Case: Godrej Industries Limited &amp; Others Vs. Colin Mario Rebello &amp; Others

shareholders were struggling against Dr.Gharda employing oppressive tactics to squeeze Minority Shareholders out of existence. It was crucial for the minority shareholders to stay together to remain as a significant minority. Individual holding of each of the Minority Shareholders had to be pooled together as it was vital for their collective shareholding. The position of the minority shareholding was so precarious that even if some of the Minority Shareholders were to part with their shares, minority shareholders together would cease to be a significant minority. It was, thus, absolutely essential that the minority shareholders stayed together and acted in one unit. Thus, the parties at the time of executing the MoU were aware that if any dispute arises, even between the Minority Shareholders, in respect of the shares, the object of all Minority Shareholders remaining together as the significant minority and getting the Company listed on a registered stock exchange would be lost. Thus, it cannot be said that dispute amongst the Minority Shareholders was not contemplated when the MoU was executed with Clause 28 herein. The interpretation of Clause 28 and circumstances in which it was executed do, therefore, indicate that it was intended to cover all the signatories to the MoU. We, therefore, do not agree with the submission made on behalf of Percy and Darius Kavasmaneck that there is no arbitration agreement between them and the other parties.50. The next ingredient for grant of injunction is balance of convenience. To put this balance in perspective, a brief repetition of the background is necessary. The MoU is in respect of the shares of the Company. There is dispute between the Minority Shareholders and Dr Gharda, the majority shareholder. It is alleged that Dr Gharda is trying to break up the minority shareholders. Minority Shareholders were struggling to retain their existence in the Company when they turned to Godrej Industries for financial assistance to purchase the shares. Godrej in their pleadings and in the correspondence has maintained that the shares were held by them as pledge for the loans advanced. These shares are not common commodities which can be just bought and sold, with no other value attached to it. It is clear that these shares are not to be computed merely in terms of money. They also denote tools for the control of the Company. The shares were not acquired for the purpose of investment or gaining dividends alone but to retain the status of the minority shareholders as a significant minority. If the shares are transferred or sold, not only there will be trading in terms of money but will tilt the precarious balance of shareholding in the Company. These shares are not to be treated as mere pledge, but a device to gain control of the Company. The injunction sought is that the shares should remain as they are till the parties go for arbitration. The importance of this status quo till the dispute is resolved by the Arbitrator, is immense for the petitioners, as otherwise they will lose their toe-hold in the Company. With Godrej allegedly siding with Dr Gharda and two Kavasmanecks going along with them, the petitioners will be reduced to a non-significant minority. Once this takes place before the Company is listed on registered Stock Exchange, position of the petitioners will be gravely prejudiced. The position will become irreparable once a significant majority is reached in favour of Dr.Gharda taking his shareholding closer to 75%. Important decisions in the Company will be taken swiftly and any opposition of the petitioners will be crushed. If that happens, the whole purpose of the MoU will be defeated.51. Inspite of the detailed arguments made on behalf of the Godrej, no special reason why shares cannot remain in the same position till the arbitration proceedings is shown except the argument that Godrej cannot be stopped from perfecting their security. As noted above, the Godrej had in their letter dated 13 June 1992, immediately after execution of the MoU on 3 June 1992, had indicated that they will not enforce loans or claim interest notwithstanding the agreement. The tussle is not for the monetary value of the shares, but what the shares represent. The dispute is no longer for money but for the control of the Company. Once this fact is established before us, it will be too nave to assume that Godrej is only looking at the shares as a monetary investment. This was evident during the course of the hearing when an offer was made on behalf of the petitioners to return the amount of loan in return of shares from Godrej, there was no response of that offer from Godrej. The petitioners while making the offer of payment of principal amount drew our attention to the letter of Mr Adi Godrej dated 13 June 1992, wherein it was stated that Godrej is not claiming any interest on the loan amount. Though on record Godrej keeps asserting that the shares are merely pledged, its actions, the surrounding circumstances and the arguments advanced show that Godrej is trying to deal with the shares, prima facie, in furtherance of its intention to side with Dr Gharda and to extinguish the opposition of Minority Shareholders. This being the position, the balance of convenience clearly lies in favour of the petitioners. The shares in question need to be kept as they are till the parties approach the Arbitrator. The true purport of the negative covenant can be decided by the Arbitrator.52. Therefore, we find that the petitioners have made out a strong prima facie case and balance of convenience is in their favour. The submissions of the appellants that the petitioners do not deserve any equitable relief and that there was no arbitration clause between the Minority Shareholders interse is without any substance. The learned single Judge has considered all the aspects of the case and has found that the Arbitration Petition requires to be made absolute. There is no reason to take a different view in the matter

