M/S. Chirawa Investment Limited & ... vs Indiabulls Financial Services ...
2009 Latest Caselaw 4039 Del

23
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  ARB.APPEAL No. 17/2009

                                          7th October, 2009

M/S. CHIRAWA INVESTMENT LIMITED & ORS. ..... Petitioners
                    Through : Mr. Dushyant Dave, Sr. Advocate
                              With Mr. Ramesh Singh, Mr. A.T.
                              Patra, Ms. Aradhana Patra,
                              Advocates
              versus

INDIABULLS FINANCIAL SERVICES LTD. AND ORS. .....Respondents
                   Through : Mr. Abhishek Manu Singhavi, Sr.
                             Adv. with Mr. Rishi Agrawal, Mr.
                             Bhagvan Swarup Shukla, Ms. Roma
                             Hameed, Advocates.
     CORAM:
     HON'BLE MR. JUSTICE VALMIKI J. MEHTA

     1. Whether the Reporters of local papers may be allowed to see
        the judgment?
     2. To be referred to the Reporter or not?                   yes
     3. Whether the judgment should be reported in the Digest? yes
%
JUDGMENT (ORAL)

1. The present appeal has been filed under Section 37 of the

Arbitration and Conciliation Act, 1996 (hereinafter "the Act") against

the order dated 23.7.2009 passed by the Arbitrator whereby the

present appellants, who are arrayed as guarantors/respondents in the

ARB.APPEAL No. 17/2009 Page 1 claim petition filed before the Arbitrator, have been restrained from

disposing of the immovable properties as stated in the said order and

which properties though were mortgaged by the appellants but the

mortgage deeds were not registered. Further, by the impugned order,

the learned Arbitrator had restrained the appellants from selling,

transferring or creating any third party interest in any manner in

respect of the shares of Gujarat Heavy Chemicals Ltd. (GHCL) and

Golden Tobacco Ltd. (GTL). By the same order, a restraint order has

also been passed that none of the parties or their proxies shall exercise

their voting rights in respect of the said shares till further orders.

2. The scope of hearing of an appeal against an ex parte injunction

order passed is indeed very limited. The two basic aspects the court

has to see is firstly whether the court lacks jurisdiction to pass such an

order or secondly that on the averments made and the documents

filed the injunction order could not have been passed.

3. Before I proceed in the matter I may note that I have heard

senior counsel Mr. Dave appearing for the appellant at great length.

During the course of hearing I even put it to the learned senior counsel

that if I pass a detailed order making observations on merits on the ARB.APPEAL No. 17/2009 Page 2 contentions as raised by him the same may possibly affect the decision

by the Arbitrator in the hearing of the main injunction application,

however, the learned senior counsel said, that is a risk he is willing to

take.

4. The following facts are therefore relevant:

(i) The respondents 2 to 8 are the principal borrowers and the

present appellants are guarantors, of the respondent No. 1 who has

advanced a loan which is presently said to be due along with the

interest in the sum of Rs. 293 crores approximately.

(ii) The ex parte order was passed on 23 rd July, 2009 and the

present appeal has been filed only on 5th October, 2009.

(iii) Besides the fact that the appeal has been filed after around two

and half months of the impugned order, I may note that by the

impugned order notice was issued for 24th August, 2009 to the present

appellants and who were served the impugned order on 24th July,

2009 viz. on next date itself as conceded by the senior counsel for the

appellant. In spite of having been served on 24th July, 2009, no steps

have been taken at all till today for seeking variation or vacation of

the ex-parte order dated 23rd July, 2009 on any of the grounds which ARB.APPEAL No. 17/2009 Page 3 have been urged today before me by the appellant. In fact, the

appellants after appearing on 24th August, 2009 took three weeks

time for filing the reply but again did not file reply to the injunction

application filed by the respondent No. 1 herein. Not only no reply

was filed again when the matter was listed on 25th September, 2009,

time was again taken for filing of the reply and the case is now

adjourned to 9th November, 2009 and in the meanwhile the present

appeal has been filed.

