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TMI Blog2016 (1) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... also the issuance of duplicate share certificates. The Board has rightly discarded the valuation report and the reliance upon the same by Muthu Group is an act of oppression. The comments made by the Board on the valuation report, were justified. The direction of the Board to Muthu Group to rectify register of SAF Yeast by restoring the shareholding of Nafan and Lesaffre is valid and proper. The direction given by the Board to Nafan and Lesaffre to transfer their shareholding to Muthu Group is not sustainable and has to be set aside. Nafan is entitled to a buyout as prayed for in its petition. However, it will be in the interest of SAF yeast that the litigation ends and if Muthu group agrees to withdraw the suit and undertake not file further proceedings based on the MOU then the dispute can be put an end to by holding a forward competitive bid. If Muthu Group is not agreeable then buyout in favour of Nafan will follow. For overseeing the two options, as suggested by the Board, Justice J.N.Patel is appointed as an Administrator. M/S Ernst and Young is appointed as Chartered Accountants to carry out the valuation. A regards the modalities for holding the auction and the buy out, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany petition will stand granted on the terms mentioned in Part II. PART - I a. The Board of Directors, including the powers of the Managing Director, is immediately and completely suspended. b. Mr. Justice J.N. Patel, Retired Chief Justice of Calcutta High Court is appointed as an Administrator on the same emoluments and immunity, as directed by the Board with the powers of the Chairman of the Company's Board of Directors, and the Managing Director, to supervise the functioning of the Company on an interim basis until the process of sale/purchase is complete; upon appointment of the Administrator, Respondent Nos.26 in the petition (Muthu Group) shall forthwith deposit with the Administrator signed, duly filled in but undated share transfer forms along with the original share certificates in regard to all the shares held by them in the Company. c. Until the process of sale/purchase is complete, the powers of the Board of Directors shall be vested in an equal number of Directors/alternate directors nominated by Nafan and the Muthu Group (as one group) with the Administrator holding the casting vote, the Directors/alternate Directors nominated by Nafan and the Muthu gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all applicable taxes, within fifteen business days after being declared by the Court as the successful bidder. j. On such payment, the shares will be transferred to the buyer, the Register of Members of the Company shall be updated accordingly, the Administrator will be replaced by the board of directors appointed by the successful bidder, and payment will be released by the Court to the seller. k. If the successful bidder does not deposit in Court the amount payable within fifteen business days after being designated as the successful bidder, the other party will be entitled to buy the shares of the defaulting party for a price equal to the higher of either Euros 28 Million (i.e. ₹ 196,83,79,380/at the current rate of exchange), or the amount of the next highest bid (with the unsuccessful bidder getting credit for its own shares - either 51% for Nafan or 49% for the Muthu Group Respondent Nos.2 to 6) less a twenty-five per cent reduction, by depositing the amount payable in Court within fifteen business days after default. l. Upon the completion of the exercise of transfer of shares and its consequent registration in the Register of Members of the Company, the funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon appointment of the Administrator, Respondent Nos.26 in the petition (Muthu Group) shall forthwith deposit with the Administrator signed, duly filled in but undated share transfer forms along with the original share certificates in regard to all the shares held by them in the Company. g. Until the process of sale/purchase is complete, the powers of the Board of Directors shall be vested in an equal number of Directors/alternate directors nominated by Nafan and the Muthu Group (as one group) with the Administrator holding the casting vote, the Directors/alternate Directors nominated by Nafan and the Muthu group shall be entitled to attend meetings of the Board and/or general meeting of the SAF Yeast; all such meetings, whether meeting of the Board or General Meetings, if any, shall be convened and presided over by the Administrator alone. h. Until the process of sale/purchase is complete, the SAF Yeast and the Administrator shall not (except in the ordinary course of business), (a) sell or otherwise dispose of or encumber the Company's assets, (b) incur liabilities, (c) distribute funds from the Company, (d) enter into any contracts to be performed for a period longer than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany Application No.11 of 2015 in Company Appeal No.21 of 2015; for Resp. No.2 in Company Appeal No.22 of 2015 and for Resp. No.1 in Company Appeal No.23 of 2015 and Company Application No.12 of 2015 and for Resp. No.8 in Company Appeal No.24 of 2015. Mr. T.N.Subramanian, Sr. Advocate with Mr. Mayur Khandeparkar i/by Kanga Co. for the Appellants in Company Appeal No.22 of 2015; for Resp. No.7 in Company Appeal No.21 of 2015 and Company Appeal No.24 of 2015 and for Resp. No.3 in Company Appeal No.23 of 2015. Mr. Janak Dwarkadas, Senior Advocate with Mr. N.H. Seervai, Senior Advocate, Mr. Sharan Jagtiani, Mr. Chirag Kamdar, Mr. Gerald Misquitta, Mr. Alok Patel i/by Mahendra Patel Associates, for Resp. Nos.2, 3, 4 and 6 in Company Appeal No.21 of 2015 and for Company Application No.11 of 2015; for Resp. Nos.3, 4, 5 and 6 in Company Appeal No.22 of 2015 and for appellants in Company Appeal No.23 of 2015 and for applicants in Company Application No.12 of 2015 in Company Appeal No.23 of 2015 and for respondent Nos.2, 3, 4 and 6 in Company Appeal No.24 of 2015. Mr. Darius Khambata, Senior Advocate with Ms. Namrata M. Shah, Mr. Prashant Bari i/by Beri Co. for Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the yeast products, bread, bread-improvers, their derivatives, and allied products. The authorized share capital of SAF Yeast originally was ₹ 25,00,000/divided by 25000 equity shares of ₹ 100/(each). The authorized share capital was increased from time to time and at the time of filing of the Company Petition, the authorized share capital of SAF Yeast was ₹ 3 crores (Rupees three crores only) divided by 300000 equity shares of ₹ 100/(each). The approximate value and paid up capital of SAF Yeast at the relevant time was ₹ 1,58,37,500/comprising of equity shares of ₹ 100/each. 4. The shareholding of SAF Yeast is as follows: Nafan B.V. owns 80,772 equity shares, approximately constituting 51% of the total shareholding. Mr.Arunachalam Muthu holds 16,800 equity shares constituting approximately 10.607% of the total shareholding. Mr.A.M. Arunachalam holds 10396 equity shares constituting approximately 6.56% of the total shareholding. Mr.A.M. Muthiah holds 10397 equity shares, constituting approximately 6.57% of total shareholding. Mr.TNM Arunachalam, who passed away during the proceedings, held 1,800 equity shares constituting 1.13% of total sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have a joint venture with Lesaffre. SAF Yeast was incorporated on 3 August 1981, pursuant to an agreement dated 6 June 1981, between Lesaffre and Muthu. At the relevant time, due to restrictions in India regarding foreign investment, Lesaffre was not in a position to set up a 100% subsidiary or to hold majority shares. It was therefore provided in the agreement dated 6 June 1981 that in the event the laws of India are amended and it is made legally permissible to hold the majority interest, Muthu would transfer the necessary shares to Lesaffre or its subsidiary, and that they would then hold majority of equity capital. When SAF Yeast was incorporated, the word 'SAF' was derived from the name Lesaffre and the interim license agreement was entered into between Lesaffre and SAF Yeast on 11 December 1982, after obtaining requisite approvals. Lesaffre was issued 6000 equity shares comprising of 40% of equity capital. On 22 March 1991, Lesaffre and Muthu entered into a participation agreement to update the agreement of 6 June 1981. Article 6 of participation agreement required that Memorandum of Articles of Association of SAF Yeast would reflect the terms of participation agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y resolved. Muthu proposed a settlement on certain conditions with the Calyon Bank by letter dated 2 March 2001. It was suggested that the offences were non-compoundable and Court at Hardoi had taken cognizance against the Calyon Bank. Muthu sought intervention through a Judge and after certain discussions, proposed certain terms and settlement. The nominee Directors of Nafan, bonafide believed that reasonable settlement with Calyon Bank as the bankers would be in the interest of SAF Yeast; however, the terms put-forth by Muthu were not reasonable. (iv) Meeting of Board of Directors was held on 14 April 2005 in France. The pending cases with the Calyon Bank were discussed. The meeting was attended by Muthu, Lucian Lesaffre, Alain Laloum, and Alain De Gouy. In the meeting, a resolution was passed that it would be in the interest of SAF Yeast to settle the dispute with the Calyon Bank against the payment of compensation of Euros 5,00,000 and a draft of discussion was forwarded to Calyon Bank and to Muthu. (v) After the meeting, Muthu's attitude underwent a change. Muthu group was under a belief that the dispute with the Calyon Bank was something that could be used to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement and monthly information statements to Nafan through Lesaffre. However, for the financial year 200506 Nafan did not receive any financial report. Muthu stopped sending reports. Nafan sought for these reports and financial information by letters dated 20 February 2006 and 18 March 2006. In spite of this position, the information was not supplied. (x) Muthu purportedly held a Board meeting on and around 26 July 2005, without any notice to Nafan. Nominee Directors of Nafan came to know of the meeting on 26 July 2005 for the first time when it was referred to in Muthu's letter on 2 March 2006 addressed to Alain Laloum. Muthu attempted to falsify the record of SAF Yeast. Such meeting was invalid and illegal. Nafans Nominee Directors also sought for convening of Annual General Meeting and an explanation for not holding the same on time. Letters were written on 21 February 2006, 5 May 2006. These letters invoked no response and it is only when Nafan took inspection that it found out that the meeting was held on 23 November 2005. Nafan was deliberately not given notices of Annual General Meeting to avoid the majority shareholders from raising their funds, to change the number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 19 June 2006. Muthu wrote to alternate Director threatening him with criminal contempt to dissuade him from acting as an alternate Director, who later on succumbed to the pressure, and resigned. Muthu continued to make baseless allegations and threatening the alternate Directors. (xii) On 14 July 2006, an application was made by Alain Laloum and Lesaffre and others seeking exemption from personal appearance which was rejected by the High Court of Allahabad where the contempt proceedings were pending. A Special Leave Petition was filed in the Apex Court and the Apex Court by order dated 17 July 2006 directed dispensation of personal appearance. A senior advocate on behalf of SAF Yeast opposed the Special Leave Petition, and even requests for adjournments were opposed. Meetings were held between the parties. Heads of Agreement were entered into on 14 August 2007. (xiii) On 17 April 2009, Nafan received a notice from Company Registrar, Pune as to why action should not be taken for non-filing of annual returns and balance sheet for the year ending 31 March 2006 to 31 March 2008. A notice for calling a meeting at Brussels or Geneva was sent to Muthu. In the meanwhile, Alain Lal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed contrary and against the Articles of Association and the Participation Agreement of SAF Yeast. They acted in breach of fiduciary duty. Nafan had lost confidence in Muthu Group and since SAF Yeast essentially have been a quasi-partnership between two groups; Nafan was no longer in position to carry on business with the Muthu Group as a business partner. 8. Nafan prayed for following reliefs: (a) To pass an order thereby directing the Respondent Nos.1 to 6 to rectify the Register of Members (ROM) of the Respondent No.1 Company by inserting name of the Petitioner in relation to 80722 shares held by the Petitioner. (b) To pass an order terminating the appointment of the Respondent No.2 as Managing Director and the Respondent No.3 as Joint Managing Director with immediate effect and remove them from the Board without prejudice to the rights of the Respondent No.1 Company to appoint any professional Managing Director. (c) To pass an order removing the Respondent No.2 to Respondent No.4 as directors and/or any other nominee directors of the Respondent No.2. (d) To pass an order directing that the board of Respondent No.1 Company be reconstituted at a suitable general mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental in setting up a brewery and a yeast factory for his past employer - Shaw Wallace Co. He met Laloum in May 1980 at an exhibition and Laloum showed interest in setting up a factory in India since he had connections with India. He was impressed with Muthu's knowledge. Lasaffre Group had no experience of manufacturing yeast outside of Europe or any experience of using 100% yeast, and of the Indian conditions. They, therefore, had no option but to tie up with someone like Muthu. A joint venture was formed on 6 June 1981. SAF Yeast was incorporated on 12 August 1981. There were three Directors, Muthu, B.B. Paymaster, and Lucian Lesaffre. Muthu was the Managing Director right from the inception. It was the obligation of the Lesaffre Group to provide technical assistance, which they failed to do. (ii) Muthu single handedly set up a factory at Chiplun, without any assistance from Lesaffre. He raised loans from various banks and gave personal guarantees. Lesaffre Group did not give any such guarantee. When the factory became functional, it was found that strength of yeast given by Lesaffre was unsuitable and Lesaffre had rendered no technical assistance or advise. Muthu made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit by Meespierson NV Bank. Calyon Bank, which was completely aware of the terms of the contract, agreed to act as an Advisor and Negotiator for the export transactions. (v) SAF Yeast supplied molasses as per the purchase order and letter of credit dated 4 February 1997. SAF Yeast raised an invoice