Case: Manish Mohan Sharma  Vs. Ram Bahadur Thakur Ltd.

Ram Bahadur Thakur Ltd., the respondent No. 1 was founded by Chatur Bhuj Sharma and Madan Mohan Sharma. They were first cousins, their fathers being brothers. The shareholding of the two cousins in the respondent No. 1 was equal. Since 1992, disputes arose between the two groups, who are referred to respectively as the CBS Group and the MMS Group. The MMS Group is in appeal before us and the CBS Group is represented by the respondents No. 2 to 4. The disputes related primarily to the management of the various companies owned by the family including and in particular the Respondent No. 12. In 1996 the MMS Group filed a company petition (No. 56 of 1996) before the Company Law Board, New Delhi under the provisions of Sections 397 and 398 of the Companies Act, 1956, complaining inter alia of having been ousted from management of the companies and seeking a role in such management. Various interim orders were passed. On 9th January, 1997, the Company Law Board removed the respondent No. 2 as Chairman and Managing Director of the Company and appointed a retired Judge, Justice A.N. Varma as the Chairman of the Company. In 1998, pursuant to another interim order passed by the Company Law Board, the MMS Group was put in joint management of the Company3. The creditors of the Companies including the companys bankers, namely Syndicate Bank initiated proceedings against the company inter alia for recovery of outstanding dues. The matter was ultimately resolved between the parties with the persuasion of the Company Law Board and praiseworthy efforts of the Chairman, Justice A.N. Varma. The terms of the family settlement were set down in a Memorandum of Family Arrangement and Transfer Document4. By an order dated 19th August, 1999, the Company Law Board recorded the history of the disputes between the parties and the proceedings taken by each against the other and ultimately the resolution of the differences of the parties. The Company Law Board recorded that the Board had in the course of hearing suggested various terms of settlement to resolve the matters amicably between parties having regard to their close relationship. It had expressed its opinion that in order to achieve a fair and equitable settlement, out of the nine tea estates owned by respondent No. 1, five tea estates together with certain other assets should be vested in the MMS Group. The suggestion was accepted by the parties in the settlement arrived at between them. They identified the tea estates and other assets to be given to the MMS Group and also quantified the share of the liability of the respondent No. 1 which had to be paid by the MMS Group which came to Rs. 7,24,67,708.90 (Rupees seven crores twenty four lacs sixty seven thousand seven hundred and eight and paise ninety only). The order records that the Memorandum of Family Arrangement and Transfer Document executed between the parties would form an integral part of the order. As far as the figure of Rs. 7,24,67,708.90 was concerned, the Company Law Board stated that it would be subject to all deductions and adjustments as set out in the Transfer Document. One Mr. M.C. Joseph, Chartered Accountant was appointed as an independent auditor for the purpose of clause 4.1.1.12 of the Transfer Document, who would verify and certify the figures stated therein. It was also recorded that on completion of the settlement, the five estates and certain other assets would vest in the MMS Group. In order to perfect their title thereto, the Company Laws Board directed the parties to execute the transfer deeds to affect the transfer of the relevant assets. Accordingly, the Board pursuant to powers vested in it under Section 402 of the Companies Act 1956, directed that:-(a) both parties fill up and complete Schedules 1,4,7,8,11 and 12 in the Transfer Document relating to the Assets of Ram Bahadur Thakur Ltd. (which are currently blank/incomplete), the mutual agreement and following the completion of the said Schedules the parties shall forthwith execute the Transfer Documents Relating to the Assets of Ram Bahadur Thakur Ltd;(b) both parties fill up and complete Schedules 1 4 (Part B), 5,6,7,8 and 9 in Memorandum of family arrangement (which are currently blank/incomplete), by mutual agreement and following the completion of the said Schedules the parties shall forthwith execute the Memorandum of Family Arrangement. And both parties shall take all necessary steps to implement the settlement contemplated under the said documents which must be completed by 30th September, 1999. The Memorandum of Family Arrangement and the Transfer Document Relating to the Assets of Ram Bahadur Thakur Ltd. set out the entire agreement the parties and there are no understandings and/or arrangements other than expressly stated in these documents."5. Paragraph 8 of the Order is also of some consequence and is quoted verbatim:-"Time shall be of the essence in affecting the settlement. If either party fails to perform its obligation undertaken pursuant to the Memorandum of Family Arrangement or the Transfer Document relating to the Assets of Ram Bahadur Thakur Ltd., within the time specified therein, the aggrieved party shall be at liberty to approach us for appropriate orders/directions and for expediting the final disposal of the petition and the various interim Applications. After the completion of all the transactions both sides shall appear before us for the final disposal of the petition and the various Interim Applications. In the event of any further difficulties in the implementation of this order parties shall be at liberty to apply to us for implementation of this order"6. In paragraph 12 of the order of Company Law Board recorded that