Bombay High Court
M/S.Sharp And Tannan, Chartered ... vs Saf Yeast Company Pvt.Ltd. And 6 ... on 29 October, 2015
Bench: N.M. Jamdar
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY APPEAL NO. 21 OF 2015
IN
CLB COMPANY PETITION NO. 62 OF 2009
Nafan B.V.,
Regd. Office at Locatellikade 1 -
Parnassustoren - 1076AZ Amsterdam,
Postal Address:
POSTBUS 75215 - 1070AE Amsterdam. ... Appellant
Vs.
1. SAF Yeast Company Pvt. Ltd.,
Regd. Office at: 419, Swastik Chambers,
Chembur, Mumbai.
2. Mr.Arunachalam Muthu, son of
Shri TNM Arunachalam,
1, Hermes House, 7/7B,
Worli Sea Face, Mumbai.
3. Mr.A.M.Arunachalam, son of
Mr.Aruanachalam Muthu,
1, Hermes House, 7/7B,
Worli Sea Face, Mumbai.
4. Mr.A.M. Muthiah, son of
Mr.Arunachalam Muthu,
1, Hermes House, 7/7B,
Worli Sea Face, Mumbai.
5. Mr.TNM Arunachalam, son of
Shri Muthiah Chettiar,
1, Hermes House, 7/7B,
Worli Sea Face, Mumbai.
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(Deceased).
6. Helios Food Additives Pvt. Ltd.,
Regd. Office at 421, Swastik Chambers,
Umarshibappa Chowk, Chembur,
Mumbai - 400 071.
7. Sharp & Tannan,
Chartered Accountants,
Office at - Ravindra Annexe,
194, Churchgate Reclamation,
Dinshaw Vachha Road, Mumbai - 400 020.
8. Lesaffre Et Cie,
Principal Office at 137,
Rue Gabriel, Peri, 59 700
Marcq-En-Baroeul, France. ... Respondents
WITH
COMPANY APPLICATION NO. 11 OF 2015
IN
COMPANY APPEAL NO. 21 OF 2015
IN
CLB COMPANY PETITION NO. 62 OF 2009
Nafan B.V.
Regd. Office at Locatellikade 1 -
Parnassustoren - 1076AZ Amsterdam,
Postal Address:
POSTBUS 75215 - 1070AE
Amsterdam & ors. ... Applicant
V/s.
SAF Yeast Company Pvt. Ltd.,
Regd. Office at: 419, Swastik Chambers,
Chembur, Mumbai, & Ors. ... Respondents
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WITH
COMPANY APPEAL NO. 22 OF 2015
IN
CLB COMPANY PETITION NO. 62 OF 2009
M/s Sharp & Tannan,
Chartered Accountants
Office at - Ravindra Annexe,
194, Churchgate Reclamation,
Dinshaw Vachha Road, Mumbai - 400 020.... Appellant
V/s.
SAF Yeast Company Pvt. Ltd.
Regd. Office at: 419, Swastik Chambers,
Chembur, Mumbai. ... Respondents
WITH
COMPANY APPEAL NO. 23 OF 2015
IN
CLB COMPANY PETITION NO. 62 OF 2009
Arunachalam Muthu,
1, Hermes House, 7/7B,
Worli Sea Face, Mumbai & ors. ... Appellants
V/s.
Nafan B.V.
Regd. Office at Locatellikade 1 -
Parnassustoren - 1076AZ Amsterdam,
Postal Address:
POSTBUS 75215 - 1070AE
Amsterdam & ors. ... Respondents
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WITH
COMPANY APPLICATION NO. 12 OF 2015
IN
COMPANY APPEAL NO. 23 OF 2015
IN
CLB COMPANY PETITION NO. 62 OF 2009
Arunachalam Muthu
1, Hermes House, 7/7B,
Worli Sea Face, Mumbai & ors. ... Applicants
V/s
Nafan B.V.,
Regd. Office at Locatellikade 1 -
Parnassustoren - 1076AZ Amsterdam,
Postal Address:
POSTBUS 75215 - 1070AE
Amsterdam & ors. ... Respondents
WITH
COMPANY APPEAL NO. 24 OF 2015
IN
CLB COMPANY PETITION NO. 62 OF 2009
Lesaffre Et CIE
Principal Office at 137,
Rue Gabriel, Peri, 59 700
Marcq-En-Baroeul, France. ... Appellant
V/s.
SAF Yeast Company Pvt. Ltd.
Regd. Office at: 419, Swastik Chambers,
Chembur, Mumbai, & ors. ... Respondents
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Mr. F.E. De' Vitre, Senior Advocate, with Mr. Pravin Samdani, Senior
Advocate, Mr. Ciccu Mukhopadhaya, Mr. Vaibhav Mishra, Mr. Omar
Ahmed, Mr.Yashesh Pajwani and Mr. Arun Siwach i/by Amarchand
Mangaldas and Suresh A. Shroff & Co. for the Appellant in
Company Appeal No.21 of 2015; and for applicant in Company
Application No.11 of 2015 in Company Appeal No.21 of 2015; for
Resp. No.2 in Company Appeal No.22 of 2015 and for Resp. No.1 in
Company Appeal No.23 of 2015 and Company Application No.12 of
2015 and for Resp. No.8 in Company Appeal No.24 of 2015.
Mr. T.N.Subramanian, Sr. Advocate with Mr. Mayur Khandeparkar
i/by Kanga & Co. for the Appellants in Company Appeal No.22 of
2015; for Resp. No.7 in Company Appeal No.21 of 2015 and
Company Appeal No.24 of 2015 and for Resp. No.3 in Company
Appeal No.23 of 2015.
Mr. Janak Dwarkadas, Senior Advocate with Mr. N.H. Seervai,
Senior Advocate, Mr. Sharan Jagtiani, Mr. Chirag Kamdar, Mr.
Gerald Misquitta, Mr. Alok Patel i/by Mahendra Patel & Associates,
for Resp. Nos.2, 3, 4 and 6 in Company Appeal No.21 of 2015 and
for Company Application No.11 of 2015; for Resp. Nos.3, 4, 5 and
6 in Company Appeal No.22 of 2015 and for appellants in
Company Appeal No.23 of 2015 and for applicants in Company
Application No.12 of 2015 in Company Appeal No.23 of 2015 and
for respondent Nos.2, 3, 4 and 6 in Company Appeal No.24 of
2015.
Mr. Darius Khambata, Senior Advocate with Ms. Namrata M. Shah,
Mr. Prashant Bari i/by Beri & Co. for Respondent No.8 in Company
Appeal No.21 of 2015 and Company Application No.11 of 2015;
and for Respondent No.7 in Company Appeal No.22 of 2015 and
for Respondent No.2 in Company Appeal No.23 of 2015 and
Company Application No.12 of 2015; and for the appellant in
Company Appeal No.24 of 2015.
Mr. C.J. Joy with Mr. G.Hariharan i/by H.P. Chaturvedi for the
Union of India.
None present for Resp. No.1 (SAF Yeast) in Company Appeal No.21
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of 2015 and in Company Application No.11 of 2015 and Company
Appeal No.22 of 2015 and Company Appeal No.24 of 2015 and
Respondent No.5 in Company Appeal No.23 of 2015 and Company
Application No.12 of 2015.
CORAM: N.M. JAMDAR, J.
JUDGMENT RESERVED ON : 22 APRIL 2015
JUDGMENT PRONOUNCED ON: 29 OCTOBER 2015
JUDGMENT:
This group of Company Appeals arises from the order passed
by the Company Law Board, Mumbai Bench, Mumbai, on 28 March
2013, in Company Petition No.62 of 2009 filed by M/s. Nafan B.V.
The Company Law Board, by the impugned order, has directed
Nafan B.V. and Lasaffre Et Cie, to transfer 80722 shares i.e. 51% of
shareholding to the respondents in that petition, referred to as
Muthu Group.
2. Company Appeal No.21 of 2015 (Company Appeal (L) No. 30
of 2013) is filed by M/s.Nafan B.V.; Company Appeal No.22 of 2015
(Company Appeal (L) No. 33 of 2013) is filed by M/s. Sharp and
Tannan, Chartered Accountants; Company Appeal No.23 of 2015
(Company Appeal (L) No. 34 of 2013) is filed by Mr.Arunachalam
Muthu & Ors.; Company Appeal No.24 of 2015 (Company Appeal
(L) No. 35 of 2013) is filed by M/s. Lesaffre Et CIE. Company
Application No.11 of 2015 (Company Application (L) No. 37 of
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2013) is taken out in Company Appeal No.21 of 2015 and
Company Application No.12 of 2015 (Company Application (L) No.
43 of 2013) is taken out in Company Appeal No.23 of 2015. All
these appeals and applications were filed in the year 2013;
however, regular numbers were given in the year 2015.
INTRODUCTION
3. The dispute pertains to the control and management of M/s.
SAF Yeast Company Pvt. Ltd. (hereinafter referred to as SAF Yeast),
a Private Limited Company, having registered office at 419, Swastik
Chambers, Chembur, Mumbai. SAF Yeast has one plant in Chiplun,
Maharashtra and another at Sandhila, Uttar Pradesh. SAF Yeast is a
joint venture company. The joint venture is between Nafan B.V. and
Mr.Arunachalam Muthu and M/s.Helios Food Additives Pvt. Ltd.
SAF Yeast carries on business of manufacture of yeast and is a
dealer and exporter in the yeast products, bread, bread-improvers,
their derivatives, and allied products. The authorized share capital
of SAF Yeast originally was `25,00,000/- divided by 25000 equity
shares of `100/- (each). The authorized share capital was
increased from time to time and at the time of filing of the
Company Petition, the authorized share capital of SAF Yeast was `3
crores (Rupees three crores only) divided by 300000 equity shares
of `100/- (each). The approximate value and paid up capital of
SAF Yeast at the relevant time was `1,58,37,500/- comprising of
equity shares of `100/- each.
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4. The shareholding of SAF Yeast is as follows: Nafan B.V. owns
80,772 equity shares, approximately constituting 51% of the total
shareholding. Mr.Arunachalam Muthu holds 16,800 equity shares
constituting approximately 10.607% of the total shareholding.
Mr.A.M. Arunachalam holds 10396 equity shares constituting
approximately 6.56% of the total shareholding. Mr.A.M. Muthiah
holds 10397 equity shares, constituting approximately 6.57% of
total shareholding. Mr.TNM Arunachalam, who passed away
during the proceedings, held 1,800 equity shares constituting
1.13% of total shareholding. Helios Food Additives Pvt. Ltd. holds
38010 equity shares constituting approximately 24% of total equity
share capital. Mr.B.B. Pay Master, who is no more, held nominal
200 equity shares of SAF Yeast.
5. Nafan B.V. (referred to as Nafan) is a Company incorporated
under the laws of Netherlands, having its registered office at
Loatellikade I-Parnassustoren - 1076 AZ Amsterdem. Nafan is
subsidiary of Lesaffre Et Cie (referred to as Lesaffre); a Company
incorporated in France having its Principal Office at 137 Rue
Gabriel, Peri, 59700 NACQ-EN-BAROEUL, France. Nafan, at the
relevant time, had four nominee directors on the Board of Directors
of SAF Yeast. They were Mr.Denis Lesaffre, Mr.Moris Lesaffre,
Mr.Alain Laloum, and Ms. Corinne Wisniewski. Mr.Arunachalam
Muthu (referred to as Muthu) worked for Shaw Wallace & Co. from
1965 to 1980. He was working as a Senior Manager in yeast and
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brewery division in Shaw Wallace & Co. He was involved in setting
up a yeast factory and a plant at Uran, Maharashtra. A.M.
Arunachalam is the son of Muthu. A.M. Muthiah is the second son
of Muthu. M/s. Helios Food Additives Pvt. Ltd. is owned and
controlled by Muthu and his family members. Arunachalam
Muthu, when referred to individually, is referred as Muthu. When
Arunachalam Muthu, his two sons and Helios Food Additives Pvt.
Ltd. are referred together, they are referred as the Muthu Group.
M/s. Sharp & Tannan are Chartered Accountants, having its office
at Ravindra Annexe, 194, Churchgate Reclamation, Dinshaw
Vaccha Road, Mumbai - 400 020. M/s. Sharp & Tannan are the
statutory auditors of SAF Yeast.
FACTS
Pleadings
6. Muthu group has made a grievance that Nafan did not
disclose various facts and they were brought on record by
subsequent affidavits and rejoinder. Hence, the facts are narrated
as per the pleadings placed on record by way of petitions, reply,
rejoinder, additional affidavits, in that order.
Petition by Nafan
7. Company Petition No.62 of 2009 was filed by Nafan under
Sections 111, 235, 237, 397, 398, 402 and 403 of Companies Act,
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1956 (the Act), briefly on the following averments:
(i) Lesaffre is one of the leading company in the world in
the manufacture of yeast. Lesaffre family set up the manufacture
of yeast in France around the year 1873. Muthu met Alain Laloum
in an international fair in Germany, sometime in May 1980.
Muthu was keen to have a joint venture with Lesaffre. SAF Yeast
was incorporated on 3 August 1981, pursuant to an agreement
dated 6 June 1981, between Lesaffre and Muthu. At the relevant
time, due to restrictions in India regarding foreign investment,
Lesaffre was not in a position to set up a 100% subsidiary or to
hold majority shares. It was therefore provided in the agreement
dated 6 June 1981 that in the event the laws of India are amended
and it is made legally permissible to hold the majority interest,
Muthu would transfer the necessary shares to Lesaffre or its
subsidiary, and that they would then hold majority of equity capital.
When SAF Yeast was incorporated, the word 'SAF' was derived from
the name Lesaffre and the interim license agreement was entered
into between Lesaffre and SAF Yeast on 11 December 1982, after
obtaining requisite approvals. Lesaffre was issued 6000 equity
shares comprising of 40% of equity capital. On 22 March 1991,
Lesaffre and Muthu entered into a participation agreement to up-
date the agreement of 6 June 1981. Article 6 of participation
agreement required that Memorandum of Articles of Association of
SAF Yeast would reflect the terms of participation agreement. In
accordance with Article 7 of the Participation Agreement, Lesaffre
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was entitled to have majority in the Board of Directors of SAF Yeast.
Article 7.4 provided for scheme of appointing an alternate Director.
Article 7.6 lay down the day-to-day management of SAF Yeast to
be in the Board of Directors, except as delegated to the Managing
Director by the Board. Lesaffre was entitled to nominate the
Chairman. The appointment, re-appointment, or removal of the
Managing Director was subject to approval of majority of Directors,
which majority was to include at least one Director nominated by
Lesaffre. It was provided that, meetings of the Board could be held
in or outside India. Fourteen days' notice was required under
Article 7.10(b) for every meeting of Board of Directors to be given
in writing to every Director in India or outside India. Under Article
13, it was a duty of Muthu to ensure that all relevant documents
were open to inspection for Lesaffre.
(ii) The Government of India in an around
January/February 1992 brought a change in policy. With the
approval of Government of India, on 17 January 1992, the
shareholding of Lesaffre was increased to 51% and subsequently
around the year 2000 Nafan B.V. became owner of 51% shares and
relevant entries were carried out in Members Register. Nafan was
the owner of the shares as an assignee of Lesaffre.
(iii) SAF Yeast was functioning smoothly, with substantial
technological and financial assistance from Lesaffre however,
Muthu Group started acting oppressively to take over the powers of
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the Board of Directors and fraudulently and illegally usurp Nafans
shareholding. Pursuant to a transaction, sometime in the year
1997, involving SAF Yeast and Credit Agricole Indosuez (Calyon
Bank) and another Company NCS Estate Pvt. Ltd., the Calyon Bank
filed cases against SAF Yeast and SAF Yeast also filed criminal case
No.238 of 2000 under Sections 408, 420, 477A, 467, 471 read with
Section 34 of Indian Penal Code against Calyon Bank. A First
Information Report was registered against Calyon Bank and
proceedings were filed in the Court of Chief Judicial Magistrate,
Hardoi, Uttar Pradesh. After considerable lapse of time after filing
the complaint, the nominee Directors of Nafan were informed
about the dispute with the Calyon Bank. All concerned including
Muthu felt that the issue with Calyon Bank needed to be amicably
resolved. Muthu proposed a settlement on certain conditions with
the Calyon Bank by letter dated 2 March 2001. It was suggested
that the offences were non-compoundable and Court at Hardoi had
taken cognizance against the Calyon Bank. Muthu sought
intervention through a Judge and after certain discussions,
proposed certain terms and settlement. The nominee Directors of
Nafan, bonafide believed that reasonable settlement with Calyon
Bank as the bankers would be in the interest of SAF Yeast; however,
the terms put-forth by Muthu were not reasonable.
(iv) Meeting of Board of Directors was held on 14 April
2005 in France. The pending cases with the Calyon Bank were
discussed. The meeting was attended by Muthu, Lucian Lesaffre,
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Alain Laloum, and Alain De Gouy. In the meeting, a resolution was
passed that it would be in the interest of SAF Yeast to settle the
dispute with the Calyon Bank against the payment of compensation
of Euros 5,00,000 and a draft of discussion was forwarded to
Calyon Bank and to Muthu.
(v) After the meeting, Muthu's attitude underwent a
change. Muthu group was under a belief that the dispute with the
Calyon Bank was something that could be used to their advantage
by placing Nafan in difficulties. Muthu started his attempts to force
Lesaffre to sell 51% shares held by Nafan so that he could control
SAF Yeast. The minutes of the meeting of 14 April 2005 were
incorrectly recorded and when it was pointed out, Muthu disputed
the position. Correspondence ensued between the parties. Alain De
Gouy informed Muthu that on Lesaffres intervention, the Calyon
Bank was agreeable to certain terms and conditions. Alain De Gouy
asserted that Lesaffre was not acting against the interest of SAF
Yeast and it was not a shareholders' dispute.
(vi) Muthu started addressing correspondence complaining
that he was being forced to take certain decisions in respect of
Calyon Bank, clearly trying to make out a case against Nafan.
Nafan never attempted to order Muthu in this regard and acted
only to ensure that the decisions were taken in the best interest of
SAF Yeast. Muthu purportedly held a Board meeting on 26 July
2005, without any notice to the nominee Directors of Nafan where
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he sought to approve his own version of minutes of meeting of 14
April 2005. When requests were made to make the copies of
minutes available, Muthu refused and did not provide the same. A
request made for holding an annual general meeting for the year
ending 31 March 2005, but was not heeded to, and when Nafan
carried out inspection of documents, it found that the meeting was
purportedly held on 23 November 2005. No notice was given to
Nafan.
(vii)
Nafan was instrumental in SAF Yeast's initial survival.
It became a success due to Nafan and Lesaffres financial and
technical contribution. In spite of benefiting from this substantial
financial and technological assistance, Muthu attempted to
discredit Nafan, as a part of a design to take control of SAF Yeast.
Muthu indulged in various acts of oppression and mismanagement
against Nafan in relation to SAF Yeast.
(viii) The Nominee Directors of Nafan made several requests
to provide copies of minutes of meeting of Board of Directors.
Letters were sent on 17 January 2006, 18 January 2006, and 5 May
2006, and in the year 2007 to 2009. Muthu failed to provide
copies of the minutes and sought to run SAF Yeast as his exclusive
domain. Muthu failed to provide statutory records, such as minutes
of shareholders' meetings etc.
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(ix) Muthu, as the Managing Director, earlier used to
provide finance statement and monthly information statements to
Nafan through Lesaffre. However, for the financial year 2005-06
Nafan did not receive any financial report. Muthu stopped sending
reports. Nafan sought for these reports and financial information
by letters dated 20 February 2006 and 18 March 2006. In spite of
this position, the information was not supplied.
(x) Muthu purportedly held a Board meeting on and
around 26 July 2005, without any notice to Nafan. Nominee
Directors of Nafan came to know of the meeting on 26 July 2005
for the first time when it was referred to in Muthu's letter on 2
March 2006 addressed to Alain Laloum. Muthu attempted to falsify
the record of SAF Yeast. Such meeting was invalid and illegal.
Nafans Nominee Directors also sought for convening of Annual
General Meeting and an explanation for not holding the same on
time. Letters were written on 21 February 2006, 5 May 2006.
These letters invoked no response and it is only when Nafan took
inspection that it found out that the meeting was held on 23
November 2005. Nafan was deliberately not given notices of
Annual General Meeting to avoid the majority shareholders from
raising their funds, to change the number of directors and for
declarations of dividend. Nafan requested Muthu to provide copies
of various litigations in respect of Calyon Bank, however, Muthu
failed to give these documents. Instead, Muthu persisted in his
baseless allegations that Nafan was forcing him to settle with
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Calyon Bank. When Nafans nominee directors came to know that
Muthu had held a meeting without notice to them, they thought it
necessary to appoint alternate directors. It was felt that the
Company Secretary be appointed to maintain proper records and to
avoid holding any meeting without notice to the Directors outside
India.
(xi) A notice for Board meeting was issued on 4 May 2006 by
Chairman of SAF Yeast. It was to be held on 23 May 2006 at Paris,
as Lucian Lesaffre's health did not permit him to travel to India. It
was for appointment of alternate directors and company secretary.
On 10 May 2006, Muthu informed that he was unable to attend
due to his father's ill health and the atmosphere was not conducive
because of the disputes. On 11 May 2006, Alain Laloum informed
Muthu and other Directors to attend by telephonic conference. By
letter dated 17 May 2006, Muthu threatened that the action of
Nafan was a criminal contempt, as it was an interference with
judicial proceedings. By letter dated 22 May 2006, Alain Laloum
made it clear that the meeting was only for alternate Directors and
Company Secretary and it had nothing to do with the dispute with
Calyon Bank. In spite of the same, SAF Yeast, upon instructions of
Muthu, filed a criminal contempt petition against the nominee
Directors of Nafan. The petition was filed by one employee of SAF
Yeast and not by Muthu. There was no order of restraint by any
Court and the meeting of the Board of Directors was held as
scheduled on 23 May 2006 at Paris. Four nominee Directors of
Nafan attended the meeting and unanimous resolution was passed
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for alternate Directors for four nominee Directors of the Petitioner
pursuant to Article 43 of the Articles of Association and
Participation Agreement. The fact that Muthu did not attend the
meeting did not make any difference, as the resolution would have
in any way been passed by majority and in view of the casting vote.
On 28 May 2006, Muthu wrote a letter making incorrect and false
allegations against the nominee Directors of Nafan that was replied
to. Minutes of Board meeting were circulated on 19 June 2006.
Muthu wrote to alternate Director threatening him with criminal
contempt to dissuade him from acting as an alternate Director, who
later on succumbed to the pressure, and resigned. Muthu
continued to make baseless allegations and threatening the
alternate Directors.
(xii) On 14 July 2006, an application was made by Alain Laloum
and Lesaffre and others seeking exemption from personal
appearance which was rejected by the High Court of Allahabad
where the contempt proceedings were pending. A Special Leave
Petition was filed in the Apex Court and the Apex Court by order
dated 17 July 2006 directed dispensation of personal appearance.
A senior advocate on behalf of SAF Yeast opposed the Special Leave
Petition, and even requests for adjournments were opposed.
Meetings were held between the parties. Heads of Agreement were
entered into on 14 August 2007.
(xiii) On 17 April 2009, Nafan received a notice from Company
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Registrar, Pune as to why action should not be taken for non-filing
of annual returns and balance sheet for the year ending 31 March
2006 to 31 March 2008. A notice for calling a meeting at Brussels
or Geneva was sent to Muthu. In the meanwhile, Alain Laloum
informed that he had been induced to sign some papers by Muthu
for their Montreux (Switzerland) and pursuant to that; he has
received some valuation made by Sharp & Tannan. The valuation
had no sanctity and validity and it was just a scrap of paper. Nafan
had not called it and therefore it was to be ignored. On 3 May
2009, Muthu made the usual allegations and referred to a
Memorandum of Understanding (MOU) allegedly signed by
Lesaffre Group. On 28 May 2009, Muthu again sought to rely on
the alleged MOU, which was not signed by Nafan for sale of its
shares. If the MOU were to be produced, Nafan would raise and
plead its objections.
(xiv) It appears that, in the light of notice of meeting on 29 May
2009 at Paris, alleged meeting of Board of Directors was shown to
be held in Mumbai on 25 May 2009, without notice. It was alleged
that the deposit was made with SAF Yeast for alleged value of
shares in accordance with Article 18 of Articles of Association and
Nafans name was struck off from the Members Register and the
name of someone from Muthu Group was entered. Each share was
valued at `4315/-. Such valuation was fraudulent and ridiculously
low and the true and fair valuation would be at least 18 million to
20 million Euros. The valuation was clearly fraudulent and arrived
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at in collusion by Muthu with Sharp & Tannan. Nafan was willing
to straightway pay double of the alleged fair value of `4,315/-.
(xv) The deletion of Nafans name from members register was
fraudulent and void ab initio and the alleged M.O.U. had no
sanctity. Muthu Group could not unilaterally take law into its own
hands. Muthu Group committed fraud, mismanagement, and
oppression by deleting the name of Nafan from the statutory
records.
(xvi) The Board meeting dated 29 May 2009 as scheduled was held
at Paris. Denis Lesaffre and Ms. Corinne Wisniewski were
appointed as Additional Directors, along with some other Directors.
The issue holding of alleged Board meeting on 25 May 2009 as
communicated by Muthu and the deletion of name of Nafan were
taken up. It was resolved that since nominee Directors of Nafan
received no notice of alleged meeting of 29 May 2006, such
meeting, if held, was void. The deletion of Nafans name from
members register was non-est. The steps taken by the Muthu
Group, and Muthu in particular were oppressive, fraudulent,
unjust, and unfair. They had acted contrary and against the Articles
of Association and the Participation Agreement of SAF Yeast. They
acted in breach of fiduciary duty. Nafan had lost confidence in
Muthu Group and since SAF Yeast essentially have been a quasi-
partnership between two groups; Nafan was no longer in position
to carry on business with the Muthu Group as a business partner.
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8. Nafan prayed for following reliefs:-
(a) To pass an order thereby directing the Respondent Nos.1
to 6 to rectify the Register of Members (ROM) of the
Respondent No.1 Company by inserting name of the
Petitioner in relation to 80722 shares held by the Petitioner.
(b) To pass an order terminating the appointment of the
Respondent No.2 as Managing Director and the Respondent
No.3 as Joint Managing Director with immediate effect and
remove them from the Board without prejudice to the rights
of the Respondent No.1 Company to appoint any professional
Managing Director.
(c) To pass an order removing the Respondent No.2 to
Respondent No.4 as directors and/or any other nominee
directors of the Respondent No.2.
(d) To pass an order directing that the board of Respondent
No.1 Company be reconstituted at a suitable general meeting
of its shareholders.
(e) To pass an order declaring Articles 14 to 18 of the
Articles of Association of the Respondent No.1 Company as
null and void.
(f) To pass an order thereby directing the Respondent Nos.2
to Respondent No.6 to sell the shares held by them in
Respondent No.1 Company to the Petitioner and/or its
nominees at a value which is double the value relied on the
Respondent No.2 i.e. `8,630/- per share.
Reply by Sharp & Tannan
9. Sharp & Tannan as the Respondent No.7 in the petition, filed
its reply on 11 August 2009 contending briefly, as follows:
bsb 21 COAPPL21.15+5.doc
The allegations made against Sharp & Tannan, statutory auditors
are baseless and denied. The SAF Yeast furnished a copy of the
MOU dated 29 January 2009 to the statutory auditors. It was
recorded in the memorandum that Muthu Group would buy
shareholding in Nafan and SAF Yeast and fair valuation is to be
done by the auditors. Since Sharp & Tannan were the statutory
auditors, after request was made to carry out the valuation, Sharp
& Tannan issued certificate of valuation on 9 February 2009. Since
there was an urgency, the valuation report was prepared
expeditiously. It was forwarded to Laloum under cover of its letter
dated 10 February 2009.
10. In response to the query raised by Foreign Exchange
Department of Reserve Bank of India, Sharp & Tannan confirmed
that it had followed Controller of Capital Issues ( CCI) guidelines
for valuation of equity shares of the Company. It is incorrect to
state that the valuation is a scrap of paper, without sanctity and
validity. It is denied that the valuation is fraudulent or ridiculously
low or there has been any collusion. It is denied that the valuation
was carried out to cause wrongful loss to Nafan and give advantage
to the Muthu Group.
11. Sharp & Tannan has nothing to do with the dispute, as it was
never a party to any decision for deletion of the name of Nafan
from the members register.
bsb 22 COAPPL21.15+5.doc
Reply by Muthu Group
12. On 25 March 2010 Muthu on behalf of himself and
respondent Nos.3 and 4 filed a reply. They took a stand that the
correct facts were suppressed from the Board and sought to place
their version of the dispute. Allegations were denied and following
contentions, in short, were taken:
(i) Muthu is a Mechanical Engineer with 45 years'
experience in production, distribution, and use of yeast in baking
and production of alcohol. He was instrumental in setting up a
brewery and a yeast factory for his past employer - Shaw Wallace &
Co. He met Laloum in May 1980 at an exhibition and Laloum
showed interest in setting up a factory in India since he had
connections with India. He was impressed with Muthu's
knowledge. Lasaffre Group had no experience of manufacturing
yeast outside of Europe or any experience of using 100% yeast, and
of the Indian conditions. They, therefore, had no option but to tie
up with someone like Muthu. A joint venture was formed on 6
June 1981. SAF Yeast was incorporated on 12 August 1981. There
were three Directors, Muthu, B.B. Paymaster, and Lucian Lesaffre.
Muthu was the Managing Director right from the inception. It was
the obligation of the Lesaffre Group to provide technical assistance,
which they failed to do.
bsb 23 COAPPL21.15+5.doc
(ii) Muthu single handedly set up a factory at Chiplun,
without any assistance from Lesaffre. He raised loans from various
banks and gave personal guarantees. Lesaffre Group did not give
any such guarantee. When the factory became functional, it was
found that strength of yeast given by Lesaffre was unsuitable and
Lesaffre had rendered no technical assistance or advise. Muthu
made efforts to get the correct strength. As the factory at Chiplun
progressed, a second factory was set up at Sandhila through efforts
of Muthu. The assertion of Nafan that the name SAF comes from
Lesaffre is not correct. The participation agreement dated 22
March 1991 was not to be acted unless the clauses were
consequential to the Articles of Association. The participation
agreement was never in accordance with the Articles of Association.
(iii) The participation agreement was never acted upon and
the parties always acted in accordance with the Articles of
Association. Several Board meetings were held in India when
none of the Lesaffre nominees attended and in spite of this
position, the decisions were accepted. This was because Articles of
Association clearly stipulated that for Board meeting held in India,
there is no requirement to give notice to the Directors based
outside India.
(iv) The valuation of equity shares of SAF Yeast was carried
out by M/s. Sharp & Tannan in January 1992 and fair valuation as
on 31 March 1991 was `237 per share. The shareholding of
bsb 24 COAPPL21.15+5.doc
Lesaffre was increased to 51% around 1992-93 pursuant to further
issue of the capital by SAF Yeast. Consequently, shareholding in
SAF Yeast underwent a change and share of Muthu Group was
reduced to 49%. A financial and technical collaboration agreement
was executed on 19 March 1993 in furtherance of the agreement
dated 19 October 1981. This agreement dealt with dividend by
SAF Yeast to Lesaffre Group. The Government of India through
Ministry of Industries approved increase of the shareholding of
Lesaffre in SAF Yeast from 40% to 50% and certain conditions
regarding foreign exchange dividend payment were laid down.
Sometime in the year 1996, Lesaffre requested SAF Yeast to obtain
molasses from one Ganesh Benzoplast for exporting it to Lesaffre
Group. Certain dispute arose between SAF Yeast and Ganesh
Banzoplast. Arbitration proceedings were filed. Initially, the
Arbitrator gave an award in favour of SAF Yeast, directing Ganesh
Benzoplast to release molasses to one M/s. NSC Estates Pvt. Ltd.
M/s. NSC Estates Pvt. Ltd., on 31 January 1997 assigned molasses
in favour of SAF Yeast pursuant to an export contract. It was on the
condition that NSC Estates Pvt. Ltd. would be liable to make good
the loss. SVG Amsterdam, a Dutch company was to make payment
for the export contract under a letter of credit by Meespierson NV
Bank. Calyon Bank, which was completely aware of the terms of
the contract, agreed to act as an Advisor and Negotiator for the
export transactions.
(v) SAF Yeast supplied molasses as per the purchase order
bsb 25 COAPPL21.15+5.doc
and letter of credit dated 4 February 1997. SAF Yeast raised an
invoice of US $ 5,59,621.92. Calyon Bank on 24 February 1997,
after satisfying itself with the documents, issued a credit advice in
the account and credited US $ 5,54,638.99, minus the commission
in the account of SAF Yeast. Calyon Bank wrote to SAF Yeast on 4
March 1997, enclosing a telex message of Meespierson NV, stating
that an amount of US $ 1,01,531.25 was being deducted as
demurrage charges and an amount of US $ 4,58,040.67 was being
paid under letter of credit.
(vi)
Lesaffre transferred its entire shareholding in SAF Yeast
through Nafan. J.L. Meurant on behalf of Lesaffre informed SAF
Yeast and Muthu of the transfer and request was made to SAF Yeast
to take all necessary legal steps to register the transferred shares.
(vii) Calyon Bank filed a civil suit, which was, transferred to
Debt Recovery Tribunal, against SAF Yeast for recovery of an
amount approximately, `45.76 lacs including interest. Prior to
filing a suit, the Calyon Bank issued the caution notice against SAF
Yeast, Muthu, and Pay Master to the State Bank of India and Indian
Bank Association. The State Bank of India circulated the caution
notice widely to all their branches across the country. This caused
serious damage to the reputation of SAF Yeast. The Calyon Bank
thereafter proceeded to misappropriate about Rs.13.79 lacs and did
not permit SAF Yeast to withdraw its funds even though it filed a
suit for Rs.45.76 lacs, falsely claiming it to be adjusted against
bsb 26 COAPPL21.15+5.doc
interest.
(viii) A criminal complaint was filed by SAF Yeast against
Calyon Bank for the misappropriation. Chief Judicial Magistrate,
Hardoi (UP) issued process and F.I.R. was also registered pursuant
to orders of the Magistrate and after investigation, the police filed a
charge sheet against the officials of Calyon Bank and the Chief
Judicial magistrate took cognizance thereof.
(ix)
The appeal came up for hearing before the Debt
Recovery Appellate Tribunal on 14 July 2003. The appeal was filed
against the interim order passed by the D.R.T. in the application
filed by the Calyon Bank against SAF Yeast. The Debt Recovery
Appellate Tribunal passed strictures regarding the conduct of
Calyon Bank, terming it as blameworthy. Thereafter the Debt
Recovery Tribunal, on 1 April 2004 decided the proceeding against
the Calyon Bank.
(x) On 14 April 2005, a meeting of the nominee Directors
of Nafan and Muthu was held to discuss the dispute between
Calyon Bank and SAF Yeast. Thereafter, in the Board meeting held
on 26 July 2005, the minutes of the meeting dated 14 April 2005
were confirmed. In the meeting of 20 September 2005, the
minutes of the meeting dated 26 July 2005 were confirmed. Again,
a meeting was held on 30 October 2005, Alain Laloum attended it.
Even in this meeting also, the minutes of 26 July 2005 along with
bsb 27 COAPPL21.15+5.doc
20 September 2005 were confirmed. In this meeting, the Annual
Accounts and Directors reports were adopted, also holding of the
Annual General Meeting for the year ending 31 March 2005 was
approved, and Alain Laloum signed it.
(xi) Laloum, sometime at the end of the year 2005 when he
visited India, carried with him a Deed of Settlement, which Nafan
and Lesaffre wanted to SAF Yeast to sign with Calyon Bank.
Lesaffre and Nafan, by virtue of their shareholding were forcing
SAF Yeast to settle this dispute in a particular manner. Lucien
Lesaffre on behalf of Nafan objected to the minutes of the meeting
dated 14 April 2005 and 4 November 2005 prepared by Muthu.
Lucien Lesaffre stated that the representative of the majority
shareholder did not approve the manner in which the minutes were
drafted. Muthu sent an e-mail on 13 November 2005 denying the
contentions. He pointed out that it was unfortunate that in spite of
the fact that SAF Yeast was struggling against Calyon Bank, Nafan
and Lesaffre were not giving any support, on the contrary, they
were forcing SAF Yeast to settle with Calyon Bank on unreasonable
terms.
(xii) Muthu wrote to Alain De Gouy on 21 November 2005
complaining about the attempts of Lesaffre to force SAF Yeast in
settling with Calyon Bank, in terms proposed by it. Muthu asserted
that, in the meeting of 14 April 2005, Lucien Lesaffre had stated
that SAF Yeast would have to accept the proposal for settlement. It
bsb 28 COAPPL21.15+5.doc
was further stated that Lesaffre and Calyon Bank were proposing to
settle the terms without consulting SAF Yeast or its Directors.
Muthu made the grievance that, throughout the dispute with
Calyon Bank, Nafan and Lesaffre were supporting Calyon Bank and
not SAF Yeast. Muthu also pointed out that Nafan and Lesaffre
were threatening to use their majority shareholding to achieve its
objects of forcing SAF Yeast to settle with Calyon Bank. Muthu also
wrote to Denis Lesaffre reminding him that the Directors of SAF
Yeast owed fiduciary duty to SAF Yeast and not to Calyon Bank. He
asserted that it is not correct that Lesaffre sought to benefit from its
relationship with Calyon Bank at the cost of SAF Yeast. He also
stated that the Muthu Group was open for fair settlement with the
Calyon Bank.
