TaxTMI 
TaxTMI 
2010 (9) TMI 213
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....ver, take exception to the order passed in Notice of Motion Nos. 3230/2000, 392/2001, 534/2002 and 1231 of 2002. 3. Appeal No. 840/2003 is filed by the defendant No. 3 against the order in Notice of Motion No. 3230/2000 in Suit No. 2499/99. The Appeal No. 841/2003 is also filed by the defendant No. 3, but against the order in Notice of Motion No. 392/2001 in Suit No. 509/2001. Appeal No. 855/2003 is filed by defendant No. 4 against the decision in Notice of Motion No. 534/2002 in Suit No. 509/2001. Appeal No. 857/2003 is filed by defendant No. 3 against the decision in Notice of Motion No. 1231/2002 in Suit No. 2499/99. We would for the sake of convenience reproduce the reliefs claimed in the said four Notice of Motions, which is the subject-matter of controversy before us in the four appeals. The same reads thus :- N/M No. 3230/2000 in Suit No. 2499/1999 (filed on 15-11-2000) "(a)that this Hon'ble Court may be pleased to grant leave to defendant No. 3 to act pursuant to implement and enforce the consent Arbitral Award dated 21-9-2000. (b )ad interim relief in terms of prayer (a) above; (c )for costs; (d )For such other and further relies as the nature and circums....
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.... disposal of the suit defendant No. 2 be restrained by an order and injunction of this Hon'ble Court from entering into an settlement and/or compromise or agree to pay or admit or acknowledge its liability in any proceedings including arbitral proceedings with Mukund Ltd. without the leave of this Hon'ble Court. (f )For ad interim reliefs in terms of Prayers (a), (b), (c ), (d) & (e) above. (g )For costs of this Notice of Motion. (h)For such other order and reliefs as this Hon'ble Court deems fit and proper." N/M No. 1231/2002 in Suit No. 2499/1999 (filed on 24-4-2002) "(a )that order dated 29-2-2000 passed by His Lordship Mr. Justice D.K. Deshmukh on Notice of Motion No. 1804/99 in the above Suit be set aside and/or varied or modified; (b )that pending the hearing and final disposal of the above suit order dated 29-2-2000 passed by His Lordship Mr. Justice D.K. Deshmukh on Notice of Motion No. 1804 of 1999 in the above suit stayed; (c )for ad interim relief in terms of prayer (b) above; (d )for costs of this Notice of Motion; (e )for such other order and reliefs as this Hon'ble Court deems fit and proper." 4. Briefly stated, the plaintiffs have major ....
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....cement was issued by the defendant No. 1 informing the public that it has agreed to acquire 45,001 equity shares of Rs. 100 each for a price of Rs. 300 per share representing 30 per cent of the equity shares of defendant No. 2. The defendant No. 3 initially lodged its protest with the defendant No. 1 and eventually filed suit before the Delhi High Court complaining about the breach committed by the defendant No. 1 and in particular arriving at an arrangement with the plaintiffs which had the effect of violating the non-competing clause contained in the agreement dated 12-5-1995 executed in its favour by the defendant No. 1. In addition, it was the case of defendant No. 3 that the arrangement agreed upon by the defendant No. 1 with the plaintiffs was in violation of the governing laws. At the instance of defendant No. 3, the Division Bench of the Delhi High Court restrained the defendant No. 1 from acquiring shares of the defendant No. 2 company in breach of the agreement dated 12-5-1995. The said injunction was challenged by defendant No. 1 before the Apex Court. In the said Appeal, the parties agreed for making reference to Arbitrator to decide the matter relating to ownership and....
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....d 75,001 shares. (a1)( i) "In the alternative and in the event of prayer (b) not being granted", that it be declared that the negative covenant contained in clause 6.1 of the agreement dated 23rd June, 1997 being Ex. 'B' hereto is binding on the defendant; (a1)( ii)(b) that the defendant by themselves their agents and servants be restrained by a perpetual order and injunction of this Hon'ble Court from (i )committing breach of clause 6.1, of the Agreement dated 23rd June, 1997 being Ex. 'B' hereto; (ii )transferring or selling or alienating the legal and/or beneficial interest in the shares of defendant No. 2 including those mentioned in Ex. 'A' hereto without first offering the same to the plaintiffs in terms of clause 6.1 of the Share Purchase dated 23rd June, 1997 being Ex. 'B' hereto. (iii)obtaining any award, decree order from any forum or court in violation of clause 6.1 of the Share Purchase Agreement dated 23rd June, 1997 being Ex. 'B' hereto. (iv)making any claim before the Arbitrators or any Court which if granted will amount to a breach or violation of the provisions of clause 6.1 of the said Share Purchase Agreement dated 23rd June, 1997 being Ex. 'B' ....