the order had been read out to the parties and the parties had confirmed their consent to the terms of the order7. In terms of the Memorandum of Family Arrangement (referred to hereafter as the MOFA), the CBS Group was required to give a completion notice to the MMS Group signifying that the five estates were free from all encumbrances and ready to be transferred by the Respondent No. 1 to the MMS group. According to the CBS Group, such notice was given on 17th January, 2000. The notice was objected to by the MMS Group by letters dated 18th January, 2000 and 20th January, 2000 on the ground that it was not in terms of Clauses 7.2 and 7.3 of the Transfer Document8. On 7th February, 2000 the MMS Group filed an application under Section 634A of the Companies Act 1956 praying for a decision as to whether the notice dated 17th January, 2000 was valid and if so, to direct the CBS Group to proceed with the completion as per the Transfer Document and the MOFA. Alternatively it was prayed that if the notice was held to be invalid the CBS Group should be directed to handover the entire Management of the Respondent No. 1 to the MMS Group and the MMS Group should complete the agreement. In the further alternative it was prayed that a Special Officer should be appointed to take over the responsibilities of the CBS Group in the Management of the Company and should be directed to complete the agreement between the parties9. While this application was being heard, the CBS Group filed an application on 5th July, 2000 seeking for recalling of the orders of the Company Law Board including the order dated 10th August, 1999 and to take up the matter for final hearing and to permit the respondent No. 1 to sell one or more of its assets to clear the outstandings of the Syndicate Bank or in the alternative appoint an administrator to sell the respondent No.1s assets and property to clear the dues of the Syndicate Bank and other statutory dues10. Apart from other contentions raised by the MMS Group, it was contended by them before the Company Law Board that they were not liable to pay the accrued gratuity liability amounting to Rs. 8.5 crores or the portion attributable to the 5 estates agreed to be sold to the MMS Group amounting to Rs. 4.74 crores. It was stated that they had already paid several amounts to the respondent No. 1 and were entitled to deductions in terms of the agreement. They sought for enforcement of the order of the Company Law Board dated 19th August, 1999 as a decree11. The CBS Group contested the submissions before the Company Law Board and stated that they were still interested in working out the settlement provided the MMS Group adhered to the terms of the agreement. According to the CBS Group if the MMS Group had paid their outstanding liability of Rs. 3.6 crores directly to the Syndicate Bank, the CBS Group could have paid the balance of 4 crores demanded by the Bank and the 5 sale estates could have been transferred free of all charges and the MMS Group would have become absolute owner of the estates. It was also stated that because of the failure of the MMS Group to clear their dues, the Bank had got a decree from the Debt Recovery Tribunal and the properties of the Company had been attached12. The Company Law Board by its order dated 18th August, 2000 noted that the MMS Group had submitted that they were not liable to make any payments towards the outstanding Bank dues, and that according to the MMS Group nothing would become payable by the MMS Group to the CBS Group in terms of the agreement after giving effect to all the clauses. In fact according to the MMS Group, the CBS Group had to pay an amount to the MMS Group after the adjustment of the account. The Board noted that the only question was whether the accrued gratuity liabilities in respect of the employees of the 5 estates had been taken into account by the parties when they entered into the agreements and what the parties had intended in including clauses 4.1.1.11 in the MOFA. The Board found that there was substance in the contention of the CBS Group that the liabilities on account of gratuity was never contemplated by the parties when they entered into agreement fixing the MMS Groups share of liabilities. Thus although they found that the MMS Group was "legally right in claiming the amount", the CBS Group was justified in its stand that this was not in contemplation of the parties. It was, therefore, found that there was no meeting of minds and there was bona fide dispute between the parties with regard to the interpretation of the clause relating to the accrued gratuity liability. In these circumstances, the Board found that it could not pass any order on the application under Section 634A filed by the MMS Group. As far as the CBS Groups application was concerned, their prayer for recalling the orders passed by the Board was rejected. Both the applications were accordingly dismissed but it was observed that:-"In case the parties still desire to have the disputes decided amicably, they are at liberty to do so failing which the petition will have to be heard or merits and till that time all the interim orders including the present arrangement in relation to the management of the affairs of the company will continue."13. The MMS Group carried the matter before the High Court of Patna by way of an appeal under Section 10F of the Companies Act, 1956. The appeal was dismissed by the learned Single Judge holding that the clause relating to gratuity namely clause 4.1.1.11 clearly showed that the liability to pay the gratuity was on the MMS Group. However, the High Court also found that the Company Law Board was correct that the same was not in contemplation of the parties and accordingly dismissed the appeal.

