TaxTMI 
TaxTMI 
2026 (8) TMI 1806
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Company Appeal (AT) No. 161 of 2024 and Company Appeal (AT) No. 162 of 2024 under Section 421(1) of the Companies Act, 2013 ("Companies Act 2013") arising out of Impugned Order dated 15.05.2024 passed by the National Company Law Tribunal, ("The Tribunal") Court No.2, New Delhi in C.P No. 48/ND/2024). Company Appeal (AT) No. 161 of 2024 2. This appeal is filed by the Appellants i.e. Mr. Satya Prakash Bagla who is the promoter, managing director and shareholder of the Exclusive Capital Ltd. (Respondent No.3) since 08.09.2021 and Mr. Achal Kumar Jindal who is a director and shareholder of the Exclusive Capital Ltd. (Respondent No.3) since 13.10.2021. Mrs. Kanta Agarwala, who is the shareholder of the Exclusive Capital Ltd., is the Respondent No.1 herein. Mr. Suresh Kumar Agarwala, who is the shareholder of the Exclusive Capital Ltd., is the Respondent No.2 herein. Exclusive Capital Limited, (Company) is a Non - Banking Financial Company (NBFC) registered with the Reserve Bank of India (RBI), is the Respondent No.3 herein. Mr. Johnson Kallarachal Abraham, who is the director and shareholder having 1 equity share in the Company, is the Respondent No.4 herein. Mr. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Achal Kumar Jindal are directors and shareholders of the Company and holds 1 equity share each in the company. 6. The Appellants submitted that the Company, formerly known as UT Leasing Limited, is a public limited NBFC incorporated on 08.04.1994 under the Companies Act, 1956, having its registered office at New Delhi. It was stated that the authorised share capital of the Company consists of 2,50,00,000 equity shares of Rs.10 each and that, at the time of filing of the Company Petition, the issued, subscribed and paid-up capital comprised 23,46,500 equity shares. The Appellants further contended that the shareholding pattern clearly reflected that Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala together held only 10% of the equity shares, whereas the Appellant Mr. Satya Prakash Bagla held approximately 90% of the shareholding, while the Appellants Mr. Achal Kumar Jindal and Mr. Johnson Abraham and certain other shareholders each held only one equity share each. 7. The Appellants contended that the Company (formerly UT Leasing Ltd., incorporated on 08.04.1994) was taken over and RBI approved the change in control in favour of Appellant Mr. Satya Prakash Bagla ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he stage of conversion of CCPS into equity shares, the resulting shareholding exceeded the threshold prescribed under Paragraph 61 of the NBFC Directions. The Appellants submitted that the Company acted strictly in accordance with the said legal advice for ensuring complete regulatory compliance. 10. The Appellants stated that Teesta Retail Private Limited, being the holder of the OCDs, consented to such conversion by its letter dated 26.08.2022 based on which the Company resolved through Circular Resolution No. 07/2022-23 dated 25.08.2022 to convert the OCDs amounting to Rs. 315 Crores into CCPS of an equivalent value. 11. The Appellants stated that Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala acquired their shareholding on 05.09.2022, i.e., after the aforesaid investment had already been made by Teesta Retail Private Limited. It was submitted that before purchasing the shares, Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala had exercised due diligence regarding the affairs of the Company and were fully aware of the investment of Rs. 315 Crores as well as the financial structure of the Company. The Appellants therefore contended that the minori....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No. 48/ND/2024 in 2024. The Appellants therefore contended that the allegations subsequently levelled by the minority shareholders were wholly belated, devoid of bona fides, and constituted an afterthought intended to challenge transactions that had long since been validly approved and implemented. 16. The Appellants further submitted that the Tribunal failed to appreciate that the OCDs had been issued against a genuine investment of Rs. 315 Crores made by Teesta Retail Private Limited and that, upon obtaining expert legal advice regarding the leverage ratio prescribed under the NBFC Directions, the Company immediately initiated corrective measures by converting the OCDs into CCPS, after obtaining the consent of the investor, approval of the shareholders and approval of the Board of Directors, strictly in accordance with the Companies Act, 2013. The Appellants stated that the Tribunal committed a manifest error in treating the issuance of OCDs and their subsequent conversion into CCPS as contrary to the NBFC Directions as, such conversion did not require prior approval of the RBI. 17. The Appellants further submitted that the Tribunal erred in concluding that the conversion o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that even assuming, without admitting, that there had been any regulatory infraction between March 2022 and September 2022 in relation to the issuance of OCDs, the only consequence contemplated under the Reserve Bank of India Act, 1934 (RBI Act) was the imposition of a monetary penalty under Section 58G of the RBI Act. It was argued that the Tribunal travelled far beyond the statutory consequences by characterising the transaction as oppression and mismanagement and directing cancellation of the capital infusion. 21. The Appellant further submitted that any alleged violation of Regulation 6 of the NBFC Directions, assuming without admitting such violation existed, could be examined only by the RBI, being the statutory regulator of NBFCs. The Appellants contended that the jurisdiction exercised by the Tribunal in adjudicating alleged breaches of the NBFC Directions amounted to an impermissible intrusion into the exclusive regulatory domain of the RBI. 22. The Appellants further submitted that the Board Resolution dated 27.09.2022 merely provided that the CCPS could be converted upon giving two months' prior notice at any time within a period not exceeding twenty years from....