TMI Blog2010 (9) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... l aspect to reject the claim of the defendant No. 4 and hold that the defendant No. 4 has no right to represent. Further, the subject-matter of two suits pending in this Court were not property of defendant No. 2 and interim-relief can be considered only in aid of and to preserve the subject-matter of the suit. For that reason, even the conclusion reached by the Learned Single Judge for dismissing the Notice of Motion taken out by defendant No. 4 merits no interference. - APPEAL NOS. 840, 841, 855 AND 857 OF 2003 NOTICE OF MOTION NOS. 3230 OF 2000, 392 OF 2001, 534, 1231 OF 2002, 3112, 3113, 3115 OF 2003, 1308 & 3956 OF 2005, 29 OF 2006, 4118 OF 2007, 1418 & 1973 OF 2008 SUIT NOS. 2499 OF 1999 AND 509 OF 2001 - - - Dated:- 1-9-2010 - A.M. KHANWILKAR AND A.A. SAYED, JJ. JUDGMENT A.M. Khanwilkar, J. - Considering the multiple proceedings resorted to by the parties to the two suits, for the sake of convenience, we would refer to them as per the description of the parties given in the suits. 2. This common Judgment will dispose of all the above proceedings between the parties, before us, except Notice of Motion Nos. 2511/2008 and 2512/2008. The above four Appeals h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ( b ) above; ( d )for costs; ( e )for such further and other reliefs as the nature and circumstances of the case may require." N/M No. 534 of 2002 in Suit No. 509/2001 (filed on 21-2-2002) "( a )That pending the hearing and final disposal of the above suit, this Hon ble Court may be pleased to appoint Administrator and/or a Board of Directors of defendant No. 2 having representation from the plaintiffs and defendant No. 4 with an independent Chairman. ( b )That pending the hearing and final disposal of the above Suit, Court Receiver, High Court, Bombay or some other fit and proper person be appointed as Receiver of Air Separation Plant belonging to the 2nd defendant company installed at Mukund Ltd. at Kalwa, Thane Distt. with all powers under Order 40 rule 1 of CPC 1908. ( c )That pending the hearing and final disposal of the Suit, the 2nd defendant be restrained by an order and injunction of this Hon ble Court from selling, disposing of, encumbering or creating third party interest in its assets and properties including the Air Separation Plant installed at the factory of Mukund Ltd. at Kalwa. ( d )That pending the hearing and final disposal of the suit th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant No. 1 45,001 shares of defendant No. 2 company held by them and in addition allowing them to purchase 30,000 shares from the public making an aggregate of 75,001 shares equivalent to 50 per cent + 1 share of defendant No. 2 company. As per the said SPA as agreed between the plaintiffs and defendant No. 1, the defendant No. 1 made application to Foreign Investment Promotion Board (hereinafter referred to as FIPB for the sake of brevity) for allowing them to invest in 75,001 shares of defendant No. 2 company independently. 5. As a matter of fact before executing the said SPA dated 23-6-1997, the defendant No. 1 had already entered into Share Purchase and Co- operation Agreement with defendant No. 3 company on 12-5-1995. This fact was not disclosed to the plaintiffs before execution of said SPA dated 23-6-1997 with the plaintiffs. The defendant No. 3 is an Indian company engaged in the business of industrial gases. Notably, the defendant No. 3 is a competitor in the business conducted by defendant No. 2 company. 6. On the other hand, according to defendant No. 3, the defendant No. 1 before entering into the said SPA Agreement dated 23-6-1997 with the plaintiffs, did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999. The reliefs claimed in the said suit by the plaintiffs as amended read thus : "( a )( i ) For a declaration that the acquisition of the said 30,000 shares pursuant to the public offer is illegal, null and void ab initio and of no legal effect whatsoever. ( ii ) For a permanent order and injunction restraining the defendant from exercising any rights in respect of the said 30,000 shares including and in particular voting rights. ( b )( i ) For a declaration that the said agreement dated 23rd June, 1997 (exhibit B hereto) stands validity terminated and/or avoided; ( ii ) that the 1st defendant be ordered and decreed to deliver/return to the respective plaintiffs the said 45,001 shares together with all accretions thereto from 23rd June, 1997 on such terms as this Hon ble Court directs; ( iii ) for the purpose aforesaid the 1st defendant be ordered and decreed to do and perform all acts, deeds, matters, and things and to execute all documents, deeds and writings in furtherance thereof. ( iv ) for a permanent order and injunction restraining the defendant from transferring and/or registering and/or taking any steps to transfer and/or register the said firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g breach of clause 6.1 of the Agreement dated 23rd June, 1997 being Ex. E hereto; ( ii )transferring or selling of alienating the legal and/or beneficial interest in the shares of defendant No. 2 including those mentioned in Ex. A hereto without first offering the same to the plaintiffs in terms of clause 6.1 of the Share Purchase Agreement dated 23rd June, 1997. Being Ex. B hereto. ( iii )Obtaining any award, decree from any forum or court in violation of clause 6.1 of the Share Purchase Agreement dated 23rd June, 1997 being Ex. B hereto. ( iv )Making any claim before the Arbitrators or any court which if granted will amount to a breach or violation of the provisions of clause 6.1 of the said Share Purchase Agreement dated 23rd June, 1997 being Ex. B hereto; ( v )procuring any breach of the provisions of clause 6.1 of the said Shares Purchase Agreement dated 23 June, 1997 being Ex. B hereto. ( d )that pending the hearing and final disposal of the suit defendant No. 2 herein be restrained by an order of injunction from recording any transfer of shares from the 1st defendant to any party without the plaintiffs consent. ( d.1 )That pending the hearing