2014 (9) TMI 1262 - HC - Companies Law

Amicable family separation - binding agreement capable of specific performance - Was there a binding and concluded Family Arrangement as pleaded, one capable of specific performance? - HELD THAT - The answer must be yes, for several reasons. The documents and events of 11th December 2009 all show so. The subsequent conduct of the parties also indicates that this is so. Were Defendants Nos. 2 to 8 bound by this Family Arrangement? HELD THAT - The answer must be in the affirmative. There is yet another way to envision this. What is the consequence of denying the Plaintiffs relief? - This much is clear the affairs of the Shivanand Group are now entirely known to the Dattaraj Group. The latter seems to have appropriated to itself certain properties. The only reasons given for opposing specific performance are, as discussed, untenable and even specious. That there was no concluded agreement is not a defence capable of acceptance. The tax evasion argument is one of desperation. As to the defence by Defendants Nos. 2 to 8, perhaps the less said the better; this is nothing but subterfuge and mendacity. The conclusion is irresistible that the Plaintiffs have made out a more than sufficient prima facie case, and have demonstrated too, that the balance of convenience is in their favour. It is self-evident that if reliefs as sought are not granted, immeasurable and irredeemable loss will be occasioned to them. The injunctions they seek, with some modifications, must be granted. Notice of motion disposed off.

Issues Involved:
1. Whether there was a binding and concluded Family Arrangement capable of specific performance.
2. Whether Defendants Nos. 2 to 8 were bound by the Family Arrangement.
3. Whether the Family Arrangement was contrary to public policy and tax evasive.
4. Whether the Plaintiffs were entitled to the injunctions sought.

Issue-wise Detailed Analysis:

1. Binding and Concluded Family Arrangement:
The Plaintiffs claimed that a binding agreement capable of specific performance existed, comprising seven documents, including a Memorandum of Understanding (MoU) dated 4th October 2009. The Defendants contended that no binding agreement existed as the separation required a detailed and surgical approach. The court found that the MoU and subsequent documents, including the Shivanand Group's proposals and Dattaraj's acceptance, constituted a binding and concluded agreement. The court noted that the Defendants' actions, such as making elections and starting development work, indicated acceptance and implementation of the Family Arrangement.

2. Binding Nature on Defendants Nos. 2 to 8:
Defendants Nos. 2 to 8 argued that they were not bound by the Family Arrangement as they were not parties to it. The court rejected this argument, noting that Dattaraj acted on behalf of his group, including these Defendants. The court highlighted that these Defendants were aware of the arrangement, as evidenced by their actions, such as Dipti contributing Rs. 2.5 crores towards the equity subscription of the resultant hotel company and the development activities carried out by the Dattaraj Group.

3. Public Policy and Tax Evasion:
The Defendants argued that the Family Arrangement was contrary to public policy and tax evasive. The court dismissed this argument, stating that the MoU provided for the equal sharing of tax liabilities and that tax planning and efficiency were legitimate. The court found no evidence of fraudulent intent to evade taxes and noted that the arrangement required court sanction, further ensuring its legitimacy.

4. Entitlement to Injunctions:
The Plaintiffs sought various injunctions to restrain the Defendants from dealing with the shares, properties, and businesses involved in the Family Arrangement. The court granted the injunctions, finding that the Plaintiffs had made a prima facie case and that the balance of convenience was in their favor. The court emphasized that denying the injunctions would cause irreparable harm to the Plaintiffs and noted the Defendants' attempts to sequester properties and assets.

Conclusion and Order:
The court concluded that there was a binding and concluded Family Arrangement capable of specific performance and that Defendants Nos. 2 to 8 were bound by it. The court rejected the arguments of public policy and tax evasion and granted the injunctions sought by the Plaintiffs, with some modifications. The operation of the order was stayed for eight weeks at the request of the Defendants' advocates.

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