Dr. D.Y. Chandrachud, J.@mdashThese Appeals arise from a judgment dated 19 July 2010 of a Learned Single Judge on a Motion for interim relief in a suit. When an application for ad interim relief came up for hearing before the Learned Single Judge, an objection to the maintainability of the suit was raised on behalf of the First Defendant on the ground that the claim was barred by limitation. The Learned Single Judge was requested to raise a preliminary issue u/s 9A of the Code of Civil Procedure, 1908. The Learned Judge accepted the contention that an issue u/s 9A would have to be raised. The Court held that no case for the grant of ad interim relief, within the meaning of Section 9A(2) was made out on the ground of delay. However, the Learned Single Judge proceeded to dispose of the Motion for interim relief on the ground that since affidavits have been filed and parties were heard at length, it would not be appropriate or proper to have a hearing confined only to the disposal of the application for ad interim relief. Two appeals have been filed in these proceedings. The first appeal is by Mr. Nusli Neville Wadia, the Plaintiff; while the second appeal is by Ferani Hotels Private Limited, the First Defendant. The suit has been instituted by the Plaintiff in his capacity as the administrator of the estate of Late E.F. Dinshaw. For convenience of reference and since there are two appeals, it would be appropriate to refer to the parties as the administrator and Ferani. Reference to the other Defendants would be made appropriately, as and when necessary. The suit has been instituted, inter alia, to seek a declaration that an agreement entered into between the administrator and Ferani on 2 January 1995 stands vitiated by fraud and has been duly determined with effect from 12 May 2008. Consequential reliefs have also been claimed to the effect that the powers of attorney executed by the Plaintiff stand validly revoked and that certain agreements entered into between Ferani and the other Defendants, including among them agreements which date back to 2001, 2002, 2003, 2004 and 2005, have been validly revoked. An injunction has been sought, restraining Ferani from carrying out any further construction on the lands which form the subject matter of the suit and to demolish the constructions which have been put up. There is a claim for damages in the amount of Rs.1,370.06 Crores. The lands which form the subject matter of the dispute aggregate to about 350 acres and are situated principally in Malad.
2. On 2 January 1995 an agreement was entered into between the administrator (representing the estate of E.F. Dinshaw) and Ferani, under which Ferani undertook the development of the land and the sale of constructed areas thereon subject to certain terms and conditions. The agreement envisaged that Ferani would develop the land by constructing buildings thereon. The administrator was to grant, in favour of Ferani, a lease in respect of the land. Clause 8 of the agreement stipulated thus :
8. The Development Project contemplated by this Agreement, is the following :
(a) Sale, or transfer by any other format, by the Company to third parties (hereinafter referred to as "the Purchasers" or prospective purchasers or Unit holders / flat holders, as the case maybe) either on outright sale basis or on "ownership basis", or otherwise, the different building/s to be so put up by the Company on the respective segments (being building/s belonging to the Company) and/or of the flats/ shops/ offices and/or other portions of and/or Units in such buildings/s, so that ultimately the building/s that would be so constructed by the Company would be conveyed and transferred by the Company in favour of the respective purchaser/s or a Co-operative Society or Limited Company or a Condominium (as may be decided upon by the Company) to be formed of such prospective purchasers or Unit holders/ Flat holders/co-operative society or limited company so that such purchaser / organisation would then become the owner of such building/s.
3. Under the agreement the administrator was to be paid 12% of "all gross realizations from the disposal/ transfer (by any and all formats) as aforesaid". The minimum share of the administrator was to be Rs.75 Crores, payable within a period of ten years from the date of the agreement. The development of the immovable property was to be in the control of the members of the Raheja family including a corporate body under its control. The agreement envisaged that the administrator would continue to be in juridical possession of the land. The administrator was to transfer title and handover formal and juridical possession of the land to the purchasers of the building constructed by Ferani. Clause 15 of the agreement stipulated that Ferani would be dealing with "outsiders/third parties on principal to principal basis" and the relationship between the parties would not be in the nature of a partnership and/or an association of persons. Clause 16(a) of the agreement provided that neither party shall be entitled to terminate or resile from the agreement or their obligations thereunder, the intention of the parties being that the agreement would be operative till the time that the entire development project was complete and a sale / transfer as contemplated had taken place. Ferani was required to furnish to the administrator a statement of accounts at monthly intervals in order to establish that his 12% share was paid into a designated bank account simultaneously with the receipt by Ferani of its 88% share. An annual audit was to be carried out by C.C. Chokhsi & Co. Chartered Accountants, with a view to ensure that the administrator had received his 12% share in the designated bank account. Under clause 17(a) of the agreement the administrator was required to execute powers of attorney in favour of the Third and Fourth Defendants, who are representatives of Ferani, inter alia, authorizing them to get plans sanctioned, enter into agreements with flat purchasers and to arrange for the receipt and payment of the share of the administrator in the gross consideration.
4. Pursuant to the agreement the administrator executed powers of attorney on 2 January 1995. Parties entered into a supplemental agreement on 12 April 1995 providing a time frame for the realization of the minimum guaranteed share of Rs.75 Crores that was assured to the administrator. Between 1995 and 1999, no development work was carried out, as a result of which the minimum guaranteed amount was remitted to the administrator as provided in the agreement between the parties.
