Rotopacking Materials Industry vs Ravinder Kumar Chopra And Ors.
2003 Latest Caselaw 814 Bom

JUDGMENT

Vazifdar S.J., J.

1. The plaintiff's Notice of Motion No. 885 of 2001 seeks interim reliefs in aid of the final relief in the suit. The defendant's Notice of Motion No. 526 of 2002 seeks the rejection of the plaint on the ground that it is barred by law and a dismissal of the suit on the ground of jurisdiction. This Notice of Motion also seeks to have an ad interim order passed in the plaintiff's Notice of Motion vacated.

2. The plaintiff is a company incorporated in Dubai under the law of the United Arab Emirates, carrying on business of manufacturing packing material for household goods and products. It owns and operates a factory in Dubai. Defendant No. 2 an Indian National, was one of the promoters of the plaintiff and occupied different positions in the plaintiff which I shall refer to. Defendant No. 2 is the State Bank of India.

3. The plaintiff has sought a permanent injunction against the 1st defendant restraining him from transferring, disposing of, alienating, encumbering, parting with possession of, removing from India or dealing with his assets including the amounts lying to the credit of the accounts held by him with the N.R.I. branch of the 2nd defendant under Customer Reference No. 025464 and of all other accounts of his with the 2nd defendant until the hearing and disposal of Suit No. HC 01 03831 filed in the English Court by the plaintiff and until the satisfaction in full of the decree, if any, that may be passed against the 1st defendant therein. The plaintiff has also sought an injunction restraining the 2nd defendant from permitting the 1st defendant to operate in any manner or closing the said account and any other account that may be held by the 1st defendant for the same duration.

In Notice of Motion No. 885 of 2001 the plaintiff has sought interim reliefs in terms of the above final reliefs and an order directing defendant No. 1 to disclose all his assets on affidavit whether located within or outside India, whether owned in his own name or not or whether held solely or jointly, giving full particulars of such assets including their value and location. The plaintiff has also sought an interim order directing the 2nd defendant to disclose with particulars, any accounts that may be held by the 1st defendant with the 2nd defendant including the said account and for inspection of the documents connected therewith.

4. The plaintiff's Notice of Motion No. 885 of 2001 involves a consideration of two aspects; whether the plaintiff is entitled on merits to protection qua the 1st defendant's assets in India and whether the suit is maintainable?

I will first deal with the plaintiff's case on merits.

5. The plaintiff's case is that between 1997 and 1999 it purchased, rather was made to purchase, four items of machinery at a significant over valuation. Further, payments have been made by the plaintiff for certain goods which were not received by it. This, it is alleged was with a view to enable inter alia the first defendant to make secret profits fraudulently and in breach of his fiduciary duties to the plaintiff.

6. It is necessary to view the transactions in the background of the formation of the plaintiff, the role of its promoters, directors and officers and the facts pertaining to the connection between certain persons and legal entities through and with the aid of whom the plaintiff alleges the first defendant defrauded it.

7. On 14th November, 1992 a contract for establishment of a limited liability company was entered into between two U.A.E. nationals MHRAA Shami and S.H.A. Rahman, two members of the Khimji family-Ajay Mathradas Khimji and Pankaj Khimji. Defendant No. 1 and one Ottavio Parizzi. Parizzi is an Italian National. The initial Board of Managers constituted under this agreement consisted of all the aforesaid persons excluding defendant No. 1. Article 9(b) provided. "Mr. Pankaj Kanaski Khimji shall be the initial Chairman of the company of full authority to represent the company". Article 5 provided that the two U.A.E. nationals would hold an aggregate of 51% of the share capital, the Khimjis would hold an aggregate of the 24% of share capital. Defendant No. 1 would hold 10% of the share capital and Parizzi would hold 15% of the share capital.

8. The company was originally named "Strategic Printing Company" (L.L.C.). By an amendment dated 17th April, 1993 to the contract of establishment, the name was changed to "Roto Manufacturing and Packing" (L.L.C.). By a further amendment in June, 1993 the name was changed to its present name.

9. By the amendment dated 17th April, 1993 defendant No. 1 was appointed as the Chief Executive of the plaintiff. On 1st January, 1994 defendant No. 1 was appointed as the Managing Director of the plaintiff. His letter of appointment was signed by the Khimjis. On 1st January, 1998 defendant No. 1 ceased to be the Managing Director and Parizzi was appointed as the Managing Director of the plaintiff. They however continued to be in charge of the day-to-day running of the company.

10. The transactions, as I observed earlier, are alleged to have taken place between December, 1997 and December, 1999 when defendant No. 1 was in complete control of the day-to-day affairs of the company and Parizzi was activity involved in the running of the company.

11. In June, 2000 the plaintiff filed a criminal complaint against Parizzi in Dubai. The complaint was addressed to the Dubai Police. It stated that the plaintiff was represented by defendant No. 1 in his capacity as the Manager. The complaint alleges that Parizzi exploited the trust reposed in him; crossed the limits of his power and took possession of corporate funds; convinced the Board of Directors to process the purchase order for the said machines on false representations, in an improper manner and at a gross overvaluation. It further states that the entire transaction and the routing of the money for the same was done through companies with which Parizzi was connected/associated. The complaint alleged that the estimated cost of the machinery was far below the transaction cost and that Parizzi had received undisclosed commission for the same. Paragraph 10 of the complaint reads as under:

"It appears from the above that the complained against had misused his title as a managing director of the complaining company, and willfully deceived other directors and partners of the complaining company. He convinced them to place an order with a fictitious company, which is either owned or controlled by him directly or indirectly, and provided them with false information that this fictitious company is a subsidiary of the manufacturer. The complained against also swelled the amount of the purchase order and fraudulently swindled money out of the corporate funds by finalizing the purchase process through this fictitious company. The amount that the complained against had received in excess of the actual cost was estimated at US $ 850.00. He willfully issued or participated in issuing a forged shipping document in order to receive the amount of the L/C to the prejudice of the complainant's interest."

Paragraph 12 refers to the transactions pertaining to certain machinery which were also cited before me viz. a Triplex Laminating Machine, an Air Knife Slitter and an Orilla Printer.

