Jaya Food Industries P.Ltd. vs Spectrum Technologies Usa Inc. ...
2001 Latest Caselaw 774 Del

ORDER

Devinder Gupta, J.

1. These three appeals have been preferred by defendants 1, 2 and 4 against the order passed by learned Single Judge on the application (IA. No. 5034/2001) filed by respondent NO. 3 in suit NO. 765/2001 thereby allowing the said application and clarifying the earlier order dated 19.4.2001.

2. Spectrum Power Generation Company Limited (for short "S.P.G.L.") is defendant No.1; Jaya Food Industries Pvt. Ltd. (for short "JFI") is defendant NO.2; National Thermal Power Corporation (for short "NTPC") is defendant NO.3 and Mr. M. Kishan Rao is defendant NO.4 in the suit filed by Spectrum Technologies, USA INC (for short "STUSA").

3. The cause for filing suit arose because of an agreement entered into between NTPC on one hand and SPGL, JFI and M. Kishan Rao on the other hand, which was filed before the Supreme Court in S.L.P.(C) No.14864/2000. The said S.L.P. had been filed by NTPC against the order of a Division Bench of this Court dated 7.7.2000 dismissing its appeal and thereby declining to grant any interim relief. NTPC had filed a suit for grant of a decree for specific performance and for other allied reliefs against SPGL and others in which its application for interim relief had been dismissed by learned Single Judge. The appeal had also met the same fate. In addition to the Special Leave Petition of NTPC another Special Leave Petition was preferred by STUSA against the same order passed by Division Bench thereby declining to grant temporary injunction to STUSA in its suit against SPGL seeking decree for mandatory injunction to implement the promoter's agreement in which learned Single Judge had declined to grant temporary injunction and appeal against the said order was also dismissed by a Division Bench of this Court.

4. In the SLP filed by STUSA on 24.7.2000 while issuing notice an interim order was passed by the Supreme Court directing that parties shall maintain status quo and shall not take any major decision except decision to carry on day to day functions. It is stated that the said order has continued to remain in force till date and the said SLP is still pending.

5. Settlement arrived at amongst NTPC and the appellants in terms of the agreement was placed on the record of SLP (C) No. 14564/2000 of NTPC. In terms of the agreement SLP stood disposed of as withdrawn on 9.4.2001. Undertakings of M.Kishan Rao in his personal capacity and as Managing Director of JFI were accepted. Supreme Court in its order dated 9.4.2001 clarified that:-

"taking the terms on record and the acceptance of undertaking by this Court does not preclude any other party from challenging power of the Company to make such payment or of the NTPC to enter into such settlement or of the NTPC to enter into such settlement or to take in any appropriate court any objection available in law. If such a challenge is raised before a competent Court the same shall be decided on its own merits without being influenced by the fact that the terms are kept on record and/or that the undertakings are given to and accepted by this Court. It is clarified that the undertaking given by the Company is subject to any Order which may be passed by any competent court including holding that the Company cannot make such payment and/or give such undertaking etc. If it is decided that the Company cannot make such payment at any stage or order preventing company from making payments is obtained then the director, namely respondent No.3 Shri Krishna Rao, Managing Director undertakes to this Court that he shall personally make payment of the amounts, as per terms either to the Company or to NTPC."

6. The aforementioned order gave rise to a cause to STUSA to file suit No. 765/2001 in this Court praying for a decree of declaration that the agreement dated 9.4.2001 entered between NTPC and the appellants and the undertakings dates 9.4.2001 filed before Supreme Court are illegal, null and void and without any effect and consequently prayed for a decree for injunction restraining NTPC and the appellant from acting upon, in any manner, on the said agreement. Along with the suit an application under Order 39 Rules 1 and 2 C.P.C. was also filed wherein ex parte interim injunction was sought inter alia restraining NTPC and the appellants from acting in any manner upon the impugned agreement and restraining SPGL from making any payment to NTPC under the impugned agreement. The interim application came up before the Court on 19.4.2001 on which date except for NTPC the other parties were represented by their counsel. While issuing summons in the suit and notice in the application filed under Order 39 Rules 1 and 2 CPC after taking on record version of the parties as regards payment of the first Installment to NTPC an order of status quo was passed by learned Single Judge in the following terms:-

"Issue dusty notice to defendant No. 3, returnable on 1st May, 2001.