5. The record would indicate that disputes arose between the parties as early as in April 2000. On 4/11 April 2000, Ferani informed the administrator that from 21 March 2000 it had deposited in the designated bank account an aggregate sum of Rs.75.79 lakhs representing the 12% share of the administrator under clause 12(a) of the agreement, out of the gross receipts / realization in respect of 56 flats in a proposed building to be constructed by Ferani on the suit land. This building was alleged to have been sold by Ferani to the Fifth Defendant, which according to the Plaintiff is a group company of the Raheja family. On 16 May 2000, a reply was addressed by the administrator to Ferani specifically drawing attention to the fact that clause 8(a) of the agreement contemplated a sale or transfer of flats to third parties. The administrator contended that the sales of the flats in question were not genuine sales and that consequently the obligation to deposit 12% of the sale values would not be taken as having been fulfilled. In the circumstances, Ferani was called upon to disclose "the ultimate genuine sale" made by the sister and associated companies of Ferani to third parties to whom the flats were allegedly sold at a notional value. The amount paid towards the share of the administrator, it was stated, would be treated as an on account payment to be finally adjusted against "genuine sales".
6. On 9 June 2000, Ferani addressed a communication to the administrator accepting that the Fifth Defendant was a "sister concern", but claimed that it had a separate entity and was a third party within the meaning of clause 8(a) of the agreement. According to Ferani the sale price which is reflected in the transaction (Rs.1,510/-per sq. ft.) was the rate at which the premises under sale were capable of realizing in the then market conditions. Nonetheless an offer was made by Ferani to the administrator that it would be willing to sell to the administrator or his nominees, within thirty days, 56 similar flats at the rate of Rs.1,510/-per sq. ft. on the same terms and conditions of sale as applicable to the Fifth Defendant. During the course of the development of the lands, nearly 19 meetings took place between the parties. The record would indicate that the administrator had a serious grievance that Ferani had entered into transactions for the sale of constructed premises to third parties who were alleged to be companies forming part of the Raheja group. Whether there is prima facie merit in that allegation would be considered for the purposes of the present appeals. But, at this stage, it would be necessary to note that from time to time C.C. Chokshi and Company, who were nominated as auditors under the agreement, certified during the course of audit that Defendants 1 to 4 had stated that none of the flats or units had been sold to related parties or to sister or associated concerns of Ferani.
7. On 12 May 2008, the agreement was determined by notice on the ground that by purporting to sell the units in the completed buildings and in partially constructed buildings to their own nominees, Defendants 1 to 4 had acted fraudulently in breach of their fiduciary duty and of the express terms and conditions of the agreement. The administrator alleged that Defendants 1 to 4 had repudiated their obligation under the agreement. The suit was instituted on 13 May 2008.
8. On 30 May 2008 a Motion for interlocutory relief was taken out by the administrator. Between 22 July 2008 and February 2010 several letters were addressed by the administrator to various authorities, including the Sub-Registrar of Assurances and the Municipal Corporation, either to stop the registration of documents or the grant of building permissions. On 20 October 2009 and 23 December 2009, the Municipal Corporation stated that since there was no injunction or order of restraint of any Court, the request made by the administrator could not be acceded to. The Motion was moved before the Learned Single Judge for ad interim relief for the first time on 3 March 2010, nearly 21 months after the suit was instituted. On behalf of Ferani an adjournment was sought to file an affidavit in reply. In the affidavit filed by Ferani to oppose the application for ad interim relief, an objection was raised to the maintainability of the suit on the ground that the claim was barred by limitation. The Learned Trial Judge was requested to frame a preliminary issue on the question of limitation u/s 9A of the Code of Civil Procedure, 1908. The Motion was listed before the Learned Single Judge on 16 June 2010 for ad interim relief.
9. By a judgment dated 19 July 2010 the Learned Single Judge held that :
(i) No case for the grant of ad interim relief was made out having regard to the delay on the part of the Plaintiff, the administrator, in moving the Court;
(ii) A preliminary issue u/s 9A would have to be framed;
(iii) Since submissions have been heard at length following the filing of affidavits, the entirety of the Motion for interim relief would have to be disposed of.
Accordingly the Learned Single Judge issued a direction to the effect that Ferani shall not put any party, either a genuine third party or any related party including the other Defendants to the suit, in possession of any constructed premises except with the approval of the Plaintiff, pending the suit. The Learned Single Judge, however, excluded from the operation of the order Kotak Mahindra Bank Limited in the building constructed for them by Ferani under certain agreements dated 15 December 2006. The Motion was disposed of. The Learned Single Judge had stayed the operation of the order for a period of two weeks. The order passed by the Learned Single Judge was stayed by a Division Bench of this Court on 26 July 2010.
10. Before we deal with the issues which arose before the Learned Trial Judge, prima facie, on the merits of the dispute it will be necessary for the Court to consider the ambit of the provisions of Section 9A of the Code of Civil Procedure, 1908. As we have noted, at the hearing of the application for ad interim relief, an objection was raised by the First Defendant to the maintainability of the suit on the ground that the claim was barred by limitation. While the Learned Single Judge has directed that a preliminary issue on the ground of limitation would have to be framed u/s 9A, the impugned order proceeds to dispose of completely the Motion for interim relief. Whether such a course of action is permissible in law would fall for determination in the first instance.
11. Section 9Awas introduced in the Code by a Maharashtra Amendment Act 65 of 1977 with effect from 19 December 1977. Section 9A provides as follows :
"9-A. Where at the hearing of application relating to interim relief in a suit, objection to jurisdiction is taken, such issue to be decided by the Court as a preliminary issue -
(1) Notwithstanding anything contained in this Code or any other law for the time being in force, if, at the hearing of any application for granting or setting aside an order granting any interim relief, whether by way of stay, injunction, appointment of a receiver or otherwise, made in any suit, an objection to the jurisdiction of the Court to entertain such a suit is taken by any of the parties to the suit, the Court shall proceed to determine at the
1 Act 65 of 1977 with effect from 19 December 1977. hearing of such application the issue as to the jurisdiction as a preliminary issue before granting or setting aside the order granting the interim relief. Any such application shall be heard and disposed of by the Court as expeditiously as possible and shall not in any case be adjourned to the hearing of the suit.
