TaxTMI 
TaxTMI 
2019 (5) TMI 1634
X X X X Extracts X X X X
X X X X Extracts X X X X
....Aniruddha Choudhury, Advocates and Mr. Gaurav Mehta, PCS, Mr. Krishnendu Datta, Mr. Arnav Kumar and Mr. Shivi Sanyam, Advocates For The Respondents : Mr. Krishnendu Datta, Mr. Arnav Kumar and Mr. Shivi Sanyam, Advocates, Mr. Salman Khurshid, Senior Advocate with Ms. Tushita Ghosh, Mr. Shashank Katyayen, Ms. Shubhi Sharma and Mr. Aniruddha Choudhury, Advocates and Mr. Gaurav Mehta, PCS JUDGEMENT A.I.S. Cheema, J. : 1. Both these Appeals arise out of same Impugned Judgement and Order. In Company Appeal 55/2018, there has been some delay beyond the period of 45 days provided for filing of Appeal. We have seen Application for condonation of delay - IA No 204 of 2018. Although the Respondents of Company Appeal 55/2018 are opposing condonation of delay, we accept the reasons given by the Appellants of Company Appeal 55/2018 and condone the delay. 2. Now coming to both these Appeals (the Appeals have been heard at length). They are arising out of different parts of the operative Orders passed by National Company Law Tribunal, Chandigarh Bench, Chandigarh ('NCLT', in short) in CP No.146/ND/2012/RT CP No.27/Chd/Pb/2016 with CA 255 of 2015. The Judgement was passed by NCLT on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the name of P1 - Aar Kay by execution of transfer deeds and due payment of consideration in May, 2010 and the same were duly registered in the records of R1 - AP Refinery on 19th May, 2010 (1st Transfer dated 19.05.2010) and such shares stood on that date in the name of P1 - Aar Kay. Thus, the shareholding of the Petitioners was restored to 56.97% in A.P. Refinery, which was the original shareholding structure. Bone of Contention 4. Petitioners claim the subsequent facts as bone of contention leading to the filing of the Company Petition. The Petitioners claim that the Respondents taking disadvantage of their management control in R1 Company - AP Refinery by series of oppressive acts, reduced the majority shareholding of the Petitioners in R1 from 56.97 to 9.25%. Petitioners allege that in the Respondent No.1 Company - A.P. Refinery, the Respondents illegally and unlawfully recorded transfer of 14,96,000 shares, which stood in the name of P1 - Aar Kay, showing the same as transferred to R2 Company - Dhuri on 24th May, 2010 (2nd Transfer dated 24.05.2010) by filing Annual Returns which showed ante-dated transfer. In addition to above, the Petitioners claimed that the Respo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hallenge shareholding of R1 - AP Refinery. 5.1 The NCLT appears to have taken Reply of the Petitioners 2 to 5, who opposed the prayers of Respondents and who claimed that the said Annexures A1 and A2 had nothing to do with the present Petition. NCLT in para - 106 of the judgement took up CA 255/2015 which claimed that the Petition deserved to be dismissed on the ground of Arbitration Agreement and said Award and after discussing the matter and the provisions of Arbitration and Conciliation Act, 1996, found that the jurisdiction of the Tribunal was not barred and for reasons recorded, dismissed CA 255/2015 (para - 144 of the Judgement). 6. NCLT from para - 145 of the Judgement took up the main Company Petition for discussion and considered the disputed transfer of 14,96,000 shares on 24th May, 2010 and the disputed issuance of allotment of fresh shares on 29.06.2011 and 10th October, 2012 referred above. NCLT found (in para - 158 of Judgement) that the transfer of 14,96,000 shares by P1 Company - AP Refinery in favour of R2 - Dhuri was not legal and thus, liable to be set aside. Para - 80 of the Impugned Order reads as under:- "80. Regarding the letter of petitioners,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve, it is found that the facts of the case would attract the provisions of Section 397 of the Companies Act, 1956, but winding up would unfairly prejudice the members. The instant petition is disposed of with the following directions:- i) CA No.255 of 2015 filed by the respondents is dismissed; ii) 14,96,000 shares now existing in the name of R-2 company be transferred back in the name of P-1 and its name be entered in the register of members of R-1 company. At the same time, the amount of Rs. 15,00,000/- shown in the account of P-1 company towards loan to AP Oil Mills shall stand written off and the name of R-2 company be omitted from the register of members of R-1 company; and iii) R-1 company shall hold fresh meeting of the Board of Directors offering the proportionate shares out of additional allotment of 3,50,000 shares in 2011 and 4,00,000 shares in 2012 respectively at the rates at which these were transferred to some of the respondents. The transfer shall be made in favour of the petitioners proportionately as per shares held by P-2 to P-9, on these petitioners offering to subscribe to these shares at the rates allotted to some of the res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,96,000 shares of Aar Kay Company, in the records of AP Refinery to R-2 - Dhuri. The prayer is that the original Petitioners should be directed to exit from AP Refinery in terms of settlement agreement dated 12.07.2015. 