1. This company petition is filed under Section 111 of the Companies Act, 1956 ("the Act") seeking directions against M/s SOFIL Information Systems Private Limited ("the Company") to rectify its register of members in respect of 3,95,600 equity shares of Rs. 10/- each by substituting the names of the respondents 2 to 6 in the place of the seventh respondent, on the sole premise that that the impugned transfer of shares in favour of the seventh respondent is in gross breach of the relevant Article of the Articles of association of the Company.
2. According to Shri R. Murari, learned Counsel, ICICI Venture Capital Fund was established in January, 2000, as a Trust, with the object to formulate scheme(s) in order to pool funds and provide financial assistance to a portfolio of Indian companies. The Trustee of ICICT Venture Capital Fund is ICICI Trusteeship Services Limited. ICICI Information Technology Fund was established, as a scheme of ICICI Venture Capital Fund. The petitioner came to be appointed as the Asset Management Company (AMC) of ICICI Venture Capital Fund, pursuant to the Investment Management Agreement entered into between the petitioner and the Trustee of ICICI Venture Capital Fund. The petitioner as the AMC of ICICI Information Technology Fund entered into an Investment Agreement on 24.03.2000 with the respondents 1 to 4, thereby subscribing to 1,01,600 shares of Rs. 10/- each in the first respondent Company at a premium of Rs. 304.967- per share aggregating Rs. 3.20 Crores on the terms and conditions set out therein, upon which, the Company had allotted 1,01,600 shares in the name of ICICI Trusteeship Services Limited A/c ICICI Information Technology Fund, constituting 16.86% of its paid up capital. By virtue of Clause 15 of the said agreement, (a) the respondents 2 to 4 along with their associates viz., the respondents 5 & 6, being close relatives of the respondents 2 to 4, would not sell or otherwise dispose of their shares in the Company or any interest therein without the prior approval of the petitioner and (b) the Company would not recognise or register any such transfer of shares in the Company. The respondents 2 to 4 had further executed on 24.03.2000 a Non-disposal undertaking on similar lines of Clause 15, in favour of the petitioner, apart from the Company undertaking therein that it would not recognise or register any transfer of shares by the respondents 2 to 4, without the petitioner's written approval. Among other Clauses, Clause 15 of the Investment Agreement has been incorporated as Article 11(a) of the Articles of Association of the Company. In this background, the respondents 2 to 4 had entered into a Memorandum of Understanding on 05.09.2001 with the seventh respondent to sell the entire shareholding for a consideration of Rs. 17 Crores, subject to, inter-alia, purchase of the petitioner's shares at a price which would provide the petitioner an Internal Rate of Return of 50% per annum on its investment in the Company from the date of investment till the date of receipt of the purchase consideration either from the respondents 2 to 4 or the seventh respondent on or before 30.09.2001.
Accordingly, the seventh respondent was agreeable to purchase 1,01,600 shares from the petitioner for Rs. 4.75 Crores, which was subsequently increased to Rs. 4.85 Crores, pursuant to further discussions between the petitioner and the seventh respondent and followed by payment of Rs. 2,3 7,50,000/- towards part of such purchase consideration. The balance purchase consideration of Rs. 2,47,58,562/- remained unpaid by the seventh respondent, compelling the petitioner to increase the total consideration to Rs. 5 Crores. Inspite of the protracted correspondence (Pages 189-223 of company petition) and the lawyer's notice dated 18.02.2004, the seventh respondent failed to settle the balance of purchase consideration of Rs. 2,62,50,000/- together with interest at 18% per annum from 30.04.2002, which ultimately resulted in filing of a civil suit before the High Court of Madras against the seventh respondent for specific performance of the contract to effect payment of the unpaid purchase money along with interest. Clause 16.1 of the Investment Agreement dated 24.03.2000 envisages that the petitioner shall have the right to sell and terminate this agreement and put all or part of its shares back to the respondents 2 to 4. This Clause (16.1) has been incorporated as Article 30(D)(1) in the articles of association of the Company. Clause 23.12 empowers ICICI Information Technology Fund to transfer or assign, to its Affiliates, the rights to purchase all or a portion of their fresh shares. The permitted heir, successor or assign shall agree to abide by all the terms and conditions of the agreement. Accordingly, ICICI Information Technology Fund has been substituted by ICICI Emerging Sectors Fund, of which also the petitioner is the AMC, in terms of the Novation Agreement and as borne out by the minutes of extra ordinary-general meeting dated 21.10.2003, pursuant to which the relevant article of the articles of association of the Company has been suitably altered. As a result, the Company issued after effecting necessary transfer a fresh share certificate in the name of ICICI Emerging Sectors Fund. The Investment Management Agreement dated 07.03.2002, and in particular Clauses 29, 30, 31 of Schedule-A, contained therein, amply empower the petitioner to institute and conduct any legal proceedings for the purpose of the Trust, as the AMC or in its own name. Thus, the petitioner is entitled to file this present petition under Section 111(4) of the Act, seeking rectification of the register of members of the Company.
