1. The unsuccessful plaintiffs have filed this appeal under Section 96 of the Code of Civil Procedure, 1908 (for short, the Code) as they are aggrieved
by the judgment of the trial Court dated 20/09/2013 dismissing the suit for specific performance of the contract dated 28/10/2005. It is the case of the
plaintiffs as pleaded in the plaint that the plaintiff No.1 is a Proprietor of the firm M/s Shri Sai Industries. The defendant Nos.2 to 5 were 100%
shareholders in the defendant No.1Â Company which was incorporated under the Companies Act, 1956. The plaintiffs and defendant Nos.2 to 5 were
familiar with each other and the said defendants expressed an intention to sell their entire 100% shares to a prospective purchaser. As the plaintiffs
had business of similar nature as that of the Company, they showed their willingness in acquiring the entire shares of the defendant No.1ÂCompany.
There were negotiations between the parties with regard to transfer of the entire shares along with right, title and interest in the defendant No.1Â‐
Company. Accordingly on 28/10/2015 a Memorandum of Understanding (MOU) came to be executed between the defendant Nos.2 to 5 and the
plaintiffs for a consideration of Rs.1,15,00,000/Â. The entire shares of the defendant No.1ÂCompany were agreed to be sold to the plaintiffs. Prior to
entering into that MOU the plaintiffs gave a public notice expressing their interest in purchasing the shares of the defendant No.1ÂCompany. On
execution of the MOU the plaintiffs paid an amount of Rs.11,15,000/Â being the earnest amount. The balance consideration was to be paid on or
before 28/02/2006. After paying the entire consideration the possession of the factory along with its plant and machinery was to be handed over to the
plaintiffs. The defendants agreed to coÂoperate with the plaintiffs in obtaining loan for payment of balance consideration. The defendants obtained
noÂdues certificate from the MIDC and on 23/02/2006 the plaintiffs issued a letter to the defendants to collect the balance consideration of
Rs.1,03,85,000/Â. The defendant Nos.2 to 5 however avoided to transfer the shares as agreed. They also tried to remove some of the plant and
machineries that was lying in the factory. According to the plaintiffs as the agreement between the parties was neither terminated nor cancelled, it
was not open for the said defendants to dispose of the property. The plaintiffs on 13/03/2006 found that the defendants were negotiating the same
matter with some other parties and hence filed suit for specific performance of the MOU dated 28/10/2005.
2. Written statement was filed by the defendants in which it was pleaded that there was no concluded contract between the parties and the said
defendants had disposed off most of the plant and machineries that was lying in the factory in the months of January and February 2006. According to
the defendants there were mere formal talks between the parties with a possibility of the transfer of shares between them. There was no concluded
contract by which the Directors had agreed to sell the Company to the plaintiffs. An amount of Rs.5,00,000/Â had been paid to the defendant No.3 in
her independent capacity and not to the Company. It was thus denied that earnest amount of Rs.11,15,000/Â was received by the defendants.
Moreover the plaintiffs had failed to place on record any document to indicate sanction of any loan or that the balance consideration was available
with the plaintiffs. The communication dated 16/03/2006 issued by the defendants was clear that the understanding between them was put to an end
and therefore it was pleaded that no relief could be granted in the suit as filed. The consequence of breach of said MOU had been provided for and
thus the plaintiffs could always be compensated in monetary terms. The plaintiffs had infact suppressed various material aspects. According to them
on 16/03/2006 the defendants had issued a letter to the plaintiff No.1 stating therein that the MOU had been cancelled. Despite receiving that
communication said fact was not disclosed in the plaint. It was thus stated that the suit was liable to be dismissed.
3. In support of their case the plaintiffs examined three witnesses. The defendants examined two witnesses on their behalf. The trial Court after
considering the entire evidence on record came to the conclusion that the plaintiffs had failed to prove that the defendants had agreed to sell 100%
shares along with the right, title and interest in the Company to the plaintiffs. The payment of Rs.1,15,000/Â by the plaintiffs as stated in the MOU
was held to be proved. By holding that the plaintiffs had not proved their readiness and willingness to perform their part of the contract, the suit as
filed came to be dismissed. Being aggrieved the plaintiffs filed this appeal.
4. During pendency of the appeal, the plaintiffs filed an application under provisions of Order XLI Rule 27 of the Code. In that application the plaintiffs
sought to rely upon four documents. The first document was a statement showing the shareholdings of shareholders in the defendant No.1Â Company
alongwith details of bank accounts. According to the plaintiffs that document was produced on record before the trial Court but it was not admitted in
evidence. The second document was the relevant extract from the Registrar of Companies for the year 2005Â06 indicting the respective
shareholdings. The third document sought to be placed on record by the plaintiffs was the extract from the Registrar of Companies indicating the
shareholding pattern for the year 2012Â13. The fourth document was a Certificate dated 12/11/2013 issued by the TJSB Ltd. indicating the position of
the funds available with the plaintiffs. Similarly a letter indicating sanction in principle of a term loan of Rs.1,25,00,000/Â against the mortgage of
property was also sought to be placed on record. In the application it is stated that no prejudice would be caused to the defendants if the aforesaid
evidence is permitted to be brought on record.
