2022 (4) TMI 267 - AT - Companies Law

Appeals allowed, NCLT order set aside, matter remitted for comprehensive adjudication. Parties must complete pleadings.

The Appeals were allowed, setting aside the NCLT's order and remitting the matter for comprehensive adjudication within three months. The Tribunal ... Appointment of an observer to an AGM and videography of proceedings - inspection of company records by a former director/shareholder vis-a -vis inspection rights under Section 128(3) - judicial restraint on criminal proceedings arising from corporate disputes - remand for fresh consideration where parties were not afforded opportunity to be heardRemand for fresh consideration where parties were not afforded opportunity to be heard - Whether the Impugned Order dated 22/11/2021 should be set aside for lack of opportunity to the Appellants and for having been passed when the main application was still pending. - HELD THAT: - The Tribunal found that CA 522/2021 was first taken up on 22/11/2021, one day before the scheduled AGM, without notice to the Appellant and without an opportunity to file reply or to be heard. The main application before the NCLT remained pending and only some reliefs were addressed by the ad interim order. In view of these procedural deficiencies and the chequered history of the case, the Tribunal did not adjudicate the substantive merits but set aside the Impugned Order and remitted the matter to the NCLT for fresh disposal. The Tribunal directed that the matter be decided after full opportunity to complete pleadings and file objections and imposed a timeline of three months for disposal from the date of the order. [Paras 11, 12]Impugned Order set aside and matter remitted to NCLT for fresh consideration with directions to permit completion of pleadings and to decide the matter within three months.Inspection of company records by a former director/shareholder vis-a -vis inspection rights under Section 128(3) - appointment of an observer to an AGM and videography of proceedings - judicial restraint on criminal proceedings arising from corporate disputes - Whether the specific directions in the Impugned Order (appointment of observer, videography and inspection rights, and restraint on criminal proceedings) were to be sustained without affording parties an opportunity for full adjudication. - HELD THAT: - The Tribunal noted that the NCLT had directed appointment of an observer, allowed videography of the AGM and inspection of statutory records/financial statements (including inspection through professionals), and restrained respondents from proceeding with criminal proceedings. However, because the main application remained pending, some prayers were unaddressed, and the Appellant had not been given notice or a chance to plead, the Tribunal refrained from deciding these specific reliefs on merits. The Tribunal observed that the observer's role, as framed in the Impugned Order, included inspection of financial records, but did not uphold or reject the several operative directions substantively. Instead, these matters were remitted to the NCLT to be considered afresh with full opportunity to the parties. [Paras 8, 10, 11]The directions in the Impugned Order regarding appointment of an observer, videography, inspection rights and restraint on criminal proceedings were not finally sustained and are remitted to the NCLT for fresh decision after permitting parties to complete pleadings.Final Conclusion: The Appeals are allowed in part: the Impugned Order dated 22/11/2021 is set aside and the matter is remitted to the NCLT for fresh adjudication after affording all parties an opportunity to complete pleadings and file objections; the NCLT is directed to dispose the matter expeditiously, and in any event within three months from the date of this Order. Issues Involved:1. Jurisdiction of NCLT in restraining criminal proceedings.2. Entitlement of a former director to inspect company records.3. Appointment of an observer and videography of AGM.4. Allegations of mismanagement and siphoning of funds.5. Interim orders and their implications on the main petition.Issue-wise Detailed Analysis:1. Jurisdiction of NCLT in restraining criminal proceedings:The Appellant argued that NCLT exceeded its jurisdiction by restraining the Respondents from proceeding with criminal investigations lodged with the police. The NCLT had issued an order preventing the continuation of criminal proceedings until the next hearing date, which the Appellant contended was beyond the tribunal's authority.2. Entitlement of a former director to inspect company records:The Appellant contended that the first Respondent, having resigned as Director on 09/06/2016, sought retrospective inspection of records for FY 2016-17, which is allowed only for current Directors under Section 128(3) of the Companies Act, 2013. The NCLT had granted inspection of statutory records for any financial year, which was beyond what was prayed for by the first Respondent.3. Appointment of an observer and videography of AGM:The NCLT appointed an observer to oversee the 28th AGM and ordered the entire proceedings to be video recorded. The Appellant argued that this was unnecessary, especially given the history of the case and the ongoing criminal investigations. The first Respondent sought this relief due to alleged discrepancies and non-grant of inspection of company records.4. Allegations of mismanagement and siphoning of funds:The Appellant accused the first Respondent of running a parallel company and diverting business, leading to the filing of CS (Comm.) No. 466 of 2021 in the Delhi High Court, which appointed commissioners to inspect the Respondent's computers for misuse of proprietary software. FIRs were also lodged against the first Respondent for allegedly destroying financial records and siphoning funds.5. Interim orders and their implications on the main petition:The NCLT passed several interim orders, including the appointment of an observer and allowing inspection of records, which were part of the ongoing petition for oppression and mismanagement. The Appellant contended that these interim orders were beyond the reliefs sought and that the main petition should be addressed comprehensively.Assessment:The Tribunal noted that the NCLT issued the impugned order without giving the Appellant an opportunity to present their case, as the application was taken up a day before the scheduled AGM. The Tribunal found that some reliefs sought in CA 522/2021 were similar to those in previous applications, and the main application was still pending.The Tribunal observed that the NCLT's order to appoint an observer and allow inspection of records was an interim measure due to the urgency of the AGM. However, given the ongoing main petition and the chequered history of the case, the Tribunal set aside the impugned order and remitted the matter back to NCLT for a comprehensive decision after giving all parties an opportunity to complete their pleadings.Conclusion:The Appeals were allowed to the extent that the impugned order was set aside, and the matter was remitted back to NCLT for a detailed adjudication within three months. The Tribunal directed the Registry to upload the judgment on its website and send a copy to NCLT forthwith.