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Nafan BV M/s Sharp & Tannan Chartered Accountants Arunachalam Muthu Lesaffre Et Cie Versus Saf Yeast Company Pvt. Ltd. Mr Arunachalam Muthu Mr AM Arunachalam Mr AM Muthiah Mr TNM Arunachalam Helios Food Additives Pvt Ltd Sharp & Tannan Chartered Accountants Lesaffre Et Cie Nafan BV

Auction and the buy out - Validity of MOU - validity of board meetings and the resolutions passed therein - suppression of facts - discard of valuation report and the reliance upon the same by Muthu Group is an act of oppression - Held that:- The appeal filed by Lesaffre is maintainable. The petition filed by Nafan was rightly not dismissed by the Board on the ground of suppression of facts. The declaration given by the Board that MOU is valid, effective, and enforceable document and its terms a .....

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u Group is an act of oppression. The comments made by the Board on the valuation report, were justified. The direction of the Board to Muthu Group to rectify register of SAF Yeast by restoring the shareholding of Nafan and Lesaffre is valid and proper. The direction given by the Board to Nafan and Lesaffre to transfer their shareholding to Muthu Group is not sustainable and has to be set aside. Nafan is entitled to a buyout as prayed for in its petition. However, it will be in the interest of SA .....

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he modalities for holding the auction and the buy out, the modalities suggested by Nafan are proper and can be adopted.

A. The declaration by the Board that the MOU dated 23 January 2009 is valid, effective and enforceable document and the terms thereof are binding upon the Petitioner and Lesaffre Group, is quashed and set aside in light of what is observed above.

B. The declaration by the Board that the Valuation Report prepared by Sharp and Tannan is biased, partial and i .....

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n the Board Meeting held on 29 January 2009, are oppressive.

D. i) The declaration by the Board that the Board Meetings held on 23 May 2009 and 25 May 2009 are non-est, illegal and void, is confirmed.

ii) The direction by the Board that the Resolutions passed in both these meetings are set aside being illegal and oppressive to the Nafan and Lasaffre, is confirmed.

E. The directions by the Board setting aside the transfer of shares in favour of the A.M.Muthiah and .....

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oldings, is quashed and set aside.

I. If within six weeks from today Muthu group withdraws the civil suit and associated proceedings filed by them and files an undertaking on affidavit in the registry of this court that they will not take any proceedings on the basis of the MOU in question, then Part-I of this order will come in operation. If the above mentioned steps are not taken by Muthu Group within the stipulated period as above, Part-II of the order will come into effect forthwi .....

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d of Directors, and the Managing Director, to supervise the functioning of the Company on an interim basis until the process of sale/purchase is complete; upon appointment of the Administrator, Respondent Nos.26 in the petition (Muthu Group) shall forthwith deposit with the Administrator signed, duly filled in but undated share transfer forms along with the original share certificates in regard to all the shares held by them in the Company.

c. Until the process of sale/purchase is com .....

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inistrator alone.

d. Until the process of sale/purchase is complete, the SAF Yeast and the Administrator shall not (except in the ordinary course of business), (a) sell or otherwise dispose of or encumber the Company's assets, (b) incur liabilities, (c) distribute funds from the Company, (d) enter into any contracts to be performed for a period longer than six months for or on behalf of the Company, (e) change the nature of the business of the Company, (f) alter or increase the share .....

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from the date of the order to the statutory and other records books and all the relevant documents as indicated in the Schedule to Note on Modalities given by Nafan, and shall be allowed full and unimpeded access to the Company's industrial plants.

g. Access shall also be made available to any such Chartered Accountant nominated in writing by Nafan and the said access shall be provided continuously on a day-today basis for a period of forty five days from today.

h. After t .....

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-Respondent Nos.2 to 6); the process of auction shall be conducted under the supervision of the Administrator.

i. The successful bidder will deposit in Court by Bankers cheque (Demand Draft) the amount payable, along with all applicable taxes, within fifteen business days after being declared by the Court as the successful bidder.

j. On such payment, the shares will be transferred to the buyer, the Register of Members of the Company shall be updated accordingly, the Adminis .....

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or the amount of the next highest bid (with the unsuccessful bidder getting credit for its own shares - either 51% for Nafan or 49% for the Muthu Group Respondent Nos.2 to 6) less a twenty-five per cent reduction, by depositing the amount payable in Court within fifteen business days after default.

l. Upon the completion of the exercise of transfer of shares and its consequent registration in the Register of Members of the Company, the functioning of the Administrator appointed shall .....

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the successful bidder under the auction.

PART - II

a. M/s.Ernst and Young, Chartered Accountants are appointed to value the 49% shares of the Company held by Respondent Nos.2 to 6 Muthu group including, if required, a forensic audit/ due diligence of the records, books and accounts of the Company within three months from today.

b. For the purpose of (a) above, the Chartered Accountant so appointed shall convene a preliminary meeting with Nafan and the Muthu grou .....

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circumstances of the present case, after hearing the parties.

d. Nafan shall be provided complete and unimpeded access within seven days from the date of the order to the statutory and other records books and accounts of Saf Yeast, and such other relevant documents as indicated in the Schedule to Note on Modalities given by Nafan and shall be allowed full and unimpeded access to the industrial plants.

e. The Board of Directors, including the powers of the Managing Director, .....

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(Muthu Group) shall forthwith deposit with the Administrator signed, duly filled in but undated share transfer forms along with the original share certificates in regard to all the shares held by them in the Company.

g. Until the process of sale/purchase is complete, the powers of the Board of Directors shall be vested in an equal number of Directors/alternate directors nominated by Nafan and the Muthu Group (as one group) with the Administrator holding the casting vote, the Director .....

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ny's assets, (b) incur liabilities, (c) distribute funds from the Company, (d) enter into any contracts to be performed for a period longer than six months for or on behalf of the Company, (e) change the nature of the business of the Company, (f) alter or increase the share capital or issue further shares of the Company, or (g) enter into any related party transactions for or on behalf of the Company.

i. The Administrator shall be entitled to appoint (at an appropriate monthly compens .....

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, Nafan shall deposit by Bankers cheque (Demand Draft) payment as per the valuation of the Chartered Accountant which will then be transferred by the Court to the Respondent Nos.2 to 6 in the appropriate amounts based on their shareholding interest.

k. Against payment by the Administrator to the Respondent Nos.2 to 6: (a) Respondent Nos.2 to 6-Muthu group's 49% shareholding shall be transferred in favour of Nafan and the Muthu group-Respondent Nos.2 to 6 shall fully cooperate in the t .....

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med complete.

L. The currency for any payments made hereunder shall be Indian Rupee. - Company Appeal No. 21, 22, 23, 24 of 2015, CLB Company Petition No. 62 of 2009, Company Application No. 11, 12 of 2015 - Dated:- 29-10-2015 - N. M. Jamdar, J. Mr. F.E. De' Vitre, Senior Advocate, with Mr. Pravin Samdani, Senior Advocate, Mr. Ciccu Mukhopadhaya, Mr. Vaibhav Mishra, Mr. Omar Ahmed, Mr.Yashesh Pajwani and Mr. Arun Siwach i/by Amarchand Mangaldas and Suresh A. Shroff & Co. for t .....

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015 and Company Appeal No.24 of 2015 and for Resp. No.3 in Company Appeal No.23 of 2015. Mr. Janak Dwarkadas, Senior Advocate with Mr. N.H. Seervai, Senior Advocate, Mr. Sharan Jagtiani, Mr. Chirag Kamdar, Mr. Gerald Misquitta, Mr. Alok Patel i/by Mahendra Patel & Associates, for Resp. Nos.2, 3, 4 and 6 in Company Appeal No.21 of 2015 and for Company Application No.11 of 2015; for Resp. Nos.3, 4, 5 and 6 in Company Appeal No.22 of 2015 and for appellants in Company Appeal No.23 of 2015 and f .....

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for the appellant in Company Appeal No.24 of 2015. Mr. C.J. Joy with Mr. G.Hariharan i/by H.P. Chaturvedi for the Union of India. None present for Resp. No.1 (SAF Yeast) in Company Appeal No.21 of 2015 and in Company Application No.11 of 2015 and Company Appeal No.22 of 2015 and Company Appeal No.24 of 2015 and Respondent No.5 in Company Appeal No.23 of 2015 and Company Application No.12 of 2015. JUDGMENT This group of Company Appeals arises from the order passed by the Company Law Board, Mumbai .....

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ered Accountants; Company Appeal No.23 of 2015 (Company Appeal (L) No. 34 of 2013) is filed by Mr.Arunachalam Muthu & Ors.; Company Appeal No.24 of 2015 (Company Appeal (L) No. 35 of 2013) is filed by M/s. Lesaffre Et CIE. Company Application No.11 of 2015 (Company Application (L) No. 37 of 2013) is taken out in Company Appeal No.21 of 2015 and Company Application No.12 of 2015 (Company Application (L) No. 43 of 2013) is taken out in Company Appeal No.23 of 2015. All these appeals and applic .....

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.Arunachalam Muthu and M/s.Helios Food Additives Pvt. Ltd. SAF Yeast carries on business of manufacture of yeast and is a dealer and exporter in the yeast products, bread, bread-improvers, their derivatives, and allied products. The authorized share capital of SAF Yeast originally was ₹ 25,00,000/divided by 25000 equity shares of ₹ 100/(each). The authorized share capital was increased from time to time and at the time of filing of the Company Petition, the authorized share capital o .....

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tal shareholding. Mr.A.M. Arunachalam holds 10396 equity shares constituting approximately 6.56% of the total shareholding. Mr.A.M. Muthiah holds 10397 equity shares, constituting approximately 6.57% of total shareholding. Mr.TNM Arunachalam, who passed away during the proceedings, held 1,800 equity shares constituting 1.13% of total shareholding. Helios Food Additives Pvt. Ltd. holds 38010 equity shares constituting approximately 24% of total equity share capital. Mr.B.B. Pay Master, who is no .....

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east. They were Mr.Denis Lesaffre, Mr.Moris Lesaffre, Mr.Alain Laloum, and Ms. Corinne Wisniewski. Mr.Arunachalam Muthu (referred to as Muthu) worked for Shaw Wallace & Co. from 1965 to 1980. He was working as a Senior Manager in yeast and brewery division in Shaw Wallace & Co. He was involved in setting up a yeast factory and a plant at Uran, Maharashtra. A.M. Arunachalam is the son of Muthu. A.M. Muthiah is the second son of Muthu. M/s. Helios Food Additives Pvt. Ltd. is owned and cont .....

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as made a grievance that Nafan did not disclose various facts and they were brought on record by subsequent affidavits and rejoinder. Hence, the facts are narrated as per the pleadings placed on record by way of petitions, reply, rejoinder, additional affidavits, in that order. Petition by Nafan 7. Company Petition No.62 of 2009 was filed by Nafan under Sections 111, 235, 237, 397, 398, 402 and 403 of Companies Act, 1956 (the Act), briefly on the following averments: (i) Lesaffre is one of the l .....

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n to set up a 100% subsidiary or to hold majority shares. It was therefore provided in the agreement dated 6 June 1981 that in the event the laws of India are amended and it is made legally permissible to hold the majority interest, Muthu would transfer the necessary shares to Lesaffre or its subsidiary, and that they would then hold majority of equity capital. When SAF Yeast was incorporated, the word 'SAF' was derived from the name Lesaffre and the interim license agreement was entered .....

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, Lesaffre was entitled to have majority in the Board of Directors of SAF Yeast. Article 7.4 provided for scheme of appointing an alternate Director. Article 7.6 lay down the day-to-day management of SAF Yeast to be in the Board of Directors, except as delegated to the Managing Director by the Board. Lesaffre was entitled to nominate the Chairman. The appointment, reappointment, or removal of the Managing Director was subject to approval of majority of Directors, which majority was to include at .....

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With the approval of Government of India, on 17 January 1992, the shareholding of Lesaffre was increased to 51% and subsequently around the year 2000 Nafan B.V. became owner of 51% shares and relevant entries were carried out in Members Register. Nafan was the owner of the shares as an assignee of Lesaffre. (iii) SAF Yeast was functioning smoothly, with substantial technological and financial assistance from Lesaffre however, Muthu Group started acting oppressively to take over the powers of the .....

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k and proceedings were filed in the Court of Chief Judicial Magistrate, Hardoi, Uttar Pradesh. After considerable lapse of time after filing the complaint, the nominee Directors of Nafan were informed about the dispute with the Calyon Bank. All concerned including Muthu felt that the issue with Calyon Bank needed to be amicably resolved. Muthu proposed a settlement on certain conditions with the Calyon Bank by letter dated 2 March 2001. It was suggested that the offences were non-compoundable an .....

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iscussed. The meeting was attended by Muthu, Lucian Lesaffre, Alain Laloum, and Alain De Gouy. In the meeting, a resolution was passed that it would be in the interest of SAF Yeast to settle the dispute with the Calyon Bank against the payment of compensation of Euros 5,00,000 and a draft of discussion was forwarded to Calyon Bank and to Muthu. (v) After the meeting, Muthu's attitude underwent a change. Muthu group was under a belief that the dispute with the Calyon Bank was something that c .....

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at Lesaffre was not acting against the interest of SAF Yeast and it was not a shareholders' dispute. (vi) Muthu started addressing correspondence complaining that he was being forced to take certain decisions in respect of Calyon Bank, clearly trying to make out a case against Nafan. Nafan never attempted to order Muthu in this regard and acted only to ensure that the decisions were taken in the best interest of SAF Yeast. Muthu purportedly held a Board meeting on 26 July 2005, without any n .....

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afan was instrumental in SAF Yeast's initial survival. It became a success due to Nafan and Lesaffres financial and technical contribution. In spite of benefiting from this substantial financial and technological assistance, Muthu attempted to discredit Nafan, as a part of a design to take control of SAF Yeast. Muthu indulged in various acts of oppression and mismanagement against Nafan in relation to SAF Yeast. (viii) The Nominee Directors of Nafan made several requests to provide copies of .....

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ncial year 200506 Nafan did not receive any financial report. Muthu stopped sending reports. Nafan sought for these reports and financial information by letters dated 20 February 2006 and 18 March 2006. In spite of this position, the information was not supplied. (x) Muthu purportedly held a Board meeting on and around 26 July 2005, without any notice to Nafan. Nominee Directors of Nafan came to know of the meeting on 26 July 2005 for the first time when it was referred to in Muthu's letter .....

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f Annual General Meeting to avoid the majority shareholders from raising their funds, to change the number of directors and for declarations of dividend. Nafan requested Muthu to provide copies of various litigations in respect of Calyon Bank, however, Muthu failed to give these documents. Instead, Muthu persisted in his baseless allegations that Nafan was forcing him to settle with Calyon Bank. When Nafans nominee directors came to know that Muthu had held a meeting without notice to them, they .....

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informed that he was unable to attend due to his father's ill health and the atmosphere was not conducive because of the disputes. On 11 May 2006, Alain Laloum informed Muthu and other Directors to attend by telephonic conference. By letter dated 17 May 2006, Muthu threatened that the action of Nafan was a criminal contempt, as it was an interference with judicial proceedings. By letter dated 22 May 2006, Alain Laloum made it clear that the meeting was only for alternate Directors and Compa .....

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d for alternate Directors for four nominee Directors of the Petitioner pursuant to Article 43 of the Articles of Association and Participation Agreement. The fact that Muthu did not attend the meeting did not make any difference, as the resolution would have in any way been passed by majority and in view of the casting vote. On 28 May 2006, Muthu wrote a letter making incorrect and false allegations against the nominee Directors of Nafan that was replied to. Minutes of Board meeting were circula .....

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ere pending. A Special Leave Petition was filed in the Apex Court and the Apex Court by order dated 17 July 2006 directed dispensation of personal appearance. A senior advocate on behalf of SAF Yeast opposed the Special Leave Petition, and even requests for adjournments were opposed. Meetings were held between the parties. Heads of Agreement were entered into on 14 August 2007. (xiii) On 17 April 2009, Nafan received a notice from Company Registrar, Pune as to why action should not be taken for .....

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to be ignored. On 3 May 2009, Muthu made the usual allegations and referred to a Memorandum of Understanding (MOU) allegedly signed by Lesaffre Group. On 28 May 2009, Muthu again sought to rely on the alleged MOU, which was not signed by Nafan for sale of its shares. If the MOU were to be produced, Nafan would raise and plead its objections. (xiv) It appears that, in the light of notice of meeting on 29 May 2009 at Paris, alleged meeting of Board of Directors was shown to be held in Mumbai on 2 .....

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d at in collusion by Muthu with Sharp & Tannan. Nafan was willing to straightway pay double of the alleged fair value of ₹ 4,315/. (xv) The deletion of Nafans name from members register was fraudulent and void ab initio and the alleged M.O.U. had no sanctity. Muthu Group could not unilaterally take law into its own hands. Muthu Group committed fraud, mismanagement, and oppression by deleting the name of Nafan from the statutory records. (xvi) The Board meeting dated 29 May 2009 as sche .....

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uthu Group, and Muthu in particular were oppressive, fraudulent, unjust, and unfair. They had acted contrary and against the Articles of Association and the Participation Agreement of SAF Yeast. They acted in breach of fiduciary duty. Nafan had lost confidence in Muthu Group and since SAF Yeast essentially have been a quasi-partnership between two groups; Nafan was no longer in position to carry on business with the Muthu Group as a business partner. 8. Nafan prayed for following reliefs: (a) To .....

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sional Managing Director. (c) To pass an order removing the Respondent No.2 to Respondent No.4 as directors and/or any other nominee directors of the Respondent No.2. (d) To pass an order directing that the board of Respondent No.1 Company be reconstituted at a suitable general meeting of its shareholders. (e) To pass an order declaring Articles 14 to 18 of the Articles of Association of the Respondent No.1 Company as null and void. (f) To pass an order thereby directing the Respondent Nos.2 to .....

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dated 29 January 2009 to the statutory auditors. It was recorded in the memorandum that Muthu Group would buy shareholding in Nafan and SAF Yeast and fair valuation is to be done by the auditors. Since Sharp & Tannan were the statutory auditors, after request was made to carry out the valuation, Sharp & Tannan issued certificate of valuation on 9 February 2009. Since there was an urgency, the valuation report was prepared expeditiously. It was forwarded to Laloum under cover of its lett .....

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d out to cause wrongful loss to Nafan and give advantage to the Muthu Group. 11. Sharp & Tannan has nothing to do with the dispute, as it was never a party to any decision for deletion of the name of Nafan from the members register. 12. On 25 March 2010 Muthu on behalf of himself and respondent Nos.3 and 4 filed a reply. They took a stand that the correct facts were suppressed from the Board and sought to place their version of the dispute. Allegations were denied and following contentions, .....

