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2016 (2) TMI 644 - HC - Companies LawArbitration and Conciliation - Held that - As per the principles of tracing benefits acquired by fraud, breach of confidence, breach of fiduciary relationships or by other wrong doings therefore do not get benefit under the defence of change of position. Further change of position as a defence has to be causally linked to the receipt that makes it inequitable for the recipient to make restitution. Mere fact that the recipient has spend the money whole or in part, does not make it inequitable because expenditure might have been incurred by him in any event in ordinary course of things. But a bona-fide recipient is entitled to establish the defence that he had increased his outgoings as a result of the receipt. See, para 168, Halsbury s Law of England, Vol. 40(1), 4th Edition Since analogous principles need to be applied in the instant case, the sketchy pleadings and no material save and except the shareholding pattern in Southend does not entitle VSL to any order against Southend, which is an independent entity. On the question whether the interim measure granted adequately secures an interest of VLS pending adjudication of objections to the award, the pleadings in FAO (OS) No.295/2015 have not even attempted to make any reference to the value of the assets covered by the sweep of the interim measure against the Guptas, Jains and BMS. Thus, even FAO (OS) No.295/2015 is liable to be dismissed and the prayer that the Guptas and the Jains be directed to furnish a bank guarantee to secure the sum as per the award is rejected.
Issues Involved
1. Adequacy of interim measures to secure the awarded sum. 2. Restraint on respondents from encumbering their properties. 3. Status quo maintenance concerning the Noida property. 4. Claims against Southend and its property. 5. Application of the principle of tracing. Detailed Analysis Adequacy of Interim Measures to Secure the Awarded Sum VLS Finance Ltd. (VLS) filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, to secure the sum awarded by an Arbitral Tribunal. The Tribunal had directed the Gupta Group and the Jain Group to pay VLS Rs. 84,28,27,987/- with interest. VLS sought interim measures to secure this amount, including depositing the sum in a no-lien account or furnishing a bank guarantee. The Single Judge granted interim measures restraining the respondents from selling or encumbering their properties and shares but did not direct them to deposit the awarded sum or furnish a bank guarantee. Restraint on Respondents from Encumbering Their Properties The Single Judge's order restrained the respondents (Gupta Group and Jain Group) from selling, encumbering, or dealing with their properties and equity shares. This was based on the finding that the respondents had siphoned off funds and diluted their shareholdings, justifying the restraint order. The Court noted that the respondents had violated previous interim orders and faced contempt actions, further justifying the restraint. Status Quo Maintenance Concerning the Noida Property The Single Judge directed the respondents to maintain the status quo concerning the title and possession of the Noida property, where Premia Projects Ltd. had a collaboration agreement with BMS for constructing a building. The Court clarified that the status quo order pertained to BMS's 44% share in the built-up space, given the past conduct of the respondents in siphoning funds and diluting assets. Claims Against Southend and Its Property VLS's grievance included the lack of injunction against Southend concerning its property at Okhla Industrial Area, Phase-I, which had been encumbered in favor of M/s. Wonder Space Properties Pvt. Ltd. The Court found that the shareholding pattern in Southend did not justify an order against it. The Gupta Group and the Jain Group held 48.057% shares, while others held 51.943%. The Court noted that there was no material to show that Southend was involved in siphoning off funds or that it was owned and controlled by the Gupta and Jain Groups. Application of the Principle of Tracing The Court discussed the principle of tracing, which allows the recovery of benefits acquired by fraud or other wrongdoings. The principle was applied in various cases, including Lipkin Gorman vs. Karpnale, where stolen money was traced and recovered. The Court noted that the principle of tracing could not be applied to Southend due to sketchy pleadings and lack of material evidence. The interim measures granted by the Single Judge were deemed adequate to secure VLS's interests, and the plea for a bank guarantee was rejected. Conclusion All three appeals were dismissed. The interim measures granted by the Single Judge were upheld, restraining the respondents from encumbering their properties and maintaining the status quo concerning the Noida property. The claims against Southend were rejected due to lack of evidence and inadequate pleadings. The Court made no order as to costs.
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