1998 (2) TMI 615 - Board - Companies Law

CLB upholds consent terms in Companies Act case involving Indo Saudi Travels Private Limited

The CLB dismissed applications seeking modification or recall of consent terms in a Companies Act case involving Indo Saudi Travels Private Limited. The ... Consent terms - recording of compromise - parties being ad idem - company's interest - power to recall or modify consent order - enforcement of agreed settlement - deposit made without prejudice - alternative remedy / concurrent proceedingsConsent terms - parties being ad idem - recording of compromise - enforcement of agreed settlement - Validity and finality of the consent terms dated July 8, 1997 as incorporated in the Company Law Board order dated August 14, 1997 and whether that order should be recalled or the petition proceeded with on merits - HELD THAT: - The Board found that the compromise was arrived at after negotiations in the presence of the Bench, the terms were dictated, signed by the parties and their counsel and included a schedule of payment; there was no contemporaneous indication that the consent was subject to further adjustments. The argument that the parties were not ad idem was rejected on the basis that if the terms had been subject to further adjustments, agreement to the full schedule of payment and instalments would not have been recorded. The contention that the compromise was against the interest of the company was answered by noting the consent terms allowed purchase by respondent No. 2 or his nominee (and not only by the company), so the company would not necessarily be required to make the payment; accordingly the Board did not find the compromise contrary to the company's interest. The Board also held it lacked power to review its order in the absence of agreement between the parties for modification and observed that no submission established the consent terms to be unlawful. In view of these findings the applications seeking recall or modification of the consent order were dismissed and the consent terms were directed to be acted upon (paras. 10-14). [Paras 10, 11, 12, 13, 14]Applications to recall or modify the consent order dismissed; the parties are bound by the consent terms as recorded in the order dated August 14, 1997 and the petition will not be heard on merits.Incorporation of additional terms - recording of compromise - consent terms - Permissibility of respondents' applications to incorporate additional adjustment terms into the consent terms - HELD THAT: - The Board examined the applications filed shortly after signing but found no prior or contemporaneous understanding communicated at the time the consent terms were agreed and signed. The respondents' claim that the agreed sum was subject to later adjustments was not supported by the recorded negotiations or the signed draft. Given the petitioner's refusal to concur in any modification and absence of a legal basis to treat the recorded consent as unconscionable or void, the Board rejected the applications seeking incorporation of the additional terms (paras. 1-3, 5-6, 10-14). [Paras 6, 10, 11, 12, 14]Applications to incorporate further adjustment terms into the recorded consent are dismissed; the consent terms remain as recorded.Deposit made without prejudice - alternative remedy / concurrent proceedings - Whether the deposited sum of Rs. 50 lakhs should be ordered to be paid to the petitioner - HELD THAT: - The Board noted the deposit was made to demonstrate bona fides and was explicitly stated to be without prejudice to the parties' contentions; there was no undertaking that it constituted the first instalment nor was any direction recorded to that effect. Further, the Bombay High Court had recorded an undertaking restraining the company from making payment in terms of the compromise, making any payment now inconsistent with the concurrent proceedings. In these circumstances the Board declined to order payment of the deposit to the petitioner and left the matter subject to the determination of the Bombay High Court (para. 15). [Paras 15]No order for payment of the deposited sum to the petitioner; payment issue is subject to the Bombay High Court proceedings.Alternative remedy / concurrent proceedings - impleadment and stay - Prayer of certain shareholders to be impleaded and for stay of further proceedings in view of a suit in the Bombay High Court - HELD THAT: - The Board observed that those shareholders had chosen the alternative remedy of initiating suit in the Bombay High Court and had approached the Board only at a late stage. In view of the availability of an alternative forum and the lateness of their application, the Board declined to implead them or stay proceedings (para. 14). [Paras 14]Requests for impleadment and for stay of proceedings are refused.Final Conclusion: All applications challenging, seeking to vary, or seeking recall of the consent terms are dismissed; the parties are bound by the consent terms as recorded on August 14, 1997 and the deposited sum shall not be paid to the petitioner pending the outcome of the Bombay High Court proceedings. Issues Involved:1. Validity of the consent terms agreed upon by the parties.2. Whether the consent terms should be modified or recalled.3. Whether the amount of Rs. 50 lakhs deposited should be paid to the petitioner.Detailed Analysis:1. Validity of the Consent Terms:The petition was filed under Section 397/398 of the Companies Act, 1956, concerning Indo Saudi Travels Private Limited. During the proceedings, the parties agreed to a settlement where the petitioner would sell her group's shares to respondent No. 2 or his nominees or to the company for Rs. 2.3 crores. This agreement was reached on July 8, 1997, in the presence of the Company Law Board (CLB) and was documented and signed by both parties and their counsel. However, respondent No. 2 later sought to incorporate additional terms into the consent order, arguing that the Rs. 2.3 crores was agreed upon under the impression that certain dues payable by the petitioner to the company and respondents would be adjusted against this amount.2. Modification or Recall of Consent Terms:Respondent No. 2 filed applications (C.A. No. 196 of 1997 and C.A. No. 202 of 1997) seeking to modify the consent terms, arguing that the terms were not binding as they did not reflect the complete understanding between the parties. He contended that the payment of Rs. 2.3 crores without adjustment of dues was unconscionable and not in the interest of the company. He further argued that the parties were not ad idem (in agreement) when the consent terms were signed and that the compromise should not be imposed on an unwilling party.The petitioner opposed these applications, stating that the consent terms were agreed upon after detailed discussions and should stand as they are. The petitioner argued that the CLB does not have the power to review its own orders unless both parties agree to the modification, which was not the case here. The petitioner cited various legal precedents to support this argument, including S. C. Nandy v. G. M. Bhattacharjee, AIR 1951 Cal 507 and B.G. Maikap v. Janaki Dei, AIR 1980 Orissa 108.The CLB considered the arguments and found that the consent terms were agreed upon willingly by both parties and that there was no indication of any additional understanding at the time of agreement. The CLB concluded that it did not have the power to review its own order unless both parties agreed to the modification. Therefore, the applications for modification or recall of the consent terms were dismissed.3. Payment of Rs. 50 Lakhs Deposited:The respondent-company had deposited Rs. 50 lakhs in the name of the petitioner to establish bona fides for an amicable settlement. The CLB noted that this amount was deposited without prejudice to the contentions of both parties and that it was not recorded as being towards the first installment of the Rs. 2.3 crores. The CLB decided not to order the payment of this amount to the petitioner, especially since the Bombay High Court had undertaken that the company would not make any payment to the petitioner in terms of the compromise. Thus, any payment to the petitioner in terms of the consent by the company became a subject matter of the suit in the Bombay High Court, and both parties would have to abide by the decision of the Bombay High Court.Conclusion:The CLB dismissed all applications and directed that the consent terms, as recorded in the order dated August 14, 1997, be acted upon. The parties were bound by the consent terms, subject to any order passed by the Bombay High Court. The CLB also noted that it did not have the power to review its own orders unless both parties agreed to the modification. The request for payment of the Rs. 50 lakhs deposited by the respondent-company was also denied, considering the undertaking recorded by the Bombay High Court.