Subodh Jain vs Sobhagyamal Jain

[Arising out of order dated 22.03.2017 passed by National Company Law Tribunal, Ahmedabad Bench in T.P. Nos. 61-C, D, M, E, N, B, J, F, H of 2016 with TP No. 61/397-398/NCLT/AHM/2016 (New) CA Nos. 55, 108, 115, 141, 142, 181, 12, 68, 151 of 2015, MA-1 of 2015 with CP No.16/397- 398/CLB/MB/2014 (Old)]

IN THE MATTER OF:

1. Dr. Rakesh Shivhare D-37, Apollo D.B. City, Nipania Road, Indore ...Appellant No.1

2. Dr. Sandip Saxena 460, Goyal Nagar, Indore ...Appellant No.2

3. Shri Suresh Choukse 13/5, Paredeshipura, Indore ...Appellant No.3

(Original Petitioners 2 to 4)

- Versus -

1. Sobhagya Hospital & Research Centre Pvt. Ltd. Dispensary Part 2, Scheme No.74-C, Sector -B, Vijay Nagar, Indore - 452010 Madhya Pradesh ...Respondent No.1

2. Mr. Anil Jain 402, Sukhsagar Apartment, Block No.2, Race Course Road, Indore ...Respondent No.2

3. Dr. Subodh Jain 149, Royal Bunglow City, Sukhliya, Indore ...Respondent No.3

4. Dr. Nitin Modi 62, FH, Sch.54, Vijay Nagar Indore ...Respondent No.4

Company Appeal (AT) No.187 of 2017 and 215 of 2017 2

5. Dr. Hariprasad Yadav 101, Raunak Vihar, 3/1 Ravindra Nagar Palasia, Indore ...Respondent No.5

6. Dr. Sandeep Julka 138, Royal Bunglow City, Sukhliya, Indore ...Respondent No.6

7. Dr. Ravi Nagar B-40, Chandra Nagar, M.R.9. Indore ...Respondent No.7

8. Dr. Pravar Passi G-2, Utkarsh, 139, Indrapuri, Indore ...Respondent No.8

9. Bank of India Mid Corporate Branch, Airen Heights, 14-PU-3, Scheme No.54, Vijay Nagar, Agra Bombay Road, Indore ...Respondent No.9

10. Registrar of Companies, Madhya Pradesh Sanjay Complex, A-Wing, 3rd Floor, Jayendra Ganj, Lashkar, Gwalior - 474009 Madhya Pradesh ...Respondent No.10

11. Dr. Sobhagyamal Jain (Originally Petitioner No.1, transposed vide CLB Order dated 07.11.2014) 48-B, Vijay Nagar Scheme No.54, Opposite Mangal City, Indore ...Respondent No.11 (Original Petitioner No.1 - Transposed as Respondent)

Present: Dr. U.K. Chaudhary, Senior Advocate with Shri Naveen Dahiya, Shri Mansumyer Singh, Shri Himanshu Vij and Shri Ashok Mehta, Advocates for the Appellants.

Shri Animesh Sinha, Advocate for Respondent No. 1.

Shri Narendra M. Sharma, Shri Abhishek Sharma and Shri Akshay Arya and Ms. Sakshi Maheley, Advocates for Respondent No. 2.

Shri Ritin Rai and Shri Manu Aggarwal, Advocates for Respondent No.3

Company Appeal (AT) No.187 of 2017 and 215 of 2017 3

Shri Manoj Munshi and Shri R.D. Makheeja, Advocates for Respondents Nos. 4 to 7

Shri V. Seshagiri and Shri Anchit Tripathi, Advocates for Respondent No. 9.

Shri M. Datta, Advocate for Respondent No. 11.

WITH Company Appeal (AT) No. 215 of 2017

[Arising out of order dated 22.03.2017 passed by National Company Law Tribunal, Ahmedabad Bench in T.P. Nos. 61-C, D, M, E, N, B, J, F, H of 2016 with TP No. 61/397-398/NCLT/AHM/2016 (New) CA Nos. 55, 108, 115, 141, 142, 181, 12, 68, 151 of 2015, MA-1 of 2015 with CP No.16/397- 398/CLB/MB/2014 (Old)]

IN THE MATTER OF : Dr. Subodh Jain 149, Royal Bunglow City, Sukhliya, Indore - 452010 ... Appellant

Versus

1. Dr. Sobhagyamal Jain 48-B, Vijay Nagar Scheme No.54, Opposite Mangal City, Indore - 452010 Madhya Pradeseh ...Respondent No.1 2. Dr. Rakesh Shivhare D-37, Apollo D.B. City, Nipania Road, Indore - 452010 ...Respondent No.2 Madhya Pradesh

3. Dr. Sandip Saxena 460, Goyal Nagar, Indore - 452010 Madhya Pradesh ...Respondent No.3

4. Shri Suresh Choukse 13/5, Paredeshipura, Indore - 452003 Madhya Pradesh ...Respondent No.4

Company Appeal (AT) No.187 of 2017 and 215 of 2017 4

5. Sobhagya Hospital & Research Centre Pvt. Ltd. Dispensary Part 2, Scheme No.74-C, Sector -B, Vijay Nagar, Indore - 452010 Madhya Pradesh ...Respondent No.5

6. Mr. Anil Jain 402, Sukhsagar Apartment, Block No.2, Race Course Road, Indore - 452010 Madhya Pradesh ...Respondent No.6

7. Dr. Nitin Modi 62, FH, Sch.54, Vijay Nagar Indore - 452010 Madhya Pradesh ...Respondent No.7

8. Dr. Hariprasad Yadav 101, Raunak Vihar, 3/1 Ravindra Nagar Palasia, Indore - 452010 Madhya Pradesh ...Respondent No.8

9. Dr. Sandeep Julka 138, Royal Bunglow City, Sukhliya, Indore - 452010 Madhya Pradesh ...Respondent No.9

10. Dr. Ravi Nagar B-40, Chandra Nagar, M.R.9 Indore - 452010 Madhya Pradesh ...Respondent No.10

11. Dr. Pravar Passi G-2, Utkarsh, 139, Indrapuri, Indore - 452010 Madhya Pradeseh ...Respondent No.11

12. Bank of India Mid Corporate Branch, Airen Heights, 14-PU-3, Scheme No.54, Vijay Nagar, Agra Bombay Road, Indore - 452010 Madhya Pradesh ...Respondent No.12

13. Registrar of Companies, Madhya Pradesh Sanjay Complex, A-Wing, 3rd Floor, Jayendra Ganj, Lashkar, Gwalior - 474009 Madhya Pradesh ...Respondent No.13

Company Appeal (AT) No.187 of 2017 and 215 of 2017 5

Present: Shri Ritin Rai, Ms. Manu Aggarwal and Ms. Kritika Bhardwaj, Advocates for the Appellant.

