Manish Mohan Sharma & Ors vs Ram Bahadur Thakur Ltd. & Ors

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.1.

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 Company. The creditors of the Companies including the company's 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 Document.

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 Law 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:-

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 Document. 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 parties.

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.

Broadly speaking, the Memorandum of MOFA and Transfer Document provide for a Transfer of 5 tea estates by the respondent No.1 to the MMS Group subject to the MMS Group paying a certain amount towards its share of liabilities of the respondent No.1. The CBS Group would get to retain the respondent No.1 and all its other assets moveable and immoveable including four tea estates. The interpretation of the clauses which are called into question before us are those which dealt with;

Doubtless the Company Law Board speaks of 'final disposal of the petition and the various interim applications'. This was because in terms of the order itself (which included the MOFA and the Transfer Document), various steps had to be taken to complete the severance of the relationship finally between the MMS Groups and the respondents. This did not make the affirmation of the MOFA and the Transfer Document an interim arrangement. The operative portion of the order directed the execution of the MOFA and Transfer Document by the parties after completion of the schedules thereto. The entire order was passed by consent. Parties cannot resile therefrom. Therefore the order cannot be described as an interim order in the sense that the issues decided thereby could be reopened.

All decrees whether preliminary or final are susceptible to execution. (vide Section 36 of the Code of Civil Procedure.) The order dated 19th August, 1999 was in fact a preliminary decree. Final disposal of the matter or the final decree would be after full implementation of the terms of the MOFA and Transfer Document. The interim orders passed relating to joint management were therefore directed to be continued until such time.