and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 23rd June, 1997 was terminable by the plaintiffs and has been validly terminated by the plaintiffs; ( e )that in the alternative to prayers ( a ), ( b ), ( c ) and ( d ) above, for a mandatory order and direction by this Hon ble Court, directing the 1st defendant to offer the said 75,001 shares to the plaintiffs in accordance with the procedure prescribed in clause 6.1 of the Share Purchase Agreement dated 23rd June, 1997; ( f )for a declaration that the acquisition of the said 30,000 shares pursuant to the Public Offer is illegal, unlawful, null and void and of no legal effect whatsoever; ( g )for a declaration that the said Agreement dated 17th February, 2000 and the said Consent Award dated 21st September, 2009 are not binding on the plaintiffs and/or defendant No. 2 and/or that the same are illegal, null and void ; ( h )for a permanent injunction restraining the defendant Nos. 1, 3 and 4 from : ( i )acting in pursuance of the Share Purchase Agreement dated 23rd June, 1997; ( ii )exercising any rights in respect of the said 75,001 shares (in particular voting rights in connection therewith) and/or from receiving any dividends, rights in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 4. They have filed four separate Appeals challenging the decision in the Notice of Motions already referred to hitherto. 12. During the pendency of the appeals, Notice of Motions have been taken out by the respective parties. The first Notice of Motion was taken out being Notice of Motion No. 3112/2003 and followed by Notice of Motion No. 29/2006 in Appeal 840/2003; Notice of Motion No. 3113/2003 in Appeal 841/2003; Notice of Motion No. 3115/2003 in Appeal No. 857/2003; Notice of Motion Nos. 1308/2005, 3956/2005, 4118/2007, 1973/2008, 1418/2008 in Appeal No. 855/2003. The above Motions are filed by the appellants, praying for the following reliefs: N/M No. 3112/2003 in Appeal No. 840/2003 (filed on 14-10-2003) "( a )that pending the hearing and final disposal of the Appeal, the operation of the judgment and order dated 26-3-2003 passed on the Notice of Motion No. 3230 of 2000 and other connected Notices of Motions be stayed; ( b )that pending the hearing and final disposal of the Appeal, leave be granted to the appellants to implement and enforce the consent Arbitral Award dated 21-9-2000, subject to the final result of the Appeal; ( c )that pending the heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 855/2003 (filed on 13-2-2005) "( a )That the Impugned Orders dated 26th March, 2003 and 2nd May, 2003 be set aside forthwith. ( b )Alternately, that the said impugned orders dated 26th March, 2003 and 2nd May, 2003 be stayed pending the hearing and final disposal of the Appeal. ( c )That this Hon ble Court be pleased to direct that the suits No. 2499 of 1999 and No. 509 of 2001 have abated and/or become infructuous and/or cannot be proceeded with and the same be dismissed. ( d )For ad interim reliefs in terms of prayers ( a ), ( b ) ( c ) above. ( e )For costs of this Notice of Motion. ( f )For such other and further relief as this Hon ble Court may deem fit in the circumstances of the case." N/M No. 1308 of 2005 in Appeal No. 855/2003 (filed on 27-4-2005) "( a )That pending the hearing and final disposal of the above Appeal this Hon ble Court may be pleased to restrain the respondent Nos. 1 to 8 by themselves, their servants, agents and all persons claiming through/under them by an order and injunction of this Hon ble Court from exercising any rights in respect of the said 75,001 shares as also from representing to the public at large that they have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above Appeal, this Hon ble Court may be pleased to appoint Administrator and/or a Board of Directors of respondent No. 10 having representation from the appellants and respondent Nos. 1 to 8 with an independent Chairman. ( b )That pending the hearing and final disposal of the above Appeal, Court Receiver, High Court, Bombay or some other fit and proper person be appointed as Receiver of Air Separation Plant belonging to the respondent No. 10 Company installed at Mukund Ltd. at Kalwa, Thane Distt. with all powers under Order 40 rule 1 of CPC 1908. ( c )That pending the hearing and final disposal of the Appeal the respondent No. 10 be restrained by an Order and injunction of this Hon ble Court from selling, disposing of, encumbering or creating third party interest in its assets and properties including the Air Separation Plant installed at the factory of Mukund Ltd. at Kalwa. ( d )That pending the hearing and final disposal of the suit this Hon ble Court may be pleased to appoint independent Auditor from the panel of this Hon ble Court to audit the books of account of the respondent No. 10 Company and to submit his report to this Hon ble Court. ( e )For ad inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal, respondent Nos. 10 and 12 be restrained by an order and an injunction of this Hon ble Court restraining them from in any manner, whatsoever, acting in pursuance of, in implementation of or in furtherance of the alleged development agreement referred to in the Corporate Announcement dated 5-2-2008 (Exhibit "C") of respondent No. 10. ( g )That pending the hearing and final disposal of the above Appeal, respondent No. 12, their servants, agents be restrained by an order and injunction of this Hon ble Court from entering upon and/or carrying on any development activity or construction activity or from selling, disposing of, encumbering or creating third party interest or parting with possession of its immovable property of the respondent No. 10 situated at L.B.S. Marg, Mulund (W), Mumbai - 400 080. ( h )That pending the hearing and final disposal of the above Appeal, respondent No. 10 their servants and agents and all persons claiming through/under them be restrained by an order and injunction of this Hon ble Court from assigning their alleged Development right or creating third party right or interest in respect of the immovable property of the respondent No. 10 situated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendant Nos. 3 and 4 were entitled for relief of allowing execution and acting upon the Consent Award between defendant No. 1 and defendant No. 3. We have so far referred to only broad aspects of the controversy between the parties. The detailed events which are necessary to be taken into account would be referred to while considering the arguments advanced on behalf of respective parties at the relevant places. 