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of <h1>Interim injunction refused to block general meeting; triple-criteria unmet, IBC relief unsuitable; disputes under Sec. 241/242</h1> <h3>GLAS Trust Company LLC Versus Shailendra Ajmera, resolution professional of Think and Learn Private Limited and Aakash Educational Services Limited and Others</h3> NCLAT dismissed the application for an interim injunction seeking to stall the general body meeting scheduled for 29.10.2024, finding the triple-criteria ... Grant of interim injunction - balance of convenience - establishment of the triple criteria necessary for stalling the General body meeting on 29.10.2024 or not - alleged breach of order - HELD THAT:- Obviously, it is not in aid of grant of an order of interim injunction. Indeed, the value of TLPL’s shares in Akash can never be preserved if Akash is commercially killed. Therefore, the spirit of IBC is best served when the companies in which CD has some shares are allowed to prosper, irrespective of who has the controlling power. The issues pertaining to controlling power of a corporate entity and the decision to go for increase in the share capital without the concurrence of all may be relevant in a proceeding for oppression and mismanagement of a company at the instance of the minority shareholders of such company, but they definitely are not the kind of issues IBC concerns itself with. Indeed, the RP is stated to have filed at least two petitions for initiating proceedings under Sec. 241, 242 of the Companies Act. This tribunal is therefore, is cautious, not tread into areas which is earmarked for the consideration of the NCLT under the Companies Act. In effect, the last of the triple criteria is also against grant of an order of injunction. Application dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal should grant interim injunction restraining a company (subsidiary) from convening a general meeting to increase its authorised share capital by way of rights issue, where the holding company (corporate debtor) is under CIRP. 2. Whether an order of the Adjudicating Authority directed against the resolution-supporting vote of the resolution professional of the corporate debtor (and not naming the subsidiary) operates to invalidate subsequent meetings or resolutions of the subsidiary convened by its board or shareholders. 3. Whether a rights issue by a subsidiary, which will offer proportionate shares to the corporate debtor (then under CIRP), constitutes an actionable dilution of the corporate debtor's shareholding or asset value for purposes of IBC, and whether the CoC/RP can require restraint of such corporate actions of the subsidiary. 4. Whether the applicant has satisfied the three standard interim-injunction tests (prima facie case, irreparable harm, balance of convenience) to justify relief restraining the subsidiary's general meeting and proposed capital increase. 5. The extent to which IBC (including ss.20, 25, 60(5) as invoked) permits interference with internal management decisions of third-party companies in which the corporate debtor has minority shareholding. ISSUE-WISE DETAILED ANALYSIS Issue 1: Interlocutory relief to restrain subsidiary's general meeting/rights issue during CIRP of holding company Legal framework: Principles governing grant of interim injunctions (prima facie case, irreparable injury, balance of convenience); IBC provisions on rights and duties of resolution professional and CoC (ss.20, 25); corporate personality and separate legal entity concept. Precedent Treatment: No specific binding precedent applied in the judgment to alter traditional interlocutory principles; Tribunal relied on statutory scheme and corporate law principles rather than overruling precedent. Interpretation and reasoning: The Tribunal emphasises the separate juristic personality of the subsidiary and its independent commercial existence. The board's decision to raise funds (including by debentures) predates admission to CIRP of the holding company and may necessitate consequent amendments to the subsidiary's articles. The Tribunal rejects an unduly expansive reading of IBC that would permit the CoC/RP to restrain every corporate action of companies in which the corporate debtor holds minority shares. The right to protect the corporate debtor's asset value does not translate into blanket interference with subsidiary's internal management when the subsidiary acts to preserve its own commercial viability. Ratio vs. Obiter: Ratio - IBC does not entitle the resolution professional or CoC to generally restrain independent corporate acts of third-party companies in which the corporate debtor holds a minority stake; such restrain is not justified absent strong evidence that the subsidiary's act is targeted to deplete the corporate debtor's assets and cannot be mitigated by the corporate debtor itself (e.g., by subscribing to a rights issue). Obiter - observations on broader commercial policy and hypothetical market fluctuations. Conclusion: Interim injunction to restrain the subsidiary's general meeting/rights issue is not justified on the facts; the subsidiary's right to manage its commercial survival is to be respected unless proven otherwise. Issue 2: Effect of Adjudicating Authority's order directed against RP alone on subsequent subsidiary proceedings Legal framework: Scope of interdicts/ orders of Adjudicating Authority under IBC; principles of party-specific orders; corporate separateness. Precedent Treatment: No prior controlling authority applied; the Tribunal treats the point as question of law and fact based on statutory scheme and order language. Interpretation and reasoning: The Tribunal finds that an order directed specifically against the RP (not naming the subsidiary) prima facie does not automatically bind the subsidiary or render its meetings void. Because the subsidiary was not a party to the proceedings that produced the direction against the RP, it retains the defence that its meetings were not illegally convened. The Tribunal notes the subsidiary had antecedent commitments (e.g., Debenture Trust Deed) justifying amendment of its articles and hence a prima facie case exists for the subsidiary's conduct. Ratio vs. Obiter: Ratio - An adjudicatory direction against the RP does not ipso facto invalidate or prohibit independently convened subsidiary meetings unless the subsidiary was a party or the order's terms clearly extend to it. Obiter - procedural propriety remarks regarding notice and hearing before such orders. Conclusion: The impugned Adjudicating Authority order directed at the RP does not establish, prima facie, illegality of the subsidiary's general body meeting or its resolutions. Issue 3: Rights issue as dilution and the corporate debtor's remedies-whether the proposed right issue violates status-quo NCLT order or constitutes irreversible harm Legal framework: Rights issue mechanics; duties of RP/CoC to maximize value under IBC; interim orders/status-quo in parallel company-law proceedings (Ss.241/242 matters before NCLT); remedial powers of NCLT and appellate forums. Precedent Treatment: Tribunal relies on statutory interpretation and practical commercial considerations; no precedent distinguished or overruled. Interpretation and reasoning: The Tribunal differentiates a rights issue from other forms of capital raising because rights issues offer proportionate entitlement to existing shareholders. Since the corporate debtor will be offered shares in proportion to its existing holding, any non-subscription (and resulting dilution) would be a choice attributable to the corporate debtor (via its CoC/RP), not unilateral action of the subsidiary. Thus, the remedy for perceived dilution lies first with the corporate debtor/CoC deciding whether to subscribe. Further, an existing NCLT status-quo order aimed at preventing dilution does not automatically restrain a rights issue where the corporate debtor has opportunity to participate; the alleged irreparable harm is speculative where a rights issue is proportionate and the corporate debtor can act to protect its position. Ratio vs. Obiter: Ratio - Proportional rights issues do not per se cause irreversible injury to the corporate debtor that would justify interim restraint, because the corporate debtor can subscribe to maintain its percentage; absence of evidence that the subsidiary will manipulate unsubscribed shares to injure the corporate debtor weighs against interim relief. Obiter - observations on commercial exigencies created by debenture trust obligations that may justify amendment of articles. Conclusion: The rights issue, on the record, is not an actionable automatic dilution warranting injunction; the corporate debtor's own decision-making (CoC/RP) is pivotal. Issue 4: Application of the three-interim-injunction criteria to the facts Legal framework: Tripartite test for interlocutory injunctions (prima facie case, irreparable injury, balance of convenience); statutory purpose of IBC (asset maximization, going concern) and its interplay with corporate governance remedies under Companies Act. Precedent Treatment: Standard equitable principles applied without departure; Tribunal abstains from intruding into matters earmarked for NCLT (s.241/242). Interpretation and reasoning: (a) Prima facie case - Tribunal finds that the subsidiary has a plausible case (board action predating CIRP and separate corporate personality), so applicant fails to show a strong prima facie right to restraint. (b) Irreparable injury - Tribunal finds no irreparable injury because any diminution in share percentage/value can be addressed by the corporate debtor subscribing to rights, and because preservation of subsidiary's commercial viability may be more aligned with IBC's objectives than preventing its capital raise. (c) Balance of convenience - favors permitting the subsidiary to pursue commercially justified measures rather than stifling its operations to protect a minority-shareholding corporate debtor; courts should avoid entering areas reserved for NCLT remedies for oppression/mismanagement. The Tribunal emphasises that remedies can be moulded if later invalidation of subsidiary resolutions is established. Ratio vs. Obiter: Ratio - On the facts, all three injunction criteria are not satisfied; hence interim injunction must be refused. Obiter - cautionary notes on judicial restraint and the availability of remedial moulding by company-law forums. Conclusion: The three-part test fails in favour of refusing interim relief; I.A. dismissed. Issue 5: Scope of IBC (ss.20, 25, 60(5)) to reach into internal management of companies in which the corporate debtor holds minority shares Legal framework: Statutory provisions cited by parties (ss.20, 25 authorising RP actions to preserve going concern; s.60(5) permitting tribunal action against subsidiaries in limited circumstances); corporate separateness doctrine. Precedent Treatment: Tribunal construes statutory scheme purposively; no extension of IBC beyond its textual limits. Interpretation and reasoning: The Tribunal rejects an expansive construction of IBC that would permit the CoC/RP to interfere with every company in which the corporate debtor holds a stake. ss.20 and 25 empower RP to manage the affairs of the corporate debtor and preserve going concern, but do not convert RP into a manager of all entities where the corporate debtor has minority interests. s.60(5) does not supply carte blanche to trample corporate separateness; intervention must be justified and proportionate. The Tribunal underscores protection of other shareholders' interests and the subsidiary's independent obligations (e.g., under the Debenture Trust Deed) that may validly require amendment of its articles and capital measures. Ratio vs. Obiter: Ratio - IBC's provisions do not authorize indiscriminate control over third-party companies merely because the corporate debtor holds minority shares; intervention is exceptional and fact-specific. Obiter - policy remarks on the limits of creditor protection vis-à-vis independent corporate entities. Conclusion: IBC cannot be stretched to grant sweeping authority to CoC/RP to restrain independent corporate acts of subsidiaries/minority enterprises; intervention must be narrowly tailored and supported by strong evidence. Overall Disposition On the application of the legal framework to the facts, the Tribunal finds that the applicant has not established the requisite prima facie case, irreparable injury, or balance of convenience to justify an interim injunction restraining the subsidiary's meeting or proposed rights issue; the intervention sought is therefore refused and the application is dismissed. The Tribunal also notes that any invalidity ultimately found in subsidiary resolutions can be remedied or moulded by appropriate powers of the NCLT/companies-law fora.
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