Full Text
HIGH COURT OF DELHI
IPC), I.A. 11404/2022 (interim relief) & I.A. 10591/2023 (Order 1
Rule 10) (D-3)
MORGAN SECURITIES AND CREDITS PVT LTD..... Plaintiff
Through: Mr.Amit Sibal, Sr. Adv. with Mr.Simran Mehta & Mr.Amit Ranjan Singh, Advs.
Through: Mr Pranjit Bhattacharya, Mr.Prabhav Bahuguna & Ms.Tarini Khurna, Advs. for D-1, 4 to 6, 9 & 10.
Mr.Rohan Batra, Ms.Sonali Malik & Mr.Harsh Vardhan, Advs. for D-2.
Mr.Gopal Jain, Sr. Adv. with Mr.Shankh Sengupta, Ms.Varuna Bhan Rale, Mr.Ribhu Garg
& Mr.Kartikeya Yadav, Advs. for D-7 & 8.
Mr.Shankh Sengupta, Ms.Varuna Bhan Rale, Mr.Ribhu Garg & Mr.Kartikeya Yadav, Advs. for
D-3
JUDGMENT
1. The present application under Order XXXIX Rule 4 of the Code of Civil Procedure (CPC) preferred by the applicants/defendant nos. 7 & 8 seeks modification of order dated 13.01.2023 passed by this Court in so far as it directs the defendants to maintain status quo as regards the present shareholding held by them qua various allotment of shares in defendant no.2, in favor of defendant nos. 3,4,6,[7] and 8 which have been carried out from time to time. Consequently, vide the said order, the defendant nos. 7 & 8 have been restrained from selling/transferring 6,88,91,074 and 58,56,515 shares (BPLM Shares) respectively held by them in defendant no.2/BPL Medical Technologies Pvt. Limited. By way of this modification application, the applicants pray that they be granted permission to sell and transfer these shares held by them to any other party deemed fit.
2. Before dealing with the rival submissions of the parties, the brief factual matrix as is necessary for adjudication of the present application may be noted.
3. The plaintiff is a company incorporated under the provisions of the Companies Act, 1956 having its registered office at 53, New Friends Colony, New Delhi. The applicants herein are entities based in Singapore engaged in the business of holding investments in financial assets. The applicants are group companies of a US based company/Goldman Sachs Group, i.e., the defendant no.3 in the present suit. By virtue of this relation, the applicants are subjected to the laws of the United States.
4. The defendant no.1/BPL Limited and M/s BPL Display Devices Ltd. availed certain bill discounting facilities from the plaintiff under the Bill Discounting Agreement dated 27.12.2002 and 11.06.2003. As per the said agreement, a total sum of Rs. 13,23,23,523/- was disbursed by the plaintiff in favor defendant no.1. Upon the defendant’s failure to discharge its liability despite repeated communications, the aforesaid amount with interest became due and payable by the defendant no.1 to the plaintiff. Consequently, the parties invoked arbitration and on 03.07.2007, the learned Arbitrator entered upon reference for adjudication of disputes between the parties which had arisen under the agreements dated 27.12.2002 and 11.06.2003.
5. During the pendency of the said arbitration proceedings, the plaintiff came to know that the defendant No. 1 herein was investing/diverting/ transferring amounts to its subsidiary companies and transferring its healthcare business to its wholly owned subsidiary, i.e., the defendant No.2. The plaintiff therefore preferred petitions under Section 9 of the Act before this Court, which petitions were disposed of by this Court on 04.12.2012, wherein this Court after observing that the defendant no.1 was acting in contravention of Clause 6 of the Agreement dated 27.12.2002, restrained the defendant No. 1 from alienating its assets, both immovable and movable, or making further investments in its subsidiaries during the pendency of the arbitration proceedings. The said order was assailed by way of an appeal being FAO(OS) 612/2012 by defendant no.1, which appeal came to be disposed of on 14.01.2013 by observing that it would be for the Arbitral Tribunal to consider the manner in which the claim of the plaintiff was required to be secured. The matter was carried to the Apex Court by way of Special Leave Petition being SLP No. 4502 of 2013 which was disposed of on 08.02.2013 with a direction that the defendant no.1’s application for vacation of interim order dated 04.12.2012 would be considered by the learned Arbitral Tribunal.
6. Consequently, the stay granted on 04.12.2012 continued and was on 08.08.2013, partially modified with the learned Arbitral Tribunal vacating the stay operating against the healthcare business of defendant no.1 upon acceptance of security furnished by defendant no.2. As the challenge to this order of the learned Arbitral Tribunal was unsuccessful, the defendant no.1, on 09.08.2013, transferred its healthcare business to defendant no.2. At the time of the transfer, the defendant nos.[1] and 4 held 100% shares in defendant no.2. On 12.08.2013, the applicant no.1/defendant no.7 invested a sum of Rs.58.70 crores in defendant no.2 and was therefore allotted 2,14,88,542 shares in defendant no.2, which allotment constituted 49% of the total shareholding of defendant no.2. The shareholding of defendant nos. 1 & 4 in defendant no.2 thus reduced to 51%.