10. The pleadings as raised by the parties and the developments when the matter was before NCLT, have been summarized in details by the learned NCLT in the Impugned Judgement and as such, we are not burdening this Judgement with those many details. To go by chronology, first we take up CA 55/2018 for consideration as the result of CA 55/2018 would impact CA 394/2017 also. CA 55 of 2018 (Appeal of Original Respondents) 11. References: While dealing with CA 55 of 2018, unless mentioned otherwise, we will be referring to documents and page numbers as from the record of CA 55 of 2018. We will continue to refer to the parties as original Petitioners or original Respondents, in the manner in which they were referred in the Company Petition and which is in line with CA 394 of 2017. Grounds of Challenge in CA 55 of 2018 12. In CA 55/2018, original Respondents are finding fault with the Impugned Order on the following grounds:- (A) Original Respondent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssed CA 255/2015 which had been filed on the basis of Global Settlement Agreement dated 12.07.2015 (Page 634), but according to the Counsel, when the Company Petition was pending, the original Respondent No.3 and original Respondent No.6 as well as original Petitioners 2 to 5 had entered into the agreement on behalf of the original Petitioner group including their family members, associates, affiliates, group companies and thus, NCLT wrongly ignored the settlement and directed transfer back of 14,96,000 shares in the name of Aar Kay (P1). NCLT wrongly brushed aside the settlement agreement dated 12.07.2015, only because there was no prayer in CA 255 of 2015 to treat the settlement agreement as compromise. The original Petitioners had agreed to exit OR1 Company - AP Refinery under the settlement and this was required to be considered. The learned Counsel for the Appellants - original Respondents submits that NCLT wrongly held that OR1 - AP Refinery was not party to the settlement agreement. The agreement was binding on OP1 - Aar Kay as it was signed and approved by its majority shareholders and majority Directors. 16. It is further argued by the Appellants - original Respondents ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Impugned Order, NCLT questioned rationale for transfer deeds bearing stamp of ROC dated 05.05.2010 when OP1 itself was not having 14,96,000 shares till 19.05.2010.) 17. It is further argued by the learned Counsel for the Appellants - original Respondents that in 2010, the Respondent group had majority directorial control in AP Refinery, Dhuri Company as well as Aar Kay Company. At that time, 5 investment companies of the Respondent group had 14,96,000 shares in AP Refinery. The Respondent group through those 5 investment companies, purchased these shares for total consideration of 3,74,00,000. It is claimed that in order to secure and consolidate shareholding of the Respondent group in OR1 - AP Refinery and for the purpose of tax planning, it was decided that the 5 investment companies would first transfer 14,96,000 shares in the name of OP1 - Aar Kay Company which in turn would immediately be transferred further in the name of OR2 - Dhuri Company. Since the transfer would be amongst the companies controlled by the Respondent group, it was agreed that sale consideration for both the transfers would be a minimal sum of Rs. 15,10,960. Thus, the submission is that the 1st Transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....register the transfer for reasons which have been recorded by NCLT in the Impugned Order. Justification now being shown that the Auditors had shown the amount of cheque under the head "Unsecured Loan" is afterthought and no statement of the Auditors was brought on record. The alleged Board Resolution dated 01.04.2010, which has now been brought on record in the Appeal, is false and fabricated document. In the absence of Board Resolutions of the Transferor and Transferee Company accompanying the transfer form, AP Refinery could not have recorded the transfer. No share certificates were delivered to OR1 - AP Refinery when such transfer was recorded, which is clear from the minutes of Board Meeting purportedly held on 24th May, 2010. There is no justification for alleged tax planning and there is no evidence in support for making such two transfers. It is claimed that the original Petitioners came to know about the illegal transfer in May, 2012 and filed the present Petition and there are no delays or latches. As the original Petitioner group which on 19.05.2010 had 56.97% shareholding was reduced by such illegal 2nd Transfer, case of oppression was clearly made out. The learned Couns....
