2020 (11) TMI 358 - Tri - Companies Law

Enlargement of period of payments by granting 6 more months time to make the first tranche of payments and to make subsequent tranches payments with 6 months difference each - HELD THAT - It is clear from the very language of the Office Memorandum that the same has been issued in the limited context of disruption of supply chains, and contractual breach occurring therefrom. The Memorandum of Settlement is undoubtedly neither a procurement contract nor any such class of contract where a 'disruption of the supply chains' would result in a breach of the contract between the parties. It is merely a settlement agreement under which the Respondents herein have withdrawn pending legal proceedings against the Applicants and the Applicants have undertaken the reciprocal obligation of purchasing the shares of the Company held by the Respondents at the rate and within the time frame as agreed under the Memorandum of Settlement. Therefore, the Office Order sought to be relied upon by the Applicants is not relevant to this case and the Applicants cannot refuse to perform their obligations under the Memorandum of Settlement seeking refuge under the same. There is a breach of undertaking between the parties. The TCP/25/KOB/2019 was disposed of on certain agreements between the parties. Applicants herein cannot absolve from the responsibility in making the payments to the Respondents, as believing the undertaking in the Memorandum of Settlement the Respondents had undertaken Financial Commitments with others. Considering the pandemic situation, in order to avoid litigation, the Respondents have already accepted the request of the Applicants for extension of time till 15.08.2020. However, without carrying out their obligation as per the Order dated 17.02.2020 in TCP/25/KOB/2019, they have come forward with the present Application seeking time from 31.12.2020. The applicants shall make the requisite payments to both Respondents - application disposed off.

Summary

Issues Involved:

1. Request for extension of time to make payments as per the Memorandum of Settlement.
2. Financial hardship due to the COVID-19 pandemic.
3. Opposition to the extension request by the Respondents.
4. Applicability of the Force Majeure Clause.
5. Tribunal's authority under Rule 15 and Rule 153 of the NCLT Rules, 2016.

Detailed Analysis:

1. Request for Extension of Time to Make Payments:

The Applicants sought an extension of six months to make the first tranche of payments and subsequent tranches with a six-month interval, citing severe financial difficulties due to the COVID-19 pandemic. They argued that the national lockdown led to a complete stoppage of work and the permanent shutdown of their Bangalore office, making it difficult to adhere to the original payment schedule agreed upon in the Memorandum of Settlement.

2. Financial Hardship Due to the COVID-19 Pandemic:

The Applicants contended that the unprecedented collapse in operations due to the pandemic resulted in a severe financial crisis. They were unable to make the first tranche payment by the agreed date of 30.06.2020 and requested an extension, which the Respondents initially granted until 15.08.2020. However, due to continued financial difficulties and strict lockdown measures in Thiruvananthapuram, the Applicants found it challenging to meet even the extended deadline.

3. Opposition to the Extension Request by the Respondents:

The Respondents opposed the extension request, arguing that the Applicants' case did not warrant invoking the Tribunal's jurisdiction under Rule 15 and Rule 153 of the NCLT Rules, 2016. They claimed that the application lacked bona fides and was an attempt to circumvent the Tribunal's order dated 17.02.2020. The Respondents emphasized that they had already made financial commitments based on the Memorandum of Settlement and that further delays would cause them severe hardship.

4. Applicability of the Force Majeure Clause:

The Applicants cited a government memorandum regarding the disruption of supply chains due to the pandemic as a case of natural calamity, suggesting that the Force Majeure Clause (FMC) should apply. However, the Tribunal noted that the memorandum was issued in the context of procurement contracts and supply chain disruptions, which did not apply to the settlement agreement between the parties. Thus, the Applicants could not invoke the FMC to refuse their obligations under the Memorandum of Settlement.

5. Tribunal's Authority Under Rule 15 and Rule 153 of the NCLT Rules, 2016:

The Tribunal examined whether the Applicants' request for an extension fell within its jurisdiction under Rule 15 and Rule 153. It concluded that the Applicants could not absolve themselves from their payment responsibilities, as the Respondents had made financial commitments based on the settlement. The Tribunal acknowledged the pandemic's impact but emphasized that the Applicants had already been granted an extension until 15.08.2020 and had not fulfilled their obligations within that period.

Conclusion:

The Tribunal ordered the Applicants to make payments to the Respondents as follows:

1st Respondent:

- 30.11.2020: ?8,27,831 for 2501 shares.
- 31.12.2020: ?8,27,169 for 2499 shares.
- 31.03.2021: ?11,03,885 for 3335 shares.
- Total: ?27,58,223 for 8333 shares.

2nd Respondent:

- 30.11.2020: ?8,27,500 for 2500 shares.
- 31.12.2020: ?8,27,500 for 2500 shares.
- 31.03.2021: ?11,03,223 for 3333 shares.
- Total: ?27,58,223 for 8333 shares.

The Tribunal disposed of MA No. 116/KOB/2020 with these directions, emphasizing the need to balance justice and the financial commitments made by the Respondents based on the settlement agreement.