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2016 (2) TMI 644 - DELHI HIGH COURT

2016 (2) TMI 644 - DELHI HIGH COURT - TMI - Arbitration and Conciliation - Held that:- As per the principles of tracing benefits acquired by fraud, breach of confidence, breach of fiduciary relationships or by other wrong doings therefore do not get benefit under the defence of change of position. Further change of position as a defence has to be causally linked to the receipt that makes it inequitable for the recipient to make restitution. Mere fact that the recipient has spend the money whole .....

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does not entitle VSL to any order against Southend, which is an independent entity.

On the question whether the interim measure granted adequately secures an interest of VLS pending adjudication of objections to the award, the pleadings in FAO (OS) No.295/2015 have not even attempted to make any reference to the value of the assets covered by the sweep of the interim measure against the Guptas, Jains and BMS. Thus, even FAO (OS) No.295/2015 is liable to be dismissed and the prayer tha .....

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Advocate, Mr.Amit Saxena, Advocate PRADEEP NANDRAJOG, J. 1. We shall be referring to the parties as : (i) VLS, (ii) BMS, (iii) Gupta Group, (iv) Jain Group, (v) Navjeevan, (vi) NPMG, and (vii) Southend. 2. VLS is named VLS Finance Ltd. It was the petitioner in OMP (I) No.114/2015, filed under Section 9 of the Arbitration and Conciliation Act, 1996. The petition was filed after an award dated March 02, 2015 was pronounced in its favour by an Arbitral Tribunal, as per which the Gupta Group and th .....

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red under the Companies Act, 1956. The Gupta Group comprises Dinesh Kumar Gupta and his wife Madhu Gupta. The Jain Group comprises Kailash Chand Jain, Parul Jain, Ankit Jain, Santosh Kumar Jain, Subhash Chand (HUF) and Swati Jain. Navjeevan is named Navjeevan Associates Pvt. Ltd. It is a company registered under the Companies Act, 1956. NPMG is named NPMG Developers Ltd. It is a company registered under the Companies Act, 1956. Southend is named Southend Infrastructure Pvt. Ltd. It is a company .....

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nish a bank: guarantee from a scheduled bank for a sum of ₹ 93,62,77,987/- and direct them to furnish further bank guarantees monthly to secure the interest accrued on the awarded amount each month until execution of the award dated 02.03.2015; (iii) Restrain the Respondent Nos. 2 to 10 from dealing with any of their movable and immovable properties as mentioned in Annexures P-4 (Colly), P-6 (Colly) and P-11 (Colly) including, in particular, those set out in paragraph 22 of the petition pe .....

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ty rights or encumbrances or dealing in any manner whatsoever with its share (i.e. 44%) of constructed area in Property bearing no. C-20, 1A/10, Block 'C' Sector 62 NOIDA in terms of the Collaboration Agreement with Premia Structures Ltd. and appoint a Court Receiver for the said share of BMS; (vi) Extend and confirm the orders dated 27.04.2012 and 04.09.2012 passed in OMP No. 383/2012 and order dated 15.01.2015 passed in OMP Nos.570/2013 and 1197/2014; (vii) Pass ex-parte ad interim ord .....

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has been decided by the learned Single Judge granting interim measure as under:- (i) The respondent Nos.2 to 10 shall not sell, encumber, alienate and deal with the properties and equity shares of various companies listed by them in their respective affidavits filed on March 27, 2015. (ii) The respondent Nos.2 to 10 shall maintain status quo with respect to title and possession of the property at C-20, 1A/10, Block-C, Sector-62, Noida, U.P. (iii) The respondent Nos.2 to 10 shall not deal with t .....

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pace Properties Pvt. Ltd. 7. Grievance of the Jain Group in FAO (OS) No.503/2015, is to they being restrained from encumbering their properties disclosed by them in their respective affidavits filed on March 27, 2015. 8. Grievance of the Gupta Group in FAO (OS) No.411/2015 is to the impugned order in its totality granting limited relief to VLS. In the impugned order the learned Single Judge has pen profiled various orders passed in earlier petitions filed before arbitration commenced under Secti .....

