Bombay High Court
La-Fin Financial Services ... vs Il And Fs Financial Services ... on 11 September, 2015
Bench: V.M. Kanade
APP274.13.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO.274 OF 2015
IN
NOTICE OF MOTION NO.945 OF 2013
IN
SUIT NO.449 OF 2013
La-Fin Financial Services Pvt.Ltd. ... Appellant
v/s
IL & FS Financial Services Pvt.ltd.
ig ... Respondent
Mr Shekhar Naphade, Sr. Counsel with Mr Tushad Cooper, Mr
Arvind Lakhawal, Mr Naresh Chedda and Ms Pooja Shah i/b M/s
Dhruve Liladhar and Co. for Appellant.
Mr Venkatesh Dhond, Sr. Counsel with Mr Ashish Kamat, Mr Shyam
Kapadia, Mr Gaurav Shah and Ms Henna Dauylat i/b M/s Negandhi
Shah and Himayatullah for Respondent.
CORAM: V.M. KANADE &
B.P. COLABAWALLA JJ.
Reserved On :14th August, 2015
Pronounced On : 11th September, 2015
JUDGMENT [ Per B.P. Colabawalla J. ]:-
1. Admit. By consent of parties, and at their request, the
Appeal is taken up for hearing and final disposal.
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2. This Appeal takes exception to the order dated 13th
October, 2014 under which the learned Single Judge granted an
interim injunction against the Appellant in terms of prayer clause (f)
of the Notice of Motion, subject to the attachment levied by the
Economic Offences Wing (EOW). It was further ordered that in the
event the attachment levied by the EOW was raised, or the assets
were released in the future by the EOW, the injunction granted by the
impugned order would operate, pending the hearing and final disposal
of the suit, till the Appellant (Original Defendant) secures the suit
claim by deposit of monies or furnishing of such security as may be
approved by the Court. Considering that the Appellant was merely an
investment company, the Court further ordered that in case its
investments need to be altered or renewed, the same could be done
after seeking a prior order of the Court in that regard.
3. The suit filed by the Respondent (Original Plaintiff) inter
alia seeks specific performance of the Agreement / Letter of
Undertaking dated 20th August, 2009 under which, according to the
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Respondent, the Appellant inter alia undertook and assured that they
would buy back the Respondent's shareholding in a company called
MCX Stock Exchange Ltd. ("MCS-SX"), a commodity exchange, on
the terms and conditions, more particularly set out therein. It is in this
suit that the above Notice of Motion was filed in which the impugned
order is passed.
4.
The impugned order is challenged before us only on three
grounds:-
(a) that the Agreement / Letter of Undertaking dated
20th August, 2009 (Exh. 'B' to the plaint) is not a
concluded contract and therefore, the prayer in the
suit seeking specific performance cannot and does
not arise. A sequitur to this argument is that if no
specific performance can be granted, then there is
no question of granting any interim relief in aid of
the prayer for specific performance;
(b) in the alternative, and even assuming that the
Agreement / Letter of Undertaking dated 20th
August 2009 is a concluded contract, granting
specific performance thereof would breach the
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provisions of the Securities Contracts (Regulations)
(Manner of Increasing and Maintaining Public
Shareholding in Recognised Stock Exchanges)
Regulations, 2006 ("MIMPS Regulations") and
would therefore be void under section 23 of the
Contract Act, 1872. According to the Appellant,
these Regulations stipulate that no person resident
in India shall at any time, directly or indirectly,
either individually or together with persons acting in
concert, hold more than 5 % of the equity share
capital of any recognized Stock Exchange. In the
present case, it is the argument of the Appellant that
the shares which are the subject matter of the Letter
of Undertaking dated 20th August, 2009 are of
MCX-SX (a Commodity Exchange) and if the
Appellant is asked to specifically perform this
Agreement, the MIMPS Regulations would be
breached because the Appellant would be construed
to hold more than 5% of the equity share capital of
MCS-SX. In other words, it is the contention of the
Appellant that such an Agreement, if permitted,
would defeat the provisions of law and would
therefore be void under section 23 of the Contract
Act, 1872; and
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(c) that in any event, the relief that is granted by the
impugned order is in the nature of attachment
before judgment and no case of whatsoever has
been made out for granting such a drastic relief
against the Appellant.
For the sake of convenience, we shall refer to the parties
as they were arrayed before the learned single Judge, the Appellant
being the original Defendant, and the Respondent being the original
Plaintiff.
5. Having set out the scope of challenge, and before it is
dealt with by us, it would be necessary to set out a few facts. The
Plaintiff is a company incorporated under the Companies Act, 1956
and inter alia carries on the business of lending and / or financing. It is
a wholly owned subsidiary of Infrastructure Leasing and Financial
Services Ltd. (IL & FS). The holding Company of the Plaintiff (IL &
FS) in turn is promoted by leading banks / institutions and has a broad
based shareholding of institutional shareholders such as State Bank of
India, Life Insurance Corporation of India, Unit Trust of India,
Central Bank of India etc. On the other hand, the Defendant is a
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private limited company whose 100% shareholding is held by one Mr
Jignesh Shah and Mrs Rupal Shah. The Defendant is also the
promoter of a company called Financial Technologies (India) Ltd.
("FTIL"). Mr Jignesh Shah is and was at the relevant time also the
Chairman and Group CEO of FTIL. FTIL, in turn, is the promoter of
one Multi Commodity Exchange of India Ltd. ("MCX Ltd.") of
which Mr Jignesh Shah is and was at the relevant time a Vice-
Chairman.
MCX Ltd. alongwith FTIL are promoters and
shareholders of MCX-SX (a commodity exchange) of which Mr
Jignesh Shah is again the Vice-Chairman. For the sake of
convenience, all these entities are referred to as the MCX Group.
6. It is the case of the Plaintiff that prior to 20th August 2009,
the Plaintiff held approximately 5% of the equity share capital of
MCX Ltd. and pursuant to negotiations held between the Plaintiff and
the MCX Group, it was agreed that (1) the Plaintiff would exit MCX
Ltd.; (2) its investment in MCX Ltd. would be transferred to another
investor (IFCI); (3) part of the proceeds realised therefrom would be
used by the Plaintiff to purchase from MCX Ltd. 4,42,00,000 equity
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shares in MCX-SX (representing approximately 2.46% of its equity
share capital); and (4) the Defendant (as a condition to the Plaintiff
purchasing the said 4,42,00,000 shares of MCX-SX) would offer to
buy or cause to be brought from the Plaintiff the said 4,42,00,000
shares at an agreed price and within an agreed period.
7. According to the Plaintiff, the aforesaid arrangement was
formalised by the parties (a) by executing a Share Purchase
Agreement dated 20th August, 2009 (SPA) between the Plaintiff,
MCX Ltd. and MCS-SX under which the Plaintiff was to purchase
4,42,00,000 equity shares of MCX-SX and belonging to MCX Ltd.;
(b) by the Defendant executing a Letter of Undertaking dated 20th
August, 2009 inter alia undertaking an obligation to purchase the
Plaintiff's shareholding in MCX-SX, either by itself or its nominees,
at any time after a period of one year, but no later than three years
from the date of the Plaintiff's investment, and on the terms and
conditions more particularly set out in the said Letter. It is this Letter
of Undertaking of which specific performance is sought.
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8. On the basis of this Letter of Undertaking and relying
upon the same, the Plaintiff, on 20th August, 2009 purchased from
MCX Ltd. 4,42,00,000 shares of MCX-SX at a price of Rs.36/- per
share aggregating to an amount of Rs.159,12,00,000/- (Rupees One
Hundred Fifty Nine Crores Twelve Lakhs only).
9. On 20th November 2009, the Plaintiff received a notice
from MCX-SX regarding an Extraordinary General Meeting that was
to be held on 15th December, 2009. This EOGM was to consider a
scheme of reduction of share capital of MCX-SX. On examination of
this proposed scheme of reduction, the Plaintiff regarded the same as
being prejudicial to its interest and therefore decided to vote against it.
This was duly communicated by the Plaintiff to the MCX Group.
According to the Plaintiff, this communication led to further
communications, telephonic discussions and meetings which
ultimately led to a satisfactory resolution with MCX Ltd., in its
capacity as promoter of MCX-SX, addressing a letter dated 14th
December, 2009 to the Plaintiff referring to the SPA as well as the
Defendant's Letter of Undertaking dated 20th August, 2009.
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10. In view of this letter dated 14th December 2009, the
Plaintiff voted in favour of the scheme of reduction of capital and
which was thereafter accorded approval by the Company Court on
12th March, 2010. In view of this scheme of reduction, the Plaintiff's
shareholding in MCX-SX became just below 5% and warrants were
issued in favour of the Plaintiff for the shares that were extinguished.
As assured and undertaken, these warrants were purchased by MCX
Ltd. on 20th March, 2010. Therefore, presently, the Plaintiff holds
2,71,65,000 equity shares of MCX-SX representing just under 5% of
its equity share capital.
11. After all this was done, on 23rd August 2010, the Plaintiff
received a letter from MCX-SX inter alia stating that FTIL had
informed MCX-SX that the obligations of the Defendant under its
Letter of Undertaking dated 20th August, 2009 (and of which specific
performance is sought) had become infructuous and stood superseded
upon the scheme of reduction having been approved by the Company
Court. This letter further stated that in purported compliance with the
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directions issued by this Court in Writ Petition No.1440 of 2010 filed
by MCX-SX against SEBI (order dated 10th August, 2010), the Board
of Directors of the Defendant had passed a Resolution dated 12th
August, 2010 declining to honour any buy back or other similar
arrangements.
12. The stand taken in this letter was of course refuted by the
Plaintiff in its reply dated 10th September, 2010. In its letter, the
Plaintiff reiterated that the fundamental premise on which the Plaintiff
had purchased the shares of MCX-SX was on the basis that the
Defendant would buy back these shares as stipulated in the
Defendant's Letter of Undertaking dated 20th August, 2009. The
Plaintiff therefore categorically refuted the contention of MCX-SX
that the obligation cast upon the Defendant to buy back the shares of
MCX-SX pursuant to its Letter of Undertaking dated 20th August,
2009 had become infructuous or superseded. After this letter, there
was no response from the Defendant or any other member of the
MCX Group.
VRD 10 of 52
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13. As stated earlier, under the Letter of Undertaking dated
20th August 2009, the Defendant had undertaken to purchase the
Plaintiff's shareholding in MCX-SX after a period of one year but not
later than three years from the date of the Plaintiff's investment, at a
price more particularly set out in the said Undertaking. In view of
this, and since the period of three years was to expire on 19th August
2012, the Plaintiff by its letter dated 3rd August 2012 stated that it
would like to sell its entire shareholding of 2,71,65,000 equity shares
which the Defendant was obliged to purchase or cause to be
purchased, and requested the Defendant to indicate the specific
procedure by which it would fulfill its commitment.
14. In reply thereto, the Defendant sought to rescind from its
obligations under the Letter of Undertaking on various grounds as
more particularly set out in the said letter. The basic grounds taken in
the said letter were that (a) the Letter of Undertaking was void under
law and unenforceable in light of the alleged prohibition contained in
the Securities Contracts (Regulation) (Stock Exchanges and Clearing
Corporation) Regulations, 2012 ("SECC Regulations") which
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replaced the MIMPS Regulations and imposed a bar on holding equity
in excess of limits prescribed therein; this prohibition made the
undertaking impossible to perform; and that there was no obligation
on the Defendant to purchase the said shares as the same were to be
purchased at its "sole discretion"; (b) the obligation to buy the shares
of MCX-SX from the Plaintiff stood extinguished by reason of the
scheme of reduction approved by the Company Court and to which
consent was accorded by the Plaintiff.
15. Thereafter, further correspondence took place between the
parties and finally on 15th April, 2013 the Plaintiff informed the
Defendant that the Defendant owed an amount of Rs.161,99,03,280/-
to the Plaintiff as on 31st March, 2013 as per the Letter of Undertaking
dated 20th August, 2009 and requested the Defendant to remit the
same to the account of the Plaintiff. This, of course, was refuted by
the Defendant and hence the present suit, in which the Plaintiff has
inter alia sought specific performance of the Letter of Undertaking
dated 20th August, 2009.
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16. In this factual background, Mr Naphade, learned senior
counsel appearing on behalf of the Defendant, sought to urge that the
Letter of Undertaking dated 20th August, 2009 did not constitute a
concluded contract and therefore there was no question of granting
any specific performance thereof. He submitted that if the final relief
of specific performance could not be granted, there was no question of
granting any interim relief in aid of the final relief. According to Mr
Naphade, on a proper reading of the Letter of Undertaking, it was
clear that it was only an "offer" to purchase the Plaintiff's
shareholding in MCX-SX, which offer was withdrawn on 23rd August,
2010 before it was accepted by the Plaintiff in the year 2012, and
therefore, did not amount to a concluded contract. According to Mr.
Naphade, when the suit was filed by the Plaintiff in June 2013, there
was no subsisting "offer" and for this reason alone no relief could
have been granted to the Plaintiff in the suit or the Notice of Motion.
The impugned order was therefore liable to be set aside on this ground
alone, was the submission of Mr. Naphade. In support of the
contention that there was no concluded contract between the parties,
Mr Naphade also relied upon a decision of a Division Bench of this
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Court in Writ Petition No.213 of 2011, MCX Stock Exchange Ltd
Vs. SEBI & Ors. decided on 14th March, 2012. This Writ Petition
was essentially filed by MCX-SX against SEBI and others because
SEBI had rejected the application filed by MCX-SX for permission to
undertake the business as a Stock Exchange, other than for the
Currency Derivative Segment. This order of SEBI was passed under
section 4 of the Securities Contracts (Regulation) Act, 1956 read with
sections 11 and 19 of the Securities Exchange Board of India Act,
1992. According to Mr Naphade, the Letter of Undertaking dated 20th
August, 2009 (and which is the subject matter of the present suit) was
also considered in the said decision and the Division Bench,
according to Mr Naphade, has held that there was no concluded
contract between the Plaintiff and the Defendant herein. In this regard
he placed reliance on paragraphs 77 and 104(vii) of the said decision.
We must mention here that neither the Plaintiff nor the Defendant
were party to Writ Petition No.213 of 2011.
17. In the alternative to the above argument, Mr Naphade
submitted that even assuming that the Letter of Undertaking dated 20th
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August, 2009 was a concluded contract between the parties, even then
no specific performance could be granted of the same. He submitted
that the current shareholding of the Plaintiff in MCX-SX is just under
5%. He submitted that the MIMPS Regulations, which were
prevailing at the relevant time, and which have now been substituted
by the SECC Regulations, clearly stipulate that no person resident in
India shall at any time, directly or indirectly, either individually or
together with persons acting in concert, hold more than 5% of the
equity share capital of any recognized Stock Exchange. He submitted
that in the present case, the Defendant is the promoter of FTIL and in
turn, FTIL is the promoter of MCX Ltd. FTIL and MCX Ltd. are both
promoters and shareholders of MCX-SX. In view of this admitted
position, he submitted that if the Defendant is asked to specifically
perform the Letter of Undertaking and purchase the Plaintiff's
shareholding in MCX-SX, then the provisions of the MIMPS
Regulations and the SECC Regulations would be breached as the
shareholding of the Defendant, FTIL and MCX Ltd, if taken together,
would be far more than 5%. These entities would be taken to be acting
in concert, as they were all connected, was the submission of Mr.
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Naphade. In these circumstances, Mr Naphade submitted that this
Letter of Undertaking had become impossible to perform and
therefore there was no question of granting specific performance in
relation to the same. In this regard, Mr Naphade placed reliance on
Regulation 8(1) of the MIMPS Regulations and Regulation 17(2) of
the SECC Regulations, which really are pari materia in its terms.
18.
It was lastly submitted by Mr Naphade that in any event,
the relief sought for and granted by the learned single Judge in the
above Notice of Motion was in the nature of attachment before
judgment and the facts in the present case did not warrant such a
drastic order whereby the Defendant was virtually restrained from
carrying on any business. Mr Naphade invited our attention to prayer
clause (f) of the Notice of Motion which was granted by the learned
Judge and which according to Mr Naphade virtually brought the
Defendant's business to a standstill. He submitted that there was no
averment in the plaint or in the affidavit in support of the Notice of
Motion which would warrant granting such a drastic relief and no
case for attachment before judgment had been made out by the
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Plaintiff. In this regard, Mr Naphade invited our attention to the
provisions of Order 38 Rule 5 of the Code of Civil Procedure, 1908
and also relied upon a decision of the Supreme Court in the case of
Raman Technical and Process Engineering Co. and another v/s
Solanki Traders.1 Mr Naphade, relying upon paragraphs 4 to 6 of
this decision contended that bald and vague averments are not
sufficient to grant relief under Order 38 Rule 5 of the CPC, 1908. Mr
Naphade also relied upon a decision of a Division Bench of this Court
(D.K. Deshmukh and Anoop V. Mohta JJ) in the case of Swan Mills
Ltd. v/s Dhirajlal @ Dhirubhao Babaris and others2 and contended
that in a suit for a money decree, normally an order of temporary
injunction is not passed because there is no possibility of the Plaintiff
suffering any injury. He submitted that the Division Bench has held
that where a Plaintiff cannot make out a case for attachment before
judgment, he cannot be successful in getting an order of temporary
injunction, which has practically the same effect as an order for
attachment before judgment. He therefore submitted that the
injunction granted by the learned single Judge was wholly
1 (2008) 2 SCC 302
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unwarranted in the facts of the present case and the impugned order
was liable to be interfered with by us in our appellate jurisdiction.
19. To counter the aforesaid contentions, Mr Dhond, learned
senior counsel appearing on behalf of the Plaintiff, relied upon several
clauses of the Letter of Undertaking dated 20th August, 2009 to
contend that as far as the Defendant was concerned, its obligation to
purchase the Plaintiff's shareholding in MCX-SX was complete. He
submitted that under the said Letter of Undertaking, the Defendant
had unconditionally committed to purchase the said shares from the
Plaintiff and it was this very commitment of which specific
performance was sought for in the suit. He submitted that the shares
of MCX-SX are not listed on the stock exchange, and therefore, the
Plaintiff even cannot sell its shareholding to the public. Mr Dhond
also relied upon the very same decision of this Court in the case of
MCX Stock Exchange Limited v/s Securities and Exchange Board
of India and Others (Writ Petition No.213 of 2011 decided on 14th
March, 2012), to contend that the Defendant (through its group) has
categorically affirmed the Letter of Undertaking and the stand now
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taken that it is not a concluded contract, is clearly an afterthought.
20. On the second contention, Mr Dhond submitted that the
Letter of Undertaking dated 20th August, 2009 itself contemplates that
the Plaintiff's shareholding in MCX-SX would either be bought by the
Defendant or be caused to be bought by the Defendant. He submitted
that the Letter of Undertaking itself contemplates that either the
Defendant or its nominees would buy the Plaintiff's shareholding in
MCX-SX. In this view of the matter, Mr Dhond submitted that there
was no legal impediment in granting specific performance of the
Letter of Undertaking as it would not breach either the MIMPS
Regulations or the SECC Regulations.
21. As far as the last contention of Mr Naphade is concerned,
Mr Dhond invited our attention not only to the pleadings in the plaint
and affidavit in support of the Notice of Motion but several other
affidavits that were filed by the Plaintiff to justify the relief granted by
the learned single Judge. Mr Dhond further submitted that the learned
single Judge, after considering the entire facts of the case, had
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exercised his discretion in granting the injunction in favour of the
Plaintiff. The Appellate Court should not interfere with the exercise
of such discretion and substitute its own view, except where the
discretion has been shown to be exercised arbitrarily, capriciously or
perversely, or where the Court had ignored the settled principles of
law regulating the grant or refusal of interlocutory injunctions, was
the submission of Mr Dhond. For all the aforesaid reasons, Mr Dhond
submitted that the order passed by the learned single Judge could not
be faulted and required no interference by us in Appeal.
22. With the help of learned counsel, we have perused the
papers and proceedings in the Appeal as well as the impugned order.
The first contention raised by Mr Naphade was that the Letter of
Undertaking dated 20th August, 2009 (Exhibit-B to the Plaint), is not a
concluded contract and therefore, no prayer for specific performance
can be granted in relation thereto. According to Mr Naphade,
therefore, no interim relief could have been granted in aid of the final
relief of specific performance. To understand this controversy, we
have perused the Letter of Undertaking in some detail. The said
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Letter of Undertaking starts of by referring to the SPA dated 20th
August, 2009 signed between the Plaintiff, MCX Ltd and MCX-SX,
under which the Plaintiff had agreed to invest in the share capital of
MCX-SX. The Letter of Undertaking further specifically records that
the Plaintiff had agreed to invest in the equity of MCX-SX on the
assurance and undertaking of the Defendant that it would purchase the
Plaintiff's shareholding in MCX-SX on the terms and conditions set
out in the Letter of Undertaking. The relevant portion of said Letter of
Undertaking reads as under:-
"We understand that you have agreed to invest on our assurance
and undertaking on the following terms and conditions:
1. La-Fin Financial Services Pvt Ltd (LA-Fin) or its appointed
nominees have an obligation to offer to purchase at any time
during the Agreed Period (as defined hereinafter) in its sole
discretion considers appropriate, all the shares purchased by you
under the SPAs in MCX-SX by giving a written notice at any time
after completion of one (1) year from the date of investment but no
later than three (3) years from the date of investment ("Agreed
Period"), post which your rights herein stated shall lapse. You
will have to confirm your acceptance/non acceptance for the offer
within a maximum period of 30 days. The price at which such
shares will be offered to be purchased by us will be at a price
which will be higher of the following ("Buy Back price").
(i) Price which provides an internal rate of return ("IRR")
of 15% on the investment or:
(ii) Price at which the most recent transaction of MCX-SX
equity shares is carried out by MCX-SX or MCX or FTIL
Group.
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(2) It being clarified that in the event MCX-SX plans an IPO within
one year from the date of investment we hereby covenant that we
shall not proceed with the IPO in case the IPO Price is less than
the Buy Back Price. Further, in the event MCX-SX plans an IPO
within the Agreed Period we undertake that the IPO price will not
be less than the Buy Back Price and you would be provided the
right to completely exit in such an IPO by way of an offer for sale
or else we shall provide the buy back offer as per point 1 above at
the Buy Back Price before the listing of the shares.
(3) In the event you notify acceptance of our aforesaid offer by a
written communication, the purchase of the shares then held by
you (out of the shares purchased by you under the SPAs in MCX-
SX) as on the date of your communication shall be consummated
within seven days, unless mutually extended. If you decline to or
fail to accept our offer within the said period of 30 days as
mentioned in point 1 above or the exit offer or the buy back offer
as mentioned in point 2 above, then in such case you shall not be
entitled to IRR as mentioned in point no.1 and LA-Fin and/or its
nominees will have no liability whatsoever including without
limitation of purchasing shares from you in future.
(4) ...............................
(5) .....................
(6)We agree that pursuant to purchase of the MCX-SX shares from
you as per point 1, we undertake for and on our behalf and on
behalf of FTIL, MCX and our group companies, not to sell/issue
any equity shares of MCX-SX for a period of three months
commencing from the date of purchase as per point 1 above, for a
price exceeding the Buy Back Price.
(7) This letter has been given by us for valuable and bonafide
consideration and we undertake not to contest this letter for lack of
consideration."
(emphasis supplied)
23. On a reading of the Letter of Undertaking as a whole, at
least prima facie, we are unable to agree with the submissions of Mr
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Naphade that the same amounted only to an "offer", and was
therefore, not a concluded contract between the Plaintiff and the
Defendant. Firstly, clause (1) of the said Letter of Undertaking
categorically contemplates that the Defendant or its nominees have an
obligation to purchase the Plaintiff's shareholding in MCX-SX by
giving a written notice at any time after completion of one year from
the date of investment but no later than three years thereof, after
which the Plaintiff's right to call upon the Defendant to purchase its
shareholding would lapse. The price at which the shareholding
would be purchased is also mentioned in the said clause and stipulates
that the Buy Back Price would be (i) a price which provides an
Internal Rate of Return ("IRR") of 15% on the investment or; (ii) a
price at which the most recent transaction of MCX-SX equity shares
is carried out by MCX-SX or MCX Ltd or FTIL group, whichever is
higher. Clause 2 of the Letter of Undertaking also contemplates that
MCX-SX plans to come out with an IPO and the Defendant assures
the Plaintiff that the IPO price would not be less than the Buy Back
Price, and that the Plaintiff would be provided the right to completely
exit by way of an offer for sale, or else the Defendant shall provide
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the Buy Back Offer as set out in Clause 1, at the Buy Back Price,
before the listing of the shares. Clause 3 further contemplates that
once the Plaintiff, by written communication calls upon the Defendant
to purchase its shareholding, the same will be consummated within
seven days unless mutually extended. Clause 7 further provides that
this letter has been given by the Defendant for valuable and bonafide
consideration and the Defendant undertakes not to contest this letter
for lack of consideration.
24. We are unable to accede to the submissions of Mr
Naphade that the Letter of Undertaking only amounted to an "offer",
which according to Mr Naphade was withdrawn, before it was
accepted by the Plaintiff. By virtue of the said Letter of Undertaking,
the Plaintiff was persuaded to invest in the equity share capital of
MCX-SX on the basis that its shareholding in MCX-SX would be
purchased in the future by the Defendant on the terms and conditions
set out in the Letter of Undertaking. To our mind, this
commitment/obligation of the Defendant was complete and it was not
merely an "offer" to purchase the Plaintiff's shareholding at a future
VRD 24 of 52
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date. We say this also because the Letter of Undertaking itself
records that the same has been given for valuable consideration. If
the Letter of Undertaking was merely an "offer", as contended by Mr
Naphade, there would be no question of the same being given for any
consideration, because an offer does not have to be coupled with
consideration. This would therefore indicate that the Letter of
Undertaking was something more than merely an "offer" as
contended by the Mr. Naphade. Therefore, at least prima facie at the
interim stage of the suit, we are unable to agree with the submissions
of Mr Naphade that the Letter of Undertaking, being merely an
"offer", was not unenforceable.
25. Equally, we find the reliance placed by Mr Naphade on
paragraphs 77 and 104(vii) of a decision of this Court in Writ Petition
No.213 of 2011, decided on 14th March, 2012 (supra) (to further his
argument that there was no concluded contract), is wholly misplaced.
The Division Bench was deciding a writ petition in which a decision
of SEBI rejecting the application filed by MCX-SX for permission to
undertake the business as a Stock Exchange, was challenged. This
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order of SEBI was passed under section 4 of the Securities Contracts
(Regulation) Act, 1956 read with sections 11 and 19 of the Securities
Exchange Board of India Act, 1992. At paragraph 77, the Division
Bench has sought to make a distinction between the option to
purchase or repurchase and an agreement for sale and purchase of
shares. The Division Bench has opined that the option to purchase or
repurchase is, by its very nature, dependent on the discretion of the
person who is granted the option, whereas in an agreement for sale
and purchase of shares, there is an arrangement imposing obligations
and benefits on the promisor and the promisee. The performance of
an option cannot be compelled by the person who has granted the
option, and a concluded contract for purchase or repurchase of shares
arises only upon the exercise of that option. The Division Bench does
not go on to hold that the Letter of Undertaking (which was also being
considered by the Division Bench in Writ Petition No.213 of 2011) is
merely an "offer", as sought to be contended by Mr Naphade. The
Division Bench has correctly held that performance of an option
cannot be compelled by the person who has granted the option.
However, it is wholly another to say that the person who has been
VRD 26 of 52
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granted the option, cannot compel its performance. To hold otherwise,
would defeat the very purpose for which the option was granted in the
first place. It is correct that the Letter of Undertaking, as it stands, is
not a concluded contract for sale and purchase of shares, until the
option is exercised by the Plaintiff. In the present case, the Plaintiff
has exercised its option vide its letter dated 3rd August, 2012. After
the option was exercised by the Plaintiff, the Defendant, after
committing to the Plaintiff that it will purchase the Plaintiff's
shareholding in MCX-SX, has sought to resile from this commitment.
It is this commitment of which specific performance is sought. In this
view of the matter, we find that the reliance placed by Mr Naphade on
paragraphs 77 and 104(vii) is of no assistance to the Defendant.
26. Even otherwise on a reading of the judgment and order
dated 14th March, 2012 passed in Writ Petition No.213 of 2011, we
are of the view that far from holding that the Letter of Undertaking is
not a concluded contract, in paragraph 25, whilst narrating the facts,
the Division Bench has stated as under:-
"25. On 11 August 2010, IL&FS addressed a letter to SEBI in
VRD 27 of 52
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order to explain the background of the investment made in the
Petitioner. The letter stated that a Share Purchase Agreement had
been executed in August 2009 for the purchase of 44.2 million
shares of the Petitioner from MCX. Another Share Purchase
Agreement was executed by a private equity fund managed by an
IL&FS Group Company with respect to 27.8 million shares. Under
an exit arrangement it was agreed that La-Fin Financial Services
which held a 26% equity stake in FTIL was obligated to offer to
purchase the shares held by the IL&FS Group on the completion of
one year and within a period of three years at a stipulated rate.
The letter stated that on 10 August 2010, IL&FS Financial
ServicesLtd. had, in a meeting of its Board, resolved to explore an
exit from the investment made in the shares of the Petitioner,
including by expediting the right to sell the investment in
accordance with exit terms to the promoters of the Petitioner."
ig (emphasis supplied)
27. In fact, the Petitioner therein (MCX-SX) had submitted
before the Court that the Buy Back Arrangements entered into are
lawful [see paragraph 31B(i) of the judgment]. Even Respondent
No.3 therein (FTIL) submitted that the Buy Back Arrangements did
not constitute a concluded contract for the purchase and sale of the
shares, but only furnishes an option to the Plaintiff which was in the
nature of a privilege or concession entirely dependent on the volition
of the Plaintiff. It was specifically urged that this option involves a
unilateral exercise of volition by the Plaintiff herein, as distinct from a
contract of sale and purchase of shares, which involved reciprocal
VRD 28 of 52
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obligations. [see paragraph 32A(i)].
