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TMI Blog2020 (1) TMI 1558X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their pending projects and unlock the unsold inventory of assets which is lying on account of non-completion of projects - Application disposed off. - IA Nos. 14239, 15097, 15130, 15149/2018 and 11779/2019 in CS (COMM) 1179/2018 - - - Dated:- 8-1-2020 - Jayant Nath, J. For the Appellant : Abhinav Vashisht, Sr. Adv., Rajshekhar Rao and Amit Singh Chauhan, Advs. For the Respondents : Sandeep Sethi, Arvind Nigam, Rajiv Nayar, Amit Sibal, Sr. Advs., Jayant Mehta, Nitin Wadhwa, Prateek Sisodia, Kumar Sambhav, Saurabh Batra, Anupam Lal Das, Ranendra Barot, Ashim Sood, Atul N., Apoorva Gupta, Amit Kr. Mishra, Etisha Srivastava, Akshat Hansaria, Yash Kumar, Mihil Sarda, Mehtab Singh Sandhu, Siddharth Dutta, Davesh Kumar Chauvia, Sameer Kumar, Nidhi Sahah, Vijay Nair and Manoranjan Sharma, Advs. JUDGMENT Jayant Nath, J. 1. By this order I will dispose of IA No. 14239/2018 filed by the plaintiff and other connected applications. 2. This suit is filed seeking following reliefs: a. Grant leave to the plaintiff under Order II Rule 2 of the Code of Civil Procedure, 1908 to sue for any additional relief against the defendants herein or any othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by SARE i.e. the plaintiff through one of its managed funds. The funds were to be utilized by SARE solely or indirectly through its controlled subsidiaries to acquire, develop and sell middle-income residential projects across India, including high rise apartments, groups and row housing and gated communities. The said plaintiff and defendant No. 20 executed a Secured Convertible Bond Purchase Agreement (hereinafter referred to as the 'Purchase Agreement') dated 28.04.2011. Thereafter, defendant No. 20 purchased SARE's Series A Secured Convertible Bonds due 2013, subject to the terms and conditions of the Purchase Agreement. The initial scheduled maturity date was agreed to be 25.05.2013. It is the case of the plaintiff that the said agreement was executed by the plaintiff company on behalf of all its subsidiaries and itself. List of subsidiaries of the plaintiff company and their assets were specifically made part of the purchase agreement. It is further stated that the said two parties entered into several other supporting/ancillary agreements, which were forming part of the composite transaction entered into between them. The purpose of the supplementary and ancilla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiaries/joint ventures of the plaintiff company and together form one single economic entity. It is also pleaded that shareholding pattern of the SARE Group shows the extent and manner the subsidiaries are bound to the parent company. 9. It is reiterated that the SARE group is a single economic entity. The secured assets/securities of the plaintiff in terms of the Debenture dated 28.04.2011 includes interest over the properties of the subsidiaries as the same are directly or indirectly owned by the plaintiff. It is pleaded that on a conjoint and meaningful reading of the Debenture along with purchase agreement, it is clear that the subsidiaries, namely, defendants No. 1 to 15 are also governed by the Debenture. It is stated that the circumstances in which they have entered into the agreement reflect a clear intention to bind the signatory and non-signatory entities within the group. It is pleaded that defendants No. 1 to 15 cannot encumber or charge, etc. their assets without prior permission of the plaintiff/receiver. 10. It is pleaded that presently, there has been one transaction done by the subsidiaries contrary to the terms of the agreement between the plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction to settle the disputes and determine any suit, action or proceedings. It is stated that as the plaintiff and defendant No. 20 have chosen a foreign court as the court of jurisdiction and have thus ousted the jurisdiction of Indian courts, hence a suit brought in Indian courts to try the subject matter must be rejected. ii) It is further stated that in any case the suit pertains to the rights of defendant No. 20 in immoveable properties. However, none of these immoveable properties owned by defendants No. 1 to 10 are located within the territorial jurisdiction of this court. Hence, it is stated that even otherwise this court lacks territorial jurisdiction to entertain the present suit. iii) It is further stated that the plaintiff has failed to plead any legal rights against the answering defendants. The plaintiff has placed reliance on clause 12 of the Purchase Agreement i.e. the plaintiff has undertaken that so long as the bonds are outstanding, the plaintiff shall not itself, and shall cause each of its subsidiaries not to, directly or indirectly, create any lien upon their properties, assets or revenues. It is stated that the clause creates an obligation on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into a facility agreement dated 14.05.2018 with defendants No. 16 and 17 for an aggregate additional loan of ₹ 100 crores. Defendants No. 1 to 13 as shareholder of defendants No. 1 and 2 committed to create certain securities/encumbrances over the assets of defendants No. 1 and 2. It is stated that this is only an additional facility pursuant to extension of an existing long standing borrowing of ₹ 530 crores which defendants No. 16 and 17 granted in the month of November 2016. It is pleaded that the borrowing was in the ordinary course of business and the same was to the knowledge and awareness of the plaintiff and defendant No. 20. No objection was raised by defendant No. 20 or the plaintiff at any stage. 