12. Mr. Dwarkadas, the learned Senior Counsel appearing on behalf of the plaintiff contended that defendant No. 1 obviously did not implicate himself in this complaint and instead projected himself as one of the officers of the plaintiff deluded by Parizzi. Ms. Sethna, the learned Counsel appearing on behalf of the respondent submitted that the complaint was not made by defendant No. 1. Though the name of defendant No. 1 is expressly referred to in the complaint, she submitted that it was filed pursuant to a power of attorney executed by defendant No. 1 in favour of the lawyer who actually signed the complaint. This stand was obviously to explain away the denial by defendant No. 1 in his affidavit in reply of any knowledge of the fact that the machinery was overvalued and to distance himself from the transactions. There is no other reason why this stand is taken by defendant No. 1. This case certainly runs counter to the tenor of the complaint.

In paragraph 2 of his affidavit in reply. Defendant No. 1 while referring to the criminal proceedings stated that the same "were in fact initiated by and under the instructions of persons controlling the plaintiffs under my very signature". Ms. Sethna pointed out that after defendant No. 1 realised that the words "under my very signature" were a mistake, deleted them in the subsequent affidavit thereby correcting the wrong impression. I will presume that the complaint was not signed by him. The tenor of the reply however indicates that defendant No. 1 was in fact aware of the complaint, the contents thereof, and subscribed to the facts stated therein. The mere fact that the complaint was signed pursuant to a power of attorney executed by defendant No. 1 would, to my mind, make no difference.

13. It appears that the Dubai Public Prosecution Authorities ordered the prosecution against Parizzi on 17th September, 2000. By an order dated 15th October, 2000, the Dubai Court sentenced Parizzi to three years imprisonment.

14. An important development took place at this stage. The plaintiff filed proceedings in the High Court of Justice, Chancery Division. By an order dated 7th December, 2000 the English Courts directed Barclays Bank PLC to produce for the inspection of the plaintiff copies of various documents in his custody, possession or power relevant to the accounts, at its various branches in the name of Bowater Holdings Ltd. and Latest Technologies and Products Ltd. (LTP). It is the plaintiff's case that upon taking inspection of these documents it became aware of the involvement of defendant No. 1 in the fraud. It is not necessary to refer in detail to the English proceedings. Suffice it to state that the English Court granted the plaintiff permission to serve the claim form in the English suit on defendant No. 1 out of jurisdiction and that in the claim form and particulars of claim in the English suit, there were various defendants including LTP, Bowater Holdings Limited, Parizzi, CO.MA.C.SPA. FUTURA SPA. MAG TECH SRL, COULDRIDGE AND CHELSEA HOLDINGS SA. The proceedings involved various transactions including those referred to in the present suit against Parizzi and Chopra. The following reliefs were sought:

(1) Against Mr. Parizzi and Mr. Chopra:

(a) Damages and/or equitable compensation;

(b) A declaration that they are jointly and severally liable to account to the claimant for such sums as the Court thinks fit on the grounds of breach of fiduciary duty/breach of trust;

(c) Further or in the alternative, a declaration that Mr. Parizzi is liable to account to the claimant for the sum of US $ 1,310,000;

(d) An account of all sums misappropriated by Mr. Parizzi and/or Mr. Chopra and paid away by either or both of them or at their direction and an order for the payment of all sums found to be due on the taking of an account;

(e) An account of all sums received by Mr. Parizzi and/or Mr. Chopra which were secret profits received in fraud of the claimant and an order that they pay such sums to the claimant;

(f) A declaration that Mr. Parizzi and/or Mr. Chopra each hold all sums received by them in fraud of the claimant on trust for the claimant and an order that they pay those sums to the claimant.

(g) A declaration that the claimant is entitled to trace the proceeds of sums received by Mr. Parizzi and/or Mr. Chopra from it and to claim equitable title to any such proceeds which are held by either of them and an order that either of them deliver such assets to the claimant.

(h) Interest, whether compounded or otherwise.

15. The present suit was filed on 29th October, 2001. By an order dated 31st October, 2001 D.K. Deshmukh, J., granted an ad interim order in terms of prayer Clauses (a) and (c) in Notice of Motion No. 885 of 2001 which were interim reliefs in terms of the main reliefs claimed in the suit. The order was restricted to operate only to the bank accounts. This order was passed ex parte without notice to the defendants. By an order dated 6th November, 2001, the order dated 31st October, 2001 was continued but restricted to operate only to the extent of Rs. 1,92,00,000/-. This order was and is in operation today.

16. On 21st February, 2001 defendant No. 1 filed Notice of Motion No. 526 of 2001. On 3rd May, 2002 the above Notices of Motions were ordered to be heard together.

17. Before referring to the transactions, which according to the plaintiff constituted a breach of trust on the part of defendant No. 1 it is necessary to note certain facts relating to five companies.

Bowater Holdings (Bowater) is a company incorporated in the British Virgin Islands. One Dario Colombo was the President and Director of the company. Parizzi was in control of the funds in the Bowater accounts.

Latest Technologies (LTP) was incorporated in England on 30th October, 1998. Simon Couldridge was one of its Directors. Dario Colombo is authorised to operate the LTP Account and, has in fact, done so as we shall see.

COMAC.SPA (Comac) is an Italian Company, Parizzi's wife Ms. Luisa Freschi was the sole administrator of Comac as on 30th June, 2000. 90.41% of the shares in Comac were held by Chelsea Holdings SA. The remaining shares were held by Parizzi's wife and son. Comac is presently in liquidation.

Chelsea Holdings SA (Chelsea) is a company incorporated in Luxembourg. As on 14th May, 1997, Bowater held 99.99% of the shares of Chelsea, the remaining shares being held by Dario Colombo.

Futura Spa ("Futura") is a company incorporated in Italy. Parizzi was the President of the company as on 30th June, 2000. 95% of its shares were owned by Comac. Futura is also in liquidation.

18. Thus, Bowater, LTP, Comac, Chelsea and Futura are closely associated and inter-connected.

19. The first transaction on which the plaintiff relies to establish its case pertains to the purchase by it of an Aurelia Printer from LTP.

(a) On 1st October, 1998 LTP opened an account with Barclays Bank with instructions to debit the account inter alia on the instructions of Dario Colombo who, as we have seen, was the President and Director of Bowater and a shareholder in Chelsea. On 15th April, 1999 Aurelia Offset spa, an Italian Company offered to sell the plaintiff an Aurelian Printer for US $ 1,680,000. LTP by its proforma invoice dated 27th May, 1999 offered the same equipment for US $ 1,600,000. The payment was required to be made by an irrevocable and confirmed letter of credit opened on the London Branch of the Barclays Bank. It appears that in June, 1999 the plaintiff confirmed the purchase from LTP on terms mentioned in the proforma invoice.

