Spectrum Technologies Usa Inc. v. Spectrum Power Generation Co. Ltd

S.N Kapoor, J.— The crux of the dispute in this matter depends on an answer to the question: ‘whether the IDBI is the necessary or proper party and whether its presence would help and enable this court to effectually and completely adjudicate upon and settle all the questions involved in this suit?”

2.1 The plaintiff filed a suit seeking “a mandatory injunction directing defendant Nos. 2 and 3 to make necessary amendments in the Articles of Association in accordance with the requirement of promoters agreement dated 29th June 1993”, “a declaration that the resolution at item No. 9 passed by the Board of Directors of defendant No. 1 in its 27th meeting held on 14th November 1995 is illegal and ultra vires the promoter agreement dated 29th June 1993 and parties were still bound by the promoters dated 29th June, 1993” and further seeking “a declaration that Dr. A.V Mohan Rao and Mr. Brij Bhartelly are and continue to be members of the Board of Directors of defendant No. 1 on behalf of the plaintiff and also Mr. C.P Jain, Director (Finance), NTPC to be inducted in the Board of Directors of defendant No. 1 as nominee of defendant No. 3.” There are other prayers also which are not relevant for the present purpose. Thus, the suit is intended to enforce the promoters agreement and rights arising therein.

2.2 The plaintiff, defendant No. 2 and 3 entered into a joint venture for building, owning and operating a gas based power plant for the Government of Andhra Pradesh at Kakinada on the basis of promotors agreement dated 29th June 1993. Defendants No. 2 and 3 have violated the promotors agreement. A loan agreement was entered into between the joint venture company defendant No. 1 and IDBI on 11th August 1984. The plaintiff company gave undertaking to financial institution IDBI to the effect that if there was any shortfall in the resources for completing the project or working capital or any cost over runs then it would be met by them. On this basis IDBI is sought to be impleaded as a party. According to the case of defendant No. 1, the promoters agreement has outlived its utility and parties have started dealing it now as a dead letter. But on March 12, 1998, defendant No. 1 in its letter to IDBI enclosed a compliance chart of various pre-disbursement conditions indicating that the Promoters’ Agreement had been entered into and the plaintiff is one of the promoters. The The plaintiff's grievance is that though the defendant No. 1 is in dire need of additional funds with huge cost over runs of Rs. 190 crores and debt equity ratio that has been turned topsy turvy by the defendants. The defendant No. 1 is not ready to issue further shares to the plaintiff. The impleadment of proposed defendants No. 4 and 5 namely IDBI head office as well as Hyderabad Branch office would enable this court to effectually and completely adjudicate upon and settle all the questions involved in this suit especially the question of safeguarding the public money invested by the financial institutions. No relief is being sought against IDBI by the plaintiff. The proposed defendants No. 4 and 5 are one and the same persons and they cannot be treated separately.

2.3 It is contended by the learned counsel for the plaintiff that the plaintiff has a dominus litis, in this suit. The IDBI has no objection to its impleadment. Defendant No. 1 has no right to object to the present application. He relies on Razia Begum v. Sahebzadi Anwar Begum & Ors. AIR 1958 SC 886 (p.896 para 13) and Gonsalo De Filomena Luis v. Inacio Piedade Hildeberte Fernandes & Ors., AIR 1977 Goa 4.

3. The stand of the IDBI is that the IDBI being a premiere financial institution, is charged with the responsibility of financing projects contributing towards industrial development of the nation. As a matter of policy and principle, it does not normally concern itself with the inter se disputes between the promotors in respect of the projects being financed by it. However, the IDBI has invested a large amount in financing the project. It is interested in the smooth implementation thereof. It appears from this reply that it is neither interested in becoming a party to the suit nor in refusing to participate in case this court passes any order for it leaves on the discretion of this court to “pass appropriate orders in the matter”.

4. The defendant SPGL has not filed any parawise reply to the application but learned counsel appearing on their behalf submits that the proposed defendant IDBI sought to be impleaded is neither a necessary nor a proper party. No relief is being claimed against IDBI. The adjudication of the reliefs claimed does not require the impleadment of IDBI. As a matter of policy and principle, the proposed defendant being a lender should not concern itself with the inter se disputes between the pro-motors in respect of the projects financed by them. The promoters agreement has been overtaken by events and with the consent of the parties and their conduct has thus becomes infructuous. Several new shareholders including foreign collaborators have taken substantial share in the company in the last five years, as is borne out by the Board Resolution. Therefore, no relief can be granted to the plaintiff whereby all the allotments made to various new shareholders are nullified. IDBI is already represented on the Board of Directors of the defendant No. 1. It is also not the Case of IDBI that its loans to the company are prejudiced or exposed to any risk in any manner.

5. Shri Prashant Bhushan, learned counsel for defendant No. 3 NTPC submits that he does not oppose the application under order 1 Rule 10 and rather supports it.

6.1 Having heard the parties counsel at length, it appears that, while there cannot be any doubt that the plaintiff has a dominus litis but the plaintiff cannot be allowed to expand the scope of the suit unnecessarily to confuse the main issue in the matter by taking into consideration the side issues which may have only evidentiary value.

6.2 The presence of IDBI may help the plaintiff for just establishing that the defendants had informed the IDBI that they have complied with promoters agreement in toto. As such, it is evident that their presence may be required only for the purpose of evidence. Seeing the peculiar facts and circumstances while the IDBI was allowed to intervene in the matter, it was not made a party to the suit. I feel that it would not be proper to implead IDBI as a party to the suit for it is neither necessary nor a proper party - rather just a party whose presence is needed to prove whether the defendant No. 1 claimed to have complied with the promoters agreement or not in the requisite information which was required to be furnished to IDBI. Every witness of this type is neither necessary nor proper party who is required to be made a part.

