AIRGATE HOLDINGS LIMITED  Vs SUMIT MOHAN SINGH GANDHI & ORS.

OMP ( I) (COMM) 374/2020 Page 1 of 46
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 05.01.2021
Date of Decision: 22.01.2021

+ OMP(I)(COMM) 374/2020 & I.A. 10845/2020 (stay)

AIRGATE HOLDINGS LIMITED ….. Petitioner
Through Mr. Sandeep Sethi, S r. Adv. with
Mr. Saket Shukla, Mr. Vasanth Rajasekaran,
Mr. Saurabh Babulkar, Ms. Reshma Ravipati,
Ms. Maryam Quadri, Advs.

Versus

SUMIT MOHAN SINGH GANDHI & ORS. ….. Respondent s
Through Dr. A.M. Singhvi, Sr. Adv. with
Mr. Ri shab Gupta, Ms. Meghna Rajadhyaksha,
Mr. Gauhar Mirza, Mr. Rishabh Jogani,
Mr. Manavendra Gupta, Ms. Madhavi Khanna, Adv s
for R -1.
Mr. Rajiv Nayar, Sr. Adv with Mr. Rishab Gupta,
Ms. Meghna Rajadhyaksha, Mr. Gauhar Mirza,
Mr. Rish abh Jogani, Mr. Manavendra Gupta,
Mr. Saurabh Seth, Adv for R -2.
CORAM:
HON’BLE MS. JUSTICE REKHA PALLI

REKHA PALLI, J
JUDGMENT
1. This is a petition under Section 9 of the Arbitration and
Conciliation Act , 1996 (hereinafter referred to as „the Ac t‟) preferred
by Airgate Holdings Ltd., which is a majority shareholder in the
respondent no. 3 company, seeking the following reliefs:
(a) Suspension of the majority Put Option purportedly exercised
by the Respondent No. 1 and Respondent No. 2 vide two notic es
dated 15 November 2020.
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(b) Stay of the Put Option notice(s) dated 15 November 2020
issued by the Respondent No. 1 and Respondent No. 2.
(c) For costs; and
(d) For such further and other reliefs as this Hon’ble Court may
deem fit and necessary in the facts and circ umstances of the present
case

