NCLT Rules on Consent Terms Breach, Recommends Settlement or Committee Management

The NCLT found that Respondents 2 and 3 violated the consent terms by not complying with payment schedules and creating a charge on the company's assets. However, Petitioners also breached terms by not executing transfer deeds and withdrawing legal cases. Due to mutual non-compliance, the NCLT recommended a fresh settlement or the appointment of an Independent Committee of Management. The appeals were dismissed, and the NCLT's decision was affirmed.

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Issues Involved:
1. Allegations of oppression and mismanagement.
2. Compliance with consent terms Annexure 'A' and 'B'.
3. Violation of consent terms by Respondents.
4. Forfeiture of amounts paid under consent terms.
5. Appointment of an Independent Committee of Management.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
Petitioners 2 to 4, along with Respondent No.11, filed CP 16 of 2014 alleging acts of oppression and mismanagement against Respondents 2 to 8. During the proceedings, mediators facilitated consent terms which were recorded as Annexures 'A' and 'B' and accepted by the Company Law Board on 15th December 2014.

2. Compliance with Consent Terms Annexure 'A' and 'B':
The consent terms 'A' required Respondents 2 and 3, along with Dr. Sunil Rajan, to purchase shares from Petitioners 2 to 4. Consent terms 'B' involved Respondents 2 and 3 purchasing shares from Respondents 4 to 7. Disputes arose regarding the compliance and execution of these terms, leading to various applications filed by the parties.

3. Violation of Consent Terms by Respondents:
Petitioners argued that Respondents 2 and 3 violated several terms of Annexure 'A', including failing to make payments within the stipulated six months, creating a charge on the company’s property, not depositing post-dated cheques, and not paying professional fees within the specified period. Respondents countered that Petitioners did not execute transfer deeds as required and failed to withdraw legal cases, thereby violating terms 14 and 15.

4. Forfeiture of Amounts Paid Under Consent Terms:
Respondents 4 to 7 claimed forfeiture of amounts paid by Respondents 2 and 3 due to the latter's violation of term 5 of Annexure 'B'. The NCLT found that Respondents 2 and 3 paid the entire sale consideration within the nine-month period specified, thus not breaching term 4, and therefore, forfeiture was not warranted.

5. Appointment of an Independent Committee of Management:
NCLT observed that both Respondents 2 and 3 and Petitioners failed to perform according to the consent terms. Given the complexities and mutual non-compliance, NCLT suggested a fresh settlement or the appointment of an Independent Committee of Management as per term 19 of Annexure 'A'. This was to ensure the company's management was placed in capable hands in the interest of justice and all stakeholders.

Conclusion:
The NCLT concluded that Respondents 2 and 3 violated term 5 of Annexures 'A' and 'B' by creating a charge on the company’s assets to raise funds for purchasing shares. Additionally, they did not comply with the time-bound payment schedule, thus breaching term 4 of Annexure 'A'. However, Petitioners also failed to execute transfer deeds and withdraw legal cases, violating terms 6, 14, and 15. Given these mutual breaches, the NCLT's direction for a fresh settlement or the appointment of an Independent Committee of Management was deemed appropriate. The appeals were dismissed, and the NCLT's judgment was upheld.

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