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First International Investments Inc. v/s Industrial Finance Corporation of India Limited

    Interim Application Appeal No. 5511 of 2002

    Decided On, 26 July 2002

    At, High Court of Delhi

    By, THE HONOURABLE MR. JUSTICE S.K. AGARWAL

    For the Appearing Parties: Arun Jaitley, Ashwini K. Matta, Jayadip Sharma, Navin Kumar, R.K. Sanghi, S.P. Bhatia, Sanjay Bhatt, Vivek Tyagi, Advocates.



Judgment Text

S.K. AGARWAL, J.


(1) THIS order will dispose of three applications moved by defendants under Order 39 Rule 4 read with Section 151 of the Code of Civil Procedure, 1908 (for short "cpc") for vacating ex-parte interim injunction dated 15th May. 2002, as well as the application of the plaintiff whereby status quo was ordered to be maintained with regard to shares of defendant No. 2.


(2) FACTS in brief are that plaintiffs filed a suit for declaration, perpetual and mandatory injunction, against defendants pleading therein as under:


(i) Plaintiff No. 1 (First International) is a company incorporated on 14. 12. 1995 under the laws of Mauritius; plaintiff No. 2 (Arun Duggal) is the principal officer and duly constituted attorney of plaintiff No. 1. The defendant No. 1, Industrial Finance Corporation Limited (for short, "ifcl"); defendant No. 2 (Bank of America Overseas Corporation) formerly known as NationsBank Overseas Corporation (For short, "nbdc") incorporated under the laws of USA; and defendant No. 3 (for short, "mohan Group") is also a registered company. (i) The shareholders of Mohan Group, incorporated a public limited company under the name and style of Foremost Factors Limited (For short "ffl"), on 14. 12. 1995, having its registered office at Delhi and Haryana. The NBOC agreed to participate as the shareholder in FFL, and for that purpose Mohan Group and NBOC executed an agreement on 16. 5. 1996 (hereinafter, referred to as the "main Agreement"). In March, 1999, IFCL (defendant No. 1), decided to acquire equity and arranged debt for FFL. Consequently on 16. 4. 1999, a supplementary Agreement was executed amongst Mohan Group, NBOC and IFCL setting-forth their new shareholding arrangement adopting all terms and conditions of the Main agreement. (iii) In December, 2000, NBOC decided to exit from factoring business and to sell its shares in FFL. In January, 2000, NBOC approached Mr. Puri (Chairman of Mohan Group)and Mr. Narsiman (Chairman of IFCL), to acquire NBOC's share in FFL; both of them advised nboc that notwithstanding their right of First Refusal, contained in Article 5. 2 of the Main agreement, they were not interested in acquiring NBOC's shares in FFL and that NBOC was free to find suitable buyer for its shares. Thereafter, NBOC requested plaintiff No. 2 (Arun duggal) to acquire its shareholding in the FFL; he evaluated the validity of the offer and decided to accept the same. It is pleaded that on 29th March, 2001 at a meeting of the Board of Directors of FFL, IFCI and Mohan Group accorded their no objection to the transfer of nboc equity shareholder in FFL (26. 25%). It was decided that the Main Agreement itself would need to be replaced. Plaintiff No. 2, Mr. Duggal, who was an employee, set up a new company under the name and style of First International Investment Corporation (plaintiff no. 1). Memorandum of Understanding between the NBOC and Mr. Duggal was singed on 11. 5. 2001 (for short, "mou"). On 1. 12. 2001, another Board meeting of FFL was held and in furtherance of their approval on 29. 3. 2001, FFL received a letter and draft notice, proposed to be published in the Press, as per the requirement of the Reserve Bank of India from nook, indicating their intention to transfer their shares in favor of the First Plaintiff and a resolution was passed to that effect. (iv) Mr. Arun Duggal received a letter dated 4. 1. 2002 from IFCI, whereby NBOC was asked to serve First option notice on the Principal Shareholders of FFL as per Article 5. 2 of the Main Agreement. By letters dated 17th January, 2002 and 22nd February, 2002 IFCL refused the proposed transfer of shares from NBOC to the First Plaintiff. It is further pleaded that Mr. Duggal resigned from service with NBOC and set up plaintiff No. 1 at Mauritius, at considerable expense only after FFL Board of Directors meeting held on 29th March, 2001 and on 1st December, 2001 conveying their no objection and consent irrespective of the right of First Option conferred under Article 5 of the. Main Agreement and that IFCI was bound by its no objection consent and are stopped by their conduct from asserting the right of First refusal under the Main Agreement.


