Madras High Court
Dr.N.Sethuraman vs Smile Micro Finance Ltd on 19 December, 2013
Author: V.Ramasubramanian
Bench: V.Ramasubramanian
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19-12-2013 CORAM THE HON'BLE MR. JUSTICE V.RAMASUBRAMANIAN O.A.No.901 of 2013 Dr.N.Sethuraman .. Applicant vs. 1.SMILE Micro Finance Ltd., No.4, Dr.Natesan Road, Ashoknagar, Chennai-600 083. 2.DWM Investments (Cyprus) Limited, Diagorou 2, ERA HOUSE, 11th Floor, P.C.1097, Nicosia, Cyprus. .. Respondents. This original application is filed by the applicants under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an interim order of injunction restraining the respondents from taking any major management decisions in the first respondent company pending arbitration proceedings. For Applicant : Mr.R.Subramanian For Respondent-1 : Mr.Ramalingam For Respondent-2 : Mr.R. Murari, Senior Counsel for Thriyambak J.Kannan O R D E R
This is an application filed by the applicant under Section 9 of the Arbitration and Conciliation Act, 1996, for the grant an order of injunction restraining the respondents from taking any major management decisions in the first respondent company pending arbitration proceedings.
2. I have heard Mr.R.Subramanian, learned counsel for the applicant, Mr.Ramalingam, learned counsel for the first respondent and Mr.R.Murari, learned Senior Counsel for the second respondent.
3. An agreement titled as Shareholders Agreement was entered into on 21.12.2009 by and between -
(i) the first respondent herein;
(ii) the second respondent herein;
(iii) a group of persons collectively described as "Promoters" viz., Dr.N. Sethuraman, who is the applicant herein, Dr.Brathibha (daughter of the applicant herein), N.Bhuvaneswari, Dr.S.Guru Shankar (son of the applicant herein) and S. Ramesh (son of the applicant herein); and
(iv) another group of persons collectively described as "Existing Shareholders", numbering about 17.
4. In other words, there were 4 parties to the Shareholders Agreement dated 21.12.2009. While the first respondent was one party, the second respondent was another party. The third party was termed as "Promoters" and all of them were represented by the applicant herein as their Power of Attorney Holder. Apart from being the Power of Attorney Holder, the applicant herein is the father of 3 out of 5 persons who constituted the third party to the agreement. Dr.S.Brathibha, Dr.S.Guru Shankar and S.Ramesh who were part of the group described as "Promoters" and whose details were furnished in Schedule-1 to the Shareholders Agreement are admittedly the daughter and sons of the applicant herein.
5. The fourth party to the agreement comprised of a group of about 17 persons whose names and addresses were given in Schedule-2 to the Shareholders Agreement. They were collectively described as "Existing Shareholders" and they were also represented by the applicant as their Power Agent in the Shareholders Agreement.
6. One more interesting aspect of the Shareholders Agreement is that the first party to the agreement viz., SMILE Micro Finance Ltd., which is the first respondent herein, was also represented only by the applicant, as he was the Chairman of the said company at that time and it was he who signed the Shareholders Agreement on behalf of the first respondent herein.
7. The object of the Shareholders Agreement was to enable the second respondent herein, to make investment in the first respondent company, by the acquisition of the equity shares. It is relevant to note here that the second respondent is a company incorporated under the provisions of the Cyprus Companies Law.
8. On the same day on which the Shareholders Agreement was entered into, viz., 21.12.2009, another agreement titled as "Subscription Agreement" was also entered into. To this agreement, there were only 3 parties viz., (i) the first respondent herein (ii) the second respondent herein and (iii) the applicant, his daughter, his 2 sons and another lady by name Bhuvaneswari, collectively described as "Promoters" whose particulars were furnished in Schedule-1 to the agreement. The object of this agreement was to enable the second respondent herein to subscribe to the equity shares in the first respondent company.
