1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. NOTICE OF MOTION NO.1290 OF 2006 WITH NOTICE OF MOTION NO.4761 OF 2007 IN SUIT NO.1146 OF 2006 Claridges Infotech Pvt. Ltd. ...Plaintiff. Versus Surendra Kapur & Ors. ...Defendants. ....... Mr. Rohit Kapadia, Senior Advocate with Mr. Sunip Sen and Mr. Hiren Mehta i/b. Akshay Vani for the Plaintiff. Mr. Janak Dwarkadas, Senior Advocate with Mr.Mustafa Doctor, Ms.Sonali Mathur, Mr. Ajay Vazirani, Mr.Ranjit Shetty and Ms.Heena Chheda i/b. M/s. Hariani & Co. for Defendant Nos.1 and 2. Mr.Navroj Seervai, Senior Advocate with Mr. Mustafa Doctor, Mr.Ajay Vaszirani, Mr. Ranjit Shetty and Ms.Heena Chheda i/b. M/s.Hariani & Co. for Defendant Nos.3 and 4. Mr.Suresh Parekh, Senior Advocate with Mr. Kalpesh Joshi and Mr. Sanjay Chaturvedi i/b. Malvi Ranchhoddas & Co. for Defendant No.5. ...... CORAM : DR. D.Y. CHANDRACHUD, J. March 28, 2008. JUDGMENT : The present judgment will govern two Motions for interlocutory relief in a suit for specific performance of a Memorandum of Understanding dated 17th January 2006. The pleadings being 2 complete, the Motions have been taken up for hearing and final disposal with the consent of Learned Counsel. 2. The dispute in the present case relates to 29.4% of the shareholding of the Fifth Defendant which is held by the First to Fourth Defendants. The aforesaid Defendants together with a person by the name of M.H. Merchant and his family and a Company by the name of Asian Hotels Ltd., are the only shareholders of the Fifth Defendant. The Merchant family holds 19% of the share capital, while Asian Hotels Ltd., holds 52%. The Fifth Defendant is stated to have a claim on a plot of land admeasuring 31,000 sq.mtrs. or thereabouts situated near the International Airport Terminal at Sahar. On 31st August 2005, a Memorandum of Understanding was entered into between the Plaintiffs and Defendants 1 to 4 by which the Plaintiffs offered to purchase the shareholding of the latter at and for a consideration of Rs. 7.11 crores. The Plaintiffs were to deposit an amount of Rs.30 lakhs in escrow with their Solicitors and the offer by Defendants 1 to 4 was to remain firm for a period of 135 days. If the Plaintiffs failed to confirm the offer within the aforesaid period, the 3 Memorandum of Understanding was to stand terminated and the amount held in escrow was to be returned to the Plaintiffs. Upon the confirmation of the offer, parties were to enter into a Share Purchase Agreement within 60 days of the date of confirmation. 3. A second Memorandum of Understanding was entered into between the parties on 17th January 2006. By the aforesaid MOU the price at which Defendants 1 to 5 agreed to sell their shareholding of 29.4% to the Plaintiffs was increased to Rs. 7.75 crores and the offer was to remain firm until 15th June 2006. The MOU was to stand terminated if the Plaintiffs failed to confirm the offer by the aforesaid date. In the event that the Plaintiffs confirmed the offer for acquisition, parties were to enter into a Share Purchase Agreement. The MOU postulated that there was no liability of the Fifth Defendant and the purchase consideration would stand proportionately reduced in the event that any liability was found. The Plaintiffs were to carry out due diligence of the Fifth Defendant upon the execution of the MOU. 4. Nearly two and a half months after the execution of the 4 MOU, the Plaintiffs addressed a letter to Defendants 1 to 4 intimating their intention to commence due diligence of the Company from 3rd April 2006. This was followed by a further letter dated 3rd April 2006. On 5th April 2006, the Plaintiffs addressed a letter to Defendants 1 to 4 seeking a confirmation in regard to the date and time for commencing due diligence. The Plaintiffs confirmed their acquisition of 29.4% of the shareholdings in the Fifth Defendant free from all encumbrances and without prejudice to their right to carry out due diligence whereby the Plaintiffs stated that they would be acquiring 29.4% of the right, title and interest in the plot of land admeasuring about 72,000 sq.mtrs. near the Sahar International Airport. 5. The suit for specific performance was instituted in this Court on 19th April 2006. During the pendency of the suit, Notice of Motion 1290 of 2006 came to be instituted for an order of injunction restraining Defendants 1 to 4 from alienating their shareholding of 29.4% in the Fifth Defendant; for the appointment of a Receiver in respect of the aforesaid shares; for a direction to Defendants 1 to 4 to give due diligence and a mandatory order directing the Defendants 5 not to create any liability on the Fifth Defendant or its assets. On 25th April 2006, when an adjournment was sought to file a reply to the Notice of Motion, a statement was made on behalf of Defendants 1 to 4 that they would not sell, transfer, encumber or create any third party rights upon or in respect of 29.4% of their shareholding in the Fifth Defendant. The aforesaid statement was continued at the interim stage until the Motion was taken up for hearing and final disposal. In the meantime, a fresh Notice of Motion, Notice of Motion 4761 of 2007 came