M/S. India Power Corporation Ltd vs Sbicap Trustee Company Ltd. & Ors
2023 Latest Caselaw 3390 Cal

                                                                            1

                    IN THE HIGH COURT AT CALCUTTA

                     CIVIL APPELLATE JURISDICTION

                           COMMERCIAL DIVISION

Present:

THE HON'BLE JUSTICE HARISH TANDON
              &
THE HON'BLE JUSTICE PRASENJIT BISWAS

                              F.M.A 1370 of 2022
                             IA NO. CAN 1 of 2022

                       M/s. India Power Corporation Ltd.
                                     Vs.
                     SBICAP Trustee Company Ltd. & Ors.



Appearance:

For the Appellant                  :     Mr. Deepak Khosla, Adv.
                                         Ms. Anjana Banerjee, Adv.
                                         Mr. Rohan S. Nandy, Adv.

For the Respondent no. 2           :     Mr. Sourajit Dasgupta, Adv.

Mr. Soumya Nag, Adv.

For the Respondent nos. 3 to 19 : Mr. Jishnu Saha, Adv.

3 to 19                                  Mr. Debnath Ghosh, Adv.
                                         Mr. Shwetank Ginodia, Adv.
                                         Mr. Bhavesh Garodia, Adv.
                                         Mrs. Ratnadipa Sarkar



Judgment On                        :    16.05.2023

Harish Tandon, J.:

The present appeal arises from an order dated 9.9.2022 passed by

learned Judge, Commercial Court at Alipore in Money Suit no. 1 of 2022

whereby and whereunder an application for injunction is rejected on

contest. By an impugned order the Commercial Court also vacated the ex

parte ad interim order of injunction passed on 24th January, 2022 by which

the contesting Respondent nos. 3-20 were restrained from initiating

FMA 1370/2022

proceeding or continuing proceeding for recovery of debt against the

appellant on the basis of a deed of guarantee executed on 23rd September,

2016. The said ex-parte ad interim order of injunction was directed to

operate till 29th January, 2022 and on the said returnable date an

application was taken out by the appellant for correction of a typographical

error with further related reliefs which were eventually allowed and the

challenge was made to the Commercial Appellate Division in FMAT 142 of

2022. The Appellate Court reversed the order by which the ex-parte ad

interim order of injunction was sought to be extended beyond its initial

peripheral with categorical finding that taking aid of Section 152 of the

Code, the Court cannot vary, modify or expand the horizon of the order. The

Appellate Court directed the injunction application to be disposed of at an

earliest. By the impugned order, Commercial Court vacated the ex-parte ad

interim order of injunction and rejected the application for temporary

injunction.

Both the learned Counsels argued on a several points and relied upon

the plethora of judgments in support of such contentions. Before we proceed

to decide the points urged before us, salient facts are required to be

narrated in pursuit thereof.

One Meenakshi Energy Pvt. Ltd. (MEL) was incorporated as coal

based power Project Company initially promoted by the Meenakshi

Engineering and Infrastructure Holdings Ltd., subsequently a French

company namely NG Global Development (BW) acquired 89 per cent of

shares in MEL and became the largest shareholders of the said company.

Several financial assistance by way of a loan, credits etc. were provided in FMA 1370/2022

different phases for development of the projects undertaken by the said

company. Subsequently, the French Government decided to shift from

generation of energy by any other mode to the renewable energy which led

the said company which was a State based backed company to opt out from

the said project which opened the path for the appellant to acquire the share

held by the said French company at the cost of US $ 1. Interestingly, the

said French company further agreed to pay US $ 40 million to the appellant

for completion of the transaction so that the same can be invested in the

project with further infusion of USD $ 300 million before transfer of the

shareholding of the appellant.

After taking over all the majority shares, the appellant and the said

MEL approached the lenders who extended the financial assistance for

approval of the transfer of shares held by the French company which was

duly accorded on the condition that all the obligations held by the French

company shall be taken over by the appellant by providing an undertaking

and the corporate guarantee under the financial documents. Pursuant to

the said conditions imposed while according approval, the erstwhile Director

of the appellant submitted an affidavit dated September 23, 2016 certifying,

declaring and confirming that the appellant is a distribution licensee in

terms of the West Bengal Electricity Regulatory Commission (Licensing and

Condition of License) Regulations, 2019 and there is no necessity to obtain

a prior permission or consent from the West Bengal Electricity Regulatory

Commission for furnishing a corporate guarantee. Simultaneously therewith

a corporate guarantee was also executed which is the subject matter of the

suit instituted by the appellant before the Commercial Court. Even after

FMA 1370/2022

such arrangements, the MEL continued in defaulting the repayment of the

debts which resulted into the classification of the account of MEL as Non-

Performing Assets. The Respondent no. 1 in the capacity of an agent of the

primary lender i.e., State Bank of India recalled the loan so extended and

demanded the payment within the stipulated time. Since the entire shares

were pledged, the invocation was made and the same were transmitted into

a Dematerialisation Account of the agent.

Subsequently, the corporate guarantee was sought to be invoked, the

appellant along with MEL instituted a commercial suit being COS 266 of

2017 before the Commercial Court, City Civil Court, Hyderabad seeking

declaration that the deed of guarantee dated 23.9.2016 executed by the

appellant be declared null and void having issued in contravention to the

statutory provisions contained in the said regulation. However, the said suit

was withdrawn without seeking any leave to file a fresh suit. The moment

the lenders put an advertisement inviting the bid for change of the

management of the MEL, a writ application was filed before the High Court

of Andhra Pradesh being Writ Petition no. 26999 of 2018 wherein an interim

order was passed that no coercive steps shall be taken by the lenders of the

Phase-I and II against the appellant. Interestingly, the said writ petition was

subsequently withdrawn as it was dismissed as such. Another writ petition

was filed, simultaneously with the other writ petition which was

subsequently withdrawn being WP 26977 of 2018, assailing the action of the

respondents in transferring the equity shares without conducting the

valuation thereof. Initially an interim order was passed in the same tune

and line that coercive step should not be taken but the same was later on

FMA 1370/2022

vacated. In an another Writ Petition being no. 30048 of 2018 filed before the

High Court challenging the recall notice wherein an interim order was

passed in the same tune that no coercive step shall be taken on the basis of

such notice which was later on vacated on January 23, 2019. The order

vacating an interim order was carried to an intra-court appeal before the

said High Court which was eventually dismissed.

