TaxTMI 
TaxTMI 
2022 (10) TMI 209
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...., J on an Interim Application by present Respondents Nos. 1 to 4, the Plaintiffs, all part of the Sanghvi Group. Respondent No. 5 is a private limited company. It is Defendant No. 3 in the Suit. 2. The prayers in the Suit read thus: "a. that this Hon'ble Court be pleased to declare that the said Agreement dated 14th June 2019 [Exhibit "A" hereto] is valid, subsisting, enforceable and binding; b. that this Hon'ble Court be pleased to pass an order and decree directing Defendant Nos. 1 and 2 to specifically perform the said Agreement dated 14th June 2019 [Exhibit "A" hereto] by doing all such acts, deeds, matters and things and execute all such documents as are necessary to give full and complete effect to the said Agreement including but not limited to: i executing the final version of the Family Settlement Agreement [Exhibit "J" hereto] in accordance with the terms agreed in the said Agreement [Exhibit "A" hereto]; and ii. co-operating in all manner and every ways necessary with the Plaintiffs, for Demerger Scheme [Exhibit "G" hereto] in accordance with the terms agreed in the said Agreement [Exhibit "A" hereto]. c. That in the event ....
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....al ("NCLT") inter alia under Sections 241, 242 and 244 of the Companies Act, 2013. By this time the Gujarat division, being operated by the Kamdars, was in severe loss. The other two, i.e., Maharashtra and AP/Telangana, were profitable. On 6th April 2018, the NCLT passed an order on the Kamdars' application saying that there were to be "no structural changes to the existing arrangement" in AMPL at least until the O&M Petition was disposed of. As we shall presently see, this is of some consequence to later events. 7. 14th June 2019 is a crucial date. For it is on this day that representatives of the three groups, after without prejudice discussions and negotiations, seem to have arrived at an understanding. This was not merely oral. It was reduced to writing in what was said to be "non-binding Minutes of Discussion" or MOD. Not every member of the Kamdar and Sanghvi families signed this document. A copy of this is in Volume IV at page 706. It has several intricacies and it is perhaps best to reproduce this three- page document in full. MINUTES OF DISCUSSION Venue : Hotel Taj Lands End, Mumbai Date : 14th June 2019 In meeting : Mr. RD Kamdar, Mr Pradi....
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....mily after the demerger and there would be no shares held by the outsiders (other than the Maharashtra family and AP & Telangana family, Maharashtra family and AP& Telangana family will offer their shares in the Gujarat Resulting Company by way of gift and/or buy back. The Scheme of Arrangement (Demerger) will be suitably modified as per the advice of a Senior Consultant. 6. Any losses, expenses or interest in relation to the Gujarat division other than those specifically agreed above would be to the account of Gujarat family. 7. Income-taxes, other outflow (including on account of buy-back of shares from outsiders) and stamp duty in relation the above settlement would be borne jointly by all the families from the investments held by Automotive Manufacturers Private Limited and the amount of investments to be transferred to the Gujarat Resulting Company may be adjusted to that extent. Any increase or decrease in the market value of investments would be to the account of Gujarat family. 8. No claim from the Gujarat family of any sort will be considered and this shall be treated as full and final settlement. 9. The Scheme of Arrangement (Demerger) ....
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....available to the parties. 12. Then comes the last sentence that a detailed understanding and the mechanics would be documented by way of a family settlement agreement, a scheme of arrangement to be filed with the NCLT, and the withdrawal of the Company Petition. 13. Many emails were exchanged after the execution of the MOD. The two sides are at loggerheads on whether the other accepted or repudiated the MOD as a binding contract. It is Mr Tulzapurkar's and Mr Seervai's case that nobody treated the MOD as being incomplete or inchoate. On the contrary, the Kamdars accepted it as a binding and settled agreement. Any references to a proposal or to a settlement after the MOD were, they contend, a reference to the terms of the formal document that were to be drawn up and the additional steps that were to be taken. Mr Kadam would have it that the Sanghvis themselves acted contrary to the MOD, repudiated it repeatedly and, even in the present plaint, said repeatedly that it was not a concluded contract. 14. There are few of the proceedings before the NCLT to which we believe it is necessary to refer before we turn to the other documents in the arguments. In August 2020, the Kamdar....
