You are on page 1of 8

MEMORUNDAM OF UNDERSTANDING FOR PURCHASE OF

SHARES OF MABEL ENGINEERING PRIVATE LIMITED

THIS AGREEMENT made this____________day of _______________________,


_________________________ between Mabel Engineering Private Limited, a Company Incorporated
under the Companies Act, 1956, and having its registered office at ___________________________, and
Mr. S. Raman, Son of ____________ ordinarily residing at ___________________, Mr.R.
Ramamoothy,Son of ___________________ ordinarily residing at _________________________ and
Mr. V.S. Ravikumar, Son of ------------------ ordinarily residing at _______________hereinafter collectively
referred to as “the Vendors” (which expression shall wherever the reference or context so requires or
admits mean and include its successors and assigns) of the ONE PART and Risher Engineering &
Component Private Limited, a company incorporated under the Companies Act, 1956, and having its
registered office at #128, Developed Plots, Perungudi Industrial Estate,Perungudi, Chennai 600096,
Tamilnadu, India, a company Incorporated under the Compnies Act, 1956 having its shareholders Mr. S.
Chellakumar, Son of ________________ ordinarily residing at ____________, and Mrs. C. Sujatha Wife
of ____________ ordinarily residing at __________________hereinafter referred to as “the Purchasers”
(which expression shall wherever the reference or context so requires or admits mean and include its
successors and assigns) of the OTHER PART
WHEREAS
1. Mabel Engineering Private Limited (hereinafter referred to as (ME) is a company
incorporated under the Companies Act, 1956 (“the said Act”), and having its registered office
at _________________________________________.
2. ME at the date hereof has an authorized share capital of Rs._______________, divided into
________________ equity shares of Rs.____ each and paid up capital of
Rs._________________ divided into ____________ equity shares of Rs.___ each.
3. The said shares are held by:

Name Face value No. of shares


EQUITY
Mabel Engineering Private
Limited
Mr. S. Raman
Mr.R. Ramamoorthy
Mr.V.S. Ravikumar

4. With the consent of the shareholders of the Vendors obtained at the Extra Ordinary General
Meeting of the company held on ______________, under section 293(1)(a) of the said Act,
and other applicable provisions of the said Act the Board of Directors of the Vendors have
agreed to sell to the Purchasers or their nominees ____________ fully paid equity shares of
Rs.____ each of ME on spot delivery basis at the price and upon terms and conditions
hereinafter recorded with a view to give full and complete control and management of ME to
the Purchasers.

NOW THESE PRESENTS WITNESSETH AND AGREED AS FOLLOWS:

1. THAT the sale __________________ fully equity shares of ME (“the said Shares”) held by
the Vendors has been agreed to be purchased having regard to the projected balance sheet
and profit and loss account of ME as on _______________, a true and correct copy of
which are reproduced in Schedule No.1 hereunder written.
2. On the basis of the said projected balance sheet and profit and loss account and on the
basis of terms and conditions recorded in this Agreement, the total price for the said Shares
has been fixed at Rs.______________ (“the said Purchase Price”) at the rate of
Rs._______________ per share.
3. As per the said projected balance sheet, the total carried forward loss of ME as on
__________________, is Rs._____________. If at any time before the _______________
(being the date agreed to herein above) is found or determined by the auditors for the time
being of ME, (following the past accounting practices of ME) to be more than the said
projected carried forward loss of Rs._____________ arising due to undisclosed liabilities or
for any other reason whatsoever, then and in such event 50% of the excess loss over the
said sum of Rs._____________ will be payable by the Vendors to the Purchasers as and by
way of compensation and/or reduction of the price of the said Shares. Such reduction in
price shall not be limited to the said Purchase Price of Rs.______________ meaning
thereby that if 50% of such excess loss payable by the Vendors to the Purchasers exceeds
the total purchase price or Rs. _____________ all such excess amount shall be payable by
the Vendors to the Purchasers as and by way of compensation or damages for breach of the
conditions of the warranties or condition of the said sale viz. the projected carried forward
loss shall be of Rs.______________ only and of no further amount.
4. If at any time before __________________, the actual accumulated loss of ME as on
______________, is found or determined by the auditors for the time being of ME (following
the past accounting practices of ME) to be less than the projected carried forward loss of
Rs._____________ then and in such event 50% of the difference between the actual carried
forward loss of Rs.__________ will be payable by the Purchasers to the Vendors as and by
way of additional purchase price for the said Shares.
5. Certification of the annual accounts of ME by its auditors for the period ending
______________, shall be no bar to the adjustments being made under Clauses 3 and 4
above and the adjustments under the said Clauses will be made as often as may be
necessary till _________________(the day hereinabove agreed).
6. The Vendors hereby agree that the receipt of consideration hereinabove mentioned, they
shall execute the necessary transfer deeds and hand over to the Purchasers or their
nominees the relevant share certificates of _________________ fully paid equity shares of
ME with transfer forms duly executed as aforesaid for the transfer of the said shares to the
names of the Purchasers or their nominees. The Vendors agree to hold a Board Meeting, to
which meeting the Purchasers’ nominees will be invited to attend, to effect the necessary
entries of such transfers made in the Register of Members of ME.
7. The Vendors have given loans and or advances to ME as detailed herein below:
8. And an amount of Rs.______________ as agreed and due and payable by ME in respect of
loans referred to above. It is agreed that out of the said loans and advances a sum of
Rs.____________ shall be paid at the time of execution of these presents and the balance
shall remain the ME and shall be repaid after two years moratorium period in 24 equal
monthly instalments of Rs._____________ and that such loans and advances shall carry
interest at the rate of ____-% per annum from the date of ending of the moratorium period.
The Purchasers shall guarantee the repayment of the aforesaid loan together with interest
and in the event of default in payment of any instalment, for a period of six months, of the
principal amount on their respective due date, the whole of the loan amount or the balance
thereof remaining outstanding and unpaid as the case may be, shall forthwith become due
and payable by ME to the Vendors with simple interest at the rate aforesaid. The Vendors
also declare that the amounts advanced and/or allowed to be retained and repaid in
instalments as aforesaid were not out of the funds acquired by borrowing or accepting loans
or deposits from others but from moneys belonging to the Vendors.
9. It is also agreed and declared that in the event of the Vendors becoming liable to pay any
sum or sums to the Purchasers under Clause 3 above, the Purchasers will be entitled to set
off, adjust and/or recover the same from any sum that may be payable to the Vendors under
this Agreement including by the said ME. IT IS ALSO agreed that in the event of the
Purchasers becoming liable to pay any sum to the Vendors under Clauses 4 above, then
such amount will be payable in the same manner with interest at the same rate on the same
dates on which the outstanding monthly instalments mentioned in Clause 7 become due and
payable.
10. Simultaneously with the execution of these presents the Vendors have caused Messers. (1)
S.Chellakumar, Son of ---------------------------------,
(2 )Mrs. C. Sujatha, Wife of Mr. ______________ to be appointed as directors of ME. The
present Directors of ME viz. S. Raman, R. Ramamoorthy, V.S. Ravikumar have handed over
in writing their resignation letter from their respective position as director of ME.
11. Within ______ months from the date hereof the Purchasers agree to procure and obtain
