NMS2655-09 YBG 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO.2655 OF 2009 IN SUIT LOD.NO.1718 OF 2009 Jayant Shah and Anr. .. Plaintiffs Versus Dipti Umesh Barai and Ors. .. Defendants Mr.Zal Andhyarujina i/b. Amit Sheth for plaintiffs Mr.P.K.Dhakephalkar, Senior Advocate with Vachan Bodke i/b. Chitnis Vaithy & Co. for defendant Nos. 1 to 4. CORAM : S.C.Dharmadhikari, J. Date : 26th August 2010. P.C. 1] On 23rd June 2009, this Court noted the fact that earlier the plaintiffs had instituted a suit bearing Suit No.4523 of 2006 in the City Civil Court. During the pendency of that suit an order dated 15th October 2007 was made in the plaintiff’s notice of motion No.4230 of 2006. That order continued and ultimately, the City Civil Court returned the plaint for presentation to proper court on account of lack of pecuniary NMS2655-09 YBG 2 jurisdiction. 2] Ad-interim order made by the City Civil Court was continuing for the last three years and, therefore, this Court on 23rd June 2009 continued the order till the disposal of the instant motion. Needless, therefore, to add that the instant motion is taken up after the plaint was presented to this Court. In essence, the interim order restrains the defendant Nos. 1 to 3 from representing themselves as Directors of defendant No.4. 3] Mr.Andhyarujina, learned Counsel appearing on behalf of the plaintiffs, therefore, seeks continuation of this ad-interim order till the disposal of the suit because, according to him, having fulfilled their obligations under an agreement executed between the parties, a copy of which is annexed as Annexure A to the plaint at page 19, the plaintiffs continued as Directors of defendant No.4. Mr.Andhyarujina invited my attention to some of the clauses of the agreement and contended that there is no dispute that the condition precedent contemplated payment of NMS2655-09 YBG 3 Rs.80 lakhs. That compliance has been done as far as the payments contemplated by clause 3.2(a) are concerned. They pertain to deposit of remainder sum of Rs.1.20 Crores. Although, dates are stipulated in this clause, according to Mr.Andhyarujina, the time to deposit has been extended by the defendants themselves. The time to deposit has been extended is clear from the defendant’s letter, a copy of which is annexed as Annexure “C” to the plaint. Mr.Andhyarujina submits that the amounts then had to be paid by 10th February 2006. He complains that the defendants resorted to termination of the agreement even prior to the receipt of first installment inasmuch as they are stated to have convened an Annual General Meeting to the exclusion of the plaintiffs. If the amounts were to be deposited by extended period that is by 10th February 2006, then, prior to that date the meeting could not have been convened to the exclusion of the plaintiffs. Consequences of payment are set out in clause 3.1(e) of the agreement and once the plaintiffs are taken as directors on board of defendant No.4, then, their exclusion is prima facie untenable and, therefore, the plaintiffs are entitled to the declaratory and NMS2655-09 YBG 4 injunctive reliefs. Further, there was no direct communication with the plaintiffs with regard to their termination and it is purportedly, through the Escrow agent that the plaintiffs have been informed about the cancellation/ termination. In such circumstances, according to Mr.Andhyarujina prima facie case is made out for continuation of ad- interim reliefs and grant of interim injunction as prayed. 4] On the other hand Mr.Dhakephalkar, learned Senior Counsel appearing for defendant Nos. 1 to 4 submits that grave and irreparable harm, loss and injury will be caused to the defendants because they are restrained from holding any board meeting or any other meeting of defendant No.4. They are compelled to conduct the affairs of defendant No.4 on the basis that the plaintiffs are directors of the said company. Therefore, the mandatory order to include the plaintiffs as directors when the agreement already stands cancelled on account of default, works grave injustice to these defendants and the order needs to be vacated forthwith. His further contention is that there are breaches committed by NMS2655-09 YBG 5 the plaintiffs of the terms and conditions of the agreement. They do not dispute that within the extended time also the amount contemplated by clause 3.2.(a) of the agreement has not been deposited. These amounts are purported to be deposited on 30th September 2006. The agreement has been terminated on 6th July 2006. It is false to suggest that the termination is not to the knowledge of the plaintiff, inasmuch as there is a letter addressed by the escrow agent to the defendants' Solicitors enclosing therewith the response to the termination notice by the plaintiffs. This letter is dated 11th July 2006 wherein it is stated that "therefore, it is surprising to receive notice for cancellation of the agreement and forfeiture of the amount paid without completing registered, statutory requirements of the company which are essentially for transfer of company." 