9911796707
TMI Blog2007 (5) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany in April 1995 as a private limited company for the purpose of setting up a sugar factory and a mini power plant with authorised capital of ₹ 27,35,00,000 comprising of 2,73,50,000 equity share capital of ₹ 10 each and paid-up capital of ₹ 21,10,00,000 consisting of 2,21,00,000 equity shares of ₹ 10 each, which are wholly held by the petitioners and their family members. Apart from contribution towards share capital, the first petitioner had lent an amount of ₹ 5.02 crores by way of loan to the Company and further furnished personal guarantee to the financial institutions, which lent monies in favour of the Company to a tune of several crores of rupees for completion of the project. By virtue of a share purchase agreement dated 6-2-2002 ( the SPA ), the first petitioner and his family members had agreed to transfer 70 per cent of shares held in the Company to the respondents group (D.K. Group) for a minimum consideration of ₹ 5 crores, subject to valuation of the shares and payment of the balance consideration by the latter. The first petitioner representing rest of the petitioners, was made to sign the SPA and while so the second responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecution of the SPA, but so far no commercial production has been started, which is nothing but an act of mismanagement in the affairs of the Company. During the financial year ended 31-3-2003, a sum of ₹ 6.77 crores has been invested by the respondents as against ₹ 20 crores, stipulated in the SPA. The new management neither carried out the obligations as envisaged in clause III(3)(a)( i) to (vi) of the SPA nor settled the balance sale consideration before 31-3-2003, but claimed that the second respondent invested huge sums of money in the project. At the same time, the SPA came to be lapsed on 31-3-2006, and is no longer effective. When the petitioners were ready and willing to repay the entire money invested by the respondents in the Company in the form of debt, the first petitioner received a notice dated 20-9-2005 on 23-9-2005, convening an extraordinary general meeting of the Company on 29-9-2005, proposing to reduce the rights of the petitioners and restrain them from participating in the day-to-day affairs of the Company. The notice convening the extrahordinary general meeting has been sent with an ulterior motive and mala fide intention to curb the rights of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs as members are attempted to be varied by the respondents and when rights of any shareholder are curbed, the provisions of section 397 can be invoked. u There is no material to show that the petitioners have agreed to vary the stipulated date, for completion of the transfer of shares, namely 31-3-2003 and modify the terms. The petitioners have not so far transferred their shares till date, despite the deadline fixed as 31-3-2003. The respondents have failed to pay the purported balance consideration of ₹ 4.50 crores within 31-3-2003. By virtue of section 27 of the Limitation Act, 1963 prescribing three years for enforcement of a contract, the right to claim the impugned shares has been barred by limitation on 31-3-2006, thereby the rights of the respondents is lost, in the light of the fact that shares are movable properties. The shares are reiterated by the Patna High Court in Arjun Prasad v. Central Bank of India Ltd. AIR 1956 Pat. 32 are movable properties. The Patna High Court in yet another decision, i.e., R.B. Mishra v. State of Bihar AIR 1983 Pat. 250 held that on expiry of the period of limitation, right of a person over the property is extinguished and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral meeting on 29-9-2005, which revolves around the SPA cannot be challenged before the CLB. It was further held by the Supreme Court that the conduct complained of by any aggrieved shareholder must be such as to oppress a minority of the members including the petitioners vis- -vis the shareholders, which a fortiorari must be an act of the majority. This essential requirement is not fulfilled in the present case. The petitioners have acquiescenced by extending time in implementing the SPA and therefore, cannot question the respondents for non-implementation of the SPA. u The petitioners cannot approbate and reprobate, by signing the SPA in English without any objection, but at the same time plead ignorance of the English language and contents of the SPA. The SPA was signed by the petitioner out of his own free will and further the SPA was executed after several rounds of discussions between the petitioners and respondents. The consideration of ₹ 5 crores was mutually agreed in terms of the SPA and therefore, all averments to the contrary are absolutely false and baseless. The further averments that the first petitioner, who represents the other petitioners was made to sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . u Clause III(1) and (3)(a ) of the SPA stipulate that the petitioners shall perform several acts, which were never fulfilled by them. Consequently, the respondents 2 and 3 could not act, in terms of clause III(3)(c) of the SPA. The petitioners never made any grievance about breach of the contract, on the part of the respondents, prior to filing of the company petition, nor could make any such grievance by the petitioners. u At the annual general meeting held on 26-9-2003, wherein the first petitioner was present, a special resolution was passed approving the transfer 70 per cent of paid up capital to the new promoters in terms of the SPA. Thereafter, at the board meeting held on 28-2-2005, attended by, apart from the chairman and other directors, the first petitioner and IFCI nominee director, the transfer of shares in favour of the respondents 2 3 was approved in principle. In view of lapse of time, fresh transfer deeds were being executed to be placed before the board for registering the transfer of 70 per cent of shares, in favour of the new promoters. At the board meeting held on 20-9-2005, participated by among other directors, the petitioner and IDBI nominee, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the date of performance or breach of the SPA is rather relevant to determine whether the SPA is time-barred or not. Clause VIII(1) stipulates that the SPA shall come into force on signing and shall terminate on the transfer of all the shares of the petitioners in the Company to the respondents 2 3, in accordance with clause VI of the SPA and on compliance with the terms and conditions as specified in the SPA. The transfer of shares in favour of the respond-ents 2 and 3 never happened and therefore, the SPA is in force. Since the SPA is in force the respondents 2 and 3 