Thereafter the proceeding under Section 7 of the IBC Code, 2016 was

filed by the SBI against the MEL before the National Company Law Tribunal,

Hyderabad seeking a commencement of CIRP which was duly admitted on

November 7, 2009 with categorical finding that invocation of pledge did not

amount to discharge of debt. The aforesaid fact was disclosed in the pending

writ petitions before the High Court of Andhra Pradesh and the interim

order so passed therein was modified to the extent that the said interim

order shall not put fetter in the way of the respondents from approaching

the National Company Law Tribunal for appropriate remedies taking

recourse to law. Amidst the pendency of the insolvency proceedings against

the MEL the appellant was served with a demand notice in respect of the

aforesaid corporate guarantee and on failure thereof the SBI filed an

application under Section 7 of the IBC for initiation of CIRP alleging that the

default in respect of a corporate guarantee has been made.

On the backdrop of the aforesaid facts, the appellant has filed the

instant suit primarily for a decree of declaration that the contract of

guarantee executed by the appellant company is null and void ab initio being

in breach of Regulation 5.13.2 of the West Bengal Electricity Regulatory

Commission (Licensing and Condition of License) Regulation, 2013 with FMA 1370/2022

further decree of declaration that the sale and transfer of the equity shares

held by the appellant company in MEL is not less than 4.406.50 crores and

a mandatory injunction be passed to pay the said amount with interests to

the plaintiff. Though the Commercial Court passed ex-parte ad interim order

of injunction at the initial stage, the tenet whereof has been succinctly

narrated hereinbefore but on a contested hearing the Commercial Court

rejected the application for temporary injunction which is a subject matter

of appeal before us.

At the very outset we must record the stand of the appellant so far as

the allegation as to the transfer of shares into the de-mat account of the

Respondent no.1 is concerned, it is concededly submitted that in view of the

judgments rendered by the Supreme Court in PTC India Financial

Services Ltd. Vs. Venkateswarlu Kari & Anr., reported in (2022) SCC

Online SC 608 wherein it is held that resumption of shares into a demat

account upon invocation of a contract of pledge does not tantamount to

transfer, therefore, the aforesaid plea is not taken at this stage.

The learned Counsel for the appellant unequivocally submitted that

the said plea has not been abandoned for all time to come but is not pressed

for the present in view of the decision of the Supreme Court in the

abovementioned judgment. We, therefore, do not delve to go into the

aforesaid aspect and venture to decide the appeal on the other points urged

before us.

The learned Advocate for the appellant is very much critical on the

observation of the Commercial Court recorded in the impugned order that

even after holding that the plaint clearly shows the cause of action and the FMA 1370/2022

dispute is required to be adjudicated on trial, it proceeds to hold that there

is no prima facie case made out for the purpose of injunction. It is arduously

contended that the cause of action is synonymous to a prima facie case and,

therefore, there is an apparent inconsistency in the impugned order which

needs interference. It is further contended that the moment the corporate

guarantee is found to have been issued in violation of the statutory

provisions such guarantee cannot be legally enforced being void ab initio and

placed reliance upon a judgment of the Apex Court in case of Mannalal

Khetan vs. Kedar Nath Khetan, reported in AIR 1977 SC 536. It is

further contended that the distinction is real between a prohibitary

provisions and the restrictive provisions as in the former case any act

forbidden by law is per se void and cannot be enforced before the Court. It is

further contended that there is no distinction, in law between a debt

recovery proceedings and a proceeding for recovery of debt and, therefore,

the proceeding under IBC may not be a typical debt recovery proceeding but

have an avowed object of recovery of debt may be with an intent to keep the

company alive by bringing back into a healthy financial state. It is further

submitted that an application under Order 7 Rule 11 of the CPC filed by the

respondent having dismissed by the Trial Court lead to an unequivocal

conclusions that the proceeding is maintainable and, therefore, that the

proceeding is otherwise barred under the law is not available at the stage of

temporary injunction. According to the learned Advocate for the appellant

the Trial Court ought to have considered that the balance of convenience lies

in passing a protective order as in the event the insolvency proceeding is

allowed to continue the plaintiff would be non-suited because of the

moratorium envisaged under Section 14 of the IBC and the consequences to FMA 1370/2022

follow thereafter. It is further contended that there is a manifest perversity

in the findings of the Commercial Court on the aspect of irreparable injury

as it did not consider the consequence of the proceeding under IBC causing

immense injury to the appellant without deciding all the issues involved in

the suit. It is contended that when a serious question of fraud is pleaded in

the plaint which unravels all the solemn act, protective order must be

passed against the party as any act done during the pendency of the suit

may invite an irreversible situation. In support of the same, the reliance is

placed upon a judgment of the Supreme Court in case of Agricultural

Produce Marketing Committee, Bangalore vs. State of Karnataka

&Ors. (Civil Appeal nos. 1345-1346 of 2022 decided on 22.3.2022)

On the other hand, the contesting respondents while repelling the

contention of the appellants submits that in view of the categorical

statements made in Paragraph 97 of the plaint the plaintiff themselves have

indicated that do not want to forestall the hearing of a proceeding under

Section 7 of IBC but later on turned around and intended to seek the relief

by way of preventive injunction which is impermissible in law. It is further

contended that in view of the express embargo upon the Civil Court to

entertain the suit, no injunction can be passed. It is further contended that

the several proceedings initiated by the plaintiff could not yield the desired

results and in fact, the identical suit filed before the Commercial Court, City

Civil Court, Hyderabad was later on withdrawn without seeking any leave to

file a fresh on the self same cause of action or the reliefs. It is arduously

submitted that the affidavit as well as the corporate guarantee issued by the

appellant company through its erstwhile director categorically evinced that

FMA 1370/2022

they were aware of a embargo under the aforesaid statutory rules but the

said corporate guarantee was in relation to non regulated assets which

according to the appellant does not come within the mischief of the said

statutory provision. They cannot resile from their stand.

