Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Del) 472

IN THE HIGH COURT OF DELHI AT NEW DELHI
Sachin Datta, J.
M/s L. R. Builders Pvt. Ltd. & Ors. - Appellants
Versus
M/s P. P . Jewellers Pvt . Ltd . & Others - Respondent
CS(OS) 581 of 2023
Decided On : 22-03-2024

Advocates appeared:
Mr. Amit Sibal, Sr. Advocate alongwith Ms. Jyoti Taneja, Ms. Kanika Singhal and Ms. Aarzoo Aneja, and Ms. Ishita, Advocates, for the Appellant; Mr. Ratan K. Singh, Sr. Adv. alongwith Ms. Pallavi Anand, Mr. Gautam Dhamija, Mr. Parth Dixit and Ms. Saloni Sharma, Advocates for defendant nos. 1 to 7 Mr. Sandeep Sethi, Sr. Advocate along with Mr. Himanshu Satija, Mr.Karan Khanna, Ms. Simran Mulchandani and Mr. Harshit, Advocates for defendant nos. 8 &10. Ms. Malvika Trivedi, Sr. Adv. alongwith Mr. Harshit Khanduja, Mr.Pulkit Khanduja, Mr. Shailendra Slaria and Ms. Sujal Gupta, Advocates for defendant no.9., for the Respondent.

IMPORTANT POINT
The main legal point established in the judgment is the duty of the courts to uphold family arrangements and give full effect to such arrangements to maintain peace and harmony within the family, as well as the interpretation of key legal provisions such as Section 23 of the Indian Contract Act, 1872, and the principles governing family settlements.

Headnote:
FSDs - Family Settlement Deeds - Indian Contract Act, 1872, Companies Act, 2013, Arbitration and Conciliation Act, 1996 - The court discussed the Family Settlement Deeds (FSDs) dated 20.06.2015 and 09.07.2019, and their legality under the Indian Contract Act, 1872. The court also considered the implications of the FSDs on the Companies Act, 2013, and the Arbitration and Conciliation Act, 1996. Key legal provisions such as Section 23 of the Indian Contract Act, 1872, and Section 230 of the Companies Act, 2013 were interpreted to determine the validity of the FSDs and their impact on the plaintiff companies' rights.
Fact of the Case:
The plaintiff companies sought a declaration that the Family Settlement Deeds ('FSDs') dated 20.06.2015 and 09.07.2019 are non-est, null and void, and an interim injunction restraining the defendants from acting upon the FSDs. The defendants were closely related family members involved in the family business of P.P. Jewellers Group and had entered into the FSDs to resolve family arrangements and allocate properties between family members.
Finding of the Court:
The plaintiff companies failed to meet the triple test for grant of an ad-interim injunction, as the FSDs did not purport to create or extinguish any rights in the properties of the plaintiff companies. The court found that the FSDs did not cause injury to the property of the plaintiff companies and that the defendants could only transfer properties of the companies following the procedure under the Companies Act. The court also emphasized the objective of family settlements to preserve peace and goodwill within the family.
Issues: The issues revolved around the legality of the FSDs under the Indian Contract Act, 1872, and their impact on the rights of the plaintiff companies under the Companies Act, 2013, and the Arbitration and Conciliation Act, 1996. The court also considered whether the plaintiff companies had made out a prima facie case for the grant of an ad-interim injunction.
Ratio Decidendi: The court's decision was based on the interpretation of the FSDs, the legal principles governing family settlements, and the lack of prima facie case, balance of convenience, and irreparable harm/loss shown by the plaintiff companies. The court also emphasized the duty to uphold family arrangements and give full effect to such arrangements to maintain peace and harmony within the family.
Final Decision: The court held that no ground was made out for passing an ad-interim injunction in favor of the plaintiff companies and clarified that the observations made were only a prima facie view for the purpose of considering whether a case had been made out for the grant of an ad-interim injunction. The case was listed before the roster bench for further consideration.

JUDGMENT

I.A. 18220/2023 (Exemption)

Allowed, subject to all just exceptions.

Application stands disposed of.

CS(OS) 581/2023

1. Let the plaint be registered as a suit.

2. Issue summons in the suit.

3. Learned counsel, as aforesaid, accept summons on behalf of the defendants

4. Let the defendants file written statement to the plaint within 30 days from today, alongwith affidavit of admission/denial of the documents filed by the plaintiffs. The plaintiffs may file replication to the written statement within 30 days thereafter, alongwith affidavit of admission/denial of the documents filed by defendants.

5. List before the Joint Registrar for completion of pleadings, for admission/denial of documents and marking of exhibits on 03.05.2024.

I.A. 18219/2023 (Order 39 Rule 1 and 2 CPC)

6. Issue notice. Learned counsel, as aforesaid, accept notice on behalf of the defendants

7. Let reply be filed by the defendants/ non-applicants within a period of 3 weeks; rejoinder thereto, if any, be filed within 2 weeks thereafter.

8. The present suit has been filed by the plaintiff companies through its authorized representative Mr. Rahul Gupta seeking a declaration that the Family Settlement Deeds ('FSDs') dated 20.06.2015 and 09.07.2019 are non-est, null and void, and seeking consequent permanent injunction/s. The present application seeks an interim injunction restraining the defendants from acting upon the impugned FSDs in any manner whatsoever.

9. It is averred in the plaint that the purported FSDs were entered between the defendant nos. 2 to 9, who are trying to alienate and transfer the properties that are legally owned by the plaintiff companies. It is further averred in the plaint that the defendants through collusive proceedings are seeking to refer their inter se disputes arising out of illegal FSDs to arbitration. It is submitted that FSDs being nullity in the eyes of law cannot be referred to arbitration.

10. Learned senior counsel for the plaintiff companies has submitted that the consideration and object of the FSDs is unlawful in terms of Section 23 of the Indian Contract Act, 1872. He has submitted that it is impermissible in law for the defendants to divide the assets of the plaintiff companies. He submitted that the FSDs involve injury to the property of the plaintiff companies, who are not signatories to the FSDs. He emphasised that plaintiff no.2 company is the shareholder of defendant no.1 company, who in law has a right to object to the scheme of arrangement/amalgamation under Section 230 of the Companies Act, 2013. It is submitted that assets of plaintiffs and defendant no.1 are being transferred under the FSDs without any consideration to the companies, and therefore the substratum of FSDs is ex-facie unlawful. He has further submitted that implementation of the FSDs will result in violation of restraint orders, issued qua the plaintiffs' properties, by the Ld. DRT. It is submitted that plaintiff no.2 company has filed a contempt petition against the defendant no.2 inter alia alleging that FSDs and joint memorandum (whereby the defendants seek to refer their disputes to arbitration) violate the order dated 22.03.2017 passed Ld DRT in O.A. 292/2017. It is emphasised that notice has been issued in the said petition. He further submitted that defendant no.1 company as well as defendant nos. 2 to 7, have made admissions that FSDs are a nullity in the eyes of law. Attention has been drawn to replication filed by the defendant no.1 in its prior suit filed before Ld. Judge, Tis Hazari Courts. Attention has also been drawn to reply filed by the defendant nos. 1 to 7 in the petition filed by defendant nos. 8 and 9 under Section 11 of the Arbitration and Conciliation Act, 1996. It is submitted that in the prior suit filed by the defendant no.1 inter alia alleging infringement of its trademark, Ld. Judge, Tis Hazari Court vide order dated 26.07.2021 in CS(Comm) 1551/2021 has given a prima facie finding that FSDs are a nullity in the eyes of law.