NCLT Chennai Bench Invalidates Share Allotments & Board Meetings, Orders Buyout & Repayment

The NCLT Chennai Bench declared share allotments and board meetings as illegal, setting them aside. The EoGMs and rights offer were also deemed illegal. Respondent No.3's continuance and Respondent No.4's appointment were declared illegal. The 1st Petitioner was appointed Managing Director, and the Board was directed to rectify the shareholding pattern. An independent auditor valued shares at Rs. 1,941 per share for the buyout. Loans advanced were acknowledged, with directions for repayment and fresh personal guarantees. The Tribunal ordered one group to purchase shares of the other at the higher valuation, maintaining the loan arrangement with LIC HFL.

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Issues Involved:
1. Legality of share allotments and board meetings.
2. Valuation and purchase of shares.
3. Loans and personal guarantees.

Detailed Analysis:

1. Legality of Share Allotments and Board Meetings:
The NCLT, Chennai Bench, in its order dated 07.12.2017, declared the allotments of shares (5,05,000 shares) in favor of Respondents 2 and 3 made on 25.04.2008 and 11.08.2010 as illegal, and these allotments were set aside. The Board Meetings held on these dates were also declared illegal, and all decisions taken therein were nullified. Additionally, the EoGMs dated 22.01.2011 and the rights offer dated 01.02.2011 were declared illegal, null and void. The continuance of Respondent No.3 and the appointment of Respondent No.4 were declared illegal, and the 1st Petitioner was appointed as Managing Director of the 1st Respondent Company, with Mr. K. J. Paul removed from this position but retained as a Director. The Board of Directors was directed to rectify the Register of Members to restore the shareholding pattern as on 30.09.2005.

2. Valuation and Purchase of Shares:
The NCLT, Chennai Bench, proposed appointing an independent auditor to determine the true and fair value of the shares of the 1st Respondent Company, initially considering three financial years from 2011 onwards. However, the NCLAT, New Delhi, modified this to the valuation as on the date of the decision, i.e., 07.12.2017. The independent auditors, CA Dr. Santha Kumar K. and CA Suresh T. N., were appointed to individually determine the true and fair value of the shares. The valuation reports submitted on 25.06.2021 and 02.07.2021 respectively, showed significant differences, with CA Suresh T. N. valuing the shares at Rs. 1,941/- per share and CA Dr. Santha Kumar valuing them at Rs. 1,115/- per share. The Tribunal accepted the higher valuation of Rs. 1,941/- per share for the buyout.

3. Loans and Personal Guarantees:
The Applicants/Respondents 1 to 3 advanced loans to the 1st Respondent Company, totaling Rs. 7,49,80,007/- as on 07.12.2017, with additional sums advanced thereafter. The Tribunal acknowledged the outstanding loans and directed that in the event of a buyout, the loans advanced by the Applicants/Respondents 1 to 3 should be returned with appropriate interest. Additionally, the 1st and 2nd Applicants had furnished personal guarantees for a loan of Rs. 4,70,00,000/- from LIC HFL, with Rs. 4,26,97,780/- outstanding. The Tribunal directed that the Respondents/Petitioners group furnish fresh personal guarantees to release the personal guarantees of the 1st and 2nd Applicants.

Conclusion:
The Tribunal, after considering the arguments and documents, found that the two sets of shareholders could not continue business together due to a lack of probity. It concluded that a permanent solution required one group purchasing the shares of the other. The Tribunal accepted the higher valuation of Rs. 1,941/- per share for the buyout and directed the Applicants/Respondents to purchase 60,000 shares of the Respondents/Petitioners within one month. The Tribunal also maintained the existing loan arrangement with LIC HFL and required the continuation of personal guarantees until the loan was fully repaid. The application C.A No. 86/KOB/2021 was disposed of with these directives, and no further orders were necessary in TCP No. 14/KOB/2020.

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