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2025 (2) TMI 21 - HC - Companies LawExecution and compliance with the exit formula devised by the Company Law Board (CLB) for foreign investors ORE Holdings and Nandakumar Athappan to exit from a joint venture with Indian company CEPL - HELD THAT - It was very obvious from the strategy of KCP and his group of companies who have been litigating since CLB took cognizance of the controversy that they were keen to knock off the money invested by ORE and Athappan but when KCP strategies were halted by the CLB vide its Order dated 13.08.2008 he appeared to have entertained a belief that by reading the exit-formula the way he and his group of companies had since chosen to read they could deflect the focus from their need to abide by the directions of the CLB and bypass the exit-route prescribed for the self- preservation of both. This perhaps might have been the reason why the team-petitioner have chosen not to challenge the Order prescribing the exit- route for the foreign investors of the CEPL to quit from the company. The CLB contemplated on reduction in the share capital when it pronounced its set of directions. Does not KCP the captain of team-petitioner know it? He does. He knew it. His team s think-tank knew it. But he came to the wicket not to play cricket a game considered as synonymous with fairness associated with the gentlemen who played it. Did KCP shrewdly tried to manipulate an argument to equate the surrender of shares for achieving reduction of share capital as buy-back of shares? Indeed the CLB in the operative portion of its Order dated 13.08.2008 has underscored that its direction to CEPL to pay ORE and Athappan in cash or in kind will be the consideration for reduction of share capital and has not described it as consideration for the purchase of shares from its foreign investors. If the present petition is keenly observed KCP finds himself on an unplayable and slippery wicket. He even struggles for a cause of action. Therefore he has laid his hands on a clarificatory note of the RBI dated 28.08.2020 which decides nothing but only affirms its earlier decision dated 08.06.2015 permitting sale of 17.15 acres of VML land to the nominee of ORE. And when VML chose to withdraw petition which it had laid before the Delhi High Court challenging the proceedings of the RBI dated 08.06.2015 this Order became final. And necessarily what has been done pursuant to it has also attained finality thanks to the Order of the Supreme Court in the batch of SLP filed against the Order of this Court in C.A 5 to 10 of 2016. What remains to be done is the repatriation of sale proceeds from India for which permission has been sought from the RBI. When KCP valued the shares of ORE and Athappan it was not even 1% of the value which CEPL was under an obligation to pay them. KCP and his team s game-plan is very evident to unravel which not even the IQ required to solve a beginners sudoku is necessary. If he had gone to the CLB or the Court to seek clarification on the point he knew what to expect. It is hence he tried to circumnavigate the CLB and the Court and approached RBI and even the PMO faking a grievance where there is none and avoided seeking clarification whether share-pricing could be telescoped into the clause in the Order of the CLB directing payment of money invested by ORE and Athappan. Conclusion - The CLB s exit formula did not constitute a buy-back of shares as it aimed to return the invested sums and reduce share capital. The legality of the sale of VML property to ORE s nominee affirmed as it complied with FEMA regulations and was executed with necessary permissions. Petition dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment revolve around the execution and compliance with the exit formula devised by the Company Law Board (CLB) for foreign investors ORE Holdings and Nandakumar Athappan to exit from a joint venture with Indian company CEPL. The issues include:
ISSUE-WISE DETAILED ANALYSIS 1. Exit Formula and Buy-Back of Shares The primary issue was whether the CLB's order for CEPL to pay Rs. 75 crores to ORE and Rs. 4 crores to Athappan, plus interest, constituted a buy-back of shares requiring compliance with FEMA pricing guidelines. The Court analyzed the CLB's order, which mandated the return of the invested sums with interest, and required the surrender of share certificates for a reduction in share capital. The Court concluded that the order did not imply a buy-back of shares, as it aimed to restore the status quo ante and reduce share capital, not alter shareholding patterns. 2. Sale of Immovable Property and FEMA Compliance The issue concerned the legality of the sale of VML's immovable property to ORE's nominee, ORE Trust, and Athappan, considering FEMA regulations. The Court noted that the CLB's order allowed the sale of property as an alternative mode of settlement if CEPL failed to repay the invested amounts. The RBI had initially indicated that foreign entities could not acquire immovable property, but later permitted the sale to ORE's nominee. The Court found that the sale complied with applicable laws, as the CLB's order was executed with necessary permissions. 3. Judicial Proceedings and Finality of Orders The Court examined the judicial proceedings following the CLB's orders, including appeals and the Supreme Court's dismissal of SLPs. The Court emphasized the finality of the CLB's orders and the Supreme Court's endorsement of the sale of VML property, which vested title in the foreign investors' nominee. The Court noted that the petitioner had abandoned arguments on share pricing during earlier proceedings, precluding them from reviving these issues. SIGNIFICANT HOLDINGS The Court held that the CLB's exit formula did not constitute a buy-back of shares, as it aimed to return the invested sums and reduce share capital. The Court affirmed the legality of the sale of VML property to ORE's nominee, as it complied with FEMA regulations and was executed with necessary permissions. The Court emphasized the finality of the CLB's orders and the Supreme Court's dismissal of related SLPs, which confirmed the validity of the executed sale. The Court dismissed the petition, finding no merit in the petitioner's arguments, and closed all connected miscellaneous petitions without costs. The judgment underscored the importance of fairness and compliance with legal obligations, rejecting the petitioner's attempts to circumvent the CLB's orders and the judicial process.
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