7. Being aggrieved, the plaintiff moved two applications before the learned Arbitral Tribunal under Section 17 of the Act seeking stay of the aforesaid transfer of shareholding in favour of the applicants. Being unsuccessful, the plaintiff approached this Court by way of petition being ARB P. 362/2013 wherein this Court, after taking into account the statement made on behalf of defendant no.1 that it had already alienated 49% of its holding in defendant no. 2 in favour of defendant no. 3, vide its order dated 23.08.2013, restrained the defendant no. 1 from creating any third party interest in the balance 51% shares held by it in defendant no. 2.
8. While the proceedings before the learned Arbitral Tribunal were pending, the defendant no.2 came out with various rights issues of its shares on 11.07.2014, 14.10.2015, 20.03.2017, 10.05.2017 and 06.12.2017. While the defendant no.1 did not subscribe to any of these shares, the applicants participated in this rights issues of shares by making an investment of approximately Rs.204.21 crores thereby acquiring the shares in question (BPLM shares). As a result of these rights issues and the consequential investment by the applicants, the shareholding of the defendant no.1 in defendant no.2 today stands reduced to 15.88%.
9. In the meanwhile, an arbitral award was passed in favour of the plaintiff on 14.12.2016, the challenge whereto was rejected by this Court on 18.12.2018. The plaintiff has preferred an execution petition seeking execution of the award, which petition is pending adjudication before the Additional City and Civil Sessions Judge, Bangalore, Karnataka.
10. While its execution petition was still pending before the Additional City and Civil Sessions Judge, Bangalore, Karnataka, the plaintiff has filed the present suit seeking a declaration to the effect that the allotment of shares of defendant no.2 made in favour of the defendant nos. 3,4,6,[7] and 8 be declared void ab initio as the same did not confer any valid right, title or interest in favour of the said defendants. The plaintiff has also prayed for a direction to the defendants to cancel all the share certificates that had been issued in lieu of the allotments as also for issuance of a decree restraining the defendants from creating any third party rights or interests or exercising any rights falling from the impugned shareholding held by the defendants. The issuance of summons in the suit was opposed by the defendants but this Court, after considering the submissions of the learned counsel for the parties on the issue regarding the maintainability of the suit, vide its order dated 13.01.2023, held that the plaint could not be rejected without issuance of summons. Resultantly, while issuing summons in the suit and notice in the application under Order XXXIX Rule 1 and 2 CPC, this Court directed the defendants to maintain status quo as regards the present shareholding held by the defendants, qua the various allotments of shares in defendant No. 2, in favour of defendant Nos. 3, 4,[6] 7 and 8 which have been carried out from time to time.
11. It is in these circumstances that the present application has been preferred by defendant nos. 7 and 8. At the outset, Mr. Gopal Jain, learned senior counsel for the applicants submits that while seeking permission to sell these shares, the applicants undertake to deposit with this Court, the entire sale consideration as may be received towards the sale of these shares, which amount may be subjected to further orders as may be passed by this Court. He submits that the applicants also undertake that in case, at a later stage, it is found that any amount is payable to the plaintiff by the defendant no.1, the said defendants will have no objection if the amount is appropriated towards the said dues. They further undertake not to seek deletion of their names as defendants, even if the shares held by them are permitted to be sold to a third party for which permission is sought by them.
12. He submits that the applicants have been constrained to file the present application as the applicants have an obligation to sell their investments made by them in defendant no.2 by 12.08.2023. As per the Bank Holding Company Act, 1956 applicable in US by which defendant no.3 is governed, financial holding companies, cannot hold or control an investment for a period exceeding 10 years from the date of first investment by any of the group entities in the company engaged in nonfinancial activities. In the present case, the applicants being group companies of defendant no.3, can therefore not hold the investments made by them for more than 10 years. The applicants, having made their first investment in defendant no.2 on 12.08.2013 are obligated under the Bank Holding Company Act, 1956 of US to transfer their investments from 12.08.2023. In the event of the applicants failing to transfer their shareholding within the aforesaid time, they would be inflicted with grave liabilities and consequences under the laws of the US, which would not only seriously impact the business prospects of the applicants but also of the defendant no.3, i.e., the parent company of the applicants.