Mr. Kapil Sibal, learned senior counsel for the plaintiff/defendant states that in case the payment of second Installment by defendants 1 to 3 is not made by 25th May, 2001 he would not press for ex-parte ad interim injunction against the said payment. However, the learned senior counsel for defendants No. 1 states that the payment towards the first Installment has already been made by way of telegraph transfer on 18th April, 2001 i.e. only yesterday to State Bank of India, Commercial Branch, Bank Street, Hyderabad.

After hearing the counsel for the parties in order to be fair to all the parties, the application be taken up on 1st May, 2001. Till then status quo shall be maintained till 1st May, 2001 so far as the subsequent payment is concerned."

7. It appears that STUSA as well as the appellants were satisfied with the order since no appeal has till date been preferred against the said order by any of the parties.

8. NTPC on acquiring knowledge of the order dated 19.4.2001 filed an application (IA.5034/2001) on 21.5.2001 seeking clarification of the order dated 19.4.2001. It was, inter alia, alleged by the NTPC in the said application that on 19.4.2001 the Court was pleased to order status quo as far as subsequent payments are concerned. The order was to remain in operation till 1.5.2001. Thereafter the said order had been continued in subsequent orders and it was the understanding of NTPC that the status quo order does not in any manner restrain JFI or M. Kishan Rao from making payment in terms of Installments schedule settled between the parties, as per agreement dated 9.4.2001 and as per the terms of subsequent undertakings filed by JFI and M. Kishan Rao in the Supreme Court. NTPC expressed its apprehension that the status quo order dated 19.4.2001 might e interpreted to mean that the said order also restraining JFI and M. Kishan Rao from making payment to NTPC in case SPGL is unable to make such payments because of the order dated 19.4.2001. Accordingly, it was prayed that the order dated 19.4.2001 may be clarified to the extent that it does not restrain JFI and M. Kishan Rao from making payments as per the payment schedule of the agreement dated 9.4.2001 and undertakings given before the Supreme Court.

9. The aforemention application came up before the Court on 23.5.2001. The order says that counsel for the parties were heard on the clarification sought by NTPC in the application. Noticing the respective construction, which was being put by the appellants, NTPC and STUSA to the order dated 19.4.2001, learned Single Judge proceeded to dispose of the application saying:-

"Taking over all view of the matter particularly the liberty given by the Hon'ble Supreme Court to the plaintiff to seek any remedy irrespective of the undertaking given by defendant No. 1 or M.M. Krishnarao and in order to provide purposeful meaning to the order dated 19th April, 2001 it is clarified that status quo means that defendant No. 1 company alone is restrained from making the subsequent payments to NTPC till the application under Order 39 Rules 1 and 2 CPC is decided. The application is likely to be decided by mid-July as counsel for all the parties are likely to conclude their arguments by then. It is made clear that hearing shall take place so far possible on day to day basis."

[Emphasis supplied]

10. On behalf of the appellants it was vehemently urged that instead of clarifying as to what the learned Single Judge meant by order of status quo dated 19.4.2001, learned Single Judge instead has proceeded to pass further order of restraint in a mandatory form thereby upsetting the sequence of the payments to be made as per the agreement entered into between NTPC and the appellants and as incorporated by Supreme Court in its order dated 9.4.2001. It was contended that the order of restraint has been passed without considering the stand of the appellants as made in their respective replies to the application filed by STUSA under Order 39 Rules 1 and 2 CPC and without hearing them on merits of the application and without being satisfied as to the prima facie nature of the claim set up by STUSA. Such an order could not have been passed without satisfying the requirement as contained in the order of Supreme Court dated 9.4.2001.

