National Company Law Appellate Tribunal
Cotmac Electronics Private Limited And ... vs Mrs. Arati Muley on 25 May, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) No. 62-63-64 of 2023
IN THE MATTER OF:
Cotmac Electronics Pvt. Ltd., ...Appellant No. 1
Having Registered Office at
S-168, 'S' Block, MIDC,
Bhosari, Pune-411026.
Mr. Arjun Sirur, ...Appellant No. 2
Son of Mr. Shyam Sirur, Occupation
Director, residing at Villa 7,
Lodha Belmondo, Gahunje, Pune-412101.
Mr. Shyam Sirur, ...Appellant No. 3
Son of Mr. Mohan Sirur, Occupation
Director, residing at Flat 102, Tower 22,
Lodha Belmondo, Gahunje,
Pune 412101.
Versus
.. Respondent No. 1
Mr. Mukund Muley Son of Mr. Shankarrao Muley, Occupation Professional, residing at A 6, Nandan Festiva, Nagras Road Aundh, Pune-411007.
Mrs. Arati Muley, .. Respondent No.2 W/o Mr. Mukund Muley, residing at A 6, Nandan Festiva, Nagras Road Aundh, Pune-411007.
Mrs. Suman Sirur, .. Respondent No.3 W/o Mr. Shyam Sirur, Occupation Director, residing at residing at Flat 102, Tower 22, Lodha Belmondo, Gahunje, Pune 412101.
Mr. Vikram Sirur, Son of Mr. Raghavesh Sirur, Occupation .. Respondent No.4 Company Appeal (AT) No. 62-63-64 of 2023 Page 1 of 34 Director, residing at Opp. HDMC Office, Hubli, Dharwad. Karnataka - 580020.
Mr. Vivek Sirur, Through Legal Representative, .. Respondent No.5 Son of Mr. Raghavesh Sirur, Occupation Director, residing at Opp. HDMC Office, Hubli, Dharwad. Karnataka - 580020.
Director of the Appellant No.1 Mr. Pralhad Hage, Son of Mr. Namdeorao Hage, Occupation .. Respondent No.6 Director, residing at Sector 25, Parveen Palace, Flat No. 5, Pradhikaran, Pune - 411044.
Director and Shareholder of the Appellant No. 1 Mrs. Archana Hage, Wife of Mr. Pralhad Hage, Occupation Housewife, .. Respondent No.7 residing at Sector 25, Parveen Palace, Flat No. 5, Pradhikaran, Pune - 411044.
Mr. Gajanan Dhakane, Son of Mr. Gangaram Dhakane, .. Respondent No.8 Occupation Director, residing at N 302 Queens Town, Near Lokmanya Hospital Chinchwad, Pune.
Director and Shareholder of the Appellant No.1 N.A. Sirur (Hubli) Private Ltd., Having its Registered Office at .. Respondent No.9 Syed Blgs., Lamington Road, Hubli, Karnataka-580009.
Sibella Private Limited, Having registered office at . Respondent No.10 Syed Blgs., Lamington Road, Hubli, Karnataka - 580009.
Shareholder of the Appellant No. 1Softech Controls Private Limited, Having its registered office at . Respondent No.11 Sr. No. 169/2, Above Central Bank of India, Akurdi, Pune-411035.
Shareholder of the Appellant No. 1Company Appeal (AT) No. 62-63-64 of 2023 Page 2 of 34 Present:
For Appellants : Mr. Gopal Jain, Sr. Advocate with Mr. Raunak Dhillon, Mr. Ankoosh Mehta, Ms. Madhavi Khanna, Ms. Srinivas Chatti, Mr. Nihaad Dewan, Advocates For Respondents : Mr. Arun Kathpalia, Sr. Advocate with Ms. Surekha Raman, Mr. Shrenik Gandhi, Ms. Unnimaya S., Advocates for R- 1 & 2.
Judgment (Date: 25.5.2023) [Dr. Alok Srivastava, Member (Technical)]
1. This appeal has been filed under section 421 of the Companies Act, 2013 by the Appellants against a common order dated 28th April, 2023 (hereinafter called "Impugned Order") passed by NCLT, Mumbai Bench in Miscellaneous Application No. 1658 of 2019 (in short "Execution Application), Contempt Application No. 152 of 2020 (in short "Contempt Application") and MA No. 621 of 2020 (in short "Refund Application"), all filed in CP No. 2977 of 2018.
2. The conspectus of the case is that CP No. 2977 of 2018 was filed by Respondent Nos. 1 and 2 on allegations of oppression and mismanagement in which Consent Terms were agreed and filed by the parties on 4th and 5th May, 2019 leading to the disposal of the original Company Petition No. 2977/2018. The Appellants have Company Appeal (AT) No. 62-63-64 of 2023 Page 3 of 34 stated that the Consent Terms provided for acquisition of the entire shareholding of Respondent Nos. 1 and 2 (in short "R-1" and "R-2) by Appellant Nos. 2 and 3 and Respondent Nos. 3 and 6 (in short "A-2", "A-3", "R-3" and "R-6" respectively) and that R-1 and R-2 will strictly comply with non-compete obligations, in particular do not involve themselves with rival companies Trimasys Control Solutions Private Limited (in short "Trimasys") or Enemtech Capital India Private Limited ( in short "Enemtech"). The Appellants have also stated that they have filed Contempt Application No. 152/2020 regarding willful disobedience of the orders dated 31.1.2019 and 9.5.2019. Further, they have filed a Refund Application being CA No. 621 of 2020 for refund of Rs.2.23 crores paid to the Respondents on 4.2.2019 as non-compete compensation on breach of such obligations in accordance with clause 7 of the Consent Terms.
