid
and subsisting. At paragraph 5 of its petition, the plaintiff has detailed the
measures taken by the plaintiff in part performance of the memorandum of
understanding. The acts undertaken by the parties in pursuance of the
understanding, in the plaintiff's words, are:
"5. The said agreement has been partly performed by the parties in the
manner following:
a) On 9th August, 2008 the petitioner made over to the respondent a
cheque for Rs.5,00,000/-. It was subsequently agreed by the parties that instead of the respondent encashing this advance cheque immediately and furnishing a security therefore, the cheque would be encashed only after the outcome of the geological survey i.e. after the parties agree to proceed with the transfer of the mining lease rights by the respondent to the petitioner.
b) Geological prospecting work in terms of the said agreement was carried out by the geologist engaged for this purpose. For this purpose, the petitioner has paid substantial fees and incurred substantial incidental expenses. Geological prospecting work was carried out at site with the consent, knowledge and assistance of the respondent. The prospecting work comprised of extraction of minerals from beneath the earth and testing of the same after extraction. This extraction work 4 commenced on 27th August, 2008 and continued till 18th October, 2008. Thereafter the testing of the minerals continued till end December, 2008 and by early January 2009 the petitioner was more or less aware of the outcome of the geological survey. The geologist has made over to the petitioner a geological report.
c) The petitioner engaged Holtec Consulting Private Limited to prepare a Techno Economic Feasibility Report for the petitioner. In this connection Holtec Consulting Private Limited made visits to the site on 25th and 26th November, 2008 and thereafter submitted its report to the petitioner in or around February, 2009. The petitioner has incurred an expenditure of Rs.14.82 lacs as and by way of fees paid to Holtec Consulting Private Limited.
d) After the parties became aware of the outcome of the geological survey, and the petitioner agreed to go ahead with the transaction, the respondent on 5th January, 2009 encashed the said cheque for Rs.5,00,000/- which would appear from the petitioner's bank statement annexed hereto and marked with the letter "C". A copy of the cheque drawn on HDFC Bank, Central Plaza Branch, Sarat Bose Road, Kolkata, outside the jurisdiction aforesaid is annexed hereto and marked "D"."
More than its petition, the plaintiff says that it is the affidavit-in-opposition that should be looked into. The plaintiff claims that it would be evident from such affidavit that the memorandum of understanding continued to govern the parties beyond the stated tenure thereof and that the parties took steps beyond the period of two months from the date of execution thereof with the understanding that they remained bound thereby and obliged to perform thereunder. The plaintiff suggests that apart from the steps taken by it as enumerated in the fifth paragraph of the petition, there was no scope for any other overt act to be undertaken by the plaintiff since there remained an uncertainty regarding the renewal of the lease in favour of the defendant. The plaintiff submits that it was only on May 29, 2009 that an electronic mail message was transmitted on behalf of the defendant from which it became apparent that the defendant was purporting to renege on its obligations under the memorandum. The message from one Alok Modi to a R.R. Soni enclosed a map with two plots marked therein. The short message reads as follows:
5"Pls find the map in the attachment above in which two places have been marked as No. 1 & No. 2 which are required by us for marble mining.
We are ready for 1 out of the either two.
Pls discuss the issue & let us know about your schedule."
According to the plaintiff there was no indication from the defendant prior to this message that the defendant would act in derogation of his obligation under the memorandum of understanding. The plaintiff says that the cheque for Rs.5 lakh was encashed by the defendant well after the period of two months specified in the memorandum was over. The plaintiff submits that the agreement recorded in the memorandum had not been terminated and the plaintiff was entitled to specific performance thereof.
The plaintiff relies on a judgment reported at AIR 1979 SC 1339 (State of Maharashtra v. Digambar Balwant Kulkarni). The contract in such case specified that the time schedule would be strictly adhered to by the contractor and time would be deemed to be of the essence of the contract. There was a clause that provided extension of time both for additions to or alternations in the work and otherwise. The contractor could not keep to the time and sought an extension thereof. The extension was refused, a penalty slapped on the contractor and the contract ultimately rescinded. The security deposit along with the interest accrued thereon was forfeited. The contractor filed a suit claiming refund of the security deposit and payment for part execution of the work and damages. The trial court decreed the suit only in respect of the security deposit and the interest accrued thereon. The defendant's appeal failed. The Supreme Court, however, set aside the decree on the ground that the contractor had overstepped the time limit and the rescission was well-founded. It cannot be appreciated as to how this decision comes to the aid of the plaintiff in furtherance of its case for specific performance or of its contention that the memorandum of understanding continued to govern the parties beyond the stipulated period.
