Bombay High Court
Iirf Holdings Viii Limited vs Neelkamal Central Appartment Llp And 9 ... on 9 August, 2019
Author: G.S.Kulkarni
Bench: G.S. Kulkarni
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
Commercial Arbitration Petition (lodg) NO.755 OF 2019
IIRF Holdings VIII Limited. ...Petitioner
Versus
1.Neelkamal Central Appartment LLP (formerly
known as Neelkamal Central Appartment Pvt.Ltd.)
2. Goenka Family Trust
2A Mrs.Sunita Goenka
2B Mr.Alok Agarwal
2C Mrs.Aseela Goenka
3. Marine Drive Hospitality and Realty Pvt.Ltd.
4. Bamboo Hotel and Global Center (Delhi) Pvt.Ltd.
5. Goan Hotels & Realty Pvt.Ltd.
6. BD & P Hotels Pvt.Ltd.
7. Pune Buildtech Pvt.Ltd.
8. D.B.Realty Ltd.
9. Vinod Goenka
10. Shahid Balwa. ....Respondents
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Mr.Virag V.Tulzapurkar, Senior Advocate with Ms.Sowmya Srikrishna,
Vineet Unnikrishnan, Ms.Samhita Mehra I/b. Cyril Amarchand Mangaldas,
for the Petitioner.
Dr.Birendra Saraf with Ms.Niyathi Kalra, Ms.Rujuta Patil i/b. Negandhi
Shah & Himayatullah for Respondent No.1.
Mr.Sharan Jagtiani with Ms.Niyathi Kalra, Ms.Rujuta Patil i/b. Negandhi
Shah & Himayatullah for Respondent No.2.
Mr.F.E. Devitre, Senior Advocate, with Ms.Niyathi Kalra, Ms.Rujuta Patil
i/b. Negandhi Shah & Himayatullah for Respondent Nos.3 to 7.
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Mr.Iqbal Chagla with Mr.Jehaan Mehta, Ms.Niyathi Kalra, Ms.Rujuta Patil
i/b. Negandhi Shah & Himayatullah for Respondent Nos.8 to 10.
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CORAM : G.S. KULKARNI, J.
DATE : 9 August 2019
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ORAL ORDER
1. This is a petition filed under Section 9 of the Arbitration and Conciliation Act,1996 (for short 'the Act') whereby the petitioner has prayed for interim reliefs pending the arbital proceedings.
2. The petitioner is a company incorporated and registered in Mauritius and is engaged in the business of investment in real estate and hospitality projects in India. The petitioner has stated that it is an investor and shareholder in respondent no.3-Marine Drive Hospitality and Realty Private Limited (formerly known as DB Hospitality Private Limited) and it is the case of the petitioner that currently it is holding 9,03,379 equity shares or 3.66% of the total of 2,47,15,768 equity shares and 6,63,175 compulsorily convertible cumulative preference shares-Series D.
3. Respondent no.1 is a limited liability partnership. Respondent no.1 is a shareholder of respondent no.3 holding 84,04,779 equity shares, ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 3 carbpl755-19.doc amounting to 34.01% of the equity shareholding of respondent no.3 and also respondent no.1 holds 44,11,120 redeemable optionally convertible cumulative preference shares-Series "B" and 4,26,852 Cumulative convertible preference shares -Series D in respondent no.3. Respondent no.2 is a private trust formed under the provisions of the Indian Trusts Act,1882 and is a shareholder of respondent no.3 and holding 21,38,868 equity shares, amounting to 8.65% of the equity shareholding of respondent no.3.
4. Respondent nos.4 to 7 are subsidiary companies of respondent no.3. Respondent no.8 is a company incorporated under the Companies Act and is a shareholder of respondent no.3 and currently holding 38,38,382 equity shares, amounting to Rs.15.53% of the equity shareholding of respondent no3. It also holds 26,88,230 redeemable optionally convertible cumulative preference shares-Series "A" and 92,600 compulsorily convertible cumulative preference shares-Series C and 74,443 cumulative redeemable convertible preference shares in respondent no.3. Respondent nos.9 and 10 are promoters of respondent no.3 and it is stated that at all times either directly or indirectly they have been in charge, control and management of respondent no.3.
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5. On 8 November 2006 a Share Subscription-cum-Shareholders Agreement (for short 'SSA') was entered into between respondent nos,3, 5, 6, 7, 9 and 10, Vistara ITCL (India) Limited (formerly known as IL&FS Trust Company Limited) acting as Trustee of the Infrastructure Leasing & Financial Services Realty Fund (Indian Investor), one IL&FS India Realty Fund LLC (Foreign Investor) and Trinity Capital (Seven) Limited, in terms of which the parties agreed to collectively invest a sum of Rs.200 crores into respondent no.3 by subscribing to equity shares and redeemable optionally convertible cumulative preference shares (for short 'ROCCPS")- Series "B", and in terms of Share Subscription-cum-shareholders Agreement. Respondent nos.9 and 10 also agreed to invest a sum of Rs.353.40 crores into respondent no.3 by subscribing to equity shares and ROCCPS-Series "A".
6. On 15 December 2006 a Supplemental Agreement was entered between the parties as well as new eight parties namely respondent no.1 and others. This agreement recorded certain amendment/modification to SSA to the effect that it was interalia agreed that respondent nos.9 and 10 and new shareholders would together subscribe to shares of respondent ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 5 carbpl755-19.doc no.3 as set out therein.
7. On 12 July 2007, a letter from the Reserve Bank of India was addressed to respondent no.3 acknowledging and taking on record the filing of applications in Form FC GPR for issue of shares by respondent no.3 to the Foreign Investor and Trinity Seven.
8. Parties to the First Supplemental Agreement thereafter entered into a Deed of Assignment and Adherence dated 6 December 2007 under which the foreign investor irrevocably and unconditionally assigned all rights, benefits, privileges, commitments and obligations under the SSA and the First Supplemental Agreement to the petitioner simultaneously with a transfer to the petitioner of all shares issued to the Foreign Investor pursuant to the SSA and the First Supplemental Agreement namely 10,23,944 equity shares of respondent no.3 and 10,23,944 ROCCPS-Series B of respondent no.3.
9. In January,2008 another Supplemental Agreement (Second Supplemental Agreement) was entered into by the parties to the First Supplemental Agreement. Under these agreements, it was agreed to allot ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 6 carbpl755-19.doc to the shareholders of respondent no.3 0.002% CCPS - Series C and 0.001% CCPS-Series D instead of ROCCPS - Series A and ROCCPS-Series B, respectively, under Tranche 2. This was on the background of a circular dated 8 June 2007 issued by the Reserve Bank of India containing Revised Guidelines in regard to Foreign Investments in Preference Shares with effect from 1 May 2007.
10. It is the case of the petitioner that from July,2008 pursuant to the 'Deed of Assignment and Adherence', the entire shareholding of the Foreign Investor in respondent no.3 was formally transferred to the petitioner which is wholly owned subsidiary of the Foreign Investor and all subsequent agreements were executed by the petitioner as the foreign investor.
11. On 29 November 2012, a Share Purchase Cum Amendment Agreement (for short 'Share Purchase Amendment Agreement') was entered into between the petitioner, the Indian Investor, and respondent nos.3, 5, 6, 7, 9 and 10. Under this agreement respondent nos.9 and 10 agreed to purchase and/or cause its group/nominee entities to purchase the entirety of the remaining securities held by the Indian Investor and the ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 7 carbpl755-19.doc petitioner in respondent no.3 in two tranches in accordance with the terms set out therein. This agreement amended certain provisions of the SSA with a view to protect the investors including the petitioner till such time they receive agreed purchase consideration for the remaining sale securities.
12. Finally on 7 August 2017 a Share Purchase Agreement was entered interalia between the petitioner and respondent nos.1 to 7, 9 and 10 ( for short "the SPA"). At the time of this agreement the equity shareholding of respondent no.3 was as set out by the petitioner in paragraph 11.11 of the petition and the relevant being the petitioner was holding 8.29% equity shares of respondent no.3, respondent no.1 was holding 31.31%, respondent no.8 was holding 15.53%, and one Aseela V. Goenka was holding 10.93% and others were holding less than 10%.
13. The disputes between the parties have arisen under the above SPA dated 7 August 2017. In the SPA, respondent no.1 had agreed that it shall purchase from the petitioner securities held by the petitioner in respondent no.3 namely (i)10,23,944 equity shares, (ii) 3,75,840 ROCCPS-Series B and (iii) 3,75,840 CCPS-Series D for total consideration ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 8 carbpl755-19.doc of Rs.54,28,30,108 as determined by a valuation of respondent no.3 to be in compliant with the extant Indian exchange control regulations. A valuation report by B.B.Jain & Associates dated 25 April 2017 is placed on record. The said purchase transaction was to be completed into two tranches namely (a) R1 Tranches 1 securities comprises of 5,11,972 equity shares and 3,75,840 ROCCPS- Series B for Rs.27,14,15,054/- and
(b) R1 Tranches 2 securities comprise of 5,11,972 equity shares and 3,75,840 CCPS-Series D for Rs.27,14,15,054/-
These are referred as Tranche 1 and Tranche 2 securities (for short referred as Tranches 1 and Tranches 2 securities).
14. Similarly respondent no.2 had agreed to purchase from the petitioner following securities held by the petitioner in respondent no.3 namely 10,23,944 equity shares and 3,75,840 ROCCPS/Series B and 375840 CCPS - Series D, for total consideration of Rs.54,28,30,108 as determined by the valuation of respondent no.3. This purchase transaction was to be completed in two tranches namely (i) R2 Tranche 2 securities to comprise 511970 equity shares and 375840 ROCCPS - Series B for Rs.2,71,415054/-; (ii) R2 Tranche 2 securities to comprise of 5,11,972 equity shares and 3,75,840 CCPS-Series D for Rs.27,14,15,054/-. Thus R1 ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 9 carbpl755-19.doc Tranche 1 securities and R2 Tranche 1 securities are referred as "Tranche 1 Securities", and R1 Tranche 2 Securities and R2 Tranche 2 Securities are referred as "Tranche 2 securities".
