9911796707
TMI Blog2023 (5) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... inafter called "Impugned Order") passed by NCLT, Mumbai Bench in Miscellaneous Application No. 1658 of 2019 (in short "Execution Application), Contempt Application No. 152 of 2020 (in short "Contempt Application") and MA No. 621 of 2020 (in short "Refund Application"), all filed in CP No. 2977 of 2018. 2. The conspectus of the case is that CP No. 2977 of 2018 was filed by Respondent Nos. 1 and 2 on allegations of oppression and mismanagement in which Consent Terms were agreed and filed by the parties on 4th and 5th May, 2019 leading to the disposal of the original Company Petition No. 2977/2018. The Appellants have stated that the Consent Terms provided for acquisition of the entire shareholding of Respondent Nos. 1 and 2 (in short "R-1" and "R-2) by Appellant Nos. 2 and 3 and Respondent Nos. 3 and 6 (in short "A-2", "A-3", "R-3" and "R-6" respectively) and that R-1 and R-2 will strictly comply with non-compete obligations, in particular do not involve themselves with rival companies Trimasys Control Solutions Private Limited (in short "Trimasys") or Enemtech Capital India Private Limited ( in short "Enemtech"). The Appellants have also stated that they have filed Contempt Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders, which takeover bid eventually failed. He has added that in the background of this attempted hostile takeover, dispute arose between the Appellants and R-1 and a Company Petition alleging oppression and mismanagement was filed by the Appellants against the Respondents, and as counter-blast, R-1 and R-2 filed a oppression and mismanagement petition against the Appellants alleging that A-2 and A-3 were running the company in a manner prejudicial to the interests of the company. He has added that both the Company Petitions were finally disposed of after the Appellants on the one side and R-1 and R-2 on the other side entered into Consent Terms on 31.1.2019, wherein provisions relating to non-compete and non-solicit obligations were made as a foundation and necessary terms in the Consent Terms. 6. The Learned Senior Counsel for Appellants has further submitted that in the light of the Consent Terms, an amount of Rs.28.77 crores was to be paid in three tranches by the Appellants to R-1 and R-2 for acquisition of their entire shareholding in Cotmac and the payment of each tranche one-third of total shareholding by R-1 and R-2 were to be purchased by the Appellants. Further, an amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dated 15.4.2019 was sent by the Appellants to R-1 for terminating the Consent Terms. 8. He has further contended that in the light of the formal communication of termination Consent Terms by the A-1 to the Respondents, further payments under the settlement amount were not made and therefore now in violation of Consent Terms, it stood terminated and there is no question of now making payments under the settlement terms. He has further submitted that he is not averse to making said payments, provided the Respondents, particularly R-1 agreed to abide by the Consent Terms, particularly the non-compete obligation. 9. The Learned Senior Counsel for Appellants has further argued that after the filing of Execution Application by the Respondents, h filed the Contempt Application MA No. 152/2020 and also Refund Application No. 621/2020 under the original CP 2977/2018 and wherein he had raised the issue of breach of Consent Terms by R-1, but the NCLT without looking at the breach of Consent Terms and confirm the veracity of the averments made by both Respondents in Execution application and the Appellants in Contempt Application chose to accept the contention of the Respondents at face ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents was essentially to maintain a shareholding structure, which would allow the Appellants to assume management control of the Company, so that the Company is managed properly in the interest of its shareholders and business. 11. In reply, the Learned Senior Counsel for R-1 and R-2 has argued that there is no provision that the appellants could suo moto and unilaterally terminate the Consent Terms accepted by NCLT vide its order dated 31.1.2019. He has referred to clause 27 of the Consent Terms that in case the Appellants alleged any breach of Consent Terms, they should have approached the NCLT for examining and deciding about the alleged breach. He has further contended that once the Appellants did not do so, then after a lapse of more than one year of the alleged breach, they cannot raise such allegations when the Execution Application is under consideration. 12. The Learned Senior Counsel for R-1 and R-2 has further argued that the burden of proof was on the Appellants, who had alleged breach of non-compete obligation by R-1, and the respondents R-1 and R-2 had put the Appellants to strict proof on this point as early as 24.7.2019, but the Appellants chose to remain silent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and sale of any property and the prescribed form NCLT 8 were so include such reference to sale of property for payment of the decrial amount. He has intended that NCLT has the power under the Companies Act, 2013 and NCLT Rules under section 430 to consider the execution application and no Civil Code shall have any jurisdiction to entertain any suit or proceedings in respect of any mater thereto. He has referred to the judgment of Hon'ble Supreme Court in the matter of M/s. Greisheim GmbH vs. Goyal MG Gases Pvt. Ltd. (2022 SCC Online SC 97) to point out that merely receiving a paper decree is not the final interest of litigant but he should receive the money that he is entitled to in terms of the decree. He has argued that the Execution Application does not have to look at any other issue than the execution of the decree passed by NCLT, and therefore, the order of NCLT is correct, and once the Execution Application has been adjudicated, the NCLT has correctly dismissed the Contempt Application and also the Refund Application. 