Robust Hotels [P] Ltd. v. E.I.H.Limited & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 22 .10.2010CORAMTHE HONOURABLE MR.JUSTICE ELIPE DHARMA RAOANDTHE HONOURABLE MR.JUSTICE K.K.SASIDHARANO.S.A. No.232/20101.Robust Hotels [P] Ltd.,having registered office at365, Anna Salai,Teynampet, Chennai 2.Avali Srinivasan3.Arun Kumar Saraf4.Amit Saraf: Appellants/Respondents 8 to 11Vs.1.E.I.H.Limited,an existing Company,incorporates within the meaning of the Companies Act, 19562.Oberoi Hotels Private Limited,an existing Company within the meaning of the Companies Act, 1956 1 and 2having its registered office at No.4,Mangoe Lane, Calcultta 700 001.Respondents 1& 2/Applicants3.Balaji Hotels and Enterprises Ltd.,a Company incorporated under the Companies Act, 1956 having registered officeat No.365 (Old no.267), Anna Salai,Teynampet, Chennai 600 108...Respondent No.3/Respondent 14.Balaji Industrial Corporation Ltd.A Company incorporated under the Companies Act, 1956 and having itsCorporate office and carrying onbusiness at No.9, Bazullah Road,T.Nagar, Chennai 600 017. https://hcservices.ecourts.gov.in/hcservices/

5.Asset Reconstruction Company [India] Ltd.,a Company incorporated under the Companies Act,and having its office and carrying on business at 17th Floor, Express Towers, Nariman Point,Mumbai 400 021.6.ICICI Bank Ltd. Having its office atICICI Bank Towers. Bandra – Kurla Complex,Mumbai 400 051.7.IFCI Ltd. Having its office at Tower 61, Nehru Place,New Delhi 110 019.8.Tourism Finance Corporation of India Ltd.,a Company incorporated under the Companies Act, 1956 and carrying on businessat IFCI Tower, 15th Floor, 61 Nehru Place,New Delhi 110 019.9.Anand Rathi Securities Private Ltd.,54-55, Mittal Court, 'B' Nariman Point,Mumbai 400 021...Respondent 4 to 9/Respondents 2 to 710.Hyatt Hotels Corporation, a Company incorporated under the appropriate laws of the USA, having office at 71 SWacker Doctor.Chicago, IL 60606 4367,United States.: Respondent No.10/Respondent 12Appeal filed against the Fair and Decretal Order of this Courtdated 23.03.2010 in A.No.6722/2009 in C.S.No.257/2005.Appln.No.6722/2009: This Application praying this court to implead therespondent No 8 to 12 as defendant Nos.8 to 12 in the suit in CSNo.257/2005.For appellants : Mr.A.L.Somayaji, Senior Counsel for K.ManishankarFor respondents: Mr.Siddhartha Mitra, Senior Counsel, for Mr.Karthick Seshadri, for R-1 respondents 3 and 4 served, no appearanceJ U D G M E N TK.K.SASIDHARAN, J.This Letters Patent appeal is directed against the fair and https://hcservices.ecourts.gov.in/hcservices/ decreetal order dated 23 March 2010 in A.No.6722/2009 inC.S.No.257/2005 whereby and whereunder, the appellants were impleadedas parties to the civil suit at the instance of respondents 1 and 2.2.The suit in C.S.No.257/2005 was instituted by respondents 1 and2 against respondents 3 to 9 praying for a decree of declaration andinjunction with respect to Technical Services and Project Consultancyand Royalty Agreements executed between respondents 1 and 2 on the onehand and the third respondent on the other.Plaint Averments :-3.Respondents 1 and 2, as plaintiffs, in their plaint, contendedthat they have entered into an agreement with the third respondentwhich was in the nature of a Project Consultancy Agreement and anotheragreement known as 'Royalty agreement'. Those agreements were executedon 26 October 1988. As per the said agreement, the first respondentagreed to provide its technical knowledge, skill and professionalservices required for operating a Hotel at Mount Road, Madras, to beconstructed by the third respondent. There was a provision in the saidagreement whereby and whereunder, the third respondent agreed thatthey would maintain full ownership of the Hotel throughout the periodof agreement and they would disclose the existence of the agreementand operator's vested interest in the hotel to any lender/s, leasingCompany/ies, financial institution/s and or Bank/s having or proposingto take any lease, mortgage, charge or other security over the Hotelor any part thereof and shall obtain from such institution/s inwriting a confirmation of existence of the agreement and that theagreement would be binding upon the institutions. The projectundertaken by the third respondent for construction of the hotelunderwent several times extensions and cost overruns, including changein the scope of the project by way of inclusion of a commercialcomplex and increase in the number of rooms. The project was re-appraised by the Tourism Finance Corporation of India duringSeptember, 1996 and the total hotel project