Shri K.K. Modi And Anr. vs Shri M.K. Modi And Ors.
2003 Latest Caselaw 201 Del

JUDGMENT

S. Mukerjee, J.

1. By this common Order, we propose to dispose of FAO (OS) 462/01 & FAO(OS) 492/01 both filed against the same order dated 8thOctober, 2001 passed by Ld. Single Judge of this Court.

2. The suit from which present appeals arise, is mainly a dispute between two groups of the same family. The dispute is between the sons of late Shri Gujarmal Modi and Shri Kedarnath Modi. The three sons of Shri Kedarnath Modi are in one Group (hereinafter to be referred to as Group A) and five sons of Shri Gujarmal Modi are in another Group (hereinafter to be referred to as Group B).

3. The Modi family had interest in many companies which are popularly known as the Modi Group of Companies. The said Modi Group of Companies had been under the management and control of Gujarmal Modi and his sons on the one hand and his younger brother, Mr. Kedarnath Modi and sons on the other.

4. After the death of Shri Gujarmal Modi in 1976, as per the averment made by the parties, the Modi Group of companies was under the control and management of Mr. Kedarnath Modi and his sons. Apart from holding interest in various Companies, the family own substantial assets.

5. Differences and disputes arose between Group A and B. To dissolve such differences and disputes, negotiations took place with the help of financial institutions and the Government of India. Ultimately, on 24.1.89, a memorandum of understanding was signed and executed between the two groups. In the Memorandum of Understanding so arrived, it was agreed between the parties that Group A will manage and/or control the various companies enumerated in Clause I of the said MOU. One of the companies mentioned in Clause I is Modipon Limited (minus Indofil +Selling Agency).

6. Group B was to manage, own/control the companies enumerated in Clause II. One of the companies which was included in the Clause II as Modi Pon Ltd. (minus Modipon Fibre Division).

7. In the said M.O.U., the provision for division of assets was also made. Such division was to take place after the evaluation of the assets and was required to be divided in the ratio of 40:60 with Group A getting 40% of the assets and Group B getting 60% of the assets.

8. The shares of the companies were required to be transferred to the respective groups after their evaluation, which was required to be done by M/s. Billimoria and Company. Clause 5 of the M.O.U. provided that for companies which were to be split between the two groups, such split was to be done in accordance with the scheme of the arrangement to be formulated by M/s. Bansi S. Mehta and company, after taking into consideration the valuation done by M/s. S.B. Billimoria and Company.

9. Clause 6 of the M.O.U. provided for the arrangements which were to be made in respect of the three companies which were to be split, viz such Modi Industries Ltd., Modipon Ltd. And Modi Spinning and Weaving Mills company Ltd.

10. In Clause 9 of the M.O.U., it was provided that implementation was to be done in consultation with the financial institutions and that in case of disputes, clarifications etc with respect of implementation, the same was to be referred to the Chairman IFCI, or his nominee.

11. The evaluation was done by M/s. Billimoria and Company, which gave its report. M/s. Bansi S. Mehta and Company who were required to provide a scheme for splitting of the above-referred companies, by taking into account the evaluation fixed by M/s. Billimoria and Company, also sent various reports between November 1989 and December 1994.

12. The members of both the groups were dissatisfied with the reports. And as such, they sent various representations to the Chairman and Managing Director of IFCI in terms of Clause 9 of the M.O.U.

13. The Chairman and the Managing Director of IFCI, with the assistance of a Committee of experts, gave his detailed decision/report. The said report was not filed as an award, nor was any application filed by Group B to make it a Rule of the Court.

14. However, the Chairman of Modipon Ltd., who was an independent Chairman nominated by IFCI, issued a series of directions for implementing/giving effect to the decision/report of Chairman, IFCI.

15. Thereafter, on 18th May, 1996 Group B filed an Arbitration Petition under Section 33 of the Arbitration Act, 1940, challenging the legality and validity of the decision/report dt. 8.12.95 of the Managing Director of IFCI.

16. Presumably, the said petition was filed on the basis that the report/decision rendered by Chairman and Managing Director IFCI, was an award in the arbitration proceedings between the two groups. The said petition was registered as OMP No. 58 of 1996 before the Court.

17. On the same day, Group B also filed a civil suit, which was registered as Civil suit No. 1394 of 1996 before this Court to challenge the same very decision/report dated 8.12.1995 of the Chairman and Managing Director of IFCI. The averments and prayers made in the suit were substantially the same as those in the arbitration petition.