9. Though both the Subscription Agreement and the Shareholders Agreement were entered into, on the same date viz., 21.12.2009, it appears that the Subscription Agreement should be understood to be the elder among the twins. Under this Subscription Agreement, the second respondent was supposed to bring in a total amount of Rs.50 crores in the form of investments in shares. This amount was required to be brought in 3 stages which are termed in the agreement as "First Tranche", "Second Tranche" and "Third Tranche".
10. On the date of the Subscription Agreement, the first respondent company had an authorised share capital of Rs.20 crores divided into 2 crores equity shares of Rs.10 each. The paid up capital was Rs.5,78,50,000/-, divided into 57,85,000 equity shares of Rs.10 each.
11. It appears from Schedule-2 to the Subscription Agreement that the applicant and his relatives and friends, together held 34,75,000 equity shares, that constituted 60.07% of the total paid up capital of the company. The balance 39.93% of the total paid up capital was held by about 11,144 members.
12. Under Article 2.4 of the Subscription Agreement, the second respondent was to bring in the First Tranche of share subscription amount, of Rs.25 crores, on the completion date. Under the same Article, it was agreed that the third respondent will be allotted shares for a value of Rs.43.27 per investor equity share.
13. Immediately upon payment of the First Tranche, the shareholding pattern of the first respondent company was to undergo a change. Thereafter, the second respondent was made obliged to subscribe to the Second Tranche shares, within 14 days from the issue of a Draw Down Notice by the company, by bringing an investment of Rs.12.50 crores. After the subscription for the Second Tranche of shares, the shareholding pattern was required to undergo yet another change.
14. Similarly, the Third Tranche subscription of Rs.12.50 crores was required to be made within another milestone indicated in Article 4.1 of the Subscription Agreement.
15. In accordance with the terms of the Subscription Agreement, the second respondent brought in a total amount of Rs.50 crores in 3 Tranches. Therefore, they were allotted a total of 1,15,54,639 new equity shares of the first respondent company, at the rate of Rs.43.27 per share. Consequently, the paid up share capital of the company got enhanced and the second respondent came to hold 66.64% of the equity share capital of the first respondent.
16. The Subscription Agreement and the Shareholders Agreement required the second respondent to issue proxies to the applicant herein, in respect of certain shares which were defined as "Identified Equity Shares", which constituted 31.6% of the equity share capital of the first respondent. Accordingly, the second respondent issued proxies in favour of the applicant, authorising the applicant to vote on the shares at various meetings of the shareholders. But as per agreement, the second respondent used to vote on their own, in respect of the remaining shares (other than 31.6%).
17. It is relevant to note that the proxies issued in favour of the applicant were not made irrevocable. The second respondent was entitled to revoke the proxies, in the event of a breach of representations and warranties.
18. On 24.10.2011, the applicant resigned from the Board of the first respondent company. In a meeting of the Board of Directors of the first respondent held on 25.10.2011, the resignation of the applicant from the Board was accepted. Further, it was resolved to revoke the proxies given to the applicant and also to communicate the said decision to the Statutory Authorities such as the Reserve Bank of India. Thereafter, by a letter dated 25.10.2011, the second respondent informed the applicant of the revocation of proxies granted in favour of the applicant.
19. However, it appears that in a subsequent meeting of the Board held on 6.12.2011, the Board of Directors appears to have clarified that as per the provisions of the Shareholders Agreement and SEBI Regulations, the "Control" continued to vest in the hands of the promoters, even after revocation of voting rights given in favour of the applicant.