cost was increased toRs.192 crores. The third respondent obtained loans from TourismFinance Corporation of India and ICICI Bank for the construction ofthe hotel complex.4.The agreement executed between respondents 1 and 3 weresubsequently amended by way of supplementary agreements. The firstrespondent also advanced a total sum of Rs.15.12 crores on variousdates and an agreement was executed evidencing such payment. Thefourth respondent on 4 February, 2002, executed an irrevocable andcontinuing guarantee in favour of the first respondent.5.In the meantime, the first respondent came across anadvertisement issued in the Economic Times, dated 24 July 2002, by theTourism Finance Corporation of India Ltd., inviting offers fortakeover/joint ventures and/or sale of a five star deluxe category https://hcservices.ecourts.gov.in/hcservices/ hotel project having 405 rooms along with food and beverage outletsand other facilities under construction on a plot of land admeasuring16680.70 sq.meters with built up area of 55058 sq.mtrs at Mount Raod,Chennai, on 'as is where is' basis by way of transfer of controllinginterest in the Company owning the project. Immediately, the firstrespondent wrote a letter dated 18 September 2002 to the TourismFinance Corporation of India informing them that they have enteredinto a Technical Services Agreement with the third respondent foroperation of the hotel and advanced a sum of Rs.15.12 crores forcompletion of the project. In the said letter, it was also indicatedthat till the repayment of the amount, the first respondent would havethe exclusive right to operate the hotel in view of the technicalservices agreement. The first respondent further informed that allintending bidders should be informed about the said agreement andespecially the fact that the Technical Services Agreement would remainsubsisting and operative, till such time the sum of Rs.15.12 crorestogether with interest was refunded by the third respondent to thefirst respondent. Subsequently, the first respondent informed thefifth respondent also about the execution of the said agreement.6.The fifth respondent as per their communication dated 28December 2004, informed the first respondent that it had acquired thefinancial assets of the third respondent together with the underlyingsecurity interest from the sixth respondent in terms of the provisionsof the Securitization and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002. The first respondentthrough their Solicitors informed the other respondents 5 and 9 aboutthe subsisting agreement. When the first respondent found thatrespondents 5 and 7 wrongfully intending to proceed to act in breachof obligation, they filed the suit.7.Respondents 1 and 2 in their suit in C.S.No.257/2005 prayed fora judgment and decree :-(a)Declaration that the Technical Servicesagreement dated 26 October, 1988 and the ProjectConsultancy agreement and Royalty agreement both dated26 October, 1988 and the agreements dated 12 January,2000, 10 June 2000 and 4 February 2002 are valid, legaland subsisting and are binding and enforceable on thedefendants 3 to 7 and / or its assigns.(b)Permanent injunction restraining the defendants3 to 7 whether by itself its servants, agents andor/assigns or otherwise howsoever from selling,encumbering, and/or disposing of in any mannerhowsoever, the Schedule property of the defendant no.1situated at Mount Road, Chennai, in favour of anypersons without disclosing and/or recognizing the rightsof the plaintiff to operate and manage the hotel asprovided for under the Technical Services agreement https://hcservices.ecourts.gov.in/hcservices/ dated 26 October, 1988 and the Project Consultancyagreement and Royalty agreement both dated 26 October1988 and the agreements dated 12 January 2000, 10 June2000 and 4 February 2002.8.Respondents 1 and 2 filed an interlocutory application forinjunction in O.A.No.300/2005 to restrain the respondents 5 to 9 ortheir agents and servants from dealing with, disposing of, sellingand/or encumbering in any manner howsoever the hotel unit of the thirdrespondent in favour of any person without disclosing the right ofrespondents 1 and 2 and for an interim mandatory injunction directingrespondents 5 to 9 whether by itself, its servants, agents and/orassigns to disclose the existence of the Technical Services Agreementdated 26 October 1988 and the agreements dated 12 January 2000, 10June 2000 and 4 February 2002 entered between respondents 1 and 2 andrespondents 3 and 4. The said application was allowed and the learnedJudge issued an order of interlocutory injunction.9.While