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TMI Blog2022 (10) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents Nos. 1 to 4, the Plaintiffs, all part of the Sanghvi Group. Respondent No. 5 is a private limited company. It is Defendant No. 3 in the Suit. 2. The prayers in the Suit read thus: "a. that this Hon'ble Court be pleased to declare that the said Agreement dated 14th June 2019 [Exhibit "A" hereto] is valid, subsisting, enforceable and binding; b. that this Hon'ble Court be pleased to pass an order and decree directing Defendant Nos. 1 and 2 to specifically perform the said Agreement dated 14th June 2019 [Exhibit "A" hereto] by doing all such acts, deeds, matters and things and execute all such documents as are necessary to give full and complete effect to the said Agreement including but not limited to: i executing the final version of the Family Settlement Agreement [Exhibit "J" hereto] in accordance with the terms agreed in the said Agreement [Exhibit "A" hereto]; and ii. co-operating in all manner and every ways necessary with the Plaintiffs, for Demerger Scheme [Exhibit "G" hereto] in accordance with the terms agreed in the said Agreement [Exhibit "A" hereto]. c. That in the event Defendant Nos. 1 and 2 fail and/or refuse to specifically perform the said Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arat division, being operated by the Kamdars, was in severe loss. The other two, i.e., Maharashtra and AP/Telangana, were profitable. On 6th April 2018, the NCLT passed an order on the Kamdars' application saying that there were to be "no structural changes to the existing arrangement" in AMPL at least until the O&M Petition was disposed of. As we shall presently see, this is of some consequence to later events. 7. 14th June 2019 is a crucial date. For it is on this day that representatives of the three groups, after without prejudice discussions and negotiations, seem to have arrived at an understanding. This was not merely oral. It was reduced to writing in what was said to be "non-binding Minutes of Discussion" or MOD. Not every member of the Kamdar and Sanghvi families signed this document. A copy of this is in Volume IV at page 706. It has several intricacies and it is perhaps best to reproduce this three- page document in full. MINUTES OF DISCUSSION Venue : Hotel Taj Lands End, Mumbai Date : 14th June 2019 In meeting : Mr. RD Kamdar, Mr Pradip Kamdar (Gujarat family) Mr. Bharat Sanghvi, Mr Sachin Sanghvi (Maharashtra family) Mr Rajiv Sanghvi (AP& Telangana family) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift and/or buy back. The Scheme of Arrangement (Demerger) will be suitably modified as per the advice of a Senior Consultant. 6. Any losses, expenses or interest in relation to the Gujarat division other than those specifically agreed above would be to the account of Gujarat family. 7. Income-taxes, other outflow (including on account of buy-back of shares from outsiders) and stamp duty in relation the above settlement would be borne jointly by all the families from the investments held by Automotive Manufacturers Private Limited and the amount of investments to be transferred to the Gujarat Resulting Company may be adjusted to that extent. Any increase or decrease in the market value of investments would be to the account of Gujarat family. 8. No claim from the Gujarat family of any sort will be considered and this shall be treated as full and final settlement. 9. The Scheme of Arrangement (Demerger) will likely by implemented and executed by 1 April 2020. The above represents the understanding agreed to between the Gujarat family, Maharashtra family and AP &Telangana family and is without prejudice to the other rights and remedies available to the parties. The detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged after the execution of the MOD. The two sides are at loggerheads on whether the other accepted or repudiated the MOD as a binding contract. It is Mr Tulzapurkar's and Mr Seervai's case that nobody treated the MOD as being incomplete or inchoate. On the contrary, the Kamdars accepted it as a binding and settled agreement. Any references to a proposal or to a settlement after the MOD were, they contend, a reference to the terms of the formal document that were to be drawn up and the additional steps that were to be taken. Mr Kadam would have it that the Sanghvis themselves acted contrary to the MOD, repudiated it repeatedly and, even in the present plaint, said repeatedly that it was not a concluded contract. 14. There are few of the proceedings before the NCLT to which we believe it is necessary to refer before we turn to the other documents in the arguments. In August 2020, the Kamdars filed Miscellaneous Application No. 1064 of 2020. They sought the appointment of an administrator, an order compelling the Gujarat and Maharashtra divisions to disburse funds to the Gujarat division and an independent valuation of AMPL. Two factors are undeniable. One, that the Gujarat division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LT to hear the Petition expeditiously, uninfluenced by the order made on the two Miscellaneous Applications on 11th June 2021. Thus, the O&M Company Petition came to be listed before the NCLT for final hearing. For various reasons, it could not be taken up. In December 2021, the Kamdars filed what they now describe as an 'overview note' before the NCLT. Mr Tulzapurkar and Mr Seervai contend that this was no sort of overview. It was a but thinly disguised application, albeit the form of a note, seeking a fresh valuation of AMPL and the Kamdars' exit from AMPL on terms that were entirely outside the frame of the MOD and contrary to its terms. 