11. While taking the terms of settlement on record and accepting the undertaking furnished before Supreme Court liberty was reserved to any other party (order than the party to the agreement) to challenge the power of SPGL to make payment under the terms of settlement and the power of NTPC to enter into settlement saying that if such a challenge is made before a Competent Court, the same shall be decided on merits uninfluenced by the fact of terms of settlement has been taken on the record of SLP or that the undertaking had been filed and had been accepted by the Supreme Court. Mr. Chidambaram vehemently urged that when the Supreme Court had clarified that the undertaking given by SPGL is subject to any order which might be passed by any Competent Court including holding that the Company cannot make such payment and/or give such undertaking etc. of if it is decided that the Company cannot make such payment at any stage or an order prohibiting the Company from making payments is obtained then the director, namely, M. Kishan Rao undertakes to Court that he shall personally make payments of the amount. In view of this clarification, learned Single Judge ought not to have proceeded to pass any order of restraint on the Company without recording even a prima facie satisfaction that "The Company cannot make payment or give undertaking" without recording that satisfaction, learned Single Judge by the impugned order has proceeded to restrain the Company from making payment. In the absence of any such reason the grant of injunction by the impugned order is bad.

12. Learned Single Judge while passing the impugned order in which he gave clarification of the order dated 19.4.2001 also proceeded to record in his order the circumstances under which the order of status quo was passed saying:-

"The order of status quo was passed as Mr. Kapil Sibal, learned senior counsel for the plaintiff of second Installment by defendants 1 to 3 is not made by 25th May, 2001 he would not press for ex-parte ad interim injunction against the said payment. However, the learned counsel for defendant NO. 1 informed that the payment towards the first Installment has already been made by way of telegraph transfer on 18th April, 2001 i.e. a day before the suit was filed. It was in view of these facts that the application under Order 39 Rules 1 and 2 CPC was ordered to be taken on 1st May, 2001 and till then the status quo was to be maintained in respect of payment of subsequent Installments.

xxx xxx xxx xxx

Since it was hoped that the application under Order 39 Rules 1 and 2 may be decided on or before 25th May, 2001, the date by which when the second Installment was to be made in terms of the agreement between defendant No. 1 and NTPC before the Hon'ble Supreme Court, the only implication of the order dated 19th April, 2001 was that status quo shall be maintained in the form of restraining the defendant No. 1 from making any subsequent payment to NTPC particularly when defendant No. 1 informed that the payment of the first Installment has been made a day before the filing of this so it. To imagine that the status quo was to be maintained as on the day of the suit i.e. the company-defendant No. 1 was allowed to make the payment of subsequent Installment to NTPC in an application under Order 39 Rule 1 and 2 CPC seeking ex-parte ad interim injunction against the defendant No. 1 from making such payment is beyond comprehension."

13. He further proceeded to record the manner in which the status quo order was being construed on behalf of SPGL saying:-

Mr. P. Chidambaram, learned senior counsel for defendant No. 1 SPGL construes this order as the status quo prevailing on the date of the suit, that is the status quo of the terms of the agreement recorded before the Hon'ble Supreme Court between defendant No. 1 and NTPC and defendants 2 to 4."

14. Before us during course of hearing Mr. Kapil Sibal, appearing for STUSA, in his submission supporting the order passed by learned Single Judge saying that since no appeal has been preferred against the order dated 19.4.2001, no interference is called for in the impugned order by which learned Single Judge has merely clarified what he meant by the order of status quo. In any case, according to him, learned Single Judge had passed the order dated 19.4.2001 after submissions had been made on behalf of the plaintiff for quite some time praying for grant of ex-parte order. Learned Single Judge taking note of the events, which had happened particularly the fact that the Company had already made payment of the first Installment on 18.4.2001, a day prior to the passing of the order, which payment could have been made up to 25.4.2001, proceeded to direct that "to be fair to all parties, application will be taken for hearing on 1.5.2001 and that till then status quo be maintained so far as the subsequent payments are concerned". In other words, Mr. Sibal submitted that learned Single Judge was of the view that SPGL should not make payment of subsequent Installments. Mr. Sibal pointed out that the orders passed on 19.4.2001 and the impugned order if read together would reflect that there are sufficient reasons assigned, which prevailed with the learned Single Judge in granting status quo order.

15. Having considered the respective submissions made at the bar, we are of the view that even if the application filed by STUSA under Order 39 Rules 1 and 2 C.P.C. was still at the stage of being heard and lengthy arguments had been addressed before learned Single Judge on behalf of the plaintiff, who was pressing for the ex-parte order of injunction in case the learned Single Judge at that stage was satisfied that some measure of protection was required to be given till preliminary submissions on behalf of the parties are concluded, it was but necessary for him to have disclosed his mind in the order as to for what valid reasons the order of restrain or status quo was being passed by him against either of the appellants. Though the order dated 19.4.2001 is not under challenge before us but no reasons are disclosed in the said order. The question still will be that whether such reasons could have been supplied later on. In the impugned order learned Single Judge status that what he had meant by the order of status quo, but without disclosing any reasons as regards his satisfaction of the three basic principles of existence of prima facie case, balance of convenience and irreparable loss. In the absence of the same, order becomes bad in law.