3. The Appellants have further submitted that while there were three applications namely, Execution Application, Contempt Application and Refund Application before the NCLT, it passed the Impugned Order allowing the Execution Application and dismissing the Contempt and Refund Applications. He has further stated that the Consent Terms are in the nature of compromise decree and NCLT has jurisdiction to execute the Consent Terms Company Appeal (AT) No. 62-63-64 of 2023 Page 4 of 34 under section 424 of the Companies Act, 2013, but before execution and passing of the Impugned Order, it should have looked into alleged breach of the non-compete obligations under the Consent Terms, should have adjudicated upon. They have further alleged that the order regarding Execution was passed by the NCLT looking to the fact that the Appellants made a payment of Rs.2.09 crores on 18.4.2019, which was towards non-compete compensation, even after discovery of the alleged breach of non-
compete obligation by R-1. Whereas the payment towards non- compete compensation was made on 4.2.2019 prior to discovery of the e-mail by which R-1 had contacted the petitioner company Trimasys, which was under breach of non-compete obligation. The Appellants have further submitted that clause 7 of the Consent Terms provide that in the event of breach of any term, all the Consent Terms will cease to be binding on non-defaulting parties, which have also been overlooked by NCLT.
4. We heard the arguments of the Learned Senior Counsels for both the parties and perused the record.
5. The Learned Senior Counsel for Appellants has referred to the Consent Terms dated 31.1.2019 entered into between the Appellants and R-1 and R-2, which prominently included in the Company Appeal (AT) No. 62-63-64 of 2023 Page 5 of 34 non-compete and non-solicit obligations. Since there was a background of two US based competitors viz. Trimasys and Enemtech, were attempting to interfere in the business of Cotmac Electronics Private Limited (in short "Cotmac") and Enemtech had in collusion with Mukund Muley (R-1) hostile takeover of Cotmac by offering to buy majority stake of Cotmac from its shareholders, which takeover bid eventually failed. He has added that in the background of this attempted hostile takeover, dispute arose between the Appellants and R-1 and a Company Petition alleging oppression and mismanagement was filed by the Appellants against the Respondents, and as counter-blast, R-1 and R-2 filed a oppression and mismanagement petition against the Appellants alleging that A-2 and A-3 were running the company in a manner prejudicial to the interests of the company. He has added that both the Company Petitions were finally disposed of after the Appellants on the one side and R-1 and R-2 on the other side entered into Consent Terms on 31.1.2019, wherein provisions relating to non-compete and non-solicit obligations were made as a foundation and necessary terms in the Consent Terms.
6. The Learned Senior Counsel for Appellants has further submitted that in the light of the Consent Terms, an amount of Rs.28.77 crores was to be paid in three tranches by the Appellants Company Appeal (AT) No. 62-63-64 of 2023 Page 6 of 34 to R-1 and R-2 for acquisition of their entire shareholding in Cotmac and the payment of each tranche one-third of total shareholding by R-1 and R-2 were to be purchased by the Appellants. Further, an amount of Rs.7.23 crores was agreed to be paid towards gratuity, salary, non-compete compensation and payments towards amicable settlement to R-1 by the company Cotmac. He has further argued that R-1 and R-2 had given a non- compete undertaking vide clause 11 of the Consent Terms, but soon after signing of the Consent Terms, R-1 on 3.2.2019 surreptitiously diverted an enquiry by a potential client Zypher for deputation of some Process Automation Engineers and this enquiry was forwarded by Mukund Muley (R-1) to Abhay Kore, who had about a year back taken up employment with Trimasys, after leaving Cotmac. He has vehemently argued that Cotmac is in the business of deputing engineers and professional man-power to other companies and this enquiry from Zypher vide e-mail dated 3.2.2019 was for deputation of some engineers from Cotmac, which was in violation of non-compete undertaking given by R-1, referred to Abhay Kore of Trimasys. He has further claimed that the e-mail communication dated 3.2.2019 between Manish Khanna of Zypher and Mukund Muley of Cotmac, Abhay Kore of Trimasys and Avinash Gupta of Trimasys wain the knowledge of the Appellants, and therefore, the appellants made a payment of Company Appeal (AT) No. 62-63-64 of 2023 Page 7 of 34 Rs.2.23 crores out of amount of Rs.7.23 crores as part of gratuity, salary, non-compete compensation and payment towards amicable settlement to R-1, and further another payment of Rs.3,69,832/- was made on 5.2.2019 to R-1 by the company. He has further argued that the violation of non-compete undertaking given by R-1 came to the notice of the Appellants on 13.2.2019, when an employee Gaurav Sonawane of Cotmac brought the e-mail communication between Zypher, Trimasys and Mukund Muley to the notice of senior officials of Cotmac. He has stated that Abhay Kore had joined Trimasys more than a year ago as is evident from the list of employees who left Cotmac to join Trimasys, which is submitted as part of appeal paperbook, vol.II, page 395, and therefore it is clear that Abhay Kore was communicating with Mukund Muley of Cotmac on behalf of Trimasys.
7. The Learned Senior Counsel for Appellants claimed that when the violation of non-compete undertaking by R-1 came to the knowledge of the Appellants, a notice dated 23.2.2019 was sent to R-1 for violation of Consent Terms and termination of the Consent Terms and after a decision in the Extraordinary General Meeting in April, 2019, a letter dated 15.4.2019 was sent by the Appellants to R-1 for terminating the Consent Terms.
Company Appeal (AT) No. 62-63-64 of 2023 Page 8 of 34
8. He has further contended that in the light of the formal communication of termination Consent Terms by the A-1 to the Respondents, further payments under the settlement amount were not made and therefore now in violation of Consent Terms, it stood terminated and there is no question of now making payments under the settlement terms. He has further submitted that he is not averse to making said payments, provided the Respondents, particularly R-1 agreed to abide by the Consent Terms, particularly the non-compete obligation.
