1 CRA 38 of 10 with AO No. 22 of 10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE, BENCH AT AURANGABAD CIVIL REVISION APPLICATION NO. 38 OF 2010 Garware Polyester Limited, Represented by its Vice President, Mr. V.N. Nandapurkar Having its Registered Office at Naigaon, Post Waluj, Dist. Aurangabad 431333. Maharashtra. Applicant (Orig. Defendant No.1) V E R S U S 1) Spinnaker Global Opportunity Fund, having its registered office at C/o Maples Finance BVI Limited, Sea Meadow House, P.O. Box 173 Road Town, Tortola, British Virgin Islands represented through its authorized Signatory, Mr. Tarun Gandhi, Residing at 29, Leonine Hill, Horizon Towner West, # 12-04, Singapore – 239228 2) Spinnaker Global Emerging Fund, having its registered office at C/o Maples finance BVI Limited, sea Meadow House, P.O. Box 173 Road Town, Tortola, British Virgin Islands represented through its authorized Signatory, Mr. Tarun Gandhi, Residing at 29, Leonine Hill, Horizon Towner West, # 12-04, Singapore – 239228 3) Spinnaker Global Strategic Fund, having its registered office at C/o Maples finance BVI Limited, sea Meadow House, P.O. Box 173 Road Town, Tortola, British Virgin Islands represented through its authorized Respondent No. 1 (Orig. Plaintiff No. 1) Respondent No. 2 (Orig. Plaintiff No. 2) 2 CRA 38 of 10 with AO No. 22 of 10 Signatory, Mr. Tarun Gandhi, Residing at 29, Leonine Hill, Horizon Towner West, # 12-04, Singapore – 239228 4) Naigaon Chemicals Private Limited, having its office at Naigaon, Post Waluj, Aurangabad – 431 333 Maharashtra. 5) Via Investments Consultants Private, having its office at Naigon, Post Waluj, Aurangabad – 431 333 Maharashtra Respondent No. 3 (Ori. Plaintiff No. 3) Respondent No. 4 (Ori. Defendant No. 2) Respondent No. 5 (Ori. Defendant No. 3) Mr. V.J. Dixit, Sr. Counsel, I/b Mr. D.L. Vakil, Advocate for Applicant Mr. P.M. Shah, Sr. Counsel, i/b Mr. K.C. Sant, Advocate for the Respondent Nos. 1 & 3 Mr. A.J.Bhat, Advocate for respondent No. 4 Mr. N.V. Mande, Advocate for respondent No. 5 WITH APPEAL FROM ORDER NO. 22 OF 2010 with CIVIL APPLICATION NO. 2102 OF 2010 1) Spinnaker Global Opportunity Fund Limited, having its registered office at C/o. Maples Finance BVI Limited, Sea Meadow House, P.O. Box 173 Road Town, Tortola, British Virgin Islands 2) Spinnaker Global Emerging Markets Fund Limited having its registered office at C/o Maples Finance BVI Limited, Sea Meadow 3 CRA 38 of 10 with AO No. 22 of 10 House, P.O. Box 173 Road Town, Tortola, British Virgin Islands 3) Spinnaker Global Strategic Fund Limited, having its registered office at C/o Maples Finance BVI Limited, Sea Meadow House, P.O. Box 173 Road Town, Tortola, British Virgin Islands Appellants (Orig. Plaintiffs) V E R S U S 1) Garware Polyester Limited, having its Registered Office at Naigaon, Post Waluj, Dist. Aurangabad 431 133. Maharashtra. 2) Naigaon Chemicals Private Limited, having its office at Naigaon, Post Waluj, Aurangabad – 431 133 Maharashtra. 3) Via Investments Consultants Private, having its office at Naigon, Post Waluj, Aurangabad – 431 133 Maharashtra Respondents (Orig. Defendants) Mr. P.M. Shah, Sr. Counsel, i/b Mr. K.C. Sant, Advocate for the appellants Mr. V.J. Dixit, Sr. Counsel, I/b Mr. D.L. Vakil, Advocate for respondent No. 1 Mr. A.J. Bhat, Advocate for respondent No. 2 Mr. N.V. Mande, Advocate for respondent No. 3 CORAM : A.V. NIRGUDE, J. Reserved on 21st February, 2011. Pronounced on 23rd February, 2011 JUDGMENT : 1. Both these matters can be decided by this common Judgment. I 4 CRA 38 of 10 with AO No. 22 of 10 would refer the parties by their designation in the Trial Court. 2. The Plaintiff companies are investing funds. The defendant No. 1 is a company engaged in business of producing and exporting polyester film. The defendant Nos. 2 & 3 are also companies. The defendants are promoters of one Garware Chemical Limited (henceforth be referred as “ GCL”) which is also in business of manufacturing D.M.T. and bio-diesel. GCL has been declared as Relief Undertaking by the Government of Maharashtra, vide its notification since 2001. 3. As said above, the defendant companies are the promoter companies of GCL. Vide an agreement dated 23rd September, 2006, executed between the Plaintiff companies, the defendants and the GCL, the Plaintiff companies agreed to provide funds to GCL by acquiring convertible debentures of GCL, and accordingly, they acquired 80 lakh convertible debentures of face value of Rs. 100/-, investing an amount of Rs. 80,00.000,00 (Rs. Eighty Crore). The agreement inter-alia provided that the GCL will partly convert the debentures into equity shares, and pay interest on the remaining amount at certain rate at every quarter. The Plaintiff companies made the investment mainly with a hope and upon the representation that the Minimum Support Price of bio-diesel which was prevalent in January 2007, would be revised by the Government of India and would be increased substantially. The Plaintiff companies thus, were convinced that the funds would yield good results. 