13. He next submits that the applicants herein should be granted permission to sell their shareholding to any third party as they neither have any privity of contract nor any obligation towards the plaintiff under the contract. The plaintiff initiated proceedings for recovery of a sum of Rs.13,23,23,523/- against the defendant no.1 for its failure to comply with the terms of the agreement dated 27.12.2002 and 11.06.2003, which proceedings culminated into an award dated 14.12.2016 having been passed by the learned Arbitral Tribunal in favour of the plaintiff. The applicants were not a party to these proceedings before the learned Arbitral Tribunal. They had, by investing huge amounts, merely participated in the rights issues of shares, which the defendant no.2 came out with for ensuring availability of funds to it for smooth running of its business. It is in fact because of the investments made by the applicants that the financial condition of defendant no.2, which was facing financial problems improved drastically, thereby increasing the values of share of defendant no.1. He submits that in case the prayer of the plaintiff for cancellation of the allotment of shares in favour of the applicants were to be granted, the defendant no.2 would be obliged to return a sum of Rs. 204.21 crores to the applicants thereby decreasing the values of assets of defendant no.2 and consequently reducing the value of the shares held by defendant no.1 as well. Even otherwise, the claim of the plaintiff against the defendant no.1 is purely a monetary claim and therefore, the sale of the shares held by the applicants followed by the deposit of sale consideration towards these shares before this Court will be to the benefit of the plaintiff itself, who would be able to withdraw the said amount towards his outstanding claim against defendant no.1.
14. He submits that even in the contempt proceedings initiated by the plaintiff against the defendant no.1 in 2017 in relation to the dilution of shareholding of defendant no.1 in defendant no.2, the applicants were neither made party to those proceedings nor was any adverse order passed against them. He, therefore, submits that once there was neither any privity of contract nor any obligation which the applicants owed to the plaintiffs, the applicants cannot be restrained from transferring their shareholding to any third party. He submits that the plaintiff’s reliance on the order dated 18.12.2018 passed in CCP(O) 5/2017 whereby the defendant no.1 was held guilty of having committed contempt on account of permitting defendant no.2 to allocate shares to the applicants is also misplaced as upon an appeal being filed, the Division Bench has clarified that the defendant no.1 will be obliged to maintain status quo qua its 22365625 shares, thereby making it evident that it is only qua the number of shares in relation whereto the status quo has to be maintained by defendant no.1. He, therefore, prays that the application be allowed.
15. Per contra, Mr. Amit Sibal, learned senior counsel for the plaintiff opposes the application by contending that the present suit filed by the plaintiff is not for recovery of money from defendant no.1 but specifically for a passing of decree qua the impugned allotment of shares, i.e., the allotment of shares in favour of defendant nos. 7 & 8 and for cancelling of share certificates issued in lieu of these allotments. He submits that once the suit wherein the plaintiff’s challenge to the allotment of shares in favour of the applicants is itself pending consideration before this Court, the said shares ought not to be allowed to be alienated as the same would amount to the subject matter of the suit being itself transferred to a stranger who is not a party defendant and may therefore not be subject to the jurisdiction of this Court. In case this Court were to allow the application of the defendant nos. 7 & 8 permitting them to transfer their shareholding to a third party, the said position cannot be restored as the shares if transferred, would then be outside the scope of the present proceedings.
16. Mr. Sibal further submits that in any event, the impugned allotment of shares in favour of the applicants was not made in accordance with law. He submits that vide order dated 18.12.2018, this Court had, while adjudicating the contempt petition being CCP(O) 5/2017 preferred by the plaintiff, held that the increase in the subscribed share capital of the defendant no.2 in favour of the third parties was done with the intention of hiving off defendant no.2 from the control of defendant no.1. Furthermore, no permission was sought from the Court for dilution of defendant no.1’s shareholding in defendant no.2. The court therefore held that the allotment of shares in favour of defendant nos. 7 & 8 was in violation of the order dated 23.08.2013 passed by this Court, wherein the Court had restrained defendant no.1 from creating any third party interest in the balance 51% shares held by it in defendant no.2. Once the order dated 18.12.2018 has not been stayed till date as also the fact that the Court had observed that the allotment of shares in favour of defendant nos. 7 and 8 was in itself, not in accordance with law, the said defendants cannot seek permission for transferring their shareholding, which if granted would not only be in violation of the order dated 23.08.2018 passed by this Court but will also render the prayers in the suit as infructuos at this interlocutory stage. He, therefore, submits that since the defendant no.1 has acted in contravention of the order dated 23.08.2018, it is the duty of the Court to undo the wrong that has been committed by the said defendant. In support of his plea, he seeks to place reliance on the decision of the Apex Court in Delhi Development Authority vs Skipper Constructions Co.(P) Ltd. And Another, (1996) 4 SCC 622. By placing reliance on the decision of the Apex Court in Sita Ram vs. Balbir Alias Bali (2017) 2 SCC 456, he submits that merely because the applicants were not party to the proceedings in which the order dated 23.08.2013 was passed, the same does not imply that they cannot be held guilty of having committed contempt of Court.
