Partly allowed

Ushdev International Limited and 2 Ors. v. Bhuwalka Steel Industries Ltd. and 6 Ors.

Bombay HC16 Jul 2014NMS/21/2014

Case brief

AI extract

What is this about?

The High Court of Bombay first instance, via a single judge, considered a notice of motion for appointment of a receiver and injunction in a suit for specific performance of agreements of sale. The court was satisfied the plaintiffs established a prima facie case regarding the underlying debt and property sales but refused blanket attachment before judgment due to existing bank mortgages on other

What did the court decide?

Notice of Motion made absolute regarding appointment of receiver and injunction for the three agreed sale properties; attachment of mortgaged plant and machinery refused on conditions; liberty granted

Ushdev International Limited and 2 Ors. Vs Bhuwalka… — Company and Corporate | Bombay HC (2014)

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dik

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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NOTICE OF MOTION NO. 21 OF 2014 IN

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SUIT NO.19 OF 2014

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Ushdev International Ltd. & Ors. ...Applicants/Plaintiffs vs Bhuwalka Steel Industries Ltd. & Ors. ...Defendants

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Mr Virag Tulzapurkar Sr. Advocate with Mr Venkatesh Dhond, Sr. Advocate with Mr Zain Najam-Es-Sani, a/w Mr Parag Sawant & Mr Dhiraj Mhetre i/b M/s Desai & Diwanji Advocates for the Plaintiffs.

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Mr Pravin Samdani Sr. Advocate with Mr Simil Purohit, Mr Alok Bagla & Ms Sneha Jain i/b Bagla & Associates for the Defendants

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CORAM : S.C. GUPTE, J.

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JULY 16, 2014

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P.C. :

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The Notice of Motion is taken out by the Plaintiffs for appointment of Court Receiver and injunction in respect of properties which are the subject matter of an agreement for sale between the parties. The Motion also seeks relief in the nature of attachment before judgment in respect of certain other properties of the Defendants. The suit is for specific performance of the agreement for sale purportedly executed between the parties, as also for a money decree.

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2 The Plaintiffs' case may be briefly stated as follows.

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3 Plaintiff No.1 is a company engaged in the business of trading in steel and metals. Plaintiff Nos.2 and 3 are affiliated to / controlled by Plaintiff No.1.

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4 Defendant No.1 is a company engaged in the business of manufacturing of iron beams, angles and TMTs etc. Defendant No.2 is an affiliate company of Defendant No.1, whereas Defendant No.3 is a subsidiary of Defendant No.1. Defendant Nos.4,5 and 6 are the Directors of Defendant Nos.1

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to 3 and are sued in their capacity as guarantors in respect of the debt owed by Defendant Nos.1 to 3 to the Plaintiffs.

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5 Since about 2008-09, Plaintiff No.1 sold and delivered raw materials consisting of steel and metals to Defendant No.1. There was a large outstanding owed by Defendant No.1 to Plaintiff No.1 in respect of these sales.

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6 Accordingly, in a meeting between the parties held on 24 August 2011, the proceedings whereof are minuted in the Minutes of Meeting of the same date, Defendant Nos.2 and 3 agreed to transfer 26 % shareholding of these Defendants in Defendant No.1 company to Plaintiff No.1. The Defendants also agreed to open an escrow account in a bank where sale proceeds of finished goods sold by the Defendants would be deposited and through which Plaintiff No.1 would be paid their outstanding dues. Defendant No.3 also agreed to pledge 60 % shares of Defendant No.3 to Plaintiff No.1. The Plaintiffs in turn agreed to continue to make further supplies on credit to Defendant No.1.

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7 On or about 11 October 2011, there was a memorandum of understanding executed between the parties ( MOU-1) which inter alia admitted a liability of Rs.19.01 crores owed by Defendant No.1 to Plaintiff No.1. MOU-1 inter alia provided for 90 days' credit for future supplies made by Plaintiff No.1 to Defendant No.1. MOU-1 also provided for opening of an escrow account by Defendant No.1 in a designated branch of Oriental Bank of Commerce. MOU-1 also provided for pledge of 60 % shares of Defendant No.3 with the Plaintiffs and at the same time required personal guarantees of Defendant Nos.4 and 5 for due repayment of the dues owed by Defendant No.1 to Plaintiff No.1. The escrow account has since been opened by Defendant No.1 in the designated bank. There was an agreement executed in respect of this account between the parties. In pursuance of the agreement for pledge of shares of Defendant No.3, the shares were also pledged with Plaintiff No.1. Defendant Nos.4 and 5 also executed personal guarantees in respect of the dues owed by Defendant No.1 to Plaintiff No.1.