(3) ON the above Facts, the plaintiffs have sought declaration to the effect that NBOC has made sufficient compliance of the provisions of the Main Agreement and the Supplementary agreement and had taken requisite steps necessary to be undertaken by them, for the purposes of effecting and executing the proposed transfer of their entire shareholding comprising of 26. 25% in FFL, to the First Plaintiff a decree of perpetual and prohibitory injunction restraining IFCL from exercising the right of First Refusal stipulated in Article 5. 2 of the Main Agreement; other appropriate injunction against defendants directing them to convey their consent and approval to the proposed transfer in favor of First plaintiff; to carry out necessary formalities of signing documents required to by NBOC, RBI and SEBI, to acknowledge First Plaintiff as shareholder of FFL stepping into the shoes of NBOC and to execute a new Shareholders" Agreement.


(4) BY an order dated 15th May, 2002 passed in IA No. 4685/2002 ad-interim injunction was granted to the plaintiffs directing that status quo be maintained by NBOC-defendant No. 2 with regard to sale of its shares. The defendants are seeking revocation of this order, inter alia, on the ground that the exporter order was obtained by plaintiffs by concealing material facts and by making false statements. The defendants while denying the allegations made in the plaint specifically denied the averment that Mr. Narsiman, then Chairman-cum-Managing director of IFCL (defendant No. 1) and Mr. Puri of Mohan Group (defendant No. 3) advised the plaintiff that notwithstanding the right of First Refusal as contained in Article 5. 2 of the main Agreement, Mohan Group and IFCL were not interested in acquiring shares of NBOC (defendant No. 2) and that the NBOC was free to find any other buyer for purchase of its shares. The plaintiffs filed rejoinder reiterating the averments made in the plaint.


(5) I have heard learned counsel for the parties and have been taken through the record.


(6) LEARNED Senior Advocate appearing on behalf of defendant No. 1 argued that Article 5. 2 of the Main Agreement dated 16th May, 1996 between the Principal Shareholder and the supplementary Agreement provide that no principal Shareholder would transfer any or all the shares owned by it, otherwise then pursuant to the terms of this agreement. It further provides that if the Principal Shareholder desires to effect a transfer or sale of any or all of its shares then selling Principal Shareholder (s) as well as the company of the proposed transfer in the manner and in accordance with the procedure prescribed in this Article Learned counsel further argued that Principal Shareholder (s) by Article 13 of the Main Agreement also agreed that any amendment, variation, modification or waiver of any of its terms would be valid only if it is in writing and signed by the Princ pa! Shareholders and the NBOC and that these conditions having not been fulfilled, the claim of the plaintiffs that there was an implied waiver of conditions contained in the agreement is not sustainable and that even a prima facie case in favor of plaintiff is made out. Therefore, ex parte interim order is liable to be vacated. Learned counsel appearing on behalf of defendants 2 and 3 while supporting the submissions on behalf of defendant No. 1 also made additional submissions.


(7) LEARNED counsel for plaintiff argued to the contrary and submitted that in the meeting of the Board of Directors of FFL held on 29th March, 2000 and 1st December, 2001 the nominees of Principal Shareholders were present, they did not record any objection on behalf of the non-selling Principal Shareholders. Thus, it was an implied waiver of their right of First Option under the Main Agreement. He further argued that plaintiff No. 2 was an employee of NBOC; on the basis of declaration made by representatives of defendant No. 1 and defendant No. 3 in the said Board Meeting, he resigned from the job, set up another company (plaintiff No. 1) at a lot of expense, therefore, defendants are stopped from pleading otherwise. In support of his submissions, learned counsel referred to some commentaries on the Law of Contract, dealing with implied waiver of terms of the contract required by law to be evidenced in writing, and "promissory estoppels" based on representation.


(8) IN order to appreciate the rival contentions, it would be useful to refer to Articles 5. 1 and 5. 2 of the Main Agreement dated 16th May, 1996 which run as under:-


RTICLE 5 restrictions ON TRANSFER OF SHARES 5. 1 Restrictions on share Transfer:- During the Term of this Agreement, no Principal shareholder may Transfer any or all of its shares, now or hereafter owned by it, other than pursuant to the terms of this Agreement. 5. 2 Right of First Refusal: (a) If any Principal Shareholder shall otherwise desire to effect a Transfer or any or all of its shares, then it (the "selling Principal Shareholder")shall give notice to the non-selling Principal Shareholder (s) and the Company of such proposed Transfer (the "option Notice") The Option Notice shall describe the proposed transferee (the "third Party Transferee") the number of shares proposed to be transferred (the " (Offered Shares") the price per share the "offer Price") evidence of the Third-Party Transferee's financial ability to pay the price per share of the offered Shares and all other material terms and conditions of the proposed Transfer, and also shall be accompanied by a copy of the firm offer of the Third-Party transferee to purchase the Offered Shares at the offer Price, Stating that such offer shall be irrevocable for a period of thirty (30) days. 5. 2 (b) to (f) xxx xxx xxx 5. 3 xxx xxx xxx


