Bombay High Court Injuncts Owner Of Kapani Resorts From Alienating Any Interest In Properties Until Conclusion Of Arbitral Proceedings

The Bombay High Court bench of Justice Somasekhar Sundaresan has injuncted the owner of Kapani Resorts and Greater Kailash Property from alienating any interest in the Resorts and the property under section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), until the conclusion of arbitral proceedings Brief Facts: Under the Agreement executed between Mr. Manmohan Kapani (Petitioner) and the Respondents, the petitioner will infuse USD 1 million in the Kapani Resorts to meet its debt obligations under a One Time Settlement (OTS) With the Small Industries Development Bank of India (SIDBI) and avoid default. In return, the shareholdings of the petitioner in the Kapani Resort will increase from 13 percent to 51 percent. Respondent No.2, Mr. Virendra Kapani (“Virendra”) and Respondent No. 3, Vaibhav Kapani (“Vaibhav”) were guarantors of the amounts owed by Kapani Resorts to SIDBI. Using the funds invested by Manmohan, Kapani Resorts discharged the dues owed to SIDBI, resulting in Virendra and Vaibhav getting relieved of their guarantee obligations. Therefore, Virendra and Vaibhav got Kapani Resorts to use the funds infused by Manmohan to get the Greater Kailash Property released, as indeed their guarantee obligations were discharged, but they refused to issue the shares that were required to be allotted to Manmohan. Hence this petition under section 9 of the Arbitration Act. Observations: The Court noted that Virendra and Vaibhav have admittedly enjoyed every benefit flowing out of the funds invested by Manmohan. They have offered no explanation as to why they have not given up 51% ownership stake in Kapani Resorts till date. The Court rejected the argument that they can only issue shares and must not suffer any restraint until the arbitral tribunal decides the matter. It also found unacceptable their reliance on Kapani Resorts not owning the Greater Kailash Property to claim that no reliefs could be granted over the property under section 9 of the Arbitration Act. The Court noted that under section 9(1)(ii)(c) of the Arbitration Act, the court can grant interim protection for the detention or preservation of property involved in arbitration. The Greater Kailash Property and fetter on its marketable title is subject matter of the dispute. The title became available to Virendra only because the Kapani Resorts, a company controlled by Virendra and Vaibhav was funded by Manmohan to pay the debt of SIDBI while the reciprocal promise of issuing shares remained unfulfilled. The Court further observed that Virendra and Vaibhav have reaped the benefit of being discharged from their guarantee obligations and the release of the Greater Kailash Property and yet deprived the investor of the rights owed. Based on the above, the court observed that all these are subject matter of merits that the Arbitral Tribunal, as and when constituted, would examine. Pending such consideration by the Arbitral Tribunal, it would only be appropriate for the court to issue directions to preserve the subject matter of the dispute and to balance the competing interests of the parties. The court observed that the reliance on Sanghi Industries Limited vs. Ravin Cables Ltd. and Another (2022) is misplaced as that case involved serious doubts about the quantum of disputed monies whereas in the present case the company law clearly mandates a refund of Manmohan's investment. It further added that besides, in this case, the Respondents are, prima facie, cocking a snook at the obligations owed by them under statute and under contract. They have not made out any justification as to why they have not allotted shares to Manmohan, choosing to instead focus on arguing principles of law governing grant of interim relief. The court also observed that it is an admitted position that shares have not been allotted to Manmohan, and the monies have been utilised by Kapani Resorts to repay SIDBI. This is prima facie, a clear misappropriation of funds in the eyes of company law – it requires that share application money not be used for anything other than adjustment against share capital, and refund of share application money when the deadline to allot is missed. Accordingly, the petition was allowed and Respondents were injuncted from alienating any interest in the Kapani Resorts and Greater Kailash Property. Case Title: Manmohan Kapani Through Special Power of Attorney Chandani Sood Versus Kapani Resorts Pvt. Ltd. and Ors. Citation: 2025 LiveLaw (Bom) 106 Mr. Rohan Rajadhyaksha a/w. Shlok Chandra, Ms. Pallavi Singh, Mr. Sankalp Sharma, for Petitioner. Mr. Farhan Dubash i/b Adv. Mithila Damle, for Respondent Nos. 1 to 3.Click Here To Read/Download The Order

Bombay High Court Injuncts Owner Of Kapani Resorts From Alienating Any Interest In Properties Until Conclusion Of Arbitral Proceedings

Mohd Malik Chauhan

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