15. The petitioner has contended that under the SPA it was intended to provide the petitioner a complete exit to the petitioner and the Indian Investor from respondent no.3. The petitioner contended that in order to secure the amounts payable to the petitioner for Tranche 2 Securities, the SPA recorded that post the completion of the purchase of the Tranche 1 securities, the said consideration amount be maintained in a no lien Fixed Deposit with the bankers of Respondent no.3 with the petitioner's nominees as joint signatories to the Fixed deposit. It is contended that since the said consideration amount was already kept in a fixed deposit with respondent no.3's bank, it was agreed that respondent no.3 shall not break the said fixed deposits prematurely but shall pass a board resolution informing its bank that the fixed deposits shall not be broken/renewed/ lien created unless both signatories (including the petitioner's nominee) inform the bank in writing. Clause 12 of the SPA provided for the dispute resolution and reference of disputes or differences to arbitration if so arise under the SPA. The place of arbitration as agreed was to be at Mumbai ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 10 carbpl755-19.doc governed by the Indian Laws. The petitioner has contended that on 10 August 2017, respondent nos.1 and 2 duly completed the purchase of Tranche I Securities in terms of the SPA. The consideration for purchase of said Tranche 1 securities collectively amount to Rs.54,28,30,108/- was remitted to the bank account of the petitioner. It is contended by the petitioner that as per Clause 4 of the SPA the consideration amount for the Tranche 2 Securities was to be retained in a fixed deposits in Respondent no.3's bank and respondent no.3 was not to break the said fixed deposits and was to pass a board resolution informing its bank that the fixed deposits shall not be broken/renewed/lien created unless notified by the petitioner's nominee in writing. This according to the petitioner was to protect the economic/commercial interest of the petitioner. The petitioner has stated in paragraph 11.13 that to the best of the petitioner's knowledge the fixed deposit as maintained in respondent no.3's bank, was broken and/or was otherwise alienated, encumbered without notice to the petitioner or its nominee and thus, the petitioner's protective rights under the definitive agreement are rendered ineffective.
16. It is contended that in regard to the purchase of Tranche 2 securities as contemplated under Clause 5 of SPA, an approval of the RBI in the ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 11 carbpl755-19.doc form of a written confirmation to respondent no.3 taking on record relevant the Form in regard to Tranche 2 securities alongwith unique identification number was required and it is stated that a letter dated 11 August 2017 was addressed by the Reserve Bank of India to respondent no.3 acknowledging the filing of the application dated 2 January 2009 in Form FC GPR for issue of 10,23,944 equity shares and 10,23,944 CCPS of respondent no.3 to the petitioner on repatriation basis.
17. The petitioner has contended that on 7 November 2017 respondent no.2 completed purchase of part of the R2 Tranch2 securities being 1,20,565 equity shares and 88,505 CCPS-Series D for a consideration of Rs.6,39,15,047/- and the balance R2 Trance 2 securities being 3,91,407 equity shares and 2,87,335 CCPS-Series D for a consideration of of Rs.20,75,00,007/- as well as the entirety of R1 Tranche 2 Securities being 5,11,972 equity shares and 3,75,840 CCPS-Series D for consideration of Rs.27,14,15,054/- remained to be purchased. The petitioner has contended that for effectuating the purchase of the R1 Tranche 2 securities, the petitioner provided respondent no.1 with all the necessary documents. Also as a preliminary step respondent nos.1 ,2 and 3 engaged a valuer to undertake a valuation exercise to determine the existing equity ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 12 carbpl755-19.doc value per share of respondent no.3. A valuation report dated 26 September 2018 was obtained by respondent no.3 setting out valuation of respondent no.3 at Rs.230/- per equity share and value of preference share Rs.421/ per share.
18. The petitioner has contended that respondent no.1 has passed a resolution in the meeting held of the partners dated 25 September 2018 approving the purchase of the R1 Tranche 2 securities from the petitioner at the price agreed upon in the SPA. Further a letter dated 11 October 2018 was addressed by respondent no.1 to Oriental Bank of Commerce requesting remittance of USD equivalent of Rs.27,14,15,054/- to the petitioner towards purchase of the R1 Tranche 2 securities. A letter dated 15 October 2018 was also addressed by respondent no.2 to Oriental Bank of Commerce requesting remittance of USD equivalent to Rs.20,75,00,007/- to the petitioner towards purchase of balance R2 Tanche 2 securities. On 26 October 2018 the Oriental Bank of Commerce also sought from the petitioner's bank in Mauritius, a KYC information which was duly provided.
19. The petitioner contends that the petitioner was assured that the ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 13 carbpl755-19.doc purchase of the Tranche 2 securities will be completed by the second week of November 2018. However, the petitioner did not receive any further intimation from the respondents in the second week of November 2018. The petitioner therefore by its Advocate's letter dated 11 February 2019 addressed to respondent nos.1 and 2 called upon to effectuate the purchase of the remaining Tranche 2 Securities and remit the respective consideration amount towards R1 Tranche 2 securities and the balance R2 Trance 2 securities respectively in terms of their obligations under the SPA. An interim reply dated 22 February 2019 was received by the petitioner's advocate from the Advocate of respondent nos.1 and 2.
20. The petitioner has contended that in mid of March 2019, the petitioner learnt that respondent no.3 and some of its subsidiaries which are substantially owned and controlled by respondent no.3 being respondent no.4, have created charges over the assets, rights, interests, benefits, claims etc. of respondent no.3 and its subsidiaries being respondent nos.4,5, 6 and 7 for the benefits of third parties and which will prejudicially impact the current market value of the shares/securities held by the petitioner in respondent no.3 when more particularly respondent nos.1 and 2 had failed and neglected to purchase the remaining Tranche 2 ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 14 carbpl755-19.doc Securities from the petitioner. The petitioner contends that its apprehension and concern stood compounded on the petitioner's receiving a reply from the advocate of respondent nos.1 and 2 dated 22 March 2019 whereby on behalf of respondent nos.1 and 2 it was contended that SPA was void for non compliance of the terms thereof and that payment towards exit transaction was not being honoured and accepted by respondent nos.1 and 2 for various reasons. The contention of the petitioner is that such an assertion on the part of respondent nos.1 and 2 is false and frivolous and it was a clear attempt on the part of respondent nos.1 and 2 to complete the purchase under the second tranche of the securities.
21. The petitioner has contended that accordingly an exercise was undertaken by the petitioner to ascertain whether respondent no.3 and its subsidiaries - respondent nos.4, 5, 6 and 7 have in fact created charge on their assets, rights, interests, etc. to avail credit facilities availed by respondent no.10 and/or entities directly or indirectly owned and/or controlled by respondent nos.8, 9 and 10. The petitioner received information that the subsidiaries of respondent no.3 have inter se created charge in respect of their assets in availing borrowings from the bank and ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 15 carbpl755-19.doc financial institutions, details of which are set out in paragraph 11.33 of the petition. The petitioner thus contends that the commercial value of respondent no.3's subsidiaries was a significant factor and basis for the petitioner's investment in respondent no.3 and on the basis of which the petitioner's investment in respondent no.3 is to be protected. It is contended that all these actions taken on behalf of respondent no.3 and its subsidiaries have deteriorated the security as available to the petitioner in exercising its exit option under SPA. It is contended that there is an inter se relation between all these respondents including respondent nos.8, 9 and 10 which constitute a single economic entity having a unity of economic interest. This is also because respondent nos.9 and 10 similarly own and controll several other entities through which its business enterprise and assets are held and operated. It is contended that all the inter se transactions which have taken place between the subsidiary companies would be relevant in the context of the reliefs as prayed in the petition. By an amendment to the petition, the petitioner has also sought to make out a case against respondent nos.9 and 10 who are stated to be the promoters of respondent no.3 and have their names as the promoters in the definitive agreements and under the SPA. It is contended that respondent nos.9 and 10 have also an obligation to discharge and fulfill ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 16 carbpl755-19.doc their liabilities alongwith respondent nos.1 and 2 under the SPA. It is in these circumstances, the present petition has been filed praying for the following reliefs:-
"(a) That pending the hearing and final disposal of the arbitral proceedings, and the enforcement of the award therein, this hon'ble Court be pleased to order and direct Respondent Nos.1 to 10 to furnish to the Petitioner by way of an affidavit signed by a responsible director and/or partner and/or trustee and/or themselves of Respondent nos.1 to 10 setting out all material particulars along with documents of all the charges created on their respective assets (including shareholding), rights, interest, benefits, claims, etc. of Respondent Nos.1 to 10 from 7th August 2017 vis.
The date of execution of the SPA till date;
(b) That pending the hearing and final disposal of the arbitral proceedings, and the enforcement of the award therein, this Hon'ble Court be pleased to order and direct Respondent No.1 to deposit a sum of Rs.27,14,15,054/- in cash in this Hon'ble Court being the amount of purchase consideration for the R1 Tranche 2 Securities (viz. 5,11,972 equity shares and 3,75,840 CCPS-Series D) and/or in any other form that this Hon'ble Court may deem fit in order to secure recovery and realization of the said amount;
(c) That pending the hearing and final disposal of the arbitral proceedings, and the enforcement of the award therein, this Hon'ble Court be pleased to order and direct Respondent No.2 through Respondent Nos.2A, 2B and 2C, to deposit a sum of Rs.20,75,00,007 in cash in this Hon'ble Court being the amount of purchase consideration for the balance R2 Tranche 2 Securities (viz.3,91,407 equity shares and 2,87,335 CCPS-Series D) and/or in any other form that this Hon'ble Court may deem fit in order to secure recovery and realization of the said amount;
(d) That pending the hearing and final disposal of the arbitral proceedings and the enforcement of the award therein, this Hon'ble Court be pleased to pass an order of temporary injunction restraining Respondent Nos.1 to 10, acting by themselves or through their servants, agents, representatives, and/or all other persons claiming by, through or under them, from selling, transferring, alienating, relinquishing or creating any third party rights or interest including charges in respect of their assets or from transferring monies from their respective bank accounts without the prior written consent of the petitioner;
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(e) That pending the hearing and final disposal of the arbitral
proceedings and the enforcement of the Award therein, this Hon'ble Court be pleased to pass an order of temporary injunction restraining Respondent Nos.3 to 7, acting by themselves or through their servants, agents, representatives, and/or all other persons claiming by, through or under them, from in any manner altering their current shareholding pattern;
(f) for ad interim relief in terms of prayer clauses (a) to (e) above;"
22. When this petition was urgently moved on 17 July 2019 the Court had passed the following order which has continued to operate till date:-
" At the request of learned Counsel for the respondents, stand over to 22 July 2019 (H.O.B.).
2. In the meantime before the respondents are heard on merits of the case, it would be appropriate that in case any third party rights are intended to be created by the respondents, 48 hours notice be given to the petitioner by the respondents."
23. Respondent Nos.1 and 2 have filed reply affidavit of Shri Laxman Gadage, authorised signatory. Respondent Nos.3 to 7 have also filed reply affidavit of Mr.Tanveer Vohra dated 22 July 2019. Respondent No.8 has also filed reply affidavit of Mr.Tanveer Vohra replying the petition. There is a rejoinder affidavit filed on behalf of the petitioner.
