HMA DATA SYSTEMS PRIVATE LIMITED Vs. SSI LIMITED

JUDGEMENT

(1.) 1.(Writ Appeal No,76 of 2006 is filed under Clause 15 of Letters Patent read with Order XXXVI Rule 9 of the Original Side Rules, against the order dated 20.1.2006 passed by the learned single Judge in O.A.No,519 of 2005 in C.S.No,431 of 2005.Writ Appeal No,77 of 2006 is filed under Clause 15 of Letters Patent read with Order XXXVI Rule 9 of the Original Side Rules, against the order dated 20.1.2006 passed by the learned single Judge in Application No,4901 of 2005 in C.S.No,431 of 2005.Writ Appeal No,78 of 2006 is filed under Clause 15 of Letters Patent read with Order XXXVI Rule 9 of the Original Side Rules, against the order dated 20.1.2006 passed by the learned single Judge in Application No,3216 of 2005 in C.S.No,431 of 2005.) Common Judgment: (R. Sudhakar, J.)Original Side Appeal No,76 of 2006 is filed by the appellant, the respondent in O.A.No,519 of 2005, the defendant in C.S.No,431 of 2005 challenging the order dated 20.1.2006 passed in O.A.No,519 of 2005, by the learned single Judge, confirming the modified order dated 29.4.2005.

(2.) ORIGINAL Side Appeal No,77 of 2006 is filed by the appellant, the applicant in Application No,4901 of 2005, the defendant in C.S.No,431 of 2005 challenging the order dated 20.1.2006 passed in A.No,4901 of 2005 by the learned single Judge, dismissing the application.

(3.) THE facts that led to the filing of the suit by the respondent/plaintiff is as hereunder:-(a) On 19.4.2000, the respondent/plaintiff SSI Limited entered into an arrangement with the appellant/defendant M/s.HMA Data Systems Private Limited through a letter of intent for purchase of 80% of equity shares of M/s.India Switch Company Private Limited (ISC), the Target Company, a company registered under the Indian Companies Act, 1956, by way of transfer of the shares of the Target Company from M/s.HMA Data Systems Private Limited, the appellant/defendant to SSI Limited, the respondent/plaintiff. On completion of the transaction, it was agreed that the Target Company M/s.ISC will issue the shares in favour of the respondent/plaintiff. THE price agreed for acquisition of the shares by the respondent/plaintiff from the appellant/defendant is around US $ 43 Million. THE letter of intent dated 19.4.2000 for the above transaction was subject to due diligence clause. SSI Limited agreed to make earnest money deposit of US $ 1 Million on signing the letter of intent and on M/s.HMA Data Systems Private Limited accepting the letter of intent. (b) THE further clause is that the earnest money will not be refunded if the share purchase agreement is not executed by SSI Limited on or before the stipulated date. As per the terms of the letter of intent, SSI Limited should complete the detailed accounting, legal and business due diligence in respect of the Target Company and the proposed acquisition on or before 30th April 2000 or such other date as may be agreed upon in writing by the parties at a later date. THE further terms is that the appellant M/s.HMA Data Systems Private Limited shall co-operate fully towards due diligence by SSI Limited within the stipulated period by providing all necessary information sought for by SSI Limited during such accounting, legal and business due diligence. As far as refund of earnest money deposit is concerned, in terms of letter of intent, it can be claimed in the following circumstances:-(i) If the sale is not proceeded with on account of withdrawal by M/s.HMA, or (ii) If M/s.SSI is compelled to withdraw from acquisition or defer the execution of the share purchase agreement on or before the stipulated period as a result of the failure of M/s.HMA to provide necessary information to M/s.SSI, or (iii) On account of any legal or other impediment on the transfer of shares from M/s.HMA to M/s.SSI which is not overcome by M/s.HMA within 30 days or any additional period which may be mutually agreed upon between the parties, or (iv) If the liabilities of the Target Company, on due diligence are discovered to be in excess of US $ 2 Million and M/s.SSI and M/s.HMA do not reach agreement on the consequential price adjustment, or(v) If the due diligence revealed any previously undisclosed factor(s) adversely affecting the future course of business.(c) THE further clause in the letter of intent is that HMA shall refund the earnest money deposit without interest within seven days from the date of receipt of communication of such withdrawal in writing. One other clause which may be relevant is as follows:-"This Letter of Intent is only a basis for continued discussions between the parties and is not an offer or a commitment to consummate the transaction described above. This Letter of Intent is not intended to create a binding or enforceable contract of commitment between SSI and HMA and the same may not be relied upon by any person or entity as the basis for a contract or commitment. However, this will not affect the right of HMA to appropriate the earnest money deposit as provided in this Letter of Intent even if the Letter of Intent does not fructify into a binding contract."