TaxTMI 
TaxTMI 
2018 (3) TMI 559
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....hese appeals arise out of same impugned order dated 22nd March, 2017 passed by National Company Law Appellate Tribunal, Ahmedabad Bench, Ahmedabad. Company Appeal (AT) No.187 of 2017 is filed by the Appellants (original Petitioners 2 to 4). Company Appeal (AT) No.215 of 2017 has been filed by original Respondent No.3. We will refer to the parties as arrayed and referred in the impugned order which is reflected in CA 187/2017. It may be mentioned that original Petitioner No.1 was Dr. Sobhagyamal Jain who was transposed as Respondent No.11 in the Tribunal Appeal Memo and thus the Appellants of CA 187 of 2017 have been referred in the impugned order as Petitioners 2 to 4. 2. A few facts under reference: Petitioners 2 to 4 and Respondent No.11 had filed CP 16 of 2014 (old), later on registered as TP 61/2016 in NCLT making allegations of acts of oppression and mismanagement against original Respondents 2 to 8. During the pendency of the company petition before Company Law Board certain mediators were appointed to resolve disputes between the parties and consent terms came to be recorded between the parties. The consent terms were recorded in two different documents referred as Ann....
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....5 Dr. Sunita Chouhan No 35 6 Dr. Sanjay Dhanuka No 23 7 Dr. Abhay Bhgwat No 25 Total 1070 Note: The Petitioners and other shareholders at Sr. No.1 to 7 are collectively referred to as the "Petitioners & Others". 4. The entire consideration towards the purchase of Sale Shares shall be paid by the Respondents to the Petitioners & Others in four (4) equal instalments of Rs. 2,14,00,000/- (Rupees Two Crore Fourteen Lakhs only) each payable at forty five (45) days interval, and out the above, the first of the instalment shall be paid in two trenches, consisting of 5% (Rs.42,80,000/- Rs. forty two lacs eighty thousand) payable at the time of execution of the present consent terms and the balance 20% (Rs.1,71,20,000/- Rs. one crore seventy one lacs twenty thousand) shall be payable within a period of thirty days from the execution of the present consent terms and the respondents shall deposit post dated cheques, the last one of which will be payable before the expiry of six (6) months from the date of the consent terms becoming effective through the Order of the Hon'ble Company Law Board. 5. Until realiz....
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....espondents shall have no option to back out from purchasing the Shares from the Petitioners & Others. The Respondents shall be responsible for the purchase of shares jointly and severally and in case of default, a notice shall be issued by the Learned Bench Officer to the Respondents pointing out the default and to rectify the same within a period of fifteen (15) days from the date of receipt of such notice, on expiry of which it shall be assumed that the Respondents are not willing to purchase such shares and in such an event terms mentioned in Clauses 17 to 19 herein will come into effect immediately. In such an event, the amount already paid by the Respondents herein shall be paid back by the Petitioners within a period of one month from the date of expiry of six months. 13. Before the release of deeds of transfer of shares to the Respondents, the Respondents shall make necessary application and arrangement shall be made by the Respondents for release of the Personal Guarantee of the Petitioners & Others given to Bank of India and shall endeavour to complete the process without any further delay. 14. The Petitioners unconditionally agree to withdraw the legal c....
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....osure of the matter." 5. Consent terms Annexure 'B' read as under: Annexure 'B' "1. The Respondent No.4, 5, 6 and 7 shall cease to exercise powers as directors on the date of the present consent terms becoming effective by the Order of the Hon'ble Company Law Board and shall resign from the Board of Directors of the Respondent No.1 Company forthwith. 2. Immediately on submission of the present consent terms, the appointment of Dr. Sunil Rajan as Director of the Respondent No.1 Company shall be confirmed and ratified by the Hon'ble Board as prayed in Company Application No.248 of 2014. 3. Shri Anil Jain, Dr. Subodh Jain and Dr. Sunil Rajan (hereinafter referred to as the "Purchasers of the shares") agreed to purchase 1900 (One thousand nine hundred) equity shares of the Respondent No.4, 5, 6 & 7. The entire consideration towards the purchase of shares shall be calculated in the following manner: Sr. Name Existing Shares New Shares Amount Existing Shares Amount New Shares Total Rs. 1 Dr. Sandeep Julka 282 172 22560000 3071404 25631404 2 Dr. Nitin Modi 282 200 22560000 3571400 26131400 3....