of US $ 5,59,621.92. Calyon Bank on 24 February 1997, after satisfying itself with the documents, issued a credit advice in the account and credited US $ 5,54,638.99, minus the commission in the account of SAF Yeast. Calyon Bank wrote to SAF Yeast on 4 March 1997, enclosing a telex message of Meespierson NV, stating that an amount of US $ 1,01,531.25 was being deducted as demurrage charges and an amount of US $ 4,58,040.67 was being paid under letter of credit. (vi) Lesaffre transferred its entire shareholding in SAF Yeast through Nafan. J.L. Meurant on behalf of Lesaffre informed SAF Yeast and Muthu of the transfer and request was made to SAF Yeast to take all necessary legal steps to register the transferred shares. (vii) Calyon Bank filed a civil suit, which was, transferred to Debt Recovery Tribunal, against SAF Yeast for recovery of an amount approximately, ₹ 45.76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st to settle this dispute in a particular manner. Lucien Lesaffre on behalf of Nafan objected to the minutes of the meeting dated 14 April 2005 and 4 November 2005 prepared by Muthu. Lucien Lesaffre stated that the representative of the majority shareholder did not approve the manner in which the minutes were drafted. Muthu sent an email on 13 November 2005 denying the contentions. He pointed out that it was unfortunate that in spite of the fact that SAF Yeast was struggling against Calyon Bank, Nafan and Lesaffre were not giving any support, on the contrary, they were forcing SAF Yeast to settle with Calyon Bank on unreasonable terms. (xii) Muthu wrote to Alain De Gouy on 21 November 2005 complaining about the attempts of Lesaffre to force SAF Yeast in settling with Calyon Bank, in terms proposed by it. Muthu asserted that, in the meeting of 14 April 2005, Lucien Lesaffre had stated that SAF Yeast would have to accept the proposal for settlement. It was further stated that Lesaffre and Calyon Bank were proposing to settle the terms without consulting SAF Yeast or its Directors. Muthu made the grievance that, throughout the dispute with Calyon Bank, Nafan and Lesaffre were suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Lesaffre were consistently siding with Calyon Bank. On 12 April 2006, Nafan and SAF Yeast asked Muthu for minutes of general meeting since 2003, details of transfer of shares and present list of shareholders. Muthu, by reply dated 19 April 2006 stated that, in view of the situation that developed and the correspondence, he was not responding to the said request. (xv) On 5 May 2006, Alain Lesaffre replied to Muthu denying that there were any pressurizing or forcible views of majority shareholders and reiterated stand of Nafan in settling the dispute with Calyon Bank in such a manner that would benefit SAF Yeast. Laloum also stated that there was no evidence that SAF Yeast was finding it difficult to raise finance through banks and in fact, it appeared that SAF Yeast was doing well. Laloum also asserted that offer of USD one million made by Calyon Bank, as a compensation was a fair offer. Laloum objected to the meeting of 26 July 2005 without notice to nominee Directors of SAF Yeast and approval of the minutes of the meeting dated 14 April 2005. Laloum sought appointment of alternate Directors in India and to convene a Board meeting in Paris. Laloum also stated that is is more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that it is illegal. He also pointed out that the alternate directors were appointed, without circulating their qualifications and credentials to occupy the position. On 7 May 2006, a meeting took place between Muthu and Lucien Lesaffre, wherein it was agreed to work together on 50:50percentage basis and signing a Heads of Agreement, which could culminate into a shareholders agreement. Again, a meeting was held in December 2006 between Lucien Lesaffre and Muthu in London. On 24 September 2007, the Lesaffre Group and Muthu Group finalized the Heads of Agreement setting out certain broad terms and as to how their relationship in SAF Yeast would continue. It was agreed that the shareholding of both the groups be 50:50percentage. The agreement, however, did not fructify into final agreement. Thereafter correspondence ensued between Alain Laloum, Lucien Lesaffre with Muthu between October 2007 to November 2008, in which it appeared that the relation between the parties had not deteriorated further. (xvii) On 29 April 2008 Alain de Gouy resigned from the Board of Directors and Lucien Lesaffre resigned on 6 June 2008. Lesaffre appointed a new group Managing Director Jean Louis Meurant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requested Sharp Tannan on 9 February 2009 to work out the fair value of equity shares of SAF Yeast as on 31 March 2008. Sharp Tannan carried out valuation exercise and valued the equity shares of SAF Yeast at ₹ 4315/per share. Laloum telephoned Muthu on 10 February 2009 about the valuation report and Muthu informed him that Sharp Tannan would send it shortly. Thereafter Sharp Tannan sent their certificate of valuation on 11 February 2009 to Laloum with a copy to Meurant. Muthu sent an email to Meurant with a copy to Laloum about the further steps taken pursuant to the MOU. Muthu tried to call Meurant on several occasions from 11 February 2009 to 18 February 2009 but Meurant was not available in the office. Laloum informed Muthu that Nafan could not locate the original share certificate. Between March and April 2009, Muthu took the matter of transfer of shares pursuant to the MOU and copy to Laloum and Corinne Wisniewski regarding the steps of process for completing the transaction. (xxi) On 3 May 2009, Muthu sent an email to Denis Lesaffre replying to the email sent by Corinne Wisniewski dated 30 April 2009 and mentioned regarding several meetings and telephonic ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of A.M. Muthiah to SAF Yeast was taken on record stating that he had paid the amount of ₹ 27,49,38,822/as the purchase money for 80,772 shares. A letter from the Axis Bank of the same date confirmed that the amount was transferred from A.M.Muthiah's saving account to current account of SAF Yeast with Axis Bank. The four Indian directors of SAF Yeast attended the Board meeting. At the relevant time the record of share transfer were placed before it ascertaining that the amount was transferred. The Board of Directors considered the request of SAF Yeast as an agent of the Nafan for issuance of duplicate share certificate for 80,772 shares. The issue was discussed and not having found any adverse evidence, resolved to cancel the lost original share certificates and issue duplicate share certificates to enable issuance of duplicate share certificate to enable issuance of duplicate share certificate. The meeting was adjourned by 45 minutes. (xxiii) After the duplicate share certificates were prepared, the duly executed share transfer forms were taken on record along with the duplicate share certificates. The share transfer forms were accepted and resolution was passed to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of fair value to statutory auditor. Nafan/Lesaffre did not take steps to execute the transfer of shares to Muthu Group. This constituted a default on the part of Nafan/Lesaffre and therefore SAF Yeast as a duly appointed agent was empowered under Articles of Association to act on behalf of Nafan/Lesaffre. After receiving the purchase money on/or on behalf of the Nafan, the shares were transferred. The participation agreement dated 22 March 1991 is not enforceable The issue involving the litigation between the SAF Yeast and Calyon Bank has been set out in the reply filed by Muthu, which is adopted. Affidavit of Alain Laloum 14. On 10 June 2010, Alain Laloum filed his affidavit taking briefly the following contentions: (i) In 2006, Muthu initiated proceedings in Allahabad High Court, Lucknow Bench, against Laloum and other nominee directors. Several discussions took place between Muthu and Lucian Lesaffre to resolve the dispute. Lucian Lesaffre and Muthu signed Heads of Agreement at London. After the Heads of Agreement were signed, they exchanged draft of redemption shareholder agreement. Muthu and Lucian Lesaffre agreed that their lawyers would discuss and finalize the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remely low value. Laloum never informed about the loss of original certificates to Muthu. Rejoinder on behalf of Nafan 15. Rejoinder affidavit was filed by Denis Lesaffre as a Chairman of the Board of Nafan. In the rejoinder Nafan, in short, stated as under: i) Certain proceedings were initiated by Nafan for declaratory relief in the Court at Montreux, Switzerland for the fraud committed by Muthu by alleging that MOU is a binding contract when it is not. The validity of the MOU is matter for the Swiss Court, the Court of appropriate jurisdiction. Various false statements have been made in the reply filed by Muthu especially regarding meeting between Muthu and Laloum in Montreux, Switzerland. The entire basis of the case put up by Muthu Group is the MOU being a binding agreement to transfer the share, is incorrect. The case put up in the reply is fraudulent, the alleged transfer of shares is void ab initio, and no Board meeting took place, which is concocted for giving effect to fraudulent scheme. Records have been fabricated and shares, worth not less than Euro 25 Million Euros, as in May 2009 have been sought to be misappropriated. ii) The Company did not have sufficie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfluence, and fraud. v) When the valuation was received from Sharp Tannan, Laloum was shocked at the low valuation and immediately spoke to Muthu and told him that it will be for the Board of Lesaffre to consider. The valuation was so ridiculously low that no attention was given to the assertion of Muthu regarding MOU. The valuation sent along with letter dated 10 February 2009 was addressed to Laloum and not to Lesaffre or Nafan. The valuation was at the instance of SAF Yeast. If the Auditor had addressed the valuation to Lesaffre, they could not have made a ridiculously low valuation. The valuation report did not take into consideration Discounted Cash Flow method, which is a detailed exercise. There was no basis for valuation to be carried out as of 31 March 2008. The manner in which the valuation was carried out and the speed at which it was carried out was entirely suspicious. The valuation was done by Nafan from reputed firms of Chartered Accountants would show that the valuation of SAF Yeast was wholly fraudulent. Even the well settled methods of valuation were not applied. vi) Attempts were made to meet Muthu in Paris to discuss future progress of the joint venture. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by Muthu was thereafter dealt with parawise and the contents therein are denied and explained in consonance with the stand taken earlier. Affidavit of J. L. Meurant 16. Meurant filed an affidavit on 18 November 2009. To summarize, asserted that around mid-January 2009, Laloum called Meurant and told him that Muthu had called him to discuss a possible solution. On 24 January 2009, Laloum attached protocol of agreement setting out Muthu's will for resolving the disputes. Nafan had at no time wish to sell its shareholding. As the MOU was not binding, it was not brought to the notice of Lesaffre. Meurant did inform Lesaffre about Muthu's wish to buy the shares and valuation. When Lesaffre asked Laloum to have a meeting in Paris, he did not agree insisting upon receiving agenda for the meeting. Affidavit filed by Muthu Group in response to affidavit filed by Alain Laloum. 17. On behalf of Muthu Group, Muthu briefly stated as under. If there was any truth in assertion of Laloum, then he should have affirmed the petition as being the person most likely involved in the proceedings. The case that MOU is a mere proposal is contrary to the averments made in the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier proceedings were not exhaustive replies. In any case, these affidavits do refer to meetings held in January 2009 and May 2009. The Board meetings held in 2009 were validly held and there is no question of that being challenged. (iv) The allegation of forgery is false and this theory is taken for the first time in the rejoinder. The Heads of Agreement are no bar to the validity of the MOU. (v) It is baseless to suggest that only because SAF Yeast used the trademark, Nafan should be reinstated as a shareholder. The principal product of Nafan was sold under the name Prestige. There was hardly any financial assistance provided by Lesaffre to SAF Yeast, so also the technical assistance. Both the terms, Muthu Group and Lesaffre Group are well known, and it is ridiculous to suggest that MOU is not binding on that count. 19. Further affidavit was also filed by Mr. Muthu on 11 October 2010 by placing certain documents on record. Proceedings before the Company Law Board 20. With these pleadings, the parties went for hearing before the Company Law Board. In addition to the voluminous pleadings and documentary evidence, the parties also filed their written submissions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No.1? If so, its effect. (xiii) To what relief, if any, is the Petitioner entitled to? Findings of the Board 22. (I) The Board held that the petition was properly verified, and was filed as per the Rules. It held that the petition was maintainable and the argument that Nafan was no longer a member and therefore could not file Company Petition was rejected. The rejoinder and other affidavits are part of pleadings, the Nafan had not suppressed material and vital facts, and the petition was not liable to be dismissed on that count. The MOU was not obtained by fraud or inducement and Laloum had the authority to sign the MOU. The Board concluded that Nafan and Lesaffre wanted to sell the shares, and in fact agreed to sell their shareholdings vide the MOU. It was held that Muthu Group took immediate steps for withdrawal of the cases at their end. The MOU was not bad on the ground of uncertainty in terms and conditions. The Board held that it was competent to take into consideration the intention of the parties from the MOU to pass appropriate orders in exercise of its rights and powers under Section 402 of the Act. A transfer notice must fulfill both the conditions stipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute the MOU, and held that Muthu Group should be allowed to buy out the shareholding of Nafan and Lesaffre. (V) Accordingly, the Company Law Board declared that the MOU dated 23 January 2009 was valid and enforceable, the valuation report was biased, partial, and it was accordingly set aside. The meetings dated 29 January 2009, 23 May 2009, and 25 May 2009 were declared as nonest, illegal and void. Nafan and Lesaffre were directed to transfer the shares to Muthu Group proportionate to their shareholding. To carry out a fair valuation, the Board of Directors was suspended and kept in abeyance. Until the valuation was concluded, an administrator was appointed. The administrator so appointed was