Rajib Saha & Anr. vs Paul Berkowitz
2009 Latest Caselaw 2703 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                F.A.O. NO.270 OF 2009 & C.M. NOS.9144 OF
                           2009 & 9145 OF 2009

%                                             Reserved on : 17th July, 2009
                                            Pronounced on : 20th July, 2009

        RAJIB SAHA & ANR.                            ..... Appellants
                                   Through: Mr. Vijay Nair & Mr. Rajat
                                            Joneja, Advocates.

                                   versus

        PAUL BERKOWITZ                              ..... Respondent
                                   Through: Mr. Sachin Dutta, Advocate.

CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MR. JUSTICE NEERAJ KISHAN KAUL

1.      Whether Reporters of the local newspapers may be allowed to
        see the judgment?                                      [NO]
2.      Whether to be referred to the Reporter or not?         [NO]
3.      Whether the judgment should be reported in the Digest? [NO]

                             JUDGMENT

NEERAJ KISHAN KAUL, J.

1. The present appeal has been filed against the order of

learned Single Judge dated 29.4.2009.

2. Briefly, the facts of the case are that the respondent was

working as a salaried Director with appellant No.2. The appellant

No.1 was one of the shareholders of appellant No.2 Company. The

appellant No.1 entered into a share-purchase agreement with the

respondent on 8.8.2006 and the appellant No.2 was a party to the

said agreement. In terms of the share-purchase agreement, the

appellant No.1 had agreed for sale of his 16,27,043 shares of the

appellant No.2 Company at a rate of Rs.2.90 per share. It is not

disputed that appellant No.1 received the amount as stated in the

agreement through foreign remittance from the respondent on

10.4.2007 and the parties executed necessary documents as

contemplated by the share-transfer agreement. Necessary

permissions were applied for by appellant No.1 and were obtained by

15.9.2007. It was the case of the respondent before the learned

Arbitral Tribunal that despite getting requisite permissions for

transfer of shares to a foreign national (the respondent) and despite

receiving the consideration, the appellant No.1, who was to present to

the appellant No.2 the necessary share transfer forms duly filled 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 the appellant No.2 Company. The appellant No.2

Company, therefore, did not recognize the transfer and did not

correct the register of shareholders as the appellant No.1 did not do

the necessary last act of submitting share-transfer forms with the

appellant No.2. On finding that the appellants were not fulfilling

their part of the obligations under the agreement, the respondent

invoked the arbitration clause and the impugned award was passed

by the learned Arbitral Tribunal.

3. The defence taken by the appellants before the learned

Arbitral Tribunal was that there was delay on the part of the

respondent in remitting the sale consideration. It was also stated on

behalf of the appellants that the respondents had left the appellant

No.2 Company and was working with its business rival and under the

circumstances, it was justified in not transferring the shares to the

respondent. It was also contended that the respondent had not

issued „Conditions Satisfaction Notice‟ as contemplated under the

agreement on the closing date.

4. After considering the entire agreement and contentions of

both the parties, the learned Arbitral Tribunal came to the 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 eight months of entering into the agreement, but the

purchase price was accepted by appellant No.1, the seller, and

appellant 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, appellant No.1 refused to actually get the

shares transferred in the name of the respondent by deliberately not

applying to the company or enabling the respondent to apply to the

company by not making the necessary papers available to him.

5. The learned Arbitral Tribunal found no force in the plea

of the appellant that the respondent had joined the rival business

company, namely, AMSOFT and came to the conclusion that there

was no material placed before the Tribunal showing that AMSOFT

was a business rival of appellant No.2 Company. The Tribunal also

found that no occasion arose for the respondent of sending the

„Conditions Satisfaction Notice‟ since all the conditions had been

satisfied to the knowledge of the appellant No.1 and after satisfaction

of these conditions, necessary transfer form had also been executed

by the parties. When the question of relief arose, the Tribunal

considered the arguments of the appellants that it was not just and

equitable to grant decree of specific performance and agreed to this

for the reasons that the appellant No.2 was a closely held company

and in view of souring of relations between the appellant No.1 and

the respondent, the actual transfer of shares to the respondent would

only result in further disputes between the parties and possibly

result into further litigation leading to impediment in proper working

of the company. The Tribunal considered it a fit case for awarding

damages/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

appellant No.1 during cross-examination that the shares of appellant

No.2 had been offered to others on enhanced rates and on 5.9.2007,

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 of Rs.13 per share in lieu of the shares and the

appellant No.1 to retain the shares agreed to be sold. Calculating at

this rate, the Tribunal awarded a sum of Rs.2,11,52,000/- to the

respondent. Costs were also awarded to the respondent. No interest

was awarded, however, the Tribunal observed that in case the

amount was not paid within three months, the respondent would be

entitled to interest @ 18 per cent per annum on the amount awarded,

till realization.

