Madras Refineries Ltd. vs Southern Petrochemical Industries Corporation Ltd. and others

K.A. Thanikkachalam, J.—In this batch of original side appeals, there are eight cases. Out of the said eight appeals, Madras Refineries

Limited (MRL), 552, Anna Salai, Teynampet, Madras-600 018, is the appellant in O.S.A. Nos. 171 to 174 of 1996. The appellant in the above

said original side appeals is the plaintiff in C.S. Nos. 67 and 73 of 1996, and applicant in O.A. Nos. 77 and 78 of 1996, in C.S. No. 67 of 1996,

and O.A. Nos. 86 and 87 of 1996, in C.S. No. 73 of 1996.

Original Side Appeals Nos. 171 to 174 of 1996 are filed by the applicant/plaintiff against the common order, dated July 2, 1996, passed by the

learned single judge of this court in O.A. Nos. 77 and 78 of 1996, in C.S. No. 67 of 1996, and O.A. Nos. 87 and 86 of 1996, in C.S. No. 73 of

1996, respectively.

Original Side Appeals Nos. 190 to 193 of 1996 are filed by Southern Petrochemical Industries Corporation Limited, Madras-i, and SPIC

Petrochemicals Ltd., Madras-32, defendants Nos. 1 and 2 in C.S. No. 67 of 1996, and defendants Nos. 6 and 7 in C.S. No. 73 of 1996, against

the aforesaid order of the learned single judge of this court, dated July 2, 1996.

O.A. No, 77 of 1996 in C.S. No. 67 of 1996, was filed by the plaintiff praying for an order of temporary injunction, restraining the first

respondent/first defendant from implementing the PTA/PFY project through the second respondent or through its agent or any other person,

whether directly or indirectly, pending disposal of the above suit.

O.A. No. 78 of 1996 in C.S. No. 67 of 1996 was filed for an order of temporary injunction restraining the first respondent from implementing

the aromatic project through the fourth respondent and/or through its agent or any other person, whether directly or indirectly, pending disposal of

the above suit.

O.A. No, 86 of 1996 in C.S. No. 75 of 1996 was filed by the plaintiff praying for an order of temporary injunction, restraining the seventh

respondent from carrying on any further construction or other activities on the 168.38 acres of land, more fully described in the schedule to the

judge''s summons and in the possession of the seventh respondent on account of the acts of breach of trust committed by respondents Nos. 1 to 6.

O.A. No. 87 of 1996, in C.S. No. 73 of 1996 was filed by the plaintiff praying for an order of interim mandatory injunction directing the

seventh respondent to hand over possession to the eighth respondent of the 168.58 acres of land, more fully described in the schedule to the

judge''s summons in respect of which possession was obtained as a result of acts of breach of trust committed by respondents Nos. 1 to 6.

C.S. No. 67 of 1996 has been filed by the Madras Refineries Limited, Madras-600 018, hereinafter called as ""MRL"", praying for a judgment

and decree :

(a) that the PTA/PYF project being implemented by the first defendant through the second defendant herein is in breach of trust and in violation of

the memorandum of understanding, dated January 17, 1989, entered into between the plaintiff and the first defendant :

(b) declaration that the aromatics project proposed to be implemented by the first defendant through the fourth defendant for the manufacture of

paraxylene and other aromatic products, is in breach of trust and contrary to the memorandum of understanding dated January 17, 1989, entered

into between the plaintiff and the first defendant :

(c) for a consequential permanent injunction restraining the first defendant acting by itself or through the second defendant, its agent or any other

person, acting under the directions of the first defendant, from taking any further steps in implementing its PTA/PFY project; and

(d) for a permanent injunction restraining the first defendant acting through the fourth defendant or by itself or through its agent or any other person

from taking any steps in implementing its aromatic projects.

C.S. No. 73 of 1996 has been filed by ""MRL"" praying for judgment and decree as under

(a) a declaration that defendants Nos. 1 to 6 have committed fraud and breach of trust by illegally and unauthorisedly transferring the 168.38 acres

of land, more particularly described in the plaint schedule, allotted to the eighth defendant, in favour of the seventh defendant and for a

consequential declaration that the said lands are being held by the seventh defendant in trust for the eighth defendant

(b) a permanent mandatory injunction directing the seventh defendant to hand over possession to the eighth defendant the 166.38 acres of land,

more fully described in the plaint schedule in respect of which possession was obtained as a result of acts of breach of trust committed by

defendants Nos. 1 to 6

(c) a permanent injunction restraining the seventh defendant from carrying on any further construction or other activities on the 168.38 acres of

land, more fully described in the plaint schedule, illegally obtained and in the possession of the seventh defendant, on account of the acts of breach

of trust committed by defendants Nos. 1 to 6.

The respondents, in their various counters, contested the applications, stating that no interim orders should be given in the applications filed by

the plaintiff.

Affer hearing learned counsel appearing for all the parties in the applications, by a common order, dated July 2, 1996, the learned single judge

of this court, held as under, in the aforesaid original applications

(i) That Madras Refineries Limited, the plaintiff/applicant in all the applications, do within eight weeks from this date, i.e., on or before August 27,

1996, deposit a sum of Rs. 75,68,00,090 (rupees seventy-five crores and sixty-eight lakhs only) into this court, to the credit of the above suits in

C.S. Nos. 67 and 73 of 1996, and the said amount is equal to the sum advanced by SPIC to SPC as on March 15, 1996, towards the share

capital;

(ii) that on such deposit being made as per clause (i) supra, SPC and SAL shall amalgamate with AROCHEM and that the project now being

implemented by SPC shall be implemented by AROCHEM thereafter

(iii) that neither SPC nor SAL shall make any public issue nor shall they induct any one as shareholder other than MRL in the meanwhile

(iv) that MRL the plaintiff in both the suits shall also give an undertaking to invest further shares up. to 26 per cent. of the equity of AROCHEM

and the same shall not be less than Rs. 758 crores (rupees seven hundred and fifty-eight crores only) as recommended by IDBJ in its appraisal

report submitted to AROCHEM and such investment shall be so made, as to match that of SPIC in AROCHEM;

(v) that SPC and SAL being the corporate veils for SPIC as any how, shall not change that character so as to ensure amalgamation and that the

SPIC which has repeatedly promised integration and merger shall not be allowed to wriggle out of the memorandum of understanding (MoU) and

carry on with SPC and SAL projects on its own to the exclusion of MRL if MRL demonstrates its readiness to invest

(vi) that on amalgamation of SPC and SAL with AROCHEM the deposit if made by MRL as per clause (i) supra, the same shall be paid to

AROCHEM for being credited towards shares for MRL;

(vii) that, as the projects of SPL and ARUCHEM having been appraised by IDBI, the MRL shall not be liberty to object to the product mix and

the costs as estimated/revised by IDBI to ensure that MRL does not in its short sightedness endanger the project by raising disputes about the

product mix and costs

(viii) that on complying with conditions mentioned in clauses (i) and (iv) supra by MRL and in the case SPL and SAL, do not amalgamate with

AROCHEM within eight weeks from the date of such deposit as mentioned in clause (i) supra, SPL and SAL, their agents, servants, and

representatives be and are hereby restrained by an injunction from proceeding further with their projects and continuing their violation of MoU with

impunity, and disobey the directions of this court and

(ix) that if MRL fails to comply with clauses (i) and (iv), within the time specified therein, SPL and SAL shall be at liberty to implement the project

on their own subject to MRL''s claims for damages, if any, for the breach of MoU.

The submissions made by the learned senior counsel Mr. K. T. S. Tulsi for the appellant/plaintiff in O.S.A. Nos. 171 to 174 of 1996, which

are filed against the orders passed in C.A. Nos. 77, 78, 86 and 87 of 1996 in C.S. Nos. 67 and 73 of 1996 are as follows :

The judgment and order of the learned single judge is contrary to law, contrary to the findings, contrary to the pleadings, contrary to the

prayers made in the applications and puts a premium on the illegalities found to have been committed by the respondents/defendants. The learned

single judge has erred in directing the appellant to undertake the aromatics and petrochemical projects through the third respondent herein based

on the project appraisal already carried out on behalf of the second respondent even after holding that the memorandum of understanding (MoU)

is operative and binding on the parties. Interim orders should have been granted without attaching any conditions to it in the light of the categorical

finding of breach of contract and trust committed by the first respondent. The learned single judge has erred in failing to appreciate that the Public

Investment Board (PIE) while agreeing to place before the Cabinet Committee on Economic Affairs (CCEA) the proposal to include a PFY plant

in the project directed the appellant to proceed with the implementation of the project from naphtha to PTA stage, i.e., for an investment of Rs.

1,725 crores. Though the learned single judge has recorded a finding that the first respondent formulated a strategy for taking over the lands and

implementing the project on its own during the subsistence of the Joint Venture Company (WC) to reduce the JVC to a state of coma, but did not

grant the interim orders sought for by the appellant. The first respondent unilaterally excluded the appellant from the PTA/PFY projects by

conveying a wrong impression to the State Government that the appellant and the third respondent had agreed to such exclusion and thereby

induced the state Government to transfer possession of land from the third respondent to the second respondent after preventing the board of

directors of the third respondent from having any say in the constitution of the company executing the PTA/PFY project. The learned single judge

has erred in refusing to grant the interim orders sought by the appellant despite recording a finding to the effect that the first respondent obtained

technology from the same source as the third respondent (from MPC) and prevented the third respondent from making payment to MPC for the

PTA technology by dissenting in the board meeting of the third respondent. The learned single judge also erred in refusing to grant the interim

orders sought by the appellant despite recording a clear cut finding that the first respondent was determined to set up a PTA plant through the

second respondent and, therefore, did not wish to pay the technology fee for the PTA plant through the third respondent as it had no intention of

allowing the said third respondent to put up the PTA plant. The learned single judge has erred in refusing to grant the interim orders sought by the

appellant in spite of holding that the first respondent incorporated the fourth respondent without seeking or obtaining the approval of the appellant

in breach of the negative covenant contained in cl. 8.2 of the MoU. The environmental clearance obtained by the third respondent was also

appropriated by the first respondent through the second respondent by reporting to the Government of India that its PTA/PFY project was a

substitute for the third respondent''s project at the same location. The materials facts show in no uncertain terms the breach of negative covenant in

the MoU by the first respondent. The first respondent''s preparedness to integrate/merge respondents Nos. 2 and 4 with the third respondent is but

a follow pretence and that the continuance of the project by the first respondent not only prejudicially affects but is intended to frustrate the MoU.

The appellant has established a strong prima facie case of breach of negative covenant in the MoU on the part of the first respondent acting

through respondents Nos. 2 and 4. The first respondent cannot contend that though in law it is bound by the terms of MoU, but as a matter of fact,

it should have the opportunity to ignore the terms of the MoU and proceed with the project on its own to the total exclusion of the appellant. There

has been no acquiescence on the part of the appellant in making the MoU a dead letter. The first respondent repeatedly held out promises of

integration/merger without taking any steps in that direction. The appellant cannot be penalised for having acted on the first respondent''s promises

of integration and that the appellant cannot be refused reliefs on the ground of laches or acquiescence. The entire project of the third respondent

from naphtha to PFY was now sought to be done by the first respondent through the respondents Nos. 2 and 4 to the total exclusion of the

appellant. The appellant had no option but to Institute the suit in view of the persistent and continuing breach by the first respondent accompanied

by false promises of integration merger. The first respondent cannot implement the projects on its own and leave the third respondent to a trophy

on the ground that there was delay on the part of the Government of India in approving the revised project cost and scope. The learned single

judge was wrong in concluding that the appellant should accept the product mix of the second respondent without questioning its viability and

suitability for the projects for which the third respondent was incorporated despite the fact that it is contrary to the terms of MoU. The learned

judge also erred in holding that the appellant should not raise any objections to the cost estimated/revised by the Industrial Development Bank of

India (IDBI) on behalf of the second respondent. Apart from being bound by the terms of the MoU, the appellant, being a Government of India

undertaking, is bound to follow the regulatory mechanism of the Government of India for all Government companies. In particular, notwithstanding

the appraisal of the project for funding purposes by IDBI at the instance of the second respondent the appellant would still be required to seek the

approval of the PIB and CCEA. The learned judge has erred in directing the appellant to make an investment of Rs. 75.68 crores in a project that

is being executed by the second and fourth respondents in breach of the MoU. The appellant cannot be saddled with a liability to accept the

estimated project costs of the second and fourth respondent unconditionally and without subjecting the same to revaluation. The project appraisal

by IDBI was not in respect of a composite project form naphtha to PFY. The learned judge has erred in directing the appellant to invest in 26 per

cent. equity in the third respondent without providing an opportunity to the appellant to reappraise the viability of the project in the light of the

change in product mix, production capacity and without re-evaluating the contracts entered into by the second and fourth respondents. The learned

judge erred in directing the appellant to invest in 26 per cent. equity in the third respondent-company without either by itself or through an

independent agency appraising the viability of the project of the second and fourth respondent or re-evaluating the contracts. The learned judge has

erred in moulding the reliefs in such a manner as to leave the appellant in a much worse position than it was before instituting the suit. The learned

judge has erred in granting the reliefs that are outside the scope of the reliefs sought for in the suit and the pleadings of the parties. If the impugned

order is accepted by the appellant, nothing survives in the suit and the respondents benefit as a result of acting in breach of MoU with impunity.

The learned judge has erred in directing the second respondent as the said third respondent had decided at the board meeting held on February 9,

1995, to buy out the contracts entered into by the second respondent after sorting out the modalities through the legal and financial committees.

The learned judge has erred in directing the amalgamation of respondents Nos. 2 and 4 with the third respondent without appreciating the

procedural requirements for such amalgamation. In effect, by virtue of the order of the learned judge, the shareholders of the abovementioned three

companies would be compelled to vote in favour of the amalgamation thereby depriving them of their valuable rights as shareholders. The learned

judge failed to take into account that such amalgamation would involve the rights of the creditors of the respondents who have the right to raise

objections to the amalgamation. The appellant has made out a prima facie case of breach of contract and breach of trust and irreversible injury will

be caused to the appellant, if interim relief, as prayed for, is not granted. The learned judge has erred in directing the appellant and the first

respondent to proceed with the implementation of the joint venture project on a changed product mix and production capacity. This would

necessitate amendments to the MoU which cannot be effected without the prior consent of the Government of India. The learned judge has erred

in directing the appellant to amalgamate with the second and fourth respondents without objecting to the costs. This direction is contrary to the

terms of the MoU which requires decision to be made by mutual consent. The learned judge had erred in holding that the second and fourth

respondents can go ahead with the implementation of the project if the appellant does not deposit Rs. 75.68 crores into court within eight weeks.

The learned judge also erred in refusing to grant an interim injunction of the construction activities (prayer made in O.A. No. 86 of 1996, in

C.S. No. 73 of 1996) on the 168.38 acres of land which was unauthorisedly and illegally transferred from the eighth respondent to the seventh

respondent on account of acts of breach of trust and fraud committed by respondents Nos. 1 to 6. The environmental clearance which was

originally granted to the eighth respondent was appropriated by the sixth respondent on behalf of the seventh respondent and when this fact was

brought to the notice of the Ministry of Forests and Environment, New Delhi, the environmental clearance of the seventh respondent was cancelled

on August 25, 1995, and reissued in favour of the eighth respondent. The said construction activity is illegal in the light of para. 5(c) of the

Environmental Impact Assessment and Development Projects Notification, 1994. The sixth and seventh respondents have committed breach of

contract and trust and the construction activities amount to continuation of the activities in breach of contract. The sixth respondent had conveyed

the wrong impression to the State Government that the appellant and the sixth respondent hod agreed to the incorporation of a company (without

the participation of the appellant herein) for undertaking a PTA/PFY project and thereby induced the Government to transfer to the seventh

respondent possession of the land that had been originally allotted to the eighth respondent. The lands were transferred to the seventh respondent

after preventing the board of directors of the eighth respondent from having any say in the constitution of the seventh respondent. The object

behind getting the land transferred to the seventh respondent was to exclude the appellant not only from the PFY project but also from the

PTA/aromatics projects as well. The project director and secretary of the eighth respondent had transferred possession of the land in disregard of

their duties as employees of the said company in defiance of the express instructions of the chairman, and contrary to the decisions taken at the

board meeting of the eighth respondent held on March 26, 1994. The board of directors of the eighth respondent would not have permitted lands

to be handed over and without this land, the sixth respondent''s plan for the seventh respondent would have been a non-starter. The fully

developed land situated in an industrial belt close to the port and in relation to which environmental clearances have already been given to the

eighth respondent was of considerable importance to the sixth and seventh respondents which, therefore, acted in breach of trust collusively with

respondents Nos. 1 to 5 in order to divest the eighth respondent of this valuable land. The land is admittedly (?) by the sixth respondent both of

which are parties to the suit and against which an enforceable decree can be made. The lands were acquired for the benefit of the appellant which

is a Government of India undertaking and, therefore, the acquisition was for a public purpose. The sixth respondent has formulated its strategy for

taking over the lands and implementing the project on its own in view of the fact that the land had been acquired, developed and environmental and

pollution control clearances had been obtained in respect thereof. The High Power Committee constituted by the Government of Tamil Nadu had

delegated powers to the board of directors of the eighth respondent to settle the details of the new company to be incorporated for the purpose of

putting up a PFY plant on the land to be reallocated. In fact, the seventh respondent was not specified as the allottee and the project specified was

only PFY and not PTA/PFY. The sixth respondent had already incorporated the seventh respondent for the purpose of putting up a PTA/PFY

plant was not mentioned at the High Power Committee Meeting. The sixth respondent induced the State Government to transfer the lands to the

seventh respondent by conveying the wrong impression that the appellant and the eighth respondent had agreed to the exclusion of the appellant

from the PTA/PFY project after preventing the board of directors of the eighth respondent from having any say in the constitution of the company

executing the PTA/PFY project. The State Government by letter dated June 22, 1994, reallocated the land largely on the basis of the letters from

the President of the sixth respondent erroneously indicating that the High Power Committee had decided to reallocate 150-170 acres of land to the

seventh respondent for setting up a PTA/PFY project whereas, in fact, the recorded decision was to allocate the land to a new company, the

composition of which is to be decided by the board of directors of the eighth respondent for setting up the PFY plant. The 168.38 acres of land

were unauthorisedly transferred by the nominee officers of the sixth respondent without the approval of the board of directors of the eighth

respondent. The land in the possession of the sixth respondent is the targeted location of the sixth respondent''s aromatics project to be

implemented through SPIC Aromatics and Chemicals Corporation Limited and the sixth respondent had written a letter dated June 16, 1995, to

the State Government for the allocation of an additional 200 acres of land for this purpose from the land allotted to the sixth respondent. The

learned judge has erred in not granting an interim mandatory injunction retransferring possession of 168.38 acres of land from the seventh

respondent to the eighth respondent.

