TaxTMI 
TaxTMI 
2026 (4) TMI 536
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.... Pvt Ltd or its Directors. Appeal No.87 of 2024 is filed by GH Energy Pvt Ltd, the present majority shareholders of Mecamidi HPP India Pvt Ltd. The respondent No.1 in all 4 appeals is Flovel Hydro Technologies Pvt Ltd which has purchased shares of Mecamidi HPP India Pvt Ltd from the Liquidator of Respondent No.2, Mecamidi SA in auction conducted in France. 2. Mecamidi HPP India Pvt Ltd (hereinafter called the Appellant) is aggrieved by the order dated 01.02.2024 passed by the Ld. NCLT in CP No. 35 of 2022 whereby the Appellant Company has been directed to register 47% shares of the Appellant Company in the name of the R-1 / Flovel. Further, the Hon'ble NCLT has also declared the EOGM held by the Appellant Company on 04.06.2024 as invalid. 3. The Appellant Company is admittedly engaged in the business of supply, installation, commissioning, etc. of electro mechanical equipment for setting- up of small and medium hydro power projects. Admittedly, Flovel is also engaged in the same business and is a bitter rival/ competitor of Appellant Company. 4. In the year 2010, the Appellant Company executed a Joint Venture and Share Purchase Agreement dated 15th September, 2010 ("JVSPA"....
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.... effective transfer of the shares. 8. It is argued the above order dated 13.09.2021 was challenged before the French Appellate Court which vide its order dated 06.10.2022 confirmed all the above conditions and imposed an additional condition that transfer of 47% shares to Flovel has to take place in compliance with the charter documents of Appellant Company and applicable laws of India. Pertinently, before the French Appeal Court, the Liquidator admitted the existence of approval clauses in relation to transfer of 47% shares. Even otherwise, the Liquidator had asked for the approval of Appellant Company for transfer of 47% shares 9. In the meantime, Flovel started writing letters to the Appellant Company asking for registration of its name as owner of 47% shares. However, it is argued neither the original share certificates nor the share transfer form SH-4 was ever submitted to the Board of the Appellant Company. These documents were submitted to the Appellant Company only after the passing of the impugned order dated 01.02.2024. 10. As the Appellant Company did not register Flovel as an owner of 47% shares on the basis of letters sent by Flovel, it filed CP No. 35 of 2022....
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....ispose of its/ his share of the Company to an Affiliate or to a third party, unless such Affiliate or third party agrees to be bound by all of the rights, obligations and liabilities of the transferring Party pertaining to the transferred Shares, including those defined in the Memorandum and Articles of Association. Article 25 25. (ii) The Board shall, in either case, have the same right to decline or suspend registration as it would have had, if the deceased or insolvent member had transferred the share before his death or insolvency. 16. It was argued Article 25 provides a deeming fiction for transfer of shares in case of insolvency/ death of the shareholder and it has to be presumed as if insolvency/ death has not happened. Therefore, the Liquidation of Mecamidi (France) and the passing of order by French Court are of no significance as for the purposes of Article 25 everything has to be ignored and it has to be deemed/ assumed that Mecamidi (France) is on its own transferring 47% shares to Flovel. Accordingly, the correct test is whether it was possible for Mecamidi (France) to transfer 47% shares to Flovel without Flovel agreeing to be bound by the non-com....
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....Liquidator sent the following communication to the Board of appellant: a) all legal rights and financial interest in the said shares vested with Flovel; b) duplicate share certificates in respect of the said shares be issued to in favour of Flovel. 20. The aforesaid communication issued by Judicial Liquidator leaves no matter of doubt about right of Flovel as a purchaser of shares of the appellant, consequently to the confirmation of sale of the said shares to Flovel under a court monitored liquidation process in respect of Mecamidi S A (France). Further by way of the letter dated 14.12.2022, the judicial liquidator recognised all rights and financial interest in the said shares, vests in Flovel with effect from 13.09.2021. Such letter dated 14.12.2022 was later confirmed by the liquidator in its email dated 11.12.2023 in pursuance to the directions made by the Ld. NCLT. 21. As recorded in the impugned order, Flovel was prevented from submitting SH4 form being registration of transfer of shares in its favour since appellant refused to issue duplicate shares and hence where the appellant had withheld the issuance of duplicate shares certificates, it cannot be permitted to alle....
