BEFORE THE COMPANY LAW BOARD, PRINCIPAL BENCH, NEW DELHI

 

CP NO. 73/2000

CA NO. 114/2001

 

Present:Justice A.K.Banerji, Chairman

                                                                         Sh. S. Balasubramanian, Vice Chairman    

 

In the matter of Section 397/398 of the Companies Act, 1956.

 

And

 

                             In the matter of  Unmesh Kantilal Shah & Anr.                              Petitioners

 

Vs

 

                              M/s Chemosyn Limited & Anr.                                                      Respondents

 

Present on behalf of the parties

1.      Shri Sunil Gupta, Counsel for the petitioner

2.      Shri Hemant Mehta, Solicitor for the petitioner

3.      Shri Jatin Zaveri, Advocate for the petitioner.

4.      Shri Sudipto Sarkar, Senior advocate for the respondents

5.      Ms. Bina Gupta, Advocate for the respondents

6.      Ms. Vanita Bhargava, Advocate for the respondents.

 

O R D E R

 

A.K. BANERJI

 

 

1.         In this order we are considering CA NO.114 of 2001 filed by the respondents  in Company Petition No.73 of 2000,  interalia praying for recalling of the order dated 21.5.2001 and for fixing a date for final hearing of the company petition. 

2.         Briefly stated, the facts relevant for the purpose of deciding the present application are : CP 73/2000 was filed by the petitioners under Section 397/398 of the Companies Act 1956(the Act) interalia alleging various acts of oppression and mismanagement against the respondent /applicant and seeking appropriate reliefsOn 7.9.2000 while passing an ex-parte interim order the respondents were directed to enter

appearance  fixing 22.9.2000 for considering the interim application.  On the said date while considering the matter we directed the parties to explore the possibility of resolving the disputes amicably, and fixed 26.9.2000 for submitting the proposal for amicable settlement .  However, as the compromise efforts failed, on the said date the parties were directed to complete the pleadings and a date was fixed for final hearing .  ON 2.2.2001 while hearing the matter the following order was passed by us ;

 

               "The Counsel for the Respondents submits that on behalf of his clients he is making an offer that the Company would purchase the shares held by the Petitioner on valuation already agreed between the parties within a time frame as may be agreed to by the parties by consensus, failing which the Bench may fix the time frame.  He submits that the acceptance of this offer would put an end to the litigation between the parties.

               The Counsel for the Petitioner seeks time to consult his clients.

            To report on 12.2.2001 at 2.15 P.M. "

 

3.         On 12.2.2001 the counsel for the petitioner submitted that his clients were prepared to abide by the agreement between the parties and  a proposal in regard to implementation of the same was given.   Consequently the respondents were directed to react to the same by 26.2.2001 Thereafter the case was adjourned twice on request and when it was taken up on 16.4.2001 as the respondents were absent, it was ordered that the matter will be considered on 4.5.2001 in the light of the order dated 2.2.2001 and 12.2.2001. On the said date it was ordered that the respondents would react on 21.5.2001 to the time frame given by the petitioner for payment of the shares. On 21.5.2001  it was ordered  that as the  parties have  not been  able to agree  to the  time frame for   making

 

 

payment as stipulated in the order dated 2.2.2001, the bench will fix the same shortly .  However, before any further orders were passed CA No.114 of 2001 was filed by the respondent seeking recall of the order dated 21.5.2001 as  mentioned above. 

4.         The petitioners have filed their objection to the said application .  We have heard Shri Sarkar, learned senior counsel for the respondent applicant and Shri Sunil Gupta, learned counsel for the petitioner . 

5.         On behalf of the applicant it was contended that the payment stipulated was under the Family Settlement Deed (Deed in short) dated 12.10.1999.  The relevant clause of the said deed stipulated that all liabilities of the companies/firms whether present/past/future other than the personal ones (emphasis supplied) as per books of accounts of firms /companies will be with Shri S.K. Shah (respondent) and the companies/firms /SK Shah shall indemnify UK Shah (petitioner) and group of the same.  Apparently therefore, it was contended,  the personal liabilities of the petitioner as per books of accounts had  to be deducted for deciding the amount payable to the petitioner as value for his shares  .  It was further contended that the personal liabilities of the petitioners group amounted to Rs.273,73,000 (Rupees Two crores seventy three lacs and seventy three thousand) only as principal plus interest . The respondents had earlier given a proposal to the petitioners' group for settlement. In the counter offer in paragraph 7 thereof petitioners had agreed to the deduction of the personal liabilities of the petitioners group from the amount payable under the Deed.  The respondents gave proposed time frame for settlement including the payment of personal liabilities of petitioners group, which was rejected by the petition or on 21.5.2001.  It was further submitted that since the petitioners group is not willing to abide by the said deed fully therefore there can be no settlement unless all the terms of the deed are fully  implemented.