According to the learned Counsels there is a fallacy in the submission

of the appellant that there is no apparent distinction between a cause of

action and a prima facie case. Even if the suit discloses the cause of action

but for the purpose of granting a temporary injunction, there is no infirmity

in the Court to arrive at the findings that prima facie case for the purpose of

passing the injunction has not been made out. It is emphatically submitted

that the Commercial Court being not a superior Court to NCLT, cannot pass

an order of injunction preventing a party from initiating a proceeding before

NCLT in view of the provisions contained under Section 41(b) of the Specific

Relief Act and relied upon a judgment of the Bombay High Court in case of

PSL Ltd., reported in 2018 SCC Online Bombay 36. It is further contended

that the ratio of the said Bombay judgment has been reiterated and

reinstated by the Supreme Court in Forech (India) Ltd. Vs. Edelweiss

Assets Reconstruction Co. Ltd., reported in (2019) 18 SCC 549. It is

further submitted that there is a lack of pleadings in relation to a fraud,

coercion or undue influence and, therefore, in absence thereof the Court

should not presume the existence of the same while granting a temporary

injunction. The learned Counsel submits that the reliance upon Mannalal

Khetan (supra) is misplaced as the said decision is relatable to a situation

concerning the transfer of shares and the interpretation of the provisions

contained under Section 108 of the Companies Act, 1956 and, therefore, has

FMA 1370/2022

no application in the present context when the regulation simplicitor

provides for a penalty. It is contended that a distinction has to be drawn

between a prohibitary provision and a provision which requires an approval

and invites the penalty without rendering the contract void or

unenforceable. It is further submitted that the moment the appellant have

taken a firm stand in the affidavit and the corporate guarantee as well as in

the audited balance sheets that no permission is required for non-regulated

asset, the appellant cannot be permitted to approbate and reprobate as the

conduct of the parties seeking an injunction is also one of the relevant

factors for granting injunction.

On the conspectus of aforesaid submissions, let us decide whether the

impugned order can be justified or needs interference. Recently a trend is

developed in the Bar in interpreting the words used in common parlance in

most different manner to inculcate a sense that the finding arrived by the

Court in judicial dispensation suffers from the several infirmities and

reflects the mind of a Judge in hind side which in our opinion does not

reveal so. The words or expressions are segregated and projected in such a

manner that the entire decision making process is vitiated and the order

cannot stand on a well established principle of law. The words of

insignificance is attempted to project the words or expression of vital

importance in adjudicatory process with the rhetoric of reasoning which

does not appear to be of any significant value. The words or the expressions

divorced from the context should not be permitted to be agitated. Every word

so used have to be understood in juxtaposition with the context in which it

is used and cannot be allowed to assign a different meaning treating the

FMA 1370/2022

same as standalone words or expressions carrying a meaning which

impinges the process of reasoning in the orders or judgments. Every word is

capable of more than one meaning given in the dictionary and it is an ardent

duty of the Court to find out its meaning in the perspective of the context in

which it is used and not to assign a meaning perceived by the aggrieved

litigant. The words or expressions which are commonly used having no

bearing in adjudication of the dispute but merely an expression under the

common parlance should not be permitted to interpret differently having no

bearing on the core issue.

In the instant case, the expression "if any" in relation to a reply filed

by the party is critically examined by the learned Counsel for the appellant

in the sense that the learned Judge in the Court below was sceptical

whether such reply are filed and taken on record. The aforesaid expression

is sought to be interpreted as according to the Counsel for the appellant

gives an impression that the learned Judge was not sure whether such reply

is on record or even if such reply is on record may not have read it. The

impugned order would reveal that the pleadings of the parties in relation to

a temporary injunction, the opposition and the reply have been succinctly

jotted down therein which by no stretch of imagination may inculcate a

sense in the appellant that either the Judge is not aware of such reply is on

record nor the same has been read. The aforesaid expression cannot be

permitted to be divorced from the context and/or the tenet of the order more

particularly when it can be reasonably ascertained therefrom that the same

has been taken note of and the crux of the pleading in reply is narrated

extensively. The arguments should be restricted to a point involved in the

FMA 1370/2022

proceeding emanating from the facts and law and it is not appreciated that

the arguments are advanced using the interpretative process having no

bearing thereupon. Often the Court faces a criticism from the Bar that an

ample opportunity to argue the matter has not been given yet, it is a

corresponding duty of the Bar to restrict the argument on the facts and law

applicable in relation to a dispute and should not unnecessarily invest the

time on an inconsequential and/or insignificant points, more particularly,

on the words or expressions of common use as of seminal importance. It

admits no ambiguity that language used in the judgments rendered by the

Court are not ordinarily read as a statute. The words or expressions used in

the statute carries an intention of the legislature, its purpose and object and

relevant in the subject for which it is enacted. The aforesaid observations

have been made, though not relevant, but for the purpose of imparting a

sense of responsibility amongst the members of the Bar to restrict the

argument on the issues involved in the proceeding and assist the Court in

arriving at the decision so that it can achieve the very object of avoiding the

wastage of time in addressing such insignificant thing.

The point which in essence involved in the instants appeal is whether

the Commercial Court's order in rejecting an application for temporary

injunction as a consequence whereupon the ad interim orders stood

vacated, cannot be justified on the reasoning provided in the impugned

order. The reliefs claimed in the plaint is essentially aimed against the

contract of guarantee executed by the appellant no. 1 company in favour of

the lenders as well as the security trustee being null and void ab initio and

the price of the shares which are allegedly transferred in the record of the

FMA 1370/2022

respondent no. 2 to the respondent no. 1 should be treated as a

consideration due to the appellant no. 1 and a direction to pay the amount

so determined along with an interest. It is thus a composite suit relating to a

declaration in respect of a corporate guarantee and also recovery of sum

with interest upon determining the reasonable price or the ascertained sum

to the appellant no. 1.