4 However, by October 2007, it was revealed to the Plaintiff companies that the revision in the Minimum Support Price of the bio- diesel, the product of GCL, could not be increased. The Plaintiff companies therefore, demanded the quarterly interest on the amount lent through debentures, and also asked for redemption of 10% 5 CRA 38 of 10 with AO No. 22 of 10 debentures amount, as agreed between the parties through the agreement. The GCL however, did not repay the amount. Soon thereafter, the Plaintiff companies decided to withdraw their investment from the GCL, and sought to exercise their right under the agreement for redemption of the debenture amount. The Plaintiff companies also made this clear to the defendants-the promoter companies of GCL; but in vain. So, the Plaintiffs companies decided to take legal action against the defaulters. 5 The Plaintiff companies learn that the Government of Maharashtra vide notification dated 29th April, 2008, for a period of one year declared the GCL as Relief Undertaking under the provisions of Bombay Relief Undertaking (Special Provisions) Act, 1958. (Henceforth be referred as “BRU Act”), and in view of the notification they deferred the action against the GCL, but filed the present suit against the defendants. Since they are the guarantors and indemnifiers of the GCL, the Plaintiff companies moved an application for temporary injunction for preventing the defendant companies from disposing of their assets. This application was marked at Exhibit-5 in the lower Court and the learned Judge of the lower Court rejected the same. 6 On the other hand, the defendants vide Exhibit-11 filed an application under Order 7 Rule 11 of Civil Procedure Code, and sought rejection of the plaint. In the alternative, sought stay to the proceeding at least as against the defendant No. 1. They pointed out that even the defendant No. 1 company was declared as Relief Undertaking under the provisions of BRU Act, since prior to 2007. They further pointed out that the Government of Maharashtra had granted financial assistance to the defendant No. 1. They stated that in view of the notification and the provisions of BRU Act, present suit 6 CRA 38 of 10 with AO No. 22 of 10 is not maintainable as against the defendant No. 1. The defendant No. 2 took up a stand that the Plaintiff companies delayed their action and are guilty of latches. They further contended that as per the agreement, the Plaintiff companies had an opportunity to exercise their right for redeeming the debenture amount only till 31st July, 2007. The defendant No. 3 asserted in their reply that the Plaintiff / companies earlier to filing of the suit has conceded that the contract was frustrated because raising of Maximum Support Price of bio- diesel has become impossible. 7 The learned Judge of the Trial Court held that the plaint cannot be rejected or even in the alternative, the proceedings in the suit cannot be suspended as against the defendant No. 1. He further held that the Plaintiff companies failed to make out a case for temporary injunction which they sought against the defendants. 8 After hearing the submissions of the learned Advocates for the parties, following questions arose for my consideration : 1] Whether the notification issued under Section 3 of the BRU Act would prevent the Plaintiff companies from filing of the suit as against the defendant No. 1? 2] If the Plaintiff companies are unable to sue the principal debtor the GCL, are they also prevented from suing the defendant Nos. 2 & 3 as the guarantors or indemnifiers? 3] Whether the plaintiffs make out a prima facie case for temporary injunction? This suit is filed on 23rd October, 2008, admittedly though GCL was necessary party they are not sued because a notification under Section 3 of the BRU Act was issued on 29th April 2008, for a period of one year, and so on the date of filing of the suit the notification was in force. The relevant part of this notification reads as under :- 7 CRA 38 of 10 with AO No. 22 of 10 “ No. BRU 2008/CR-269/08/Ind10.