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be allotted to Respondent Mrs. Kanta Agarwala. It was further submitted that the RBI granted its approval on 30.05.2023, which remained valid for a period of six months. However, despite obtaining the approval, Respondent Mrs. Kanta Agarwala never invested the proposed amount of Rs.5 Crores in the Company. 27. The Appellants further submitted that the allegation of the Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala regarding an alleged personal loan of Rs.62.05 Crores advanced to the Appellant Mr. Satya Prakash Bagla was entirely unsupported by documentary evidence. The Appellants contended that even assuming, without admitting, that such a personal loan had been advanced, the entire case sought to be built by the Complaining Petitioners was legally untenable. It was submitted that an individual cannot discharge his personal liability by causing allotment of shares of a company without the company itself receiving the corresponding consideration. Such an arrangement would be contrary to the Companies Act, 2013 and settled principles governing issuance of share capital. 28. The Appellants further submitted that the Tribunal erred in accepting the explanation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t which had already become incapable of performance. 32. The Appellants submitted that the Tribunal further failed to appreciate that Respondents (Mr. Rajeev Uberoi, Mr. Krishnama Chary Mudumba, Mr. Om Prakash Sambharia, Mr. V.V Kale, Mr. Havinder Singh) had themselves violated Article 210 of the Articles of Association of the Company by disclosing confidential and proprietary information relating to the affairs of the Company to outsiders. 33. The Appellants further submitted that immediately after the Company's management initiated scrutiny into the unauthorised Assignment Agreement and the role of certain officers, Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala, acting in concert with Respondents (Mr. Rajeev Uberoi, Mr. Krishnama Chary Mudumba, Mr. Om Prakash Sambharia, Mr. V.V Kale, Mr. Havinder Singh) orchestrated a coordinated attempt to undermine the management of the Company. It was contended that on 10.12.2023, within a span of approximately forty-five minutes, certain other senior managerial personnel and professionals including the Company's Company Secretary and Chartered Accountant, simultaneously tendered their resignations. The Appellants....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l impropriety. The Appellants contended that the Company purchased a Bentley Mulsanne vehicle from Luxus Retail Private Limited for a consideration of Rs. 9,09,00,000/-. The Appellants further stated that the transaction was undertaken strictly on an arm's length basis. 38. The Appellants submitted that the Tribunal also erred in treating the purchase of the Bentley as an, overvalued and fraudulent transaction. It was contended that the purchase had been undertaken after obtaining prior approval of the Board in accordance with the omnibus approval mechanism framed under Rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014. The Board had authorised related party transactions up to Rs. 10 Crores, and the purchase price of Rs. 9.09 Crores fell well within the approved limits. The Appellants further submitted that the Bentley vehicle was acquired exclusively for official purposes and constituted a valuable corporate asset. It was argued that the Company's business model primarily involved dealing with high-net-worth individuals, institutional investors and leading business houses, for whom maintenance of an appropriate corporate image formed an integral pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to strip the Company of its rights over the AHNL loan facilities, filed the Company Petition before the Tribunal with a malevolent motive. The Petition was devoid of any merit and was filed to obtain the stamp of the Tribunal for taking control of the Company. 44. The Appellants contended that Appellant Mr. Suresh Kumar Bagla filed I.A. No. 174 of 2024 offering to buy shares of Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala at full value plus interest to resolve issues and ensure business continuity. Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala made a counter-proposal to buy shares at double the price. These proposals were recorded in the order dated 24.04.2024 by the Tribunal, but the application remains pending for adjudication by the Tribunal. 45. Concluding arguments, the Appellants requested this Appellate Tribunal to set aside the impugned order and allow both the appeals. Common pleadings by the Respondents 46. These common pleadings are submitted by Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala (Respondent Nos. 1 and 2 respectively in Company Appeal (AT) No. 161 of 2024 and Respondent Nos. 2 and 3 respectively in Company Appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ially altered the shareholding and control of the Company without obtaining the mandatory prior approval of the Reserve Bank of India. 51. The Respondents further submitted that the Appellants had deliberately overlooked the settled accounting and regulatory position that CCPS having a tenure exceeding five years continue to be treated as liabilities under the applicable Indian Accounting Standards (Ind AS) and the RBI Prudential Norms applicable to NBFCs, since the CCPS issued by the Company were convertible within a period extending up to twenty years, they continued to constitute outside liabilities, with the result that the leverage ratio remained in violation even after the purported conversion. It was therefore contended that the Company continues to remain in breach of both the 2016 and 2023 RBI Directions for NBFCs. 