Delhi High Court
Rajib Saha & Anr. vs Paul Berkowitz on 29 April, 2009
Author: Shiv Narayan Dhingra
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Reserve: March 25, 2009
Date of Order: April 29, 2009
+ OMP 83/2009
% 29.04.2009
Rajib Saha & Anr. ...Petitioners
Through : Mr. Sandeep Sethi, Sr. Adv. with Mr. Rajat Joneja and
Mr. Sindhu Sinha, Advocates
Versus
Paul Berkowitz ...Respondent
Through: Mr. Sachin Datta, Advocate
JUSTICE SHIV NARAYAN DHINGRA
1. Whether reporters of local papers may be allowed to see the
judgment? Yes.
2. To be referred to the reporter or not? Yes.
3. Whether judgment should be reported in Digest? Yes.
JUDGMENT
1. By this petition under Section 34 of the Arbitration & Conciliation
Act, 1996 (for short, "the Act"), the petitioners have filed objections
against the award dated 7th November 2008 given by the learned
Arbitral Tribunal in favour of respondent awarding the respondent a
sum of Rs.2,11,52,000/-.
2. Brief facts relevant for the purpose of deciding this petition are
that respondent Mr. Paul Berkowitz was working as a salaried Director
with the petitioner No.2 M/s. GISIL Designs Private Limited. Petitioner
OMP 83.09 Rajib Saha & Anr. v. Paul Berkowitz Page 1 Of 12
No.1 was one of the shareholders of petitioner No.2 Company. The
petitioner No.1 entered into a share purchase agreement with
respondent on 8th August 2006 and petitioner No.2 was a party to the
agreement. In terms of this share purchase agreement, petitioner No.1
had agreed for sale of his 16,27,043 shares of petitioner no.2 company
at a rate of Rs.2.90 per share. The face value of a share was Rs. (1)
one. It was agreed that total consideration of Rs.47, 18,424.70 shall be
paid by respondent through foreign remittance to fulfill his part of
obligation and on receipt of this remittance in US dollars from the bank
abroad into the designated bank account of petitioner no.1, the
petitioner No.1 shall obtain all approvals that may be required from
government authorities for the purpose of implementation of the
agreement. The necessary approvals were treated as conditions
precedent. The respondent was also to be furnished a copy of
shareholder agreement and Articles of Association of the Company.
The obligations had to be performed on or before the closing date. The
closing date was defined as five business days subsequent to the
receipt of the last of the condition satisfaction notice. Vide another
agreement dated 9th August 2006, the respondent had agreed to abide
by the original shareholder agreement which contained an undertaking
that the shareholder would not carry on an activity competitive in
nature to the business of the company i.e. petitioner No.2. Thus, the
respondent had undertaken not to carry on any business that would be
adverse to the interests of the petitioner no.2 company.
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3. It is not disputed that the petitioner No.1 received the amount as
stated in the agreement through foreign remittance from respondent
on 10th April 2007 and the parties executed necessary documents as
contemplated by the share transfer agreement. Necessary permissions
were applied by petitioner No.1 and were obtained by 15th September
2007. Despite getting requisite permissions for transfer of shares to
foreign national (respondent) and despite receiving the consideration,
petitioner No.1, who was to present to petitioner No.2 the necessary
share transfer forms duly filed up and signed by the parties
accompanied by necessary permissions, did not fulfill his part of the
obligations of getting the shares transferred in the name of the
respondent so as to enable him to be a shareholder of petitioner No.2
company. The petitioner No.2 company, therefore, did not recognize
the transfer and did not correct the register of shareholders as
petitioner No.1 did not do necessary last act of submitting share
transfer form with the petitioner No.2. He did not even inform the
claimant/ respondent about the formalities having been completed. On
finding that the petitioners were not fulfilling their part of obligations
under the agreement, respondent invoked the arbitration clause and
the impugned award was passed by the learned Arbitral Tribunal.
4. The defence taken by the petitioner before the learned Arbitral
Tribunal was that there was delay on the part of the respondent in
remitting the sale consideration. The respondent had left petitioner
No.2 company and was working with its business rival and under the
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circumstances, it was not justified transferring the shares to the
respondent. It was also contended that respondent had not issued
conditions satisfaction notice as contemplated under the agreement on
the closing date. The learned Arbitral Tribunal after taking into account
the defence and the contentions framed following issues:-
1. Whether the respondent have committed the breach of the Share
Purchase Agreement dated 8.8.2006 and if so to what effect?
2. Even if the above point of dispute is held in favour of the
claimant, can there be no specific performance of the aforesaid
agreement as contended by the respondent?
3. If these points of dispute are held in favour of the claimant to
what amount of damages, if any, would the claimant be entitled
to?
4. Whether the claimant is entitled to interest and if so on what
amount and at what rate and for what period?