5] Mr.Dhakephalkar, learned Senior Counsel submits that the consequences of the agreement and compliance of the clauses therein is that till the closing, plaintiffs continue as Directors but provided they NMS2655-09 YBG 6 comply with the terms and conditions of the agreement. By reading some sub-clause of some clause and that too in isolation, it cannot be urged that the plaintiffs have been included on the Board by these defendants. For all these reasons and considering that the termination is not challenged nor is it prayed that it should be set aside but the suit is filed simplicitor for the relief of declaration and injunction, no interim orders can be made in furtherance of such final relief. He submits that, therefore, no prima facie case is made out and the interim order be refused. 6] With the assistance both the learned Counsel I have perused the affidavits in support and reply of the motion along with their annexures. I have also perused the plaint. The plaint essentially projects a grievance of the plaintiffs that they have complied with the terms and conditions and their obligations under the agreement at Annexure A but the defendant Nos. 1 to 3 failed and neglected to do the needful. It is on account of their willful and deliberate inaction which compelled them to NMS2655-09 YBG 7 withhold the deposit of balance consideration. Various reasons, therefore, are set out and it is in such circumstances that when the defendants have allegedly failed to fulfill their obligation that the declaration is claimed. 7] There are certain amendments made to the plaint to incorporate the developments which have been brought to the notice of plaintiffs on account of pendency of First Appeal No.317 of 2003 and filing of Civil Application therein. 8] However, what the arguments of Mr.Andhyarujina overlook is the fact that the agreement between the parties is share purchase agreement. That agreement has been executed on the basis that the defendant Nos. 1 to 3 are legal and beneficial owners and registered holders of 4000 equity shares of Rs.100 each of defendant No.4 company. The said defendants who are named as transferors in the agreement have agreed to sell to the plaintiffs who are named as Transferees, the shares for a total NMS2655-09 YBG 8 consideration of Rs.2 Crores. Clause 1 of the agreement stipulates that upon fulfillment of the conditions precedent set out in clause 2 of the same, payment of entire purchase consideration on the terms and conditions set out therein, the transferors agreed to sell, transfer, convey and assign unto the transferees the shares on the closing together with all benefits, rights, privileges, advantages and incidentals attached thereto and, thereafter, to handover all the deeds and documents etc. Clause 2 sets out the condition precedent and one of which is opening of the Escrow account with M/s.Little and Company, convening a meeting of the Board of Directors on closing to transact the business contemplated in clause 4 of the agreement. The agreement is dated 15th April 2005. Clause 3 is entitled "Purchase Condition and manner and discharge of purchase consideration". Clause 3.1 states that on execution of the agreement, the transferor shall cause the board of directors to approve sell and transfer the shares in accordance with the terms and conditions of the agreement and to make relevant amendments to the Memorandum and Articles of Association of the company. The Board of Directors of NMS2655-09 YBG 9 Hind Dyes shall approve the sale and transfer of the shares in accordance with the terms and conditions of the agreement and then shall make relevant amendments to the Memorandum and Articles of Association. All this was to be done on the deposit of Rs.80 lakhs with the escrow agent. What the arguments overlook is that everything is in accordance with the terms and conditions of the agreement. Therefore, there is substance in the contentions of Mr.Dhakephalkar that sub-clause (e) of clause (3.1) cannot be read in isolation but must be seen as a whole and together with other clauses of the agreement. It is subsequent to the execution of the agreement till closing that the amounts which are stipulated in clause 3.2 including sub-clause (a) will have to be deposited. The closing is contemplated by clause 4 and clause 4.1 thereof states that the sale and purchase of the entire shares shall take place in the board meeting of Hind Dyes to be held at the earliest day, after the last condition in clause 3 has been fulfilled. Thereafter, actions stipulated in clauses 4.1(a) and (b) would be taken. NMS2655-09 YBG 10 9] Therefore, the argument of Mr.Andhyarujina that the defendant Nos. 1 to 3 have committed a breach of the agreement by holding an Annual General Meeting on 29th June 2005 i.e. much prior to 1st September 2005 on which date the first instalment was due and payable, cannot be accepted. This argument overlooks prima facie the fact that the agreement confers rights on the plaintiffs only after fulfillment of the terms and conditions in clauses 3.1 and 3.2. It may be true that the plaintiffs were informed by the defendant Nos. 1 to 3 of the extension to make payment of the instalments. That extension is granted till 10th February 2006. 