52. The Respondents submitted that the RBI vide their letters dated 27.03.2026 held that the Company has been in violations and has penalised the company in mandatory terms, in addition to keeping further regulatory actions under contemplations as per rules. The Respondents emphasized that this proves beyond any doubt that the company was definitely involv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts further relied upon the judgment of the Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [(1981) 3 SCC 333] to contend that the Tribunal possesses ample jurisdiction to interfere with illegal corporate actions, including illegal allotment of shares and violations of statutes other than the Companies Act, 2013. It was submitted that the Hon'ble Supreme Court has authoritatively recognised that the powers of the Company Law Board, and consequently those of the Tribunal under Sections 241 and 242 of the Companies Act 2013, extend to granting appropriate relief where corporate actions violate other statutory provisions. The Respondents therefore contended that the Tribunal rightly exercised its powers under Sections 242 and 420 of the Companies Act,2013 in passing the Impugned Order. 56. The Respondents submitted that the violations committed by the Appellants are extremely serious as they threaten the regulatory existence of the Company as an RBI-registered NBFC. It was contended that these violations have already been admitted by the Appellants and have been duly considered by the Tribunal while passing the Impugned Order. Accordingly, the Respond....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equired to impress high-net-worth individuals and that the transaction had allegedly been approved through an omnibus approval. However, the Respondents submitted that such justification is wholly untenable and contrary to the documentary record. Keeping in view the paid up capital of the Company itself was of Rs. 2.34 crores. The Respondents stated that the alleged omnibus approval was passed only through a Circular Resolution dated 21 September 2022, whereas the loan of Rs. 14 Crores had already been advanced to Luxus during March and April 2022. Consequently, the purported omnibus approval could never retrospectively validate or authorize the earlier loan transaction. The Respondents further submitted that even a plain reading of the Circular Resolution demonstrates that it merely laid down broad criteria for considering related party transactions and did not grant approval for any specific transaction, much less the advancement of Rs. 14 Crores to Luxus or the subsequent purchase of a luxury Bentley vehicle. 60. The Respondents further contended that, even assuming without admitting that the purchase of a luxury vehicle was commercially justified, there existed absolutely no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4.90 Crores granted to Appellant Mr. Satya Prakash Bagla, and the loan of Rs. 12.89 Crores advanced to Sulojay Realty Private Limited, another company owned and controlled by the Appellants. Consequently, these transactions could never have been authorized by a Circular Resolution passed several months later. 65. The Respondents submitted that even those transactions which the Appellants sought to justify under the Circular Resolution were themselves contrary to the conditions prescribed therein. It was pointed out that the Circular Resolution contemplated a monetary ceiling of Rs. 10 Crores for related party transactions, whereas loans amounting to Rs. 14 Crores and Rs. 12.89 Crores had been advanced to Luxus and Sulojay Realty respectively, far exceeding the prescribed limit. 66. The Respondents further contended that the Circular Resolution also stipulated that each tranche of payment should not exceed Rs. 5 Crores. However, despite this express condition, Luxus was advanced a second tranche of Rs. 9 Crores, thereby violating even the internal criteria relied upon by the Appellants themselves. The Respondents further submitted that Respondent Mr. Om Prakash Sambharia, busi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 70. The Respondents emphatically contended that the Tribunal rightly concluded that the Appellants could not be permitted to continue managing the affairs of the Company pending investigation. It was submitted that apart from the Appellants themselves, no person presently possesses complete knowledge regarding the financial dealings and true financial position of the Company. Therefore, the appointment of the independent Administrator, who is retired High Court Judge of the Delhi High Court and the direction to conduct a comprehensive transaction audit and forensic audit were absolutely necessary to ascertain the true extent of financial diversion, identify the beneficiaries of such transactions, recover the diverted assets wherever possible, restore statutory compliance, and enable the Administrator to submit periodic reports before the Tribunal. 71. The Respondents submitted that any interference with these directions at the present stage would seriously prejudice the investigation, enable the Appellants to tamper with the Company's financial records, and irreversibly defeat the very purpose for which the Tribunal had appointed the independent Administrator and directed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....during the hearings held on 22 March 2024 and 2 April 2024, their apprehension that Respondent Mr. Rajeev Uberoi might be removed from the Board, the Appellants deliberately suppressed the existence of the alleged Resolution and failed to disclose the purported removal. Such deliberate concealment, according to the Respondents, further established the mala fide conduct of the Appellants and their lack of candour before the judicial forum. 75. The Respondents submitted that the Tribunal rightly took cognizance of these circumstances and specifically observed in the Impugned Order that the manner in which the Independent Directors had been removed did not inspire confidence in the governance standards of an NBFC entrusted with large volumes of public money. The Respondents contended that these findings were based upon the documentary evidence available on record and therefore deserved complete deference by this Appellate Tribunal. 76. The Respondents further contended that continuous and successive acts of regulatory non-compliance, diversion of funds, suppression of financial transactions, elimination of Key Managerial Personnel, illegal removal of Independent Directors, and v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e welfare of the Company. The counsel for the Observer also brought to our notice that he has not been paid by the company despite judicial order and urged this Appellate Tribunal to get his remunerations paid by the company. Findings 81. Having heard the parties, perusal the record made available including the Impugned Order, we find appropriate to capture the basic facts of the case at this stage. A) Chronology of events relevant in present appeal. For ease of reference, the material dates, are set out below: 08.04.1994- ECL (formerly UT Leasing Limited) incorporated. 