28. Further, paragraph 65 of the judgment, in fact records that
the terms of the Buy Back Agreement stipulate that the Defendant or
its nominees would be under an obligation to purchase back the shares
at any time after completion of one year from the date of investment
and no later than three years. On 14th December, 2009 MCX-SX
addressed a letter to the Plaintiff seeking approval of the scheme of
reduction and confirmed that this would not be construed as a dilution
of the terms of the SPA and the Letter of Undertaking issued by the
Defendant. At paragraph 74, the Division Bench has held that the
option granted to the Plaintiff under the Letter of Undertaking was a
privilege, the exercise of which depends upon their unilateral volition.
It held that in the case of the Plaintiff, the Defendant had assumed an
obligation to offer to purchase either through itself or its nominee the
shares which were sold to the Plaintiff. The Division Bench held that
in a Buy Back Agreement of the nature involved in the present case,
the promisor who makes an offer to buy back shares cannot compel
the exercise of the option by the promisee to sell the shares at a future
VRD 29 of 52
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point in time. If the promisee declines to exercise the option, the
promisor cannot compel performance. It is in this context that the
Division Bench at paragraph 75 held that a concluded contract for the
sale and purchase of shares comes into existence only when the
promisee upon whom an option is conferred, exercises the option to
sell the shares. Hence, an option to purchase or repurchase is
regarded as being in the nature of a privilege. On reading the
aforesaid judgment and the relevant paragraphs pointed out above, we
are clearly of the view that the Division Bench did not seek to hold
anything of the sort as is sought to be contended by Mr Naphade. The
Division Bench does not hold that the Letter of Undertaking is merely
an "offer" and therefore not a concluded contract. In fact, reading the
judgment it is clear that even the Division Bench was of the view that
the option given by the Defendant to the Plaintiff to sell its
shareholding to the Defendant on the terms and conditions set out
therein, was binding on the Defendant. Further, even the Petitioner as
well as Respondent Nos.3 and 4 therein, proceeded on that very basis
when they submitted to the Court that the Buy Back Arrangement as
contemplated under the Letter of Undertaking dated 20th August, 2009
VRD 30 of 52
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was lawful. We, therefore, have no hesitation in rejecting the first
contention of Mr Naphade. At least prima facie, we are of the opinion
that the Letter of Undertaking dated 20th August, 2009 is specifically
enforceable.
29. Having dealt with the first contention, we shall deal with
the argument of Mr Naphade that assuming that the Letter of
Undertaking is considered as a concluded contract, even then, no
specific performance can be ordered as the same would result in
violation of the MIMPS Regulations and the SECC Regulations. In
other words, it is the argument of Mr Naphade that such a contract
would be void under the provisions of section 23 of the Contract Act,
1872.
30. To consider the aforesaid submission, it would be
necessary to set out the relevant provisions. The MIMPS Regulations
were enacted in exercise of the powers conferred by section 31 read
with section 4B(8) of the Securities Contracts (Regulation) Act 1956.
Chapter III of the said Regulations provides for shareholding
VRD 31 of 52
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restrictions. Mr Naphade, in support of the aforesaid contention,
placed heavy reliance on Regulation 8(1) of the MIMPS Regulations
which reads as under :-
"8(1) No person resident in India shall at any time, directly or
indirectly, either individually or together with persons acting in
concert, hold more than five per cent of the equity share capital in
a recognised stock exchange.
Provided that a stock exchange, a depository, a clearing
corporation, a banking company, an insurance company and a
public financial institution defined under section 4A of the
Companies Act 1956 may hold, either directly or indirectly, either
individually or together with persons acting in concert, upto fifteen
per cent of the paid up equity share capital of the recognised stock
exchange;
Provided further that person holding equity shares in a recognised
stock exchange in excess of the limits specified in this regulation at
the commencement of these regulations shall reduce his holding to
ensure compliance with this regulation within the time specified in
sub-section (8) of section 4B of the Act or the time extended under
the proviso thereto.
Explanation : For the purposes of this sub-regulation:-
(I) 'banking company' shall have the meaning assigned to it in
clause (c) of section 5 of the Banking Regulation Act 1949
(10 of 1949);
(II) 'insurance company' shall have the meaning assigned to it
in sub-section (8) of section 2 of the Insurance Act 1938 (4
of 1938);
(III) 'person resident in India' shall have the meaning assigned
to it in clause (v) of section 2 of the Foreign Exchange
Management Act, 1999 (42 of 1999);
(IV) 'person acting in concert' shall have the meaning derived
from clause (e) of sub-regulation (1) of regulation 2 of the
VRD 32 of 52
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Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations 1997."
31. As noted earlier, the MIMPS Regulations were replaced
in the year 2012 by the SECC Regulations. Similar provisions are
found in the SECC Regulations. Regulations 17(1) and 17(2) read as
under:-
"17(1) At least fifty one per cent of the paid up equity share
capital of a recognised stock exchange shall be held by public;
(2) No person resident in India shall at any time, directly or
indirectly, either individually or together with persons acting in
concert, acquire or hold more than five per cent of the paid up
equity share capital in a recognised stock exchange;
Provided that -
(i) a stock exchange;
(ii) a depository;
(iii) a banking company;
(iv) an insurance company; and
(v) a public financial institution
may acquire or hold, either directly or indirectly, either
individually or together with persons acting in concert, upto fifteen
per cent of the paid up equity share capital of a recognised stock
exchange."
32. As noted, Regulation 8(1) as well as Regulation 17(2)
inter alia stipulate that no person resident in India shall at any time,
VRD 33 of 52
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directly or indirectly, either individually, or together with persons
acting in concert, acquire or hold more than five per cent of the paid
up equity share capital in a recognised stock exchange. This cap of
5% is increased to 15% in cases where the equity share capital of a
recognised stock exchange is either held by a depository; a banking
company; an insurance company; a public financial institution; or any
other stock exchange.
33. Having noted the provisions of the Regulations, we shall
now turn our attention to the Letter of Undertaking which is the
subject matter of the present Appeal. The Letter of Undertaking
firstly records that it is on the assurance and undertaking of the
Defendant that the Plaintiff had agreed to purchase the equity share
capital of MCX-SX, and on the terms and conditions set out therein.
Clause 1 of the Letter of Undertaking specifically stipulates that the
Defendant or its appointed nominees have an obligation to purchase
the Plaintiff's shareholding by giving a written notice at any time after
completion of one year from the date of investment but no later than
three years. From a reading of the Letter of Undertaking, it is clear
VRD 34 of 52
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that if for any reason, the Defendant is unable to purchase the
Plaintiff's shareholding as set out therein, it can always appoint
nominees who would purchase the same. Merely because the
Defendant may not be in a position to purchase the Plaintiff's
shareholding directly, as it would allegedly violate the MIMPS
Regulations or the SECC Regulations, would not be a ground, at least
at this stage, to deny the Plaintiff interim relief.
