Subhash Arora & Another vs M/S.Star Realty Pvt. Ltd. & Others
2008 Latest Caselaw 1766 Del

I.A.No.7806/2008 in

CS(OS) No.1273/2008                   Page No.1



*                IN THE HIGH COURT OF DELHI AT NEW DELHI

+                     I.A. No.7806/2008 in CS(OS) NO. 1273 OF 2008

%                          Date of Decision : September 29th , 2008.



SUBHASH ARORA & ANR.                                .... Plaintiffs

                            Through Mr. P.V. Kumar, Sr.Advocate with
                            Mr.Yogesh K. Jogia, Mr.Dhiraj Sachdeva,
                            Ms.Chetna Gulati, advocates.



                                   VERSUS


M/S. STAR REALTY PVT. LTD. & ORS. ....Defendants.

                                  Through Mr.Arun Jaitley & Mr.
                                  Sandeep Sethi, Sr. Advocates with
                                  Mr.Ashish Mohan, Ms.Sonali Jaitley,
                                  Advocates for defendants 1-5.



CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA

1.

Whether Reporters of local papers may be

allowed to see the judgment?

2. To be referred to the Reporter or not ?

3. Whether the judgment should be reported

in the Digest ?

 I.A.No.7806/2008 in

CS(OS) No.1273/2008                  Page No.2



SANJIV KHANNA, J:

1. Case of both parties is predicated on oral agreements.

2. M/s.Star Reality Pvt. Ltd.-defendant no.1 has acquired title and

ownership rights in respect of property no.12, measuring 7127

sq.mt. at Manglam Palace, Rohini, Delhi 110085 (hereinafter

referred to as Plot, for short) on payment of Rs.48.5 crores in

the auction held by Delhi Development Authority (hereinafter

referred to as DDA, for short) on 25th September, 2006.

Thereafter on 24th April, 2007, DDA executed a conveyance

deed in favour of defendant no.1. A hotel is to be constructed

on the plot.

3. Mr. Prem Arora, Mrs. Geeta Arora and M/s. Prem Arora and

Sons (HUF) defendant nos.2-4 alongwith a Company,

M/s.Arora Credits Ltd-defendant no.5 are shareholders of

defendant no.1.

4. The plaintiffs, Mr.Subhash Arora and Mr.Ankur Arora are

related to defendant nos. 2 and 3 and it is an admitted case of

the plaintiffs and defendant nos. 2-5 that there was an oral

agreement between the parties that the plaintiffs would become

shareholders and directors of defendant no.1-Company. It is I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.3

also an admitted case of the parties that the plaintiffs through

their company M/s. Rupabh Developers Pvt. Ltd. and M/s.Arora

Developers had paid Rs.20,95,69,578/- during the period from

25th September, 2006 till November, 2007 (including Rs.

15,39,578/- paid on 28th March, 2008) to defendant no.1 and

the said amount was mostly utilized for payment of

consideration to DDA for purchase of the said Plot.

5. Factum that there was an oral understanding and agreement

between the parties that the plaintiffs would be allotted shares

and made directors is also established from the project report of

defendant no.1-Company submitted to Punjab National Bank-

defendant no.6 apropos sanction of loan. The plaintiffs have

also given personal guarantees for the loan procured from

defendant no.6-Bank. Personal guarantees continue to subsist.

It is the case of the plaintiffs that they were promised 46.66%

shareholding, while the defendant nos.1-5 group were to have

53.34% shareholding.

6. It is apparent that the plaintiffs were not made shareholders or

directors and no share scrips were in fact issued to them. In the

records of the Registrar of Companies, plaintiffs are not I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.4

shareholders or directors of defendant no.1.In fact no letter or

communication asking for issue of shares or staking claim as

directors has been placed on record by the plaintiffs.

7. Both the plaintiffs and defendant nos. 1-5 agree that there was

a second oral agreement between the parties but there is a

dispute about the date and the terms thereof. Defendant nos. 1-

5 claim that disputes arose and in October 2007, it was

mutually decided that one of the groups shall move out and in

terms thereof, Rs. 10,90,69,578/- ( less Rs. 15,39,578/- which

was subsequently repaid vide cheque on 28th March, 2008)

was refunded to M/s.Rupabh Developers Pvt. Ltd. and

M/s.Arora Developers on different dates upto 31st March, 2008,

leaving a balance of Rs.10.05 crores. Defendant Nos. 1-5

claim that the refund was made as it was settled and orally

agreed between the parties, that plaintiffs were to be paid the

entire amount along with interest @ 14% p.a. The earlier oral

agreement was terminated. The plaintiffs on the other hand,

had submitted that the oral agreement was not terminated or

cancelled but there was modification, with the plaintiffs agreeing

to reduce their shareholding to 38.46% with allotment of 50 lakh I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.5

equity shares of Rs.10/- each and the defendant nos. 1-5 were

to hold 70 lakh equity shares of Rs.10/- each. Therefore

payment made by them was partly refunded leaving balance of

Rs.10.05 crores with defendant no.1-Company.

8. It is not possible at this stage to decipher the correct and true

factual position. It is word of mouth against word of mouth.