authorized to appoint an independent auditor. After the complete exit of Nafan and Lesaffre of receiving the consideration, the administration function would come to an end. Accordingly, the Company Petition was disposed of by the impugned order dated 28 March 2013. Present Appeals 23. Thereafter the abovementioned four appeals have been filed. A Company Appeal was first filed by Nafan, in which a Company Application was taken out for interim relief. By order dated 8 May 2013, the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition to these points for determination, further issues that arise for consideration are the maintainability of the appeal filed by Lesaffre Group and the grounds raised in the appeal filed by Sharp Tannan taking exception to imputation of bias against them. Maintainability of Lesaffre's Appeal 27. The Lesaffre has filed the Appeal No.24 of 2015. In this appeal, the Lesaffre has inter alia challenged the order passed by the Board as regards the declaration in Para 333 of the operative order and judgment, the findings that the resolution passed at the Board meeting of January 2009 were not oppressive, and the MOU is valid and binding; the direction to sale 51% shares of Lesaffre in the SAF Yeast; other consequential findings and directions. Mr. Dwarkadas, senior advocate appearing on behalf of Muthu Group taken a preliminary objection regarding the maintainability of the appeal filed by Lesaffre. He contended that Lesaffre was joined as a proforma respondent in the petition filed by Nafan and it was specifically stated in the Petition that Lesaffre is only proforma respondent in the proceeding. He submitted that Lesaffre did not have any cause of action to file its ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard regarding the declaration and the transfer of shareholding even against Lesaffre. It is not argued by Muthu Group that the directions to Lesaffre be set aside. The argument advanced by Muthu Group before the Board was that Nafan was nominee of Lesaffre and Nafan is not separate and distinct from Lesaffre. Even the case of Muthu Group before the Board indicates that Lesaffre can be considered as a person aggrieved. In the facts and circumstances, therefore, the appeal filed by Lesaffre needs to be considered on merits along with the appeal filed by Nafan. When Mr. Dwarkadas had initially raised the contention regarding maintainability of the appeal filed by Lesaffre, it was kept open to be decided at the time of final order and Mr. Khambata on behalf of Lesaffre has made the submissions on merits as well. I am therefore not inclined to dismiss the Appeal No.24 of 2015 filed by Lesaffre only on the ground of maintainability. Lassafre is entitled to contend that the directions issued to it should be set aside. However a positive relief,if any, can only be granted to Nafan as per its prayers in the petition. Preliminary 29. I now proceed to consider the controversy at hand d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 398 deals with the concept of 'mismanagement'. Both these provisions enable any member of a company to approach the Company Law Board for appropriate directions. If the Board is convinced that the acts of oppression or mismanagement or both have been made out as defined under the Act, then the Board has various powers under Section 402 of the Act to pass suitable directions. The term 'oppression' generally refers to a conduct which is wrongful and harsh. It refers to a lack of probity and fair dealings in the affairs of the Company. Oppression can be in different forms. Something, which is illegal may not always be oppressive and something which is legal may be oppressive. A deliberate act to cause harm to the members of the Company in respect of the affairs of the Company would be an act of oppression. Therefore, the enquiry in such matters will be focused on probity and fairness in dealing amongst the shareholders, rather than only testing only the legality of the actions. 32. Various decisions have been cited by the learned counsel for the parties on the concept of oppressive conduct falling within the ambit of Section 397. It is not necessary to refer to all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this context, oppressive means burdensome, harsh and wrongful. It does not include conduct which is merely inefficient or careless. Nor does it include an isolated incident: there must be a continuing course of oppressive conduct, which must be continuing at the date of the hearing of the petition. Further, the conduct must be such as to be oppressive to the petitioner in his capacity as a member: whatever remedies he may have in respect of exclusion from the company's business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression. On the other hand, these provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors; they cover the case of wrongful usurpation of authority, even though the affairs of the company prosper in consequence. 190. In Shanti Prasad Jain v. Kalinga Tubes Ltd., etc.: [1965] 2 SCR 720 , this Court quoted with the approval the following passage from the decision in Elder's Case, , as summarized at page 394 in Meyer's case,: (4) Although the word 'oppressive is not defined, it is possible, by way of illustration, to figure a situa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;oppression' under Section is the decision of the House of Lords in Scottish Coop. Wholesale Society Ltd. v. Meyer,. Taking the dictionary meaning of the word 'oppression', Viscount Simonds said at page 342 that the appellant-society could justly be described as having behaved towards the minority shareholders in an 'oppressive' manner, that is to say, in a manner burdensome, harsh and wrongful . The learned Law Lord adopted, as difficult of being bettered, the words of Lord President Cooper at the first hearing of the case to the effect that Section warrants the court in looking at the business realities of the situation and does not confine them to a narrow legalistic view . Dealing with the true character of the company, Lord Keith said at page 361 that the company was in substance, though not in law, a partnership, consisting of the society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences following on one or other of these forms of combination, one result followed from the method adopted, which is common to partnership, that there should be the utmost good faith between the constituent members . Finally, it was held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, when the petitioners have consented to and even benefited from the company being run in a way which would normally be regarded as unfairly prejudicial to their interests or they might have shown no interest in pursuing their legitimate interest in being involved in the company. (See Re RA Noble Sons (Clothing) Ltd.) 199. In a given case the Court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties. 200. It is now well-settled that a case for grant of relief under Sections 397 and 398 of the Company Act must be made out in the petition itself and the defects contained therein cannot be cured nor the lacuna filled up by other evidence oral or documentary. (See In re Bengal Luxmi Cotton Mills Ltd.: 69CWN137). 201. In Shanti Prasad Jain Vs. Union of India it was held that the power of the company court is very wide and not restricted by any limitation contained in Section 402 thereof or otherwise 202. In Shoe Specialities Ltd. v. Standard Distilleries and Breweries (P) and Ors. , it is stated: While exercising the powers under sections 397 and 402 of the Companies Act, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for this gross suppression no equitable relief needs to be granted to Nafan and Lesaffre. On the other hand, it is the contention of Nafan and Lesaffre that there is no suppression and the MOU is not determinative factor but the effect of the so-called Board meetings, and in any case, at the time of deciding the petition all the facts were before the Board. 35. As regard the verification of the petition, it is contended by Mr. Dwarkadas that one Mr. Siraj Ahmed, who has no personal knowledge, has affirmed the petition. He submitted that the source and the basis of the knowledge of Mr. Siraj Ahmed are not indicated primarily because he has no such personal knowledge. It is contended that the petition is dated of prior to the date of signing the petition and is attested prior to that date. He submitted that by making a person, who is not aware of the facts, the conduct of Nafan demonstrates lack of bonafides. He relied on decision of this Court in Intesa Sanpaolo SPA v/s Videocon Industries Ltd. Rendered in Company Petition No.528 of 2012. Mr. Dwarkadas submitted that the verification would have to comply with the provisions of Order XIX Rule 3 of Code of Civil Procedure. He re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has held that the rules of procedure cannot be a tool to circumvent justice and procedural objections cannot be used to defeat to justice. The ultimate objection of Muthu Group to the verification of Mr. Siraj Ahmed is that the concerned persons have put him up to avoid taking a stand on oath. This objection does not survive once the concerned persons i.e. Laloum and Lesaffre have put forth their stand on oath and have taken a responsibility as to what is stated in those affidavits. Simplicitor dismissing the Company Petition on that ground alone would have only meant that the petition would have been filed again with same allegations for the same reliefs, which would only multiply the litigation. In the circumstances, I am not inclined to interfere with the finding of the Board that the Petition ought not to have been dismissed on this count. 37. The second objection is that the petition ought to have been dismissed since Nafan had suppressed various facts. This argument was made before the Company Law Board and it was rejected. The Board concluded that, considering the petition and rejoinder, the facts and events stated to have been suppressed pertain mostly to the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the Reply filed by the Respondents and accepted in the Rejoinder Affidavit and in the Affidavit of Alain Laloum. (ii) The Petition does not mention that before the meeting in Montreux, Switzerland, on 23rd January 2009 which resulted in the MOU, there were several prior meetings between Respondent No. 2 and Alain Laloum in Montreux, Geneva and London in the year 2008 (apart from the meetings in June and December 2006 with Lucien Lesaffre in London) to discuss the possibility of a resolution to the ongoing disputes between the Muthu Group and the Lesaffre Group; (iii) The Petitioner suppressed the fact that the meeting in Montreux in January 2009 was at the instance of Alain Laloum as has been brought out in the Reply with reference to Mr. Laloum's text messages and emails prior to the meeting; (iv) The Petition conveys the clear impression that apart from Alain Laloum, no other officer or representative of the Petitioner / Respondent No. 8 / Lesaffre Group was aware of the MOU and valuation of the shares. Contrary to this, the Reply disclosed that in addition to Alain Laloum, Mr. J.L. Meurant (the Group Managing Director) was in the know of the meeting at Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion contains a positively misleading suggestion that the valuation of the said shares came to the knowledge of the Petitioner and its officers on or after 30th April 2009 or 3rd May 2009; (vii) The Petitioner suppressed its own document, namely its own Articles of Association, obviously because Article 10(2) clearly states that each of the Directors of the Petitioner is independently authorized to represent the Petitioner. This fact is also borne out from the extract of the Petitioner from the Trade Register of the Netherlands Chamber of Commerce, a statutory body for maintaining the corporate record in the Netherland. The extracts dated 21st July 2008, which is prior to Mr. Alain Laloum executing the MOU, and 21st June 2009 clearly state Mr. Alain Laloum's powers as being solely/independently authorized , in accordance with the Articles of Association of the Petitioner and there was no change in his power during the intervening period (between 21st July 2008 and 21st June 2009). (vii) The Petitioner did not disclose its own document i.e the flower of Attorney dated 31st January 2005 issued by the Petitioner to TMF Management, the Petitioner was able to solemnly argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h April 2005 (in France), he did not think it appropriate to raise the, issue of any alleged inaccuracy of the Minutes of Meeting of 14th April 2005 in person in October 2005 when he attended a Board of Directors meeting in Mumbai (despite having thought it appropriate to comment during January 2006 by his above referred emails). This untenable stand was nevertheless taken to explain the Petitioner's silence on this issue during October 2005 despite having received by then the Minutes of the said meeting of April 2005 at least by September 2005. However, even this stand (of Alain Laloum not being Chairman of the 14th April 2005 meeting) has been falsified by his email of 30th January 2006 when Mr. Alain Laloum asserted that he chaired the very same meeting (of 14th April 2005); (x) The Petitioner failed to disclose the facts and events which shows that the Petitioner was never excluded from the administration of the Company and in particular was not unaware of the holding of AGM's. Neither was the Petitioner unaware of the financial position of the Company. The documents and facts disclose that the Directors Reports for the years from 2004 2005 onwards (which is the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany never acted upon the Participation Agreement. 40. Mr. Dwarkadas submitted that, since the jurisdiction of the Company Law Board under Sections 397 and 398 is equitable, the conduct of the parties is most material and, therefore, the party which suppresses relevant material, ought not to be given any indulgence. Mr. Dwarkadas relied upon the decision in the case of Sangramsingh P. Gaekwad v/s Shantidevi P Gaekwad, (2005) 11 SCC 314 of the Apex Court; decision in the case of Srikanta Datta Narasimharaja Wadiyar v/s Sri Ventakeswara Real Estate Enterprises (Pvt.) Ltd.1991 (72) CompCas 211 of Karnataka High Court; decision of the Delhi High Court in Smt.Abnash Kaur v/s Lord Krishna Sugar Mills ors. (1974) 44 CompCas 390 (Delhi), decision of the Appeal Bench of this Court in Maganlal Kuberdas Kapadia v/s Themis Chemicals Ltd.Rendered in Appeal No.332 of 1991, decision of the Apex Court in Gujrat Bottling Co. Ltd. ors. v/s The Coca Cola Co. ors.A.I.R. 1995 SC 2372, and S.P.Chengalvaraya Naidu v/s Jagannath. A.I.R. 1994 SC 853. Mr. Dwarkadas submitted that these decisions and several others have laid down that the Courts exercising equity jurisdiction must not allow any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on the cause of action made out. He submitted that certain facts that became known from the reply during the inspection after filing of the reply by Muthu Group necessitated placing the factual position on record. He submitted that pleadings should receive a liberal construction and Muthu Group was fully aware the case that they had to meet. He submitted that the petition ought to have been amended was not the plea taken by Muthu Group in the affidavit-in-rejoinder. He further submitted that the plea of Muthu Group is a mere technicality and the Board while dealing with case of oppression is entitled to take into consideration the entire material on record. 