Pulak Modi And Anr. v. Jitendra Agarwal & Ors.

What happened

By a Share Sale Contract dated 14 April 2023 the plaintiffs and defendants 6 to 9 agreed to sell their shares in defendant no. 5 to defendants 1 to 4 for a total of ₹15,87,40,000. Plaintiff no. 1, who held 50%, claims his part of ₹7,93,70,000, of which ₹1 crore has been paid, and sues for the balance of ₹6,93,70,000 with liquidated damages. The plaintiffs say that the shares were transferred and the board reconstituted on 14 April 2023, and that defendant no. 3 signed a confirmation that day that he had received physical possession of the steel plant. After a demand notice of 14 March 2024 the defendants replied on 12 April 2024 that the plant was not operational, alleged fraud, terminated the contract and claimed a refund of the ₹1 crore. On 13 August 2024 a coordinate bench restrained the defendants from operating a Federal Bank account while setting aside about ₹6.94 crore, but the bank said on 14 August 2024 that the account held only ₹72,822. The plaintiffs then applied for security (IA GA-COM/3/2024) and the defendants applied for security of ₹12,54,25,000 from the plaintiffs (IA GA-COM/7/2025). After a judgment of 6 January 2026 on those applications and appeals before the Division Bench, the present application was taken up for final consideration. The defendants say that the suit is a pure money claim, that the security sought is an attachment before judgment in disguise, that the plaintiffs did not hand over a working plant, and that no prima facie case was made out.

Questions before the court

• Can the court at the interim stage of a commercial suit direct the defendants to secure the plaintiffs' money claim under section 151 of the Code of Civil Procedure?

Why the court ruled this way

The Court found that the execution of the contract, the consideration, the part payment of ₹1 crore and the transfer of the shares were admitted, and the defendants' only plea was that they did not get physical possession of the plant, which was encumbered. The defendants had signed a confirmation on 14 April 2023 that they had received possession, the contract stipulated possession on an as-is-where-is basis without covenants about the plant, and they raised no objection until 12 April 2024, so the plaintiffs prima facie performed their obligations; whether the plaintiffs defrauded them or the termination was effective are triable questions (paragraphs 53–68). When the ad interim order was made the defendants did not have the balance in their bank account and did not disclose this to the Court, so they had prima facie lost commercial credibility before it (paragraph 66). Relying on the Supreme Court's decision in Rahul S. Shah v. Jinendra Kumar Gandhi, the Court held that the inherent power under section 151 allows a civil court at any stage to demand security to ensure satisfaction of a decree, including a future decree, that the Commercial Courts Act, 2015 did not exclude it, and that it complements Orders XXXVIII and XXXIX of the Code (paragraphs 69–82 and 92). It held that a direction to secure a claim is a tentative, protective measure that can be altered at trial, and it distinguished the decisions relied on by the defendants as arising at the stage of final decree in specific performance suits, on different facts, or under Order XXXVIII Rule 5, which was not invoked (paragraphs 83–91).

Controlling point

In a commercial suit, security for the plaintiff's claim may be ordered under section 151 where a prima facie case is shown and the defendant's conduct prima facie undermines its commercial credibility, and such security does not amount to payment or to making an unsecured claim a secured one.

Order and next steps

The defendants 1 to 4 must deposit ₹5,43,70,000, after adjusting the ₹1 crore already paid and without prejudice to the parties' rights and contentions, with the Registrar, Original Side within eight weeks. If the deposit is made, the Registrar will invest it in an interest-bearing fixed deposit with a nationalised bank on auto-renewal and report it to the suit file, and the fate of the deposit abides by the final result of the suit. The application was allowed without costs.

Practical implications

A plaintiff seeking interim security in a commercial suit should place before the Court documents showing its own performance and the defendant's conduct, such as an account that held far less than the amount a court had restrained. A defendant pleading fraud or non-delivery should place on record contemporaneous objections and its financial position.

Limits of this ruling

• The findings are prima facie and tentative, made for interim security; the Court did not decide the allegations of fraud or the effect of the defendants' termination, which are for trial, and the order binds defendants 1 to 4 only.