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2020 (1) TMI 1558 - HC - Indian LawsTerritorial jurisdiction of this court - restraint from creating any charge, mortgage, etc. on immovable properties/assets - whether defendants No. 1 to 15 are bound by the relevant clause of the Purchase Agreement dated 28.04.2011 and can be restrained from creating any charge, mortgage, etc. on their immovable properties/assets as prayed? - HELD THAT - In terms of clause 12.1 of the Purchase Agreement, the plaintiff is barred from creating any lien, pledge, etc. on their properties etc. until the bonds in question remain outstanding. The plaintiff will also cause each of its subsidiaries not to do the same regarding its properties etc. The admitted fact is that defendants No. 1 to 15 who are the subsidiaries of the plaintiff are not signatories or parties to the Purchase Agreement dated 28.04.2011. It is the plaintiff who has been enjoined to or who has to cause each of its subsidiaries not to allow any lien on its assets and properties. Clearly, the settled legal position is that the holding company and the wholly owned subsidiary are two distinct legal entities. The holding company does not own the assets of the subsidiary - mere undertaking of a person that he will not dispose of his properties during the currency of the loan does not confer any charge on the immovable properties. Prima facie the plaintiff merely based on the terms of the Purchase Agreement cannot restrain defendants No. 1 to 15 from dealing with their immovable assets/assets. The Purchase Agreement between the plaintiff and defendant No. 20 is not executed by defendants No. 1 to 15. There is no commitment or promise held out by defendants No. 1 to 15 to the plaintiff that the said defendants will not deal with or encumber their immovable properties. Mere execution of the Purchase Agreement dated 28.04.2011 by the plaintiff does not prima facie oblige defendants No. 1 to 15 to abide by the terms and conditions of the purchase agreement. The plea of the plaintiff/defendant No. 20 essentially is that defendants No. 1 to 15 have made a categorical admission by their conduct including providing information in relation to its structure, future projects, financial statements, etc. to defendant No. 20 in compliance with the Purchase Agreement. It is also stated that despite knowledge of the Purchase Agreement dated 28.04.2011, none of the said defendants took steps regarding seeking a declaration that they are not bound by the terms of the said agreement - considering the nature of the transaction, the stated acts of defendants No. 1 to 15 on which reliance is placed by the plaintiff and defendant No. 20 prima facie, does not lead to a conclusion that there is Privity of Contract between defendants No. 1 to 15 and defendant No. 20/plaintiff. No such conclusion would follow merely because some interaction took place between the defendants No. 1 to 15 and defendant No. 20 whereby financial or operational details were shared. A categorical finding cannot be recorded that defendants No. 1 to 15 had by their conduct or acts committed to remain bound by the terms and conditions of the Purchase Agreement dated 28.04.2011. No doubt, a conclusive finding to the above effect based on the alleged conduct of defendants No. 1 to 15 etc. can be recorded after detailed evidence is led. Territorial jurisdiction of this court - HELD THAT - The agreement is executed between the plaintiff and defendant No. 20. As per Clause 20 of the Agreement, all matters arising are to be governed and construed in accordance with internal laws of the State of New York applicable to agreements. Under Clause 20.2, the courts of the State of New York and the courts of the USA in each case located in the County of New York shall have jurisdiction to settle and to hear any suit, etc. connected with the agreement - By the present suit, the plaintiff is seeking an injunction to restrain defendants No. 1 to 15 not to pledge, mortgage, etc. the movable and immovable properties without prior permission of the Receiver of the plaintiff. A declaration is also sought that the charge created in favour of defendants No. 16 to 19 be declared non-est, null and void. The suit does not seek any relief encompassed within Section 16 of CPC. Admittedly some of the defendants have their registered office in Delhi. That apart, agreement dated 14.05.2018 with defendants No. 16 and 17 is said to have been executed in Delhi. In view of the above, at this stage, the suit cannot be returned for lack of territorial jurisdiction of this court. Keeping in view equities in these circumstances, it would be in the interest of justice to permit defendants No. 1 to 10 to complete their pending projects and unlock the unsold inventory of assets which is lying on account of non-completion of projects - Application disposed off.
