1 DIGJAM-final IN THE HIGH COURT JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISIDICTION jmi NOTICE OF MOTION NO.3273 OF 2009 NOTICE OF MOTION NO.3359 OF 2009 NOTICE OF MOTION NO.3360 OF 2009 IN SUIT NO.2334 OF 2009. Digjam Limited. ..Plaintiff. vs. WL Ross & Co. LLC. & Ors. ..Defendant. … Mr. Virag Tulzapurkar, Senior Counsel, a/w. Mr. J.P. Sen, Mr. Sanjay Grover, Mr. Bimal Rajsekhar, i/b. Ashwin Shankar, for Plaintiff. Mr. Dinyar Madaon, Senior Counsel, a/w. Mr. Nikhil Sakhardande, Mr. Rohan Rajyadhaksha, a/w. Mrs. Trupti Shetty, Mr. Lalan Gupta, i/b. M/s. Dhruve Liladhar & Co., for Defendant Nos. 1 to 3. Mr. Sanjay Jain, i/b. Mr. Shashank Fadia, for Defendant Nos. 4 & 5. Mr. Simil Purohit, i/b. RKM Legal Services, for Defendant Nos. 6, 7 & 8. .... CORAM : S. J. KATHAWALLA, J. DATE : 6th May 2011. P.C. : 1. By the above Suit the Plaintiff has sought an order and decree against Defendant Nos.1 to 8 to jointly and severally pay to the Plaintiff a sum of U.S.$19.904 million (equal to Rs.95.56 crores at the rate U.S.D.1 = Rs.48.00) together with interest @ 12% per annum from the date of institution of the present suit till payment and/or realization. 2. In the above suit the Plaintiff has taken out the present 3 Notices of Motion seeking reliefs, which are set out in the subsequent paragraphs of this order. 2 DIGJAM-final 3. The facts as narrated by the Plaintiff are briefly set out hereunder : 4. The Plaintiff Digjam Limited is a Company engaged in the manufacture of Woolen Worsted Textiles. Its manufacturing facilities are located at Jamnagar in Gujarat. It formerly, inter alia had similar manufacturing facilities at its unit by the name “OCM Division” at Amritsar in Punjab which unit was spun off into a subsidiary company by the name of OCM India Limited (OIL) and thereafter sold to Defendant No.1 consequent to a restructuring scheme (“The Scheme”). The Plaintiff was at the time of the transaction known as Birla VXL Limited and its name has changed to the present Digjam Ltd. w.e.f. 9th April 2008. 5. Defendant No.1-WL Ross & Co. LLC (WLR) is a limited liability company organized and existing under the laws of the State of Delawar, U.S.A., that specializes in leverage buyouts and restructuring. It is now a wholly owned subsidiary of INVESCO Ltd. Defendant No.2 – Wilbur L. Ross is the founder of WLR and was at the relevant time holding the position of Chairman and Chief Executive of WLR. Defendant No.3 - Ranjit Nabha was at the relevant time employed with WLR as its Managing Director. Defendant Nos.4 & 5 are two investment trusts which are incorporated under the laws of Mauritius. Defendant Nos. 6, 7 & 8 are the former three Senior Executives of the Plaintiff, namely, Rajeev Surana who at the relevant time was the Plaintiff’s Executive Director and Chief Operating Officer, Sukhwinder Singh who at the relevant time was the Vice 3 DIGJAM-final President (Technical) and Sarvjit Maheshwari who at the relevant time was the Vice President (Sales & Marketing) of the Plaintiff. 6. In the year 2004, the Plaintiff and its secured lenders began a process of restructuring in order to liquidate the debts owed by the Plaintiff, by divesting certain core and non-core assets. These included the OCM Division in Amritsar, as well as various other investments and properties. The arrangement was called the Scheme of Arrangement, pursuant to the provisions of Section 391 to 394 of the Companies Act, 1956, and, inter alia, envisaged that the OCM Division would be spun off into a separate legal entity and would be sold by the Plaintiff. Similarly, other assets including certain real property (land) also would be restructured and disposed of. The Scheme of Arrangement was approved by the High Courts of Gujarat and Punjab & Haryana, and became effective on 30th March 2006. In terms of the said Scheme, restructured loans aggregating to Rs.160 crores were transferred to OIL. The OCM Division of the Plaintiff was also transferred to OIL. The Plaintiff was allotted 1,30,91,363 equity shares of Rs.10/- each as fully paid-up aggregating to Rs.1,309 lakhs in OIL as net consideration for the transfer of the OCM assets and Facilities to OIL. The Scheme also provided that certain other investments and non-core assets and liabilities comprising, inter alia, a piece of land approximately 24,288 sq.mtrs. (26,880 Sq.Yds.) which was adjacent to the OCM Facilities was transferred to a new Investment Division (ICo) of the Plaintiff, to be sold separately, in order to discharge other debts of the Plaintiff. The Amritsar Land despite its location next to OCM facilities, was not an essential component of OIL, and neither the secured lenders nor the Plaintiff 4 DIGJAM-final considered it as a core part of OCM facilities. As