TaxTMI 
TaxTMI 
2026 (2) TMI 1167
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....Companies Act, 2013, titled Hitesh Shah & Anr. vs. Aquafil Polymers Company Private Limited & Ors. By the said impugned order, the Ld. NCLT has permitted Mr. Hiten Shah, (Respondent Nos. 2) and Mr. Poojan Hiten Shah (Respondent No. 3) who are former promoters; Directors; and Minority shareholders of Aquafil Polymers Company Private Limited (Respondent No. 1) to appear and represent Respondent No. 1 Company before all judicial, quasi-judicial and arbitral proceedings pending against the Company. 2. The Appellant is seriously aggrieved as the said interim relief virtually grants final relief at a preliminary stage, nullifies duly passed Board resolutions, undermines statutory corporate governance, and enables persons accused of serious misrepresentation, suppression of liabilities and misuse of authorisation to continue exercising control over the Company. The appeal, therefore, arises from grave prejudice caused to the Appellant, the Company and its stakeholders by the impugned interim directions. Brief facts of the case 3. The brief facts of the case are as given below: i. M/s Aquafil Polymers Company Private Limited (Respondent No. 1 Company) was engaged in the b....
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....ness operations. A Share Purchase and Subscription Agreement (SPA) dated 25th September 2019 was signed between the Subscriber/Appellant; Promoters/ Respondent no.2 and 3 and the Company/ Respondent No. 1 herein. viii. On the basis of an independent valuation of the Company and negotiations between the parties, it was agreed that the Appellant would subscribe to 75% of the share capital of the Company for a total consideration of Rs. 1,94,31,510.00 (Rupees One Crore, Ninety-Four Lakhs, Thirty-One Thousand, Five Hundred Ten Only). ix. The Share Subscription was to be initiated upon completion of the procedural steps listed under the clause titled "Share Subscription" and/or share purchase provisions under the Agreement. x. In the interim period, the Appellant undertook to make necessary arrangements and repayments to ensure strict compliance with the timelines stipulated under the approved One Time Settlement by State Bank of India, and it was specifically agreed that adherence to the OTS repayment schedule would constitute the essence of the Agreement. xi. As on the date of execution of the Agreement, the shares of the Company were not listed on ....
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.... and fraudulent billing in a project executed by Respondent No. 1 Company, a fact which had never been disclosed to the Board or reflected in the Company's records. xviii. Faced with these issues the Appellant convened a Board Meeting on 03.12.2022, which Respondent Nos. 2 and 3 did not attend. In the aforesaid meeting, the Board passed a resolution revoking all previous authorisations granted for representing the Company and established a fresh authorisation framework to protect the Company's interests. xix. On 15.12.2022 the Respondent No. 2 issued an email on seeking to convene a Board Meeting on 22.12.2022, in which the date of Annual General Meeting was fixed. The Chairman of the meeting Mr. Hitesh Shah refused to confirm the minutes of the board meeting held on 22.12.2022 as it suffered from technical lapse. xx. On 10.01.2023, a Circular Resolution was passed by the Board authorising Appellant, as majority shareholder and Director, to represent Respondent No. 1 Company before all judicial, quasi-judicial and arbitral forums. xxi. On 15.01.2023, after discovering continued unauthorised actions by Respondent No. 2 in his capacity as Managing ....
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...." thereby clearly indicating that there has been no final adjudication. Since the Petition remains pending, the interim order survives and is amenable to appellate scrutiny. 8. On the merits of the case, Ld. Counsel submits that Section 241 of the Companies Act provides remedies to members qua shareholders and not to directors in their capacity as directors. In the present case, the Petitioners approached the Ld. NCLT seeking relief in their capacity as directors. The impugned order itself proceeds on the reasoning "because they are still directors," thereby clearly misapplying Section 241. 9. Ld. Counsel relies upon 'Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd.' [(1981) 3 SCC 333], Paragraphs 48-53, which clearly holds that Section 241 jurisdiction is confined to shareholder rights and does not extend to director powers. Ld. Counsel submits that the right to represent the Company in litigation is not an inherent right of a shareholder but flows only from Board authorisation. Therefore, the impugned order is based on an erroneous jurisdictional premise. 10. Ld. Counsel submits that representation in litigation constitutes the legal voice o....
