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Evergrwoing Investments & Consultants Private Limited v/s Tomorrowland Technologies Exports Limited & Another

    EFA(OS). No. 2 of 2020 & CM. APPL. No. 1687 of 2020 (for stay)
    Decided On, 25 August 2020
    At, High Court of Delhi
    By, THE HONOURABLE MR. JUSTICE RAJIV SAHAI ENDLAW & THE HONOURABLE MS. JUSTICE ASHA MENON
    For the Appellant: Rakesh Malhotra, Advocate. For the Respondents: R1, Pavan Sachdeva, Managing Director.


Judgment Text

[Via Video Conferencing]

Rajiv Sahai Endlaw, J.

1. The appeal impugns the order dated 21st November, 2019 of the Single Judge of this Court in Execution Petition No.33/2018 filed by the respondent no.1/decree holder Tomorrowland Technologies Exports Limited against the respondent no.2/judgment debtor Krishan Lal Monga & Co., allowing EA(OS) No.402/2019 of the respondent no.1/decree holder for impleadment of the appellant as a judgment debtor in the execution petition and directing the appellant to file affidavit of its assets and restraining the appellant from alienating, encumbering or otherwise dealing with its assets.

2. The appeal came up first before this Court on 17th January, 2020 when, while issuing notice thereof, on the contention of the counsel for the appellant that the appellant had merely purchased the share broking ticket of Delhi Stock Exchange (DSE) from respondent no.2/judgment debtor Krishan Lal Monga & Co. and by such purchase was liable only to the Securities and Exchange Board of India (SEBI) or for any other liability determined by SEBI and not for other debts of the respondent no.2/judgment debtor Krishan Lal Monga & Co., operation of the order dated 21st November, 2019 of the Single Judge was stayed.

3. The appeal thereafter could not be taken up for hearing owing to the prevalent pandemic. The respondent no.1/decree holder applied for listing the appeal for virtual hearing and which application came up before this Court on 19th June, 2020 and was allowed and the counsel for the appellant and Mr. Pavan Sachdeva of the respondent no.1/decree holder heard on the appeal, on that date itself. However after some hearing it was felt that neither was ready with all the requisite information and law and accordingly the hearing was adjourned to today.

4. Being prima facie of the opinion that the appellant could not be made a judgment debtor in the execution petition against the respondent no.2/judgment debtor Krishan Lal Monga & Co., when there was no decree against the appellant and that the appellant, as judgment debtor could not be directed to file affidavit of assets, we have called upon Mr. Pavan Sachdeva of the respondent no.1/decree holder to address us first.

5. Mr. Pavan Sachdeva states that he has yesterday filed documents running into 43 pages and it is his contention, that (i) the respondent no.2/judgment debtor Krishan Lal Monga & Co. was the sole proprietary of one Krishan Lal Monga and owned a share/ticket of DSE and was a stock broker of DSE; (ii) Krishan Lal Monga died in or about the year 1989 and whereupon his son Parjinder Monga got himself substituted with DSE as sole proprietor of respondent no.2/judgment debtor Krishan Lal Monga & Co. and continued to carry on business in the name and style of Krishan Lal Monga & Co. as a stock broker of DSE; (iii) respondent no.2/judgment debtor Krishan Lal Monga & Co. entered into an Agreement dated 10th January, 1995 with the respondent no.1/decree holder, whereunder the respondent no.2/judgment debtor Krishan Lal Monga & Co. agreed to underwrite the public issue of the share of respondent no.1/decree holder; (iv) the public issue of the shares of respondent no.1/decree holder remained under subscribed and liability devolved upon the underwriters of the public issue; the respondent no.2/judgment debtor Krishan Lal Monga & Co. however failed to honour its underwriting commitment, leading to disputes between the respondent no.1/decree holder and respondent no.2/judgment debtor Krishan Lal Monga & Co. and which disputes, as per the arbitration clause in the Underwriting Agreement, were referred to Arbitration; (v) the Arbitral Tribunal rendered an Arbitral Award dated 30th October, 2013 along with addendums dated 30th July, 2014 and 17th December, 2014, holding the respondent no.2/judgment debtor Krishan Lal Monga & Co. liable to the respondent no.1/decree holder in the sum of about Rs.25,00,000/-; (vi) the said Award attained finality (however from the record it emerges that the respondent no.1 / decree holder on the basis of the said Award filed a suit against the respondent no.2 / judgment debtor and in which decree was passed) and the respondent no.1/decree holder filed Execution Petition no.33/2020 in this Court, to execute the said Arbitral Award having force of a decree/decree; (vii) the respondent no.2 / judgment debtor Krishan Lal Monga & Co. filed objections to the execution inter alia stating that the respondent no.2 / Judgment debtor Krishan Lal Monga & Co., in the year 1997 had been taken over by the appellant and though Parjinder Monga, till May, 1999 was a Director in the appellant but thereafter ceased to have any position in the appellant company and that the appellant, vide letter dated 4th April, 1997 had undertaken to the DSE to settle all the liabilities of respondent no.2 / judgment debtor Krishan Lal Monga & Co.; (viii) no recovery was made in the execution from the respondent no.2/judgment debtor Krishan Lal Monga & Co. till date; (ix) the respondent no.1/decree holder filed EA (OS) No.402/2019 aforesaid for impleading the appellant as judgment debtor and to which a reply was filed by the appellant; and,(x) vide the impugned order dated 21st November, 2019, the Single Judge allowed the impleadment of the appellant as a judgment debtor and impleaded the appellant as judgment debtor No. 2 and directed the appellant/judgement debtor as well as respondent no.2/judgment debtor Krishan Lal Monga & Co. to file affidavit of their assets on the date of cause of action.