14. Defendants No. 16 and 17 have also filed their written statement taking broadly the same stand. It has been pleaded by the said defendants as follows: i) There is collusion and connivance between the plaintiff and defendant No. 20. The plaintiff is seeking relief not for itself but for defendant No. 20 by restraining the defendants from creating any encumbrance over its assets. ii) It is pleaded that that this court does not have territori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from any lender including defendants No. 16 and 17. In this application, it was pleaded that on account of acute financial condition, there is a need to raise additional finance from defendants No. 16 and 17, etc. so as to enable the applicant/defendant No. 3 to complete its ongoing real estate projects that has 1357 customers who are waiting delivery of their apartments. It is pleaded that the plaintiff has failed to infuse funds or capital into the applicant and that the work of real estate has come to a halt and salaries, payment of the contractors, etc. have been withheld. It is stated that legal actions have been initiated against the said defendant No. 3 before various authorities including RERA, NCLT, etc. Arguments were heard on this application and judgment was reserved on 16.10.2019. 17. I have heard learned senior counsel/counsel for the parties. 18. Learned senior counsel appearing for the plaintiff has submitted as follows stressing that the interim order passed on 12.10.2018 be confirmed:- (i) It is pleaded that the SARE Group consists of the plaintiff and its subsidiaries, namely, defendants No. 1 to 15. The plaintiff is the parent/holding company of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.2011 executed by the plaintiff for and on behalf of defendants No. 1 to 15, none of the said defendants took any step regarding seeking a declaration that they are not bound by the terms of the said Purchase Agreement. (iii) It is pleaded that in complete violation of the said Purchase Agreement dated 28.04.2011, the SARE Group has entered into a financing arrangement with lenders such as defendants No. 16 and 17. A Facility Agreement dated 14.05.2018 has been executed by defendant No. 3, defendant No. 16 and defendant No. 17. Pursuant to this, a loan facility of ₹ 100 crores was proposed to be advanced to defendant No. 3. In order to secure the said loan facility, a security of the assets of defendant No. 3 and other subsidiaries are proposed to be created in terms of the Facility Agreement. Hence, it is stated that the present suit is filed seeking a declaration that the securities created by defendants No. 1 to 15 in favour of defendant No. 16 or defendant No. 17 are non-est, null and void. The plaintiff also seeks directions to restrain defendants No. 1 to 15 from disposing off/selling/mortgaging their immovable properties. (iv) It is further pleaded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not parties to the Purchase Agreement and hence, are not bound by the Purchase Agreement dated 28.04.2011. It is stated relying upon the judgment of the Supreme Court in the case of Vodafone International Holdings BV vs. Union of India Anr., 2012(6) SCC 613 that subsidiaries are separate and distinct legal entitles. A holding company does not own the assets of a subsidiary. Defendants No. 1 to 10 own the properties in question and the same cannot be a subject matter of any agreement executed by the plaintiff. Hence, defendants No. 1 to 10 are not bound by the terms of the Purchase Agreement dated 28.04.2011. (v) It is further pleaded that the alleged agreement creating a charge or security over the assets of the applicants is unenforceable. Reliance is placed on the Foreign Exchange Management (Guarantees) Regulations 2000 to submit that the same prohibits a person resident in India from giving a security to a person resident outside India. (vi) It is further pleaded that mere undertaking by a party not to dispose of the properties during the pendency of the loan does not create any charge over the properties. Reliance is placed on the judgment of the Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated that the assets of the plaintiff include the assets of the subsidiaries/joint ventures. The said subsidiaries are privy to the agreement executed by the plaintiff and defendant No. 20. Reliance is placed on the judgment of a Coordinate Bench in the case of Utair Aviation vs. Jagson Airlines Ltd. Anr., 2012 (129) DRJ 630 to contend that privity of the contract can be created by virtue of conduct, acknowledgement and admissions. Reliance is also placed on the judgment of the Supreme Court in the case of Cheran Properties Ltd. vs. Kasturi Sons Ltd. Ors., (2018) 16 SCC 413 to submit that the Group of Companies Doctrine is intended to facilitate the fulfillment of mutually held intent between the parties. It is reiterated that the SARE Group is a single economic entity and defendants No. 1 to 15 cannot wriggle out of its obligations. (iii) On the issue of jurisdiction of this court, it is pleaded that the Purchase Agreement has a jurisdiction clause of the courts of the State of New York, USA but there is no bar for this court to entertain the present suit. Further it is reiterated that the facility agreement dated 14.05.2018 was executed between defendant No. 3 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held as follows: 254. The Companies Act in India and all over the world have statutorily recognised subsidiary company as a separate legal entity. Section 2(47) of the Companies Act, 1956 defines subsidiary company or subsidiary , a subsidiary company within the meaning of Section 4 of the Act. For the purpose of the Companies Act, a company shall be subject to the provisions of sub-section (3) of Section 4, be deemed to be subsidiary of another, subject to certain conditions, which includes holding of share capital in excess of 50% controlling the composition of the Board of Directors and gaining status of a subsidiary with respect to the third company by the holding company's subsidisation of the third company. 