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....of the said shares as per directions of the plaintiffs". (e )for interim and ad interim orders in terms of prayers (c) and (d) & (d.1 ) above; (f )for costs; (g )and for such further and other orders and reliefs as this Hon'ble Court may deem fit and proper in the facts and circumstances of this case." 8. The plaintiffs took out Notice of Motion in the said suit wherein ad interim relief was granted against the defendant No. 1 from transferring the shares in question in breach of clause 6.1 of the said SPA dated 23-6-1997. The said ad interim order was continued and has been operating against the defendant No. 1. 9. In the meantime, the defendant Nos. 1 and 3 invited Consent Award before the Arbitrator. Thereafter, the defendant Nos. 1 and 3 formed defendant No. 4 company. On record it has been shown as if the defendant No. 1 would hold 51 per cent shares and the subsidiary of defendant No. 3 company-Morgan Trade and Commerce Ltd., would hold only 49 per cent shares therein. This attempt was essentially to transfer the shares of defendant No. 2 company purchased by the defendant No. 1 company from the plaintiffs and from the public aggregating to 75,001 shares in fav....
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....ons firm or body corporate including 1st and/or 3rd and/or 4th defendants, without the consent of the plaintiffs; (j)that the 1st defendant be ordered and decreed to deliver/return to the respective plaintiffs the said 45,001 shares together with all accretions thereto from 23rd June, 1997 on such terms as this Hon'ble Court directs; (k)for the purpose aforesaid the 1st defendant be ordered and decreed to do and perform all acts, deeds, matters and things and to execute all documents, deeds and writings in furtherance thereof; (l)that pending the hearing and final disposal of the suit, the defendants be restrained by an order and injunction of this Hon'ble Court from transferring and/or registering and/or taking any steps to transfer and/or register the said 75,001 shares to the name of any person or persons, firm or body corporate including the 1st, 3rd and 4th defendants without the consent of the plaintiffs; (m)that pending the hearing and final disposal of the suit, the defendants Nos. 1, 3 and 4 be restrained by an interim order and injunction of this Hon'ble Court from :- (i)exercising any rights including its beneficial owner in to or upon in respect of the sa....
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....change the existing ratio of 75,001 shares (i.e., 50 per cent + 1 shares) of the respondent No. 10 Company qua the remaining shareholders; (iii)to claim, receive or recover any bonus share, dividend, rights or any other privilege attached to or incidental to the said share; and (iv)sell, transfer, assign, encumber or otherwise deal with 75,001 shares of the respondent No. 10 referred to in the Plaint in the above suit; (d )that the appellants be granted ad interim reliefs in terms of prayers (a), (b) and (c ) above; (e )that the respondents be ordered to pay to the appellants costs of the Notice of Motion; and (f )that such other and further reliefs be granted to the appellants as the nature and circumstances of the case may require." N/M No. 3113/2003 in Appeal No. 841/2003 (filed on 14-10-2003) "(a )that pending the hearing and final disposal of the Suit, the operation of judgment and orders dated 23-6-2003 and 2-5-2003 passed by His Lordship Mr. Justice S.A. Bobde making Notice of Motion No. 392/2001 in Suit No. 509 of 2001 absolute, be stayed; (b )that the appellants be granted ad interim reliefs in terms of prayer (a) above. (c )that cost of the Noti....
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....lement and to restructure the Company as mentioned in the Corporate Announcement on the BSE website. (c )That pending the hearing and final disposal of the above Appeal this Hon'ble Court may be pleased to restrain the respondent No. 10 their servants, agents and officers by an Order and injunction of this Hon'ble Court from transferring the said 75,001 shares in the name of respondent Nos. 1 to 8 or in the name of any other person except the appellants. (d )For ad interim relief in terms of Prayers (a), (b) & (c ) above. (e )For costs of this Notice of Motion. (f)For such other order and reliefs as this Hon'ble Court deems fit and proper." N/M No. 29/2006 in Appeal No. 840/2003 (filed on 10-2-2006) "(a )that the Impugned Order dated 26th March, 2003 and further clarified by order dated 2nd May, 2003 be set aside forthwith. (b )that the said impugned order dated 26th March, 2003 and further clarified by dated 2nd May, 2003 be stayed pending the hearing and final disposal of the Appeal. (c )that this Hon'ble Court may be pleased to declare that the suits No. 2499 of 1999 and No. 509 of 2001 have become infructuous and/or cannot be proceeded with and the same ....
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.... and respondent Nos. 1 to 8 with an independent Chairman. (b )That pending the hearing and final disposal of the above Appeal, this Hon'ble Court may be pleased to appoint Court Receiver, High Court, Bombay or some other fit and proper person as Receiver of all the assets and properties of respondent No. 10 including the immovable property of the respondent No. 10 situate at Allahabad Astride Marg, Mulund (W), Mumbai - 400 080. (c )That pending the hearing and final disposal of the above Appeal, the alleged Development Agreement (entered into between the respondent No. 10 and respondent No. 12) mentioned at EXHIBIT 'C' may be cancelled. That pending the hearing and final disposal of the above Appeal, respondent No. 10 their servants, agents and subordinate officers be restrained by and order and injunction of this Hon'ble Court from selling, disposing of, encumbering or creating third party interest or parting with possession of its immovable property situated at Lal Bahadur Shastri Marg, Mulund (W), Mumbai - 400 080 and in its all other assets and properties and from creating any liability over the respondent No. 10. (d )That pending the hearing and final disposal of the ....
