Case: La-Fin Financial Services Private Limited Vs. Il &amp; Fs Financial Services Private Limited

1. Admit. By consent of parties, and at their request, the Appeal is taken up for hearing and final disposal.2. This Appeal takes exception to the order dated 13th October, 2014 under which the learned Single Judge granted an interim injunction against the Appellant in terms of prayer clause (f) of the Notice of Motion, subject to the attachment levied by the Economic Offences Wing (EOW). It was further ordered that in the event the attachment levied by the EOW was raised, or the assets were released in the future by the EOW, the injunction granted by the impugned order would operate, pending the hearing and final disposal of the suit, till the Appellant (Original Defendant) secures the suit claim by deposit of monies or furnishing of such security as may be approved by the Court. Considering that the Appellant was merely an investment company, the Court further ordered that in case its investments need to be altered or renewed, the same could be done after seeking a prior order of the Court in that regard.3. The suit filed by the Respondent (Original Plaintiff) inter alia seeks specific performance of the Agreement / Letter of Undertaking dated 20th August, 2009 under which, according to the Respondent, the Appellant inter alia undertook and assured that they would buy back the Respondents shareholding in a company called MCX Stock Exchange Ltd.a commodity exchange, on the terms and conditions, more particularly set out therein. It is in this suit that the above Notice of Motion was filed in which the impugned order isthe sake of convenience, we shall refer to the parties as they were arrayed before the learned single Judge, the Appellant being the original Defendant, and the Respondent being the original Plaintiff.5. Having set out the scope of challenge, and before it is dealt with by us, it would be necessary to set out a few facts. The Plaintiff is a company incorporated under the Companies Act, 1956 and inter alia carries on the business of lending and / or financing. It is a wholly owned subsidiary of Infrastructure Leasing and Financial Services Ltd. (ILFS). The holding Company of the Plaintiff (ILFS) in turn is promoted by leading banks / institutions and has a broad based shareholding of institutional shareholders such as State Bank of India, Life Insurance Corporation of India, Unit Trust of India, Central Bank of India etc. On the other hand, the Defendant is a private limited company whose 100% shareholding is held by one Mr Jignesh Shah and Mrs Rupal Shah. The Defendant is also the promoter of a company called Financial Technologies (India) Ltd. (FTIL). Mr Jignesh Shah is and was at the relevant time also the Chairman and Group CEO of FTIL. FTIL, in turn, is the promoter of one Multi Commodity Exchange of India Ltd. (MCX Ltd.) of which Mr Jignesh Shah is and was at the relevant time a ViceChairman. MCX Ltd.FTIL are promoters and shareholders of(a commodity exchange) of which Mr Jignesh Shah is again theFor the sake of convenience, all these entities are referred to as the MCX Group.6. It is the case of the Plaintiff that prior to 20th August 2009, the Plaintiff held approximately 5% of the equity share capital of MCX Ltd. and pursuant to negotiations held between the Plaintiff and the MCX Group, it was agreed that (1) the Plaintiff would exit MCX Ltd.; (2) its investment in MCX Ltd. would be transferred to another investor (IFCI); (3) part of the proceeds realisedwould be used by the Plaintiff to purchase from MCX Ltd. 4,42,00,000 equity shares in(representing approximately 2.46% of its equity share capital); and (4) the Defendant (as a condition to the Plaintiff purchasing the said 4,42,00,000 shares ofwould offer to buy or cause to be brought from the Plaintiff the said 4,42,00,000 shares at an agreed price and within an agreed period.7. According to the Plaintiff, the aforesaid arrangement was formalised by the parties (a) by executing a Share Purchase Agreement dated 20th August, 2009 (SPA) between the Plaintiff, MCX Ltd. andunder which the Plaintiff was to purchase 4,42,00,000 equity shares ofand belonging to MCX Ltd.; (b) by the Defendant executing a Letter of Undertaking dated 20th August, 2009 inter alia undertaking an obligation to purchase the Plaintiffs shareholding ineither by itself or its nominees, at any time after a period of one year, but no later than three years from the date of the Plaintiffs investment, and on the terms and conditions more particularly set out in the said Letter. It is this Letter of Undertaking of which specific performance is sought.8. On the basis of this Letter of Undertaking and relying upon the same, the Plaintiff, on 20th August, 2009 purchased from MCX Ltd. 4,42,00,000 shares ofat a price of Rs.36/per share aggregating to an amount of Rs.159,12,00,000/(Rupees One Hundred Fifty Nine Crores Twelve Lakhs only).9. On 20th November 2009, the Plaintiff received a