the matters stood thus, respondents 1 and 2 filed twoapplications. Application in A.No.6722/2009 was filed to implead theappellants as defendants 8 to 12 in the suit and to permit theconsequential amendment to the plaint.Interlocutory Application :-10.In the affidavit filed in support of the application inA.No.6722/2009, it was the contention of respondents 1 and 2 that theappellants by carrying on the development of the property at MountRoad, Chennai, which was originally constructed by the thirdrespondent with whom they have entered into a technical agreement hasacted in a manner contrary to the vested rights as agreed to in theTechnical Services Agreement dated 26 October 1998 and the subsequentagreements dated 12 January 2000 and 4 February 2002. The reliefsclaimed against the respondents 3 to 7 would bind the appellants whohave purchased the property from the respondents 5 and 6 under theSARFAESI Act, 2002 and neither can the appellants and 10th respondentoperate the hotel property previously belonging to the thirdrespondent in a manner that is contrary to their legal rights underthe agreement. Respondents 1 and 2 further contended that theappellants are necessary parties to the proceedings in view of therelief claimed by them in the suit.11.The appellants on receipt of notice entered appearance andfiled their counter in A.No.6722/2009. According to the appellants,they were not bound by the agreement executed between respondents 1and 2 with respondents 3 and 4 and as such, no relief could be claimedagainst them. It was their further contention that the agreement dated4 February 2002 executed by respondents 3 and 4 clearly establishedthat the right of the first respondent was only to seek refund of thesum of Rs.15.12 crores together with interest, failing which, to https://hcservices.ecourts.gov.in/hcservices/ invoke the irrevocable guarantee given by the fourth respondent.According to the appellants, the agreement does not contain aprovision that the Technical Services Agreement, Project ConsultancyAgreement and Royalty Agreement would continue to bind the subsequentpurchasers of the hotel unit. The appellants maintained that they havepurchased the property from a secured creditor and as such, the veryproperty was given to them free of all encumbrances and therefore,they are neither necessary nor proper parties to the suit.12.The learned single Judge found that as per order dated18.03.2005 in O.A.No.300/2005, this Court granted an interiminjunction restraining the secured creditors from assigning the hotelunit in favour of any person without disclosing the rights ofrespondents 1 and 2 to operate and manage the hotel in terms ofTechnical Services/Project Consultancy and Royalty Agreement andtherefore, the appellants are necessary parties. The learned singleJudge opined that impleading of the parties would enable the Court todecide the matter effectively. Accordingly, the application wasallowed. Feeling aggrieved, the appellants have filed this appealinvoking Clause 15 of the Letters Patent.Submissions :-13.The learned senior Counsel for the appellants would contendthus :-(a)There is absolutely no privity of contract betweenthe appellants and respondents 1 and 2 and as such, theappellants are neither proper nor necessary parties to thesuit;(b)The transaction in question is purely a contractualmatter between respondents 1 and 2 on the one hand andrespondents 3 and 4 on the other side. The appellants havenot played any role in the suit transaction and as such, noliability could be fastened on them. (c)Even if the suit is decreed, respondents 1 and 2would only be entitled to recover a sum of Rs.15.12 croresfrom respondents 3 and 4. Therefore, there was no necessityfor impleading the appellants as parties to the suit. (d)The Hotel property was purchased by the appellantspursuant to a proceeding initiated against respondents 3 and4. Appellants were given sales certificate which would primafacie show that the sale was free from encumbrances.Therefore, no liability could be fastened on the appellantsat the instance of third parties like respondents 1 and 2.(e)The order in O.A.No.300/2005 does not prohibit saleof the property by financial institutions. The said orderonly directs the secured creditors to disclose the existenceof the agreement between the parties. Therefore, no vestedright was created on account of the order inO.A.No.300/2005. https://hcservices.ecourts.gov.in/hcservices/

