The Bombay High Court recently refused ad-interim relief sought by Anil Ambani, chairman of Reliance Anil Dhirubhai Ambani Group, in a commercial suit filed by Reliance Project Ventures and Management Pvt Ltd and made some sharp observations against the plaintiff.
Justice KR Shriram observed that the stand taken by the plaintiff “smacks of deceit” and that there was an attempt on part of the plaintiffs to mislead the court.
Case background
Reliance issued two series of debentures to Edelweiss Group of Companies for an aggregate amount of Rs 300 crores under various transaction documents. The said debentures were secured by a pledge of shares constituting approximately 9% of the listed capital of Reliance Power Limited (RPL) and approximately 2% of Reliance Communications Limited (RCOM) created in favour of defendant no.5 (the debenture trustee) by RPL and RCOM.
On August 14, 2017, RPL entered into a term sheet with one of the Edelweiss Group of Companies for a proposed issue of redeemable nonconvertible debentures by RPL to Edelweiss Group and its subsidiaries, affiliates, assignees and other co­investors. These debentures were to have an interest coupon of 10% per annum payable on a half-yearly basis. The debentures were to be redeemable after a period of five years and were to be secured by a pledge of shares held by plaintiff no.1 and other promoter group companies.
As a result, some 21 crore shares of RPL and approximately 5.3 crore shares of RCOM were pledged to Edelweiss by Reliance. The dispute arose when many of these shares were sold by Edelweiss after Reliance defaulted in interest payments.
Submissions and Judgment
Many high-profile senior lawyers appeared in the matter. Senior advocates Aspi Chinoy and Darius Khambatta appeared on behalf of Reliance, while senior advocates Janak Dwarkadas, Gaurav Joshi, Dinyar Madon and Ravi Kadam appeared on behalf of the Edelweiss Group of Companies.
The plaintiffs argued that on February 5, 2019, Edelweiss sold 2,74,08,000 pledged shares of RPL in the F & O segment and 3,22,91,119 pledged shares in the cash segment, totalling to 596,99,119, approximately 2.12% of the issued shares of RPL in the stock market in one day.
According to plaintiffs, this resulted in a further fall in the price of RPL shares to Rs 12, thereby reducing the value of shares sold by Rs 274 crores and, therefore, defendants should be restrained from selling the remaining pledged shares until plaintiffs are paid a sum of Rs 274 crores as damages, Chinoy argued.
Whereas, Janak Dwarkadas submitted that defendants were well within their rights to sell the pledged shares. It was also submitted that in August 2018, the price of RPL shares had plummeted and as per their contract, plaintiffs were to pay an additional interest of 2% p.a. on the debentures, but plaintiffs did not pay. Dwarkadas also stated that plaintiffs were to also give further security as the value of pledged shares had gone down by 40% which again plaintiffs failed to give, despite being called upon repeatedly. Further, it was submitted that on February 1, 2019, RCOM had filed for bankruptcy but plaintiffs never bothered to communicate with defendants and the trustees had to protect the debenture holders and sold the shares.
The court refused to accept the argument advanced by the plaintiffs that only a day’s notice was given before the said shares were sold by the defendants. It said-
“It is rather strange that such an argument is made by plaintiffs. When the contract was entered into, plaintiffs found one business day notice to be reasonable. Therefore, plaintiffs have acknowledged that one business day notice was reasonable notice under applicable law and Section 176 says reasonable notice has to be given.
Therefore, stand of plaintiffs smacks of deceit. Plaintiffs attempt is to mislead.”
Rejecting the notice for a motion seeking interim relief, the court noted-
“Just because plaintiffs allege that they have suffered a loss of Rs.274 Crores plus and they are entitled to claim further damages in the sum of Rs.2734 Crores does not mean that the Court should prevent defendants from exercising their rights under the contract and applicable law. It should also be noted that plaintiff no.3 and plaintiff no.4 are equity/investment funds in which general public would have placed funds for investment. Therefore, grave prejudice will be caused to defendants and/or their investors, if the relief as prayed for is granted. The value of pledged shares has plummeted. The balance of convenience also lies in favour of defendants, particularly, in view of the fact that the Chairman of the Reliance ADAG group of companies has made a statement that RCOM is filing for bankruptcy.”
The court added that these were only prima facie views.