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2017 (3) TMI 693 - HC - Companies LawFailure to disclose demerger - Held that - Admittedly the Scheme of Arrangement providing for demerger stood confirmed and was made binding w.e.f. March 31, 2001 and once the Scheme stands approved it binds the creditor whether or not they may have specifically consented to the Scheme. Hence, even if the ITDC had not disclosed about the demerger to M/s Ashok Chopra and Co. it would still be not liable under the decree. Moreso, under the Share Purchase Agreement the liabilities stood transferred to the appellant and thereafter it was the responsibility of the appellant to assume such liability in the event of objections preferred by ITDC being dismissed. The appellant cannot allege that the failure of the ITDC to disclose subsequent events would make the ITDC liable under the decree. Learned counsel for appellant though had relied upon the decision reported as 2004 (9) Scale 384 Government of Orissa Vs. M/s Ashok Transport Agency & Ors 2004 (11) TMI 329 - SUPREME COURT OF INDIA but the said decision is not applicable to the facts of this case, firstly because per clause 7 of the M/s OMC Alloys Limited and the Orissa Mining Corporation Limited (Amalgamation) Order, 1991 it was obligatory for the plaintiff to implead the Government in his suit and secondly in the case before us the appellant had a notice of arbitration proceedings as noted by us. Thus the law as it emerges is a mere continuation with the proceedings for the benefit of the assignee would not make the decree executable against the assignor, in this case the ITDC.
Issues Involved:
1. Validity of the arbitration award. 2. Transfer of liabilities under the Scheme of Arrangement. 3. Disclosure of litigation details during the bid process. 4. Responsibility for the outstanding liabilities post-demerger. 5. Execution of the decree against the correct party. Issue-wise Detailed Analysis: 1. Validity of the Arbitration Award: The dispute between ITDC and respondent No.1 (M/s Ashok Chopra & Company) was referred to arbitration, resulting in an award on June 02, 1994. The award granted ?15,14,187.60 with simple interest @ 13% per annum from July 30, 1990. ITDC filed objections to the award, which were pending until the Government of India decided to disinvest the hotel business at Gaya. 2. Transfer of Liabilities under the Scheme of Arrangement: The Scheme of Arrangement between ITDC and Bodhgaya Hotels Pvt. Ltd. (effective from March 31, 2001) transferred all debts, liabilities, and obligations of the transferred undertaking to the transferee. Clause 3.3(c) explicitly stated that all liabilities and obligations of the transferor related to the transferred undertaking would become the liabilities of the transferee. Clause 3.4 ensured that all legal proceedings by or against the transferor would continue against the transferee. 3. Disclosure of Litigation Details During the Bid Process: The appellant argued that the details of the arbitration award were not disclosed during the bid process. The balance sheet provided only mentioned a liability of ?3,20,000/- payable to M/s Ashok Chopra & Company. The appellant claimed that the litigation details were surreptitiously included in the Share Purchase Agreement and were not disclosed until a letter dated July 08, 2002. However, the court found that the Share Purchase Agreement did include information about the arbitration case and that the appellant had signed the agreement after due diligence. 4. Responsibility for the Outstanding Liabilities Post-Demerger: The court held that the appellant, having signed the Share Purchase Agreement, assumed the responsibility for the liabilities, including the arbitration award. The appellant's argument of misrepresentation was not upheld as the appellant did not rescind the contract upon discovering the alleged misrepresentation but chose to continue with it. The court emphasized that it was the appellant's responsibility to pursue the objections in the proceedings and assume liability if the objections were dismissed. 5. Execution of the Decree Against the Correct Party: The appellant argued that the executing court should not have discharged ITDC from the liability under the decree. However, the court noted that once the Scheme of Arrangement was approved, it became binding on all creditors, including M/s Ashok Chopra & Co. The court concluded that the failure of ITDC to disclose the demerger did not make it liable under the decree. The appellant, having assumed the liabilities under the Share Purchase Agreement, was responsible for the decree. Conclusion: The appeal was dismissed, with the court holding that the appellant was responsible for the liabilities under the Share Purchase Agreement. The court found no merit in the appellant's arguments regarding non-disclosure and misrepresentation. The decree was not executable against ITDC, as the liabilities had been transferred to the appellant. No order as to cost was made.
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