Shri M. Dutta, Advocate for Respondent No. 1.

Dr. U.K. Chaudhary, Senior Advocate with Shri Naveen Dahiya, Shri Mansumyer Singh, Shri Himanshu Vij and Shri Ashok Mehta, Advocates for Respondent No. 2.

Shri Animesh Sinha, Advocate for Respondent No. 5.

Shri Narendra M. Sharma, Shri Abhishek Sharma and Shri Akshay Arya, Advocates for Respondent No. 6.

Shri Manoj Munshi, Advocates for Respondents Nos. 7 to 10.

JUDGEMENT

A.I.S. Cheema, J. :

1. Both these appeals arise out of same impugned order dated 22nd

March, 2017 passed by National Company Law Appellate Tribunal,

Ahmedabad Bench, Ahmedabad. Company Appeal (AT) No.187 of 2017 is

filed by the Appellants (original Petitioners 2 to 4). Company Appeal (AT)

No.215 of 2017 has been filed by original Respondent No.3. We will refer

to the parties as arrayed and referred in the impugned order which is

reflected in CA 187/2017. It may be mentioned that original Petitioner No.1

was Dr. Sobhagyamal Jain who was transposed as Respondent No.11 in

the Tribunal Appeal Memo and thus the Appellants of CA 187 of 2017 have

been referred in the impugned order as Petitioners 2 to 4.

2. A few facts under reference:

Company Appeal (AT) No.187 of 2017 and 215 of 2017 6

Petitioners 2 to 4 and Respondent No.11 had filed CP 16 of 2014

(old), later on registered as TP 61/2016 in NCLT making allegations of acts

of oppression and mismanagement against original Respondents 2 to 8.

During the pendency of the company petition before Company Law Board

certain mediators were appointed to resolve disputes between the parties

and consent terms came to be recorded between the parties. The consent

terms were recorded in two different documents referred as Annexure 'A'

and Annexure 'B' by Company Law board (CLB). Both were dated 14th

December, 2014 and came to be accepted by the Company Law Board by

orders dated 15th December, 2014. Broadly speaking, the consent terms

'A' were for original Respondents 2 and 3 and one Dr. Sunil Rajan (who did

not sign the said terms) to purchase shares of original Petitioner Nos. 2 to

4. Consent terms Annexure 'B' were for original Respondents 2 and 3 and

Dr. Sunil Rajan to purchase the shares of original Respondents 4 to 7.

3. Annexure 'A' was executed between Petitioners 2 to 4 and 3 others

and Respondents 2 and 3. Annexure 'B' was executed between

Respondents 2 and 3 and Respondents 4 to 7. Both the Annexures drafted

showed Dr. Sunil Rajan was to join, but he did not sign or join the same.

4. Before discussing the matter, it would be appropriate to reproduce

the consent terms, though it would occupy space, but as the present

disputes relate to compliance/non-compliance of these terms, to

appreciate the impugned judgement and arguments, it would be easier.

The consent terms Annexure 'A' (Less - The Annexures) read as under:

Company Appeal (AT) No.187 of 2017 and 215 of 2017 7

Annexure 'A'

"1. The Petitioners and Dr. Seema Lodha shall cease to exercise powers as directors on the date of the present consent terms becoming effective by the Order of the Hon'ble Company Law Board and shall resign from the Board of Directors of the Respondent No.1 Company forthwith.

2. Immediately on submission of the present acceptance, the appointment of Dr. Sunil Rajan as Director of the Respondent No.1 Company shall be confirmed and ratified by the Hon'ble Board as prayed in Company Application No.248 of 2014.

3. The Respondent No.2 Mr. Anil Jain, 3 Dr. Subodh Jain along with Dr. Sunil Rajan (hereinafter referred to as the "Respondents") shall purchase 1070 (One Thousand Seventy) equity shares of the Respondent No.1 Company (the "Sale Shares") for aggregate consideration of Rs.8,56,00,000/-

(Rupees Eighty Crores Fifty Six Lakhs Only) at the rate of Rs.80,000/- (Rupees Eighty Thousand only) per share from the shareholders of Respondent No.1 Company whose names are as under:

Sr. Name of the Director No. of Sale Shareholder/Transferer Shares 1 Dr. Rakesh Shivhare Yes 282 2 Mr. Suresh Chokse Yes 282 3 Dr Seema Lodha Yes 282 4 Dr Sandeep Saxena Yes 141 5 Dr. Sunita Chouhan No 35 6 Dr Sanjay Dhanuka No 23

Company Appeal (AT) No.187 of 2017 and 215 of 2017 8 7 Dr Abhay Bhgwat No 25 Total 1070 Note: The Petitioners and other shareholders at Sr. No.1 to 7 are collectively referred to as the "Petitioners & Others".