18. There were certain interim applications filed Along with the arbitration petition seeking interim directions/orders.

19. The petition bearing number OMP No. 58/96, was heard and disposed of by a single Judge of this Court. The Ld. Single Judge dismissed the arbitration petition holding that the judgment and decision of the Chairman and Managing Director of IFCI cannot be considered as an award in the arbitration proceedings, in as much as the parties did not have any intention to refer any dispute to arbitration. It was further held that all the disputes were settled by M.O.U. Dated 24.1.89, and what remained was only evaluation of shares and division of three companies as agreed.

20. On 6.9.97, the suit bearing No. 1394/96 filed by Group B was heard on interim application. The Ld. Single Judge of this Court, by a Judgment & Order dated 6.9.97, dismissed the suit holding the same to be an abuse of the process of this Court. The Ld. Single Judge had struck down the plaint under the Order 6 Rule 16 and dismissed the suit.

21. Being aggrieved of by the said Judgment & Order dated 6.9.97, Group B filed an appeal before the Division Bench of this Court which was registered as RFA (OS No. 41/97). An application seeking interim direction was also filed. The Division Bench of this Court by an order dated 15.9.97 admitted the appeal and disposed of the application seeking interim directions, by reviving the order passed by the Ld. Single Judge whereby the Ld. Single Judge had directed that pending further orders, no meeting of the Modipon board should be held to consider any matter relating to the decision dated 8.12.95 of CMD IFCI.

22. Aggrieved by the Order of the Division Bench, an SLP (Civil) No. 18711 of 97 was filed before the Hon'ble Supreme Court. Another SLP bearing SLP Civil No. 14905 of 97, impugning the Judgment and Order of Ld. Single Judge of this Court, whereby the arbitration petition was dismissed, was also filed and with the consent of the parties, the RFA (OS) No. 41 of 97 was also called by the Hon'ble Supreme Court, for hearing both the SLPs, as well as RFA which cases were so heard by the Hon'ble Supreme Court together.

23. All these appeals came to be decided by the Hon'ble Supreme Court vide Judgment & Order dated 4.2.98 whereby, RFA (OS), 41 of 97 was partially allowed, and the suit, to the extent to which it challenged independently the decisions of the Chairman & Managing Director IFCI, as a "decision" and not as an "award", was held to be maintainable and the matter was remanded back with certain directions.

24. The present proceedings arose from one particular portion of the order of the Hon'ble Supreme Court which is quoted for convenience of reference as under:-

"55. Pending the hearing and final disposal of the suit in the Delhi High Court and/or until any further orders are passed by the trial court if the exigencies of the situation then prevailing so require, no meeting of the Modipon Board shall be held for considering any matter relating to the decision of the CMD, IFCI dated 8.12.95. Also, the defendants in the said suit (Group A) shall not sell any shares held in Godfrey Phillips India Ltd. provided the plaintiffs in the suit deposit in the Delhi High Court a sum of Rs. 5 crores (five crores) within four weeks from the date of this order. In the even of failure to deposit the same amount within the aforesaid period, the order restraining the defendants (Group A) from selling the said shares shall stand vacated. The amount so deposited shall be invested by the High Court Interim Order of 7.1.98 will continue to operate in terms thereof. In the event of any change in the circumstances, the parties will be at liberty to apply to the High Court for any variation of this order. Appeals arising from Special Leave Petitions Nos. 14905 and 18711 of 1997 and Transfer Case No. 13 of 1997 are disposed of accordingly together with all interim applications."

25. Thereafter, certain interim applications were filed by the defendants. The Ld. Single Judge, vide the impugned order, after hearing all the parties passed an order directing that 50% of the total shares of Modi Rubber Limited, owned by Modipon Limited, have to be sold through public offer. All the concerned parties were permitted to participate in the said process of public offer, so that best offer could be received.

26. Aggrieved of by this order, Group B has filed FAO (OS) bearing No. 462 of 2001 for setting aside/quashing the said order. The other group also felt aggrieved by the said order, and has filed FAO (OS) bearing No. 492 of 2001 seeking to set aside the impugned order to the extent it permits the sale of only 50% shares of Godfrey Phillips India Ltd. and Modi Rubber Ltd.

27. A further order seeking permission to Modipon Fibre Division to sell 100% shares of Godfrey Pon India Ltd. and Modi Rubber India Ltd. has been prayed.

28. We have heard the Ld. Senior Counsel appearing for the parties at length.

29. It has been contended on behalf of the appellant in FAO(OS) No. 462 of 2001, that the orders passed by the Hon'ble Supreme Court, cannot be modified or varied unless there is "change" in the circumstances. It is urged that the orders passed by the Hon'ble Supreme Court were orders on an application under Order 39 Rules 1 & 2, and on this basis it has been further contended that the orders so passed by Hon'ble Apex Court under Order 39 Rules 1 & 2 are final, and cannot be varied except as provided under Order 39 Rule 4 viz where there is "change" in the circumstances.