9. The Learned Senior Counsel for Appellants has further argued that after the filing of Execution Application by the Respondents, h filed the Contempt Application MA No. 152/2020 and also Refund Application No. 621/2020 under the original CP 2977/2018 and wherein he had raised the issue of breach of Consent Terms by R-1, but the NCLT without looking at the breach of Consent Terms and confirm the veracity of the averments made by both Respondents in Execution application and the Appellants in Contempt Application chose to accept the contention of the Respondents at face value and gave orders in the Execution Application in Prayer A related to giving orders for execution of Consent Terms and before passing any order on the same, it was required that NCLT would look into the aspect of breach. He has Company Appeal (AT) No. 62-63-64 of 2023 Page 9 of 34 further contended that without looking at the justification of the prayer made in the Execution Application and Prayer A therein, the NCLT has gone ahead to pass orders relating to attachment of the share certificates of A-1 and A-3 with NCLT Registry. He has contended that such a step would actually place the company in the hands of its competitors, whereas the Consent Terms never envisaged that Company would go out of the hands of Appellants, and if such a sale of Appellants' shares were to take place, it would cause irreversible injury to the Appellants. Moreover, NCLT could not have directed at the piecemeal execution of Consent Terms, but could only have directed its execution in totality.
10. Regarding contention of the Respondents that the e-mail dated 3.2.2019 sent to Manish Khanna was not related to any business of Trimasys wherein it was in competition with Cotmac. The Learned Senior Counsel for appellants had produced various purchase orders, which were also submitted in Vol.IV of the appeal paperbook and which clearly show that Cotmac had earlier provided man-power services to JFE Engineering Corporation, Metito, Honeywell, Thermax Instrumentation Ltd., Texas Measurement Solutions, etc. and some other firms, which go to show that Cotmac was also in the business of deputing man-power relating to engineering to other companies, and therefore, it was Company Appeal (AT) No. 62-63-64 of 2023 Page 10 of 34 competition with Trimasys and Enemtech. He has also rebutted the claim of Respondents that the Appellants were aware of e-mail communication dated 3.2.2019, and yet the Company chose to pay Rs.2.23 crores to R-1 on 4.2.2019, whereas the correct situation is that the payment against non-compete obligation was made when the company and the A-2 and A-3 were not aware of the breach of non-compete obligation by R-1 at the time. He has further contended that NCLT directions quo the attachment of share certificates of A-1 and A-3 is disproportionate and excessive and as pointed out earlier, the sale of shares owned by A-2 and A-3 in execution of the Consent Terms would completely upset the shareholding structure, whereas the Consent Terms arrived at between the Appellants and Respondents was essentially to maintain a shareholding structure, which would allow the Appellants to assume management control of the Company, so that the Company is managed properly in the interest of its shareholders and business.
11. In reply, the Learned Senior Counsel for R-1 and R-2 has argued that there is no provision that the appellants could suo moto and unilaterally terminate the Consent Terms accepted by NCLT vide its order dated 31.1.2019. He has referred to clause 27 of the Consent Terms that in case the Appellants alleged any Company Appeal (AT) No. 62-63-64 of 2023 Page 11 of 34 breach of Consent Terms, they should have approached the NCLT for examining and deciding about the alleged breach. He has further contended that once the Appellants did not do so, then after a lapse of more than one year of the alleged breach, they cannot raise such allegations when the Execution Application is under consideration.
12. The Learned Senior Counsel for R-1 and R-2 has further argued that the burden of proof was on the Appellants, who had alleged breach of non-compete obligation by R-1, and the respondents R-1 and R-2 had put the Appellants to strict proof on this point as early as 24.7.2019, but the Appellants chose to remain silent and ignore the implementation of Consent Terms, causing prejudice and monetary loss to R-1 and R-2. He has further claimed that e-mail communications between Manish Khanna of Zypher, Mukund Muley of Cotmac and Abhay Kore were known to Cotmac and therefore, after being aware of these e-mails, the Company decided to pay part of non-compete compensation of Rs.2.23 crores and therefore, the claim that these e-mails were not known to the Appellants and which were in breach of non-compete obligation of R-1 is clearly an afterthought. He has further claimed that apart from e-mails and other communications, which do not conclusively establish the breach of non-compete obligation by R- Company Appeal (AT) No. 62-63-64 of 2023 Page 12 of 34 1, the Appellants have not discharged the burden of proof, which was on them, and therefore, the alleged breach of Consent Terms is only afterthought by the Appellants to avoid due payments to R- 1 and R-2.
13. The Learned Senior Counsel for R-1 and R-2 has also pointed out that under section 424(3) of the Companies Act, 2013 and Rule 56 of the National Company Law Tribunal Rules, 2016, the NCLT has full authority for execution of its order and the holder of an order/decree from NCLT shall make an application in the prescribed Form NCLT 8. In support, he has placed reliance on the judgment of Hon'ble Supreme court in the case of Manish Mohan Sharma vs. Ram Bahadur Thakur Limited [(2006) 67 SCL 91 (SC)], wherein it is held that an executing court cannot go behind the decree, unless the decree sought to be executed is a nullity for a lack of inherent jurisdiction and the decree or any of its terms called for interpretation would have to be so interpreted in execution. He has also referred to the judgment of NCLAT in the matter of K. Muthusamy vs. N. Sankarnaryana and Ors. [2017 SCC Online NCLAT 40], wherein it is held whether petitioner or the respondent brings it to the notice of the Company Law Board (now Tribunal) that the order passed by it has not been enforced, it is always open to the Company Law Board (now Tribunal) to get Company Appeal (AT) No. 62-63-64 of 2023 Page 13 of 34 the same executed in the same manner as if it were a decree made by a court in a suit.
