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Developer Group India Pvt. Ltd. vs. Surinder Singh Marwah and Others

Civil Appeal · 2023 INSC 84Decided 25 Jan 2023
Civil Appeal No. 523 of 2023
B.R. Gavai · Vikram Nath

Background

In 2008 two investors (respondents 1 and 2) put money into the "Festival City Mall" project in Ludhiana promoted by a company run by one Dr. Rajesh Aeren, on the promise of assured returns and 17 shops; the project stalled, nothing was paid, and in 2009 they filed a winding-up petition in the Delhi High Court, which put the company into liquidation in 2016. A police charge-sheet alleged that investor money had been siphoned off through intermediate companies to six related land-owning companies that bought 11 properties (115 acres) for a separate real-estate project. In 2014 the appellant, a foreign-investment company with Singapore and Japanese backers, had signed a Rs. 43 crore development agreement with those six companies and invested around Rs. 66 crore. The investors obtained interim orders freezing all 11 properties; a Single Judge vacated those orders in February 2019 (ordering a chartered-accountant audit instead), but the Division Bench restored the freeze in December 2019.

Decision Breakdown

The Supreme Court partly allowed the appeal and set aside the Division Bench's blanket freeze. It declined to decide the larger legal questions (whether a Company Court can act against non-party companies under Section 339), instead deciding on the classic injunction principles of prima facie case, balance of convenience and irreparable injury. Even assuming all defrauded investors together had claims of about Rs. 31 crore, freezing an entire 115-acre project was disproportionate; the High Court should have crafted a narrower order protecting the investors rather than stalling everything and causing irreparable harm to the developer. The Court noted that the interim audit report of January 2023 showed Rs. 66.18 crore had come into A.R. Developers from a share sale and Rs. 52.76 crore of it went to the six land companies as advances. Accepting the appellant's offer, the Court directed the appellant and respondent 4 to file undertakings within four weeks not to create third-party rights over a specified 5-acre parcel (valued at about Rs. 25 crore), subject to further orders of the Single Judge, who was asked to pass final orders after the full audit, preferably within a year. No costs.

Lesson Learnt

An interim injunction must be proportionate to the claim it protects. Courts should secure a creditor's interest with the least restrictive order, not freeze a much larger asset or project, especially where third parties who are strangers to the dispute would be hurt.

Official source (sci.gov.in)View Judgment (PDF)

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