(9) THERE is no dispute that Article 5. 1 of the Main Agreement puts restrictions on the principal Shareholders to transfer any or all of its shares. Article 5. 2 inter alia, provides (a)that selling Principal Shareholder shall give notice to the non-selling Principal Shareholder (s) And the Company of the proposed transfer called Option Notice; (b) the Option Notice is required to describe the proposed transferee, number of shares sought to be transferred or offered for sale, the price per share offered, by the proposed transferee and evidence of proposed transferee's financial ability to pay the price and (c) it is required to be accompanied by a copy of the firm offer of the third party transferee, stating that such offer is irrevocable for a period of thirty days. Further Article 13 of Main Agreement provides that the amendment, variation; modification or waiver of any of the terms and conditions of this agreement shall : only be valid and effective if signed in writing by all the Principal Shareholders.


(10) THE argument raised by learned counsel for plaintiff is not sustainable for more than one reason. To repeat The Option Notice, envisaged by Article 5. 2 of the Main Agreement is required to be given, to the non-selling Shareholders as well as to the Company. Here admittedly option Notice was not given to IFCL (defendant No. 1) or Mohan Group (defendant no. 3), who are the non-selling Principal Shareholders, therefore, the question of their giving consent could not arise at the meeting of the Board of Directors of FFL, even if it is assumed the representative of the Principal Shareholders had waived the Option Notice in the Board meeting of the FFL held on 29th March, 2001, as alleged by plaintiff, although the same is specifically denied by the defendants. The alleged consent cannot be termed, as a notice to the Principal Shareholders of the FFL. Such a decision could only be taken at Board Meeting of defendant No. 1 and defendant No. 3. Secondly, perusal of Resolution dated 29th March, 2001 reveals that this matter was not in the agenda. As envisaged by Article 5. 2 of the Main agreement before such offer could be termed as an Option Notice it was required to describe the proposed transferee, number of shares which were sought to be transferred or offered for sale, the price per share offered and the evidence of the proposed transferee's financial ability to pay the price. These essential conditions of Option Notice were not fulfilled. Perusal of document further reveals that in fact a need was felt to replace the Main Shareholder's" agreement which was not done. The Board of Directors of the FFL (not the defendants)could not alter the rights of defendants 1 and 3 under Article 5. 2 of the Main Agreement.


(11) APART from the above, meeting dated 29th March, 2001 and 1st December, 2001 were presided over by Mr. Arun Duggal, Plaintiff No. 2, who was the Chairman of the FFL and also the Promoter and Chairman of First International Investment (plaintiff No. 1), who intended to buy the shares. Mr. Arun Dugal having substantial interest in the purported sale of the shares by the NBOC in FFL. Should not preside over the meeting on the proposed sale or transfer of shares of the NBOC to plaintiff No. 1. Further MOD dated 11th May, 2001 between plaintiff and defendant No. 2 was valid uptill 31. 12. 2001. Under the MOD, responsibility for satisfying conditions of the Main Agreement was of the plaintiff, No valid or binding agreement exists between the plaintiff and the bank, therefore, the bank cannot be restrained from exercising its right to sell its share to the non-selling Principal Shareholders in FFL, as per the Main Agreement. The bank cannot be compelled to sell its shareholding only to the plaintiff. In Black's Law Dictionary, while explaining the meaning of the words "impli

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ed waiver", it is further stated: "to make out a case of implied "waiver" of 3 legal right, there must be a clear, unequivocal and decisive act of the party showing such purpose, or acts amounting to an estoppels on his part. " (12) AS noticed above, the material relied upon by the plaintiffs in support of their contentions that the defendants had impliedly waived their right of First Option, provided under Article 5. 2 of the Main Agreement of that they are stopped from pleading otherwise is not at all acceptable. This contention is thus rejected. (13) LAW with regard to the grant of interlocutory, injunctions during tendency of proceedings is well settled by several authoritative pronouncements of the Apex Court including Gujarat bottling Co. Ltd and Ors. Vs. Coca Co/a Co. and Ors. , (1995) 5 SCC 545. The plaintiffs have failed to show a prima Facie case, the. balance of convenience in their favor and that they will suffer irreparable loss or injury. Therefore, no case for continuation of interlocutory injunction is made out. (14) FOR the foregoing reasons, application being I. As. 5511/2002, 5513/2002 and 5662/ 2002 under Order 39 Rule 4 CPC are allowed. Order dated 15th May, 2002 is recalled and the interim order is hereby vacated. Plaintiff's 1a No. 4685/2002, whereupon the said interim orders were*obtained is dismissed. However, it is made clear that any observation made herein shall not affect the merits of the case or other proceedings between the parties.
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