Case: Iridium India Telecom Limited Vs. Motorola Inc. &amp; Others

1. These two Appeal Nos.702 and 703 of 2003 seek to challenge the common judgment and order of a Single Judge dated 8th August 2003 rejecting two Notices of Motion bearing Nos.2557 of 2002 and 2793 of 2002, both of which were taken out by the Appellant herein (original Plaintiff) in Suit No.3092 of 2002, which they have filed against Motorola Inc. and Iridium LLC, the Respondents herein (original Defendants). The two Motions sought orders in the nature of attachment before judgment and injunction for obtaining security for a decree that might be passed in the Appellants favour in the pending suit. Amongst others, the suit claims are (1) US $ 12,04,90,000 with further interest at the rate of 5% per annum on the principal amount of US $ 9,03,30,000 and (2) a sum of Rs.3,77,21,54,857 with interest at the rate of 12% per annum on the principal amount of Rs.The Respondents, other than the original Defendants, were joined as additional Respondents. The two motions sought injunctions restraining these additional Respondents from paying over those amounts to the original Defendants. Those motions were rejected by the common impugned order and hence these two appeals have been filed.2. The points which arise for determination in these two appeals are common and hence both the appeals are heard and are being decided together. The appeals are being contested by Respondent No.1 only although other Respondents are served. At the request of the counsel for both the parties and as recorded on 5th September 2003 by us, the appeal is heard finally at the admission stage.3. Parties to theThe Appellant (hereinafter at times referred to as the Plaintiff Company) is admittedly a special purpose company floated by Indian Financial Institutions, and 80% of its equity is held directly or indirectly by Public Financial Institutions, Nationalised Banks and Public Insurance Companies, viz. IDBI, ICICI, SBI, Exim Bank, UTI, GIC and its subsidiaries, LIC, HDFC and Infrastructure Leasing and Financial Services Limited (for short ILFS) (which itself is promoted by UTI, HDFC and Central Bank of India).(ii) The balance 20% of the equity in the Plaintiff Company is held by Respondent No.1 (hereinafter at times referred to as Defendant No.1).(iii) The Appellant has been incorporated to finance global personal communications in India and to invest in Iridium Inc., a company specializing in such a system known as Iridium.4. Respondent No.1 is aCorporation whose business interests span the globe. It has almost the status of the leader in the telecom business worldwide. Respondent No.1 is incorporated and registered under the laws of Delaware in the USA. It is the creator and developer of this Iridium System. Respondent No.2 Iridium LLC (hereinafter at times referred to as Defendant No.2) is another special purpose company which is the successor to a company by name Iridium Inc., which was a 100% subsidiary of Defendant No.1. Iridium Inc., was incorporated on 14th July 1991 to provide these Iridium services and merged into Defendant No.2Iridium LLC on 19th July, 1996.5.(i) To put it in a nutshell, the Iridium System is supposed to be the first commercial wireless communication system that is being designed to provide global digital service totelephones similar to todays cellular phones. The Iridium System was expected to provide (i) digital data, (ii) facsimile, (iii) paging, and (iv) geolocation services to subscribers. These services were to be delivered through a low earth orbiting satellite constellation. Some 66 satellites were designed to communicate directly withsubscriber equipments, with one another and with terrestrial interconnection points known as Gateways as well as withsystem control facilities. This was supposed to be a proven technology and investment was sought for further research and making it a commercial venture. It was expected to be particularly useful for the international business traveler, and was projected to have great commercial potential.(ii) However, the project did not give the expected results and failed technically and consequently became a commercial failure. It is the case of the appellant that the above referred ILFS (which is the contributor to the share capital of the Appellant) was induced by the Respondents to enter into agreements with them and to contribute huge amounts to the share capital of Respondent No.2. These agreements were subsequently assigned to the Appellant. It is their case that this investment was procured on the basis of fraud and/or actionablere of vital information in disregard of duty of care, which would vitiate the entire transaction and, in any case, would become voidable leading to the claim for refund of the amounts which were thus procured on the basis of fraud and/or actionablere in the Private Placement Memorandum (PPM) of 1992 which was a sort of prospectus seeking this investment.6. (i) Prayer (a) of this suit, therefore, seeks a declaration that the Stock Purchase Agreement dated 19th July, 1993 and the Supplemental Stock Purchase Agreement dated 15th September, 1994, which procured this investment of US$ 70 million, were void and non binding on the Appellant and, in any case, were voidable.