(2) Notwithstanding anything contained in sub-section (1), at the hearing of any such application, the Court may grant such interim relief as it may consider necessary, pending determination by it of the preliminary issue as to the jurisdiction.
12. At the outset it will be necessary to note that insofar as this Court is concerned, it is common ground that the following two positions in law are settled :
(i) Whether a plea of limitation as a bar to the Court entertaining the entire suit can be raised as an issue of jurisdiction u/s 9A is concluded by the following judgments :
(a)
(b) Royal Palms (India) Pvt. Ltd. v. Bharat Shantilal Shah (2009) 2 Bom CR 622 (DB);
(c ) Mukund Ltd. v. Mumbai International Airport 2011 (2) MLJ 936 (DB);
(d)
(ii) Whether Section 9A is inconsistent with the provisions of Order 14 Rule 2 and will therefore stand repealed by Section 16 of the CPC Amendment Act 2002 is concluded by the following decisions :
(a) Satpuda Tapi Parisar Sahakari Sakhar Karkhana Ltd. v. Jagruti
13. The Court has been informed during the course of the submissions by learned Senior Counsel appearing on behalf of the administrator that the judgment of this Court in Foreshore Co-operative Housing Society was carried in appeal to the Supreme Court both on the point as to whether limitation can be raised as a jurisdictional issue u/s 9A and on whether Section 9A is inconsistent with Order 14 Rule 2. A SLP has been admitted by the Supreme Court by an order dated 6 September 2011. The administrator has made a statement before this Court that on this issue, he wishes to canvas the correctness of the view on both these facets before the Supreme Court. Fairly, however, there is no dispute about the position in law that on both these aspects, the law stands concluded insofar as this Court is concerned.
14. The genesis of Section 9A originates in a decision of this Court in
(i)
(ii) Smithkline Beecham Consumer Healthcare BMBH v. Hindustan Lever Limited 2003 Vol. 105 (2) Bom.L.R. 547;
(iv) Royal Palms (India) Pvt. Ltd. v. Bharat Shantilal Shah 2009 (2) Bom.C.R. 622;
(v)
(vi) Associated Bombay Cinemas Private Limited v. Jamni S. Ramchandani 2011 Vol. 113(2) Bom.L.R. 829.
15. The principles which emerge from these decisions can be formulated thus:
(i) The provisions of Section 9A are mandatory. Where at the hearing of an application for granting or setting aside an order granting interim relief in a suit, an objection to the jurisdiction of the Court to entertain such a suit is taken by any of the parties, the Court shall proceed to determine at the hearing of the application the issue as to jurisdiction as a preliminary issue before granting or setting aside the order granting interim relief. Such an application cannot be adjourned to the hearing of the suit and must be disposed of expeditiously;
(ii) Though the application for the grant of interim relief or, as the case may be, for setting aside an order granting interim relief cannot be disposed of before a decision on the preliminary issue as to jurisdiction, the Court may nonetheless grant such interim reliefs as it may consider necessary pending the determination by it of the preliminary issue as to jurisdiction;
(iii) Once the issue of jurisdiction is required to be decided as a preliminary issue, notwithstanding anything contained in the Code, including Order 14 Rule 2, it has to be determined after adjudication which would require parties being given an opportunity to lead evidence. The decision by the Court of the preliminary issue is not merely a prima facie determination for the purposes of the application for interim relief, but is a final determination of the issue of jurisdiction which the provision mandates must be heard and disposed of first as a preliminary issue. It is only upon the disposal of the preliminary issue of jurisdiction, that the Court can then take up the final disposal of the application for interim relief;
(iv) The first part of Section 9A refers to the stage at which the objection is taken, the stage being at the hearing of an application for granting or setting aside an order granting interim relief. The second part of the provision elucidates the nature of the objection, the objection being to the jurisdiction of the Court to entertain such a suit;
(v) Following the judgment of the Constitution Bench of the Supreme Court in
16. But, the submission which has been urged on behalf of the administrator by learned Senior Counsel is twofold. Firstly, it has been submitted that an objection, as to jurisdiction, of the nature that is contemplated by sub section (1) of Section 9A is an objection which must be capable of disposing of the entirety of the suit if it is upheld. In the present case, it has been submitted that several transactions between the parties which are sought to be rescinded have admittedly taken place within a period of three years of the date of the institution of the suit and those in any event would be within limitation. Consequently, it was submitted that even if the objection that has been raised by Ferani were to be upheld upon adjudication, that would result in only a part of the claim being held to be barred by limitation. The administrator does not concede at this stage that any part of the claim is barred by limitation. But, even if the submissions of Ferani were to be upheld, that would not result in the rejection of the suit in its entirety. Section 9A, it was urged, would not apply to this situation. Secondly, it is urged that sub section (1) of Section 9A does not oust the authority of the Court to consider atleast at the threshold whether the objection as to jurisdiction has some substance or justification. In other words, it was urged that an objection as to jurisdiction does not mandate that the Court must in every instance frame a preliminary issue and if such a construction were to be placed, it would be susceptible to grave abuse.