30. The Ld. Counsel for appellant has vehemently contended that there is no change in the circumstances as compared to what was in existence when the Hon'ble Supreme Court passed the Judgment therein giving certain interim directions.

31. The aspect of indebtness, will not amount to such change in the circumstances that could have warranted modification of the orders of the Hon'ble Supreme Court.

32. Ld. Counsel appearing for the appellant, has also contended that the Ld. Single Judge should not have allowed the sale of 50% of shares held by Modipon Ltd. in Modi Rubber Ltd., and Godfrey Phillips India Ltd., without deciding the issue of title to the said shares.

33. As per the Counsel for appellant, the impugned order has rendered a substantial part of the suit to become infructuous. It is alleged that by doing so, the Ld. Single Judge has implemented/enforced the decision/report dated 8.12.95 of CMD, IFCI in an irreversible manner and that too without any trial, in as much as, admittedly the Fibre Division of Modipon Ltd. is on the verge of insolvency and is stated to be a defaulter to a huge extent towards various financial Institutions.

34. If the shares which were to go to Group B on split of Modipon Ltd., are sold of and the amounts utilized to pay off the amounts which have been taken from the financial institutions by the Fibre Division in terms of the impugned order, then such amounts can never be recovered back afterwards, and the shares in question will be lost forever, even if the suit is ultimately decided in favor of the appellant.

35. It has been also contended that the apprehension expressed by the respondents that the Fibre Division of Modipon Limited, would be wound up and 1500 employees would be rendered jobless, are unfounded in as much as ICICI, a member of the consortium of the financial institutions, is stated to have already rescheduled the loans granted to the Fibre Division of Modipon Ltd. and has also approved the proposal for reconstruction of Fibre Division.

36. It is also the contention of the appellant that various orders of this Court and the Hon'ble Supreme Court, were passed on the footing that the appellant herein has a prima-facie case which were sufficiently strong so as to warrant the passing of the interim orders. Therefore, at this stage, it was not open to the Court to reassess and re-appraise the prima-facie case of the appellant, and/or to come to a conclusion which is different from the conclusion arrived in various orders of this Court, as well as the Hon'ble Supreme Court.

37. On the other hand, on behalf of the respondents, the "change" in the circumstances have been enumerated as under:-

(i) As on date of judgment rendered by Hon'ble Supreme Court, the Fibre Division had a default of only Rs. 13.6 crores towards financial institutions and there was no default towards banks. As compared to this, on the date of filing of I.A. No. 11137/98, the default towards financial institutions was Rs. 40.93 crores and towards banks was Rs. 4.4 crores.

(ii) As of today, the default of the Fibre Division towards Financial institutions, is more than Rs. 90 crores.

(iii) Due to defaults towards banks, the Banks have reportedly stated that they would not support the working capital margins extended to the Fibre Division.

(iv) Shares of the Godfrey Phillips Ltd. and Modi Rubber Ltd., fetch an insignificant return in terms of dividend, which is approximately 1% per annum of the market value, whereas the Fibres Division has to pay interest @ 18% per annum to the Banks and Financial Institutions.

(v) IFCI, vide its letter dated 27 July 1999, requested the Company Secretary of Modipon Limited, to place all suitable papers before its Board for disposal of surplus assets so as to clear all defaults of institutions, failing which IFCI would be forced to recall the loan and initiate legal action.

(vi) Punjab National Bank vide its letter dated 18th April, 2001 intimated to the Fibres Division, that majority of the banks were of the view that the Fibres Division should avail of the public offer made by Mr. K.B. Modi and Mr. V.K. Modi and sell the Modi Rubber Ltd.'s shares held by the company to improve its net-worth and to remove the irregularities persisting in its accounts.

(vii) On 19th March, 2001, IFCI which is the leading financial Institution recalled the loan given by it to Fibre Division. Vide this Notice, IFCI also invoked the personal guarantees given by Mr. M.K. Modi. Other financial institutions, such as IDBI and IIBI, have also recalled the loans advanced by them to the Fibre Division.

(viii) The Debt Recovery Tribunal vide its order dated 1st June, 2001 injuncted Modipon Ltd. from disposing its moveable and immoveable assets as mentioned in O.A. No. 150/2001 filed by IFCI.

(ix) Various shareholders have written to the Fibres Division to take an urgent decision to sell its dead assets, so as to clear all outstanding loans.

38. A perusal of the impugned order clearly shows that these above said alleged change in the circumstances, have weighted to a considerable extent with the learned Single Judge while passing the impugned order which is reflected from the portion of the impugned order quoted below:-

"In view of the aforesaid change in the liquidated situation of the defendant and the recall of the loan by the banks and its inability to discharge substantially its overdue liabilities towards the financial institutions and the banks the equity demands that all the efforts should be made for saving the company being declared as sick. May be that at the time when the order of the Supreme Court was passed the situation of the company was not bad as it has now turned out to be and since the defendant company is likely to become sick because of the every growing liabilities towards financial institutions and banks which is projected and demonstrated by the letters of IFCI and PNB the impugned order needs to be modified on the principles of equitable considerations."