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....le effect of altering the contractual reference point and retrospectively legitimising non-disclosure at the time of execution of the SPA. In this regard, he invites our attention to Para 11 and 12 of the impugned order dated 15.03.2023 which contain the findings and the interim orders of the Tribunal. The same are extracted below: "11. We have gone through the record and proceedings. We took into consideration the submissions of both learned counsels as above. It is an admitted position that the Share Purchase Agreement which was executed in between the petitioners, R-2 and R-1 is not in dispute, till today as neither party to that agreement challenged any term or any clause in the agreement till this date. It is admitted that as per terms of the Share Purchase Agreement, the petitioners are at obligation to pay the past liabilities of creditors of R-1 company as per the audited books of 31.03.2019. The petitioners are entitled to receive the disputed receivables. Clause 6.3 of the Share Purchase Agreement gives the rights to the petitioners to receive and recover disputed receivables. Cause 6.5 of the Share Purchase Agreement states that any liability arising out of the ....
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....eir participation in arbitration proceedings in JITF matter as Officers of the Respondent No.1 Company in the interest of the company. 16. Ld. Counsel submits that the Petitioners suppressed material facts and filed a false Articles of Association in CP No. 5 of 2023. The Ld. NCLT itself recorded in its order dated 18.07.2025 (Paragraph 30, Pages 64-67) that the Petitioners did not come with clean hands and sought personal gains through the judicial system. 17. Ld. Counsel submits that suppression of material facts and fraud disentitle a party to equitable relief. He relies upon the following cases decided by Hon'ble Supreme Court: • Dalip Singh v. State of U.P. (2010) 2 SCC 114, Paragraphs 1-5; • S.P. Chengalvaraya Naidu v. Jagannath (1994) 1 SCC 1, Paragraph 5; • K.D. Sharma v. Steel Authority of India Ltd. (2008) 12 SCC, Paragraphs 34-36; • A.V. Papayya Sastry v. Govt. of A.P. (2007) 4 SCC 221, Paragraphs 19-26; 18. Ld. Counsel submits that the impugned order effectively enables the Respondents to benefit from their own wrongdoing, which is impermissible in law. 19. Ld. Counsel submits that the Petitioners are in co....
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....t Appeal is directed against a limited interim order passed by the Ld. NCLT, Ahmedabad, which has merely permitted Respondent Nos. 2 and 3 to appear and represent Respondent No. 1 Company in pending judicial, quasi-judicial and arbitral proceedings. It is submitted that the said order neither adjudicates the final issues raised in the petition under Sections 241-242 of the Companies Act, 2013 nor causes any prejudice to the Appellant. On the contrary, the impugned order expressly records that the Share Purchase Agreement dated 25.09.2019 remains unchallenged and that the Appellant is not liable for past liabilities of the Company, thereby protecting her interests. 25. Ld. Counsel submits that the Appeal has been filed with oblique motives and is an attempt to derail ongoing arbitral proceedings between Respondent No. 1 Company and JITF Water Infrastructure Ltd. It is submitted that the Appellant had earlier sought to intervene before the Ld. Sole Arbitrator and prayed for stoppage of proceedings and conciliation, which application was decided vide order dated 11.01.2023. Having failed before the arbitral forum, the Appellant has now chosen to challenge the interim protection gra....
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....ngs even prior to execution of the SPA, which position has been acknowledged in the impugned order. 29. Ld. Counsel submits that the Appellant's objection regarding existence of an arbitration clause in the SPA is legally untenable. The statutory remedy under Sections 241-242 of the Companies Act, 2013 operates independently of contractual arbitration mechanisms. Allegations of oppression and mismanagement are statutory in character and fall squarely within the jurisdiction of the Ld. NCLT. The existence of Clause 16 in the SPA does not oust such jurisdiction. Therefore, the contention that the Ld. NCLT ought to have referred parties to arbitration is wholly misconceived. 30. Ld. Counsel submits that the interim relief granted by the Ld. NCLT does not amount to grant of final relief. The order does not determine rights conclusively, nor does it prejudice corporate governance. It merely ensures that the Company continues to be represented by its directors in pending proceedings so that no vacuum is created to the detriment of the Company. The apprehension expressed by the Appellant that such representation would have irreversible consequences is speculative and unfounded. The ....