per the said Scheme, its ownership remained with and continued to vest in the Plaintiff and was not offered along with OIL, and did not pass to OIL or anyone else. 7. Asset Reconstruction Co. (India) Ltd. (ARCIL) had been assigned substantial amounts of the outstanding of the Plaintiff’s from its various lenders, to the extent of over 90% of the said loans. Under the scheme of arrangement ARCIL was to represent the position of the secured lenders as well as the Plaintiff in the process leading upto the sale of OIL. At the meeting held on 9th March 2006 at the office of ARCIL a Monitoring Committee was constituted having the following members :- (1) Mr. Kishore Srinivasan representing ARCIL; (2) Ms. Vanita Sawant representing ARCIL; (3) Mr. P. R. Rajgopal representing Union Bank of India (UBI) Mr. C. L. Rathi, Managing Director of the Plaintiff was also present at the said meeting. Mr. Srinivasan informed the participants that as a Part of the Scheme of Arrangement approved by the High Court of Gujarat and the High Court of Chandigarh, OCM Division of the Plaintiff (then BVXL) is to be spun off into a separate company namely OIL, a wholly owned subsidiary of the Plaintiff. The restructed loans transferred to OIL (“OIL Loans”) as part of OCM Division of Plaintiff are to be settled through disposal of undertaking of OIL on a going concern basis on such terms and conditions as may be decided by the Monitoring Committee. 5 DIGJAM-final In the said meeting the mode of disposal of assets/undertaking was discussed. It was felt that sale by public auction would not be appropriate in this case. After deliberation and discussions it was thought fit to invite expressions of interests from a few select parties on certain pre-determined criteria. The Monitoring Committee authorized ARCIL to conduct the sale of the undertaking in any manner and/or such terms and conditions as it may deem fit, including but not limited to inviting expressions of interest from persons dealing with similar secured assets or otherwise interested in submitting a proposal for settlement of OIL loans. 8. On 13th March 2006 ARCIL sent an invitation for expression of interest to the Defendant No.3 (Mr. Ranjit Nabha, MD of Defendant No.1) for sale of OIL. On 31st March 2006 Defendant No.1 through Defendant No.3 made a non-binding offer in the range of U.S.D.22 millions to U.S.D. 33 millions. A meeting of the participants was held on 4th April 2006 at the office of ARCIL. The said meeting was attended by five participants including the Defendant No.1. The five sealed envelopes (bids)were opened in the presence of the participants and it was decided to invite the offerers for further discussions in the presence of the representative of the Plaintiff Company. Accordingly it was decided to send a communication to the offerers for deputing their representative for participating in the discussions in the next Monitoring Committee meeting. 9. A meeting of the Monitoring Committee was thereafter held on 12th May 2006 at ARCIL’s Board Room which was attended by 6 DIGJAM-final the participants. At the said meeting the Monitoring Committee examined and discussed the offer received from Raymonds and further decided to allow Raymonds to participate in the due diligence. On the same day ARCIL sent an invitation to Defendant No.1 through Defendant No.3 wherein after recording the subsequent discussions held on 19th April 2006 by and between ARCIL and the Defendant No.3 as M.D. of Defendant No.1 ARCIL invited Defendant No.1 to carry out due diligence between 19-06-2006 to 1-07-2006. The due diligence was in a record room set up in the OCM premises. Defendant No.3 himself with his team spent several days carrying out the due diligence physically and also inspected the OCM factory and surrounding areas. 10. Defendant Nos.7 and 8 who were with the Plaintiff for over 25 years, before the due diligence requested transfer to Jamnagar, stating that they would like to continue with the Plaintiff after the OIL sale. They were therefore provided fresh contracts of appointment at Jamnagar. 11. Defendant No.1 after completing the due diligence, on 16th August 2006 forwarded to ARCIL a revised final offer of U.S.D. 33.5 million for OIL. According to the Plaintiff this offer was binding on the Defendant in view of the terms laid down by ARCIL. According to the Plaintiff ARCIL also received two other bids which were conditional. The only unconditional bid was from Defendant No.1. However, the information on these bids was known only to ARCIL and the Plaintiff. 