TaxTMI 
TaxTMI 
2009 (8) TMI 1272
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....the date of repayment within a period of 12 months in one or more instalments, commencing from November 1, 2008. While making the payment CEPL, CG Holdings and KCP shall ensure that at least 25 per cent of the amount due is paid in every quarter. CEPL, C. G. Holdings and KCP are at liberty to make use of the fixed deposit held by CEPL with SBI, Erode Main Branch, free of any liens or encumbrances, towards refund of the investments of ORE and Athappan. VML shall not alienate or sell any of its immovable properties till full payment is made to ORE, in terms of this order. In the event of any failure to make the repayment within the specified time, CEPL, CG Holdings, KCP and VML will duly convey the immovable properties of VML, namely, 17.15 acres of land in favour of ORE and 7.80 acres of land in favour of Athappan by executing and registering necessary deeds of conveyance in strict compliance with all applicable laws, as consideration for reduction of capital and surrender of the shares of ORE and Athappan, upon which ORE as well as Athappan will deliver the share certificates and blank transfer forms in respect of their holdings in CEPL and the subsidiaries, if any, in favour of CG....
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....of Police, Central Crime Branch, Chennai, freezing the subject fixed deposits, based upon a criminal case (Crime No. 87 of 2008) registered against KCP and six others pursuant to a complaint of one Thiru Ravichandran, a power agent of CEPL, under the express instructions of Chandran Rathinaswami and R. Athappan after conclusion of the hearing in C. P. No. 65 of 2005 and C. P. No. 76 of 2005 and (b) the contrary directions from other directors of CEPL and ORE, with regard to release of the fixed deposits, as per the legal notices dated August 18, 2008, issued by M/s. Kochhar and Co., and AZB and Partners, respectively. Therefore, the instructions of ORE on behalf of CEPL issued to SBI to continue to maintain the fixed deposits in the name of CEPL, until further instructions from its directors defeats the implementation of the order and at the same time ORE has come forward with C. A. No. 155 of 2008 complaining of non-compliance with the order on the part of C. G. Holdings and KCP. C. G. Holdings and KCP again called upon N. Athappan to surrender his shares and transfer deeds against receipt of Rs. 545.52 lakhs without reference to the fixed deposits in the account of CEPL by a lett....
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....creating a situation by which the Company Law Board's directions cannot be implemented by CEPL. They are also instructing lawyers to represent CEPL before various forums, contrary to the spirit of the Company Law Board order that the affairs of CEPL will be run by C. G. Holdings and its nominee director. ORE, N. Athappan and R. Athappan seeking to frustrate the terms of the order cannot complain of non-compliance with the order by C. G. Holdings and KCP. The only intention of N. Athappan and ORE is to get the funds from SBI and the properties of VML. ORE and R. Athappan together want to frustrate KCP in his attempts to repay the investments, as per the order dated August 13, 2008. Their actions are lacking trust and probity and oppressive to the remaining shareholders and their nominee directors on the board, warranting an order of injunction restraining respondents Nos. 2 to 6 from interfering with the day to day management of CEPL, including by way of writing letters to banks and other third parties. 3. N. Athappan, thereafter filed Crl. O. P. No. 1137 of 2009 seeking directions of the High Court to defreeze the fixed deposits, without however, making either C. G. Holdings....
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....rds this end submitted : 4. C. G. Holdings and KCP failed to make any payment despite a number of instalments, having become due in accordance with the Company Law Board order. CEPL has been permitted to make use of the fixed deposits kept with the SBI towards the refund of the investments made by ORE and N. Athappan. Nevertheless, KCP unilaterally attempted to deal with the fixed deposit amounts, without sharing contents of his request made to the SBI and contrary to the order, as borne out by his letter dated August 18, 2008, sent to the SBI. ORE was therefore, constrained to call upon SBI, through its counsel in terms of a letter dated August 18, 2008, not to deal with the funds of CEPL, without concurrence of the entire board of directors of CEPL. Accordingly, SBI in its communication dated September 4, 2008, required a common mandate from CEPL, C.G. Holdings and KCP for release of the fixed deposits. 5. ORE is a body corporate incorporated and existing under the laws of Mauritius, thereby constituting a "non-resident" for the purpose of Foreign Exchange Management Act, 1999. Any transfer of funds or securities from a resident to a non-resident or vice versa would attract....