6The plaintiff has cited a judgment reported at AIR 1964 SC 978 (Chandnee Widya Vati Madden v. C.L.Katial) for the proposition that an agreement for sale of an immovable property had to be specifically terminated notwithstanding a stipulation therein that it was limited for a particular period of time. It was found in such case that the defendant vendor had failed to discharge her obligations under the agreement. The plaintiff here says that just as the defendant in the Supreme Court case was obliged to obtain permission from the chief commissioner, the defendant here was required to apply for renewal of the licence and take steps for the transfer thereof in favour of the plaintiff.
The next judgment brought by the plaintiff reported at (2006) 5 SCC 340 (Pancharan Dhara v. Monmatha Nath Maity) is for the proposition that it can be gauged from the conduct of the parties as to whether the time for performance of a contract stood extended beyond the time stipulated therein. The last authority relied upon by the plaintiff is a judgment reported at AIR 2009 SC 2217 (N. Srinivasa v. M/s Kattukaran Machine Tools Ltd) where an order of status quo on an interim application arising out of an arbitration reference was restored by the Supreme Court. The claimant had sought specific performance of an agreement to sell an immovable property and the respondent's stand was that the claimant had failed to perform his part of the contract within the time stipulated. The trial court had passed an order of status quo that was vacated in appeal by the High Court. The decision turned on the facts of the matter as appreciated by the Supreme Court.
In the defendant's affidavit he has suggested that the sum of Rs.5 lakh was to be the security for a period of two months during which the defendant would not transfer his rights in respect of the mine to any other party. The defendant has claimed that such security deposit was to be adjusted against the transfer value of the lease or, failing the transfer, it was to be forfeited by the defendant. The defendant says that he did not encash the cheque within the period specified 7 in the memorandum of understanding but only thereafter since the tenure of the memorandum was not extended and he was entitled to forfeit the money. The defendant has denied knowledge of the plaintiff having carried out any geological testing of samples and of the time stipulated in the memorandum being extended.
There is nothing in the memorandum that provides for forfeiture. However, the claim of forfeiture may be given some credence since the plaintiff did not encash the cheque for Rs.5 lakh that had been simultaneously made over by the defendant to the plaintiff and was recorded as such in the memorandum of understanding. Save the encashment of the cheque for Rs.5 lakh there is nothing else that the plaintiff can show that would lend itself to the plaintiff's version that the parties had mutually agreed to extend the time covered by the memorandum. In effect, the plaintiff seeks to hold the defendant to ransom in respect of a mining lease of stated value in excess of Rs.36 crore upon payment of a sum of Rs.5 lakh. In fact, the plaintiff has been successful in keeping the mining at the relevant site stalled since it obtained the ex parte order on July 23, 2009. The order of July 23, 2009 provided, "The Court: In a suit for specific performance of the agreement dated 4.8.2008 this application has been filed for interim reliefs.
The case of the petitioner is that by a Memorandum of Understanding dated 4.8.2008 the respondent agreed to transfer the mining lease in its favour for a consideration. As postulated by the said Memorandum of Understanding an advance sum of Rs.5 lacs was paid and the petitioner undertook geological prospecting. Initially, the respondent contended that its application for renewal of the mining lease was pending but it has now come to the knowledge of the petitioner that the mining lease has been renewed presumably for 20 years as the application for renewal was for the said period. By an electronic message dated 29.5.2009 the respondent out of the two areas earmarked and agreed to be given to the petitioner for mining purposes expressed its intention to give only one of such areas earmarked. Apprehending lack of bona fide on the part of the respondent including an intent to create third party interest this application has been filed and orders sought.
8No notice of this application has been served on the respondent as the petitioner apprehends that steps prejudicial to its interest shall be taken.
Having considered the facts of the case as the Memorandum of Understanding dated 4.8.2008 in clause 7 specifically provided that the respondent would not transfer the mining lease to third party without the written consent of the petitioner any departure therefrom will tantamount to breach of such negative covenant and the agreement between the parties. As the petitioner has undertaken pursuant to such Memorandum of understanding geological prospecting and spent huge sums of money, the intention expressed in the electronic mail to give one area to the petitioner is contrary to the agreement and to prevent third party interest being created, there will be an order in terms of prayer [b] of the Notice of Motion till 5.8.2009.
It is made clear that the restrain order as regards extraction of marble or other mineral is limited only to the areas earmarked to the petitioner and as per the agreement dated 4.8.2008.
Mr. Sudip Deb, Advocate, 2nd floor Bar Library Club, High Court, Calcutta is appointed Receiver at an initial remuneration of 300 GMs. to ascertain persons in control of the leased area and the nature of user. Receiver is to file his report on the next date of hearing.
Matter to appear in the list on 3.8.2009.
Receiver and all parties concerned to act on a signed xerox copy of this order on the usual undertakings."
