2020 (8) TMI 648 - AT - Companies Law

Tribunal upholds NCLT orders, dismisses appeals on share allotment.

Mr. B. Subha Reddy Versus S.S. Organics Ltd & Others

Mr. B. Subha Reddy Versus S.S. Organics Ltd & Others - TMI Issues Involved:1. Allegations of oppression and mismanagement.2. Legality of the allotment of equity shares.3. Compliance with statutory provisions under the Companies Act and SICA.4. Res judicata, issue estoppel, and cause of action estoppel.5. Period of limitation for filing the company petition.6. Imposition of costs by NCLT.Detailed Analysis:1. Allegations of Oppression and Mismanagement:The appellant alleged that Respondent No. 2 breached trust and usurped control of the company, engaging in illegal enrichment at the appellant's expense. The appellant claimed that the NCLT failed to consider acts of oppression and mismanagement by Respondent No. 2, which were intended to defraud and defeat the appellant's interests. The appellant argued that these acts were ongoing and, therefore, the petition should not be barred by limitation.2. Legality of the Allotment of Equity Shares:The appellant challenged the allotment of 25 lakh shares worth Rs. 2.5 crores to Respondent No. 2 during the subsistence of an AAIFR stay order, arguing it was void ab initio. The appellant also contested the allotment of 20 lakh shares, claiming it violated Section 18(3) of SICA, as there was no publication in international newspapers to inform the appellant, an NRI. The appellant argued that the allotment was made behind his back and disturbed the equity structure to his detriment.3. Compliance with Statutory Provisions:The appellant contended that the allotment of equity shares violated various statutory provisions under the Companies Act, specifically the requirement for approval through special resolutions under Section 81(1A) for increasing authorized capital and amending the memorandum and articles of association. The appellant argued that the allotment was null and void due to non-compliance with these provisions.4. Res Judicata, Issue Estoppel, and Cause of Action Estoppel:The respondents argued that the issue of allotment of 25 lakh shares had attained finality in prior proceedings and was barred by res judicata, issue estoppel, and cause of action estoppel. They contended that the appellant's petition suffered from delays and latches and that the conversion of unsecured loans into equity shares was upheld by BIFR, AAIFR, and the High Court.5. Period of Limitation:The respondents claimed that the appeal was barred by limitation as it was filed beyond the prescribed period. They argued that the appellant did not offer any explanation for the delay in filing the appeal and that the petition was filed after significant delays and latches.6. Imposition of Costs by NCLT:The appellant argued that the NCLT erred in imposing a cost of Rs. 5 lakhs while dismissing the company petition. The appellant sought to waive the cost and requested the relief sought in Company Petition No. 42/2015.Judgment Analysis:Company Appeal (AT) No. 214/2018:The tribunal found that the BIFR had approved the conversion of Rs. 2.5 crores of unsecured loans into equity shares, which was upheld by AAIFR and the High Court. The appellant did not challenge the High Court's dismissal of the writ petition. The tribunal noted that the appellant never offered to infuse funds and that the shares were allotted as per the scheme approved by BIFR. The tribunal upheld the NCLT's order, finding it well-reasoned and based on res judicata and delay/latches.Company Appeal (AT) No. 344/2018:The tribunal found that the BIFR sanctioned the scheme under SICA, which stipulated the allotment of 20 lakh shares against unsecured loans brought in by the promoter. The appellant was offered shares but declined the offer. The High Court had dismissed the appellant's writ petition challenging the AAIFR order, and the appellant did not challenge this dismissal. The tribunal upheld the NCLT's order, finding no merit to interfere and dismissing the appeals.Conclusion:The tribunal dismissed both appeals, upholding the NCLT's orders. The tribunal found that the allotment of shares was in accordance with the BIFR-approved scheme and that the appellant's petitions were barred by res judicata, issue estoppel, cause of action estoppel, and delays/latches. The tribunal also upheld the imposition of costs by the NCLT.