10] However, Mr.Dhakephalkar, rightly brings to my notice the fact that even extended time has not been adhered to, inasmuch as, there is default committed and amounts have been deposited post termination i.e. in September 2006. The agreement stood cancelled/ terminated on 6th July 2006 as is clear from the perusal of the letter dated 6th July 2006. It is in such circumstances that Mr.Andhyarujina complains that the NMS2655-09 YBG 11 plaintiffs were unaware of the cancellation/ termination. However, even this is belied by the fact that on 14th July 2006 M/s.Chitnis Vaithy and Company who are Advocates and Solicitors of the defendant Nos. 1 to 3 received a letter from the Escrow agent M/s.Little and Company forwarding and enclosing therewith a reply dated 11th July 2006 from Mrs.Naik, who is none other than plaintiff No.2 before me. In this letter, after narrating the alleged compliance made with the terms and conditions of the agreement, the aforequoted portion appears with regard to receiving of notices of cancellation of the agreement and forfeiture of the amounts. This demonstrates that as early as on 11th July 2006, the plaintiffs were aware of the cancellation of the agreement. Yet, they tendered the amounts on 30th September 2006. Once the agreement stood terminated, then, it was not open for the plaintiffs to claim any rights under the Agreement and particularly as directors of defendant No. 4. The agreement dated 15th April 2005 was clearly conditional. It is only fulfillment of the conditions which enable plaintiffs to become directors of defendant No.4 and exercise powers conferred in that behalf. NMS2655-09 YBG 12 If there is breach on their part, then, surely they cannot claim benefits under the said agreement. 11] Prima facie I am of the opinion that there is non compliance with the terms by the plaintiffs themselves. If time was of essence of the contract and plaintiffs themselves being in default as on their own showing, the amounts were paid much beyond the due date and on extended date, then, the conclusion is inevitable that they have failed to make out a prima facie case. Balance of convenience is also not in favour of plaintiffs because what they purport to do is to hold up the functioning of defendant No.4. By claiming discretionary and equitable reliefs they are preventing the directors of the company from exercising their powers and to carry on the affairs of the company. 12] In the circumstances which I have noted, the plaintiffs cannot claim such reliefs. Further, considering the nature of the claim, it is doubtful whether the court can enforce the agreement and I had NMS2655-09 YBG 13 repeatedly queried with Mr.Andhyarujina as to how specific performance can be granted of such an agreement. Further the permanent injunction claimed is virtually in aid of the relief of specific performance. However, if that itself is doubtful, then, at this stage, all the more it should be held that interim injunction claimed in aid thereof cannot be granted. 13] For all these reasons the motion fails and the same is dismissed. No costs. 14] At this stage, Mr.Sheth appearing on behalf of plaintiffs prays that the ad-interim order be continued. This request is opposed by defendant Nos. 1 to 3. Upon a suggestion from the court as to why this dispute cannot be amicably resolved, the Counsel took instructions from respective parties who are present in the court. After some deliberations and discussions, it is agreed that the plaintiffs can withdraw the amounts lying with escrow M/s.Little and Company with accrued interest. NMS2655-09 YBG 14 However, defendant Nos. 1 to 3 would return to the plaintiffs a sum of Rs.80 lakhs which is stated to be lying with them with interest at 8% from the date of deposit. The refund shall be made within a period of eight weeks from today. Similarly, on production of authenticated copy of this order to M/s.Little & Co., shall permit withdrawal of the escrow amount lying with them with accrued interest, if any. That shall also be done within the period stipulated by parties. 15] It is stated by the plaintiffs who are present in court that after receipt of these sums, they will have no claims against the company or defendant Nos. 1 to 3 and all their objections and allegations stand withdrawn on receipt of the said sum. Thereafter, this court can set down the suit for withdrawal and the plaintiffs would withdraw the same accordingly. 16] To enable the parties to work out this arrangement and to put an end to their dispute as suggested by them, ad-interim order will continue NMS2655-09 YBG 15 for a period of eight weeks. It is only on the condition that the entire dispute is settled and the suit will be withdrawn that the ad-interim order is continued. 17] The Escrow agent will return all original documents, records, papers lying with them on the suit being withdrawn. Liberty to apply for withdrawal of the suit earlier than eight weeks, if the amounts deposited are paid off to the parties. (S.C.DHARMADHIKARI, J)