On the other hand, learned senior counsel, Shri Gopal Subramaniam, appearing for respondents Nos. 1 and 2, herein submitted as under :

Regarding the contention of the appellant that the acceptance of the Government of India''s suggestions dated December 24, 1991, amounts to

acceptance of conditions which cannot be gone back upon, learned senior counsel for respondents Nos. 1 and 2 submitted that the MoU dated

January 17, 1989, did not refer to any approvals by either pre-PIB, PIB or CCEA. The performance of the obligations under the MoU was not in

any way dependent upon or linked with such clearances. The letter dated January 4, 1992, addressed by the appellant to Dr. A. C. Muthiah,

communicated the advice of the Government of India in relation to the source of financing of foreign exchange only.

On January 4, 1992, Dr. A. C. Muthiah, confirmed the acceptance of these guidelines. Such an acceptance was understandable having regard to

the then prevailing economic scenario. The CCEA clearance letter dated May 28, 1992, did not advert only to foreign exchange restrictions, but

also (a) project being for naphtha to PTA (b) estimated cost of the project being Rs. 1,725 crores (c) debt-equity ratio of 3 1 to be maintained (d)

each promoter''s contribution would be to the extent of 26 per cent. (e) no free foreign exchange would be released for the project and (f) no

rupees loan from financial institutions would be permitted. These conditions were unworkable in view of the changed economic scenario after

1992, i.e., delicensing of PTA/PFY under the New Industrial Licensing Policy and the Budget of 1993. While on the one hand because of slashing

of import duties of many aromatic components, naphtha/PTA was no longer viable and on the other hand the other conditions such as debt-equity

ratio, promoters'' contribution, restriction on foreign exchange, etc., were also no longer valid. Even before the liberalisation which took place in

February to April, 1993, IDBI in its report dated December 25, 1992, while carrying out the project appraisal of AROCHEM had adverted to

means of financing with particular reference to a high debt leverage which is likely to put the company at a disadvantage particularly in a

competitive environment. With the new economic liberalisation PTA and PFY have become delicensed and other competitors were also

intervening the field affecting the demand supply ratio. This concern was reflected in the note which was circulated to the board at its meeting held

on April 29, 1993. In the note to the board, the post-budget scenario containing changes in the reduction of customs duty on project imports from

55 per cent. to 35 per cent. and reduction in customs duty on PTA, orthoxylene, benzene, paraxylene and other chemicals were adverted to. The

excise duty on domestic capital goods came down from 17.25 per cent. to 10 per cent. Long term lending rates came down by 1 per cent. In

order to make the project viable, it was suggested in the note submitted to the board an increase in the benzene capacity on the one hand and also

the addition of PFY unit. It was further proposed that the Government of India must be requested to reduce the debt-equity ratio from 3 : 1 to 2 1

and the promoters'' contribution from 26 per cent. each to 20 per cent. each. This note was the subject matter of discussion in the board meeting

held on April 20, 1993. In the board meeting held on April 29, 1993, the board of directors of AROCHEM decided that the benzene capacity

had to be increased from 23,180 MT to 90,000 MT and the PFY plant had to be established and MRL shall seek the approval from the

Government of India to reducing the debt equity ratio to 21 and the promoters contribution to 20 per cent. each. The board noted that MRL also

had to get the approvals from the Government of India for the revived project scope. i.e., inclusion of PFY and also for reducing the equity

participation by the promoters and the debt equity ratio which was expected to be carried out in two stages. No action was taken by MRL in the

matter of obtaining any of the approvals either for PFY or for that matter of fact in getting the onerous conditions waived. IDBI in their revised

appraisal had recommended to implement the project in two stages The conditions attached to the CCEA approvals has to be withdrawn before

going for the public issue. It was also emphasised that AROCHEM should not place itself at a considerable disadvantage against existing domestic

manufacturers in the present scenario of liberalisation which would be a poor reflection of management skill. But these suggestions were not

forwarded by the appellant to the Government of India. In view of the above, the submission of the appellant that Dr. A. C. Muthiah had already

accepted the onerous conditions imposed by CCEA and made an attempt to withdraw from those conditions and that the appellant was not duty

bound to get the conditions changed and yet out of a spirit of accommodation took up to the Government of India for change of conditions is

incorrect.

Learned senior counsel submitted that the contention of the appellant that with reference to the various clauses of the MoU the actions of SPC

did not conform to the said clauses deserves to be rejected. SPC is a separate corporate entity and it cannot act on the MoU entered into between

the appellant and SPIC and there is no question of following the terms of the MoU dated January 17, 1989. Likewise, the articles of association of

AROCHEM cannot be expected to be complied with by SPC which has its own articles of association. The MoU is totally silent about the

procedure which may be followed by the Government of India in the matter of processing of such details like placing a proposal before the

Committee of Secretaries of pre-PIB and finally the CCEA. SPIC would have presumed to have entered into the MoU only upon the implied

assurance that there would be no bottle-necks. Therefore, it cannot be contended that SPC had to comply with the terms of the MoU. SPC had,

as a matter of fact, taken such a course as a matter of internal policy for the purpose of procuring equipment, machinery and materials for the

PTA/PFY project.

The contention of the appellant that SPIC has violated the negative covenants contained in cl. 8.2 of the MoU is inaccurate. There is no such

breach. Cl. 8.2 is not a simple negative covenant. The negative covenant is contained in the last portion of cl. 8.2. It is qualified by the opening

portion. It contemplates that both parties will undertake that they will use their best endeavours to do all deeds, acts and things including exercise

of their respective voting rights as shareholders, and shall ensure that their representatives on the board of the JVC without prejudice to the

generality of the foregoing also do such acts, things and deeds including the exercise of their respective voting rights as directors in such manner so

as to ensure that the terms, conditions, provisions and stipulations contained in the MoU are fully complied with. In any event, the appellant should

have endeavored in ensuring the requisite approvals from the Government of India and the relaxation from stringent conditions imposed by CCEA.

The approval from the Government of India for PFY never came. Therefore, PTA/PFY could not be done. Therefore, there can be no claim on

the strength of cl. 8.2. To invoke the negative covenants, the appellant must show that it had the requisite approvals for PTA/PFY. Therefore,

there is no violation of the terms of the MoU by SPC.

Regarding the appellant''s contention that the contract has not been frustrated, learned senior counsel for respondent No. 1 and respondent

No. 2 submitted that this is an erroneous submission on the facts of the case. There is no question of less profit to one of the parties since

AROCHEM is a joint venture. It is common ground between the parties that the project was not viable, i.e., naphtha PTA after economic

liberalisation took place in 1992 and the budget of 1995. The appellant had itself in C.S. No. 7. of 1997, admitted that the viability of the project

got adversely affected due to economic liberalisation and, therefore, the eighth defendant (AROCHEM) had to revise the scope of the project so

as to include PFY. u/s 56 of the Contract Act, economic liberalisation affecting the viability of the project was not a circumstance which would

have been in the reasonable contemplation of the parties. In any event, the event is such of fundamental intervention that strikes at the root of the

contract and, therefore, the contract is frustrated. According to learned senior counsel once a contract is frustrated, the dissolution of contract

occurs automatically and does not depend as does recession of the contract on the ground of repudiation or breach or on the choice of election of

either party. It depends on the effect of what has actually happened on the possibility of performing the contract. The law relating to frustration is

that if a supervening event has taken place removing the basis of the contract, striking at the root of the contract, then the contract would be

deemed to be frustrated. There is no provision in the contract governing the contingency ""change of economic situation"" underlying the assumption

of the contract. Since it is a joint venture it must be expected that economic viability was the fundamental premise on the basis of which the MoU

has been entered into. Any intervening circumstance directly obliterating or meddling with the financial viability and in the absence of express

provision dealing with such a situation, the contract is liable to be held frustrated. After the project ceased to be viable the present terms of the

contract came to an end. Whatever move transpired thereafter by parties attempting to explore another configuration of PTA/PFY establishing a

new company called SPC as an intermediate step are all after the event has occurred. In other words, subsequent actions of the parties cannot be

looked into or examined through the MoU which had already been frustrated. Once the MoU was frustrated, there is no question of breach of any

negative covenant contained in cl. 8.2. Cl. 9.2, which deals with force majeure, is an inclusive clause and the events illustrated in that clause are

only illustrative and not exhaustive. Neither SPIC nor the appellant was in a position to control the event of economic liberalisation. It is also clear

that both the parties accepted that with the economic liberalisation in 1992 and the budget of 1993 the project of naphtha/PTA was unworkable.

Thus, learned senior counsel submitted that the MoU is not enforceable as the same stood frustrated by the budget announcement of the

Government of India in 1993, and consequent to reduction of the customs tariff, the MoU become impossible of performance by either party.

Learned senior counsel next submitted that the contention of the appellant that there was nothing which prevented AROCHEM from doing PTA

and another company doing PFY is misleading and erroneous. It was AROCHEM as a single company which made a request to IDBI for project

appraisal. The IDBI considered it appropriate to suggest that the project be undertaken in two stages, i.e., PTA/PFY in the first stage and

naphtha/PTA in the second stage, which was agreed to by AROCHEM. It was AROCHEM as one company which made the reference to IDBI

for PTA/PFY pursuant to which reference IDBI submitted its report. IDBI itself refers to the project as the appraisal of AROCHEM''s proposal

for setting up an integrated aromatics and PTA/PFY project. The proposal for setting up an integrated aromatics/PTA/PFY project was the

proposal made by AROCHEM. The appellant now cannot contend that IDBI did not rule out that PTA could be done by one company while

PFY by another company. IDBJ has referred to the proposal of AROCHEM for setting up PTA/PFY plant and it is also clear that the means of

finance which should have been considered by IDBI are in respect of one company. The consideration of financial viability has taken place from

the point of view of one company performing integrated PTA/PFY project. If two companies have to perform these projects separately, then

separate proposals will have to be made and separate considerations will arise. Moreover, the common utilities like power, water, steam and fuel

have also been taken into account for a single project of PTA/PFY. In the meeting of the board of directors held on December 30, 1993, Dr. A.

C. Muthiah pointed out that SPIC would form a separate company to implement the PTA/PFY project. Therefore, SPIC wanted to implement the

recommendation of IDBI that the project should be implemented in two phases, viz., PTA/PFY in the first phase and aromatics in the second

phase. In the letter written by Dr. A. C. Muthiah to the Government of Tamil Nadu, a request has been made that the land should be allotted for

promoting PFY plus PTA project and it refers to PTA and PFY project to be established fully in the private sector by a new company, i.e., by a

single company. The letter of the appellant to Dr. A. C. Muthiah dated February 7, 1994, does not speak about PTA being done by one company

while PFY being done by another company. The suggestion is that AROCHEM should be naphtha/PTA and the new company should

manufacture PFY. In the letter dated February 15, 1994, addressed by the appellant to Dr. Muihiah enclosing a copy of the MoU entered into

between the appellant and SPIC for a JVC to manufacture PFY there is no reference to the new method of working out the IDBI''s

recommendation OS19 being. Now suggested. The draft MoU annexed to the letter dated February 15, 1994, contemplates one approval for the

JVC and further approval for integration. In the board meeting held on March 26, 1994, it is clear that SPIC considered PTA/PFY projects to go

ahead and that SPIC was to implement the PTA/PFY project by a new company. There is no suggestion that only PTA could be manufactured by

AROCHEM and PFY by the proposed JVC. Therefore, the project cannot be viable in bits and pieces but be performed as a whole. Reference is

again made in the letter dated April 4, 1994, written by Dr. A. C. Muthiah to the Government of Tamilnadu that SPIC would be implementing the

PTA/PFY project through another company called SPC. It was decided by the board in the meeting held on September 2, 1994, that SPIC

should proceed with the implementation of the PTA/PFY project subject to merger. In the letter dated October 17, 1994, addressed by MRL

merger is retracted from and it is suggested that AROCHEM should do naphtha PTA once again. In other words its attempt was to revive the

MoU which had already stood frustrated. The recommendation of IDBI to the effect that AROCHEM should manufacture PTA in the first phase

and PFY in the second phase was acted upon by SPIC and SPC was formed for that purpose. Both parties understood that the entire project was

being done by one company. At best what can be said is that the appellant suggested that naphtha/PTA should be one by AROCHEM and PFY

by another JVC. If the suggestion of the appellant was meant to be accepted clearly there would be a departure from IDBI''s suggested

configuration and a fresh re-appraisal for naphtha to PTA would have to take place which in all likelihood would have been a futile exercise

considering IDBI''s earlier recommendation and also its adherence in respect of SPC (PTA/PFY) on the basis of which SPC got financial

assistance. Learned senior counsel for respondents Nos. 1 and 2, therefore, submitted that the contention of the appellant that PTA could have

been done by one company and PFY by another company is completely meaningless and must be rejected.

According to the learned senior counsel what was discussed on December 30, 1993 was formation of a new company for doing PTA/PFY

because it the IDBI''s recommendations were to have a meaning at all it was that PTA/PFY should be done by one company. On March 26,

1994, SPIC''s assertion became still more categorical that the new company has been formed for manufacturing PTA/PFY and that in response to

this suggestion of the appellant that an MoU can be entered into for manufacturing PFY it was stated that merger at a later date would not pose

any serious problem.

Learned senior counsel next submitted that the situation for disputing the appellant''s ability and authority to invest in the PTA project never

arose because SPIC was considering formation of, a new company to undertake PTA/PFY project and proceeded to repel the suggestion of a

JVC and the appellant, on its own showing, could not have invested in the joint venture without the. approval. of CCEA or the approval of the

Government of India. Learned senior counsel also rejected the contention of the appellant that even though the appellant was prepared for the joint

venture for PFY, yet concurrence was unreasonably withheld by SPIC. According to learned senior counsel the appellant could not have

proceeded with PFY project without the approval from the Government of India and it is not possible that PTA would be done by one company

and PFY is done by another company. The suggestion of the appellant for a PFY joint venture was no longer relevant after March 26, 1994, when

Dr. A. C. Muthiah asserted that merger at a later date of SPC doing the PTA/PFY with AROCHEM would not pose any problem. In the letter

dated October 7, 1994, SPIC reiterated the validity of the decision to merge completely as taken in the meeting of the board of directors held on

September 2, 1994. On October 17, 1994, the appellant once again speaks about the MoU for a mutually agreeable implementation philosophy

for PFY. On December 30, 1994, SPIC again reiterated the integration of the PTA/PFY project while according to the appellant it only insisted

upon the integration of SPC''s PFY project with AROCHEM and suggested that mutually accepted procedure for integration be finalised. The

purport of the meeting held on December 30, 1994, was that PTA/PFY of SPC should be merged with AROCHEM and not simply PFY. The

appellant''s shifting stand would be evident from the fact that while earlier the appellant speaks about MoU for establishing the JVC between SPIC

and the appellant for PFY, yet from September, 1994, the appellant suggests a mutually acceptable procedure of integrating PFY project with

AROCHEM. Till this date, no approval for PFY has been forthcoming from the Government of India in favour of MRL. The appellant never

disclosed to the PIB about the possible merger of SPC with AROCHEM. There was no reason why the PIB should have been kept in the dark

about the SPC''s ongoing project as the intermediate step and why only an addition of PFY to the project scope alone should have been sought

instead of apprising the Government about the true state of affairs. Parties have not treated the minutes of the board of directors to be final but

have explored the possibilities independent of what was discussed at the board meeting and thus what would be the subject matter of dispute was

in the arena of discussions and negotiations and could not confer a legal right bestowing upon the plaintiff a claim for injunction. Learned senior

counsel submitted that there cannot be frequent re-appraisals of the project and once an appraisal is done and acted upon subsequent actions of

follow-up have to be in conformity with such appraisal.

