Company Law Board
Bertrand Faure Sitztechnik Gmbh And Co. ... vs Ifb Automotive And Seating Systems Ltd. ... on 17 May, 1999
Equivalent citations: [1999]97COMPCAS690(CLB)
ORDER
S. Balasubramanian, Chairman
1. In this order, we are considering the application, C. A. 238 of 1998, filed by the petitioners under Section 634A of the Companies Act ("the Act") read with regulation 44 of the Company Law Board Regulations, 1991, in C. P. No. 47 of 1995 filed under Section 397/398 of the Act in the matter of M/s. R. H. W. India Limited which is now known as IFB Automotive and Seating System Ltd. (the company). When the petition was being heard, the parties desired to resolve the disputes amicably and accordingly an order was passed on April 17, 1996, incorporating the terms of settlement between the parties. As per the terms of the settlement, the company was to refund a sum of Rs. 55 lakhs to the first petitioner as against Rs. 52 lakhs invested by the first petitioner by way of share application money and that IFB Industries Limited, the second respondent was to purchase 5.2 lakhs equity shares held by the first petitioner in the company at the rate of Rs. 55 which was considered to be the fair value for the share. The said consent terms also provided that the second respondent would deposit a sum of Rs. 2.86 crores being the consideration for the shares with the petitioner's advocate by June 18, 1996, against delivery of the share certificates and transfer deeds. It was also provided that the petitioners would apply to the Reserve Bank of India for transfer of shares and repatriation of the consideration as the first petitioner is a foreign company. The consent terms further provided that certain articles of the articles of association of the company would be either deleted or amended so as to ensure that the first petitioner does not have any further say in the management of the company. It also provided that the petitioner-directors shall cease to be directors of the company with immediate effect and that the name of the company would be changed into IFB Automotive Seating and Systems Limited with effect from January 1, 1997. Liberty was granted to apply till the settlement was completely worked out.
2. Now, in this application filed on September 24, 1998, the petitioners have complained that the second respondent has failed to carry out its obligation under the terms of settlement by failing to deposit Rs. 2.86 crores being the consideration for the shares in spite of the permission received from RB1 for transfer of shares and as such in terms of Section 634A, the Company Law Board should order execution of the terms of settlement. In reply to the application, the second respondent has prayed for recalling the consent order dated April 17, 1996, in so far it relates to the payment of consideration for the shares, for the reasons elaborated in the reply.
3. Shri Sen, senior advocate, appearing for the petitioners submitted that there has been gross violation on the part of the second respondent in not complying with the consent terms even though the petitioners have complied with their obligations. He submitted that the petitioners did not move the Bench earlier hoping that the second respondent would discharge its obligation even if belatedly. In this connection, he referred to various correspondences exchanged between the first petitioner and the second respondent to indicate that as late as on March 16, 1998, the second respondent had indicated to the petitioner that the consideration for the shares would be paid shortly (page 72 of C. A. 302 of 1998). He referred to the various terms of settlement to point out that except the second respondent's depositing the consideration for the shares, practically all other terms of settlement have been worked out including refund of the application money of Rs. 55 lakhs. Referring to the reply filed by the second respondent, Shri Sen pointed out that the second respondent has raised two objections regarding the consent terms--first that the consideration for the shares was overvalued and second that there are huge dues payable by the first petitioner to the first respondent and unless and until the same is settled, it would not be possible to pay consideration for the shares. According to Shri Sen, these grounds are nothing but an afterthought as, for the last two years after the consent order was passed, the second respondent never raised these objections. According to learned counsel, neither the share price has been overvalued nor the petitioners owe any amount to the first respondent. Referring to the annual report of the second respondent for the year 1995-96, he pointed out to the directors' report wherein it is mentioned that the company has acquired the foreign stake in R. H. W. by which the same has become a wholly owned subsidiary and that the petitioner-directors have ceased to be the directors of the company consequent to the orders of the Company Law Board. Referring to the Schedule to the balance-sheet and profit and loss account in the 22nd annual report dated May 28, 1997, of the second respondent, he pointed out that there is clear mention that the second respondent was in the process of acquiring shares of the first respondent for Rs. 2.86 crores. Therefore, he submitted that both respondents Nos. 1 and 2 had projected before the public that the shares held by the petitioners in the company were being acquired by second respondent and now to dispute the same on flimsy grounds is only mala fide and unsustainable. Therefore, he submitted that when the petitioners have discharged all their obligations by completely coming out of the management of the affairs of the company on the agreement that the second respondent would purchase their shares, for which approval from RBI has also been received, the second respondent should be directed forthwith to make payment of Rs. 2.86 crores along with interest at 18 per cent, including payment of dividend payable on those shares failing which the Company Law Board should appoint a special officer to take charge of the assets of the second respondent as indicated in schedule F to the application with directions to dispose of those properties and pay the consideration for the shares along with interest.
