9911796707
TMI Blog2007 (12) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... N NO. 3731 OF 2007 IN SUIT NO. 2722 OF 2007 - - - Dated:- 14-12-2007 - DR. D.Y. CHANDRACHUD, J. Dr. Virendra V. Tulzapurkar, N.H. Seervai, S.V. Doljode, P.A. Kabadi and Ms. Meenakshi Iyer for the Plaintiff. I.M. Chagla, Prashant Beri, Janak Dwarkadas, Prashant Beri and Riyaz Chagla for the Defendant. JUDGMENT 1. The dispute in the suit and in the Notice of Motion relates to a shareholding of 19,25,992 shares of the Defendants in the First Plaintiff. The Plaintiffs seek specific performance of an agreement by which the Defendants agreed, according to the Plaintiffs, to sell their shareholding of 9,62,996 shares in the First Plaintiff which, together with the accretion of bonus shares totals up to 19,25,992 shares. The Plaintiffs claim that there was an agreement by which these shares were to be sold to the Second Plaintiff at and for a consideration of Rs. 240 per share. There is a claim for damages in the amount of Rs. 461.41 crores in the event that the Court comes to the conclusion that specific performance cannot be granted. The interlocutory relief which is sought in the Motion is for the appointment of a Receiver and for an injunction restraining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther with its associates in L T to a Trust nominated by L T. Thereupon, L T would not purchase further shares of CemCo for a prescribed period while on its part, Grasim would not purchase any shares of L T for a specified period. 3. On 17-6-2003 Grasim, acting in pursuance of its earlier proposal, offered to L T to buy the shares of CemCo for acquiring management control, at Rs. 171.30 per share, while on its part, Grasim agreed to sell its entire holding in L T, at Rs. 120 per share. The price of Rs. 120 per share was based on an assumed equity share capital of Rs. 248.67 crores and it was recognised that the actual number of shares may vary consequent upon which the price offered would have to be changed proportionately. 4. A meeting took place on 17-6-2003 of the Board of Directors of L T, during the course of which, the Board decided to accept in principle, the revised integrated proposal dated 15-6-2003, received from Grasim to demerge the cement business of the Company. The resolution of the Board noted that the integrated proposal would involve inter alia, the sale by Grasim of its entire shareholding in L T to a Foundation/Trust founded for the welfare of the em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offer price per share was Rs. 120 and that Grasim together with the Second Defendant owned 15.73 per cent of the equity capital. 7. A meeting of the Board of Directors of L T took place on 24-9-2003. The meeting was attended, inter alia, by Shri Kumar Mangalam Birla. Shri Birla, who is the Chairman of the Aditya Birla group, was a member of the Board of Directors of L T. A presentation was made to the Board of Directors of the essential features of the transaction. The presentation stated that the integrated proposal for demerger of the cement business of L T envisaged that Grasim will exit from L T, concurrently with the acquisition of management control of CemCo, by selling 14.95 per cent of its stake in L T to the L T employees welfare foundation, while the balance would be sold in the open market. The entire transaction was proposed to be executed through a composite and integrated scheme of arrangement under sections 391 to 394 of the Companies Act, 1956. The transaction documents contemplated were: ( i ) A Restructuring Agreement; ( ii ) A Scheme of Arrangement; and ( iii ) A Deed of Covenant. 8. On 21-10-2003, SEBI informed the Second Plaintiff that from its appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed of Covenant was entered into between L T and Grasim, recording that the restructuring agreement inter alia contemplated the sale by Grasim and the Second Defendant of the L T shares (defined to mean 14.95 per cent of the paid-up equity capital of L T held by Grasim and the Second Defendant) so as to exit from the remaining business. Clause 12.4 stipulated that the Deed contained the entire agreement of the parties thereto with respect to the transaction envisaged in the Deed cancelling or superseding all other proposals, negotiations, prior discussions, understandings and preliminary agreements. 