34. To our mind, this is also how the parties understood it.
This becomes clear when one refers to the submissions canvassed by
FTIL as well as MCX Ltd., before the Division Bench in Writ Petition
No.213 of 2011. In relation to this Letter of Undertaking, FTIL
(Respondent No.3 therein) submitted as under:-
"(ii) SEBI did not have any reasonable basis to presume that the
exercise of the buy back option would result in the promoters
exceeding the limit on the shareholding of five percent, particularly
having regard to the fact that the conduct of the promoters thus far
has reduced their shareholding in compliance with the
Regulations. Moreover, even if the promoters were to acquire
shares on the exercise of the option under the buy back
arrangement by PNB or IL&FS, the promoters could lawfully
comply with the Regulations by increasing the authorised share
capital of the Petitioner to such an extent that the acquisition of
shares pursuant to the buy back arrangement would not result in
the promoters exceeding the shareholding of five percent.
Alternatively, the promoters could arrange for the acquisition of
VRD 35 of 52
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the shares by some other independent persons so that no one would
cross the limit of five percent. In any event, the effect of the
exercise of the buy back option would have to be considered only
at that stage in the light of the situation as it would emerge.
Allowing SEBI to take into consideration hypothetical future
possibilities would result in an arbitrary exercise of powers
contrary to Article 14;" [See paragraph 32C(ii) of the
judgment]. (emphasis supplied)
Similarly, MCX Ltd. (Respondent No.4) also submitted as
under:-
"(vii) The possibility of the buy back arrangement increasing the
shareholding of promoters to beyond five percent is not a relevant
consideration. In spite of the exercise of the option under the buy
back arrangement, the promoters' shareholding can still be within
the limit of five percent by the promoters (a) disposing of their
other existing shareholding so that the total shareholding does not
exceed five percent; (b) increasing the share capital so that the
increased holding of the promoters does not exceed five percent;
and (c) performing the buy back arrangement by nominating a
third party to buy back the shares;
(viii) The MIMPS Regulations do not upon their terms apply to the
Petitioner, but they have been made applicable by notifications
dated 18th September 2008 and 31st August 2009. Under the later
notification, only the relevant Regulations are made applicable.
This notification was issued to get over an impasse created by the
earlier notification. If a limited Company already in existence
applied for permission, such permission could not be granted
because all promoters takes together would ordinarily hold more
than five percent shares. In such an event, there would be no
application made by an existing Company and all the provisions
would be rendered useless. Hence, that regulation has no
application to the facts of the present case and there can be no
occasion to commit a breach thereof;" [See paragraphs
33(vii) and (viii) of the Judgment]. (emphasis supplied).
VRD 36 of 52
APP274.13.doc
35. It is therefore clear that members of MCX Group (and of
which the Defendant is admittedly a member), have given various
scenarios by which the Letter of Undertaking dated 20th August, 2009
can be complied with and / or performed without breaching the
provisions of MIMPS Regulations or the SECC Regulations. In fact,
it is the specific case of MCX Ltd. that these Regulations do not apply
to MCX-SX. In this view of the matter, and in view of the specific
stand taken by the MCX Group before the Division Bench in Writ
Petition No.213 of 2011, at least prima facie we are unable to agree
with the submission of Mr Naphade that specifically enforcing the
Letter of Undertaking would have the effect of breaching the MIMPS
Regulations and/or the SECC Regulations. This, according to us,
cannot be a ground at the interim stage to deny the Plaintiff interim
reliefs if they are so entitled, otherwise. This contention would also
therefore have to be rejected.
36. The last contention raised by Mr Naphade was that in any
event of the matter, the relief granted by the learned single Judge was
VRD 37 of 52
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in the nature of attachment before judgment and no case whatsoever
has been made out for granting such a drastic relief against the
Defendant. We must note that the learned single Judge, after
discussing the facts of the case, granted an interim injunction in terms
of prayer clause (f) of the Notice of Motion. This interim injunction
was granted subject to the attachment levied by the EOW and it was
clarified that in the event the EOW raises the attachment or releases
the assets therefrom, the injunction order would operate pending the
hearing and final disposal of the suit, until the Defendant secures the
suit claim by deposit of monies or furnishing of such security as may
be approved by the Court. Prayer clause (f) of the Notice of Motion
reads as under:-
"(f) the Defendant whether by itself or through its servants or
agents or otherwise howsoever be restrained by an order
and injunction of this Hon'ble Court from, in any manner,
assigning, transferring, discounting, securitising or
otherwise encumbering its assets or properties including the
assets and properties disclosed in the Balance Sheet of the
Defendant for the year ended 31st March 2012 (listed in the
Schedule being Exhibit '2' to the Notice of Motion) until the
sum of Rs.166,54,31,820/- together with further interest
from the date of the filing of the suit is either paid to the
Plaintiff or deposited in this Hon'ble Court or secured by a
Bank Guarantee to the satisfaction of the Prothonotary and
Senior Master;"
VRD 38 of 52
APP274.13.doc
37. Mr Naphade, on reading the impugned order, sought to
equate the injunction granted by the learned single Judge to a relief
for attachment before judgment. He submitted that in any event of the
matter, in a case like the present one, if no case for attachment before
judgment was made out, no injunction could be granted. To support
this submission, Mr Naphade places heavy reliance on the judgment
of this Court in the case of Swan Mills Ltd.2 and more particularly
paragraph 14 thereof.
38. We are unable to agree with this submission of Mr
Naphade. There is a clear distinction between the relief for
attachment before judgment, which is governed by the provisions of
Order 38 Rule 5, and the grant of temporary injunctions under Order
39 of the Code of Civil Procedure, 1908. The argument of Mr
Naphade proceeds on the basis that the powers of the Court are
circumscribed by the provisions of Order 38 Rule 5 and Order 39 of
the CPC, 1908 and that on the facts and circumstances of the case, the
reliefs asked for were not capable of being granted. His submission
VRD 39 of 52
APP274.13.doc
was that the injunction as prayed for, and granted, would have the
same effect as an order passed under Order 38 Rule 5 of the CPC,
1908. This submission, according to us, proceeds on the wrong
premise. Firstly, the grant of relief under Order 38 Rule 5 is on
different considerations from the grant of relief of temporary
injunctions. Secondly, it is now a well settled legal position, that at
least with respect to Chartered High Courts, the power to grant
temporary injunctions are not confined to the statutory provisions
alone. The Chartered High Courts have an inherent power under the
general equity jurisdiction to grant temporary injunctions
independently of the provisions of the Code. In this regard, it would
be useful to refer to a decision of the Supreme Court in the case of
Manohar Lal Chopra v/s Rai Bahadur Rao Raja Seth Hiralal.3 In
the said decision, the majority view held that the provisions of the
CPC, 1908 are not exhaustive for the simple reason that the
Legislature was incapable of contemplating all the possible
circumstances which may arise in future litigations, and consequently
providing a procedure for them. Whilst interpreting section 94,
3 AIR 1962 SC 527
VRD 40 of 52
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section 151 and Order 39 Rule 1 of the CPC, 1908 the Supreme
Court, at paragraphs 18 and 19 opined as under:-
"18. There is difference of opinion between the High Courts on this
point. One view is that a Court cannot issue an order of temporary
injunction if the circumstances do not fall within the provisions of
Order 39 of the Code: Varadacharlu v. Narsimha Charlu [ AIR
1926 Mad 258] ; Govindarajulu v. Imperial Bank of India [ AIR
1932 Mad 180]Karuppayya v. Ponnuswami [ AIR 1933 Mad 500
(2)] ; Murugesa Mudali v.Angamuthu Mudali [ AIR 1938 Mad
190] and Subramanian v. Seetarama [ AIR 1949 Mad 104] . The
other view is that a Court can issue an interim injunction under
circumstances which are not covered by Order 39 of the Code, if
the Court is of opinion that the interests of justice require the issue
of such interim injunction:Dhaneshwar Nath v. Ghanshyam Dhar [
AIR 1940 All 185] ; Firm Bichchha Ram v.Firm Baldeo Sahai [
AIR 1940 All 241] ; Bhagat Singh v. Jagbir Sawhney [ AIR 1941
Cal 670] and Chinese Tannery Owners' Association v. Makhan
Lal [ AIR 1952 Cal 560] . We are of opinion that the latter view is
correct and that the Courts have inherent jurisdiction to issue
temporary injunctions in circumstances which are not covered by
the provisions of Order 39 CPC. There is no such expression in
Section 94 which expressly prohibits the issue of a temporary
injunction in circumstances not covered by Order 39 or by any
rules made under the Code. It is well settled that the provisions of
the Code are not exhaustive, for the simple reason that the
legislature is incapable of contemplating all the possible
circumstances which may arise in future litigation and
consequently for providing the procedure for them. The effect of
the expression "if it is so prescribed" is only this that when the
rules prescribe the circumstances in which the temporary
injunction can be issued, ordinarily the Court is not to use its
inherent powers to make the necessary orders in the interests of
justice, but is merely to see whether the circumstances of the case
bring it within the prescribed rule. If the provisions of Section 94
were not there in the Code, the Court could still issue temporary
injunctions, but it could do that in the exercise of its inherent
jurisdiction. No party has a right to insist on the Court's exercising
that jurisdiction and the Court exercises its inherent jurisdiction
only when it considers it absolutely necessary for the ends of
justice to do so. It is in the incidence of the exercise of the power of
VRD 41 of 52
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the Court to issue temporary injunction that the provisions of
Section 94 of the Code have their effect and not in taking away the
right of the Court to exercise its inherent power.