4. Shri Sarkar, senior advocate, appearing for the respondents submitted that the application is misconceived and not maintainable. According to him, the question of treating the order of the Company Law Board dated April 17, 1996, as a decree in terms of Section 634A of the Act does not arise as this order is not a money decree. Referring to the arguments of Shri Sen, that this application has been made in terms of the liberty granted in our order dated April 17, 1996, he submitted that such liberty cannot extend to apply for execution of the order. Further, he referred to the civil suit, O. S. No. 18 of 1998, filed by the first respondent against the first petitioner in the City Civil Court, Bangalore, wherein the former has made a claim of about Rs. 3.28 crores against the latter on certain grounds. In that case, the second respondent has been named as garnishee and the said court has passed an ex parte order as follows : "The defendant is directed to give security for a sum of Rs. 2.86 crores on or before the next date. If he fails to furnish security of the said amount which is in the garnishee stands attached and in that event the defendant is prohibited from withdrawing the said amount from the garnishee and the garnishee is prohibited from making payment of the said amount to the defendant until further orders". Therefore, he submitted that the Company Law Board has no jurisdiction now to pass any order directing the second respondent to pay the consideration for the shares or appoint a special officer for recovering the amount from the company as sought for by the petitioners as such an order would be in conflict with the directions of the civil court.
5. On the merits of the case, Shri Sarkar submitted that the second respondent was induced to agree to the consent terms by various false and fraudulent representations made by the petitioners. According to him, the first petitioner failed to honour its various commitments like commitment to accept supplies from the company, supply of necessary equipment, etc. The failure to do so has resulted in the business of the company coming down and the future projections on the performance of the company made at the time of agreeing to pay Rs. 55 per share could not be achieved. Further, the first petitioner owes a large amount of money to the company and unless and otherwise this money is secured, there would be no way to recover this money as the first petitioner does not have any assets in India. He also submitted that the share price of Rs. 55 per share was not a realistic price and as such not binding. Therefore, he submitted that the Company Law Board order dated April 17, 1996, in so far as the consent of the second respondent for making payment in respect of shares is invalid, void and not enforceable. Accordingly, he sought for dismissal of the application.
6. Shri Sen rebutting the arguments of Shri Sarkar in regard to the words "liberty to apply", referred to Cristel v. Cristel [1951] 2 All ER 574 , wherein in a similar case of a consent order in which liberty to apply had been granted, the court observed "prima facie the words "liberty to apply" refer to the working out of the actual terms of the order". Therefore, he submitted that the petitioners have full right to apply to the Company Law Board to get the consent order completely worked out in terms of the liberty granted. Further, arguments were advanced by him in regard to the civil proceedings in Bangalore which we are not elaborating, inas much as later it transpired that the civil court has modified the earlier ex parte order restraining the second respondent from paying the consideration for the shares.
7. We have considered the pleadings and arguments of the counsel. It is an admitted position that the parties decided to settle the disputes raised in C. P, No. 47 of 1995 and, accordingly, we passed an order on April 17, 1996, incorporating the consent terms arrived at between the parties. The said order created certain rights and imposed certain obligations on three parties, i.e., the first petitioner, the first respondent and the second respondent. The obligations cast on the first petitioner were that it would deposit share certificates along with duly executed share transfer deeds in favour of the second respondent with a firm of advocates, that they would not compete with the respondents in the business with certain companies and that their nominees would be withdrawn from the board of the company and another subsidiary of the company. These obligations have been discharged by the first petitioner. The obligations on the first respondent that it would refund an amount of Rs. 55 lakhs against the application money paid by the first petitioner has been complied with. Certain rights granted to the company like amendment to articles, change of its name, etc., have been implemented. The only obligation on the second respondent to deposit Rs. 2.86 crores towards the consideration for the shares alone remains to be complied with. Thus, our order dated April 17, 1996, has been practically worked out except to this extent. Now the issue for consideration is whether, as prayed for by the second respondent only the consent relating to depositing the amount towards the shares could be declared as null and void and unenforceable for the various submissions made in the reply.
8. First, we shall deal with the stand of Shri Sarkar that this application is not maintainable. This application has been made under Section 634A of the Act which reads as follows : "Any order made by the Company Law Board may be enforced by that Board in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be for lawful for that Board to send, in the case of its inability to execute such order, to the court within the local limits of whose jurisdiction :
(a) in the case of an order against a company, the registered office of the company is situated, or
(b) in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain."