08.09.2021- RBI approves change in control/management of the Company ECL in favour of the Appellant Mr. Satya Prakash Bagla. 13.10.2021- Appellants Mr. Satya Prakash Bagla (on 08.09.2021) and Mr. Achal Kumar Jindal (on 13.10.2021) inducted as Directors; ECL classified as an NBFC. 06.12.2021- Amended certificate of incorporation issued; RBI registration as non-deposit taking NBFC. Oct. 2021 - Mar. 2022- Teesta Retail Private Limited subscribes to OCDs aggregating Rs. 315 crores in three tranches. 05.09.2022- Complaining Petitioners (the Respondents Mrs. Kanta A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onvertible into equity at any time within 20 years) Shareholding of Complaining Petitioners (the Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala herein acquired 05.09.2022): 1,17,325 equity shares each (two individuals) 82. In order to give contextual reference, we note that the broad allegations raised by the Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala in the Company Petition No. 48/ND/2024 were: (i) the Company failed to comply with the Expansion Agreement, causing grave prejudice to Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala; (ii) the Company illegally converted the OCDs to CCPS without requisite RBI approval under the NBFC Directions; (iii) The Appellants caused the resignation of key managerial personnel by intimidation and harassment, and the Company withheld their salaries without justification; (iv) Appellant Mr. Satya Prakash Bagla purchased a Bentley Mulsanne EWB 20My luxury car for his personal use with the Company's funds at an exorbitant price of Rs. 9,09,00,000/- from Luxus Retail Pvt. Ltd., a company held and controlled by the Appellants; along with such more transactio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Tribunal (at paragraph 67 of the Impugned Order) to fall within the Board's omnibus approval for related-party transactions dated 27.09.2022, and, that being so, could not simultaneously be treated as an act of oppression without a finding that the transaction was unfair, overpriced or not at arm's length; (e) that the mass resignation of key managerial personnel was, on the Tribunal's own findings (paragraph 62 of the Impugned Order), "a matter of investigation" as to whether it was attributable to misconduct of the resigning employees or of the Appellants and an unresolved factual controversy cannot found a conclusive finding of mismanagement; and (f) that the appointment of the Administrator and 180-day suspension of the Board is a drastic, quasi-winding-up measure disproportionate to the findings actually recorded, particularly when an unadjudicated offer by Appellant Mr. Satya Prakash Bagla to buy out Respondents Mrs. Kanta Agarwala & Mr. Suresh Kumar Agarwala at fair value remained pending consideration by the Tribunal itself. 84. On the other hand, the Respondents supported the Impugned Order and submitted: (a) that the issuanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Tribunal dealt with the mass resignation of Key Managerial Personnel, the removal of Independent Directors, the purchase of the Bentley motor car, related-party loans, the non-implementation of the RBI approval letter dated 30.05.2023, and the absence of a satisfactory explanation for these matters, concluding that there was "improbity" in the conduct of the Company's affairs warranting intervention under Section 242 of Companies Act 2013. c) By its operative directions as contained in para 73 (A to N), the Tribunal appointed the Administrator; suspended the Board for 180 days; directed cancellation of the OCDs/CCPS with refund of Rs. 315 crores to the holder; directed a transaction audit by an independent auditor; directed the Administrator to secure compliance with the NBFC Directions and the RBI letter dated 30.05.2023; directed evolution, within 150 days, of a scheme for a new Board; and reserved liberty to the Administrator to seek clarifications from the Tribunal. The petition was disposed of with clarification that nothing in the order would disqualify Respondent Nos. 2 and 3 therein and the Appellant Mr. Satya Prakash Bagla and Mr. Achal Kumar Jindal herein, f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....1) and to ensure that the provisions of Non Banking Financial Company-Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 as also the letter dated 30.05.2023 issued by RBI are complied with and no defiance thereof persist. G. For a period of 180 days, the Board of Directors would remain in suspended position. Nevertheless, the Respondent Nos.2 to 4 would be paid the same pay and allowances as they are drawing as on date. H. On expiry of the period of 150 days the Ld. Administrator would evolve a scheme regarding composition of fresh Board of Directors and running the affairs of the company. While doing so, the Ld. Administrator would consult all stakeholders. In the meantime, the Ld. Administrator will file a monthly report regarding the affairs of the Respondent No.1 before this Tribunal, by way of IAs. I. An appropriate application for approval of the scheme/plan to be evolved by Ld. Administrator (as above) shall be filed before this Tribunal by way of an IA, before expiry of 180 days. Nevertheless, if circumstances warrant, an application for extension of time may be filed by the Ld. Administrator. During this period, the Ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order dated 22.05.2024, to the extent that, we hereby direct let Hon'ble Justice Mr. R.K. Gauba to act as an Observor, and he shall preside over the Board of Directors' Meetings and no major policy decision be taken by the Board and let there be no alienation of assets of R3(Exclusive Capital Ltd) till the next date of hearing. The Ld. Observor in the meantime may prepare a complete inventory of all assets of R3 and also a list of shareholders and a list of secured and unsecured creditors. The Observer shall verify the allegation qua the financial transactions, including those of related party qua siphoning of funds. All the parties to cooperate with the Ld. Observer and to make available to him all documents/information as requisitioned by the Ld. Observer. 