w w w . L a w y e r S e r v i c e s . i n



Tulsi Castings and Machining Limited & Others v/s India Venture Trust & Others


Company & Directors' Information:- TULSI CASTINGS AND MACHINING LIMITED [Under Liquidation] CIN = U27100MH2004PLC149952

Company & Directors' Information:- D. H. CASTINGS PRIVATE LIMITED [Active] CIN = U27310PB2009PTC033256

Company & Directors' Information:- C S CASTINGS PRIVATE LIMITED [Active] CIN = U27105PB2000PTC024010

Company & Directors' Information:- CASTINGS INDIA PVT LTD [Active] CIN = U27101WB1996PTC078196

Company & Directors' Information:- A J CASTINGS PRIVATE LTD [Active] CIN = U74899DL1987PTC027618

Company & Directors' Information:- G S C CASTINGS PRIVATE LIMITED [Active] CIN = U27100PB1996PTC017826

Company & Directors' Information:- A G CASTINGS PRIVATE LIMITED [Strike Off] CIN = U27310PB1997PTC019495

Company & Directors' Information:- L P CASTINGS PVT LTD [Amalgamated] CIN = U13209DL1980PTC011006

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- P R CASTINGS PVT LTD [Active] CIN = U27320PB1992PTC012673

Company & Directors' Information:- B B VENTURE PRIVATE LIMITED [Active] CIN = U52209CT2008PTC020645

Company & Directors' Information:- R S CASTINGS PRIVATE LIMITED [Active] CIN = U27101HR1984PTC017261

Company & Directors' Information:- C. I. U. CASTINGS PVT. LTD. [Active] CIN = U27209WB1994PTC064109

Company & Directors' Information:- D S CASTINGS PRIVATE LIMITED [Active] CIN = U27200MH1980PTC023599

Company & Directors' Information:- S A R VENTURE PRIVATE LIMITED [Active] CIN = U70102DL2015PTC275704

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- S R CASTINGS PRIVATE LIMITED [Strike Off] CIN = U27105PB1989PTC009964

Company & Directors' Information:- M I CASTINGS PRIVATE LIMITED [Active] CIN = U74899DL1983PTC016451

Company & Directors' Information:- J P CASTINGS PVT LTD [Strike Off] CIN = U29111MP1985PTC002758

Company & Directors' Information:- S M S CASTINGS PVT LTD [Strike Off] CIN = U27310GJ1981PTC004660

Company & Directors' Information:- A K CASTINGS PVT LTD [Strike Off] CIN = U27310WB1981PTC034277

Company & Directors' Information:- N J VENTURE PRIVATE LIMITED [Strike Off] CIN = U70101MH2008PTC186387

    Arbitration Petition No. 769 of 2014 with Arbitration Petition (L) No. 1003 of 2014

    Decided On, 17 July 2014

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE R.D. DHANUKA

    For the Petitioners: Pravin Samdhani Sr. Advocate a/w. Satyan Vaishnav a/w Nupur Mukherji, Anil Chauhan i/by N.N. Vaishnava & Co., Advocates. For the Respondents: Vyapak Desai a/w Ashish Kabra i/by Nishith Desai Associates, Advocates.



Judgment Text

Oral Judgment:

1) The Petitioners in Arbitration Petition No.769 of 2014 which is filed under Section 37 of the Arbitration and Conciliation Act, 1996 have impugned the interim order passed by the learned Arbitrator under Section 17 of the Act and in particular in paragraph-44(v) and 44(vi). The petitioner in Arbitration Petition (L) No.1003 of 2014 has also impugned part of the order passed by the learned Arbitrator refusing to direct the respondent to deposit an amount or to provide any other sufficient security in regard to the claim of the petitioner.

Both the petitions are heard together and are being disposed of by a common order.

2) On 01/03/2012, the respondents (India Venture Trust) entered into Share Subscription cum Shareholder Agreement and invested 40 Crores in the petitioner company (Tulsi Castings and Machining Limited). The disputes arose between parties. It was the case of the respondents before the learned Arbitrator that the petitioners no.2 and 3 have mismanaged the fund of the petitioner no.1 and have diverted the fund. It was the case of the respondents that though under the Share Subscription and Shareholders Agreement, the respondents exercised the put option and called upon the petitioners no.2 and 3 to purchase shares held by the respondents, the petitioners no.2 and 3 failed to purchase those shares. The respondents accordingly filed a money claim in the Arbitration proceedings.