17. We would take up the second part of the submission in the first instance. The object and purpose of the legislature in introducing Section 9A was to obviate an abuse of process on the part of the Plaintiff. The statement of objects and reasons underlying the amendment makes it abundantly clear that the legislature had in mind a situation where a practice had grown in the City Civil Court of applications for interim relief being entertained while a hearing on an objection as to jurisdiction was postponed until that determination took place. This practice finds support in a judgment of this Court in Institute Indo-Portuguese which had indicated that it was not necessary for the Trial Judge to postpone the hearing of an application for interlocutory relief until the question of jurisdiction was resolved. Evidently, the object of the State legislature in introducing the provisions of Section 9A was to ensure that when an objection on the ground of jurisdiction is raised, that must be addressed first before an application for interlocutory relief is finally disposed of. Nonetheless the legislature balanced the claim of a Plaintiff to have access to some interlocutory protection. Sub section (2) of Section 9A empowers the Trial Judge to grant interim protection until the question of jurisdiction is finally resolved. Though the object of the legislature was thus to protect against an abuse of process on the part of the Plaintiffs, experience of Trial Judges in this Court would be suggestive of the fact that in certain cases the provision can be capable of being abused by a Defendant. A Defendant may conceivably raise an objection as to jurisdiction merely with a view to delay the final disposal of a Motion for interim relief, cognizant of the fact that an ad interim application of the kind which is contemplated under sub section (2) of Section 9A may not in a given situation result in the grant of wide ranging interim reliefs of the kind that may be sought by a Plaintiff. We are not inclined to enter a finding that such is the case in the present case. For, as we would indicate prima facie, the objection as to jurisdiction here cannot by any means be regarded as being frivolous or lacking in bonafides. But, the possibility of an abuse by the Defendants, which the practical unfolding of the provision of Section 9A indicates, in the experience of the Trial Judges of this Court, would emphasize the necessity of allowing a modicum of discretion on the part of the Trial Judge while dealing with an application for the raising of a preliminary issue u/s 9A. The judgment of the Supreme Court in Bagasarwalla''s case provides some element of guidance when the Supreme Court notes that the Trial Judge is not helpless merely because a preliminary issue is sought to be raised u/s 9A. We are of the view that in order to ensure that Section 9A is not susceptible to grave abuse at the behest of an unscrupulous Defendant, it would be within the jurisdiction and authority of the Trial Judge to consider as to whether the objection as to jurisdiction arises bonafide or whether it is wholly frivolous. Undoubtedly, this would contemplate only a minimal enquiry by the Court, since if at that stage a comprehensive adjudication were to be contemplated, that would virtually defeat the provisions of Section 9A. The provisions of Section 9A therefore would not be inconsistent with the Trial Judge exercising a minimal enquiry at the very threshold to satisfy the conscience of the Court that the objection of jurisdiction has been raised bonafide and is not a frivolous or irrelevant exercise meant only to delay or defeat the process of the Court.
18. On the first leg of the submission it has been urged before the Court by learned Senior Counsel that Section 9A uses the expression "to entertain such a suit". Based on this, it was submitted that an objection to the jurisdiction of the Court must be to the entertainment of a suit in its entirety. In other words, the submission is that where an objection as to jurisdiction could not result in the complete disposal of the suit, in the event that it is upheld, the issue as to jurisdiction need not be framed as a preliminary issue.
19. At the outset, when we consider the submission it would be necessary to note that a restriction of the kind that is suggested on behalf of the administrator is not contained in the plain terms of Section 9A. The first part of Section 9A(1) makes a reference to the stage at which the objection is raised while the second part adverts to the nature of the objection. The nature of the objection is that it has to be "an objection to the jurisdiction of the Court to entertain such a suit". An objection to jurisdiction may in a certain conceivable situation be to the jurisdiction of the Court to entertain the suit in its entirety as for instance, where the Court lacks the jurisdiction to entertain the subject matter of the suit on the ground that properly construed the suit relates to the relationship of a lessor and lessee falling within the exclusive domain of the Small Causes Court in the city of Mumbai. Alternately, the objection may be to the lack of territorial jurisdiction or on the ground of a lack of pecuniary jurisdiction. Equally an objection as to jurisdiction can well be in respect of a part of the cause of action which is set up in the suit. For instance, even on the issue of territorial jurisdiction, a part of the cause of action may fall within the jurisdiction of the Court, while another part may fall outside. An illustration of that nature is to be found in the judgment of the Supreme Court in
20. In the view which we have taken, we would have to determine as to whether consistent with the minimal enquiry that we have contemplated, the Learned Single Judge was justified in directing that the issue of limitation should be raised as a preliminary issue consistent with the provisions of Section 9A. The objection as to jurisdiction has been raised in the affidavit filed on behalf of the First Defendant on 12 March 2010. Paragraph 4 of the affidavit contains a specific submission that the suit is barred by limitation and that this issue should be raised and decided as a preliminary issue u/s 9A. In paragraphs 10.1 to 10.8 and in paragraph 11 the First Defendant has set up the basis on which the plea of limitation has been raised. According to the First Defendant on 11 April 2000 the administrator was informed that 56 flats in Building No.4 had been sold and the Plaintiffs'' share of 12% had been banked in the designated bank account. On 16 May 2000, the administrator raised an objection on the ground that the Fifth Defendant to whom the sale was made was not a third party and was an associated company. In response, the First Defendant by its reply dated 9 June 2000 stated that though the Fifth Defendant was a sister concern, it was a separate legal entity and therefore a third party within the meaning of clause 8(a). In addition, the First Defendant offered to sell an equal number of flats to the Plaintiff at the same rate and on the same terms and conditions. Subsequently, on 5 April 2002, the administrator was informed of the sale by the First Defendant to the Sixth Defendant, another sister concern of three units in Building M on C.T.S. 1406A/3/8. On 23 April 2002, the Plaintiff raised an objection to the sale on the ground that this was not a genuine sale to a third party. By a communication dated 2 May 2002 the First Defendant informed the Plaintiff that the sale was a genuine sale in respect of which Form 37-I had been filed with the Income Tax Department. The contention of the First Defendant is that between 2000-2002 the Plaintiff was aware of the position of the First Defendant that although the Fifth and Sixth Defendants were associated companies, being independent legal entities, they were a third party within the meaning of the agreement. According to the First Defendant the sales made to Defendants 8 to 49 were third party sales and the claim was barred by limitation. As regards the negotiation letters which were sought to be revoked as part of the reliefs claimed in the suit, it has been submitted that those letters date between 30 March 2001 and 4 April 2005, besides which there were other agreements between April 2005 and March 2006. In our view, having due regard to the nature and basis of the objection, it cannot be asserted that the claim as to limitation is frivolous or that it was lacking in bonafides.
