Eih Limited vs Jyoti Private Limited
1998 Latest Caselaw 288 Del

ORDER

S.N. Kapoor, J.

1. This petition under Section 41(B) has been filed seeking injunction restraining the respondents from dealing with and/or parting with possession of the property in Oberoi Palace, Bhulewad Road, Srinagar, Kashmir and to direct the respondent to furnish security in the sum of Rs. 68,94,509 being the admitted amount. The relevant facts giving an occasion to file this petition are being briefly stated as under:

2. The petitioner Eastern India Hotels Limited entered into a loan agreement dated 8th August 1980 whereunder the respondent confirmed and acknowledged having received the loan of Rs.30 lacs carrying interest at the rate of 12% per annum from the petitioner by representing itself to be the owner of land and building including all superstructure built up thereon, popularly known as Oberoi Palace Hotel, Srinagar.

3. Earlier, this Oberoi Palace Hotel was leased in favour of Shri Rai Bahadur M.S. Oberoi, Chairman of the petitioner company by virtue of lease deed dated 17th June 1954 and the lease deed was subsequently mutually terminated in November 1975. The cost of the extensive renovations, improvements and additions to the buildings and superstructures, hotel equipments, furnitures, carpets etc. was mutually arrived at Rs.30 lacs. This amount was transferred by the petitioner to the respondent for a total consideration of Rs. 30 lacs and by mutual agreement it was treated as a loan from the petitioner to the respondent carrying interest at the rate of 12% per annum w.e.f. December 1, 1975. The petitioner company also entered into a "Hotel Operation Agreement" on 24th November 1975. The loan agreement dated 8th August 1980 was executed. The respondent agreed and undertook to repay the loan in 10 equal instalments starting from financial year 1990-91. Though the repayment of the loan was to be made half yearly from financial year 1991 with interest at half yearly rates, the respondent failed to make the payment of the loan instalments and accrued interest. Dispute arose between the parties and the matter was referred to arbitration and an interim order dated 4th August 1995 was also passed restraining the defendants from in any manner transferring and/or alienating and/or charging its properties until further orders. An IA No. 7955/95 was also filed for vacation of the said stay. Suit No. 1808A/95 and S.No. 622A/95 along with applications were decided by Justice K. Ramamoorthy by common order dated 20th February 1996. Justice G.C. Jain (Retd) was appointed, the sole arbitrator. Learned Single Judge dismissed IA 7955/95 and allowed the respondent's IA 9753/95 by vacating the injunction with the following observations:

(i) There was a charge in favour of the petitioner on the said properties in respect of the loan advanced by the petitioner;

(ii) The value of the properties held by the respondent weighed in the mind of the learned Single Judge;

(iii) The respondent submitted that it may enter into collaboration agreement with the petitioner;

(iv) The submission by counsel for respondent that the respondent admitted the amount claimed by the petitioner, was also observed.

4. On 1st July 1996, appeal filed against the order of the learned Single Judge was dismissed as not maintainable. Thereafter, it appears that parties filed their claims and objections before the learned Arbitrator. According to the petitioner, the circumstances have changed since then for after vacation of the order passed by learned Single Judge, the respondent instead of accepting the existence of charge has denied any such charge over the properties. In their application under Order 39 Rule 4, the respondent stated that it was not intending to alienate the properties but it was also legally stated, it might enter into collaboration agreement. While he is now taking steps to alienate and transfer its entire properties in favour of a third party M/s Bharat Hotels as it appears from the newspaper reports Annex.P/9. Admittedly, the respondent is liable to pay the following amount:

      Principal Loan amount    Rs.30,00,000/-
     Capital expenditure      Rs. 4,98,905/-
     Interest till August
     1984 at 12% p.a.         Rs.25,34,974/-
                              ______________
               Total          Rs.60,33,879/-
     Further  interest  at  
     12% p.a. from 28.8.94 
     till 7.9.96              Rs. 8,60,630/-
                              ______________
                              Rs.68,94,509/-
 

It is claimed that in the event of the respondent transferring or alienating the aforesaid properties in favour of third party, the petitioner will be left with no means or association to recover the amounts which are admittedly due and payable by the respondent and the petitioner shall suffer irreparable injury. The Asian Age dated 21st October 1997 carried a news item indicating that Oberoi Palace Hotel had been taken over by an Industrialist-cum-Congressman Shri Lalit Suri from Dr. Karan Singh, Managing Director of Respondent company to develop the said property by investing Rs.100 crores which is now expected to be completed by April 30 next year. This also contains certain admissions of Dr. Karan Singh. The petitioner would have been entitled to file a suite under Order 37 Rule 1 but for the Arbitration Agreement. Hence the prayer for the aforesaid petition.