16. In Shiv Kumar Chadha, Appellant v. Municipal Corporation of Delhi and others the Supreme Court held that it has been pointed out repeatedly that a party is not entitled to an order of injunction as a matter of right or course. Grant of injunction is within the discretion of the court and such discretion is to be exercised in favor of the plaintiff only if it is proved to the satisfaction of the court that unless the defendant is restrained by an order of injunction, an irreparable loss or damage will be caused to the plaintiff during the pendency of the suit. The purpose of temporary injunction is, thus, to maintain the status quo. The court grants such relief according to the legal principles ex debito justitiae. Before any such order is passed the court must satisfied that a strong prima facie case has been made out by the plaintiff including on the question of maintainability of the suit and the balance of convenience is in his favor and refusal of injunction would cause irreparable injury to him.

17. Power to grant injunction was held to be an extraordinary power vested in the court to be exercised taking into consideration the facts and circumstances of a particular case. The courts have to be more cautious when the said power is being exercised without notice or hearing the party who is to be affected by the order so passed. That is why Rules 3 of Order 39 of he Code requires that in all cases the court shall, before grant of an injunction, direct notice (SIC) of application to be given to the opposite (SIC) except where it appears that object (SIC) injunction itself would be defeated (SIC) the Civil Procedure Code (Amendment) Act, (SIC) proviso has been added to the said rule saying that "where it is proposed to grant an injunction without giving notice of the application to the opposite-party, the court shall record the reasons for its opinion that the object of granting the injunction would be defeated by delay".

18. In the context of passing order of injunction without notice or without hearing the party likely to be affected by the order or passing order of restraint without recording the reasons the Court further said:-

"It has come to our notice that in spite of the aforesaid statutory requirement, the courts have been passing orders of injunction before issuance of notices or hearing the parties against whom such orders are to operate without recording the reasons for passing such orders."

19. Following reference was made in this context to the statutory obligation of recording reasons:-

"The imperative nature of the proviso has to be judged in the context of Rule 3 of Order 39 of the Code. Before the proviso aforesaid was introduced, Rule 3 said "the court shall in all cases, except where it appears that the object of granting the injunction would be defeated by the delay, before granting an injunction, direct notice of the application for the same to be given to the opposite party". The proviso was introduced to provide a condition, where court proposes to grant an injunction without gibing notice of the application to the opposite party, being of the opinion that the object of granting injunction itself shall be defeated by delay. The condition so introduced is that the court "shall record the reasons" why an ex-parte order of injunction was being passed in the facts and circumstances of a particular case. In this background, the requirement for recording the reasons for grant of ex-parte injunction, cannot be held to be a mere formality. This requirement is consistent with the principle, that a party to a suit, who is being restrained from exercising a right which such party claims to exercise either under a statute or under the common law, must be informed why instead of following the requirement of Rule 3, the procedure prescribed under the proviso has been followed. The party which invokes the jurisdiction of the court for grant of an order of restraint against a party, without affording an opportunity to him of being heard, must satisfy the court about the gravity of the situation an court has to consider briefly these factors in the ex-parte order. We are quite conscious of the fact that there are other statutes that contain similar provisions requiring the court or the authority concerned to record reasons before exercising power vested in them. In respect of some of such provisions it has been held that they are required to be complied with but non-compliance therewith will not vitiate the order so passed. But same cannot be said in respect of the proviso to Rule 3 of Order 39. The Parliament has prescribed a particular procedure for passing of an order of injunction without notice to there other side, under exceptional circumstances. Such ex-parte orders have far-reaching effect, as such a condition has been imposed that court must record reasons before passing such order. If it is held that the compliance with the proviso aforesaid is optional and not obligatory, then the introduction of the proviso by the Parliament shall be a futile exercise and that part of Rule 3 will be a surplusage for all practical purposes. Proviso to Rule 3 of Order 39 of the Code attracts the principles, that if a statute requires a thing to be done in a particular manner, it should be done in that manner or not all."

