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2021 (5) TMI 615
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....e Company Petition, which are relevant to the issue in question, are as follows: (1) 'Rayen Steels Private Ltd' (hereinafter referred as Respondent No. 1 Company/R1 Company) is the company incorporated on 1st March 2005, with the Registrar of Companies, Karnataka, Bangalore. The present authorised capital of the company is Rs. 8,00,00,000 (Rupees eight crores only) divided into eighty lakhs equity shares of Rs. 10/- each and the issued, subscribed and paid-up capital of the Company is Rs. 7,26,00,000, divided into 72,60,000 equity shares of Rs. 10/- each. (2) Shri P. Obul Reddy along with his family Members (hereinafter referred to as Petitioners/group) have filed the instant Company. The Petitioner No. 1 is a qualified Mechanical Engineer and he has promoted the Company along with Respondents Nos. 2, 3 and 4 with the object of setting up a Sponge Iron plant and to undertake allied business. The Petitioners No. 2, 3 & 4 are the sons and daughter of the Petitioner No. 1 and are holding 1,95,000, 2,00,000 and 1,65,500 equity shares of Rs. 10/- each. The Petitioner No. 5 is the wife of the Petitioner No. 1 and is holding 3,25,000 equity shares of Rs. 10/each.....
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....for putting up 1st kiln. However, the Bank sanctioned loan of Rs. 5.60 crores for putting up second kiln without insisting any additional security and the existing security was extended to this loan also. The shortfall in the loans sanctioned by the Bank was managed by internal accruals and personal loans made by the first Petitioner, Respondents 2 to 4 and their family members. The second unit was ultimately commissioned on 03/08/2008. The initial working capital limit was enhanced from Rs. 1.50 Crores to Rs. 3.50 Crores on the existing securities provided by the company to the Bank. Due to Global market fluctuation in steel market, the Company approached Andhra Bank for re-scheduling the repayment of term loans taken for Kiln 1 and Kiln 2 and it has accepted the same on 27.02.2009 for Rs. 10.47 Crores of outstanding loan amount. The company was earlier purchasing iron ore lumps (20 mm and above) and the Company crushed the iron ore lumps into iron ore size of 5 mm to 20 mm and the same was sent through the production process to obtain sponge iron. After banning of the export of iron ore by the Karnataka Government, the Company used the iron ore fines to produce sponge iron as the....
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....ill 07.09.2013. Prior to filing of criminal complaint, a legal firm known as M/s. S.R. Legal issued a legal notice on 31/10/2012 pertaining to cheque bouncing. He has been dragged into a criminal case unnecessarily and requested them to absolve him from any action which may be taken by Aastha Minmet. Thereafter, the Petitioner No. 1 on 14/09/2013 filed Criminal Revision Application with the Session's court for quashing the criminal complaint. The Petitioners also found from the website that the Criminal Cases No. 2803581/2012 and 2803583/2012 were dismissed and the Criminal Case No. 2803582/2012 is pending and is adjourned to 09/12/2016. (8) The Petitioners calculated cost of iron ore, dolomite and Coal consumed during the financial years 2011-12 to 2015-16 from the Balance Sheets and also states that during the year 2012-13 and 2013-14, the electricity consumed was 23,91,992 units and 20,03,148 units and sales were Rs. 20,11,28,286/- and Rs. 5,98,08,048/- respectively. The turnover for 2013-14 includes sale of iron ore fines (less than 5 mm) of Rs. 1,29,93,214/- which was accumulated from inception during the management of Petitioner No. 1 and therefore the actual sal....
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....ompany to statutory authorities. The Company by its undated letter issued a notice for arbitral proceedings and the Petitioner No. 1 also agreed for arbitral proceedings under Mr. D. Mahendranath, as arbitrator. When the arbitration proceedings were pending, the Respondents 2 to 4 convened EGM on 02/01/2015 to have a detailed discussion with regard to the court cases and disputes of the Company and to discuss future course of action for the upliftment of the Company. The Petitioner No. 1 did not attend the EGM as arbitration proceedings were pending, but other Petitioners attended the EGM. In the EGM, the Respondents 2 to 4 suddenly introduced a resolution for converting the arbitration proceedings into conciliation proceedings. Thereafter, the arbitration proceedings were converted into conciliation proceedings. Since conciliation could not succeed, it was terminated with 29th July, 2015. It is alleged that the Respondents have siphoned off for a sum of Rs. 126.21 Crores to themselves. The Petitioner No. 1 by his letter dated 14.09.2015 sought explanation from the Respondents to which the Respondents have not replied so far. (11) The Petitioners have again written to Gulb....