In reply to the said application the defendants opposed production of this additional evidence. It was stated that the trial Court had no occasion either
to admit or to refuse admission of the document indicating the details of shareholdings as on 22/02/2006. The plaintiffs infact had not led any evidence
in support of the contents that document and hence it was not permitted to be brought on record before the trial Court. As regards other documents it
was stated that the said documents were available for being produced before the trial Court but no steps were taken to bring the same on record. No
case has been thus made out to permit the plaintiffs to adduce additional evidence as prayed for. The requirements of Order XLI Rule 27 of the Code
had not been satisfied and it was thus stated that the application was liable to be rejected.
5. In support of the appeal Ms S. Kumbhat, learned counsel for the appellants made the following submissions :
(a) The trial Court committed an error in coming to the conclusion that the plaintiffs had not proved that they were always ready and willing to
perform their part of the agreement in accordance with the MOU at ExhibitÂ40. Referring to various clauses of that MOU it was submitted that after
payment of the earnest amount, the plaintiffs were only required to pay the balance consideration of Rs.1,03,85,000/Â. In the light of the other material
on record and especially the communications at ExhibitsÂ45 and 66 indicating sanction of the loan by the TJS Bank to the plaintiffs, it was clear that
the plaintiffs had the financial capacity to pay the balance consideration and that amount was ready with the plaintiffs. It was not necessary for the
plaintiffs to indicate ready cash available with them and in view of the fact that the Bank had sanctioned the loan, there was no reason to hold that the
plaintiffs were not ready and willing to perform their part of the agreement. The defendants in their written statement did not raise any plea as regards
absence of financial capacity of the plaintiffs to pay the balance consideration. Similarly the letter at ExhibitÂ66 issued by the TJS Bank indicating
availability of term deposits of Rs.37,50,000/Â with the plaintiffs was also ignored by the trial Court. It was submitted that the requirements of Section
16(c) of the Specific Relief Act, 1963 were duly satisfied and the trial Court erroneously held that the plaintiffs were not ready and willing to perform
their part of the agreement. It was further submitted that the alleged cancellation of the MOU on 16/03/2006 by the defendants was unjustified and in
absence of any breach of the terms of the MOU being committed by the plaintiffs, there was no reason for the defendants to cancel the MOU. In that
regard the learned counsel placed reliance on the decision in M/s Avdel Tools & Services vs. M/s Trufit Fasteners Pvt. Ltd. 2008(6) ALL MR 611. It
was thus submitted that on a proper appreciation of the entire evidence on record it was clear that the plaintiffs had proved their readiness and
willingness to perform their part of the agreement.
(b) The MOU at ExhibitÂ40 was very much binding on the defendant No.1 and the plea as raised that it was not signed by the defendant No.4 was
only by way of an afterthought. The plaintiffs had placed on record sufficient material to indicate that the defendant No.4 had also signed the said
MOU. In fact it was the plaintiffs who had moved an application below ExhibitÂ129 for appointing a Handwriting expert so as to obtain an opinion as
to the signatures of defendant No.4 on the said document. The learned Judge of the trial Court was not justified in himself comparing the signatures of
the defendant No.4 and then concluding that the same were different. It was clear that the defendant No.4 present in India when the said MOU was
signed.
Without prejudice to the aforesaid, it was submitted that the defendant Nos.2,3 and 5 were majority shareholders and they having signed the MOU,
the plaintiffs were entitled to relief to that extent. All the four defendants held 100% shares of the defendant No.1ÂCompany and the MOU could
have been directed to be enforced at least against defendant Nos.2,3 and 5. Said aspect has however been ignored by the learned Judge of the trial
Court.
(c) By invoking the doctrine of indoor management, the plaintiffs could have been granted the relief of specific performance in respect of the MOU.
As defendant Nos.2 to 5 held all the shares of the defendant No.1ÂCompany it was the matter interÂse between them and the MOU could not be
defeated on the plea that it was not signed by defendant No.4. For said purpose the learned counsel placed reliance on the decisions in County of
Gloucester Bank vs. Rudry Merthyr Stem and House Coal Colliery Company 1 Ch. Chancery Division 629, Lakshmi Ratan Cottom Mills Co. Ltd. vs.
J. K. Jute Mills Co. Ltd. AIR 1957 Allahabad 311 and Punj Star Industries Pvt. Ltd. vs. Atna Engineering Pvt. Ltd. and ors. 2010 (120) DRJ 183.
Moreover, it was also permissible to sever that part of MOU which was found invalid and effect could be given to the valid portion thereof. The
learned counsel referred to the decisions in Shin Satellite Public Co. Ltd. vs. Jain Studios Ltd. AIR 2006 SC 96, 3Elektron Lighting Systems Private
Ltd. And anr. vs. Shah Investments Financial Developments and Consultants Pvt. Ltd. and ors. (2015) 15 SCC 13,7 BOI Finance Ltd. vs. Custodian
AIR 1997 SC 1952 and IDBI Trusteeship Services Ltd. vs. Hubtown Ltd. AIR 2016 Bom 243 in that regard. Moreover, as the shares of a Company
have the character of movable property the same are easily transferable and hence the relief of specific performance was not liable to be denied on
that count. The learned counsel referred to the decisions in V. B. Rangaraj vs. V. B. Gopalakrishnan and ors. (1992) SCC 160 in that regard.
(d) The communication dated 16/03/2006 issued by the defendants for terminating the MOU not having been duly served upon the plaintiffs prior to
filing of the suit, it was not necessary for the plaintiffs to have sought a declaration that such termination of the MOU was illegal. The reference made
to that aspect by the defendants in their written statement was of no avail and the relief of specific performance was not liable to be denied on that
count. The learned counsel in that regard placed on the decisions in A. Kanthamani vs. Nasreen Ahmed (2017) 4 SCC 654 and Radhey Shyam vs.
