TaxTMI 
TaxTMI 
2025 (6) TMI 1019
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....le and transfer of 2,34,000 equity shares of Wanderland Real Estates Private Limited ("WREPL") effected on 4th September 2014 by Treasure World Developers Private Limited (TWDPL/the Company in Liquidation) in favour of Applicants. The said transfer was effected pursuant to a Memorandum of Understanding dated 01st March 2009 as amended by agreement dated 23rd December 2011. 2. The background facts are as under : 2.1 Around 2007 till 2009, the Applicants along with one Mr. Prem Swarup Kalani and one Mrs. Manisha Kalani (Applicant in Interim Application No. 387 of 2020) were holding 267,750 shares in WREPL. 2.2 In 2009, Mr. Manish Kalani Managing Director of Entertainment World Developers Pvt Ltd. ("EWDL") proposed a collaboration involving its subsidiary TWDPL and WREPL. The existing shareholders, including the Applicants, agreed to the proposal. 2.3 Accordingly, on March 1, 2009 WREPL the Respondent No. 2 herein, TWDPL and the Applicants executed a Memorandum of Understanding (the "MOU") whereby the Applicants agreed to transfer a total of 2,67,750 shares ("Sale/Subject Shares") of WREPL amounting to 51% of WREPL's equity shares to TWDPL for a total consideration of Rs. ....
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....ut in Article 5 of the MOU. 2.9 On August 25, 2010, TWDPL wrote to Mr. Prem Kalani requesting the Applicants not to invoke the call option, because TWDPL had already filed a Draft Red Herring Prospectus (DRHP) for IPO in July 2010 and the invocation of call option by the Applicants would hamper the IPO process. Thereafter a similar request for not invoking the Call Option under the MOU was made by TWDPL on November 2, 2011 and an extension of time upto March 31, 2013 was sought for infusion of funds. 2.10 Thereafter on December 23, 2011 WREPL, the Applicants and TWDPL executed an Amendment Agreement modifying Articles 4 and 5 of the MOU. Under the amended terms, TWDPL was to infuse Rs. 75 crores into WREPL by 31st March 2013. The 2,67,750 shares were to be held as security, and the relationship between WREPL and TWDPL being that of lender and borrower. The Board of WREPL and TWDL accordingly passed necessary resolutions to create the above security in favour of the Applicants against the obligations of TWDPL to be performed in terms of the MOU and Amended Agreement. In case of default under the amended Article 4 by TWDPL the Applicants had liberty to invoke the rights over th....
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....nd Amended Agreement filed Interim Application No. 387 of 2020 adopting the averments of the Applicants herein in Company Application No. 248 of 2019, seeking validation of sale and transfer of 33, 750 equity shares of WREPL by TWDPL in her favour on September 4, 2014 effected to pursuant to the MOU and Amended Agreement. 2.21 The Official Liquidator has filed Official Liquidator Report No. 114 of 2020 submitting that the same be considered as Reply on behalf of the Official Liquidator to the Company Application No. 248 of 2019 and the Interim Application No. 387 of 2020, denying that the transfer of shares is a bona fide transaction and denying that the aforementioned transfer is in furtherance of a pre-existing contract. The Official Liquidator's Report seeks custody/possession of the 2,34,000 and 33,750 equity shares of WREPL. 2.22 The Official Liquidator has also filed detailed reply to the Company Application as well stating that it is incumbent upon the Applicants to show that the ratification of transaction so sought was done in a bona fide manner and done in the best interest of the Company and that Applicants have failed to plead and prove the same in the present pro....
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....mbatta, the learned senior counsel for the applicant, would urge that the transfer of shares by exercise of call option is not void under Section 536 of the Companies Act, 1956 and has canvassed multi-pronged submissions in support of the same. 7. Firstly, Mr. Khambatta would urge that a call option creates an irrevocable right to receive the subject shares in favour of the Applicants. That once a call option is granted, it results in a complete, concluded and legally enforceable nature of a concession or privilege, which may be exercised upon the fulfillment of the conditions on which it is made exercisable. 8. Secondly, while the grant of call option is a matter of consent, the exercise of the call option is a unilateral act. An option by its very nature is dependent entirely on the volition of the person granted the option, in the present case the Applicants herein. Mr. Khambatta submits that the present Applicants, as per the terms of the Amendment Agreement dated 23rd December 2011 became legally entitled to exercise the call option from 31st March 2013 itself and the unilateral exercise of the call option would be binding upon TWDPL. 9. Thirdly, Mr. Khambatta would s....
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....over to the Applicants would not be sufficient to complete the transaction. 16. Mr. Sheth would submit that the transfer of the subject shares is an incomplete transaction and cannot be completed by making an application under Section 536 (2) of the Companies Act, 1956. That entire events regarding transfer of shares having occurred post the date of presentation of the winding up Petition, an incomplete transaction cannot be ratified by this Court. 17. Mr Sheth further submits that, there is no pleading made by the Applicants to even state that the said transfer option exercised was in the best interest of the company and that the Applicants have failed to show their bona fides with respect to the transaction. 18. Mr Sheth has relied on the following decisions in support of his submissions : (i) Board of Industrial and Financial Reconstruction v. Hindustan Transmission Products Ltd. 2012 SCC Online Bom 1294. (ii) Export Import Bank of India v. Punjab National Bank OLR/139/2018 in CP/756/2014 and CP/119/2015 (decided on 14th January, 2020). (iii) Mukesh Mehra v. State Bank of India IA(L)/2534/2021 in CP/321/2016 (decided on 27th September, 2023). ....