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....an order and injunction of this Hon'ble Court from placing or considering, adopting and/or approving the audited account of the respondent No. 10 Company for the year ended on 31-3-2008 in its Annual General body Meeting to be held on 23-6-2008 or on any other date; (b )That pending the hearing and final disposal of the above Appeal, respondent Nos. 1 to 10 their servants, agents, subordinate officers be restrained by an order and injunction of this Hon'ble Court from placing or considering any agenda in respect of approving and/or confirming the grant of development rights and/or sale of its immoveable property situate at L.B.S. Marg, Mulund (W), Mumbai - 400 080 in favour of respondent No. 12 in the Annual General Meeting to be held on 23-6-2008 or on any other date; (c )for ad interim reliefs in terms of prayers (a) & (b) above. (d )for costs of this Notice of Motion. (e )for such other order and direction as this Hon'ble Court may deem fit in the circumstances of the case." 13. It was urged that the reliefs claimed in the suits cannot be granted. In that, if the plaintiffs were asking for rescinding the contract being illegal and void, cannot in the same suit in ....
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....o. 4 company. If so, the transfer of 75,001 shares by defendant No. 1 in favour of defendant No. 4 was not a transfer in favour of Hoechst Group of company but in favour of defendant No. 4 which was to be controlled by Goyal Group having majority shareholding therein. 17. The Learned Single Judge then adverted to the other arguments of the plaintiffs that even otherwise the first agreement between plaintiffs and defendant No. 1 namely SPA dated 23-6-1997 was void on account of fraud and misrepresentation practiced by defendant No. 1 on the plaintiffs. Further, the agreements executed by defendant No. 1 in favour of defendant No. 3 and the transfer of 75,001 shares of defendant No. 2 company in favour of defendant No. 4 was also void and illegal being founded on fraud and misrepresentation of the Court. It is held that, in fact, attempt to overreach the Court has been made by the said defendants 1, 3 and 4 in effecting the 2nd transfer of said shares on 17-2-2000. 18. The Learned Judge then proceeded to analyze the relevant documents and drew inference that from the events referred to therein. It is seen that the signing of said SPA dated 23-6-1997 was preceded by suppression ....
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....who wanted to provide modern technology and technical know-how to the defendant No. 2 company controlled by the plaintiffs. The plaintiffs agreed to sell their shares in the overall interest of the defendant No. 2 company and to relinquish their right of management of the defendant No. 2 company. Thus, the Learned Single Judge reiterated the finding that the intention of defendant No. 1 in entering into the said SPA dated 23-6-1997 with plaintiffs was for joint acquisition of the shares with defendant No. 3. 20. Notably, the Learned Single Judge disallowed the request of the defendant No. 3 to withdraw the statement made on its behalf in the proceedings to the effect that the defendant Nos. 1 and 3 intended to acquire the shares jointly. 21. Learned Single Judge then proceeded to examine the argument of the plaintiffs that the Share Purchase Agreement is in violation of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as 'SEBI Regulations' for the sake of brevity). The said Regulations mandatorily require the disclosure of the names of the joint acquirers. The defendant No. 3 was obviously the ....
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....ns as it fails to disclose the name of defendant No. 3 who was acting in concert with defendant No. 1 and the public announcement was bad in law for non-disclosure of the name of the joint acquirer. At any rate, the public announcement failed to disclose the object of acquisition was the eventual holding of the shares were to be with defendant No. 3. 24. The Learned Single Judge has then adverted to the decision of the Division Bench of our High Court in the case of Shirish Finance & Investment (P.) Ltd. v. M. Srinivasulu Reddy [2002] 109 Comp. Cas. 913 ^1. The Learned Single Judge has also adverted to the decision of the Apex Court in the case of Badri Prasad v. Nagarmal AIR 1959 SC 559 which in turn restates the exposition of Privy Council in Surajmull Nagoremull v. Triton Insurance Co. Ltd. 52 Indian Appeals INB. APP. 126. Relying on the said decisions, the Learned Single Judge has noticed that the SEBI Regulations must be considered mandatory and its breach would invalidate the transaction. It is further held that on account of violation of SEBI Regulations, the SPA dated 23-6-1997 would be prima facie illegal and void. That would have consequential effect on the subsequent ....
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....und that it was an attempt to overreach the orders of this Court. Even for that reason the Learned Single Judge found that the transfer of shares would be illegal. 29. Insofar as the question as to whether the second transfer dated 17-2-2000 resulted in "breach of clause 6.1" of the said SPA dated 23-6-1997, after considering the effect of disclosure made in the affidavit of Franklyn, J. Brunsdon. The Court held that false statement was made to the effect that defendant No. 1 had 51 per cent share in the defendant No. 2 company. That, however, was rectified in the contempt proceedings from which it was clear that defendant No. 1 eventually and in fact held only 49 per cent of shareholding in the defendant No. 4 company and remaining 51 per cent was held by the subsidiary of defendant No. 3 Goyal Group. Thus, the second transfer was not in favour of Hoechst Group of company as such. All the relevant documents indicating circular transactions effected simultaneously on the same day have been adverted to by the Learned Single Judge before coming to this conclusion. It is thus found that there was clear breach of clause 6.1 of the said SPA dated 23-6-1997. The Learned Judge also rei....
