Spectrum Technologies Usa Inc. vs Spectrum Power Generation ...
2000 Latest Caselaw 590 Del

ORDER

K.S. Gupta, J.

1. I.A. 4782/96 in Suit No. 1251/96 and I.As 7314/96 and 8609/96 in Suit No. 1905/96 were dismissed by a learned single Judge by the order dated 5th November 1997. FAO(OS) 266/97 is directed against the dismissal of I.A.4782/96 while FAO(OS) 267/97 of I.A. 7314/96. FAO(OS) 265/97 is preferred against the dismissal of I.A.8609/96. Since these three appeals arise out of the same order dated 5th November 1997 we propose to dispose them of by this common order.

2. Said Suit No. 1251/96 was filed by Spectrum Technologies USA Inc. (for short 'STUSA') against Spectrum Power Generation Co. Ltd, defendant No. 1 (for short 'SPGL'), Jaya Food Industries Pvt. Ltd, defendant No. 2 (for short 'JFI') and National Thermal Power Corporation, defendant No. 3 (for short 'NTPC'), inter alia, alleging that STUSA is a U.S based reputed firm of non-resident Indian professionals who are engaged in power related business in U.S, Mexico, Taiwan and India and Dr. A.V. Mohan Rao is its managing director and Vice Chairman. Government of Andhra Pradesh vide letter No. 11902/DR/L1/90 dated 9th March 1992 addressed to the Secretary, Government of India, Ministry of Power and Non-conventional Energy Resources requested the Government of India to allot gas to STUSA for setting up a gas based power project in Andhra Pradesh. A high powered meeting was held on 19th June 1992 presided over by Sh. S. Rajgopal, the then Secretary, Power, wherein on the basis of discussions, it was decided to set up a power project by a joint sector venture. STUSA and NTPC whom the permission to set up project was originally given, were asked to work out the modalities of joint sector venture. In pursuance of the decision taken in said meeting the NTPC and STUSA signed a memorandum of understanding on 23rd July, 1992. It is alleged that since STUSA is a US based company and NTPC had its hands full with other projects, it was decided that a local party may also be involved in the joint venture particularly for liaisoning with Andhra Pradesh Government and other regulatory authorities of the area. It is stated that in 1990 Andhra Pradesh Government had invited tenders for setting up a power project and STUSA had made a bid for that project. At that point of time contact was established between STUSA and M. Kishan Rao. STUSA allowed a company to be formed using its US name .e. Spectrum and SPGL was registered as a company on 26th October 1993. Neither STUSA nor its Managing Director Dr. A.V. Mohan Rao could purchase shares in SPGL without first obtaining the required statutory approvals, Dr. A.V. Mohan Rao being a non-resident Indian. The family members of said M. Kishan Rao were, therefore, the promoters of SPGL and they merely purchased 70 shares of Rs. 10/- each for a total sum of Rs. 700/-. Since MOU had been signed between STUSA and NTPC and SPGL formed, it became necessary to formalise the relationship between the three joint venture partners. Thus, a promoters agreement dated 29th June 1993 was signed between STUSA, JFI and NTPC. This agreement provided that SPGL shall adopt, ratify, consent to and fully agree to be bound by the promoters agreement and its Memorandum and Articles of Association shall be amended so as to be in form and substance as mutually agreed between the parties and incorporate the provisions of agreement as far as practicable and to the extent permissible under law. Clause 3.2 of the said agreement which is relevant provides thus:-

"The amount of the initial issued and subscribed share capital of the SPGL for implementation of the project shall be determined on the basis of the debt equity ratio 70:30 after freezing the project cost, such other debt equity ratio as may be agreed upon or prescribed by the financial institutions providing term loans for meeting the project cost. Unless otherwise mutually agreed here shall be only one class of shares, the pattern of share holding of the issued share capital of the SPGL unless otherwise mutually agreed, shall be as follows:-

a) Ninty per cent of the initial issued and paid up equity share capital of the SPGL shall be subscribed and held by JFI, STUSA and its affiliates including CMS for cash at par.

b) Ten percent of the initial issued and paid up equity share capital shall be subscribed and held by NTPC, for cash at par.

c) Out of the ninty per cent of the initial issued and paid up equity share capital of the SPGL held by STUSA and JFI, they may offer upto 20% to the public for subscription for cash at par through prospectus."

3. In pursuance of said promoters agreement the authorised share capital of SPGL was to be Rs. 500 crores. The break up of allotment of shares as given in the 24th meeting of Board of Directors of SPGL held on 27th June 1995 was as follows:-

      Spectrum Technologies USA, Inc.         2,88,80,400
     RR Godavari Power Ltd.                  1,97,63,100
     Jaya Food Industries Ltd.                  1,60,000
     Bambino Finance Pvt. Ltd.               1,65,60,000
     Friends and Relatives of M.Kishan Rao      2,07,000

 

4. It is alleged that SPGL applied to the Reserve Bank of India for issue of equity shares to Spectrum Technologies USA Inc, Mauritius (for short 'STUSA Mauritius'), an overseas corporate body and an affiliate of STUSA with repatriation benefits under the Foreign Exchange Regulation Act, 1973. The RBI granted permission on 28th February 1995 for issuance of 93,67,750 equity shares of Rs.10/- each for cash at par amounting to Rs. 9,36,77,500/- to said STUSA, Mauritius in SPGL. SPGL also took the said permission on record in the meeting of Board of Directors held on 25th February 1994. It is stated that Kakinada in Andhra Pradesh was proximate to a point from where Gas Authority of India Limited could provide gas for construction of a gas based project and with this in view the Government of Andhra Pradesh had earlier allotted land to NTPC. Pursuant to said promoters agreement the NTPC transferred this land to SPGL for construction of the project. STUSA and NTPC further helped SPGL in taking various steps for progress of the project.

5. It is alleged that said M. Kishan Rao developed a dishonest desire to appropriate the entire project for the benefit of JFI and his own relations and started acting against the fundamental terms of the promoters agreement dated 29th June 1993. As envisaged by the promoters agreement the Memorandum and Articles of Association of SPGL was not amended despite reminders by STUSA and NTPC to bring it in line with the said agreement. Although in the begining only the family members of said M. Kishan Rao were on the Board of Directors of SPGL but later on Dr. A.V. Mohan Rao and Brij Bharteey of STUSA were included as Additional directors. C.N. Swamy of NTPC was also appointed as Additional Director. The total project cost as authorised in the Board of Directors meeting held on 26th February 1992 for submission to the Foreign Investment Promotion Board (FIPB) was as under:-

     Estimated cost     654.85 crores
     Equity Foreign     117.88 crores
     Indian              78.57 crores
     Debt: Foreign      235.74 crores
     Indian             222.16 crores.

 

6. The foreign equity contribution was to be 60% while foreign debt at 51%. Foreign equity of Rs. 28 crores in Indian rupees by STUSA and foreign equity of Rs.19.76 crores by R.R. Godavari Power Ltd, a Mauritius based company whose contribution and participation into SPGL came as affiliate of JFI, had already been paid. Indian and Foreign Financial institutions too financially committed themselves and paid to SPGL diverse amounts of loans. Aforesaid Dr. A.V. Mohan Rao with 20 years career in world renowned General Electric Power Systems of US, has been the life and soul of the entire project and he tied up, amongst others. Engineering Procurement and Construction (EPC) contract, Operation and Maintenance contract and agreement with NTPC for providing their on-site supervision and consultation services for construction of the project. JFI is now making illegal attempts to exclude not only STUSA but even NTPC from the affairs of SPGL. Lately the group of said M.Kishan Rao has been manipulating the minutes of meeting of the Board of Directors of SPGL.