4. The entire consideration towards the purchase of Sale Shares shall be paid by the Respondents to the Petitioners & Others in four (4) equal instalments of Rs.2,14,00,000/- (Rupees Two Crore Fourteen Lakhs only) each payable at forty five (45) days interval, and out the above, the first of the instalment shall be paid in two trenches, consisting of 5% (Rs.42,80,000/- Rs. forty two lacs eighty thousand) payable at the time of execution of the present consent terms and the balance 20% (Rs.1,71,20,000/- Rs. one crore seventy one lacs twenty thousand) shall be payable within a period of thirty days from the execution of the present consent terms and the respondents shall deposit post dated cheques, the last one of which will be payable before the expiry of six (6) months from the date of the consent terms becoming effective through the Order of the Hon'ble Company Law Board.

5. Until realization of the consideration amount to the Petitioners & Others as provided in Clause 4 above, the Respondents shall not transfer, dispose off and or create third party rights in any manner whatsoever, except in the ordinary course of business including the Banks for financial facilities, in any of the assets, fixed and movable of the Respondent No.1 Company.

6. On passing of the Order by this Hon'ble Board to this effect, the Petitioners & Others shall execute transfer deeds in favour of the Respondents in such manner as suggested by the

Company Appeal (AT) No.187 of 2017 and 215 of 2017 9

Respondents and shall deposit the same with the Learned Bench Officer for safe custody.

7. On passing of the Order by this Hon'ble Board to this effect, the Respondents shall deposit all post dated cheques of due dates with the Learned Bench Officer for safe custody, with an option to the Respondents to make an early payment by depositing demand drafts to replace the cheques.

8. The outstanding professional fees and the amount of unsecured loan (Annexure - 1) shall be paid by the Company within a period of six (6) months from the date of passing of the Order by the Hon'ble Board.

9. On due date of payment or at an early date, if the Respondents choose to deposit demand drafts for early payment, the post dated cheques/demand drafts shall be released by the Learned Bench Officer to the Petitioners & Others through their advocate for handing over to the respective seller. It shall be the responsibility of the advocate for the Petitioners & Others to handover the cheque/demand draft to the respective seller and to deposit acknowledgement thereof with the Learned Bench Officer.

10. On realization of the consideration amount by the Petitioners & Others in respect of the Sale Shares sold herein, the duly executed transfer deeds shall be released by the Learned Bench Officer to the advocate of the Respondents for completing necessary formalities by the Company for giving effect to the transfer of Sale Shares in the books of accounts.

Company Appeal (AT) No.187 of 2017 and 215 of 2017 10

11. The Petitioners & Others shall have no option to deny acceptance or realization of the cheques/demand drafts and in case of intentional denial, it shall be presumed that the payment has been made to the respective seller and the Learned Bench Officer shall be free to release the transfer deeds to the advocate of the Respondents.

12. The Respondents shall have no option to back out from purchasing the Shares from the Petitioners & Others. The Respondents shall be responsible for the purchase of shares jointly and severally and in case of default, a notice shall be issued by the Learned Bench Officer to the Respondents pointing out the default and to rectify the same within a period of fifteen (15) days from the date of receipt of such notice, on expiry of which it shall be assumed that the Respondents are not willing to purchase such shares and in such an event terms mentioned in Clauses 17 to 19 herein will come into effect immediately. In such an event, the amount already paid by the Respondents herein shall be paid back by the Petitioners within a period of one month from the date of expiry of six months.

13. Before the release of deeds of transfer of shares to the Respondents, the Respondents shall make necessary application and arrangement shall be made by the Respondents for release of the Personal Guarantee of the Petitioners & Others given to Bank of India and shall endeavour to complete the process without any further delay.

14. The Petitioners unconditionally agree to withdraw the legal cases as per Annexure - 2.

Company Appeal (AT) No.187 of 2017 and 215 of 2017 11

15. The Petitioners agree on best endeavour basis to pursue the complainants and facilitate the process of closure of legal cases as per Annexure - 3.

16. The Respondents and the Petitioners & Others undertake that after completion of the transaction as contemplated herein they shall not indulge into any kind of litigation, directly or indirectly, by filling cases against each other on any ground whatsoever concerning the affairs of the Respondent Company.

17. In the event of the Respondents failing to pay the consideration amount stipulated in Clauses 3 and 4 above within a period of six (6) months, they shall forthwith resign as Directors of Respondent No.1 Company and handover the management of Respondent No.1 Company to Petitioners along with all assets, records and accounts.

18. Thereafter, Petitioners shall purchase the shares of the Respondents held prior to the date of rights issued at Rs.80,000/- (Rupees Eighty Thousand only) per share within a period of six (6) months from the date of default committed by Respondents on identical terms as earlier stated.

19. In the event of Petitioners and their nominees falling to purchase the shares from the Respondents, within a period of six (6) months from the date of failure of Respondents to complete their acquisition within six (6) months of the date of the Order of the Honorable Member, they shall forthwith resign as Directors of Respondent No.1 Company to be replaced by

Company Appeal (AT) No.187 of 2017 and 215 of 2017 12

an independent committee of management to be appointed by the Honorable Company Law Board.

20. The parties undertake not to apply for extension of time to perform any of the actions stipulated in the present terms which shall be self operative.

21. For the supervisory services of the Learned Bench Officer the Hon'ble Member may decide cost payable to him, which shall be payable in advance, equally by the Petitioners & Others and the Respondents.

22. Till the process is pending, the CP before the Hon'ble Company Law Board may be listed on monthly basis for reporting the status of settlement process and on transfer of all shares and completion of all conditions precedent, the Hon'ble Member may pass appropriate orders inter - alia holding issue of 1892 equity shares by the Respondents on 22nd May, 2014 as valid and in accordance with law and closure of the matter."

5. Consent terms Annexure 'B' read as under:

Annexure 'B'

"1. The Respondent No.4, 5, 6 and 7 shall cease to exercise powers as directors on the date of the present consent terms becoming effective by the Order of the Hon'ble Company Law Board and shall resign from the Board of Directors of the Respondent No.1 Company forthwith.

2. Immediately on submission of the present consent terms, the appointment of Dr. Sunil Rajan as Director of the Respondent

Company Appeal (AT) No.187 of 2017 and 215 of 2017 13

No.1 Company shall be confirmed and ratified by the Hon'ble Board as prayed in Company Application No.248 of 2014.

