2016 (2) TMI 447 - Board - Companies Law

Amalgamation - Scheme for the management and administration of BBPL - injunction - Held that - The Board of Directors of BBPL is superseded. Hon ble Mr. Justice Permod Kohli and a former Chief Justice of Sikkim High Court is appointed as an Administrator of BBPL company to look after its day to day affairs. The Administrator shall be provided with the office area in New Delhi befitting his Lordship s status by Respondent Nos. 1 & 2 and whole record of BBPL be placed before him. The Learned Administrator may first explore the possibility of an amicable settlement by holding parleys between all parties and non-parties because they are all closely related. It is needless to say that the Administrator would associate Respondent No. 4 and BCDP also while working out amicable settlement. The Administrator may exercise all powers of Board of Directors or Managing Director of BBPL in conducting affairs of the company. All concerned shall assist the Learned Administrator. Further the Administrator may take all necessary steps to preserve and protect the properties of the BBPL He may also depute counsels, if so desired, to defend litigation initiated by Petitioner No. 1 at the Bombay High Court and suit filed by BCDP and Respondent No. 4 in City Civil Courts at Bangalore as well as in the High Court of Karnataka or any other litigation. The aforesaid course has been adopted as Petitioner No. 1 and Respondent No. 2 are not only real brothers but appears to be very close to each other at least in the past. With immediate effect Petitioners and Respondents are restrained from operating the bank accounts of BBPL . The bank account shall be operated only by the learned Administrator and none else. Any cash in hand with the Petitioners and/or Respondents belonging to BBPL be deposited with Ld. Administrator within one week from today. The Learned Administrator shall be entitled to remuneration which may be fixed by his Lordship himself. The meetings of the Board of Directors dated 22.02.2011 and 09.08.2014 along with resolutions passed therein are suspended at this stage instead of declaring them invalid. Likewise JDA dated 29.03.2011, Rectification Deed dated 15.04.2011 and GPA dated 29.03.2011 are also suspended instead of declaring them invalid. The Ld. Administrator may at his discretion submit a report with regard to the affairs of the company and progress made concerning amicable settlement.

Issues Involved:
1. Management and administration scheme for BBPL.
2. Validity of the Joint Development Deed, Rectification Deed, General Power of Attorney, and Board Meetings.
3. Entitlement of Respondents No. 2 and 3 to continue as Managing Director/Directors.
4. Injunction against Respondents from dealing with BBPL's assets.
5. Account rendering and compensation by Respondents Nos. 2, 3, and 9.
6. Forensic audit and investigation into BBPL's affairs.
7. Declaration of Article 31 of BBPL's Articles of Association as null and void.

Detailed Analysis:

1. Management and Administration Scheme for BBPL:
The petitioners requested the Board to frame a scheme for the management and administration of BBPL to ensure equal participation in the business and affairs of BBPL by both Petitioner No. 1 and Respondent No. 2 along with their respective families.

2. Validity of the Joint Development Deed, Rectification Deed, General Power of Attorney, and Board Meetings:
The petitioners challenged the legality of the Joint Development Deed (JDA) dated 29.03.2011, the Rectification Deed dated 15.04.2011, and the General Power of Attorney (GPA) dated 29.03.2011. They argued that the Board Meetings on 22.02.2011 and 09.08.2014, where these decisions were purportedly authorized, were conducted without proper notice to Petitioner No. 1, making them illegal under Section 286 of the Companies Act, 1956. The Board found that the failure to issue notice for the meeting on 22.02.2011 resulted in the invalidity of the resolutions passed therein, following the Supreme Court's observation in Parmeshwari Prasad Gupta v. Union of India.

3. Entitlement of Respondents No. 2 and 3 to Continue as Managing Director/Directors:
The petitioners sought a declaration that Respondents No. 2 and 3 were not entitled to continue as Managing Director/Directors of BBPL. The Board noted that Respondent Nos. 2 and 3 had a conflict of interest due to their involvement in BCDP, a company they incorporated, which competed directly with BBPL. This conflict of interest was evident as Respondent No. 2 signed the JDA and GPA on behalf of both BBPL and BCDP.

4. Injunction Against Respondents from Dealing with BBPL's Assets:
The petitioners requested an injunction to restrain the respondents from selling, alienating, transferring, or encumbering BBPL's assets. The Board issued an interim order restraining Respondent No. 2 from representing BBPL in proceedings involving BCDP and directed the respondents to maintain the status quo regarding construction on the land in pursuance of the JDA.

5. Account Rendering and Compensation by Respondents Nos. 2, 3, and 9:
The petitioners demanded that Respondents Nos. 2, 3, and 9 render accounts for the profits earned and compensate BBPL. The Board acknowledged serious allegations of mismanagement and diversion of business from BBPL to BCDP, which warranted further scrutiny and potential compensation.

6. Forensic Audit and Investigation into BBPL's Affairs:
The petitioners sought a forensic audit and investigation into BBPL's affairs. The Board recognized the need for an independent assessment of BBPL's financial and business activities due to the alleged mismanagement and conflict of interest by Respondents Nos. 2 and 3.

7. Declaration of Article 31 of BBPL's Articles of Association as Null and Void:
The petitioners argued that Article 31 of BBPL's Articles of Association was contrary to Section 291 of the Companies Act and should be declared null and void. The Board did not specifically address this issue in the detailed analysis but focused on the broader issues of mismanagement and conflict of interest.

Conclusion:
The Board concluded that the affairs of BBPL were not conducted in a manner beneficial to the company due to the actions of Respondent Nos. 2 and 3. The Board superseded the Board of Directors of BBPL and appointed Hon'ble Mr. Justice Permod Kohli as the Administrator to manage BBPL's day-to-day affairs and explore an amicable settlement. The Board suspended the resolutions passed in the meetings dated 22.02.2011 and 09.08.2014, along with the JDA, Rectification Deed, and GPA, instead of declaring them invalid. The Board also restrained the petitioners and respondents from operating BBPL's bank accounts, which would now be operated solely by the Administrator. The matter was set for further consideration on March 2, 2016, with the possibility of an earlier solution if the Administrator found one.

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