7. It is alleged that a meeting of the Board of Directors of SPGL ws held on 14th December 1995 which was attended by Dr. A.V. Mohan Rao and other directors of JFI. In the agenda no items regarding Government of ndia guarantee, rescinding the promoters agreement dated 29th June 1993 and non-issuance of equity capital to NTPC were included nor any iscussion on such extremely important items which went to the root of the very existence of SPGL, could be made in the Board under the heading 'any other business with the permission of the chair.' No such items were in fact discussed in the said Board meeting. The minutes of item No. 9 which were received by A.V. Mohan Rao and Brij Bharteey of STUSA barely five minutes before 28th Board meeting have been concocted. It is claimed that Dr. A.V. Mohan Rao immediately protested against the said minutes by writing a letter on 15th April 1996. NTPC also wrote to SPGL asking it to confirm the correctness of the minutes of the said meeting. Said letter dated 15th April 1996 has not been replied to nor the allegations made therein have been denied. It is stated that said M.Kishan Rao alongwith the two sons and his own two nominee directors are controlling the Board of Directors of SPGL as if it is their own company. A lawyer's notice dated 29th April, 1996 was got served by said Dr. A.V. Mohan Rao on SPGL calling upon it to amend the Articles of Association, cancel the minutes of 25th and 26th meeting of the Board of Directors and constitute a Board of Directors as per promoters agreement etc. and in reply thereto the SPGL has alleged that the said promoters agreement has come to an end because of the breaches and non-performance thereof by STUSA without giving the details. It is claimed that SPGL is legally bound to abide by the said promoters agreement. Reliefs claimed in the suit are as under:-

a) a mandatory injunction directing defendants 1 and 2 to make necessary amendments in the Articles of Association of SPGL in accordance with the requirement of the promoters agreement dated 29th June 1993.

b) a declaration that the resolution at Item No. 9 passed by the board of Directors of SPGL in its 27th meeting held on 14th December, 1995 is illegal and ultra vires the promoters agreement dated 29th June, 1993 and no effect can be given to the said resolution and the parties continue to be bound by the promoters agreement dated 29th June 1993;

c) a declaration that Dr. A.V. Mohan Rao and Mr. Brij Bharteey are and continue to be members of the Board of Directors of SPGL on behalf of STUSA and also Mr. C.P. Jain, Director-Finance of NTPC be inducted as a director on the Board of Directors of SPGL as a nominee of NTPC.

d) an injunction restraining JFI either directly or through its associates, nominees, agents or servants from in any manner increasing the authorised issued share capital of SPGL or to allot or issue any further shares:

e) a direction directing SPGL and JFI not to take any steps in the management and administration of SPGL without the affirmative votes of STUSA and NTPC:

f) pass such further or other orders or grant such reliefs or issue such directions as this Hon'ble court may deem fit and proper in the facts and circumstances of the case.

Aforesaid I.A. 4782/96 under Order 39 Rules 1 & 2 and section 151 CPC as filed by STUSA in the suit seeking various reliefs which we shall be referring hereinafter.

8. SPGL and JFI contested the suit and the said I.A. by filing separate written statements and replies. NTPC filed the written statement by and large supporting the allegation made in plaint by STUSA. Since the written statement and reply filed by JFI and the reply filed by SPGL in substance contain the defense raised by SPGL in its written statement, reference only to the averments made in the written statement by SPGL would be enough. It is alleged in the written statement that STUSA has attempted to sue upon a promoters agreement which was neither acted upon nr is existing now and to which SPGL was never a party. The purported agreement is only an agreement to agree. It is stated that Dr. A.V. Mohan Rao is closely related to M. Kishan Rao and his family and in view of the close relationship Dr. A.V. Mohan Rao was asked to negotiate on behalf of JFI. It is admitted that SPGL was incorporated on 26th October, 1992 by M. Kishan Rao and his family members and the promoters agreement was thereafter executed on 29th June 1993 and same was adopted in the meeting of Board of Directors of SPGL on 2nd March, 1994 as alleged. This agreement contemplated that 90% of the issued and paid up capital will be held between JFI and STUSA and their respective affiliates and the remaining 10% by NTPC. Out of 90% sharehold-ing held by SPGL and STUSA, 20% could be offered to the public for sub-scription. Section 8.1(a) and (b) of the said agreement which are relevant provide as under:-

Sec.8.1(a) The parties agree to raise the capital cost and working capital and other finances required for the business of the SPGL including the Project by issue of additional share capital, and borrowings including debentures from Indian and foreign financial institutions , commercial bank and other lending agencies. STUSA and JFI shall be responsible for negotiating and arranging all necessary finance.

Section 8.1(b) It is agreed that in the event of any guarantee/guarantees being required for loans to be obtained by the SPGL from financial institutions and other lending bodies over and above the security of the assets of the SPGL, such guarantee shall be furnished only by JFI and STUSA and NTPC will not be called upon to furnish such guarantee/guarantees. If during the course of execution of the Project or performance of its obligations, the SPGL requires additional funds for completion of the Project or such obligations and the financial institutions, commercial banks and other term lending agencies funding the project require the parties to bring in such additional funds, the parties agree that they shall arrange for such additional equity within the limits indicated in clauses 3.3 in the proportion of their respective shareholding in the SPGL."

9. It is alleged that JFI gave guarantees to the extent of Rs.550 crores to the Financial Institutions/Banks in lieu of financial assistance rendered by them to SPGL. STUSA and Dr. A. V. Mohan Rao refused to give such guarantee(s) despite having been called upon to do so. It is further alleged that simultaneously with the execution of the said romoters agreement dated 29th June 1993 a side letter was also executed between the parties which specifically provided for submitting the following documents by the parties within 120 days from the date of signing of the said agree-

ment:-

1. Board of Directors approval for signing the Promoters Agree ment.

2. Latest Financial statement provided by the Company Auditors.

3. Certified to be true and upto date amended copy of the Memorandum and Articles of Association.

4. Board Resolution for equity participation in SPGL.

5. The power of attorney duly notarised for signing the promoters agreement.

     6.    Specimen    signatures   duly    attested    by    Gazetted 
     Officer/Bank/Magistrate 1st class or a Director of the company on 
     a latter head or the same may be included as a clause in the power 
     of  attorney  of the officers who are authorised to  execute  the 
     promoters agreement. 
 

     7. Approval of competent Government. 

 

10. It is stated that the side letter specifically provided that on failure to submit the said documents within 120 days the promoters agreement would be treated as null and void. Said side letter forms an integral part of the promoters agreement and STUSA has conveniently not even referred to it in the plaint. It is claimed that STUSA did not produce even a single document as stipulated in the said side letter within 120 days period which came to an end on 27th October, 1993. SPGL had substantially complied with the side letter within the said time. NTPC had partially complied with it. That being so, the promoters agreement became null and void on 27th October 1993.