(xiii) On 8 December 2005, Lucien Lesaffre wrote to Muthu
that he being Managing Director should not mix shareholders
issues and should separately address them to Nafan. Lucien
Lesaffre differed from Muthu regarding the minutes and sought to
prepare a new draft reflecting the correct proceedings and the
decision taken. Alain De Gouy also wrote to Muthu that
shareholders of SAF Yeast must take up the issues independently.
He mentioned that Calyon Bank was also willing to increase the
amount of compensation. Alain De Gouy stated that they would
wait for Muthu's response as regard the deed of settlement. Muthu
again wrote on 3 January 2006 to Alain De Gouy stating that in the
dispute of SAF Yeast with Calyon Bank, Lesaffre was taking the side
bsb 29 COAPPL21.15+5.doc
of Calyon Bank.
(xiv) On 2 March 2006, Muthu set out his grievance in a
letter. He stated that Nafan was trying to force SAF Yeast in
accepting the Calyon Bank's settlement proposal. Muthu reiterated
that the minutes of the meeting dated 14 April 2005 were correct
and they were confirmed in the subsequent meeting. Muthu placed
on record the intimidation on the part of Nafan's Nominee Director
to force Muthu for signing the deed of settlement with Calyon
Bank. It was pointed out that though the Calyon Bank may address
a letter to the State Bank of India, it was still up to the State Bank
of India to delete the blacklisting of SAF Yeast. Muthu stated that
there was a loss of confidence between Nafan and Lesaffre on one
hand and Muthu Group on the other. He suggested that Muthu
Group was willing to buy Nafan's shareholding in SAF Yeast. He
also addressed an e-mail to Alain De Gouy and Lucien Lesaffre
complaining of illegal and unethical conduct of the Calyon Bank
and the incalculable hardship caused by it to SAF Yeast. He again
reiterated that Nafan and Lesaffre were consistently siding with
Calyon Bank. On 12 April 2006, Nafan and SAF Yeast asked Muthu
for minutes of general meeting since 2003, details of transfer of
shares and present list of shareholders. Muthu, by reply dated 19
April 2006 stated that, in view of the situation that developed and
the correspondence, he was not responding to the said request.
(xv) On 5 May 2006, Alain Lesaffre replied to Muthu
bsb 30 COAPPL21.15+5.doc
denying that there were any pressurizing or forcible views of
majority shareholders and reiterated stand of Nafan in settling the
dispute with Calyon Bank in such a manner that would benefit SAF
Yeast. Laloum also stated that there was no evidence that SAF
Yeast was finding it difficult to raise finance through banks and in
fact, it appeared that SAF Yeast was doing well. Laloum also
asserted that offer of USD one million made by Calyon Bank, as a
compensation was a fair offer. Laloum objected to the meeting of
26 July 2005 without notice to nominee Directors of SAF Yeast and
approval of the minutes of the meeting dated 14 April 2005.
Laloum sought appointment of alternate Directors in India and to
convene a Board meeting in Paris. Laloum also stated that is is
more than 15 months since a general meeting was held which was
contrary to Articles of Association. Muthu wrote back on 10 May
2006 stating that it will not be possible for him to attend the
meeting at Paris due to personal difficulty. He also pointed out that
the atmosphere resulting due to the exchange of correspondence
was not conducive for meaningful Board meeting to be held.
Around this time, Muthu Group had received various caveats filed
by Nafan and Lesaffre Group. Laloum asked for a dial-in-
conference with Muthu and other directors. In spite of the e-mail
written by Muthu to Laloum, Alain De Gouy, and Lucien Lesaffre
stating that there were genuine difficulties to attend the Board
meeting at Paris, the Directors of SAF Yeast in France decided to go
ahead with the meeting. It was pointed out that meeting by
teleconferencing is not permitted in Indian law. He also pointed
bsb 31 COAPPL21.15+5.doc
out that, such meeting would be illegal and it would be nothing but
an attempt to force a settlement with Calyon Bank.
(xvi) SAF Yeast, on 29 May 2006 filed a contempt petition in
Allahabad High Court, Lucknow Bench, against Calyon Bank and
the nominee directors of SAF Yeast from France. Alain Laloum on
22 May 2006 informed Muthu that the Board meeting to be held on
23 May 2006 would not be illegal. Muthu Group replied to Alain
Laloum placing on record their disapproval in respect of
appointment of Company Secretary and an appointment of
alternate directors. The vote of disapproval was communicated
without prejudice to their stand that the meeting itself would be
illegal. On 19 June 2006, Muthu Group received the copies of
minutes of meeting dated 23 May 2006. In the minutes, the Indian
directors were shown as absent and it was stated that even if the
votes in respect of the resolution were four in favour and four
against that the resolution, Laloum who occupied the Chair voted
exercising his casting vote in favour of the resolution. On 23 June
2006, Muthu informed the alternate directors about pending
criminal proceedings and the attempt of Lesaffre and French
directors of SAF Yeast to force SAF Yeast into accepting the
settlement with Calyon Bank. Muthu also addressed an e-mail with
a copy to Alain Laloum, copy to Lucien Lesaffre, Alain de Gouy, and
Maurice Lesaffre. In spite of receiving the minutes of 23 May 2005,
a month late, he reiterated his objection to the meeting and pointed
out that it is illegal. He also pointed out that the alternate directors
bsb 32 COAPPL21.15+5.doc
were appointed, without circulating their qualifications and
credentials to occupy the position. On 7 May 2006, a meeting took
place between Muthu and Lucien Lesaffre, wherein it was agreed to
work together on 50:50percentage basis and signing a Heads of
Agreement, which could culminate into a shareholders agreement.
Again, a meeting was held in December 2006 between Lucien
Lesaffre and Muthu in London. On 24 September 2007, the
Lesaffre Group and Muthu Group finalized the Heads of Agreement
setting out certain broad terms and as to how their relationship in
SAF Yeast would continue. It was agreed that the shareholding of
both the groups be 50:50percentage. The agreement, however, did
not fructify into final agreement. Thereafter correspondence
ensued between Alain Laloum, Lucien Lesaffre with Muthu between
October 2007 to November 2008, in which it appeared that the
relation between the parties had not deteriorated further.
(xvii) On 29 April 2008 Alain de Gouy resigned from the
Board of Directors and Lucien Lesaffre resigned on 6 June 2008.
Lesaffre appointed a new group Managing Director Jean Louis
Meurant. Meetings were held between Muthu and Alain Laloum
between February 2008 to August 2008 to resolve the differences,
at Montreux, Geneva, and London. A meeting was held in
Montreux in February 2008 on invitation of Alain Laloum where
several modes of resolution were discussed. Muthu made it clear
that his shareholding was not for sale.
bsb 33 COAPPL21.15+5.doc
(xviii) Laloum had been to Algeria for resolution of some
issues on behalf of Lesaffre. On 10 January 2009, Laloum
telephoned Muthu to come to Montreux to resolve the dispute.
Laloum made travel arrangement and sent text messages to Muthu.
A meeting was fixed on 23 January 2009 and text messages were
exchanged. Muthu was received at Geneva Airport and was taken
to Montreux Palace Hotel. At around 7.30 p.m. Laloum telephoned
Muthu, and came to Muthu's room for dinner and agreed to meet
next morning. On 23 January 2009 Laloum and Muthu had a
meeting in the hotel. Before the meeting, Muthu spoke to J.L.
Meurant on Laloum's phone. Muthu reiterated that Muthu Group is
not interested in selling its shareholding. Laloum stated that
Lesaffre Group should make an offer of sale of their shares in SAF
Yeast. It was agreed that, to arrive at a fair value of shares, Articles
of Association would be considered. Articles were faxed from the
head office of SAF Yeast to the Conference Department of the hotel.
After the Articles were read, Muthu agreed to suggestion made by
Laloum that Muthu Group would pay Lesaffre Group a price of
shares as determined by the Auditors in accordance with Article 17.
At the instructions of Laloum, Muthu wrote the MOU. Laloum
carried out corrections to the document in his own handwriting and
initialed them. Immediately on signing the MOU, Laloum informed
Meurant who also spoke to Muthu and thanked him for long
association with the Lesaffre Group. Alain Laloum also forwarded a
copy of the MOU on 24 January 2009 to Meurant, which Nafan had
suppressed.
bsb 34 COAPPL21.15+5.doc
(xix) A meeting of SAF Yeast was held on 29 January 2009 in
Mumbai where Muthu tabled the MOU before the Board. The MOU
was taken on record as a notice in writing under Article 15 and it
was resolved to refer the issue of fair value to Sharp & Tannan as
per Article 17 of the Articles of Association. Laloum, on 7 February
2009, sent a telex message to Muthu stating that he had returned
home and was awaiting copy of the valuation report.
(xx)
SAF Yeast requested Sharp & Tannan on 9 February
2009 to work out the fair value of equity shares of SAF Yeast as on
31 March 2008. Sharp & Tannan carried out valuation exercise and
valued the equity shares of SAF Yeast at `4315/- per share. Laloum
telephoned Muthu on 10 February 2009 about the valuation report
and Muthu informed him that Sharp & Tannan would send it
shortly. Thereafter Sharp & Tannan sent their certificate of
valuation on 11 February 2009 to Laloum with a copy to Meurant.
Muthu sent an e-mail to Meurant with a copy to Laloum about the
further steps taken pursuant to the MOU. Muthu tried to call
Meurant on several occasions from 11 February 2009 to 18
February 2009 but Meurant was not available in the office. Laloum
informed Muthu that Nafan could not locate the original share
certificate. Between March and April 2009, Muthu took the matter
of transfer of shares pursuant to the MOU and copy to Laloum and
Corinne Wisniewski regarding the steps of process for completing
the transaction.
bsb 35 COAPPL21.15+5.doc
(xxi) On 3 May 2009, Muthu sent an e-mail to Denis Lesaffre
replying to the e-mail sent by Corinne Wisniewski dated 30 April
2009 and mentioned regarding several meetings and telephonic
calls. Corinne Wisniewski replied and demanded meeting of Board
of Directors of SAF Yeast. An issue was raised by Corinne
Wisnieswski regarding letter from ROC, Pune. Muthu clarified that
it was a non-issue at the registered office of SAF Yeast was at
Mumbai and not within the jurisdiction of ROC, Pune, and the steps
have been taken to close the file. Muthu also stated that the
permission of the Reserve Bank of India was obtained in reference
to the MOU and called upon Nafan to honour and abide by the
MOU.
(xxii) In the meanwhile, the Apex Court disposed of the
Special Leave Petition filed by the French Directors of SAF Yeast
and official of Calyon Bank on 14 May 2009 and the matter was
remanded to the Lucknow Bench, High Court of Allahabad. On 14
May 2009, Corrine Wisniewski wrote to the Directors of Muthu
Group forwarding a notice dated 30 April 2009 calling for a
meeting of Board of Directors at Paris on 29 May 2009. On 16 May
2009, Muthu wrote to SAF Yeast informed about the default of
Nafan in respect of transfer of the shares pursuant to the MOU.
Muthu called upon SAF Yeast to act according to the relevant
provisions of the Articles of Association of SAF Yeast, particularly,
Article 18 of the Articles of Association. He also called upon SAF
bsb 36 COAPPL21.15+5.doc
Yeast to proceed to accept the consideration based on the certificate
of valuation issued by Sharp & Tannan and complete the transfer.
A legal opinion was obtained and the meeting of Board of Directors
of SAF Yeast was held on 23 May 2009. It was resolved that SAF
Yeast would create a separate bank account title "M/s. SAF Yeast
Co. Pvt. Ltd. Shares Account" and the consideration in respect of
transfer of shares would be deposited. K. Narsimhan, Vice
President Finance of SAF Yeast was authorized to execute share
transfer forms in terms of Article 18 upon receipt of consideration
of `27,48,38,822/- for 80,772 shares held by Nafan. Muthu
informed SAF Yeast that Laloum had informed him that original
share certificates of Nafan were lost and called upon SAF Yeast to
issue duplicate share certificate. SAF Yeast informed Narsimhan on
21 May 2009 of the decision taken in the meeting held on 23 May
2009 authorizing him to transfer the documents in the name of
Nafan and in favour of A.M.Muthiah, Director. On 25 May 2009,
Bank of India Shareholding Ltd. stamped nine unsigned share
transfer forms. A letter of the same date of A.M. Muthiah to SAF
Yeast was taken on record stating that he had paid the amount of
`27,49,38,822/- as the purchase money for 80,772 shares. A letter
from the Axis Bank of the same date confirmed that the amount
was transferred from A.M.Muthiah's saving account to current
account of SAF Yeast with Axis Bank. The four Indian directors of
SAF Yeast attended the Board meeting. At the relevant time the
record of share transfer were placed before it ascertaining that the
amount was transferred. The Board of Directors considered the
bsb 37 COAPPL21.15+5.doc
request of SAF Yeast as an agent of the Nafan for issuance of
duplicate share certificate for 80,772 shares. The issue was
discussed and not having found any adverse evidence, resolved to
cancel the lost original share certificates and issue duplicate share
certificates to enable issuance of duplicate share certificate to
enable issuance of duplicate share certificate. The meeting was
adjourned by 45 minutes.
(xxiii) After the duplicate share certificates were prepared,
the duly executed share transfer forms were taken on record along
with the duplicate share certificates. The share transfer forms were
accepted and resolution was passed to transfer the shares in the
name of A.M. Muthiah and accept him as a shareholder for the
80,772 shares. It was thus resolved to delete the name of Nafan as
a shareholder from SAF Yeast. SAF Yeast, through Muthu informed
Corinne on 28 May 2009 stating the steps taken pursuant to the
MOU referring to previous correspondence and that the MOU has
been implemented. Muthu informed of the Board resolution taken
in the meeting dated 25 May 2009 after receiving purchase
consideration for transfer of shares of Nafan. The letter also stated
that the entry of Nafan has been removed from the register and the
name of A.M. Muthiah has been entered. It was also stated that
permission of Reserve Bank of India has been obtained and called
upon Nafan to nominate a bank account for transfer of purchase
consideration.
bsb 38 COAPPL21.15+5.doc
(xxiv) The petition filed by Nafan suffers from suppression of
various materials and vital facts especially regarding execution of
MOU and on this ground alone the petition requires to be
dismissed. The petition is not maintainable, as the Nafan is not
qualified to file the petition in terms of provisions of Section 399 of
the Act. The petition is not filed bonafide. It lacks particulars of
so-called inducement, fraud, and fabrication. The suppression of
material facts in the petition cannot be covered in a rejoinder, the
MOU dated 23 January 2009 is valid and binding, and Muthu
Group pursuant to the MOU in accordance with the Articles of
Association takes steps. The Board meeting held on 29 January
2009, 23 May 2009 and 25 May 2009 are valid and the resolutions
passed are binding. No notice was required to be given to the
nominee directors.
Reply by SAF Yeast
13. On behalf of SAF Yeast, reply was filed by Muthu being
the Managing Director and authorized signatory, briefly as under:
(i) Petition ought to be dismissed, as Nafan is not a shareholder
or member of SAF Yeast. Nafan/Lesaffre entered into binding MOU
to transfer shares to Muthu Group on 23 January 2009, pursuant to
a meeting. This MOU was entered into to end all pending
litigations in the Apex Court and High Court of Allahabad,
Lucknow Bench. The signing of the MOU by Laloum itself was
bsb 39 COAPPL21.15+5.doc
notice to SAF Yeast of the same. After the execution of the MOU in
a meeting of Board of Directors, the MOU was tabled as notice in
writing under Article 15 of the Articles of Association. It was
referred for issuance of fair value to statutory auditor.
Nafan/Lesaffre did not take steps to execute the transfer of shares
to Muthu Group. This constituted a default on the part of
Nafan/Lesaffre and therefore SAF Yeast as a duly appointed agent
was empowered under Articles of Association to act on behalf of
Nafan/Lesaffre. After receiving the purchase money on/or on
behalf of the Nafan, the shares were transferred. The participation
agreement dated 22 March 1991 is not enforceable The issue
involving the litigation between the SAF Yeast and Calyon Bank has
been set out in the reply filed by Muthu, which is adopted.
Affidavit of Alain Laloum
14. On 10 June 2010, Alain Laloum filed his affidavit
taking briefly the following contentions:
(i) In 2006, Muthu initiated proceedings in Allahabad High
Court, Lucknow Bench, against Laloum and other nominee
directors. Several discussions took place between Muthu and
Lucian Lesaffre to resolve the dispute. Lucian Lesaffre and Muthu
signed Heads of Agreement at London. After the Heads of
Agreement were signed, they exchanged draft of redemption
bsb 40 COAPPL21.15+5.doc
shareholder agreement. Muthu and Lucian Lesaffre agreed that
their lawyers would discuss and finalize the agreement. Muthu
was aware that neither Lesaffre nor Nafan will execute any
agreement without first it drawn by their lawyers and placing it for
approval before the Board, having been finally executed by Lesaffre
family. Muthu was also aware that no policy decision, more
particularly, a decision to exit from India would ever be taken
without Lucian Lesaffre and Denis Lesaffre being involved and with
approval of the Board of Lesaffre.
(ii)
In January 2009, Muthu called upon Laloum and
requested for a meeting. Muthu drew attention of Laloum to the
petition pending before the Supreme Court. Though Laloum was
confident that they had not committed any contempt, Muthu kept
boasting about his connections with judiciary and considering the
fact that some of the employees of Calyon Bank were prosecuted
with, could not be taken lightly.
(iii) Laloum was to undergo hip surgery on 30 January 2009
and was unable to travel. Thereafter a meeting was fixed at the
instance of Muthu at Montreux. Laloum met Muthu at Montreux
Palace Hotel, which was close to residence of Laloum. It was
agreed at the start of the meeting that it would be a final attempt to
explore the settlement. As Muthu had travelled, long way to meet
Laloum, Lesaffre felt obliged to Muthu. Muthu insisted on calling
upon Articles of Association and got them faxed. He insisted on
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explaining all the terms on which he would purchase the shares of
Nafan. Muthu suggested that, while relevant pages of Articles were
arriving by fax, they should sign a memorandum so that whatever
is to be put before Denis Lesaffre would be clear. Laloum suggested
that Muthu should take lead in writing the document. Muthu
wrote out the document. Laloum did not pay much attention to it,
as it was his understanding that it was only his proposal to Denis
Lesaffre. In that, light Laloum signed the proposal. After the
meeting, Laloum informed Meurent that they had signed an
understanding regarding proposal, which will be forwarded. It was
never discussed in the meeting what are the consequences of the
sale of shares. What was signed was not an agreement for sale of
shares held by Nafan in any Company. Lesaffre family could only
do this. Laloum enquired about the valuation because he wanted
to know if it was worthwhile to follow up with Muthu's proposal.
When the valuation was received from Sharp & Tannan, Laloum
was shocked at extremely low value. Laloum never informed about
the loss of original certificates to Muthu.
Rejoinder on behalf of Nafan
15. Rejoinder affidavit was filed by Denis Lesaffre as a Chairman
of the Board of Nafan. In the rejoinder Nafan, in short, stated as
under:
i) Certain proceedings were initiated by Nafan for declaratory
relief in the Court at Montreux, Switzerland for the fraud
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committed by Muthu by alleging that MOU is a binding contract
when it is not. The validity of the MOU is matter for the Swiss
Court, the Court of appropriate jurisdiction. Various false
statements have been made in the reply filed by Muthu especially
regarding meeting between Muthu and Laloum in Montreux,
Switzerland. The entire basis of the case put up by Muthu Group is
the MOU being a binding agreement to transfer the share, is
incorrect. The case put up in the reply is fraudulent, the alleged
transfer of shares is void ab initio, and no Board meeting took
place, which is concocted for giving effect to fraudulent scheme.
Records have been fabricated and shares, worth not less than Euro
25 Million Euros, as in May 2009 have been sought to be
misappropriated.
ii) The Company did not have sufficient means and but for
the loans provided by Lesaffre and through its good offices from
Bank Indosuez, SAF Yeast Company would not have the adequate
finances. SAF Yeast Company was incapable of surviving without
the support of Lesaffre. Lesaffre also provided technical assistance
regarding strains, testing and technical advise. The Company
profits grew not because of efforts of Muthu Group but because the
yeast market in India had grown as were foreseen by Lucien
Lesaffre.
iii) Muthu used the pendency of criminal proceedings to
intimidate the Nafan's nominee directors and prosecuted criminal
bsb 43 COAPPL21.15+5.doc
contempt petition by extending a veiled threat of arrest. In view of
these proceedings initiated by Muthu, the French Directors thought
it would be beneficial to settle the dispute than to take risk of
proceeding. Therefore, pursuant to this, a meeting was held in
London and Heads of Agreement were drawn on 14 August 2007.
The Heads of Agreement recorded the material terms and it was
decided that in order to reach settlement the shareholding would
be 50:50 which was expressed between Lesaffre and Muthu Group.
Muthu however started stalling and resiled from his obligation to
conclude the Shareholders Agreement. When the hearing was
coming up before the Apex Court in November 2008, Laloum
convinced Muthu to agree to postponement of hearing to give more
time from the perspective of Nafan to settle differences regarding
shareholder agreement. During this period, Muthu came to know
that Laloum's decision would be placed before Lesaffre family that
he had not agreed to any settlement and he had not been
authorized to enter into any settlement.
iv) When the meeting took place at Montreux, Laloum was
not well. He had travelled in a wheelchair to Algeria. Muthu
insisted upon a meeting as a condition for postponement of hearing
before the Apex Court. The manner in which Muthu acted during
this meeting is already set out in the affidavit of Laloum. What
Laloum signed was in nobody's contemplation as a contract and
certainly not in Laloum's contemplation that any binding contract
has been entered into. Valuation was yet to be done, contempt
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proceedings were pending, and the proposal was to be considered
by the Lesaffre family members. If Muthu knew that he would get
a ridiculously low valuation from the auditors, MOU was a
document obtained by inducement, undue influence, and fraud.
(v) When the valuation was received from Sharp & Tannan,
Laloum was shocked at the low valuation and immediately spoke to
Muthu and told him that it will be for the Board of Lesaffre to
consider. The valuation was so ridiculously low that no attention
was given to the assertion of Muthu regarding MOU. The valuation
sent along with letter dated 10 February 2009 was addressed to
Laloum and not to Lesaffre or Nafan. The valuation was at the
instance of SAF Yeast. If the Auditor had addressed the valuation
to Lesaffre, they could not have made a ridiculously low valuation.
The valuation report did not take into consideration Discounted
Cash Flow method, which is a detailed exercise. There was no
basis for valuation to be carried out as of 31 March 2008. The
manner in which the valuation was carried out and the speed at
which it was carried out was entirely suspicious. The valuation was
done by Nafan from reputed firms of Chartered Accountants would
show that the valuation of SAF Yeast was wholly fraudulent. Even
the well settled methods of valuation were not applied.
(vi) Attempts were made to meet Muthu in Paris to discuss
future progress of the joint venture. Muthu avoided doing so. The
Special Leave Petition before the Apex Court was adjourned on 27
bsb 45 COAPPL21.15+5.doc
March 2009 on the basis that negotiations are in progress and it
was never contended that there has been any agreement to sell the
shares. There was no reference to any Board meeting regarding the
MOU. Muthu's lawyers opposed the adjournments thereafter in
the Apex Court. It was informed by Corinne that the assertion of
Muthu regarding MOU could not even be considered.
(vii) On 28 May 2009, Muthu sent a shocking e-mail that he
had transferred the shares and paid the amount to SAF Yeast. The
so-called Board meetings of 29 January 2009, 23 May 2009, and 25
May 2009 were suspicious. No reference was made regarding these
meetings even in the Court proceedings earlier and suddenly
several Board meetings have emerged in reply. The notice
supposedly issued for the alleged meeting of 29 January 2009 was
stated to have been addressed to Muthu, A.M.Arunachalam and
Muthiah. Even the minutes of the alleged meeting are suspicious.
In any way, no meetings could have been held as no notice was
given to four nominee directors of Nafan. Even if any meeting was
held, the meetings were void. It applies to the other meetings held
on 23 May 2009 and 25 May 2009. No request was made by
anybody for issuance of duplicate share certificates. Nothing was
placed on record regarding the so-called request of Laloum. Even
the meetings did not give 14 days' notice period nor the agenda.
(viii) The MOU is not a contract and is incapable of being
enforced. There is no entity called Muthu Group or Lesaffre Group.
bsb 46 COAPPL21.15+5.doc
Neither Nafan, nor Lesaffre were party to the MOU. Laloum was
not specifically authorized to enter into such transaction to the
knowledge of Muthu. There was no shareholding or Board
resolution of Nafan to authorize transfer of shares. Muthu himself
did not comply with the precondition of enforcement of MOU. The
MOU is even otherwise vague and uncertain. The reliance of
Muthu Group on Article 18 of Articles of Association is fraudulent.
Nafan at no time given transfer notice or any notice to SAF Yeast in
writing.
(ix)
The Lesaffre had contributed substantially by way of
financial assistance, allowing its valuable trademarks and technical
assistance to development of SAF Yeast. The Lesaffre had also
contributed substantially through Muthu and held Muthu and his
family. The reply filed by Muthu was thereafter dealt with
parawise and the contents therein are denied and explained in
consonance with the stand taken earlier.
Affidavit of J. L. Meurant
16. Meurant filed an affidavit on 18 November 2009. To
summarize, asserted that around mid-January 2009, Laloum called
Meurant and told him that Muthu had called him to discuss a
possible solution. On 24 January 2009, Laloum attached protocol
of agreement setting out Muthu's will for resolving the disputes.
Nafan had at no time wish to sell its shareholding. As the MOU
was not binding, it was not brought to the notice of Lesaffre.
bsb 47 COAPPL21.15+5.doc
Meurant did inform Lesaffre about Muthu's wish to buy the shares
and valuation. When Lesaffre asked Laloum to have a meeting in
Paris, he did not agree insisting upon receiving agenda for the
meeting.
Affidavit filed by Muthu Group in response
to affidavit filed by Alain Laloum.
17. On behalf of Muthu Group, Muthu briefly stated as under. If
there was any truth in assertion of Laloum, then he should have
affirmed the petition as being the person most likely involved in the
proceedings. The case that MOU is a mere proposal is contrary to
the averments made in the petition. The MOU was culmination of
series of meetings to settle the dispute. Laloum had a clear
authority to execute the MOU. The averments made by Laloum in
the affidavit were dealt with parawise and denied and the fact that
the MOU was binding and Laloum had the authority was reiterated.
Sur-rejoinder filed by Muthu Group
18. Sur-rejoinder was affirmed by Arunachalam Muthu on
behalf of Muthu Group on 17 July 2010 to deal with the rejoinder
filed by Denis Lesaffre. It was in short, stated as under .
(i) Inspection of documents has been given by Nafan. In
spite of the same, incorrect statements were made that inspection
of documents is not given.
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(ii) The MOU is valid and binding contract and the shares
have been transferred in accordance with Articles of Association
and full consideration has been paid. Only basis to discredit the
MOU is that Laloum was induced to sign some papers. The record
would clearly show that Laloum did dine with Muthu in his room.
Laloum did not appear to suffer from any physical incapacity. He
had travelled to Algeria clearly indicating that he had no health
issues. Meurant was fully aware of the meetings between Laloum
and Muthu. The Articles of Association were specifically called for.
Thereafter the MOU was executed. Laloum did not appear to be in
any physical discomfort. After the shares were transferred, there
was no question of withdrawing the proceedings before the
Allahabad High Court since transfer of shares was subjudice in the
Company Petition. Laloum had full authority to execute the MOU.
The valuation done by Sharp & Tannan was proper and after
considering all the relevant material. No capital can be made of the
fact that valuation was prepared in a short time span. The Sharp &
Tannan are auditors for around 27 years and therefore they were
fully aware of the finances. The criticism made on the valuation is
based on incorrect figures. Lesaffre Group in the past had accepted
the valuation of the auditors without questioning the basis or the
integrity of the valuers.
(iii) It is not possible to believe that in spite of the fact that
Meurant received the MOU on 24 January 2009, he will not inform
bsb 49 COAPPL21.15+5.doc
his colleagues. The allegation that the meetings held in January
and May 2009 were not disclosed, are incorrect. The letter of SAF
Yeast dated 28 May 2009 makes a reference to the Board meeting.
The replies filed in earlier proceedings were not exhaustive replies.
In any case, these affidavits do refer to meetings held in January
2009 and May 2009. The Board meetings held in 2009 were
validly held and there is no question of that being challenged.
(iv) The allegation of forgery is false and this theory is
taken for the first time in the rejoinder. The Heads of Agreement
are no bar to the validity of the MOU.
(v) It is baseless to suggest that only because SAF Yeast
used the trademark, Nafan should be reinstated as a shareholder.
The principal product of Nafan was sold under the name Prestige.
There was hardly any financial assistance provided by Lesaffre to
SAF Yeast, so also the technical assistance. Both the terms, Muthu
Group and Lesaffre Group are well known, and it is ridiculous to
suggest that MOU is not binding on that count.
19. Further affidavit was also filed by Mr. Muthu on 11
October 2010 by placing certain documents on record.
Proceedings before the Company Law Board
20. With these pleadings, the parties went for hearing
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before the Company Law Board. In addition to the voluminous
pleadings and documentary evidence, the parties also filed their
written submissions.
21. The CLB framed points for determination. The points
for determination were -
(i) Whether the petition has not been properly verified
and filed as per CLB Regulations ? If so, its effect.
(ii) Whether the petition is not maintainable on the
grounds stated in the reply(s) filed by the Respondent
Nos.2 to 4 ?
(iii) Whether the rejoinder/replication is part of the
pleadings ? If not, its effect.
(iv) Whether the Petitioner has suppressed the material
and vital facts in its petition ? If so, its effect.
(v) Whether the impugned MOU dated 23 January
2009 is invalid and unenforceable document on the
grounds stated by the Petitioner ? If so, its effect.
(vi) Whether the alleged transfer of shares between
member to member is covered by the first part of the
Article 14 of the Articles of Association of the
Respondent No.1 and the Articles 15, 18 and 19 have no
application in respect of the transfer of shares as
contended by the Petitioner ?
(vii) Whether the impugned MOU dated 23 January
2009 amounts a transfer notice as contained in Article
15 of the Articles of Association of the Respondent No.1 ?
If not, its effect.
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(viii) Whether the Board meeting purportedly held on
29 January 2009 is non-est, illegal and invalid and the
Resolutions passed in the said meetings are ineffective
being contrary to law and oppressive in nature ? If so, its
effect.
(ix) Whether the purported Board meetings held on 23
May 2009 and 25 May 2009 are non-est illegal and
unlawful for the reasons stated in the pleadings of the
Petitioner and the resolutions passed in the said meetings
are invalid and ineffective and thus liable to be set aside ?
(x) Whether the purported valuation report is a
manufactured/got up document prepared by the
Respondent No.7 in connivance with the Respondent No.2
to Respondent No.6 to favour them in contravention of
the Statutory guidelines and is not based on the
recognized principles for the valuation of a company ? If
so, its effect.
(xi) Whether the issuance of duplicate shares by the
Respondent no.1 to Respondent No.4 is illegal being made
in contravention of the statutory provisions as contended
by the Petitioner ? If so, its effect.
(xii) Whether the Petitioner has successfully proved the
alleged acts of oppressions and mismanagement by the
Respondent No.2 to Respondent No.6 in the affairs of the
Respondent No.1? If so, its effect.
(xiii) To what relief, if any, is the Petitioner entitled to ?
Findings of the Board
22. (I) The Board held that the petition was properly verified,
and was filed as per the Rules. It held that the petition was
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maintainable and the argument that Nafan was no longer a
member and therefore could not file Company Petition was
rejected. The rejoinder and other affidavits are part of pleadings,
the Nafan had not suppressed material and vital facts, and the
petition was not liable to be dismissed on that count. The MOU
was not obtained by fraud or inducement and Laloum had the
authority to sign the MOU. The Board concluded that Nafan and
Lesaffre wanted to sell the shares, and in fact agreed to sell their
shareholdings vide the MOU. It was held that Muthu Group took
immediate steps for withdrawal of the cases at their end. The MOU
was not bad on the ground of uncertainty in terms and conditions.
The Board held that it was competent to take into consideration the
intention of the parties from the MOU to pass appropriate orders in
exercise of its rights and powers under Section 402 of the Act. A
transfer notice must fulfill both the conditions stipulated in Article
15, that, it must be a notice of the members desire to transfer the
shares and it must appoint the Company as an agent for finding a
transferee. The first part of Article 14 is separate, distinct, and
independent of latter part of Article 14 and that the contention of
Muthu Group that Articles 15 and 18 are applicable is incorrect.
Board further held that the MOU was not a transfer notice as
contemplated under Article 15. The Board held that the meeting
on 29 January 2009 was held and the allegation of fabrication of
record of Board meeting could not be accepted.
(II) The Board took note of the fact that admittedly the concerned
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meetings were held without notice to Nafan and Lesaffre and their
nominee directors in terms of the Participation Agreement. The
meeting therefore was bad in law. The Board also held that, even
assuming that participation agreement was not binding, it was
obligatory to give notice when entire 51% shares were transferred.
The meetings were therefore illegal for want of notice. Board
however held that the meeting dated 29 January 2009 was not
oppressive because it was in terms of the MOU. The Board held
that the meetings held on 23 and 25 May 2009 were bad in law
since no notice was served and no agenda was circulated, and they
were oppressive The Board came to the conclusion that the
valuation prepared by Sharp & Tannan was not reliable. Valuation
report was a got up document and biased. The valuation report
deliberately used CCI Guidelines though they were inapplicable.
The Board held that there was no request in writing by Laloum
regarding the duplicate share certificates and that Article 18 did
not authorize the Company to carry out any transfer in absence of
original share certificates. The Board further concluded that the act
of issuance of duplicate share certificates was part of a design to
usurp the shareholding of Nafan. The Board accordingly concluded
that Nafan succeeded in proving the case of oppression by the
Muthu Group.
(IV) The Board thereafter considered the grant of relief. It noted
that, it was apparent that two groups could not run the Company
together. Parting of ways and sale of shares from one group to
bsb 54 COAPPL21.15+5.doc
another was most appropriate. The Board took into consideration
the contribution of Muthu, equity and humanitarian perspective,
and that Muthu had acted on legal advice, the intention to execute
the MOU, and held that Muthu Group should be allowed to buy out
the shareholding of Nafan and Lesaffre.
(V) Accordingly, the Company Law Board declared that the
MOU dated 23 January 2009 was valid and enforceable, the
valuation report was biased, partial, and it was accordingly set
aside. The meetings dated 29 January 2009, 23 May 2009, and 25
May 2009 were declared as non-est, illegal and void. Nafan and
Lesaffre were directed to transfer the shares to Muthu Group
proportionate to their shareholding. To carry out a fair valuation,
the Board of Directors was suspended and kept in abeyance. Until
the valuation was concluded, an administrator was appointed. The
administrator so appointed was authorized to appoint an
independent auditor. After the complete exit of Nafan and Lesaffre
of receiving the consideration, the administration function would
come to an end. Accordingly, the Company Petition was disposed
of by the impugned order dated 28 March 2013.
Present Appeals
23. Thereafter the above-mentioned four appeals have been
filed. A Company Appeal was first filed by Nafan, in which a
Company Application was taken out for interim relief. By order
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dated 8 May 2013, the Court did not accept the contention of
Nafan that only part of the impugned order be stayed and placed
the matter on board for admission. The matter thereafter came up
on board on 11 June 2013, when Muthu Group, Lesaffre, Union of
India, and Sharp & Tannan filed their appeals. The appeals were
admitted. Pending disposal of the appeals, order passed by the
Board dated 24 June 2009 read with order passed by this Court
earlier on 15 January 2010, was directed to be continued. By a
separate order, the appeal filed by the Union of India was disposed
of. Thereafter, the petitions were heard from time to time on
various dates, as per the request of various counsel appearing in
these appeals. The parties also filed voluminous written
submissions.
24. Nafan and Lesaffre are broadly challenging the findings
that the MOU is a valid and binding and it can be looked into for
passing any order under Section 402 of the Act. They also
challenge the direction that Nafan and Lesaffre Group should
transfer their shareholding to Muthu Group. The Muthu Group is
broadly challenging the findings that the Board meetings held in
the year 2009 are illegal and oppressive, the resolutions and
transfer of shares in favour of Muthu Group are illegal and should
be set aside. The Muthu Group has challenged the direction that
duplicate share certificates issued in favour of A.M.Muthiah is
cancelled and the shareholding of Nafan and Lesaffre is restored
and the rectification of register accordingly. The Muthu Group has
bsb 56 COAPPL21.15+5.doc
also challenged the findings regarding the interpretation of the
articles and valuation. Sharp & Tannan have challenged the
observations made by the Board in the impugned order regarding
the valuation report being biased, partial, non-transparent, and
deliberately based on wrong guidelines.
DISCUSSION
25. I have heard Mr. Fredun De' Vitre, learned Senior
Advocate along with Mr. Pravin Samdani, learned Senior Advocate
on behalf of Nafan, Mr. Darius Khambata, learned Senior Advocate
on behalf of Lesaffre; Mr. Janak Dwarkadas, learned Senior
Advocate along with Mr. N.H. Seervai, learned Senior Advocates on
behalf of Muthu Group, and Mr. T.N. Subramanian, learned Senior
Advocate on behalf of Sharp & Tannan.