16. The Learned Single Judge of this Court by the impugned common judgment, on analyzing the materials on record and considering the arguments canvassed by the respective parties, proceeded to answer the controversy in the following manner. In the first place, he has adverted to the main issue between the parties as to whether the first defendant has committed breach of clause 6.1 of the said SPA dated 23-6-1997 by transferring the 75,001 shares of defendant No. 2 company in favour of the 4th defendant. In that, was the transfer of said shares by the defendant No. 1 company in favour of company of Hoechst Group? It has then adverted to the stand of the plaintiffs that although overtly defendant No. 1 and defendant No. 3 represented that the shares were transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of defendant No. 2. The Learned Single Judge then adverted to the arguments of the defendant No. 3 which was founded on the dispute between the defendant No. 3 and defendant No. 1 filed in the Delhi High Court and the grievance of the defendant No. 3 that in fact the attempt of defendant No. 1 was to violate the non-competing clause contained in the agreement dated 12-5-1995 between the defendant No. 3 and defendant No. 1. That was the result of inserting clause 6.1 in the said SPA dated 23-6-1997. The Learned Judge found that the said dispute cannot come in the way of the plaintiffs and the grievance of the plaintiffs will have to be decided on its own merits. That position was clarified even by the Apex Court in its order dated 5-4-1999. 19. The Learned Judge has noticed that the real dispute between the defendant No. 3 and defendant No. 1 was about the manner in which the defendant No. 1 proceeded to acquire the shares of defendant No. 2 from the plaintiffs on its own and also incorporating clause 6.1 in the agreement between the defendant No. 1 and the plaintiffs so as to prevent the defendant No. 3 from jointly participating in the management of defendant No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of defendant No. 2 company. The Learned Single Judge has placed reliance on the admission of the respondent No. 3 that they intended to jointly acquire the shares in question of the defendant No. 2 company with the defendant No. 1. It is found that there was ample material on record to suggest that there was clear understanding between defendant No. 1 and defendant No. 3 that they would purchase the major shareholding in defendant No. 1 and were looking for participation of defendant No. 3 as their preferred vehicle for expansion in India. 23. The Learned Judge has also adverted to subsequent conduct of the defendant No. 1 and defendant No. 3 company in forming defendant No. 4 company. Besides, by circular transactions effected on the same day, the entire 75,001 shares of defendant No. 2 company were transferred by defendant No. 1 in favour of defendant No. 4 so that the Goyal Group would be in the control of defendant No. 4. The Learned Judge has found that even if the defendant No. 1 wanted to collaborate with defendant No. 3, in future, was obliged to comply with the regime of the SEBI Regulations of public announcement of such intention. The Learned Judge has analyzed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered. 27. The Learned Judge has then adverted to section 23 of the Contract Act and held that prima facie the transaction is of such nature that if permitted, it would defeat the provisions of law. 28. It has then referred to the argument as to whether the defendant No. 3 was entitled for relief of enforcement of the Award in its favour or whether the second agreement for transfer of shares is in violation of the orders of the Court. After referring to the order passed in the Notice of Motion filed by the plaintiffs on 6-5-1999 and 8-6-1999, the Court observed that there was clear injunction restraining the defendant No. 1 from transferring and/or selling the shares without offering the same to the plaintiffs in terms of clause 6.1 or for obtaining any award or decree from any forum in violation of clause 6.1. It has also adverted to the order of this Court dated 29-2-2000 and the fact that neither the defendant No. 1 nor the defendant No. 3 brought to the notice of this Court that in fact they had already entered into an agreement on 17-2-2000 purporting to settle their disputes by transferring 75,001 shares of defendant No. 2 to defendant No. 4. The said agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and void on account of section 24 of the Contract Act. The Learned Single Judge, therefore, concluded that it would not be appropriate to allow enforcement of the Consent Award as prayed by the defendant Nos. 3 and 4. 31. He further found that the prima facie right of the plaintiffs to injunction passed on 29-2-2000 continues. The Learned Single Judge also deprecated the conduct of the said defendants and adverted to the exposition of the Apex Court in the case of Gujarat Bottling Co. Ltd. v. Coca Cola Co. [1995] SC 2372. He has also dealt with the argument of defendant No. 3 that Delhi High Court has held that clause 9 of the agreement dated 12-5-1995 obliged defendant No. 1 to offer the shares to defendant No. 3 or the Goyals and transfer of shares to defendant No. 4 must be taken as perfectly valid. This argument has been negatived on the opinion that the observations of Delhi High Court were in suit between defendant No. 1 and defendant No. 3 and cannot bind the plaintiffs. Moreover, the dispute between the defendant No. 1 and defendant No. 3 before the Delhi High Court was entirely different and will be of no avail. 