(ii) Prayer (b) is about the Gateway Equipment Purchase Agreement dated 30th November 1995 (for short GEPA). This Agreement was entered into by the Appellant itself with Respondent No.1. The Appellant had entered into a second Agreement for this purpose with Respondent No.1 on 10th July, 1997. The investment under these GEPA was to the tune of US$20,330,000. Both these Agreements as also other related System Purchase/Service Provider Agreements are claimed to be vitiated for the same reason as mentioned earlier. Prayer (b) seeks a declaration that the GEPA dated 30th November 1995 and theGEPA dated 10th July 1997 and related System Purchase/Service Provider Agreements are void/voidable and not binding on the Appellant.(iii) Similarly the Appellant has made a claim for Rs.3,77,21,54,857/for the loss and damage which is made of various counts such asnt in connection with construction, management and operation of Indian Gateway at Pune;(b) Rs.1,29,70,000/towards custom duty for the equipment of Gateway;(c) Rs.2,82,32,000/towards custom duty for hand sets etc.;(d) Rs.2,99,53,20,000/by way of operational losses till 31st March 2002.(iv) Based on this declaration, a decree is sought in prayer (d) for (i) the amount of US$ 1,20,490,000/(consisting of principal amount of US$ 9,03,30,000/with interest at 5% from the date of payment till filing of the suit) with interest at 5% on principal amount of US$ 90,330,000 arrived at as above, and (ii) Rs.3,77,21,54,857/with interest at 12% on principal amount of Rs.48,11,00,000/both from the date of filing till payment/realization. The particulars of claim are enclosed to the Plaint at Exhibit C.7. The suit was filed on 16th September 2002. Notice of Motion No.2557 of 2002 was taken out therein with supporting affidavit of one Ravi Parthasarthi, authorized signatory of the Appellant, affirmed on 16th September 2002 against Respondents Nos.1 and 2 (original Defendants) and BPL Mobile Cellular Limited (additional Respondent). It was pointed out therein that the 1st Respondent had filed a Company Petition against the additional RespondentBPL Mobile Cellular Limited in the High Court of Madras, wherein consent terms had been filed and therein various amounts were payable by the additional Respondent to Respondent No.1 herein. The amounts payable therein were around Rs.100 crores and they were payable in six installments. Two of these installments were already paid leaving the balance of Rs.60 crores. Through prayer (a) and (b) thereof, the motion sought security for the amount claimed in the suit as well as attachment before judgment against such of the assets and properties of the Defendants, and particularly Defendant No.1, as are available in India, including all amounts payable or receivable, including the amounts receivable in the aforesaid company petition. Prayers (c) and (d) of this motion read asThat pending the hearing and final disposal of the present suit, the Defendants whether by themselves or through their servants or otherwise be restrained by an order and injunction of this Honble Court from removing from India, assigning, transferring, discounting, scrutinizing, or otherwise encumbering any assets or properties in India including any amounts payable to or receivable by, the Defendants, from any person or entity in India, including the amounts payable under the Consent Terms filed by and between the 1st Defendants and the respondents, in Company Petition No.185 of 2001, in the Madras High Court or from assigning until the sum of USD 120,490,000 and sum of Rs.377,21,54,857/together with further interest from the date of filing of the present suit is either paid to the Plaintiff or deposited in this Honble Court or secured by a bank guarantee to the satisfaction of the ProthonotarySenior Master;(d) That pending the hearing and final disposal of the present suit, the Respondents be ordered and directed to deposit in this Honble Court such amounts of money as are payable by the Respondents to the 1st Defendants under the Consent Terms filed by and between the 1st Defendants and the Respondents in Company Petition No.185 of 2001 in the Madras High Court.The learned Single Judge, then hearing the notice of motion, on hearing the counsel for the Appellant granted anm order in terms of prayer (c) on 16th September 2003. After a notice was issued and the counsel for Respondent No.1 were heard, this order was modified on 3rd October 2003 by another Single Judge and he restricted the injunction to the monies receivable by Respondents Nos.1 and 2 under the consent terms filed before the Madras High Court, i.e., for about Rs.60motions were opposed by the Respondents No.1, the main reply being that of Shri Rajesh Madan, their Constituted Attorney affirmed on 13th March 2003. Rejoinder and further affidavits were filed thereafter. The Appellant filed its rejoinder thereafter. Extensive documents were produced by the parties