TaxTMI 
TaxTMI 
2022 (7) TMI 204
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....) Justice M. Venugopal, Member (Judicial) : Preamble: The Appellant has preferred the instant Company Appeal (AT) No. 50 of 2022 before this `Tribunal' as an `Aggrieved Person' against the `impugned order' dated 23.03.2022 in C.A. No. 45/CB/2021 in C.P. No. 98/CTB/2019, passed by the `National Company Law Tribunal' (`NCLT'), Cuttack Bench, Cuttack. 2. Earlier, the `National Company Law Tribunal', Cuttack Bench, while passing the impugned order in C.A. No.45/CB/2021 on 23.03.2022 at paragraphs 4 to 7, had observed the following: 4."It is brought to notice of this Tribunal during the course of the hearing that despite the fact that the aforesaid rights issue was grossly undersubscribed and further that the matter is pending before this Tribunal for disposal, the Respondent No.1 has come out with another Rights issue for 52,53,516 equity shares amounting to Rs. 11,30,23,836/-. This Rights issue has already opened for subscription on 08.03.2022 and is closing for subscription on 25.03.2022. This Tribunal finds it illogical and also that when the previous Rights issue was grossly undersubscribed, coming out with another Rights issue neck to neck is not at all desira....
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....ompany. Status quo in regard to existing shareholders and their shareholding shall be maintained till further orders or disposal of the main petition CP No.98/CB/201, whichever is earlier." and directed listing of the matter on 21.04.2022 together with main Petition for `Final Hearing' and `Disposal' in the second half at 2.30 p.m. Appellant's Submissions: 3. Challenging the `impugned order' dated 23.03.2022 in CA No. 45/CB/2021 in CP No.98/CTB/2019, passed by the `National Company Law Tribunal' Cuttack Bench, Cuttack, the Learned Counsel for the `Appellant' submits that the `impugned order' dated 23.03.2022, passed by the `NCLT', Cuttack Bench, had ravelled beyond the ultimate reliefs, as prayed for by the Rs. 1st Respondent'. 4. The Learned Counsel for the Appellant contends that the `Tribunal' by passing the `impugned order' in CA No.45/CB/2021 in CP No.98/CTB/2019, on 23.03.2022 had over reached the `Order' of the `Tribunal' dated 04.12.2019 which provides that the said `Order' was to continue, till the disposal of the main Company Petition. 5. The Learned Counsel for the `Appellant' proceeds to point out that in the absence of prayer to restrain the `Rights Issu....
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....s personal guarantee from the loans of Rs.80 Crore sanctioned by State Bank of India and Punjab National Bank Consortium for the 200 bedded hospital. Later, a letter was issued by the State Bank of India on 18.09.2021, whereby the `Personal Guarantee' of the 1st Respondent was released. 10. According to the Appellant, initially, the project cost was Rs.123 Crore. In the year 2017, whereby the company had to make a contribution of Rs.43 Crore i.e., margin of 34.96%. But with the cost escalation, in terms of the sanction letters issued by the Banks, the company has to make a contribution of Rs.48,07,00,000/- and the remaining Rs.80 Crore shall be funded by the Banks. 11. Added further, on behalf of the Appellant, it is pointed out that the State Bank of India on 21.09.2021, had addressed an email to the Appellant for infusion of fresh funds to extend the `Date of Commencement of Commercial Operation' and with a view to infuse funds by way of `Equity', the `Appellant' had issued a `Letter of Offer' dated 18.10.2021 for the 1st Rights Issue of 86,11,073 shares for an amount of Rs.17,22,21,460/- (Rs. 1st Rights Issue') and the date of opening of the Rs. 1st Rights Issue' was on 25....