to be instituted by the Plaintiffs on the basis that it was learnt that the Fifth Defendant proposed to make a rights issue. The case of the Plaintiffs in the fresh Notice of Motion was that they had no objection to the further issue of shares so long as the Defendants maintained their shareholding of 29.4%. The relief sought in the fresh Notice of Motion inter alia includes a direction to Defendants 1 to 4 to disclose the specific resolution sought to be passed and to maintain their shareholding in the Fifth Defendant at least at 29.4% of the paid up and subscribed share capital or, in the alternative, if the aforesaid Defendants were not able to do so, to appoint a Receiver with a direction to subscribe to the full proportion of the entitlement of 6 Defendants 1 to 4 upon the Plaintiffs placing the receiver in funds. 6. Both the Notices of Motion have been taken up for hearing and final disposal together and shall be governed by this judgment. In support of the Notices of Motion, Learned Counsel appearing for the Plaintiffs submitted that an agreement was entered into between the parties on 17th January 2006 by which Defendants 1 to 4 agreed to sell and transfer their holding representing 29.4% share capital of the Fifth Defendant at a price agreed. Parties agreed to a cut off date by which the Plaintiffs were to indicate their acceptance of the offer of the Defendants. The Defendants it is alleged, failed to furnish due diligence in terms of the MOU. The Plaintiffs claim that they confirmed the offer for the purchase of the shares and the suit was also instituted for performance of the MOU prior to the cut off date of 15th June 2006. 7. An affidavit in reply has been filed on behalf of Defendants 1 to 4 to the Notices of Motion. The submission of the Defendants is that there are three groups of shareholders in the Fifth Defendant, 7 Defendants 1 to 4 representing 29.4% of the share capital, the Merchant family representing 19% and Asian Hotels Ltd., representing 52.%. According to the Defendants, the Company has a claim on a plot of land admeasuring 31,000 sq.mtrs. near the International Airport in respect of which, for the last 12 years, the Company is attempting to finalise a lease with the Airport Authority of India. The case is that in June 2005, one Ashish Deora representing the Plaintiffs approached the First Defendant representing that he would acquire necessary clearances from the Airport Authority of India. The aforesaid representative of the Plaintiffs is stated to have informed the First Defendant that since the Plaintiffs were interested in buying over the entire Company and developing the land, the Plaintiffs offered to buy the shares of the First Defendant which would be conditional on the Merchant family and Asian Hotels Ltd., agreeing to sell their shares in the Fifth Defendant. According to the First Defendant, there was an agreement dated 25th July 1994 under which Asian Hotels Ltd., had agreed to buy over the entire shareholding of Defendants 1 to 4 and the Merchant family in the Fifth Defendant. The shares then held of Defendants 1 to 4 were kept in escrow with 8 the Advocates for Asian Hotels Ltd., and under the agreement, Asian Hotels Ltd., paid an aggregate sum of Rs. 1.60 crores to Defendants 1 to 4. The First Defendant states that he had personally shown the agreement with Asian Hotels Ltd., to Ashish Deora of the Plaintiffs and suggested that “it would be best if the Plaintiffs entered into one composite agreement” with Defendants 1 to 4, the Merchant family and Asian Hotels Ltd. Accordingly, the first MOU dated 31st August 2005 was entered into and it was according to the First Defendant, on the express understanding that if the other shareholders of the Company did not agree to sell their shares within a period of 135 days, the offer would stand terminated. The First Defendant has stated that the Plaintiffs informed them that they would require 135 days to negotiate with the other shareholders and to carry out due diligence. All the statutory records of the Company and its books were, according to the First Defendant, kept in the registered office of Asian Hotels Ltd., which was a majority shareholder and it was for that reason that the Plaintiffs did not call upon Defendants 1 to 4 for conducting due diligence during the entire term of the first MOU and prior to 31st March 2006 when a demand was made, a few days prior 9 to the institution of the present suit. The second MOU was entered into on 17th January 2006 and the case of the First Defendant is that this was also subject to the same condition, namely that the Merchant family and Asian Hotels Ltd., would also have to agree to sell their shares to the Fifth Defendant. The contention of Defendants 1 to 4 is that the Plaintiffs failed to unconditionally confirm their offer by 15th June 2006 and the acceptance of 5th April 2006 was conditional in nature and did not amount to a valid acceptance in law. Neither of the Defendants, it is submitted, agreed to accept the conditional offer made by the Plaintiffs. 