TMI Blog2023 (5) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... spectively. It is also clear that the payment of Rs.7.23 crores against gratuity, salary, non-compete compensation and amicable settlement compensation are to be paid independent of the payment towards shares held by Mukund Muley and his wife Arati Muley entailing in consequent to the payments by the Appellants to them. Clause 7 of the Consent Terms provide that in the event there is any default by any party, the Consent Terms will cease to be binding on the non-defaulting party, but without prejudice to this condition, in case of breach of non-compete obligation by the Respondents (R-1 and R-2), R-1 and R-2 shall be liable to return the amounts paid towards non-compete compensation and amicable settlement compensation. Thus, it is clear that the non-compete obligation and related compensation has been given a special position in the Consent Terms, and significant amount has been provided to be paid to R-1 in compliance of the non-compete obligation. NCLT is bound by law to execute its order/decree if called upon to do so, and that it has the power to execute an order under section 424(3) of the Companies Act, 2013. Further, as has been held in the judgment in the matter of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Terms is realized and paid to R-1 and R-2. The remaining shares shall be released to remain in the ownership of A-2 and A-3. (ii) In para 12 of the Impugned Order, the NCLT has kept the issue of enforcement of other prayers made in the Execution Application open and still to be adjudicated upon. It may endeavour to do so as early as possible. Appeal dismissed. - Company Appeal ( AT ) No. 62 – 63 - 64 of 2023 - - - Dated:- 25-5-2023 - [ Justice Rakesh Kumar ] Member ( Judicial ) And [ Dr. Alok Srivastava ] Member ( Technical ) For the Appellants : Mr. Gopal Jain, Sr. Advocate with Mr. Raunak Dhillon, Mr. Ankoosh Mehta, Ms. Madhavi Khanna, Ms. Srinivas Chatti, Mr. Nihaad Dewan, Advocates For the Respondents : Mr. Arun Kathpalia, Sr. Advocate with Ms. Surekha Raman, Mr. Shrenik Gandhi, Ms. Unnimaya S., Advocates for R- 1 2. JUDGMENT [ Dr. Alok Srivastava , Member ( Technical ) ] 1. This appeal has been filed under section 421 of the Companies Act, 2013 by the Appellants against a common order dated 28th April, 2023 (hereinafter called Impugned Order ) passed by NCLT, Mumbai Bench in Miscellaneous Application No. 1658 of 2019 (in short Execution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpete compensation was made on 4.2.2019 prior to discovery of the e-mail by which R-1 had contacted the petitioner company Trimasys, which was under breach of non-compete obligation. The Appellants have further submitted that clause 7 of the Consent Terms provide that in the event of breach of any term, all the Consent Terms will cease to be binding on non-defaulting parties, which have also been overlooked by NCLT. 4. We heard the arguments of the Learned Senior Counsels for both the parties and perused the record. 5. The Learned Senior Counsel for Appellants has referred to the Consent Terms dated 31.1.2019 entered into between the Appellants and R-1 and R-2, which prominently included in the non-compete and non-solicit obligations. Since there was a background of two US based competitors viz. Trimasys and Enemtech, were attempting to interfere in the business of Cotmac Electronics Private Limited (in short Cotmac ) and Enemtech had in collusion with Mukund Muley (R-1) hostile takeover of Cotmac by offering to buy majority stake of Cotmac from its shareholders, which takeover bid eventually failed. He has added that in the background of this attempted hostile takeover, dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards amicable settlement to R-1, and further another payment of Rs.3,69,832/- was made on 5.2.2019 to R-1 by the company. He has further argued that the violation of non-compete undertaking given by R-1 came to the notice of the Appellants on 13.2.2019, when an employee Gaurav Sonawane of Cotmac brought the e-mail communication between Zypher, Trimasys and Mukund Muley to the notice of senior officials of Cotmac. He has stated that Abhay Kore had joined Trimasys more than a year ago as is evident from the list of employees who left Cotmac to join Trimasys, which is submitted as part of appeal paperbook, vol.II, page 395, and therefore it is clear that Abhay Kore was communicating with Mukund Muley of Cotmac on behalf of Trimasys. 