Signal advocacy court dismissed a Notice of Motion seeking an interim injunction. The court held that the parties were still negotiating terms, as evidenced by revised drafts and unresolved charges, so no concluded contract was established.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION NO. 3091 OF 2010 IN
SUIT NO. 2843 OF 2010
Rajendra Kumar Choudhary …Plaintiff vs. Oceanglobe Containers Services (India) Pvt.Ltd. & Ors. ...Defendants
Mr.Zubin Behram Kamdin with Mr.Rohan Wagh & Mr.Abhishek Singh i/b. M/s.Mulla and Mulla & C.B. & C. for Plaintiff. Mr.F. Devitre, Senior Advocate with Mr.Astad Randheria i/b. M/s.Harish Joshi & Co. for Defendant Nos.1 and 2.
CORAM : S.C. GUPTE, J.
11 JULY 2014
P.C. :
The Notice of Motion is taken out by the Plaintiff seeking an interim injunction restraining the Defendants from transferring or creating any third party rights in respect of the shares of Defendant No.1 held by Defendant Nos.2 to 4 or the immovable property of Defendant No.1, namely, Plot No.A-4 in Taloja Industrial Area at Panvel to any third party. The Plaintiff's suit is for specific performance of an agreement purportedly entered into between Defendant Nos.2 to 4 and the Plaintiff for transfer of shares held by them in the First Defendant company.
2 The Plaintiff's case, as stated in the plaint, may be briefly outlined
as follows:
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(i) Defendant No.1 carries on the business of containers and holds leasehold interest in respect of premises being Plot No.A-4 at MIDC, Taloja. Defendant Nos.2, 3 and 4 hold the entire issued, subscribed and paid up share capital of the First Defendant. Defendant Nos.3 and 4 were also directors at the relevant time of Defendant Nos.1 and 2;
(ii) The Plaintiff's company M/s.Paramshakti Steels Ltd. had a factory at Plot No.A-5 at MIDC Taloja adjacent to Plot No.A-4 held by Defendant No.1. The Plaintiff was interested in taking over the leasehold rights of plot A-4 from Defendant No.1. It is the case of the Plaintiff that on 12 October 2009, a meeting was held between the Plaintiff and Defendant Nos.3 and 4, wherein the Plaintiff agreed to purchase and the Defendants agreed to sell the entire share capital of Defendant No.1 inclusive of the value of the subject plot A-4 together with its installations for a total consideration of Rs.17.50 crores. It is the case of the Plaintiff that the Defendants' offer to sell 100% shares of Defendant No.1 at the price of Rs.17.50 crores was also accepted in writing by the Plaintiff vide his letter dated 15 October 2009 addressed to Defendant No.1;
(iii) It appears that there were draft Memoranda of Understanding exchanged between the parties. No agreement, however, in relation to the transfer of shares was executed between the parties. It is, however, the case of the Plaintiff that all essential terms of transfer of shares of Defendant No.1 to the Plaintiff were settled between the parties and there
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was a valid, subsisting and binding contract entered into between them. It is the Plaintiff's case that the changes made in the draft MOUs were not in respect of the essential terms of the agreement, already agreed upon between the parties;
(iv) On the basis of the agreement between the parties, said to be more particularly contained in the letter dated 15 October 2009, and the final draft MOU annexed as Exhibit-L2 to the plaint, the Plaintiff claims to be entitled to specific performance of a valid, subsisting and binding contract for sale of the entire share capital of Defendant No.1 to the Plaintiff.
3 Learned Counsel for the Plaintiff submitted that all essential terms of bargain were agreed upon between the parties and there was a concluded contract already entered into in respect of sale of shares. He submitted that the MOU merely sought to give a formal expression to an already concluded contract. It was submitted that the changes made in the draft were non-essential and that in any event, whatever changes were proposed by the Defendants in the MOU were already reflected in the final draft MOU, annexed as Exhibit-L2 to the plaint. It is submitted that there being a concluded contract between the parties and the Plaintiff being ready and willing to perform such contract, the Plaintiff was entitled to specific performance of the contract. In aid of the final relief claimed in the present suit, the Notice of Motion presses for interim injunction against disposal of the shares by the Defendants.
4 On the other hand, it is submitted by learned Counsel for Defendant
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Nos.1 and 2 that Defendant No.2 is a 100% holding company of Defendant No.1. Defendant Nos.3 and 4 merely held one share each in Defendant No.1 company and were directors in Defendant No.1 merely as nominees of Defendant No.2. It is submitted that Defendant Nos.3 and 4 had no authority to enter into any agreement on behalf of Defendant No.2. It is submitted that there is no concluded contract between the parties; that the parties were merely at the stage of negotiations; and that various drafts, which were exchanged and revised, were all without prejudice and for negotiations.