26. The Board had framed points for determination.
Learned Counsel for the parties have also made their submissions
generally on these points for determination. In addition to these
points for determination, further issues that arise for consideration
are the maintainability of the appeal filed by Lesaffre Group and
the grounds raised in the appeal filed by Sharp & Tannan taking
exception to imputation of bias against them.
Maintainability of Lesaffre's Appeal
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27. The Lesaffre has filed the Appeal No.24 of 2015. In this
appeal, the Lesaffre has inter alia challenged the order passed by
the Board as regards the declaration in Para 333 of the operative
order and judgment, the findings that the resolution passed at the
Board meeting of January 2009 were not oppressive, and the MOU
is valid and binding; the direction to sale 51% shares of Lesaffre in
the SAF Yeast; other consequential findings and directions. Mr.
Dwarkadas, senior advocate appearing on behalf of Muthu Group
taken a preliminary objection regarding the maintainability of the
appeal filed by Lesaffre. He contended that Lesaffre was joined as
a proforma respondent in the petition filed by Nafan and it was
specifically stated in the Petition that Lesaffre is only proforma
respondent in the proceeding. He submitted that Lesaffre did not
have any cause of action to file its own petition, as it holds no
shareholding in SAF Yeast neither Lesaffre was a joint petitioner
with Nafan. He further submitted that Lesaffre had not filed any
affidavit in reply neither any statement on oath. Mr. Dwarkadas
submitted that Lesaffre had sold its entire shareholding in SAF
Yeast to Nafan and Lesaffre had no interest or ownership of the
shares. Mr. Dwarkadas submitted that an appeal under Section 10F
of the Act can only be filed on a question of a law and a new
factual position, which is sought to be introduced by Lesaffre that
the shares were held by Nafan for its benefit, cannot be permitted.
He submitted that the Lesaffre was not a member as defined under
Section 41 of the Act. He further contended that, even assuming
Nafan held share for benefit of Lesaffre, it ought to have been
bsb 58 COAPPL21.15+5.doc
disclosed as specified under Section 187-C of the Act and no such
declaration has been made. He relied upon the decision of the
Delhi High Court in the case of Vinod K. Patel v/s Industrial
Finance Corporation,1. He submitted that the concept of
aggrieved person must be determined in the context of the
Companies Act. Accordingly, as per his contention, the appeal
deserved to be dismissed as not maintainable.
28. These submissions cannot be accepted. The operative portion
of the impugned order specifically directs the 'Lesaffre Group' to
sell its shareholding. It declares that the MOU executed by Laloum
on behalf of 'Lesaffre group' is valid, effective, and enforceable
document. The impugned order directs Nafan as well as Lesaffre to
transfer the impugned shares to Muthu Group. The entire
impugned order specifically contains references and directions to
Lesaffre. It declares that the MOU which is executed by Laloum,
which mentions 'Lesaffre Group', as valid. Any person aggrieved by
any decision or order of the Company Law Board can file an appeal
under Section 10-F. The phrase used is 'any person aggrieved'.
Once there is a specific direction in a order to a person to transfer
his shareholding it will be hyper-technical to hold that such person
is not even entitled to file an appeal. What needs to be seen is the
direction to the person concerned. The legality or otherwise of the
direction is the matter of merits to be considered after hearing the
appeal. The Muthu Group is pressing the relief granted by the
. 2001 (103) COMPCAS 557, Delhi.
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Board regarding the declaration and the transfer of shareholding
even against Lesaffre. It is not argued by Muthu Group that the
directions to Lesaffre be set aside. The argument advanced by
Muthu Group before the Board was that Nafan was nominee of
Lesaffre and Nafan is not separate and distinct from Lesaffre. Even
the case of Muthu Group before the Board indicates that Lesaffre
can be considered as a person aggrieved. In the facts and
circumstances, therefore, the appeal filed by Lesaffre needs to be
considered on merits along with the appeal filed by Nafan. When
Mr. Dwarkadas had initially raised the contention regarding
maintainability of the appeal filed by Lesaffre, it was kept open to
be decided at the time of final order and Mr. Khambata on behalf of
Lesaffre has made the submissions on merits as well. I am
therefore not inclined to dismiss the Appeal No.24 of 2015 filed by
Lesaffre only on the ground of maintainability. Lassafre is entitled
to contend that the directions issued to it should be set
aside.However a positive relief,if any, can only be granted to Nafan
as per its prayers in the petition.
Preliminary
29. I now proceed to consider the controversy at hand
dealing with the four appeals on merits. Learned Counsel have
taken great pains to expound the law on the subject. The Counsel
and their teams have meticulously done research on various legal
aspects. What needs to be kept in mind are the parameters of the
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jurisdiction is exercised by the Company Law Board, the role that is
played by it, and the scope of appellate power under Section 10-F.
Though the learned counsel for the parties have advanced
elaborate submissions on all facets of the controversy and have
urged this Court to dwell into findings of facts, one cannot lose
sight of the limited jurisdiction conferred on this Court under
Section 10-F of the Act. The jurisdiction under Section 10-F to
entertain an appeal against a decision of the Company Law Board,
is not unlimited. The appeal is maintainable on questions of law.
Findings of facts cannot be interfered with like a first appeal
under the Code of Civil Procedure. Interference in findings of fact
is not possible if the findings are not perverse. If there is a material
on record to justify a factual finding, which is arrived by applying
appropriate legal principles, then merely because another view is
possible, the Court under Section 10-F will not reverse the finding.
A mere erroneous finding of fact will not lead to a question of law.
30. I need to prefix the discussion by reiterating the basic test.
This litigation is given various shapes, shades and hues of complex
of legal positions, but the concept of Oppression lies at the core.
The underlying principle in the concept of oppression, is fairness.
This dispute , and the solution to be arrived ,has to be adjudicated
on the touch stone of fairness and probity. Instead of making this
adjudication more complex, as sought to be done by the Muthu
Group, the correct approach will be to deconstruct and simplify the
controversy to get at the heart of the matter. Notions of probity
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and fairness are beacons to navigate in this dispute, lest one gets
lost in side alleys and traps. Learned counsel for the parties have
cited almost all the cases on the subject of Indian courts, English
Courts,Malayasian Courts and courts of other countries. I have
refrered to the ones which, in my humble opinion are closest on
the fact situation and which have taken reiew of the case law.
31. Section 397 of the Act deals with the concept of 'oppression'
and Section 398 deals with the concept of 'mismanagement'. Both
these provisions enable any member of a company to approach the
Company Law Board for appropriate directions. If the Board is
convinced that the acts of oppression or mismanagement or both
have been made out as defined under the Act, then the Board has
various powers under Section 402 of the Act to pass suitable
directions. The term 'oppression' generally refers to a conduct
which is wrongful and harsh. It refers to a lack of probity and fair
dealings in the affairs of the Company. Oppression can be in
different forms. Something, which is illegal may not always be
oppressive and something which is legal may be oppressive. A
deliberate act to cause harm to the members of the Company in
respect of the affairs of the Company would be an act of
oppression. Therefore, the enquiry in such matters will be focused
on probity and fairness in dealing amongst the shareholders, rather
than only testing only the legality of the actions.
32. Various decisions have been cited by the learned counsel for
the parties on the concept of oppressive conduct falling within the
bsb 62 COAPPL21.15+5.doc
ambit of Section 397. It is not necessary to refer to all of them
individually as in the case of Sangramsinh P. Gaekwad v/s
Shantadevi P. Gaekwad1, the Apex Court has outlined them as
under .
"180. The expression 'Oppression' complained of, thus, must
relate to the manner in which the affairs of the company are
being conducted and the conduct complained of must be
such as to oppress the minority members. By reason of such
acts of oppression, it must be shown that the majority
members obtained a predominant voting power in the
conduct of the company's affairs.
181. The jurisdiction of the Court to grant appropriate relief
under Section 397 of the Companies Act indisputably is of
wide amplitude. It is also beyond any controversy that the
court while exercising its discretion is not bound by the
terms contained in Section 402 of the Companies Act if in a
particular fact situation a further relief or reliefs, as the
court may seem fit and proper, is warranted. (See Bennet
Coleman & Co. v. Union of India & ors. and Syed Mahomed
Ali v. R. Sundaramurthy). But the same would not mean that
Section 397 provides for a remedy for every act of omission
or commission on the part of the Board of Directors.
Reliefs must be granted having regard to the exigencies of
the situation and the court must arrive at a conclusion
upon analyzing the materials brought on records that the
affairs of the company were such that it would be just and
equitable to order winding up thereof and that the
majority acting through the Board of Directors by reason
of abusing their dominant position had oppressed the
minority shareholders. The conduct, thus, complained of
must be such so as to oppress a minority of the members
including the petitioners vis-à-vis the shareholders which
a fortiori must be an act of the majority. Furthermore, the
fact situation obtaining in the case must enable the court
1. (2005) 11 SCC 314
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to invoke just and equitable rules even if a case has been
made out for winding up for passing an order of winding
of the company but such winding up order would be
unfair to the minority members. The interest of the
company vis-à-vis the shareholders must be uppermost in
the mind of the court while granting a relief under the
aforementioned provisions of the Companies Act, 1956. .
"184. In Halsbury's Laws of England, 4 th Edition,
Volume 7, para 1011, it is stated:
"1011. Conduct amounting to oppression. In this context,
"oppressive" means burdensome, harsh and wrongful. It does
not include conduct which is merely inefficient or careless.
Nor does it include an isolated incident: there must be a
continuing course of oppressive conduct, which must be
continuing at the date of the hearing of the petition. Further,
the conduct must be such as to be oppressive to the
petitioner in his capacity as a member: whatever remedies
he may have in respect of exclusion from the company's
business by being dismissed as an employee or a director, he
will have none under the provisions relating to oppression.
On the other hand, these provisions are not confined merely
to conduct designed to secure pecuniary advantage to the
oppressors; they cover the case of wrongful usurpation of
authority, even though the affairs of the company prosper in
consequence."
190. In Shanti Prasad Jain v. Kalinga Tubes Ltd., etc.:
[1965] 2 SCR 720 , this Court quoted with the approval the
following passage from the decision in Elder's Case, , as
summarized at page 394 in Meyer's case, :
"(4) Although the word 'oppressive is not defined, it is
possible, by way of illustration, to figure a situation in
which majority shareholders, by an abuse of their
predominant voting power, are' treating the company and its
affairs as if they were their own property' to the prejudice of
the minority share-holders-and in which just and equitable
grounds would exist for the making of a winding- up
bsb 64 COAPPL21.15+5.doc
order....... but in which the 'alternative remedy' provided by
Section by way of an appropriate order might well be open
to the minority shareholders with a view to bringing to an
end the oppressive conduct of the majority."
191. In Shanti Prasad Jain (supra) referring to Elder Case,
it was categorically held that the conduct complained of
must relate to the manner of management of the affairs of
the company and must be such so as to oppress a minority of
the members including the petitioners qua shareholders. The
court, however, pointed out that that law, however, has not
defined what oppression is for the purpose of the said
Section and it is left to court to decide on the facts of each
case whether there is such oppression.
192. In Scottish Cooperative Wholesale Society Ltd. v. Meyer
and Anr., it was categorically held that the conditions
precedents contained in Section of the Act of 1948 must be
satisfied before any relief can be granted.
193. Yet again in H.R. Harmer Ltd., In re, the Court of
Appeal held that 'the section does not purport to apply to
every case in which the facts would justify the making of a
winding up order under the 'just and equitable' rule, but
only to those cases of that character which have in them the
requisite element of oppression'.
It was observed:(All ER p.701 A-B)
It is not lack of confidence between share- holders per se
that brings S. into play, but lack of confidence springing
from oppression of a minority by a majority in the
management of the company's affairs, and oppression
involved at least an element of lack of probity or fair
dealing to a member in the matter of his proprietary
rights as a shareholder."
194. In Needle Industries (supra), this Court observed:
"44. Coming to the law as to the concept of 'oppression',
Section 397 of our Companies Act follows closely the
language of Section of the English Companies Act of 1948.
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Since the decisions on Section have been followed by our
Court, the English decisions may be considered first. The
leading case on 'oppression' under Section is the decision of
the House of Lords in Scottish Co-op. Wholesale Society Ltd.
v. Meyer,. Taking the dictionary meaning of the word
'oppression', Viscount Simonds said at page 342 that the
appellant-society could justly be described as having behaved
towards the minority shareholders in an 'oppressive' manner,
that is to say, in a manner "burdensome, harsh and
wrongful". The learned Law Lord adopted, as difficult of
being bettered, the words of Lord President Cooper at the
first hearing of the case to the effect that Section "warrants
the court in looking at the business realities of the situation
and does not confine them to a narrow legalistic view".
Dealing with the true character of the company, Lord Keith
said at page 361 that the company was in substance, though
not in law, a partnership, consisting of the society, Dr. Meyer
and Mr. Lucas and whatever may be the other different legal
consequences following on one or other of these forms of
combination, one result followed from the method adopted,
"which is common to partnership, that there should be the
utmost good faith between the constituent members".
Finally, it was held that the court ought not to allow
technical pleas to defeat the beneficent provisions of Section
(page 344, per Lord Keith; pages 368-69, per Lord
Denning).
195. In Re Five Minute Car Wash Service Ltd., the Court
upon considering the nature of relief which can be granted
under Section of the Companies Act, 1948 observed that in a
case falling under Section of the Companies Act, 1948, relief
will be granted if the petitioner establishes that at the time
when the petition was presented the affairs of the company
were being conducted in a manner oppressive of himself and
if he fails to allege facts capable of establishing that the
company's affairs are being conducted in such a manner the
petition will disclose no ground for granting any relief and
must be dismissed in limine.
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It was observed:(All ER p.247 B-D)
"Those who are alleged to have acted oppressively must be
shown to have acted at least unfairly towards those
who claim to have been oppressed. In Scottish Co-
operative Wholesale Society, Ltd. v. Meyer (a case under
s.210) Viscount Simonds adopted a dictionary
definition of the meaning of "oppressive" by, it is said,
"burdensome, harsh and wrongful".
In Elder v. Elder & Watson, Ltd., also a case under s. 210,
the Lord President (Lord Cooper) said:
"....the essence of the matter seems to be that the conduct
complained of should at the lowest involve a visible
departure from the standards of fair dealing, and a
violation of the conditions of fair play on which every
shareholder who entrusts his money to a company is
entitled to rely."
Lord Keith said:
".....oppression involves, I think, at least an element of
lack of probity or fair dealing to a member in the matter of
his proprietary rights as a shareholder."
196. The Court in an application under Sections 397 and
398 may also look to the conduct of the parties. While
enunciating the doctrine of prejudice and unfairness borne
in Section of the English Companies Act, the Court stressed
the existence of prejudice to the minority which is unfair and
not just prejudice per se.
197. The Court may also refuse to grant relief where the
petitioner does not come to court with clean hands which
may lead to a conclusion that the harm inflicted upon him
was not unfair and that the relief granted should be
restricted. (See Re London School of Electronics).
198. Furthermore, when the petitioners have consented to
and even benefited from the company being run in a way
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which would normally be regarded as unfairly prejudicial to
their interests or they might have shown no interest in
pursuing their legitimate interest in being involved in the
company. (See Re RA Noble & Sons (Clothing) Ltd.)
199. In a given case the Court despite holding that no case
of oppression has been made out may grant such relief so as
to do substantial justice between the parties.
200. It is now well-settled that a case for grant of relief
under Sections 397 and 398 of the Company Act must be
made out in the petition itself and the defects contained
therein cannot be cured nor the lacuna filled up by other
evidence oral or documentary. (See In re Bengal Luxmi
Cotton Mills Ltd. : 69CWN137 ).
201. In Shanti Prasad Jain Vs. Union of India it was held
that the power of the company court is very wide and not
restricted by any limitation contained in Section 402 thereof
or otherwise
202. In Shoe Specialities Ltd. v. Standard Distilleries and
Breweries (P) and Ors. , it is stated :
"While exercising the powers under sections 397 and 402 of
the Companies Act, the Court is considering not only the
relief that is sought for but also considers as to what is the
nature of the complaint and how the same has to be
rectified. It is the interest of the company that is being
considered and not the individual dispute between the
petitioner and the respondent. If that be so, the interest of
the company requires that the majority shareholders must
have their say in the management."
203. In Jesner v. Jarrad Properties, , a question arose as to
whether the conduct and the background of the two
companies (their informed way of doing business
disregarding the Companies Act, etc.) could be taken into
account to decide whether there had been unfair prejudice to
one party in an application under Section of the English
Companies Act was answered in the affirmative.
bsb 68 COAPPL21.15+5.doc
204. When a decision is taken on a business consideration,
it is trite, the court should not ordinarily interfere. [See
Maharashtra Power Development Corporation Ltd. v.
Dabhol Power Co. & ors.: 2004(3)BomCR317."
With these principles enunciated by the Apex Court, the
controversy at hand can be looked at.
33. Since the Board has determined the points of consideration
and as the learned counsel for the parties also made their
submissions centering on these points for determination for the
sake of continuity, it will be appropriate to follow the same pattern.
The issues for determination therefore will fall under five broad
heads, (a) Maintainability of the company petition and whether
there was any suppression facts; (b) The controversy surrounding
the Memorandum of Understanding and its legal effect; (c) legally
and/or oppressiveness of the decisions taken in the Board meetings
held in the year 2009; (d) The correctness of the valuation and
the imputations against the valuer for the valuation report; and (e)
the relief to be granted.
Maintainability of the company petition
and suppression of facts.
34. Under this first broad head, further issues that arise are,
whether there was any suppression on the part of Nafan, whether
the petition was properly verified, and whether the subsequent
rejoinder and affidavits should be considered along with the
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petition. To indicate broadly the rival contentions, it is the case of
Muthu Group that there was a blatant suppression by Nafan in the
petition more particularly regarding the events leading to execution
of MOU and for this gross suppression no equitable relief needs to
be granted to Nafan and Lesaffre. On the other hand, it is the
contention of Nafan and Lesaffre that there is no suppression and
the MOU is not determinative factor but the effect of the so-called
Board meetings, and in any case, at the time of deciding the
petition all the facts were before the Board.
35.
As regard the verification of the petition, it is contended
by Mr. Dwarkadas that one Mr. Siraj Ahmed, who has no personal
knowledge, has affirmed the petition. He submitted that the source
and the basis of the knowledge of Mr. Siraj Ahmed are not
indicated primarily because he has no such personal knowledge. It
is contended that the petition is dated of prior to the date of signing
the petition and is attested prior to that date. He submitted that by
making a person, who is not aware of the facts, the conduct of
Nafan demonstrates lack of bonafides. He relied on decision of this
Court in Intesa Sanpaolo SPA v/s Videocon Industries Ltd.2. Mr.
Dwarkadas submitted that the verification would have to comply
with the provisions of Order XIX Rule 3 of Code of Civil Procedure.
He relied upon the decision of the Apex Court in the case of State
of Bombay v/s Purshottam Jog Naik 3. He submitted that, the
Apex Court and various High Courts emphasized the need of
2. Rendered in Company Petition No.528 of 2012.
3. A.I.R. 1952 SC 317.
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appropriate verification. He submitted that merely because Mr.
Siraj Ahmed, has a Power of Attorney he does have a personal
knowledge. Mr.De'Vitre submitted that the argument regarding
lack of bonafides was not taken in the affidavit in reply nor in the
rejoinder before the Board. The Board held that Siraj Ahmed being
Power of Attorney had the lawful authority to the Petitioner and
furthermore, Lasaffre and Laloum have filed their affidavits.
36. The Company Law Board Regulations provides that the
petition can be filed through an authorized representative. It has
not been put in dispute that Mr. Siraj Ahmed is not an authorized
representative. In the decision in the case of Enercon Gmbh v/s
Enercon (India) Ltd. & ors.4, relied upon by Mr. De'Vitre, this
Court held that Code of Civil Procedure is not applicable in the
proceedings before the Board and Company Law Board Regulations
govern them. In said decision, the Court noted that the deponent
thereon had relied upon documents available and submissions were
made on advice. In the present case, Laloum and Lesaffre have
filed their affidavits and have taken a stand on oath regarding the
events that had transpired. Therefore, even assuming there is some
irregularity in the affirmation made by Mr. Siraj Ahmed, it will not
be sufficient to dismiss the Company Petition on this ground alone.
In the case of Enercon Gmbh (supra), the Court relied upon earlier
decisions to hold that such objections would be merely procedural
objection. As regard the reflection on the bonafides of the case of
Nafan is concerned, it is not that it has rested only on the
4. (2008) 143 Comp Cas 687.
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verification of Mr.Siraj Ahmed. In the case of Entesa Sanpaolo SPA
(supra) the concerned persons had avoided to take a stand on oath,
which is not in the present case. Lesaffre and Laloum have filed
affidavits and have put-forth factual position according to them
existing, on record. Apex Court in the case of Associate Journals
Ltd. v/s Mysore Paper Mills Ltd.5 has held that even if there is
slight error or irregularity in filing an affidavit, opportunity needs
to be given to the party to cure the defect. The Apex Court has
held that the rules of procedure cannot be a tool to circumvent
justice and procedural objections cannot be used to defeat to
justice. The ultimate objection of Muthu Group to the verification
of Mr. Siraj Ahmed is that the concerned persons have put him up
to avoid taking a stand on oath. This objection does not survive
once the concerned persons i.e. Laloum and Lesaffre have put forth
their stand on oath and have taken a responsibility as to what is
stated in those affidavits. Simplicitor dismissing the Company
Petition on that ground alone would have only meant that the
petition would have been filed again with same allegations for the
same reliefs, which would only multiply the litigation. In the
circumstances, I am not inclined to interfere with the finding of the
Board that the Petition ought not to have been dismissed on this
count.
37. The second objection is that the petition ought to have
been dismissed since Nafan had suppressed various facts. This
argument was made before the Company Law Board and it was
5. (2006) 132 Comp Cas 470 (SC).
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rejected. The Board concluded that, considering the petition and
rejoinder, the facts and events stated to have been suppressed
pertain mostly to the period 2005-2006 which were not much
relevant.
38. Mr. Dwarkadas submitted that Nafan suppressed several
material documents and material facts despite them being within
their knowledge. He submitted that many documents were brought
on record by the Muthu Group and when Nafan submitted list of
dates and events and compilation in this Court, they have given an
impression that all these events and documents were always part of
the record, which is not so. He submitted that, if the petition is
taken as it is, it presents a complete misleading picture. According
to Mr. Dwarkadas, annual accounts for the year of incorporation
and for other relevant year and Directors Reports were suppressed.
He submitted that these documents would have clearly shown the
falsity in the case of Nafan that it had substantially contributed to
set up SAF Yeast. He submitted that Directors' Reports would have
also shown that the new products were developed using indigenous
technology and the technology not of Nafan. He submitted that
even notes of accounts for the year 2001 to 2003 have not been
produced which clearly show that the Muthu Group were the key
management personnel. He further submitted that e-mails sent on
4 January 2006, 30 January 2006, various letters, text messages
sent on 24 October 2007, 29 October 2007 and from December
2007 to November 2008 have been suppressed, which would have
bsb 73 COAPPL21.15+5.doc
clearly demonstrated the events within the knowledge of Nafan.
He submitted that if the MOU had been properly disclosed, it would
have destroyed the case of oppression. So also, the text message
dated 7 February 2009 sent by Laloum stating that he is waiting for
the valuation report. He further submitted that the certificate of
valuation, e-mails dated 11 February 2009 and 12 February 2009
and Articles of Association were not produced. He submitted that if
these documents were produced, the case made out in the petition
could not have been sustained. Mr. Dwarkadas submitted that
various vital facts have been suppressed in the petition, and the
petition ought to have been rejected on suppression of facts.
39. The facts, which have been stated to be suppressed, are
mentioned in paragraph 56 of the impugned order of the Board.
For sake of convenience, the paragraph is reproduced as under.
(i) Although Alain Laloum retained a copy of the
MOU, which is an admitted fact that was first mentioned
in the Reply filed by the Respondents and accepted in the
Rejoinder Affidavit and in the Affidavit of Alain Laloum.
(ii) The Petition does not mention that before the
meeting in Montreux, Switzerland, on 23rd January
2009 which resulted in the MOU, there were several prior
meetings between Respondent No. 2 and Alain Laloum in
Montreux, Geneva and London in the year 2008 (apart
from the meetings in June and December 2006 with
Lucien Lesaffre in London) to discuss the possibility of a
resolution to the ongoing disputes between the Muthu
Group and the Lesaffre Group;
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(iii) The Petitioner suppressed the fact that the meeting
in Montreux in January 2009 was at the instance of
Alain Laloum as has been brought out in the Reply with
reference to Mr. Laloum's text messages and emails prior
to the meeting;
(iv) The Petition conveys the clear impression that apart
from Alain Laloum, no other officer or representative of
the Petitioner / Respondent No. 8 / Lesaffre Group was
aware of the MOU and valuation of the shares. Contrary
to this, the Reply disclosed that in addition to Alain
Laloum, Mr. J.L. Meurant (the Group Managing Director)
was in the know of the meeting at Montreux on 23 rd
January 2009, the MOU, the valuation of the said shares
and Respondent No. 2's assertion seeking the transfer of
the said shares. The Petition completely suppresses Mr.
Meurant's role in the matter. His name is not to be found
in the Petition at all.
(v) After the role and knowledge of the Group
Managing Director Mr. J.L. Meurant was placed on record
in the Reply filed by the Respondents, in its Rejoinder
Affidavit, the Petitioner has admitted (in June 2010) that
Mr. J.L. Meurant was in fact aware of the meeting at
Montreux on 23rd January 2009, that Mr. Laloum spoke
to him immediately after executing the MOU and that on
24th January 2009 a copy of the MOU was sent by
Mr.Alain Laloum to Mr. J.L. Meurant.
(vi) The Petitioner further suppressed the following vital
and crucial facts, events, correspondence and
communication between the meeting at Montreux on
23rd January 2009 and the email of 30th April 2009
(when the Petitioner by its actions of purporting to call a
Board of Directors meeting of the Company at Brussels or
Geneva Airport sought to resile from the MOU). The
obvious and deliberate reason for not referring to the
following facts / documents is that the Petitioner attempts
to mislead this Hon'ble Board as to matters relating to the
bsb 75 COAPPL21.15+5.doc
MOU (which was not annexed to the Petition), the
circumstances surrounding its execution and the
Petitioners full knowledge about facts over which they
claim ignorance in the Petition (such as the existence of
the MOU and the Valuation Report), During this period of
three months, the following significant events have been
suppressed by the Petitioner (with not even a fleeting
reference made to any of them in the Petition):
(a) Alain Laloum by a text message sent around 7 th
February 2009 to Respondent No. 2 inquired about and
sought the valuation report by the Statutory Auditors;
(b) The Statutory Auditors sent a copy of the valuation
report directly by email to Alain Laloum and J. L.
Meurant on 11th February 2009. The Petition states that
Alain Laloum received the valuation report from the
Respondent No. 2 and not from the Auditors;
(c) On 11th February 2009 Respondent No. 2 addressed
an email to J.L. Meurant and copied to Alain Laloum
referring to the MOU as a contract to transfer the said
shares and seeking the transfer of the same;
(d) On the contrary, the Petition contains a positively
misleading suggestion that the valuation of the said
shares came to the knowledge of the Petitioner and its
officers on or after 30th April 2009 or 3rd May 2009;
(vii) The Petitioner suppressed its own document,
namely its own Articles of Association, obviously because
Article 10(2) clearly states that each of the Directors of
the Petitioner is independently authorized to represent the
Petitioner. This fact is also borne out from the extract of
the Petitioner from the Trade Register of the Netherlands
Chamber of Commerce, a statutory body for maintaining
the corporate record in the Netherland. The extracts dated
21st July 2008, which is prior to Mr. Alain Laloum
executing the MOU, and 21st June 2009 clearly state Mr.
bsb 76 COAPPL21.15+5.doc
Alain Laloum's powers as being "solely/independently
authorized", in accordance with the Articles of Association
of the Petitioner and there was no change in his power
during the intervening period (between 21st July 2008
and 21st June 2009).
(vii) The Petitioner did not disclose its own document i.e
the flower of Attorney dated 31st January 2005 issued by
the Petitioner to TMF Management, the Petitioner was
able to solemnly argue that TMF Management was the
only entity authorized to execute the MOU and bind the
Petitioner. The Power of Attorney (for which Notice to
Produce (and reminder) was also given to the Advocates
of the Petitioner and to which there was no response at all
forthcoming) clearly establishes that the Powers of the
said TMF Management was very specific and restricted to
routine administrative matters and that TMF
Management had no such authority to execute the MOU
on behalf of the Petitioner as solemnly argued by the
Petitioner at the time of oral submission.
(ix) The Petitioner suppressed crucial facts and emails of
the year 2005 and 2006, in relation to the issue of the
Board Meeting of the Company held in France in April
2005 and the Minutes of the said Meeting as prepared by
Respondent No. 2, which is one of the charges of
oppression in the Petition. In this regard, the Petition
suppresses the following facts and e-mails:
(a) The Petition totally omits to mention the fact that
in October 2005 Alain Laloum traveled to India
(Mumbai) and attended a Board of Directors Meeting at
which meeting the Minutes of the Meeting of 20th
September 2005 (which in turn confirmed the Minutes of
the Meeting of 26th July 2005) were confirmed. This
establishes that the Petitioner had express knowledge of
the July 2005 Board Meeting held in Mumbai, despite
which in the Petition filed four years later, the alleged
failure to give notice of the July 2005 Board Meeting has
bsb 77 COAPPL21.15+5.doc
been made a ground of oppression in the Petition;
(b) The Petition suppresses two crucial emails of 4th
January 2006 and 30th January 2006 which were sent
by Mr.Alain Laloum to the Respondent No. 2 seeking
certain additions (and not any alterations or deletions) to
the Minutes of the April 2005 Meeting. These emails
completely destroy the cause of action in the Petition,
which is founded on the alleged inaccurate recording of
the Minutes of Meeting of April 2005 as done by
Respondent No. 2. Had the Minutes of the April 2005
meeting as prepared by Respondent No. 2 been as
inaccurate as has been falsely suggested in the Petition,
that grievance would have been made by the Petitioner in
the aforementioned emails of 4th January 2006 and 30th
January 2006, which was not done;
(c) Alain Laloum has stated in his Affidavit dated 10th
June 2010 that since he was not the Chairman of the
meeting held on 14th April 2005 (in France), he did not
think it appropriate to raise the, issue of any alleged
inaccuracy of the Minutes of Meeting of 14th April 2005
in person in October 2005 when he attended a Board of
Directors meeting in Mumbai (despite having thought it
appropriate to comment during January 2006 by his
above referred emails). This untenable stand was
nevertheless taken to explain the Petitioner's silence on
this issue during October 2005 despite having received by
then the Minutes of the said meeting of April 2005 at
least by September 2005. However, even this stand (of
Alain Laloum not being Chairman of the 14th April 2005
meeting) has been falsified by his email of 30th January
2006 when Mr. Alain Laloum asserted that he chaired the
very same meeting (of 14th April 2005);
(x) The Petitioner failed to disclose the facts and events which
shows that the Petitioner was never excluded from the
administration of the Company and in particular was not
unaware of the holding of AGM's. Neither was the
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Petitioner unaware of the financial position of the
Company. The documents and facts disclose that the
Directors Reports for the years from 2004 - 2005 onwards
(which is the period during which the Petitioner alleges
exclusion from the Company) were always signed by a
representative of the Petitioner on the Board of the
Company. In some cases the Board Resolution for holding
the AGM for a given year was signed by a nominee
Director of the Petitioner. The Petitioner always received
the dividend declared at the AGM's and on many
occasions advised the rate of dividend to be declared. The
Petitioner also suppressed communications by the
Petitioner nominee Director's to the Respondents
complimenting them on the performance of the Company
in various years and in particular for 2006-2007 and
2007-2008, thus establishing their complete knowledge
about the Company's affairs and financial position.
(xi) Although the Petition alleges that three Alternate
Directors were appointed by the Board of the Company at
a meeting held in Paris on 23 May 2006, at which none
of the Muthu Groups Directors were present, inexplicably,
a copy of the alleged Board Resolution of the said meeting
has not been annexed to the Petition. In the Reply, the
Respondents have disputed the validity of this
appointment. Despite this and despite relying upon the
same, even in its Rejoinder Affidavit, a copy of the
Minutes of this Meeting has not been annexed. It is
therefore clear that the Petitioner is steadfastly holding
back from the Hon'ble Board a document, on which,
strangely enough, the Petitioner places reliance.
(xii) The Petitioner alleges, as a charge of oppression, the
Respondents failure to give notices to the Petitioner for
Board Meetings of the Company held in Mumbai. In
particular, the meeting of July 2005 held in Mumbai for
which no Notice was given to the Petitioner's nominee
Directors on the Board of the Company, is a made a
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charge of oppression. Conscious of the fact that this
charge of oppression would fail in the plain sight of
Article 55 of the Articles of Association of the Company
which requires notice only to Directors in India as per
Section 286 of the Act the Petitioner is attempting to rake
up the participation Agreement dated 22nd March 1991
as being the alleged basis of the relationship between the
shareholders. In this, regard, the Petitioner suppressed a
whole lot of relevant facts and events which are to the
knowledge of the Petitioner and which unequivocally
establish that the two shareholding groups of the
Company never acted upon the Participation Agreement."
40. Mr. Dwarkadas submitted that, since the jurisdiction of
the Company Law Board under Sections 397 and 398 is equitable,
the conduct of the parties is most material and, therefore, the party
which suppresses relevant material, ought not to be given any
indulgence. Mr. Dwarkadas relied upon the decision in the case of
Sangramsingh P. Gaekwad v/s Shantidevi P Gaekwad, 1 of the
Apex Court; decision in the case of Srikanta Datta
Narasimharaja Wadiyar v/s Sri Ventakeswara Real Estate
Enterprises (Pvt.) Ltd.6 of Karnataka High Court; decision of the
Delhi High Court in Smt.Abnash Kaur v/s Lord Krishna Sugar
Mills & ors.7, decision of the Appeal Bench of this Court in
Maganlal Kuberdas Kapadia v/s Themis Chemicals Ltd.8, decision
of the Apex Court in Gujrat Bottling Co. Ltd. & ors. v/s The Coca
Cola Co. & ors.9, and S.P.Chengalvaraya Naidu v/s Jagannath.10
1 (2005) 11 SCC 314
6 1991 (72) CompCas 211
7 (1974) 44 CompCas 390 (Delhi)
8 Rendered in Appeal No.332 of 1991
9 A.I.R. 1995 SC 2372
10. A.I.R. 1994 SC 853
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Mr. Dwarkadas submitted that these decisions and several others
have laid down that the Courts exercising equity jurisdiction must
not allow any attempt to mislead them and the party coming to the
Court must come with clean hands and produce all the necessary
documents required for adjudication. He submitted that it is not
open for the party to decide which document is material and must
produce all the relevant documents.
41. Mr. Dwarkadas further submitted that the documents, which
were produced through a rejoinder and additional affidavits, could
not be taken into consideration, as a rejoinder could not form part
of the pleadings. He submitted therefore that the finding of the
Board that there was no suppression and that rejoinder forms part
of the pleadings is incorrect. He submitted that a rejoinder would
not form part of the pleadings. According to him, charge of
oppression or the cause of action must be pleaded in the petition
itself. He submitted that rejoinder can only deal with the defence
in the reply and cause of action cannot be founded in the rejoinder.
Mr. Dwarkadas submitted that the averments in the rejoinder bring-
forth new grounds of oppression, such as, the MOU being not a
proposal, Laloum had no authority, Muthu has played fraud, no
notices of Board meetings were given, and there were fabrication of
minutes of meetings. Mr. Dwarkadas relied upon the decision in
the case of Sangramsingh Gaekwad (supra) of the Apex Court and
Calcutta High Court in the case of Mohta Brothers (Pvt.) Ltd. v/s
Calcutta Landing & Shipping Co. Ltd.,11 decision of the Madras
1 1 1970 (40) CompCas (cal.) 119
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High Court in the case of S. Seetharaman v/s Stick Fast
Chemicals (P) Ltd.,12 and decision of this Court in Sambhaji
Waghoji Asole v/s State of Maharashtra13 Relying on these
decisions, he submitted that acts of oppression must be pleaded in
full particulars in the petition itself and unless that is done, same
cannot be enquired into by the Court. Even assuming certain facts
became known of the petitioners subsequently, petition at the most
can be amended which is not done in the present case. He also
submitted that Order VI Rule 4 of Code of Civil Procedure stipulates
that the fraud must be pleaded in full particulars in the plaint.
42. Mr. De' Vitre, on the other hand, submitted that the cause of
action has been sufficiently pleaded in the petition and relief that
was sought i.e. rectification of register regarding alleged deletion of
shareholding, was sustainable on the cause of action made out. He
submitted that certain facts that became known from the reply
during the inspection after filing of the reply by Muthu Group
necessitated placing the factual position on record. He submitted
that pleadings should receive a liberal construction and Muthu
Group was fully aware the case that they had to meet. He
submitted that the petition ought to have been amended was not
the plea taken by Muthu Group in the affidavit-in-rejoinder. He
further submitted that the plea of Muthu Group is a mere
technicality and the Board while dealing with case of oppression is
entitled to take into consideration the entire material on record.