11. It is pleaded that NTPC never subscribed the shareholding as per the aforesaid promoters agreement. The promoters agreement required that the Memorandum and Articles of Association of SPGL would be amended by consent of all the parties. However, the agreement did not specify the amendments to be carried out and, therefore, it is totally vague. Shareholding pattern as found in the said promoters agreement was completely changed. M/s. R. R. Godavari Power Ltd. had subscribed to and taken up shareholding to the extent of 5,60,47,500 shares and today it is one of the major shareholders of SPGL. It is stated that conditional allotment was made in favour of the company incorporated in Mauritius bearing the same name as that of the plaintiff company. SPGL repeatedly requested said Dr. A.V. Mohan Rao to furnish the list of shareholders of said Mauritius company so as to be duly satisfied that 60% of the shareholding was ultimately directly or indirectly held by individuals of Indian origin. It is further alleged that in the meeting of Board of Directors of SPGL held on 25th February 1994 it was resolved that subject to the approval by RBI the company will accept unds/remittances towards advance against share application pending allotment of equity shares of the company from the following categories:-

      1. Non-Resident Indians             4.5%
     2. Overseas Corporate Bodies       13.5%
     3. Foreign Companies/Foreigners    42%
     4. Residents                       40%
        
                                        100%

 

12. Obviously, this division was directly contrary to the shareholding pattern as contemplated under the aforesaid promoters agreement. It was, however, in consonance with the approval received from FIPB permitting 60% foreign equity holding which came to be reduced to 53% later on. It is further stated that SPGL applied to IDBI for obtaining financial assistance and IDBI granted financial assistance to the extent of Rs. 306 crores approximately. This assistance was granted under agreement(s) containing certain terms and conditions which provide, inter alia, that there would be a public issue of the equity shares of SPGL to the extent of 34%. Further, the Board of Directors of SPGL has been expanded to include various persons not provided for under the said promoters agreement and the decision to so broad base the Board was with the knowledge, consent and concurrence of all the parties. It is claimed that the said facts clearly show that the pro-moters agreement in question had been given a complete go-by and it had come to an end and/or was rescinded, waived or abandoned by the parties. It is further stated that Dr. A.V. Mohan Rao and Brij Bharateey were appointed as additional directors in SPGL on 2nd March, 1994 and 4th July, 1994 respectively and they retired on 25th April, 1995 and 14th February, 1995 respectively being the respective first and second annual general meetings of the company. Both of them neither offered themselves for reappointment nor have they been reappointed but they have been acting as Directors in SPGL. It is pleaded that the shareholding pattern of SPGL as on date is as follows:-

      Second Defendant Company             19,54,900 shares
     Bambino Finance Pvt. Ltd.,         2,20,60,000 shares
     Other Shareholders including
     Distributors and Stockists
     of the Second Defendant              86,71,100 shares
     RR Godavari Power Ltd.,            5,60,47,500 shares
                
                                        8,87,33,500 shares

 

13. There are no other shareholders in SPGL. Conditions of allotment not having been fulfilled the allotment of shares in favour of STUSA, Mauritius is no longer operative. It is claimed that the amount of equity paid by said R.R. Godavari Power Ltd., was not as an affiliate of JFI. Land which was sold by NTPC was fully paid for by SPGL. It is stated hat there was never any agreement between the parties regarding the amendments which were o be carried out in the Memorandum and Articles of Association of SPGL. It is asserted that in the Board meeting held on 14th December 1995 it as recorded that the company had decided not to pursue obtaining of Government of India's guarantee since waiting for the same would unnecessarily delay the project. The personal guarantees which were given by M. Kishan Rao and his two sons and two other directors were also recorded and Dr. A.V. Mohan Rao was also asked to provide his personal guarantees and after some discussion he refused to give them. The matter of non-contribution of equity capital by NTPC was also discussed in the meeting. After reviewing the position it was recorded that the promoters agreement dated 29th June, 1993 was not capable of implementation and not binding on SPGL and a resolution was accordingly passed. It is denied that the items in question were not discussed in the Board meeting and that agenda item No. 9 had been manufactured. It is further denied that the minutes of said meeting were received by Dr. A.V. Mohan Rao or Brij Bharateey barely five minutes before 28th Board meeting or that the same had been concocted as alleged. It is stated that after revocation of the promoters agreement the NTPC suddenly asked for its proposed equity holding and suggested the name of a nominee. After D. Venkataraman, nominee of NTPC resigned on or about June 1995 there was no recommendation from NTPC for appointment on the Board of Directors in SPGL. It is stated that STUSA had initially remitted an amount of Rs. 1.92 crores. Further amount of Rs. 26.20 crores was received from STUSA, Maruitius and also a sum of Rs. 89.91 lakhs from Spectrum Infrastructure Ltd., Jersey, Island affiliates of STUSA. It is asserted that STUSA is not entitled to any of the reliefs claimed in the suit. Written statement has been signed and verified by M. Kishan Rao on behalf of SPGL.

14. Aforesaid Suit No. 1905/96 was instituted by NTPC against 18 defendants including SPGL, defendant No. 1, JFI, defendant No. 2, STUSA, defendnt No. 3 and M. Kishan Rao and his family members etc. In short, it is alleged that in 1991 NTPC acquired land measuring 654.90 acres at Kakinada for setting up a gas based thermal power project. No objection certificate from National Airport Authority was obtained on 6th July 1989 while from A. P. Pollution Control Board on 3rd May, 1990. NTPC was granted Techno economic clearance by the Central Electricity Authority under sections 29 to 31 of the Electricity (Supply) Act, 1948 on 25th July, 1990. It is pleaded that in the meeting held on 19th June 1992 chaired by the then Secretary, Department of Power, Government of India and others it was decided that as per new policy of the Government said project should be implemented by a joint venture company to be formed by STUSA and NTPC. Accordingly, a memorandum of understanding was signed between NTPC and STUSA on 23rd July, 1992. Thereafter a promoters agreement in between NTPC, STUSA and SPGL was signed on 29th June, 1993. The sailent features of the promoters agreement have been set out in Para 12 of the plaint. A side letter was also signed between the said parties on 29th June 1993 itself. It is stated that pursu-

ant to the said promoters agreement the NTPC requested various government authorities to transfer said clearances/approvals obtained by it for the said project in favour of SPGL. Land acquired by NTPC was also transferred to SPGL on cost. It is alleged that in the 14th meeting of the Board of Directors of SPGL on 2nd March 1994 aforesaid promoters agreement was adopted by it. However, SPGL did not amend its Memorandum and Articles of Association in accordance with the above promoters agreement despite repeated correspondence by NTPC. By the letter dated 8th April 1996 the NTPC informed SPGL that it had transferred Rs. 7.77 crores on 4th April 1996 by telegraphic transfer in SPGL's bank account with SBI. By the same letter the NTPC also nominated C. P. Jain, irector (Finance) as its nominee director on the Board of SPGL.