The respondents 2 to 4 and their associates, being the respondents 5 and 6, who are closely related to the respondents 2 to 4, have transferred their entire shareholding in the Company dehors the petitioner, in June, 2003 in favour of the seventh respondent, upon which its name has been entered in the register of members of the Company. This action on the part of the respondents 2 to 6, contrary to the provisions contained in the Investment Agreement, Non-disposal undertaking and the articles, is totally invalid. This Board in Satyanarayana Rathi v. Annamaliar Textiles Private Limited (1999) Vol.
95 CC 95 categorically held that any transfer of shares of a company shall be in strict compliance with the articles of association, failing which the transfer will be violative of the provisions of articles and such transfer is liable to be set aside. The petitioner is, therefore, seeking to rectify the register of members of the Company by deleting the name of seventh respondent whose name has been entered without sufficient cause and restoring the names of the respondents 2 to 6, in respect of the shares impugned in the company petition. The respondents 2 to 6 in active collusion with the seventh respondent being fully aware of the restrictive covenants played fraud upon the petitioner and in this connection it is always not essential that oral evidence should be taken to substantiate the case of fraud as held by the Madras High Court in Malleswara Finance and Investments Company Private Limited v.Company Law Board (1995) Vol.82 CC 836, more so, when the contesting parties have participated in the proceedings before the Bench, on the basis of affidavits and counter-affidavits, by which finding could be arrived at on the plea of collusion and fraud, as made out in the company petition. The seventh respondent has executed a letter of indemnity dated 27.06.2003 undertaking to indemnify the Company, in the event of the petitioner initiating any legal claim, pursuant to purchase of the shares from the respondents 2 to 6, which confirms the breach of the Investment Agreement committed by the respondents 1 to 6.
The petitioner's civil suit against the seventh respondent is for specific performance of the contrast entered into between them in respect of the shares held by the petitioner and for realisation of the unpaid purchase consideration, whereas, the prayer before the CLB is for rectification of the register of members in relation to the shares transferred by the respondents 2 to 6 in favour of the seventh respondent, in gross violation of the articles of association of the Company. The purpose and scope of these two proceedings are entirely different. The subject matter of the petition are the shares held by the respondents 2 to 6 held in the Company, whereas the subject matter of the suit are the shares held by the petitioner in the Company. Thus the subject matter, cause of action and the reliefs covered in the petition as well as the civil suit are entirely "different from those of the petition before the CLB. Therefore, pendency of the civil suit has no bearing on the petition for rectification of the register of members of the Company, over which the CLB alone has jurisdiction to provide appropriate remedies under Section 111.
3. Shri T.K. Seshadri, learned senior Counsel appearing for the respondents 1 & 7 opposed the prayer for rectification of the register of members of the Company on the following grounds: o The jurisdiction of the GLB under Section 111 being discretionary and summary in nature, the question of fraud purportedly played on the petitioner by the respondents 2 to 6 in active collusion with the seventh respondent cannot be decided without any oral evidence., The CLB, in such circumstances, has to refuse relief under Section 111 and relegate the parties to a civil suit, in the light of the decision in Ammonia Supplies Corporation Private limited v. Modern Plastic Containers Private Limited (1998) Vol 94 CC 310, wherein the apex court did not interfere with its earlier decision in Public Passenger Service Limited v. M.A. Khader (1996) Vol 36 CC I, Accordingly if, by reasons of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under Section 155 (old) and relegate the parties to a suit.
Against this background, the principles enunciated in Malleswara Finance and Investments Company Limited v. Company Law Board (supra) are inapplicable.
o The petitioner has already filed a civil suit against the seventh respondent for recovery of the unpaid purchase money, thereby, the petitioner is in no way interested in the affairs of the Company. If the suit is decreed, the petitioner will cease to be member of the Company and therefore, the petitioner is disentitled to invoke the jurisdiction of Section 111 for rectification of the register of members of the Company in respect of the shares purchased by the seventh respondent. The petitioner lacks bonafides on account of pursuing the civil suit for realization of the unpaid purchase money. Any person who approaches the CLB must do equity and the CLB being a court of equity, must refuse relief to the petitioner in exercise of its discretion.
o The allegations contained in paragraphs 1 to 10 of the company petition under the heading "FACTS" are in verbatim same as paragraphs 3 to 8 of the plaint in C.S.No. 526/2004 on the file of the High Court of Madras. As many as 22 documents out of 30 documents filed along with the present petition are produced before the High Court. The disputed facts, cause of action and documents before the CLB and the High Court are common. While the High Court will investigate the same documents and consider the same facts which are forming part of the present rectification proceedings, the CLB, will examine the question of alleged - violation of the articles of association, which may result in conflicting decisions, prejudicing the interest of the Company. The CLB, with a view to meet the ends of justice, will not exercise its jurisdiction to adjudicate the complicated question of facts, which are being agitated in the present proceedings, initiated after filing of the civil suit before the High Court. The petitioner, if succeeds before the High Court, cannot enforce its remedy against the respondents 2 to 7, for rectification of the register of members of the. Company.