before the learned single Judge and they relied upon a large number of Judicial authorities. Whereas the case of the Appellant was that it has been deceived and that the entire project was a fraud, Respondent No.1 contended that there was a fraud, Respondent No.1 contended that there was no fraud, that the Appellant had complete knowledge about the scheme and the risk therein, which were disclosed in the 1992 PPM, that their claim suffered from delay and laches and that it was essentially a case of commercial failure since in the meanwhile, the cellular technology had advanced much more and faster than expected, leading to a commercialof the digital system on which Iridium was based. If the venture had failed commercially, the Respondents could not be blamed and the Appellant will have to share the losses like all other investors and, therefore, there was no case on merits.The learned Single Judge, who heard the two motions finally, rejected the same by his common judgment and order dated 8th August, 2003. The learned Judge held that (i) no prima facie case was made out for the interim reliefs prayed and this was not a case of balance of convenience and irreparable injury to justify an injunction, and (ii) in any case, the interim orders as sought could not be granted either under Order XXXVIII Rule 5 or under Section 151 of the C.P.C. The learned Single Judge, however, continued theorder dated 16th September 2002 as varied by order dated 3rd October 2002 for a period of 4 weeks thereafter.11. When these two appeals were filed against the aforesaid common judgment and order, a request was made by the counsel for the Appellant as well as Respondent No.1 that the appeals be heard finally at the admission stage. Accordingly the appeals are heard finally. Theorder as continued by the learned Single Judge has been continued by an order passed by this Bench during the pendency and disposal of these appeals.12. Additional documents permitted inhad so happened that as recorded by the learned Single Judge himself in para 33 of his impugned order, at the last moment at the close of arguments before him, Respondent No.1 produced two letters, which were enclosed as Exhibits 1 and 2 to an affidavit dated 25th July 2003. The documents were produced to claim that the Appellant had the knowledge of the subsequent 1995 PPM. The learned Judge has allowed them to be produced in the interest of justice and the two letters have gone a long way to decide the matter in favour of Respondents Nos.1 and 2. When the present appeals were filed, the Appellant took out two motions therein, being Notice of Motion Nos.2591 and 2592 of 2003. In the affidavit in support of these motions affirmed on 3rd September 2003, the Appellant enclosed a letter of IDBI dated 5th December, 1995 to which the Minutes of the Joint Meeting of Indian Institutional Investors held on 14th November 1995 were enclosed as Exhibit A. At Exhibit B to this affidavit, were the Minutes of the 25th Meeting of the Board of Directors of Iridium India Telecom Limited held on 7th April 1999. According to the Appellant, these two documents were necessary to be looked into partly as an answer to the documents which the Respondents had produced before the learned Single Judge at the close of the arguments.13. Thereafter when these Appeals reached for hearing before this Bench, the matter was argued on some 8 days and again it was at the fag end of the arguments that Mr. Desai, learned Senior Counsel appearing for the Respondents, on the instructions of his clients, while tendering the written submissions for the convenience of the Court, tendered along therewith still some more documents which were not part of the record before the learned Single Judge. Mr. Kapadia, learned Senior Counsel appearing for the Appellant, therefore, objected to the documents being taken on record. He also pointed out that no motion was taken out nor any affidavit filed to justify placing of these documents on record. Mr. Desai, therefore, made an oral application to take out a motion to seek permission to produce the concerned documents. That motion has been taken out on 25th November 2003.14. That Notice of Motion No.3462 of 2003 taken out by Respondent No.1 herein in this appeal was allowed by this Bench by its order dated 12th December 2003 which has been since reported in 2004 (1) BCR 479. This Bench took a view that the documents sought to be produced had bearing on the knowledge of the Appellant and it would not be proper that the judgment be pronounced without these documents being considered or else it will leave a lacuna in the evidence on record. Respondent No.1, therefore, were permitted to produce those documents by relying on the power of the Appellate Court under Order XLI Rule 21 of C.P.C. so that entire material will be placed before this Court and the Court pronounces its judgment in a more satisfactory manner and no obscure elements remain. The Appellants were also permitted to produce the two documents that they had enclosed to the affidavit affirmed on 3rd September 2003 referred to earlier.

