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TMI Blog2025 (3) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... hese 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pani ("Manmohan") is a resident of Virginia, United States of America aged over 90 years. Manmohan infused a sum of USD 1 million into Respondent No. 1, Kapani Resorts Pvt. Ltd. ("Kapani Resorts") pursuant to the Share Subscription Agreement and Shareholders Agreement dated February 11, 2022 ("Agreement"). The Agreement has an arbitration clause, and its existence is not disputed. 2. Under the Agreement, the investment of USD 1 million would increase Manmohan's equity shareholding in Kapani Resorts from 13% to 51%. The end-use of the funds invested by Manmohan was to enable Kapani Resorts to service its debt obligations under a One-Time Settlement ("OTS") with Small Industries Development Bank of India ("SIDBI") and stave off a default. Respondent No.2, Mr. Virendra Kapani ("Virendra") and Respondent No. 3, Vaibhav Kapani ("Vaibhav") were guarantors of the amounts owed by Kapani Resorts to SIDBI. Using the funds invested by Manmohan, Kapani Resorts discharged the dues owed to SIDBI, resulting in Virendra and Vaibhav getting relieved of their guarantee obligations. Likewise, the assets of Kapani Resorts and the property located at 124, Block-E, Greater Kailash, Part II, New Delhi ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d controversy between the parties is primarily on the law and on how far this Court, in exercise of powers under Section 9 of the Act, can intervene in respect of a property owned by Virendra (and not by Kapani Resorts), which was released by use of Manmohan's funds. 8. Mr. Rajadhyaksha would submit that the scope of intervention under Section 9 is wide and can be creatively used for an expansive intervention bearing in mind the nature of the facts and whatever would best preserve the interests of the parties pending arbitration. Mr. Dubash would submit that the properties of Virendra and Vaibhav, although released by SIDBI only because of the use of funds infused by Manmohan, are totally out of the reach of this Court's intervention. Analysis and Findings: 9. Having considered the material on record with the assistance of the Learned Counsel, as also the verbal submissions and their written arguments, the following is evident:- (a) The parties are indeed privy to an arbitration agreement contained in the Agreement; (b) Manmohan performed his portion of the bargain struck between the parties - he infused USD 350,000 on February 11, 2022 and USD 650,000 on February 22, 2022. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion had been filed in the Delhi High Court and came to be dismissed for want of territorial jurisdiction. Mr. Dubash has also focused on how the pleadings alleging abuse of the funds invested by Manmohan are untenable since the funds were in fact used to pay SIDBI, which was the contracted end-use objective of the investment. Issues were raised about the process of verification of the power of attorney under which the pleadings have been filed on Manmohan's behalf. The upshot is that, according to Virendra and Vaibhav, Manmohan has come to this Court with unclean hands. 11. I am afraid these objections would not be of any assistance to Virendra and Vaibhav. They have simply displayed a cynically high sense of hubris in their approach to the matter and to the proceedings. Admittedly, SIDBI has issued a no-dues certificate dated March 15, 2022. Admittedly, a Memorandum of Satisfaction of Charge was issued by SIDBI on April 12, 2022, and the SIDBI loan has been fully closed. They have admittedly enjoyed every benefit flowing out of the funds invested by Manmohan. They have offered no explanation as to why they have not given up 51% ownership stake in Kapani Resorts till date. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an investor's investment need not take only the form of siphoning of funds out of a company - it can take the form of enjoying the benefits arising out of an investor's infusion of funds, reaping the consequential personal benefits, without complying with the corresponding obligations owed to the investor. Virendra and Vaibhav have reaped the benefit of being discharged from their guarantee obligations and the release of the Greater Kailash Property and yet deprived the investor of the rights owed. Needless to say, all these are subject matter of merits that the Arbitral Tribunal, as and when constituted, would examine. Pending such consideration by the Arbitral Tribunal, it would only be appropriate for me to issue directions to preserve the subject matter of the dispute and to balance the competing interests of the parties. 15. Mr. Dubash has also contended that some grave danger of alienation of the properties ought to be demonstrated before alienation of the property can be injuncted. The apprehension of alienation ought to be demonstrated, he would submit, without which the Section 9 Court cannot intervene. Such an argument misses the point that grave injury has already bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is evident that the funds infused by Manmohan have been deployed to pay SIDBI. In order to deprive Manmohan of the benefits, the entire amount is still shown in the balance sheet of Kapani Resorts as "Share application money pending allotment". In other words, it is an admitted position that shares have not been allotted to Manmohan, and the monies have been utilised by Kapani Resorts to repay SIDBI. This is prima facie, a clear misappropriation of funds in the eyes of company law - it requires that share application money not be used for anything other than adjustment against share capital, and refund of share application money when the deadline to allot is missed. 18. Section 42 (6) of the Companies Act prohibits whatever has been done with the money infused by Manmohan, by Kapani Resorts under the control of Virendra and Vaibhav - the provision is reproduced below:- Section 42 (6): A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mohan are being enjoyed by Virendra and Vaibhav, protective measures have to follow that effectively binds all the three of them who are enjoying benefits at the expense of Manmohan. Such arrangements would be in place until the Arbitral Tribunal considers the matter and decides on the merits. 21. 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. 22. The contentions made on behalf of Virendra and Vaibhav are all about nit-picking on Manmohan's pleadings and his use of phrases in his pleadings about being taken for a ride. They would argue that they indeed utilised the funds infused by Manmohan for the very purpose towards which he had made the investment i.e. to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gging Manmohan at this ripe old age through another round of pre-arbitration proceedings. Directions and Order: 26. In these circumstances, it would be just, fair and equitable to protect Manmohan's investment in Kapani Resorts (the subject matter of arbitration) through the following measures:- A) 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; B) Kapani Resorts, Virendra and Vaibhav shall forthwith be prohibited from directly or indirectly, selling, mortgaging, alienating or creating any third-party interest or encumbrance of any nature whatsoever over any ..... 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