On the basis of the reliefs claimed in the civil suit the petitioner is not entitled to any relief under Section 111 of the Act.
o The Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 defines venture capital fund as a fund established in the form of a trust or a company including a body corporate and registered under the regulations 1996. Trust is not an entity but an asset. By virtue of provisions of the Indian Trust Act, the Trustee alone is competent to maintain an action. ICICI Information Technology Fund of which ICICI Trusteeship Services Limited is the Trustee admittedly made investment in the Company, in which case, it is only the ICICI Trusteeship Services Limited, which could file the present company petition. Further, no authority has been made available to substantiate that the petitioner herein is entitled to initiate any legal action on behalf of ICICI Trusteeship Services Limited. The petitioner cannot by itself institute the present proceedings to protect the venture capital fund. The annual return of the Company indicates that ICICI Information Technology Fund is the member, in which case, the venture capital fund represented by its Trustee ought to have filed the company petition. By virtue of Clauses 29, 30 & 31 in Schedule-A set out in the Investment Management Agreement dated 07.03.2002, which are complimentary to each other, the petitioner is empowered by ICICI Trusteeship Services Limited, to take any legal action in any court of law only for recovery of the debts due to the Trust in respect of the investments made by the petitioner on behalf of the Trust. The Investment Management Agreement does not explicitly authorise the petitioner to file the present petition for rectification of the register of members of the Company. The petition is silent with regard to the basis on which the present petition has been filed by the petitioner and, therefore, the petitioner not being a member cannot maintain the present petition. Even otherwise, the action of the petitioner is not in conformity with Article 11(a) and, the claim can only be for the price of the impugned shares at the same rate sold by the promoters and not at the Internal Rate of Return of 50% per annum. The MOU is not in consonance with the articles. The petitioner having failed to act as per the articles cannot compel the promoters to ensure compliance with the articles and exert pressure by means of resorting to the present petition. The CLB cannot go in aid of the petitioner. The petitioner is neither shown to be a member nor an aggrieved person so as to invoke the provisions of Section 111(4), but only intends to leave the Company by selling its shares and cannot prevent the promoters from selling their shares.
o The respondents 5 & 6 arc neither promoters nor parties to the Investment Agreement or Non-disposal undertaking or Memorandum of Understanding and, therefore, the shares held by these respondents are outside the scope of the Investment Agreement. The articles do not place any restrictions on the holding of shares held by them. A restriction which is not specified in the articles is not binding on the Company or on the shareholders, as held in V.B. Rangaraj v. V.B. Gopalakrishnan o The petitioner cannot challenge the impugned transfer of shares by the respondents 2 to 6 in favour of the seventh respondent, especially when the transfer is in accordance with the articles of association of the Company. The petitioner by a letter dated 13.08.2001 agreed in principle to the proposal of entering strategic tie-up with the seventh respondent, subject to the promoters purchasing the petitioner's shares at a price that provides an Internal Rate of Return 50% per annum in terms of its letter dated 13.08.2001. This consent of the petitioner would be sufficient for effecting the transfer of shares to the seventh respondent by the respondents 2 to 6. The correspondence on record would show that the petitioner has given up the Investment Agreement, Non-disposal undertaking through private negotiation with the seventh respondent, which led to the civil suit, thereby Article 11(a) becoming otiose.
Hence, the petitioner cannot enforce the investment agreement and the amended articles of association. In view of this, the decision in Satyanarayana Rathi v. Annamaliar Textiles Private Limited (supra), is not applicable to the facts of the present case. The exchange of correspondence between the petitioner and the seventh respondent never resulted in any concluded contract for purchase of 1,01,600 shares by the seventh respondent at the price stipulated different from Articles 11(a). This contentious issue cannot be agitated in the present petition, in as much as the petitioner has chosen to initiate proceedings before the High Court of Madras.
4. Shri v. Venkatesan, learned Counsel appearing for the respondents 2 to 6, apart from adopting the arguments of Shri T.K. Seshadri, learned senior Counsel submitted that Clause 15 of the Investment Agreement dated 24.03.2000 provides that the promoters may with the consent of the petitioner sell their shares and the petitioner at its discretion has the right to sell its shares along with the promoters to any third party at the same price and terms applicable to the promoters and the third party is under obligation to purchase petitioner's shares at the same price and terms applicable to the promoters" shares. The respondents 2 to 4 sold their shares to the seventh respondent only after obtaining consent from the petitioner in terms of its letter dated 13.08.2001. The Memorandum of Understanding dated 05.09.2001 entered into between the respondents 2 to 4 and the seventh respondent is within the knowledge of the petitioner. The representatives of the petitioner were present in most of the meetings held on various dates at Chennai and Bangalore discussing the proposal on purchase of shares by the seventh respondent. Hence, there is no violation of the articles of association of the Company. The respondents were intending to sell their shares along with the petitioner's shares initially for a sum of Rs. 17 Crores. However, due to the market fluctuation in the information technology industry, the respondents 2 to 4 were forced to accept only Rs. 4 Crores from the seventh respondent. The representative of the seventh respondent was appointed at the board meeting held on 27.06.2003, as additional director of the Company, who is still on the board of the Company. The respondents 2 to 4 are not guilty of breach of either the Investment Agreement or the articles of association. Whereas, the petitioner was stubborn on its economical ratio and started independent negotiation with the seventh respondent for sale of its shares for which none of the other respondents was parties. At the same time, the petitioner had received for its shares a part of the sale consideration of more than Rs. 2.37 crores from the seventh respondent. The respondents 5 and 6 are not promoters or associates of the respondents 2 to 4 and not parties to any of the agreements entered into with the petitioner or the seventh respondent at any point of time. They are not covered by Articles 11(a) of the articles of association. These respondents have statutory right to transfer their shares as per their own volition. The transfer of shares by the respondents 5 & 6 is not violative of Articles 11(a). Hence, the petitioner is not entitled for any relief in the present proceedings.