20. It appears that the resignation of the applicant from the Board of Directors and the revocation of the proxies given by the second respondent in his favour, did not happen due to any noble cause. The applicant's daughter who was managing a company by name "Fathi Software Pvt. Limited", seems to have lodged a claim upon the first respondent company, under a legal notice dated 14.9.2011, for payment of a sum of about Rs.5 crores, on the ground that under a Software License and Maintenance Agreement dated 5.4.2007, executed by the applicant as the Chairman and Managing Director of the first respondent, they became due to pay money to Fathi Software. The applicant had not disclosed about the existence of such an agreement to the second respondent at the time when the second respondent undertook a due diligence of the first respondent, before entering into the Subscription Agreement and the Shareholders Agreement. Therefore, the second respondent started questioning the applicant about the genuineness and validity of the said Software License and Maintenance Agreement dated 5.4.2007. This notice dated 14.9.2011, appears to be the reason behind the applicant resigning from the Board of Directors of the first respondent, on 24.10.2011. Interestingly, the entire flock of promoters followed suit. Following the resignation of the applicant on 24.10.2011, another promoter N.Bhuvaneswari resigned on 25.10.2011 and the applicant's daughter Dr.S.Brathibha resigned on 26.10.2011.
21. In the light of the above developments, the second respondent issued Indemnity Notices dated 9.12.2011, 9.2.2012 and 5.9.2012, calling upon the applicant to compensate them for the breach of trust committed by him. With a view to over come the Indemnity Notices so issued, the applicant lodged a criminal complaint on 11.12.2012 against his own daughter Dr.S.Brathibha, alleging that she had forged his signature in the Software License and Maintenance Agreement dated 5.4.2007. In other words, the applicant claimed that he never signed the Software License and Maintenance Agreement dated 5.4.2007.
22. In the meantime, the applicant's wife and 2 others instituted a civil suit in C.S.No.143 of 2012 on the file of this Hon'ble Court under Section 92 of the Code of Civil Procedure, purportedly for framing a Scheme for the administration of a Public Charitable Trust by name "Maha Semam Trust". This Trust was originally floated by the applicant's wife along with 5 others including the applicant's daughter. Subsequently, the applicant's wife resigned and the applicant became the Chairman of the Board of Trustees.
23. In the said suit, the applicant's wife made serious allegations against the applicant as well as other Trustees, of diversion and siphoning of the funds of the Trust and also of defrauding the Trust. The applicant's daughter who is one of the defendants in the suit, is contesting the said suit on the ground that the suit itself was engineered by his doctor-father. She has made specific averments to the effect that her father who is the applicant herein, had set up the mother and two henchmen to file the above suit, to settle scores with third parties.
24. During the pendency of the said suit, the 2nd respondent herein, who was not made a party to the above suit, issued a paper publication on 15.6.2013 to the effect that the control of the first respondent-company, which was cited as the 9th defendant in that suit, vested with the 2nd respondent herein. Immediately upon seeing the paper publication, the plaintiffs in the said suit C.S.No.143 of 2012, took out an application in O.A.No.520 of 2013, seeking an interim order of injunction restraining the first respondent herein (which was the 9th defendant in the suit) and its Directors from transferring the control of the first respondent herein to the second respondent herein. Interestingly, the second respondent herein viz., DWM Investments (Cyprus) Ltd., is not a party either to the above suit or to the application O.A.No.520 of 2013. But in view of the fact that a Public Charitable Trust was involved, I granted an interim order on 19.7.2013 in O.A.No.520 of 2013 in the said suit C.S.No.143 of 2012, directing the parties to maintain status quo.
25. After the first respondent herein, who was the 9th defendant in that suit, filed its counter to O.A.No.520 of 2013 and pressed for an early hearing of the said application, I started hearing all the interlocutory applications in the said suit. When the hearing of all the applications in the said suit C.S.No.143 of 2012, including the one in O.A.No.520 of 2013 was in progress, the applicant herein, who is also the second defendant in that suit, came up with the present application under Section 9 of the Arbitration and Conciliation Act, 1996.
26. In other words, the relief sought for by the applicant in the present application under Section 9 of the Arbitration and Conciliation Act, 1996, is nothing but the very same relief, but couched in a different language, that is sought by his wife and 2 others in O.A.No.520 of 2013 in C.S.No.143 of 2012. Therefore, I took the present application also along with all the applications in C.S.No.143 of 2012, so that the full and complete picture emerged before me.
