TaxTMI 
TaxTMI 
2021 (12) TMI 682
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...., Ms. Namrata Raj, Mr. Syed Firduaus Alvi, Advocates for R-3. Mr. Arun Kathpalia, Sr. Advocate with Mr. V.P. Singh, Mr. Aditya Jalan, Mr. Atul N., Ms. Simran Bhat, Mr. Arnab Ray, Mr. Anant Narayan Misra, Ms. Ninaee Deshmukh, Advocates for R 5 & 6. JUDGMENT Jarat Kumar Jain: J. The Appeal is filed against the order dated 09.02.2021 passed by National Company Law Tribunal, Mumbai (the Tribunal). Whereby the Tribunal has allowed CA No. 1054/MB/2020 in CP No. 1069/MB/2020 filed by R-1 to R-3 and issued an order of injunction against the Appellant and R-4 to R-16 not to implement the notice dated 30.07.2020 and interfere the R-1 (K C Nuwal) from acting as Director and Vice Chairman of the Appellant Company. 2. Brief and relevant facts of this case are that Solar Industries India Ltd. (SIIL) (Appellant) was co-founded by Late Mr. Nandlal Nuwal and his two sons i.e. K C Nuwal and S N Nuwal on 24.02.1995 under the Companies Act, 1956. Late Mr. Nandlal Nuwal and Mrs. Sohan Devi Nuwal (spouse of Nandlal Nuwal) and Kailash Chandra Nuwal his wife Indra, Satyanarayan and his son Manish were initial subscribers to the memorandum of association of Company each family member holding....
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....stop KC Nuwal from raising substantial issues of mismanagement, unlawful and unethical practices, non-compliance, frauds and action against the interest of Appellant Company and its stakeholders. It is also stated that the efforts are being made to dismantle the present trade division, of which K C Nuwal is in charge, operating from Bhilwara, Rajasthan by raising frivolous allegations. It is also stated that Khushboo Pasari who is the Company Secretary has to ensure that the Company compiles with the applicable secretarial standards and assist the board of Directors in adhering to requisite standards of corporate governance. However, she completely abdicated, at the behest and to the undue favour of S N Nuwal Group. 7. The controversy arose when Khushboo Pasari/CS (Respondent No. 16) sent an email on 31.07.2020 to K C Nuwal enclosing a letter dated 30.07.2020 addressed to K C Nuwal stating that he has automatically vacated the office w.e.f. 07.11.2019 as he failed to disclosed his interest in AGT in proper format and at the board meeting of Appellant Company held on 07.11.2019. Therefore, requested K C Nuwal not to function as Director of Appellant Company or hold down to others....
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....rejected as not pressed. 13. Being aggrieved with this order, the Appellant Company has filed this Appeal. 14. Ld. Sr. Counsel for the Appellant submitted that Ld. Tribunal has granted interim relief which is sought in final reliefs, at the interim stage final relief cannot be granted. The intention of the K C Nuwal Group behind initiating the action under Section 241 and 242 of the Act is to restore K C Nuwal's position as a director of the Appellant Company. The Tribunal failed to appreciate that K C Nuwal Group has not made out a case of oppression of minority shareholders by a majority shareholders in the management of Company's affairs. The grievance raised by K C Nuwal Group as well as the reliefs sought does not affect thier proprietary rights as shareholder of the Appellant Company. Sections 241 and 242 of the Act do not specifically confer the power of reinstatement such a power to reinstate cannot be implied or inferred from any of the powers specifically conferred and that even removal from Directorship can never be held to be an oppressive or prejudicial conduct as held by Hon'ble Supreme court in the case of Tata Consultancy Services Limited VS. Cyrus Investments....
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....prima facie case of a higher standard than required for a prohibitory injunction, balance of convenience is in their favour and interim order necessary to prevent irreparable or serious injury which could not be compensated in terms of money. In such circumstances, the impugned order is in clear contradiction of the settled position of law and has been passed without even arriving at a prima facie finding as regards the issue of whether the Appellant is a quasi partnership and K C Nuwal's breach of Section 184 of the Act, is liable to be set aside. 18. Per contra, Ld. Sr. Counsel for the Respondent No. 1 (K C Nuwal) submitted that the Appellant has failed to challenge or rebut any of the findings of the Ld. Tribunal that Respondent No. 16/Company Secretary (CS) had informed about the shareholding of Respondent No. 1 (K C Nuwal) in AGT. The Company Secretary was required to ensure due compliance under Section 184 of the Act and for the purpose help and guide K C Nuwal in filing the proper form. A prima facie case is made out by K C Nuwal Group and balance of convenience rests in their favour. In the absence of any challenge to these crucial findings of the Tribunal there is a dee....
