AJN 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.263 OF 2008 IN NOTICE OF MOTION NO.1290 OF 2006 AND NOTICE OF MOTION NO.4761 OF 2007 IN SUIT NO.1146 OF 2006 Claridges Infotech Pvt. Ltd. .... Appellant Vs. Surendra Kapur & Ors. .... Respondents Mr. Aspi Chinoi, senior counsel with Mr. Suneep Sen i/b Akshay Vani for the appellant. Mr. Janak Dwarkadas, senior counsel with Mr. Mustafa Doctor with Mr. Ajay Vazirani, Miss Heena Chheda with Ms. Sruti Chawan, Mr. Avdut Prabhu i/b M/s. Hariani & Co. for defendants 1 and 2. Mr. Navroz Seervai, senior counsel with Mr. Mustafa Doctor with Mr. Ajay Vazirani, Miss Heena Chheda with Ms. Sruti Chawan, Mr. Avdut Prabhu i/b M/s. Hariani & Co. for defendants 3 and 4. Mr. Sanjay Chaturvedi i/b M/s. Malvi Ranchhoddas & Co. for respondent 5. CORAM : SMT. RANJANA DESAI & K.K. TATED, JJ. DATE ON WHICH THE JUDGMENT IS RESERVED : 4TH DECEMBER, 2008. AJN 2 DATE ON WHICH THE JUDGMENT IS PRONOUNCED : 17TH DECEMBER, 2008. JUDGMENT :- (Per Smt. Ranjana Desai, J.) 1. Admit. Respondents waive service. With the consent of the parties, taken up for hearing forthwith. 2. Original plaintiff in Suit No.1146 of 2007 has challenged in this appeal order dated 28/3/2008 passed by learned Single Jduge of this court. By the impugned order, learned Single Judge has dismissed two notices of motion taken out by the plaintiff for interlocutory reliefs. Respondents 1 to 5 are original defendants 1 to 5 respectively. For the sake of convenience, we shall refer to the parties as per their description in the suit. 3. The case of the plaintiff, the gist of which was given to us by Mr. Chinoy, learned counsel appearing for the plaintiff and which can also be gathered from the plaint needs to be stated. 4. Gist of the plaintiff's case :- AJN 3 Defendants 1 to 4 collectively own and hold 29.4% shares in defendant 5. Memorandum of Understanding (MOU) dated 31/8/2005 was executed by and between the plaintiff and defendants 1 to 4. Another MOU dated 17/1/2006 was executed between the parties which contained similar terms. According to the plaintiff, MOU dated 17/1/2007 governs the relations between the parties. Under MOU dated 17/1/2006, defendants 1 to 4 agreed to sell their 29.4% shareholding in defendant 5 for a consideration of Rs.7,75,00,000/- to the plaintiff. The plaintiff was to carry out due diligence and was to confirm its intention to purchase the said 29.4% shares on or before 15/6/2006. On executing the MOU, the plaintiff had deposited in escrow an amount of Rs.30,00,000/- with M/s. Singhania & Co. as per the terms of the MOU. By letter dated 31/3/2006, the plaintiff requested access for due diligence but defendants 1 to 4 did not offer any inspection for due diligence. On 3/4/2006 authorized signatory of the plaintiff spoke to defendant 1 for starting due diligence. Defendant 1 promised to fix a date for due diligence. The plaintiff confirmed the AJN 4 conversation by its letter of the same date. However, defendants 1 to 4 failed to appoint a date for due diligence. By letter dated 5/4/2006, the plaintiff confirmed its intention to purchase 29.4% shares of defendants 1 to 4 free from encumbrances, without prejudice to its right to carry out due diligence. However, defendants 1 to 4 refused to fix any appointment for due diligence. Thereafter, on behalf of defendants 1 to 4, defendant 1 informed the plaintiff that they did not intend to sell the shares to the plaintiff as agreed. With a view to backing out of the contract, defendants 1 to 4 have refused and/or failed and neglected to allow due diligence. They are seeking to breach the contract because the value of the shares has appreciated. Defendant 5 is a limited company whose shares are not readily available in the market. The plaintiff is and at all times was, ready and willing to perform all its obligations in terms of the MOU and, therefore, the plaintiff is entitled to the specific performance of the MOU. The plaintiff is entitled to execution of a share purchase agreement and consequent transfer of all the 29.4% shares of defendant 5 held by defendants 1 to 4. AJN 5 5. In the above circumstances, the plaintiff prayed for a declaration that the MOU dated 17/1/2006 is subsisting, valid and binding upon defendants 1 to 4 and for a mandatory injunction directing defendants 1 to 4 to jointly and severally execute share transfer agreement and/or transfer 29.4% shares of defendant 5 to the plaintiff. Alternatively, the plaintiff claimed a decree in favour of the plaintiff for damages in the sum of Rs.10,00,00,000/-. 