Karnataka High Court Granted Temporary Injunction Prayed By Bank of Baroda Against Businessman for Breach of Contract

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Excerpt

This Commercial Appeal (COMAP) is filed under Section 13(1A) of the Commercial Courts Act, 2015 read with Order XLIII Rule 1(r) and Section 104 of the Code of Civil Procedure, 1908, praying to call for the records which were caused in passing the impugned order dated 28.08.2020 made in Com.O.S.No.01/2020 passed by the Court of LXXXIII Additional City Civil and Sessions Judge, Bengaluru (CCH-84) and to allow the appeal and set aside the order dated on 28th of August, 2020. The appeal made by the Bank of Baroda against Dr Bavaguthu Raghuram Shetty and his wife Dr Chandrakumari Raghuram Shetty before the Karnataka High Court and the matter was heard and decided upon by Hon’ble Justice Abhay S. OKA & Hon’ble Justice Sachin Shankar Magadum.

The first defendant is a businessman who stated that he has multiple businesses spread over the world including India, United Arab Emirates, United Kingdom and United States of America etc. The second defendant is the wife of the first defendant and both the defendants are residents of the City of Bengaluru. It is pleaded in the plaint that the first defendant controls various companies/entities, and has their branches at Abu Dhabi, Oman and Mumbai etc. 

Facts

Bank of Baroda had sanctioned various credit facilities/loans to the said companies and entities and also extended the demanded loan by the first defendant. The case made out in the plaint is that as of 5th of May, 2020, the plaintiff had advanced a sum of Two Thousand Seventy-Seven Crores and Forty-Four Lakhs Indian Rupees to the first defendant and the companies/entities controlled by him. It was pointed out in the plaint that the first defendant and entities controlled by him are under distress and investigation by multiple Authorities including the abroad agencies. The details of the proceedings taken against the first defendant have been set out in the plaint. 

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Reliance was placed on Minutes of a Meeting held on 18th of March 2020 in the plaintiff’s office at Bengaluru when the first defendant acknowledged the liability to pay to the plaintiff and agreed to provide several immovable properties available to him. Accordingly, he executed a letter of undertaking with Negative Lien and creation of mortgage dated 21st of April, 2020 in respect of his and second defendant’s sixteen immovable properties situated in Bengaluru and Mangaluru etc., along with other assets in favour of the plaintiff. 

Afterwards, the defendants committed a breach of the Negative Lien Letter and failed to secure the interest of the plaintiff for which a legal notice dated 3rd May 2020 was served by the plaintiff to the defendants on 3rd May 2020. A reply dated 6th May 2020 to the said notice was issued by the first defendant from which it was clear that he refused to comply with his obligations. Therefore, the subject suit being Commercial Original Suit No.1 of 2020 was filed by the plaintiff before the Commercial Court at Bengaluru; I.A. No.-I, against the first defendant and I. A No. II against the second defendant filed by the plaintiff.

Plaintiff’s Argument

The learned counsel from the Plaintiff’s side submitted that the first defendant had refused to comply with his obligations under the guarantees and the Negative Lien Letter. He urged that even the second defendant did not comply with the Negative Lien Letter by executing a mortgage. He submitted that the learned Trial Judge ignored that a separate interlocutory application was filed by the plaintiff directing the first defendant to disclose his assets and properties. He submitted that even after recording a prima facie finding that the defendants did not comply with their undertakings under the Negative Lien Letter, the learned Trial Judge has rejected a part of the prayers for interim relief and relied upon the following cases-

  1. Mareva Compania Naviera SA v International Bulk carriers SA.
  2. Popular Jute Exchange Limited v Muralidhar Ratanlal, 1980.
  3. IL & FS Financial Services Limited v La-Fin Financial Services Pvt Ltd.
  4. Dr Bavaguthu Raghuram Shetty v Bureau of Immigration & others.

Respondent’s Argument

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The learned Senior Counsel appearing for the defendants pointed out that the first defendant is only a guarantor and that public listed companies have taken the monies for their business purposes. He submitted that the loans granted by the plaintiff have been secured by assets, undertakings and guarantees. He submitted that the documents on which the plaintiff has relied upon were executed in Abu Dhabi. He submitted that even a suit for specific performance of the Negative Lien Letter is not maintainable. Therefore, the prayer for the injunction is not maintainable. He submitted that the interim relief sought cannot be granted as it is not in the aid of the final relief sought in the plaint and relied upon the following cases-

  1. Digvijaysingrao and others v Khushal R. Bhatia. 
  2. Seema Arshad Zaheer and Others v Municipal Corporation of Greater Mumbai and Others.

Relying upon the said decision, he submitted that this Court being appellate should not ordinarily interfere with the discretion exercised by the Trial Court in the matter of grant of temporary injunction.

Court’s Observation

The Court referred to the decision of the Court of Appeal in the case of Mareva Compania (supra). The principle governing the grant of an injunction is known as the “Mareva injunction”. The concept of a grant of Mareva Injunction is not different from the power of the High Court to grant interlocutory or final order of an injunction and under its general power of jurisdiction to grant an ex parte injunction the English Court has developed a principle that the Court has power to restrain the defendant from removing assets from the jurisdiction pending the trial of action whenever it was just and convenient to do so. However, the courts are now granting an injunction, which is described as Mareva injunction Courts have extended their jurisdiction also to the action in rem to restrain the property from leaving the jurisdiction. The second contention as to whether an action in rem can be maintained only for security. Again this issue was before another appellate bench of this court in the case of the Islamic Republic of Iran v. M.V. Mehrab, The learned appellate bench has taken a view that action only for security is maintainable.

Court’s Decision

The injunction as prayed to granted in both I.A.No.I and I.A.No.II. Hence there will be a temporary injunction against the defendants in terms of prayers made in I.A. Nos. I and II of Commercial Original Suit No. 1 of 2020. However, as regards the other assets (other than immovable property described in item Nos 1 to 13 and 16 of the plaint schedule) held by the first defendant, it will be always open for the first defendant to apply to the plaintiff’s Bank for grant of permission to transfer the same.

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Click here to view the judgement.


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