14.The learned senior counsel for respondents 1 and 2 wouldcontend thus:-(1)The very appeal preferred against the order inO.A.No.6722/2009 is not maintainable as the order was not ajudgment within the meaning of Clause 15 of the LettersPatent.(2)The appellants were well aware of the existence ofagreement between respondents 1 and 2 and respondents 3 and4. They have purchased the property with full knowledge ofthe agreement. Therefore, they are necessary parties to thesuit.(3)Respondents 1 and 2 prayed for a Judgment and Decreeof declaration against respondents 5 to 9 including theirassignees. The appellants have purchased the propertypending suit and as such, they are necessary parties to thesuit.(4)The appellants were not prejudiced on account oftheir impleading. On the other hand, the Trial Court wouldbe in a position to pass a comprehensive decree in thepresence of the appellants as they have stepped into theshoes of the secured creditors.Analysis :-15.The prayer in the suit originally was against respondents 5 to9 including their assignees. Respondents 1 and 2 specifically sought adeclaration that the Technical Services Agreement dated 26 October1988 and the Project Consultancy Agreement and Royalty agreement dated26 October 1988 and the subsequent agreements dated 12 January 2010,10 June 2000 are valid, legal and subsisting and are binding andenforceable on respondents 5 to 9 or its assignees. They have alsoprayed for a decree of injunction restraining respondents 5 to 9 fromdisposing or assigning the property in favour of any persons withoutdisclosing or recognizing their right to operate and maintain thehotel as provided under the agreement.16.Respondents 5 to 9 were parties to the suit. The relief wasagainst them. The learned single Judge as per order dated 18 March2005 in O.A.No.300/2005 granted interim injunction restrainingrespondents 3 to 9 or their agents and servants from assigning ordisposing the property in favour of any person without disclosing therights of respondents 1 and 2 to operate and manage the hotel in termsof the agreements. Respondents 3 to 9 were fully aware of the saidorder. Respondents 1 and 2 on their part, approached the TourismFinance Corporation of India and informed them about the pendency ofthe agreement. There were series of correspondence to that effect andthose correspondence were referred to in the plaint.17.Respondents 3 to 9 were bound to inform the prospectivepurchasers about the agreement executed between the respondents 1 and2 on the one hand and respondents 3 and 4 on the other. The appellants https://hcservices.ecourts.gov.in/hcservices/ have not purchased the property by way of a public auction. They haveapproached the secured creditor directly and by way of privatenegotiation, the property was purchased. Now the appellants arepleading as if they were ignorant of the encumbrance. The contentionis too strange to believe. No prudent purchaser would buy the propertyfor such a huge amount without getting full particulars and that toowhen the sale consideration was several crores of rupees. The FinanceCorporation was bound to disclose the encumbrance as per the orderpassed by this Court. The injunction granted by this Court cannot bedefeated by not giving public sale notice and coming up with acontention that there was no occasion to disclose the agreement asthere was no public auction. Since it was a private sale, theappellants should be deemed to have had the knowledge about thedetails of the property and the subsisting agreement, besidesencumbrance on the property.18.The Securitization and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 contains provisionindicating the manner in which the property has to be sold. Rule 8 (6)(a) provides that the description of the immovable property to besold, including the details of the encumbrance known to the securedcreditor shall be put on public notice in two leading newspapers, onein vernacular language, having sufficient circulation in the locality.Therefore, even as per the statute, the secured creditor was bound todisclose the details of the encumbrance. In case the property was soldwith encumbrance, the purchaser has to clear the encumbrance and onlyon such clearance, the property would be delivered to them by thesecured creditor. The appellants having purchased the property by wayof public sale without any attempt to ascertain the encumbrance,cannot be heard to say that they were not aware of the encumbrance orthat they are not necessary parties to the suit, even though theirprincipals were already parties to the suit. In case the securedcreditor has issued a public notice containing information about theencumbrance, the purchasers would be bound by it. The same yardstickhas to be issued