Ocean Deity Investment Holdings v. Sarang Wadhawan & Ors

What happened

The first plaintiff, a Mauritius investment company, invested USD 250 million in the second plaintiff in February 2008 and held 83.36% of its capital, later 78.09% after the first and second defendants (promoters of HDIL, which is in a corporate insolvency resolution process) bought shares and their companies' stake rose to 21.91%. The second plaintiff owned a Grade A commercial office building in Andheri, development rights for which came from a Development Agreement of 17 January 2008 with R.T. Constructions, an HDIL concern. The plaintiffs alleged that in 2009 the defendants 1 to 3, as directors, colluded to execute a sham sale of units 701, 702, 703 and 704 to defendant no. 5, said to be owned by the family of a late HDIL director, to benefit HDIL, and that this was ultra vires the Articles of Association. The second plaintiff's Articles were amended in September 2014; the first and second defendants were removed from the board at an extraordinary general meeting on 1 September 2017; and the plaintiffs said they learned of the link between defendant no. 5 and the HDIL group in February 2020. Defendant no. 5, Vikram Homes Private Limited, said that it bought the units under a registered document after paying the full consideration and stamp duty on market value, under an earlier MOU, that it has no link with HDIL, and that the suit, filed more than ten years later, was time-barred and concerned internal affairs of the plaintiffs.

Questions before the court

• Should a Court Receiver be appointed over the units, and the purchaser restrained, in a suit alleging a fraudulent sale by the plaintiffs' former directors?

Why the court ruled this way

The allegations in the plaint were against the former directors and concerned the management of the second plaintiff, the first plaintiff's shareholding and removal of directors, and the cause of action itself was based on an internal enquiry into the company's affairs (paragraphs 22 to 24). The Court therefore saw substance in the submission that the dispute is for the company law tribunal under sections 241 and 242 and that section 430 bars the civil court's jurisdiction, so interim relief on the ground of mismanagement was not available at this preliminary stage (paragraphs 21 and 24). Apart from the allegation that the former directors acted to favour HDIL, there was no direct allegation against defendant no. 5, which was in possession under a registered document, and the documents prima facie showed full consideration and stamp duty on market value, so an injunction against a true owner could not be granted without a prima facie case, balance of convenience or irreparable loss (paragraph 25). No ground was shown for a Court Receiver, which cannot be appointed to deprive an owner of enjoyment without just and satisfactory grounds (paragraph 26). The decisions cited by the plaintiffs, Dale & Carrington Invt. (P) Ltd., Kotta Venkataswami and Shashank Bhagat, concerned different controversies and did not help (paragraphs 27 and 28).

Controlling point

No prima facie case for interim relief against defendant no. 5 was made out.

Order and next steps

The interim application was dismissed. The findings are made at the interim stage on a prima facie basis.

Practical implications

A foreign or minority investor alleging that former directors diverted company property to a related buyer should consider the oppression and mismanagement route before the tribunal and, in any civil suit, should plead direct facts against the buyer.

Limits of this ruling

• The Court made prima facie observations on an interim application and did not finally decide the validity of the sale, limitation, or the jurisdiction question in the suit.