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....unal ("NCLAT") listed the appeals for admission after notice. The Kamdars challenged the NCLAT order before the Supreme Court, which directed the NCLAT to dispose the appeals before the date fixed for the hearing of the main O&M Petition. The final order on the NCLAT appeals was simply to direct the NCLT to hear the Petition expeditiously, uninfluenced by the order made on the two Miscellaneous Applications on 11th June 2021. Thus, the O&M Company Petition came to be listed before the NCLT for final hearing. For various reasons, it could not be taken up. In December 2021, the Kamdars filed what they now describe as an 'overview note' before the NCLT. Mr Tulzapurkar and Mr Seervai contend that this was no sort of overview. It was a but thinly disguised application, albeit the form of a note, seeking a fresh valuation of AMPL and the Kamdars' exit from AMPL on terms that were entirely outside the frame of the MOD and contrary to its terms. 18. Nothing significant seems to have happened before the NCLT, except that the O&M Petition was listed high on board for final hearing on 17th February 2022. It was then that, on 11th February 2022, the Sanghvis filed this Interim Application f....
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....here an agreement refers to a later document to be executed, this does not in and of itself mean that the first agreement is not a concluded contract. There is no such general proposition was the argument. It was also argued before Chagla J that the jurisdiction of the Civil Court was ousted by Section 430 of the Companies Act, a submission that is again taken before us and which we will proceed to consider shortly. This was refuted by saying that the NCLT itself had no jurisdiction over the subject suit. The submissions by Mr Kadam were also noted including his emphasis on the NCLT order referred to above, which ostensibly noted that no settlement proposal had been reached. Mr Kadam said that, in any event, apart from the jurisdictional bar, if the MOD was the concluded agreement, it was only a compromise of the NCLT O&M Petition and that could, and should, be done by and only by the NCLT. He however maintains that the MOD was not a concluded contract. This appears to have been the principal ground. Then Chagla J was asked to hold that the Sanghvis had themselves by their conduct not understood the MOD to be binding. In paragraph 83, Chagla J proceeded to a consideration of whethe....
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....anghvis. 23. Finally in paragraphs 110, 111 and 112 Chagla J held: "110. Considering that the Minutes of Discussion which in my prima facie view, amounts to a family settlement was being implemented in its true spirit and intent as well as the fact that it was in September 2020 that the Defendant Nos. 1 and 2 in correspondence chose not to execute the formal family settlement agreement and scheme of arrangement (demerger) as borne out from the correspondence, the Plaintiffs had no choice but to take steps in filing the present Suit on 25th January 2021 seeking specific performance of the Minutes of Discussion. The Plaintiffs, upon filing the present Suit, two days later i.e. on 27th January 2021 filed an Affidavit placing on record before the NCLT the Plaint filed in the captioned Suit. The Interim Application has also been taken out and interim relief sought in view of the Defendants filing an 'Overview Note' in the Company Petition before the NCLT seeking their buy-out and sell-out on a fresh valuation of shares and other assets. The Company Petition was listed high on board for final hearing on 17th February 2022 and in view thereof, the Interim Application was filed....
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....e Division Bench were against the exercise of discretion by the Single Judge. In such appeals, the Appellate Court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate Court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by the court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the Trial Court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of....
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....iew was possible or preferable. It is also not enough to show merely that the appellant is either aggrieved or even simply prejudiced by an interlocutory order. In our view, it is also not enough in an appeal from an interlocutory order for a plaintiff in appeal to show that there is some prima facie case. A plaintiff in appeal must be able to demonstrate that there is so overwhelming a prima facie case that interlocutory relief could not possibly have been denied. Conversely, a defendant in appeal must be able to demonstrate that the plaintiff had not even a vestige of a prima facie case and there was no possibility at all of ever granting him any form of interlocutory relief. 27. Mr Kadam's task before us must be assessed in this context. Has he succeeded in discharging that burden? It is our considered view that he has not. We have found no cause for interference with the impugned order. 28. Mr Kadam's arguments may be summarised like this (though not necessarily in the sequence in which he presented them). (1.1 The Civil Court has no jurisdiction at all because of the operation of Section 430 of the Companies Act read with the provisions regarding the powers of t....