21. The Learned Single Judge was in these circumstances justified and as a matter of fact Section 9A(1) obligated the Court to raise an issue of jurisdiction to be tried as a preliminary issue. Having decided to raise the issue of limitation as a preliminary issue, the Learned Single Judge was of the view that no case for the grant of ad interim relief was made out. The basis of this determination is contained in paragraphs 71 and 72 of the impugned order. The Learned Single Judge has noted that the administrator had atleast suspected some fraud, if any, committed by Ferani by appointing its nominees or related companies, since May 2000. A grievance was again made in April 2002. According to the Learned Single Judge, the Plaint itself shows that the entire fraud was brought to light in May 2005. Though the administrator sued in May 2008, no application for the grant of ad interim relief was made until February 2010. For these reasons, the Learned Judge held that it would be impossible to grant ad interim relief to the Plaintiff after the lapse of the years that have passed. But the Learned Single Judge proceeded to dispose of the Motion for interim relief on the ground that after detailed arguments were addressed and the material on the record had been considered, it would be an abuse of the process of the Court to allow parties to argue only an application for ad interim relief. It was on this basis that the Learned Judge proceeded to dispose of the Motion in its entirety. We find considerable merit in the submission that the impugned order of the Learned Single Judge insofar as it disposes of the application for interim relief finally is unsustainable. Once the Motion for interim relief stands disposed of, the issue which the Learned Single Judge has framed would cease to be a preliminary issue because then it would partake of the character of an issue which would fall for determination under Order 14 Rules 1 and 2. What the legislature has contemplated is that an issue of jurisdiction has to be disposed of first before the interlocutory application can be disposed of finally. Disposing of the Motion finally without the issue of jurisdiction being resolved, would clearly be in the teeth of the provisions of Section 9A(1). Section 9A(1) clearly mandates that the issue of jurisdiction cannot be relegated to the stage of the hearing of the suit. Moreover, that issue has to be decided before the application for interlocutory relief can be finally disposed of. In these circumstances, we are of the view that the order of the Learned Single Judge disposing of the Motion finally is unsustainable and would to that extent has to be set aside. Consistent with the provisions of Section 9A(1) which require the raising of the issue of jurisdiction as a preliminary issue, the Learned Single Judge would have been within jurisdiction in entertaining an application for ad interim relief within the meaning of sub section (2) of Section 9A. The hearing of the Motion for interim relief would have to be taken up after the determination of the preliminary issue u/s 9A.
22. That leads the Court to the issue as to whether the grant of any ad interim relief is warranted. As we have noted earlier, the final relief that the Learned Single Judge has granted is not an ad interim order within the meaning of Section 9A(2), but a final order on the Notice of Motion. The Learned Single Judge was of the view that no case for the grant of ad interim relief was made out. That is the matter which now falls for the determination of the Court.