Regarding the appellant''s contention that payment to MPC by AROCHEM was unreasonably withheld by SPIC and SPIC ought not to have

entered into PTA licensing with MPC, learned senior counsel submitted that on December 9, 1992, AROCHEM entered into an agreement with

MPC and the first instalment was due on April 27, 1993. On September 6. 1993, the nominee director representing the appellant stalled payment

on the ground of fixing up of the capacity of the PTA plant. On December 30, 1993, the board decided to adopt the IDBI proposal dated

November 5, 1993, and to implement the PTA/PFY project. It was then decided that no payment of process/licensors would be made until all the

approvals are obtained from GOI. On March 26, 1994, the appellant suggested the payment of licence fee to MPC, although at the board meeting

on September 6, 1993, and December 30, 1993, they were insisting on approval of the GOI. This, in fact, was confirmed by MPC where they

extended the licence agreement up to October 15. 1994, on the understanding that the appellant will get the Government approvals. All of a

sudden the appellant insisted on payment of the licence fees to MPC. SPIC insisted that the appellant should take the risk. While MPC has

extended the licence agreement up to October 15, 1994, on the understanding that the appellant will get the approvals shortly, the appellant has

approached MPC on February 14, 1995, only, i.e., after five months from the lapse of the agreement, as could be seen from the fax messages

dated March 9, 1995, and MPC''s fax message dated March 23, 1995. From the above, it is clear that it is only the appellant, which is solely

responsible for the lapse of the MPC agreement and further the appellant, instead of seeking merger of SPC with AROCHEM, continued to

persuade MPC for licence for PTA. The appellant having successfully cancelled the environmental clearance certificate while making attempt for

re-transfer of the land to AROCHEM, has also attempted to obtain the PTA licence independent of SPC which clearly reveals the obstructive

intentions of the appellant. The learned senior counsel also submitted that the appellant''s contention that SPIC was taking an inconsistent stand on

the supremacy of the IDBI recommendation by suggesting that IDBI had recommended PTA/PFY in the first phase and naphtha/paraxylene in the

second phase is untenable. AROCHEM had entered into an agreement with UOP on November 6, 1992. The first instalment of the licence fee of

Rs. 6 crores was paid on May 27, 1993. The second instalment was due on June 11, 1993. The IDBI''s report suggesting two phase

implementation was referred on September 28, 1993, followed by appraisal for PTA/PFY for AROCHEM on November 5, 1993. Under the

circumstances, the agreement with UOP had already been entered into by AROCHEM prior to the recommendation and the first instalment had

already been paid even before IDBI had recommended Naphtha/paraxylene can be proceeded with only after evaluation/appraisal by the

institution. The purpose of suggestions payment of the second instalment is only to keep the agreement alive with UOP to ward off any

apprehension of cancellation. UOP has conducted itself honourably by not cancelling the agreement till now with AROCHEM. Whenever it was

said by Dr. Muthiah that AROCHEM could take up aromatics project independent of SPC''s project, it was meant that the project would be

subjected to detailed evaluation/appraisal. As far as SPC entering into an independent agreement with UOP on July 7, 1995, is concerned, the

same is done as a rest of the refusal by the appellant vide its letter dated March 23, 1995, to assure supply of paraxylene.

In the board of meeting of AROCHEM held on April 29, 1993, it was decided that the appellant should seek the Government approval for

reduction of promoter''s contribution to 29 per cent. The waiver of the onerous conditions on September 2, 1994, did not include reduction in the

promoter''s contribution. In the board meeting held on December 30, 1994, the appellant unjustifiably said that there was no necessity for reducing

the promoter''s contribution from the existing level of 26 per cent. each in equity. The appellant did not choose to plead before the PIB in the

deliberations of January 31, 1995, for the reduction of equity contribution of the promoters. Thus, in so far as promoter''s contribution is

concerned, there can be no manner of doubt that it was a stringent condition which had to be relaxed by the Government of India. The letter dated

September 2, 1994, did not relax this condition. There is no explanation from the appellant as to why it did not plead with the Government of India

for reduction of promoter''s contribution. In fact, the reduction of promoters'' contribution towards equity would have helped only the appellant as

well and would have made a greater slice available for public issue. The strain on the promoters would have been much less. SPC is a single

venture where the promoter has to assume the whole burden while AROCHEM was a joint venture.

AROCHEM, in its board meeting held on September 2, 1994, decided upon merger. Merger was to be imported in the following manner viz.,

PTA/PFY to be done by SPC and later merge with AROCHEM; AROCHEM had already obtained the environmental clearance for naphtha to

PTA stage SPC needed environmental clearance and SPC''s project was in the location which was originally that of AROCHEM and SPC had

already signed an MoU with MPC for PTA technology. Therefore, in furtherance of the decision of the board of directors dated September 2,

1994, SPC applied for grant of environmental clearance from the Government of India on the strength of the minutes of the meeting of the board of

directors held on September 2, 1994. The so called withdraw of consent for merger was a unilateral retraction and not a decision of the board

SPC obtained environmental clearance from the Government of Indian on December 28, 1994. On March 8, 1995, the appellant requested the

Ministry of Environment, Government of India, that the environmental clearance should be reissued in favour of AROCHEM since PIB had given

approval for the entire project from naphtha - PFY. On May 10, 1995, the Ministry of Environment addressed a letter to SPC to the effect that

the Ministry of Environment would like to have the opinion of SPC within 10 days before the environmental clearance for SPC is withdrawn and

transferred in favour of AROCHEM. On May 29, 1995, SPC addressed a letter to the Ministry of Environment and Forests setting out the venous

steps taken by SPC to proceed with the project and requested that there should be no withdrawal of the clearance given to SPC for the project.

On August 25, 1995, the Government of India cancelled the environmental clearance in favour of SPC and reissued the same in favour of

AROCHEM. On December 12, 1995, SPC sought a review of the same. The appellant did not raise any objection to SPC in obtaining the

environmental clearance. On December 28, 1994, SPC was issued environmental clearance and the issue relating to environmental clearance did

not even figure in the board meeting. The action of the appellant in writing unilaterally to the Government of India on March 8, 1995, was behind

the back of SPC and without its knowledge.

Learned senior counsel then submitted that originally the parties had contemplated one PTA plant. This PTA plant later had to become a part

of PTA/PFY plant as advised by IDBI. Because the appellant could not implement the recommendation of the IDBI, SPC was incorporated for

undertaking PTA/PFY with a view to merge with AROCHEM. On merger, there was a dispute, as a result of which the stand of SPC was that

while it welcomed merger yet if that was not possible then SPC must be permitted to proceed with its ongoing PTA/PFY project on the one hand

and if AROCHEM decides to go ahead with its naphtha to PTA or naphtha to PFY configuration, SPIC was prepared to be a partner of the

same. In other words, SPIC was prepared to he a partner in AROCHEM''s project even if merger did not take place. Thus, the question of two

PTA plants arises only if merger is not possible in view of the divergence on the modalities for merger. In the board meeting had on December 30,

1993, it was stated by Dr. A. C. Muthiah that SPIC will form a separate company to implement PTA/PFY project and ultimately merge with

AROCHEM. So as on December 30, 1993, only one PTA plant was contemplated. Even MPC understood that the appellant had agreed to

SPTC''s PTA/PFY project. Even on July 18, 1994, only one PTA plant was contemplated. Therefore, Dr. A. C. Muthiah once again suggested

that consistent with his corlier theory of merger and also consistent with the decision taken on September 2, 1994, AROCHEM could go ahead

with the naphtha to paraxylene and SPC with PTA/PFY project and later both could merge. In the board meeting held on February 9, 1995, it

was clear that there was a considerable amount of pessimism expressed on the part of the appellant that merger may not be possible. When the

board was asked to find out an amicable solution, Dr. A. C. Muthiah said that if merger did not take place and AROCHEM decided to go ahead

independently of SPC project for manufacture of aromatics, PTA and PFY, SPIC would still continue to be a partner in AROCHEM''s project

and cooperate. Thus, the question of two PTA plants surfaces only when there is a failure to merge. Learned senior counsel therefore submitted

that having regard to the failure of the appellant to comply with the judgment of the learned single judge and also having expressed serious

reservations about investing in SPC''s PTA/PFY on-going project, logically SPC''s project will have to proceed further on its own way while

AROCHEM works out its new configuration which might include a PTA plant.

On December 30, 1993, in the board of directors'' meeting, Dr. A. C. Muthiah proposed that SPIC would form a separate company to

implement PTA/PFY project in the same location and if required the two projects could be merged at an appropriate time. But the chairman made

a suggestion that a JVC be formed between the appellant and SPIC for the PFY project. In the letter dated January 5.1994, addressed by SPIC

to AROCHEM there is a reference to integration of the PFY plant. On March 26, 1994, Dr. A. C. Muthiah once again reiterated that merger at a

later date should not pose any serious problems. The Government of Tamil Nadu by its Government Order dated June 22, 1994, allotted land in

favour of SPC subject to the condition that as and when AROCHEM receives all the clearances and decides to go ahead with the project, the unit

should be backwardly integrated with it. The agreement between SPC and the State Government contemplates that when AROCHEM gets all the

clearances and decided to go ahead with the project, SPC should be backwardly integrated with it. In the board meeting held on September 2,

1994, it was decided that SPC would proceed with PTA/PFY subject to a complete merger with AROCHEM in respect of the PTA/PFY

projects. On October 7, 1994, in response to the appellant''s retraction having regard to waiver of economic conditions, SPIC once again tried to

persuade the appellant to see the reason behind the minutes dated September 2, 1994, and suggested that it would be prudent for AROCHEM to

go ahead with naphtha/paraxylene project while SPC could go ahead with PTA/PFY project and later both the projects could be jute grated. It

was on the strength of the board minutes dated September 2, 1994, an environmental clearance was obtained from the Ministry of Environment,

Government of India, for PTA/PFY project to be performed by SPC. On December 30, 1994, in the board meeting the integration which was

resolved between AROCHEM and SPC was for the PTA/PFY projects. On April 12, 1995, while recording the contents of the promoters''

meeting. it was observed by Dr. A. C. Muthiah that in the course of the promoters'' meeting held on April 11, 1995, the appellant had expressed

Some reservation about integrating SPC''s project with AROCHEM and, therefore, would like AROCHEM to have naphtha to PTA project

independent of SPC''s PTA/PFY project. In other words, the suggestion of participating in AROCHEM''s naphtha to PTA project independent on

SPC''s PTA/PFY project was on account of the difficulties expressed by Mr. Ravikumar in the promoters'' meeting on April 11, 1995. On April

19, 1995, Dr. A. C. Muthiah once again offered complete merger and said that the company secretaries of the appellant, AROCHEM and SPC

could meet to complete and finalise the modalities of such merger. All the above references clearly go to show the consistent stand of SPIC that

SPC was actually incorporated to undertake a PTA/PFY project on account of AROCHEM''s liability to take up the project in December, 1993.

These incidents would go to show the consistent stand of SPIC that SPC was actually incorporated to undertake a PTA/PFY project on account

of AROCHEM''s inability to take up the project in December, 1993, and that Dr. A. C. Muthiah genuinely wanted SPC to merge with

AROCHEM. However, the appellant was the one who had reservations to merge, the appellant opposed merger in various ways. In the pre-PIB

meeting dated April 15, 1994, the appellant clarified that SPIC was not likely to move out of the joint venture and however explained that if it

moved out of the joint venture, the appellant could implement the project either on its own or through some other partner with the approval of the

Government of India. There was no occasion for the appellant to have made any other representation of April 15, 1994, except to say that SPIC

was prepared to participate in the project and set up a company called SPC as an intermediary step for the purpose of PTA/PFY being fulfilled.

By the letter dated September 10, 1994, addressed by the appellant to Dr. A. C. Muthiah merger which was resolved in the board meeting dated

September 2, 1994, was sought to go back upon on the strength of waiver of economic conditions. On March 9, 1995, the appellant while writing

to MPC was still wanting to go ahead with the PTA project on its own, i.e., AROCHEM and was not seriously contemplating merger. SPC was

now asked to desist from putting up PTA unit in addition to that of AROCHEM, i.e., SPC should not proceed with PTA. SPJC, therefore,

decided that SPC''s PTA/PFY project was to proceed independently on the one hand while AROCHEM to have naphtha to PTA independently

in which SPIC would participate. On April 25, 1995, the appellant once again moots the idea of buy out of contracts and refuses merger of two

companies. On May 4, 1995, the appellant pleads with MPC that MPC should reconsider its decision of not extending the validity of the PTA

agreement with AROCHEM. In the letter dated October 26, 1995, the appellant wants to prevent the allotment of additional 200 acres of land for

the aromatics project of SACL but also says that 168.38 acres of land from SPC should be taken back. Thus the venous actions of the appellant

mentioned above prior to the institution of the suit clearly go to show that the appellant did not want to merge. The appellant knowing fully well that

no prudent industrialist/entrepreneur would agree to selective purchase of contracts made such a suggestion and has consistently resisted merger.

Even in the affirmative implementation strategy submitted by the appellant during the course of the hearing of the appeal it is made clear that the

appellant wants a virtual reappraisal of the entire project and would subject such reappraisal to fresh grant of clearances from pre-PIB, PIB and

CCEA of the Government of India. Thus, even as on today there is no commitment to merger in principle.

The absence of PTA in the letter dated January 5, 1994, and in the minutes of the high power committee meeting on February 7, 1994, are

purely accidental omissions. The true intention of the Government including the high power committee was to allot for PTA/PFY as would be clear

from the final order of the Government dated June 22, 1994. While on the one hand the appellant contended that the minutes of the high power

committee referred to the new company, which meant the JVC, while it was the contention of SPIC, that it meant SPC. According to SPIC, the

new company which was spoken of in the high power committee minutes of February 7, 1994, referred to SPIC Petrochemicals Limited (SPC)

inasmuch as the agenda minutes themselves indicate that the topic to be discussed by the high power committee was the proposed allotment of

land to SPC. The order dated June 22, 1994 is not challenged. It is not proper to go behind that order. Since the said order is not under challenge,

the collateral attack on that order is not permissible. The State Government of Tamil Nadu is not impleaded as a party. The oral submissions on

land which have been made suggesting fraud are completely out guide the purview of the suit since the suit does not contain a challenge to the

Government order dated June 22, 1994.

SPC having paid the consideration amount to the Government and taken possession of the land directly from the Government, after executing

an agreement with them, is holding the land legally. There was no formal agreement between AROCHEM and the Slate Government of Tamil

Nadu before giving possession of land to SPC. Before final agreement could be executed by the Government with AROCHEM, land was reverted

back to the State Government which allotted the land to SPC, Land delivery receipts were returned to the State Government and the State

Government has SPC is in legal possession by virtue of the Government order dated June 22, 1994. Agreement dated June 27, 1994, SPC''s

payment of consideration amount to the Government and various pattas in favour of SPC are not challenged and in the absence of challenge to

these instruments, no allegation can be entertained.

As far as the transgression of authority alleged against the project director is concerned, the learned senior counsel submitted that the project

director is simply an employee of the company. He was bound by the orders of the State Government. The State Government had passed the final

orders on June 22, 1994, after considering all representations. If the project director had sur ? rendered land prior to June 22, 1994, he could be

found fault with. The various representations of the appellant were all considered and the Government has finally clarified in the order dated June

22, 1994, that it decided to allot land in favour of SPC for PTA/PFY project. The Government order dated June 22, 1994, now removed the

ambiguity from the minutes of the high power committee dated February 7, 1994. The secretary''s action in returning the land delivery receipts of

which only possession was taken over but title was not conveyed to AROCHEM cannot be construed to be a sale. Hence the restrictions

contained in the board resolution defining the limits of the authority of the project director will not apply. The learned single judge seems to have

erroneously gained an impression that costing by SPC was high and that there was a spurt in the final cost in June, 1995. This is erroneous because

the comparison made by IDBI with reference to Reliance and Rajashree Polyfil was not accurate because of different product slate. IDBI

accepted the explanation and on frozen prices costed the project at Rs. 2,125 crores and have sanctioned loans and other financial assistance.

JDBI and ICICI have given financial assistance and in fact, nominated their representatives in SPC board. The comparison made by the appellant :

of SPC with Modern Syntax and Modern Threads has no relevance because the configuration of both Modern Syntex and Modern Threads have

not come out with the public issue and the prospectus referred to was only a draft and cannot be relied upon. According to SPIC vide letter dated

May 26, 1995, the resolution related to purchase of PTA/PFY plants and not simply a buy-out of contracts. The contention of the appellant was

that there was no attempt on the part of SPIC not to comply with the buyer''s decision dated February 9, 1995, is not accept-able. Even the

contents of the minutes of the board meeting held on February 9, 1995, was not a final decision but a process of making a final decision on the

question of merger. The delay of Dr. A. C. Muthiah in suggesting the correctness of the minutes on February 9, 1995, which had already become

redundant by act of both the parties must be viewed in this perspective and cannot be found fault with and is only of academic interest.

While continuing his arguments in O.S. Appeals Nos. 190 to 193 of 1996, Mr. Gopal Subramaniam, learned senior counsel, appearing for the

SPIC and SPC submitted as under.