18. Nothing significant seems to have happened before the NCLT, except that the O&M Petition was listed high on board for final hearing on 17th February 2022. It was then that, on 11th February 2022, the Sanghvis filed this Interim Application for a temporary injunction restraining the Appellants from taking steps for a valuation or buyout the shareholding in the company. The Interim Application was served on the Kamdars with notice that an ex parte application would be made on 16th February 2022, just the day before the hearing scheduled befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Companies Act, a submission that is again taken before us and which we will proceed to consider shortly. This was refuted by saying that the NCLT itself had no jurisdiction over the subject suit. The submissions by Mr Kadam were also noted including his emphasis on the NCLT order referred to above, which ostensibly noted that no settlement proposal had been reached. Mr Kadam said that, in any event, apart from the jurisdictional bar, if the MOD was the concluded agreement, it was only a compromise of the NCLT O&M Petition and that could, and should, be done by and only by the NCLT. He however maintains that the MOD was not a concluded contract. This appears to have been the principal ground. Then Chagla J was asked to hold that the Sanghvis had themselves by their conduct not understood the MOD to be binding. In paragraph 83, Chagla J proceeded to a consideration of whether the MOD was in fact a valid and subsisting family settlement agreement. This is crucial. He bore in mind the fact of the Company Petition having been filed and that it was pending. He, however, held that the Civil Court, i.e., his Court had jurisdiction to determine whether the MOD was or was not a family sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in correspondence chose not to execute the formal family settlement agreement and scheme of arrangement (demerger) as borne out from the correspondence, the Plaintiffs had no choice but to take steps in filing the present Suit on 25th January 2021 seeking specific performance of the Minutes of Discussion. The Plaintiffs, upon filing the present Suit, two days later i.e. on 27th January 2021 filed an Affidavit placing on record before the NCLT the Plaint filed in the captioned Suit. The Interim Application has also been taken out and interim relief sought in view of the Defendants filing an 'Overview Note' in the Company Petition before the NCLT seeking their buy-out and sell-out on a fresh valuation of shares and other assets. The Company Petition was listed high on board for final hearing on 17th February 2022 and in view thereof, the Interim Application was filed on 11th February 2022 and the Applicants/Plaintiffs pressed for ad-interim/interim relief prior to considering of the relief sought for by the Defendant Nos. 1 and 2 by the NCLT. Such relief sought for by the Defendants would result in defeating the Plaintiffs' rights under the Minutes of Discussion and/or relief prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate Court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by the court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the Trial Court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. After referring to these principles Gajendragadkar, J. in Printers (Mysore) Private Ltd. v. Pothan Joseph: (SCR 721): "... These principles are well established, but as has been observed by Viscount Simon in Charles Osention & Co. v. Johnston '...the law as to the reversal by a court of appeal of an order made by a judge below in the exercise of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a prima facie case that interlocutory relief could not possibly have been denied. Conversely, a defendant in appeal must be able to demonstrate that the plaintiff had not even a vestige of a prima facie case and there was no possibility at all of ever granting him any form of interlocutory relief. 27. Mr Kadam's task before us must be assessed in this context. Has he succeeded in discharging that burden? It is our considered view that he has not. We have found no cause for interference with the impugned order. 28. Mr Kadam's arguments may be summarised like this (though not necessarily in the sequence in which he presented them). (1.1 The Civil Court has no jurisdiction at all because of the operation of Section 430 of the Companies Act read with the provisions regarding the powers of the NCLT in a Petition for Oppression and Mismanagement; (1.2 Merely demanding specific performance of a signed document does not confer on a Civil Court a jurisdiction that is otherwise ousted by law; (1.3 There was not and there is now not a concluded contract in the MOD or otherwise. At best there was an agreement to enter into an agreement. (1.4 The MOD was incapable of specific perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal." (Emphasis added) 30. Mr Kadam emphasises the words "is empowered to determine by or under this Act". Everything in the MOD and everything that is sought in the plaint is, according to Mr Kadam, a matter that the NCLT is 'empowered to determine' under the Companies Act. He draws attention to Section 242 which sets out the very many powers of the NCLT in a Petition for Oppression and Mismanagement. We reproduce Sections 242(1) and (2). "242. Powers of Tribunal.