SANJAY KUMAR MISHRA v. GODAVARI COMMODITIES LTD. AND ORS

IN THE HIGH COURT AT CALCUTTA

ORdINARy ORIGINAL CIvIL JURISdICTION COmmERCIAL dIvISION

Present :

THE HON'BLE JUSTICE ARINDAM MUKHERJEE G.A No.2 of 2023

In

C.S No. 267 of 2022

SANJAY KUMAR MISHRA

Vs.

M/S. GODAVARI COMMODITIES LTD. & ORS For the Plaintiff : Mr. Jishnu Saha, Sr. Adv, Mr. Ishaan Saha,

Ms. Rishika Goyal

...... Advocates

For the Defendant no. 1 : Mr. Ratnanko Banerjee, Sr. Adv., Ms. Manju Bhuteria,

Mr. Abhishek Jain

Ms. Meenakshi Manot,

Ms. Tanvi Luhariwala,

...... Advocates

For the Defendant

/Respondent No.2

: Mr. Surojit Nath Mitra, Sr. Adv.,

Mr. D.N. Sharma,

Mr. Binay Kumar Jain,

Mr. Piyush Jain.

...... Advocates

Heard on : 10.01.2023, 13.01.2023 & 18.01.2023. Judgment on : 16^thFebruary, 2023.

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Arindam Mukherjee, J:

1. This is an application made by the defendant No.1, inter alia, for revocation of leave under Section 12 A of the Commercial Courts Act, 2015 (hereinafter referred to as 2015 Act) and rejection of plaint with an ad interim prayer for stay of all further proceedings till disposal of the said application. The defendant No.1 says that from the averments made in the plaint it will not appear that the suit which is essentially one arising out of commercial dispute as envisaged in Section 2 (c) of the 2015 Act and instituted in the Commercial Division of this Court, contemplate any urgent interim relief for which the plaintiff cannot wait to exhaust the remedy of pre-institution mediation when application thereof has been held mandatory. The plaintiff naturally opposed the application on the ground that the suit contemplates urgent interim relief. The defendant No.3, however, has supported the cause of defendant No.1 and says that on a formal reading of the averments in the plaint it will appear even taking the same to be true and correct that the suit does not contemplate urgent interim relief.

2. The plaint case for convenience can be summarised as follows:-

i) Palogix Infrastructure Pvt. Ltd (hereinafter referred to as Palogix) being the defendant No.3 above named, underwent Corporate Insolvency Resolution Process (in short CIRP) under the provisions of Insolvency and Bankruptcy Code, 2016 (in short IBC) pursuant to an order dated 16^thMay, 2017 passed by the National Company Law Tribunal, Kolkata Bench (in short NCLT).

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ii) In order to effectuate CIRP to appoint a Resolution Professional (in short RP) under the provisions of IBC an advertisement was published inviting an "expression of interest" (in short EOI) from the interested persons to carry out the resolution plan in Palogix. The plaintiff was one of the several resolution applicants who had applied in terms of the EOI. The plaintiff was ultimately chosen as the resolution applicant.

iii) The plaintiff prior to making such application to act as a resolution applicant anticipated huge investment to carry out the resolution plan. The plaintiff as such before applying entered into an agreement with one JFC Finance (India Limited) (in short JFC) wherein the said JFC agreed to act as a financing partner/strategic investor.

iv) Under the resolution plan submitted by the plaintiff, the plaintiff was required to make a payment of an aggregate sum of

Rs.79,33,63,569/- to pay off the creditors. This investment included the investment for completion of the unfinished Railway Freight Terminal of Palogix at Rudrapur.

v) Under the resolution plan of the plaintiff which was accepted an immediate infusion of about Rs.79,33,63,569/- was necessary. The plaintiff, therefor, parted with JFC and inducted the defendant No.1 as the financer/strategic investor in its place and stead. A memorandum of understanding (in short MoU) was entered between the plaintiff, defendant No.1 and defendant No.3 on 2^ndJuly, 2018 in this regard.

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vi) One Limited Liability Partnership agreement (in short LLP agreement) was entered between the plaintiff and defendant No.1 also on the same date i.e. on 2^ndJuly, 2018.

vii) Under the MoU and LLP agreement it was decided that the defendant No.2 being the LLP would be the vessel through which resolution plan and the expansion project of Palogix would be financed. The Articles of Association of Palogix was amended subsequent execution of MoU and the LLP agreement to ensure that the plaintiff always continues in the management of the Palogix.