17. Mr. Sibal next submits that the applicants’ plea that they have to mandatorily exit their shareholding in defendant no.2 by 12.08.2023 in accordance with the Banking Holding Companies Act, 1956 of the US is wholly misconceived. He submits that the applicants have neither in their written statement, which was filed after the filing of the present application nor in their pleadings taken a stand that they have to divest their shareholding in favour of any third party after a period of 10 years. By placing reliance on the decision in Transport Corporation of India Limited vs. Ganesh Polytex Limited (2015) 3 SCC 571, he submits that the applicants’ plea that they are mandated under the US law to exit their investments after ten years, cannot be accepted on the basis of a bare legal opinion furnished by the applicants. The position in foreign law has to be proved as a question of fact by leading evidence which stage is yet to arrive. In fact, in the present case, even in their written statements, the applicants have not taken any such plea of any obligation on them under the US law to exit from the investments made in defendant no.2 and therefore the urgency sought to be expressed by them is merely a ploy to wriggle out of the rigours imposed vide order dated 13.01.2023, which order has already attained finality.
18. He further submits that though the applicants are group companies of defendant no.3/Goldman Sachs, which is a company incorporated under the laws of the United States, the fact remains that the applicants herein are companies that are based in Singapore. Furthermore, the application seeking permission to transfer the shareholding has been preferred by defendant nos. 7 and 8 and not by defendant no.3, which is also a party to the present suit. He, therefore, submits that when the defendant no.3, despite being subjected to the laws of the United States and being a party to the present suit, has itself not preferred the present application seeking permission to sell/transfer their shareholding, there is no grave emergency in selling/transferring the shareholding as is sought to be projected by the applicants.
19. Learned senior counsel for the plaintiff next submits that the applicants’ plea that they did not have any privity of contract with the plaintiff is wholly without any basis. By drawing my attention to letter dated 12.08.2013 which letter was sent in furtherance to the letters dated 05.06.2013 and 27.06.2013, addressed by the plaintiff to defendant no.3, he submits that the plaintiff had clearly communicated to the said defendant, its objection to the transfer of the healthcare business by defendant no.1 in contravention of the contract dated 27.12.2002 executed between them and defendant no.1, which prohibited hiving off any undertaking to a third party. The plaintiff also apprised the defendant no.3 that the defendant no.1 had committed serious defaults in repaying the dues of the plaintiff and had committed frauds on its shareholders by transferring assets to its subsidiary for a meager sum of Rs. 21 crores, which amount, it was contended, fell foul of the domestic tax laws. The defendant no.3 was thus put to prior notice regarding the nature of transactions being entered into with the defendant no.1 and was also advised to tread with caution in entering into any contracts with the said defendant. He submits that even this Court had, on 13.01.2023, come to a prima facie conclusion that the applicants were well aware of the Court’s order including the restraint order. He, therefore, submits that once the defendant no.3 as also defendant nos.[7] and 8 were aware regarding the plaintiff’s objection to the transfer of healthcare business by defendant no.1 as on 23.08.2013, when this Court restrained the defendant no.1 from creating any third party interest in the balance 51% shares held by it in defendant no.2, the applicants cannot be permitted to urge that they would be entitled to restitution of the amount held by them. Having purchased shares in blatant violation of the orders passed by this Court, the applicants have themselves to blame for the situation they are in and cannot therefore seek restitution for which purpose he places reliance on the decision of the Apex Court in Loop Telecom and Trading Limited vs. Union of India and Another, (2022) 6 SCC 762. He, therefore, prays that the application be dismissed.
20. Having considered the submissions of learned counsel for the parties and perused the record, I may begin by first noting the undisputed facts. The first and foremost aspect on which the parties are ad idem is that the applicants are neither a party to the Arbitral award having culminated in favour of the plaintiff on 14.12.2016 nor to the execution proceedings preferred by the plaintiff seeking execution of the arbitral award nor to the contempt proceedings initiated by the plaintiff against defendant no.1. It is also undisputed that the shares in question as held by the defendant nos. 7 & 8 were not acquired from defendant no.1 but were acquired by them for valuable consideration pursuant to the issuance of rights issues of the shares, which the defendant no.2 came out with. The applicants also do not seriously dispute that the plaintiff had advanced a loan of Rs. 13,23,23,523/- to defendant no.1 in accordance with the agreement dated 27.12.2002 and 11.06.2003. There is also no denial to the fact that as per clause 6 of the aforesaid agreements entered into between the plaintiff and defendant no.1, the said defendant had undertaken not to dispose of/sell/encumber any undertaking or business or any investments in shares without the prior permission of the plaintiff.