7. The Learned Senior Counsel for Appellants claimed that when the violation of non-compete undertaking by R-1 came to the knowledge of the Appellants, a notice dated 23.2.2019 was sent to R-1 for violation of Consent Terms and termination of the Consent Terms and after a decision in the Extraordinary General Meeting in April, 2019, a letter dated 15.4.2019 was sent by the Appellants to R-1 for terminating the Consent Terms. 8. He has further conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided man-power services to JFE Engineering Corporation, Metito, Honeywell, Thermax Instrumentation Ltd., Texas Measurement Solutions, etc. and some other firms, which go to show that Cotmac was also in the business of deputing man-power relating to engineering to other companies, and therefore, it was competition with Trimasys and Enemtech. He has also rebutted the claim of Respondents that the Appellants were aware of e-mail communication dated 3.2.2019, and yet the Company chose to pay Rs.2.23 crores to R-1 on 4.2.2019, whereas the correct situation is that the payment against non-compete obligation was made when the company and the A-2 and A-3 were not aware of the breach of non-compete obligation by R-1 at the time. He has further contended that NCLT directions quo the attachment of share certificates of A-1 and A-3 is disproportionate and excessive and as pointed out earlier, the sale of shares owned by A-2 and A-3 in execution of the Consent Terms would completely upset the shareholding structure, whereas the Consent Terms arrived at between the Appellants and Respondents was essentially to maintain a shareholding structure, which would allow the Appellants to assume manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Manish Mohan Sharma vs. Ram Bahadur Thakur Limited [(2006) 67 SCL 91 (SC)], wherein it is held that an executing court cannot go behind the decree, unless the decree sought to be executed is a nullity for a lack of inherent jurisdiction and the decree or any of its terms called for interpretation would have to be so interpreted in execution. He has also referred to the judgment of NCLAT in the matter of K. Muthusamy vs. N. Sankarnaryana and Ors. [2017 SCC Online NCLAT 40], wherein it is held whether petitioner or the respondent brings it to the notice of the Company Law Board (now Tribunal) that the order passed by it has not been enforced, it is always open to the Company Law Board (now Tribunal) to get the same executed in the same manner as if it were a decree made by a court in a suit. 14. The Learned Counsel for Respondents (R-1 and R-2) has submitted that order XXI of the Seven Procedure Code, 1908 prescribes in detail procedure for execution of decrees and orders and order XXI Rule 21(j) of the CPC specifically entitles decree holder to pray for attachment and sale of any property and the prescribed form NCLT 8 were so include such reference to sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sale and transfer of the said 1,34,150 (One Lakh Thirty Four Thousand One Hundred Fifty) equity shares to the Respondents. In addition, a sum of Rs 7,23,00,000 (Rupees Seven Crore Twenty Three Lakh), is agreed to be paid towards gratuity, salary, non-compete compensation and payment; towards amicable settlement to the Applicant No. 1 by the Company, the details of which are as under: Gratuity: Rs. 29,09,250 (Rupees Twenty Nine Lakh Nine Thousand Two Hundred Fifty), Salary for three months: Rs. 13,81,500 (Rupees Thirteen Lakh Eighty One Thousand Five Hundred), Non-Compete Compensation: Rs. 3,80.00,000 (Rupees Three Crore Eighty Lakh), Amicable Settlement Compensation Rs. 3,00,09,250 (Rupees Three Crore Nine Thousand Two Hundred Fifty). (C) Any tax liability in respect of Non-Compete Compensation and Amicable Settlement Compensation, as per the provisions of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 is the liability of the Company and amount of such taxes will be paid by the Company to the Applicants with the principal payment if the Company is not liable to pay the said tax on reverse charge basis as per the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. Further, the provision of compliance of various clauses relating to payments and transfer of shareholding is contained in sub-clauses (H), (I) and (J) of clause 3, which are as hereunder:- (H) The Applicants and / or their heirs/ executors, as the case may be, shall, without question, demur or protest, shall transfer their shareholding, free from any encumbrance, in the manner stated above but upon receipt of the payment, in respect thereof being consideration to be received for transfer of such shares. Simultaneously, as stated in Clause 3(D) hereof the Respondents and each of them jointly and severally are bound to acquire shares of