TaxTMI 
TaxTMI 
2019 (5) TMI 823
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....pany) vide which application, modification was sought in the Order dated 16.08.2017 which had earlier been passed by NCLT in favour of Petitioner directing the Company not to create encumbrance over the assets of the Respondent Company till disposal of the Application filed under Section 8 of the Arbitration and Conciliation Act, 1996 ('Arbitration Act', in short) further giving option to the Respondent to approach the Tribunal for any modification of the Order depending upon the situation that may arise in future, before deciding the application filed under Section 8 of the Arbitration Act. NCLT allowed the IA 242/2018 filed by the Company and permitted the Company to create a charge/encumbrance over the assets of the Company so as to enable the Company to raise loans/avail financial facilities from the banks/financial institutions, make investments for the purpose of construction of its corporate office building in Chickajala, Bangalore North Taluk and for other construction works and to meet its pressing needs to execute the orders placed on it as detailed in the application. 2. Being aggrieved by such modification of the earlier Order at the instance of the Company, present ....
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....rovided, then the SPA would terminate. According to the Appellant, the Respondents did not act as per the SPA dated 16.12.2016 and the SPA terminated which is clear from e-mail dated 28th March, 2017 and 13th April, 2017 where the Respondents asked the Appellant to extend the SPA. The Appellant claims that due to failures of Respondents 2 to 6, the Appellant went ahead to look for opportunities in the market to sell its shares and negotiated with one Geosansar Mauritius Limited which gave offer letter dated 18.05.2017 to Appellant to purchase the shares of Respondent Company. It is the case of Appellant that the Respondents 2 to 6 with intention to force the Appellant to exit and frustrate efforts of the Appellant to sell its shares to prospective buyer, filed Company Petition 17/2017 under Section 241 and 242 before NCLT. They failed to get an interim relief and initiated another proceeding (Page 448) before Hon'ble High Court of Bombay by filing Application under Section 9 of the Arbitration Act. In that Arbitration Petition, the Respondents 2 to 6 prayed that the Appellant and Avigo should be restrained from, in any manner, directly or indirectly, selling, pledging, transferring....
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....ciation and was against the interest of the Company and the Appellant. The Appellant claimed that on three occasions, the Appellant made written requests to the Respondents to appoint its nominee but the same was not considered by the Respondents. The Appellant claimed that such acts amounted to oppression and mismanagement of the affairs of the Company. The Appellant expressed apprehension that the Respondents 2 to 6 may transfer, sell or otherwise encumber their shares or other assets of their Company and cause loss to the Appellant - Petitioner and this was well illustrated as mentioned in the petition and thus, Petition required urgent relief. Inter alia, in the reliefs sought in the Company Petition, following was claimed:- "C. Direct Respondent 1 to 6 to appoint Mr. Singhi, the Petitioner's nominee, as a Director on the Board of Respondent No.1 Company." .......... "E. Declare all the transactions done by the Respondent No.2 to 6 on behalf of the Board of the Respondent No.1 Company without the express consent of the Petitioner and in the absence of the Nominee Director of the Petitioner, as illegal and order restoration." In the interim relief, ....
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....in application filed under Section 8 of the Arbitration and Reconciliation Act." Respondents 2 to 6 then filed IA 104/2017 on 16.08.2017 (Page 510) under Section 8 of the Arbitration Act claiming that the Petition itself mentioned that the Respondent had caused Avigo to sell its shares; that issue of sale of shares was subject matter of Arbitration Agreement traceable to share purchase agreement and consequently, the right of the Petitioner to nominate the Director was also traceable to the Shareholders' Agreement and it was an arbitral dispute. 2.5 Same Respondents 2 to 6, however, filed IA 189/2017 (Page 585) seeking modification of the interim orders which had been passed on 16.08.2017 and prayed that the Respondent Company should be allowed to create charge/encumbrance over the assets of the Company to the tune of Rs. 1250 Lakhs to enable the Company to make investments for the purpose of construction of its corporate office building at Chickajala, Bangalore North Taluk and other construction works as mentioned in the application. The Appellant - Metmin filed objections (Page 598) to the application, which was filed for modification. Pending applications were combinedly h....
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....on'ble Supreme Court. 4. Registry is directed to return the original documents filed by the Respondents, after taking certified copies. 5. Post the case on 20.08.2018." Thus according to the Counsel for Appellant - Petitioner, the NCLT itself recorded that the Tribunal cannot decide the matter since the matter was sub-judice in the Hon'ble Supreme Court. According to the learned Counsel, the Application under Section 8 filed by the Respondents was thus kept in abeyance after such Order dated 27.07.2018. The IA 242/2018 mentioned earlier, thereafter came to be filed on 20.08.2018 on behalf of the Company seeking modification of the Interim Order dated 16.08.2017. It is the case of the Appellant that after such fresh application was filed at the behest of the Company, the above Impugned Order came to be passed on 06.09.2018 without giving opportunity to file objections to the same and the NCLT passed the Impugned Order allowing the Company to raise loans/avail financial benefits. It is argued for the Appellant that looking to the Articles of Association, without consent of the nominee Director of the Appellant, who is referred as investor in the Company, and even....
