Case Note & Summary
The appeal before the Division Bench of the Bombay High Court arises from an order dated 13 October 2014 passed by a single judge granting interim injunction in a suit for specific performance of a Letter of Undertaking dated 20 August 2009. The respondent-plaintiff is a financial services company, a subsidiary of IL&FS, which held shares in MCX Ltd. and subsequently invested in MCX Stock Exchange (MCX-SX) after an arrangement with the appellant-defendant and the MCX Group. The appellant, a company controlled by Mr. Jignesh Shah, executed a Letter of Undertaking agreeing to buy back the respondent’s shareholding in MCX-SX within one to three years at a pre-agreed price. The respondent purchased 4,42,00,000 shares of MCX-SX at Rs.36 per share, totaling Rs.159.12 crores, relying on this undertaking. Following a scheme of reduction of share capital in MCX-SX, which the respondent initially opposed but later supported after receiving assurances, the respondent’s shareholding was adjusted to 2,71,65,000 shares representing just under 5%. In August 2012, as the three-year buyback period neared expiry, the respondent sought performance of the undertaking. The appellant refused, citing various grounds including that the undertaking was void under the MIMPS Regulations limiting shareholding to 5% and that the scheme of reduction had extinguished the obligation. The respondent filed suit for specific performance and sought interim injunction. The single judge granted an order restraining the appellant from disposing of assets and requiring security for the suit claim. The appellant challenged the order on three grounds: (1) the Letter of Undertaking was not a concluded contract and thus not specifically enforceable; (2) if enforceable, its performance would breach the MIMPS Regulations and be void under Section 23 of the Indian Contract Act, 1872; and (3) the injunction was in the nature of attachment before judgment without proper justification. The appeal was heard on 14 August 2015 and judgment pronounced on 11 September 2015. The provided text does not include the final reasoning or decision of the Division Bench.
Issue of Consideration
Whether the interim injunction granted by the single judge should be vacated on grounds that the Letter of Undertaking is not a concluded contract, or that its specific performance would breach the MIMPS Regulations rendering it void under Section 23 of the Indian Contract Act, 1872, or that the relief granted amounts to attachment before judgment without sufficient cause.
Case Details
2015 LawText (BOM) (09) 49
APPEAL NO.274 OF 2015 IN NOTICE OF MOTION NO.945 OF 2013 IN SUIT NO.449 OF 2013
V.M. Kanade, B.P. Colabawalla
Shekhar Naphade, Tushad Cooper, Arvind Lakhawal, Naresh Chedda, Pooja Shah (for Appellant); Venkatesh Dhond, Ashish Kamat, Shyam Kapadia, Gaurav Shah, Henna Dauylat (for Respondent)
L a - Fin Financial Services Pvt. Ltd.
IL & FS Financial Services Pvt. ltd.
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Nature of Litigation
Appeal against interim injunction granted in a suit for specific performance of a letter of undertaking for share buyback.
Remedy Sought
Appellant (original defendant) sought to set aside the injunction order and deny the claim for specific performance.
Filing Reason
The single judge granted interim injunction restraining disposal of assets and directing security for the suit claim.
Previous Decisions
Single judge order dated 13 October 2014 granted interim injunction in terms of prayer clause (f) of Notice of Motion.
Issues
Whether the Letter of Undertaking dated 20 August 2009 is a concluded contract capable of specific performance.
Whether if the Letter of Undertaking is a concluded contract, its specific performance would breach the MIMPS Regulations and thereby be void under Section 23 of the Indian Contract Act, 1872.
Whether the interim relief granted by the single judge is in the nature of attachment before judgment and whether the plaintiff made out a case for such relief.
Submissions/Arguments
Appellant contended that the Letter of Undertaking dated 20 August 2009 is not a concluded contract and therefore not capable of specific performance, rendering interim relief in aid of specific performance unwarranted.
Appellant argued that even if the Letter of Undertaking is a concluded contract, its performance would violate the MIMPS Regulations which restrict shareholding to 5%, thereby making the agreement void under Section 23 of the Indian Contract Act, 1872.
Appellant submitted that the interim injunction granted by the single judge effectively operates as an attachment before judgment, a drastic remedy for which no case was made out.
Respondent (plaintiff) maintained that the Letter of Undertaking was a binding obligation and the interim injunction was necessary to secure the suit claim for specific performance of the buyback agreement.
Judgment Excerpts
the Defendant executing a Letter of Undertaking dated 20th August, 2009 inter alia undertaking an obligation to purchase the Plaintiff's shareholding in MCX-SX, either by itself or its nominees, at any time after a period of one year, but no later than three years from the date of the Plaintiff's investment
granting specific performance thereof would breach the provisions of the Securities Contracts (Regulations) (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) Regulations, 2006 (MIMPS Regulations) and would therefore be void under section 23 of the Contract Act, 1872
the relief that is granted by the impugned order is in the nature of attachment before judgment
Procedural History
Suit No. 449 of 2013 filed by respondent seeking specific performance of Letter of Undertaking dated 20 August 2009. Notice of Motion No. 945 of 2013 taken out for interim relief. By order dated 13 October 2014, single judge granted interim injunction. Appeal No. 274 of 2015 filed challenging that order. Appeal heard on 14 August 2015 and judgment pronounced on 11 September 2015.
Acts & Sections
- Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) Regulations, 2006:
- Indian Contract Act, 1872: Section 23
- Companies Act, 1956:
- Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporation) Regulations, 2012:
