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2021 (4) TMI 1149
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....made their submissions which are reproduced 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 conso....
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....id dispute, the petitioners have filed application for waiver and, 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 ill....
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....objections taken by the respondents to defeat the object and purpose of the statute are required 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 peti....
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....e filing of the present petition has arisen continuously since 2017 to date and, therefore, the argument of bar of limitation put forth 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 ....
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....erest of the company, oppressive acts against the interest of the petitioners and gross mismanagement in the affairs of the company against the interest 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 Mee....
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....itioner No. 3 in violation of the mandate given by the members of the respondent No. 1 company by way of special resolution in clear violation of Section 179 of the Companies Act 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 M....
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.... against the reappointment resolution in the Annual General Meeting held on 30.09.2019, in connivance with and at the behest of respondent No. 2. Therefore, it is clear that the act of the respondent 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 ....
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....No. 2. In view of the same FIR bearing no. 11216025210042, under Sections 65-A, 65 (e), 116-B, 81, 98(2) of the Gujarat Prohibition Act against the respondent No. 2. IV. Thereafter, search was also carried out in the residential premises of 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....
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....dian Penal Code, where the allegations are against the Managing Director of the company, that in collusion with other accused have taken a loan using forged documents and misappropriated the funds of EIL to the tune of Rs. 480 Crores and at present the investigation VIII. Registration of offence bearing M. CASE. NO. 2/2019 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 sharehol....
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....smanagement and was involved in large scale misuse of funds of the respondent No. 1 company. In view of the same, the Central Government through the Central Bureau of Investigation, conducted large scale investigation and filed charge sheet which has culminated into CBI Case No. 27/2015, which is pending before the Hon'ble CBI Court no. 3 at Ahmedabad under the Indian Penal Code and the Prevention of Corruption Act, where the allegations are that the respondent No. 2 and other accused has caused huge loss to the tune of Rs. 436.27 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 ....
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....ores done by the respondent No. 2 to siphon off of funds of respondent No. 1 company. Therefore, this clearly indicates that the affairs of the company have been conducted by the respondent No. 2 in a manner prejudicial to the interest of the company. The aforesaid facts and circumstances highlighted in submission paragraphs Nos. 2 and 3 clearly indicate that the affairs of the respondent No. 1 company have been conducted in a manner oppressive to the interest of the petitioners herein and that the affairs of the respondent No. 1 company have been grossly mismanaged 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 specifical....
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....ompany. This statement is made in consonance with reference to balance sheet of respondent No. 1 company as on 31.03.2018 and preference share capital has not been shown in capital and has been shown as short term borrowings in 32nd annual report which means that it did not remain capital and it became a borrowing for respondent No. 1 company. As Section 244 requires holding of 10% issued share capital of respondent No. 1 company, the requirement is fulfilled by the petitioners collectively, however, assuming that in spite of equity share capital being shown as liability in the balance sheet of the company as 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 Tribuna....
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....instance of respondent No. 2 to take illegal and unchecked control of the financial affairs and management of the company. Moreover, the rights of petitioner No. 1 have also been adversely affected by respondent No. 2 as the petitioner No. 1 has taken objection to the siphoning off the companies funds and confronted the respondent No. 2 in the Board meetings and in view of the same, the petitioner No. 1 was also removed from the Board of Directors through exercise of pervasive control over illegally acquired shares of respondent No. 1 company. C. It is pertinent to note that looking to the share capital of the company, there 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 ....
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.... 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 public in accordance with law. If the title of the affidavit is perused, it is clearly stated that it is a general affidavit verifying the petition and, that the petitioners have gone through the copy of the petition and the same has been drafted in accordance with their instructions and the same is duly affirmed by notary public by putting seal and serial number of registration and further the same is duly identified by the Advocate. Moreover, the petition is duly signed by the petitioner No. 3 on each and 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 ....
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..... 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 limitation as it has come to the knowledge of the petitioners, prior to the filing of the petition. Hence, the proceedings are within the period of limitation. B. The argument put forth by the respondents that the petitioners are barred from claiming any relief under the principle of estoppel is wholly misconceived as estoppel does not apply when facts have been misrepresented and twisted at the instance of respondent No. 2 along with the other respondents responsible for causing wrongful loss to the interest 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 fro....
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....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 continued as Managing Director from 01.02.2017 to 31.01.2020. Therefore, it is clear that the members of the respondent No. 1 company passed special resolution in Annual General Meeting, for appointment of the petitioner No. 3 in capacity of the Managing Director to be designated as Chairman. In view of the passing of the special resolution, no change or amendment could be brought about in the designation, terms of service or employment by the Board of respondent No. 1 company. Thereafter, due to the undue 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, th....
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....tioner 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 law having jurisdiction. Furthermore, the argument advanced by the respondents that there is no change in authority and only a change in designation is false and misleading as the powers of the petitioner No. 3 were substantially affected after the passing of the resolution which is confirmed by the respondent No. 2 himself in his numerous e-mails written to Accounts Department of the respondent No. 1 company to not allot/release any funds at the instance of the petitioner No. 3 without the prior approval 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 inde....
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.... 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. D. The respondent No. 2 in connivance with respondent No. 4 has illegally diverted the funds of the company to acquire shares in the name of respondent No. 5. The petitioners rely on the averments made in the memo of the main petition to substantiate the allegations. E. The respondent No. 2 in connivance with the respondent No. 9 has illegally diverted the funds of the company to acquire shares in the name of respondent Nos. 10 and 11. The petitioners rely on the averments made in the memo of the main petition to substantiate the allegations. F. The respondent No. 2 has managed the affairs of the company 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 f....
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..... 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 Chairman of the respondent No. 1 company were forged inspite of the fact that the petitioner No. 3 was not present in Ahmedabad from 30.04.2011 to 19.05.2011 as the petitioner No. 3 was on international travel. Moreover, the said loan has not been repaid till date and the funds of the said loan had been utilized by the respondent No. 2 in connivance with other accused including respondent No. 4 through illegal diversion of funds from the respondent No. 1 company. Therefore, the FIR was also 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 responde....
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....ely Castle shine 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 Castle shine PTE ltd, a company based in Singapore to buy hot strip mill and without receiving any commodity, the accused has made the payment to the company and then written off the amount from the accounts of the EIL and caused huge loss to the Company to tune of Rs. 26 crores and at present the investigation is pending. XXIV. Registration of offence bearing M. Case No. 3/2019 Arising Out of Criminal Inquiry No: 1485/2019 filed before the Hon'ble Chief Metropolitan Magistrate, Ahmedabad. Complainant: Siddharth Mukesh Bhandari 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 ....
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....nged 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. XXVI. 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 Tribunal. XXVII. That, due to the gross mismanagement in the affairs of the company and persistent siphoning off of funds by the respondent No. 2, the total outstanding of the company has reached 2218.65 crores as of 07.01.2020 due to persistent default on payment of interest and repayment of principal amount of loans from banks and financial institutions. XXVIII. 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 ....
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....ent 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 the respondent No. 2, there is no identification of the deponent as per Rule 129 of the said Rules. The respondent Nos. 6, 8, 9, 12 have not filed their reply and, therefore, qua those respondents the averments made by the petitioner in the pleadings are admitted and therefore also, the aforesaid fact is required to be considered by the Hon'ble Tribunal and those pleadings are deemed to be proved since there is no denial. 10. The petitioners are relying on subsequent devel....
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....hip of Respondent no. 1 company together with investigation into the shareholding of Respondent no. 5 company, in view of its declared status of promoter company of Respondent no. 1 company, under the lordship's authority of piercing the corporate veil to find fraudulent and/or benami share-owners in listed Respondent no. 1 Company whether directly or through Respondent no. 5. 8. Remove benami shareholders from the Register of Members of Respondent no. 1 Company on the basis of investigation report. 9. Repayment of all moneys back to Respondent no. 1 Company which has been diverted, fraudulently, taken away or siphoned off from Respondent no. 1 Company by Respondent no. 2 and other Respondents in connivance with one another with or without association or help of outsider entities/persons. 10. Presenting and furnishing of the Company records of all 17 companies which have been merged into Respondent 6 and/or other entities as the same are necessary legal entities for completing investigation in this matter and which are under legal obligations to preserved records for presentation when asked for." 3. The proposed petition filed u/s. 241-242 of....