6. Ld. Observer shall be entitled to pay and allowances and facilities as admissible to the CEO/Managing Director of Respondent No.2. 7. The Ld. Observer shall be at liberty to approach this Tribunal for any clarifications or directions. 8. List the appeal on 3rd and 5th July, 2024 for further hearing. (Emphasis supplied) NCLAT order passed in Company Appeal (AT) No. 161 & 162 of 2024 vide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eport-Note No.2 to submit there have been related party transactions etc. However, no further time is left as at 2 PM, another part heard matter- M/s Quantum Mutual Fund & Ors Vs ICICI Securities Ltd & Anr is pending for remaining argument, List the matter on 23.12.2024 for hearing. An apprehension is raised by Mr. Rajeev Nayyar, Learned senior counsel on behalf of the Respondent the appellants are in the process of appointing a new director and also are continuously siphoning of money of the company. The Learned senior counsel appearing on behalf of the appellant fairly submits till the next date of hearing, there shall be no appointment of an independent director. It is also directed if an amount of more than Rs.10 lakhs is spent by the company, the directors viz the appellants, shall inform/bring it to the notice of the Ld. Observer and if the amount to be spent is more than Rs.25 lacs, the concurrence of the Ld. Ld. Observer be taken. Put up on 23.12.2024 for further hearing." (Emphasis supplied) 87. We note that this Appellate Tribunal order dated 23.07.2024 (quoted earlier) was challenged by the Appellants before the Hon'ble Supreme Court, who did not interfere....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "In this matter, several issues and questions have been raised for consideration. Notably, the scope and ambit of the order passed by the learned single Judge of the High Court of Delhi dated 26.10.2024 is under scrutiny, particularly in the light of the ongoing proceedings concerning oppression and mismanagement before the National Company Law Tribunal1/ National Company Law Appellate Tribunal2, which are currently seized of the matter. The primary prayer in the writ petition pertains to the alleged inaction or failure on the part of the Reserve Bank of India3 in fulfilling its obligations. However, it is pertinent to note that the interim directions issued by the learned Judge appear to address and adjudicate all issues and contentions inter se the parties, including those that are sub-judice before the NCLT/NCLAT and the RBI. Issue notice, returnable in the week commencing 14.04.2025. Notice is accepted by Mr. Sahil Tagotra, learned counsel, who is present in Court on advance notice/caveat for respondent No. 1. Hence, notice need be served on the said respondent. Respondent No. 2, RBI, is represented upon notice being issued to it by this Court, vide order dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er of the learned single Judge and the present order, granting stay. (vii) The proceedings before the NCLT/NCLAT may continue. It will be equally open to the petitioner before us, who is the respondent before the NCLT and the petitioner before the NCLAT, to contest/pursue the proceedings." (Emphasis supplied) 89. From above, we note that this Appellate Tribunal vide order dated 22.05.2024 directed status quo of the impugned order and by order dated 31.05.2024, this Appellate Tribunal modified its previous order dated 22.05.2024 and changed the status of the Administrator to the Observer. This Appellate Tribunal mandated Observer to enquire into siphoning of funds and preside over the board meeting of the company and also restrained the company from alienating any of its assets and directed that no major decision to be taken by the company in the meantime. 90. We also note that this Appellate Tribunal order dated 23.07.2024 (quoted earlier) reaffirmed the mandate to the Observer. The same (this Appellate Tribunal's order dated 23.07.2024) was confirmed by the Hon'ble Supreme Court in its order dated 02.12.2024 (quoted earlier) passed in Civil Appeal bearing Diary N....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Issue III: (a) Whether the breach of the leverage ratio prescribed by Regulation 6 of the NBFC Directions, issued by the RBI and the subsequent conversion of OCDs into CCPS, constitute conduct prejudicial to the Company and to public interest under Section 241(1)(a) of the Companies Act 2013, notwithstanding the contention that the same stood cured and has no lingering effect? (b) Whether the existence of a penal remedy under Section 58G of the RBI Act, 1934 ousts, or renders disproportionate the exercise of, the Tribunal's jurisdiction under Sections 241/242 of the Companies Act, 2013, in respect of the very same regulatory breach? (c) Whether prior approval of RBI, under Para 61 of the NBFC Regulation was required for the conversion of OCDs into CCPS, and, if the Appellant's narrower construction of Para 61 of NBFC Regulation is correct and whether that affects the ultimate finding of oppression and mismanagement by the Tribunal? Issue IV: (a) Whether the purchase of the Bentley motor car and the related-party loans (to Luxus, Laxmipati/Exclusive Motors, Mr. Jayant Mirani, and Sulojay Realty) were validly sanctioned by the omnibus approval dated 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quitable that provision should be made." Section 420 empowers the Tribunal to pass such orders as it thinks fit after giving the parties a reasonable opportunity of being heard. ii) It is thus apparent from the text itself that: a) "public interest" is an independent and freestanding ground under Section 241(1)(a), distinct from prejudice to the applicant-member personally; b) the just-and-equitable winding-up threshold under Section 242(1)(b) is a standard to be assessed notionally, and does not require an actual winding-up petition or proof that winding up is in fact the appropriate course; and c) the reliefs available under Section 242(2) are not confined to a closed list, and clause (m) confers a wide equitable discretion on the Tribunal to mould relief as the justice of the case requires. 