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TMI Blog2018 (4) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified date, the respondent would be entitled to sell the shares of ATS Estate Pvt. Ltd. Thus, the MOU also provided for the eventuality, where despite best efforts, the petitioners were unable to ensure realization of the exit amount on or before 31.05.2008. In view of the above, this Court finds no infirmity with the Arbitral Tribunal’s finding that the petitioners had breached the MOU. In terms of Section 297(1) of the Companies Act, 1956, a Director of a company is, inter alia, prohibited from entering into a contract with the company in which he is a director for sale, purchase or supply of any goods, materials or services except with the consent of the Board of Directors of the said company. In certain cases, prior approval of the Central Government is also required. It is, thus, apparent that there is no absolute bar on such contracts and it merely requires the consent of the Board of Directors of the company. Further, in terms of the proviso to Section 297(1) of the Companies Act, 1956, prior approval of the Central Government may also be required. MOU was between individuals and required the petitioners to procure the transfer of shares of ATS Estate Pvt. Ltd. b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per annum from 31.05.2008 till the date of the award. The Arbitral Tribunal has also awarded interest at the rate of 12% per annum from the date of the award till the date of the payment and in the event the payment is not made within a period of 120 days from the date of the award, the petitioners are also liable to pay interest at the rate of 15% per annum from 121st day till the date of receipt of the outstanding amount. In addition, the petitioners are also directed (i) to procure, jointly and severally, the ownership, title and possession of a Penthouse measuring 5650 sq. feet covered area along with lower floor terrace of 1894.85 sq. feet and above floor terrace of 5361.54 sq. feet and a swimming pool situated in ATS Project titled Paradiso located in Greater Noida; (ii) to procure a Row House built on 450 sq. meter plot having a covered area of 7355 sq. feet located in the same project; (iii) to jointly and severally pay an amount of ₹16,46,00,000/- to the company along with interest at the rate of 12% per annum from the date of filing of the counter claims by the said company (in Arbitration Case No. 10/2012 captioned Shri Anil Kumar Saha v. ATS Infrastructure Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08. On the same date, as the parties entered into the MOU (i.e. 03.03.2008), the respondent entered into a Share Purchase Agreement (SPA) with ATS Infrastructure Limited and ATS Estates Private Limited for transfer of three crore shares of ATS Estate Private Limited held by ATS Infrastructure Limited. Thereafter, on 08.04.2008, the petitioners arranged buyers/investors to acquire 90,66,183 shares of ATS Estate Private Limited at the consideration of ₹44.12/- per share aggregating to ₹40 crores. However, the petitioners could not arrange investors for purchasing the balance 2.1 crore shares as contemplated under the MOU. 4.6 The petitioners claim that the respondent terminated the MOU by a letter dated 14.11.2008. 4.7 On 24.02.2009, the respondent filed a petition under Section 397 and 398 of the Companies Act, 1956 alleging oppression and mismanagement. On 02.03.2011, the respondent issued a notice invoking arbitration clause under the MOU. On 08.03.2011, the respondent also sent a notice invoking the arbitration clause under the SPA. 4.8 Thereafter, the respondent filed a petition under Section 11 of the Act (being ARB. P. 411/2011) for appointment of an arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t necessary for this Court to address any of the other issues raised in the petition. 8. Before proceeding further, it would be relevant to refer to the terms of the MOU. The recitals indicate the background in the context of which the MOU was entered into. The said recitals are set out below:- (A) AKS, GA and T had together started real estate development and construction business and at present are carrying out such business jointly as real estate developers. (B) AKS, GA and T promoted and incorporated companies as set out in Schedule I (hereinafter referred to as the ( Companies ) to this MOU for the purpose of carrying on the business of real estate development and construction. (C) The Companies are at preset at different stages of implementing various projects as set out in Schedule 2 hereto. (D) AKS, GA and T are holding Shares as set out Schedule 3 in Companies. (E) The issued, subscribed and paid up share capital of the Companies is set out in Schedule 3. (F) Pursuant to the mutual agreement of the Parties, AKS has amicably disengaged himself from the Companies and, accordingly, with effect from 23rd September, 2007 AKS has complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration from the amounts realized by sale of such shares of ATS Estate Private Limited to such investor(s) (For the purpose of clarity it shall be noted that any tax implication arising out of such transaction/transactions in the hands of AKS shall be AKS liability); 3. That GA and T shall, jointly and severally, ensure on a best efforts basis that AKS shall be able to realize a minimum net amount equivalent to his complete Exit Amount of ₹ 1,50,00,00,000/- after deducting the amount of Consideration from the amounts realized by sale of such