(b) On 8th June, 1999 ABN Amro Bank issued an irrevocable letter of credit at the plaintiff's request in favour of LTP in the sum of US $ 1,440,000. The payment of US $ 4,80,000 was made against simple receipt. The payment of US $ 9,60,000 was to be at site against shipping documents, including the bill of lading.

(c) On 4th July, 1999 the payment of US $ 4,80,000 was made under the letter of credit to the LTP account for the equipment. What followed nine days later, on 13th July, 1999 is important. A sum of US $ 2,50,000 was paid from the LTP account to the account of defendant No. 1 with defendant No. 2 at Mumbai. The account with defendant No. 2 carried an interest of 41/2%. The payment is admitted and in any event established from the documents disclosed by Barclays Bank. This is relevant while considering the 1st defendant's explanation for the receipt of this amount into his account.

(d) On 24th December, 1999 a payment of US $ 9,60,000 was made under the said letter of credit to the LTP Account by the plaintiff. What followed within less than a week on 30th December, 1999 is again interesting. An amount of US $ 1,50,000 was paid from the same LTP account to the same account of defendant No. 1 with defendant No. 2 at Mumbai.

(e) From the record, it appears that LTP in turn made payment for the equipment to Aurelia Offset spa of US $ 70,000, 1,50,000 and 30,000 on 7th March, 2000, 8th May, 2000 and 13th June, 2000 respectively aggregating to only US $ 2,50,000. Thus, while the plaintiff had made payment of an aggregate sum of US $ 1,440,000 for the Aurelia Printer to LTP, LTP in turn paid only US $ 2,50,000 for the same to its manufacturer and supplier, Aurelia Offset spa.

20. On the basis of these facts. Mr. Dwarkadas contended that defendant No. 1 fraudulently caused the plaintiff to pay an excess amount of at least US $ 7,10,000 for the Aurelia Printer and that defendant No. 1 was a party to this fraud. This, he submitted was evidenced by the fact that within a few days after the receipt by LTP from the plaintiff of the sums of US $ 4,80,000 and 9,60,000 LTP in turn made payment to the account of defendant No. 1 with defendant No. 2 of the sums of US $ 2,50,000 and 1,50,000.

21. It was important for defendant No. 1 to explain the receipt of the amounts of US $ 2,50,000 and 1,50,000. As there was some confusion about the precise case of defendant No. 1 in this regard. I would let him speak for himself which he does in paragraph 13 of his affidavit in reply dated 17th April, 2002 as under:

"I say that the sums in issue in the present suit, viz. the wiring of two sums aggregating US $ 400,000, which the plaintiffs falsely ostensibly claim to have gotten wind of through a purported investigation, actually pertain to a loan transaction between myself and another shareholder of the plaintiffs-Mr. O.G. Parizzi, which was a matter of which the plaintiffs/the WEB/Mr. Kanak Khimji were perfectly well aware. It had been agreed, in March, 1998 (that is, shortly after I resigned as Managing Director of the plaintiffs), that Mr. O.G. Parizzi would loan sums of upto US $ 1,00,000 to me, and that such sum would be guaranteed by the shareholding and appurtenant loan of myself lying with the plaintiffs. The loan is presently outstanding, and is scheduled to be repaid by me by December 2003. The knowledge of the plaintiffs qua the transaction is self-evident from the letter dated May 28, 2000, written by its Chairman Mr. Kanak Khimji, as compared with the statement of shareholders funds lying in the plaintiff (prepared by its Finance Department, as at December 31, 1999), which is collectively hereto annexed and marked Exhibit 6. The related reduction had been erroneously made, based on a premium of 15% having been assessed by El Fina Investment & Financial Consultants in respect of stakes, i.e. share-holding and loan, held in the plaintiff."

I find it difficult to accept this explanation for more than one reason.

22. In paragraph 3 of the same affidavit, defendant No. 1 states that for nearly nineteen years he lived outside India and "liaised infrequently with very few persons in India". Why then did he choose to transfer this money to an account in India. The account with defendant No. 2 carries an interest of only 41/2%. The alleged loan is repayable with interest at 8%. Some explanation for the choice of opening an account in India in such circumstances was necessary. To my repeated question in this regard, Ms. Sethna had no answer except to state that the same would be furnished at the appropriate stage before the appropriate Court. Till then, I must therefore, presume that there is no explanation.

23. The monies were transferred to the account of defendant No. 1 on 13th July, 1999 and 30th December, 1999. There is nothing to suggest that the amount was utilised for any purpose whatsoever. Nor is there anything to indicate the purpose for which the loan was advanced. It is difficult to believe that a loan was taken by defendant No. 1 for no apparent reason repayable with interest at the rate of 8% per annum and the same was deposited in an account carrying interest of 41/2% without ever being utilised.

24. Faced with this situation, Ms. Sethna submitted (and the same is evident from the concluding part of paragraph 1.12 at page 10 of her written submissions) that defendant No. 1 received the funds in pursuance of a loan transaction with Parizzi, whereunder Parizzi was to take over his participation at the option of defendant No. 1. She submitted that as per the transaction, defendant No. 1 was to have unhindered user of the funds and at the end of the year 2003 defendant No. 1 was entitled to hive-off his stake in favour of Parizzi and thus retain the funds so received absolutely. It was pursuant to this transaction that defendant No. 1 claims to have received the said money, the source of which he was not bound to enquire about nor in fact enquired about.

25. The submission is, if not contrary, a refinement of the first defendant's case in his affidavit in reply. I find it difficult to accept this case at this stage. There was no explanation forthcoming as to why the loan was advanced earlier than end 2003. In the absence of a plausible explanation, defendant No. 1 must await a trial before succeeding in establishing his case.