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....t No. 4 merely claims to be owner of shares of defendant No. 2 company in terms of agreement dated 17-2-2000 between it and defendant No. 1. Whereas, the claim of defendant Nos. 3 and 4 of enforcement of Consent Award between defendant No. 3 and defendant No. 1 having been rejected, the defendant No. 4 cannot get any relief. The defendant No. 4 was only a prospective shareholder of the defendant No. 2 company and has no right of representing in respect of shares of defendant No. 2. The Learned Single Judge also accepted the argument of the defendant No. 2 company that interim relief of injunction can be granted only in aid and as ancillary to the main relief which may be available to the parties for final determination of the rights in the suits or the proceedings. To buttress this submission, reliance was placed on the Apex Court decision in the case of Cotton Corpn. of India Ltd. v. United Industrial Bank Ltd. AIR 1983 SC 1272. The Learned Single Judge also accepted the contention of the defendant No. 2 company that the property of the defendant No. 2 company was not the subject-matter of the suit. The Learned Single Judge noticed that at best it can be said that the subject-matt....
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....allowed in terms of prayer clauses (a) & (b). 35. Against this common Judgment and order, the defendants 3 and 4 have filed four Appeals challenging the injunction granted in favour of the plaintiffs and against the defendants and also to challenge the order rejecting the prayer of defendants 3 and 4 for allowing the defendants 3 and 1 to execute the Consent Award between them. In the Appeals more or less same issues have been raised. In addition, it is urged that the plaintiffs have failed to disclose the agreement dated 5-12-2002 between the plaintiffs and defendant No. 1. The plaintiff should be non-suited on account of suppression of material fact from the Court. Besides, it is contended that on perusal of the said agreement, it is noticed that all allegations against the defendant No. 1 in the two suits filed by the plaintiffs would stand withdrawn. In other words, no cause of action survives against defendant No. 1. In such a situation, the suits itself have become infructuous by reason of the said agreement dated 5-12-2002. By the said agreement amongst others, it has been agreed that all disputes and differences between the plaintiffs and defendant No. 1 are fully and fi....
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....ion is whether the suits have become infructuous due to the agreement dated 5-12-2002, for which reason the same deserve to be dismissed even while considering the present proceedings. For considering this issue, we may think it apposite to reproduce the agreement dated 5-12-2002. The material terms of the said agreement read thus :- (1)A Share Purchase Agreement dated 23-6-1997 was entered into between "MGG" and "Ruias" ("Ruia Agreement"). Clause 6.1 of the "Ruia Agreement"contained a right of first refusal in favour of the Ruias. (2)Pursuant to the Ruia Agreement, 45,001 (forty five thousand one) shares of Bombay Oxygen Corporation Limited ("BOCL") were delivered by "Ruias" to "MGG" and the consideration provided therein was paid by "MGG" to "Ruias". Additionally, "MGG" acquired 30,000 shares in "BOCL" from the public pursuant to an offer made in accordance with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("SEBI Takeover Code") and paid consideration for the same. The said 75,001 shares of "BOCL" however continue to be registered in the names of the original registered shareholders. (3)There have been sev....
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.... as a further part of the settlement, it is hereby agreed that "MGG" hereby sell/reverts/transfers/divests in favour of the "Ruias" all its right, title and interest in the remaining 30,000 shares in "BOCL" which "MGG" had acquired from the public, but which has also not been registered in the name of "MGG" in the records of "BOCL". However, "MGG" has no knowledge of the current whereabouts of the share certificates and other documents/pertaining to the 30,000 shares and is not in a position to secure return/delivery of the same. (8)In consideration for the foregoing, "Ruia" agree to pay "MGG" a sum of US $ 1,54,642 in respect of the 75,001 shares of "BOCL", without any other or further obligation whatsoever on the part of "MGG" to the "Ruias" except as provided in this Agreement. The "Ruias" shall also not have any further obligation to "MGG" except as provided in this Agreement. (9)The aforesaid amount of US $ 154,642 shall be paid/remitted by "Ruias" to "MGG" in US Dollars through wire transfer to "MGG's" bank account with Deutsche Bank, AG Frankfurt am Main, Account Number: 0944488, SWIFT CODE: DEUTDEFF. On receipt of the said sum to the aforesaid bank account, "MGG" shal....
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....he Indian Public shareholders. Consequently, "Ruias" will be solely responsible for doing all acts, deeds and things that may be necessary for effecting the transfer of these shares from the currently registered shareholders to the "Ruias" at the sole cost and expense of the "Ruias". (c)It is hereby agreed between the parties that an advance copy of the contents of the application to the "RBI" seeking permission for remittance (and any further communication required to be made to the "RBI" in connection with the said application) shall be given to Ms. Lira Goswami, Associated Law Advisers, New Delhi, prior to its filing with the RBI. (d)Forthwith on receipt of RBI's approval, the "Ruias" shall send a written communication to Ms. Lira Gowami, Associated Law Advisers, New Delhi, along with the copy of the approval letter. (12)Upon execution of this Agreement, as far as "MGG" is concerned, this Agreement shall be an "executed" contract with no further obligations attaching to it under this Agreement and under no circumstances will it be open to the "Ruias" to seek return of consideration paid to "MGG" under this Agreement or to make any claim or demand or file any suit or pro....