Varsha Yadav (2018) SCC Online Del. 9442. It was thus submitted that in the light of the evidence on record the plaintiffs had made out a case for
grant of a decree of specific performance. The termination of the MOU by the defendants being untenable, the discretion to grant the said relief ought
to have been to exercised in favour of the plaintiffs.
(e) The additional evidence as referred to in the application filed under provisions of Order XLI Rule 27 of the Code deserves to be allowed. That
evidence pertained to the shareholdings of the defendant Nos.2 to 5 in the defendant No.1ÂCompany. Since the documents were pertaining to the
Company, no prejudice would be caused in said additional evidence was permitted to be brought on record. The other documents pertained to the
financial capacity of the plaintiffs and the fact that the TJS Bank had sanctioned the loan in favour of the plaintiff. The said evidence would enable the
Court to decide the appeal in a better manner. Reliance in that regard was placed on the decisions in Alamelu Ammal and anr. vs. S. Rani and ors.
AIR 2017 SC 2612, Akhileshwar Singh vs. Lal Babu Singh and ors. AIR 2018 SC 124,0 K. Venkataramiah vs. A. Seetha Rama Reddy AIR 1963 SC
1526, Shalimar Chemicals Works Ltd. vs. Surendra Oil and Dal Mills (Refineries) & ors. 2010 (8) SCC 42,3 Y.P. Sudhanva Reddy and ors. vs.
Chairman & Managing Director Karnataka Milk Federation AIR 2018 SC 217,6 Iridium India Telecom Ltd. vs. Motorola Inc. & Ors. 2004 (1)
Bom.C.R.479, Corporation of Madras and anr. vs. M. Parthasarathy and ors. AIR 2018 SC 3777 and Adil Jamshed Frenchman (D) By LRs vs.
Sardar Dastur School Trust AIR 2005 SC
996. By allowing the said application, those documents ought to be taken into consideration.
6. Shri P. S. Dani, learned Senior Counsel for the defendant No.1 while opposing the appeal made the following submissions :
(a) The defendant No.1ÂCompany was not a party to the MOU at ExhibitÂ40 and hence the same was not binding on it. No decree could be passed
against the Company and therefore the relief sought by the plaintiffs against it was misconceived.
(b) Transfer of shares can be done only in the manner provided by the Articles of Association at ExhibitÂ160 Various Articles indicated the manner in
which the shares could be transferred and that too after due notice to the Company. The Company was to act as the agent of the shareholder
proposing to transfer his share which indicated the requirement of consent of the Company. As per ArticleÂ9, the Company was to be the agent for
such transfer. As all properties vested in the Company, its transfer was not permissible in a manner contrary to the Articles of Association. In that
regard the learned Senior Counsel placed reliance on the decision in V. B. Rangaraj vs. V. B. Gopalakrishnana and ors. AIR 1992 SC 453.
(c) The MOU was not severable as urged by the plaintiffs. Absence of one signature would not make it severable and the Company could refuse to
transfer its shares on that premise. Moreover, considering the finding recorded that the signature of defendant No.4 was not actually made by her, no
relief of specific performance deserved to be granted in favour of the plaintiffs.
(d) The requirements of Order XLI Rule 27 of the Code were not satisfied and hence no permission in that regard could be granted.
7. Shri N. V. Walawalkar, learned Senior Counsel for the respondent Nos.2 to 5 while opposing the appeal made following submissions :
(a) Readiness and willingness of the plaintiffs should be continuous in nature. It should be shown that before the cutÂoff date the plaintiffs had the
necessary funds for being paid to the defendants. However, there was no such evidence on record and infact the letters issued by the Bank merely
indicated sanction of loan “in principleâ€. The deposition of DWÂ3 clearly indicated that the process of sanction of the loan was not completed and
that the plaintiff No.1 herself was responsible for nonÂsanction of the loan. Moreover, possession of the assets was to be given after the entire
payment was made by the plaintiffs. However without making such payment the plaintiffs issued a communication on 23/02/2006 prior to cutÂoff date
and demanded possession. At no point of time was the balance consideration ready with the plaintiffs. In that regard the learned Senior Counsel
referred to the decisions in Kalawati (Dead) Thr. LRs and ors. vs. Rakesh Kumar and ors. (2018) 3 SCC 65 8and A. K. Lakshmipathy (Dead) and
ors. vs. Rai Saheb Pannalal H. Lahoti Charitable Trust and ors. (2010) 1 SCC 287.
(b) The defendant Nos.2 to 5 had on 16/03/2006 cancelled the MOU and therefore it was incumbent upon the plaintiffs to have also sought a
declaration as regards invalidity of that cancellation. In absence of any prayer made in that regard the letter dated 16/03/2006 would continue to
operate and no relief of specific performance was liable to be granted. In that regard reliance was placed on the decision in I. S. Sikandar (Dead) by
LRs vs. K. Subramani and ors. (2013) 15 SCC 27.
(c) The finding of fact recorded by the trial Court that the MOU was not signed by the defendant No.4 was after appreciating the evidence on record.
That finding was not perverse and infact the plaintiffs did not take requisite steps for obtaining the expert's opinion. In absence of the MOU being
signed by the defendant No.4 there was no question of grant of specific performance against other defendants.
