TMI Blog2005 (8) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... formerly known as Ogden. Clause 8.3 of the shareholders agreement reads as hereunder : "8.3. Transfers by Ogden. Subject to sections 8.1, 1.3 and 11.4, in the event that Ogden desires or is required to sell, transfer or other wise dispose of any or all of its shares, it shall offer such shares in the first instance by an offer notice to the other shareholders (the 'remaining forties' ) in proportion to their respective shareholdings in the company at a place which a third party has offered to pay for such shares. The remaining parties may exercise their right of first refusal to purchase such shares within a period of thirty (30) days after receipt of the offer notice. In the event that one or more of the share holders rejects the offer, the other shareholders may agree to accept such sale shares in proportion to their respective shareholdings in the company. If the offer is accepted then Ogden and the remaining par ties shall proceed to complete the sale and purchase of the shares within a period of thirty (30) days from the date of acceptance. In case the remaining parties reject the said offer, then Ogden shall be entitled to sell such shares to a third party within a perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BC in MPCL but on the other hand, HC is only trying to transfer the entire entity namely, BC, owned by it. Therefore, when HC exercises such a right available to it as a owner, AC cannot obstruct such a lawful exercise of right by HC. In other words, according to Mr. P. S. Raman learned senior counsel, by the intended sale by HC of its assets in India namely, its wholly owned subsidiary, i.e ., BC, no transfer of shares of BC in MPCL is involved but transfer of ownership alone is involved. According to him, if the intended sale is put through, there is no variation in the shareholding pattern in MPCL and it remains the same, since the successful buyer would get substituted for BC in the shareholders agreement as well as in the articles of association. Under these circum stances, HC, as the owner of its assets, cannot be prevented by an order of court from selling its assets, which it does in its lawful exercise of power as the owner thereof. It is then submitted that though BC may be wholly owned subsidiary of HC, yet, BC acts on its own authority as a separate legal entity with no control whatsoever from HC. Therefore whatever rights and obligations BC has contracted for in exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of shares which BC has in MPCL. Therefore, there is an inherent right in BC itself to advertise the transfer of shares it holds in MPCL; get offer from third parties and then put it across to AC to find out its response. From the light of the discussion as referred to above, I have no doubt at all that AC has no right to compel BC to transfer the shares which it has in MPCL to it at a price as it may offer, de hors the price which a third party may offer. Therefore, it is clear that the pre-emptive clause in favour of AC is a qualified pre-emptive clause Radhakishan Laxminarayan Toshniwal v. Shridhar Ramchandra Alshi, AIR 1960 SC 1368, the Supreme Court held that there are no equities in favour of a pre-emptor. It refers to an earlier judgment of the Supreme Court in the case reported in Bishan Singh v. Khazan Singh, AIR 1958 SC 838, where the Supreme Court held that "the right being a very weak right, it can be defeated by all legitimate methods ......" Let me now examine the issue as to whether HC is bound by the rights and obligations of BC ? I have already found and it is not in dispute that BC is the wholly owned subsidiary of HC. The Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en from paragraph 1.1 referred to above that HC had declared that it is seeking to sell 100 per cent, of its interest in the Mauritius holding companies BC being one such company. When by the intended sale, BC tries to get out of its contractual obligations, in my opinion a need arises to lift the corporate veil. Justice D.P. Wadhwa, as his Lordship then was, constituting a Division Bench, in the case of New Horizons Ltd. v. Union of India [1997] 89 Comp. Cas. 785 (Delhi), quoted with approval the law on the subject as found in Palmer's Company Law (25th edition). The following are a few of the instances in which, as could be seen from the above referred to judgment, the corporate veil can be lifted. ( a )where the business affairs of both the parent company and subsidiary are intertwined and the business transactions, property, bank and other accounts, employees, management, etc ., are intermingled; ( b )where the subsidiary is inadequately financed as a separate business as regards meeting its formal obligations ; and ( c )where the parent company and the subsidiary are operating portions of a single business and the financing as well as the managerial activities com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e economic unit. If that the legal position, then the rights and obligations of BC under the shareholders agreement and the articles of association is binding on HC, which meant HC also cannot violate clause 8.3 of the shareholders agreement corresponding to article 44 of the articles of association. The next question that follows is, whether AC can, in exercise of its power of pre-emption available under the contracts referred to earlier, preempt the respondents from proceeding with the intended action complained of in this application ? At this stage, I am proceeding on the basis of the legal premise that the second respondent is amenable to the jurisdiction of this court under section 9 of the Arbitration Act. In other words, I make it clear that in deciding the above referred to issue, namely, whether AC can enforce its pre-emptive right, I am not deciding legally as to whether this application filed under section 9 of the Arbitration Act is maintainable against HC and I leave it open to be decided later, if necessity arises. A pre-emption clause is a contractual term. It is needless to state that a party to any contract, in whose favour there is a beneficial clause, is at li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buy back a part of the shares of MPCL held by BC. In fact, such an alternate offer would reinforce this court's conclusion that AC proposed to buy the entire interest of HC in BC to start with. If this is the position, which can be legally inferred, then cannot AC be deprived of its pre-emptive right on the principle of waiver ? The law on "waiver" had been dealt with in a number of judgments by the Supreme Court. I have already stated that the pre-emptive clause is like any other clause in an ordinary contract and a party, having the benefit of such a con tract, can waive it. Associated Hotels of India v . Ranjit Singh, AIR 1968 SC 933, the Supreme Court had laid down the principle as hereunder (page 937) : "A waiver is an intentional relinquishment of a known right. There can be no waiver unless the person against whom the waiver is claimed had full knowledge of his rights and of facts enabling him to take effectual action for the enforcement of such rights." Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326; AIR 1979 SC 621, the Supreme court had an occasion to deal with the same principle and I extract hereunder as to what the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only, which prima facie is contrary to the letter of intent itself. AC has stated in paragraph No. 8 of the affidavit that "it believed that its right of first refusal and purchasing the shares of MPCL would remain unaffected and that it was interested only in getting the controlling stake in MPCL and not interested in the other assets that were offered for sale". These averments are contrary to the details available in CIM and the contents of the letter of intent. AC had stated in paragraph No. 10 of its affidavit that only after the e-mail dated December 13, 2004, already referred to in this order, it had come to know what exactly is the subject of the intended transfer. I have already found that AC, knowing the contains of CIM very wall knowing it's rights under the pre-emption clause and with full knowledge of the property offered for sale, participated in the said transaction By such conduct, AC had waived its pre-emptive rights. Therefore I have no hesitation at all to hold that there cannot be any order at all in favour of AC as prayed for. I must also place on record that neither of learned senior counsel addressed arguments before this court pin pointedly on the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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