shares of ATS Estate Private Limited to such investor(s) on or before May 31, 2008; 4. That in order to ensure that AKS shall be able to realize a minimum net amount equivalent to his complete Exist Amount of Rs.l,50,00,00,000 (and further enhanced amounts as per Clause 5 (with penalty) and Clause 6 (fair market value) herein below) after deducting the amount of Consideration from the amounts realized by sale of shares of ATS Estate Private Limited, ATS Infrastructure Limited shall transfer further shares of ATS Estate Private Limited to AKS if required and GA and T shall procure this action; 5. That GA and T agree and ackno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided however that AKS shall provide a first right of refusal to GA and T or their nominee(s) to purchase the aforesaid shares of ATS Estate Private Limited at fair market value before AKS transfers them to the investor(s) of his choice. GA and T assured that in order to ensure that AKS shall be able to realize a minimum net amount equivalent to his complete Exit Amount of ₹ 1,50,00,00,000 (and further enhanced amounts as per Clauses 5 and 6) after deducting the amount of Consideration from the amounts realized by sale of shares of ATS Estate Private Limited, ATS Infrastructure Limited shall transfer further shares of ATS Estate Private Limited to AKS if required and GA and T shall procure this action; 7. xxxx xxxx xxxx xxx 8. That AKS shall transfer his shareholding in ATS Infrastructure Limited and other Companies to GA and Tat nominal/par value in tranches in proportion to theamounts AKS receives from time to time out of his entire net Exit Amount of ₹ 1,50,00,00,000 (or the increased amount as per Clauses 5 6) in the manner laid down inthis MOU after excluding the amount of Consideration from the amounts realized from transfer of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers had failed to procure the transfer of the balance 2.1 crore shares, the respondent was also prevented from exercising his rights under Clause 6 of the MOU. The Arbitral Tribunal also, after appreciating the evidence led by the parties, concluded as under:- The respondents have failed to fulfill their obligation, firstly, to procure the shares and investor for the sale of balance shares and complete the sale transaction to enable the claimant to realize the entire exit amount. Secondly, there was a failure to procure and transfer the shares in favour of the claimant and provide full assistance, so as to enable the claimant to sell the same and realize the exit amount. Thus, the respondents are in breach of the MOU 14. This Court finds no infirmity with the aforesaid finding. The contention, that the petitioners were only required to ensure that the respondent realizes the exit amount on a best effort basis and, therefore, there is no breach on the part of the petitioners, is unmerited. First of all, the material placed on record clearly indicates that the petitioners had failed to make the necessary efforts to perform their obligations under the MOU. The transfer of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut below:- 297. Board' s sanction to be required for certain contracts in which particular directors are interested. (1) Except with the consent of the Board of directors of a company, a director of the company or his relative, a firm in which such a director or relative is a partner, any other partner in such a firm, or a private company of which the director is a member or director, shall not enter into any contract with the company- (a) for the sale, purchase or supply of any goods, materials or services; or (b) after the commencement of this Act, for underwriting the subscription of any shares in, or debentures of, the company: Provided that in the case of a company having a paid- up share capital of not less than rupees one crore, no such contract shall be entered into except with the previous approval of the Central Government. (2) xxxx xxxx xxxx (3) xxxx xxxx xxxx (4) xxxx xxxx xxxx (5) If consent is not accorded to any contract under this section, anything done in pursuance of the contract shall be voidable at the option of the Board. 18. In terms of Section 297(1) of the Companies Act, 1956, a Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion, considering the facts and circumstances of the caseand the nature of the claim and reliefs sought, the provisions of, Section 297 of the Companies Act will not be applicable in the present case which is on a different footing. The applicability ofSection 297 does not call for consideration in the facts andcircumstances of the present case also in the light of the fact thataward is passed holding the respondents liable in individualcapacity and not in the capacity of director of the company. Therewill be no violation of the said provision of law while passing theaward for recovery against the respondents. The judgments reliedupon by the respondents which are on the proposition of law arenot applicable to the peculiar facts and circumstances of thepresent case. 20. The Arbitral Tribunal also noted that ATS Infrastructure Ltd. had transferred the first tranche of 90,00,000 shares of ATS Estate Pvt. Ltd. and none of the parties had challenged the said transaction. 21. Thus, the contention that the MOU is void or that the impugned award is unsustainable, is unmerited. 22. In view of the above, the petition is dismissed. All the pending applications are also disposed of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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