SANWARLAL AGRAWAL & ORS. versus ASHOK KUMAR KOTHARI & ORS. on 21 February 2023

Conclusion

1. Leave granted. These two appeals are preferred against thecommon impugned judgment and final order of the High Court ofJudicature at Bombay, dated 14.06.2022,[1] in which the order of the singlejudge dated 04.01.2021,[2] was affirmed.

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I. Factual Background

2. The parties entered into a joint venture agreement in 2017 tooperate a multi-specialty hospital in Malad, Mumbai. As equalshareholders, each brought in 10 crores as interest-free loans to financethe project. On 27.03.2019, the respondents (hereafter, ‘Kotharis’) bidfor the entire 50% shareholding of the appellants (hereafter, ‘Agrawals’), G

1 Sanwarlal Agrawal v Ashok Kumar Thakur, Appeal (L) No. 3075/2021 and 3079/2021.

2 Ashok Kumar Kothari v Sanwarlal Agrawal, Execution Application (L) No. 1713/2019 and 139/2020 in Commercial Suit No. 844/2019.

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Awhich was accepted, and reduced in writing by way of an email dated28.03.2019, which stated the terms as follows:

“The te(r)ms and conditions agreed by you are also agreeableto us, which are as follows,

l. consideration- 36.75 croresB

2. token 5 percent of the consideration

3. Further 50 percent of consideration within 45 days, afterwhich Kothari group will be allowed to start work on theproject.

C4. remaining 45 percent of consideration within 120 days.

Failure to pay 50 percent amount within 45 days will lead toforfeiture of token amount of 5 percent and automatic sale of50 percent shares of Kothari group to Agrawal group at theirbid price of 35 crore on same terms and condition startingD45[th] day. Failure to pay the final 45 percent in time will leadto forfeiture of 5 percent of the consideration and automaticsale of 50 percent shares of Kothari group to Agrawal groupat their bid price of 35 crore on same terms and conditionsta1iing 120[th] day. There will be no interest paid by Agrawalgroup on the balance consideration.EDeal date march 27, 2019.”

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3. Thereafter, token amount of 1,83,75,000/- (or 5%) was paid(of which 1,25,000/- was contested as having never been received inthe account of Agrawals). However, on 29.03.2019, Kotharis, by wayFof email, provided a break-up of the consideration of 36.75 crores, asunder:

“At the outset, please note that the total consideration of Rs.36.75 Crores payable to you comprises of:

a. the total value of your 50% shareholding in the companyGbeing the sum of Rs. 26,45,45,000/- (Rupees Twenty-Six CroresForty-Five Lakh Forty-Five Thousand Only)

b. re-payment of your group’s interest free loan lying with thecompany of the sum of Rs. 10,29,55,000/- (Rupees Ten CroresTwenty-Nine Lakhs and Fifty-Five Thousand) which will be H

paid and discharged to you through the bank account of thecompany.”

This inclusion of the loan amount was not acceptable to Agrawals,who expressly rejected the same in an exchange of emails thereafter,dated 03.04.2019, 11.04.2019, 19.04.2019 and 20.04.2019.

4. On 30.04.2019, Kotharis filed Commercial Suit No. 844/2019,for declaration that the agreement dated 28.03.2019 was binding on theAgrawals, and for specific performance. This was followed by a Noticeof Motion No. 1619/2019, dated 29.07.2019, under Order XII Rule 6 ofthe Code of Civil Procedure, 1908 (hereafter, “CPC”), seeking decreeon admission, which was awarded by order dated 05.08.2019 in thefollowing terms:

“1. Mr. Saraogi and Mr. Hakani on instructions from Dr. VikasAgarwal, Defendant no.2, who says that he has instructionson behalf of other defendants to make the statement, statethat they are submitting to a decree in terms of prayer clauses(a) to (d), which read as under:

(a) That this Hon’ble Court be pleased to declare that thesaid agreement arrived at on March 27, 2019 which is reducedto writing by the defendant no.2 and is recorded by the emaildated March 28, 2019 in respect of the 50% shares held bythe Agarwal Group in the capital of the plaintiff no. 6 is valid,subsisting and binding upon the defendants and upon personsclaiming by, through or under the defendants; (b) That this Hon’ble Court be pleased to order and decreethe defendant to specifically perform the said agreementarrived at on March 27, 2019 for sale of the 50% shareholdingof the defendants in the plaintiff no.6 as reduced into writingand as recorded by the email dated March 28, 2019 of thedefendant no.2 inter alia by:

(i) executing, signing and attesting all necessary deeds anddocuments necessa1y to transfer, assign and vest the fiftypercent shareholding of the defendants in the plaintiff no.6in favour of the plaintiffs or their nominees; A

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A(ii) handing over original title deeds, documents and writingsin respect of the suit plot which are lying with the defendantno.2 and in the locker to be operated jointly by the defendantno.2 and the plaintiff no.2 to the plaintiffs.

