Commercial Court Can Secure Claim At Interm Stage If Party's Commercial Credibility Is In Doubt: Calcutta High Court

The Calcutta High Court has held that a commercial court can direct a party to secure a plaintiff's claim at an interim stage if it prima facie finds that the party's commercial credibility, probity, or substratum is in question.

Justice Aniruddha Roy observed, “With the promulgation of the C. C. Act, 2015, even while trying a commercial suit, if the Court prima facie finds that the conduct of the defendant is such that it might have lost its commercial credence and probity or substratum, commercial court at any stage of the suit can direct the defendant to secure the claim of the plaintiff and direction for such security would not amount to convert an unsecured claim of the plaintiff to a secured claim.”

The court clarified that such security is only a protective and tentative interim measure. It can be altered, modified or reversed at the final trial and does not convert an unsecured claim into a secured one.

The Court made the observations while directing Jitendra Agarwal and other defendants to deposit ₹5,43,70,000 after adjustment of ₹1 crore already paid with the Registrar, Original Side. The amount is to be invested in an interest-bearing fixed deposit and its fate will abide by the final result of the suit.

The dispute arose from a Share Sale Contract dated April 14, 2023, under which the plaintiffs agreed to sell their shareholding for ₹15.87 crore. Pulak Modi, holding 50% of the company, claimed ₹7.93 crore, of which ₹1 crore was paid, leaving ₹6.93 crore outstanding.

The plaintiffs claimed they had transferred the shares and handed over possession of the Georgia steel plant. The defendants later alleged that effective control was not provided and terminated the contract. However, the Court noted that Jitendra Agarwal had acknowledged receiving “khas physical possession” of the plant and that the contract was on an “as is where is” basis.

The defendants raised the objection only after the plaintiffs demanded the balance consideration. The Court also noted that only ₹72,822 was lying in the defendants' bank account when it was restrained, which had not been disclosed, contributing to the prima facie finding that they had lost commercial credibility.

On an overall prima facie assessment, the Court found that the plaintiffs had transferred the shares and handed over possession of the steel plant, while the defendants had paid only part consideration.

The Court also noted that the defendants did not raise an objection regarding possession until April 12, 2024, despite having earlier confirmed receipt of possession.

The Court observed that whether the alleged April 20, 2024 termination was legally effective would have to be decided at trial and not at the interim stage.

On the issue of applicability of Section 151 of the Code of Civil Procedure, 1908, the Court held that the provision remains applicable to commercial suits as it has neither been amended nor excluded by the Commercial Courts Act. The Commercial Court can therefore exercise its inherent powers under Section 151 in an appropriate case.

"It is true that after enactment of Commercial Courts Act, 1915 (hereinafter, C.C. Act) though several provisions of the Code have been amended in the light thereof, but the provision under Section 151 of the Code has not been amended and its application has not been excluded in a commercial suit filed under the C.C. Act. Therefore, the plenary inherent power of a Civil Court is also available and its exercise is permitted while trying a commercial suit filed under the C.C. Act, in an appropriate case."

The Court also noted that the defendants had not disclosed that only ₹72,822 was lying in the relevant bank account when an earlier restraint order had been passed. It consequently found that the defendants had prima facie lost their commercial credibility before the Court.

Accordingly, the Court directed Jitendra Agarwal and the other defendants to deposit ₹5.43 crore within eight weeks, with the deposit to remain subject to the final outcome of the suit. The application was allowed without costs.

For Plaintiffs: Suman Kumar Dutt, Sr. Adv., Advocates Shounak Mukhopadhyay, Paritosh Sinha, Shrayashee Das, Tridibesh Dasgupta, Subhradip Bhattacharyya

For Defendants: Advocates Shuvasish Sengupta, Bhavesh Garodia, Swati Dalmia, Sabarni Mukherjee, Safura Ahmed