14. The Learned Counsel for Respondents (R-1 and R-2) has submitted that order XXI of the Seven Procedure Code, 1908 prescribes in detail procedure for execution of decrees and orders and order XXI Rule 21(j) of the CPC specifically entitles decree holder to pray for attachment and sale of any property and the prescribed form NCLT 8 were so include such reference to sale of property for payment of the decrial amount. He has intended that NCLT has the power under the Companies Act, 2013 and NCLT Rules under section 430 to consider the execution application and no Civil Code shall have any jurisdiction to entertain any suit or proceedings in respect of any mater thereto. He has referred to the judgment of Hon'ble Supreme Court in the matter of M/s. Greisheim GmbH vs. Goyal MG Gases Pvt. Ltd. (2022 SCC Online SC 97) to point out that merely receiving a paper decree is not the final interest of litigant but he should receive the money that he is entitled to in terms of the decree. He has argued that the Execution Application does not have to look at any other issue than the execution of the decree passed by NCLT, and therefore, the order of NCLT is correct, and once the Execution Application Company Appeal (AT) No. 62-63-64 of 2023 Page 14 of 34 has been adjudicated, the NCLT has correctly dismissed the Contempt Application and also the Refund Application.
15. We now look at the Consent Terms of the settlement reached between the Appellants and Respondents. Specifically, clauses 3 (A), (B), (C) and (D) of the Consent Terms relate to the payment of various amounts to the Respondents and simultaneous purchase of the shares of the Respondents by the Appellants. The relevant part of the clause 3 is as hereunder:-
"3. (A) As per the valuation done, by Mr. Kanade, the Valuer appointed by the Parties, the monetary value of the Applicants' total shareholding in the Company being 1,34,150 (One Lakh Thirty Four Thousand One Hundred Fifty) equity shares, of which 49,200 (Forty Nine Thousand Two Hundred) are A class Shares and 84,950 (Eighty Four Thousand Nine Hundred Fifty) are B class shares, which together constitute 30.30% (Thirty Point Three Zero percent) of the total paid up equity share capital of the Company - amounts to Rs 28.77 crores (Rupees Twenty Eight Point Seventy Seven Crore). The Company has not issued any other shares than the equity shares of Class A and Class B held by the present shareholders of the Company including the Applicants, some of the Respondents, other Respondents in the Petition and employees of the Company which forms part of the paid up equity share capital of the Company as of date. (B) The Applicants will be paid the said sum of Rs 28,77,51,750 (Rupees Twenty Eight Crore Seventy Seven Lakh Fifty One Thousand Seven Hundred Fifty), as consideration for sale and transfer of the said 1,34,150 (One Lakh Thirty Four Thousand One Hundred Fifty) equity shares to the Respondents. In addition, a sum of Rs 7,23,00,000 (Rupees Seven Crore Twenty Three Lakh), is agreed to be paid towards gratuity, salary, non-compete compensation and Company Appeal (AT) No. 62-63-64 of 2023 Page 15 of 34 payment; towards amicable settlement to the Applicant No. 1 by the Company, the details of which are as under:
Gratuity: Rs. 29,09,250 (Rupees Twenty Nine Lakh Nine Thousand Two Hundred Fifty), Salary for three months: Rs. 13,81,500 (Rupees Thirteen Lakh Eighty One Thousand Five Hundred), Non-Compete Compensation: Rs. 3,80.00,000 (Rupees Three Crore Eighty Lakh), Amicable Settlement Compensation Rs. 3,00,09,250 (Rupees Three Crore Nine Thousand Two Hundred Fifty).
(C) Any tax liability in respect of Non-Compete Compensation and Amicable Settlement Compensation, as per the provisions of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 is the liability of the Company and amount of such taxes will be paid by the Company to the Applicants with the principal payment if the Company is not liable to pay the said tax on reverse charge basis as per the provisions of the said Acts.
(D) The said sum of Rs. 28,77,51,750 (Rupees Twenty Eight Crore Seventy Seven Lakh Fifty One Thousand Seven Hundred Fifty) will / is to be paid by the Respondents / arranged to be paid by the Respondents, in three equal tranches as consideration for sale and transfer of shares, the first tranche, to be paid on or before April 30, 2019, the second tranche to be paid on or before April 30, 2020 and the third tranche being final tranche to be paid on or before April 30, 2021 to the Applicants. Simultaneously with these payment or any of them, being made, the Applicants shall transfer their shareholding in the Company, proportionate to the payment made. In no circumstances, part payment would be made /arranged by the Respondents. This is agreed in order to ensure the payment (as agreed) in time. The shares to be transferred in tranches will comprise both, Class A and Class B shares, in equal proportion i.e. based on the ratio of the shareholding of the Applicants compared to their total shareholding in the Company in the following manner - the number of A Class and B Class Shares, to be sold by the Applicants and to be purchased by the Respondents in tranches will be as under:-
Company Appeal (AT) No. 62-63-64 of 2023 Page 16 of 34 Sr. Date (on or No. of A No. of B Total Amount of No. before)/Tranche class class Shares Consideration Shares Shares to be paid by the Respondents to the Applicants (Rs. in crore) 1 30 April 2019 as 16,400 28,316 44,716 9.57 Tranche 1 2 30 April 2020 as 16,400 28,317 44,717 9.59 Tranche 2 3 30 April 2021 as 16,400 28,317 44,717 9.61 Tranche 3 Total 49,200 84,950 134,150 28.77 (Forty (Eighty (One Nine Four Lakh (Rupees Thousand Thousand Thirty Twenty Eight Two Nine Four Crore Seventy Hundred) Hundred Thousand Seven Lakh Fifty) One Fifty One Hundred Thousand Fifty) Seven Hundred Fifty) Company Appeal (AT) No. 62-63-64 of 2023 Page 17 of 34
16. Further, the provision of compliance of various clauses relating to payments and transfer of shareholding is contained in sub-clauses (H), (I) and (J) of clause 3, which are as hereunder:-
"(H) The Applicants and / or their heirs/ executors, as the case may be, shall, without question, demur or protest, shall transfer their shareholding, free from any encumbrance, in the manner stated above but upon receipt of the payment, in respect thereof being consideration to be received for transfer of such shares. Simultaneously, as stated in Clause 3(D) hereof the Respondents and each of them jointly and severally are bound to acquire shares of the Applicants in the above manner on or before the agreed time irrespective of any change in the value of the shares of the Company and the obligations of the Respondents related to acquisition of shares of the Company held by the Applicants shall be an absolute obligation to be performed in the manner recorded in these Consent Terms. Further the Respondents or their nominees or the Company may purchase / buyback all or any shares of the Company, presently held in equal proportion at any time, before the due date of agreed payment and transfer of such shares in tranches as mentioned above.