- In exercise of the powers conferred by sub-Section (1) of Section 3 and Sub clause (iv) of clause (a) of sub-section (1) of Section 4 of the Bombay Relief Undertakings (Special Provisions) Act, 1958 (Bom.X CVI of 1958), the Government of Maharashtra hereby-- (a) declares that the industrial undertaking called “Messers GARWARE CHEMICALS LIMITED” having its registered office at Naigaon, Post Waluj, Aurangabad 431 133 and corporate office at Garware House, 50-A, Swami Nityanand Marg, Vile Parle (East), Mumbai 400 057 (hereinafter referred to as “the said relief undertaking”), to which financial assistance of Rs. 87,62,00,000 (Rupees Eighty seven crores sixty two lakhs only) has been provided by the Government of Maharashtra under the package Scheme of Incentives, though the State Industrial Investment Corporation of Maharashtra Limited, shall for a period of one year commencing on the 29th April 2008 and ending on the 28th April 2009 (both days inclusive), be conducted to serve as a measure of preventing unemployment; and (b) directs that, in relation to the said relief undertaking and in respect of the said period of one year commencing on 29th April 2008 and ending on 28th April 2009 (both days inclusive), for which the said relief undertaking continues as such, any right, privilege, obligation or liability (except the obligations or liabilities incurred in favour of workmen of the said relief undertaking, the dues of Employees’ State Insurance Corporation and any liabilities incurred under the Maharashtra Value Added Tax Act, 2002 (Mah. IX of 2005), the Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 (Mah. XVI of 1975), the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952) and the Maharashtra Land Revenue Code, 1966 (Mah. XLI of 1966), accrued or incurred before the 29th April 2008 and any remedy for the enforcement thereof shall be suspended and all proceedings relating thereto pending before any court, tribunal, officer or authority, shall be stayed. This notification has been quoted in the plaint and the Plaintiff companies admitted that they are unable to sue GCL, in view of the notification. It appears that on the date of filing of the suit the Plaintiff companies were unaware of the fact that even the defendant No. 1 was declared as Relief Undertaking under Section 3 of the BRU Act, and as on the date of filing of the suit, the notification even in respect of the defendant No. 1 was in force. It is because of their ignorance of this fact, it prima facie seems, that they filed this suit against the 8 CRA 38 of 10 with AO No. 22 of 10 defendant No. 1. Hence, the answer to question No. 1 is in negative. The first and foremost reason for this conclusion is that the plaintiff companies are aware that if their debtor is a Relief Undertaking their right to sue itself stood suspended. Under this clear belief, they rightly avoided making the GCL a party to the suit, though apparently the said company is the principal debtor, and who had committed default in payment of interest etc. Admittedly, the defendant No. 1 has guaranteed the performance of the contract and has expressly indemnified the plaintiff companies, in case the principal debtor the GCL committed a default. On the basis of the default committed by the principal debtor, the suit is filed against the guarantors. But if one of the guarantors, the defendant No. 1 is also a Relief Undertaking, as on the date of filing of the suit, the suit could not have been filed against it. Despite this clear position, the learned Advocate appearing for the plaintiff companies made extensive submissions to justify as to how the suit is not only maintainable as against the Relief Undertaking - the defendant No. 1- but even asserted that the notification and the provisions of the BRU Act will not affect the plaintiff companies. In order to appreciate his submissions one has to read the provisions of Bombay Relief Undertaking (Special Provisions) Act, 1958. The relevant provisions of Section 3 & 4 of the BRU Act, reads as under :- “.3. (1) If at any time it appears to the State Government necessary to do so. the State Government may. by notification in the Official Gazette, declare that an industrial undertaking specified in the notification whether started. acquired or otherwise taken Over by the State Government, and carried on or proposed to be carried on by itself or under its authority. or to which any loan. guarantee or other financial assistance has been provided by the State Government shall, with effect 9 CRA 38 of 10 with AO No. 22 of 10 from the date specified for the purpose in tile notification, be conducted to serve as a measure of preventing unemployment or of unemployment relief and the undertaking shall accordingly be deemed to be a relief undertaking for the purposes of this Act. ” (2) A notification under sub-section (1) shall have effect for such period not exceeding twelve months as may be specified in the notification; but it shall be renewable by like notifications from time to time for further periods not exceeding twelve months at a time, so however that all the periods in the aggregate do not exceed fifteen years. 