95. At the first instance, we need to deep dive into the legal Framework Oppression and Mismanagement under Sections 241-242 of the Companies Act 2013. A) The Companies Act, 2013 does not define 'oppression'. Courts and tribunals have developed the meaning through case law over decades. The foundational formulation comes from Elder v. Elder & Wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r conflicted persons to key management positions • Removal of key managerial personnel enemas to compromise corporate governance • Actions that are ultra vires the Memorandum of Association (MOA) /Article of Association (AOA)or the Companies Act, 2013 • Material change in the management or control of the company prejudicial to company interests • Breach of Regulatory Compliances Again, above is only illustrative list and not exhaustive list and will further depend on facts of each case. 96. We note that Section 241(1)(a) Section 241(1)(a) of the Companies Act, 2013 expressly contemplates a Tribunal's opinion being founded on conduct that is prejudicial "to public interest" or "to the interests of the company", as distinct from prejudice to a member can be ground for act to be oppression and mismanagement. Where a company is a regulated entity (here, an NBFC registered with the RBI and regulated by the RBI), a demonstrated departure from binding prudential norms issued by the sectoral regulator RBI in the public interest is capable, in principle, of satisfying this limb, particularly where such departure is compound....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t that the existence of an independent statutory enforcement mechanism under the Foreign Exchange Regulation Act, 1973 (which separately penalised the very shareholding irregularity complained of) ousted the jurisdiction of the company court and found that the two remedies were held to operate in different fields and to co-exist without either excluding the other. 100. We also note that the Supreme Court in Dale and Carrington Investment (P) Ltd. v. P.K. Prathapan, (2005) 1 SCC 212, held that an allotment of further shares by a Board, made with the object of gaining control and reducing the shareholding of an existing member to a minority, without notice to or consultation with the affected shareholder, constitutes an act of oppression, notwithstanding that the power to allot was otherwise available to the Board. 101. In view of facts noted earlier in greater details, we find that prima facie, the case was built by the original Petitioners, the Respondents herein, of reasonable apprehensions of Oppression and mismanagement against the Company and the Appellants and the Tribunal was entitled to deal, decide and pass suitable orders. 102. We also observe limited scope at our....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs. Kanta Agarwala & Mr. Suresh Kumar Agarwala became members (05.09.2022); (b) the fact and quantum of the OCDs, and their conversion into CCPS pursuant to the EGM resolutions of 06.09.2022 and 17.09.2022 at which Respondents Mrs. Kanta Agarwala & Mr. Suresh Kumar Agarwala having consented to shortened notice,were fully reflected in the audited financial statements for FY 2021-22 approved at the AGM dated 29.09.2022, which Respondents Mrs. Kanta Agarwala & Mr. Suresh Kumar Agarwala did not attend despite notice; and (c) no grievance was raised by Respondents Mrs. Kanta Agarwala & Mr. Suresh Kumar Agarwala in respect of the OCD/CCPS conversion until the filing of the Company Petition. These facts do not, by themselves, extinguish the substantive question whether the transaction was in nature of oppression and mismanagement and whether the transaction can be said to have been done without probity or as a device targeted at the minority as opposed to a bona fide, disclosed, board- and shareholder-approved corrective measure to a leverage-ratio breach that had already arisen (the underlying debt) independent of any design against the minority. On the material placed before us....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpugned Order. For the purposes of the analysis, even discarding reliance on the replies of Respondent Nos. 6 to 10, the core findings survive independently on the pleadings of the Complaining Petitioners / the Respondents herein themselves, read with the admissions of the Company and its then management in their own replies before the Tribunal inter-alia: (i) the leverage ratio breach and its magnitude; (ii) the timeline and circumstances of the OCD-to-CCPS conversion (; (iii) the purchase of the Bentley motor car from Luxus; (iv) the fact, if not the cause, of mass resignation of Key Managerial Personnel; (v) the alleged non-implementation of the RBI letter dated 30.05.2023 and the Company's own explanation therefor; and (vi) the removal of the Independent Directors during the pendency of the petition independently substantiated by the orders of the Tribunal. Since each of these findings is independently sustainable without recourse to the replies of Respondent Nos. 6 to 10, the technical infirmity identified above, while a fair criticism of the drafting of paragraph 65 of the Impugned Order, does not vitiate the ultimate conclusion reached by the Tribunal and therefore in our op....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f India Act, 1934 constitute the relevant penalty architecture for NBFCs. Section 45JA empowers the RBI, where satisfied that it is necessary in the public interest, or to regulate the financial system, or to prevent the affairs of an NBFC being conducted in a manner prejudicial to the interest of the NBFC, to determine policy and issue directions relating to (inter alia) capital adequacy, and every NBFC is bound to comply. Section 58B(aa) makes it an offence, punishable with imprisonment up to three years and fine, for a company to fail to comply with any direction given by the Bank under Chapter IIIB (which includes directions on capital adequacy/leverage issued under Section 45JA). Section 58G provides that, notwithstanding Section 58B, where the contravention is committed by a NBFC, the RBI may after a show-cause notice and opportunity of hearing impose a monetary penalty on the NBFC in lieu of prosecution; 112. The Appellant's argument that a leverage-ratio breach is actionable only by way of penalty under Section 58G and is therefore outside the Tribunal's remit under Sections 241-242 of the Companies Act, 2013, proves too much and must be rejected for reasons. We ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....undisclosed, is a finding of fact amply supported by the record and calls for no interference. 