43. I have considered the submissions. Firstly, what is the exact case made out by Nafan in this petition needs to be seen. The relief sought by Nafan is that the register of members should be rectified by inserting the name of Nafan in respect of 80,772 shares and an order terminating the appoint of Mr.Muthu as the Managing Director and that Muthu Group be directed to sell their shares to Nafan. In the petition, the Nafan has pleaded the relevant particulars. It has placed on record the particulars of the parties, the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly. 44. It is not that the MOU and meeting with Laloum at Montreux have not been mentioned at all in the petition. The fundamental aspect of the acts of oppression is meetings without notice and the transfer of shares. There is no correspondence on record from Nafan or Lesaffre stating that they will abide by MOU and it should be placed before the Board, nor is a specific share transfer notice given by Nafan. The entire argument of Mr. Dwarkadas on this count is based on the silence on the part of Nafan and Lesaffre Group regarding the MOU and enquiry about valuation. According to him, once Nafan was made aware that the MOU exists and will be enforced, then by not taking any steps, Muthu was right in believing that the MOU was accepted. According to Nafan, Muthu Group was trying to divert the course of adjudication towards the legality, validity and binding effect of the MOU, but from Nafan's point of view in the petition the real issue in the matter was the oppressive nature of the Board meetings through which the transfer of share have taken place. 45. The Lesaffre and Nafan had made it clear through the email written by Corinne Wisniewski that the valuation was rid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sarup Gupta (Dead) by LRs. v/s Bishun Narain Inter College ors. (1987) 2 SCR 805, has held that the pleadings should receive liberal construction and whenever question of law regarding the pleading is raised, the enquiry should not be about the form of pleadings, instead the Court must find out whether the parties knew the case and issues contested. Once it is found that, in spite of deficiency in the pleadings, parties knew the case and they proceeded to trial on those issues by producing evidence, it would not be open to a party to raise the question of absence of pleadings. Before the Board decided the matter, all the parties had exhaustively filed their pleadings through petition, replies, affidavits, rejoinders, sur-rejoinders, etc. and the parties were fully aware of each other's case. The decision in the case of Mohta Brothers (supra) is of no assistance to Mr. Dwarkadas, as in that decision, the Court was concerned with the subsequent events and held that the matter needs to be decided upon the facts pleaded in the petition. In the present case, it is a grievance of Nafan that various facts leading to the meetings were suppressed from them, which they came to know af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it does not contravene any provision of law, and yet it may be oppressive to the minority shareholders or prejudicial to the interests of the Company. Such a resolution can certainly be struck down by the Court under Section 397 or 398. Equally a converse case can happen. A resolution may be passed by the Board of Directors which may in the passing contravene a provision of law, but it may be very much in the interests of the Company and of the shareholders... (emphasis supplied). The Apex Court specifically stated that the Court will have to consider the entire material on record and may not insist upon the petition to prove acts of oppression. This observation has been emphasized by Mr. De' Vitre. The Apex Court disapproved the reliance by the High Court on the pleadings made in some other proceedings and ignoring the assertions made by the respondent therein in the proceedings. The decision of the Apex Court in the case of Sangram Singh (supra) therefore does not state that in spite of the fact that the parties knew the case and all pleadings were on record, the petition ought to have been dismissed because the cause of action could not have been made out in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual position on record. It is not that Nafan obtained an ex-parte orderly misleading the Board. Both parties were fully aware of the facts. When the Board took up the matter for consideration, all the facts were placed before it placed on record either by Nafan or by Muthu Group. It is after considering the entire record the CLB took an informed decision and to my mind rightly did not dismiss the petition on the ground of suppression of facts. Memorandum of Understanding. 52. The next broad head for consideration is regarding the MOU dated 21 January 2009. The MOU, which is handwritten, is reproduced below. Memorandum of Understanding entered into between the Lesaffre Group represented by Mr.Alain Laloum and the Muthu Group represented by Mr.A.Laloum at Montreux on 23/01/2009. Regarding the shareholdings in M/s SAF Yeast Co. Pvt. Ltd. It was agreed that Muthu Group would buy 51% shareholding of the Lesaffre Group in M/s SAF Yeast Co. Pvt. Ltd. immediately. The fair valuation of the shares will be done by the company (M/s SAf Yeast Co. Pvt. Ltd.) Auditors in accordance with clause 17 of the Articles of Association and the Memorandum of SAF Yeast Co. Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with law the suit shares to Plaintiff No.3 being a member/nominee of the Muthu Group and for the said purpose this Hon'ble Court give all necessary directions to specifically perform the Memorandum of Understanding dated 23 January 2009 including the Defendant No.1 taking all ancillary and incidental steps for effecting a transfer of the suit shares in performance of the Memorandum of Understanding dated 23 January 2009; (c) Alternatively, and in the event of Defendant No.1 failing to do so, this Hon'ble Court may be pleased to appoint a Receiver or any fit and proper person to transfer the suit shares for and on behalf of Defendant No.1 and if necessary to take all incidental and ancillary steps to effect transfer of the suit shares for and on behalf of Defendant No.1; (d) That, pending the hearing and final disposal of the present suit, the Defendant No.1 by itself and through its servants, officers and agents be restrained by an order of injunction from in any way selling, transferring, encumbering, dealing with or creating any third party rights in respect of the suit shares; (e) That, pending the hearing and final disposal of the present suit, Defenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it does not amount to a transfer notice; the MOU is legal, valid and binding but it does not constitute transfer notice; the intention behind MOU can be taken into consideration while passing an order under Section 402 of the Act. However, there is yet another facet. Should the Muthu Group have given a notice of the Board meeting before transferring the shares on the basis of MOU out of fairness and as a matter of probity? Though I would proceed to examine these viewpoints, as they have been agitated before me at some length, I am of the opinion that it is the last facet that should be kept at the forefront of the discussion. 58. Mr. De'Vitre submitted that the finding that the MOU is valid and binding could not have been made, as the Board does not have jurisdiction to do so. The MOU was a disputed document and at the most an arrangement amongst the shareholders. He submitted that the Board did not have any power to grant declaration of the validity, more particularly, since Muthu Group had already filed a civil suit for specific performance. To hold that the MOU is arrived with consent and for consideration and is nothing but to decide on its validity. He submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid and binding MOU has filed a petition to resile from the same. He further submitted that no party should be allowed to resile from a contract. It was open to the Board to consider the MOU as one of the relevant circumstances. He relied upon decision in the case of Probir Kumar Misra Vs Ramani Ramaswamy (2010) 104 SCL 174 (Mad), rendered by Madras High Court, to contend that a MOU can be considered as a relevant circumstance. Mr.Dwarkadas further submitted that the contempt petition came to be withdrawn within the legal frame work and it was not entirely in the hands of Muthu group to withdraw the contempt petition, which had to depend upon orders of the Court. He submitted that theory of Laloum being induced is false. Nafan is changing its stand as regards the MOU, has taken contradictory stand, and ultimately has admitted that the MOU exists. He then relied upon the averments made in the rejoinder by Nafan and the additional affidavits. Mr. Dwarkadas referred to various documents on record in detail seeking to demonstrate that the MOU was not an isolated piece of document but there were series of meetings and exchange of emails, fax messages that led to execution of the MOU. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of parties into consideration. I do not think this is correct. First, this would be doing granting specific performance. Second, assuming such course of action can be adopted in cases of unquestionable intentions, The MOU did not spell out any such unquestionable intention. 62. It is settled that the Board in law does not have power to grant specific performance of a contract between two groups of shareholders. The powers of Board under the Act are to be exercised in respect of the affairs of the company and property and not to decide the disputes amongst shareholders. The powers are conferred to correct oppressive conduct and mismanagement and not to decide civil disputes. Whether Lesaffre agreed to sell its shareholdings to Muthu group is a dispute between two groups of shareholders. In the Apex Court in the case of Chatterjee Petrochem (India) Pvt. Ltd. v. Haldia Petrochemicals Ltd. and Ors. (2011) 10 SCC 466, has made it clear that the Board has no power to decide disputes regarding transfer of shares. Similar view is taken in the case of Sangramsinh Gaekwad (supra); Incable Net (Andhra) Ltd. v. AP Aksh Broadband Ltd. 2010 (6) SCC 719; T.Vinayaka Perumal v. T. Balan (2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foundation of the case of Muthu Group is the MOU and it is their main defence to the allegations of oppression. According to Nafan, MOU was at the most a proposal to take the transaction forward and Muthu Group was attempting to convert this memorandum into a binding contract. 65. Reference was also made by the Board to the decision of the High Court in Switzerland in which the High Court has according to the Board held that the MOU is a contract. However, the observations and the operative part of the High Court order reported in paragraph 82 of the impugned order itself shows that the proceedings were dismissed for want of jurisdiction. Therefore, the observations made in the decision of the High Court of Switzerland could not have been held against Nafan. The legal effect of MOU is already being agitated in the Civil Court where the Court will decide its legality and validity. 66. The question therefore, arises is whether it could be said that the MOU was such a clear unequivocal document that it presented an open and shut case, and that a clear intention of Nafan to act on the MOU followed therefrom and all that had to be done was to only complete the procedural formaliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the valuation was ridiculous. The manner and the form in which the document stood executed and the reaction to the valuation and in normal course of business to transfer shares, it could not be said that an unquestionable intention flowed from the MOU. Therefore, the Board even though it came to the conclusion that Laloum had the authority to sign the contract did not consider that fair valuation was one of the ingredients and after coming to know that valuation was not fair, Nafan and Lesaffre had no interest in taking the MOU forward. Therefore, the Board fell in clear error to attribute an unquestionable intention on the part of Nafan and Lesaffre to sell their shareholding. 70. Both Muthu group as well as Nafan and Lesaffre are assisted by administrative and legal staff, as their correspondence would show. In normal business transactions, solicitors and legal professionals will draw documents for transfer of shares. Drafts would be exchanged. The understanding would be reduced to a formal documentation. There may be meetings at both ends to finalise the decisions, there would be negotiations, discussions on the price. Before the drafts are finalized, the parties could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke entry of unquestionable intention. The Board has in fact in para 165 of the impugned order rightly distinguished the case of Probir Kumar Misra (supra) relied upon by Mr.Dwarkadas, holding that in that case both the parties had substantially acted on the MOU, but in the present case, it is not so. In the present case, there is a dispute between the parties. Stand is taken by Nafan and Lesaffre that they had absolutely no intention to take any steps based on the MOU considering the valuation. Once their stand was clear , was prima facie tenable, it was not open for the Board to dissect the MOU, take out the intention and use while passing an order under section 402, 403 of the Act. 72. Mr.Dwarkadas made a grievance that Nafan was changing their stand regarding the status of the MOU at every stage. Firstly, they did not accept its validity and then when they had to accept it, they called it a neutral document. I am not impressed with this submission. To my mind, the MOU is nothing but a red herring to divert the controversy. Assuming MOU exists, it is the manner in which the shareholding of Nafan has been transferred which is the crux of the dispute. 73. Furthermore, there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sell out their shares based on the socalled intention under the MOU. Furthermore, the crux of the matter is the manner in which the meetings took place. Therefore, we now come to the crucial aspect of the case that is the Board meetings. Nature of Board meetings 74. The disputed Board meetings were held on 29 January 2009, 23 May 2009 and 25 May 2009. It will be necessary to reproduce the minutes as they have been placed on record. MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF SAF YEAST COMPANY PRIVATE LIMITED HELD ON 23RD MAY, 2009 AT THE REGISTERED OFFICE AT 419 SWISTIK CHAMBERS, MUMBAI 400071 AT 12.15 P.M. IN ATTENDANCE: 1 Mr. A. Muthu 2 Mr. A. M. Arunachalam 3 Mr. A. M. Muthiah 4 Mr. P. B. Thatte 1 CHAIRMAN OF THE MEETING Mr. A. Muthu was elected Chairman of the Meeting. 