1 MNM IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO. 1863 OF 2008 IN SUIT NO. 1628 OF 2008 Nusli Neville Wadia ...Plaintiff Vs. Ferani Hotels Private Limited & Ors. ...Defendants Mr.Ravi Kadam, Adv. General with Mr. N.H. Seervai, Sr. Counsel with Mr. V. R. Dhond with Mr. Rohan Kelkar with Mr. Shrikant Doijode with Mr. P.A. Kabadi i/b. Doijode Associates for Plaintiff Mr. Janak Dwarkadas, Sr. Counsel with Mr. T. Subramaniam, Sr. Counsel with Mr. Zubin Behramkamdin with Mr. Vivek Joshi i/b. Bharucha and Partners for Defendant No.1. Mr. Pesi N. Mody with Mr. Mayur Khandeparkar with Mr. R.R. Bhosale i/b. Mahimtura & Co., for Defendants 2,3 and 4. Mr. S.G. Aney, Sr. Counsel with Ms. Kashmira Bharucha i/b. K.D. Abhichandani for Defendants 5 and 6 Mr. Nitin Thakkar with Mr. N.K. Mudnaney for Defendants 10,13,19, 20,21,22,24 & 31. Mr. S.U. Kamdar, Sr. Counsel with Mr. Rajesh Vaidya i/b. A.R. Vaidya & Co., for Defendants 12,16,38 to 48,25,26 & 27. Mr. Jitendra Jain i/b. Prakash & Co., for Defendants 8,9,11,14,15, 17,18,23,28,29,30,34 to 37 and 49. 2 CORAM : SMT. ROSHAN DALVI, J. Date of reserving for Order : 24th June 2010 Date of pronouncing the order : 19th July 2010 O R D E R : 1. The Plaintiff as the Administrator of the estate of one E.F. Dinshaw, has sued for declaring that an agreement and power of attorney dated 2nd January 1995 is vitiated by fraud of Defendants 1 to 4 and accordingly terminated with effect from 12th May 2008 and for various other ancillary reliefs of declaration that second negotiation letters/MOUs/agreements have been revoked by the Plaintiff, for injunctions restraining Defendant No.1 from carrying on any further construction on the properties forming the estate administrated by the Plaintiff to demolish and remove certain constructions and for damages of compensation of Rs.1370.06 crores with interest thereon. 2. This Notice of Motion is for injunction restraining the Defendants from acting upon the power of attorney dated 2nd January 1995, from alienating, encumbering, parting with possession, transferring or creating any 3rd party rights by using licence or recovering any rent, licence fee or compensation in respect of the suit premises and for an appointment of Court Receiver. 3. The agreement dated 2nd January 1995 between the Plaintiff and Defendant No.1 is for appointing Defendant No.1 as the Project 3 Coordinator of the entire estate in which a number of buildings constituting a township was to be constructed and upon the sale of which 12% of the sale price was to be given to the Plaintiff under clause 12 (a) of the agreement. 4. Under Clause 12(c) this amount payable would remain unchanged even if there was escalation in the cost of development of the project and even if the development work was increased or decreased subject to a minimum share of Rs.75 crores. 5. Under Clause 16(a) of the contract neither party was entitled to terminate it until the development project was completed. 6. Under Clause 16(e) possession of the constructed flats were to be given to the flat purchasers only after ensuring the 12% payment to the Plaintiff. 7. Under Clause 16(f) the Defendant was to furnish the statement of account every month to the Plaintiff showing the 12% share of the Plaintiff being paid and deposited in the Designated Bank Account. Simultaneously Defendant No.1 was to is receive its 88% share. 8. Under Clause 16(g) there was to be a periodic audit every 6 months in that behalf. 9. The agreement was entered into in 1995.The work of actual 4 construction started in the year 2000. 10.It has been the Plaintiff’s case that though he has been paid certain amounts as his 12% share, the entire amounts are not paid due to fraudulent acts on the part of the Defendant No.1 in collusion with the other Defendants, the particulars of which are given in the plaint under 4 separate heads. 11.The Plaintiff is stated to have learnt of the fraud of Defendants which unfolded from time to time by various acts. (i) Transactions with family members/nominees/related companies: The first act of fraud stated by the Plaintiff is essentially that the Defendant No.1 sold flats not to bonafide 3rd parties but to companies floated by itself as its nominees called “internal companies” immediately prior to the dates of the transactions. Under such contracts Defendant No.1 received only 15% advance of the purchase price out of which the Plaintiff’s 12% share was paid. The balance 85% was kept outstanding so that the Plaintiff could not be paid the same. It is not known whether by now upon the completion of contract or the execution of the documents with the flat purchasers, the remaining 85% of the amount was received by the Defendants from which also the Plaintiff was paid or not paid his 12% share. It is however, admitted that further amounts, as and when they become due and payable would be paid to the Plaintiff in terms of the Agreement. 