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TMI Blog2010 (7) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company Law Board. I will refer to the facts from and to the parties as they are arrayed in Appeal No. 8 of 2008. 3. The respondents sought an order for a declaration that the alleged vacation of office by them as directors is null and void and that respondent No. 2 continued as the working director of the company for the period after March 31, 2006. Reliefs were sought, inter alia, for maintaining the authorised share capital of the company, for a declaration that any increase thereof is void, for rectification of the register of members, challenging the allotment of shares to various persons and seeking the recovery of monies advanced by the company to third parties. 4. One Manilal Shah had three sons-Himmatlal, Ramanlal and Chandulal. Ramanlal had four sons and Chandulal had two sons. The details of these six gentlemen pertaining to the manner in which they are arrayed in Appeal No. 8 of 2008, the members of their groups and the shares held by each of them in the company are as under : Statement Showing the Shareholding Pattern of Shah Himatlal Manilal & Co. T. P. P. Ltd. (R-1) as on 31-3-2008 A=Appellant R=Respondent Name of the Shareholder No. of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only appellants Nos. 1 and 2 and respondents Nos. 12 and 13 who are part of one group on one side. In their group is also Vijay R. Shah (HUF). The impugned order of the Company Law Board directs the implementation of the settlement only between the parties thereto, which included appellants Nos. 1 and 2. Once their shares are transferred, the remaining shares in their group are only about 10.23 per cent. 8. This resulted in the second turn. Faced with this changed scenario, they now contend that the agreement which they sought to wriggle out of be implemented by compelling respondents Nos. 1 to 5 to purchase these 10.23 per cent. shares as well. 9. This contention is astounding for it is based on the premise that the settlement was a composite one whereunder respondents Nos. 1 to 5 had agreed to purchase the shares standing not merely in the names of the appellants, but in the names of all the members of their respective groups. I agree that this appears to have been the understanding between the appellants and respondents Nos. 1 to 5 although the other members of the groups were not parties to the settlement. The submission is astounding for, as I will demonstrate, while wriggl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07. 15. The appellants' advocate, by a letter dated December 7, 2007, informed the respondents' advocates that the respondents were willing to buy or sell the shares at Rs. 1,788 per share. The respondents were called upon to communicate their offer to the appellants. 16. The respondents' advocates, by a letter dated December 10, 2007, communicated their acceptance of the offer of selling of the said shares at Rs. 1,788 per share. They agreed to purchase the shares at that price. Paragraph 2 of the letter reads as under : "2. The total consideration for your clients' shares (including the rights shares), namely 7,000 shares, which comes to 7000 x Rs. 1,788 which is equal to Rs. 1,25,16,000, shall be paid by means of pay order by my clients to your clients within a period of 12 months." 17. The letter suggested modes of securing the interests of all the parties. It was also stated that the respondents' acceptance would be filed before the Company Law Board on the same day. 18. Prayer (a) of C. A. No. 510 of 2007, set out earlier, was relied upon by Mr.Gupte, learned senior counsel appearing on behalf of respondents Nos. 1 to 5 to contend that the use of the word " parties" in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enable both the parties equal representation on the board till full payment is made to the respondents." 22. With the above directions, Company Application No. 510 of 2007 was disposed of, the interim orders were continued and the parties were directed to report compliance after which the petition was to stand dismissed as withdrawn. 23. The respondents did better than they were directed to by the order of the Company Law Board dated December 20, 2007. They obtained thirteen demand drafts dated January 7, 8, 9, and 10, 2008, for an aggregate sum of Rs. 1,25,00,16,000 which was the entire consideration for the purchase by them of the said shares. Under the order dated December 20, 2007, a bank guarantee for the full amount was to be obtained within three weeks, i.e., on or before January 11, 2008. Fifty per cent. of the consideration was to be paid within one month and the balance consideration was to be paid within the next three months. Instead of the same, the respondents arranged to pay the entire amount well before they were expected to. 24. The respondents, by a letter dated January 10, 2008 informed the appellants that they would mention the above petition for direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es' letter dated January 10, 2008, alleging breach and stating that the appellants were no longer interested in selling their shareholdings to the respondents was nothing, but an attempt to wriggle out of the settlement. This is established beyond doubt by their conduct and the conduct of the members of their groups. 31. Respondents Nos. 7, 8 and 9 soon thereafter, in January, 2008, filed Company Application No. 32 of 2008 seeking to be impleaded. They also sought an order setting aside the consent order dated December 20, 2007, contending that the consent order was contrary to article 10 of the articles of association of the company and that they were not bound by the same as they were not parties to the proceedings. 