9911796707
TMI Blog2006 (3) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... es. The Trustee of ICICT Venture Capital Fund is ICICI Trusteeship Services Limited. ICICI Information Technology Fund was established, as a scheme of ICICI Venture Capital Fund. The petitioner came to be appointed as the Asset Management Company (AMC) of ICICI Venture Capital Fund, pursuant to the Investment Management Agreement entered into between the petitioner and the Trustee of ICICI Venture Capital Fund. The petitioner as the AMC of ICICI Information Technology Fund entered into an Investment Agreement on 24.03.2000 with the respondents 1 to 4, thereby subscribing to 1,01,600 shares of ₹ 10/- each in the first respondent Company at a premium of ₹ 304.967- per share aggregating ₹ 3.20 Crores on the terms and conditions set out therein, upon which, the Company had allotted 1,01,600 shares in the name of ICICI Trusteeship Services Limited A/c ICICI Information Technology Fund, constituting 16.86% of its paid up capital. By virtue of Clause 15 of the said agreement, (a) the respondents 2 to 4 along with their associates viz., the respondents 5 6, being close relatives of the respondents 2 to 4, would not sell or otherwise dispose of their shares in the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all or part of its shares back to the respondents 2 to 4. This Clause (16.1) has been incorporated as Article 30(D)(1) in the articles of association of the Company. Clause 23.12 empowers ICICI Information Technology Fund to transfer or assign, to its Affiliates, the rights to purchase all or a portion of their fresh shares. The permitted heir, successor or assign shall agree to abide by all the terms and conditions of the agreement. Accordingly, ICICI Information Technology Fund has been substituted by ICICI Emerging Sectors Fund, of which also the petitioner is the AMC, in terms of the Novation Agreement and as borne out by the minutes of extra ordinary-general meeting dated 21.10.2003, pursuant to which the relevant article of the articles of association of the Company has been suitably altered. As a result, the Company issued after effecting necessary transfer a fresh share certificate in the name of ICICI Emerging Sectors Fund. The Investment Management Agreement dated 07.03.2002, and in particular Clauses 29, 30, 31 of Schedule-A, contained therein, amply empower the petitioner to institute and conduct any legal proceedings for the purpose of the Trust, as the AMC or in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of the contrast entered into between them in respect of the shares held by the petitioner and for realisation of the unpaid purchase consideration, whereas, the prayer before the CLB is for rectification of the register of members in relation to the shares transferred by the respondents 2 to 6 in favour of the seventh respondent, in gross violation of the articles of association of the Company. The purpose and scope of these two proceedings are entirely different. The subject matter of the petition are the shares held by the respondents 2 to 6 held in the Company, whereas the subject matter of the suit are the shares held by the petitioner in the Company. Thus the subject matter, cause of action and the reliefs covered in the petition as well as the civil suit are entirely different from those of the petition before the CLB. Therefore, pendency of the civil suit has no bearing on the petition for rectification of the register of members of the Company, over which the CLB alone has jurisdiction to provide appropriate remedies under Section 111. 3. Shri T.K. Seshadri, learned senior Counsel appearing for the respondents 1 7 opposed the prayer for rectification of the regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication proceedings, the CLB, will examine the question of alleged - violation of the articles of association, which may result in conflicting decisions, prejudicing the interest of the Company. The CLB, with a view to meet the ends of justice, will not exercise its jurisdiction to adjudicate the complicated question of facts, which are being agitated in the present proceedings, initiated after filing of the civil suit before the High Court. The petitioner, if succeeds before the High Court, cannot enforce its remedy against the respondents 2 to 7, for rectification of the register of members of the Company. On the basis of the reliefs claimed in the civil suit the petitioner is not entitled to any relief under Section 111 of the Act. The Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 defines venture capital fund as a fund established in the form of a trust or a company including a body corporate and registered under the regulations 1996. Trust is not an entity but an asset. By virtue of provisions of the Indian Trust Act, the Trustee alone is competent to maintain an action. ICICI Information Technology Fund of which ICICI Trusteeship Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside the scope of the Investment Agreement. The articles do not place any restrictions on the holding of shares held by them. A restriction which is not specified in the articles is not binding on the Company or on the shareholders, as held in V.B. Rangaraj v. V.B. Gopalakrishnan (1992) Vol. 73 CC 201. The petitioner cannot challenge the impugned transfer of shares by the respondents 2 to 6 in favour of the seventh respondent, especially when the transfer is in accordance with the articles of association of the Company. The petitioner by a letter dated 13.08.2001 agreed in principle to the proposal of entering strategic tie-up with the seventh respondent, subject to the promoters purchasing the petitioner's shares at a price that provides an Internal Rate of Return 50% per annum in