TaxTMI 
TaxTMI 
2023 (8) TMI 1293
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.... New Delhi, Bench-VI in Company Petition (IB) No.118/241-242/ND/2019 whereby the petition filed by the Petitioner (Appellant herein) under Sections 59, 241, 242 and/or other applicable Sections of the Companies Act, 2013 was dismissed and held this petition is not maintainable. 2. The brief facts giving rise to this Appeal are as follows : i) The Appellant herein, Mr. Sudhir Horo is the Promoter Director and Shareholder of the Respondent No. 1 Company, holding 4500 equity shares of Rs. 10/- each amounting to 45% of shareholding of the Respondent No.1 Company. The Appellant is a graphic designer and holds degree in communication design with specialization in Graphic Design from the prestigious National Institute of Design (NID), Ahmedabad. The Appellant has worked on projects for various multinational corporations and Governments of many countries including but not limited to the Governments of India, France, United Kingdom etc. The Appellant had a key role to play in the affairs of the Respondent No. 1 Company as he was responsible for developing brand and communication strategies and creatives as per the clients requirements etc. That the Respondents in collusion with the ea....
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....pect of partnership firm. Meaning thereby, the Appellant was allotted 45% shareholding and the Respondent No. 2 was allotted 55% of the shareholding in the Respondent No. 1 Company. iv) As per the understanding between the Appellant and the Respondent No. 2, the Appellant was responsible for developing brand and communication strategies and creative as per the clients requirements etc. Whereas the Respondent No.2 was responsible for the day to day affairs of the Respondent No.1 Company such as matters relating to business development, finance i.e. payments, maintenance of the bank accounts as he was the sole signatory of the same, ledgers, passbooks, cheque books, bills, taxes and various other statutory records of the Respondent No.1 Company and the same remained in exclusive control of the Respondent No.2. v) The Appellant being the cofounder and director of Ideaworks, over the years contributed in augmenting the business/operations of the Respondent No. 1 Company and his astute professionalism and creativity witnessed the Respondent No. 1 Company grow leaps and bounds. It is pertinent to mention that in or about February, 2017 the Appellant being a person of repute in his ....
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....as been arbitrarily reduced to 0% whereas in reality the shareholding ratio of the Respondent No.1 Company was 52.5% (Respondent No.2) : 42.5% (Appellant) : 5% (Respondent No.3). The Relevant extracts of the email reproduced as hereunder: "Horo The Simple Answer is ON PAPER (as per official records) YES The real answer is - NO (the real shareholding is Shyam-5%; You- 42.5; Me-52.5% ... The share distribution ON PAPER had changed to Shyam-5% and Me 95% ... our understanding had been that When our comeback after your Jharkhand tenure, the REAL shareholding will get formalised ON PAPER." (Emphasis supplied) ix) The Respondent No.2 about the illegal manner in which the shareholding of the Appellant was reduced to Zero, the Appellant immediately replied to the email of the Respondent No.2. The Appellant vehemently objected to the unlawful and clandestine manner in which his shareholding was diluted and sought clarification from the Respondent No. 2 that as to how his shareholding was altered without his consent and moreover in absence of any valid documentation. It may be noted that the Appellant has not signed any document, share....
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....aforesaid email of the Respondent No. 2 clearly shows the admission of the unlawful act done by the Respondents behind the back of the Appellant in an illegal and fraudulent manner. Relevant extracts of the email dated 29.01.2019 of the Respondent No. 2 is reproduced herein below: "Dear Horo ...Also, allow me to reassert that the switch from 5:95 to 5: 42.5 : 52.5 depends entirely on When you want it done... The change from 45:55 to 5:95 was done only to insulate you from any possible witch-hunt by detractors in Govt. of Jharkhand..." (Emphasis supplied) xiii) Thereafter, on 20.02.2019 the Appellant received an email from the Respondent No. 3 containing therein share transfer forms to revise the shareholding in terms of the earlier understanding of 52.5% (Respondent No. 2): 42.5% (Appellant) : 5% (Respondent No. 3). It may be noted instead of nullifying the earlier transfer of shares, which was done in an illegal manner, the Respondents requested the Appellant to sign on the share transfer forms showing transfer of 4,250 shares from the Respondent No. 2. It is submitted that by signing the said transfer forms, the Appellant would have been indirectly f....
