2007 (12) TMI 287 - HC - Companies Law

Compromise and arrangement - Notice of Motion relates to a shareholding of 19,25,992 shares of the Defendants in the First Plaintiff - Plaintiffs seek specific performance of an agreement by which the Defendants agreed, according to the Plaintiffs, to sell their shareholding of 9,62,996 shares in the First Plaintiff which, together with the accretion of bonus shares totals up to 19,25,992 shares Held that - A prima facie case has not been made out for the grant of relief in the Notice of Motion. The Notice of Motion shall accordingly stand dismissed. Counsel appearing on behalf of the Plaintiffs has applied for the continuation of the ad interim order dated 5-10-2007 in order to enable the Plaintiffs to espouse their remedies in appeal. In view of the fact that the Court will be in recess between 21-12-2007 and 6-1-2008, it is in my view appropriate to extend the ad interim order so as to enable the parties to seek their remedies in appeal.The ad interim order dated 5-10-2007 shall, in the circumstances, stand extended until 18-1-2008.

Issues Involved:
1. Specific performance of an agreement to sell shares.
2. Claim for damages.
3. Appointment of a Receiver and injunctions.
4. Compliance with SEBI regulations.
5. Validity and enforceability of the restructuring agreement and related documents.
6. Limitation and legality of the transaction.

Issue-wise Detailed Analysis:

1. Specific Performance of an Agreement to Sell Shares:
The Plaintiffs sought specific performance of an agreement where the Defendants allegedly agreed to sell their shareholding of 19,25,992 shares in the First Plaintiff at Rs. 240 per share. The Plaintiffs argued that the agreement was part of an integrated transaction involving the sale of 15.73% of L&T's shares, of which 14.95% had already been transferred. The Defendants contended that the sale was limited to 14.95% due to SEBI regulations and that the restructuring agreement superseded any prior agreements.

2. Claim for Damages:
The Plaintiffs claimed damages amounting to Rs. 461.41 crores if specific performance could not be granted. The court noted that the Plaintiffs had quantified their claim in damages, suggesting that monetary compensation could be an adequate remedy.

3. Appointment of a Receiver and Injunctions:
The Plaintiffs sought interlocutory relief for the appointment of a Receiver and injunctions to restrain the Defendants from alienating the shares or exercising rights related to the shares. The court found that the Plaintiffs had not made out a prima facie case for such relief.

4. Compliance with SEBI Regulations:
The transaction's compliance with SEBI regulations was a significant issue. The Plaintiffs had sought and obtained SEBI's exemption for acquiring more than 15% of L&T's shares. The Defendants argued that the restructuring agreement was framed to comply with SEBI regulations, limiting the sale to 14.95% of the shares.

5. Validity and Enforceability of the Restructuring Agreement and Related Documents:
The court emphasized that the restructuring agreement, scheme of arrangement, and deed of covenant constituted the entire agreement between the parties, superseding all prior negotiations and understandings. The restructuring agreement explicitly defined the sale of 14.95% of the shares, and the court found no independent agreement for the sale of the remaining 0.78%.

6. Limitation and Legality of the Transaction:
The Defendants argued that the suit was prima facie barred by limitation and that the agreement was to enforce an illegal transaction. The court did not express an opinion on the limitation issue at this stage but noted that it would require evidence at trial.

Conclusion:
The court concluded that the Plaintiffs had not made out a prima facie case for the grant of relief in the Notice of Motion. The restructuring agreement and related documents were deemed to embody the complete and enforceable understanding between the parties, limiting the sale to 14.95% of the shares. The Notice of Motion was dismissed, and the ad interim order was extended to allow the Plaintiffs to seek remedies in appeal.

← Previous Next →