24. Respondent Nos.1 and 2 in opposing the petition, have contended that there is suppression of material facts and incorrect misleading ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 18 carbpl755-19.doc statements are made by the petitioner in seeking discretionary reliefs under Section 9 of the Act. It is contended that respondent Nos.1 and 2 having purchased majority shares from the petitioner under the Share Purchase Agreement dated 7 August 2017 have in fact paid more than 77 Crores to the petitioner and their affiliated entities. Respondent Nos.1 and 2 have contended that the primary case of the petitioner is that respondent Nos.1 and 2 are in breach of the terms of the SPA in as much as the fixed deposit which was agreed to be maintained as security has now been broken, hence the petitioner would be entitled to the reliefs as prayed for in the petition is fully unfounded. In paragraph 10 of the reply, respondent Nos.1 and 2 have contended that there are inter se relations between the respondents and the parent company of the petitioner namely IL&FS India Realty Fund LLC which is managed by another group company IL&FS Investment Managers Limited (IIML) and a group company IL&FS Financial Services Limited (IFIN). It is also set out that Mr.Vinod Thomas is the Vice President and Mr.Sanjay Mitra is the Company Secretary of IIML and part of the top ten employees of IIML. The petitioner which is owned by IL&FS India Realty Fund LLC is also being managed on day to day basis by IIML. It is stated that there is correspondence exchanged between the petitioner including through IIML ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 19 carbpl755-19.doc and respondent No.3 and its promoters. It is stated that the petition is affirmed by Mr.Sanjay Mitra who is the Company Secretary of IIML who along with Mr.Vinod Thomas was also marked in some of the mails which are exchanged. It is stated that also the nomination of the Director by the petitioner on the board of Directors of respondent No.3 was in fact made by the Manager namely IIML. In paragraph 11 of the reply affidavit respondent Nos.1 and 2 have contended that contention of the petitioner that respondent No.3 broke or alienated the fixed deposit amount without notice to the petitioner or its nominee is misleading and incorrect. It is stated that the correct facts are that the petitioner through its IL&FS Investment Managers Limited, its group company which has acted as its Manager at all material times including and regard to the present transaction agreed to an arrangement whereby the balance of the R2 Tranche 2 Securities (approximately Rs.48 Crores) would be paid by respondent Nos.1 and 2 only upon receipt of an amount of Rs.42 Crores from another group company i.e. IL&FS Financial Services Limited.
25. The contents of paragraph 12 of the reply affidavit are material which read thus:-
"12. The said IL&FS Financial Services Limited (IFIN) to the knowledge of the Petitioner and its Manager (IIML), had ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 20 carbpl755-19.doc granted a loan facility to a company called Vanita Infrastructure Pvt. Ltd. (Vanita) in which Respondent No.8 has substantial stake. The said IFIN recalled the said loan. As mentioned above, said IFIN is also a "fellow subsidiary" of IIML, the Managers of the Petitioner. An arrangement between IIML (representing the Petitioner) and IFIN was worked out whereby the fixed deposit amount of Rs. 48 crores was paid over by the Respondent No.3 through Vanita to IFIN and in turn IFIN was to sanction a fresh facility to the extent of Rs. 43 Crores in favour of Vanita so that the same could be utilized for payment of the balance purchase consideration of R1 and R2 Tranche 2 Securities to the Petitioner. It is also material to note that although IFIN did sanction the said amount of Rs. 43 crores to Vanita for this purpose, agreed to be disbursed by IFIN to Vanita was not disbursed, Respondent No.3 had at the request of IFIN and IIML arranged for the utilization of the FD for repaying the loan as aforesaid to IFIN. The Balance Sheet of IIML clearly shows the interconnection between the said parties namely IIML (the Managers of the Petitioner and IFIN, IL&FS Financial Services Limited and the Petitioner. In the relevant email IIML clearly refers to the expected funding of Rs. 43 crores. The Letter appointing the nominee Director of the Petition on the board of directors of Respondent No.3 is addressed by IL&FS Investment Managers Limited on behalf of the Petitioner and as the Managers and authorized representatives of the Petitioner. The Balance Sheet of the Management Company i.e. IL&FS Investment Managers Limited clearly establishes the interconnection between the said parties. These Respondents crave leave to and refer to and rely upon these documents and further correspondences and other documents at a relevant stage."
Thus the contention of respondent Nos.1 and 2 is that the petitioner at all material times was aware that the fixed deposit was broken and the amount under the fixed deposit was in fact received by one of the petitioner's group companies for making finance available to Vanita Infrastructure Pvt. Ltd. (for short, "Vanita"). It is thus contended that it is ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 21 carbpl755-19.doc absurd for the petitioner to contend that the respondents have in any manner eroded the value of respondent No.3 in which respondent Nos.1 and 2 hold shares and have paid an amount of more than Rs.77 Crores for acquiring the shares under the said SPA. It is contended that the reliefs which are sought for, are drastic in nature and ought not to be granted at the interim stage of the proceedings. Respondent Nos.1 and 2 have stated that they have substantial assets in their balance sheets and are holding various investments in shares and securities and immoveable properties and thus apprehension of the petitioner that as and when the arbitration proceeding culminates into an award there would be no assets left with respondent Nos.1 and 2 is imaginary and devoid of merits especially in the light of petitioner's contention that the value of the remaining Tranche 2 securities may deteriorate. It is stated that respondent Nos.1 and 2 are good for the decree that may be passed in the arbitration proceedings and the contention of the petitioner that the petitioner would not be able to repatriate the consideration given the deteriorated market value/value of the remaining tranche 2 securities cannot be accepted. Respondent Nos.1 and 2 have next stated that there is no material placed on record that respondent Nos.1 and 2 are dealing with and/or disposing of their assets with a view of defeat and delay the execution of the award that may be ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 22 carbpl755-19.doc passed in their favour. It is next contended that it is absurd for the petitioner to contend that the respondents would seek to erode the value of the very company i.e. respondent No.3 in which respondent Nos.1 and 2 hold shares and have paid an amount of more than Rs.77 Crores for acquiring the shares under the said SPA. It is contended that there is no urgency of the reliefs being sought in as much as the last correspondence addressed on behalf of the petitioner is dated 9 April 2019. It is stated that the petition is filed almost one and a half year after November 2017 after the fixed deposit was broken and an attempt is made to seek drastic reliefs against respondent Nos.1 and 2 by making out a false case of urgency.
26. Respondent Nos.3 to 7 contend that the present proceedings concern a dispute inter se between the petitioner and respondent Nos.1 and 2 and does not involve any other respondents who are joined in the present petition. This for the reason that under the Share Purchase Agreement dated 7 August 2017, there is no obligation of these respondents to purchase the shares which are agreed to be sold by the petitioner to respondent Nos.1 and 2. It is stated that in fact respondent Nos.1 and 2 have purchased majority shares under the said agreement and ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 23 carbpl755-19.doc have paid more than Rs.77 Crores to the petitioner and their affiliated entities. It is stated that the reliefs as prayed against respondent Nos.3 to 7 are completely misconceived and untenable. Respondent Nos.3 to 7 contend that the petitioner's case that these respondents have created two charges in June 2018 and September 2018 by respondent Nos.4 and 5 respectively, is incorrect and misleading. It is the case of respondent Nos.3 to 7 that they conduct their own independent business and in the course of which, there are borrowings and finances, required in the ordinary course of business, for which assets were required to be charged in the ordinary course, including for securing borrowings of the other group companies. It is contended that the charges created are in favour of reputed well known financial institutions namely HDFC Bank and IDBI Trustee Securities etc. It is contended that no amount or asset has been wrongly diverted as falsely insinuated and thus no case is made out for drastic reliefs in the nature of attachment before judgment. It is contended that the petitioner's case that the creation of charge would diminish the value of respondent No.3 company and render any award inexecutable is also unfounded. It is contended that on the contrary, the grant of reliefs as sought would have an effect that it would completely stifle and stop the operations and workings of the company like ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 24 carbpl755-19.doc respondent No.4 which is the lessee of and engaged in setting up of a new hotel in Delhi. It is stated that respondent No.5 owes and is engaged in running in established reputable hotel in Goa. It is stated that even respondent No.6 which owes and is engaged in running established reputable hotel in Mumbai and similarly respondent No.7 is developing a property in Pune, and if any relief is granted against these respondents, it would have a cascading effect on the ability of respondent Nos.3 to 7 to operate their companies including survive their debts and would affect their finances. In paragraph 13 of the reply affidavit, respondent Nos.3 to 7 have also contended that the petitioner is a part of group companies IIML and IFIN who have dealings with the respondents. It is contended that due to this close interconnection between the petitioner and its Manager company IIFN and its other group companies, at all material times, the petitioner was aware that the fixed deposit has been broken or otherwise alienated/encumbered without notice to the petitioner or its nominee. It is stated that in fact, the petitioner had knowledge of breaking of the fixed deposit which has taken place as far as back in October 2017 and had not made any grievance in that regard and although such a case on the basis of breaking fixed deposit is sought to be made out in the present proceedings. Respondent Nos.3 to 7 have made ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 25 carbpl755-19.doc the following averments in paragraph 14 of the reply affidavit:-
"The correct facts are that the Petitioner, through its the said manager company IL&FS Investment Managers Limited (IIML and its group company) agreed to an arrangement whereby the balance of the R1 and R2 Tranche 2 Securities (approx. Rs.48 Crores) would be paid by Respondent No.1 and 2 upon receipt of an amount of Rs.43 crores from another group company i.e. IL&FS Financial Services Limited (IFIN, which is a fellow subsidiary of IIML). "
27. In paragraph 15 in regard to the deposit of Rs.43 Crores, respondent Nos.3 to 7 have set out as under:-
"The said IL&FS Financial Services Limited (IFIN) to the knowledge of the Petitioner and its Manager (IIML), had granted a loan facility to a company called Vanita Infrastructure Pvt. Ltd. (Vanita) in which Respondent No.8 has substantial stake. The said IFIN recalled the said loan. As mentioned above, said IFIN is also a "fellow subsidiary" of IIML, the Managers of the Petitioner. An arrangement between IIML (representing the Petitioner) and IFIN was worked out whereby the fixed deposit amount of Rs. 48 crores was paid over by the Respondent No.3 through Vanita to IFIN and in turn IFIN was to sanction a fresh facility to the extent of Rs. 43 Crores in favour of Vanita so that the same could be utilized for payment of the balance purchase consideration of R1 and R2 Tranche 2 Securities to the Petitioner. It is also material to note that although IFIN did sanction the said amount of Rs.43 crores to Vanita for this purpose, agreed to be disbursed by IFIN to Vanita was not disbursed, Respondent No.3 had at the request of IFIN and IIML arranged for the utilization of the FD for repaying the loan as aforesaid to IFIN. The Balance Sheet of IIML clearly shows the interconnection between the said parties namely IIML (the Managers of the Petitioner and IFIN, IL&FS Financial Services Limited and the Petitioner. The Emails at EXHIBIT "C-Collectively" addressed by and on behalf of the IL&FS Investment Managers Limited is also copied to Mr. Sanjay Mitra who is the authorized representative and who has verified the Petition. In the relevant email IIML clearly refers to the expected funding of Rs. 43 crores. The Letter at Exhibit "A-1" appointing the nominee Director of the Petitioner on the board of directors of Respondent No.3 is addressed by IL&FS Investment Managers Limited on behalf of the Petitioner and as the Managers and authorized representatives of the Petition. The Balance Sheet of the Management Company i.e. IL&FS Investment Managers Limited clearly establishes the interconnection between the said parties.::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 :::
pvr 26 carbpl755-19.doc These Respondents crave leave to and refer to and rely upon these documents and further correspondences and other documents at a relevant stage."