(iii) doing or causing to be done all acts, deeds, matters andBthings and to sign, execute and register all deeds, documentsand writings as may be necessary for the transfer of the said50% shares of the Agarwal Group to the plaintiff nos. l to 5and/or to their nominees free of all claims of the defendants.

(iv) Tendering their resignation from Directorship of theCplaintiff no. 6 company.

(c) That this Hon’ble Court be pleased to order and decreethe defendants to do or cause to be done all acts, deeds,matters and things and to sign and execute all deeds,documents or writings necessary under the supervision of thisDHon’ble Court for the purposes of the order of specificperformance or to give effect to the reliefs sought in terms ofprayer (b) above.

(d) That for the purposes aforesaid all inquiries be made,awards be made, orders be passed, directions be given andEaccounts be taken as this Hon’ble Court may deem just andproper in the facts and circumstances of the case.”

2. Time mentioned in the agreement will begin from today.

3. Suit accordingly stands disposed. Notice of motionaccordingly also stands disposed.

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4. Refund of court fees, if any, in accordance with rules.

5. Drawn up decree dispensed with.

6. All to act on authenticated copy of this order.

(K.R. SHRIRAM, J.)”

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5. After the suit was thus decreed, the counsels of the partiesengaged in further correspondence, without much success. Consequently,Kotharis filed an execution proceeding[3] on 13.09.2019 - as did theAgrawals,[4] on 16.01.2020. Several interim applications were also filed.

3 Execution Application (L) No. 1713/2019.H4 Execution Application (L) No. 139/2020.

The single judge, by a common order dated 04.01.2021, held that thedecree was ambiguous. While noting that the Agrawals had neither filedany reply to the Notice of Motion, nor any written statement, the ExecutingCourt held that in exercise of its jurisdiction, it was competent to construethe decree by looking into the pleadings. The Court laid emphasis onpart B (iii) of the prayer in the suit, which stated as follows:

“B. That this Hon’ble Court be pleased to order and decreethe Defendant to specifically perform the said agreementarrived at on March 27, 2019 for sale of the 50% shareholdingof the Defendants in the Plaintiff No. 6 as reduced into writingand as recorded by the email dated March 28, 2019 of theDefendant No.2 inter alia by:

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(iii) doing or causing to be done all acts, deeds, matters andthings and to sign, execute and register all deeds, documentsand writings as may be necessary for the transfer of the said50% shares of the Agarwal Group to the Plaintiff Nos. 1 to 5and/or to their nominees free of all claims of the Defendants.”

And held thus:

“34. I have, therefore, no hesitation in holding that absent awritten statement or denial of averments in the plaint and bysubmitting to a decree in terms of prayer clause (B)-(iii), theprice payable was inclusive of the loan inasmuch as afterpayment of the agreed price or agreed consideration andtransfer of the shares, the Agrawals would not have anyfurther claims”.

(emphasis supplied)

6. On appeal, by way of the impugned judgment, the DivisionBench concurred with the single judge. The Court held that the singlejudge’s discretion of looking into the pleadings in no way constitutedgoing ‘behind the decree’, relying on a catena of judgments, and paidemphasis on the email exchange between the parties, particularly theone made on 29.03.2019, on the bifurcation of the amount (as stipulatedabove in paragraph 3 above), which was also replicated in Kothari’s suit(at paragraph 12 of the suit), and held that the total consideration of A

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A 36.75 crores was thus inclusive of the loan amount:

“20. It does seem to us in conclusion that the approach of theAgrawals in contesting the nature of the decree after submittingto it, without any denial or traverse of the plaint’s averments,is perhaps a piece of cleverness that should not beBcountenanced by any equity-minded court. The Agrawals knewperfectly well what the Kotharis were saying in paragraph12 of the plaint. They knew exactly what the Kotharis meantwhen they said that the email of 28th March 2019 was interms of the oral agreement of the day before. Any ambiguityabout this is eliminated by the Kotharis’ email of 29th MarchC2019 at page 545, which explicitly set out in paragraph 3what ‘consideration’ meant. To this, too, there is no denial.To say now that the decree is not what it was but somethingelse is a case of not of the Kotharis but of the Agrawalswanting the court to go behind the decree. It is an attempt toDalter the decree completely to something it never intended tobe.”