26. It was further submitted that the plaintiff was aware of the transaction. Ms. Sethna submitted that the Khimjis were aware of the loan transaction between Parizzi and defendant No. 1. She relied among others, on a letter dated 26th March, 2000 which recorded what transpired at a meeting on that date whereat the Khimjis and Parizzi were present. It is recorded that Parizzi and defendant No. 1 shall clarify their internal share-holding dispute. She thereafter invited my attention to a letter dated 28th May, 2000 addressed by K.G. Khimji to defendant No. 1 in which the details of the share holders contribution were referred to. Mr. Dwarkadas has analysed the figures in the various letters in an attempt to demonstrate that the case of a loan out forward by defendant No. 1 was false. He also denied that the Khimjis were aware of the transactions between Parizzi and defendant No. 1 as alleged by defendant No. 1. The reasoning adopted on the basis of the interpretation of the figures and the correspondence by both the Counsel was, to put it mildly, involved. It is not necessary however for me to analyse these arguments. I will assume that the Khimjis and for that matter, the plaintiff itself were aware that there were transactions between Parizzi and defendant No. 1. That does not take the case of defendant No. 1 further for there is nothing on record to indicate that the plaintiff was aware of all the aforesaid facts constituting a breach of trust by fradulently arranging for the sale of various machinery to the plaintiff at an overvaluation and defendant No. 1 receiving the amount pursuant thereto. If this is not clear from the record, then the fact that the Khimjis or the plaintiff were aware that there were disputes between Parizzi and defendant No. 1 as well as dealings between the two of them including the alleged loan transactions, would be entirely irrelevant.

I will deal with other arguments addressed by Ms. Sethna qua this transaction after referring to the other transactions as they also pertain to them.

27. The next transaction referred to by Mr. Dwarkadas relates to the purchase of a Triplex Laminating Machine, purchased by the plaintiff from Bowater.

(a) On 22nd April, 1997 Bowater opened an account with the Bowater branch of the Barclays Bank. An offer dated 12th December, 1997 was received by the plaintiff from M.B. Srl. for the sale of this machine at a price of US $ 2,075,000. The offer bears the number 133/97. On the same day, the plaintiff is alleged to have received an offer from Bowater for the same machine at the same price and on terms and conditions similar to those contained in the offer of M.B. Srl. A co-incidence. Curiously, Bowater's offer also bears the number 133/97. Another coincidence. Bowater forwarded its proforma invoice dated 26th January, 1998 for the sale of the machine at the price of US $ 2,075,000. Bowater's offer was accepted.

(b) A letter of credit dated 14-2-1998 was issued by the British Bank of the Middle East for US $ 2,075,000 for the machine in favour of Bowater. The application for the letter of credit was signed by Nilesh Khimji and defendant No. 1. On 19th February, 1999 a sum of US $ 1,867,500 was paid for the machine to Bowater under the letter of credit. The amount was credited to the Bowater account with Barclays Bank.

(c) At a meeting in Dubai in April 2000 one Robert Magnone, the Managing Director of M.B. Srl. informed the plaintiff that M.B. Srl. had sold the same machine to Comac for a sum of US $ 1,970 m. lire (equivalent to US $ 1,104,260). He furnished the plaintiff a copy of an invoice dated 16th March, 1999 evidencing the same. Curiously, this invoice also bears the same Reference No. 133/97. Yet another coincidence. The plaintiff has alleged that Magnone said that he had been asked by Parizzi to inflate the price of the Triplex Laminating Machine.

(d) Thus, Mr. Dwarkadas contended that the plaintiff was defrauded into paying an amount in excess of about US $ 1,000,000.

28(a). Similarly, on 19th January, 1998 M.B. Srl. offered to sell an Airknife Slitter to the plaintiff for US $ 797,500. Bowater in turn, by an offer of the same date agreed to sell an Airknife Slitter to the plaintiff for the same price and on the same terms and conditions. Bowater forwarded its proforma invoice dated 28th January, 1998 in the said sum. On 14th February, 1998 a letter of credit was issued by the British Bank of the Middle East for US $ 797,500 in favour of Bowater. The application for the letter of credit was also signed by Nilesh Khimji and defendant No. 1.

(b) At the said meeting between Magnone and the plaintiff in April, 2000 Magnone also informed the plaintiff that M.B. Srl. had sold the Airknife Slitter to Comac for the sum of Italian lire 850 million (US $ 4,72,462). Magnone furnished a copy of an invoice dated 7th September, 1998 evidencing the same. As in the case of the Triplex Laminating Machine, Magnone stated that Parizzi requested him to inflate the price. On 15th September, 1998 and 15th July, 1998 payments of US $ 7,17,900 and 79,750 were made under the letter of credit for the Airknife Slitter to Bowater's said account.

(c) Again coincidentally the Reference No. 03/98 was common to M.B. Srl. Offer of 19th January, 1998. Bowater's offer of the same date. Bowaters invoice dated 28th January, 1998 and M.B. Srl's invoice dated 7th September, 1998 raised on Comac.

(d) Thus, Mr. Dwarkadas contended that the plaintiff was defrauded into paying an excess amount for about US $ 3,00,000/-.

29. Iberica AG by its letter dated 13th April, 1999 offered to sell the plaintiff an Iberica Press for US $ 6,80,000. By a letter dated 27th May, 1999 Bowater offered to sell a Press for US $ 6,46,000. On 8th June, 1999 a letter of credit was issued by ABN Amro Bank in favour of Bowater for US $ 581,400 for the Iberica Press. This application too was signed by Parizzi and defendant No. 1. The application for opening the letter of credit mentioned Bowater as the beneficiary. The letter of credit itself however provided that payment was to be made to LTP. It appears however that on 5th July, 1999 the first payment of US $ 1,93,800 was made under the letter of credit to the Bowater account. On 27th September, 1999 payment equivalent to US $ 40,556 was made by Bowater to Iberica AG for the press. On 26th October, 1999 a further payment of US $ 387,600 was made by the plaintiff to the Bowater account for the press. A payment of US $ 3,50,000 was made by Bowater to Comac. The payment instructions (Exh. Y-3 to the plaint) by Bowater to Barclays Bank in respect of this payment of US $ 3,50,000 contains an endorsement; "payment of balance inv. 362 (final after test payment directly to IBERICA, Spain)."

Thus, payment of US $ 1,93,800 and 3,87,600 aggregating to US $ 5,81,400 was made by the plaintiff under the letter of credit to the Bowater account. Even assuming that the payment of US $ 3,50,000 by Bowater to Comac was in fact in respect of the Iberica Press and found its way to Iberica AG, the aggregate payment made for the Iberica Press by Bowater to Iberica AG would be US $ 3,90,556.