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....G" on the Board of "MHL" and/or Goyal MG Gases Ltd.: (i)Civil Contempt Petition No. 101 of 2000 in the civil suit filed by the "Ruias" in Suit 2499 of 1999 titled Shyam Madan Mohan Ruia v. Messer Griesheim GmbH. (ii)SLP(C) No. 18617/2001 titled Shyam Madan Mohan Ruia v. Messer Griesheim GmbH. (16)The parties shall so far as possible keep in confidence and shall not disclose or divulge to any third party the contents of this Agreement except to the extent required by law or for purposes of obtaining RBIs approval or for implementing this Agreement. In the event of any disclosure, an advance copy shall be given to Ms. Lira Goswami, Associated Law Advisers, New Delhi prior to filing. (17)The remittance of US $ 154,642 to MGG under this Agreement shall be subject to deduction of income-tax at source, if required, under the Income-tax Act, 1961. If any tax is deducted at source, "Ruias" shall provide to "MGG" a certificate under section 203 of the Income-tax Act, 1961 (in the prescribed form and within the prescribed period) in respect of the tax deducted at source. The parties shall also co-operate with each other for purposes of obtaining all necessary income-tax clearance....
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....s agreed upon between the parties. The defendant No. 1 has, however, expressed its inability to return the said shares as it was not in physical possession thereof and had no knowledge of its current whereabouts, but at the same time by the said agreement the defendant No. 1 has sold/reverted/transferred/divested the shares in favour of the plaintiffs. Indeed, if the stand of defendant No. 1 is to be accepted as it is, it would necessarily follow that the second transaction effected by defendant No. 1 in favour of defendant No. 4 will have to be ignored as void and non est in law. In that case, in law, the ownership of all the 75,001 shares remained with the defendant No. 1 until 5-12-2002. Therefore, the defendant No. 1 would be competent to transfer the same to the plaintiffs, as is the effect of the agreement between the defendant No. 1 and the plaintiffs dated 5th December, 2002. The fact that at the time of executing the contract dated 5-12-2002 the defendant No. 1 could not deliver the disputed shares, in law, would make no difference. Irrespective of non-delivery of the said shares to the plaintiffs, the title thereof has passed on to the plaintiffs. The only question would ....
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....at no point of time, the defendant No. 1 disclosed the fact that they have already entered into Share Purchase Co-operation Agreement with defendant No. 3 on 12-5-1995. This is in spite of the fact that it was made clear in unmistakable terms to the defendant No. 1 that the plaintiffs would part with substantial shareholding in favour of defendant No. 1 only, if the defendant No. 1 alone were to acquire substantial shareholding in the defendant No. 2 company. At no point of time, the plaintiffs had agreed for inclusion or association of defendant No. 3 with the right of management of defendant No. 2 company. That could not have been agreed by the plaintiffs as the defendant No. 3 is the business rival of the defendant No. 2 company, which is controlled by the plaintiffs. If the fact that defendant No. 1 has already entered into Share Purchase Agreement dated 12-5-1995 were to be disclosed to the plaintiffs, the plaintiffs would not have entered into any agreement with the defendant No. 1 at all. 42. We may now usefully refer to clause 4.2 of the said SPA which provides that no representation or warranty by the defendant No. 1 in the said agreement and no document executed by the....
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....ndant No. 1 filed affidavit in this Court, there was some doubt whether the defendant No. 1 had major shareholding of defendant No. 4 to the extent of 51 per cent and the subsidiary of defendant No. 3 had only 49 per cent of shares therein. If the shares held by the defendant No. 1 were to be in excess of 50 per cent of the shares of defendant No. 4, it would follow that the defendant No. 4 is a Hoechst Group Company. However, defendant No. 1 has taken a clear stand that by circular transactions effected on the same day on 17-2-2000, the net result is that the shares held by defendant No. 1 of defendant No. 4 company are only to the extent of 49 per cent, whereas the shares held by the subsidiary of defendant No. 3 is to the extent of 51 per cent with right of management of the defendant No. 4. In other words, it is the Goyal Group who is in control of the defendant No. 4 company. The circular transactions have been graphically explained by a pictorial sketch at Exhibit A to the written submissions filed on behalf of defendant No. 1. In view of the stand taken by the defendant No. 1 on affidavit, there is no manner of doubt that the defendant No. 4 was never intended to be and cann....
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....ultantly, the said clause 6.1 is in the teeth of section 111A of the Companies Act. To buttress this submission, reliance has been placed on the decision of the Apex Court in the case of V.B. Rangaraj v. V.B. Gopal Krishnan AIR 1992 SC 453 and Western Maharashtra Development Corpn. Ltd. v. Bajaj Auto Ltd. [2010] 154 Comp. Cas. 593^1 (Bom.). The plaintiffs on the other hand have placed reliance on the decision of the Apex Court in M.S. Madhusoodhanan v. Kerala Kaumudi (P.) Ltd. AIR 2004 SC 909. However, since the decision in the case of Western Maharashtra Development Corpn. Ltd. (supra) of the Learned Single Judge of this Court is directly on the point, it was argued that the conclusion reached in the said decision is not correct. 47. We shall first refer to the decision in the case of Western Maharashtra Development Corpn. Ltd. (supra). In that case, the parties had incorporated clause 7 in the Protocol Agreement which provided that right of pre-emption is created between the petitioner and the respondent in the event that either of them seeks to part with or transfer its shareholding in the joint venture company formed by them. In view of certain disputes the matter was referr....