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f the impugned order to pass the three interim directions noted by us in paragraph 5 above. 9. We would therefore briefly note the facts necessary to adjudicate the three appeals. VLS, BMS along with the Gupta Group and the Jain Group entered into two agreements on July 12, 2007 and September 24, 2007, as per which VLS invested ₹ 24.92 crores in the equity capital of BMS, having right to exit with obligation on the Gupta Group and the Jain Group to purchase the shares at a price as per the .....

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000/- (Rupees Nineteen Crores Nine Lacs and Forty Five Thousand only) in which Dinesh Kumar Gupta holds 4600 shares and there is no material before us regarding subscribed and paid up share capital of same company and names of other shareholders with percentage of shareholding. The allegation concerning shareholding of NPMG by VLS that it is a company owned and controlled by the Gupta Group and the Jain Group is therefore sans any material particulars in the pleadings and least bit material plac .....

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pta Group and the Jain Group between the years 2009 and 2014, has fluctuated, and it would be useful if we put it in a tabular form. It would be as under:- Annual Return as on 30/09/2009-25/09/10 Annual Return as on 26/09/2011-12 Annual Return as on 23/09/2013 Annual Return as on 24/06/2014 Dinesh Kumar Gupta - R2 210250 shares 410250 shares 263250 shares 189250 shares Madhu Gupta - R 3 12250 shares 12250 shares 12250 shares 12250 shares Subhash Chand - R 8 5000 shares 5000 shares 5000 shares 50 .....

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00 shares 271000 shares Neema Gupta(Allotted fresh shares) 2500 shares - Lalwani Holdings (P) Ltd.(Fresh shares allotted to third party) 45000 shares 45000 shares 45000 shares Chaurasia Holdings (P) Ltd. (Fresh shares allotted to third party) 45000 shares 45000 shares 45000 shares 10. In paragraph 68 of the award dated March 02, 2015, the Arbitral Tribunal has returned a finding of fact as under:- 68. Therefore these documents do not at all show any evidence of any activities of the respondents .....

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ta Group and the Jain Group had no explanation for diverting the funds of BMS in which VLS had injected equity in sum of ₹ 24.92 crores. On the one hand learned counsel for Guptas and Jains justified a collaboration agreement with Premia Projects Ltd. for construction of a building on the plot of land at Noida on the plea that BMS was short of funds and therefore the collaboration agreement under which Premia was to invest money to construct the building and appropriate 56% of the built up .....

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he restraint order against the Gupta Group and the Jain Group concerning their individual properties and shareholding in the companies, with further direction against BMS, NPMG and Southend not to register transfer of their shares is fully justified. 13. That apart, as has been noted by the learned Single Judge the Guptas and the Jains have prima-facie violated the interim order dated April 27, 2012 passed in OMP No.383/2012. Attempt made by them evinced by filing IA No.10835/2014 seeking modifi .....

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the learned Single Judge is therefore repelled by us. 15. We therefore can focus with precision concerning the second interim measure directed i.e. the Gupta Group and the Jain Group to maintain status quo with respect to title and possession of the Noida property, in which as noted above Premia Projects Ltd. has entered into a collaboration agreement to construct a building on the plot of land at Noida and share of BMS being 44% in the built up space. 16. Since Premia Infrastructure Ltd. is no .....

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ecause the Gupta Group and the Jain Group have in the past siphoned away the funds and diluted the assets of BMS and past conduct justifies a restraint order concerning said share of BMS because there is every likelihood of the Gupta Group and Jain Group continuing with their acts of misfeasance. 17. FAO (OS) No.503/2015 and FAO (OS) No.411/2015 are accordingly without any merit and are dismissed. 18. Concerning FAO (OS) No.295/2015, the target obviously is Southend and its property at Okhla Ind .....

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eased to 271000 shares in the year 2014. One Neema Gupta was allotted 2500 shares for the first time in the year 2013 which became nil in the year 2014. 45000 shares each were allotted to one Lalwani Holdings Pvt. Ltd. and Chaurasia Holdings Pvt. Ltd. in the year 2011, when disputes had not even surfaced. 20. The shareholding of respondent No.12 would therefore show that whereas the Gupta Group and the Jain Group hold 334000 shares, Vikrant Puri, Lalwani Holdings Pvt. Ltd. and Chaurasia Holdings .....

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siphoned off by the respondents and moneys given to Southend. 22. Unless, on the principles analogous to the principles of tracing, case is made out on facts concerning Southend, no relief can be granted to VLS concerning the assets of Southend. 23. That takes us to identifying the principle of tracing. 24. The said principle was applied by the House of Lords in (1992) 4 All.ER 512 Lipkin Gorman versus Karpnale. The facts were that one Cass, a partner in a solicitors firm had withdrawn money an .....

