TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 396
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....s. Ambareen Mujawar, Mr. Raghav Seth, Ms. Urvashi Misra, Mr. Anant Misra, Ms. Sadhvi Chhabra, Advocates JUDGMENT 1. This appeal is preferred against the order dated 29.03.2022 (hereinafter called 'Impugned Order') passed by the National Company Law Tribunal, New Delhi in CA No. 19 of 2022 filed in CP No. 76 of 2021, whereby the prayer relating to the appointment of Chief Financial Officer (in short 'CFO') has been allowed alongwith certain directions. 2. Briefly, the facts of the case as they relate to the disposal of this appeal are that the Appellants are shareholders of approximately 50% of the issued, subscribed and paid up share capital of Respondent No. 2 Company (in short R-2 Company) in which the Appellants are Joint Venture partners. Respondent No. 1 (in short 'R-1) has acquired 50% of the issued, subscribed and paid-up capital of R-2 Company by making an investment therein, and consequent to this investment, the Board of Directors of R-2 Company has been reorganized and comprises of four directors, including nominee of R-1. It is claimed by the Appellants that due to some dispute that arose between the Appellants and R-1, the business operations of R-2 Company were aff....
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....AoA, whereby Rose Investments (R-1) have the right to nominate a person to the position of CFO and in the event the JV partners (Appellants in the present appeal) reject the appointment of such nomination, Rose Investments shall have the right to nominate another person and in the event JV partners reject the nomination of second such person or 45 days have elapsed since the position of CFO was vacated (whichever is earlier), Rose Investments shall have the right to engage any person to the position of CFO and the JV partners shall support the appointment of such person as CFO. 7. The Learned Senior Counsel for Appellants has claimed that in pursuance of this clause in AoA, Rose Investments/R-1 first suggested the name of Mr. Devendra Mehta, which was not approved by the Appellants, whereafter the name of Mr. Venkataraman Subramanian was suggested, which was also rejected by the Appellants/JV partners. Expanding his arguments, he has submitted that the candidature of Mr. Devendra Mehta was not approved by the Appellants since he was to continue in his parent company Alvarez and Marsal India Private Limited (in short 'A&M') and would have only rendered services to the R-2 Company i....
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....ies Act. He has also pointed out that in the affidavit filed by Mr. Bipin Kabra pursuant to the Impugned Order, Mr. Kabra has not explicitly said that he would resign from the positions that may be in contravention of section 203(3) and section 189(2) of the Act. He has further argued that Mr. Kabra has to comply with the provisions of section 203 of the Companies Act, 2013, and therefore resign from the position of managing director of Eunoia Financial Services Private Limited before being appointed as CFO and in his affidavit, he has not explicitly mentioned that he could do so. 10. The Learned Senior Counsel for Appellants has clarified that the Appellants have never disputed or concealed inapplicability of section 203 of the Companies Act, 2013 read with rule 8 of the Companies (Appointment and Qualification of Director) Rules, 2014 and the same form part of the pleadings/written submissions filed by the Appellants before the NCLAT and earlier before NCLT. Elaborating, he has stated that this fact was mentioned by the Appellants in the Written Submission dated 22.7.2022 filed by them before NCLT, and also noticed in para 15 of the Impugned Order. He has pointed out that the NC....
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....ibility conditions for CFO. The Learned Senior Counsel for Appellants has also submitted that the suggestion of ineligible and disqualified persons for appointment as CFO as candidate nos. 1 and 2 is a ploy by R-1 to ensure that its chosen candidate, who is a third suggested name, is by default appointed as CFO. 13. In reply, the Learned Senior Counsel for Respondents has strongly argued that the contention of the Appellants that the first two nominations made by the Rose Investments/R-1 are void ab initio was not raised before the NCLT and the Appellants are, therefore precluded from raising new arguments at the stage of appeal. He has further submitted that Article 140 of AoA does not contemplate that a person's nomination can be considered to be valid or invalid for any particular reason and the Impugned Order accepts this argument and notes in paragraph 23 that article 140 does not contemplate that 'a person's nomination can be considered to valid or invalid for any particular reason'. He has cited the judgment in the matter of Manohar Nathurao Samarth v. Marotrao, (1979) 4 ACC 93 to buttress his claim that the ineligibility criteria must flow from specific provision of law, a....
