LARSEN AND TOUBRO LIMITED Vs. GRASIM INDUSTRIES LIMITED

JUDGEMENT

(1.) The dispute in the suit and in the Notice of Motion relates to a shareholding of 19,25,992 shares of the Defendants in the First Plaintiff. The Plaintiffs seek specific performance of an agreement by which the Defendants agreed, according to the Plaintiffs, to sell their shareholding of 9,62,996 shares in the First Plaintiff which, together with the accretion of bonus shares totals up to 19,25,992 shares. The Plaintiffs claim that there was an agreement by which these shares were to be sold to the Second Plaintiff at and for a consideration of Rs.240/- per share. There is a claim for damages in the amount of Rs. 461.41 crores in the event that the Court comes to the conclusion that specific performance cannot be granted. The interlocutory relief which is sought in the Motion is for the appointment of a Receiver and for an injunction restraining the Defendants from alienating the shares and exercising any rights in respect of the shares including voting rights or from receiving dividends. A mandatory injunction is sought requiring the Defendants to subscribe to shares, debentures or securities that may be offered by the Plaintiffs in respect of the holding of the shares in dispute. By consent, the Motion has been taken up for final disposal.

(2.) The First Plaintiff ("L and T") is a Company incorporated under the Companies' Act, 1956, while the Second Plaintiff is a Trust founded for the benefit of the employees of the Company. Plaintiff Nos.3 to 8 are trustees of the Trust. Both the Defendants are Companies incorporated under the Companies' Act, 1956, the Second Defendant being a wholly owned subsidiary of the first. The Defendants held at the material time, 15.73% of the then existing paid up capital of the First Plaintiff and had two representatives on the Board of Directors. In or about 2003, the First Defendant "Grasim") held 14.86% while the Second Defendant held 0.87% of the shareholding of L and T. On 15th June 2003, a proposal was submitted by the First Defendant (Grasim) to the First Plaintiff (L&T) for restructuring of the cement business of L&T. The objective of the proposal was that there was to be a demerger of the Cement Division of L&T to a Special Purpose Company (CemCo) and a consequent issue of shares of CemCo to the shareholders of L&T in terms of a Scheme of Arrangement under Sections 391 to 394 of the Companies' Act, 1956. Grasim was to acquire 8.5% of the shareholding of CemCo at a price mutually agreed, from L&T. Concurrently with this, Grasim was to sell its entire holding in L&T at a mutually agreed price to a Trust or foundation named by L&T. The proposal stipulated that upon the approval of the respective Boards of Directors, a binding restructuring agreement would be entered into between the parties. The restructuring agreement was to set up the frame work of the entire transaction. The proposal envisaged that the following documents would be executed in relation to the transaction, namely (i) A Scheme of Arrangement; (ii) A Share sale and purchase agreement; and (iii) A Deed of Covenant. The proposal envisaged that on the one hand L&T would sell certain shares in CemCo to Grasim and concurrently Grasim would sell its entire shareholding together with its associates in L&T to a Trust nominated by L&T. Thereupon, L&T would not purchase further shares of CemCo for a prescribed period while on its part, Grasim would not purchase any shares of L&T for a specified period.

(3.) On 17th June 2003 Grasim, acting in pursuance of its earlier proposal, offered to L&T to buy the shares of CemCo for acquiring management control, at Rs. 171.30 per share, while on its part, Grasim agreed to sell its entire holding in L&T, at Rs.120/- per share. The price of Rs.120/- per share was based on an assumed equity share capital of Rs. 248.67 crores and it was recognised that the actual number of shares may vary consequent upon which the price offered would have to be changed proportionately.