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....pondents have siphoned off the money much more than the market value of the properties mortgaged by them. It is pertinent to note that the Andhra Bank has now agreed to release the property of Petitioner No. 1 and his family members vide its letter dated 24.02.2016 once the term loans are paid. The Petitioners and the daughter in law of the Petitioner No. 1 Mrs. P. Prathima Mahesh, have given loans to the Company. The Balance Sheets for the years 2010-11 to 2015-16 are approved and signed by the Respondents 2 to 4 which clearly evidence the loans advanced by the Petitioner No. 1 and his family members. The Respondent No. 2 has filed CP No. 16/2016 before then CLB, Chennai Bench, Chennai sought a relief to direct the Petitioners to sell the shares at a price determined by an independent auditor based on the net worth of the shares. On the contrary, the Petitioners are willing to buy the shares of the Respondents 2 to 4, 8 and 10 to 18 on the same principle. (14) The Respondents did not even conduct the Annual General Meetings for the years 2011 to 2015 but created records to show that the Annual General Meetings were held. The Respondent Nos. 2 to 4 have inducted Respondent....
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....ly acting as the Managing Director of the R1 Company while the Petitioner No. 1 was only a Director of the company and has himself stated that he was the de facto Managing Director of the R1 Company, which indicates that he had no legal authority to call himself as MD. (2) The Company was started with the contribution of 25% equity by the Petitioner No. 1 along with his family Members and in the same way by Respondents 2 to 4 holding 25% of the equity with their family members. Thus, all the four promoters with their family members had contributed equally towards the equity of the R1 Company. The statement of the petitioner, that the project was conceptualised by the Petitioner No. 1 is completely denied as he himself claims that he is mechanical engineer and not a metallurgical engineer. The project of starting a sponge iron plant does not involve any transfer of technical know-how nor any special skills as there are many units which have been set up by the engineering consultants likewise even for R1 Company as Ballad is dotted with several sponge iron plants which have closed down presently and the R1 Company is one of the few sponge iron plants, which have been running....
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....f iron ore fines is supported by the statement of Petitioner No. 1 himself who says he used the iron ore fines when there was a shortage of iron ore. The consumption of electricity is the same irrespective of the quantum of production of sponge iron as electricity is not an ingredient for production of sponge iron as in the case of an induction furnace. That low grade iron ore fines are used in the production the volume of the raw material is large but the final product is less. The Petitioner No. 1 has made baseless allegations about the higher consumption of electricity. (7) With regard to allegations that Respondents have siphoned off funds belonging to the company is highly derogatory in nature as the coal supplied by Aastha Minmet is imported coal from Customs port and any item imported is custom bonded and has to be taken out after paying the required custom duty and it is figment of imagination of the Petitioner No. 1 that coal has been bought without bill which he needs to prove. The installation of the second kiln is not the kiln alone but higher capacity conveyor belts and other motors for rotating the kilns and other connected equipment. As the kiln cannot be ke....
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....e called as acts of oppression and mismanagement. The allegation that the Petitioner No. 1 and other petitioners had to walk out of the EGM because of his own free will and cannot make his own action as an issue for which he and other petitioners are solely responsible. (10) Further, the proposal to convert unsecured loan into equity is an offer made to all the present shareholders, who had given unsecured loans to the R1 Company to reduce the debt equity ratio and also to reduce the burden of servicing the unsecured loans as equity does not attract any liability in the form of interest etc., and it is voluntary for the shareholders to exercise their right or not. By trying to prevent this action, the petitioners are again coming in the functioning of the R1 Company by any means. The release of securities to the Petitioner No. 1 by Andhra Bank, Ballari branch was possible only by the efforts of R2, who sold his personal assets and from personal resources of Respondents 2 to 4, which have been ploughed back the funds into the R1 Company to the tune of around Rs. 13 Crores. 4. Heard Shri K.V Dhananjaya Learned Counsel for the Petitioners, Shri M.V.V Raman, Learned counsel....
