2024 (4) TMI 480 - AT - Companies Law

Lease deed set aside for violating Section 188(1) Companies Act lacking required member consent in oppression case

Ajay Kumar Agrawal & Ors. Versus Rancy Construction Pvt. Ltd. & Ors.

NCLAT Principal Bench upheld tribunal's decision setting aside a lease deed dated 26.08.2019 in an oppression and mismanagement case. The lease deed ... Oppression and Mismanagement - Validity of the Lease Deed - Doctrine of Res Sub-Judice - Appellants argued that the Tribunal overstepped its jurisdiction by setting aside the lease deed while its validity was under scrutiny in a civil court - HELD THAT:- The bedrock of this case is the lease deed dated 26.08.2019, executed pursuant to the resolution dated 23.08.2019 which is not only contrary to the provisions of Section 188(1) of the Act r/w Rule 15 of the companies (Meeting of board and its powers) Rules 2014 but also clause 36(ii) of the AoA as on 23.08.2019, which provides that the board of directors shall not, without consent of 100% members of the company, in duly convened general meeting can lease and dispose of the property of the company by way of lease etc. and that the consent of 100% members of the company in a duly convened general meeting is conspicuous by its absence. There are no traces of the alleged oral settlement which has been made the basis of the lease, the terms of which are more against the company (R1) than its favour, therefore, these are unconscionable terms and conditions which would attract the provisions of Section 241 and 242 of the Act. Moreover, the Appellant did not deliberately implead Rohit Agarwal and Shobhit Agarwal as parties to the present appeal though they were respondents in the main petition only in order to conceal the fact that Shobhit Agarwal who is the son of Appellant No. 1 (Ajay Kumar Agrawal), is a partner of Appellant No. 3 (TX Homes LLP) whereas as per Section 188 r/w 2(76) of the Act and Rule 4 of Companies (Specification of Definition Details) Rules, 2014, the lease deed would not have been executed in favour of the related party. The power under Section 241 and 242 of the Act would include the power to set aside the lease deed which has been executed on behalf of R1 in violation of mandatory provisions of the Act, AoA and terms and conditions of the impugned lease deed are against the very interest of R1 and is oppressive, therefore, the lease deed has rightly been set aside by the Tribunal. Thus, it is a fit case in which the Tribunal has interfered and set aside the registered lease deed and as such, the impugned order does not call for any interference by this Court, the same is hereby upheld - appeal dismissed. Issues Involved:1. Validity of the Lease Deed dated 26.08.2019.2. Alleged Oppression and Mismanagement u/s 241 and 242 of the Companies Act, 2013.3. Doctrine of Res Sub-Judice.4. Related Party Transaction under Companies Act, 2013.Summary:1. Validity of the Lease Deed dated 26.08.2019:The appeal challenges the order dated 05.05.2022 by the National Company Law Tribunal (NCLT), New Delhi, which set aside the lease deed dated 26.08.2019. The Tribunal found that the lease deed executed by Rancy Construction Pvt. Ltd. (Respondent No. 1) through Neeraj Singh (R4) in favor of TX Homes LLP (Appellant No. 3) was in contravention of Section 188(3) and (4) of the Companies Act, 2013, and clause 36(ii) of the Article of Association (AoA) of Respondent No. 1. The AoA required the written consent of 100% members in a duly convened general meeting for such transactions, which was not obtained.2. Alleged Oppression and Mismanagement u/s 241 and 242 of the Companies Act, 2013:The Tribunal found that the lease deed caused a significant monetary loss to Respondent No. 1 and was executed without the necessary shareholder consent, making it an illegal and oppressive act. The Tribunal recommended that the company proceed against the defaulting directors (Respondent 2 & 3) for recovery of any loss sustained and imposed a penalty of Rs 5,00,000 each on the responsible directors.3. Doctrine of Res Sub-Judice:The appellant argued that the Tribunal contravened the doctrine of res sub-judice by setting aside the lease deed while its validity was pending adjudication before the Civil Court. The Tribunal, however, found no violation of res sub-judice as the civil suit was only for permanent injunction and not for determining the ownership rights or the validity of the lease deed.4. Related Party Transaction under Companies Act, 2013:The Tribunal noted that the lease deed was a related party transaction under Section 188 r/w 2(76) of the Companies Act, 2013, as Appellant No. 3 included Shobhit Agarwal, the son of Appellant No. 1. The lease deed was executed without the necessary resolution passed at a general meeting, making it invalid. The Tribunal emphasized that the terms of the lease were detrimental to the company's interest, allowing the lessee to sublease, assign, or transfer rights without the lessor's consent and restricting the lessor from terminating the lease even if rent was not paid.Conclusion:The Tribunal upheld the cancellation of the lease deed, directed the sub-registrar to cancel the registered deed, and restrained the respondents from creating third-party rights in the property. The appeal was dismissed, affirming the Tribunal's order as it did not find any grounds for interference.