TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 549
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....nnection with a Memorandum of Understanding dated 03.03.2008 (hereafter 'the MOU'). It is contended on behalf of the petitioners that the MOU only obliged the petitioners to make their best efforts for providing an exit to the respondent from M/s ATS Promoters and Developers Private Limited (hereafter 'the company') and, therefore, the impugned award directing them to pay the awarded sum to the respondent is contrary to the MOU. The petitioners further contend that the transactions contemplated under the MOU are in violation of Section 297 of the Companies Act, 1956 and, thus, was void. 3. By the impugned award, the Arbitral Tribunal has directed the petitioners to pay, jointly and severally, a sum of Rs.110 crores along with interest at the rate of 12% per annum from 31.05.2008 till the date of the award. The Arbitral Tribunal has also awarded interest at the rate of 12% per annum from the date of the award till the date of the payment and in the event the payment is not made within a period of 120 days from the date of the award, the petitioners are also liable to pay interest at the rate of 15% per annum from 121st day till the date of receipt of the outstanding amount. In addi....
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....ch was described as the exit amount. 4.4 In terms of the MOU, it was agreed that the petitioners shall procure that ATS Infrastructure Limited (one of the Group Companies) transfers three crore shares held by it in ATS Estates Private Limited at a price of Rs.18.30/- per share aggregating Rs.54,90,00,000/- on or before 07.03.2008. The petitioners also agreed that they shall procure appropriate investors, who would purchase the said shares to enable the respondent to realize the exit amount of Rs.150 crores. 4.5 In addition, the parties also agreed that the petitioners would jointly and severally procure the ownership, title and possession of certain properties to be transferred to the respondent on or before 31.05.2008. On the same date, as the parties entered into the MOU (i.e. 03.03.2008), the respondent entered into a Share Purchase Agreement (SPA) with ATS Infrastructure Limited and ATS Estates Private Limited for transfer of three crore shares of ATS Estate Private Limited held by ATS Infrastructure Limited. Thereafter, on 08.04.2008, the petitioners arranged buyers/investors to acquire 90,66,183 shares of ATS Estate Private Limited at the consideration of Rs.44.12/- per sha....
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....e three crore shares of ATS Estate Private Limited from ATS Infrastructure Ltd (which formed a subject matter of the MOU) was contrary to Section 297 of the Companies Act, 1956 and, thus, was contrary to law. He urged that any such arrangement, being contrary to the provisions of Section 297 of the Companies Act, 1956, was void and, consequently, the impugned award rendered on the basis of the MOU was also void. Reasons and Conclusions 7. At the outset, it is necessary to note that although the petitioners in the present petition have stated several grounds to assail the impugned award, Mr Rohatgi has restricted the challenge only to two grounds as indicated above. Thus, it is not necessary for this Court to address any of the other issues raised in the petition. 8. Before proceeding further, it would be relevant to refer to the terms of the MOU. The recitals indicate the background in the context of which the MOU was entered into. The said recitals are set out below:- "(A) AKS, GA and T had together started real estate development and construction business and at present are carrying out such business jointly as real estate developers. (B) AKS, GA and T promoted and incorpora....
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....rance for an aggregate consideration of Rs. 54,90,00,000 (Rupees Fifty Four Crores Ninety Lacs only) (hereinafter referred to as "Consideration") determined on the basis of a value of Rs. 18.30 per share, on or before 7th March 2008; 2. That upon transfer of shares of ATS Estates Private Limited from ATS Infrastructure Limited to AKS, GA and T shall procure that appropriate investor(s) purchases such shares of ATS Estates Private Limited from AKS, either in a single transaction or in tranche, at such value(s) that AKS shall be able to realize a minimum net amount equivalent to his complete Exit Amount of Rs. 1,50,00,00,000 after deducting the amount of Consideration from the amounts realized by sale of such shares of ATS Estate Private Limited to such investor(s) (For the purpose of clarity it shall be noted that any tax implication arising out of such transaction/transactions in the hands of AKS shall be AKS liability); 3. That GA and T shall, jointly and severally, ensure on a best efforts basis that AKS shall be able to realize a minimum net amount equivalent to his complete Exit Amount of Rs. 1,50,00,00,000/- after deducting the amount of Consideration from the amounts realiz....
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....ealization of the minimum net amount equivalent to the complete Exit Amount of Rs. 1,50,00,00,000 or the increased amount after applying the provisions of Clause 5, as the case may be, to AKS after deducting the amount of Consideration from the amounts realized by sale of shares of ATS Este Private Limited by AKS to the investor(s) on or before March 31, 2009, AKS shall have option, at his sole discretion, to sell the shares of ATS Estate Private Limited to any investors(s) of his choice and GA and T shall have no objection to such sale of shares and GA ad T shall provide full assistance and cooperation to AKS in this regard; provided however that AKS shall provide a first right of refusal to GA and T or their nominee(s) to purchase the aforesaid shares of ATS Estate Private Limited at fair market value before AKS transfers them to the investor(s) of his choice. GA and T assured that in order to ensure that AKS shall be able to realize a minimum net amount equivalent to his complete Exit Amount of Rs. 1,50,00,00,000 (and further enhanced amounts as per Clauses 5 and 6) after deducting the amount of Consideration from the amounts realized by sale of shares of ATS Estate Private Limi....
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....ached their agreement, which obliged them to procure the transfer of three crore shares of ATS Estate Pvt. Ltd. held by ATS Infrastructure Ltd. 13. In terms of Clause 2 of the MOU, the petitioners were also obliged to locate appropriate investors to purchase the shares of ATS Estate Pvt. Ltd from the respondent. Admittedly, the petitioners were unable to find any such investors. In terms of Clause 6 of the MOU, in the event the petitioners failed to procure realization of the minimum net amount equivalent to the exit amount of Rs.150 crores, the respondent would be at liberty to sell the shares of ATS Estate Pvt. Ltd. to the investors of his choice. Since the petitioners had failed to procure the transfer of the balance 2.1 crore shares, the respondent was also prevented from exercising his rights under Clause 6 of the MOU. The Arbitral Tribunal also, after appreciating the evidence led by the parties, concluded as under:- "The respondents have failed to fulfill their obligation, firstly, to procure the shares and investor for the sale of balance shares and complete the sale transaction to enable the claimant to realize the entire exit amount. Secondly, there was a failure to pro....
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....vided for the eventuality, where despite best efforts, the petitioners were unable to ensure realization of the exit amount on or before 31.05.2008. 16. In view of the above, this Court finds no infirmity with the Arbitral Tribunal's finding that the petitioners had breached the MOU. 17. The next question to be addressed is whether the MOU is void as being contrary to the provisions of Section 297 of the Companies Act, 1956. At this stage, it may be relevant to refer to Sub Section 1 of Section 297 of the Companies Act, 1956, which was relied upon on behalf of the petitioners. The relevant extract of Section 297 of the Companies Act, 1956 is set out below:- "297. Board' s sanction to be required for certain contracts in which particular directors are interested. (1) Except with the consent of the Board of directors of a company, a director of the company or his relative, a firm in which such a director or relative is a partner, any other partner in such a firm, or a private company of which the director is a member or director, shall not enter into any contract with the company- (a) for the sale, purchase or supply of any goods, materials or services; or (b) after the com....