Sanjay Sethi & Anr vs Deepak Sethi & Anr
2012 Latest Caselaw 7174 Del

       *       IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                     Date of Decision: 14.12.2012

+      CS(OS) 1736/2012

       SANJAY SETHI & ANR                                          ..... Plaintiffs
                     Through:         Mr. Vibhu Bakhru, Sr. Advocate
                                      with Mr. Saurabh Kalia,
                                      Mr. Sameer Chaudhary &
                                      Mr. Harshit Agarwal, Advs.
                   versus

    DEEPAK SETHI & ANR                              ..... Defendants
                  Through: Mr. Naushad Alam, Adv. for D-1.
CORAM:
HON'BLE MR. JUSTICE V.K.JAIN

                            JUDGMENT

V.K.JAIN, J. (ORAL)

IA Nos. 11010/2010 (under Order 39 Rule 1 & 2 CPC) & 22334/2012 (under Order 39 Rule 4 CPC)

1. The defendant No. 1 Shri Deepak Sethi is the brother of plaintiff No. 1 Shri

Sanjay Sethi and the son of plaintiff no.2 Raj Sethi. A Memorandum of

Understanding (MOU) is alleged to have been executed between the parties on 6th

January, 2010. Under the said MOU, defendant no.1 resigned from the

directorship of two companies, namely, International Corporate Signs Pvt. Ltd. and

Laycock Engineers Pvt. Ltd. He also agreed to transfer his shares in these

companies to plaintiff no.1 or his nominee on receipt of Rs. 1 crore 25 lakhs and an

additional payment of Rs.25,000/- per month for 12 months from January, 2010 to

December, 2010 towards monthly expenses. In terms of the aforesaid MOU the

plaintiffs paid Rs.50 lakhs to defendant no.1 out of this, Rs.25 lakhs were paid

immediately on execution of the MOU and Rs.25 lakhs were paid on 6 th April,

2010. The plaintiffs also made four payments of Rs.25,000/- each to defendant

no.1 in terms of the said MOU. Another payment of Rs.6,51,000/- is alleged to

have been made to defendant no.1 towards fulfilment of the obligations of the

plaintiffs under the said MOU.

2. The case of the plaintiffs is that after accepting the aforesaid payments,

defendant no.1 is seeking to back out from the said MOU dated 6th January, 2010

and has been writing letters to various authorities, against them. The plaintiffs are

accordingly seeking specific performance of MOU, besides injunction restraining

defendant no.1 from acting in any manner prejudicial to the interest of the plaintiff

and their companies and mandatory injunction, directing defendant no.2 to

handover the shares certificates and transfer deeds to the plaintiff and/or their

nominee. Under the MOU the Transfer Deeds in respect of the shares which

defendant no.1 held in these companies were deposited by defendant no.1 with

defendant no.2 who was to deliver the same to the plaintiffs, on their making the

entire payment in terms of the said MOU.

3. Vide order dated 31.05.2012 this Court recorded the statement of learned

counsel for the plaintiff that they were prepared to deposit the remaining amount in

terms of the MOU dated 6th January, 2010 within two weeks and subject to the

deposit of the said amount defendant no.1 was restrained from acting in any

manner contrary to the terms and conditions of the MoU dated 06.01.2010.

Defendant no.2 was also restrained from parting with the original share certificates,

transfer deeds and other documents in his possession.

4. The learned counsel for the defendant no.1 has drawn my attention to the

notice dated 7th June, 2010 sent by the plaintiffs to defendant no.1. Clause 12 and

13 of the said notice read as under:-

"12. That by committing such acts, you have committed the breach of terms and conditions of the Memorandum of Understanding dated 06.01.2010 and my client, therefore, is under no more any contractual obligation to further honour the commitments as made in the said MOU.

13. That a sum of Rs.20 lakhs as per the MOU is payable to you on 06.07.2010 but in view of your above conduct, my client hereby calls upon you that since you have committed the breach of terms of the understanding, my client is not liable to get the said cheque honoured and you are called upon not to present the said cheque and the subsequent cheques, which will fall due in October, 2010 and January, 2011. My client is also not liable to pay a sum of Rs.25,000/- per month committed to be paid to you till December, 2010 for meeting out the monthly expenses."

It has also been pointed out by the learned counsel for defendant no.1that the

plaintiffs did not make monthly payment of Rs.25,000/- to defendant no.1 for 12

months as was stipulated in the MOU dated 6th January, 2010.

7. The learned senior counsel appearing for the plaintiff submits that plaintiff

has made total payment of Rs.57,51,000/- to defendant no.1 which comprised one

payment of Rs.25 lakhs made at the time of signing of the MOU, one payment of

Rs.25 lakhs on 6th April, 2012 and then four payments of Rs.25,000/- each and one

payment of Rs.6,51,000/-. He states that the plaintiff under the MOU was to pay

Rs.1 crore 25 lakhs in addition to Rs.1,51,000/- towards certain adjustments and

Rs.3 lakhs by way of 12 monthly payments of Rs.25,000/- each from January, 2010

to December, 2010.

8. It also transpires from the correspondence exchanged between the parties

that a cheque of Rs.20 lakhs which the plaintiff had issued to defendant no.1 was

not honoured by the bank because the payment of that cheque was stopped by the

plaintiffs. This according to the learned counsel for the plaintiffs was done since

the defendant no.1 was at one point of time seeking to back out from the MOU

dated 6th January, 2010.