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....te between the parties has arisen from the clauses relating to Share Purchase Agreement relating to management of the company in Clause 6, particularly relating to past liability and recovery of "Disputed Receivables" for the period prior to 31.03.2019. The relevant extracts of the SPA including Clause (j) in recital; definition of Receivables; Disputed Receivables; and relevant portion of Para 6 are extracted below: "(j) Promoters will be entitled to receive the disputed receivable amount from the pending arbitration/arbitral award/litigations announced or may be announced in favour of the company, after paying the amount to the outstanding unsecured creditors as per books of accounts standing as on 31 march 2019. The amount so received by the existing promoters shall be set off against the short-term borrowings from the existing promoters and which also which include loans of 4.22 Crores from the existing promoters." "Receivables" shall mean amount due to the company form its debtors. "Disputed Receivable" shall mean the amount claimed by the company in the pending arbitration proceedings/arbitral awards/litigations and realization of which will be rece....
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....the Promoters. The Clause (j) of the recital further clarifies that promoters will receive the Disputed Receivable for the period prior to 31.03.2019 and for which a list of such proceedings is also attached to the SPA. 39. Clause 6.2 of the SPA makes the promoters to liable to pay of the past liability of un-secured creditors reflecting on the accounts of the company dated 31.03.2019. Promoters are entitled to pay the same from the amount received under Disputed Receivables. 40. Clause 6.3 of the SPA gives the promoters legal right to receive and recover all the Disputed Receivables or incomes arising from law suits, arbitration proceedings, arbitral award, litigations or any other recovery proceedings. Clause 6.4 further provided that such amounts, if credited to the Company's accounts, were to be paid to the existing promoters, who alone would have operational control over specified bank accounts. 41. Clause 6.5 clarified that any liability arising from disputes where promoters were arraigned due to past activities would be borne by the promoters, though they were required to keep the Company informed. Clause 6.6 made it clear that benefits and liabilities arising out o....
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....rim order passed by Ld. NCLT in the CP No. 5 of 2023. This appeal is not against the final orders of the Ld. NCLT in which case such plea could be taken by the appellant. Be that it may be, it is also an admitted fact that the Respondent No. 2 & 3 hold 25% of the share capital of the company and in accordance with Section 244(1)(a) of the Companies Act, 2013 any member or members holding more than 1/10th of the issue share capital of the company can apply under Section 241. 47. We further note that the Company Petition under Sections 241-242 continued to be heard along with IA No. 8 of 2023, IA No. 9 of 2023, Comp. Application No. 3 of 2023 and Comp. Application No. 13 of 2023. On 18.07.2025, the Adjudicating Authority passed a comprehensive Common Order in CP No. 5 (AHM) of 2023 along with all connected petitions, applications and interlocutory applications. This common order restructures the management and control of the Company; orders forensic audit of the company; and gives other directions in exercise of statutory powers under Section 242. 48. The submission of the appellant in this context is that the aforesaid order dated 18.07.2025 in CP No. 5 (AHM)/ 2023 is a subseq....
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....s of Section 242(2)(h) and in exercise of powers under Section 242(2)(k), this Tribunal appoints as an Independent Administrator, to function as a Director on the Board of Respondent No.1 Company, who shall assume charge forthwith upon appointment. VI. The Independent Administrator shall have authority to manage day-to-day operations, ensure statutory compliance, and oversee the forensic audit, but shall not make policy decisions or alter the company's strategic direction without prior Tribunal approval. Existing directors shall cooperate with the Administrator but retain their statutory rights and duties unless otherwise directed. VIII. The Independent Administrator shall take all necessary steps to secure, preserve and oversee the operations, assets, and records of the Company, and shall also ensure compliance with the forensic audit process XVIII. The interim order dated 15.03.2023, permitting the petitioners to represent Respondent No. 1 in all judicial, quasi- judicial, or arbitral proceedings, shall continue until further orders, subject to oversight by the Independent Administrator." 52. By this order, Ld. Tribunal appointed an Independent F....
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.... under forensic audit. Bank operations require oversight. Compliance with the SPA itself is under scrutiny. 57. When statutory powers under Section 242 are invoked to regulate the affairs of a company, such directions override and control internal management arrangements and contractual understandings to the extent necessary to bring an end to oppression or mismanagement. The order dated 18.07.2025 has created a comprehensive supervisory framework within which all issues, including disputed receivables, are to be examined and regulated. 58. In this regard, we further take note of last three paragraphs 48 to 50 of the common order which are extracted below: "48. The CP No. 5 (AHM) of 2023 be listed for compliance on 31.07.2025. Parties shall file affidavits confirming compliance with the above directions by 28.07.2025. 49. The company shall file a certified copy of this order with the Registrar of Companies, Ahmedabad, within 30 days, as per Section 242(3) of the Companies Act, 2013. 50. A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities" 59. We note from the above, that CP No. 5 of 2023 wa....