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....dents, the Tribunal erroneously disposed application - IA 104/2017 and against such Order of NCLT dated 27.07.2018, SLP 28260/2018 (Annexure R-5 - Page 350 - Diary No.8135) has been filed. It is claimed by the Respondents that they had sought modification of the Interim Order dated 16.08.2017 as there are bona fide business requirements of the Respondents. The Company and its Directors, who are majority shareholders, want to establish its corporate office having all infrastructural facilities which land at Bangalore is owned by the Company. They want to raise funds for civil construction to construct approach road to the Murbad Factory. They furnished details to the Tribunal. The current premises of the company are rented premises and the lessors had written to the Company to vacate the premises by letter dated 06.11.2017. According to the Respondents, the Appellant indulged in vexatious and acrimonious business practices and that Avigo had issued Right of First Refusal Notice on 19.05.2017 and when Respondent No.6 sent an acceptance notice, Appellant sent letters to disturb funding arrangements. The Respondents have submitted that they did not commit any contempt, no new charge wa....
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.... to investor/s. Same reads as under:- (x) "Investor/s shall mean Avigo and Metmin collectively, which term shall unless repugnant to the context and meaning thereof be deemed to mean and include their successors in interest and permitted assigns." Article 10 is as follows:- "10. The financing requirements including working capital requirements of the Company and its Subsidiaries shall be met in the first instance by internal accruals and any external financing will be availed of only in accordance with the Business Plan and the Annual Budget approved by the Investors. In the event of any future borrowings, the Investors shall not be required -to provide any guarantees/collaterals, etc. The Investors and its nominees shall not be required to pledge their Shares or provide any other support to any third party, including without limitation the lenders of the Company. The Promoters shall provide guarantees and such other security as may be required for any such loans required by the Company." Clauses A to C of Article 13, which deals with appointment of Directors, reads as follows:- 13. (a) The Directors of the Company will be nominated by the Sharehold....
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....rity of votes of the Persons entitled to vote thereon (being not less in number than a quorum for meetings of the Board). (b) Notwithstanding anything contained in sub-article (a) above, the Shareholders shall procure that no action shall be taken or resolution be passed by the board except with the affirmative vote of all the Investors Directors present at the meeting, in respect of the following matters, unless written consent in respect of specific items has been given in writing by the Investors prior to the meeting or such consent is specifically waived in writing by the Investors hereto. The term "Company" is expanded to include the Company and all its Subsidiaries for the purpose of this Article: ......... ......... ....... (v) Finalise, approve and adopt the Business Plan of the Company and the Annual Budget and any change or deviation thereto;" ......... ......... ......... (x) Any significant change in the liability structure i.e. greater than Rs. 25,00,000/- (Rupees Twenty Five Lakhs) (including but not limited to secured and unsecured debt but excluding working capital related items as specified in the approved Annual B....
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..... 34 Crores with the Punjab National Bank and which Application is still pending, claimed the relief as above. Respondents who have filed the Application (Annexure A-5) in NCLT under Section 8 of the Act trying to claim that the right of Appellant - Petitioner to appoint nominee Director is also liable to be referred to Arbitration, have not shown as to how the various other provisions of Articles of Association would permit them to go on with the affairs covered in the Articles in the absence of nominee Director of investor/s when the Articles of Association which was accepted by the Respondents as binding on them provide otherwise. The Articles of Association do not appear to say that if one of the two Investors exits, the other would lose identity of Investor. It does not appear that NCLT took response of the Appellant - Petitioner to IA 242/2018 which was filed after NCLT declined to proceed with IA 104/2017. In the Impugned Order, there is reference made to the submissions made and the only portion of reasoning is in para - 6, which reads as under:- "6. In view of the above facts and circumstances, IA 242/2018 in CP No. 74/BB/2017 is allowed by modifying the order dat....
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....ay the Appellant only because the promoters have bought Avigo, the effect of which is that only one investor is left with the other having merged into one of the Promoters - a bigger entity. We find substance in the arguments made by learned Counsel for Appellant and find that the interim Order dated 16.08.2017 should not have been disturbed. Respondents claim that in Board Meeting dated 02.09.2016, when initially resolution was taken regarding upgradation of infrastructure, Nominee Director of Investors was present. But then, that resolution itself recorded that detailed expenditure will be tabled before the Board on receipt of final drawing from the Architect. Admittedly, now on the Board, there is no nominee of the Investor. We find that, looking to the prima facie case as appearing in favour of the Petitioner, if the Respondents want to block out Petitioner, hiding behind the Arbitration clause, in equity, they cannot claim discretionary relief to create such a huge liability of Rs. 1250 Lakhs, riding on the back of NCLT Order which, prima facie, is against the Articles of Association. We find, the initial Order `dated 16.08.2017 was wrongly disturbed by NCLT. Considering the d....