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8 It appears that though initially some moneys were deposited into the escrow account referred to above, Defendant No.1 later on countermanded its instructions to its purchasers for depositing the sale price into the designated escrow account. There was a criminal complaint filed by the Plaintiffs in this behalf.

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9 On or about 5 December 2011, another memorandum of understanding (MOU-2) was executed between the parties. The MOU inter alia provided for the Plaintiffs' right to monitor the management of Defendant No.1 Company. It appears from the record that initially for some period, the Plaintiffs' representatives kept visiting Defendant No.1 for monitoring its management. It is the grievance of the Plaintiffs that after this initial period, the Defendants stopped the Plaintiffs' representatives from visiting Defendant No.1.

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10 By 30 May 2012, the liability of Defendant No.1 had risen to Rs.107.48 crores. A further memorandum of understanding ( MOU-3) was executed between the parties on 30 May 2012 which inter alia acknowledged this liability. MOU-3 also provided for sale of the immovable property of the Defendants at Hoskote village in Karnataka which was mortgaged to a bank, to the Plaintiffs.

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11 On or about 21 August 2012, a further MOU was executed between the parties (MOU-4), which inter alia admitted the liability of about Rs.119.12 crores owed by Defendant No.1 to Plaintiff No.1.

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12 On 19 February 2013, another memorandum of understanding (MOU-5) was executed between the parties which inter alia required Defendant No.1 to pay a sum of Rs.10 crores per quarter to Defendant No.1. MOU-5 also provided for an agreement for sale to be entered into by Defendant No.3 for sale of the immovable property of the Defendants at Kanchipuram to the Plaintiffs. MOU-5 inter alia also provided the Plaintiffs' right to take over possession of the property in the event of default in payment of the quarterly sums by Defendant No.1.

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13 In pursuance of the MOUs referred to above, a registered agreement for sale was executed between the parties on 21 March 2013 in respect of the Hoskote property. The price of the property was fixed at Rs.13 crores. The sale was agreed to be completed by 15 April 2013. It is the case of the Plaintiffs that the entire price of Rs.13 crores was paid by Plaintiff No.2 to Defendant No.3, but the sale has since not been completed.

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14 Another agreement for sale dated 22 March 2013 in respect of the Kanchipuram property was also executed between Defendant No.3 and Plaintiff No.3. A consideration of Rs.3 crores was fixed for the sale. It is the case of the Plaintiffs that this consideration was fully paid by Plaintiff No.2 on behalf of Plaintiff No.3 to Defendant No.3 but the sale was not completed by Defendant No.3.

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15 On or about 30 March 2013, another memorandum of understanding (MOU-6) was executed between the parties, under which Defendant No.1 agreed to sell to Plaintiff No.3 the plant and machinery of Defendant No.1 at its factory at Hoskote. A consideration of Rs.6 crores was paid by Plaintiff No.2 on behalf of Plaintiff No.3 in respect of this sale.

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16 Accordingly, it is the Plaintiffs' case that for the sale of these three properties, namely, the Hoskote property, the Kanchipuram property and the plant, machinery at Hoskote, Plaintiff No.2 paid a total sum of Rs.22 crores in full and final payment of three agreements of sale referred to above.

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17 For the dues owed by the Defendants to the Plaintiffs, the Plaintiffs rely on their books of account, as also monthly confirmations issued by Defendant No.1 of the outstandings owed by Defendant No.1 to Plaintiff No.1 from time to time, the last of such confirmations having been executed by Defendant No.1 on 10 June 2013, acknowledging the liability of the total sum of about Rs.128 crores, which is claimed in the present suit by way of a money

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decree.

18 In these premises, the Plaintiffs seek specific performance of the three agreements of sale referred to above, as also a permanent injunction in respect of the properties which are the subject matter of the said agreements for sale. The Plaintiffs also claim a charge over the said property and seek enforcement of that charge in the present suit. The Plaintiffs also seek a money decree for about Rs.128 crores. By way of the present interlocutory application, the Plaintiffs pray for appointment of Receiver and injunction in respect of the properties which are the subject matter of the three agreement for sale, as also relief in the nature of an attachment before judgment towards the money decree claimed by the Plaintiffs.