Reasoning:
65. Apart from relying upon thefrankness of the 1992 PPM, it is also submitted in defence that the 1995 PPM should be deemed to be known to Mr. Khan, a representative of the Appellant on the Board of Directors of Iridium. It is also claimed that some other officers also knew it. It is submitted by the Respondents that the Appellant invested in GEPA inspite of this knowledge. The Respondents further case is that a draft document seeking further investment from the American investors was prepared by the Appellant in August 1998 and even in September, 2002 the project was defended when a winding up petition was filed against the Appellant. Now, what is to be noted is that the 1995 PPM is of 20th November 1995 whereas GEPA is signed in US on 30th November 1995, i.e., within a few days thereafter. There is no official communication from the Respondents to the Appellant of the 1995 PPM andForm which the Respondents had filed in the American Court. There is no proof of service of any such document though a submission is sought to be advanced on the basis of the letter written on 21st November 1995 to Shri Khan and reply of Shri Chakravarti dated 6th December 1995. Besides, merely because the Appellant was an existing equity investor, it is stated in para 79 of Mr. Madans reply that the Appellant must necessarily have therefore received a copy of the 1995 PPM. Again while denying that copy of 1995 PPM was never furnished to the Appellant, it is however stated in the same para There was no question or obligation on the part of the 1st Respondent to furnish a copy of the 1995 PPM to the Appellant. The learned Single Judge is however impressed by the submission based on these letters and has held that the Appellant was disentitled to an equitable relief in view of the false stand taken by them. In this connection, it is material to note that the Respondents were dealing with a company, i.e., the Appellant, which had already invested US$ 70 millions and were expected to further invest US$ 20 millions. It is surprising and shocking that the correspondence relied upon is with three officers. Howsoever highly they may be placed, their knowledge cannot be equated with the knowledge of the Appellant. If the Respondents are contending that they were truthful and honest, there should be an official communication addressed to the Appellant and the same is undoubtedly lacking. The letter dated 21st November 1995 is addressed to Mr. Khan in his capacity as a member of the Board of Directors of Respondent No.2, though representing the Appellant on the Board. The learned Judge has found fault with the Appellant for not filing the affidavit of Mr. Khan. The appellant has denied having then received the 1995 PPM and, in any case, the Appellant did not suspect anything foul at that time. It is their assertion that they realized about the failure of the system and of the deception only when the system became operational in November 1998 and the hand sets became available in February 1999. Therefore, although it is quite understandable for Respondent No.1 to contend that the Appellant must have received the 1995 PPM at that time, this by itself cannot deny them the equitable relief. Thereafter a correspondence has ensued between the parties and attempt to settle the dispute was made, and failing that finally the suit is filed in September 2002. Undoubtedly, some time has passed in the meanwhile. However, the Respondent have not suffered any prejudice on this count and the Appellant cannot beonly on this basis. The Respondents have submitted that the Appellant defended the deficiencies in the Iridium Project in September 2002 when a winding up petition was filed against it. Mr. Desai, learned counsel for the Respondents, submitted that at least by that date, the Appellant had clearly understood that they had been cheated if that is their case. The answer of Mr. Kapadia to that submission is that the appellant has explained the investment made by it as made in good faith. In a winding up petition, the appellant could not have stated that its investments were bad. Any defence in the winding up petition by the Appellant cannot disentitle it from raising the claim from the party who has deceived it. Mr. Desai, learned counsel for the Respondents, submitted that the Appellant had all throughout accepted the project as a valid one and only with an intention to save the position of its officers that the present proceeding has been filed. If there is any failure to act with diligence or promptitude on the part of the officers of the Appellant, that is a matter to be taken up by the Management of the Appellant as well as those who have invested their monies along with the Appellant. That cannot be a ground for the Respondents to contend that the Appellants conduct is in approval of whatever that has been done by the Respondents or that it establishes that the Respondents have not done any wrong.66. In our view, the Appellant has an arguable case and explanation and the Respondents cannotit