The substantive reliefs in relation to a corporate guarantee is basically

founded on the assertion that the said guarantee being violative of

Regulation 5.13.2 of the West Bengal Electricity Regulatory Commission

(Licensing and condition of Licence) Regulations, 2013 is null and void ab

initio and, therefore, any action or steps taken thereupon is impermissible in

law. For the purpose of clarity, we must record that the other point relating

to a transfer of shares and the price to be paid is not pressed, as indicated

hereinbefore, by the appellant in view of the judgment of the Apex Court

rendered in case of P.T.C (Supra). It is a specific stand of the appellant that

the appellant no. 1 being a distribution licensee engaged in a generation

and/or distribution of the electricity are regulated by a statutory Rules

framed by the legislature and, therefore, any act or thing done in

contravention thereto is per se illegal null and void ab initio.

We have narrated the facts hereinbefore in relation to a several

proceedings between the parties before the Civil Court, High Court and

NCLT. It is manifest from the record that both the MEL and the appellant

no. 1 has been taken to the NCLT for initiation of CIRP under IBC and the

matter is pending therein. A point has been taken by the respondents that

for the self-same reliefs a suit was instituted in the Commercial Courts, the FMA 1370/2022

City Civil Court at Hyderabad which was later on withdrawn without any

leave to institute a suit for self-same reliefs debarred the appellants from

instituting the instant suit under Order 23 Rule 1 of the Code of Civil

Procedure. A further plea is taken by the respondents that the nature of the

temporary injunction sought in the instant proceeding is in effect impinges

upon their right to take recourse to provisions of IBC before a proper form

which is impermissible under Section 41 (b) of the Specific Relief Act.

We are not oblivion of the proposition of law that the Court while

deciding the application for temporary injunction must travel within the

parameters well accepted in the judicial parlance namely existence of prima

facie case, balance of convenience and inconvenience and irreparable loss

and injury. An argument is advanced by the appellant that the cause of

action in a suit is synonymous to the existence of prima facie case and,

therefore, in the event the Court has found that the plaint discloses the

cause of action it ipso facto lead to a presumption of existence of prima facie

case. There is a fallacy in this regard as the cause of action and the

existence of prima facie case are two distinct and separate aspects and

cannot be blended or merged into one. The cause of action is neither defined

in the statute nor in the constitutional provision but well understood to

mean the bundle of facts pleaded by the party inviting the Courts to

determine the reliefs claimed therein. The disclosure of the cause of action

cannot be read or construed in the perspective of the existence of a prima

facie case being one of the important factors for granting an interim or

temporary injunction pending final adjudication in the suit. The cause of

action has to be understood in the perspective of a right to institute a suit

FMA 1370/2022

and the reliefs claimed therein. Though the cause of action may be an

important factor at the time of considering the application for temporary

injunction but cannot be equated with the existence of prima facie case. The

object of passing a temporary injunction is to protect the right of the parties

to the proceedings pending final adjudication upon a full-fledge trial and to

prevent any mischief or dissipation of the property involved therein. Any

findings made in this regard do not necessarily mean that it would have a

vital impact at the time of final disposal of the suit. Technically, it somewhat

partakes a character of a mini trial but that is not so as the findings are

mere tentative and returned on the basis of the pleading and the documents

produced by the respective parties which must stand on trial. The nature of

finding made by the Court at temporary injunction stage is prima facie in

the sense that what appears from the existence of such document and the

pleadings made therein if proved to be true but it does not dispense with

proving such facts or the documents in trial. The cause of action, therefore,

is important for the purpose of maintaining a proceeding and inviting the

Court to adjudicate the reliefs claimed therein; on the other hand, the

temporary injunction is decided on an existence of prima facie case based

upon such pleading and/or documents to be true and correct to stand on

trial. Because of the nature of the finding returned by the Court in an

application for temporary injunction, the legislature in their wisdom have

provided the remedy by way of an appeal under Section 104 and Order 43 of

the Code of Civil Procedure. We, therefore, do not find any substance in the

stand of the appellant that once the Court has recorded that the plaint

discloses the cause of action it leads to an inevitable conclusion that it

FMA 1370/2022

discloses the existence of a prima facie case for the purpose of temporary

injunction.

Admittedly, the appellant no. 1 gave corporate guarantee as the

French company holding majority shares in MEL decided to opt out from the

project undertaken by the said outgoing concern. Interestingly, after

investing a substantial amount of money the French company agreed to

forego all its right may be for the reason that the French Government

decided to invest on a renewable energy, upon payment of USD 1 with

further stipulation that they would infuse further money and even pay 40

million USD to the appellant to be invested in the project of MEL. Though

the Counsels for the respondents are very much vocal on such issue as

according to them even after receiving 40 million dollar from the French

Government, the same was not invested in MEL but we do not intend to go

into the aforesaid aspect as the explanation is also offered by the appellant

in this regard. The facts remained that the French company while

disassociating himself from the project of the MEL offered to the Appellant

no. 1 to undertake such project which includes not only the assets

belonging to said company but also to meet out the liability so that such

project is not frustrated. The pleading would reveal that the lenders while

considering such proposal of the French company and accepting the

Appellant no. 1 to acquire the entire shareholding of the said departed

company indicated several conditions including the issuance of a corporate

guarantee. It is not in dispute that the director of the Appellant no. 1 gave a

corporate guarantee to the lenders, conjointly or severally and continued to

hold the management and the administration of the MEL. An affidavit was

FMA 1370/2022

also showrn by the director of the Appellant no. 1 that there is no

impediment in giving the corporate guarantee which is restricted to a non-

regulated assets as the embargo created under aforesaid regulation is not

applicable. It is contended by the appellant that the said corporate

guarantee was obtained by inducing coercion, misrepresentation and/or

commission of fraud as an opinion was sought by the lenders from the legal

jurist which is unusual. According to him, the opinion has to be sought by

the appellant company before it proceed to give a guarantee which appears

to be reverse situation in this case.

