VISTRA ITCL(INDIA) LIMITED & ANR. v. LALIT KUMAR JAIN & ORS.

Delhi High Court · 09 May 2023 · 2023:DHC:3097

Yashwant Varma

CS(COMM) 288/2019

2023:DHC:3097

civil appeal_dismissed Significant

AI Summary

The Delhi High Court dismissed defendants' application to modify injunctions allowing sale of assets in a recovery suit due to inadequate disclosure and erosion of pledged security, emphasizing protection of plaintiffs' interests.

Full Text

Neutral Citation Number: 2023:DHC:3097

CS(COMM) 288/2019
HIGH COURT OF DELHI
Order reserved on: 03 May 2023
Order pronounced on: 09 May 2023

CS(COMM) 288/2019 & I.A. 8205/2023 (For Addl. Facts &
Docs. On b/o D-3), I.A. 5728/2023 VISTRA ITCL(INDIA) LIMITED & ANR. ..... Plaintiffs
Through: Mr. Amit Sibal and Ms. Malvika Trivedi, Sr. Advs. with
Mr. Hardeep Sachdeva, Mr. Kamal Shankar, Ms. Priyamvada Shenoy, Mr. Pradyumna Sharma, Mr. Kshitiz Rao, Mr. Mayank Bhargava, Mr. Vinay Tripathi, Advs.

VERSUS

LALIT KUMAR JAIN & ORS. ..... Defendants
Through: Mr. Arvind K Nigam, Sr. Adv. with Mr. Agnish Aditya, Mr. Raghavendra M. Bajaj, Mr. Yashraj Samant and Mr. Areeb Amanullah, Advs. for
Defendants.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA O R D E R

I.A. 8205/2023
The present application has been preferred by defendant no. 3 seeking to place on the record additional fact(s) and document(s).
Bearing in mind the disclosures made, the present application is allowed and the said document(s) is taken on record.
The application shall stand disposed of.

I.A. 5728/2023

JUDGMENT

1. The defendants have moved the instant application seeking permission to sell one of the properties standing in the name of defendant no. 3 for a net consideration of approximately Rs. 74 crores, subject to terms that may be imposed by the Court. The property is stated to be situate at Shanti Niketan Phase III, Survey No. 138, Hissa No. 5 admeasuring 13376.55 square meters located in Village Pashan, Taluka Mulshi, District Pune. For the purposes of evaluating the prayer that is made, the following essential facts may be noticed in brief.

2. The suit itself is for recovery of monies asserted to be due and payable by the defendants to the plaintiff. It came to be registered on 28 May 2019. While issuing summons on the suit, the Court in its order of 28 May 2019 noticed the essential facts as follows. The plaintiff no. 2 is stated to have entered into a Debentures Subscription Agreement[1] dated 05 December 2014 along with defendant nos. 1 to 4. The Series A Tranche 1 Debentures were valued at INR 160 crores while Series A Tranche 2 at INR 40 crores. A separate DSA also came to be executed in respect of Series C DSA and comprised of Series C Tranche 1 aggregating INR 35 crores and Series C Tranche 2 amounting to INR 45 crores. In furtherance of the Debenture Trust Deeds which came to be executed in respect of Series A and Series C DSA, defendant No. 4 appointed plaintiff no. 1 as the trustee for the benefit of plaintiff no. 2. 1 DSA

3. Consequent to an alleged default, demand notices dated 05 October 2018 and 11 October 2018 came to be issued in terms of Section 13.[2] of the Series A Debenture Trust Deed and Series C Debenture Trust Deed. The plaintiff alleges that the default was not cured. In fact, the defendants are stated to have questioned the allegation of default itself.

4. The Court while considering the application for ad interim injunction also took note of the fact that the ratification period had expired on 16 April 2019 as well as the fact that the Personal Guarantees proffered by defendant nos. 1 and 2 had also been invoked and a demand laid for payment of the redemption amounts. It also took note of the assertion of the plaintiffs that defendant no. 2 had already exited the country and was residing in Switzerland/United Kingdom and that there was a bona fide and serious apprehension that defendant no. 1, the father of defendant no. 2 and a co-guarantor may also flee from the country to evade his obligations under the Transaction Documents. In view of the aforesaid and upon the Court being satisfied that a prima facie case stood established coupled with the balance of convenience being found in favour of the plaintiffs, an ad interim injunction came to be issued restraining defendant nos. 1 to 3 from transferring, alienating, selling, parting with, disposing of or creating third party rights or interest or otherwise encumbering any and all of their movable and immovable assets, shares, properties or any other assets. A further injunction came to be granted restraining defendant nos. 1 to 3 and 5 from transferring or attempting to transfer any of the pledged shares and more particularly, those constituting 74% of the share capital of defendant no. 5. Defendant nos. 1 to 4 were further restrained from transferring or attempting to transfer the pledged shares of defendant no. 4 and which constituted 100% of its share capital.

