- 1 - IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. NOTICE OF MOTION NO.3950 OF 2005 IN SUIT NO.3376 OF 2005 ... SAHARA INDIA COMMERCIAL CORPORATION LTD. ...PLAINTIFF V/S. B. JEEJEEBHOY VAKHARIA & ASSOCIATES & ORS. ...DEFENDANTS ... Mr.V.A.Bobde, Sr.Counsel with Mr.N.G.Thakkar, Sr.Counsel, Mr.P.K.Dhakephalkar, Sr.Counsel, Mr.Navneet Shah, Mr.Markand Gandhi, Mr.Gaurav Joshi, Mr.Satyen Vora and Ms.Kamini Verma i/b Markand Gandhi & Co. for the Plaintiff. - 2 - Mr.P.K.Samdhani with Mr.Mohd.Akram i/b Harilal Thakkar & Co. for Defendants Nos. 1 to 3. Mr.Navin Parekh i/b Vivek Kantawala & Co. for Defendant No.4. Mr.A.Y.Bookwala with Mr.K.P.Jain i/b Tushar Goradia for Defendants Nos. 7 & 11. ... CORAM: D.K.DESHMUKH, J. DATED: 4th June, 2007 JUDGMENT: 1. This Notice of Motion is taken out by the Plaintiff. In the suit the Plaintiff is seeking a decree of specific performance of the Memorandum of Understanding (MOU) dated 22-12-2001 as also of the approved draft agreement, supplemental draft agreement and 3 approved draft declarations and other ancillary reliefs. - 3 - 2. In this Notice of Motion, the Plaintiff is claiming an order of temporary injunction for protecting the possession of the suit property of the Plaintiff, but it was admitted before me by the Plaintiff that presently the Plaintiff is not in possession of the land, therefore, there is no question of granting any temporary injunction protecting Plaintiff’s possession of the suit property. The Plaintiff is also claiming a temporary injunction restraining the Defendant No.1 by itself and or through other Defendants from dealing with, disposing of, alienating, or encumbering the suit property during the pendency of the suit. The Plaintiff is a company incorporated under the Companies Act. The Defendant No.1 is a partnership firm of which Defendants Nos. 5 to 10 are the partners. Defendants Nos. 5 to 10 are companies incorporated under the Companies Act. According to allegations in the plaint, Defendant No.2 and Defendant No.3 i.e. Madhu Vakharia and Byramjee N. Jeejeebhoy together alongwith their relatives and nominees control the Defendant No.4 which is a Co.operative Housing Society, Defendants Nos.5 to 10 are companies and are partners of the Defendant No.1 as well as Defendant No.11, which is the company - 4 - incorporated under the Companies Act. According to plaint allegation, the Defendant No.4 Co.operative Housing Society is controlled by Defendants Nos. 2 & 3, their family members and nominees. It is claimed that it has 302 members of which 289 are companies incorporated under the Companies Act and those companies have been floated and incorporated at the instance of the Defendants Nos. 2 & 3. The share holders of the said 289 companies are Defendants Nos. 2 & 3, members of their family and their associates. It is also claimed that out of these 289 companies, share holdings of Defendants Nos. 2 & 3 and their associates in 177 companies have been transferred in favour of the Plaintiff. 3. The suit property is land admeasuring approximately 500 acres, which is described at Exh.A to the plaint. According to plaint allegations, the suit land forms a part of land admeasuring 614 acres, out of which 129 acres is creek. This land is situated at Goregaon (West) at village Pahadi. According to the Plaintiff, the suit land was owned by the company by name M/s.B. Jeejeebhoy Pvt.Ltd. The entire land falls within No Development Zone. By Deed of Conveyance dated 21st May, 1985, Byramjee - 5 - Jeejeebhoy Pvt.Ltd. transferred the land in favour of the company by name M/s.Pahadi Goregaon Land Development Pvt.Ltd. The said Pahadi Goregaon Land Development Pvt.Ltd. on 17th May, 1988 entered into an agreement agreeing to sell the said and to one M/s.Usha Development Co.operative Housing Society. By Conveyance dated 28-7-1988, M/s.Pahadi Goregaon Land Development Pvt.Ltd. conveyed the land to M/s.Usha Development Co.operative Society Ltd. By an agreement dated 12-7-1988, the said Usha Development Co.operative Housing Society entered into the development agreement with Defendants Nos. 5 to 10 companies. The said Defendants Nos. 5 to 10 who had entered into Development Agreement with Usha Development Co.operative Housing Society, formed a partnership firm i.e. Defendant No.1. Thus the Defendant No.1 got control of the development rights in relation to the land. M/s.Usha Development Co.operative Housing Society under the orders passed by the Asst.Registrar of the Co.operative Societies was divided into four co.operative societies in the year 1991. The four co.operative societies into which Usha Development Co.operative Housing Society was divided in the year 2001 merged into one society, as a result