TaxTMI 
TaxTMI 
2020 (1) TMI 1558
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the application being filed along with the present suit; b. Pass a decree of declaration declaring that any and all the securities and or documents whatsoever such as power of attorneys, non-disposable undertakings, charge on assets, encumbrance, mortgage, lien, pledge of shares, etc. already created/sought to be created by the defendant Nos. 1 to 15 in favour of defendant No. 16 to 19 or any other person or entity pursuant to and/or in furtherance of the Facility Agreement dated 14.05.2018 or any other agreement are non-est, null and void: c. Pass a decree of declaration declaring all terms and conditions of the Facility Agreement dated 14.05.2018 by which the defendants No. 1 to 15 have undertaken to create securities in relation to their assets, properties as non-est, null and void; d. Pass a decree of permanent injunction directing the defendants Nos. 1 to 15 not to pledge, mortgage, encumber, dispose of, sell or alienate any of their assets, shares, properties (moveable and immovable), in any manner whatsoever without obtaining the prior written permission of the Receiver of the plaintiff; e. Pass a decree of permanent injunction directing the defendant Nos. 1 to 15....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and performance of the purchase agreement, which is the principal/mother agreement. Reliance is also placed on the Debenture dated 28.04.2011 executed between the plaintiff company and defendant No. 20. The Debenture provides that security created under the debenture becomes enforceable upon occurrence of an event of default and upon security becoming enforceable. In that eventuality, defendant No. 20 has the rights to appoint a receiver to perform various functions as stated in the Debenture. 5. Subsequently, the plaintiff which was registered in the Isle of Man was registered as a company continuing to exist in the Republic of Cyprus. The parties executed a supplementary agreement dated 22.02.2013 so that the Re-domiciliation of the plaintiff in the Republic of Cyprus is duly recorded. 6. The plaintiff was unable to adhere to the scheduled maturity date i.e. 25.05.2013, it requested defendant No. 20 for an extension for payment of the amount due and payable. The said request was accepted and the time period for making repayment was extended up to 25.05.2015. It is pleaded that as on 30.06.2018 based on the information made available, an aggregate amount of USD 60,162,463 (appro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acilities are proposed to be sought by the plaintiff and its subsidiaries i.e. defendants No. 1 to 15 without a prior written permission/consent of the plaintiffs Receiver. 11. It is further stated that the plaintiff receiver has gained knowledge of the fact that a Facility Agreement dated 14.05.2018 has been executed amongst, defendant No. 3, defendants No. 15 and 16 in pursuance of which a loan facility for an aggregate amount of Rs. 100 crores was proposed to be advanced by defendants No. 15 and 16 to defendant No. 3/SARE Gurugram. To secure the said loan facilities being availed by defendant No. 3, the securities proposed to be created in terms of the Facility Agreement suggested various areas including Village Lodivali and Indore. Other such agreements are also said to have been executed. Hence, it has emerged that defendant 3 has availed/proposed to avail the financial facility by illegally encumbering its properties. 12. It is further stated that the plaintiff is aware that defendant No. 20 has also initiated legal proceedings against the plaintiff before the Hon'ble Supreme Court of the State of New York, County of New York claiming a sum of USD 64,064,696. Interim or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the answering defendants. iv) It is further stated that attorney holder Mr. Augoustinos Papathomas has not been validly authorized to file the present suit. The special power of attorney signed by the receiver is neither stamped nor registered under the laws of India. v) The present suit, it is pleaded is a surrogate action on behalf of defendant No. 20 and seeks to circumvent the exclusive jurisdiction clause. vi) It is further stated that answering defendants are engaged in the business of real estate projects. The answering defendants have eight projects where approximately 15,000 apartments are under construction in Gurgaon, Ghaziabad, Amritsar, OMR Chennai and Kolathur Chennai. Based on this, they have 8,000 customers. It is stated that the answering defendants are separate and distinct legal entities and the plaintiff by virtue of its shareholding, would not be entitled to claim the assets of its step-down subsidiaries. The plaintiff could not have validly entered into contracts on behalf of answering defendants, much less encumber assets on their behalf in the absence of any specific authorization. There is no board resolution passed by any of the answering defendants ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....courts. The debenture provides for jurisdiction to the courts at Isle of Man which was later amended on 01.02.2016 to give jurisdiction to the court of the Republic of Cyprus. Hence, this suit is not maintainable. iii) Defendants No. 1 to 15 are not the signatories to the Purchase Agreement and there is no privity of contract between defendant No. 20 and defendants No. 1 to 15. 