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IN THE HIGH COURT OF BOMBAY
R.I. CHAGLA, J.
Rajiv Sanghvi & Ors. – Appellant
Versus
Pradip R. Kamdar & Ors. – Respondents
Interim Application No. 571 of 2022
Decided on : 30-06-2022
The Court held that the Minutes of Discussion (MoD) constituted a valid and binding family settlement agreement between the parties and granted an injunction restraining the defendants from taking any steps that would defeat the plaintiffs' rights under the MoD.
Fact of the Case:
The plaintiffs and defendants were directors of a private limited company. A dispute arose between the parties, and the defendants filed a company petition under Sections 241, 242, and 244 of the Companies Act, 2013, seeking to restrain the alleged oppressive acts of the plaintiffs. The parties subsequently entered into the MoD, which was duly executed by them. The MoD contemplated a scheme of arrangement (demerger) and the appointment of an administrator of the company. The plaintiffs filed the present suit seeking specific performance of the MoD. The defendants contended that the MoD was not a concluded contract and that the plaintiffs had breached and repudiated the same. The defendants also argued that the suit was barred by Section 430 of the Companies Act, 2013, which provides that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT) is empowered to determine.
Finding of the Court:
The Court found that the MoD was a valid and binding family settlement agreement between the parties. The Court noted that the MoD had been executed by the parties after rounds of negotiations and that it was intended to settle the disputes between them. The Court also noted that the MoD contemplated a scheme of arrangement (demerger) and the appointment of an administrator of the company, which were matters within the jurisdiction of the NCLT. However, the Court held that the NCLT did not have jurisdiction to grant specific performance of the MoD, which was the relief sought by the plaintiffs in the present suit. The Court further held that the plaintiffs had not breached or repudiated the MoD and that the suit was not barred by Section 430 of the Companies Act, 2013.
Issues: 1. Whether the Minutes of Discussion (MoD) constituted a valid and binding family settlement agreement between the parties? 2. Whether the suit was barred by Section 430 of the Companies Act, 2013?
Ratio Decidendi: 1. The Court held that the MoD constituted a valid and binding family settlement agreement between the parties based on the following factors: * The MoD had been executed by the parties after rounds of negotiations. * The MoD was intended to settle the disputes between the parties. * The MoD contemplated a scheme of arrangement (demerger) and the appointment of an administrator of the company, which were matters within the jurisdiction of the NCLT. 2. The Court held that the suit was not barred by Section 430 of the Companies Act, 2013, because: * The NCLT did not have jurisdiction to grant specific performance of the MoD, which was the relief sought by the plaintiffs in the present suit. * The plaintiffs had not breached or repudiated the MoD.
Final Decision: The Court granted an injunction restraining the defendants from taking any steps that would defeat the plaintiffs' rights under the MoD.
JUDGMENT :
1. By this Interim Application, the Applicants/Plaintiffs have sought an order of temporary injunction restraining the Defendant Nos. 1 and 2, their servants/agents or any other person directly or indirectly acting for or on behalf of Defendant Nos. 1 and 2 from taking any steps which would defeat the Applicants’ rights under the agreement and/or the reliefs prayed for in the captioned Suit. Further, relief has been sought restraining the Defendant Nos. 1 and 2, their servants/agents or any other person directly or indirectly acting on behalf of Defendant Nos. 1 and 2 from taking steps towards valuation of Defendant No. 3 and/or buy-out of inter alia the Defendant Nos.1 and 2’s shareholding in Defendant No. 3. Other consequential relief has also been sought against Defendant Nos. 1 and 2 which have been set out in the subsequent prayers viz. prayer clauses (c) and (d).
2. The Applicants have filed the present Suit seeking specific performance of the agreement (“Minutes of Discussion”) dated 14th June 2019 (annexed at Exh.A to the Plaint) and declaration that the Minutes of Discussion is valid, subsisting, enforceable and binding.
3. The Applicants along with the Defendant Nos. 1 and 2 are Directors as well as the shareholders of the Defendant No. 3 Company. Defendant No. 3 Company is a Private Limited Company, incorporated under the Companies Act, 1913 and engaged in the business of operating and running automobile dealerships having operations in the State of Maharashtra, Andhra Pradesh and Telangana, Tamil Nadu and Karnataka and Gujarat. The overall control of Defendant No. 3 Company is exercised by its Board of Directors, but for administrative convenience, Plaintiff No. 1 is in control of the operations in the State of Andhra Pradesh, Telangana, Tamil Nadu and Karnataka (collectively referred to as “Andhra Pradesh and Telangana Division”); Plaintiff Nos. 2 to 4 are in control of the operations in the State of Maharashtra (“Maharashtra Division”) and Defendant Nos. 1 and 2 are in control of the operations in the State of Gujarat (“Gujarat Division”).
4. The shareholding pattern of Defendant No. 3 Company is as under :
Parties/Group (%) of current Shareholding
Andhra Pradesh Group (represented by Plaintiff No.1) 32.33%
Maharashtra Group (represented by Plaintiff Nos.2 to 4) 37.70%
Gujarat Group (represented Defendant Nos.1 to 2) 19.31%
Plaintiff No.1’s Aunt 6.07%
Other shareholders 4.59%
The Plaintiffs and their family members, therefore, constitute approx. 70% of the Defendant No.3’s shareholding.
5. The Defendant Nos. 1 and 2 had filed a Company Petition No. 428 of 2018 on 19th March 2018 before the National Company Law Tribunal (“NCLT”) under Sections 241, 242 and 244 of the Companies Act, 2013, seeking to restrain the alleged oppressive acts of the Plaintiffs against Defendant Nos. 1 and 2. The Defendant Nos. 1 and 2 had taken out an Application bearing MA No. 229 of 2018 on 26th March 2018 in the Company Petition and which inter alia sought directions restraining and prohibiting the Plaintiffs who are the Respondents therein from interfering with, prejudicing and/or obstructing inter alia the Defendant Nos. 1 and 2 in conducting the Gujarat operations of the Defendant No. 3 Company. The NCLT passed an order on 6th April 2018 directing that no structural changes to the existing arrangement in Defendant No.3 Company shall be made, at least until the Company Petition is disposed of. Miscellaneous Petition was accordingly disposed of.
6. The Plaintiffs and the Defendant Nos. 1 and 2 had thereafter, entered into “the Minutes of Discussion” which was duly executed by them for separation of the businesses. It is mentioned therein that “The Minutes of Discussions and the mechanics of the family settlement agreed to between the parties”. Under the said Minutes of Discussion, settlement amount was payable to the Defendant Nos. 1 and 2 referred to as Gujarat family and the amount which is valued therein at Rs. 245 Crores. The Minute
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