Though initially the appellant took up the stand that they had

not appeared before the Arbitrator, however, on instructions this was

clarified that duly authorized counsel Ms. Neelima Tripathi, Advocate

had appeared on their behalf and had taken time for filing of the reply

to the injunction application repeatedly.

5. The counsel for the appellants has strenuously urged two basic

contentions before this Court. The first contention is that the

appellants are not parties to the arbitration agreement and, therefore,

the Arbitrator could not have passed an order against them. The

second contention which has been raised is that whereas the loan was

recalled in July 2008, the injunction application was only filed in July ARB.APPEAL No. 17/2009 Page 4 2009 and, therefore, the learned Arbitrator according to learned

senior counsel "ought not to have been in a tearing hurry" for passing

the injunction order.

6. As already stated by me the scope of challenge to an ex parte

order by means of an appeal is limited. I have also noted that if the

appellants were so seriously prejudiced they should have immediately

come up by means of an appeal, however, the admitted facts are that

after having been served on 24th July, 2009 they neither filed any

reply nor application for variation of the injunction order. In fact, as

stated, repeated opportunities have been taken before the Arbitrator

for filing the reply before the Arbitrator and which matter is now

listed for 9th November, 2009. Interference by this Court with such

discretionary orders which are passed is extremely limited and I do not

find the present case a fit case for interference by this Court as the

present appeal is grossly delayed and in fact an abuse of the process of

law because repeated adjournments were taken and only on 5th

October, 2009 this appeal has been filed.

7. Coming to the issue as to whether the appellants were parties to

the arbitration agreement I may note the following clauses of the ARB.APPEAL No. 17/2009 Page 5 original loan agreement as also the subsequent letter of authorization

whereby the appellants became guarantors to the transactions and

they also mortgaged the immovable properties and pledged shares in

GHCL and GTL :-

"Group Accounts" means and includes the accounts as listed in the table for the group dealings in the Exhibit to this Agreement."

"12. That in consideration of the Loan, the Securities are hereby pledged in favour of the Lender as an exclusive first charge to the Lender towards repayment of the principal amount of the loan, interests, costs and any other charges etc. due to the Lender whether payable under this Agreement or under any other agreements between the parties or even otherwise or towards Group Accounts. The Securities simultaneously with the signing of this Agreement, shall at the option of the Lender be marked as pledged at the option of the Lender in favour of the Lender in the depository records or as and when received in Designated Demat Account. Notwithstanding anything contained in this Agreement none of the Lender‟s rights over the Securities shall be diluted or vitiated merely because of pledge not having been marked through depository system on Securities lying in the Designated Demat Account."

      "SUBJECT : LIST OF GROUP DEALING

        Details of Group Member                          Account
                                                         No.
        Antarctia Investment Private                     74731
        Limited
        Comosum Investments Private                      7541
        Limited
        Carissa    Investments     Private               77214
        Limited
        Dear Investment Private Limited                  97329
        Altar Investment Private Limited                 269212
        Dalmia Housing Finance Limited                   271660
        Oval Investment Private Limited                  422795

ARB.APPEAL No. 17/2009                                                      Page 6
         Lhonak Enternational Private                 424069
        Limited
        Swagathm Investment Limited                  424070
        Chirawa Investments Limited                  424071
        International Resources Limited              424072
        Swastik Commercial Private                   424073
        Limited
        Divine Leasing and Finance                   424074
        Limited
        Sovereign Commercial Private                 424076
        Limited
        Harvatex       Engineering      &            424110
        Processing Col. Ltd.
        Excellent Commercial Enterprises             424112
        Limited
        Moderate        Investment      &            424111
        Commercial Enterprises Limited
        Carefree Investment Company                  424075
        Limited
        Lakshmi Vishnu Investment Ltd.               424343
        Mourya Finance Limited                       424344
        Hindustan             Commercial             424345
        Company Limited
        Gems Commercial Company                      424346"
        Limited

The aforesaid are the clauses of the original loan agreement executed

between the respondent No. 1 and the respondents 2 to 8.