1 2 (1998) 18 SCL 399 (MAD)
1 3 2006 (1) Mh.L.J. 392
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43. I have considered the submissions. Firstly, what is the exact
case made out by Nafan in this petition needs to be seen. The relief
sought by Nafan is that the register of members should be rectified
by inserting the name of Nafan in respect of 80,772 shares and an
order terminating the appoint of Mr.Muthu as the Managing
Director and that Muthu Group be directed to sell their shares to
Nafan. In the petition, the Nafan has pleaded the relevant
particulars. It has placed on record the particulars of the parties,
the backdrop to the joint venture. Then it stated that Muthu Group
is attempting to prohibit Nafan from participation in the
management. It is attempting to compel transfer of Nafan's
shareholding. Muthu Group is committing acts of mismanagement.
It has inserted the name of Muthu Group as a shareholder of 51%
of Nafan although Nafan has executed no share transfer deed.
Then, Nafan gives background how the dispute arose between the
parties is given by narrating the events that transpired leading to
litigation between SAF Yeast and Calyon Bank and the contempt
petition filed in the Allahabad High court and thereafter
proceedings in the Apex Court. Nafan alleged that Muthu Group
failed to give statutory records, minutes of Board meetings,
financial statements, then it made a grievance of holding Board
meetings without notice, failure to provide documents regarding
litigation and how in spite of the attempt to settle the dispute
settlement did not come through. Thereafter Nafan has mentioned
how Lucien Lesaffre received a notice from the Registrar of
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Companies to show cause regarding non-filing of returns. It has
then mentioned that Laloum informed Lesaffre and Corinne that he
has been induced to sign some papers by Muthu and he has
received some valuation addressed to SAF Yeast, which shows that
the valuation had no sanctity. Then Nafan refers to a MOU stating
that Nafan was not a party and cannot be aware of the same. Then
it stated that around 28 May 2009, Muthu sent a letter stating that
shares are transferred relying on the MOU. It is stated that Nafan
never agreed to sale its shares. It is further stated that if the MOU
is produced, Nafan will raise and plead all its objections thereto. It
is then stated that when the Board meeting was held at Paris on 29
May 2009 and the agenda was sent to Muthu, Muthu fraudulently
called alleged meeting on 25 May 2009, made deposit of some
amount, and in accordance with Article 18 struck off the name of
Nafan. This was done based on the alleged MOU and the
valuation, which were fraudulent. Therefore, the entire thrust of
Nafan in the manner in which Muthu removed their names without
notice to them in a meeting. According to them, the MOU was not a
valid document and Nafan had never agreed to sell its shares. It
had specifically stated that if the MOU were produced, Nafan
would make its submission and take objections accordingly.
44. It is not that the MOU and meeting with Laloum at
Montreux have not been mentioned at all in the petition. The
fundamental aspect of the acts of oppression is meetings without
notice and the transfer of shares. There is no correspondence on
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record from Nafan or Lesaffre stating that they will abide by MOU
and it should be placed before the Board, nor is a specific share
transfer notice given by Nafan. The entire argument of Mr.
Dwarkadas on this count is based on the silence on the part of
Nafan and Lesaffre Group regarding the MOU and enquiry about
valuation. According to him, once Nafan was made aware that the
MOU exists and will be enforced, then by not taking any steps,
Muthu was right in believing that the MOU was accepted.
According to Nafan, Muthu Group was trying to divert the course of
adjudication towards the legality, validity and binding effect of the
MOU, but from Nafan's point of view in the petition the real issue
in the matter was the oppressive nature of the Board meetings
through which the transfer of share have taken place.
45. The Lesaffre and Nafan had made it clear through the e-mail
written by Corinne Wisniewski that the valuation was ridiculously
low. Whatever may be the stand of Nafan and Lesaffre regarding
the MOU, apart from making general enquiries regarding valuation,
there were no further steps taken by them for execution of the
MOU. In fact, they had specifically made their intention clear that
they will not be going to do so in view of the valuation. The MOU
did specify that there would be fair valuation and withdrawal of the
Court proceedings. Therefore, according to Nafan, the MOU had to
be worked upon and taken further by both sides, rightly or wrongly,
which aspect is dealt with later. The case of Nafan in the petition
was clear that it not ready to go by the MOU. They did not
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consider it as a valid piece of document. This case is clearly
reflected in the petition. Therefore, the primary grievance of Nafan
that the way the meetings were held in which share transfer took
place without notice to them amounts to oppression. It is the
Muthu Group, which is seeking, relies on the binding effect of the
MOU. The contention of Mr. Dwarkadas is that the MOU is a
binding contract and non-disclosure of events surrounding the
transaction amount to suppression amongst others.
46.
For the purpose of examining the charge of suppression, even
assuming the MOU was binding, the action of Muthu Group to
transfer the shares without notice to them still could be questioned
by Nafan, which they did in the petition. For that purpose, it is
enough to assert that the MOU had no sanctity. There is no
complete omission to mention the MOU. It is mentioned and it is
stated that it is invalid. Nothing further needed to be pleaded.
Whether it is binding or not would be the case of Muthu Group.
Nafan had reserved its rights to make comments on the MOU. The
MOU is in fact is relied upon in defence of the actions taken by
Muthu Group to transfer the shareholding without notice. The
primary grievance of Nafan holding a meeting without notice
remains. It is, therefore, not possible to uphold the contention of
Mr. Dwarkadas that the petition itself did not contain cause of
action and the rejoinder sought to supply the same and the petition
should have been dismissed on that count. Nafan had clearly
reserved the liberty to rejoin in case the MOU is pressed in service
bsb 86 COAPPL21.15+5.doc
by Muthu group as valid document. I do not find that there was
any suppression of facts either.
47. Furthermore, the Apex Court in the case of Ram Sarup
Gupta (Dead) by LRs. v/s Bishun Narain Inter College & ors. 14,
has held that the pleadings should receive liberal construction and
whenever question of law regarding the pleading is raised, the
enquiry should not be about the form of pleadings, instead the
Court must find out whether the parties knew the case and issues
contested. Once it is found that, in spite of deficiency in the
pleadings, parties knew the case and they proceeded to trial on
those issues by producing evidence, it would not be open to a party
to raise the question of absence of pleadings. Before the Board
decided the matter, all the parties had exhaustively filed their
pleadings through petition, replies, affidavits, rejoinders, sur-
rejoinders, etc. and the parties were fully aware of each other's
case. The decision in the case of Mohta Brothers (supra) is of no
assistance to Mr. Dwarkadas, as in that decision, the Court was
concerned with the subsequent events and held that the matter
needs to be decided upon the facts pleaded in the petition. In the
present case, it is a grievance of Nafan that various facts leading to
the meetings were suppressed from them, which they came to
know after filing of the petition and therefore rejoinder had to be
filed. In this case, not only rejoinder but also sur-rejoinder has also
been filed.
14 (1987) 2 SCR 805
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48. In the case of Sangram Singh Gaekwad (supra), a dispute
arose between the heirs of Sir Pratapsinhrao Gaekwad, Ruler of
Baroda and the companies floated by them. Certain civil suits came
to be filed by shareholders of Indreni Holdings Pvt. Ltd. challenging
transfer of shares. An application also came to be filed before the
Gujrat High Court under Sections 397 and 398 of the Act. The
Companies Act was amended and the jurisdiction of the High Court
in respect of Sections 397 and 398 was vested in the Board.
Simultaneous proceedings were filed before the Company Law
Board and by consent; the matter was taken up before the
Company Judge to dispose of the matters based on affidavits.
Appeals came to be filed before the Division Bench of the Gujrat
High Court and the Division Bench allowed the appeal. The matter
was thereafter taken to the Apex Court. The Apex Court
determined the points for consideration. They were as regard the
fiduciary duty of the Company Directors towards the shareholders
and on facts whether there was any oppression, mismanagement
and whether the transfer of shares was valid. The Apex Court took
a review of the law regarding oppression and stated that case for
grant of relief under Sections 397 and 398 case must be made out
in the petition itself and the defects cannot be cured by evidence,
oral or documentary. The Apex Court noted the decision in the case
of Shoe Specialities Pvt. Ltd. v/s Standard Distillaries &
Breweries15. It held that the Court considers not only the relief but
also the nature of the complaint and how it is to be rectified. The
Apex Court in paragraph 205 observed as under.
15 (1997) I Company Law Journal, 243
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"205. The burden to prove oppression or mismanagement is
upon the petitioner. The Court, however, will have to
consider the entire materials on records and may not insist
upon the petitioner to prove the acts of oppression. An action
in contravention of law may not per se be oppressive.
Bhagwati, J. (as His Lordship then was) in Mohanlal
Ganpatram and Anr. v. Shri Sayaji Jubilee Cotton and Jute
Mills Co. Ltd. and Ors.,: (1964) GLR804 at 103 stated the
law, thus:
"....It may be that a resolution may be passed by the
Directors which is perfectly legal in the sense that it does not
contravene any provision of law, and yet it may be
oppressive to the minority shareholders or prejudicial to the
interests of the Company. Such a resolution can certainly be
struck down by the Court under Section 397 or 398. Equally
a converse case can happen. A resolution may be passed by
the Board of Directors which may in the passing contravene
a provision of law, but it may be very much in the interests
of the Company and of the shareholders..."
(emphasis supplied).
The Apex Court specifically stated that the Court will have to
consider the entire material on record and may not insist upon the
petition to prove acts of oppression. This observation has been
emphasized by Mr. De' Vitre. The Apex Court disapproved the
reliance by the High Court on the pleadings made in some other
proceedings and ignoring the assertions made by the respondent
therein in the proceedings. The decision of the Apex Court in the
case of Sangram Singh (supra) therefore does not state that in spite
of the fact that the parties knew the case and all pleadings were on
record, the petition ought to have been dismissed because the cause
bsb 89 COAPPL21.15+5.doc
of action could not have been made out in the rejoinder.
49. Furthermore, there are more reasons why reliance cannot be
placed on the decision of Sangram Singh Gaekwad (supra). In the
present case, the cause of action has been sufficiently pleaded in
the petition for the relief that is sought. The decision of the Apex
Court in Sangram Singh (supra) after taking review of the powers
of the Board, has in fact emphasised that, looking at the nature of
the proceedings, the Board will have to take into consideration the
entire material on record. The other decisions cited by Mr.
Dwarkadas, arise from either Civil Suit, Election Petition or a Writ
Petition. The nature of jurisdiction executed by the Board is very
different from exercised by the courts trying civil suit, election
petition, and writ petition. It is not necessary to deal with these
decisions arising under different jurisdictions, as in the case of
Sangram Singh Gaekwad (supra) itself, the Apex Court has
emphasized the jurisdiction of the Board under the very provision
in question, in the cases of oppression and mismanagement and has
indicated that totality of the evidence must be looked at by the
Board.
50. As I have held earlier, sufficient cause of action was
pleaded by the Nafan in its petition. According to them, the
meetings were without notice and transfer of shares was gross act
of oppression and other acts of mismanagement. Relevant
particulars concerning the MOU were pleaded and that the MOU
bsb 90 COAPPL21.15+5.doc
had a no binding effect. Nafan had already stated that in case the
MOU is put-forth, they reserve their right to make their
submissions, which they did in their rejoinder. It has come on
record that no notice was issued by the Muthu group regarding the
meeting when the entire shareholding of Nafan was transferred.
According to Nafan, they knew the details about the meeting only
through the replies and inspection of documents.
51. It will be a failure of justice if the petition is thrown out only
on the ground of suppression of facts, when the facts the Petitioner
is supposed to have suppressed were the facts suppressed by the
Respondent from them. As far as MOU is concerned, Nafan had
mentioned the same and made it clear that it is not considering it
as valid. Why it was valid was the defence of Muthu group, which
they put forth. Nafan countered that defence in their rejoinder.
Persons concerned filed their affidavits placing contested factual
position on record. It is not that Nafan obtained an ex-parte
orderly misleading the Board. Both parties were fully aware of the
facts. When the Board took up the matter for consideration, all the
facts were placed before it placed on record either by Nafan or by
Muthu Group. It is after considering the entire record the CLB took
an informed decision and to my mind rightly did not dismiss the
petition on the ground of suppression of facts.
Memorandum of Understanding.
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52. The next broad head for consideration is regarding the MOU
dated 21 January 2009. The MOU, which is handwritten, is
reproduced below.
"Memorandum of Understanding entered into between
the Lesaffre Group represented by Mr.Alain Laloum and
the Muthu Group represented by Mr.A.Laloum at
Montreux on 23/01/2009.
Regarding the shareholdings in M/s SAF Yeast Co. Pvt.
Ltd.
It was agreed that Muthu Group would buy 51%
shareholding of the Lesaffre Group in M/s SAF Yeast Co.
Pvt. Ltd. immediately. The fair valuation of the shares
will be done by the company (M/s SAf Yeast Co. Pvt.
Ltd.) Auditors in accordance with clause 17 of the
Articles of Association and the Memorandum of SAF
Yeast Co. Pvt. Ltd.
As soon as the valuation is carried out by the Auditors,
the certificate of valuation will be forwarded by the
Auditors to Lesaffre. The Muthu Group will pay Lesaffre
Group according to the certificate of valuation by the
Auditors.
Muthu Group and Lesaffre Group agree to end all
litigation pending in the Lucknow High Court and the
Hon'ble Supreme Court immediately within the legal
frame work".
53. The points of determination by the Board on this topic were,
whether the MOU is invalid and enforceable document as stated by
the Petitioner; Whether the MOU amounted to transfer notice
bsb 92 COAPPL21.15+5.doc
contained in Article 15 of the Articles of Association. The Board
then listed further sub-points regarding the MOU. Those were,
whether the MOU has been obtained by fraud and inducement;
whether Laloum had no authority to execute the MOU; whether the
MOU is mere offer or expression of desire; whether the MOU is a
contingent contract; whether Muthu failed to fulfill his obligation
contained in the MOU; whether the MOU is bad in law for
uncertainty; whether the Board is competent to enforce the
agreement for sale; whether the MOU can be treated as a transfer
notice.
54. The Board held that the MOU was not obtained by fraud or
inducement, Nafan, Lesaffre wanted to sell the shares, and they
agreed to do so through the MOU. Muthu fulfilled his part of
obligation. The Board is not competent to enforce the contract but
is entitled to take note of the intention of the parties and the MOU
did not constitute a transfer notice. In short, the Board held that
the MOU is binding and though it may not be enforceable as
contract, the intention of the Nafan and Lesaffre to sell
shareholding was clear, but at the same time MOU could not be
treated as transfer notice.
55. It has to be noted that the Muthu Group has filed a Suit
No.S/2457 of 2012 in this Court for the following reliefs.
"(a) That this Hon'ble Court be pleased to order/declare the
said Memorandum of Understanding dated 23 January
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2009 to be valid, subsisting and binding on the Defendant
Nos.1 and 2 hereto and that the Defendant Nos.1 and 2 are
bound and liable to perform the same;
(b) That this Hon'ble Court be pleased to order and direct
Defendant No.1 by a mandatory order of injunction to
specifically perform the Memorandum of Understanding
dated 23 January 2009 so as to transfer in accordance with
law the suit shares to Plaintiff No.3 being a
member/nominee of the "Muthu Group" and for the said
purpose this Hon'ble Court give all necessary directions to
specifically perform the Memorandum of Understanding
dated 23 January 2009 including the Defendant No.1
taking all ancillary and incidental steps for effecting a
transfer of the suit shares in performance of the
Memorandum of Understanding dated 23 January 2009;
(c ) Alternatively, and in the event of Defendant No.1
failing to do so, this Hon'ble Court may be pleased to
appoint a Receiver or any fit and proper person to transfer
the suit shares for and on behalf of Defendant No.1 and if
necessary to take all incidental and ancillary steps to effect
transfer of the suit shares for and on behalf of Defendant
No.1;
(d) That, pending the hearing and final disposal of the
present suit, the Defendant No.1 by itself and through its
servants, officers and agents be restrained by an order of
injunction from in any way selling, transferring,
encumbering, dealing with or creating any third party rights
in respect of the suit shares;
(e) That, pending the hearing and final disposal of the
present suit, Defendant No.1 by itself and through its
servants, officers and agents be restrained by an order of
injunction from exercising any voting rights or any other
proprietary/membership rights in respect of the suit shares;
(f) For ad-interim reliefs in terms of prayer (c ) above;
bsb 94 COAPPL21.15+5.doc
(g) For such further and other reliefs as the nature and
circumstances of this case may require; and
(h) For costs of the present suit."
The suit was filed on 30 April 2012. In the plaint it is stated that
the suit is filed to enable the plaintiff i.e. Muthu Group to secure a
decree of specific performance in the event the Board in the present
Company Petition holds that the MOU remains executory and has
not been duly performed. It is also stated that the suit is filed to
save the bar of limitation that may apply in the event the Board or
any other Court holds that the MOU is only executory.
56. Therefore, a suit for specific performance of the MOU is
pending in the Civil Court. The Board has also taken note of the
position of law that it has no power to specifically enforce the MOU
but what the Board has done is to give effect of the supposed
understanding of the parties in the MOU, while passing an order
under Section 402 of the Act. Mr. De'Vitre and Mr. Khambata have
seriously objected to this submitting that this is indirectly giving
specific performance of the contract as the suit itself stands decreed
by the order of the Board. On the other hand, it is the contention
of Mr. Dwarkadas that the MOU is valid, legal, binding, it
constitutes a transfer notice, and therefore there was no act of
oppression committed at all.
57. As I will elaborate later, the entire case hinges not on the
bsb 95 COAPPL21.15+5.doc
validity of the MOU but on whether the act of Muthu Group to
transfer the shareholding of Nafan and Lesaffre without notice to
them, even when they had made it clear that they were not abiding
by the MOU, amount to oppression. The appropriate course of
action when the Muthu Group came to know that Nafan and
Lesaffre were not going to honour their so-called commitments
under MOU was to file a civil suit or approach the Board for
necessary relief. The question is whether the Muthu Group could
have done it unilaterally without notice. There could be various
angles, such as, the MOU is valid, legal and binding, and it
amounts to a transfer notice; the MOU is not legal, valid and
binding, and it does not amount to a transfer notice; the MOU is
legal, valid and binding but it does not constitute transfer notice;
the intention behind MOU can be taken into consideration while
passing an order under Section 402 of the Act. However, there is
yet another facet. Should the Muthu Group have given a notice of
the Board meeting before transferring the shares on the basis of
MOU out of fairness and as a matter of probity? Though I would
proceed to examine these viewpoints, as they have been agitated
before me at some length, I am of the opinion that it is the last
facet that should be kept at the forefront of the discussion.
58. Mr. De'Vitre submitted that the finding that the MOU is valid
and binding could not have been made, as the Board does not have
jurisdiction to do so. The MOU was a disputed document and at
the most an arrangement amongst the shareholders. He submitted
bsb 96 COAPPL21.15+5.doc
that the Board did not have any power to grant declaration of the
validity, more particularly, since Muthu Group had already filed a
civil suit for specific performance. To hold that the MOU is arrived
with consent and for consideration and is nothing but to decide on
its validity. He submitted that parties had initiated their respective
proceedings in competent Courts. The Muthu Group had initiated
civil suit in this Court and Nafan and Lesaffre had initiated
proceedings in the Court at Switzerland. He submitted that
dismissal of the suit in Switzerland was only on the ground of
jurisdiction. It was then submitted that, even assuming the Board
had jurisdiction, it could not have been directed Nafan and Lesaffre
to sell their shares. He submitted that the MOU mentioned a fair
valuation and withdrawal of proceedings. The valuation was not a
fair valuation and Muthu Group had not taken immediate steps to
withdraw the contempt proceedings. He submitted that Nafan did
not ask for invalidation of the MOU, but it was put-forth as a
defence by Muthu Group, and it is Muthu Group who is asking for
direction based on the MOU, in spite of the fact that they have filed
a civil suit.
59. On the other hand, Mr. Dwarkadas submitted that, in the
petition itself it is ascertained by Nafan that the shares were
transferred based on non-existing and non-binding MOU. He
submitted that since having put up the case that the MOU was not
binding, Nafan could not be heard to say that the Board had no
jurisdiction to deal with their submission. He submitted that the
bsb 97 COAPPL21.15+5.doc
case pleaded by Nafan is that they were entitled to set aside the
transfer of shares on the allegation that the MOU was not binding.
In view of this assertion, the Board had to consider whether the
MOU was non-existent as alleged and whether Muthu Group was
justified on relying on the MOU. He submitted that the suit was
filed only to save the limitation and as a precautionary measure
and there will be no contrary reliefs. Mr.Dwarkadas submitted
that since Nafan had invoked the power under Section 402, it was
open for the Board to take into account all relevant factors for
ordering a buyout to do substantial justice. According to him, the
Board did not exceed its jurisdiction as MOU and the events
leading to the MOU were made part of cause of action by Nafan
itself, which is clear from its pleading. Mr. Dwarkadas submitted
that the decisions relied upon by De Vitre and Mr.Khambatta to
contend that the Board does not have powers akin to Civil Court,
are not applicable as they deal with a party approaching the Board
seeking relief to enforce a contract. He submitted in the present
case Nafan having entered into a valid and binding MOU has filed a
petition to resile from the same. He further submitted that no
party should be allowed to resile from a contract. It was open to
the Board to consider the MOU as one of the relevant
circumstances. He relied upon decision in the case of Probir
Kumar Misra Vs Ramani Ramaswamy 16, rendered by Madras
High Court, to contend that a MOU can be considered as a relevant
circumstance. Mr.Dwarkadas further submitted that the contempt
petition came to be withdrawn within the legal frame work and it
16 (2010) 104 SCL 174 (Mad)
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was not entirely in the hands of Muthu group to withdraw the
contempt petition, which had to depend upon orders of the Court.
He submitted that theory of Laloum being induced is false. Nafan
is changing its stand as regards the MOU, has taken contradictory
stand, and ultimately has admitted that the MOU exists. He then
relied upon the averments made in the rejoinder by Nafan and the
additional affidavits. Mr. Dwarkadas referred to various documents
on record in detail seeking to demonstrate that the MOU was not
an isolated piece of document but there were series of meetings
and exchange of e-mails, fax messages that led to execution of the
MOU. He submitted that the MOU is a clear and binding contract
and if Nafan had to wriggle out the same on the ground of fraud
and inducement, the heavy burden was upon it to demonstrate the
same. The MOU fulfills all the ingredients of being a binding
contract and Laloum who had full authority to do so executed it.
He also submitted that there is no uncertainty or vagueness in the
MOU. It is handwritten. Laloum carried out corrections and
initialed them. Laloum is an experienced business. He was
commercial director of Lesaffre group. There was no special
relationship with Muthu that he could have induced Laloum. He
submitted that the conduct of the parties clearly shows that Nafan
and Lesaffre were fully aware of the MOU and did not raise any
objection, which would have been the first reaction if Laloum had
signed a contract without their authority. He submitted that the
entire conduct of Nafan in respect of this MOU is fraudulent.
Mr.Dwarkadas therefore, submitted that the primary object of
bsb 99 COAPPL21.15+5.doc
Nafan to file the petition was to resile from the MOU and the Board
has correctly rejected the submission that MOU is not a binding
document.
60. I have considered the arguments. The Board has rendered a
finding that the MOU is not an invalid and unenforceable
document, it is not obtained by playing fraud on Laloum, and
Laloum was authorised to sign the MOU. The Board also
concluded that the MOU was not vague and Muthu fulfilled his
obligations. It also held that the MOU is made by free consent.
The Board relied upon the decision of Bihar State Electricity
Board Vs Green Rubber Industries -AIR 1990 SC P 693 to hold
that even though the party is ignorant of precise legal effect, it is
bound by the terms of contract it signs. The Board distinguished
the decision cited by Nafan to hold that the Board can take note of
intention of parties and pass appropriate orders. The Board also
took note of the argument on behalf of Muthu group that the
agreement has already been implemented and therefore, question
of enforceability does not arise.
61. The Board has culled out an intention of the parties from the
MOU. It concluded that Nafan, with full knowledge and free will,
had entered into a MOU for sale of its shares. This intention is
relevant for considering buyout. Board accepted the position that
a specific performance of the MOU cannot be granted by it ,but has
taken the intention of parties into consideration. I do not think this
is correct. First, this would be doing granting specific performance.
bsb 100 COAPPL21.15+5.doc
Second, assuming such course of action can be adopted in cases of
unquestionable intentions, The MOU did not spell out any such
unquestionable intention.
62. It is settled that the Board in law does not have power to
grant specific performance of a contract between two groups of
shareholders. The powers of Board under the Act are to be
exercised in respect of the affairs of the company and property and
not to decide the disputes amongst shareholders. The powers are
conferred to correct oppressive conduct and mismanagement and
not to decide civil disputes. Whether Lesaffre agreed to sell its
shareholdings to Muthu group is a dispute between two groups of
shareholders. In the Apex Court in the case of Chatterjee
Petrochem (India) Pvt. Ltd. v. Haldia Petrochemicals Ltd. and
Ors.17, has made it clear that the Board has no power to decide
disputes regarding transfer of shares. Similar view is taken in the
case of Sangramsinh Gaekwad (supra); Incable Net (Andhra)
Ltd. v. AP Aksh Broadband Ltd.18; T.Vinayaka Perumal v. T.
Balan19; and Zora Singh v. Amrik Singh Hayer20, which have also
been followed by the High Courts.
63. If the entire correspondence of the record is perused one
thing is clear that when the Board meetings took place in May 2009
to transfer the shareholding of Nafan, Nafan had made it clear that
17 (2011) 10 SCC 466
18 2010 (6) SCC 719
19 (2011) 167 CompanyCases 45 (Madras)
20 (2009) 149 Company Cases 328 (Punjab and Haryana)
bsb 101 COAPPL21.15+5.doc
it is not abiding by the MOU. When Muthu sent an e-mail on 30
April 2009, referring to the MOU, Ms. Corinne Wisnieswaski had
clearly replied on 3 May 2009 that Nafan cannot even think
considering the price, which was obviously not calculated on
correct basis. In spite of the specific e-mail, the same valuation was
used to give effect to the MOU. Therefore, when the act of transfer
of shares took place, the Nafan was not ready. The MOU did
mention that there should be a fair valuation of shares. The fair
valuation of shares therefore was one of the preconditions of the
MOU. Naffan had made it clear that the valuation was not fair.
Therefore, dispute arose even within the terms of the MOU as to
whether the valuation carried out was fair. The amount of
consideration for transfer was not fixed in the MOU. It was to be
arrived at upon a fair valuation. Once Nafan insisted that the
valuation was not fair, the consideration could not be termed as
fixed. A clear civil dispute therefore arose even assuming that the
MOU was binding. Muthu was fully aware that there was a dispute
as regards the valuation and that Nafan was not ready for the
valuation. In spite of this position, meeting was held without
notice and shares were transferred.
64. It was contended by Mr.Dwarkadas that Nafan itself put the
validity of MOU into issue and therefore it cannot complain that the
Board adjudicated upon the same. He submitted that it is case of
Nafan itself that the MOU is not a valid and binding and therefore
the Board had to adjudicate upon the same to hold that it is valid,
bsb 102 COAPPL21.15+5.doc
binding, and properly executed. This submission cannot be
accepted. Nafan had come to the Board making a grievance
regarding the meetings held without notice wherein their
shareholding was transferred. Nafan had stated in the petition
that, if MOU were relied upon then would reserve their right to
contest the same. It is the case of Muthu Group that MOU was
binding and it is wrongly been resiled from and the MOU
constituted a transfer notice. The foundation of the case of Muthu
Group is the MOU and it is their main defence to the allegations of
oppression. According to Nafan, MOU was at the most a proposal
to take the transaction forward and Muthu Group was attempting
to convert this memorandum into a binding contract.
65. Reference was also made by the Board to the decision of the
High Court in Switzerland in which the High Court has according
to the Board held that the MOU is a contract. However, the
observations and the operative part of the High Court order
reported in paragraph 82 of the impugned order itself shows that
the proceedings were dismissed for want of jurisdiction. Therefore,
the observations made in the decision of the High Court of
Switzerland could not have been held against Nafan. The legal
effect of MOU is already being agitated in the Civil Court where the
Court will decide its legality and validity.
66. The question therefore, arises is whether it could be said that
the MOU was such a clear unequivocal document that it presented
bsb 103 COAPPL21.15+5.doc
an open and shut case, and that a clear intention of Nafan to act on
the MOU followed therefrom and all that had to be done was to
only complete the procedural formalities of transfer. In given case,
it may be argued that a clear intention flowed from an agreement
and for all purpose it was complete and only procedural formality
remained and therefore the board even though cannot enforce the
agreement can look at the intention. However, the present case, in
my opinion, cannot be pitched at that level. Can an absolute
conclusion can be drawn that the MOU was a concluded contract
with full knowledge, it has been acted upon and after it is acted
upon only a procedural formality remains and at that stage a
grievance is being made by Nafan.
67. The question therefore is whether Nafan and Lesaffre had no
case at all to dispute that they are not bound by the MOU and a
clear intention emerged. Thus if they have a prima facie case that
the MOU was not to be acted upon and that theory is reasonably
possible then appropriate course of action for Muthu group would
be to pursue their rights in the Civil Court.
68. I have already concluded that there is no suppression on the
part of Nafan and the entire material on record is to be considered.
The MOU therefore, is now on record. According to Muthu Group,
the MOU was a culmination of series of meetings. Laloum had the
authority to sign the MOU and therefore, it is complete in all
respects. The explanation of Nafan and Lesaffre regarding the
events surrounding the MOU is through the affidavits of Denis
bsb 104 COAPPL21.15+5.doc
Lesaffre and Laloum. According to Laloum, the document i.e. MOU
was only initiation of negotiation talks. Both parties were to take it
forward. According to both Laloum and Mr.Lesaffre, this was at the
best, a rough proposal to end the dispute. Mr.Lesaffre has put on
record that when they came to know about the valuation they
immediately concluded that the price indicated in the MOU was so
ridiculous that the proposal could not be taken forward. Muthu
had also not withdrawn the contempt proceedings. Laloum has
stated that Lesaffre being a family business, the consent of family
members ought to have been taken.
69. Looking at the version put up by Nafan, I do not feel that the
theory put forward by Nafan and Lesaffre that MOU was a
document to explore possibility of settlement could be rejected
outright as absurd. After signing of the MOU there are no steps
taken by Nafan except to inquire about the valuation. Once the
valuation was informed to Nafan and Lesaffre, their reaction was
that the valuation was ridiculous. The manner and the form in
which the document stood executed and the reaction to the
valuation and in normal course of business to transfer shares, it
could not be said that an unquestionable intention flowed from the
MOU. Therefore, the Board even though it came to the conclusion
that Laloum had the authority to sign the contract did not consider
that fair valuation was one of the ingredients and after coming to
know that valuation was not fair, Nafan and Lesaffre had no
interest in taking the MOU forward. Therefore, the Board fell in
bsb 105 COAPPL21.15+5.doc
clear error to attribute an unquestionable intention on the part of
Nafan and Lesaffre to sell their shareholding.
70. Both Muthu group as well as Nafan and Lesaffre are assisted
by administrative and legal staff, as their correspondence would
show. In normal business transactions, solicitors and legal
professionals will draw documents for transfer of shares. Drafts
would be exchanged. The understanding would be reduced to a
formal documentation. There may be meetings at both ends to
finalise the decisions, there would be negotiations, discussions on
the price. Before the drafts are finalized, the parties could back out
for legitimate or otherwise reasons. If any steps were to be taken
before completion of the documents, they would be discussed
specifically. This would be the practice followed in routine business
transactions. In the present case, entire 51% shareholding of Nafan
is sought to be transferred. The value of the same clearly exceeds
millions of Euros. It is difficult to believe prima facie that Muthu
and Laloum would simply write out the entire transaction by hand
on a small piece of paper in a hotel and part ways deciding that
51% shareholding is sold, and nothing further is needed, and the
agreement stood concluded, and it constituted a transfer notice
which Muthu will unilaterally execute. One may advance lengthy
legal arguments regarding what is meant by a contract and the
binding effects etc, but any reasonable man would say, in today's
age of commercialism and professionalism, this is not the way of
two business groups of this level ,dealing with such high stakes,
bsb 106 COAPPL21.15+5.doc
will conclude the transaction. The theory put-forth by Laloum that
MOU was just document to explore possibility of further
negotiations appears to be more in tune with normal course of
business and therefore cannot be rejected outright; more
importantly, no unquestionable intention can be culled out from it.
Laloum also stated that final decision would not be taken unless
Lesaffre family decides. This also cannot be a fanciful version, as
Lesaffre is a family business.
71.
Therefore, it could not be said that the petition was filed by
only to resile out of the clear binding contract. They had placed
their stand on record that they have no intention to take the MOU
forward. Since the same MOU was interpreted to derive an
intention to order a buyout, it was nothing but indirectly granting
specific performance of the contract by the Board. It cannot be that
Board concludes that it has no power to grant specific performance
of the agreement yet it will enter into disputed areas of intention of
parties in respect of the said contract adjudicated as to whether
intention exists and then give effect to the intention. This is not
to lay down an absolute proposition then even in a case that all
ingredients of contract are satisfied only procedural formalities
remain, both parties take all possible steps to see that the contract
is to be executed even in such circumstances the Board cannot take
entry of unquestionable intention. The Board has in fact in para
165 of the impugned order rightly distinguished the case of Probir
Kumar Misra (supra) relied upon by Mr.Dwarkadas, holding that
bsb 107 COAPPL21.15+5.doc
in that case both the parties had substantially acted on the MOU,
but in the present case, it is not so. In the present case, there is a
dispute between the parties. Stand is taken by Nafan and Lesaffre
that they had absolutely no intention to take any steps based on the
MOU considering the valuation. Once their stand was clear , was
prima facie tenable, it was not open for the Board to dissect the
MOU, take out the intention and use while passing an order under
section 402, 403 of the Act.
72. Mr.Dwarkadas made a grievance that Nafan was changing
their stand regarding the status of the MOU at every stage. Firstly,
they did not accept its validity and then when they had to accept it,
they called it a neutral document. I am not impressed with this
submission. To my mind, the MOU is nothing but a red herring to
divert the controversy. Assuming MOU exists, it is the manner in
which the shareholding of Nafan has been transferred which is the
crux of the dispute.
73. Furthermore, there was another contingency in the MOU i.e.
withdrawal of contempt proceedings by Muthu group. The Board
has observed that Muthu group took immediate steps to withdraw
the contempt proceedings and it was not in the hands of the Muthu
group to withdraw the contempt proceedings. It has been placed
on record that after the MOU there were 22 dates in the Courts and
at the stage of rejoinder arguments that the contempt petition was
withdrawn. The Board has therefore, fallen in clear error to hold
that immediately after signing the MOU the contempt proceedings
bsb 108 COAPPL21.15+5.doc
were withdrawn. A stand is taken on behalf of Muthu group that
since the transfer of shares were being agitated in the Board issue
of withdrawal of contempt proceedings had become irrelevant.
Therefore, even assuming Laloum signed the MOU and Laloum
had an authority to sign the MOU it is not possible to conclude that
the MOU was complete in all respects and was at such a stage that
even notices of its execution was not necessary. In addition, there
is one aspect that is more important. The MOU is being discussed
in the context of oppression. One thing was clear was that when
the board meeting on 25 May 2009 took place, Muthu was fully
aware that Nafan was not ready for the valuation and for going
forward with the transfer of shares. Therefore, as far as Muthu is
concerned Nafan was not ready to act as per the MOU. It is with
this knowledge that MOU is taken forward by Muthu. Though it is
contended by Mr.Dwarkadas that in spite of sending the MOU there
was no response and it must be presumed that Nafan and Lesaffre
had no objection, it is too naïve to believe that in spite of the
acrimony that existed at that point of time between the parties,
Muthu would innocently believe that Nafan and Lesaffre were
ready to go by the valuation prepared by M/s Sharp & Tannan and
all that remained was formality of transfer for which no notice was
necessary. Therefore, MOU did not spell out a clear and
unequivocal intention to transfer the shares. Therefore, though the
Board was right in considering that MOU could not be specifically
enforced, erred in relying on intention, which did not exist while
passing an order under Section 402. The question of the validity of
bsb 109 COAPPL21.15+5.doc
the MOU has to be left to the Civil Court and I am of the opinion
that the version of the Nafan regarding the MOU can be termed as
so absurd that they can be ordered to sell out their shares based on
the so-called intention under the MOU. Furthermore, the crux of
the matter is the manner in which the meetings took place.
Therefore, we now come to the crucial aspect of the case that is
the Board meetings.
Nature of Board meetings
74.
The disputed Board meetings were held on 29 January 2009,
23 May 2009 and 25 May 2009. It will be necessary to reproduce
the minutes as they have been placed on record.
MINUTES OF THE MEETING OF THE BOARD OF
DIRECTORS OF SAF YEAST COMPANY PRIVATE LIMITED
HELD ON 23RD MAY, 2009 AT THE REGISTERED OFFICE
AT 419 SWISTIK CHAMBERS, MUMBAI 400071 AT 12.15
P.M.
IN ATTENDANCE :
1 Mr. A. Muthu
2 Mr. A. M. Arunachalam
3 Mr. A. M. Muthiah
4 Mr. P. B. Thatte
1 CHAIRMAN OF THE MEETING
Mr. A. Muthu was elected Chairman of the Meeting.
bsb 110 COAPPL21.15+5.doc
2 LEAVE OF ABSENCE
Leave of absence was granted to Mr. Alain Laloum and Mr.
M. E. Lesaffre.
3 CONFIRMATION OF THE MINUTES OF THE
PREVIOUS MEETING
The Minutes of the previous Board Meeting held on 17th
May, 2009 were noted, confirmed and signed by the
Chairman.