On December 30, 1993, the board of directors discussed that SPC setting up a PTA/PFY project. There is a recommendation of IDBI

recommending a PTA/PFY plant although PFY is referred to as the purpose for promoting the company. The letter of Dr. A. C. Muthiah to the

State Government discloses that the land was needed for a PTA/PFY project. The agenda papers circulated for the high power committee meeting

although bodily lift the second paragraph of Dr. A. C. Muthiah''s letter at page 307, yet miss the words inadvertently, and texturising facilities along

with a PTA plant immediately at Manalifully..."" The omission is by the Government even before any discussions actually took place. The minutes of

the high power committee meeting dated February 7, 1994, also recorded PFY and not PTA/PFY by way of inadvertent omission. SPIC or SPC

did not have an occasion to make an issue out of the said omission because the final order of allotment dated February 18, 1994, referred to

PTA/PFY. The letter of the appellant to the chief secretary dated February 17, 1994, that a JVC would be formed for the PFY units between the

SPIC and the appellant was not enclosed to the SPIC, so that it cannot be inferred that its contents were admitted because they were

unrepudiated. The further communication from DRO, Saidapet to the Industries Department, vide letter dated March 1, 1994, reflects that it was

for a PTA/PFY plant. The letter dated March 10, 1994, from the appellant to the project director AROCHEM that no reallocation should be

done before the AROCHEM board finally settled the details of the new company was not in conformity with the final decision of the State

Government to allot land in favour of SPC. The final decision in relation to allotment had to be made by the State Government and the letter dated

April 1, 1994, from the appellant to AROCHEM. The minutes of the board meeting on March 26, 1994, expressly recorded the agreement

between Dr. A. C. Muthiah and Ravikumar in relation to what transpired in the meeting held on December 30, 1993. Muthiah expressly says that

he does not remember confining the discussions only to the PFY project. It was common ground between the parties, that the new company was

dealing with PTA/PFY project and that there was no ambiguity left in the matter whatsoever. The Government of Tamil Nadu by order dated June

22, 1994, allotted 168.38 acres of land to SPC. This was after all the representations were considered both from SPIC as well as MRL. The

allotment was made subject to the condition that SPC remitted all costs incurred in the land acquisition by AROCHEM and also from the

understanding that as and when AROCHEM obtained all clearances and decided to go ahead with the project and the unit could be backwardly

integrated, then SPC could be integrated with AROCHEM. MRL was aware that the land was being allotted for PTA/PFY project, and it

accepted that position, it was reconciled to it and that is why in the minutes of the board meeting dated September 2, 1994, the possibilities of

merger between SPC and AROCHEM was strongly mooted and decided. A project director was appointed for the executive functioning of the

company.

The Government of Tamil Nadu by order dated June 22, 1994, allotted 168.38 acres in favour of SPC for PTA/PFY project subject to

backward integration. The decision was taken upon a comparative evaluation of the respective positions of MRL and SPIC. The land had not yet

become the property of AROCHEM. By letter dated June 24, 1994, AROCHEM asked SPC to deposit Rs. 2.70 crores as adhoc sum

representing actual cost of development charge with interest. The chairman of MRL wrote to the project director indicating that the Government of

Tamil Nadu''s order dated June 22, 1994, need not be obeyed unless and until the AROCHEM board takes a view in the matter. Even the view to

place the matter before the board in relation to the land clearance is also the view of the chairman alone and not the decision of the board. Letter

from general manager, District Industries Cell, Chengleput, MGR District, to Secretary, AROCHEM, asking for the original land documents

pertaining to 136.76 acres of patta land in accordance with the Government order dated June 22, 1994. On June 27, 1994, AROCHEM

surrenders 96 land delivery receipts. Patta has been issued in favour of SPC. The Additional Secretary to the Government of Tamil Nadu wrote to

AROCHEM by letter dated July 4, 1994, directing the details of development charges should be communicated to SPC for the purpose of

recovering the same for the 168.38 acres. The project director in his letter dated August 3, 1994, takes the view that AROCHEM had to concede

to the State Government directive. It was also stated in the letter that in the high power committee meeting held during February, 1994, the

chairman and the vice-chairman of AROCHEM took part and the decision of reallocation of about 170 acres of land to SPC out of the land

allotted to AROCHEM was taken. The project director has referred to the earlier instance that 54 acres of land were reallocated to MRL without

the board''s consent. It was also stated in the said letter that the project director had absolutely no option after the chairman and vice-chairman

agreed to the proposal of allotment of land to SPC at the high power committee meeting. In any case, according to the learned senior counsel it is

the Government which has allotted the land which was still not the property of AROCHEM. In any event, AROCHEM as on that date even by

retaining the additional land of 168.38 acres could not have pursued the PTA/PFY project because PFY was not approved. The minutes of the

board meeting dated September 2, 1994, where in it was decided that SPC would merge with AROCHEM. SPIC would also proceed with

PTA/PFY project in the mean while. In so far as the letters between the project director and the chairman were concerned, they were left to be

discussed further between themselves. The board did not take a serious note of the same. The minutes of the board meeting dated September 2,

1994, states that SPC would merge with AROCHEM-SPIC would also proceed with PTA/PFY project in the mean while.

On December 30, 1994, the board proceeded with the idea of merger. However, in the minutes of the meeting held on December 30, 1994, it

is clear that merger was still being explored by both the parties between SPC and AROCHEM. The fact that the plant was for PTA/PFY was

common ground, the fact that this additional land of 168.38 acres has been utilised for the purpose of setting up PTA/PFY project was also a

conceded position and in fact both the parties wanted to explore the possibilities of merger. Therefore, it cannot be said that there was any sharp

practice by SPIC. It also cannot be said that the project director had acted in excess of his authority. MRL had acquired knowledge of these

events since February, 1994, and had virtually ratified on September 2, 1994, and December 30, 1994. Therefore, the actions of both PTA/PFY

project plant being set up by SPC and that too on the land allotted by the State Government and the matter could no longer be the subject matter

of any litigation. The integration which was being discussed in the meeting of December 30, 1994, was for PTA/PFY project. Strangely, there was

no suggestion by MRL that the minutes of September 2, 1994 was incorrectly recorded which speak about the PTA/PFY project.

In such circumstances, according to the learned senior counsel, the logical inference that on December 30, 1993, the matter which was actually

discussed was the PTA/PFY project. Initially MRL wanted a JVC to be set up by SPIC and MRL for PFY and then they changed saying that

they are actually pursuing the Government of India for the inclusion of PFY in the scope of work of AROCHEM itself. On September 2, 1994,

MRL again agreed for merger of SPC as well as AROCHEM for the PTA/PFY project. On December 30, 1994, they speak only about PFY

project, which is immediately protested and it was said that the discussions for merger were for PTA/PFY project.

The learned senior counsel further submitted that payment to MPC was held up on account of lack of approvals from GoI both reasons being

the projections of MRL. Further the willingness to pay MPC as on March 26, 1994 of MRL was a bogus bravado to spite SPIC since earlier and

later MRL had acknowledged that payment to MPC in the context could be meaningful only when approvals from GoI for PFY was obtained and

to pay MPC without obtaining such approval was a risk of unwarranted measure. SPIC saw the risk acknowledged by MRL and the learned

single judge has completely overlooked in construing all relevant documents to come to a correct conclusion that the payment to MPC for PTA

without the approval of GoI for PFY was bound to he a risk and a foregone conclusion. The State Government had already decided to allot land

to SPC for PTA/PFY project and there is error in the order of the learned single judge, both factual and interpretative. SPC has applied to IDBI

on February 14, 1994, and not on August 1, 1994, and obtained project report from IDBI on June 7, 1994. As on September 10, 1994,

AROCHEM could not have proceeded with the project because the project was meant to be proceeded with in accordance with the

recommendation of IDBI dated September 28, 1993, that the first phase till consist of PTA/PFY. As on September 10, 1994, IDBI had already

appraised the project of SPC and was examining the application for financial assistance by SPC after having received frozen quotations. Other

activities such as technical discussions with process licensors and contractors had already been finalised. The observations that there was no

difficulty whatsoever in SPC discontinuing its activities and AROCHEM beginning to implement the entire project, is entirely misconceived because

AROCHEM was still awaiting approval from GoI for PFY. MRL could not have asked for its discontinuance of activities because it did not have

the requisite approval for the PFY project. Thus, the suggestion that there was no difficulty in SPC discontinuing its activities is completely

erroneous because MRL did not ask SPIC to discontinue its activities in the absence of approval for PFY in so far as AROCHEM is concerned.

There is a factual error in the findings of the learned single judge that SPIC intended to exclude MRL. MRL could not have included itself.

AROCHEM, in which MRL and SPIC were both partners could not have taken up the entire project in the absence of an approval for PFY

project. As far as merger is concerned even though the minutes of board meeting dated September 2, 1994, contemplated a merger between SPC

and AROCHEM, yet the subsequent letters of MRL clearly did not want to contemplate merger at all.

It is recorded in the order of the learned single judge that Cl. 5 of the minutes of the meeting as recorded by MRL said that SPIC would not

continue to implement another competitive project to SPC for manufacturing PTA. Cl. 6 further provided that AROCHEM would proceed in

good earnest the activities of the reappraisal of the entire composite project of naphtha to PFY. A. C. Muthiah by his letter dated May 26, 1995,

had stated that what was discussed on February 9, 1995 was the modalities of purchase of PTA/PFY plants from SPC which meant the purchase

of the entire plant lock, stock and barrel. It is also clear that according to Mr. Muthiah there was no discussion for agreement in terms of Cl. 5 and

Cl. 6, and therefore, that the same should be deleted. The learned single judge concluded that the attempt of Mr. Muthiah to delete Cl. 5 was

indicative of SPIC''s determination to implement the PTA project through SPC even if it meant breaking the MoU or violating the negative

covenant contained in Cl. 8.8 of the MoU. According to the learned senior counsel, the second part of the finding of the learned single judge is that

the deletion of Cl. 6 was a determination on the part of SPIC not to allow AROCHEM to proceed with financial reappraisal for the composite

project even though in the board meeting of September 2, 1994, it was agreed that AROCHEM would implement the composite project of

naphtha to PFY. MRL suggested that SPC could not go about investing huge moneys. The board meeting of September 2, 1994, was in contrast

to the board meeting of February 9, 1995. While the meeting of September 2, 1994, expressly contemplated the merger between AROCHEM as

well as SPC while AROCHEM performing the aromatic projects and SPC performing PTA/PFY component in the project whereas the situation

which emerged in 1995 was AROCHEM to perform the entire project of naphtha to PFY and the various contracts which has been executed by

SPC were meant to be simply bought out selectively, in other words, to bite SPC''s apple where it suited and leave the rest to the skies and the

seas. The embarking on the aromatic project by SPIC was necessitated because of the letter of March 23, 1995 of MRL wherein it had

expressed its inability to supply paraxylene for SPC''s project. SPIC was ready for merger in terms of complete merger. MRL had agreed but

started backing out from September 10, 1994. MRL from February 9, 1995, wanted only to buy out selectively certain contracts while SPIC was

not prepared for the same. SPIC was wanting complete merger. From April 25, 1995, MRL hardly budged from its stand that what was needed

was only buying out of contracts and merger of the two companies would not be possible and that SPC must stop its project. Further, the

reference to MOPNG was also of no avail.

The learned single judge failed to appreciate that the minutes of the board meeting of September, 1995, and December, 1995, were largely as

a result of reconciliation of both the parties to the final situation which emerged. The learned single judge has clearly overlooked to see that the

persons who were none other than MRL were responsible for scuttling this entire project. The subscribers to SACL are not the directors of SPIC.

On the question of environmental clearance, the learned senior counsel submitted that the learned single judge has overlooked that as on

September 2, 1994, there was a possibility of merger and environmental clearance already obtained by AROCHEM could ensure for the benefit

of SPC. SPC if it is going to continue with this project until it is going to merge with AROCHEM and was proceeding to conduct itself with the

ultimate benefit of AROCHEM, there was nothing wrong with SPC having brought to the GoI''s attention the minutes of the meeting dated

September 2, 1994, and obtained the benefit of AROCHEM''s environmental clearance for the PTA/PFY plant because that would facilitate

SPC''s functioning and would not lead to any loss of time. At the time when this clearance was obtained from the GoI the intention of SPC was to

merge with AROCHEM. It is after February 9, 1995, the possibility came in doubt. Once SPC was granted such environmental clearance, the

decision to review it suddenly and to cancel it without appreciating that the land is in the possession of SPC and the technology which was sought

to be installed by SPC in that area conforming to the pollution parameters were factors which the Ministry as part of environment should not have

been ignored notwithstanding the fact that the situation which existed as on September 2, 1994, may not have existed after August, 1995. The

learned single judge has erred in stating that the facts show the breach of negative covenant because the MoU really speaking was not applicable

to the same situation of PTA/PFY project. The reason why SPIC did not terminate the MoU till then was because the matter was referred to GoI

for the solution. The GoI in its wisdom could also have suggested a mutual termination. The learned single judge directed for merger. Since MRL is

on appeal, it would not be possible for it to merge and it could mean a fresh re-appraisal of the entire project to determine its viability.

Mrs. Nalini Chidambaram, learned senior counsel appearing for respondents Nos. 1 to 3 in 0.5. A. Nos. 173 and 174 of 1996, and for

respondents Nos. 4 to 7 in 0.5. A. Nos. 171 and 172 of 1996, submitted as under :

The main allegations of the plaintiff in the suits are that the directors of SPIC who have been impleaded as defendants are guilty of breach of trust,

fraud, false representation, making false representation to MPC that SPC project is a replacement of AROCHEM, making fraudulent

representation to the Ministry of Environment and Forests that SPC is a replacement of AROCHEM, incorporation of SPC and SACL as a mere

cloak or sham to enable SPIC to breach the agreement, abusing their position, and getting the land of AROCHEM re-allocated to SPC, diverting

the technical assistance from MPC, endangering the future of AROCHEM, committing breach of legal obligation, committing breach of MoU,

committing acts amounting to corporate immorality.

According to the learned senior counsel, the basis for the above said allegations is that incorporation of SPC and SACL and implementation of

PTA/PFY project and the naphtha to PX project, respectively, without involving MRL.

The learned senior counsel submitted that the terms of the MoU dated January 17, 1989, contemplated inter alia, (i) the incorporation of a

JVC and setting up of a plant by JVC to produce naphtha to PTA (naphtha-PX-PTA) (ii) producing 1,50,000 MTs. p.a. of PTA by JVC (iii) the

debt equity ratio should not exceed 4 : 1 and (iv) the equity participation in the JVC will be MRL-26 per cent., SPIC-26 per cent. and public and

others-48 per cent. The project cost was estimated at Rs. 1,230 crores including foreign exchange component of Rs. 328 crores at the time of

signing the MoU. In August, 1989, the capacity was increased to 2,00,000 MTs. of PTA per annum and the project cost was revised to Rs.

1,356 crores including the foreign exchange component of Rs. 374 crores in August, 1989. Again in August, 1990, the project cost was increased

to Rs. 1,433 crores including foreign exchange component of Rs. 396 crores. On May 28, 1992, the Ministry of Petroleum and Natural Gas

(MOPNG) conveyed the approval of the GoI (CCEA) to MRL for setting up the aromatics plant in Madras by MRL in the joint sector with SPIC

at an estimated cost of Rs. 1,725 crores, subject to certain stringent conditions, viz., (a) no foreign exchange would be released for the project (b)

the project authorities should not take any rupee loan from financial institutions (c) no additional protection by way of change in import duties will

be provided for the project (d) plant must meet the minimum economic size; and (e) the project should be completed within 33 months from the

date of issue of the approval. In view of the economic liberalisation and the 1993-94 budget proposal, the conditions stipulated by CCEA were

impossible of compliance and waiver of conditions were sought for by SPIC. In the board meeting held on April 29, 1993, AROCHEM decided

to include PFY to the product slate besides increasing the capacity of benzene to 90,000 MT. The board also decided that MRL should seek the

approval from GOI for reducing the debt equity ratio to 2 1 and the promoters contribution to 20 per cent. each. On August 31, 1993, MRL

suggested PTA capacity of 1,00,000 MT and PFY of 1,00,000 MT. In view of the suggestion of change in capacity, the chairman of AROCHEM

in the meeting held on September 6, 1993, informed that payment to MPC is to be made only after firming up of capacity of PTA plant which till

now had not been decided and MRL has to obtain the Government of India approval for PFY unit, cost revision and method of implementation in

Phases I and II and, therefore, as a result of these imponderables payments could not be made to MPC and not otherwise.

