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TaxTMI 
TaxTMI 
TaxTMI 
2012 (9) TMI 1119
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....avasmaneck alias Jer Jawhar Thadani Darius Rutton Kavasmaneck Versus Maharukh Murad Oomrigar Percy Rutton Kavasmaneck, Aban Rutton Kavasmaneck, Colin Mario Rebello of Mumbai, Conrad Anthony Rebello, And Godrej Industries Limited MOHIT S. SHAH, C J AND N.M. JAMDAR, JJ. Mr.Anil Divan, Senior advocate, Mr. V. Dhond Senior advocate and Mr. Anil Jamsandekar, Mr.Pravin Samdani, Mr. Anil Divan, Mr. V. Dhond, and Mr. Anil Jamsandekar Snehal Shah a/w Shriraj Dhruv, Khyati Ghevaria and Manish Acharya i/by Dhru & Co. for the applicants Mr.Rohit Kapadia, Senior advocate, Mr. Pravin Samdani, Mr. Snehal Shah, Mr. Shriraj Dhruv, Khyati Pandit and Manish Acharya i/b. Dhru & Co, Mr. Simil Purohit,. Mustafa Kachwala, Mr. R.M. Kadam, Ankita Singhania, Mr. Saurabh Gadkari Mr. Ranjit Shetty, Shri Venkatesh Dhond, Mr.Rohit Kapadia, Senior advocate, Mr. Pravin Samdani, Mr. Snehal Shah, Mr. Shriraj Dhruv, Khyati Pandit and Manish Acharya i/b. Dhru & Co, Mr. R.M. Kadam, Ankita Singhania. D.H. Law Associates, Mr. Saurabh Gadkari with Mr. Ranjit Shetty, Little & Co., for the respondent JUDGMENT : N.M. JAMDAR, 1. These four appeals arise from the orders passed in two Arbitration Petitions, which wer....
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....bout 34% equity share capital of the Company. Majority share holding is owned and controlled by Dr.Keki Hormusji Gharda. Thus, Kavasmanecks and Rebellos together constitute a sizable minority in the Company. 6. Gharda Chemicals Limited is a closely held Company belonging to Gharda and Kavasmaneck families. The Company was formed by taking over family partnership of M/s Gharda Chemicals Industries. The Company was incorporated as a Private Company, which later became a deemed public Company, by virtue of its turnover, under Section 43A of the Companies Act, 1956. On 24 August 1989, Dr. Gharda issued a circular, informing the share holders that he has decided to transfer his share in the Company to Gharda Research Foundation. It was a Company incorporated under Section 25, held and controlled by Dr Gharda. The Circular requested other shareholders to donate their shares to the foundation. This move was opposed by the Kavasmanecks. On 15 February 1990, Dr Gharda convened an Extraordinary General Meeting proposing a special resolution for deleting Article 57 of the Association of the Company which provided for preemptive rights in respect of the shares. The minority share holders file....
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....and/or in any manner whatsoever dealing with the shares owned by them in the Company. On 6 October 2009, Arbitration Petition No. 346 of 2009 was finally disposed of and the injunction was continued till the constitution of the Arbitral Tribunal and six weeks thereafter. By an order dated 12 March 2011, a sole Arbitrator came to be appointed and the Godrej filed an application under Section 17 of the Arbitration Act before the Arbitrator. The Arbitral Tribunal continued the injunction granted against the minority shareholders restraining them from dealing with the shares. Thus all the minority shareholders were restrained from selling the shares. However, to the surprise of the petitioners, Godrej suddenly sought to withdraw the Arbitral proceedings and prayed that the interim injunction granted by Arbitral Tribunal should be vacated. This appeared to have been done since there was a split in the minority shareholders with Percy and Aban Kavasmanecks deciding to side with Godrej. The learned Arbitrator reserved the order on the application for withdrawal, till the next day i.e. 14 March 2012. 10. Alarmed by this sudden move by Godrej and split in the minority shareholders, on the ....
