TaxTMI 
TaxTMI 
2018 (6) TMI 952
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....ent No.1 - M/s. Rudraksh Synthetics Pvt. Ltd. (in short, "Rudraksh") in that matter. CA 400 of 2017 has Respondent No.2 - Shri Rakesh Thakordas Mandlewala and Respondent No.3 - Shri Yogesh Thakordas Mandlewala who are brothers of Respondents 2 and 3 in CA 403 of 2017 namely Respondent No.2 - Shri Naresh Thakordas Mandlewala and Respondent No.3 - Shri Hemant Thakordas Mandlewala. Original Petitioner filed both the Company Petitions together before the Company Law Board, Mumbai which were later on taken up before the National Company Law Tribunal, Ahmedabad as transferred petitions. We will refer to the matter of M/s. Nagina Processors Pvt. Ltd. as the "First petition" and the matter relating to M/s. Rudraksh Synthetics Pvt. Ltd. as the "Second petition". First Petition - M/s. Nagina Processors Pvt. Ltd. 2. In this Company Petition, Petitioner claimed that he is shareholder of Respondent No.1 Company - Nagina Processors Pvt. Ltd. since 16.05.2011. According to Petitioner, the petition was inter connected with the other petition filed against Rudraksh Synthetics Pvt. Ltd. and the petition should be read and clubbed with the petition filed in the matter of Rudraksh Synthetics Pvt. ....
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....t up process house in the land owned by Respondent No.1 Company - Nagina Processors Pvt. Ltd. Petitioner agreed to the proposal of Respondents 2 and 3 in the matter of Rudraksh Synthetics Pvt. Ltd. and accordingly invested 50% of the required funds. 4. In the matter of Nagina Processors Pvt. Ltd., Petitioner claimed that he was allotted 3,000 shares on 30th June, 2011, 6,000 shares on 15th December, 2011 and his wife Priti Kharwar was allotted 3,000 shares on 30th June, 2011. This was out of total issued shares of 99,520. Thus according to him, although the understanding was to issue 50% shares to his group, he and his wife were allotted only 12.06% equity shares of Respondent No.1 Company - Nagina Processors Pvt. Ltd. Although he was promised but he was not made Director of Respondent No.1 Company - Nagina Processors Pvt. Ltd. He pleaded that the process house of Rudraksh Synthetics Pvt. Ltd. on the land of Respondent No.1 Company - Nagina Processors Pvt. Ltd. started functioning in 2010 after civil works were completed. Second Petition - M/s. Rudraksh Synthetics Pvt. Ltd. 5. In this matter also, the Original Petitioner raised similar contentions to show that the Respondents ....
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....2013 in spite of objections of the Petitioner and without giving account to him. The Petitioner claimed that the persons, who are now running process house of the Company of Rudraksh which is standing on the land of Nagina Processors, are Directors of Devi Processors Pvt. Ltd. which is another process house of Surat. He claims that his salary as Printing Master till June, 2013 @ Rs. 2 lakhs per month had not been paid by the Respondents 2 and 3 and salary for 18 months was outstanding. He had earlier been given authorisation to operate banks of Respondent No.1 - Rudraksh in the Allahabad Bank but this was revoked by the Respondents 2 and 3 as they had the majority in the Board of Directors. The Petitioner claimed that he was not involved in the activities of Respondent No.1 - Rudraksh Company since February, 2013 and in May, 2014, he came to know from the market that Respondents 2 and 3 handed over the process house to Mitul Mehta, Ramesh Pandya and Madhubhai of Devi Processors. Petitioner claimed that since inception, no notices of Board Meetings or General Body Meetings were sent to him and no such meetings were ever held by Respondents 2 and 3 in the matter of Rudraksh and no ac....
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....nd acting against the interests of the Company, they should pay back the amounts earned by the illegal occupants to the Respondent no 1 Company from May 2014 with interest at 18% per annum, failing which civil and criminal actions be initiated against the Respondents 2 and 3 by the company for acting against the interests of the company." 6. In the first petition in the matter of Nagina also, similar averments have been made as seen in the matter of Rudraksh and inter alia prayers 'a' and 'c' read as under:- "A. To hold that handing over the land (only major asset of the respondent number 1 company) to unrelated 3rd parties not connected with Respondent No.1 Company or Rudraksh Synthetics P Ltd. (lessee of Respondent No.1 Company) without the concurrence of the shareholders of the company is per se illegal and to order repossession of the asset of the company by the shareholders of the company with order for accounts for the period of the land being under the illegal occupation/encroachment of 3rd parties, and to order necessary investigation in this regard through an independent Commissioner to be appointed by the Honourable Company Law Board." C. Since the respondents no 2 ....