15. It is further alleged that through the letter dated 15th June, 1996 of Dr. A. Mohan Rao the NTPC learnt that in the Board meeting of SPGL held on 14th December 1995 the promoters agreement was allegedly terminated. By the letter dated 30th April, 1996 NTPC intimated SPGL that non-acceptance of equity contribution sent by it, was in gross violation of the said promoters agreement. Simultaneously, on 30th April, 1996 NTPC asked SPGL to send a copy of the agenda of the Board meeting held on 14th December 1995. In response to that letter SPGL sent a letter dated 27th May, 1996 informing that the Board of Directors on 14th December 1995 had rescinded its earlier resolution dated 2nd March 1994 adopting the said promoters agreement and SPGL was now not bound by that agreement. It is claimed that the alleged revocation of promoters agreement and refusal to take the nominee of NTPC on the Board of SPGL is in contravention of clause 5.1(b) of the said agreement. Award of contracts/sub contracts to defendants 14,16, 17 and 18 by SPGL is in violation of clauses 7.2 and 7.7 of the said agreement. SPGL is legally bound to restore all the benefits that it had received from NTPC in pursuance of the promoters agreement as provided by sections 64 & 65 of the Contract Act. Reliefs sought in the plaint are reproduced below:-

     a) a decree for specific performance directing defendants 1 to  3      to perform their obligation in the promoters agreement dated 29th  June 1993. 
 

     b) a decree for mandatory injunction to defendant No. 1 to  issue  and deliver 77.7 lakh equity shares of defendant No. 1 company to plaintiff by accepting plaintiff's contribution for the same. 
 

     c) a decree for mandatory injunction to defendant No. 1 to accept  the plaintiff's nominee as a director on their Board. 
 

     d)  a decree for declaration that the allotment of shares to  any person other than defendants 2 & 3 is illegal and void. 
 

     e)  a decree for injunction restraining defendant No. 1  and  deendants  14, 16, 17 & 18 from taking any steps for execution  of  the contracts/sub contracts issued to them by defendant No. 1  in respect of the Godavari Gas project. 
 

     f) composition of Board of directors of SPGL in terms of  promot ers agreement. 
 

g) a decree for mandatory injunction to defendant No. 1 to supply to the plaintiff complete copies of the audited accounts of defendant No. 1 since its incorporation till date, copies of the minutes of all meetings of the their Board, resolutions passed by their Board and all correspondence entered by them with all outside agencies and in the alternative

h) decree for mandatory injunction to defendant No. 1 to retransfer the land which had been transferred by the plaintiff for the project and to apply to the various authorities for transfering back to the plaintiff the gas allocation in respect of that project and various other clearances transferred by the plain-

tiffto to defendant No. 1 in respect of this project.

i) a decree for costs of the suit.

16. In the suit aforementioned I.A.7314/96 under Order 39 Rules 1 & 2 and Order 40 Rules 1 & 2 and Section 151 CPC was filed by NTPC seeking appoint-

ment of a receiver etc. Another I.A. No.8609/97 under Order 39 Rules 1 & 2 read with Section 151 CPC was jointly filed by NTPC and STUSA seeking to restrain SPGL from issuing any shares to any person contrary to the promoters agreement without the consent of NTPC. Both these I.As together with aforesaid I.A. No. 4782/96 were dismissed in terms of the order under appeal by the learned single Judge.

17. Reference only to the written statement filed by SPGL is needed. Alleged revocation of the resolution dated 2nd March 1994 passed by the Board of Directors of SPGL adopting the aforesaid promoters agreement was the immediate cause for filing the said suit by NTPC and Suit No. 1251/96 by STUSA. In Para No. 10 of the preliminary objections of the written statement it is pleaded that STUSA has filed Suit substantially on similar grounds and SPGL has filed written statement in that suit setting out the correct position regarding the transaction between the parties and SPGL reiterates, confirms and adoptes everything stated in that written statement. Pleas raised by SPGL in the written statement in said Suit No. 1251/96 have been set out in detail in the preceeding paragraphs of this order. To avoid repetition only the pleas which have been taken additionally by SPGL in its written statement in Suit No. 1905/96 need to be taken note of. It is alleged that NTPC has failed to aver in the plaint that it was ready and is still willing and ready to perform its part of the obligation under the promoters agreement dated 29th June, 1993 and in the absence of pleading to that effect suit for specific performance is not legally maintainable. It is stated that NTPC has failed to disclose that the land at Kakinada already stands transferred in the name of SPGL under a registered sale deed dated 28th November 1994. SPGL paid a sum of Rs.5.09 crores to NTPC in lieu of the cost of land. Additional amount of Rs.5.19 crores was also paid for investment including interest to NTPC. NTPC itself for its subscription for shares under the said promoters agreement all along treated the sale of land as a separate transaction. It is alleged that NTPC neither accepted the legal relationship under the said promoters agreement nor did it pay its equity contribution when called upon by SPGL. It also did not furnish non-disposal, cost overrun and shortfall undertaking to IDBI. It is stated that NTPC orally communicated to M. Kishan Rao, managing director of SPGL to disassociate itself from the project but after the passing of the resolution dated 14th December 1995 by the Board of Directors of the company, NTPC suddenly changed its mind and remitted an amount of Rs. 7.77 crores in early April 1996 even though various objections raised by it in the past still remained to be resolved.

Although no reply was filed by SPGL to I.A. 7314/96 but it filed reply to I.A. 8609/96 taking grounds more or less similar to that taken in the written statement filed by it.

18. We heard Sh. Kapil Sibal for STUSA, Sh. P. Chidambaram for SPGL, Sh. Dushyant Dave for JFI, Sh. Shanti Bhushan for NTPC, Sh. Ashwini Kumar for IDBI and Sh. C.M. Oberoi for Westing House Electric Corporation, respondent and were also taken through the records. Written submissions have also been filed on behalf of said parties excepting Westing House Electric Corporation.

FAO(OS) 266 & 265/97

19. In aforesaid I.A.4782/96 filed under Order 39 Rules 1 & 2 read with Section 151 CPC by STUSA the prayers made are as under:-

a) pass a mandatory injunction directing defendant Nos. 1 (SPGL) and 2 (JFI) to make the necessary amendment to the Articles of Association of defendant No. 1 company as required in the promoters agreement dated 29th June 1993;

b) not to give effect to item No. 9 of the agenda of the 27th meeting of the Board of Directors held on 14th December, 1995 in any manner whatsoever and to direct defendants 1 and 2 to act nly in terms of the promoters agreement dated 29th June 1993;

c) an injunction restraining defendants 1 & 2 not to take any steps in the management and administration of defendant No. 1 company unless affirmative votes have been taken by the plaintiff and defendant No. 3 in respect of any matter relating to the management, administration and operation of the defendant No. 1 company:

d) direct defendant No. 1 company to handover the statutory books, records, accounting books and documents to plaintiff's representative for inspection and inventory thereof to prevent any fabrication or interpolations which can be made by defendant No. 1 company or defendant No. 2 or its men, servants or agents;

e) ad interim injunction in terms of prayers (a) to (d) above;

f) an injunction restraining defendant No. 2 either directly or through its associates, nominess, agents or servants from in any manner increasing the authorised issued share capital of defendant No. 1 or to allot or issue any further shares.

20. In I.A. 8609/97 under Order 39, Rules 1 & 2 read with section 151 CPC jointly filed by STUSA and NTPC the prayers made are:-

     a) restrain defendant No. 1, SPGL from issuing any shares to  any      person  contrary  to the provisions of  the  promoters  agreement without the consent of the NTPC; and
 

     b)  pass  any other or further orders as this Hon'ble  court  may deem fit and proper. 

 

21. On behalf of SPGL a preliminary objection was raised that no relief n be granted in the said IAs against SPGL as it is a company having entity different from its shareholders and was not a party to the promoters agreement dated 29th June 1993 which was entered into between STUSA, JFI and NTPC. In support of this submission reliance was placed on the decision in Russel Vs. Northern Bank Development Corporation (1992) 3 All ER 161; Shanti Prasad Vs. Kalinga Tubes, and V. B. Rangaraj Vs. V. B. Gopalakrishnan & Ors. .