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f manufacturing yeast outside of Europe or any experience of using 100% yeast, and of the Indian conditions. They, therefore, had no option but to tie up with someone like Muthu. A joint venture was formed on 6 June 1981. SAF Yeast was incorporated on 12 August 1981. There were three Directors, Muthu, B.B. Paymaster, and Lucian Lesaffre. Muthu was the Managing Director right from the inception. It was the obligation of the Lesaffre Group to provide technical assistance, which they failed to do. .....

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hrough efforts of Muthu. The assertion of Nafan that the name SAF comes from Lesaffre is not correct. The participation agreement dated 22 March 1991 was not to be acted unless the clauses were consequential to the Articles of Association. The participation agreement was never in accordance with the Articles of Association. (iii) The participation agreement was never acted upon and the parties always acted in accordance with the Articles of Association. Several Board meetings were held in India .....

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1% around 199293 pursuant to further issue of the capital by SAF Yeast. Consequently, shareholding in SAF Yeast underwent a change and share of Muthu Group was reduced to 49%. A financial and technical collaboration agreement was executed on 19 March 1993 in furtherance of the agreement dated 19 October 1981. This agreement dealt with dividend by SAF Yeast to Lesaffre Group. The Government of India through Ministry of Industries approved increase of the shareholding of Lesaffre in SAF Yeast from .....

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Ltd., on 31 January 1997 assigned molasses in favour of SAF Yeast pursuant to an export contract. It was on the condition that NSC Estates Pvt. Ltd. would be liable to make good the loss. SVG Amsterdam, a Dutch company was to make payment for the export contract under a letter of credit by Meespierson NV Bank. Calyon Bank, which was completely aware of the terms of the contract, agreed to act as an Advisor and Negotiator for the export transactions. (v) SAF Yeast supplied molasses as per the pur .....

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,58,040.67 was being paid under letter of credit. (vi) Lesaffre transferred its entire shareholding in SAF Yeast through Nafan. J.L. Meurant on behalf of Lesaffre informed SAF Yeast and Muthu of the transfer and request was made to SAF Yeast to take all necessary legal steps to register the transferred shares. (vii) Calyon Bank filed a civil suit, which was, transferred to Debt Recovery Tribunal, against SAF Yeast for recovery of an amount approximately, ₹ 45.76 lacs including interest. Pr .....

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lacs, falsely claiming it to be adjusted against interest. (viii) A criminal complaint was filed by SAF Yeast against Calyon Bank for the misappropriation. Chief Judicial Magistrate, Hardoi (UP) issued process and F.I.R. was also registered pursuant to orders of the Magistrate and after investigation, the police filed a charge sheet against the officials of Calyon Bank and the Chief Judicial magistrate took cognizance thereof. (ix) The appeal came up for hearing before the Debt Recovery Appellat .....

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lyon Bank and SAF Yeast. Thereafter, in the Board meeting held on 26 July 2005, the minutes of the meeting dated 14 April 2005 were confirmed. In the meeting of 20 September 2005, the minutes of the meeting dated 26 July 2005 were confirmed. Again, a meeting was held on 30 October 2005, Alain Laloum attended it. Even in this meeting also, the minutes of 26 July 2005 along with 20 September 2005 were confirmed. In this meeting, the Annual Accounts and Directors reports were adopted, also holding .....

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2005 and 4 November 2005 prepared by Muthu. Lucien Lesaffre stated that the representative of the majority shareholder did not approve the manner in which the minutes were drafted. Muthu sent an email on 13 November 2005 denying the contentions. He pointed out that it was unfortunate that in spite of the fact that SAF Yeast was struggling against Calyon Bank, Nafan and Lesaffre were not giving any support, on the contrary, they were forcing SAF Yeast to settle with Calyon Bank on unreasonable te .....

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he dispute with Calyon Bank, Nafan and Lesaffre were supporting Calyon Bank and not SAF Yeast. Muthu also pointed out that Nafan and Lesaffre were threatening to use their majority shareholding to achieve its objects of forcing SAF Yeast to settle with Calyon Bank. Muthu also wrote to Denis Lesaffre reminding him that the Directors of SAF Yeast owed fiduciary duty to SAF Yeast and not to Calyon Bank. He asserted that it is not correct that Lesaffre sought to benefit from its relationship with Ca .....

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AF Yeast must take up the issues independently. He mentioned that Calyon Bank was also willing to increase the amount of compensation. Alain De Gouy stated that they would wait for Muthu's response as regard the deed of settlement. Muthu again wrote on 3 January 2006 to Alain De Gouy stating that in the dispute of SAF Yeast with Calyon Bank, Lesaffre was taking the side of Calyon Bank. (xiv) On 2 March 2006, Muthu set out his grievance in a letter. He stated that Nafan was trying to force SA .....

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e blacklisting of SAF Yeast. Muthu stated that there was a loss of confidence between Nafan and Lesaffre on one hand and Muthu Group on the other. He suggested that Muthu Group was willing to buy Nafan's shareholding in SAF Yeast. He also addressed an email to Alain De Gouy and Lucien Lesaffre complaining of illegal and unethical conduct of the Calyon Bank and the incalculable hardship caused by it to SAF Yeast. He again reiterated that Nafan and Lesaffre were consistently siding with Calyon .....

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e dispute with Calyon Bank in such a manner that would benefit SAF Yeast. Laloum also stated that there was no evidence that SAF Yeast was finding it difficult to raise finance through banks and in fact, it appeared that SAF Yeast was doing well. Laloum also asserted that offer of USD one million made by Calyon Bank, as a compensation was a fair offer. Laloum objected to the meeting of 26 July 2005 without notice to nominee Directors of SAF Yeast and approval of the minutes of the meeting dated .....

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Board meeting to be held. Around this time, Muthu Group had received various caveats filed by Nafan and Lesaffre Group. Laloum asked for a dial-in-conference with Muthu and other directors. In spite of the email written by Muthu to Laloum, Alain De Gouy, and Lucien Lesaffre stating that there were genuine difficulties to attend the Board meeting at Paris, the Directors of SAF Yeast in France decided to go ahead with the meeting. It was pointed out that meeting by teleconferencing is not permitt .....

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approval in respect of appointment of Company Secretary and an appointment of alternate directors. The vote of disapproval was communicated without prejudice to their stand that the meeting itself would be illegal. On 19 June 2006, Muthu Group received the copies of minutes of meeting dated 23 May 2006. In the minutes, the Indian directors were shown as absent and it was stated that even if the votes in respect of the resolution were four in favour and four against that the resolution, Laloum wh .....

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ed his objection to the meeting and pointed out that it is illegal. He also pointed out that the alternate directors were appointed, without circulating their qualifications and credentials to occupy the position. On 7 May 2006, a meeting took place between Muthu and Lucien Lesaffre, wherein it was agreed to work together on 50:50percentage basis and signing a Heads of Agreement, which could culminate into a shareholders agreement. Again, a meeting was held in December 2006 between Lucien Lesaff .....

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ation between the parties had not deteriorated further. (xvii) On 29 April 2008 Alain de Gouy resigned from the Board of Directors and Lucien Lesaffre resigned on 6 June 2008. Lesaffre appointed a new group Managing Director Jean Louis Meurant. Meetings were held between Muthu and Alain Laloum between February 2008 to August 2008 to resolve the differences, at Montreux, Geneva, and London. A meeting was held in Montreux in February 2008 on invitation of Alain Laloum where several modes of resolu .....

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lephoned Muthu, and came to Muthu's room for dinner and agreed to meet next morning. On 23 January 2009 Laloum and Muthu had a meeting in the hotel. Before the meeting, Muthu spoke to J.L. Meurant on Laloum's phone. Muthu reiterated that Muthu Group is not interested in selling its shareholding. Laloum stated that Lesaffre Group should make an offer of sale of their shares in SAF Yeast. It was agreed that, to arrive at a fair value of shares, Articles of Association would be considered. .....

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ke to Muthu and thanked him for long association with the Lesaffre Group. Alain Laloum also forwarded a copy of the MOU on 24 January 2009 to Meurant, which Nafan had suppressed. (xix) A meeting of SAF Yeast was held on 29 January 2009 in Mumbai where Muthu tabled the MOU before the Board. The MOU was taken on record as a notice in writing under Article 15 and it was resolved to refer the issue of fair value to Sharp & Tannan as per Article 17 of the Articles of Association. Laloum, on 7 Feb .....

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would send it shortly. Thereafter Sharp & Tannan sent their certificate of valuation on 11 February 2009 to Laloum with a copy to Meurant. Muthu sent an email to Meurant with a copy to Laloum about the further steps taken pursuant to the MOU. Muthu tried to call Meurant on several occasions from 11 February 2009 to 18 February 2009 but Meurant was not available in the office. Laloum informed Muthu that Nafan could not locate the original share certificate. Between March and April 2009, Muth .....

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from ROC, Pune. Muthu clarified that it was a non-issue at the registered office of SAF Yeast was at Mumbai and not within the jurisdiction of ROC, Pune, and the steps have been taken to close the file. Muthu also stated that the permission of the Reserve Bank of India was obtained in reference to the MOU and called upon Nafan to honour and abide by the MOU. (xxii) In the meanwhile, the Apex Court disposed of the Special Leave Petition filed by the French Directors of SAF Yeast and official of C .....

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icles of Association of SAF Yeast, particularly, Article 18 of the Articles of Association. He also called upon SAF Yeast to proceed to accept the consideration based on the certificate of valuation issued by Sharp & Tannan and complete the transfer. A legal opinion was obtained and the meeting of Board of Directors of SAF Yeast was held on 23 May 2009. It was resolved that SAF Yeast would create a separate bank account title M/s. SAF Yeast Co. Pvt. Ltd. Shares Account and the consideration .....

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he meeting held on 23 May 2009 authorizing him to transfer the documents in the name of Nafan and in favour of A.M.Muthiah, Director. On 25 May 2009, Bank of India Shareholding Ltd. stamped nine unsigned share transfer forms. A letter of the same date of A.M. Muthiah to SAF Yeast was taken on record stating that he had paid the amount of ₹ 27,49,38,822/as the purchase money for 80,772 shares. A letter from the Axis Bank of the same date confirmed that the amount was transferred from A.M.Mu .....

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t original share certificates and issue duplicate share certificates to enable issuance of duplicate share certificate to enable issuance of duplicate share certificate. The meeting was adjourned by 45 minutes. (xxiii) After the duplicate share certificates were prepared, the duly executed share transfer forms were taken on record along with the duplicate share certificates. The share transfer forms were accepted and resolution was passed to transfer the shares in the name of A.M. Muthiah and ac .....

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afan has been removed from the register and the name of A.M. Muthiah has been entered. It was also stated that permission of Reserve Bank of India has been obtained and called upon Nafan to nominate a bank account for transfer of purchase consideration. (xxiv) The petition filed by Nafan suffers from suppression of various materials and vital facts especially regarding execution of MOU and on this ground alone the petition requires to be dismissed. The petition is not maintainable, as the Nafan .....

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valid and the resolutions passed are binding. No notice was required to be given to the nominee directors. Reply by SAF Yeast 13. On behalf of SAF Yeast, reply was filed by Muthu being the Managing Director and authorized signatory, briefly as under: (i) Petition ought to be dismissed, as Nafan is not a shareholder or member of SAF Yeast. Nafan/Lesaffre entered into binding MOU to transfer shares to Muthu Group on 23 January 2009, pursuant to a meeting. This MOU was entered into to end all pendi .....

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Nafan/Lesaffre and therefore SAF Yeast as a duly appointed agent was empowered under Articles of Association to act on behalf of Nafan/Lesaffre. After receiving the purchase money on/or on behalf of the Nafan, the shares were transferred. The participation agreement dated 22 March 1991 is not enforceable The issue involving the litigation between the SAF Yeast and Calyon Bank has been set out in the reply filed by Muthu, which is adopted. Affidavit of Alain Laloum 14. On 10 June 2010, Alain Lal .....

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discuss and finalize the agreement. Muthu was aware that neither Lesaffre nor Nafan will execute any agreement without first it drawn by their lawyers and placing it for approval before the Board, having been finally executed by Lesaffre family. Muthu was also aware that no policy decision, more particularly, a decision to exit from India would ever be taken without Lucian Lesaffre and Denis Lesaffre being involved and with approval of the Board of Lesaffre. (ii) In January 2009, Muthu called u .....

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Muthu at Montreux. Laloum met Muthu at Montreux Palace Hotel, which was close to residence of Laloum. It was agreed at the start of the meeting that it would be a final attempt to explore the settlement. As Muthu had travelled, long way to meet Laloum, Lesaffre felt obliged to Muthu. Muthu insisted on calling upon Articles of Association and got them faxed. He insisted on explaining all the terms on which he would purchase the shares of Nafan. Muthu suggested that, while relevant pages of Articl .....

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orwarded. It was never discussed in the meeting what are the consequences of the sale of shares. What was signed was not an agreement for sale of shares held by Nafan in any Company. Lesaffre family could only do this. Laloum enquired about the valuation because he wanted to know if it was worthwhile to follow up with Muthu's proposal. When the valuation was received from Sharp & Tannan, Laloum was shocked at extremely low value. Laloum never informed about the loss of original certifica .....

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s have been made in the reply filed by Muthu especially regarding meeting between Muthu and Laloum in Montreux, Switzerland. The entire basis of the case put up by Muthu Group is the MOU being a binding agreement to transfer the share, is incorrect. The case put up in the reply is fraudulent, the alleged transfer of shares is void ab initio, and no Board meeting took place, which is concocted for giving effect to fraudulent scheme. Records have been fabricated and shares, worth not less than Eur .....

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up but because the yeast market in India had grown as were foreseen by Lucien Lesaffre. iii) Muthu used the pendency of criminal proceedings to intimidate the Nafan's nominee directors and prosecuted criminal contempt petition by extending a veiled threat of arrest. In view of these proceedings initiated by Muthu, the French Directors thought it would be beneficial to settle the dispute than to take risk of proceeding. Therefore, pursuant to this, a meeting was held in London and Heads of Ag .....

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of Nafan to settle differences regarding shareholder agreement. During this period, Muthu came to know that Laloum's decision would be placed before Lesaffre family that he had not agreed to any settlement and he had not been authorized to enter into any settlement. iv) When the meeting took place at Montreux, Laloum was not well. He had travelled in a wheelchair to Algeria. Muthu insisted upon a meeting as a condition for postponement of hearing before the Apex Court. The manner in which Mu .....

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ndue influence, and fraud. v) When the valuation was received from Sharp & Tannan, Laloum was shocked at the low valuation and immediately spoke to Muthu and told him that it will be for the Board of Lesaffre to consider. The valuation was so ridiculously low that no attention was given to the assertion of Muthu regarding MOU. The valuation sent along with letter dated 10 February 2009 was addressed to Laloum and not to Lesaffre or Nafan. The valuation was at the instance of SAF Yeast. If th .....

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he valuation of SAF Yeast was wholly fraudulent. Even the well settled methods of valuation were not applied. vi) Attempts were made to meet Muthu in Paris to discuss future progress of the joint venture. Muthu avoided doing so. The Special Leave Petition before the Apex Court was adjourned on 27 March 2009 on the basis that negotiations are in progress and it was never contended that there has been any agreement to sell the shares. There was no reference to any Board meeting regarding the MOU. .....

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eetings have emerged in reply. The notice supposedly issued for the alleged meeting of 29 January 2009 was stated to have been addressed to Muthu, A.M.Arunachalam and Muthiah. Even the minutes of the alleged meeting are suspicious. In any way, no meetings could have been held as no notice was given to four nominee directors of Nafan. Even if any meeting was held, the meetings were void. It applies to the other meetings held on 23 May 2009 and 25 May 2009. No request was made by anybody for issua .....

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n of Nafan to authorize transfer of shares. Muthu himself did not comply with the precondition of enforcement of MOU. The MOU is even otherwise vague and uncertain. The reliance of Muthu Group on Article 18 of Articles of Association is fraudulent. Nafan at no time given transfer notice or any notice to SAF Yeast in writing. ix) The Lesaffre had contributed substantially by way of financial assistance, allowing its valuable trademarks and technical assistance to development of SAF Yeast. The Les .....

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protocol of agreement setting out Muthu's will for resolving the disputes. Nafan had at no time wish to sell its shareholding. As the MOU was not binding, it was not brought to the notice of Lesaffre. Meurant did inform Lesaffre about Muthu's wish to buy the shares and valuation. When Lesaffre asked Laloum to have a meeting in Paris, he did not agree insisting upon receiving agenda for the meeting. Affidavit filed by Muthu Group in response to affidavit filed by Alain Laloum. 17. On beh .....

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t that the MOU was binding and Laloum had the authority was reiterated. Sur-rejoinder filed by Muthu Group 18. Sur-rejoinder was affirmed by Arunachalam Muthu on behalf of Muthu Group on 17 July 2010 to deal with the rejoinder filed by Denis Lesaffre. It was in short, stated as under. (i) Inspection of documents has been given by Nafan. In spite of the same, incorrect statements were made that inspection of documents is not given. (ii) The MOU is valid and binding contract and the shares have be .....

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y called for. Thereafter the MOU was executed. Laloum did not appear to be in any physical discomfort. After the shares were transferred, there was no question of withdrawing the proceedings before the Allahabad High Court since transfer of shares was subjudice in the Company Petition. Laloum had full authority to execute the MOU. The valuation done by Sharp & Tannan was proper and after considering all the relevant material. No capital can be made of the fact that valuation was prepared in .....

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eetings held in January and May 2009 were not disclosed, are incorrect. The letter of SAF Yeast dated 28 May 2009 makes a reference to the Board meeting. The replies filed in earlier proceedings were not exhaustive replies. In any case, these affidavits do refer to meetings held in January 2009 and May 2009. The Board meetings held in 2009 were validly held and there is no question of that being challenged. (iv) The allegation of forgery is false and this theory is taken for the first time in th .....

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count. 19. Further affidavit was also filed by Mr. Muthu on 11 October 2010 by placing certain documents on record. Proceedings before the Company Law Board 20. With these pleadings, the parties went for hearing before the Company Law Board. In addition to the voluminous pleadings and documentary evidence, the parties also filed their written submissions. 21. The CLB framed points for determination. The points for determination were - (i) Whether the petition has not been properly verified and .....