21. Having noted the aspects on which the parties are not at variance, I may now proceed to deal with the rival contentions of the parties. From the submissions made at the bar, what emerges is that the primary plea of the applicants is that neither do they have any privity of contract with the plaintiff nor was the defendant no.2 ever restrained by the Court from seeking fresh investments by way of rights issues, to which they subscribed. It is the case of the applicants that the claim of the plaintiff for recovery of the amount awarded under the Arbitral award is only against the defendant no.1 to which award, the applicants are not even parties. It is the case of the applicants that the plaintiff per se does not have any claim on the shares of defendant no.2 purchased by the applicants for valuable consideration. It has therefore been urged on behalf of the applicants that even though they, having invested a huge amount to acquire the shareholding are in law entitled to transfer these shares without any fetters, in view of the plaintiff’s objections, they in order to show their bona fide, are willing to deposit the entire sale consideration of these shares before this Court. On the other hand, it is the plea of the plaintiff that it is necessary to protect these shares held by the applicants as the very allotment of these shares in their favour has been specifically challenged by the plaintiff in the present suit as being contrary to the order passed by this Court on 23.08.2013. It has been urged on behalf of the plaintiff that on the date when the applicants acquired the shares from the defendant no.2, they were well aware that the defendant no.2 could not sell these shares and therefore the very purchase of these shares by the applicants was illegal. Despite having prior knowledge of this fact, the applicants still proceeded to purchase the shares from defendant no.2 and therefore cannot now be permitted to plead that they are free to transfer these shares to any third party or take the vague plea of being an obligation under the Banking Regulation Act, 1956 of the US to exit from these investments by 12.08.2023.
22. Since, it is the plaintiff’s plea that the allotment of these shares of defendant no.2 in favour of the applicants was contrary to the order dated 23.08.2013 passed by this Court, it would be apposite to first note the relevant extracts of the said order. The same read as under: "ARB.P. 362/2013 and IA No.13253/2013 (stay) Issue notice to the respondent. Mr. Umapathy accepts notice on behalf of the respondent. It is the case of the petitioner that by way of the two impugned orders dated 26.07.2013 and 08.08.2013, the arbitral tribunal has varied in effect the order of the learned Single Judge of this court dated 04.12.2012 which in turn confirmed its earlier order dated 12.09.2012. It is the submission of the learned senior counsel for the petitioner that the said order was carried in appeal to the Division Bench as well as to the Supreme Court. According to the learned senior counsel for the petitioner the Division Bench confirmed the learned Single Judge’s order vide its order dated 14.01.2013. The SLP was disposed of vide order dated 08.02.2013, whereby the Supreme Court declined to interfere with the order of the Division Bench. The effect of these orders in sum and substance is that the petitioner who claims it has dues to the extent of Rs.220 Crores (approx.) payable by the respondents has a security, as of today, available, as per the impugned orders, to the extent of Rs.65 Crores. The respondent in the meanwhile has completed its transaction of transferring its business to Goldman Sachs in respect of 49% of equity, which it held in BPL Medical Technologies Pvt. Limited. Though, a complete stay of the impugned orders is sought by the learned senior counsel, having regard to the circumstances, till the next date of hearing, the respondent is restrained from creating any third party interest in the balance 51% shares held by it, in BPL Medical Technologies Pvt. Limited. Reply, if any, be filed within four weeks. Rejoinder thereto, if any, be filed before the next date of hearing. List on 10.01.2014."
23. The plaintiff has also contended that this Court had on 18.12.2018, while adjudicating the contempt proceedings initiated by it against defendant no.1, come to a categoric conclusion that the increase in shareholding of defendant no.2 without the permission of this Court amounted to the violation of the order dated 23.08.2013. It would therefore be necessary to note the relevant extracts of the said order. The same read as under:
was clearly to achieve the objective of hiving off BMTPL from the control of M/s BPL Ltd.
8. It is of significance to note that this Court was not even informed, leave alone permission sought of this Court for allowing dilution of the controlling interest of M/s BPL Ltd. in BMTPL.
9. I therefore, find the contemnors guilty of having intentionally violated the interim order dated 23.08.2013 passed by this Court in Arb. P. No.362/2013 (re-numbered as Arbitration Appeal No.14/2015) and thereby having committed Contempt of Court. Notice is therefore issued to the respondents calling upon them to show cause on the quantum of punishment under Section 12 of the Contempt of Courts Act, 1971. Such show cause be filed within a period of four weeks."
24. As it is an admitted position that the aforesaid order dated 18.12.2018 was assailed by way of CONT. APP. (C) 2/2019, it would be appropriate to refer to the order passed in the said proceedings by the Division Bench on 27.03.2019. The same reads as under: "It is agreed between the parties that the present holding of the Appellant No.1 i.e. BPL Ltd. in BPL Medical Technologies Pvt. Ltd. (BMTPL) should be valued by an approved valuer. It also agreed that this exercise be undertaken by M/s Price Waterhouse Coopers („PWC‟) in Bangalore. It is further agreed that the fees of M/s PWC for undertaking this exercise will be shared equally by the Appellant No.1 and the Respondent. On the strength of this order, M/s PWC will undertake the exercise of valuation of the 22365625 shares held by Appellant No.1 in BMTPL and submit its report within a period of six weeks from today. The full disclosure necessary for a proper valuation will be made by Appellant No. 1 and Appellant No.1 will extend its full cooperation to M/s PWC in this exercise. It is further understood that till further orders of this Court, the shareholding (22365625 shares) of the Appellant No.1 in BPL Medical Technologies Pvt. Ltd. will remain unchanged. This order is without prejudice to the rights and contentions of the either of the parties. It is agreed between the parties that a request will be made before the learned Single Judge to defer the further proceedings in CCP (O) No. 35/2017 till the disposal of the present appeals."