15. I may note that IA No. 14239/2018 is filed by the plaintiff company under Order 39 Rules 1 and 2 CPC seeking ex-parte injunction to restrain defendants No. 1 to 15 from pledging, mortgaging, encumbering, disposing of, selling or alienating any of their assets and shares or properties in any manner whatsoever without prior permission of the receiver of the plaintiff. This court on 12.10.2018 passed an interim order restraining defendants No. 1 to 10 from creating any encumbrance/charge or lien or mortgage of any of their assets, shares, properties to any third party till the next date. Defendants No. 16 and 17 were also restrained from giving effect to the Facility Agreement dated 14.05.2018 to the extent of their taking lien charge, security, mortgage or pledge of any of the assets of defendants No. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 10 are controlled subsidiaries of the plaintiff. Defendants No. 11 to 14 are controlled subsidiaries of SARE in Cyprus. Defendant No. 15 is a controlled subsidiary of SARE Group in Singapore. It is stated that due to the structure of the SARE Group where all investments are transferred by the plaintiff into its controlled subsidiaries, the valuation of the SARE Group and the value of the shares of the subsidiaries is based on open market value of the Group's Property Portfolio. (ii) It is further stated that defendant No. 20 had invested USD 50 million in convertible bonds issued by the plaintiff to be utilized by the plaintiff solely or indirectly through its controlled subsidiary to acquire, develop and sell middle income residential projects across India. A purchase agreement for secured convertible bonds was entered into along with other several ancillary agreements. It is pleaded that under Clause 12.1 of the said agreement, the entire SARE Group, namely, the plaintiff and its subsidiaries were barred from creating any lien/pledge/encumbrances/charge or any third party right on its assets. It is stated that the said agreement dated 28.04.2011 was executed by the plaint....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of the present suit arises within the jurisdiction of this court as the Facility Agreement dated 14.05.2018 has been executed within the territorial jurisdiction of this court. Further, registered offices of various defendants fall within the jurisdiction of this court. 19. Learned senior counsel appearing for defendants No. 1 to 10 submits as follows to plead that the interim order be vacated:- (i) It has been urged that the present suit is not maintainable as this court does not have the jurisdiction to try the same. It is pleaded that as per Clause 20.2 of the Purchase Agreement, the courts of the State of New York and the courts of the USA shall have the exclusive jurisdiction to settle any dispute and to hear and determine any suit, action or proceedings. It is hence pleaded relying upon the judgment of the Supreme Court in the case of Modi Entertainment Network and Anr. vs. W.S.G. Cricket PTE. Ltd., (2003) 4 SCC 341 to contend that where the parties have agreed to submit to the exclusive jurisdiction of a foreign court, the same would oust the jurisdiction of the Indian Court and the suit filed in Indian courts would stand rejected. Reliance is also placed on the judgmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... charge or security created is unenforceable. Reliance is placed on Sections 17 and 49 of the Registration Act, 1908. (vii) It is further stated that the interim order passed by this court has an adverse effect on the business of the defendants who are currently developing five projects in various cities. Out of 9030 units launched by the defendants, 6667 units have been sold and 4539 units have been delivered to home buyers. 2308 units need to be constructed and delivered. It is pleaded that as the projects are ongoing projects, this court may keep the larger public interest in mind while deciding the issue of injunction. 20. Learned senior counsel for defendant No. 17 has also broadly reiterated the submissions addressed on behalf of defendants No. 1 to 10. It is reiterated that the transaction in question which has been challenged in the present proceedings took place in 2015-16. The plaintiff was fully aware about the same. A sum of Rs. 650 crores was lent in 2016-17. It is reiterated that defendants No. 1 to 10 are not barred from pledging their assets. 21. Learned counsel for defendant No. 16 has also broadly urged the same contentions. He has pleaded that three agreement....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... plaintiff and defendant No. 1 and 3 to 10 cannot in equity claim any defence. 23. I now first come to the crux of the whole issue, namely, as to 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. 