2. Primarily, the petitioner is aggrieved by the two put option
notices issued by respondent nos. 1 and 2 on 15.11.2020, which
require the petitioner to purchase 19.98% shares of the respondent no.
3 company presently held by th e said respondents, for a consideration
of INR 67,67,85,037.
3. Even though no formal notice was issued in the petition, w ith
the consent of the parties, the matter was taken up for final disposal
on the basis of the petitioner‟s pleadings and the documents filed by
both sides.
4. The petitioner company, incorporated under the laws of Cyprus,
is a subsidiary of M/s Hyve Group PLC, a company incorporated in
the United Kingdom. On 03.12.2012, the petitioner acquired a stake
of 28.3% equity shares in one M/s Asian Business Exhibition &
Conferences Limited (ABECL) in which respondent nos. 1 and 2 also
held shares . Subsequently, the said respondents and the other
shareholders of ABECL entered into a Share Holders Agreement
(SHA) on 03.12.2012 which included, inter -alia, a provision for
demerger of the business exhibition division of ABECL into a newly
formed entity, i.e., Respondent No. 3. Pursuant to an order passed by
the High Court of Bombay, the demerger of the business took place
and resulted in the incorporation of respondent no.3 on 22.03.2013 .
The petitioner, respondent nos. 1 and 2 and other shareholders of
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ABECL were allotted proportionate shareholding in the respondent
no.3 company . As per Article 26 of the Articles of Association of the
newly incorporated respondent no.3 company, its day -to-day
operation management and decision making was to be conducted
through a Management Committee comprising of three
representatives of the existing shareholders i.e respondent nos.1 & 2
and one representative of the peti tioner .
5. On 31.03.2014, the petitioner, who was then holding 28.3%
shares in the respondent no. 3 company, entered into a Share Holders
Agreement (SHA) with the other shareholders of respondent no. 3
company, which included respondent nos. 1 and 2. This SHA , which
referred to the petitioner as an Investor, recorded the rights and
obligations of all the shareholders towards respondent no.3 according
to their share holding percentage . Clause 7 of the SHA created a „call
option ‘ for the Investor, which granted t he petitioner a right to
purchase additional shares from the existing shareholders in the
respondent no. 3 company, to the tune of 31.7% of the share capital
on a fully diluted basis. Simultaneously , the SHA created a „Put
Option ‟ for the existing sharehol ders which would give them the right
to sell their shareholding to the Investor or an affiliate nominated by
the Investor, to the tune of 31.7% of the share capital held by them on
a fully diluted basis . The SHA then went on to create a second
call/Put Opt ion right for the investor and the remaining shareholders
respectively, which would be available once either of them attained
majority shareholding after the first exercise of call or Put Option .
Thus, in case the petitioner became a 60% shareholder , Claus e 11 of
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the SHA created a „second call option ‟ in its favour which meant that
it would have the right to purchase 50% of the equity securities held
by the remaining shareholders, which would leave the existing
shareholders only with 20% shareholding . Corre spondingly, the
„second Put Option ‟ provision granted existing shareholders the right
to sell all or some of the securities held by them to the
Investor /petitioner in one or more tranches .
6. This SHA was, with the mutual consent of all parties, amended
on 05.01.2015 and can be regarded as the first instance of amendment.
After this amendment , the petitioner, on 28.10.2015, exercised its call
option right under clause 7 and acquired an additional 31.7%
shareholding of respondent no. 3 company from respondent nos. 1 and
2 and other shareholders by way of a Share Purchase Agreement
(SPA) dated 28.10.2015 for a total consideration of INR
137,36,25,646. This consideration was calculated on the basis of the
EBIDTA (Earnings Before Interest Depreciation Tax Amortiza tion)
price, which in turn was derived on the basis of the figures reflected in
the audited financial statements of respondent no.3 for the financial
year (FY) 2014 -15. As a result of this acquisition , the petitioner ‟s
shareholding in respondent no.3 incr eased to 60% which made it a
majority shareholder while that of respondent nos. 1 and 2 fell to
23.94% and 16.01% respectively.
7. On the very same day of 28.10.2015 , the SHA was amended a
second time by the petitioner and respondent nos. 1 and 2 and though
the Managing Committee in terms of Articles of Association
remained responsible for day -to-day functioning and management of
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respondent no.3 company, a n additional provision by way of Clause
8A.l(c) was incorporated into the SHA thereby appointing the
respondent nos.1 & 2 as the Chief Executive Officer and Chief
Operating Officer respectively of the respondent no.3 company.
Furthermore , by way of clause 11.1 of the second amendment
agreement , the parties modified Clause 11.2 of the original SHA by
providi ng that in case respondent nos. 1 and 2 exercise d their post-
majority put option to sell all or any part of their remaining shares, the
petitioner would be obligated to purchase the same. The amended
clause further entitled respondent nos. 1 and 2 to exerc ise their post
majority put option right in tranches between 15th November and 15th
December, 2017 or during the same period between 15th November
and 15th December of any subsequent financial year as long as the
existing shareholders held 5% or more of th e share capital or until the
expiry of 50 years from the effective date whichever was earlier
8. The SHA was once again amended with the consent of the
parties on 14.11.2019 , to be regarded as the third instance of
amendment , whereby clause 3.14 was inserted to provide for
appointment of a Board of Director s for respondent no. 3 by vesting
the petitioner with the right to appoint 3 Director s and respondent nos.
1 and 2 with the right to appoint 2 Management Director s. This
amendment further provided that if t he shareholding of the respondent
nos. 1 and 2 were to fall below 20% of the total share capital, they
were to be held entitled to appoint only one management Director .
9. There were a few other note -worthy events which were taking
place simultaneously. Afte r acquiring majority sharehold ing of
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respondent no.3 on 28.10.2015 , the petitioner appears to have chosen
to appoint an independent strategic advisory firm namely M/s GM
Corporate Solutions , through its parent company M/s H yve Group
PLC, with an aim to und ertake a financial review of respondent no. 3
company . For that purpose, all finance and accounting statements as
also other records of respondent no. 3 were sought from respondent
nos. 1 and 2. It is the case of the petitioner that the report furnished by
M/s GM Corporate Solutions in February 2017 pointed out certain
inconsistencies in the data shared by the respondents with the
petitioner viz. the data shared with M/s GM Corporate Solutions .
Instances of unexplained writing of bad -debts were also flagged ,
which resulted in the petitioner calling upon respondent nos. 1 and 2
to chang e the management and financial practices they followed. The
petitioner also called upon these respondents to supply it with all
requisite documents , especially those in terms o f Clauses 3.1.7 and
15.5 of SHA which entitled each Director to access, inspect and
examine financial records, books of accounts and titles of the
respondent no. 3 company. It is the petitioner‟s stand that despite
multiple requests, respondent nos.1 and 2 failed to comply with these
requisitions and supply full records. The petitioner has contended that
notwithstanding this, even the incomplete records supplied to the
petitioner reflected unexplained writing -off of bad debts, overbooking
of sales, fabricat ed TDS deductions and inter -ledger transfers with
shell companies amounting to tax fraud. In fact, the petitioner has
contended that one of these shell companies mentioned in the records,
being High Ground Enterprises Limited, is presently under
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investigat ion by Indian authorities for committing input tax credit
fraud to the tune of INR 77 crore. The petitioner even claims to have
conducted a third -party debtor verification exercise in May -December
2019 which uncovered large -scale writing off of amounts fro m the
books of accounts of respondent no. 3 in the years 2015 -17. As a
result, respondent nos.1 and 2 were called upon to furnish
explanation, but they neither provided an explanation nor rendered
their cooperation . The petitioner has further contended tha t this halted
the progress of the debtor verification exercise and prompted its
refusal to sign off on the financial statements for FY 2018 -19.
10. It is in response to these numerous apprehensions of the
petitioner in respect of the affairs of respondent no. 3 that respondent
nos.1 and 2 execut ed a contract on 27.06.20 20 undertaking, in their
personal capacity, to indemnify the petitioner against all losses/
damages /legal actions /liabilities in relation to the transactions
undertaken by respondent no. 3 till FY 2018 -19.
11. Thereafter, in the month of September 2020 at the instance of
the petitioner, respondent no.3 issued debt recovery notices to 241
debtors, to which only 105 debtors replied . On receiving their
responses , the petitioner convened an urgent board meeting on
24.09.2020 which was adjourned to 26.10.2020 . However, on
26.10.2020, the petitioner‟s nominee Director s proposed conducting a
forensic audit of respondent no. 3 company to fully comprehend the
extent of the financial irregularities plaguing its affairs; which was
duly accepted by a simple majority of the Board and recorded in a
resolution. This resolution gave rise to a conflict when respondent
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nos. 1 and 2 issued legal notices to the petitioner on the very next day,
claiming that the same was p assed in violation of the terms of the
SHA and were null and void .
12. The petitioner‟s clash with respondent nos.1 and 2 on the
grounds of fraudulent transactions and questionable accounts and
finances brought on its decision to file a petition under Section s 213,
241, 242 and 244 read with Section 130(1) of the Companies Act
before the learned National Company Law Tribunal, Mumbai on
10.11.2020 (hereinafter referred to as the „oppression and
mismanagement petition‟). It is an admitted position that this peti tion
is yet to be listed before the learned Tribunal .
13. Following this, respondent nos.1 and 2 issued the impugned
post majority put option notices on 15.11.2020, by way of which they
called upon the petitioner to purchase their respective shareholding of
13.93% and 6.05 % in the respondent no.3 company for a total
consideration of Rs. 67,67,85,037. Immediately upon receiving these
notice s, the petitioner sent separate replies to respondent no s.1 and 2
on 17.11.2020 whereunder it stated its refusal to honour t he
invocation on the ground that there were questions of financial
impropriety existing against respondent no. 3 which needed to be
resolved before any further action could be taken on these notices.
Additionally, the petitioner called upon the respondents to cooperate
with the conduct of a forensic audit. It is at this stage that the
petitioner moved the instant petition under Section 9 of the Act
seeking stay of the put option notices, under the apprehension that
respondent nos. 1 and 2 may declare it as being in „material default ‟
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under the SHA for failing to comply with the impugned notices and
cause them further losses .
14. Learned senior counsel for the petitioner, Mr. Sandeep Sethi,
while not disputing that clause 11.2 of the SHA entitle d respondent
nos. 1 and 2 to exercise their put option right, contend ed that the
issuance of the impugned notices was manifestly illegal as these
respondents were the CEO and COO of respondent no.3 at a time
when it was being grossly mismanaged . He submit ted that over the
years , many decisions taken in respect of respondent no. 3 indicated
glaring mismanagement and financial impropriety in the conduct of
its affairs. This is what had compelled the petitioner‟s parent company
to hire M/s GM Corporate Solutions , an accountin g firm, to
investigate respondent no.3 company and the report released by the
firm in February 2017 had confirmed the petitioner‟s suspicions ; a
large number of outstanding debts in the company‟s name had been
uncovered, but the respondent nos. 1 and 2 had not been taking any
steps to recover the same . This had constrained the petitioner to call
upon respondent nos. 1 and 2 to implement appropriate changes in the
financial practices and take corrective actions, as well as to requisition
the necessary accou nts and financial statements in terms of clause
3.1.7. of the SHA whereunder each Director was entitled to examine
the books, accounts, titles of the respondent no. 3 company. However,
the local management had failed to provide the necessary information,
especially those pertaining to debtor details , in breach of Schedule 2
of the SHA as amended on 28.10.215 . The sheer non -cooperation of
the company‟s management in providing complete debtor records as
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also the unexplained writing off bad debts without any justification
had not only invite d suspicion but also constituted a blatant and
continuing breach of its duty under clause 15.7 of the SHA
whereunder the local management was obligated to exercise good
financial practices. Thereafter, all steps proposed b y the petitioner‟s
nominee Director s, which included proposing a debt recovery
exercise in the Board Meeting dated 26.10.2020 in order to undo the
damage, had been heavily opposed by respondent nos. 1 and 2.
Rather, they had attempted to circumvent these m easures and compel
the petitioner‟s nominee Director s, notwithstanding their reluctance,
to approve the financial statements of respondent no. 3 for the year
2018 -19 by assuring them through indemnification contracts in
respect of transactions undertaken b y the respondent no. 3 company
till FY 2018 -2019 . He submitted that in any event, the put-option
right of respondent nos.1 and 2, albeit contractually vested, was not an
absolute right . By relying on Section 51 and 54 of the Act, he
submit ted that when the respondents were in breach of the SHA
themselves, they could no t compel the petitioner to honour select
provisions therein to their advantage and receive monies for the put
option exercise .
15. Mr. Sethi further contend ed that the exercise of the put option
right by respondent nos.1 and 2 at a point when the petitioner had
already approached the National Company Law Tribunal, was wholly
mala fide and a blatant attempt by these respondents to shield their
fraudulent activities from scrutiny in the forensic aud it. He submitted
that this was also an attempt on their part to unjustly enrich
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themselves by not only basing the valuation of the shares put up on
manipulated and exaggerated financial statements and records of
respondent no. 3 company but also by applyin g the incorrect floor
price formula set out in Clause 7.3 of the SHA . He further submit ted
that Clause 8.1 of the SHA envisaged only the following two methods
for determining the consideration value of post -majority put option
price after 2015 which involv ed calculating it (i) against the EBITDA
