TaxTMI 
TaxTMI 
2021 (4) TMI 1149
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.... as under: 2A. Submissions of Petitioners are as under: 1. The petitioners have preferred the application under Section 241 and 242 for oppression and mismanagement in order to obtain equitable relief from this Hon'ble Court in connection with oppressive acts by respondent No. 2 in capacity of Managing Director alongwith respondent Nos, 4 and 5 and consistent acts of mismanagement in affairs of Respondent No. 1 company and gross misuse and siphoning off of funds of respondent No. 1 company. 1.1 Eligibility under Section 244 of the Companies Act and Waiver of mandatory requirements of holding more than 10% of total shares in respondent No. 1 company. I. Section 244 of the Companies Act mandates requirement of holding 10% of issued share capital of the company to maintain an application filed under Section 241 and 242 of the Companies Act. In para 1, page No. 12 for eligibility of petitioners under Section 244 of the Companies Act, the petitioners have made a statement that the petitioners hold 13,87,100 shares which is 10.89% of the total paid up share capital in the company. This statement is made in consonance with reference to balance sheet of respondent No. 1 company ....
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.... therefore also, if the Hon'ble Court comes to a conclusion that the petitioners are not holding 10%issued share capital then the waiver application be allowed and the matter be decided on merits. Moreover, the waiver application is required to be considered keeping in view the following: A. That the petitioner No. 3 Mukesh Bhandari is the founder Chairman and Director not liable to be retired by rotation and is also the part of promoter group. Therefore, the claims and submissions put forth by the petitioner No. 3 is of utmost importance in the interest of the respondent No. 1 company. B. Although the petitioner No. 3 could not be legally removed from the capacity of Managing Director of the company by the Board as the same would be in violation of the special resolution by the shareholders in AGM in the year 2016. The Board had no right to override the aforesaid resolution in view of Section 179 of the Companies Act and, therefore, the act of removal is not only in violation of the statute but also is an act of oppression against petitioner No. 3 at the instance of respondent No. 2 to take illegal and unchecked control of the financial affairs and management of the compan....
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....ed to be out rightly rejected and the application of waiver is required to be allowed. II. The attachment of shares petitioner No. 3 in DRT proceedings has no bearing on the maintainability of the present petition. This is because it is settled law that shareholding as on date of the filing of the petition is relevant and not thereafter. Moreover, the order of attachment only has limited implication, namely, curtailing the right of the owner of the shares only to the extent of alienating the said shares and the said order passed by DRT has no bearing either on the ownership, title or for that matter enjoyment/other rights attached to the said shares. Therefore, it does not affect the membership of the petitioner No. 3 and the interest of the petitioner No. 3 in the respondent No. 1 company. 1.2 The application filed by the petitioners comply with the mandatory requirements stipulated under the Companies Act and Rules thereunder and the petitioners fulfil the requirements to obtain reliefs as prayed for in the petition: A. The petition has been filed by three petitioners and all the petitioners have verified the contents of the petition on affidavit duly endorsed by notary pub....
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....by the respondents is clearly misleading and an attempt to divert the attention of the Hon'ble Tribunal from the merits of the subject matter of the present petition. The assertions of the respondents that certain transactions have attained finality and therefore, since they are 10 years old, they are inherently stale in nature and hence cannot be adjudicated by way of the present petition, is nothing but a hogwash and a dodgy attempt by the respondents to stall inquiry and adjudication of the wrongful loss caused to the interests of the respondent No. 1 company and illegal acts committed by respondent No. 2 continuously since a number of years including after filing of the present petition in the year 2019. Therefore, the argument put forth by the respondent with regards to limitation is untenable in the eyes of law as limitation does not apply to fraud, misrepresentation, misfeasance and unlawful acts such as forgery, criminal breach of trust and causing wrongful loss to the respondent No. 1 company. The Limitation Act under Section 17 deals with the effect of fraud and the present proceedings are covered under Section 17 of the Limitation Act and are within the period of lim....
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....st of the company. 2. The respondent No. 2 has committed oppressive acts against the interest of the petitioners: A. It is pertinent to note that the Articles of Association of Electrotherm India Ltd. i.e. respondent No. 1 company under Clause 109 stipulates that petitioner No. 3 "Shri Mukesh Bhandari shall be a Director not liable to be retired by rotation". It reveals the status and importance of the petitioner No. 3 in the respondent No. 1 company as the petitioner No. 3 is the founder member, the brain behind product development, research and development of products of the company and therefore, the petitioner No. 3 holds considerable interest in the functioning and working of respondent No. 1 company. B. That, in the Board Meetings held on 11.08.2016, the reappointment of Mukesh Bhandari i.e. the petitioner No. 3 as a Managing Director designated as Chairman was discussed at item No. 16 of the said meeting and the resolution was passed subject to the approval of members of the company in the General Meeting. Thereafter, the share-holders Annual General Meeting, 2016 by way of passing of Special Resolution by the shareholders, it was resolved that the petitioner No. 3 be ....