notice fromregarding an Extraordinary General Meeting that was to be held on 15th December, 2009. This EOGM was to consider a scheme of reduction of share capital ofOn examination of this proposed scheme of reduction, the Plaintiff regarded the same as being prejudicial to its interest and therefore decided to vote against it. This was duly communicated by the Plaintiff to the MCX Group. According to the Plaintiff, this communication led to further communications, telephonic discussions and meetings which ultimately led to a satisfactory resolution with MCX Ltd., in its capacity as promoter ofaddressing a letter dated 14th December, 2009 to the Plaintiff referring to the SPA as well as the Defendants Letter of Undertaking dated 20th August, 2009.10. In view of this letter dated 14th December 2009, the Plaintiff voted in favour of the scheme of reduction of capital and which was thereafter accorded approval by the Company Court on 12th March, 2010. In view of this scheme of reduction, the Plaintiffs shareholding inbecame just below 5% and warrants were issued in favour of the Plaintiff for the shares that were extinguished. As assured and undertaken, these warrants were purchased by MCX Ltd. on 20th March, 2010. Therefore, presently, the Plaintiff holds 2,71,65,000 equity shares ofrepresenting just under 5% of its equity share capital.11. After all this was done, on 23rd August 2010, the Plaintiff received a letter frominter alia stating that FTIL had informedthat the obligations of the Defendant under its Letter of Undertaking dated 20th August, 2009 (and of which specific performance is sought) had become infructuous and stood superseded upon the scheme of reduction having been approved by the Company Court. This letter further stated that in purported compliance with the directions issued by this Court in Writ Petition No.1440 of 2010 filed byagainst SEBI (order dated 10th August, 2010), the Board of Directors of the Defendant had passed a Resolution dated 12th August, 2010 declining to honour any buy back or other similar arrangements.12. The stand taken in this letter was of course refuted by the Plaintiff in its reply dated 10th September, 2010. In its letter, the Plaintiff reiterated that the fundamental premise on which the Plaintiff had purchased the shares ofwas on the basis that the Defendant would buy back these shares as stipulated in the Defendants Letter of Undertaking dated 20th August, 2009. The Plaintiff therefore categorically refuted the contention ofthat the obligation cast upon the Defendant to buy back the shares ofpursuant to its Letter of Undertaking dated 20th August, 2009 had become infructuous or superseded. After this letter, there was no response from the Defendant or any other member of the MCX Group.13. As stated earlier, under the Letter of Undertaking dated 20th August 2009, the Defendant had undertaken to purchase the Plaintiffs shareholding inafter a period of one year but not later than three years from the date of the Plaintiffs investment, at a price more particularly set out in the said Undertaking. In view of this, and since the period of three years was to expire on 19th August 2012, the Plaintiff by its letter dated 3rd August 2012 stated that it would like to sell its entire shareholding of 2,71,65,000 equity shares which the Defendant was obliged to purchase or cause to be purchased, and requested the Defendant to indicate the specific procedure by which it would fulfill its commitment.14. In reply thereto, the Defendant sought to rescind from its obligations under the Letter of Undertaking on various grounds as more particularly set out in the said letter. The basic grounds taken in the said letter were that (a) the Letter of Undertaking was void under law and unenforceable in light of the alleged prohibition contained in the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporation) Regulations, 2012 (SECC Regulations) which replaced the MIMPS Regulations and imposed a bar on holding equity in excess of limits prescribed therein; this prohibition made the undertaking impossible to perform; and that there was no obligation on the Defendant to purchase the said shares as the same were to be purchased at its sole discretion; (b) the obligation to buy the shares offrom the Plaintiff stood extinguished by reason of the scheme of reduction approved by the Company Court and to which consent was accorded by the Plaintiff.15. Thereafter, further correspondence took place between the parties and finally on 15th April, 2013 the Plaintiff informed the Defendant that the Defendant owed an amount of Rs.161,99,03,280/to the Plaintiff as on 31st March, 2013 as per the Letter of Undertaking dated 20th August, 2009 and requested the Defendant to remit the same to the account of the Plaintiff. This, of course, was refuted by the Defendant and hence the present suit, in which the Plaintiff has inter alia sought specific performance of the Letter of Undertaking dated 20th August, 2009.