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.... EOGM were duly provided by the appellant company in the Explanatory Statement. 25. Notice along with Explanatory Statement was served to all the Members of appellant Company, including the Liquidator of the French Company through E-mails. Liquidator was served on his official email Id. Further, the VC link of the EOGM was also served upon the Liquidator via Email. on his official email Id. Flovel also communicated with the Liquidator on the same email Id. on which EOGM Notice and VC Link was sent by Appellant Company (Email dt. 21.09.2021, 18.09.2021, 23.11.2021 were sent by lawyer(s) of Flovel to Liquidator). Further, till date the Liquidator had never stated he did not receive the EOGM notice or the VC Link. In the impugned order, service of notice has been held to be improper because the EOGM notice was not sent to the secretary of the Liquidator, which to our mind is not correct. Infact the notice was very much sent on an official email Id. of the Liquidator, also being used for sending e-mails by Flovel. 26. Despite service of EOGM Notice and VC Link, the Liquidator chose not to attend the EOGM dated 04.06.2021. Accordingly, the resolution proposed in the EOGM notice wa....
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.... Articles of Association to include the non-compete clause, the same could not be enforced against Flovel as a precondition to register its name in the Register of Members of the company. 31. It was also argued Flovel was never a party to the JVSPA and it was signed only by the erstwhile promoters of company and their French counterpart. It was held by the impugned order Flovel was not bound by the non-compete clause as Article 22 of the Articles of Association did not say JVSPL is to be adhered to prior to transfer of the shares. Article 3 and 5 of JVSPA read as follows: - "3. The purpose of this Joint Venture and Shares Purchase Agreement is to set forth the terms and conditions under which MHPP will function in accordance with the Memorandum and Articles of Association to be amended so as to reflect the terms and conditions of this Joint Venture and Shares Purchase Agreement, the Applicable Laws and the manner in which the Parties shall organise and manage the affairs of MHPP and matters arising there from and incidental thereto. 5. The Parties shall agree upon the Memorandum and Articles of Association of MHPP which shall be amended after the Closing Date s....
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....cquirer post liquidation, could not be called a privy to this JVSPA. The interpretation clause under Article 2 does not provide any clarification in this regard, clearly excluding every third party be it future acquirers away from the JVSPA. It further provides that: • • Whereas the Parties, adhering to the principle of equality and mutual benefit and through friendly consultations, have agreed to enter into this Agreement, in order to set forth the terms and conditions that shall govern the sale and purchase of 145 750 shares, i.e. 55% of the paid up share capital of HPP India, by MECAMIDI. The object of execution of this JVSPA was only to set forth terms and conditions for sale purchase of shares. Further, Article 3 viz. "PURPOSE" states as follows: • • The purpose of this Joint Venture and Shares Purchase Agreement is to set forth the terms and conditions under which MHPP will function in accordance with the Memorandum and Articles of Association to be amended so as to reflect the terms and conditions of this Joint Venture and Shares Purchase Agreement, the Applicable Laws and the manner in which the Parties shall orga....
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.... HPP India. 80. We see that the order dated 13.09.2021 passed by Paris Commercial Court had authorized the Liquidator only to sell shares by "Mutual Agreement" to M/s Flovel. Pursuant to such authorization received, the Liquidator issued a letter dated 14.12.2021 to M/s Flovel, vesting financial interest in M/s Flovel. Further, the French Liquidator issued official proceedings apostilled on 14.10.2021 authorizing Mr. Satvir Singh Sorot, an Indian National holding Indian passport number U8969000 to represent the French liquidator and to carry out further acts to transfer the shares in the name of M/s Flovel. 81. Mr. Satvir Singh Sorot was authorized to execute the transfer agreement based on a purported authorization received from the Liquidator via a resolution passed in official proceedings of the judicial liquidator dated 14.10.2021. However, the authority of Mr. Sorot was challenged by Indian directors of M/s Mecamidi HPP India on the ground that purported official proceedings were not signed by the Liquidator. Since the issue had emerged before us, we vide order dated 09.11.2023 had directed Ld. Sr. Counsel Mr. Sudhir Makkar, to file a letter from the French L....