Thus, Mr. Dwarkadas contends that a sum in excess of US $ 1,90,844 was paid by the plaintiff for the Iberica Press. I must mention here that there is no evidence that US $ 3,90,556 was the only payment that was made by Bowater to Iberica AG. Nor is there any evidence to suggest that was the contract price between Bowater and Iberica AG.

30. Lastly, Mr. Dwarkadas relied upon three invoices dated 31-8-1999, 3-9-1999 and 8-9-1999 aggregating to US $ 2,36,384 for which the payments of US $ 190,546.43 and US $ 145,781.67 was made by the plaintiff to Bowater. Payments were funded by HSBC. The applications for funding the payments on behalf of the plaintiff were signed by Parizzi and defendant No. 1. The ink however was allegedly not supplied to the plaintiff.

31. I will presume that each of the transactions, in isolation does not suggest a strong prima facie case in the plaintiff's favour of any mal-practice on the part of defendant No. 1. I would go so far as to presume that the transactions pertaining to the Airknife Slitter, Iberica Press, the Bowater Ink together also do not establish the same. I appreciate that officers of Corporations may append their signatures to transactions on behalf of the company without being involved in any manner with them in a personal capacity and without knowing the facts pertaining thereto. In such circumstances, such officers may or may not be liable to the company personally. However, the role of defendant No. 1 in carrying out the transactions, signing the applications for opening the letter of credit and for the HSBC funding and the instructions to HSBC to make the payments, when considered alongwith the facts pertaining to the Aurelia Printer, establish a strong prima facie, case in favour of the plaintiff.

32. In his affidavit in reply, defendant No. 1 states that he has no knowledge as to whether the machinery was purchased at a significant premium to its real value. Considering the position held by defendant No. 1 in the plaintiff, his involvement in the transaction, his participation in the filing of the criminal complaint and most important, the receipt by him of the money in his account with defendant No. 2, I find it is difficult to accept his case, at least at this stage, about the circumstances in which their funds found their way to his account with defendant No. 2.

33. Ms. Sethna submitted that the plaintiff is in fact indebted to defendant No. 1. She submitted that the plaintiff in fact owed defendant No. 1 a sum of about US $ 4,142,676 and that the proceedings in the English Court as well as the present proceedings have been filed mala fide, with a view to avoiding payment thereof. It is pertinent to note that a demand notice was sent for the first time only on 3rd April, 2002 i.e. after the plaintiff instituted various proceedings against defendant No. 1. It is further pertinent to note that defendant No. 1 has to date not adopted any proceedings for the recovery of this amount. The reason for not doing so is curious. Ms. Sethna submitted that defendant No. 1 has not adopted any proceedings thus far as he cannot be expected to be prosecuting and defending claims in entirely different jurisdictions and will upon receipt of the decision of the English High Court not to permit the instituted proceedings to continue file his claim in Dubai.

It is the first defendant case that the English proceedings are not maintainable. They may not be concluded for a number of years. It is his case that the present proceedings are not maintainable. Why then would he wait to institute proceedings in Dubai. The explanation defies logic.

34. Even assuming that defendant No. 1 has a claim against the plaintiff, it would have to be adjudicated upon in a Court of competent jurisdiction. Looking to all the facts and circumstances of the case. I find it impossible to deny the plaintiff interlocutory reliefs on the possibility of a claim which at present is not even sought to be established.

35. It was contended by Ms. Sethna that at all material times the effective control and management of the plaintiff was with a working Executive Board (WEB) which comprised of all its original promoters. The WEB met frequently, atleast once a month and all decisions/matters regarding the running of the plaintiff were duly taken by the WEB. All matters involving an outlay in excess of AED. 100,000 were always within the sole purview of the WEB. Defendant No. 1 thus sought to distance himself from the transactions referred to in the suit. However, as pointed out in the rejoinder, which remains untraversed the said transactions were completed prior to the WEB being set up in early 2000.

36. It was also argued that all bank related documentation when signed by defendant No. 1 were also required to be attested by one Vasu Bellani, the Financial Manager, unless it was signed by a Khimji. Ms. Sethna submitted that Vasu Bellani was within the sole and actual control and has acted upon the instructions of the Khimjis, a fact that is denied by the plaintiff. The plaintiff's case is that Bellani was interviewed and selected by defendant No. 1 and acted on the instructions of the Managing Director of the plaintiff who during the material times were defendant No. 1 and Parizzi. In the face of the facts earlier referred to, this aspect by itself, specially in view of the controversy, would not be decisive.

37. The fact that in the particulars of claim filed in the English proceedings it is alleged that the plaintiff acted through Parizzi whereas in the present proceedings it is alleged that defendant No. 1 was also involved in the procurement of the machines is not of much significance either as much was discovered pursuant to the disclosure ordered by the English Courts after which the present proceedings were adopted.

38. When the matter goes to trial, defendant No. 1 may well establish his case, which was so strenuously urged on his behalf, that he had no knowledge as to whether the machinery was overvalued or with regard to goods that were not received at all and that he had nothing to do with the transactions. He may well establish that he had no knowledge of the source of funds that found their way to his account with defendant No. 2. But considering the evidence presently available, I find it difficult to accept his case at this interlocutory stage.

39. This is more so as defendant No. 1 has not produced any papers or documentation including the statement of accounts in respect of his account with defendant No. 2. This was despite the fact that even during the course of the hearing 1 permitted Ms. Sethna to produce the same. Defendant No. 1 however refused to do so. In the circumstances, it is not possible to draw an inference in his favour. Indeed, as Mr. Dwarkadas rightly pointed out, this in itself would entitle an adverse inference being drawn against him.

40. Before proceeding further, I would like to make two things clear. Needless to say that my observations are only prima facie. And I do not say this as a mere matter of form. Indeed, I do not rule out the possibility of defendant No. 1 establishing his case at the trial finally before the English Court. In matters such as these, the evidence may well unfold a story different from the one that appears at the interlocutory stage. Further, my findings are not to be misunderstood as my having decided anything in favour of the Khimjis. It may well be found that they too were a part of the alleged fraud. About the too I say nothing at present. If they are, no doubt, proceedings will be adopted against them. My observations must be viewed, as indeed they ought to be, in the light of the fact that I am concerned here with the conduct of defendant No. 1 and the rights of the plaintiff, whatever, be its composition.