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.... which places limitations on the power of the Board. In fact the change of designation makes a lot of difference describing as a Managing Director of a company. Therefore, it is clear that the interests of the petitioner No. 3 were being oppressed and the normal functioning of the Board was hijacked by the respondent No. 2 by illegal appointments of Independent Directors and passing of resolutions through exercise of voting through illegally acquired shares from the funds of the company by the respondent Nos. 2 and 4. C. That it is clear that special resolution under Section 114 of the Companies Act read with Section 179 ousts the power of the Board to rescind, amend any special resolution passed by the shareholders in the Annual General Meeting. Therefore, the change in designation even without changing powers of petitioner No. 3 is impermissible and outside the purview of the Board unless a special resolution by a special majority is passed. Hence, petitioner No. 3 could be out of his office of Managing Director if and only if he resigns or is removed by shareholders in a General Meeting or if he is removed by Central Government or he is removed by NCLT or any other court of la....
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.... No. 2 in connivance with respondent No. 4, 5, 10 and 11 have been oppressive to the interest of the petitioners herein and the same has resulted in huge financial loss and damage to the interest of the respondent No. 1 company. 3. The Respondent No. 2 has committed several illegalities against the interest of Respondent No. 1 company and is involved in large scale siphoning off of funds of the company and hence respondent No. 2 has conducted the affairs of the company prejudicial to the interest of the company and hence is guilty of mismanagement. I. That, the affairs of the respondent No. 1 company have been conducted against the mandate of the Companies Act and against the interest of the company and therefore, the petitioners have filed the present petition for obtaining equitable relief as envisaged under Section 241 and 242 of the Companies Act. That, the respondent No. 2 has not upheld the fiduciary duty owed to the respondent No. 1 company and its shareholders and has committed various acts against the interest of the respondent No. 1 company and public at large. A. The respondent No. 2 in connivance with respondent No. 4 has illegally diverted the funds of the compan....
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....f the security guard of the respondent No. 1 company and illegal liquor worth Rs. 81,404/- was recovered which was stored by the security guard at the instructions of the respondent No. 2 and FIR bearing No. 11216025210044, dated 04.02.2021, registered with Santej Police Station, Gandhinagar under the Gujarat Prohibition Act. V. Thereafter, search was also carried out in the residential premises of the respondent No. 2 and illegal liquor worth Rs. 44,750/- was recovered and FIR bearing No. 11216025210045, dated 04.02.2021, registered with Santej Police Station, Gandhinagar under the Gujarat Prohibition Act. Therefore the conduct of the respondent No. 2 is against the interest of the respondent No. 1 company and the respondent No. 2 had also tried to hamper the investigation conducted by the GST Officials and destroy evidence. VI. The respondent No. 2 actively connived with other accused and forged documents of short term loan from Indian Overseas Bank worth Rs. 100 Crores and another loan in form of cash credit facility worth Rs. 100 Crores from Indian Overseas Bank was sanctioned in the year 2010 and 2011 and the signatures of the petitioner No. 3 in the capacity of being Chai....
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..../2019 Arising Out of Criminal Inquiry No; 1484/2019 filed before the Hon'ble Chief Metropolitan Magistrate, Ahmedabad. Complainant: Siddharth Mukesh Bhandari - Petitioner No. 1 herein. Offences Under: Sections 409, 120B and 114 of the Indian Penal Code. Accused: 1. Shailesh Bhandari 2. Ashok R. Bhandari 3. Kalyan Sundaram Maran 4. Officers of Ferryden International 5. Vivek Ashok Bhandari 6. Other Unknown Accused. Allegations in the complaint: The accused persons have entered into a criminal conspiracy with each other and have committed large scale fraud and offence of criminal breach of trust by diverting the money of Electrotherm India Ltd. to foreign company namely Castleshine PTE Ltd. and acted against the interest of the company and its shareholders. M. Case No. 2/2019 pending investigation before the CID Crime and Railways, Gandhinagar under Sections 409 and 120B of the Indian Penal Code where the allegations against the present respondent No. 2 is that being a Managing Director of the company, in collusion with other accused, the respondent No. 2 has placed an order with Castleshine PTE ltd, a company based in Singapore to buy hot strip mill and....
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....27 crores to Central Bank of India, Lal Darwaja Branch, Ahmedabad. It is relevant to note that even in the said loan documents, the respondent No. 2 has forged the signatures of the petitioner No. 3 to obtain the loan and in view of the illegalities committed by the respondent No. 2, the name of the petitioner No. 3 has also been arraigned as accused in the said proceedings. Moreover, prosecution has also been initiated under the Prevention of Money Laundering Act against the respondent No. 2. The initiation of criminal proceedings have not been challenged by the respondent No. 2 before any court and, therefore, the filing of charge sheet by CBI against the respondent No. 2 in isolation is sufficient to reveal that the conduct of respondent No. 2 is against the interest of the respondent No. 1 company and there is gross mismanagement of affairs. XI. That, due to the gross mismanagement in the affairs of the respondent No. 1 company by the respondent No. 2, corporate insolvency resolution process has been initiated against the company by Central Bank of India for an amount of Rs. 1059.59 Crores under the Section 7 of Insolvency and Bankruptcy Code, 2016 before this Hon'ble Tri....