32. As a result, the Learned Single Judge di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree shareholder does not get any rights in the company unless he was brought on the register of the company and the shares are registered in his name. Reference is made to the decisions of the Apex Court in the case of Bajkrishan Gupta v. Swadeshi Polytex Ltd. AIR 1985 SC 520 and Howrah Trading Co. Ltd. v. CIT AIR 1956 SC 775. 33. At the end, the Learned Single Judge concluded that the defendant No. 4 who claims to be a shareholder, admittedly, its name has not been entered in the register of the company and that would happen only if the Court were to allow the transfer of shares by permitting implementation of the Consent Award. As a result, the defendant No. 4 cannot claim any relief against the property of defendant No. 2. Hence, the Notice of Motion No. 584/2002 filed by the defendant No. 4 came to be dismissed. 34. Insofar as Notice of Motion No. 392/2001 filed by the plaintiff, the impugned order records that the same was not on Board but was taken on Board and disposed of as not pressed. Therefore, the plaintiffs moved the same Learned Single Judge who by his order dated 2-5-2003 recorded the correct position that the said Motion was in fact on Board for hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing violation of SEBI Regulations. That question can be decided only by the forum which has exclusive jurisdiction to deal with matters pertaining to SEBI Regulations. 36. We shall refer to the submissions of the respective parties while answering the point in issue at the appropriate place. 37. The foremost question that needs to be dealt with is whether the two suits should be dismissed at the threshold on account of non-disclosure of the agreement dated 5-12-2002 by the plaintiffs? To examine this question we have to consider as to whether that agreement makes any difference to the controversy on hand and whether it is a material and relevant fact which ought to have been disclosed by the plaintiffs? The plaintiffs on the other hand have asserted that the fact regarding the execution of agreement dated 5-12-2002 was brought to the notice of the Learned Single Judge at the earliest opportunity. In that, it was pointed out to the Learned Judge taking up Notice of Motions on 13th March, 2003 that the plaintiffs and defendant No. 1 have settled their differences. This was done at the outset during the hearing. That is reinforced from the affidavit dated 17-3-2003 of Mr. Ajit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer the said 75,001 shares of "BOCL" to Messer Holdings Limited ("MHL"). The MHL Agreement provided for the transfer of the 75,001 shares in the name of "MHL" in the Register of Members of "BOCL" within 6 months of the date of signing. The said transfer of 75,001 shares of "BOCL" in the name of "MHL" did not materalizc due to various judicial orders or disabilities. Subsequently, the "MHL Agreement" culminated into a consent award dated 21-9-2000 which award cannot be implemented without the leave of the Bombay High Court in view of the order dated 29-2-2000 of the Bombay High Court. (5)Based on the discovery of certain facts, it transpires that the "MHL Agreement" for transfer of 75,001 shares of "BOCL" to MHL was contrary to the "SEBI Takeover Code", in breach of clause 6.1 of the "Ruia Agreement" and also in violation of the orders of the Bombay High Court in Suit No. 2499 of 1999 and therefore, void and unenforceable. In view of the aforesaid, the parties agree that the beneficial interest in the said 75,001 shares of "BOCL" remains with "MGG". (6)In the circumstances, "MGG" and the "Ruias" have agreed to fully and finally settle all their disputes and differences by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight, title and interest in or in relation to the said 75,001 shares in favour of "Ruias" and shall, at the cost and expense of "Ruias", execute and continue to execute such instruments, documents, authorities etc., as may be necessary or expedient in connection therewith and shall refrain from doing anything inconsistent with the foregoing or the rights reverted/assigned/transferred as above on and from the date of execution hereof. To this end and purpose, an irrevocable Power of Attorney duly executed as per draft enclosed herewith as Annexure I shall be put in escrow with Ms. Lira Goswami, Advocate. Ms. Lira Goswami shall hand over the Power of Attorney to the "Ruias" in accordance with written escrow instructions agreed to by "Ruias" and "MGG". (11)( a )The parties confirm and acknowledge that as the foregoing 45,001 shares of "BOCL" have not been registered in the name of "MGG" in the records of "BOCL", the said shares continue to be registered in the names of the "Ruias". Consequently, the rescission of the "Ruia Agreement" does not involve any transfer from "MGG" to the "Ruias" in the books of "BOCL" as the "Ruias" continue to be the registered shareholders. Nevertheless, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no claim or demand of any nature whatsoever (whether in law or in equity) against "MGG" or any of "MGG" s affiliates or their respective directors, officers or employees (excluding "MHL" and/or Goyal MG Gases Ltd. But including directors nominated by "MGG" on the Board of "MHL" and/or Goyal MG Gases Ltd.), in respect of anything contained in this Agreement. (13)"Ruias" shall be responsible for all compliances under Indian law in connection with this Agreement, including obtaining of all necessary approvals. "MGG" will co-operate with the "Ruias" in obtaining any necessary approval. It is, however, clarified that nothing contained in this clause will require the parties to agree to any change in the commercial and payments terms of the settlement recorded in this Agreement. (14)It is further warranted that the parties hereto are competent to and/or have authority to enter into this Agreement to all its effects. The necessary authority/declarations/resolutions/power of attorneys authorizing either parties representatives are annexed as Annexure 2. (15)On execution of this Agreement, "Ruias" agree : ( a )not to prosecute the following proceedings pending in the Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndant No. 1 but other defendants to the suit as well. Indeed, so far as reliefs claimed against the defendant No. 1 in the respective suits are concerned, the same may not survive for consideration. However, the question regarding restitution and physical delivery of the respective shares will still have to be adjudicated upon. The defendant No. 1 has taken the stand that it has no knowledge about the current whereabouts of the disputed share certificates and other documents. The fact that the defendant No. 1 has agreed for reversion/diverting of disputed shares in favour of the plaintiffs, that does not mean that the plaintiffs cannot pursue their claim for restitution, recovery and physical delivery of the disputed shares. That matter will have to still proceed. If so, it is not as if the entire suit has become infructuous and no cause of action whatsoever survives as is sought to be contended. 40. Having regard to the agreement arrived at between plaintiffs and defendant No. 1 dated 5-12-2002, the situation has undergone change and the controversy has become narrow. The defendant No. 1 by the said agreement now accepts that transfer of 75,001 shares of defendant No. 2 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bliged to first offer the shares to the plaintiffs if it were to sell the same to person other than Hoechst Group of Companies. That stipulation is found in clause 6.1 of the said SPA. Besides the said clause 6.1, we may usefully refer to the recital of the said SPA. It plainly states that the purchaser (defendant No. 1) has agreed with the sellers (plaintiffs) that the purchaser (defendant No. 1) will provide modern technology and technical know-how to Bombay Oxygen Corporation Ltd. (defendant No. 2 company) to segment its productivity and consequently its profitability only on the condition that the defendant No. 1 were to acquire the substantial shareholding in the company with the right of management. The plaintiffs agreed to that condition in the overall interest of the company and relinquished their right of management of the defendant No. 2 company. It is not in dispute that the plaintiffs are majority shareholders of the defendant No. 2 company and are in control of the management of the defendant No. 2 company. The plaintiffs agreed to sell substantial number of shares to the defendant No. 1 keeping in mind overall interest of the defendant No. 2 company and the assurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t becomes effective, neither party shall sell any shares in the Company held or acquired by it without first offering the Shares to the other party. The offer shall be in writing and shall set out in the price and other terms and conditions. If the offeree does not agree to purchase the Shares so offered the offerer shall be free to sell the Shares to any person (other than a competitor of the offeree), but at the same price and on the same terms as offered to the offeree. This right of first refusal does not apply to any sale of shares by the Purchaser to a company of the Hoechst Group. In a company directly or indirectly controlled by or under direct or indirect common control with the Hoechst Group. For the purposes of this definition "control" means ownership, directly or indirectly, or more than 50 per cent of the issued and outstanding voting stock or ownership interest of the Company." 43. The understanding arrived at as per this clause, is that as and when the plaintiffs or defendant No. 1 intended to sell entire or any part of the shares of the company held or acquired by it, it shall first offer such shares to the other party. Only in the event of the other party not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be otherwise, there is no reason why defendant No. 4 should toe the line of defendant No. 3 and resist grant of any relief to the plaintiffs. Moreso when the defendant No. 1 has entered into amicable arrangement with the plaintiffs as recorded in agreement dated 5-12-2002. We are conscious of the fact that defendant No. 4 is a company and a separate juristic person. However, if it were to be a Hoechst Group of Company, by no stretch of imagination, it would take stand contrary to what is taken by defendant No. 1. The fact that in proceedings before this Court, the defendant No. 3 and defendant No. 4 are pursuing remedy together, inference can be drawn that the Goyal Group has complete control over the defendant No. 4. In other words, there is material to take prima facie view that the defendant No. 4 is not and was never intended to be a Hoechst Group of Company. Instead, it has been formed only to enable the defendant No. 1 to extricate from its obligation under clause 6.1 of SPA and at the same time enable the defendant No. 3 to accomplish its design to some how take over the control of defendant No. 2 company. On this finding, it would necessarily follow that the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions were of no avail as the case on hand was in relation to a public company. It is held that in case of public company, section 111A provides that the shares or debentures and any interest therein of the company shall be freely transferable. Reliance is also placed on section 9 of the Companies Act which stipulates that provisions of the Act shall have the effect notwithstanding anything to the contrary contained in the Memorandum or Articles of the Association. The Learned Judge has then adverted to the dictionary meaning of expression "transfer" and "transferable". The Learned Judge has distinguished the exposition of the Privy Council in the case of Ontario Jockey Club Ltd. v. Samuel McBride AIR 1928 PC 291. It is held that the Privy Council was considering the case in which the legislation authorised the Board of Directors to regulate the transfer of shares and transferability of the shares of the company. The bye-laws specifically contemplated a restrict- tion of transferability otherwise than to a member of the company. While considering the legal position in India, the Learned Single Judge adverted to the decision of the Supreme Court in V.B. Rangaraj s case ( supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of shares in a public Company. 