Case: M/S PRUDENTIAL SUGAR CORPORATION LTD Vs. CHADALAVADA KRISHNA MURTHY

1. Leave granted. 2. Arguments heard finally. 3. For the purpose of the disposal of these appeals, it is not necessary to take note of facts in detail or the arguments which are advanced by the counsel for the parties on either side. Reason for that is simple. We are concerned, in these appeals with the order dated 13th April, 2016, passed by the High Court on the application for injunction filed by the respondents herein who have filed the suit seeking certain reliefs and the said suit is still pending. Any observations made by us while disposing of these appeals may affect one or the other parties when the suit is taken up for trial and disposal by the Trial Court and that is yet another reason for not making detailed comments. 4. For the purpose of disposal of these appeals, brief facts which need to be noted are that appellant No.2 and respondent No.1 are promoters of respondent No.2-company. They entered into a Memorandum of Understanding under which respondent No.1 agreed to purchase 50 per cent of the equity shares of appellant No.1-M/s. Prudential Sugar Corporation Ltd. (hereinafter referred to as M/s. Prudential) held by appellant No.2 and the persons and entities known to him for a mutually agreed consideration of Rs. 19.51 crores. Respondent No. 2 herein and one IFCI Ltd., a public financial institution, executed a Deed of Assignment and Agreement for Acquisition, under which IFCI Ltd. assigned financial assets of M/s. Prudential held by IFCI Ltd. to respondent No.2-company. Subsequently, as respondent No.1 failed to make full payment under 1st MoU on time, respondent No.1 and appellant No.2 entered into another MoU under which respondent No.1 agreed to purchase 35 per cent of the equity shares of M/s. Prudential held by appellant No.2 and the persons and entities known to him for a mutually agreed consideration. The matter was taken up before the Arbitrator and issues were framed. 5. Appellant No.1-M/s. Prudential issued a notice of postal ballot seeking shareholders approval under Section 180(1)(a) read with section 110 of the Companies Act, 2013, to dispose of the sugar business of M/s. Prudential on slump sale basis as a going concern to a prospective buyer or to a separate entity or to Special Purpose Vehicle to be created for the purpose or a subsidiary company for a consideration and on such terms and conditions as the Board may deem fit. A suit, being O.S. No. 821 of 2014, was filed in the name of respondent No. 1 and respondent No. 2 against M/s. Prudential, appellant No. 2 and respondent No. 3 herein, seeking, inter alia, a declaration that the notice of postal ballot dated 26.08.2014 is null and void and also sought an injunction against the appellants herein from conducting the postal ballot and any other consequential and incidental acts in respect of the sugar business of M/s. Prudential. In the said suit, respondent No.1 also filed an application being I.A. No. 2074 of 2014 seeking an interim injunction against the appellants herein from conducting the postal ballot and any other consequential and incidental acts in respect of the sugar business of the M/s. Prudential pending disposal of the suit. The said application was dismissed vide order dated 31.03.2015. 6. During the pendency of the said application, the respondents herein also filed I.A. No. 2367 of 2014 seeking amendment to the main prayer in the Suit by including an additional prayer to declare that the 2nd petitioner/plaintiff is having absolute rights, title, interest, benefits, etc., in respect of the moveable and immovable assets of the 2nd defendant company by virtue of Deed of Assignment and Agreement of Acquisition, which application was allowed and his additional prayer was added. Aggrieved, the respondent approached the High Court challenging the order dated 31.03.2015 passed in I.A. No. 2074 of 2014. The High Court vide its impugned judgment and final order dated 13.04.2016 disposed of the appeal by modifying the order dated 31.03.2015 passed by the Trial Court by directing the appellants herein to maintain status quo existing as on 31.03.2015 in respect of the business, assets, liabilities, encumbrances, etc., of the 2nd respondent - company and granted 60 days to the appellants herein to bring back the situation as it was existing as on 31.03.2015. 