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....d and respondent No. 2 is responsible for the aforesaid acts of oppression and mismanagement alongwith other respondents and therefore, the petitioners pray that equitable relief under Section 241 and 242 be granted to the petitioners. 4. Objections to the reply filed by the respondents: The petitioners submit that the respondents have filed their reply. The reply is required to be filed as per Rule 41 of National Company Law Tribunal Rules, 2016 and as per Rule 41(3), the respondent is required to specifically admit or deny the document, but in the present case the respondent No. 2 has not specifically denied the contents of the documents produced by the petitioner though a vague statement is made that the averments made in the petition are denied, therefore, since as per the aforesaid Rule 41(3) the documents are not specifically denied by the respondent No. 2 therefore, the documents produced by the petitioners are admitted and the Hon'ble Tribunal can consider the contents of the same and then it will be clear that there is mismanagement of funds by the respondent No. 2 in collusion with the other respondents in the respondent No. 1 company. Even in the reply filed by th....
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....on 31.03.2018, it has to be counted in the "issued share capital" as envisaged under Section 244 of the Companies Act, the petitioners have preferred Interlocutory Application No. 499 of 2019 as a matter of abundant caution seeking waiver of mandatory requirement of Section 244(1)(a) of the Companies Act. The petitioners adopt the averments made therein. Furthermore, since the maintainability of the petition is raised by the respondent, it is necessary to take note of the object behind the provisions of Section 241 of the Companies Act which provides for Application to Tribunal for relief in case of Oppression and Mismanagement read with Section 242 which confers wide powers on the Hon'ble Tribunal. It is necessary to note that the proviso to Section 244(b) is carved out so that the object of the provisions of the Section 241 of the Companies Act is achieved and, therefore also, the Hon'ble Court is required to waive the aforesaid, mandatory requirement of 10% issued share capital and the application be heard on merits as the respondent No. 2 in connivance with other respondents have committed gross acts of oppression against the interest of the petitioners and also conduct....
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....ere is no single holder of shares who is having more than 10% share capital of the respondent No. 1 company, therefore, if a strict interpretation is applied to Section 244 of the Companies Act then it would render the said provision nugatory as it would lead to a scenario that in the instance of any wrong being committed or rights being violated or affairs of the company is conducted against the interest of the shareholders and the company itself, by the Managing Director or at his instance by the Board, no shareholder although holding considerable stake in the company but under 10% of the issued share capital as mandatorily required, shall be able to challenge the same and object to it before the Hon'ble Tribunal. Therefore, such an interpretation or strict compliance of technicalities cannot be insisted and, hence, the application of waiver is required to be allowed in view of the shareholding pattern, stake of the petitioners, interest of the company, interest of the shareholders, large scale illegal activities, proof of siphoning off of funds of the company, pervasive exercise of control over companies holding shares of respondent No. 1, illegal appointment of independen....
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.... every page. Merely non-putting stamp of notary on every page of petition does not invalidate the petition and, there is no such mandatory rule framed under the Companies Act and, therefore, the objection regarding the aforesaid affidavit is not sustainable. Therefore, the objection taken about the affidavit is untenable, as no such rule is quoted whereby, it is necessary to put stamp of notary on each and every page. Furthermore, the respondents have failed to point out the relevant rule which mandates that if any affidavit is received from a foreign country in connection with proceedings initiated under the Companies Act before the Hon'ble Tribunal, the same is required to be authenticated in India. Thus, since the affidavit is used in the legal proceedings, there is no such requirement of authentication in India and hence the petition is in accordance with the Rules. B. The petitioners Nos. 1 and 3 have filed the petition solemnly affirmed in India, therefore also, the application is maintainable and objections with reference to the affidavit are frivolous and misleading. One affidavit in support of the position is enough under Rule 34(4) read with 23A of the National Comp....
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....terest of the company. C. The argument put forth by the respondents that the petitioners are barred from claiming any relief under the principle of acquiescence is wholly misconceived as acquiescence does not apply in the present case as the financial affairs of the company were wholly handled by the respondent No. 2 and the petitioner No. 3 is the technical expert in product development and is responsible only for the manufacturing related activities and research. Moreover, this is clear from the documents produced by the petitioners herein as well as the documents relied upon by the respondents which indicate that the respondent No. 2 has signed on all papers of financial transaction with the banks as well as the private respondents herein. Therefore, the argument of acquiescence is rendered nugatory by documentary evidence and the mere presence of the petitioner No. 3 in the Board Meetings of the respondent No. 1 company cannot be termed as petitioner No. 3 being party to the illegalities committed by the respondent No. 2. Hence, the conduct of the petitioners herein cannot be termed as not worthy of grant of equitable relief under Section 241, 242 of the Companies Act. Thus, ....
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....ndue influence exerted by the respondent No. 2, certain illegal appointments of Independent Directors were made in the respondent No. 2 company against the interest of the company in violation of nomination and remuneration policy of the company and by misrepresenting facts to the petitioner No. 3 and without any due diligence. The said illegal appointments have been challenged by the petitioners in Company Petition Nos. 93 and 94 of 2018. That in Board Meeting, the respondent No. 2 and the Independent Directors of the respondent No. 1 company acted in active connivance with each other and proposed that it is in the interest of the company to have a single Managing Director. Thereafter, although the said matter was left to the mutual understanding of the petitioner No. 3 and the respondent No. 2, no decision was arrived amicably and thereafter in the board meeting dated 04.07.2018, the agenda with regards to the change in designation of petitioner No. 3 from Managing Director to be designated as Chairman was put to vote and was changed to "Chairman". It is relevant to note that respondent No. 2 being an interested party to continue as sole Managing Director was present in the mee....
