2017 (4) TMI 537 - HC - Companies Law

Perpetual injunction restraining the defendants from revoking, canceling or terminating the registered user agreement - Held that - Mere stipulation of time in the contract does not automatically attract the time being the essence of a contract. The time, being the essence of a contract, must be gathered from the various clauses of an agreement and the intention of the parties in course of the dealing. In the instant case, it is a debatable issue whether the parties extended the time stipulated in the said agreement, which can only be decided upon full-fledged trial. It would not be wrong to say that if the time stipulated in the agreement is extended mutually even in absence of any stipulation in this regard in the agreement, such time cannot be an essence of a contract. It would not be proper for this Court to delve into these questions at the interlocutory stage when both the parties are at variance on extension of time. The Court can safely proceed on the premise that the financial support was given by the GVL to BWL by increasing the share capital of BRC and allotting those additional shares to GVL at a premium of ₹ 48/- per share with clear understanding that the same would be returned to BWL at a price of ₹ 158/- per equity share. The various clauses in the MOU conveys a definite intention of the parties that such amount is secured by nominating a person in the board of directors of the BRC by GVL. The matter took the different turn when the GVL wanted to have a full control of the BRC as BWL failed to buy back those shares within the stipulated time. Various meetings are called by the BRC and applications are pouring in on every such action for protection and preservation of the rights of the respective parties. From time to time the Court passes interim orders which are still operative. There is no difficulty in molding the relief under the changed circumstances even if the rights of the parties are crystallized at the time of institution of the suit. The interim orders are passed in aid of the final relief to protect and preserve the rights of the parties. This Court is unable to accept the submission of Mr. Mitra that the Court cannot pass an interim order on the basis of the facts unrelated and / or unconnected with the main reliefs. Thus All the applications are disposed of on the following orders - (i) All the parties are restrained from issuing any further shares of BRC and / or from changing the capital structure of the said company in any way or manner whatsoever; (ii) BWL and BRC are restrained from revoking, canceling or terminating the registered user agreement dated February 25, 2008 as modified by the agreement dated February 26, 2010 read with the letter of undertaking dated February 26, 2010 issued by the BWL to GVL till 25th February, 2020; (iii) The GVL and BRC and their agents, assigns and / or directors are restrained from selling, transferring, alienating and / or mortgaging the immovable assets of BRC; (iv) The Joint Special Officers appointed by the Division Bench in the order dated 6th February, 2012 shall continue to function and discharge their duties in the manner as indicated in the said order. In addition thereto, the Joint Special Officers shall submit the accounts in the form of report on half yearly basis till the disposal of the suit; (v) BRC is further restrained from inducting any new directors into the Board of Directors till the disposal of the suit.

Issues Involved:
1. Perpetual Injunction and Specific Performance of Agreements
2. Legality of Board Meetings and Resolutions
3. Interpretation of Memorandum of Understanding (MOU)
4. Interim Reliefs and Orders
5. Financial Transactions and Control over Subsidiary Company
6. Time as Essence of Contract

Detailed Analysis:

1. Perpetual Injunction and Specific Performance of Agreements:
Greatwall Vanijya Ltd. (GVL) filed C.S. 76 of 2011 seeking a decree for perpetual injunction to prevent Bengal Waterproof Ltd. (BWL) from revoking or terminating the registered user agreement dated February 25, 2008, as modified by the agreement dated February 26, 2010. GVL also sought mandatory injunction for the execution of a supplementary agreement incorporating specific clauses and other consequential reliefs, including specific performance of the February 25, 2010 agreement.

2. Legality of Board Meetings and Resolutions:
BWL, along with two individuals, filed C.S. 156 of 2011 challenging the legality of board meetings held on May 24, 2011, and June 4, 2011, by Bihar Rubber Company Ltd. (BRC). They sought declarations that these meetings and the resolutions passed therein were illegal, null, and void. Additionally, they sought to void forms and returns filed pertaining to BRC and to restrain the defendants from acting on a notice dated June 17, 2011, which called for an extraordinary meeting on July 12, 2011.

3. Interpretation of Memorandum of Understanding (MOU):
The core dispute revolves around the MOU dated February 26, 2010, between BWL and GVL. BWL argued that the MOU was essentially a loan agreement to overcome financial crises and that the time for buying back shares was not the essence of the contract, as the parties had extended the time. GVL contended that the MOU clearly stipulated that time was of the essence and that BWL's failure to buy back the shares entitled GVL to take control of BRC.

4. Interim Reliefs and Orders:
Several interlocutory applications were filed for interim reliefs. On April 13, 2011, an ad interim order restrained the defendants from issuing further shares in BRC or changing its capital structure. On May 11, 2011, the court further restrained BRC from surrendering the registered user agreement and BWL from terminating it. Additional applications sought to prevent GVL from transferring shares and to address issues regarding the management and control of BRC.

5. Financial Transactions and Control over Subsidiary Company:
The dispute includes financial transactions where GVL invested in BRC's equity share capital, which was then transferred to BWL as a refundable security deposit. The MOU allowed GVL to nominate a Chief Finance Officer in BRC and stipulated that BWL would buy back the shares within six months. BWL's failure to do so led to GVL seeking control over BRC, which BWL opposed, arguing that the transactions were intended to secure a loan.

6. Time as Essence of Contract:
The court examined whether time was the essence of the contract, considering the intention of the parties and their conduct. BWL argued that time was not the essence due to mutual extensions, while GVL insisted that the stipulated time was crucial. The court noted that determining whether time was of the essence required a full-fledged trial and that the issue was debatable.

Court's Orders:
1. All parties are restrained from issuing further shares of BRC or changing its capital structure.
2. BWL and BRC are restrained from revoking, canceling, or terminating the registered user agreement until February 25, 2020.
3. GVL and BRC are restrained from selling, transferring, or mortgaging BRC's immovable assets.
4. Joint Special Officers will continue to function and submit half-yearly reports.
5. BRC is restrained from inducting new directors into its board until the suit's disposal.

The court emphasized the need for interim protection to maintain the status quo and prevent any party from gaining an undue advantage during the litigation. The judgment underscores the complexity of corporate disputes involving financial transactions, control over subsidiary companies, and the interpretation of contractual terms.

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