Hence, the present appeal.

EII. Contentions of the Parties

7. Mr Shyam Divan, Ld. Senior Advocate for the appellants,submitted that the Executing Court went behind the decree by enlargingits scope, through an analysis of the pleadings, which it was notempowered to do, as held by several judgments of this Court, such asFMeenakshi Saxena v. ECGC Ltd.[5]It was emphasised that theagreement entered into by the parties orally on 27.03.2019 was facilitatedby a mediator, Shri Pawan Didwania, and affirmed that very evening inthe presence of a second mediator, Shri Satyanarayan N. Shrimali, andrecorded in writing on the next day, i.e., 28.03.2019 via email, with nodiscussion on inclusion of outstanding loans. The Agrawals agreed toGonly the terms of the e-mail dated 28.03.2019 and not any latercorrespondence, even though there was a mention of suchcorrespondence and letters in the plaints and averments. Therefore, thiswas a clear case where the parties consciously chose to embody onlythe terms agreed upon, and reduced to writing, as the terms of the decree.

H5 Meenakshi Saxena v. ECGC Ltd., (2018) 7 SCC 479.

H5 Meenakshi Saxena v. ECGC Ltd., (2018) 7 SCC 479.

8. It was submitted that the High Court fell into error in takingnote of selective emails / letters while considering the pleadings even ifarguendo it were permissible for it to do so. It was pointed out that thesuit averments clearly recounted in an elaborate manner the exchangeof e-mails and was not confined to e-mail dated 29.03.2019, rather alsoother e-mails such as the one addressed by the respondent / plaintiff i.e.,Kotharis on 03.04.2019, the e-mail from Agrawals to this email, on11.04.2019 clearly disputing the Kotharis’ interpretation with respect tothe conditions of the settlement. The suit also referred to another e-maildated 19.04.2019, which reiterated Kotharis’ position that the sum of 36.75 cores was a ‘composite amount’, and nothing further was payableto the Agrawals. In the same way, learned counsel also relied uponother e-mails exchanged after Kotharis filed the suit, i.e., dated 19.07.2019and 23.07.2019. In these circumstances, the Court could not have reliedonly on two or three e-mails while interpreting the decree to meansomething more than what its terms stated.

9. Mr Diwan relied upon the affidavit of the first mediator, ShriPawan Didwania, wherein he clearly stated that there was never anydiscussion or agreement on adjustment of any loan, and that the Agrawalswould receive 36.75 crores from the Kotharis for their 50% shareholdingonly.

10. On the other hand, Mr Shekhar Naphade and Mr. PallavShishodia, learned senior counsels appearing on behalf of the Kotharis,urged that that impugned judgment did not warrant any interference.The decree for specific performance was passed on admission by theAgrawals in terms of the agreement reflected in the email dated28.03.2019. The expressions used in the email i.e., ‘consolidated price’;that the settlement would provide ‘full control’; that the agreementwas for purchase of the Agrawal’s ‘stake’; and was for ‘smoothtransition’, clearly pointed to a complete separation of the groups.Consequently, the amount of 36.75 crores was a composite one, meantto discharge all claims by the Agrawals on the company. The Kotharishad clearly stated that the amount offered by them was, if accepted, tosettle ‘all claims’, as was also worded in the prayer in their suit (seeparagraph 5 above).

11. Learned counsel argued that the so-called ambiguity createdin this case was an afterthought, meant to escape and evade the decreedrawn. Further, the fact that the Agrawals did not file a written statement AB

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Ato the plaint, or reply to the Notice of Motion, contesting the pleadings ofthe Kotharis with respect to the meaning of the emails dated 28.03.2019onwards, clearly points to their acceptance of the suit averments.Reliance was placed on the judgments of this Court in Rajinder Kumarv. Kuldeep Singh,[6] S. Satnam Singh & Ors. v. Surender Kaur &Anr.,[7] and Bhavan Vaja and Ors. v. Solanki Hanuji KhodajiBMansang,[8]to reinforce these submissions.