(l) The Respondent No. 1, Respondent No.2, Respondent No.3 and Respondent No.6 and the Company have agreed not to transfer any of the shares of the Company held by these Respondents or their nominees or associates in the share capital of the Company till the third and the last tranches of the shares held by the Applicants is acquired or bought back by the said Respondents or their nominees, appointed in the manner indicated in these Consent Terms or by the Company in any circumstances whatsoever. Provided that transfer of shares, by any of the four Respondents, amongst themselves or amongst their relatives, i.e. spouse, son, daughter or spouse of son, shall not be governed by this restriction.
Subject to the exception provided earlier, if any of the said four Respondents proposes to transfer any of the shares held by him /her in the share capital of the Company; then such transfer shall not be made, organised or recognised by the Company unless all shares of the Applicants held at that time are acquired /bought back by the Respondents irrespective of Company Appeal (AT) No. 62-63-64 of 2023 Page 18 of 34 the date of such proposed transfer being before the next due date for payment of consideration to the Applicants and transfer of shares of the Company by the Applicants to the Respondents. In such circumstance of transfer of shares by any of the said four Respondents either for consideration or without consideration; the obligations of the Respondents related to the acquisition of the shares of the Company held by the Applicants or any share of the Company held by the Applicants at that time shall stand accelerated irrespective of any term recorded in these Consent Terms. It is agreed between the Parties that if any of the said four Respondents acquire any equity shares of Class B from the existing employees, such acquisition of Class B shares by either of the four Respondents shall not affect the Consent Terms in any manner.
(J) Till the third and last tranche of shares, to be acquired by the Respondents from the Applicants, are acquired or bought back as provided herein, the said Respondents shall ensure that, and the Company undertakes not to issue any shares either as equity shares or B class equity shares or A class equity shares or any preference shares or any shares in the share capital of the Company or any security which may have voting rights or which may form part of the share capital of the Company, in any manner at any time whether such shares/ security are to be issued is in present or in future period or conditionally or otherwise. In case, if any act, action, process or step whatsoever having or likely to have any impact on the share capital of the Company or change in the voting rights related to the share capital of the Company is initiated by the Company in any circumstances, the obligations of the Respondents to acquire Shares of the Company held by the Applicants at that time, shall stand accelerated and before implementing or taking any such act or initiating any action, process or step by the Company; the shares of the Company held by the Applicants at that time shall be acquired by the Respondents / bought back irrespective of the agreed time for such acquisition as recorded in these Consent Terms and consideration is paid to the Applicants.".
Company Appeal (AT) No. 62-63-64 of 2023 Page 19 of 34
17. Clauses 6 and 7 of the Consent Terms, which relate to the "Event of Default" and how such "Event of Default" has to be established are as follows:-
"6. In the event the Respondents to these Consent Terms default in making any of the payments as afore stated, the Applicants or either of them have the right to retain the balance shareholding being the shareholding of the Applicants yet to be sold and transferred to the Respondents, and would also be entitled to take such further steps as they may be advised, including, inter alia, to approach this Hon'ble Tribunal and if the failure is not rectified in 15 (Fifteen) days from the due date; the said four Respondents shall be bound to execute a proxy/power of attorney in favour of the Applicants or any of them granting voting rights to the Applicants at any general meeting of the members of the Company immediately on receipt of intimation to issue to such proxy/power of attorney, from the Applicants in respect of the shares of the Company till then transferred by the Applicants to them or either of them or to their nominees. These obligations of each of the said four Respondents without prejudice to the other rights available to the Applicants may be specifically enforced by the Applicants. In the event the Applicants or either of them default in transferring their shareholding as afore stated, in the manner stated, the Respondents to these Consent Terms would be entitled to withhold any further payment to both the Applicants and to take such further steps as they may be advised, including, inter alia, to approach the Hon'ble Tribunal or enforce the said obligations of the Applicants specifically in any manner as may be available as per the applicable laws. In the event of any default by the Applicants to transfer any share, being part of any tranche of shares to be transferred by the Applicants to the Respondents, as indicated in these Consent Terms, in spite of willingness of the Respondents to make payment of consideration for transfer of such shares to the Applicants, the Applicants shall be bound to issue proxy or execute a power of attorney in favour of any of the Respondents, as may be directed by the Respondents, permitting exercise of voting rights in respect of the shares of Company Appeal (AT) No. 62-63-64 of 2023 Page 20 of 34 the Company registered in the names of the Applicants as of the date of receipt of such instruction of the Respondents.
7. It is AGREED CONFIRMED AND DECLARED THAT in the event of there being any default by any Party, the terms hereof will, in such event, cease to be binding on the non defaulting Party or Parties. Without prejudice to what is stated in this Clause, in case of breach of non compete obligation by the Applicants or either of them, both the Applicants shall be liable to return forthwith the amounts paid towards the Non-Compete Compensation and Amicable Settlement Compensation."