viii) The defendant No.1 under the MoU was to invest an agreed sum of Rs.78,38,19,050/- in Palogix by way of equity contribution and by giving loans to Palogix. The equity contribution to be made by the defendant no.1 was Rs.18,74,56,925/- while Rs.60 crores was to be given as loan. The plaintiff in its turn was required to bring in an equity contribution of Rs.18,93,505/-. It was agreed between the plaintiff and the defendant No.1 and No.2 that the investment of Rs.78,93,50,430/- would be used by the defendant No.2 to subscribe a fresh issue of 1,83,81,905 equity shares by Palogix representing 71.38% of its paid up capital to the aggregate face value Rs.18,38,19,050/-.

ix) The resolution plan was to operate into two steps. In the first step the resolution applicant either itself or through a strategic partner collectively or individually would purchase the shares of Bessemar Venture Partners Trust, Wiliram Taneja Mines Pvt. Ltd, Morton Supplies Pvt. Ltd and Nine Yards Logistics Pvt. Ltd. who were holding nominal percentage share in Palogix prior to introduction of the

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resolution plan. In step two, the resolution applicant either itself or through a strategic partner collectively or individually was to infuse Rs.18,38,19,050/- as primary equity of Rs.10 per share for 71.38% stake in Palogix taking the total stake of the resolution applicant including its strategic partner.

x) After the said two steps, the total share capital of Palogix would become Rs.25,75,38,480/- comprising of 2,57,53,848 equity shares of Rs.10/- each. The share holding pattern would become as follows:- Resolution Applicant individually or along with its strategic partner would hold 2,00,00,000 shares i.e. 77.7%, Ramesh Sharan Rai promoter would hold 25,30,330 shares equal to 9.7%, Shweta Rai promoter 28,60,000 shares equal to 10.9%, Vishal Rai also promoter 1,10,000 shares equal to 0.4% and Sayonara Commercial Pvt. Ltd. 2,53,518 shares equal to 1% of the total share capital of and in Palogix. Thus, by this mechanism, the percentage of the promoters' share holding prior to the resolution plan would come down respectively from 34.3% to 9.8%, 38.8% to 9.8%, 1.5% to 0.4% and for Sayonara from 3.4% to 1% though their respective numbers of shares would remain unchanged.

It was agreed between the plaintiff and the defendant Nos.1 & 2 that for the contribution of Rs.78,93,50,430/- to be brought in by the defendant No.1 towards 71.38% shares of Palogix, the plaintiff would make the defendant No.1, 99% shareholder in defendant No.2 and will himself hold 1% share in the LLP (the defendant No.2).

xi) In terms of the approved resolution plan, the defendant No.1 was required to make the investment within the period of one year from

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the date of approval of the same i.e. on 12th February, 2019 and as agreed the plaintiff would thereafter have a 3 years' period to increase its share in the defendant No.2 to 30.64% whereupon the said defendant No.2 would stand dissolved.

xii) The defendant No.1 brought only Rs.35,59,00,000/- in total out of which Rs.9,90,000/- was on account of equity and

Rs.35,49,10,000/- towards loan into the defendant No.2 for being ploughed into Palogix. The timeline prescribed by the resolution plan in such circumstances could not be adhered to, for which the plaintiff was once required to approach the monitoring agency appointed by NCLT for extension of timeline of the resolution plan. The plaintiff had to incur additional cost of Rs.25,23,65/- on this account.

xiii) Finally the monitoring agency extended the time prescribed under the resolution plan till 4th December, 2019. Even within such timeline, the defendant No.1 made payment a sum of Rs.36,14,31,380/- comprising of Rs.9,90,000/- towards equity and Rs.36,04,41,380/- on account of loan.

xiv) In view of the failure on the part of the defendant No.1 to make payment of the agreed a sum of Rs.18,74,56,925/- its share in defendant No.2 and consequently in Palogix stood proportionately reduced to 44.95% and 32.1% respectively. The default on the part of the defendant No.1, therefore, gave the plaintiff the right to claim a declaration to such reduction in share as also perpetual injunction to restrain the defendant No.1 from representing or holding itself ought

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to be 99% shareholder of defendant No.2 and consequently entitled to 99% of 71.38% shares of or in Palogix.

xv) It is also plaintiff's case that notwithstanding the agreed shareholding of the defendant No.1 in defendant No.2 it was agreed that the plaintiff and the defendant No.1 would be designated partners of the defendant No.2 and would consequently have to act jointly for taking any decision concerning the defendant No.2. Any decision could or would be taken by the defendant No.2 except with the concept and concurrence of both the plaintiff and defendant No.1 would be void. Notwithstanding such fact the defendant No.1 has attempted and will undoubtedly continue to attempt and exercise wrongful control over the defendant No.2. The defendant No.1 through such control is seeking to appoint directors to the board of Palogix through the defendant No.2 without holding any meeting of defendant No.2. The defendant No.1 had attempted to nominate directors through the defendant No.2 in the board of Palogix.

