9911796707
TMI Blog2007 (12) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Defendants from alienating the shares and exercising any rights in respect of the shares including voting rights or from receiving dividends. A mandatory injunction is sought requiring the Defendants to subscribe to shares, debentures or securities that may be offered by the Plaintiff's in respect of the holding of the shares in dispute. By consent, the Motion has been taken up for final disposal. 2. The First Plaintiff ('L&T') is a Company incorporated under the Companies Act, 1956, while the Second Plaintiff is a Trust founded for the benefit of the employees of the Company. Plaintiff Nos. 3 to 8 are trustees of the Trust. Both the Defendants are Companies incorporated under the Companies Act, 1956, the Second Defendant being a wholly owned subsidiary of the first. The Defendants held at the material time, 15.73 per cent of the then existing paid-up capital of the First Plaintiff and had two representatives on the Board of Directors. In or about 2003, the First Defendant ('Grasim') held 14.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 employees of the Company at Rs. 120 per share. L&T on its part would sell to Grasim, 8.5 per cent of its shareholding in the cement company at Rs. 171.30 per share. On 14-7-2003, L&T in a communication to Grasim communicated its in principle acceptance of the proposal subject inter alia to the condition that the shares to be sold by Grasim to an L&T Foundation/Trust would be cum-dividend/ cum-bonus. Grasim responded to the condition on 4-8-2003. 5. At this time, it was in the contemplation of the parties that the sale by Grasim to the L&T Foundation of its entire stake of 15.73 per cent, would need an exemption of the Securities and Exchange Board of India (SEBI) from the application of the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. On 11-8-2007, a communication was addressed to the Chairman and Managing Director of L&T, containing a copy of a letter addressed to him, by Shri D.D. Rathi, whole time Director and Chief Financial Officer on behalf of Grasim and it was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 application for exemption from the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, it was observed that Grasim had offered to exit from the Engineering business of L&T by selling its entire 15.73 per cent holding to an employees' welfare foundation, formed for the benefit of L&T employees. SEBI advised that the Foundation may, if it so desired, approach SEBI by making an application under regulation 3(1) read with regulation 4 after the demerger, when the matter would be examined in detail by SEBI. 9. Consequent upon these developments, a restructuring agreement was arrived at between L&T and Grasim on 3-11-2003. The recitals to the agreement spell out that the shareholding pattern of L&T include a holding of 15.73 per cent between Grasim and the Second Defendant. The expression L&T shares was defined in the restructuring agreement as follows : "'L&T Shares' means such number of fully paid equity shares representing 14.95 per cent of the paid-up equity capital of L&T, held by Grasim and Samruddhi after the Demerger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shares of Rs. 2 each. The Defendants effectuated a transfer on 6-7-2004 of a shareholding representing 14.95 per cent of the equity to the Second Plaintiff. 12. On 12-7-2004, an application was made by the Second Plaintiff to SEBI seeking exemption from making an open offer for acquiring more than 15 per cent of the shares of L&T under regulation 10. The application disclosed that the Second Plaintiff held 14.95 per cent of the total paid-up capital of the target Company and referred to the earlier application to SEBI as well as SEBI's response dated 24-10-2003. The application adverted to the Scheme of Arrangement sanctioned by this Court in pursuance of which 1.85 crore equity shares constituting 14.95 per cent of the share capital were sold to the Second Plaintiff. The offer, the application stated, was being considered for acceptance of the balance of 9,62,996 equity shares constituting 0.77 per cent of the share capital of L&T. There was a disclosure of the fact that upon the acquisition of the 0.77 per cent shareholding, the total holding of the Second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had yet not been completed. On 28-10-2004, Shri Kumar Mangalam Birla addressed a letter to the CMD of L&T recording that as regards the sale of the balance shares of the L&T employees' foundation, there was a commitment on that and that the transaction would be completed as soon as the teams of the respective parties had resolved certain issues. 