19. There is nothing in Order 39 Rules 1 and 2 which provide
specifically that a temporary injunction is not to be issued in cases
which are not mentioned in those rules. The rules only provide that
in circumstances mentioned in them the Court may grant a
temporary injunction."
(emphasis supplied)
Thereafter, referring to section 151 of the CPC, 1908, the
Supreme Court observed as under:-
"23. ......... The section itself says that nothing in the Code shall
be deemed to limit or otherwise affect the inherent power of the
Court to make orders necessary for the ends of justice. In the face
of such a clear statement, it is not possible to hold that the
provisions of the Code control the inherent power by limiting it or
otherwise affecting it. The inherent power has not been conferred
upon the Court; it is a power inherent in the Court by virtue of its
duty to do justice between the parties before it.
24. Further, when the Code itself recognises the existence of the
inherent power of the Court, there is no question of implying any
powers outside the limits of the Code."
(emphasis supplied)
39. In view of this authoritative pronouncement of the
Supreme Court, we are unable to agree with the submission of Mr
Naphade that in a money suit, if no case for attachment before
judgment is made out, no injunction can also be granted. This is too
sweeping a proposition for us to accept.
VRD 42 of 52
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40. We must mention here that the decision of the Supreme
Court in Manohar Lal Chopra's case3, has been relied upon by
another Division Bench of this Court in the case of Triangle Drilling
Ltd. v/s Jagson International Ltd. and Anr.4 In the facts of this case
(Triangle Drilling), a suit was filed by the Appellants against the 1st
Respondent for recovery of hire charges in respect of two jack-up
rigs. A Notice of Motion was filed seeking interim relief inter alia
restraining Respondent No.1 from receiving payment under a contract
with Respondent No.2 until the amount in the suit was paid to the
Appellants and / or deposited in the Court and / or secured by a bank
guarantee. This Notice of Motion was substantially decided on the
ground that the power of the Court was circumscribed by the
provisions of Order 38 Rule 5 and Order 39 of CPC and that on the
facts and circumstances of the case, reliefs asked for were not capable
of being granted. It was in these circumstances that the Appeal was
filed before the Division Bench. The short question therefore before
the Division Bench was whether the prohibitory reliefs sought by the
VRD 43 of 52
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Appellants were not covered by the relevant provisions of the CPC,
1908 and therefore incapable of being granted, even if there was no
merit in the defence. In that context, the Division Bench held that it is
well settled that at least with respect to Chartered High Courts, the
High Court's power to grant a temporary injunction was not confined
to the statutory provisions alone. Relying upon the Supreme Court
decision in Manohar Lal Chopra's case3, the Division Bench took
the view that the learned single Judge had erred in law that he had no
power or jurisdiction to grant the prohibitory reliefs claimed, even
assuming that there was no substance in the defence raised by
Respondent No.1. The relevant portion of this judgment is
reproduced hereunder:-
"The short question, therefore, is whether the main basis of the
order of the learned Single Judge, namely, that the prohibitory
reliefs sought by the Appellants are not covered by the relevant
provisions of the Code of Civil Procedure and that, therefore, they
were not capable of being granted, even if there was no merit in
the plea in defence, is well founded in law. We may assume,
without granting, that the prohibitory reliefs are not covered by the
relevant provisions of the Code. However, the well settled legal
position with respect to Chartered High Courts is that the powers
of those High Courts to grant an injunction are not confined to the
statutory provisions alone. The Calcutta High Court has held that
the powers of that High Court to grant a temporary injunction
were not confined to the terms of Order XXXIX Rules 1 and 2 of
the Code and that the Chartered High Courts have inherent power
under the general equity jurisdiction to grant an injunction
VRD 44 of 52
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independently of the provisions of the code and also that such
power can be exercised by a Single Judge sitting on the Original
Side of the High Court (See Nakasioara Jute Mills v/s Nirmal
Kumar (1941) 1 Calcutta 373). Our Court has also taken the same
view. (See Muchand v/s Gill and Co. (1920)(44 Bombay 283).
In Manohar Lal Chopra v/s Rai Bahadur Rao Raja Seth Hiralal,
AIR 1962 SC 527, the question which fell for consideration was
whether having regard to the language of clause (c) of section 94
of the Civil Procedure Code, interim injunction can be issued only
if a provision for their issue is made in order XXXIX Rules 1 and 2.
The submission on behalf of the appellant in that case was that
clause (c) of section 94 provides that the Court may, if it is so
prescribed, grant a temporary injunction in order to prevent the
ends of justice from being defeated and that the word 'prescribed',
according to section 2 of the Code means 'prescribed by Rules' and
that Rules 1 and 2 of Order XXXIX lay down precisely the
circumstances in which a temporary injunction may be issued. The
majority decision rejected this submission and held that Courts
have inherent jurisdiction to issue temporary injunction in
circumstances which are not covered by the provisions of Order
XXXIX of the Code. The reasons set out in support of this view are
as follows :
"It is well settled that the provisions of the Code are not
exhaustive, for the simple reason that the Legislature is
incapable of contemplating all the possible circumstances
which may arise I future litigation and consequently for
providing the procedure for them. The effect of the
expression 'if it is so prescribed' is only this that when the
rules prescribed the circumstances in which the temporary
injunction can be issued, ordinarily the Court is not to use
its inherent powers to make the necessary order in the
interests of justice, but is merely to see whether the
circumstances of the case bring it within the prescribed
rule. If the provisions of section 94 were not there in the
Code, the Court could still issue temporary injunctions, but
it could do that in the exercise of its inherent jurisdiction.
No party has a right to insist on the Court's exercising the
jurisdiction and the Court exercises its inherent jurisdiction
only when it considers absolutely necessary for the ends of
justice to do so. It is in the incidence of the exercise of the
power of the Court to issue temporary injunction that the
provisions of section 94 of the Code have their effect and
VRD 45 of 52
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not in taking away the right of the Court to exercise its
inherent power.
There is nothing in Order XXXIX rules 1 and 2, which
provides specifically that a temporary injunction is not to be
issued in cases which are not mentioned in those rules.