9. From the above provisions, it is crystal clear that the Company Law Board has powers to enforce any order passed by the Company Law Board. It need not be a money decree as contended by Shri Sarkar. Further, we ourselves have given the liberty to the parties to apply till the settlement was completely worked out and the purport of such liberty has also been explained by Shri Sen with the aid of the decision in Cristel v. Cristel [1951] 2 All ER 574 that application under the liberty granted could be made for working out the order. Therefore, we have no hesitation to come to a conclusion that this application is maintainable.
10. Now, on the binding nature of the consent terms. It is a well-settled law that once the parties have entered into terms of consent and obtained an order incorporating the consent terms, then, such order becomes binding on the parties unless and otherwise the same is assailed as void on the grounds of fraud, coercion, mistake or fraudulent misrepresentation or being illegal or being against the provisions of law or other similar grounds which would invalidate a private agreement. In the present case, the submission of the second respondent is that the consideration for the shares is over valued, that the first petitioner has not complied with various understandings between the parties and that the first petitioner owes certain money to the company. As far as the valuation for the shares is concerned, we would like to point out that it was a price negotiated in our presence and the second respondent openly and without any reservation accepted this price and as a matter of fact, in the consent order itself, it has been specified in paragraph 2 that the price of Rs. 55 per share was found to be the fair price. Further, we also note, as rightly pointed out by Shri Sen that in the annual reports as referred to earlier, the second respondent, has, for over two years informed the shareholders that it was acquiring the shares of the first petitioner for a consolidated amount of Rs. 2.86 crores. Thus, as far as this ground is concerned, we find no justification in the stand of the second respondent.
11. As far as the allegations that the first petitioner has failed to adhere to certain commitments like accepting the supply made by the first respondent, etc., and also that the first petitioner has failed to pay certain dues to the first respondent are concerned, we are of the view that as long as the consent terms were not made subject to discharging these alleged understandings, then, the failure to do so cannot be a ground to get out from complying with the consent terms. In this connection, it is relevant to point out to our decision in Michelle Jawad-Al-Fahoum v. Indo Saudi (Travels) Pvt. Lid. [1998] 93 Comp Cas 151 ; [1998] 30 CLA 42 CLB, wherein similar issues arose. In that case, the parties entered into an agreement before the Company Law Board to settle the disputes. The terms of compromise were dictated in the presence of the parties and the draft was signed by them. One of the terms was that the respondents would purchase the shares held by the petitioners for a sum of Rs. 2.3 crores. Before the fair order could be issued, the respondents made an application for modifying the consent terms on the ground that there was an understanding that the sum of Rs. 2.3 crores was subject to payment of certain dues by the petitioners to the company and as such the same should be incorporated in the order or in the alternative the consent order should be recalled. After considering the various legal submissions made by the respective counsel on the application, the Company Law Board dismissed the application on the grounds that a consent order could be modified only with the consent of all the parties, that any private understanding which was not incorporated in the consent terms cannot be taken cognizance of by the Company Law Board and that the Company Law Board had no powers of reviewing its own order. In the present case, the second respondent is not asking for recalling the entire order. It only desires to declare a part of the order as invalid and this part imposes an obligation on it to acquire and pay for the shares. A reading of the consent order would show that the foundation of the said order is that the second respondent would purchase the shares held by the first petitioner and all other terms are consequential to the same. Accepting the prayer of the second respondent would mean that the status quo ante in respect of the relationship between the parties has to be restored and it would mean recalling the entire order, which cannot be done. We find that the second respondent has not been able to satisfy us that there are grounds which would invalidate a private agreement. Therefore, none of the grounds taken by the second respondent for not complying with its obligation could be sustained and as such the second respondent is bound by its obligation to purchase the shares of the first petitioner at Rs. 55 per share aggregating to Rs. 2.86 crores.
12. Having held that this application is maintainable and that the second respondent is bound by the consent terms to pay Rs. 2.86 crores as con sideration for the shares, the question that arises is, as to what order should be passed on the application. It is evident from the conduct of the second respondent that as late as in March, 1998, it had indicated its willingness to purchase the shares in terms of the consent order and no complaint whatsoever as taken in the reply to the instant application had been taken by it for nearly two years giving us an impression that its present stand seems to be due to some liquidity problems. Therefore, before passing any drastic order in the nature of appointment of a special officer, we would like to give some time to the second respondent to comply with its obligation. Accordingly, we direct that the second respondent shall pay a sum of Rs. 2.86 crores to the first petitioner along with interest calculated at 12 per cent, per annum from June 18, 1996, latest by September 30, 1999. In case the second respondent does not comply with this direction, the petitioners are at liberty to move an application for appointment of a special officer to take possession of the properties as at schedule F to the application with directions to dispose of the same for payment of Rs. 2.86 crores along with interest and we shall allow the application.
13. The application is disposed of in the above terms.