price applicable for that year or (ii) as per fair market value of the
shares computed by a chartered accountant. Yet, the respondents had
wrongfully sought to rely on the floor price formula set out in clause
7.3 o f the SHA by invoking Clause 7.6 to arrive upon an exorbitant
consideration of INR 67,67,85,037 for the shares, despite being aware
that Clause 7.6 was applicable only with respect to the FY 2014 -2015 .
He submitted that since the invocation had been made i n 2020 and the
only two applicable methods , EBITDA and fair market value of
shares determined by petitioner‟s Chartered Accountant , relied on the
audited financial statements of respondent no.3 company which were
dispute d, the only resort for the parties was to determine the put
option price after getting their disputes adjudicated in arbitration . He
also submitted that Clause 11.2.2 of the SHA vested the post majority
put option right upon respondent nos. 1 and 2 for as long as 50 years
w.e.f. 27 March 201 4, i.e., the date of the execution of the SHA; with
44 years left in the SHA, there was absolutely no hurry for respondent
nos. 1 and 2 to exercise this option at this point when the accounting
and financial statements of respondent no.3 are a subject of d ispute
between the parties.
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16. Mr. Sethi then submit ted that the petitioner apprehend ed that
respondent nos. 1 and 2 were intending to wrongfully treat the
petitioner as a defaulter under clause 12 of the SHA by misconstruing
its bona fide refusal to honour the put option notices as a “material
default”. Such a step would inevitably lead to a suspension of the
petitioner‟s rights as an investor under the SHA, including but not
limited to voting rights, tendering of resignations of the nominee
Director s of the petitioners. He submitted that for these reasons, it had
become manifestly urgent for this Court to stay these put option
notices and grant the prayers sought by the petitioner.
17. Finally, Mr. Sethi submit ted that irrespective of the allegation
of default r aised by respondent nos.1 and 2, it remain ed a matter of
fact that the petitioner‟s parent company, i.e., M/s Hyve Group PLC ,
had assets which were more than sufficient to satisfy the amounts
claimed in the put option notices. To substantiate this point, h e placed
reliance on the interim statement of accounts furnished by M /s Hyve
Group PLC for FY 2019 -20 on 07.05.2020 which place d its net value
of assets on that date at GBP 198,587,000 . He submit ted that since
this audit was conducted as per international standards of accounting,
this statement also took into account Hyve‟s indirect liabilities in
equity of respondent no.3 through the petitioner, towards the put
option rights exercisable by the remaining shareholders in respect of
the 40% shares held by the m, and that the same was catered for in the
sum of GBP 8,455,000 set aside by it . Considering that the total
equity liability of GBP 8,455,000 of Hyve PLC form ed a small
portion of its total net assets of GBP 198,587,000 owned by the
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petitioner‟s parent co mpany, the petitioner was financially competent
in all respects. He, thus, submitted that there was absolutely no danger
of the petitioner being unable to honour this liability at a later stage .
He also submitted that no harm would be caused to respondent nos.1
and 2 in case they were made to a wait a final decision in arbitration
on the aspect of financial irregularities before being permitted to
exercise their put option rights. He, therefore, submit ted that since the
petitioner was financially secure and competent to satisfy the
liabilities arising out of the put option invocation in respondent no.3
company, the impugned notices ought to be stayed without requiring
the petitioner to make any deposit for the same .
18. On the other hand , Dr. Singhvi, learned se nior counsel for the
respondent no. 1 submit ted that the terms of the put option provision
contained in Clause 11.2 of the second amendment carried out on the
SHA on 28.10.2015, whereunder the impugned notices had been
issued, were clear, unequivocal and i ndependent of any other clause in
the SHA. This provision did not make the put option right of the
company‟s shareholders dependent on the petitioner‟s consent and its
invocation had to be honoured regardless of the surrounding
circumstances. Therefore, th e petitioner‟s claim that the notices could
not be sent when the accounting and financial statements of the
respondents were disputed , was completely baseless and unsupported
by the terms of the SHA. He submitted that consequently, the
petitioner‟s attempt to injunct the operation of such an unconditional
clause was without ground. He further submitted that ironically, the
petitioner had no qualms in invoking the call option right accruing to
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it under the SHA, which correspond ed to the respondents‟ put option
right, numerous times in the past to obtain majority shareholding in
the respondent no.3 company. Yet, when respondent nos. 1 and 2
began asserting their rights under the SHA, the petitioner was leaving
no stone unturned to deny them of the same.
19. Dr. S inghvi further submit ted that there was no question of
there being any financial irregularities in the conduct of affairs of the
respondent no.3 company , the petitioner‟s objections to the notices
were mala fide and a blatant misuse of its majority shareho lding rights
under the SHA. Firstly, he submit ted that ever since the petitioner
acquired majority/additional shareholding in respondent no.3
company, the Board of Directors of the Com pany was controlled by a
majority of 3:2 in favour of the petitioner. Th is implied that the
petitioner had not only enjoyed majority voting rights but had also
had the power to nominate the Finance Director who directly
supervised the finance and accounting departments of the Company.
He submitted that c onsidering that the pet itioner had indeed appoint ed
a Finance Director of its own choosing , it meant that its own agents
were in charge of the financial records . Thus, he submitted that the
petitioner could not swerve around to plead ignorance of the
accounting and financial dec isions taken by the respondent no.3
company or hide behind any purported failure on the respondents‟
part to supply it with the relevant records. He further submitted that
the arrangement between the parties entitled the petitioner to appoint a
statutory a uditor of its choice to audit the accounts and financial
statements of the respondent no.3 company and, accordingly, all
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balance sheets of the company for the last 7 years had been duly
audited without any objection thereto from the petitioner or its
nomin ee Director s. This show ed that the records of respondent no. 3
company were not fabricated or falsified, even as per the petitioner
and the auditors it had appointed. He submits that notwithstanding the
aforesaid and its misplaced suspicion of the accounts and financial
statements of the company , the petitioner had unquestioningly
accepted the dividend s for FY 2018 -19 and 2019 -20 which had been
calculated on the basis of these very disputed statements. On the
aspect of the outstanding debts owed to the comp any, he submit ted
that in the larger scheme of things the totality of these debts
constitute d less than 2% of the company‟s total turnover calculated
over a period of over 8 years which was well below the industry
average. These debts had only been extende d to long standing clients
of the company, who had positively contributed to its revenue growth
in the past, as a goodwill gesture in order to foster and maintain their
cordial relationships – a fact known and practiced by the petitioner
itself . He submitt ed that this was why at the Board meeting held on
30.06.2020, the Company‟s Board had unanimously written off these
non-recoverable bad debts for the financial years 2017 -18 and
2018 -19. Although this meeting was attended by the petitioner‟s
nominee Director s, evident from a perusal of the Board resolution of
that date, the petitioner had disregarded the actions which its nominee
Director s had consented to and had begun arbitrarily issuing recovery
notices to the parties whose debts were written off. He submitted that
this act of unilaterally issuing recovery notices to numerous past
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debtors of the Company, including several marquee clients of the
Company and their Director s to recover monies from old, written off
debts was not only time barred and illeg al, but had also dented the
brand value, goodwill and reputation of the respondent no. 3 company
in the market and caused losses to the tune of INR 77 crores for the
company. He submitted that this made it obvious that the petitioner‟s
actions had been motivated by the mala fide intention to raise doubts
about the financial health of the Company, bring down its valuation
and adversely affect the respondents‟ decision to exercise its put
option or exit rights. Lastly he submit ted that the petitioner had been
habitually misus ing its powers as a majority shareholder in the past .
For instance, it had table d the resolution to appoint a forensic auditor
in the adjourned Board Meeting held on 26.10.2020, when this never
formed a part of the agenda of the original B oard Meeting – in
violation of clauses 3.2.4 and 3.2.6 of the SHA which prohibited the
Board from passing any resolution in an adjourned board meeting on
an aspect which was not on the agenda of the original board meeting,
without obtaining the consent of the other shareholders. He submitted
that in any event, on 27.06.2020 , the petitioner had been personally
indemnified by respondent nos. 1 and 2 in respect of all financial
transactions of respondent no.3 company for every financial year till
31.03.2019 by way of an undertaking contract which had reciprocally
required the petitioner to not conduct any forensic audit or
investigation into the accounts of the Company for that period . He
submitted that despite this arrangement, the petitioner was seeking to
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rake up issues which stood settled in the past to deny the respondents
their contractual ly vested put option right.
20. Dr. Singhvi finally submit ted that there was a complete loss of
trust between the petitioner and respondent nos.1 and 2 on account of
the app arently mala fide decisions which had been taken by the
former‟s nominee Director s in the days leading up to the institution of
the present petition. They had hastily instituted debt recovery
proceedings against long standing clients of respondent no.3 and had
subsequently filed a wrongful and manipulated oppression and
mismanagement petition against respondent nos.1 and 2 before the
learned National Company Law Tribunal, Mumbai on 10th November
2020 , all of which would have driven the share prices of respo ndent
no.3 to the ground . He submit ted that this was the final nail in the
coffin and led to the issuance of the put option notices. He also
submit ted that there was no reason to exempt the petitioner from
paying the amounts under the impugned notices since the same had
been correctly calculated as per the floor price formula set out in
Clause 7.3 of the SHA in adherence to Clause 7.6 as the audited
financial statement for FY 2019 -20 were admittedly not available . By
drawing my attention to t he impugned not ices, he submitted that the
petitioner had been duly provided a detailed explanation of how this
value had been arrived at by setting out the requisite calculation in
Annexure A. He further submitted that the petitioner‟s contention that
the application of the floor price formula was restricted to invocations
made in the year 2015 was without basis, not backed by the spirit of
the SHA and completely contrary to general practice in such
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transactions. By referring to the interim financial statement of Hyve
PLC published on 07.05.2020, he submitted that in fact the
petitioner‟s parent company had set aside the fair value of its current
liabilit y towards equity options in responden t no.3 company and,
therefore, there was no reason to stay or suspend the impugne d put
option notices .
21. Mr. Rajiv Nayar, learned senior counsel for respondent no. 2
adopt ed the submissions of Dr.Singhvi and additionally submit ted that
the manner in which the put option right could be exercised had been
set out comprehensive ly in the S HA. Once respondent nos. 1 and 2
had issued the impugned notice strictly in accordance with this
procedure , the petitioner could not complain and /or seek an order
restraining the respondents from exercising their rights. He submitted
that rather , the petit ioner‟s failure to pay the amount in accordance
with the impugned notice s was a „material default‟ under the SHA
and invite d the consequences thereof set out in clause 12.3 , which
provides that failure to cure material default within 30 days leads to
suspe nsions of all rights of the defaulter under the SHA. He submit ted
that as soon as respondent nos. 1 and 2 sent the impugned notices on
15.11.2020, the clock had begun running against the petitioner in
respect of the put option payment . He concluded by pray ing that this
petition, being an attempt on the petitioner‟s part to evade its
obligations under the SHA and the penalty thereunder for being in
material default, be dismissed.
22. I have heard the learned senior counsel for the parties and
perused the record . I may note, at the outset , that a s far as the
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relationship between the parties is concerned, there is no dispute with
respect to the circumstances leading up to the execution of the SHA ,
its amendments or the fact that both sides are governed by the term s
thereof . Since the petitioner has assailed the put option notices, the
heart of this dispute lies in the call/put option rights which have been
created in favour of the petitioner and the respondents respectively
under clauses 7 , 8 and 11 of the SHA . It is, therefore , apposite to first
note the relevant extracts of these clauses which read as under:
“7. CALL OPTION
7.1 The Investor or any Affiliate of Investor will be
entitled (but not obliged) to acquire an additional 31.7% (thirty
one decimal seve n per cent) of the Share Capital on a Fully
Diluted Bases (the “call shares”) from the Existing Shareholders
(“call option”).
x x x
8. PUT OPTION
8.1. In the event the Investor chooses not to exercise its
Call Option as set out in Clause 7 (Call Option) above, the
Existing Shareholders shall jointly have the right but not an
obligation to sell 31.7% (thirty one decimal seven per cent) of the
Share Capital (the “Put Shares”) to the Investor or any Affiliate
that may be nominated by the Investor during the Put Option
Period at a price equal to the Relevant Year EBITDA Price
determined in accordance with Clause 7.3 above or the fair market
value computed by a chartered accountant appointed solely by the
Investor, whichever is higher ( “Put Price” ) (“Put Option ”). If the
Company fails to deliver audited financial statements of the
Company for the Relevant Year to the Investor on or prior to
September 30, 2015 on account of any reason other than a
mandatory requirement under applicable Laws, then the Put Price
shall be deemed to be the Floor Price determined in accordance
with Clause 7.3 above. Notwithstanding anything to the contrary
contained in this Agreement, the Put Price payable by the Investor
or any person nominated by Investor (other than a Competitor i n
India) to the Existing Shareholders shall not exceed INR
6,000,000,000. (Indian Rupees six billion).