41. Ms. Sethna submitted that the suit is not maintainable as it is not a substantive suit. That the suit is not a substantive suit, she submitted, is borne out from the fact that there is no issue that can go to trial, there is no issue that can go for evidence. The outcome of the suit is dependent entirely on the outcome of the English proceedings. The suit is therefore in the nature of temporary proceedings such as that contemplated under Order XXXVIII, Rule 5 of the Code of Civil Procedure, 1908. Further, she submitted that there must be available to the plaintiff an existing right i.e. a right enforceable in praesenti.

42. Mr. Dwarkadas sought to establish the maintainability of the suit on two basis. He submitted that the suit is maintainable under the provisions of the Indian Trust Act, 1882. Secondly, he submitted that the plaintiff has sought a mareva injunction and a suit for the same is maintainable.

43. Sections 51, 63, 66 and 88 of the Indian Trust Act read as under:

"51. Trustee for sale or his agent may not buy.---No trustee whose duty it is to sell trust-property for his own profit or for any other purpose unconnected with the trust."

"63. Following trust property---into the hands of third persons; into that into which it has been converted.---Where trust-property comes into the hands of a third person inconsistently with the trust, the beneficiary may require him to admit formally, or may institute a suit for a declaration, that the property is comprised in the trust.

Where the trustee has disposed of trust-property and the money or other property which he has received therefore can be traced in his hands, or the hands of his legal representative or legatee, the beneficiary has, in respect thereof, rights as nearly as may be the same as his rights in respect of the original trust-property."

66. Right in case of blended property.---Where the trustee wrongfully mingles the trust-property with his own, the beneficiary is entitled to a charge on the whole fund for the amount due to him."

"88. Advantage gained by fiduciary.---Where a trustee, executor, partner, agent, director of a company, legal advisor, or other person bound in a fiduciary character to protect the interests of another person, by available himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained."

44. That at the material time defendant No. 1 owed fiduciary duties to the plaintiff, cannot and was in fact not denied. What was denied was the allegation that he acted in breach thereof. I have found that prima facie, defendant No. 1 did act in breach of his fiduciary duties. I must therefore proceed to decide the question of maintainability on this basis. The receipt and use of the money by defendant No. 1 would be in contravention of section 51 of the Indian Trust Act. Defendant No. 1, having gained for himself the said pecuniary advantage, the plaintiff is entitled to trace the money to his hands. He holds the same for the benefit of the plaintiff under section 88 of the Indian Trust Act. This does not call for any detailed discussion.

45. Ms. Sethna however submitted that there is nothing to suggest that the money lying in the said account with defendant No. 2 continues to remain in that account. In other words, she submitted that it was not possible to identify the money presently lying in the account to be the same as the money that came into the account as aforesaid. Ms. Sethna's submission really amounts to this. The money transmitted to the account of defendant No. 1 with defendant No. 2 was mixed up with other money so as not to be distinguishable and, therefore, cannot be followed. Further, the account would be subject to debits and credits after the receipt of the said money into it and, therefore too, it cannot be followed for the reason that it would not be possible to identify whether it was the said money or other money of defendant No. 1 that today remains in the accounts.

46. There are two answers to this submission. Firstly, as I have observed earlier, defendant No. 1 failed to produce the relevant documents in respect of his account with defendant No. 2. This, he continued to do despite my giving him an opportunity to do so even during the course of the hearing. Defendant No. 1 has thus failed to establish the factual basis for this submission.

47. Moreover, this contention is specifically negated by section 66 of the Indian Trust Act. The money received in the account was equivalent to hard cash. It was not a mere book entry or a statement of accounts where no money is actually paid or received. Defendant No. 1 was liable to make good the loss caused by his breach of trust. He is bound to make good the loss out of the assets viz. the money which he received. The plaintiff is entitled to follow the money, even if it had changed in shape or form, in the hands of defendant No. 1. The money has actually been traced to the account of defendant No. 1 with defendant No. 2. Defendant No. 1 mingled his own money (I will presume he had his own money in this account) with the trust money and kept this mixed fund with himself/in his control. The plaintiff is, in these circumstances, entitled to a charge over the whole fund for the amount due to it as it represents trust money which belongs to the plaintiff.

48. Is the plaintiff in these circumstances entitled to an injunction? The answer lies in a consideration of section 38 of the Specific Relief Act, which is as under:

"38. Perpetual injunction when granted.---(1) Subject to the other provisions contained in or referred to by this chapter, a perpetual injunction may be granted to the plaintiff to prevent the breach of an obligation existing in his favour, whether expressly or by implication.

(2) When any such obligation arises from contract, the Court shall be guided by the Rules and provisions contained in Chapter 11.

(3) When the defendant invades or threatens to invade the plaintiff's right to, or enjoyment of property, the Court may grant a perpetual injunction in the following cases, namely;

(a) where the defendant is trustee of the property for the plaintiff;

(b) where there exists no standard for ascertaining the actual damage caused, or likely to be caused, by the invasion;

(c) where the invasion is such that compensation in money would not afford adequate relief;

(d) where the injunction is necessary to prevent a multiplicity of judicial proceedings.

49. Defendant No. 1 in his fiduciary capacity had an obligation to discharge his duties honestly. Not having done so, he is under an obligation inter alia under the provisions of the Indian Trust Act to hold the benefit subject to the trust, for that money is comprised in the trust.

50. The word obligation in section 38 of the Specific Relief Act is not used in a limited or restricted sense. That section 38(1) includes within its scope fiduciary duties of a director is clear from section 2(a) which defines the term "Obligation" to include every duty enforceable by law. This is further clear from the illustrations to section 54 (section 38 under the new Act) of the Specific Relief Act of 1877 and in particular Illustrations (c) and (d) which read as under:

(c) "The directors of a public company are about to pay a dividend out of capital or borrowed money. Any of the shareholders may sue for an injunction to restrain them."

(d) "The directors or a fire and life-insurance company are about the engage in marine insurance. Any of the shareholders may sue for an injunction to restrain them."

51. That section 38(3)(a) too includes within its scope a director, is clear from the definition of the term "Trustee" in section 2(d) of the Act which includes every person holding property in trust. Section 2(c) in turn defines "trust" as under:

"(c) "trust" has the same meaning as in section 3 of the Indian Trusts Act, 1882, and includes an obligation in the nature of a trust within the meaning of Chapter IX of that Act."