27. As stated earlier, the prayer in the present application is for an interim order of injunction restraining the respondents from taking any major management decisions in the first respondent company. Such a prayer is sought on the premise that despite the second respondent holding about 66.64% of the shares in the first respondent company, the management control was supposed to vest only with the applicant and that therefore, the applicant is entitled to nominate 6 Directors to the Board and that the Managing Director of the company should also be a nominee of the applicant alone.
28. But at the outset, the relief sought by the applicant cannot be granted, at least for two technical reasons. They are:-
(i) What constitutes major management decisions and what constitutes minor decisions, is not indicated by the applicant. Therefore, a very vague injunction restraining the respondents from taking any major management decisions cannot be issued, without defining the expression.
(ii) As rightly pointed out by the second respondent in their counter affidavit, the applicant has suppressed the factum of revocation of proxies by the letter dated 25.10.2011 of the second respondent. A person who has come to Court with unclean hands, is not entitled to an order of injunction.
29. Apart from the above two reasons, there is one more important reason as to why the applicant cannot seek the relief that he has sought. As pointed out earlier, there were 4 parties to the Shareholders Agreement dated 21.12.2009. The first party was SMILE Micro Finance Ltd., represented by the applicant herein as its Chairman. The second party was the second respondent herein. The third party was a group of 5 persons including the applicant herein, his daughter Dr.S.Brathibha, his 2 sons by name Dr.S.Guru Shankar and S.Ramesh and another lady by name N.Buvaneswari. These 5 persons were jointly termed as "Promoters" and they were represented by the applicant herein as their Power Agent. The fourth party to the Shareholders Agreement was a group of 17 individuals who were jointly termed as "Existing Shareholders" and they were also represented by the applicant herein as their Power Agent.
30. Similarly, there were 3 parties to the Subscription Agreement dated 21.12.2009. Except the "Existing Shareholders", who constituted the fourth party to the Shareholders Agreement, all the other 3 parties were parties to the Subscription Agreement. Therefore, even in this agreement, the applicant merely represented his daughter, his 2 sons and his friend, as their Power Agent.
31. Keeping the above in mind, if we look at the Shareholders Agreement dated 21.12.2009, it defines the expression "Control" under Article 1.1.16 as follows:-
"1.1.16 "Control" (including with correlative meaning, the terms "Controlled by" and "under common Control" with) shall mean the power and ability to direct the management and policies of the controlled enterprise through ownership of voting shares of the controlled enterprise or by contract or otherwise."
32. Similarly, Article 6.4 indicates the circumstances under which a change in control would take place. It reads as follows:-
"6.4 Change in Control:
Subject to the Investor not revoking the proxy as stipulated under Clause 3.2.2 and 3.2.3, the Promoters and the Company represent and warrant that as of the Transaction date, the Promoters control the management and operations of the Company and that they will continue to retain control of the Company, and that there shall be no change of control of the Company, other than as permitted under this Agreement. For purposes of this Clause, the term 'control' shall have the meaning given to such term in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, and the term 'change of control' shall be construed accordingly."
33. Article 6.4, which is extracted above, makes it clear that the Promoters will continue to have control subject to Articles 3.2.2 and 3.2.3. Therefore, let us now have a look at Articles 3.2.2 and 3.2.3 and they read as follows:-
"3.22 Any time after the expiry of five years from the Completion Date if a Liquidity Event has not occurred and if the Put Option or the Call Opinion has not resulted in transfer of Identified Equity Shares from the Investor to the Promoter, the Investor shall be entitled, at its option (exercisable at its sole discretion) to revoke the proxies issued in favour of Dr.N.Sethuraman in respect of the Identified Equity Shares and directly exercise voting rights in respect of the Identified Equity Shares in its sole and absolute discretion.
