TaxTMI 
TaxTMI 
2021 (2) TMI 453
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....einafter referred to as 'Act of 2013') alleging that the affairs of Respondent No.1,The Kottayam Port and Container Terminal Services Pvt Ltd, were conducted with profound illegalities and irregularities by Respondent Nos.2to 7 which resulted in mismanagement and oppression prejudicial to the interests of the Petitioners, other Shareholders and the public at large. 2. The Kottayam Port and Container Terminal Services Pvt Ltd, was incorporated on 06.02.2005 under the provisions of the Act of 2013, with a Public-Private Participation with 48.96% stake held by the Kerala Government through KINFRA and the rest 51.04% shares are held by individuals. The registered office of the Company is at Mariyappally Kara, Nattakam Village, Kottayam-686013, Kerala. The main objects of the Company as reflected in the Memorandum of Association of the Company are as under: "to establish, run, operate Inland Container Terminal Depot and Servicing and Barge Services" SUBMISSIONS OF THE PETITIONERS: - 3. The petitioners stated that the idea of establishing an Inland Port for handling container was the brainchild of the petitioner No.1 which was duly facilitated by Petitioner No.3. Petitioner N....
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....inistration of the Company. 6. Thereafter, after complying with all the suggestions of the stakeholders, the management under the guidance of Respondent No.8 was not up to the mark as expected by the petitioners, and the Respondent No.2 to 7 violated the decisions agreed by the promoters and stakeholders not to interfere with the day to day administration of the Company. Later, it resulted in related party contracts and hire purchase agreements entered between the Respondent Nos. 2 to 7 and relatives of the Respondent Nos.5 to 7 to loot the assets of the Company and money through Company's exchequer. Meanwhile Petitioners raised serious objections to withdraw the contract. However, all such requests were rejected by the Respondents. Being aggrieved by the acts of the Respondents, the Petitioner No.1 filed Criminal M.P 872 of 2017 before the Enquiry Commissioner and Special Judge, against Respondent Nos. 2 to 7. The Vigilance Department filed a preliminary report recommending no further action on the Respondent No.1 Company under the pretext that Company registered as a private limited Company and therefore, Prevention of Corruption Act will not attract. On 15.07.2019 The Hon'ble....
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....f administration and management in the hands of the Respondent Nos. 2 to 7 leads to the total collapse of the Company which will cause irreparable loss and prejudice to the investors such as the Petitioners herein and the public at large. The project of the inland port is having high potential in this era. But the project in the hands of persons who having no focus other than that to loot the assets of the Company will not fetch anything potentially good. It is also stated that the sole way to save the Company and its projects is the effective interference of the State Government throughout its agency, the Respondent No.8 in a proactive manner. Such interference and a well-designed regulation for the future conduct of business is highly inevitable for saving the Company and the public money infused in the said project. 11. It is also stated that it is evident from the financials disclosed; the Company is not in a position to clear the huge liability. The Government agencies who having the better industrial experience have options for saving the Company by acquiring substantial stake of the Company vide capitalizing the soft loan. If such a capitalization is made out the Company ....
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....mpany. However, they stated that Respondent No.8 is the nodal agency appointed by the Government of India for Assistance to States for Infrastructure Development of Exports (ASIDE) Scheme of the Ministry of Commerce, Government of India and also entrusted with the task of implementing the ASIDE Scheme on behalf of the State of Kerala. Considering the representation made by the Respondent No.1 seeking financial assistance under the ASIDE Scheme, to expand the activities of Respondent No.1, Sixth State Level Export Promotion Committee for ASIDE Scheme, provided financial assistance of Rs. 740 Lakhs (Rupees Seven Hundred and Forty Lakhs Only) to the Respondent No.1 in the year 2006 for implementing the Dry Port and ICD by subscribing to the share capital of the Respondent No.1 by KINFRA as per Shareholders agreement dated 11.09.2006. Accordingly, the Respondent No.8 acquired 48.96% stake in the Respondent No.1 Company and granted loan to the tune of 552 Lakhs (Rupees Five Crores Fifty-Two Lakhs) to the Respondent No.1 Company. 15. It is further stated that the Company was formed with seven subscribers. Later, the Board of Directors of the Respondent No.1 Company reconstituted compr....