28. Respondent Nos.3 to 7 have next contended that the petition is filed almost one and half year after November 2017 when the petitioner had sought purchase of its balance shares. Even the alleged acts of creating charges and/or breaking the fixed deposits (in October 2017) are of about June and September 2018, much prior to the filing of the petition. It is stated that in fact after the breaking of the FD, there is no correspondence in that regard by the petitioner.
29. Respondent No.8 has filed reply affidavit of Mr.Tanveer Vohra. Respondent No.8 also averred that there is suppression of several material and relevant facts and documents on the part of the petitioner. It is stated that respondent No.8 is no manner concerned with the share purchase agreement which is entered between respondent Nos.1 and 2 and the petitioner. It is stated that respondent No.8 is not a party to the share purchase agreement and there is no arbitration agreement between the petitioner and respondent No.8 and thus respondent No.8 cannot be dragged into this proceeding. It is contended that respondent No.8 is not ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 27 carbpl755-19.doc a party either to the Share Subscription cum Shareholders Agreement dated 8 November 2006 and the Share Purchase Agreement dated 7 August 2017 and the Definitive Agreements as defined in the share purchase agreement and therefore, no relief can be sought and/or granted against respondent No.8. It is further contended that there is no obligation on respondent No.8 to purchase any shares under the share purchase agreement dated 7 August 2017. It is next contended that the shares of respondent No.3 held by respondent No.8 are already under an obligation to be pledged with ECL Finance for the loan availed by respondent No.3. It is next contended that the present petition is motivated, not maintainable, malafide and filed with an interior motive of crippling respondent No.8 financially to the detriment of the other stakeholders of respondent No.8. It is contended that respondent No.8 is a listed company and that as on 30 June 2019, there are 30,238 shareholders of respondent No.8 and that Market Cap of respondent No.8 company as on 30 June 2019 is Rs.13.05 (share closing on 30 June 2019 - 24,32,58,782 No. of shares = Rs. 317.45 Crs (Market Cap). It is also contended that the secured/unsecured borrowings as on 30 June 2019 is Rs.1211.23. It is contended that further respondent No.8 in its usual course of business had provided corporate guarantees on behalf of its ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 28 carbpl755-19.doc subsidiaries and associates in favour of various financial institutions including banks, guaranteeing repayment of amounts which as on 30 June 2019 is to the extent of Rs.1523.22 Crores. It is thus contended that no relief be granted against respondent No.8.
Submissions on behalf of the Petitioner
30. Mr.Tulzapurkar, learned Counsel for the petitioner in support of the reliefs as prayed in the petitioner has made the following submissions:-
(I) There is no dispute on the obligation of respondent nos.1 and 2 under the share purchase agreement dated 7 August 2017. It is submitted that the correspondence on record, would go to show that at all material times respondent nos.1 and 2 have admitted their liability and in fact, had created impression that they would render the payment. Respondent nos.1 and 2 had also informed Oriental Bank of Commerce to remit the amount and this was as recently as in October,2018.
(II) It is not in dispute that respondent no.3 has encashed or alienated the fixed deposit which was maintained as a security for the petitioner to exit in terms of the SPA dated 7 August 2017 and having dealt with the said fixed deposit, there is an apprehension that respondent nos.1 and 2 as ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 29 carbpl755-19.doc also respondent nos.3 to 7 intend to defeat the rights of the petitioner under the said SPA.
(III) The case of respondent nos.1 and 2 that SPA has become void due to non compliance of some terms, is totally incorrect. It is stated that in fact respondent nos.1 and 2 had approached RBI to enable the petitioner to be paid in respect of Tranche 2 securities.
(IV) The case of the respondents that the petitioner had knowledge that the amount of fixed deposit was utilized to make available the funds for Vanita Infrastructure Pvt. Ltd., is besides the point inasmuch as there is no dispute on the basic liabilities and obligations of respondent nos.1 and 2 under the SPA.
(V) It is submitted that the record clearly shows that a third party rights are being created by respondent nos.3 to 7 inter se and this would completely deteriorated the value of the securities. To support the contention that respondent nos.4 and 5 are creating third party rights, attention of the Court is drawn to the mortgage created in favour of HDFC Bank by respondent no.5 and hypothecation agreement in favour of IDBI Trusteeship Services Ltd. in respect of Delhi International Airport Project by respondent no.4 which are dated 28 June 2018 and 10 September 2018 respectively. It is submitted that these assets are being diluted to ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 30 carbpl755-19.doc secure loan from other companies.
(VI) It is submitted that the commercial value of respondent no.3 and its subsidiary is a necessary factor for securing petitioner's interest in the non purchase remaining shares in Tranche 2.
(VII) It is submitted that the SPA also recognised the special rights of the petitioner under the SPA which is also being denied to the petitioner. The petitioner has a right to nominate a director as recognized by the agreement. The petitioner nominated its director on respondent no.3, the effect of such nomination is not being given. Accordingly, since October 2018 there is no nomination which is contrary not only to the SPA but the rights under the earlier agreement which the SPA recognises.
(VIII) It is submitted that there is nothing any common between IIML and the petitioner and thus the case of the respondents as pleaded in the reply affidavits that there is some arrangement between the petitioner and IIML and IFIN is without any foundation. In the absence of any details of the arrangement, such a contention as urged on behalf of the respondents cannot be accepted. E-mails from the petitioner to the respondents dated 2 February 2018, 28 February 2018, 23 October 2018 (Exhibit "C" and "D" collective, page nos.719 and 720 of the paperbook), e-mail dated 12 October 2018 (at Exhibit "D" colly. At page 722 of the paperbook) do not ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 31 carbpl755-19.doc spell out any binding arrangement between the parties and even assuming that there is an arrangement, the same cannot override the terms and conditions of the SPA. Drawing Court's attention to the various clauses, it is submitted that the SPA clearly recognizes the petitioner's right under the earlier agreements and more particularly considering Clause 4.3.4 of the SPA which is a non-obstante clause overriding the other provisions/clauses.
(IX) It is contended that a third party interests which are being created by respondent nos.3 to 7 are not in the normal course of their business and therefore, the petitioner would be entitled to the reliefs in terms of prayer clause (a). The contention of the respondents that the petitioner is seeking a relief of attachment before judgment, is also not a correct proposition inasmuch as the principles of Order XXXVIII Rule 5 of the CPC would not be strictly applicable in the Court granting reliefs under Section 9 of the Act. The petitioner is merely seeking enforcement of its contractual rights and in terms of the contracts which are independent of the reliefs under Order XXXVIII Rule 5 of the CPC. It is submitted that even if Order 38 Rule 5 of the CPC is applicable, an adequate case has been made out in the petition for grant of such reliefs and more particularly referring to Clause 4 of the SPA. It is submitted that when the ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 32 carbpl755-19.doc amount under the fixed deposit was utilized, the petitioner was not informed about the same. It is submitted that the petitioner is entitled to the reliefs against respondent nos.3 to 7 and 8 recognizing a well established principle of Doctrine of Group Companies. It is submitted that respondent no.8 is deemed to be a party to the arbitration agreement. In support of this contention Mr.Tulzapurkar, learned Senior Counsel has relied on the following decisions:-
(I) Nimbus Communications Ltd. Vs. Board of Control for Cricket in India & Anr.1; (II) Deccan Chronicle Holdings Limited Vs. L&T Finance Ltd.2; (III) Cheran Properties Ltd. Vs. Kasturi & Sons Ltd. & Ors.3 Submissions on behalf of Respondent nos.3 to 7.
31. On the other hand Mr.Devetre, learned Counsel for respondent nos.3 to 7 in opposing the reliefs has made the following submissions:-
(I) The petitioner cannot ask for any reliefs against respondent nos.3 to 7 as prayed for in prayer clause (d) and (e). This for the reason that it is principally the obligation of respondent nos.1 and 2 who agreed to purchase the shares as held by the petitioner.
(II) The case of the petitioner is that these prayers would cripple the 1 2012 SCC OnLine Bom 287 2 2013 SCC OnLine Bom 1005 3 (2018) 16 SCC 413 ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 33 carbpl755-19.doc working of respondent nos.3 to 7 which are independently engaged in their own business. The whole intention of the petitioner is to unwarrantably obstruct the working of respondent nos.3 to 7. The case of the petitioner is that there is a charge created in respect of the assets of respondent nos.3 to 7, is in fact erroneous and the charge as created is a second charge. Respondent nos.3 to 7 are entitled to create such charge in respect of their assets and in the normal course of their business. It is submitted that in fact these charges are created when a nominee of the petitioner was on the Board of Directors. It is submitted that even if such a charge is created, it has in no manner affected the value of the shares of respondent no.3 as held by the petitioner.
(III) It is submitted that there are large borrowings by respondent nos.4 and 5 in respect of the ongoing projects and any relief which would be granted would cause irreparable prejudice to the commercial interest of these respondents.
(IV) It is contended that the IIFN is a fellow subsidiary of IIML. Drawing the Court's attention to paragraphs 13, 14 and 15 of the reply affidavit, it is contended that these companies are working under a common management and in fact a nominee director of respondent no.3 was appointed on IL&FS. It is further contended that even the employees ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 34 carbpl755-19.doc Vinod Thomas and Sanjay Mitra are common employees for group of companies of the petitioner.