39. The factum that ICICI has re-scheduled the loans granted to the Fibre Division of Modipon Limited, and has also approved the reconstruction of Fibre Division is not denied by the respondents. In order to show that there is no change in the circumstances from what existed before the Hon'ble Supreme Court when the order was passed, the appellant has relied on the following passage from the counter affidavit filed by defendant No. 2 in SLP No. 18711 of 1997.

"Furthermore, the Fibre Division of Modi Pon Limited which is given to the share of Group A are admittedly owned the said aforesaid assets is seriously in need of funds for its existence. It is already in default in making payment of public financial institutions and banks in respect of monies borrowed from them. The Italian collaboration has made it clear that as soon as Modi Pon suffers, it will executed a joint venture to take the borrowed funds from the market, because of incentives arising out of these disputes. Furthermore, the shares which are held by the Fibre Division of Modi Pon Limited have a fluctuating price and therefore, the petitioner will suffer irreparable loss as a result thereof if Shri K.K. Modi does not make the payment immediately. Most of all, the order of injunction has the effect of destroying the very agreement dated 24.1.89 which was valid into between the two groups of Modi family at the instance of the Government of India through the Ministry of Finance in view of the involvement of public interest. Further, the binding nature of the agreement and the decision of Chairman, IFCI, dated 8.12.95 is also often destroyed as a result of the injunction. It is therefore submitted that the order of injunction is required to be stayed pending the appeal".

40. It has also been contended that the same plea of extremely financial hardships and constraints, had been taken by the defendant No. 2 in reply to the SLP No. 14905 of 95. The said portion has been extracted in the reply of Shri K.K. Modi to I.A. No. 11137 of 98. The same reads as under:-

"Furthermore, the Fibre Division of Modipon Limited which has come to the share of Group A which admittedly owns the aforesaid asset is seriously in need of funds for its existence. It is already in default in making payment of public financial institutions in respect of money borrowed from them. Its Italian collaboration has made it clear that as soon as Modipon Limited it will execute a joint venture, taken borrow funds from the market, because of incentives arising out of these disputes. Furthermore, the shares which are upheld by the Fibre Division of Modipon Limited have a fluctuating price and therefore, the answering respondent will suffer irreparable loss as a result thereof if Shri K.K. Modi does not make the payment immediately. Most of all, no order interfering the decision of the Chairman, IFCI which is the effect of destroying the very agreement dated 24.1.89 which was entered into between the two groups of Modi family at the instance of the Government of India through the Ministry of Finance in future of involvement of public interest. It is therefore most respectfully prayed that that this Hon'ble Court may pleased to dismiss the present special leave petition with exemplary costs".

41. We have gone through the contention of the parties. In our considered opinion, mere increase in the liabilities of the Fibre Division, is not a ground constituting such "change" of the circumstances as would necessitate the variation of the orders passed by the Hon'ble Supreme Court, after considering on merits the competing claims of the parties. The alleged gravity due to the rise in the default, is considerably reduced in view of the fact that one of the leading members of the consortium financial institutions have already re-scheduled the loans granted to the Fibre Division and reconstruction has also been approved. We are also in agreement with the contention of the appellant, that once the shares, as directed by the impugned order, are sold and the money is used for the purposes of repayment of debts, then even if ultimately at the stage of final disposal of the suit, it be found that such shares were to fall to the share of the plaintiffs, i.e. the appellants, then, the shares as well as the money recovered from the sale of such shares, shall be irretrievably lost and the suit of the plaintiff to that extent shall become infructuous.

42. In our view, atleast for now, there is no occasion to hold that if the shares are not allowed to be sold, then, certain irretrievable consequences shall arise. There is no "change" of circumstances as envisaged by the orders of the Hon'ble Apex Court dated 4.2.98 or as contemplated by Order 39 Rule 4 in the context of all that was considered by the Hon'ble Apex Court while passing the said order.

43. Therefore, the Ld. Single Judge was not justified in passing the orders which goes contrary to the spirit of order passed by the Hon'ble Supreme Court. As a consequence thereof, FAO (OS) bearing No. 462 of 2001 is allowed. The order dated 8.10.2001 is set aside.

44. Since we have allowed the FAO (OS) 462 of 2001, as a consequence thereof, and for the reasons detailed hereinabove, FAO(OS) of 492 of 2001 is liable to be dismissed.

45. All interim orders passed/granted in these appeal proceedings, shall stand vacated in terms of the above. The parties are left to bear their own costs.