x x x
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11.1. Investor Second Call Option

11.1.1. At any time after the completion of the Call Option
under Clause 7 (Call Option) or the Put O ption (Put Option ) under
Clause 8, if neither Mr. Manish Gandhi nor Mr Sumit Gandhi
remain in the employment of the Company, the Investor shall have
the right, but not the obligation (“ Post Majority Call Option”) to
purchase 50% (fifty percent) of the Equi ty Securities then held by
the Existing Shareholders or such number of Equity Securities, the
Transfer of which would result in the Existing Shareholders
holding together with their affiliates,20% (twenty percent) of the
Share Capital (“ Post Majority Call Option Shares”)

11.1.2 The Post majority Call Option may be exercised by
the Investor during the period commencing from the expiry of 255
(two hundred and fifty five) days from the last date of:

(i) the Financial Year preceding the Financial Year on which
Mr. Sumit Gandhi and Mr. Manish Gandhi Cease to be employed
by the Company,

(ii) the Financial Year, on which Mr. Sumit Gandhi and Mr.
Manish Gandhi cease to be employed by the Company, or

(iii) until the expiry of 50 (fifty) years from the Effective Date
whichever is earlier (“ Post Majority Call Option Period”).

11.1.3 In the event that the Investor wishes to exercise the Post
Majority Call Option, the Investor shall be required to give a
notice in writing to the Existing Shareholders w ithin the Post
Majority Call Option Period (“Post Majority Call Option Notice” )
expressing its intention to exercise the Post Majority Call Option.
A Post Majority Call Option Notice shall be irrevocable. The
Existing Shareholders shall, simultaneously w ith the receipt of the
Post Majority Exercise Price (net of statutorily required
deductions, if any) from the Investor for the Post Majority Call
Option Shares, Transfer the Post Majority Call Option Shares to
Investor. The sale and purchase of the Post M ajority Call Option
Shares shall take place in accordance with Schedule 2, subject only
to receipt of all necessary Government Approvals.

11.2. Existing Shareholders Second Put Option

11.2.1 At any time after the completion of the Call Option
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under Clau se 7 (Call Option) or the Put Option under Clause 8
(Put Option ), the Existing Shareholders shall, at all times, have the
right, but not the obligation ( “Post Majority Put Option ”) to sell
all or some of the Equity Securities held by the Existing
Sharehol ders in the Company to the Investor in one or more blocks
of such number of Equity Securities as constituting 5% (five per
cent) or more of the then Share Capital of the Company ( “Post
Majority Put Option Shares” ). For the avoidance of doubt, it is
clarif ied that the Existing Shareholders may exercise the Post
Majority Put Option in one or more tranches. For so long as the
Post Majority Put Option is exercised with respect to Equity
Securities constituting up to 20% (twenty per cent) of the Share
Capital (in one or more blocks of 5% (five per cent) or more of the
Share Capital, as set out above), such Post Majority Put Option
shall be referred to as the “First Tranche Post Majority Put
Option ”.

11.2.2 The Post Majority Put Option may be exercised by
the Existing Shareholders during the period commencing from
November 15 and ending on December 15 of any Financial Year,
for so long as the Existing Shareholders hold 5% or more of the
Share Capital or until the expiry of 50 (fifty) years from the
Effective D ate, whichever is earlier ( “Post Majority Put Option
Period ”).

11.2.3 In the event that the Existing Shareholders wish to
exercise the Post Majority Put Option , Existing Shareholders shall
be required to give a notice in writing to the Investor within the
Post Majority Put Option Period ( “Post Majority Put Option
Notice” ) expressing irrevocably, their intention to exercise the
Post Majority Put Option and specifying the number of Post
Majority Put Option Shares with respect to which they intend to
exerc ise the Post Majority Put Option . Investor shall,
simultaneously with the transfer of the Post Majority Put Option
Shares, make payment of the Post Majority Exercise Price (net of
statutorily required deductions, if any) in relation thereto, within
15 (fif teen) days of the receipt of the Post Majority Put Option
Notice. The sale and purchase of the Post Majority Put Option
Shares shall take place in accordance with Schedule 2 , subject
only to receipt of all necessary Government Approvals (if any).

11.3. Post Majority Exercise Price

The Post Majority Call Option Shares and the Post Majority Put
Option Shares shall be purchased by the Investor at a price
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(“Post Majority Exercise Price” ) equal to:

(i) for the Post Majority Call Option Shares, in accordance
with Clause 7.3, calculated for the Relevant Year on which the
Post Majority Call Option is exercised; and

(ii) for the post Majority Put Option Shares, in accordance with
Clause 8.1, calculated for the Relevant Year on which the Post
Majority Put Option is exerci sed.”