2 LEAVE OF ABSENCE Leave of absence was granted to Mr. Alain Laloum and Mr. M. E. Lesaffre. 3 CONFIRMATION OF THE MINUTES OF THE PREVIOUS MEETING The Minutes of the previous Board Meeting held on 17th May, 2009 were noted, confirmed and signed by the Chairman. 4 PURCHASE BY THE MUTHU GROUP OF THE SHARES IN THE COMPANY HELD BY LESAF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ED THAT a Current Account titled SAF YEAST CO. PVT. LTD. SHARES ACCOUNT , be opened with the Axis Bank Ltd., Chember Branch, Mumbai in addition to the existing Current Account . RESOLVED FURTHER THAT Mr. A. Muthu, Mr. A. M. Arunachalam, Mr. A. M. Muthiah and Mr. P. B. Thatte, Directors of the Company and Mr. K. K.N. Swamy, an Officer of the Company be and hereby authorized to operate the said Account singly . RESOLVED FURTHER THAT Mr. A Muthu, Mr. A. M. Arunachalam, Mr. A. M. Muthiah and Mr. P. B. Thatte, Directors of the Company and Mr. K. K.N. Swamy, an Officer of the Company be and hereby authorized to draw, accept and endorese, cheques, promissory notes and other negotiable instruments singly . RESOLVED FURTHER THAT Mr. A. Muthu, Managing Director of the Company or Mr. A. M. Muthiah, Director of the Company of Mr. A. M. Muthiah, Director fothe Company be and is hereby authorized to inform the said Bank in this matter and to take such action as may be necessary to open the said Current Account with the Axis Bank Ltd., Chembur Branch, Mumbai . RESOLVED FURTHER THAT the Common Seal of the Company be affixed wherever necessary in this regard . Mr. A. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UGH NAFAN B. V. PURSUANT TO THE MOU DATED 23RD JANUARY 2009 RECEIPT OF THE PURCHASE MONEY FROM MR.A.M.MUTHIAH PURSUANT TO RECEIPT OF WRITTEN OPINION FROM MR.SHANTI BHUSHAN SENIOR ADVOCATE The Chairman referred to the resolution passed pursuant to the receipt of the written opinion from Mr. Shanthi Bhushan, Senior Advocate, at the Board Meeting held on 23rd May, 2009 to accept the purchase money / relevant consideration of ₹ 27,49,38,822/net of TDS of ₹ 7,35,92,358/on capital gains from Mr. A. M. Muthiah, the Purchasing Member of the 80,772 Shares and hold the same in Trust for and on behalf of the proposing Transferor Nafan B. V. The Chairman tabled before the Board a letter dated 25th May, 2009 from Mr. A. M. Muthiah informing that an amount of ₹ 27,49,38,822/has been transferred from his Account at the Axis Bank Ltd., Chembur Branch to the credit of the Company's Account at Axis Bank Ltd., Chembur Branch and Mr. A. M. Muthiah has requested the Company to effect the Transfer of the 80,772 Shares from Nafan B.V. in his favour and forward the relevant share certificates. The Chairman also tabled before the Board an Advice dated 25.5.2009 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Original Share Certificates bearing Numbers as detailed below be and are hereby cancelled forthwith . Original Share Certificate No Distinctive No. of Shares From To 6 9001 15000 6000 7 15001 20000 5000 14 36501 47500 11000 17 55001 65000 10000 18 65001 75000 10000 19 75001 85000 10000 20 85001 95000 10000 21 95001 105000 10000 22 105001 113772 8772 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.30 p.m. Chairman * * * * * 75. The Board has concluded that the meetings held on 29 January 2009, 23 May 2009 and 25 May 2009 are illegal and the resolutions passed in the meetings are invalid and ineffective. Mr. De'Vitre and Mr.Khambatta contended that firstly, no such Board meetings were held and even if had to they are illegal and contrary to law. They submitted that admittedly Muthu Group served no notice, which was required under the provision of Participation agreement and as per provisions of Section 286 of the Act. Mr.De'vitre submitted that there was no quorum and no agenda of the meeting. Reliance was placed on clause 7.10.b of the Participation agreement dated 22 March 1991 and clause 20.01. He submitted that the Participation agreement was acted upon and cited instances in respect of the same which have been reproduced in para 181 of the impugned order. Mr. De'Vitre submitted that Muthu was under obligation to incorporate the Participation agreement in Articles of Association; however, Muthu failed to do so. He relied upon decisions in the case of Ebrahimi v. Westbourne Galleries Ltd.(1972) All ER 492 at page 500, followed in Needle Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated, the Board has rendered a finding of fact that the meeting in fact was held and the minutes were not fabricated. The Board has concluded that the charge of fabrication is akin to fraud and heavy burden lies upon the party to make such allegation. It is the contention of Mr.De' Vitre that the minutes inter-se show complete inconsistencies. It is stated that no individual or any person of Muthu group is identified as purchaser. He submitted that decision taken in the minutes were not informed to Nafan as Muthu's letter dated 20 September 2009 does not make reference to any meeting held on 29 January 2009. He submitted that minutes were never disclosed in the communication and no reference was made to the meeting before the contempt proceedings. However, as rightly observed by the Board that merely because there are contradictions in the minutes does not per se lead to the conclusion that the minutes are fabricated. The failure to communicate the resolutions and minutes may amount to act of oppression and/or mismanagement, but from this omission itself, it cannot be stated that the minutes themselves were fabricated. The Board has taken a view that grounds provided by Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able presumption and the onus is on the addressee to show that the document under certificate of posting was not received by him. 36. In Dale Carrington Investment (P) Ltd. v. P.K. Parthapan and Ors. reported in, (2005)1SCC212 , their Lordships with regard to oppression held if a member who holds the majority of shares in a company is being reduced to the position of minority shareholder in the company by mala fide act of the company or by its Board of Directors, such act must ordinarily be considered to be an act of oppression against the said shareholder and what relief should be granted would depend on the facts of the case. The facts of the present case at hand are almost akin to the case referred to above. Allotment of additional shares to the Managing Director was found to be sole objective to gain control by becoming majority shareholder. That allotment was found to be mala fide and not in the interest of the company and no legal procedure prescribed in Articles of Association was followed and it was found to be a clear case of an act of oppression on the part of R towards P, the majority shareholder. 41. In Halsbury's Laws of England, 4th Edn., Vol.7, para 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n recommending the adoption by members of proposals made to them collectively. If the Directors mismanage the company's affairs, they incur liability to pay damages or compensation to the company or to make restitution to it, but individual members cannot recover compensation for the loss they have respectively suffered by the consequential fall in value of their shares, and they cannot achieve this indirectly by suing the Directors for conspiracy to breach the duties which they owed the company. However, there may be certain situations where Directors do owe a fiduciary duty and a duty to exercise reasonable skill and care in advising members in connection with a transaction or situation which involves the company or its business undertaking and also the individual holdings of its members. Therefore, the upshot of the above discussions is that the Directors are in a position of a trust. They must confirm to the probity and their conduct should be above suspicion. (emphasis supplied) 79. With this above emphasized dicta of the Apex Court, I will proceed to consider the rival contentions. The Board in Paragraph no 3.7 of the impugned order has reproduced the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siding outside. Art.55 refers to a director who at present not in India. It only indicates that one who has gone out will not be entitled to any notice. This article will have to read in a common sense manner. It does not refer to the directors who are 'residing' outside India. The articles are the one agreed by the parties and they will have to be read in that manner. It is inconceivable that the parties meant that Muthu Group could do what they want; take decisions of any magnitude like shutting down the plants, without notices to Nafan. The articles regulating notice of meetings cannot be stretched to an absurd limit. The Participation agreement therefore, only provides an additional methodology rooted in fairness concerning the notice to the directors outside. The requirement under the Participation agreement can only be termed as supplementary. The relevant clause of the Participation Agreement is not in conflict with the Articles of Association and the Act. The Board did not commit any error on this count. 81. There was a considerable debate at the bar in respect of the observations of the Apex Court in the case of Vodafone International. Reliance was placed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A is to make provisions for proper and effective internal management of the company. It can visualize the best interest of the company on diverse issues and can also find different ways not only for the best interest of the shareholders, but also for the company as a whole. 265. In Shanti Prasad Jain v. Kalinga Cables Ltd. (1965) 2 SCR 720, this Court held that agreements between nonmembers and members of the Company will not bind the company, but there is nothing unlawful in entering into agreement for transferring of shares. Of course, the manner in which such agreements are to be enforced in the case of breach is given in the general law between the company and the shareholders. A breach of SHA which does not breach the Articles of Association is a valid corporate action but, as we have already indicated, the parties aggrieved can get remedies under the general law of the land for any breach of that agreement. 266. SHA also provides for matters such as restriction of transfer of shares i.e. Right of First Refusal (ROFR), Right of First Offer (ROFO), Drag-Along Rights (DARs) and TagAlong Rights (TARs), Preemption Rights, Call option, Put option, Subscription option etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etings have in fact been held outside India, acting on Clause 7.10 (a) of the Participation Agreement-See: Board Meeting dated April 2005 held in France; (v) Respondent No.8/Petitioner provided technical and financial assistance to the R1; (vi) Pursuant to the 06 June 1981 Agreement, the Respondent Company No.1 was incorporated with the name Saf Yeast Clause IV(2) of the first agreement dated 06 June 1981 provided that ... At any time, should Lesaffre wish to acquire further shares in SAF Yeast Co., Mr. Muthu is prepared to sell to Lesaffre or any other individual or legal entity Lesaffre might name, 25% of his shareholdings to enable Lesaffre to have majority share holdings of SAF Yeast Co . The 1991Participation Agreement provided for the continued use of the trade name 'SAFon the terms set out therein; (vii) Respondent No.3 and 4 were appointed as Directors of the RI Company acting upon; (viii) By its letter dated 30 May Respondent No.1 Company acting through Respondent No.2 as its Managing Director, confirmed its total and unconditional acceptance of various points in accordance with the 6 June 1981 Agreement and the Participation Agreement of 22 Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the most important decision for SAF Yeast. It was not an ordinary routine business to be transacted. Neither the Articles of Association nor Section 286 prohibited issuance of notice for such decision. The Participation agreement contemplated issuance of notice. Ultimately, the allegations of all acts of oppression are rooted more in fairness than in legality. Once the Participation agreement existed and it contemplated issuance of notice, it was only reiteration of the obvious, which is otherwise a requirement. In fairness, the notice ought to have been given. It is the most unfair stand to be taken that the Articles of Association were not amended to include Participation agreement even though it was acted upon in same manner, and therefore, no notice before transfer of shareholding was required to be given. Such argument defies all notions of fairness. 85. The Board has rightly emphasized that merely because Participation Agreement did not legally became part of the Articles of Association, parties knew its existence and the fact that the Participation Agreement required a notice to the Directors to be given outside India. The Board rightly observed that since this term wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove. However, the main argument advanced by the Muthu group is that the MOU was a transfer notice and transfer was effected as per the Articles. Question then arises is whether the MOU constituted a transfer notice. The learned counsel advanced the detailed submissions on the interpretation of the articles to demonstrate that the MOU can be treated as a transfer notice. There was also a question as to whether the transfer between member to member is covered by first part of Article 14 of the Articles of Association and the applicability of Articles 15, 18, 19 and 22 in respect of transfer of shares. 88. At this stage, it is necessary to reproduce the relevant Articles 14 to 22. '14. A share may be transferred by a member or other person entitled to transfer to any member or other person entitled to transfer to any member selected by the transferor but save as aforesaid and save as provided by these Articles, no share shall be transferred to a person who is not a member so long as any member, or any person selected by the Directors as one whom it is desirable in the interest of the Company to admit to membership is willing to purchase the same at the fair value mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of them and give notice in manner aforesaid, the proposing transferor shall at any time thereafter be at liberty subject to Article 20 hereof to sell and transfer the shares to any person at any price. 