TaxTMI 
TaxTMI 
2025 (10) TMI 975
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.... 949, 4975, 5002 of 2023 - -<br>Corporate Laws<br>JUSTICE RAKESH KUMAR JAIN MEMBER (JUDICIAL) AND ARUN BAROKA MEMBER (TECHNICAL), For the Appellant : Mr. Nikhil Nayyar, Sr. Adv. with Mr. Divyanshu Rai, Mr. Vishal Sharma, Ms. Taruna, Advocates. For the Respondent : Mr. Abhishek Anand, Mr. Mandeep Kalra, Ms. Anushna Satapathy, Ms. Radhika Jalan, Ms. Widaphi Lyngdoh, Mr. Yashas J, Mr. Vaibhav Yadav, Mr. Paras Mohan Sharma, Advocates for R-2 to 7. Mr. Ankur S. Kulkarni, Ms. Divyansha Gajallewar, Advocates for R-8. Mr. Balaji Subramanian, Akash Kundu, Advocates for R-9. JUDGMENT [Per: Arun Baroka, Member (Technical)] Introduction CA(AT) No. 65 of 2019 (first Appeal) and Transfer Application TA No. 1 of 2023 in CA(AT)(CH) No. 70 of 2023 (second Appeal) relate to family members and their business entities, which belong to family members which are broadly pitched against each other in two groups viz. Narayan's and Hayagriv's. Narayan group is the main Appellant in both the Appeals. For better understanding they are listed as follows: Narayan Group (CVN group) Narayan Group (CVN group) Mr. C. Valli Narayan (CVN) : Appellant in CA(AT) No. 65 of 2019 and Ap....
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....roup. It also filed IA Nos. 5, 6 and 7 of 2020. In these IAs, status quo orders were passed by NCLT on 12.07.2021. Aggrieved by ex-parte orders, Appellants group (Narayan's) filed CA No. 62 of 2021 for the recall of the said order issued in IAs 5, 6, and 7 in CP No. 04/BB/2020. NCLT vide order dated 24.08.2023 dismissed CA No. 62 of 2021 filed by the Appellants (Naryan's) for recall and also confirmed orders under IA Nos. 5, 6, and 7 of 2020. Aggrieved by these orders, an appeal was filed against this order, which was earlier before Chennai Bench as CA (AT) (CH) No. 70 of 2023 and which was transferred to the Principal Bench with TA No. 1 of 2023. 4. Appeal 65 of 2019 (first Appeal) presses for setting aside the impugned order dated 24th January 2019 passed by NCLT Bengaluru and also allow the Company Petition bearing number 54 of 2014 filed by the appellant before NCLT Bengaluru. 5. Appeal number TA 1 of 2023 (second Appeal), prayers are as follows: "a) Allow the instant Appeal; b) Set aside the Impugned Order dated 24.08.2023 in CA No. 62 of 2021 and I.A Nos. 05, 06 and 07 in CP 04/BB/2020 passed by Hon'ble National Company Law Tribunal, Bangalore Benc....
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....strust, and part ways in an amicable manner, both the groups of the family had decided to divide the business of R1 Company and executed a Binding Family Settlement Agreement ("FSA") dated 09.01.2014. Admittedly, the execution of the FSA is not denied by R-2 to R-7 and R1 & 10. The proposed split was also reported in media in the month of March 2014 where statements of R-9 and R-2 were reported. The same is also reflected in R-2's own email dated 10.03.2014 to the employees. 9. In the FSA, it was decided by the two groups that the assets of the R1 Company will be equally divided between the Appellant group (through CKC Deepali) and the R-2 to R-7 group (through R10) [clause 1(f) of the FSA]. It was the essence of the FSA that going ahead, the Appellant group will continue to carry on their independent business in CKC Deepali (admittedly a part of CKC group) and the R2-7 group will continue to carry on their business through R10 company after purchasing the remaining 20% shares of the Appellant in R-10. The FSA stipulated that both the groups could freely continue their businesses (per Clauses 1(g) Distribution of Liabilities, 3(d) No Non-Compete, 3(e) New Stores etc.). In order ....
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....i Ramaswamy & Ors. 2010 154 CompCas 658 (Mad) para 154, 155, 156, 157, 172 and 180. During the 36th AGM, R9 was illegally ousted from the position of the JMD of R1 Company which clearly establishes the R2-7 group's oppressive intent. This also shows that there is a larger desire to oppress the Appellant and R9 and exclude them from the management of the family business of R1 in which they hold 50% shareholding. 15. The Impugned Order also fails to consider that principle of dissolution of partnership applies to companies either on the ground of complete deadlock or on the ground of being domestic or family companies. Appellant places reliance on Hind Overseas vs. Ragunath Prasad Jhunjhunwala & Ors AIR 1976 SC565 para 33] and [M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja AIR 2008 SC 1738 @ para 16, 17, 38, 39, 42,43 and Synchron Machine Tools P. Ltd. & Ors. vs. U.M. Suresh Rao [1994] 79 CompCas 868 (Kar) para 31, 180, 190]. 16. This Hon'ble Tribunal in its recent judgment dated 14.08.2024, in the case of Venus Petrochemicals (Bombay Private Ltd.) & Ors. v. Sunil M. Thakkar (Comp. App. AT No. 65 of 2022), applied the principle of quasi- partnership to a family company whe....
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....t appeal, a certified copy of the FSA was obtained from NCLT, Chennai and placed before this Hon'ble Tribunal. 21. The Impugned Order also goes on to wrongly observe that "Signing an Agreement and placing it in escrow is not an execution of an Agreement and it is a non-existent and it is only an Escrow" [para 8 @ page 952] and that the FSA has been kept with the R-8 as an expert/deemed escrow agent. The NCLT made this erroneous observation despite having recorded that the signed copies of the FSA were kept with the R-8 for safekeeping, who, admittedly, as per the FSA was designated as the expert and not an escrow as there is no escrow agreement ever executed. R-8 has clearly stated that: "The shareholders of the 1st Respondent Company are members of the same family. There were certain differences between the shareholders in the 1st Respondent Company, at which point in time, they decided to execute a Family Settlement Agreement, which could resolve the issues between them. All parties and their respective counsels worked on the said Family Settlement Agreement for over several months and the terms of the Family Settlement Agreement were finalised and the Agreement was e....
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....declares that the family settlement have been properly executed in accordance with law, thereafter, the parties can take appropriate action including approaching this Tribunal....". The said finding is contrary to Section 430 of the Act which ousts the jurisdiction of the Civil Courts with respect to any matter which the NCLT and NCLAT is empowered to determine under the Act. The NCLT could not have relegated the Appellant to the remedy of a civil suit. [para 6 of Shashi Prakash Khemka v. NEPC Micon & Ors. (2019) 18 SCC 569 and Para Nos. 31 and 32 of MAIF Investment India Pte. V. Ind-Bharath Power Infra Limited & Ors. 2019 SCC Online NCLAT 203]. 25. In any event, the FSA was validly executed in accordance with applicable laws and requisite stamp duty was paid. However, even if its assumed that there was any deficiency, it is settled law that it would act as an estoppel against the parties and bind them, more so when the subsequent conduct supports the settlement [Kale & Ors. vs. Deputy Director of Consolidation & Ors. (1976) 3 SCC 119, Para 42, Thulasidhara & Anr vs. Narayanappa & Ors. (2019) 6 SCC 409 Para 9.3-9.5 and Subraya MN vs. Vittanala MN & Ors (2016) 8 SCC 705, Paras....
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.... 1955-56 Respondent No. 1 was registered under the Companies Act, 1956. 1982 CKC Deepali was incorporated by Respondent No. 2, Respondent No. 5 and the Appellant. 27.03.1991 Incorporation of Respondent No. 10 Company to cater to corporate gifting in silverware. 1998 Appellant's husband passed away; Appellant volunteered to become Whole-Time Director but was excluded. 12.10.2009 & 14.10.2009 Board Resolutions allowing ventures to include family directors with 10% holding-violating 50-50 parity. 27.07.2010 Respondent No. 9 appointed as Joint Managing Director of Respondent No. 1. 2010 Appellant coerced into gifting 30% shares of Respondent No. 10 while battling cancer. 2013 Discovery of misuse of Respondent No. 1's resources by Respondents 2-7 for benefit of Respondent No. 10. 02.12.2013 Appellant requested fair conduct of business from Respondents. 09.01.2014 Family Settlement Agreement signed between Appellant/Respondent 9 and Respondents 2-7. 13.01.2014 Email to employees about proposed restructuring of CKC Group within 3 to 6 months. 25.02.2014 Board resolution issued NoC to Deepali Company Pvt. Ltd. t....