25. Before considering the effect of these orders, I may note that the entire basis of the plaintiff’s claim in the present suit is that there was an obligation on defendant no.1 to ensure that its shareholding in defendant no.2 is not reduced to less than 51% and therefore the action of defendant no.2 in allotting the rights issues shares to the applicants which had the effect of diluting the percentage shareholding of defendant no.1 was illegal. However, what is noteworthy is that the plaintiff does not deny that there was no restraint order ever passed against defendant no.2. There is also no denial by the plaintiff to the fact that the defendant no.1 has neither sold or otherwise transferred any of the shares held by it and has therefore consistently maintained its 22365625 shares in defendant no.2. Though it is the plaintiff’s case that the very factum of defendant no.2 coming up with additional shares by way of rights issues in itself was contrary to the obligation imposed on defendant nos. 1 & 2, it is relevant to note that the Division Bench, while dealing with the appeal against the order passed in the contempt petition, had, instead of binding the defendant no.1 to any such obligation to maintain any specific percentage of shareholding in defendant no.2, recorded an undertaking that the defendant no.1 will continue to hold 22365625 shares in defendant no.2. The Division Bench has therefore emphasized on the number of shares held by defendant no.1 instead of the percentage of its shareholding in defendant no.2. In the light of this factual position it would, in my considered view, be pre-mature to conclude, at this stage, that the allotment of shares in favour of the applicants was illegal or contrary to the orders passed by this Court. In fact even from a bare perusal of the order dated 23.08.2013, it is evident that the defendant no.1 was only restrained from creating any third party interest in the 51% shares held by it in defendant no.2; there was no obligation on the defendant no.1 to ensure that the shareholding of defendant no.2 is not changed. On the other hand, this direction issued to the defendant no.1 on 23.08.2018 to maintain status quo qua its shareholding in defendant no.2 would prima facie only imply that the defendant no.1 was under an obligation not to sell or alienate the shares in defendant no.2 held by it as on 23.08.2013. This order, could however not be construed to imply that there was an embargo imposed on the defendant no.2 from seeking any fresh investments from any third party.
26. Though the plaintiff may be justified in urging that the allotment of shares by defendant no.2 to third parties by way of issuance of rights issues has diluted the shareholding of defendant no.1 in defendant no.2, this in itself could not imply that either defendant no.2 or the applicants, who were not party to the proceedings in which the order dated 23.08.2013 was passed, were guilty of having breached any order of this Court. There was evidently no order restraining the defendant no.2 from seeking any fresh investments by allotment of shares by way of rights issues. In fact, even the order dated 18.12.2018, on which heavy reliance has been placed by the plaintiff holds only defendant no.1 guilty of having breached the order dated 23.08.2013 passed by this Court. This order like the order dated 23.08.2013 is also not directed against either defendant no.2 or the applicants and therefore, at this stage, I am unable to accept the plaintiff’s plea that the very allotment of shares in favour of the applicants was illegal.
27. It has also been urged by learned senior counsel for the plaintiff that the plaintiff had put the applicants to prior notice of the orders passed by this Court, for which purpose, reliance has been placed on the plaintiff’s letter dated 12.08.2013 which was addressed to defendant no.3 as also to defendant no.7, the applicant no.1. In order to appreciate this plea of the plaintiff, it would be apposite to refer to this letter in extenso. The same reads as under: " 12th August, 2013
1. Goldman Sachs Services Private Limited Crystal Downs Embassy Golf Links Business Park Off Intermediate Ring Road (Indiranagar - Koramangala) Domlur, Bangalore-560 071 (India) Tel:+ 9180 4127 1600 Fax:+ 91 80 4127 1601
2. Goldman Sachs (India) Securities Private Limited ' Rational House 951-A, Appasaheb Marathe Marg Prabhadevi, Mumbai- 400 025 (India) Tel: +91 22 6616 9000
3. Ankur Ambika Sahu Director Goldman Sachs (India) Securities Private Limited Rational House 951-A, Appasaheb Marathe Marg Prabhadevi, Mumbai-400 025 TeL +91 22 6616 9000
4. Ankur Ambika Sahu Director Goldman Sachs {India) Securities Pvt. Ltd. Madhuli Complex, Bunglow-2, Dr. A.B. Road, Worli, Mumbai-400018, Maharastra, India