22. It is admitted case of the parties that SPGL was incorporated on 26th October 1993 after it was decided in the meeting dated 19th June 1992 presided over by the then Secretary, Power, Government of India, in which representatives of NTPC and STUSA were also present, that gas based power project in Andhra Pradesh should be undertaken by STUSA and NTPC as a joint venture project. It is also not in dispute that thereafter promoters agreement dated 29th June 1993, (on pages 222 to 252, Vol. 3 of the compilation filed by STUSA) was entered into between STUSA, NTPC and JFI. Section 4.1(a) of this agreement explicitly records JFI's representation and warranty that it shall cause SPGL to carry on its business diligently and in substantially the manner STUSA and NTPC shall mutually agree. Section 9 of the agreement obligates SPGL to adopt, ratify, consent to and fully agree to be bound by the promoters agreement. Admittedly, SPGL adopted the said promoters agreement by way of Board of Directors resolution dated 2nd March 1994. Neither the Companies Act nor the Articles of Association of SPGL prevent SPGL from adopting such a promoters agreement. It is further not in dispute that pursuant to the said promoters agreement, NOC's from National Airport Authority A.P. Pollution Control Board and Chief Conservator of Forests and also clearance certificate from Central Electricity Authority obtained for setting up project were assigned in favour of SPGL at the instance of NTPC. Not only that land acquired at Kakinada by NTPC too was transferred in SPGL's favour. In Para No. 15 of the written statement it is admitted by SPGL that STUSA initially remitted an amount of Rs. 1.92 crores by way of foreign equity; thereafter further sum of Rs. 26.20 crores from Spectrum Technology USA Inc, Mauritius and Rs.89.91 lakhs from Spectrum Infrastructure Ltd. Jersey, Island, they being the affiliates of STUSA were received by it towards foreign equity. In para No. 14 of the written statement it is further admitted by STUSA that Dr. A. V. Mohan Rao and Brij Bharteey continued to act as directors on the Board of SPGL. That being the position, prima facie, we are of the view that it is not open to contend now that the said promoters agreement is not binding on SPGL, it being not a party to it. We are unable to agree with the submission advanced on behalf of SPGL that adoption and revocation of the said promoters agreement by SPGL are irrelevant to the issue on hand. As regards the three decisions referred to above, in none of these decisions the company had agreed to amend its Articles of Association to bring them in conformity with the promoters agreement and, therefore, they being distinguishable are inapplicable to the facts of the present case.

23. Prayer made at (b) in said I.A. 4782/96 is relateable to the resolution at item No. 9 allegedly passed by the Board of Directors of SPGL in the meeting held on 14th December, 1995 revoking/rescinding the promoters agreement dated 29th June 1993. In Para No. 18 of the plaint in Suit No. 1251/96 it is pleaded that in the agenda of the meeting held on 14th December, 1995, no agenda items regarding furnishing of guarantee by STUSA, rescinding the promoters agreement and non-issuance of equity capital to NTPC were included. Neither any discussion on such extremely important items could be made nor in fact these items discussed in the meeting. The minutes of the said meeting were received by Dr. A. V. Mohan Rao and Brij Bharteey on 14th April 1996 barely five minutes before the 28th Board meeting and minutes of Board's meeting dated 14th December 1995 have been concocted. Revocation of the said promoters agreement is stated to be used as a rouse for not allowing STUSA and NTPC to participate in the management of SPGL through its Board of Directors. Reference particularly to two letters dated 18th December 1995 (at page 1024, Vol. V) and 12th March 1996 (at page 1069, Vol. VI) to which our attention was drawn on behalf of STUSA is necessary in the matter. Letter dated 18th December 1995 under the signature of M. Kishan Rao was sent by SPGL to D.G.K. Rao, Additional General Manager, NTPC, New Delhi. This letter notices that NTPC had raised various technical objections in the implementation of promoters agreement and in view of practical difficulties faced by SPGL it had suggested certain modifications to the agreement but NTPC was not willing to accept them. Said Sh. Rao was, therefore, requested to use his good offices to resolve the impasse. Letter dated 12th March 1996 was sent by SPGL to P. Mohan Ram, Dy. General Manager, PFD, IDBI, Bombay in regard to disbursement of Rupee Term loan to the extent of Rs. 100 crores Regarding contribution by NTPC in Para No. 6 of this letter it is stated that the matter is still pending due to procedural delays and the promoters are proposing to bring in contribution of Rs. 10 crores shortly as unsecured loan to be reapid after the receipt of NTPC's share of contribution. Alongwith this letter a statement showing status of compliance of various pre-disbursement conditions was also forwarded and against the column - "amend shareholders agreement entered into with NTPC to provide for the proposed means of finance" (Page 1078) - it is written that the promoters have already entered into a promoters agreement dated 29th June 1993. It is pertinent to note that both the said letters were sent after passing of the alleged resolution of recession of the promoters agreement in the Board meeting dated 14th December 1995. Had the promoters agreement been rescinded on 14th December 1995 there was absolutely no occasion on the part of SPGL to have made request to said Sh. Rao to use his good offices to resolve the impasse in the implementation of the promoters agreement or to have assured IDBI that the proposed contribution of Rs. 10 crores as unsecured would be repaid after receipt of NTPC's share of contribution or to have shown in the statement forwarded with the letter that the promoters agreement had already been entered into on 29th June 1993. In support of the recession of the promoters agreement in said Board meeting dated 14th December 1995 our attention was invited on behalf of SPGL to the letters dated 19th January 1996 (at Page 1041, Vol. VI), 9th February 1996 (at Page 1045, Vol VI) and 15th April 1996 (at Page 1145, Vol. VI) and also the presumption of correctness attached to the minutes of said meeting under sections 193 and 194 of the Companies Act. Said three letters were sent by Dr. A. V. Mohan Rao of STUSA to SPGL. Letter dated 19th January 1996 was written with reference to the request made by M. Kishan Rao to call upon NTPC to withdraw as a promoter / shareholder in SPGL while letter dated 9th February 1996 is in regard to furnishing of bank guarantees by STUSA in favour of said M. Kishan Rao and his family. At the cost of repetition it may be noted that according to Dr. A.V. Mohan Rao the minutes of the meeting dated 14th December 1995 were furnished to him and Brij Bharteey only on 14th April 1996 barely five minutes before the start of 28th Board meeting and only thereafter they learnt about the alleged recession of said promoters agreement. Thus by the time both the said letters came to be written by Dr. A.V. Mohan Rao he was unaware about the contents of the minutes of Board meeting dated 14th December, 1995. In above letter dated 15th April 1996 there is specific mention about the incorrect recording of the minutes of meeting dated 14th December, 1995. So these letters are of little help to SPGL in the matter. Suffice it to say that the presumption under section 195 of the Companies Act is rebuttable. Copy of the minutes of said Board meeting dated 14th December 1995 is placed at Page No. 1023 in Vol. V and the same goes to show that two reasons given for revocation against agenda item No. 9 under the heading "any other matter with the permission of the chair" are inability of Dr. A. V. Mohan Rao to furnish his personal guarantees in favour of M. Kishan Rao and his two sons M. Raghuvir and M. Subramaniam and non-contribution of equity by NTPC. This Board resolution further talks of various non-compliances explained in the meeting without giving details thereof. There is no contemporaneous record toshow any act of non-compli-ance by STUSA. Viewed in the light of said discussion, strong doubt is created about the resolution of revoking/rescinding the said promoters agreement being passed in the Board meeting dated 14th December, 1995. At any rate there is a serious dispute that the promoters agreement could not have been rescinded because of alleged inability on the part of Dr. A.V. Mohan Rao in furnishing personal guarantees in favour of M. Kishan Rao and his sons as he was not under obligation to do so under the promoters agree-

ment. Although STUSA has prima facie made out a case for grant of ad interim injunction to the extent as not to give effect to the revocation and recession of the said promoters agreement still the question will be that whether a case has been made out for grant of interim injunction in mandatory form against SPGL.