X X X X Extracts X X X X
X X X X Extracts X X X X
....their favour by the Award. Inter alia, the application claimed that OR3 and 6 - the Applicants were filing the said application on limited issue of seeking enforcement of the direction of the Arbitral Award for withdrawal of the proceedings before the CLB (as it was). 21.1 Thus, the application claimed that the settlement award had been passed and as per the said Award, the original Petitioners mentioned therein were liable to withdraw the Company Petition. The NCLT has in the Impugned Order, dealt with the contentions raised with regard to such application in details. It considered the Reply filed by the original Petitioners also and took note of the fact that (against what was stated in the document of Award) OR3 and 6 had approached the Police also for enforcement of the said Award instead of approaching the persons named as the Arbitrators. NCLT found that OP2 to 5 had appended their signatures to the said document. The original Petitioners claimed before NCLT that it was only an attempt for entering into the settlement by mediation but it was not an arbitral matter. It is to be noted that when such alleged agreement was entered into and the alleged Order was passed, the Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....same as "Arbitration Award", that by itself is not sufficient to call upon the Court (NCLT here) to dispose the Petition in terms of the same, unless the concerned parties come before the Tribunal and accept the contents and signatures and the same is recorded in Court/Tribunal. Again, there is no material to show OP2 to 5 were in any way authorized by the other original Petitioners to enter into any such document on their behalf. It would naturally not bind the other Petitioners. Having gone through the contents of the said Annexure - V (Arbitration Award) also, we do not find that it is helpful for disposal of the concerned Company Petition and the issues which have been raised in the same mainly by the OP1 - Aar Kay Company. We have gone through the reasons recorded by the NCLT and we are unable to accept the submissions made by the learned Counsel for the Appellants - original Respondents questioning the rejection of their CA 255/2015. We find the reasoning recorded by learned NCLT on this count to be correct and we do not interfere with the same. Second Transfer of 14,96,000 shares of OP1 in OR1 to OR2 as challenged in CA 55 of 2018 22. As regards this issue, there is no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h document like Annexure -H. Only because OR3 and 4 happen to be Directors who are common in the three companies, they cannot be presumed to have authority for committing acts disputed in this matter. 24. It is argued by the learned Counsel for the Appellants in CA 55/2018 on behalf of the original Respondents that under Section 108 of the old Act, OR1 - AR Refinery while recording the transfer, had limited role to see whether proper form has been signed and submitted of the transfer of shares and according to the Counsel, in the present matter when AP Refinery received such Form like Annexure - H signed by the Directors of OP1 and OR2, they had only to record the transfer. In the facts and circumstances of the present matter, we are not impressed by this argument looking to the fact that undisputedly OR3 and 4 were linked in all the three Companies as Directors. When the transfer form was being executed of shares which stood in the name of OP1, it was duty to ask for attaching not only copy of Board Resolution of the Board of Directors of the Company but also to see whether the Resolution indicated consent of the General Body of OP1, as shares being handled were of the ownershi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e - 733 of the Appeal), which has been now filed to claim that Respondent No.2 - Dhuri had decided to purchase 14,96,000 shares of OR1 - AP Refinery, and ignore it. 26. As regards the consideration, the Appellants - original Respondents claimed that OR2 Company had issued a post-dated cheque No.730964 to OP1 Company. The Appeal (para - 25) claims that the payment was deferred as under the lease agreement, the Appellant No.2 - Dhuri (OR2) was yet to receive majority of its payments from M/s. PepsiCo India Holdings Limited. Then, for such big amount, the Appeal claims that there was oversight (which is unnatural) and the cheque was not cleared till April, 2011 and the Respondents noticed this in April, 2011 while finalizing the books of accounts of OR2 and immediately deposited another cheque in HDFC Bank Account of Respondent No.1 on 22.04.2011 which returned as drawer's signatures were incomplete and so on 26.04.2011, OR2 Company made direct electronic transfer of Rs. 15,10,960/- into HDFC Bank Account of OP1 - Aar Kay. The Appellants referred to Annexure - K of the Appeal. This document (Page - 227) relates to the Bank Account of OP1 - Aar Kay. It shows on 26.04.2011, RTGS from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd consolidate shareholding of Respondent group in AP Refinery and for purpose of tax planning, it was decided that 5 investment companies would transfer 14,96,000 shares in the name of OP1 which in turn would immediately be transferred further in the name of OR2 - Dhuri. 