4. (l) Notwithstanding any law, usage, custom, contract, instrument, decree, order, award, submission, settlement, standing order or other provision whatsoever, the State Government may, by Notification in the Official Gazette, direct that - ( a) in relation to any relief undertaking and in respect of the period for facilities which the relief undertaking continues as such under sub-section (2) of section 3- (i) all or any of the laws in the Schedule to this Act or any provisions thereof shall not apply (and such relief undertaking shall be exempt therefrom), or shall, if so directed by the State Government, be applied with such modifications (which do not however affect the policy of the said laws) as may be specified in the notification; (ii) all or any of the agreements, settlements. awards or standing orders made under any of the laws in the Schedule to this Act, which may be applicable to the undertaking immediately before it was acquired or taken over by the State Government [or before any loan, guarantee or other financial assistance was provided to it by, or with the approval of, the State Government,] for being run as a relief undertaking, shall be suspended in operation or, shall. if so directed by the State Government, be applied with such modifications as may be specified in the notification; (iii) rights, privileges,obligations and liabilities shall be determined and be enforceable in accordance with clauses (i) and (ii) and the notification; (iv)any right, privilege, obligation or liability accrued or incurred before the undertaking was declared a relief undertaking and any remedy for the enforcement thereof shall be suspended and all proceedings relative thereto pending before any court, tribunal, officer or authority shall be stayed;” 10 CRA 38 of 10 with AO No. 22 of 10 6. Shri P.M. Shah, learned Sr. Counsel appearing for the plaintiff / companies made following submissions : A] That the above mentioned provisions are made predominantly for protecting the workers from getting laid off and to prevent unemployment. He further contended that the provisions mainly cover the workers as well as the employer from the rigorous provisions of 'industrial relations'. In support of his contention he asserted that the BRU Act was made pursuant to the entry No. 23 of Schedule 7 of the Constitution. He then placed reliance on the statement of object and reasons made in enacting the BRU Act. He quoted following passage of object and reasons:- “ In order to mitigate the hardship that may be caused to the workers who may be thrown out of employment by the closure of an undertaking. Government may have to take over such undertaking either an lease or on such conditions as may be deemed suitable and run it as a measure of unemployment relief. As in such cases Government may have to fix revised terms of employment of the workers or to make certain other changes it was proposed to exclude such an undertaking, from the operation of certain labour laws or any specified provisions thereof. It was also proposed to make a provision that the rights and liabilities of the original employer and workmen which might remain suspended during the period the undertaking is run by Government, would revive and become enforceable as soon as the undertaking ceases to be under the control of Government ” B] He pointed out that Section 4 of the BRU Act is a complete code by itself and sub clause (iv) of sub clause 1 of Section 4 cannot be read in isolation. In other words, he argued that the case of the plaintiff companies who are the creditors of a Relief Undertaking is not affected by the declaration. In order to support this 11 CRA 38 of 10 with AO No. 22 of 10 contention, he mainly placed reliance on the judgment of this Court, in the case of “Suyoday Allo-Metal Powders Ltd. Vs. Senior Intelligence Officer & another”. According to Shri Shah the ratio laid down in this Judgment has not been disturbed by any other judgment either by this Court or by another High Court or by the Supreme court. The facts of that case in short has been narrated as under. The plaintiff companies filed a suit seeking declaration that the Director General of Intelligence, Central Excise, Pune should be restrained permanently from instituting recovery proceeding for recovery of excise duty allegedly evaded by the Company. The plaintiff Company contended that they were declared as Relief Undertaking and so they are protected from the threatened action of recovery of excise duty. The learned Single Judge of this Court rejected this argument, holding that sub clause (iv) of sub section 4 of the Act would not be applicable to the liabilities arising from the central