6. A perusal of EA (OS) No.402/2019 filed by the respondent no.1/decree holder for impleadment of the appellant as judgment debtor shows the respondent no.1/decree holder to have therein pleaded, that (a) the respondent no.2/judgment debtor Krishan Lal Monga & Co., in its objections to the execution had claimed that the respondent no.2/judgment debtor Krishan Lal Monga & Co. was taken over by the appellant and that the appellant, vide letter dated 4th April, 1997 had undertaken to settle all the liabilities of the respondent no.2/judgment debtor Krishan Lal Monga & Co.;(b) the Single Judge as the Executing Court, vide order dated 18th January, 2019 had summoned the directors of the appellant and in response whereto one Ms. Pooja Anand had appeared before the Executing Court on 8th August, 2019 and stated that Ms. Shalu Sharma and Mr. Bhagwat Dass were the directors of the appellant and Mr. Shankar Lal Singhania owned 46% of the shares of the appellant; and,(c) thus the respondent no.1/decree holder should be permitted to implead the appellant, which had taken over the respondent no.2/judgment debtor Krishan Lal Monga & Co., as a judgment debtor.

7. A perusal of reply filed by the appellant to the aforesaid application shows the appellant to have pleaded, that (i) the entire claim of the respondent no.1/decree holder against the appellant was predicated on letter dated 4th April, 1997; (ii) the said letter is merely an undertaking by the director of the appellant to the executive director of the DSE and whereunder the appellant undertook to settle all the liabilities of the respondent no.2/judgment debtor Krishan Lal Monga & Co., from whom the appellant had purchased the share ticket of DSE, pertaining to SEBI Turnover Tax or any other liability as determined by SEBI and found payable by the ex-member; (iii) the said undertaking is with respect to the liabilities of the ex-member Krishan Lal Monga & Co., relating to SEBI Turnover Tax or any other liability as determined by SEBI and would not include the liability of the respondent no.2/judgment debtor Krishan Lal Monga & Co. under the decree in execution; (iv) the appellant is not a privy to the transaction between respondent no.1/decree holder and the respondent no.2/judgment debtor Krishan Lal Monga & Co.; and, (v) the appellant is an entity distinct from its shareholders and directors. Although several other pleas were also taken but the same are not required to be reproduced for the purposes of the present order.

8. The Single Judge allowed the application, reasoning as under:-

“1. The decree holder is seeking impleadment of M/s. Evergrowing Investments and Consultants Private Limited who purchased the ticket of Delhi Stock Exchange from the judgment debtor and took over all the liabilities of the judgment debtor. The judgment debtor has placed on record an undertaking dated 04th April, 1997 issued by M/s. Evergrowing Investments and Consultants Private Limited undertaking to settle all the liabilities of the judgment debtor.

2. Learned counsel for M/s. Evergrowing Investments and Consultants Private Limited object to their impleadment on the ground that Order I Rule 10 of the Code of Civil Procedure does not apply to the execution proceedings. Learned counsel relies on Sanjay Verma v. Manik Roy, 2007 AIR (SC) 1332 which deals with Section 52 of the Transfer of Property Act and not with Order I Rule 10 of Code of Civil Procedure.

3. M/s. Evergrowing Investments and Consultants Private Limited is a necessary party in the execution proceedings. There is no merit in the contentions of the objector. Order 21 of the Code of Civil Procedure is wide enough to proceed even against the garnishees. Reference be made to Order XXI Rule 46 and 46A to Rule 46I of the Code of Civil Procedure.”

and thereafter proceeded to give directions for disclosure of assets and restraining the appellant as well as the respondent no.2/judgment debtor Krishan Lal Monga & Co. from disposing of or alienating their assets.