23. The substratum of the case of the Plaintiff is on the allegation of fraud. The allegation of fraud can for the purposes of elucidation be broadly distributed into four heads as pleaded in the plaint:
(i) Defendants 1 to 4 have transacted with themselves through the device of front / nominee companies. This allegation of fraud involves Defendants 8 to 13, 16-17, 19-30 and 32-49. According to the Plaintiff for each of the financial years in which minimum guaranteed amounts were to be paid, a cluster of companies was incorporated at the behest of Ferani / the Rahejas just prior to the dates of the transactions in question. Most of the companies, it was alleged, had common directors, auditors, addresses or witnesses to their Memoranda and Articles of Association. The companies had almost identical paid up capitals of Rs.1 lac or Rs.1.5 lacs in most cases. Despite the limited capital and recent incorporation, the companies were projected as having entered into transactions with Ferani involving several crores of rupees. All the transactions were allegedly in the form of negotiation letters which provided for similar terms of payment including rates. The initial amounts which the companies paid were alleged to be financed by unsecured loans principally from the Seventh Defendant which is stated to be a partnership firm of the Raheja family. According to the Plaintiff, the fact that Defendants 8 to 49 were actually related or that they were nominees of the First Defendant or the Rahejas was a fact which was not disclosed to the auditors, C.C. Chokshi & Co. appointed under clause 16(g) of the development agreement. The auditors, as the administrator points out, were informed by Ferani that none of the sales to Defendants 8 to 49 were sales to related persons or nominees of Ferani.;
(ii) The second allegation of fraud involves two negotiation letters with front / nominee companies viz. Defendants 14 and 15. According to the Plaintiff in pursuance of these negotiation letters, Ferani purported to sell identified areas to its front companies at a stated price. These negotiation letters contain an apparently innocuous clause stating that in the event that there was an increase or decrease in the areas, the consideration would be proportionately adjusted. The administrator was paid his share of consideration stated in the initial letters of negotiation of 2002. Subsequently, when the copies of the negotiation letters of May 2005 were forwarded to the administrator, he realized that although the area was much higher, the rate was the same. The allegation is that by adopting this modus operandi, the administrator was deprived of his share of 12% of the genuine consideration;
(iii) The third allegation of fraud is that the First Defendant entered into leave and licence agreements with Defendant No.31 dated 21 November 2003 in respect of areas yet to be transacted under which it would take a substantial deposit and licence fee from the licensee. The leave and licence agreement was disclosed to the administrator only under a letter dated 5 April 2005 and 12% of the deposit amount or of the licence fee was not shared with him at all. Thereafter, according to the administrator, the areas with the licensee were transacted with Defendant No.31 which is an associated concern of the Raheja group and the deposit was transferred to it. The administrator objected to this transaction on 2 June 2005;
(iv) The fourth allegation is that a transaction was entered into on 15 December 2007 by Ferani with the Kotak group, involving two separate agreements, one of which was disclosed and the other was concealed. According to the Plaintiff, the actual purchase consideration was split into two agreements, one for the building and the second for amenities such as aluminum cladding. Both the agreements were entered into on the same day and the consideration was split up approximately in the ratio of 85 : 15. The administrator was paid his share only under the first agreement. On obtaining knowledge of the transaction, the administrator wrote to Kotak on 24 February 2008. It was only after the filing of the suit, since the no objection of the administrator was required for the handing over of possession of Building 21 to Kotak, that Kotak paid up and permission was granted. Moreover, it has been submitted that in certain instances, the premises which form the subject matter of certain transactions were never in fact constructed.
24. On behalf of Ferani, it was sought to be urged by learned Senior Counsel that :
(i) Clause 8(a) of the agreement does not prohibit a sale to a sister concern; and
(ii) So long as the party with whom a transaction was entered into was not a party to the contract, the sale would be to a third party within the meaning of clause 8(a) of the agreement.
Learned Senior Counsel submitted that Ferani has made full disclosures of all transactions and in the absence of any misrepresentation, the allegation of fraud is misconceived. It has been urged that the essence of the development agreement, especially under clause 8(a), was that the administrator would receive 12% of the gross consideration on all sales. It has been submitted that the purchaser to whom the sale has been made is irrelevant, so long as it is made to a "third party" who is not a signatory to the development agreement. Learned Counsel urged that the test is not the identity of the third party, but the genuineness of consideration. It has been urged that the plaintiff has not produced any material to support the allegation regarding inadequacy of consideration. It is urged that the Single Judge rightly held that the issues in dispute would be a matter of accounts. It has been urged that monthly intimation letters were addressed to the plaintiff, in relation to all transactions, between 2000 and 2006 and no objections were forthcoming, on the consideration for the transactions. The fact that the auditors, who were nominees of the administrator did not dispute the accounts rendered with relation to the transactions dispels any allegation of fraud. Learned Senior Counsel submitted that, barring one case, no member of the Raheja family is a director / shareholder / investor in any of the companies. It has been further submitted that out of the 44 transactions that have been challenged, 34 are barred by limitation. It has also been urged that of the 10 transactions that are not allegedly barred by limitation, several are with companies which involve independent third party investors, and that no member of the Raheja family is a director or shareholder in any of the buyer companies in these transactions. Further, in 8 or 9 transactions, the third party concerned, involved a relative of the spouse of a daughter of the Raheja family in the capacity as director / shareholder / investor, none of which could be said to be a party related to Ferani.
25. Clause 8(a) of the agreement provides that the development project contemplated by the agreement would involve the sale or transfer by any other format by Ferani to third parties either on an outright sale basis or ownership basis or otherwise, of the buildings which were to be constructed by Ferani. When the parties referred to third parties in clause 8(a), there was a business understanding which was reflected in the words of the document. The duty of the Court while interpreting a commercial document must be to give a business meaning to the words used. When parties referred to transfers to third parties, evidently they had an intent that the transactions would be arms length transactions. Evidently, the consideration that was payable to the administrator representing 12% of the gross consideration would depend upon the transactions which Ferani entered into with these third parties. The basis of the expression ''third parties'' in clause 8(a) must therefore be understood as conveying an intent of the parties to the effect that these transactions would be transactions with genuine purchasers. For it was on the foundation of a genuine transaction that the consideration representing 12% of the share of the administrator would have to be worked out. Even if learned Senior Counsel appearing on behalf of Ferani is held to be justified in submitting that the agreement does not expressly prohibit a transaction with a party other than a signatory to the contract, nonetheless there can be no gainsaying fact that the assurance that was meted out to the administrator was that he would be entitled to a certain share of the total consideration. The share of the administrator could be worked out on the basis of a bonafide sale in favour of a third party. Therefore, prima facie we are not inclined to accept the construction which has been sought to be placed on behalf of Ferani on clause 8(a) of the agreement. Undoubtedly, clause 15 of the agreement only contains a statement to the effect that while the administrator and Ferani would be dealing with outsiders / third parties, they would not be construed as having entered into a partnership or an association of persons.