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.... drew our attention towards the correspondence exchanged between the parties regarding K C Nuwal interest in AGT. 22. It is further submitted that disclosure was made even before K C Nuwal acquired interest in AGT. For this, referred email dated 17.01.2019 wherein K C Nuwal informed S N Nuwal and Manish Nuwal regarding his intention to acquire IT Company and they offered to provide funds from the family account itself. It is also submitted that on 22.06.2020, S N Nuwal wrote to K C Nuwal acknowledging that in May, 2019 K C Nuwal Group acquired AGT, in which K C Nuwal Group are majority shareholders and on the same day S N Nuwal wrote to all directors of the Appellant that in May, 2019 K C Nuwal Group acquired AGT. It clearly establishes the concealment of the fact in respect of knowledge of K C Nuwal's interest in AGT. The Appellant and the R-5 to R-16 have not refuted to being aware of K C Nuwal's disclosure prior to 29.07.2020 in their rejoinder arguments or refuting existence of email dated 22.06.2020. Ld. Sr. Counsel for the Respondent No. 1 cited the Judgment of Delhi High Court in the case of Ravi Raj Gupta & Ors. Vs. Hans Raj Gupta & Co. Pvt. Ltd. & Ors. (2009) SCC Online....
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....closure of interest by a director in the board meeting where an agreement is being entered into with an entity in which the director has an interest. The disclosure can be oral and/or in writing. The word prescribed has not been included in Section 184 (2) of the Act. Accordingly, the Section 184(2) to stands substantially complied with. Section 184 (1) has no link with Section 167 (1) (c) and (d), as the disclosure of terms of any contract or arrangement is only stipulated under Section 184 (2). Section 184 (1) is general obligation on the directors to disclose their interest in the prescribed format annually. Therefore, a non disclosure of interest under Section 184(1) in the prescribed format would not lead to the automatic vacation enshrined under Section 167. 26. Ld. Sr. Counsel for the Respondent No. 1 submitted that the Respondent No. 1 raised several issues of operation and mismanagement, illegalities fraud non-compliance with the board of directors and the majority shareholders of the Appellant. Therefore, it is not a directorial dispute. Thus, there is no substance in this Appeal. Therefore, the Appeal be dismissed. 27. Ld. Sr. Counsel appearing on behalf of the Res....
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....exchanges with the accounts department of the Appellant regarding requirement of Rs. 5 Crores in K C Nuwal bank accounts for IT Company deal 421-423 03.05.2019 K C Bhadada (Representative of R-1) sent an email to the Respondent No. 16/CS informing "Respected Sir/Madam, Shri K C Ji Nuwal and Rahul Ji Nuwal is Director in AGT. From 02nd May, 2019. Which please note. Informed to RoC and Ors if required" 424-425 06.05.2019 The R-16/CS informed about acquisition of AGT the annual maintenance service contact between AGT and the Appellant Company was terminated by the Appellant. 426 28.06.2019 On the request of R-16/CS a letter sent to CS with details of Respondent No. 1/ K C Nuwal shareholding in AGT. 428-429 10.05.2019, 06.06.2019, 09.07.2019 and 06.08.2019 To the Appellant intimating purchase of shares of AGT by R-1/K C Nuwal and his family. 09.04.2020 Monish Agarwal, Finance Controller of the Appellant to R-3 /Rahul Nuwal to R- 6/ Manish Nuwal, MD of the Appellant admitted that AGT is a related party of the Appellant and therefore, rent paid must be refunded. 10.04.2020 Email sent by R-16/CS stating that draft disclos....
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....s to sell the 3% shares of the Appellant, and to utilise such amount for setting up a new business for his son Rahil. On 23.02.2019 Manish Nuwal (R-6) sent an email to one Mr. Chandra Shekhar Rathi, that K C Nuwal required fund for starting IT Company and to purchase office space at Mumbai. Therefore, Manish Nuwal directed Rathi to transfer 40 Crores in two tranche to K C Nuwal's account. It means from very inception aforesaid facts were in the knowledge of S N Nuwal Chairman of Appellant and Manish Nuwal MD of Appellant, not only this, they have arranged funds also for the same. 36. In Para 63 of the impugned order, the Ld. Tribunal gave following findings which are not challenged. Otherwise, also proved from the aforesaid correspondence. "63................. (vi) It is not the case of the Respondents that A1 has not disclosed his interest in AGT. The interest in AGT was informed to the Company Secretary in writing, though A1 has not filed the required Form MBP 1 at the initial point of reporting. ............ ............ (xiv) R14, the Company Secretary of R1 has received the information as to the shareholding of the Applicants in ....
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....automatic vacation of the office as director of the Company. Issue No. (ii) Whether K C Nuwal contravened the provisions of Section 184(2) of the Act, if yes consequences? 41. Section 184(2) reads as under:- "Section 184(2): Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into- (a) with a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or (b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be, shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting: Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after t....
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....interim relief Ld. Tribunal has only examined the legality of the letter (notice) dated 30.07.2020 and granted the relief in reference to this letter. 46. We make it clear that Tribunal shall examine the Company Petition independently without influenced by any of the observations made in this order. 47. The Tribunal has rightly granted the interim relief, we find no ground to interfere in the impugned order. Thus, the Appeal is dismissed. However, no order as to costs. Interim order passed by this Appellate Tribunal stands vacated. ============= Document 1 30th July, 2020 Respected Sh. Kailashchandra Nuwal Ji, We write to you in connection with the various disclosures and queries sought by us from you in connection with your interest in AG Technologies Private Limited. We refer to your disclosures received on July 29, 2020 dated April 1, 2020 and July 29, 2020, which were received by us on July 29, 2020 at 1.00 pm (1 Disclosure) and 5.58 pm (2 Disclosure), respectively. Based on the disclosure dated July 29, 2020, Solar Industries India Limited ("SIIL") has been informed by you that in addition to being a Director of AG Technologies Private Limited s....