However, I may note factors which support the case/claim of

defendant nos. 1-5. The plaintiffs have stated that the cost of

the entire project was Rs.139.38 crores. Investment of Rs.5

crores by plaintiffs and Rs.7 crores by defendant nos. 1-5 would

not have been sufficient to meet the capital cost. The huge gap

required for the project remains unexplained. Loan of Rs.20/30

crores granted by defendant no.6-Bank after mortgage was not

sufficient. At a time when infusion was required, withdrawal of

money by plaintiffs, keeping in mind the size of the project,

does leave gaping holes. I may note here that defendant nos.

1-5 have been making payment of monthly equated

installments fixed by defendant no.6-Punjab National Bank in

terms of loan of Rs.20 crores. The said payments are not being

made by the plaintiffs. As per plaintiffs under the original oral I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.6

agreement it was agreed that they would have 46.67%

shareholding in the defendant no.1-Company and under the

subsequent oral agreement their shareholding was reduced to

38.46%. This results in a reduction of about 12%, but what has

been refunded by defendant nos. 1-5 to the plaintiffs is more

than half of their total investment of Rs.20,95,69,578/-, leaving

a balance of Rs.10.05 crores.

9. Defendant nos. 1-5 have placed on record affidavit of one

Mr.Anju Jhullar who has stated that there was an agreement

between the parties and a memorandum of understanding was

executed pursuant thereto. Defendant Nos1-5 were discharged

from all liabilities, except liability to pay Rs.10.05 crores which

was to be paid on or before 31st July, 2008 in full and final

settlement, failing which defendant no.1 was to pay interest @

18% p.a. It is claimed that the said memorandum of

understanding after signatures was torn by the plaintiffs and the

lower half portion was taken away by them on 6th June, 2008.

These are disputed questions of fact which will require

evidence and the said affidavit is therefore not being taken into

consideration.

 I.A.No.7806/2008 in

CS(OS) No.1273/2008                 Page No.7

10. Defendant Nos. 1 to 5 have also relied upon payment of

Rs.15,39,578/- included in cheque date 14th March, 2007 paid

to M/s.Rupabh Developers Pvt. Ltd. in support of their

contention that the plaintiffs had agreed to refund with interest

@14% p.a. It was submitted by the learned counsel for the

defendant nos.1-5 that Rs.15,39,578/- is a precise amount and

an odd figure and perfectly corresponds to interest calculated

@ 14% p.a. w.e.f. 1st April, 2007. I may note here that the

plaintiffs have repaid Rs.15,39,578/- to defendant no.1 in the

month of March 2008 itself. Rs.15,39,578/- is an odd figure and

to that extent supports the claim of defendant nos. 1-5 but it is

very difficult to give a firm opinion in favour of any one party at

this stage, especially when M/s.Rupabh Developers Pvt. Ltd.

have refunded Rs.15,39,578/- and the said refund has been

accepted. What were the exact terms of the second oral

agreement remain uncertain.

11. Learned counsel for the defendant nos. 1-5 had tried to

co-relate refund of Rs.15,39,578/- with the sale deed executed

by M/s.Geetha Arora-defendant no.3 of plot no.6, Green Park,

measuring 273.262 sq.mts. in favour of wife of plaintiffs no.1, I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.8

Mrs.Rama Arora for Rs.5.50 crores. It was stated that the

transfer of the said plot was made at the cost price as

Mrs.Geetha Arora had purchased the said plot in 2006 in a

DDA auction for Rs.5.45 crores (Rs. 4.98 crores purchase price

plus other charges). It was submitted that the sale

consideration was reduced to compensate and set off interest

@ 14% p.a. payable on the amount which had already been

refunded and paid back to M/s.Rupabh Developers Pvt. Ltd.

and M/s.Arora Developers. Again it is very difficult for this Court

to give a firm opinion one way or the other without oral

evidence. We have a written document in form of a sale deed

mentioning the total sale consideration paid as Rs.5.50 crores.

Once sale consideration is mentioned in a document, it cannot

be disregarded without material and evidence to the contrary.

Whether or not a party should be allowed to raise a plea of this

nature is another aspect. Learned counsel for the plaintiffs had

submitted that plaintiffs had prior interest in the said Plot and

had paid substantial amount to one, Mr.Anil Batra, with whom

defendant no.3 at one time had entered into an agreement to

sell. This plea of the plaintiffs does not prima facie appeal to me I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.9

for there is a deed of cancellation dated 29th March, 2007 to

which defendant no.3, M/s. Rupabh Developers Pvt. Ltd.,

Mr.Vipin Kumar and Mr.Anil Batra were parties. The onus will

be on the plaintiffs to correlate this deed of cancellation

executed in March, 2007 with the transfer made after one year

vide registered sale deed executed in May, 2008.