8. In support of the defence which has been urged in the affidavit in reply, it has been submitted on behalf the Defendants that (i) There is no explanation in the plaint of the first MOU and more particularly, there is no explanation in the plaint of the circumstances in which the first MOU came to be entered into, nor of enquiries, if any, that were made by the Plaintiffs in regard to the shares and the custody of the shares; (ii) The acceptance by the Plaintiffs of the offer to sell 29.4% of the shareholding was a conditional acceptance which 10 amounted to a counter offer which is not accepted by the Defendants; (iii) Asian Hotels Ltd., is not before the Court in these proceedings, though the Plaintiffs were put on notice of the prior agreement with that Company and a mandatory direction to sell the shares of the Plaintiffs will defeat the pre-existing rights of Asian Hotels Ltd; (iv) There is a distinction between 'notice' and 'knowledge' under Section 3 of the Transfer of Property Act and Section 19(1)(d) requires notice and not knowledge; (v) In the affidavit in support of Notice of Motion 4761 of 2007, the Plaintiffs have referred to the Fifth Defendant's suit, Suit 6846 of 1999. The plaint in that suit contains a clear reference to the MOU dated 25th July 1994 entered into by Defendants 1 to 4 with Asian Hotels Ltd., in paragraph 13. Consequently, the Plaintiffs must be regarded both in law and fact as having knowledge of the prior agreement of 1994. 9. These submissions now fall for determination. The suit in the present case is for a declaration that the agreement dated 17th January 2006 is valid and subsisting and for a mandatory injunction directing Defendants 1 to 4 to execute a Share Purchase Agreement 11 or transfer 29.4% of the shares of the Fifth Defendant to the Plaintiffs. In the alternative, in the event that the Court is not inclined to grant the relief of specific performance, there is a claim for damages in the amount of Rs.10 crores. Ordinarily, in a case of a contract for the sale of movable property, Explanation (ii) to sub-section (1) of Section 10 of the Specific Relief Act, 1963 contains a presumption that the breach of such a contract is remediable by a measure of damages. For the purposes of the present case, it must, however, be noted that there is an averment in paragraph 11 of the Plaint that the Fifth Defendant is a Limited Company whose shares are not available in the market or are not readily available in the market. On that basis, specific performance has been sought. Now the material before the Court, at this stage, reveals that in respect of the shareholding of Defendants 1 to 4 in the Fifth Defendant representing 29.4% of the paid up share capital, an agreement was entered into between Asian Hotels Ltd., and Defendants 1 to 4 on 25th July 1994. Under the agreement, the Plaintiffs had agreed to sell their shareholding to Asian Hotels Ltd. An aggregate sum of Rs. 1.60 crores is stated to have been paid, in paragraph 3.4 of the reply. The shares held by 12 Defendants 1 to 4 and by the Merchant family in the Fifth Defendant are stated to be in escrow, with the Advocates of Asian Hotels Ltd., M/s.Malvi Ranchhoddas & Co. The prior agreement dated 25th July 1994 is not a fact of which the Plaintiffs had no notice. In the affidavit in support of Notice of Motion 4761 of 2007, the Plaintiffs have referred to a suit instituted by the Fifth Defendant on the Original Side of this Court, namely, Suit 6846 of 1999. The Plaint in the aforesaid suit has been produced for the perusal of the Court during the course of the hearing of the Motions and at this stage, it would be material to note that paragraph 13 of the Plaint contains a reference to the agreement dated 25th July 1994 by which a majority of shareholders of the Fifth Defendant agreed to sell their entire shareholding in the Fifth Defendant to Asian Hotels Ltd. Section 19(b) of the Specific Relief Act, 1963 provides that specific performance of a contract may be enforced against a party thereto and inter alia against any other person claiming under him by a title arising subsequently to the contract, except a transferee for value who has paid his money in good faith and without notice of the original contract. Under Section 3 of the Transfer of Property Act, 1872, a person is stated to have 13 notice of the fact when he actually knows that fact or when but for a willful abstention from an enquiry or search which he ought to have made or gross negligence, he would have known it. In the judgment in Ram Niwas Vs. Bano,1 a Bench of two Learned Judges of the Supreme Court held that the word “notice” is of a wider import than the word “knowledge”. For, a person may not have actual knowledge of the fact, but yet may have notice. As observed by a Bench of three Learned Judges of the Supreme Court in Dattatreya Shankar Mote vs. Anand Chintaman Datar,2 the “doctrine of notice, even apart from the statutory provisions, is firmly embeded in the jurisprudence of this country as a part of the equitable principle which Courts administer in conformity with the maxim “justice, equity and good conscience”.3 10. In the affidavit in rejoinder in Notice of Motion 1290 of 2006, the Plaintiffs have averred that they