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....15/CB/2022 with no prayer at all for stay of the Rs. 2nd Rights Issue'. In fact, C.A. No. 15/CB/2022 was dismissed by the `Tribunal' and that the documents pertaining to the Rs. 2nd Rights Issue' do not form part of the record of C.A. No. 45/CB/2021 and that there is no `suppression' at all by any stretch of imagination. 16. The Learned Counsel for the `Appellant' contends that there is illegality in the `impugned order' because of the fact that the `Tribunal' had exceeded its `jurisdiction' in complete `Judicial Indiscipline' in ignoring the `Three Member Bench' of this `Appellate Tribunal's Order dated 04.12.2019'. 17. The Learned Counsel for the `Appellant' submits that the `Contesting Respondents/Fence sitters having nothing to lose, since they have already stood diluted owing to their `non-participation' in the `Legitimate 1st Rights Issue' carried out by following the `Due Process', which is not stayed by this `Tribunal'. Apart from this, the non-fulfilment of `financial obligation' of meeting the requisite Share Capital level shall also result into Rs. 1% penal interest' on the entire loan account and remains a `trite question' `who will bear this cost of Rs.80 lakh pe....
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....interest'. In such an eventuality of `cancellation of facility', it will immediately become `Non Performing Asset'. 22. According to the Appellant, in the instant case, the `Contesting Respondents' have not questioned the `value of shares' of the company at which the `Rights Issue' was brought into and it means that the `valuation' is a fair one, which would not cause any loss to them. 23. It is projected on the side of the Appellant that the Rs. 1st Rights Issue' was at a premium of Rs.10 and the Rs. 2nd Rights Issue' was at a premium of Rs.11, meaning that the `value' of the company has increased, resulting into benefit to all the `shareholders' (including the `Contesting Respondents'). As such, the `paramount interest of the company is well protected and demonstrated by the Appellant'. 24. The Learned Counsel for the `Appellant' contends that `timing of valuation' is an evidence of fine management and cannot be said to be a conspiracy. Furthermore, the `revised sanction for loan' was granted on 31.03.2021 and cut-off date to meet adequate `Share Capital Level' was 31.03.2022 and that the `Appellant/Company' had carried out the `valuation exercise' in February 2022. In r....
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....he Respondents No. 1 to 3 contends that the `impugned order' dated 23.03.2022 in C.A.No. 45/CB/2021 in CP No.98/CTB/2019, passed by the `National Company Law Tribunal', Cuttack Bench, Cuttack, is only an `interim order' and further that the Respondents No. 1 to 3 (`Petitioners' in main Company Petition) had completed their arguments before the `Tribunal' in the main Company Petition and in C.A.No. 45/CB/2021. 28. The Learned Counsel for the Respondents No. 1 to 3 brings it to the notice of this `Tribunal' that the main Company Petition was fixed for final hearing and disposal on 21.04.2022 at 2.30 P.M. before the `Tribunal' and that the `Appellant' (`Oppressor') is not interested in giving a quietus to the matter and added further, no `prejudice' will be caused to the `Appellant' but the `Rights' of the Respondents No. 1 to 3 are being affected adversely. 29. The Learned Counsel for the Respondents No. 1 to 3 urges before this `Tribunal' that in Comp. App (AT) No. 149 of 2021 on the file of the Principal Bench of the `National Company Law Appellate Tribunal', New Delhi, on 06.12.2021 in the matter of Dr. Kedarnath Panda V Institute of Gastro & Kidney Care Pvt. Ltd. & Ors., wh....
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....ts No. 1 to 3 refers to the decision of the Hon'ble Supreme Court of India in S.P. Chengal Varaya Naidu (dead) by Lrs. V Jagannath (dead) by Lrs. and Others (1994) 1 SCC 1, wherein at paragraphs 5 and 6, it is observed as under: 5.`` We have no hesitation to say that a person, who's case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation. 6. A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party." 34. The Learned Counsel for the Respondents No. 1 to 3 contends that the Appellant's and the Respondents No. 5 to 15 plea that the Account of the `Appellant/Company' will become `Non Performing Asset' is baseless and liable to be rejected at the initial stage in the light of the fact that (i) no `Notice' under SARFAESI Act, 2002, was issued by the `Consortium of Banks' to declare the `Loan Account' of the `Appellant' as `Non Performing Asset' (ii) No defaults ....