18. The sub-clauses (A), (B), (C) and (D) of clause 3 of the Consent Terms stipulate that an amount of Rs.28,77,51,750/- is to be paid as consideration for sale and transfer of 1,34,150 number of equity shares by the Respondents to the Appellants and also, in addition, a sum of Rs.7,23,00,000/- is agreed to be paid towards gratuity, salary, non-compete compensation and payment towards amicable settlement to Mukund Muley by the company.
19. It is also noted that out of the payment of Rs.7,23,00,000/-, an amount of Rs.29,09,250/- is against Gratuity, Rs.13,81,500/- is against Salary for three months, Rs.3,80,00,000/- is against Non-Compete Compensation and Rs.3,00,09,250/- is the Amicable Settlement Compensation - all to be given to R-1 and R-2 by the Company. Further, it is also noted that, as given in clause 3(d) of the Consent Terms, the total amount of Rs.28,77,51,750/- is to be paid to Mukund Muley in three trenches of Rs.9.57 crores, Rs.9.59 Company Appeal (AT) No. 62-63-64 of 2023 Page 21 of 34 crores and Rs.9.61 crores to be paid by 30.4.2019, 30.4.2020 and 30.4.2021 with simultaneous selling of 44,716 shares, 44717 shares and 44,717 shares respectively by R-1 and R-2 to be purchased by the Appellants.
20. We further note that, as provided in clause 4, a sum of Rs.2,23,00,000 is to be paid on the final execution of the Consent Terms immediacy and the balance Rs. five crores was to be paid in five equal instalments of Rs. one crore each on various dates between 30.4.2019 and 31.8.2019 respectively. It is also clear that the payment of Rs.7.23 crores against gratuity, salary, non- compete compensation and amicable settlement compensation are to be paid independent of the payment towards shares held by Mukund Muley and his wife Arati Muley entailing in consequent to the payments by the Appellants to them. Clause 7 of the Consent Terms provide that in the event there is any default by any party, the Consent Terms will cease to be binding on the non-defaulting party, but without prejudice to this condition, in case of breach of non-compete obligation by the Respondents (R-1 and R-2), R-1 and R-2 shall be liable to return the amounts paid towards non- compete compensation and amicable settlement compensation. Thus, it is clear that the non-compete obligation and related compensation has been given a special position in the Consent Company Appeal (AT) No. 62-63-64 of 2023 Page 22 of 34 Terms, and significant amount has been provided to be paid to R-1 in compliance of the non-compete obligation. We also note that there is a background to the non-compete obligation being put in the Consent Terms, since there was an earlier allegation regarding hostile takeover of Cotmac by Enemtech with the surreptitious and alleged complicity of R-1 Mukund Muley.
21. We further note that the Company made a payment of Rs.2.23 crores on 4.2.2019 to R-1, which included payment towards non-compete compensation of Rs 2.09 crores and salary component to be paid to R-1. Further on 5.2.2019, we note that payment of Rs. 3.69 lakhs was made by the Cotmac to R-1 in accordance with clause 20 of the Consent Terms. We further note the allegation made by the Appellants that R-1 Mukund Muley started communicating through e-mails with Manish Khanna of Zyphar, Abhay Kore of Trimasys and Avinash Gupta of Trimasys from 3.2.2019 for deputation of certain engineers with defined qualifications in Zyphar, and the role played by Mukund Muley in diverting such enquiry by Zyphar to Abhay Kore of Trimasys. We also note the allegation and counter allegation of Mukund Muley and the Appellants that the date on which Cotmac became aware of such breach of non-compete obligation by Mukund Muley was 3.2.2019 or 13.2.2019. Be that as it may, without going into the Company Appeal (AT) No. 62-63-64 of 2023 Page 23 of 34 veracity of the claim and counter claim made by respective parties, we find that an allegation of breach of non-compete obligation by R-1 Mukund Muley was made by the Appellants, and a suo moto/unilateral termination of the Consent Terms was effected by the company Cotmac vide Registered A.D. letter dated 20.3.2019 sent by Cotmac and signed by Arjun Sirur (Appellant No. 2) addressed to Mukund Muley and Mrs. Arti Muley. We further note that the board of directors of Cotmac considered the notice of termination of Consent Terms dated 23.2.2019 sent by the Company to R-1 and R-2, which was approved and confirmed by the board of directors in its meeting dated 15.4.2019. There is no document or reference submitted by the Appellants to show that the alleged breach of non-compete obligation by R-1 and R-2 was referred to the NCLT, as was required under clause 6 of the Consent Terms. In particular, more specifically, clause 6 relevant part of the Consent Terms is as follows:-
"In the event the Applicants or either of them default in transferring their shareholding as afore stated, in the manner stated, the Respondents to these Consent Terms would be entitled to withhold any further payment to both the Applicants and to take such further steps as they may be advised, including, inter alia, to approach the Hon'ble Tribunal or enforce the said obligations of the Applicants specifically in any manner as may be available as per the applicable laws. In the event of any default by the Applicants to transfer any share, being part of any tranche of shares to be transferred by the Applicants to the Respondents, as indicated in these Consent Terms, in spite of willingness of the Respondents to Company Appeal (AT) No. 62-63-64 of 2023 Page 24 of 34 make payment of consideration for transfer of such shares to the Applicants, the Applicants shall be bound to issue proxy or execute a power of attorney in favour of any of the Respondents, as may be directed by the Respondents, permitting exercise of voting rights in respect of the shares of the Company registered in the names of the Applicants as of the date of receipt of such instruction of the Respondents."