Referring to the decision in Jaswinder Kaur (now deceased) Thr. her LRs and ors. vs. Gurmeet Singh and ors. (2017) 12 SCC 81,0 it was submitted
that the prayer for specific performance was rightly refused by the trial Court.
The doctrine of indoor management as urged on behalf of the plaintiffs would not operate in the facts of the present case especially when the MOU
was not signed by the defendant No.4. Similarly, the MOU was also not severable as urged as no invalid clause was pointed out.
(d) No case was made out to lead additional evidence. The documents sought to be relied were available for being brought on record before the trial
Court. In absence of the requirements of Order XLI Rule 27 of the Code being satisfied, that application could not be allowed. On the aforesaid
counts it was submitted that there was no reason to interfere with the judgment of the trial Court and the appeal was liable to be dismissed.
8. On hearing the learned counsel for the parties the following points arise for determination :
(a) Whether the appellants have made out a case for grant of permission to lead additional evidence under provisions of Order XLI Rule 27 of the
Code ?
(b) Whether the Memorandum of Understanding at ExhibitÂ40 is binding on the defendant No.1 ?
(c) Whether the Memorandum of Understanding at ExhibitÂ40 has been proved to be signed by defendant No.4 ? If not, whether said Memorandum
of Understanding is liable to be enforced against the other signatoriesÂdefendant Nos.2, 3 and 5 as well as the Company defendant No.1 ?
(d) Whether the plaintiffs have proved that they were always ready and willing to perform their part of agreement and whether they are entitled for
the relief of specific performance ?
(e) Whether in the facts of the case it was necessary for the plaintiffs to have sought a declaration that the termination of Memorandum of
Understanding by letter dated 16/03/2006 issued by the defendants was required to be specifically challenged ?
(f) What order ?
9. As to Point (a) The appellants have filed Civil Application No.459/2013 on 25/11/2013 praying therein that they be permitted to lead additional
evidence in exercise of powers under provisions of Order XLI Rule 27 of the Code. In the said application it has been stated that the appellantsÂ‐
plaintiffs had produced before the trial Court the document indicating the share holdings of the various Directors but that piece of evidence was
ignored by the trial Court. The said document is at ExhibitÂA and it indicates the details of the share holdings of the Directors till 22/02/2006. The next
document sought to be relied upon also indicates the holding of shares which details have been obtained from the Registrar of Companies in the year
2005Â06. As per document at ExhibitÂC the said earlier share holding continued in the year 2012Â13 and that position is sought to be brought on
record. According to the appellants these documents were produced by the plaintiffs in the trial Court but the same were neither exhibited nor
considered by the trial Court. The next document at ExhibitÂD is a communication from TJS Bank dated 12/11/2013 indicating that the plaintiff No.1
and her family in the year 2005Â06 held Fixed Deposit Receipts for a amount of Rs.64,45,000/Â. At ExhibitÂE is another letter also dated 12/11/2013
issued by the said Bank indicating “ in principle†sanction of term loan of Rs.1,25,00,000/ against mortgage of security. It has been stated in the
application that these documents be considered as additional evidence while deciding the present appeal and that no prejudice would be caused if said
documents are permitted to be relied.
In the reply filed on behalf of respondent No.2 the prayer as made is opposed. It is stated that defendant No.4 was in United States of America when
the MOU was said to be signed. It is stated that though the appellants had produced the details with regard to the shareholding, no evidence was
adduced by the plaintiffs in that regard before the trial Court. It is further stated that the appellants were not diligent in bringing on record the
documents now sought to be produced. The trial Court therefore had no occasion to either admit or to refuse admission of the documents indicating
the shareholdings. Those documents were always available being part of the public record and there was no reason why said documents were not
produced before the trial Court. The certificate issued by the Bank was dated 12/11/2013 which was after the judgment of the trial Court and hence
said documents did not deserve to the permitted to be brought on record. The requirements of provisions of Order XLI Rule 27 of the Code were not
satisfied.
10. Before considering the prayer made in the said Civil Application it would be necessary to refer to the decision in Union of India vs. Ibrahim Uddin
and anr. (2012) 8 SCC 148 wherein the principles in the matter of leading additional evidence have been laid down. It has been held therein that where
a party on whom the onus of proving a certain point lies fails to discharge the onus, that party is not entitled to a fresh opportunity to produce the
evidence. If the appellate Court can without such additional evidence pronounce its judgment then in that case the appellate Court cannot let in fresh
evidence. The observations in paragraph 40 of and 41 are relevant and the same read thus :
40. The inadvertence of the party or his inability to understand the legal issues involved or the wrong advice of a pleader or the negligence of a pleader
or that the party did not realise the importance of a document does not constitute a “substantial cause†within the meaning of this Rule. The mere
fact that certain evidence is important, is not in itself a sufficient ground for admitting that evidence in appeal.
41. The words “for any other substantial cause†must be read with the word “requires†in the beginning of the sentence, so that it is only
where, for any other substantial cause, the appellate court requires additional evidence, that this Rule will apply e.g. when evidence has been taken by
the lower court so imperfectly that the appellate court cannot pass a satisfactory judgment.