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....tate of Andhra [Rajahmundry Electric Supply Corpn. Ltd. v. State of Andhra, AIR 1954 SC 251], this Court, while dealing with a case under Section 397 of the 1956 Act and Section 153(c) of the Companies Act, 1913, which were analogous to the provisions of Section 397 of the 1956 Act, held that the issue of whether the petitioner had obtained consent of the members of the company in order to meet the requirements of holding 1/10th of the total shares is to be examined in light of whether such a number was in fact attained and maintained, on the actual date of presentation of the company petition in court, and in the event that a member later withdraws consent, the same would not affect either the right of the petitioner-applicant to proceed with the application, or the jurisdiction of the court to dispose of it on merits". In the present case, admittedly, the applicants hold only 5.61% of the issued share capital of the Company. The petition was filed on April, 2019 whereas the present application is filed on July, 2019. As such, on the date when the petition was filed, it was not maintainable. Filing of an application for Waiver at any subsequent stage is not maintainable. ....
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....) has also held that until and unless the mandatory conditions stipulated u/s. 241(1) of the Act is not waived, the proposed petition u/s. 241-242 of the Act will not lie and is thus liable to be rejected. For the kind consideration of this Hon'ble Tribunal, Para 88 of the said judgment, reads as under:- "88. As admittedly, the Appellants have less than 1/10th of the "Issued Share Capital of the Company" (2.17%), we hold that the Appellants do not qualify under Section 244(1) to file a petition under Section 241 of the Companies Act, 2013 and the petition without waiver, at their instance is not maintainable." In the present case, as the applicants- Original Petitioners have not fulfilled the mandatory conditions of S. 241(1) of the Act, the main petition is not maintainable. 9. The contention of the applicants that as the Balance Sheet of the Respondent Company as at 31.03.2018 reflects the preference share capital under the head of "short term borrowing", the preference share capital cannot be included as a part of Issued Share Capital is also liable to be rejected. 10. It is submitted that reflection of any amount in the Balance Sheet does....
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....come a debt and a shareholder can never wear the hat of creditors. The Petitioners have been arguing redeemable preference shares as debt, if so, any right has been conceived to the preference shareholders at least to make a demand for recovery of their investment before the period envisaged while issuing redeemable preference shares. If Company has gone into losses, can it be possible to preference shareholder to ask for recovery on par with creditors? So this limited argument of the Petitioners highlighting the practice in Accounting Standards will not make any case to obfuscate the mandate of the Statute, Therefore, we have not found any merit in the argument of the Petitioners' Counsel saying that the phrase 'issued share capital' used, in Section 244 of the new Act is contrary to the purpose of legislation. It has been again and again reiterated by the Hon'ble Supreme Court, the purposive interpretation is to find out the purpose of legislation, but not to invent a purpose for the gain of any individual. The purpose of legislation is to initiate proceedings u/s. 241 of the new Act only when the criteria of fulfilling one-tenth in number or not less than one-ten....
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....ce to be made as per Regulation 55A of SEBI (Depositories and Participants) Regulations, 1996. According to Regulation 55A(1) of the Regulations, an issuer shall submit audit report on a quarterly basis to the concerned stock exchanges audited for the purposes of reconciliation of the total issued capital, listed capital and capital held by depositories in dematerialized form. In the present case, none of the preference shares of the respondent Company are listed with Bombay Stock Exchange or National Stock Exchange or held by any depositories in dematerialized form and hence there is no requirement to consider preference shares as a part of Issued Capital in the report under Regulation 55A of the SEBI (Depositories and Participants) Regulation, 1996. Further all the details in the Reconciliation of Share Capital Audit Report for the quarter ending on 31.03.2018 are related to the equity shares only. Thus the reliance placed by the applicants on the communication dated 12.04.2018 is completely misconceived and illegal. 13. The present application is also liable to be rejected. It is submitted that without prejudice to the contention that the application for waiver is requi....
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....s of the Company. In any case, none of the Applicants have raised any issue/dispute or made allegations relating to the same till the date of filing of the petition under section 241 and 242 of the Act. Therefore also, the grounds raised in the application for waiver are hopelessly frivolous, baseless, misconceived and barred by the law of limitation. v. It is pertinent to mention that the applicant no. 3 has been the Executive Chairman/Managing Director of the Respondent Company since 1995 until 31st January, 2020. The applicant No. 3 therefore is a key managerial person as defined u/s. 2(51) of the Act and had substantial powers in the management of the Company. For the ready reference of the Hon'ble Tribunal Sec. 2(51) of the Act is reproduced herein below:- Sec. 2(51) "key managerial personnel", in relation to a company, means- (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; and (v) such other officer as may be prescribed." vi. The applicant no. 3 was the Executive Chairman/Managing Dire....