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....jor shipping liners like Maersk and MSC. The Respondent No.1 Company introduced E-Seal Facility with scanners on 01.11.2018 which was a great relaxation for Exporters in and around Central Travancore region, after the Customs formalities it is possible for exporters to scan their containers at Kottayam Port itself so that they can have hassle free movement to Kochi till the stocking yard. 18. In relation to allegation in the petition that the company entered into a related party transaction between the Directors and their relatives, the Respondent Stated that the operations and functions of the Company necessitate the need of a Fork-Lift. Earlier, for newsprint handling, Malayala Manorama Publications arranged their own Fork-Lift which is specially and specifically equipped with clamps to handle news print reels. When a need of a Fork Lift to handle newsprints, arrived for Mathrubhoomi Publications, a temporary arrangement was made with Malayala Manorama Publications and a Fork-Lift was made available. Later, Malayala Manorama Publications refused to make the forklift available for handling material of other parties and there was no alternate fork lift available for further hand....
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....ance with Section 134 of the Companies Act, 2013. The Chief Executive Officer was not a Director of the Respondent No.1 Company and therefore he was not permitted to sign the financial statement up to the date of commencement of Companies Amendment Act, 2017. Nothing in law requires the financial statement of the Respondent No.1 Company to be signed by the Chief Executive Officer Mr. Cherian K Varghese, as he was resigned from the Post of CEO before the approval of Financial Statement from for 2017-2018. 21. The Respondents further stated that with regard to payment of GST, the Respondent No.1 Company has filed the GST returns for the financial year 2019-2020 and paid tax thereon. However, as noticed in the Notes of the Auditors in the Balance Sheet of the Company for the year 2018-19, there are arrears payable to the Department till that period due to some inadvertent omission. 22, The Articles of Association or Memorandum of Association has never been amended to change the integrity and nature to public private partnership of the Company. The Company was incorporated as a Private Limited Company with Certificate of Incorporation dated 16.02.2005 and Respondent No.8 under a ....
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....e Sub Court, Kottayam, against the Respondent No.1 Company. It is also stated that the Petitioner No.1 was the Managing Director of the Respondent No.1 Company from the date of inception till 05.10.2015. The Petitioner No.1 during his term as Managing Director had given an order worth. 700,000/- to his own proprietary concern Crystal Infotech, which has no previous experience in software developing, disregarding a reputed and experienced software developer JMJ Software Bangalore. The Report elucidates the magnitude of arbitrary and interested transactions and dealings done during the tenure of the Petitioner No.1 as the Managing Director of the Respondent No.1 Company. Which shows the fraudulent transactions done in the Respondent No.1 Company, by the Petitioners No.1 which is detrimental to the interests of the Company and its shareholders. All such transactions were either obfuscated or obliterated with the aid of colossal power of the Petitioner No.1 and his henchmen. It is in this fashion that many files and documents were 'made' to be missing. There is no collusion or unholly interference or clandestine dealing with Sridhar & Co by the present management. It is submitted that ....
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....cles of Association or the statute covering it, or makes any arbitrary use of the majority powers, resulting or likely to result in financial loss or where action could be characterized as unfair and improper, the court will exercise its powers under Section 397 and 398 of the Companies Act, 1956. 27. It is further stated that in a Company Petition filed under Section 241 and 242 of the Companies Act, 2013 full particulars of mismanagement and oppression must be given. The vague and uncertain allegations thereof do not entitle the Petitioners to ask the court to enter into an investigation and to grant relief. In this respect, the Respondents relied on the decision in Mohta Brothers Private Limited Versus Calcutta Landing and Shipping Company Limited reported in 1970 40 Comp Cas 119 Cal. 28. It is also stated that there are no persons in the management of the Respondent No.1 Company who is facing criminal investigation, as alleged by the Petitioners. On the other hand, the Petitioners are facing criminal investigations in FIR No.514/2018 of Kottayam East Police Station under Sections 3,4, 7 (1) of the State Emblem of India (Prohibition of Improper Use) Act, 2005. The Petition....
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....or two of its nominees on the Board of Directors of the Respondent Company so long as it holds equity shares of the Respondent Company or so long as any portion of the Soft Loan remains outstanding. However, as per Clause 3.1 of the Shareholders' Agreement, out of the total number of Directors, at least two shall be the nominees of this Respondent as long as it holds 26% of the paid-up equity share capital. This gives a right to this Respondent to increase its Directors at any time in proportion to the share capital held by it in the Respondent Company. They hadexercised this right and presently there are four representative Directors for them the Board of Directors of the Respondent Company. 30. It is also stated that this Respondent is not involved in any of the day to day affairs of the Respondent Company. Further as per Clause 6.1 of the Shareholders' Agreement executed between this Respondent and Respondent Company, the nominee Directors of them shall not be liable for any acts, neglects or defaults of any other Director, Officer or employee or for any loss, damage or expenses etc. happening to the Respondent Company. Thus, they are not necessary party in any of the....
