Mr. Sandeep Mathur & Anr. vs Mr. Vijay Kumar Aggarwal & Ors.
2009 Latest Caselaw 2234 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI


                                                   Date of Reserve: May 08, 2009
                                                      Date of Order: May 25, 2009

+OMP 494/2008
%                                                              25.05.2009
    Mr. Sandeep Mathur & Anr.                           ...Petitioner
    Through : Mr. Sanjeev Puri, Sr. Adv. with Mr. G. Sen, Advocates

      Versus

      Mr. Vijay Kumar Aggarwal & Ors.                  ...Respondents
      Through: Mr. Shabyashachi Patra, Advocate for R-6.


      JUSTICE SHIV NARAYAN DHINGRA

1.    Whether reporters of local papers may be allowed to see the judgment?

2.    To be referred to the reporter or not?

3.    Whether judgment should be reported in Digest?


      JUDGMENT

1. By this petition under Section 9 of the Arbitration & Conciliation Act,

1996 (for short, "the Act"), the petitioner has prayed that the respondent

No.1 to 5 be directed to release the collateral security of the petitioner No.2

lying with respondent No.7 bank by substituting it with a fixed deposit as per

the terms of MOU. It is also prayed that the respondent No.7 be restrained

from renewing the bank limits of respondent No.5 till the release of the

collateral security. The other prayer made is that the respondents be

restrained from withdrawing any amount from the bank account of

respondent No.5 company or parting with the amount lying in the said bank

account till the payment of the amount due to the petitioners was made and

the collateral bank securities were released. Alternatively, respondents be

asked to deposit the amount equivalent to the market rate of the property i.e.

collateral securities lying with the bank.

OMP 494.08 Sandeep Mathur & Anr. v.Vijay Kr. Agarwal & Ors. Page 1 Of 5

2. Brief facts relevant for the purpose of deciding this petition are that the

petitioners were the shareholders in respondent No.5 having 30% shares in

the company. The total number of shares held by petitioners was 1,23,000

with face value of Rs.10. The other shareholders of the company were the

respondents No.1 to 4 who all together were having 2,87,000 shares. The

petitioners started their own company while they were working as directors of

the respondent which resulted into disputes between the petitioners and the

respondents and ultimately a Memorandum of Understanding was signed

between the parties whereby the petitioners had agreed to sell their 1,23,000

shares to respondents at a price of Rs.125 per equity share in accordance

with due diligence report of KSMN and Company. The payment of the value of

equity shares was to be done in phased manner. Forty percent of the amount

was to be paid on signing of MOU and payment of remaining 60% was linked

with the receipt of balance dues from the different parties. A detailed list of

recoverable dues was attached with the MOU. There were certain projects of

the company underway and the likely date of completion of these projects

was mentioned in the MOU and it was provided that the petitioners shall

continue to assist respondent No.5 in the business and completion of these

projects and ensure smooth takeover and smooth implementation of MOU.

The projects lying incomplete are mentioned in paragraph 11 of MOU and the

recoveries to be made from the parties, is given in Annexure-C. It was stated

that it would the joint responsibility of the petitioners and the respondents to

implement the pending 7 projects as mentioned in paragraph 11.

3. The petitioners being the directors of the company had given collateral

security to Canara Bank, bankers of the respondent No.5 company, for

OMP 494.08 Sandeep Mathur & Anr. v.Vijay Kr. Agarwal & Ors. Page 2 Of 5 securing CC Limit. It was agreed between the parties that after signing of the

MOU, the respondent shall not exceed the sanctioned CC Limit of Rs.3 crore

till release of collateral securities given by the petitioner of their personal

properties and the bank would be advised not to take recourse to the

collateral securities before taking recourse to other securities provided by the

company to the bank and the petitioner will be indemnified by the

respondents against use of collateral securities/ personal guarantees by the

bank. The respondent was to initiate proceedings of getting collateral

securities released from the bank within 45 days of signing of MoU. In case of

delay in releasing the security beyond 90 days of MoU, it was the

responsibility of the respondents to give equivalent FDR to the bank and get

the collateral securities of the petitioner released immediately.

4. After signing of MOU disputes arose between the parties in respect of

its implementation and on other aspects and the parties exchanged

correspondence through e-mails. The respondents invoked the arbitration

clause vide letter dated 3rd October 2008. During pendency of this petition

vide order dated 2nd April 2009, an Arbitrator has been appointed by this

Court to adjudicate the disputes between the parties.

5. The respondents in the response affidavit have not denied the fact of

entering into MOU, but have taken the stand that it were the petitioners who

had violated the terms of the MOU and had not acted in accordance with

MOU. It was also submitted that the respondents had requested respondent

No.7 bank to release collateral security provided by the petitioner No.2 and

accept alternate securities given by the respondents, however, the bank

verbally expressed its inability to release the collateral security provided by

OMP 494.08 Sandeep Mathur & Anr. v.Vijay Kr. Agarwal & Ors. Page 3 Of 5 the petitioners since petitioners continued to be directors on board of

respondent company. It is submitted that under these circumstances, the

collateral security of the petitioners was not released by the bank. It is also

submitted that the petitioners had made false projections in the MOU that the

pending projects will be completed in the period between March to May 2008.

Only one project got completed within that period and rest of the projects

were still under completion and respondents were facing several problems

and those problems were leading to customers' dissatisfaction. In view of

these events and due to commissions and omissions of the petitioners

respondent company had no alternative but to draw amount from the bank in

excess of Rs.3 crore under its CC Limit despite the fact that respondent had

injected over Rs.50 lac from its own funds into respondent No.5 company.

6. It is apparent from the MOU and from the correspondence between the

parties that the respondent had not fulfilled its obligations of getting the

collateral securities of the petitioners released in a time bound manner as

provided in the MOU. The plea of respondent that the bank had refused to

accept other collateral securities is not convincing. The bank is only

concerned with the collateral security whether the property belonged to

petitioners or to the respondents. The bank would have no reason to reject

the alternative collateral securities. In any case, the respondents were to

furnish FDRs to the bank in the event of delay in the release of security

beyond 90 days. The petitioners, therefore, have a good prima facie case in

respect of directions for collateral securities. However, no directions can be

given in respect of other prayers made by the petitioners. The matter is

already before the arbitrator and the petitioners can make appropriate

application before the Arbitrator. Regarding collateral security, respondents

OMP 494.08 Sandeep Mathur & Anr. v.Vijay Kr. Agarwal & Ors. Page 4 Of 5 are directed to take steps for substitution of the security given by the

petitioners with the respondent No.7 bank within 15 days from today and the

collateral security be got released from the bank within 15 days from today,

either by furnishing alternative collateral security or by giving a Fixed

Deposit. It is also directed that till collateral securities of the petitioner are not

released and the Arbitrator does not give final award, the respondents are

directed not to sell the land and buildings of the respondent No.5 Company.

7. With above directions, the petition stands disposed of.

May 25, 2009                                          SHIV NARAYAN DHINGRA J.
rd




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