xvi) The plaintiff, therefor, claims to be entitled to injunction restraining the persons nominated by the defendant no. 1 and 2 from acting as directors of Palogix.

xvii) The plaintiff also says to have been prevented from filing the suit prior to 21st October, 2022 as the Puja holidays of this Court intervened and the plaintiff's Advocates and counsel were not available in the city.

xviii) The plaintiff says that the plaintiff's cause of action arose as in the end of 31st March, 2022 as even at the end of 31st March, 2022 the defendant no. 1 despite not having made the promised investment in

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defendant no. 2 and/or in Palogix continued to represent and/or hold itself out to be 99 per cent share holder in defendant no. 2 and 71.38% shares in Palogix.

xix) In the interlocutory application, the plaintiff has made some further statements to support the ground of urgency for which he has sought for dispensation of the formalities under the provisions of Section 12A of the Commercial Courts Act, 2015.

xx) In paragraph 41 of the said application being G.A. 1 of 2022 it is stated at the petitioner's instance one Mr. Deepak Joshi was appointed as Director of Palogix on February 1, 2022. It is further stated in the same paragraph "purporting to represent himself as a nominee Director of the respondent no. 2 in the Board of Palogix, on 28th September, 2022", the said Deepak Joshi acting at the instance of the defendant no.1 issued a notice to hold the Board meeting of the Palogix on 28th September, 2022.

xxi) In a portion of paragraph 44, the following has been stated:

" Immediately thereafter, at the instance of the respondent No. 1, on 22 September 2022 the said Deepak Joshi once again acting without the authority of the board or of the other directors of Palogix issued wrongful threats to the employees of the company, and thereafter on 28 September 2022 proceeded to issue a notice of an Extraordinary General Meeting scheduled for 21 October 2022 for, inter alia, amending the Memorandum and Articles of Association of Palogix and for making a rights issue of 64,38,462 shares to existing shareholders on a 4:1 basis, obviously on the premise that the respondent no. 1 was a 99% shareholder of the respondent No. 2 LLP and consequently the owner of 73% shares in

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Palogix, as earlier represented in the communication dated 21 September 2022. "

In paragraph 46 the following has been stated:

"Although in the circumstances as aforestated there could be no question of any Extraordinary General Meeting of Palogix being held on 21 October 2022 as indicated in the notice of 28 September 2022, it appeared that arrangements were nonetheless being made by the respondent No. 1 to hold such meeting. This was accordingly challenged by the other shareholders of Palogix in a petition filed before the National Company Law Tribunal under sections 241, 242 and 244 of the Companies Act, 2013. Upon the said petition being moved on 21 October 2022, a statement was, however, made by Counsel purporting to represent Palogix that the holding of the Extraordinary General Meeting had been deferred for 2 weeks. Even in doing so the respondent No. 1, purporting to act through Palogix, manifested its intention to represent itself to be the 99% shareholder of the respondent No. 2 LLP and consequently the holder of 73% shares in Palogix. "

xxii) The said Deepak Joshi, inter alia, has convened an extraordinary General Meeting of the Company for the purpose, amongst others of increasing its authorized share capital of Palogix.

3. After a formal reading of the plaint, it is apparent that the plaintiff has pleaded two separate and distinct cause of action. The first cause of action is the plaintiff's obligation as a resolution applicant to carry out the resolution plan of Palogix by making investment as required thereunder. The second one is the alleged breach committed by the defendant No.1 in

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respect of the MoU and the LLP agreement both dated 2^ndJuly, 2018. It is not clear from the plaint whether the tie up between the plaintiff and the defendants No.1 and No.2 to carry out the obligation under the Resolution Plan is known to NCLT or the monitory committee set up to supervise the CIRP of Palogix. It is also not clear as to what has happened to the resolution plan after 4^thDecember, 2019 upto which the timeline as per the plaint the resolution plan was operational. The two cause of action as pleaded in the plaint is, however, interconnected like the guarantee agreement. The resolution plan being an agreement between the plaintiff and Palogix followed by the second one between the plaintiff and the defendants No.1 and No.2. The defendant no.1 was required to bring the agreed consideration within 1 year from the date of approval of the resolution plain that is on or before 12^thFebruary, 2019. The defendant no. 1 according to the averments in the plaint failed to do so as a consequence whereof, the plaintiff applied before the Monetary Agency to extend the time and had to incur additional cost of Rs.2,52,32,365/-. The time was extended up to 4^thDecember, 2019. Even by 4^thDecember, 2019, the defendant no. 1 and 2 did not infuse into Palogix through defendant no. 2 the agreed consideration thus, the breach of MoU dated 2^ndJuly, 2018 and the LLP agreement also dated 2^nd July, 2018 had taken place in February, 2019 and if such breach is condemned definitely on or before 4^thDecember, 2019. The cause of action, if any, in favour of the plaintiff to seek the declaratory relief as claimed in the suit arose immediately after 4^thDecember, 2019. The relief of perpetual injunction is a consequence of the declaratory relief in view of the provisions of Section 34 of the Specific Relief Act, 1963. The plaintiff