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....l of the respondent No. 2 as respondent No. 2 was the sole Managing Director of respondent No. 1 company as per the decision of the Board. I. It is relevant to note that the said removal or change in designation of petitioner No. 3 was brought up again in meeting dated 14.11.2018 by submitting a detailed note with regards to the illegal removal or change in designation of petitioner No. 3. However, the Board comprising of respondent No. 2 and the independent Directors formed a view that the necessary resolution had already been passed on 04.07.2018 by the Board of Directors and there was no need for further discussion related to this matter. This act of summarily suppressing the discussion on the decision made in absence of the petitioner No. 3 and in violation of the statute and special resolution of the shareholders of the respondent No. 1 company clearly indicates the mala fides of the respondent No. 2 and the non-independence of the Directors appointed as Independent Directors. Moreover, it is relevant to note that the change in designation and the de-facto change in powers of petitioner No. 3 was after strong objections were raised in the Board with regards to continuous ill....
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....ompany in a manner prejudicial to the interest of the company as the respondent No. 2 has been involved in large scale illegal activities and various offences have been registered against the respondent No. 2. The details of the offences registered against the respondent No. 2 and other respondents are as herein under: XVII. The respondent No. 2 had hatched a conspiracy to divert company funds through fake billing and also to evade huge Goods and Service Tax from the official of the GST Department. That on 18.01.2021 the GST officials conducted raid on the premises of the respondent No. 1 company and found large scale fake billing scam and also tax evasion amounting to crores of rupees. In view of the same, the company was made to pay outstanding dues of Rs. 10.86 crores by the GST department. This makes it clear that the respondent No. 2 has grossly mismanaged the affairs of the company and is directly involved in large scale misuse of company funds and fake billing scam and, therefore, caused huge damage to the interest of the respondent No. 1 company. XVIII. Moreover, during the search and raid- over the premises of Electrotherm India Ltd., the respondent No. 2 actively conn....
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....o lodged with Santej Police Station and the respondent No. 2 was arrested by the Police and at present the respondent No. 2 is released on temporary bail and his regular bail application is pending before the Hon'ble District and Sessions Court, Kalol. Therefore, the affairs of the respondent No. 1 company have been mismanaged and the conduct of the respondent No. 2 is against the interest of the respondent No. 1 company. XXII. Registration of offence bearing M. CASE. NO. 1/2019 Arising Out of Criminal Inquiry No. 1483/2019 filed before the Hon'ble Chief Metropolitan Magistrate, Ahmedabad. Complainant: Mukesh Bhanwarlal Bhandari (Petitioner No. 3 herein) Offences Under: Sections 465, 467, 468, 471, 120B and 114 of the Indian Penal Code. Accused: 1. Shailesh Bhanwarlal Bhandari (respondent No. 2 herein) 2. Nagesh Bhanwarlal Bhandari (respondent No. 4 herein) Allegations in the complaint: The allegations in the complaint are that the accused persons have entered into a criminal conspiracy with each other and forged the signature of the complainant in the capacity of the Chairman of Electrotherm India Ltd. and obtained ....
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.... Offences Under: Sections 409, 120B and 114 of the Indian Penal Code. Accused: 10. Shailesh Bhandari 11. Ashish Narendra Garg 12. Ankit Garg 13. Nischal Jain 14. Kebonte Siko Asandami 15. Surin Shiv kumar 16. Sui Pui Van 17. Nikunj Krishna Kumar Goyal 18. Pt Putra Rajwalli Allegations in the complaint: The accused persons have entered into a criminal conspiracy with each other and have committed large scale fraud and offence of criminal breach of trust by diverting the money of Electrotherm India Ltd. to a foreign company namely Apple Commodities Ltd. and acted against the interest of the company and its shareholders. M. Case No. 3/2019 pending investigation before the CID Crime and Railways, Gandhinagar under Sections 409 and 120B of the Indian Penal Code where the allegations are that being a. Managing Director of the company, in collusion with other accused, the respondent No. 2 has placed an order with Apple commodities, a company based in Hong Kong to buy coal and without receiving any coal, the respondent No. 2 has made the payment to the company and then written off the amount from the accounts of the company and caused huge loss to the Company to t....
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....diversion of funds by the respondent No. 2, that the account of the company has been categorized as "Wilful Defaulter" by the State Bank of Travancore an associate of State Bank of India. XXIX. That, due to the gross mismanagement in the affairs of the company and persistent diversion of funds by the respondent No. 2, that the account of the company has been categorized as "Wilful Defaulter" by the Central Bank of India, Oriental Bank of Commerce, Corporation Bank, Dena Bank Punjab National Bank, Allahabad Bank. XXX. That, due to the gross mismanagement in the affairs of the company and persistent diversion of funds by the respondent No. 2, the Bank of India by letter dated 30.09.2019 has initiated proceedings for declaring respondent No. 1 company as "Wilful Defaulter" due to the fact that the loans availed has not been repaid and there has been consistent diversion of funds as observed by the Bank. Moreover, payments made to common Directors, associate companies and subsidiaries have been questioned and further allegations raised, by the petitioners herein have been confirmed by the independent audit done by the bank with regards to siphoning off of funds to the tune of Rs. 7....
