Malhotra v Malhotra
| Jurisdiction | England & Wales |
| Judge | Mr Justice Blair |
| Judgment Date | 31 January 2014 |
| Neutral Citation | [2014] EWHC 113 (Comm) |
| Docket Number | Case No: 2012 Folio 463 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 31 January 2014 |
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Blair
Case No: 2012 Folio 463
Roger Masefield QC and Joanne Box (instructed by Eversheds LLP) for the Claimant
Tom Weisselberg (instructed by Mishcon de Reya LLP) for the Defendants
Hearing dates: 17 and 24 January 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is an application by the defendants, Mr Rajinder Kumar Malhotra and Mr Rajiv Malhotra for an order for an inquiry as to damages under the cross-undertaking in damages given by the claimant, Mr Rakesh Malhotra, in support of a without notice injunction granted on 26 March 2012 by Gloster J. The injunction was discharged by an order dated 16 November 2012 made by Walker J following a judgment given on 30 October 2012. The judge's order provided that any application by the defendants to enforce the cross-undertaking in damages had to be brought within six months.
By their application dated 15 May 2013 and draft order attached, the defendants seek to recover damages that they say they have suffered as a result of the injunction granted on 26 March 2012 and continued until its discharge on 16 November 2012. In essence, their case is that the injunction curtailed their ability to regain control of companies that were being mismanaged by the claimant and as a result, substantially reduced the value of their shareholdings in those companies. The application is opposed by the claimant on the ground that the defendants have failed to adduce credible evidence that they have suffered loss and damage as a result of the granting of the injunction. He says that if there was any damage it was not caused by the injunction, and is recoverable only by the companies, not by the defendants, under the "reflective loss" principle.
The question to be decided at this time is whether as the claimant says, the court should dismiss the application for an inquiry, or whether as the defendants say, the objections taken are better dealt with during the substantive inquiry, and an order should be made.
The evidence before the court is in the form of witness statements made by Mr Rajinder Kumar Malhotra and Mr Rakesh Malhotra, and a witness statement by Mr Sneha Jaisingh the lawyer acting for claimant in proceedings between the parties which are currently taking place in India. At the end of the first hearing on 17 January 2014, I asked Mr Tom Weisselberg, counsel for the defendants, to prepare a draft Points of Claim for the inquiry into damages. The reason was that if the defendants could not plead a credible case then the inquiry should not go any further, and if they could then it would be clear what their case was. Counsel prepared a draft for the adjourned hearing on 24 January 2014, and this has helped to identify the issues.
The facts
As the defendants say in their skeleton argument, these proceedings are part of a wider unfortunate family dispute — the claimant is the son of the first defendant and the brother of the second defendant and is locked into a bitter family struggle over the control of certain Indian companies. The facts are set out in detail in the judgment of Walker J ( [2012] EWHC 3020 (Comm)) and I need not repeat them.
The dispute arises out of the restructuring of the business, which was founded by the first defendant in 1949. The English court came to be involved because contractual documentation was governed by English law and included LCIA arbitration provisions.
The proceedings concern an Indian company called Transauto & Mechaids Private Limited ("Transauto"), which is owned by the first defendant, and a number of its subsidiary companies owned by the first defendant through Transauto (or through personal shareholdings). These subsidiaries, which are collectively referred to as the "Affiliated Companies", and each of which is an Indian company, are Vidyut Metallics Private Limited ("VMPL"), Unique Properties and Securities Private Limited ("Unique"), Supermax International Private Limited ("SIPL"), R.C.C. (Sales) Private Limited ("RCC") and Emerald Investment Private Limited ("Emerald").
Following the restructuring, ownership of these companies remained in Mr Malhotra senior, the first defendant, but the Board of Transauto was controlled by his son, the claimant. At the beginning of 2012, the dispute led to the institution of legal proceedings. Again, these are set out in detail in the judgment of Walker J. It is however necessary to recapitulate the main points, since they have featured in the claimant's submissions on this application.
On 3 February 2012, four petitions were issued in the Mumbai court by the first defendant and others under the Indian Companies Act 1956. They concerned four companies, namely Transauto, Unique, VMPL and SIPL, which together with their board members, were the respondents to the petitions.
On 9 February 2012, the Mumbai court made an order for interim relief pending the outcome of the proceedings which included the following:
i) The Respondents shall not utilize, invest or deal in any manner the funds, monies and securities of the company (including bank account) except for the purpose of making statutory payments that may be required to be made to any government authorities and salaries of the employees in the ordinary course of business until further orders. ii) The Respondents shall not dispose of, transfer, encumber or create any charge on the assets of the company including the immovable properties until further orders. …
On 11 February 2012 a similar petition was issued in the Chennai court which concerned RCC. In that case however, the court declined an application by the petitioners for interim relief. (These proceedings have since been discontinued, and an EGM was held on 30 November 2012, at which the board of directors of RCC was replaced with directors favourable to the first defendant.)
The Transauto petition sought the removal of the board of directors of the company. In an effort to regain control, on 20 March 2012, the first defendant served notices on the board of directors calling upon the company to convene an extraordinary general meeting for the purpose of removing the directors and appointing replacements.
These steps prompted the claimant to issue proceedings in England seeking an anti-suit injunction. His case was that the Indian proceedings sought to undo the arrangements that had been made for working capital under the restructuring agreements, and that the proceedings were a breach of the LCIA arbitration clause.
At an ex parte hearing on 26 March 2012, Gloster J granted the injunction. There are two parts to notice. Firstly, the order restrained the defendants from continuing the five sets of proceedings that had been commenced in India in February 2012. Secondly, it prevented the defendants from holding the extraordinary general meeting of Transauto at which the directors (who were on the claimant's side) would be replaced.
In the usual way, the claimant provided a cross-undertaking in damages in case it was subsequently held that the order should not have been granted. The undertaking provided that, "If the Court finds that this Order has caused loss to the Respondents or any of them or any other party served with or notified of this Order and decides that the Respondents or other party should be compensated for that loss, the Applicant will comply with any Order that the Court may make to that effect". The "Respondents" are the defendants, Mr Rajinder Kumar Malhotra and Mr Rajiv Malhotra.
The reference to "other party" reflects the fact that, as a term of granting the order, in the usual way the claimant also had to undertake to comply with any order that may be made to compensate third parties notified of the injunction. It is not in dispute that the Affiliated Companies can qualify as third parties for these purposes, and so could (in principle) make their own application. The defendants' case is that they are precluded from applying under the cross-undertaking because of malicious action taken by the claimant in the Indian courts to prevent them regaining control of the companies.
As I have said, the order in the English proceedings was discharged on 16 November 2012 pursuant to Walker J's judgment of 30 October 2012. However, the Indian proceedings continued, evidence as to their course being contained in the fifth witness statement of Mr Rajinder Kumar Malhotra, and in the chronology attached to Mr Jaisingh's witness statement.
The first defendant explains in his evidence that an extraordinary general meeting of Transauto occurred on 31 October 2012, and that he succeeded in replacing the directors of Transauto and expected to be able to regain control of the Affiliated Companies.
However, this did not happen. I do not think that it is in dispute that this was because of further action in the Mumbai court, though the parties differ as to what happened and whether what happened was appropriate or not. As a matter of fact, following a hearing on 7 November 2012, the court recorded that an undertaking had been given by counsel that the status quo would be retained pending the hearing of the petitions. This was referred to in argument as the "status quo undertakings".
The first defendant says that the record of the undertaking was a mistake and that no undertakings had been given, and that this was corrected on 3 January 2013 as regards Transauto. Similar orders were made in...
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