5. The defendants thereafter appear to have moved the Court for modification of the aforesaid order as it stood post the variations made by the Court in its order of 09 July 2019. It becomes pertinent to note that by an order of 09 July 2019, the Court had clarified the ad interim injunction by providing that defendant no. 3 would be permitted to make payments and incur necessary expenses towards its day-to-day transactions as well as to meet liabilities owed to statutory authorities. Defendant no. 3 was also directed to furnish monthly statement of accounts.

6. By a subsequent order of 30 July 2019, the Court disposed of an application which had sought further variation of the aforenoted two orders. While dealing with the aforesaid prayer, the Court made the following significant observations: - “Whether the Order is causing undue hardship to the Defendants ?

39. Despite directions contained in the order dated 10th July 2019 till the time of writing this judgment, the Court has not been shown the assets of Defendants, apart from a strong statement that Defendant No. 3 has several ongoing projects. At this stage, although the Court is not adjudicating the merits of the case, I cannot ignore the most fundamental aspect that the financial transaction is not disputed. Defendant Nos. 1 to 3 admit receipt of money. The influx of the funds is a matter of record. The funding is thus transparent and admitted. The terms of the contract stipulate rate of interest and on that basis, concededly the outstanding dues aggregate to Rs. 450 crores (approx). Defendants contend that Plaintiff No. 2 is in control of affairs and is responsible for the stalemate on the payments. These questions are all subject matter of trial and I can only take a prima facie view. To me the documents on record exhibit a loan transaction and a default on the part of the Defendants owing to longstanding disputes. In order to allow the creditor to remain competitive, the security for its investment is of paramount importance. Plaintiff No. 2 poured in the money with the intent of reaping commercial benefits from the transaction. Today the security in the nature of pledged shares has disappeared, leaving Plaintiffs vulnerable to accumulating a bad debt. Whether indeed the structure of the transaction between the parties was that of investment or partnership is not discernible from the documents. The material before me prima facie shows the transaction to be a money lending transaction. Plaintiff also expressed serious doubts about Defendant's credentials because of the concealed merger of Defendant Nos. 5 and 3 which according to them has prejudiced them and has resulted in erosion of this prime security. There are many conflicting zones between the parties that would require adjudication and I am reluctant to get drawn into this controversy at this stage.

40. The preponderant factor that persuades the Court to issue directions, as provided hereinafter is the disappearance of the pledged shares. At the time of the disposal of the suit several intricate topics would require detailed explanation and deeper probe, but it is especially vital that such questions are not rendered irrelevant because of circumstances. The conduct of the Defendants and the admitted infusion of funds, read with clauses providing for the repayment and the interest amount, leads to an inevitable conclusion that Defendants are prima facie in default. This calls for a more comprehensive undertaking to be given by the Defendants. Defendant also made alternate proposals and during the course of arguments, Mr. Kaul agreed that Defendant No. 3 can be ordered to keep 10% of the sale value in a no lien account, subject to further orders in the application and provide the land parcel ad-measuring about 66 acres situated at villages Manjaribudruk, Pune as security.