are entitled to convene an extraordinary general meeting in fulfilment of the terms and conditions, as stipulated in the SPA. Even otherwise, the notice dated 20-9-2005 issued by the second respondent is within three years of the SPA and therefore, the claim cannot be said to be barred by limitation. Nevertheless, limitation does not extinguish the right but only bars the remedy as held in Official Liquidator, Palai Central Bank Ltd. (In Liquidation) v. K. Joseph Augusti Palai AIR 1966 Ker. 121. The notice dated 20-9-2005, convening an extraordinary general meeting on 29-9-2005 is based upon clause V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustice. The purpose of the petition , as reiterated in the written submissions filed on behalf of the petitioners is thus : (a)The Respondent Nos. 2 and 3 are in control of the Company, by misrepresentation and manipulation; (b)The Respondent Nos. 2 and 3 took control of the Company, but did not determine the consideration to the petitioners on basis of fair valuation. (c )The Respondent Nos. 2 and 3 did not even pay the purported consideration of ₹ 5,00,00,000 (Rupees Five Crores only) as admitted claimed by them. (d)The Respondents did not bring in the Sum of ₹ 20,00,00,000 (Rupees Twenty Crores only) within 31-3-2003. (e )The Respondent Nos. 2 and 3 mismanaged the Company, resulting huge cost overrun and time overrun and the Company is yet to commence its production. (f )With the background, the Respondent Nos. 2 and 3 allowed the agreement to lapse and as of 31-3-2006 the rights of the Respondent Nos. 2 and 3 over the shares held by the petitioners got extinguished, still they continued on the Board of the Company and are managing the company. (g )Without any rights, the Respondent Nos. 2 and 3 caused the issue of the Extraordinary General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all not be paid by D.K. Group. If any of the provisions is not fully complied with, D.K. Group is at liberty to cancel the SPA, by giving notice in writing to the Vendors/Company. [Clause III(c)] (h)D.K. Group shall bring in a sum of ₹ 20 crores, by way of secured or unsecured loans, to commence commercial operations as stipulated in the SPA. [Clause V(4)] (i)The SPA provides appropriate remedies in the event of breach of any of the warranties set out in the SPA. [Clause V(5)] (j)The Vendors, on execution of the SPA, handed over the management of the Company to D.K. Group and shall not interfere in the day-to-day management and running of the Company or in any of the affairs of the Company, insofar as the same does not directly affect the rights of the Vendors as shareholders. The Vendors shall exercise their voting rights to ensure the passing of special resolutions, as determined by D.K. Group in respect of the following matters : u Alteration of objects of the Company; u Change of name of the Company; u Purchases by the Company of its own securities; u Transfer of registered office of the Company; u Issue of shares to a creditor converting debenture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom personal guarantee given by them in favour of the financial institutions. u Nevertheless, pursuant to the SPA, the second respondent was appointed as the managing director who took control of manage- ment of the Company and while the third respondent became the director, the sons of the first petitioner resigned from the board of directors of the Company. u The respondents have been in exclusive management of Company, but no commercial production has so far been commenced. D.K. Group did not either choose to discharge the obligations imposed on them in terms of the SPA. By virtue of section 27 of the Limitation Act, 1963, the SPA got lapsed on 31-3-2006 and is in no longer in force. Therefore, D.K. Group is only entitled for refund of the money spent on the project of the Company and not 70 per cent of shares in the Company. D.K. Group, despite the failure to perform their obligations under the SPA had caused, with ulterior motive, a notice convening an extraordinary general meeting of the Company on 29-9-2005, for the purpose of amending the articles of association of the Company to restrict the rights of the Vendors, as specified therein, which is claimed to be oppressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the rights vested in clause VII(1) of the SPA for the purpose of amending the articles of association of the Company, proposing the following resolutions : Special Business : (1) To consider and if thought fit, to pass with or without modification the following resolution as a Special Resolution. Resolved that the following be inserted after article 10 of the Articles of Association of the company . Article 10A The Company takes note of the Share Purchase agreement dated 6-6-2002 entered into between the existing shareholders of the Company (SPR Group-Vendor) and D.K. Group. In terms of the agreement, the shares retained by the SPR Group representing 30 per cent of the paid up capital shall be treated as a separate class of shares in terms of section 106 of the Companies Act, 1956 and rights of the above shares will be restricted as under : The above shareholder (SPR Group) shall not interfere in the day-to-day management and running of the company. Even in regard to other matters, the above shareholders shall not be entitled to any say in the running of the company and in any affairs of the company insofar as the same does not directly affect the rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent was convening an extraordinary general meeting of the shareholders of the Company for amendment of the articles is not enough for claiming any relief under section 397 as held in Sangramsinh P. Gaekwad s case (supra). The decisions in Sporting Pastime India Ltd. s case (supra) and Manavendra Chitnis s case (supra) having been rendered in the context of the Arbitration and Conciliation Act, 1996 and the grievances of the petitioners having arisen out of the SPA, will not be applicable to the facts of the present case. The plea of the petitioner that he is relying upon the SPA only for collateral purpose does not merit any consideration. It is on record that the respondents have already referred the disputes for resolution by arbitration, of course after filing of the company petition. In view of this, the petitioners are at liberty, if so advised, to agitate all their grievances in relation to the SPA before the arbitrators, more so when, this Bench is not competent to decide as to whether the SPA is fair or barred by limitation or whether parties to the SPA have violated its terms or whether consideration for the impugned shares is reflected in the SPA or any other issue a ..... 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