Mandeep Singh & Anr. vs Ramesh Kumar & Anr.
2009 Latest Caselaw 3780 Del

             * IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                              Date of Reserve: 7.9.2009
                                                    Date of Order: 15th September, 2009

OMP No. 172/2009
%                                                                         15.09.2009

        Mandeep Singh & Anr.                        ... Petitioners
                      Through: Mr. Jagjit Singh, Advocate

                   Versus


        Ramesh Kumar & Anr.                      ... Respondents
                     Through: Mr. Sushant Kumar, Advocate and
                     Mr. Abhinav Kumar, Advocate


JUSTICE SHIV NARAYAN DHINGRA

1. Whether reporters of local papers may be allowed to see the
judgment?

2. To be referred to the reporter or not?

3. Whether judgment should be reported in Digest?

JUDGMENT

This application has been made under Section 9 of the Arbitration &

Conciliation Act, 1996 by the petitioners on the basis of a Shareholders'

Agreement entered into between the petitioners and respondent no.1 on 2nd

November 2006, which contains an arbitration clause. As per the Shareholder's

Agreement, the petitioners had agreed for transferring of their 1,20,000/- equity

shares of face value Rs.10/- in favour of the respondent no.1 for sum of

Rs.1,22,00,000/-. Out of this Rs.1,22,00,000/-, 1,01,66,667/- was payable to the

first petitioner and Rs.20,33,333/- was payable to the second petitioner. Under

the Agreement, this amount was to be paid by respondent to the petitioners in

five installments. The first installment was of Rs.18,30,000/-, second installment

was of Rs.12,20,000 and third installment was of Rs.30,50,000/-. The agreement

provided that petitioners shall resign as Directors of respondent no.2 company

after this agreement. The petitioners on receipt of consideration in installments

were to release all their rights in the respondent no.2 company in favour of the

buyer (respondent no.1) and were also to undertake all such actions as required

to handover the operations of the company to the buyer. The petitioners'

contention is that after receiving Post Dated Cheques in respect of above

consideration, the petitioners resigned as Directors of the company and

respondent no.1 gained control over the company to the exclusion of the

petitioners. Out of the five installments to be paid, latest by 29.2.2008, cheques

in respect of only first two installments got honoured and cheques for remaining

three installments fallen due after 31.5.2007 and payable by 29.2.2008 got

dishonoured. It is stated that out of total consideration of 1.22 crore, Rs.91.50

lac remained unpaid and the respondent no.1 has shown no inclination to fulfill

the agreement therefore, the petitioners were contemplating invoking of

arbitration. By this petition under Section 9, the petitioners have prayed to the

Court that respondent should be directed to furnish a bank guarantee to the tune

of Rs.1.25 crore to the satisfaction of the Registrar General of this Court or an

equivalent amount should be deposited in the name of the petitioners with

nationalized bank. It is also prayed that respondent No.1 should be restrained

from selling, transferring or alienating any of the assets of the respondent no.2

company and respondent no.1 should be directed to handover the management

and control of respondent no.2 company to the petitioners and the status quo

ante ie. status at the time of pre execution of shareholders' agreement should be

restored.

2. The counsel for the respondent on the other hand has argued that

the petitioners were to transfer the shares simultaneously along with receipt of

installments and the petitioners failed to transfer number of shares equal to the

consideration received in two installments. Since the petitioners had failed to

transfer shares proportionate to the amount received, the respondent no.1 was

constrained to stop payment of the rest of the installments.

3. Clause 8 of the Shareholders' Agreement provides that in case the

Buyer fails to arrange necessary funds required for the clearance of Post Dated

Cheques, the Sellers shall have right to take necessary legal proceedings

against the Buyer. Clause 11 of the agreement provides for termination of the

agreement by either party by giving a 30 days written notice to the other party, on

occurrence of event of default.

4. It is apparent that this agreement was a terminable agreement; it

could be terminated by either party by giving a notice in case of a default. The

respective claims of the parties are to be decided by the Arbitrator in terms of

Clause 13 which provides a dispute resolution mechanism through arbitration.

5. The petitioners in this case have already received an amount of

Rs.30,50,000/- and none of the shares in the custody of the petitioners has been

transferred to respondent no.1, thus the petitioners have not much at the stake.

As far as specific performance of the agreement is concerned, I consider that this

Court under Section 9 cannot direct the specific performance of the agreement.

Once an agreement stands terminated due to violation of the terms and

conditions, the remedy lies in claiming damages by the aggrieved party through

arbitration or praying to the Arbitrator for specific performance of the contract.

6. Since the petitioners continue to be shareholders of the company

(respondent no.2) the petitioners will be at liberty to exercise their rights in the

company in consonance with their shares. The petitioners also have liberty to

approach Company Law Board. The petitioners would be entitled to participate

as shareholders in the General Body Meetings of the Company and shall have

voting rights in proportion to their shares, till the matter between the parties is not

settled through arbitration.

With these directions, this petition is disposed of.

September 15, 2009                                      SHIV NARAYAN DHINGRA, J.
vn