the Applicants in the above manner on or before the agreed time irrespective of any change in the value of the shares of the Company and the obligations of the Respondents related to acquisition of shares of the Company held by the Applicants shall be an absolute obligation to be performed in the manner recorded in these Consent Terms. Further the Respondents or their nominees or the Company may purchase / buyback all or any shares of the Company, presently held in equal proportion at any time, before the due date of agreed payment and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts or which may form part of the share capital of the Company, in any manner at any time whether such shares/ security are to be issued is in present or in future period or conditionally or otherwise. In case, if any act, action, process or step whatsoever having or likely to have any impact on the share capital of the Company or change in the voting rights related to the share capital of the Company is initiated by the Company in any circumstances, the obligations of the Respondents to acquire Shares of the Company held by the Applicants at that time, shall stand accelerated and before implementing or taking any such act or initiating any action, process or step by the Company; the shares of the Company held by the Applicants at that time shall be acquired by the Respondents / bought back irrespective of the agreed time for such acquisition as recorded in these Consent Terms and consideration is paid to the Applicants. . 17. Clauses 6 and 7 of the Consent Terms, which relate to the Event of Default and how such Event of Default has to be established are as follows:- 6. In the event the Respondents to these Consent Terms default in making any of the payments as afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause, in case of breach of non compete obligation by the Applicants or either of them, both the Applicants shall be liable to return forthwith the amounts paid towards the Non-Compete Compensation and Amicable Settlement Compensation. 18. The sub-clauses (A), (B), (C) and (D) of clause 3 of the Consent Terms stipulate that an amount of Rs.28,77,51,750/- is to be paid as consideration for sale and transfer of 1,34,150 number of equity shares by the Respondents to the Appellants and also, in addition, a sum of Rs.7,23,00,000/- is agreed to be paid towards gratuity, salary, non-compete compensation and payment towards amicable settlement to Mukund Muley by the company. 19. It is also noted that out of the payment of Rs.7,23,00,000/-, an amount of Rs.29,09,250/- is against Gratuity, Rs.13,81,500/- is against Salary for three months, Rs.3,80,00,000/- is against Non-Compete Compensation and Rs.3,00,09,250/- is the Amicable Settlement Compensation all to be given to R-1 and R-2 by the Company. Further, it is also noted that, as given in clause 3(d) of the Consent Terms, the total amount of Rs.28,77,51,750/- is to be paid to Mukund Muley in three trenches of Rs.9.57 crores, Rs.9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n diverting such enquiry by Zyphar to Abhay Kore of Trimasys. We also note the allegation and counter allegation of Mukund Muley and the Appellants that the date on which Cotmac became aware of such breach of non-compete obligation by Mukund Muley was 3.2.2019 or 13.2.2019. Be that as it may, without going into the veracity of the claim and counter claim made by respective parties, we find that an allegation of breach of non-compete obligation by R-1 Mukund Muley was made by the Appellants, and a suo moto/unilateral termination of the Consent Terms was effected by the company Cotmac vide Registered A.D. letter dated 20.3.2019 sent by Cotmac and signed by Arjun Sirur (Appellant No. 2) addressed to Mukund Muley and Mrs. Arti Muley. We further note that the board of directors of Cotmac considered the notice of termination of Consent Terms dated 23.2.2019 sent by the Company to R-1 and R-2, which was approved and confirmed by the board of directors in its meeting dated 15.4.2019. There is no document or reference submitted by the Appellants to show that the alleged breach of non-compete obligation by R-1 and R-2 was referred to the NCLT, as was required under clause 6 of the Consent Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered office of the company is situated . 