IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 19.11.2009 CORAM THE HONOURABLE MRS.JUSTICE PRABHA SRIDEVAN AND THE HONOURABLE MR.JUSTICE M. SATHYANARAYANAN O.S.A.Nos.388, 389 AND 390 OF 2009 and M.P.Nos.1+1+1+2+2 of 2009 EIGHT CAPITAL INDIA (M)LIMITED a Company incorporated under the laws f Mauritius having its registered office at Suite 450, 4th floor, Barkly Wharf East, Le Caudan Waterfront, Port Louis, Mauritius rep by its Power of Attorney Vikram Chachra ... Appellant Vs. 1. WELL KNIT APPARELS PRIVATE LIMITED 25 (Old No.10), College Road Nungambakkam, Chennai-600 006 rep by its Managing Director C.R. Badrinath 2. C.R. Badrinath 3. T.N. Anand Reddy .. Respondents These appeals have been preferred under Order XXXVI Rule 9 of O.S. Rules read with Clause 15 of the Letters Patent against the order made in Application Nos.2177, 2176 of 2009 and O.A.No.496 of 2009 in C.S.No.424 of 2009 dated 8.9.2009 passed by the learned single Judge of this Court. For Appellant : Mr.Krishnan Srinivasan for Mr.A.R. Ramanathan For respondents : Mr.P.S. Raman, SC for Mr.R. Sivaraman J U D G M E N T (Judgment of the Court was delivered by PRABHA SRIDEVAN,J.,) These appeals have been filed against the orders dated 8.9.2009 passed by the learned Single Judge in O.A.No.496 of 2009 and A.Nos.2176 and 2177 of 2009. https://hcservices.ecourts.gov.in/hcservices/ 2. At the time of admission, the learned senior counsel for the respondents took notice as caveator and we have heard Mr.Krishnan Srinivasan for Mr.A.R. Ramanathan and Mr.P.S. Raman, learned senior counsel for the caveator. 3. The suit has been filed for recovery of a sum of Rs.4,04,26,095/-. According to to the appellant, the respondents had vitiated the provisions of the Master Facility Agreement, dated 21.5.2007 and therefore, they have filed three applications. 4. O.A.No.496 of 2009 was filed for grant of an ad interim injunction restraining the respondents their officers, members, servants and agents and any person or any staff acting at their behest from in any way alienating the Schedule mentioned "A" and "B" properties. 5. A.No.2176 of 2009 was filed to direct the respondents to create a charge over the schedule "A" and "B" properties in favour of the appellant by executing a Mortgage and causing the Registration of the same. 6. A.No.2177 of 2009 was filed to direct the respondents to deposit into this Court the sale proceeds realised from sale of fixed assets of the 1st respondent, if any that have been sold by them without the consent of the appellant and in violation of the provisions of the Master Facility Agreement dated 21.5.2007. 7. A schedule properties are the plant and machineries at MEPZ- SEZ Chennai and B Schedule properties are the buildings in Plot Nos.A.11, A.12, A.13 and A.14 in Phase II Chennai MEPZ-SEZ described in detail B schedule of the plan. 8. When the matter came up before the learned Single Judge, an undertaking was given that "B" schedule property will not be alienated pending further orders. As regards A schedule property, it was submitted that despite serious efforts, machineries situated in Chennai MEPZ-SEZ remain unsold, while the machineries situated at Vizag-SEZ have been sold and the sale process was on and the money is yet to be realised. Thereafter, final orders have been passed, which is challenged in the present original side appeals. 9. According to the learned counsel for the appellant, as per Master Facility Agreement inter-alia the respondent must register and first charge on the fixed assets of the Company in favour of the appellant, the respondent cannot transfer or sell any assets, but these are violated. 10. One of the main contentions of the respondents is that after Master Facility Agreement was entered into, since there was a recession in global business environment, parties entered into what is known as term sheet in order to pay off the dues to the investors. According to the respondents, this was in supersession or in https://hcservices.ecourts.gov.in/hcservices/ modification of the Master Facility Agreement. Though the term sheet is valid for 60 days, the overall agreement must be looked into. And the reading of the term sheet dated 23.12.2008 would be clear that the intention of the parties was to close down the business and maximize the realizable value of the Company. 11. It is submitted by the learned senior counsel for the respondents that as per the terms of the term sheet, a New Company would be established owned by appellant and respondent in an 80%, 20% ratio. So the appellant would get ownership of the building in that ratio. It was also submitted that a Bank had first charge over the assets. To honour the commitment made to the appellant, the respondents made efforts to bring in their private funds from the family members to discharge the first charge to the bank. It was also submitted that there was no intention to violate any agreement and that the relationship between the parties at present is governed by the terms and conditions of the term sheet. It was also submitted that from the sale proceeds of the moveable property at Visakhapatnam, they have discharged their statutory dues and no amount has been diverted towards personal account. 12. The learned counsel appearing for the appellant would submit that if the accounts of the respondent is looked at it would be seen the appellant's name does not appear in the creditors' list and no charge is registered in favour of the appellant, then the appellant has to rank as one of the unsecured creditors, which means that the settlement of his dues will be postponed. This was understood by the parties, that is why the term sheet has a limited existence i.e., it is valid only for 60 days. 13. The learned single Judge had come to a conclusion that the appellant has made out a prima-facie case and therefore granted injunction in respect of "B" property. However, the application for creation of charge over "A" and "B" schedule property by executing a mortgage was not granted in view of injunction. 14. The learned counsel for the appellant submits that while the order of injunction may secure their interest to an extent if a charge is not created over the property in the appellant's favour, the question of priority of dues becomes relevant, the appellant would then have to take a back seat. The respondent has no objection to a charge being created in favour of the appellant in respect of "B" schedule property. 15. In these circumstances, we set aside the order passed by the learned Single Judge in Application No. 2176 of 2009 in C.S.No.424 of 2009, and we direct that the charge shall be created over "B" schedule property in favour of the appellant within a period of four weeks from the date of receipt of copy of this order and the expenses shall be borne by the appellant. 16. As regard the moveables at Chennai MEPZ-SEZ, which is a part of the "A" schedule property, the respondent shall approach this https://hcservices.ecourts.gov.in/hcservices/ Court before selling the property. At that time, the appellant will have an opportunity to be heard and therefore, the appellant's interest will be safeguarded. 17. As regards the Moveables at VIZAG-SEZ, we are informed that almost 95% of the sale proceeds have already been received and therefore, no directions are given in this regard. 18. Therefore, the appeals are disposed of as follows: a) A charge shall be created in respect of "B" schedule property as per direction issued in para 15 above. b) No orders are passed in regard to VIZAG-SEZ movable as dealt in detail in para 17 above. c) the respondent shall obtain orders from the Court before selling Chennai MEPZ-SEZ movables as per para 16 above. No costs. Consequently, connected MPs are closed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar sr To The Sub Assistant Registrar (Original Side) High Court, Chennai + One cc to Mr.R.Sivaraman, Advocate, (SR 62777) + 2 ccs to Mr.A.R.Ramanathan, Advocate, SR 62759 O.S.A.Nos.388,389 & 390 OF 2009 VSV (CO) RH (30.11.09) https://hcservices.ecourts.gov.in/hcservices/