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.... dealing with various acts of oppression and mismanagement including exclusion from the affairs of R-1 Company, violation of Family Settlement Agreement dated 09.01.2014 ('FSA'), diversion of business, etc. A-2-C. Valli Narayan has also raised a plea of deadlock in affairs of R-1 Company. Also, in CP No. 4/BB/2020 R8 to R13 (Hayagriv group) themselves state that: "95. The Petitioners maintain that there is a Trust Deficit on account of unethical actions by Respondent No. 2 and Respondent No. 3. Be that as it may, it is an undisputed and admitted fact, recorded in this Hon'ble Tribunal's Final Judgement and Order, dated 24.01.2019, that there is a complete breakdown of relationship between the Hayagrivs (Petitioners) and Narayans (Respondent No. 2 and Respondent No. 3) and they cannot work together [Para 16). Both sides have repeatedly and categorically so maintained in the CLB and later before this Hon'ble Tribunal and the Petitioner has stated so even in her Appeal before the Hon'ble NCLAT." (emphasis supplied) 31. It is claimed that even R-8 to R-13 admit the irretrievable breakdown in trust and confidence between the two group of shareholders. It is t....
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....ed by any order of the NCLT or any prior notice of listing was published by the NCLT. The said plea was categorically made by the Appellants in their recall application. There was no specific denial of this fact in the reply filed by the R8-R13 to this application. Hence, the present recall application was maintainable. 35. Appellant relies on the judgment of Hon'ble Supreme Court in Greater Noida Industrial Development Authority V. Prabhjit Singh Soni and Anr. (2024) 6 SCC 767 where it was held that an application for recall is maintainable if the party aggrieved is not served with the notice of proceedings in which the order under recall has been passed. The Court further held that a recall application is maintainable notwithstanding that an appeal lies before NCLAT. Similarly, the Hon'ble Supreme Court in Surinder Kumar Gupta v. J.M. Housing (2021) 12 SCC 672 has held that the appropriate course of action against an ex-parte order of NCLT is to approach Ld. NCLT itself. 36. It is contended that the Respondents gave up the contention regarding the maintainability of application for recall before the Hon'ble High Court of Karnataka in W.P. No. 19265 of 2021 on 24.11.2021. Th....
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....ompletely different. The suit was in fact not filed by the Appellants but was filed by the R8-R13 seeking injunction against the Appellants from interfering with the possession and enjoyment of certain common areas adjoining the showrooms (A & B Blocks) in the building called The Touchstone. The said order relied upon by the NCLT was not an order dismissing of the suit but was an order passed in an interlocutory application. The said suit has in any event been decreed subsequently by order dated 23.04.2024 in which there is no reference whatsoever to the validity or binding nature of the FSA. Both sides have preferred appeals against the said orders and appeals are pending. Thus, the finding is wholly erroneous and without basis. 42. It is contended that an erroneous conclusion has been drawn that FSA was not declared valid by any forum, as a validly executed document does not need declaration of validity from a forum. In any event, the Addl. City Civil & Sessions Judge in COM. O.S. No. 306 of 2020 filed by R-1 (CKC& Sons Pvt. Ltd) against A-4 (Deepali Co. Pvt. Ltd.) seeking injunctions with respect to its trademarks in its order dated 20.02.2021 relied on the FSA to find a prim....
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....n at the time when the Appellant group purchased the shares of A-4 (Deepali Co. Pvt. Ltd.) stating that the Appellant group will be free to run the company in the manner they think fit. However, the NCLT failed to deal with the said contention in the findings. 46. It is claimed that the conclusion of NCLT that A-4 is not a related party, is contrary to the definition of related party under Section 2(76) of the Act. Section 2(76) of the Act provides that any two entities having common directors and/or shareholders are related parties. Even otherwise, the fact that A-4/Deepali is a part of the CKC Group is not disputed and is borne out by the following: • The order passed by Ld. NCLT dated 24.01.2019 records that A- 4/Deepali is a CKC group company. • Admission in the statement of objections by R-1 in CP 54/2014 also shows A-4 is a part of CKC Group. • Financials of R-1 for 2014-15 also show that A-4 is a related party. • Thus, the finding returned is contrary to the record and the provisions of the Act and therefore wholly erroneous. 47. It is contended that there is no factual basis or analysis in the Impugned Order to reach....
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....ctor of A-4, in 1998. R-11 was given the appointment in A-4, despite being aware that he will be a Director of competing companies. R-1 was also a shareholder of A-4 till 1998. 52. Subsequently R8 to R13 sold their shareholding in Deepali (A-4) to A1 and A2 after obtaining an opinion from the statutory auditor R-7 [Mr. Shyam Ramadhyani] on 25.09.1998 for the sale of shares in A4. The said opinion clearly states that: "4. If Mr. Ganesh Narayan is interested in continuing the business of Deepali Company Private Limited, the shares held by your family can be sold to him, again at a mutually determined price, say the cost price." "5. Steps to be followed are as under: ...... e. Mr. Ganesh Narayan and his family would hold the entire share capital of Deepali Company Private Limited thereafter. They will be free to run the company in the manner they think fit." 53. It is also contended that the Appellants were restrained by the order of the CLB dated 22.09.2014 till 24.01.2019 from diverting the business of R-1 (Gems and Jewellery only) to any other company. The NCLT passed an order dated 27.04.2018 restraining A-1 and A-2 from starting a competing jewell....
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....ed that this shows business of A-4 was running prior to order dated 12.07.2021 and such status quo order cannot impede the business of Appellant No. 4. Further, NCLT by order dated 12.07.2021 failed to explain or indicate the nature of status quo or state unequivocal terms to what status quo would mean which resulted in ambiguity. It is settled law that a status quo order ought not to be passed without indicating what the status quo means, and reliance is placed by Appellant on Kishore Kumar Khaitan and Anr, v. Praveen Kumar Singh (2006) 3 SCC 312). 58. Appellant contends that the Hon'ble Supreme Court in catena of judgments starting from State of Orissa v. Madan Gopal Rungta 1951 SCC 1024, and reiterated in State of U.P. And Ors. V. Ram Sukhi Devi (2005) 9 SCC 733, has held that the final relief cannot be granted at the interim stage. A bare perusal of the final and interim prayers shows that the NCLT has granted the final reliefs at the interim stage. 59. Furthermore, the Respondents have failed to make out prima facie case of oppression and mismanagement, which is necessary to warrant an interim relief under Section 242 of the Act. The relief must be with respect to the "a....
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....on's directors, officers, or other third parties who breach their duties. The claim of the suit is not personal but belongs to the corporation. 65. Appellant is a Director of R1 Company while her son, R9, was the Joint Managing Director of R1 Company. Though the Petition for oppression and mismanagement has been filed by the Appellant as a "minority shareholder", the Petition in effect sought appointment of a larger number of Directors from the Appellant's group on the Board of the R1 Company. The NCLT, Bengaluru, has in its impugned Judgment held that (i) the allegations of oppression and mismanagement were unsubstantiated and that (ii) Appellant already being a Director by virtue of holding 20% shares, could not seek a higher representation on the Board of R-1 Company. 66. It is also claimed that the matter at hand involves a dispute which is fundamentally "personal" in nature between the shareholders of R1 company, and the Appellant has attempted to give it the color of a company dispute. In fact, it is pertinent to note that there is a letter dated 09.01.2014 issued by the Appellant and R9 unconditionally, withdrawing all allegations of oppression and mismanagemen....
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....nd falsely representing themselves as the "real CKC" before the long-time customers of R1 Company. That the R1 company, over the course of decades, had built up its client database which is an extremely confidential document germane to their functioning. However, despite being aware of the same, the Appellant and R9 have obtained the same and are misusing it to compel long-time customers and clients to "switch over" to their competing business which they claim to be lawful and the original CK. In furtherance of their agenda, the Appellant and R9 have also been sending messages and calling people whose names, addresses, and phone/WhatsApp numbers have been extracted from confidential databases of the R1 company for promotion of their competing business. Moreover, vide these messages, the Appellant and R9 are also attempting to pass off their fraudulently renamed business as the owner of the trademark "C. Krishniah Chetty" and the R1 company leading to mass confusion among customers of R1 company and complaints from them alleging loss of faith and confidence with respect to their private information. The situation has reached such a point that the Appellant and R9 have hired security....