It is no doubt true that the fraud unravels all the solemn act and,

therefore, is always viewed seriously when it is alleged in course of the

proceedings. The person who alleges the fraud to have been committed by

the other side must plead particulars of such fraud under the rule of

pleading and procedures. Mere using the word 'fraud' without any

specification or particulars shown in the pleading may not be sufficient. The

fraud has to be discerned in the transaction and the stand of the parties

and the conduct in relation thereto. It cannot be applied abjunctly nor in

abstract manner. Two corporate entities who are well equipped to

understand their commercial interests, entered into a transaction, the

allegation as to fraud has to be understood keeping in mind the above

aspect. It is quite improbable that the appellant no. 1 who acquired the

majority shares in MEL at USD 1 is induced to give a corporate guarantee.

Let us examine the implications and the effect of Regulation 5.13.2 of

the Regulation 2013 which runs thus:

FMA 1370/2022

"...5.13.2 The licensee shall obtain prior written consent from

the Commission in making any loans to, or issuing any

guarantee for any obligation of any person which is beyond the

normal area of business activities of the licensee in respect of its

core activities. Loan to the employees pursuant to the terms of

services and advances to the suppliers etc. in the ordinary

course of business are excluded from the requirement to seek

such approval. If any affiliates of the licensee undertake any

loan for which the licensee's business may be affected directly

or indirectly then in such case licensee is required to obtain

such written consent from the Commission in a manner as

already specified."

It is manifest from the above quoted provision that the distribution of

the licensee company are bound by the provisions contained under the said

regulation which postulates that in making any loans or issuing any

guarantee for any obligation beyond the normal area of business activities of

the licensee in respect of its core activities is permissible after obtaining a

prior written consent from the commission. The exception is also created

therein relatable to the loans to the employees provided in the terms of the

employment and services. A further mandate can be seen in the language

used therein that in the event of any affiliates of the licensee undertake any

loan which may affect directly or indirectly, its business then in such event

the prior consent in writing from the commission is required . The appellant

contends that in view of the embargo created under the aforesaid provision

any guarantee given by the licensee or distribution company, be it corporate

FMA 1370/2022

or otherwise, is per se null and void ab initio and does not create any

enforceable right into a person in whose favour such guarantee was given. A

distinction was sought to be made between a prohibition and restrictions

attracting penalty without any consequence to follow otherwise. In case of

an absolute prohibition the things done in derogation thereof may entail the

act or the thing illegal and void. However, the situation would be different

when the prohibition is not absolute but requires a prior consent in writing

and the consequence by way of penalty is provided. The affidavit and the

corporate guarantee if read harmoniously is explicit to the extent that the

Appellant no. 1 was conscious of such embargo having created and

represented that a distinction in this regard is manifestly seen in the sense

that there is no fetter in giving a corporate guarantee on a non-regulated

assets as it has no impact on its business to be affected directly or

indirectly. In fact there was no attempt made by the appellants unless it

senses that lenders may invoke corporate guarantee because of the default

having committed by the MEL.

The contents of the deed of guarantee dated 29th September, 2016

may be looked into in order to ascertain the stand of the appellant no. 1 in

relation to the requirement under the aforesaid regulation. The non-

regulated asset is defined to mean all assets of guarantor other than the

regulated assets in the deed of guarantee. Clause 2 thereof indicates that

the guarantor furnished the said guarantee irrevocably, absolutely and

unconditionally to the phase I security trustees for the benefit of the phase I

lenders with clear stipulation that the guarantor shall forthwith pay from

non-regulated assets to phase I lenders without demur or protest or without

FMA 1370/2022

the right of any Set of, deductions or adjustment of any kind whatsoever.

Even Clause 27 makes the obligation more clear that in order to perform the

obligation of guarantee the non-regulated asset shall be utilized. Clause 12

of the deed of guarantee which contained the broad head "liability not

affected" manifestly indicate that it would not be so effected by any illegality,

invalidity, irregularity or unenforceability of all or any part of the guarantee

obligations. The appellant no. 1 further made representation and gave

warrantees under Clause 7 of the deed of guarantee that there is no

contravention of the regulations or the laws in the following:

"(V) No Contravention: The execution, delivery and performance

of this Guarantee and all instruments and agreements required

hereunder do not and would not contravene, violate or constitute

a default under (a) any applicable law; (b) any provision of any

constitution document of the Guarantor; (c) any corporate

authorisations of the Guarantor; (d) any provision of any

agreement or other instrument to which the Guarantor is a

party or by which the Guarantor or any of its assets is or may be

bound; (e) any treaty, law or regulation applicable to the

Guarantor; or (f) any judgment, injunction, order or decree

binding upon the Guarantor or any of its assets."

The affidavit shown by the director of the appellant no. 1 would evince

that the appellants were conscious that such guarantee would be regulated

by the provisions contained therein but the same is not required as such

guarantee is restricted to a non-regulated assets in the following:

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"3. That in relation to change in shareholding of MEPL and in

accordance with the terms of Common Loan Agreement, IPCL as

the new promoter of MEPL is required to furnish a corporate

guarantee in favour of the Phase I Lenders ("Corporate

Guarantee").

4. That, I hereby certify, declare and confirm on behalf of IPCL

that IPCL is a distribution licensee in terms of the West Bengal

Electricity Regulatory Commission (Licensing and Conditions of

Licensee) Regulation, 2013, and it is not required to obtain the

prior consent of the West Bengal Electricity Regulatory

Commission for issuing the Corporate Guarantee in accordance

with terms thereof."

The appellant vociferously contended that the contract of guarantee

issued in violation of the statutory provisions has always been recognized as

an illegal act and, therefore void as held in Mannalal Khetan (Supra) in the

following:

"7. Therefore, in the present case, the Contract of Guarantee is

squarely hit by Section 23 of the Contract Act, being contrary to

another statutory provision i.e. the WBERC Regulation.