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....Act reads thus: "430. Civil court not to have jurisdiction.- No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal." (Emphasis added) 30. Mr Kadam emphasises the words "is empowered to determine by or under this Act". Everything in the MOD and everything that is sought in the plaint is, according to Mr Kadam, a matter that the NCLT is 'empowered to determine' under the Companies Act. He draws attention to Section 242 which sets out the very many powers of the NCLT in a Petition for Oppression and Mismanagement. We reproduce Sections 242(1) and (2). "242. Powers of Tribunal.- (1) If, on any application made under section 241, the Tribunal is of the opinion- (a) that the company's affairs have been or are bein....
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....yment to identifiable victims; (j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h); (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; (l) imposition of costs as may be deemed fit by the Tribunal; (m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made." (Emphasis added) 31. Mr Kadam's emphasis is on sub-clauses (a) to (f). Everything that is within the frame of the MOD, he says, is thus capable of being 'determined' by the NCLT. Nothing lies outside it. Indeed, the NCLT alone can force a buy-out or a sell-out. That can only be done by an administrator and needs a valuation. This what the Kamdars sought, and there is nothing wrong or even surprising about it. Theirs was an application entirely within the frame of what the NCLT was 'empowered to determine'. Correctly read, even the MOD did not go beyond this, since its only a....
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....on 430 of the Companies Act. Such a compromise could have been brought on record. Significantly, he says, the Sanghvis never approached the NCLT seeking implementation of the MOD's terms or that it be taken on record and that a compromise be recorded in accordance with those terms. This could always have been done. Instead, the Sanghvis sought to 'grab control', as he puts it, of the Gujarat division, thus denuding the Kamdars of what little they had been promised but never given under the MOD. The most telling circumstance, according to Mr Kadam, is this. Over a year after they filed their so-called specific performance suit, the Sanghvis did nothing to move it. It was not until the NCLT began listing the Oppression and Mismanagement petition with some priority, and not until the Kamdars had submitted their note of an overview of the matter, that abruptly and only to forestall those proceedings, the Sanghvis moved the Interim Application in their Suit. There was clearly no urgency. There was clearly a delay. Nothing had happened in the last year to justify an overnight application and so drastic an order. 35. The impugned order, he says, is also one that is contrary to statute ....
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.... will also have to be established. But from the jurisdictional ouster perspective, that is something exclusively within the jurisdiction of the Civil Court. 39. Mr Seervai makes an interesting argument. He says that what the MOD clearly contemplates is both forums operating in tandem. The MOD has provisions that require enforcement in a Civil Court, but part of that enforcement will be a demerger proceeding that has to be adopted in the NCLT to give full effect to the MOD. There is nothing inconsistent or contrary in such an approach. 40. The one thing that is impermissible, Mr Tulzapurkar and Mr Seervai say, is for the Kamdars to now deny the binding nature of the MOD, because, apart from anything else, they have derived benefit under it. It is not open to them to resile from the position that it is a binding contract. Once it is a binding contract, then no question arises of the exclusivity of jurisdiction of the NCLT in enforcing that contract. That is only within the remit of the Civil Court. 41. Can Chagla J's order be said to be one that was not reasonably possible in the view that it took regarding jurisdiction? From any perspective, we do not think that this is a s....
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....obile Cellular Ltd & Ors. (2008) 13 SCC 597. Not every nuance needs to be filled in before a contract can be said to be concluded. The anticipation of a document of a formality to follow has been held not to validate the earlier document: Kollipara Sriramulu v T Aswathanarayana. AIR 1968 SC 1028. In KK Mody v KN Mody (1998) 3 SCC 573., the Supreme Court said that a family settlement which settles disputes within the family should not be lightly interfered with - especially when the settlement has been already acted upon by some members of the family. Avoiding prolonged legal disputes between the members of the family is a paramount concern. These settlements must be viewed differently from ordinary contracts and their internal mechanism for working out the settlement should not be lightly disturbed. There are several other decisions from our jurisprudence and overseas to the same effect. 43. Towards the end of the argument, reference was made to the decision of the Supreme Court in Embassy Property Development Pvt Ltd v State of Karnataka (2020) 13 SCC 208. We are actually unable to see how this will alter the position significantly. There is no controversy over the provisions o....