6. The plaintiff took out Notice of Motion No.1290 of 2006 praying for an order of injunction restraining defendants 1 to 4 from selling, transferring, encumbering or creating any right, title or interest in respect of shares held by defendants 1 to 4 in defendant 5 amounting to 29.4% of the paid up capital of defendant 5 and for appointment of Court Receiver in respect thereof. The plaintiff took our Notice of Motion No.4761 of 2007 having learnt that defendant 5 intends to make a rights issue. The plaintiff was anxious that respondents 1 to 4 should maintain their shareholding at 29.4%. The plaintiff, therefore, prayed that defendants 1 to 4 should be directed to disclose on oath, the specific resolution sought to be passed in respect of the proposed rights issue and for a direction to AJN 6 defendants 1 to 4 to maintain their shareholding in defendant 5 company at 29.4% of the paid up and subscribed share capital. 7. Before we go to the case of defendants 1 to 4, it is necessary to have a look at MOU dated 17/1/2006 because the fact that the plaintiff and defendants 1 to 4 entered into this MOU is not disputed. 8. Gist of MOU dated 17/1/2006 : Clause 1 of the MOU states that defendants 1 to 4 represented to the plaintiff that they are the owners of 29.4% shares in defendant 5 and that the said shares are free from all encumbrances and that there is no restriction on transfer of these shares to the plaintiff. Clause 3 states that defendants 1 to 4 have agreed to sell their 29.4% shares in the 5th defendant for Rs.7,75,00,000/-. Clause 10 states that defendants 1 to 5 represented to the plaintiff that there is no liability of defendant 5 and if any liability is found the sale consideration shall be proportionately reduced. Clauses 5 and 6 talk about the offer and its confirmation. Clause 5 states that the offer to sell shares to the plaintiff by defendants 1 to 4 shall remain firm upto 15/6/2006 and AJN 7 the plaintiff shall have a right to terminate the MOU on or before 15/6/2006 without assigning any reason and the amount deposited in escrow with Ms. Singhania & Co. shall be returned to the plaintiff. Clause 6 states that if the plaintiff fails to confirm the offer by 15/6/2006, then the MOU shall stand terminated and the amount deposited with M/s. Singhania & Co. shall be returned to the plaintiff. Clause 8 states that if the plaintiff confirms the acquisition of shares of defendants 1 to 4 then, the plaintiff and defendants 1 to 4 shall enter into share purchase agreement within 60 days from the date of confirmation of the offer by the plaintiff. Clause 9 states that the plaintiff shall carry out due diligence of defendant 5 on execution of the MOU. 9. Gist of the case of defendants 1 to 4 as narrated by Mr. Janak Dwarkadas, learned counsel representing them and which is also reflected in the affidavit in reply dated 8/8/2006 filed by defendant 1 must be stated. 10. Gist of the case of defendants 1 to 4 as reflected in the affidavit of Surendra Kapur – defendant 1 dated 8/8/2006. In or about June, 2005, Ashish Deora, representative of the AJN 8 plaintiff met defendant 1 and told him that the plaintiff was interested in buying over defendant 5 and developing its land. He asked defendant 1 whether defendants 1 to 4 were willing to sell their share to the plaintiff. He stated that he was already in touch with the Merchants and the Asian Hotel Ltd. (Asian Hotels) who held 19% and 52% respectively of the total shareholding of defendant 5 and the plaintiff's offer to buy shares of defendants 1 to 4 was conditional upon the Merchant family and Asian Hotels agreeing to sell their shares in defendant 5 to the plaintiff. Defendants 1 to 4 and the Merchant family had entered into agreement dated 25/7/1994 with Asian Hotels by which Asian Hotels had agreed to buy over the entire shareholding of defendants 1 to 4 and the Merchant family in defendant 5 and as per the terms of the said agreement, shares held by defendants 1 to 4 and the Merchant family were kept in escrow with the advocates of Asian Hotels. Defendant 1 informed Ashish Deora of the plaintiff that it would be best if the plaintiff entered into one composite agreement with defendants 1 to 4, the Merchant family and the Asian Hotels. The plaintiff accordingly made an offer to defendants 1 to 4 to buy their shareholding in defendant 5 on the condition that the plaintiff was also able to enter into an agreement AJN 9 with the Merchant family and the Asian Hotels and after the plaintiff was able to conduct a due diligence with regard to defendant 5 through the Asian Hotels. It was agreed that if the plaintiff was not able to enter into such an agreement, the