5. Shri Murari, learned Counsel, in his rejoinder submitted: Shri T.K.Seshadri, learned senior Counsel has not pointed out any of the complexities in the present case so as to refuse any relief under Section 111 and relegate the parties to a civil suit and, therefore, the decision in Public Passenger Service Limited v. M.A. Khadar (supra) has no application to the facts of the present case. The jurisdiction of the CLB under Section 111 cannot be ousted by a mere assertion about fraud or want of consideration and in such cases the CLB can proceed with the adjudication of the petition under Section 111, as held in Ammonia Supplies Corporation Private Limited v. Modern Plastic Containers Private Limited (supra). The High Court will look into the contract and examine whether it is enforceable and the petitioner is entitled to any damages. The CLB is concerned with the issue whether the transfer of shares by the respondents 2 to 6 to the seventh respondent is in confirmation with the articles and not about the breach of contract by the seventh respondent in purchasing the petitioner's shares. The High Court similarly will not look into the issues which are being considered by the CLB. Even if the petitioner succeeds in the civil suit before the High Court, the seventh respondent is bound to transfer its shares back to the respondents 2 to 6, in view of the transfer being violative of the articles. The MOU dated 05.09.2001 for sale of the shares of the Company to the seventh respondent includes the shares of the petitioner and the respondents 5 and 6, being associates of the respondents 2 to 4. Hence, the transfer of shares by the respondents 5 & 6, without the approval of the petitioner is in violation of the articles of association of the Company. The purchase price agreed by the seventh respondent for the shares of the petitioner does not work out at an Internal Rate of Return of 50% per annum on its investment in the Company from the date of investment till the date of receipt of purchase consideration from the seventh respondent and hence, it is violalive of Article 11(a) and the petitioner is entitled to enforce the articles against the seventh respondent.
6. I have considered the elaborate arguments advanced by learned Counsel. The issues before me are whether the transfer of 3,95,600 equity shares of Rs. 10/- each of the Company effected by the respondents 2 to 6 in favour of the seventh respondent is violative of (a) Investment Agreement; (b) Non-disposal undertaking, both dated 24.03.2000; and (c) Articles of Association of the Company and if so, whether the Company shall rectify its register of members in respect of these shares by deleting the name of the seventh respondent and restoring the names of the respondents 2 to 6. Before dealing with rival claims on the contentious issues, it is absolutely necessary to consider the preliminary objections raised by Shri T.K. Seshadri, learned senior Counsel, on behalf of the respondents 1 & 7. The jurisdiction of the CLB under Section 111, as pointed by the learned Senior Counsel is discretionary in nature, providing a summary remedy in non-controversial matters. The CLB may not grant any relief under Section 111, if it is found that complicated question of facts or law or disputes of complicated nature or serious allegations of fraud etc., are involved, but on the other hand relegate the parties to a civil suit. However, the decision to relegate the parties to a civil suit will depend upon the facts and circumstances of each case. The Supreme Court, while affirming the judgment of full bench of the Delhi High Court in Ammonia Supplies Corporation Private limited v. Modern Plastic Containers Private Limited (supra) that the Company Court, in exercise of its discretionary and summary jurisdiction, can decline to entertain any petition for rectification of the register of members involving disputed and complicated questions, requiring examination of evidence and relegate the parties to a civil suit, categorically concluded that it would have been appropriate, if the Company Court would have seen for itself, whether the disputed documents are forged or fabricated and examine whether even prima-facie what is pleaded is complicated question or not without relegating the parties to a civil suit. In this context, it is not necessarily essential as held in Malleswara Finance and Investments Company Private Limited v. Company Law Board (supra) that oral evidence should be taken to establish the case of fraud.
There is, therefore, no legal impediment to consider whether the complicated question of facts and the plea of fraud and collusion as pleaded in the company petition can be decided in the summary proceeding, without relegating the parties to a civil suit.
The civil suit filed by the petitioner in C.S. No. 526/2004 on the file of the High Court of Madras is for recovery of the unpaid purchase money, together with interest in respect of 1,01,600 equity shares of Rs. 10/- each of the Company reportedly purchased by the seventh respondent from the petitioner. The present company petition is for rectification of the register of members of the Company in relation to 3,95,600 equity shares of the Company, sold by the respondents 2 to 6 in favour of the seventh respondent, which according to the petitioner, is in gross violation of the Investment Agreement, Non-disposal undertaking and Articles of Association of the Company. The subject matter and the reliefs claimed before the High Court and the CLB, are distinctly different, even though the High Court as well as the CLB will investigate the same documents and consider the same facts, but for entirely different purposes. While the High Court will adjudicate the disputed purchase of 1,01,600 shares by the seventh respondent from the petitioner, the CLB has to examine whether the transfer of 3,95,600 equity shares of the Company by the respondents 2 to 6 in favour of the seventh respondent is or not in breach of the Investment Agreement and the Articles of Association of the Company. The claim of the petitioner for damages does fall within the domain of the High Court, whereas the remedy for rectification of the register of members of the Company squarely comes within the jurisdiction of the CLB. Thus, the cause of action, purpose and scope of these two proceedings are not one and the same. There is no need for me to consider in the rectification proceedings whether (a) there is any concluded contract in existence between the seventh respondent and petitioner for purchase of 1,01,600 equity shares of the Company; and (b) if so, whether there is any breach committed by the seventh respondent, entitling the petitioner for specific performance of such contract. I am, therefore, of the view that these two proceedings will not result in conflicting decisions, prejudicing the interests of the Company.