4 PURCHASE BY THE MUTHU GROUP OF THE
SHARES IN THE COMPANY HELD BY LESAFFRE GROUP
THROUGH NAFAN B. V. PURSUANT TO THE MOU DATED
23RD JANUARY 2009 - RECEIPT OF WRITTEN OPINION
FROM MR. SHANTI BHUSHAN SENIOR ADVOCATE
The Chairman referred to the discussions at the Board
Meeting held on 17th May 2009 wherein it was resolved to
seek expert legal advice on the purchase by the Muthu Group
of the Shares in the Company held by Nafan B. V. of Lesaffre
Group at the fair value as determined by the Statutory
Auditors in accordance with Article 17 of the Articles of
Association as stipulated in the MOU dated 23rd January,
2009. The chairman tabled before the Board the written
opinion dated 20th May, 2009 received from Mr. Shanti
Bhushan, an eminent Jurist and Senior Advocate of the
Supreme Court which states, inter alia, as follows:
"Having considered all the facts of the law particularly, the
Articles of Association.....
In these circumstances, the Company is required to act in
terms of Articles 18 by causing the name of Mr. A. M.
Muthiah of the Muthu Group to be entered in the Register as
the owner of these 51% shares and also to hold the payment
by Mr. A. M. Muthiah of the Muthu Group in Trust for the
Lesaffre Group for payment to the Lesaffre Group and the
bsb 111 COAPPL21.15+5.doc
receipt of the Company for the purchase money shall be good
discharge to the purchasing member and after his name is
entered in the Register in purported exercise of the aforesaid
power, the validity of the proceedings shall not be questioned
by the person".
After discussion it was:
"RESOLVED THAT the written opinion dated 20th May, 2009
from Mr. Shanthi Bhushan, Senior Advocate to the Company
be and is hereby taken on record and that the Company act
in terms of the same "
6 PURCHASE BY THE MUTHU OF THE SHARES IN THE
COMPANY HELD BY LESAFFRE GROUP THROUGH NAFAN
B. V. PURSUANT TO THE MOU DATED 23RD JANUARY
2009 OPENING OF CURRENT ACCOUNT TO HOLD THE
PURCHASE MONEY
The chairman informed the Board that the Company is
already having a Current Account with the Axis Bank Ltd.,
Chembur Branch, Mumbai for its regular operations.
However, it is necessary to open a separate Current Account
under the name and style of "SAF YEAST CO. PVT. LTD.
SHARES ACCOUNT", in addition the existing current account
for the exclusive purpose of holding in Trust, for and on
behalf of Nafan B.V., the purchase money from the Mr. A .M.
Muthiah.
After discussion it was:
"RESOLVED THAT a Current Account titled "SAF YEAST CO.
PVT. LTD. SHARES ACCOUNT", be opened with the Axis
Bank Ltd., Chember Branch, Mumbai in addition to the
existing Current Account".
"RESOLVED FURTHER THAT Mr. A. Muthu, Mr. A. M.
Arunachalam, Mr. A. M. Muthiah and Mr. P. B. Thatte,
Directors of the Company and Mr. K. K.N. Swamy, an Officer
bsb 112 COAPPL21.15+5.doc
of the Company be and hereby authorized to operate the said
Account singly".
"RESOLVED FURTHER THAT Mr. A Muthu, Mr. A. M.
Arunachalam, Mr. A. M. Muthiah and Mr. P. B. Thatte,
Directors of the Company and Mr. K. K.N. Swamy, an Officer
of the Company be and hereby authorized to draw, accept
and endorese, cheques, promissory notes and other
negotiable instruments singly".
"RESOLVED FURTHER THAT Mr. A. Muthu, Managing
Director of the Company or Mr. A. M. Muthiah, Director of
the Company of Mr. A. M. Muthiah, Director fothe Company
be and is hereby authorized to inform the said Bank in this
matter and to take such action as may be necessary to open
the said Current Account with the Axis Bank Ltd., Chembur
Branch, Mumbai".
"RESOLVED FURTHER THAT the Common Seal of the
Company be affixed wherever necessary in this regard".
Mr. A. M. Muthiah, being interested in the matter, disclosed
his interest and did not participate in the discussions.
7 PURCHASE BY THE MUTHU GROUP OF THE
SHARES IN THE COMPANY HELD BY LESAFFRE GROUP
THROUGH NAFAN B. V. PURSUANT TO THE MOU DATED
23RD JANUARY 2009 - AUTHORIZATION OF PERSON FOR
EXECUTION OF NECESSARY TRANSFER DOCUMENTS
The Chairman informed the Board that as per the provisions
of the Articles of Association and in particular Article 18, it
is necessary to authorize a person to execute the share
Transfer Forms / instrument of Transfer in the name of the
proposing Transferor Nafan B.V. in favor of Mr. A. M.
Muthiah, Purchasing Member of the 80,722 Shares from
Nafan B. V.
After discussion it was:
bsb 113 COAPPL21.15+5.doc
"RESOLVED THAT in terms of Article 18 of the Articles of
Association, Mr. K. Narasimhan, Vice President Finance, be
and is hereby authorized to execute the Share Transfer Forms
/ Transfer documents in the name of the proposing
Transferor Nafan B. V. in favour of Mr. A. M. Muthiah,
Purchasing Member of the 80,772 Shares from Nafan B. V.,
on the Company receiving the Purchase Money /relevant
consideration of Rs. 27,49,38,822/- for the 80,772 Shares,
net of TDS on capital gains from Mr. A. M. Muthiah.
"RESOLVED FURTHER THAT Mr. A. Muthu, Managing
Director be and is hereby authorized to inform Mr. K.
Narasimhan in this regard.ig
Mr. A. M. Muthiah being interested in the matter, disclosed
his interest and did not participate in the discussions.
8. Vote of Thanks
There being no other Business, the Meeting terminated with
vote of thanks to the Chair.
CHAIRMAN
* * * * *
MINUTES OF THE MEETING OF THE BOARD OF
DIRECTORS OF SAF YEAST COMPANY PRIVATE LIMITED
HELD ON 25TH MAY, 2009 AT THE REGISTERED OFFICE
AT 419 SWISTIK CHAMBERS, MUMBAI 400 071 AT 4.00
P.M.
IN ATTENDANCE:
1 Mr. A. Muthu
2 Mr. P. B. Thatte
3 Mr. A. M. Arunachalam
bsb 114 COAPPL21.15+5.doc
4 Mr.A. M. Muthiah
1 CHAIRMAN OF THE MEETING
Mr. A. Muthu was elected Chairman of the Meeting.
2 LEAVE OF ABSENCE
Leave of absence was granted to Mr. Alain Laloum and Mr.
M. E. Lesaffre.
3 CONFIRMATION OF THE MINUTES OF THE
PREVIOUS MEETING
The Minutes of the previous Board Meeting held on 17th
May, 2009 were noted, confirmed and signed by the
Chairman.
4 PURCHASE BY THE MUTHU GROUP OF THE
SHARES IN THE COMPANY HELD BY LESAFFRE GROUP
THROUGH NAFAN B. V. PURSUANT TO THE MOU DATED
23RD JANUARY 2009 - RECEIPT OF THE PURCHASE
MONEY FROM MR.A.M.MUTHIAH PURSUANT TO RECEIPT
OF WRITTEN OPINION FROM MR.SHANTI BHUSHAN
SENIOR ADVOCATE
The Chairman referred to the resolution passed pursuant to
the receipt of the written opinion from Mr. Shanthi Bhushan,
Senior Advocate, at the Board Meeting held on 23rd May,
2009 to accept the purchase money / relevant consideration
of Rs. 27,49,38,822/- net of TDS of Rs. 7,35,92,358/- on
capital gains from Mr. A. M. Muthiah, the Purchasing
Member of the 80,772 Shares and hold the same in Trust for
\
and on behalf of the proposing Transferor Nafan B. V.
The Chairman tabled before the Board a letter dated 25th
May, 2009 from Mr. A. M. Muthiah informing that an
bsb 115 COAPPL21.15+5.doc
amount of Rs. 27,49,38,822/- has been transferred from his
Account at the Axis Bank Ltd., Chembur Branch to the credit
of the Company's Account at Axis Bank Ltd., Chembur
Branch and Mr. A. M. Muthiah has requested the Company
to effect the Transfer of the 80,772 Shares from Nafan B.V.
in his favour and forward the relevant share certificates.
The Chairman also tabled before the Board an Advice dated
25.5.2009 received by the Company from the Axis Bank Ltd.,
Chembur Branch that an amount of Rs. 27,49,38,822/- has
been credited to the Company's Account from Mr. A. M.
Muthiah.
After discussion, it was:
"RESOLVED THAT in accordance with the Articles of
Association and Written Opinion received by the Company
from Mr. Shanthi Bhushan, Senior Advocate, the sum of Rs.
27,49,38,822/- being the purchase money / consideration
for the 80,722 Shares, Net of TDS, be and is hereby accepted
from the Purchasing Member Mr. A. M. Muthiah and the
same be held in Trust for and on behalf of the Proposing
Transferor Nafan B.V. till repatriation to them".
"RESOLVED FURTHER THAT a receipt for Rs.
27,49,38,822/- being the purchase money / consideration
for the purchase of 80,772 Shares from Nafan B. V., net of
TDS, be issued by the Company to Mr. A. M. Muthiah".
"RESOLVED FURTHER THAT the purchase money of Rs.
27,49,38,822/- be and is hereby transferred from the
Company's Current Account with Axis Bank Ltd., Chembur
Branch to the designated Account "SAF YEAST CO. PVT. LTD.
SHARES ACCOUNT" with Axis Bank Ltd., Chembur Branch
till repatriation to Nafan B. V."
Mr. A. M. Muthiah, being interest in the matter, disclosed his
interest and did not participate in the discussions.
bsb 116 COAPPL21.15+5.doc
5. PURCHASE BY THE MUTHU GROUP OF THE
SHARES IN THE COMPANY HELD BY LESAFFRE GROUP
THROUGH NAFAN B. V. PURSUANT TO THE MOU DATED
23RD JANUARY 2009 - ISSUANCE OF DUPLICATE SHARE
CERTIFICATES
The Chairman tabled before the Board a letter dated 23rd
May, 2009 from the Company as the Agent of the proposing
Transferor Nafan B. V. requesting the issuance of duplicate
Share Certificates for the 80,772 Shares held by Nafan B.V.
of Lesaffre Group in view of Mr. A. Laloum, Lesaffre's
nominee Director having verbally informed Mr. A. Muthu
sometime around the 20th February, 2009 that Nafan B.V.
had lost the original Share Certificates and were unable to
locate the same.
The Board discussed in detail all the aspects relating to the
issuance of duplicate share certificates in lieu of the original
Share Certificates that has been informed to be lost by Nafan
B. V. The Board having not found any adverse evidence and
taking note of the contents of the request dated 23rd May
2009 Resolved to issue the duplicate Share Certificates.
After discussion, it was:
"RESOLVED THAT the Original Share Certificates bearing
Numbers as detailed below be and are hereby cancelled
forthwith".
Original Share Distinctive
No. of Shares
Certificate No From To
6 9001 15000 6000
7 15001 20000 5000
14 36501 47500 11000
17 55001 65000 10000
18 65001 75000 10000
bsb 117 COAPPL21.15+5.doc
19 75001 85000 10000
20 85001 95000 10000
21 95001 105000 10000
22 105001 113772 8772
"RESOLVED FURTHER THAT duplicate Share Certificates be
and are hereby issued in lieu of the lost and subsequently
cancelled Share Certificates, as detailed below:
Original Share Duplicate Distinctive
No. of
Certificate No Share
From To Shares
(Cancelled) Certificate No
6 35 9001 15000 6000
7 36 15001 20000 5000
14 37 36501 47500 11000
17 38 55001 65000 10000
18 39 65001 75000 10000
19 40 75001 85000 10000
20 41 85001 95000 10000
21 42 95001 105000 10000
"RESOLVED FURTHER THAT Mr. A. Muthu, Managing
Director and Mr. P. B. Thatte, Director be and are hereby
authorized to sign the duplicate Share Certificates of the
Company under reference".
"RESOLVED FURTHER THAT the Common Seal of the
Company be affixed on the duplicate Share Certificates".
Mr. A. M. Muthiah, being interested in the matter, disclosed
his interest and did not participate in the discussions.
bsb 118 COAPPL21.15+5.doc
6. ADJOURNMENT OF MEETING
At this moment the Chairman inform the Board that the
duplicate Share Certificate need to be prepared as per law
before proceeding with the transfer and hence requested the
Board to consider an adjournment of the meeting by forty
five minutes.
After discussion, it was:
"RESOLVED FURTHER the meeting be adjourned and
reassemble at 5.15 p.m. to continue with the remaining
business, the time now being about 4.30 p.m.
ig Chairman"
* * * * *
75. The Board has concluded that the meetings held on 29
January 2009, 23 May 2009 and 25 May 2009 are illegal and the
resolutions passed in the meetings are invalid and ineffective. Mr.
De'Vitre and Mr.Khambatta contended that firstly, no such Board
meetings were held and even if had to they are illegal and contrary
to law. They submitted that admittedly Muthu Group served no
notice, which was required under the provision of Participation
agreement and as per provisions of Section 286 of the Act.
Mr.De'vitre submitted that there was no quorum and no agenda of
the meeting. Reliance was placed on clause 7.10.b of the
Participation agreement dated 22 March 1991 and clause 20.01.
He submitted that the Participation agreement was acted upon and
cited instances in respect of the same which have been reproduced
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in para 181 of the impugned order. Mr. De'Vitre submitted that
Muthu was under obligation to incorporate the Participation
agreement in Articles of Association; however, Muthu failed to do
so. He relied upon decisions in the case of Ebrahimi v.
Westbourne Galleries Ltd.21, followed in Needle Industries (India)
Ltd. v. Needle Industries Newey (India) Holding Ltd. 22 and
Anderson v. Hogg23, O'Neill & Another v. Phillips & Others 24, in
support of his submissions.
76.
On the other hand, Mr.Dwarkadas submitted that the
Participation agreement was never acted upon. The terms of the
Participation, agreement referred to by Mr. De'Vitre is in conflict
with the provisions of Articles of Association. He submitted that
Article 7.10.b of the Participation agreement is not included in
clause 3 of the proposed amendment. Mr.Dwarkadas submitted
that meetings of the Board of directors were always conducted in
accordance with the Articles of Association and notices were issued
and quorum was maintained as per the articles. It was contended
by Mr.Dwarkadas that the Participation agreement provides for
retirement by rotation. It also states that Muthu was liable to
provide personal guarantee only up to 44 per cent and secured
loans availed by M/s SAF Yeast Co. Pvt. Ltd. have been to the
extent of 100 per cent. It was contended that Muthu group was not
required to give notice to the directors outside India as per Section
21 (1972) All ER 492 at page 500
22 (1981) 3 SCC 333
23 2000 S.L.T. 634 at page 642
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286(2) of the Companies Act and the Articles of Association.
Reliance was placed on the decision of Apex Court in the case of
Vodafone International Holdings BV Versus Union of India &
anr.25, to contend that a shareholder agreement is a private
contract between shareholders compared to Articles of Association,
which is a public document, and the Articles of Association did not
contemplate any notice to the Directors outside India.
Mr.Dwarkadas contended that there was a consistent past practice
of not giving notice even to nominee Directors of Nafan, which was
continued for the meetings in question. No alternate directors were
appointed and notice was irrelevant because Muthu group would
have carried the votes in terms of their majority. He submitted that
there was quorum for the meeting and Section 299 and 300 of the
Act were not applicable. He further contended that there was no
challenge to the meetings by Nafan nor there was any prayer to set
aside the same.
77. I have considered the submissions. As regards the argument
of Nafan and Lesaffre, that the meeting dated 29 January 2009 did
not take place and the meetings were fabricated, the Board has
rendered a finding of fact that the meeting in fact was held and the
minutes were not fabricated. The Board has concluded that the
charge of fabrication is akin to fraud and heavy burden lies upon
the party to make such allegation. It is the contention of Mr.De'
Vitre that the minutes inter-se show complete inconsistencies. It is
stated that no individual or any person of Muthu group is identified
25 (2012) 6 Supreme Court Cases 613
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as purchaser. He submitted that decision taken in the minutes were
not informed to Nafan as Muthu's letter dated 20 September 2009
does not make reference to any meeting held on 29 January 2009.
He submitted that minutes were never disclosed in the
communication and no reference was made to the meeting before
the contempt proceedings. However, as rightly observed by the
Board that merely because there are contradictions in the minutes
does not per se lead to the conclusion that the minutes are
fabricated. The failure to communicate the resolutions and
minutes may amount to act of oppression and/or mismanagement,
but from this omission itself, it cannot be stated that the minutes
themselves were fabricated. The Board has taken a view that
grounds provided by Nafan were not sufficient enough to prove the
charge of fabrication which required high degree of proof. The
finding of the Board after scrutinising the evidence and considering
the burden of proof cannot be termed as perverse to be interfered
with under Section 10F of the Act. What is legal effect of the
meetings is of course open for consideration.
78. Lot has been debated about the notice of the meetings dated
29 January 2009, 23 May 2009 and 25 May 2009. It is contended
by Nafan and Lesaffre that as per the Participation agreement
notice was required to be given and out of fairness, when it is the
stand of Muthu group that the Act and the Articles of Association
did not require it to be so. According to them Participation
agreement was never acted upon. To my mind the most crucial
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aspect of service of notice is out of fairness than out of legality, and
whether probity required that the notice is to be given or not. In
the case of Kamal Kumar Dutta v/s Ruby General Hospital Ltd.
(supra), the Apex Court emphasized the need to maintain utmost
good faith. The Apex Court observed as under:
"32. Following the English cases referred to in Kalinga
Tubes Ltd., similarly in Needle Industries (India) Ltd. v.
Needle Industries Newey (India) Holding Ltd. , their Lordships
concluded as follows :
The utmost good faith is due from every member of a
partnership towards every other member; and if any dispute
arises between partners touching any transaction by which
one seeks to benefit himself at the expense of the firm, he
will be required to show, not only that he has the law on his
side, but that his conduct will bear to be tried by the highest
standard of honour."
"35. In M/s. Madhusoodhanan and Anr. v. Kerala Kaumudi
(P) Ltd. and Ors. reported in (2004)9SCC204 , it was found
that notice not less than 21 days was not given by personal
service or service by post and on facts it was found that
requirement of Section 189 of the Act was not complied with.
Under Section 53 of the Act, service of notice of the Board's
meeting by post and by certificate of posting were not found
to be reliable when the relationship between the parties was
already bitter. In this case, on evidence it was found that the
entries in the register were not sufficient to establish the
service of notice on the Director. So far as service by
certificate of posting, it raises a rebuttable presumption and
the onus is on the addressee to show that the document
under certificate of posting was not received by him.
36. In Dale & Carrington Investment (P) Ltd. v. P.K. Parthapan
and Ors. reported in, (2005)1SCC212 , their Lordships with
regard to oppression held if a member who holds the
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majority of shares in a company is being reduced to the
position of minority shareholder in the company by mala
fide act of the company or by its Board of Directors, such act
must ordinarily be considered to be an act of oppression
against the said shareholder and what relief should be
granted would depend on the facts of the case. The facts of
the present case at hand are almost akin to the case referred
to above. Allotment of additional shares to the Managing
Director was found to be sole objective to gain control by
becoming majority shareholder. That allotment was found to
be mala fide and not in the interest of the company and no
legal procedure prescribed in Articles of Association was
followed and it was found to be a clear case of an act of
oppression on the part of R towards P, the majority
shareholder.
41. In Halsbury's Laws of England, 4 th Edn., Vol.7, para
1011, it is stated :
"1011. Conduct amounting to oppression.- In this context,
'oppressive' means burdensome, harsh and wrongful. It does
not include conduct which is merely inefficient or careless.
Nor does it include an isolated incident; there must be a
continuing course of oppressive conduct, which must be
continuing at the date of the hearing of the petition. Further,
the conduct must be such as to be oppressive to the
petitioner in his capacity as a member; whatever remedies
he may have in respect of exclusion from the company's
business by being dismissed as an employee or a director, he
will have none under the provisions relating to oppression.
On the other hand, these provisions are not confined merely
to conduct designed to secure pecuniary advantage to the
oppressors; they cover the case of wrongful usurpation of
authority, even though the affairs of the company prosper in
consequence.
42. In Palmer's Company Law, 23 rd Edn.,p.848 it is
stated :
"64-02. Relationship is with company: the fiduciary
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relationship of a Director exists with the company; the
Director is not usually a trustee for individual shareholders.
Thus, a Director may accept a shareholder's offer to sell
shares in the company although he may have information,
which is not available to that other, and the contract cannot
be upset even if the Director knew of some fact, which made
the offer an attractive proposition. So in Percival v. Wright a
person who had approached a Director and sold him shares
in the company, afterwards, upon discovering that the
Director had known at the time of the contract that
negotiations were on foot for the purchase by an outsider of
all the shares in the company at a higher figure, could not
impeach the contract. In his judgment Swinfen- Eady,J. said'
there is no question of unfair dealing in this case. The
Directors did not approach the shareholders with the view of
obtaining their shares. The shareholders approached the
Directors and named the price at which they were desirous
of selling'.
43. In Pennington's Company Law, 6th Edn. At pp.608-09,
it is stated
Directors owe no fiduciary or other duties to individual
members of their company in directing and managing the
company's affairs, acquiring or disposing of assets on the
company's behalf, entering into transactions on its behalf, or
in recommending the adoption by members of proposals
made to them collectively. If the Directors mismanage the
company's affairs, they incur liability to pay damages or
compensation to the company or to make restitution to it,
but individual members cannot recover compensation for the
loss they have respectively suffered by the consequential fall
in value of their shares, and they cannot achieve this
indirectly by suing the Directors for conspiracy to breach the
duties which they owed the company. However, there may be
certain situations where Directors do owe a fiduciary duty
and a duty to exercise reasonable skill and care in advising
members in connection with a transaction or situation
which involves the company or its business undertaking and
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also the individual holdings of its members.
Therefore, the upshot of the above discussions is that the
Directors are in a position of a trust. They must confirm to
the probity and their conduct should be above suspicion.
(emphasis supplied)
79. With this above emphasized dicta of the Apex Court, I will
proceed to consider the rival contentions. The Board in Paragraph
no 3.7 of the impugned order has reproduced the relevant
clauses of the Participation Agreement. First, the argument
regarding the notice based on the Participation agreement and the
Act. The Board has found that the parties acted upon the
Participation agreement. It held that the execution of Participation
agreement has not been disputed and it was acted upon. The
Participation agreement was not unlawful, it was never cancelled,
certain terms were acted upon, and the agreement was not contrary
to the Articles of Association or the Act. Before me, it is not
contended that the Participation agreement never existed. The
Participation agreement was entered into on 22 March 1991. The
Company had been formed in August 1981 and it was after 10
years that the participation agreement was executed. The relevant
clause of the Participation Agreement is as under :
"(h). In accordance with Article 7.10(b) at least 14 days
notice was required for every meeting of the Board of
Directors to be given in writing to every director, including
directors outside India and to their alternates, if any, in
India along with an agenda for the meeting."
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80. The Board has held that the Participation Agreement required
notice to be given to the directors present in India for the time
being and to the directors residing outside. That the Participation
Agreement provides so is not disputed and that no notice was
given. The debate is whether the Participation Agreement is
contrary to the Act and the Articles of Association, and whether the
Participation Agreement was acted upon and is binding. Article 55
and Section 286 of the Act are reproduced as under :
"Article 55 : A Director may at any time convene a
meeting of the Directors. A director who is at any time
not in India shall not during such time be entitled to
notice of any such meeting.
Section 286 of the Act : 286. Notice of meetings.
Section 286 : Notice of Meetings
(1) Notice of every meeting of the Board of directors of
a company shall be given in writing to every director for
the time being in India, and at his usual address in India
to every other director.
(2) Every officer of the company whose duty it is to give
notice as aforesaid and who fails to do so shall be
punishable with fine which may extend to one hundred
rupees.
Neither Article 55 nor Section 286 of the Act state that the notice
that shall not be given in any circumstances to a director residing
outside. Art.55 refers to a director who at present not in India. It
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only indicates that one who has gone out will not be entitled to any
notice. This article will have to read in a common sense manner. It
does not refer to the directors who are 'residing' outside India. The
articles are the one agreed by the parties and they will have to be
read in that manner. It is inconceivable that the parties meant that
Muthu Group could do what they want; take decisions of any
magnitude like shutting down the plants, without notices to Nafan.
The articles regulating notice of meetings cannot be stretched to an
absurd limit. The Participation agreement therefore, only provides
an additional methodology rooted in fairness concerning the notice
to the directors outside. The requirement under the Participation
agreement can only be termed as supplementary. The relevant
clause of the Participation Agreement is not in conflict with the
Articles of Association and the Act. The Board did not commit any
error on this count.
81. There was a considerable debate at the bar in respect of the
observations of the Apex Court in the case of Vodafone
International. Reliance was placed on the following observations in
the opinion rendered by Radhakrishnan J. as under :
"261. Shareholders' Agreement (for short SHA) is essentially
a contract between some or all other shareholders in a
company, the purpose of which is to confer rights and
impose obligations over and above those provided by the
Company Law. SHA is a private contract between the
shareholders compared to Articles of Association of the
Company, which is a public document. Being a private
document it binds parties thereof and not the other
bsb 128 COAPPL21.15+5.doc
remaining shareholders in the company. Advantage of SHA
is that it gives greater flexibility, unlike Articles of
Association. It also makes provisions for resolution of any
dispute between the shareholders and also how the future
capital contributions have to be made. Provisions of the SHA
may also go contrary to the provisions of the Articles of
Association, in that event, naturally provisions of the
Articles of Association would govern and not the provisions
made in the SHA.
262. The nature of SHA was considered by a two Judges
Bench of this Court in V. B. Rangaraj v. V. B. Gopalakrishnan
and Ors. (1992) 1 SCC 160. In that case, an agreement was
entered into between shareholders of a private company
wherein a restriction was imposed on a living member of the
company to transfer his shares only to a member of his own
branch of the family, such restrictions were, however, not
envisaged or provided for within the Articles of Association.
This Court has taken the view that provisions of the
Shareholders' Agreement imposing restrictions even when
consistent with Company legislation, are to be authorized
only when they are incorporated in the Articles of
Association, a view we do not subscribe to.
263. This Court in Gherulal Parekh v. Mahadeo Das Maiya
(1959) SCR Supp (2) 406 held that freedom of contract can
be restricted by law only in cases where it is for some good
for the community. Companies Act 1956 or the FERA 1973,
RBI Regulation or the I.T. Act do not explicitly or impliedly
forbid shareholders of a company to enter into agreements
as to how they should exercise voting rights attached to their
shares.
264. Shareholders can enter into any agreement in the best
interest of the company, but the only thing is that the
provisions in the SHA shall not go contrary to the Articles of
Association. The essential purpose of the SHA is to make
provisions for proper and effective internal management of
the company. It can visualize the best interest of the
company on diverse issues and can also find different ways
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not only for the best interest of the shareholders, but also for
the company as a whole.
265. In Shanti Prasad Jain v. Kalinga Cables Ltd . (1965) 2
SCR 720, this Court held that agreements between non-
members and members of the Company will not bind the
company, but there is nothing unlawful in entering into
agreement for transferring of shares. Of course, the manner
in which such agreements are to be enforced in the case of
breach is given in the general law between the company and
the shareholders. A breach of SHA which does not breach
the Articles of Association is a valid corporate action but, as
we have already indicated, the parties aggrieved can get
remedies under the general law of the land for any breach of
that agreement.
266. SHA also provides for matters such as restriction of
transfer of shares i.e. Right of First Refusal (ROFR), Right of
First Offer (ROFO), Drag-Along Rights (DARs) and Tag-
Along Rights (TARs), Pre-emption Rights, Call option, Put
option, Subscription option etc. SHA in a characteristic Joint
Venture Enterprise may regulate its affairs on the basis of
various provisions enumerated above, because Joint Venture
enterprise may deal with matters regulating the ownership
and voting rights of shares in the company, control and
manage the affairs of the company, and also may make
provisions for resolution of disputes between the
shareholders."
Based on the above decision, it is strenuously contended by
Mr.Dwarkadas that the Participation agreement, i.e. a Shareholder
agreement can never be contrary to the Act as well as Articles of
Association. However, I do not think an elaborate discussion is
necessary, as the clause, which gives an additional safeguard of
notice, is not in conflict with the Act and the Articles of Association.
The articles do not say under no circumstances notice need not be
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given to those residing outside India.
82. Turning now to the argument of Mr.Dwarkadas that the
Participation agreement was not acted upon. On the other hand, it
is the contention of Mr.De'Vitre that it was substantially acted upon.
The Board has taken note of the following events.
(i) In 1992, after the Participation Agreement, the
paid up capital of the Company was increased and the
shareholding of the Petitioner/Respondent No.8 was
increased from 40% to 51% as provided In Clauses 5.2
and 5.3 of the Participation Agreement Respondent No.
2's rights in the additional shares were offered to
Lesaffre, resulting in Lesaffre owning 51% of the paid up
capital; in doing so, the Parties acted as per
Clause 5.3 of the Participation Agreement.
(ii) The AOA mentions that Mr. Muthu would be the
Managing Director of R1 for a period of 15 years only
(Article 48 of AOA @ page 79 of Volume 1), acting
under Article 7.6 of the Participation Agreement page
108 of Volume 1), Muthu has continued as the
Managing Director of R1 even after the expiry of 15
years;
(iii) After, the retirement Mr. B.B. Paymaster, as
chairman only the Respondent No.8/ Petitioner's
nominee Directors acted as the Chairman of the Rl
acting under Article 7.6 of the Participation Agreement
page 108 of Volume 1;
(iv) The AOA do not provide for Board of Director
meetings to be held outside India; by Article 7.10 (a) of
the Participation Agreement page 111 of Volume 1, it was
provided that Board Meetings may be held in or outside
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India; Board Meetings have in fact been held outside India,
acting on Clause 7.10 (a) of the Participation Agreement-
See: Board Meeting dated April 2005 held in France;
(v) Respondent No.8/Petitioner provided technical and
financial assistance to the R1;
(vi) Pursuant to the 06 June 1981 Agreement, the
Respondent Company No.1 was incorporated with the
name "Saf Yeast" Clause IV(2) of the first agreement
dated 06 June 1981 provided that " ... At any time,
should Lesaffre wish to acquire further shares in SAF
Yeast Co., Mr. Muthu is prepared to sell to Lesaffre or
any other individual or legal entity Lesaffre might
name, 25% of his shareholdings to enable Lesaffre to
have majority share holdings of SAF Yeast Co ". The
1991Participation Agreement provided for the continued
use of the trade name 'SAFon the terms set out therein;
(vii) Respondent No.3 and 4 were appointed as
Directors of the RI Company acting upon;
(viii) By its letter dated 30 May Respondent No.1
Company acting through Respondent No.2 as its
Managing Director, confirmed its total and
unconditional acceptance of various points in
accordance with the 6 June 1981 Agreement and the
Participation Agreement of 22 March 1981. All parties,
including the Company, clearly acted on the
Participation Agreement.
Mr.Dwarkadas commented on each of these grounds mentioned by
the Board and contended that these findings of fact are erroneous.
He contended that no efforts were ever made to modify the Articles
of Association. The increase in shareholding was based on an
understanding prior to Participation Agreement. Muthu was also
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Managing Director before the Participation Agreement. Nothing
was shown that any Joint Managing Director was appointed
pursuant to the Participation Agreement and Muthu nowhere
confirmed the acceptance of the Participation Agreement. He
contended that no steps were taken to get the Participation
Agreement incorporated. He submitted that the Participation
Agreement was never implemented and it remained, at the best, a
private agreement.
83.
Mr. De'Vitre, on the other hand, has countered each of the
assertions of Mr.Dwarkadas and contended that the Participation
Agreement was acted upon. He submitted that as per the
agreement when income of the Company increased and the
shareholding, additional shares were offered. Muthu continued
beyond the expiry of 15 years. Though Articles of Association did
not specify that meetings to be held outside India, they were so
held under Article 7.10(a) of Participation Agreement and pointed
out the circumstances in which steps were taken pursuant to
Participation agreement.
84. I do not think it is not possible to re-evaluate the entire
evidence in the limited jurisdiction under Section 10-F, to find out
the exact manner and which circumstance can be attributed to
Participation Agreement. Suffice to note that, it cannot be said that
the parties in terms of the Participation agreement took no steps at
all. The Participation agreement existed. Both the parties entered
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into it. Some steps were taken pursuant to the Participation
agreement and it did not remain only a dead letter. The Muthu
group knew that the Participation agreement required notice to the
directors outside India. The stand of Muthu group that neither
Articles of Association nor the Act required that notice be given,
apart from not being tenable, is not reasonable. The argument that
in the past no such notices were given is also not tenable. The
decision of exit of one group and bringing the association, which
existed for decades to an end, was one of the most important
decision for SAF Yeast. It was not an ordinary routine business to
be transacted. Neither the Articles of Association nor Section 286
prohibited issuance of notice for such decision. The Participation
agreement contemplated issuance of notice. Ultimately, the
allegations of all acts of oppression are rooted more in fairness than
in legality. Once the Participation agreement existed and it
contemplated issuance of notice, it was only reiteration of the
obvious, which is otherwise a requirement. In fairness, the notice
ought to have been given. It is the most unfair stand to be taken
that the Articles of Association were not amended to include
Participation agreement even though it was acted upon in same
manner, and therefore, no notice before transfer of shareholding
was required to be given. Such argument defies all notions of
fairness.
85. The Board has rightly emphasized that merely because
Participation Agreement did not legally became part of the Articles
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of Association, parties knew its existence and the fact that the
Participation Agreement required a notice to the Directors to be
given outside India. The Board rightly observed that since this term
was not contrary to the Articles, and the Act, Muthu Group was not
entitled to say that it need not give notice because Participation
Agreement was not part of the Articles of Association.
Furthermore, it is the case of the Nafan and Lesaffre that the
incorporation of Participation Agreement into Articles of
Association had to be done by Muthu. When both the groups co-
existed for more than 20 years and the meetings were to determine
the exit of one group, that too in acrimonious circumstances, notice
was required. Neither in the Articles of Association nor in Section
286 nor in any decision dealing with the similar factual situation at
hand, has it been stated that it is not necessary to give notice in
such circumstances. The findings of the Company Law Board that
the meetings of 29 January 2009, 23 May 2009 and 25 May 2009
were illegal for want of notice cannot be termed, as perverse. The
Company Law Board has also rightly taken note of the fact that the
agenda of the meeting was not circulated. The agenda is not
produced on record for the meetings of 29 January 2009, 23 May
2009, and 25 May 2009. This is an additional ground.
86. The Board has held that the meetings of 23 May 2009 and 25
May 2009 were illegal and oppressive. As regards the meeting
dated 29 January 2009, the Board has held that it is illegal but not
oppressive as it was as per MOU. This finding is not correct. The
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meeting of 29 January 2009 cannot be read in isolation. The series
of acts of Muthu constituted ground of oppressive. It was a larger
scheme of things. If notice had been issued, Nafan would have
either placed their version regarding MOU or agreed on some basic
principles of valuation. Muthu seem to have in hurry to call for
valuation as the events unfolded, which have been discussed
subsequently, such as, the role of Sharp & Tannan. The meeting of
21 January 2009 also has to be held as oppressive apart from being
illegal. The finding of the Board to that effect will have to be
modified.
87. Next heads of debate are whether the MOU could be treated
as a transfer notice, issuance of duplicate shares and the manner
of valuation of shares by the valuer. I have already held that the
holding of these meetings without notice to the Nafan and Lesaffre
was illegal, unfair, and oppressive and the findings of the Company
Law Board on that count are not perverse, except the modification
above. However, the main argument advanced by the Muthu group
is that the MOU was a transfer notice and transfer was effected as
per the Articles. Question then arises is whether the MOU
constituted a transfer notice. The learned counsel advanced the
detailed submissions on the interpretation of the articles to
demonstrate that the MOU can be treated as a transfer notice.
There was also a question as to whether the transfer between
member to member is covered by first part of Article 14 of the
Articles of Association and the applicability of Articles 15, 18, 19
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and 22 in respect of transfer of shares.
88. At this stage, it is necessary to reproduce the relevant Articles
14 to 22.
'14. A share may be transferred by a member or other
person entitled to transfer to any member or other person
entitled to transfer to any member selected by the transferor
but save as aforesaid and save as provided by these Articles,
no share shall be transferred to a person who is not a
member so long as any member, or any person selected by
the Directors as one whom it is desirable in the interest of
the Company to admit to membership is willing to purchase
the same at the fair value mentioned in Article (15) hereof.
15 The person proposing to transfer any shares
(hereinafter called "the proposing transferor") shall give
notice in writing (hereinafter called "the transfer notice"to
the Company that he desires to transfer the same. Such
notices shall constitute the Company his agent for the sale of
the shares to any member of the Company or person selected
as aforesaid at a fair value to be agreed upon between the
proposing transferor and the purchasing member and in
default of such agreement to be fixed by the Auditors of othe
Company provided in Article 17 hereof. The transfer notice
may include several shares and in such case shall operate as
if it were a separate notice in respect of each share. The
transfer notice shall not be revocable except with the
sanction of the Directors.
16 If the Company shall, within the space of sixty days
after being served with such notice find a member or person
selected as aforesaid willing to purchase the share
(hereinafter called "the purchasing member") and shall give
notice thereof to the proposing transferor, he shall be bound
upon payment of the fair value to transfer the shares to the
purchasing member.
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17 In case any difference arises between the proposing
transferor and the purchasing member as to the fair value of
the share, the Auditors of the Company may certify the fair
value and the same shall be binding on the proposing
transferor and the purchasing member.