8. Subsequently, the present appellants as guarantors executed the

documents dated 30th August, 2007 whereby they agreed to stand as

guarantors and certain clauses of this agreement are relevant and

reproduced below:

"1. That this letter has been signed by the authorized signatory/signatories of the group members of the borrowers who ARB.APPEAL No. 17/2009 Page 7 are listed herein below. The members together with the Borrowers shall be collectively referred to as "Group Members". That the below mentioned accounts along with the Borrowers‟ Account shall collectively be termed as "Group Accounts" for all purposes of operations with the Lender.

         S. No.            Name of Group Member            Account No.
            1.           Chirawa Investment Limited        424071

            2.           Sovereign         Commercial
                         Private Limited                   424076
            3.           Lhonak          Enternational
                         Private Limited                   424069
            4.           Swagatham          Investment      424070
                         Limited
            5.           Swastik Commercial Private        424073
                         Ltd.
            6.           Moderate Investment &             424111
                         Commercial          Enterprises
                         Limited
            7.           Harvatex Engineering &            424110
                         Processing Company Limited
            8.           Excellent         Commercial      424112
                         Enterprises Limited
            9.           Hindustan         Commercial      424345
                         Company Limited
            10.          International        Resources    424072
                         Limited
            11.          Gems Commercial Company           424346
                         Limited
            12.          Lakshmi Vishnu Investment         424343
                         Limited
            13.          Mourya Finance Limited            424344

            14.          Carefree       Investment         424075
                         Company Limited

            15.          Divine Leasing and Finance        424074
                         Limited
            16.          Carissa Investment Private        77514
                         Limited


ARB.APPEAL No. 17/2009                                                   Page 8
             17.          Dear Investment Private            97329
                         Limited
            18.          Altar Investment Private           269212
                         Limited
            19.          Antarctica      Investment         74731
                         Private Limited
            20.          Comosum         Investment         75417
                         Private Limited
            21.          Dalmia Housing Finance             271660
                         Limited
            22.          Oval Investment Private            422795
                         Limited

2. That we hereby acknowledge, accept and confirm that the abovementioned are the members of the Borrowers and shall not dispute the inclusion of it/its/their account into the list of Group Accounts. The Group Member(s) (including the Borrower(s) are the promoter(s) of Gujarat Heavy Chemicals Limited and/or GTC Industries Limited and the Group Members are part of the same group and have been promoted by common promoter(s).

3. I/We declare and confirm that the Lender shall have the exclusive right at its sole discretion to adjust any collateral provided by or on behalf of any of the Group members. The collateral provided by or on behalf of any of the Group Members shall also be treated as security for each of the Group member and/or Borrower including any outstanding loan, the interest, additional interest, costs and expenses and any other amount payable pursuant to the loan granted to any of the Group members and/or Borrowers. The Lender shall be entitled to transfer, sell, dispose, encumber and/or assign, in any manner at the sole discretion of the Lender, the shares provided/to be provided as collateral by the Group Member(s). Further the Lender shall be entitled to attend end vote at, appoint proxies to attend and vote at, any general meetings of the shareholders of the company/companies whose shares are provided as collateral by the Group Companies in relation to such shares.

4. I/We further undertake that neither I/we nor any of the Group Members shall in future make any claims from the Lender in any

ARB.APPEAL No. 17/2009 Page 9 manner whatsoever towards any collateral adjusted/set off against the outstanding debit amounts in any of the above mentioned Group Accounts. I/we also undertake that any person claiming on behalf of any of the Group Members shall not be entitled to any such claim and such act shall be held to be null and void.

I/we declare and confirm that the Lender shall not release the collateral provided by or on behalf of any of the Group Members unless each of the Group members and/or Borrowers repays the entire loan amount together with the interest, additional interest, costs and expenses or any other outstanding dues whatsoever and howsoever payable.