5 Admittedly, there is no executed contract between the parties for transfer of shares held by Defendant No.2 in Defendant No.1 in favour of the Plaintiff. The Plaintiff relies on an oral contract based on the meeting held between the parties on 12 October 2009. Whether or not there is an oral agreement on the essential terms of the contract and whether or not a formal document of transfer, which was evidently contemplated between the parties, was a mere formal expression of an already concluded contract or the contract itself by which the parties proposed to be bound, are essentially the questions of fact to be decided in the matter. The Plaintiff claims that the agreement between the parties was concluded in the meeting held between the Plaintiff and Defendant Nos.3 and 4 on 12 October 2009. However, the Plaintiff's own letter dated 15 October 2009, which is written immediately after the meeting of 12 October 2009, does not refer to any such agreement. Instead, it refers “discussion we had with you at your office”, with reference to which the Plaintiff was agreeable to purchase 100% shares of Defendant No.1 at Rs.17.50 crores. Then there are various drafts on record which were exchanged between the
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parties and revised and reworked between them. These drafts and the correspondence between the parties accompanying them prima facie show that the matter was being negotiated between the parties and no concluded contract was arrived at. In fact, there is a letter addressed by the Advocates of Defendants on 4 February 2010 to Defendant Nos.1 and 2 to fix a meeting for finalisation of the draft of MOU before sending it to the Advocates of the Plaintiff. Following this letter, there is a letter of 26 February 2010 addressed by the Advocates of the Defendants to the Plaintiff's Advocates communicating to the latter that they were in the process of finalising the draft MOU prepared by the Plaintiff's Advocates and handover the same to their clients. A joint meeting was requested for discussion of the draft after a revised draft was sent by the Advocates of Defendants after receiving instructions from their clients. The Plaintiff's Advocates' letter dated 10 March 2010 following this communication, calls for a clarity on the draft which could be the starting point for discussion. No doubt, there is a reference to terms “agreed between the parties”, but the reply of the Advocates for the Defendants clarifies that the matter was still at the stage of negotiations and that unless and until a formal binding agreement was executed between the parties, the matter would remain at the stage of negotiations.
6 The very fact that the drafts of the MOU were exchanged and revised between the parties and which contained essential terms of bargain which were revised and reworked, clearly goes to show that there was no concluded contract. By way of an example, it may be noticed that the parties were certainly not ad idem on an important aspect of the matter, namely, the transfer charges or other premium payable to MIDC who owned plot No.A-4 in
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which Defendant No.1 had leasehold interest. The premium payable to MIDC in this behalf was expected to be in the region of about Rs.3.30 crores. In the draft forwarded by the Defendants' Advocates under the cover of their letter of 12 March 2010 the liability to pay all taxes, charges and expenses in relation to the transaction of sale including amount payable to MIDC, if any, was cast on the purchasers, namely, the Plaintiff. On the other hand, the draft MOU forwarded by the Advocates for the Plaintiff under cover of their mail dated 15 June 2010 cast the responsibility for payment of these charges including the stamp duty payable in relation to the purchase, equally on the purchasers and sellers. In the final draft, which is claimed to have been sent by the Chartered Accountant of the Plaintiff, directly to Defendant Nos.3 and 4, this clause has altogether been omitted. The so called final draft was sent to Defendant Nos.3 and 4 on 7 August 2010. All this clearly indicates that the parties were not ad idem on the question of taxes and charges, etc. payable in respect of the transfer of shares.
7 Learned Counsel for the Plaintiff relied upon his client's statement in the rejoinder that there were discussions between the parties and it was subsequently realised that the sale of share capital of Defendant No.1 would not attract any MIDC premium charges and the issue concerning premium charges payable to MIDC was a non-issue. There is nothing on record to show that this issue at any time was resolved between the parties. In any event, this clearly shows that neither on the date of the agreement of 12 October 2009 nor on the date when alleged acceptance is communicated by the Plaintiff, i.e. on 15 October 2009, there was any concluded contract between the parties.
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8 In fact, a clincher would come in the form of the very prayer sought by the Plaintiff in the suit. What the Plaintiff seeks specific performance of in the suit, is not the purported agreement concluded on 12 October 2009 or even contained in the letter dated 15 October 2009, but the agreement as contained in the letter of 15 October 2009 and the final draft MOU annexed as Exhibit-L2 to the plaint. There is nothing on record to show that the draft MOU at Exhibit-L2 to the plaint was at any time agreed upon between the parties. In fact, the parties were all throughout negotiating the terms of the transaction and no draft MOU was ever agreed upon between them.
9 Learned Counsel for the Plaintiff relied upon some authorities to show that transfer of shares in a public limited company is neither covered by the restrictive provisions of the Companies Act concerning transfer of undertakings nor by provisions of Securities Contracts (Regulation) Act, 1956. This aspect, however, need not be gone into, since I am deciding the Motion by assessing the prima facie merits of the Plaintiff's case that there was a concluded contract already arrived at between the parties. As noted above, the Plaintiff's case does not inspire any confidence and no case is made out for grant of any interim relief.
10 Accordingly, there is no merit in the Notice of Motion. Notice of Motion is dismissed. There shall be no order as to costs.
2 issues framed by the court
Whether there was a concluded contract for the sale of shares despite exchanges of drafts and correspondence.
Whether the case made out by the Plaintiff is clear or prima facie merits sufficient for an interim injunction.
S.C. GupTE
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