3) In their application filed under Section 17 of the Arbitration and Conciliation Act, 1996 before the learned Arbitration, the respondents sought various interim measures including injunction against the petitioner no.1 company and also petitioners no.2 and 3. By an order dated 25/04/2014, the learned Arbitrator has disposed of the application filed under Section 17 and thus granted various interim measure in favour of the respondents.

4) In so far as the interim measures granted which are recorded in paragraph 44(iv) are concerned the petitioners i.e. Tulsi Castings and Machining Limited have not impugned those directions and orders.

5) Mr. Samdhani, learned senior counsel for the petitioners invited my attention to the various observations made by the learned Arbitrator in the impugned order. In so far as his challenge to directions issued in Paragraph 44 (v) and (vi) are concerned, it is submitted by the learned senior counsel that though in paragraph 41 of the impugned order the learned Arbitrator has come to the prima facie conclusion that even if the Arbitrary Tribunal could grant relief by exercising principle under Order 38 Rule 5 of the Code of Civil Procedure 1908, no case had been made out by the respondents herein in their pleadings to satisfy those principle required to be satisfied under Order 38 Rule 5 for grant of reliefs. In the same paragraph, it is held by the learned arbitrator that therefore no such relief could be granted. Learned senior counsel submits that though such conclusion is drawn by the learned Arbitrator, in paragraph 44(v), the learned Arbitrator has still granted injunction against the petitioners no.2 and 3 from alienating, disposing of and/or otherwise encumbering or creating a pledge or any other charge on any property and/or assets including shares belonging to them. It is submitted that the order passed by the learned Arbitrator is contrary to the conclusion drawn by the learned Arbitrator in paragraph 41 of the impugned order.

6) In so far as the directions issued in paragraph 44(vi) is concerned, learned senior counsel submits that the learned Arbitrator has directed the petitioners and some of the other parties to abide by the terms of the agreement and not to take action that may be in breach of Agreement / Articles of Association of the petitioner no.1 which is detrimental to the rights and the interest of the respondents. It is submitted that such directions directing parties to comply with the terms of agreement is contrary to the provisions of Specific Relief Act and are illegal. Learned senior counsel placed reliance on the judgment of Supreme Court in the case of Raman Tech. & Process Engg. Co. Vs. Solankhi Traders (2008) 2 Supreme Court Cases 302 and in particular paragraphs no.4 and 5 in support of the submissions that even if the learned Arbitrator could exercise powers under Order 38 Rule 5 while deciding the application under Section 17 of the Arbitration and Conciliation Act, 1996, the money claim could not be secured by passing an order under Order 38 Rule 5 of Code of Civil Procedure 1908. It is submitted that in any event, power under Order 38 Rule 5 of Code of Civil Procedure are drastic and extraordinary in nature and could not be exercised mechanically, when no such case is made out by the respondents. It is submitted that it is not the case of the respondents in their application under Section 17 before the learned Arbitrator that the petitioners no.2 and 3 were making any attempt to remove or dispose of their assets with an intention of defeating a decree that may be passed in favour of the respondents and against the petitioners no.2 and 3 or otherwise.

7) Paragraphs 4 and 5 of the said judgment of the Supreme Court read thus:

'...4. The object of supplemental proceedings (applications for arrest or attachment before judgment, grant of temporary injunctions and appointment of receivers) is to prevent the ends of justice being defeated. The object of Order 38 Rule 5 CPC in particular, is to prevent any defendant from defeating the realisation of the decree that may ultimately be passed in favour of the plaintiff, either by attempting to dispose of, or remove from the jurisdiction of the court, his movables. The scheme of Order 38 and the use of the words 'to obstruct or delay the execution of any decree that may be passed against him' in Rule 5 make it clear that before exercising the power under the said Rule, the court should be satisfied that there is a reasonable chance of a decree being passed in the suit against the defendant. This would mean that the court should be satisfied that the plaintiff has a prima facie case. If the averments in the plaint and the documents produced in support of it, do not satisfy the court about the existence of a prima facie case, the court will not go to the next stage of examining whether the interest of the plaintiff should be protected by exercising power under Order 38 Rule 5 CPC. It is well settled that merely having a just or valid claim or a prima facie case, will not entitle the plaintiff to an order of attachment before judgment, unless he also establishes that the defendant is attempting to remove or dispose of his assets with the intention of defeating the decree that may be passed. Equally well settled is the position that even where the defendant is removing or disposing his assets, an attachment before judgment will not be issued, if the plaintiff is not able to satisfy that he has a prima facie case.

5. The power under Order 38 Rule 5 CPC is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. It should be used sparingly and strictly in accordance with the Rule. The purpose of Order 38 Rule 5 is not to convert an unsecured debt into a secured debt. Any attempt by a plaintiff to utilise the provisions of Order 38 Rule 5 as a leverage for coercing the defendant to settle the suit claim should be discouraged. Instances are not wanting where bloated and doubtful claims are realised by unscrupulous plaintiff by obtaining orders of attachment before judgment and forcing the defendants for out-of-court settlements under threat or attachment."

8) Learned senior counsel also placed reliance on the judgment of the Division Bench of this Court in Swan Mills Ltd. Vs. Dhirajlal @ Dhirbhai Babaria and other (2012) Maharashtra Law Journal (937) and in particular paragraph 14 in support of his submission that once a court has come to the conclusion, no case is made out under Order 38 Rule 5 of Civil Procedure Code, even injunction can not be granted by the Court, as the effect of such injunction would be substantially the same effect as an order of attachment before judgment. Paragraph 14 of the said judgment reads thus: '14. In paragraph 30 the learned Single Judge has observed thus:

I do not intend passing an order of attachment before judgment However, he has passed an order of temporary injunction restraining the defendants from transferring their movable and immovable properties. It was, therefore, contended that the order of the learned Single Judge declining to pass an order of attachment before judgment shows that the learned Single Judge has declined to make that order because, according to the learned Single Judge, the plaintiffs were not able to establish that the defendants are likely to transfer their properties during the pendency of the suit with an intention to defeat the decree that may be passed in the suit. It was contended that if that is so then there was no justification for making an order of temporary injunction. If there is no possibility of the defendants transferring their properties during the pendency of the suit so as to defeat the decree that may be passed in the suit then there is no question of the plaintiffs suffering irreparable loss in case temporary injunction restraining the defendants from transferring the properties is not granted. We find considerable substance in this submission. As observed above, the learned Single Judge has held that the plaintiffs have not made out a case for making an order of attachment before judgment. That part of the order has been accepted by the plaintiffs as there is no appeal filed by the plaintiffs against the rejection of the prayer for an order of attachment before judgment. Perusal of Order 38 Rule 5 of the Civil Procedure Code shows that an order for directing the defendant to furnish security can be made if the Court is satisfied that the defendant is about to dispose of whole or any part of his property with intent to obstruct or delay the execution of any decree that may be passed against him, and it is only on failure of the defendant to furnish security or show cause to the satisfaction of the Court, that an order of attachment before judgment is made. The result of an order of attachment before judgment is substantially the same as an order of temporary injunction restraining the defendants from transferring, alienating, parting with possession of the property. Thus, on Court being satisfied that the defendant is likely to transfer his property to delay the execution of decree that may be passed in the suit, in the first instance an order for furnishing security is made against the defendant and in the second instant on failure of the defendant to show cause or to furnish security that an order for attachment before judgment is made. In the instant case, however, the learned Single Judge, after recording a finding that there is no case made out for order of attachment before judgment which implies that the plaintiffs have not been able to satisfy the Court that the defendants are likely to dispose of the property with intent to defeat the execution of decree that may be passed in favour of the plaintiffs, has made an order granting injunction which as observed above has substantially the same effect as an order of attachment before judgment. In our opinion, after having recorded the finding that the plaintiffs have not made out a case for attachment before judgment, the learned Single Judge could not have granted temporary injunction against the defendants in the terms in which it has been granted by the learned Single Judge. In any case, we do not find that the learned Single Judge has considered the aspect of balance of convenience and irreparable loss before making the order of temporary injunction. The suit is for enforcement of a money decree. A temporary injunction is sought restraining the defendants from transferring movable and immovable property. In a suit for money decree, normally, an order of temporary injunction is not passed because there is no possibility of plaintiff suffering any irreparable injury. In case the defendant transfer his property during the pendency of the suit, unless it is shown that he is transferring the property with the intention to defeat the money decree that may be passed in favour of the plaintiff or if the defendant is permitted to transfer the immovable property it would not be possible for the plaintiff to execute his money decree. If, according to the plaintiff, the defendant is likely to transfer his property with an intention to defeat the decree that may be passed in favour of the plaintiff, then the remedy of the plaintiff is to apply for attachment before judgment. It is hard to imagine that the plaintiff who cannot make out a case for an order of attachment before judgment can be successful in getting an order of temporary injunction which has practically the same effect that is restraining the defendant from transferring his property. We also do not find any material placed by the respondents on record to show that in case the defendants are not prevented from transferring their property, the plaintiffs would not be able to execute the money decree that they may get at the final disposal of the suit or that the defendants are transferring the property with an intention to defeat the money decree that may be passed in favour of the plaintiffs. Looking at the matter from any point of view, in our opinion, the learned Single Judge was not at all justified in making the order of temporary injunction against the defendants.'