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....security for realization of dues. Clause 4.2.4 provides that the bank should not classify an advance account as NPA merely due to the existence of some deficiencies which were temporary in nature such as non availability of adequate drawing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non submission of stock statements and non renewal of the limits on the due date etc. Further, considering the difficulties of large borrowers, stock statements relied upon by the banks for determining drawing power should not be older than three months. Clause 4.2.5 provides for upgradation of loan accounts classified as NPAs. If arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs, the account should not longer be treated as non performing and may be classified as standard accounts. As per clause 4.2.6, the asset classification of borrowal accounts where a solitary or a few credits are recorded before the balance sheet date should be handled with care and without scope for subjectivity. Where the account indicates inherent weakness on the basis of the data available, the account should ....
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....nt to be 'Standard' account. 23. Having analysed and crystallized the legal position as noticed hereinabove, we advert to the factual matrix in the present case. In our opinion, the action of the respondent is legally unsustainable. Undisputedly, the petitioner had availed cash credit facilities from the respondent Bank since 2007 against the company stock statements and book debts. Collateral security was given in terms of factory, land and building by the petitioner to fully secure the cash credit facility. The Bank was renewing the contract yearly. Suddenly on 27.6.2018, the Bank informed the petitioner that its account had been declared NPA by the statutory auditor and was directed to deposit the entire outstanding amount in the account. The reasons given by the Bank were that the company was incurring loss from its core activity for which the Bank had financed; the petitioner company was misusing the capital advanced to earn interests which was not directly related to the manufacturing activity of the company. The petitioner was not afforded any opportunity before reducing the disbursing power and declaring the account 29 of 30 as NPA. Further, as per clauses ....
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....g `malice' of the `majority Shareholders'. (iii) The Respondent No. 1 raised his voice against the misconduct of the `Controlling Respondents', as their personal interest was in direct conflict with the interest of the `Appellant Company' and in fact, the Rs. 1st Respondent', who was the founder Director / Promoter of the `Appellant Company' who was `oppressed' by the `majority' through numerous `illegal acts', which are the subject matter of the Company Petition, including but not limited to an illegal removal of the 1st Respondent from the Managing Director's post, an illegal removal of the 1st Respondent from Directorship, an illegal change in the Appellant's Registered Office, illegal removal of the 1st Respondent from Joint Signatory of the Bank Accounts of the Appellant, an illegal termination of clinical services of the 1st Respondent, illegal withholding of remuneration, salary and other benefits of the 1st Respondent, diversion of patients and confidential information to the rival hospitals, refusal of controlling majority to work full time with the `Appellant', siphoning off funds of the `Appellant', refusal of `controlling majority' to work full time with the `A....
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....order to rule out any misuse of power for personal gain or ulterior motives." 42. The Learned Counsel for the Respondents No. 1 to 3 submits that the undertaking not to dilute the shareholding of R1 to R3 by the `Appellant' at paragraph 3 of the `Order' dated 04.12.2019 in Comp. App. (AT) No. 283 of 2019 passed by this `Tribunal' was violated and by the Rs. 1st Rights Issue' the `Shareholding' was already diluted from 27.7% to 23% and in fact, the `Appellant Group' had created `Charge' on the `Assets of the Company' for availing `additional loan' of INR Rs.7.95 Crore. 43. It is brought to the notice of this `Tribunal', on behalf of R1 to R3 that the `Appellant' after furnishing an undertaking before this `Tribunal' on 04.12.2019 had filed I.A. No. 200 of 2019 seeking permission from the `Tribunal' for infusion of funds by the Directors and in fact, there was no `whisper' about the `Rights Issue' of `Equity Shares' in I.A. No. 200 of 2019. 44. According to the Respondents No. 1 to 3, the `Tribunal' on 13.01.2020 had allowed the prayer to infuse funds from the Directors as per Order dated 13.01.2020 and as a matter of fact, no infusion of funds from the `Shareholders' was ev....