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.... or at an early date, if the Purchasers of Shares choose to deposit demand drafts for early payment, the post dated cheques/demand drafts shall be released by the Learned Bench Officer to the Selling Respondents through their advocate for handing over to the respective seller. It shall be the responsibility of the advocate for the Selling Respondents to handover the cheque/demand draft to the respective seller and to deposit acknowledgement thereof with the Learned Bench Officer. 10. On realization of the consideration amount by the Selling Respondents in respect of the Sale Shares sold herein, the duly executed transfer deeds shall be released by the Learned Bench Officer to the advocate of the Purchasers of Shares for completing necessary formalities by the Company for giving effect to the transfer of Sale Shares in the books of accounts. 11. The Selling Respondents shall have no option to deny acceptance or realization of the cheques/demand drafts and in case of intentional denial, it shall be presumed that the payment has been made to the respective seller and the Learned Bench Officer shall be free to release the transfer deeds to the advocate of the Purchase....
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.... 2014 as valid and in accordance with law and closure of the matter." 6. The Company Law Board by order dated 15.12.2014 accepted these consent terms and marked them as Annexure 'A' and 'B'. One Shri S.P. Sawant, Bench Officer was appointed, as Escrow Agent under whose supervision the compliances were to be made. 7. After such consent terms were accepted although there were terms to keep the Company Petition pending for reporting status of settlement process and completion of conditions, the Company Law Board disposed of the Company Petition. Subsequently, it appears that some steps were taken by parties in pursuance of the consent terms for implementation of the same while regarding certain aspects, disputes arose between the parties and various applications came to be filed by these parties against each other. While some parties pressed for execution of the consent terms, other parties claimed breach and forfeiture, etc. The impugned order has disposed of those applications recording reasons. 8. In the impugned order, NCLT inter alia disposed of CA 141/2015 where Respondents 4 to 7 claimed that Respondents 2 and 3 violated consent terms and amounts paid by them should be....
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.... 3 did not comply with time bound mandatory terms and the Bench Officer did not take cognizance of default of Respondents 2 and 3 as was required by term 12. The Appellants returned the amount received from Respondents 2 and 3 in the form of cheques. Term 12 was inserted to provide option to declare contravention during the time of 6 months and was to be enforced by the Bench Officer but became redundant on expiry of period of six months. The Petitioners further claimed that terms 14 and 15 were never invoked requiring them to withdraw legal cases as according to them Respondents 2 and 3 had defaulted in honouring consent terms. The petitioners claimed that term 17 deserves to be enforced and Respondents 2 and 3 should resign as Directors and handover management to the petitioners as per term 17 for which the appeal is filed. It is claimed that the petitioners - appellants should have been given the rights as required by term 18 to purchase shares of the Respondents 2 and 3. According to the petitioners - appellants, the impugned order wrongly set in motion term 19. 12. Against this, Respondent No.2 has claimed and it has been argued that the petitioners failed to deposit and ex....
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.... sale consideration received by the appellants towards sale of their shares. 13. Respondent No.3 has claimed and it has been argued for Respondent No.3 that the amount required to be paid towards consideration for purchase of shares was delayed only by 15 days over and above the period of six months but no default notice was issued which if it had been given, it would have given the Respondents the period of 15 days to comply. Thus it is argued that there was no default. Referring to term 6, this Respondent claims that the Petitioners in violation of term 6 failed to deposit share transfer deeds and when they were filed after a delay of 210 days, the same were defective. As required post-dated cheques were not deposited as per term 7 of Annexure 'A' but it is claimed that the payments had been made as stated above. This Respondent also argues that the petitioners failed to withdraw legal cases as was required vide term 14 - 15. The Respondent claims to have complied with term 13 of Annexure 'A' with regard to release of bank guarantees. With regard to term 8, this Respondent claims that the outstanding professional fees was paid although there was a delay of 15 days beyond the g....