terms of its letter dated 13.08.2001. This consent of the petitioner would be sufficient for effecting the transfer of shares to the seventh respondent by the respondents 2 to 6. The correspondence on record would show that the petitioner has given up the Investment Agreement, Non-disposal undertaking through private negotiation with the seventh respondent, which led to the civil suit, thereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents 2 to 4 are not guilty of breach of either the Investment Agreement or the articles of association. Whereas, the petitioner was stubborn on its economical ratio and started independent negotiation with the seventh respondent for sale of its shares for which none of the other respondents was parties. At the same time, the petitioner had received for its shares a part of the sale consideration of more than ₹ 2.37 crores from the seventh respondent. The respondents 5 and 6 are not promoters or associates of the respondents 2 to 4 and not parties to any of the agreements entered into with the petitioner or the seventh respondent at any point of time. They are not covered by Articles 11(a) of the articles of association. These respondents have statutory right to transfer their shares as per their own volition. The transfer of shares by the respondents 5 6 is not violative of Articles 11(a). Hence, the petitioner is not entitled for any relief in the present proceedings. 5. Shri Murari, learned Counsel, in his rejoinder submitted: Shri T.K. Seshadri, learned senior Counsel has not pointed out any of the complexities in the present case so as to refuse any relief under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if so, whether the Company shall rectify its register of members in respect of these shares by deleting the name of the seventh respondent and restoring the names of the respondents 2 to 6. Before dealing with rival claims on the contentious issues, it is absolutely necessary to consider the preliminary objections raised by Shri T.K. Seshadri, learned senior Counsel, on behalf of the respondents 1 7. The jurisdiction of the CLB under Section 111, as pointed by the learned Senior Counsel is discretionary in nature, providing a summary remedy in non-controversial matters. The CLB may not grant any relief under Section 111, if it is found that complicated question of facts or law or disputes of complicated nature or serious allegations of fraud etc., are involved, but on the other hand relegate the parties to a civil suit. However, the decision to relegate the parties to a civil suit will depend upon the facts and circumstances of each case. The Supreme Court, while affirming the judgment of full bench of the Delhi High Court in Ammonia Supplies Corporation Private limited v. Modern Plastic Containers Private Limited (supra) that the Company Court, in exercise of its discretionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remedy for rectification of the register of members of the Company squarely comes within the jurisdiction of the CLB. Thus, the cause of action, purpose and scope of these two proceedings are not one and the same. There is no need for me to consider in the rectification proceedings whether (a) there is any concluded contract in existence between the seventh respondent and petitioner for purchase of 1,01,600 equity shares of the Company; and (b) if so, whether there is any breach committed by the seventh respondent, entitling the petitioner for specific performance of such contract. I am, therefore, of the view that these two proceedings will not result in conflicting decisions, prejudicing the interests of the Company. The petitioner cannot be barred for having initiated the civil action against the seventh respondent for specific performance of the contract in respect of 1,01,600 equity shares of the Company and on the ground of lack of bonafides, if the petitioner is shown to be the person aggrieved, pursuant to the transfer of 3,95,600 equity shares allegedly in breach of the relevant articles, from applying before the CLB under Section 111(4) for rectification of the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Novation. The transfer of funds from ICICI Information Technology Fund to ICICI Emerging Sectors Fund and the consequent execution of the Deed of Novation are within the knowledge of the respondent 1 7, as evidenced from the recitals forming part of paragraphs 9.10 and 12 of the counter statement of the respondents 1 7 respectively. The respondents 1 7 are, therefore, estopped from challenging the fact that ICICI Trusteeship Services Limited as Trustee of ICICI Information Technology Fund, was substituted by ICICI Trusteeship Services Limited as Trustee of ICICI Emerging Sectors Fund in the Investment Agreement dated 24.03.2000 and thereby became entitled to all the rights, obligations and privileges under the Investment Agreement. By virtue of Clause 31(c) of the investment Management Agreement dated 07.03.2002, the petitioner has been vested with the powers specified in Schedule A thereto. Schedule A provides that the petitioner has been appointed as the lawful attorney of ICICI Trusteeship Services Limited, to execute and to perform in the name of the petitioner as the AMC or in its own name the acts and deeds specified therein. Clause 29 of Schedule A empowers the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff all or part of their shares in the Company or any interest therein, without the prior approval of the petitioner; (ii) The Company shall not recognize or register, any such transfer of shares in the Company's capital made by the promoters, their friends or associates as may be specified by the petitioner; (iii) However, with the consent of the petitioner, if the promoters offer the shares