20. In case it is imperative to record reasons, even if the order is ex-parte, it is all the more necessary that when order of restraint is passed in presence of the party that reasons must be disclosed in the order. The party affected is entitled to know that for what reasons restraint order has been passed against it. Non-recording of reason will vitiate the order.

21. We are informed that hearing on the application under Order 39 Rules 1 and 2 CPC is still in progress. Arguments are being heard from day to day and learned Single Judge has also observed in the impugned order that hopefully arguments of parties are likely to be concluded by mid-July, 2001, the reason for long date being that the Courts will be closed for about five weeks due to summer vacation.

22. It was urged on behalf of STUSA by Kapil Sibal that no harm or prejudice is likely to be caused by the impugned order at least to NTPC since payments, if any, to be made under the payment schedule if have been ordered not to be made by SPGL are liable to be made either by JFI or by M. Kishan Rao, as per their respective undertakings. The undertakings do say that if for any reason whatsoever, including an injunction of Competent Court, Installments would be payable by JFI in terms of settlement or if not paid by JFI then by M. Kishan Rao. Mr. Sibal submitted that even if it be held that reasons have not assigned by learned Single Judge, it is still open to STUSA in this appeal to bring to the notice of the Court material justifying grant of injunction and it is open even for learned Single Judge to pass any interim order till application is finally heard and decided.

23. Mr. Chidambaram appearing for SPGL submitted that there are valid and cogent reasons available with SPGL due to which it will not be permissible for learned Single Judge to pass finally even an order of injunction in favor of STUSA against SPGL. He has not yet been heard in the mater by learned Single Judge. Order of injunction as granted by the impugned order, if allowed to stand, is likely to cause immense and irreparable loss and injury to the Company since in the event of JFI or M. Kishan Rao not honouring their commitment as pre their undertakings, the settlement amicably arrived at with NTPC will fall through and the Company will be put to a situation of non-return.

24. Considering the aforementioned submissions, we are of the view that Mr. Sibal was right in his submissions that the Court is not debarred in passing any order of restraint as may be deemed fit in the facts and circumstances of the case, after notice has been issued to the other party and before the application under Order 39 Rules 1 and 2 is heard and decided. However, in case it is proposed to pass such an order it will be necessary to hear both the parties, may be as briefly as possible and to record its reasons for passing such an order. However, perusal of the order would show that there are no reasons assigned by learned Single Judge in the impugned order that why SPGL ought to be restrained from making payment. We are not inclined to hear learned counsel for the parties on the merits of the application of injunction, since hearing is continuing from day to day before learned Single Judge. But the impugned order in the absence of reasons is liable to be set aside but with certain directions in order to protect respective interest of the parties.

25. Consequently, we allow the appeals. Set aside the impugned order clarifying that it will be permissible for the SPGL to make payments of only two Installments due and payable on 25.5.2001 and 25.6.2001 to NTPC as per the payment schedule, which SPGL is ready and willing to pay. This payment will be without prejudice to the rights and contentions of the parties and subject to the condition that in case ultimately the application under Order 39 Rules 1 and 2 CPC is allowed and SPGL is restrained from making payment, the amount will be reimbursed to SPGL by JFI and/or M. Kishan Rao as per the undertaking given in Court before us during the course of hearing by learned counsel appearing for JFI Kishan Rao, which we hereby accept. We direct that in the aforementioned eventuality JFI and/or M. Kishan Rao will reimburse the amount to the Company within a period of one week, falling which the said amount, as per the undertaking given before us, will be liable to be adjusted from out of their equity in the company. In order to expedite the hearing before learned Single Judge, it is hereby made clear that it will permissible for learned Single Judge to fix a time schedule for concluding the hearing on the application under Order 39 Rules 1 and 2 CPC. In any case the parties will conclude their submissions before learned Single Judge by 13.7.2001 so as to enable learned Single Judge to pronounce the order will in advance before the Installment of 25.7.2001 becomes due and payable. We also make it clear that in case for any reason whatsoever final order is not announced, it will be permissible for learned Single Judge to pass any interim order in accordance with law after hearing the parties, for the subsequent Installment. Parties to bear their respective costs.