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....tted several breaches of the MoU. Godrej contended that the MoU is being misinterpreted and the petitioners not acting as per MoU. On one hand petitioners are contending that the shares should not be dealt with till the Company becomes public while on the other hand are taking steps to oppose the Company going public. The negative covenant sought to be relied upon does not bind Godrej. In fact the covenant is incorporated to safeguard the interest of Godrej. On behalf of Percy and Aban it was contended that there is no arbitration agreement amongst the Minority shareholders and, therefore, there is no question of granting any relief under Section 9 of the Arbitration Act. They urged that in fact the minority shareholders interse are governed by a separate MoU and significantly that separate MoU does not contain any Arbitration clause. 13. After hearing the arguments, the learned single Judge came to the conclusion that the petitioners were entitled to the relief of injunction under section 9 of the Act. Learned Judge found that the clauses of the MoU indicate that till the shares are listed on the Stock Exchange, no signatory to the MoU can be permitted to dispose of and/or deal wi....
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....aneck. Shri Simil Purohit, learned advocate appeared on behalf of the Rebellos. No appearance was entered on behalf of Maharukh Oomarigar. 16. On behalf of Godrej, Shri Divan and Shri Dhond, learned Senior advocates submitted : (a) While granting order under Section 9 of the Act, principles which govern the grant of injunction have to be kept in mind namely : prima facie case; balance of convenience and conduct of the parties. On all these counts the petitioners have failed to make out any case. (b) Apart from the MoU, the Kavasmanecks have executed loancumpledge agreement and power of attornies which give absolute right to Godrej to deal with the shares. (c) PetitionersJer and Darius Kavasmaneck have suppressed loan pledge agreement and power of attornies and this conduct alone disentitles these petitioners from any equitable relief. These documents have direct bearing on the controversy as all the rights of the concerned petitioners in respect of the shares vest in Godrej. Thus, this is a clear suppression of material facts and documents. (d) Jer and Darius Kavesmanecks have also suppressed letter written by Darius Kavasmaneck on 14 March 2005 in which he accepted right of G....
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.... so. (l) Finding of the learned single Judge that since there was an interim injunction operating between the parties in the arbitration proceedings filed by Godrej Industries same should be continued in the present case also, is erroneous as the rights of Godrej and minority shareholders stand on different footing. (m) The grant of injunction by the learned Judge without considering that the respondents are opposing the status of the Company, as a public Company, has created a situation whereby Godrej will not be able to recover its monies in forseeable future. (n) The MoU is impossible to be enforced since the respondents are in minority and cannot convert the Company into a Public Limited Company on the strength of the shares they hold. (o) Godrej Industries is also fully entitled to deal with the shares as the MoU and agreement empowers them to do so. Thus the Godrej have a right over the shares. 17. On behalf of Percy and Aban Kavasmaneck, learned Senior Counsel Shri R.M. Kadam contended : (a) There is no arbitration agreement between the minority shareholders, and, therefore, there is no question of grant of any injunction in a petition Section 9 of the Act against the....
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....e argument made on behalf of Godrej Industries that it is entitled to deal with shares in their own right is completely contrary to the stand taken by them in the pleadings whereby they have reiterated that the shares are only pledged with them. There is a variance in the argument of the Counsel appearing in two appeals, on this aspect. (d) Till date, Godrej has never demanded repayment of loan and nor has it demanded payment of dividend. The respondents are ready to repay the principal amount of loan to the Godrej and since the shares are only pledged, Godrej should return the shares back to them. In a letter written by Adi Godrej, dated 13 June 1992 which is suppressed by Godrej, interest is specifically not claimed. (e) The interpretation of the MoU clearly shows that the MoU uses different expressions and proper construction shows that negative covenant in Clause (16) is for the benefit of all parties. (f) There is no question of the petitioners, acting contrary to the MoU and preventing listing of the Company as Public Company, as in any case the Company is a deemed Public Limited Company. What is contemplated by the MoU is that the Company should be listed on the stock exc....
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....rant of an interim injunction. Same is the position regarding the appointment of a receiver since the section itself brings in, the concept of 'just and convenient' while speaking of passing any interim measure of protection. The concluding words of the section, 'and the Court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it' also suggest that the normal rules that govern the Court in the grant of interim orders is not sought to be jettisoned by the provision. Moreover, when a party is given a right to approach an ordinary Court of the country without providing a special procedure or a special set of rules in that behalf, the ordinary rules followed by that Court would govern the exercise of power conferred by the Act. On that basis also, it is not possible to keep out the concept of balance of convenience, prima facie case, irreparable injury and the concept of just and convenient while passing interim measures under S.9". (emphasis supplied) 23. Thus, what we need to consider is, whether the petitioners had proved prima facie case, whether balance of convenience is in their favour, and whether th....