15. According to the Plaintiffs, a meeting took place thereafter on 18-11-2004 at which Grasim is stated to have reiterated its commitment to sell its remaining holding in L&T at Rs. 240 per share. Grasim on its part was alleged to be apprehensive of the levy of capital gains tax between the rate of Rs. 240 per share which according to the Plaintiffs was the agreed rate and the then current market value of the shares which was between Rs. 850 and Rs. 860 per share. L&T on its part was not ready to furnish an indemnity to Grasim. The Minutes recorded that the issue was to be discussed with Grasim's Advocate who was then not available. The Plaintiffs sought in the course of several communications a meeting with the Advocate for Grasim and with the CMD. A meeting was held between the officials of the parties on 14-4-2005. Eventually, the neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme of arrangement; and (c) The deed of covenant and these transactions documents reflected the entire arrangement by which the scheme for restructuring was to be carried out; (v) The scheme of arrangement which was presented before the Company Court under sections 391 to 394 of the Companies Act, 1956 was based on the restructuring agreement which constituted the entire agreement between the parties; (vi) Sanction of the scheme before the Learned Single Judge was sought on that basis; (vii) in paragraph 14 of the plaint, a case has now been made out of a two stage agreement while in paragraph 18, an agreement is sought to be pleaded independent of the restructuring agreement; (viii) No such agreement was set up either before the shareholders or for that matter before the Company Judge when the scheme of arrangement was sanctioned; (ix) without prejudice to the aforesaid submissions on merits, interim relief should, in any event, be refused since specific performance cannot, in the final analysis, be granted having regard to the provisions of section 10 of the Specific Relief Act, 1963; (x) The suit prima facie is barred by limitation; and (xi ) The agreement between the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 'deed')." [Emphasis supplied] At this stage, to facilitate a prima facie evaluation of the merits, it would be necessary to emphasize the element of mutuality involved in the proposed transaction. Grasim was both a purchaser and a seller - it was to purchase 8.5 per cent of the holding in CemCo while it was together with its associates to surrender its entire shareholding in L&T to a foundation to be nominated by L&T. L&T on its part was to desist from purchasing further shares in the cement company, while Grasim was to desist from purchasing shares of L&T for a specified period. The offer envisaged that the restructuring of the cement business was to be completed by entering into a binding restructuring agreement and the transactional documents were to consist of: (i) The scheme of arrangement; (ii) The sale and purchase agreement; and (iii) A deed of covenant which would implement the restructuring agreement. The price at which Grasim would sell its shares to L&T was to be Rs. 120 per share subject to a proportionate change consequent upon a variation in the available base of equity shares. Grasim's proposals were contained in letters dated 15 and 17-6-2003. L&T's Board accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Learned Company Judge to the scheme of arrangement was expressly sought on the basis that under the scheme, the employees' trust will acquire 14.95 per cent of the shareholding of Grasim in L&T. The Learned Single Judge held that this would achieve the object of demerging the cement business. On the other hand, the exit of Grasim and the second defendant from L&T by the sale of their shareholding would preserve the ownership and management of L&T. 23. After the scheme was sanctioned, a deed of covenant was entered into between the parties under which the following undertakings were mutually offered by L&T and Grasim to each other : "2. Undertakings by L&T and Grasim.-In consideration of the restructuring in accordance with the terms of the restructuring agreement and the scheme of arrangement, L&T hereby agrees and undertakes that it shall dispose of the residual shareholding in terms of section 4 hereof, and perform its other obligations as set out in section 5 hereof in consideration of which Grasim agrees and undertakes to perform its obligations as set out in section 7 of this dead under and in accordance with this Deed." L&T's obligations were defined in clause 5 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or discussions, negotiations and understandings. 