3. Shri Anil Jain, Dr. Subodh Jain and Dr. Sunil Rajan (hereinafter referred to as the "Purchasers of the shares") agreed to purchase 1900 (One thousand nine hundred) equity shares of the Respondent No.4, 5, 6 & 7. The entire consideration towards the purchase of shares shall be calculated in the following manner:

Sr. Name Existing New Amount Amount Total shares Shares Existing New Rs. Shares Shares 1 Dr. 282 172 22560000 3071404 25631404 Sandeep Julka 2 Dr. Nitin 282 200 22560000 3571400 26131400 Modi 3 Dr. Ravi 282 200 22560000 3571400 26131400 Nagar 4 Dr. H.P. 282 200 22560000 3571400 26131400 Yadav Total 1128 772 90240000 13785604 104025604

Note: The Shareholders at Sr.No.1 to 4 are collectively referred to as the "Selling Respondents".

4. The entire consideration towards the purchase of shares shall be paid by the Purchasers of Shares to the Selling Respondents in four (4) equal instalments starting from 4th month and ending before expiry of nine (9) months from the execution of the present consent terms. The cheques for the first trench of 5% shall be handed over at the time of execution of the present consent terms and the balance 95% shall be payable starting

Company Appeal (AT) No.187 of 2017 and 215 of 2017 14

from 4th month and ending before expiry nine (9) months from the execution of the present consent terms and the respondents shall deposit all post dated cheques with the Learned Bench Officer, the last one of which will be payable before the expiry of nine (9) months from the date of the consent terms becoming effective through the Order of the Hon'ble Company Law Board.

5. Until realization of the consideration amount to the Selling Respondents as provided in Clause 4 above, the Respondents shall not transfer, dispose off and or create third party rights in any manner whatsoever, except in the ordinary course of business including the Banks for financial facilities, in any of the assets, fixed and movable of the Respondent No.1 Company.

6. On passing of the Order by this Hon'ble Board to this effect, the selling Respondents shall execute transfer deeds in favour of the Purchasers of Shares in such manner as suggested by the Purchasers of Shares and shall deposit the same with the Learned Bench Officer for safe custody.

7. On passing of the Order by this Hon'ble Board to this effect, the purchasers of shares shall deposit all post dated cheques of due dates with the Learned Bench Officer for safe custody, with an option to the Purchasers of Shares to make an early payment by depositing demand drafts to replace the cheques.

8. The outstanding professional fees on actual basis and the amount of unsecured loan as per books shall be paid by the Company within a period of six (6) months from the date of passing of the Order by this Hon'ble Board.

Company Appeal (AT) No.187 of 2017 and 215 of 2017 15

9. On due date of payment or at an early date, if the Purchasers of Shares choose to deposit demand drafts for early payment, the post dated cheques/demand drafts shall be released by the Learned Bench Officer to the Selling Respondents through their advocate for handing over to the respective seller. It shall be the responsibility of the advocate for the Selling Respondents to handover the cheque/demand draft to the respective seller and to deposit acknowledgement thereof with the Learned Bench Officer.

10. On realization of the consideration amount by the Selling Respondents in respect of the Sale Shares sold herein, the duly executed transfer deeds shall be released by the Learned Bench Officer to the advocate of the Purchasers of Shares for completing necessary formalities by the Company for giving effect to the transfer of Sale Shares in the books of accounts.

11. The Selling Respondents shall have no option to deny acceptance or realization of the cheques/demand drafts and in case of intentional denial, it shall be presumed that the payment has been made to the respective seller and the Learned Bench Officer shall be free to release the transfer deeds to the advocate of the Purchasers of Shares.

12. Before the release of deeds of transfer of shares to the Purchasers of Shares, the Purchasers of Shares shall make necessary application and arrangement shall be made by the Purchasers of Shares for release of the Personal Guarantee of the Selling Respondents given to Bank of India and shall endeavour to complete the process without any further delay till the personal guarantee of the Selling Respondents is not released the Purchasers of Shares shall stand guarantor to the Selling Respondents.

Company Appeal (AT) No.187 of 2017 and 215 of 2017 16

13. The parties undertake that after completion of the transaction as contemplated herein they shall not indulge into any kind of litigation, directly or indirectly, by filing cases against each other on any ground whatsoever concerning the affairs of the Respondent Company.

14. The purchasers of the shares shall have no option to back out from purchasing the agreed shares. The purchasers shall be responsible for the purchase of shares jointly and severally and in case of default a notice shall be issued by the Learned Bench Officer to the purchasers pointing out the default and to rectify the same within a period of fifteen days, on expiry of which it shall be assumed that the purchasers of shares are not willing to purchase such shares and in such an event the learned Bench Officer shall have liberty to issue notice of defaults to the purchasers and on expiry of seven (7) days of issue of such notice, the amount already paid in respect of the shares shall stand forfeited and the respective rights of the parties, as in vogue prior to signing of the consent terms shall become effective.

15. The parties undertake not to apply for extension of time to perform any of the actions stipulated in the present terms which shall be self operative.

16. For the supervisory services of the Learned Bench Officer the Hon'ble Member may decide cost payable to him, which shall be payable in advance, equally by the Selling Respondents and the Purchasers of Shares.

17. Till the process is pending, the CP before the Hon'ble Company Law Board may be listed on monthly basis for reporting the status of the settlement process and on transfer of all shares and completion of all conditions precedent, the Hon'ble

Company Appeal (AT) No.187 of 2017 and 215 of 2017 17

Member may pass appropriate orders inter-alia holding issue of 1892 equity shares by the Respondents on 22nd May, 2014 as valid and in accordance with law and closure of the matter."

6. The Company Law Board by order dated 15.12.2014 accepted these

consent terms and marked them as Annexure 'A' and 'B'. One Shri S.P.

Sawant, Bench Officer was appointed, as Escrow Agent under whose

supervision the compliances were to be made.