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....ector IN THE YEAR 1998 i.e., 27 YEARS AGO: HAYAGRIVS (Respondent Group) - 4 Directors NARAYANS (Appellant Group) -2 Director IN THE YEAR 2005 i.e., 20 YEARS AGO: HAYAGRIVS (Respondent Group) - 5 Directors NARAYANS (Appellant Group) - 2 Director IN THE YEAR 2007 i.e., 18 YEARS AGO: HAYAGRIVS (Respondent Group) - 6 Directors NARAYANS (Appellant Group) - 2 Director Respondent's claims FSA to be invalid, escrow, non-binding 70. The 2014 FSA is an invalid, inchoate, non-binding, and stillborn document since the pre-conditions to make the same enforceable were never fulfilled and the document remains in escrow. 71. FSA was in good faith by both parties which is unenforceable as on date owing to the fact that the requisite pre conditions were never satisfied, and with the change in events and circumstances, mainly opening of the unauthorised competing showroom by the Appellant and Respondent No. 9, the same has been rendered infructuous and unenforceable. 72. FSA defines the effective date as "(i) the date on which the final order of the High Court of Karnataka / Company Law Tribunal is made and f....
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....o the enforceability of the document are effected (Jeweltouch (1) Private Limited v. Naheed Hafeez Quraishi And Ors. 2008 SCC OnLine Bom 82; Hira Mistan v. Rustom J. Noble, 2000 (1) Bom C.R. 716). 74. It is incorrect to state that the Family Settlement had been partially acted upon. A perusal of Clause (h) of the document would show that in order to effectuate the demerger of various companies which was proposed in the said document, the very first step was to be taken was by the by Appellant ie, Narayan group, which had to immediately transfer all its existing shareholdings in CKC Jewellers and CKC Manufacturers to Hayagriv group "within 15 days" of the date of the document and that such transfer was to happen "independent of the demerger of any company". Admittedly, such shares were never transferred by the Appellant or R9 and thus no occasion arose for the further implementation of the other terms of the said "family settlement". 75. It is incorrect to aver that the transfer of shares in R10 company by the Appellant was in accordance with the alleged Family Settlement and thus the said family settlement had been "partially acted upon". The transfer of shares by the Appella....
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....hey arise are valid and enforceable. In the present case, neither have the parties fulfilled any obligations for making the FSA valid, nor has the FSA ever come out from escrow. 78. Therefore, it submitted that the alleged FSA is a mere "agreement to agree" between the parties and NOT registered, rendering it unenforceable under the Indian Contract Act, 1872. 79. A perusal of the said document which is termed as "binding" Family Settlement by Appellant, would show that it creates/extinguishes rights of the parties in immoveable properties, shares and incorporated Companies etc., under the document itself. The said document would therefore require stamping and registration under Section 17 of the Registration Act, 1908. This has been so held by the Judgments of the Supreme Court reported in (2018) 15 SCC 130 titled Sita Ram Bhama Vs. Ramavtar Bhama; and (1976) 3 SCC 119 titled Kale Vs. Director of Consolidation. It has been further held by the Supreme Court that unstamped and unregistered Family Settlement Agreements are not only inadmissible in evidence, but cannot be looked into for collateral purposes either, unless stamped and registered. Thus, no court or judicial forum i....
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....he Appellant and Respondent No. 9 could have only started the competing showroom adjacent to the Respondent No. 1 company, if this Hon'ble Tribunal decided to set aside the Impugned Order and hold the FSA as enforceable which is the subject matter of this appeal. Specifically, the Appellant had prayed in C.P. 54 of 2014, for directions to be issued to the Respondent No. 1 company for issuance of an NOC to change the name of their 100% owned company to "C. Krishniah Chetty & Co." which was not granted by the NCLT. Such NOC has never been given to the Appellant and Respondent No. 9 despite which, they have started a competing business in the said name. 84. The IPAB vide order dated 19.01.2021 (confirmed till Supreme Court) and Regional Director, MCA vide order dated 24.05.2022 have also observed that the FSA has not been acted upon and has therefore not attained finality while staying the operation of the registrations obtained by the Appellant and Respondent No. 9's unauthorised company. 85. The Hon'ble City Civil Court, Bengaluru, in O.S. 1265 of 2023 has also observed in an interim order dated 28.03.2023 that no steps were taken by either party to implement the FSA w....
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....it is submitted that the said order is not the only judicial order which has held the FSA unenforceable. It is pertinent to note herein that the said suit was finally disposed of much later to the passing of the Impugned Order herein and, on such date, the said interim order was in subsistence and, therefore, the reliance is not misplaced. Following forums have dealt with the question of the validity of the FSA and held the same to be unenforceable: a. Final order dated 24.01.2019 passed by the NCLT in C.P. 54 of 2014 (impugned in Comp. App. No. 65 of 2019 before this Hon'ble Tribunal without being stayed) b. Order dated 19.01.2021 passed by the IPAB (challenged before the KHC - dismissed) c. Order dated 24.05.2022 passed by the Regional Director, Ministry of Corporate Affairs (challenged before the Hon'ble KHC - stayed) d. Order dated 07.06.2023 passed by the Commercial Court, Bengaluru (suit filed by the Appellant group - dismissed on maintainability) Respondent claims Appellant has the right to run a competing business from FSA only 91. It is contended that the right to run a competing business arises from the FSA and not otherwise. Furt....
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....s about the correctness of the submissions being made by them before this Tribunal. Respondents deny oppression and mismanagement u/s 241 and 242 94. The term 'oppression' involves a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely. Mismanagement implies that the affairs of the company are being conducted in a manner prejudicial to the interests of the company. Therefore, the Hon'ble Tribunal must have cogent reasons to overrule the findings and order of the Hon'ble NCLT. 95. The matter at hand involves a dispute which is fundamentally "personal" in nature and the Appellant has attempted to give it the color of a company dispute. In fact, it is pertinent to note that there is a letter dated 09.01.2014 issued by the Appellant and R9 unconditionally withdrawing all allegations of oppression and mismanagement as baseless. The original signed copy of the said letter has been kept with R8 who, despite repeated requests, refuses to place the same on record. 96. The remedy under Sections 241 and 242 of the Companies Act, 2013 allows any....
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.... must be regarding oppression suffered by the Petitioner in its capacity as a member and not as a director, creditor, or otherwise (S.P. Jain v Kalinga Tubes Ltd., AIR 1965 SC 1535; V.M. Rao v. Rajeswari Ramakrishnan 1985 SCC OnLine Mad 151). Petitions based on allegations of inefficiency, carelessness of directors not maintainable (Needle Industries (1) Ltd. v. Needle Industries Newey (1) Holding Ltd. (1981) 3 SCC 333, V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd. (2008) 3 SCC 363). 100. The remedy under Sections 241 and 242 of the CA is available only to shareholders, that too, for raising grievances of violation of proprietary rights as a member and not in any other capacity, including as a director. Such right is not available to a shareholder, even a minority one, since they are willing and consenting parties to the Articles of Association of a company and cannot, now, turn around and challenge those Articles (Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449). Hence, the present Appeal is not maintainable 101. The Appellant and R9 further seek proportional representation by alleging oppression and mismanagement in the Company Petition file....
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....ademark registrations and reputation, goodwill, and popularity gained over the years. The RD further observed that the Appellant and R9 had been attempting to start a competing business for a long time and their entire claim to running such a business lay in the terms of the FSA, which had not been acted upon and, thus, had not attained finality. He further noted that the alleged NOC submitted by the Respondent No. 9 was laden with misrepresentations and extracted from the minutes of a board meeting signed by Respondent No. 9 himself while the actual minutes placed a different picture. Thus, in light of the aforesaid and various other judicial orders presented before him, he directed that C. Krishniah Chetty & Co. Pvt. Ltd. change its name back to Deepali Co. Pvt. Ltd. 107. Despite the multitude of litigations pending between the parties and the desperate attempts of the Appellant and R9 to get relief from somewhere, which would allow them to commence their unlawful competing business, the said business could not be started. Consequently, the Appellant and R9, in brazen violation of various restraint orders of this Hon'ble Tribunal and the Hon'ble NCLT, Bengaluru, proceeded to o....