(emphasis supplied)(d) Consequent to the letter of intent, the respondent/plaintiff made a payment of Rs.4,36,30,000/- on 20th April, 2000. THEreafter, the respondent/plaintiff conducted due diligence and a report was submitted by its law firm on 29th April, 2000. THEreafter, it appears that the transaction did not conclude in the form of a contract as envisaged by the letter of intent. THE matter was kept in abeyance for more than five years. (e) On 5th April, 2005, (i.e.) after nearly five years, the English Newspaper, THE Hindu, reported a news item about the purchase of the Target Company M/s.ISC by US based company called as M/s.EFunds International India Private Limited. Based on this report, on 6th April, 2005, plaintiff M/s.SSI writes a letter to M/s.EFunds International India Private Limited informing them about the execution of document for acquiring 80% of the equity shares of M/s.ISC from M/s.HMA, the appellant/defendant. This was followed a legal notice dated 6.4.2005 by the respondent/plaintiff to the appellant/defendant. In the notice it is stated that due diligence was conducted, but due to non-furnishing of documents by M/s.HMA, the due diligence was not completed. THE respondent/plaintiff in the notice to the appellant/defendant stated as follows:-"In this respect we would like to state that your action in dealing with M/s.efunds International Pvt. Ltd., while the agreement with SSI Limited is in subsisting and you are still holding the amount (Rs.4,36,30,000/-) received from SSI Limited is a criminal breach and gross violation of the contract. Further, you have so far neither returned the earnest money of Rs.4,36,30,000/- to our client nor terminated the Letter of Intent executed by yourself and our client.We therefore, advice you not to enter into any negotiations with any other person other than our client for the sale of shares or the business of M/s.India Switch Co. Private Limited, while the Letter of Intent executed by our client and yourself is still subsisting." (emphasis supplied)(f) THEreafter, on 8th April 2005, the respondent/plaintiff filed O.S.No,2245 of 2005 before the VII Assistant City Civil Court, Chennai for permanent injunction restraining M/s.HMA Data Systems Private Limited, the appellant herein from entering into any negotiation with any other person other than the plaintiff for the sale of shares or the business of M/s.ISC. It appears on 11th April, 2005, ex parte order of interim injunction was granted in I.A.No,7946 of 2005 by the City Civil Court. After notice and on 15.4.2005, M/s.HMA filed I.A.Nos.8410, 8411 and 8412 of 2005 before the City Civil Court to reject the plaint to vacate the interim injunction and for advance hearing of the injunction application. On 20.4.2005, it is stated that all the above applications in the suit O.S.No,2245 of 2005 were heard by the City Civil Court and posted for orders on 28.4.2005. It is further averred by the appellant/defendant that on 28.4.2005 two applications were filed one for reopening the hearing of I.A.No,7946 of 2005 and the other to receive additional documents. In the meanwhile on the same day, a memo was filed before the City Civil Court stating that this Court in C.S.No,431 of 2005 has stayed the proceedings in the suit pending before the City Civil Court. That respondent/plaintiff obtained an order of interim injunction in O.A.No,519 of 2005 in C.S.No,431 of 2005 on 28.4.2005 as set out earlier.(g) It is further averred by the appellant/defendant that after passing order on 28th April 2005 in O.A.No,519 of 2005 in C.S.No,431 of 2005 restraining the appellant/defendant from transferring or alienating or encumbering the shares of the Target Company, and in view of closing of the court for summer vacation, an affidavit of undertaking was filed by the present appellant M/s.HMA on 29th April 2005 before this Court. THE affidavit of undertaking was filed by Mr.D.Balajichandran, son of Mr.T.Dakshinamoorthy, working as Chief Financial Officer in M/s.HMA Data Systems Private Limited, No,5, Mezzanine Floor, Thappar House, New No,37, Old No,44, Montieth Road, Egmore, Chennai-8. Paragraphs 2 and 3 of the affidavit read thus:--2. I undertake on behalf of the respondent that the respondent shall, immediately upon receipt of sufficient consideration from M/s.EFunds International India Pvt. Ltd., or any other party for the sale of shares constituting controlling interest in India Switch Company Pvt. Ltd., or transfer of undertaking of India Switch Company Pvt. Ltd., furnish a Bank Guarantee to a tune of Rs.4,36,30,000/- (Rupees Four Crores, thirty six lakhs and thirty thousand only), which is the suit claim herein, to the satisfaction of the Hon-ble High Court. This undertaking is valid till this Hon-ble High Court disposes of the Applications for furnishing security in Application No,2171 of 2005 and O.A.No,519 of 2005 in the above suit. This undertaking is given without prejudice to the rights of the respondent to contest the suit proceedings or any application therein before this Hon-ble Court, or any proceeding under O.S.No,2245 of 2005 that the plaintiff seeks to transfer to the file of this Hon-ble Court from the VII Assistant City Civil Court. 3. I respectfully submit that this undertaking is given subject to and based on the understanding entered into by the parties to this suit in open Court today that the plaintiff agrees for the immediate suspension of the orders of injunction dated 11.4.2005 granted by the VII Assistant City Civil Court, at Chennai in I.A.No,7946 of 2005 in O.S.No,2245 of 2005, on account of the impending summer vacation of this Court.-Based on the above affidavit, the modified order was passed on 29.4.2005 and the order dated 28.4.2005 was suspended until further orders. THE order of interim injunction granted by the City Civil Court in I.A.No,7946 of 2005 in O.S.No,2245 of 2005 was also suspended until further orders of this court. THE suit filed before the City Civil Court is transferred to this Court and renumbered as Tr.C.S.No,533 of 2005. THEreafter based on the undertaking given before this court on 29.4.2005, a bank guarantee was executed on 22.6.2005 jointly by M/s.State Bank of India and M/s.India Switch Company Private Limited (M/s.ISC) signed by Mr.D.Balajichandran, Chief Financial Officer, authorized signatory and duly constituted attorney in the presence of Mr.S.Suryakumar, Company Secretary. THE address of M/s.India Switch Company is shown as No,5, Mezzanine Floor, Thapper House No,37, Montieth Road, Egmore, Chennai-8. This guarantee is issued in favour of the Registrar, High Court, Madras. THE clauses "B" and -E- of the guarantee which are relevant reads as follows:-"B. THE guarantor is aware of the terms and conditions contained with these presents in respect to the application No.OA No,519 of 2005 in C.S.431 of 2005."-E. THE Guarantee contained in this Deed is irrevocable, unconditional and unqualified and a continuing one and shall remain in force until the disposal of the application No.OA No,519 of 2005 in CS 431 of 2005 and be payable to the beneficiary subject to the decision of the application No.OA No,519 of 2005 in CS 431 of 2005 of High Court of Judicature, Madras and irrespective of any instructions by ISC to the Guarantor to withhold payment thereof on any ground whatsoever.-(h) THEreafter on 25.7.2005, the appellant/defendant filed the following two applications:-(1) I.A.No,3216 of 2005 for rejection of the plaint and (2) I.A.No,4901 of 2005 to vacate the modified order dated 29.4.2005. THE respondent/plaintiff filed counter and contested the matters and the impugned common order was passed by the learned single Judge on 20.1.2006 in O.A.No,519 of 2005 A.No,2171 of 2005, A.No,3216 of 2005 and A.No,4901 of 2005. It was specifically stated that the order governs all the above applications. Learned single Judge came to the conclusion that the suit does not require rejection and the order passed on 29.4.2005 does not require modification and the reasons given are as hereunder:-(i) THE cause of action for the first suit O.S.No,2245 of 2005 filed before the City Civil Court was, based on the paper publication which revealed the intention of the appellant/defendant to sell the shares of M/s.ISC, the Target Company, to M/s.EFunds International India Private Limited, whereas the cause of action in the present suit C.S.No,431 of 2005 filed before this court was based on the plaintiff-s knowledge that the appellant/defendant had entered into an agreement with third party for sale of the shares and therefore, the plaintiff was constrained to seek recovery of advance money of US $ 1 Million = Rs.4,36,30,000/-, held that the first suit O.S.No,2245 of 2005 before the City Civil Court was for a bare injunction against the appellant/defendant from alienating the shares and the second suit C.S.No,431 of 2005 before this court is for recovery of advance money on coming to know of the agreement. THE learned single Judge held that the cause of action in both the suits is entirely different and distinguishable and therefore, the first contention of the appellant/defendant that the suit is barred in view of Order II Rule 2 CPC was rejected. (ii) THE next issue that was considered by the learned single Judge was with regard to the ex parte order dated 28.4.2005 and the subsequent modified order passed on 29.4.2005 based on undertaking dated 29.4.2005 given by the appellant/defendant. THE learned single Judge came to hold that the order dated 28.4.2005 granting ex parte injunction against alienation or encumbering of shares of M/s.ISC was modified on 29.4.2005 by way of suspension only on the basis of the undertaking given by the appellant/defendant by furnishing bank guarantee for the suit claim. THE leaned single Judge came to hold that the bank guarantee furnished is to the extent of the money claim made in the suit and has to be kept pending till the suit is decided. THE plea of the appellant/defendant that the bank guarantee was for the limited period (i.e.) till the disposal of the I.A.No,519 of 2005 and I.A.No,2171 of 2005, was rejected. THE leaned single Judge accepted the plaintiff-s plea that the release of the bank guarantee furnished would again take the parties to the original position as if no order was passed in favour of the plaintiff and the amount what is covered in the suit will remain unsecured. On this premise, the learned single Judge ordered that the bank guarantee furnished has to stand till the disposal of the suit. (iii) THE appellant/defendant took a plea that the suit is barred by limitation and also sought for rejection of the plaint. This plea was rejected by the learned single Judge holding that the scope of the suit pending before this court is whether any default has been committed by the plaintiff, forfeiting Rs.4,36,30,000/- which was given as advance money and that will be decided only on evidence. THErefore, the limitation issue raised at the interlocutory stage was not accepted. THE plea for rejection of plaint under Order VII Rule 11 CPC was rejected. THE plea that the suit C.S.No,431 of 2005 is hit by Order II Rule 2 CPC was also negatived.Under these circumstances, the present appeals have been filed.