26. In construing the manner in which parties understood clause 8(a), regard must be had to the contemporaneous conduct. On 5 April 2002 Ferani informed the administrator of the receipt of an amount of Rs.1.85 Crores for the sale on partnership basis of units in Building M. The sale was in favour of the Sixth Defendant, Palm Grove Beach Hotels Pvt. Ltd, which was stated to be a group company. On 23 April 2002, in a letter addressed on behalf of the administrator to Ferani, it was contended that Palm Grove Beach Hotels Pvt. Limited was not a third party within the meaning of clause 8(a) of the agreement and that the sale was not a genuine sale. In response Ferani by its letter dated 2 May 2002 stated thus :
For all practical purposes the sale to Palm Grove Beach Hotels Pvt. Ltd. has to be treated as the sale to a "third party" as the sale has been done to Palm Grove Beach Hotels Pvt. Ltd. for its business purposes. In the circumstances aforesaid the above sale has to be treated as a "genuine sale" and you cannot treat it as "on account payment" to be finally adjusted against the genuine sale effected by Palm Grove Beach Hotels Pvt. Ltd. Hence this is genuine sale and the payment of 12% of the sale contribution by them to you must be taken as fulfillment of our obligation.
27. Ferani therefore clearly sought to justify the sale to the Sixth Defendant as a genuine sale. Evidently therefore it was within the contemplation of parties that a sale in favour of a third party within the meaning of clause 8(a) must be a genuine sale. Moreover, the auditors, C.C.Chokshi & Co. certified on nearly 11 occasions, that they were informed by Defendants 1 to 4 that none of the sales or transactions involved related or associated companies. If the submission which has now been sought to be urged reflected the understanding of Ferani at the relevant time, they would have only informed the auditors that the issue as to whether the sales were to a related or associated company was irrelevant because in their construction, a third party would mean an entity which was not a party to the contract. Evidently that was not the understanding of either of the parties at the relevant point in time.
28. The basis and foundation of the claim which has been made by the administrator is that the transactions which were put into place by Ferani were motivated by the object of diluting the consideration of 12% that was liable to be paid under the terms of the agreement. During the course of the hearing, we enquired with Learned Senior Counsel appearing for the administrator as to whether there is any material on the record that would indicate that the sales to Defendants 8 to 49 were not reflective of the true market value that prevailed at the relevant point in time. At this stage, it may be noted that there is no material on the record on the basis of which the Court can conclude prima facie that the sales in favour of Defendants 8 to 49 did not reflect the true or correct market value. Whether the sales at the material time did or did not accord with the prevailing market value for the properties which were put up for sale is essentially a matter of evidence and cannot be decided a priori on the basis of affidavits. During the course of the submissions, learned Senior Counsel appearing on behalf of Ferani has placed on the record charts, reflective of the position as it stood during the period when the provisions of Section 37-I of the Income tax Act 1961 were in operation and subsequent thereto when those provisions ceased to apply. On the basis of those charts, it has been sought to be urged that the transactions which have been challenged by the administrator are in several cases at rates which are much higher than those transactions which have been accepted by the administrator. In response, the submission which has been urged on behalf of the administrator is that the transactions which have been accepted by him were transactions with genuine third parties which he had no locus to question under the terms of the agreement. In rejoinder and towards conclusion of the submissions, a computation has been tendered on behalf of the administrator to the Court on the basis of the rates as contained in the ready reckoner with a view to urge that the rates at which Ferani transacted were lower than the rates which were prevailing in the ready reckoner. We find merit in the submission which has been urged on behalf of Ferani that it would be inappropriate for this Court, sitting in appeal to allow such material to be adduced for the first time, absent such a submission being urged before the Learned Single Judge and particularly in the absence of either pleadings or underlying material to document the submission. This is evidently a matter which must be deferred to a closer consideration, when the hearing of the application for interim relief in the Notice of Motion can be taken up.
29. In pursuance of the agreement that was entered into between the parties on 2 January 1995, development has proceeded. During the course of the hearing, it has emerged before the Court that there have been nearly 1600 transactions comprising both of residential and commercial properties of which 144 are commercial transactions. The administrator has challenged 44 of the commercial transactions. The Court has been informed that there is no dispute in regard to the rates at which the transactions relating to the residential properties have taken place. On behalf of Ferani, it has been submitted that out of the 44 transactions pertaining to commercial properties that have been challenged by the administrator, 41 involved registered sale deeds, where possession has already been handed over to third parties. 34 out of the 44 transactions, it has been urged, have taken place beyond a period of three years prior to the institution of the suit and would be barred by limitation.
30. One glaring factor which must weigh with the Court in the present case is the element of delay on the part of the administrator in moving the Court. The delay on the part of the administrator must be considered from the perspective of two periods : (i) the period between the date of the disputes that arose under the agreement and the date of the suit; and (ii) the period between the date of the institution of the suit and the first application for the grant of ad interim relief. The material on the record would indicate that right from April 2000, the administrator was aware of the transactions between Ferani and entities which the administrator alleged were related or associated companies The record would show that as far back as on 16 May 2000 the administrator had questioned the transaction between Ferani and the Fifth Defendant on the ground that it was not a genuine sale. Ferani had on 9 June 2000 stated that the sale consideration accorded with the prevailing market prices at the time and offered to sell to the administrator an equivalent number of 56 flats on the same terms and conditions. Between 10 and 23 April 2001, the administrator had requested Ferani to send copies of agreements entered into pursuant to the transactions with Defendants 8 to 13, which agreements (negotiation letters) Ferani then submitted. On 23 April 2002 the administrator objected to a transaction entered into with the Sixth Defendant on the ground that being a group company the transaction was not with a genuine third party. On 2 May 2002 Ferani informed the administrator that for all practical purposes, the sale in favour of the Sixth Defendant had to be treated as a sale to a third party and was a genuine sale. On 2 June 2005, the administrator objected to the transaction that had taken place with Defendant No.31. On 2 April 2005, an MoU was entered into between Ferani and the Fifth and Sixth Defendants for the purchase of certain non-residential units of which copies were forwarded on 5 April 2005. On 5 April 2005 Ferani addressed communications to the administrator intimating the receipt of sums under letters of negotiation. Admittedly, several meetings took place between the parties on and after May 2005 when the administrator objected to the transactions. On 2 November 2005 the administrator in a communication suggested that after a notice of seven days, he shall be free to revoke the power of attorney provided to Ferani on account of its abuse. A meeting took place on 16 November 2005 between the representatives of the parties where it was agreed that a chart furnishing identities of the purchasers of the units / buildings and a break up of the transactions by category would be furnished. According to the administrator, the chart was furnished on 17 November 2005.
31. We have adverted to some of these events because they would suggest prima facie, though in fairly unmistakable terms, that parties were in dispute over the transactions which Ferani entered into right since April 2000. The record before the Court would, prima facie, indicate that from time to time the administrator raised objections to those transactions and was confronted with the defence by Ferani that the transactions accorded with the prevailing market price and were genuine transactions. In this background, the fact that the administrator chose to file the suit only in May 2008 assumes significance. Equities have intervened in the meantime. It has been stated before the Court on behalf of Ferani that in the interregnum steps have been taken for the removal of encroachment and for carrying out the work of development. Third party rights have intervened. Even after the suit was instituted on 13 May 2008, an application for ad interim relief was moved before the Learned Single Judge only on 3 March 2010. The only explanation which the administrator had for the delay in moving an application for ad interim relief is that the Sub Registrar and the Municipal Corporation had been moved not to register documents or, as the case may be, to grant building permission and it was only in October / December 2009 that the Municipal Corporation informed him that absent any injunction, it would proceed with permissions. Admittedly, in the meantime, the work under the project was continuing. These are circumstances which must weigh with the Court in declining to grant a stay on construction at the ad interim stage. The order which the Learned Single Judge passed precludes the sale of any unit whatsoever without the consent of the parties. Parties are in dispute and an order of the Court restricting the sale of constructed premises only with the consent of the parties would virtually bring the entirety of the project to a stand still. The entitlement of the administrator under the agreement dated 2 January 1995 is to the receipt of a share in the gross total consideration equivalent to 12%. The grant of injunctive relief restraining Ferani from selling its units would therefore neither be in accordance with the equities of the situation nor the mutual rights and obligations of the parties.
32. During the course of the hearing the Court has been informed by learned Senior Counsel appearing on behalf of Ferani that the following payments have been made or, as the case may be, deposited in pursuance of the agreement dated 2 January 1995 :
(i) Between 5 April 1996 and 9 January 2008 : Rs.144 Crores deposited in a designated account;
(ii) Between 9 January 2008 and May 2008 : Rs.14.54 Crores paid directly;
(iii) Between 14 May 2008 and 2 July 2009 : Rs.7.92 Crores deposited in the designated account;
(iv) Between 6 July 2009 till date : Rs. 57 Crores deposited in an account maintained in the Indian Bank.
33. Accordingly an amount of Rs.223 Crores has been deposited or, as the case may be, paid directly. We are of the view that the ends of justice would be met if, pending the hearing and final disposal of the preliminary issue u/s 9A, Ferani is directed to maintain accounts of all transactions falling within the purview of the agreement dated 2 January 1995 and in addition, is directed to continue to deposit an amount representing 12% of the share of the administrator out of the gross total consideration without prejudice to the rights and contentions of the parties. Accordingly, the Appeals shall stand disposed of in terms of the following directions :
(i) Appeal 817 of 2010 filed by Ferani Hotels Private Limited shall stand allowed and the impugned order of the Learned Single Judge dated 19 July 2010 shall stand set aside;
(ii) The following issue is raised u/s 9A of the Code of Civil Procedure, 1908 and shall be tried as a preliminary issue : "Whether the claim of the Plaintiff in the suit is barred by limitation.''"
(iii) The Plaintiff shall file an affidavit in lieu of the examination-in-chief within a period of four weeks from today. Shri Justice D.G. Karnik, Former Judge of this Court is appointed as Commissioner for recording evidence. The fees payable to the Commissioner shall initially be shared in equal proportion by both the parties;
(iv) Pending the hearing and final disposal of the preliminary issue, Ferani Hotels Private Limited is directed to maintain accounts and to continue depositing an amount equivalent to 12% of the gross sale consideration in a designated bank account. The amount upon deposit shall be invested in a fixed deposit to abide by further orders of the Learned Trial Judge;
(v) Parties shall endeavour an expeditious completion of the recording of evidence before the Commissioner, preferably within a period of three months from today;
(vi) The Learned Single Judge is requested to endeavour an expeditious disposal of the preliminary issue preferably within a period of three months after the receipt of the report of the Commissioner appointed for recording evidence;
(vii) Liberty is reserved to the Plaintiff to apply before the Learned Single Judge for appropriate interim reliefs after the final decision on the preliminary issue;
(viii) Appeal 806 of 2010 filed by Mr. Nusli Wadia shall stand disposed of in the aforesaid terms;
(ix) We clarify that all the observations contained in this judgment are confined to the issues which have arisen before this Court at the present stage and the view expressed by the Court on the merits of the rival contentions shall not come in the way of the disposal of the Notice of Motion or the suit in terms of the directions issued.