42. Till the application is heard and decided, the Court will also have to ensure that Defendant No. 3 does not fetter away its assets to render the Plaintiff without any effective recourse. Having given my thoughtful consideration on every aspect, I feel that since the security being offered by the Defendants in the nature of Options 1, 2 & 3 cannot be accepted, the alternate proposal of depositing an amount, in a separate no lien account, generated from the sale of each flat or unit from any of Defendant No. 3’s ongoing project or projects proposed to be launched in future, till further orders of this Court, is a more viable and a purposeful approach in the current scenario. Thus, notwithstanding the rejection of the options given by Defendants, till such time the Court takes a final decision on the application, it is necessary that an urgent relief be granted to Defendant Nos. 1 to 3 by way of modification/variance/clarification of the order dated 28th May 2019, so that they can undertake further development of the ongoing projects. Defendant Nos. 1 to 3 have volunteered to deposit 10% of the amount, in a separate no lien account. However, in order to balance the equities and in the interest of justice and having regard to the facts of the case as noted above, it would be appropriate to order Defendant Nos. 1 to 3 to deposit of 25% of the amount generated, in a separate no lien account, from the sale of each flat or unit from any of Defendant No. 3’s ongoing project or projects proposed to be launched in future, either independently or under a joint venture or partnership etc. It is further clarified that the amount generated from sale of each flat or unit should be construed to mean and include all amounts received whether, in the form of booking amount, part-payment or final payment, received on or after 31st July 2019. These amounts shall not be utilized for any purpose without the permission of the Court.

43. The above condition shall be strictly adhered to by Defendant Nos. 1 to 3, and they shall submit the amounts in the Court on a fortnightly basis. The above condition shall be implemented subject to the Defendant Nos. 1 to 3 filing an affidavit, giving complete details of the sale transaction that were executed on or after the date of passing of the order dated 28th May 2019 with full particulars as to the details of the property, the amount received thereunder from the prospective purchaser and the balance amount due, along with the list of its ongoing projects and their stage of construction. Defendant Nos. 1 to 3 must also furnish affidavits for any future project that Defendant No. 3 would undertake in the future, until further orders of this Court. Further, Defendant No. 3 will continue to be restrained from alienating/selling any lands held by the Defendant No. 3 without permission of the Court, as mentioned in their note of submissions.

44. This affidavit shall be filed within a period of one week from the date of the passing of the order.

45. Subject to the above, the order dated 28th May 2019 is modified / clarified to the effect that it does not restrict Defendant No. 3 to carry out its routine/ordinary course of business which includes the construction and development of its projects, undertake sale of flats/units being developed by Defendant No. 3 and to receive sale proceeds therefrom; enter into fresh development agreements, joint ventures agreements and to receive consideration therefrom. However, the sale of flats/Units being developed by Defendant Nos. 1 to 3, is subject to the above-mentioned conditions. Defendants have sought further clarification by way of seeking permission to undertake corporate restructuring in the nature of Mergers and Amalgamations with Defendant No. 3. However it is not within the purview of this Court to expand or dilute the scope of its own order by way of a clarification to its previous order and therefore no clarification is necessary on the above aspect.”

7. Yet another order of some significance and which merits notice is dated 11 June 2020 in terms of which an application moved on behalf of defendant no. 4 came to be disposed of. An appeal came to be instituted against the order of 11 June 2020 before the Division Bench of the Court. The said appeal came to be disposed of in the following terms:-

“9. Having heard learned counsel for the parties, in our view,

this appeal can be disposed of with the following directions, in

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view of the fact that the application i.e., I.A. No. 4155/2020, in

which the impugned order has been passed by the learned Single

Judge, had an element of immediacy, as monies had to be

deposited, at that point in time, on behalf of respondent

no.3/defendant no. 4 in the Bombay High Court, to enable

respondent no.3/defendant no. 4 to prosecute its petition under

Section 34 of the 1996 Act. The appellants having filled the gap

by depositing Rs. 4 crores with the Bombay High Court; the

immediacy has been taken care of.

(i) As to whether the appellants should be given permission to raise finances to work the project-is an aspect which the learned Single Judge can examine only if an appropriate application is filed, which details out the contours of how the finances for the project will be raised and what would be offered as security.

(ii) This application, if moved, will have to take into account the concerns of respondent nos. 1 and 2/original plaintiffs, who, as claimed by Mr. Kathpalia, are secured creditors. The learned Single Judge may have to, at this juncture, ascertain, inter alia, as to whether enough security is available both qua existing assets as well as future receivables to accommodate the requests, if any, made by the appellants via such an application.

(iii) The legal rights of respondent nos.1 and 2/original plaintiffs, which even according to Mr Nigam, are available to

them i.e., to nix any proposal for raising finances, will have to be factored in by the learned Single Judge while ruling on the said application, in case such an application is preferred by the appellants/original plaintiffs.

(iv) However, at this juncture, we would not like to second guess as to which way the learned Single Judge will rule, if such an application is moved by the appellants.