(Reliance: Mannala lKhetan vs. KedarNath Khetan - AIR 1977 SC

536), in which it was held as under:

19. Where a contract, express or implied, is expressly or by

implication forbidden by statute, no Court will lend its

assistance to give it effect. (See Milliss v. Shirley Local Board,

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(1885) 16 QBD 446). A contract is void if prohibited by a statute

under a penalty, even without express declaration that the

contract is void, because such a penalty implies a prohibition.

The penalty may be imposed with intent merely to deter persons

from entering into the contract or for the purposes of revenue or

that the contract shall not be entered into so as to be valid at

law. A distinction is sometimes made between contracts entered

into with the object of committing an illegal act and contracts

expressly or impliedly prohibited by statute. The distinction is

that that in the former class one has only to look and see what

acts the statute prohibits; it does not matter whether or not it

prohibits a contract; if a contract is made to do a prohibited

act, that contract will be unenforceable. In the latter class, one

has to consider what act the statute prohibits, but what

contracts it prohibits. One is not concerned at all with the intent

of the parties, if the parties enter into a prohibited contract,

that contract is enforceable. (See St. John Shipping Corporation

v. Joseph Bank, (1957) 1 QB 267). (See also Halsbury's Laws of

England Third Edition Vol. 8, p. 141).

20. It is well established that a contract which involves in its

fulfilment the doing of an act prohibited by statute is void. The

legal maxim a pactisprivatorum public juri non derogatur means

that private agreements cannot alter the general law. Where a

contract, express or implied, is expressly or by implication

forbidden by statute, no Court can lend its assistance to give it

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effect. (See Melliss v. Shirley Local Board, (1885) 16 QBD 446).

What is done in contravention of the provisions of an Act of the

Legislature cannot be made the subject of an action.

21. If anything is against w though it is not prohibited in the

statute but only a penalty is annexed is void. In every case

where a statute inflicts a penalty for doing an act, though the

act be not prohibited, yet the thing is unlawful, because it is not

intended that a statute would inflict a penalty for a lawful act.

22. Penalties are imposed by statute for two distinct purposes (1)

for the protection of the public against fraud, or for some other

object of public policy; (2) for the purpose of securing certain

sources of revenue either to the State or to certain public bodies.

If it is clear that a penalty is imposed by statute for the purpose

of preventing something from being done on some ground of

public policy, the thing prohibited, if done, will be treated as

void, even though the penalty is imposed is not enforceable.

23. The provisions contained in Section 108 of the Act are for

the reasons indicated earlier mandatory. The High Court erred

in holding that the provisions are directory."

The law expounded in the above noted report is explicit in the sense

that where the contract is expressly or by necessary implication is

prohibited by a statute, no effect shall be given to such a contract as what is

forbidden in law cannot get a recognition in the Court of Law. The concept of

imposition of the penalty with regard to an act prohibited by a statute would

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render such contract unenforceable and may be regarded as an unlawful act

but in order to ascertain whether such contract is absolutely prohibited or

prohibition can be seen from the act of the parties and a consequence to

follow are essentially a question of fact requires an adjudication upon a full-

fledged trial. For the purpose of ascertaining the implication of law laid

down in Mannalal Khetan (supra) the subsequent judgment of the

Supreme Court rendered in case of BOI Finance Ltd. Vs. Custodian &

Ors. may be looked into. The Apex Court after analyzing the act of a party

vis-à-vis the third party held that even if non-compliance may attract

prosecution or levy of penalty under the substantive provision in this case

Section 142 of the Electricity Act, it may not render the contract with the

third party invalid in the following:

"33. The aforesaid principles will clearly be applicable in the

present case as well. The non-compliance of the directions

issued by the Reserve Bank may result in prosecution/or levy of

penalty under Section 46, but it cannot result in invalidation of

any contract by the bank with the third party. If the contention

of the Custodian is accepted it will result in invalidation of

agreements by the banks, even where the third parties may not

be aware of the directions which are being violated. To give an

example if the Reserve Bank by confidential circulars fixes the

limit in excess of which the banks cannot give any loan but,

without informing the third party, the bank while exceeding its

limit gives a loan which is then utilised by the bank's customer.

It will be inequitable and improper to hold that as the directions

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of the Reserve Bank had not been complied with by the bank, the

grant of loan cannot be regarded as valid and, as a consequence

thereof, the customer must return the amount received even

though he may have utilised the same in his business. Yet

another instance maybe where the bank advances loan by

charging interest at a rate lower than the minimum which may

have been fixed by the Reserve Bank, in a direction issued under

Section 36 (1)(a). As far as the customer is concerned, it may not

be aware of the direction fixing the minimum rate of interest.

Can it be said, in such a case, that the advance of loan itself

was illegal or that the bank would be entitled to receive the

higher rate of interest? In our opinion it will be wholly unjust

and inequitable to hold that such transactions entered into by

the bank with a customer, which transactions are otherwise not

invalid, can be regarded as void because the bank did not follow

the directions or instructions issued by the Reserve Bank of

India.

34. The instructions which were issued by the said circulars

were meant to be complied with by the banking companies only

and did not purport to, nor could they, be binding on the third

parties. This being so, even if the appellant banks had been

prohibited from entering into the buy-back arrangements in

question, that by itself, would not invalidate the contracts

though the infringement of the said directions may lead to

action being taken under Section 46 of the Act."

FMA 1370/2022

In view of the law expounded hereinabove mere non-compliance of the

requirement under the statutory provisions attracting prosecution or levy of

penalty does not render the contract void or invalid in relation to a third

party. Thus the stand of the appellant that the entire contract is vitiated

having rendered null or void ab initio, is not acceptable. Furthermore, in

view of the specific stand taken by the appellant that the corporate

guarantee in relation to a non-regulated assets are beyond the mischief of

the said regulation is essentially a fact to be decided in the suit itself based

upon the evidence to be adduced by the parties in this regard.