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so, its effect. (vi) Whether the alleged transfer of shares between member to member is covered by the first part of the Article 14 of the Articles of Association of the Respondent No.1 and the Articles 15, 18 and 19 have no application in respect of the transfer of shares as contended by the Petitioner ? (vii) Whether the impugned MOU dated 23 January 2009 amounts a transfer notice as contained in Article 15 of the Articles of Association of the Respondent No.1 ? If not, its effect. (viii) Whet .....

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) Whether the purported valuation report is a manufactured/got up document prepared by the Respondent No.7 in connivance with the Respondent No.2 to Respondent No.6 to favour them in contravention of the Statutory guidelines and is not based on the recognized principles for the valuation of a company ? If so, its effect. (xi) Whether the issuance of duplicate shares by the Respondent no.1 to Respondent No.4 is illegal being made in contravention of the statutory provisions as contended by the Pe .....

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ember and therefore could not file Company Petition was rejected. The rejoinder and other affidavits are part of pleadings, the Nafan had not suppressed material and vital facts, and the petition was not liable to be dismissed on that count. The MOU was not obtained by fraud or inducement and Laloum had the authority to sign the MOU. The Board concluded that Nafan and Lesaffre wanted to sell the shares, and in fact agreed to sell their shareholdings vide the MOU. It was held that Muthu Group too .....

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t the Company as an agent for finding a transferee. The first part of Article 14 is separate, distinct, and independent of latter part of Article 14 and that the contention of Muthu Group that Articles 15 and 18 are applicable is incorrect. Board further held that the MOU was not a transfer notice as contemplated under Article 15. The Board held that the meeting on 29 January 2009 was held and the allegation of fabrication of record of Board meeting could not be accepted. (II) The Board took not .....

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because it was in terms of the MOU. The Board held that the meetings held on 23 and 25 May 2009 were bad in law since no notice was served and no agenda was circulated, and they were oppressive The Board came to the conclusion that the valuation prepared by Sharp & Tannan was not reliable. Valuation report was a got up document and biased. The valuation report deliberately used CCI Guidelines though they were inapplicable. The Board held that there was no request in writing by Laloum regardi .....

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o groups could not run the Company together. Parting of ways and sale of shares from one group to another was most appropriate. The Board took into consideration the contribution of Muthu, equity and humanitarian perspective, and that Muthu had acted on legal advice, the intention to execute the MOU, and held that Muthu Group should be allowed to buy out the shareholding of Nafan and Lesaffre. (V) Accordingly, the Company Law Board declared that the MOU dated 23 January 2009 was valid and enforc .....

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d to appoint an independent auditor. After the complete exit of Nafan and Lesaffre of receiving the consideration, the administration function would come to an end. Accordingly, the Company Petition was disposed of by the impugned order dated 28 March 2013. Present Appeals 23. Thereafter the abovementioned four appeals have been filed. A Company Appeal was first filed by Nafan, in which a Company Application was taken out for interim relief. By order dated 8 May 2013, the Court did not accept th .....

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the Union of India was disposed of. Thereafter, the petitions were heard from time to time on various dates, as per the request of various counsel appearing in these appeals. The parties also filed voluminous written submissions. 24. Nafan and Lesaffre are broadly challenging the findings that the MOU is a valid and binding and it can be looked into for passing any order under Section 402 of the Act. They also challenge the direction that Nafan and Lesaffre Group should transfer their shareholdi .....

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llenged the findings regarding the interpretation of the articles and valuation. Sharp & Tannan have challenged the observations made by the Board in the impugned order regarding the valuation report being biased, partial, nontransparent, and deliberately based on wrong guidelines. DISCUSSION 25. I have heard Mr. Fredun De' Vitre, learned Senior Advocate along with Mr. Pravin Samdani, learned Senior Advocate on behalf of Nafan, Mr. Darius Khambata, learned Senior Advocate on behalf of Le .....

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ppeal filed by Lesaffre Group and the grounds raised in the appeal filed by Sharp & Tannan taking exception to imputation of bias against them. Maintainability of Lesaffre's Appeal 27. The Lesaffre has filed the Appeal No.24 of 2015. In this appeal, the Lesaffre has inter alia challenged the order passed by the Board as regards the declaration in Para 333 of the operative order and judgment, the findings that the resolution passed at the Board meeting of January 2009 were not oppressive, .....

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ng. He submitted that Lesaffre did not have any cause of action to file its own petition, as it holds no shareholding in SAF Yeast neither Lesaffre was a joint petitioner with Nafan. He further submitted that Lesaffre had not filed any affidavit in reply neither any statement on oath. Mr. Dwarkadas submitted that Lesaffre had sold its entire shareholding in SAF Yeast to Nafan and Lesaffre had no interest or ownership of the shares. Mr. Dwarkadas submitted that an appeal under Section 10F of the .....

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ion of the Delhi High Court in the case of Vinod K. Patel v/s Industrial Finance Corporation 2001 (103) COMPCAS 557, Delhi. He submitted that the concept of aggrieved person must be determined in the context of the Companies Act. Accordingly, as per his contention, the appeal deserved to be dismissed as not maintainable. 28. These submissions cannot be accepted. The operative portion of the impugned order specifically directs the 'Lesaffre Group' to sell its shareholding. It declares tha .....

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er Section 10F. The phrase used is 'any person aggrieved'. Once there is a specific direction in a order to a person to transfer his shareholding it will be hyper-technical to hold that such person is not even entitled to file an appeal. What needs to be seen is the direction to the person concerned. The legality or otherwise of the direction is the matter of merits to be considered after hearing the appeal. The Muthu Group is pressing the relief granted by the Board regarding the declar .....

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ts along with the appeal filed by Nafan. When Mr. Dwarkadas had initially raised the contention regarding maintainability of the appeal filed by Lesaffre, it was kept open to be decided at the time of final order and Mr. Khambata on behalf of Lesaffre has made the submissions on merits as well. I am therefore not inclined to dismiss the Appeal No.24 of 2015 filed by Lesaffre only on the ground of maintainability. Lassafre is entitled to contend that the directions issued to it should be set asid .....

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by it, and the scope of appellate power under Section 10F. Though the learned counsel for the parties have advanced elaborate submissions on all facets of the controversy and have urged this Court to dwell into findings of facts, one cannot lose sight of the limited jurisdiction conferred on this Court under Section 10F of the Act. The jurisdiction under Section 10F to entertain an appeal against a decision of the Company Law Board, is not unlimited. The appeal is maintainable on questions of l .....

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x the discussion by reiterating the basic test. This litigation is given various shapes, shades and hues of complex of legal positions, but the concept of Oppression lies at the core. The underlying principle in the concept of oppression, is fairness. This dispute , and the solution to be arrived ,has to be adjudicated on the touch stone of fairness and probity. Instead of making this adjudication more complex, as sought to be done by the Muthu Group, the correct approach will be to deconstruct .....

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Act deals with the concept of 'oppression' and Section 398 deals with the concept of 'mismanagement'. Both these provisions enable any member of a company to approach the Company Law Board for appropriate directions. If the Board is convinced that the acts of oppression or mismanagement or both have been made out as defined under the Act, then the Board has various powers under Section 402 of the Act to pass suitable directions. The term 'oppression' generally refers to .....

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reholders, rather than only testing only the legality of the actions. 32. Various decisions have been cited by the learned counsel for the parties on the concept of oppressive conduct falling within the ambit of Section 397. It is not necessary to refer to all of them individually as in the case of Sangramsinh P. Gaekwad v/s Shantadevi P. Gaekwad (2005) 11 SCC 314, the Apex Court has outlined them as under. "180. The expression 'Oppression' complained of, thus, must relate to the ma .....

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sing its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the court may seem fit and proper, is warranted. (See Bennet Coleman & Co. v. Union of India & ors. and Syed Mahomed Ali v. R. Sundaramurthy). But the same would not mean that Section 397 provides for a remedy for every act of omission or commission on the part of the Board of Directors. Reliefs must be granted having regard to the .....

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s the shareholders which a fortiori must be an act of the majority. Furthermore, the fact situation obtaining in the case must enable the court to invoke just and equitable rules even if a case has been made out for winding up for passing an order of winding of the company but such winding up order would be unfair to the minority members. The interest of the company vis-à-vis the shareholders must be uppermost in the mind of the court while granting a relief under the aforementioned provi .....

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he conduct must be such as to be oppressive to the petitioner in his capacity as a member: whatever remedies he may have in respect of exclusion from the company's business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression. On the other hand, these provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors; they cover the case of wrongful usurpation of authority, even though the affairs o .....

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its affairs as if they were their own property' to the prejudice of the minority share-holders-and in which just and equitable grounds would exist for the making of a winding-up order... but in which the 'alternative remedy' provided by Section by way of an appropriate order might well be open to the minority shareholders with a view to bringing to an end the oppressive conduct of the majority." 191. In Shanti Prasad Jain (supra) referring to Elder Case, it was categorically he .....

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it was categorically held that the conditions precedents contained in Section of the Act of 1948 must be satisfied before any relief can be granted. 193. Yet again in H.R. Harmer Ltd., In re, the Court of Appeal held that 'the section does not purport to apply to every case in which the facts would justify the making of a winding up order under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression'. It was .....

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oppression', Section 397 of our Companies Act follows closely the language of Section of the English Companies Act of 1948. Since the decisions on Section have been followed by our Court, the English decisions may be considered first. The leading case on 'oppression' under Section is the decision of the House of Lords in Scottish Coop. Wholesale Society Ltd. v. Meyer,. Taking the dictionary meaning of the word 'oppression', Viscount Simonds said at page 342 that the appellant .....

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ith the true character of the company, Lord Keith said at page 361 that the company was in substance, though not in law, a partnership, consisting of the society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences following on one or other of these forms of combination, one result followed from the method adopted, "which is common to partnership, that there should be the utmost good faith between the constituent members". Finally, it was held that the co .....

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any were being conducted in a manner oppressive of himself and if he fails to allege facts capable of establishing that the company's affairs are being conducted in such a manner the petition will disclose no ground for granting any relief and must be dismissed in limine. It was observed:(All ER p.247 BD) "Those who are alleged to have acted oppressively must be shown to have acted at least unfairly towards those who claim to have been oppressed. In Scottish Cooperative Wholesale Societ .....

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y on which every shareholder who entrusts his money to a company is entitled to rely." Lord Keith said: ".....oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder." 196. The Court in an application under Sections 397 and 398 may also look to the conduct of the parties. While enunciating the doctrine of prejudice and unfairness borne in Section of the English Companies Act, the Cour .....

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normally be regarded as unfairly prejudicial to their interests or they might have shown no interest in pursuing their legitimate interest in being involved in the company. (See Re RA Noble & Sons (Clothing) Ltd.) 199. In a given case the Court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties. 200. It is now well-settled that a case for grant of relief under Sections 397 and 398 of the Company Act must be .....

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exercising the powers under sections 397 and 402 of the Companies Act, the Court is considering not only the relief that is sought for but also considers as to what is the nature of the complaint and how the same has to be rectified. It is the interest of the company that is being considered and not the individual dispute between the petitioner and the respondent. If that be so, the interest of the company requires that the majority shareholders must have their say in the management." 203. .....

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arashtra Power Development Corporation Ltd. v. Dabhol Power Co. & ors.: 2004(3)BomCR317." With these principles enunciated by the Apex Court, the controversy at hand can be looked at. 33. Since the Board has determined the points of consideration and as the learned counsel for the parties also made their submissions centering on these points for determination for the sake of continuity, it will be appropriate to follow the same pattern. The issues for determination therefore will fall u .....

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. 34. Under this first broad head, further issues that arise are, whether there was any suppression on the part of Nafan, whether the petition was properly verified, and whether the subsequent rejoinder and affidavits should be considered along with the petition. To indicate broadly the rival contentions, it is the case of Muthu Group that there was a blatant suppression by Nafan in the petition more particularly regarding the events leading to execution of MOU and for this gross suppression no .....

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bmitted that the source and the basis of the knowledge of Mr. Siraj Ahmed are not indicated primarily because he has no such personal knowledge. It is contended that the petition is dated of prior to the date of signing the petition and is attested prior to that date. He submitted that by making a person, who is not aware of the facts, the conduct of Nafan demonstrates lack of bonafides. He relied on decision of this Court in Intesa Sanpaolo SPA v/s Videocon Industries Ltd. Rendered in Company P .....

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De'Vitre submitted that the argument regarding lack of bonafides was not taken in the affidavit in reply nor in the rejoinder before the Board. The Board held that Siraj Ahmed being Power of Attorney had the lawful authority to the Petitioner and furthermore, Lasaffre and Laloum have filed their affidavits. 36. The Company Law Board Regulations provides that the petition can be filed through an authorized representative. It has not been put in dispute that Mr. Siraj Ahmed is not an authorize .....

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its and have taken a stand on oath regarding the events that had transpired. Therefore, even assuming there is some irregularity in the affirmation made by Mr. Siraj Ahmed, it will not be sufficient to dismiss the Company Petition on this ground alone. In the case of Enercon Gmbh (supra), the Court relied upon earlier decisions to hold that such objections would be merely procedural objection. As regard the reflection on the bonafides of the case of Nafan is concerned, it is not that it has rest .....

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ty needs to be given to the party to cure the defect. The Apex Court has held that the rules of procedure cannot be a tool to circumvent justice and procedural objections cannot be used to defeat to justice. The ultimate objection of Muthu Group to the verification of Mr. Siraj Ahmed is that the concerned persons have put him up to avoid taking a stand on oath. This objection does not survive once the concerned persons i.e. Laloum and Lesaffre have put forth their stand on oath and have taken a .....

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since Nafan had suppressed various facts. This argument was made before the Company Law Board and it was rejected. The Board concluded that, considering the petition and rejoinder, the facts and events stated to have been suppressed pertain mostly to the period 20052006 which were not much relevant. 38. Mr. Dwarkadas submitted that Nafan suppressed several material documents and material facts despite them being within their knowledge. He submitted that many documents were brought on record by t .....

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y shown the falsity in the case of Nafan that it had substantially contributed to set up SAF Yeast. He submitted that Directors' Reports would have also shown that the new products were developed using indigenous technology and the technology not of Nafan. He submitted that even notes of accounts for the year 2001 to 2003 have not been produced which clearly show that the Muthu Group were the key management personnel. He further submitted that emails sent on 4 January 2006, 30 January 2006, .....

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ated 11 February 2009 and 12 February 2009 and Articles of Association were not produced. He submitted that if these documents were produced, the case made out in the petition could not have been sustained. Mr. Dwarkadas submitted that various vital facts have been suppressed in the petition, and the petition ought to have been rejected on suppression of facts. 39. The facts, which have been stated to be suppressed, are mentioned in paragraph 56 of the impugned order of the Board. For sake of co .....

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nd London in the year 2008 (apart from the meetings in June and December 2006 with Lucien Lesaffre in London) to discuss the possibility of a resolution to the ongoing disputes between the Muthu Group and the Lesaffre Group; (iii) The Petitioner suppressed the fact that the meeting in Montreux in January 2009 was at the instance of Alain Laloum as has been brought out in the Reply with reference to Mr. Laloum's text messages and emails prior to the meeting; (iv) The Petition conveys the clea .....

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ompletely suppresses Mr. Meurant's role in the matter. His name is not to be found in the Petition at all. (v) After the role and knowledge of the Group Managing Director Mr. J.L. Meurant was placed on record in the Reply filed by the Respondents, in its Rejoinder Affidavit, the Petitioner has admitted (in June 2010) that Mr. J.L. Meurant was in fact aware of the meeting at Montreux on 23rd January 2009, that Mr. Laloum spoke to him immediately after executing the MOU and that on 24th Januar .....

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e following facts / documents is that the Petitioner attempts to mislead this Hon'ble Board as to matters relating to the MOU (which was not annexed to the Petition), the circumstances surrounding its execution and the Petitioners full knowledge about facts over which they claim ignorance in the Petition (such as the existence of the MOU and the Valuation Report), During this period of three months, the following significant events have been suppressed by the Petitioner (with not even a flee .....

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pondent No. 2 addressed an email to J.L. Meurant and copied to Alain Laloum referring to the MOU as a contract to transfer the said shares and seeking the transfer of the same; (d) On the contrary, the Petition contains a positively misleading suggestion that the valuation of the said shares came to the knowledge of the Petitioner and its officers on or after 30th April 2009 or 3rd May 2009; (vii) The Petitioner suppressed its own document, namely its own Articles of Association, obviously becau .....

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;solely/independently authorized", in accordance with the Articles of Association of the Petitioner and there was no change in his power during the intervening period (between 21st July 2008 and 21st June 2009). (vii) The Petitioner did not disclose its own document i.e the flower of Attorney dated 31st January 2005 issued by the Petitioner to TMF Management, the Petitioner was able to solemnly argue that TMF Management was the only entity authorized to execute the MOU and bind the Petition .....

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ucial facts and emails of the year 2005 and 2006, in relation to the issue of the Board Meeting of the Company held in France in April 2005 and the Minutes of the said Meeting as prepared by Respondent No. 2, which is one of the charges of oppression in the Petition. In this regard, the Petition suppresses the following facts and emails: (a) The Petition totally omits to mention the fact that in October 2005 Alain Laloum traveled to India (Mumbai) and attended a Board of Directors Meeting at whi .....

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0th January 2006 which were sent by Mr.Alain Laloum to the Respondent No. 2 seeking certain additions (and not any alterations or deletions) to the Minutes of the April 2005 Meeting. These emails completely destroy the cause of action in the Petition, which is founded on the alleged inaccurate recording of the Minutes of Meeting of April 2005 as done by Respondent No. 2. Had the Minutes of the April 2005 meeting as prepared by Respondent No. 2 been as inaccurate as has been falsely suggested in .....

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meeting in Mumbai (despite having thought it appropriate to comment during January 2006 by his above referred emails). This untenable stand was nevertheless taken to explain the Petitioner's silence on this issue during October 2005 despite having received by then the Minutes of the said meeting of April 2005 at least by September 2005. However, even this stand (of Alain Laloum not being Chairman of the 14th April 2005 meeting) has been falsified by his email of 30th January 2006 when Mr. Al .....

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the Petitioner alleges exclusion from the Company) were always signed by a representative of the Petitioner on the Board of the Company. In some cases the Board Resolution for holding the AGM for a given year was signed by a nominee Director of the Petitioner. The Petitioner always received the dividend declared at the AGM's and on many occasions advised the rate of dividend to be declared. The Petitioner also suppressed communications by the Petitioner nominee Director's to the Responde .....