22. We take note of sub section 3 of section 424 of the Companies Act, 2013 whereby the NCLT is empowered to take action regarding enforcement/execution of its orders with the same powers that are available to a civil court executing a decree under the CPC. We further note the judgment of NCLAT in the matter of K. Muthusamy vs. N. Sankarnaryana and Ors.(supra) wherein the following is held by the NCLAT:-
"3.3.5 xx xx xx xx ...8. Now sub-section (3) of Section 424 of the Companies Act, 2013 empowers the Tribunal to get its order executed. The provision does not confine itself only to the beneficiary of the order. If any of the party to the Company Petition whether petitioner or the respondent brings it to the notice of the Company Law Board (now Tribunal) that the order passed by it has not been enforced, it is always open to the Company Law Board (now Tribunal) to get the same executed in the same manner as if it were a decree made by a court in a suit, and it is lawful for the Company Law Board or this Tribunal to send the order for execution to the competent court within the local limits of whose jurisdiction the registered office of the company is situated...."
Company Appeal (AT) No. 62-63-64 of 2023 Page 25 of 34
23. We also note that the Hon'ble Supreme Court has held in the matter of Manish Mohan Sharma vs. Ram Bahadur Thakur Limited (supra) that the Company Law Board has been held to be authorised to function as an Executing Court, if decree to be executed is not a nullity. The relevant part of this judgment is as follows:-
"27. Since the Company Law Board when it deals with an application under section 634A sits as an executing court it is subject to all the limitations to which a Court executing a decree is subject. It is well settled that an executing court cannot go behind the decree, unless the decree sought to be executed is a nullity for a lack of inherent jurisdiction. A decree is without jurisdiction if the Court passing the decree usurps a jurisdiction which it did not have and which could not be waived by the parties. - Sunder Dass v. Ram Prakash [1977] 2 SCC 662, 667; Seth Hiralal Patni v. Sri Kalinath [1962] 2 SCR 747, 750; Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman [1970] 1 SCC 670, 672; Rafique Bibi v. Sayed Waliuddin [2004] 1 SCC 287, 292. The last two decisions have also held that the lack of jurisdiction must be patent of the face of the decree in order to enable the executing court to come to the conclusion that the decree is a nullity.
Xx xx xx xx
29. It is nobody's case that the order dated 19th August, 1999 was a nullity. The respondents had filed an application for recalling the order dated 19th August, 1999. The Company Law Board dismissed that application. An appeal has been filed before the Patna High Court which is said to be pending. However, it has not been drawn to our attention by the respondent that the application for recall was founded on the submission that the order dated 19th August, 1999 was a nullity. In the absence of such an issue being raised and decided, the Company Law Board was bound to execute the order. If the Board found that the decree or any of its terms called for interpretation, it was within the Board's jurisdiction Company Appeal (AT) No. 62-63-64 of 2023 Page 26 of 34 to interpret that particular term and to execute the decree on the basis of such interpretation. As was said by this Court in Topanmal Chhotamal v. Kundomal Gangaram AIR 1960 SC
388. 390, if a decree is ambiguous, it is the duty of the Executing Court to construe the decree - Central Bank of India v. Rajagopalan AIR 1964 SC.
xx xx xx xx
31. The effort of the executing Court must be to see that the parties are given the fruits of the decree. The mandate is reinforced when it is a consent decree and doubly reinforced when the consent decree is a family settlement.
xx xx xx xx
33. In our opinion both the Company Law Board and the High Court erred in refusing to execute the order dated 19th August, 1999 under section 634A of the Companies Act. They have thereby failed to exercise the jurisdiction with which they were vested. The failure is heightened given the nature of the order which they were bound to execute. They have erroneously proceeded upon principles applicable to contracts alone and have ignored the fact that the agreement between the parties had culminated in a consent order of the Company Law Board....
(emphasis supplied)
24. In the mater of Griesheim GmbH (supra), Hon'ble Supreme Court has held as follows:-
"...3. It is an old saying that the difficulties of the litigant in India begin when he has obtained a decree. The evil was noticed as far back in 1872 by the Privy Council in relation to the difficulties faced by the decree holder in execution of the decree (MIA p.612) 1. After more than a century, there has been no improvement and still the decree holder faces the same problem what was being faced in the past. A litigant coming to Court seeking relief is not interested in receiving a paper decree when he succeeds in establishing his case. What he primarily wants from Company Appeal (AT) No. 62-63-64 of 2023 Page 27 of 34 the Court of Justice is the relief and if it is a money decree, he wants that money what he is entitled for in terms of the decree, must be satisfied by the judgment debtor at the earliest possible without fail keeping in view the reasonable restrictions/rights which are available to the judgment debtor under the provisions of the statute or the code, as the case may be...."
(emphasis supplied)
25. We follow the above judgment while accepting the contention of the Appellant that execution of the order of the NCLT is necessary to provide the Applicants (R-1 and R-2) substantial and tangible relief.
26. Thus, it is clear that NCLT is bound by law to execute its order/decree if called upon to do so, and that it has the power to execute an order under section 424(3) of the Companies Act, 2013. Further, as has been held in the judgment in the matter of M/s. Greisheim GmbH vs. Goyal MG Gases Pvt. Ltd. (supra) a litigant is entitled to receive the fruits of decree, which in the present case is amount of Rs. 28.77 crores against sale/transfer of their shareholding by the Respondents in addition to certain other payments. It, therefore, becomes abundantly clear that NCLT has not erred in taking action for execution of the Consent Terms which were taken on record and approved by the NCLT. Company Appeal (AT) No. 62-63-64 of 2023 Page 28 of 34
27. We now look at the Consent Terms, wherein in clause 20(7) the following is provided:-
"7. It is AGREED CONFIRMED AND DECLARED THAT in the event of there being any default by any Party, the terms hereof will, in such event, cease to be binding on the non defaulting Party or Parties. Without prejudice to what is stated in this Clause, in case of breach of non compete obligation by the Applicants or either of them, both the Applicants shall be liable to return forthwith the amounts paid towards the Non-Compete Compensation and Amicable Settlement Compensation."