22 The Directors may at their absolute and uncontrolled discretion decline to register or acknowledge any transfer of shares and shall not be bound to give any reason for such refusal and in particular may so decline in respect of shares upon which the Company has a lien. These Articles shall apply notwithstanding that the proposed transferee may be already a member'. Transfer of shares in a company are governed by Section 108 of the Act. Section 108 (1) and (1A) of the Act which read as follows: 108. (1) A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate relating to the shares or debentures, or if no such certificate is in existence, along with the letter of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Board on the Articles of Association. Mr.Dwarkadas contended that Article 14, 15, 17 and 22 are applicable to transfer of shares between members, as is contemplated under the MOU. According to him, the SAF Yeast was validly appointed as an agent of Nafan, the proposing transferor, and it had validly exercised its powers under Article 18. According to Mr.Dwarkadas, the argument that Article 15 and 19 will apply only to a transfer to a nonmember is incorrect as seen from the scheme of the Articles. He submitted that right to transfer shares is not unfettered and the Article 14 makes it clear that even transfer inter-se between members is regulated in the manner provided by the Articles. He contended that Articles contemplate transfer notice by A Person proposing to transfer any shares and article 15 applies even to a member-to-member transfer. He submitted that the Articles 14 to 22 would have to be read harmoniously. According to Mr.Dwarkadas Article 16 has no application in the case of transfer between members inter-se. As regards Article 17 read with Article 15, according to Mr.Dwarkadas it would be in a case where there is a disagreement of the price of shares to be transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Enercon Gmbh v/s. Enercon (India) Ltd. ors.(2008) 143 Comp Cas 687 (CLB), Ratan Mohan Sarda ors. v/s Capricon Oils Ltd. And ors. (2010) 157 Comp Cas 470 (CLB), and Dhanraj Mills Pvt. Ltd. and anr. v/s Global Trust Bank Ltd. ors. (2003) 105 BOMLR 609. It was contended that Article 14 gives unfettered right to transfer the share to another member and the second part of Article 14 refers to restriction by way of preemptive right in favour of the members of the Company. According to the learned counsel, prohibition against transfer operates only in respect of a proposed transfer to a nonmember and it is for that reason that the Article subjects the right of transfer to a nonmember selecting the existing member or person selected by directors. It was further submitted that the restrictions of transfer to a nonmember attracts provision of Article 15 to 19 and these Articles will apply only when transfer is proposed to a nonmember. Reliance was placed on the decision of Holmes V. Lord Keves (supra). It was submitted that there is no question of appointing the Company as an agent only for a member-to-member transfer. It was submitted that, in any case, the MOU could not be a transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a broad proposition, generally law does not recognize an embargo on transfer of shares. The first part of Article 14 therefore merely reiterates the obvious position that a member can transfer the share to another member. This obvious position is stated only to emphasize the restrictions that follow in the second part of Article 14. Second part states that the shares shall not be transferred to a person who is not a member, as long as any member or any person selected by the directors is willing to purchase the same at a fair value. Such embargos are placed in closed held Company to keep them that way, discouraging the outsiders. The Article 15, 16, 17 and 18 thereafter lay down a methodology where the Company gets involved for transfer of shares and steps in as an agent. There is no logic for going through the entire process of making the Company an agent if the share transfer is between the members. The Articles are drafted by the businesspersons to govern themselves. When one member decides to transfer the shares to another, they would inform the Company. There is no special reason why in respect of this Company they should go through the entire gamut of making company the agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 'must' constitute the company as an agent. There cannot be a notice by implication, because it will lead to uncertainty and confusion. The notice will have to be clear, and addressed to the Company to constitute an agent. 95. Even assuming that even this was done, the Article 16 mandates the Company, within period of 60 days after having been served with a notice to find a member or person selected to purchase the shares and give notice to proposing transferor. No such notice was given to Nafan. 96. Mr. Dwarkadas placed heavy reliance on the phrase 'these articles apply' occurring in article 22. However if this argument is accepted then it runs counter to the argument that Article 14 to 22 do not apply to member to member transfer. If this argument is taken to logical conclusion then after period of 60 days, the member will be free to transfer shares to any person and there will be no agency left in the Company. The finding of the Board that Article 22 will not cover the first part of the Article 14 to the scheme of other articles is correct. To accept this argument will be artificially stretching the meaning of the article. 97. The Articles are not to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person to whom transferor may choose to sell the shares. The Apex Court held that only in the second and third case, the directors need to be constituted as agents. The following articles came up for consideration before the Apex Court. Articles 57A and 58 to 64, read as under: 57A. In the event of any member of Company desires to transfer his shares he shall be bound to offer the same either to Dr. N.B. Parulekar or to Madame Shanta Parulekar or such other person or persons as Dr. N. B. Parulekar or Madame Shanta Parulekar may direct or may nominate and in which event the transferee or transferees shall pay such price as may be certified by the Auditors of the Company. 58. Subject to Cl.57A no shares shall be transferred so long as any member or any person selected by the Directors as one to whom it is desirable in the interest of the Company to admit to membership, is willing to purchase the same at the fair value as mentioned herein below. 59. Except where the transfer is made pursuant to Article here of, the person proposing to transfer any share shall give notice in writing to the Company that he desires to transfer the same. Such notice shall constitute the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares to any person and at any price. 64. Every share specified in the Notice given pursuant to the Article hereof shall be offered to the members in such order as shall be determined by the Directors and in such manner as the Directors think fit. If no member is ready and willing to take up such shares the same may be offered to any person selected by the Directors as one to whom it is desirable in the interest of the company to admit to its membership . These articles are similar to the ones at hand and, therefore, they have been reproduced in full as above. The Apex Court analyzed the articles as under: 24.1 The Articles give the hierarchy of the persons entitled to purchase shares upon transfer. The first right is given to the preemptors under Article 57A. Next in the hierarchy is any member who is willing to purchase the shares at a fair value. This follows from a reading of Article with Article The third category is of any person or persons selected by the Directors as being desirable in the interest of the company to admit to membership. The last category is the person to whom the transferor may choose to sell the shares. As long as there is any person in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would come into play and the transferor would be at liberty to sell the shares to any person and at any price, albeit also within a period of 30 days from the expiry of the first period of 30 days. It follows that a notice issued prior to the preemptor exercising or failing to exercise the right under Article 57A would not be in keeping with Articles and 60 as this would make the period of 30 days uncertain if not illusory. Thus the notice by the transferor under Article must succeed the factual failure of Article 57A and notice, if any, under Article must follow the failure of Article. 24.3. Assuming there is a willing purchaser under Article there is no time limit fixed either for the parties to arrive at a negotiated price or for the Auditor to fix a fair value. But Article indicates that the entire transaction envisaged by Articles 59, 60, and 62 would have to be completed within a period of 60 days after Article 57A failed to operate. It can be seen from the above that the Apex Court categorized the seller and buyer of the shares and applied a different yardstick. The Apex Court did not hold that even in case of first category, the directors were to be appointed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to address any separate notice to the Company. It was submitted that Laloum was fully aware that Muthu was the Managing director of the Company and the signing of the MOU in the circumstances constituted sufficient notice. 100. The Board rejected the contentions of Muthu group on the ground that the Article 15 and the other modalities did not apply. I am in agreement with the view taken by the Company Law Board that the scheme as propounded by Muthu group did not apply to member-to-member transfer. However, for sake of completeness, I will consider the alternate position that even assuming the articles as contended apply, whether MOU could be treated as a transfer notice. 101. In Sakal papers (supra) in para 24.2, the Apex Court noted that the notice of transfer is required to constitute the directors as transferor agents. The Apex Court noted in paragraph 44 that the notice issued did not constitute the Directors as a transferor's agents. 44. The notices issued in respect of the 93 and 3417 shares were not in keeping with the Articles as far as Articles to 63 were concerned. As we have already observed, notices to willing members or to selected persons under Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme of things. In the case of Re Ringtower Holdings (supra) the Court concluded that there was no intention to sell the shares in the facts of the case. Merely because some observations can be used to support the submission, a judgment cannot be read de hors the factual backdrop. Reliance on the case of Mannai Investments Co. Vs. Eagle Star Life Assurance Co. Ltd. (supra) is equally misplaced. That was a case arising from termination of lease and the notice was construed in the context of the provisions of that Act. 103. Therefore, the action of transfer of shares based on Articles and constituting the Company as an agent based on MOU was not only illegal and contrary to the articles on the part of Muthu group but in the factual backdrop, it was highly inequitable. Therefore, not only the Board meetings that were held without Board's notice were illegal and oppressive but also the action of using MOU as a transfer notice. It was argued that Muthu group acted based on the opinion of a senior Advocate and therefore their action was bonafide. The opinion of the senior advocate refers to Article 16, which according to Mr.Dwarkadas, does not apply. It was agreed by the counsel t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p.m. on the same day. On reassembling, the resolution was passed, the transfer was completed, and the meeting ended. It is in this fashion that the duplicate share certificates have been prepared and issued. 105. It is an admitted position on record that there is no written communication from either Nafan or Laloum informing that the share certificates were lost and duplicate share certificate need to be issued. The Company Law Board has disbelieved the theory of oral request. 106. Mr.Dwarkadas submitted that if the duplicate share certificates were not lost then nothing stopped Nafan from producing the original certificates. This submission cannot be accepted. What needs to be considered is the act of Muthu group in seeking duplicate share certificates at the time of transfer of shares on the premise of oral request made by Laloum sometime in February 2009. Laloum on oath has denied the conversation. Nafan has produced summary of telephone records to show that were no telephone calls between 11 February 2009 and 6 March 2009. Not a single text message is also produced nor any communication in writing to issue duplicates certificates. There is no explanation at all why, if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntent to defraud renews a certificate or issues a duplicate thereof, the company shall be punishable with fine which may extend to ten thousand rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both [4] Notwithstanding anything contained in the articles of association of a company, the manner of issue or renewal of a certificate or issue of a duplicate thereof, the form of a certificate (original or renewed) or of a duplicate thereof, the particulars to be entered in the register of members or in the register of renewed or duplicate certificates, the form of such registers, the fee on payment of which, the terms and conditions, if any (including terms and conditions as to evidence and indemnity and the payment of out-of-pocket expenses incurred by a company in investigating evidence) on which a certificate may be renewed or a duplicate thereof may be issued, shall be such as may be prescribed.] Also needs to be noticed are the Articles of Association as under: Article 8 of the Table A If a share certificate is def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept on very satisfactory proof of loss or destruction, or on a satisfactory indemnity being given. Taking note of these passages, the Division Bench observed thus Before taking a decision to issue duplicate certificates, a decision had to be taken or satisfaction must be entered that the original certificates was lost. In this case, the very request by the second respondent says that the original certificate is with the first petitioner herein. Hence, by no stretch of imagination, can it be said that the share certificate is lost or destroyed. The authority to issue a duplicate certificate rests with the company only on proof that it is lost, or at least there must be some investigation before coming to the conclusion that it could not be traced. The first respondent company is aware of such a procedure. One of the constituents, Sanman Investments Pvt. Ltd., requested the first respondent to issue a duplicate certificate. The first respondent did not issue duplicate certificate immediately. It directed an investigation to be made, and caused an advertisement to be published in the dailies, and waited for objections. For nearly eight months, the duplicate certificates were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impressed by any of these submissions. The conduct of issuance of duplicate certificates was clearly a part of a design to remove Nafan and Lesaffre from the Company. Once it is held that meetings itself were illegal, the MOU did not constitute the transfer notice, then get