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....petitioners are relying on subsequent developments after filing of the present petition to highlight the continuing illegal acts committed by the respondent No. 2 in connivance with the other respondents and, therefore, certain documents are being produced together with the present written submissions. 2B. The submissions of Respondent No. 1 are as under: 1. The applicants have filed the present application under the proviso to Sec. 244 of Companies Act, 2013 (for short 'the Act') seeking waiver of mandatory condition as contained in Sec. 244(1)(a) of the Act for maintaining the proposed petition filed u/s. 241 and 242 of the Act. 2. The applicants have filed the proposed petition inter alia alleging acts of oppression and mismanagement against the respondents therein including some of the members and shareholders of Respondent no. 1 Company. The applicants have made the following main prayers in the proposed petition:- "1. Remove all powers of Respondent no. 2 in Respondent no. 1 company including his existing financial and administrative powers; 2. Remove Respondent no. 2 from the Board of R-1 Company in view of his involvement in huge financial frauds with the ....
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....inable on the ground of non-fulfilment of eligibility criteria as contemplated under Sec. 244(1) of the Act. For the ready reference of this Hon'ble Tribunal, Sec. 244(1) of the Act is reproduced herein below:- "Section 244- Right to apply under section 241.- (1) The following members of a company shall have the right to apply under section 241, namely:- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the applicants has or have paid all calls and other sums due on his or their shares; (b) in the case of a company not having a share capital not less than one-fifth of the total number of its members: Provided that the Tribunal may, on an application made to it in this behalf waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation.-For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as o....
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....s (Supra), the present application is liable to be rejected. The main petition on the same ground is accordingly also liable to be rejected. 5. The contention of the applicants that to maintain a petition under Sec. 241 and 242 of the Act, one has to hold 1/10th of the Equity Share Capital only and not 1/10th of issued share capital which include not only equity share capital but it also includes the preference share capital. The phrase "Issued Capital" has been defined in Sec. 2(50) of the Companies Act, 2013. For the ready reference of the Hon'ble Tribunal, Sec. 2(50) is reproduced as hereunder:- 2(50) "Issued capital" means such capital as the company issues from time to time for subscription; 6. From the above definition, it is clear that the issued capital of a company means such capital which the Company issues from time to time. Therefore, the issued share capital of a company does not only comprise of equity shares but also comprises of preference shares. This position of law has been reiterated in the case of Cyrus Investments (P.) Ltd. vs. Tata Sons Ltd. reported at (2017) 85 Taxmann.com 317 (NCL-AT), wherein it is held as under:- "87. From the aforesaid discu....
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....Standards) Rules, 2015, which came into effect from 16.02.2015, the Indian Accounting Standards (Ind AS) has become applicable to the Company for the accounting periods beginning from 1st April, 2017 i.e. financial year 2017-2018. As per Ind AS 32, the presentation of financial instruments is provided and a preference share that provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date, or gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount, is a financial liability. Consequently, the redeemable preference capital was to be reflected under the head "short term borrowings" effective from the balance sheet of the Company from the F.Y. 2017-18. 11. The Hon'ble National Company Law Tribunal, Mumbai bench in the matter of Cyrus Investments (P.) Ltd. vs. Tata Sons Ltd. reported at [2017] 79 taxmann.com 78 (NCLT-Mum) @ paras 57-59 and @para 71(3) has considered this aspect of the matter and has yet held that the expression "Issued Share Capital" refer to both "Equity Capital" and "Preferential Share Capital". Para 57 to 59 and 71(3) o....
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....ity by virtue of this voting right to cause economic loss to the preference shareholders who do not have voting right to the decisions in the Company. Then what will happen to the economic interest of the preference shareholders who have invested their money in as much as the equity shareholders invested. Considering all these implications, 10% of the issued share capital is taken as qualification...... 58. If we see the objective of such Accounting Standards, they have come into existence to provide a standard set of accounting policies, valuation norms, disclosure requirements on the basis of which financial statements should be prepared to make financial statements more meaningful and comparable, to harmonise the diverse accounting policies and practices in order to ensure standardisation in the preparation of financial statements and to enable the comparability of financial statements and thereby improve reliability and usefulness of financial statements. 59. By reading these objectives, it is ascertainable that this Accounting Treatment has come into existence to easily understand the financial statements of the Company, nothing more nothing less. .... 71. Finally, our....