offer made by the plaintiff to defendants 1 to 4 to purchase their shares would stand cancelled. On this understanding, MOU dated 31/8/2005 was entered into. The plaintiff never called upon defendants 1 to 4 for due diligence during the entire term of the first MOU. Since the plaintiff was not able to enter into an agreement with the Merchant family and the Asian Hotels within the requisite time, the plaintiff made a request for extension of time. Hence, second MOU dated 17/1/2006 was entered into between the parties. The second MOU was also executed on the same understanding that the plaintiff's offer was conditional on the Merchant family and the said Asian Hotels also agreeing to sell their share in defendant 5 to the plaintiff prior to 13/6/2006 failing which second MOU would automatically stand cancelled. As late as on 31/3/2006, a few days prior to the filing of the present suit, with a view to creating false evidence, the plaintiff addressed letter dated 31/3/2006 to defendants 1 to 4 stating that AJN 10 they would come to their office on 3/4/2006 to start due diligence, though the plaintiff was aware that none of the records of the company were in the office of defendant 1 but were in the registered office of defendant 5 in Delhi and were in control and possession of Asian Hotels. Defendant 1 informed the plaintiff about this, but to create false evidence, the plaintiff addressed letter dated 3/4/2003 to defendants 1 to 4 in that regard. By further letter dated 5/4/2006, the plaintiff purported to conditionally confirm it's offer to acquire shareholding of defendants 1 to 4 in defendant 5 free from all encumbrances and without prejudice to it's rights to carry out due diligence. This offer was not accepted and since the plaintiff failed to unconditionally confirm it's offer by 15/6/2006, the said MOU stood cancelled. The plaintiff was never ready and willing to perform its part of the contract. The said MOU merely spells out the plaintiff's unconfirmed offer to buy shares of defendants 1 to 4. The plaintiff was required to confirm the said offer within the stipulated time if it was able to enter into an agreement with Merchant family and the Asian Hotels. On the plaintiff's confirming it's offer, defendants 1 to AJN 11 4 would have the option of accepting the same. It was only at this stage, on execution of share transfer agreement referred to in the MOU a binding and enforceable agreement would come into force between the parties. Inasmuch as the plaintiff purported to conditionally confirm it's offer to purchase shares in defendant 5 which defendants 1 to 5 have not agreed to accept there is no binding and subsisting agreement between the two and therefore, there is no question of the plaintiff being entitled to specific performance thereof. 11. On the basis of these pleadings and having heard learned counsel for the parties, learned Single Judge denied interlocutory reliefs to the plaintiff basically on three grounds. According to learned Single Judge, the plaintiff had notice of prior agreement dated 25/7/1994 between Asian Hotels and defendants 1 to 4 and Merchant family under which Asian Hotel had agreed to buy over the entire shareholding of defendants 1 to 4 and the Merchant family in defendant 5. This conclusion is reached on the basis of the plaintiff's affidavit in support of Notice of Motion No.4761 of 2007 wherein the plaintiff has referred to the 5th defendant's Suit No.6846 of 1999 filed in this court, in the plaint whereof there is a AJN 12 reference to the said agreement dated 25/7/1994. Learned Single Judge observed that it is open to the Asian Hotels to contend that the plaintiff's agreement with defendants 1 to 4 is subsequent to their agreement dated 25/7/1994. Learned Single Judge referred to section 19(b) of the Specific Relief Act and held that the pre- existing rights of Asian Hotels cannot be defeated and observed that there is merit in the contention that Asian Hotels is not before the court though the plaintiff was put on notice of the prior agreement. Learned Single Judge then held that acceptance of an offer must be in terms of the offer and conditional acceptance will amount to a counter offer. He observed that under the MOU, the confirmation of the plaintiff was to be of the offer of defendants 1 to 4 to sell 29.4% of their shareholding in defendant 5 to the plaintiff. However, acceptance dated 5/4/2006 was to the acquisition of those shares whereby the plaintiff would be acquiring 29.4% of the right, title and interest in the plot of land at Sahar International Airport. Therefore, the acceptance would