61. The provision contained in the law for the free transferability of shares in a public Company is founded on the principle that members of the public must have the freedom to purchase and, every shareholder, the freedom to transfer. The incorporation of a Company in the public, as distinguished from the private, realm leads to specific consequences and the imposition of obligations envisaged in law. Those who promote and manage public companies assume those obligations. Corresponding to those obligations are rights, which the law recognizes as inhering in the members of the public who subscribe to shares. The principle of free transferability must be given a broad dimension in order to fulfil the object of the law. Imposing restrictions on the principle of free transferability, is a legislative function, simply because the postulate of free transferability was enunciated as a matter of legislative policy when Parliament introduced section 111A into the Companies Act, 1956. That is a binding precept which governs the discourse on transferability of shares. The word "transferable" is of the widest possible import and Parliament by using the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in M.S. Madhusoodhanan ( supra ). In that case, as already noted earlier, the Supreme Court noted that the Karar was an agreement between "particular shareholders relating to the transfer of the specified shares". What is significant is that the Company in that case was a private Company. The Supreme Court noted with some emphasis that in the case of a private Company, the Articles of Association would restrict the right of shareholders to transfer shares and prohibit invitation to the public to subscribe for shares or debentures of the Company. The position in law of a Public Company is materially different. By the provisions of the Companies Act, 1956, restrictions on the transferability of shares which are contemplated by the definition of a "private company" under section 3(1)( iii ) are expressly made impermissible in the case of a public company by the provisions of section 111A. Once that be the position, the submission urged on behalf of the respondent cannot be accepted. In essence, the submission of the respondent is that the provisions of section 111A should be read as being subject to a contract to the contrary. A restriction to that effect cannot be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company or any other shareholders to be a party to the agreement. It is contended that this crucial distinction drawn by the Apex Court in M.S. Madhusoodhanan s case ( supra ) has been glossed over by the Learned Single Judge of this Court. In other words, an agreement by a particular shareholder or between two shareholders relating only to their own shares (by way of pledge, sale or for pre-emption) is a consensual arrangement entered into by them, in exercise of their right of free transferability and it consequently imposes no restriction on transferability. The company or any other shareholder of the company does not have to be a party to such agreement. For the same reason such agreement need not be embodied in the Articles of Association. Whereas, if arrangement by a particular shareholder relating to his own shares by way of pledge or pre-emption was to be restricted, then there ought to be an express provision in that behalf. Inasmuch as, the sweep of section 111A was intended mainly to restrict the right of Directors of the Company to refuse transfer of a member s shares. It is not intended to and does not affect the right of shareholders to deal with their specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation) Act, 1956. According to the plaintiffs when a shareholder deals with a share or enters upon a contract to pledge, sale or principle of first refusal, he does so in exercise of his right of free transferability of shares. He does that in the same manner as in the case of any other movable or immovable property in India which is also freely transferable. That right would include right to pledge, mortgage or pre-emption regarding his property. That right of any person would be intrinsic in his right of free transferability. If the statute made by Parliament intended to affect such right, ought to have made express provision in that regard. Only upon making such express provision that legal right of the owner can be taken away. There can be no presumption that the Legislature has taken away that right while making provision to restrict the right of Directors of a company to refuse transfer of members share. Reliance has been placed on the decision in the case of ICICI Bank Ltd. v. SIDCO Leathers Ltd. 2006 (10) SCC 452 1 at paras 41-43 and in the case of Byram Pestonji Gariwala v. Union Bank of India [1992] 1 SCC 31 and at paras 28-30 and 35. Reliance has also been plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of members shares. That was not a provision to restrict the right of shareholders to deal with their shares or to enter into consensual arrangement/arrangement regarding their shares (by way of pledge, pre-emption, sale or otherwise). Suffice it to observe that the intention behind introducing section 22A in 1986 was to regulate the right of the Board of Directors to refuse transfer of members share and it was not to impose restriction on the right of shareholder to deal with his shares by entering into consensual arrangement with the third party to which the company need not be a party. 