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]36. We have gone through the judgment of the learned Company Judge referred to above. We do not find from the judgment or the contentions of the petitioners reproduced in the judgment that the petitioners were opposing the listing of the Company on the Stock Exchange. Reading of the MoU shows that the arrangement contemplated under the MoU was to continue till the shares of the Company are listed on the Stock Exchange and become freely tradeable. The apprehension of the petitioners was that Dr Gharda will dispense with the right ofcreating a situation whereby Minority Shareholders will not be able to sell their shares in the open market and realize their market value but will be forced to sell their shares to Dr.Gharda at the price to be determined by him. Consequently the Minority Shareholders will be squeezed out. This would not be possible if the Company gets listed on registered Stock Exchange and shares become freely tradable. It is for this purpose, MoU was entered into and free marketibility of shares is the end situation the Minority Shareholders have been striving for. There is no question of opposing the status of the Company becoming a public company as the company any way by virtue of its turnover was already a deemed public company. The MoU was not regarding the Company becoming Public Company alone, but making its shares become fully tradable on the stock exchange. We have not been shown that the petitioners anytime opposed the listing of the shares on a recognised stock exchange. According to us therefore the petitioners have not committed breach of Clause 21 of the MoU. The attempt of the petitioners is only to ensure that the petitioners are not deprived of their shareholding before the shares become fully tradeable on the stock exchange.37. The second breach of the MoU alleged was that the petitioners were opposing registration and transfer of 3199 shares and obstructing transfer of 461 shares. It is submitted on behalf of petitioners that as far as 461 shares are concerned they have never opposed are not opposing registration in the name of Godrej Industries if Godrej Industries adhere to negative covenants stipulated under the MoU. It has to be noted that before the dispute arose between the Parties, Godrej had assured the petitioners that shares were only being treated as pledge for the loan. However, now the petitioners apprehend that Godrej is trying to deal with the shares for the purpose of getting control of the Company along with Dr Gharda. Godrej Industries is now trying to deal with the shares so as to defeat the right of Minority Shareholders. These 3199 shares constitute approximately 5% shareholding of the Company. 5% becomes crucial when it is pooled together with shareholding of Dr Gharda and Percy, Aban Kavasmaneck and Oomrigar. This group will acquire special majority. Once special majority is reached the significant minority will be extinguished. We find merit in the contention that the opposition by the petitioner in respect of 3199 shares being dealt with by Godrej Industries is because Godrej Industries is no longer trading the shares as means of recovering the loan but as means of getting control of the Company. Such action would, obviously, run against the spirit of MoU and frustrate the very purpose for which it was entered into. We find that by opposing the transfer of 3199 shares to Godrej, in these changed equations, the petitioners did not commit any breach of Clause 9 of the MoU.38. Third breach alleged to be committed by the petitioners is that under the MoU, the petitioners were required to pay dividends which they have failed to pay. It has been placed on record by the petitioners that Godrej never demanded dividends for the last 22 years. In fact, theof dividend was not even considered as a breach till 5 July, 2012 when Godrej filed further affidavit. It appears to us that in view of the change of intention by Godrej, even the issues which were never considered to be breaches are now sought to be raised against the petitioners. If for the last 22 years there has never been a demand for payment of dividend, it clearly means that Godrej never consideredof dividend as a breach of the MoU. The argument ofof dividend is advanced to some how create a case to restrain the petitioners from invoking a negative covenant stipulated under the MoU. Thus, three breaches of the MoU, which according to the Godrej disentitle the petitioners from relying on the MoU, do not constitute any breaches.The argument of Godrej based on impossibility is thus contradictory to the stand taken on affidavit filed by it in the earlier arbitration petition. Apart from this position, petitioners have pointed out that when the MoU was entered into in the year 1992, the collective shareholding of the Minority Shareholders was 27%. Thus, both Godrej and Minority Shareholders believed that 27% share holding was sufficient to enable the parties to work towards the Company being listed on the Stock Exchange. At that time, no apprehension was raised by Godrej in respect of lack of share holding of the minority shareholding to achieve this object. If the parties found 27% shareholder was then sufficient to achieve the object of MoU, one fails to understand how an argument based on an impossibility can be advanced when the shareholding has now increased from 27% to 34%(approx). We thus do not find any substance in this argument.41. Thus, the negative covenant binds Godrej as well and the argument that the petitioners have committed breaches of the MoU do not impress us. In any case, all these points will be gone into in detail during the arbitration proceedings. Thus, we are in agreement with the learned single Judge that the petitioners had established that they had a prima facie case based on the MoU and that there is enough prima facie material to show that the negative covenant regarding dealing with the shares till the Company is registered or the Company is listed on the Stock Exchange is applicable to all the signatories to the MoU.rim relief was moved by the petitioners with notice to the Godrej Industries. There is reference to theagreement and power of attorney in the arbitration petition. The impugned order came to be passed after both the parties had full opportunity of producing documents on record. The said MoU and power of attorney were available on the record of the learned single Judge. It cannot be said that the petitioners conduct is of such a grave nature that the injunction granted in their favour should be vacated on the ground of suppression of documents when