- (1) If, on any application made under section 241, the Tribunal is of the opinion- (a) that the company's affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion should be made." (Emphasis added) 31. Mr Kadam's emphasis is on sub-clauses (a) to (f). Everything that is within the frame of the MOD, he says, is thus capable of being 'determined' by the NCLT. Nothing lies outside it. Indeed, the NCLT alone can force a buy-out or a sell-out. That can only be done by an administrator and needs a valuation. This what the Kamdars sought, and there is nothing wrong or even surprising about it. Theirs was an application entirely within the frame of what the NCLT was 'empowered to determine'. Correctly read, even the MOD did not go beyond this, since its only avowed purpose was to compromise the O&M Petition, i.e., to settle the very issues covered inter alia by sub-clauses (a) to (f) of Section 242(2). 32. The provisions of Order XXIII are also clear. Even if the settlement extends to matters beyond the present lis, the properly empowered tribunal - the NCLT - has the authority to record such a settlement. Order XXIII Rule 3 of the Code of Civil Procedure 1908 ("CPC") reads thus: "1. ...... 2. ...... 3. Compromise of suit.-Where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hvis did nothing to move it. It was not until the NCLT began listing the Oppression and Mismanagement petition with some priority, and not until the Kamdars had submitted their note of an overview of the matter, that abruptly and only to forestall those proceedings, the Sanghvis moved the Interim Application in their Suit. There was clearly no urgency. There was clearly a delay. Nothing had happened in the last year to justify an overnight application and so drastic an order. 35. The impugned order, he says, is also one that is contrary to statute and that is sufficient for his purposes today. Although the restraint may be worded as one being against the Kamdars, it is actually a restraint against the NCLT, because the NCLT is now left with nothing to do. 36. Mr Kadam invites attention to the decision of the Supreme Court in Industrial Credit and Investment Corporation of India Ltd v Grapco Industries Ltd & Ors. (1999) 4 SCC 710. and State of Karnataka v Vishwabharathi House Building Cooperate Society & Ors. (2003) 2 SCC 412. If the NCLT is not bound by the CPC, it can go further than what the CPC allows. Its only fetter is to observe the principles of natural justice. We are una ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he binding nature of the MOD, because, apart from anything else, they have derived benefit under it. It is not open to them to resile from the position that it is a binding contract. Once it is a binding contract, then no question arises of the exclusivity of jurisdiction of the NCLT in enforcing that contract. That is only within the remit of the Civil Court. 41. Can Chagla J's order be said to be one that was not reasonably possible in the view that it took regarding jurisdiction? From any perspective, we do not think that this is a sustainable argument. It is difficult to hold that the threshold objection to jurisdiction was so completely wrongly decided by Chagla J that our intervention is permissible and is called for. 42. We must move immediately now to the next argument that flows from the first, that the MOD is simply an agreement to enter into an agreement. It is true that the MOD speaks of a further document with modalities to be worked out and details to be captured. But that does not mean, and it is not the law, that every single detail has to be encapsulated. Whatever be the phraseology, and even if the MOD says that a "detailed understanding" is yet to happen, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lements must be viewed differently from ordinary contracts and their internal mechanism for working out the settlement should not be lightly disturbed. There are several other decisions from our jurisprudence and overseas to the same effect. 