23. As noted above, the parties are ad idem that the SHA vested the
petitioner with two opportunities to exercise the call o ption right and
two corresponding opportunities to respondent nos.1 and 2 to exercise
the put option right. The first ca ll option right was exercisable in
terms of Clause 7.1 whereas the first put option right was exercisable
in terms of Clause 8.1. Once the first call/put option right was
exercised and the petitioner attained the status of a majority
shareholder in respon dent no.3 company, Clause 11 kicked into effect
and opened the doors for the petitioner to exercise the second call
option right referred to as the “post majority call option” in terms of
Clause 11.1 . In like manner, it was open for respondent nos. 1 and 2
to exercise their corresponding post majority put option right as per
Clause 11.2 of the SHA . In the present case the petitioner after
becoming the majority shareholder in October, 2015 has admittedly
not exercised its post majority call option and it is the respondent nos.
1 and 2 who have chosen to exercise their post majority put option
today, the validity whereof forms the nexus of their dispute.
24. The p etitioner while not denying that the respondent nos. 1 and
2 have the right to exercise the post major ity put option , has
vehemently urged that the respondents ought not to be permitted to
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exercise the same at this stage since inter alia (i) there are pending
allegations of serious financial impropriety, oppression and
mismanagement of respondent no. 3 com pany which have been
levelled by the petitioner against respondent nos. 1 and 2, and that (ii)
the invocation of this right has come at a nascent stage of the SHA‟s
life which subsists for a period of 50 years from the effective date of
the SHA, i.e. 27 Ma rch 2014. Apart from this , there is an additional
reason why the petitioner is aggrieved by the timing of the impugned
notices ; the petitioner has contended that the notices are a counterblast
to the oppression and mismanagement petition it has preferred b efore
the NCLT against these respondents for the manner in which they
were conducting the affairs of respondent no.3 company.
25. From the submissions made at the bar, I find that two questions
arise for my consideration in th is petition being (i) whether the
petitioner has made out a prima facie case in support of its allegations
of financial imp ropriety and misconduct on the part of respondent
nos.1 and 2 which precludes them from exercising their put option
right exercise at this stage and, (ii) whether th e valuation of the
shares, as contained in the impugned notices , is in consonance with
the SHA.
26. In respect of the first issue, the petitioner has relied on the
correspondences and documents exchanged between the parties,
especially the report furnished by M/s. G.M. Corporate Solutions in
February, 2017 in support of its plea that t he company was being
mismanaged, . During the course of arguments, the petitioner claimed
that it had an issue , from the very get go, with the manner in which
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financial decisions were being made on behalf of the respondent no.3
company . The petitioner claimed that its apprehensions in this regard
finally resulted in its request to respondent nos.1 and 2 to reveal all
trading, financial and accounting statements of respondent no.3
company , but to no avail; initially the respondents did not reply and
when they did, they supplied in complete details and statements which
it claims is in breach of Clause 15.5 of the SHA. The petitioner
further claim ed that the respondent nos.1 and 2 were also extending
numerous debts and failing to recover the same which led to an
unacceptable increase in the outstanding debts of the company and
contributed to its flailing financial health . This was in breach of its
obligation under Schedule 2 of the SHA t o exercise good financial
control of the company. The petitioner also claim ed that when it
sought answers from these respondents for these state of affairs, they
failed to present sufficient explanations for the same, did not
cooperate with the petitioner‟ s proposal to undertak e any audit and
recovery exercise and showed complete unwilling ness to take any
corrective steps. In reply , respondent nos. 1 and 2 argued that there
are several reasons as to why the allegations of financial misconduct
levelled by th e petitioner are completely baseless ; (i) the petitioner
holds majority voting rights in the company , (ii) the Finance Director
who supervised the finance and accounting department of the
respondent no.3 company was appointed by the petitioner and (iii) th e
statutory auditor for the company was also appointed by the
petitioner , thus, the petitioner cannot attempt to distance itself from
the financial decisions taken by the company . These respondents
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further urged that, as a result , not only are the accounts of respondent
no. 3 company duly audited by one of the big four companies selected
by the petitioner and overseen by the financial Director it appointed ,
but also that the accounts have been duly approved every year by the
petitioner and its director s. It was also claimed by respondent nos.1
and 2 that these accounts which the petitioner is casting doubt on ,
were used by it for the purpose of forcibly declaring and receiving
dividends for F.Y. 2019 -2020 , which reflects its acceptance of the
company‟s good financial health and estops it from challenging these
statements.
27. I have carefully considered this issue. It is an undisputed
position that the Finance Director was a person chosen and appointed
by the petitioner and that this person oversaw all financia l transactions
of the company and reported to the petitioner‟s nominee Director . Not
only that, even generally speaking it does appear that the petitioner
was well represented and involved in the general functioning of the
company considering clause 3.1.4 of the SHA , as amended on
14.11.2019 , entitled it to appoint three out of the five Director s in the
Board of Director s of the respondent no.3 company. This provision
reads as under:

“3.1.4 From the date of execution of the Third
Amendment Agreement, the Board shall consist of not more than
5 (five) Director s, of which:
(i) the Investor shall be entitled to appoint 3 (three)
Director s of the Board from the Panel; and
(ii) the Existing Shareholders shall be entitled to nominate 2
(two) Management Director s of the Bo ard, provided
however that if the Existing Shareholders hold less than
20% (twenty percent) of the Share Capital, the Existing
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Shareholders shall be entitled to nominate only 1 (one)
Management Director to the Board.”

28. It is also undisputed that the petiti oner was always represented
in the company‟s Board through its nominee Director s and that once it
attained majority shareholding status , crystallised in the third
amendment of the SHA, the Board was composed of five Director s
out of whom three were chosen and appointed by the petitioner.
Another undisputed position is that ever since the petitioner joined the
ranks of the shareholders of the respondent no.3 company, annual
auditing of the company‟s accounts has been conducted by a statutory
auditor of the p etitioner‟s choice which was either E&Y or Deloitte.
Other than that, the petitioner was also never denied adequate access
to conduct statutory audits of the company through other external
agencies over the years , confirmed by its own admission before this
Court of having appointed GMC to investigate the financial actions of
the company. In fact, the report which the petitioner has used to
support its allegations of financial misconduct before this Court was
furnished at the conclusion of the investigation by GMC in February
2017 . There is an additional ground raised by the petitioner that
respondent nos. 1 and 2 failed to extend basic cooperation during such
investigation and inquiries; it has been urged that even if it was
provided with copies of the audit report, the complete documents
sought by them for the purpose of financial inquiries were never
supplied. However, I am of the view that neither the 2017 report by
GMC nor these allegations of non -cooperation can be regarded in
isolation when it is also u ndisputed that the balance sheets of the
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respondent no.3 company for every financial year since 2013 have
been duly scrutinised and signed by the statutory auditors without any
reservation or adverse comments.
29. Now, once the petitioner expanded its shareho lding in
respondent no.3 company in November 2015 to 60% and , as per its
own claim, approved the financial statements of respondent no.3
company till 2016 there is an implied concession on its part in respect
of all financial transactions till that year. H owever, notwithstanding
the petitioner‟s claim that it did not sign financial statements for the
FY after 2016 since it held several reservations with respect to the
manner in which the company was conducting its business, there is
the significant aspect o f the dividend which was received by the
petitioner from the respondent no.3 company throughout this period.
The petitioner did not deny having received annual dividend to the
tune of GBP 43 million over the last few years from the respondent
no.3 company , including a sum of GBP 1.30 million for the F.Y.
2019 -2020 , all of which were released on the basis of the statement of
accounts which it impugns today. Rather, it appears that the
respondent nos.1 and 2 were opposed to releasing dividends for FY
2019 -20, evident from the Board resolution dated 30.06.2020 , as they
wished to preserve the company‟s finances during the pandemic ; yet,
the dividends were released at the insistence of the petitioner‟s
nominee Director s who were exercising majority voting rights on its
behalf. Thus, the petitioner‟s conduct reveals that its grievances with
the company on the ground of financial impropriety and misconduct
clearly did not hamper the benefits it received or deter its participation
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in the affairs of the company in the last few years as a majority
shareholder . All things considered , when it is undisputed that the
petitioner held majority voting rights, was granted such a wide berth
when it came to conducting audits of the respondent no.3 company,
wielded adequate say in the appointment of key management
personnel and remained well represented in the Board by way of three
nominee Director s out of the total quorum of five, any attempts on its
part to distance itself from the financial and daily operations of the
company at this stage do not prima facie hold water.
30. Another ground adopted by the petitioner on the aspect of
finances was the mounting growth of debts in the books of account of
respondent no.3, resulting from the allegedly questionable financial
decisions taken u nder the leadership of respondent nos.1 and 2. The
petitioner has claimed that these bad debts were numerous and that
the respondent nos. 1 and 2 showed no inclination to recover the same
or take any corrective actions to change its policy in this regard. In
defence, respondent nos. 1 and 2 have claimed that the mounting
debts which the petitioner is complaining of were (i) gestures of
goodwill that it extended to its long standing clients who had
contributed significantly to its revenue growth in the past , (ii) written
off with the petitioner‟s knowledge, through its nominee Director s
and (iii) small sums which form ed less than 2% of the annual
revenues of r espondent no. 3 company calculated over a period of
over 8 years.
31. On this aspect, the respondent no s. 1 and 2 had relied upon the
Board Resolution dated 30.06.2020 to submit that the Company‟s
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Board had unanimously written off these non -recoverable bad debts
for the financial years 2017 -18 and 2018 -19. It was submitted that this
decision was taken with the participation of the petitioner‟s nominee
Director s. I have perused this document and find merit in the
respondent‟s contention. The meeting in question, with a quorum
comprising of Messrs. Gordon Payne, Thomas Whelan and Cheng
Suet Ying, the petitione r‟s nominee Director s, did unanimously
resolve to write off the bad debts of the respondent no.3 company for
the financial years 2018 -19 and 2019 -20. The relevant extract of the
Board Resolution dated 30.06.2020 reads as under:
“5 Approval WRITING OFF BA D DEBT OF THE FY
2017 -18 AND 2018 -19

The Chairman took item No 5 “Writing Off Bad Debt Of The FT 2017 –
18 And 2018 -19”

DB explained to the board that certain debtors as at 31st March, 2018
and some in FY 2018 -19 are not recoverable and hence need to be
written off. DB then presented Annexure no. 2 (forming part of the
Minutes) before the board and proposed board resolution for writing
off of bad debt aggregating to Rs.41,70,5475 in the books of account of
the Company for the FY 2018 -19.