Issues Involved:
1. Jurisdiction of the court. 2. Binding nature of the Purchase Agreement on non-signatory subsidiaries. 3. Validity and enforceability of the interim order. 4. Territorial jurisdiction and location of assets. 5. Financial distress and need for raising funds by the defendants. Detailed Analysis: 1. Jurisdiction of the Court: The defendants argued that as per Clause 20.2 of the Purchase Agreement, the courts of the State of New York have exclusive jurisdiction. They cited the Supreme Court's judgment in Modi Entertainment Network vs. W.S.G. Cricket PTE. Ltd., which supports the principle that parties can agree to submit to the exclusive jurisdiction of a foreign court. However, the court noted that defendants No. 1 to 15, who are not signatories to the Purchase Agreement, cannot claim that the plaintiff cannot file a suit in India based on the same agreement. Moreover, defendants No. 16 to 19 are not bound by the Purchase Agreement. Hence, the court held that it has jurisdiction to entertain the suit. 2. Binding Nature of the Purchase Agreement on Non-Signatory Subsidiaries: The plaintiff argued that the entire SARE Group, including its subsidiaries, forms a single economic entity and is bound by the Purchase Agreement. The court referred to Clause 12.1 of the Purchase Agreement, which prevents the plaintiff and its subsidiaries from creating any lien or encumbrance on their properties. However, it was noted that defendants No. 1 to 15 are not signatories to the Purchase Agreement and there is no privity of contract between them and defendant No. 20. The court cited the Supreme Court's judgment in Vodafone International Holdings BV vs. Union of India, which states that a holding company and its subsidiaries are distinct legal entities. Therefore, the court concluded that the plaintiff cannot restrain defendants No. 1 to 15 from dealing with their assets based on the Purchase Agreement. 3. Validity and Enforceability of the Interim Order: The court initially granted an interim order restraining defendants No. 1 to 10 from creating any encumbrance on their assets. Defendants No. 16 and 17 were also restrained from giving effect to the Facility Agreement dated 14.05.2018. The defendants filed applications to vacate this interim order, arguing that it adversely affected their business operations. The court acknowledged the financial distress faced by defendant No. 3 and the need to raise funds to complete ongoing projects. Consequently, the court modified the interim order to allow defendants No. 1 to 10 to mortgage or charge their assets for the purpose of completing pending real estate projects or for day-to-day operations, subject to filing an undertaking and quarterly financial reports. 4. Territorial Jurisdiction and Location of Assets: The defendants contended that the court lacks territorial jurisdiction as the immovable properties are located outside Delhi. The court noted that the suit seeks an injunction to restrain defendants from pledging or mortgaging their properties, which does not fall under Section 16 of the CPC. Additionally, some defendants have their registered offices in Delhi, and the Facility Agreement was executed in Delhi. Therefore, the court held that it has territorial jurisdiction to entertain the suit. 5. Financial Distress and Need for Raising Funds by the Defendants: Defendant No. 3 argued that they are in financial distress and need to raise funds to complete their projects, which would enable them to recover dues by delivering flats to buyers. The court recognized the financial difficulties and the need to balance equities. It allowed defendants No. 1 to 10 to create liens or mortgages on their assets for the purpose of completing pending projects and day-to-day operations, subject to certain conditions, including filing quarterly financial reports. Conclusion: The court concluded that while the plaintiff failed to establish that non-signatory subsidiaries are bound by the Purchase Agreement, it acknowledged the financial distress faced by the defendants and modified the interim order to allow them to raise funds for completing ongoing projects. The court also affirmed its jurisdiction to entertain the suit and held that the plaintiff's suit is maintainable.
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