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....urt in the judgment under appeal referred to the decision of the Division Bench of the Kerala High Court in State of Kerala v. Poulose, (19871 Ker LT 781) (supra). Our attention was also drawn to the said decision by the counsel for the respondents that if an arbitrator or the umpire travels beyond his jurisdiction and arrogates jurisdiction that does not vest in him, that would be a ground to impeach the award. If an arbitrator, even in a nonspeaking award decides contrary to the basic features of the contract, that would vitiate the award, it was held. It may be mentioned that in so far as the decision given that it was possible for the court to construe the terms of the contract to come to a conclusion whether an award made by the arbitrator was possible to be made or not, in our opinion, this is not a correct proposition in law and the several decisions relied by the learned Judge in support of that proposition do not support this proposition. Once there is no dispute as to the contract, what is the interpretation of that contract, is a matter for the arbitrator and on which court cannot substitute its own decision." 25. It is no doubt true that these decisions refer to the sc....
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....acted in such a manner that they are not entitled to the protection granted by single Judge before the dispute is adjudicated by the Arbitrator. 28. The MoU is a peculiarly complicated arrangement. The MoU is executed between Kavasmanecks, Oomarigar and Rebellos individually with Godrej, for finance. The MoU refers that the Minority shareholders are entitled to preemption rights in respect of the shares of the Company and they had requested Godrej Industries to finance the acquisition of shares. The MoU records that Godrej Industries will make available finance available to purchase the shares that may be offered to the Minority shareholders. For that purpose certain modalities were laid down as under : (Party of the First Part = five shareholders in minority/ Party of the Other part =Godrej ) "2. For the purpose of the purchase of shares aforesaid, the following modalities will be followed:( i) the party of the First Part shall give to the party of the Other Part intimation of the shares available for sale and the price as mentioned in the notice offering the shares for sale. (ii) the party of the Other part shall deposit with M/s Federal & Rashmikant, Solicitors and Advocate....
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.... any of the share purchased with the finance made available by the party of the Other Part, the party of the Other Part shall hand over to the party of the First Part such shares along with the documents mentioned hereinabove and shall receive from the party of the First Part in substitution of such shares equal number of its shares along with all the documents. The shares received as aforesaid shall be returned to the party of the First Part on receiving the sale proceeds of the shares required to be sold or on the party of the First Part executing the required transfer forms in favour of the party of the Other Part or its nominees on due compliance with the provisions of Article 57 of the Articles of Association of the Company. (c) Further, on the party of the First Part duly complying with all the provisions of Articles 57 of the Articles of Association of the Company in respect of the shares purchased with the finance made available by the party of the Other Part and the party of the Other Part duly receiving the entire sale proceeds of the shares sold pursuant to the directions of the party of the First Part executing the required transfer forms in favour of the party of the ....
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....e reason for moving an application under Section 9, in the following words" 6. In the circumstances, it is submitted that there is a valid and subsisting Memorandum of Understanding dated June 3, 1992 between the Petitioners and the Respondents. Under the Godrej MOU the parties thereto have undertaken that they shall not sell, alienate, dispose of or transfer the shares held by any one or more of them until the shares of GCL are listed on any recognised Stock Exchange. The Godrej MOU has been acted upon and implemented by the parties thereto and is binding on all parties and the covenants contained therein enure for the benefit of all parties equally. The 6th Respondent invoked the Godrej MOU and sought an injunction against the other parties from sellling, alienating, disposing of or transferring the shares held by them in GCL. This injunction has been in force since May 12, 2009. On March 13, 2012 the volte face of the 6th Respondent in seeking leave to withdraw the arbitral proceedings initiated by it and seek vacation of the interim protective order clearly reveals that a secret and clandestine arrangement has been arrived at between the 6th Respondent in collusion with the 1s....