release and discharge of the Guarantees and or Counter Guarantees given by
______________, _____________ of the Vendors in respect of the Term Loan, Cash Credit
facility and/or other financial assistance received from _____________________,
______________. Pending such release and discharge of the Guarantee, the Purchasers
agree to indemnify and keep indemnified the ______________ and _________ of the
Vendors from and against all claims and demands, suits and proceedings of the said
__________________, _____________, in respect of the Guarantee so given by the said
_______________, __________ of the Vendors and the costs and expenses for defending
the same.
12. Simultaneously with the execution of these presents, the Purchasers shall arrange to put
ME into funds to enable ME to redeem the —% Cumulative Redeemable Preference Shares
of Rs._____________ presently held by Mr._________, of the Vendors.
13. The Vendors guarantee, warrant and agree with the Purchasers, as follows:
(A) As to the assets of ME
(i) That the assets of ME including lands, buildings, plants, machineries, furniture,
vehicles, fixtures and fittings and other movables, trademarks, unregistered
design tangible and intangible rights, assets and other property as on
______________, shall be as those that are more particularly described in
Schedule II hereto. The Vendors agree and undertake to pay the full value of any
item found missing from the said Schedule II on taking joint inventory of the said
items by the Purchasers and Vendors or their nominees.
(ii) That save and except charge in favour of __________________ of ( ) in terms
of the Agreement dated ___________ in respect of Plant, machinery and
buildings at ——— factory and further charge on the other assets of the company
in respect of loan of its,___________ and another co-lateral charge given to
_________ in respect of bank guarantee issued by them guaranteeing repayment
of loan of ________________ and hypothecation of raw materials, packing
materials, consumable stores and finished goods in favour of ______________, in
respect of credit facilities granted to ME. The said properties and assets
described in Schedule No. II hereunder written are free from all other claims and
encumbrances whatsoever and that there are no sales agreement, charges,
mortgages, transfers, leases, subleases, licenses tenancy or other encumbrances
whatever on the said assets or any part or portions thereof described in Schedule
No.II hereunder written. That the title of ME, to the said assets and every part
thereof is good and marketable and free from all reasonable doubts.
(iii) That the Vendors have procured a certificate from their Solicitors
__________________________ ___________ ( copy of which is annexed as part
of Schedule No III hereto) certifying that the said land and buildings at ______ is
good and marketable, free from all reasonable doubts and that except the charge
in favour of _____________________is free from all other claims. Mortgages and
encumbrances whatsoever.
(iv) That save and except the covenants and conditions contained in the said
Agreement dated____________ and the arrangements
_______________________in terms of letter dated __________ there are no
covenants and restrictions and stipulations affecting the said assets, plant,
machineries, furniture, fixtures, fittings and other properties mentioned in
Schedule No.II hereto which are of onerous or unusual nature or which would
conflict with the user thereof, or which would materially affect the value of the said
assets or any part of portions thereof.
(v) That ME is in actual possession and/or occupation of the said assets and that no
lease, tenancy or license or any arrangements has been granted or agreed to be
granted or given to any one in respect thereof.
(vi) That save and except the covenants and conditions in the Agreement dated
_________ contained/referred to hereinabove the vendors or the Vendors or the
said ME are not aware of any information affecting the said assets of ME which
would adversely affect the value thereof or the user of the said assets or any of
them or any portions thereof.
(vii) That the said assets are insured to their insurable value as per particulars
annexed as Schedule No.IV hereunder written and that all premiums have been
duly paid and that nothing has been done whereby all or any of the said insurance
may be affected or violated and that there is no claim affecting or adversely
affecting.
(viii) That the fixed and loose plants, machineries or equipment vehicles used by ME
and all other like assets in the reputed ownership of ME are included in the
Schedule No.II hereto and value thereof included in the projected balance sheet.
(ix) That all stocks ( raw material, finished products, and goods in process)
consumable stores and spares as at ________________________ will be as per
the joint inventory thereof taken by the Vendors and Purchasers.
(b) As to the Accounts of ME
(i) That the projected balance sheet and profit and loss account mentioned in
Schedule NO.I hereto for the period ending _______________ are fairly true,
accurate and complete in all respects and set cut all the assets and liabilities
including the losses of ME for the period ending _____________.
(ii) Recurring exceptional or extraordinary act. That the basis of valuation adopted in
the projected balance. Sheet and profit and loss account, Schedule No.,II. Hereto
and all other accounting practices have remained substantially the same in
respect of each of the previous accounting years of ME
(iii) That the accounts of ME from the date of commencement of its business are true
