TaxTMI 
TaxTMI 
2022 (12) TMI 52
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....nt appeal before this 'Appellate Tribunal' are the investors holding 13.32% shares each totalling to 26.64% of shares in the 1st Respondent company and are being represented by the GPA Holder Mr. Nikhil Baheti. Techbond Laboratories Pvt. Ltd. is the company in which 1st and 2nd Appellants invested and is 2nd Respondent herein and the company was in the business of manufacturing of fine chemicals used in pharmaceutical, agro-chemical and leather industry. Clininvent Research Private Limited is the 2nd Respondent herein to whom the assets of 1st Respondent have been sold. Shri T. Bose Babu and Shri Swapan Bhattacharya are 3rd and 4th Respondents herein being Director and Managing Director of the 1st Respondent company. 3. The 1st and 2nd Appellant acquired 26.64 % shares in 1st Respondent company by way of signing an agreement termed as 'Share Purchase and Shareholders Agreement' (in short 'SPSHA') dated 27.01.2014. It has been brought out that the intention of the investors was to take over 1st Respondent company. The 'SPSHA' was followed by one more agreement termed as 'Addendum Agreement' to the 'SPSHA' dated 28.06.2014. 4. It has been alleged that subsequent to signing of 'S....
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....ribunal' which was upheld in Company Appeal (AT) No. 364 of 2017 dated 14.11.2017 and ordered for restoration of company petition subject to payment of Rs. 30,000/-. After hearing the petition, the 'Tribunal' dismissed the said petition vide 'impugned order' dated 11.02.2020 and hence the present appeal before this 'Appellate Tribunal'. Appellants' Submissions:- 10. The Learned Counsel for the Appellants gave overall view of the appeal and the circumstances which led to the present appeal. The Learned Counsel for the Appellants assailed the 'impugned order' and alleged that the 'Tribunal' did not consider the relevant facts as well as the provisions of the companies Act, 2013 and dismissed the 'Appellants' petition wrongly. 11. The Learned Counsel for the Appellants stated that they are investors who with genuine interest to acquire the 1st Respondent Company way back in 2014, signed the agreement i.e. 'SPSHA' on 27.01.2014. Subsequently, an addendum to the 'SPSHA' was also signed on 11.06.2014. The Learned Counsel for the Appellants mentioned that subsequent to signing of 'SPSHA' and making payments, the majority shareholders started oppressions of the 'Appellants' in various w....
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....en the parties in writing. 15. The Learned Counsel for the Appellants mentioned that all these clauses were violated by the 'Respondents' just to cause oppression to the 'Appellants'. The Learned Counsel for the Appellants alleged that due to connivance and wrongful deeds of the 'Respondents', three sale deeds were executed in gross violation of the 'ATA' as well as the 'SPSHA' along with addendum to the 'SPSHA'. 16. The Learned Counsel for the Appellants again highlighted the importance of few clauses which protected the interest of the 'Appellants' in terms of the 'SPSHA'. Like Clause No. 3.1, Clause No. 5.4 and Clause No. 5.5. 17. The Learned Counsel for the Appellants highlighted that as per these terms no decision could have been taken without specific consent of the Appellants. The Learned Counsel for the Appellants alleged that in gross violation to such specific conditions agreed upon, the 'Appellants' were bypassed time and again. 18. The Learned Counsel for the Appellants cited following instances which are akin to operation under Section 241 of the 'Companies Act, 2013'. (i) The 'Appellants' were not served notice for 'Annual General Meeting' ("AGM") for 31.03.2016 ....
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....1, 3 & 6 stated that at this juncture raising issues about the 'ATA' by the 'Appellants' is only for ulterior motives. 23. The Learned Counsel for the Respondent Nos. 1, 3 & 6 stated that 24.06.2016 was to be taken as the effective date and the provision regard 'LSD' was mainly for the protecting the rights of the 2nd Respondent as buyer and as per standard drafting practices any change in the 'LSD' was to be done with mutual consent of the concerned parties. The Learned Counsel for the Respondent Nos. 1, 3 & 6 further stated that in the 'EGM' held on 24.06.2016, the 'Appellants' had already authorised Mr. Sanjeev Baba to take all necessary action as required to affect the 'ATA' and as such no further or separate consent of the 'Appellants' was required. 24. The Learned Counsel for the Respondent Nos. 1, 3 & 6 also stated that the very fact that specific provision was made regarding extension of the 'LSD' period takes away the arguments of the 'Appellants' that time was essence of the contract and in any case liberty was available to the 2nd Respondent as purchase of the company to forgo this right and accordingly, the 2nd Respondent gave the consent to extend the 'LSD' after neg....
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....of the seller, the buyer could waive the requirements. As such, there is no merit in the arguments of the 'Appellants' on the 'LSD'. 31. The Learned Counsel for the Respondent Nos. 2, 4 & 5 stated that on 01.11.2016 the three sale deeds were executed in favour of 2nd Respondent by Mr. Sanjeev Baba as the authorised director of the seller and only after the sale was executed in the evening of 01.11.2016 the 'Appellants' sent mischievous, unethical and vague e-mail knowing very well that the sale deeds were already executed and there was no scope for the buyers to go back. The sale deeds were registered on 03.11.2016, requisite payments were made and the possession of the properties was taken over. 32. The Learned Counsel for the Respondent Nos. 2,4 & 5 further stated that since taking over the assets from 1st Respondent, the buyers have already invested additional amount of Rs. 66 crores to improve the running of the factory. The Learned Counsel for the Respondent Nos. 2, 4 & 5 indicated that this was adequate proof of his genuine intentions to revive the corporate debtor back into business which is now being challenged by the 'Appellants' with malafide intensions. 33. The Learne....