15. We now look at the Consent Terms of the settlement reached between the Appellants and Respondents. Specifically, clauses 3 (A), (B), (C) and (D) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company is not liable to pay the said tax on reverse charge basis as per the provisions of the said Acts. (D) The said sum of Rs. 28,77,51,750 (Rupees Twenty Eight Crore Seventy Seven Lakh Fifty One Thousand Seven Hundred Fifty) will / is to be paid by the Respondents / arranged to be paid by the Respondents, in three equal tranches as consideration for sale and transfer of shares, the first tranche, to be paid on or before April 30, 2019, the second tranche to be paid on or before April 30, 2020 and the third tranche being final tranche to be paid on or before April 30, 2021 to the Applicants. Simultaneously with these payment or any of them, being made, the Applicants shall transfer their shareholding in the Company, proportionate to the payment made. In no circumstances, part payment would be made /arranged by the Respondents. This is agreed in order to ensure the payment (as agreed) in time. The shares to be transferred in tranches will comprise both, Class A and Class B shares, in equal proportion i.e. based on the ratio of the shareholding of the Applicants compared to their total shareholding in the Company in the following manner - the number of A Class and B Class S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minees, appointed in the manner indicated in these Consent Terms or by the Company in any circumstances whatsoever. Provided that transfer of shares, by any of the four Respondents, amongst themselves or amongst their relatives, i.e. spouse, son, daughter or spouse of son, shall not be governed by this restriction. Subject to the exception provided earlier, if any of the said four Respondents proposes to transfer any of the shares held by him /her in the share capital of the Company; then such transfer shall not be made, organised or recognised by the Company unless all shares of the Applicants held at that time are acquired /bought back by the Respondents irrespective of the date of such proposed transfer being before the next due date for payment of consideration to the Applicants and transfer of shares of the Company by the Applicants to the Respondents. In such circumstance of transfer of shares by any of the said four Respondents either for consideration or without consideration; the obligations of the Respondents related to the acquisition of the shares of the Company held by the Applicants or any share of the Company held by the Applicants at that time shall stand accelerate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roxy/power of attorney in favour of the Applicants or any of them granting voting rights to the Applicants at any general meeting of the members of the Company immediately on receipt of intimation to issue to such proxy/power of attorney, from the Applicants in respect of the shares of the Company till then transferred by the Applicants to them or either of them or to their nominees. These obligations of each of the said four Respondents without prejudice to the other rights available to the Applicants may be specifically enforced by the Applicants. In the event the Applicants or either of them default in transferring their shareholding as afore stated, in the manner stated, the Respondents to these Consent Terms would be entitled to withhold any further payment to both the Applicants and to take such further steps as they may be advised, including, inter alia, to approach the Hon'ble Tribunal or enforce the said obligations of the Applicants specifically in any manner as may be available as per the applicable laws. In the event of any default by the Applicants to transfer any share, being part of any tranche of shares to be transferred by the Applicants to the Respondents, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dates between 30.4.2019 and 31.8.2019 respectively. It is also clear that the payment of Rs.7.23 crores against gratuity, salary, non-compete compensation and amicable settlement compensation are to be paid independent of the payment towards shares held by Mukund Muley and his wife Arati Muley entailing in consequent to the payments by the Appellants to them. Clause 7 of the Consent Terms provide that in the event there is any default by any party, the Consent Terms will cease to be binding on the non-defaulting party, but without prejudice to this condition, in case of breach of non-compete obligation by the Respondents (R-1 and R-2), R-1 and R-2 shall be liable to return the amounts paid towards non-compete compensation and amicable settlement compensation. Thus, it is clear that the