Non-signatory subsidiaries and interim restraints: blanket asset freeze declined, but limited financing allowed for project completion.

A non-signatory subsidiary is not prima facie bound at the interim stage by a holding company's purchase agreement absent clear privity, conduct, or admission showing assumption of the covenant, and a bare undertaking not to alienate property does not itself create a charge or mortgage over assets. Territorial objection was also rejected because the reliefs were injunctive and declaratory rather than a suit for land, and part of the cause of action arose within the forum. The interim restraint was therefore modified: blanket prohibition on asset creation was declined, but limited borrowing was permitted for project completion and day-to-day operations, subject to affidavit and quarterly disclosure safeguards.

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Issues: (i) whether non-signatory subsidiary companies were prima facie bound by the purchase agreement and could be restrained from creating encumbrances over their assets; (ii) whether the Delhi High Court lacked territorial jurisdiction in view of the jurisdiction clause and the nature of the reliefs sought; (iii) whether the interim restraint order should continue, be vacated, or be modified to permit limited financing for completion of projects.

Issue (i): Whether non-signatory subsidiary companies were prima facie bound by the purchase agreement and could be restrained from creating encumbrances over their assets.

Analysis: The covenant relied upon prohibited the issuer and required it to cause its subsidiaries not to create liens, but the subsidiaries were not signatories to the agreement. The separate legal personality of a holding company and its subsidiaries was treated as settled law, and a holding company was held not to own the assets of its subsidiaries. The Court further held that a mere undertaking not to alienate property does not create any charge or mortgage, and the materials relied upon at the interim stage did not establish a clear privity of contract binding the non-signatory subsidiaries by conduct or admission.

Conclusion: The subsidiaries were not prima facie shown to be bound by the purchase agreement so as to justify a blanket restraint on dealing with their assets.

Issue (ii): Whether the Delhi High Court lacked territorial jurisdiction in view of the jurisdiction clause and the nature of the reliefs sought.

Analysis: The exclusive jurisdiction clause in the purchase agreement governed disputes between the contracting parties, but the present suit also proceeded against entities not shown to be bound by that agreement. The reliefs claimed were in the nature of injunction and declaration and did not amount to a suit for land under Section 16 of the Code of Civil Procedure, 1908. In addition, some defendants had registered offices in Delhi and one of the later facility agreements was stated to have been executed in Delhi, giving rise to a part of the cause of action within the forum.

Conclusion: The suit could not be returned at the interim stage for want of territorial jurisdiction.

Issue (iii): Whether the interim restraint order should continue, be vacated, or be modified to permit limited financing for completion of projects.

Analysis: Although the plaintiff had not established a prima facie basis for a complete restraint against the non-signatory subsidiaries, the Court also noted the unpaid bond liability and the risk of leaving the plaintiff's side without effective protection if the restraint were wholly lifted. At the same time, the Court accepted the plea that ongoing real estate projects required funds for completion and that freezing all asset creation would impede project completion and recovery. Balancing these competing considerations, the Court found that limited permission for borrowing against assets, coupled with safeguards and periodic accounting, was appropriate.

Conclusion: The interim order was modified to permit defendants to create security only for completion of pending projects and day-to-day operations, subject to affidavit and quarterly disclosure conditions.

Final Conclusion: The applications were disposed of with a modified injunction regime: a complete restraint was declined, territorial objections were rejected, and limited asset creation was permitted only for bona fide project completion and operational needs under continuing supervision of the Court.

Ratio Decidendi: A non-signatory subsidiary is not bound at the interim stage by a covenant in a holding company's agreement absent clear privity or conduct showing assumption of the obligation, and a mere undertaking not to alienate property does not by itself create a charge or mortgage over immovable property.

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