The rules only provide that in circumstances mentioned in
them the Court may grant a temporary injunction."
Referring to section 151 of the Code, it was observed :
"The section itself says that nothing in the Code shall be
deemed to limit or otherwise affect the inherent power of
the Court to make orders necessary for the ends of justice.
In the face of a clear statement, it is not possible to hold
that the provisions of the Code control the inherent power
by limiting it or otherwise affecting it. The inherent power
has not been conferred upon the Court, it is a power
inherent in the Court by virtue of its duty to do justice
between the parties before it.
Further, when the Code itself recognizes the existence of
the inherent power of the Court, thee is no question of
implying any powers outside the limits of the code."
In the minority judgment of Shah J., the power of Chartered High
Courts exercising ordinary original jurisdiction to exercise
inherent jurisdiction to issue an injunction was expressly
recognised. His Lordship observed :
"Power to issue an injunction is restricted by Section 94
and O. 39 and it is not open to the Civil Court which is not a
Chartered High Court to exercise that power ignoring the
restrictions imposed thereby in purported exercise of its
inherent jurisdiction" (Underlining supplied).
For the foregoing reasons, in our opinion the learned Single
Judge, with respect, erred in law in taking the view that he had no
power or jurisdiction to taking the view that he had no power or
jurisdiction to grant the prohibitory reliefs claimed, even assuming
that there was no substance in the defence raised by the First
Respondent."
(emphasis supplied)
VRD 46 of 52
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41. To be fair to Mr. Naphade, the decision of this Court in
the case of Swan Mills Ltd.'s case2, and on which heavy reliance was
placed, does seem to suggest that if the Appellant cannot make out a
case for an order of attachment before judgment, he could not be
successful in getting the order of temporary injunction which has
practically the same effect of restraining the Respondent from
transferring his property. ig However, on going through the said
judgment we find that neither the decision of the Supreme Court in
Manohar Lal Chopra's case3 nor the decision of this Court in the
case of Triangle Drilling Ltd.4, were brought to the notice of the
Division Bench that decided the Swan Mills Ltd.'s case.2 We are
certain that had these decisions been pointed out to the learned Judges
deciding the Swan Mills Ltd.'s case2, they would not have taken the
view that they did. To that extent, we find that the judgment in Swan
Mills Ltd.'s case2 does not lay down the correct law. In view thereof,
the reliance placed by Mr Naphade on the said decision is of no
assistance to the Defendant. We must add here that we are not for a
moment suggesting that in every case an injunction ought to be
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granted by resorting to section 151 of the CPC, 1908. The discretion
to grant or refuse the grant of injunctions, has to be exercised on well
settled principles and would depend on the facts and circumstances of
each case.
42. Having said this, we have to now see whether the
discretion exercised by the learned single Judge in granting the
injunction against the Defendant was justified in the facts and
circumstances of the present case. It is not in dispute that the Plaintiff
is a subsidiary of IL & FS and monies owed to it are public monies.
Furthermore, it cannot be seriously disputed that if the Plaintiff's
claim for specific performance is ultimately granted, it would cast a
monetary exposure of approximately Rs.226.70 crores (as on date) on
the Defendant. In these circumstances, Mr Dhond, learned senior
counsel for the Plaintiff, invited our attention to paragraphs 41 and 42
of the plaint as well as the averments made in a further affidavit dated
28th August, 2013 wherein the Plaintiff has brought to light the
developments in respect of one National Stock Exchange (NSEL)
which was involved in a major scandal and was said to owe to market
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participants more than Rs.5,000 crores. It was pointed out that the
collapse of NSEL (of which admittedly FTIL and Mr Jignesh Shah
are promoters), had influenced large scale damage to the MCX Group.
We must mention here that Mr. Jignesh Shah and Mrs. Rupal Shah
hold 100% of the shareholding of the Defendant. Thereafter, our
attention was drawn to an additional affidavit dated 5th May, 2014
filed by the Plaintiff which placed on record news reports that
suggested that the Defendant is looking to sell its shareholding in
FTIL and which constitutes the bulk of its assets. These news reports
are referred to at page 194-B of the appeal paper-book.
43. Looking at all this material, and it being a part of the
record before the learned single Judge, we do not think that the
discretion exercised by him in granting the interim injunction against
the Defendant, could be said to be either perverse, capricious,
arbitrary or not based on well settled principles, so as to enable us to
interfere with the exercise of such discretion. This is more so in the
present case, because the learned Judge, after granting the injunction,
has ordered that if the Defendant seeks to alter or renew any of its
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investments, it could do so after obtaining prior orders of the Court. It
is now well settled that the Appellate Court will not interfere with the
exercise of such discretion unless it is exercised perversely,
capriciously, arbitrarily or against the well settled principles of law
relating to the grant or refusal of temporary injunctions. If one must
refer to any authority on this subject, the Supreme Court in the case of
Wander Ltd. and Anr. v/s Antox India P. Ltd.5 has very eloquently
reiterated the said proposition at paragraph 14, and which reads thus :-
"14. The appeals before the Division Bench were against the
exercise of discretion by the Single Judge. In such appeals, the
appellate court will not interfere with the exercise of discretion of
the court of first instance and substitute its own discretion except
where the discretion has been shown to have been exercised
arbitrarily, or capriciously or perversely or where the court had
ignored the settled principles of law regulating grant or refusal of
interlocutory injunctions. An appeal against exercise of discretion
is said to be an appeal on principle. Appellate court will not
reassess the material and seek to reach a conclusion different from
the one reached by the court below if the one reached by that court
was reasonably possible on the material. The appellate court
would normally not be justified in interfering with the exercise of
discretion under appeal solely on the ground that if it had
considered the matter at the trial stage it would have come to a
contrary conclusion. If the discretion has been exercised by the
trial court reasonably and in a judicial manner the fact that the
appellate court would have taken a different view may not justify
interference with the trial court's exercise of discretion. After
referring to these principles Gajendragadkar, J. in Printers
(Mysore) Private Ltd. v. Pothan Joseph [(1960) 3 SCR 713 : AIR
1960 SC 1156] : (SCR 721)
5 1990 (supp) SCC 727
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"... These principles are well established, but as has been
observed by Viscount Simon in Charles Osenton &
Co. v. Jhanaton [1942 AC 130] '...the law as to the reversal
by a court of appeal of an order made by a judge below in
the exercise of his discretion is well established, and any
difficulty that arises is due only to the application of well
settled principles in an individual case'."
The appellate judgment does not seem to defer to this principle."
(emphasis supplied)
44. We do not find that in the facts and circumstances of the
present case, the learned single Judge has in any way exercised the
discretion vested in him either perversely, capriciously, arbitrarily or
against the well settled principles of law relating to the grant or
refusal of temporary injunctions, for us to interfere in our appellate
jurisdiction. Equally, we find the reliance placed by Mr. Naphade on
the decision of the Supreme Court in the case of Raman Technical
and Process Engineering Co.1 has no application to the present
scenario. The Supreme Court held that a relief for attachment before
judgment cannot be granted on the basis of bald and vague averments.
In the present case, the learned single Judge has not granted any relief
of attachment of before judgment, but instead granted an interim
injunction. Even otherwise, we do not think that the averments made
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or the material produced by the Plaintiff, and referred to by us earlier,
can be said be bald or vague as sought to be contended by Mr.
Naphade. Therefore, this decision of the Supreme Court is wholly
inapplicable.
45. For all the aforesaid reasons, the appeal fails and is hereby
dismissed. However, in the facts and circumstances of the case, we
leave the parties to bear their own costs.
(B.P. COLABAWALLA, J.) (V.M. KANADE J.)
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