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....ce and locate such Unsecured Creditors I and providing such documents and/ or materials showing the efforts that have been taken to contact/trace such Unsecured Creditors - 1, to the satisfaction of the Purchaser, the Purchaser shall relax such Condition Precedent in writing (to the extent of Unsecured Creditors - 1) on a case to case basis. 6.3. Conditions Fulfilment Date 6.3.1. Upon the fulfilment of each Condition Precedent, the Seller shall inform the Purchaser of such fulfilment and shall provide the Purchaser with documentary evidence of such fulfilment. Upon the fulfilment of all the Conditions Precedent, a certificate in a form satisfactory to the Purchaser, indicating compliance with the aforesaid Conditions Precedent ("Conditions Satisfaction Notice"), together with the balance documentary evidence thereof shall be given by the Seller to the Purchaser. If the Purchaser is satisfied with the completion of the Conditions Precedent or if the Purchaser has waived/extended/relaxed partially any of unfulfilled Conditions Precedent in writing, then the consummation of sale and purchase of the Assets as contemplated under this Agreement (the "Closing") shall take place on suc....
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....mes in excess of the Purchase Price." * Generally speaking long stop date is the last date by which something as agreed upon must be done and failure to achieve the milestone may result in termination of the agreement. In the same spirit there may be concepts of 'Initial Long Stop Date' which is defined as original milestone and which can be extended with the consent of the concerned parties and can be termed as 'Extended Long Stop Date'. It is well established practice in 'Merger and Acquisition', transactions that the parties agree on the time frame in which all the conditions precedent needs to be fulfilled and transaction completed. The concept of extension in the 'LSD' is provided to take care of circumstances beyond the control of any of the parties and is intended to facilitate the implementation of the agreement with mutual consent. * Sale and purchase of the assets under the 'ATA' was conditional to completion of conditions precedent and if conditions are not fulfilled on or before the 'LSD', the 'ATA' could be terminated. It has been brought out that on 19.08.2016/20.08.2016 the 1st Respondent wrote to the 2nd Respondent for extension of the 'LSD' purportedly to enable ....
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....ATA' to sale the assets of 1st Respondent. Admittedly, this process helped all stakeholders and as submitted by the 2nd Respondent that they have already invested Rs. 66 crores to revive the company. * Alternatively, the other scenario may also be looked into considering whereby the consent of the 'Appellants' were needed and not granted. The consequences of the same could have been liquidation of the company which in any case would not have served interest of any stakeholder. Admittedly, the 'ATA' was approved by all shareholders including the 'Appellants' and to that extent there cannot be any dispute regarding the fairness of the 'ATA' and free consent accorded to it by all the parties including all the shareholders of the seller company including both the 'Appellants'. Nowhere, it has been brough out that the 'LSD' could not have been extended or extensions of the 'LSD' was detrimental to right of the 'Appellants' in any way. This establishes that although time is a significant concept in such transaction but cannot be a condition which cannot be altered with mutual consent of the concerned parties. * This 'Appellate Tribunal' also do not consider above action of extension of....
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....vided such member has a right to apply under section 244, for an order under this Chapter. (2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter. [Provided that the applications under this sub-section, in respect of such company or class of companies, as may be prescribed, shall be made before the Principal Bench of the Tribunal which shall be dealt with by such Bench.] [(3) Where in the opinion of the Central Government there exist circumstances suggesting that - (a) any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust; (b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; (c) a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, se....
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....the transfer or allotment of the shares of the company; (e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case; (f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e): Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; (g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any of the directors of the company; (i) recovery of undue gains made by any managing director, manager or director during the period of his a....
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.... thereof, be filed by the company with the Registrar who shall register the same. (8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both." [emphasis supplied] * Now, let us examine alleged acts of oppression. * As regard, non service of the notice of the 'AGM' for period ending March 2016, no concrete case has been made out as to establish the fact as well as the adverse implication for the same caused to the 'Appellants' which can be termed as oppression. Since, the word 'Oppression' has not been specifically defined in the 'Companies Act, 2013', generally speaking it can be construed as unfair treatment of minority shareholder by those who are in control of the company. It is also noted that both the 'Appellants' were inducted on the board of director of the company and subsequent du....
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....n the 'Appellants' as investors, the 'Respondents' as existing shareholders and the 1st Respondent as the company. The 'SPSHA' prescribed sale of entire shareholding to the investors on terms and conditions specified therein in three tranches along with conditions precedent to 1st, 2nd and 3rd closing. The 'SPSHA' also laid down conditions subsequent, shareholder's rights and obligation and other terms and conditions, the important rights of the shareholder and their obligations have been defined in Clause 5 of the 'SPSHA'. In terms of the 'SPSHA'. i.e. Clause No. 3.1, Clause No. 5.4 and 5.5 reads as under:- "3.1 The Parties agree and undertake that they shall do all such acts ensure the amendment of the Articles of Association of the Company, within 10 (ten) days from the Execution date, to reflect the terms, conditions and understanding as set out under the Transaction Agreements in compliance with Section 5 of the Companies Act, 2013. 5.4 Ouorum: In addition to the quorum requirement as prescribed under applicable law, the quorum for any meeting (including any adjourned meeting) of the Board (including any committee of the Board) or the shareholders of the Company shall requ....