The petitioner cannot be barred for having initiated the civil action against the seventh respondent for specific performance of the contract in respect of 1,01,600 equity shares of the Company and on the ground of lack of bonafides, if the petitioner is shown to be the person aggrieved, pursuant to the transfer of 3,95,600 equity shares allegedly in breach of the relevant articles, from applying before the CLB under Section 111(4) for rectification of the register of members of the Company and, therefore, the petitioner cannot be denied at the threshold the discretionary relief, if any, as contended by the respondents.
It is on record that ICICI Venture Capital Fund was established, as a Trust, of which the Trustee is ICICI Trusteeship Services Limited.
ICICI Information Technology Fund was established as a scheme of ICICI Venture Capital Fund. The petitioner as the Asset Management Company of ICICI Information Technology Fund, of which ICICI Trusteeship Services Limited was the Trustee, entered into an Investment Agreement with the Company and its promoters viz., the respondents 2 to 4 on 24.03.2000, pursuant to which the petitioner, as the AMC of ICICI Information Technology Fund, subscribed to 1,01,600 shares of Rs. 10/- each in the Company at a premium of Rs. 304.96 per share on the terms and conditions specified therein and acquired 1,01,600 shares in the name of ICICI Trusteeship Services Limited A/c ICICI Information Technology Fund. Clause 23.12 of the Investment Agreement empowers the petitioner to assign in favour of its Affiliates, its rights or obligations under this agreement. The assignee is bound by all the terms and conditions of this agreement. All the investments held by ICICI Information Technology Fund are found to be transferred to ICICI Emerging Sectors Fund, floated by ICICI Emerging Sectors Trust, of which, the Trustee is ICICI Trusteeship Services Limited, as borne out by a Deed of Novation dated 21.12.2002 entered into between the Company, respondents 2 to 4, ICICI Trusteeship Services Limited as Trustee of ICICI Information Technology Fund and ICICI Trusteeship Services Limited as Trustee of ICICI Emerging Sectors Fund and became entitled to all the rights, obligations and privileges under the Investment Agreement. The members of the Company at the extra ordinary general meeting held on 21.10.2003, with a view to give effect to the Novation Agreement accorded necessary approval for amending the articles, thereby the existing Article 1A(ii) came to be amended thus: "1A(ii) VC Investor means ICICI Emerging Sectors Fund, represented by its Investment Manager ICICI Venture Funds Management Company Limited". Further, fresh share certificates were issued by the Company, favouring ICICI Trusteeship Services A/c, ICICI Emerging Sectors Fund, after effecting the transfer as per the Deed of Novation. The transfer of funds from ICICI Information Technology Fund to ICICI Emerging Sectors Fund and the consequent execution of the Deed of Novation are within the knowledge of the respondent 1&7, as evidenced from the recitals forming part of paragraphs 9.10 and 12 of the counter statement of the respondents 1&7 respectively. The respondents 1 & 7 are, therefore, estopped from challenging the fact that ICICI Trusteeship Services Limited as Trustee of ICICI Information Technology Fund, was substituted by ICICI Trusteeship Services Limited as Trustee of ICICI Emerging Sectors Fund in the Investment Agreement dated 24.03.2000 and thereby became entitled to all the rights, obligations and privileges under the Investment Agreement. By virtue of Clause 31(c) of the investment Management Agreement dated 07.03.2002, the petitioner has been vested with the powers specified in Schedule A thereto. Schedule A provides that the petitioner has been appointed as the lawful attorney of ICICI Trusteeship Services Limited, to execute and to perform in the name of the petitioner as the AMC or in its own name the acts and deeds specified therein. Clause 29 of Schedule A empowers the petitioner to commence and prosecute legal proceedings for recovery of sums of money due or payable or in any way belonging to the Trust in respect of and pertaining to the investments made by the AMC on behalf of the Trust.