7. After such consent terms were accepted although there were terms

to keep the Company Petition pending for reporting status of settlement

process and completion of conditions, the Company Law Board disposed

of the Company Petition. Subsequently, it appears that some steps were

taken by parties in pursuance of the consent terms for implementation of

the same while regarding certain aspects, disputes arose between the

parties and various applications came to be filed by these parties against

each other. While some parties pressed for execution of the consent terms,

other parties claimed breach and forfeiture, etc. The impugned order has

disposed of those applications recording reasons.

8. In the impugned order, NCLT inter alia disposed of CA 141/2015

where Respondents 4 to 7 claimed that Respondents 2 and 3 violated

consent terms and amounts paid by them should be forfeited. Purchasing

Respondents filed CA 115/2015 seeking interpretation of the consent

terms and sought relief as per the consent terms. Inter alia, Petitioners

filed CA 108/2015 to acquire consequential rights. When these matters

Company Appeal (AT) No.187 of 2017 and 215 of 2017 18

came up before us, both the sides have argued at length and tried to

convince us that the opposite party is responsible for violation of the

consent terms. Original Respondents 2 and 3 are trying to show that they

have taken appropriate steps as per the consent terms and the relief

should have been granted to them as per the consent terms. They are

questioning the final orders passed by NCLT calling upon the parties to

enter into fresh settlement or face appointment of Committee of

Management.

9. In this matter, the parties were asked to file charts specifying steps

taken or not taken by the parties for compliance of various requirements

under the consent terms. If steps were not taken, that also required to be

mentioned. The contesting parties filed charts. Some selectively left out

mentioning steps not taken by them.

10. We have also heard the counsel for the parties who have as

mentioned tried to claim that their respective parties did what was

necessary under the terms and the other side was at fault.

11. The learned counsel for Appellants - original Petitioners 2 to 4 with

reference to Annexure 'A' claimed that the Petitioners resigned forthwith

as per term 1; that Respondents Nos.2 and 3 violated term 3; that

Respondents 2 and 3 failed to make payments within stipulated period of

six months as per term 4; in violation of term 5 Respondents 2 and 3

created charge on the property of the company. Money was transferred

from companies' bank account and siphoned to other companies and thus

Company Appeal (AT) No.187 of 2017 and 215 of 2017 19

routing the same it was credited to the bank accounts of appellants -

petitioners without prior intimation; Respondents 2 and 3 did not give

instructions about the matter of transferring shares to the petitioners for

compliance of term 6; Respondents 2 and 3 failed to deposit post-dated

cheques as required by term 7; the professional fees required to be paid

within 6 months as per term 8 was not paid within the period specified;

post-dated cheques were not deposited as expected vide term 9; consent

terms were not complied by Respondent Nos.2 and 3 and thus term 10 did

not get activated. According to the Petitioners, Respondents 2 and 3 did

not comply with time bound mandatory terms and the Bench Officer did

not take cognizance of default of Respondents 2 and 3 as was required by

term 12. The Appellants returned the amount received from Respondents

2 and 3 in the form of cheques. Term 12 was inserted to provide option to

declare contravention during the time of 6 months and was to be enforced

by the Bench Officer but became redundant on expiry of period of six

months. The Petitioners further claimed that terms 14 and 15 were never

invoked requiring them to withdraw legal cases as according to them

Respondents 2 and 3 had defaulted in honouring consent terms. The

petitioners claimed that term 17 deserves to be enforced and Respondents

2 and 3 should resign as Directors and handover management to the

petitioners as per term 17 for which the appeal is filed. It is claimed that

the petitioners - appellants should have been given the rights as required

by term 18 to purchase shares of the Respondents 2 and 3. According to

Company Appeal (AT) No.187 of 2017 and 215 of 2017 20

the petitioners - appellants, the impugned order wrongly set in motion

term 19.

12. Against this, Respondent No.2 has claimed and it has been argued

that the petitioners failed to deposit and execute transfer deeds as required

by term 6 although Petitioners received full and final payments by 3rd June

2015. This Respondent claims referring to term 11 that although payments

were made, the petitioners chose to create controversy on flimsy ground of

delay of just 15 days. Referring to term 12, it is claimed that no default

notice was issued by the petitioners. According to this Respondent,

Petitioners in violation of terms 14 - 15 failed to withdraw legal cases which

had been filed and violating term 16, the appellants - petitioners filed writ

petition and police complaint although they had received full and final

payments. The writ petition was filed in the High Court of Madhya Pradesh

at Indore and police complaint was filed at Police Station Vijay Nagar,

Indore on 13.07.2015. This Respondent has claimed that the original

petitioners failed to refund the amount received by them and also failed to

show that they had the necessary funds in bank and thus terms 18 and

19 were violated. It is argued that although cheques were deposited, the

petitioners did not have the necessary funds in bank.

This respondent No.2 has submitted with reference to Annexure 'B'

that Respondents 4 to 7 could not claim forfeiture as the amounts required

to be paid had been paid within the period of 9 months as contemplated

in para - 4. It is claimed that Respondents 4 to 7 had received the

Company Appeal (AT) No.187 of 2017 and 215 of 2017 21

payments without delay and have not filed appeal against the impugned

Judgement and Order. Respondent No.2 has claimed that the original

Petitioners flouted the conditions of consent terms. They had failed to

deposit blank share transfer deeds and refrained release of deeds of

transfer shares although they received total consideration. They have filed

frivolous police complaints violating term 16. The order passed by Madhya

Pradesh High Court in WP 440/2015 has been stayed by Hon'ble Supreme

Court on 01.04.2016 in SLP Criminal 2374/2016. The cheques submitted

by the petitioners were given to the Bench Officer asking him to keep the

same in deposit till disposal of Company Application filed by the

petitioners. The cheques expired before the Company Application was

decided. It is argued that if the contentions of the petitioners - appellants

are accepted, it will lead to anomalous situation where the Petitioners -

Appellants would be buying shares of these Respondents without

returning the sale consideration received by the appellants towards sale of

their shares.