AROCHEM sought the appraisal of IDBI for the composite project from naphtha to PFY. IDBI in its appraisal recommended two stages

implementation PTA/PFY in the first phase and naphtha to PX later, after detailed evaluation. This recommendation was accepted by the

AROCHEM team Subsequently, AROCHEM approached IDBI for its appraisal of PTA/PFY project of first phase implementation and the

report was given on November 5, 1993, for an integrated PTA/PFY project at a cost of Rs. 1,806 crores. In the board meeting held on

December 30, 1993, it was decided to approach the GoI to amend the condition in the CCEA clearance and the LoI. The product slate

underwent a major change with the inclusion of PFY. The capacity of PTA and benzene were also changed. The learned senior counsel, therefore,

submitted that in view of the above changes, the terms of the MoU stood varied in material terms. Neither SPIC nor MRL sought to get the

necessary amendments incorporated to the terms and conditions of the MoU with reference to the change in the product mix and capacity. It is,

therefore, apparent that both the parties treated that the MoU should be observed only in spirit and not in the strict letter. In the meetings held on

December 30, 1993, and March 26, 1994, it was deliberated that PTA/PFY project will be implemented by a separate company. The GoI

allotted the land as per the order dated June 22, 1994, for the PTA/PFY product subject to the condition that the'' project will be backwardly

integrated with AROCHEM at a later date. In the AROCHEM board held on September 2, 1994, it was decided that SPIC will implement

PTA/PFY subject to a new MoU for integration and the death-knell of the MoU was first sounded. SPIC realised that MRL was not in a position

to get the necessary approvals for putting up the PTA/PFY project in the first phase. The implementation of the project through AROCHEM was

getting delayed and, in the meanwhile, due to economic liberalisation PTA/PFY was delicensed. Under such circumstances, according to the

learned senior counsel, SPIC had two alternatives, viz., (i) it could have stood by and watched and waited for MRL to get all the clearances and

run the risk of the project cost escalating and other competitors entering the field and (ii) on the other hand, it can go ahead with the project on its

own (SPIC being a private entrepreneur was not dependent on Government approval and not bogged down by stringent conditions) and later on

backwardly integrate with AROCHEM as and when MRL gets all the clearances. SPIC chose the latter alternative with the knowledge and

acquiescence of MRL and with the bona fide intention of backward integration at a later stage.

In the board meeting held on December 12, 1993, Dr. A. C. Muthiah informed that getting GoI approval for waiving/amending conditions

stipulated in their earlier letter dated May 28, 1992, may take time. SPIC will form a separate company to implement PTA/PFY project in the

same location while continuing its participation in AROCHEM. He also informed that, if need be, these two projects can be merged. On January

27, 1994, SPC was incorporated. SPIC from December 20, 1993, onwards clearly expressed its intention to go ahead with the PTA/PFY

project on its own. MRL was fully aware that SPIC was going ahead with the PTA/PFY project on its own, without involving MRL from

December 30, 1993. 4 Even according to MRL, even after the conditions were relaxed by the GoI on September 2, 1994, SPIC was attempting

to exclude MRL from the PTA/PFY project MRL did not choose to enforce its rights under the MoU apparently because the waiver of the

conditions were alone not sufficient to implement the terms of MoU. Under the MoU, MRL had four options to exercise in case SPIC was

committing breach of the terms of the agreement.

Under Cl. 7.1 of the MoU, MRL should endeavour to settle the dispute by friendly consultation, failing settlement the dispute should have been

referred to arbitrators under Cl. 8.2, MRL had the Option to sue for specific performance of the terms of the MoU under Cl. 8.8. MRL should

have approached the GoI for the necessary amendments to the terms and conditions of the MoU for changing the product slate by including the

PFY project as per the IDBI report and increase the PTA capacity and sought to implement the PTA/PFY project by AROCHEM and under Cl.

8.10 MRL had the right to terminate the MoU if in its opinion, SPIC failed to perform or observe any material obligation under the MoU. MRL

chose not to exercise any of the above four Options. It stood by and watched SPIC implementing PTA/PFY, project except for now and then

pretending to raise objections and that too only from September 10, 1994.

On September 2, 1994, it was decided that in the absence of written communication waiving stringent conditions SPIC can proceed with

PTA/PFY project implementation subject to mutually agreeable MoU to be developed between MRL and SPIC for ultimate integration of the

project with AROCHEM to overcome procedural hurdles. MRL was party to this decision. Now MRL claims that its rights were affected when

SPIC formed a separate company SPC to implement the PTA/PFY project on its own without involving MRL SACL was formed to start the

aromatics project SPC entered into a licence agreement with MPC AROCHEM''s MPC licence was allowed to lapse got the 168.38 acres of

land which was originally allotted to AROCHEM, re-allocated to SPC to implement the PTA/PFY project got the environmental clearance

granted to AROCHEM transferred to SPC independent agreement was entered into for UOP and GoI approvals for licence fee payment to MPC

for PTA and UHDE for PFY. MRL did not choose to enforce its rights at any of these stages. When the construction was coming up at a rapid

speed, MRL suddenly decides to file the suit only in January, 1996, just before the meeting convened by the Ministry of Environment and Forests,

to consider the request of SPC to withdraw their letter, cancelling the environmental clearance accorded to SPC was about to take place. The

tiling of the suit was only to cause embarrassment to SPIC and to cover up MRL''s inability to implement the project through AROCHEM after

getting the requisite Central Government clearance. As already stated, MoU dated January 17, 1989, does not contemplate an integrated

PTA/PFY project. In the circumstances, implementing the integrated PTA/PFY project cannot be the breach of the MoU and also the terms of the

MoU were totally diluted due to various factors already mentioned above, The question of breach of the terms of the MoU does not arise on the

facts and circumstances of the case. At any rate, the conduct of SPIC was bona fide. If MRL construed that the MoU continued, it could have

exercised its rights under MoU instead of resorting to a civil suit.

The learned senior counsel further submitted that the GoI gave the approvals for acknowledgment of Memorandum of Information filed with

the Department of Industrial Development, Entrepreneur Assistance Unit, Ministry of Industry for PTA and PFY technology approval for foreign

collaboration agreements for PTA/PFY plants LoI from GoI for manufacture of 2,00,000 MT of Paraxylene (PX), 50,000 MT of O-xylene and

30,000 MT of Benzene approval for foreign currency loans from HFW, Germany, and approval for foreign currency loans from Barclays Bank

and SBI-Frankfurt. Therefore, it is wrong on MRL''s part to presume that no permission was granted by GoI. On the one hand, GoI has granted

various approvals for SPC''s PTA/PFY project and on the other hand, MRL an instrumentality of the State is questioning the project by way of a

suit.

The learned senior counsel then contended that in the absence of the prayer for specific performance of the MoU, MRL is not entitled to get

any order of injunction as prayed for. It is submitted by the learned senior counsel that Cl. 8.4 of MoU contemplates that the parties will be entitled

to specific performance on the terms of MoU. If MRL was of the view that SPIC was doing any act whereby compliance or implementation of

MoU is prevented or frustrated or prejudicially affected in any manner whatsoever as envisaged in Cl. 8.2 nothing prevented the MRL from filing a

suit for specific performance of the terms of MoU, According, to learned senior counsel MRL was aware that on account of the change in the

circumstances, the terms of MoU are impossible of implementation even as on date, MRL was also aware that the implementation of an integrated

PTA/PFY project was outside the scope of the MoU. MRL was reconciled to the implementation of PTA/PFY by SPIC. The present suit has

been filed in order to obviate any action by the Ministry for the conduct of the Board of MRL.

As per the IDBI''s report dated September 28, 1993, PFY plant also should be part of an integrated project with PTA. However, there is no

CCEA clearance tar PFY plant. MRL was also not in a position to contribute its 8 per cent. equity in view of its financial position. The balance 84

per cent. from financial institutions was also not forthcoming in the absence of implementation of PFY plant as an integrated project with PTA.

Therefore, as on date. MRL is not ready to implement the project through AROCHEM. Therefore, MRL has not filed any suit for specific

performance of the terms of MoU. Having not filed a suit for specific performance and merely seeking a suit for declaration will not entire the MRL

to seek for an injunction restraining SPIC from implementing PTA/PFY and aromatics project through SPC and SACL.

MRL decided to go ahead with the project without SPIC and taking in a new partner. This is evident from the letter dated January 17, 1996,

written by MRL to GoI. The said letter was not filed before the learned single judge in spite of the request made by SPIC. Suppressing this fact,

MRL filed the suit alleging that SPIC has violated the terms of the MoU and misled the learned single judge that it is always willing to implement the

terms of the MoU by backward integration of the PTA/PFY project now being implemented by SPC. MRL being guilty of suppression of its real

intent of taking a new partner and not disclosing the same to the learned single judge should itself disentitle MRL to get the injunction. Hence, in

equity MRL is not entitled to any relief.

Learned senior counsel next submitted that if SPC is injuncted from going ahead with the PTA/PFY project, MRL should be in a position to

immediately take over the project and implement the same either through AROCHEM or by MRL with the third partner as it is interested to do so.

But MRL is not in a position to immediately take over the project and implement it since it has not yet got the CCEA clearance for the PFY

project. The plants which have been put up for the PTA/PFY project are inextricably linked and MRL cannot say that it will take over only the

PTA plant and not PFY plant. All utilities like steam, power, water, etc. are common for both the plants. Production of PFY from PTA is a

continuous process off-sites namely storage tanks, silos are all common. According to MRL when PTA/PFY project was envisaged as an

integrated project, PTA price was lower and PFY price was higher. Hence, it was advantageous for MRL to have an integrated project at that

time. NTOW that. PFY prices has come down but, PTA price has gone up, it suits MRL to say that it will implement PTA and SPC can

implement PFY. SPC is implementing an integrated PTA/PFY project. Therefore, MRL cannot say that it will implement the PTA project alone at

the site. wherein SPC is now putting up the PTA/PFY project. MRL alleges that the project cost has been inflated and that it wants re-appraisal of

all the contracts entered into by SPC with the foreign collaborators and other contractors in its grounds of appeal. MRL has clearly stated that it

suspects that the project has been inflated with the ulterior motives. It is, therefore, apparent that MRL is not in a position to immediately take over

the project and implement it on its own either through AROCHEM or with the new partner. If injunction is granted the project will come to a

complete standstill for a considerable length of time during which MRL wants to evaluate all the contracts. If in the opinion of MRL, the project

cost has been inflated, MRL would resort to cancellation of most of the contracts entered into by SPC for the implementation of the PTA/PFY

project. In such an event, the contractors will not keep quiet and suits will be instituted by them. The project itself will be mired in the litigation and

credibility of the country will be affected. Therefore, injunction should not be granted in favour of MRL.

Learned senior counsel submitted that if, on the other hand, injunction is not granted in favour of MRL and SPC is allowed to implement the

PTA/PFY project, no prejudice would be caused to MRL. Out of the total cost of the project, 84 per cent. of the project cost will have to be

funded by financial institutions and the public. Financial institutions will fund the project only based on IDBI''s report. The balance 16 per cent. will

be equally contributed by SPIC and MRL. If the 8 per cent. contributor is not ready to implement the project of naptha to PTA project in the first

stage, the 84 per cent. contributor will not be ready to do so in view of IDBI''s appraisal report. In such an event, MRL cannot repeat the

statement that even now it is ready to implement the naptha to PTA project without getting the approval of 84 per cent. contributor. As on date,

MRL is not in a position to implement the PTA/PFY project as suggested by IDBI. The project which was envisaged at Rs. 840 crores in the year

1987 was increased to Rs. 1,725 crores during May, 1992. By implementing the PTA/PFY project, at the particular moment SPIC has put a cap

on the project cost. Without appreciating this, MRL is now seeking to get an injunction against SPIC from implementing the project. Several

crores of public funds have been invested in the project and it will be totally inequitable to grant injunction at this stage to prevent SPC from

implementing the PTA/PFY project if the project is completed it would generate more employment opportunities and would raise the economy of

the State. The Supreme Court has held in several cases that the public purpose can be changed after vesting if it is in public interest. If SPIC had

not implemented the project, the land would have been lying as fallow land without any industrial development. It is in public interest to utilise the

land for industrial development. Out of 1,300 acres of land acquired in Manali area, SPC project alone has come up in 168.38 acres. If injunction

is granted that would result in irreparable hardship to SPIC. Three years of the project implementation by SPC is going to be over. Huge amount

has been incurred on this project. A further commitment on account of contracts signed/orders issued for Rs. 860 crores a interest charges would

accrue and in addition to this, there would be liquidated damages and penal interest if the institutional dues are not paid on time. IDBI and ICICI

have together provided deferred payment guarantee in favour of KFW, Germany, for DM 146 million (Rs. 350 crores approx.) in respect of the

foreign currency loan availed of by SPC for the engineering services and equipment supply being effected by UDHE for PFY plant. Non-payment

of dues to the suppliers and contractors will not only entail additional outflow on account of over-due interest charges but also will lead to

escalation claims which is expected to be at Rs. 10 crores per month. Delay in erection of the equipment would result in time overrun of the project

implementation resulting in additional interest and commitment charges on the borrowed funds, resulting in escalation in project cost Postponement

of delivery and erection schedules would also result in additional cost. Cancellation of the foreign contracts would result in claims towards damages

for non-performance. If the agreement with MPC and Lurgi are suspended or cancelled then the amount paid till date to them amounting to around

Rs. 115 crores, cannot be recovered. Delay in implementation leading to time and cost overrun may affect the project''s viability. Staying of

implementation may also give room for some of the competitors to enter into this area, thereby depriving this company of availability of markets for

the products, arid this would affect the employment of about 5000 workmen, Stoppage of SPC would hamper the industrial growth of this part of

the country and would seriously affect the economic development of Tamil Nadu. MRL having allowed, actively encouraged and acquiesced in the

activities of SPIC, and SPC for over two years pursuant to which enormous amounts of money, time and effort having been spent by the

defendants/respondents will be stopped from acting contrary to its earlier stand.

For the above reasons, the learned senior counsel prayed for that the conditional injunction granted by the learned single judge may be

vacated.

Mr. A. K. Mylsamy, learned counsel appeared for the fifth respondent in O.S.A. Nos. 173 and 174 of 1996, and Mr. L. Jayakumar, learned

counsel appeared for respondent No. 8 in O.S.A. Nos. 171 and 172 of 1996, and for the fourth respondent in O.S.A. Nos. 173 and 174 of

1996. Both the learned counsel appeared for the respective respondents adopted the arguments of the learned senior counsel, Shri Gopal

Subramaniam and Mrs. Nalini Chidambaram.

By way of rejoinder, the learned senior counsel, Shri K.T.S. Tulsi, appearing for the appellants in O.S.A. Nos. 171 to 174 of 1996, submitted

as under :

On the question of enforceability of the terms of MoU and its impossibility of performance by either party, learned senior counsel for the appellants

submitted that the plea of frustration is outside the scope of the pleadings of the defendants. It is settled law that no amount of arguments can be

entertained unless the same are based on the pleadings of'' the party. There was promise of participation in AROCHEM and merger. The vice-

chairman of SPIC informed that MRL and SPIC could have an MoU for integration of the new company promoted by SPIC, in AROCHEM and

merger should not pose any serious problem. SPIC''s implementation is only an intermediate step mutually agreeable MoU to be developed

between MRL and SPIC for ultimate integration/takeover of PTA/PFY project for SPC. In the letter of A. C. Muthiah it was stated that two PTA

plants are not feasible and AROCHEM should make second installment payment to UOP. Mutually acceptable procedure for integration of SPC

to be finalised by the Committee at the earliest. AROCHEM to implement the composite project. AROCHEM to buy out the contracts already

concluded and lands to be transferred back to AROCHEM and SPC not to continue the competitive project. According to the learned senior

counsel the above actions of the defendants showed that they all along deemed themselves to be bound by the MoU and that is the only reason

why they continue to promise merger and integration of SPC with AROCHEM. Had the defendants considered the MoU to have been frustrated,

there was no occasion for them to promise integration with AROCHEM. The plea of the defendants, before the learned single judge, was that

SPC was incorporated to achieve the objects of the MoU. According to the common written statement filed by the defendants before the learned

single judge it was stated that the formation of SPC on the understanding of merger in future is re-affirmed by September 2, 1994, and February 9,

1995, and the formation is not in derogation of MoU but in furtherance thereof. In the grounds of appeal filed by SPIC in O.S.A. No. 191 of

1996, it is stated that the only reason why AROCHEM''s land was sought for implementation of SPIC''s project was that it was a clear

understanding between SPIC, the Government of Tamil Nadu and AROCHEM board that SPIC''s project would be backwardly integrated with

AROCHEM, SPIC did not want to start a similar project since it was bound by the MoU. If it was not the intention of SPIC to backwardly

integrate SPC with AROCHEM, SPIC could have sought some other land from the Government of Tamil Nadu and started the project. SPIC did

not want to start a similar project in violation of the MoU. It is also stated in the grounds of appeal that PTA/PFY project of SPIC was only to

render the MoU effective inasmuch as SPC''s project was to be backwardly integrated with AROCHEM. The fact that MoU was not terminated

by either party shows that the mutual confidence reposed by the signatories To the MOU still continues. Therefore, the claim of the respondents

regarding frustration is not only just the opposite of what is pleaded, but is also hostile and contradictory to their own grounds. Such a stand cannot

be countenanced and deserves to be ignored with the contempt it deserves. The actions of the party cannot be said to be in furtherance of the

contract, when at the time it continues to urge that the contract stood frustrated in April, 1993. The two stands are totally inconsistent, incapable of

standing together and mutually destructive of each other.

The submissions of the learned senior counsel for the respondents with regard to the force majeure in the context of Cl. 9.2 of the MoU is

wholly misplaced. The said clause, inter alia, refers to embargo on export or import restrictions. The events in the present case were neither of the

nature of export embargo nor they placed any restrictions on imports. On the contrary the liberalisation only removed import restrictions and had

no relevance to export embargoes. Therefore, the respondents are not justified in invoking force majeure in the context of Cl. 9.2. In any event

force majeure on this ground cannot be invoked in the context of the express conditions laid down by the Government of India in the CCEA

approval that no additional protection by way of change of import duties will be provided. Thus, a mere change in import duties cannot invite force

majeure.