Clause 30 empowers the petitioner to institute any legal proceedings for the purpose of the Trust and sign as well as verify the pleadings in this behalf. Clause 31 enables the petitioner to defend or compromise any legal action initiated or prosecuted against the Trust in any court of law. Thus, while the petitioner, has been explicitly empowered under Clause 29 to take steps for realization of debts payable to the Trust, Clause 30 entitles the petitioner to initiate any legal proceedings for the purpose of the Trust, which would mean, purposes other than those covered under Clause 29. If Clause 30, apart from Clause 29, as pointed out by learned Senior Counsel, enables the petitioner to commence legal proceedings for realization of sums due to the Trust, then there is no need for co-existence of both these clauses, one of which would becomeredundent in the presence of the other for the purpuse of inforcement of the same authority Clause 30, in my view is dependent and not interdependent of Clause 29. Clause 31 is not found to be relevantfor the present purpose. I am, therefore, of the view that the petitioner, in pursuance of Clause 30, is entitled to apply to the CLB for rectification of the register of members of the Company in its own name on behalf of ICICI Emerging Sectors Fund, which became entitled to all the rights, obligations and privileges under the Investment Agreement, pursuant to the Deed of Novation dated 21.12.2002.
Having found that the preliminary objections, which have been raised are not tenable, I shall proceed to consider the company petition on merits. The claim and counter claim on the validity of the transfer of 3,95,600 equity shares of the Company by the respondents 2 to 6 in favour of the seventh respondent would wholly depend upon the fulfillment of requirements specified in (a) Investment Agreement dated 24.03.2000; (b) Non-disposal undertaking; and (e) Articles of Association of the Company.
Clause 15 of the Investment Agreement, duly incorporated in the articles of association of the Company as Clause 11(a) consists of the following three parts: (i) The promoters shall not sell or otherwise dispose off all or part of their shares in the Company or any interest therein, without the prior approval of the petitioner; (ii) The Company shall not recognize or register, any such transfer of shares in the Company's capital made by the promoters, their friends or associates as may be specified by the petitioner; (iii) However, with the consent of the petitioner, if the promoters offer the shares for sale to a third party, the petitioner shall, at its discretion, has the right to sell its shares along with the promoters to such third party at the same price and terms applicable to the promoters and the third party shall have an obligation to purchase the petitioner's shares at the same price on the terms applicable to the promoters' shares.
The above are the only restrictions on the transfer of shares belonging to the promoters embodied in the articles of association of the Company. The apex court in V.B. Rangaraj v. V.B. Gopalakrishnan (supra), while considering the transferability of shares came to hold that "the shares are... transfer able like arty other movable property.
The only restriction on the transfer of the shares of a company is as laid down in its articles, if any. A restriction which is not specified in the articles is, therefore, not binding either on the company or on the shareholders. The vendee of the shares cannot be denied registration of the shares purchased by him on a ground other than that stated in the articles. " In the above back drop of facts and legal position it is observed that the Company had sent an undated fax to the petitioner regarding buy back of the petitioner holding in the Company, as under: We wish to finalise the deal that we have been discussing with ICICI regarding SOFIL 's merger with SRM. Now the final valuation as indicated by SRM (the Moll copy is sent to ICICI earlier) is Rupees 14 crores (rupees fourteen crores only). During this year I: c within December 2001 SRM will pay an upfront money of 7 crores rupees to SOFILfor buying out ICICI shares and other investors shares of SOFIL SOFIL along with SRM is agreeable to purchase ICICI shares in SOFILfor a consideration of Rupees 4.75 crores (Rupees four crores and seventy five lacs only) We are proposing to pay the same on or before the 15th of December 2001. Kindly send us your written acceptance at the earliest.
The petitioner has acknowledged receipt of the undated tax from the Company in paragraph 9 of the plaint filed in C.S. No. 526 of 2004 on the file of the High Court of Judicature at Madras. Further, the petitioner by its communication dated 13.08.2001 conveyed to the second respondent, in principle acceptance to the proposal for entering into a strategic tie-up with the seventh respondent subject to certain conditions in the following words: This has reference to your fax dated August 9, 2001. We are pleased to inform you thai pursuant to the discussions we had with you, we are, in principle, agreeable to your proposal for entering into a strategic tie-up with SRM Systems & Software Private Limited (SRM) subject to your purchasing the 101,600 equity shares of Rs. 10/- each of Sofil held by us, at an aggregate price that provides us an Internal Rate of Return of 50% per annum, from the date of our investment in the Company (ill the dale of receipt of the purchase consideration from you. The purchase consideration shall be payable by you on or before September 15, 2001.
The offer price is based on the assumption that the consideration for the entire equity shares of Soft I offered by SRM is Rs. 170.0 million. In the event the consideration offered by SRM is higher than Rs. 170.0 million, we reserve the right to seek a higher price for our equity shares and our aforementioned approval to you for entering into a strategic tie-up with SRM would be conditional to your paying us such higher price as may be sought by us.
Please ensure that you obtain our prior approval before entering into any binding commitments with SRM for sale of equity shares of the Company. Please note that this offer is being made by ICICI Venture, subject to approval of the Investment Committee of the ICICI Information Technology Fund, for which ICICI Venture is the Investment Manager. Please arrange to furnish drafts of all documents to be executed with SRM to enable us to present the same to the Investment Committee.
It is, therefore, clear that the petitioner, pursuant to the fax dated 09.08.2001 received from the Company, allowed the second respondent to go ahead with sale of the shares in favour of the seventh respondent subject to: (a) seventh respondent purchasing 1,01,600 equity shares of the Company held by the petitioner, at an aggregate price providing an Internal Rate of Return of 50% per annum; (b) payment of purchase consideration by 15.09.2001; (c) payment of higher price, in the event of consideration for the entire shares offered by the seventh respondent exceeds Rs. 17 crores; and (d) obtaining prior approval of the petitioner before entering into any binding commitments with the seventh respondent for sale of the Company's shares.