255. A holding company is one which owns sufficient shares in the subsidiary company to determine who shall be its Directors and how its affairs shall be conducted. The position in India and elsewhere is that the holding company controls a number of subsidiaries and respective businesses of companies within the group and manage and integrate as a whole as though they are merely departments of one large undertaking owned by the holding company. But, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries. 259. The US Supreme Court in United States v. Bestfoods [141 L Ed 2d 43] explained that it is a general principle of corporate law and legal systems that a parent corporation is not liable for the acts of its subsidiary, but the Court went on to explain that corporate veil can be pierced and the parent company can be held liable for the conduct of its subsidiary, if the corporal form is misused to accomplish certain wrongful purposes, when the parent company is directly a participant in the wrong complained of. Mere ownership, parental control, management, etc. of a subsidiary is not sufficient to pierce the status of their relationship and, to hold parent company liable. In Adams v. Cape Industries Plc. [ (1990) 2 WLR 657], the Court of Appeal emphasised that it is appropriate to pierce the corporate veil where special circumstances exist indicating that it is mere facade concealing true facts. 260. Courts, however, will not allow the separate corporate entities to be used as a means to carry out fraud or to evade tax. Parent company of a WOS, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge. Therefore, we agree with the finding of the High Court that the document at Ext. A-6 is not a charge. If that is so, the suit filed by the appellant has got to be dismissed. The Court held that the decree obtained in that suit was a simple money decree and not a decree on a charge or mortgage with the result that the appellant who purchased the property in execution of that decree did not acquire the rights under the security bond. 15. In Bank of India [Bank of India v. Abhay D. Narottam, (2005) 11 SCC 520] this Court was examining the scope of undertaking made for creating an equitable charge over a flat in favour of the Bank. This Court held that without a transfer of interest, there is no question of there being a mortgage and that mere undertaking is not sufficient to create a charge. The ratio laid down by the abovementioned judgment applies to the present case. In our view, the mere undertaking that the party will not dispose of the properties mentioned in an undertaking, during the currency of the loan, will not create any charge over those properties, unless charge is created by deposit of title deeds or through a registered document. We also hold that eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought any declaration that they are not bound by the terms of the purchase agreement. 32. I may look at the above pleas. Normally, while interpreting terms of an agreement where the terms are clear, extrinsic evidence is not admissible. 33. Reference may be had to the judgment of the Supreme Court in the case of The Godhra Electricity Co. Ltd. Anr. vs. The State of Gujarat Anr., (1975) 1 SCC 199 where the Court held as follows:- 16. We are not certain that if evidence of subsequent acting under a document is admissible, it might have the result that a contract would mean one thing on the day it is signed but by reason of subsequent event it would mean something a month or year later. Subsequent interpreting statements might not always change the meaning of a word or a phrase. A word or a phrase is not always crystal clear. When both parties subsequently say that by the word or phrase which, in the context, is ambiguous, they meant this, it only supplies a glossary as to the meaning of the word or phrase. After all, the inquiry is as to what the intention of the parties was from the language used. And, why is it that parties cannot clear the latent ambiguity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to have been created by virtue of conduct. The said question essentially becomes a question of fact and basing upon the said fact finding, the law has to be necessarily applied as to whether the said person is a complete stranger to a contract or whether the privity can be said to have been created by way of conduct. 29. Therefore, the said question relating to privity having been created by virtue of conduct, acknowledgment and admission becomes a mixed question of fact and law as it requires a fact finding as well as due application of law. Furthermore, once the judicial opinion exists that courts are entitled to do justice when all are before the court, then it is unwise to reject the plaint at the threshold, considering the question of privity of contract as a pure question of law when actually the conduct of the parties and the attending circumstances reveal otherwise. As per the above judgment, privity can be created by virtue of conduct, acknowledgement and admission. The same however being a mixed question of fact and law, the said judgment may not help the plaintiff at this stage. At best, the said judgment could be pressed after evidence to record a finding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract 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. At this stage, in view of the limited facts on record, it is not possible to return such a finding. 