13. Respondent No.3 has claimed and it has been argued for Respondent

No.3 that the amount required to be paid towards consideration for

purchase of shares was delayed only by 15 days over and above the period

of six months but no default notice was issued which if it had been given,

it would have given the Respondents the period of 15 days to comply. Thus

it is argued that there was no default. Referring to term 6, this Respondent

claims that the Petitioners in violation of term 6 failed to deposit share

Company Appeal (AT) No.187 of 2017 and 215 of 2017 22

transfer deeds and when they were filed after a delay of 210 days, the same

were defective. As required post-dated cheques were not deposited as per

term 7 of Annexure 'A' but it is claimed that the payments had been made

as stated above. This Respondent also argues that the petitioners failed to

withdraw legal cases as was required vide term 14 - 15. The Respondent

claims to have complied with term 13 of Annexure 'A' with regard to release

of bank guarantees. With regard to term 8, this Respondent claims that

the outstanding professional fees was paid although there was a delay of

15 days beyond the given period of 6 months. Referring to term 10, this

Respondent claims that the petitioners did not duly execute transfer deeds

and also resisted release of the executed transfer deeds. As regards

violation of term 5 of Annexure 'A', this Respondent claims that the only

assets which were already mortgaged were transferred to another

mortgagee and thus there was no breach. It is claimed that the petitioners

violated term 16 by filing FIR against Respondent No.3. It is also claimed

that contingencies as required by terms 17 to 19 did not arise.

With regard to Annexure 'B', this Respondent claims that the entire

consideration was paid within time. With regard to violation of term 5, it is

claimed that there was no breach as the assets which were already

mortgaged were transferred to another mortgagee. As was required post-

dated cheques were not deposited as per term 7 but it is claimed that

payments were made within time. With regard to term 14 referring to

forfeiture, it is claimed by this Respondent that these purchasing

Company Appeal (AT) No.187 of 2017 and 215 of 2017 23

Respondents did not back out and thus there was no breach. It is claimed

that in violation of term 13, Respondents 4 to 7 had filed FIR against

Respondent No.3.

This Respondent No.3 claimed that in Annexure 'A' term 4 was not a

stand-alone term and was to be read with term 12 which requires notice

to be given by Bench Officer requiring compliance within 15 days. No such

notice was given and hence it is claimed that even if there was delay of 15

days, there was no violation of the terms requiring payments within 6

months. It is argued that the assets of the Company had been mortgaged

to Bank of India as security for a loan of over Rs.11 crores in which

Appellants and Respondents 4 to 7 had given personal guarantees and the

mortgage and personal guarantee were released by repayment of loan to

Bank of India from the funds obtained from Religare Finvest Limited. It is

claimed that term 5 permitted mortgaging of assets for obtaining financial

facilities from banks. It is further argued that even if it is assumed that

there was breach of term 5, it is necessary to consider consequences of

alleged breach whether any consequences are provided by consent terms

or what was the purpose of the term for damages if any. It is argued that

the consent terms do not provide any consequence from breach of term 5

and that the object of the term was that the inheriting party should not get

company which is encumbered. It is argued that when the Petitioners and

Respondents 4 to 7 had been paid the value of the shares, how the money

was raised would be immaterial for them. The argument is that the

Company Appeal (AT) No.187 of 2017 and 215 of 2017 24

petitioners are not entitled to purchase shares of Respondents 2 and 3 as

allowed by term 12 r/w linked terms, as several pre-conditions are

required to be satisfied and those pre-conditions are not satisfied. This

Respondent claims that when the Petitioners were walking out of the

Company, the manner in which consideration was raised and paid was

immaterial.

14. Respondents 4 to 7 claimed that before the Annexure 'A' and 'B' were

accepted by the Company Law Board, the purchasing Respondents 2 and

3 had submitted affidavits dated 05.12.2014 and affirmed before the

Company Law Board that they shall buy the shares from their own funds.

This was pre-condition for purchase of shares. According to these

Respondents, they were the largest group of shareholders which was

holding 30% share capital whereas Respondent No.2 Anil Jain held 12.86%

and Respondent No.3 Dr. Sobhagyamal Jain held 9.64% shares. According

to these Respondents, had such affidavit and condition of use of personal

funds for purchase of the shares not been there, these Respondents 4 to 7

would have certainly acquired proportionate shares to remain in control

and management of Respondent No.1 Company. According to them,

Respondents 2 and 3 have betrayed them and committed breach of term 5

as the payments were not made from the funds of Respondents 2 and 3

but were made by borrowing funds from Religare Finvest Limited by

mortgaging the assets of the Respondent No.1 Company. The money of the

Company was siphoned by diverting the same to four private limited

Company Appeal (AT) No.187 of 2017 and 215 of 2017 25

companies incorporated just 2 - 4 days before transfer of funds of

Respondent No.1 Company in which close relatives are Directors and

shareholders of Respondent Nos.2 and 3, with the object of paying

purchase consideration to these Respondents. On this basis, these

Respondents claimed that term 14 of Annexure 'B' was required to be

enforced regarding forfeiture of the payments made to them. It is claimed

that NCLT could not have directed them to return the money.

15. Respondent No.11 Dr. Sobhagyamal Jain claims that the Appellants

- Petitioners are ready to purchase shares held by him and he is willing to

transfer the shares and thus the appeal may be allowed.

16. Keeping in view the submissions made by the counsel for rival

parties, we have considered the record and also the impugned order. When

we look into the impugned order, we find that the learned Judge of the

NCLT has painstakingly considered the rival cases of the parties which

were argued before him and which are again being averred before us. A

brief reference needs to be made to the reasons and findings recorded by

the learned NCLT.