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....es of rupees in cash nor pay off crores. (3) In another instance of highly suspicious and bogus financial transactions, the Company under management of Respondent Nos. 2 to 4 claims to have entered into transactions with another industrial company, Basai Steels & Power Private Limited to the tune of Rs. 3.16 Crores in the year 2016. Sometime thereafter, Basai Steels & Power Private Limited was placed under Corporate Insolvency Resolution Process by order dated 19-07-2017 made in C.P No. (IB) 77/6/HDB/2016 at the Hon'ble NCLT, Hyderabad. The Resolution Professional then published a list of operational creditors of the said company showing a sum of Rs. 42,36,80,442.63 on the website of that company. From the said list of operational creditors that Respondent No. 1 had failed to make its claim in the liquidation proceedings. (4) The management (2011-2020) of the Respondent Company has given a complete go-bye to the provisions of Sections 188 and 189 of the Companies Act, 2013, more particularly while arriving at an arm's length price a necessary ingredient for such transactions and have been acting in a manner detrimental to the interests of the company. Non-....
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....;ble Tribunal was pleased to pass an ad-interim order vide order dated 21.12.2017 on the said LA No. 186/2017 by observing that the conversion shall be subject to the outcome of decision in the pending case. (7) The Company's performance was at par excellence during Petitioner No. 1's tenure as the Managing Director. Repeated illegal acts of the Respondents compelled the Petitioners to file I.A. No. 29 of 2018, U/s. 242 (3) of the Companies Act, 2013 seeking for appointment of an administrator in order to ensure proper functioning of the Company and as well to check further rank illegalities committed at behest of the Respondents. The Respondents Nos. 2 to 4 never called the Petitioner No. 1 for Board meetings, after taking over the management of the Company, and they never called for AGMs till 2015. The Petitioner also relied on the judgement passed by the Hon'ble Supreme Court in United Kingdom in Eclairs Group Ltd. v JKX Oil & Gas Plc and others, reported in [2015] UKSC 71. 6. Shri Vivekananda, learned Counsel for the Respondents Nos. 1, 6, 7 & 9, after arguing the case, has also filed Written Submissions by inter alia stating as follows: (1) Dur....
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....to any of the existing shareholder. This is evident upon observing the Table F of Schedule I to the Companies Act, 2013. (4) Mr. Obul Reddy had resigned from the office of the Managing Director on 16.03.2013 and remained as a Shareholder of the Company. He and his affiliates presently hold only 9.075% of the shareholding in the Company. Further, the Petitioners chose not to subscribe to the shares which were offered to him and expressed his dissent for it. This clearly indicated his intention of not contributing for the growth of the Company. In fact, the instant Petition is not maintainable U/s 241 of Act, 2013 by taking into consideration of their present shareholding. If the Petitioners are aggrieved by reduction of their shareholding, they have to file Petition U/s 59 of the Companies Act, 2013, seeking for any rectification of the register of members and they have not filed any Application for amendment of this petition seeking to allot shares in his favour. (5) The Petitioner had filed cases both civil and criminal cases before jurisdictional Courts in the city of Bellary, with similar reliefs and this results in double jeopardy and seeking same remedy in tw....
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.... on the price quoted for latest share transfers in the Company, amounting to Rs. 90,75,000/- (Rupees Ninety Lakh Seventy Thousand Only) [18,15,000 Equity Shares* 5/-. Total Rs. 1,91,51,365 (Rupees One Crore Ninety-One Lakhs Fifty-One Thousand Three Hundred and Sixty-Five Only). 7. In the light of divergent pleadings taken by the Respective parties, as briefly stated supra, the following main issue arise for consideration in the instant Petition: 1) What is the scope of judicial review over various allegations/counter allegations, which are mostly fall in the domain of Board of Directors of the Company in the ordinary course of business activities; 2) Whether alleged acts of oppression and mismanagement as mentioned in the pleadings, constitute acts of oppression and mismanagement so as to attract the provisions of Sections 241, 213(a) and 213 (b) of the Companies Act, 2013, and to be taken cognizance of; 3) Whether the Petitioners have approached the Tribunal with clean hands with bonafide grievances to seek equitable reliefs, especially when the first Petitioner was admittedly at the helm of affairs of the Company for a considerable period of time wit....
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....ked responsibilities of the Company by resigning from his Directorship too, and wanted to quit from the Company even as shareholder, in terms of his letter of resignation dated 16th March, 2013. In all fairness, he can stick to his request to sell all his shares and also concede prayer in CP No. 16 of 2016, filed before CLB. All these acts of the Petitioners clearly show that they want to trouble and disturb the Company and have come to this Tribunal with unclean hands, which has to be deprecated at the first instance. (2) With regard to delay in informing the first Petitioner in respect of summons issued in criminal complaint No. 2803581/2012 filed by Aastha Minmet India Private Limited, Mumbai for a sum of Rs. 36 lakhs etc is concerned, it is duty of concerned Courts to issue notices, in cases filed before them, to the concerned parties and in the absence of service of notice to concerned party, no court can take cognizance of misconduct/offence alleged in Complaint An order passed by a Court without service would not bind the Parties without service in the first instance. In any case, filing of cases in Courts, issuing/non issuing of notices etc can never come under pur....