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....that detailed reply is filed in the other petition, NCLT treated the matters separate). As regards maintainability in the matter of Nagina Processors, NCLT found that the Petitioner and his wife constituted more than 10% of the share capital and they were eligible to file the petition. It was observed that although Petitioner claimed that no Notices of General Meetings were ever issued to him, the grievance was raised only when EOGM had been called in the other matter relating to Rudraksh Synthetics. Thus, the NCLT concluded that the Petitioner in the matter of Nagina Processors was not entitled to any relief and offered option to the Petitioner and his wife to seek exit and disposed of the Company Petition accordingly. Impugned Order - in second Petition relating to Rudraksh Synthetics P. Ltd. 8. In this Judgement also, the learned NCLT after referring to the pleadings of the Original Petitioner referred to the pleadings of the Respondents. The Respondents in the matter of Rudraksh Synthetics accepted that the Petitioner was employed as printing master in Rudraksh Synthetics Pvt. Ltd. Respondents in that matter claimed before NCLT that the investment of Petitioner in that Comp....
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....the Respondents before NCLT tried to show that the amount invested by the Petitioner in the Company was transferred from accounts of Naresh Mandlewala (Respondents 2 in the matter of Rudraksh Synthetics) as well as Rakesh Mandlewala (Respondent No.2 in the first petition), and some Rameshbhai Shah and Rohit Patelwala, NCLT considered the rejoinder of Petitioner and discussing the rival claims concluded that the theory cooked by the Respondents that they had funded the Petitioner to subscribe the shares did not merit acceptance considering the Annexure 'A' reply notices issued by the Petitioner to his lenders. NCLT concluded that there is investment of the Petitioner in the Respondent Company - Rudraksh Synthetics but there was no proof of understanding to give 50% shares. Petitioner and his wife were given 32.66 % of paid up share capital of Rudraksh Synthetics. 10.1 These findings of NCLT against the Respondents are not challenged by them by way of Appeal and are thus no more in dispute. 11. NCLT discussed the claim of Petitioner that 5 lakhs shares had been issued to Respondents 2 and 3 on 20th April, 2010 and 12th May, 2011. However, NCLT found that the Petitioner was raising ....
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....Company and in Nagina Processors Pvt. Ltd. Even in the absence of proof of oppression and mismanagement, NCLT decided to offer the Petitioner fair market value for the shares he and his wife were holding if he was ready to walk out of the Respondent Company. It directed Respondents 2 and 3 to purchase the shares of Petitioner and his wife if they are willing to sell their shares in the market value fixed by the Independent Valuer to be appointed by the Tribunal. It gave option to the Petitioner to file application, and rejected other reliefs sought. 14. Aggrieved by the similar Impugned Judgement and Orders passed in the 2 Company Petitions, the present appeals have been filed by the Original Petitioner. In the appeals, the Appellant -Original Petitioner has raised similar grounds as in the Company Petitions claiming that oppression and mismanagement is there and that meetings were not being held and the Respondents 2 and 3 have handed over the property to the third party and that it was necessary to get restored the physical possession of the process house/factory from third party to whom the same had been given away by the Respondents. I.A.s 173 of 2018 and 174 of 2018 in the ....
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....d. They have handed over the entire undertakings/assets/business (factory of Respondent No.1 Company) to Mitul Mehta of Devi Processors Pvt. Ltd. without following any statutory procedures and without obtaining approval of shareholders. In the course of adjudication of the Company Petition in NCLT, Respondents 2 and 3 did not disclose that they had already transferred their shares to Mitul Mehta on 15th December, 2015 itself and it shows that the Annual Returns and Financial Statements filed in 2017 are false and fraudulent. Thus, the Impugned Orders of NCLT is required to be set aside and the matter should be remanded. It is claimed that as per the Articles of Association, there is provision not to transfer shares to outsiders without giving Notice to existing shareholders giving option for them to buy the shares. The Respondents filed false pleadings before NCLT and perpetrated fraud on existing shareholders including Appellant and the shares transferred on 15th December, 2015 need to be annulled. 16. Similar application disclosing similar facts from documents has been filed by way of IA 174 of 2018 in CA 400 of 2017. 17. On behalf of Respondents, Respondent - Hemant Mandlewala....