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....concerned, the Articles of Association restrict shareholders' rights to transfer the shares and prohibit invitation to the public to subscribe to shares or debentures of the company. The Learned Single Judge has then adverted to the opinion of the Apex Court whereby the dictum in V.B. Rangaraj's case (supra) has been distinguished on the ground that there was no restriction on the transferability of the shares in the Karar and the Karar itself was an agreement between the particular shareholders relating to transfer of specified shares which was capable of specific performance. The Learned Single Judge then proceeded to observe that a situation involving a restriction of transferability of shares in a private company has to be contrasted with cases involving public companies where the law provides for free transferability. It is thus held that free transferability of shares is the norm in the case of shares in a public company. The Learned Single Judge has then held that provision contained in the law for the free transferability of shares in a public company is founded on the principle that the members of the public/every shareholder must have the freedom to purchase and every sha....
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....incorporated in the Articles of Association, is to preclude sale to or purchase by the members of the public of the shares, which are offered for sale if the offer is accepted by the petitioner, or as the case may be, by the respondent within thirty days of the receipt of the notice. The effect of a clause of preemption is to impose a restriction on the free transferability of the shares by subjecting the norms of transferability laid down in section 111A to a pre-emptive right created by the agreement between the parties. This is impermissible. Section 9 of the Companies' Act, 1956 gives overriding force and effect to the provisions of the Act, notwithstanding anything to the contrary contained in the Memorandum or Articles of a Company or in any agreement executed by it or for that matter in any resolution of the Company in general meeting or of its Board of Directors. A provision contained in the Memorandum, Articles, Agreement or Resolution is to the extent to which it is repugnant to the provisions of the Act, regarded as void. 65. Counsel appearing on behalf of the respondent submitted that section 111A has no application to contracts for the transfer of particular shares ....
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....ontracts of pre-emption as contained in promotion or collaboration agreements or in the Articles of Association of a Limited Company as contracts to which the said Act shall not apply. That notification, it has to be noted, related to an exemption from the provisions of the SCRA and cannot override the plain mandate of section 111A. Besides, section 111A was introduced in the Companies' Act, 1956 by the Depositories Act, 1996 with effect from 20th September, 1995. The plain intendment and meaning of section 111A must prevail." The Learned Single Judge has then adverted to the Delhi High Court Judgment in the case of Smt. Pushpa Katoch v. Manu Maharani Hotels Ltd. 2005 (121) DLD 333 which has taken a similar view. 48. The Counsel appearing for the plaintiffs submits that the decision in the case of Western Maharashtra Development Corpn. Ltd. ( supra) does not lay down the correct law. For, it is founded on misreading of the Judgment of the Apex Court in M.S. Madhusoodhanan's case (supra). According to the plaintiffs, the Apex Court in M.S. Madhusoodhanan's case (supra) has distinguished the dictum in V.B. Rangaraj's case (supra) on the finding that in V.B. Rangaraj's case (sup....
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....easons of the Amending Act of 1985. It makes it clear that the provision was intended to restrict the right of the Board of Directors to refuse registration of transfer of shares only on the specified reason. Sans those reasons, bestowed wide discretion in the Board. That places an undue burden on small investors and was not conducive to free marketability of listed securities and healthy growth of the capital market. It states that unrestricted transferability is particularly necessary for securities of public limited companies which are listed on the Stock Exchange. Further, under the proposed provision, companies would be entitled to refuse registration of transfer in specified circumstances only. It is by Depositories Act, 1996, section 22A of the Securities Contracts (Regulation) Act, 1956 came to be deleted and simultaneously section 111A of the Companies Act, 1956 was introduced, which declares the shares of a company to be freely transferable. Section 111A (3) simultaneously restricted the right of a company to seek rectification of a transfer of shares, only on specified grounds. Our attention was also invited to clause 14 of the notes on clauses of the Companies Amendment....
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....cably resolved their disputes inter se by agreement dated 5-12-2002. Neither the defendant No. 3 nor the defendant No. 4 is party to the said agreement. Challenge to the terms contained in the said agreement between plaintiffs and defendant No. 1 at the instance of defendants 3 and 4 who are not party to the agreement that too in these proceedings is itself doubtful. 50. The question is : whether clause 6.1 of SPA can be said to be violative of free transferability of shares provided by section 111A of the Act. For that, we may have to consider the objects and reasons for which section 111A has been introduced in the Companies Act. Prior to introduction of section 111A, section 111 of the Companies Act, 1956 provided for remedy of appeal to a transferor or transferee seeking relief in respect of a transfer/transmission of shares in public or private company. They could apply for rectification of register of members under section 155. With effect from 17-1-1986, section 22A was inserted in the Securities Contracts (Regulations) Act, 1956. It provided that the shares of the registered company to be freely transferable. However, the company could refuse transfer only on four specif....