duplicate share certificates in absence of any written authority only compounds the acts of oppression. What is sought to be done is that each act is sought to be justified in isolation, but what needs to be considered is totality of the actions leading to acts of oppression. The issuance of duplicate share certificates in this manner surely constituted one piece in the large scheme of their. I am therefore, in agreement with the Company Law Board in respect of the finding rendered by it on this count. Valuation 110. The next issue is regarding the valuation submitted by M/s Sharp Tannan. The Board has concluded that the valuation report prepared by M/s Sharp and Tannan is not reliable, it is patently biased, partial and based on incorrect methods. M/s Sharp Tannan has deliberately used guidelines, which are inapplicable. The Board has concluded that the valuation report is wrong in principle, erroneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business and Net Assets of Branches. The valuation was done by capitalising value of average of the profits of the past for the accounting year and Net Assets Value (N.A.V) method. He submitted that the valuation had to be done on urgent basis in light of the MOU. The valuation was prepared on 9 February 2009 and forwarded to Laloum on 10 February 2009. He submitted that the Department of Foreign Exchange of Reserve Bank of India raised a query, which was replied stating that CCI Guidelines were followed. He contended that there are many methods of valuation available. No valuation report can possibly mention all methods of valuation and from that conclusions of bias, impartiality and unreliability, cannot follow. Nafan has produced no proof in support of allegations of collusion and fraud. He submitted that in a valuation report, all conceivable methods of valuation are never adverted to. Merely because the RBI circular of 2010 mentions Discounted Cash Flow method (DCF), does not mean that is the only method. Mr.Subramaniam submitted that there is nothing wrong in preparing a report within 24 hours and it is easily possible when all the data is available on the computer. He reite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 31 March 2008 as incorrect as MOU required sale consideration to be paid immediately. He submitted that as laid down by Chancery Division in Re a Company (No: 004377 of 1986)[1987] 1 WLR 102, that wide discretion is conferred upon a statutory auditor for carrying out the valuation. 114. On the other hand, it is the contention of De'Vitre that Nafan was not a seller of the shares at all. The valuation was challenged to show the oppressive acts of Muthu group and the Board has rightly held that the way the valuation was carried out is oppressive. He submitted that even assuming the MOU is executable it contemplates fair valuation. The valuation carried out is not only not fair but no valuation in eyes of law. He submitted that the valuation does not take into account the well-settled methods of valuation. He submitted that the methods, which are generally adopted and mandated, have not been carried out by the valuer. He submitted that CCI method is completely inapplicable and in violation of the RBI instructions. The valuation is absurd, extremely low, completely unfair, and the Board has rightly set it aside. 115. Before issue of valuation is to be discussed in detail, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire line of argument of Mr.Subramaniam and Mr.Dwarkadas has been to show that how M/s.Sharp and Tannan followed particular permissible method and how there is lack of pleadings and scope of Court to interfere with the valuation report. 117. The conduct of Muthu group in getting a valuation report in 24 hours to arrive at a valuation, which he knew was not reflecting the correct value, in itself, is alleged to be part of oppressive conduct. The Board found that M/s Sharp and Tannan did not give any reason for not adopting the DCF method and choosing Comparable Companies Analysis method of valuation and even though they were the most common method and M/s Sharp and Tannan went ahead with the CCI guidelines. In the case of G.L.Sultania the Apex Court has laid down that the valuation report can be questioned when well established principles of valuation are, departed without any reason, and demonstrably wrong approach is adopted. Therefore, the question arises of explanation as to why DCF and CCA Guidelines were not adopted. It is not that these two methods are inapplicable or outdated. The valuer is supposed to take into consideration the well-established methods and give reasons a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures all the elements of the value of a business compared to the other methods, the DCF method comprehends the difference between the values of firms having similar accounting earnings due to the difference in capital investments and other cash flows required to sustain these earnings. By adopting the said technique, the chartered accountants have worked out the fair value per share of Alembic Ltd. and Darshak Ltd. as under: Company Valuer per share Alembic Ltd. ₹ 287.17 Darshak Ltd. ₹ 15.91 The chartered accountants have, therefore, suggested that on the basis of the aforesaid fair value per share, they consider fair and reasonable, a share exchange ratio of one equity share of ₹ 10 each of Alembic Ltd. for 18 equity shares of ₹ 10 each of Darshak Ltd. for the purpose of the proposed merger. Thus the company has accordingly adopted the share exchange ratio of six equity shares of ₹ 10 each of Alembic Ltd. for 100 equity shares of ₹ 10 each of Darshak Ltd. for the purpose of the proposed merger. (Emphasis supplied) In the above case M/s Sharp and Tannan had reasoned that the DCF method captures all the elements of valuation c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s farfetched to suggest that the RBI itself applied its mind and approved the valuation carried out treating it as a fair valuation. 121. It is contention of Muthu group that in the previous valuation report dated 17 January 1992 by M/s Sharp and Tannan, the CCI guidelines have been used. However as it has been rightly pointed out by Mr.De'Vitre that the report of the year 1992 was for the purpose of an application to the Controller of Capital Issues seeking its prior approval to price of new shares. It did not require valuation of the Company as a going concern. No capital can be made therefore, on the ground that 1992 valuation was based on CCI method. The contention that NAV method was rightly followed cannot be accepted as the VIRC reference manual which explains the NAV method shows that it is to be adopted in case of manufacturing companies where fixed assets have greater relevance for earning revenues. Nothing is shown as to how this is so and the Board therefore, has correctly rejected this contention. There is no perversity in this finding. 122. Coming to the CCI guidelines supposed to be followed by M/s Sharp and Tannan, it is the contention of Mr.De'Vitre t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of the challenge mounted by the petitioner to the valuation report. Mr. P.C. Khanna, learned senior counsel appearing on behalf of the respondents, submitted that the valuer's report was binding on the parties and the court cannot go behind the same. While computing the stake/share of the petitioner in the company the valuer acted as an expert and not as a quasi arbitrator or an arbitrator. This being so his report cannot be attacked in the instant proceedings. The valuation given by the valuer is final and conclusive between the parties. In case the petitioner is aggrieved of the valuation determined by the valuer, his remedy lies in filing a suit for damages against the valuer for negligence. Mr. Khanna canvassed that initially the view of the English courts was that no action lay against the experts such as valuers, auditors, brokers etc in tort for giving an opinion or making a determination negligently. This was on the ground that they were discharging professional duties of quasi judicial character. Since the experts could not be sued, their determination could be impugned in the litigation between the parties affected by their determination or opinion. Learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these proceedings. I regret my inability to accept the submission of the learned senior counsel. While it may be true that the compromise recorded by the court constitutes a decree but that does not mean that the report of the valuer which was directed to be filed under the order of this court cannot be touched in these proceedings. In case the report suffers from mistake or perversity, the same can certainly be set aside in these proceedings and the matter can be referred for fresh valuation by an expert. The court is not bound to accept the report in case the same is erroneous. Mr. Sanghi, learned counsel for the petitioner, claimed that M/s Coopers Lybrand Pvt. Ltd was actually appointed by the Court under Order 26 Rule 9 C.P.C. as Local Commissioner to determine the valuation. On the other hand, Mr. Khanna, learned senior counsel for the respondents, refuted this position and submitted that the appointment of the valuer was made by by this court order on the basis of the terms of the compromise arrived at between the parties and the same was not made under Order 26 Rule 9 C.P.C. It is not necessary to examine the submissions of the learned counsel for the parties in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or action. In paragraph 20 of the judgment, their Lordships said thus (page 553): Fraud and collusion vitiate even the most solemn proceeding in any civilised system of jurisprudence. It is a concept descriptive of human conduct. Michael Levi likens a fraudster to Milton's sorcerer, Comus, who exulted in his ability to, 'wing me into the easy-hearted man and trap him into snares'. It has been defined as an act of trickery or deceit..... . After extracting the various definitions in the dictionaries, their Lordships further held thus: ... fraud in public law is not the same as fraud in private law. Nor can the ingredients which establish fraud in commercial transaction be of assistance in determining fraud in administrative law. It has been aptly observed by Lord Bridge in Khawaja that it is dangerous to introduce maxims of common law as to the effect of fraud while determining fraud in relation to statutory law... The present day concept of fraud on statute has veered round abuse of power or mala fide exercise of power. It may arise due to overstepping the limits of power or defeating the provisions of the statute by adopting subterfuge or the power m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinction between the words fraud and dishonest . Both of these mean the same thing and the use of the two together does not add to the extent of dishonesty required. The learned author also says at page 149 what a trustee should know before he is made liable or charged with dishonesty or fraudulent act. The learned author says thus: (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious' Nelsonian knowledge'; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) Knowledge of circumstances which indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. A director of a company must know that he is a trustee for the company; though he need not know all the details of it. He must know of the dishonest and fraudulent design, though not necessarily of the whole design; and he must know that his act assisted in the implementation of such design if these acts proved, fraudulent act on the part of the directors can be imputed. In this connection, it is better to refer to Kerr on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of Muthu group that Nafan and Lesaffre were insisting on valuation nothing is shown on record that 24 hours valuation was insisted upon. The learned counsel for the parties relied upon decisions dealing with instances where valuation reports have been prepared in short time. It is correct that technology and faster processing of information will expedite preparation of reports. However, whether a valuer should produce report in 24 hours, whether technology permits it to do so will have to be assessed on facts of each case. In the present case, there was absolutely no need to prepare report in a hurry and to omit the most relevant method. Nafan has placed on record that they had obtained a valuation report from another reputed valuer, which shows the same shares as valued substantially higher. According to them, the correct valuation was about 25 million Euros at that time while Sharp Tannan valued the shareholding at approximately 27 crores only. Thus, price of a majority stake in one of leading yeast manufacturing company in India is valued at 27 crores. It cannot be helped but observing that is the cost of two, three residential flats in upmarket Mumbai. Not that on tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of oppression, concluded that the ultimate relief should be that Nafan and Lesaffre must sell its shareholding to Muthu group. The Board concluded that two groups could not run the Company together as the relations between the parties have become acrimonious. The Board opined that the permanent solution in the paramount interest of SAF Yeast is sale of shares of one group to another. The Board thereafter considered the claim of both the parties as who should buy out whom. According to Nafan and Lesaffre, they are a leading business group worldwide in the yeast business. They supplied financial and technical support to SAF Yeast and they have substantially contributed to its growth. They also contended that the title 'SAF Yeast' is derived from the word 'Lesaffre'. A grievance was made that Muthu group caused SAF Yeast to file criminal complaints, which were subsequently withdrawn. On behalf of Muthu group, it was contended that they should be permitted to buyout the share holding of the Nafan. According to Muthu group, Muthu was Managing Director since inception. The Company was managed successfully by him single handedly and without any technical support as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival contentions of regarding contributions. SAF Yeast is a joint venture. It was created together. Nafan and Lesaffre held 51 per cent shareholding and Muthu group 49 per cent. Nothing stopped Muthu group from establishing the Company on its own, yet the Company was started as a joint venture. Nothing stopped Muthu from establishing a unit on the technology stated to be available with him, yet joint venture was formulated with Lesaffre who are already in the business of manufacturing of yeast. It was a mutual agreement and no party was coerced or forced to set up a joint venture. Obviously therefore, it was set up for mutual benefit. Nafan and Lesaffre had placed on record their stand that they wanted to set up a unit for manufacturing of yeast in India as they saw potential in the market and in view of restrictions placed by the Indian government they had to start it in a joint venture. Therefore, once