Shivam Dhatu Udyog PVT LTD And Ors vs. Jaishree Steels PVT LTD And Ors

Facts

This appeal concerns a suit for specific performance filed by the plaintiffs/respondents against the defendants/appellants. The plaintiffs alleged an oral agreement for the sale of shares of defendant no. 1 company for Rs. 85 crores. They claimed to have paid over Rs. 3 crores towards GST liabilities of defendant no. 1 and invested over Rs. 31 crores to make the factory functional, also clearing workers' statutory dues. The defendants subsequently allegedly refused to transfer shares and prevented plaintiffs' employees from entering the factory. The plaintiffs sought an injunction and appointment of a receiver. An interim order dated January 28, 2021, restrained defendants from creating third-party rights and appointed a receiver for inventory. The defendants then filed an application alleging plaintiffs interfered with factory operations. The impugned order dated April 23, 2021, declined to allow defendants to operate the factory without the receiver's inventory, but restrained plaintiffs from preventing defendants from entering the premises, while also directing defendants not to operate the factory or remove materials.

Held

The High Court held that there was no justification for the learned Single Judge to restrain the defendants from operating the factory. The Court noted that the defendants' possession and control over the factory were admitted, even in the plaint. The learned Judge himself observed that the defendants were in possession and were entitled to operate the factory until ownership was decided. The Court reasoned that in a suit for specific performance where the defendants' ownership, possession, and control are admitted, there is no basis to restrain them from running their own factory. The plaintiffs' interests were already protected by the subsisting injunction order dated January 28, 2021, which restrained the defendants from creating third-party rights and disposing of assets without leave, and by the appointment of a receiver to inventory books and records. The direction restraining the defendants from running the business was set aside, subject to the subsisting injunction order of January 28, 2021. The Court clarified that its observations were prima facie and the learned Single Judge would decide the application on merits untrammelled by these observations.

Key Issues

1. Whether the learned Single Judge was justified in restraining the defendants/appellants from operating the factory, despite finding them in possession, in a suit for specific performance (turning on the principles of injunctions in specific performance suits and the court's discretion at an ad-interim stage). Contentions: Petitioner/Appellant: Argued that the plaint case was improbable and legally impermissible due to the alleged verbal contract for share transfer between incorporated entities. Contended that the learned Single Judge erred in restraining them from operating their own factory when they were found to be in possession. Relied on general principles of injunctions in specific performance suits. Respondent/Revenue: Submitted that the defendants could not have filed their application without a counter-claim. Stated that a prior application by the defendants with similar prayers was dismissed with leave to file a fresh one. Argued that the learned Single Judge's discretion at the ad-interim stage should not be interfered with. Denied allegations of interference with the factory's operation.