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....ies as is evident from the reports and enclosures which they have filed in the MCA website on 6th December, 2017; the shares transferred were effected in December 2015/March, 2016 behind the back of NCLT and in violation of Articles of Association of the two Respondent Companies. According to him, no Notices of General Body Meetings which are said to have been held as claimed in the Returns filed by the two Companies, were actually given to the Petitioner or his wife who are holding shares in the two Respondent Companies. According to the Appellant - Original Petitioner, he came to know in January, 2018 about these Returns filed. The Returns disclosed violation of Interim Orders of September, 2015 passed by CLB. The Appellant and his wife held substantial shares in both the Respondent Companies and they had no Notices. According to the Appellant, the Respondents are extracting part of the paragraph of the Company Petition to defend their action. According to him, if his entire pleadings are considered, it would be clear that the Respondents told the Appellant that the process house is running on no loss no profit basis since beginning and on the pretext of huge outstanding and loss....
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....s also and claimed that in violation of the September, 2015 Interim Orders of NCLT, Respondents effected the share transfer and handed over the assets of the Companies to 3rd parties and they created 3rd party rights in Company statutory records to render the Company Petition/Appeal infructuous. He was never informed about the handing over of the assets, by the Respondents and he came to know the same only from market. All the other averments of the Respondents are also dealt with and denied by the Appellant - Applicant. 18.1 Counsel/P.C.S. for both sides have been heard on lines of such respective cases of parties in the Appeals and the IAs. 19. At the time of arguments, learned counsel for the Appellant referred to Orders dated 29.09.2015 which were passed when both the Company Petitions were moved before the CLB on 29.09.2015. The common Order passed read as under: "Common Order On the Company Petitions 76(GUJ)/2015 & 77(GUJ)/2015 moved by the petitioner primarily seeking for a restraint order on proposal to remove him as director from the company by invoking Sec 169 of the Companies Act 1956, for having the respondents side given an undertaking to maintain status quo over ....
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....% shareholding in the Company of Rudraksh. At page - 64 is the Director's Report for 2015 - 2016 in IA 173 of 2018 showing that there was a Board Meeting dated 15th May, 2015. In NCLT, the Appellant was claiming that no meetings were being held and no Notices had been issued. Now, the Respondents show a Board Meeting in the Director's Report but nothing is shown that the Appellant had been given any such Notice for the said Board Meeting. The subsequent Board Meeting dated 29.08.2015 and EOGM dated 8th October, 2015, however, were in dispute in the learned NCLT. Although in NCLT case put up is that Petitioner has been removed from the post of Director of Rudraksh in the EOGM dated 8th October, 2015, the Director's Report in the matter of Rudraksh at page - 66 claims that the Appellant had resigned on 8th October, 2015. Resignation would be matter under Section 168 while removal is subject of Section 164 of New Companies Act. In NCLT, Respondents appear to have walked away with Orders in favour without showing copy of Resolution, regarding removal as Director being passed. 21. If IA 174 of 2018 is seen, the Annual Return (Page - 12) claims AGM was held on 30th September, 2015 for t....
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....d Appellant who was holding 32.66% share (with his wife) in Rudraksh and was holding 12.06% shareholding in the Company of Nagina, he had a right to know how these assets had been handed over by Respondents who were professing to say that they have been handed over only for running the business. Even if it was for only running the business, as a majority shareholder, he was entitled to know as to what was the decision, Board Meeting or General Body Meeting Resolutions under which the substratum of the Company had been handed over. As the documents now show, it was not a mere handover of running of the business but the business itself had been sold behind the back and without the knowledge of the Appellant group which is serious act of oppression. 23. Looking to the documents filed with IA 173 and 174 of 2018, we find that these acts of the Respondents reflecting from the documents were not merely hit by the principles of lis pendens but also there was no material to show that the Appellant and his wife were given the concerned Notices of the Meetings for holding these AGMs and approving the Financial Statements. The Appellant has argued that before transfer of these shares, no Not....
