TaxTMI 
TaxTMI 
2025 (3) TMI 914
X X X X Extracts X X X X
X X X X Extracts X X X X
....er 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 ("Greater Kailash Property"), the residential property of Virendra and Vaibhav, that had been mortgaged to SIDBI were released. 3. Therefore, Virendra and Vaibhav got Kapani Resorts to use the funds infused by Manmohan to get the Greater Kailash Property released, as indeed their guarantee obligations discharged, but simply refused to issue the shares that were required to be allotted to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. The funds were admittedly utilised for meeting the obligations owed under the OTS with SIDBI; (c) Virendra and Vaibhav, who control the management of Kapani Resorts have simply failed to perform their side of the bargain - not only have shares that are to be issued to Manmohan not been allotted, no worthy explanation has been made to justify why shares were not allotted; (d) The objec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er 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 is not acceptable that they now argue that they can only issue shares and must not suffer any restraint until an arbitral tribunal decides what is to be done in the matter after considering the evidence of the parties. In my opinion, it is not acceptable that they rely on Kapani Resorts not being the owner of the Greater Kailash Property, to argue that no reliefs can be granted over such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntee 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 been occasioned to Manmohan's interests by the joint and several conduct of Kapani Resorts, Virendra and Vaibhav. That apart, the approval to these proceedings speaks for itself on how the arbitration can be frustrated. It is trite law that the principles underlying attachment before judgement in the Code of Civil Procedure, 1908 ("CPC") would guide the Section 9 Court, but equally, the stri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent. per annum from the expiry of the sixtieth day: Provided that monies received on application under this section shall be kept in a separate bank accou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 repay SIDBI under the OTS. However, they have no explanation as to why they have not till date allotted shares to Manmohan. Therefore, they have used his money to release their own assets and the assets of Kapani Resorts, and yet retained control over Kapani Resorts, contrary to the Agreement, and now primarily argue about the scope of intervention this Court can make under Section 9 of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 and every property of Kapani Resorts; C) 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 the Greater Kailash Property; D) If Kapani Resorts, Virendra and Vaibhav jointly or severally comply with the direction to deposit funds as directed abo....