the Defendant No.4 Usha Madhu Development - 6 - Co.op. Hsg.Society Ltd. was formed and it became owner of the land. 4. In the year 1991, Pahadi Goregaon Land Development Ltd. went into voluntary winding up and under the voluntary winding up scheme, it was agreed that the benefits of the development agreement which was entered into by Pahadi Goregaon Land Development Pvt.Ltd. with partners of Defendant No.1 was to go to Defendants Nos. 7 and 11, who were share holders of Pahadi Goregaon Land Development Pvt.ltd. In November, 2000, Civil Suit No.4925 of 2000 was filed by Defendants Nos. 7 & 11 for a money decree against the owner of the land. 5. The MOU which is the subject matter of the suit was entered into on 22-13-2001. The position in relation to ownership of the land on that date was as under:- . The land was owned by Defendant No.4-co.operative Housing Society; The development rights of the land were held by Defendant No.1; Civil Suit No.4925 of 2000 filed by Defendants Nos.7 & 11, share holders of Pahadi Goregaon Land Development Pvt.Ltd. for a - 7 - money decree was pending in this court. 6. The suit land falls in No Development Zone. It is common ground that under Development Control Regulations for Gr.Mumbai a residential building is permissible in No Development Zone with FSI of 0.05 in respect of the land upto 1 Hector and thereafter at not more than 0.025 FSI for remaining area of the plot. Under the Regulation 61 of the Development Control Regulations of Gr.Mumbai, the land identified by the Tourism Development Department of Government of Maharashtra and specified by the Government from time to time as suitable for promotion of tourism is to be included in Tourism Development Zone (TDZ). If such land is situated in No Development Zone, then, the land is permitted to be developed for the purpose mentioned in the Regulation 61 with FSI of 0.05. According to plaint allegation, in relation to the land which is in No Development Zone and Tourism Development Zone, Golf Course and Club house are permitted to be established by utilising the permissible FSI. 7. It is in this background that the MOU dated 22-12-2001 was entered into. Clause 25 of this MOU - 8 - recites that the MOU is entered into on the basis that Defendant No.1 includes and means Co.operative societies and companies and individuals whose names are mentioned in Clause 25. It is important to note at this juncture that the name of defendant No.4 Co.operative society and the names of Defendants Nos. 7 & 11 are mentioned as also the names of Defendant No.3 and Defendant No.2 are also mentioned. By that MOU, it was agreed that the Plaintiff and B. Jeejeebhoy will develop the entire land in joint venture with the understanding that SAHARA will source the money required for the development of the project including cost of construction of all residential units, club house and golf course and B.Jeejeebhoy will provide entire land with necessary permissions and clearance require for entire development. The agreement recites that the total FSI available for residential is 10.15 lakh sq.ft. and FSI of 6.53 lakh sq.ft. in respect of TDZ. Under the MOU, the Plaintiff was to pay to the Defendant No.1 a sum of Rs.25 crores. The sum of Rs.10 crores was paid on the execution of the MOU. The property after development was to be shared amongst the Plaintiff and the Defendant No.1 as per the terms of the agreement. The agreement was signed - 9 - by Defendant No.3 on behalf of the Defendant No.1. Defendant No.2 signed the agreement as a witness. According to the Plaintiff, all responsibilities as regards matters relating to Jeejeeboy in the same MOU were to be the responsibilities by the persons mentioned in Clause 25 thereof. It appears from the plaint allegations that under the MOU the Plaintiff was to develop a golf course on the land. Some residential units with surrounding land were proposed to be constructed and a club house for the golf course was to be constructed consuming whatever FSI is available under the Development Regulations. According to the Plaintiff, an irrevocable licence was created in favour of the Plaintiff to enter the land and to carry out the development work. According to the Plaintiff, under the agreement the Plaintiff undertook various steps to develop the land and spent more than Rs.11 crores. According to the Plaintiff, on 1-8-2002 a sum of Rs.5 crores was paid to the Defendant No.1 by the Plaintiff under the agreement. A notice was received on 30th August, 2002 from the Bombay Municipal Corporation asking stoppage of work. The Department of Ministry of Environment and Forest, Government of India also issued orders , which resulted in stoppage of the - 10 - development