AJN 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.362 OF 2008 IN NOTICE OF MOTION NO.1836 OF 2006 IN SUIT NO.1602 OF 2006 Parasmal Manoharmall Lodha .... Appellant Vs. Rangnath Somani & Ors. .... Respondents Mr. D.H. Mehta i/b A.M. Saraogi for the appellant. Dr. V.V. Tulzapurkar with Mr. D.D. Madon and Mr. H.N. Thakore i/b Dave & Co. for the respondents. CORAM : SMT. RANJANA DESAI & K.K. TATED, JJ. DATE ON WHICH THE ORDER IS RESERVED : 8TH OCTOBER, 2008. DATE ON WHICH THE ORDER IS PRONOUNCED : 14TH OCTOBER, 2008. P.C.:- 1. The appellant is the original plaintiff. Respondents 1 to 3 are original defendants 1 to 3 respectively. Respondent 4 is original defendant 4. He is a solicitor and a partner of M/s. Kanga & Co. AJN 2 Respondent 5 is original defendant 5. For convenience, we shall refer to the parties as per their description in the plaint. 2. In short, the case of the plaintiff is that defendants 1 to 3 were the majority shareholders of Shreenivas Cotton Mills Limited (for convenience, “the said company”). The said company was wound up on 25/7/1984. After taking charge of the said company, the Official Liquidator issued a public notice for inviting offers for the purchase of the said company. According to the plaintiff, defendants 1 to 3 offered to take over the said company. Negotiations took place between the parties and a Memorandum of Understanding dated 11/10/1994 (for short, “the said MOU”) came to be signed between the plaintiff and his associates, on the one hand, and defendants 1 to 3, on the other hand. As per the said MOU, defendants 1 to 3 were to transfer to the plaintiff and his associates at least 51% of the shareholding of the said company and the plaintiff and his associates were to give to defendants 1 to 3 a certain sum of money upon signing of the said MOU and, thereafter, they were to provide requisite financial assistance for carrying out the revival of the said company as contemplated in the scheme formulated by the parties thereto. AJN 3 3. It is the plaintiff's case that the said MOU was signed and there being only one original copy, it was kept in escrow in the custody of defendant 4. According to the plaintiff, defendants 1 to 3 handed over to defendant 4, the original share certificates of 56,978 shares and signed transfer deeds for transfer of 51% of the total share capital of the said company to the plaintiff and his associates. It is the plaintiff's case that he approached defendants 1 to 3 to prepare a modified scheme for consideration of this court. Defendants 1 to 3 expressed their willingness. However, in December, 2003, the plaintiff came to know that defendants 1 to 3 had, in fact, entered into an arrangement with one Lodha Builders for the revival of the said company. The plaintiff, therefore, filed the instant suit, inter alia, for a declaration that the said MOU dated 11/10/1994 is binding on defendants 1 to 3 and for a further declaration that defendants 1 to 3 be ordered to specifically perform the said MOU. 4. It is averred in the plaint that the plaintiff requested the defendants to give him a copy of the said MOU. However, defendant 4 refused to give him the same on the ground that the AJN 4 said MOU and share certificates were deposited with him for safe custody in escrow, pending execution of formal agreement and papers. Defendant 4 conveyed to the plaintiff that xerox copy of the said MOU will be given subject to written clearance from the other concerned parties. 5. In this suit, the plaintiff took out the instant notice of motion praying that defendant 4 be directed, by a mandatory order of injunction, to give to the plaintiff a copy of the said MOU and copies of the share certificates, transfer deeds in respect of the said company and deposit the same with the Prothonotary & Senior Master of this court. By the impugned order, learned Single Judge dismissed the motion and, hence, this appeal. 6. Mr. Mehta, learned counsel for the appellant urged that learned Single Judge erred in observing that the plaintiff is not entitled to a copy of the said MOU when the fact that the said MOU was signed is admitted by the parties. Mr. Mehta submitted that admittedly, defendant 4 had given a copy of the said MOU to the Economic Offences Wing (for short, EOW) of the Bombay Police on a demand made by the EOW in connection with the complaint AJN 5 filed by defendant 1. Mr. Mehta submitted that, therefore, there is no reason why a copy should not be given to the plaintiff. Mr. Mehta further submitted that the plaintiff being a party to the said MOU is entitled to a copy thereof as his rights flow from the contents thereof and the plaintiff is entitled to take steps to assert and protect his rights and interests. He submitted that the plaintiff cannot be asked to take consent of defendants 1 to 3. 