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19 The Defendants resist the Plaintiffs' claim inter alia on the ground that the transactions between the parties were merely paper transactions and that there was no real transaction of sale of goods by the Plaintiffs to the Defendants. It is submitted by the Defendants that there were circular documents executed between the parties and as a matter of fact, no goods were supplied by Plaintiff No.1 to Defendant No.1. It is the case of the Defendants in their reply that an amount of Rs.47.58 crores is shown as due and payable by Defendant No.1 to Plaintiff No.1 in its audited balance sheet, but “ in the subsequent balance sheet, which is yet to be audited prima facie nothing is due and payable by Defendant No.1 to either of the Plaintiffs on any account whatsoever ”. As for sale of the properties, it is the case of the Defendants that at no point of time did any transaction in respect of any proposed sale ever take place between the parties. The Defendants deny having received any payment in respect of the alleged transactions concerning the properties. The Defendants also claim that the various MOUs and agreements referred to in the plaint were signed by the Defendants without the knowledge of their contents. At the same time, it is also submitted that the MOUs and agreement were not to be acted upon, and that all documents were created for the convenience of the Plaintiffs. It is claimed that the Plaintiffs wanted to show a large turnover of business, since they were contemplating a public issue around the time and the documents were executed

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with a view to give an impression of such large turnover.

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20 Before we assess the relative merits of the rival cases, one particular aspect of the matter may be disposed of. Mr Samdani, learned senior counsel appearing for the Defendants, submits that the suit is really in respect of a money claim of Rs.128 crores and that this total money claim includes a sum of Rs.22 crores purportedly paid by the Plaintiffs towards the purchase of the suit properties under the agreements for sale referred to in the plaint. The learned Counsel relied upon certain paragraphs in the pleadings of the Plaintiffs in this behalf. Mr Tulzapurkar, learned Senior Counsel appearing for the Plaintiffs, admitted at the hearing that the total claim of Rs.128 crores indeed includes the sum of Rs.22 crores paid by Plaintiff No.2 to the Defendants. Mr Tulzapurkar submits that there is an error in the prayer clause of the plaint read with the particulars of claim annexed to the plaint. We need not discuss this matter any further except to note that the Plaintiffs' claim, over and above the specific performance of the three agreements for sale, is for a sum about Rs.106 crores and not Rs.128 crores as claimed in the plaint.

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21 The defence, namely, that the transactions between parties were only paper transactions, with circular documents and nothing in fact was due and payable by Defendants to the Plaintiffs, may now be considered. It is pertinent to note that the Plaintiffs have not only relied upon the invoices raised by Plaintiff No.1 on Defendant No.1 in respect of the sales of various consignments to Defendant No.1, but the Plaintiffs have also relied upon the consignment notes and lorry receipts evidencing receipt of goods covered by the respective consignments by Defendant No.1. The Plaintiffs have relied upon tax invoices of various suppliers with Defendant No.1 as consignee and Plaintiff No.1 as the buyer, as also the corresponding invoices raised by Plaintiff No.1 on Defendant No.1 and the consignment notes and lorry receipts signed by Defendant No.1 in proof of receipt of goods corresponding to each individual invoice. Apart from the invoices, consignment notes and lorry receipts referred to above, there have been as many as six MOUs executed between the parties which inter alia acknowledged from time to time the liability owed by Defendant No.1 to Plaintiff

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No.1 in respect of the supply of goods. There was an agreement for opening of an escrow account. This agreement had been performed partly by actually opening the account and depositing money in this account. Apparently, the Plaintiffs have been partly paid through this account. Then there are monthly acknowledgments of liabilities signed by Defendant No.1 from time to time, the last of such acknowledgments having been signed on 10 June 2013 acknowledging a total liability of over Rs.128 crores. Apart from these documents, there is a clinching admission in the form of an email addressed by Defendant No.1 ( under the signature of the Chairman and Managing Director of Bhuwalka Group of Companies) which acknowledges the balance outstanding in the Defendants' books towards the goods sold and delivered by Plaintiff No.1 to Defendant No.1. The communication also acknowledges that various payments in respect of the sale of properties made by Plaintiff No.2 would be repaid to Plaintiff No.1 towards clearing of the debts outstanding. Having regard to the voluminous evidence referred to above, the Plaintiffs have certainly made out an overwhelming prima facie case that the Defendants owed a sum of over Rs.106 crores to the Plaintiffs for goods sold and delivered. The defence of mere paper transactions, and circular documents, has prima facie no merits.

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22 The Defendants' case that the documents including MOUs were executed without the knowledge of their contents or that they were not to be acted upon or that they were created for the sake of the Plaintiffs' convenience, is clearly unbelievable. In fact each of these defences undermines the other defences. The Plaintiffs have pointed out in their rejoinder that the only public issue, which Plaintiff No.1 came up with, was in 1994-95 and there was no public issue planned around the period of the suit transactions. Nothing is brought on record by the Defendants to show that any public issue was planned by the Plaintiffs around the relevant time. The defence that the transactions between the parties were merely to create a record with a view to show a large turnover of business with Plaintiff No.1, has no merit whatsoever.