Court's reasoning:
The first contention raised by Mr Naphade was that the Letter of Undertaking dated 20th August, 2009to the Plaint), is not a concluded contract and therefore, no prayer for specific performance can be granted in relation thereto. According to Mr Naphade, therefore, no interim relief could have been granted in aid of the final relief of specific performance. To understand this controversy, we have perused the Letter of Undertaking in some detail. The said Letter of Undertaking starts of by referring to the SPA dated 20th August, 2009 signed between the Plaintiff, MCX Ltd andunder which the Plaintiff had agreed to invest in the share capital ofThe Letter of Undertaking further specifically records that the Plaintiff had agreed to invest in the equity ofon the assurance and undertaking of the Defendant that it would purchase the Plaintiffs shareholding inon the terms and conditions set out in the Letter of Undertaking.On a reading of the Letter of Undertaking as a whole, at least prima facie, we are unable to agree with the submissions of Mr Naphade that the same amounted only to an offer, and was therefore, not a concluded contract between the Plaintiff and the Defendant. Firstly, clause (1) of the said Letter of Undertaking categorically contemplates that the Defendant or its nominees have an obligation to purchase the Plaintiffs shareholding inby giving a written notice at any time after completion of one year from the date of investment but no later than three years thereof, after which the Plaintiffs right to call upon the Defendant to purchase its shareholding would lapse. The price at which the shareholding would be purchased is also mentioned in the said clause and stipulates that the Buy Back Price would be (i) a price which provides an Internal Rate of Return (IRR) of 15% on the investment or; (ii) a price at which the most recent transaction ofequity shares is carried out byor MCX Ltd or FTIL group, whichever is higher. Clause 2 of the Letter of Undertaking also contemplates thatplans to come out with an IPO and the Defendant assures the Plaintiff that the IPO price would not be less than the Buy Back Price, and that the Plaintiff would be provided the right to completely exit by way of an offer for sale, or else the Defendant shall provide the Buy Back Offer as set out in Clause 1, at the Buy Back Price, before the listing of the shares. Clause 3 further contemplates that once the Plaintiff, by written communication calls upon the Defendant to purchase its shareholding, the same will be consummated within seven days unless mutually extended. Clause 7 further provides that this letter has been given by the Defendant for valuable and bonafide consideration and the Defendant undertakes not to contest this letter for lack of consideration.24. We are unable to accede to the submissions of Mr Naphade that the Letter of Undertaking only amounted to an offer, which according to Mr Naphade was withdrawn, before it was accepted by the Plaintiff. By virtue of the said Letter of Undertaking, the Plaintiff was persuaded to invest in the equity share capital ofon the basis that its shareholding inwould be purchased in the future by the Defendanton the terms and conditions set out in the Letter of Undertaking.To our mind, this commitment/obligation of the Defendant was complete and it was not merely an offer to purchase the Plaintiffs shareholding at a future date. We say this also because the Letter of Undertaking itself records that the same has been given for valuable consideration. If the Letter of Undertaking was merely an offer, as contended by Mr Naphade, there would be no question of the same being given for any consideration, because an offer does not have to be coupled with consideration. This would therefore indicate that the Letter of Undertaking was something more than merely an offer as contended by the Mr. Naphade. Therefore, at least prima facie at the interim stage of the suit, we are unable to agree with the submissions of Mr Naphade that the Letter of Undertaking, being merely an offer, was not unenforceable.25. Equally, we find the reliance placed by Mr Naphade on paragraphs 77 and 104(vii) of a decision of this Court in Writ Petition No.213 of 2011, decided on 14th March, 2012 (supra) (to further his argument that there was no concluded contract), is wholly misplaced. The Division Bench was deciding a writ petition in which a decision of SEBI rejecting the application filed byfor permission to undertake the business as a Stock Exchange, was challenged. This order of SEBI was passed under section 4 of the Securities Contracts (Regulation) Act, 1956 read with sections 11 and 19 of the Securities Exchange Board of India Act,reading the aforesaid judgment and the relevant paragraphs pointed out above, we are clearly of the view that the Division Bench did not seek to hold anything of the sort as is sought to be contended by Mr Naphade. The Division Bench does not hold that the Letter of Undertaking is merely an offer and therefore not a concluded contract. In fact, reading the judgment it is clear that even the Division Bench was of the view that the option given by the Defendant to the Plaintiff to sell its shareholding to the Defendant on the terms and conditions set out therein, was binding on the Defendant. Further, even the Petitioner as well as Respondent Nos.3 and 4 therein, proceeded on that very basis when they submitted to the Court that the Buy Back Arrangement as contemplated under the Letter of Undertaking dated 20th August, 2009 was lawful. We, therefore, have no hesitation in rejecting the first contention of Mr Naphade. At least prima facie, we are of the opinion that the Letter of Undertaking dated 20th August, 2009 is specifically enforceable.To our mind, this is also how the parties understood it. This becomes clear when one refers to the submissions canvassed by FTIL as well as MCX Ltd., before