(v) In order to allay the apprehensions of respondent nos.[1] and

2, we request the learned Single Judge to complete the hearing in I.A.No.5978/2020. However, before rendering a decision in L.A. No.5978/2020, the learned Single Judge will deliberate as to which of the pending applications he should hear and decide simultaneously, having regard to the fact that the decision in those applications could have an impact on the decision that he may render in I.A.No.5978/2020.

(vi) We may also add that if a fresh application is moved by the appellants for raising finances, the respondent nos.[1] and 2/original plaintiffs will have their rights intact, to object to the same as per law.

(vii) Needless to add, the observations made in the impugned order can only be related to the application which came up for consideration before the learned Single Judge i.e., I.A. NO. 4155/2020. The observations made therein will not impact the merits of the case.

9.1. It is ordered accordingly.”

8. This Court by its order of 02 December 2022, thereafter bifurcated the various pending applications into Group A and Group

B. It may also be noted that on 06 January 2020, the Court took cognizance of an assertion made by the plaintiffs that the defendants had failed to file their Affidavit of Assets as per Order XXI Rule 41 of the Code of Civil Procedure, 1908[2] despite the order of 10 January

2019. The defendants were consequently called upon to file their detailed affidavits in accordance with the directions contained in Para 45 of the order of 30 July 2019. Similar directions for the filing of Affidavit of Assets had been drawn by the Court in terms of its order the Code of 24 January 2020 and 24 February 2020, where it was additionally noted that the affidavits would be filed as per the format prescribed by the Court in its decision in Bhandari Engineers & Builders Pvt. Ltd. vs. Maharaja Raj Joint Ventures and Ors.[3] The instant interlocutory application was moved after this Court had duly classified the various pending applications.

9. The defendants have firstly referred to an application being I.A. No. 8071/2022 which had sought modification and variation of the orders dated 28 May 2019 and 30 July 2019 and for permission being accorded to enable them to sell their assets and other immovable properties so as to generate funds to meet urgent cash flow requirements. The applicant asserts that during the pendency of the said application, one of the proposed buyers had apprised them of the sanction of credit facilities lapsing on 31 March 2023. The proposed buyer was for the property which forms the subject matter of the instant application. It is in that backdrop that the defendants had prayed for permission being accorded to proceed further with the proposed sale and to deposit 50% of the total sale consideration with this Court. On an initial consideration of the said application, the Court notes that in its order of 28 March 2023, it had briefly noticed the contentions addressed by and at the behest of respective parties which had also taken cognizance of the case of the plaintiffs who had alleged that the defendants had failed to abide by the directions issued by the Court on 30 July 2019 and which had required them to submit affidavits fortnightly indicating the sale of flats and other immovable assets. The plaintiffs pointed out that no affidavits for the period 16 2019 SCC OnLine Del 11879 January 2022 to 15 June 2022 had been filed within the timelines as prescribed. It was further asserted that affidavits for the period between 16 June 2022 to 31 December 2022 came to be filed only on 16 February 2023. In view of the aforesaid, the Court in paragraph 11 of that order had framed the following directions: -

“11. The Court consequently proceeds to frame the following

directions: -

a) Defendant no.3 applicants shall firstly place on the record full details of the total number of flats which are stated to have been sold by it between 30 July 2019 till date. It shall also place on the record requisite details of the inventory of flats presently controlled by it.

b) Defendant no.3 shall also apprise the Court of the details of the No Lien Account which had to be created in terms of the directions issued earlier.”

10. The prayers which are made in the present application have been vehemently opposed by the plaintiffs. It is urged on their behalf that similar applications had been moved by the defendants in the past and that in none of those applications was the prayer for modification of the principal orders of 28 May 2019 and 30 July 2019 ultimately granted. It was contended that no material change had occurred between the time when the said applications had been originally moved till the filing of the instant application which warranted a modification of the ad interim injunctions that operate. It was also the case of the plaintiffs that the application was nothing but an attempt to derail the hearing and consideration of the application for summary judgment which had been moved by the plaintiffs.

11. The plaintiffs also opposed the application on the ground that the asserted urgency was wholly misconceived and clearly designed to mislead this Court. It was submitted that the Memorandum of Understanding [MOU] between the defendants and the proposed purchasers had been executed way back on 07 December 2021. It was pointed out that as per the terms thereof, the transaction was to be completed by 06 April 2022. The Court was apprised that the said deadline had already been extended on four previous occasions and consequently, the defendants were clearly not justified in asserting that in case the application was not urgently heard, grave prejudice would be caused to it. The prayer for modification was also opposed on the ground that the defendants despite the peremptory directions issued to file an Affidavit of Assets as per Bhandari Engineers had failed to abide by the directions issued by the Court till date. Reference in this regard was made to the order of the Court dated 06 January 2020.

