2017 (10) TMI 668 - Tri - Companies Law

Tribunal appoints Interim Administrator for KSPL, emphasizes jurisdiction over oppression issues

Mukund Subhash Karwa & Ors. Versus Krishidhan Seeds Pvt. Ltd.

The Tribunal appointed an Interim Administrator for KSPL, directing the appointment of Independent Directors and a special audit. It emphasized its ... Oppression and mismanagement - Arbitral Award eligibility - Held that:- In the interest of the shareholders of KSPL, in the interest of SPK group, JPK group and taking into consideration the Arbitral Award has not reached finality and not yet implemented, the following order is passed by this Tribunal. (i) Hon’ble Justice Mr. K.K. Lahoti who is functioning as Observer cum Facilitator is appointed as Interim Administrator of the first respondent company without superseding the existing Board of Directors of KSPL. (ii) Interim Administrator Hon’ble Justice Mr. K.K. Lahoti is empowered to propose names of two Independent Directors in the Board of Directors of the first respondent company within three weeks for approval of this Tribunal. Independent Directors must be having experience in management of company affairs with special knowledge in seeds business. (iii) Interim Administrator Hon’ble Justice Mr. K.K. Lahoti shall, within one month, after appointment of two Independent Directors shall conduct meeting of the Board of Directors of the 1st respondent company following the provisions of the Companies Act, 2013 and Articles of Association of KSPL with the following agenda: - (a) Appointment of independent Chartered Accountant firm to assess the fair market value of the shares of the first respondent company as on the date of filing of Company Petition No. 17 of 2014 and to fix the remuneration of Chartered Accountants so appointed. (b) Appointment of Special Auditors team to audit accounts of the first respondent company for the financial years 2013-14 to 2016-17 and to fix remuneration of the Chartered Accountants. (iv) Agenda of all kinds of meeting of KSPL shall be approved by Interim Administrator before notice of meeting is given. (v) All meetings shall be conducted in accordance with interim orders in force and the directions given in this order, in the presence and as per the instructions of Interim Administrator. (vi) There shall not be any change in the shareholding pattern and Directors of the first respondent company until further orders except as provided in this order regarding appointment of Independent Directors. (vii) Sale of Akola properties of KSPL by the first respondent company shall be according to the order of the Company Law Board dated 25.04.2014 and under the supervision of Interim Administrator and as per the resolutions of the Board of Directors of KSPL. (viii) The resolutions that had already been passed which are sub-judice in the Company Petition shall not be taken up in the Board Meetings of KSPL. (ix) There shall not be any resolution which goes against the resolutions passed on 26.03.2016 and 01.04.2016 and the resolutions passed on the basis of which Akola properties were sold, since they are sub-judice in Company Petition No. (17 of 2014) (TP No. 62 of 2016) and this Tribunal has to take final decision on it. (x) Respondent No. 3 shall not exercise the authority given to him under Section 113 of the Companies Act in the meeting of Board of Directors held on 01.04.2016, till further orders by this Tribunal. (xi) All interim orders that are in force shall be followed. (xii) The proceedings of all the meetings of KSPL shall be recorded by video and audio and send the same to this Tribunal. (xiii) Interim Administrator Hon’ble Justice Mr. K.K. Lahoti shall file a report in respect of each meeting conducted separately before this Tribunal. (xiv) Interim Administrator Hon’ble Justice Mr. K.K. Lahoti shall see that all the statutory obligations that are required to be carried out as per the provisions of the Companies Act and other acts and Articles of Association, shall be carried out within the period prescribed under the relevant Acts and Articles of Association. (xv) Interim Administrator Hon’ble Justice Mr. K.K. Lahoti is at liberty to seek further instruction(s) in case of any controversy in respect of which he feels the order of the Tribunal is necessary. (xvi) Interim Administrator Hon’ble Justice Mr. K.K. Lahoti is entitled for a remuneration of ₹ 1.00 lac (Rupees one lac only) for each meeting subject to maximum of ₹ 3.00 lacs (Rupees three lacs only) per month besides all facilities to which he is entitled as Judge of High Court in respect