17. In the impugned order, NCLT reproduced para - 5 in the terms which

has similar wordings regarding not creating charge etc. and observed that

admittedly Respondents 2 and 3 had created charge over the assets of first

respondent company to secure an amount of Rs.21 crores, and out of this

amount borrowed from M/s. Religare Finvest Limited, some amount was

utilized for repayment of loan to Bank of India while some was used to

Company Appeal (AT) No.187 of 2017 and 215 of 2017 26

purchase the shares of original Petitioners 2 to 4 and Respondents 4 to 7,

routing the money through some of the companies where Respondents 2

and 3 were Directors. NCLT considered the affidavits of original

Respondents 2 and 3 dated 5th December, 2014 which were filed "before"

consent terms Annexures 'A' and 'B' were accepted in which Affidavits they

had stated that these Respondents would purchase the offered shares out

of their own funds. For such reasons, NCLT discarded the arguments

which were being raised for Respondents 2 and 3 that when Petitioners 2

to 4 and Respondents 4 to 7 are walking out of the company and handing

over the management of the company to them, it is immaterial for them as

to the manner in which the consideration was raised and paid. We find

that the detailed reasons recorded by NCLT for coming to a finding that

Respondents 2 and 3 had violated consent term 5 in the Annexures 'A' and

'B' are well founded. A simple way of looking at the consent terms would

be that had Petitioners 2 to 4 or Respondents 4 to 7 known that charge

can be created on the property of the company to raise money to buy the

shares of the opposite party, then they could also have claimed to buy the

shares of the opposite party by resorting to such method. With this we find

that NCLT has rightly concluded that Respondents 2 and 3 violated term

5 as stated in Annexure 'A' as well as Annexure 'B.

18. NCLT then considered the claim of original Petitioners 2 to 4 that

Respondents 2 and 3 did not pay the sale considerations in the time

schedule as agreed in para 4 of Annexure 'A'. NCLT referred to the fact that

Company Appeal (AT) No.187 of 2017 and 215 of 2017 27

the consent order was passed on 15.12.2014 and referred to the

arguments as to what were the due dates for the payments and the dates

on which actually the payments were made. Counting from 15.12.2014,

six months would be over by 15.06.2015. Admittedly the last instalment

was paid on 30th June, 2015 and the time schedule had not been

maintained. The argument that reading term 4 with 12 of the Annexure

'A", would extend period by 15 days needs to be discarded as admittedly

Bench Officer had not given any notice as required by term 12.

Respondents 2 and 3 claimed before NCLT that there was overall

understanding to pay within six months and that the same had been

"substantially complied" with only a delay of 15 days. NCLT kept in view

para 20 of Annexure 'A' where the parties had undertaken not to apply for

extension of time to perform actions stipulated. In the set of facts, NCLT

concluded that consent term para 4 of Annexure 'A' had also been violated

by Respondents 2 and 3. Reading the consent terms Annexure 'A' as a

whole and specially terms 1, 4, 17, 18, 19 and 20, it does appear that when

the parties entered into the consent terms they did intend to have time as

essence of the agreement.

19. The NCLT has then referred to para 8 of the Annexure 'A' (supra) and

found that the outstanding professional fees and the amount of unsecured

loan which was required to be paid by Respondents 2 and 3 was also paid

beyond period of 6 months, only by 30th June, 2015 and there was breach

of term 8.

Company Appeal (AT) No.187 of 2017 and 215 of 2017 28

20. Respondents 4 to 7 claimed forfeiture of the amounts paid to them

on the basis that there was violation of consent term 5. The learned NCLT

considered term 4 of Annexure 'B' which required payments in particular

schedule and found that Respondents 2 and 3 had paid the entire sale

consideration of the shares before the expiry of 9 months' period specified

and thus concluded that term 4 of the consent terms was not breached.

NCLT discussed term 14 of the consent terms Annexure 'B' and observed

that no notice was issued by Bench Officer in terms of para 14, if there

was default. This was apart from the fact that it observed that in the

present matter, there was no default in payment of sale consideration

towards purchase of shares from Respondents 4 to 7 as it was done in

period agreed and so there was no scope to invoke forfeiture clause. Going

through the reasoning recorded by NCLT, we find that term 14 dealing with

forfeiture basically related to "purchase" and Respondents 2 and 3 did

make the payments within the period of 9 months fixed. Violation of term

5, which relates to not creating 3rd party rights etc. was rightly not invoked

by NCLT for forfeiture in term 14 of Annexure 'B'. NCLT rightly discarded

claims of Respondents 4 to 7 that the amounts they have already paid

should be forfeited and they should be allowed to hold on to the shares

they have. Against impugned order against claim of Respondents 4 to 7,

they have not filed appeal.

21. NCLT has then found the Petitioners in default of term 6 of Annexure

'A' which required execution of transfer deeds in favour of respondents and

Company Appeal (AT) No.187 of 2017 and 215 of 2017 29

depositing the same with the Bench Officer for safe custody. NCLT has

rightly discarded the averments made for petitioners that Respondents 2

and 3 did not suggest the manner in which transfer deeds were to be

deposited by observing that petitioners could have deposited the same

without filling the name of transferee. Considering that such difficulty did

not arise with similar term 6 of Annexure 'B', the approach of NCLT on this

count cannot be faulted with.

22. The NCLT further found the petitioners in default with regard to

paras 14 and 15 of Annexure 'A' which required them to unconditionally

withdraw the legal cases and endeavour to pursue the complainants and

facilitate process of closure of legal cases which had been made in

Annexure 3 of the documents.

23. NCLT found that Respondents 4 to 7 had in compliance of para 6 of

Annexure 'B' deposited share certificates with duly executed transfer deeds

with the Bench Officer and had also resigned as per term 1 of the consent

terms. Although it was the finding that Respondents 4 to 7 cannot claim

forfeiture clause but NCLT found that as Respondents 2 and 3 violated

term 5 of the terms and thus Respondents 2 and 3 are not entitled for

transfer of the shares deposited by Respondents 4 to 7. Considering the

rival cases, we do not find that these findings can be found fault with.