7 DIGJAM-final 12. According to the Plaintiff, the Managing Director of ARCIL met Defendant No.3 in New York and was informed orally that as a condition to purchase of OIL the Amritsar land which was not part of OIL but part of ICo would have to be offered along with OIL. Thereafter on 18th September 2006 Defendant No.1 sent a revised offer to ARCIL stating that “after negotiations with ARCIL, WLR is pleased to present the revised offer of U.S.$36.5 millions for OIL and $0.5 million for the BVXL Amritsar land…..”. It is further stated that “…….WL Ross reserves the right to authorize and designate India Asset Recovery Fund Limited and WLR Recovery III (India) Limited, its designees for the transaction.” 13. By its letter dated 19th September 2006 ARCIL informed the Plaintiff that it has accepted the offer of Defendant No.1 as follows :- “Re. : Acceptance of the final binding offer of WL Ross dated September 18, 2006. We refer to the captioned offer received by you for the disposal of shares of OIL pursuant to the invitation for expression of interest (IEI)….. The said offer was discussed at the meeting of the Monitoring Committee (MC) held on September 19, 2006. We, Asset Reconstruction Company (India) Limited in our capacity as an authorized representative on behalf of the Monitoring Committee are pleased to accept the captioned offer subject to the terms and conditions set out below:- 1…… 2……. 3…… 4. The acceptance of the offer towards BVXL Amritsar land is subject to ratification of the MC of lenders of Birla VXL Limited. 8 DIGJAM-final (Reference to clause 3 of the offer letter). Stamp duty on such transfer shall be borne by WL Ross. Please note that upon acceptance of the offer, the binding offer would constitute a contract between WL Ross and the lenders of OIL. Kindly arrange to have the duplicate copy of your acceptance letter to WL Ross signed in acceptance thereof. MC reserves for itself the right to terminate the contract upon default of any of the terms and conditions contained in this letter.” 14. On 29th September 2006 meeting of the Committee of Directors/Officers (Investments/Assets) of the Plaintiff was held, which was attended by Shri R. K. Choudhari – Director-Member; Shri Ghoolam Momen – Director-Member and Shri Girish Bhatia – Secretary-Member. Leave of absence was granted to Shri Siddharth Birla, C. L. Rathi and Rajeev Surana (Defendant No.6) as requested by them. At the said meeting the Secretary Shri Bhatia inter alia informed the Directors that ARCIL representing the Monitoring Committee had invited expression of interest for disposal of OCM division/shares of OIL held by the Plaintiff, in response to which various parties submitted their non-binding offers and thereafter, the short-listed parties carried out due diligence at OIL. The binding offers received from the parties were evaluated and the one submitted by WL Ross and Company LLC (purchaser) was finalized and negotiated by the Monitoring Committee. He further informed that the approval of the Monitoring Committee to the offer of the purchaser, including for disposal of OIL shares and land at Amritsar and buildings thereon, has been advised to the Company by ARCIL vide its letter dated 19-09-2006. A copy of the said letter along with the draft approval for sale of 1,33,16,363 equity shares of OIL and 9 DIGJAM-final land admeasuring 24,288 sq. mtrs. along with buildings and structures thereon, to be executed by the Plaintiff, the Defendant No. 1, ARCIL and OIL was also placed before the meeting. After discussions the following Resolution was inter alia passed :- “RESOLVED that as approved by the Monitoring Committee of the Lenders and advised to the Company vide Asset Reconstruction Company (India) Ltd. (“ARCIL”) letter No.ARGI/SK/FY07/2854 dated September 19, 2006 OCM India Ltd. (OIL) including Amritsar land of the Company admeasuring 24288 sq. mtrs. along with buildings and structures constructed thereon be sold to WL Ross & Co. LLC (Buyer), a total consideration of US$ 37 Million which includes payment towards lenders of OIL and sale of 1,33,16,363 Equity Shares of OIL held by Birla VXL Ltd. (BVL) and on such other terms and conditions as contained in the draft agreement amongst WL Ross & Co. LLC (Buyer), Birla VXL Ltd. (Seller), Asset Reconstruction Company (India) Ltd. and OCM India Ltd. placed before the meeting and initialed by the Chairman of the Committee for the purpose of identification and Shri C.L. Rathi, Managing Director and Shree Rajeev Surana, Executive Director and Chief Operating Officer (ED and COO), be and are hereby severally authorized to modify, amend, accept and finalise all or any terms and/or conditions of the said draft agreement. …………….. ………………” 15. On 29th September, 2006 an Agreement for Sale was entered into by and between the Plaintiff, ARCIL, Defendant No.1 and OIL whereby Defendant No.1 agreed to purchase shares of OIL and the Plaintiff agreed to execute a