The term "trust" was defined in section 3 of the 1877 Act. The Statement of Objects and Reasons of the 1963 Act states that the definition of "trust" in the 1877 Act was not satisfactory inasmuch as it referred to express, implied and constructive trusts without defining them. The expression was therefore, defined in the 1963 Act as in the Indian Trust Act, 1882 as it was felt that there should be parity between the two enactments. The consequential change was also made in the definition of the term "trust". It is pertinent to note that what are called express trusts in English Courts are called merely trusts and are dealt with in sections 4 to 79 of the Indian Trust Act while what are called constructive or implied trusts in English Law are called "obligations in the nature of trust" and are dealt with in Chapter IX containing sections 80 to 96 of the Indian Trusts Act. Chapter IX is titled: "OF CERTAIN OBLIGATIONS IN THE NATURE OF TRUST". Indeed, under Illustration (f) a manager of a company who becomes an agent for a vendor and receives without the companies consent, commission on goods purchased by the company from the vendor, is a trustee, within the meaning of the Specific Relief Act, for the company of the money so received. It is clear therefore, that a director is included within the meaning of the expression "trustee" in section 2(b).

52. Had the entire cause of action arisen in India and the parties been subject to the jurisdiction of the Indian Courts, there is no doubt that the plaintiff could have filed a suit for a declaration that the money is comprised in the trust and for a decree ordering defendant No. 1 to pay the same over to the plaintiff. Under section 38, the plaintiff could also have sought and maintained an action for an injunction to prevent defendant No. 1 from committing a breach or, as in this case, a further breach, of his obligation by utilising/misappropriating the funds. It can hardly be argued and it indeed was not, that the breach of trust having already taken place, the plaintiff has now no right to follow/trace the money.

53.In filing a suit to enforce such a right, therefore, the plaintiff does not seek a mere interlocutory injunction. What is sought is a mandatory injunction of a final nature as contemplated under section 38 of the Specific Relief Act. In view of a pre-existing cause of action that vests in the plaintiff, as stated above, this cause of action arises out of an invasion of the plaintiff's right by defendant No. 1. It cannot therefore be said that the injunction sought is merely ancillary or incidental to a pre-existing cause of action as was sought to be contended by Ms. Sethna relying upon the observations of Lord Diplock in Siskina Cargo Owners v. Distos S.A. (Q.B.D.), 1979 A.C. 210 at page 256. A situation such as this did not arise in Siskina. If this Court has jurisdiction and if the plaintiff succeeds in establishing these facts, it would be entitled to a permanent mandatory injunction as sought.

54.What the plaintiff has however chosen to do is to limit the duration of this injunction until the hearing and disposal of the suit filed in the English Court and until the satisfaction in full of the decree, if any, passed against defendant No. 1. The plaintiff has thus chosen to limit the duration of its injunction and also make it dependent upon the outcome of the English proceedings. If the plaintiff succeeds in the English Court in obtaining the decree against defendant No. 1, it would be entitled to enforce the same under section 44-A of the Code of Civil Procedure, 1908. In that sense, the plaintiff has actually sought in this suit a relief less than it is entitled to seek.

55.If the plaintiff is entitled to a permanent injunction, should it be denied an injunction merely because it has choosen to restrict the duration of the injunction for a limited period of time viz. the conclusion of the U.K. proceedings. I think not. The plaintiff could well have maintained the suit for a perpetual injunction. It may well be that if the English proceedings are dismissed, the injunction would come to an end. It would come to an end by virtue of the fact that the plaintiff has voluntarily chosen to restrict the duration of the injunction until the conclusion of the English proceedings. If at the final hearing of this suit, in the event of it reaching before the U.K. proceedings reach a conclusion, this Court comes to the conclusion that the plaintiff is not entitled to an injunction for any reason, the suit may well be dismissed.

56.The question then is whether merely because the breach of trust emanated or commenced outside India and some or even all the parties involved therein reside outside India, this Court has no jurisdiction to try the suit. Whatever may be the position in English law in view of RSC Order 11(1)(i), Clause XII of the Letters Patent would entitle a plaintiff to maintain such an action if a material part of the cause of action has arisen within the jurisdiction of this Court and if leave in view thereof is obtained.

57.The plaintiff obtained leave under Clause XII of the Letters Patent. Ms. Sethna submitted that it was wrongly granted. I will presume that Notice of Motion No. 526 of 2002 in effect seeks revocation of such leave. The argument is unfounded. The cause of action is a bundle of facts each of which if traversed it would be necessary for the plaintiff to prove in order to succeed in obtaining a judgment. Has a material part of the cause of action arisen within the jurisdiction of this Court? It most certainly has, which of the facts in this bundle of facts that the plaintiff must prove have arisen within the jurisdiction of this Court? The answer really is quite simple. The plaintiff must prove that the money which is comprised in the trust was transferred to the account, the operation of which the plaintiff seeks to freeze. If it succeeds in establishing this the next step is obvious. This account is in Mumbai. The trust money was, as I have held, transferred to the said account and is therefore, in Mumbai. Defendant No. 1 has allegedly committed a breach of trust, to this extent, in Mumbai. The further breach or to put it differently, acts in furtherance of this breach of trust will necessarily involve removal of this money from the account in Mumbai. These facts most certainly constitute a material part of the cause of action. The 1st defendant's Notice of motion therefore must be dismissed. The leave obtained is not liable to be revoked.

58.Ms. Sethna relied upon a judgment in the case of Kessowji Damodar Jairam v. Luckmidas Ladha, and Khimji Jairam, 1889 Indian Law Reports 404 to contend that a mere existence of a bank account within jurisdiction is insufficient to cloth the Court with jurisdiction as the same does not constitute a material part of the cause of action. In Jairam's case the object of the suit was to have the accounts taken of the Zanzibar business. The defendant, who was the Manager there was charged with misappropriating money. One of the facets of the case was that certain sums of the money which formed a part of the total amount with which he was charged, were misappropriated by him by means of certain misrepresentations made or directions given in Bombay. That by itself, it was held by the Division Bench of this Court, was not sufficient to give this Court jurisdiction. Thus, in that case, it was held that the mere fact that the credit in connection with certain items in the account was effected in Mumbai would not justify a change in venue. It was accordingly held that a material part of the cause of action had not arisen in Bombay. The only subject-matter of this suit however is the money lying in the account of defendant No. 1 with defendant No. 2. The only relief sought is an injunction restraining defendant No. 1 from operating this account. The account is in Mumbai. It can be operated in Mumbai. The entire subject-matter of the suit is in Mumbai. It is a different thing that a part of the cause of action viz. a part of the breach of trust has arisen abroad. In Jairam's case in the circumstances, the judgment in Jairam's case is of no assistance to the defendants.