for sale to a third party, the petitioner shall, at its discretion, has the right to sell its shares along with the promoters to such third party at the same price and terms applicable to the promoters and the third party shall have an obligation to purchase the petitioner's shares at the same price on the terms applicable to the promoters' shares. The above are the only restrictions on the transfer of shares belonging to the promoters embodied in the articles of association of the Company. The apex court in V.B. Rangaraj v. V.B. Gopalakrishnan (supra), while considering the transferability of shares came to hold that the shares are... transfer able like arty other movable property. The only restriction on the transfer of the shares of a company is as laid down in its ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by SRM is ₹ 170.0 million. In the event the consideration offered by SRM is higher than ₹ 170.0 million, we reserve the right to seek a higher price for our equity shares and our aforementioned approval to you for entering into a strategic tie-up with SRM would be conditional to your paying us such higher price as may be sought by us. Please ensure that you obtain our prior approval before entering into any binding commitments with SRM for sale of equity shares of the Company. Please note that this offer is being made by ICICI Venture, subject to approval of the Investment Committee of the ICICI Information Technology Fund, for which ICICI Venture is the Investment Manager. Please arrange to furnish drafts of all documents to be executed with SRM to enable us to present the same to the Investment Committee. Please let us have your immediate confirmation to the above terms. It is, therefore, clear that the petitioner, pursuant to the fax dated 09.08.2001 received from the Company, allowed the second respondent to go ahead with sale of the shares in favour of the seventh respondent subject to: (a) seventh respondent purchasing 1,01,600 equity shares of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would provide an Internal Rate of Return of 50% per annum on the investment. The Defendant, in the said MOU, have further acknowledged that they are aware that under the provisions of the Investment Agreement, the Promoters require the prior approval of the Plaintiff to sell or dispose off their shareholding in Sofil. It was also confirmed in the said MOU that the agreement embodied therein, was subject to the Plaintiff receiving the purchase consideration for the sale of the said shares in terms of the said MOU. It is far from doubt that the MOU dated 05.09.2001 is not only well within the knowledge of the petitioner, but also, not disputed or disowned by it and that the petitioner is possessed of a copy of the MOU. The MOU consists of three limbs - (i) sale of the entire shareholding in the Company for ₹ 17 crores to the seventh respondent; (ii) payment of price for 1,01,600 shares to the petitioner providing an Internal Rate of Return of 50% per annum on its investment; and (iii) approval of the petitioner before sale of the shares. In terms of the MOU, the promoters offered to sell the entire shareholding of 6,02,600 equity shares of the Company in favour of the seven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld on 02.09.2002 and 21.10.2003. The petitioner's nominee has been appointed at the annual general meeting held on 30.10.2003, as director of the Company. The third limb of Article 11(a) envisages that with the consent of the petitioner, if the promoters offer the shares for sale to a third party, the petitioner shall, at its discretion, has the right to sell its shares along with the promoters to such third party at the same price and terms applicable to the promoters and the third party shall have an obligation to purchase the petitioner's shares at the same price on the terms applicable to the promoters' shares. This consent, under law may be express or tacit, unlike the stipulation contained in the first part of Article 11(a), according to which the promoters shall not sell their shares in the Company without the prior approval of the petitioner. The aforesaid sequence of events would indicate that the petitioner has accorded its tacit consent for disposal of the shares of the respondents 2 to 4 in the Company, in favour of the seventh respondent thereby meeting the requirement of the relevant part of Article 11(a), in which case, the prior approval of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, none of the covenants contained in any of these agreements can be pressed into service against them. Even otherwise, if Article 11(a) is applicable to the respondents 5 6, being associates of the respondents 2 to 4, as claimed by the petitioner, it is already found the transfer of shares effected by the promoters in favour of the seventh respondent is in compliance with the requirement of Articles 11(a). The very same yardstick shall necessarily be made applicable to the transfer of shares made by the respondents 5 6. In the result, the petitioner, cannot claim to be an aggrieved person under Section 111(4) so as to seek rectification of the register of members of the Company in respect of 3,95,600 equity shares by substituting the names of the respondents 2 to 6 in the place of the seventh respondent. It is relevant to observe that (a) undated fax of the Company (b) in principle consent conveyed by the petitioner to the Company and (c) MOU dated 05.09.2001 are in relation to sale of 6,02,600 equity shares of the Company to the seventh respondent for ₹ 17 crores, which shall include sale of 1,01,600 shares of the petitioner at a price which will provide an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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