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....e board of Directors of the Respondent No. 1 company to be in effective management of the Respondent No. 1 company including the Gujarat Division, in its best interests and those of its shareholders and the stakeholders; (c) this Hon'ble Tribunal be pleased to direct the Petitioners to adhere to the directions of the Board of Directors of the Respondent No. 1 Company; (d) That pending the hearing and final disposal of this Application, this Hon'ble Tribunal be pleased to grant interim and ad-interim relief in terms of prayers (a) to (c) above; (e) For the costs of this Application; and (f) For such further and other orders and directions as this Hon'ble Tribunal deems fit and proper to pass in the facts and circumstance of the present case." (Emphasis added) 46. What was being sought was not an order to permit the Sanghvis to 'hijack' - as Mr Kadam says - the Gujarat Division, but to restore the proper corporate functioning of AMPL, so that it its Board of Directors and its shareholders could manage it as one entity, including the Gujarat Division. AMPL's Gujarat Division's affairs should be looked after by AMPL's Board shareholders a....
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....ly and frivolously delayed by the Kamdars. Mr Kadam's construct comes to this: that because the implementation of the MOD was not finalized, therefore the MOD was not a concluded contract. This is logically fallacious and does not commend itself. 49. Mr Kadam questions the purpose of the injunction Chagla J granted and how it can be said to be in furtherance of the MOD. The answer suggests itself. What the injunction does is to prevent the Kamdars from in any way acting contrary to the terms of the MOD. What Mr Kadam does not acknowledge is that the MOD contains a specific valuation of the Kamdars' share in the entire enterprise. It is not open to the Kamdars now to resile from that agreed position or to demand any larger amount, whether by a fresh valuation, the appointment of an administrator or otherwise. This is precisely the purpose of the Kamdars' application to the NCLT when it sought a valuation of the entire enterprise with no reference at all to the MOD. 50. For these reasons also it is not possible to accept Mr Kadam's argument that there was a lack of readiness and willingness on the part of the Sanghvis. If anything, the material on record is to the contrary. ....
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....oup of any sort would be considered and that the said Agreement shall be treated as full and final settlement. However since at the time, the aforesaid Company Petition was pending before the Hon'ble NCLT, which, needless to say was agreed to be withdrawn/disposed, the parties, as a formality, incorporated a clause to the effect that the understanding in the said Agreement was "without prejudice to the other rights and remedies available to the parties". 3.13 It was also agreed that the detailed understanding and the mechanics would be documented by way of a family settlement agreement and Scheme of Arrangement for the Demerger and that Gujarat Group shall withdraw the existing Company Petition alleging oppression and mismanagement. The family settlement and the Scheme of Arrangement were merely ancillary documents containing the mechanics/ procedural aspects of the division of the company. All the substantive and commercial and other terms were contained and clearly spelt out in the said Agreement." 54. Nothing in these paragraphs suggests that the Sanghvis did not see the MOD as the complete overall settlement. Indeed, paragraph 3.11 is a reaffirmation by the Sanghvis....
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.... caused payment of about Rs. 56 crores from the cash flows of the Maharashtra and Andhra/Telangana divisions to Gujarat to meet bank and other liabilities. Part of this funding was raised by selling investments. AMPL refunded the fixed deposits held by it in the names of the Kamdars (among other shareholders) by selling its liquid investments. There were several other steps of this kind taken by both sides. It was not, Mr Tulzapurkar submits, a mere compromise of the NCLT Petition that the MOD envisaged. 57. He refutes the submission that the MOD was never propounded by the Plaintiffs. We do not propose to examine this correspondence in detail. We are not required to. We are not conducting a trial or even a mini-trial. Neither was Chagla J. He could not have done so. He had to arrive at an overall prima facie assessment of the material before him. There are exchanges from 1st August 2019 from Exhibits "F" to "H", then at page 797 and 798, and an important communication from the Kamdars on 24th June 2020 at page 1119 in Volume V. We only note this in brief. Here, Pradip Kamdar wrote to Aditya Sanghvi affirming in terms that all had reached an understanding on 14th June 2019. The ....