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has not been annexed to the Petition. In the Reply, the Respondents have disputed the validity of this appointment. Despite this and despite relying upon the same, even in its Rejoinder Affidavit, a copy of the Minutes of this Meeting has not been annexed. It is therefore clear that the Petitioner is steadfastly holding back from the Hon'ble Board a document, on which, strangely enough, the Petitioner places reliance. (xii) The Petitioner alleges, as a charge of oppression, the Respondents .....

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Act the Petitioner is attempting to rake up the participation Agreement dated 22nd March 1991 as being the alleged basis of the relationship between the shareholders. In this, regard, the Petitioner suppressed a whole lot of relevant facts and events which are to the knowledge of the Petitioner and which unequivocally establish that the two shareholding groups of the Company never acted upon the Participation Agreement." 40. Mr. Dwarkadas submitted that, since the jurisdiction of the Compan .....

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; decision of the Delhi High Court in Smt.Abnash Kaur v/s Lord Krishna Sugar Mills & ors. (1974) 44 CompCas 390 (Delhi), decision of the Appeal Bench of this Court in Maganlal Kuberdas Kapadia v/s Themis Chemicals Ltd.Rendered in Appeal No.332 of 1991, decision of the Apex Court in Gujrat Bottling Co. Ltd. & ors. v/s The Coca Cola Co. & ors.A.I.R. 1995 SC 2372, and S.P.Chengalvaraya Naidu v/s Jagannath. A.I.R. 1994 SC 853. Mr. Dwarkadas submitted that these decisions and several othe .....

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taken into consideration, as a rejoinder could not form part of the pleadings. He submitted therefore that the finding of the Board that there was no suppression and that rejoinder forms part of the pleadings is incorrect. He submitted that a rejoinder would not form part of the pleadings. According to him, charge of oppression or the cause of action must be pleaded in the petition itself. He submitted that rejoinder can only deal with the defence in the reply and cause of action cannot be foun .....

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ing Co. Ltd.,1970 (40) CompCas (cal.) 119 decision of the Madras High Court in the case of S. Seetharaman v/s Stick Fast Chemicals (P) Ltd.,(1998) 18 SCL 399 (MAD) and decision of this Court in Sambhaji Waghoji Asole v/s State of Maharashtra 2006 (1) Mh.L.J. 392 Relying on these decisions, he submitted that acts of oppression must be pleaded in full particulars in the petition itself and unless that is done, same cannot be enquired into by the Court. Even assuming certain facts became known of t .....

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of action made out. He submitted that certain facts that became known from the reply during the inspection after filing of the reply by Muthu Group necessitated placing the factual position on record. He submitted that pleadings should receive a liberal construction and Muthu Group was fully aware the case that they had to meet. He submitted that the petition ought to have been amended was not the plea taken by Muthu Group in the affidavit-in-rejoinder. He further submitted that the plea of Mut .....

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uthu Group be directed to sell their shares to Nafan. In the petition, the Nafan has pleaded the relevant particulars. It has placed on record the particulars of the parties, the backdrop to the joint venture. Then it stated that Muthu Group is attempting to prohibit Nafan from participation in the management. It is attempting to compel transfer of Nafan's shareholding. Muthu Group is committing acts of mismanagement. It has inserted the name of Muthu Group as a shareholder of 51% of Nafan a .....

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thout notice, failure to provide documents regarding litigation and how in spite of the attempt to settle the dispute settlement did not come through. Thereafter Nafan has mentioned how Lucien Lesaffre received a notice from the Registrar of Companies to show cause regarding non-filing of returns. It has then mentioned that Laloum informed Lesaffre and Corinne that he has been induced to sign some papers by Muthu and he has received some valuation addressed to SAF Yeast, which shows that the val .....

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to Muthu, Muthu fraudulently called alleged meeting on 25 May 2009, made deposit of some amount, and in accordance with Article 18 struck off the name of Nafan. This was done based on the alleged MOU and the valuation, which were fraudulent. Therefore, the entire thrust of Nafan in the manner in which Muthu removed their names without notice to them in a meeting. According to them, the MOU was not a valid document and Nafan had never agreed to sell its shares. It had specifically stated that if .....

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entire argument of Mr. Dwarkadas on this count is based on the silence on the part of Nafan and Lesaffre Group regarding the MOU and enquiry about valuation. According to him, once Nafan was made aware that the MOU exists and will be enforced, then by not taking any steps, Muthu was right in believing that the MOU was accepted. According to Nafan, Muthu Group was trying to divert the course of adjudication towards the legality, validity and binding effect of the MOU, but from Nafan's point .....

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pecifically made their intention clear that they will not be going to do so in view of the valuation. The MOU did specify that there would be fair valuation and withdrawal of the Court proceedings. Therefore, according to Nafan, the MOU had to be worked upon and taken further by both sides, rightly or wrongly, which aspect is dealt with later. The case of Nafan in the petition was clear that it not ready to go by the MOU. They did not consider it as a valid piece of document. This case is clearl .....

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ssuming the MOU was binding, the action of Muthu Group to transfer the shares without notice to them still could be questioned by Nafan, which they did in the petition. For that purpose, it is enough to assert that the MOU had no sanctity. There is no complete omission to mention the MOU. It is mentioned and it is stated that it is invalid. Nothing further needed to be pleaded. Whether it is binding or not would be the case of Muthu Group. Nafan had reserved its rights to make comments on the MO .....

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is pressed in service by Muthu group as valid document. I do not find that there was any suppression of facts either. 47. Furthermore, the Apex Court in the case of Ram Sarup Gupta (Dead) by LRs. v/s Bishun Narain Inter College & ors. (1987) 2 SCR 805, has held that the pleadings should receive liberal construction and whenever question of law regarding the pleading is raised, the enquiry should not be about the form of pleadings, instead the Court must find out whether the parties knew the .....

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e case of Mohta Brothers (supra) is of no assistance to Mr. Dwarkadas, as in that decision, the Court was concerned with the subsequent events and held that the matter needs to be decided upon the facts pleaded in the petition. In the present case, it is a grievance of Nafan that various facts leading to the meetings were suppressed from them, which they came to know after filing of the petition and therefore rejoinder had to be filed. In this case, not only rejoinder but also sur-rejoinder has .....

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d 398 was vested in the Board. Simultaneous proceedings were filed before the Company Law Board and by consent; the matter was taken up before the Company Judge to dispose of the matters based on affidavits. Appeals came to be filed before the Division Bench of the Gujrat High Court and the Division Bench allowed the appeal. The matter was thereafter taken to the Apex Court. The Apex Court determined the points for consideration. They were as regard the fiduciary duty of the Company Directors to .....

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pany Law Journal, 243. It held that the Court considers not only the relief but also the nature of the complaint and how it is to be rectified. The Apex Court in paragraph 205 observed as under. "205. The burden to prove oppression or mismanagement is upon the petitioner. The Court, however, will have to consider the entire materials on records and may not insist upon the petitioner to prove the acts of oppression. An action in contravention of law may not per se be oppressive. Bhagwati, J. .....

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ion 397 or 398. Equally a converse case can happen. A resolution may be passed by the Board of Directors which may in the passing contravene a provision of law, but it may be very much in the interests of the Company and of the shareholders..." (emphasis supplied). The Apex Court specifically stated that the Court will have to consider the entire material on record and may not insist upon the petition to prove acts of oppression. This observation has been emphasized by Mr. De' Vitre. Th .....

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there are more reasons why reliance cannot be placed on the decision of Sangram Singh Gaekwad (supra). In the present case, the cause of action has been sufficiently pleaded in the petition for the relief that is sought. The decision of the Apex Court in Sangram Singh (supra) after taking review of the powers of the Board, has in fact emphasised that, looking at the nature of the proceedings, the Board will have to take into consideration the entire material on record. The other decisions cited .....

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pression and mismanagement and has indicated that totality of the evidence must be looked at by the Board. 50. As I have held earlier, sufficient cause of action was pleaded by the Nafan in its petition. According to them, the meetings were without notice and transfer of shares was gross act of oppression and other acts of mismanagement. Relevant particulars concerning the MOU were pleaded and that the MOU had a no binding effect. Nafan had already stated that in case the MOU is put-forth, they .....

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suppressed were the facts suppressed by the Respondent from them. As far as MOU is concerned, Nafan had mentioned the same and made it clear that it is not considering it as valid. Why it was valid was the defence of Muthu group, which they put forth. Nafan countered that defence in their rejoinder. Persons concerned filed their affidavits placing contested factual position on record. It is not that Nafan obtained an ex-parte orderly misleading the Board. Both parties were fully aware of the fac .....

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nderstanding entered into between the Lesaffre Group represented by Mr.Alain Laloum and the Muthu Group represented by Mr.A.Laloum at Montreux on 23/01/2009. Regarding the shareholdings in M/s SAF Yeast Co. Pvt. Ltd. It was agreed that Muthu Group would buy 51% shareholding of the Lesaffre Group in M/s SAF Yeast Co. Pvt. Ltd. immediately. The fair valuation of the shares will be done by the company (M/s SAf Yeast Co. Pvt. Ltd.) Auditors in accordance with clause 17 of the Articles of Association .....

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this topic were, whether the MOU is invalid and enforceable document as stated by the Petitioner; Whether the MOU amounted to transfer notice contained in Article 15 of the Articles of Association. The Board then listed further sub-points regarding the MOU. Those were, whether the MOU has been obtained by fraud and inducement; whether Laloum had no authority to execute the MOU; whether the MOU is mere offer or expression of desire; whether the MOU is a contingent contract; whether Muthu failed .....

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ntention of the parties and the MOU did not constitute a transfer notice. In short, the Board held that the MOU is binding and though it may not be enforceable as contract, the intention of the Nafan and Lesaffre to sell shareholding was clear, but at the same time MOU could not be treated as transfer notice. 55. It has to be noted that the Muthu Group has filed a Suit No.S/2457 of 2012 in this Court for the following reliefs. "(a) That this Hon'ble Court be pleased to order/declare the .....

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"Muthu Group" and for the said purpose this Hon'ble Court give all necessary directions to specifically perform the Memorandum of Understanding dated 23 January 2009 including the Defendant No.1 taking all ancillary and incidental steps for effecting a transfer of the suit shares in performance of the Memorandum of Understanding dated 23 January 2009; (c) Alternatively, and in the event of Defendant No.1 failing to do so, this Hon'ble Court may be pleased to appoint a Receiver .....

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party rights in respect of the suit shares; (e) That, pending the hearing and final disposal of the present suit, Defendant No.1 by itself and through its servants, officers and agents be restrained by an order of injunction from exercising any voting rights or any other proprietary/membership rights in respect of the suit shares; (f) For ad-interim reliefs in terms of prayer (c) above; (g) For such further and other reliefs as the nature and circumstances of this case may require; and (h) For .....

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herefore, a suit for specific performance of the MOU is pending in the Civil Court. The Board has also taken note of the position of law that it has no power to specifically enforce the MOU but what the Board has done is to give effect of the supposed understanding of the parties in the MOU, while passing an order under Section 402 of the Act. Mr. De'Vitre and Mr. Khambata have seriously objected to this submitting that this is indirectly giving specific performance of the contract as the su .....

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ng by the MOU, amount to oppression. The appropriate course of action when the Muthu Group came to know that Nafan and Lesaffre were not going to honour their so-called commitments under MOU was to file a civil suit or approach the Board for necessary relief. The question is whether the Muthu Group could have done it unilaterally without notice. There could be various angles, such as, the MOU is valid, legal and binding, and it amounts to a transfer notice; the MOU is not legal, valid and bindin .....

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een agitated before me at some length, I am of the opinion that it is the last facet that should be kept at the forefront of the discussion. 58. Mr. De'Vitre submitted that the finding that the MOU is valid and binding could not have been made, as the Board does not have jurisdiction to do so. The MOU was a disputed document and at the most an arrangement amongst the shareholders. He submitted that the Board did not have any power to grant declaration of the validity, more particularly, sinc .....

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. It was then submitted that, even assuming the Board had jurisdiction, it could not have been directed Nafan and Lesaffre to sell their shares. He submitted that the MOU mentioned a fair valuation and withdrawal of proceedings. The valuation was not a fair valuation and Muthu Group had not taken immediate steps to withdraw the contempt proceedings. He submitted that Nafan did not ask for invalidation of the MOU, but it was put-forth as a defence by Muthu Group, and it is Muthu Group who is aski .....

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y were entitled to set aside the transfer of shares on the allegation that the MOU was not binding. In view of this assertion, the Board had to consider whether the MOU was nonexistent as alleged and whether Muthu Group was justified on relying on the MOU. He submitted that the suit was filed only to save the limitation and as a precautionary measure and there will be no contrary reliefs. Mr.Dwarkadas submitted that since Nafan had invoked the power under Section 402, it was open for the Board t .....

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ng relief to enforce a contract. He submitted in the present case Nafan having entered into a valid and binding MOU has filed a petition to resile from the same. He further submitted that no party should be allowed to resile from a contract. It was open to the Board to consider the MOU as one of the relevant circumstances. He relied upon decision in the case of Probir Kumar Misra Vs Ramani Ramaswamy (2010) 104 SCL 174 (Mad), rendered by Madras High Court, to contend that a MOU can be considered .....

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rejoinder by Nafan and the additional affidavits. Mr. Dwarkadas referred to various documents on record in detail seeking to demonstrate that the MOU was not an isolated piece of document but there were series of meetings and exchange of emails, fax messages that led to execution of the MOU. He submitted that the MOU is a clear and binding contract and if Nafan had to wriggle out the same on the ground of fraud and inducement, the heavy burden was upon it to demonstrate the same. The MOU fulfil .....

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lly aware of the MOU and did not raise any objection, which would have been the first reaction if Laloum had signed a contract without their authority. He submitted that the entire conduct of Nafan in respect of this MOU is fraudulent. Mr.Dwarkadas therefore, submitted that the primary object of Nafan to file the petition was to resile from the MOU and the Board has correctly rejected the submission that MOU is not a binding document. 60. I have considered the arguments. The Board has rendered a .....

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e terms of contract it signs. The Board distinguished the decision cited by Nafan to hold that the Board can take note of intention of parties and pass appropriate orders. The Board also took note of the argument on behalf of Muthu group that the agreement has already been implemented and therefore, question of enforceability does not arise. 61. The Board has culled out an intention of the parties from the MOU. It concluded that Nafan, with full knowledge and free will, had entered into a MOU fo .....

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in law does not have power to grant specific performance of a contract between two groups of shareholders. The powers of Board under the Act are to be exercised in respect of the affairs of the company and property and not to decide the disputes amongst shareholders. The powers are conferred to correct oppressive conduct and mismanagement and not to decide civil disputes. Whether Lesaffre agreed to sell its shareholdings to Muthu group is a dispute between two groups of shareholders. In the Ape .....

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ana), which have also been followed by the High Courts. 63. If the entire correspondence of the record is perused one thing is clear that when the Board meetings took place in May 2009 to transfer the shareholding of Nafan, Nafan had made it clear that it is not abiding by the MOU. When Muthu sent an email on 30 April 2009, referring to the MOU, Ms. Corinne Wisnieswaski had clearly replied on 3 May 2009 that Nafan cannot even think considering the price, which was obviously not calculated on cor .....

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amount of consideration for transfer was not fixed in the MOU. It was to be arrived at upon a fair valuation. Once Nafan insisted that the valuation was not fair, the consideration could not be termed as fixed. A clear civil dispute therefore arose even assuming that the MOU was binding. Muthu was fully aware that there was a dispute as regards the valuation and that Nafan was not ready for the valuation. In spite of this position, meeting was held without notice and shares were transferred. 64 .....

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r shareholding was transferred. Nafan had stated in the petition that, if MOU were relied upon then would reserve their right to contest the same. It is the case of Muthu Group that MOU was binding and it is wrongly been resiled from and the MOU constituted a transfer notice. The foundation of the case of Muthu Group is the MOU and it is their main defence to the allegations of oppression. According to Nafan, MOU was at the most a proposal to take the transaction forward and Muthu Group was atte .....

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itzerland could not have been held against Nafan. The legal effect of MOU is already being agitated in the Civil Court where the Court will decide its legality and validity. 66. The question therefore, arises is whether it could be said that the MOU was such a clear unequivocal document that it presented an open and shut case, and that a clear intention of Nafan to act on the MOU followed therefrom and all that had to be done was to only complete the procedural formalities of transfer. In given .....

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d at that stage a grievance is being made by Nafan. 67. The question therefore is whether Nafan and Lesaffre had no case at all to dispute that they are not bound by the MOU and a clear intention emerged. Thus if they have a prima facie case that the MOU was not to be acted upon and that theory is reasonably possible then appropriate course of action for Muthu group would be to pursue their rights in the Civil Court. 68. I have already concluded that there is no suppression on the part of Nafan .....

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it forward. According to both Laloum and Mr.Lesaffre, this was at the best, a rough proposal to end the dispute. Mr.Lesaffre has put on record that when they came to know about the valuation they immediately concluded that the price indicated in the MOU was so ridiculous that the proposal could not be taken forward. Muthu had also not withdrawn the contempt proceedings. Laloum has stated that Lesaffre being a family business, the consent of family members ought to have been taken. 69. Looking a .....

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in normal course of business to transfer shares, it could not be said that an unquestionable intention flowed from the MOU. Therefore, the Board even though it came to the conclusion that Laloum had the authority to sign the contract did not consider that fair valuation was one of the ingredients and after coming to know that valuation was not fair, Nafan and Lesaffre had no interest in taking the MOU forward. Therefore, the Board fell in clear error to attribute an unquestionable intention on t .....

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the price. Before the drafts are finalized, the parties could back out for legitimate or otherwise reasons. If any steps were to be taken before completion of the documents, they would be discussed specifically. This would be the practice followed in routine business transactions. In the present case, entire 51% shareholding of Nafan is sought to be transferred. The value of the same clearly exceeds millions of Euros. It is difficult to believe prima facie that Muthu and Laloum would simply writ .....

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ess groups of this level ,dealing with such high stakes, will conclude the transaction. The theory putforth by Laloum that MOU was just document to explore possibility of further negotiations appears to be more in tune with normal course of business and therefore cannot be rejected outright; more importantly, no unquestionable intention can be culled out from it. Laloum also stated that final decision would not be taken unless Lesaffre family decides. This also cannot be a fanciful version, as L .....

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eement yet it will enter into disputed areas of intention of parties in respect of the said contract adjudicated as to whether intention exists and then give effect to the intention. This is not to lay down an absolute proposition then even in a case that all ingredients of contract are satisfied only procedural formalities remain, both parties take all possible steps to see that the contract is to be executed even in such circumstances the Board cannot take entry of unquestionable intention. Th .....

