9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (3) TMI 552 - HC - Companies LawDecree for Permanent Injunction - plaintiff holding 49% shares in the defendant No.1 instituted this suit on behalf of defendant No.1 Company, to prevent the defendant No.2 holding the remaining 51% shares in the defendant No.1 Company and its 100% two subsidiaries impleaded as defendants No.3 & 4 from illegally and malafidely terminating the Business Service Agreement (BSA) between the defendant No.1 Company on the one hand and defendants No.2 to 4 on the other - also to restrain the defendants No.2 to 4 from entering into an agreement with the defendant No.5 for the same services for which they had entered into the BSA with the defendant No.1. - argument of the plaintiff that it is only owing to the negative covenant in Clause 8.1 of the JVA, that the BSA cannot be terminated before the end of the year 2013. Held that - Clause 8.1 of the JVA is not concerned with the determination of the BSA. Clause 8.1 is of the genre as often found in the JVAs whereby notwithstanding one of the joint venture parties being in majority, the decision on certain aspects requires affirmative vote of the minority shareholder also. Such clauses are intended to protect the interest of the minority shareholder. One such decision for which affirmative vote of the plaintiff was agreed to be necessary was of sale or disposal of the whole or any substantial part of the business and / or assets of the defendant No.1 Company in any manner whatsoever. However what that Clause encompasses is a decision of the defendants No.2 to 4 as shareholders of the defendant No.1 Company to transfer the business of the defendant No.1 Company. The defendants No.2 to 4 vis- -vis the plaintiff had two different status, one as joint venture partners of the plaintiff having majority share in the joint venture company floated / acquired with the plaintiff, and other as the channel owners. The said two status of the defendants No.2 to 4 cannot be mixed up. Plaintiff himself said that the BSA and the JVA are part of the same transaction. Rather when during the hearing, it was put to the plaintiff that the JVA being of three days subsequent to the date of the BSA should prevail, the response of the senior counsel was that they have to be read together. Thus unable to understand as to why, if the understanding of the plaintiff was that the defendants No.2 to 4 as channel owners will not take away the business from the defendant No.1 prior to three years, should the plaintiff have agreed to the BSA being terminable at the instance of the defendants No.2 to 4 without any cause whatsoever also. The BSA, on behalf of the defendant No.1 has been signed by the plaintiff himself and not by any nominee of the defendants No.2 to 4 in the defendant No.1 Company. The plaintiff having made the BSA determinable by its very nature cannot be permitted to rely on Clause 8.1 of the JVA to make it non determinable. Clause 8.1 is concerned with the decision making by the Board of Directors of the defendant No.1 Company and not by the action of the defendants No.2 to 4 as channel owners. It is nobody s case that the defendants No.2 to 4 as shareholders of the defendant No.1 Company or through their nominee Directors in the defendant No.1 Company have agreed to transfer the business of the defendant No.1 Company to some other person, even though the action of the defendants No.2 to 4 in their capacity as channel owners, of termination of the BSA with the defendant No.1 may have the same effect. The defendants No.2 to 4 as joint venture partners of the plaintiff can be said to have agreed to not using their majority on the Board of Directors of the defendant No.1 Company to take any decision of disposal of the whole or any substantial part of the business and assets of the defendant No.1 Company without the affirmative vote of the Directors of the defendant No.1 Company representing the interest of the plaintiff therein. The undisputed position is that the BSA is anterior in point of time to the JVA. For the settled position in law see Radha Sundar Dutta Vs. Mohd. Jahadur Rahim AIR 1958 (9) TMI 74 - SUPREME COURT , Sahebzada Mohammad Kamgar Shah Vs. Jagdish Chandra Deo Dhabal Deo 1960 (4) TMI 50 - SUPREME COURT and Uma Devi Nambiar Vs. T.C. Sidhan (2003 (12) TMI 582 - SUPREME COURT) that in construction / interpretation of deeds / documents, except a Will, the clause first appearing in the document / deed, prevails over the one appearing latter in the deed / document. Thus, applying the said test also, it will be the clause in the BSA permitting termination which will prevail over the clause if any to the contrary in the JVA. There can be no manner of doubt that the requirement of affirmative vote is a negative covenant. There can be no substantial or tangible distinction between a contract containing an express negative stipulation and a contract containing an affirmative stipulation which implies negative. The affirmative vote for the decisions mentioned in Clause 8 of the JVA, after its incorporation in the AoA, would thus make any decision and action