5. Harsh Nanda Chaintanya Towers, A-303, Appa Saheb Marathe Marg, Pnibhadevi, Mumbai-400025 Maharastra, India.
6. Beep Investment (Singapore) Pte. Ltd.
1 Raffles Link, #07-01, South Lobby, Singapore 039393 Sir, [SUB: RESTRAINT AGAINST TRANSFER OF HEALTHCARE BUSINESS OF BPL LIMITED] 'This is in furtherance of our earlier letter dated 05.06.2013 and 27.06.2013, on the abovementioned subject. We have already put you on notice qua the patent illegality of the transfer of the healthcare business by BPL Limited to BPL Medical Technologies Ltd. To briefly recount the facts; the transfer of healthcare business of BPL Limited was restrained by the Hon'ble Delhi High Court vide a final order dated 04.12.2012, passed in proceeding OMP NO. 865/2012. The said restraint was initially granted on 12.09.2012 and confirmed after hearing the Parties on 04.12.2012. The aforementioned orders of restraint dated 12.09.2012 & 04.12.2012 were undistur.bed despite recourse by BPL Limited to the highest Court in India. The Courts as also the Arbitral Tribunal,.dealing with the disputes between us and BPL Limited, have found a clear prima facie case in our favour. While the transfer of the health care business of BPL Limited to BPL Medical Technologies Private Limited has been permitted by the Arbitral Tribunal, subject to a mortgage of immoveable property, by BPL Limited; we do not intend to rest quiet and will be taking up the matter till the highest Court, if necessary. We are clearly of the view that the transfer of any business or assets by BPL Limited is tainted with illegality, as the same is specifically prohibited under Clause 6 of the Contract dated 27.12.2002, executed between us and BPL Limited. BPL Limited owes us substantial dues and is defaulting for the last ten years. A copy of the contract, dated 27.12.2002, is attached herewith as Annexure-A. It is further pertinent to mention that any direct or funding, by BPL Limited, of its businesses/subsidiary companies, in the power and restraint is operative till date. BPL Limited is already facing contempt proceedings in respect of one such order. We further intend to closely monitor all business moves of the BPL Limited, especially those relating to the funding of subsidiary. companies, including BPL Medical Technologies Ltd. and take necessary legal action against the same, until BPL Limited stops defaulting on our dues. It has also transpired in the course of the abovementioned litigation that BPL Limited is transferring the asset to its subsidiary at a mere Rs. 21 Crores, which is just fraction of its arms length value. This is a case of gross undervaluation and falls foul of the domestic tax laws of India and will undoubtedly entail a huge tax liability plus penalties and prosecution. We will make sure that the finer details of this transaction do not go unnoticed by the various statutory/revenue authorities. This is also a fraud on the shareholders of BPL Limited and an attempt to evade stamp duty. We feel it necessary to put you on notice qua these facts and advise you to tread with caution in your dealings with a rank defaulter, like BPL Limited. In case you still insist on proceeding with the transaction with BPL Limited, you shall be doing so as your own risk and cost. Given the fact that you have notice of all the relevant facts, you may not be in a position to claim any equities in law. This is for your information and necessary action. Morgan Securities & Credits Pvt. Ltd. -sg- Authorised Signatory. Cc: Goldman Sachs Group, Inc. 200, West Street, New York - 10282 (Sent Via e-mail: gs-investor-relations@gs.com)"
28. From the aforesaid extracts of the letter dated 12.08.2013, I find that by way of this communication, the plaintiff had sought to bring to the notice of defendant no.3 and the defendant no.7 that it had raised serious objections regarding the transfer of healthcare business by defendant no.1 in favour of defendant no.2. The plaintiff also apprised the defendant no.3 that there were certain restraint orders passed by this Court regarding the transfer of shareholding of defendant no.1 in favor of business entities/subsidiaries. However, in my view, nothing turns on this communication as at best, it establishes knowledge of the applicants about the ongoing proceedings against defendant no.1. Once, there were no orders restraining the defendant no.2 from inviting rights issues, how can the applicants be blamed for coming forward to purchase these shares offered by defendant no.2. It cannot, therefore, be said at this stage that the transaction whereby the applicants purchased for valuable consideration, shares in defendant no.2, was illegal or in breach of any orders passed by this Court. I am therefore of the view that it would be unfair to compel the applicants to hold on to these shares which they want to sell and that too when they are willing to deposit the entire sale proceeds in Court with a further undertaking that the same may be appropriated towards the plaintiff’s dues if this Court deems fit.
29. The applicants have also vehemently urged that there is an obligation on them to urgently sell these shares as per the Banking Regulation Act, 1956 of the US for which purpose they have relied on a memorandum of advice from a solicitor informing them that they are obliged under the US law to sell these shares on or before 12.08.2023. This plea has been vehemently controverted by the plaintiff, who has in my view rightly urged, that the applicants cannot rely on a provision under the US law without leading evidence to prove the same; their plea being that foreign law is always a question of fact, which is required to be pleaded and proved by a party whose rights or obligations flow from such foreign law. However, since I am of the opinion that at this stage, it cannot be said that the defendant no.2 had flouted any order of this Court, I do not deem it necessary to delve into the issue. I, am, therefore not expressing any opinion as to whether under the US law, there is any obligation on the applicants to immediately sell these shares as is sought to be contended by the applicants.