9. Section 16(c) of Specific Relief Act, to the extent it is relevant, reads as

under:-

"Specific performance of a contract cannot be enforced in favour of a person--who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant. Explanation:

(ii) the plaintiff must aver performance of, or readiness and willingness to perform, the contract according to its true construction."

10. By sending the notice dated 7th June, 2010 stating therein that they were no

more under any contractual obligation made in the MOU, the plaintiffs clearly

indicated, while sending the said notice, that they were not ready and willing to

perform their obligations under the MOU dated 6th January, 2010. It was further

stated that in the said notice that the plaintiffs were not liable to get the cheque

issued by them honoured and defendant no.1 was accordingly called upon not to

present the said cheque due as well as the subsequent cheques which were to fall

due in October, 2010 and December, 2010. It was further stated that the plaintiffs

were not liable to pay Rs.25,000/- which they had committed to pay to make out

the monthly expenses.

In view of the said notice coupled with the fact that the plaintiffs also

stopped payment of a cheque of Rs. 20 lakhs issued by them to defendant no.1,

there is no escape from the conclusion that the plaintiffs were not always ready and

willing to perform their obligations under the MOU dated 6 th January, 2010. The

learned senior counsel for the plaintiffs has pointed out that vide letter dated 7 th

August, 2010 the plaintiffs had conveyed to defendant no.1 that the notice dated 7th

June, 2010 was written by them on account of continuous breach of the terms and

conditions of the MOU on his part and that the plaintiffs had no intention not to

pay or to commit any breach of the terms and conditions of the MOU. Sending

this notice would indicate that on 7th August, 2010 the plaintiffs were not ready and

willing to perform their obligations under the MOU dated 6 th January, 2010. In

order to succeed in suit for specific performance of agreement, the plaintiffs are

required to aver and prove their continuous readiness and willingness to perform

their part of the obligations right from the date of execution of the contract between

the parties till the date of decree. If a party to an agreement backs out from its

obligations under the said agreement even for a short time, such a party would not

be entitled in law to seek specific performance of the agreement to which he/she is

a party. Therefore, prima facie, I am of the view that the plaintiffs are not entitled

to specific performance of the MOU dated 6th January, 2010 since they themselves

sought to back out from their obligations under the said agreement by sending the

notice dated 7th June, 2010 and stopping the payment of the cheque of Rs.20 lakhs

which they had issued to defendant no.1 towards discharge of their obligations

under the said MOU. That apart, the plaintiffs also did not make payment of

Rs.25,000/- per month towards the expenses to defendant no.1 for 12 months from

January, 2010 to April, 2010 since only four payments were made during this

period.

11. For the reasons stated hereinabove, the defendant no.1 cannot be restrained

from holding himself out as a shareholder of the two companies namely

International Corporate Signs Pvt. Ltd. and Laycock Engineers Pvt. Ltd.

However, since he has already resigned from the directorship of these companies,

he cannot hold himself out to be the director of these companies. The learned

counsel for defendant no.1 submits that defendant no.1 has already filed two

petitions before Company Law Board (CLB) seeking restoration of his directorship

in the said companies. Till the time the applications filed by defendant no.1

seeking restoration are allowed, he would have no legal right to hold himself out to

be the director of these companies. I, therefore, direct that during the pendency of

this suit defendant no.1 shall not hold himself out to be director of companies

International Corporate Signs Pvt. Ltd. and Laycock Engineers Pvt. Ltd. However,

if his directorship in one or both be restored by CLB this order would not come in

the way his representing to be a director of the company in which his directorship

is restored by CLB.

12. During the course of arguments, the learned counsel for plaintiffs submitted

that defendant no.2 should be restrained from parting with possession of the share

certificates and the transfer deeds to defendant no.1 who has already accepted a

substantial amount from the plaintiffs in terms of the MOU dated 6 th January, 2010.

This is not the case of the plaintiff that defendant No.2 is likely to return the share

certificate and share transfer deeds to defendant No.1, without his refunding the

amount received by him from the plaintiff under the MoU. To my mind he would

be justified in returning the share certificates and transfer deeds to defendant no.2

only in the event defendant no.1 refunds the amount received by him from the

plaintiffs under the MOU, along with such interest as defendant no.2 may deem

appropriate. In this regard, it would be relevant to take note of the provisions of

Section 64 of Contract Act, 1872, which inter alia, provides that the party

rescinding a voidable contract shall, if he had received any benefit thereunder for

another party to such contract, restore such benefit, so far as may be, to the person

from whom it was received. He can Part with the possession of the share

certificates and the transfer deeds to the plaintiffs only if defendant no.1 is ready

and willing to accept the balance amount in terms of the MOU from the plaintiffs.

The amount of Rs.76 lakhs which the plaintiff had deposited in terms of the

order dated 31st May, 2012 be refunded to them along with accrued interest.

Both the applications stand disposed of. The observations made in this order

being tentative and prima facie would not affect the final outcome of the suit.

It is made clear that it would be open to CLB to pass such order as it may

deem appropriate on the applications filed by defendant no.1 and while passing an

order the CLB would not be influenced by the view taken and the observations

made in this order.

IA 22335/2012

Issue notice.

Mr. Saurabh Kalia, Adv. accepts notice of this application on behalf of the

plaintiff. Reply be filed within four weeks. Rejoinder, if any, be filed within two

weeks thereafter.

List for disposal of this application on 30th January, 2013, the date already fixed.

V.K. JAIN, J

DECEMBER 14, 2012 NK////