11. The effective date under the Scheme of Arrangement was 13-5-2004. On 6-7-2004, Grasim transferred 14.95 per cent of its shareholding in L T to the Second Plaintiff at a price of Rs. 240 per share. It may be noted that the price which had originally been fixed at Rs. 120 per share, was increased proportionately to Rs. 240 per share. This was as a result of the capital restructuring of the First Plaintiff upon which there was a reclassification of 24.86 crores shares each of Rs. 10 into 12.433 crores shares each of Rs. 2. The shareholding of the Defendants became 1,85,98,068 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2004, a communication was addressed on behalf of the Plaintiffs by Shri N. Sivaraman, Executive Vice President to Shri D.D. Rathi, a whole time Director and Chief Financial Officer of Grasim recording that the approval of SEBI has been received for the acquisition of the balance stake on 27-8-2004. The communication recorded the assurance made on behalf of Grasim for the completion of the transaction and sought a time frame for completion. On 26-10-2004, a reply was forwarded on behalf of Grasim recording that L T had never communicated with Grasim before applying to SEBI and it was L T s unilateral decision in regard to the names of the seller, the approval for process etc., Grasim s Legal Advisers ware stated to be examining the matter in view of the complexity of the issue under applicable legislation. On 27-10-2004, Shri Sivaraman addressed a communication to Shri Rathi of Grasim. On 27-10-2004, the Chairman and Managing Director of L T addressed a communication to Shri Kumar Mangalam Birla, recording that the sale of the balance share of L T employees foundation had yet not been completed. On 28-10-2004, Shri Kumar Mangalam Birla addressed a letter to the CMD of L T recordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Second Plaintiff. 17. On behalf of the First Defendant it has been urged that ( i ) There was an initial agreement between the parties to buy and sell shares, under which 15.73 per cent of the shareholding of L T was to be sold by the Defendants to the Second Plaintiff at Rs. 120 per share; ( ii ) Parties, however, envisaged that together with the sale of the Defendants holding in L T, Grasim would acquire 8.5 per cent of the shareholding in the cement Company and the essence of the transaction was that this was to be done concurrently or simultaneously; ( iii ) In view of the SEBI Takeover Regulations, L T Foundation would have been required to make an open offer if it were to cross the threshold of 15 per cent while making an offer for the purchase of 15.73 per cent equity and it was as a result of this, that there was a change in the original agreement and the acquisition by L T was confined to 14.95 per cent. The balance of the shares were expressly given up; ( iv ) Three formal documents were executed between Public Limited Companies these being ( a ) The restructuring agreement; ( b ) The scheme of arrangement; and ( c ) The deed of covenant and these transactions docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncurrently, it would sell its entire shareholding in L T at a mutually agreed price to a foundation or trust to be nominated by L T. The proposal which was submitted by Grasim envisaged that upon the boards of directors of the two companies signifying their assent, L T, Grasim and the cement company would enter into a binding restructuring agreement to reflect the objectives and the understanding of the parties for the implementation of the proposal. In fact, the offer of Grasim was categorical in the following terms : " The restructuring agreement shall set out the framework of the entire transaction, the manner of implementation and the respective rights and obligations of the parties. The implementation of the transaction shall take place in terms of the restructuring agreement. In terms of the re-structuring agreement, the following documents are to be entered into in relation to various parts of the transaction: ( i ) the scheme of arrangement; ( ii ) a share sale and purchase agreement to be entered Into between the trust(s) and Grasim (the SPA ); and ( iii ) a deed of covenant to be executed by L T in favour of Grasim and CemCo (the deed )." [Emphasis supplied] At th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Grasim to the second plaintiff of the L T shares so as to exit from the remaining business , in other words, the exit of Grasim from L T was contemplated under the restructuring agreement by the sale of the L T shares representing 14.95 per cent of the holding in L T. Under clause 5 of the restructuring agreement, L T and Grasim agreed to enter into a deed of covenant which would set up rights and obligations of L T in relation to the rasidual shareholding in the share capital of CemCo and certain obligations of Grasim towards L T. Clause 1.7 of the restructuring agreement stipulates that the agreement contained the entire agreement between the parties superseding all previous understandings : "11.7 Entire agreement. This agreement contains the entire agreement of the parties hereto with respect to the transactions envisaged in this agreement, cancelling or superseding all other proposals, negotiations, prior discussions, understandings, arrangements, preliminary agreements, memoranda or heads of agreement and terms sheets made prior to the date hereof whether oral or written, with respect to the transactions envisaged hereunder." 