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....e Petitioners have made vague allegation that they have siphoned off the money much more than the market value of the properties mortgaged by them. The Petitioners have also filed Civil Suit for the recovery of unsecured loans. (7) With reference to contentions that the Respondent No. 2 has filed CP No. 16/2016 before then CLB, Chennai Bench, Chennai by seeking direction to the Petitioners herein to sell the shares at a price determined by an independent Auditor based on the net worth of the shares and they are willing for the same are concerned, the Petitioner has withdrawn the same vide Memo dated 6th February, 2020. Moreover, it is not the prayer in the instant Petition and it is also not understood as to how he would buy shares of other Respondents when the Petitioners are alleging various acts of oppression and siphoning off funds against them, and with the company suffering losses. (8) Shri K.V Dhananjay, learned Senior Counsel for the Petitioners, in his elaborate written arguments filed on 04.03.2021, has raised issues of many suspicious transactions, as briefly stated supra, while conducting the affairs of the Company, requiring the Tribunal to order an i....
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....le in the coming years. 9. The Respondents have made available copies of various documents including relevant Minutes of the Annual General Meeting (AGM) conducted in respect of the Company. Since the Petitioners are alleging that they were not given due notices of the meetings, not furnished statements for the financial years in question etc., it is necessary to advert whether those allegations of Petitioners are borne out of record or not. The following facts establishes that the Petitioners were given adequate opportunity in participating in the affairs of Company, but they did not want to own any responsibility for the affairs of Company and thus quit from management: (1) The Petitioner No. 1 worked as Managing Director/Director from 01.03.2005 till 16.03.2013. Mr. S Prakash worked as Director from 01.03.2005 till 16.10.2019 (he has resigned). Mr. A Manohar was a Director from 01.03.2005 to 16.10.2019 and his designation was changed from Director to Managing Director with effect from 13.04.2011. Mr. G. Ramu was also a Director on 01.03.2005 to 16.10.2011 and his designation was changed from Director to Managing Director with effect from 31.03.2014. Similarly, Alok B....
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.... meetings, and they cannot stall the majority view. (4) The 12th AGM meeting was held on 30.10.2017 at Hotel Nakshatra, Bellari where in the Petitioners attended the meeting in person except Ms. Swetha, who was represented by Rajeshwar Reddy, as proxy. The Petitioners raised several objections with regard to the conversion of the unsecured Loans into equity, related party transactions etc. After discussing and taking into consideration of the various objections raised by the Petitioners, the AGM adopted the Financial Statements and the reports of the Board of Directors for the Financial Year dated 31.03.2017, appointment of Auditors, increase of authorised capital of the Company from Rs. 8 Crores to Rs. 12 crores. In the meeting the Petitioners being minority shareholders have opposed the resolutions, wherein the Petitioner No. 1 also agreed that he would take the responsibility for the allegations mentioned in the Lokayukta report. (5) The 13th AGM was held 28.09.2018 at Hotel Nakshatra, Bellari where in Petitioners attended the meeting. In this AGM, the Audited Financial Statements and the Reports of the Board of Director and Auditors for The Financial Year ende....
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....M and its agenda. As usual, the Petitioners group raised several objections/clarifications on related party transactions, Trade payables, quality and quantity on the purchase and stock of raw materials and other related matters. All these issues were clarified by the Chairman. Consequently, the business resolution as proposed were approved as ordinary business which includes the Audited Financial statement for the year 31.03.2020. 10. It is settled position of law that the affairs of a Company will be conducted through a duly constituted Board of Directors. As per law, minority shareholders have right to protect their interest from the majority shareholders. It appears from the above that all the major decisions regarding sale of equity, introduction of new directors etc. were taken in the above EGMs, following the due procedure. Also, in the present case, the Petitioners having enjoyed power of management of the Company with mere 25% shareholding of the Company, for a considerable period of time, and after voluntarily quitting from the management of the Company, have started raising frivolous issues during various AGMs and also filed the present Petition by abusing process of l....