2021 (10) TMI 1344 - HC - Companies Law

Suit for specific performance of a Share Purchase Agreement - Sections 241 and 242 of the Companies Act 2013 - HELD THAT - It cannot be that if a court does not pass an order within a specific time, then the contract falls apart. If this is the submission, and it seems to me to be precisely the formulation of the Defendants, it is found very difficult to accept. It would amount to placing responsibility for the failure of the contract on the court or the tribunal in question. The provision in clause 4.2(b) must be read reasonably, having regard to the conditions in our tribunals. This public interest, whatever it be, must be subordinated to the much larger and wider public interest that dictates that contracts, once executed, have sanctity. They cannot so easily be allowed to slip their moorings. It is extremely difficult to accept the proposition that a contract, though solemnly entered into, can be given short shrift because a particular order of a Tribunal has not been obtained by a particular date or within a particular time. If parties are required to reasonably extend that time to enable that Tribunal or Court to pass a needed order, they must make the attempt to impress on that tribunal the fact that it what is sought is not contentious, that there is pressing urgency, and that both sides might conceivably be very greatly prejudiced if an order is not made. But that is all that needs - and needed - to be done. The NCLT can hardly be expected to divine the finer details of a contractual pre-condition unless something more is done than mere filing - It cannot be accepted that ILFS s refusal to extend the LSD is justifiable on the ground that the NCLT order is not received. Application disposed off.

Summary

Issues Involved:
1. Specific Performance of a Share Purchase Agreement (SPA).
2. Validity and implications of the Long Stop Date (LSD) and its extensions.
3. Jurisdiction of the High Court versus NCLT/NCLAT.
4. Impact of the NCLAT stay order on the proceedings.
5. Balance of convenience and prima facie case for interim relief.

Detailed Analysis:

1. Specific Performance of a Share Purchase Agreement (SPA):
The Plaintiff (SRL) sought specific performance of a Share Purchase Agreement dated 10th December 2020, to acquire the entirety of the shareholding of the 1st Defendant (ITNL) in the 3rd Defendant (JSEL). The SPA was part of a resolution process to optimize the value of ILFS/ITNL assets. The SPA included a 'Long Stop Date' (LSD), which was extended once but not a second time, leading to the current dispute.

2. Validity and Implications of the Long Stop Date (LSD) and its Extensions:
The SPA defined LSD, Initial Long Stop Date (ILSD), and Extended Long Stop Date (ELSD). The LSD was extendable by mutual consent. ILFS and ITNL refused SRL’s request for a second extension, arguing that without mutual consent for further extension, the SPA lapsed. The court examined clauses 4.2 and 4.8 of the SPA, noting that the seller (ITNL) had to obtain NCLT approval before the LSD. The court found that the refusal to extend the LSD based on the pending NCLT order was not justifiable.

3. Jurisdiction of the High Court versus NCLT/NCLAT:
The Defendants argued that the application should be made to the NCLT or NCLAT, citing Section 430 of the Companies Act 2013, which bars certain jurisdiction of civil courts. The court rejected this argument, stating that NCLT does not have jurisdiction to decide specific performance actions.

4. Impact of the NCLAT Stay Order on the Proceedings:
The NCLAT had issued a stay order on 15th October 2018, staying all proceedings against ILFS and its group entities. The court referenced its previous order in Bay Capital Advisors Pvt Ltd v ILFS Financial Services Ltd, where it held the NCLAT stay to be without jurisdiction based on the Supreme Court’s decision in Cotton Corporation of India Ltd v United Industrial Bank Ltd. The court emphasized that the NCLAT stay could not operate to stay a specific performance suit, which the NCLT/NCLAT cannot decide.

5. Balance of Convenience and Prima Facie Case for Interim Relief:
The court found a sufficient prima facie case and noted that the balance of convenience favored the Plaintiff. The Plaintiff would suffer greater hardship if relief was denied. Consequently, the court granted an interim order restraining the Defendants from disposing of or encumbering the shares, assets, and properties of JSEL, except in performance of the SPA, pending the disposal of ILFS’s application to NCLT and for one week thereafter.

Conclusion:
The court granted the Plaintiff's request for interim relief, restraining the Defendants from disposing of or encumbering JSEL's shares, assets, and properties, pending the NCLT's decision on the necessary permissions for the SPA. The court emphasized the sanctity of contracts and rejected the Defendants' arguments based on the NCLAT stay and the jurisdictional challenge.