the Division Bench in Writ Petition No.213 ofthis view of the matter, and in view of the specific stand taken by the MCX Group before the Division Bench in Writ Petition No.213 of 2011, at least prima facie we are unable to agree with the submission of Mr Naphade that specifically enforcing the Letter of Undertaking would have the effect of breaching the MIMPS Regulations and/or the SECC Regulations. This, according to us, cannot be a ground at the interim stage to deny the Plaintiff interim reliefs if they are so entitled, otherwise. This contention would also therefore have to be rejected.36. The last contention raised by Mr Naphade was that in any event of the matter, the relief granted by the learned single Judge was in the nature of attachment before judgment and no case whatsoever has been made out for granting such a drastic relief against the Defendant. We must note that the learned single Judge, after discussing the facts of the case, granted an interim injunction in terms of prayer clause (f) of the Notice of Motion. This interim injunction was granted subject to the attachment levied by the EOW and it was clarified that in the event the EOW raises the attachment or releases the assetsthe injunction order would operate pending the hearing and final disposal of the suit, until the Defendant secures the suit claim by deposit of monies or furnishing of such security as may be approved by the Court.Mr Naphade, on reading the impugned order, sought to equate the injunction granted by the learned single Judge to a relief for attachment before judgment. He submitted that in any event of the matter, in a case like the present one, if no case for attachment before judgment was made out, no injunction could be granted. To support this submission, Mr Naphade places heavy reliance on the judgment of this Court in the case of Swan Mills Ltd.(Supra) and more particularly paragraph 14 thereof.38. We are unable to agree with this submission of Mr Naphade. There is a clear distinction between the relief for attachment before judgment, which is governed by the provisions of Order 38 Rule 5, and the grant of temporary injunctions under Order 39 of the Code of Civil Procedure, 1908. The argument of Mr Naphade proceeds on the basis that the powers of the Court are circumscribed by the provisions of Order 38 Rule 5 and Order 39 of the CPC, 1908 and that on the facts and circumstances of the case, the reliefs asked for were not capable of being granted. His submission was that the injunction as prayed for, and granted, would have the same effect as an order passed under Order 38 Rule 5 of the CPC, 1908. This submission, according to us, proceeds on the wrong premise. Firstly, the grant of relief under Order 38 Rule 5 is on different considerations from the grant of relief of temporary injunctions. Secondly, it is now a well settled legal position, that at least with respect to Chartered High Courts, the power to grant temporary injunctions are not confined to the statutory provisions alone. The Chartered High Courts have an inherent power under the general equity jurisdiction to grant temporary injunctions independently of the provisions of the Code. In this regard, it would be useful to refer to a decision of the Supreme Court in the case of Manohar Lal Chopra v/s Rai Bahadur Rao Raja Seth Hiralal.(AIR 1962 SC 527  ) In the said decision, the majority view held that the provisions of the CPC, 1908 are not exhaustive for the simple reason that the Legislature was incapable of contemplating all the possible circumstances which may arise in future litigations, and consequently providing a procedure forIn view of this authoritative pronouncement of the Supreme Court, we are unable to agree with the submission of Mr Naphade that in a money suit, if no case for attachment before judgment is made out, no injunction can also be granted. This is too sweeping a proposition for us tothat extent, we find that the judgment in Swan Mills Ltd.s case(Supra) does not lay down the correct law. In view thereof, the reliance placed by Mr Naphade on the said decision is of no assistance to the Defendant. We must add here that we are not for a moment suggesting that in every case an injunction ought to be granted by resorting to section 151 of the CPC, 1908. The discretion to grant or refuse the grant of injunctions, has to be exercised on well settled principles and would depend on the facts and circumstances of each case.Looking at all this material, and it being a part of the record before the learned single Judge, we do not think that the discretion exercised by him in granting the interim injunction against the Defendant, could be said to be either perverse, capricious, arbitrary or not based on well settled principles, so as to enable us to interfere with the exercise of such discretion.We do not find that in the facts and circumstances of the present case, the learned single Judge has in any way exercised the discretion vested in him either perversely, capriciously, arbitrarily or against the well settled principles of law relating to the grant or refusal of temporary injunctions, for us to interfere in our appellate jurisdiction. Equally, we find the reliance placed by Mr. Naphade on the decision of the Supreme Court in the case of Raman Technical and Process Engineering Co.(Supra) has no application to the present scenario. The Supreme Court held that a relief for attachment before judgment cannot be granted on the basis of bald and vague averments. In the present case, the learned single Judge has not granted any relief of attachment of before judgment, but instead granted an interim injunction. Even otherwise, we do not think that the averments made or the material produced by the Plaintiff, and referred to by us earlier, can be said be bald or vague as sought to be contended by Mr. Naphade. Therefore, this decision of the Supreme Court is wholly inapplicable.