EIGHT CAPITAL INDIA (M)LIMITED v. WELL KNIT APPARELS PRIVATE LIMITED

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 19.11.2009CORAMTHE HONOURABLE MRS.JUSTICE PRABHA SRIDEVANANDTHE HONOURABLE MR.JUSTICE M. SATHYANARAYANANO.S.A.Nos.388, 389 AND 390 OF 2009and M.P.Nos.1+1+1+2+2 of 2009EIGHT CAPITAL INDIA (M)LIMITEDa Company incorporated under the laws f Mauritius having its registered office at Suite 450, 4th floor, Barkly Wharf East, Le Caudan Waterfront, Port Louis, Mauritius rep by its Power of AttorneyVikram Chachra ... Appellant Vs.

WELL KNIT APPARELS PRIVATE LIMITED 25 (Old No.10), College Road Nungambakkam, Chennai-600 006 rep by its Managing Director C.R. Badrinath2. C.R. Badrinath3. T.N. Anand Reddy .. RespondentsThese appeals have been preferred under Order XXXVI Rule 9 ofO.S. Rules read with Clause 15 of the Letters Patent against theorder made in Application Nos.2177, 2176 of 2009 and O.A.No.496 of2009 in C.S.No.424 of 2009 dated 8.9.2009 passed by the learnedsingle Judge of this Court. For Appellant : Mr.Krishnan Srinivasan for Mr.A.R. RamanathanFor respondents : Mr.P.S. Raman, SC for Mr.R. Sivaraman J U D G M E N T(Judgment of the Court was delivered by PRABHA SRIDEVAN,J.,)These appeals have been filed against the orders dated 8.9.2009passed by the learned Single Judge in O.A.No.496 of 2009 andA.Nos.2176 and 2177 of 2009. https://hcservices.ecourts.gov.in/hcservices/

At the time of admission, the learned senior counselfor the respondents took notice as caveator and we have heardMr.Krishnan Srinivasan for Mr.A.R. Ramanathan and Mr.P.S. Raman, learned senior counsel for the caveator.

The suit has been filed for recovery of a sum ofRs.4,04,26,095/-. According to to the appellant, the respondents hadvitiated the provisions of the Master Facility Agreement, dated21.5.2007 and therefore, they have filed three applications.

O.A.No.496 of 2009 was filed for grant of an ad interiminjunction restraining the respondents their officers, members, servants and agents and any person or any staff acting at theirbehest from in any way alienating the Schedule mentioned "A" and "B"properties.

A.No.2176 of 2009 was filed to direct the respondents tocreate a charge over the schedule "A" and "B" properties in favour ofthe appellant by executing a Mortgage and causing the Registration ofthe same.

A.No.2177 of 2009 was filed to direct the respondents todeposit into this Court the sale proceeds realised from sale of fixedassets of the 1st respondent, if any that have been sold by themwithout the consent of the appellant and in violation of theprovisions of the Master Facility Agreement dated 21.5.2007.

A schedule properties are the plant and machineries at MEPZ-SEZ Chennai and B Schedule properties are the buildings in PlotNos.A.11, A.12, A.13 and A.14 in Phase II Chennai MEPZ-SEZ describedin detail B schedule of the plan.

When the matter came up before the learned Single Judge, anundertaking was given that "B" schedule property will not bealienated pending further orders. As regards A schedule property, itwas submitted that despite serious efforts, machineries situated in Chennai MEPZ-SEZ remain unsold, while the machineries situated at Vizag-SEZ have been sold and the sale process was on and the moneyis yet to be realised. Thereafter, final orders have been passed, which is challenged in the present original side appeals.

According to the learned counsel for the appellant, as perMaster Facility Agreement inter-alia the respondent must registerand first charge on the fixed assets of the Company in favour of theappellant, the respondent cannot transfer or sell any assets, butthese are violated.

One of the main contentions of the respondents is that afterMaster Facility Agreement was entered into, since there was arecession in global business environment, parties entered into whatis known as term sheet in order to pay off the dues to the investors. According to the respondents, this was in supersession or in https://hcservices.ecourts.gov.in/hcservices/ modification of the Master Facility Agreement. Though the term sheetis valid for 60 days, the overall agreement must be looked into. Andthe reading of the term sheet dated 23.12.2008 would be clear thatthe intention of the parties was to close down the business andmaximize the realizable value of the Company.

It is submitted by the learned senior counsel for therespondents that as per the terms of the term sheet, a New Companywould be established owned by appellant and respondent in an 80%, 20%ratio. So the appellant would get ownership of the building in thatratio. It was also submitted that a Bank had first charge over theassets. To honour the commitment made to the appellant, therespondents made efforts to bring in their private funds from thefamily members to discharge the first charge to the bank. It wasalso submitted that there was no intention to violate any agreementand that the relationship between the parties at present is governedby the terms and conditions of the term sheet. It was also submittedthat from the sale proceeds of the moveable property at Visakhapatnam, they have discharged their statutory dues and noamount has been diverted towards personal account.

The learned counsel appearing for the appellant would submitthat if the accounts of the respondent is looked at it would be seenthe appellant's name does not appear in the creditors' list and nocharge is registered in favour of the appellant, then the appellanthas to rank as one of the unsecured creditors, which means that thesettlement of his dues will be postponed. This was understood by theparties, that is why the term sheet has a limited existence i.e., itis valid only for 60 days.

The learned single Judge had come to a conclusion that theappellant has made out a prima-facie case and therefore grantedinjunction in respect of "B" property. However, the application forcreation of charge over "A" and "B" schedule property by executing amortgage was not granted in view of injunction.

The learned counsel for the appellant submits that while theorder of injunction may secure their interest to an extent if acharge is not created over the property in the appellant's favour, the question of priority of dues becomes relevant, the appellantwould then have to take a back seat. The respondent has no objectionto a charge being created in favour of the appellant in respect of"B" schedule property.

In these circumstances, we set aside the order passed by thelearned Single Judge in Application No. 2176 of 2009 in C.S.No.424of 2009, and we direct that the charge shall be created over "B"schedule property in favour of the appellant within a period of fourweeks from the date of receipt of copy of this order and the expensesshall be borne by the appellant.

As regard the moveables at Chennai MEPZ-SEZ, which is a partof the "A" schedule property, the respondent shall approach this https://hcservices.ecourts.gov.in/hcservices/ Court before selling the property. At that time, the appellant willhave an opportunity to be heard and therefore, the appellant'sinterest will be safeguarded.

As regards the Moveables at VIZAG-SEZ, we are informed thatalmost 95% of the sale proceeds have already been received andtherefore, no directions are given in this regard.