in the case of the appellants also as they have takena risk by purchasing the property by way of private sale.19.Respondents 5 to 9 were parties to the suit. The prayer wasfor a declaration that the agreement would be binding on them also. Byselling the property to the appellants, they cannot be heard to saythat the very suit has become infructuous and that they areunnecessary parties to the suit. Respondents 3 to 9 would not beinterested hereafter to contest the matter. The appellants, in effect,stepped into the shoes of respondents 3 to 9. In order to consider thequestion as to whether a decree of declaration could be granted andthereafter the agreements are legal and subsisting, appellants arealso necessary parties. In fact, the plaint was amended and a newprayer to declare that the agreements are valid, legal and subsistingand are binding and enforceable on respondents 5 to 9 and theappellants was incorporated. Declaration granted in the case would https://hcservices.ecourts.gov.in/hcservices/ ultimately affect the appellants also. Therefore, they are necessaryparties to the suit.20. A proper and necessary party to a suit is a party whosepresence and participation is absolutely necessary for a finaladjudication of the lis. It is immaterial as to the extent of reliefsought for against it or the subject of controversy involved in thesuit. In case it is demonstrated that any decision made in the suitwould prejudicially affect the interest of a particular person, heshould be treated as a necessary party.21.Rule 10(2) of the Code of Civil Procedure is nothing butincorporation of the principles of natural justice. In case the Courtis satisfied that a person is a necessary party to enable it toadjudicate upon and settle all the questions involved in the suit,Court has no other alternative than to order impleading of such party.The Court has to take overall view of the matter for the purpose ofarriving at a definite conclusion one way or the other. Courtexercises wide discretion in such matters. It is true that suchdiscretion should be exercised in a reasonable manner. The discretionshould be exercised in accordance with the settled legal principles.The Court should arrive at a decision at the initial stage itself asto whether the proposed party is a necessary party in whose absence,no effective decree could be passed. While considering the issueregarding impleadment, the bona fides of the party filing suchapplication to implead and the stage of the suit are also relevantfactors. But delay cannot be the sole determining factor to decidesuch application, in view of the express provision, which says thatthe party could take steps for impleading at any stage of the suit.22.Impleading of a new party is not automatic. In case theplaintiff files an application to add defendant, notice should beissued to the proposed defendant and he should be heard beforeimpleadment. It is not sufficient to hear him after impleading. Theproposed party should be heard in opposition to the application forimpleadment.The Authorities :-23.In Razia Begum v. Sahebzadi Anwar Begum, 1959 SCR 1111 = AIR958 SC 886, the Supreme Court observed that where the subject-matterof a litigation is a declaration as regards status or a legalcharacter, the rule of present or direct interest may be relaxed in asuitable case where the court is of the opinion that by adding thatparty, it would be in a better position effectually and completely toadjudicate upon the controversy. The Supreme Court said :-"14.As a result of these considerations, wehave arrived at the following conclusions:(1) That the question of addition of partiesunder Rule 10 of Order 1 of the Code of CivilProcedure, is generally not one of initial https://hcservices.ecourts.gov.in/hcservices/ jurisdiction of the court, but of a judicialdiscretion which has to be exercised in view ofall the facts and circumstances of a particularcase; but in some cases, it may raisecontroversies as to the power of the court, incontradistinction to its inherent jurisdiction,or, in other words, of jurisdiction in the limitedsense in which it is used in Section 115 of theCode;(2) That in a suit relating to property, inorder that a person may be added as a party, heshould have a direct interest as distinguishedfrom a commercial interest, in the subject-matterof the litigation;(3) Where the subject-matter of a litigation,is a declaration as regards status or a legalcharacter, the rule of present or direct interestmay be relaxed in a suitable case where the courtis of the opinion that by adding that party, itwould be in a better position