only on this ground. Huge amounts have been paid and siphoned of on the plea of technical research and sale of equipment. Principal defence has been that it is a commercial failure. All these aspects will have to be decided. It is not possible to give a finding and a clean chit to the Respondents as of now. It will amount to ruling out the case of the Appellant at an interlocutory stage which is just not possible. In fact, this order is necessary from the point of investor protection also. Even the learned single Judge has said in para 31 of his impugned order and which we quote I do not hold that such a view may not be possible on trial. The learned Single Judge has, therefore, clearly erred in holding that the Appellant has no prima facie case for fraud or concealment. Mr. Desai had submitted that any such order will have effect on international business transactions. We are afraid that these transactions cannot be read astraffic and unjustified siphoning of funds. If a plaintiff makes out a case in that behalf in law and on facts, he will be justified in seeking a protective order.Submissions were made before the learned Single Judge on the basis of the parity with Mareva injunction. The learned Judge has referred to the Partaminas case in this behalf and has observed that no injunction should be granted merely because the Respondent is a debtor. He has observed that clear liability or debt is absolutely necessary and something more than a mere possibility of a decree in favour of the Appellant has to be shown. In his view, it will have to be a clear case with no tenable defence. The learned Judge has observed that if any such interim order is passed, it will affect the business of a foreign company and no reputable foreign company will like to be plagued with any such order. The fact that the Respondent is a foreign company is not sufficient by itself. He has also relied upon the Polly Pecks case where it was held that Mareva ought not to interfere with ordinary course of business. The learned Judge has also observed that normally no attachment before judgment is granted in a suit for unliquidated damages.Having noted the rival submissions, what we find is that the learned Single Judge has failed to notice the force and the effect behind the observations of the Apex Court in para 18 of Manohar Lal (supra) quoted above. Thus the Court has in terms held that there was no expression in section 94 which prohibited issuance of injunction in circumstances not covered by order XXXIX. Therefore, it has held that Courts have inherent jurisdiction to issue such orders. The learned Judge has also missed the explanation given in Manohar Lal on Padam Sen by observing as follows in para 22 of Manoharthe above case, this Court did not uphold the order of the Civil Court, not coming under the provisions of Order XXIV, appointing a commissioner for seizing the account books of the plaintiff on the application of the defendants. The order was held to be defective not because the Court had no power to appoint a commissioner in circumstances not covered by S.75 and Order XXIV, but because the power was exercised not with respect to matters of procedure but with respect to a matter affecting the substantive rights of the plaintiff. This is clear from the further observations made at page 887 (of SCR): (at p.219 of AIR). This Court said:The question for determination is whether the impugned order of the Additional Munsif appointing Sri Raghubir Pershad Commissioner for seizing the plaintiffs books of account can be said to be an order which is passed by the Court in the exercise of its inherent powers. The inherent powers saved by S.151 of the Code are with respect to the procedure to be followed by the Court in deciding the cause before it. These powers are not powers over the substantive rights which any litigant possesses. Specific powers have to be conferred on the Courts for passing such orders which would affect such rights of a party. Such powers cannot come within the scope of inherent powers of the Court in matters of procedure, which powers have their source in the Court possessing all the essential powers to regulate its practice and procedure.79. The judgment in Manohar Lal has been followed in Triangle (supra) where the Division BenchManohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal, AIR 1962 SC 527  , the question which fell for consideration was whether having regard to the language of clause (c) of Section 94 of the Civil Procedure Code, interim injunction can be issued only if a provision for their issue is made in Order XXXIX Rules 1 and 2. The submission on behalf of the Appellant in that case that clause (c) of Section 94 provides that the Court may, if it is so prescribed, grant a temporary injunction in order to prevent the ends of justice from being defeated and that the word prescribed, according to Section 2 of the Code means prescribed by Rules and that Rules 1 and 2 of Order XXXIX lay down precisely the circumstances in which a temporary injunction may be issued. The majority decision rejected this submission and held that Courts have inherent jurisdiction to issue temporary injunction in circumstances which are not covered by the provisions of Order XXXIX of the Code. The reasons set out in support of this view are as follows:It is well settled that the provisions of the Code are not exhaustive, for the simple reason that the Legislature is incapable of contemplating all the possible circumstances which may arise in future litigation and consequently for providing the procedure for them. The effect of the expression if it is so prescribed is only this that when the rules prescribed the circumstances in which the temporary injunction can be issued, ordinarily the Court is not to use its inherent powers to make the necessary order in the interests of justice, but is merely to see whether the circumstances of the case bring it within the prescribed rule. If the provisions of Section 94 were not there in the Code, the Court could still issue temporary injunctions, but it could do that in the exercise of its inherent jurisdiction. No party has a right to insist on the Courts exercising that jurisdiction and the court exercises its inherent jurisdiction only when it consider it absolutely necessary for the ends of justice to do so. It is in the incidence of the exercise of the power of the Court to issue temporary injunction that the provisions of Section 94 of the Code have their effect and not in taking away the right of the Court to exercise its inherent power.There is nothing in Order XXXIX Rules 1 and 2, which provides specifically that a temporary injunction is not to be issued in cases which are not mentioned in those rules. The rules only provide that in circumstances mentioned in them the Court may grant a temporary injunction.Having dealt with these three points, which arise for our determination in this matter, we are of the view that the learned Single Judge has clearly erred in holding that the appellant did not have a prima facie case and that the balance of convenience was not in its favour and that no such irreparable injury will be caused to the Appellant if interim order was not granted. The learned Judge has also erred in holding that he could not pass the order that was sought by invoking section 151 of the C.P.C. In the circumstances, we reverse the finding of the learned Single Judge on both these counts. As far as any impediment on the powers of this Court in passing appropriate interim orders in appeal is concerned, we overrule such submission, and hold that this Court can interfere with an order of an adjudicatory nature, where found erroneous. Not exercising this power would in fact result into irreparable injustice. In the circumstances, we allow this appeal and set aside the order passed by the learned Single Judge.86. As far as Notice of Motion No.2557 of 2002 is concerned, we make it absolute in terms of prayers (c) and (d) though restricting it only to US$ 120,490,000 which consists of the principal claim of US$ 9,03,30,000 under the share investment and the purchase of Gateway, with interest at 5% from the dates of payment till filing of the suit. There is no dispute as far as the amount spent on share investment and purchase of Gateway and the claim of interest at 5% till the filing of the suit is quite reasonable. We are conscious that this is a suit for unliquidated damages and, therefore, as far as the other claim of over Rs.377 crores is concerned, we are refraining ourselves from passing any order since the particulars thereof will have to be established on evidence. Those are aspects which will have to be established in trial. Similarly as far as Notice of Motion No.2793 of 2002 is concerned, therein also we make the same absolute in terms of prayers (d) and (e) again, as stated earlier, restrict it only to US$ 120,490,000. We make it clear that the amount required to be deposited in both the motions together will not exceed Rupee equivalent of US$ 120,490,000. For maintaining both these orders, the Appellant will have to file undertakings of duly authorized Senior Managers of IDBI, State Bank of India, ILFS and such of their constituents taking responsibilities for these US$ 120,490,000 and stating therein in unequivocal terms that in the event the suit is dismissed, they will refund these amounts within 4 weeks from the date of the order (subject to any further order in appeal) with appropriate interest as may be directed at that stage. We direct that the undertakings will be filed within two weeks from today with a copy to the Respondents.87. The amount when realised in pursuance to this order including the amount of above Rs.60 crores and not exceeding in all US$ 120,490,000 when deposited will be invested by the ProthonotarySenior Master in fixed deposit in the State Bank of India, Mumbai for a period of 13 months to begin with and will continue to be renewed for further period of 13 months thereafter from time to time until further orders are passed in the suit.