6.         Learned counsel for the petitioner has on the other hand submitted firstly, that the present application is not maintainable as the same was on behalf of the respondent No.2 who has neither signed nor verified the application neither has the same been moved upon his instructions.  The affidavit filed in support of the application is by one Bhupesh T.Desai who is a complete stranger to the present proceedings and states that the application has been filed under his instructions. On all previous occasions it is the respondent no.2 who had signed and verified the pleadings and affidavits .  Secondly it has been contended the petitioners did not seek the enforcement of the Deed dated 12.10.99. Neither did this Board pass any such order.  The order dated 2.2.2001 was passed at the instance of the respondents to purchase the petitioners shares and the same was not dependant on the implementation  of the family settlement or subject to any adjustment of liability.  Thus none of the other terms and conditions of the settlement deed are relevant. Further the valuation of shares stands on an independent basis and is unaffected by any such alleged liability. Thirdly it was contended that any negotiations or correspondence prior to the orders dated 2.2.2001/12.2.2001 on matters other than time frame are wholly unwarranted and irrelevant.  Lastly it was contended that there was no term in the Settlement Deed requiring any person much less the petitioner to discharge any liability by making any payment and the respondents are trying to wriggle out of the undertaking given before this Board by raising irrelevant questions whereas  the only thing that remained was the time frame within which the respondents were required to pay the price of the petitioners shares in the respondent company. 

7.         We have considered the respective submission made by the Learned Counsel for the parties .  As regards the question of maintainability of the application raised by the petitioners it will be noticed that though the heading of the application states that the same was on behalf of the respondent no.2 we find that the same counsel represents all the respondents including the respondent company and has signed the application on behalf of the respondents .  The affidavit filed in support of the said application is by Bhupesh T. Desai, the Manager Operations of the respondent company who has stated that he was conversant and well versed with the facts and the circumstances of the case and was competent to swear the affidavit.  It is to be noted that the offer which was made on 2.2.2001 stated that the company was prepared to purchase the shares of the petitioner at the price agreed.  Therefore, the company being the purchaser of the shares will have a say in the matter. Bhupesh T. Desai Manager Operations of respondent company is no outsider and the affidavit filed by him cannot be ignored. We are, therefore, not inclined to take a technical view of the matter and will be considering the application on merits. 

8.         The bone of contention between the parties, as apparent from the arguments of the counsel is the quantum of consideration payable to the petitioners.  According to the respondents, it is net of the personal liabilities of the petitioners to the companies and the Firms, while according to the petitioners, no adjustment towards the liabilities is to be made.

9.         For the determination of this issue, it is necessary to recall our orders dated 2.2.2001 and 12.2.2001.  We have already reproduced the order dated 2.2.2001 earlier.  The order dated 12.2.2001 reads "The counsel for the petitioners submits that his clients are prepared to abide by the agreement between the parties.  He has given a proposal in regard to the implementation of the same.  The respondents to react to the same by 20.2.2001.  The matter will be considered on 26.2.2001 at 4.30 p.m.  The company may purchase the shares".

10.       Thus while our order dated 2.2.2001 records the statement of the counsel for the respondents that "the company would purchase the shares held by the petitioners on valuation as already agreed between the parties" the order dated 12.2.2001, records that "the counsel for the petitioners submits that his clients are prepared to abide by the agreement between the parties".  Except the Deed, there is no other agreement that has been produced before us regarding the valuation nor the statement of the either of the counsel indicated the amount of the valuation.  The amount is found only in the Deed.  The Deed of Family Settlement dated 12.10.1999 describes that the group consists of 12 companies/firms and that the petitioners 1 and 2 hold 34% of the shares in the company and 34% capital in the firms.  Some of the clauses in the deed are relevant to adjudicate on the matter before us:

"In consideration S.K. Shah group will pay total amount, total cost including everything that will be:

a) Rs.650 lakhs to Shri UK Shah  and group for  acquiring their shares of  holding  in Company/Firms. 

b) Rs.40 lakhs to Smt. P.K. Shah for acquiring her shareholding in the Company/Firms.  Then there will be no further consideration payable to her & Shri U.K. Shah Group."

---------

            "On receipt of Rs.650 lakhs within 24 months from the date of signing this agreement, Shri U.K. Shah/Group will cease to be director and he will resign as director as well as partner in Firm.

            All liabilities of the Companies/Firms, whether past/present/future other than the personal one as per books of accounts of Firms/Companies will be with Shri S.K. Shah and the companies/firms/Shri SK Shah shall indemnify Shri UK Shah and Group of the same.

            Shri P.K. Shah group shall transfer 1% shares held by her on receipt of Rs.40 lakhs from Shri S.K. Shah and resign from directorship."