With regard to laches, the learned senior counsel for MRL submitted that there was no delay or laches on the part of the plaintiff in

approaching this hon''ble court. The defendant maintained its pretense of merger right up to September 13, 1995. It does not lie in the mouth of the

defendants to say that the plaintiff should not have believed their promises. If the promises were themselves false and fraudulent, it is an additional

reason to grant injunction to the plaintiff and not a reason for denying the injunction as claimed by the defendants.

The learned senior counsel for the plaintiff submitted that there was no delay on the part of the plaintiff in approaching the Government for

securing the approval for the PFY project. The AROCHEM board decided to establish PFY plant at an estimated cost of Rs. 400 crores. Soon

after this, AROCHEM commissioned an external agency to undertake market surveys quotations were obtained for carrying out in-house

estimation of the project cost, which was forwarded to the IDBI. IDBI gave its appraisal report with regard to PTA/PFY project in the first phase.

IDBI report was considered by the AROCHEM board and it was decided to add PFY project to the existing product slate. The plaintiff

approached the Government seeking approval for the PFY project. It was on December 30, 1993, that for the first time, the AROCHEM board

requested MRL to seek approval from the Government of India to reduce the debt equity ratio to 2 1 and the promoters'' contribution to 20 per

cent. each. The plaintiff took up the matter with the Government immediately as is clear from letter dated January 11, 1994, seeking the approval

of the Government of India for relaxation of conditions in the CCEA approval. The plaintiff did not approach the Government for reducing

promoters'' contribution as it would have caused delay in obtaining clearance. The plaintiff, therefore, cannot be accused of any delay in

approaching the Government. The above facts show that the best endeavors in fact were made by the plaintiff and therefore the plaintiff is fully

entitled to invoke the negative covenant under Cl. 8.2 of the MoU.

The averment in the plaint to the effect that clearances referred to in the Government of Tamil Nadu letter dated June 22, 1994, have been

obtained cannot be said to be either inaccurate or wrong or false, as alleged. The averment is made in the context of reference to four letters in the

same sentence in the plaint. All the four letters were filed along with the plaint. There can be no question of either suppression or misrepresentation

with regard to the clearance, which was said to have been obtained by the plaintiff as the nature of clearance obtained is clearly spelt out in each of

the four letters placed before this court. No erroneous impression could have been formed by any court nor such erroneous impression is apparent

from the judgment of the learned single judge. The plea of the defendants in this regard is only to cover up their own fraudulent conduct by alleging

a wrong pleading on the part of the plaintiff.

The learned senior counsel submitted that the plaintiff is entitled to choose his relief. Even when the plaintiff is entitled to several reliefs, it is for

him to opt or to elect the right which he wishes to enforce and give up either for the time being - or for all times the remaining reliefs. The

defendants cannot compel the plaintiff to enforce one or the other right. It is for the plaintiff to choose. whichever relief is advantageous to it. To

state that the order of the Government is also liable to be quashed on merits in writ jurisdiction can not be a ground to deny the relief by the

ordinary civil court, while vice versa can be true. The plaintiff has reserved its right to take steps to challenge the Government order at a later date

and Application No. 555 of 1996 was filed in this connection, which is pending. In any case, it is unnecessary 10 go into the question of

constructive res judicata or tile merits of the application. Since no relief was claimed against the Government of Tamil Nadu and the land was in

physical possession of the parties, which were before the court, it was neither necessary to challenge the order of the Government of Tamil Nadu

as a defendant. In the context of the reliefs claimed by the plain-tiff, neither the Government of Tamil Nadu is necessary nor a proper party to the

proceedings. Since the relief claimed by the plaintiff included the breach of fiduciary duty by certain private parties, a writ petition may not be an

appropriate remedy.

So far as the question of balance of convenience is concerned the learned senior counsel for the plaintiff submitted that the plaintiff is entitled to

an injunction and the balance of convenience is in favour of granting the same. According to the learned senior counsel, the following factors viz.,

stage of the project, court''s ability to restore status quo and compel the defendant for undoing the breach, ensuring that the nature of the property

is. not changed, ensuring that the additional third party interests are not created, ensuring that the breach, if prima facie established is not

perpetuated or continued, ensuring that the breach of fiduciary duty is not rewarded and ensuring that the denial of injunction will not result in

putting a premium on fraudulent conduct of a party for the purpose of determining the balance of convenience. Merely because a private company

has in an unfair, inequitable and fraudulent manner invested moneys in breach of the contract and is going to suffer huge loss is not a ground for

declining injunction. In so far as the question of loss of employment for hundreds of workers is concerned, it is submitted that AROCHEM can be

directed that while continuing with the civil works, it will ensure that no existing worker on SPC works is rendered unemployed. Even according to

the annual report of SPIC for 1995-96 almost the entire work done on the land taken from AROCHEM is in connection with the PFY project. So

far as PTA project is concerned, only piling foundation work is nearing completion. Apart from the foundation work, about 10 per cent.

expenditure might have been incurred towards the technology and engineering fee. The learned senior counsel also submitted that the defendants

are not entitled to any equity in their favour for the investments made unauthorisedly and in breach of the MoU. All such investments must be held

to be at the own risk of the defendants, for which they are not entitled to any protection from the court of equity.

We have heard learned senior counsel appearing for the appellant/plaintiff and the learned senior counsel appearing for the

respondents/defendants. We have also gone through the entire records placed before us.

As already stated O.S.A. Nos. 171 to 174 of 1996 are filed by MRL against the common order passed by the learned single judge, dated

July 2, 1996. In O.A. Nos. 77 and 78 of 1996, in C. S. No. 67 of 1996 and O.A Nos. 86 and 87 of 1996, in C.S. No. 73 of 1996. MRL is the

applicant in all the aforesaid applications and plaintiff in both the suits. We have already set out the reliefs sought for by MRL in the aforesaid

applications. So also defendants Nos. 1 and 2 in C.S. No. 67 of 1996, and defendants Nos. 6 and 7 in C.S. No. 73 of 1996, filed O.S.A. Nos.

190 to 193 of 1996. In the appeals filed by MRL, a request was made to remove the conditions imposed by the learned single judge while

granting interim injunction and in the appeals filed by SPIC and SPC a request was made to vacate the interim injunction along with the conditions

imposed in toto.

In the appeals before us, we are concerned with the common order passed by the learned single judge in the applications filed by the MRL in

the said two suits. The learned single judge, by his common order, directed MRL to deposit a sum of Rs. 75.68 crores into court within eight

weeks and to given an undertaking that MRL will invest in 26 per cent. of the equity of AROCHEM as conditions precedent for the amalgamation

of SPC and SAL with AROCHEM. The learned single judge also directed that on such deposit being made, SPC and SAL shall amalgamate with

AROCHEM and that the project now being implemented by SPC shall be implemented by AROCHEM thereafter that neither SPC nor SAL shall

make any public issue nor shall they induct anyone as shareholder other than MRL in the mean while that SPC and SAL being the corporate veils

for SPIC, they shall not change that character so as to ensure amalgamation and that the SPIC which has repeatedly promised integration and

merger shall not be allowed to wriggle out of the MoU and carry on with SPC and SAL projects on its own and to the exclusion of MRL if MRL

demonstrates its readiness to invest; that on amalgamation of SPC and SAL with AROCHEM, the deposit made by the MRL shall be paid to

AROCHEM for being credited towards the shares for MRL that on complying with the condition of deposit of Rs. 75.68 crores by MRL and in

case SPL and SAL do not amalgamate with AROCHEM within eight weeks from the date of such deposit, SPC and SAL are restrained by the

injunction from proceeding further with their projects and continuing their violation of MoU with impunity and disobey the directions of this court

that if MRL fails to comply with the conditions, within the time specified, SPL and SAL shall be at liberty to implement the project on their own

subject to MRL''s claim for damages, if any, for breach of MoU. Aggrieved by the conditional order passed by the learned single judge, MRL,

plaintiff/applicant preferred these appeals.

MRL had obtained an LOI dated February 6, 1987, for setting up an aromatic and petrochemical project at Manali for the manufacture of

150000 MTPA of PTA, 105000 MTPA of a paraxylene, 30000 MTPA of ortho xylene and 30000 tons of benzene. SPIC, on October 15,

1986, applied for an industrial licence for setting up a plant at Manali for the manufacture of 150000 MTPA of PTA, but could not get the license.

On January 17, 1989, MRL and SPIC, with the approval of the Government of India entered into an MoU, for implement the project covered by

the LOI granted to MRL, through a JVC to be set up for that purpose. Thus AROCHEM was incorporated on May 10, 1989. The LOI was

transferred to AROCHEM. AROCHEM enhanced the production capacity by revising the LOI. AROCHEM, in its board meeting held on April

29, 1993, revised the scope of the product and included PFY project at an estimated cost of around Rs. 400 crores.

The MoU provided for 26 per cent. shareholding each by MRL and SPIC; equal representation on the board of directors and any decisions

touching any important matters can be taken only by mutual consent of their nominee directors. Clause 8.6 of the MoU provided that the terms of

MoU cannot be amended or altered except in writing and signed by parties with prior approval of the Government of India. Clause 8.7 provides

that waiver of any breach by the other party is not to be construed as waiver of succeeding breaches of same condition. Under Clause 8.8 both

parties could approach the Government of India for necessary amendments to the terms and conditions of the MoU, if the intent and objects for

which the JVC is formed appear to be in danger or jeopardy or frustration due to factors beyond their control. Under clause 8.10 either party

could terminate the MoU if the other party failed to perform or observe any material obligation within a reasonable time.

Pursuant to the abovesaid MoU, AROCHEM was incorporated in 1989. Though AROCHEM was formed in 1989, it was only on May 28,

1992, the Government of India conveyed its approval to MRL for setting up the aromatics plant at Manali by MRL in the joint sector with SPIC

subject to certain stringent conditions such as no foreign exchange would be released for the project the project authorities should not take any

reopen loan from the financial institutions no additional protection by way of change in import duties will be provided for the project plant must

meet the minimum economic size and that the project should be completed within 33 months from the date of approval. However, these conditions

were relaxed in September, 1994.

Meanwhile, Union of India, in the budget proposals of 1993-94 had slashed down the tariff structures for petrochemicals including paraxylene

and PTA. In view of the economic liberalisation and the 1993-94 budget, the conditions stipulated by CCEA were impossible of compliance and

waiver of conditions were sought for by SPIC. AROCHEM, in its board meeting dated April 29, 1993, decided to include PFY. The cost of

aromatic and PTA plant which was estimated at Rs. 1,230 crores in 1989 was revised from time to time and as on May 28, 1992, it was

estimated at Rs. 1,725 crores. Similarly, production capacity was also enhanced from time to time. IDBI recommended to AROCHEM first to

implement PTA/PFY project as phase I and then to implement aromatic plant as phase II.

In January, 1994, SPIC formed SPC to produce 250000 MTPA PTA and 59400 MTPA PFY at an estimated cost of Rs. 1,725 crores. In

1995, SPIC formed SAL aromatic project at an estimated cost of Rs. 1,200 crores.

MPC and UOP are the two leading foreign companies in the matter of providing technology assistance for the PTA/PFY project as also

aromatics project. On December 9, 1992, and November 6, 1992, AROCHEM entered into agreements with the said two companies

respectively. Similarly, SPIC/SPC also entered into agreements with MPC on July 15, 1994.

SPC, which is formed by SPIC, is at present engaged in setting up PTA/PFY project on 200 acres of land at Manali. Out of 200 acres,

168.38 acres had been acquired and transferred to AROCHEM by the State Government. Though this 168.38 acres of land was surrendered by

project director and secretary of AROCHEM. Without the approval of AROCHEM''s board, to the State Government in June, 1994, later the

said extent of land was reallotted to SPC.

By letter dated March 14, 1988, that is even prior to the MoU between MRL and SPIC, MRL requested the State Government to

compulsorily and urgently acquire the required land for the purpose of implementing the project. The State Government acquired a total extent of

1,655.92 acres of land, of which 478 acres for AROCHEM, 689 acres for MRL and 489 acres for other industries. The acquisition, which was

challenged by the landowners, was upheld by this court. On July 23, 1992, the State Government was directed to hand over 474.80 acres to

AROCHEM. The request of the AROCHEM to allot additional extent of land was acceded to by the State Government and on June 16, 1993, an

additional extent of 169.46 acres of land was allotted, totalling to 614.17 acres. On May 28, 1992, MRL obtained the approval of the Ministry of

Petroleum and Natural Gas. MRL also obtained an appraisal report from IDBI on December 23, 1992. The cost of integrated aromatic PTA

project was estimated at Rs. 1,836 crores. As already stated, the addition of PFY plant was approved by the AROCHEM board on April 29,

1993, at an estimated cost of Rs. 400 crores. On September 28, 1993, IDBI recommended setting up PTA/PFY project in phase I and aromatic

project in phase II. MEL also obtained environmental clearance from the Government of India. This by the end of 1993, AROCHEM acquired the

land required for the implementation of the project, entered into agreements for obtaining technology from MPC and UOP, obtained IDBI''s

project appraisal report and environmental clearance from the Government of India. It was at this point SPIC embarked on to implement the

project on its own.

On November 1, 1993, the President of SPIC wrote to Ministry of Petroleum requesting the Government to allow SPIC to proceed with the

project of its own in view of the liberalisation of economic policy, SPIC also offered to reimburse MEL all the costs incurred by it till such date. In

the AROCHEM board meeting held on December 30, 1993, the Vice-Chairman of AROCHEM, who is the President of SPIC, made a

statement that SPIC would form a separate company to implement the PTA/PFY project in the same location while continuing to participate in the

AROCHEM project and if need be, these two projects can be merged/integrated at a later stage. SPIC requested AROCHEM to spare 200

acres of land for the new company to be formed by SPIC for selling up a PFY plant. SPIC wrote to the State Government on January 17, 1994,

to allot land for PTA plant along with a PFY project at Manali. SPIC requested the State Government to take back 200 acres of land allotted to

AROCHEM and allot the same for SPIC''s project. The high power committee of the State Government accepted the proposal for allotment of

around 170 acres to the new company for setting up PFY project on the north west entered into an agreement with MPC for obtaining technology

for PTA plant to be put up by SPC. SPC also applied to IDBI on August 1, 1994, for appraisal of its project and also for loans. In November,

1994, SPC entered into agreements with lenders and suppliers on a large scale and it also entered into loan agreement with KFW Germany for

financing supply of machinery. It also entered into a loan agreement with SOBI, Frankfort in March, 1995. Though MEL indicated its readiness to

invest the required fund, the nominee directors of SPIC were unwilling to proceed with the AROCHEM project. Again on June 16, 1995, SPC

wrote to the State Government for allotting 200 acres of land from out of the lands left with AROCHEM. On December 28, 1994, SPC obtained

environmental clearance, however, it was cancelled on the protest of MEL. It is under the facts and circumstances mentioned, MEL has filed the

two suits, viz., C.S. No. 67 of 1996, and C.S. No. 73 of 1996. C.S. No. 67 of 1996 is for enforcing the negative covenant contained in Cl. 8.2 of

MoU between MEL and SPIC. In C.S. No. 73 of 1996, MEL sought for a declaration that the transfer of 168.38 acres of land belonging to

AROCHEM to SPC is illegal, since it is vitiated by fraud, and for restoration of the same to AROCHEM. In O.A. Nos. 77 and 78 of 1996, MEL

sought for temporary injunctions against SPIC, SPC and SAL from proceeding to implement the PTA, PFY and aromatic projects. In O.A. Nos.

86 and 87 of 1996 MEL has sought for an interim mandatory injunction for return of the land and for temporary injunction restraining the SPC

from proceeding with further construction activities on the land.

The main points for consideration in these appeals are :

(i) Whether MEL is entitled to the relief of injunctions as prayed for by it ?

(ii) Whether the learned single judge is correct in granting interim orders attached with some conditions precedent ?

Whether MEL, on the facts and circumstances of the case, is entitled to the reliefs of injunction as prayed for by it in 0. A. Nos. 77, 78, 86 and 87

of 1996 ?

The main allegations of MEL is that the defendants are guilty of breach of trust, fraud, false representation, making false representation to MPC

that SPC is replacement of AROCHEM, making fraudulent representation to the Ministry of Environment and Forests that SPC is a replacement

of AROCHEM, incorporation of SPC and SACL as a mere cloak or sham to enable SPIC to breach the agreement abusing their position, and

getting the land of AROCHEM reallocated to SPC, diverting the technical assistance from MPC, endangering the future of AROCHEM,

committing breach of legal obligation, committing breach of MoU, committing acts amounting to corporate immorality. The basis for the above said

allegations is the formation and incorporation of SPC and SACL by SPIC for implementation of PTA/PFY project and the naphtha to PX project

respectively to the exclusion of MEL.