work. Therefore, the Defendant No.4 filed a Writ Petition in this court being Writ Petition No.1470 of 2003 challenging the orders passed by the Ministry of Environment & Forest. According to the Plaintiff, though the litigation was filed in the name of Defendant No.4, it was funded by the Plaintiff. According to the Plaintiff, the Plaintiff took steps for acquiring share holding in 177 companies which are members of the Defendant No.4 co.operative society in accordance with agreement. The Plaintiff also prepared formal agreement containing legal terms. According to plaint allegations, on 13-6-2003, the Plaintiff sent to the Defendant No.1 a finalised approved draft of the agreement to be signed and executed between the parties. By notice dated 11-8-2003, the Defendant No.1 terminated the agreement and requested the Plaintiff to return 177 companies to it. According to the Plaintiff, however, the termination notice was not acted upon by the Defendant No.1, in asmuch as, on 9-9-2003 a further amount of Rs.10 crores was received by the Defendant No.1 from the Plaintiff unconditionally. Thus, according to the Plaintiff, by September, 2003 an amount of Rs.25 crores was paid by the Plaintiff to the Defendant No.1. The - 11 - Plaintiff forwarded in January, 2004 a final draft of the agreement together with declaration. According to the Plaintiff, as the Plaintiff did not receive any comments from the Defendant No.1, the Plaintiff got the agreement engrossed and stamped and also paid stamp-duty. This fact was intimated to the Defendant No.1. According to the Plaintiff, a meeting was held between the Plaintiff and the Defendant No.1 in the month of May, 2005. By letter dated 4-7-2005, the Defendant No.1 again terminated the agreement and asked for return of 177 companies. According to the Plaintiff, on 25-7-2005 the Defendant Nos. 5, 7 & 11 being share holders of Pahadi Goregaon Land Development Pvt.Ltd. entered into consent terms with Defendant No.4 in Civil Suit No.4925 of 2000. As a result of those consent terms, the land was to revert back to Defendants Nos.7 & 11. These consent terms were entered into and the order of the court obtained on the consent terms without issuing notice to the Plaintiff. 8. In this background in December, 2005, the Plaintiff filed this civil suit. The present notice of motion was taken out in the suit. By order dated 2nd February, 2006 the learned single Judge of this - 12 - court granted ad-interim order of injunction restraining the Defendants from alienating, encumbering or creating third party rights or parting with possession of the suit property. That order was challenged in appeal. The appeal was allowed by the Division Bench and the order granting ad-interim was set aside. The order of the Division Bench was challenged before the Supreme Court. The Supreme Court set aside the order of the Division Bench and directed that the Notice of Motion is to be disposed of at an early date without being influenced by the observations made by the Division Bench or by the Supreme Court. 9. The learned Counsel appearing for the Plaintiff submits that the MOU is essentially an agreement to transfer the immovable property. He relies in support of this submission on Clause 11 of the MOU whereby 59% share in the club house and golf course was to be transferred to the Plaintiff. The learned Counsel also relied on clause 2(a) to contend that it contempts sharing of FSI between the Plaintiff and the Defendant No.1 in the ratio of 59:41 % in respect of the land to be developed as residential area. The learned Counsel relies on the judgment of the - 13 - Division Bench of this court in the case of M/s.Chheda Housing Development Corporation v/s. Bihijan Shaikh Farid & ors. in Appeal No.1081 of 2005 decided on 15-2-2007 to contend that FSI is immovable property. He also relied on recital in clause 2(b) and 2(c). The learned Counsel submits that combined reading of Clauses 2, 9, 12 & 13 of the MOU makes it clear that rights were granted to the Plaintiff to sell the residential bungalows and the land on which they were to be constructed. It is submitted that the Defendant No.2/ Madhusudan Brijlal Vakharia was to propose mechanism for transfer of the ownership of the residential bungalows and accordingly to ensure that the Plaintiff got their 59% share in the land and the residential bungalows to be constructed, Mr.Vakharia suggested that the entire share holding of the 177 companies who are members of Defendant no.4 Co-operative Society would be transferred to the Plaintiff. 