Emphasis supplied"

9. A reading of the aforesaid clauses of the main loan agreement as

also of the subsequent letter of authorization whereby the appellants

became the guarantors makes it at least prima facie clear, subject to its

being further held by the Arbitrator, during the course of the decision

of the injunction application, that the terms used group accounts,

group members and group dealings referred to both the appellants as

also the principal borrowers 2 to 8 and it was therefore justified at

least for the purpose of ex parte injunction, which was granted by the

Arbitrator to be said that the present appellants are parties to the

arbitration agreement. The effect of the terms „Group Accounts‟,

„Group Members‟ & „Group Dealings‟ causes a merger of the two

documents being the original loan agreement and the subsequent

ARB.APPEAL No. 17/2009 Page 10 letter of authorization. It can also be prima facie said that by doctrine

of incorporation the appellants/guarantors have become „Group

Members‟ and „Group Accounts‟ under the original loan agreement

containing the arbitration clause. I may note that the counsel for the

respondent no. 1 during the course of hearing has filed before this

Court agreements which have also been signed by the appellants

holding themselves liable "as borrowers" which contains the

arbitration clause, but, I am not taking this into consideration for the

present because I understand these documents were not before the

learned Arbitrator when he passed the ex parte order.

10. The learned senior counsel has relied upon the provisions of

Section 2(1)(h) and Section 7 of the Arbitration and Conciliation Act,

1996 besides the commentaries on arbitration by Dr. Peter Binder &

Russell and the judgment reported as M.D. Army Welfare Association

vs. Sumangal Services Pvt. Ltd., 2004 (9) SCC 619 to contend that the

learned Arbitrator lacked jurisdiction to pass orders against the

appellants who were not parties to the arbitration proceedings. There

is no dispute as to this proposition of law, however, I have already

ARB.APPEAL No. 17/2009 Page 11 said that prima facie in view of the expressions "Group Accounts",

"Group Members" and "Group Dealing", it cannot be said that the

learned Arbitrator was wholly unjustified in passing the ex parte

injunction order more so when huge dues running into approximately

293 crores were payable by the appellants and the respondents 2 to 8.

Further, the clauses in the letter of authorization by which the

appellants became the guarantors also makes it more than abundantly

clear that the respondent No. 1 was entitled to attend the general

meetings of the shareholders of the companies GHCL and GTL besides

appointing proxies and so on. In any case, all these issues will be

heard and finally disposed of during the hearing of injunction

application which is now fixed for 9th November, 2009.

11. The second contention which was very strenuously urged by the

learned senior counsel for the appellants was that the Arbitrator ought

not to have been in hurry to pass the ex parte injunction order

because the loan was recalled in July 2008 and therefore there was no

urgency one year later in July 2009 to pass the ex parte injunction

order. I, however, do not agree with this contention because issue

ARB.APPEAL No. 17/2009 Page 12 with regard to injunction is based on an apprehension which arises on

day-to-day basis and, therefore, it is not possible to say that merely

because there may not be an apprehension in July 2008, there is no

valid apprehension in July 2009. Further, after the recall of the loan

in July 2008 the present appellants have duly executed mortgage

deeds in favour of the respondent No. 1. who may have been thereby

lulled into complacence and consequently it may not have chosen to

invoke arbitration proceedings and seek an ex parte order. As already

stated the scope of hearing of the appeal under Section 37 of the Act

against the ex parte order is extremely limited and this Court need not

exercise its jurisdiction and discretion merely because it feels that it

may hold a different view, although the Arbitrator has taken the other

plausible view.

12. In view of the provisions of Section 35(2) read with Order XX-A

of the Code of Civil Procedure that costs shall follow the event and if

it does not follow the event the Court shall give reasons for not

awarding costs besides also taking note of the observations in the

judgment of the Supreme Court in Salem Advocate Bar Association vs.

ARB.APPEAL No. 17/2009 Page 13 UOI (2005) 6 SCC 344 in its para 37 with respect to awarding costs, I

dismiss this appeal with costs quantified Rs. 5 lakhs which shall be paid

by the appellants to the respondent No. 1 within a period of one

month from today failing which it will entail simple interest @ 12%

per annum till the date of actual payment.

13. With these observations, the present appeal is dismissed.

                                                VALMIKI J. MEHTA, J
OCTOBER 07, 2009
dkg




ARB.APPEAL No. 17/2009                                            Page 14