BEWARE INVESTORS _SHARE PURCHASE AGREEMENT

-

 Perfect Judgment to justify why an Investor must have an indemnification clause in a share purchase agreement: Investor got indemnification of entire liability of 82 Lakh from seller which the investor has to pay to the income tax department

Shubham Budhiraja[1]




There is a Share Purchase agreement between parties Mr. A & Mr. B and seller represented to the buyer/ investor that it warranties that all tax liability is paid. However during the subsequent years, the pending tax liability arose and that Mr. A being the buyer/ Investor who has Invested the heavy amount has to pay the tax liability out of company funds. He invoked representation and warranty clause against Mr. B through arbitration and arbitrator has awarded in his favor because seller/ Mr. B has breached the promise and now it has to indemnify.  The HC in Section 34 upheld the award while refusing the contention of Mr. B that no actual loss occurred to Mr. A due to payment of tax liability because these liabilities were paid out of Company fund. The court held that how funds were arrange by Mr. A to pay tax liability is not relevant

(I)         The Supreme Court in Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.: 2021 SCC OnLine SC 695 has authoritatively held that the approach of the courts to evaluate and re-appreciate evidence to determine whether an arbitral award is vitiated on the ground of patent illegality is impermissible.

 

(II)        In the present case, there is ample material on record to establish that Agros was being funded by Frost; Frost was in management and control of Agros; and the liability of ₹82,73,709/- was not disclosed in the accounts of Agros; Frost had paid the consideration of ₹10 crores for purchasing the shares of Agros as held by the petitioners on the basis of the representation that all liabilities were disclosed and accounted for in the books of Agros; and undisclosed liability towards the income tax and penalty quantified at ₹82,73,709/- was discharged. Any further inquiry as to how and in what manner Frost had provided funds for discharge of the said liability is neither necessary nor warranted in these proceedings.

 

(III)     In the given facts, the manner in which Frost had funded the discharge of the liability assessed on Agros – whether by making direct payments to the Income Tax Department or by funding Agros to pay the same, is not material.


[1] CS, LLB (Delhi University), BCOM(H), Shubham Budhiraja02@gmail.com , 9654055315

Comments

Post a Comment

Popular posts from this blog

REPUGANCY UNDER ARTICLE 254 & TEST OF VALIDATING LAW

-
Image
  Shubham Budhiraja [1] [1] Company Secretary, LLB Final Year,DU & Bcom (H) The land acquisition falls in concurrent list and parliament in year 2013 has introduced a new act which provides for rehabilitation, compensation and procedure on land acquisition of property. The State of T.N has made 3 different state laws w.r.t. land acquisition which was struck off by the High Court. Thereafter, state of TN in year 2019 enacted the same law but with president assent under Article 254 to avoid the repugnancy with 2013 act under Article 254. The appeal filed before apex court w.r.t. repugnancy of 2019 state law with 2013 central law & test of validating the struck off law. The Supreme Court observed as: VALIDATING A LAW WITH RETROSPECTIVE EFFECT Case Law Relevant Remarks National  Agricultural  Cooperative  Marketing  Federation  of India Ltd. & Anr. vs. Union o...
Read more

Whether a person can be appointed as an arbitrator if his daughter is married to the son of the eldest brother of one of the parties in the arbitration proceedings?

-
Image
    Shubham Budhiraja [1] Two brothers running a family business in the form of a company and dispute arise between them and both decide to resolve through arbitration. During course of arbitration proceedings, one of party filed Section 14(2) r/w Section 15 Petition filed challenging mandate of arbitrator as being terminated because son of arbitrator is married to daughter of eldest brother of one of party and thus should be disqualified under Section 12(5) being ‘close family relationship’. The Hon’ble Delhi High Court declined the relief and held that neither the Seventh Schedule of the A&C Act nor the IBA Guidelines define the expression ‘close family relationship’. The plain language of Entry no. 9 indicates that it is not the legislative intent to render a distant relative of the parties to be ineligible for being appointed as an arbitrator, if both the parties so agree. It is not sufficient that the arbitrator is related to any one of the parties; the relation...
Read more

Whether unstamped agreement to sell executed in the year 1988 can be relied upon in suit for possession?

-
Image
  Whether unstamped agreement to sell executed in the year 1988 can be relied upon in suit for possession?   Under what circumstances, photocopy of agreement to sell can be relied upon as secondary evidence?   Shubham Budhiraja [1]   A filed a suit for possession against B on basis of agreement to sell executed in the year 1989. During the hearing, A filed IA for reading photocopy of agreement to sell as secondary evidence because he is not able to find the original agreement to sell. The Trial Court allowed the IA but in review rejected that because agreement to sell was insufficiently stamped therefore bar of section 35 of stamp act applies. The High Court confirmed the order. The Hon’ble Supreme Court held that bar of Section 35 will not apply because amendment of 1990 wherein explanation was added to the stamp act was substantive in nature and therefore new obligation of stamping cannot be imposed on agreement of sell executed between A and B. [2] ...
Read more