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....s further clarified that Mr. Kabra would resign from managing directorship of Eunoia Financial Services on appointment as CFO in R-2 Company. 16. The Learned Senior Counsel for Respondents has further submitted that Mr. Kabra has filed an affidavit as required by the Impugned Order, and has bound himself to complying with the requirements of section 189(2) and section 203(3) of the Act. Regarding the contention of the Learned Senior Counsel of Appellants that Mr. Kabra should first resign from the position of Managing Director of Eunoia Financial Services and directorship in other companies he has argued that if Mr. Kabra were to resign from the post of managing director and directorship of Eunoia Financial Services and other companies respectively, he would be put to great hardship as may be left completely high and dry, in case he were not to be appointed as CFO of R-2 Company. 17. The Learned Senior Counsel for Respondents has clarified that the reliance placed by the Appellants upon the judgments of Hon'ble Supreme Court in matters of Rohitash Kumar and Ors. vs. Om Prakash Sharma and Ors. (supra) and Ahmedabad Municipal Corporation and Ors. Ahmedabad Green Belt Khedut Mandal ....
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....petitioner's first and second nominations, the petitioner could nominate a third candidate, which would have to be accepted by the Respondents (Appellants in the present appeal). Further, after holding the nomination of Mr. Bipin Kabra as a valid nomination, the NCLT has, in the section titled 'Conclusion' in the Impugned Order The NCLT, directed Mr. Bipin Kabra to file an undertaking by way of affidavit for abiding by fulfilling the requirements of sections 184, 189 and 203 of the Companies Act, 2013. 21. The relevant provision of the AoA which is relevant to this appeal is reproduced hereunder:- "140. CFO (i) Rose Investments shall, from time to time, have the right to nominate a person to the position of chief financial officer of the Company ("CFO"). In the event that the JV Partners reject the appointment of such nominee to the position of CFO, rose Investments shall have he right to nominate another person to the position of CFO. (ii) In the event the JV Partners reject the appointment of the second such person nominated by Rose Investments to the position of the CFO or at least (forty five) days have passed since the position of CFO was vacated (whichever nis earlier)....
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....ny belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel,- (i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; (ii) company secretary; and (iii) Chief Financial Officer : Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,- (a) the articles of such a company provide otherwise; or (b) the company does not carry multiple businesses: Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government. (2) Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration. (3) A whole-time key m....
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....o the provisions of this Act, become or be void, as the case may be." 25. Thus, the position of CFO is included as a KMP in sub-section 51 of section 2 of the Act. Section 6 of the Companies Act provides that the provisions of this Act shall override anything to the contrary contained in the memorandum or articles of association of the company. We also note that the Impugned Order accepts the applicability of sections 184, 189 and 203 of the Companies Act, 2013 in that it directs Mr. Bipin Kabra to file an affidavit undertaking to abide by the requirements of these provisions. These provisions under sections 184, 169 and 203 of the Act provide rational and reasonable norms and standards regarding eligibility of a KMP (CFO in the present case) and which are quite relevant and useful in conducting the affairs of the company in a transparent, independent and unbiased manner keeping the interest of the company foremost. 26. Section 203 of the Act lays down that the CFO is a whole-time KMP and is prohibited from holding office in more than one company except in its subsidiary company at the same time. There are other elements of conduct that are provided in the Act as being relevant t....
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....ill sever his connection with A&M so it is reasonable to assume that he will continue to be in the employment of A&M. 29. Insofar as nomination of Mr. Venkataraman Subramanian, who is the second suggested candidate is concerned, the note and proposed engagement agreement (attached at pp.1936-1949 of Convenience Compilation, filed vide Dy. No. 35560 dated 2.5.2022), shows that the R-2 Company shall engage DTT to provide the services of CFO, and the suggested candidate Mr. Subramanian shall continue to be in the employment of DTT and be paid by it, from payment received by DTT from R-2 Company. Furthermore, the CFO is to be appointed on the basis of the term and period of engagement between DTT and R-2 Company. 30. Thus, we find that proposals for deployment of Mr. Devendra Mehta and Mr. Venkataraman Subramanian in R-2 Company are in the nature of 'secondment'. We thus find that the first two suggested names, viz. Mr. Devendra Mehta and Mr. Venkataraman Subramanian, are clearly ineligible for appointment as CFO as they contravene sub-section (3) of section 203 of the Companies Act. 31. The import of article 140 of the AoA is certainly not that the first two suggestions could be of....