2006 Supreme(SC) 951

2006(8) Supreme 830
SUPREME COURT OF INDIA
(From Delhi High Court)
B.P Singh and Altamas Kabir JJ.
Hansa Industries Pvt. Ltd. & Ors. - Appellants
versus
Kidarsons Industries Pvt. Ltd. - Respondent
Civil Appeal No. 1682 of 1999
With
Civil Appeal No. 1705 of 1999
Decided on 13-10-2006
Counsel for the Parties :
For the Appellants : S. Ganesh, Sr. Advocate, U.A. Rana, Ms. Pinky Anand and Arvind Kumar (for M/s. Gagrat & Co.), Advocates.
For the Respondent : Dushyant Dave, Sr. Advocate, A.T. Patra, Nipun Malhotra, Sanjiv Sen and Ramesh Singh (for M/s. O.P. Khaitan & Co.), Advocates.

IMPORTANT POINT
Courts have leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds.

Headnote:Companies Act, 1956 - Winding up proceedings - Family settlement during proceedings - Private Limited Company closely held by a family - Except for a few shares held by their relatives and friends the entire shareholding of the company was that of the members of the family - Disputes between brothers, appellant 2 and respondents - Main source of income of respondent company was the commission earned from the agency business - Appellant 2 succeeded in getting the agency exclusively in his name and then in the name of his company - Respondents filed suit for declaration and for injunction restraining appellants from carrying on agency business - During pendency of proceedings the parties arrived at a compromise - Clause 14 of the settlement in clear terms provided that appellant 2 was to continue to occupy portion of Golf Link property of the company in which he was residing - Before this Court appellant gave up his claim of allotment of entire Golf Links property to him - Whether High Court was justified in approving allotment of the house to respondents who owned the majority shares in respondent company - (No).

       Held : It is trite that the terms of settlement reached between the parties shall ordinarily not be modified except with the consent of the parties. In the instant case, it has not been argued by anyone that the terms of settlement with which we are concerned are either illegal as being opposed to any statute or that it is hit by impossibility of performance and, therefore cannot be performed or that the settlement was not reached bona fide.(Para 9)

       Courts have leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds. Where the courts find that the family arrangement suffers from a legal lacuna or a formal defect the rule of estoppel is pressed into service and is applied to shut out plea of the person who being a party to family arrangement seeks to unsettle a settled dispute and claims to revoke the family arrangement under which he has himself enjoyed some material benefits.(Para 13)

       It is true that the High Court has taken note of the practicalities of the situation and has proceeded on the basis that the appellants and the respondents cannot peacefully live in the same premises. The High Court has, therefore, not favoured allotment of a portion of the house in favour of appellant No.2 and has approved the allotment of the house to the respondents who owned the majority shares in the respondent No.1 – Company. This was done with a view to ensure that the parties live separately but in peace and harmony. We cannot find fault with the concern shown by the High Court, but the problem which arises in the instant case is that the High Court was not considering a matter in which it could have exercised its discretion to make allotment one way or the other as in a case of family partition. The decree of the Court is based upon a settlement reached between the parties. Even at the time when the settlement was reached the parties were well aware of the strained relationship which existed and the unfortunate events that occurred between the branch of appellant No.2 and the remaining members of the family. Despite this, it was agreed by all of them that the portion in occupation of appellant No.2 shall be allotted to him and the value thereof adjusted against his share. The respondents cannot now be heard to say that it would be inconvenient for them to reside with appellant No.2 and his family members in the same house, though in separate portions. The question as to how the parties will manage their affairs is a matter with which they only are primarily concerned and the Court cannot advise them in the matter. It may be that the architects may provide a solution for their problems, or it may be that in view of the circumstances one party may agree to sell its share or buy the share of the other party with a view to purchase peace, if that becomes necessary. These are matters in which the Court may have nothing to say. (Para 16)

       Clause 14 of the settlement being unambiguous, clear and categoric, it must be given effect because one cannot term the said Clause 14 as vitiated by fraud, or illegal being in breach of any statutory provision, or against public policy, or hit by the principle of impossibility of performance. The settlement was made bona fide by the parties to resolve all their disputes and all facts were known to the parties when they reached the settlement. With their eyes open and fully aware of their experiences of the past, they agreed to share the Golf Links property. The relevant clause in the settlement is not vitiated by any consideration which may impel the court not to give effect to that clause in the settlement. The question of practical inconvenience should have concerned the respondents when they entered into the settlement. They cannot at the stage of implementation of the settlement avoid a covenant in the settlement solemnly incorporated with their consent on the pretext of practical inconvenience of living in the same house, albeit in separate portions, in the unfortunate background of bickerings and acrimony. This issue must, therefore, be decided in favour of the appellants. (Para 17)

       We are of the view that since no demand of capital gains tax has been made so far, if any such demand is made in future in respect of the transfer of assets under the settlement for which 20% has been deducted by the Chartered Accountants, the respondent- Company shall challenge the demand provided the appellants shall place at its disposal necessary funds for the purpose. In any event the liability under the head "capital gains", if any, shall be that of the appellants who shall furnish an undertaking to this effect accepting their liability, and create a charge over the aforesaid assets to secure payment of capital gains tax, if any, imposed in future. Subject to this being done, there shall be no deduction from the value of the assets of the company of the anticipated liability of capital gains.(Para 20)

       We, therefore, allow this appeal to the extent indicated below:-

       a)that the judgment and order of the High Court is modified to the extent that appellant No.2, namely – Shri Narendra Nath Nanda shall be allotted the portion of the Golf Links house which was in his occupation on the date of settlement, and the value thereof shall be adjusted against his share. If something remains to be paid even after adjustment, the appellants shall pay such amount within a period of two months from the date of the order of the High Court.

       b)That no deduction shall be made from the value of the assets of the anticipated capital gains tax liability on the hypothetical sale under the settlement. In case a demand of capital gains tax is made by the tax authority in future against respondent – Company, the aforesaid Company shall be entitled to challenge the imposition of such tax subject to appellant No.2 providing sufficient funds to the respondent – Company for this purpose. In any event, the capital gains tax, if found payable, shall be the liability of the appellants to be discharged by them. They shall furnish an undertaking before the High Court accepting such liability, and shall execute a document creating a charge on the assets allocated to them under the settlement to discharge capital gains tax liability, if found payable. (Para 21)