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acie tenable, it was not open for the Board to dissect the MOU, take out the intention and use while passing an order under section 402, 403 of the Act. 72. Mr.Dwarkadas made a grievance that Nafan was changing their stand regarding the status of the MOU at every stage. Firstly, they did not accept its validity and then when they had to accept it, they called it a neutral document. I am not impressed with this submission. To my mind, the MOU is nothing but a red herring to divert the controversy .....

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e Courts and at the stage of rejoinder arguments that the contempt petition was withdrawn. The Board has therefore, fallen in clear error to hold that immediately after signing the MOU the contempt proceedings were withdrawn. A stand is taken on behalf of Muthu group that since the transfer of shares were being agitated in the Board issue of withdrawal of contempt proceedings had become irrelevant. Therefore, even assuming Laloum signed the MOU and Laloum had an authority to sign the MOU it is n .....

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as not ready to act as per the MOU. It is with this knowledge that MOU is taken forward by Muthu. Though it is contended by Mr.Dwarkadas that in spite of sending the MOU there was no response and it must be presumed that Nafan and Lesaffre had no objection, it is too naive to believe that in spite of the acrimony that existed at that point of time between the parties, Muthu would innocently believe that Nafan and Lesaffre were ready to go by the valuation prepared by M/s Sharp & Tannan and a .....

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e MOU can be termed as so absurd that they can be ordered to sell out their shares based on the socalled intention under the MOU. Furthermore, the crux of the matter is the manner in which the meetings took place. Therefore, we now come to the crucial aspect of the case that is the Board meetings. Nature of Board meetings 74. The disputed Board meetings were held on 29 January 2009, 23 May 2009 and 25 May 2009. It will be necessary to reproduce the minutes as they have been placed on record. MIN .....

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he Minutes of the previous Board Meeting held on 17th May, 2009 were noted, confirmed and signed by the Chairman. 4 PURCHASE BY THE MUTHU GROUP OF THE SHARES IN THE COMPANY HELD BY LESAFFRE GROUP THROUGH NAFAN B. V. PURSUANT TO THE MOU DATED 23RD JANUARY 2009 RECEIPT OF WRITTEN OPINION FROM MR. SHANTI BHUSHAN SENIOR ADVOCATE The Chairman referred to the discussions at the Board Meeting held on 17th May 2009 wherein it was resolved to seek expert legal advice on the purchase by the Muthu Group of .....

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larly, the Articles of Association….. In these circumstances, the Company is required to act in terms of Articles 18 by causing the name of Mr. A. M. Muthiah of the Muthu Group to be entered in the Register as the owner of these 51% shares and also to hold the payment by Mr. A. M. Muthiah of the Muthu Group in Trust for the Lesaffre Group for payment to the Lesaffre Group and the receipt of the Company for the purchase money shall be good discharge to the purchasing member and after his n .....

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ATED 23RD JANUARY 2009 OPENING OF CURRENT ACCOUNT TO HOLD THE PURCHASE MONEY The chairman informed the Board that the Company is already having a Current Account with the Axis Bank Ltd., Chembur Branch, Mumbai for its regular operations. However, it is necessary to open a separate Current Account under the name and style of "SAF YEAST CO. PVT. LTD. SHARES ACCOUNT", in addition the existing current account for the exclusive purpose of holding in Trust, for and on behalf of Nafan B.V., t .....

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Account singly". "RESOLVED FURTHER THAT Mr. A Muthu, Mr. A. M. Arunachalam, Mr. A. M. Muthiah and Mr. P. B. Thatte, Directors of the Company and Mr. K. K.N. Swamy, an Officer of the Company be and hereby authorized to draw, accept and endorese, cheques, promissory notes and other negotiable instruments singly". "RESOLVED FURTHER THAT Mr. A. Muthu, Managing Director of the Company or Mr. A. M. Muthiah, Director of the Company of Mr. A. M. Muthiah, Director fothe Company be an .....

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ROUP THROUGH NAFAN B. V. PURSUANT TO THE MOU DATED 23RD JANUARY 2009 AUTHORIZATION OF PERSON FOR EXECUTION OF NECESSARY TRANSFER DOCUMENTS The Chairman informed the Board that as per the provisions of the Articles of Association and in particular Article 18, it is necessary to authorize a person to execute the share Transfer Forms / instrument of Transfer in the name of the proposing Transferor Nafan B.V. in favor of Mr. A. M. Muthiah, Purchasing Member of the 80,722 Shares from Nafan B. V. Afte .....

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l gains from Mr. A. M. Muthiah. "RESOLVED FURTHER THAT Mr. A. Muthu, Managing Director be and is hereby authorized to inform Mr. K. Narasimhan in this regard. Mr. A. M. Muthiah being interested in the matter, disclosed his interest and did not participate in the discussions. 8. Vote of Thanks There being no other Business, the Meeting terminated with vote of thanks to the Chair. CHAIRMAN * * * * * MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF SAF YEAST COMPANY PRIVATE LIMITED HELD ON .....

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gned by the Chairman. 4 PURCHASE BY THE MUTHU GROUP OF THE SHARES IN THE COMPANY HELD BY LESAFFRE GROUP THROUGH NAFAN B. V. PURSUANT TO THE MOU DATED 23RD JANUARY 2009 RECEIPT OF THE PURCHASE MONEY FROM MR.A.M.MUTHIAH PURSUANT TO RECEIPT OF WRITTEN OPINION FROM MR.SHANTI BHUSHAN SENIOR ADVOCATE The Chairman referred to the resolution passed pursuant to the receipt of the written opinion from Mr. Shanthi Bhushan, Senior Advocate, at the Board Meeting held on 23rd May, 2009 to accept the purchase .....

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y's Account at Axis Bank Ltd., Chembur Branch and Mr. A. M. Muthiah has requested the Company to effect the Transfer of the 80,772 Shares from Nafan B.V. in his favour and forward the relevant share certificates. The Chairman also tabled before the Board an Advice dated 25.5.2009 received by the Company from the Axis Bank Ltd., Chembur Branch that an amount of ₹ 27,49,38,822/has been credited to the Company's Account from Mr. A. M. Muthiah. After discussion, it was: "RESOLVED .....

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/being the purchase money / consideration for the purchase of 80,772 Shares from Nafan B. V., net of TDS, be issued by the Company to Mr. A. M. Muthiah". "RESOLVED FURTHER THAT the purchase money of ₹ 27,49,38,822/be and is hereby transferred from the Company's Current Account with Axis Bank Ltd., Chembur Branch to the designated Account "SAF YEAST CO. PVT. LTD. SHARES ACCOUNT" with Axis Bank Ltd., Chembur Branch till repatriation to Nafan B. V." Mr. A. M. Muth .....

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ares held by Nafan B.V. of Lesaffre Group in view of Mr. A. Laloum, Lesaffre's nominee Director having verbally informed Mr. A. Muthu sometime around the 20th February, 2009 that Nafan B.V. had lost the original Share Certificates and were unable to locate the same. The Board discussed in detail all the aspects relating to the issuance of duplicate share certificates in lieu of the original Share Certificates that has been informed to be lost by Nafan B. V. The Board having not found any adv .....

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5001 105000 10000 22 105001 113772 8772 "RESOLVED FURTHER THAT duplicate Share Certificates be and are hereby issued in lieu of the lost and subsequently cancelled Share Certificates, as detailed below: Original Share Certificate No (Cancelled) Duplicate Share Certificate No Distinctive No. of Shares From To 6 35 9001 15000 6000 7 36 15001 20000 5000 14 37 36501 47500 11000 17 38 55001 65000 10000 18 39 65001 75000 10000 19 40 75001 85000 10000 20 41 85001 95000 10000 21 42 95001 105000 100 .....

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e Chairman inform the Board that the duplicate Share Certificate need to be prepared as per law before proceeding with the transfer and hence requested the Board to consider an adjournment of the meeting by forty five minutes. After discussion, it was: "RESOLVED FURTHER the meeting be adjourned and reassemble at 5.15 p.m. to continue with the remaining business, the time now being about 4.30 p.m. Chairman" * * * * * 75. The Board has concluded that the meetings held on 29 January 2009, .....

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a of the meeting. Reliance was placed on clause 7.10.b of the Participation agreement dated 22 March 1991 and clause 20.01. He submitted that the Participation agreement was acted upon and cited instances in respect of the same which have been reproduced in para 181 of the impugned order. Mr. De'Vitre submitted that Muthu was under obligation to incorporate the Participation agreement in Articles of Association; however, Muthu failed to do so. He relied upon decisions in the case of Ebrahimi .....

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y Mr. De'Vitre is in conflict with the provisions of Articles of Association. He submitted that Article 7.10.b of the Participation agreement is not included in clause 3 of the proposed amendment. Mr.Dwarkadas submitted that meetings of the Board of directors were always conducted in accordance with the Articles of Association and notices were issued and quorum was maintained as per the articles. It was contended by Mr.Dwarkadas that the Participation agreement provides for retirement by rot .....

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(2012) 6 Supreme Court Cases 613, to contend that a shareholder agreement is a private contract between shareholders compared to Articles of Association, which is a public document, and the Articles of Association did not contemplate any notice to the Directors outside India. Mr.Dwarkadas contended that there was a consistent past practice of not giving notice even to nominee Directors of Nafan, which was continued for the meetings in question. No alternate directors were appointed and notice wa .....

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Board has rendered a finding of fact that the meeting in fact was held and the minutes were not fabricated. The Board has concluded that the charge of fabrication is akin to fraud and heavy burden lies upon the party to make such allegation. It is the contention of Mr.De' Vitre that the minutes inter-se show complete inconsistencies. It is stated that no individual or any person of Muthu group is identified as purchaser. He submitted that decision taken in the minutes were not informed to N .....

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act of oppression and/or mismanagement, but from this omission itself, it cannot be stated that the minutes themselves were fabricated. The Board has taken a view that grounds provided by Nafan were not sufficient enough to prove the charge of fabrication which required high degree of proof. The finding of the Board after scrutinising the evidence and considering the burden of proof cannot be termed as perverse to be interfered with under Section 10F of the Act. What is legal effect of the meeti .....

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e of notice is out of fairness than out of legality, and whether probity required that the notice is to be given or not. In the case of Kamal Kumar Dutta v/s Ruby General Hospital Ltd. (supra), the Apex Court emphasized the need to maintain utmost good faith. The Apex Court observed as under: "32. Following the English cases referred to in Kalinga Tubes Ltd., similarly in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., their Lordships concluded as follows: Th .....

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at notice not less than 21 days was not given by personal service or service by post and on facts it was found that requirement of Section 189 of the Act was not complied with. Under Section 53 of the Act, service of notice of the Board's meeting by post and by certificate of posting were not found to be reliable when the relationship between the parties was already bitter. In this case, on evidence it was found that the entries in the register were not sufficient to establish the service of .....

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by mala fide act of the company or by its Board of Directors, such act must ordinarily be considered to be an act of oppression against the said shareholder and what relief should be granted would depend on the facts of the case. The facts of the present case at hand are almost akin to the case referred to above. Allotment of additional shares to the Managing Director was found to be sole objective to gain control by becoming majority shareholder. That allotment was found to be mala fide and not .....

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t include an isolated incident; there must be a continuing course of oppressive conduct, which must be continuing at the date of the hearing of the petition. Further, the conduct must be such as to be oppressive to the petitioner in his capacity as a member; whatever remedies he may have in respect of exclusion from the company's business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression. On the other hand, these provisions are not .....

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o sell shares in the company although he may have information, which is not available to that other, and the contract cannot be upset even if the Director knew of some fact, which made the offer an attractive proposition. So in Percival v. Wright a person who had approached a Director and sold him shares in the company, afterwards, upon discovering that the Director had known at the time of the contract that negotiations were on foot for the purchase by an outsider of all the shares in the compa .....

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in directing and managing the company's affairs, acquiring or disposing of assets on the company's behalf, entering into transactions on its behalf, or in recommending the adoption by members of proposals made to them collectively. If the Directors mismanage the company's affairs, they incur liability to pay damages or compensation to the company or to make restitution to it, but individual members cannot recover compensation for the loss they have respectively suffered by the conse .....

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ve discussions is that the Directors are in a position of a trust. They must confirm to the probity and their conduct should be above suspicion. (emphasis supplied) 79. With this above emphasized dicta of the Apex Court, I will proceed to consider the rival contentions. The Board in Paragraph no 3.7 of the impugned order has reproduced the relevant clauses of the Participation Agreement. First, the argument regarding the notice based on the Participation agreement and the Act. The Board has foun .....

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formed in August 1981 and it was after 10 years that the participation agreement was executed. The relevant clause of the Participation Agreement is as under: "(h). In accordance with Article 7.10(b) at least 14 days notice was required for every meeting of the Board of Directors to be given in writing to every director, including directors outside India and to their alternates, if any, in India along with an agenda for the meeting." 80. The Board has held that the Participation Agreem .....

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convene a meeting of the Directors. A director who is at any time not in India shall not during such time be entitled to notice of any such meeting. Section 286 of the Act: 286. Notice of meetings. Section 286: Notice of Meetings (1) Notice of every meeting of the Board of directors of a company shall be given in writing to every director for the time being in India, and at his usual address in India to every other director. (2) Every officer of the company whose duty it is to give notice as afo .....

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outside India. The articles are the one agreed by the parties and they will have to be read in that manner. It is inconceivable that the parties meant that Muthu Group could do what they want; take decisions of any magnitude like shutting down the plants, without notices to Nafan. The articles regulating notice of meetings cannot be stretched to an absurd limit. The Participation agreement therefore, only provides an additional methodology rooted in fairness concerning the notice to the directo .....

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er: "261. Shareholders' Agreement (for short SHA) is essentially a contract between some or all other shareholders in a company, the purpose of which is to confer rights and impose obligations over and above those provided by the Company Law. SHA is a private contract between the shareholders compared to Articles of Association of the Company, which is a public document. Being a private document it binds parties thereof and not the other remaining shareholders in the company. Advantage .....

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Court in V. B. Rangaraj v. V. B. Gopalakrishnan and Ors. (1992) 1 SCC 160. In that case, an agreement was entered into between shareholders of a private company wherein a restriction was imposed on a living member of the company to transfer his shares only to a member of his own branch of the family, such restrictions were, however, not envisaged or provided for within the Articles of Association. This Court has taken the view that provisions of the Shareholders' Agreement imposing restrict .....

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er into agreements as to how they should exercise voting rights attached to their shares. 264. Shareholders can enter into any agreement in the best interest of the company, but the only thing is that the provisions in the SHA shall not go contrary to the Articles of Association. The essential purpose of the SHA is to make provisions for proper and effective internal management of the company. It can visualize the best interest of the company on diverse issues and can also find different ways no .....

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s. A breach of SHA which does not breach the Articles of Association is a valid corporate action but, as we have already indicated, the parties aggrieved can get remedies under the general law of the land for any breach of that agreement. 266. SHA also provides for matters such as restriction of transfer of shares i.e. Right of First Refusal (ROFR), Right of First Offer (ROFO), Drag-Along Rights (DARs) and TagAlong Rights (TARs), Preemption Rights, Call option, Put option, Subscription option et .....

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a Shareholder agreement can never be contrary to the Act as well as Articles of Association. However, I do not think an elaborate discussion is necessary, as the clause, which gives an additional safeguard of notice, is not in conflict with the Act and the Articles of Association. The articles do not say under no circumstances notice need not be given to those residing outside India. 82. Turning now to the argument of Mr.Dwarkadas that the Participation agreement was not acted upon. On the othe .....

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the paid up capital; in doing so, the Parties acted as per Clause 5.3 of the Participation Agreement. (ii) The AOA mentions that Mr. Muthu would be the Managing Director of R1 for a period of 15 years only (Article 48 of AOA @ page 79 of Volume 1), acting under Article 7.6 of the Participation Agreement page 108 of Volume 1), Muthu has continued as the Managing Director of R1 even after the expiry of 15 years; (iii) After, the retirement Mr. B.B. Paymaster, as chairman only the Respondent No.8/ .....

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g dated April 2005 held in France; (v) Respondent No.8/Petitioner provided technical and financial assistance to the R1; (vi) Pursuant to the 06 June 1981 Agreement, the Respondent Company No.1 was incorporated with the name "Saf Yeast" Clause IV(2) of the first agreement dated 06 June 1981 provided that " ... At any time, should Lesaffre wish to acquire further shares in SAF Yeast Co., Mr. Muthu is prepared to sell to Lesaffre or any other individual or legal entity Lesaffre migh .....

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ccordance with the 6 June 1981 Agreement and the Participation Agreement of 22 March 1981. All parties, including the Company, clearly acted on the Participation Agreement. Mr.Dwarkadas commented on each of these grounds mentioned by the Board and contended that these findings of fact are erroneous. He contended that no efforts were ever made to modify the Articles of Association. The increase in shareholding was based on an understanding prior to Participation Agreement. Muthu was also Managing .....

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ssertions of Mr.Dwarkadas and contended that the Participation Agreement was acted upon. He submitted that as per the agreement when income of the Company increased and the shareholding, additional shares were offered. Muthu continued beyond the expiry of 15 years. Though Articles of Association did not specify that meetings to be held outside India, they were so held under Article 7.10(a) of Participation Agreement and pointed out the circumstances in which steps were taken pursuant to Particip .....

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remain only a dead letter. The Muthu group knew that the Participation agreement required notice to the directors outside India. The stand of Muthu group that neither Articles of Association nor the Act required that notice be given, apart from not being tenable, is not reasonable. The argument that in the past no such notices were given is also not tenable. The decision of exit of one group and bringing the association, which existed for decades to an end, was one of the most important decisio .....

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ess, the notice ought to have been given. It is the most unfair stand to be taken that the Articles of Association were not amended to include Participation agreement even though it was acted upon in same manner, and therefore, no notice before transfer of shareholding was required to be given. Such argument defies all notions of fairness. 85. The Board has rightly emphasized that merely because Participation Agreement did not legally became part of the Articles of Association, parties knew its .....

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ne by Muthu. When both the groups coexisted for more than 20 years and the meetings were to determine the exit of one group, that too in acrimonious circumstances, notice was required. Neither in the Articles of Association nor in Section 286 nor in any decision dealing with the similar factual situation at hand, has it been stated that it is not necessary to give notice in such circumstances. The findings of the Company Law Board that the meetings of 29 January 2009, 23 May 2009 and 25 May 2009 .....