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....s) Act, 1985 (1 of 1986), or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records.] (4) The Company Law Board while acting under sub-section (3), may at its discretion make such interim order as to suspend the voting rights before making or completing such enquiry. (5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Company Law Board. (6)Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the Company Law Board, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been susp....
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....a (supra) which takes the view that the freedom of contract generally, the Legislature does not interfere except when warranted by public policy, and the "legislative intent is expressly made manifest". Even in the case of ICICI Bank Ltd. (supra), the Apex Court has in unmistakable terms expounded that while enacting a Statute, Parliament cannot be presumed to have taken away a right in property and deprivation of legal right existing in favour of a person. That cannot be presumed in construing the Statute. In fact, it is the other way round and a contrary presumption must be raised. The concept of free transferability of shares of a public company is not affected in any manner if the shareholder expresses his willingness to sell the shares held by him to another party with right of first purchase (pre-emption) at the prevailing market price at the relevant time. So long as the member agrees to pay such prevailing market price and abides by other stipulations in the Act, Rules and Articles of Association there can be no violation. For the sake of free transferability both the seller and purchaser must agree to the terms of sale. Freedom to purchase cannot mean obligation on the sha....
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....iation, the Act and the Rules, in relation to the specific shares held by them; and such agreement can be enforced like any other agreement. That does not impede the free transferability of shares at all. 53. Thereafter, the Apex Court went on to analyze the V.B. Rangaraj's case (supra) and has distinguished the same on the opinion that in that case there was a blanket restriction on all the shareholders present and future. There was no such restriction in the case before it. In the case before it was an agreement between particular shareholders relating to the transfer of specified shares and it was unnecessary for the company or the other shareholders to be party to the agreement. In other words, the decision in M.S. Madhusoodhanan's case (supra) is an authority on the proposition that consensual agreements between particular shareholders relating to their specific shares do not impose restriction on the transferability of shares. Further, such consensual agreements between particular shareholders relating to their shares can be enforced like any other agreements. It is not required to be embodied in the Articles of Association. 54. We shall now turn to the opinion of the L....
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....or an express condition in the Articles of Association or in the Act and Rules, as the case may be, in that behalf. The legal provision as obtained in the form of section 111A of the Companies Act does not expressly restrict or take away the right of shareholders to enter into consensual arrangement/agreement in respect of shares held by him. 56. We find force in the argument of the plaintiffs that the logic applied by the Learned Single Judge is founded on the erroneous premise that an agreement of pre-emption, even if freely entered into by a shareholder and third party or between shareholders, imposes a restriction on the free transferability of shares. 57. The Learned Single Judge has then distinguished the exposition in M.S. Madhusoodhanan's case (supra) on the basis that the Karar referred to therein was an agreement between particular shareholders relating to the transfer of the specified shares. It is noted that in that case the company was a private company and restriction on the right of the shareholders to transfer shares and prohibit invitation to the public to subscribe for shares and debentures of the company is materially different. The main thrust is that in c....
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....ntiff suing for Specific Performance of the contract can alternatively sue for rescission of the contract but the converse is not provided. It went on to hold that it is not open to the plaintiffs to sue for rescission of agreement and in the alternative sue for specific performance. We, however, cannot be oblivious to the fact that the two suits filed by the plaintiffs ask for diverse reliefs. The relief of rescission of the SPA dated 23-6-1997 could be taken forward only till the defendant No. 1 was in complete control of the disputed shares in all respects. However, the defendant No. 1 having transferred those shares by agreement dated 17-2-2000 to defendant No. 4; and if the said transfer were to be valid, the relief of rescission of SPA dated 23-6-1997 may not survive and cannot be considered. However, the transfer of disputed shares by defendant No. 1 to defendant No. 4 vide Agreement dated 17-2-2000 was valid or otherwise could be tested on the touchstone of clause 6.1 of the SPA dated 23-6-1997 or on the ground of fraudulent transfer not binding upon the plaintiffs. In view of this complex position, the plaintiffs must have been advised to pursue two suits before this Court....
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.... Single Judge that it was a case of misrepresentation and fraud committed on the plaintiffs at the time of execution of the first SPA dated 23-6-1997 is unexceptionable. 62. Even the finding regarding misrepresentation or fraud committed posterior to the SPA dated 23-6-1997, the Learned Single Judge has adverted to the relevant documents such as letter dated 1-4-1997 sent by defendant No. 1 to defendant No. 3, fax dated 9-9-1997 sent by defendant No. 1 to defendant No. 3, communication dated 19th July, 1997 sent by defendant No. 3 to defendant No. 1, agreement dated 8-11-1997 entered between defendant No. 1 and defendant No. 3, letter dated 9-12-1997 sent by officer of defendant No. 1 to Suresh Goyal of defendant No. 3 and letter dated 5-5-1998 sent by defendant No. 1 to defendant No. 3. All these documents have been properly analyzed by the Learned Single Judge. In our view it is not possible to interfere with the said analysis and the conclusion based thereon, which is against the contesting defendants. In other words, we are in agreement with the prima facie opinion recorded by the Learned Single Judge that the contesting defendants acted in concert with common design to take....