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quivalent sum to the victim if the recipient has been "unjustly enriched" at the expense of the true owner. In Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] A.C. 32, 61, Lord Wright said: "It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he .....

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retained and must be repaid to the solicitors. The decision reported as 1816 (4) MNS 475 Hudson v Robinson was noted and the observations therein were referred to with approval as under:- In Hudson v. Robinson (1816) 4 M. & S. 475, a partner fraudulently contracted in the names of the partnership to sell goods to the plaintiff. The fraud received the purchase price from the plaintiff and defaulted in delivery of the goods. It was held that the plaintiff could recover the purchase price from .....

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ht of the defendant to dispose of the goods as partnership property, which was the inducement to the plaintiffs to give this bill, under which they have been obliged to pay the money. The defendant had no such right; therefore the absence of any consideration entitles the plaintiffs to maintain this action, and still more so where the money has got into the defendant's pocket through the medium of a fraud." Here the money of the solicitors got into the pocket of the club without any con .....

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ther) and in my Judgment, it would operate against every volunteer who claimed under him, and also against every person who claimed under him with notice of the equity there by created or with notice of the circumstances from which the court infers the equity." On the facts the defendants who were not volunteers did not have the requisite notice and were entitled to enforce their security. In the present case the club is in the same position as a volunteer. 28. A decision of the High Court .....

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that other person shows that it has come to him bona fide for valuable consideration, and without notice, it then may lose its character as trust money and cannot be recovered. But if it is handed over merely as a gift, it does not matter whether there is notice or not." 29. Opinion of Bankes, L.J. in the decision reported as (1921) 1 K.B. 321 Banque Beige Pour I Etranger vs Hambrouck was also approved, with the following observations in said case quoted:- To accept either of the two conte .....

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nd if, under the circumstances of the case, it appears that the defendant cannot in conscience retain what is the subject matter of it, the plaintiff may well support this action . . . the plaintiff does not sue as standing in the place of Wood his clerk: for the money and notes which Wood paid to the defendants, are the identical notes and money of the plaintiff. Where money or notes are paid bona fide, and upon a valuable consideration, they never shall be brought back by the true owner; but w .....

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e plaintiff sues for his identified property, which has come to the hands of the defendant iniquitously and illegally, in breach of the Act of Parliament, therefore they have no right to retain it: and consequently the plaintiff is well entitled to recover." 31. In his concurring opinion in Lipkin s case, turning to the question of title of money, Lord Goff observed that the plaintiff is entitled to succeed against a third party for money had and received and available for use by the third .....

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r hands. It was accordingly observed:- It is well established that a legal owner is entitled to trace his property into its product, provided that the latter is indeed identifiable as the product of his property. Thus, in Taylor v. Plumer (1815) 3 M. & S. 562, where Sir Thomas Plumer gave a draft to a stockbroker for the purpose of buying exchequer bills, and the stockbroker instead used the draft for buying American securities and doubloons for his own purposes, Sir Thomas was able to trace .....

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ature in common with ratification, that it cannot be relied upon so as to render an innocent recipient a wrongdoer (cf. Bolton Partners v. Lambert (1889) 41 Ch.D. 295, 307, per Cotton L.J. - "an act lawful at the time of its performance [cannot] be rendered unlawful, by the application of the doctrine of ratification.") 32. Lord Goff further dealt at length with the question of change of position by the defendant-club. It was held that change of position can be a valid defence but the .....

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him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party .....

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Canada Ltd. (1975) 55 D.L.R. (3d) 1); it has been introduced by statute in New Zealand (Judicature Act 1908, section 94B (as amended)),and in Western Australia (see Western Australia Law Reform (Property, Perpetuities and Succession) Act 1962, section 24, and Western Australia Trustee Act 1962, section 65(8)), and it has been judicially recognised by the Supreme Court of Victoria (see Bank of New South Wales v. Murphett [1983] 1 V.R. 489). In the important case of Australia and New Zealand Banki .....

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It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as here he defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. These are matters which can, in due course, be considered in depth in cases where they arise for consideration……. At present I do not wish to state the principle any less broadly than this: .....

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