22. The sanction of the Learned Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved through a restructuring agreement which would set out the framework of the entire transaction, the manner of implementation and the respective rights and obligations of the parties . The restructuring agreement was therefore, to be the agreement embodying the entire transaction and defining parties rights, obligations and entitlements. The proposal of Grasim was to the effect that parties would enter into a binding restructuring agreement which in turn, would be implemented by the scheme of arrangement, the share sale and purchase agreement and a deed of covenant. L T s board discussed the proposal on 17-6-2003 and decided to accept the revised integrated proposal dated 15-6-2003 received from Grasim as amended and agreed to, between the parties, subject to final discussion, documentation and modification. In terms of their understandings, parties entered into a Restructuring agreement which contemplated the sale of 14.95 per cent of the equity capital held by Grasim and the second defendant in L T. Parties accepted, both in the restructuring agreement and in the deed of covenant, that these agreements constitute the entire record of the transaction superseding all prior di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed to be acquired was stated to be 0.77 per cent and it was stated that on the acquisition of those shares, the total holding of the foundation L T would be 15.72 per cent. 26. Prima facie, there is in my opinion, merit in the submission that the earlier understanding between the parties for the sale of 15.73 per cent of the equity capital held by Grasim in L T, to the L T - Employees Foundation was superseded by ( i ) The Restructuring agreement; ( ii ) The Scheme of Arrangement; and ( iii ) The Deed of Covenant. The Restructuring agreement was the foundation of the Scheme of Arrangement which was presented before this Court. The parties envisaged in the Restructuring agreement that the Second Plaintiff would acquire from the Defendants 14.95 per cent of the holding of the Defendants in L T. The Scheme of Arrangement which was presented to and sanctioned by the Company Court was expressly on that basis. This was followed by the Deed of Covenant which incorporated the same understanding. The Restructuring agreement and the Deed of Covenant stipulate that they would constitute the whole understanding between the parties and would supersede all prior negotiations and un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding to the second plaintiff, while the balance would be sold in the open market. The sale in the open market was intended to be a part of the obligation of Grasim to exit from L T. Grasim, it may be noted, has stated before this Court through its counsel that it continues to be ready and willing to abide by that understanding to exit from L T by the sale of its balance holding in the market at the price prevalent at the present time. But that apart, the minutes of L T s board meeting of 24-9-2003 detract from the Plaintiffs case that independent of the Restructuring agreement , Grasim s holding of the balance 0.78 per cent was to be sold at a price of Rs. 240 per share. If at all, L T s board was apprised that the balance would be sold in the open market. 28. For all these reasons, I am unable to accede to the submission of the Plaintiffs that independent of the restructuring agreement, the Defendants were bound and obliged to sell 0.78 per cent of their equity holding to the Plaintiffs at and for a consideration of Rs. 240 per share. At the time when the restructuring agreement was entered into, parties confined the sale of the Defendants holding to the extent of 14.95 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was an agreement for the sale of the balance shares at a consideration of Rs. 240 per share. Meetings were held and as Counsel appearing for the Plaintiffs has submitted, drafts were exchanged. The exchange of drafts between Advocates cannot, at the interlocutory stage, be regarded as prima facie having resulted in a binding agreement. Whether the demand for an indemnity by Grasim would be suggestive of an agreement on a price of Rs. 240 for the balance shares, is a matter on which evidence would have to be adduced at the trial of the suit. At this stage, it cannot be concluded that there was any such binding agreement. 30. On the question of limitation, no opinion need be expressed at this stage. An issue shall have to be framed thereon and a finding rendered at the trial of the suit. 31. Finally, it would be appropriate to advert to the provisions of section 10 of the Specific Relief Act, 1963. Section 10 postulates that specific performance of a contract may in the discretion of the Court be enforced where there exists no standard for asserting the actual damage caused by the non-performance of the act agreed to be done or where compensation in money would ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