32. In February, 2008, respondent No. 10, i.e., the mother of appellant No. 3, respondent No. 12, i.e., the wife of appellant No. 1 and respondent No. 13, son of appellant No. 1 filed Company Application No. 102 of 2008 seeking to be impleaded and for an order setting aside the order dated December 20, 2007, as against themselves contending that they had not authorised the appellants to sell their shares and that, therefore, the consent order was not binding upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of the entire sum well in advance. The appellants' contention in this regard requires merely to be to stated, to be rejected. I am, with respect, surprised that such a contention was even raised. 37. It is of vital importance to note that the Company Law Board recorded the stand on behalf of the appellants that they could sell what they had, viz., 1,663 shares. The petitioners and the respondents agreed to the appellants in the company applications being impleaded. The Company Law Board, accordingly, allowed their being impleaded. The Company Law Board, thereafter observed as under : "As regards their other prayers, I find no reason to grant the same in view of the fact that consent order is dated December 10, 2007, there is no prayer to set aside that order dated December 20, 2007 is only to work out the modalities to implement consent order dated December 10, 2007, and also in view of the power of the Company Law Board under sections 402 and 404 of the Act. To make it more clear, the applicants' prayer with respect to setting aside of the order cannot be acceded to in law and in fact in any manner. They have not even been participating in the affairs of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Law Board. It was observed that if the Company Law Board clarified that the orders were consent orders, the appeal would not be maintainable. 44. The appellants filed Company Application No. 336 of 2009 before the Company Law Board seeking the said clarification. 45. The Company Law Board, by an order dated June 23, 2009, held that the orders dated December 20, 2007 and February 29, 2008 were in continuation of the consent order dated December 10, 2007 and were also consent orders. 46. The order and judgment dated July 23, 2009 is, strictly speaking, not a clarification as to whether or not the said orders were consent orders. The Company Law Board appears to have construed the said orders and held them as a question of law to be consent orders. In other words, the Company Law Board has not stated whether it passed the order with the consent of the parties or not. 47. Appellants Nos. 1 and 2 filed Company Appeal No. 49 of 2009 challenging the order dated July 23, 2009. 48. It would make no difference whether the said orders dated December 20, 2007 and February 29, 2008 are consent orders or not. Considering the view that I have taken, it is not necessary for me to express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociation of the company, they must adopt independent proceedings which would be decided on their own merits. The applicants in Appeal No. 12 are at liberty to adopt separate/independent proceedings for the redressal of their grievance in respect of the said settlement, including on the basis of article 10. The question whether the company ought to register a transfer pursuant to the said settlement and orders or not is a matter which does not arise in the present appeals. 53. I am not inclined to interfere with the order of costs of Rs. 50,000 for more than one reason. The Company Law Board rightly came to the finding that the appellants tried to wriggle out of a settlement. The manner in which they sought to do so does not warrant any interference with the order of the Company Law Board. Further, no question of law arises in this regard. 54. In the circumstances, the appeals are dismissed, but subject to the above clarification. S.J. VAZIFDAR, J. Mangal Bhandari, Ms. Pranjali Bhandari, Ms. Divya Sanghavi and R.D. Soni for the Appellant. Sunil Gupta, Jatin Jhaveri, Hemant Mehta and B.K. Bali for the Respondent. JUDGMENT S.J. Vazifdar, J. - Respondents Nos. 1 to 5 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Shah 725 3.63 Narendra Ramanlal Shah (HUF) 1175 5.88 1.50 R-4 Nikhil Narendra Shah 300 1.50 Tapan Narendra Shah 300 12.50 2500 0.35 R-9 Lalit Ramnlal Shah 70 8.93 R-7 Lalit Ramnalal Shah (HUF) 1785 8.23 R-8 Daksha Lalit Shah 1645 17.50 3500 2.75 Nilesh Chandulal Shah 550 6.31 R-5 Nilesh Chandulal Shah (HUF) 1262 1.94 Bela Nilesh Shah 388 0.50 Pooja Nilesh Shah 100 1.00 Pratik Nilesh Shah 200 12.50 2500 6.44 Premilaben Natwarlal Shah 1288 3.03 R-2 Pinal Natwarlal Shah 606 3.03 R-l Pragnesh Natwarlal Shah 606 12.50 2500 9.95 Shah Himatlal Manilal and Co. 1990 0.05 Himco Fertilizers Pvt. Ltd. 10 10.00 Total 20000 100 5. The company petition was filed on April 25, 2006. 6. It is not necessary for the purpose of these appeals to set out the facts pertaining to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other. 11. Respondent No. 2, by a letter dated July 24, 2007, addressed to appellant No. 1, made certain suggestions regarding the settlement. 12. Appellant No. 1 in response, by his letter dated July 26, 2007, addressed to respondent No. 2 stated that the parties had lost trust in each other and were unable to carry on business together. He stated that it would, therefore, be in the interest of all to part ways amicably. After making certain suggestions, he stated as follows : "In case, you do not wish to go for the valuation of the company, as suggested in my earlier letter, you may suggest a price with an option to us to buy or sell at the said price or vice versa i.e. we will suggest a price and you can choose to buy or sell your share at the price suggested by us." 13. The appellants thereafter filed C. A. No. 510 of 2007 before the Company Law Board setting out the above correspondence. They stated that the parties, though related, had lost all confidence and trust in each other and were unable to work together and that whether the petition is allowed or dismissed, the disputes between the parties would not attain any finality. They suggested, therefore, that the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the petition had authority to bind them is another matter. I am unable, therefore, to accept Mr. Gupte' s submission in this regard. 