28.1 The argument of original Respondents trying to link first and second transfer is countered by the original Petitioners claiming that a new case is being put up that exactly same procedure was followed in the first and second transfer. We find that there is no document of any Resolutions by different Companies to enter into such exercise of first and second transfer. Apart from this, how such exercise is helpful for which tax planning is also not clear nor explained. We are not convinced by arguments raised on this count by the original Respondents - Appellants, and reject the same. 28.2 The learned Counsel for the original Petitioners referred to the Company Petition to point out that AP Refinery was integral part of AP Group which originally comprised of 5 close friends - the Appellant Nos.2, 4, 5, Bhimsen - brother of Appellant No.3 and Respondent No.6 as arrayed in CA 394 of 2017. It is argued that i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ners 2 to 9 were admittedly members of AP Refinery and OP1 - Aar Kay is itself aggrieved and if the name of OP1 had been wrongly omitted from the register of members, all the petitioners were aggrieved by the illegal transfer and it cannot be said that they did not have locus standi. The argument is also that OP1 - Aar Kay is itself aggrieved and the Company can maintain its Petition. 30. We have gone through the reasons recorded by the learned NCLT and we have seen the conclusion drawn by NCLT that the transfer of 14,96,000 shares by OP1 Company in favour of R2 was not legal and thus, liable to be set aside. This is recorded by the NCLT in para - 158 of the Impugned Order. We agree with the NCLT to this extent with regard to this second transfer. We, however, do not agree with the other observation of NCLT that such shares were required to be directed to be "transferred back" in favour of OP1. In fact, what was required to be directed was that the transfer recorded was illegal and the shares continued to stand in the name of OP1, as if they had never been transferred once they had been taken on record of OR1 on 19.05.2010 (vide Annexure - G). We will not maintain the further di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ants 2 to 9. It is basically claimed that the case put up by the Appellants before NCLT was that the first and second allotments were mere paper entries and no Board Meetings had been convened by OR1 - AP Refinery and that the allotments of shares were not as per law. The allotments were invalid and illegal and documents had been fabricated to justify the allotments which according to the Appellants, have not resulted in any increase in funds of the Company OR1 - AP Refinery. They claimed that deposits were merely re-routed as subscription money for making the allotments. The learned Counsel for the Appellants has argued that there is no record to show holding of any Board Meeting of OR1 - AP Refinery laying down terms and conditions for offer of shares so as to show as to how much capital was required to be increased and the purpose for increase of capital and how many new shares need to be offered and as to who would be eligible etc. The argument is that Respondents failed to show any Resolution authorizing any individual to sign share certificates to be issued. It is also argued that copy of Resolutions attached by Respondents to Form - 2 submitted and subsequently filed copies ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed at that time. It is stated that there was pressure from banks to allot shares against this amount. Counsel referred to letter dated 07.12.2010 of Punjab National Bank to submit that the Bank had sanctioned renewal-cum-enhancement of credit facility from Rs. 1950.00 Lakhs to Rs. 2250.00 Lakhs on the condition that OR1 - AR Refinery would issue shares against the share application money of Rs. 1,75,00,000/-. According to the original Respondents, share application money of Rs. 75,00,000/- was returned to K.K. Continental Trade Ltd. in financial year 2009 - 2010 and the share application money of Home Land City Project was lying with the Company. It is argued that since Home Land City Project insisted that shares be allotted to it at lower price and not at premium, it was decided in the interest of Company not to allot shares to M/s. Home Land City Project Ltd. According to the original Respondents, additional funding was arranged by Respondent No.7 who accepted to acquire fresh shares at a price of Rs. 50/- in lieu of share application money received by the Company in 2009. It is claimed that in view of this, though the share application money of Rs. 1,75,00,000/- received in 2008....