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not oppressive as it was as per MOU. This finding is not correct. The meeting of 29 January 2009 cannot be read in isolation. The series of acts of Muthu constituted ground of oppressive. It was a larger scheme of things. If notice had been issued, Nafan would have either placed their version regarding MOU or agreed on some basic principles of valuation. Muthu seem to have in hurry to call for valuation as the events unfolded, which have been discussed subsequently, such as, the role of Sharp &a .....

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aw Board on that count are not perverse, except the modification above. However, the main argument advanced by the Muthu group is that the MOU was a transfer notice and transfer was effected as per the Articles. Question then arises is whether the MOU constituted a transfer notice. The learned counsel advanced the detailed submissions on the interpretation of the articles to demonstrate that the MOU can be treated as a transfer notice. There was also a question as to whether the transfer between .....

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e shall be transferred to a person who is not a member so long as any member, or any person selected by the Directors as one whom it is desirable in the interest of the Company to admit to membership is willing to purchase the same at the fair value mentioned in Article (15) hereof. 15 The person proposing to transfer any shares (hereinafter called "the proposing transferor") shall give notice in writing (hereinafter called "the transfer notice"to the Company that he desires .....

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he transfer notice shall not be revocable except with the sanction of the Directors. 16 If the Company shall, within the space of sixty days after being served with such notice find a member or person selected as aforesaid willing to purchase the share (hereinafter called "the purchasing member") and shall give notice thereof to the proposing transferor, he shall be bound upon payment of the fair value to transfer the shares to the purchasing member. 17 In case any difference arises be .....

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er of the shares, and shall hold the purchasing money in trust for the proposing transferor. The receipt of the Company for the purchase money shall be good discharge to the purchasing member, and after his name is entered in the Register in purported exercise of the aforesaid power, the validity of the proceedings shall not be questioned by any person. The Company may authorise any person to execute the necessary transfer document in the name of the proposing transferor. 19 If the Company shall .....

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all not be bound to give any reason for such refusal and in particular may so decline in respect of shares upon which the Company has a lien. These Articles shall apply notwithstanding that the proposed transferee may be already a member'. Transfer of shares in a company are governed by Section 108 of the Act. Section 108 (1) and (1A) of the Act which read as follows: "108. (1) A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrumen .....

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amp required for an instrument of transfer, it is proved to the satisfaction of the Board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the Board may think fit: Provided further that nothing in this section shall prejudice any power of the company to register as shareholder or debenture holder any person to whom the right to any share .....

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f transfer in the prescribed form with the date of such presentation stamped or otherwise endorsed thereon shall, after it is executed by or on behalf of the transferor and the transferee and completed in all other respects, be delivered to the company,- (i) in the case of shares dealt in or quoted on a re-cognised stock exchange, at any time before the date on which the register of members is closed, in accordance with law, for the first time after the date of the presentation of the prescribed .....

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t it must be a specific notice of the member desiring to transfer the shares and it must appoint a Company as the agent. The Board has held that the MOU did not satisfy these requirements. 90. Mr.Dwarkadas assailed the finding of the Board on the Articles of Association. Mr.Dwarkadas contended that Article 14, 15, 17 and 22 are applicable to transfer of shares between members, as is contemplated under the MOU. According to him, the SAF Yeast was validly appointed as an agent of Nafan, the propos .....

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sing to transfer any shares and article 15 applies even to a member-to-member transfer. He submitted that the Articles 14 to 22 would have to be read harmoniously. According to Mr.Dwarkadas Article 16 has no application in the case of transfer between members inter-se. As regards Article 17 read with Article 15, according to Mr.Dwarkadas it would be in a case where there is a disagreement of the price of shares to be transferred. Article 19 according to him applies only where the proposed transf .....

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first part of Article 14 it has to read with 15, 17, 18, and 22. Mr.Dwarkadas placed reliance on the decision of Holmes and another v Keyas and others (1958) 2 W.L.R.772, rendered by Court of Appeal in England and decision of the Malaysian Court of Appeal in Lo Mu Sen & Sons (SDN) BHD & ANOR (2002) 2 CLJ 184. 91. Mr.Khambatta and Mr.De'Vitre submitted that unlike a public Company the transfer of shares in a private limited company can be subjected to restrictions, but there is no pr .....

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AIR 1992 SC 453. It was argued that a private company might impose restrictions on the transferability only if the shareholder is put to express notice of the restrictions in the Articles, in the language of sufficient clarity. Referring the decision in the cases of Chiranji Lal Jasrasaria v. Mahabir Dhelia (AIR)1996 Assam P48) and Shyamdhan Chakraborty v. Presidency Nursing Homes Pvt. Ltd. (1975) ILR 2 Cal. Page 219, it was submitted that restrictions on transferability in the Articles could no .....

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(CLB), and Dhanraj Mills Pvt. Ltd. and anr. v/s Global Trust Bank Ltd. & ors. (2003) 105 BOMLR 609. It was contended that Article 14 gives unfettered right to transfer the share to another member and the second part of Article 14 refers to restriction by way of preemptive right in favour of the members of the Company. According to the learned counsel, prohibition against transfer operates only in respect of a proposed transfer to a nonmember and it is for that reason that the Article subject .....

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t, in any case, the MOU could not be a transfer notice, as Article 15 requires a notice to be given by a proposed transferor to the Company and expressly authorizing the Company as proposing transferor's agent and without any such authority, the transfer is void. It was also submitted that any document by which desire to transfer share is envisaged does not become a transfer notice. Article 15 must constitute the Company as an agent and the company cannot infer the intention. Reliance is pla .....

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cles 15 and 18 are applicable. Article 14 is reproduced again for the sake of convenience. '14. A share may be transferred by a member or other person entitled to transfer to any member or other person entitled to transfer to any member selected by the transferor but save as aforesaid and save as provided by these Articles, no share shall be transferred to a person who is not a member so long as any member, or any person selected by the Directors as one whom it is desirable in the interest o .....

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r person is entitled to transfer to any member selected by the transferor. This part covers a contingency of a transfer of share by a member entitled to transfer to any other member. In case of a public limited company listed on the stock exchange, the shares are generally freely transferable. In a private limited company share transfers can have restrictions. However, normally there is no absolute bar to transfer the shares. As a broad proposition, generally law does not recognize an embargo on .....

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closed held Company to keep them that way, discouraging the outsiders. The Article 15, 16, 17 and 18 thereafter lay down a methodology where the Company gets involved for transfer of shares and steps in as an agent. There is no logic for going through the entire process of making the Company an agent if the share transfer is between the members. The Articles are drafted by the businesspersons to govern themselves. When one member decides to transfer the shares to another, they would inform the C .....

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routine manner, any reasonable reader would read them as for member-to-member transfer, there is no question of making the Company agent, fair valuation etc. The articles cannot be read in absurd manner or only because reading them in this manner in retrospect justifies actions of Muthu group. The finding of the Board that clause 14 is a distinct scheme did not subject to restrictions in the other articles, is a possible view to be taken, and is not perverse. 94. Furthermore, even assuming Artic .....

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upon between the proposing transferor and the purchasing member and in default of such agreement to be fixed by the Auditors of the Company provided in Article 17 hereof. The transfer notice may include several shares and in such case shall operate as if it were a separate notice in respect of each share. The transfer notice shall not be revocable except with the sanction of the Directors.' Article 15 states that any person proposing to transfer his shares shall give notice in writing to the .....

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9;Notice shall constitute' means notice 'must' constitute the company as an agent. There cannot be a notice by implication, because it will lead to uncertainty and confusion. The notice will have to be clear, and addressed to the Company to constitute an agent. 95. Even assuming that even this was done, the Article 16 mandates the Company, within period of 60 days after having been served with a notice to find a member or person selected to purchase the shares and give notice to prop .....

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the Board that Article 22 will not cover the first part of the Article 14 to the scheme of other articles is correct. To accept this argument will be artificially stretching the meaning of the article. 97. The Articles are not to be read like a statute. Restrictions on transfer of shares from one member to another have to be specific (see Greenhalg (supra) and V.B.Rangaraj (supra). Restrictions have to be clear to the concerned members. Further, such restrictions have to be strictly construed. .....

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nesspersons to regulate their affairs have framed the Articles. If they wanted to place restrictions on themselves for inter-se transactions by providing a methodology to give notice to the Company to appoint a valuer and fixed fair value, they would have been so specifically provided. Such interpretation cannot be foisted because it validates the acts of one group. The interpretation placed on these articles has to be seen in the context of charge of oppression of unilaterally taking MOU as not .....

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part of Article 14 is regarding member-to-member transfer is a distinct provision, and not subject to other restrictions, cannot be termed as perverse. 98. This view also finds support in the observation of the Apex Court in the case of Claude Lila Parulekar Vs Sakal Papers (P) Ltd. & ors. (2005) 11 SCC 73. In this case, the Apex Court analyzed the Articles of Association of Sakal papers, which was put in issue. The Apex Court held that there were four categories in the hierarchy - first: th .....

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l be bound to offer the same either to Dr. N.B. Parulekar or to Madame Shanta Parulekar or such other person or persons as Dr. N. B. Parulekar or Madame Shanta Parulekar may direct or may nominate and in which event the transferee or transferees shall pay such price as may be certified by the Auditors of the Company." 58. Subject to Cl.57A no shares shall be transferred so long as any member or any person selected by the Directors as one to whom it is desirable in the interest of the Compan .....

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d in default of such agreement to be fixed by the Auditors of the Company. The notice may include several shares and in such case shall operate as if it were a separate notice in respect of each share. The notice shall not be revocable except with the Sanction of the Directors. 60. If the Directors, shall, within the space of 30 days after being served with the Transfer Notice, find a purchasing member or a person selected as aforesaid willing to purchase the share and shall give notice thereof .....

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bitrators and the Indian Arbitration Act 1940 shall not apply. The Auditor shall be considered to be acting as an expert. 62. If in case the proposing transferor, after having become bound as aforesaid, makes default in transferring the share, the Directors may receive the purchase money and shall there upon cause the name of the purchaser to be entered in the Register as the holder of the share and shall hold the purchase money in trust for the Transferor. The Directors may appoint any person t .....

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said willing to purchase the shares or any of them and give notice in manner aforesaid, the transferor shall at any time within 30 days thereafter be at liberty subject to Article thereof to sell and transfer the shares to any person and at any price. 64. Every share specified in the Notice given pursuant to the Article hereof shall be offered to the members in such order as shall be determined by the Directors and in such manner as the Directors think fit. If no member is ready and willing to t .....

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e hierarchy is any member who is willing to purchase the shares at a fair value. This follows from a reading of Article with Article The third category is of any person or persons selected by the Directors as being desirable in the interest of the company to admit to membership. The last category is the person to whom the transferor may choose to sell the shares. As long as there is any person in a higher category, there is no question of sale or purchase by a person in a lower category. Thus fo .....

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t a price certified by the company's Auditors, such person may choose to exercise the right as an ordinary member and purchase the share at a fair value or the transferor may choose to sell the shares to such person under Article 63. 24.2 In the case of a transfer to a person in the 2nd and 3rd categories of putative purchasers, the Directors are appointed agents of the transferor. The notice of transfer is required to constitute the Directors as the transferor's agents. This notice is d .....

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ving of this notice must necessarily be subsequent to the failure of Article 57A for whatever reason, as the Directors are required to find a willing person either in the 2nd and if not the 3rd category within a period of 30 days. There is no time limit specified for the completion of the preemptive transfer under Article 57A. Therefore unless the transferor gives a separate notice of the failure of Article 57A how would a willing member know whether he/she has a right or when the period fixed f .....

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s. It follows that a notice issued prior to the preemptor exercising or failing to exercise the right under Article 57A would not be in keeping with Articles and 60 as this would make the period of 30 days uncertain if not illusory. Thus the notice by the transferor under Article must succeed the factual failure of Article 57A and notice, if any, under Article must follow the failure of Article. 24.3. Assuming there is a willing purchaser under Article there is no time limit fixed either for the .....

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agents. This decision was sought to be distinguished by Mr.Dwarkadas on the ground that the right of preemption was conferred on specific persons and there was no Article similar to Article 22 in that case. As regards Article 22, I have already held that in the scheme of the present Articles, it cannot be brought in to cover member-to-member transfer. Even though right of preemption in the Articles in Sakal Papers (supra) was given to an identifiable class, in the present case also the transfer .....

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s it is rightly pointed out by Mr.De'Vitre in the case before the Malaysian Court, the Company was a family Company and the founder of the Company, father had wished that shares will be held by the children in a particular proportion and it is in that background that the factum of transfer was considered. 99. Next question thereafter is, even assuming Article 15 and the scheme as is sought to be interpreted applies, whether this MOU constituted a transfer notice and the agency. According to .....

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ed that any document which shows that there is an intention to sell can constitute a transfer notice. Reliance was placed on the decision of the English Courts in the case of Lyle & Scott Ltd. Vs Scott's Trustees (supra), Mannai Investments Co. Vs.Eagle Star Life Assurance Co. Ltd. [1997] AC 749, and Re Ringtower Holdings plc [1989] 5 B.C.C. 82. It was submitted that there is no specific need to address any separate notice to the Company. It was submitted that Laloum was fully aware that .....

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the articles as contended apply, whether MOU could be treated as a transfer notice. 101. In Sakal papers (supra) in para 24.2, the Apex Court noted that the notice of transfer is required to constitute the directors as transferor agents. The Apex Court noted in paragraph 44 that the notice issued did not constitute the Directors as a transferor's agents. "44. The notices issued in respect of the 93 and 3417 shares were not in keeping with the Articles as far as Articles to 63 were conc .....

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to the 2nd and 3rd category of persons if any. There was also no question of the transferor invoking Article bypassing the right of a willing member or selected, if any, to negotiate a fair price." (emphasis supplied) The above-emphasized portion would show that unless a specific notice is issued, there was no question of any agency being created. The Apex Court also held that the directors must be specifically constituted as an agent. Thus, Apex Court laid down that the transfer notice it .....

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hough what Muthu signed was regarding his shareholding, will constitute a notice to the Company. Further MOU does not state a word of expressly authorising the Company as an agent. Such specific authorization is required and is totally missing in the MOU. In the present case, not only there is no separate and specific notice, but also the fact that the MOU was being treated as notice and was placed before the Board of directors, was not informed to Nafan and Lesaffre. The case of Lyle & Scot .....

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f things. In the case of Re Ringtower Holdings (supra) the Court concluded that there was no intention to sell the shares in the facts of the case. Merely because some observations can be used to support the submission, a judgment cannot be read de hors the factual backdrop. Reliance on the case of Mannai Investments Co. Vs. Eagle Star Life Assurance Co. Ltd. (supra) is equally misplaced. That was a case arising from termination of lease and the notice was construed in the context of the provisi .....

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nior Advocate and therefore their action was bonafide. The opinion of the senior advocate refers to Article 16, which according to Mr.Dwarkadas, does not apply. It was agreed by the counsel that it will be proper not to debate on the merits of the opinion but to restrict the debate only to bonafides. The senior advocate did not opine that Muthu group could proceed in the manner as they have done. Question here is the lack of probity. Muthu is an experienced business. He fully knew what he was do .....

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.A.M.Muthiah, and Mr.P.B.Thatte attended it. Mr.A.Muthu was elected as the chairperson, leave of absence was granted to Laloum and Mr.Lesaffre. The chairperson referred to written opinion received by senior advocate, which was taken on record. Purchase by Muthu of the shares pursuant to MOU dated 23 January 2009, opening of current account to hold purchase money was discussed. The current account was resolved to be opened, directors were directed to operate the account. Mr.K.Narasimhan was autho .....

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t the money has been transferred into his account was taken. The advice received by the Company on the same day was tabled. The resolution was passed to transfer the purchase money to Company's current account. Mr.Muthiah placed the letter dated 23 May 2009 from the Company as an agent of Nafan requesting the issuance of duplicate share certificates in view of Laloum, having been informed to Muthu on 20 February 2009 that Nafan had lost original share certificates. The meeting was adjourned .....

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ued. The Company Law Board has disbelieved the theory of oral request. 106. Mr.Dwarkadas submitted that if the duplicate share certificates were not lost then nothing stopped Nafan from producing the original certificates. This submission cannot be accepted. What needs to be considered is the act of Muthu group in seeking duplicate share certificates at the time of transfer of shares on the premise of oral request made by Laloum sometime in February 2009. Laloum on oath has denied the conversati .....

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duplicate share certificates. If everything was fine, Muthu could have easily asked Laloum whether the share certificates were still missing and whether duplicate share certificates be issued. Since the scheme was to push through the disputed MOU by keeping Nafan and Lesaffre in dark, for obvious reasons this was not done. The letter of Muthu dated 23 May 2009 is reproduced below: "To, Saf Yeast Co. Pvt. Ltd., Mumbai. Dear Sirs, Sub.: Loss of Original Share Certificates by Nafan B.V. As ver .....

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onsider issuing duplicate share certificates in lieu of the share certificates that have been informed to be lost by Nafan B.V. to comply with the requirements of law. Yours faithfully, Sd/ A. Muthu (For Saf Yeast Co. Pvt. Ltd., Agent of Nafan B.V.)" When Muthu wrote this letter on 23 May 2009 to SAF Yeast for issuance of duplicate certificates as an agent of Nafan, there was no authorisation in writing in favour of Muthu to make such a request. 107. Section 84 of the Act enables a company .....

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oyed, or b. having been defaced or mutilated or torn is surrendered to the company. [3] If a company with intent to defraud renews a certificate or issues a duplicate thereof, the company shall be punishable with fine which may extend to ten thousand rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both [4] Notwithstanding anything contained in t .....

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ses incurred by a company in investigating evidence) on which a certificate may be renewed or a duplicate thereof may be issued, shall be such as may be prescribed.] Also needs to be noticed are the Articles of Association as under: Article 8 of the Table "A" If a share certificate is defaced, lost or destroyed, it may be renewed on payment of such fee, if any, not exceeding two rupees, and on such terms, if any, as to evidence and indemnity and the payment of out of pocket expenses in .....

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ection 84(3) makes a company liable for penal action for wrongful issuances of duplicate share certificates. Therefore, the cautious approach is warranted, not a casual one. 108. The question of issuance of duplicate share certificate arose for consideration of the division bench of Madras High Court in the case of Shoe Specialties Ltd. Vs.Tracstar Investments Ltd. & Ors. [1997] 88 Comp Cas 471 (Mad)]. The Division Bench referred to J.C.Bali on Secretarial Practice in India, 5th revised edit .....