9) Learned counsel appearing for the respondents on the other hand invite my attention to various prima facie observations made by the learned Arbitrator in the impugned order about the conduct of the petitioners no.2 and 3. It is submitted that in view of such prima facie conclusion drawn against the petitioners no.2 and 3 the learned Arbitrator was justified in granting injunction in respect of the shares and other assets of the petitioners no.2 and 3 in paragraph 44(v) of the impugned order. It is submitted that since the learned Arbitrator having been found that the petitioners no.2 and 3 have committed various breaches of agreement and have committed acts which are prejudicial to the interest of the respondents, no fault can be found with impugned order and the directions issued in paragraph 44(v) of the impugned order.

10) In support of his submission the learned counsel placed reliance on the judgment of Division Bench of this Court in case of National Shipping Company of Saudi Arabia Vs. Sentrans Industries Limited 2004 (1) Arb. LR 409 (Bombay). It is submitted by the learned counsel that under Section 9(b) of the Arbitration and Conciliation Act, 1996, power of the court can not be restricted to the power conferred on Court under Civil Procedure Code though analogous principles may be kept in mind.

11) Learned counsel also placed reliance on judgment of Calcutta High Court in Premraj Mundra Vs. Md. Maneck Gazi & ors AIR (38) 1951 Calcutta 156 in particular paragraph 10 thereof in support of his submission principle under Order 38 Rule 5 and 6 can be applied if the circumstances exist and principles laid down therein are satisfied. It is submitted that respondents had demonstrated beyond reasonable doubt before the learned Arbitrator that case for granting injunction order was made out. Learned counsel submits that not only the grant of injunction is justified by the learned Arbitrator but in view of the respondents herein having made out a case, the learned Arbitrator ought to have passed an order for deposit of the investment made by the respondents. It is submitted that this court thus shall intervene with the order passed by the learned Arbitrator and shall direct the petitioner herein to deposit the investment amount in this Court.

12) A perusal of the finding recorded by the learned Arbitrator in paragraph 41 of the impugned order clearly indicates that learned Arbitrator has come to the conclusion that even if he was empowered to grant such relief under Order 38 Rule 5 of the Code of Civil Procedure 1908, no case was made out by the respondents in their pleadings to satisfy the predicates of the principles required to be satisfied under Order 38 Rule 5. It is also held by the learned Arbitrator that to his mind that relief could not be granted. A perusal of paragraph 44(v) however indicates that inspite of such conclusion draw by the learned Arbitrator in Paragraph 41, the learned Arbitrator has still gone ahead and granted relief contrary to the conclusion drawn by the learned Arbitrator. In my view, the conclusion drawn and the relief granted by the learned Arbitrator in paragraph 44(v) are contrary to and inconsistent with each other.

