Court holds prima facie liability established in Rs.6.93 crore claim for unpaid share sale consideration; defendants ordered to deposit security pending trial to protect plaintiff's monetary claim despite defendants' allegations of fraud and breach.
In a significant commercial dispute relating to a share sale contract, the Calcutta High Court exercised its inherent powers under Section 151 of the Code of Civil Procedure, 1908 (CPC) to direct the defendants to furnish security of Rs.5.43 crore as an interim protective measure. The judgment was delivered by Justice Aniruddha Roy on October 6, 2026, in the case of Pulak Modi & Anr. v. Jitendra Agarwal & Ors.
The plaintiffs, shareholders holding 50% equity and preference shares in defendant company Ambicon Ventures Pvt. Ltd. (defendant no.5), entered into a Share Sale Contract dated April 14, 2023, agreeing to sell their shares to the defendants for a total consideration of Rs.7.93 crore. The plaintiffs had transferred their shares and part possession/control of a steel plant in Georgia, as per the contract, receiving an initial payment of Rs.1 crore. However, the defendants withheld the remaining balance of Rs.6.93 crore alleging fraud, non-delivery of effective possession, and encumbrances on the plant.
The defendants contended that the steel plant was not operational and that the plaintiffs misrepresented the plant's status, leading them to terminate the contract and seek refund of the initial payment. The plaintiffs countered that the contract explicitly provided for sale on an "as is where is" and "as is what is" basis, with no warranties regarding the plant, and that the defendants had accepted physical possession of the plant.
The Court noted that the defendants had admitted to the execution of the contract, the transfer of shares, and receipt of possession of the steel plant on April 14, 2023. A contemporaneous document signed by defendant no.1 acknowledged receipt of "khas physical possession" of the plant on an "as is where is" basis. The defendants had not raised objections regarding possession until after the demand notice for the balance payment was issued in March 2024.
Given these facts, the Court found a prima facie case in favor of the plaintiffs for recovery of the unpaid balance consideration. It held that disputed allegations of fraud and breach of contract raised by the defendants were triable issues to be adjudicated at the final trial and could not be decided at the interlocutory stage.
The Court further observed that an earlier ad interim restraint on the defendants' bank account had become ineffective as the account held only Rs.72,822 at the time of the order, a fact not disclosed by the defendants. This conduct was held to affect their commercial credibility adversely.
Invoking its plenary inherent powers under Section 151 CPC, independent of the procedural provisions under Order XXXVIII or Order XXXIX, the Court directed the defendants to deposit Rs.5.43 crore with the Registrar, Original Side of the Court, after adjusting the Rs.1 crore already paid. The amount was to be invested in an interest-bearing fixed deposit in a nationalized bank, kept in auto-renewal mode, pending the final outcome of the suit. The Court clarified that this direction for security is only a protective interim measure to safeguard the plaintiffs' claim and does not convert the unsecured debt into a secured debt or amount to final adjudication.
The Court emphasized that such inherent power can be exercised at any stage of the suit, including interlocutory stages, especially where the defendant's solvency or commercial probity appears doubtful and there is a prima facie liability. This approach aligns with recent Supreme Court precedents affirming the power of civil courts to demand security to ensure satisfaction of future decrees.
The defendants' appeal against the interim orders was dismissed by the Division Bench with a direction to dispose of the main application expeditiously. The Court held that the question of fraud or breach would be subject to trial, and the present interim directions were to maintain status quo and protect the claim of the plaintiffs.
This judgment underlines the robust application of Section 151 CPC as a tool for commercial courts to protect monetary claims, balancing the rights of plaintiffs to secure their dues and protecting defendants from premature loss of assets.
Bottom Line:
Code of Civil Procedure, 1908, Section 151 - In a commercial money claim arising out of a share sale contract, Court can direct defendants to secure plaintiff's claim at interlocutory stage, even dehors Order XXXVIII Rule 5 or Order XXXIX, where prima facie liability is shown and defendants' commercial credibility appears doubtful - Such direction does not convert an unsecured debt into a secured debt and is only a protective interim measure.
Statutory provision(s):
Code of Civil Procedure, 1908 Section 151, Order XXXVIII Rule 5 CPC, Order XXXIX CPC, Commercial Courts Act, 2015
Pulak Modi v. Jitendra Agarwal, (Calcutta) : Law Finder Doc Id # 2991548