TW stated that S G and MG as CEO and COO of the Company are in
charge of the local business and given that they are fully convinced that
the debtors identified by them cannot be recovered based on this
representation and in the letter provided to us and the information
contained within the letter as to the recoverability of the debtors, the
write -off could be approved.

After discussion the board passed the following resolutions
unanimously:

“RESOLVED THAT the amounts noted against each of the items w.r.t.
financial yea r 2017 -18 and 2018 -19 mentioned as per Annexure 2 be
and are hereby written off in the books of account of the company for
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the financial year 2018 -19.

Sr. No. Name of the Party Amount (Dr./Cr.)
As per Annexure 2 As per Annexure 2

RESOLVED FURTHER THAT Mr. Manish Mohan Singh Gandhi,
Director of the Company be and is hereby authorized to do such other
acts or deeds, as may be required to give effect to this resolution.”

32. While considering the impact of this resolution, one has to be
mindful to the undis puted position that the debts in question were
advanced in the years 2018 -19 and 2019 -20, which was a period when
the petitioner held majority voting rights in the company and had
appointed key personnel to the company‟s decision making units. In
this rega rd, I have considered a short e -mail correspondence which
took place in September 2018 between respondent no. 2 and the
petitioner‟s nominee director at the time, one Mr. Thomas Whelan ,
after Mr. Whelan was authorised to review and write off all
uncollecte d debts of respondent no. 3 company up to 31.03.2017. For
this purpose, I may begin by referring to the following extract from
the Board Meeting dated 21.09.2018 which granted Mr. Whelan this
power :
“The Chairman informed the board that the company has
outstanding debts of INR 154,870.599 ( £ 1,720,784) as on Year End
31st March 2017 relating to periods before April 2017. These debts
remain uncollected for a long period of time; hence a detailed
review of these debtors is required. The Chairman proposed name
of Mr. Thomas Whelan, Director of the Company to write off all
uncollectible debts up to 31st March 2017 after review and to ensure
the balance sheet reflects a true and fair view on the Company’s
financial position. After detailed discussion the fol lowing
resolutions were passed:

“RESOLVED THAT Mr. Thomas Whelan, Director of the
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Company be and is hereby authorized:

1. To review the debtor book and to write off all
uncollectible debtors from years prior to April 2017 in full or
is deemed required to be written off as on March 31, 2018.
II. To collect third party confirmation from debtors in
cases he believes is necessary or he can commission the
statutory auditors to obtain the same per the standard
process.
III. To take a decision on behalf of the board to decide
the number of parties and amounts to be written off in the
books as on March, 2018.”

33. Seven days later, the following conversation took place over e –
mail:
 “On 28 Sep 2018, at 10:00 AM, from Manish Gandhi:
Dear Tom,
Since we are writing off debtors of prior period to an extent that we are
not comfortable from the tax point of view I would want you to confirm
that GBs would not be held accountable to any liabilities that might arise
out of such a massive write off in one year. Our recommendati on is
different and of a lesser amount – a 1 GPBMn lesser. Please confirm the
same or otherwise.

 Friday, 28 September 2018, 10:18 AM +0530 from Thomas Whelan:
Hi Manish,
Let’s discuss shortly as in taxi now.
I do not expect any adverse impact from the tax authorities as the basis of
the write is could commercial judgment that can be backed up by repeated
attempts to recover this debt. We now are making a decision which is
supported (in fact recommended by Deloitte – big 4 audit firm).

 On 28 Sep 2018, at 1 0:21 AM, from Manish Gandhi:
As long as it’s understood that it doesn’t become a personal liability for
GBs. We will go with your recommendation.

 On 28 Sep 2018, at 10:27 AM, from Thomas Whelan:
There are no personal liability implications here as ABEC – the firm is
making a decision to write off this debt. ”

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34. While this exchange is quite telling insofar as it concerns the
petitioner‟s allegations of financial impropriety and lack of
transparency against respondent nos. and 2, the overall position
emerging from these documents is that the debts in question were
written off in the presence of and with the consent of the petitioner‟s
nominee Director s and, sometimes, upon their direction and
insistence . Add to that the undisputed position that the respondent
no.3 received a significant tax break on account of these write offs, it
appears that the debts had benefitted the company in some respects
and the issue of their non -payment had been put to rest. The record
also shows that respondent nos. 1 & 2 had execute d an undertaking
contract , in their personal capacity, on 27.06.2020 which indemnif ied
the petitioner and its nominee directors from all transactions that were
undertaken by respondent no. 3 company till 31.03.2019 when
respondent nos. 1 and 2 were serving in the capacity of CEO and
COO of the company. This undertaking contract also recorded a
reciprocal obligation on the part of the petitioner and it s nominee
Director s to abstain from requiring or conducting any forensic or
internal audit or any other inv estigation of the financial records of the
company up to FY 2018 -19. This indemnification from any
losses/damages/legal action/liabilities arising out of transactions
conducted by respondent no.3 till 2018 -19 adequately secures the
petitioner and its paren t concern in respect of the very transactions
that it is wary of today.
35. Notwithstanding this indemnification contract, it appears that
the petitioner‟s nominee Director s proceeded to initiate debt recovery
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proceedings against the debtors of respondent no . 3 and, in doing so,
dredged up some disputes between them and respondent nos. 1 and 2
causing their professional partnership to erode further . The r espondent
nos. 1 and 2 assailed this step as a breach of procedural stipulations
under the SHA and in comp lete violation of the statutorily mandated
procedure of consulting the company‟s Board before embarking on
litigious routes against its debtors. Aside from the alleged illegality of
the debt recovery exercise , these respondents further claimed that this
unilateral issuance of demand notices to its long standing clients for
relatively paltry sums has significantly dented the business of
respondent no. 3 company, resulting in loss of goodwill and causing
irreversible loss, prejudice and damage to its reputati on. As per
respondent nos. 1 and 2, when considering that the sums sought to be
recovered are not noteworthy by any measure, the act of the
petitioner‟s nominee Director s is transparently mala fide and intended
to inflict damage to the company. It may also have an adverse
impacting on the business and the share prices of the respondent no.3
company. They contended that that the petitioner ‟s grievance with
these small debts today and aggressive insistence on a forensic audit
for the years after 2016 is a mer e after -thought, a cleverly timed
strategy to shut out all opposition from the company‟s minority
shareholders and to deprive them from exercising their put option
right under the SHA.
36. At this stage, it may be useful to take note of the settled legal
position that though Section 9 confers wide ranging powers on the
Courts to pass interim measures of protection, these measures are
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solely driven to preserve and protect the assets which form the subject
of dispute. The purpose of the Court being, at the stag e when
arbitration is yet to be invoked, to effect protective directions which
act as placeholders until appropriate directions are passed by the
Arbitral Tribunal. Essentially , all interim measures granted at the pre
arbitration stage under Section 9 are aimed to ensure that arbitration
proceedings are not frustrated. In this regard, reference may be made
to the decision in Channel Tunne l Group Ltd. Vs. Balfour Beatty
Constructions Ltd. (1993) 1 All ER 664, 688 (HL ).
“…the purpose of interim measure of protection is not to encroach
on the powers of the arbitrators, but to reinforce them, and to render
more effective the decision at which the arbitrators will ultimately
arrive on the substance of the dispute. Provided, that this and no more
is what such measures aim to do, there is nothing in them contrary to
the spirit of international arbitration. It is a powerful weapon since it is
buttressed by the coercive powers of the Court. In the area of
arbitration law an interlocutory injunction is to balance the position of
the parties pending arbitration, whilst avoiding a decision on issues
which could only be resolved by the Arbitrators.”

