TaxTMI 
TaxTMI 
2010 (7) TMI 812
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....1 to 5 herein, i.e., the petitioners before the Company Law Board. I will refer to the facts from and to the parties as they are arrayed in Appeal No. 8 of 2008. 3. The respondents sought an order for a declaration that the alleged vacation of office by them as directors is null and void and that respondent No. 2 continued as the working director of the company for the period after March 31, 2006. Reliefs were sought, inter alia, for maintaining the authorised share capital of the company, for a declaration that any increase thereof is void, for rectification of the register of members, challenging the allotment of shares to various persons and seeking the recovery of monies advanced by the company to third parties. 4. One Manilal Shah had three sons-Himmatlal, Ramanlal and Chandulal. Ramanlal had four sons and Chandulal had two sons. The details of these six gentlemen pertaining to the manner in which they are arrayed in Appeal No. 8 of 2008, the members of their groups and the shares held by each of them in the company are as under : Statement Showing the Shareholding Pattern of Shah Himatlal Manilal & Co. T. P. P. Ltd. (R-1) as on 31-3-2008 A=Appellant R=Responden....
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....r has taken two drastic turns after the settlement, both as a consequence of the appellants stand qua the settlement. 7. The first turn resulted on account of the appellants' attempt, with the aid of respondents Nos. 7 to 13, to wriggle out of the settlement. However, respondents Nos. 1 to 5 thereafter settled the matter with appellant No. 3 and respondents Nos. 7 to 11. The equation therefore changed drastically leaving only appellants Nos. 1 and 2 and respondents Nos. 12 and 13 who are part of one group on one side. In their group is also Vijay R. Shah (HUF). The impugned order of the Company Law Board directs the implementation of the settlement only between the parties thereto, which included appellants Nos. 1 and 2. Once their shares are transferred, the remaining shares in their group are only about 10.23 per cent. 8. This resulted in the second turn. Faced with this changed scenario, they now contend that the agreement which they sought to wriggle out of be implemented by compelling respondents Nos. 1 to 5 to purchase these 10.23 per cent. shares as well. 9. This contention is astounding for it is based on the premise that the settlement was a composite one whereund....
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....e powers of the Company Law Board to pass orders in this regard. Prayer (a) is as follows : "(a) Direct the valuation of respondent No. 1 and thereafter direct either the petitioners and/or respondents to buy out the other at a fair price." 14. By an order dated November 13, 2007, the Company Law Board adjourned the petition in view of the parties having expressed their intention to settle the matter as evidenced by C. A. No. 510 of 2007. 15. The appellants' advocate, by a letter dated December 7, 2007, informed the respondents' advocates that the respondents were willing to buy or sell the shares at Rs. 1,788 per share. The respondents were called upon to communicate their offer to the appellants. 16. The respondents' advocates, by a letter dated December 10, 2007, communicated their acceptance of the offer of selling of the said shares at Rs. 1,788 per share. They agreed to purchase the shares at that price. Paragraph 2 of the letter reads as under : "2. The total consideration for your clients' shares (including the rights shares), namely 7,000 shares, which comes to 7000 x Rs. 1,788 which is equal to Rs. 1,25,16,000, shall be paid by means of pay order by my clie....
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....off by the petitioners within one month of the arbitrator' s directions, if any, in this regard. (3) The petitioners are hereby directed to vacate the premises belonging to respondent No. 2 within four weeks' time from today. (4) The petitioners and respondents are directed to pay the directors' dues relating to salary, and other emoluments due within one months' time. (5) Petitioner No. 1 is hereby inducted as director in the company with effect from today to enable both the parties equal representation on the board till full payment is made to the respondents." 22. With the above directions, Company Application No. 510 of 2007 was disposed of, the interim orders were continued and the parties were directed to report compliance after which the petition was to stand dismissed as withdrawn. 23. The respondents did better than they were directed to by the order of the Company Law Board dated December 20, 2007. They obtained thirteen demand drafts dated January 7, 8, 9, and 10, 2008, for an aggregate sum of Rs. 1,25,00,16,000 which was the entire consideration for the purchase by them of the said shares. Under the order dated December 20, 2007, a bank guarantee for the ....
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....o the appellant instead of furnishing a bank guarantee and paying the amount in instalments. 29. The Company Law Board., by an order dated January 11, 2008, recorded that the respondents had tendered drafts for the entire consideration in favour of the appellants, but that the appellants had not entered appearance. The appellants were granted liberty to apply and the company application was adjourned to January 15, 2008. 30. I am constrained to state that the appellants' advocates' letter dated January 10, 2008, alleging breach and stating that the appellants were no longer interested in selling their shareholdings to the respondents was nothing, but an attempt to wriggle out of the settlement. This is established beyond doubt by their conduct and the conduct of the members of their groups. 31. Respondents Nos. 7, 8 and 9 soon thereafter, in January, 2008, filed Company Application No. 32 of 2008 seeking to be impleaded. They also sought an order setting aside the consent order dated December 20, 2007, contending that the consent order was contrary to article 10 of the articles of association of the company and that they were not bound by the same as they were not parties ....