12. It was also contended that the disclosure affidavits which ultimately came to be filed were also not in accord with the directions issued by the Court. It was further asserted that the disclosure affidavits were not filed as per the timelines fixed by the Court as would be evident from the following details as culled out by the plaintiffs from the record. The Court deems it apposite to extract the following extracts from the details as provided by the plaintiff:- 01.11.2021 - 15.11.2021 29.11.2021 16.03.2022 110 days 16.11.2021 - 30.11.2021 14.12.2021 16.03.2022 92 days 01.12.2021 - 15.12.2021 29.12.2022 16.03.2022 77 days 16.12.2021 - 14.01.2022 16.03.2022 61 days 31.12.2021 01.01.2022 - 15.01.2022 29.01.2022 16.03.2022 46 days 16.01.2022 - 31.01.2022 14.02.2022 19.04.2023 428 days 01.2.2022 - 15.02.2022 01.03.2022 19.04.2023 414 days 16.02.2022 - 28.02.2022 14.03.2022 19.04.2023 400 days 01.03.2022 - 15.03.2022 29.03.2022 19.04.2023 386 days 16.03.2022 - 31.03.2022 14.04.2022 19.04.2023 372 days 01.04.2022 - 15.04.2022 29.04.2022 19.04.2023 358 days 16.04.2022 - 30.04.2022 14.05.2022 19.04.2023 344 days 01.05.2022 - 15.05.2022 29.05.2022 19.04.2023 331 days 16.05.2022 - 31.05.2022 14.06.2022 19.04.2023 316 days 01.06.2022 - 15.06.2022 29.06.2022 19.04.2023 302 days 16.06.2022 - 30.06.2022 14.07.2022 16.02.2023 223 days 01.07.2022 - 15.07.2022 29.07.2022 16.02.2023 208 days 16.07.2022 - 31.07.2022 14.08.2022 16.02.2023 192 days 01.08.2022 29.08.2022 16.02.2023 178 days - 15.08.2022 16.08.2022 - 31.08.2022 14.09.2022 16.02.2023 152 days 01.09.2022 - 15.09.2022 29.09.2022 16.02.2023 137 days 16.09.2022 - 30.09.2022 14.10.2022 16.02.2023 122 days 01.10.2022 - 15.10.2022 29.10.2022 16.02.2023 108 days 16.10.2022 - 31.10.2022 14.11.2022 16.02.2023 92 days 01.11.2022 - 15.11.2022 29.11.2022 16.02.2023 77 days 16.11.2022 - 30.11.2022 14.12.2022 16.02.2023 62 days 01.12.2022 - 15.12.2022 29.12.2023 16.02.2023 48 days 16.12.2022 - 31.12.2022 14.01.2023 16.02.2023 32 days 01.01.2023 - 15.01.2023 29.01.2023 25.03.2023 54 days 16.01.2023 - 31.01.2023 14.02.2023 25.03.2023 39 days 01.02.2023 - 15.02.2023 01.03.2023 25.03.2023 25 days 16.02.2023 - 28.02.2023 14.03.2023 25.03.2023 11 days 01.03.2023 - 15.03.2023 29.03.2023 25.03.2023 No delay

13. The prayers made in the instant application are then opposed on more fundamental grounds which are noticed hereunder. According to Mr. Sibal, learned senior counsel, the defendants owe to the plaintiffs more than Rs. 1,000 crores. According to the plaintiffs, the partial disclosures made by the defendants from time to time would itself indicate that there has been a steady and consistent erosion and reduction in the value of the assets held by them. It was contended that as per the disclosures made, it is manifest that they would be in no position to meet the liability owed to the plaintiffs.

