The Karnataka High Court has restrained NRI businessman Dr BR Shetty and his wife or their agents from alienating or transferring movable assets such as shares, mutual funds, and monies deposited in their bank accounts.
While doing so, the Court allowed the appeal filed by Bank of Baroda, which had questioned the August 28, 2020 order of the Commercial Court granting temporary injunctions in respect of only immovable properties of Shetty and his wife.
The order passed by a Bench led by Chief Justice Abhay Shreeniwas Oka, in this regard, reads,
“There will be temporary injunction against the defendants in terms of prayers made in I.A. Nos. I and II of Commercial Original Suit No. 1 of 2020. However, as regards the other assets (other than immoveable property described in item Nos 1 to 13 and 16 of plaint schedule) held by the first defendant, it will be always open for the first defendant to apply to the plaintiff Bank for grant of permission to transfer the same.”
On May 5, 2020, the Bank had advanced over Rs 2,000 crore to Shetty and the companies/entitles controlled by him.
In a bid to pay off the Bank, Shetty executed a letter of undertaking with negative lien and creation of mortgage in respect of his sixteen immovable properties and other assets.
As the defendants committed breaches of the negative lien and failed to secure the interest of the Bank, the Commercial Court was eventually moved by the Bank.
While temporarily restraining Shetty from alienating his immovable properties, the Commercial Court refused to grant temporary injunction for preventing alienation of Shetty’s other assets such as shares, mutual funds, and monies deposited in bank accounts.
Aggrieved by this, the Bank moved the High Court. The grievance expressed by the Bank was that the defendants may dispose of their assets by the time a judgment is delivered against them.
What the High Court held
After going through the rival submissions, the Court noted that Shetty had undertaken not to sell, transfer or alienate his other assets without the approval of the Bank. Therefore, the immoveable assets of the defendants as mentioned in the Schedule in the plaint and other assets of the first defendant will have to be protected, opined the High Court.
“The question is whether they can be permitted to dispose of these properties. Whether the Negative Lien Letter can be specifically enforced or not is a question to be decided at the time of trial. Without performing their obligations under the said Negative Lien Letter of creating a mortgage in respect of sixteen properties, there is every likelihood of the defendants alienating the same for defeating the claim of the plaintiff.
Moreover, the first defendant has undertaken not to sell, transfer or alienate his other assets without the approval of the plaintiff bank. Therefore, the immoveable assets of the defendants as mentioned in the Schedule in the plaint and other assets of the first defendant will have to be protected by grant of a temporary injunction.”
Further, the Court was of the view that the Commercial Court was not right in denying temporary injunction in respect of movable assets merely because the Bank had not furnished specific particulars of assets such as shares, mutual funds, bank deposits etc.
“It is well settled that the procedure is a handmaid of justice. It cannot be used to defeat the substantive rights. Though the defendants were called upon to do so by a notice, they refused to furnish any details of their other properties. Therefore, the description of the said properties could not be incorporated in the plaint. That was no ground to deny the relief. The first defendant cannot be allowed to take an advantage of his wrong by relying upon the procedural Rules.”
The bank was not in a position to provide these details as Shetty had failed to furnish details of all movable and immovable assets in the letter of negative lien submitted to the Bank, the High Court said. It further pointed out that Shetty declined to provide details of his other assets despite a legal notice issued by the Bank to him in May 2020.
The High Court proceeded to state that prima facie, it is the obligation of Shetty to disclose the details of all other movable and immovable properties held by him. He is under an obligation not to sell or transfer the same without consent of the Bank.
“Thus, there is no manner of doubt that a prima facie case was established by the plaintiff. It is obvious that considering the extent of amounts payable by the companies/entities of the first defendant and the first defendant in his capacity of the borrower and guarantor, the balance of convenience is in favour of the plaintiff,” observed the Court.
With these observations, the Court allowed the appeal. Senior Advocate Shashikiran Shetty appeared for BR Shetty, while Senior Advocate Udaya Holla appeared for Bank of Baroda.