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.... forfeited or neither the `Respondent' was set ex-parte and further that accepting or rejecting the `Reply' would have nexus to the disposal of C.A.No. 15/CB/2022 and adjourned the C.A.No.45/CB/2021 to 23.03.2022. 50. Added further, on 16.03.2022, the `Tribunal' in C.P.No. 98/CTB/2019, had observed that in this main Petition, Respondents' side arguments were heard in `Part' and for continuance of the `Respondents' side arguments, the matter was adjourned to 23.03.2022 at 2nd half of 2.30 P.M. 51. According to the Respondents No. 5 to 15, the Respondent No. 1 has a competing interest, an in fact, in Comp. App (AT) No. 149 of 2021 the Principal Bench of this `Tribunal' in the matter of Dr. Kedarnath Panda V Institute of Gastro & Kidney Care Pvt. Ltd. & Ors., had observed that `as the hearing has commenced before the Ld. NCLT, Cuttack Bench, and as has been listed as par-heard on 06.01.2022, this instant `Appeal' is not maintainable and the `Appeal' deserves to be dismissed, and ultimately dismissed the `Appeal'. Increase of Share Capital: 52. To be noted, Section 62 of the Companies Act, 2013, relates to an `increase of Share Capital', of course, within the `Authorised Ca....
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....olders' in the privilege of contributing `New Capital' called for by the `Corporation' - an `Equity' that inheres in stock ownership under such circumstances as a quality inseparable from `Capital Interest' represented by the old `Stock'. It cannot be lost sight of that if an `individual' likes he can `invest' further sum and `purchase' a `Proportionate Share' of the `New Issue of Capital'. 58. Section 62 of the Companies Act, 2013 recognises the `Shareholders Right' to renounce the `Shares' offered to him as his `Right'. In fact, the `Right of Renunciation' is a `Statutory Right' and not an `absolute one', as the term `unless the Articles of Company otherwise provide'. Rights Issue Principle: 59. Undoubtedly, the `Rights Issue' principle stems from the aspect of pre-emption rights, and that any `New Shares' issued by a company is to be offered to the `Existing Shareholders' in proportion to their holding of old shares i.e., on pro-rata basis. 60. If the increase of `Capital' was found to be necessary for genuine business purpose, the company as per Section 62 of the Companies Act, 2013, could raise further `Capital' from public, as per decision in Prem Seth V National ....
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....issue shares was exercised for an improper motive the issue was liable to be set aside and it was immaterial that the issue was made in a bona fide belief that it was in the interests of the company". 69. Before the `Tribunal' in C.A.No. 45/CB/2021, the Respondents had filed a `joint Reply' (in response to the Application C.A.No. 45/CB/2021 filed by the Respondent No. 1 and Ors., as `Applicants', inter alia stating that the `Rights Issue of Shares', was carried out in terms of the requirement of the Bankers and only in the interest of the Company, and further that there cannot be any `prejudice' caused to the Company when the `Rights Issue of Shares' shall be bringing more funds by way of `Equity'. 70. It is the version of the Respondents in their `Reply' in C.A. No. 45/CB/2021 in C.P.No. 98/CTB/2019 that there were no restrictions whatsoever imposed by the `Appellate Tribunal' and rather, the `option of Rights Issue was left open for the Company, as per Section 62 of the Act, 2013, in short, the Respondents were acting as per the Order of the Appellate Tribunal dated 04.12.2019. 71. The Respondents proceeding further in the `Reply' to C.A.No. 45/CB/2021, had mentioned tha....
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.... as far as the instant case is concerned, this `Tribunal' keeping in mind of the fact that the Company Petition No. 98/CTB/2019 was filed in terms of Section 241 & 242, read with other provisions of the Companies Act, 2013, among other things averring `oppressive and mismanagement acts', purportedly committed by the Respondents therein, and considering the observation made by the `National Company Law Tribunal', Cuttack Bench, in the `impugned order' in C.A. No. 45/CB/2021 dated 23.03.2022 that when the Rs. 1st Rights Issue' was pending, the subsequent `Rights Issue' during the pendency of the `Application' comes very much within the ambit of this `Application' and when the `Tribunal' by the `impugned order' in C.A. No. 45/CB/2021 in C.P. No. 98/CTB/2019 had restrained the Respondents therein, from going ahead with the present `Rights Issue' in progress or any further `Rights Issue' till the disposal of the `Application' and C.P. No. 98/CTB/2019, etc., (including the grant of `Status Quo' in regard to the `Existing Shareholders' and their `shareholding shall be maintained till further orders or disposal of the main Company Petition', whichever is earlier, coupled with the direction....