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2023 (5) TMI 1163 - AT - Companies LawOppression and mismanagement - Consent Terms provided for acquisition of the entire shareholding - strict compliance with non-compete obligations. It is contended that Consent Terms are in the nature of compromise decree and NCLT has jurisdiction to execute the Consent Terms under section 424 of the Companies Act, 2013, but before execution and passing of the Impugned Order, it should have looked into alleged breach of the non-compete obligations under the Consent Terms, should have adjudicated upon. HELD THAT - As provided in clause 4, a sum of Rs.2,23,00,000 is to be paid on the final execution of the Consent Terms immediacy and the balance Rs. five crores was to be paid in five equal instalments of Rs. one crore each on various dates between 30.4.2019 and 31.8.2019 respectively. It is also clear that the payment of Rs.7.23 crores against gratuity, salary, non-compete compensation and amicable settlement compensation are to be paid independent of the payment towards shares held by Mukund Muley and his wife Arati Muley entailing in consequent to the payments by the Appellants to them. Clause 7 of the Consent Terms provide that in the event there is any default by any party, the Consent Terms will cease to be binding on the non-defaulting party, but without prejudice to this condition, in case of breach of non-compete obligation by the Respondents (R-1 and R-2), R-1 and R-2 shall be liable to return the amounts paid towards non-compete compensation and amicable settlement compensation. Thus, it is clear that the non-compete obligation and related compensation has been given a special position in the Consent Terms, and significant amount has been provided to be paid to R-1 in compliance of the non-compete obligation. NCLT is bound by law to execute its order/decree if called upon to do so, and that it has the power to execute an order under section 424(3) of the Companies Act, 2013. Further, as has been held in the judgment in the matter of M/s. Greisheim GmbH vs. Goyal MG Gases Pvt. Ltd. 2022 (1) TMI 1312 - SUPREME COURT a litigant is entitled to receive the fruits of decree, which in the present case is amount of Rs. 28.77 crores against sale/transfer of their shareholding by the Respondents in addition to certain other payments. It, therefore, becomes abundantly clear that NCLT has not erred in taking action for execution of the Consent Terms which were taken on record and approved by the NCLT. The facts of the case make it clear that the company Cotmac took unilateral action for termination of Consent Terms after it alleged breach of non-compete obligation by R-1, but it did not approach the NCLT for clarification or definite decision on breach of terms and conditions of the Consent Terms as it was required to do. Such an action by the Company and the Appellants fall short of the clause 27 of the Consent Terms and therefore the breach of Consent Terms by R-1 and R-2 remained mere allegation by one of the parties - since the breach of Consent Terms were not established by the Appellants, as was required under clause 27 of the Consent Terms, the NCLT moved correctly by considering the Execution Application filed by the Respondents. In view of the fact that the Consent Terms were agreed to by the rival parties to ensure that the Company continues to function as a healthy, viable and active company, the issue of execution of the Consent Terms in entirety should also be looked at by the NCLT upon an application to be made by any of the parties to the Consent Terms - it would be just and proper that when the shares of A-2 and A-3 are sold by the Company pursuant to execution of Consent Terms, the first right of purchase of those shares are given to A-2 and A-3, so that the possibility of the Company falling in the hands of its competitors/rivals is obviated. This would be in keeping with the objective of the Consent Terms and would take care of the interests of the company. There is no error in the Impugned Order of the NCLT, and the Impugned Order is maintained with the following clarification/direction (i) Only such number of shares out of the attached shares of A-2 and A-3 shall be sold by which the requisite amount of Rs.28,77,51,750 plus interest @ 10% p.a. for the period of delay in payment, keeping in mind the date/schedule of various instalments payments included in the Consent Terms is realized and paid to R-1 and R-2. The remaining shares shall be released to remain in the ownership of A-2 and A-3. (ii) In para 12 of the Impugned Order, the NCLT has kept the issue of enforcement of other prayers made in the Execution Application open and still to be adjudicated upon. It may endeavour to do so as early as possible. Appeal dismissed.
Issues Involved:
1. Execution of Consent Terms 2. Alleged Breach of Non-Compete Obligations 3. Contempt and Refund Applications Summary: 1. Execution of Consent Terms: The appeal was filed under section 421 of the Companies Act, 2013 against the NCLT's order allowing the Execution Application and dismissing the Contempt and Refund Applications. The Consent Terms, agreed upon by the parties, included the acquisition of shares and non-compete obligations. The NCLT was empowered to execute its orders under section 424 of the Companies Act, 2013, and the NCLAT upheld this power, citing the necessity to provide substantial relief to the decree holder. 2. Alleged Breach of Non-Compete Obligations: The Appellants alleged that Respondent No. 1 breached non-compete obligations by communicating with a rival company. They argued that the NCLT should have adjudicated this breach before passing the execution order. However, the NCLT found that the Appellants did not approach the NCLT to establish the breach as required under clause 27 of the Consent Terms. Thus, the breach remained an allegation, and the NCLT proceeded with the execution of the Consent Terms. 3. Contempt and Refund Applications: The Appellants filed Contempt and Refund Applications alleging willful disobedience and seeking a refund of non-compete compensation. The NCLT dismissed these applications as infructuous after considering the Execution Application. The NCLAT agreed with the NCLT's decision, noting that the execution of the Consent Terms was necessary to provide the Respondents their due compensation. Clarifications/Direction: 1. Only such number of shares necessary to realize Rs. 28,77,51,750 plus interest at 10% p.a. for the delay period should be sold, with the remaining shares to be retained by the Appellants. 2. The NCLT should adjudicate upon the enforcement of other prayers made in the Execution Application as early as possible. Conclusion: The appeal was dismissed, and the NCLT's order was upheld with specific clarifications regarding the sale of shares and the adjudication of remaining issues.
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