6. It is specifically noted by the learned Single Judge in the

impugned judgment that in the objections, the appellants have

mainly assailed the award on the basis of facts.

7. During the arguments before the learned Single Judge

the counsel for the objectors/appellants offered that the appellants

were agreeable to specific performance of the agreement, i.e., they

were now prepared to transfer the shares in the name of the

respondent, to which the respondent did not agree and pleaded that

from the time of the dispute till date, the appellants have deliberately

eroded the value of the company and the value of the share has

thereby reduced and the appellants deliberately made the company a

defunct company in order to take this plea.

8. The learned Single Judge took note of the fact that it was

admitted by the appellants‟ witness that the value of the shares of the

appellant No.2 Company had increased considerably in August-

September, 2007 when the performance of the agreement was to be

done and the share price was between Rs.13 to Rs.15. The present

value of the share, according to the respondent, was almost at par

with the face value and that was the reason that the appellants were

now agreeable for specific performance. The learned Single Judge,

thus, rightly held that the appellants could not now compel the

respondent to agree to specific performance of the agreement instead

of the awarded amount.

9. It was also submitted before the learned Single Judge by

the counsel for the appellants that the value of the shares could only

be ascertained on the basis of Valuation Certificate and the learned

Arbitral Tribunal had wrongly assessed the value of shares at Rs.13

per share. Learned Single Judge rightly noted that it was not the

case of the appellants that the appellants produced before the

learned Arbitral Tribunal the Valuation Certificate from a Chartered

Accountant showing the value of the shares of the appellant No.2

Company during the period September, 2007 when the appellant

No.1 failed to fulfill its obligation of transferring shares in the name of

the respondent.

10. The learned Single Judge correctly came to the

conclusion that the Tribunal could have decided the value of the

shares only on the basis of the evidence produced before it and the

Tribunal had taken into account the entire evidence produced before

it. Further we are in agreement with the finding of the learned Single

Judge that the RBI‟s guidelines have been made to ensure that the

shares of an 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 shares

for the price more than the one given in the Valuation Certificate by a

Chartered Accountant. The learned Single Judge correctly held that

the RBI guidelines are there to secure the financial interest of the

country and not to secure the financial interest of one individual

company. The guidelines do not bind an Arbitral Tribunal in

determining compensation in lieu of shares and the Tribunal was free

to determine the value of shares on the basis of the evidence

adduced. The learned Single Judge correctly affirmed the finding of

the learned Arbitral Tribunal that just compensation had to be given

to the respondent.

11. The counsel for the respondent also brought to our

notice Clause 2.2 (i) of the share-purchase agreement (page 117)

which is reproduced herein below :-

"2.2 (i) In consideration of the purchase of the Sale Shares, the Purchaser shall pay, a sum of Rs.2.90/- (Rupees two and ninety paise only) for each share comprising the Sale Shares ("Sale Consideration") amounting to a total of Rs.47,18,424.70/- (Rupees forty-seven lakh eighteen thousand four hundred and twenty four only) to the Seller, as per the Valuation Certificate provided by a Chartered Accountant."

12. As per the counsel for the respondent the Valuation

Certificate provided by a Chartered Accountant was attached to the

share-purchase agreement. As per the learned counsel for the

respondent, the appellants in their statement of defence before the

learned Arbitrator had categorically stated that immediately on

receipt of sale consideration they had approached the authorized

dealer for issuance of Foreign Inward Remittance Certificate (FIRC)

on 23.4.2007 and finally, the approval from the authorized dealer for

the transfer of sale shares was received by the appellant No.2

Company on 15.9.2007. Thus, as per the counsel for the respondent

all formalities had been completed and yet the appellants had refused

to transfer the shares in favour of the respondent. He further

submitted that there was no violation of RBI guidelines and that the

Tribunal was free to determine value of shares on the basis of

evidence adduced.

13. We are in complete agreement with the findings of the

learned Single Judge and the same warrant no interference. Further

it is settled law that when the arbitrator has applied his mind to the

pleadings, the evidence adduced before him and the terms of the

contract, there is no scope for the court to reappraise the matter as if

this was an appeal and even if two views are possible, the view taken

by the Arbitrator would prevail. So long as the award made by the

Arbitrator can be said to be one by a reasonable person, no

interference is called for. Moreover in the present case, the findings

of the Arbitrator have been affirmed by the learned Single Judge as

well. In the objections, the appellants have mainly assailed the

award on the basis of the facts. Issues relating to default, quantum

of damages and the respondent allegedly working for a rival are all

issues of fact and the Arbitrators are within their jurisdiction to

decide the issue as they deem it fit after considering all relevant facts,

pleadings, evidence and terms of the contract.

14. The appeal is accordingly dismissed. All pending

applications stand dismissed as well.

NEERAJ KISHAN KAUL [JUDGE]

MUKUL MUDGAL [JUDGE] JULY 20, 2009 'AA'