18 If in any case the proposing transferor after having
become bound as aforesaid makes default in transferring the
shares, the Company may receive the purchase money and
shall thereupon cause the name of the purchasing member
to be entered in the Register as the holder of the shares, and
shall hold the purchasing money in trust for the proposing
transferor. The receipt of the Company for the purchase
money shall be good discharge to the purchasing member,
and after his name is entered in the Register in purported
exercise of the aforesaid power, the validity of the
proceedings shall not be questioned by any person. The
Company may authorise any person to execute the necessary
transfer document in the name of the proposing transferor.
19 If the Company shall not, within the space of sixty
days after being served with the transfer notice, find a
member or person selected as aforesaid, willing to purchase
the shares or any of them and give notice in manner
aforesaid, the proposing transferor shall at any time
thereafter be at liberty subject to Article 20 hereof to sell and
transfer the shares to any person at any price.
22 The Directors may at their absolute and uncontrolled
discretion decline to register or acknowledge any transfer of
shares and shall not be bound to give any reason for such
refusal and in particular may so decline in respect of shares
upon which the Company has a lien. These Articles shall
apply notwithstanding that the proposed transferee may be
already a member'.
Transfer of shares in a company are governed by Section 108 of the
Act. Section 108 (1) and (1A) of the Act which read as follows:
bsb 138 COAPPL21.15+5.doc
"108. (1) A company shall not register a transfer of shares in,
or debentures of, the company, unless a proper instrument of
transfer duly stamped and executed by or on behalf of the
transferor and by or on behalf of the transferee and specifying
the name, address and occupation, if any, of the transferee,
has been delivered to the company along with the certificate
relating to the shares or debentures, or if no such certificate is
in existence, along with the letter of allotment of the shares or
debentures: Provided that where, on an application in writing
made to the company by the transferee and bearing the stamp
required for an instrument of transfer, it is proved to the
satisfaction of the Board of directors that the instrument of
transfer signed by or on behalf of the transferor and by or on
behalf of the transferee has been lost, the company may
register the transfer on such terms as to indemnity as the
Board may think fit: Provided further that nothing in this
section shall prejudice any power of the company to register
as shareholder or debenture holder any person to whom the
right to any shares in, or debentures of, the company has been
transmitted by operation of law.
[(1A) Every instrument of transfer of shares shall be in such
form as may be prescribed, and -
(a) every such form shall, before it is signed by or on behalf of
the transferor and before any entry is made therein, be
presented to the prescribed authority, being a person already
in the service of the Government, who shall stamp or
otherwise endorse thereon the date on which it is so
presented, and
(b) every instrument of transfer in the prescribed form with
the date of such presentation stamped or otherwise en- dorsed
thereon shall, after it is executed by or on behalf of the
transferor and the transferee and completed in all other
respects, be delivered to the company,-
(i) in the case of shares dealt in or quoted on a re-
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cognised stock exchange, at any time before the date on which
the register of members is closed, in accordance with law, for
the first time after the date of the presentation of the
prescribed form to the prescribed authority under clause (a)
or within [twelve months] from the date of such presentation,
whichever is latter;
(ii) in any other case, within two months from the date of
such presentation."
89. The Board held that the first part of Article 14 is the separate,
distinct, and all independent of latter part of Article 14. The Board
has held that even if all the Articles constitute a scheme, the
transfer notice must satisfy both the conditions stipulated in Article
15, that it must be a specific notice of the member desiring to
transfer the shares and it must appoint a Company as the agent.
The Board has held that the MOU did not satisfy these
requirements.
90. Mr.Dwarkadas assailed the finding of the Board on the
Articles of Association. Mr.Dwarkadas contended that Article 14,
15, 17 and 22 are applicable to transfer of shares between
members, as is contemplated under the MOU. According to him,
the SAF Yeast was validly appointed as an agent of Nafan, the
proposing transferor, and it had validly exercised its powers under
Article 18. According to Mr.Dwarkadas, the argument that Article
15 and 19 will apply only to a transfer to a non-member is incorrect
as seen from the scheme of the Articles. He submitted that right to
transfer shares is not unfettered and the Article 14 makes it clear
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that even transfer inter-se between members is regulated in the
manner provided by the Articles. He contended that Articles
contemplate transfer notice by A Person proposing to transfer any
shares and article 15 applies even to a member-to-member transfer.
He submitted that the Articles 14 to 22 would have to be read
harmoniously. According to Mr.Dwarkadas Article 16 has no
application in the case of transfer between members inter-se. As
regards Article 17 read with Article 15, according to Mr.Dwarkadas
it would be in a case where there is a disagreement of the price of
shares to be transferred. Article 19 according to him applies only
where the proposed transferor has not contracted to sell his shares
to another member. He contended that last sentence in Article 22
contains words 'these articles' being in plural will apply event to
member to member transfer. According to Mr.Dwarkadas,
combined reading of Articles as scheme is to facilitate a smooth
expeditious transfer of shares by a member and it is for this reason
that the Articles provide for distinct schemes. Irrespective of
whether the transfer is between the members, which is covered by
first part of Article 14 it has to read with 15, 17, 18, and 22.
Mr.Dwarkadas placed reliance on the decision of Holmes and
another v Keyas and others26, rendered by Court of Appeal in
England and decision of the Malaysian Court of Appeal in Lo Mu
Sen & Sons (SDN) BHD & ANOR27.
91. Mr.Khambatta and Mr.De'Vitre submitted that unlike a public
26 (1958) 2 W.L.R.772
27 (2002) 2 CLJ 184.
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Company the transfer of shares in a private limited company can be
subjected to restrictions, but there is no prohibition. They
submitted that the purpose of such restrictions is to ensure that the
company remains closely held and the entry of outsider is not easily
possible. It was submitted that under Section 27(3) of the Act,
restrictions might be imposed if the shareholder is put to notice of
the restrictions and there cannot be an absolute prohibition on
transferability. Reliance was placed on the decisions of Greenhalg
v. Mallard28 and V.B.Rangaraj v. V.B.Gopalakrishnan29. It was
argued that a private company might impose restrictions on the
transferability only if the shareholder is put to express notice of the
restrictions in the Articles, in the language of sufficient clarity.
Referring the decision in the cases of Chiranji Lal Jasrasaria v.
Mahabir Dhelia30 and Shyamdhan Chakraborty v. Presidency
Nursing Homes Pvt. Ltd.31, it was submitted that restrictions on
transferability in the Articles could not provide for any absolute
prohibition against transferability. Even the right of pre-emption
does not constitute an absolute fetter on transferability. It was
submitted that generally Court should lean towards transferability
of shares keeping in mind pre-emption clause with sufficient
latitude. Reliance is placed on the decisions in Enercon Gmbh v/s.
Enercon (India) Ltd. & ors.32, Ratan Mohan Sarda & ors. v/s
Capricon Oils Ltd. And ors.33, and Dhanraj Mills Pvt. Ltd. and
28 (1943) 2 LL ER 234 (CA) at 237
29 AIR 1992 SC 453.
30 (AIR)1996 Assam P48)
31 (1975) ILR 2 Cal. Page 219
32 (2008) 143 Comp Cas 687 (CLB)
33 (2010) 157 Comp Cas 470 (CLB)
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anr. v/s Global Trust Bank Ltd. & ors.34. It was contended that
Article 14 gives unfettered right to transfer the share to another
member and the second part of Article 14 refers to restriction by
way of pre-emptive right in favour of the members of the Company.
According to the learned counsel, prohibition against transfer
operates only in respect of a proposed transfer to a non-member
and it is for that reason that the Article subjects the right of transfer
to a non-member selecting the existing member or person selected
by directors. It was further submitted that the restrictions of
transfer to a non-member attracts provision of Article 15 to 19 and
these Articles will apply only when transfer is proposed to a non-
member. Reliance was placed on the decision of Holmes V. Lord
Keves (supra). It was submitted that there is no question of
appointing the Company as an agent only for a member-to-member
transfer. It was submitted that, in any case, the MOU could not be
a transfer notice, as Article 15 requires a notice to be given by a
proposed transferor to the Company and expressly authorizing the
Company as proposing transferor's agent and without any such
authority, the transfer is void. It was also submitted that any
document by which desire to transfer share is envisaged does not
become a transfer notice. Article 15 must constitute the Company
as an agent and the company cannot infer the intention. Reliance
is placed on the decision in the case of Lyle & Scott Ltd. v. Scott's
Trustee35. It was contended that the MOU only refers to Article 17
for the purpose of valuation and does not constitute any transfer
34 (2003) 105 BOMLR 609
3 5 (1959) 2 AII ER 661
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notice.
92. I have considered the submission. Muthu group has treated
the MOU as a transfer notice and authorizing the company to
transfer the shares. The first question is whether the first part of
Article 14 is separate, distinct, and independent of the latter part,
and whether Articles 15 and 18 are applicable. Article 14 is
reproduced again for the sake of convenience.
'14. A share may be transferred by a member or other
person entitled to transfer to any member or other person
entitled to transfer to any member selected by the transferor
but save as aforesaid and save as provided by these Articles,
no share shall be transferred to a person who is not a
member so long as any member, or any person selected by
the Directors as one whom it is desirable in the interest of
the Company to admit to membership is willing to purchase
the same at the fair value mentioned in Article (15) hereof.'
(Emphasis supplied)
93. Discussion on this aspect needs to be prefixed by two
fundamentals. First, the articles will have to be read as a document
drafted by businessperson to conduct their affairs. Second, any
restriction in the articles must be spelt out with sufficient clarity. If
we read Article 14 plainly, first part says that a member may
transfer the shares or other person is entitled to transfer to any
member selected by the transferor. This part covers a contingency
of a transfer of share by a member entitled to transfer to any other
member. In case of a public limited company listed on the stock
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exchange, the shares are generally freely transferable. In a private
limited company share transfers can have restrictions. However,
normally there is no absolute bar to transfer the shares. As a broad
proposition, generally law does not recognize an embargo on
transfer of shares. The first part of Article 14 therefore merely
reiterates the obvious position that a member can transfer the share
to another member. This obvious position is stated only to
emphasize the restrictions that follow in the second part of Article
14. Second part states that the shares shall not be transferred to a
person who is not a member, as long as any member or any person
selected by the directors is willing to purchase the same at a fair
value. Such embargos are placed in closed held Company to keep
them that way, discouraging the outsiders. The Article 15, 16, 17
and 18 thereafter lay down a methodology where the Company
gets involved for transfer of shares and steps in as an agent. There
is no logic for going through the entire process of making the
Company an agent if the share transfer is between the members.
The Articles are drafted by the businesspersons to govern
themselves. When one member decides to transfer the shares to
another, they would inform the Company. There is no special
reason why in respect of this Company they should go through the
entire gamut of making company the agent. This document simply
and clearly contemplates this elaborate machinery for member to
non-member transfer. The reading of the articles need not be made
deliberately complicated and opposed to common sense, merely
because such interpretation justifies the action taken by Muthu
bsb 145 COAPPL21.15+5.doc
group. If the present dispute had not arisen and the articles were
to be interpreted in a routine manner, any reasonable reader would
read them as for member-to-member transfer, there is no question
of making the Company agent, fair valuation etc. The articles
cannot be read in absurd manner or only because reading them in
this manner in retrospect justifies actions of Muthu group. The
finding of the Board that clause 14 is a distinct scheme did not
subject to restrictions in the other articles, is a possible view to be
taken, and is not perverse.
94.
Furthermore, even assuming Article 15 applies it will have to
be strictly followed. Article 15 reads as under:
'Article 15. The person proposing to transfer any shares
(hereinafter called "the proposing transferor") shall give
notice in writing (hereinafter called "the transfer notice"to
the Company that he desires to transfer the same. Such
notices shall constitute the Company his agent for the sale of
the shares to any member of the Company or person selected
as aforesaid at a fair value to be agreed upon between the
proposing transferor and the purchasing member and in
default of such agreement to be fixed by the Auditors of the
Company provided in Article 17 hereof. The transfer notice
may include several shares and in such case shall operate as
if it were a separate notice in respect of each share. The
transfer notice shall not be revocable except with the
sanction of the Directors.'
Article 15 states that any person proposing to transfer his shares
shall give notice in writing to the Company and the notice shall
constitute a Company as an agent, which will then step in and
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undertake further acts as provided in subsequent Articles. The
person giving notice to the Company must have a clear and
unequivocal intention that he desires to transfer the shares.
Further, the notice must specifically appoint the Company as the
agent. The words 'Notice shall constitute' does not mean the
factum of notice to transfer itself will automatically constitute the
company as agent. 'Notice shall constitute' means notice 'must'
constitute the company as an agent. There cannot be a notice by
implication, because it will lead to uncertainty and confusion. The
notice will have to be clear, and addressed to the Company to
constitute an agent.
95. Even assuming that even this was done, the Article 16
mandates the Company, within period of 60 days after having been
served with a notice to find a member or person selected to
purchase the shares and give notice to proposing transferor. No
such notice was given to Nafan.
96. Mr.Dwarkadas placed heavy reliance on the phrase 'these
articles apply' occurring in article 22. However if this argument is
accepted then it runs counter to the argument that Article 14 to 22
do not apply to member to member transfer. If this argument is
taken to logical conclusion then after period of 60 days, the
member will be free to transfer shares to any person and there will
be no agency left in the Company. The finding of the Board that
Article 22 will not cover the first part of the Article 14 to the
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scheme of other articles is correct. To accept this argument will be
artificially stretching the meaning of the article.
97. The Articles are not to be read like a statute. Restrictions on
transfer of shares from one member to another have to be specific
(see Greenhalg (supra) and V.B.Rangaraj (supra). Restrictions
have to be clear to the concerned members. Further, such
restrictions have to be strictly construed. If Article 15, 16 and 17
were to apply in member-to-member transfer, then the concept of
fair value mentioned therein will lead to absurd reasons. There
could be cases where the members have agreed on a fixed price.
Such fixed price will be a fair value for them. If the interpretation
of Mr.Dwarkadas is to be accepted, it will mean fair value has to be
fixed only after the Company received the transfer notice. Then it
will be that there will be no contract of sale until the transfer
notice. Businesspersons to regulate their affairs have framed the
Articles. If they wanted to place restrictions on themselves for inter-
se transactions by providing a methodology to give notice to the
Company to appoint a valuer and fixed fair value, they would have
been so specifically provided. Such interpretation cannot be foisted
because it validates the acts of one group. The interpretation
placed on these articles has to be seen in the context of charge of
oppression of unilaterally taking MOU as notice and transferring
the shares. Question therefore is, whether the articles were so clear
in their purport that even no notice was necessary. For any
businessperson reading these articles, the interpretation placed on
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the articles by Muthu group will not be reasonable. Muthu group
has deliberately gone ahead and transferred the shares without
notice and now are arguing all possible interpretations of the
articles. To my mind therefore, as stated earlier, the finding of the
Board that the first part of Article 14 is regarding member-to-
member transfer is a distinct provision, and not subject to other
restrictions, cannot be termed as perverse.
98. This view also finds support in the observation of the Apex
Court in the case of Claude Lila Parulekar Vs Sakal Papers (P)
Ltd. & ors.36. In this case, the Apex Court analyzed the Articles of
Association of Sakal papers, which was put in issue. The Apex
Court held that there were four categories in the hierarchy - first:
the pre-emptors; second: any member willing to purchase the
shares at a fair value; third: any person selected by directors;
fourth: the person to whom transferor may choose to sell the
shares. The Apex Court held that only in the second and third case,
the directors need to be constituted as agents. The following
articles came up for consideration before the Apex Court. Articles
57-A and 58 to 64, read as under:
"57-A. In the event of any member of Company desires to
transfer his shares he shall be bound to offer the same either
to Dr. N.B. Parulekar or to Madame Shanta Parulekar or
such other person or persons as Dr. N. B. Parulekar or
Madame Shanta Parulekar may direct or may nominate and
in which event the transferee or transferees shall pay such
36 (2005) 11 SCC 73
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price as may be certified by the Auditors of the Company."
58. Subject to Cl.57A no shares shall be transferred so long
as any member or any person selected by the Directors as
one to whom it is desirable in the interest of the Company to
admit to membership, is willing to purchase the same at the
fair value as mentioned herein below.
59. Except where the transfer is made pursuant to Article
here of, the person proposing to transfer any share shall give
notice in writing to the Company that he desires to transfer
the same. Such notice shall constitute the Directors his
agents for the sale of the share to any member or persons
selected as aforesaid, at a fair value to be agreed upon
between the Transferor and the purchaser and in default of
such agreement to be fixed by the Auditors of the Company.
The notice may include several shares and in such case shall
operate as if it were a separate notice in respect of each
share. The notice shall not be revocable except with the
Sanction of the Directors.
60. If the Directors, shall, within the space of 30 days after
being served with the Transfer Notice, find a purchasing
member or a person selected as aforesaid willing to purchase
the share and shall give notice thereof to the proposing
transferor, he shall be bound upon payment of the fair value
fixed as aforesaid to transfer the shares to the purchaser.
61. In case any differences arises between the Transferor and
the Purchaser as to the fair value of a share, the Auditors of
the Company shall certify in writing the sum which in their
opinion is the fair value and the same be binding on the
transferor and the purchase. Provided however that the
Auditors so certifying shall not be considered to be acting as
Arbitrators and the Indian Arbitration Act 1940 shall not
apply. The Auditor shall be considered to be acting as an
expert.
62. If in case the proposing transferor, after having become
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bound as aforesaid, makes default in transferring the share,
the Directors may receive the purchase money and shall
there upon cause the name of the purchaser to be entered in
the Register as the holder of the share and shall hold the
purchase money in trust for the Transferor. The Directors
may appoint any person to execute a transfer of the said
share on behalf of the defaulting transferor. The receipt of
the Directors for the purchase money shall be a good
discharge to the purchaser and after his name has been
entered in the Register in purported exercise of the aforesaid
power the validity of the transfer shall not be questioned by
any person.
63. If the Directors, shall not, within the time prescribed as
aforesaid after being served with the Notice, find a
purchasing member or select a person as aforesaid willing to
purchase the shares or any of them and give notice in
manner aforesaid, the transferor shall at any time within 30
days thereafter be at liberty subject to Article thereof to sell
and transfer the shares to any person and at any price.
64. Every share specified in the Notice given pursuant to the
Article hereof shall be offered to the members in such order
as shall be determined by the Directors and in such manner
as the Directors think fit. If no member is ready and willing
to take up such shares the same may be offered to any
person selected by the Directors as one to whom it is
desirable in the interest of the company to admit to its
membership".
These articles are similar to the ones at hand and, therefore, they
have been reproduced in full as above. The Apex Court analyzed
the articles as under :
24.1 The Articles give the hierarchy of the persons
entitled to purchase shares upon transfer. The first right is
given to the preemptors under Article 57-A. Next in the
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hierarchy is any member who is willing to purchase the
shares at a fair value. This follows from a reading of Article
with Article The third category is of any person or persons
selected by the Directors as being desirable in the interest of
the company to admit to membership. The last category is
the person to whom the transferor may choose to sell the
shares. As long as there is any person in a higher category,
there is no question of sale or purchase by a person in a
lower category. Thus for example the right of a member or a
person in the 2nd category to purchase shares can arise only
in the event there is a default or refusal on the part of the
preemptor and so on. A person may fall within any one or
more of these four categories and would, by virtue of these
articles have distinct and separate rights to purchase the
shares in each of the four categories. So even if a preemptor
or a nominee of a preemptor does not exercise his/her right
under Article 57-A to purchase the shares at a price certified
by the company's Auditors, such person may choose to
exercise the right as an ordinary member and purchase the
share at a fair value or the transferor may choose to sell the
shares to such person under Article 63.
24.2 In the case of a transfer to a person in the 2nd and
3rd categories of putative purchasers, the Directors are
appointed agents of the transferor. The notice of transfer is
required to constitute the Directors as the transferor's
agents. This notice is distinct from the other required to be
given under Article 57-A. In respect of these two categories,
the price of the shares is at first to be negotiated with the
transferor. It is only in the case of a default in such
agreement being reached that the company's Auditors step in
and fix a "fair price". The third distinctive feature of these
two categories is that upon refusal/default of the preemptor,
the transferor is required to give a notice in writing of his
desire to transfer. Giving of this notice must necessarily be
subsequent to the failure of Article 57-A for whatever
reason, as the Directors are required to find a willing person
either in the 2nd and if not the 3rd category within a period
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of 30 days. There is no time limit specified for the
completion of the preemptive transfer under Article 57-A.
Therefore unless the transferor gives a separate notice of the
failure of Article 57-A how would a willing member know
whether he/she has a right or when the period fixed for
intimating their willingness to purchase was to lapse?
Article also requires the Directors to give a notice to the
transferor after finding a willing purchasing member or
selected under Article Giving of this notice is important
because if 30 days expires without such notice by the
Directors, Article would come into play and the transferor
would be at liberty to sell the shares to any person and at
any price, albeit also within a period of 30 days from the
expiry of the first period of 30 days. It follows that a notice
issued prior to the preemptor exercising or failing to exercise
the right under Article 57-A would not be in keeping with
Articles and 60 as this would make the period of 30 days
uncertain if not illusory. Thus the notice by the transferor
under Article must succeed the factual failure of Article 57-A
and notice, if any, under Article must follow the failure of
Article.
24.3. Assuming there is a willing purchaser under Article
there is no time limit fixed either for the parties to arrive at
a negotiated price or for the Auditor to fix a fair value. But
Article indicates that the entire transaction envisaged by
Articles 59, 60, and 62 would have to be completed within a
period of 60 days after Article 57-A failed to operate."
It can be seen from the above that the Apex Court categorized the
seller and buyer of the shares and applied a different yardstick. The
Apex Court did not hold that even in case of first category, the
directors were to be appointed as agents. This decision was sought
to be distinguished by Mr.Dwarkadas on the ground that the right
of pre-emption was conferred on specific persons and there was no
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Article similar to Article 22 in that case. As regards Article 22, I
have already held that in the scheme of the present Articles, it
cannot be brought in to cover member-to-member transfer. Even
though right of pre-emption in the Articles in Sakal Papers (supra)
was given to an identifiable class, in the present case also the
transfer is to any person who is then identified as the one chosen
by the transferor. As regards the decision by the Malaysian Court in
the case of Lo Mu Sen (supra), once there is a decision of the Apex
Court interpreting similar Articles holds the field, it is not necessary
to refer to the same. Mr.De'Vitre has relied upon the decision in the
case of Dr.Percy Rutton Kavasmaneck Vs. Gharda Chemicals
Ltd.37, taking a view similar to that of Sakal Papers (supra). Even
otherwise as it is rightly pointed out by Mr.De'Vitre in the case
before the Malaysian Court, the Company was a family Company
and the founder of the Company, father had wished that shares will
be held by the children in a particular proportion and it is in that
background that the factum of transfer was considered.
99. Next question thereafter is, even assuming Article 15 and the
scheme as is sought to be interpreted applies, whether this MOU
constituted a transfer notice and the agency. According to
Mr.Dwarkadas there is no particular format provided for a transfer
notice. He submitted that all that is required is the intention. Once
there is a desire to transfer the shares, it will constitute the
Company as its agent. It is also contended that the agency is
created by the Articles and not by a transfer notice per se. It was
37 (2009) 96 SCL 515 (Bom)
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also contended that the MOU was handed over to Muthu who was
Managing director of SAF Yeast and therefore, it constituted valid
notice of transfer. Mr.Dwarkadas submitted that any document
which shows that there is an intention to sell can constitute a
transfer notice. Reliance was placed on the decision of the English
Courts in the case of Lyle & Scott Ltd. Vs Scott's Trustees (supra),
Mannai Investments Co. Vs.Eagle Star Life Assurance Co. Ltd. 38,
and Re Ringtower Holdings plc39. It was submitted that there is
no specific need to address any separate notice to the Company. It
was submitted that Laloum was fully aware that Muthu was the
Managing director of the Company and the signing of the MOU in
the circumstances constituted sufficient notice.
100. The Board rejected the contentions of Muthu group on the
ground that the Article 15 and the other modalities did not apply. I
am in agreement with the view taken by the Company Law Board
that the scheme as propounded by Muthu group did not apply to
member-to-member transfer. However, for sake of completeness, I
will consider the alternate position that even assuming the articles
as contended apply, whether MOU could be treated as a transfer
notice.
101. In Sakal papers (supra) in para 24.2, the Apex Court noted
that the notice of transfer is required to constitute the directors as
transferor agents. The Apex Court noted in paragraph 44 that the
38 [1997] AC 749
39 [1989] 5 B.C.C. 82
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notice issued did not constitute the Directors as a transferor's
agents.
"44. The notices issued in respect of the 93 and 3417
shares were not in keeping with the Articles as far as Articles
to 63 were concerned. As we have already observed, notices
to willing members or to selected persons under Article must
succeed and not precede the actual operation of Article 57-A.
The notices issued by the respondent Nos. 2, 3 and 4 also did
not constitute the Directors as the transferor's agents for the
purposes of selling the shares in terms of Article. There was,
in the circumstances, no question of the transferors selling
their shares to any 3rd party under Article unless proper
notice had been issued to the 2nd and 3rd category of
persons if any. There was also no question of the transferor
invoking Article bypassing the right of a willing member or
selected, if any, to negotiate a fair price."
(emphasis supplied)
The above-emphasized portion would show that unless a specific
notice is issued, there was no question of any agency being created.
The Apex Court also held that the directors must be specifically
constituted as an agent. Thus, Apex Court laid down that the
transfer notice itself must make the directors the agents.
102. If one goes through the articles regarding requirement of
notice again, it clearly envisages a notice from the transferor to the
Company specifically constituting it as an agent. A clear
unambiguous notice will curtail future litigation such as the present
one. The MOU is not even a letter. It is at the most an agreement
between two groups of shareholders as to their shares held. It is
absurd to suggest that since Muthu is a managing director, even
bsb 156 COAPPL21.15+5.doc
though what Muthu signed was regarding his shareholding, will
constitute a notice to the Company. Further MOU does not state a
word of expressly authorising the Company as an agent. Such
specific authorization is required and is totally missing in the MOU.
In the present case, not only there is no separate and specific
notice, but also the fact that the MOU was being treated as notice
and was placed before the Board of directors, was not informed to
Nafan and Lesaffre. The case of Lyle & Scott Ltd. (supra) did not
arise from the case of oppression and mismanagement but arose
from civil suit for specific performance based on the pre-emptory
clauses. Furthermore, as has been rightly pointed out by
Mr.De'Vitre, the concerned articles in that case only envisaged an
intention to transfer and did not provide for a formal notice.
Furthermore, the action of treating the MOU as a transfer notice in
the present case is not to be considered as an isolated incident but
in the larger scheme of things. In the case of Re Ringtower
Holdings (supra) the Court concluded that there was no intention
to sell the shares in the facts of the case. Merely because some
observations can be used to support the submission, a judgment
cannot be read de hors the factual backdrop. Reliance on the case
of Mannai Investments Co. Vs. Eagle Star Life Assurance Co.
Ltd. (supra) is equally misplaced. That was a case arising from
termination of lease and the notice was construed in the context of
the provisions of that Act.
103. Therefore, the action of transfer of shares based on Articles
bsb 157 COAPPL21.15+5.doc
and constituting the Company as an agent based on MOU was not
only illegal and contrary to the articles on the part of Muthu group
but in the factual backdrop, it was highly inequitable. Therefore,
not only the Board meetings that were held without Board's notice
were illegal and oppressive but also the action of using MOU as a
transfer notice. It was argued that Muthu group acted based on the
opinion of a senior Advocate and therefore their action was
bonafide. The opinion of the senior advocate refers to Article 16,
which according to Mr.Dwarkadas, does not apply. It was agreed by
the counsel that it will be proper not to debate on the merits of the
opinion but to restrict the debate only to bonafides. The senior
advocate did not opine that Muthu group could proceed in the
manner as they have done. Question here is the lack of probity.
Muthu is an experienced business. He fully knew what he was
doing. The opinion is only used as crutches to support an
otherwise oppressive act.
104. The things did not stop at that. The shares were transferred
by issuing duplicate shares. Before we consider the question of
duplicate shares and thereafter the valuation, a review of the
manner in which the Board meetings were held need to be taken,
to put things in prospective. The minutes have already been
reproduced earlier. On 23 May 2009, the meeting began at 12.15
p.m. Mr.A.Muthu, Mr.A.M.Arunachalam, Mr.A.M.Muthiah, and
Mr.P.B.Thatte attended it. Mr.A.Muthu was elected as the
chairperson, leave of absence was granted to Laloum and
bsb 158 COAPPL21.15+5.doc
Mr.Lesaffre. The chairperson referred to written opinion received by
senior advocate, which was taken on record. Purchase by Muthu of
the shares pursuant to MOU dated 23 January 2009, opening of
current account to hold purchase money was discussed. The
current account was resolved to be opened, directors were directed
to operate the account. Mr.K.Narasimhan was authorised to execute
share transfer forms in the name of Nafan. Mr. K.Narasimhan was
requested to act as a seller for Muthiah. Mr.Narasimhan was
authorized to execute the share transfer forms on receiving the
purchase money of `27,49,38,822 for 80,772 shares. Thereafter
the meeting ended. The next meeting was held on 25 May 2009 at
4 p.m. The minutes of meeting dated 17 May 2009 were confirmed
and signed. Thereafter the letter received from Mr.Muthiah, dated
the same day i.e. 25 May 2009, that the money has been
transferred into his account was taken. The advice received by the
Company on the same day was tabled. The resolution was passed
to transfer the purchase money to Company's current account.
Mr.Muthiah placed the letter dated 23 May 2009 from the
Company as an agent of Nafan requesting the issuance of duplicate
share certificates in view of Laloum, having been informed to
Muthu on 20 February 2009 that Nafan had lost original share
certificates. The meeting was adjourned at 4.30 p.m. for
preparation of duplicate share certificates and was re-assembled at
5.15 p.m. on the same day. On re-assembling, the resolution was
passed, the transfer was completed, and the meeting ended. It is in
this fashion that the duplicate share certificates have been prepared
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and issued.
105. It is an admitted position on record that there is no written
communication from either Nafan or Laloum informing that the
share certificates were lost and duplicate share certificate need to
be issued. The Company Law Board has disbelieved the theory of
oral request.
106. Mr.Dwarkadas submitted that if the duplicate share
certificates were not lost then nothing stopped Nafan from
producing the original certificates. This submission cannot be
accepted. What needs to be considered is the act of Muthu group
in seeking duplicate share certificates at the time of transfer of
shares on the premise of oral request made by Laloum sometime in
February 2009. Laloum on oath has denied the conversation.
Nafan has produced summary of telephone records to show that
were no telephone calls between 11 February 2009 and 6 March
2009. Not a single text message is also produced nor any
communication in writing to issue duplicates certificates. There is
no explanation at all why, if told in February 2009, suddenly Muthu
thought it fit to get duplicate share certificates printed at the time
of the meeting. Muthu group did not bother to crosscheck with
Laloum as to whether by then he had located the duplicate share
certificates. If everything was fine, Muthu could have easily asked
Laloum whether the share certificates were still missing and
whether duplicate share certificates be issued. Since the scheme
bsb 160 COAPPL21.15+5.doc
was to push through the disputed MOU by keeping Nafan and
Lesaffre in dark, for obvious reasons this was not done. The letter
of Muthu dated 23 May 2009 is reproduced below:
"To,
Saf Yeast Co. Pvt. Ltd.,
Mumbai.
Dear Sirs,
Sub.: Loss of Original Share Certificates by Nafan
B.V. As verbally informed by Mr.A.Laloum -
Request for issuance of Duplicate Share
Certificates in lieu thereof.
I wish to bring to your notice that Mr. A. Laloum
Director of the Company and a Director of Nafan B.V. of
Lesaffre Group, shareholder in the company informed me
during one of his telephone calls on or about 20 th February,
2009 that Nafan B.V. has lost the share certificates for the
80,772 shares they hold in the company and they are
unable to locate the same.
I therefore request the company to consider issuing duplicate
share certificates in lieu of the share certificates that have
been informed to be lost by Nafan B.V. to comply with the
requirements of law.
Yours faithfully,
Sd/-
A. Muthu
(For Saf Yeast Co. Pvt. Ltd., Agent of Nafan B.V.)"
When Muthu wrote this letter on 23 May 2009 to SAF Yeast for
issuance of duplicate certificates as an agent of Nafan, there was no
bsb 161 COAPPL21.15+5.doc
authorisation in writing in favour of Muthu to make such a request.
107. Section 84 of the Act enables a company to issue duplicate
share certificate if it is proved that it is lost. Therefore, the
Company must satisfy itself that the share certificates are lost.
Section 84 of the Act reads as under:
[1] A certificate, under the common seal of the company,
specifying any shares held by any member, shall be prima
facie evidence of the title of the member to such shares.
[2] A certificate may be renewed or a duplicate of a
certificate may be issued if such certificate-
a. is proved to have been lost or destroyed, or
b. having been defaced or mutilated or torn is
surrendered to the company.
[3] If a company with intent to defraud renews a
certificate or issues a duplicate thereof, the company shall
be punishable with fine which may extend to ten thousand
rupees and every officer of the company who is in default
shall be punishable with imprisonment for a term which
may extend to six months, or with fine which may extend
to ten thousand rupees, or with both
[4] Notwithstanding anything contained in the articles
of association of a company, the manner of issue or
renewal of a certificate or issue of a duplicate thereof, the
form of a certificate (original or renewed) or of a duplicate
thereof, the particulars to be entered in the register of
members or in the register of renewed or duplicate
certificates, the form of such registers, the fee on payment
of which, the terms and conditions, if any (including terms
and conditions as to evidence and indemnity and the
bsb 162 COAPPL21.15+5.doc
payment of out- of- pocket expenses incurred by a company
in investigating evidence) on which a certificate may be
renewed or a duplicate thereof may be issued, shall be such
as may be prescribed.]
Also needs to be noticed are the Articles of Association as under:
Article 8 of the Table "A"
If a share certificate is defaced, lost or destroyed, it may be
renewed on payment of such fee, if any, not exceeding two
rupees, and on such terms, if any, as to evidence and
indemnity and the payment of out of pocket expenses
incurred by the company in investigating evidence, as the
directors think fit".
In the present case no attempts at all have been made by SAF Yeast
to ascertain the factum of lost certificate before issuing any
duplicate certificates, naturally so because the affairs of SAF Yeast
in India were being controlled by Muthu at that time. When a
Company receives, an application for issuance of duplicate shares
there must be some investigation before concluding that the share
certificates are lost. Section 84(3) makes a company liable for
penal action for wrongful issuances of duplicate share certificates.
Therefore, the cautious approach is warranted, not a casual one.
108. The question of issuance of duplicate share certificate arose
for consideration of the division bench of Madras High Court in the
case of Shoe Specialties Ltd. Vs.Tracstar Investments Ltd. & Ors.
-[1997] 88 Comp Cas 471 (Mad)]. The Division Bench referred to
J.C.Bali on Secretarial Practice in India, 5 th revised edition and
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quoted the passage therefrom as under:
"Loss of share certificate. - Sometimes a shareholders loses or
misplaced his share certificate and is compelled to apply to
the company for another certificate in place of the one lost.
The articles of association of most companies and Table A
provide that if a share certificate is lost or destroyed the
shareholder may obtain another on payment of a fee and on
supplying such evidence and giving such indemnity as the
company may require. When a shareholders loses his share
certificate he should at once write to the company stating
clearly the loss or destruction of the certificate and request
for the issue of a duplicate certificate. On receipt of the letter
the company will ask the shareholders to fill in an
indemnity form in which the shareholder will agree to
indemnity the company against any claim that may be made
by any person on the original certificate. He is also required
to prove a guarantee by way of double security."
In Palmer's Company Precedents, it has been noted as under :
"The company incurs a serious responsibility by issuing a
new certificate unless the old one is cancelled, and it ought
not to be done except on very satisfactory proof of loss or
destruction, or on a satisfactory indemnity being given."
Taking note of these passages, the Division Bench observed thus -
"Before taking a decision to issue duplicate certificates, a
decision had to be taken or satisfaction must be entered that
the original certificates was lost. In this case, the very
request by the second respondent says that the original
certificate is with the first petitioner herein. Hence, by no
stretch of imagination, can it be said that the share
certificate is lost or destroyed. The authority to issue a
duplicate certificate rests with the company only on proof
that it is lost, or at least there must be some investigation
bsb 164 COAPPL21.15+5.doc
before coming to the conclusion that it could not be traced.
The first respondent company is aware of such a procedure.
One of the constituents, Sanman Investments Pvt. Ltd.,
requested the first respondent to issue a duplicate certificate.
The first respondent did not issue duplicate certificate
immediately. It directed an investigation to be made, and
caused an advertisement to be published in the dailies, and
waited for objections. For nearly eight months, the duplicate
certificates were not issued to Sanman Investments Pvt. Ltd.
So, the first respondent is also aware of the normal practice.
Before the Company Law Board, the petitioners have also
given other instances where the first defendant took time to
investigate and satisfy itself about the loss of the certificate.