The aforesaid communication dated 13.08.2001 is found to be followed by a Memorandum of Understanding dated 05.09.2001 entered into between respondents 2 to 4, the Company and the seventh respondent, witnessing the following: o The promoters of the Company shall buy out all other shareholders of the Company and sell their shares so bought along with their equity holding aggregating 6,02,600 equity shares in favour of the seventh respondent, for a fixed consideration of Rs. 17 crores, payable in instalments, the last of which shall not be later than 30.09.2004.
o The shareholding of the petitioner in the Company viz., 1,01,600 shares shall be bought by the seventh respondent on or before 30.09.2001 at a price which will provide the petitioner an Internal Rate of Return of 50% per annum on its investment in the Company from the date of investment till the date of receipt of the purchase consideration either from the seventh respondent or the promoters of the Company.
o The promoters shall obtain the prior approval of the petitioner to dispose of their shares, in terms of the Investment Agreement dated 20.03.2000.
The petitioner while stating in paragraph 8 of the plaint filed in the civil suit that the promoters and the seventh respondent appeared to have entered into an MOU on 05.09.2001, for sale of the entire shareholding in the Company, has categorically taken the following stand: ... The Plaintiff was not made a party to the said MOU and were only subsequently provided with a copy of the same by Sofil. However, a statement has been made in the MOD to the effect that the Plaintiff was also willing to sell its 16.86% shareholding in Sofil. The Defendant has, in the said MOV expressed it's willingness to acquire the equity holding of the Plaintiff in Sofil. Further, in terms of Clause 3 of the said MOU, the Promoters and the Defendant agreed to buy out the said shares at a price, which would provide an Internal Rate of Return of 50% per annum on the investment. The Defendant, in the said MOU, have further acknowledged that they are aware that under the provisions of the Investment Agreement, the Promoters require the prior approval of the Plaintiff to sell or dispose off their shareholding in Sofil. It was also confirmed in the said MOU that the agreement embodied therein, was subject to the Plaintiff receiving the purchase consideration for the sale of the said shares in terms of the said MOU.It is far from doubt that the MOU dated 05.09.2001 is not only well within the knowledge of the petitioner, but also, not disputed or disowned by it and that the petitioner is possessed of a copy of the MOU. The MOU consists of three limbs - (i) sale of the entire shareholding in the Company for Rs. 17 crores to the seventh respondent; (ii) payment of price for 1,01,600 shares to the petitioner providing an Internal Rate of Return of 50% per annum on its investment; and (iii) approval of the petitioner before sale of the shares. In terms of the MOU, the promoters offered to sell the entire shareholding of 6,02,600 equity shares of the Company in favour of the seventh respondent for a fixed consideration of Rs. 17 crores, which works out at the rate of Rs. 282.11 per share, in which case the petitioner's 1,01,600 shares would fetch only an amount of Rs. 2,86,62,376/-. However, the seventh respondent was agreeable to purchase the shares of the petitioner for a consideration of Rs. 4.75 crore, which came to be willingly increased to Rs. 4.85 crores in terms of a communication dated 22.01.2002 of the seventh respondent and followed by part payment of Rs. 2,37,50,000/- towards purchase consideration made by the seventh respondent and accepted by the petitioner. When the balance purchase consideration remained unpaid by the seventh respondent, it is on record that the petitioner by its communication dated 29.03.2002 conveyed its willingness to sell its shares for a total consideration of Rs. 5 crores. The subsequent developments are not germane for the present to adjudicate the contentious issue before me. In the mean while, the respondents 2 to 4 transferred 77.97% of the paid capital held by them to the seventh respondent for a total amount of Rs. 4 crores; the Company registered the transfer of such shares in favour of the seventh respondent; the respondents 2 to 4 resigned from the office of director and the nominee of the seventh respondent was inducted on the board of the Company as additional director, pursuant to a Memorandum of Agreement dated 27.06.2003 entered into between the respondents 2 to 4 and the seventh respondent and as borne out by the minutes of the meeting of the board of directors of the Company held on 27.06.2003. It is relevant to observe that the board of directors at the said meeting resolved that "the VC Investor - ICICI (the petitioner) is kept informed of the above transfer", a copy of which is placed at page 94 of the counter statement of the respondents 1 & 7, which remains uncontroverted by the petitioner. It is not under dispute that the ICICI's nominee has been on the board of directors of the Company. The board of directors at the meeting held on 21.10.2003, appointed the seventh respondent's nominee as the Managing Director of the Company and further shifted the registered office of the Company to the office premises of the seventh respondent. The Chief Financial Officer of the seventh respondent was the special invitee at the board meetings held on 02.09.2002 and 21.10.2003. The petitioner's nominee has been appointed at the annual general meeting held on 30.10.2003, as director of the Company. The third limb of Article 11(a) envisages that with the consent of the petitioner, if the promoters offer the shares for sale to a third party, the petitioner shall, at its discretion, has the right to sell its shares along with the promoters to such third party at the same price and terms applicable to the promoters and the third party shall have an obligation to purchase the petitioner's shares at the same price on the terms applicable to the promoters' shares. This consent, under