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....case, a minority shareholder's rights to file a petition under section 241 and 242 of the Act will be dependent on the prerogative of the other members of the Company. The Hon'ble Appellate Tribunal considered this aspect to be an exceptional and compelling circumstance to allow the application seeking waiver. For the ready reference of this Hon'ble Court, Para 160 to 163 of Cyrus Investments (P.) Ltd. (supra) are reproduced herein below:- "160. From the aforesaid summary of shareholding we find that except Mr. Ratan Naval Tata (at serial no. 22) having issued shareholding of 31.43% and Mr. Narotam S. Sekhsaria (at serial no. 44), having 17.01% shareholding capital of the company, none of the 49 member(s) are eligible to file an application under Section 241, individually having less than 10% of the shareholding. 161. That means in the context of present case, except that the minority shareholders join together, i.e. either six in numbers or such numbers of members whose joint shareholding will come up to 10% of the issued share capital of the Company, which will be also not less than 3 to 4 members, none of the 49 shareholders can file an application ....
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....allegations as made by appellants and highlighted by the learned counsel for the 11th respondent as noticed in the preceding paragraphs, are of recent year 2016. We are not expressing any opinion with regard to merit of such allegation, but have only noticed the allegations, 170. Taking into consideration the aforesaid facts and exceptional circumstances of the case as apparent from plain reading of the (proposed) application and as some of them relate to 'oppression and mismanagement', qua. 1st respondent company and its member(s), we are of the view that the appellants have made out a case for 'waiver' to enable them to apply under Section 241." Whereas in the present case, the transactions in disputes are of the year 2007, 2008, 2009 and 2010 and the applicants have moved the Tribunal only in the year 2019. Even the transactions in question which are claimed as grounds in the present application for seeking waiver, were in fact executed by the applicant no. 3 himself and he was party and signatory to all such transactions. Therefore, the grounds raised in the application are false, frivolous and baseless. 18. Without prejudice to the ab....
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....f the Companies Act, 1956. Consequently, the Petitioner has not fulfilled the requirements of Section 399 of the Companies Act, 1956 due to the Partition Suit in respect of 3000 shares held in the name of His Highness Sawai Bhawani Singh and 3260 shares held by the Petitioner in his own name but the said shares have been attached by the Income Tax Department. Thus, due to non compliance of the statutory requirements of Section 399 of the Companies Act, 1956, the Company Petition is not maintainable. As such, the present Company Application is hereby allowed and consequently, the Company Petition is dismissed with the liberty to the Petitioner to file the Petition afresh either on obtaining necessary approval of the Central Government u/s. 399(4) of the Companies Act, 1956 or on getting suitable directions from the Hon'ble Supreme Court of India in respect to 3,000 shares or from Department of Income Tax relating to 3,260 shares." 20. In view of what is stated hereinabove, the present application is liable to be dismissed with costs, 2C. Submissions of Respondent No. 2 are as under: 1. Share capital of the Respondent No. 1 Company as on 31st August 201....
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.... Accounting Treatment cannot be considered as overreaching effect on the statutory provisions. When the Statute defines preference shareholding as part of the issued share capital, can it be said that since Accounting Standard saying that redeemable shareholding shown as debt in the Company, therefore, the definitions given under Companies Act and the rights created under Companies Act are redundant? It cannot be like that Preference shareholding will never become a debt and a shareholder can never wear the hat of creditors. The Petitioners have been arguing redeemable preference shares as debt, if so, any right has been conceived to the preference shareholders at least to make a demand for recovery of their investment before the period envisaged while issuing redeemable preference shares. If Company has gone into losses, can it be possible to preference shareholder to ask for recovery on par with creditors? So this limited argument of the Petitioners highlighting the practice in Accounting Standards will not make any case to obfuscate the mandate of the Statute... 58. If we see the objective of such Accounting Standards, they have come into existence to provide a standard....