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hareholders loses his share certificate he should at once write to the company stating clearly the loss or destruction of the certificate and request for the issue of a duplicate certificate. On receipt of the letter the company will ask the shareholders to fill in an indemnity form in which the shareholder will agree to indemnity the company against any claim that may be made by any person on the original certificate. He is also required to prove a guarantee by way of double security." In .....

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the original certificates was lost. In this case, the very request by the second respondent says that the original certificate is with the first petitioner herein. Hence, by no stretch of imagination, can it be said that the share certificate is lost or destroyed. The authority to issue a duplicate certificate rests with the company only on proof that it is lost, or at least there must be some investigation before coming to the conclusion that it could not be traced. The first respondent compan .....

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al practice. Before the Company Law Board, the petitioners have also given other instances where the first defendant took time to investigate and satisfy itself about the loss of the certificate. The bona fides of the first respondent at least could have been shown by issuing a notice to the first petitioner to produce the original. The inaction on the part of the first respondent in issuing a notice to the first petitioner to produce the original and the hurried manner in which a resolution was .....

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In the present case, the facts are glaring. Muthu, who wants to usurp the entire shareholding of Nafan, writes to SAF Yeast on behalf of Nafan that Nafan has lost the original shares, gets the duplicate shares issued through the Company which he controls and transfers it to his group in a meeting, without a single notice to Nafan. What further is needed render a finding of gross impropriety? The manner in which the entire meeting has been pushed through and the manner in which the duplicate sha .....

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e raised with no foundation in law. Language of Section 84 clearly speaks to the contrary for any such implication. It was also submitted that the case in Shoe Specialties (supra) is distinguishable on facts. It was also contended that not every conduct need be considered as oppressive. I am not impressed by any of these submissions. The conduct of issuance of duplicate certificates was clearly a part of a design to remove Nafan and Lesaffre from the Company. Once it is held that meetings itself .....

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h the Company Law Board in respect of the finding rendered by it on this count. Valuation 110. The next issue is regarding the valuation submitted by M/s Sharp & Tannan. The Board has concluded that the valuation report prepared by M/s Sharp and Tannan is not reliable, it is patently biased, partial and based on incorrect methods. M/s Sharp & Tannan has deliberately used guidelines, which are inapplicable. The Board has concluded that the valuation report is wrong in principle, erroneous .....

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and prepared in short time span to meet the requirements of Muthu group, and thus in collusion. It was contended that right from inception, Muthu knew that he would be able to get valuation from Sharp & Tannan as per his requirement. 111. Mr.Subramaniam learned Senior advocate on behalf of M/s Sharp and Tannan submitted that M/s Sharp and Tannan is unconcerned with the dispute and is only challenging the finding of imputation of bias and other criticism levelled by the Board. According to hi .....

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preparing a valuation report as per rules and needless aspersions have been cast upon it. Mr.Dwarkadas submitted that the valuation report was fair and proper and reflected the correct value of shares. According to Mr.De'Vitre the valuation of the shares is so ridiculously low that Nafan and Lesaffre were immediately prepared to pay double the valuation and even higher. 112. The valuation report by M/s.Sharp and Tannan has valued 80,772 Shares of SAF Yeast at ₹ 4315 per share as on 31 .....

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e profits of the past for the accounting year and Net Assets Value (N.A.V) method. He submitted that the valuation had to be done on urgent basis in light of the MOU. The valuation was prepared on 9 February 2009 and forwarded to Laloum on 10 February 2009. He submitted that the Department of Foreign Exchange of Reserve Bank of India raised a query, which was replied stating that CCI Guidelines were followed. He contended that there are many methods of valuation available. No valuation report ca .....

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rt within 24 hours and it is easily possible when all the data is available on the computer. He reiterated that method of valuation under CCI guidelines is legitimate method of valuation. He relied on RBI Circular No.7 of 2008/2009 dated 1 July 2008 referring to CCI guidelines. He submitted that the Apex Court in the case of Hindustan Lever Employee's Union Vs.Hindustan Lever Ltd. AIR 1995 SC 470 and Miheer H.Mafatlal Vs.Mafatlal Industries Ltd. has laid down that the valuers are experts in .....

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valuation on the ground that it is low after having left the valuation to the statutory valuers. He submitted that article 17 was referred to in the MOU and parties agreed to abide by the valuation of the statutory auditor. Nafan did not insist upon any valuation method in spite of having received the MOU some time in February 2009. He contended that if the price of shares between 1992 and 2009 is concerned, it has grown from ₹ 237 per share to ₹ 4315 per share. The same valuer had c .....

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Seogani Rai AIR 1951 SC 280, The National Textile Corporation Ltd. v. Nareshkumar Badrikumar Jagad & ors. (2011) 12 SCC 695 to contend that specific pleadings are required. He also relied on the decisions in the case of Re. Organon (India) Ltd. (2010) 157 C-C 0287, and G.L.Sultania v. SEBI AIR 2007 SC 2172. He reiterated that merely because CCI guidelines have been followed it could not be said that the valuation is fraudulent. He submitted that contention that there is no basis for valuati .....

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held that the way the valuation was carried out is oppressive. He submitted that even assuming the MOU is executable it contemplates fair valuation. The valuation carried out is not only not fair but no valuation in eyes of law. He submitted that the valuation does not take into account the well-settled methods of valuation. He submitted that the methods, which are generally adopted and mandated, have not been carried out by the valuer. He submitted that CCI method is completely inapplicable an .....

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ression. 116. The MOU referred to a fair valuation. I have already held that, prima facie the MOU only indicated beginning of modalities depending on the fair value. The fair value has to be seen in the light of the fact situation. It was the value to be paid for exit of Nafan from SAF Yeast. That would mean that the association of Nafan and Lesaffre right from the beginning and its majority stake in the Company would end. Two groups of shareholders started SAF Yeast together. The Company is wel .....

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ompany. This is not to say in a routine valuation, care need not be taken, in the present case but M/s Sharp and Tannan were fully aware of the implications of their valuation, having been associated with the SAF Yeast for several years. The manner in which the valuation was done in 24 hours, when there was apparently no need for such urgency without following well known methods which has given rise to charge of oppression by the Nafan and Lesaffre. Therefore, the entire issue of valuation has t .....

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audulent. However, the issue has to be approached in the context of charge of oppression. The entire line of argument of Mr.Subramaniam and Mr.Dwarkadas has been to show that how M/s.Sharp and Tannan followed particular permissible method and how there is lack of pleadings and scope of Court to interfere with the valuation report. 117. The conduct of Muthu group in getting a valuation report in 24 hours to arrive at a valuation, which he knew was not reflecting the correct value, in itself, is a .....

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onstrably wrong approach is adopted. Therefore, the question arises of explanation as to why DCF and CCA Guidelines were not adopted. It is not that these two methods are inapplicable or outdated. The valuer is supposed to take into consideration the well-established methods and give reasons as to why a particular method is being adopted. In the case of G.L.Sultania the Apex Court has emphasized that the valuer need to give reasons why it excludes well-established principles of valuation at all .....

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be noted that for the working of the MOU, the valuation had to be fair. 118. Nothing has been shown that DCF method and CCA Guidelines have ceased to exist or they have been discontinued. The DCF method is well known because it takes into account all the relevant factors. One need not travel far for this purpose as M/s.Sharp and Tannan themselves have endorsed DCF method over all other methods. This stand of Sharp and Tannan is noted by the Gujrat High Court in the case of Alembic Limited Vs Dee .....

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es of Alembic Ltd. (resulting company) in lieu of 100 shares of Darshak Ltd. has been proposed in view of the report of M/s. Sharp and Tannan Associates, chartered accountants. In their report dated April 17, 2001, the chartered accountants have referred to the following valuation techniques which are generally used in ascertaining the fair value of a business: (a) Net asset value (NAV) ; (b) Profit earning capacity value (PECV) ; (c) Combination above ; (d) Valuation based on discounted cash fl .....

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tered accountants have worked out the fair value per share of Alembic Ltd. and Darshak Ltd. as under: Company Valuer per share Alembic Ltd. ₹ 287.17 Darshak Ltd. ₹ 15.91 The chartered accountants have, therefore, suggested that on the basis of the aforesaid fair value per share, they consider fair and reasonable, a share exchange ratio of one equity share of ₹ 10 each of Alembic Ltd. for 18 equity shares of ₹ 10 each of Darshak Ltd. for the purpose of the proposed merger. .....

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given that the valuation had to be done in a hurry in view of the MOU. There was no such hurry to produce valuation report in 24 hours. 119. It was contended by Mr.Dwarkadas and Mr.Subramanian that the valuation done complies with the Reserve Bank of India circular and the RBI circulars mandating that DCF method does not apply. As it has been rightly pointed out by Mr.De'Vitre that M/s Sharp and Tannan as a statutory auditor had to arrive at a fair value. Their assignment was not to ascertai .....

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tory auditor of the Company and the other by Chartered Accountant is contemplated. It is for this reason that the valuation is carried out for the purpose of Circular of the year 2004. There is no gain saying that the valuation conformed to the parameters laid down in the RBI Circular of 2004, when the Circular was not for fair value but for completely different reasons. In fact, the Circular dated 4 May 2010RBI has emphasized for DCF as is the most relevant method for the valuation of shares. 1 .....

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methods do not comply with RBI circular of 2004. Reliance of the letter dated 19 February 2009 is misplaced. This letter from Reserve Bank of India is a routine letter which only directs that Company to carry out transactions in terms of the circular. It is farfetched to suggest that the RBI itself applied its mind and approved the valuation carried out treating it as a fair valuation. 121. It is contention of Muthu group that in the previous valuation report dated 17 January 1992 by M/s Sharp a .....

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VIRC reference manual which explains the NAV method shows that it is to be adopted in case of manufacturing companies where fixed assets have greater relevance for earning revenues. Nothing is shown as to how this is so and the Board therefore, has correctly rejected this contention. There is no perversity in this finding. 122. Coming to the CCI guidelines supposed to be followed by M/s Sharp and Tannan, it is the contention of Mr.De'Vitre that even these guidelines have not been followed. .....

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77; 82,36,045 in comparison with 2004 where it was ₹ 1,20,41,10352 and 2006 where it was ₹ 15,53,28,546 . The reduction for lack of mobility is reduced to 20% when the CCI guidelines provide 1:15 per cent capitalisation. There is also merit in the contention of Mr.De Vitre that rate fixed under the Guidelines is now outdated and business outline has changed since 1992 to 2009. M/s Sharp and Tannan has insisted on following outdated methodologies for valuation and without any reason h .....

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ing well-established methods and it is at ₹ 1, still Nafan must accept the same since it agreed that a statutory auditor would carry out the valuation. The proposition cannot be stretched to an absurd limit. Because a party agrees to a valuation by the statutory auditor it does not mean it relinquish all the rights. Various decisions were cited at the bar on this proposition by Mr.Dwarkadas, mostly of the English Court. It is not necessary to burden the record by referring to all the cases .....

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ts, submitted that the valuer's report was binding on the parties and the court cannot go behind the same. While computing the stake/share of the petitioner in the company the valuer acted as an expert and not as a quasi arbitrator or an arbitrator. This being so his report cannot be attacked in the instant proceedings. The valuation given by the valuer is final and conclusive between the parties. In case the petitioner is aggrieved of the valuation determined by the valuer, his remedy lies .....

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ed by their determination or opinion. Learned counsel further argued that the aforesaid principle has been discarded in England and the position, as made clear by the House of Lords, is that an expert can be sued for damages when he acts negligently in performance of his duties. In support of his submissions, Mr.Khanna relied on the following decisions: 1. Sutcliffe v.Thackrah (1974) 1 All ER 859 (HL) (pages 29 to 57). 2. Burgess and another v.Purchase & Sons (Farms) Ltd. (1983) 2 All ER 4 ( .....

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y the valuer in support of the valuation arrived at by him. He contended that since the valuation made by the valuer was based on erroneous principles, the same can be challenged in these proceedings. In aid of his submissions he cited the following decisions: 1. Dean v.Prince and others. 2. Dean v.Prince & others. 3. Jones (M) and another v. Jones (RR) and another. 4. Arenson v. Arenson and another". The learned Judge then took review of the entire case law in respect of challenge to t .....

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oes not imply that they will be bound even by a valuation which is erroneous. In this country the courts cannot be bound to accept the determination or opinion of an expert which is erroneous as otherwise it would amount to perpetuating the mistake. Mr. Khanna contended that the compromise recorded by the court constitutes a decree and if this is so the valuation arrived at by the valuer cannot be challenged in these proceedings. I regret my inability to accept the submission of the learned seni .....

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. Mr. Sanghi, learned counsel for the petitioner, claimed that M/s Coopers & Lybrand Pvt. Ltd was actually appointed by the Court under Order 26 Rule 9 C.P.C. as Local Commissioner to determine the valuation. On the other hand, Mr. Khanna, learned senior counsel for the respondents, refuted this position and submitted that the appointment of the valuer was made by by this court order on the basis of the terms of the compromise arrived at between the parties and the same was not made under Or .....

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in the cases relied upon by Mr.Dwarkadas, and which were considered by the Delhi High Court, the Courts have kept the rider that the valuers report does not enjoy absolute immunity. In the present case, I agree with the finding of the Board that the valuation report has to be discarded. 124. Next question is of the imputation of bias against Sharp & Tannan and the acts of oppression in obtaining such report and acting upon it. The speed at which the valuation report was generated with no app .....

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Lexicon, reprint edition 1987, at page 216i, "collusion" is defined as "a secret agreement for a fraudulent purpose; a secret or dishonest arrangement in fraud of the rights of another; a secret agreement by two or more persons to obtain an unlawful object, an agreement between persons to obtain an object forbidden by law, or to obtain a lawful object by illegal means". The petitioner's case is that there is secret and dishonest arrangement between the directors of respon .....

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s to how far fraud and collusion invalidate any decision or action. In paragraph 20 of the judgment, their Lordships said thus (page 553): "Fraud and collusion vitiate even the most solemn proceeding in any civilised system of jurisprudence. It is a concept descriptive of human conduct. Michael Levi likens a fraudster to Milton's sorcerer, Comus, who exulted in his ability to, 'wing me into the easy-hearted man and trap him into snares'. It has been defined as an act of trickery .....

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tutory law... The present day concept of fraud on statute has veered round abuse of power or mala fide exercise of power. It may arise due to overstepping the limits of power or defeating the provisions of the statute by adopting subterfuge or the power may be exercised for extraneous or irrelevant considerations. The colour of fraud in public law or administrative law, as it is developing, is assuming different shades. It arises from a deception committed by disclosure of incorrect facts knowin .....

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not vitiate the agreement. 'In a contract every person must look for himself and ensure that he acquires the information necessary to avoid bad bargain'. In public law the duty is not to deceive....". In De Smith's Judicial Review of Administrative Law Action, fourth edition (1980), at pages 335 and 336, the learned author says thus: "A power is exercised fraudulently if its repository intends to achieve an object other that for which he believes the power to have been conf .....

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e 328, the learned author has stated thus: "Sometimes, an authority entrusted with a power does not exercise that power but acts under the dictation of a superior authority. Here, an authority invested with the power purports to act on its own but 'in substance' the power is exercised by another. The authority concerned does not apply its mind and take action on its own judgment, even though it was so intended by the statute. In law, this amounts to non-exercise of power by the auth .....

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earned author says thus: "(i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious' Nelsonian knowledge'; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) Knowledge of circumstances which indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry." A director of a company must know that he is a trustee for the company; th .....

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rder to establish fraud, that direct affirmative or positive proof of fraud is given. Circumstantial evidence is not only sufficient, but in many cases it is the only proof that can be adduced. In matters that regard the conduct of men the certainly of mathematical demonstration cannot be expected or required. Like much of human knowledge on all subjects, fraud may be inferred from facts that are established. Care must be taken not to draw the conclusion hastily from premises that will not warra .....

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easonable conclusion, to conclude but that there must have been fraud......" (emphasis supplied). These principles need to be kept in mind. As held by the Madras High Court that it is not always possible to have direct evidence of fraud and collusion and inference has to be drawn. The question that arises is whether the conclusions drawn by the Board from the circumstances can be termed as perverse. 125. The Board took note of the pleadings on record and viewed that it was sufficient to con .....

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n produced a report in one day and then justified the omission of DCF method on the ground that there was a hurry to prepare the report. There was no such hurry and nobody had called for such immediate report within 24 hours. Though it is stated on behalf of Muthu group that Nafan and Lesaffre were insisting on valuation nothing is shown on record that 24 hours valuation was insisted upon. The learned counsel for the parties relied upon decisions dealing with instances where valuation reports ha .....

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which shows the same shares as valued substantially higher. According to them, the correct valuation was about 25 million Euros at that time while Sharp & Tannan valued the shareholding at approximately 27 crores only. Thus, price of a majority stake in one of leading yeast manufacturing company in India is valued at 27 crores. It cannot be helped but observing that is the cost of two, three residential flats in upmarket Mumbai. Not that on that ground alone the valuation of M/s Sharp and Ta .....

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er in which the valuation report was prepared and used by Muthu group, the finding of the board that this conduct of the Muthu group is a part of oppressive conduct, cannot be termed as a perverse finding. Considering the facts on record as analyzed earlier, one is surely left with an impression that something was seriously amiss the way the valuation report was presented. Had it been a standalone instance of a mere valuation report presented for discussions, it would have been a different matte .....

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ces thereof, ought to have been more careful and ought not to have prepared a report on the basis completely different than the acceptable norms. The total lack of explanation as to why there was need to prepare report in 24 hours and that DCF method was not even contemplated justifies the observations made by the Company Law Board, I do not find that the observations were unwarranted. The Company Law Board having seen the entire record was constructed to make the observations and it was justifi .....

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t two groups could not run the Company together as the relations between the parties have become acrimonious. The Board opined that the permanent solution in the paramount interest of SAF Yeast is sale of shares of one group to another. The Board thereafter considered the claim of both the parties as who should buy out whom. According to Nafan and Lesaffre, they are a leading business group worldwide in the yeast business. They supplied financial and technical support to SAF Yeast and they have .....

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dedly and without any technical support as alleged from Nafan or Lesaffre. Nafan or Lesaffre demanded no royalties and neither there was any protest. It would be in the benefit of SAF Yeast that Muthu group runs it. It was also contended that Nafan and Lesaffre any way wanted to step out of the Company and the only objection was to the valuation. 129. The Board after considering rival contentions held that it would not get into the contentions of either parties regarding their respective contrib .....