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.... evident from the fact that the order dated December 20, 2007, itself records that since there was a difference of opinion about the modalities of payment, the Company Law Board, after hearing the parties, issued the said directions in this regard. The Company Law Board rightly rejected the contention that there was a breach on the respondents part of the order dated December 20, 2007 by reason of their not having furnished the bank guarantee for the respondents as, in fact, they had arranged for the payment of the entire sum well in advance. The appellants' contention in this regard requires merely to be to stated, to be rejected. I am, with respect, surprised that such a contention was even raised. 37. It is of vital importance to note that the Company Law Board recorded the stand on behalf of the appellants that they could sell what they had, viz., 1,663 shares. The petitioners and the respondents agreed to the appellants in the company applications being impleaded. The Company Law Board, accordingly, allowed their being impleaded. The Company Law Board, thereafter observed as under : "As regards their other prayers, I find no reason to grant the same in view of the fact t....
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....nd son of appellant No. 1 filed Company Appeal No. 12 of 2008 challenging the said orders. The appellants filed Company Appeal No. 8 of 2008 on April 12, 2008, challenging the said orders. 42. The said Ketan filed Company Appeal No. 3 of 2009, challenging the said orders. The said appeal, however, was allowed to be withdrawn by an order dated June 12, 2009. 43. Khanwilkar J., by an order dated June 19, 2009, stated that whether the impugned orders are consent orders or not would have to be clarified by the Company Law Board. It was observed that if the Company Law Board clarified that the orders were consent orders, the appeal would not be maintainable. 44. The appellants filed Company Application No. 336 of 2009 before the Company Law Board seeking the said clarification. 45. The Company Law Board, by an order dated June 23, 2009, held that the orders dated December 20, 2007 and February 29, 2008 were in continuation of the consent order dated December 10, 2007 and were also consent orders. 46. The order and judgment dated July 23, 2009 is, strictly speaking, not a clarification as to whether or not the said orders were consent orders. The Company Law Board appears ....
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.... They can possibly have no grievance in regard thereto. The applicants in the said company applications, i.e., respondents Nos. 7 to 13 have not been forced to comply with the settlement. That some of them settled their differences with the respondents separately is another matter altogether. 52. By the impugned orders, the Company Law Board has only enforced the settlement between the parties thereto. If any of the other parties are aggrieved by the transactions, including on the basis of their being contrary to the articles of association of the company, they must adopt independent proceedings which would be decided on their own merits. The applicants in Appeal No. 12 are at liberty to adopt separate/independent proceedings for the redressal of their grievance in respect of the said settlement, including on the basis of article 10. The question whether the company ought to register a transfer pursuant to the said settlement and orders or not is a matter which does not arise in the present appeals. 53. I am not inclined to interfere with the order of costs of Rs. 50,000 for more than one reason. The Company Law Board rightly came to the finding that the appellants tried to w....
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.... R=Respondent Name of the Shareholder No. of Shares % Vinod Ramanlal Shah 770 3.85 Vinod Ramanlal Shal (HUF) 245 1.23 R-10 Mrudulaben Vinod Shah 2065 10.33 A-3 Sanjay Vinod Shah 210 1.05 R-ll Ketan Vinod Shah 210 1.05 3500 17.50 A-l Vijay Ramanlal Shah 352 1.75 Vijay Ramanlal Shah (HUF) 245 1.23 R-12 Meena Vijay Shah 1260 6.30 A-2 Anik Vijay Shah 1103 5.52 R-13 Kishan Vijay Shah 542 2.71 3500 17.50 R-3 Narendra Ramanlal Shah 725 3.63 Narendra Ramanlal Shah (HUF) 1175 5.88 1.50 R-4 Nikhil Narendra Shah 300 1.50 Tapan Narendra Shah 300 12.50 2500 0.35 R-9 Lalit Ramnlal Shah 70 8.93 R-7 Lalit Ramnalal Shah (HUF) 1785 8.23 R-8 Daksha Lalit Shah 1645 17.50 3500 2.75 Nilesh Chandulal Shah 550 6.31 R-5 Nilesh Chandulal Shah (HUF) 1262 1.94 Bela Nilesh Shah 388 0.50 Pooja Nil....
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....mission is astounding for, as I will demonstrate, while wriggling out of the settlement the appellants had at one stage themselves at least acquiesced in the case of the other members of their group that they were not bound by it. 10. Appellant No. 1, by a letter dated July 7, 2007, addressed to respondent No. 1 recorded that at a meeting held at the suggestion of the appellants, it was decided that all the disputes be settled. After referring to the offer made by respondent No. 1, he submitted that the parties should part ways amicably. He submitted that a valuation of the company be done and thereafter either side may buy out the shares of the other. 11. Respondent No. 2, by a letter dated July 24, 2007, addressed to appellant No. 1, made certain suggestions regarding the settlement. 12. Appellant No. 1 in response, by his letter dated July 26, 2007, addressed to respondent No. 2 stated that the parties had lost trust in each other and were unable to carry on business together. He stated that it would, therefore, be in the interest of all to part ways amicably. After making certain suggestions, he stated as follows : "In case, you do not wish to go for the valuation o....