11. In the light of aforesaid principles if the prayers made in the Civil Application are considered, it can be seen that in so far as the document at
ExhibitÂA is concerned the same indicates the shareholdings of the Directors as on 22/02/2006. The trial Court in paragraph 21 of its judgment has
observed that it has not been brought on record as to what number of shares were being held by the defendants. The burden in this regard was upon
the plaintiffs. There is however no evidence led by the plaintiffs to indicate those shareholdings. Though said document was placed on record, the
plaintiffs did not lead any evidence in that regard and hence it was not exhibited as a piece of evidence. I do not find any justifiable evidence to permit
the appellants at this stage to lead additional evidence in that regard. Similar is the reason as regards the extracts from the Registrar of Companies.
The two certificates dated 12/11/2013 sought to be relied upon by the appellants have been obtained after the judgment of the trial Court. There is no
reason as to why the evidence with regard to the position of the Fixed Deposits in the year 2005Â06 was not brought on record earlier. The sanction
of the loan in August 2013 is not a relevant factor. After examining the said documents in the light of the legal position referred herein above, I do not
find any justifiable reason to permit the appellants to lead additional evidence as prayed for.
The decisions relied upon by the learned counsel for the appellants indicate the procedure to be followed if additional evidence is permitted to be led.
As there is no occasion to permit the appellants to lead additional evidence, the question of following that procedure would not arise. The other
decisions where such permission has been granted are based on the nature of evidence sought to be relied upon in those cases. Suffice it say that in
the present case the requirements of Order XLI Rule 27 of the Code have not been satisfied and hence Civil Application No.459/2013 stands rejected.
Point (a) stands answered accordingly.
12. As to Point (b) According to Shri P. S. Dani, learned Senior Counsel for defendant No.1ÂCompany, the MOU at ExhibitÂ40 was not binding on
the Company as it was not a signatory to that document and further the same would not bind the defendant No.1ÂCompany to the extent it was
contrary to the Articles of Association. On the other hand according to the learned counsel for the plaintiffs, the MOU having been signed by all the
Directors and they having agreed to transfer all the shares of defendant No.1ÂCompany in favour of the plaintiffs coupled with the transfer of its
assets, the MOU was binding on the Company.
In this context it would be necessary to refer to the Articles of Association of the defendant No.1ÂCompany which are at ExhibitÂ160. Articles 8 to
19 relate to the manner in which shares of the Company can be transferred. As per Article 8 thereof a share can be transferred by a member or any
other person entitled to transfer the same to any member selected by the transferor however, except as provided by Articles 13 and 15, no share could
be transferred to a person who is not a member as long as any member or any person selected by the Director as one to whom it is desirable in the
interest of the Company to admit to membership is willing to purchase the shares at the fair value mentioned in Article 11. Article 9 stipulates that
excluding cases where the transfer is made pursuant to Articles 13 and 15, the person proposing to transfer any share has to give notice in writing to
the Company in that regard. Such notice would constitute the Company as his agent for the sale of the shares. The transfer notice shall not be
revocable except with the sanction of the Directors. Under Article 10, if the Company within period of four months of being served with such notice
finds a member or a person selected who is willing to purchase the shares, it shall give notice thereafter to the proposing transferor and he shall be
bound upon payment of the fair value to transfer the shares to the purchaser. Article 11 stipulates the manner in which the fair value of a share has to
be determined. As per Article 13, if the Company does not find within a period of four months of being served with the transfer notice, a member or a
person willing to purchase the shares, the proposing transferor would be at liberty within a period of three calender months thereafter to sell and
transfer the shares to any person at any price. Under Article 15 any share can be transferred by a member to any son or other issue or relative stated
therein and on such transfer the restrictions in Article 16 would not apply. The other Articles are not relevant for the present purpose.
13. From the aforesaid Articles it can be seen that the right to transfer a share is in accordance with Article 8. That Article permits transfer of a share
to any member selected by the transferor but such share cannot be transferred to a person who is not a member as long as the person selected by the
Directors for being admitted to membership is willing to purchase the same at a fair value mentioned in Article 11. Article 13 in the present facts
would not come in operation in view of the MOU at ExhibitÂ40 under which the plaintiffs were willing to purchase the said shares. Similarly Article
15 would also not apply in the present case.
In V. B. Rangaraj (supra), the question that arose for consideration was whether shareholders among themselves could enter into an agreement which
was contrary to or inconsistent with the Articles of Association of the Company. It was held that under the Companies Act, 1956 or the Transfer of
Property Act, 1882, shares were transferable like any other movable property. The only restriction on the transfer of shares was as laid down in the
Articles of Association. A restriction not specified in the Articles would not be binding either on the Company or on the shareholders. It was held in
the light of the Articles of Association of the Company therein that the private agreement between the parties in the matter of transfer of shares
imposed additional restrictions on the right of a member to transfer his share. These additional restrictions which were contrary to the provisions of the
Articles of Association were held not binding either on the shareholders or on the Company.