of transport, accommodation and ministerial assistance as and when meetings of KSPL are called for/ or conducted. Interim Administrator Hon’ble Justice Mr. K.K. Lahoti shall continue to act in that capacity till disposal of TP No. 62 of 2016. (xvii) Remuneration of Independent Directors shall be fixed by Interim Administrator. (xviii) Expenditure incurred in respect of remuneration of Interim Administrator, Independent Auditor appointed for determination of fair market value of the shares of the first respondent company (KSPL) and Special Audit team appointed to audit the accounts of the first respondent company (KSPL) and remuneration of Independent Directors shall be borne by KSPL for the time being and it is subject to final order passed in TP No. 62 of 2016. (xix) Interim Administrator and Independent Directors appointed are given immunity from all Civil, Criminal and other regulatory actions under the laws applicable in the conduct of the affairs of KSPL. Issues Involved:1. Formation and management of Krishidhan Seeds Private Limited (KSPL) and its subsidiaries.2. Family agreement (MOU) dated 13.02.2013 and its implications.3. Allegations of oppression and mismanagement against JPK group.4. Arbitration Award dated 31.07.2014 and its impact on the current proceedings.5. Jurisdiction of the Tribunal in light of the Arbitration Award.6. Interim orders and directions for the management of KSPL.Issue-wise Detailed Analysis:1. Formation and Management of KSPL:- KSPL was formed following the dissolution of a partnership firm, with the JPK group holding 60% shares and the SPK group holding 40%.- Several subsidiary companies were floated as 100% subsidiaries of KSPL.- A private equity firm, Summit Partners, invested in KSPL, leading to changes in the company’s status and name.2. Family Agreement (MOU) Dated 13.02.2013:- The MOU was intended to divide properties and liabilities between the JPK and SPK groups.- Petitioners argued that the MOU had not been acted upon and its validity was pending before the District Court, Pune.- Respondents contended that the MOU granted them exclusive management rights over KSPL and certain other companies.3. Allegations of Oppression and Mismanagement Against JPK Group:- Petitioners alleged various acts of oppression and mismanagement by the JPK group, including siphoning of funds, unauthorized property transactions, forgery, and statutory non-compliance.- Specific allegations included misuse of private equity funds, unauthorized property purchases, and failure to provide share certificates.- Respondents countered by alleging mismanagement and financial losses caused by the petitioners, including excessive production orders and misallocation of funds.4. Arbitration Award Dated 31.07.2014:- An Arbitration Award was passed to resolve disputes between the SPK and JPK groups, dividing assets and liabilities.- The award was challenged by the respondents before the District Judge, Pune, on grounds of being one-sided and against public policy.- The Tribunal noted that the award had not reached finality and was still under challenge.5. Jurisdiction of the Tribunal in Light of the Arbitration Award:- The Tribunal held that it retained jurisdiction to grant relief in cases of oppression and mismanagement despite the Arbitration Award.- The Tribunal referenced judgments indicating that disputes under Sections 397 and 398 of the Companies Act could not be referred to arbitration if they were genuine and not merely dressed up to avoid arbitration.- The Tribunal emphasized that the award was binding until set aside but had not yet been implemented.6. Interim Orders and Directions for the Management of KSPL:- The Tribunal appointed Justice K.K. Lahoti as Interim Administrator of KSPL without superseding the existing Board of Directors.- Directions were given for the appointment of two Independent Directors and for conducting a special audit and share valuation.- The Tribunal ordered that all meetings and resolutions be conducted under the supervision of the Interim Administrator, with video and audio recordings sent to the Tribunal.- The Tribunal maintained all interim orders and directed that the Arbitral Award be given due consideration until it reached finality.Conclusion:The Tribunal provided a comprehensive framework to manage the affairs of KSPL amidst ongoing disputes, ensuring oversight and transparency while awaiting the final resolution of the Arbitration Award. The Tribunal asserted its jurisdiction to address issues of oppression and mismanagement, balancing the interests of both groups and the company.