3.2.3 Notwithstanding anything contained herein above, the Investor shall be entitled, at its option (exercisable at its sole discretion) to perform the actions listed in 3.2.2 at any time prior to the expiry of five years from the Completion Date in the event: (a) a Material Adverse Change; and/or or if winding-up event occurs and/or; (b) the Company undertakes a Liquidity Event; and/or; (c) the Promoters fail to perform their obligations upon the occurrence of an Investor Put Option Trigger Event; and/or (d) if the Promoters/Company do not perform their obligations under this Agreement; and/or (e) if there is a breach of representations and warranties under this Agreement."
34. Therefore, it is clear that the second respondent herein, who was described as the investor in both the agreements dated 21.12.2009, is given the option to revoke the proxies, even before the expiry of 5 years from the Completion Date, if any one of the 5 conditions stipulated in Article 3.2.3 is satisfied. These conditions are (i) Material Adverse Change as defined in Article 1.1.47; (ii) a Liquidity Event as defined in Article 1.1.44; (iii) failure of the Promoters to perform their obligations upon the occurrence of an Investor Put Option Trigger Event, as defined in Article 1.1.37; (iv) the failure of the Promoters/company to perform their obligations under the agreement; and (v) a breach of the Representations and Warranties under the agreement.
35. It appears that the second respondent had revoked the proxies in favour of the applicant, on the ground that the fifth condition stated above viz., that there was a breach of Representations and Warranties under this agreement by the Promoters. The Representations and Warranties are listed in Article 7 of the Shareholders Agreement dated 21.12.2009. Article 7.2 states that the Representations and Warranties are subject to the disclosures made by the company to the Investor in the disclosure Letter provided to the Investor as of the Effective Date.
36. The complaint of the second respondent appears to be that there was a breach of the Representations and Warranties, in view of the failure of the applicant to disclose anything about the alleged agreement dated 5.4.2007 entered into by the applicant herein as the Chairman of the first respondent, with the company by name Fathi Software Pvt. Limited (formerly known as Trinity Technology Pvt. Limited) of which the applicant's daughter was the Managing Director. The liability of the first respondent under this agreement to the applicant's daughter and the company run by her is to the tune of more than Rs.5 crores. The applicant has taken a stand that his daughter had forged his signature in the agreement dated 5.4.2007 and has actually given a police complaint against his daughter.
37. But an interesting twist to this unscrupulous drama is that the applicant's wife has accused the applicant and his daughter of collusion in the Scheme suit. Interestingly, Schedule-1 to the Shareholders Agreement which contains the list of Promoters shows two things viz., (i) that the applicant, his daughter Dr.S.Brathibha and his 2 sons Dr.S.Guru Shankar and S.Ramesh are residing at the same place viz., No.2/47, Melur Road, Uthangudi, Madurai, which happens to be the Registered Office of the Trust; and (ii) that the house in which the applicant, his wife and his sons and daughter are allegedly living as per Schedule-1 to the Shareholders Agreement is named as Brathibha Illam.
38. Therefore, I do not know who is actually putting up a drama in this matter. If the applicant's case that his daughter forged his signature is true, he would succeed in showing that there are no breach of Warranties and Representations. This would enable him again to regain control of the first respondent. If the applicant's daughter succeeds in showing that the applicant was a party to the agreement dated 5.4.2007, she would receive a sum of more than Rs.5 crores from the first respondent. Therefore, in whatever way the litigation goes (both the Scheme suit as well as the present dispute), the applicant and his family would stand to benefit.
39. The script of the litigation (both the Scheme suit and the present proceedings) is written in such a manner that the result will provide a win-win situation for the family of the applicant. Therefore, I am of the view that the prayer for interim injunction in this application under Section 9 requires a deeper scrutiny.
40. As pointed out earlier, the proxy in favour of the applicant has been revoked in terms of Article 3.2.3, on the ground that there was a breach of the Representations and Warranties guaranteed under Article 7.2. The Control that was retained by the Promoters, led by the applicant herein, was made under Article 6.4 as subject to the revocation of proxy under Article 3.2.3. Once proxies are revoked under Article 3.2.3, the control goes out of the hands of the Promoters under Article 6.4.