14. From the aforesaid decision it would be clear that the Company would be bound to act as per its Articles of Association in the matter of transfer
of shares. In that context Article 11 specifies the manner in which the fair value of the shares has to be determined. ClauseÂ1 of the MOU however
specifies the price of each share to be Rs.1150/Â. As per Article 9 in cases excluding transfer of shares made pursuant to Articles 13 and 15, the
person proposing to transfer his share has to give notice in writing to the Company to that effect. Such notice results in the Company being the agent
for the sale of shares to any member of the Company or the persons selected at a fair value to be agreed. As per the MOU there is no stipulation as
to giving such notice by the defendant Nos.2 to 5 to the defendant No.1Â Company and thus the transfer of shares is sought to be made without due
notice to the Company. It is not in dispute that the transfer in the present case is not pursuant to Articles 13 and 15 thereof. Thus the MOU
contemplates transfer of shares in favour of the plaintiffs without any notice to the Company as stipulated. This vital aspect of absence of notice to the
Company would amount to transfer of shares being effected not in accordance with the Articles of Association. It cannot be ignored that Article 9 is
worded in a mandatory language and giving of notice by the person proposing to transfer of his shares is necessary. In the light of the ratio of the
decision in V. B. Rangraj (supra) transfer of shares in a manner not prescribed by the Articles of Association would not bind the Company. The
Company would be within its rights and as per the requirements of the Articles of Association justified in refusing to accept such transfer when there
was no notice to the Company as required by ArticleÂ9 of the Articles of Association. It is thus held that the MOU at ExhibitÂ40 would not bind the
defendant No.1ÂCompany as regards the mode and manner of transfer of shares.
Though the learned counsel for the plaintiffs sought to rely upon the doctrine of indoor management by referring to the decisions in Country of
Gloucester Bank, Lakshmi Ratan Cotton Mills Co. Ltd. and Punj Star Industries Pvt. Ltd. (supra), said doctrine in the facts of the present case would
not assist the case of the plaintiffs. For that doctrine to apply, the act of the Directors should be in consonance with the Memorandum as well as the
Articles of Association as an outsider is not expected to have knowledge about the internal management of the Company. However, as it has been
found that the MOU at ExhibitÂ40 is not in consonance with the Articles of Association of the Company, the plaintiffs cannot get any aid of said
doctrine. Point (b) stands answered accordingly.
15. As to point (c) In this regard it is to be noted that defendant No.4 has raised a specific defence that she had not signed the MOU at ExhibitÂ40 as
she was not available in India for the period from 22/03/2005 to 18/02/2006. She was examined at ExhibitÂ124. The passport of defendant No.4 at
ExhibitÂ126 and the certificate at ExhibitÂ127 clearly indicate absence of defendant No.4 in India on 28/10/2005 when the MOU is shown to have
been signed. In this regard it is to be noted that the plaintiffs had filed an application below ExhibitÂ129 praying therein that the admitted signature of
defendant No.4 as well as her disputed signature on ExhibitÂ40 be sent to a handwriting expert for obtaining his opinion. The trial Court by order
dated 01/10/2012 allowed that application. On 12/01/2012 a joint pursis was filed by the parties in which it was stated that defendant No.4 had put her
writing in presence of counsel for the parties and that the same was kept in a sealed cover to be opened if ordered. It is then found from the record
that thereafter the plaintiffs filed an application below ExhibitÂ154 praying therein that the order passed below ExhibitÂ129 be implemented. This
application was opposed by the defendants on the ground that it was filed belatedly. The trial Court however, allowed that application by its order
dated 12/04/2013. The plaintiffs then filed an application for issuing summons to the Handwriting Expert below ExhibitÂ155 and the same was allowed
by the trial Court on 16/04/2013. Thereafter, by application dated 17/08/2013, the plaintiffs sought permission to pay process fees and that application
was allowed on the same day. Witness summons came to be thereafter issued to the said expert. The witness summons were however not served on
the expert as can be seen from the notices at ExhibitsÂ157 and 158. In fact, the endorsement dated 28/08/2013 in the roznama indicates that the
plaintiffs did not pay the process charges. The trial Court in that context has observed in paragraph 15 of its judgment that though the applications
moved by the plaintiffs were allowed, no further steps were taken by the plaintiffs to obtain the opinion of the Handwriting Expert. The trial Court
therefore itself opened the sealed envelope in which the specimen signature of defendant No.4 was kept and compared the same with the signature on
the MOU at ExhibitÂ40. It concluded that both the signatures did not match with each other.
16. Thus in the light of the documents at ExhibitsÂ126 and 127 indicating absence of defendant No.4 from India for the period between 22/03/2005 to
18/02/2006 and the observations of the trial Court as to the difference in the signatures, that finding recorded by the trial Court is liable to be
maintained. It is thus held that the MOU at ExhibitÂ40 has not been proved to be signed by defendant No.4 and hence it cannot be enforced against
her. However, in so far as defendant Nos.2, 3 and 5 are concerned, it is proved that the MOU at ExhibitÂ40 was signed by them and hence would
bind them. Though it was urged on behalf of the plaintiffs that the MOU could be severed so as to give effect to its valid parts by striking out the
offending parts, no offending part in that context is found in the MOU and it has to be considered in its entirety. Absence of signature of the defendant
No.4 will only make it unenforceable against her. Hence, the ratio of the decisions relied upon in that regard cannot assist the case of the plaintiffs.
Point (c) is answered accordingly.
17. As to point (d) :
On the aspect of readiness and willingness of the plaintiffs, it would be necessary to first refer to the MOU at ExhibitÂ40. As per the terms thereof
the plaintiffs had paid an amount of Rs.11,15,000/Â when the said understanding was signed on 28/10/2005. The balance consideration of
Rs.1,03,85,000/Â was to be paid on or before 28/02/2006. That time was permitted to be extended by a further period of one month by either party by
giving a written notice to that effect. After payment of the balance consideration the defendants were to hand over the transfer forms duly executed
by them along with the share certificates. The cutÂoff date for the transaction was fixed as 28/02/2006. Further a provision was made with regard to
default either on the part of the plaintiffs or the defendants according to which monetary consequences were to follow.