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.... behalf of respondents Nos. 1 to 5 to contend that the use of the word " parties" in paragraph 4 and the reference to " petitioners and/or respondents" in the prayer indicated that the agreement pertained only to the parties to the company petition and not all the members of the groups of each of the parties. He also relied upon the fact that the application did not mention the other members of the family/group of the parties to the petition. I cannot agree. 19. The reference to 7,000 shares in these letters establishes that the proposal and the acceptance was with respect of even the shares of those members who were not parties to the petition. Whether the parties to the petition had authority to bind them is another matter. I am unable, therefore, to accept Mr. Gupte' s submission in this regard. 20. By an order dated December 10, 2007, the Company Law Board recorded that the appellants had agreed to be sold at the said price per share. The matter was adjourned to enable the parties to work out the modalities in this regard. Status quo as regards the assets of the company was ordered to be maintained. 21. By an order dated December 20, 2007, the Company Law Board recorde....
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....tter dated January 10, 2008 informed the appellants that they would mention the above petition for directions for modification of the order dated December 20, 2007, on January 11, 2008. 25. The appellants' advocates, without ascertaining the purpose for which the respondents were intending to mention the matter, by a letter dated January 10, 2008, alleged that there was non compliance on the respondents' part of the order dated December 20, 2007 as the time to furnish the bank guarantee had expired on January 9, 2008. They alleged that the respondents were, therefore, in breach of the order dated December 20, 2007, and that they were no longer interested in selling their shareholding to the respondents. They further alleged that in view thereof, the appellants were entitled to purchase the respondents' shares for which they were willing to make payment within three months from the date of passing of fresh orders in this regard by the Company Law Board. 26. The contention that the period of three weeks expired on January 9, 2008, is incorrect. The period of three weeks would have expired on January 10, 2008. However, on January 10, 2008 itself, the entire payment was kept read....
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....t they had not authorised the appellants to sell their shares and that, therefore, the consent order was not binding upon them. 33. In February, 2008, respondent No. 11, i.e., the brother of appellant No. 3 filed Company Application No. 103 of 2008 seeking to be impleaded and for an order setting aside the order dated December 20, 2007 on the ground that the settlement recorded therein was contrary to article 10 of the articles of association of the company. 34. By an order dated January 15, 2008, the Company Law Board directed the parties to file written arguments within ten days. The Company Law Board recorded that the appellants had refused to accept the demand drafts, permitted the respondents to deposit the demand drafts with the bench officer and directed the same to be retained till further orders. The order further recorded that the appellants neither rejected nor supported Company Application No. 32 of 2008 taken out by respondents Nos. 7, 8 and 9. The petition was adjourned to February 13, 2008. 35. The timing of the appellants' letter dated January 10, 2008 seeking to resile from the settlement and the filing of Company Applications Nos. 32, 102 and 103 of 2008 ....
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.... of the order cannot be acceded to in law and in fact in any manner. They have not even been participating in the affairs of the company. Now coming to the consent order dated December 10, 2007, the B.O. is hereby directed to return the drafts deposited with him to the petitioners. Petitioners are hereby directed to pay respondents Nos.2, 3 and 4 an amount of Rs. 29,73,444 for their 1,663 shares [1188+475 (rights issue)] on March 10, 2008 at 2.30 p.m. in the presence of the B.O. In the Company Law Board Court room. In case the respondents fail to receive the consideration for their shares of the appointed date and time, the petitioners shall deposit the same in respondent No. 1' s account and credit the respondents account accordingly. With the above directions C. P. No. 39 of 2006 stands dismissed as withdrawn. All company applications stands disposed of. All interim orders stand vacated. I hereby impose cost of Rs. 50,000 on respondent No. 2 for having consented to sell and then have proceeded to derail the proceeding. Cost be paid to the legal aid Cell of the Delhi High Cout." 38. The Lalit Shah group thereafter filed A. O. No. 21 of 2008 before the Aurangabad Bench of ....
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....said orders dated December 20, 2007 and February 29, 2008 are consent orders or not. Considering the view that I have taken, it is not necessary for me to express any opinion regarding the same. Appeal No. 49 is, accordingly, disposed of. 49. On July 3, 2009, respondents Nos. 12 and 13, i.e., the wife and son respectively of Appellant No. 1 filed Company Application No. 335 of 2009 before the Company Law Board for an order directing the respondents to purchase their shares as well in terms of the Company Law Board' s orders dated December 10, 2007 and December 20, 2007. The company application is pending before the Company Law Board. 50. The reason for their taking out the company application is not far to see. During the pendency of these proceedings the respondents settled with all the other parties. Finding themselves in a corner, the other members of the group of Appellant No. 1, viz., respondents Nos. 12 and 13 and the HUF of appellant No. 1 who now hold barely more than ten per cent. of the equity shares of the company seek to enforce the settlement which was validly arrived at, but which they sought to wriggle out of. That, however, is a matter which the Company Law Bo....