X X X X Extracts X X X X
X X X X Extracts X X X X
....% to 9.25%. In light of this grievance expressed by the means of the present Petition, the Respondents make an express offer to restore the combined shareholding of Petitioners No.2 to 9 from 9.25% to 11.37%. This would be effected by existing Respondent shareholders offering each of the Petitioners No.2 to 9 such number of shares as to restore their respective percentage of shareholding as it was before the allotment of 3,50,000 new equity shares in June 2011 and 4,00,000 new equity shares in October 2012." At Annexure - A-10 is part of the Rejoinder which original Petitioners filed in NCLT. The Appellants have filed relevant pages from that Rejoinder and with regard to para - 8.3, the original Petitioners stated:- "8.2 - 8.5 It is submitted that by making such offer in the para under Reply, the Respondents are trying to play smart. The motive behind offering to restore the shareholding of Petitioner No.2 to 9 back to 11.37% without offering to restore the shareholding of Petitioner No.1 Company back to 45.60%, is that the Respondents want to continue to hold majority position as such an offer will raise the shareholding of the Petitioner group to only 48.48% of the pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts wanted to give. When disputes had been raised and argued the same were required to be decided and no shortcut could be adopted without both sides categorically agreeing. NCLT could not have abrogated its responsibility to decide the legality or otherwise of first and second allotment. We are thus not in agreement with NCLT with the manner in which it dealt with the first and second allotment. 36. Before us, the matter has been extensively argued. None has asked and we do not wish to let matter protract by remanding the issue. Parties have argued the merits and we proceed to decide the same. We proceed to examine the first and second allotment as made by the OR1, if it could be maintained. Learned Counsel for the Appellants referred to Annexure - A3 (Page - 234) Form - 2 relating to the allotments made on 29.06.2011. It is argued that this document at Page - 239, is the document which was attached for filing with ROC as true copy of the Resolution dated 29.06.2011. The learned Counsel submitted that the Resolution merely stated "RESOLVED that the Company M/s. AP Refinery Private Limited will issue 350000 shares of Rs. 10 each at premium of Rs. 40 each to M/s. Anu Buildwell Pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....OTMENT OF SHARES Sh. Bhuvan Goyal informed the present Board of Directors that a list of persons from who share application money were received & whose applications were complete in all respect are placed before the Board. He further informed that out of these, 400000 equity shares of Rs. 10/- at premium of Rs. 30/- each can be allotted. Board took note of the same and passed the following resolutions: "RESOLVED that the statement showing the name(s), address(s) and numbers of shares applied for by some applicants which is in aggregate to 400000 equity shares of Rs. 10/- at a Premium of Rs. 30/- per equity share totalling to Rs. 1,60,00,000.00 (One Crore Sixty Lacs only) payment of which is received by cheques in full submitted to this meeting for the purpose of identification, initialled by the chairman, be and is hereby approved and that each applicant for the shares pursuant to his/her application be allotted the exact number of shares applied for, and that such number of shares hereby allotted be put in the column of the statement provided for the purpose against such applicant, and that notice of such allotment communicated to the respective allottees." "RESO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted companies are normally closely held i.e. the share capital is held within members of a family or within a close knit group of friends. This brings in considerations akin to those applied in cases of partnership where the partners owe a duty to act with utmost good faith towards each other. Non-applicability of Section 81of the Act to private companies does not mean that the directors have absolute freedom in the matter of management of affairs of the company." 38. The original Respondents in Reply filed in NCLT (Annexure R1 - Diary No.2886) in para - 8.1 referred to earlier instances of issued subscribed and paid up capital as per its need. It was claimed that in 2008, there was fresh infusion in equity capital. It was claimed that it was decided by the Board of Directors of AP Refinery to establish a refinery at Jagraon and OR5 - a fresh MBA joined as Director and that it was a matter of time that the Company commenced refinery unit, to give opportunity to Respondent No.5 to prove his mettle. It is claimed that Jagraon plant was established on a relatively larger scale and required capital infusion. Inter alia, it is claimed that Petitioners were also offered equity shares ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity ratio, there is no reason why the Company should not give equal opportunity to all the shareholders by offering shares on pro rata basis to all the shareholders at the given time. Nothing of this sort appears to have been done in both the first and second allotments made by the Company. The learned Counsel for Appellant is rightly relying on the Judgement of "Dale and Carrington" referred supra. Reasons discussed show that there appear no bona fide acts on the part of Respondents in the manner in which First and Second Allotments were made by pick and choose. We find substance in the submission that the Directors of OR1 were under a responsibility to disclose to all the shareholders that further shares are to be issued and such of them as were interested, may apply for further shares in proportion to their shareholding. In the present matter, the Respondents are rather taking a defence that on earlier occasions, the original Petitioners did not invest much and thus, they were not interested and so it was not necessary to offer shares to them. Reliance is placed on some letter of authorization for arbitration said to have been signed by original Petitioners 2 to 5 on 03.08.2010.....