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....e inheriting party should not get company which is encumbered. It is argued that when the Petitioners and Respondents 4 to 7 had been paid the value of the shares, how the money was raised would be immaterial for them. The argument is that the petitioners are not entitled to purchase shares of Respondents 2 and 3 as allowed by term 12 r/w linked terms, as several pre-conditions are required to be satisfied and those pre-conditions are not satisfied. This Respondent claims that when the Petitioners were walking out of the Company, the manner in which consideration was raised and paid was immaterial. 14. Respondents 4 to 7 claimed that before the Annexure 'A' and 'B' were accepted by the Company Law Board, the purchasing Respondents 2 and 3 had submitted affidavits dated 05.12.2014 and affirmed before the Company Law Board that they shall buy the shares from their own funds. This was pre-condition for purchase of shares. According to these Respondents, they were the largest group of shareholders which was holding 30% share capital whereas Respondent No.2 Anil Jain held 12.86% and Respondent No.3 Dr. Sobhagyamal Jain held 9.64% shares. According to these Respondents, had such affid....
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....ere filed "before" consent terms Annexures 'A' and 'B' were accepted in which Affidavits they had stated that these Respondents would purchase the offered shares out of their own funds. For such reasons, NCLT discarded the arguments which were being raised for Respondents 2 and 3 that when Petitioners 2 to 4 and Respondents 4 to 7 are walking out of the company and handing over the management of the company to them, it is immaterial for them as to the manner in which the consideration was raised and paid. We find that the detailed reasons recorded by NCLT for coming to a finding that Respondents 2 and 3 had violated consent term 5 in the Annexures 'A' and 'B' are well founded. A simple way of looking at the consent terms would be that had Petitioners 2 to 4 or Respondents 4 to 7 known that charge can be created on the property of the company to raise money to buy the shares of the opposite party, then they could also have claimed to buy the shares of the opposite party by resorting to such method. With this we find that NCLT has rightly concluded that Respondents 2 and 3 violated term 5 as stated in Annexure 'A' as well as Annexure 'B. 18. NCLT then considered the claim of origi....
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....tion towards purchase of shares from Respondents 4 to 7 as it was done in period agreed and so there was no scope to invoke forfeiture clause. Going through the reasoning recorded by NCLT, we find that term 14 dealing with forfeiture basically related to "purchase" and Respondents 2 and 3 did make the payments within the period of 9 months fixed. Violation of term 5, which relates to not creating 3rd party rights etc. was rightly not invoked by NCLT for forfeiture in term 14 of Annexure 'B'. NCLT rightly discarded claims of Respondents 4 to 7 that the amounts they have already paid should be forfeited and they should be allowed to hold on to the shares they have. Against impugned order against claim of Respondents 4 to 7, they have not filed appeal. 21. NCLT has then found the Petitioners in default of term 6 of Annexure 'A' which required execution of transfer deeds in favour of respondents and depositing the same with the Bench Officer for safe custody. NCLT has rightly discarded the averments made for petitioners that Respondents 2 and 3 did not suggest the manner in which transfer deeds were to be deposited by observing that petitioners could have deposited the same without ....
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....ent Terms in the form of Annexures "A" and "B". No doubt, this Tribunal cannot modify or interfere with the Consent Terms, but at the same time when this Tribunal is called upon to interpret the Consent Terms, it should be interpreted in a harmonious way in order to further the object of settlement. It is not contemplated in Consent Terms, Annexures "A" and "B" as to what should happen in case of failure of observance of Consent Terms in Annexure "B" except stating that Respondents No.4 to 7 are entitled for their shares. In case of succeeding of Respondents No.4 to 7, Respondents No.2 and 3 will go out of the Company. In case if Respondents No.2 and 3 succeed as against the Petitioners and they fail as against Respondents No.4 to 7, Petitioners will go out of the Company, and it is Respondents No.2 and 3 and Respondents No.4 to 7 who will remain in the Company. During the pendency of these Applications, Dr. Sunil Rajan offered to sell his shares also, but it does not come within the purview of the Consent Terms. Therefore, this Tribunal refrain itself to act on such request. Further, the Consent Terms also cover the litigations filed by third parties. It is pertinent to mention th....