28. Thus, quite clearly, in case of any breach or non-compliance of any of the terms of conditions recorded in the Consent Terms and/or performance of the obligations, the parties are required to approach the NCLT. The records submitted by both the parties in case make it clear that the Appellants alleged breach of Consent Terms, particularly of the non-compete obligation by R-1, and consequently they sent a letter dated 23.2.2019 addressed to R-1 and R-2 as notice of termination of Consent Terms, and thereafter in the Board of Directors meeting held on 15.4.2019, the termination of Consent Terms by the Company w.e.f. March, 2019 was approved, ratified and confirmed. The facts of the case make it clear that the company Cotmac took unilateral action for termination of Consent Terms after it alleged breach of non- compete obligation by R-1, but it did not approach the NCLT for clarification or definite decision on breach of terms and conditions Company Appeal (AT) No. 62-63-64 of 2023 Page 29 of 34 of the Consent Terms as it was required to do. Such an action by the Company and the Appellants fall short of the clause 27 of the Consent Terms and therefore the breach of Consent Terms by R-1 and R-2 remained mere allegation by one of the parties.
29. We are, therefore, of the view that since the breach of Consent Terms were not established by the Appellants, as was required under clause 27 of the Consent Terms, the NCLT moved correctly by considering the Execution Application filed by the Respondents.
30. We now consider the argument put forward by the Appellants that,
(i) the Consent Terms should be executed in its entirety;
and
(ii) the purpose and objective of entering into Consent Terms by both the parties was to ensure that the Company goes in the hands of Appellants and the Respondents, particularly R-1 and R-2 get an honourable exit from the Company by receiving adequate compensation and payment for dues as were agreed in the Consent Terms.
Company Appeal (AT) No. 62-63-64 of 2023 Page 30 of 34
31. The argument of the Appellants is that once the shares of the Appellants have been attached with the NCLT Registry and are likely to be sold to make for payment of the requisite amount of Rs.28.77 crores as provided in clause 3(b) and (d) of the Consent Terms, the shares so sold on likelihood to be purchased by the Company's competitors, which could be Trimasys or Enemtech, and thus the Company will get out of the hands of the Appellants which is not the intention and objective of the Consent Terms.
32. We note that the Consent Terms were signed by Mr. Mukund Muley and Mrs. Arati Muley as Applicant No.1 and Applicant No. 2 and jointly by M/s Shyam Sirur, Arjun Sirur, Pralhad Hage, Mrs Suman Sirur and Cotmac Electronics as Respondents. It is clear from clause 3(b) that the Applicants have to be paid Rs.28,77,51,750 for the transfer of their 134150 equity shares to the Respondents. This means that once the Respondents received their due amount as provided under clause 3(b), their shares, which are 1,34,150 in number, shall stand transferred to the Respondents. Since the shares of A-1 and A-2, namely, M/s Shyam Sirur and Arjun Sirur have been attached and are liable to be sold for payment of the requisite amount to R-1 and R-2, we find it just and proper that only such number of shares shall be Company Appeal (AT) No. 62-63-64 of 2023 Page 31 of 34 sold by which the requisite amount of Rs.28,77,51,750 plus interest (as indicated later in this judgment) is realized and paid to R-1 and R-2 and remaining shares shall be released to remain in the ownership of A-2 and A-3.
33. In view of the fact that the Consent Terms were agreed to by the rival parties to ensure that the Company continues to function as a healthy, viable and active company, we are of the view that the issue of execution of the Consent Terms in entirety should also be looked at by the NCLT upon an application to be made by any of the parties to the Consent Terms.
34. We are conscious of the fact that the objective of the signing of the Consent Terms by the two parties in dispute was to ensure that Mukund and Arati Muley get a respectable exit from the Company commensurate to their shareholding, and the Company continues in the hands of Shyam Sirur, Arjun Sirur, Suman Sirur, Pralhad Hage and others so that the Company continues to function as well-managed company and is not riven by internal.
35. Hence, we opine that it would be just and proper that when the shares of A-2 and A-3 are sold by the Company pursuant to execution of Consent Terms, the first right of purchase of those Company Appeal (AT) No. 62-63-64 of 2023 Page 32 of 34 shares are given to A-2 and A-3, so that the possibility of the Company falling in the hands of its competitors/rivals is obviated. This would be in keeping with the objective of the Consent Terms and would take care of the interests of the company. We are also of the view that the amount of compensation to be paid to R-1 and R-2 against sale of their shares shall be given with interest @ 10% p.a. for the period of delay in payment, keeping in mind the date/schedule of various instalments payments included in the Consent Terms.
36. We therefore agree with the NCLT when it holds that once the Execution Application has been considered and decided by the NCLT, the Contempt Application and the Refund Application have become infructuous and are, therefore, liable to be disposed of as being infructuous.
37. In the result, we do not find any error in the Impugned Order of the NCLT, and maintain the Impugned Order with the following clarification/direction:
(i) Only such number of shares out of the attached shares of A-2 and A-3 shall be sold by which the requisite amount of Rs.28,77,51,750 plus interest @ 10% p.a. for the period Company Appeal (AT) No. 62-63-64 of 2023 Page 33 of 34 of delay in payment, keeping in mind the date/schedule of various instalments payments included in the Consent Terms is realized and paid to R-1 and R-2. The remaining shares shall be released to remain in the ownership of A-2 and A-3.
(ii) In para 12 of the Impugned Order, the NCLT has kept the issue of enforcement of other prayers made in the Execution Application open and still to be adjudicated upon. It may endeavour to do so as early as possible.
38. With the clarifications/directions as stated in the preceding paragraph we dismiss the appeal.
39. In the facts of the case, there is no order as to costs.
[Justice Rakesh Kumar] Member (Judicial) [Dr. Alok Srivastava] Member (Technical) New Delhi, 25th May, 2023 /aks Company Appeal (AT) No. 62-63-64 of 2023 Page 34 of 34