JUDGMENT
J.D. Kapoor, J.
1. Modipon Limited has two divisions, Chemical
division and Fibre division. Chemical divisionis
controlled and managed by Group ‘A’ company which is
represented by Mr. M.K. Modi, defendant No. 2. Fibre
Division is controlled by Group ‘B’ company which is
represented by Mr. K.K. Modi. Mr. K.K. Modi owns 12.65%
shares whereas Mr. M.K. Modi owns 9.07% shares. The
litigation landed them in Supreme Court where on 7.1.1998
following interim order on the application of Mr. M.K. Modi
was passed which reads as under:-
“For a period of eight weeks from
today, neither Mr. K.K. Modi nor Mr. M.K. Modi will
that would in any way directly or indirectly
destablise the control and management of the
Fibre Division of Modipon Limited by Mr. K.K. Modi
and of the Chemical Division of Modipon Limited
by Mr. M.K. Modi.
Liberty to apply for variations if
circumstances change.”
2. The appeal against the said order was finally
decided by the Supreme Court on 4.2.1998 wherein aforesaid
interim order of 7.1.1998 was ordered to continue to
operate in terms thereof with liberty to the parties to
apply to the High Court for any variation of this order in
the event of any change in the circumstances.
3. Subsequently plaintiff filed this suit wherein
on 5.3.1998 following order was passed with the consent of
the parties:-
“Mr. Dushyant Dave, learned senior
counsel appearing on behalf of plaintiff states
that interim order passed by Supreme Court in
I.A. No. 3/97 in S.L.P. No. 18711/97 dated January
7, 1998 be continued. Learned senior counsel
appearing on behalf of the defendant states that
he has no objection to the continuation of the
interim order in terms of the order by the
Supreme Court in its judgment.”
4. Through the instant application, the
applicant/defendant No. 1 seeks modification in the earlier
part of the order dated 7.1.1998 whereby Mr. K.K. Modi and
Mr. M.K. Modi were restrained from acquiring directly or
indirectly any further shares of Modipon Limited. By this
order, they were given liberty to apply for variation in
the event of change in circumstances.
5. As is apparent from the aforesaid order,
plaintiff agreed that he will have no objection to the
continuation of interim order in terms of the order of the
Supreme Court i.e. order dated 4.2.1998. Till date both
the parties have maintained sanctity of the said order as
none of them has acquired any shares directly or
indirectly in Modipon Ltd. and therefore control and
management of fibre division by Mr. K.K. Modi and Chemical
division by Mr. M.K. Modi has remained intact.
6. A piquant situation has cropped up by a public
notice issued by UPSIDC on 25.4.2002 inviting offers for
the sale of its equity shares which constitutes 16.61% of
the total equity of the company. What is irking defendant
No. 1/applicant is that through this notice offer has to be
made by a single party for the entire block of shares
owned by UPSIDC and since none of the parties owns 16.61%
there is every likelihood of third party bidding for it.
It is contended that if a third party comes to own 16.61%
shares it will destablise the control of both the parties
on Modipon Ltd and practically will oust both of them from
the company as the third party will not be bound by MOU or
by the order of Supreme Court.
7. In order to save the company from going into the
hands of third party who will not be bound by MOU and to
keep the control of the company among themselves defendant
No. 1 is seeking modification in the order dated 4.2.1998
and the order dated 5.3.1998 referred above by way of
permitting it as well as plaintiff to individually bid and
purchase shares held by UPSIDC and to make a public offer
in terms of SEBI Takeover Code and to purchase the shares
so offered as also to make competitive bids and purchase
shares in the case of public offer by any other party.
8. SEBI Takeover Code provides that if a person
acquires more than 15% of the equity share capital of a
company, he is obliged to make a public offer to the
shareholders of the company for acquiring at least an
additional 20% of the equity share capital. Thus, if the
said 16.61% share holding is acquired by a third party, the
third party would necessarily proceed to acquire pursuant
to the public, offer at least an additional 20% block of
shares or even more in Modipon Limited thereby adding up
to a total shareholding of at least 36.61% or more.
9. It is contended by Mr. S. Ganesh, learned Senior
Counsel for the applicant/defendant No. 1 that 78.28% of
the shareholding is outside the control of the plaintiff
and the defendants and there is every likelihood that
holders thereof may participate in a public offer for
purchase of shares of Modipon Ltd. issued by any third
party. As a result shares held by non-controlling parties
will be acquired by third party and such a party would be
in commanding and controlling position of company.
10. The problem against variation of said order is
that of plaintiff. Plaintiff is short of funds and has no
money to purchase. It is also facing liabilities to be
discharged in the form of debts towards financial
institutions and banks and has financial constraints and
crunch.
11. It is in view of this position of plaintiff that
defendant No. 1/applicant has submitted written offer to
the effect that any shares that would be acquired either
by Mr. K.K. Modi or Mr. M.K. Modi pursuant to this court’s
order would be shared equally between them in terms of
written proposal already filed with the court and since
the latter part of injunction order is not being
disturbed, the control and management of Fibre Division
will continue with plaintiff. Permission to purchase the
equity of UPSIDC is only with the sole object to save the
company from going into hands of strangers.
12. According to Mr. Manmohan, learned counsel for
the plaintiff the apprehension of defendant No. 1 is highly
misplaced as the Modi Group holds as a whole about 49.57%
shareholding in Modipon Ltd. and even if a third person
acquires 16.61% shareholding of UPSIDC there is no threat
to the control and management by either Group A or Group
B. It is pertinent to mention that in order to discharge
its liabilities towards financial institutions and Banks,
plaintiff was permitted to sell 50% of its share by this
court but it is stated that the said order has been stated
by the Division bench and till date neither plaintiff is
having money for making payment to financial institutions
nor has any source to purchase shares being offered by
UPSIDC. The said 50% shares come to be about Rs. 30 crores
which is to be paid to financial institutions and Banks.
13. After looking to the problem of the parties in
retrospective and prospective scenario and in order to
allay the apprehension of plaintiff that by getting
permission to acquire shares of UPSIDC, the defendant
No. 1/applicant will not only get absolved from the terms
of the MOU but also will have exclusive control and
management of the company resulting in destablising are
status quo, the permission to the defendant No. 1/applicant
to purchase shares of UPSIDC is granted subject to the
condition that payment will be made by the defendant
No. 1/applicant towards 50% shares of UPSIDC on behalf of
plaintiff and this payment shall only be confined to
making purchase of shares of UPSIDC and will not be deemed
as payment made to the plaintiff for discharging his
liabilities to the banks and financial institutions. This
order is being made in order to save the company from
going into the hands of strangers and to maintain the
order of the Supreme Court that control and management of
Chemical Division by Mr. K.K. Modi and Fibre Division by
Mr. M.K. Modi, plaintiff shall not be destablished. The
application is allowed in the aforesaid terms.
dusty