5 12.The Plaintiff had taken exception by his letters dated 16th May 2000 and 23rd April 2002 to the sale by Defendant No.1 to other Defendants as being the sale not to genuine 3rd parties but to its own “internal companies”. The sale was shown at Rs.1510/- per sq. ft., of area. The Plaintiff was paid 12% of the sale price of that rate. Upon the Plaintiff suspecting that it was not a genuine sale the Plaintiff had informed his Auditors to verify. Defendant No.1 by its letters dated 9th June 2000 and 2nd May 2002 had insisted that it was a genuine sale though it was made to its sister concern at the price of Rs.1510/- per sq. ft. which was the same price for 56 similar flats and offered for sale to 56 other flat purchasers at the same rate. 13.These transactions are for nonresidential buildings Interface 7, Interface 11, Interface 16, Palm Spring Centre, Palm Court M and Unique Commercial Complex. The purchasers who are alleged to be related parties have been made party Defendants to the Suit. The names of these parties is rather intriguing and such names itself would betray the relationship between those purchasers and Defendant No.1 or its Directors. There are atleast 25 “Leasing and Infotech Companies”. They are all private limited companies. Only the first name of these companies is different. Some of these companies have entered into more than one transaction. They are: 1. Tamoin Leasing & Infotech Pvt. Ltd., 2. Rosette Leasing & Infotech Pvt. Ltd., 6 3. Oak Leasing & Infotech Pvt. Ltd., 4. Upright Leasing & Infotech Pvt. Ltd., 5. Nascerit Leasing & Infotech Pvt. Ltd., 6. Loran Leasing & Infotech Pvt. Ltd., 7. Solitare Leasing & Infotech Pvt. Ltd., 8. Wily Leasing & Infotech Pvt. Ltd., 9. Praline Leasing & Infotech Pvt. Ltd., 10.Valencia Leasing & Infotech Pvt. Ltd., 11.Majolica Leasing & Infotech Pvt. Ltd., 12.Denis Leasing & Infotech Pvt. Ltd., 13.Dorain Leasing & Infotech Pvt. Ltd., 14.Comet Leasing & Infotech Pvt. Ltd., 15.Archangel Leasing & Infotech Pvt. Ltd., 16.Becon Leasing & Infotech Pvt. Ltd., 17.Xeon Leasing & Infotech P. Ltd., 18.Zeta Leaasing & Infotech P. Ltd., 19.Enshrine Leasing & Infotech Pvt. Ltd., 20.Finite Leasing & Infotech Pvt. Ltd.. 14.These are companies which have entered into transactions with Defendant No.1 in March 2003, April 2003, March 2004, January and February 2005. All these companies have entered into transactions almost at the end of the financial years. 15.In later years i.e., in July to December 2005 and in March 2006 there are other companies in the group of “Infotech and Leasing”. These are 7 also private limited companies. The first words in these companies alone are different. They are: 1. Vinaso Infotech & Leasing Pvt. Ltd., 2.Mhl Infotech & Leasing Pvt. Ltd., 3.Nephrite Infotech & Leasing Pvt. Ltd., 4.Krypton Infotech & Leasing Pvt. Ltd., 5.Quince Infotech & Leasing Pvt. Ltd. and 6.Palazzo Infotech & Leasing Pvt. Ltd.. 16.A third group of such companies are “Traders”. These are also private limited companies having the first word of their name alone different. These are: 1. Gamin Traders Pvt. Ltd., 2. Instant Pvt. Ltd, 3.Halite Traders Pvt. Ltd., 4. Fair Price Traders (India) Pvt. Ltd., 5. Ken Traders Pvt. Ltd., 6. Dahila Traders Pvt. Ltd., 7. Believue Traders Pvt. Ltd., 8. Calendula Traders Pvt. Ltd., 9. Envision Traders Pvt. Ltd., and 10. Jade Traders Pvt. Ltd. 17.All these companies have had transactions in March and April 2005. 8 18.Following upon these another group of companies who have transacted with Defendant No.1 are “Trading and Leasing” Companies. These are also private limited companies having only the first word in their names different. These are: 1. Nautilus Trading & Leasing Pvt. Ltd., 2. Quince Infotech & Leasing Pvt. Ltd., 3. Palazzo Infotech & Leasing Pvt. Ltd., and 4. Rhodium Trading & Leasing Pvt. Ltd.. 19.The transactions with all of them are on 28th March 2006 and 29th March 2006. 20.The other transactions are with Snehratna Technologies and Infotech Pvt. Ltd., and Mahindralal Leasing Pvt. Ltd. - both transacted on 28th March 2006. 