TaxTMI 
TaxTMI 
2022 (12) TMI 52
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....atnam Krishna is the '2nd Appellant' in the present 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.....
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....this the 'Appellant' has preferred an appeal before this 'Appellate Tribunal' 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....
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....me to be essence of the contract which could be extended mutually as agreed between 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) T....
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....'ATA', the draft of which was also approved in the same 'EGM'. The Learned Counsel for the Respondent Nos. 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....
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....d Respondent as buyer to extend, relax or waive the conditions precedent and upon request of the authorised representative 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 ....
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....itors - 1, who are untraceable and are not located even after the Seller taking all reasonable steps (including sending registered post acknowledgement due etc.) to trace 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....
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....aser with respect to the affairs of the Seller relating to the period prior to the Closing Date, and which impacts the Assets; or (e) if the total liabilities required to be paid by Purchaser becomes 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....
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....of events from signing of the 'SPSHA', inductions of the 'Appellants' as Director and CEO of the company, adverse financial conditions of the company, shutting down of the plant and finally signing of the '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 signif....
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....ital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided 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 brea....
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....ection (1), an order under that sub-section may provide for- (a) the regulation of conduct of affairs of the company in future; (b) the purchase of shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) restrictions on 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 r....
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....articles. (6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered. (7) A certified copy of every order altering, or giving leave to alter, a company's memorandum or articles, shall within thirty days after the making 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 th....
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....s can be construed as oppression of the 'Appellants' and therefore this 'Appellate Tribunal' do not find any error in the 'impugned order' on this account. Issue No. (III) (a) Whether the rights of the 'Appellants' have been violated in implementation of the 'SPSHA' along with the 'Addendum' to the 'SPSHA'. (b) Whether, the implementation of the 'ATA' was without consent of the minority shareholder and whether this tantamount to their oppression and detrimental to their rights ? * It is noted that the 'SPSHA' was signed on 27.01.2014 between 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 agr....
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....necessary. This resolution also authorised Mr. Sanjeev Baba to amend the documents and sign on behalf of the company for registration and do all other acts, deeds and things as are incidental or consequential thereto. This 'Appellate Tribunal' consciously note that no reference has been given which prohibit authorised representative from taking action without specific consent of the 'Appellants'. It is further observed that the 'SPSHA' was signed on 27.01.2014 and the Addendum was signed on 28.06.2014, the 'Appellants' resigned from the Board position and CEO position on 02.01.2015, the 'EGM' was held on 16.04.2016 authorising Mr. Sanjeev Baba and finally the 'ATA' was singed on 24.06.2016. It is further observed that subsequent to singing of the 'ATA', the three sale deeds were signed on 01.11.2016 and were registered on 03.11.2016. It is evident from this chronological sequence of events that though originally the 'SPSHA' and 'Addendum' thereto prescribed consent of the 'Appellants', however subsequent to their resignation, passing over of 2nd and 3rd Closing dates without further requisition of shares (to take over 100% shareholding of 1st Respondent) and delegating full power t....