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....fairs of CEPL any further than absolutely necessary. R. Athappan and Chandran Rathinaswami, being directors are entitled to be consulted on all affairs pertaining to CEPL and KCP cannot act unilaterally on behalf of CEPL. 8. The request of KCP made to SBI in his letter dated August 18, 2008, to release a sum of Rs. 545.52 lakhs in favour of N. Athappan and balance of the fixed deposit amount in favour of ORE is not only contrary to the order but also adversely affects the rights of ORE to realise the amounts as per the order of the Company Law Board. The only object of KCP in settlement of the whole claim of N. Athappan in terms of his communication dated August 20, 2008, is to gain majority holding of CEPL, upon getting the shares held by N. Athappan. KCP is attempting to encash the fixed deposits kept with the SBI, without however meeting the claim of ORE and N. Athappan, contrary to the order. In view of this, KCP must be directed to utilise the fixed deposit amount only to repay a part of the investments made by N. Athappan and ORE and KCP should not be allowed to deal with the fixed deposit amount in any other manner, which would result in grave injury to ORE and N. Athappa....
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....to tender all necessary co-operation and to execute and/or procure the execution of documents required to facilitate remittance of the investment of ORE in accordance with the order. Alternatively (c) to appoint and authorise any officer of this board to sign, execute and tender all documents on behalf of C. G. Holdings and KCP that may be necessary under the Companies Act, 1956, the Foreign Exchange Management Act, 1999 and any other applicable law, 1999 to facilitate repayment of the investment of ORE in accordance with the order. (d) to direct KCP and VML to take necessary action within a period of four weeks to clear the liabilities of VML in respect of its contributions to the employees' provident funds and cause the attachment on the property of VML to be vacated. (e) to modify the order dated August 13, 2008, to clarify that, upon any failure to pay the funds owed to ORE in terms of the order, the property belonging to VML be conveyed pursuant to sale to a willing buyer nominated by the petitioner and permit the petitioner to receive the proceeds of the sale thereof. 10. Shri S. Si....
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....efore, no fraud has been played by N. Athappan and R. Athappan, by not dealing with these applications before the High Court. The High Court ultimately allowed the prayer made in Crl. O. P. No. 1137 of 2009 in terms of its order dated January 21, 2009. Nevertheless, SBI mis-interpreting the order expressed its inability to release the amounts for want of any request to release the funds from CEPL, C. G. Holdings and KCP, compelling N. Athappan to approach the Bench for appropriate orders as claimed in C. A No. 10 of 2009, thereby removing the difficulties faced in implementation of the order. As on date an amount of Rs. 52 crores ought to have been dispersed as per the order, however no amount has been paid till date by C. G. Holdings and KCP in gross violation of the order. 11. C. G. Holdings and KCP have no intention of complying with the order of the Company Law Board. They seek the exit of ORE and N. Athappan from CEPL without complying with the terms of the order. None of the reliefs claimed in C. A. No. 154 of 2008 is in any way related to the implementation of the order. The company application (C. A. No. 154 of 2008) is an attempt for frustrating the order, thereby protr....
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....contrary to the interim order dated January 5, 2006, as modified by the final order. The prayer for induction of two additional directors, without disclosing any cause of action goes beyond the scope of the order, which does not speak about any change of the management of CEPL. Unless and until the investments of ORE and N. Athappan are returned with interest as per the order, the question of inducting any additional director does not arise. 13. According to the SBI, CEPL by its letter dated February 4, 2009, countermanded its earlier instructions of August 18, 2008, for release of fixed deposits. Furthermore, the fixed deposits were frozen by an order of the Central Crime Branch, Chennai, which came to be subsequently defreezed by an order dated January 20, 2009, of the Madras High Court. CEPL, C. G. Holdings and KCP shall make necessary demand for release of fixed deposits in favour of ORE and N. Athappan and accordingly advised, N.Athappan's counsel by way of a letter dated February 9, 2009. SBI is bound to take appropriate precautions to ensure that no claim is made against it consequent upon release of the fixed deposits. SBI is always ready and willing to abide by the ....
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....he majority shareholder of CEPL and getting complete control over CEPL, so as to take necessary steps to generate adequate funds to pay off ORE, in compliance with the order in full. CEPL remaining dormant, it is not possible for C. G. Holdings and KCP to generate funds through its business transactions and the investments of ORE and N. Athappan cannot be returned, in which event they would get the properties of VML and thereby CEPL would become defunct, which is prejudicial to its interests, C. G. Holdings and KCP. 16. The nominee directors of N. Athappan and ORE cannot convene any board meeting and they are trying to exercise all their rights thereby preventing KCP to take necessary steps freely to honour the terms of the Company Law Board order. KCP is prevented from taking any business decision on account of the interference of the nominees of N. Athappan and ORE. 17. The company applications (C. A. No. 155 of 2008 and C. A. No. 10 of 2009) would amount to review of the Company Law Board order. In view of the communication dated August 20, 2008, of KCP's counsel calling upon N. Athappan to receive an amount of Rs. 545.52 lakhs in full settlement on surrendering his sh....