the MoU and the arbitration petition itself refers to execution of loan cum pledge agreement and power of attorney. It has been pointed out that Mr.Adi Godrej had agreed by letter dated 13 June 1992 not to claim interest or recall loans under these pledge agreements and power of attorneys. These documents were thus not the principal documents on which relief was being sought. These documents were the part of defence of Godrej, which had full opportunity to defend the application. Matter was fully heard by the learned Judge and then impugned relief was granted. In view of these circumstances, we do not find that the conduct of Jer, Darius Kavasmaneck was blameworthy, as alleged. On the other hand, the conduct of Godrej Industries in not placing on record letter dated 13 June 1992 wherein Mr Adi Godrej reiterated that notwithstanding theagreement, Godrej Industries will not enforce loans or claim interest, needs to be noticed. In any case, no such allegation can be made and has not been made against Rebellos that they have suppressed any documents.There is no absolute bar in employing the rules relating to interpretation of statutes, for the purpose of interpretation of deeds and documents, in a given case. One of the settled principles of interpretation of statutes is, when in relation to the same subject matter different words are used in the same instrument, presumption arises that they are used not in the sense, but carry different meanings. This principle can be borrowed for the construction of the present MoU. The MoU refers to the parties in several ways. The parties are referred to as parties,  parties of the first part and parties hereto, both parties. It is significant to note that the expression parties hereto appears both in Clause 16 of the MoU and Clause 28 of the MoU, which are the most material clauses in the present case. In many paragraphs the reference is to party of the first part and party of the second part. In some paragraph, such as paragraph 15, there is reference to either of the parties. In paragraph 21 reference is made to both parties. However, the two clauses i.e. 16 and 28 which areof the debate, have used the phrase the parties hereto. What we find clinching is that immediately after clause 28, which is the last clause which employ the phrase parties hereto, concluding recitals and names of all the signatories and their signatures appear.Apart from the language of this Clause, the surrounding circumstances indicate that the arbitration clause is to cover all the signatories to the MoU. The MoU came to be executed when minority shareholders were struggling against Dr.Gharda employing oppressive tactics to squeeze Minority Shareholders out of existence. It was crucial for the minority shareholders to stay together to remain as a significant minority. Individual holding of each of the Minority Shareholders had to be pooled together as it was vital for their collective shareholding. The position of the minority shareholding was so precarious that even if some of the Minority Shareholders were to part with their shares, minority shareholders together would cease to be a significant minority. It was, thus, absolutely essential that the minority shareholders stayed together and acted in one unit. Thus, the parties at the time of executing the MoU were aware that if any dispute arises, even between the Minority Shareholders, in respect of the shares, the object of all Minority Shareholders remaining together as the significant minority and getting the Company listed on a registered stock exchange would be lost. Thus, it cannot be said that dispute amongst the Minority Shareholders was not contemplated when the MoU was executed with Clause 28 herein. The interpretation of Clause 28 and circumstances in which it was executed do, therefore, indicate that it was intended to cover all the signatories to the MoU. We, therefore, do not agree with the submission made on behalf of Percy and Darius Kavasmaneck that there is no arbitration agreement between them and the other parties.Inspite of the detailed arguments made on behalf of the Godrej, no special reason why shares cannot remain in the same position till the arbitration proceedings is shown except the argument that Godrej cannot be stopped from perfecting their security. As noted above, the Godrej had in their letter dated 13 June 1992, immediately after execution of the MoU on 3 June 1992, had indicated that they will not enforce loans or claim interest notwithstanding the agreement. The tussle is not for the monetary value of the shares, but what the shares represent. The dispute is no longer for money but for the control of the Company. Once this fact is established before us, it will be tooto assume that Godrej is only looking at the shares as a monetary investment. This was evident during the course of the hearing when an offer was made on behalf of the petitioners to return the amount of loan in return of shares from Godrej, there was no response of that offer from Godrej. The petitioners while making the offer of payment of principal amount drew our attention to the letter of Mr Adi Godrej dated 13 June 1992, wherein it was stated that Godrej is not claiming any interest on the loan amount. Though on record Godrej keeps asserting that the shares are merely pledged, its actions, the surrounding circumstances and the arguments advanced show that Godrej is trying to deal with the shares, prima facie, in furtherance of its intention to side with Dr Gharda and to extinguish the opposition of Minority Shareholders. This being the position, the balance of convenience clearly lies in favour of the petitioners. The shares in question need to be kept as they are till the parties approach the Arbitrator. The true purport of the negative covenant can be decided by the Arbitrator.52. Therefore, we find that the petitioners have made out a strong prima facie case and balance of convenience is in their favour. The submissions of the appellants that the petitioners do not deserve any equitable relief and that there was no arbitration clause between the Minority Shareholders interse is without any substance. The learned single Judge has considered all the aspects of the case and has found that the Arbitration Petition requires to be made absolute. There is no reason to take a different view in the matter