Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(Del) 1668

IN THE HIGH COURT OF DELHI AT NEW DELHI
Manmohan, Asha Menon, JJ.
Airgate Holdings Limited - Appellant
Versus
Sumit Mohan Singh Gandhi & Ors. - Respondents
F.A.O. (Os) (Comm) (First Appeal From Order (Os) (Comm)) No. 16 of 2021; C.M. Appls (Civil Miscellaneous Application) No. 3307 of 2021, 3308 of 2021, 3309 of 2021, 3987 of 2021
Decided On : 08-02-2021

Advocates appeared:
Siddharth Bhatnagar, Advocate, Saket Shukla, Advocate, Vasanth Rajasekaran, Advocate, Saurabh Babulkar, Advocate, Reshma Ravipati, Advocate, Maryam Quadri, Advocate, Parag P Tripathi, Advocate, Rishab Gupta, Advocate, Meghna Rajadhyaksha, Advocate, Gauhar Mirza, Advocate, Arjun Doshi, Advocate, Nishant Doshi, Advocate, Meera Menon, Advocate, Rajshekhar Rao, Advocate, Raghav Kacker, Advocate

The interpretation of contractual clauses and the balancing of equities in interim arrangements under the Arbitration and Conciliation Act, 1996.

Headnote:
Interpretation of Clauses 7.3 and 7.6 - Arbitration and Conciliation Act, 1996 - [SHAREHOLDERS AGREEMENT] - [Clause 7.3, Clause 7.6, Section 9 of the Arbitration and Conciliation Act, 1996] - The court discussed the interpretation of Clauses 7.3 and 7.6 of the shareholders agreement under the Arbitration and Conciliation Act, 1996, and concluded that the call price/put option price for years other than 2015 had to be determined by three different formulas, namely, Floor Price, Relevant Year EBITDA Price, and Fair Market Value Price computed by a Chartered Accountant. The court also held that the impugned order balanced the equities and put in place an ad-interim arrangement to abide by orders to be passed in either the arbitration proceedings or the National Company Law Tribunal.
Fact of the Case:

The appeal challenged the order staying the operation of Put Option Notices issued by respondents No. 1 and 2 in respect of 19.98% shares of respondent No. 3 company, subject to the petitioner depositing an amount with the Court. The appellant argued that the shareholders agreement did not expressly state the calculation method for share price after 2015, while the respondent argued that the appellant had significant influence over the financial dealings of respondent No. 3 company.
Finding of the Court:

The court found that the interpretation of Clauses 7.3 and 7.6 of the shareholders agreement was crucial, and the impugned order balanced the equities and put in place an ad-interim arrangement to abide by orders to be passed in either the arbitration proceedings or the National Company Law Tribunal. The court dismissed the appeal as it found no merits and upheld the impugned order.
Issues: Interpretation of Clauses 7.3 and 7.6 of the shareholders agreement, influence over financial dealings of respondent No. 3 company, stay of Put Option Notices
Ratio Decidendi: The court's decision was based on the interpretation of Clauses 7.3 and 7.6 of the shareholders agreement, balancing equities, and adherence to orders to be passed in arbitration proceedings or the National Company Law Tribunal.
Final Decision: The appeal was dismissed, and the impugned order was upheld.

JUDGMENT

Manmohan, J. - The appeal has been heard by way of video conferencing.

2. Present appeal has been filed challenging the order dated 22nd January, 2021 passed by the learned Single Judge in a Section 9 petition being OMP(I) COMM 374/2020 filed under Arbitration and Conciliation Act, 1996.

3. The learned Single Judge by the impugned order has stayed the operation of the Put Option Notices dated 15thNovember, 2020 issued by respondents No. 1 and 2 in respect of 19.98% shares of the respondent No. 3 company subject to the petitioner depositing an amount of Rupees Sixty Seven Crores Sixty Seven Lakhs Fifty Eight Thousand and Thirty Seven (Rs. 67,67,58,037/-) with this Court within two weeks. Upon deposit of the said amount, the respondents No. 1 and 2 were directed to maintain statusquo as regards 19.98% of the shares of the respondent No. 3 company. The deposit was also to abide by further orders to be passed either in the arbitration or by the National Company Law Tribunal as the case may be.

4. Learned senior counsel for the appellant submits that the learned Single Judge had ignored the fact that the shareholders agreement does not expressly state that the Post Majority Put Option share consideration to be calculated as per the Floor Price formula set out in Clauses 7.3 and 7.6 of the said agreement, especially after the year 2015. In fact, according to him, the shareholders agreement is crystal clear that share price in relation to Post Majority Put Option shares under the shareholders agreement can only be ascertained either by (i) calculating the relevant year EBITDA price or (ii) by calculating the Fair Market Value (FMV). He emphasises that the applicability of the Floor Price mechanism was limited by the agreement between the parties only till 30th September, 2015 and once such period expired, the right of a party to take benefit of the Floor Price mechanism for the purpose of ascertaining the share price also expired/lapsed.

5. He submits that had the intention of the parties been to make the Floor Price mechanism applicable for subsequent years i.e. after the year 2015, the parties would have expressly provided for the same in writing and as contemplated in other provisions of the shareholders agreement. He points out that the parties had, with open eyes, voluntarily consented and agreed to placing a time limit on calculation of share price through Floor Price mechanism under the shareholders agreement and without any specific written terms agreed between the parties waiving such requirements. He reiterates that the learned Single Judge erred in proceeding to interpret the shareholders agreement in a manner which gives an affect the parties never intended or desired.

6. Per contra, learned senior counsel for the respondent No. 1 submits that the arguments advanced by the appellant have been duly considered and rejected by the learned Single Judge. He extensively relies upon the impugned order. The relevant portion of the impugned order relied upon by the learned senior counsel for respondent no. 1 is reproduced hereinbelow:-

"38. In the light of this legal position and the polar opposite stances adopted by them, it is apparent that the parties' dispute with respect to the allegations of financial irregularities requires a much more comprehensive examination, of a kind that this Court certainly cannot undertake while exercising its powers under Section 9 of the Act. However, for the purpose of meting out justice in the present petition, I have carefully considered the extent of influence wielded by the petitioner in the financial dealings of respondent no.3. The petitioner chose and appointed several key personnel in the company and the finance team thereof was not only directly under the supervision of a Finance Director appointed by the petitioner but the entire department itself reported to the petitioner's nominee Director. It appears that the petitioner was never denied an audit into the accounts and finances of