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....proper instrument of transfer in Form SH.4 with M/s Flovel and jointly approach the Board of Directors of M/s Mecamidi HPP India for registration of transfer by having due regards to the provisions of the Companies Act 2013, Articles of Association and Memorandum of Association. 85. In the same series of discussions, we find it pertinent to address whether to effect the transfer of 47% shares as aforesaid, prior approval from the Board of Directors or Shareholders of M/s Mecamidi HPP India is required. 33. A bare perusal of the impugned order would show the Ld. NCLT was of the view since non-compete clause of JVSPA was never incorporated in the Articles of Association of the Joint Venture Company, hence Flovel shall not be bound by such terms and conditions of the JVSPA, when it had no privity of contract and more so only Mecamidi (Franced) would be bound by JVSPA but not its successor.. To appreciate the issue between the parties one need to look into the mode of transfer under the Articles. 34. Article 21 of the Articles of Association gives a right to the Board to decline to recognise any instrument of transfer unless the instrument of transfer is accompanied by a....
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....idation process. If Mecamidi (France) cannot transfer the share, then the corollary is Flovel cannot purchase the shares unless Article 22 is satisfied. If something cannot be sold, then it cannot be purchased. 37. Further, a narrow interpretation cannot be given to the expression 'pertaining to' as is used in Article 22. The expression 'pertaining to' is synonymous with 'in relation to' and 'concerning with' which are expressions of expansion and not contraction. French company may have had completely unrelated and unconnected rights/ obligations having no relation to the Appellant company. Therefore, 'pertaining to' signifies that rights/ obligations of the French company concerning the Indian company need to be seen. Accordingly, the expression 'pertaining to' is used only for establishing a relationship between the French company and its shareholding in the Indian company and not otherwise. This expression has not been used to narrow or restrict the scope of restrictions under Article 22 of the Articles of Association. 38. The words used in Article 22 are 'None of the shareholder shall sell....... 'unless such Affiliate or third....
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....reement to survive termination. Admittedly Mecamidi (France) was a party to this JVSPA and its obligations therein could have continued even beyond its termination. Thus if the shares held by Mecamidi (France) in the company were acquired by Flovel, then Flovel cannot take a stand contrary to the obligations of its predecessor, an erstwhile party to JVSPA. 42. Lastly, we all know the interest of the company is paramount. Flovel admittedly is a biggest competitor of the appellant company and has a history of disputes with Mecamidi (France), as alleged. Initially Mecamidi (France) had entered into a joint venture with Flovel but it did not last long and resulted in disputes. Thereafter, Mecamidi (France) partnered with Mecamidi HPP India Pvt Ltd viz, the appellant herein. Later Mecamidi (France) went into insolvency and Flovel purchased all it shares in the appellant company. Now admittedly the appellant company and Flovel are competitors and shall be competing for the same contracts throughout India and abroad. If Flovel is allowed to compete with its own company viz the appellant herein, the appellant then shall go out of business, as in every tender there are restrictions that ....
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....an affiliate or to a third party too and hence when M/s Far East, purchased the shares, it was asked to sign the deed of undertaking. Now the term 'Affiliate' has been defined under Article 2(1)(c) of the Articles as well as Article 1(1) of the JVSPA. The definition given in Article 2(i)(c) of the Articles is as follows: "2(i) (c) Affiliate(s) when used with reference to any of the shareholder, unless otherwise provided herein, means any person controlled by, controlling or under common control with that shareholder, where "control" means the ownership, either directly or indirectly, of or more than fifty percent (50%) of the voting rights or comparable interests in such shareholder or such person" Admittedly, Article 22 above applies in case of transfer 'to an Affiliate or to a third party'. When Liquidator transferred 8% shares to M/s Far East, a 'third party', hence Article 22 was applicable. However, Mr. Amarjeet Singh who was an existing shareholder was neither an 'affiliate' of M/s Far East nor a 'third party', hence, Article 22 did not apply when one shareholder transfers shares to another existing shareholder. Therefore, Article 22 was no....