10. The learned Counsel further submits that by clause 5(b), the Plaintiff is given right of preemption called right of first refusal in respect of bungalows and land to be allotted to Defendant No.1 relying on the judgment of the Supreme Court in the - 14 - case of Shivaji v/s. Raghunath, AIR 1997 SC 1917. The learned Counsel submits that the right of preemption is the right in immovable property and therefore an agreement giving right of preemption is an agreement to transfer right in immovable property and therefore, a decree of specific performance of such an agreement can be granted by the court. The learned Counsel also relied on recitals in Clause 22 of the MOU. 11. The learned Counsel submits that the MOU has actually been acted upon by the parties. The letter dated 29-12-2001 shows that right of entry and licence to enter upon the land was granted to the Plaintiff by Defendant No.1 and the Defendant No.4. The Plaintiff paid Rs.25 crores to the Defendant No.1 under the agreement. The Plaintiff also funded the litigation that was filed in this court against the stop work notice. The Plaintiff spent an amount in excess of Rs.11 crores for carrying out work on the land. The Plaintiff also had to spent Rs.1.77 crores for acquiring share holdings in 177 companies which are members of the Defendant No.4- co.operative society as per the mechanism devised by the defendant no.2. The learned Counsel further submits that the - 15 - MOU is a composite agreement and predominant purpose of the MOU is to transfer the immovable property. It does not merely give development rights to the Plaintiff. It is submitted that there are many features of this agreement which are unusual and are not found in the usual development agreements which are mainly for the construction of a building on a plot of land. The learned Counsel further submitted that the notice dated 4-7-2005 terminating the MOU is illegal and bad in law, as no breach of the agreement was committed by the Plaintiff. The learned Counsel relied on the judgment of the Division Bench in the case of M/s.Chheda Housing referred to above. He also relied on the judgment of the Division Bench of this court in the case of M/s.Ghori & Khatri Builders v/s. Iqbal Hussein Usman Fakir Mohamed Mansoori & ors, in Appeal No.218 of 1991 decided on 9-3-1993. He also relied on the judgment of the Division Bench dated 25-9-1991 in the case of Mrs.Pallavi R. Karane v/s. Dadhawala Builders & ors. in Appeal No.784 of 1991. The learned Counsel also placed reliance on the judgment of the learned single Judge in the case of Mahendra J. Vora v/s. Aditya Enterprises & ors. in Notice of Motion No.1568 of 2004 in Suit No.1455 of 2004 decided on 7/8th December, 2006. The learned - 16 - Counsel submits that the MOU is a concluded contract. He submitted that the vital terms binding between the parties are all incorporated in the agreement. According to Clause 26 of thew MOU, only legal terms were to be settled and agreed upon. The learned Counsel relied on a letter dated 7-6-2003 from the Defendants to contend that even according to the Defendants, after the MOU final agreement was reached into between the parties. The learned Counsel relied on the judgment of the Privy Council in the case of Harichand Mancharam v/s. Govind Luxman Gokhale, 1923 Privy Council 47, a judgment in the case of Shankarlal Narayandas Mundade v/s. The New MO Fussil Co. Ltd. , AIR (33) 1946 Privy Council, 97, as also the judgment of the Supreme Court in the case of Kollipara Sriramulu v/s. T. Aswatha Narayana, AIR 1968 SC 1028, in support of his contention that there is a concluded contract between the parties. The learned Counsel further submitted that the consent decree entered into between the Defendants Nos. 7 & 11 on one hand and Defendant No.4 on the other in Suit No.4925 of 2000 is a collusive decree. It is submitted that the Defendant No.4 is controlled by Defendants Nos. 2 & 3. Its name appears in Cause 25 of the MOU. It is submitted that the Defendant No.2 - 17 - had filed an affidavit dated 19-7-2005 in that civil suit as Directors of Defendants Nos. 7 & 11 who were Plaintiffs in that suit stating therein that no third party rights have been created in the suit land, when Defendant No.2 had signed the MOU. It was also contended that the civil suit was only for money decree. 