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....om outside of Bengaluru in Chennai, which had to be shut down in light of their non-cooperation. Respondents contend Deepali was held related party 113. It is further claimed that the erstwhile Deepali Co, i.e, Appellant No. 4 was considered a related party of the R1 Company solely because, at the time, members of both branches of the family were directors and shareholders of the R1 Company as well as the Appellant No. 4 Company. The subsequent share transfer in the Appellant No. 4 Company by Respondent Nos. 8 and 11 to the Appellant Nos. 1 and 2 in 1998 was undertaken with the understanding that the two groups were now separate for the purpose of family investments and the same was never intended to be free reign to compete with the R1 Company. Further, it is submitted that the Appellants cannot hide under the umbrella of related party transactions when the violation is under Section 166 of the Companies Act, ie, the Appellant Nos. 1-2 while continuing to be directors in the R1 Company, also have direct interest in a competing business. The Appellant No. 4 Company is neither a subsidiary of the R1 Company, nor a sister company, but a competing business. Further, related part....
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....er a signed nor certified copy of the FSA was placed on record and dispensation for production of the same was filed "sneakily"; • The FSA was a scheme of demerger or in the alternative, slump sale, subject to preliminary steps that were to be taken by the parties, the failure of which may lead to some alternative, however, the same had not been decided. Thus, the same was an agreement to execute an agreement and not a concluded contract; • Appellant No. 1 was seeking specific performance of the FSA vide the said application; • The said application was infructuous and frivolous in light of the Company Petition having already been filed. 118. Thus, it is a clear-cut case of the same Appellant group filing multiple litigations against the same factual matrix and for the same relief, i.e. enforcement of the FSA while not approaching such fora as an Appellant group, but rather individuals. One might even argue that in light of the fact that the Appellant No. 1 did not further challenge the non-enforcement of the FSA would imply, by conduct, that he has waived specific performance of the same and, thus, cannot be allowed to seek its enforcement ....
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...., first by involving themselves and holding no less than 40% shares in the competing jewellery entity "Bluestone" in 2011-2013 and, further, holding shares indirectly therein till date, without prior disclosure to the Board of R1 Company (thereby starting the rift), and now by opening a competing entity and brazenly calling it by the same name ie "C. Krishniah Chetty" without having any rights whatsoever or an authorisation or an NOC. It is humbly submitted that the Appellants have come before this Hon'ble Tribunal with unclean hands with an intent to try and destroy the R1 Company for pecuniary personal gains which ought not be allowed. Respondents contend Deepali-A4 not pre-existing showroom 120. Appellant No. 4 is not a pre-existing showroom/full-fledged business, and mere company being in existence doesn't ipso facto mean it was doing business of jewellery. Appellant No. 4 commenced business on 15.03.2023, before which no jewellery business was being conducted from B Block of The Touchstone, ie, the space adjacent to R1 Company. 121. Basis various photographs placed before this Appellate Tribunal; it is claimed that the Appellant No. 4 Company was not operating its....
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....the Appellants were aware of the Company Petition having been filed, and the listing of the Petition on such date was updated vide the cause list published the previous day and, thus, the Appellants were, without a doubt, aware of the Petition being listed on 12.07.2021. However, despite being present in the same city and being able to appear physically upon facing technical errors, the Appellants chose not to do so and are now, on the pretext of being denied an opportunity of being heard, trying to frustrate orders already passed. 127. It is claimed by the Respondents that specific prior notice of listing of a matter is not a maintainable ground and publication of the cause list containing the requisite details is deemed to be sufficient notice (Chhattisgarh State Electricity Board v. Central Electricity Regulatory Commission (2010) 5 SCC 23; Shaheed Bhagat Singh Co-op., H.B. Society Ltd. vs. Improvement Trust, Ludhiana (2000) 9 SCC 361; Central Electricity Regulatory Commission Vs. Techno Electric and Engineering Company Ltd. and Ors. 2023 SCC OnLine SC 1953). It is further submitted that the alleged "technical glitch" faced by the Appellants is not a ground on which relief ma....
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....herein. Furthermore, the Appellants are also promoting their unlawful business via continued promotions/advertisements in newspapers of the Appellant No. 4. 131. It is further claimed that the Appellants are continuing to conduct business through online means using the name "C. Krishniah Chetty", which is a mark owned by the R1 Company, and which, neither they, nor any other members, are entitled to use and further making Google Maps divert the public to their wholly owned entity next door instead of the R1 Company when one searches the location for CKC. The injunction on the Appellants from undertaking such promotion of Appellant No. 4 was further confirmed by the City Civil Court, Bengaluru, in OS No. 8181 of 2023, wherein an interim order dated 20.12.2023 was passed granting an injunction against several media platforms (print and digital) till the next date of hearing ie 23.02.2024, and the same is subsisting as on date. Furthermore, the said injunction was granted in respect of publication/promotion of business concerning Appellant No. 4 Company. The said interim order dated 20.12.2023 was challenged before the Hon'ble High Court of Karnataka in MFA No. 02 of 2024 where....
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.... Company. In furtherance of their agenda, the Appellants have also been sending messages and calling people whose names, addresses, and phone/WhatsApp numbers have been extracted from confidential databases of the R1 Company for promotion of their competing business. Moreover, vide these messages, the Appellants are also attempting to pass off their fraudulently renamed business as the owner of the trademark "C. Krishniah Chetty" and the R1 Company leading to mass confusion amongst the customers of R1 company and complaints from them alleging loss of faith and confidence with respect to invasion of their privacy. The situation has reached such a point that the Appellants have hired security guards to click pictures of the license plates of the cars visiting the R1 company showroom and pictures of the customers exiting these vehicles as well which has made the customers of R1 company afraid of being stalked or followed to their homes. Such customers, a few hours after their pictures are clicked, start receiving promotional messages from the Appellants' competing business. These actions of the Appellants, who continue to hold positions as Directors of the R1 Company, have grievously ....
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....rnings per share have registered a growth of 12,223% over just three decades from Rs 31/- per share in 1988-89 to a dividend of Rs 3761/- in 2017-18, and it cannot be said to have been run in any manner which is detrimental to the interests of the Company or its shareholders. Since the R1 Company is giving high dividends, it cannot be said to give rise to any cause to any shareholder to aver mismanagement thereof or to have resulted in any oppression and mismanagement of any section of the shareholders. Appellant and R9 who hold 50% shares are thus getting the dividends for such 50% shares. It is contended that the NCLT has thus rightly held that the Appellants have not been able to make any case of oppression or mismanagement and in the garb of such a Petition only sought to seek more Directors on the Board of the R1 Company which cannot be done in law. Further, since the change in the constitution of the Board of Directors had last taken place in the year 2007, when the Appellant's husband was alive, a challenge being made in 2014 by filing a Petition in NCLT was an afterthought and a belated attempt even in doing so. 136. The Appellant and R9 have previously managed to th....
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....ed not to take steps in that regard. Consequently, it, along with various other judicial forums, also held that the same has not been acted upon, hence, the Appellants cannot claim a right to run a business such as Appellant No. 4. The Impugned Order further notes that the act of opening the Appellant No. 4's showroom adjacent to R1 Company's is in itself a violation of Section 166 of the CA, along with the confusion being created by it by passing itself off as part of the CKC group of companies (R1-R6). 139. It is also contended by the Respondents that the Appellants have categorically stated in the email dated 12.07.2021, IA for recall and WP 19256 of 2021 that 'on becoming aware' they couldn't connect only 'when the matter was reaching'. These two admissions would cast serious doubts on the arguments made by the Appellants before this Tribunal, as if they were never aware about the matter being listed on 12.07.2021, hence, they did not join. The documents and admissions on record speak to the contrary. Even till the Rejoinder Submissions, the Appellants could not answer how they became aware. Once they were aware about the hearing dated 12.07.2021, and were connected online, ....
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....leadings in the matter, in line with well-settled principles of law, after providing both parties opportunities to present their case in depth. The said Impugned Order is not arbitrary, nor does it suffer from any legal infirmities, making it deserving of not being interfered with. In fact, the Impugned Order records that the Petitioner (Appellant herein) had approached the Tribunal with unclean hands and therefore does not deserve any relief. The Impugned Order, on the basis of facts and circumstances, and evidence adduced, held that the allegations of oppression and mismanagement levied by the Appellant herein are merely allegations. The Appellant has not been able to substantiate the same and mere conduct of Directors (which has been authorised by way of Board Resolutions), including passing of unanimous resolutions by them, which they are authorised to do, is not ground for relief under Sections 241 and 242 of the Companies Act. The Impugned Order rightly holds that the Appellant has sought relief in her capacity as a Director and not a member of the Company and allegations of oppression raised by her are actually allegations of prejudice suffered as a Director and not a member....