excise. The learned Judge has observed as under :- “ In order to reach this conclusion one has to read the preamble of the statute which contained the recitals showing the reasons for the enactment of the Act. The preamble of the Act lays down that in order to mitigate the hardship that may be caused to the workers who may be thrown out of employment by the closure of an undertaking. Government may have to take over such undertaking either on lease or on such conditions as may be deemed suitable and run it as a measure of unemployment relief. As in such cases Government may have to fix revised terms of employment of the workers or to make certain labour laws or any liabilities of the original employer and workmen which might remain suspended during the period the undertaking is run by Government, would revive and become enforceable as soon as the undertaking ceases to be under the control of Government. Therefore, by no stretch of imagination the 12 CRA 38 of 10 with AO No. 22 of 10 proceedings initiated under the Central Excise legislation can be brought within the purview of the provisions of the said Act.” 7 The learned Judge further discussed the provisions of Section 4, especially the scheme of Section 4 and interpreted the provisions as under :- “ Sub clause (iv) cannot be read in isolation. Sub clause (iv) has to be read along with sub clauses (i), (ii), and (iii). Sub-clause (i) contemplates that all or any of the laws in the Schedule to this Act or any provisions thereof shall not apply and such relief undertaking shall be exempt from the operation of the laws enunciated therein. Sub-clause (ii) contemplates that all or any of the agreements, settlements, awards or standing orders made under any of the laws mentioned in the Schedule to the Act, which may be applicable to the undertaking immediately before it was acquired or taking over by the State Government for being run as a relief undertaking, shall be suspended in operation or shall, if so directed by the State Government, be applied with such modifications as may be specified in the notification. Sub clause (iii) lays down that rights, privileges, obligations and liabilities shall be determined and be enforceable in accordance with clause (i) and (ii) and the notification. Sub clause (iv) lays down that any right, privilege, obligation or liability accrued or incurred before the undertaking was declared a relief undertaking and any remedy for the enforcement thereof shall be suspended and all proceedings relative thereto pending before any court, tribunal officer or authority shall be stayed. Thus what is to be suspended or stayed has a reference to the proceedings in relation to items referred in sub clauses (i) and (ii) of Section 4(1) (a), as such sub clause (iv), cannot be read in isolation. Section 4 is complete code by itself.(emphasis supplied)” 8 Shri Shah, learned Senior Counsel particularly placed reliance on the under lined portion of the above quoted paragraph of the Judgment, and asserted that the word in sub clause (iv) right, 13 CRA 38 of 10 with AO No. 22 of 10 privilege, obligation or liability accrued or incurred has to have direct nexus to 'industrial relations' of the Relief Undertaking. This submission is based on the above quoted paragraph of the judgment in the case of Suyoday Allo-Metal Powders Ltd. . The question therefore is whether sub clause (iv) also deals with right, privilege, obligation and liability between a Relief Undertaking and its creditor? In this regard one must refer to Judgment of the Supreme Court in the case of “ Doburg Lager Breweries Pvt. Ltd. V/s. Dhariwal Bottle Trading Co. & another, reported in (1986) 2 SCC 382”. Although the question before the Supreme Court was not similar to the present case, following paragraph of this Judgment would throw sufficient light on the question : “ It may also be noticed that a distinction has been made in the Act between cases falling under sub-clause (ii) of clause (a) of sub-section (1) of section 4 of the Act and cases falling under sub-clause (iv) of clause (a) of sub-section (1) of section 4 of the Act. Sub-clause (ii) of section 4(1)(a) of the Act refers to the agreements, settlements, awards, standing orders made under the several labour laws mentioned under the Schedule to the Act and states that agreements etc. which may be applicable to a relief undertaking before it was acquired or taken over by the State Government or before any loan, guarantee or other financial assistance was provided to it by or with the approval of the State Government for being run as a relief undertaking may be suspended in operation or shall, if so directed by the State Government be applied with such modifications as may be specified in the