24. At the time of arguments, we had asked the rival parties to address

us with regard to the observations of NCLT in para 48 of its Judgement

which are to the following effect:

Company Appeal (AT) No.187 of 2017 and 215 of 2017 30

"48. The object of Consent Terms:

"A combined reading of Consent Terms, Annexures "A"

and "B" goes to show that the management of the affairs of the

Company shall be placed either in the hands of Respondents

No.2, 3 and Dr. Sunil Rajan or in the hands of the Petitioners

No.2 to 4. Even before the Consent Terms were filed before the

Court, Dr. Sunil Rajan withdrew from the settlement and

choose not to sign the Consent Terms. In order to achieve the

said object, it can only be said that the Consent Terms as

mentioned in Annexures "A" and "B" would go together as part

of the settlement. In case if it is held that Respondents No.2

and 3 failed to follow the consent Terms; and if it is further

held that the Petitioners are entitled to purchase the shares of

Respondents No.2 and 3; and further held that Respondents

No.2 and 3 are entitled for the shares of Respondents No.4 to

7, then the situation would be that the Respondents No.2 and

3 would be selling their shares to Petitioners and, at the same

time, purchasing the shares of Respondents No.4 to 7. This

contingency has not been visualized in framing two sets of

Consent Terms in the form of Annexures "A" and "B". No

doubt, this Tribunal cannot modify or interfere with the

Consent Terms, but at the same time when this Tribunal is

called upon to interpret the Consent Terms, it should be

Company Appeal (AT) No.187 of 2017 and 215 of 2017 31

interpreted in a harmonious way in order to further the object

of settlement. It is not contemplated in Consent Terms,

Annexures "A" and "B" as to what should happen in case of

failure of observance of Consent Terms in Annexure "B" except

stating that Respondents No.4 to 7 are entitled for their

shares. In case of succeeding of Respondents No.4 to 7,

Respondents No.2 and 3 will go out of the Company. In case if

Respondents No.2 and 3 succeed as against the Petitioners

and they fail as against Respondents No.4 to 7, Petitioners will

go out of the Company, and it is Respondents No.2 and 3 and

Respondents No.4 to 7 who will remain in the Company.

During the pendency of these Applications, Dr. Sunil Rajan

offered to sell his shares also, but it does not come within the

purview of the Consent Terms. Therefore, this Tribunal refrain

itself to act on such request. Further, the Consent Terms also

cover the litigations filed by third parties. It is pertinent to

mention that the 3rd parties who filed the cases are not parties

to the settlement. Therefore, it is a case where Respondents

No.2 and 3 in the first instance and Petitioners in the second

instance failed to perform in accordance with the Consent

Terms. Respondents No.4 to 7 had not made out a case to

invoke the forfeiture clause. Here, it is pertinent to refer to

Paragraph 19 of Consent Terms in Annexure "A", which reads

as follows:

Company Appeal (AT) No.187 of 2017 and 215 of 2017 32

"19. In the event of Petitioners and their nominees failing

to purchase the shares from the Respondents, within a

period of six (6) months from the date of failure of

Respondents to complete their acquisition within six (6)

months of the date of the Order of the Honourable

Member, they shall forthwith resign as Directors of

Respondent No.1 Company to be replaced by an

independent committee of management to be appointed

by the Honorable Company Law Board."

In order to implement this, there must be issuance of a default

notice. The Petitioners shall pay back the entire amount

received by them from Respondents No.2 and 3 towards sale

consideration of shares, and Petitioners No.2 to 4 by following

the Paragraphs 18 and 19 of the Consent Terms in Annexure

"A" shall purchase the shares of the Respondents No.2 and 3.

No doubt, the Petitioners filed TP No.61-C of 2016 (CA No. 108

of 2015 Old), but they have not deposited the entire amount

received by them towards sales of shares. The statements of

accounts filed by them do not even reveal that they are having

funds in their Bank accounts equal to the amounts they have

received from the Respondents No.2 and 3 towards sale

consideration of the shares. Therefore, it is a case where the

situation has not reached to the stage that the Petitioners No.2

Company Appeal (AT) No.187 of 2017 and 215 of 2017 33

to 4 can be called upon to purchase the shares of Respondents

No.2 and 3. Even assuming that such a situation has arisen,

from the material on record the Petitioners have not complied

with the condition of Paragraph No.19. It is pertinent to

mention here, that Dr. Sunil Rajan filed winding-up petition

before the Hon'ble High Court of Madhya Pradesh, Indore

Bench, vide Com. P. No.24 of 2016. In that petition, Counsel

for Respondents sought time on 27.2.2017 to file their reply.

Therefore, it is clear that the winding-up petition filed by Dr.

Sunil Rajan is pending before the Hon'ble High Court of

Madhya Pradesh, Indore Bench. Therefore, a situation had

arisen that an Independent Committee of Management has to

be appointed as provided in Paragraph 19 of Consent Terms

Annexure "A".

25. The learned counsel for both sides however, went on with their

arguments relating to one party finding fault with the other and vice versa

but did not satisfy us that Annexures 'A' and 'B' read together and defaults

of parties, creates strange situations making execution of the terms

unworkable and unpractical. Even if we accept that enforcing term 19 of

Annexure 'A' would require certain compliances as is being argued,

question is what is the way out? N.C.L.T. rightly appears to have searched

way out in interest of Company and all stakeholders to have a fresh

settlement or it would appoint Independent Committee of Management.

Company Appeal (AT) No.187 of 2017 and 215 of 2017 34

The directions are in interest of justice and cannot be faulted with. Under

Section 424 of Companies Act 2013 NCLT can regulate procedure before it

and while dealing with the matter, it could exercise inherent powers to do

justice between the parties, the Company and public interest linked with

the Company to give the directions it has given.

26. We do not find any substance in these appeals to interfere with the

impugned Judgement and Order which needs to be maintained and

implemented. Thus the appeals deserve to be dismissed.

27. Both the appeals are dismissed. In the circumstances, however,

there shall be no order as to costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Balvinder Singh] Member (Technical)

New Delhi

15th February, 2018

/rs/nn

Company Appeal (AT) No.187 of 2017 and 215 of 2017