- (1.) This Appeal assails the Judgment dated 19.4.2006 of the Securities Appellate Tribunal which upheld the order of the Securities and Exchange Board of India dated 1.8.2003. The factual matrix is that one Mr. V.P. Garg (hereinafter referred to as 'Garg') entered into an 'Assisted Sector Agreement' with the Haryana State Industrial Development Corporation Limited (hereinafter referred to as 'HSIDC') on 4.1.1993, for the purpose of setting up a modern resort hotel complex at Village Chowky, Tehsil Kalka, Haryana. The parties agreed to collaborate for the profitable implementation and operation of the project in the assisted sector through a company already incorporated by Garg under the name and style of Polo Hotels Ltd. (hereinafter referred to as the 'Target Company'). HSIDC extended a term loan to Garg and also subscribed to 3,00,000 shares of Rs. 10/- each of the Target Company. Clause 24 of the Agreement provided for buy-back of the shares of HSIDC. The said clause is reproduced for facility of reference: BUY BACK ARRANGEMENT:- 24 (a) At any time after the Company goes in for commercial production, the Corporation may with the consent of the Collaborator offload its shareholding in the Company partially or fully in such manner as it may deem fit. The Collaborator will however have the pre-emptive right to buy the shareholding of the Corporation. Similarly, after the shares of the Company are duly listed on the Stock Exchange/DTCET, and with the consent of the Corporation, the Collaborator may buy its shareholding at a mutually agreed price which shall be equal to or higher than that provided under sub clause (c). (b) After expiry of five years from the date of commencement of commercial production by the Company or at the expiry of seven years from the date of its incorporation whichever is earlier, the Collaborator shall be bound to purchase the Equity share holding of the Corporation in the Company. Provided that the Corporation may at its discretion retain the shares acquired by it through over subscription or rights issue or bonus shares. (c) On buy back of shareholding of the Corporation by the Collaborator under sub clause (b), the price to be paid shall be highest of the: i) Issue price of the share plus simple interest for the period at the lowest normal lending rate of interest on term loans under refinance scheme of IDBI prevailing at the time of first issue of shares to the Corporation under its agreement. OR ii) The highest price of the shares ruling on any Indian Stock Exchanges for a period of two months preceding the date on which the Collaborator ought to purchase the shares held by the Corporation as provided in Clause (b) above. OR iii) Assessed value of the shares as determined by the Auditors of the Company on the basis of net worth, of the Company on the date of sale of the shares.
(2.) Garg defaulted in repayment of loan as well as in buying back the shares of HSIDC in the Target Company. In March 1999, Garg entered into an agreement with Mr. A.R. Dahiya (the 'Appellant') for the sale of Garg's entire shareholding of 28.09% in the Target Company. This agreement was subject to the approval of HSIDC and contained a clause that Garg would be absolved of fulfilling the buy-back obligation, provided HSIDC agreed to accept the Appellant in place of Garg. Garg wrote a letter to HSIDC dated 31.3.1999 stating that on account of his deteriorating financial condition, he had decided to transfer his equity shareholding in the Target Company to the Appellant and that the Appellant had agreed to furnish his personal guarantee for buy-back of the three lac equity shares held by HSIDC. In the letter Garg requested HSIDC to accept the personal guarantee of the Appellant in lieu of his buy-back guarantee and to absolve him from the obligation.
(3.) The Appellant also wrote a letter to HSIDC dated 15.4.1999, informing it that he and Garg had entered into an agreement for purchase of equity shareholding of Garg and for complete takeover of the management of the Target Company. The Appellant confirmed that he was prepared to buy-back the equity holding of HSIDC as provided for in the assisted sector agreement instead of Garg, under similar terms and conditions. The Appellant also requested that since he was facing a stringent liquidity problem, the payment for the buy-back which was due in April 1999 be instead made in monthly instalments of Rs.20 lacs each with effect from September 1999. Enclosed with the letter were four post-dated cheques in respect of the said buy-back obligations, amounting to a total of Rs.71,25,466/-. HSIDC, vide its letter dated 19.4.1999 to Garg, accepted the joint request made by him and the Appellant. Subsequently, the Appellant, Garg and HSIDC entered into a tripartite financial collaboration agreement, whereby HSIDC consented to the Appellant stepping into the shoes of Garg.;