30. From the aforesaid, what emerges is that though in the present suit, the plaintiff has sought cancellation of allotment of shares in favour of the applicants, the foundation of this prayer is a claim for a pre determined amount of money from defendant no.1. It would therefore not be wrong to say that the plaintiff has no specific right or interests in these shares. The plaintiff is only interested in recovering its outstanding dues from defendant no.1 which purpose can definitely be achieved by directing the sale proceeds of these shares to be deposited in Court and ultimately used for satisfying the monetary claim of the plaintiff. Furthermore, as undertaken by them, when the applicants will continue to remain before this Court, other appropriate directions can always be issued to them at a later stage in the event of their being found to be in breach of the orders passed by this Court.
31. I have also considered the decision in Sita Ram (supra) relied upon by the plaintiff and find that in the said case, the Apex Court was dealing with the question as to whether a person, who may not be party to an injunction order, could still be held guilty of having committed contempt of Court. The Apex Court observed that in a case where a person who is not a party to the original proceedings is found to assist the principal contemnor in violating the orders passed by the Court, he/she may still be held guilty of obstructing the administration of justice. In the present case, it is yet to be established that the action of defendant no.2 in allocating shares by way of rights issues in favour of applicants was in any manner illegal or in violation of orders passed by this Court and therefore, I fail to appreciate as to how the decision in Sita Ram (supra), forwards the case of the plaintiff. Moreover, even in the contempt proceedings initiated by the plaintiff against defendant no.1, there is no finding of guilt recorded by the Court against the defendant no.2 or the applicants.
32. Similarly, the decision in Skipper Constructions (supra)heavily relied upon by the plaintiff also does not forward it’s case. In the said decision, the Apex Court held that when an act is done in violation of an order granting stay or injunction, it is the duty of the Court to set right the wrong committed by any party. As held hereinabove, I am of the view that there was prima facie, no illegality in the allotment of shares in favour of the applicants as no order was ever passed restraining the defendant no.2 from coming out with rights issues and thereby allotting shares to the applicants. Infact, a perusal of the order passed by the Division Bench on 27.03.2019 in CONT. APP. (C) 2/2019, also shows that the only obligation imposed on defendant no.1 was to maintain 22365625 shares in defendant no.2. As late as on 27.03.2019, there was no order restraining the defendant no.2 from seeking any fresh investments from third parties. Once no such restriction was imposed on defendant no.2, the act of the applicants in purchasing shares from defendant no.2, cannot be said to be in violation of any orders passed by this Court. The decision in Skipper Constructions (supra), would therefore not come to the aid of the plaintiff. I have also considered the decision in Loop Telecom (supra), wherein the Apex Court held that in a case where a party was aware about the illegality of the agreement at the time of entering into the same, the party cannot claim restitution in case of a subsequent cancellation of the agreement. However, in the present case, since I am of the opinion that the action of the applicants in acquiring these shares in defendant no.2 cannot be said to be illegal at this stage, the decision in Loop Telecom (supra), would not be applicable to the facts of the present case.
33. For the aforesaid reasons, I am of the considered view that the balance of convenience is also in favour of permitting the applicants to sell their shareholding in defendant no.2 subject to their undertaking that they will deposit before this Court, the entire sale consideration as may be received towards the sale of its shareholding. The applicants will also undertake that in case at a later stage, it is found that any amount is payable to the plaintiff by the defendant no.1, the applicants will have no objection if the aforesaid amount is appropriated towards the payment of these dues. Furthermore, the applicants as undertaken by them, would remain subject to the jurisdiction of this Court and will not seek deletion of their names as party defendants. I am also inclined to agree with the applicants that the sale of these shares and the deposit of the sale proceeds with this Court will in fact assist the plaintiff in recovering its outstanding dues from the defendant no.1. On the other hand, grave and irreparable loss will be caused to the defendant nos. 7 & 8 if they are not permitted to deal with the shares which they had purchased after making huge investments especially when I am unable to find any order passed by this Court restraining the defendant no.2 from seeking any fresh investments or allocating further shares to parties other than defendant no.1.
34. The application is, accordingly, allowed by modifying the order dated 13.01.2023 to the extent that the applicants are granted permission to transfer their shareholding in defendant no.2 to any party deemed fit. Before transferring their shareholding, the applicants will file an affidavit before this Court undertaking to deposit the entire sale consideration of their shareholding in defendant no.2. The applicants will further undertake that in case at a later stage, it is found that any amount is payable to the plaintiff by the defendant no.1, the applicants will have no objection if the aforesaid amount is appropriated towards the payment of these dues. The applicants will also undertake that they will not seek deletion of their names as defendants, so that the Court can pass appropriate orders against them at a later stage, if deemed appropriate.
JUDGE AUGUST 10, 2023