24. It was pointed out on behalf of SPGL that part of prayer (b) in said I.A. 4782/96 seeking direction to SPGL to act only in accordance with the promoters agreement is beyond prayer (b) made in the suit. It was further pointed out that STUSA and NTPC will have a veto power in the management if the prayer (c) in I.A. 4782/96 and prayer (a) in I.A. 8609/97 are allowed. Indisputably, prayer (a) in I.A.4782/96 was given up by STUSA during the hearing before the learned single Judge. After permitting the inspection of the records of SPGL by this court, prayer (d) made in said I.A. 4782/96 has been rendered infructuous. Prayer (f) as made is misconceived as it is for the SPGL to increase its authorised issued share capital or to allot or issue any further shares. Scope of power by the court in the matter of grant of interim mandatory injunction came to be considered by the Supreme Court in the decision in Dorab Cawasji Warden Vs. Coomi Sorab Warden and Others, and paras 12, 12A, 13 & 14 on pages 872 and 873 of the said report which are relevant are reproduced below:-

"12. In Evans Marshall & Co. Ltd., Vs. Bertola, SA (1973) 1 ALL ER 992 the Court of Appeal held that:-

"Although the failure of a plaintiff to show that he had a reasonable prospect of obtaining a permanent injunction at the trial was a factor which would normally weigh heavily against the grant of an interlocutory injunction, it was not a factor which, as a matter of law, precluded its grant."

The case law on the subject was fully considered in the latest judgment in. Films Rover International Ltd. Vs. Cannon Film Sales Ltd., (1986) 3 All ER 772, Hoffmann, J., observed in that case:-

"But I think it is important in this area to distinguish between fundamental principles and what are sometimes described as `guidelines', i.e. useful generalisations about the way to deal with the normal run of cases falling within a particular category. The principal dilemma about the grant of interlocutory injunctions, whether prohibitory, or mandatory, is that there is by definition a risk that the court may make the `wrong' decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is, therefore, that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been `wrong' in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle."

Again at page 781 the learned Judge observed:-

"The question of substance is whether the granting of the injunc tion would carry that higher risk of injustice which is normally associated with the grant of a mandatory injunction. The second point is that in cases in which there can be no dispute about the use of the term `mandatory' to describe the injunction, the same question of substanc will determine whether the case is `normal' and therefore within the guideline or 'exceptional' and therefore requiring special treatment. If it appears to the court that, exceptionally, the case is one in which withholding a mandatory terlocutory injunction would be in fact carry a greater risk of injustice than granting it even though the court does not feel a 'high degree of assurance' about the plaintiff's chances of establishing his right, there cannot be any rational basis for withholding the injunction."

and concluded that:-

"These considerations lead me to conclude that the Court of Appeal in Locabail International Finance Ltd. Vs. Agroexport, (1986) 1 All ER 901 at p.906, (1986) 1 WLR 657 at p.664 was not intending to `fetter the' court's discretion by laying down any rules which would have the effect of limiting the flexibility of the remedy, to quote Lord Diplock in the Cyanamid case (1975) 1 All ER 504 at p.510, (1975) AC 396 at p.407. Just as the Cyanamid guidelines for prohibitory injunctions which require a plaintiff to show no more than an arguable case recognise the existence of exceptions in which more is required (compare Cayne Vs. Global Natural Resources plc, (1884) 1 All ER 225), so the guideline approved for mandatory injunctions in Locabail recognises that there may be cases in which less is sufficient."

On the test to be applied in granting mandatory injunctions on interlocutory applications in 24 Halsbury's Laws of England (4th Edn.) para 948 it is stated:-

"A mandatory injunction can be granted on an interlocutory application as well as at the hearing, but, in the absence of special circumstances, it will not normally be granted. However, if the case is clear and one which the court thinks ought to be decided at once, or if the act done is a simple and summary one which can be easily remedied, or if the defendant attempts to steal a march on the plaintiff, such as where, on receipt of notice that an injunction is about to be applied for, the defendant hurries on the work in respect of which complaint is made so that when he receives notice of an interim injunction it is completed, a mandatory injunction will be granted on an inter locutory appli-

cation.'

12A. The law in United States is the same and it may be found in 42 American Jurisprudence 22 Edn.page 745 etc.

13. As far the cases decided in India we may note the following cases.

In one of the earliest cases in Rasul Karim & Anr Vs. Pirubhai Amirbhai ,(1914) ILR 38 Bom.381 : (AIR 1914 Bom.42), Beaman, J. was of the view that the courts in India have no power to issue a temporary in junction in mandatory form but Shah, J. who constituted a Bench in that case did not agree with Beaman,J. in this view. However, in a later Division Bench judgment in Champsey Bhimji & Co. Vs. Jamna Flour Mills Co. Ltd., (1914) 16 Bom. LR 566: (AIR 1914 Bom. 195), two learned Judges of the Bombay High Court took a different view from Beaman, J. and this view is now the prevailing view in the Bombay High Court. In M. Kandaswami Chetty Vs. P. Subramania Chetty, (1918) ILR 41 Mad. 208: (AIR 1918 Mad. 588) a Division Bench of the Madras High Court held that courts in India have the power by virtue of Order 39, Rule 2 of the Code of Civil Procedure to issue temporary injunctions in a mandatory form and differed from Beaman's view accepting the view in Champsey Bhimji & Co. Vs. Jamna Flour Mills Co., (supra). In Israil Vs. Shamser Rahman, (1914) ILR 41 Cal 436: (AIR 1914 Cal 362), it was held that the High Court was competent to issue n interim injunction in a mandatory form. It was further held in this case that in granting an interim injunction what the court had to determine was whether there was a fair and substantial question to be decided as to what the rights of the parties were and whether the nature and difficulty of the questions was such at it was proper that the injunction should be granted until the time for deciding them should arrive. It was further held that the court should consider as to where the balance of convenience lie and whether it is desirable that the status quo should be maintained. While accepting that it is not possible to say that in no circumstances will the courts in India have any jurisdiction to issue an ad interim injunction of a mandatory character, in Nandan Pictures Ltd., Vs. Art Pictures Ltd., , a Division Bench was of the view that if the mandatory injunction is granted at all on an interlocutory application it is granted only to restore the status quo and not granted to establish a new state of things differing from the state which existed at the date when the suit was instituted.

14. The relief of interlocutory mandatory injunctions are thus granted generally to preserve or restore the status quo of the ast non-contested status which preceded the pending controversy until the final hearing when full relief may be granted or to compel the undoing of those acts that have been illegally done or the restoration of that which was wrongfully taken from the party complaining. But since the granting of such an injunction to a party who fails or would fail to establish his right at the trial may cause great injustice or irreparable harm to the party against whom it was granted or alternatively not granting of it to a party who succeeds or would succeed may equally cause great injustice or irreparable harm, courts have evolved certain guide lines. Generally stated these guidelines are:-

(1) The plaintiff has a strong case for trial. That is, it shall be of a higher standard than a prima facie case that is normally required for a prohibitory injunction.