The aforesaid observations are made for the simple reason that the

appellant all along stood, before the issues are raised with the regulatory

authorities, that the said prohibitory clause under the regulations in

relation to a non-regulated assets which forms part of the corporate

guarantee is kept outside the purview thereof. The appellant has construed

the said provision while furnishing the corporate guarantee, that the non-

regulated assets has no impact directly or indirectly on the licensees

business and, therefore, it does not come under the mischief of the aforesaid

provision. Regulation 5.13.2 envisages that a prior written consent from the

Commission is to be obtained by the licensee in making any loan or issuing

any guarantee for any obligation which is beyond the normal area of

business activities in respect of its core activities. The appellant has

interpreted the aforesaid provisions that the non-regulated assets as defined

in the corporate guarantee shall mean all assets of the guarantor other than

the regulated assets. The said corporate guarantee further defines the

regulated assets to mean all the revenues and receivables of the business

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and operations of the Dishargarh Electrical License. It is essentially a

question of fact whether the guarantee in respect of a non-regulated asset is

beyond the core activities of the licensee or within the core activities of the

licensee. The moment the promises are made to a third party by way of a

corporate guarantee who acted thereupon is required to be viewed in this

regard. The pleadings of the party and the stand taken therein are the

factors to be taken into account as the party cannot make a departure

therefrom as held in Bacchaj Nahar vs. Nilima Mandal & Anr., reported

in (2008) 17 SCC 491 in the following:

"12. The object and purpose of pleadings and issues is to ensure

that the litigants come to trial with all issues clearly defined

and to prevent cases being expanded or grounds being shifted

during trial. Its object is also to ensure that each side is fully

alive to the questions that are likely to be raised or considered

so that they may have an opportunity of placing the relevant

evidence appropriate to the issues before the court for its

consideration. This Court has repeatedly held that the pleadings

are meant to give to each side intimation of the case of the other

so that it may be met, to enable courts to determine what is

really at issue between the parties, and to prevent any deviation

from the course which litigation on particular causes must take.

13. The object of issues is to identify from the pleadings the

questions or points required to be decided by the courts so as to

enable parties to let in evidence thereon. When the facts

necessary to make out a particular claim, or to seek a FMA 1370/2022

particular relief, are not found in the plaint, the court cannot

focus the attention of the parties, or its own attention on that

claim or relief, by framing an appropriate issue. As a result the

defendant does not get an opportunity to place the facts and

contentions necessary to repudiate or challenge such a claim or

relief. Therefore, the court cannot, on finding that the plaintiff

has not made out the case put forth by him, grant some other

relief. The question before a court is not whether there is some

material on the basis of which some relief can be granted. The

question is whether any relief can be granted, when the

defendant had no opportunity to show that the relief proposed

by the court could not be granted. When there is no prayer for a

particular relief and no pleadings to support such a relief, and

when the defendant has no opportunity to resist or oppose such

a relief, if the court considers and grants such a relief, it will

lead to miscarriage of justice. Thus it is said that no amount of

evidence, on a plea that is not put forward in the pleadings, can

be looked into to grant any relief."

Even apart there was an unequivocal promise of the corporate

guarantor and acts and things have been done thereupon in relation to a

transaction with the third party, the estopple by such promise or

representation has to be viewed in the perspective of the equitable principles

which can be discerned from the decision of the Supreme Court in State of

Jharkand & Ors. Vs. Brahmputra Metallics Ltd., reported in (2022) 7

SCC 323 in the following:

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"35. This Court has given an expansive interpretation to the

doctrine of promissory estoppel in order to remedy the injustice

being done to a party who has relied on a promise. In Motilal

Padampat (supra), this Court viewed promissory estoppel as a

principle in equity, which was not hampered by the doctrine of

consideration as was the case under English Law. This Court,

speaking through justice P.N.Bhagabati (as he was then), held

thus:

"12....having regard to the general opprobrium to which

the doctrine of consideration has been subjected by eminent

jurists, we need not be unduly anxious to project this doctrine

against assault or erosion nor allow it to dwarf or stultify the

full development of the equity of promissory estoppel or inhibit

or curtail its operational efficacy as a justice device for

preventing injustice... We do not see any valid reason why

promissory estoppel should not be allowed to found a cause of

action where, in order to satisfy the equity, it is necessary to do

so."

H.4 From estoppel to expectations

36. Under English Law, the doctrine of promissory estoppel has

developed parallel to the doctrine of legitimate expectations.

The doctrine of legitimate expectations is founded on the

principles of fairness in government dealings. It comes into play

if a public body leads an individual to believe that they will be a

recipient of a substantive benefit. The doctrine of substantive FMA 1370/2022

legitimate expectation has been explained in R v. North and East

Devon Health Authority, ex p Coughlan in the following terms:

"55.... But what was their legitimate expectation?" Where

there is a dispute as to this, the dispute has to be determined by

the court, as happened in In re Findlay. This can involve a

detailed examination of the precise terms of the promise or

representations made, the circumstances in which the promise

was made and the nature of the statutory or other discretion.

.....

56.... Where the court considers that a lawful promise or

practice has induced a legitimate expectation of a benefit which

is substantive, not simply procedural, authority now establishes

that here too that court will in a proper case decide whether to

frustrate the expectation is so unfair that to take a new and

different course will amount to an abuse of power. Here, once

the legitimacy of the expectation is established, the court will

have the task of weighing the requirements of fairness against

any overriding interest relied upon for the change of policy."

A further plea has been taken herein that what is intended by the

appellant in the instant suit is to forestall the proceedings initiated before

the NCLT having a direct or indirect impact on the CIRP and, therefore, hit

by the provisions of 41(b) of the Specific Relief Act. There is no quarrel to the

proposition of law that the power or jurisdiction exercised by the NCLT

under IBC cannot be regarded as a forum subordinate or inferior to the Civil

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Court. Such settled proposition of law need not be dealt with in extenso as

we do not find any ambiguity in this regard. Section 41(b) of the Specific

Relief Act contained a negative language that the injunction may be refused

nor can be granted to restrain any person from instituting or prosecuting

any proceeding in Court not subordinate to that forum for which the

injunction is sought. It is manifest from the aforesaid provision containing a

negative language that the Court cannot pass an order of injunction

restraining a party from instituting or prosecuting any proceedings pending

in different fora which is not subordinate to that jurisdiction of the Court.