In the plaint it has been pleaded in paragraph 9 that for the purposes of making payment of the balance consideration, the plaintiffs had made an
application for grant of loan with the TJS Bank Ltd. The Bank had sanctioned the loan for the balance consideration to the defendants on 30/01/2006
subject to grant of NoÂdues certificate from the MIDC. Such No dues certificate was issued by the MIDC with regard to the unit of the
defendants. Thereafter on 23/02/2006 the plaintiffs sent a letter to the defendants to collect the balance consideration and hand over possession of the
Company along with its entire assets and liabilities. It is then pleaded that despite receiving this letter the defendants avoided and neglected to transfer
the shares and on the contrary they were trying to negotiate a deal with some third person. It is pleaded that the plaintiffs had made the entire financial
arrangements in that regard and were ready and willing to pay the balance consideration. Further hardship would be caused if the defendants created
third party rights in the property in question. Accordingly the suit was filed on 18/03/2006.
In the written statement besides denying execution of the MOU it was pleaded that the plaintiffs had not filed any document to show that the Bank
had sanctioned the loan or that they were ready with the balance consideration. It was also pleaded that on 16/03/2006 the defendants by issuing a
letter to the plaintiffs had cancelled the said MOU. The averments with regard to readiness and willingness of the plaintiffs and the aspect of hardship
being caused have been denied by the defendants.
18. The plaintiff No.1 examined herself. She placed on record documents indicating sanction of loan in her favour for completing the transaction. In
paragraph 25 of her crossÂexamination, she admitted that the cutÂoff date for completion of the transaction was 28/02/2006 and that completion of
the transaction by that date was an essence of the contract. She denied the suggestion that she was not ready and willing to perform her part of
contract. An officer from the MIDC was examined at ExhibitÂ62B who deposed that the power to sanction the transfer of a plot was with the
Regional Office and that his office had no authority to grant such sanction. The plaintiffs also examined the Branch Manager of TJS Bank Ltd. at
ExhibitÂ
64. She deposed that on 23/09/2005 the head office of the Bank had sanctioned Rs.50,00,000/Â to the plaintiff No.1 against plot Nos.AÂ36 and AÂ
37. She then deposed that the Bank did not disburse the sanctioned loan amount to the plaintiffs for want of required payment on the part of the
plaintiffs. In her crossÂexamination she stated that the sanction of the loan was preliminary and that it was incumbent upon the customer seeking loan
facility to comply with the requirements as per the procedure for sanction of the loan. She did not find any report indicating search as regards the title
of the defendants to the landed property nor were any charges for conducting the title search recovered from the plaintiffs. In paragraphs 4 and 5 of
her crossÂexamination she has stated thus :
“ 4. … It is true that Mrs Money Nair did not furnish any of the security documents to our bank with respect to any of the properties.
5. Mrs Money Nair had agreed to contribute Rs.60 lacs towards purchase of the property. After ascertaining such payments, disbursement of the
sanctioned loan follows. It is true that, she did not give any document to our branch showing her such contribution. It is true that Mrs Money Nair did
not take required steps for disbursement of the loan.â€
She admitted that the plaintiff No.1 was responsible for the non disbursement of the loan to her.
19. From the aforesaid evidence it can be seen that according to the plaintiffs, time was the essence of contract in view of the fact that cutÂoff date
of 28/02/2006 had been fixed in the MOU. Considering the nature of transaction that was to be done as per the MOU, both parties were adÂidem
that time was the essence of the contract. The agreement being one for transfer of shares of the defendant No.1ÂCompany and that transfer being
relatable to an agreed date, it is found in the facts of the present case that the parties had agreed to make the time the essence of the contract. On
aforesaid premise the readiness and willingness of the plaintiffs would have to be considered.
At ExhibitÂ46 is the letter dated 23/02/2006 issued by plaintiff No.1 to the defendant No.1 in which it has been stated that the TJS Bank was in a
position to pay the balance amount of Rs.1,03,85,000/Â to the defendants. The plaintiffs called upon the defendant No.1 to arrange for handing over
possession of the property including the land and building and other related documents. From this communication it can be seen that the plaintiffs
indicated that their Bank was in a position to pay the balance consideration as per the MOU. At ExhibitÂ45 is the letter issued by the TJS Bank
informing the plaintiffs that the Bank would disburse the loan after obtaining noÂdues certificate from the MIDC. As noted above the plaintiffs
examined PWÂ2 at ExhibitÂ62ÂB. That witness was working as Deputy Engineer with the MIDC and he deposed that a noÂdues certificate dated
30/01/2006 had been issued with regard to the plots bearing Nos.AÂ36 and AÂ37, owned by the defendant No.1. However, his office had no
authority to issue the sanction for transfer which could be done only by the Regional Office. The plaintiffs then examined the Branch Manager of TJS
Bank at ExhibitÂ54 who in her examinationÂinÂchief stated that in reality the Bank did not disburse the sanctioned loan to the plaintiffs for want of
required payment from the plaintiffs. She referred to the letter at ExhibitÂ66 which according to her was a sanction letter. That letter indicates a
sanction in principle of property loan of Rs.50,00,000/Â against the two plots in question along with cash credit limit of Rs.10,00,000/Â. The
communication dated 14/09/2005 of the Bank refers to the proposal to sanction loan to the plaintiff and as per that proposal the plaintiff No.1 would
pay Rs.65,00,000/Â and she had approached the Bank for the balance payment of Rs.50,00,000/Â. As noted above, in her crossÂexamination the
Branch Manager of TJS Bank admitted that plaintiff No.1 did not furnish any security document to the Bank with respect to any of the properties and
that plaintiff No.1 was responsible for the nonÂdisbursement of the loan to her.