joint venture had been set up the aspect of contribution does not assume so much of importance as rightly held by the Board. The Board however proceeded to hold that Lesaffre and Nafan had already received their money back with interest as against their investment in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, it is not that Muthu group will be thrown out on the streets without any money. The buyout will be of the value of their shareholding, which will be substantial, and Muthu group will be free to carry on their business activities elsewhere or can always invest it. Even Mr.Dwarkadas has not contended that Muthu and his family will be on the streets. The next reason is that no prejudice will be caused to Nafan and Lesaffre if they are directed exit because they are running various other companies worldwide. If SAF Yeast was a joint venture in the area in which Nafan and Lesaffre have expertise, they cannot be ordered to be exited from SAF Yeast simply because they have other companies in other developing countries. In fact, it would strengthen the case of Nafan and Lesaffre that they should be allowed to run the Company since they have expertise and experience in running various companies in other developing countries. Then the Board has brought in the intention of Nafan and Lesaffre while executing the MOU to order the buyout, which aspect I have already dealt with. Equally untenable is the ground that since Nafan and Lesaffre are based in Europe, it is better that an Indian runs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buy out the Nafan and Lesaffre. However, this finding is contrary to the Board's own finding earlier that it is not inclined to accept contentions of either parties regarding their contribution as they had entered into joint venture for commercial purpose. The Board has then gone on to hold that in case Nafan is allowed to take over the management, it may not be capable of handling the situation. This is a rather simplistic view of the way large scale industrial operations are run. Merely because if Nafan takes over the control, does not mean that it will terminate all the existing staff. Professionals manage the business nowadays. Though majority shareholders are based out of India, a professional staff can manage the day-today basis. Though the expertise of Muthu may not longer be available but that does not mean that Nafan and Lesaffre cannot carry out affairs of the Company by employing competent professionals. To my mind all the grounds given by the Company Law Board to order a buy out in favour of Muthu group, are completely irrelevant. 136. Though the Board has wide powers under Section 402 of the Act, the power is not to be used arbitrarily and should be based on wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or directed to sell their shares to the minority group of shareholders. An order directing the majority group of shareholders to sell his shares to the minority group of shareholders will not redress the wrong done to the majority group of shareholders and will not give him sufficient compensation or relief against the acts of oppression complained of by him, and, on the other hand, may add to his suffering and grievance and cause him greater hardship. Such an order, to my mind, will not further the ends of justice and indeed the cause of justice may be defeated. Mr. Dwarkadas contended that in none of the decisions cited by Mr. De' Vitre, more particularly, Dale Carrington (supra), a MOU such as the present one was involved. This argument cannot be accepted. As far as MOU is concerned, I have already rendered my findings on the same. Furthermore, the basic proposition that normally majority should not be ordered to exit is not diluted in any manner. 138. There could possibly be an exceptional circumstance where the minority could be directed to buy out the shares of the majority. Question is whether any exceptional circumstance in the present case is made out. I ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt shareholding. 88 per cent were NRI shares and balance by the resident Indian. Dr. Kamal Kumar Dutta contributed 4.26 crores while his brother Sajal Dutta contributed 1.23 crores. The hospital was established in the memory of late wife of Dr.Kamal. Since he and Dr.Sinha were NRIs the company was being looked after by Dr.Sajal Dutta. After the hospital prospered, dispute arose between brothers. The attempts were made by the younger brother to throw out the elder brother and Kamal Kumar Dutta filed a petition under Section 397 and section 398 of the Act before the Board. The stand of the Company was that Dr.Kamal and Dr.Sinha had discontinued themselves as directors. The Apex Court noted that when the meeting where the resolutions were passed to oust Dr.Kamal from managing directorship and install Sajal Dutta, notices were not given. In paragraph 46, the Apex Court observed as under: 46. The CLB has in minute detail discussed with regard to all the resolutions which we have already adverted to. No proper notice was served on the appellant No. 1 who is a major shareholder of the company or to appellant No. 2. If the Board meeting had been convened without proper service of noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Dr. Kamal Kumar Dutta and the minutes of the said meeting dated 7.2.1996 were not brought forward in the meeting of 16.2.1996 in which Dr. K.K. Dutta was present. The IDBI nominee reported to have advised that the draft minutes of the meeting dated 7.2.1996 to be placed before the meeting dated 16.2.1996 which would correctly reflect Sajal Dutta as the Managing Director but it was not included in the meeting of 16.2.1996. However, Mr. Nariman tried to persuade us to show that there was some defect in drafting of minutes of the resolution and therefore, it was not reflected in the meeting dated 16.2.1996. It does not appeal to us. Be that as it may, when such an important decision was taken in the absence of the main promoter of the company to oust him from the Managing Directorship and to install Sajal Dutta in his place, it is the grossest act of oppression by the Board of Directors. Sometime after dispatching Dr. Dutta from the Managing Directorship most of the shares were cornered by the subsidiary companies of Sajal Dutta so as to acquire the management of the company and to alter material change in the management of the company. What can be more unfortunate than this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to be taken in the entire existence of the company. After having successfully gone through the plan of usurping the share holding of a majority group, detailed justifications advanced to cover up the conduct, which on the face of it, lacks in fairness. Taking law in own hands cannot be termed as a normal human behaviour, as the Board has observed. If this is tolerated, it will create serious uncertainties for joint ventures and leads to complete lawlessness, as one group will simply transfer share holding of others to themselves without notice. 142. The dispute has to placed on a larger canvas. The government of India encourages inflow of foreign investment. One of the ways is setting up collaborations and joint ventures with foreign partners. Such joint ventures are common in the age of globalization. The economic policy Indian government pursues needs the business climate in India to be stable and supportive to investments, collaborations, and joint ventures. The Board cannot be oblivious to these wider issues when it passes orders of buyout in respect of joint ventures between an Indian resident and a foreign collaborator. It is of utmost importance that the atmosphere of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat amounts were guaranteed to be repaid to the Petitioner by the respondent company. Respondent has resolutely refused to pay it back inspite of assuring to do so many times earlier. Absolutely nothing is placed on record to even hint that the Respondent Company does not owe the money to the Petitioner. Any other creditor would be as a right entitled to ask for admission of the petition against such a company. If so then why the Petitioner be kept away from this right, its only fault being that it lent the monies outside India and filed a suit for recovery of the same in the Court where the transaction took place. To deprive the Petitioner will encourage Indian companies to be dishonest in their international dealings. With globalization of trade and investments, cross border flow of capital and the dependence of the country's economy on international commerce, the company court needs to be alive to the changing commercial and economic realities, and exercise its discretionary powers accordingly. (emphasis supplied) 144. Nafan has pressed for the buyout in its favour. It has requested that any reputed valuer be appointed and they are ready to buyout the shares of Mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SAF yeast. However, if Muthu group is not ready and this object is not being achieved then buyout in favour of Nafan will have to follow. I am, therefore, of the opinion that, before ordering a buyout in favour of Nafan, possibility of a forward competitive bid be explored. That way, both the parties will make a competitive bid and one who will sell out, will get a fair value. It will also put an end to the litigation once for all and a single group can then manage the company. It will be in benefit of Nafan also as the bidding will take place without any future uncertainty and it is Nafan itself, which has suggested auction as an alternate mode. This will however depend on the undertaking of the Muthu group. Otherwise, I have already concluded that there can be no buyout in favour Muthu group on a fixed valuation. 147. For the purpose of valuation of shares, it will be most appropriate that today's date is taken as a reference. The order could thus be in two steps. Part I will be the forward competitive bid for which Muthu Group will have to withdraw the civil suit they have filed and not take any steps based on MOU henceforth and convey its acceptance within a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees to withdraw the suit and undertake not file further proceedings based on the MOU then the dispute can be put an end to by holding a forward competitive bid. If Muthu Group is not agreeable then buyout in favour of Nafan will follow. For overseeing the two options, as suggested by the Board, Justice J.N.Patel is appointed as an Administrator. M/S Ernst and Young is appointed as Chartered Accountants to carry out the valuation. A regards the modalities for holding the auction and the buy out, the modalities suggested by Nafan are proper and can be adopted. ORDER A. The declaration by the Board that the MOU dated 23 January 2009 is valid, effective and enforceable document and the terms thereof are binding upon the Petitioner and Lesaffre Group, is quashed and set aside in light of what is observed above. B. The declaration by the Board that the Valuation Report prepared by Sharp and Tannan is biased, partial and in contravention of the statutory guidelines and rules to carry out the valuation of shares of a going concern and the direction to set it aside, is confirmed. C. i) The declaration by the Board that the Board Meeting held on 29 January 2009 is invalid and ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointment of the Administrator, Respondent Nos.26 in the petition (Muthu Group) shall forthwith deposit with the Administrator signed, duly filled in but undated share transfer forms along with the original share certificates in regard to all the shares held by them in the Company. c. Until the process of sale/purchase is complete, the powers of the Board of Directors shall be vested in an equal number of Directors/alternate directors nominated by Nafan and the Muthu Group (as one group) with the Administrator holding the casting vote, the Directors/alternate Directors nominated by Nafan and the Muthu group shall be entitled to attend meetings of the Board and/or general meeting of the Company; all such meetings, whether meeting of the Board or General Meetings, if any, shall be convened and presided over by the Administrator alone. d. Until the process of sale/purchase is complete, the SAF Yeast and the Administrator shall not (except in the ordinary course of business), (a) sell or otherwise dispose of or encumber the Company's assets, (b) incur liabilities, (c) distribute funds from the Company, (d) enter into any contracts to be performed for a period longer than six m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entitled to buy the shares of the defaulting party for a price equal to the higher of either Euros 28 Million (i.e. ₹ 196,83,79,380/at the current rate of exchange), or the amount of the next highest bid (with the unsuccessful bidder getting credit for its own shares - either 51% for Nafan or 49% for the Muthu Group Respondent Nos.2 to 6) less a twenty-five per cent reduction, by depositing the amount payable in Court within fifteen business days after default. l. Upon the completion of the exercise of transfer of shares and its consequent registration in the Register of Members of the Company, the functioning of the Administrator appointed shall stand terminated automatically and at this time, the process of sale/purchase will be deemed complete. m. The currency for any payments made hereunder shall be Indian rupee. n. The Nafan as well as the Muthu Group Respondent Nos.2 to 6 shall fully cooperate in the completion of all formalities, including signing and execution of share transfer forms, compliance with any and all necessary requirements under the Company law to effect the transfer of their shares in favour of the successful bidder under the auction. PART - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Directors nominated by Nafan and the Muthu group shall be entitled to attend meetings of the Board and/or general meeting of the SAF Yeast; all such meetings, whether meeting of the Board or General Meetings, if any, shall be convened and presided over by the Administrator alone. h. Until the process of sale/purchase is complete, the SAF Yeast and the Administrator shall not (except in the ordinary course of business), (a) sell or otherwise dispose of or encumber the Company's assets, (b) incur liabilities, (c) distribute funds from the Company, (d) enter into any contracts to be performed for a period longer than six months for or on behalf of the Company, (e) change the nature of the business of the Company, (f) alter or increase the share capital or issue further shares of the Company, or (g) enter into any related party transactions for or on behalf of the Company. i. The Administrator shall be entitled to appoint (at an appropriate monthly compensation to be paid by the Company as the administrator deems fit) an independent, suitably qualified person conversant with the yeast industry to assist him or her in the functioning of the Company. j. Upon the complet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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