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hu group has given personal guarantees. The action taken in the meetings was on legal advice and it was bonafide meeting, which had to be hurriedly called in view of the meeting to be held in Paris on 29 May 2009, and one aberration should not be a reason to severely reprimand any one. Thereafter the Board directed buyout in favour of the Muthu group. Thus, to summarise the Company Law Board ordered buy out in favour of Muthu group because Lesaffre and Nafan have entered into joint venture for m .....

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ompany. If Muthu group is directed to exit, they will have no other source of livelihood. If Lesaffre and Nafan are directed to exit, they will not suffer any prejudice in their Multinational Company and run various other companies in other developing countries. 130. I have considered the issue. Firstly, the Board has rightly held that two groups cannot go together and parting of ways is imminent. The Board has also rightly discarded the rival contentions of regarding contributions. SAF Yeast is .....

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ced to set up a joint venture. Obviously therefore, it was set up for mutual benefit. Nafan and Lesaffre had placed on record their stand that they wanted to set up a unit for manufacturing of yeast in India as they saw potential in the market and in view of restrictions placed by the Indian government they had to start it in a joint venture. Therefore, once joint venture had been set up the aspect of contribution does not assume so much of importance as rightly held by the Board. The Board howe .....

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n of yeast. 131. It is the contention of Mr.Dwarkadas that if the finding of oppression rendered against Muthu group is set aside and the appeal of Nafan and Lesaffre are dismissed, then the order to buyout under Section 402 cannot be disturbed. He has further contended that the entire case of Nafan and Lesaffre is that they should be permitted to buyout because they are injured party and majority shareholders. He relied on the decision of the Calcutta High Court in Bajrang Prasad Jalan v. Mahab .....

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fore, the primary stand of the Muthu group is that since there is no oppression by them there is no question of any buyout of their shares and without prejudice, they are willing to buyout the shares at the valuation fixed by this Court. 132. I have already concluded that the findings of the Board regarding oppression by Muthu group are correct. Therefore, question is regarding the validity of the direction to order buyout in favour of Muthu group even if they committed act of oppression. In ear .....

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rthermore, if a buyout is ordered, it is not that Muthu group will be thrown out on the streets without any money. The buyout will be of the value of their shareholding, which will be substantial, and Muthu group will be free to carry on their business activities elsewhere or can always invest it. Even Mr.Dwarkadas has not contended that Muthu and his family will be on the streets. The next reason is that no prejudice will be caused to Nafan and Lesaffre if they are directed exit because they ar .....

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ntention of Nafan and Lesaffre while executing the MOU to order the buyout, which aspect I have already dealt with. Equally untenable is the ground that since Nafan and Lesaffre are based in Europe, it is better that an Indian runs the Company. The joint ventures between Indian entities with a foreign one now common. Even though Nafan and Lesaffre are based outside India, they can always have local nominee directors and such other staff who are based in India. If buyout is to be ordered on this .....

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ame of SAF Yeast. According to De Vitre, word 'SAF' is linked to Nafan/Lesaffre continuing as a shareholder and in case Nafan is ordered to exit, the Company will lose its name, which will result in substantial loss of goodwill for SAF Yeast. I find that in spite of making the submission before the Board regarding loss of good will by loss of name 'SAF', at the time of ordering buyout, the Board has not referred to it at all. In the Participation Agreement of the year 1991, the p .....

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manufacturing of yeast. Phonetically SAF does seem to have been derived from Lesaffre. The name, which indicates that SAF Yeast is a part of one of the world leaders in the yeast business, will be no doubt create substantial goodwill. This aspect is important while deciding buyout. 135. One more aspect is about the technological and financial assistance. There is no finding by the Board that Lesaffre did not extend any technological support at all. What the Board has emphasized is that since Mu .....

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of handling the situation. This is a rather simplistic view of the way large scale industrial operations are run. Merely because if Nafan takes over the control, does not mean that it will terminate all the existing staff. Professionals manage the business nowadays. Though majority shareholders are based out of India, a professional staff can manage the day-today basis. Though the expertise of Muthu may not longer be available but that does not mean that Nafan and Lesaffre cannot carry out affai .....

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pposed to fairness. 137. One more principle is that a majority shareholder should not ordinarily be directed to exit. Mr.De' Vitre placed heavy reliance on the decision of the Apex Court in the case of Dale & Carrington v. P.K.Prathapan (2005) 1 SCC 212. He also relied upon the decision of the Calcutta High Court in the case of Tea Brokers v. Hemendra Prosad Barooah (1998) 5 CLJ 463. He submitted that the Apex Court in the case of Dale & Carrington (supra) and the Calcutta High Court .....

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said must ordinarily be considered to be an act of oppression to the said member. The member who holds the majority of shares in the company is entitled by virtue of his majority to control, manage and run the affairs of the company. This is a benefit or advantage which the member enjoys and is entitled to enjoy in accordance with the provisions of company law in the matter of administration of the affairs of the company by electing his own men to the Board of Directors of the company." &qu .....

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shareholders to regain control of the company so long as they remain in majority in the company by virtue of the majority. Except in unusual circumstances the majority group of shareholders, in my opinion, should never be ordered, or directed to sell their shares to the minority group of shareholders. An order directing the majority group of shareholders to sell his shares to the minority group of shareholders will not redress the wrong done to the majority group of shareholders and will not gi .....

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nnot be accepted. As far as MOU is concerned, I have already rendered my findings on the same. Furthermore, the basic proposition that normally majority should not be ordered to exit is not diluted in any manner. 138. There could possibly be an exceptional circumstance where the minority could be directed to buy out the shares of the majority. Question is whether any exceptional circumstance in the present case is made out. I have already upheld the finding of the Board that the acts of oppressi .....

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at it was natural for Muthu group to act in haste. The Board also held that one aberration should not be the reason to severely reprimand any one whosoever. 139. To my mind, the Board has trivialized the acts of oppression and has termed them as one time aberration. The holding of meetings was not as innocent as it is made out to be. As far as the opinion of the senior advocate is concerned, the learned counsel of the parties after debating over it for some time agreed that it will not be approp .....

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as almost that of a quasi partnership. 140. The Board noticed decision of the Apex Court in the case of Kamal Kumar Dutta Vs Ruby General Hospital Ltd. (2006) 7 SCC 613, but has not given effect to the underlying principle laid down therein. Out of various decisions cited by the learned counsel for the parties, the case of Kamal Kumar Dutta (supra) comes closest on the terms of factual situations and therefore, the most relevant. The review of law on fairness taken by the Apex Court is already r .....

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crores. The hospital was established in the memory of late wife of Dr.Kamal. Since he and Dr.Sinha were NRIs the company was being looked after by Dr.Sajal Dutta. After the hospital prospered, dispute arose between brothers. The attempts were made by the younger brother to throw out the elder brother and Kamal Kumar Dutta filed a petition under Section 397 and section 398 of the Act before the Board. The stand of the Company was that Dr.Kamal and Dr.Sinha had discontinued themselves as directors .....

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hout proper service of notice on the appellants by the respondent No. 2 then such Board meeting cannot be said to be valid. Mr. Nariman however tried to explain various meetings and their subsequent confirmation by next board meeting to show that once the resolution of the subsequent meeting has confirmed the resolution of earlier meetings then those minutes stand confirmed irrespective of the fact that the appellants had been served or not. We shall highlight some of the instances. We would sho .....

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was sent on 8.4.1996. Likewise, another meeting was scheduled to be held on 5.9.1996 and the notice was sent on the very same day i.e. 5.9.1996, the date of meeting was 2.12.1996 and the notice was sent on 28.11.1996; the date of meeting was 12.3.1996 and the notice was sent on 8.3.1996. The meeting was to be held on 27.3.1996 but the notice was sent on 22.3.1996. Apart from this, it was known to the respondent-Sajal Dutta who is the brother of appellant No. 1 that whenever his brother comes to .....

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s also ousted in the meeting which was held on 7.2.1996 when another meeting scheduled to be held on 16.2.1996 and it was within the knowledge of Sajal Dutta that his brother was likely to attend the meeting to be held on 16.2.1996. But suddenly the meeting was held on 7.2.1996 and the appellant No. 1 was stripped off his chair as the Managing Director of the company. Hence, Sajal Dutta became the Managing Director in place of Dr. Kamal Kumar Dutta and the minutes of the said meeting dated 7.2.1 .....

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reflected in the meeting dated 16.2.1996. It does not appeal to us. Be that as it may, when such an important decision was taken in the absence of the main promoter of the company to oust him from the Managing Directorship and to install Sajal Dutta in his place, it is the grossest act of oppression by the Board of Directors. Sometime after dispatching Dr. Dutta from the Managing Directorship most of the shares were cornered by the subsidiary companies of Sajal Dutta so as to acquire the manage .....

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tor is totally ousted and shares are being cornered substantially so as to have full control of the company, is oppression being squarely covered by Section 397(1)(b) of the Act." (emphasis supplied) The abovementioned passage clearly shows that the Apex Court strongly disapproved of a conduct of taking an important decision in the absence of a main promoter to oust him from directorship. The Apex Court noted that it was the "grossest act of oppression" and "could not be more .....

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of these arguments have any substance. As regards the MOU and the Articles, I have already rendered my findings. The question is of probity and fairness. Muthu group fully knew that meeting is to be held in Paris. Muthu group consciously did not give notice to Nafan and Lesaffre as they wanted to transfer their share holding behind their back and a clear plan was hatched for that purpose. Even assuming that they did so as a preemptive action that does not excuse taking law in their hands. They .....

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en. It was the most important decision to be taken in the entire existence of the company. After having successfully gone through the plan of usurping the share holding of a majority group, detailed justifications advanced to cover up the conduct, which on the face of it, lacks in fairness. Taking law in own hands cannot be termed as a normal human behaviour, as the Board has observed. If this is tolerated, it will create serious uncertainties for joint ventures and leads to complete lawlessness .....

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oint ventures. The Board cannot be oblivious to these wider issues when it passes orders of buyout in respect of joint ventures between an Indian resident and a foreign collaborator. It is of utmost importance that the atmosphere of trust is created between the collaborators. It is also of importance that any person seeking to do business in this country is assured that the rule of law is followed and grossly unfair conducts are not tolerated. If the acts such as the one perpetuated by Muthu gro .....

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stige and need to instill confidence in international commercial transactions. Post liberalization Indian companies have engaged in large scale commerce and financial dealings with the banks and companies abroad. Finances are advanced to the Indian companies by foreign investors. If the conduct such as the one exhibited by the Respondent Company, is condoned purely on the ground of public interest, it may protect this Company but will send a wrong signal to the investors and lenders all over the .....

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ood surety/guarantee being between foreign companies. We are of the opinion that if we do so, we would be sending a wrong signal and dissuading foreign commercial entities from relying on the assurances/ guarantees given by Indian companies and which would ultimately restrict the role of India in such international commercial transactions." This is the larger public interest which goes beyond the interest of trying to protect the Respondent Company on the ground of repercussions of the admi .....

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for admission of the petition against such a company. If so then why the Petitioner be kept away from this right, its only fault being that it lent the monies outside India and filed a suit for recovery of the same in the Court where the transaction took place. To deprive the Petitioner will encourage Indian companies to be dishonest in their international dealings. With globalization of trade and investments, cross border flow of capital and the dependence of the country's economy on inter .....

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nt shareholder of SAF Yeast. If later the suit is decreed in favour of Muthu Group, then Muthu Group will become 51 percent shareholder and Nafan will be come 49 percent shareholder, which is impracticable. It was also contended that by this methodology the MOU would be kept aside. I am not impressed by these submissions on behalf of Muthu Group. If the meetings were held in legal, proper, and fair manner, Nafan and Lesaffre would have put-forth their stand on MOU that they were not ready. Muthu .....

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s a majority shareholder to buyout the oppressive minority is established right now. The right of Muthu Group is based on the MOU which will have to be agitated in Civil Court. Grant of specific performance of an agreement is discretionary. Therefore, the right in favour of Muthu Group has not fructified yet to defeat the right which has accrued right now in favour of Nafan. 146. There is however one more aspect. I must also keep in mind the interest of SAF Yeast. If future uncertainties are avo .....

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submission. Therefore, if Muthu group withdraws the civil suit and undertakes not to rely on the MOU, then the litigation can be put an end to by a bid. Then if a competitive bid is held, litigation free future can be secured for SAF yeast. However, if Muthu group is not ready and this object is not being achieved then buyout in favour of Nafan will have to follow. I am, therefore, of the opinion that, before ordering a buyout in favour of Nafan, possibility of a forward competitive bid be expl .....

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be no buyout in favour Muthu group on a fixed valuation. 147. For the purpose of valuation of shares, it will be most appropriate that today's date is taken as a reference. The order could thus be in two steps. Part I will be the forward competitive bid for which Muthu Group will have to withdraw the civil suit they have filed and not take any steps based on MOU henceforth and convey its acceptance within a particular period .If such willingness is not shown in the stipulated period, then P .....

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trator. Board has suggested name of Justice J.N.Patel, retired chief justice of Calcutta High court as the Administrator. As regards the Chartered Accountants, the parties have not indicated any choice. Nafan has left it to the court. I am of the opinion that M/s Ernst and Young can be appointed as the Chartered Accountants. They are an experienced firm and nothing is shown that they are disqualified to carry out the task in respect of SAF yeast. CONCLUSION 149. The conclusion in short is as fol .....

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January 2009, 23 May 2009, and 25 May 2009 and the resolutions passed therein, are invalid, illegal, and oppressive, so also the issuance of duplicate share certificates. The Board has rightly discarded the valuation report and the reliance upon the same by Muthu Group is an act of oppression. The comments made by the Board on the valuation report, were justified. The direction of the Board to Muthu Group to rectify register of SAF Yeast by restoring the shareholding of Nafan and Lesaffre is va .....

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agreeable then buyout in favour of Nafan will follow. For overseeing the two options, as suggested by the Board, Justice J.N.Patel is appointed as an Administrator. M/S Ernst and Young is appointed as Chartered Accountants to carry out the valuation. A regards the modalities for holding the auction and the buy out, the modalities suggested by Nafan are proper and can be adopted. ORDER A. The declaration by the Board that the MOU dated 23 January 2009 is valid, effective and enforceable document .....

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nd illegal, is confirmed. ii) The declaration that the Resolutions passed in the Board Meeting held on 29 January 2009 are not oppressive, is quashed and set aside. iii) It is declared that the Resolutions passed in the Board Meeting held on 29 January 2009, are oppressive. D. i) The declaration by the Board that the Board Meetings held on 23 May 2009 and 25 May 2009 are non-est, illegal and void, is confirmed. ii) The direction by the Board that the Resolutions passed in both these meetings are .....

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irection by the Board to Nafan and Lasaffre to transfer the 80,722 shares held by them to the Muthu Group proportionately to their respective shareholdings, is quashed and set aside. I. If within six weeks from today Muthu group withdraws the civil suit and associated proceedings filed by them and files an undertaking on affidavit in the registry of this court that they will not take any proceedings on the basis of the MOU in question, then Part-I of this order will come in operation. If the abo .....

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Patel, Retired Chief Justice of Calcutta High Court is appointed as an Administrator on the same emoluments and immunity, as directed by the Board with the powers of the Chairman of the Company's Board of Directors, and the Managing Director, to supervise the functioning of the Company on an interim basis until the process of sale/purchase is complete; upon appointment of the Administrator, Respondent Nos.26 in the petition (Muthu Group) shall forthwith deposit with the Administrator signed, .....

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o attend meetings of the Board and/or general meeting of the Company; all such meetings, whether meeting of the Board or General Meetings, if any, shall be convened and presided over by the Administrator alone. d. Until the process of sale/purchase is complete, the SAF Yeast and the Administrator shall not (except in the ordinary course of business), (a) sell or otherwise dispose of or encumber the Company's assets, (b) incur liabilities, (c) distribute funds from the Company, (d) enter into .....

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erson conversant with the yeast industry to assist him in the functioning of the Company. f. Nafan shall be provided complete and unimpeded access within seven days from the date of the order to the statutory and other records books and all the relevant documents as indicated in the Schedule to Note on Modalities given by Nafan, and shall be allowed full and unimpeded access to the Company's industrial plants. g. Access shall also be made available to any such Chartered Accountant nominated .....

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uy 100% of the shares of the Company with the successful bidder getting credit for its own shares (either 51% for Nafan or 49% for the Muthu Group-Respondent Nos.2 to 6); the process of auction shall be conducted under the supervision of the Administrator. i. The successful bidder will deposit in Court by Bankers cheque (Demand Draft) the amount payable, along with all applicable taxes, within fifteen business days after being declared by the Court as the successful bidder. j. On such payment, t .....

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rice equal to the higher of either Euros 28 Million (i.e. ₹ 196,83,79,380/at the current rate of exchange), or the amount of the next highest bid (with the unsuccessful bidder getting credit for its own shares - either 51% for Nafan or 49% for the Muthu Group Respondent Nos.2 to 6) less a twenty-five per cent reduction, by depositing the amount payable in Court within fifteen business days after default. l. Upon the completion of the exercise of transfer of shares and its consequent regist .....

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ements under the Company law to effect the transfer of their shares in favour of the successful bidder under the auction. PART - II a. M/s.Ernst and Young, Chartered Accountants are appointed to value the 49% shares of the Company held by Respondent Nos.2 to 6 Muthu group including, if required, a forensic audit/ due diligence of the records, books and accounts of the Company within three months from today. b. For the purpose of (a) above, the Chartered Accountant so appointed shall convene a pr .....

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t deems fit and proper in the facts and circumstances of the present case, after hearing the parties. d. Nafan shall be provided complete and unimpeded access within seven days from the date of the order to the statutory and other records books and accounts of Saf Yeast, and such other relevant documents as indicated in the Schedule to Note on Modalities given by Nafan and shall be allowed full and unimpeded access to the industrial plants. e. The Board of Directors, including the powers of the .....

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he petition (Muthu Group) shall forthwith deposit with the Administrator signed, duly filled in but undated share transfer forms along with the original share certificates in regard to all the shares held by them in the Company. g. Until the process of sale/purchase is complete, the powers of the Board of Directors shall be vested in an equal number of Directors/alternate directors nominated by Nafan and the Muthu Group (as one group) with the Administrator holding the casting vote, the Director .....

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sets, (b) incur liabilities, (c) distribute funds from the Company, (d) enter into any contracts to be performed for a period longer than six months for or on behalf of the Company, (e) change the nature of the business of the Company, (f) alter or increase the share capital or issue further shares of the Company, or (g) enter into any related party transactions for or on behalf of the Company. i. The Administrator shall be entitled to appoint (at an appropriate monthly compensation to be paid b .....

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