and correct and’ that the computation of profits and losses in respect of all
previous accounts received up to the year ending _________________ have
been submitted to the Income Authorities and Vendors hereby covenant to obtain
the acceptance of the said computation by the Income tax authorities within a
month from the execution hereof.
(iv) That ME has not incurred any other liability other than in the ordinary course of its
business whether present or contingent.
(v) That ME has complied with and duly performed its obligations in respect of
Income—tax, Sales lax, and other tax legislations. That no event or transactions
has taken place that would entitle income-tax and other tax authorities to invoke
any steps or proceedings against ME for concealment or non-compliance of any
obligations in respect of Income-tax or other tax recovery of laws relating to
finance and foreign exchange.
(vi) That none of the stock of ME is slow moving or cut of date or likely to realize less
than its book value.
(vii) That all stock-in-trade of ME is on its premises
(viii) That ME has carried on business in a normal Way.
(ix) That save and except the Agreement dated _______ with _____________
_______ there have not been any material changes in the financial position
prospects or trading of ME since _________ when the offer for purchase of the
said shares was made.
(x) That all debts due to ME shown in the projected balance sheet and profit and loss
account are capable of being realized in full.
(xi) That ME has not made or agreed to make any payment of any loan or advance to
any one Or entered into any commitment that would foist any liability or
obligations en ME to pay or perform the same after the takeover of the
management of ME by the Purchasers
(c) As to the Companies Act:
(i) That all documents required by the Companies Act 1956 to be fi1ed by ME with
the Registrar of Companies have been duly filed.
(ii) That the copies of the Memorandum and Articles of Association of ME which have
been produced to the Purchasers are accurate and complete in all respects and
that the Register of Members of ME and other statutory books including Minute
books of ME have been properly kept and maintained and contain true, accurate
and complete record of the matters dealt with therein.
(iii) That ME has not received any notice of any application or intended application
under the Companies Act for rectification of its Register of Members.
(iv) That the books of account minute books and records of ME have been entered
and contain as on the date of takeover of the management of ME by the
Purchasers and they are true and accurate records of the matters to which they
relate.
(v) The shares of ME are not listed with or quoted at any of the stock exchanges in
India. The Articles of Association of ME restrict the right of its shareholders to
transfer its shares and to limit the number of its members to 50 only as provided
by clause (iii) of sub-clause (1) of Section 3 of the Said Act. Provision of Securities
Contracts (Regulation) Act 1956 have therefore no application to the sale of the
said shares of ME by the Vendors. The Vendors and the Purchasers will not ever
contend that the sale of the said shares was illegal or in violation of the said
Securities Contracts (Regulation) Act, 1956 or any notification issued thereunder:
(d) As to employees and Directors of ME
(i) That the names, addresses, ages and other particulars of service of the
employees of ME are given in Schedule No IV hereunder written and that no
matter exists in regard to the employees which has not been disclosed in the said
Schedule No.IV
(ii) That ME is not a party to any scheme, arrangement, fund nor is it under any legal
obligation to provide any benefit, compensation for loss of office, redundancy
payments, compensation for wrongful or unfair dismissal, gratuity, pension etc. to
any One which is not disclosed in the said Schedule No.IV
(iii) That ME has complied with all legislations regarding the employment of its
employees and to the health and safety of its employees
(iv) There are no contracts or arrangements between ME and its Directors except
____________________
(v) That there is no dispute with any employees or group of employees or their trade
union or their representatives relating to remuneration or other conditions of
employment.
(vi) That there/ are no long term service or other arrangement or agreement with the
Directors, Employees or agents of ________ except _____________________
(vii) That ME has not made or agreed to make any loans or advance to any Directors
or others.
(e) As to the compliance with legislation and contractual. And other obligations
(i) ME is not concerned in any arrangement which infringes or which should have
been registered under the Monopolies and Restrictive Trade Practices Act or the
rules framed thereunder except ________________
(ii) That ME has complied in all respects with all policies, direction or rules or
regulations of the Central or State Government relating to the business of ME.
(iii) That ME is not engaged in any litigation, arbitration or proceedings before any
Court, tribunal or authority of any nature whatsoever and that there is no claim,
action or proceedings of any kind either pending or threatened by or against ME
or any of its Directors save and except ____________________________
(iv) Any claim made or suit for damages or compensation filed against ME after
_____________ in respect of events prior to _______________, will be deemed
to affect the projected balance sheet as on ______________ to the extent of such
claim or damages or compensation becoming legally payable including costs
