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2025 (3) TMI 914 - HC - Companies LawPower of Bombay High Court to intervene u/s 9 of the Arbitration and Conciliation Act 1996 to protect the interests of the Petitioner Manmohan particularly concerning the Greater Kailash Property which is not owned by Kapani Resorts but was released using Manmohan s funds - shares were not allotted to Manmohan as per the Agreement - parties are indeed privy to an arbitration agreement contained in the Agreement - HELD THAT - Even a plain reading of the foregoing would show that it is now a statutory obligation of Kapani Resorts to refund the monies invested by Manmohan. The allotment of shares ought to have been made within sixty days of February 11 2022 (for USD 350, 000) and of February 22 2022 (for USD 650, 000). Such allotment not having been made these amounts ought to have been refunded within fifteen days of such deadline to make allotment. Manmohan s right to refund has accrued on expiry of the 75-day period from the date of the receipt of the share application money. Before the funds infused by Manmohan could have been used to repay SIDBI it was incumbent on Kapani Resorts to allot shares (which would have given control to Manmohan over Kapani Resorts) after which allotment it was permissible to use such funds to repay SIDBI. This was a necessary statutory condition precedent that has not been met. Now the statutory obligation to refund has kicked in on the expiry of 75 days from each tranche of infusion. Evidently a strong prima facie case has been made out on behalf of Manmohan for grant of protective reliefs. Grave and irreparable harm and injury would be occasioned to Manmohan if such intervention is not made. The protection that Manmohan enjoyed at the hands of the NCLT (a freeze on the capital structure of Kapani Resorts) too now stands removed owing the withdrawal of the NCLT proceedings in reaction to the objection raised on behalf of Virendra and Vaibhav who have shown scant regard for legal obligations owed by them under the solemn Agreement executed by them. Evidently a strong prima facie case for refund of the amounts invested by Manmohan exists in law. Evidently a strong prima facie case of the Respondents enjoying the fruits of their violation of the Agreement exists on the record. Evidently a strong prima facie case to show that the properties mortgaged to secure Kapani Resorts obligations owed to SIDBI now stand released. Indeed the personal guarantees too stand discharged. All these benefits are being enjoyed without fetter thanks only to Manmohan s funds even while the Respondents frustrate Manmohan s rights under the Agreement and under Company Law. The interim reliefs granted hereby shall hold the field until completion of the arbitral proceedings - Kapani Resorts Virendra and Vaibhav shall jointly or severally deposit an Indian Rupee equivalent of USD 1 million (valued at the US Dollar-Indian Rupee exchange rate applicable as of the respective dates of their remittance by Manmohan) along with interest at the statutory interest rate of 12% per annum (on the INR equivalent of USD 350, 000 from the expiry of 75 days after February 11 2022; and on the INR equivalent of USD 650, 000 from the expiry of 75 days after February 22 2022 until the date of deposit) with the Registry of this Court which deposit shall be made no later than two weeks from the date on which this Order is uploaded on the website of this Court. Conclusion - i) The Greater Kailash Property is relevant to the arbitration dispute and the Court can issue interim measures concerning it under Section 9 of the Act. ii) The failure to allot shares to Manmohan despite using his funds to discharge debts constitutes a breach of the Agreement and statutory obligations under Section 42 (6) of the Companies Act. iii) The actions of Virendra and Vaibhav in benefiting from Manmohan s investment without fulfilling their obligations demonstrate a misappropriation of funds. Petition disposed off.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include: 1. Whether the Bombay High Court can intervene under Section 9 of the Arbitration and Conciliation Act, 1996, to protect the interests of the Petitioner, Manmohan, particularly concerning the Greater Kailash Property, which is not owned by Kapani Resorts but was released using Manmohan's funds. 2. Whether the funds infused by Manmohan, which were used to discharge the debt obligations of Kapani Resorts, were misappropriated, given that shares were not allotted to Manmohan as per the Agreement. 3. Whether the actions of Virendra and Vaibhav, in not allotting shares to Manmohan and enjoying the benefits of the funds, constitute a breach of the Agreement and statutory obligations under the Companies Act, 2013, particularly Section 42 (6). 4. Whether interim reliefs should be granted to protect Manmohan's interests pending arbitration, considering the conduct of Virendra and Vaibhav. ISSUE-WISE DETAILED ANALYSIS 1. Intervention under Section 9 of the Arbitration and Conciliation Act, 1996: The Court considered the scope of Section 9, which allows for interim measures of protection in arbitration-related matters. The Court noted that the Greater Kailash Property, although not owned by Kapani Resorts, was released using Manmohan's funds, making it relevant to the dispute. The Court emphasized that Section 9 empowers it to issue interim measures concerning any property or thing related to the arbitration dispute. The Court rejected the argument that the property was beyond its reach, highlighting that the property's release was directly linked to Manmohan's investment. 2. Misappropriation of Funds and Breach of Agreement: The Court found that Manmohan fulfilled his obligations by investing USD 1 million, which was used to pay SIDBI, releasing the Greater Kailash Property and discharging personal guarantees. However, Virendra and Vaibhav failed to allot shares to Manmohan, breaching the Agreement. The Court noted that the funds were shown as "Share application money pending allotment" in the balance sheet, indicating a misappropriation under company law, as the funds should have been used only for share allotment or refunded if shares were not allotted within the statutory period. 3. Breach of Statutory Obligations under the Companies Act, 2013: The Court highlighted Section 42 (6) of the Companies Act, which mandates the refund of share application money if shares are not allotted within 60 days. Since shares were not allotted to Manmohan, the statutory obligation to refund the money had arisen. The Court emphasized that the funds were used to repay SIDBI without fulfilling the necessary condition of share allotment, constituting a breach of statutory obligations. 4. Grant of Interim Reliefs: The Court determined that interim reliefs were necessary to protect Manmohan's investment and interests. It ordered Kapani Resorts, Virendra, and Vaibhav to deposit the equivalent of USD 1 million with interest, prohibited them from alienating any property, and allowed for further protective measures if the deposit was not made. The Court noted the unreasonable conduct of Virendra and Vaibhav, including their refusal to commence arbitration, and emphasized the need for protective measures to prevent further harm to Manmohan's interests. SIGNIFICANT HOLDINGS The Court held that: - The Greater Kailash Property is relevant to the arbitration dispute, and the Court can issue interim measures concerning it under Section 9 of the Act. - The failure to allot shares to Manmohan, despite using his funds to discharge debts, constitutes a breach of the Agreement and statutory obligations under Section 42 (6) of the Companies Act. - The actions of Virendra and Vaibhav, in benefiting from Manmohan's investment without fulfilling their obligations, demonstrate a misappropriation of funds. - Interim reliefs are warranted to protect Manmohan's interests, including the deposit of funds and restrictions on alienating properties. The judgment emphasizes the principles of protecting an investor's rights and ensuring compliance with contractual and statutory obligations. It underscores the Court's role in providing interim protection to prevent further harm pending arbitration.
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