38. I may now deal with another contention of some of the defendants regarding the territorial jurisdiction of this court. The argument has two fold submission. Firstly, it has been pleaded that under Clause 20.2, the courts in USA would have exclusive jurisdiction to settle and determine any dispute. It is also an admitted fact that defendant No. 20 has initiated proceedings before the appropriate court in the State of New York which are pending adjudication. Based on this, a ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for an order awarding Wafra: a. $64,064,696, plus pre-judgment and post Judgment interest; b. all legal fees incurred by Wafra to date in connection with enforcement of the Bonds; c. the costs of this action, including reasonable attorneys' fees, and such other and further relief as the Court may deem just and equitable. B. On Count 2, for an order in the form of a permanent injunction and specific performance that bars S.A.R.E. from encumbering its assets or its subsidiaries' assets, including but not limited to S.A.R.E. (Cyprus) Limited equity interests in Brilliant and Avon. C. On Count 2, for an order compelling S.A.R.E.'s specific performance of its obligations under the Bond Purchase Agreement, as follows: a. to demonstrate compliance with financial covenants in the covenant compliance certificates required to be delivered; b. to provide an opinion of an independent certified public accountant for the fiscal year ending December 31, 2017. 42. Reference in this context may be had to the judgment of the Supreme Court in the case of Modi Entertainment Network and Anr. vs. W.S.G. Cricket PTE. Ltd., (supra) wherein the Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties and may grant anti-suit injunction in regard to proceedings which are oppressive or vexatious or in a forum non-convenience. (3) Where jurisdiction of a court is invoked on the basis of jurisdiction clause in a contract, the recitals therein in regard to exclusive or non-exclusive jurisdiction of the court of choice of the parties are not determinative but are relevant factors and when a question arises as to the nature of jurisdiction agreed to between the parties the court has to decide the same on a true interpretation of the contract on the facts and in the circumstances of each case. (4) A court of natural jurisdiction will not normally grant anti-suit injunction against a defendant before it where parties have agreed to submit to the exclusive jurisdiction of a court including a foreign court, a forum of their choice in regard to the commencement or continuance of proceedings in the court of choice, save in an exceptional case for good and sufficient reasons, with a view to prevent injustice in circumstances such as which permit a contracting party to be relieved of the burden of the contract; or since the date of the contract the circumstances or subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave territorial jurisdiction. 45. In my opinion, on a prima facie reading the contention appears to the misplaced. 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. In this context reference may be had to a judgment of a Co-ordinate Bench of this Court in the case of M/s. Bab Vishwanath Buildcon Pvt. Ltd. vs. Shiv Shankar Mishra, where the court held as follows:- 6. Thus the suit which seeks either the recovery or partition or determination of any right or interest or compensation for wrong to immovable property or for foreclosure, sale or mortgage is required to be filed where the property is situated. In the present case the Plaintiff has made no prayer with regard to the recovery of the land or determination of his right or interest in the immovable property nor the suit seeks compensation for wrong to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling provision. A plaintiff in a suit of specific performance may ask for further reliefs mentioned in clauses (a) and (b) thereof. Clause (a) contains relief of possession and partition and separate possession of the property, in addition to specific performance. The mandate of sub-section (2) Section 22 is that no relief under clauses (a) and (b) of sub-section (1) shall be granted by the Court unless it has been specifically claimed. Thus it follows that no court can grant the relief of possession of land of other immovable property, subject-matter of the agreement for sale in regard to which specific performance is claimed, unless the possession of the immovable property is specifically prayed for. 18. In the instant case the suit is for specific performance of agreement for sale of the suit property wherein relief of delivery of the suit property has not been specifically claimed as such it cannot be treated as a suit for land . 19. We cannot also accept the contention of Mr. Chitale that the suit is for acquisition of title to the land and is a suit for land . In its true sense a suit simpliciter for specific performance of contract for sale of land is a suit for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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