(V) It is submitted that IIFN is not a stranger to what is actually transpired between the parties referring to e-mail dated 2 February 2018 (page 719). It is contended that the petitioner is clearly aware that Rs.43 crores is required to be received from IIFN which is a group company of the petitioner, which is for the purpose of payment to the petitioner, even under the SPA. It is contended that the petitioner's contention that the fixed deposit being broken and it had no knowledge, is wholly untenable, inasmuch as the petitioner had all material times was aware that the said amount has been utilized for the benefit of Vanita through IIFN. (VI) It is submitted that the projects which are being undertaken by respondent nos.3 to 7 are independent project, they are registered under the RERA and any order which would be passed by this Court would have a cascading effect on these projects. It is submitted that the interim borrowing is not an unknown concept. It is submitted that this is not a case of any oppression or management where the petitioner case seek such drastic reliefs. Drawing the Court's attention to the reply affidavit and the documents on record, it is submitted that no case has been made out by the petitioner for any reliefs against respondent nos.3 to 7. ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 :::
pvr 35 carbpl755-19.doc Submissions on behalf of respondent no.1.
32. Dr.Saraf, learned Counsel for respondent nos.1 and 2 has made the following submissions:-
(I) It is submitted that the petitioner has not approached this Court with clean hands. There is substantial suppression of facts on the part of the petitioner and on this ground the petition is required to be rejected. It is submitted that the averments as made in the petition and more particularly the averments in paragraph 11.13 to the following effect, "To the best of the Petitioner's knowledge, the fixed deposit in Respondent No.3's bank was broken or otherwise alienated/encumbered without notice to the petitioner or its nominee .. ... ..", is patently false. It is submitted that there is ex facie no disclosure as to how and what basis and as to when such knowledge was received by the petitioner.
(II) It is submitted that in fact the petitioner was at all material times aware of the breaking of fixed deposit and utilization of the amount for the purpose of Vanita.
(III) It is submitted that the sale of the second Tranche was to take effect in February 2018 and since then there is no reference or any demand as made under the fixed deposit by the petitioner. Referring to e-mail dated ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 36 carbpl755-19.doc 2 February 2018 it is submitted that there was no need to refer to the amount of Rs.43 crores to be made available for the purpose of the exit of the petitioner under the SPA. It is submitted that after the e-mail dated 2 February 2018, there is no demand whatsoever made in regard to the fixed deposit which clearly shows that the petitioner was aware that the fixed deposits were liquidated. This more particularly when from 2006 to October 2018 the petitioner had a nominee director on the Board of Directors.
(IV) Dr.Saraf, learned Counsel for respondent nos.1 and 2, however, would submit that respondent no.1 is holding shares of Rs.74 crores and respondent no.1 is agreeable to make a statement that it would give two weeks notice to the petitioner in case respondent no.1 intends to deal with their shares in respondent no.3.
Submission on behalf of respondent no.2.
33. Mr.Jagtiani, learned Counsel for respondent no.2 would also submit that e-mail dated 2 February 2018 would itself show that there was no fixed deposit. It is submitted that the petitioner's case on the basis that the fixed deposit is liquidated, is wholly untenable. It is next submitted that the relief which is prayed by the petitioner is in the nature of attachment ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 37 carbpl755-19.doc before judgment and for which, the delay as a factor would be required to be taken into consideration. It is submitted that the fixed deposit is liquidated in October 2017, even the e-mail dated 2 February 2018 (page
719) itself is addressed almost 18 months prior to filing of the petition. It is thus submitted that there being gross delay on the part of the petitioner, would dis-entitle the petitioner to any reliefs. It is submitted that in October 2018 the parties were in amicable discussion. Drawing my attention to paragraphs 11.27 and 11.28 of the petition, it is submitted that the petitioner itself had made a categorical statement that IIML is a representative of the petitioner and that the petitioner was at all point of time aware about the various dealings between the parties. It is thus submitted that a false urgency is made out by the petitioner and for this reason, the petitioner is not entitled to any relief. Mr.Jagtiani has also makes a similar statement as made by Dr.Saraf that his clients before dealing with the shares as they hold in respondent no.3, would give two weeks notice to the petitioner.
Submissions on behalf of Respondent Nos.8 to 10.
34. Mr.Chagla, learned Senior Counsel for respondent nos.8, 9 and 10 has made the following submissions:-
::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 :::
pvr 38 carbpl755-19.doc (I) It is submitted that respondent no.8 has no concern whatsoever in
relation to the present proceedings as respondent no.8 is not a party to the SPA. It is submitted that the Doctrine of Group Companies and that all the respondents being a common economic entity, is totally untenable. It is submitted that there is no intention of respondent no.8 to be bound by the SPA.
(II) The Court's attention is drawn to the various clauses of the Share Purchase Agreement to show that principally it is respondent nos.1 and 2 who are under an obligation to purchase the shares and that no intention can be gathered in any manner to bind respondent no.8 or even for that matter respondent nos.9 and 10 to comply with the obligation under the SPA. It is submitted that the SPA in paragraph (B) (page 182 of the paperbook) clearly indicates that it is an obligation of the purchasers namely respondent nos.1 and 2 to purchase the shares as the purchasers are clearly defined under the said agreement to be respondent nos.1 and
2..
(III) Referring to Clauses 2.1, 3.3, Clause 4, Clause 8.2, it is submitted that there is no role of respondent nos.8, 9 and 10. It is submitted that this is also clear from the fact that the petitioner had addressed a notice dated 11 February 2019 to respondent nos.1 and 2 and to no others. It is thus ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 39 carbpl755-19.doc submitted that it is clear that the petitioner itself at all times aware that they have no claim against respondent nos.8 to 10. The petitioner however with an ill-motive has impleaded respondent nos.8 to 10 as parties to the present petition and unwarrantedly dragged them into this proceedings. It is submitted that without even issuing notice to respondent no.8 to 10, reliefs are sought against respondent nos.8 to 10 in the present proceedings which itself is a sufficient ground to dis-entitle the petitioner to grant any relief against respondent nos.8 to 10.
(IV) It is submitted that even considering the averments in the petition and referring to paragraphs 11.8, 11.33 and paragraph 17, it is submitted that there is no case made out against respondent nos.8 to 10 by the petitioner. It is submitted that only as afterthought by amendment, a case is sought to be made out, however, without any basis whatsoever in the documents and material as placed on record. It is submitted that respondent nos.8 to 19 are reluctant invitees to the present proceedings. (V) In support of his submissions, Mr.Chagla has relied on the decision of the Supreme Court in Cheran Properties Ltd. Vs. Kasturi & Sons Ltd. & Ors.(supra) and the recent judgment of the Supreme Court in "Reckitt Benckiser (India) Private Limited Vs. Reynders Label Printing India Private Limited and Anr.4, in rejoinder.
4 2019(9) SCALE 72
::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 :::
pvr 40 carbpl755-19.doc
Rejoinder submissions on behalf of the Petitioner.
35. Ms.Srikrishna, learned Counsel for the petitioner would submit that the contentions as urged on behalf of the respondent ought not to be accepted. This for the reason that there is no denial of the liability under the SPA either by respondent nos.1 and 2 or the other respondents. It is submitted that there is no reason forthcoming from respondent nos.1 and 2 as to why the SPA has become void. It is submitted that once the liability is not denied, the petitioner is entitled for the reliefs which are prayed to safeguard the substance of the arbitration and for enforcement of the contractual terms and the rights which are recognised under the binding contract between the parties. It is submitted that the contention as urged on behalf of respondent nos.3 to 7 that charges on its assets are created in ordinary course of business, is not a valid argument against the petitioner, inasmuch as the petitioner is not concerned with the third party. The petitioner is only concerned with its contractual rights as arising under the SPA. The subsidiaries of respondent no.3 would also become equally liable to secure the amounts due and payable to the petitioner under the SPA. It is submitted that the e-mails of February 2018 and thereafter, are supporting the petitioner inasmuch as the ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 41 carbpl755-19.doc petitioner in no manner is concerned with Vanita. There is no concluded contact as entered between the petitioner and Vanita and which in no manner would dilute the binding contractual terms between petitioner and respondent nos.1 and 2 and other respondents under the SPA. It is submitted that by virtue of clause 4 of the SPA, the rights of the petitioner have remained in tact and are enforceable. It is submitted that in the face of the admission of liability by respondent nos.1 and 2 as also by respondent nos.3 to 7, the petitioner is entitled to the reliefs as prayed in terms of prayer clause (d). It is submitted that Dr.Saraf is not correct in his contention referring to the involvement of IIFN as seen in the e-mail dated 2 February 2018. It is submitted that the reference to IIFN makes no difference inasmuch as the petitioner is not a party to any arrangement and there is no material to show any such arrangement with the petitioner, which would take away the rights of the petitioner under the SPA. It is submitted that the petitioner is contractually entitled for an injunction and other reliefs. In regard to the submission of Mr.Chagla, learned Senior Counsel for respondent nos.8 to 10, it is submitted that already the petitioner has made out a case that respondent nos.3 to 8 are being one economic entity as clearly reflected in the facts and this position is required to be recognised in considering the reliefs as prayed for in the ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 42 carbpl755-19.doc present petition.
Discussion and Conclusions
36. Having heard the learned Counsel for the parties and having perused the record, it needs to be observed that all the events and as noted above till the petitioner and the concerned respondents entered into a share purchase agreement dated 7 August 2017 is not in dispute.
37. The question which would fall for consideration of the Court is limited namely as to whether the petitioner prima facie can be said to have any rights under the SPA dated 7 August 2017 so as to entitle the petitioner to the reliefs as prayed for and further if the petitioner has any rights they are against which of the respondents as arrayed in the petition.