AROCHEM was formed and incorporated pursuant to an MoU entered into between MEL and SPIC on January 17, 1989. AROCHEM has

its own memorandum of association and articles of association. The MoU dated January 17, 1989, was incorporated in the articles of association

of AROCHEM. Therefore, the said MoU forms part of the articles of association of AROCHEM. Both MEL and SPIC have three nominee

directors each on the board of AROCHEM. SPIC, however, in breach of its contractual obligations promoted SPC to undertake a project which

is in competition with the project for which AROCHEM was incorporated. As already stated the said MoU was entered into by MEL and SPIC

for implementing the project covered by the LOI granted to MEL through a JVC to be set up for that purpose. The LOI was also transferred to

AROCHEM. The project cost and product capacity were revised from time to time. On April 29, 1993, AROCHEM revised the scope of the

project to include PFY plant in view of the economic liberalisation announced in the budget proposals of 1993. The board also decided that MEL

should seek the approval from the Government of India for reducing the debt equity ratio to 2:1 and the promoters contribution to 20 per cent.

each. On August 31, 1993, MEL suggested PTA capacity of 100000 MT and PFY of 100000 MT. In view of the suggestion of change in

capacity, the chairman of AROCHEM in the meeting held on September 6, 1993, informed that payment to MPC is to be made only after firming

up of capacity of PTA plant which till now had not been decided and MEL has to obtain approval of the Government of India for the PFY unit,

cost revision and method of implementation in phase I and II and, therefore, as a result of these imponderables payments could not be made to

MPC and not otherwise, according to SPIC.

AROCHEM sought the appraisal of the IDBI for the composite project from the naphtha to PFY. In its appraisal dated September 28, 1993,

IDBI recommended two-stage implementation, PTA/PFY in the first phase and naphtha to PX later after detailed evaluation. AROCHEM

accepted this recommendation. Subsequently AROCHEM approached IDBI for its appraisal of PTA/PFY project of first phase implementation

and the report was given on November 5, 1993, for an integrated PTA/PFY project at a cost of Rs. 1,806 crores. In the board meeting held on

December 30, 1993, after considering the IDBI appraisal it was decided to approach the Government of India to amend the conditions in the

CCEA clearance and the LOI. The product slate underwent a major change with the inclusion of PFY. The capacity of the PTA and benzene

were also changed. Thus, according to SPIC, in view of the above, the terms of the MoU stood varied in material terms.

SPIC pointed out that under Clause 8.8 of the MoU either party can approach the Government of India for necessary amendment to the terms

and conditions of the MoU if the intent and objects for which the JVC is being formed appear to be in danger or jeopardy or frustration due to the

factors beyond their control. Neither SPIC nor MEL sought to get the necessary amendments incorporated to the terms and conditions of the

MoU with reference to the change in the product mix and capacity. It is, therefore, apparent that both the parties treated that the MoU should be

observed only in spirit and not in the strict sense. In the meeting held on December 30, 1993, and March 26, 1994, it was deliberated that

PTA/PFY project will be implemented by a separate company. The State Government allotted the land as per the order dated June 22, 1994, for

the PTA/PFY project subject to the condition that the project will be backwardly integrated with AROCHEM at a later date. SPIC submitted that

as a matter of fact in the AROCHEM board meeting held on September 2, 1994, it was decided that SPIC will implement the PTA/PFY project

subject to a new MoU for integration. Therefore, according to SPIC, the MoU dated January 17, 1989, was given a go-by. According to SPIC, it

realised that MEL was not in a position to get the necessary approvals for putting up the PTA/PFY project in the phase I. The implementation of

the project through AROCHEM was getting delayed. Mean-while due to economic liberalisation PTA/PFY was delicensed. According to SPIC in

order to avoid a third-party intervening in this field and the cost of the project would get increased, thought fit to go ahead with its own project and

later on decided to incorporate/merger backward with AROCHEM as and when MEL gets all the clearances. SPIC being a private entrepreneur

it was not dependent on Government approval and not bogged down by stringent conditions. The new venture was started with the knowledge

and acquiescence of MEL and with the bona fide intention of backward integration at a later stage. SPIC informed that it will form a separate

company to implement PTA/PFY project in the same location, while continuing its participation in AROCHEM. Subsequently, on January 27,

1994, SPC was incorporated. Its intention was to go ahead with the PTA/PFY project on its own. But according to MEL even after the

conditions were relaxed by the Central Government on September 2, 1994, SPIC was attempting to exclude MEL from the PTA/PFY project.

SPIC submitted that under MoU dated January 17, 1989, MEL had four options to exercise in case SPIC was committing breach of the terms

of the agreement. Under Cl. 7.1 of the MoU, MEL should endeavour to settle the dispute by friendly consultation, failing settlement the dispute

should have been referred to arbitration secondly, under Cl. 8.2 MEL had the option to sue for specific performance of the terms of the MoU

thirdly, under Cl. 8.8 MEL should have approached the Government of India for the necessary amendments to the terms and conditions of the

MoU for changing the product slate by including the PFY project as per the IDBI report and increase the PTA capacity and sought to implement

the PTA/PFY project by AROCHEM and fourthly, under Cl. 8.10 MEL had the right to terminate the MoU if in its opinion, SPIC failed to per-

form or observe any material obligation under the MoU. SPIC submitted that MEL instead of taking the above course, stood by and watched the

project started by the SPIC for the production of PTA/PFY. On September 2, 1994, it was decided that in the absence of written communication

waiving stringent .conditions SPIC proceeded with PTA/PFY project subject to a mutually agreeable MoU to be developed between MEL and

SPIC for ultimate integration of the project with AROCHEM to overcome procedural hurdles and MEL was party to this decision.

SPIC formed a separate company called SPC to implement the project on its own without involving MEL. SACL was formed to start the

aromatics project. SPC entered into a license agreements with MPC. AROCHEM''s MPC licence was allowed to lapse. SPIC got the 168.38

acres of land which was originally allotted to AROCHEM reallocated to SPC to implement the PTA/PFY project. SPIC got the environmental

clearance granted to AROCHEM transferred to SPC. Independent agreement was entered into for UOP. SPIC also got the Government of India

approvals for licence fee payment to MPC for PTA and UHDE for PFY.

According to SPIC, the MoU does not contemplate integrated PTA/PFY project In such circumstances, the implementing of an integrated

PTA/PFY project cannot be termed as breach of MoU. The terms of the MoU were totally diluted due to the various factors mentioned above.

Therefore, the question of breach of the terms of MoU does not arise. The conduct of SPIC was bona fide. According to SPIC if the MoU is

continued MEL can exercise its rights under the MoU, but it should not have resorted to the civil suit.

On the other hand, according to MRL the conduct of the defendants is clearly hostile to the resolutions of the board of directors of

AROCHEM. According to the decision of the board as per the minutes, the defendants were not to continue to implement their competitive

project and AROCHEM was to proceed with the activities. The action of the respondents/defendants in continuing with the project is thus in

violation of the board''s resolution. Therefore, the implementation of SPC project after September 10, 1994, and the formation and incorporation

of SACL was not permissible under the Companies Act. The conduct of the respondents in continuing with the project, signing agreements with

MPC in March, 1995, with Lurgi and entering into loan agreements with SBI Frankfort and Barclays Bank are in violation of the board''s

resolution dated February 9, 1905. The respondents are continuing with the project in full swing and in complete disobedience and violation of

mandate of board of directors of AROCHEM.

According to Cl. 8.2 of MoU, neither party shall do or cause to be done any act deed or thing whatsoever whereby the compliance or

implementation of this MoU is prevented or frustrated or prejudicially affected or rendered ineffective in any manner whatsoever. Thus Cl. 8.2

contains a negative covenant. Clause 8.5. also contains a negative covenant. Clause 8.8 permits amendment to the terms of the MoU and Cl. 8.11

prescribes the procedure for amendment. Cl. 8.7 prohibits waiver by either party, breach of MoU. According to MEL even if the applicant (MEL)

is deemed to have agreed to setting up of a new company by SPIC on February 7, 1994, or on March 26, 1994, or on September 2, 1994, the

same was withdrawn on September 10, 1994. The reasons for conditional consent ceased to exist and the consent having been withdrawn, the

continuance of the project by SPIC is in breach of the mandatory requirement of MoU, and, therefore, contrary to the contractual obligations of

respective parties.

MRL submitted that continuance of the breach after cancellation of environmental clearance on August 18, 1995, all activities in connection

with the said project are in violation of section 15 and section 16 of the Environment (Protection) Act, 1986. The directors and managers are

deemed to be guilty u/s 16 of the said Act. The continuance of the project in the face of breach of statutory requirement creating a penal offence in

respect of violation is thus a relevant consideration for granting injunction.

According to MEL the question of acquisition of land was upheld by this court on the specific ground that the land was acquired for the project

of MEL. Challenge to the acquisition was made on the basis of MoU between MEL and SPIC which was rejected by holding that SPIC being

only a collaborator would not render the utilisation contrary to the purpose of acquisition. Use of the same land by the defendant for an

independent project is liable to render the acquisition unlawful. The same would be either contrary to the stand of the Government of Tamil Nadu

taken before this court as well as the judgment of the Division Bench of this court.

No delay in execution of the protect of AROCHEM can be attributed to MEL. AROCHEM started the land filling work soon after the land

was handed over to it. The construction activity was started by SPC only in November, 1994. From September 10, 1994, MEL has been insisting

with SPIC that the project should be implemented by AROCHEM. MEL had total reserves and surplus to the tune of Rs. 535 crores at that time

and the Government of India approval stood for investment up to Rs. 1,724 crores. Therefore, MEL submitted that it is not fair on the part of

SPIC to contend that MoU has become frustrated and dead. MEL submitted that while SPIC invoking the arbitration clause in the MoU also treat

the MoU as a dead letter.

Neither party terminated the MoU dated January 17, 1989. The said MoU now forms part of the memorandum of association and articles of

association of AROCHEM. SPIC''s implementation is only an intermediate step. Mutually agreeable MoU to be developed between MEL and

SPIC for ultimate integration/takeover of PTA/PFY project of SPC. Thus, the actions of the SPIC show that it all along deemed itself to be bound

by the MoU and that is the only reason it continued to promise merger and integration of SPC with AROCHEM. If the defendants considered the

MoU to have been frustrated, there was no occasion for them to promise integration with AROCHEM. The defendants stated in the written

statement that the formation of SPC on the understanding of merger in future is reaffirmed by September 2, 1994, and February 9, 1995, and the

formation is not in derogation of MOU but in furtherance thereof. There was clear understanding between SPIC and the Government of Tamil

Nadu and AROCHEM board that SPIC''s project would be backwardly integrated with AROCHEM. SPIC did not want to start a similar

project since it was bound by the terms of MoU. If it was not the intention of SPIC to backwardly integrate SPC with AROCHEM, SPIC could

have sought some other land from the Government of Tamil Nadu and started the project. SPIC did not want to start a similar project in violation

of the MoU. PTA/PFY project of SPIC was only to render the MoU effective inasmuch as SPC''s project was to be backwardly integrated with

AROCHEM. The fact that MoU was not terminated by either party shows that the mutual confidence reposed by the signatories to the MoU still

continues. SPIC pleaded frustration of MoU. The fact that the economic scenario changed due to economic liberalisation and there was delay on

the part of the MEL to get the necessary sanctions and permissions for staring PTA/PFY project would not by itself render the frustration of the

MOU. Since MoU now forms part of the memorandum of association and articles of association of AROCHEM, it is not open to the defendants

now to say that there was frustration of MoU and therefore SPIC can violate the contract and start a business which is competitive in nature to the

business of AROCHEM.

It was submitted by the defendants that there was force majeure in the context of Cl. 9.2 of the MOU; Cl. 9.2 refers to embargo on export or

import restrictions. The events in the present case were neither of the nature of export embargo nor they placed any restrictions on imports. On the

contrary, the liberalisation only removed import restrictions and had no relevance to export embargoes. It is the submission of the plaintiff that force

majeure on this ground cannot be invoked in the context of Cl. 9.2. In any event, the force majeure on this ground cannot be invoked in the context

of the express conditions laid down by the Government of India in the CCEA approval that no additional protection by way of change of import

duties will be provided. Therefore, it was submitted that a mere change in import duties cannot invite force majeure.

According to SPIC, MEL stood as a silent spectator and watched the progress made by SPIC in starting a new company for production of

PTA/PFY. It was contended that right up to September 30, 1995, the defendants were contending that the new project was started with the

intention of backward integration/merger with AROCHEM. It is only at the later stage SPIC came forward to exclude MEL from the new venture.

According to MEL the letters dated April 29, 1993, September 28, 1993, December 30, 1993, and February 10, 1994, would go to show

that MEL was also acting for securing approval for PFY project. It was for the first time on December 30, 1993, AROCHEM board requested

MEL to seek approval from the Government of India to reduce the debt equity ratio to 2 :1 and the promoters contribution to 20 per cent.

According to MEL by letter dated January 11, 1994, it was seeking the approval of the Government of India for relaxation of conditions in the

CCEA approval. MEL did not approach the Government for reducing the promoters'' contribution since it would cause delay in obtaining

clearance. MEL pointed out that the promoters'' contribution is much more than 20 per cent. for the newly started venture by the SPIC. Therefore.

the plaintiff submitted that they have taken their best endeavours to comply with the resolutions passed by the AROCHEM board and hence they

cannot be blamed for not taking any action in that direction.

MEL submitted that SPIC had hijacked the project from AROCHEM contrary to the terms of the MoU and is trying to make the project of

its own to the exclusion of MEL. MEL also submitted that by taking advantage of the flexible approach of the plaintiff in taking into account the

changed economic policy, SPIC had engineered a complete hijacking of the project by systematic takeover of the land, technology and

environmental clearance without caring to abide by the letter or spirit of the terms of MoU, the articles of association of AROCHEM or decision of

AROCHEM board. The intention of the defendants to implement the PTA/PFY project independently without the participation of MEL is clearly

spelt out in the letter dated November 1, 1993, addressed to the Government of India. The intention of SPIC to put up an independent PTA/PFY

project was formed even prior to IDBI appraisal report in this regard. On November 1, 1993, there was no impediment in the way of the

defendants from implementing PTA/PFY project independently if they had chosen an appropriate and legal course of action of doing the same.

The defendants had a unilateral right to terminate the MoU on specific conditions. The conduct of the defendants in continuing to be

partners/shareholders with MEL and also in AROCHEM and at the same time implementing the project independently to the exclusion of MEL

has resulted in the dichotomy.

MRL submitted that from the sequence of events it would go to show that Dr. A. C. Muthiah made a patently false representation to the Chief

Secretary to the Government of Tamil Nadu, in his letter dated April 4, 1994, with regard to the decision of the board of directors of

AROCHEM. The omission of PTA project in the letter dated January 5, 1994, of Mr. A. C. Muthiah written to the chairman, AROCHEM is an

intentional and deliberate misrepresentation with regard to his true intention. His true intention was to implement the PTA/PFY project of

AROCHEM through SPC and to the exclusion of MEL. Having known that MEL was not agreeable to such a course of action reference to PTA

was dropped. According to MEL this is not only a clear case of misrepresentation but also a fraud to get the lands by keeping MEL in the dark

about the true intention of the SPIC.

It remains to be seen that the land has been allotted in violation of the minutes of the high power committee meeting. According to MRL the

allotment has been made to its detriment. According to MEL the whole transaction relating to allotment of land to SPIC is tainted with mala fides,

in collusion with AROCHEM board and project director and secretary of AROCHEM. It seems that the project director of AROCHEM resigned

from AROCHEM and joined as a director in the new company formed by SPIC.

It is the submission of MEL that since the defendants failed to secure a clear transfer of land from the Government of Tamil Nadu and because

the transfer of laud got saddled with mandatory conditions of the new company being an intermediate step and the condition of backward

integration/merger, it was compelled to continue in AROCHEM and maintain the project on merger and integration. Refusal on the part of the

defendants to terminate the MoU was out of fear of losing the land which was allotted on the condition of backward integration/merger. Since the

prime objective of SPIC was to secure the land the instructions of the chairman with regard to approval of the board before handing over

possession had to be disregarded by the project director.

The defendants sought appraisal of SPC project for PTA/PFY from IDBI. IDBI by its report dated June 7, 1994, suggested that the

defendants should inform IDBI about the allotment of 170 acres of land. The facts contained in the Government order dated February 16, 1994,

and February 7, 1994, had been brought to the notice of the IDBI. It is almost certain that IDBI would never have granted approval to the project

of SPC without taking into account the position of MEL in the matter which was a prospective joint venture partner. Even if the project was to be

appraised with. the change of the conditions attached to the transfer of the lands, the conditions on subsequent merger have to be mentioned

amongst the risk factors. It is inexplicable as to on what basis the defendants could have represented to IDBI that it had acquired the land when the

actual order of allotment was made only on February 22, 1994, and the possession was taken on June 27, 1994.

The refusal to make payment of fees to MPC is based on the absence of waiver of stringent conditions. But at the same time SPIC was

already negotiating with MPC for entering into an agreement for technological transfer for SPC project. In fact, the defendants were under a

fiduciary obligation particularly Dr. A. C. Muthiah, being the Vice-Chairman of AROCHEM not to enter into a technology transfer agreement for a

competitive project. The defendants never displayed any intention to merge/integrate with AROCHEM to its shareholders and investors.

MRL pointed out that letter dated September 10, 1994, would go to show that the defendants still continued their object to independently

executing their project by forming SPC and SAL. The defendants clearly refused to abide by the resolution of the board dated September 2,

1994, according to which SPIC would proceed with PTA/PFY project subject to mutually agreeable MoU and MEL and SPIC with a condition

of ultimate integration/merger of PTA/PFY project with AROCHEM. This was only an intermediary step to overcome the procedural hurdle.