separate sale deed of the Amritsar land. In clause 4.3 of the agreement it was agreed that the Plaintiff (Seller) will not prevent or do anything to hurt the interest of the purchaser, from securing the services of such key officers and employees relating to OIL/OCM division of the Seller, whether past 10 DIGJAM-final (who had been in the employment of OCM Division during the last 12 months) or present, as the Purchaser may identify. In addition, the Plaintiff further gave an assurance that for a period of 1 year from the date of the agreement, the Plaintiff will not solicit away any employees of OIL. Under clause 11.1 of the Agreement the parties had undertaken to treat the contents of the Agreement and matters arising in connection therewith as strictly confidential and had agreed not to disclose or make any announcements concerning the same, except with the prior written consent of the parties or any disclosure that any party may be required to make under any applicable law. However, according to the Plaintiff, Defendant No.1 on 3rd October 2006 in breach of the covenant contained under Clause 11.1 issued a Press Release and made numerous public statements about acquisition of OIL. At about the same time Defendant No.1 was acquired by and became a subsidiary of INVESCO Limited, another U.S. based Company. 16. On 3rd October 2006 Defendant No.6 announced his intention to resign from the Plaintiff’s services. This was followed by resignation of Defendant Nos. 7 and 8. 17. According to the Plaintiff, by an internal memo dated 4th October 2006 from Shri S. Birla to Shri C. L. Rathi, Managing Director of the Plaintiff, Shri Birla has inter alia recorded that Defendant No.6 informed him that the discussions of his joining Ross at OCM had been going on for quite sometime and that he was mentally only concentrating on OCM and not the Plaintiff (i.e. Digjam). Mr. Birla further recorded that in his opinion Defendant No.6 was to far down 11 DIGJAM-final the road with Ross and all that he could relate to was his new career. Mr. Birla has further alleged in the said inter office memo that Defendant No. 6 “has been engaged in behind – the – scene interaction with the Buyer (Ross)” He further goes on to record as follows: “There is something deeply disturbing about the time frame in which all this has happened. I am sure this is not the end of the matter and other key personnel of VXL will be surely affected. He held back any response when I mentioned the possibility that if this game was being played behind our back, then surely he would try to dislodge VXL as the major serious competition for OCM. I feel certain that some kind of unholy alliance has been in existence for some time now and perhaps he was eager to be out of the country at the time of finalization of the deal. I cannot guess the extent of involvement in his leaking information and advising them, and we had shared surprise at the pressure of Ross in relation to Clause 4.3 (original suggestion and final version) and in acquiring surplus land of VXL at Amritsar. There is need to exercise vigilance and caution as would be customary in the circumstances. We owe it not just to ourselves professionally, but to all our stakeholders, most of all ARCIL whose position cannot be allowed to be compromised at all.” 18. Shri Siddarth Birla, Vice Chairman of the Plaintiff (then Birla VXL Ltd.) by his letter dated 13th October 2006 addressed to the Defendant No.3 of Defendant No.1 strongly protested to the press release/public statements made about acquisition of OIL by the Defendant No.1 and inter alia recorded that the wide publicity to the announcements has led many clients, business associates and investors at large to wrongly infer that Birla VXL Ltd. could be in some serious financial situation. By the said letter Defendant No.1 was also called upon to give their response as to what can be done by the 12 DIGJAM-final Defendant No.1 to address the situation, besides compensating the Plaintiff for damages. 19. Shri Siddarth Birla by his letter dated 18th October 2006 addressed to the Managing Director of ARCIL informed ARCIL that the Defendant No.1 had not bothered to respond to his letter dated 13th October 2006. Shri Birla recorded in his letter that the agreement relating to the sale of OIL to WL Ross has been primarily a subject of discussion between ARCIL (who was running the process) and Defendant No.1. It is further recorded that in effect VXL agreed virtually to enter into the agreement on the basis of these negotiations which in itself marks the Plaintiff’s deep level of co-operation. Mr. Birla has alleged in the said letter that the Defendant No.1 have cleverly, deliberately and maliciously designed the unauthorized and unwarranted