24. Reference may be had to clause 12.1 of the Purchase Agreement dated 28.04.2011 which reads as follows:- "12 NEGATIVE COVENANTS So long as any Bond remains outstanding the Issuer shall not, and the Issuer shall cause each of its Subsidiaries not to, directly or indirectly: 12.1 Liens Create, incur, assume or suffer to exist any Lien upon any of its Property, assets or revenues, whether now owned or hereafter acquired, or sign or file or authorize the filing under the Uniform Commercial Code of any jurisdiction a financing statement (or any similar filing under the Law of any jurisdiction outside of the United States) that names the issuer or any of its Subsidiaries as debtor, or sign any pledge agreement, security agreement, debenture or any other similar agreement or instrument authorizing any secured party the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the companies over the years have grown enormously of its incorporation and outside and their structures have become more complex. Multinational companies having large volume of business nationally or internationally will have to depend upon their subsidiary companies in the national and international level for better returns for the investors and for the growth of the company. When a holding company owns all of the voting stock of another company, the company is said to be a WOS of the parent company. Holding companies and their subsidiaries can create pyramids, whereby a subsidiary owns a controlling interest in another company, thus becoming its parent company. 257. The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. In Bacha F. Guzdar v. CIT [AIR 1955 SC 74], this Court held that shareholders' only right is to get dividend if and when the company declares it, to participate in the liquidation proceeds and to vote at the shareholders' meeting. Refer also ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mid-like structures, would be able to distance themselves and separate the parent from operating companies, thereby protecting the multinational companies from legal liabilities." 27. 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. 28. There is another aspect which may be noted. Admittedly, the properties are not charged in favour of the plaintiff or defendant No. 20. Reference in this context may be had to the judgment of the Supreme Court in the case of Haryana Financial Corporation vs. Gurcharan Singh & Anr.,(supra) where the court held as follows: "13. So far as the present case is concerned, no registered mortgage deed was executed by the first respondent and no title deed of the property was handed over by the first respondent to the Corporation. The mere undertaking that a person would not dispose of the properties mentioned, during the currency of the loan, would not confer any charge on the immovable properties mentioned therein. In other words, a mere undertaking to create a mortgage is not sufficient to create an interest in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he judgment of the lower appellate court which was affirmed by the High Court." 29. Hence, 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. 30. In the light of the above legal position, 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. 31. The plea of the plaintiff however is that the entire group of the plaintiff known as SARE Group including its subsidiaries is a single economic entity and the business of the entire group is being carried out in the same manner. Reliance is placed on the judgme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....selves might not have been clear as to the meaning of the word or phrase when they entered into the contract. Unanticipated situation might arise or come into the contemplation of the parties subsequently which would sharpen their focus and any statement by them which would illuminate the darkness arising out of the ambiguity of the language should not be shut out. In the case of an ambiguous instrument, there is no reason why subsequent interpreting statement should be inadmissible. ....." xxx 18. In these circumstances, we do not think we will be justified in not following the decision of this Court in Abdulla Ahmed v. Animendra Kissen Mitter [AIR 1950 SC 15] where this Court said that extrinsic evidence to determine the effect of an instrument is permissible where there remains a doubt as to its true meaning and that evidence of the acts done under it is a guide to the intention of the parties, particularly, when acts are done shortly after the date of the instrument." 34. What follows is that where meaning of a word or phrase is clear, the usual legal position is that extrinsic evidence is not admissible. It is only when there is a latent ambiguity then extrinsic evidence ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... law has evolved, it has recognised that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies. The circumstances in which they have entered into them may reflect an intention to bind both signatory and non-signatory entities within the same group. In holding a non-signatory bound by an arbitration agreement, the court approaches the matter by attributing to the transactions a meaning consistent with the business sense which was intended to be ascribed to them. Therefore, factors such as the relationship of a non-signatory to a party which is a signatory to the agreement, the commonality of subject-matter and the composite nature of the transaction weigh in the balance. The group of companies doctrine is essentially intended to facilitate the fulfillment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hall be governed by, and construed in accordance with, the Internal laws of the State of New York applicable to agreements made and performed in such state without regard to conflicts of law principles thereof that would require the application of the laws of a jurisdiction other than such state. 