14. Mr. Sibal has taken the Court through the affidavits filed at different stages of these proceedings and submitted that as per the defendants themselves, the assets of defendant no. 3 as on 31 March 2018 was stated to be INR 2,541 crores approximately. In a subsequent affidavit which came to be filed and is dated 03 July 2019 the valuation of the assets of defendant no. 3 as on 31 January 2019 was disclosed to be INR 1,175 crores approximately. Mr. Sibal then drew the attention of the Court to the affidavit of 20 January 2020 and which asserted that the assets of defendant no. 3 were valued at INR 664 crores. The attention of the Court was also invited to the disclosures made in an affidavit dated 16 March 2020 in which the financial liabilities of the defendant no. 3 was stated to be in the region of Rs. 443 crores. It was in the aforesaid backdrop that Mr. Sibal urged that bearing in mind the drastic reduction in the asset base of the defendant no. 3, there exists no justification for the prayers as made being granted.

15. Mr. Sibal also questioned the bona fides of the defendants and alluded to their conduct in the course of the litigation and which according to him would establish that every attempt was made to deprive the plaintiff of the fruits of any judgment that may ultimately come to be rendered. In support of the aforesaid contention, stress was principally laid on the manner in which the defendant no. 5 came to be amalgamated with defendant no. 3 and as a result of which 74% of the share capital of the former which was pledged with the plaintiffs as security, disappeared. It was submitted that the aforesaid merger was pushed through without any notice to the plaintiffs nor was it with their consent. According to Mr. Sibal, the factum of that merger which took place on 30 October 2015 came to light only when the defendants filed written statements before this Court in June 2019.

16. It becomes pertinent to note that the Court in its order of 30 July 2019 had while noticing identical submissions observed as follows:-

“22. This leads to a contentious issue touching upon the concept of FSI. In order to know the clear stand of the Defendants on this issue, I directed them to file affidavits and also place copies of the Clearances on record. I have perused the said documents and given my thoughtful consideration to the contentions of both the parties. The contents of the affidavit filed by the Defendants, prima facie disclose that the Environmental Clearance, filed before this Court is not in terms of KHCPL Share Pledge Agreement. In the affidavit, the Defendants have referred to certain Environment Clearance of 28th February 2011 in respect of 54,993 sq meters and also amended EIA Clearance dated 30th March 2015 which according to the Defendants is for free sale building of 61,740 sq meters. Both the certificates are for an area far lesser than 89,472 sq meters (equivalent to requisite 8,16,281 sq. feet of carpet area), required under the KHCPL Share Pledge Agreement. Further, from the contents of the affidavit, it also appears that the Defendants in paras 34 and 35 of the affidavit admit that further construction can only be initiated upon the obtainment and modification of the Environment Clearance and revised Fire NOC. The relevant averments in the affidavit are as under:-

34. I say that presently, the latest plans dated 4th May 2017 have been sanctioned on the basis of the heights of towers C[1] to C[4] as 100 meters. The High Rise Committee of the Pune Municipal Corporation has permitted the construction on the said towers beyond 70 meters and up to 100 meters and a copy of permission granted by the Pune Municipal Corporation (along with translation thereof) and the plan annexed thereto are filed with the list of documents and marked as Document No. 7. The environment clearance presently available is on the basis of the plans sanctioned by SRA on 4th December 2012 up to the height of 70 meters. Hence, a modification to the available Environment Clearance for construction up to a height of 100 meters is required. A revised Fire NOC in respect of height up to 100 meters is also required.

35. Presently, the construction of towers C[1] and C[2] has been carried up to nearly 69 meters. Hence, a further construction can be initiated beyond a height of 70 meters upon obtainment of the modification to the Environment Clearance and a revised Fire NOC, which can both be obtained within a time period of 4 moths (approx.)."

30. In terms of the aforesaid Clause, KHCPL Pledged Shares could only be released after Defendant No. 4 has obtained EIA Clearance. Further, in terms of Clause 5.[1] of the KHCPL Share Pledge Agreement, the KHCPL Share Pledge Agreement shall remain in full force and effect until the pledge is released fully and finally by Plaintiff No. 1 in writing. Perusal of the aforesaid Clause also shows that notwithstanding anything contained in the agreement, Defendant No. 4 upon obtaining the EIA clearance and the project land clearance to the satisfaction of the debenture holder (Plaintiff No. 2), could seek release of the pledge in accordance with the Series A DTD, from the debenture trustee (Plaintiff No. 1) who would release the same in writing. However, there is no document on record which shows that the confirmation of the debenture holders was received, or the debenture trustee released the pledge in writing. As of today the pledge has not been released and the assets of Defendant No. 5 are now under effective possession and control of Defendant No. 3, which is under the control and management of Defendant Nos. 1 and 2. Defendant No. 3 may appropriate assets of Defendant No. 5 in a manner so as to seriously prejudice the rights of Plaintiff No. 2. Thus, prima facie it appears that the merger of Defendant No. 5 with Defendant No. 3, is contrary to and in violation of the covenants under KHCPL Share Pledge Agreement.”

