Misappropriation of investment funds occurs not just by siphoning money but also by enjoying benefits of an investor’s funds without fulfilling corresponding obligations. Company law mandates refund of share application money if shares are not allotted within 75 days, and any usage beyond that is a clear statutory violation. Interim protection under Section 9 can extend to personal assets of promoters if they directly benefit from funds meant for the company.

The Court rejected the objections raised by the respondents and held that failure to allot shares amounted to a clear violation of company law and contractual obligations. Found that the Greater Kailash Property was integral to the dispute, as its release was enabled by the petitioner’s funds. Ordered Kapani Resorts, Virendra Kapani, and Vaibhav Kapani to: a) Deposit USD 1 million equivalent (with interest at 12% p.a.) into the court within two weeks. b) Restrained respondents from selling, mortgaging, or alienating any assets of Kapani Resorts. c) Restrained respondents from alienating the Greater Kailash Property.

Acts and Sections Discussed:

• Arbitration and Conciliation Act, 1996 – Section 9 (Interim Measures by Court)
• Companies Act, 2013 – Sections 42(6), 241, 242 (Mismanagement, Oppression, and Share Allotment)
• Code of Civil Procedure, 1908 – Principles of Interim Relief & Attachment Before Judgment

Subjects:

Arbitration Proceedings – Interim Relief – Misappropriation of Funds – Share Allotment – Investor Protection – Foreign Investment – Oppression – Mismanagement – Company Law Violation – Mortgage Release – Personal Guarantee Discharge

Nature of the Litigation:

• Petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim relief for protection of investment and enforcement of rights under an arbitration agreement.

Who Approached the Court and for What Remedy?

• Petitioner: Mr. Manmohan Kapani (foreign investor, aged over 90 years)
• Relief Sought: Injunction against the respondents from alienating assets, securing the investment amount, and ensuring compliance with contractual obligations.

Reason for Filing the Case:

• The petitioner invested USD 1 million into Kapani Resorts Pvt. Ltd. under a Share Subscription Agreement, increasing his shareholding to 51%.
• The funds were used by the company to settle debts with SIDBI, which also released personal guarantees of respondents and mortgaged assets.
• However, the company failed to allot shares to the petitioner, depriving him of his rightful control over the business.

What Had Already Been Decided Until Now?

• Parallel oppression and mismanagement proceedings were initiated before NCLT but later withdrawn.
• A Section 9 petition was dismissed by the Delhi High Court for lack of territorial jurisdiction.

Issues Before the Court:

a) Whether interim relief could be granted under Section 9 of the Arbitration Act despite the property in dispute belonging to the respondents personally.
b) Whether the failure to allot shares and misappropriation of investment constituted a violation under company law.
c) Whether the Greater Kailash Property, which was released using petitioner’s funds, should be treated as subject matter of dispute in arbitration.

Submissions / Arguments:

• Petitioner’s Arguments:

  • The company misappropriated his investment, using it to settle debts without issuing shares.
  • Section 9 allows broad interim relief, including preservation of disputed properties.
  • Section 42(6) of the Companies Act mandates refund of share application money if shares are not allotted within 75 days.

• Respondents’ Arguments:

  • The funds were used for their intended purpose (to repay SIDBI), so there was no misappropriation.
  • The Greater Kailash Property is not a company asset and hence not subject to arbitration-related relief.
  • The petitioner had parallel proceedings in NCLT and approached different courts, showing lack of clean hands.