7. Mr. Mehta further submitted that learned Single Judge has made certain observations which he was not called upon to make. He pointed out that learned Single Judge has observed that it is doubtful as to whether the suit itself is maintainable. Learned Single Judge has thereafter, observed that the suit appears to be barred by limitation. Mr. Mehta submitted that these observations were uncalled for and they cause great prejudice to the plaintiff. He submitted that in the circumstances, the impugned order be set aside. 8. Mr. Tulzapurkar, learned senior counsel appearing for the defendants submitted that keeping the documents in escrow has significance. These documents can be released only upon AJN 6 performance of certain agreed conditions. The moment the document is released from escrow, it becomes enforceable in law. He submitted that the said MOU and other documents are kept in escrow pending execution of formal agreement and papers. If the said MOU is released from escrow, the plaintiff will claim that it has become enforceable. Therefore, no such copy can be given to him. On the concept of escrow, he relied on the judgment of learned Single Judge of this court in M/s. Hira Mistan v. Rustom Jamshedji Noble & Ors., 2000(2) ALL MR 618, which was confirmed by the Division Bench of this court in M/s. Hira Mistan v. Tehmina Darabsha Noble in Appeal No.1437 of 1999 in Suit No.677 of 1977 decided on 29/08/2007. Mr. Tulzapurkar submitted that the impugned order merits no interference. 9. In the plaint, the plaintiff has stated that he does not have a copy of the said MOU, and, therefore, he is unable to make a comprehensive statement about the contents thereof. He has craved leave to amend the plaint once the contents of the said MOU are revealed to him. Admittedly, defendant 4 has handed over a copy of the said MOU to EOW in connection with the AJN 7 complaint lodged by defendant 1. Affidavit of Mr. Ramesh V. Somani, defendant 2 indicates that thereafter, he made an application for copy of the said MOU to the EOW and it was furnished to him. He has annexed copy of the said MOU to his affidavit in reply filed in Notice of Motion No.1836 of 2006. Thus, a copy of the said MOU is available on record. Therefore, if the only reason why the plaintiff wants a copy of the said MOU is to amend the plaint, we fail to understand why he is insisting that he must get copy of the said MOU from defendant 4 who is holding it in escrow. 10. The concept of escrow was elucidated by learned Single Judge of this court in M/s. Hira Mistan's case (supra). In that case, the plaintiffs had filed a suit for specific performance of the contract for sale of moveable and immoveable properties. It appears that two agreements were held in escrow. One of the questions which was posed before learned Single Judge was whether the defendants had proved that the said agreements were to be held in escrow and, as such, incapable of being acted upon. In that case, by letter dated 21/9/1976 attorneys of defendants 1 to 10 forwarded the two agreements signed by defendants 1 to 10 to AJN 8 attorneys of the plaintiffs and requested them to forward fresh cheques in the sum of Rs.3,000/- and Rs.68,000/- respectively being earnest money payable under the said two agreements. In that letter, it was averred that the said two agreements were to be held in escrow until the plaintiffs' cheques were encashed. Learned Single Judge discussed the concept of escrow as under: “The second contention is regarding escrow. Escrow would basically fall within proviso 3 to section 92 of the Indian Evidence Act. I may just refer to what some texts say and meaning as to what is meant by escrow. An escrow has been held to be a document deposited with the third person to be delivered to the person purporting to be benefited by it upon the performance of some condition, the fulfillment of which is only to bring the contract into existence. Oral evidence is admissible under this proviso to show that the Deed was executed or delivered conditionally as an escrow. Escrow has also been explained as an intended Deed after sealing and any signature required for execution as a deed, be delivered as an escrow, that is as a simple writing which is not to become the deed of the party expressed to be bound by it until some condition has been performed. Escrow has also been defined to mean that where an instrument is delivered