20. By an order dated December 10, 2007, the Company Law Board recorded that the appellants had agreed to be sold at the said price per share. The matter was adjourned to enable the parties to work out the modalities in this regard. Status quo as regards the assets of the company was ordered to be maintained. 21. By an order dated December 20, 2007, the Company Law Board recorded that the parties had been heard as regards the modalities to effectuate the settlement. The Company Law Board passed certain directions as to the modalities to effectuate the settlement as the appellants had agreed to be sold and the respondents had agreed to buy them at the said price. The directions in this regard are as under : "(1) The petitioners are hereby directed to give a bank guarantee for the full sum within three weeks' time, pay 50 per cent. of the total price within one month from now, and the balance 50 per cent. be paid within next three months' time. (2) As, the firm is under dissolution and the matter is under consideration of the arbitrator, the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondents. They further alleged that in view thereof, the appellants were entitled to purchase the respondents' shares for which they were willing to make payment within three months from the date of passing of fresh orders in this regard by the Company Law Board. 26. The contention that the period of three weeks expired on January 9, 2008, is incorrect. The period of three weeks would have expired on January 10, 2008. However, on January 10, 2008 itself, the entire payment was kept ready. Even assuming that there was a technical delay of one day, I would ignore the same. 27. The respondents, by their advocates' letter dated January 10, 2008, rightly stated that the appellants' advocates letter dated January 10, 2008 was addressed without even caring to find out the purpose of the respondents' earlier letter dated January 10, 2008 ; that all the demand drafts were ready and but for the modification required by the Company Law Board., the same would have been handed over to the appellants on the very day. It was further correctly pointed out that they had done more than they were expected to under the order dated December 20, 2007. 28. The respondents filed Company Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit the demand drafts with the bench officer and directed the same to be retained till further orders. The order further recorded that the appellants neither rejected nor supported Company Application No. 32 of 2008 taken out by respondents Nos. 7, 8 and 9. The petition was adjourned to February 13, 2008. 35. The timing of the appellants' letter dated January 10, 2008 seeking to resile from the settlement and the filing of Company Applications Nos. 32, 102 and 103 of 2008 speak for themselves. It is too much of a coincidence to presume that the parties acted independent of each other and without a common intention. These facts establish that there was a concerted attempt on the part of the appellants and the applicants in the company applications to wriggle out of the said settlement recorded in the orders of the Company Law Board. 36. By an order dated February 29, 2008, the Company Law Board disposed of Company Applications Nos. 23, 32, 102 and 103 of 2008 and the company petition itself. It was rightly held that the order dated December 10, 2007 was a consent order between the appellants and the respondents. However, the directions issued in the order dated December 20, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s account accordingly. With the above directions C. P. No. 39 of 2006 stands dismissed as withdrawn. All company applications stands disposed of. All interim orders stand vacated. I hereby impose cost of Rs. 50,000 on respondent No. 2 for having consented to sell and then have proceeded to derail the proceeding. Cost be paid to the legal aid Cell of the Delhi High Cout." 38. The Lalit Shah group thereafter filed A. O. No. 21 of 2008 before the Aurangabad Bench of this court challenging the orders dated December 10, 2007, December 20, 2007 and February 29, 2008. 39. On March 10, 2008, the respondents tendered the bank drafts aggregating to Rs. 29,73,494 for payment to the appellants in respect of their shares. The matter was, however, adjourned to March 24, 2008, in view of the pendency of A. O. No. 21 of 2008. On March 24, 2008, the matter was adjourned sine die with liberty to mention. 40. On March 28, 2008, A. O. No. 21 of 2008 was disposed of on the ground that the original side of this court had jurisdiction to entertain an appeal under section 10F. The Lalit Shah group filed SLP (Civil) No. 9871 of 2008 against this order and judgment. The said special leave petition was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceedings the respondents settled with all the other parties. Finding themselves in a corner, the other members of the group of Appellant No. 1, viz., respondents Nos. 12 and 13 and the HUF of appellant No. 1 who now hold barely more than ten per cent. of the equity shares of the company seek to enforce the settlement which was validly arrived at, but which they sought to wriggle out of. That, however, is a matter which the Company Law Board will decide in Company Application No. 336 of 2010. I express no opinion about its maintainability. 51. There can be no exception to the order passed by the Company Law Board. The order dated December 10, 2007 was admittedly with the consent of the parties and, in fact, at the request of the appellants who had themselves taken out Company Application No. 510 of 2007. The order dated December 29, 2007, was not sought to be set aside by the appellant. Their only contention was that the respondents had failed to comply with the condition thereof, viz., furnishing the bank guarantee within three weeks. I have already rejected this submission. Ultimately, by the order dated February 29, 2007, only the parties to the proceedings have been ordere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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