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....s restrained from starting a "competing jewellery store/business in B Block Touchstone" or any other business competing with CKC Group. 24.01.2019 (Final order) 1. Held: FSA is an escrow document which is not implementable; Allegations of oppression/mismanagement not substantiated - merely allegations; and Petitioner did not come with clean hands. Orders in CP 4 of 2020 NCLT BB 147. It is to be noted that while the proceeding was pending before this Appellate Tribunal in CA (AT) (CH) No. 65 of 2019 the Respondent group (Hayagriv's group) filed in CP No. 04/BB/2020 filed by Dr C Vinod Hayagriv and Ors for oppression and mismanagement, various orders issued are as listed below: S. No. Date of Order Passed Directions/Finding 1. 21.09.2020 Appellants' oral undertaking dated 07.01.2020 recorded that they would not precipitate matters further. 2. 12.07.2021 Appellants directed to maintain status quo on account of directors being vested with the responsibility to not act against the interests of the Company. 3. 07.08.2021 Order dated 12.07.2021 extended until further orders. 4. 27.08.2021 Order dated 12.07.2021 extended until furthe....
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....al.) Submissions of the R8, Mr Shyam Ramadhyani, Expert 149. The 8th Respondent is a practicing charted accountant, with over 40 years of experience. He is a partner at M/S B K Ramadhyani and Co LLP, Chartered Accountants, Bangalore. The said M/S B K Ramadhyani and Co LLP, have been the statutory auditors of the 1st Respondent Company and the 10th Respondent Company since their inception. 150. The shareholders of the 1st Respondent Company are members of the same family. There were certain differences between the shareholders in the 1st Respondent Company, at which point in time, they decided to execute a Family Settlement Agreement, which could resolve the issues between them. All parties and their respective counsels worked on the said Family Settlement Agreement for over several months and the terms of the Family Settlement Agreement were finalised and the Agreement was executed on 09.01.2014. The 8th Respondent is not a signatory of the said document. As a chartered accountant, the 8th Respondent had extended his expertise in mediating and reaching a consensus amongst the parties to reach a settlement. As the 8th Respondent enjoyed the confidence of all parties to the ....
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....d an application in CA No. 4 of 2016, seeking to delete the name of the 8th Respondent from the array of parties, the said application was kept pending and was dismissed since the main Appeal itself was disposed of. Even in the Arbitration Application in AA No. 25006 of 2014 filed by the 9th Respondent, the 8^th Respondent was also made a party, the 8th Respondent has appeared and taken a position that he did not want to take sides and he will abide by the Order of the court and submit the Family Settlement, if directed by the court. 153. Aggrieved by the Impugned Order dated 24.01.2019, the Appellant has preferred the Appeal under consideration seeking to set aside the Impugned Order and allow the Petition filed before the NCLT seeking to regulate the affairs of the 1st Respondent Company and other reliefs. It is pertinent to point out that no allegations have been made either in the Petition or Appeal against the 8th Respondent and no relief has been sought against the 8th Respondent. Both in the Company Petition and the Appeal, the Respondent No. 8 is described as the Statutory Auditor. Further, it is stated that both the originals of Family Settlement Agreement were handed o....
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....ion of the 8th Respondent voluntarily taking action. It is submitted that the 8th Respondent has acted in the best interest of the Respondent No. 1 Company and its shareholders and tried his best to resolve the deadlock between the family members/shareholders. 157. The NCLT in the Impugned Order has given the following finding: "The facts and circumstances and the statement made by Respondent No. 8 prima facie show that he is an escrow. Admittedly, Respondent No. 8 not only in custody of original document but he is appointed as an expert to execute the modus Operandi of execution of the terms and conditions of the family settlement Agreement." 158. It is claimed that the NCLT has erred in understanding the submission of the 8th Respondent. The NCLT failed to note that, as a chartered accountant, the 8th Respondent had extended his expertise in mediating and reaching a consensus amongst the parties to reach a settlement, as the 8th Respondent enjoyed the confidence of all parties to the said agreement. The NCLT failed to note that the 8th Respondent is referred to as an 'expert' in the Family Settlement Agreement, not an escrow, and the role of the expert had ....
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....and also perused voluminous materials placed on record by both sides in both the Appeals, ie, TA 01 of 2023 and CA AT 65 of 2019. Issues 162. Since both the Appeals are interrelated, submissions of both groups have been noted in two separate categories of CVH and CVN groups. Appraisal of both the Appeals is also being taken up together. The issues before us are as follows: 1. Whether a case for oppression and mismanagement is made under Sections 241 and 242 of the Companies Act, 2013, against any of the parties 2. Whether Tribunal was correct in dismissing Recall Application by Appellants in CP 62 of 2021 and allowing IAs 5, 6 and 7 of 2020 of Respondents in CP 4 of 2020 of oppression and mismanagement filed by Respondents 3. And if any case is made for oppression and mismanagement, what orders can we pass under Sections 241 and 242 of the Companies Act to redress the grievance of both parties and also to ensure that the affairs of Respondent No. 1 Company are carried out smoothly. While appraising the materials placed on record, including the judicial precedents cited by both sides, we answer several related questions, which will help us t....
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....olding and directorship in other group private limited companies. 169. Shashi Prakash Khemka v. NEPC Micon & Ors. (2019) 18 SCC 569 Para 6 and MAIF Investment India Pte. V. Ind- Bharath Power Infra Limited & Ors. 2019 SCC Online NCLAT 203 para nos 31 and 32: Relegating the parties to civil suit would not be appropriate remedy, especially considering that Section 430 of the Companies Act, 2013 is widely worded. Section 430 of the Act which ousts the jurisdiction of the Civil Courts with respect to any matter which the NCLT and NCLAT is empowered to determine under the Act. The NCLT could not have relegated the Appellant to the remedy of a civil suit. The finding relating to FSA is contrary to these judgments. 170. Kale & Ors. vs. Deputy Director of Consolidation & Ors. (1976) 3 SCC 119, para 42: Family settlement though not registered, would operate as a complete estoppel against the parties to such a settlement. In any event, herein the FSA was validly executed in accordance with applicable laws and requisite stamp duty was paid. However, even if its assumed that there was any deficiency, it is settled law that it would act as an estoppel against the parties and bind them, mo....
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.... 179. Bhaskar Stoneware Pipes Pvt. Ltd. V. Raj inder Nath Bhaskar & Others 1988] 63 CompCas 184 (Del): Funds of company diverted to other concerns shows systematic oppression. 180. Dale and Carrington Investment (P) Ltd. & Anr. vs. P.K. Prathapan & Ors., (2005) 1 SCC 212: Duty of the Directors. The company is a juristic person and its directors are understood to be its agents, trustees or representatives and that any decision made must be done in utmost good faith and with the exercise of reasonable care and due diligence with the best interest of the company in mind. Judgements relied by Respondents 181. Written Family Settlement Agreement Compulsorily Requires Registration: Krishnappa & Ors. Vs. Smt. Aswathamma R.S.A. No. 87/2010, Hon'ble High Court of Karnataka: Appeal liable to be dismissed in limine; as appellant failed to establish, at the time when the appeal was presented, that the affairs of the company were being conducted in a manner oppressive: Sangramsinh P. Gaekwad and Ors. Vs. Shantadhvi P. Gaekwad (Dead) Thr. Lrs. And Ors. Manu/Sc/0052/2005; Incable Net (Andhra) Limited and Ors. Vs. Ap Aksh Broadband Ltd. And Ors. 'Manu/Sc/0357/2010 182. Jeweltouch ....
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....icient or careless conduct of a director in the performance of his duties cannot give rise to a claim for relief under Sections 241 and 242 of the Companies Act, 2013. 186. Sangramsinh P. Gaekwad & Ors vs Shantadevi P. Gaekwad [Appeal (civil) 6359 of 2001]: Hon'ble Supreme Court of India observed that the remedy under Section 397 of the Companies Act is not an ordinary one. The acts of oppression must be harsh and wrongful. An isolated incident may not be enough for grant of relief and continuous course of oppressive conduct on the part of the majority shareholders is, thus, necessary to be proved. The acts complained of may either be designed to secure pecuniary advantage to the detriment of the oppressors or wrongful usurpation of authority. 187. S.P. Kalinga Tubes Ltd. (1965) 2 SCR 720: Mere lack of confidence between shareholders is not sufficient to avail the remedy under Sections 241 and 242 of the Companies Act, 2013, unless it springs from oppression of the minority by the majority in the management of the company's affairs; further clarified that even then oppression must involve at least an element of lack of probity to a member in the matter of his proprietary righ....