to take effect on the happening of a specified event or upon condition that it is not to be operative until some condition is performed then pending the happening of that event or the performance of the condition the instrument is called an escrow. The doctrine has been applied in India. The earliest case being of the AJN 9 Single Judge of the Calcutta High Court in the case of Ramjibun Serowgy v. Oghore Nath Chatterjee (supra), wherein the learned Judge referred to proviso 3 of section 92 of the Indian Evidence Act.” 11. The said order was challenged in Appeal No.1437 of 1999 (supra). By judgment and order dated 29/8/2007, the Division Bench of this court confirmed the said order and dismissed the appeal. The Division Bench observed that from the letter dated 21/9/1976, it becomes clear that the two agreements were to be held as escrow until the plaintiff's cheques were encashed. The Division Bench observed that admittedly, till that time, the two cheques of Rs.3,000/- and Rs.68,000/- towards earnest money were not given and by the said letter, the attorneys of the plaintiffs were also requested to forward fresh cheques for the said amount. Naturally, it means that the plaintiffs were to forward two cheques of the said amounts to the attorneys of the defendants and then those cheques were to be presented for encashment. The Division Bench observed that till the cheques were actually encashed, the agreements were to be held in escrow and were not to be acted upon. It was further observed that the agreements would become effective only upon the encashment of the cheques and so long as AJN 10 the cheques were not issued and encashed, the agreements had not become final and binding on the defendants. Therefore, it must be held that it was still at the stage of negotiations. It was further observed that the agreements would become concluded and binding only on issuance and encashment of the cheques. 12. If the facts of the present case are considered in the light of the above judgments, we are of the opinion that defendant 4 cannot be directed to give a copy of the said MOU to the plaintiff. As stated by defendant 4 in his letter dated 29/3/2003 addressed by him to the plaintiff, the said MOU and share certificates were deposited with defendant 4 for safe custody in escrow pending execution of the formal agreements and papers. The said MOU was to be kept in escrow until performance of certain conditions or happening of certain events viz. execution of formal agreements and papers. After performance of these conditions, the said MOU was to be handed over to the parties to take effect because once it is released from escrow and handed over to the parties, it would become enforceable. If before the performance of the conditions, the said MOU is handed over to the plaintiff, the said MOU having become enforceable, the plaintiff can file a suit though the AJN 11 conditions are still not complied with. That was not what was contemplated when the said MOU was kept in escrow. Handing over of the said MOU held in escrow, is not as innocuous as it is sought to be made out by learned counsel for the plaintiff. 13. This conclusion of ours is fortified by the fact that learned Single Judge had asked learned counsel for the plaintiff as to whether if he permits the plaintiff to have a copy of the said MOU, the plaintiff would accept the same on the condition that merely by virtue of the said order, the plaintiff would not contend accrual of any right in his favour. Learned counsel for the plaintiff refused to make any such statement on behalf of the plaintiff. During the course of hearing, we have also asked learned counsel for the plaintiff the same question. Learned counsel for the plaintiff expressed his inability to make such a statement. In our opinion, learned Single Judge is, therefore, right in not granting the plaintiff's prayer. 14. So far as the grievance of the plaintiff that learned Single Judge has made some observations which he was not called upon to make and that those observations cause prejudice to the plaintiff AJN 12 is concerned, we feel that this fear is totally baseless. Learned Single Judge has himself expressed that the said observations are prima facie observations but to allay this fear of the plaintiff, we once again make it clear that learned Single Judge's observations that the suit is barred by limitation and that the suit is not maintainable or any other observations touching the merits of the case are merely prima facie observations. 15. In the circumstances, the appeal is dismissed. [SMT. RANJANA DESAI, J.] [K.K. TATED, J.]