38. Some background of the SPA is required to be noted. In the SPA, respondent no.3, the petitioner (foreign investor), group companies of the petitioner-Infrastructure Leasing & Financial Services Ltd. (Indian Investor), respondent no.1 (Purchaser no.1), respondent no.2 (Purchaser no.2), respondent nos.9 and 10 - Vinod Goenka and Shahid Balwa respectively (collectively referred as promoters), and respondent nos.4, 5, ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 43 carbpl755-19.doc 6 and 7 by virtue of Clause 8 as referred in Schedule 1 and persons whose names are referred in Part II of Schedule I who are referred as other promoters/shareholders, are parties to the SPA and referred collectively as parties. The SPA is admittedly the fall out of the previous agreements as entered between the parties namely Share Subscription cum Shareholders Agreement dated 8 November 2006, Supplemental Agreement dated 15 December 2006, the second supplemental agreement entered between the parties in January 2008, Share Purchase cum Amendment Agreement dated 29 November 2012, which are collectively referred as Definitive Agreements, and which ultimately culminated into the SPA (Share Purchase Agreement in question dated 7 August 2017). In Clauses A and of the SPA, there is due recognition to these definitive agreements. Clauses A and B of the agreement is required to be noted which read thus:-
"WHEREAS A. The Promoters, BD&P Hotels India Private Limited, Goan Hotels and Clubs Private Limited (now known as Goan Hotels and Realty Private Limited), Dynamix Balwas Resorts Private Limited (now known as Pune Buildtech Private Limited), Indian Investor, IL&FS India Realty Fund LLC and Trinity Capital (Seven) Limited entered into a share subscription cum shareholders agreement dated November 8, 2006 ("SSSA") in relation to teh investment by the Indian Investor, IL&FS India RealtyFund LLC, Trinity Capital (Seven) Limited and the Promoters in the Company and to record the inter-se rights and obligations vis-a-vis each other and vis-a-vis the Company. The Indian Investor, ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 44 carbpl755-19.doc the Promoters, the new shareholders, IL&FS India Realty Fund LLC, Trinity Capital (Seven) Limited and BD&P Hotels Private Limited, Goan Hotels and Clubs Private Limited, Dynamix Balwas Resorts Private Limited entered into the supplemental amendments agreements dated December 15, 2006 and thereafter in January 2008 ("Supplemental Agreements", together with teh "Original SSSA", hereinafter referred to as teh "SSSA"), recording certain amendments to teh SSSA. Further, on November 29, 2012, share purchase cum amendment agreement ("SPAA") was executed in between the Investors, the Promoters and other parties of SSSA pursuant to which the Promoters, either through themselves or through their nominees, agreed to purchase certain securities held by teh Investors in the company in 2 (two) tranches. The SSSA, SPAA and any other document/understanding executed pursuant thereto are hereinafter collectively referred to as "Definitive Agreements"
B. Now, the Purchasers, relying upon the covenants, representations and warranties provided by the Investors under this Agreement, have severally agreed to purchase the Sale Securities (as defined herein below) from the Investors free from Encumbrances (as defined herein below) and the Investors have agreed to sell the Sale Securities to the Purchasers on the terms and conditions stipulated in, and in accordance with this Agreement."
39. As clearly seen the clauses A and B (supra) are part of the recital and the agreement between the parties is thereafter recorded in various terms which begin with clause 1-"Definitions".
40. As far as the petitioner is concerned, the purchase of the securities as held by the petitioner was guaranteed to be in two Tranches, which is also defined in the "Definition" clause as under:-
"Tranche 1 Foreign Investor Consideration" means an amount of ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 45 carbpl755-19.doc Rs.542,830,108.00 (Rupees Fifty Four crores Twenty Eight Lakh Thirty Thousand One Hundred and Eight only) payable by the Purchasers to teh Foreign Investor for purchase of the Tranche 1 Foreign Investor Securities in the proportion as set out in Part I of Schedule 3, pursuant to the terms of this Agreement;
"Tranche 1 Foreign Investor Securities" means and refers collectively to (i) 10,23,944 (ten lakhs twenty three thousand nine hundred and forty four) Equity Shares; and (ii) 7,51,680 (seven lakh fifty one thousand six hundred and eighty) ROCCPS Series B; each fully paid as per the term thereof, held by the Foreign Investor and which are proposed to be purchased by the Purchasers in the proportion as set out in Part I of Schedule 3 at the First Closing Date, pursuant to the terms of this Agreement;
"Tranche 2 Foreign Investor Consideration" means an amount of Rs.542,830,108.00 (Rupees Fifty Four crores Twenty Eight Lakh Thirty Thousand One Hundred and Eight only) plus the amount mentioned in Clause 4.1 if permitted by applicable law, payable by the Purchasers to the Foreign Investor for purchase of the Tranche 2 Foreign Investor Securities in the proportion as set out in Part I of Schedule 3, pursuant to the terms of this Agreement;
"Tranche 2 Foreign Investor Securities" means and refers collectively to (i) 10,23,944 (ten lakhs twenty three thousand nine hundred and forty four) Equity Shares; and (ii) 7,51,680 (seven lakh fifty one thousand six hundred and eighty) CCPS Series D; each fully paid as per the term thereof, held by the Foreign Investor and which are proposed to be purchased by the Purchasers at the Second Closing Date in the proportion as set out in Part I of Schedule 3, pursuant to the terms of this Agreement;
"Transaction" means the sale of the Sale Securities by the Investors to the Purchasers and purchase of the Sale Securities by teh Purchasers from the Investors, in accordance with the terms and conditions of this Agreement.
41. In clause 2 of the agreement, the parties have agreed for sale and purchase which records that the purchasers (respondent nos.1 and 2) and the promoters (respondent nos.9 and 10) agreed to purchase the sale securities from the investors (petitioner). Clause 2 is required to be noted ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 46 carbpl755-19.doc which reads thus:-
2. SALE AND PURCHASE 2.1 On and subject to the terms and conditions contained in this Agreement and relying on the convenants, representation and warranties of the Investors and in consideration of the mutual rights and obligations of the parties which have been agreed to between the parties and whcih are recorded hereunder, the Purchasers and the Promoters agree to purchase the Sale Securities from the Investors, and the investors agree to sell the Sale Securities to the Purchasers free from all Encumbrances such that the Purchasers shall, upon the transfer of the Sale Securities in their name, receive full legal and beneficial ownership of the Sale Securities. (emphasis supplied)
42. Another clause in the agreement which is required to be noted is the agreement between the parties that Tranche 2 -foreign investors consideration (for the benefit of the petitioner) will be maintained in a no lien fixed deposit with the bankers of the company (respondent no.3) with the foreign investors nominees (petitioner's nominees) as joint signatories to the fixed deposit as set out in Clause 4 which reads thus:-
4. INTERVENING PERIOD BETWEEN FIRST CLOSING AND SECOND CLOSING 4.1 Tranche 2 Foreign Investor Consideration will be maintained in a no lien Fixed Deposit with the bankers of the Company with the Foreign Investors Nominees as joint signatories to the fixed deposit. The interest accrued on such Fixed Deposit shall be added to the Tranche 2 Foreign Investor Consideration, subject to Applicable Law.
4.2 Since the Tranche 2 Foreign Investor Consideration is already in Fixed Deposits in the name of the Company with OBC Bank, the parties agree that the Company shall not break these Fixed Deposits prematurely but shall pass a ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 47 carbpl755-19.doc board resolution informing OBC bank that the Fixed Deposits shall not be broken/renewed/lien created unless both signatories inform OBC bank in writing.
4.3 On OBC Bank acknowledging that they will act on the basis of the Board Resolution mentioned in Clause 4.2 above.
4.3.1 The Investors shall ensure that its nominee Mr. Darshan Gangolli shall resign immediately as director on the board of directors of the Company;
4.3.2 The Company shall immediately convene a Board of Directors meeting approving the resignation of Mr. Darshan Gangolli as director on the board of directors of teh Company with immediate effect.
4.3.3 The Company shall make necessary changes to the register of directors to reflect the resignation of Mr. Darshan Gangolli as director on the board of directors of the Company.
4.3.4 Notwithstanding anything mentioned in the SPA, the Definitive Agreements or the Articles of Association of the Company, in the intervening period between the completion of the First Closing and the Second Closing, the Investors shall not exercise or attempt to exercise any of their rights (including voting rights, rights under Clauses 18, 20, 21) under the SSSA read with teh SPAA or the Articles of Association of the Company, in the event the Second Closing does not take place on the Second Long Stop Date, then all rights under the Definitive Agreements shall stand reinstated and simultaneously th eTranche 2 Foreign Investor Consideration shall be released in favour of the Company and the mechanism Clauses 4.1 and 4.2 shall come to an end.
43. Thereafter two other clauses are required to be noted namely Clause 11.5.1 and 11.6. Clause 11.5.1 provides for the SPA to constitute as an entire agreement between the parties superseding all prior oral and ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 48 carbpl755-19.doc written agreements interalia including the definitive agreements. Clause 11.6 pertains to "Amendments and Waivers". These clauses being relevant are extracted hereunder and read thus:
11.5.1 Entire Agreement: This Agreement constitutes the entire agreement and understanding between the parties and supersedes all prior oral and written agreements, representations, statements, negotiations, understandings, proposals and undertakings including the Definitive Agreements.
11.6 Amendments and waivers : No amendment to this Agreement shall be valid or binding unless set forth in writing and duly executed by each of the parties to this Agreement. No waiver of any brech of any provision of this Agreement shall be effective or binding unless made in writing and signed by the Party purporting to give the same and unless otherwise provided in the written waiver, shall be limited to the specific breach waived. No course of dealing between or among the parties shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any such party or such holder under or by reason of this Agreement. No failure or delay by a party in exercising any right or remedy provided by Law under or pursuant to this Agreement shall impair such right or remedy or operate or be construed as a waiver or variation of it or preclude its exercise at any subsequent time and no single or partial exercise of any such right or remedy shall preclude any other or further exercise of it or the exercise of any other right or remedy.
Clause 12.2 is a "Dispute Resolution" clause namely the arbitration agreement between the parties.
44. A cumulative reading of all the above clauses of SPA thus unequivocally indicate that respondent nos.1 and 2 and the promoters had agreed to purchase the securities held by the petitioner being a foreign investor in Tranche 1 and Tranche 2. Respondent nos.1 and 2 have ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 49 carbpl755-19.doc complied their obligations under SPA by completing Tranche 1 purchase and remitting the amounts. In regard to Tranche 2 the same has been partly complied by respondent no.2, however not at all complied by respondent no.1. Thus, what remains is a complete compliance of Tranche 2 transaction by respondent no.1 and partly by respondent no.2.
45. The SPA determines the terms and conditions of the exit of the petitioner from respondent no.3. A plain reading of the agreement also would show that it is not respondent nos.1 and 2 - the purchasers alone who are fastened with the obligations, who would purchase the securities held by the petitioner but also the promoters namely respondent nos.9 and 10, as clearly seen from clause 2.1 of the agreement. Clauses 4.1 to 4.3.4 of the SPA also cannot be overlooked under which the parties have agreed for maintaining fixed deposit in the name of the company with Oriental Bank of Commerce and the said deposit was to be maintained for the benefit of the petitioner. The parties not only agreed for maintaining such fixed deposit but also the modality to be followed for breaking the fixed deposit, in which the petitioner had a role to play if the fixed deposit was to be in any manner eliminated or broken.
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46. Further Clause 4.3.4 also recognizes the obligation of the super majority provision as contained in clause 20 of the Share Subscription cum Shareholders Agreement dated 8 November 2006 read with the Share Purchase cum Amendment Agreement dated 29 November 2012 as contained in Clause 6.4 and thus as the second closing date has not taken place, prima facie, it is clear that the rights of the petitioner under the Definitive Agreement also stand recognized by the provisions of Clause 4.3.4 of the SPA which is already extracted above. Hence, the contention as urged on behalf of respondent nos.9 and 10 that clause 4.3.4 of the SPA would not recognize the super majority provision in view of clause 11.5.1 and 11.6, cannot be accepted inasmuch as clause 4.3.4 makes an exception even to clauses 11.5.1 and 11.6 when clause 4.3.4 uses words "Notwithstanding anything mentioned in the SPA".