115. We are also of opinion that the Appellants are not correct in arguing that conversion into CCPS extinguished the alleged mischief for all purposes. We need to take into consideration the vital fact that, the CCPS were made convertible into equity at any time within twenty years, far in excess of the five-year threshold ordinarily applied for reckoning whether such an instrument continues to be treated as a liability (rather than as owned funds) for capital-adequacy purposes; in addition to the fact that the Board Resolution dated 27.09.2022 itself contemplated conversion "at any time" up to twenty years. The contention that the leverage-ratio mischief was definitively and finally cured by the conversion is, at the least, not established on the record as an unqualified proposition, and the Tribunal's scepticism on this score cannot be said to be without foundation. 116. On the specific attack by the Appellants on paragraphs 54-55 of the Impugned Order stating that reliance on the "liability being more than hundred times of paid-up capital" as a factor relevant to the "just and e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tter dated 27.03.2026 and find that the Appellants' submission that RBI has exonerated the Company is directly contradicted by the RBI's own speaking order dated 27 March 2026, which finds that the company: (i) breached the leverage ratio prescribed in the NBFC Directions; (ii) failed to submit mandated supervisory returns within the prescribed timeline with delays ranging from 9 days to 2.5 years; and also (iii) failed to submit its balance sheet to the RBI within the prescribed timeline. 119. On the issue regarding allegation of the violation of leverage ratio due to conversion of OCD to CCPS without the RBI's approval, the Appellants reiterated with the RBI being a regulator is the exclusive Apex regulator for the NBFC's and is only entity entitled to look into the matter of NBFC like the company herein and therefore, the Tribunal has no jurisdiction to look into these matters. We reiterate that the Tribunal was within the rights to examine the aspect of oppression and mismanagement and one of the aspects was alleged violation of leverage ratio which affects the core foundation of the company. Therefore, we are not persuaded by submission of the Appellants in this reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounts and the statutory auditors' reports submitted by the Exclusive Capital Ltd. on 17.03.2025. A true copy of the letter dated 21.03.2025 is annexed herewith as ANNEXURE R-1. 13. It is submitted that though the answering Respondent deemed it appropriate to not cancel the certificate of registration as NBFC of the Exclusive Capital Ltd., however, vide Order dated 27.03.2026 the answering Respondent in exercise of its powers under Section 58G(1)(b) read with Section 58B(5)(aa) of Reserve Bank of India Act,1934 for the abovesaid violations i.e., (i) for breaching the permissible limit of leverage ratio; (ii) for failing to submit certain supervisory returns to RBI as per prescribed frequency and within the stipulated timelines and (iii) for failing to furnish its balance sheet to RBI within the stipulated period; has imposed a monetary penalty of Rs. 10.30 Lakhs (rupees Ten Lakh Thirty Thousand only) on Exclusive Capital Ltd. A true copy of the Order dated 27.03.2026 is annexed herewith as ANNEXURE R-2. 14. It is submitted that with the above imposition of penalty, the answering Respondent has concluded its enforcement action against the Exclusive Cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Committee concludes that the company breached the leverage ratio significantly beyond the permissible limit of seven, and therefore, did not comply with the Bank's directions contained in paragraph 6 of the Master Directions, 2016 and now reiterated in paragraph 17 under Chapter II read with paragraph 4(7) under Chapter I of Reserve Bank of India (Non-Banking Financial Companies - Prudential Norms on Capital Adequacy) Directions, 2025 dated November 28, 2025 (Updated as on March 10, 2026), which warrants imposition of monetary penalty........... 8. Accordingly, in exercise of the powers conferred under section 58G(1)(b) read with clause (aa) of section 58B (5) of the Reserve Bank of India Act, 1934, an aggregate monetary penalty of Rs.10.30 lakh (Rupees Ten Lakh Thirty Thousand only), is hereby imposed on Exclusive Capital Limited and the company is directed to pay the said penalty of Rs.10.30 lakh (Rupees Ten Lakh Thirty Thousand only), within thirty (30) days from the date of receipt of this Order. 9. A copy of this order be served on the Managing Director of the company for due compliance. The imposition of penalty is without prejudice to such other act....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... financial system in which it participates. A breach of the order of 117.77 times, several times the ceiling, by a company whose core business is the deployment of borrowed capital is, on any view, a matter of genuine prudential and public concern, and not a mere technical or accounting irregularity confined to the internal affairs of the Company. The Tribunal's characterisation of the breach as one affecting "public interest" within Section 241(1)(a) of the Companies Act 2013 is, in this Appellate Tribunal's assessment, well founded on this independent basis as well. 124. The Appellant's argument that CCPS, not being "equity share capital" within the meaning of Section 43 of the Companies Act 2013, until conversion, does not by itself attract the 26 per cent threshold, is not without force as a matter of statutory construction, and this Appellate Tribunal does not reject it outright. However, that argument of the Appellants, even if accepted, is not determinative of whether the transaction, viewed as a whole, discloses conduct that is burdensome, harsh