6.3 Besides, it may further be noted that IDBI had expressly and fairly mentioned in its reply that as a matter of policy and principle, IDBI does not normally concern itself with the inter se disputes between the promoters projects being financed by it. It is not the case of the IDBI that the project has been mismanaged or that the project has not been commissioned or that there has been any failure to make any payments due to it. Nor it is the case of the IDBI that its loan to the company are prejudiced or exposed to any risk in any manner whatsoever.

7. To be joined as a party, a person must have a legal interest in the subject matter of the proceedings recognised in law. A legally interested person is the answer to the question in issue for the proceedings in hand may result in curtailing his curtail his legal rights. It is not sufficient that the person has a commercial interest and is likely to be affected in his pocket by a decision one way or the other. If all the persons having commercial interest are added as a parly, then every creditor would be required to be made a party in a suit like the present one and it would make litigation well nigh impracticable. Such an exercise would ultimately lead to un-necesarily wasting of time and energy of not only financial institutions but of the parties and of this court as well.

8.1 Razia Begum v. Sahebzadi Anwar Begum & Ors., AIR 1958 SC 886 also requires at page 895 in para 13(2) and (3) that “in a suit relating to a property, in order that a person may be added as a party, he should have a direct interest as distinguished from a commercial interest, in the subject matter of the litigation.” “Where the subject matter of a litigation, is declaration as regards status or a legal character, the rule of present or direct interest may be relaxed in a suitable case where court is of the opinion that by adding that party, it would be in a better position to effectually and completely adjudicate upon the controversy.

8.2 It may be mentioned in Razia Begum's case (supra). The plaintiff was seeking a declaration that she was wife of the second son of Nizam of Hyderabad. The prince filed his written statement admitting the entire claim of the plaintiff. Application was moved on behalf of Sahibzadi Anwar Begum and her son under the guardianship of his mother Sahebzadi Anwar Begum claimed to be lawful and legally wedded wife and thus was interested in denying the declaration sought for by the plaintiff. The facts here are totally different. Here IDBI has not denied the claim made by the plaintiff so far. The fact that the defendant informed that they had fulfilled the obligation under the promoters agreement to IDBI could be just a piece of admission of defendant which does not involve IDBI directly or indirectly in the subject matter of the suit.

9.1 In I.G Farbenindustrie v. A.G Agreement, (1942) 2 All ER 525 Lord Green M.R observed:

“With all respect to Morton J., I do not find anything in the rules which entitled the court to add for its own convenience a party having a mere commercial interest in the subject matter of the suit, but no legal interest in it at all.”

9.2 In Amon v. Raphael Tuck& Sons Limited, (1956) 1 All ER 273 (at p.287 C & D) Denlin J. observed as under:

“It is not enough that the intervener should be commercially or indirectly interested in answer to the question; he must be directly or legally interested in the answer. A person is legally interested in the answer only if he can say that it may lead to a result that will affect him legally - that is by curtailing his legal rights.”

10.1 H.M Kassim & Ors. v. The South Indian Bank Ltd. & Ors., AIR 1991 Kerala 221 Pr.8 obviously followed the observations of the Supreme Court in Razia Begum v. Sahebzadi Anwar Begum & Ors. (supra) and the afore-mentioned two English judgments.

10.2 In the case in hand, the IDBI does not appear to be interested in denying the rights of the plaintiff for the purpose of proving an admission on the part of defendant. As such, the IDBI is certainly not required to be made a party.

11.1 G.D.F Luis v. I.P.H Fernandes, AIR 1977 Goa 4 formulated following test, for guidance in the case of question of adding any party under Order 1 Rule 10 CPC as under:

“...(1) If, for the adjudication of the “real controversy” between the parties on record, the presence of a third party is necessary, then he can be impleaded; (2) It is imperative to note that by such impleading of the proposed party, all controversies arising in the suit and all issues arising thereunder may be finally determined and set at rest, thereby avoiding multiplicity of suits over a subject-matter which could still have been decided in the pending suit itself; (3) The proposed party must have a defined, subsisting, direct and substantive interest in the litigation which interest is either legal or equitable and which right is cognisable in law; (1) Meticulous care should be taken to avoid the adding of a party when the addition is intended merely as a ruse to ventilate certain other grievances of one or the other of the parties on record which is neither necessary nor expedient to be considered by the Court in the pending litigation; and (5) It should always be remembered that considerable prejudice would be caused to the opposite party when irrelevant matters are allowed to be considered by Courts by adding a new party whose interest has no nexus to the subject-matter of the suit.”

11.2 Applying all the five tests, it does not appear that in the present matter, IDBI has any substantive legal interest in questions arising and involved in the suit, which cannot be decided without IDBI making a party. Of course, their presence may be necessary to prove the alleged admission, presence of their Director on the Board of Directors of defendant No. 1 through awareness.

12. There cannot be any dispute in aforesaid such circumstances that IDBI is neither necessary nor proper party nor its presence as a party is likely to enable this court in effectually deciding the matter. In so far as the question of bringing on record admission etc. is concerned, it would be brought on record by summoning witness with the record of IDBI to prove the same without impleading them as a party.

13. In the afore-mentioned circumstances,I do not find any force in this application and dismiss the same.