law may be express or tacit, unlike the stipulation contained in the first part of Article 11(a), according to which the promoters shall not sell their shares in the Company without the prior approval of the petitioner. The aforesaid sequence of events would indicate that the petitioner has accorded its tacit consent for disposal of the shares of the respondents 2 to 4 in the Company, in favour of the seventh respondent thereby meeting the requirement of the relevant part of Article 11(a), in which case, the prior approval of the petitioner, as stipulated in the first part of 11(a) would not, however, arise for compliance by the promoters. It is, thus, found that the transfer of shares in the Company's capital made by the respondents 2 to 4 is in accordance with the requirement of the relevant part of Article 11(a) and further that the petitioner by its conduct is estopped from relying on the non-disposal undertaking obtained from the promoters. Having found that the transfer of shares by the respondents 2 to 4 in favour of the seventh respondent is in accordance with Article 1(a), such transfer not liable to be set aside and, therefore, the decision in Satyanarayana Rathi v. Annamaliar Textiles Private Limited (supra) has no application to the facts of the case on hand. The understanding between the seventh respondent and the respondents 2 to 4 that the shareholding of the petitioner in the Company shall be bought by the seventh respondent at a price which will provide the petitioner an Internal Rate of Return of 50% per annum on its investment in the Company is not in consonance with the restrictions embodied in Article 11(a). Any additional restriction not contained in the articles, but in a private arrangement between two shareholders which places further obstacles in the way of transferability, is not binding either on the Company or on the shareholders, as laid down in V.B.Rangaraj v. V.B.Gopalakrishnan (supra). In view of this, the covenant stipulated in the MOU dated 05.09.2001 that the shareholding of the petitioner shall be transferred at a price specified therein, without being embodied in the articles places undoubtedly further obstacles in the way of transferability and, therefore, is not enforceable against the respondents 2 to 4, by the petitioner. At this juncture, it shall be borne in mind that the petitioner has been persistently claiming a total consideration of Rs. 5 crores for its 1,01,600 shares from the seventh respondent and filed a civil suit for recovery of the balance consideration, which is being pursued by the petitioner. The petitioner, therefore, must be held to have waived its right to claim any price, which would provide an Internal Rate of Return of 50% per annum on its investment in the Company in terms of the MOU. The respondents 5 & 6 are not promoters or parties to the Investment Agreement or non-disposal agreement or the MOU dated 05.09.2001 and, therefore, none of the covenants contained in any of these agreements can be pressed into service against them. Even otherwise, if Article 11(a) is applicable to the respondents 5 & 6, being associates of the respondents 2 to 4, as claimed by the petitioner, it is already found the transfer of shares effected by the promoters in favour of the seventh respondent is in compliance with the requirement of Articles 11(a). The very same yardstick shall necessarily be made applicable to the transfer of shares made by the respondents 5 & 6. In the result, the petitioner, cannot claim to be an aggrieved person under Section 111(4) so as to seek rectification of the register of members of the Company in respect of 3,95,600 equity shares by substituting the names of the respondents 2 to 6 in the place of the seventh respondent. It is relevant to observe that (a) undated fax of the Company (b) "in principle" consent conveyed by the petitioner to the Company and (c) MOU dated 05.09.2001 are in relation to sale of 6,02,600 equity shares of the Company to the seventh respondent for Rs. 17 crores, which shall include sale of 1,01,600 shares of the petitioner at a price which will provide an Internal Rate of Return of 50% per annum. Every one of the innumerable communications exchanged between the petitioner and the seventh respondent forming part of the present proceedings is only in relation to buy back of the petitioner's stake in the Company by the seventh respondent. The legal notice dated 18.02.2004 issued to the seventh respondent and the plaint filed in C.S. No. 526 of 2004 before the High Court of Judicature at Madras elaborately set out the grievances on account of sale of 1,01,600 equity shares to the seventh respondent. The legal notice makes it absolutely clear that the petitioner has at all times been and continues to be ready and willing to transfer 1,01,600 equity shares held by it in the Company in favour of the seventh respondent on effecting payment of the balance sum of Rs. 2,62,50,000 together with interest. The petitioner has made similar statement in the plaint that it has at all times been and continue to be ready and willing to perform its part of the contract by selling and transferring its shares to the seventh respondent on receipt of the balance payment and interest. None of these documents surprisingly does even whisper about the purported illegal transfer of 3,95,600 equity shares made by the respondents 2 to 6 in favour of the seventh respondent. At no point of time the petitioner has taken objection that the transfer of 3,95,600 equity shares by the respondents 2 to 6 to the seventh respondents is in gross violation of the Investment Agreement, Non-disposal undertaking and the Articles of Association of the Company. There is no document even to suggest that any such plea has been put forth by the petitioner. This is found to be an after thought, which is not tenable. For these reasons, the prayer for rectification of the register of members of the Company in respect of 3,95,600 equity shares as made in the company petition is liable to be rejected.
Ordered accordingly. No. order as to costs.