The Bombay High Court delivered a judgment concerning a business dispute between Ashok Kumar Kothari and Sanwarlal Agarwal over the shareholding of a company involved in a hospital project. The Kotharis and Agarwals, joint shareholders, bid against each other to acquire full control of the company. Following an agreement, the court issued a decree enforcing the sale of the Agarwals’ shares to the Kotharis. However, disputes arose concerning the inclusion of a loan in the agreed consideration and the interpretation of a reverse sale mechanism in case of default. The matter went up to the Supreme Court, which clarified that the loan was not part of the consideration. The issue of the automatic sale of Kothari’s shares to the Agarwals upon default was ultimately rejected.

1. Background of the Dispute:

• Parties Involved: The dispute is between the Kothari and Agarwal groups, both shareholders in a hospital project.
• Company Details: The dispute involves a company formed for the development of a multi-specialty hospital in Malad, Mumbai. Both parties initially held equal shares.
• Loan Contributions: Both groups had provided significant interest-free loans to the company, which became a key point of contention.

2. Agreement to Bid for Shares:

• In March 2019, both parties decided to bid against each other for full control of the company. The Kotharis emerged as the highest bidder with an offer of ₹36.75 crore.
• The agreement stipulated payment terms, including a reverse sale clause if the Kotharis failed to make timely payments.

3. Legal Disputes:

• Primary Dispute: The Kotharis filed a suit for specific performance, seeking enforcement of the agreement. The Agarwals challenged the inclusion of a loan amount in the sale consideration.
• Decree Issued: In August 2019, the court decreed in favor of the Kotharis, allowing the transfer of Agarwals' shares. The matter escalated regarding whether the loan was part of the consideration.

4. Supreme Court Ruling:

• Loan Exclusion: The Supreme Court ruled that the loan advanced by the Agarwals was not included in the consideration of ₹36.75 crore.
• Automatic Sale Clause: The Supreme Court held that the reverse mechanism (automatic sale of Kotharis’ shares to Agarwals upon default) was not part of the decree, concluding that it could not be enforced.

5. Final Outcome:

• The Bombay High Court dismissed the Kotharis’ attempt to invoke the reverse mechanism, concluding that the matter was settled by the consent decree focused on the sale of the Agarwals' shares.

Acts and Sections Discussed:

• Order XII Rule 6 of CPC, 1908: Judgment on admission
• Order XXI of CPC: Execution proceedings
• Specific Relief Act, 1963: Related to the enforcement of specific performance

Legal Ratio:

The court emphasized that the terms of a consent decree are binding and cannot be expanded or altered beyond what was agreed upon. The reverse mechanism was not part of the decree's prayer clauses, and therefore, it could not be enforced. Additionally, the inclusion of loans in the share purchase consideration was rejected based on the plain terms of the agreement.

Subjects:

#ShareholdingDispute #SpecificPerformance #BombayHighCourt #CorporateLaw #AutomaticSale #ExecutionProceedings