13) Be that as it may, the perusal of the records indicates that it was not the case of the respondents before the learned Arbitrator that the petitioners no.2 and 3 were making any attempt to remove or dispose of any of their assets with the intention of defeating the award that may be passed in favour of respondents and against the petitioners. A perusal of records indicates that the respondent has exercised the right of put option and called upon the petitioners no.2 and 3 to purchase those shares which the petitioners no.2 and 3 did not purchase. The respondents have made a money claim before the learned Arbitrator. The Supreme Court in case of Raman Tech. & Process Engg. Co. Vs. Solankhi Traders (2008) 2 Supreme Court Cases 302 has held that the power under Order 38 Rule 5 of the CPC are drastic and extraordinary power and should not be exercised for asking. It is held that the purpose of Order 38 Rule 5 is not to convert unsecured debt into secured debt. In my prima facie view, claim made by the respondents to the learned Arbitrator is a money claim simplicitor and can not be converted into a secured debt by passing an order under Order 38 Rule 5 of the Civil Procedure Code. I am respectfully bound by the Judgment of the Supreme Court in case of Raman Tech. & Process Engg. Co. Vs. Solankhi Traders (Supra) which is in my view directly applicable to the facts of this case.

14) Division Bench of this Court in case of Swan Mills Ltd. Vs. Dhirajlal @ Dhirbhai Babaria and other has held that if a Court comes to the conclusion that principles under Order 38 Rule 5 of the Civil Procedure Code are not satisfied, even injunction can not be granted on that ground which will substantially have the same effect as an order of attachment before judgment. In my view, the relief granted by the learned Arbitrator in paragraph 44(v) is in the nature of attachment before judgment. The personal asset of petitioners no.2 and 3 if any are not the security granted in favour of the respondents under any agreement. In my view, the order passed by the learned Arbitrator in paragraph (v) is thus contrary to the principle of law laid down by the Supreme Court in case of Raman Tech. & Process Engg. Co. Vs. Solankhi Traders (Supra) and also contrary to the judgment of Division Bench of this Court in Swan Mills Ltd. Vs. Dhirajlal @ Dhirbhai Babaria and other (Supra) and thus deserves to be set aside.

15) In so far as the submission of the learned counsel appearing for the respondents that in view of the strong observation made b

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y the learned Arbitrator against the petitioners, the learned Arbitrator was justified in passing injunction order in paragraph 44(v) is concerned, in my view there is no merit in the submissions of the learned counsel appearing for the respondents. The observations made by the learned Arbitrator are the prima facie observations. While making such observations, learned Arbitrator himself has come to the conclusion that no case was made out under Order 38 Rule 5 of the Civil Procedure Code. 16) In so far as the relief granted by learned Arbitrator in paragraph 44(vi) is concerned, in my view the learned Arbitrator could not have issued such directions to the parties to comply with the terms of the agreement and not take any action that may be in breach of the agreement. Such directions in my view would amount to granting specific performance of the terms of agreement, while entertaining an application under Section 17 of the Arbitration and Conciliation Act, 1996. In my view, the directions issued by the learned Arbitrator in paragraph 44(vi) are thus in teeth of provisions of Specific Relief Act and deserves to be set aside. 17) In so far as the submission of learned Counsel appearing for the respondents that learned Arbitrator in addition to the injunction order ought to have directed the petitioner to deposit investment amount is concerned, I am of the view that since no case was made out for granting reliefs by the learned Arbitrator under Order 38 Rule 5 of Code of Civil Procedure 1908, question of considering prayer for deposit of investment amount did not arise. I therefore pass the following order: (i) Arbitration petition No.769 is allowed. The directions issued by the learned Arbitrator in Paragraph 44(v) & (vi) are set aside. (ii) Arbitration Proceedings (L) No.1003 of 2014 is dismissed. No order as to costs. 18) On oral application of learned counsel appearing for the respondents, in so far interim directions issued by the learned Arbitrator in paragraph 44(v) of the impugned order is concerned, the same to continue for a period of six weeks from today.
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