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....ir claims, will deliver the share certificates together with signed share transfer forms in favour of C. G. Holdings and KCP in respect of the holdings of the former in CEPL and the subsidiaries, upon which CEPL has been authorised to reduce its share capital. (e) The operation of the agreements impugned in C. P. No. 65 of 2005 and C. P. No. 76 of 2005 stands suspended with a view to complete the expeditious exit of ORE and Athappan from CEPL and till such time statutory compliances shall be taken care of by CEPL. (f) The parties to the litigation are given the freedom to approach the Company Law Board if any difficulty is encountered in connection with the exit of ORE and Athappan from CEPL in terms of the Company Law Board order. 19. The rival contentions of KCP, ORE and N. Athappan are to be appreciated in the light of the aforesaid directions of the Company Law Board. CEPL, C. G. Holdings and KCP are bestowed upon the right to deal with the fixed deposits of CEPL kept with SBI, towards refund of the investments of ORE and Athappan. There is no constraint on the part of CEPL, C. G. Holdings or KCP in utilising the proceeds of the fi....
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....single withdrawal beyond Rs. 5 lakhs must be permitted only with the joint signature of a nominee of ORE, which came to be reinforced by yet another subsequent order made on January 5, 2006, whereby KCP was further directed to furnish on weekly basis in favour of ORE a statement of withdrawals up to Rs. 5 lakhs made from the bank accounts maintained with the SBI and other banks. The final hearing in C. P. No. 76 of 2005 was concluded on January 31, 2008 and the final order came to be passed on August 13, 2008, by which CEPL, C. G. Holdings and KCP have been given the discretion to utilise the fixed deposits with the SBI towards refund of the investments of ORE and N. Athappan. The aforesaid interim order dated January 5, 2006, accordingly stood modified in the light of the final order dated August 13, 2008, thereby granting liberty to CEPL, C. G. Holdings and KCP to deal with the fixed deposits, in terms of the final order dated August 13, 2008. There is no embargo on the part of CEPL, C. G. Holdings and KCP to use the fixed deposits only towards return of the investments made by ORE and C. G. Holdings. The order does not even remotely suggest that the fixed deposits must be used o....
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....aw your attention to paragraph 17 of the order which categorically permits the use of the fixed deposits held by Cheran Enterprises P. Ltd., at your bank towards the refund of the investments made by ORE and Nandakumar Athappan. Please further note that in terms of the paragraph 18 of the order, the interim orders dated December 16, 2005 and January 1, 2006, in respect of this fixed deposit have been modified only to this extent. In light of the foregoing, we call upon you not to deal with the fixed deposits except to facilitate the payments to ORE and Nandakumar Athappan contemplated by paragraph 17 of the order and without the express prior consent of the entire board of directors of Cheran Enterprises P. Ltd., which includes Mr. Chandran Ratnaswami, the nominee of ORE, and Mr. Ramaswamy Athappan, the nominee of Mr. Nandakumar Athappan", are contrary to the letter and spirit of the common order dated August 13, 2008, made in C. P. No. 65 of 2005 and C. P. No. 76 of 2005. By virtue of the final order, ORE or N. Athappan cannot pursue with the SBI to release the fixed deposits towards refund of their investments. The action of KCP, pursuant to the final order also needs to be consi....
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..... This will ultimately affect adversely the interest of CEPL. ORE and Athappan are in a way justified in opposing the proposal of KCP made in C. A. No. 154 of 2008, especially in the light of non-payment of any of the instalments, which has already become due for payment, but remains unpaid. In view of this, the interest of CEPL, ORE as well as N. Athappan shall be protected. 21. FEMA prescribes certain formalities, which are required to be fulfilled before ORE repatriating any amount of investment, which will be refunded, by CEPL, C. G. Holdings and KCP, which, need appropriate directions, in the light of the exigencies pointed out on behalf of ORE. ORE being an entity of foreign origin cannot hold any immovable property and therefore, this issue must necessarily be addressed and cannot be brushed aside, as premature, especially in the light of mounting of overdue instalments, without being met by C. G. Holdings and KCP. 22. The whole underlying object of the Company Law Board order is that ORE and N. Athappan will exit from CEPL on the terms specified in the order, thereby enabling C. G. Holdings as well as KCP to manage the affairs of CEPL without involvement of ORE as wel....