7. What transpires from the above is that whereas the Trial Court has rejected the prayer for injunction that was made by the respondents, the High Court has not only granted the injunction in the form of status quo order, it has gone further by directing the appellant-M/s. Prudential to maintain status quo ante as existed on 31.03.2015 in respect of business, assets, liabilities, encumbrances, etc. It would be pertinent to note at this stage that before taking the decision to hive off the sugar business of M/s. Prudential, method of postal ballot was resorted to and in the postal ballot, majority shareholders agreed to transfer the business. Thereafter, agreement was entered into with M/s. Natems Sugar Ltd. (appellant in the second appeal, i.e., Civil Appeal No. 4318 of 2017) (hereinafter referred to as M/s. Natems). As per the said agreement, M/s. Natems was to take over the sugar business of M/s. Prudential for Rs. 120 crores. Substantial amount has already been paid by M/s. Natems to M/s. Prudential. The business has also been handed over to M/s. Natems which is not only carrying on the business but has also invested further sum of money in the said business. No doubt, it has yet to pay the balance consideration in the neighbourhood of Rs. 60 crores, Mr. C.A. Sundaram, learned senior counsel appearing for M/s. Natems, stated at the Bar that M/s. Natems is ready to deposit this balance amount forthwith. We find that after the postal ballot, many crucial steps were taken by M/s. Prudential for transfer of sugar business to M/s. Natems, some of which are reflected above. All this had happened before the passing of the impugned order by the High Court. There is one more aspect which also needs to be mentioned at this stage that the plaintiffs (respondents herein) in their plaint have stated that plaintiff No.1 invested the principal amount of Rs. 21.34 crores with the appellants herein and plaintiff No.2 had made a payment of Rs. 2,45,40,000/- to IFCI Ltd. in discharge of the debt of M/s. Prudential towards IFCI. We also find that there are some arbitration proceedings going on between Vinod Baid (appellant No.2 herein), one of the Directors and shareholder of M/s. Prudential, and the plaintiffs (respondents herein). Though these proceedings are initiated by Mr. Baid, the plaintiffs have also filed their counter claims therein. What we find at the end of the day is that the plaintiffs have primarily monetary interest only. Influenced by these considerations, we are of the opinion that instead of granting status quo, that too, w.e.f. 31.03.2015, which has the effect of even undoing major steps that have been taken in the process of transferring of the sugar business by M/s. Prudential to M/s. Natems, more appropriate course of action would be to allow the resolution passed by M/s. Prudential to take effect subject to clearing the monetary interest of the respondents herein.

Decision:
1[ds]7. What transpires from the above is that whereas the Trial Court has rejected the prayer for injunction that was made by the respondents, the High Court has not only granted the injunction in the form of status quo order, it has gone further by directing the appellant-M/s. Prudential to maintain status quo ante as existed on 31.03.2015 in respect of business, assets, liabilities, encumbrances, etc. It would be pertinent to note at this stage that before taking the decision to hive off the sugar business of M/s. Prudential, method of postal ballot was resorted to and in the postal ballot, majority shareholders agreed to transfer the business. Thereafter, agreement was entered into with M/s. Natems Sugar Ltd. (appellant in the second appeal, i.e., Civil Appeal No. 4318 of 2017) (hereinafter referred to as M/s. Natems). As per the said agreement, M/s. Natems was to take over the sugar business of M/s. Prudential for Rs. 120 crores. Substantial amount has already been paid by M/s. Natems to M/s. Prudential. The business has also been handed over to M/s. Natems which is not only carrying on the business but has also invested further sum of money in the said business. No doubt, it has yet to pay the balance consideration in the neighbourhood of Rs. 60 crores, Mr. C.A. Sundaram, learned senior counsel appearing for M/s. Natems, stated at the Bar that M/s. Natems is ready to deposit this balance amount forthwith. We find that after the postal ballot, many crucial steps were taken by M/s. Prudential for transfer of sugar business to M/s. Natems, some of which are reflected above. All this had happened before the passing of the impugned order by the High Court. There is one more aspect which also needs to be mentioned at this stage that the plaintiffs (respondents herein) in their plaint have stated that plaintiff No.1 invested the principal amount of Rs. 21.34 crores with the appellants herein and plaintiff No.2 had made a payment of Rs. 2,45,40,000/- to IFCI Ltd. in discharge of the debt of M/s. Prudential towards IFCI. We also find that there are some arbitration proceedings going on between Vinod Baid (appellant No.2 herein), one of the Directors and shareholder of M/s. Prudential, and the plaintiffs (respondents herein). Though these proceedings are initiated by Mr. Baid, the plaintiffs have also filed their counter claims therein. What we find at the end of the day is that the plaintiffs have primarily monetary interest only. Influenced by these considerations, we are of the opinion that instead of granting status quo, that too, w.e.f. 31.03.2015, which has the effect of even undoing major steps that have been taken in the process of transferring of the sugar business by M/s. Prudential to M/s. Natems, more appropriate course of action would be to allow the resolution passed by M/s. Prudential to take effect subject to clearing the monetary interest of the respondents herein.