(2) It is necessary to prevent irreparable or serious injury which normally cannot be compensated in terms of money.

(3) The balance of convenience is in favour of the one seeking such relief."

25. Suit by STUSA was filed on 18th May 1996 while by NTPC in September 1996. STUSA is virtually seeking restoration of the state of affairs which existed prior to 14th November, 1995 i.e. much prior to the institution of suit. Considering the ratio extracted above in Dorab Cawasji Warden's case (supra) interim mandatory injunction claimed regarding prayer (c) in said I.A. 4782/96 and prayer (a) in I.A. 8609/97 cannot be granted against SPGL. Grant of such prayer will amount to establishing a new state of things differing from the state which existed at the date when the suit was instituted. Non-contested status as on the date of institution of the suit was not the same as is sought to be projected by STUSA. Moreover, grant of this prayer will have the effect of almost decreeing the suit at this stage. There is also considerable merit in the said submission advanced on behalf of SPGL that later part of prayer (b) in said I.A. 4782/96 seeking direction to SPGL to act only in accordance with the promoters agreement is beyond prayer (b) made in the suit by STUSA and, therefore, it will not be permissible to grant interim relief to that extent.

26. This brings us to another submission made on behalf of SPGL that the aforesaid promoters agreement was rendered invalid as the conditions of side letter dated 29th June 1993 were not at all complied with by STUSA and partially complied with by NTPC within 120 days of its execution and further that the promoters agreement had been abandoned by the parties both by their conduct as well as by subsequent events in which the parties acquiesced. Present constitution of the Board of Directors, change in shareholding pattern, furnishing of guarantees to the Bank and Financial Institutions for providing finance entirely by JFI group and issue of shares to STUSA, Marutitus, an affiliate of STUSA, exceeding 50% of the shareholding of STUSA are stated to be the subsequent events which have rendered the promoters agreement being incapable of performance. On the contrary, it was pointed out on behalf of STUSA that 120 days period stipulated for comple-

tion of formalities mentioned in the said side letter expired on 29th October 1993. Despite the alleged non-compliance of conditions by STUSA & NTPC within the said period the promoters agreement was adopted by the Board of Directors of SPGL on 2nd March 1994 and equity contribution from STUSA and its affiliates was accepted much after the dead line of 120 days by SPGL. It was further pointed out that section 5.5 of the promoters agreement clearly contemplates the broad basing and appointment of independent directors specially at the request of lending institutions. Means of finance are only in aid of and supplementary to the promoters agreement and the financial institutions granted loan to SPGL only on the basis of the said promoters agreement. Thus the change in means of finance cannot render the promoters agreement incapable of performance as urged. It was also pointed out that after STUSA brings in its entire equity, then only one can say whether its affiliates have brought in more than 50% of the equity subscribed in violation of the promoters agreement. Issue of equity shares to Rolls Royce is also not a departure from the promoters agreement. As is manifest from the minutes of Board meeting dated 14th December 1995 the promoters agreement was not rescinded or revoked on any of the aforesaid grounds now pointed out on behalf of SPGL. NTPC has filed Suit No. 1905/96 seeking specific performance of the said promoters agreement. Also looking at the limited scope of the appeals, merit of said submissions of SPGL can only be examined during trial by the learned single Judge.

27. During the pendency of appeals, in FAO(OS) 266/97. C.M. 2799/98 under section 151 CPC was filed by STUSA for appointing an administrator/receiver to manage the affairs of SPGL which has been opposed strongly by filing reply by SPGL. In support of the application it was contended that SPGL's funds running into several crores of rupees had been siphoned off by M. Kishan Rao by giving bogus contracts to his family members or friends and recording fictitious expenditure in the books of SPGL. A portion of the siphoned off funds was brought back as equity through Bambino Finance and other group companies and also as unsecured loan to SPGL. Our attention was drawn to the audit report submitted by M/s. S.P. Billimoria & Co., Chartered Accountants. It was pointed out that an amount of Rs. 35 crores was declared by said M. Kishan Rao, his family members and the group companies under VDI scheme for the purpose of regularising the investment made in SPGL. In the reply filed by SPGL allegations regarding siphoning off funds have been refuted. It is stated that there had been huge cost overruns in the project cost and the factors contributing to the cost overruns have been disclosed in the affidavit dated 1st February 1993 filed alongwith the reply. It was also urged that the scope of hearing must be restricted only to the matters arising in appeals and by the order dated 8th December 1998 this court also made it clear that it will confine itself only to the matters arising in appeals. It may be noticed that by the order dated 28th August 1998 this court had desired IDBI (not a party to the suits) to intervene in exploring the possibility of resolving the disputes between the promoters of SPGL. IDBI convened two meetings of the promoters on October 15, 1998 and 10th November 1998 at its office at Bombay but no amicable settlement could be reached. In the written submissions filed by IDBI it is stated that allegations of financial irregularities and mismanagement of the company on the part of present management were discussed amongst Financial Institutions at the Senior Executives meeting held on 3rd July 1998 when it was decided that a special audit by an independent firm of chartered accountants be conducted. Accordingly, IDBI pursuant to the powers vested in it under the relevant provisions of loan agreements dated 11th August 1993 and 17th May 1995 caused a special audit to be conducted by M/s. S.P. Billimoria & Co. Audit has since been completed and processing by IDBI of the audit report has been initiated in consultation with other Financial Institutions. At the Senior Executives meeting held on 17th February, 2000 the Financial Institutions decided to seek the views of the Board of SPGL on the findings of audit report. Appropriate action in the matter as per terms of the aforeaid loan agreements shall be taken in consultation with other Financial Institutions after receipt of comments from the Board of Directors of SPGL. It is further stated that Financial Institutions including IDBI which is the lead lending financial institution in this case, have substantial financial exposure to the tune of Rs. 360.20 crores out of which Rs.299.61 crores have already been collectively disbursed for the project. Out of these disbursements IDBI has disbursed Rs.123.39 crores as on 31st December 1999 to SPGL. It is pertinent to note that the allegations of siphoning off huge amounts by said M. Kishan Rao and his family do not form part of plaint in the suit filed by STUSA. Considering the fact that audit report is yet to be approved by IDBI in consultation with concerned Financial Institutions, absence of allegations of siphoning off funds in the plaint as will as the order dated 8th December 1998, we are of the view that it is neither just and proper, nor it is a fit case for appointing an administrator/receiver to manage the affairs of SPGL. Such an appointment is likely to jeopardise the on going power project. There cannot be any quarrel with regard to the legal position enunciated in the decisions in A.G. Maban Vs. Bank of Mysore Ltd, AIR 1956 Mysore 32, Rattan Lal Advocate Vs. Jagadhri Light Railway Co. Ltd., and Others, AIR (33) 1946 Lahore 193 and T.S. Sivaprakasa Mudaliar and Another Vs. K.M. Samarapuri and Others, AIR (37) 1950 Madras 116 cited on behalf of STUSA but for the reasons noted above they have no application to the facts of these cases.