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....t is submitted that grant of waiver is not a rule. It is an exception. The applicants have to make out an exceptional case. The Hon'ble NCLAT in the case of Cyrus (Supra) has held in para 151 as under:- "151. Normally, the following factors are required to be noticed by the Tribunal before forming its opinion as to whether the application merits 'waiver' of all or one or other requirement as specified in clauses (a) and (b) of sub-section (1) Section 244:- (iv) Whether there is an exceptional circumstance made out to grant 'waiver', so as to enable members to file application under Section 241 etc.?" 14. In the present case, the applicants are seeking waiver of the conditions enumerated in clauses (a) and (b) of sub section (1) of Sec. 244 of the Act only on the grounds mentioned in para 8 @ pg. 5 of the application. The grounds stated therein do not even remotely make out an exceptional case to grant waiver, as demonstrated herein below:- i. The grounds raised for grant of waiver as exceptional circumstances are just allegations which date back to the year 2007. The allegations are also baseless and without any substance. ii. The proposed petition fil....
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.... were also the Key Managerial Persons of the Company who were involved in the day to day decision making of the Company as on the date of filing of the proposed petition. The transactions in question, claimed to be as grounds for seeking waiver, were done at the behest of the applicants herein. The grounds raised in para 8 to the application are frivolous in as much as all these transactions have been undertaken in compliance of applicable laws and duly approved by the relevant statutory authorities and with concurrence of the applicants. The transactions claimed to be as the grounds of present application are about 12 years old and at the relevant time, the applicant no. 3 himself was the Executive Chairman/Managing Director and had concurred to such transactions. vii. Even otherwise, without prejudice, no objections of such nature have been raised by the applicants in any previous Board Meetings with regards to the same. In view of above, the applicants have failed to make out any case of exceptional circumstance for grant of waiver. The present application therefore is liable to be rejected. 15. Reliance placed by Applicants on the case of Cyrus Investments (P.) Ltd. (supr....
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.... will be dependent on the prerogative of the other member(s). 163. We are of the view that this is one of the exceptional and compelling circumstances, which merit the application for 'waiver' subject to the question whether (proposed) application under Section 241 relates to 'oppression and mismanagement'. 16. In the present case, the Respondent No. 1 Company is a public limited listed company and has over 6000 shareholders including financial institutions and body corporates, which can very well protect their interest in case of any oppression and mismanagement in the affairs of the Opponent No. 1 Company. None of the contesting applicants or opponents has such a major and controlling stakes in the Opponent Company, as was there in the case of Cyrus Investments (P.) Ltd. (supra). The shareholders of the Opponent Company would not be devoid from filing an application under Section 241 and 242 of the Act and therefore there are no exceptional or compelling circumstances which merit the application for waiver filed by the applicants. The present application therefore is liable to be dismissed. 17. In the case of Cyrus Investments (P.) Ltd. (supra) @ paras 168 t....
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....s also suppressed by the applicants in the application. 19. It is settled law that a petition u/s. 241 and 242 of the Act is not maintainable on the basis of the shares which are encumbered in any manner or are attached. This proposition of law is laid down in the case of H.H. Maharaja Sawai Bhawani Singh vs. Rambagh Palace Hotel by the Company Law Board, New Delhi decided on 28.07.2014 in Company Appeal No. 49 of 2009. In the said judgment, it is held as under:- "6.4 In view of the aforesaid observations as well as legal position, it is noticed that 3000 shares are held in the name of High Highness Maharaja Sawai Bhawani Singh as Karta of HUF and hence, the Petitioner is not entitled to club these shares with the shareholding in his own name till the Partition Suit No. 870/1986 is decided in his favour. Likewise, the remaining 3260 shares have been attached by the Department of Income Tax u/s. 226(3) of the Income Tax Act, 1961 and hence, these 3,260 shares stand, encumbered to the Department of Income Tax u/s. 226(ix) and (x) and Sec. 281 of the Income Tax Act, 1961. Further to this, the reliance has been laid on the ratio of judgment in the case of Kedar Nath Khaitan and Ors....
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....company, comprises of both "Equity Share Capital" as well as "Preference Share Capital" as is evident from Section 43 of the Companies Act, 2013. 4. It is submitted that out of total issued and paid-up shares aggregating to 2,47,42,814, the applicants herein collectively hold only 13,87,100 shares which comes to merely 5.61% holding of the total issued share capital of the respondent no. 1 company. 5. Thus, share capital of the applicants collectively is less than 1/10th of total share capital. 6. It is claimed by the applicants that preference share capital is not part of issued share capital since preference share capital of Rs. 12,00,00,000/- is shown as part of short-term borrowings in balance sheet of respondent no. 1 company. Preference Share capital is classified as short-term borrowing in accordance with Indian Accounting Standards that are made applicable to Respondent No. 1 company from financial year 2017-18. However, mere classification in accordance with Indian Accounting Standard cannot take away character of share capital. Further Accounting Standard cannot be used to override a statutory provision of Companies Act, 2013. It is submitted that similar issue aros....