41. Interestingly, the applicant admits (i) to have resigned from the Board on 24.10.2011; and (ii) to the revocation of proxies on 24.10.2011 by the second respondent. The applicant has not chosen to challenge the revocation of proxies so far. Nearly a period of 2 years has elapsed from the date of revocation of proxies. Therefore, when the revocation of proxies is yet to be challenged, the applicant cannot seek an injunction in respect of control, since the retention of control by the Promoters is made under Article 6.4 dependent upon the existence of proxies.
42. There is yet another aspect to the whole issue. The Control as contemplated in Article 6.4 is actually a Control by the Promoters. There are 5 persons named as Promoters in Schedule-1 to the Shareholders Agreement. I have already indicated that those 5 persons are the applicant herein, his daughter, his 2 sons and a lady by name N.Bhuvaneswari. The applicant was only a Power Agent of all those 5 persons. Today, the applicant has a conflict of interest at least with his daughter Dr.S. Brathibha and his son S.Ramesh. If such a conflict of interest is only a drama put up by the applicant, then he can continue to represent his daughter and son. But if his conflicts with his daughter and son are true, he cannot anymore act as their Power Agent.
43. Even if we leave the above niceties apart, it is clear from Article 6.4 that the Control vested only with the Promoters. The applicant, as an individual, is not the Promoter. If the Promoters wanted to retain Control, they must have come together with the above application. Alternatively, all other 4 persons should have authorised the applicant to file the above application on behalf of the entire group of Promoters. In the affidavit in support of this application, the applicant has claimed that he was swearing to the affidavit both on his behalf and on behalf of the Promoters of the first respondent. But, today the applicant, after having charged his daughter of committing forgery and after having accused his son of various acts of omission and commission has lost the authority to represent the Promoters as a group. The applicant has not filed any letters of authorisation given by the other 4 persons who are termed as Promoters in Schedule-1. Therefore, the very right of the applicant to represent the entire group of persons termed as Promoters and to seek an injunction in their favour is extremely doubtful.
44. Under Article 3.3.4 of the Shareholders Agreement, the Board of Directors of the first respondent company comprised of only 6 persons. But upon the Completion Date, the Board was reconstituted with 6 persons nominated by the Promoters and 3 persons nominated by the Investors. Therefore, the applicant claims that he always has the right to nominate 6 out of 9 Directors to the Board and that his right to nominate 6 persons has not been lost due to the revocation of proxies.
45. It is true that the revocation of proxies has nothing to do with the right of the Promoters to nominate 6 Directors under Article 3.3.4(b)(i) of the Shareholders Agreement. But unfortunately for the applicant, the right conferred by the said Article is not upon the applicant in his individual capacity. This right is conferred upon the Promoters as such. The Promoters are defined as those 5 persons whose details are furnished in Schedule-1 to the Shareholders Agreement. Today, the applicant, even according to his own stand before the Criminal Court and in the Scheme suit is at loggerheads at least with 2 out of the remaining 4 persons, together with whom he constituted the group of Promoters. The right to nominate 6 Directors vests with all the 5 shareholders including the applicant, his daughter, his 2 sons and the other lady N.Bhuvaneswari. Today if the applicant joins hands with his daughter and his sons and exercises the right to nominate 6 Directors, it would make his stand in the Scheme suit about the forgery committed by his daughter a bluff. Therefore, unless the applicant demonstrates before this Court that all the 5 persons whose names are published in Schedule-1 to the agreement are together and want to nominate 6 Directors, he cannot seek the injunction that he now sought in this application.
46. Since I have drawn the above conclusions from the various clauses contained in the Shareholders Agreement, let me now have a look at the Subscription Agreement, to see if the rights and obligations under the said agreement are in any way different.