51. Section 22A was deleted by Depositories Act, 1996 and at the same time section 111A in the Companies Act came to be introduced. Section 111A as applicable at the relevant time (prior to amendment of 2003) reads thus : "[111A. Rectification of register on transfer. (1) In this section, unless the context otherwise requires, "company" means a company other than a company referred to in sub-section (14) of section 111 of this Act. (2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable : [ Provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of this section". In other words, it is a provision restating that the shares or debentures and any interest therein of a company shall be freely transferable subject, however, to the stipulation provided in the other part of section 111A of the Act. The proviso to sub-section (2) reinforces the position that section 111A is to regulate the powers of the Board of Directors of the company regarding transfer of shares or debentures and any interest therein of a company. The Board of Directors cannot refuse to register transfer of shares unless there is sufficient cause to do so. In other words, the setting in which section 111A is placed in part IV of the Act under heading "Transfer of shares and debentures", it is not a provision to curtail the rights of the shareholders to enter into consensual arrangement with the purchaser of their specific shares. The right to enter into consensual arrangement must prevail so long as it is in conformity with the terms of Articles of Association and other provisions of the Act and the Rules. Whereas, section 111A is a provision mandating the Board of Directors of the company to transfer shares in the name of the transferee, subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not whittle down the right of the shareholder of a public company to arrive at consensual agreement which is otherwise in conformity with the extant regulations and the governing laws. 52. In the case of M.S. Madhusoodhanan ( supra ) no doubt the Apex Court was dealing with the case of a private company. However, at the same time, it has considered the general question regarding the right of shareholder-not limited to shareholder of a private company-to enter into such consensual arrangement which is not in violation of Articles of Association or the provisions of Act or Rule. In Paragraph 140 of the decision while referring to the Judgment of S.P. Jain v. Kalinga Tubes AIR 1965 SC 1535, the Court has noticed two different situations. In the first case, it is the company which issues and allots the new shares and the second situation is of recognition of private arrangement between the existing shareholder by way of sale of share in favour of new shareholder. In the latter case, the company comes into the picture only for the purpose of recognition of transferee as the new shareholder. It is also noted that it is not necessary for the company to be a party in any ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscribe shares or debentures of the company. He has held that the scheme relating to transfer of shares of a private company and in contradistinction a public company, is different. The Learned Single Judge went only by the expression "freely transferable" occurring in section 111A(2) of the Act. It is held that principle of free transferability must be given a broad dimension in order to fulfil the object of the law. For that, reliance is placed essentially on section 111A and section 9 of the Companies Act. 55. Insofar as section 9 of the Companies Act is concerned, it contemplates that provisions of the Act shall have effect notwithstanding anything to the contrary contained in the Memorandum or Articles of Association or in any agreement executed by it or in any resolution passed by the company in General Meeting or by its Board of Directors, whether the same be registered, executed or passed as the case may be, before or announcement of the Act. Clause ( a ) thereof, which refers to any agreement executed, is in respect of an agreement executed by the company; and not by the shareholder with third party-which is a private consensual arrangement/agreement to which the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1996. With utmost humility at our command, we do not agree with this reasoning of the Learned Single Judge in the case of WMD Corporation Ltd. ( supra ) for the reasons recorded hitherto. 58. A priori, the argument of defendant Nos. 3 and 4 that clause 6.1 of the said SPA is invalid and void cannot be countenanced. Going by the plain language of the said clause it predicates that if the transfer of shares were to be in favour of person other than the Hoechst Group of Company, the plaintiffs would have right of first refusal. That right of the plaintiffs have been clearly breached by the defendant No. 1 by directly transferring the shares in favour of defendant No. 4 by Agreement dated 17-2-2000. As a result, the said transfer will not be binding on the plaintiffs and in fact in violation of the Agreement between plaintiffs and defendant No. 1 which was in force during the relevant period. 59. The matter can be viewed from another perspective. Admittedly, the disputed shares have still not been transferred in the name of defendant No. 4. So long as the said transfer does not take place, the defendant No. 4 cannot claim any right whatsoever. If the defendant No. 4 were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so when the relief of direction against defendant Nos. 3 and 4 prayed by the plaintiffs including for return of shares would survive notwithstanding the settlement with the defendant No. 1. In any case, the Court can mould the relief at the appropriate stage. It is not as if the entire suit can be dismissed or plaint can be rejected by taking recourse to provisions of Order 7, rule 11 as was argued by the Counsel for the contesting defendants. 