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....xistence to easily understand the financial statements of the Company, nothing more nothing less. ... 71. Finally, our answers to the Petitioners' Counsel's arguments are (1)....... (2)....... (3) That we do not find any merit in the argument of the Petitioners' Counsel saying that since the redeemable preference shareholding be shown as debt in the Accounting Treatment preference shareholding cannot be equated with the equity shareholding to invoke Section 2M, because showing in Accounting Treatment for the convenience of Accounting Treatment will neither change the concepts of Company Law nor have any bearing on the mandate of the Statute. 7. It is submitted that Hon'ble NCLAT in case of Cyrus Investments (P.) Ltd., v. Tata Sons Ltd. reported in [2017] 85 taxmann.com 317 (NCL-AT), it is held as under: It is to be noticed that "Issued Share Capital" automatically means the "Issued and Subscribed Share Capital". The provision of section 244 also makes it clear that it should be a paid-up share capital as applicants have to show that they have paid all calls and other sums due on their shares. If different meaning of 'Relevant Issued Share Capital&#....
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....n cannot assert any rights based on 8,09,500 equity shares held by applicant no. 3. Those, 8,09,500 equity shares held by applicant no. 3 are attached by the Recovery Officer, Debt Recovery Tribunal for recovery of debts u/s. 25 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 vide order dated 25.04.2019 made by the Recovery Officer-I, Debts Recovery Tribunal - I, Ahmedabad in Recovery Proceedings 555 of 2018. 11. It is submitted that Ld. Company Law Board, New Delhi Bench in the case of H.H. Maharaja Sawai Bhawani Singh v. Rambagh Palace Hotel Private Ltd. bearing CA No. 49/2009 in CP No. 60(ND)2008 has held that where shares of an individual are attached by any competent authority under relevant law time being in force then those attached shares cannot be taken into consideration for computing the eligibility criteria under Section 244 of the Act. Hence, applicants cannot assert any rights based on 8,09,500 equity shares held by applicant no. 3. 12. Even otherwise on merits, applicants do not have a case to claim waiver. It is submitted that in case of Cyrus Investments (P.) Ltd. v. Tata Sons Ltd., reported in [2017] 85 taxmann.com 317 (NCL-AT) Hon&#....
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....e written submissions. All other issues raised in the petition are dealt with at length in reply filed by respondent no. 2 dated 16.08.2019. ALLEGATION NO. 1 15. Apropos the claim that applicant no. 3 i.e. Mr. Mukesh Bhandari was removed from the post of Managing Director without following the procedure laid down under law it is submitted that applicant no. 3 appointed himself as a Chairman & Managing Director in a board meeting dated 26.04.2017. However, for the better administration and smooth functioning of the company and looking at the good performance of the company during last few years and the challenges in the coming years, it was thought fit that it would in the interest of the Respondent No. 1 Company to have one Managing Director. Thereafter, Respondent No. 1 company herein obtained opinion of an Advocate and decided to have one Managing Director. Accordingly, in Board Meeting dated 04.07.2018, applicant no. 3 herein was re-designated as Chairman instead of Chairman and Managing Director. It is submitted that such re-designation was done in accordance with law and there is no violation of provision, of law. It is also denied that such re-designation was for the purp....
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....no. 3 as Chairman instead of Chairman and Managing Director would not constitute an act of oppression and mismanagement. As observed in above mentioned judgment, post of "Chairman" of Company is not a statutorily recognized post and there is no procedure prescribed under Companies Act, 2013 for redesignation. It is submitted that decision with respect to redesignation was approved in properly convened board meeting through a majority and hence such an act can never be termed as act of oppression and mismanagement. ALLEGATION NO. 2 18. Apropos allegation with respect to siphoning of Rs. 87.14 crores from R1 Company for which FIR No. RC 7(E)/2014 is lodged with Central Bureau of Investigation, Bank Securities and Fraud Cell, Mumbai by Central Bank of India, it is submitted that applicant no. 3 is also one of the accused in this FIR. 19. Apart from the fact that applicant no. 3 himself is accused, all the transactions forming part of said FIR are ages old. 20. Without prejudice to above, it is submitted that said FIR is mainly based on transaction of Respondent No. 1 Company with Apple Commodities Limited, Victory Rich Trading Limited (VRTL) and Castleshine Pte Ltd. It is subm....
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....ed 05.05.2015 and 10.5.2016 ordered Victory Rich Trading Limited and one another defendant to make payment of USD 15,485,000 together with interest @ 6% p.a. 22. Likewise, so far as opening of Letter of Credit in favour of Castleshine Pte Ltd. is concerned, it is a commercial transaction between two entities and there is no element of siphoning off the funds as alleged. On 15.03.2011, Respondent No. 1 herein entered into an agreement with Que Metals & Equipments DMCC, Dubai ("QME") for purchase of United Continuous Hot Strip Mill ("Equipment") for USD 7,000,000 from QME. That under the said agreement Respondent No. 1 was under an obligation to furnish Stand by Letter of Credit (SBLC)/Guarantee to QME or its associated company Castleshine Pte Ltd. i.e. Respondent No. 10 herein. The said Letter of Credit was opened for supply of equipments. At this point of time it is pertinent to note that as V per the arrangement between QME and Castleshine Pte Ltd., Castleshine Pte Ltd. was to procure equipment from one A G Shepherd (Machinery) Ltd. located at the Denian works of Duferco and deliver it to Respondent No. 1 Company. For the purpose of effecting a supply, on 07.12.2010, Castleshine....
