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2016 (1) TMI 44 - HC - Companies LawRestraining the Appellants from selling 20,14000 shares of United Breweries Limited (the NDA shares) which were furnished as security under the Non-Disposal Agreement dated 12/11/2011 - appeal against the order of injunction granted by the learned Single Judge delivered in favor of Kingfisher Airlines Limited - maintainability of appeal - Held that - no prima facie case has been made out by the Plaintiffs for grant of any interim relief and Plaintiff No.1 - United Breweries (Holdings) Limited was duty bound to pay the recompense amount and upon its non-payment of the said total short-fall of ₹ 146 crores, Defendant No.1 - 3i Infotech Trusteeship Services Limited became entitled to sell these shares to recover the said short-fall and to whom Plaintiff No.1 - United Breweries (Holdings) Limited has given Power of Attorney to sell in the event of default being committed by it. Non-payment of short-fall and recompense amount clearly constituted the event of default under clause 9.1 and 10 of the LPA which also has been incorporated under clause 3.1(h ) of the NDA. It is well settled that recitals alone do not spell out the intention of the parties but terms and conditions of the contract and intention of the parties have to be taken into consideration for arriving at any conclusion. The interest component could be converted into equity shares and the loan component would be reduced to 403.72 crores with interest. However, both these components have been fully secured; the loan component by the pledged shares and the top-up shares and equity component by the Fixed Deposit of margosa and 20,14,000 shares of United Breweries Limited which could be sold in the event of default. The questions are answered as follows - (1) Whether 20,14,000 shares of UBL furnished as security (NDA shares) under Non-Disposal Agreement dated 12/11/2011 was available as security in favour of the Appellants for the payment of their recompense claim arising under Clause 10.1 of the Loan Purchase Agreement dated 21/12/2010? - Held Yes. (2) Whether the Appellants recompense claim was capable of being collateralised or secured? - Held Yes (3) Whether the NDA shares were given in lieu of top-up obligation under clause 4.1.3 of the Loan Purchase Agreement only? - Held No. Decided in favor of appellant bank.
Issues Involved:
1. Whether 20,14,000 shares of UBL furnished as security under the Non-Disposal Agreement (NDA) dated 12/11/2011 were available as security for the appellants' recompense claim under Clause 10.1 of the Loan Purchase Agreement (LPA) dated 21/12/2010. 2. Whether the appellants' recompense claim was capable of being collateralized or secured. 3. Whether the NDA shares were given solely for the top-up obligation under Clause 4.1.3 of the LPA. Issue-wise Detailed Analysis: Issue 1: Whether 20,14,000 shares of UBL furnished as security under the NDA were available as security for the appellants' recompense claim under Clause 10.1 of the LPA. The appellants argued that the NDA shares were meant to secure all of Plaintiff No.1's obligations under the LPA, including the recompense claim. They pointed to clauses 3.1(h), (i), and (k) of the NDA, which they claimed clearly envisaged the use of the NDA shares to cover any shortfall resulting from the sale of equity shares of Kingfisher Airlines Limited. The respondents, however, contended that the NDA shares were provided solely as a top-up security to maintain the value of the pledged shares and were not intended to cover the recompense amount. The court found the appellants' interpretation more convincing, noting that the clauses in the LPA and NDA, when read together, indicated that the NDA shares were indeed intended to cover the recompense amount. Issue 2: Whether the appellants' recompense claim was capable of being collateralized or secured. The appellants maintained that the recompense claim was secured by the NDA shares, as evidenced by the terms of the LPA and NDA. The court agreed, highlighting that the LPA clearly stipulated that the recompense amount was to be paid by the purchasing party in the event of a shortfall from the sale of equity shares. The NDA further provided that the NDA shares could be sold to cover any such shortfall, thereby securing the recompense claim. Issue 3: Whether the NDA shares were given solely for the top-up obligation under Clause 4.1.3 of the LPA. The respondents argued that the NDA shares were provided solely to top-up the pledged shares under Clause 4.1.3 of the LPA and were not intended to secure the recompense amount. The court, however, found that the NDA shares were intended to secure both the top-up obligation and the recompense claim. The court noted that the NDA and LPA contained specific clauses that allowed the NDA shares to be sold to cover any shortfall resulting from the sale of equity shares, thereby securing the recompense claim. Findings and Conclusion: The court concluded that the learned Single Judge had misinterpreted the Non-Disposal Agreement and the Loan Purchase Agreement, resulting in an erroneous finding. The court found that the NDA shares were indeed intended to secure the recompense claim and that the appellants' recompense claim was capable of being collateralized. The court also found that the NDA shares were not given solely for the top-up obligation under Clause 4.1.3 of the LPA. Accordingly, the court set aside the impugned order of the learned Single Judge and allowed the appeals. Conclusion: The impugned order passed by the learned Single Judge was set aside, and the appeals were allowed. The court ordered that the status quo be maintained until 5th January 2016, to allow the respondents time to seek further interim orders from the Apex Court.
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