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....d mismanagement in bringing down the shareholding below 1/10th of the total shareholding of the company took place. The shareholding of the petitioner is reduced below 10% because of the act(s) of oppression and mismanagement and the said act(s) is the subject matter of challenge in the company petition, the petition shall be maintainable on the basis of the original undiluted shareholding. The Hon'ble NCLT while overlooking the aforesaid settled principles of law erringly dismissed the Company Petition No. 118/241/242/ND/2019 ("Company Petition") by way of the impugned order dated 03.05.2021 while wrongly holding that the Appellant has to first establish his right as a member of the Respondent No.1 Company, in complete disregard to the judgments of this Hon'ble Appellate Tribunal. 4. It is further submitted that the Appellant is the promoter director and shareholder of the Respondent No.1 Company, holding 4500 equity shares of Rs.10/- each amounting to 45% of shareholding of the Respondent No.1 Company. The Appellant is the signatory to the MoA and AoA of the Respondent No.1 Company which reflects the correct shareholding of the Appellant. Admittedly, the shareholding pattern o....
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....e matter of Gulabrai Kalidas Naik & Ors. vs Laxmidas Lallubhai Patel & Ors. [(1977) 47 Comp Cas 51], which in the humbly submissions of the Appellant are not applicable / distinguishable to the facts of the present case. 9. The impugned order is also liable to be set aside as the judgments of this Hon'ble Appellate Tribunal which were placed before the Hon'ble NCLT has been completely ignored / not dealt with by the Hon'ble NCLT. 10. The Appellant further submits that there is no requirement for seeking waiver under Section 244 (1) of the CA, 2013 as the present shareholding of the Appellant is not admitted and the oppressive act of reduction of the shareholding of the Petitioner below 10% is a subject matter of challenge in the present Appeal. Further, the present Appeal is a composite Appeal under Section 59 and 241-242 of the CA, 2013 and therefore no application of waiver is required. Based on the aforesaid submissions the impugned order is fit to be set aside and the appeal be allowed. 11. The aforesaid Appeal i.e. Company Appeal (AT) No.98 of 2021 was preferred by the Appellant on 16.08.2021. Thereafter, on 02.09.2021, the Learned Counsel for the Appellant appeare....
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....pages along with the relevant case laws, within one week. 16. Learned Counsel for the Respondent No.2 and 5 have filed their Reply affidavit and Written Submissions filed on behalf of the Respondent No.2 and also during course of argument has submitted as follows: i) The captioned Appeal has been filed by the Appellant challenging the Order dated 03.05.2021 ("Impugned Order") passed by the Hon'ble National Company Law Tribunal, Delhi ("Hon'ble NCLT") dismissing the Company Petition No. 118/241/242/ND/2019 ("Company Petition") filed by the Appellant under Sections 59, 241 and 242 of the Companies Act, 2013 ("Act"). Vide the Impugned Order, the Hon'ble NCLT allowed the application challenging the maintainability of the Company Petition ("Application") filed by the Answering Respondent and consequently dismissed the Company Petition as being not maintainable. ii) The Answering Respondent denies and disputes all allegations and averments made in the Appeal as being false, devoid of merit and frivolous. No part of the Appeal may be deemed to have been admitted by the Answering Respondent for mere want of specific denial save what may be expressly admitted herein. iii) It is ....
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.... (c) may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter." viii) On a plain reading of the above provision, it is evident that in order to be able to invoke Section 241 of the Act, the Appellant must show that the affairs of the Company have been or are being conducted in a manner unfairly prejudicial to him or to public interest. In other words, the Company and conduct of its affairs must be shown to be an instrument or means of oppression. In the present case, as stated above, so far as the alleged fraudulent transfer of shares is concerned, there was no involvement or engagement of the Company. The transfer of shares which is now sought to be disputed by the Appellant was done privately on the basis of documents executed by the parties which, the Appellant now alleges, are forged and fabricated. In these facts, since there was no engagement or involvement of the Company in the transfer of shares impugned in the present Petition, Appellant was not entitled to invoke Section 241 of the Act as has been rightly held by the Hon'ble NCLT. ix) It is settled law that dispute between shareholders with regard....
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....and issues of forgery and fabrication of documents raised by the Appellant are alien to rectification and are not within the exclusive jurisdiction of the Hon'ble NCLT under Section 59 or any other provision of the Act (Refer Jai Mahal Hotels Pvt. Ltd. v. Devraj Singh and Ors., (2016) 1 SCC 423). Further, the Hon'ble NCLT, Hyderabad in Tondapi Srinivasa Rao & Anr. v. Abhaya Cements Pvt. Ltd., 2018 SCC Online NCLT 24280 has held that issues of fraud and forgery are beyond the jurisdiction of the Hon'ble NCLT. It is humbly submitted that the Hon'ble NCLT has no power to decide on the issues of forgery and fabrication of documents or declare private transfer of shares as null or void. xv) The Hon'ble NCLT has rightly followed the settled position of law as also laid down by the Hon'ble High Court of Gujarat in Gulabrai Kalidas Naik & Ors. v. Laxmidas Lallubhai Patel & Ors., (1977) 47 Comp Cas 151 that if the petitioner's title to membership is in dispute, and he has to seek a relief of the rectification for getting his name placed on the register of members to clothe himself with the rights of a member, it would be improper, till that dispute is decided, to permit such a person....
