9911796707
TMI Blog1991 (12) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... each, comprising 67% of the paid-up and subscribed capital of Kissan Products Ltd. (hereinafter referred to as "the KPL") and 3,600 equity shares of the face value of Rs. 100 each, comprising 90% of the paid-up equity share capital of Merryweather Limited (hereinafter called "the MW"). The balance of 400 equity shares, comprising 10% of the paid-up equity capital of MW is held by another company, Herbertsons Ltd. (hereinafter called "the HL"). HL is a subsidiary of the first defendants. HL owns and controls a food division comprising a plant situate at Bhandup in Bombay, where food products are manufactured. KPL also holds 10% of the share capital of another company, Nepal Beverages and Food Products Ltd. (NBFPL) and is engaged in the manufacture and sale of food products. KPL and MW are owners of several trade marks, which have acquired wide reputation and are valuable. By the agreement dated July 31, 1991, the first defendants agreed to sell their 'food division' to the plaintiffs. The sale was to be achieved in the following manner : ( i )The first defendants undertook to transfer to KPL 100% shareholding of MW held by them and their subsidiary, HL. ( ii )The first defenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e memorandum or articles of association. The whole purpose of clause 9 appears to be that, pending the finalisation of the transaction and actual sale of the shares contemplated by clause 1 of the agreement, the first defendants would ensure that the two other companies concerned, KPL and MW, would do nothing which would change the control of the said companies or affect their value or net worth. Clause 10 provides for transfer of management control of KPL only on completion of the transaction as a whole, viz. , transfer of the shares after receipt of statutory approvals, wherever required. Simultaneously with the completion of the sale, transfer and delivery of their shares is also agreed. After transfer of the shares, the first defendants undertook to procure the resignation of the directors of KPL and MW, who represented or were the nominees of the first defendants, as the plaintiffs may require. Clause 11( a ) provides for payment of the balance of the total purchase price within the expiry of 30 days after all the approvals required for effecting the sale, transfer and delivery of the shares to the plaintiffs have been completed. The balance of the total purchase price wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trade Practices Act for transfer of shares of MW to KPL, which approval was also got renewed. Meetings were held from time to time between the plaintiffs and the first defendants embodied in the agreement and to effectuate all things necessary to implement the agreement. The fact of the impending transfer of the food division by the first defendants to the plaintiffs was reported widely in the newspapers and was also the subject of announcements made by the chairman of the first defendants in press statements. On November 13, 1991, the first defendants addressed a letter to the plaintiffs, in which the agreement of July 31, 1991, was confirmed and information was provided that the incremental net worth of KPL stood altered to Rs. 88,652,082 as at March 31, 1991, after incorporation of NBFPL shares. The first defendants formally confirmed that the purchase consideration would be Rs. 88,652,082 (which was subject to a further adjustment for the increase in net worth up to the transaction date) and that it stood apportioned as below : Rs. For MFPL ( sic ) shares 16,00,000 Take over of Bhandup 6,30,00,000 For KPL Shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the first defendants will carry out their obligations under the agreement dated July 31, 1991. Unless such confirmation was received within 48 hours of the receipt of the notice, the plaintiffs threatened that they would be adopting appropriate legal proceedings to enforce the agreement at the first defendants' costs and consequences. The only reply elicited to this was the letter dated November 28, 1991, from the secretary to the vice president of the first defendants, which merely stated that the said executive was "not available in the office" and was likely to attend the office in the next week. Upon his return to office, a reply was promised. The plaintiffs filed the present suit on November 29, 1991, and have taken out a draft notice of motion for interim reliefs. When the notice of motion was moved for ad interim reliefs in terms of the draft on December 2,1991, the first defendants appeared and opposed ad interim reliefs being granted on several grounds. The first defendants also placed reliance on a letter dated December 2, 1991, from the first defendants, addressed to the plaintiffs, alleged to have been despatched by registered post acknowledgment due, in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, though not parties to the contract, KPL, HL and MW had consented to or confirmed the transaction embodied in the agreement dated July 31, 1991. ( vii )The agreement is illegal, as it is contrary to the provisions of sections 13 and 16 of the Securities Contracts (Regulation) Act, 1956. ( viii )The suit for specific performance, at least at this stage, is untenable, as the conditions requisite for complying with section 372 of the Companies Act have not been fulfilled, and, therefore', the contract cannot be specifically enforced at this point of time, and, hence, no interim relief should be granted. The first contention is that, under section 293(1)( a ), the board of directors of the first defendants, a public company, is prohibited from selling, leasing or otherwise disposing of the whole, or substantially the whole of the undertaking of the company and, hence, the agreement was ultra vires powers of the board of directors of the first defendants. It is contended that the plaint makes it clear that what is agreed to be sold is the "food division" of the first defendants and, hence, what is agreed to be sold to the plaintiffs is a substantial part of the first defendants' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession "undertaking" as used in the definition of "industry" under section 2( j ) of the Industrial Disputes Act. It is a trite principle of interpretation of statutes that the interpretation given to a word or expression used in one statute may be of no avail while interpreting the same expression in another statute, unless the two statutes are in pari materia . The provisions of section 2( j ) of the Industrial Disputes Act are not in pari materia with the provisions of section 293(1)( a ) of the Companies Act, 1956, nor are the objects of the two statutes identical or similar. Although the two Mysore judgments relied upon by Mr. Cooper were both cases which arose under the Companies Act and, perhaps, could be said to be nearer home, these judgments are also not of much use in resolving the controversy that has been thrown up. In Yallamma Cotton's case [1970] 40 Comp Cas 466, a learned single judge of the Mysore High Court was concerned with a situation where the official liquidator of the company in liquidation had impugned the action of the creditor bank in taking possession of certain assets of the company in apparent exercise of its power as a mortgagee and charge-hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mehta, learned counsel