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....n to Section 399(1) of Companies Act, 1956, which is pari materia same to section 244(1) of the Companies Act, 2013. It is well settled that where legislative intent is clear, it is the duty of the Courts to give full effect to the same without scanning its wisdom or policy, and without engrafting, adding or implying anything which is not consistent with the legislative intent. In a given case, the Court can only iron out the fabric but it cannot change the texture of the fabric. Thus, the arguments advanced by the Appellants cannot be accepted, as it would be unjust, and unfair to interpret Section 244 in any other manner than the literal rule of interpretation, as otherwise it would be nullity. .... .... From the aforesaid discussion, while we hold that the expression "Issued Share Capital" as mentioned in Section 244(1) of the Companies Act, 2013 only refer to both 'Equity Share' and "Preferential Share Capital" of the company and similar finding having given by the Tribunal, we uphold the order dated 16th March 2017. As admittedly, the Appellants have less than 1/10th of the "Issued, Share Capital of the company" (2.....
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....the Tribunal will look into the next factor. (ii) Whether (proposed) application under Section 241 pertains to 'oppression and mismanagement? If the Tribunal on perusal of proposed application under Section 241 forms opinion that the application does not relate to 'oppression and mismanagement' of the company or its members and/or is frivolous, it will reject the application for 'waiver'. Otherwise, the Tribunal will proceed to notice the other factors. (iii) Whether similar allegation of 'oppression and mismanagement', was earlier made by any other member and stand decided and concluded? (iv) Whether there is an exceptional circumstance made out to grant 'waiver', so as to enable members to file application under Section 241 etc.? 13. For the purpose of asserting waiver and to claim that they qualify under point no. (ii) and (iv) as mentioned herein above, the applicants have limited their contentions to following three points: a. Applicant no. 3 i.e. Mr. Mukesh Bhandari was removed from the post of Managing Director b. Secondly, it is alleged that there is siphoning of Rs. 87.14 crores from ....
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....ignation of person can never be an act of oppression and mismanagement. 16.24 Therefore, the fact that the removal of CPM was only from the Executive Chairmanship and not the Directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from Directorship can never be held to be an oppressive or prejudicial conduct, was sufficient to throw the petition under section 241 out, especially since NCLAT chose not to interfere with the findings of fact on certain business decisions. ..... 16.31 As we have pointed out above, the validity of and justification for the removal of a person can never be the primary focus of a Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost of repetition it should be pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. .... 16.42 In any event the removal of a....
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.... Coal in the year 2010. The said coal was required to be supplied to a customer Lotus Steel & Alloys Limited in Tanzania. The Company has entered into a EPC contract with Lotus Steel for setting up of steel plant in Tanzania. The Company has opened a Letter of Credit of USD 15,000,000 from Central Bank of India, Ahmedabad in favour of Apple Commodities Limited on 20.09.2010 which was valid upto 19.03.2011. Apple Commodities Limited has supplied coal at Indonesian port and raised invoice dated 25.08.2011 of USD 15,200,000. As the Tanzanian Customer could not arrange for a financial closure with their bankers, the Company has not supplied the coal to the said Tanzanian Customer. Thereafter, the said coal lying at Indonesian port was sold to Victory Rich Trading Limited (VRTL). The Company has given deliveries of coal to VRTL and raised Invoice dated 05.09.2011 to VRTL for the amount of USD 15,485,000. Due to default in payment of invoice dated 25.08.2011, Apple Commodities Limited has invoked the Letter of Credit of USD 15,000,000 through their Bankers - Bank of Baroda, Hong Kong. The Company has vide letter dated 17.09.2011 informed to the Central Bank of India about the entire tran....
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....supply of equipment. Accordingly, on 15.04.2011, a Letter of Credit was issued by Respondent No. 1 in favour of Castleshine Pte Ltd. for an amount of Euro 2,050,000. Thereafter, on 19.04.2011, Letter of Credit issued by Central Bank of India in favour of Castleshine Pte Ltd. was amended to include the words "in consideration of your agreeing to issue letter of credit for EURO 4,050,000 in favour of M/s. AG Shepherd (Machinery) Ltd." Thereafter, QMC received part of the equipment from its onward supplier and raised an invoice dated 13.09.2011 to Respondent No. 1 Company towards supply of Equipment for the amount of EURO 4,800,000. However, in the meantime Respondent No. 1 Company has suffered operational losses from June, 2011 quarter onwards and the said operational losses was mainly suffered on account of ban on mining of iron ore by Karnataka Government, which hampered the production cycle of the Company. This led to short supply of key raw material across the country and during this period, the steel industry in general has faced server operational difficulties due to non-availability of Iron Ore, the key raw material for the steel industry. In view of this, the Company has face....