FAO(OS) 267/97

28. In I.A. 7314/96 the prayers made by NTPC are as under:-

i) appoint a receiver to take charge of all the shares issued by defendant No. 1 company and exercise all the voting rights in respect of such shares and ensure the proper management of the company in terms of the promoters agreement dated 29th June 1993;

ii) direct defendant No. 1 company to accept the plaintiff's nominee as a director on the Board of Directors of defendant No. 1 company and further direct defendant No. 1 not to take any financial and administrative decisions without the concurrence or pproval of the plaintiff's nominee director in defendant No. 1 company,

iii) restrain defendants 4 to 12 and 15 from exercising any voting right in respect of shares in defendant No. 1 company;

iv) restrain defendant No. 14, 16, 17 and 18 from taking any further steps to execute and implement the contracts awarded to them by defendant No. 1 company;

v) and pass any further order as the court may deem fit and proper in the facts and circumstances stated above.

29. Let us first deal with the objection raised on behalf of SPGL that as uit No. 1905/96 out of which said I.A.7314/96 arises, itself is not legally maintainable, no relief can be granted on the said application. It was pointed out that NTPC has failed, to make averment of readiness and willingness as required by law in the plaint of said suit, However, it was contended on behalf of NTPC that all the necessary averments which indicate NTPC's readiness and willingness to perform its obligations under the contract have been made in the plant and in that connection our attention was invited particularly to paras 13, 15, 16, 20 and 25 of the plaint. It was further contended that in such matters it is not the form of pleadings which is important but the substance of averments and if from the substance of averments it is clear that the plaintiff was ready and willing to perform its obligations under the contract, a specific averment regarding readiness and willingness need not be made. Reliance was placed on the decisions in Sukhbir Singh Vs. Brijpal Singh, (1977) 2 SCC 200 and Pandurang Ganpat Tanawade Vs Ganpat Bhairu Kadam & Ors, . It was pointed out that I.A.8277/96 under order 6 Rule 17 seeking amendment in plaint to incorporate the averments of readiness and willingness stands moved in the past but no order has been passed thereon by the single Judge. Having considered the allegations made in said paras of the plaint, ratio of both the decisions cited at the bar and also the pendency of said I.A., we are unable to accept the aforesaid objection and proceed to decide the appeal on merits.

30. In the plaint of above Suit No. 1905/96 no prayer for appointment of a receiver has been made. Grounds on which appointment of receiver is sought in said I.A. 7314/96 are mainly that the various permissions and allocations which were obtained by NTPC were transferred to SPGL pursuant to promoters agreement dated 29th June, 1993. SPGL has failed to amend its memorandum and Articles of Association to bring them in line with the said promoters agreement and it now threatens to run away with the project on their own. During the course of argument siphoning off the funds from SPGL by M. Kishan Rao was additionally taken as a ground for appointing receiver. Needless to repeat that on the later ground by filing C.M. No. 2799/98 STUSA also sought the appointment of an administrator/receiver to manage the affairs of SPGL but for the reasons noted in the preceding paragraphs of this order that request has been turned down by us. Those reasons equally hold good as regards prayer made by NTPC on that count. Law regarding appointment of receiver is now well settled. In T. Krishnaswamy Chetty Vs. C. Thangavelu Chetty and Others, five principles to be taken note of by the courts while exercising equity jurisdiction in appointing receivers have been summarised as under:-

"(1) The appointment of a receiver pending a suit is a matter resting in the discretion of the court. The discretion is not arbitrary or absolute; it is a sound and judicial discretion, taking into account all the circumstances of the case, exercised for the purpose of permitting the ends of justice, and protecting the rights of all parties interested in the controversy and the subject-matter and based upon the fact that there is no other adequate remedy or means of accomplishing the desired objects of the judicial proceeding.

(2) The court should not appoint a receiver except upon proof by the plaintiff that prima facie he has very excellent chance of succeeding in the suit.

(3) Not only ust the plaintiff show a case of adverse and conflicting claims to property, but, he must show some emergency or danger or loss demanding immediate action and of his own right he must be reasonably clear and free from doubt. The element of danger is an important consideration. A court will not act on possible danger only; the danger must be great and imminent demanding immediate relief. It has been truly said that a Court will never appoint a receiver merely on the ground that it will do no harm.

(4) An order appointing a receiver will not be made where it has the effect of depriving a defendant of a 'de facto' possession since that might cause irreparable wrong. If the dispute is as to title only, the court very reluctantly disturbs possession by receiver, but if the property is exposed to danger and loss and the person in possession has obtained it through fraud or force the court will interpose by receiver for the security of the property. It would be different where the property is shown to be 'in medio' that is to say, in the enjoyment of no one, as the court can hardly do wrong in taking possession; it will then be the common interest of all the parties that the court should prevent a scramble as no one seems to be in actual lawful enjoy ment of the property and no harm can be done to anyone by taking it and preserving it for the benefit of the legitimate who may prove successful. Therefore, even if there is no allegation of waste and mismanagement the fact that the property is more or less 'in medio' is sufficient to vest a court with jurisdiction to appoint a receiver.

(5) The court, on the application of a receiver, looks to the onduct of the party who makes the application and will usually efuse to interfere unless his conduct has been free from blame. He must come to court with clean hands and should not have disentitled himself to the equitable relief by laches, delay, acquiescence etc."

31. Bearing the said principles in mind, if we examine the facts of this case as set out in said I.A. 7314/96 we are of the view that no case has been made out for appointing, a receiver to manage the affairs of SPGL as prayed in prayer (i), particularly in view of the fourth principle enumerated above.

32. Adverting to prayer (ii), SPGL has opposed a nominee of NTPC on its Board mainly on the grounds that NTPC is neither a shareholder of the company nor did it furnish the undertaking for cost overruns and non-disposal as required by IDBI. In reply, it was contended on behalf of NTPC that NTPC declined, to contribute equity and furnish undertakings for cost overruns and non-disposals as SPGL had failed to amend its Memorandum and Articles of Association to bring them in line with the promoters agreement as agreed. That situation regarding non amendment of the Memorandum and Articles of Association even continues till date. In view of the ratio in Dorab Cawasji Warden's case (supra) interim mandatory injunction as claimed in prayer (ii) cannot be legally issued against SPGL.

33. Aforesaid prayer (iii) is relateable to prayer (d) in the suit. In terms of prayer (d) a decree of declaration has been sought declaring that the allotments of shares to any person other than STUSA and NTPC are illegal and void. Merit of the plea regarding allotments of shares to defendants 4 to 12 and defendant No. 15 being illegal can be gone into only in the trial by learned single Judge. Said defendants being the shareholders cannot be injuncted at this stage from exercising their voting right in SPGL.

34. In regard to prayer (iv), it was pointed out on behalf of SPGL that C.N. Swamy, a nominee of NTPC was there in the Board meeting dated 11th December 1994 when EPC contract was awarded to Rolls Royce. It was further pointed out that in the Board meeting dated 10th March, 1995 D. Venkatraman, nominee of NTPC was also present when O & M contract was awarded. Presence of C.N. Swamy and D. Venkatraman in the said Board meetings is not disputed by NTPC. However, it was urged that NTPC had deputed them only for rendering technical assistance in the implementation of the project as stated in the letter dated 7thDecember 1993 etc and approval for award of the said contracts on behalf of NTPC was to be given by its Board. Be that as it may, award of the contract/sub contracts in question is a fait accompli now and the ad interim injunction prayed for cannot be granted as it would jeopardise the ongoing power project which will not be in public interest.

35. For the foregoing discussion, FAO(OS) 265/97, FAO(OS) 266/97 and FAO(OS) 267/97 are dismissed. No order as to costs.