47. Article 8.3 of the Subscription Agreement is identically worded as Article 3.2.3 of the Shareholders Agreement. Therefore, the right of the applicant to exercise voting rights in relation to the Identified Equity Shares through the proxies, can be terminated even under Article 8.3 of the Subscription Agreement. Hence after the revocation of proxies, in his favour, which the applicant had left unchallenged for the past more than 2 years and after the disintegration of the group of 5 Promoters of whom he was the leader, the applicant has no right to claim that he would, in his individual capacity, retain Control of the first respondent. Today, the applicant is caught in his own cobweb. If the applicant unites with his daughter, 2 sons and the other lady N.Buvaneswari, all of whom constituted the Promoters, the stand taken by him with respect to the agreement dated 5.4.2007 will fall to the ground and he will stand exposed. But if he fights his cause independently of his dauther and sons, he cannot represent the group of Promoters, for exercising a collective right conferred upon the group of Promoters under both the agreements dated 21.12.2009. Therefore, in either case, the claim of the applicant that he continues to exercise control is totally misconceived.
48. Moreover, Article 6.4 makes a reference to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997, for interpreting the expression Control. Therefore, it is necessary to take a look at those Regulations.
49. The expression Control is defined in Regulation 2(1)(c) of the said Regulations as follows:-
(c) ---control shall include the right to appoint majority of the Directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
[Explanation.--(i) Where there are two or more persons in control over the target company, the cesser of any one of such persons from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management:
Provided that the transfer from joint control to sole control is effected in accordance with clause (e) of sub-regulation (1) of regulation 3.
(ii) If consequent upon change in control of the target company in accordance with regulation 3, the control acquired is equal to or less than the control exercised by person(s) prior to such acquisition of control, such control shall not be deemed to be a change in control;]
50. The Master Circular on Miscellaneous Instructions issued by the Reserve Bank of India to all NBFCs requires a public notice of 30 days to be given, whenever there is any transfer of control. The relevant portion of the Master Circular reads as follows:-
A public notice of 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the NBFC and also by the transferor, or the transferee or jointly by the parties concerned.
For this purpose, the term 'control' shall have the same meaning as defined in Regulation 2(1)(c) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
(ii) The public notice should indicate the intention to sell or transfer ownership/control, the particulars of transferee and the reasons for such sale or transfer of ownership/control. The notice should be published in one leading national and another in leading local (covering the place of Registered Office) vernacular language newspaper.
51. Therefore, the newspaper publication made by the second respondent on 15.6.2013 is only in compliance with statutory requirement. It is a fundamental principle of law that no Court will injunct any person from complying with the statutory requirements.
52. Drawing my attention to a public notice issued on 9.12.2009 by the respondents to the effect that the applicant would continue to have management control in the first respondent, it was contended by the learned counsel for the applicant that the respondents cannot now take a different stand. According to the applicant, it is an irrevocable contract.
53. But the above contention is thoroughly misconceived. Article 3.2.3 read with Article 6.4 of the Shareholders Agreement and Article 8.3 of the Subscription Agreement is a complete answer to the above contention.
54. Lastly it is contended by the learned counsel for the applicant that a Material Adverse Change has happened in the financial condition of the first respondent inasmuch as the net profit has fallen to Rs.200 lakhs in 2013 from Rs.600 lakhs in 2012 and that therefore the Promoters got a right to put the Call Option. The applicant has also alleged mismanagement, payment of high salaries and legal fees etc., causing an erosion in the value of the company.
55. But all the above allegations are not borne out by records. In any case, they do not justify an order of injunction.
56. In view of the above, I find neither a prima facie case nor balance of convenience in favour of the applicant. The relief sought by the applicant is thoroughly misconceived. The applicant cannot anymore represent the group of Promoters, as they are at loggerheads before different Forums, including Criminal Courts. Therefore, the application is liable to be dismissed.
57. Accordingly, the application O.A.No.901 of 2013 is dismissed. There will be no order as to costs.
19 -12-2013
Index : Yes.
Internet : Yes.
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V.RAMASUBRAMANIAN,J
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Order in
O.A.No.901 of 2013
19-12-2013