12. There are two aspects in favour of the plaintiffs inasmuch

as Rs.10.05 crores is still with the defendant nos. 1-5 and there

is also material to show that originally there was an oral

understanding between plaintiffs and defendant nos. 1-5 under

which the plaintiffs were to become shareholders and directors

of defendant no.1 company. To this extent, there is prima facie

case in favour of the plaintiffs. However, there is ambiguity

and doubt what transpired thereafter, but as stated above

there is evidence in favour of the defendant nos. 1-5 in

form of refund/repayment of more than Rs.10 crores by

defendant nos. 1-5 to the plaintiffs or their group (Refer

paragraph 8). Whether there was termination of contract

and on what terms or there was merely amendment

or modification of the contract is a dispute that can I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.10

be finally resolved only after evidence is recorded. Rs.10.05

crores paid by the plaintiffs is still with defendant nos. 1-5.

13. Balance of convenience and irreparable harm and

loss are two important considerations which have to be kept in

mind while deciding an application for grant of interim

injunction. As per the plaintiffs themselves, the total project cost

for constructing hotel is about Rs.139.38 crores. The hotel has

to be constructed to comply with the terms and conditions of the

auction before the Commonwealth Games, 2010. Keeping in

mind inter se disputes between the parties it is impossible for

them to pull along with each other and complete the project

jointly. Substantial infusion of funds is required to save the plot

and comply with the terms and conditions of allotment. Funds

have to come from a third party. Admittedly, as of now the

plaintiffs do not hold any shares and are not directors of

defendant no.1-Company. Even in the returns filed by the

plaintiffs group, the amount paid was shown as sale price of

plot and not as sale consideration for issue of shares. In

these circumstances, I do not think interim injunction should be

granted against defendant nos.1-5 from entering into any joint I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.11

venture with a third party in respect of the hotel project. The

same would jeopardize interest and would cause irreparable

loss to defendant nos. 1-5 and even the plaintiffs themselves in

case there is violation of terms of allotment. Balance of

convenience does not justify passing of such restraint order.

14. Learned counsel for the plaintiffs submitted that the

defendant nos. 1-5 should before they enter into a joint venture

give right of first option to the plaintiffs to purchase shares and

step into the shoes of a third party. At first sight, the proposal

appears reasonable but on deeper scrutiny it is difficult to

accept the same as it will only lead to further round of litigation

and disputes. Investment required in the entire project is

substantial and the time is running out. Project costs are bound

to increase due to delay, inflation and interest which has to be

paid to defendant no.6-Bank. Joint venture agreements in such

cases are fairly complex and require adjustment of rights,

understanding, good-faith, etc. Balancing and counter

balancing rights of the parties in a joint venture agreement is a

necessity. With a rider of the first option, it will not be possible for

the defendant nos. 1-5 to negotiate and enter into a viable joint I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.12

venture. It would dissuade any third party from entering into

negotiations and finalizing a joint venture and is a threat that

will make any party wary and a joint venture agreement

uncertain. Terms and conditions of the joint venture are

unknown, unpredictable and to a larger extent would depend

upon the infusion of funds by defendant nos. 1-5 in the project

as well as their capacity to negotiate terms with a joint venture

partner. Passing any such order would substantially jeopardize

the rights of defendant nos. 1-5, in a case where the plaintiffs

have withdrawn almost 50% of the money deposited by them

and their entire claim is for minority shareholding. The said

claim is still to be established, both as a matter of right and also

on the question of quantum.

15. In these circumstances balancing out equities,

balance of convenience and to avoid irreparable harm as well

as to protect interest of both plaintiffs and defendant nos. 1-5,

the following interim order is passed:-

(i). Defendant nos. 1-5 may enter into a joint venture

or sell /transfer their shareholding in defendant no.1-

Company to any third party but subject to the condition I.A.No.7806/2008 in

CS(OS) No.1273/2008 Page No.13

that if at any time shareholding of defendant nos.2-5

becomes less than 38.46% or there is complete transfer,

they shall deposit in Court Rs.10.05 crores plus interest

@16% p.a. on the amounts paid by the plaintiffs w.e.f.

25th September, 2006 till the date payment is deposited.

Interest will be calculated on the amount outstanding in

the name of the plaintiffs and will take into account

payments made and refunds received by the plaintiffs

from time to time. Deposit will be made within 10 days

from the date of transfer/reduction. Deposit will be kept in

a fixed deposit to earn maximum interest and will abide by

orders that may be passed.

(ii). In case the plaintiffs succeed and the suit is

decreed, the Court will be competent to issue suitable

directions to protect interest of plaintiffs in the defendant

no.1-Company.

(iii) Defendant nos.1-5 will take steps for discharge of

personal guarantees given by plaintiffs to the defendant

no.6-Bank. The said process must be completed by

defendant nos. 1-5 within three months.

 I.A.No.7806/2008 in

CS(OS) No.1273/2008                 Page No.14

16. Learned counsel for defendant nos. 1-5 had submitted

that the present suit for mandatory and permanent injunction

suffers from a legal defect in view of Section 41 of the Specific

Relief Act, 1963. The said question is debatable but the

learned counsel for the plaintiffs during the course of hearing

had given an undertaking that an application for amendment of

the suit would be made to incorporate and introduce a relief

seeking specific performance. The said statement is taken on

record.

Application is accordingly disposed of with above

directions. There will be no order as to costs.

                                                 (SANJIV KHANNA)

                                                     JUDGE

SEPTEMBER             29, 2008.

P