investigated the claim of the Fifth Defendant to the land during the tenure of the first MOU. Moreover, as already noted, in the affidavit in support of Notice of Motion 4781 of 1 (2000) 6 SCC 685 2 (1974) 2 SCC 799 3 para 29 page 817 14 2007, there is a clear reference to Suit 6846 of 1999 before this Court and paragraph 13 of the plaint in that suit, contains a specific reference to the prior agreement of 25th July 1994. The Plaintiffs therefore, must be regarded as having notice of the pre-existing agreement of Defendants 1 to 4 with Asian Hotels Ltd. There is, therefore, merit in the contention that Asian Hotels Ltd., is not before the Court though the Plaintiffs were put on notice of the prior agreement. Any mandatory direction to sell the shares to the Plaintiffs will defeat the pre-existing rights, if any, of the Asian Hotels Ltd. For, it may well be open for Asian Hotels Ltd., to contend that the agreement with the Plaintiffs is an agreement subsequent to that of the initial agreement dated 25th July 1994. 11. That apart, it is now a well settled principle of law that acceptance of an offer must be in terms of the offer and a conditional acceptance will amount to a counter offer. In Mayawanti vs. Kaushalya Devi,4 the Supreme Court held as follows : “It is settled law that if a contract is to be made, the intention of the offeree to accept the offer must be expressed without leaving room for doubt as to the fact of 4 (1990) 3 SCC 1 15 acceptance or to the coincidence of the terms of acceptance with those of the offer. The rule is that the acceptance must be absolute, and must correspond with the terms of the offer.” Again in paragraph 18 of the judgment, the Supreme Court held thus: “The specific performance of a contract is the actual execution of the contract according to its stipulations and terms, and the courts direct the party in default to do the very thing which he contracted to do. The stipulations and terms of the contract have, therefore, to be certain and the parties must have consensus ad idem. The burden of showing the stipulations and terms of the contract and that the minds were ad idem is, of course, on the plaintiff. If the stipulations and terms are uncertain, and the parties are not ad idem, there can be no specific performance, for there was no contract at all.” 12. Under the terms of the MOU, the Plaintiffs were required to furnish a confirmation of the offer made by Defendants 1 to 4 by 15th June 2006 failing which the MOU was to stand terminated. Clause 3 of the MOU provides that Defendants 1 to 4 have agreed to sell 29.4% of their shares in the Fifth Defendant to the Plaintiffs for Rs. 7.75 crores. This offer under Clause 5 was to remain firm upto the stated date within which period, the Plaintiffs could terminate the MOU. Under Clause 6, the MOU was to stand terminated if the Plaintiffs failed to confirm their offer by 15th June 2006. Clause 8 16 provides that if the Plaintiffs confirmed the acquisition of shares of Defendants 1 to 4 then in that eventuality, the Plaintiffs and Defendants 1 to 4 were to enter into a Share Purchase Agreement within 60 days of the date of confirmation of the offer. The confirmation by the Plaintiffs, therefore, was to be of the offer of Defendants 1 to 4 to sell 29.4% of the shareholding in the Fifth Defendant. A perusal of the purported letter of acceptance dated 5th April 2006 would prima facie, demonstrate that the Plaintiffs' acceptance was conditional The acceptance was in the following terms : “We hereby confirm to acquire your 29.4%shares in Regency Convention Centre & Hotels Ltd. free from all encumbrances and without prejudice to our right to carry out due diligence, whereby we will be acquiring 29.4% right title and interest in plot of land bearing CTS No.1405, 1408, 1486, 1490 and 145 admeasuring about 72,000 sq.mtr. situated at Village Sahar and Marol, Near Sahar International Airport, Andheri (East), Mumbai in terms of clause 8 of the above MOU.” The offer was for the acquisition of 29.4% of the share capital of a Limited Company. The acceptance was to the acquisition of those shares whereby the Plaintiffs would be acquiring 29.4% of the right, 17 title and interest in the plot of land at Sahar International Airport. Ex- facie, the acceptance would amount to a counter offer and would not be susceptible of the inference of a concluded agreement that could form the basis of a suit for specific performance. 13. In this view of the matter, the Plaintiffs have failed to make out a prima facie case for the grant of interlocutory relief in either of the two motions. In the affidavit in reply that has been filed by the Defendants, there is a defence based on the negotiations which took place between Ashish Deora representing the Plaintiffs on the one hand and the First Defendant on the other. These are matters of evidence and at the present stage, no final or determinative conclusion can be arrived at. The Plaintiffs must, however, fail on the ground that they have not been able to establish a prima facie case for the reasons already indicated hereinabove. The Notices of Motion shall accordingly stand dismissed. .....