23. We also note that the Hon ble Supreme Court has held in the matter of Manish Mohan Sharma vs. Ram Bahadur Thakur Limited (supra) that the Company Law Board has been held to be authorised to function as an Executing Court, if decree to be executed is not a nullity. The relevant part of this judgment is as follows:- 27. Since the Company Law Board when it deals with an application under section 634A sits as an executing court it is subject to all the limitations to which a Court executing a decree is subject. It is well settled that an executing court cannot go behind the decree, unless the decree sought to be executed is a nullity for a lack of inherent jurisdiction. A decree is without jurisdiction if the Court passing the decree usurps a jurisdiction which it did not have and which could not be waived by the parties. - Sunder Dass v. Ram Prakash [1977] 2 SCC 662, 667; Seth Hiralal Patni v. Sri Kalinath [1962] 2 SCR 747, 750; Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman [1970] 1 SCC 670, 672; Rafique Bibi v. Sayed Waliuddin [2004] 1 SCC 287, 292. The last two decisions have also held that the lack of jurisdiction must be pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA p.612) 1. After more than a century, there has been no improvement and still the decree holder faces the same problem what was being faced in the past. A litigant coming to Court seeking relief is not interested in receiving a paper decree when he succeeds in establishing his case. What he primarily wants from the Court of Justice is the relief and if it is a money decree, he wants that money what he is entitled for in terms of the decree, must be satisfied by the judgment debtor at the earliest possible without fail keeping in view the reasonable restrictions/rights which are available to the judgment debtor under the provisions of the statute or the code, as the case may be.... (emphasis supplied) 25. We follow the above judgment while accepting the contention of the Appellant that execution of the order of the NCLT is necessary to provide the Applicants (R-1 and R-2) substantial and tangible relief. 26. Thus, it is clear that NCLT is bound by law to execute its order/decree if called upon to do so, and that it has the power to execute an order under section 424(3) of the Companies Act, 2013. Further, as has been held in the judgment in the matter of M/s. Greishei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrectly by considering the Execution Application filed by the Respondents. 30. We now consider the argument put forward by the Appellants that, (i) the Consent Terms should be executed in its entirety; and (ii) the purpose and objective of entering into Consent Terms by both the parties was to ensure that the Company goes in the hands of Appellants and the Respondents, particularly R-1 and R-2 get an honourable exit from the Company by receiving adequate compensation and payment for dues as were agreed in the Consent Terms. 31. The argument of the Appellants is that once the shares of the Appellants have been attached with the NCLT Registry and are likely to be sold to make for payment of the requisite amount of Rs.28.77 crores as provided in clause 3(b) and (d) of the Consent Terms, the shares so sold on likelihood to be purchased by the Company s competitors, which could be Trimasys or Enemtech, and thus the Company will get out of the hands of the Appellants which is not the intention and objective of the Consent Terms. 32. We note that the Consent Terms were signed by Mr. Mukund Muley and Mrs. Arati Muley as Applicant No.1 and Applicant No. 2 and jointly by M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Consent Terms. 36. We therefore agree with the NCLT when it holds that once the Execution Application has been considered and decided by the NCLT, the Contempt Application and the Refund Application have become infructuous and are, therefore, liable to be disposed of as being infructuous. 37. In the result, we do not find any error in the Impugned Order of the NCLT, and maintain the Impugned Order with the following clarification/direction: (i) Only such number of shares out of the attached shares of A-2 and A-3 shall be sold by which the requisite amount of Rs.28,77,51,750 plus interest @ 10% p.a. for the period of delay in payment, keeping in mind the date/schedule of various instalments payments included in the Consent Terms is realized and paid to R-1 and R-2. The remaining shares shall be released to remain in the ownership of A-2 and A-3. (ii) In para 12 of the Impugned Order, the NCLT has kept the issue of enforcement of other prayers made in the Execution Application open and still to be adjudicated upon. It may endeavour to do so as early as possible. 38. With the clarifications/directions as stated in the preceding paragraph we dismiss the appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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