effectually andcompletely to adjudicate upon the controversy."24.In Amit Kumar Shaw v. Farida Khatoon, (2005) 11 SCC 403,Supreme Court indicated that Order 1 Rule 10 CPC is to discouragecontests on technical pleas. The observation reads thus:-"9.The object of Order 1 Rule 10 is todiscourage contests on technical pleas, and tosave honest and bona fide claimants from beingnon-suited. The power to strike out or add partiescan be exercised by the court at any stage of theproceedings. Under this rule, a person may beadded as a party to a suit in the following twocases:(1) when he ought to have been joined asplaintiff or defendant, and is not joined so, or(2) when, without his presence, the questionsin the suit cannot be completely decided. 10. The power of a court to add a party to aproceeding cannot depend solely on the questionwhether he has interest in the suit property. Thequestion is whether the right of a person may beaffected if he is not added as a party. Suchright, however, will necessarily include anenforceable legal right."25.In Bhogadi Kannababu v. Vuggina Pydamma, 2006(5) SCC 532,Supreme Court held that the order allowing impleadment does not affect https://hcservices.ecourts.gov.in/hcservices/ the merits of the claim of the parties. The relevant paragraph readsthus :-"11.It is true, as noted hereinabove, that inan application for impleadment under Order 1 Rule10 CPC, the court would only decide whether thepresence of the applicant before the court may benecessary in order to enable the court effectuallyand completely to adjudicate upon and settle allthe questions involved in the proceedings."26.The learned senior counsel for respondents 1 and 2 raised thequestion of maintainability of the appeal. Since the appeal wasadmitted earlier and the matter has come up for final hearing, we arenot considering the said issue and the question of law is left open tobe decided in an appropriate proceeding.27.In Shah Babulal Khimji v. Jayaben D. Kania, (1981) 4 SCC 8,the Supreme Court considered the circumstances wherein an appeal underClause 15 of the Letters Patent could be filed. The observation readsthus :-"115.Thus, in other words every interlocutoryorder cannot be regarded as a judgment but onlythose orders would be judgments which decidematters of moment or affect vital and valuablerights of the parties and which work seriousinjustice to the party concerned. Similarly,orders passed by the trial Judge deciding questionof admissibility or relevancy of a document alsocannot be treated as judgments because thegrievance on this score can be corrected by theappellate court in appeal against the finaljudgment.(emphasis supplied).28.Respondents 5 to 9 are no longer interested in the saidproceedings on account of the assignment of the property in favour ofthe appellants. In fact, respondents 5 to 9 remained exparte. Theappellants alone contested the proceedings. Since the suit is for acomprehensive relief of declaration that the agreements relating toTechnical Services, Project Consultancy and Royalty are valid, legaland subsisting and are binding and enforceable on respondents 5 to 9or its assignees, and in view of the subsequent purchase of theproperty by the appellants, they are necessary parties to the suit andtheir participation in the suit would enable the Court to adjudicatethe issue in a better manner. The interlocutory injunction granted bythis Court as per order dated 18 March 2005 in O.A.No.300/2005 was tokeep the purchaser informed of the pendency of the agreement. The saidorder was given a go-bye by respondents 5 to 9. The appellants alsopleaded ignorance of the order passed by this Court as well as the https://hcservices.ecourts.gov.in/hcservices/ subsisting agreement between the parties. The property was assigned infavour of the appellants during the pendency of the suit and as such,they are necessary parties to the suit. These aspects were consideredby the learned single Judge and notwithstanding the objection raisedby the appellants, they were impleaded. The said order was clearly adiscretionary order and it was in accordance with the settled judicialprinciples. We do not find any error or illegality in the said orderwarranting our interference in an appeal under Clause 15 of theLetters Patent.29.In the result, the Letters Patent Appeal is dismissed. Nocosts. Consequently, M.P.No.1/2010 is also dismissed.Sd/Asst.Registrar/true copy/Sub Asst.Registrar tarToThe Sub Asst. Registrar(OS)High Court,Madras-104.+2ccs to Mr.K.Harishankar, Advocate Sr 76230+1cc to Mr.H.Karthik Seshadri, Advocate Sr 75983TAM(CO)km/22.11.O.S.A. No.232/2010