37. Thus , the mandate of Section 9 necessitates issuance of
directions which will preserve and protect the assets of the p arties
until they finally proceed to arbitration. This has to be done equitably
by balancing the rival contentions and apprehensions of both the
parties and taking a decision on a prima facie basis, from the evidence
placed on record.
38. In the light of this legal position and the polar opposite stances
adopted by them, it is apparent that the parties‟ dispute with respect to
the allegations of financial irregularities requires a much more
comprehensive examination, of a kind that this Court certainly cannot
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undertake while exercising its powers under Section 9 of the Act.
However, for the purpose of meting out justice in the present petition ,
I have carefully considered the extent of influence wielded by the
petitioner in the financial dealings of respondent no.3. The petitioner
chose and appointed several key personnel in the company and the
financ e team thereof was not only directly under the supervision of a
Finance Director appointed by the petitioner but the entire department
itself reported to the petiti oner‟s nominee Director . It appears that the
petitioner was never denied an audit into the accounts and finances of
the respondent no.3 company through external auditors and that even
the statutory auditor of the company was appointed under the
recommendat ion of the petitioner. In fact, as noted above, the Board
resolution dated 21.09.2018 shows that Mr. Thomas Whelan, a
nominee director of the petitioner, was authorised to review and write
off all uncollected debts of respondent no. 3 company up to
31.03.2 017; who then proceeded to authorise writing off of significant
sums of debts, despite the hesitation of respondent nos.1 and 2. Thus,
the petitioner‟s nominee Directors wrote off and, in some cases,
insisted upon the writing off of the debts that it compl ains of today.
The record shows a tacit acceptance on the petitioner‟s part of the
financial dealings of respondent no.3 company . Throughout the period
of its shareholding in the company, the petitioner has accumulated an
enormous margin of dividends which it has received from respondent
no.3 company over the years, which includes the period that it seeks
to cast suspicion on. Not to mention, no annual statements of the
company for any financial year have been flagged by its statutory
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auditors, rather each has been approved by the petitioner‟s own
nominee Director s which signifies their acceptance of the financial
dealings of the company for those years. Even the allegations of
default under the Clauses 15.5 and Schedule 2 of the SHA amended
on 28.10.2015, by the respondent nos. 1 and 2 cannot be determined
without leading evidence. Therefore, prima facie, I find no merit in
the petitioner‟s submission that the respondent nos.1 and 2
orchestrated financial transactions which would bring harm to the
company, w ithout the knowledge of the petitioner. At the cost of
repetition, I emphasise that this a purely interim finding since drawing
any sort of final conclusion on this aspect, at this stage, would be
premature and invariably cause prejudice to the arbitratio n
proceedings and those pending before the learned National Company
Law Tribunal.
39. Now coming to the second grievance of the petitioner which
concerns the valuation made by respondent nos.1 and 2, in the
impugned notices, of the shares they seek to sell tod ay. The
respondent nos. 1 and 2 appear to have relied upon Clause 7 .6 of the
SHA to invoke the floor price formula set down in Clause 7.3 for the
purpose of calculat ing the amount payable to them on the premise that
the other two methods of calculating sha re price in Clause 7.3 could
not be applied since the audited financial statements for the relevant
year, FY 2019 -20, are not available. On the other hand, t he petitioner
contended that Clause 7.6 was meant to apply only for FY 2014 -15 as
it makes a speci fic ref erence to a situation where the audited financial
statements were not delivered to the petitioner/Investor on or before
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30.09.2015 . Thus , according to the petitioner , the use of the floor
price formula through Clause 7.6 was only intended to calcul ate the
value of shares in the event of exercise of call/ put option by any
shareholder in the year 2015 and no other year. It was submitted that
Clause 7.6 of the SHA automatically stopped operating after 2015 .
The petitioner , therefore, contended that the SHA provided only two
methods for determining share values for the purpose of a call/put
option right exercise after 2015 which was contained in Clause 8.1; (i)
by taking the EBIDTA price of the shares for the relevant year and
calculating the value based on that, or (ii) on the basis of the fair
market value of the shares determined by a chartered accountant.
However, since these methods depend entirely on the audited
financial statements of respondent no.3 company for the relevant year
and the petitioner is in staunch opposition of the statements released
thus far, the petitioner contended that no valuation could be made as
on date without arbitrating the issue of financial irregularities. Here, it
may be apposite to extract the clauses which form the cru x of this
issue , namely Clause 7.3 of the SHA :
“7.3. Subject to Clause 7.6 and applicable Law, the Call Price shall be the higher
of: (I) the Floor Price; (II) the Relevant Year EBITDA Price; or (III) the fair
market value computed by a chartered accountan t (eligible to practice in India as
per applicable Law) appointed solely by the Investor. For the purposes of this
Agreement:

“Floor Price” means the amount in INR equal to the value of “FP” determined in
accordance with the formulae set out below:

CS
FP= ——– x Closing Date Enterprise Value -Net Debt on Relevant Year
Closing Date
ESC
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OMP ( I) (COMM) 374/2020 Page 38 of 46

For the purpose of the abovementioned formulae:
(i) “CS” means the number of Call Shares proposed to be specified in
the Call Option Notice,
(ii) “ESC” means aggregate number of Equity Securities comprising
the Share Capital; and
(iii) “Closing Date Enterprise Value” means INR 3000 million.
(iv) “Net Debt on Relevant Year Closing Date” = Long term and short
term borrowings of the Company – Cash & cash equivalents –
Non-core real estate assets. Net Debt should be estimated as of
year of completion date of the Call Option.
xxx

7.6 If the company fails to deliver audited financial statements of the
Company for the Relevant Year to investor on or prior to the expiry of
September 30, 2015 on account of any reason other than a mandatory
requirement under applicable Laws, then the Call Price shall be deemed
to be the Floor Price.”

40. Reading these extracted provisions along with Clause 8.1
already noticed h ereinabove , it is not difficult to gauge as to why the
petitioner urged that this formula was applicable only for FY 2015 .
Undoubtedly, the plain language of Clause s 7.6 as also 8.1 make s a
specific reference to the year 2015 for application of the floor price
formula . However, that being said, it is undisputed that the SHA
underwent an amendment in 2019 , i.e., much after September, 2015 ,
yet the clause for determining the value of the shares on the basis of
the floor price formula was never removed and co ntinued to remain
intact in the contract. If the intention of the parties was to truly limit
the applicability of Clause 7.6 to a single year of 2015, nothing
prevented them from removing the clause entirely. The fact that they
did not , has to be read alon g with the settled principles governing
construction of a contract in that, contents of the SHA have to be read
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in a manner which does not render the terms thereof absurd. Prima
facie, I am of the opinion that the interpretation sought to be advanced
by th e petitioner would lead to a preposterous situation wherein the
put option right of respondent nos.1 and 2, a contractually vested right
under the SHA, can never be exercised after FY 2015 in case the
audited financial statements of the company are not ava ilable . That
would mean that once the petitioner achiev ed majority shareholding
of respondent no.3 company in 201 5 and FY 2015 ended , respondent
nos.1 and 2 could never exercise their put option rights in case any of
the shareholders raised a dispute on th e finances of the company
preventing the finalisation of the audited financial statements for the
relevant year . Certainly, the agreement did not intend to bear such a
complicated operation of the call/ put option rights or make these
rights inaccessible to its shareholders. Thus, I am of the prima facie
view that at this stage, when the audited financial statements for the
FY 2019 -20 are not available, the only legitimate method to
determine the price of the shares under the SHA is as per the floor
price fo rmula set out in Clause s 7.3 and 7.6 . Therefore, at this stage,
it cannot be prima facie stated that the valuation of the shares, as
carried out in the impugned notices, is excessive in any manner.
41. The petitioner contended before me that if the impugned
notices were not stayed, it had to perforce pay the amount s of INR
47,18,27,107/ – to respondent no.1 and INR 20,49,57,930/ – to
respondent no. 2, aggregating a sum of INR 67,67,85,037/ – as
consideration for the 19.98% shares put up by them , failing which it
would be held in „material default‟ under Clause 12.3 of the SHA . A
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OMP ( I) (COMM) 374/2020 Page 40 of 46
necessary corollary thereof would be that the petitioner‟s rights as a
majority shareholder would be suspended under Clause 12.3 of the
SHA leading to it being deprived of its right to ta ke part in the
management of respondent no. 3 company . Relevant extract s of
Clause 12 of the SHA which defines material default and its
consequences read as under:
“12. MATERIAL DEFAULT

12.1. For the purpose of this Clause 12 ( Material Default ), the
following events shall constitute a “Material Default” of this
Agreement:

(i) x x x

(ii) failure by either the Investor or any Affiliate of the Investor or
any Person to whom Equity Securities have been Transferred by the
Investor pursuant to this Agreement (ea ch, a “Put Obligor”) to
perform such Put Obligor’s obligations In relation to the Put Option
or the First Tranche Post Majority Put Option on account of any
reason other than on account of any mandatory requirement under
applicable law which prohibits the Put Obligor from performing Its
obligations in relation to the Put Option or the First Tranche Post
Majority Put Option ; and

(iii) x x x

Any Person who commits a Material Default under this Clause 12.1
shall be referred to as the ” Material Defaulter”.

12.2. In the event of a Material Default by either the Investor or the
Existing Shareholders, the Existing Shareholders or the Investor (as
the case may be) {the ”Non -Defaulting Party”), shall, within a
period of 30 [thirty) Business Days from the date o f such Material
Default give a notice in writing to the Material Defaulter, intimating
the Material Defaulter of such Material Default (“Material Default
Notice”).