The bona fides of the first respondent at least could have
been shown by issuing a notice to the first petitioner to
produce the original. The inaction on the part of the first
respondent in issuing a notice to the first petitioner to
produce the original and the hurried manner in which a
resolution was passed on the very second day of
reconstitution of the new board of directors to issue a
duplicate certificate shows lack of goods faith in its acts. In
this connection, we may also note that even though there is
not statutory provision for giving any notice or
advertisement, when there is an established practice by the
first respondent itself, why it deviated from such a practice
should have been properly explained. No attempt was made
on its part in that regard." (Emphasis supplied)
109. In the present case, the facts are glaring. Muthu, who
wants to usurp the entire shareholding of Nafan, writes to SAF
Yeast on behalf of Nafan that Nafan has lost the original shares,
gets the duplicate shares issued through the Company which he
controls and transfers it to his group in a meeting, without a single
notice to Nafan. What further is needed render a finding of gross
bsb 165 COAPPL21.15+5.doc
impropriety? The manner in which the entire meeting has been
pushed through and the manner in which the duplicate share
certificates have been secured is nothing but a clear and calculated
design to usurp the shareholding of Nafan. Mr.Dwarkadas tried his
level best to justify the act as of Muthu group. Most of the events
narrated by Mr.Dwarkadas are nothing but internal discussions
amongst the Muthu group starting from 16 March 2009 till 25 May
2009. The argument that the agency created in favour of the
Company and the MOU itself impliedly gave the power to grant of
duplicate share certificates, is sought to be raised with no
foundation in law. Language of Section 84 clearly speaks to the
contrary for any such implication. It was also submitted that the
case in Shoe Specialties (supra) is distinguishable on facts. It was
also contended that not every conduct need be considered as
oppressive. I am not impressed by any of these submissions. The
conduct of issuance of duplicate certificates was clearly a part of a
design to remove Nafan and Lesaffre from the Company. Once it is
held that meetings itself were illegal, the MOU did not constitute
the transfer notice, then get duplicate share certificates in absence
of any written authority only compounds the acts of oppression.
What is sought to be done is that each act is sought to be justified
in isolation, but what needs to be considered is totality of the
actions leading to acts of oppression. The issuance of duplicate
share certificates in this manner surely constituted one piece in the
large scheme of their. I am therefore, in agreement with the
Company Law Board in respect of the finding rendered by it on this
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count.
Valuation
110. The next issue is regarding the valuation submitted by M/s
Sharp & Tannan. The Board has concluded that the valuation
report prepared by M/s Sharp and Tannan is not reliable, it is
patently biased, partial and based on incorrect methods. M/s
Sharp & Tannan has deliberately used guidelines, which are
inapplicable. The Board has concluded that the valuation report is
wrong in principle, erroneous and got up document and is liable to
be set aside. This finding has been challenged by Sharp and
Tannan and Muthu group. M/s Sharp & Tannan is aggrieved by
the observations and declarations made by the Board that the
report is biased, partial and in contravention of statutory guidelines
and rules to carry out valuation of shares of going concern. It is the
contention of Nafan and Lesaffre that the valuation was done at the
instance of Muthu group, it was deliberately kept on the lower side
and prepared in short time span to meet the requirements of Muthu
group, and thus in collusion. It was contended that right from
inception, Muthu knew that he would be able to get valuation from
Sharp & Tannan as per his requirement.
111. Mr.Subramaniam learned Senior advocate on behalf of M/s
Sharp and Tannan submitted that M/s Sharp and Tannan is
unconcerned with the dispute and is only challenging the finding of
imputation of bias and other criticism levelled by the Board.
According to him, the valuation report was prepared adopting the
well-known methods of valuation and the observations and findings
bsb 167 COAPPL21.15+5.doc
of the Board are unwarranted and are liable to be set aside. He
submitted that the valuer has tendered its valuation as part of its
professional duty, and not concerned as to whether it is finally
accepted by the concerned parties or not, neither the professional
valuer is concerned with inter-se disputes. Mr.Subramaniam
submitted that M/s.Sharp and Tannan carried out their duty of
preparing a valuation report as per rules and needless aspersions
have been cast upon it. Mr.Dwarkadas submitted that the valuation
report was fair and proper and reflected the correct value of shares.
According to Mr.De'Vitre the valuation of the shares is so
ridiculously low that Nafan and Lesaffre were immediately
prepared to pay double the valuation and even higher.
112. The valuation report by M/s.Sharp and Tannan has valued
80,772 Shares of SAF Yeast at `4315 per share as on 31 March
2008, the total value of `27,49,38,822. Mr.Subramaniam
submitted that the auditors examined the audited accounts for the
years ending 31 March 2004, 31 March 2005, 31 March 2006, 31
March 2007, 31 March 2008 and after applying methods of
valuation as per guidelines issued by Controller of Capital Issue
Guidelines (CCI guidelines) for valuation of Equity Shares of the
Companies and the Business and Net Assets of Branches. The
valuation was done by capitalising value of average of the profits of
the past for the accounting year and Net Assets Value (N.A.V)
method. He submitted that the valuation had to be done on urgent
basis in light of the MOU. The valuation was prepared on 9
bsb 168 COAPPL21.15+5.doc
February 2009 and forwarded to Laloum on 10 February 2009. He
submitted that the Department of Foreign Exchange of Reserve
Bank of India raised a query, which was replied stating that CCI
Guidelines were followed. He contended that there are many
methods of valuation available. No valuation report can possibly
mention all methods of valuation and from that conclusions of bias,
impartiality and unreliability, cannot follow. Nafan has produced
no proof in support of allegations of collusion and fraud. He
submitted that in a valuation report, all conceivable methods of
valuation are never adverted to. Merely because the RBI circular of
2010 mentions Discounted Cash Flow method (DCF), does not
mean that is the only method. Mr.Subramaniam submitted that
there is nothing wrong in preparing a report within 24 hours and it
is easily possible when all the data is available on the computer. He
reiterated that method of valuation under CCI guidelines is
legitimate method of valuation. He relied on RBI Circular No.7 of
2008/2009 dated 1 July 2008 referring to CCI guidelines. He
submitted that the Apex Court in the case of Hindustan Lever
Employee's Union Vs.Hindustan Lever Ltd.40 and Miheer
H.Mafatlal Vs.Mafatlal Industries Ltd.41 has laid down that the
valuers are experts in their field and Court should be slow in
substituting their findings. Merely because an expert adopts a
particular method of valuation in one case and the same method
not adopted in another case does not render the valuation bad. As
regards the contentions about suppression in the pleadings,
Mr.Subramaniam supported the contentions of Mr.Dwarkadas.
40 AIR 1995 SC 470
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113. Mr.Dwarkadas contended that Nafan had furnished no
particulars as to why the valuation was fraudulent. It is not open
for Nafan to challenge the valuation on the ground that it is low
after having left the valuation to the statutory valuers. He
submitted that article 17 was referred to in the MOU and parties
agreed to abide by the valuation of the statutory auditor. Nafan did
not insist upon any valuation method in spite of having received
the MOU some time in February 2009. He contended that if the
price of shares between 1992 and 2009 is concerned, it has grown
from `237 per share to `4315 per share. The same valuer had
carried out the valuation earlier. In the year 1998, when Lesaffre
sold its shareholding to Nafan the shares were sold at ` 1070.
Therefore, since 1998 there has been 400 per cent increase in
shares. He submitted that unless the valuation is vitiated by fraud
or fundamental mistake the same could not be challenged. The
particulars of fraud need to be specifically pleaded. He relied upon
decisions of the Apex Court in the case of Sangramsinh P.
Gaekwad (supra), Bishundeo Narain & Anr. v. Seogani Rai 42, The
National Textile Corporation Ltd. v. Nareshkumar Badrikumar
Jagad & ors.43 to contend that specific pleadings are required. He
also relied on the decisions in the case of Re. Organon (India)
Ltd.44, and G.L.Sultania v. SEBI45. He reiterated that merely
because CCI guidelines have been followed it could not be said that
42 AIR 1951 SC 280
43 (2011) 12 SCC 695
44 (2010) 157 C-C 0287
45 AIR 2007 SC 2172
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the valuation is fraudulent. He submitted that contention that
there is no basis for valuation as of 31 March 2008 as incorrect as
MOU required sale consideration to be paid immediately. He
submitted that as laid down by Chancery Division in Re a
Company (No: 004377 of 1986)46, that wide discretion is
conferred upon a statutory auditor for carrying out the valuation.
114. On the other hand, it is the contention of De'Vitre that
Nafan was not a seller of the shares at all. The valuation was
challenged to show the oppressive acts of Muthu group and the
Board has rightly held that the way the valuation was carried out is
oppressive. He submitted that even assuming the MOU is
executable it contemplates fair valuation. The valuation carried out
is not only not fair but no valuation in eyes of law. He submitted
that the valuation does not take into account the well-settled
methods of valuation. He submitted that the methods, which are
generally adopted and mandated, have not been carried out by the
valuer. He submitted that CCI method is completely inapplicable
and in violation of the RBI instructions. The valuation is absurd,
extremely low, completely unfair, and the Board has rightly set it
aside.
115. Before issue of valuation is to be discussed in detail, it
needs to be placed in correct perspective. This is not to a exercise
to assess the correctness of the valuation in case of a transaction
between a willing buyer and a willing seller debating over the
46 [1987] 1 WLR 102
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price. This case is regarding the manner in which the valuation is
undertaken, as a ground of oppression.
116. The MOU referred to a fair valuation. I have already held
that, prima facie the MOU only indicated beginning of modalities
depending on the fair value. The fair value has to be seen in the
light of the fact situation. It was the value to be paid for exit of
Nafan from SAF Yeast. That would mean that the association of
Nafan and Lesaffre right from the beginning and its majority stake
in the Company would end. Two groups of shareholders started
SAF Yeast together. The Company is well established. It has a
substantial turnover. Even assuming the case of Muthu that it was
contemplated that majority shareholders would exit upon
valuation; fair valuation was to be done by statutory auditor. M/s
Sharp and Tannan have been the auditors of the Company for a
long time. With such a major decision being left to them, it was
their duty to be fair to both Muthu group, and Nafan and Lesaffre.
They would be fully aware what they were determining was the
price of exit of Nafan from the Company. This is not to say in a
routine valuation, care need not be taken, in the present case but
M/s Sharp and Tannan were fully aware of the implications of their
valuation, having been associated with the SAF Yeast for several
years. The manner in which the valuation was done in 24 hours,
when there was apparently no need for such urgency without
following well known methods which has given rise to charge of
oppression by the Nafan and Lesaffre. Therefore, the entire issue of
valuation has to be viewed in that perspective. There is no doubt,
bsb 172 COAPPL21.15+5.doc
as held by the Apex Court in the case of Miheer H.Mafatlal,
Hindustan Lever, Re. Organon (India) and G.L.Sultania, that
Court need to be slow in interfering with the correctness of the
valuation and substituting the wisdom of valuer. It is also settled
that latitude must be given to the expertise of the valuer and
merely because another valuer by adopting some other method can
achieve different valuation that the valuation in question is not
fraudulent. However, the issue has to be approached in the context
of charge of oppression. The entire line of argument of
Mr.Subramaniam and Mr.Dwarkadas has been to show that how
M/s.Sharp and Tannan followed particular permissible method and
how there is lack of pleadings and scope of Court to interfere with
the valuation report.
117. The conduct of Muthu group in getting a valuation report in
24 hours to arrive at a valuation, which he knew was not reflecting
the correct value, in itself, is alleged to be part of oppressive
conduct. The Board found that M/s Sharp and Tannan did not give
any reason for not adopting the DCF method and choosing
Comparable Companies Analysis method of valuation and even
though they were the most common method and M/s Sharp and
Tannan went ahead with the CCI guidelines. In the case of
G.L.Sultania the Apex Court has laid down that the valuation
report can be questioned when well established principles of
valuation are, departed without any reason, and demonstrably
wrong approach is adopted. Therefore, the question arises of
bsb 173 COAPPL21.15+5.doc
explanation as to why DCF and CCA Guidelines were not adopted.
It is not that these two methods are inapplicable or outdated. The
valuer is supposed to take into consideration the well-established
methods and give reasons as to why a particular method is being
adopted. In the case of G.L.Sultania the Apex Court has
emphasized that the valuer need to give reasons why it excludes
well-established principles of valuation at all from consideration.
The contention that choice of method is a matter of pure discretion
of the valuer cannot be accepted. The valuer does not have
discretion to simply disregard well-known methods of valuation
when he is entrusted with the task of arriving at a fair valuation.
Completely excluding the well-known methods of valuation,
without any reason , when they had to arrive at a fair valuation,in
these circumstances,was not a proper exercise on the part of Sharp
and Tannan. Again, it has to be noted that for the working of the
MOU, the valuation had to be fair.
118. Nothing has been shown that DCF method and CCA
Guidelines have ceased to exist or they have been discontinued.
The DCF method is well known because it takes into account all the
relevant factors. One need not travel far for this purpose as
M/s.Sharp and Tannan themselves have endorsed DCF method over
all other methods. This stand of Sharp and Tannan is noted by the
Gujrat High Court in the case of Alembic Limited Vs Deepak
Shah47, as under :
47 2002 (2) 112 Comp Cas 64.
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"In light of the aforesaid principles, this court proceeds to
examine the grievance of the objector that the exchange
ratio has not been properly worked out. The objector is a
shareholder in Alembic Ltd. with 30 shares of Rs. 10 each.
The objector, who is himself a chartered accountant by
profession, is not in a position to indicate as to how the
exchange ratio is detrimental to the shareholders of Alembic
Ltd. The exchange ratio of six shares of Alembic Ltd.
(resulting company) in lieu of 100 shares of Darshak Ltd.
has been proposed in view of the report of M/s. Sharp and
Tannan Associates, chartered accountants. In their report
dated April 17, 2001, the chartered accountants have
referred to the following valuation techniques which are
generally used in ascertaining the fair value of a business :
(a) Net asset value (NAV) ;
(b) Profit earning capacity value (PECV) ;
(c) Combination above ;
(d) Valuation based on discounted cash flow technique
(DCF). The chartered accountants have then discussed the
merits and demerits of the different techniques and
thereafter suggested that since the DCF method captures all
the elements of the value of a business compared to the other
methods, the DCF method comprehends the difference
between the values of firms having similar accounting
earnings due to the difference in capital investments and
other cash flows required to sustain these earnings. By
adopting the said technique, the chartered accountants have
worked out the fair value per share of Alembic Ltd. and
Darshak Ltd. as under :
Company Valuer per share Alembic Ltd. Rs. 287.17 Darshak
Ltd. Rs. 15.91
The chartered accountants have, therefore, suggested that on
the basis of the aforesaid fair value per share, they consider
fair and reasonable, a share exchange ratio of one equity
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share of Rs. 10 each of Alembic Ltd. for 18 equity shares of
Rs. 10 each of Darshak Ltd. for the purpose of the proposed
merger. Thus the company has accordingly adopted the
share exchange ratio of six equity shares of Rs. 10 each of
Alembic Ltd. for 100 equity shares of Rs. 10 each of Darshak
Ltd. for the purpose of the proposed merger."
(Emphasis supplied)
In the above case M/s Sharp and Tannan had reasoned that the
DCF method captures all the elements of valuation compared to all
other methods. In the present case M/s Sharp and Tannan have
not referred to DCF method at all. An explanation is sought to be
given that the valuation had to be done in a hurry in view of the
MOU. There was no such hurry to produce valuation report in 24
hours.
119. It was contended by Mr.Dwarkadas and Mr.Subramanian
that the valuation done complies with the Reserve Bank of India
circular and the RBI circulars mandating that DCF method does not
apply. As it has been rightly pointed out by Mr.De'Vitre that M/s
Sharp and Tannan as a statutory auditor had to arrive at a fair
value. Their assignment was not to ascertain value as per the RBI
guidelines but to arrive at a fair value of the shares. The RBI
circular is in relation to the Special and General Permission of
Reserve Bank of India under Foreign Exchange and Management
Act. The permission for transfer of shares from a non-resident to
resident is specified in the circular dated 4 October 2004 and it lays
down that where the shares are not listed on the Stock Exchange,
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the transfer of shares at a price lower than two independent
valuations, one by a statutory auditor of the Company and the
other by Chartered Accountant is contemplated. It is for this reason
that the valuation is carried out for the purpose of Circular of the
year 2004. There is no gain saying that the valuation conformed to
the parameters laid down in the RBI Circular of 2004, when the
Circular was not for fair value but for completely different reasons.
In fact, the Circular dated 4 May 2010-RBI has emphasized for DCF
as is the most relevant method for the valuation of shares.
120. The arguments advanced by Mr.Dwarkadas and
Mr.Subramanian that the valuation conformed with Circular of
2004 indicate the way Muthu group and Sharp & Tannan have
acted. Reliance is placed on valuation methods, which are not for
fair valuation is required for completely different purpose under the
RBI guidelines. The entire attempt is not to put forth the fair value
of shares. M/s Sharp and Tannan based its valuation report on Net
Asset Value and profit earning capacity value. Even these methods
do not comply with RBI circular of 2004. Reliance of the letter
dated 19 February 2009 is misplaced. This letter from Reserve
Bank of India is a routine letter which only directs that Company to
carry out transactions in terms of the circular. It is far-fetched to
suggest that the RBI itself applied its mind and approved the
valuation carried out treating it as a fair valuation.
121. It is contention of Muthu group that in the previous
valuation report dated 17 January 1992 by M/s Sharp and Tannan,
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the CCI guidelines have been used. However as it has been rightly
pointed out by Mr.De'Vitre that the report of the year 1992 was for
the purpose of an application to the Controller of Capital Issues
seeking its prior approval to price of new shares. It did not require
valuation of the Company as a going concern. No capital can be
made therefore, on the ground that 1992 valuation was based on
CCI method. The contention that NAV method was rightly followed
cannot be accepted as the VIRC reference manual which explains
the NAV method shows that it is to be adopted in case of
manufacturing companies where fixed assets have greater
relevance for earning revenues. Nothing is shown as to how this is
so and the Board therefore, has correctly rejected this contention.
There is no perversity in this finding.
122. Coming to the CCI guidelines supposed to be followed by
M/s Sharp and Tannan, it is the contention of Mr.De'Vitre that even
these guidelines have not been followed. Para 7.3 of CCI guidelines
have been relied upon. I have seen the guidelines. The guidelines
state that though past profits would serve as indicator, future
should not be completely ignored. In spite of this position, the
valuation is based on the earlier years and there is no projection for
future. Even the time taken for assessing the average earning, the
years in which there is an unusual variance has to be excluded.
The year 2005 should have been excluded as in that year the
earning was `82,36,045 in comparison with 2004 where it was
`1,20,41,10352 and 2006 where it was `15,53,28,546 . The
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reduction for lack of mobility is reduced to 20% when the CCI
guidelines provide 1:15 per cent capitalisation. There is also merit
in the contention of Mr.De Vitre that rate fixed under the
Guidelines is now outdated and business outline has changed since
1992 to 2009. M/s Sharp and Tannan has insisted on following
outdated methodologies for valuation and without any reason has
not followed well-established methods.
123. It was then argued on behalf of Muthu group that once
Nafan group agreed that fair valuation should be done as per
Article 17 by the statutory auditor and the statutory auditor has
carried out the valuation; the Court will uphold the valuation. This
argument is difficult to accept. What the MOU stated was the
parties would part ways on fair value and not upon valuation,
which is not fair. Can it be said that even if the valuation is arrived
at ignoring well-established methods and it is at `1, still Nafan
must accept the same since it agreed that a statutory auditor would
carry out the valuation. The proposition cannot be stretched to an
absurd limit. Because a party agrees to a valuation by the statutory
auditor it does not mean it relinquish all the rights. Various
decisions were cited at the bar on this proposition by
Mr.Dwarkadas, mostly of the English Court. It is not necessary to
burden the record by referring to all the cases as the Delhi High
Court, in the case of Mihir Chakraborty v. Multi Tech
Computers48, has taken review of the English decisions. In the
case of Mihir Charkraborty (supra), the learned Single Judge noted
48 (2001) 106 Comp Cas 150 (Del)
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the rival contentions as under :
"A preliminary point has been taken on behalf of the
respondents to the maintainability of the challenge mounted
by the petitioner to the valuation report. Mr. P.C. Khanna,
learned senior counsel appearing on behalf of the
respondents, submitted that the valuer's report was binding
on the parties and the court cannot go behind the same.
While computing the stake/share of the petitioner in the
company the valuer acted as an expert and not as a quasi
arbitrator or an arbitrator. This being so his report cannot
be attacked in the instant proceedings. The valuation given
by the valuer is final and conclusive between the parties. In
case the petitioner is aggrieved of the valuation determined
by the valuer, his remedy lies in filing a suit for damages
against the valuer for negligence. Mr. Khanna canvassed
that initially the view of the English courts was that no
action lay against the experts such as valuers, auditors,
brokers etc in tort for giving an opinion or making a
determination negligently. This was on the ground that they
were discharging professional duties of quasi judicial
character. Since the experts could not be sued, their
determination could be impugned in the litigation between
the parties affected by their determination or opinion.
Learned counsel further argued that the aforesaid principle
has been discarded in England and the position, as made
clear by the House of Lords, is that an expert can be sued for
damages when he acts negligently in performance of his
duties. In support of his submissions, Mr.Khanna relied on
the following decisions:-
1. Sutcliffe v.Thackrah (1974) 1 All ER 859 (HL) (pages 29
to 57).
2. Burgess and another v.Purchase & Sons (Farms) Ltd.
(1983) 2 All ER 4 (Ch.D) Pages 58 to 66)
3. Jones and other v. Sherwood Computer Services (1992) 2
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All ER 170 (CA) (Pages 67 to 79).
Mr. Khanna also submitted that the position in India is no
different from the one which is prevailing in England. In this
regard he referred to the decision of the Supreme Court in
K.K. Modi v. K.N. Modi (1998) 92 CompCas 30.
On the other hand, Mr. Sanghi, learned counsel for the
petitioner, contended that the court can go behind the
valuation report and look at the reasons offered by the
valuer in support of the valuation arrived at by him. He
contended that since the valuation made by the valuer was
based on erroneous principles, the same can be challenged in
these proceedings. In aid of his submissions he cited the
following decisions:-
1. Dean v.Prince and others.
2. Dean v.Prince & others.
3. Jones (M) and another v. Jones (RR) and another.
4. Arenson v. Arenson and another".
The learned Judge then took review of the entire case law in
respect of challenge to the report of the valuation and observed as
under :-
"Be that as it may, the position in law seems to be that a
valuer cannot claim immunity any more if he acts
negligently in making his determination and can be sued for
tort or negligence but action against the valuer for damages
cannot come in the way when the court is considering the
validity of the valuation itself. The fact that the parties may
have agreed that the valuation arrived at by a valuer would
be binding on them, the agreement does not imply that they
will be bound even by a valuation which is erroneous. In this
country the courts cannot be bound to accept the
determination or opinion of an expert which is erroneous as
otherwise it would amount to perpetuating the mistake. Mr.
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Khanna contended that the compromise recorded by the
court constitutes a decree and if this is so the valuation
arrived at by the valuer cannot be challenged in these
proceedings. I regret my inability to accept the submission of
the learned senior counsel. While it may be true that the
compromise recorded by the court constitutes a decree but
that does not mean that the report of the valuer which was
directed to be filed under the order of this court cannot be
touched in these proceedings. In case the report suffers from
mistake or perversity, the same can certainly be set aside in
these proceedings and the matter can be referred for fresh
valuation by an expert. The court is not bound to accept the
report in case the same is erroneous. Mr. Sanghi, learned
counsel for the petitioner, claimed that M/s Coopers &
Lybrand Pvt. Ltd was actually appointed by the Court under
Order 26 Rule 9 C.P.C. as Local Commissioner to determine
the valuation. On the other hand, Mr. Khanna, learned
senior counsel for the respondents, refuted this position and
submitted that the appointment of the valuer was made by
by this court order on the basis of the terms of the
compromise arrived at between the parties and the same was
not made under Order 26 Rule 9 C.P.C. It is not necessary to
examine the submissions of the learned counsel for the
parties in view of the aforesaid determination."
(emphasis supplied)
Delhi High Court has concluded that not all the principles laid
down in the decisions of the English Court reflect the legal position
prevalent in India. It held that an expert opinion does not enjoy
absolute immunity even if it suffers from fundamental mistake,
collusion, and fraud. I respectfully agree with this view. Even in
the cases relied upon by Mr.Dwarkadas, and which were considered
by the Delhi High Court, the Courts have kept the rider that the
valuers report does not enjoy absolute immunity. In the present
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case, I agree with the finding of the Board that the valuation report
has to be discarded.
124. Next question is of the imputation of bias against Sharp &
Tannan and the acts of oppression in obtaining such report and
acting upon it. The speed at which the valuation report was
generated with no apparent reason for hurry and glaring omission
not taken into consideration the cogent method of valuation and
the way the valuation report is then used by Muthu group raises
various questions and the points to something more than a mere
incorrect valuation. The Division Bench of Madras High Court in
Shoe Specialities (supra), analyzed the law regarding fraud and
collusion, held as under :
"We may have also to consider what is meant by "collusion".
In P. Ramanatha Aiyar's The Law Lexicon, reprint edition
1987, at page 216-i, "collusion" is defined as "a secret
agreement for a fraudulent purpose; a secret or dishonest
arrangement in fraud of the rights of another; a secret
agreement by two or more persons to obtain an unlawful
object, an agreement between persons to obtain an object
forbidden by law, or to obtain a lawful object by illegal
means". The petitioner's case is that there is secret and
dishonest arrangement between the directors of respondents
Nos. 1 and 2, in fraud, which has affected their right.
In Wharton's Law Lexicon, 14th edition (1993), at page
212, "collusion" is defined as "to unite in the same play or
game, and thus to unite for the purposes of fraud of
deception; an agreement or compact between two or more
persons to do some act in order to prejudice a third person,
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or for some improper purpose."
In Shrisht Dhawan V. Shaw Bros.,(1992) 1 SCC 534 , their
Lordships considered a similar question as to how far fraud
and collusion invalidate any decision or action. In
paragraph 20 of the judgment, their Lordships said thus
(page 553) :
"Fraud and collusion vitiate even the most solemn
proceeding in any civilised system of jurisprudence. It is a
concept descriptive of human conduct. Michael Levi likens a
fraudster to Milton's sorcerer, Comus, who exulted in his
ability to, 'wing me into the easy-hearted man and trap him
into snares'. It has been defined as an act of trickery or
deceit.....".
After extracting the various definitions in the dictionaries,
their Lordships further held thus :
"... fraud in public law is not the same as fraud in private
law. Nor can the ingredients which establish fraud in
commercial transaction be of assistance in determining
fraud in administrative law. It has been aptly observed by
Lord Bridge in Khawaja that it is dangerous to introduce
maxims of common law as to the effect of fraud while
determining fraud in relation to statutory law... The present
day concept of fraud on statute has veered round abuse of
power or mala fide exercise of power. It may arise due to
overstepping the limits of power or defeating the provisions
of the statute by adopting subterfuge or the power may be
exercised for extraneous or irrelevant considerations. The
colour of fraud in public law or administrative law, as it is
developing, is assuming different shades. It arises from a
deception committed by disclosure of incorrect facts
knowingly and deliberately to invoke exercise of power and
procure an order from an authority or tribunal. It must
result in exercise of jurisdiction which otherwise would not
have been exercised. That is, misrepresentation must be in
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relation to the conditions provided in a section on existence
or non-existence of which power can be exercised. But non-
disclosure of a fact not required by a statute to be disclosed
may not amount to fraud. Even in commercial transactions
non-disclosure of every fact does not vitiate the agreement.
'In a contract every person must look for himself and ensure
that he acquires the information necessary to avoid bad
bargain'. In public law the duty is not to deceive....".
In De Smith's Judicial Review of Administrative Law Action,
fourth edition (1980), at pages 335 and 336, the learned
author says thus :
"A power is exercised fraudulently if its repository intends to
achieve an object other that for which he believes the power
to have been conferred. For example, a local authority
committee would exercise in bad faith its power to exclude
interested members of the public if it deliberately chose to
hold the meeting in a small room. The intention may be to
promote another public interest or private interests. A power
is exercised maliciously if its repository is motivated by
personal animosity towards those who are directly affected
by its exercise."
In "Administrative Law" by justice C.K. Thakker, (1992)
edition, at page 328, the learned author has stated thus :
"Sometimes, an authority entrusted with a power does not
exercise that power but acts under the dictation of a
superior authority. Here, an authority invested with the
power purports to act on its own but 'in substance' the
power is exercised by another. The authority concerned does
not apply its mind and take action on its own judgment,
even though it was so intended by the statute. In law, this
amounts to non-exercise of power by the authority and the
action is bad."
In Equity and the Law of Trusts by Philip H. Pettit, fifth
edition (1985), at page 148, the learned author says that
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there is no distinction between the words "fraud" and
"dishonest".
Both of these mean the same thing and the use of the two
together does not add to the extent of dishonesty required.
The learned author also says at page 149 what a trustee
should know before he is made liable or charged with
dishonesty or fraudulent act. The learned author says thus :
"(i) actual knowledge;
(ii) wilfully shutting one's eyes to the obvious-'Nelsonian
knowledge';
(iii) wilfully and recklessly failing to make such inquiries as
an honest and reasonable man would make;
(iv) Knowledge of circumstances which indicate the facts to
an honest and reasonable man;
(v) knowledge of circumstances which would put an honest
and reasonable man on inquiry."
A director of a company must know that he is a trustee for
the company; though he need not know all the details of it.
He must know of the dishonest and fraudulent design,
though not necessarily of the whole design; and he must
know that his act assisted in the implementation of such
design - if these acts proved, fraudulent act on the part of
the directors can be imputed.
In this connection, it is better to refer to Kerr on the Law of
Fraud and Mistake, 7th edition (1952), at pages 672 and
673, the learned author has said thus :
"It is not, however, necessary, in order to establish fraud,
that direct affirmative or positive proof of fraud is given.
Circumstantial evidence is not only sufficient, but in many
cases it is the only proof that can be adduced. In matters
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that regard the conduct of men the certainly of
mathematical demonstration cannot be expected or
required. Like much of human knowledge on all subjects,
fraud may be inferred from facts that are established. Care
must be taken not to draw the conclusion hastily from
premises that will not warrant it, but a rational belief
should not be discarded because it is not conclusively made
out. If the facts established afford a sufficient and
reasonable ground for drawing the inference of fraud, the
conclusion to which the proof tends must, in the absence of
explanation, or contradiction, be adopted. It is enough if
from the conduct of a party the court is satisfied that it can
draw a reasonable inference of fraud, or if facts be
established, from which it would be impossible upon a fair
and reasonable conclusion, to conclude but that there must
have been fraud......" (emphasis supplied).
These principles need to be kept in mind. As held by the Madras
High Court that it is not always possible to have direct evidence of
fraud and collusion and inference has to be drawn. The question
that arises is whether the conclusions drawn by the Board from the
circumstances can be termed as perverse.
125. The Board took note of the pleadings on record and viewed
that it was sufficient to constitute pleadings of collusion. The
relevant pleadings are reproduced in para 265 of the impugned
order. For sake of brevity, they are not reproduced again. Thus,
what was contemplated was a fair valuation by statutory auditor,
which owed a duty to both Nafan, Lesaffre and Muthu group to
arrive at a fair valuation. M/s Sharp and Tannan with no apparent
explanation simply omitted DCF method from consideration even
though it has gone on record to say that it is the best method. M/s
bsb 187 COAPPL21.15+5.doc
Sharp and Tannan produced a report in one day and then justified
the omission of DCF method on the ground that there was a hurry
to prepare the report. There was no such hurry and nobody had
called for such immediate report within 24 hours. Though it is
stated on behalf of Muthu group that Nafan and Lesaffre were
insisting on valuation nothing is shown on record that 24 hours
valuation was insisted upon. The learned counsel for the parties
relied upon decisions dealing with instances where valuation
reports have been prepared in short time. It is correct that
technology and faster processing of information will expedite
preparation of reports. However, whether a valuer should produce
report in 24 hours, whether technology permits it to do so will have
to be assessed on facts of each case. In the present case, there was
absolutely no need to prepare report in a hurry and to omit the
most relevant method. Nafan has placed on record that they had
obtained a valuation report from another reputed valuer, which
shows the same shares as valued substantially higher. According to
them, the correct valuation was about 25 million Euros at that time
while Sharp & Tannan valued the shareholding at approximately 27
crores only. Thus, price of a majority stake in one of leading yeast
manufacturing company in India is valued at 27 crores. It cannot
be helped but observing that is the cost of two, three residential
flats in upmarket Mumbai. Not that on that ground alone the
valuation of M/s Sharp and Tannan is bad, but this valuation
carried out by another reputed valuer is not an irrelevant
circumstance, when it is coupled with other circumstances. Nafan's
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immediate response to the valuation was that if that is the price of
shares, they were ready to pay the double. Totality of the
circumstances will have to be therefore seen. Sharp & Tannan are
not detached valuers but statutory auditors of the company for
years with full knowledge of the finances.
126. To my mind therefore, the manner in which the valuation
report was prepared and used by Muthu group, the finding of the
board that this conduct of the Muthu group is a part of oppressive
conduct, cannot be termed as a perverse finding. Considering
the facts on record as analyzed earlier, one is surely left with an
impression that something was seriously amiss the way the
valuation report was presented. Had it been a stand-alone instance
of a mere valuation report presented for discussions, it would have
been a different matter. The preparation of such valuation report
was a piece of much large picture and it fitted in the scheme of
things perpetuated by Mr.Muthu. The preparation of such
valuation report through M/s Sharp and Tannan completed the
scheme of usurping the shares of Nafan.
127. The Board was therefore fully justified, in facts and
circumstances of the case, to discard the valuation report and make
the observations it made. M/s Sharp and Tannan, knowing the
responsibility casts upon them and the consequences thereof, ought
to have been more careful and ought not to have prepared a report
on the basis completely different than the acceptable norms. The
total lack of explanation as to why there was need to prepare
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report in 24 hours and that DCF method was not even
contemplated justifies the observations made by the Company Law
Board, I do not find that the observations were unwarranted. The
Company Law Board having seen the entire record was constructed
to make the observations and it was justified in doing so. I
therefore, agree with the conclusion of the Board that the valuation
report, the meetings, and transfer of shares amounted to acts of
oppression on the part of Muthu group, and the report was biased.
Relief
128. Now coming to the point of grant of relief. The Board, even
though it has held that Nafan succeeded in proving the case of
oppression, concluded that the ultimate relief should be that Nafan
and Lesaffre must sell its shareholding to Muthu group. The Board
concluded that two groups could not run the Company together as
the relations between the parties have become acrimonious. The
Board opined that the permanent solution in the paramount
interest of SAF Yeast is sale of shares of one group to another. The
Board thereafter considered the claim of both the parties as who
should buy out whom. According to Nafan and Lesaffre, they are a
leading business group worldwide in the yeast business. They
supplied financial and technical support to SAF Yeast and they have
substantially contributed to its growth. They also contended that
the title 'SAF Yeast' is derived from the word 'Lesaffre'. A grievance
was made that Muthu group caused SAF Yeast to file criminal
complaints, which were subsequently withdrawn. On behalf of
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Muthu group, it was contended that they should be permitted to
buyout the share holding of the Nafan. According to Muthu group,
Muthu was Managing Director since inception. The Company was
managed successfully by him single handedly and without any
technical support as alleged from Nafan or Lesaffre. Nafan or
Lesaffre demanded no royalties and neither there was any protest.
It would be in the benefit of SAF Yeast that Muthu group runs it. It
was also contended that Nafan and Lesaffre any way wanted to
step out of the Company and the only objection was to the
valuation.
129. The Board after considering rival contentions held that it
would not get into the contentions of either parties regarding their
respective contribution, as it was a joint venture. The Board held
that the joint venture was for commercial purpose. Lesaffre and
SAF Yeast have already received back their money with interest.
Nafan and Lesaffre are based in Netherlands and France
respectively and it is necessary that Indians are involved in running
the Company since it is in interior places in India, and the policy of
Indian government relating to foreign investment may not allow
Nafan to acquire 100 per cent shareholding. It was held that Muthu
group has given personal guarantees. The action taken in the
meetings was on legal advice and it was bonafide meeting, which
had to be hurriedly called in view of the meeting to be held in Paris
on 29 May 2009, and one aberration should not be a reason to
severely reprimand any one. Thereafter the Board directed buyout
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in favour of the Muthu group. Thus, to summarise the Company
Law Board ordered buy out in favour of Muthu group because
Lesaffre and Nafan have entered into joint venture for money,
which they have received. They are not based in India and their
personnel rarely visit the unit established in India. It is better that
the Indians run the Company. Government may not allow Lesaffre
and Nafan to acquire 100 per cent shareholding. Muthu group has
given guarantees. Muthu has vast experience in the business and
has successfully managed the Company. Actions taken in the
meetings were taken on apprehension and legal advice. One
aberration should not deprive Muthu group of the Company. If
Muthu group is directed to exit, they will have no other source of
livelihood. If Lesaffre and Nafan are directed to exit, they will not
suffer any prejudice in their Multi-national Company and run
various other companies in other developing countries.
130. I have considered the issue. Firstly, the Board has rightly
held that two groups cannot go together and parting of ways is
imminent. The Board has also rightly discarded the rival
contentions of regarding contributions. SAF Yeast is a joint venture.
It was created together. Nafan and Lesaffre held 51 per cent
shareholding and Muthu group 49 per cent. Nothing stopped
Muthu group from establishing the Company on its own, yet the
Company was started as a joint venture. Nothing stopped Muthu
from establishing a unit on the technology stated to be available
with him, yet joint venture was formulated with Lesaffre who are
already in the business of manufacturing of yeast. It was a mutual
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agreement and no party was coerced or forced to set up a joint
venture. Obviously therefore, it was set up for mutual benefit.