47. It is therefore clear that respondent nos.1 and 2 and the promoters
- respondent nos.9 and 10 certainly had an obligation to complete the purchase of the Trance 2 securities and which were in fact secured by the fixed deposit as agreed to be maintained in Clause 4.1 and 4.2 of the SPA. However, on a reading of the above agreement at this stage of the proceedings, it cannot be accepted that in the purchase of these securities, ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 51 carbpl755-19.doc respondent nos.3 to 7 and respondent no.8 had any role to be discharged or any obligation to be complied in actuality. A reading of the SPA would clearly discern that an obligation to purchase the securities held by the petitioner was primarily on respondent nos.1 and 2 and the promoters- respondent nos.9 and 10.
48. It cannot be overlooked that respondent nos.1 and 2 have partly complied their obligation under the SPA by fully completing Tranche 1 purchase and to that effect remitting the amount to the petitioner. It is also not in dispute that respondent no.2 had partly purchased Tranche 2 securities. Such an action on the part of respondent nos.1 and 2 would imply and fortify the contention as urged on behalf of the petitioner that respondent nos.1 and 2 and for that matter even respondent nos.9 and 10 at no point of time denied their liability and obligations under the SPA towards the petitioner. While not denying the liability and its obligations, there is no reason coming forth as to why the remaining obligations are not being complied, in completing the purchase of the balance securities as need by the petitioner and remit the amount to the petitioner.
49. On this backdrop what is material in the context of the reliefs as ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 52 carbpl755-19.doc prayed for in the present petition, is the conduct on the part of respondent no.3 and certainly to the knowledge of respondent nos.1, 2 and 9 and 10 of breaking of a fixed deposit which was meant to be security for the purposes of completing the exit of the petitioner from respondent no.3.
50. It is the case of all the respondents that the petitioner never demanded any information and/or payment under the fixed deposit, as the petitioner had knowledge that the fixed deposit was liquidated some time in October 2017. This is being contended by the respondents referring to the following e-mail dated 2 February 2018 from Mr.K.A.Suresh to respondent no.8 (page 719 of the petition):-
"From: Suresh KA <kasuresh [email protected]> Sent: Friday, February 2, 2018 5.08 p.m. To: DB Atul bhatnagar; [email protected] CC:Vinod Thomas ILFS; Rahul Mehta IIML; ILFS Darshan Gangoli Subject: Money to be paid to IIRF towards MDHPL Exit and receivable by IIML from NRTPL Dear Atul The below is the money to be received and arrangements that needs to be made to pay the same. Please reply to the various points as per 1 to 5 below.
Money to be paid to IIRF towards MDH exit Rs.47,89,15,011 Money to be paid to IIML towards management Rs.1,58,83,200 fee/ legal expenses from NRTPL Total funds required Rs.49,47,98,211 ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 53 carbpl755-19.doc Funds expected to be disbursed by IFIN Rs.43,00,00,000 Funding gap Rs.6,47,98,211
1. Could you confirm the above calculations /
2. Could you confirm that DB has funds available to meet the funding gap above
3. Are all the paperwork for offshore remittance submitted to OBC?
4. Could you explain the funds routing from IFIN to IIRF ?
5. What is the timelines for remittance of IIRF and IIML funds.
Regards
K A Suresh
Regards." (emphasis supplied)
51. This contention, referring to the amount of Rs.43,00,00,000/- in the said e-mail which referred to as "Funds expected to be disbursed by IFIN", is that it would indicate that the petitioner had knowledge that this amount would come from an associate company of the petitioner as this was the amount which was in fact the amount under the fixed deposit utilised for the purpose of Vanita. This contention of the respondents that the e-mail would indicate acquiescence on the part of the petitioner to liquidate the fixed deposit or to agree to an arrangement of utilizing the fixed deposit towards Vanita, that would amount to modification of the conditions of the SPA, cannot be accepted. This firstly for the reason that the parties have agreed to act in a manner as recognized in Clauses 4.1, 4.2 read with 4.3.4 of the SPA and no other manner. This is confirmed by ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 54 carbpl755-19.doc the clear terms of Clause 11.6 which records that no amendment of the agreement shall be valid or binding unless set forth in writing and duly executed by each of the parties to the agreement. Clause 11.6 can have no two meanings. Thus, the e-mail dated 2 February 2018 in no manner can either obliterate, modify, extinguish or take away these binding terms of the SPA. Moreover, the above e-mail of 2018 cannot be read in isolation.
It is required to be read in the context of other e-mails dated 6 February 2018, 28 February 2018, 12 October 2018, 23 October 2018 (page 719 and 722 of the paper book) which unequivocally point out the repeated assertion of the petitioner and acceptance of the obligation on the part of the parties to the SPA and more particularly respondent nos.1 and 2 to discharge their obligations under the SPA.
52. The contention as urged on behalf of the respondents that there is suppression on the part of the petitioner that there is an arrangement between the petitioner and/or its associate entities and on this ground the petition is required to be dismissed, cannot be accepted. This for the reason that there is no material which is placed on record which would in any manner displace the contention of the petitioner that the obligations under the SPA in any manner stand extinguished and/or the terms and ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 55 carbpl755-19.doc conditions of the SPA are no longer binding on the respondents. This contention as urged on behalf of the respondents is ex facie untenable and required to be rejected. In so far as the contention of the petitioner that respondent nos.3 to 7 are encumbering and creating charges in respect of their assets and this would defeat the rights of the petitioner under the SPA, cannot be, prima facie, accepted, considering the terms and conditions of the SPA. There is much substance in the contention as urged on behalf of respondent nos.3 to 7 that although they are subsidiaries of respondent no.3, however, these are independent companies engaged in their own business, they are entitled to have borrowings and utilize their assets to secure such borrowings. The business activities which are undertaken by respondent nos.3 to 7 thus cannot be straightway involved in the reliefs claimed by the petitioner in the present petition. In my prima facie opinion, reading of any rights of the petitioner on any of the activities of respondent nos.3 to 7 and/or their assets for the purpose of the purchases of their securities by respondent nos.1 and 2 and 9 and 10, would amount to reading something in SPA which the parties have not expressly provided for. Merely respondent nos.3 to 7 being involved in the SPA, in same manner, would not amount to ipso facto creating any obligation on respondent nos.3 to 7 which is expressly not provided for.::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 :::
pvr 56 carbpl755-19.doc The obligations under the SPA appear to be clearly of respondent nos.1 and 2 and respondent nos.9 and 10. Consequently, no relief can be granted to the petitioner against respondent nos.3 to 7.
53. Similarly even against respondent no.8 no relief can be granted to the petitioner. Respondent no.8 is neither a party to the SPA nor in any manner have any direct obligation under the SPA towards the petitioner. The above discussion would thus sufficiently establish that if at all any protection can be granted to the petitioner in the present proceedings, it can be granted against respondent nos.1 and 2 and respondent nos.9 and 10 (promoters).
54. This apart, even respondent no.3 who is also a principal party to the SPA, was to maintain a no lien fixed deposit in respect of Tranche 2 securities as set out in Clauses 4.1 and 4.2 of the SPA. However, the steps were taken on the part of respondent no.3 contrary to clauses 4.1 and 4.3 of the agreement, the fixed deposit maintained to secure the amounts of the petitioner under Tranche 2, such a security could not have been broken or alienated, respondent no.3 also become responsible for its action in bringing about the situation that the security under the fixed ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 57 carbpl755-19.doc deposit available to the petitioner was made to vanish in a manner not recognised by the several terms and conditions of the SPA. Admittedly respondent no.3 is in complete control of respondent nos.9 and 10. All this cannot be simply overlooked.
55. Thus, what is indicative of all these actions on the part of respondent nos.1 and 2, 3 and respondent nos.9 and 10 and also to the knowledge of the other respondents is that for some reason the security as created in favour of the petitioner was removed to be utilised for other purpose, surely not for the petitioner. Even assuming that the petitioner or one of its associate company-IFIN was aware of such utilization of the amount under the fixed deposit which were to be maintained to secure the Trance 2 securities of the petitioner, this cannot be accepted to be an argument to contend that the SPA is modified or that there is no more an obligation under the SPA. In making such an argument, the respondents are completely overlooking that such knowledge would not in any manner amount to waiver or modification of any of the conditions of the SPA in terms of Clause 11.6 of the SPA. This argument on the part of the respondents is in fact in the teeth of the said binding clause under the SPA and thus required to be recorded, only to be rejected.::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 :::
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56. Now coming to the reliefs as prayed for as it is contended that the reliefs are in the nature of the reliefs of attachment before judgment which can be granted by the Court under exceptional circumstances under the provisions of Order XXXVIII Rule 5 of the Code of Civil Procedure. It is submitted that none of the averments as made in the petition would qualify the petitioner for such drastic reliefs against respondent nos.1 and 2 and respondent nos.9 and 10. In my opinion, learned Counsel for respondent nos.1 and 2 and respondent nos.9 and 10 would not be correct in so contending. Moreover, the petitioner would be entitled for ad-
interim protective reliefs at this stage of the proceedings. This is for two fold reasons. Firstly these are proceedings under Section 9 of the Arbitration and Conciliation Act,1996 where the Court is concerned for grant of interim measures for protection and/or preservation of the subject matter of arbitration and one of the considerations being that the interim measures of protection should appear to the Court to be a "just and convenient" coupled with the fact that it would have power to secure the amount in dispute for the purpose of arbitration. It is certainly open to the Court to pass an order by way of interim measures of protection of the existing arrangement under the contract, to be continued pending the ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 59 carbpl755-19.doc resolution of the dispute by the arbitral tribunal. This is recognized to be an appropriate and acceptable exercise of power under Section 9. In this context it would be profitable to refer to the observations of the Supreme Court in "Adhunik Steels Ltd. Vs. Orissa Manganese and Minerals (P) Ltd."5 wherien the Supreme Court while discussing the scope of jurisdiction of Section 9 vis a vis power under the Code of Civil Procedure under Order XXXIX held thus:-
20. No special condition is contained in Section 9 of the Act. No special procedure is indicated. In American Jurisprudence, 2nd Edn.
It is stated:
"In judicial proceedings under arbitration statutes ordinary rules of practice and procedure govern where none are specified; and even those prescribed by statute are frequently analogous to others in common use and are subject to similar interpretation by the courts."