12.3. Notwithstanding anything to the contrary set out In this
Agreement or any other provi sion of the Transaction Documents, If
any Material Default is not cured by the Material Defaulter within a
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OMP ( I) (COMM) 374/2020 Page 41 of 46
period of 30 (thirty) Business Days from the date of the Material
Default Notice(“Material Default Cure Period”], the rights of such
Material Default er under Clauses 2(Share Capital), 3
(Management), 4 (Deadlock), s (Restrictions on Transfer of Equity
Securities, 6 (Right of First Refusal)and 10 (Tag Along Right) shall
be suspended with immediate effect from the date of expiry of the
Material Default C ure Period until such Material Default is cured
by the Material Defaulter. In the event that a Material Default is not
cured within the expiry of the Material Default Cure Period by the
Material Defaulter:

12.3.1 a Material Defaulter shall, Immediately up on the expiry of the
Material Default Cure Period, procure the Immediate resignation
and removal of Its Director (s)nominated by such Material Defaulter
and shall, subject to applicable Law, indemnify and hold harmless
the Non -Defaulting Party on demand aga inst all losses which the
Non-Defaulting Party may suffer as a result of, or In connection with
any claim made by such resigning or removed Director , as the case
may be, including but not limited to, for unfair or wrongful
dismissal, and any reasonable cos ts and expenses Incurred in
defending such proceedings including, but without prejudice to the
generality of the foregoing, legal costs actually Incurred, or other
compensation arising out of such Director ‘s removal or loss of
office; and

12.3.2. Subject to applicable law, all voting ·rights of the Material
Defaulter as a Shareholder shall be suspended until such Material
Default Is cured. ”

42. The apprehensions of the petitioner appear to be correct, if the
party which needs to honour the put option invocati on does not do so
within the stipulated period, it shall be in „material default‟ under the
SHA. However, before me, the case of the petitioner is that the very
issuance of the impugned notices under Clause 7.6 was illegal and
unsustainable and, therefore, merely because the petitioner refuses to
honour these notices and pay the exorbitant amounts arbitrarily
demanded by the respondents, it cannot be deemed to be in „material
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default ‟ or subject to the consequences thereof under Clause 12.3 of
the SHA.
43. At the same time , the petitioner did not deny its liability for
paying monies to respondent nos.1 and 2 if their exercise of put
option right is green lit in arbitration. In other words, were it to be
held in arbitration that there is no proof of the responde nt no.3
company having indulged in questionable financial practices under
the sole directions of respondent nos. 1 and 2, the petitioner claimed
to have no qualms in honouring the payments required to be made
towards the put option exercise. Thus, notwiths tanding the petitioner‟s
acknowledgement of the fact that it has a contractual obligation to buy
out these shares from respondent nos. 1 and 2 as and when directed,
its only reservation is with respect to honouring the put option notices
at this premature stage and paying any amount for these shares
without resolving its disputes pertaining to the financial irregularities
in the affairs of respondent no 3 and, in that process, end up paying
them a greater sum than payable. Therefore, the liability to pay fo r
these shares is not denied, what is denied is the existence of the
liability and the requirement to pay for these shares today and that too
at the price demanded by the respondent nos. 1 and 2 .
44. While opposing the hasty manner in which respondent nos. 1
and 2 have demanded satisfaction of this liability, the petitioner
claimed that there is absolutely no justification on their part to insist
that this exorbitant demand of theirs must be met at this stage itself.
For this purpose, the petitioner did not onl y take great pains to
establish its financial solvency as on date but also urged that in line
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with the international standards of accounting , its parent company had
already catered for the amounts payable towards purchase of these
additional shares under t he put option clause of the SHA. To the
petitioner, this proved that in case the demanded amount was found to
be justifiably payable in arbitration, the petitioner would undoubtedly
be in a position to discharge this liability. In fact, both parties drew
my attention to the Condensed Consolidated Statement of Financial
Position contained in the interim finance report of the petitioner‟s
parent company Hyve Group PLC, published on 07.05.2020 for FY
ending on 31.03.2020 which estimate d its net assets to be GBP
198,587,000. This financial statement was also used by the petitioner
to contend that it had more than enough assets to satisfy the amounts
claimed by respondent nos. 1 and 2 in their impugned notices as and
when it is found to be valid and payable by a Court of law. The
petitioner, thus, contended that there was no reason to compel it to
pay any amount s to respondent nos.1 and 2 at this premature stage or
to deposit the same before this Court considering that the financial
health of the petitioner‟s pare nt company was intact which eliminate d
any need for securing the amount. On the other hand, respondent nos.
1 and 2 relied on this financial statement as well to claim that these
figures prove d that there was no reason for the petitioner to refuse
making p ayment under the impugned notices.
45. I have carefully considered this aspect and remain of the view
that in these proceedings, the primary duty of this Court is to pass
equitable reliefs in order to ensure that the interests of both parties are
duly secured until such time their grievances with respect to each
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other are resolved in arbitration. Thus , even though the allegations of
financial impropriety and misconduct in the affairs of respondent no.
3 company are serious in nature, they still need to be thoro ughly
examined by a competent forum before respondent nos. 1 and 2 are
held guilty on this charge. At the same time, at this stage, when these
allegations are yet to be conclusively established , it would not be
appropriate to simply ignore the entitlement of respondent nos. 1 and
2 under the SHA to exercise their put option rights.
46. Significantly, the petitioner is a company incorporated in
Cyprus and has, admittedly, negligible assets within the territory of
India. In addition to that , notwithstanding the interim finance report of
Hyve Group PLC which has been relied on by the petitioner and
respondent nos.1 and 2, even the preliminary results for the year 2020
published on 01.12.2020 and placed on record by the petitioner show
that the value of its net ass ets in September 2020 is GBP 176,946,000,
lower than the valu ation of GBP 198,587,000 in its interim report
published in May 2020. I can see that the net assets of the petitioner‟s
parent company have fallen by GBP 21,641,000 in a span of four
months , whic h may be typical during a pandemic, but the fact of the
reduction in the net assets of the petitioner‟s parent company remains.
Thus, t here a ppears to be merit in the plea of respondent nos.1 and 2
that the petitioner ought not to be permitted to be reliev ed of its
obligation to honour the put option right under the SHA unless
adequate directions are passed in order to secure their interest.
47. For these reasons, as also my prima facie findings which have
been recorded hereinabove , I am of the view that were these put
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option notices to be stayed, in order to balance equities the petitioner
ought to be made to deposit before the Court the amount which is
required to be paid as consideration for the 19.98% shares put up by
respondent nos. 1 and 2 . On that note, a s already discussed above, I
have not been persuaded by the petitioner‟s contention that there is
any infirmity in the formula used by these responden ts to calculate the
consideration , rather the valu ation set out by them in the impugned
notices deserve s to be prima facie accepted for the purpose of
securing the amounts in the interregnum .
48. Accordingly, it is directed that the operation of the impugned
put option notices dated 15.11.2020 issued by respondent nos.1 and 2
in respect of the 19.98% shares of th e respondent no.3 company held
by them, are stayed , subject to the petitioner depositing an amount of
INR 67,67,85,037/ – before this Court within a period of two weeks.
Thereupon, the respondent nos. 1 and 2 shall maintain status quo as
regards the 19.98% of the shares of respondent no.3 company which
the impugned notices relate to . The deposit of the amount by the
petitioner before the Court would be subject to any orders that may be
passed regarding the validity of these notices , either in arbitration ,
which may be invoked by either of the parties , or by the learned
National Company Law Tribunal, as the case may be . It is made clear
that in case the said amount is not deposited within 2 weeks, this order
shall stand vacated and the respondents will be at l iberty to take
appropriate steps in accordance with the SHA.
49. Before concluding, I would like to deal with the plea of
respondent nos. 1 and 2 that since the petitioner had already
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approached the NCLT , institution of this petition amounted to forum
shoppin g. In my view, there is no merit in this objection ; though this
petition impugning notices dated 15.11.2020 was filed on 18.11.2020,
the fact remains that these notices were issued only after the petitioner
had already preferred the oppression and mismanag ement petition
before the learned NCLT on 10 .11.2020. Even otherwise, it is a
matter of re cord that the NCLT petition had not been listed for
hearing at the Tribunal all the way till 04.01.2021 when this judgment
was reserved . Further, unlike the proceedin gs before the learned
NCLT , the petiti oner has specifically sought suspension of these
notices before this Court as an interim measure till its challenge to
these notices is decided by the appropriate forum . In these
circumstances, there is no question of there being any forum shopping
or duplicity of proceedings arising out of the presentation of this
Section 9 petition.
50. The petition is disposed of in the aforesaid terms.

REKHA PALLI, J
JANUARY 22, 202 1
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