21.It would be too much of a coincidence that as many as 40 companies would be incorporated independently of one another as Leasing and Infotech Companies, Infotech and Leasing Companies, Trading Companies and Trading and Leasing Companies and Infotech and Trading Companies. It would also too much of coincidence that several of such companies would negotiate independently with Defendant No. 1 on specified dates - 13th March 2003, 24th March 2003, 4th April 2003, end of March 2004, 6th January 2005 or 28th March 2006 etc.. 9 22.Indeed there are several other 3rd parties with whom also several transactions have been entered into. They are bound to be. Defendant No.1 is a reputed developer. When the development work commences or is being developed certain independent outsiders are bound to transact with the Defendant No.1. Those transactions have indeed been entered into, but are only for building called Palm Spring Center. Two of these parties are in Palm Court M. There is not a single stranger or an independent 3rd party in Interface 7, Interface 11 or Interface 16. 23.The Plaintiff has rightly distinguished these contracts. The Plaintiff has alleged fraud only in respect of certain companies which are by their very name shown to be of a group who have entered into transactions with Defendant No.1. 24.It is upon the neat columnar statement prepared by the Defendants that these names have become distinct as against the building in which the units or shops are sold. 25.The Plaintiff has contended that these companies have been incorporated days before the respective transactions. The paid up share capital of these companies is only Rs. 1 lakh. The subscribers to the memorandum are related to the Directors of Defendant No.1 etc. Several of these companies have taken unsecured loans from a partnership firm, Defendant No.7 in which one of the partners is Palm Grove Beach Hotels Pvt. Ltd., which is stated to be the company of the 10 main Director of Defendant No.1. This Company, Palm Grove Beach Hotels Pvt. Ltd., Defendant No.6 in the Suit, has transacted for a large area of 152154 sq. ft. in another building Unique Commercial Complex on 2nd April 2005. On the same date one Unique Estates Development Company Ltd., Defendant No.5 has also entered into a contract for a yet larger premises of 591145 sq. ft. of built up area in Unique Commercial Complex. These appear to be the only 2 parties which have transacted for large space in one building, Unique Commercial Complex. 26.These parties are admittedly related parties as seen from the report of the Auditors C.C. Chokshi and Company sent under cover of their letter dated 6th October 2005 showing the information provided by Defendant No.1 that all the flats, units, car parkings have been sold to parties who are not related parties or Society/associate concerns except Unique Commercial Complex which has been sold to the aforesaid two parties. 27.It is argued on behalf of the Defendant that out of 1600 flats/shops to be constructed in the entire project of development of a township only about 40 transactions are shown to be of this nature. It is however seen that the Plaintiff has had some reason to suspect fraud by parties who seemed to have been got up parties as is shown in the case of the aforesaid 40 parties. 28.It is sought to be shown by the Defendants that the rate at which the 11 parties who are alleged to be fraudulently put up have transacted with Defendant No.1 is almost the same as that of the other independent 3rd parties who are strangers to Defendant No.1 and hence there can be no case of fraud even assuming that those parties are related to the Directors of Defendant No.1. This may be one of the tests of ascertaining fraud. It may however be an oversimplification of a conduct of the deceit, if these parties, who are primafacie shown to be nominees of the Defendant No.1 upon the aforesaid rather striking features of their transactions, in turn enter into contracts with any other parties prior to or upon the completion of the development of the project and seek to obtain the ultimate conveyance which is required to be obtained from Defendant No.1 with the Plaintiff as a confirming party in the names of their nominees who are 3rd parties or, if they obtain the conveyance from Defendant No.1, and except in the normal course of events, enter into transactions with other parties without allowing the Plaintiff to partake his 12% share in those transactions. 29.Mr. Dwarkadas on behalf of Defendant No.1 argued that that was the market price at which alone the sale was effected and accordingly the required relevant income tax clearance under Section 37I of the Income Tax Act, if applicable, was obtained in respect of those transactions. 30.Defendant No.1 has produced the permissions/sanctions under Section 37I of the Income Tax Act for sale in respect of its transfers as required by the Court. 