21. It is true that the intention behind Section 9 of the Act is the issuance of an order for preservation of the subject-matter of an arbitration agreement. According to learned counsel for Adhunik Steels, the subject-matter of the arbitration agreement in the case on hand, is the mining and lifting of ore by it from the mines leased to OMM Private Limited for a period of 10 years and its attempted abrupt termination by OMM Private Limited and the dispute before the arbitrator would be the effect of the agreement and the right of OMM Private Limited to terminate it prematurely in the circumstances of the case. So viewed, it was open to the court to pass an order by way of an interim measure of protection that the existing arrangement under the contract should be continued pending the resolution of the dispute by the arbitrator. ... ... .. ........Whether an interim mandatory injunction could be granted directing the continuance of the working of the contract, had to be considered in the light of the well-settled principles in that behalf. Similarly, whether the attempted termination could be restrained leaving the consequences thereof vague would also be a question that might have to be considered in the context of well-settled 5 (2007)7 SCC 125 ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 60 carbpl755-19.doc principles for the grant of an injunction. Therefore, on the whole, we feel that it would not be correct to say that the power under Section 9 of the Act is totally independent of the well-known principles governing the grant of an interim injunction that generally govern the courts in this connection. So viewed, we have necessarily to see whether the High Court was justified in refusing the interim injunction on the facts and in the circumstances of the case." (emphasis supplied)
57. The Division Bench of this Court in "Nimbus Communications Ltd. Vs. Board of Control for Cricket in India & Anr."(supra) has also recognized that although the principles laid down in the Code of Civil Procedure,1908 for grant of interlocutory reliefs furnish guide to the Court when it determines an application under Section 9 of the act, what is required to be seen is paramount interest of justice and a balance is required to be drawn. It was held that rigours of every procedural provisions in the Code of Civil Procedure cannot be put into place to defeat the grant of relief which would sub-serve the paramount interest of justice. The Court has made these observations in paragraph 24 referring to the decision of the Supreme Court in Adhunik Steels Ltd. (supra), which read thus:-
"24. A close reading of the judgment of the Supreme Court in Adhunik Steels would indicate that while the Court held that teh basic principles governing the grant of interim injunction would stand attracted to a petition under section 9, the Court was of teh view that the power which is exercised by the Court under section 9 is guided by the underlying principles which govern the exercise of an analogous power in the Code of Civil Procedure 1908. The exercise of the power under section 9 cannot be totally ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 61 carbpl755-19.doc independent of those principles. At the same time, the Court when it decides a petition under section 9 must have due regard to the underlying purpose of the conferment of the power upon the Court which is to promote the efficacy of arbitration as a form of dispute resolution. Just as on the one hand the exercise of the power under section 9 cannot be carried out in an uncharted territory ignoring the basic principles of procedural law contained in teh Code of Civil Procedure 1908, the rigors of every procedural provision in the Code of Civil Procedure 1908 cannot be put into place to defeat the grant of relief which would subserve the paramount interests of justice. A balance has to be drawn between the two considerations in teh facts of each case. The principles laid down in the Code of Civil Procedure, 1908 for the grant of interlocutory remedies must furnish a guide to the Court when it determines an application under section 9 of the Arbitration and Conciliation Act, 1996. The underlying basis of Order 38, Rule 5 therefore has to be borne in mind while deciding an application under section 9(ii)(b).
58. Similarly in "Deccan Chronicle Holdings Limited Vs. L&T Finance Ltd." (supra) in regard to applicability of Order XXXVIII Rule 5 of the Code of Civil Procedure, the Court referring to the decisions in Adhunik Steels Ltd.(supra) and Nimbus Communications Ltd.(supra), in paragraph 10 has observed thus:-
"10. The principle is that when the Court decides a petition under Section 9, the principles which have been laid down in the Code of Civil Procedure, 1908 for the grant of interlocutory reliefs furnish a guide to the Court. Similarly in an application for attachment, the underlying basis of Order XXXVIII Rule 5 would have to be borne in mind. At the same time it needs to be noted that the rigors of every procedural provision of the CPC cannot be put into place to defeat the grant of relief which would subserve the paramount interests of the 9 of 11 APP(L).131.2013 justice. The object of preserving the efficacy of arbitration as an effective form of dispute resolution must be duly fulfilled. This would necessarily mean that in deciding an application under Section 9, the Court would while bearing in mind the fundamental principles underlying the provisions of the CPC, at the same time, have the discretion to mould the relief in ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 62 carbpl755-19.doc appropriate cases to secure the ends of justice and to preserve the sanctity of the arbitral process.
59. Adverting to the above principles, in my opinion, not only on reading of the petition but also from the documents as placed on record a prima facie case has been made out by the petitioner for grant of ad- interim protection against respondent nos.1 and 2 and respondent nos.9 and 10.
60. The Court cannot overlook that the petitioner is a foreign investor. At the relevant time, the petitioner had made available finance by investing substantial amounts. The definitive agreement and the SPA clearly recognise the petitioner's right to exit by respondent nos.1 and 2 and the promoters purchasing the securities as held by the petitioner in respondent no.3. It also cannot be overlooked that under the SPA the parties had agreed for maintaining a fixed deposit as a security for Tranche 2 securities and the same now stand liquidated. This is sufficient to prima facie form an opinion that there was an attempt to take away the securities as created in favour of the petitioner. There is no action by these respondents to reinstate the security. Such an action coupled with the fact that respondent nos.1 and 2 have denied to comply their obligation under ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 63 carbpl755-19.doc the SPA creates a reasonable doubt of the intention of the respondent to defeat to the petitioner the fruits of the arbitration. In these circumstances, the substance of the arbitration certainly required to be protected so that the petitioner does have a paper decree. Even the powers under Order XXXVIII Rule 5 of the Code of Civil Procedure would recongnise a principle as to whether the plaintiff has a reasonable chance of a decree being passed and whether prima facie material is available to show that the defendant is attempting to remove or dispose of the assets which would have the effect of defeating the decree. If these elements can be seen, then necessarily a protective relief is required to be granted. This would not in any manner mean coercing the respondents to settle the claim of the petitioner which is in short the tenor of the arguments as advanced on behalf of respondent nos.1 and 2 and respondent nos.9 and
10. As to why there a reasonable apprehension is created that the fruits of the decree may be defeated, the same is directly derived from the conduct of these respondents of the fixed deposit being utilized and/or eliminated which was the primary security. The position taken by respondent nos.1, 2, 9 and 10 that they are free to create charge on their assets in the normal course of business overlooks that these respondents have a defined liability under the SPA first to be discharged, before creating such charge ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 64 carbpl755-19.doc in favour of the petitioner and in that matter even creating a second charge in respect of its assets. A consistent position is taken by respondent nos.1 and 2 and respondent nos.9 and 10 not to complete the purchase of Tranche 2 securities and for no justifiable reason. In my opinion, these are sufficient considerations which would weigh with the Court to exercise jurisdiction under Section 9 of the Act and even applying the principles of Order XXXVIII Rule 5 of the Code of Civil Procedure , as a prima facie case to that effect has been established.
61. Admittedly the whole controversy is in regard to the petitioner who is a foreign investor seeking an exit from its investment in respondent no.3 which is an Indian company, in a manner as agreed in SPA. In this context it needs to be observed that even the Supreme Court has considered Foreign Direct Investment as indispensable for a growing economy like India which are routed through Offshore Finance Centres and also through the countries with whom India has entered into treaties, even overseas investments in Joint Ventures and Wholly Owned Subsidiaries have been recognised as important avenues of global business in India. The potential users of off-shore finance are international companies, individuals, investors and others and capital flows through ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 65 carbpl755-19.doc FDI, Portfolio Debt Investment and Foreign Portfolio Equity Investment and so on. It has also recognized that demand for off-shore facilities has considerably increased owing to high growth rates of cross-border investments and a number of rich global investors have come forward. This has contributed and has made a positive effects on global economic growth and India has also been greatly benefited. Such agreements which are surely required to be honoured in letter and spirit so as to achieve the purpose of the agreement. The confidence of such investors cannot and ought not to be in any manner shaken. (See: Vodafone International Holdings BV Vs. Union of India & Anr.6) It is also well recognized that the corporate structure may provide for an exit route, especially when investment in overseas as in the present case. For purely commercial reasons, a foreign group may wind up its activities overseas for better returns for several reasons that may drive its exit or restructuring. It would be thus open to the Court to consider all these factors when the agreement such as SPA in question. It is thus necessary for the Court to adopt a holistic approach. These principles are well recognized in commercial jurisprudence.
61. In the above circumstances, the petitioner is entitled for the 6 (2012) 6 SCC 613 ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 66 carbpl755-19.doc following ad-interim reliefs:-
(I) Respondent nos.1 and 2 and Respondent nos.9 and 10 are directed to furnish to the petitioner by way of an affidavit setting out all material particulars alongwith the documents of all the charges created on their respective assets (including shareholding), rights, interests, benefits, claims etc. on the assets of respondent nos.1 and 2 and respondent nos.9 and 10 from the date of execution of the SPA till date.
(II) There shall be ad-interim relief in terms of prayer clauses (b) and
(c) which read thus:-
(b) That pending the hearing and final disposal of the arbitral proceedings, and the enforcement of the award therein, this Hon'ble Court be pleased to order and direct Respondent No.1 to deposit a sum of Rs.27,14,15,054/- in cash in this Hon'ble Court being the amount of purchase consideration for the R1 Tranche 2 Securities (viz. 5,11,972 equity shares and 3,75,840 CCPS-Series D) and/or in any other form that this Hon'ble Court may deem fit in order to secure recovery and realization of the said amount;
(c) That pending the hearing and final disposal of the arbitral proceedings, and the enforcement of the award therein, this Hon'ble Court be pleased to order and direct Respondent No.2 through Respondent Nos.2A, 2B and 2C, to deposit a sum of Rs.20,75,00,007 in cash in this Hon'ble Court being the amount of purchase consideration for the balance R2 Tranche 2 Securities (viz.3,91,407 equity shares and 2,87,335 CCPS-Series D) and/or in any other form that this Hon'ble Court may deem fit in order to secure recovery and realization of the said amount;
(III) There shall be ad-interim relief in terms of prayer clause (d) against respondent nos.1 and 2 and respondent nos.9 and 10 as modified ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 ::: pvr 67 carbpl755-19.doc hereunder:-
"(d) That pending the hearing and final disposal of the arbitral proceedings and the enforcement of the award therein, this Hon'ble Court be pleased to pass an order of temporary injunction restraining Respondent Nos.1, 2, 9 and 10, acting by themselves or through their servants, agents, representatives, and/or all other persons claiming by, through or under them, for selling, transferring, alienating, relinquishing or creating any third party rights or interests including charges in respect of their assets or from transferring monies from their respective bank accounts without the prior written consent of the Petitioner;
(IV) The above directions be complied within a period of fifteen days from today.
(G.S.Kulkarni, J.) ::: Uploaded on - 09/08/2019 ::: Downloaded on - 10/08/2019 03:51:20 :::