amount to a counter offer and would not be susceptible of the inference of a concluded agreement that would form the basis of a suit for specific performance. Learned Single Judge noted that according to defendant 1, MOU dated 31/8/2005 was entered into on the AJN 13 express understanding that if the other shareholders of the company did not agree to sell their shares within a period of 135 days, the offer would stand terminated. Though learned Single Judge has not dealt with this submission, the tenor of the impugned order suggests that it has weighed with him. 12. Mr. Chiony, learned senior counsel appearing for the plaintiff severely commented on the conduct of defendants 1 to 4. He drew our attention to the MOU, more particularly Clauses 1 and 3 thereof and contended that defendants 1 to 4 have clearly represented to the plaintiff that they are the owners of 29.4% shares in defendant 5 and the said shares are free from all encumbrances and there is no restriction on transfer of those shares to the plaintiff. Mr. Chinoy drew our attention to four orders passed in the present matter by learned Single Judge of this court which record statement made by learned counsel appearing for defendants 1 to 4 that defendants 1 to 4 shall not sell, transfer, encumber or create any third party rights, title or interest in respect of their 29.4% shares in defendant 5. Mr. Chinoy submitted that this statement is not consistent with defendants 1 to 4's case about alleged agreement dated 25/7/1994. Mr. Chinoy submitted that the MOU does not contain AJN 14 any reference to the alleged agreement dated 25/7/1994 entered into by defendants 1 to 4 and the Merchant family with the Asian Hotels. Mr. Chinoy submitted that therefore, defendants 1 to 4 are estopped from taking any plea on the basis of the said agreement. In this connection, Mr. Chinoy relied on the judgment of the Supreme Court in B.L. Sreedhar & Ors. v. K.M. Munireddy (dead) & Ors. (2003) 2 SCC 355. Mr. Chinoy submitted that the alleged agreement with Asian Hotels was mentioned, for the first time, in defendant 1's affidavit dated 5/8/2006. It was not disclosed to the plaintiff at the stage of the MOU. Mr. Chinoy submitted that in any case, the subsequent notice thereof cannot defeat the rights of the plaintiff. 13. Mr. Chinoy further submitted that learned Single Judge erred in accepting the contents of affidavit of defendant 1 which discloses a new case that there was some talk between Ashish Deora of the plaintiff and defendant 1 wherein, Ashish Deora represented that the plaintiff's offer to buy shares of defendants 1 to 4 would be conditional upon the Merchant family and the Asian Hotels agreeing to sell their shares in defendant 5 to the plaintiff; that the first MOU dated 31/8/2005 was entered into on the express AJN 15 understanding that if the other shareholders of the company did not agree to sell their shares within a period of 135 days, the offer would stand terminated and that second MOU was also entered into on the same understanding. None of the MOUs mention this condition. This story is also not reflected in the three vital letters sent by the plaintiff to defendants 1 to 4. Mr. Chinoy referred to section 91 and 92 of the Indian Evidence Act and submitted that in any case, when parties put their agreement into writing, it is conclusively presumed that they intended the writing to form a full and final statement of their intentions and any other evidence is excluded from being used either as a substitute for such instrument, or to contradict or alter it. Learned counsel submitted that it is, therefore, not open to defendants 1 to 4 to even lead evidence of any oral agreement or statement for the purpose of contradicting, varying, adding or subtracting the terms of the MOU entered into by them with the plaintiff. In support of this submission, learned counsel relied on the judgments of the Supreme Court in Room Kumar v. Mohan Thedani, (2003) 6 SCC 595 and A. Abdul Rashid Khan (dead) & Ors. v. P.A.K.A. Shahul Hamid & Ors., (2000) 10 SCC 636. AJN 16 14. Mr. Chinoy then submitted that the conclusion of learned Single Judge that the confirmation of offer made by the plaintiff by his letter dated 5/4/2006 is conditional because the offer was for the acquisition of 29.4% of the share capital of defendant 5 whereas the acceptance was to the acquisition of those shares whereby the plaintiff would be acquiring 29.4% of the right, title and interest in the plot of land at Sahar International Airport, is not even the case of defendants 1 to 4. He drew our attention to paragraph 3.9 of the affidavit