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....ng on the merits of the Company Petition. However, since the Petitioners has made several false and baseless allegations in the Appeal, it is important to briefly set out the true and correct facts leading up to the filing of the Company Petition: - Re: Details of incorporation of the Company and its affairs prior to 2017 a) In 2004, the Appellant was introduced to the Answering Respondent by a common acquaintance as a freelance graphic designer. During this time, the Answering Respondent was heading the Delhi branch of Ambience Public is Advertising Pvt. Ltd, a reputed company in advertising. The Answering Respondent was impressed with Appellant's work and he, therefore, decided to give him opportunity to enhance his career profile. Accordingly, Answering Respondent started engaging him as Creative Consultant on multiple prestigious projects up to 2006. This was an important break for the Appellant to showcase his talent. b) In 2006, the Answering Respondent quit his job at Ambience Public is Advertising Pvt. Ltd. and started his business under the Ideaworks (a proprietary concern of Answering Respondent's wife). In this new venture too, Answering Re....
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....d all Financial Statements and Directors' Reports of the Company till the Financial Year 2015 - 16. h) There is, therefore, no question of Appellant raising any dispute or controversy with regard to the conduct of business operations of the Company during this period. The allegation of mismanagement of affairs of the Company for this period, if any, must therefore be outrightly rejected. Appellant cannot be permitted to raise any controversy in that regard after a lapse of over two years and after enjoying the benefit of employment with the Company without any demur or protest until his resignation as the Director as discussed below. Re: Transfer of shares held by the Appellant in the Company and resignation from directorship in April, 2017: i) In the year 2015, the Company along with another associate agency had begun working on communication and advertising for the Information and Public Relations Department (Ranchi), Government of Jharkhand, owing to the Answering Respondent's professional connections and reputation. j) During this time, Appellant expressed his desire to return to Ranchi, his native town, for personal reasons. As menti....
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....ent, you hereby agree not to directly or indirectly compete with the business of the Department and/or its successors and signs during the term of the contract and for a period of 12 months following the expiration or termination of this contract and notwithstanding the cause of reason or termination......." n) Further, the Company had continued to provide service to the Government of Jharkhand. Company was also expecting award of a very big project which was under consideration of the Government of Jharkhand. o) Therefore, if the Appellant were to hold any stake or interest in the Company after his appointment by the Government if Jharkhand, it would have given rise to a serious conflict of interest rendering the Appellant liable to prosecution. p) In the above circumstances, Appellant resigned as a Director of the Company vide his resignation letter dated 15.04.2017. The. documentation for transfer of shares held by him was completed in these circumstances to enable him to accept the aforesaid appointment without having any risk of liability on account of conflict of interest. q) The shareholding of the Company before and after transfer of shar....
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....bunal. Such conduct of the Appellant disqualifies him from grant of any equitable relief rendering the Company Petition and the present Appeal liable for an immediate dismissal. The Appellant has come to Court with unclean hands disentitling him from any relief from the Hon'ble NCLT or this Hon'ble Tribunal. xxii) Apart from the above, the Appellant has also made a few other baseless allegations against the Answering Respondent in the Company Petition. However, it is submitted that the Appellant has no locus to raise these objections since he has ceased to be a member of the Company. Without prejudice to the above, it is submitted that the Appellant has made these false allegations solely to create prejudice against the Answering Respondent. The Answering Respondent craves leave to refer to and rely upon its Reply to the Company Petition in this regard if the need so arises. xxiii) Therefore, it is respectfully submitted that the captioned Appeal is liable to be dismissed in limine with exemplary costs. xxiv) Without prejudice to the aforesaid, a para-wise response to the Appeal is as under. All submissions made hereinabove may be read as part of the para-wise responses....