III. Analysis

12. The only issue for consideration is whether the sum of 36.75crores stipulated in the agreement by email dated 28.03.2019 wasinclusive of the loan amount of 10,29,55,000/- or not.C

13. The decree awarded (on agreement by both parties) captures,in essence, parts (A) to (D) of the prayer made by the Kotharis in theirsuit. They are analogous to the terms of the agreement dated 28.03.2019,which allude only to the ‘sale of the 50% shareholding of thedefendants’ (i.e., of the Agrawals), and do not mention anythingDseparately regarding the outstanding loan amount.

14. The single judge has described the decree as ‘ambiguous’simply on the absence of its engagement with the loan amount, andproceeded to go behind it by looking into the pleadings (of only therespondents, as appellants had not filed any – which has been adverselyEinferred by the Court) – and relied on the term, ‘free of all claims ofthe defendants’ contained in the decree, to enlarge its scope to includethe contested amount. Affirming the same, the Division Bench of theHigh Court has laid emphasis on the exchange of emails pursuant to theone containing the agreement, especially the email dated 29.03.2019Fsent by Kotharis outlining the break-up of the amount for the first time,which was expressly rejected by Agrawals in their response dated11.04.2019. There was a clear lack of consensus on this inclusion. Boththe Courts’ interpretation of reading the Agrawals’ consent into the sameis clearly an exercise in overreach.

15. This Court has time and again cautioned against the ExecutionGCourt adopting such an approach. In Topanmal Chhotamal v. KundomalGangaram,[9]a three-judge bench held as follows:

6 Rajinder Kumar v. Kuldeep Singh, (2014) 15 SCC 529.

7 S. Satnam Singh & Ors. v. Surender Kaur & Anr., (2009) 2 SCC 562.

8 Bhavan Vaja and Ors. v. Solanki Hanuji Khodaji Mansang, (1973) 2 SCC 40.

9 Topanmal Chhotamal v. Kundomal Gangaram, AIR 1960 SC 388.

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“It is a well-settled principle that a Court executing a decreecannot go behind the decree: it must take the decree as itstands, for the decree is binding and conclusive between theparties to the suit”.

Yet again, in Meenakshi Saxena (supra) it was reiterated that:

“The whole purpose of execution proceedings is to enforcethe verdict of the court. Executing court while executing thedecree is only concerned with the execution part of it butnothing else. The court has to take the judgment in its facevalue. It is settled law that executing court cannot go beyondthe decree. But the difficulty arises when there is ambiguity inthe decree with regard to the material aspects. Then it becomesthe bounden duty of the court to interpret the decree in theprocess of giving a true effect to the decree. At that juncturethe executing court has to be very cautious in supplementingits interpretation and conscious of the fact that it cannot drawa new decree. The executing court shall strike a fine balancebetween the two while exercising this jurisdiction in theprocess of giving effect to the decree.”

16. As is commonly known, the stream cannot rise above its source.Both Courts have, by selectively perusing the emails, altered the termsof the decree to include the loan amount into the agreement consideration.It is also imperative to note that such a reading was despite the clausesin the joint venture agreement entered into between the parties in 2017,which provided for a separate mechanism of settling all outstanding loans:

“Clause 4: In case of a deadlock, there will be bidding betweenthe groups for sale of shares to each other, and the groupoffering higher valuation for shares (successful bidder/buyer)will retain the company, preferably by making onetime paymentor as per terms agreed by both groups, but not exceeding180 days from the date of bidding/agreement in any case.

Clause 5: Whatever consideration and payment time line isdecided mutually between the groups for share transfer, willbe adhered strictly by buyer for smooth exit of seller, payabledirectly to the seller account, and in case of any delay inpayment, compounding interest @ 18% p.a. will be payableby buyer. There will be a lien of the seller group on their A

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Ashares till payment is completed with interest, if any. The loansand advances of the seller will have to be repaid by the buyerseparately within 15 days of bidding/agreement, failing whichcompounding interest @ 18% p.a. from date of bidding/agreement both principle and interest being routed throughcompany account. Upon completion of both payments, theBshares of seller group will be deemed to be transferred tobuyer group, and seller cannot delay the transfer on anypretext.”