The Court which does not have a supervisory or a superintendence as a

Court of superior jurisdiction is denuded of power to issue any injunction

against a person from taking recourse to law in a different forum not inferior

or subordinate to it as held by the Division Bench of this Court in

Bhagwandas Auto Finance Ltd. & Ors. Vs. Citicorp Finance (India)

Ltd., reported in AIR 2009 CAL 231 held in:

"9. In the case before us, the learned Judge, City Civil Court has

granted an ad interim order of injunction restraining the

appellants from giving effect to the notice dated January 7,

2009 issued by the appellants threatening prosecution of the

respondent with both civil and criminal litigation for the alleged

forgery committed by the plaintiff. In substance, by virtue of the

order of injunction granted by the learned Trial Judge, the

appellants are restrained from filing a civil suit before the City

Civil Court or before the original side of this Court for avoiding

the alleged agreement between the parties and at the same time,

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are also restrained from initiating any criminal prosecution

against the respondent. It may not be out of place to mention

here that even according to the plaint case, the alleged

agreements between the parties were executed in the office of

the plaintiff within the territorial jurisdiction of the City Civil

Court at Calcutta or within the original side of this Court, the

plaintiff is also carrying on business within the said jurisdiction

and at the same time, the notice dated January 7, 2009 was

issued by a lawyer having office within the territorial limit of

the above court. Therefore, now if the appellants want to file

any civil suit against the respondent for avoiding the alleged

agreements, such civil litigation should be filed either in the

City Civil Court or in the original side of this Court depending

upon the valuation of the proceedings. However, in such

circumstances, the order impugned has really restrained the

appellants from filing a civil suit either in a coordinate

jurisdiction or in a superior jurisdiction clearly violating clause

(d) of the said section by restraining the appellant from

initiating a criminal proceedings."

We do not find any substance in the stand of the appellant on an

apparent distinction between money recovery proceedings and a proceeding

for recovery of money. The coinage of the expression does not make any

substantial distinction in relation to a proceedings initiated before the NCLT

under IBC. It has been categorically held by the Supreme Court in Invent

Asset Securitisation and Reconstruction Pvt. Ltd. vs GirnarFibres Ltd.,

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reported in 2022 SCC Online SC 808 that a proceeding before the NCLT is

not a money recovery proceeding as it intended to invoke the provisions of

the code so as to enforce the recovery against the corporate debtor. Though

it sought to achieve a purpose of enforcing the recovery against the

corporate debtor yet the various provisions of the IBC would indicate that it

cannot be regarded as a money recovery proceedings nor a proceeding for

recovery of money as the fall out on failure to honour the obligations may

invite several consequences including insolvency, appointment of resolution

professional, revival of the company and so on and so forth.

It takes to another point that the appellant filed the suit before the

Commercial Court, City Civil Court at Hyderabad for the same reliefs which

was subsequently withdrawn without any leave obtained from the Court

required under Order 23 Rule 1 of the CPC. The aforesaid provisions of the

Code postulate that in the event the appellant abandons any suit or a part

of a claim without seeking any permission to institute a fresh suit in respect

of a subject matter of such suit, he shall not only be liable to cost as a Court

may award but shall be precluded from instituting any fresh suit in respect

of such subject matter or such part of the claim. But in order to attract the

aforesaid embargo created under the aforesaid provision, it is to be

ascertained whether the cause of action and the reliefs claimed therein are

identical with those in the subsequent suit and in the event it is found that

the cause of action has been similar and identical to the suit which was

withdrawn without any leave or permission, the same would attract mischief

under aforesaid provision relating to the maintainability of the said suit (see

Ballavh vs. Madanlal AIR 1970 SC 987). In order to attract the aforesaid

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provision, the pleadings filed in the earlier litigations and the issues involved

therein are required to be seen. Since the application for rejection of the

plaint has been dismissed by the Court and the said order is still operative

having not interfered by a higher forum, it would not be proper to make any

observations thereupon at this stage.

Both the Counsels are very much critical on the averments made in

the paragraph made in the plaint wherein it has been categorically averred

that the said suit is not intended to challenge any measure taken or

intended to be taken by the lenders under the various acts for recovery of

the money and is only restricted to the recovery of the proceeds of the sale

and transfer of the shares of the appellant no. 1 in Respondent no. 21 to the

Respondent no. 1 because of the malicious and fraudulent action of the

respondent or each of them against the appellants. We have already

discussed in the preceding paragraphs that the reliefs couched in such a

fashion would indicate that not only the appellant seeks declaration in

relation to a corporate guarantee being null and void ab initio but also a

declaration that the transfer of the said share cannot be done without

ascertaining the reasonable price or the ascertained sum. Such being the

pleading in essence does not manifestly appear to have forestalled the

proceedings before the NCLT nor the Court was invited to pass an order of

injunction in this regard. The moment the appellants have taken a specific

stand, subsequent variation may operate as an obstacle in contending so as

the parties are bound by their own pleadings and cannot be permitted to

approbate and reprobate at the same time. Though it has been vociferously

contended by the appellant that the pleading has to be read in its entirety

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and it is not permissible to segregate or divorce some portion therefrom

which suits the other side but upon reading the pleading so made in

paragraph 97, it leaves no ambiguity that the appellants were of the view

that they do not intend to forestall the ongoing proceeding under the IBC

before the NCLT. Although we have made certain observations as the

arguments are advanced by the respective Counsels but that would be

regarded as a mere prima facie observations as we have held that the

injunction of such nature cannot be passed in view of the embargo created

under Section 41 (b) of the Specific Relief Act. We, thus, do not find any

infirmity and/or illegality in the order.

The appeal is thus dismissed.

No order as to costs.

Urgent Photostat certified copies of this judgment, if applied for, be

made available to the parties subject to compliance with requisite

formalities.

      I agree.                                         (Harish Tandon, J.)



(Prasenjit Biswas, J.)




                                                                   FMA 1370/2022