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....l act of invoking the same. Thus, it was the obligation of the Company in Liquidation to infuse the money on failure of which the Applicants had liberty to invoke the rights over the shares which have been given as security. Therefore, the Applicants in the present case became legally entitled to exercise their irrevocable right on March 31, 2013. 22. No doubt, pursuant to Section 441 of the Companies Act, winding up of a company by court shall be deemed to have commenced at the time of presentation of the petition which in the present case would be March 28, 2014. It is also provided under Section 536 (2) of the Companies Act that in case of a winding up by a court, any disposition of the property of the company made after the commencement of the winding up shall, unless the court otherwise orders, be void. It is trite, that if bona fides are established, then Section 536 (2) would not apply, as the said provision is clearly an enabling provision in favour of saving transactions in the interest of justice. That, all transactions which are bona fide and shown to be fair, just and reasonable deserve to be protected because of clear equity involved in such matters. Section 536 (2)....
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....ly misplaced. The Division Bench was deciding a writ petition in which a decision of SEBI rejecting the application filed by MCX-SX for permission to undertake the business as a Stock Exchange, was challenged. This order of SEBI was passed under section 4 of the Securities Contracts (Regulation) Act, 1956 read with sections 11 and 19 of the Securities Exchange Board of India Act, 1992. At paragraph 77, the Division Bench has sought to make a distinction between the option to purchase or repurchase and an agreement for sale and purchase of shares. The Division Bench has opined that the option to purchase or repurchase is, by its very nature, dependent on the discretion of the person who is granted the option, whereas in an agreement for sale and purchase of shares, there is an arrangement imposing obligations and benefits on the promisor and the promisee. The performance of an option cannot be compelled by the person who has granted the option, and a concluded contract for purchase or repurchase of shares arises only upon the exercise of that option. The Division Bench does not go on to hold that the Letter of Undertaking (which was also being considered by the Division Bench in Wri....
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....e with exit terms to the promoters of the Petitioner." (emphasis supplied) 28. In fact, the Petitioner therein (MCX-SX) had submitted before the Court that the Buy Back Arrangements entered into are lawful [see paragraph 31B(i) of the judgment]. Even Respondent No. 3 therein (FTIL) submitted that the Buy Back Arrangements did not constitute a concluded contract for the purchase and sale of the shares, but only furnishes an option to the Plaintiff which was in the nature of a privilege or concession entirely dependent on the volition of the Plaintiff. It was specifically urged that this option involves a unilateral exercise of volition by the Plaintiff herein, as distinct from a contract of sale and purchase of shares, which involved reciprocal obligations. [see paragraph 32A(i)] 29. Further, paragraph 65 of the judgment, in fact records that the terms of the Buy Back Agreement stipulate that the Defendant or its nominees would be under an obligation to purchase back the shares at any time after completion of one year from the date of investment and no later than three years. On 14th December, 2009 MCX-SX addressed a letter to the Plaintiff seeking approva....
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....t though an agreement for sale of land remains executory until transfer of title to the land and payment of purchase price, however that does not mean that the agreement for sale of land is incomplete. I find substance in the submission of Mr. Khambatta that as the Applicants have provided fresh cheques to TWDPL for invocation of call option on August 16, 2014 and TWDPL has accordingly sent the revised transfer deeds to the Applicants by August 20, 2014, the subsequent Approval of Board of Directors of WREPL on the transfer of subject shares on September 4, 2014 completed the sale of subject shares. Reliance can be place upon the decision of the Supreme Court in Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar and Ors. (1974) 2 SCC 323 wherein the Supreme Court has held that delivery of documents to the donee, with a clear intention to donate shares, would be enough to confer upon the donee a complete and irrevocable right even in absence of registration. The Applicants have been conferred with an irrevocable right in their favour through the MOU and the Amended Agreement. That after invocation of the call option, the Applicants have also received the revised transfer deeds and....
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....etition and prior to order of winding up. The approach therefore in the aforesaid decision is distinguishable. There can be no assistance to the Official Liquidator from the judgment in the case of Nagabhushanam v. Ramchandra Rao and Others VOL XLV Madras Series 537 as the same was rendered in a different fact situation. The Madras High Court was deciding in the Second Appeal, the priority between the auction purchasers at the Court sales and the transferee under the deed of assignment over the transfer of certain shares in Limited Companies. The Court in that case was dealing with the question of whether a deed not complying with the terms of the Act, and the Articles of Association is valid to transfer shares as against a person who has acquired the right to them by a Court-sale in manner required by the provisions of the Civil Procedure Code. But this Court is not considering the same, for the reason that the transaction in the present case has been discussed in detail and the right of the Applicants is held to be irrevocable and complete and relevant judgments in that context have been discussed. 27. The next question which falls for consideration of this Court is whether th....
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....he Application, it is necessary to refer to the case of Ram Sarup Gupta v. Bishun Narain Inter College (1987) 2 SCC 555, whereby Supreme Court has held that the pleadings should receive a liberal approach; no pedantic approach should be adopted to defeat justice on hair-splitting technicalities. Sometimes pleadings are expressed in words which may not expressly make out a case in accordance with strict interpretation of law. In such cases, it is the duty of the Court to ascertain the substance of the pleadings to determine the question. 32. In their pleadings the Applicants have stated that they have repurchased the subject shares under a bona fide belief that the transfer of shares pursuant to a pre-concluded contract was not a disposition of property for the purpose of Section 536(2) of the Companies Act. It is pleaded that the call option was exercised by the Applicants due to the default of TWDPL under the amended agreement. 33. It is not desirable to to place undue emphasis on the form of the pleadings and instead the substance of the pleadings should be considered, and I am of the view that pleadings available on record have established, bona fides of the transaction of....