in pursuance thereto requiring an affirmative vote without such affirmative vote, ultra vires the company. Unable to subscribe to the contention of the plaintiff that the purport of Section 42 of the SRA is to make agreements which by their very nature are not enforceable, enforceable. Section 42 of the SRA provides for a situation where even though the agreement may be found to be specifically not enforceable but the defendant has separately agreed not to do a certain act and permits grant of an injunction restraining the defendant from doing that act. It cannot be interpreted as making the agreement which is non enforceable, enforceable. It is also not as if the negative covenants are necessarily to be enforced. The Joint Venture Company defendant No.1 was not formed for a period of three years only there is nothing to suggest that it was to carry on business for a period of three years only. Nevertheless the plaintiff agreed that the right of the defendant No.1 Company to distribute the channels of the defendants No.2 to 4 was for a period of three years only, of which two years are already over. The plaintiff also agrees that the defendant No.1 Company after the third year has no right to claim any right to distribute the channels of the defendants No.2 to 4. In this light also, it is felt that it is not essential to protect the right even if any, of the defendant No.1 to distribute channels of the defendants No.2 to 4 for the remaining less than one year of the said three years by issuing an injunction and when the damages suffered are easily computable. Thus the suit for injunction is thus found to be not maintainable and is dismissed. Any observation made will not come in the way of the plaintiff / defendant No.1 claiming relief of damages or any other relief to which they may be entitled.
Issues Involved:
1. Maintainability of a derivative action by a shareholder for the benefit of a Company. 2. Binding nature of Joint Venture Agreement (JVA) terms on the defendant No.1 Company without incorporation in the Articles of Association (AoA). 3. Specific enforceability of the Business Service Agreement (BSA). Issue-wise Detailed Analysis: 1. Maintainability of a Derivative Action by a Shareholder for the Benefit of a Company: The plaintiff, holding 49% shares in defendant No.1 Company, instituted the suit as a derivative action to prevent defendants No.2 to 4 from terminating the BSA and entering into a new agreement with defendant No.5. The plaintiff argued that the termination was illegal and sought specific performance and injunctions. The defendants contended that the suit was not maintainable as the BSA provided for arbitration of disputes and the plaintiff, being the Managing Director, had not called upon the Company to take action. The court noted that derivative actions are typically permitted when the action complained of is ultra vires the Company. However, the court decided not to delve deeply into the maintainability of the derivative action, focusing instead on the relief sought. 2. Binding Nature of JVA Terms on the Defendant No.1 Company Without Incorporation in the AoA: The plaintiff initially did not plead that the terms of the JVA were incorporated in the AoA of the defendant No.1 Company. However, an amendment to the plaint was allowed to state that material terms of the JVA were incorporated in the AoA pursuant to a resolution passed in an Extraordinary General Meeting. The court examined Clause 8.1 of the JVA and Article 87 of the AoA, which required an affirmative vote for decisions involving the sale or disposal of substantial parts of the business. The plaintiff argued that the termination of the BSA amounted to such a disposal and required an affirmative vote. The court found that Clause 8.1 was not concerned with the determination of the BSA and was intended to protect the minority shareholder's interest in decision-making by the Board of Directors, not actions by the defendants as channel owners. 3. Specific Enforceability of the BSA: The court examined the nature of the BSA, which involved numerous details and continuous duties dependent on the parties' volition, making it non-enforceable under Section 14(1)(b) and (d) of the Specific Relief Act (SRA). The BSA also allowed termination without cause, making it determinable by nature and non-enforceable under Section 14(1)(c) of the SRA. The plaintiff argued that Clause 8.1 of the JVA constituted a negative covenant against terminating the BSA, but the court held that Section 42 of the SRA could not make an otherwise non-enforceable agreement enforceable. The court found that the negative covenant must be distinct from the affirmative agreement and that the BSA's termination was permissible under its terms. Conclusion: The court concluded that the suit for injunction was not maintainable and dismissed it, noting that the plaintiff could still claim damages or other reliefs to which they might be entitled. The court emphasized that the BSA was determinable by its nature and involved duties that could not be supervised by the court, making specific performance and injunction inappropriate.
|