12. On behalf of the Defendants Nos. 1 to 3, the learned Counsel submits that the MOU is not a concluded contract. He submits that under the MOU itself it is stated that the MOU incorporates only broad points agreed to between the parties that the final agreement is to be executed in future. He submitted that then the mode as to how the title is to be transferred to the purchaser of the bungalows was yet to be decided and it was to be decided by Defendant No.1. He submitted that the parties are agreed not to be bound by the MOU unless further agreement is signed. It is submitted that the Plaintiff is seeking a decree directing the Defendants to sign the formal document. According to the learned Counsel, therefore, this agreement is merely an agreement to entered into another agreement. The Learned Counsel next submits that at - 18 - the relevant time, Chapter XX-C of the Income Tax Act was in force and no application was made under Chapter XX-C for obtaining permission of the authority. According to the learned Counsel, therefore, the agreement is illegal. The learned Counsel submits that there is clear variation in the terms contained in the MOU and the terms which are contained in the final draft which is alleged to have approved by the Defendant No.1. The learned Counsel further submits that the MOU is merely a development agreement and therefore a decree of specific performance of the development agreement is never made by this court. It was contended that the Plaintiff is also not entitled to any relief which is in the discretion of the court, because they have falsely contended that they are in possession of the land when the agreement itself did not contemplate they being placed in possession of the land. It was further submitted that the MOU states that it is an agreement for joint venture. It is submitted that core of joint venture is trust and faith between the parties. It is submitted that in view of the fraud, dispute, misrepresentation etc. made by the Plaintiff, the parties have lost trust and faith in each other, and therefore, under Section 16(b) a - 19 - decree of specific performance cannot be granted. In support of the submission that the decree of specific performance cannot be granted by a development agreement, the learned Counsel relied on the judgment of the learned single Judge of this court dated 27th December, 2005 in Notice of Motion No.3280 of 2004 in Suit No.3193 of 2004, which has been upheld by the Appeal Court by judgment dated 9th January, 2006 in Appeal No.115 of 2005. The learned Counsel relied on Clause 23 of the MOU to contend that that Clause contemplates that if a final agreement including power of attorney is not executed within the period of six months from the date of MOU, then the agreement would come to an end. The learned counsel also submits that the Plaintiff has failed to establish that 177 companies in which it has acquired share holdings are members of the Defendant No.4-Co.operative society. The learned Counsel submits that the decree passed in civil suit between the Defendants Nos. 7 & 11 and Defendant No.4 cannot be termed as a collusive decree. 13. The learned Counsel appearing for the Defendant No.4 submitted that nothing is brought on record by the Plaintiff to show as to how the Defendant No.4 is - 20 - liable to perform the terms of the MOU. It is submitted that the Plaintiff has not placed any reliance on any resolution passed by the Defendant No.4-co.operative society to accept the MOU. It is submitted that the final draft of the agreement was never sent to Defendant No.4. There was no correspondence entered into between the Plaintiff and the Defendant No.4 in relation to the agreement. It is contended that the Defendant No.4 was not a party to the agreement to transfer its ownership rights in any immovable property. The learned Counsel also submits that the Plaintiff also failed to prove that the 177 companies are members of the Defendant No.4. It is submitted that the Defendant No.4 was to admit members as per the development agreement with the Defendant No.1 after construction is made on the land. As construction is not made on the land, there is no question of admitting any members. 14. The learned Counsel appearing for the Plaintiff in rejoinder submitted that there is no radical change brought about in the MOU by the final draft of the agreement. There are some modifications made in the final draft of the agreement because of the development taking place after signing of the MOU, - 21 - namely the mechanism devised by Mr.Vakharia for transfer of 59% of the property in favour of the Plaintiff. In so far as the submission that the agreement is contrary to Chapter XX-C of the Income-tax Act is concerned, the learned Counsel submits that there is no provisions in Chapter XX-C which invalidates any written agreement to sell any property. The provisions of Chapter XX-C of the Income-tax Act prevent registration of actual transfer of property unless the agreement entered into between the parties is submitted to the authorities before execution of the transfer deed. It was submitted that in any case now Chapter XX-C is not in force. The learned Counsel submits that so far as the submission made on behalf of the Defendant No.4 that it