20.2 Jurisdiction The courts of the State of New York and the courts of the United States of America, in each case, located In the County of New York, shall have jurisdiction to settle any dispute (a "Dispute"), and to hear and determine any suit, action or proceedings ("Proceedings"), arising from or connected with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement), and the Issuer (for Itself and Its Property) and the Purchaser hereby submit to such jurisdiction in connection with any such Dispute. Each of the Issuer and the Purchaser further agree that it may not, and covenants that it shall not, institute or maintain any Proceeding arising from or connected with this Agreement other than in the courts specified in the preceding sentence. Nothing contained in this clause or anywhere else in this Agreement shall prohibit the Purchas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave jurisdiction over a subject-matter, they are called courts of available or natural jurisdiction. The growing global commercial activities gave rise to the practice of the parties to a contract agreeing beforehand to approach for resolution of their disputes thereunder, to either any of the available courts of natural jurisdiction and thereby create an exclusive or non-exclusive jurisdiction in one of the available forums or to have the disputes resolved by a foreign court of their choice as a neutral forum according to the law applicable to that court. It is a well-settled principle that by agreement the parties cannot confer jurisdiction, where none exists, on a court to which CPC applies, but this principle does not apply when the parties agree to submit to the exclusive or non-exclusive jurisdiction of a foreign court; indeed in such cases the English courts do permit invoking their jurisdiction. Thus, it is clear that the parties to a contract may agree to have their disputes resolved by a foreign court termed as a "neutral court" or "court of choice" creating exclusive or non-exclusive jurisdiction in it. xxx 24. From the above discussion the following principles emerg....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., ordinarily no anti-suit injunction will be granted in regard to proceedings in such a forum conveniens and favoured forum as it shall be presumed that the parties have thought over their convenience and all other relevant factors before submitting to the non-exclusive jurisdiction of the court of their choice which cannot be treated just as an alternative forum. (6) A party to the contract containing jurisdiction clause cannot normally be prevented from approaching the court of choice of the parties as it would amount to aiding breach of the contract; yet when one of the parties to the jurisdiction clause approaches the court of choice in which exclusive or non-exclusive jurisdiction is created, the proceedings in that court cannot per se be treated as vexatious or oppressive nor can the court be said to be forum non-conveniens. (7) The burden of establishing that the forum of choice is a forum non-conveniens or the proceedings therein are oppressive or vexatious would be on the party so contending to aver and prove the same." 43. I need not dwell further into the present submission of the learned senior counsel for defendants No. 1 and 3 to 10, at this stage. It is their st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rty. Whether a suit is a "suit for land" or not has to be determined on the averments in the plaint with reference to the reliefs claimed therein; where the relief relates to adjudication of title to land or immovable property or delivery of possession of the land or immovable property, it will be a "suit for land". We are in respectful agreement with the view expressed by Mahajan, J. in Moolji Jaitha's case. 16. In a suit for specific performance of contract for sale of immovable property containing stipulation that on execution of the sale deed the possession of the immovable property will be handed over to the purchaser, it is implied that delivery of possession of the immovable property is part of the decree of specific performance of contract. But in this connection it is necessary to refer to Section 22 of the Specific Relief Act, 1963 which runs: "22. Power to grant relief for possession, partition, refund of earnest money, etc.-(1) Notwithstanding anything to the contrary contained in the Code of Civil Procedure, 1908, any person suing for the specific performance of a contract for the transfer of immovable property may, in an appropriate case, ask for- (a) posses....