17. It was also urged by Mr. Sibal that there has been a complete non-disclosure on the part of the defendants with respect to their assets and liabilities as they may exist post 2020. It was submitted that apart from the affidavits which have been noticed above, no further or additional affidavits have been filed by the defendant and which may indicate the true and correct position of its financials.

18. Appearing in support of the present application, Mr. Nigam, learned senior counsel submitted that the opposition to the prayers as sought is clearly misconceived and in fact mala fide when one bears in mind that the sale proceeds likely to be obtained from the transaction would be in the hands of this Court and would be subject to the imposition of such conditions as may be deemed appropriate. Mr. Nigam urged that the defendants have sufficient and large parcels of land and all of which would be available to meet any liabilities that may accrue upon the defendants in case judgment comes to be rendered in favour of the plaintiffs. It was submitted that the mala fides of the plaintiffs are also evident from its opposition to I.A. 9162/2020 in terms of which the offer of the defendants for the Court to take on board immovable properties valued at Rs. 961.81 crores as security was also not accepted. Mr. Nigam has also referred to the value of the assets held by defendant nos. 1 to 3 which too would, according to him, clearly belie the assertion of the plaintiff that they are in no position to meet contingent liabilities. Reference was made to the following table as set forth in the short note submitted on behalf of defendant no. 3:- Defendant No. Total Ready Reckoner Value of Assets Location in Court

19. Mr. Nigam also referred to the affidavit filed pursuant to the order of the Court dated 28 March 2023 to contend that the allegation that the defendants had failed to abide by the directions issued by the Court of filing disclosure affidavits is factually incorrect. It was pointed out that all affidavits had been duly placed on the record. According to Mr. Nigam, those affidavit had also made due disclosures with respect to bank transactions for the different periods in question. From the affidavit dated 14 April 2023 it was pointed out that the defendant no. 3 had made a full disclosure in respect of all transactions which had taken place during the period 16 March 2023 to 31 March 2023. Similar disclosures are stated to have been made in the affidavit dated 20 April 2023 and which cover the period 16 January 2022 to 30 April 2022.

20. In a further and a more detailed affidavit dated 20 April 2023, the defendants have, in paragraph 7 of the said affidavit, disclosed that defendant no. 3 had generated Rs. 24.30 crores approximately between the period 31 July 2019 to 31 March 2023 from sale transactions across its various projects. It was further disclosed that as per the stipulations contained in the order of 30 July 2019, Fixed Deposit Receipts amounting to Rs. 6.07 crores had also been duly created. Mr. Nigam has submitted that continuance of the injunction has seriously crippled the ability of defendant no. 3 to either start new

1. Lalit Kumar Jain Rs. 1,389,558,700 (138 Cr) PDF 167, 006 Pleadings File

2. Pranay Lalit Kumar Jain Rs. 2,96,13,400/- (2.96 Cr) PDF 178, 006

3. Kumar Urban Developers Pvt. Ltd. Rs. 5,628,331,478/- (562 Cr) PDF 197, 006 projects or to even make the requisite investments in respect of the ongoing projects. Reference was also made to the net borrowings of defendant no. 3 company for the period 31 July 2019 to 31 March 2023 and which disclosure reads as under: - “19. The net Borrowings of the Defendant no.3 to make company survive for the period between 31.07.2019 to 31.03.2023 is as follows: Particulars 31 -7 -19 to 31 -3 -23 Amount Unsecured Loan/ Advances - External 26,00,00,000 Unsecured Loans Group 17,52,26,672 Loan from Family Members - Net 21,15,49,287 Total Borrowing 64,67,75,959 Over all outstanding Advances I Loan from LKJ Family Members into KUDPLTD till 31.3.23 L K Jain - Loan 30,16,468 L K Jain - Advance 18,00,00,000 Madhu Jain - Advance 20,76,21,611 Kruti Jain - Advance 14,51,87,515 Total Out Standing Borrowings from Family 53,58,25,594”

21. Having accorded due consideration upon the prayers that are made in the present application, the Court finds itself unable to accede to the prayer for modification of the injunction as sought at this stage for the following reasons.