43. Towards the end of the argument, reference was made to the decision of the Supreme Court in Embassy Property Development Pvt Ltd v State of Karnataka (2020) 13 SCC 208. We are actually unable to see how this will alter the position significantly. There is no controversy over the provisions of the Companies Act or even Section 430. What is equally not in doubt is that matters within the remit of a Civil Court, including all aspects pertaining to a claim for specific performance, lie outside the jurisdiction of NCLT. Nice distinctions at an interlocutory stage cannot possibly assist. The view taken is a prima facie view, as indeed it must be. 44. In paragraph 41, Chagla J considered the law cited in this regard and particularly the question as to whether an agreement is valid, subsisting and binding and if this can only be dealt with by a Civil Court. This discussion is important because in paragraph 44 the learned Single Judge noted the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and proper to pass in the facts and circumstance of the present case." (Emphasis added) 46. What was being sought was not an order to permit the Sanghvis to 'hijack' - as Mr Kadam says - the Gujarat Division, but to restore the proper corporate functioning of AMPL, so that it its Board of Directors and its shareholders could manage it as one entity, including the Gujarat Division. AMPL's Gujarat Division's affairs should be looked after by AMPL's Board shareholders and not by the Kamdars to the exclusion of everyone else. There is nothing so very wrong with this, and it is by no stretch of the imagination a "repudiation of the MOD". The second prayer also said almost the same thing when it sought that AMPL's Board be allowed to be in effective management of AMPL, including its Gujarat Division. Pending a demerger, this was obviously necessary. Any order that sought to artificially create a separate corporate governance structure for the Gujarat Division could not be allowed to continue. This is even more relevant in the context of the Gujarat Division having incurred losses and the Kamdars constant reminders to the Sanghvis to infuse funds. As page 363 shows, the Kamdars made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arger amount, whether by a fresh valuation, the appointment of an administrator or otherwise. This is precisely the purpose of the Kamdars' application to the NCLT when it sought a valuation of the entire enterprise with no reference at all to the MOD. 50. For these reasons also it is not possible to accept Mr Kadam's argument that there was a lack of readiness and willingness on the part of the Sanghvis. If anything, the material on record is to the contrary. 51. Mr Kadam frames the question thus: that this is not a question of a specific performance being granted by the NCLT but whether the MOD was meant only to compromise the NCLT O&M proceedings or whether the compromise was an incident or a consequence of a larger overall settlement. He maintains that the MOD was only to compromise the NCLT proceedings. If that be so, then surely one would expect to find a reference to the NCLT proceedings in the MOD. Other than the last seven words of the MOD, i.e., the withdrawal of the Company Petition, there is no mention in the MOD of the O&M Petition. 52. But there is a more telling or important clue that the settlement proposed in the MOD was well beyond the Oppression and Mismanagem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily settlement and the Scheme of Arrangement were merely ancillary documents containing the mechanics/ procedural aspects of the division of the company. All the substantive and commercial and other terms were contained and clearly spelt out in the said Agreement." 54. Nothing in these paragraphs suggests that the Sanghvis did not see the MOD as the complete overall settlement. Indeed, paragraph 3.11 is a reaffirmation by the Sanghvis that this was a total settlement. More importantly, paragraph 3.14 contains an express reaffirmation of the binding nature of the MOD. The plaint also contains a recitation of the various steps that the parties took in furtherance of the MOD. Chagla J noted in paragraph 111 at page 144 that it was the Kamdars who were acting contrary to the MOD by seeking a buy out or a sell out but only on a fresh valuation of shares and other assets of the AMPL, i.e., on valuation other than that contemplated by the MOD. 55. Mr Kadam makes reference to the decision of the Supreme Court in Gujarat Urja Vikas Nigam Ltd v Amit Gupta (2021) 7 SCC 209. In particular he emphasises paragraphs 38.9 which dealt with the decision of the Supreme Court in Embassy Property. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have done so. He had to arrive at an overall prima facie assessment of the material before him. There are exchanges from 1st August 2019 from Exhibits "F" to "H", then at page 797 and 798, and an important communication from the Kamdars on 24th June 2020 at page 1119 in Volume V. We only note this in brief. Here, Pradip Kamdar wrote to Aditya Sanghvi affirming in terms that all had reached an understanding on 14th June 2019. The date is specifically mentioned. It is the date of the MOD. The second paragraph also speak of a settlement but is a clear reference to a post-MOD effort for implementation. Kamdar himself says that "an MOD was already in place and counsels were working on the execution". This is hardly a suggestion that the MOD was not binding or that there was no settlement. Even in the written submissions tendered before the NCLT, in ground (h) at pages 6 and 7, the MOD is referenced. Yet, the same written submissions before the NCLT in paragraph 8.4 at page 21 contain an assertion by the Kamdars that the MOD was merely a document that set out the terms of a possible settlement being explored. It is then also asserted that neither side had acted on the documents and that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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