5. What relief?
5. The learned Arbitral Tribunal noted that the parties relied upon
the documents, most of which were admitted by each other. During
pendency of proceedings, the petitioner No.1 made an application
before the Arbitral Tribunal seeking permission to deposit the purchase
price paid by the respondent. This application was declined. It was
insisted upon by the petitioners that respondent was not entitled for
relief of specific performance. The petitioner had also submitted that
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respondent had left the petitioner No.2 company and was working for a
rival concern viz AMSOFT, so the petitioners had lost confidence in him
and the respondent was not entitled for specific performance of the
agreement.
6. The respondent, who in his claim petition had insisted for specific
performance, in the rejoinder contended that in any event he was
entitled to compensation in lieu of the specific performance, in addition
to the damages as claimed by him. He pointed out that he was entitled
to claim compensation at the rate of Rs.15.75 per share since this was
the price of share at the relevant time and he was entitled to recover
value of the shares from the petitioners on that rate, if Tribunal comes
to conclusion that it was not a case fit for specific performance.
7. After considering entire evidence and contentions of both the
parties, the learned Arbitral Tribunal came to conclusion that under the
terms of the agreement, the obligation of the claimant was to tender
purchase price as agreed and he had done so. Though, it was done
after about 8 months of the entering into the agreement, but the
purchase price was accepted by petitioner No.1, the seller and
petitioner No.1 agreed to take steps and to have necessary
permissions obtained for completion of transaction of sale. The steps
as contemplated in paragraph 4.2 of the agreement were completed by
the parties. However, petitioner No.1 refused to actually get the shares
transferred in the name of the respondent by deliberately not applying
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to the company or by enabling respondent to apply to the company by
not making the necessary papers available to him. The learned Arbitral
Tribunal found no force in the plea of the petitioner that the respondent
had joined the rival business company namely AMSOFT and came to
conclusion that there was no material placed before the Tribunal
showing that AMSOFT was a business rival of the petitioner No.2
company. The Tribunal also found that no occasion arose for the
respondent of sending „condition satisfaction notice‟ since all the
conditions had been satisfied to the knowledge of petitioner No.1 and
after satisfaction of these conditions, necessary transfer form had also
been executed by the parties. The transfer form could have been
executed only after „conditions satisfaction notice‟ had been given by
the respondent. Since the transfer documents had been executed that
implied that all conditions had been met and the all necessary steps
had been taken by respondent. Therefore, no further obligation was left
to be complied with by the respondent. Under the agreement, the only
obligation of the respondent was to pay the purchase price and he had
already done that. The Arbitral Tribunal concluded that it were the
petitioners who committed breach of the share purchase agreement by
not actually transferring the shares in the name of the respondent and
by not rectifying the books of the company. The petitioner No.1 had
obviously to fulfill his obligations of forwarding the necessary forms to
petitioner No.2 to enable petitioner No.2 to recognize transfer of shares
and to give effect to transfer by making necessary entries in the share
register. When the question of relief arose, the Tribunal considered the
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arguments of the petitioners that it was not just and equitable to grant
decree of specific performance and agreed to this for the reasons that
the petitioner No.2 was a closely held company and in view of the
souring of relations between the petitioner No.1 and respondent, the
actual transfer of shares to respondent, that too a miniscule
percentage of total shares, would only result in further disputes
between the parties and possibly resulting into further litigation leading
to impediment in proper working of the company. The Tribunal
observed that grant of specific performance was discretionary and
considering the petitioner‟s contention that it was not a fit case for
specific performance and considering the circumstances, the Tribunal
did not award the relief of specific performance and considered it a fit
case for awarding damage/ compensation in lieu of specific
performance. The Tribunal thereafter considered as to what should be
the fair value of a share and considered the evidence led before it and
the admission made by the petitioner No.1 during cross examination
that the shares of petitioner No.2 had been offered to others on
enhanced rates and on 5th September 2007, the price for transfer was
received as Rs.13.26 per share. The Tribunal observed that it would be
appropriate to award to the respondent compensation in lieu of specific
performance by awarding him the price at Rs.13 per share in lieu of the
shares and the petitioner No.1 to retain shares agreed to be sold.
Calculating at this rate, the Tribunal awarded a sum of Rs.2,11,52,000/-
to the respondent. The Tribunal also allowed Rs.10 lac to the
respondent on account of cost of arbitration and observed that in case
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the amount was paid within three months, the respondent would not be
entitled to any interest on the same award amount but in case the
amount is not paid within three months, the respondent would be
entitled to interest @ 18% per annum on the amount awarded, till
realization.
8. In the objections, the petitioners have mainly assailed the award
on the basis of facts. It is submitted that the Tribunal failed to
appreciate that the respondent would have been entitled only to
amount of Rs.47,18,424/- which was the amount transferred by him
and the Tribunal did not adopt transparent and reasonable mechanism
while arriving at the amount of Rs.2,11,52,000/- as a compensation.