61. We will now revert back to the findings recorded by the Learned Single Judge in the impugned Judgment. He has held that transaction was vitiated on account of misrepresentation and fraud caused to the plaintiffs. This will have to be considered in two parts. Firstly, misrepresentation and fraud at the time of execution of the first agreement with plaintiffs, i.e., SPA dated 23-6-1997. Going by the material on record, we have no hesitation in upholding the opinion of the Learned Single Judge that at no point of time any disclosure was made by the defendant No. 1 about the agreement already executed with defendant No. 3. As per the said agreement, the Goyal Group were to eventually take over the management of defendant No. 2 company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 2009 (6) BCR 731. The argument of the defendant No. 3 that in fact the defendant No. 3 was victim of fraud as even though the defendant No. 1 had entered into agreement of Share Purchase Co-operation Agreement on 12-5-1995 and had incorporated non-compete clause, yet, unilaterally, the defendant No. 1 proceeded to strike the deal with plaintiffs for purchase of shares of defendant No. 2 company. The plaintiffs cannot be thrown out because the defendant No. 1 had misrepresented or committed fraud also on defendant No. 3. The defendant No. 3 cannot be allowed to challenge the conduct or act of defendant No. 1 qua it, in the present proceedings where the principal issue is whether the plaintiffs are right in asserting that the first SPA dated 23-6-1997 itself is the product of fraud and misrepresentation. In any case, the Learned Single Judge has analyzed the subsequent conduct of the contesting defendants in particular defendant Nos. 1 and 3 which reinforces the position that it was a concerted effort by defendant Nos. 1 and 3 to take over the management of defendant No. 2 company. It is noticed that the defendant No. 3 is controlled by Goyal Group who are known to be business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 4 in pursuance of letter of Deutsche Bank AG. The bank documents have also been considered by the Learned Single Judge. On the basis of all these documents the Learned Single Judge has concluded that by resorting to circular transactions effected on the same day, i.e., 17-2-2000 Morgan Trade and Commerce Ltd. which is subsidiary of defendant No. 3 company and controlled by Goyal Group eventually came in control of 51 per cent shareholding in defendant No. 4 company. Whereas, defendant No. 1 held only 49 per cent of shares of defendant No. 4 company. These circular transactions were effected and documents were prepared with clear intention to circumvent the mandate in clause 6.1 of the SPA dated 23-6-1997 and in particular the order of injunction operating against the contesting defendants. 65. The next question is whether the finding recorded by the Learned Single Judge that the transactions effected between defendant No. 1 and defendant No. 3 and in particular subsidiary of defendant No. 3 so as to transfer the shares held by defendant No. 1 in favour of defendant No. 4 was in breach of order of injunction. Ordinarily, this issue could have been answered at the outset. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fs by defendant No. 1 was to jointly acquire the shares of defendant No. 2 with defendant No. 3. The Learned Single Judge, in our opinion, has rightly answered this controversy relying on the assertions made by the defendant No. 3 in the proceedings before the Delhi High Court as well as the opinion of the Delhi High Court on that issue. It is noticed that the case of defendant No. 3 all throughout has been that the shares of defendant No. 2 were to be jointly acquired by the defendant No. 1 along with defendant No. 3 from the plaintiffs herein; and for that reason the defendant No. 1 was obliged to notify that intention in the public announcement. The Learned Single Judge has, in our opinion, rightly rejected the prayer of defendant No. 3 to withdraw from the said plea. The fact that the Learned Single Judge has not thought it necessary to consider as to whether there was violation of SEBI Regulations even in respect to the second transfer would make no difference to the ultimate conclusion reached by the Learned Single Judge. It has come on record that the defendant No. 3 had filed suit in Delhi High Court challenging the SPA dated 23-6-1997. The said suit, however, has been with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief in respect of 30,000 shares purchased by the defendant No. 1 from the public. This argument does not commend to us for more than one reason. Firstly, it overlooks that now there is agreement between plaintiffs and defendant No. 1 dated 5-12-2002 whereunder the defendant No. 1 agreed to restore all the 75,001 shares in favour of the plaintiffs. In view of our finding that the second transfer in favour of defendant No. 4 will have to be treated as non est in law, as the same is in violation of order of injunction of the Court which include 30,000 shares purchased by the defendant No. 1 from the public. Those shares will have to be treated as, in law, having always remained with the defendant No. 1. Thus, the defendant No. 1 could always enter into agreement such as agreement dated 5-12-2002 with the plaintiffs, whereunder those shares stood transferred to the plaintiffs. Hence, all the 75,001 shares will have to be returned to the plaintiffs. Moreover, in view of our finding that the public announcement issued by the defendant No. 1 in furtherance of the SPA dated 23-6-1997 was invalid, the 30,000 shares so purchased will have to be restored to the seller thereof. However, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e defendant No. 4 has no right whatsoever over the assets of the defendant No. 2 company. Even if the defendant No. 4 were to be shareholder of the defendant No. 2 company, it would make no difference-as it is well established position that the shareholder does not have direct right over the assets of the company of which he is a shareholder. In the case of Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC), it has been held that the company is a juristic person and is distinct from the shareholders. The dividend, as share of the profits declared by the company, is liable to be distributed amongst the shareholders. The true position of the shareholder is that on buying shares, he becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed amongst the shareholders. Even in the case of Zora Singh v. Amrik Singh Hayer [2009] 149 Comp. Cas. 328 (Punj. Har.), the Court observed that the shareholders who buys shares are not entitled to the property of the company. As of now, the defendant No. 4 are not even shareholders. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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