of defendant 1 where the confirmation is described as conditional because the plaintiff confirmed their offer to acquire the shareholding of defendants 1 to 4 in defendant 5 “free from all encumbrances and without prejudice to their rights to carry out a due diligence”. Learned counsel submitted that learned Single Judge has made out a case which defendants 1 to 4 never urged and could never have urged in the facts of this case. He submitted that Clause 1 of the MOU states that the shares of defendants 1 to 4 are free from encumbrances and Clause 9 states that the plaintiff shall carry out due diligence of defendant 5 on execution of the MOU. Therefore, stating this in the acceptance letter can never make the acceptance conditional. Learned AJN 17 counsel submitted that reference to acquisition of right, title and interest in the plot of land can never be termed as conditional acceptance. It is, merely a consequence of acquisition of 29.4% shareholding in defendant 5. Mr. Chinoy submitted that in any case, the plaintiff has made out a strong prima facie case for grant of interlocutory relief and learned Single Judge erred in denying the interlocutory relief to the plaintiff. He submitted that therefore, the impugned order be set aside. 15. Mr. Dwarkadas, learned senior counsel appearing for defendants 1 to 4 submitted that defendant 5 is a closely held company of three shareholders. The percentage of shareholding is as follows : Asian Hotels - 52% Defendants 1 to 4 - 29.4% Merchant family - 19% Mr. Dwarkadas reiterated what defendant 1 has stated in his affidavit dated 8/8/2006, the gist of which we have reproduced hereinabove. He submitted that the first MOU dated 31/8/2005 AJN 18 was executed on an understanding that if other shareholders of defendant 5 did not agree to sell their shares in defendant 5 to the plaintiff within a period of 135 days, the said offer would stand terminated. During the entire period of 135 days, no due diligence was demanded. The plaintiff was not successful in fulfilling this condition within the requisite period and, hence, the offer was extended and a new MOU dated 17/1/2006 was executed on the same understanding as the first MOU i.e. the offer was conditional on the Merchant family and the Asian Hotels agreeing to sell their shares in defendant 5 to the plaintiff on or before 15/6/2006, failing which second MOU shall automatically stand terminated. Mr. Dwarkadas submitted that just to create false evidence, on 31/3/2006, the plaintiff addressed a letter to defendant 1 for due diligence to be carried out in the office of the company when the plaintiff knew that the registered office of defendant 5 is in Delhi and the entire record was in the Delhi Office. Immediately thereafter, by letter dated 3/4/2006, the plaintiff again requested for due diligence and, thereafter, on 5/4/2006, sent a conditional confirmation to the plaintiff. Mr. Dwarkadas pointed out that the suit was filed on 19/4/2006 and all these letters were sent just a few days prior to filing of the suit. Mr. Dwarkadas drew our AJN 19 attention to Board Resolution dated 5/4/2006 passed by the plaintiff authorizing Mr. Sangekar to file suit for specific performance in respect of the MOU dated 17/1/2006. He submitted that the fact that the conditional confirmation and the Board Resolution are of the same date indicates that the plaintiff's case is not bona fide. 16. Mr. Dwarkadas submitted that the prayer of the plaintiff in the plaint is for a mandatory injunction directing defendants 1 to 4 jointly and severally to execute a share transfer agreement or transfer their 29.4% shares in defendant 5 to the plaintiff. Mr. Dwarkadas submitted that such a suit cannot be maintained without Asian Hotels being a party because that would defeat or extinguish the rights of Asian Hotels, who have a prior agreement dated 25/7/1994 executed between them and the Merchant family and defendants 1 to 4. Mr. Dwarkadas submitted that the plaintiff had knowledge of the prior agreement dated 25/7/1994 can hardly be disputed because there is a reference to a suit filed by defendant 5 in the affidavit of the plaintiff and in the plaint of that suit there is a reference to the said agreement. Mr. Dwarkadas submitted that despite knowledge, the plaintiff never even asked for inspection of the said agreement. AJN 20 17. Mr. Dwarkadas submitted that the agreement dated 25/7/1994 is merely an agreement to sell. He referred to section 4 of the Sale of Goods Act, 1930. He submitted that by the said agreement, there was no transfer of the shares from defendants 1 to 4 to the Asian