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23 As regards the transactions concerning the properties, there are registered agreements of sale of two immovable properties, namely, the Hoskote

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property and the Kanchipuram property. There are clear admissions in the replies that the Defendants have received the consideration payable for sale of the properties. In paragraph 9, 10, 11 of their reply, the Defendants agree that Plaintiff No.2 had paid amounts of Rs.22 crores by transferring the same to the account of Defendant No.1. It is, however, claimed that these moneys, on instructions of Plaintiff No.1, have since been retransferred to the account of Plaintiff No.1. The fact of the matter is that there are large liabilities owed by Defendant No.1 to Plaintiff No.1 and there was a clear understanding between the parties that the consideration received towards sale of these properties from Plaintiff No.2 would be paid to Plaintiff No.1 towards discharge of those liabilities. Accordingly, the Defendants have paid the amounts received towards sale of the properties to Plaintiff No.1 and the liability owed to Plaintiff No.1 is reduced to that extent. Then there are no objection certificates for sale of these properties issued by the Banks who respectively held mortgages of these properties. All this evidence prima facie goes to show that there are agreements for sale executed between the parties and the Plaintiffs have paid various amounts to the Defendants towards the consideration of such sales.

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24 The Plaintiffs' case for specific performance of the agreements for sale referred to above prima facie stands established. There is a case for protection of the Plaintiffs in respect of the properties which are the subject matter of the agreements for sale.

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25 As far as the Plaintiffs' claim for attachment before judgment is concerned, the Plaintiffs have made averments in plaint that the Defendants may dispose of their assets with a view to frustrate the claim of the Plaintiffs and they are likely to act in a manner to frustrate the decree which is likely to be passed in favour of the Plaintiffs. It is submitted that the assets of the Defendants are far less than the liability owed by the Defendants to the Plaintiffs. It is also submitted that the conduct of the Defendants clearly establishes that the Defendants have no commercial moral and they want to avoid and frustrate their liabilities and commit acts of fraud and misrepresentation. Apart from these bald averments, there is nothing brought on record to show that any property was in fact disposed

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of or attempted to be disposed of by the Defendants. No doubt, there is a large liability owed by the Defendants to the Plaintiffs and there can be a legitimate case for some protection of the Plaintiffs. But then, as admitted by the Plaintiffs in their rejoinder, the properties in respect of which an attachment before judgment is claimed, namely, the plant and machinery as well as the immovable property of Defendant No.1 at Wada, are mortgaged to IDBI and Canara Bank as a security for the exposure of nearly Rs.200 crores to the two banks. It is also an admitted position that a CDR scheme was approved to enable Defendant No.1 to pay its debts to its secured creditors. Having regard to the mortgage security of the two banks in respect of the wada properties, and the CDR scheme proposed to be implemented, there is little likelihood of the Wada properties being sold by the Defendants with a view to defeat the Plaintiffs' claim in the suit. An adequate protection can always be considered in the event of sale of Wada properties or redemption of mortgage of the two banks in respect thereof.

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26 Accordingly, as the Plaintiffs have made out a case for interim relief, the following order is passed:

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i) The Notice of Motion is made absolute in terms of prayer clause (a)(i) to (a)(iii) except the bracketed portion in prayer clause (a)(i), namely, “acting contrary to the terms and conditions of the Agreement being Exhibit A and the MOUs 1 to 6 being Exhibits B,I,J,K,L, and Q to the Plaint and/or”;

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ii) As regards the property, movable and immovable, situated at 204, Mauji Khupri, Taluka Wada, District Thane as described in Exh. U to the plaint, as and when the property is brought to sale in enforcement of the mortgage security of Canara Bank and IDBI Bank or the mortgages are redeemed in any other manner, Defendant No.3 shall communicate the fact of such sale or redemption, as the case may be, to the Plaintiffs;

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iii) The Defendants shall also communicate to the Plaintiffs the various

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steps taken under the CDR scheme under implementation;

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iv) The Plaintiffs will have liberty to apply in the event of sale of the property described in Exh.U or redemption of the mortgage of the two banks in respect of such property;

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v) Notice of Motion is disposed of accordingly;

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vi) There shall be no order as to costs.

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( S.C.GUPTE J. )

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Ushdev International Limited and 2 Ors. v. Bhuwalka Steel Industries Ltd. and 6 Ors.

Case brief

What is this about?

What did the court decide?

Ushdev International Limited and 2 Ors. v. Bhuwalka Steel Industries Ltd. and 6 Ors.

Case brief

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What did the court decide?

What the court decided

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