non-compete obligation and related compensation has been given a special position in the Consent Terms, and significant amount has been provided to be paid to R-1 in compliance of the non-compete obligation. We also note that there is a background to the non-compete obligation being put in the Consent Terms, since there was an earlier allegation regarding hostile takeover of Cotmac by Enemtech with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said obligations of the Applicants specifically in any manner as may be available as per the applicable laws. In the event of any default by the Applicants to transfer any share, being part of any tranche of shares to be transferred by the Applicants to the Respondents, as indicated in these Consent Terms, in spite of willingness of the Respondents to make payment of consideration for transfer of such shares to the Applicants, the Applicants shall be bound to issue proxy or execute a power of attorney in favour of any of the Respondents, as may be directed by the Respondents, permitting exercise of voting rights in respect of the shares of the Company registered in the names of the Applicants as of the date of receipt of such instruction of the Respondents." 22. We take note of sub section 3 of section 424 of the Companies Act, 2013 whereby the NCLT is empowered to take action regarding enforcement/execution of its orders with the same powers that are available to a civil court executing a decree under the CPC. We further note the judgment of NCLAT in the matter of K. Muthusamy vs. N. Sankarnaryana and Ors.(supra) wherein the following is held by the NCLAT:- "3.3.5 xx xx xx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention by the respondent that the application for recall was founded on the submission that the order dated 19th August, 1999 was a nullity. In the absence of such an issue being raised and decided, the Company Law Board was bound to execute the order. If the Board found that the decree or any of its terms called for interpretation, it was within the Board's jurisdiction to interpret that particular term and to execute the decree on the basis of such interpretation. As was said by this Court in Topanmal Chhotamal v. Kundomal Gangaram AIR 1960 SC 388. 390, if a decree is ambiguous, it is the duty of the Executing Court to construe the decree - Central Bank of India v. Rajagopalan AIR 1964 SC. xx xx xx xx 31. The effort of the executing Court must be to see that the parties are given the fruits of the decree. The mandate is reinforced when it is a consent decree and doubly reinforced when the consent decree is a family settlement. xx xx xx xx 33. In our opinion both the Company Law Board and the High Court erred in refusing to execute the order dated 19th August, 1999 under section 634A of the Companies Act. They have thereby failed to exercise the jurisdiction with whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "7. It is AGREED CONFIRMED AND DECLARED THAT in the event of there being any default by any Party, the terms hereof will, in such event, cease to be binding on the non defaulting Party or Parties. Without prejudice to what is stated in this Clause, in case of breach of non compete obligation by the Applicants or either of them, both the Applicants shall be liable to return forthwith the amounts paid towards the Non-Compete Compensation and Amicable Settlement Compensation." 28. Thus, quite clearly, in case of any breach or non-compliance of any of the terms of conditions recorded in the Consent Terms and/or performance of the obligations, the parties are required to approach the NCLT. The records submitted by both the parties in case make it clear that the Appellants alleged breach of Consent Terms, particularly of the non-compete obligation by R-1, and consequently they sent a letter dated 23.2.2019 addressed to R-1 and R-2 as notice of termination of Consent Terms, and thereafter in the Board of Directors meeting held on 15.4.2019, the termination of Consent Terms by the Company w.e.f. March, 2019 was approved, ratified and confirmed. The facts of the case make it clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be sold for payment of the requisite amount to R-1 and R-2, we find it just and proper that only such number of shares shall be sold by which the requisite amount of Rs.28,77,51,750 plus interest (as indicated later in this judgment) is realized and paid to R-1 and R-2 and remaining shares shall be released to remain in the ownership of A-2 and A-3. 33. In view of the fact that the Consent Terms were agreed to by the rival parties to ensure that the Company continues to function as a healthy, viable and active company, we are of the view that the issue of execution of the Consent Terms in entirety should also be looked at by the NCLT upon an application to be made by any of the parties to the Consent Terms. 34. We are conscious of the fact that the objective of the signing of the Consent Terms by the two parties in dispute was to ensure that Mukund and Arati Muley get a respectable exit from the Company commensurate to their shareholding, and the Company continues in the hands of Shyam Sirur, Arjun Sirur, Suman Sirur, Pralhad Hage and others so that the Company continues to function as well-managed company and is not riven by internal. 35. Hence, we opine that it would be just ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