publicity at a time of known high market visibility and activity to hurt the Plaintiff. By the said letter Mr. Birla on behalf of the Plaintiff further recorded that “the fact that they do not even care to respond to a message stopping short of invoking our legal rights seems to imply that they have hopes of getting away with the breach and its consequences, perhaps by treating it lightly and applying as much pressure as they can on ARCIL and VXL to complete the deal as it stands. I must share my own concern with you that it is eminently possible that (given predatory tactics that such funds probably foster) they may well - seek to directly or indirectly – compromise the integrity of intellectual and confidential business information, plans, processes and practices of VXL. ….. There is a significant erosion of faith at our end in WL Ross as also in their grandeur strategy and well publicized plans of entering 13 DIGJAM-final India; Therefore, there is a pressing need to protect the interest of VXL and its stake holders.” 20. On 7th October 2006, 8th October, 2006 and 25th October, 2006 Defendant Nos. 8, 7 and 6 respectively tendered their resignation from the Plaintiff Company. The Plaintiff Company vide three separate letters dated 27th October 2006 addressed to Defendant Nos. 6, 7 and 8 accepted their resignation letters. However, it was recorded on behalf of the Plaintiff that the Plaintiff had decided not to waive the notice period or any portion thereof and had also decided not to accept any payment in lieu of their notice. By the said letters Defendant Nos. 6, 7 and 8 were also called upon by the Plaintiff to hand over to the Plaintiff all the Plaintiff’s data, information, plans, papers, documents including but not limited to intellectual property or any other business and operating information in any form (hard or soft copies whether in physical or electronic form) as well as any letters of authority of the Plaintiff that may be in their possession. 21. Defendant No. 6 by his letter dated 1st November 2006 addressed to the Managing Director of the Plaintiff, responded to the Plaintiff’s letter dated 27th October 2006. Defendant No.6 informed the Managing Director of the Plaintiff that he is unable to serve the notice period and he has been legally advised that he cannot be compelled to serve the same. He therefore requested the Managing Director of the Plaintiff to adjust an amount equivalent to the salary for the notice period from his settlement dues. Defendant No.6 14 DIGJAM-final further recorded that he had handed over all the records of the Company in his possession. 22. By his letter dated 4th November 2006 Defendant No.7 responded to the Plaintiff’s letter dated 27th October 2006 and also a telegram dated 1st November 2006 received from the Advocates for the Plaintiff. Defendant No.7 in his said letter inter alia recorded that the content of the telegram were mischievous, malafide and incorrect as he had already handed over charge on 1st November 2006 to Mr. M. L. Verma, Vice President – Works, of the Company. In addition to the information/data that he had in physical form, he also handed over the computer containing information in electronic form. He further confirmed that he does not have any copies of the Plaintiff’s business or operating information in any form whatsoever. Defendant No.8 by his letter dated 4th November 2006 addressed to the President of the Plaintiff responded to the Plaintiff’s letter dated 27th October 2006 and the telegram received from the Plaintiff’s Advocate dated 1st November 2006 in terms identical to the response of Defendant No.7. Defendant No.8 has recorded that the telegram was mischievous, malafide and incorrect as he was already handing over the charge on November 01, 2006 to Shri K. K. Maheshwari, General Manager Sale of the Company when the said telegram was sent to him. He has further recorded that though Mr. K. K. Maheshwari signed the list of the documents and a confirmation letter in acknowledgment of the receipt of the documents and the charge handed over by him, Mr.Maheshwari did not return to him the confirmation letter despite his repeated requests. 15 DIGJAM-final 23. By his letter dated 30th October 2006, the Managing Director of the Defendant no.1 responded to the Plaintiff’s letters dated October 13, 2006 and October 23, 2006 alleging breach of the provisions of the Agreement for Sale dated 29th September 2006. The Managing Director of the Defendant No.1 has in his said letter stated that as there were various rumours floating in the market and the media about the transaction, they had no option but to make the statements to quell the rumours and present the correct facts. He has further recorded that in any event all the