5. This application is being contested by the learned counsel for the defendants on various grounds including the principles of res judicata since it was held earlier that the respondent would suffer irreparably if the valuable property is not put to any commercial use. While rejecting the application earlier, the learned Single Judge also considered the fact that the claim of the respondent was to the tune of Rs.3.25 crores whereas the claim of the petitioner was only to the tune of Rs.17 lakhs approximately and that the balance of convenience was in favour of the respondent. Since the date of such application, there has been no material change in the circumstances to plead for ad interim relief. During the course of arbitration proceedings also, the petitioner filed another application which was subsequently withdrawn in view of the legal position. An application filed for grant of interim award was also rejected by learned Arbitrator vide order dated 30th September 1997. Even then the charge was not created in the property for (a) formalities under Section 125 of the Companies Act of Registration of a charge were not observed; (b) the balance sheets of Oberoi Palace Hotels as well as both the contesting companies reflected the said loan as an unsecured loan. Irshad dated 29th Maghar 1943 passed by the State of Jammu & Kashmir stipulates that no immovable property in the State can be transferred in favour of persons no permanent resident of the State. In view of this, no charge can be created in favour of EIH Ltd. since no property can be transferred in favour of a company not incorporated and registered in the State of Jammu & Kashmir. There could not be any estoppel against any statute. In this case, change even otherwise would not be created beyond the extent of the loan amount. Thus, the property which is worth several crores and which has movable assets with another 2 crores could not be charged fully for a principal amount of Rs.30 lakhs. The petition under Section 20 was filed as a counter blast to the claim of approximately Rs.3.25 crores of the respondents.

6. I have heard the learned counsel for the parties and gone through the record.

7. There could not be any doubt that strictly speaking, the purpose of Order 39 is to preserve and protect the interest in the property in suit and to protect the interests of the parties by preserving certain properties till final disposal of the case. It may be suit property, it may be a property which might form part of the security for any subsequent performance of a certain contract or a security for repayment of a loan or a property on which a charge has been created. If the grounds under Order 38 Rule 5 are made out then any property could also be attached under Order 38 Rule 5. But at the same time any order passed by learned Singled Judge which remains intact, cannot be lightly interfered with simply because a party is trying to use the term "changed circumstances" which have not changed.

8. In so far as collaboration is concerned, it was mentioned way back in the reply to the application and in the application under Order 39 Rule 4 which was disposed of by the learned Single Judge earlier. The newspaper reports may or may not amount to virtually alienating the property by entering into any collaboration agreement except for a limited purpose. This purpose was very well mentioned and considered by the learned Singled Judge when it was held that the property could not be kept for long unused. Consequently, the balance of convenience was not found in favour of the petitioner. This position has not changed.

9. In so far as the question of irreparable loss is concerned, in case it was established that a formal charge has been created by certain documents, the thing might have been different but in case of the building situated in Jammu & Kashmir, neither any charge appears to have been created nor is it claimed by the petitioners that they had performed the formality under Section 125(1) of the Companies Act. However, this argument under Section 125(1) appears to be double edged weapon. The charge could be recognised if the instrument by which the charge is created disclosed prescribed particulars together with the instrument or copy thereof verified in the prescribed manner and thereafter it is filed with the Registrar of Companies for registration in the manner required by this Act within 30 days from the date of its creation. One could not be oblivious to the fact that sub-sections (2) and (3) of Section 125 provide that nothing in sub-section (1) shall prejudice any contract or obligation for the repayment of the money secured by the charge; and when a charge becomes void under this Section, the money secured thereby shall immediately become payable. But in this case, not only the formalities under Section 125(1) but the legality of creation of charge in favour of the petitioner is also in dispute in view of Irshad dated 29th Maghar, 1943. Besides, there is no reply to the contention that no immovable property in the State of Jammu & Kashmir could be transferred in favour of any person who is not a permanent resident of the State of Jammu & Kashmir and consequently no charge could be created in favour of Eastern India Hotels Limited for the company was not incorporated and registered in the State of Jammu & Kashmir. One could also not be oblivious to the pending claims of the respondent before the arbitrator which may far exceed the claim of the applicant. If charge could not be created and the defendant is required to be restrained, it may amount to virtually attaching the property by restraining any collaboration agreement without fulfillling the requirement of Order 38 Rule 1. There is yet another aspect. The same logic could apply to the future transaction also and therefore, neither the property could be charged nor transferred in favour of Bharat Hotels Limited for the same reason of Irshad dated 29th Maghar, 1943. In absence of any charge, it cannot be said that irreparable loss is likely to be caused in the aforesaid circumstances. Entering collaboration agreement is not disposal of property by the non-applicant in fraud of creditors to justify attachment, specially in view of the circumstances mentioned above and the pending dispute in respect of the claim of the non-applicants.

10. In the aforesaid cirumstances, I feel inhibited to grant any injunction at this stage when arbitration proceedings are going on not only relating to the claim of the applicant but also in respect of claims of non-applicants.

For the foregoing reasons, I do not find any force in this petition and reject the same.