C17. Thus, the joint venture agreement also contemplated a cleardistinguishment between the bidding process and subsequent repaymentof loan. The argument of the respondent – that the use of words‘consolidated price’ denotes inclusion of the loan amount – cannot beaccepted ipso facto, considering that from the pleadings, it is clear thatonly the 50% shareholding valuation was discussed by the partiesDthroughout, which was pegged at 70 crores by the Kotharis. Repaymentof the loan amount in no manner constitutes a disruption of the ‘smoothtransition’ envisioned as an aim of this transaction – thus its interpretationas such is erroneous.

18. The case law relied on by the respondents too, is distinguishableEfrom the facts herein. In S. Satnam Singh v. Surender Kaur,[10] thequestion for consideration was whether the trial court’s order was inerror in amending its preliminary decree in a partition suit to make anaddition to the list of properties. This Court held that the mere act ofrectifying such a mistake did not constitute an infirmity of the amendedFdecree. The counsel’s reliance on the definition of a ‘decree’, as held inthis judgment,[11] does little to support the respondent’s submissions, as 10 S. Satnam Singh v. Surender Kaur, (2009) 2 SCC 562.

11 Id., “15. A “decree” is defined in Section 2(2) of the Code of Civil Procedure to mean:“2. (2) … the formal expression of an adjudication which, so far as regards theCourt expressing it, conclusively determines the rights of the parties with regard to allGor any of the matters in controversy in the suit and it may be either preliminary orfinal.”

It may partly be preliminary and partly be final. The court with a view todetermine whether an order passed by it is a decree or not must take into considerationthe pleadings of the parties and the proceedings leading up to the passing of an order.The circumstances under which an order had been made would also be relevant”.12 Rajinder Kumar v. Kuldeep Singh, (2014) 15 SCC 529.H

SANWARLAL AGRAWAL v. ASHOK KUMAR KOTHARI[S. RAVINDRA BHAT, J.]

clearly the Courts below have not looked into the facts leading up to thepassing of the decree in a holistic manner.

19. With respect to Rajinder Kumar v. Kuldeep Singh,[12] thecounsel has placed reliance on the following paragraph:

“If the suit for specific performance is not decreed as prayedfor, then alone the question of any reference to the alternativerelief would arise. Therefore, there is no question of anyambiguity. As held by this Court in Topanmal Chhotamal v.Kundomal Gangaram [Topanmal Chhotamal v. KundomalGangaram, AIR 1960 SC 388, p. 390, para 4:”4. At the worstthe decree can be said to be ambiguous. In such a case it isthe duty of the executing court to construe the decree. Forthe purpose of interpreting a decree, when its terms areambiguous, the court would certainly be entitled to look intothe pleadings and the judgment….”] and consistently followedthereafter, even if there is any ambiguity, it is for the executingcourt to construe the decree if necessary after referring tothe judgment. If sufficient guidance is not available even fromthe judgment, the court is even free to refer to the pleadingsso as to construe the true import of the decree. No doubt, thecourt cannot go behind the decree or beyond the decree. Butwhile executing a decree for specific performance, the court,in case of any ambiguity, has necessarily to construe thedecree so as to give effect to the intention of the parties. Thus,there is no question of any alternate relief regarding thedamages, etc. in the present case since the suit for the specificperformance for the conveyance of the property has beendecreed.”

This elucidation of the law is unexceptionable. It is undeniablethat an Executing Court can construe a decree if it is ambiguous.However, as in the facts of the case herein, this cannot result in additions(to the terms of the consent, embodied in the email dated 28.03.2019)which were not agreed upon by the parties, since the decree wasdrawn on by consent of both parties at admissions stage itself. Both thesingle judge and Division Bench of the High Court have interpreted theappellants’ silence (manifest in their not filing any written statement) asacquiescence to the inclusion of the loan amount, which, is although12 Rajinder Kumar v. Kuldeep Singh, (2014) 15 SCC 529.

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Aworthy of adverse inference, cannot be the reason to justify expansionof the decree.

20. Thus, the appeals are allowed. The impugned judgment is setaside. There will be no order as to costs.

BDivya Pandey

(Assisted by : Roopanshi Virang, LCRA)

Appeals allowed.

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