2022 (2) TMI 149 - Tri - Companies Law

Tribunal Restrains Share Changes at Orient Craft Limited, Clarifies Interim Order

The Tribunal granted temporary relief by restraining respondents from changing the shareholding pattern and assets of Orient Craft Limited without Board ... Oppression and mismanagement under Section 241-242 - interest of the company paramount - interim restraint on alienation of assets and shareholding pending board approval or final disposal - audi alteram partem / natural justice - non-impleaded parties - sanctioned scheme of demerger - implementation not to be impeded by interim orderInterim restraint on alienation of assets and shareholding pending board approval or final disposal - interest of the company paramount - Whether respondents should be temporarily restrained from effecting any transfer, alienation or creation of encumbrance on the shareholding and assets of respondent No.1 (Orient Craft Ltd.) pending board consideration or final disposal of CP No. 81/Chd/Hry/2021. - HELD THAT: - The Tribunal, having regard to the company's heavy losses, the Resolution Plan formulated under RBI guidelines and the absence of any board resolution authorising the proposed sale of the Bhiwadi/Chopanki land, held that transfers or encumbrances affecting the company's assets or shareholding can be effected only after consideration at the Board level and passing of an appropriate resolution. The Tribunal emphasised that at the interim stage the paramount consideration is the interest of the company and its stakeholders, and noted that the sale had not been finalized at board level on the record before it. On that basis the Tribunal granted a temporary restraint on changing the shareholding pattern or disposing/encumbering assets of respondent No.1 except with prior approval of its Board of Directors or until final disposal of the main company petition. [Paras 22, 24, 26, 27, 35]Respondents are temporarily restrained from changing the shareholding pattern and from transferring, alienating or creating any encumbrance on assets of respondent No.1 including the land in question except with prior approval of its Board of Directors or until final disposal of CP No. 81/Chd/Hry/2021.Audi alteram partem / natural justice - non-impleaded parties - sanctioned scheme of demerger - implementation not to be impeded by interim order - Whether directions in the earlier interim order could operate against the subsidiaries (O.C. Fashion Pvt. Ltd. and Orient Craft Exchange Ltd.) which were not impleaded in IA(CA) No.10/2021 and whether the interim order would impede implementation of the demerger scheme sanctioned by the Tribunal. - HELD THAT: - Applying the principle of audi alteram partem, the Tribunal found that no adverse order should be passed against parties who were not impleaded in the interim application. The directions in the earlier order that affected the two demerged subsidiaries therefore required modification. The Tribunal also clarified that the modified interim directions shall not impede or thwart the implementation of the scheme of arrangement (demerger) previously sanctioned by the Tribunal, and accordingly withdrew the directions as to those subsidiaries while preserving the interim restraint only against respondent Nos.2 and 3 in respect of respondent No.1. [Paras 33, 34, 35]Directions against the two subsidiaries are withdrawn because they were not impleaded; the interim order is modified so as not to impede implementation of the demerger scheme, while maintaining the restraint as to respondent No.1 as specified.Final Conclusion: IA(CA) No.10/2021 is disposed by modifying the interim order: respondent Nos.2 and 3 are temporarily restrained from altering shareholding or alienating/encumbering assets of Orient Craft Ltd. except with prior Board approval or until final disposal of CP No.81/Chd/Hry/2021; directions against the non-impleaded demerged subsidiaries are withdrawn and it is clarified that the interim order will not impede implementation of the sanctioned demerger; CA No.207/2021 is disposed accordingly. Issues Involved:1. Request for stay on transfer, alienation, or creation of any encumbrance on the shareholding and assets of Orient Craft Limited and its subsidiaries.2. Allegations of oppression and mismanagement against specific respondents.3. Implementation of a Resolution Plan under RBI guidelines.4. Approval and execution of a Binding Term Sheet Agreement.5. Sale of land at a price lower than market value.6. Interim relief against changing the shareholding pattern and assets.7. Implementation of a Scheme of Arrangement demerging Orient Craft Infrastructure Ltd.Issue-wise Detailed Analysis:1. Request for Stay on Transfer, Alienation, or Creation of Encumbrance:The applicant sought a stay on any transfer, alienation, or creation of encumbrance by the respondents on the shareholding and assets of Orient Craft Limited and its subsidiaries, citing coercion and unlawful demands related to the sale of land.2. Allegations of Oppression and Mismanagement:The applicant accused respondents of acts of oppression and mismanagement, including coercing the applicant to sell land at throwaway prices for personal gain. The main petition under Sections 241-242 of the Companies Act, 2013, is pending, seeking to hold specific respondents liable.3. Implementation of a Resolution Plan:The Resolution Plan, approved by the Joint Lenders Forum with 94.20% voting share, aimed to monetize non-core assets to reduce debt. The applicant alleged that the respondents breached the Resolution Plan by unilaterally executing Binding Term Sheets without Board approval or adherence to the Asset Monetization Committee's guidelines.4. Approval and Execution of Binding Term Sheet Agreement:The applicant contended that the Binding Term Sheets executed by respondent No. 2 were oppressive and breached the Resolution Plan. The respondents argued that the sale was necessary to reduce debt and was approved by the banks.5. Sale of Land at a Price Lower Than Market Value:The applicant alleged that the land was being sold at a price significantly lower than the market value, indicating mala fide intentions. The respondents countered that the sale price was higher than the rate approved by IndusInd Bank and that the applicant was aware of the sale discussions.6. Interim Relief Against Changing Shareholding Pattern and Assets:The Tribunal restrained respondents from changing the shareholding pattern and assets of Orient Craft Limited without Board approval or until the final disposal of the main petition. The Tribunal emphasized the need to consider the company's interest first.7. Implementation of Scheme of Arrangement Demerging Orient Craft Infrastructure Ltd.:The applicant sought directions for implementing a Scheme of Arrangement demerging Orient Craft Infrastructure Ltd., sanctioned by the Tribunal. The Tribunal modified the status quo order to ensure that the interim order would not impede the implementation of the demerger scheme.Conclusion:The Tribunal, considering the interests of Orient Craft Limited and all stakeholders, temporarily restrained respondents from altering the shareholding pattern and assets without Board approval. The directions against subsidiaries were withdrawn, and the interim order was clarified to not impede the demerger scheme's implementation. Both applications were disposed of accordingly.