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....f paragraph 7(4) of the Appeal, it is denied that the Answering Respondent was in exclusive control of the day-to-day affairs of the Company such as matters related to business development, finance i.e. payments, maintenance of bank accounts etc. It is denied that the Answering Respondent was the sole signatory of bank accounts, ledgers, passbooks, cheque books, bills, taxes or other statutory records of the Company. It is submitted that the Appellant was a joint signatory of the bank accounts/cheque books etc. of all bank accounts of the Company except one at State Bank of Patiala (which has not been operated since 2012). Appellant regularly signed cheques and bank documents on behalf of the Company till April, 2017. He also signed the financial statements and Directors' Report of the Company from its inception till the financial year ending 31.03.2016. Appellant was fully involved in the business and commercial decision-making process of the Company till his association with the Company. Pertinently, the Answering Respondent does not have the sole authority to sign any cheques on behalf of the Company in respect of any of its accounts. f) With respect to the....
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.... it is submitted that: - a) the Answering Respondent also apprehends that the Appellant would attempt to mislead this Hon'ble Tribunal by alleging that the signatures on the Securities Transfer Form were not his and are different from the signatures appearing on the MoA and AoA of the Company. However, it would be pertinent to note that there was a repeated issue faced by the Company since the Appellant's signatures on cheques and bank documents frequently mismatched. As such, a communication dated 31.07.2013 was also addressed to Axis Bank, Sector 46, Gurgaon intimating them about the issue and furnishing the revised signature of the Appellant. This communication was signed by the Appellant along with an application rev1smg his signature which was also signed by him. xxv) With respect to the contents of paragraph 7(14) of the Appeal, it is denied that the transfer of shares by the Appellant to Respondent Nos. 2 and 3 was illegal and surreptitious, or constituted an act of oppression. It is denied that aforesaid transfer of shares was effected illegally or clandestinely, or is a part of any scheme of the Answering Respondent to oust the Appellant from the Company. I....
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....Company. It is denied that the Impugned Order is non-speaking, cryptic or unreasonable and is, in fact, based on the settled principles of law after recording the detailed submissions made by the parties. xxx) With respect to the contents of paragraphs 8(1)(A) and 8(1)(B) of the Appeal, it is denied that the Hon'ble NCLT erred in recording that the title of the Appellant is in dispute. It is reiterated that the Appellant had voluntarily transferred his shareholding in the Company in favour of Respondent Nos. 2 and 3 as detailed hereinabove. xxxi) The purported Questions of Law raised in paragraph 8(2) of the Appeal would be dealt with by the Answering Respondent in response to the Grounds urged by the Appellant in the Appeal. xxxii) With respect to the contents of Grounds 9(A) to 9(E) of the Appeal, it is submitted that the transfer of shares in the present case was carried out privately by the parties without involvement of the Company. Without prejudice to the fact that the transfer of shares was legal and valid, such private transfer of shares even if assumed to be invalid did not constitute an act of oppression or mismanagement within the meaning of Section 241 or 242 ....
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....s 9(M) and 9(N) of the Appeal, it is denied that the Hon'ble NCLT committed any miscarriage of justice or failed to apply its judicial mind. It is submitted that the judicial pronouncements relied upon by the Appellant were completely inapplicable in the present case. It is denied that Hon'ble NCLT violated any precedents of this Hon'ble Tribunal. xxxvii) With respect to the contents of Grounds 9(0) to 9(U) of the Appeal, all allegations and averments of the Appellant are denied. It is denied that the Hon'ble NCLT committed any error or committed any oversight. It is denied that the Impugned Order is perverse or against the principles of justice, equity or good conscience. It is submitted that the Impugned Order does not suffer from any infirmity as alleged by the Appellant and does not warrant any interference from this Hon'ble Tribunal. xxxviii) The contents of paragraphs 10 to 20 of the Appeal do not merit any response. xxxix) With respect to the contents of paragraph 21 of the Appeal, it is submitted that the prayers sought therein are misconceived and liable to be rejected for the reasons set out above. Based on the aforesaid submissions, there is no merit in the a....
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....etition cannot be dismissed at the threshold, It may be noted that if the date of presentation of the petition should be looked into in a technical way, it could defeat the very purpose of the legislative enactment of Section 241 of the Act, as the overbearing majority shareholders can simply by high-handed action or even for other purpose and by oppressive methods, dismember minority shareholders and leave them with no remedies, as the dismembered minority shareholders technically will not thereafter qualify for maintaining a petition under Section 244 of the Act, being not member at all. As the minority shareholders will be complaining only after the acts occurred and when they have been removed from the membership of the company, the understanding and interpretation to be given to Section 244 is only so as to Author the object of relief to be given in a situation governed by Sections 241 of the Act and not to foreclose the options to an aggrieved person and to deny the very relief sought to be extended to a complaining minority shareholder/s envisaged under Sections 244 of the Act." The Adjudicating Authority has rightly considered the submission of the Appellant and has obse....