Nafan and Lesaffre had placed on record their stand that they
wanted to set up a unit for manufacturing of yeast in India as they
saw potential in the market and in view of restrictions placed by
the Indian government they had to start it in a joint venture.
Therefore, once joint venture had been set up the aspect of
contribution does not assume so much of importance as rightly held
by the Board. The Board however proceeded to hold that Lesaffre
and Nafan had already received their money back with interest as
against their investment in the form of shareholding. I do not find
this approach to be correct. Lesaffre and Nafan are not investors.
They were 51 per cent majority shareholders of the Company.
Thus, they were owners of the Company and not investors. They
had equal interest in continuing the Company and it was not a
mere loan transaction. These also not mere finances but experts in
the production of yeast.
131. It is the contention of Mr.Dwarkadas that if the finding of
oppression rendered against Muthu group is set aside and the
appeal of Nafan and Lesaffre are dismissed, then the order to
buyout under Section 402 cannot be disturbed. He has further
contended that the entire case of Nafan and Lesaffre is that they
should be permitted to buyout because they are injured party and
majority shareholders. He relied on the decision of the Calcutta
High Court in Bajrang Prasad Jalan v. Mahabir Jalan 49 to
49 AIR 1999 Cal 156
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contend that the main consideration is what course of action would
be for the benefit of the Company. He submitted that in the case of
Probir Kumar Misra (supra), the Madras High Court had clearly
relied upon underlying intention in an agreement to order a
buyout. He submitted that in any case, without prejudice, Muthu
group is willing to put an end to the litigation by having the shares
valued by an independent expert and thereby completing the
buyout process. Therefore, the primary stand of the Muthu group
is that since there is no oppression by them there is no question of
any buyout of their shares and without prejudice, they are willing
to buyout the shares at the valuation fixed by this Court.
132. I have already concluded that the findings of the Board
regarding oppression by Muthu group are correct. Therefore,
question is regarding the validity of the direction to order buyout in
favour of Muthu group even if they committed act of oppression. In
earlier paragraph, I have mentioned the grounds on which Board
has ordered buyout of the shares of Nafan and Lesaffre. The
grounds given by the Board as to why there should be a buyout of
the shares of Nafan and Lesaffre are on the face of it, erroneous.
The Board has stated that Muthu and his family will have no source
of livelihood. The manner and the level at which the litigation is
fought in the Board as well as in this Court and it will be naïve to
assume that the family will be on streets. Furthermore, if a buyout
is ordered, it is not that Muthu group will be thrown out on the
streets without any money. The buyout will be of the value of their
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shareholding, which will be substantial, and Muthu group will be
free to carry on their business activities elsewhere or can always
invest it. Even Mr.Dwarkadas has not contended that Muthu and
his family will be on the streets. The next reason is that no
prejudice will be caused to Nafan and Lesaffre if they are directed
exit because they are running various other companies worldwide.
If SAF Yeast was a joint venture in the area in which Nafan and
Lesaffre have expertise, they cannot be ordered to be exited from
SAF Yeast simply because they have other companies in other
developing countries. In fact, it would strengthen the case of Nafan
and Lesaffre that they should be allowed to run the Company since
they have expertise and experience in running various companies in
other developing countries. Then the Board has brought in the
intention of Nafan and Lesaffre while executing the MOU to order
the buyout, which aspect I have already dealt with. Equally
untenable is the ground that since Nafan and Lesaffre are based in
Europe, it is better that an Indian runs the Company. The joint
ventures between Indian entities with a foreign one now common.
Even though Nafan and Lesaffre are based outside India, they can
always have local nominee directors and such other staff who are
based in India. If buyout is to be ordered on this ground then most
of the joint ventures in India will be in serious peril.
133. As regards the government of India not allowing Lesaffre to
acquire 100 per cent shareholding, a specific query was put to all
the learned counsel including the Union of India and nothing has
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been shown that there is any embargo as contemplated by the
Government of India. Policy documents have been placed on
record by Mr.Samdani, the learned Senior advocate.
134. One more aspect, which has been contested that is the name
of SAF Yeast. According to De Vitre, word 'SAF' is linked to
Nafan/Lesaffre continuing as a shareholder and in case Nafan is
ordered to exit, the Company will lose its name, which will result in
substantial loss of goodwill for SAF Yeast. I find that in spite of
making the submission before the Board regarding loss of good will
by loss of name 'SAF', at the time of ordering buyout, the Board has
not referred to it at all. In the Participation Agreement of the year
1991, the parties have agreed that SAF Yeast will use the term 'SAF'
only with the consent of Lesaffre and Nafan and if the share of
Nafan and Lesaffre drop below a particular limit, the word 'SAF'
will be deleted. It is the contention of Muthu group that the phrase
'SAF' is not derived from Lesaffre but from a Hindi term and it is
not much of importance. However, the clause in the Participation
Agreement cannot be ignored. The Board has also noted that
Lesaffre is a world leader in manufacturing of yeast. Phonetically
SAF does seem to have been derived from Lesaffre. The name,
which indicates that SAF Yeast is a part of one of the world leaders
in the yeast business, will be no doubt create substantial goodwill.
This aspect is important while deciding buyout.
135. One more aspect is about the technological and financial
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assistance. There is no finding by the Board that Lesaffre did not
extend any technological support at all. What the Board has
emphasized is that since Muthu has vast experience in the field of
market relating to the business of SAF Yeast, the Muthu group
should be allowed to buy out the Nafan and Lesaffre. However, this
finding is contrary to the Board's own finding earlier that it is not
inclined to accept contentions of either parties regarding their
contribution as they had entered into joint venture for commercial
purpose. The Board has then gone on to hold that in case Nafan is
allowed to take over the management, it may not be capable of
handling the situation. This is a rather simplistic view of the way
large scale industrial operations are run. Merely because if Nafan
takes over the control, does not mean that it will terminate all the
existing staff. Professionals manage the business nowadays.
Though majority shareholders are based out of India, a professional
staff can manage the day-to-day basis. Though the expertise of
Muthu may not longer be available but that does not mean that
Nafan and Lesaffre cannot carry out affairs of the Company by
employing competent professionals. To my mind all the grounds
given by the Company Law Board to order a buy out in favour of
Muthu group, are completely irrelevant.
136. Though the Board has wide powers under Section 402 of
the Act, the power is not to be used arbitrarily and should be based
on well-settled principles. If both the parties are competent to
carry on the business, then the party who is proved guilty of
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oppression generally ought not be rewarded, as it will be opposed
to fairness.
137. One more principle is that a majority shareholder should
not ordinarily be directed to exit. Mr.De' Vitre placed heavy
reliance on the decision of the Apex Court in the case of Dale &
Carrington v. P.K.Prathapan49. He also relied upon the decision of
the Calcutta High Court in the case of Tea Brokers v. Hemendra
Prosad Barooah50. He submitted that the Apex Court in the case
of Dale & Carrington (supra) and the Calcutta High Court in the
case of Tea Brokers (supra) have clearly indicated that a party
should not be allowed to reap benefits of its own wrong. In the
case of Dale & Carrington (supra) the ordinary rule that the
majority should not be allowed to exit has been laid down as under
:
I
"24. Further, it was held that if a member who holds the
majority of shares in a company is reduced to the position of
minority shareholder in the company by an act of the
company or by its Board of Directors mala fide, the said
must ordinarily be considered to be an act of oppression to
the said member. The member who holds the majority of
shares in the company is entitled by virtue of his majority to
control, manage and run the affairs of the company. This is
a benefit or advantage which the member enjoys and is
entitled to enjoy in accordance with the provisions of
company law in the matter of administration of the affairs
of the company by electing his own men to the Board of
Directors of the company."
4 9 (2005) 1 SCC 212.
50 (1998) 5 CLJ 463.
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"25. A majority shareholder should not ordinarily be
directed to sell his shares to the minority group of
shareholder, if per chance through fortuitous circumstances
or otherwise, the minority group of shareholders comes into
power and management of the company. The majority
shareholders by virtue of their majority will usually be in a
position to redress all wrongs done and to undo the mischief
done by the minority group of shareholders, as it will always
be possible for the majority group of shareholders to regain
control of the company so long as they remain in majority
in the company by virtue of the majority. Except in unusual
circumstances the majority group of shareholders, in my
opinion, should never be ordered, or directed to sell their
shares to the minority group of shareholders. An order
directing the majority group of shareholders to sell his
shares to the minority group of shareholders will not redress
the wrong done to the majority group of shareholders and
will not give him sufficient compensation or relief against
the acts of oppression complained of by him, and, on the
other hand, may add to his suffering and grievance and
cause him greater hardship. Such an order, to my mind,
will not further the ends of justice and indeed the cause of
justice may be defeated."
Mr. Dwarkadas contended that in none of the decisions cited by Mr.
De' Vitre, more particularly, Dale & Carrington (supra), a MOU
such as the present one was involved. This argument cannot be
accepted. As far as MOU is concerned, I have already rendered my
findings on the same. Furthermore, the basic proposition that
normally majority should not be ordered to exit is not diluted in
any manner.
138. There could possibly be an exceptional circumstance where
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the minority could be directed to buy out the shares of the majority.
Question is whether any exceptional circumstance in the present
case is made out. I have already upheld the finding of the Board
that the acts of oppression on the part of Muthu group were
proved. I have also held that the grounds that only Muthu is
competent, that his family will be on the streets, Nafan and Lasaffre
are foreigners, are all completely irrelevant grounds. The Board
taking lenient view of oppression of the Muthu group on the
ground they acted on the advice of a senior advocate and secondly,
that since Muthu group apprehended that some stringent decision
would be taken against Muthu group in the meeting to be held in
Paris, held that it was natural for Muthu group to act in haste. The
Board also held that one aberration should not be the reason to
severely reprimand any one whosoever.
139. To my mind, the Board has trivialized the acts of oppression
and has termed them as one time aberration. The holding of
meetings was not as innocent as it is made out to be. As far as the
opinion of the senior advocate is concerned, the learned counsel of
the parties after debating over it for some time agreed that it will
not be appropriate to put in issue whether the opinion was right or
wrong and restricted the argument only to the bonafides of the
Muthu group. I have seen the opinion. The concerned senior
advocate never stated in his opinion that Muthu group can hold
meetings without informing Nafan and Lesaffre and they can
transfer their share holding in an unfair manner. It is not a matter
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of legal niceties but a matter of basic fairness in dealing with
somebody who was once a long-standing partner, and the
association was almost that of a quasi partnership.
140. The Board noticed decision of the Apex Court in the case of
Kamal Kumar Dutta Vs Ruby General Hospital Ltd.51, but has not
given effect to the underlying principle laid down therein. Out of
various decisions cited by the learned counsel for the parties, the
case of Kamal Kumar Dutta (supra) comes closest on the terms of
factual situations and therefore, the most relevant. The review of
law on fairness taken by the Apex Court is already reproduced. In
this case, two non-resident doctors, Dr.Kamal Kumar Dutta and
Dr.Binod Prasad Sinha along with an Indian entrepreneur Sajal
Dutta who was the younger brother of Dr.Kamal Kumar Dutta,
(supra) incorporated Ruby General Hospital Limited, Calcutta as a
Company in the year 1991. The hospital was set up with 88 per
cent shareholding. 88 per cent were NRI shares and balance by
the resident Indian. Dr. Kamal Kumar Dutta contributed 4.26
crores while his brother Sajal Dutta contributed 1.23 crores. The
hospital was established in the memory of late wife of Dr.Kamal.
Since he and Dr.Sinha were NRIs the company was being looked
after by Dr.Sajal Dutta. After the hospital prospered, dispute arose
between brothers. The attempts were made by the younger brother
to throw out the elder brother and Kamal Kumar Dutta filed a
petition under Section 397 and section 398 of the Act before the
Board. The stand of the Company was that Dr.Kamal and Dr.Sinha
5 1 (2006) 7 SCC 613
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had discontinued themselves as directors. The Apex Court noted
that when the meeting where the resolutions were passed to oust
Dr.Kamal from managing directorship and install Sajal Dutta,
notices were not given. In paragraph 46, the Apex Court observed
as under :
"46. The CLB has in minute detail discussed with regard to
all the resolutions which we have already adverted to. No
proper notice was served on the appellant No. 1 who is a
major shareholder of the company or to appellant No. 2. If
the Board meeting had been convened without proper service
of notice on the appellants by the respondent No. 2 then
such Board meeting cannot be said to be valid. Mr. Nariman
however tried to explain various meetings and their
subsequent confirmation by next board meeting to show that
once the resolution of the subsequent meeting has confirmed
the resolution of earlier meetings then those minutes stand
confirmed irrespective of the fact that the appellants had
been served or not. We shall highlight some of the instances.
We would show that how subtle attempt was made to show
that several notices were given to the major shareholders of
the company at their local address in India knowing fully
well that both the appellants are NRIs. The outstanding
feature is that the appellant No. 2 ,Dr. Binod Prasad Sinha
has been shown as an NRI but notice to him was sent at the
address P.O. Hirapur, District. Dhanbad, Bihar and those
notices have even been sent with very short interval. The
meeting was convened on 13.4.1996 and the notice was sent
on 8.4.1996. Likewise, another meeting was scheduled to be
held on 5.9.1996 and the notice was sent on the very same
day i.e. 5.9.1996, the date of meeting was 2.12.1996 and
the notice was sent on 28.11.1996; the date of meeting was
12.3.1996 and the notice was sent on 8.3.1996. The
meeting was to be held on 27.3.1996 but the notice was sent
on 22.3.1996. Apart from this, it was known to the
respondent- Sajal Dutta who is the brother of appellant No.
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1 that whenever his brother comes to Calcutta he does not
stay in his house yet the notices were sent to Jodhpur Park,
Calcutta. This shows lack of probity on the part of
Respondent No. 2 to somehow or the other oust his brother
from the majority shareholding. Similarly, on the basis of
such resolution, Dr. Binod Prasad Sinha, the appellant No. 2
was ousted from the directorship under Section 283(1)(g) of
the Act on the ground that he has not attended the meeting
and he has no interest whatsoever. Similarly, the appellant
No. 1 was also ousted in the meeting which was held on
7.2.1996 when another meeting scheduled to be held on
16.2.1996 and it was within the knowledge of Sajal Dutta
that his brother was likely to attend the meeting to be held
on 16.2.1996. But suddenly the meeting was held on
7.2.1996 and the appellant No. 1 was stripped off his chair
as the Managing Director of the company. Hence, Sajal
Dutta became the Managing Director in place of Dr. Kamal
Kumar Dutta and the minutes of the said meeting dated
7.2.1996 were not brought forward in the meeting of
16.2.1996 in which Dr. K.K. Dutta was present. The IDBI
nominee reported to have advised that the draft minutes of
the meeting dated 7.2.1996 to be placed before the meeting
dated 16.2.1996 which would correctly reflect Sajal Dutta
as the Managing Director but it was not included in the
meeting of 16.2.1996. However, Mr. Nariman tried to
persuade us to show that there was some defect in drafting
of minutes of the resolution and therefore, it was not
reflected in the meeting dated 16.2.1996. It does not appeal
to us. Be that as it may, when such an important decision
was taken in the absence of the main promoter of the
company to oust him from the Managing Directorship and
to install Sajal Dutta in his place, it is the grossest act of
oppression by the Board of Directors. Sometime after
dispatching Dr. Dutta from the Managing Directorship most
of the shares were cornered by the subsidiary companies of
Sajal Dutta so as to acquire the management of the
company and to alter material change in the management
of the company. What can be more unfortunate than this ?
When a material change is brought about in the
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management to the detriment of the interest of the main
promoter it is squarely covered under Section 398(1)(b) of
the Act. The company which is floated by the elder brother
and which has been run by the younger brother in the
absence of the elder brother the younger brother manages
the whole company and that the Managing Director is
totally ousted and shares are being cornered substantially so
as to have full control of the company, is oppression being
squarely covered by Section 397(1)(b) of the Act."
(emphasis supplied)
The above-mentioned passage clearly shows that the Apex Court
strongly disapproved of a conduct of taking an important decision
in the absence of a main promoter to oust him from directorship.
The Apex Court noted that it was the "grossest act of oppression"
and "could not be more unfortunate." In this case, younger brother
knew that whenever the elder bother came to Calcutta he did not
stay in his house yet the notices were sent to him at that address.
What the Board has trivialized as a onetime aberration is in fact the
grossest act of oppression, according to the Apex Court.
141. Mr.Dwarkadas contended that in case of Kamal Kumar
Dutta (supra) there was no MOU neither there were any articles,
which did not mandate a notice nor in the past notices were given.
None of these arguments have any substance. As regards the MOU
and the Articles, I have already rendered my findings. The question
is of probity and fairness. Muthu group fully knew that meeting is
to be held in Paris. Muthu group consciously did not give notice to
Nafan and Lesaffre as they wanted to transfer their share holding
bsb 204 COAPPL21.15+5.doc
behind their back and a clear plan was hatched for that purpose.
Even assuming that they did so as a pre-emptive action that does
not excuse taking law in their hands. They could have approached
the Board or the civil court for necessary action. With full
knowledge that Lesaffre and Nafan are not agreeable to abide by
the MOU a meeting was held, duplicate share certificates were
issued and shares were transferred at the valuation, which was not
acceptable and fundamentally wrong. This is not a onetime
aberration but a clear calculated act of grossest oppression. It may
be that in the past notices were not given but never before stage of
exit in the company had arisen. It was the most important decision
to be taken in the entire existence of the company. After having
successfully gone through the plan of usurping the share holding of
a majority group, detailed justifications advanced to cover up the
conduct, which on the face of it, lacks in fairness. Taking law in
own hands cannot be termed as a normal human behaviour, as the
Board has observed. If this is tolerated, it will create serious
uncertainties for joint ventures and leads to complete lawlessness,
as one group will simply transfer share holding of others to
themselves without notice.
142. The dispute has to placed on a larger canvas. The
government of India encourages inflow of foreign investment. One
of the ways is setting up collaborations and joint ventures with
foriegn partners. Such joint ventures are common in the age of
globalization. The economic policy Indian government pursues
needs the business climate in India to be stable and supportive to
bsb 205 COAPPL21.15+5.doc
investments, collaborations, and joint ventures. The Board cannot
be oblivious to these wider issues when it passes orders of buyout
in respect of joint ventures between an Indian resident and a
foreign collaborator. It is of utmost importance that the atmosphere
of trust is created between the collaborators. It is also of
importance that any person seeking to do business in this country is
assured that the rule of law is followed and grossly unfair conducts
are not tolerated. If the acts such as the one perpetuated by Muthu
group, are not corrected ,it will send wrong signals in the
international business community. It will reflect negatively on the
general level of honesty and rule of law.
143. In the case of Intesa Sanpaolo SPA (supra), this Court
observed as under :
"66. The Company Court may in appropriate cases consider
the larger public interest. For instance, such criterion has
effect on production, markets, workers and investors. But
equally important considerations are of commercial
morality, national prestige and need to instill confidence in
international commercial transactions. Post liberalization
Indian companies have engaged in large scale commerce and
financial dealings with the banks and companies abroad.
Finances are advanced to the Indian companies by foreign
investors. If the conduct such as the one exhibited by the
Respondent Company, is condoned purely on the ground of
public interest, it may protect this Company but will send a
wrong signal to the investors and lenders all over the world.
Investors will be reluctant to advance capital even to
commercial solvent and honest companies. The division
bench of Delhi High Court echoed similar sentiments in the
case of SRM Exploration Pvt. Ltd. vs. N & S & N Consultants
S.R.O., as under :
bsb 206 COAPPL21.15+5.doc
"12. ..... The world is a shrinking place today and
commercial transactions spanning across borders
abound. We have wondered whether we should be
dissuaded for the reason of the transaction for which
the appellant Company had stood surety/guarantee
being between foreign companies. We are of the opinion
that if we do so, we would be sending a wrong signal
and dissuading foreign commercial entities from relying
on the assurances/ guarantees given by Indian
companies and which would ultimately restrict the role
of India in such international commercial
transactions."
This is the larger public interest which goes beyond the
interest of trying to protect the Respondent Company on the
ground of repercussions of the admission of the admission
of the petition.
67. Before I conclude, I must state, shorn of all legal
niceties, that there is no manner of doubt that amounts were
guaranteed to be repaid to the Petitioner by the respondent
company. Respondent has resolutely refused to pay it back
inspite of assuring to do so many times earlier. Absolutely
nothing is placed on record to even hint that the Respondent
Company does not owe the money to the Petitioner. Any
other creditor would be as a right entitled to ask for
admission of the petition against such a company. If so then
why the Petitioner be kept away from this right, its only
fault being that it lent the monies outside India and filed a
suit for recovery of the same in the Court where the
transaction took place. To deprive the Petitioner will
encourage Indian companies to be dishonest in their
international dealings. With globalization of trade and
investments, cross border flow of capital and the dependence
of the country's economy on international commerce, the
company court needs to be alive to the changing commercial
and economic realities, and exercise its discretionary powers
accordingly."
bsb 207 COAPPL21.15+5.doc
(emphasis supplied)
144. Nafan has pressed for the buyout in its favour. It has
requested that any reputed valuer be appointed and they are ready
to buy-out the shares of Muthu Group. On behalf of Muthu Group,
it is contended that their civil suit is pending and if buyout is
ordered in favour of Nafan now, then it would become 100 percent
shareholder of SAF Yeast. If later the suit is decreed in favour of
Muthu Group, then Muthu Group will become 51 percent
shareholder and Nafan will be come 49 percent shareholder, which
is impracticable. It was also contended that by this methodology
the MOU would be kept aside. I am not impressed by these
submissions on behalf of Muthu Group. If the meetings were held
in legal, proper, and fair manner, Nafan and Lesaffre would have
put-forth their stand on MOU that they were not ready. Muthu
Group would in normal circumstances would have filed a civil suit
to enforce the MOU. Muthu Group would have sought an
injunction against Nafan not to transfer the shareholding to anyone
else. When Muthu Group apprehended coercive action on the part
of Nafan, they could had invoked jurisdiction of the Board and the
Board would have issued appropriate direction if case was made
out. The Muthu group did not take any such steps expected of a
law-abiding citizen.
145. The right in favour of Nafan as a majority shareholder to
buy-out the oppressive minority is established right now. The right
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of Muthu Group is based on the MOU which will have to be
agitated in Civil Court. Grant of specific performance of an
agreement is discretionary. Therefore, the right in favour of Muthu
Group has not fructified yet to defeat the right which has accrued
right now in favour of Nafan.
146. There is however one more aspect. I must also keep in mind
the interest of SAF Yeast. If future uncertainties are avoided it will
be good for SAF yeast. If future of SAF Yeast can be made litigation
free, then I will explore that option first. That option I will rank
higher that the right of Nafan for buyout at present. However, if
that is not being secured then right in favour of Nafan will have to
given effect to. I say so because after buyout is granted in favour of
Nafan, litigation will not end as the will suit go on. Nafan has
shown that it is not averse to a competitive bid, though it is their
alternate submission. Therefore, if Muthu group withdraws the civil
suit and undertakes not to rely on the MOU, then the litigation can
be put an end to by a bid. Then if a competitive bid is held,
litigation free future can be secured for SAF yeast. However, if
Muthu group is not ready and this object is not being achieved then
buyout in favour of Nafan will have to follow. I am, therefore, of
the opinion that, before ordering a buy-out in favour of Nafan,
possibility of a forward competitive bid be explored. That way,
both the parties will make a competitive bid and one who will sell
out, will get a fair value. It will also put an end to the litigation
once for all and a single group can then manage the company. It
will be in benefit of Nafan also as the bidding will take place
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without any future uncertainty and it is Nafan itself, which has
suggested auction as an alternate mode. This will however depend
on the undertaking of the Muthu group. Otherwise, I have already
concluded that there can be no buyout in favour Muthu group on a
fixed valuation.
147. For the purpose of valuation of shares, it will be most
appropriate that today's date is taken as a reference. The order
could thus be in two steps. Part I will be the forward competitive
bid for which Muthu Group will have to withdraw the civil suit they
have filed and not take any steps based on MOU henceforth and
convey its acceptance within a particular period .If such willingness
is not shown in the stipulated period, then Part II of the order
regarding buy-out will come into effect.
148. An Administrator will have to be appointed for this exercise
so also a Chartered Accountant. As regard the actual modalities for
both forwarding competitive bidding and the buy-out, Mr.De' Vitre
has handed over a broad outline as regards the procedure to be
adopted for both the options. Having found the modalities to be
satisfactory, I propose to adopt them. Mr.De'Vitre has sought
appointment of a retired judge as an Administrator. Board has
suggested name of Justice J.N.Patel, retired chief justice of Calcutta
High court as the Administrator. As regards the Chartered
Accountants, the parties have not indicated any choice. Nafan has
left it to the court. I am of the opinion that M/s Ernst and Young
can be appointed as the Chartered Accountants. They are an
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experienced firm and nothing is shown that they are disqualified to
carry out the task in respect of SAF yeast.
CONCLUSION
149. The conclusion in short is as follows. The appeal filed by
Lesaffre is maintainable. The petition filed by Nafan was rightly not
dismissed by the Board on the ground of suppression of facts. The
declaration given by the Board that MOU is valid, effective, and
enforceable document and its terms are binding, cannot be
sustained as it is beyond the jurisdiction of the Board, and needs to
be agitated in the suit, which is pending. Prima facie, no
unquestionable intention can be culled out from the MOU. The
Board meetings held on 29 January 2009, 23 May 2009, and 25
May 2009 and the resolutions passed therein, are invalid, illegal,
and oppressive, so also the issuance of duplicate share certificates.
The Board has rightly discarded the valuation report and the
reliance upon the same by Muthu Group is an act of oppression.
The comments made by the Board on the valuation report, were
justified. The direction of the Board to Muthu Group to rectify
register of SAF Yeast by restoring the shareholding of Nafan and
Lesaffre is valid and proper. The direction given by the Board to
Nafan and Lesaffre to transfer their shareholding to Muthu Group is
not sustainable and has to be set aside. Nafan is entitled to a
buyout as prayed for in its petition. However, it will be in the
interest of SAF yeast that the litigation ends and if Muthu group
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agrees to withdraw the suit and undertake not file further
proceedings based on the MOU then the dispute can be put an end
to by holding a forward competitive bid. If Muthu Group is not
agreeable then buyout in favour of Nafan will follow. For
overseeing the two options, as suggested by the Board, Justice
J.N.Patel is appointed as an Administrator. M/S Ernst and Young is
appointed as Chartered Accountants to carry out the valuation. A
regards the modalities for holding the auction and the buy out, the
modalities suggested by Nafan are proper and can be adopted.
O R D E R
A. The declaration by the Board that the MOU dated 23 January
2009 is valid, effective and enforceable document and the terms
thereof are binding upon the Petitioner and Lesaffre Group, is
quashed and set aside in light of what is observed above.
B. The declaration by the Board that the Valuation Report
prepared by Sharp and Tannan is biased, partial and in
contravention of the statutory guidelines and rules to carry out the
valuation of shares of a going concern and the direction to set it
aside, is confirmed.
C. i) The declaration by the Board that the Board Meeting held
on 29 January 2009 is invalid and illegal, is confirmed.
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ii) The declaration that the Resolutions passed in the Board
Meeting held on 29 January 2009 are not oppressive, is quashed
and set aside.
iii) It is declared that the Resolutions passed in the Board
Meeting held on 29 January 2009, are oppressive.
D. i) The declaration by the Board that the Board Meetings held
on 23 May 2009 and 25 May 2009 are non-est, illegal and void, is
confirmed.
ii) The direction by the Board that the Resolutions passed in
both these meetings are set aside being illegal and oppressive to the
Nafan and Lasaffre, is confirmed.
E. The directions by the Board setting aside the transfer of
shares in favour of the A.M.Muthiah and canceling the duplicate
shares issued in favour of the A.M.Muthiah, are confirmed.
F. The direction by the Board that the shareholding of Nafan
and Lasaffre stands restored, is confirmed.
G. The direction by the Board to Muthu Group to rectify the
Register of Members of the SAF Yeast as per law, is confirmed
H. The direction by the Board to Nafan and Lasaffre to transfer
the 80,722 shares held by them to the Muthu Group
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proportionately to their respective shareholdings, is quashed and
set aside.
I. If within six weeks from today Muthu group withdraws the
civil suit and associated proceedings filed by them and files an
undertaking on affidavit in the registry of this court that they will
not take any proceedings on the basis of the MOU in question, then
Part-I of this order will come in operation. If the above mentioned
steps are not taken by Muthu Group within the stipulated period as
above, Part-II of the order will come into effect forthwith and
prayer clause (a) sought for by Nafan in its company petition will
stand granted on the terms mentioned in Part II.
J. Interim orders operating in these appeals shall continue for
period of six weeks from today.
PART - I
a. The Board of Directors, including the powers of the Managing
Director, is immediately and completely suspended.
b. Mr. Justice J.N. Patel, Retired Chief Justice of Calcutta High
Court is appointed as an Administrator on the same emoluments
and immunity, as directed by the Board with the powers of the
Chairman of the Company's Board of Directors, and the Managing
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Director, to supervise the functioning of the Company on an interim
basis until the process of sale/purchase is complete; upon
appointment of the Administrator, Respondent Nos.2-6 in the
petition (Muthu Group) shall forthwith deposit with the
Administrator signed, duly filled in but undated share transfer
forms along with the original share certificates in regard to all the
shares held by them in the Company.
c. Until the process of sale/purchase is complete, the powers of
the Board of Directors shall be vested in an equal number of
Directors/alternate directors nominated by Nafan and the Muthu
Group (as one group) with the Administrator holding the casting
vote, the Directors/alternate Directors nominated by Nafan and the
Muthu group shall be entitled to attend meetings of the Board
and/or general meeting of the Company; all such meetings,
whether meeting of the Board or General Meetings, if any, shall be
convened and presided over by the Administrator alone.
d. Until the process of sale/purchase is complete, the SAF Yeast
and the Administrator shall not (except in the ordinary course of
business), (a) sell or otherwise dispose of or encumber the
Company's assets, (b) incur liabilities, (c ) distribute funds from the
Company, (d) enter into any contracts to be performed for a period
longer than six months for or on behalf of the Company, (e) change
the nature of the business of the Company, (f) alter or increase the
share capital or issue further shares of the Company, or (g) enter
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into any related party transactions for or on behalf of the Company.
e. The Administrator shall be entitled to appoint ,at an
appropriate monthly compensation to be paid by the Company as
the administrator deems fit, an independent, suitably qualified
person conversant with the yeast industry to assist him in the
functioning of the Company.
f. Nafan shall be provided complete and unimpeded access
within seven days from the date of the order to the statutory and
other records books and all the relevant documents as indicated in
the Schedule to Note on Modalities given by Nafan, and shall be
allowed full and unimpeded access to the Company's industrial
plants.
g. Access shall also be made available to any such Chartered
Accountant nominated in writing by Nafan and the said access shall
be provided continuously on a day-to-day basis for a period of forty
five days from today.
h. After the said forty five days of Nafan being given continuous
access as provided above, a continuing competitive bid auction
shall take place within fifteen days and the bidding shall be only
between Nafan and the Respondent Nos.2 to 6-Muthu Group as
one. The party bidding the highest cash amount for 100% of the
shares under the auction shall be entitled to buy 100% of the
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shares of the Company with the successful bidder getting credit for
its own shares (either 51% for Nafan or 49% for the Muthu Group-
Respondent Nos.2 to 6); the process of auction shall be conducted
under the supervision of the Administrator.
i. The successful bidder will deposit in Court by Bankers cheque
(Demand Draft) the amount payable, along with all applicable
taxes, within fifteen business days after being declared by the Court
as the successful bidder.
j.
On such payment, the shares will be transferred to the buyer,
the Register of Members of the Company shall be updated
accordingly, the Administrator will be replaced by the board of
directors appointed by the successful bidder, and payment will be
released by the Court to the seller.
k. If the successful bidder does not deposit in Court the amount
payable within fifteen business days after being designated as the
successful bidder, the other party will be entitled to buy the shares
of the defaulting party for a price equal to the higher of either
Euros 28 Million (i.e. Rs.196,83,79,380/- at the current rate of
exchange), or the amount of the next highest bid (with the
unsuccessful bidder getting credit for its own shares - either 51%
for Nafan or 49% for the Muthu Group Respondent Nos.2 to 6) less
a twenty-five per cent reduction, by depositing the amount payable
in Court within fifteen business days after default.
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l. Upon the completion of the exercise of transfer of shares and
its consequent registration in the Register of Members of the
Company, the functioning of the Administrator appointed shall
stand terminated automatically and at this time, the process of
sale/purchase will be deemed complete.
m. The currency for any payments made hereunder shall be
Indian rupee.
n.
The Nafan as well as the Muthu Group -Respondent Nos.2 to
6 shall fully cooperate in the completion of all formalities, including
signing and execution of share transfer forms, compliance with any
and all necessary requirements under the Company law to effect
the transfer of their shares in favour of the successful bidder under
the auction.
PART - II
a. M/s.Ernst and Young, Chartered Accountants are appointed
to value the 49% shares of the Company held by Respondent Nos.2
to 6 Muthu group including, if required, a forensic audit/ due
diligence of the records, books and accounts of the Company within
three months from today.
b. For the purpose of (a) above, the Chartered Accountant so
appointed shall convene a preliminary meeting with Nafan and the
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Muthu group-Respondent Nos.2 to 6 to decide the valuation
methods and both parties shall be entitled to make
recommendations/suggestions in writing to the Chartered
Accountant in that regard.
c. The appointed Chartered Accountant shall determine the fair
market value of the Muthu group - Respondent Nos.2 to 6's 49%
shareholding interest, as on today, using such generally accepted
valuation methodologies for valuing a going concern as the
Chartered Accountant deems fit and proper in the facts and
circumstances of the present case, after hearing the parties.
d. Nafan shall be provided complete and unimpeded access
within seven days from the date of the order to the statutory and
other records books and accounts of Saf Yeast, and such other
relevant documents as indicated in the Schedule to Note on
Modalities given by Nafan and shall be allowed full and unimpeded
access to the industrial plants.
e. The Board of Directors, including the powers of the Managing
Director, is immediately and completely suspended.
f. Mr.Justice J.N. Patel, Retired Chief Justice of Calcutta High
Court is appointed as an Administrator on the same emoluments
sand immunity as directed by the Board, with the powers of the
Chairman of the Company's Board of Directors, and the Managing
bsb 219 COAPPL21.15+5.doc
Director, to supervise the functioning of the Company on an interim
basis until the process of sale/purchase is complete; upon
appointment of the Administrator, Respondent Nos.2-6 in the
petition (Muthu Group) shall forthwith deposit with the
Administrator signed, duly filled in but undated share transfer
forms along with the original share certificates in regard to all the
shares held by them in the Company.
g. Until the process of sale/purchase is complete, the powers of
the Board of Directors shall be vested in an equal number of
Directors/alternate directors nominated by Nafan and the Muthu
Group (as one group) with the Administrator holding the casting
vote, the Directors/alternate Directors nominated by Nafan and the
Muthu group shall be entitled to attend meetings of the Board
and/or general meeting of the SAF Yeast; all such meetings,
whether meeting of the Board or General Meetings, if any, shall be
convened and presided over by the Administrator alone.
h. Until the process of sale/purchase is complete, the SAF Yeast
and the Administrator shall not (except in the ordinary course of
business), (a) sell or otherwise dispose of or encumber the
Company's assets, (b) incur liabilities, ( c) distribute funds from the
Company, (d) enter into any contracts to be performed for a period
longer than six months for or on behalf of the Company, (e) change
the nature of the business of the Company, (f) alter or increase the
share capital or issue further shares of the Company, or (g) enter
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into any related party transactions for or on behalf of the Company.
i. The Administrator shall be entitled to appoint (at an
appropriate monthly compensation to be paid by the Company as
the administrator deems fit) an independent, suitably qualified
person conversant with the yeast industry to assist him or her in the
functioning of the Company.
j. Upon the completion of the exercise of valuation, the
valuation report, including the Chartered Accountant's opinion of
the fair market value of the Respondents' shareholding interest,
shall be delivered to the Court, Nafan and Muthu group, and within
a period of thirty days after receipt, Nafan shall deposit by Bankers
cheque (Demand Draft) payment as per the valuation of the
Chartered Accountant which will then be transferred by the Court
to the Respondent Nos.2 to 6 in the appropriate amounts based on
their shareholding interest.
k. Against payment by the Administrator to the Respondent
Nos.2 to 6: (a) Respondent Nos.2 to 6-Muthu group's 49%
shareholding shall be transferred in favour of Nafan and the Muthu
group-Respondent Nos.2 to 6 shall fully cooperate in the transfer of
the said shares, including signing and executing share transfer
forms, complying with any and all necessary requirements under
the Company law; (b) appropriate entry shall be made in the
Register of Members of the Company; (c ) the mandate of the
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Administrator shall stand automatically terminated after he hands
over the original share certificates and duly executed and signed
share transfer forms (given pursuant to above clause to Nafan,
and (d) the process of sale/purchase will be deemed complete.
L. The currency for any payments made hereunder shall be
Indian Rupee.
150 All the pending company applications are disposed of in
terms of above.
151 Accordingly, Company Appeal No.22 of 2015 filed by
M/s.Sharp & Tannan and Company Appeal No.23 of 2015 filed by
Muthu group, stand dismissed. Company Appeal No.21 of 2015
filed by Nafan B.V. and Company Appeal No.24 of 2015 filed by
Lesaffre Et CIE, stand disposed of on above terms.
152. No order as to costs.
( N. M. JAMDAR, J. )