charges and expenses incurred by ME in that behalf.
(v) That ME has not committed any act which would lead to a claim for damages.
(vi) That none of the activities, contracts or rights of ME is ultra vires, unauthorized,
invalid or unenforceable in breach of any contract or covenant. Documents in
enforcement of which ME may be interested, have been duly stamped and that
none of the activities or business of ME requite any license, authorization or
consent which has not been obtained.
(vii) That ME has not, except in the normal and proper course of business, entered
into any contract which has not been approved at the meetings of its Board of
Directors and recorded in its Minute Book and has not done or caused to be done
or omitted to be done any matter or thing except with the approval of its Directors
as recorded in Minutes which may render ME liable to any loss or expense
whatsoever.
(f) As to Finance and Borrowings s—
(i) That ME has no bank accounts save and except with
___________________________
(ii) That except the amount shown in the projected Balance Sheet, there is no other
outstanding loan or debt due and payable by ME to any one.
(iii) That ME has not received any notice from any creditor or lender or any one else
requiring payment of any sum and the Vendors and ME are not aware of any
circumstances likely to give rise to any such claim being made or notice being
given.
(g) Miscellaneous
(i) That ME has not given any Power of Attorney to anyone except
_____________________________
(ii) That ME has not carried on any business other than of manufacture of
_________________________ presently carried on.
(iii) That ME has not been a party to any subsisting agency or distributorship
agreement or for purchase of any raw materials, machinery etc.
(iv) That ME hold Industrial License bearing No.___________for the manufacture of
(v)
(vi) That all licenses, trademarks and unregistered registered designs used by ME
axe registered in the name of ME and that no license or other rights have been
granted or agreed to be granted to any third party in respect of such licenses,
patents, trademarks and designs.
(vii) That ME is not a party to or has any liability (whether current or future) under any
deed, debenture instrument, guarantee, indemnity, contract or commitment of any
sort save and except as specifically disclosed in this Agreement.
(viii) That there are no facts or circumstances relating to the affairs of ME or to the
shares of ME known or which ought to be known to the Vendors or to ME at the
date hereof which has not been disclosed in this Agreement which if disclosed
would reasonably have expected to influence the decision of the Purchasers to
purchase the Said Shares at the price and on the terms recorded herein or at all.
(ix) That all the above representations made by the Vendors for themselves and on
behalf of ME are true and accurate in all respects.
(x) Simultaneously with the execution of these presents the Vendors have agreed to
deliver or caused to deliver complete and physical possession of the assets,
books, papers, vouchers etc. of ME on or before ________________________
(xi) That the Vendors shall arrange for preparation and audit of final accounts of ME
as on _______________.
(xii) That all quotas of electricity, water, gas, furnace oil, and other materials for the
use of ME shall exclusively remain as the property of ME and that the Vendors
shall not cause anything to be done or omitted to be done to reduce or affect the
same..
(xiii) The Vendors agree to release the pledge of _________equity shares of ME
simultaneously with the execution of these presents and declare that the Said
Shares agreed to be sold are free from all claims and encumbrances whatsoever.
14. Any breach of the above warrantees, guarantees and covenants will give rise to a claim for
damages independently of any other relief available to the Purchasers.
15 The Purchasers have agreed with the Vendors that they shall cause on and from the date of
takeover of the management of ME by them to continue with the services of workmen and
employees mentioned in Schedule IV hereunder written as per service particulars
mentioned therein.
16. The workmen and staff in excess of those mentioned in Schedule No.IV be taken over by
the Vendors without any obligation or liability to the Purchasers or to ME.
17. Neither the Purchasers nor ME will in any way be liable or responsible to any staff or
workmen not taken over under the Schedule No.IV
18. The Vendors hereby agree to execute and/or sign such other documents, letters etc.
required to more fully securing the ownership of the shares agreed to be sold herein and
also such other documents may be necessary in respect of assistance granted by
_______________and /or other financial institutions.
19. The above Agreement is subject to approval of _______________________
20. All disputes and differences whatsoever relating to or arising from this Agreement, including
on the interpretation of the provisions of this Agreement shall be referred to one Arbitrator if
the parties agree upon one and failing such agreement, to two Arbitrators, one to be
appointed by each party to the dispute and the provisions of the Indian Arbitration Act,____
or any other enactment for the time being in force relating to arbitration, shall apply to such
arbitration proceedings.

IN WITNESS WHEREOF the Common Seal of the ___________________


above named and the respective hands of ____________ and ____________is
hereunto affixed and the Purchasers have set their respective Seal the day and year
first hereinabove written.