Tribunal invalidates company transactions due to fund siphoning and lack of AGMs

The Tribunal rejected the objection on the maintainability of the Company Petition, finding that exemptions under the Companies Act, 2013 did not apply due to prejudicial fund siphoning. It ruled that the Respondents violated the Articles of Association by not convening AGMs, rendering related party transactions invalid for lack of proper approvals. Consequently, the Tribunal declared the transactions and proceedings invalid, disposing of the Company Petitions without further investigation or penalties.

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Issues Involved:
1. Maintainability of the Company Petition.
2. Violation of the Articles of Association by the 2nd Respondent.
3. Existence and validity of related party transactions.

Issue-wise Detailed Analysis:

1. Maintainability of the Company Petition:
The Tribunal examined Notification No. 464(E) of MCA dated 05.06.2015, which the Respondents claimed provided certain exemptions under Sections 185 and 188 of the Companies Act, 2013. The Tribunal found that the exemption applies only if the shareholders' interests are protected. It was determined that the 2nd and 3rd Respondents had siphoned funds prejudicially to other shareholders, making the exemption inapplicable. The Tribunal emphasized that the burden of proof for claiming exemptions lies with the Respondents, who failed to demonstrate eligibility. Consequently, the objection regarding the maintainability of the petition was rejected.

2. Violation of the Articles of Association by the 2nd Respondent:
The Tribunal noted the importance of the Articles of Association in governing a company's internal management. It referred to precedents, including the Hon’ble Company Law Board's decision in Mrs. Senthmarai Munuswamy Vs. Microparticle Engineers Private Limited and the Hon’ble Supreme Court's decision in Naresh Chandra Sanyal vs. Calcutta Stock Exchange, emphasizing that actions contrary to the Articles are invalid. The Tribunal found that the Respondent Companies had not convened Annual General Meetings (AGMs) from 2015-2016 to 2018-2019, violating Section 96 of the Companies Act, 2013. The Tribunal concluded that the Respondents failed to provide evidence of proper notice for AGMs, rendering the meetings non-compliant with statutory requirements and the Articles of Association.

3. Existence and Validity of Related Party Transactions:
The Tribunal reviewed the definition and regulation of "related party" and "related party transactions" under Sections 2(76) and 188 of the Companies Act, 2013. It was evident from the records that loans were given by M/s. RBG Enterprises Pvt. Ltd. to M/s. Sri Rubber Industries and M/s. RBG Trading Corporation Pvt. Ltd. without the Board's consent. The Tribunal emphasized that related party transactions require Board consent and, if exceeding certain thresholds, shareholder approval. The Respondents failed to obtain such approvals and did not disclose these transactions in the Board's report. Therefore, the Tribunal declared the related party transactions invalid and in breach of the Articles of Association. Consequently, all proceedings violating the Articles were also declared invalid.

Conclusion:
The Tribunal disposed of Company Petition No. 114/KOB/2019, Company Petition No. 119/KOB/2019, and Company Petition No. 125/KOB/2019, declaring the related party transactions invalid and non-compliant with the Articles of Association. No investigation into the companies' affairs or penalties were imposed, as the primary relief was the invalidation of the respondents' actions. All pending Interlocutory Applications were also disposed of.

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