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....ed that it is in possession of 6221 equity shares. As per the news report relied upon by the 6th Respondent the value of GCL is in the region of ₹ 2400 crores and consequently the value of the shares that the 6th Respondent holding on will be in the region of ₹ 233 Crores. The Petitioners are always ready and willing to abide by and comply with and perform the Godrej MOU". 32. First question is whether the parties are still bound by the MoU. The petitioners have asserted that the MoU continues to operate and is binding on all the parties. A reply has been filed on behalf of Godrej in which it is acknowledged and asserted that the MoU is subsisting and binding on all the parties. Thus we proceed on the premise that the MoU subsists and continues to bind the parties. 33. The petitioners have based their case on the negative covenant contained in Clause 16. It is the contention of Godrej Industries that Clause 16 does not operate against Godrej Industries, but it is for the benefit of Godrej. Clause 16 reads as under (16). "The parties hereto agree and undertake that till the Company goes public and or its shares are listed in any recognized stock exchange, the parties....
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....e opposed the declaration of the Company becoming public. It was, contended that the Petitioners have opposed registration and transfer of 3199 shares and also obstructed transfer of 461 shares. Furthermore the petitioners have not been paying dividends on the shares purchased from the loans advanced by Godrej. Reliance is placed on the judgment of the learned Company Judge of this Court in Company Appeal No.24/2010. In this appeal, the original petitioners contended that the Company is not a public Company. Thus, the original petitioners are creating a situation whereby Clause 16 will never come to an end and monies advanced by Godrej will continue to be locked up and if injunction is granted against Godrej from perfecting the security then the entire agreement will become unworkable. It was, therefore, contended that the petitioners acting in breach of obligation of the MoU are not entitled to protection under the other clauses of the MoU. Reliance is placed by Mr.Divan, learned Senior Counsel on the decision of the House of Lords in the case of Alghussein Establishment (1991) 1 ALL ER 267), wherein the House of Lords observed as under :" The principle that in the absence of cle....
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....ot been shown that the petitioners anytime opposed the listing of the shares on a recognised stock exchange. According to us therefore the petitioners have not committed breach of Clause 21 of the MoU. The attempt of the petitioners is only to ensure that the petitioners are not deprived of their shareholding before the shares become fully tradeable on the stock exchange. 37. The second breach of the MoU alleged was that the petitioners were opposing registration and transfer of 3199 shares and obstructing transfer of 461 shares. It is submitted on behalf of petitioners that as far as 461 shares are concerned they have never opposed are not opposing registration in the name of Godrej Industries if Godrej Industries adhere to negative covenants stipulated under the MoU. It has to be noted that before the dispute arose between the Parties, Godrej had assured the petitioners that shares were only being treated as pledge for the loan. However, now the petitioners apprehend that Godrej is trying to deal with the shares for the purpose of getting control of the Company along with Dr Gharda. Godrej Industries is now trying to deal with the shares so as to defeat the right of Minority Sha....
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....Petition filed by them and also that the collective share holding of the Minority Shareholders has, in fact, gone up from 26% to 33%. We have been shown averments made on behalf of the Godrej in the Arbitration Proceedings filed by Godrej. In those proceedings Godrej had categorically asserted that parties are bound by the MoU, which is valid and subsisting. It was also asserted that MoU is not impossible to be performed, and not void for uncertainty. 40. The argument of Godrej based on impossibility is thus contradictory to the stand taken on affidavit filed by it in the earlier arbitration petition. Apart from this position, petitioners have pointed out that when the MoU was entered into in the year 1992, the collective shareholding of the Minority Shareholders was 27%. Thus, both Godrej and Minority Shareholders believed that 27% share holding was sufficient to enable the parties to work towards the Company being listed on the Stock Exchange. At that time, no apprehension was raised by Godrej in respect of lack of share holding of the minority shareholding to achieve this object. If the parties found 27% shareholder was then sufficient to achieve the object of MoU, one fails to....
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..... We do not agree with the observations of the High Court that the appellantsdefendants could have easily produced the certified registered copy of Ex.B15 and nonsuited the plaintiff. A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party". In K.D.Sharma's case (2008) 12 SCC 481) (supra) in paragraph 27 the Apex Court observed as under : "The Court defined "fraud" as an act of deliberate deception with the design of securing something by taking unfair advantage of another. In fraud one gains at the loss and cost of another. Even the most solemn proceedings stand vitiated if they are actuated by fraud. Fraud is thus an extrinsic collateral act which vitiates all judicial acts, whether in rem or in personam". In Dalip Singh (2010) 2 SCC 114) (supra), the Apex Court in paragraph 2 observed as under :" 2. In the last 40 years, a new creed of litigants has cropped up. Those who belong to this creed do not have any respect for truth. They shame....