9. Mr. Pavan Sachdeva of the respondent no.1/decree holder, before us also during the hearing on 19th June, 2020, had sought to justify impleadment of the appellant as a judgment debtor contending that the appellant as the purchaser of the membership/ticket of the DSE from the respondent no.2/judgment debtor Krishan Lal Monga & Co. and by reason of having undertaken the liabilities of the respondent no.2/judgment debtor Krishan Lal Monga & Co., was liable to the respondent no.1/decree holder. He had however sought time to justify as to how liability under the decree was covered within the liability towards Turnover Tax and/or any other liability determined by SEBI and to show under which bye-law of DSE, the purchaser of the ticket/membership of DSE, becomes liable for all the liabilities of the erstwhile member/ticket holder.

10. Today, Mr. Pavan Sachdeva has drawn our attention to, (i) the Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Rules, 1992; (ii) Securities and Exchange Board of India (Underwriters) Rules, 1993; and, (iii) Securities and Exchange Board of India (Underwriters) Regulations, 1993 and to a host of other documents filed yesterday and has contended that, (a) Parjinder Monga, who on the demise of his father Krishan Lal Monga had become proprietor of respondent no.2/judgment debtor Krishan Lal Monga & Co. and had become the ticketholder/shareholder of DSE and who had also entered into the Underwriting Agreement on behalf of respondent no.2/judgement debtor Krishan Lal Monga & Co. with the respondent no.1 decree holder, was entitled to act as an underwriter on account of his membership of DSE; (b) Parjinder Monga as sole proprietor of Krishan Lal Monga & Co. converted the business being carried on as stock broker of DSE into a company in the name and style of the appellant in which Parjinder Monga was a Director and who got transferred the ticket/share of the DSE in the name of respondent no.2/judgment debtor Krishan Lal Monga & Co. to the name of appellant and thereafter demitted office as Director of appellant; and, (c) thus the appellant is the successor-in-interest of the respondent no.2/judgment debtor Krishan Lal Monga & Co. and the respondent no.1 / decree holder entitled to execute the decree against the appellant as successor of respondent no.2 / judgment debtor Krishan Lal Monga & Co.

11. In support of the contention that the appellant is the successor of the respondent no.2/judgement debtor Krishan Lal Monga & Co. it is contended that Parjinder Monga, for having the share broking business converted from the name of respondent no.2/judgment debtor Krishan Lal Monga & Co. to the name of the appellant had represented to the DSE that the business of respondent no.2/judgment debtor Krishan Lal Monga & Co. was taken over by the appellant. It is argued that once the appellant had so taken over the business of the respondent no.2/judgment debtor Krishan Lal Monga & Co., the appellant is liable for dues/liabilities of the respondent no.2/judgment debtor Krishan Lal Monga & Co. under the decree in execution.

12. We have drawn the attention of the Mr. Pavan Sachdeva to Sections 50 and 52 of the Code of Civil Procedure, 1908 (CPC).

13. The counsel for the appellant has rightly contended that the respondent no.1/decree holder today has changed its stand from what it was before the Single Judge and before this Court on 19th June, 2020. He has also referred us to Order XXI Rule 46C of the CPC but which is qua ‘garnishee’ and on enquiry, the counsel for the appellant states that the appellant does not claim itself to be a ‘garnishee’.

14. We have also enquired, whether all the said questions are to be decided in execution or ought to have been decided in the proceedings leading to execution.

15. Mr. Pavan Sachdeva states that he was not aware of all the said facts earlier. He also states that he be permitted to file a fresh application before the Single Judge, justifying the claim of the decree holder against the appellant.

16. The counsel for the appellant also is agreeable thereto subject to the impugned order being set aside and all defences of the appellant to the future attempt if any of the respondent no.1 / decree holder to claim the decretal amount from the appellant, are kept open, and to which Mr. Pavan Sachdeva is agreeable.

17. We accordingly set aside the impugned order d

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ated 21st November, 2019 impleading the appellant as a judgment debtor in Execution Petition No.33/2018 as well as making consequential directions, insofar as against the appellant and dispose of EA(OS) No.402/2019 of the respondent no.1 / decree holder, granting liberty to the appellant to, if so desires, make a fresh application before the Executing Court, for seeking recovery of the decretal amount from the appellant, in which so ever capacity and we further clarify that setting aside of the impugned order would not come in the way of the appellant or the respondents in relying upon any of the pleas/facts leading to the order which has been set aside. 18. Mr. Pavan Sachdeva clarifies that his argument is that respondent no.2/judgment debtor Krishan Lal Monga & Co. was converted into appellant and not that respondent no.2/judgment debtor Krishan Lal Monga & Co. had sold its ticket/share of DSE to the appellant. 19. Needless to state that there are presently no pleadings to the said effect and it will be open to the parties, in the fresh attempt, if any by the respondent no.1/decree holder to seek recovery from the appellant, to make pleadings according to facts. 20. Learning that the decretal amount is Rs.25,00,000/- only, we have also enquired, how the execution proceedings are pending in this Court. 21. Though Mr. Pavan Sachdeva has referred to certain provisions of the Arbitration Act, 1940 but we leave the said question also open for consideration by the Single Judge. 22. The appeal is disposed of.
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