59.If I am right in the view that I have taken thus far, to hold to the contrary would lead to an absurd result. Which Court in India would then have jurisdiction to try this suit? None, I would presume this cannot be the result. If I am wrong in the view that I have taken the notice of motion and the suit must be dismissed. But, if I am correct in the view that I have taken thus far, this Court most certainly has jurisdiction to try the suit.

60.Ms. Sethna submitted that the plaintiff ought to apply for an injunction in the English proceedings and enforce the same, if granted under section 44-A of the Code of Civil Procedure. Section 44-A of the C.P.C. read thus:

44-A. "Execution of decrees passed by courts in reciprocating territory.---(1) Where a certified copy of a decree of any of the superior Courts of any reciprocating territory has been filed in a District Court, the decree may be executed in (India) as if it had been passed by the District Court.

(2) Together with the certified copy of the decree shall be filed a certificate from such superior Court stating the extent, if any, to which the decree has been satisfied or adjusted and such certificate shall, for the purposes of proceedings under this section, be conclusive proof of the extent of such satisfaction or adjustment.

(3) The provisions of section 47 shall as from the filing of the certified copy of the decree apply to the proceedings of a District Court executing a decree under this section, and the District Court shall refuse execution of any such decree, if it is shown to the satisfaction of the Court that the decree falls within any of the exceptions specified in Clauses (a) to (f) of section 13.

A plain reading of section 44-A of the C.P.C. indicates that it does not contemplate an enforcement of interlocutory orders. I asked Ms. Sethna if she was willing to make a statement that in the event of the plaintiff obtaining an interim order against defendant No. 1 before the English Court. Defendant No. 1 would abide by the same qua the money lying in his account with defendant No. 2. On taking instructions, she said that defendant No. 1 was not willing to make such a statement.

61. Having come to the conclusion that the plaintiff would be entitled to an injunction under section 38 to restrain defendant No. 1 from committing a breach of his obligation, the plaintiff is clearly entitled to an injunction preventing defendant No. 1 from committing a breach of his obligation to hold the money for the benefit of the plaintiff and to restrain him from appropriating the same for himself. Defendant No. 1 has invaded the plaintiff's right and enjoyment of the money. The plaintiff would therefore be entitled to a perpetual injunction restraining defendant No. 1 from continuing to do so. There is a threat on the part of defendant No. 1 to continue to do so by appropriating the money himself. Ms. Sethna argued that this conclusion would not be justified in view of the fact that defendant No. 1 has not utilised this money from the day it was credited to his account with defendant No. 2. She submitted that the injunction sought was in the nature of an order under Order XXXVIII, Rule 5 of the C.P.C. Relying upon various judgments under Order XXXVIII, Rule 5 she submitted that there was no threat on the part of defendant No. 1 to remove the money from his account with defendant No. 2 with a view to delaying or defeating the decree that may be passed against him.

62.There are two answers to this submission. Firstly, the plaintiff is not seeking an order in the nature under Order XXXVIII, Rule 5 of the C.P.C. The plaintiff is seeking to protect its proprietary interest in the subject-matter of the suit, viz. the money held by defendant No. 1 as a trustee for the benefit of the plaintiff. The plaintiff is therefore, entitled to an injunction under the provisions of Order XXXIX. Secondly, in the case of breach of trust, specially involving facts such as those in the present case, a Court may legitimately readily infer the existence of the requirements of Order XXXVIII, Rule 5.

63.Considering the view I have taken above, it is not necessary to deal with the submissions of Mr. Dwarkadas relating to his right to a Mareva injunction. He relied upon various judgments in support of this submission. He relied upon the majority judgment of the Court of Appeal in Siskina, Channel Tunnel Group Ltd. & another v. Balfour Beatty Construction Ltd. & others, 1993(2) W.L.R. 262, Mercedes-Benz AG v. Leiduck Leiduck, 1995(3) All.E.R. 929, and Solvalnb Ltd. v. Mat Investments Ltd., 1998 IL.Pr. 419, Jersey Court of Appeal. These cases did not deal with trust property. They however are certainly relevant to Mr. Dwarkadas's alternative submission based on a mareva injunction. They would also be relevant to this case had it not involved trust property in which the plaintiff has a propriety right. At the hearing, I thought that an overall view of the judgments indicated, they were strongly in favour of the plaintiff. However, as that is a point of considerable importance and this notice of motion can be disposed on the basis of the provisions of the Indian Trust Act and the Specific Relief Act. I refrain from dealing with Mr. Dwarkadas alternative submissions. Considering the view I have taken I also find it unnecessary to consider the various other alternative submissions of Mr. Dwarkadas. If the plaintiff fails at the final hearing to establish its case on the point I have dealt with, it will always be open for it to establish the alternative submissions.

64.Ms. Sethna submitted that the suit is bad for non-joinder of necessary parties. According to her, all the parties to the English proceedings ought to have been impleaded in this suit. What the plaintiff seeks here is an injunction restraining defendant No. 1 from further transferring/appropriating the money. It is nobody's case that any person other than defendant No. 1 has control over the funds. At the highest, the other parties would be proper parties. Considering the peculiar nature of this suit, in any event, it is a defect which can be remedied by an amendment.

65.I have reproduced Article 9 of the contract for establishment of the plaintiff which expressly provides that the Chairman of the company shall have full authority to represent the company. The Chairman of the company is a Khimji, Pankaj Khimji. Assuming that only Pankaj Khimji could verify the plaint, I agree with Mr. Dwarkadas that this is the matter of merely obtaining an authority ratifying the filing of the present suit.

66.In the circumstances, the 1st defendant's Notice of Motion No. 526 of 2001 is dismissed. The plaintiff's Notice of Motion No. 885 of 2001 is made absolute in terms of prayer Clauses (a), (b), (c) and (d). Prayer Clauses (a) and (c) will operate only to the extent of Rs. 1,92,00,000/-.

Liberty to the parties to apply for an order of investment.

Costs in both the notices of motion shall be costs in the cause.

Parties to act on an ordinary copy of this order duly authenticated by the Court Associate/Court Stenographer of this Court.