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....he terms of amended letter of credit, the reference of documents was deleted, and it was for all type of business transactions services. That on account of non-payment of invoice raised by Castleshine Pte Ltd. for supply of Equipment, Castleshine Pte Ltd. invoked the letter of credit and the Bank of India has made payment USD 2,500,000 to United Overseas Bank, Singapore, banker of Castleshine Pte Ltd. 27.09.2011. 24. Under the circumstances it is totally misconceived on the part of the Petitioners herein to claim that Respondents herein have misappropriated an amount of Rs. 73.50 crores and Rs. 13.64 crores from Respondent No. 1 Company. It is submitted that abovementioned transaction was a genuine transaction and Respondent No. 1 Company has made all the efforts to recover the debt. It is further submitted that FIR No. RC 7(E)/2014 was investigated and the charge sheet has been filed before the CBI Court, Ahmedabad and Respondents herein have provided sufficient explanation to the investigation authorities. ALLEGATION 3 25. Apropos allegation that Respondent No. 2 has created more than 85 shell companies and siphoned away funds to the tune of Rs. 58 Cror....
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....Petition under Section 241 of Companies Act, 2013. It is submitted that there are other shareholder or group of shareholders who are eligible to maintain petition under Section 241 of Companies Act, 2013. The fact that none of the shareholders have come forward, except for these three shareholders goes to prove that there does not exist any exceptional circumstances. 28. It is submitted that petition is filed under Section 241 - 242 of Companies Act, 2013 on account of a family dispute amongst the brothers. Under the circumstances there are no exceptional circumstances for the purpose of preferring present application. 29. It is submitted that present application is thus liable to be rejected since applicants have neither pleaded nor proved any exceptional circumstances to make out a case for waiver. TECHNICAL OBJECTIONS APPLICATION IS NOT FILED IN ACCORDANCE WITH RULE 20(5) OF NATIONAL COMPANY LAW TRIBUNAL RULES 30. The present application is liable to be rejected at the threshold inter alia on the ground that it is not filed in prescribed format. 31. It is submitted that applicant herein have approached this Hon'ble Tribun....
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..... Under the circumstances, the waiver application is required to be rejected as being defective and consequently main petition is also required to be rejected. 36. In view of the above present application is liable to be rejected with costs. 3. We have considered the submission made by all the parties and perused the material on record. The short question for our consideration in this application is whether this Tribunal can exercise its discretion which is vested with it in terms of the provisions of Section 244 of Companies Act, 2013. Before we proceed further, we consider it appropriate to reproduce the said section as under: 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 company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due ....
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....s under: 150. The Tribunal is not required to decide merit of (proposed) application under Section 241, but required to record grounds to suggest that the applicants have made out some exceptional case for waiver of all or of any of the requirements specified in clauses (a) and (b) of sub-section (1) of Section 244. Such opinion required to be formed on the basis of the (proposed) application under Section 241 and to form opinion whether allegation pertains to 'oppression and mismanagement of the company or its members. The merit cannot be decided till the Tribunal waives the requirement and enable the members to file application under Section 241. 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:- (i) Whether the applicants are member(s) of the company in question? If the answer is in negative i.e. the applicant(s) are not member(s), the application is to be rejected outright. Otherwise, the Tribunal will look into the next factor. ....
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....lved. During the course of hearing, it has also been brought to our notice that Respondent No. 2 is under arrest for some criminal misconduct. Thus, in sum and substance, it is claimed by the petitioners that actions of Respondent No. 2 were against the interests of all members of the company and, therefore, the waiver was necessary in the interests of the shareholders as well as of the company. On the other side, Respondent No. 1 and Respondent No. 2 have categorically stated that no case of exceptional circumstances was made out which would justify the acceptance of the prayer of exemption made by the petitioners. It was vehemently argued that the main applicant himself was Chairman and Managing Director of the Company during the such period, and hence, his involvement in the acts was so alleged, cannot be ignored. It is also claimed that other Petitioners are relative of main Petitioner i.e. Petitioner No. 3. It has also been claimed that this application has been filed after the fall out between two brothers in 2018. In this background, it was also pleaded that not only the Respondent No. 2 who was accused by CBI in a case relating to fraud/syphoning off funds etc. but petition....