Reasoning: 34. 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 which they were vested. The failure is heightened given the nature of the order which they were bound to execute. They have erroneously proceeded upon principles applicable to contracts alone and have ignored the fact that the agreement between the parties had culminated in a consent order of the Company Law Board. The plea of the respondents that this Court should not interfere in the matter under Article 136 by reason of any alleged misconduct on the part of the appellants in managing the 5 estates is unacceptable. The appellants alleged lack of efficiency in running of the five tea estates is not a material consideration for deciding whether the order dated 19th August, 1999 should be enforced35. The respondents contention that the appellants were not themselves willing to abide by the terms of the consent order appears to us to be erroneous. The application under Section 634A was for implementation of the order dated 19th August, 1999 if necessary by appointing a Special Officer to carry it into completion. In fact even while the application under Section 634A was pending in the Company Law Board, the Vice Chairman had suggested to the appellants that they waive their claim in respect of the accrued gratuity under clause 4.1.1.11 of the Transfer Document and a certain portion of the interest claimed under the Transfer Document. The appellants confirmed that they would accept the Vice Chairmans suggestion but would do so on the basis that a consent order was passed in terms thereof on the same date. This was recorded by the appellants advocates in their letter dated 19th December, 2000 addressed to the Company Law Board and its Members and the Advocate for the respondents and has not been disputed before us as not reflecting the correct position. This is not the conduct of a party which is not willing to abide by the terms of the decree36. On the question whether the appellants had defaulted in payment of purchase price simultaneously with the completion in terms of Clause 4 of the Transfer Document, this again relates to an interpretation of the terms of the MOFA and the Transfer Document. According to the respondents, there was no default on their part as the respondents were required not only to settle all outstanding claims relating to the five estates prior to giving of the completion Notice but also to annex the necessary documents evidencing that the sale estates could be transferred free from all encumbrances to the MMS group by the respondent No. 1. The Company Law Board and the High Court have proceeded on the basis that the only dispute between the parties was as to the interpretation of Clause 4.1.1.11. Elaborate arguments have however been addressed to us on the merits of the four contentions noted by us earlier by both parties. We were initially of the view that the dispute should be resolved by us finally. However on a reconsideration, we deem it fit to remand this issues for determination by the Company Law Board if it is satisfied that the issues could be said to have been fairly raised by the parties before it. We make it clear that whatever interpretation may be put by the Company Law Board on the clauses of the MOFA and Transfer Document, the Board must implement the clauses as interpreted37. Moreover Clause 4 which relates to the payment of the purchase price by the MMS group specifically mentions the total amount payable by them to the respondent No. 1 namely Rs. 7,24,67,708.90 less certain deductions. As far as the deductions are concerned, some of the clauses have quantified the deductions, whereas others have left them undetermined in the sense that no quantum has been mentioned. In the first category are Clause 4.1.1.1 to Clause 4.1.1.5. Under Clauses 4.1.1.6 to 4.1.1.11 the amounts were required to be determined. This exercise will have to be carried out by the Board. The figures mentioned in Clauses 4.1.1.1 to 4.1.1.5 and 4.1.1.11 were also subject to verification under Clause 4.1.1.12 by the independent auditor appointed by the Company Law Board. The Company Law Board had by order dated 19th August, 1999 appointed Mr. M.C. Joseph, Chartered Accountant. We have not been told whether the independent auditor has carried out the verification38. We ourselves do not propose to go into the issues raised by the parties, namely whether the completion notice was valid nor the quantification of the deductions under Clause 4 of the Transfer Document. These are issues that must be worked out by the Company Law Board in executing the consent order in terms of the MOFA and Transfer Document. It is unnecessary for us to go into the powers of the parties to rescind the settlement (assuming that such rescission were at all possible at this stage) as neither of the groups have taken any steps to issue any notice of rescission till today39. We note that the MOFA and Transfer Document were the outcome of the commendable and determined efforts on the part of the Company Law Board to bring to an end disputes between the parties in a manner which would have been in the interest of the respondent No. 1 given the impasse between the two blocks of shareholders and saved the parties a lot of unnecessary harassment, expenditure and acrimony.