20. It can thus be seen that as on the cutÂoff date, except for “in principle†sanction for the loan there is no material whatsoever to indicate that
the balance consideration was ready with the plaintiffs at the instance of its Banker for being paid to the defendants as agreed. On reading of the
deposition of the Branch Manager of the said Bank it becomes clear that the Bank did not disburse the “ in principle†sanctioned loan to the
plaintiffs for want of required payment from her and that she alone was responsible for its nonÂdisbursement.
Though the learned counsel for the plaintiffs relied upon the decision in M/s Avdel Tools & Services (supra) to urge that readiness and willingness
would not mean essentially an exhibition of money by the purchaser, it is found that the plaintiffs have not been able to duly prove the availability of the
balance consideration except a communication from its Banker as to “ in principle †sanction. As held in Kalawati and ors. (supra) readiness
would mean the capacity of the plaintiff to perform the contract which would include financial position to pay the purchase price. As observed in A.
K. Lakshmipathy and ors (supra) the plaintiffs have to show that they were all the while ready and willing to perform their part of obligation to
complete the agreement by showing that they were in a position to bear the remaining amount of the contract and then agitate the matter for specific
performance before the Court. The learned Senior Counsel for the defendant Nos.2 to 5 is justified in relying upon the decision in Jaswinder Kaur
(supra) wherein it was held that provisions of Section 12 of the Act of 1963 would not apply when there is inability on the part of the plaintiff to
complete his part of the contract. It is found that the trial Court was justified in recording a finding that the plaintiffs had failed to prove their part of
agreement. On a consideration of the entire evidence on record I do not find any reason to record any other finding than the one recorded by the trial
Court. Point (d) is answered by holding that the plaintiffs have failed to prove that they were always ready and willing to performance their part of the
agreement and hence they are not entitled for the relief of specific performance.
21. As to Point (e) According to the defendant Nos.2 to 5 the MOU dated 28/10/2005 having been terminated by letter dated 16/03/2006, it was
necessary for the plaintiffs to have also sought a declaration that such termination of the MOU was illegal and hence not binding on the plaintiffs. This
submission is based on the decision of the Honourable Supreme Court in I. S. Sikandar (supra) wherein it was held that in absence of seeking any
declaration as to the invalidity of the termination of the contract, the plaintiff would not be entitled for the relief of specific performance. Unless it was
held that such termination of the MOU was unwarranted, there would be no occasion to consider the prayer for grant of specific performance. The
communication dated 16/03/2006 is at ExhibitÂ48. The suit for specific performance has been filed on 18/03/2006 which is just two days after
issuance of that communication by the defendant Nos.2 to 5. With regard to such termination of the MOU there is no evidence on record to indicate
this communication dated 16/03/2006 was served upon the plaintiffs prior to filing of the suit and despite such service of that notice, no relief as
regards its invalidity was sought by the plaintiffs. It will thus have to be held that as the plaintiffs were not shown to have received the communication
dated 16/03/2006 before filing of the suit, it was not necessary for them to seek a declaration in that regard.
Though in paragraph 12 of the written statement filed by the defendants there is a plea raised with regard to the communication dated 16/03/2006 and
it has been alleged that this aspect was suppressed by the plaintiffs, in absence of any evidence to indicate due service of that communication on the
plaintiffs at least prior to filing of the suit, the plea as regards suppression of that fact by the plaintiffs cannot be accepted. As observed in A.
Kanthamani (supra) which decision has been followed in Radhey Shyam (supra) in absence of a proper plea being raised in that regard before the trial
Court and an issue also being framed on that basis, it would not be permissible to raise such contention before the appellate Court. In absence of any
evidence to indicate due service of that notice of termination at ExhibitÂ48 on the plaintiffs prior to filing of the suit, it is thus held that in the facts of
the present case it was not necessary for the plaintiffs to have sought a declaration that the termination of the MOU by letter dated 16/03/2006 was
illegal. Point (e) stands answered accordingly.
22. As to point (f) In the light of the findings recorded that the plaintiffs have failed to prove their readiness and willingness to complete the transaction
as per the MOU at ExhibitÂ40 and that the terms of the MOU at ExhibitÂ40 were not in consonance with the Articles of Association at ExhibitÂ160
as to the manner of transfer of shares, it is found that the relief of specific performance cannot be granted to the plaintiffs. As no relief of refund of
earnest amount has been prayed for as required by the provisions of Section 22 of the Specific Relief Act, 1963, that relief cannot be granted. Point
(f) stands answered accordingly.
23. In view of aforesaid findings, the plaintiffs having failed to prove their readiness and willingness to perform their part of the agreement they are not
entitled to the relief of specific performance of MOU dated 28/10/2005. The judgment of the trial Court in S.C.S.No.155/2006 stands confirmed.
The First Appeal is dismissed leaving the parties to bear their own costs.
For a period of eight weeks, the parties shall continue to maintain the position as obtaining today.