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....tor in the said concerted effort and the beneficiary were to be the Goyal Group. Accordingly, the plaintiffs have made out prima facie case that the first SPA dated 23-6-1997 is vitiated on account of misrepresentation and fraud as also the second transfer in favour of defendant No. 4 is also vitiated for the same reason. 64. Insofar as second transfer in favour of defendant No. 4 dated 17-2-2000, the Learned Single Judge has adverted to all the relevant affidavits and documents. It has considered the affidavit of Stephen Cox as to how the arrangement was to be worked out so as to put Goyal Group in control of defendant No. 4 company. Learned Judge has also referred to agreement between defendant No. 1 and subsidiary of defendant No. 3 Morgan Trade and Commerce Ltd.-which makes it amply clear that defendant No. 1 advanced amount to said Morgan Trade to enable them to purchase 49 per cent shares of defendant No. 4. The subsidiary of defendant No. 3 did not itself contribute any amount for purchase of the said shares. The third document considered by the Learned Single Judge is Loan Agreement whereby the defendant No. 1 granted loan for acquiring two per cent shares of defendant N....
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....o. 4, in view of the affidavit filed by the authorised officer of the defendant No. 1, is, admittedly, not a subsidiary of defendant No. 1 or Hoechst Group of Company. As a result, the second transfer, dated 17th February, 2000 of disputed shares in favour of defendant No. 4 is in violation of the order of the Court. Prima facie, therefore, as has been rightly found by the Learned Single Judge, the second transfer of disputed shares in the name of defendant No. 4 is vitiated and void. If any authority is required in support of this proposition, we may usefully refer to the exposition in the case of Keshrimal Jivji Shah v. Bank of Maharashtra 2004 (3) Mh. L.J. 893. In the said decision on analyzing the settled legal position expounded by the Apex Court, the Court concluded that if the transaction was in violation of the order of the Court, the same would be void. 66. At any rate, whether it be on account of violation of clause 6.1 of the SPA Agreement dated 23-6-1997 or for violation of the Court's order dated 6-5-1999, 8-6-1999 and 29-2-2000, the second transfer of shares in favour of defendant No. 4 on 17-2-2000 is void. Therefore, the plaintiffs are entitled for interim-relief....
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.... the second transaction. 68. It was argued that the Civil Court had no jurisdiction to answer the controversy which was within the purview of SEBI Regulations. That contention could be answered only by the designated forum under the said enactment and not by ordinary Civil Court. The argument though attractive does not commend to us for more than one reason. Firstly, even without moving for a formal declaration before the authority under the SEBI Regulations, the Civil Court can incidentally examine the question to answer the controversy on hand. In any case, the conclusion reached by the Learned Single Judge that the plaintiffs have made prima facie case for grant of relief of injunction and on the other hand, the contesting defendants would fail to get any relief, on the finding of misrepresentation and fraud and also in breach of order of injunction, does not merit any interference. We may also place on record the argument of the plaintiffs that by virtue of clause 14 of the Letters Patent, it was open to this Court to examine the question while answering the claim of the plaintiffs. Moreover, it is not open to the defendant No. 3 to take inconsistent plea than the one taken ....
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....ays issue such directions as may be necessary in that regard. Taking any view of the matter, therefore, even if 30,000 shares have been purchased by the defendant No. 1 from public, the plaintiffs are entitled to ask for appropriate relief even in respect of those shares. This is also on account of the fact that said 30,000 shares could be purchased by the defendant No. 1 only because of the arrangement agreed between the plaintiffs and defendant No. 1 in that regard as recorded in SPA dated 23-6-1997. Besides the recital, it may be useful to advert to clauses 1.2, 1.3 and 1.4. On conjoint reading of said clauses along with clause 6.1, it leaves no manner of doubt that it was one package, whereby the defendant No. 1 became entitled to purchase aggregate 75,001 shares of the defendant No. 2 company so that it would acquire a substantial shareholding in that company with a right of management. Accordingly, the relief granted by the Learned Single Judge in favour of the plaintiffs also in relation to these shares purchased by defendant No. 1 from public does not merit any interference. 70. That takes us to appeal filed by defendant No. 4 challenging the decision of the Learned Sing....
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....nst them in terms of order dated 26-3-2003. 72. Taking any view of the matter, therefore, the relief as claimed by the defendant No. 4 cannot be countenanced. The Learned Single Judge in our opinion has rightly considered this material aspect to reject the claim of the defendant No. 4 and hold that the defendant No. 4 has no right to represent. Further, the subject-matter of two suits pending in this Court were not property of defendant No. 2 and interim-relief can be considered only in aid of and to preserve the subject-matter of the suit. For that reason, even the conclusion reached by the Learned Single Judge for dismissing the Notice of Motion taken out by defendant No. 4 merits no interference. 73. We have already adverted to the Notice of Motions filed in the respective appeals and reproduced the reliefs contained therein. Those reliefs were prayed essentially during the pendency of appeals. Now that the appeals have been finally disposed of by this Judgment, even these Motions ought to be disposed of. In any case, we do not intend to enlarge the scope of proceedings before the Appellate Bench than the one which was involved in the Notice of Motions against which the pr....