2021 (4) TMI 578 - Tri - Companies Law

Tribunal Grants Company Loans Amid Pandemic, Emphasizes Business Continuity

The Tribunal allowed the Applicant No. 1 Company to avail secured and unsecured loans, including credit facilities, to address financial challenges ... Seeking permission to avail loans and credit facilities to carry on the business of the Applicant - covid-19 lockdown situation - HELD THAT:- It is common knowledge that the whole world is still reeling under the adverse effects of the pandemic for over a year. The pandemic undeniably has had adverse effect on all walks of life including trade, commerce and business operations. It would accordingly not be unusual to assume that the impact thereof has also been felt by the Company. As can be discerned from the earlier orders of the CLB as well as of the Hon’ble High Court of Bombay, the interest of the Company has to be of paramount consideration and needs to be protected. The CLB as well as the Hon’ble High Court have at different times have felt the need for infusion of funds into the Company, so that the operations of the Company can be carried out. The Company can incur fresh indebtedness/loans for the purpose of carrying on its business operations and avail the credit facility offered by the Janata Sahakari Bank. It is understood that the pickles and condiments offered by the Company have substantial market share and are sought after by customers - it is convincing and confident that once the Company resumes its operations it can take care of its liabilities and service its debts. Application allowed. Issues Involved:1. Permission to avail loans and credit facilities for business operations.2. Allegations of oppression and mismanagement.3. Need for external funding due to the COVID-19 pandemic.4. Objections to the application for loans and credit facilities.Issue-wise Detailed Analysis:1. Permission to Avail Loans and Credit Facilities for Business Operations:The Respondent Nos. 1 to 5 sought permission to avail loans and credit facilities to carry on the business of the Applicant No. 1 Company. The Tribunal noted the historical context of the company, which started as a family-run grocery shop and evolved into a flourishing business manufacturing spices and pickles. The company faced significant financial challenges due to the COVID-19 pandemic, leading to a standstill in operations and a substantial fall in revenue. The Tribunal recognized the urgent need for funds to resume business operations and meet ongoing expenses, including salaries, maintenance, and vendor payments. The Tribunal allowed the company to avail secured and unsecured loans, including the credit facilities offered by Janata Sahakari Bank Ltd., Pune, as per the borrowing limits and security approved by the majority of its Board.2. Allegations of Oppression and Mismanagement:The Company Petitioners alleged oppression and mismanagement by the Respondents, who held a majority shareholding of 92.5%. The Petitioners sought reliefs including the appointment of Petitioner No. 2 as a director, recognition of their stake in the company as one-third, and valuation and purchase of their shares at a fair value. The Tribunal acknowledged the historical disputes and family settlements aimed at quelling differences among members. The earlier orders by the Company Law Board (CLB) and the High Court of Bombay emphasized the need to protect the company's interests, particularly in light of past property sales and the necessity for external funding.3. Need for External Funding Due to the COVID-19 Pandemic:The Tribunal highlighted the severe impact of the COVID-19 pandemic on the company's business activities, leading to a complete shutdown and significant financial strain. The company's largest manufacturing unit in Valsad, Gujarat, was shut down as it was declared a containment zone. Despite the fall in revenue, the company continued to incur fixed costs, including salaries, security charges, and maintenance expenses. The Tribunal noted that the company's financial distress necessitated external funding to avoid potential shutdown and insolvency. The Tribunal referenced earlier orders by the CLB and the High Court of Bombay, which recognized the need for outside funding to sustain the company's operations.4. Objections to the Application for Loans and Credit Facilities:The Respondents (Company Petitioners) objected to the application, arguing that it was a ruse to camouflage fiscal mismanagement by the Applicants. They contended that the application essentially sought to review or modify earlier orders by the CLB and the High Court of Bombay, which should not be permitted. The Respondents also noted that a similar application (MA No. 4114 of 2019) was pending and had been scheduled for hearing but was delayed due to the pandemic. The Tribunal, however, emphasized the paramount need to protect the company's interests and allowed the application to avail loans and credit facilities to sustain business operations.Conclusion:The Tribunal allowed the application, permitting the Applicant No. 1 Company to avail secured and unsecured loans to further its business interests, including the credit facilities offered by Janata Sahakari Bank Ltd., Pune. The Tribunal recognized the significant financial challenges posed by the COVID-19 pandemic and the urgent need for external funding to avoid potential shutdown and insolvency. The Tribunal emphasized the paramount importance of protecting the company's interests and ensuring its continued operations. No costs were awarded.