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....e minority shareholders. Whether a family-run company can be treated as a quasi-partnership will vary on a case to-case basis. A private limited company incorporated under the Companies Act cannot be treated as a quasi- partnership merely because it's owned and run by family members. 194. Ebrahimi v. Westbourne Galleries Ltd., 1973 AC 360 and Sangramsinh P. Gaekwad & Ors vs Shantadevi P. Gaekwad [Civil Appeal 6359 of 2001]: One can, on the just and equitable ground, consider the domestic nature of a small company, but one cannot apply the law of partnership just on that basis. This would be an unwarranted gloss on the Companies Act. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in. 195. Specific prior notice of listing of a matter is not a maintainable ground and publication of the cause list containing the requisite details is deemed to be sufficient notice (Chhattisgarh State Electricity Board v. Central Electricity Regulatory Commission (2010) 5 SCC 23; Shaheed Bhagat Singh Co-op., H.B. Society Ltd. vs. Improve....
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....as brought out clearly that such an exclusion is on the face of it oppressive and is detrimental to the rights of the Appellant group as the equal shareholders. Is FSA valid, enforceable, binding, acted upon, escrow or not? 200. Respondents have very strongly advocated that the family settlement agreement is stillborn, invalid, inchoate and non-binding document styled as the FSA, is untenable when the same was not given effect to, by either party. The FSA was merely an 'agreement to agree'; it was never finalised between the parties and remained in escrow. 201. On the other hand, Appellants group contend that they had time and again raised their grievances regarding financial irregularities in R1 Company and transfer of business from R1 Company to R10 Company and other CKC companies. As the R 2-7 group had failed to address the grievances of the Appellant group, the parties had reached the situation of a deadlock. In order to bring an end to the mistrust and part ways in an amicable manner, both the groups of the family had decided to divide the business of R1 Company and executed a 'Binding' Family Settlement Agreement ("FSA") dated 09.01.2014. Admittedly, the execution o....
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....t without relying upon FSA also, conclusions of oppression and mismanagement can be inferred in this case. 204. Furthermore, in Thulasidhara & Anr vs. Narayanappa & Ors. (2019) 6 SCC 409 which relies on Kale & Ors. (supra), it was held that family settlement though not registered, would operate as a complete estoppel against the parties to such a settlement. And in Subraya MN vs. Vittanala MN & Ors (2016) 8 SCC 705, it was held that family settlement although not registered can be used as corroborative evidence. 205. Respondent relies on Jeweltouch (India) Private Limited v. Naheed Hafeez Quraishi and Ors. 2008 SCC OnLine Bom 82; wherein it was held that when a sealed writing is delivered as an escrow it cannot take effect as a deed pending the performance of the condition subject to which it was so delivered, and if that condition is not performed the writing remains entirely inoperative. Keeping a document in escrow implies that parties intend for such document to remain in escrow until conditions precedent to the enforceability of the document are affected. 206. As per the FSA, it was decided by the two groups that the assets of the R1 Company will be equally divided be....
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....A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. (3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. (5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company. (6) .... (7) ...." 209. It will also be beneficial to note the definition of the related party as per the Act in Section 2 (76) which is reproduced herein as follows: "(76) "related party", with reference to a company, means- (i) a director o....
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....ants are misusing the reputation and legacy of the R1 Company to not only further their own business interests in the Appellant No. 4, but also to damage the business activities of the R1 Company as seen by the active poaching of employees, vendors, and clients by the Appellant group. Thus, even in arguendo, the finding of Section 166 being so violated is sustained in light of the facts placed before this Hon'ble Tribunal regarding the prejudicial actions of the Appellant vis-à-vis the R1 Company, since there is no common shareholding and it is claimed that a related party is not a group company unless there is common shareholding. It is further claimed by the Respondents group that, owing to the damaging tactics of the Appellant Nos 1-2, the clients and customers of the R1 Company have started raising doubts and questions with respect to their personal details which, till March 2023, has neither existed nor were warranted. However, post the commencement of their competing business, there has been a marked loss of faith and confusion regarding whether the two businesses are the same since the newly commenced Appellant No. 4 Company has started operations in the same name, lo....
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....ctors and run identical and similar businesses from a nearby address or same address as R-1 Company (page1113-1114 APB). This also includes Sigma Gold LLP (formerly Sigma Gold Pvt. Ltd.) since 1993, which is wholly owned by the R8-13, where Appellants have no share. NCLT rejected this contention on the ground that other companies of the said Respondents are related parties to R-1 Company. Yet NCLT did not apply the same yardstick to the Appellants as they are also related parties to R1 on a plain reading of Section 2(76) of the Act. Appellants contend that A-4 is not a related party, is contrary to the definition of related party as Section 2 (76) of the Act provides that any two entities having common directors and/or shareholders are related parties. Even otherwise, the fact that A-4/Deepali is a part of the CKC Group is not disputed and is borne out by the following: • The order passed by NCLT dated 24.01.2019 records that A- 4/Deepali is a CKC group company • Admission in the statement of objections by R-1 in CP 54/2014 also shows A-4 is a part of CKC Group • Financials of R-1 for 2014-15 also show that A-4 is a related party 213. From ....
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..... The same is apparent from: • Certificate of Incorporation dated 20.03.1982; • Board Resolutions of A-4 dated 07.09.1995, 28.06.1996, 26.12.1984, 19.12.1998 and 18.06.2004 • Balance sheet of Appellant No. 4 dated 31.03.1990 • Articles of Association dated 15.03.1982 215. A-2 was a founding promoter/shareholder and Director of A-4 and was appointed as a Director in R-1 in 1994 and Director in R-2 in 2010. A-1 was appointed as Director of R-1 in 1997, Director of R-6 in 1999, Director of R-2 in 2010 and Director of A-4, in 1998. R-11 made the appointment in A-4, despite being aware that he will be a Director of competing companies. R-1 was also a shareholder of A-4 till 1998. Subsequently, after obtaining an opinion from the statutory auditor R-7 on 25.09.1998 for the sale of shares in A-4, R8 to R13 sold their shareholding in Deepali (A-4) to A-1 and A-2. The said opinion clearly states that: "4. If Mr. Ganesh Narayan is interested in continuing the business of Deepali Company Private Limited, the shares held by your family can be sold to him, again at a mutually determined price, say the cost price." "5. Step....
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....s even though legally it was in jewelry business. Appeal TA 01 of 2023: IAs No. 5, 6, 7 and recall in CA No. 62 of 2021 in CP 4/2020 BB 219. The Majority Directors of Respondents No. R1-R6 in order to safeguard the interests of R1 company, and on the ground that Appellants are making hectic preparations to open the competing showroom despite the final order and judgement dated 24.01.2019, filed C.P. 04/BB/2020 before the Hon'ble NCLT, Bengaluru alleging oppression and mismanagement as well as violation of Section 166 of the Companies Act, 2013. The Respondent group further filed I.A. Nos. 5, 6, and 7 of 2020 for reliefs which were only interim in nature and did not ask for a permanent restrain. Hence, the arguments raised by the Appellants that final reliefs have been granted at the interim stage, will not stand as the above reliefs were sought and have been granted only during the pendency of the Company Petition before NCLT. Vide the Impugned Order herein, the NCLT allowed the said I.A.s holding that "the R- 2 & R-3 (Appellant Nos. 1-2) has no right to run a competing business abutting R-1 Company. Hence, from the action of R-2 and R-3 it reveals that the actions of R-2 and....
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....4. The Impugned Order further notes that the act of opening the Appellant No. 4's showroom adjacent to R1 company's is in itself a violation of Section 166 of the CA, 2013 along with the confusion being created by it by passing itself off as part of the CKC group of companies (R1-R6). 222. It is also contended that contempt notice was issued on 08.02.2023 in Cont. App. 1 of 2022, stay was refused by Karnataka HC on 14.03.2023 in W.P. 5326 of 2023, and then in gross violation of court orders and Section 166 of the Act jewellery showroom were opened on 15.03.2023. The Appellant Nos. 1-2 are still the directors/shareholders of Respondent No. 1 company along with being directors in the Appellant No. 4 company and therefore, are acting in contravention of Section 166 of the Companies Act, 2013 by opening a competing showroom right adjacent to R1's showroom which has diverted the business of R1 company of over 50% since its illegal opening. Owing to the actions of Appellant Nos. 1-2, profits and overall sales of the flagship showroom of the Respondent No. 1 company have gone down by over 50% thereby not just causing goodwill lose, but also huge financial loss to the R1 company. Even i....