While this decision was taken by the board under the signature of the chairman, the defendants were fully and completely bound by the minutes of

the board duly recorded and duly circulated. The defendants were bound to abide by the minutes until the board subsequently took a decision with

regard to the defendants'' objection to the minutes. The minutes were duly circulated u/s 191 of the Companies Act. Instead of abiding by the

conditions/decision of the board, the defendants accelerated the pace of implementation of the independent project. As many as five agreements

were concluded on March 1, 1995, and three agreements in July, 1995.

According to MEL, the minutes of the 27th board meeting dated September 2, 1995, were taken up for consideration only in the 29th board

meeting held on September 13, 1995. Even on September 13, 1995, the minutes of the board meeting held on September 2, 1995, were not

considered. They were only required to be read along with letters given by the directors. According to MEL, since the construction activities of

SPIC had not been completed and the building had not been put in use the plaintiff is entitled to an order of interim injunction to preserve the status

quo and to forestall an irreversible situation.

With regard to the maintainability of the suit, MEL submitted that even assuming that MEL itself is not a subscriber to the memorandum and

articles of association of AROCHEM, the memorandum of association of AROCHEM is subscribed by the nominees of MEL and the declaration

u/s 187C of the Companies Act was duly filed by both the subscribers and the nominee company. The secretary of AROCHEM has also filed the

declaration with the Registrar of Companies and acknowledged the same. By this compliance, MEL has become the legal beneficial owner of the

shares of AROCHEM. Under article 87 of the articles of association of AROCHEM, MEL and SPIC were recognised as the promoters of

AROCHEM and were entitled to have three directors each on the board of AROCHEM. Each party was to hold not less than 26 per cent. of the

paid-up capital of AROCHEM. While both the promoters continued to make investments in AROCHEM by way of share application deposit,

allotment of shares did not take place till date. Nevertheless both the parties are promoters and derive their right to participate in the management

of the company through their directors from the articles of association. The five nominees of MEL are, in any case shareholders in the JVC and,

therefore, the plaintiff being the beneficial holder of the interest in the JVC is entitled to maintain the suit.

It was further submitted that the suit for enforcement of negative covenant in the MoU is instituted by MEL both as a signatory to the MoU and

as a shareholder of the JVC. Since the MoU continues to be in operation by virtue of clause 8.9 of the MoU, the plaintiff is entitled to enforce the

negative covenant as a binding contract between the parties. For the purpose of enforcing the negative covenant, MEL need not assert its status as

a shareholder or as a promoter of the JVC. Since MRL is a party and signatory to the MoU, it has adequate locus standing to maintain the suit

notwithstanding the incorporation of the JVC.

Even assuming that MRL is the beneficial shareholder of the shares in the JVC yet MEL would not have been debarred from maintaining the

suit in the present facts as it would be covered by the exception to the rule laid down in Foss v. Harbottle [1843] 2 HARE 461. The suit filed by

MEL is covered by two out of the four exceptions stated in the said case, viz. (a) as the averments in the MOU suit constitute a fraud on the JVC

(b) the action of setting up competitive companies is illegal and ultra vires the MoU and in this regard MEL relied on the following decisions-Foss

v. Harbottle [1843] 2 Hare 461 Polymer''s Company Law, - XXVth edition, para 8.806 to 8.817, pages 8180-8191 : Halsbury - With edition,

page 445, para. 728 NVR Nagappa Chettiar v. Madras Race Club [1949] 19 Comp Cas 175 (Mad) Estmanco (Kilner House) Ltd. v. Greater

London Council [1982] 1 AER 437(g) to 445(j) and Daniels v. Daniels [1970] 2 AER 89.

It was further submitted by MEL that so far as the locus standi of MEL in the land suit is concerned the same is maintainable u/s 88(2) of the

Indian Trusts Act. The land has been transferred by MEL to the joint venture company in trust for setting up the projects jointly between the MEL

and SPIC. Since the land has been transferred illegally, fraudulently in breach of trust by AROCHEM, the suit can be maintained by the MEL even

though the MEL is the owner of beneficial interests on behalf of the subscribers to the memorandum of association of AROCHEM. Apart from the

fact that the land was transferred from AROCHEM fraudulently and in breach of trust, even the condition of subsequent merger has been

completely ignored and plaintiff''s land has eventually been misappropriated. Thus, MEL is entitled to maintain the suit for establishing fraud and

breach of trust on the part of the defendants.

According to MRL, permitting the SPIC to retain the land even after the defendants have made their intention clear that integration/merger is

not possible, would amount to the acquisition of land by invoking section 17 illegal. Since the acquisition was upheld by this court on the express

ground that the land was acquired for the benefit of MEL, the judgment would be rendered baseless. This would create an anomalous situation,

particularly, in the light of the findings and the circumstances, which show that the defendants from the beginning, never intended merger with

AROCHEM and had set about to appropriate the project of AROCHEM for execution of the projects by their own subsidiary to the exclusion of

MEL or AROCHEM. According to MEL it i entitled to choose its reliefs. Even if it is entitled for several reliefs, it is for the MEL to opt or to elect

any one or more which it wishes to enforce and give up either for the time being or for all times, the other reliefs. The defendants cannot compel the

plaintiff to enforce any particular right and to seek for any particular reliefs.

Since no relief was claimed against the Government of Tamil Nadu and the land was in the physical possession of the parties which were

before the court it was neither necessary to challenge the order of the Government dated June 22, 1994, nor was it necessary to implead the

Government of Tamil Nadu as a party to these proceedings. In the context of the reliefs claimed by the plaintiff neither the Government of Tamil

Nadu is necessary nor a proper party to the proceedings. It was also submitted that since the reliefs claimed by MEL include the breach of

fiduciary duty by certain private parties, viz., directors of AROCHEM as well as the project director and secretary of AROCHEM the present suit

is competent and maintainable. Since MEL is having beneficial interest through its shareholders, we consider that the suits filed by MEL are

competent and maintainable.

The foregoing discussions culminate in the following conclusions :

That C.S. No. 67 of 1996 is for a declaration that PTA/PFY project implemented by the first defendant through the second defendant is in

violation of the MoU dated January 17, 1989, and for a declaration that the AROCHEM project proposed to be implemented by the first

defendant through the fourth defendant for the manufacture of paraxylene and other aromatic products is in breach of and contrary to the terms and

conditions of MoU dated January 17, 1989. MoU dated January 17, 1989 was entered into between MEL and SPIC out of which AROCHEM,

JVC was formed and incorporated under the Companies Act. The said MoU now forms part of articles of association 6 AROCHEM. MEL says

that in violation of and in breach of Cl. 8.2 of the MoU the first defendant implemented the project to produce PTA/PFY through the second

defendant. According to the first defendant in view of the change in economic policy and economic liberalisation in the 1993 budget proposals the

MoU has become frustrated and in order to avert the loss, the first defendant has floated a new company SPC for the purpose of producing

PTA/PFY. MEL submitted that ultimately it approached the Government of India by letter dated February 10, 1994, for sanction to start a project

to produce PTA/PFY. None of the parties herein either determined. or put an end to the MoU dated January 17, 1989. MEL is the beneficent

holder through its shareholders/nominees of AROCHEM. Therefore, MoU dated January 17, 1989 is still in existence and in force, inasmuch as

the SPIC itself suggested that MEL can seek relief through arbitration under MoU.

The point in dispute is whether SPIC is entitled to start a new venture in order to do competitive business in the same product, for which

AROCHEM was formed, to the exclusion of MEL in view of the change in economic policy of the Government of India or its continuance in the

JVC would cause loss to SPIC and on account of it as against the terms contained in Cl. 8.2 of MOU is it open to SPIC to start a new venture

even though it had all along given an impression that starting of a new venture is only an intermediate measure and it would ultimately

integrated/merged with AROCHEM. For the reasons given by us hereinabove, we hold that MoU dated January 17, 1989, is still in force and the

same now forms part of the articles of association of AROCHEM. If SPIC is in a disadvantageous position on account of change in economic

policy, it should first terminate the MoU and then try to start a new venture for doing the same kind of business. Generally a partner of a firm or a

shareholder of an incorporated company is prohibited by law to run a similar and competitive business to the detriment of the firm/company in

which he is a partner/shareholder. Whatever might be the reason given by SPIC for starting a new company, the action of SPIC in starting a new

company to the exclusion of MEL is not justified in law.

In the interlocutory application filed in C.S. No. 67 of 1996, the plaintiff has sought for a temporary injunction restraining the first defendant -

acting by itself or through the second defendant from taking any further steps in implementing its PTA/PFA project and interim injunction restraining

the first defendant acting through the fourth defendant from taking any steps in implementing its AROCHEM project.

The first defendant is a party to the MoU dated January 17, 1989, and without terminating the said MoU and because of the fact that it may

incur loss in continuing the joint venture on account of change in economic policy the first defendant cannot join with the second and fourth

defendants, floating new ventures for the purpose of doing business rival to the business of AROCHEM. The land was allotted by the State

Government as per the recommendation of the high power committee meeting to a joint venture, which is to function under the supervision of

MEL, but due to certain irregularities 160.38 acres of land was allotted to SPC, which is not a joint venture of SPIC and MEL and which is not

under the supervision of MRL. Therefore, the land was allotted to SPC in violation of the conditions prescribed by the high power committee.

Under such circumstances, if defendants Nos. 2 and 4 in C.S. No. 67 of 1996, were allowed to continue their project that would cause

irreparable injury and hardship to MEL. Thus, considering the averments contained in the plaint and in the affidavits filed in support of the

applications filed for interim injunction and after hearing learned senior counsel appearing on either side, we are of the opinion that on the facts and

in the circumstances of the present case, MEL has made out a prima facie case for grant of interim injunction as prayed for by it in both the suits.

Now it remains to be seen that if on the land allowed to MEL and now belonging to AROCHEM, defendants Nos. 2 and 4 in C.S. No. 67

of 1996 are allowed to proceed to establish their project for doing rival business along with the first defendant and though construction to certain

extent was made but business is not yet commenced, that would cause loss to the business to be commenced by AROCHEM. Further, if

defendants Nos. 2 and 4 are permitted to proceed further with the first defendant in completing their project, excluding MEL, that would also

cause difficulties in the matter of integration/merger which has all along been promised by the first defendant. Therefore, we consider that the

balance of convenience so lies in favour of MEL in granting interim injunction. On the facts and circumstances of the case, we are also satisfied that

if interim injunction is not granted, that would cause great hardship and irreparable loss to MEL. Therefore, we consider that on the facts, the

plaintiff is entitled to an order of interim injunction as prayed for by it in O.A. Nos. 77 and 78 of 1996, in C. 5. No. 67 of 1996.

In so far as C.S. No. 73 of 1996 is concerned, MEL has sought a declaration that transfer of 168.38 acres of land in June, 1994, belonging

to the joint venture company AROCHEM to SPC was illegal being vitiated by fraud and for restoring the same to AROCHEM. In the said suit,

MEL filed O.A. Nos. 86 and 87 of 1996, for an interim mandatory injunction for return of the land and for temporary injunction to restrain SPC

from proceeding with further construction on the land.

As already stated a total of 614.17 acres of land was allotted to AROCHEM by the Government of Tamil Nadu for the purpose of

implementing the aromatics products project. In the year 1993, in view of the economic liberalisation in the budget proposals announced by the

Government of India, SPIC sought the permission of the Government of India to proceed with the project of its own to implement the PTA/PFY

project in the same location. SPIC also promised that it would continue to participate in the AROCHEM project and if need be, these two

projects can be merged/integrated at a later stage. SPIC requested AROCHEM to spare 200 acres of land for starting its own project. SPIC

wrote to the State Government on January 17, 1994, to allot land for PTA plant long with a PFY project at Manali. SPIC requested the State

Government to take back 200 acres of land allotted to AROCHEM and allot the same for SPIC''s project. The High Power Committee of the

Government of Tamil Nadu accepted the proposal for allotment of around 170 acres of land to the new company for setting up PFY project,

subject to certain conditions. One such condition is that the new company would be under the supervision of MEL. There is also a condition that it

should backwardly integrate with AROCHEM. But in the subsequent communications between the Government officials and the parties herein the

said conditions as mentioned in the high power committee were omitted. The order of allotment of land was not in accordance with the

recommendations of high power committee. Even in the minutes of the high power committee there is no mention of 168.38 acres of land to be

allotted in favour of SPC for PTA/PFY project. It was only for PFY project. But however, SPIC managed to get 168.38 acres of land for

PTA/PFY project by making arrangements with the departmental heads of the Government of Tamil Nadu. Learned senior counsel appearing for

MEL attributed certain irregularities committed by the Government officials and Vice-Chairman and Project Director of AROCHEM in the matter

of allotment of land to SPC. The minutes of the high power committee early states that the land should be allotted only for PFY project. But the

land was allotted both for PTA as well as PFY projects. The General Manager, District Industrial Cell, Chengai-MGR District, by letter to the

Secretary of AROCHEM, asked for the original land documents pertaining to 168.38 acres of land.

On June 27, 1994, SPC entered into an agreement with the Government of Tamil Nadu for allotment of land. The Government of Tamil

Nadu completed the formalities of execution of the agreement and pattas were also issued in favour of SPC. Successive quick attempts were made

by the State Government in transferring the land in favour of SPC. The conduct of the project director and secretary of AROCHEM in handing

over the land documents to the Government of Tamil Nadu without the approval of the AROCHEM board and the swift action of the State

Government in transferring the lands to SPC raises all sorts of doubt. It is to be noted here that the project director of AROCHEM, after transfer

of lands in favour of SPC, is now made as a director of the newly started company by SPIC called SPC. Considering all these aspects in this

regard, we are of the opinion that a thorough investigation and a detailed probe is necessary in this matter to bring out the real and clear picture and

the role played by the Vice-Chairman, Project Director of AROCHEM and the concerned departmental heads of the Government of Tamil Nadu.

For SPC, Dr. A. C. Muthiah, Vice-Chairman of AROCHEM, requested the Government of Tamil Nadu to allot 200 acres of land from the

lands allotted to AROCHEM. If this 200 acres of land is allotted then the interest of AROCHEM would be jeopardised. The fact that the State

Government passed an order dated June 22, 1994, transferring the land and the same was not followed-up by the Government officials concerned

and Dr. A. C. Muthiah, it is not necessary to challenge that order at this stage. The grievance is that the said order was not implemented properly.

It is also to be noted that in the disputed land projects were commenced without obtaining the environmental clearance. In the writ appeal this

court categorically held that the lands in Manali area were acquired for the purpose of implementation of aromatic projects by MRL. The allotment

of 168.38 acres of land of SPC is against the decision of the high power committee. Now, SPIC, SPC and SACL are totally preventing MRL

from taking part in their project. Therefore, the earlier promise to SPIC of backward integration/merger was given a go-by. The land in question

has been transferred to a JVC (AROCHEM) in trust for setting up of a joint venture project between MEL and SPIC. Learned senior counsel

appearing for MEL submitted that all the employees/labourers engaged in the construction activity can be absorbed in the work force of

AROCHEM once it commences implementation of the project in accordance with the MoU. Even otherwise, the said employees can easily be

relocated in other companies in the Manali industrial area. The cost incurred on the construction activity can also be reimbursed by the

AROCHEM after independent evaluation if backward integration is effected.

Considering all these aspects and the conduct of the parties, we are convinced that MEL has made out a prima facie case in C.S. No. 73 of

1996. It also established that if injunction is not granted as prayed for that would cause irreparable loss and hardship to it and it also established

that the balance of convenience rests in its favour for grant of injunction. However, the prayer of MEL in O.A. No. 87 of 1996, i.e., for a

temporary mandatory injunction directing the seventh respondent to hand over possession to the eighth respondent of 168.38 acres of suit land,

cannot be granted at this stage.

In so far as some of the conditions imposed by the learned single judge for granting interim injunctions are concerned, they cannot be

complied with by the parties without the intervention of the court and, therefore, all the conditions imposed by the learned single judge are vacated

and the plaintiff in C.S. No. 67 of 1996, in C.S. No. 73 of 1996, is granted interim injunctions as prayed for by it in O.A. Nos. 77 and 78 of

1996, in C. 5. No. 67 of 1996, and in O.A. No. 86 of 1996, in C.S. No. 73 of 1996, without imposing any conditions, pending disposal of the

above said two suits. Interim mandatory injunction asked for by the plaintiff in O.A. No. 87 of 1996, in C.S. No. 73 of 1996, cannot be granted at

this stage. Accordingly, the common order passed by the learned single judge in the aforesaid interlocutory applications stands modified to the

above said extent.

In the rest, O.S.A. Nos. 171 to 173 of 1996, are allowed with costs. O.S.A. No. 174 of 1996, is dismissed without costs. 0.5. A. Nos. 190

to 193 of 1996, also stand dismissed with costs.

After pronouncing the common judgment in O.S.A. Nos. 171 to 174 of 1996, etc. batch today, learned senior counsel appearing for SPIC,

filed a memo requesting eight weeks time to move the Supreme Court for suitable orders as against the injunction granted by us in O.S.A. Nos.

171 to 173 of 1996.

After hearing learned counsel appearing on either side, injunction granted in O.S.A. Nos. 171 to 173 of 1996, stands suspended for a period

of eight weeks from today on condition that SPC/SACL shall not create any new interests in favour of any third parties during the above said

period.