2016 (9) TMI 514 - HC - Companies Law

Arbitration and Conciliation - Held that - As admitted case of the respondents that both petitioners had transferred the equity shares of 35,04,28,478 constituting of 58.46% of respondent No.1 for just ₹ 2/-. The value of the said shares was ₹ 765 crores at that time in the market. Obviously, the respondent No.2 to clear the liabilities of respondent No.1 and in lieu thereof, the shares were transferred for ₹ 2/-. The respondents have not shown any cogent evidence before this Court that by this time they have spent more than ₹ 765 crores. The petitioners admittedly asked the respondents by letter dated 24th September, 2015 to take the steps to utilize the amount in the designated account No.2 in order to pay outstanding statutory dues and to take the necessary steps for compounding the offence under Section 276B of the Income Tax Act as alleged in the complaint. No doubt, certain details are provided to show that some dues were cleared. At the same time, it is not denied by the respondents if the BSE would have allowed the application filed in 2014, the warrants were supposed to be issued. It was agreed earlier and even after execution of SPA. Further during hearing the respondents have time and again mentioned that they are helpless at the hand of BSE. Otherwise, they are ready for issuance of warrants. As per issue of non-compounding of offences under Section 276B of Income Tax Act is concerned, as per SPA, in case the amount is received by the respondents and after adjustment already paid, the respondent is liable to pay the remaining outstanding as per details of designated account No.1 and 2 subject to the final adjustment of the amount before the Arbitral Tribunal. In case at this stage if both parties are agreeable they may take the necessary steps for the purpose of compounding of offences with cooperation with each other once the amount in the designated account No.1 and 2 is cleared. Without expressing anything on merit, as all the disputes have to be decided by the Arbitral Tribunal the part prayers in both petitions are allowed. The said amount of ₹ 579 crores shall be deposited by the respondents without prejudice in five equal monthly installments by way of fixed deposit for twelve months in the name of Registrar General of this Court. The first installment amount shall be deposited by the respondents on or before 7th August, 2016. Thereafter, the remaining installments shall be deposited on every succeeding month. Till the time all five installments are deposited, the interim order shall continue. As and when the amount is deposited, the petitioners would be at liberty to file the application for releasing of amount, the same would be considered on merit as well as the issue of interim orders. Both the parties shall take the necessary steps for the purpose of constitution of Arbitral Tribunal and once the Tribunal is constituted, it is expected that Arbitral Tribunal would publish the award within the period of twelve months. Liberty is also granted to move the application under Section 17 of the Act before the Arbitral Tribunal if so necessary or under any change of circumstances.

Summary

Issues Involved:
1. Non-issuance of Warrants.
2. Non-issuance of Non-convertible Redeemable Cumulative Preference Shares (CRPS).
3. Non-compounding of the offences under Section 276B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Non-issuance of Warrants:
The petitioners argued that warrants were to be issued under Clauses 3.1 and 3.2 of the SPA at an agreed price of ?16.30 per share, but the respondents failed to issue them. The petitioners had paid the entire consideration for the warrants by 23rd February 2015. The respondents maintained that the issuance of warrants was contingent upon obtaining necessary approvals from governmental authorities and that the application with BSE was closed due to lack of response from the company. The court noted that after the SPA's execution, it was the respondents' obligation to ensure the issuance of warrants. The court found prima facie that the petitioners could not be blamed for non-compliance and that the respondents were responsible for the present state of affairs. The court ordered the respondents to take steps to get the application reconsidered by BSE and SEBI.

Non-issuance of CRPS:
The petitioners claimed that CRPS shares were to be issued under Clauses 3.3 and 3.4 of the SPA, and they had paid the total consideration. The respondents argued that the issuance of CRPS shares was not possible due to non-compliance with Section 42(3) of the Companies Act, 2013, as the warrants were not issued. The court found that the petitioners had made the necessary payments and that the respondents were obligated to issue the CRPS shares. However, due to the impossibility of issuing warrants, the issuance of CRPS shares also became impossible. The court noted that the respondents were liable to return the consideration received for the CRPS shares with applicable interest under Section 42(6) of the Companies Act, 2013.

Non-compounding of the Offences under Section 276B of the Income Tax Act:
The petitioners argued that the respondents had undertaken to defend and hold them harmless from any penal action due to non-payment of statutory dues. The respondents contended that their obligation was limited to defending the petitioners and did not include compounding the offences. The court found that the respondents were obligated to take all steps to defend the petitioners from penal action as per Clause 12.3 of the SPA. The court noted that the respondents had paid substantial amounts towards statutory dues but had not fulfilled their obligation to compound the offences, which led to the filing of criminal complaints.

Relief:
The court ordered the respondents to deposit ?579 crores in five equal monthly installments by way of fixed deposit for twelve months in the name of the Registrar General of the court. The first installment was to be deposited by 7th August 2016, and the remaining installments on every succeeding month. The court also directed both parties to take necessary steps for the constitution of the Arbitral Tribunal and expected the Tribunal to publish the award within twelve months. The court granted liberty to move an application under Section 17 of the Arbitration and Conciliation Act before the Arbitral Tribunal if necessary. The petitions were disposed of accordingly.