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....lry Store in the 'A' Block of the building." I.A. No. 6 of 2020: "... pass the following ad-interim directions and interim orders restraining Respondent No. 2 Ganesh Narayan and Respondent No. 3 Mrs. Valli Narayan through themselves or through their agents, servants, company/s, or anybody acting through or under them from directly or indirectly engaging in any business at any location - including online portals/websites which competes with the business of the CKC Group and/or any of its entities." I.A. No. 7 of 2020: "... pass the following ad-interim directions and interim orders restraining Respondent No. 2 Ganesh Narayan and Respondent No. 3 Mrs. Valli Narayan through themselves or through their agents, servants, company/s, or anybody acting through or under them from directly or indirectly using the domain name www.ckcgroupofjewellers.com or any other domain which is similar to that of the CKC Group or any of its entities and to direct Respondent No. 2 Ganesh Narayan to transfer to CKC Group the domain name www.ckcgroupofjewellers.com." 226. It is noted that the majority Directors of Respondents filed C.P. 04/BB/2020 before the Hon'ble NCLT, Bengaluru alleging op....
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....order of status quo until the next date of hearing which continued thereafter till the final orders were issued on 24th August 2023. 228. Appellant relies on the judgment of Hon'ble Supreme Court in Greater Noida Industrial Development Authority V. Prabhjit Singh Soni and Anr. (2024) 6 SCC 767 (@ paras 50- 53) where it was held that an application for recall is maintainable if the party aggrieved is not served with the notice of proceedings in which the order under recall has been passed. The Court further held that a recall application is maintainable notwithstanding that an appeal lies before NCLAT. Similarly, the Hon'ble Supreme Court in Surinder Kumar Gupta v. J.M.Housing (2021) 12 SCC 672(@ para 3) has held that the appropriate course of action against an ex parte order of NCLT is to approach NCLT itself. 229. Respondent group, on the other hand contend that, despite the final order and judgement dated 24.01.2019 in CP No. 54 of 2014 (TP No. 65 of 2016), they were under the apprehension that the Appellants were making hectic preparations to open the competing showroom, therefore they filed C.P. 04/BB/2020 before the NCLT, Bengaluru alleging oppression and mismanagement a....
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.... group was pending, and in an IA No. 2256 of 2019 dated 23.07.2019 which was filed by the Appellant, for ad-interim directions to restrain Respondent No.2 to 7 from conducting 425th board meeting and its implementation, the advocate representing Respondent No.2 to 7 had stated at the bar that the proposed 425th board meeting on 04.07.2019 shall be deferred till the next date of hearing of the appeal. This Tribunal had disposed of this IA with the directions that the proposed meeting shall stand deferred till 01.08.2019 i.e. the date of hearing fixed in the main appeal and the interim orders not to hold meetings had continued as this Tribunal was seized of the various issues including oppression and mismanagement. 232. We also note that against the interim Orders in IA 5,6 and 7 of 2020 and also CA No 62 of 2021, the appellant had approached the High Court of Karnataka in WP No. 5362 of 2023. Honourable High Court had given the direction to the Tribunal to dispose of CA No 62 of 2021 and accordingly the NCLT had taken up this matter. We are aware of the conspectus of the case in hand. 233. Adjudicating authority had given the following finding in the impugned order dated 24.08....
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....acts of oppression and mismanagement including exclusion from the affairs of R-1 Company, violation of Family Settlement Agreement, diversion of business, etc. A-2 has also raised a plea of deadlock in affairs of R-1 Company. Now, in CP No. 4/BB/2020 R8 to R13 themselves state that "95. The Petitioners maintain that there is a Trust Deficit on account of unethical actions by Respondent No. 2 and Respondent No. 3. Be that as it may, it is an undisputed and admitted fact, recorded in this Hon'ble Tribunal's Final Judgement and Order, dated 24.01.2019, that there is a complete breakdown of relationship between the Hayagrivs (Petitioners) and Narayans (Respondent No. 2 and Respondent No. 3) and they cannot work together [Para 16). Both sides have repeatedly and categorically so maintained in the CLB and later before this Hon'ble Tribunal and the Petitioner has stated so even in her Appeal before the Hon'ble NCLAT." (emphasis supplied) 237. Thus we can conclude that both the groups agree that there is a deadlock and some intervention is required to break the deadlock. 238. The impugned order notes that FSA was not acted upon. Respondent group contends t....
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....ess conditions prescribed have been fulfilled. 240. Respondents also claim that The IPAB has also made the following observations regarding the FSA, while staying the operation of the registrations obtained by the Appellant and Respondent No. 9's unauthorized company: • The FSA is not implemented/fully acted upon between the parties. • Each and every clause of the FSA needs to be acted upon by the parties to attain finality. In the instant case, the clauses of the FSA have not been acted upon. • It is admitted position that the Appellant and Respondent No. 9 are still the Directors/Shareholders of Respondent No. 1 and are thus enjoying the goodwill/reputation of Respondent No. 1 Company's Trademarks. 241. It is also contended that the said order of the Hon'ble IPAB was challenged by the Appellants group before the Hon'ble High Court of Karnataka in W.P. No. 2646 of 2021, which was dismissed by the Hon'ble High Court vide order dated 20.04.2023 on the ground of coram non-judice. 242. We also note the claim of the Appellant group that A-4 has been running its business prior to the status quo order dated 12.07.2021 is also evidenced from....
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.... order that original FSA was not filed. We have perused the material on record and basis that we find that : o FSA was executed between the parties and initially acted upon. Later on, respondent did not act upon it even though Appellant wants to go ahead with it. o we note that FSA was available initially with the R7 and later on with NCLT; the notarised copy is available with the Appellate Tribunal. o We also find that the A4- Deepali was in business since 1982. We also note that business of A-4 was running prior to order dated 12.07.2021 and status quo order of that date cannot impede the existing business of Appellant No.4. o NCLT by order dated 12.07.2021 failed to explain or indicate the nature of status quo or state in unequivocal terms to what status quo would mean. o Appellants, therefore, could not have been denied the right to carry on the business notwithstanding the FSA. 246. NCLT has also given finding that O.S. 1265 of 2023 filed by A-1 & A-2 seeking declaration of FSA as valid was dismissed. In fact, the suit was not filed by the Appellants but was filed by the R8-R13 seeking injunction against the Appellants from inter....
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....all application is maintainable notwithstanding that an appeal lies before NCLAT. Similarly, the Hon'ble Supreme Court in Surinder Kumar Gupta v. J.M. Housing (2021) 12 SCC 672 has held that the appropriate course of action against an ex parte order of NCLT is to approach Ld. NCLT itself. Looking at the judicial precedents as also the background noted by us in the previous paragraphs, we find that there are sufficient grounds raised by the appellant that ex parte orders issued by the adjudicating authority on 12.07.2021 and later on confirmed on 24.08.2023 could be set aside 248. From the above analysis we find the following: a. Aggrieved by the dismissal of CP 54 of 2014 (TP 65/ 2016) before NCLT BB on 24th January 2019, the appellant had filed an appeal before this tribunal in CP AT 65 of 2019. Some relief was provided as an interim measure to the appellant b. In the meantime, the respondents filed CP 4 of 2020 before NCLT BB. The respondents also filed IA No. 5, 6 and 7 in the same CP before NCLT BB. It was Covid time and hearing had taken place on various dates. Earlier, these applications were heard on 06.01.2020 and 07.01.2020. NCLT had already reserved t....
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....he final relief at the interim stage, which is wholly impermissible. The effect of the impugned order granting the prayers in IA Nos. 5, 6 and 7 are so wide that they virtually prevent the Appellants from ever conducting jewellery business in any form or manner, in any location. This is all the more significant considering the family history and the tradition of engaging in this very business. Extent or volume of business appears irrelevant in determining whether the Appellants were engaged in the jewellery business prior to the impugned restraint order. j. Appellants filed CA 62/2021 for the recall of the said order as the counsel for the Appellants could not join the hearing on 12.7.2021 due to internet connectivity issues. k. NCLT passed the common Impugned Order dismissing the CA 62/2021 (recall application) and allowing IA Nos. 5,6 and 7. l. The interim orders were passed immediately after on 12.07.2021, immediately around or during Covid period, when the court proceedings were not happening at the normal pace. m. The interim orders were issued on 12th July 2021 and the final orders were issued on 24th Aug 2023. NCLT was fully aware of the p....