The award of the Tribunal was, therefore, perverse. It was also stated
that the Tribunal failed to take into account the documents placed
before it by the petitioners and since the documents of the petitioners
were not considered, the award was bad in law. The other ground is
that the Tribunal failed to consider that the transfer of share as per
schedule had to be in consonance with the stipulation laid down in A.P
(DIR Series) Circular-16 dated 4th October 2004 issued by RBI. The
guidelines laid down the manner of determining price at which the
shares of Indian companies can be transferred. The guidelines stipulate
that the prices of shares of unlisted company shall not be less than the
price arrived at by a fair valuation of shares carried out by the
Chartered Accountant. The additional guidelines provide the manner in
which the shares are to be valued. The compliance of guidelines was
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mandatory. Since the Tribunal failed to consider these guidelines and
the prices issued by RBI, the award passed by the Tribunal was bad.
9. During arguments, counsel for the objectors/petitioners offered
that the petitioners were agreeable to specific performance of
agreement i.e. they were now prepared to transfer the shares in the
name of respondent, to which respondent did not agree and pleaded
that from the time of dispute till date the petitioners have deliberately
eroded the value of the company and the value of share has thereby
reduced and the petitioners deliberately made the company a defunct
company in order to take this plea. Moreover, the petitioners had
opposed tooth and nail the specific performance of the agreement and
had pleaded that the specific performance of agreement be not given
in favour of the respondent, now the petitioners cannot be heard to say
that Court should allow specific performance.
10. I consider that there is considerable force in the arguments of the
respondent in this case. The petitioners had not agreed for specific
performance of the agreement in September 2007 and compelled the
respondent to invoke arbitration clause. Thereafter, when the
arbitration clause was invoked and matter was before the Arbitral
Tribunal, the petitioners opposed the grant of relief of specific
performance. It was admitted by the petitioners‟ witness that the value
of the shares of the petitioner No.2 company had increased
considerably in August-September 2007 when the performance of the
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agreement was to be done and the share price was between Rs.13 to
15. The present value of the share according to the respondent, is
almost at par with face value and that is the reason that the petitioners
were now agreeable for specific performance. I consider that the
petitioners cannot now compel the respondent to agree to the specific
performance of the agreement instead of awarded amount. The
amount has been awarded by the Arbitral Tribunal after taking into
account the contentions of parties and evidence. The petitioners now
seem to be ready for specific performance after eroding the wroth of
company.
11. The other argument advanced by the petitioners/ objectors is in
respect of valuation of share. It is submitted by the counsel for the
objectors that as per the share purchase agreement dated 8th August
2006, the „valuation certificate‟ has been defined as a certificate
provided by a Chartered Accountant concerning valuation of the share
of the company as per the prescribed guidelines. The counsel for the
objectors submitted that the value of the shares could only be
ascertained on the basis of valuation certificate and the learned
Arbitral Tribunal has wrongly assessed the value of the shares at
Rs.13/- per share.
12. It is not the case of the petitioners that the petitioners produced
before the learned Arbitral Tribunal a valuation certificate from a
Chartered Accountant showing the value of the shares of petitioner
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No.2 company during the period September 2007 when the petitioner
No.1 failed to fulfill its obligation of transferring shares in the name of
respondent. The Tribunal could have decided the value of the shares
only on the basis of evidence produced before it and the Tribunal has
taken into account the entire evidence produced before it. The
guidelines of RBI referred to by the petitioners itself show that RBI‟s
guidelines have been made to ensure that the share of unlisted
company are not transferred to foreign nationals at a price less than
the one ascertained by a Chartered Accountant. There is no bar put by
the RBI on transferring of shares for the price more than the one given
in valuation certificate of a Chartered Accountant. The RBI guidelines
are there to secure the financial interest of the country and not to
secure the financial interest of one individual company. These
guidelines are applicable to Transferor Company while transferring
shares. The guidelines do not bind an Arbitral Tribunal in determining
compensation in lieu of shares and Tribunal was free to determine
value of share on the basis of evidence adduced. Where an individual
had entered into a share transfer agreement and failed to fulfill its
obligations the valuation of shares in terms of RBI guidelines would not
be relevant. I consider that the Arbitral Tribunal had rightly come to
conclusion as to what will be the just compensation to be given to the
respondent.
13. I find that the challenge made to the award by the petitioners is
baseless. The petitioners failed to make out a case for setting aside the
OMP 83.09 Rajib Saha & Anr. v. Paul Berkowitz Page 11 Of 12
impugned award. The petition is hereby dismissed. No orders as to
costs.
April 29, 2009 SHIV NARAYAN DHINGRA J.
rd
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