22. The Court firstly bears in mind the undisputed fact that the suit is essentially one for recovery. It must therefore firstly be assured of the defendants’ financial stability and core strength so that it is not faced with a situation where even though the suit comes to be decreed, it be found at that stage that the defendants are not in a position to meet their obligations as flowing therefrom. This Court finds that the defendants have woefully failed to establish the same. As would be evident from the recordal of facts hereinabove, the defendants have failed to place on the record any cogent material on the basis of which their present assets and liabilities position may have been ascertained. At least the Courts’ attention was not invited to any audited statement or published financial records which may have evidenced their current financials.

23. While the Court does not intend to hold or be understood to have come to conclude that the defendants do not have the financial means to satisfy the yet to be established claim of the plaintiffs, it has been left to only bear in consideration the steady depletion of its asset base as was advocated by Mr. Sibal. As was noticed hereinabove, it was pointed that while the asset base of the defendant no. 3 stood at INR 2,541 crores in 2018, it had come down to INR 1,175 crores as on 31 January 2019. In the affidavit of 20 January 2020, this figure was pegged at INR 664 crores. The defendants have failed to proffer any cogent reasons for this significant reduction in asset value. The Court also bears in mind the disclosures made in the affidavit of 16 March 2020 in which the financial liabilities of the defendant no. 3 were disclosed to be approximately Rs. 443 crores. At the cost of repetition, it may be noted that no material was placed for the consideration of the Court and which may have evidenced the current assets and liabilities position of the defendant no. 3.

24. The Court is also constrained to bear in mind the prima facie findings returned by the Court in its order of 30 July 2019 when it held that the merger of defendant no. 5 appeared to be in violation of the KHCPL Share Pledge Agreement. It becomes pertinent to recall that the pledged shares constituted valuable security in favour of the plaintiffs. Those pledged shares have dissipated and are no longer available. The defendant no. 5 has now come to be merged with defendant no. 3 and which in turn is under the exclusive control of defendant nos. 1 and 2.

25. The Court further finds that the arrangement as was worked out in terms of the order of 30 July 2019 has not resulted in any substantial amounts coming under the control of the Court. As per the disclosures made by the defendants themselves, during the period 31 July 2019 to 31 March 2023, they had obtained a sum of INR 24.30 crores from sale transactions. The Fixed Deposits created in purported compliance of the directions of the Court were disclosed to be valued at Rs. 6.07 crores. The aforenoted amounts are too miniscule when compared with the amount of INR 1,000 crores as is claimed by the plaintiffs. The above position may be contrasted with the disclosures made in the affidavit dated 20 January 2020 in which the defendants had disclosed that from the 16 projects at the pre-launch/to be launched/near completion/planning stage, the total receipts likely to be obtained were pegged at INR 203.50 crores.

26. While the plaintiffs have also laid serious allegations regarding transfer of funds to related parties, of an artificial and unsubstantiated urgency having been expressed, the Court refrains from rendering any findings on the aforenoted and other objections that are raised at this stage of the proceedings. This since those issues did not appear to have any bearing on the prayers made in the instant application. Ultimately, the conclusion of the Court rests on what it has found on a prima facie evaluation of the record and the failure on the part of the defendants to have laid for its consideration adequate material which may have inspired confidence with respect to its present financials.

27. The Court in fairness must take note of the submission of Mr. Nigam who had referred to the long pendency of I.A. 9162/2020 and in terms of which the applicant had sought to securitise the entire amount that is claimed as due and payable by the plaintiffs. It also takes note of the stand of the defendants who have sought recall of the directions calling upon them to file an asset disclosure as per the Bhandari format. It may only be observed that those are issues which are kept open to be addressed and urged. No observation appearing in the present order is liable to be read as a negation of those and other prayers that may be made by the defendants.

28. Consequently, and for the aforesaid reasons, the present application fails and shall stand dismissed. However, the present order shall not preclude the defendants/applicants from seeking further interim reliefs, if so chosen and advised, afresh bearing in mind the observations made hereinabove.

YASHWANT VARMA, J. MAY 09, 2023

VISTRA ITCL(INDIA) LIMITED & ANR. v. LALIT KUMAR JAIN & ORS.

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