11.       From the above terms of the Deed, we find that the consideration of Rs.650 lakhs plus Rs.40 lakhs is not exclusive for the shares in the company alone. It includes the value for the 34% capital in the Firms also.  According to the terms of this Deed, the personal liabilities of the petitioners in the companies and Firms have to be borne by them, which, according to them is not binding on them in terms of the statement of the counsel for the respondents as recorded in our order dated 2.2.2001.  When the foundation of the statements of the counsel from both the sides is the Deed, without all the terms of this Deed being implemented fully, which the respondents insist while the petitioners are not willing, we cannot bind the respondents to the statement of their counsel as recorded in our order dated 2.2.2001.      

12.       Even otherwise, it is to be noted that the statement of the learned counsel for the respondents as recorded in our order dated on 2.2.2001 was an offer made which was accepted by the learned counsel for the petitioner on 12.2.2001.  Assuming that the intention of the learned counsel for the respondents while making the statement on 2.2.2001 was on the basis of complete working out the terms of the Deed and the intention of the learned counsel for the petitioners as recorded in our order dated 12.2.2001 was independent of the Deed, then, there was no consensus ad idem between the counsel and there is a bonafide dispute in regard to the terms of their statements.  In Manish S. Sharma Vs. Ram Bahadur Thakur Ltd (CP 56/96) when an application was made under Section 634(A) for execution of the consent order passed by this Board, it was held that when there is a bonafide dispute on the terms of the consent, then the same cannot be executed.  However, from the orders recorded by us on 2.2.2001 and 12.2.2001, we find that both the sides had referred to the earlier agreement which is only the Deed and therefore, to bind the respondents, the petitioners should also be prepared to comply with the terms of the Deed.  This is what this Board decided in the above case, referring to Jai Narain Ram Lundia Vs  Kedar Nath Khetan (AIR 1956 SC 359) wherein the Apex Court observed that "When a decree imposes obligations on both sides which are so conditioned that performance of one is conditional on performance by the other, execution will not be ordered unless the party seeking execution not only offers to perform his side but, when objection is raised, satisfies the executing Court that he is in a position to do so".

13.       Further, we have recorded in our order dated 2.2.2001 the statement of the counsel for the respondents   " that the acceptance of this offer would put an end to the litigation between the parties."  Obviously, unless the terms of the Deed are completely worked out, the disputes between the parties cannot come to an end.  We also find from  the copies of the correspondence and the draft consent terms exchanged between the parties after our order dated 2.2.2001 which were  without prejudice to their contentions   that not only there was  variance of the instalment payment schedule and the time frame laid down in Settlement Deed but other clauses regarding certain other payments to be made to the petitioner and certain other items had been indicated by the petitioners in their draft consent terms submitted to the respondents.  In their turn the respondents  had also in their draft consent terms submitted for consideration of the petitioners in March, 2001 indicated that for  purchasing the shares the respondent company would sell and dispose of its immovable property at Andheri(East) Mumbai and further indicated the terms for  sale of the property for acceptance by the petitioners, in the draft consent terms containing as many as 21 clauses.  From the notices exchanged by the lawyers/solicitors of the parties it would be evident  that negotiations between the parties were running into difficulty.  In reply to the notice dated 5.4.2001 sent by the petitioners solicitors the respondents solicitors had raised the  question regarding the personal liabilities/debit balance of the petitioners and the family members in the firm Surajmani Enterprises and called for further discussions.  It may be mentioned that in the Deed of Settlement also  which has been signed by both the parties while indicating the schedule of payment and timeframe for purchase of the shares of the petitioners group it authorised the respondent no.2 to raise funds for purchase of the said shares .  It is evident from the documents filed by the respondents including the correspondence, notices and the proposals giving consent terms without prejudice that this was not a simple case of a party going out by selling its shares or the  dispute coming to an end  by the buying of the shares .  It is apparent that for settling all the pending disputes between the parties something more was required to be done .  Under the circumstances despite our having indicated that we would fix a timeframe for payment , in the facts and circumstances of the case it will not

be fair to bind the respondents to their statement  recorded by us on 2.2.2001, unless petitioners are willing to implement the terms of the Deed in full. 

14.       Accordingly, if the petitioners are willing to implement the Deed in full subject to verification of the amount of their personal liabilities in the companies/firms, they should convey their willingness to the respondents, with a copy to this Bench by 10^th March, 2002.  Once the petitioners convey their willingness, then, the respondents will be bound by the statement of their learned counsel as recorded in our order dated 2.2.2001.  In case, the petitioners, either fail to send such a notice by 10^th March, 2002, or convey their unwillingness, then, the order dated 2.2.2001 shall be deemed to have been recalled and the matter will be heard on merits on a day to be fixed in due course. Consequently, the application CA 114/2001 is disposed off accordingly.

 

 

(S. BALASUBRAMANIAN)                                                                                        (A.K. BANERJI)

 

New Delhi,

Dated       February, 2002.