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.... which was subsequently dishonoured. o The Appellant was denied access to documents, removed from key management positions, and completely sidelined. o A Company Petition C.P. No. 54 of 2014 was filed; interim orders were passed on 23.09.2014, 09.10.2014, and 18.11.2014 restraining various acts. Despite interim relief, the Respondents continued to violate court orders, necessitating filing of Contempt Application No. 1 of 2016. o Subsequent events further exacerbated the situation, including melting of 120 Kg of gold without shareholder approval and misuse of sales proceeds. 252. Appellant had filed CP. No. 54 of 2014 (T.P. No. 65 of 2016) dated 16.09.2014, under Sections 397, 398, 402, 403, 406, 237 of Companies Act, 1956, against M/s C. Krishniah Chetty & Sons Pvt. Ltd (CKC). (Respondent), by inter alia seeking to regulate the conduct of the affairs of the first Respondent Company in future; Direct the Respondents to alter the Articles of Association of the Company so as to insert a new clause relating to the Principle of Proportional Representation and accordingly permitting the Petitioner to appoint not less than half of the number of directors in ....
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....t filed appeal in CA (AT) No. 65 of 2019 against the above orders. During the pendency of this appeal, this Tribunal had issued the several directions over a period of time. On 20.05.2019, this Appellate Tribunal on the request of both parties ordered for exploring the possibility of resolution of the dispute through mediation and ordered the appointment of Hon'ble Mr. Justice A.V. Chandrashekhar, a retired judge of Karnataka High Court as mediator. This order was later on recalled on 30.05.2019 and the appeal was to be heard on merit as respondents were reluctant to go for mediation. 257. On 23.07.2019, IA No. 2256 of 2019 which was filed by the Appellant, was taken up for ad-interim directions to restrain Respondent No.2 to 7 from conducting 425th board meeting and its implementation. The relevant portion of the order is extracted as below, which shows that the advocate representing Respondent No.2 to 7 have stated at the bar that the proposed 425th board meeting on 04.07.2019 shall be deferred till the next date of hearing of the appeal. This Tribunal had disposed of this IA with the directions that the proposed meeting shall stand deferred till 01.08.2019 i.e. the date of he....
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....23 orders were reserved in IA No. 1075-1076 of 2021, which later on went to another bench. The matter was heard by the present bench on 12.09.2023, 14.09.2023, 21.09.2023, 01.12.2023 and 04.12.2023. 263. It is to be noted that while the proceeding CA (AT) No. 65 of 2019 was pending before this appellate tribunal, the Respondent group (CVH group) filed C.P. No. 04 of 2020 for oppression and mismanagement against the Narayan's group. We note that even during the pendency of this appeal before this appellate tribunal in CA (AT) No. 65 of 2019, NCLT Bengaluru in its interim orders dated 12.07.2021, directed the Appellants (Narayan's group) to maintain status quo on account of directors being vested with the responsibility to not act against the interests of the company. Furthermore, NCLT BB, on 24.08.2023 passed final order in CP 04 of 2020 before NCLT BB, which is the Impugned Order, as per which it was held that the Appellant No. 4 and Respondent No. 1 companies are not related parties; Actions of the Appellant No. 1 and 2 are violative of S.166 of the Companies Act, 2013 and I.A. No. 5, 6, and 7 of 2020 was consequently allowed. It is to be noted that the appellant herein had fil....
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....he Appellant's group on the Board of the R1 Company. The NCLT, Bengaluru, has in its impugned Judgment held that (i) the allegations of oppression and mismanagement were unsubstantiated and that (ii) Appellant already being a Director by virtue of holding 20% shares, could not seek a higher representation on the Board of R-1 Company. 267. Respondents group also claims that with respect to the 2014 Family Settlement Agreement (FSA), it is an invalid, inchoate, non-binding, and stillborn document since the pre-conditions to make the same enforceable were never fulfilled and the document remains in escrow. The FSA defines the effective date as "(i) the date on which the final order of the High Court of Karnataka / Company Law Tribunal is made and filed with the Registrar of Companies giving effect to the Demerger; or (ii) the date on which the transfer of undertakings pursuant to the Alternate Structure shall come into effect; as applicable". It is an admitted fact observed in various judicial orders that neither the Demerger nor transfer of undertakings took place, therefore the FSA is not enforceable as the effective date was never reached. All rights available to the Appella....
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....nforceable. All rights available to the Appellant Nos. 1-2 under the said FSA are enforceable only after the effective date, which, as stated above, was never reached. However, rights under these clauses are already being exercised by the Appellant nos. 1-2 despite the pre-conditions not being met in an unlawful and brazenly entitled manner. Rather, as a arguendo the terms of the FSA impose a categorical bar on Appellant No. 4 starting a jewellery store (as they have started on 15.03.2023) till such time the effective date is reached along with a bar on any business being done by Appellant No. 4 till such time the effective date is reached. The FSA has been dealt with extensively by the NCLT vide order dated 24.01.2019 impugned in Comp. App. (AT) No. 65 of 2019, wherein they categorically held that the FSA was not a valid document and thus, cannot be given effect to or relied upon. The IPAB and Regional Director, MCA have also observed that the FSA has not been acted upon and has therefore not attained finality while staying the operation of the registrations obtained by the unauthorized Appellant No. 4 company. The City Civil Court, Bengaluru has also observed in an interim order ....
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....mpany and whose name is entered in the register of members of the company; (iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository;" 273. Section 242 of the Act also empowers the Tribunals to act in such situations. It will be beneficial to extract the relevant provisions as follows: "Section 242. Powers of Tribunal. (1) If, on any application made under section 241, the Tribunal is of the opinion-- (a) that the company's affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company, and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, fit. the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks (2) Without prejudice to the generality of the powers under sub- section (1), an order ....
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...., in the opinion of the Tribunal, it is just and equitable that provision should be made. 274. R1 Company is a private limited company. Both the appellants put together are 50% shareholders and as per the definition of member as noted above, we do not see any bar in their filing a petition under Section 241 and 242 for oppression and mismanagement. This is to be seen in the background that the R1 company is being controlled by the group of respondents and the appellant has been systematically sidelined from the functioning of R1 company and so many allegations have been brought before the NCLT. Specifically speaking, during the 36th AGM, R9 was ousted from the position of the JMD of R1 Company which clearly establishes the R2-7 group's oppressive intent. This also indicates a larger desire to oppress the Appellant and R9 and exclude them from the management of the family business of R1 in which they hold 50% shareholding. 275. Respondent claims that the remedy under Sections 241 and 242 of the Companies Act, 2013 is available only to shareholders, that too, for raising grievances of violation of proprietary rights as a member and not in any other capacity, including as a dire....
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....res the scope of powers of the Hon'ble Tribunal and places their reliance on Incable Net (Andhra) Limited & Ors. Vs. Ap Aksh Broadband Ltd. & Ors., (SLP No. 9110 of 2008); Sangramshinh P. Gaekwad and Others Vs. Shantadevi P. Gaekwad (Dead) through LRS. And Ors., (2005) 11 SCC 314). 280. Notwithstanding Family Settlement Agreement, after detailed examination of all other facts and materials on record, we can still arrive at our findings to determine the issue of oppression and mismanagement. We find that there is sufficient material on record to indicate that the affairs of the Company are being carried out "in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company." Furthermore, there is an irretrievable deadlock amongst the members and therefore, in such a situation it is appropriate for anxiety to intervene. 281. Appellant places their reliance on Hind Overseas vs. Ragunath Prasad Jhunjhunwala & Ors [AIR 1976 SC565 para 33] and Synchron Machine Tools P. Ltd. & Ors. vs. U.M. Suresh Rao [1994] 79 CompCas 868 (Kar) para 31, 180, 190] which holds that princ....
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....up of shareholders and we may have to exercise our powers under Section 421(4) read with Section 241 of the Companies Act, 2013 to break the deadlock and pass appropriate orders to bring an end to the matters complained of. Thus, we find that the finding returned in the impugned order is contrary to the record and the provisions of the Act and therefore erroneous. Conclusions and Orders 283. In the facts and circumstances of the case we find that both parties are acting in a manner due to which the affairs of the R1 company are being conducted in a manner which is prejudicial to the interests of the R1 company. Under these conditions we are constrained to exercise the powers with the tribunal under section 242 of the Act. 284. We note that the respondents have suggested a way forward in their written submissions. They have stated that there are several ways for the Appellants to solve the inter-se disputes between the parties, one of which is by adhering to unanimous board resolutions of 351st, 352nd, and 353rd board meetings passed in 2009 to run multiple entities with differential shareholdings viz. 80:20 and 20:80 by both groups so as to ensure growth in a non-competing....