12 31.The obtaining of the permission of the Income Tax Department under Section 37 I would only be prima facie proof of the fact that the Income Tax Department has not sought to acquire the property under Section 269 UD (1) of the Income Tax Act or sought to be transferred to itself and allowed the transfer to the transferee upon seeing a gross undervaluation thereof. It is common knowledge, and of which judicial notice is required to be taken, that there are indeed very few transactions of such acquisition where the undervaluation is gross. Consequently, the 37 I permission is not a conclusive proof of the fact that the transaction has been effectuated at the market rate or between completely genuine parties. 32.It may at best show that the transactions were at a reasonable market valuation which is not sought to be challenged by the Income Tax Authority. In any event for transactions after July 2002, this test does not apply. 33.Therefore the case of Defendant No.1 that because all the transactions are affected at market value then prevalent and that the transactions with the related parties as also the unrelated parties are of almost similar value, there can be no case of fraud can be accepted only up to a point and subject to the ultimate test upon later acts of the parties and future transactions by them. 13 34.It is also contended on behalf of Defendant No.1 that the particulars of these transactions have been provided by Defendant No.1 strictly as per the agreement between Defendant No.1 and the Plaintiff on monthly basis duly audited by the Auditors appointed by the Plaintiff. Those intimations have been received and acknowledged by the Plaintiff. It is contended, therefore, that at the end of each month in which the transactions took place the Plaintiff must be taken to have had knowledge of those transactions and the transactions took place since and on 30th March 2001, 28th March 2002, 13th March 2003, 24th March 2003, 4th April 2003, March 2004, 6th January 2005 and March 2006. 35.Much stress is laid by Mr. Dwarkadas on behalf of Defendant No.1 to show that the Auditors appointed by the Plaintiff themselves have cleared Defendant No.1. He has shown certain Auditor’s report and stated that similar reports have been given year to year. These reports show that the Auditors were “informed” that none of the flats were sold to related parties, but were not provided with any written declaration or confirmation of the same. I do not see much point in Auditor’s audit report stating facts on “information” without further inquiry, given the fact that they were required to certify that the flats, shops, units etc. were not sold to related parties which should have been based upon their inquiries and not based upon their oral information bereft even of a written confirmation. Though the Auditors are not blood-hounds, they are certainly watch-dogs. When it is the specific duty of the Auditors, for which purpose they are 14 appointed, a mere information does not show certification. The facts ascertained by the Plaintiff himself would be expected to have been ascertained by the Auditors themselves and reported accordingly. 36.However, this is essentially a matter for accounts and for recovery of the unpaid amount, if so found to be unpaid in accordance with clauses e, f & g of the Agreement between the parties. (ii) Construction of additional area upon further development:- 37. 3 transactions are shown by the Plaintiff of 3 of the trading companies incorporated in the aforesaid circumstances – Gamin Traders Pvt. Ltd., Instant Traders Pvt. Ltd., Halite Traders Pvt. Ltd. The transactions with all of these 3 companies are entered into on 28th March 2002. The rates however paid by the 3 companies are different. Halite has paid at the rate of Rs.1000/- less than Gamin. A further transaction for the additional areas have taken place in March and April 2005 under the “2nd Negotiation letter” written by Defendant No.1 to these companies for construction of additional plinth area. Even at that time the rates are different. Halite has paid at the rate of Rs.1500/- less than Gamin. It is contended that the larger the area the lesser has been the market rate. This economic analogy is not as per market conditions. The real estate is not sold at the price of a dozen. Market rate is determined by market forces and not by the area contracted. All parties would contract larger areas and obtain larger premises at lower price, if that has to be accepted. The entire building being Building No.15 is 15 purchased by Halite. The initial area purchased was more than 1 lakh sq.ft. The subsequent area purchased is approximately 80,000/- sq. ft. and market price for such a large area cannot be accepted as correct on the premise that the large area is taken. The difference in price is seen not only between a genuine 3rd party who is a stranger to Defendant No.1 and a related party of Defendant No.1, but even between two related parties. 