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could have sought for injunction also immediately after 4^thDecember, 2019 to restrain the persons acting or holding out to be directors said to have been appointed at the instance of the defendants No.1 and No.2 than to wait and allow such persons to issue notices and hold extraordinary general meeting in September, 2022 and then file a suit by seeking dispensation of the provisions of Section 12 A of the 2015 which has been held to be mandatory in view of the ratio laid down in 2022 (10) SCC 1 [Patil Automation Private Limited & Ors. Vs. Rakheja Engineers Private Limited].

4. Between 4^thDecember, 2019 and 15^thMarch, 2020 being the date from which the Hon'ble Supreme Court excluded the application of the limitation laws due to pandemic, the plaintiff did not take any step. Even immediately after 28^thFebruary, 2022 when the application of the limitation laws was reinstated by the Hon'ble Supreme Court, the plaintiff did not approach this Court. The leave was obtained from the vacation bench on 21^stOctober, 2022 for filing the plaint. The plaint was filed in the Computer Department on 21^stOctober, 2022. So, the plaintiff waited between 1^stMarch, 2022 till 20^thOctober 2022 for reasons best known to him which however, includes a few days delay for the absence of the advocates and counsels during the annual vacation of this Court which commenced on 1^stOctober, 2022.

5. Assuming without admitting that the delay in filing this suit between 1^st October and 21^stOctober due to unavailability of Advocate is condoned even then the delay between 1^stMarch, 2022 and 30th March, 2022 and September 2022 remains unexplained. The delay in approaching the

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Court between 5^thDecember, 2019 and 15^thMarch, 2020 also remains unexplained.

6. The plaintiff has cited the acts on the part of the three (3) directors of Palogix who are said to have been appointed at the instance of the defendants No.1 and No.2 despite breach committed by the defendant No.1 as far back as in December, 2019. In fact the two directors have been allowed to function even after the breaches and one director had been appointed at the instance of the plaintiff on 1^stFebruary, 2022. The plaintiff further alleges that the notices issued on 20^thSeptember, 2020 and 22^ndSeptember, 2022 has given rise to a situation where the plaintiff contemplates urgent interim relief for which the plaintiff is entitled to leave under Section 12A of the Commercial Courts Act, 2015. This situation in 2022 would not have arisen had the plaintiff asserted its right immediately after the breach and did not permit appointment of directors even in 2022. The plaintiff is free to assert his right at any time prior to expiry of limitation but then the plaintiff cannot be allowed to institute a suit with complying with the provisions of pre-institution mediation.

7. It is also apparent that till 1^stFebruary, 2022 the plaintiff had no grievance in respect of appointing a Director, who is claimed to be acting in favour of the defendants No.1 and No.2 though the breach being the foundation of the plaintiff's relief has taken place in at least 4^thDecember, 2019. The plaint also does not say when the plaintiff had called upon the defendant no. 1 to transfer 30.64 % of its existing shares in defendant no.

2. It also does not state when the meeting and discussions were held by and between plaintiff and defendant no. 1. When the defendant no. 1 on being called upon to transfer shareholding flatly refused to do so.

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8. Taking into consideration the dates, the averments made in the plaint, the chain of events as alleged by the plaintiff, it is crystal clear that the cause of action, if any in favour of the plaintiff arose on and from 5^thDecember, 2019. The plaintiff has waited for more than three years from December, 2019 and more than a year even if the benefit of covid relaxation between 15^thMarch, 2020 and 28^thFebruary, 2022 is granted to the plaintiff. This Court does not find any good reason for which the plaintiff cannot wait for another few months to exhaust the remedy of pre-institution mediation particularly when the plaintiff can claim benefit of the pandemic. The suit on the basis of the averments in the plaint as also G.A. 1 of 2022 does not contemplate urgent interim relief for which leave under Section

12 A of the 2015 Act can be sustained. Since the provisions of Section 12 A of 2015 Act is mandatory and this Court assumes jurisdiction only upon such leave is given the automatic conclusion if such leave cannot be sustained is rejection of plaint as laid down in Patil Automation (supra).

9. In the aforesaid facts and circumstances, the plaint is rejected, however without any order as to cost by allowing the application being G.A. 2 of

2022.

Urgent photostat certified copy of this judgment and order, if applied for, be supplied to the parties on priority basis after compliance with all necessary formalities.

(ARINDAM MUKHERJEE, J.)

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