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....n such case it would operate as if it were a separate notice of each share. A transfer notice shall not be revoked except with the sanction of the Directors. Shares comprised in the transfer notice how to be dealt 16. Except where the transfer is made pursuant to Article 20, the shares comprised in any transfer notice shall be dealt with as under: [a] The Board shall forthwith give notice to all the members of the company and specify the price of the shares to be sold and invite each of them to state in writing within 7 days from the date of the said notice whether he is willing to purchase any and if so what maximum number of the said shares. [b] After the expiration of said 7 days the Board shall allocate the said shares comprised in the transfer notice to or amongst the members or member who shall have expressed their or his willingness to purchase as aforesaid, but so that in case of competition, they shall rank for acceptance pari passu in proportion to shares held by them and if any shares cannot be apportioned, such shares shall be offered to them in order determined by lot, and directors shall cause such lots to be drawn accordingly. [c] If shares are not tak....
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....the Respondents that there was no violation because the Respondents, although they transferred the shares, did not act upon the transfer till the Company Petitions were disposed and appeal period came to an end. In our view, the shares were transferred, as is clear from the copies of Annual Returns and Financial Statements which are annexed with the Interlocutory Applications 173 and 174 of 2018 on the dates as can be seen in those documents. After handing over the assets of the Companies to 3rd parties in 2014 in the name of running of business and after transfer of their complete shareholdings, respective Respondents 2 and 3 appear to have remained as mere front Directors during the pendency of the litigation to avoid attention and after the NCLT disposed the matter filed these Annual Returns and Financial Statements with ROC which has exposed them to the fact that they had indeed transferred off their shareholdings and properties of the Companies during pendency of the litigation itself and in violation of the CLB orders. 25. In CA 403 of 2017 in Para - 17, NCLT found that the Original Petitioner did not file any document to show that there is arrangements/understanding to give....
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....contention raised by the Respondents in the Notice under Section 169(2) which Notice was given by Respondent No.3 to the Board of Directors (Appeal Page - 187 [CA 403 of 2017]) that the Petitioner was not attending the Company's day-to-day activities and was sharing Company's secrets. Looking at this Notice gives weight to the contention of the Petitioner that Board Meetings as such were not being held. Had it been so, and if the Petitioner had not attended, the Respondents would have claimed that the Director had not attended 3 Board Meetings and had ceased to be Director. Instead the Respondents thought it appropriate to issue Notice as seen at Page - 187 of the Appeal claiming that the Petitioner was "not attending company's day-to-day activities". Looking to the case put up by the petitioner and the pleadings of Respondents and considering the acts of Respondents in these 2 Appeals purporting to only let 3rd party "run" the process house, we find substance in the case put up by the Petitioner that an excuse as such was given to the Petitioner of there being losses and process house was closed for short time and when Petitioner got diverted for his livelihood to some other entit....
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.... of the Respondent No.1 Company - Rudraksh Synthetics Pvt. Ltd. 27. Even in the matter of Nagina (CA 400 of 2017) our earlier discussion shows that the Respondents 2 and 3 in that Company Petition who are brothers of Respondents 2 and 3 in the matter of Rudraksh joined together and let the land and structure change hands and allowed the business to be taken over by 3rd parties and had subsequently transferred their shares illegally. Nothing is shown by Respondents in the matter of Nagina also how land of the Company was allowed to be taken over by 3rd Party and how their transfer of complete shareholding could be supported in law. 28. Respondents 2 and 3 in both Petitions have not shown what was the consideration for transfer of the whole business and properties of the Companies to third party. 28.1 We thus reject the arguments being raised by Respondents against the Appellant, as having no substance. We find Respondents in both the matters guilty of oppression of Appellant and his group and they mismanaged the Companies. 29. We are of the view that winding up of the Company would unfairly prejudice the Appellant and his wife who are also members and other members, but otherwis....
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....receipt of copy of this Judgement, we direct NCLT to immediately appoint (even if parties do not appear as is being directed infra) an Administrator who will handle the affairs of these Companies. 33. NCLT, Ahmedabad is requested to immediately appoint an Independent Auditor/Audit Firm in both the Company Petitions to audit the accounts from the date of incorporation of the respective Companies. The Chartered Accountant/CA Firm shall file Audit Reports before the learned NCLT on date to be fixed by NCLT at the time of appointment. The NCLT may give further directions regarding fees to be paid to the Auditor/Audit Firm. 34. After the Reports of the Chartered Accountant/CA Firm are finalised, fair value of the shares of Respondent Companies in both the Company Petitions shall be assessed by an Independent Valuer. The fair value of the shares shall be as on the date of this Order in NCLAT. The value shall not be less than the value at which Respondents in these petitions transferred their shares pending these petitions/appeals (which transfers we have set aside supra). NCLT is requested to pass further orders regarding the appointment of the Independent Valuer on fees etc. to be pai....