38.It is at such rate that additional area constructed is sought to be sold and from which the Plaintiff is allowed to partake his 12% share. Though the second transaction has taken place 3 years after the first transaction in case of each of these parties, the market rate is seen not to have increased at all in case of Halite Traders Pvt. Ltd. and marginally increased by Rs.500/- per sq. ft., in case of Gamin Traders Pvt. Ltd. 39.The learned Advocate General on behalf of the Plaintiff relied upon the letter dated 28th March 2002 relating to negotiations for purchase of building No.15 by Defendant No.18. In paragraph 2 thereof Defendant No.18 has mentioned and confirmed that Defendant No.1 informed it that Defendant No.1 would be entitled to make amendments, alter the plans of the plinth resulting into increase or decrease of the builtup area for which Defendant No.18 would be liable to pay the difference in purchase price proportionate to the enhanced area or be entitled to claim back the excess amount paid should the area be reduced by the amendment of sanctioned plan. 16 40.Defendant No.1 has produced agreements relating to sale of flats with increased area of the plinth of the relevant building showing that the Plaintiff was paid his further 12% share upon receipt of additional amount for increased area as called upon by the Court. 41.Mr. Dwarkadas contended that the additional area was also sold at the same price. Hence Defendant No.1 has produced documents showing sales and transfers showing additional areas in which Defendant No.1 received sale price at the same rate of Rs.1510/- per sq. ft., for such additional area and which was accounted for, by Defendant No.1 in its monthly statements showing such additional price being deposited in the Designated Bank Account. 42.It is contended on behalf of the Defendant No.1 that the transaction of March 2005 has been intimated to the Plaintiff under the intimation letter dated 5th April 2005. Further the Auditors letter dated 6th October 2005 is relied upon to show that the transaction for additional area sold to Halite Traders Pvt. Ltd., has been accounted for and the Plaintiff’s 12% share has been paid therein. The Auditor’s report, as in the previous instances, shows only the factum of the transaction without reflecting the bona fides of the second transactions relating to the additional area. 43.Indeed the Plaintiff has been paid the share of the amount of the transaction shown by Defendant No.1 and Halite Traders Pvt. Ltd., its 17 alter ego, a company which has sought to purchase 180000 sq. ft. of space in one entire building. 44.The area has been increased as reflected in the two plans. The transactions for the additional area at rate shown in those transactions are not shown to be similar to other like transactions of any other independent 3rd parties who are strangers or of the property near thereto which would reflect the correct price. Indeed the Plaintiff is paid his share in some price. It will have to be seen whether that was the correct price. 45.This also would be a matter for taking accounts as per Clauses 16 (e), (f) and (g) of the aforesaid agreement. (iii) Agreements with Kotak Mahindra Bank Ltd.:- 46.The Plaintiff has contended that in a specific sale made to one Kotak Mahindra Bank Ltd., there have been 2 separate agreements entered into by Defendant No.1 (in the name of Defendant No.6, in which the main Director of Defendant No.1 has a major share) with these parties; one for the development of the building and the other for certain aluminum cladding work and work for installing glass windows both executed on 15th December 2006. 47.It is the Plaintiff’s case that he was informed of only the first of the 2 agreements which was for Rs.172 crores and was paid his 12% share 18 therefrom. The other agreement which was executed by Defendant No.6 with the Kotak Group of Companies for Rs.30.18 crores was not shown to the Plaintiff. 48.The first agreement related to specific amenities to be provided to the purchaser mentioned in Schedule 2 thereof. Plaintiff’s 12% share was paid therein. Another work contract was entered also into between Defendant No.6, (alleged to be one of the nominees of Defendant No.1 who is a partner in Defendant No.7 Firm) with Kotak Mahindra Bank Limited. The Plaintiff was not given his 12% share in the profits of that contract. The plaintiff has alleged that the entire contract was divided so as to suppress one of the two contracts from the Plaintiff and exclude the Plaintiff from the profits of one of them. 49.The Defendant No.1 contends that this related to additional amenities work for the building after the entire building was constructed and was outside the