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....of the Companies Act 2013, investigation by the SFIO is conducted at the instance of the Central Government, if the Central Government is of opinion that it is necessary to conduct an investigation into the affairs of the Company and it also specifically enlists the cases under which such investigation can be ordered. 34. It is also stated that with regard to the main reliefs of Company Petition the petitioners have to comply with Section 62 of the Companies Act 2013 read with Rule 15 of the [share Capital and Debentures] Rules 2014. SUBMISSIONS OF RESPONDENT NO.10 35. The Respondent No.10 filed counter and stated that (i) Escalating the shareholding of the Respondent No.8 is a policy matter of the Government of Kerala. (ii)Capitalizing the debts due to the Government/8th Respondent is against the Soft Loan agreement executed and it also depends on the policies of the Government. (iii) Respondent No.10 is in no way connected with the allegations made by the petitioner and it cannot redressed by them. (iv) The petition has no supporting evidence and materials or sufficient cause to implead the Respondent No.10. FINDINGS: - 36. The arguments advanced by Learned Counsel fo....
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....ned from the post of Managing Director consequent to suggestions made by the stakeholders to appoint a qualified professional Manager. In the minutes of the Board Meeting held on 14.08.2015 under the head 'Item no.2 appointment of new MD' it is stated as under: - "The board discussed the agenda or interview and appointment of new Managing Director. The chairman asked Shri. Dr. G C Gopala Pillai, Shri Wilson Jacob, Shri Shaji Joseph, Shri George Fenn to attend the interview. Three candidates were interviewed for the post of Managing Director. After the interview the Chairman informed the board that, only three candidates have attended the interview for the post of Managing Director and unanimously expressed the following remarks for record. a) Performance of the all the three candidates have not come up to the expected standard and therefore short listing of the candidates can be done only after further deliberations and scrutiny and merits of each candidates, so as to assess the efficiency of the candidate. The chairman asked all candidates to submit a business development plan within one week. Depending upon the evaluation of these thre....
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....efore they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two Directors out of which one shall be managing Director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one Director, for submission to the auditor for his report thereon." 45. The petitioner in his application stated that financial statements was not signed by the CEO after he was appointed as such. It appears from the Financial Statement of the Company for the year 2018-2019, that Mr. Varghese Kakkanatt Cherian was the CEO of the Company. 46. With regard to personal guarantee obtained by the Respondent Company from the Petitioner No.1 to obtain loan for the Company during his tenure was not returned to him after his resignation from the particular post, the Respondent No.1 Company stated that it is ready to settle all the amounts due to the Petitioners in due course. It is also stated by the Respondents that Petitioner No.1 violated the terms of repayment decided by the Board of Directors filed a suit before the Sub ....
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.... 48,. On 21.12.2018, Sub Court, Kottayam in O.S.NO.44 of 2017 passed an order which reads as follows: - "the plaintiff is allowed to realise an amount of 31,80,045/- (Rupees Thirty-One Lakhs Eighty Thousand and Forty-Five Only) with interest @ 9 % per annum on the principal amount of Rs. 26,72,307/- (Rupees Twenty-Six Lakhs Seventy-Two Thousand Three Hundred and Seven Only) from the date of the suit (17.03.2017) till realisation together with costs of the suit from the 1st defendant and its assets." 49. In the Petition it is also alleged that the Company is not regular in filing the Tax Returns and in paying their Tax dues. Company under the present management also failed to clear the dues to GST and Custom Recovery Charges. In response to this the Respondents stated under the present management with a qualified and experienced Managing Director from the year 2018, sincere and result oriented efforts have already done and the Company is showing stability and consistency. The Respondent No.1 Company has filed the GST returns for the financial year 2019-2020. With regard to earlier dues, it was not paid due to inadvertent omission and steps are being taken to regularize t....
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.... a part of balance sheet as at 31.03.2019, no payments have been made to any of the related parties during the year ended on 31.03.2019. the balances continue to remain in the books of Accounts." 52. In view of the discussions above, it is profitable to refer the decision rendered by the Hon'ble Supreme Court in Needle Industries (India) Ltd and others V. Needle Industries Newey (India) Holding Ltd and Others AIR 1981 SC 1298 , wherein the court laid down the yardstick as to when an act of the majority can be considered as oppressive under the provisions of Section 397 of the Companies Act, 1956, which this Tribunal at this stage considers it apposite recalling as enunciated in paragraph 58 of the said judgement to the following effect:- "The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a malafide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the....