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....t find that the conduct of Jer, Darius Kavasmaneck was blameworthy, as alleged. On the other hand, the conduct of Godrej Industries in not placing on record letter dated 13 June 1992 wherein Mr Adi Godrej reiterated that notwithstanding the loancumpledge agreement, Godrej Industries will not enforce loans or claim interest, needs to be noticed. In any case, no such allegation can be made and has not been made against Rebellos that they have suppressed any documents. 45. We now turn to the principal argument on behalf of Percy and Aban Kavasmanecks that the Clause 28 of the MoU does not provide for arbitration between the minority shareholders. Clause 28 reads as under : "Any dispute or difference between the parties hereto including in respect of any breach or alleged breach hereof, shall be referred to the sole arbitration of a person to be mutually agreed upon by the parties hereto. The sole arbitrator shall have summary powers and the Arbitrator shall not be required to give reasons for his award. The place for arbitration shall be at Bombay". It was contended that the MoU is executed between 'party of the First part' i.e. the Minority shareholders and 'party of t....
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....hat the court draws no distinction between statues and other written documents. I am not prepared to say that this is true to the full extent." 1. [Curtis v. Stovin (1989) 22 Q.B.D. 512 at p.517: see also Conadian Pacific Steamships Ltd v. Bryers [1958] A.C. 485 p. 501 per Viscount Kilmuir. 2. Camden (Marquis) v. I.R.C. [1914] 1 K.B. 641 at p. 648 per CozensHardy M.R.] 47. There is no absolute bar in employing the rules relating to interpretation of statutes, for the purpose of interpretation of deeds and documents, in a given case. One of the settled principles of interpretation of statutes is, when in relation to the same subject matter different words are used in the same instrument, presumption arises that they are used not in the sense, but carry different meanings. This principle can be borrowed for the construction of the present MoU. The MoU refers to the parties in several ways. The parties are referred to as 'parties', ' parties of the first part' and 'parties hereto', 'both parties'. It is significant to note that the expression 'parties hereto' appears both in Clause 16 of the MoU and Clause 28 of the MoU, which are the most mate....
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....l apply to interpretation of Clause 16 wherein also the phrase 'parties hereto' applies, to conclude that the negative covenant therein applies to Godrej also. 49. Apart from the language of this Clause, the surrounding circumstances indicate that the arbitration clause is to cover all the signatories to the MoU. The MoU came to be executed when minority shareholders were struggling against Dr.Gharda employing oppressive tactics to squeeze Minority Shareholders out of existence. It was crucial for the minority shareholders to stay together to remain as a significant minority. Individual holding of each of the Minority Shareholders had to be pooled together as it was vital for their collective shareholding. The position of the minority shareholding was so precarious that even if some of the Minority Shareholders were to part with their shares, minority shareholders together would cease to be a significant minority. It was, thus, absolutely essential that the minority shareholders stayed together and acted in one unit. Thus, the parties at the time of executing the MoU were aware that if any dispute arises, even between the Minority Shareholders, in respect of the shares, th....
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.... minority. Once this takes place before the Company is listed on registered Stock Exchange, position of the petitioners will be gravely prejudiced. The position will become irreparable once a significant majority is reached in favour of Dr.Gharda taking his shareholding closer to 75%. Important decisions in the Company will be taken swiftly and any opposition of the petitioners will be crushed. If that happens, the whole purpose of the MoU will be defeated. 51. Inspite of the detailed arguments made on behalf of the Godrej, no special reason why shares cannot remain in the same position till the arbitration proceedings is shown except the argument that Godrej cannot be stopped from perfecting their security. As noted above, the Godrej had in their letter dated 13 June 1992, immediately after execution of the MoU on 3 June 1992, had indicated that they will not enforce loans or claim interest notwithstanding the agreement. The tussle is not for the monetary value of the shares, but what the shares represent. The dispute is no longer for money but for the control of the Company. Once this fact is established before us, it will be too naïve to assume that Godrej is only looking ....