25. The earlier understanding between the parties was that 15.73 per cent of the shareholding of Grasim and the second defendant in L&T would have to be transferred. Parties were, however, conscious of the circumstance that the SEBl (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 imposed a restriction on an acquirer acquiring shares or voting rights which taken together with voting rights held by him or by a person acting in concert with him entitle the acquirer to exercise 15 per cent or more of the voting rights in the target company unless a public announcement to acquire the shares is made by the acquirer in accordance with the Regulations. It was as a result of the SEBl Regulations that the letter dated 27-8-2003, addressed by D.D. Rathi on behalf of Grasim to the CMD of the L&T, was placed 'in the safe custody' of S. Gurumurthy. The letter contemplated that if the foundation obtained an exemption from SEBI, it would proceed to buy the entire quantum of 15.73 per cent from Grasim but, that in the meantime, in order to proceed with the transaction, it was agreed that Grasim would sell a stake under 15 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. The essential requirement of a novatio under section 62 of the Contract Act is that there must be a complete substitution of a new contract in place of the old which would have the effect of rescinding, altering or extinguishing the previous contract. Lata Construction v. Dr. Rameshchandra Ramniklal Shah AIR 2000 SC 380 (at paragraph 1, page 383); Vishram Arjun v. Irukulla Shankariah AIR 1957 AP 784 (at paragraphs 6 and 10); Union of India v. Kishori Lal Gupta & Bros. AIR 1959 SC 1362 (at paragraphs 5 and 6); Citi Bank N.A. Standard Chartered Bank [2004] 1 SCC 121 (at paragraphs 47 and 50). In the present case, the terms of the Restructuring Agreement provide that the parties intended that it would constitute the entire agreement between them, cancelling and superseding all prior agreements and understandings. 27. It is in this background that a brief reference to the case which is pleaded by the Plaintiffs would be in order. In paragraph 14 of the plaint, the case of the Plaintiffs is that it was decided that the process of exit of the Defendants from L&T would be divided into two stages, the first involving the sale of 14.95 per cent of the shareholding and the balance bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect of the SEBI Regulations on the acquisition of shares or voting rights in excess of 15 per cent in the target company without making a public offer. There was, as noted earlier, an earlier understanding. Once however, the restructuring agreement was entered into that must, prima facie, be regarded as embodying the final, complete and enforceable understanding, particularly in the context of the fact that the sanction of the Court was sought and obtained on the basis of the restructuring agreement and that agreement alone. 29. The Second Plaintiff thereafter, applied for and obtained the permission of SEBI for the acquisition of an additional 0.77 per cent of equity that would take the total holding of the Second Plaintiff to 15.72 per cent. The Chairman and Managing Director of the First Defendant recorded his commitment for the balance shares 'as soon as the issues are resolved'. The case of the Plaintiffs is that at a meeting held on 18-11-2004, parties agreed that the balance of the shares would be sold at a consideration of Rs. 240 per share and that there was a commitment by the First Defendant to that effect. There is, however, a serious dispute on the correctness of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10 provides that unless and until the contrary is proved, the Court shall presume that the breach of a contract to transfer movable property can be relieved by providing monetary compensation except where the property is not an ordinary article of commerce, or is of special value or interest to the Plaintiff or consists of goods which are not easily obtainable in the market. In the judgment of the Federal Court in Jainarain v. Surajmull AIR 1949 FC 211, the Federal Court held that in a case where the subject-matter of the contract consisted of certain shares in a Private Limited Company, that it was quite proper to grant a decree for specific performance of a contract for the sale of such shares and that would fall within the scope of the illustration where the shares were limited in number and were not ordinarily available in the market. The same view was taken in a judgment of the Privy Council in Bank of India Ltd. v. Jamsetji A.H. Chinoy AIR 1950 PC 90. More recently, the Supreme Court followed the dictum in M.S. Madhusoodhanan v. Kerala Kaumudi (P.) Ltd. AIR 2004 SC 9091 (paragraph 139 at page 934). In the present case, it has been stated in the reply to the Notice of Motion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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