The defendant sought to have the order vacated by filing GA No. 2506 of 2009. When such vacating application was taken up on September 23, 2009, the following order was made:
"The Court: By order dated 23rd July, 2009 which has been continued by order dated 10th August, 2009, the defendant was restrained from creating any third party interest in respect of the mines mentioned in the Memorandum of Understanding dated 4th August, 2008. The defendant has filed this application for vacating orders passed.
Counsel for the defendant submits that the Memorandum of Understanding was signed in Jaipur and the person who signed such Memorandum of Understanding, on the specified date, was residing in a 9 hotel in Jaipur. All payments have been made through Mr. Dangre, a witness to the Memorandum of Understanding, who is also a resident of Jaipur and, therefore, the order passed be vacated. The Memorandum of Understanding was also for a period of only two months and no document has been annexed wherefrom it will appear that mutually the Memorandum of Understanding was extended, therefore, the orders be vacated.
Counsel for the plaintiff submits that although the point of jurisdiction is being canvassed, no prayer has been made for revocation of leave granted under clause 12 of the Letters Patent. The facts disclosed in the instant petition has not been disclosed earlier.
Having considered the submissions of the parties and at the suggestions of the parties the marble which has been extracted and is lying at the said mines be sold by the defendant under the Receiver appointed by order dated 23rd July, 2009. A statement of the quantum of the marble sold be filed in court. The sale proceeds of such sale be kept in a separate fixed deposit account earmarked to the said suit.
Directions are given for filing affidavits.
Affidavit-in-opposition be filed within a week after the reopening; reply, thereto, if any, be filed within a week thereafter.
Matter to appear in the list three weeks from the reopening.
It is made clear that prior to sale of the marble already extracted an inventory be made by the Receiver of the said marble.
Except to the extent modified above, the interim order granted is continued till 10th November, 2009.
All parties concerned are to act on a xerox signed copy of this order on the usual understanding."
Prima facie, the memorandum of understanding does not appear to have intended to bind the parties in any lasting manner. It was, in a sense, a tentative road-map that was chalked out and contemplated a firmer, more comprehensive set of terms to ultimately be arrived at by mutual consent. The memorandum contained an express stipulation that it was to be valid for a period of two months. There was no written communication between the parties either during 10 this two-month period or for any reasonable period thereafter. The only act in alleged part performance of the terms thereof that the plaintiff has to show is the encashment of the cheque by the defendant a few months after the tenure of the memorandum ran out. The allegations in paragraph 5 of the petition are vague and unsubstantiated. The defendant has denied the same. That the document was described as a memorandum of understanding and not as an agreement would not be decisive if a firm commitment of the parties was reflected therein. But the memorandum is truly in the nature of an expression of interest and the negative covenant contained therein could not have survived the stated duration thereof unless overt acts of the parties were demonstrated that implied extension of the understanding or the enlargement of the time to arrive at a more firm arrangement.
The plaintiff's assertion that it undertook geological prospecting at the site is not backed by any document. Surely, there ought to have been some records of the testing and extraction that the plaintiff claims to have undertaken in the months of August to October, 2008. The petition does not rely on any geologist's report. No copy of any alleged techno-economic feasibility report is disclosed.
In any event, there is no record of any written query or any assertion of any oral request by the plaintiff to the defendant to keep the plaintiff informed of the steps taken by the defendant in pursuance of the understanding. The plaintiff had clearly given a go-by to a right recognised by the fourth clause of the memorandum. If the plaintiff was ready and willing to take the matter further, as it now insists, there should have been some enquiry as to the progress of the defendant's application for the renewal of the mining lease. All that the plaintiff can offer in support of its assertion of diligently pursuing the matter are the vague statements that appear at paragraph 5 of the petition without any shred of material in support thereof. Despite the denial in the defendant's affidavit that the memorandum of understanding stood extended and the denial that the 11 parties had taken any steps in pursuance thereof after it lapsed, there is no material that has been appended to the affidavit-in-reply used by the plaintiff.
There is no merit in the plaintiff's petition for interim relief. GA No. 1881 of 2009 is dismissed with costs assessed at 600 GM. The receiver is discharged and he will not be liable to file any accounts since he did not deal with any money. The plaintiff will pay the receiver's final remuneration of 500 GM. The defendant's vacating application, GA 2506 of 2009, is disposed of without any order as to costs.
It has come to notice that in the order dated December 22, 2009 made on defendant' s application for revocation of the leave granted under clause 12 of the Letters Patent, the order of appearance has been erroneously recorded. The words "Plaintiff" and "Defendant" should be interchanged in the appearance recorded therein. The department, including the computer section, should incorporate such correction.
Urgent certified photocopies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(Sanjib Banerjee, J.) Later:
The plaintiff seeks a stay of the operation of the order which is declined.
(Sanjib Banerjee, J.) 12