appearing for the plaintiffs, that section 293(1)( a ) is not attracted at all, even if one goes by the meaning given to the word "undertaking" in the authorities cited. He contends that, in order to attract section 293(1)( a ) to the agreement relied upon by the plaintiffs, it would have to be shown that, by the agreement, the board of directors of the first defendant-company had sold, leased or otherwise disposed of the whole or substantially the whole of the undertaking of the first defendant-company and that, too, without the consent of the first defendant-company in general meeting. It is urged by learned counsel for the plaintiffs that the agreement is merely an agreement for sale of a specified number of shares of the first defendant. The agreement neither contemplates nor requires the first defendants to sell a substantial part of any of their undertakings. Prima facie, this contention appears to be correct. Notwithstanding the fact that, both in the agreement and in the plaint, there has been use of expression like sale of "food business" of the seller to the purchaser and there has been reference to the seller's "food business" carried on through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld result in the control of the food manufacturing plant ultimately landing into the hands of the plaintiffs. The plaintiffs are only seeking a direction against the first defendants that they be required to perform what had been undertaken as their obligations under the agreement and that the first defendants be restrained from doing anything that is inconsistent with the terms of the agreement or likely to defeat the rights of the plaintiffs thereunder. It is next contended that a reading of the contract would indicate that the parties have themselves contemplated that, in the event of breach of the contract, the consequence to ensue would only be that of refund of the earnest money with the stipulated interest on the happening of different contingencies. The terms of clause 11 are highlighted in this regard. It is also urged that there is nowhere a stipulation in the contract that the remedies provided under the contract in the event of a breach by the defendants are to be without prejudice to any other right that the plaintiffs may have in law. Ergo, the agreement was not intended to be specifically performed, is the submission of the plaintiffs. This argument also does not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereto, unless an investment is sanctioned by a resolution of the investing company in general meeting and unless previously approved by the Central Government. That there is not in existence a resolution of the plaintiffs at the general meeting to sanction the investment contemplated by the agreement and that such investment has not been approved by the Central Government previous to the signing of the agreement is not disputed. It is, however, urged that the section itself is inapplicable at this stage and that the plaintiffs are perfectly capable of complying with the section when the time for investment comes. The time for investment would arise after all the steps contemplated under the agreement are taken, and the period for getting approval is envisaged as a period of 9 months. The plaintiffs urge that, till such period is over, it is not open to the defendants to assume that the plaintiffs would be incapable of complying with the two conditions requisite under sub-section (4) of section 372. It was, therefore, argued that there has been no contravention of section 372. Prima facie, I am inclined to accept the contention of the plaintiffs. What is prohibited by sub-section (4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as prayed for would prejudicially affect the statutory rights of the company, as it involved relief relating to the management, control and regulation of the assets or the affairs of the company, and, therefore, the injunction as prayed for ought not to be granted at the interim stage. In my view, the judgment of the Calcutta High Court, with respect, is entirely distinguishable on facts. The facts were somewhat glaringly distinct. In the present case, the facts do show that the first defendants, without doubt, have controlling interest in the other three companies, viz. , KPL, MW and HL. There is nothing on the record from which a doubt can arise in my mind as to the inability or incapacity of the first defendants to stand by and perform their obligations. The last contention urged for the first defendants was that the contract was illegal, as it is hit by the provisions of the Securities Contracts (Regulation) Act, 1956. It is pointed out that the Central Government is empowered, under section 13 of the said Act, to apply the said section by a notification in the Official Gazette, and, upon such declaration, every contract in the State or area which is entered into after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed single judge of this court (Mrs. Manohar J.) in Norman J. Hamilton v. Umedbhai S. Patel [1979] 49 Comp Cas 1 and the judgment of the appeal court, confirming the said judgment, Dahiben Umedbhai Patel v. Norman J. Hamilton [1985] 57 Comp Cas 700 . Mr. Mehta submits that though the issue which the court was concerned with in both the said judgments was whether transfer of shares of a private limited company by a private treaty fell within the mischief of this Act, both the judgments of the learned single judge and the appellate court have approached the matter on principle and rejected the argument that the concept of "marketability" and "saleability" must necessarily converge. It is urged that both the judgments have, after an analysis of the historical background in which the statute was enacted, taken the view that the Act was intended to govern transactions in the market, i.e. , stock exchange, and not intended to apply to transfer of shares of a private limited company, not listed on the stock exchange, if such transfer was by a private treaty. Though Mr. Cooper, in fairness, himself pointed out the observations in these judgments and attempted to pre-empt the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingle judge and the appeal judgment of our court, I consider myself bound to take the view that the Securities Contracts (Regulation) Act, 1956, is not intended to regulate private transactions in shares of public limited companies, not listed on the stock exchange. This contention also, therefore, fails. During the course of the arguments, two facts were brought to my notice. First, on November 29, 1991, a suit, being S.C. Suit No. 8927 of 1991, was filed by a shareholder of HL in the Bombay City Civil Court. Interestingly, the advocates representing the first defendant-company were the advocates of HL therein, which does not seem to have opposed the motion for interim relief, except to state that it needed time to file a detailed affidavit-in-reply. Consequently, the learned judge of the Bombay City Civil Court took the view that it was necessary to maintain status quo as regards completion of sale of the Bhandup plant or handing over the same to KPL or the present plaintiffs. The motion, I am told, has been made returnable on December 19, 1991. Second, a suit was filed in the Court of the City Civil Judge of Bangalore by two shareholders of the first defendant-company to res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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