2023 (4) TMI 1143 - AT - Companies Law

Appellate Tribunal directs NCLT to release Final Audit Report, ensure auditor's fees, and consider findings.

Shri M.N. Pratap Reddy, Shri M. Kiran Kumar Reddy, Sri Lakshmi Nilayam Versus M/s. Sri Lakshmi Narasimha Mining Co. (P) Ltd., Shri R. Swarup Reddy, Shri Yathin Reddy, Ms. Jansi Reddy, Shri Imran Pasha

Shri M.N. Pratap Reddy, Shri M. Kiran Kumar Reddy, Sri Lakshmi Nilayam Versus M/s. Sri Lakshmi Narasimha Mining Co. (P) Ltd., Shri R. Swarup Reddy, Shri ... Issues Involved:1. Validity of Board Meetings and Resolutions2. Investigation into Company Affairs and Misconduct3. Appointment of Additional Director4. Injunction on Dealing with Company Assets5. Payment of Share Premium6. Consideration of Final Audit ReportSummary:1. Validity of Board Meetings and Resolutions:The appellants, minority shareholders and directors of Respondent No. 1 Company (R-1), challenged the validity of Board meetings dated 6.9.2014 and 20.9.2014, seeking declarations that these meetings and resolutions passed therein be declared null and void. The Company Law Board (CLB) initially granted this relief based on mutual consent but the National Company Law Tribunal (NCLT) later dismissed the petition without considering the Final Audit Report.2. Investigation into Company Affairs and Misconduct:The appellants alleged various acts of mismanagement and misconduct by Respondents No. 2 to 5, particularly by Mr. Venkata Rami Reddy, and sought an investigation. The CLB appointed M/s. H.C. Kincha & Company, later replaced by M/s. Brahmayya and Company, to audit the company's accounts. The audit revealed gross mismanagement and fraud, but the NCLT did not release the Final Audit Report due to non-payment of the auditor's fees and dismissed the petition, granting liberty to file a fresh case based on the audit findings.3. Appointment of Additional Director:The appellants sought to declare the appointment of Respondent No. 5 as Additional Director null and void. The CLB initially granted this relief, but the NCLT dismissed the petition without considering the Final Audit Report.4. Injunction on Dealing with Company Assets:The appellants requested a permanent injunction to restrain Respondents No. 2 to 5 from dealing with the company's assets. This relief was not specifically addressed by the NCLT in the final judgment.5. Payment of Share Premium:The appellants contended that shares allotted to Respondents No. 3 and 4 were not paid for at a premium as required. The NCLT held that there was no evidence of such a requirement and dismissed this claim, noting that the appellants, who were in control of the company at the time, could not now claim that the decisions were faulty.6. Consideration of Final Audit Report:The NCLT dismissed the petition without considering the Final Audit Report, which was kept in a sealed cover due to non-payment of the auditor's fees. The Appellate Tribunal found that the NCLT erred in not considering the audit report and remanded the case to the NCLT with directions to release the audit report to the parties, ensure payment of the auditor's fees, and adjudicate the matter after considering the audit findings.Conclusion:The Appellate Tribunal remanded the case to the NCLT, directing it to release the Final Audit Report, ensure payment of the auditor's fees, and consider the findings of the audit report, providing an opportunity for all parties to be heard. The NCLT was instructed to pass appropriate orders based on the audit findings and allow necessary additional pleadings and joinder of parties if required.