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....m its bankers and was not able to ensure payment to Respondent No. 1 as per EPC contract. That in absence of the payment surety, the equipment could not be supplied to ultimate buyer/customer in Tanzania and Respondent No. 1 has to incur heavy cost for transportation and demurrage of Equipment from Denain, France to Antwerp, Belgium in addition to the cost of Equipment. The equipment was lying in the custody of logistic company - Belfort Logistics NV. As the Respondent No. 1 could not make the payment for transportation and other charges of the machinery due to severe liquidity crunch, Belport Logistics NV filed a case before the Court at Belgium and machinery was auctioned. The auction money was adjusted by the Logistic company towards the hefty detention and demurrage charges imposed on the Company. Under the circumstances, the Respondent No. 1 herein never received any machines or consideration thereof. 23. Similarly, on 17.09.2007, Respondent No. 1 herein requested Bank of India to open Letter of Credit of USD 2,500,000 in favour of Castleshine Pte Ltd. in reference to Contract dated 03.09.2007 for purchase of Heavy Melting Scrap. In response thereto, Respondent No. 1 herein ....
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....s in Respondent No. 1 Company as a part of settlement terms as approved by the board of directors of the Respondent No. 1 company, whereby the equity shares were allotted on conversion of Partially Convertible Partially Redeemable Preference Shares (PCPRPS) on 21st February 2017. It is submitted that applicant no. 3 was part of that decision making. Furthermore, Westend Housing Finance Ltd. at Sr. No. 82 and Westend Investment and Finance Consultancy Pvt. Ltd. at Sr. No. 83 are NBFC companies. Hence, it is incorrect to say that 85 companies were created for the purpose of indirectly owning and controlling Respondent No. 1 and Respondent No. 5 companies and siphoning of funds. 26. Without prejudice to the above, it is submitted that applicant no. 1 was director and applicant no. 3 was a chairman and managing director of Respondent No. 1 Company and majority of decision were taken in the presence of applicant no. 1 and applicant no. 3. Applicant no. 3 has himself signed the annual accounts of the Respondent No. 1 company and was well aware about all the facts stated herein above. It is submitted that majority of allegations made in the petition pertains to year 2007 to 2015 i.e. du....
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....ATION IS NOT ACCOMPANIED BY POWER OF ATTORNEY 32. It is further submitted that affidavit of Dr. Rakesh B. Bhandari produced at Pg. No. 11 of the application is affirmed by Mr. Siddharth M. Bhandari in his capacity as power of attorney of Dr. Rakesh B. Bhandari. However, his power of is not placed on record. Under the circumstances, present application is required to be rejected on the short ground that it is defective. EVEN OTHERWISE NOTARY IS DEFECTIVE 33. Furthermore, it is submitted that Dr. Rakesh B. Bhandari resides at Ontario, Canada and any notarial document affirmed before Notary Public at Ontario, Canada must be authenticated before Consulate General of India. 34. That Canada is not a contracting state to Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents. Hence, all the affidavits, including Power of Attorney, that are executed at Ontario, Canada must be authenticated before Consulate General of India. That without such authentication, affidavit cannot be considered as legal and valid. The said contention is supported by Judgements of Hon'ble High Court Calcutta in case of Rei Agro Ltd. and Ors reported in AIR 2015 CAL 54 ....
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.... of Companies Act, 2013. Clause (b) is not applicable as Respondent no. 1 is having a share capital. As far as the fact of the petitioners are not having requisite number shareholders or holding not less than one tenth of issued share capital are concerned, there is not dispute that the petitioners, in application filed under Section 241 of Companies Act, 2013, do not meet these criteria. Further, there is no dispute as regard to payment of amount of calls on such of shares or of other sums due on their shares. 5. Having stated the relevant provisions, in brief, now we would consider he main plea which has been taken by the petitioners are that they meet all criteria as laid down in the order of Hon'ble NCLAT in the case of Cyrus Investments Pvt. Ltd. v. Tata sons Ltd. and Ors. in Company Appeal (AT) No. 133 and 139 of 2017 decided on 21.09.2017 in para 151 of that order. Whereas the Respondents have also relied on the same para of the same order in support of their claims. It is also noted that this finding or view of Hon'ble NCLAT is final as this aspect was not challenged before Hon'ble Supreme Court wherein Hon'ble Supreme Court has reversed the decision of the....
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....ield under Section 241 of the Companies Act, 2013 may have to be considered. Having said so, we, however, make it clear that this is to be done just to meet the object and criteria laid down in Section 244 of Companies Act, 2013 and views expressed on the merits for this purpose cannot be considered or treated as views expressed by this Authority which may amount to determination of the main dispute either against or in favour of either parties. Keeping this limitation or factor, in our mind, the facts relied on by the petitioners for getting the waiver, we state that these pertain to siphoning off funds through Shell Companies promoted by Respondent no. 2. It has also been claimed that loans received from financial institutions/lenders have been given as loan to bogus entities for purchase of shares of Respondent No. 1 company in the name of individuals acting on behalf of Respondent no. 2 which is complete violation of provisions of Section 77 of the Companies Act, 1956 corresponding to Section 67 of the Companies Act, 2013. It has also been claimed that Respondent No. 2 in collusion with Respondent No. 4 and Respondent No. 11 had committed the fraud. It is also claimed that Resp....