or wrongful, or lacking in probity and fair dealing, which remains the touchstone for oppression laid down in Shanti Prasad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at rates allegedly below prevailing commercial rates, on loans of this magnitude extended by a RBI-regulated lending NBFC to entities controlled by its own promoters/directors, itself is indicative prima facie of a related-party arrangement inconsistent with the fiduciary standard expected of directors dealing with the capital of the company they manage. The explanation of the Appellants that the purchase price of the Bentley was ultimately reconciled against the Rs. 9 crore tranches of the Luxus loan, rather than being recovered in cash with interest, only reinforces the inference of circularity and self-dealing rather than dispelling it. 127. This Appellate Tribunal accordingly finds no infirmity in the Tribunal's conclusion, at paragraph 67 of the Impugned Order, that the purchase of the Bentley, in the context of the Company's modest paid-up capital and the related-party character of the counterparty, discloses improbity in the conduct of the company's affairs. 128. For completeness, the material related-party transactions placed on record and as brought out to our notice during pleading (over and above the Bentley purchase) are tabulated below, without going into det....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ord by the Respondents and the Appellants have always denied the existence of such expansion agreement or binding the obligation of the same. The Appellants justified their action in sending the application to the RBI for approval stating that this was only enabling clearance and did not tantamount to automatic and compulsory allotment of shares without consideration. The Appellants further submitted that the Respondent have not taken up the issue of alleged violation of expansion agreement or non implementation of the same before any authority including filing suit for specific performance. 131. On the other hand, the Respondents have brought to our notice that RBI issued its approval to the Expansion Agreement to the company on 30.05.2023, which was granted subject to satisfaction of preconditions by the company inter-alia included: (1) Prior Public Notice to be issued by the company about change in control/ management. (2) Original public notice to be submitted by the company with RBI within 7 days. (3) Objections received, if any, to be furnished to RBI. If no objections received, a confirmation to this effect be sent to RBI after 30 days of public....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nk any such demand letters. We do not intent to go further into such allegations by the rival litigants on this issue and leave it to the Tribunal to look into the matter in details, while finally adjudicating the company petition No. 48/ND/2024. 135. Issue V: Whether the mass resignation of Key Managerial Personnel and the removal of the Independent Directors during the pendency of the petition constitute relevant and probative material for the purposes of Sections 241/242 of the Companies Act, 2013? 136. It is an admitted fact that five prominent Managerial Personnel, including the Company Secretary, the Chartered Accountant/Statutory Auditor and the business head, resigned within a short span of time as the same day, and that two Independent Directors were removed from the Board during the pendency of the petition. 137. We find that the Tribunal correctly declined to conduct what would, in effect, have been a "roving inquiry" into the truth of each individual's allegations of incompetence or misconduct, and confined itself to the objective fact of a mass, near-simultaneous exodus of the very personnel responsible for legal, financial and business compliance of a RBI-reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(51) of the Companies Act, 2013, or not, nevertheless in sprit, the very fact that many top executives of the company including the business had CFO Auditor, Company Secretary and resigned enmass, do not augur well for the company. It certainly reflects on the corporate governance issue in the company, which are to be legitimately examined and adjudicated finally upon by the Tribunal under Section 241 and 242 of the Companies Act, 2013 in the pending C.P./48/ND/2024. ISSUE VI: Submission of five reports of the Observer and the issue of non-payment of remuneration to the observer? 141. Now we will deal issue regarding observer's five reports submitted by Justice R. K. Gauba. We note that the observer has filed five reports including Report No. 2 dated 02.12.2024, giving findings of siphoning of fund and various other such reports which were outside the scope of company petition. The Appellants submitted that the observer report No.2 was based on conjectures and surmises creating wrong impression about the company. The Appellants also stated that the Observer Report No. 5, alleging that both improperly appointed a new CFO and Independent Directors in the breach of the judicial ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the observer appointed under judicial orders is paid strictly in accordance with terms and condition of his appointment. The company shall ensure payment as per direction of the tribunal. Conclusions 145. Based on above detailed analysis and considering various allegations like the leverage-ratio breach, alleged related-party transactions inconsistent with fiduciary norms, alleged non-implementation of the RBI-sanctioned arrangement described internally as "Expansion Agreement", mass exodus of compliance personnel, and removal of both Independent Directors in alleged defiance of the Tribunal's interim orders, discloses precisely the sort of "consecutive story" that satisfies the Shanti Prasad Jain standard. This Appellate Tribunal finds no error in the Tribunal's reliance on this material as corroborative of the finding of oppression and mismanagement. 146. In view of all circumstances discussed above, we hold that the appointment of the independent Administrator and suspension of the Board for a defined, finite period of 180 days as per the Impugned order pursues the legitimate aim of preventing further prejudice pending a fuller inquiry, is suitable to that ai....