2017 (3) TMI 1422 - Tri - Companies Law

Oppressive conduct against the petitioners - Exercise of the rights of FMO for protecting its economic interest - investment structure conceived by FMO (foreign investor invested ₹ 418 crores in the year 2009) for bringing foreign investment into Amazia and Rubix (both are 100% subsidiaries of Vinca) routing through Vinca is in breach of Foreign Exchange Management Act (FEMA), therefore the rights accrued to FMO on ₹ 418 crores invested in Vinca - Held that - On having this Bench observed that either seeking a direction not to convert CCDs into shareholding of Vinca or seeking a conversion of OPCDs into shares of Amazia and Rubix will ultimately nothing but taking away the rights of FMO and its Nominee Directors by the Petitioners themselves through Hubtown, therefore, this Bench, having believed such orders could not be passed citing the affirmative right given to the Nominee Directors of FMO as unfair, does not find any merit in these allegations made by the Petitioners. If the entire petition is taken as whole and look for case under section 241 & 242 of the Companies Act 2013, to our knowledge, no cause of action arose for showing the exercise of the rights of FMO for protecting its economic interest is unjust and unfair to the petitioners, moreover the company is managed by the petitioners and it is not the case of the petitioners that the money invested by FMO was spent by FMO, therefore by seeing some ornamental paras recanting unfair, harsh and burdensome slogans, devoid of any material facts will not amount to cause of action because such paras have no material facts warranting this Bench to inquire into, hence this Bench hereby held that this case is liable to be dismissed in limine. If the facts of the case are such that they need no further proof to take into consideration and if those facts do not make any cause of action under the sections relied upon, then we don t believe that this Tribunal has to remain waiting until pleadings of the case are complete, because such waiting will never improve the case of the petitioners except causing inconvenience and sufferance to the answering Respondents and to this Bench and the litigation like this shall not be entertained more specially when litigation is intended to circumvent the directions of other competent courts on the same subject matter. To answer all these points and also to uphold dispensation of timely justice, this Bench for the reasons aforestated, hereby dismissed this Company Petition in limine with a direction to the petitioners to pay exemplary costs of ₹ 50, 000 to NCLT, Mumbai for filing this vexatious and frivolous litigation.

Summary

Issues Involved:
1. Breach of Foreign Exchange Management Act (FEMA) by FMO's investment structure.
2. Modification of Articles of Association of Vinca.
3. Restraint on Nominee Directors of FMO from acting as Directors of Vinca.
4. Declaration of Board of Directors of Vinca not bound by instructions of Nominee Directors of FMO.
5. Removal of Nominee Directors of FMO from the Board of Vinca.
6. Declaration of actions taken by IDBI Trusteeship Services Ltd. as illegal.
7. Conversion of Optionally Partly Convertible Debentures (OPCDs) issued by Amazia and Rubix.
8. Restraint on conversion of Compulsorily Convertible Debentures (CCDs) issued in favor of Vinca.
9. Compensation to Vinca for loss due to failure of FMO and its Nominee Directors.
10. Ad-interim and interim reliefs.
11. Costs of the Petition.

Issue-wise Detailed Analysis:

1. Breach of Foreign Exchange Management Act (FEMA) by FMO's investment structure:
The Petitioners argued that the investment structure conceived by FMO, which involved routing foreign investment into Amazia and Rubix through Vinca, breached FEMA regulations. They contended that the rights accrued to FMO from its ?418 crores investment should be set aside, and FMO’s actions to realize its investment were oppressive. The Tribunal noted that the Supreme Court had already addressed this issue, stating that the transaction itself did not violate FEMA regulations, and any potential violation would only occur if the funds were repatriated without RBI permission.

2. Modification of Articles of Association of Vinca:
The Petitioners sought to modify the Articles of Association of Vinca to align with Table F of Schedule I of the Companies Act, 2013. The Tribunal found that the Petitioners had voluntarily agreed to the existing Articles, which included provisions for affirmative votes by FMO’s Nominee Directors on reserved matters. The Tribunal held that compliance with these Articles could not be deemed oppressive, as they were part of the contractual agreement between the parties.

3. Restraint on Nominee Directors of FMO from acting as Directors of Vinca:
The Petitioners requested that the Nominee Directors of FMO be restrained from acting as Directors of Vinca. The Tribunal found no merit in this request, noting that the Nominee Directors were acting within their rights as per the Articles of Association and the agreements between the parties.

4. Declaration of Board of Directors of Vinca not bound by instructions of Nominee Directors of FMO:
The Petitioners sought a declaration that the Board of Directors of Vinca was not bound to act according to the instructions of FMO’s Nominee Directors. The Tribunal rejected this request, emphasizing that the Articles of Association provided for the Nominee Directors’ affirmative vote on reserved matters, and this arrangement was contractually agreed upon by the Petitioners.

5. Removal of Nominee Directors of FMO from the Board of Vinca:
The Petitioners sought the removal of FMO’s Nominee Directors from the Board of Vinca. The Tribunal found no grounds for this request, as the Nominee Directors were acting in accordance with the Articles of Association and the agreements between the parties.

6. Declaration of actions taken by IDBI Trusteeship Services Ltd. as illegal:
The Petitioners requested that the actions taken by IDBI Trusteeship Services Ltd. (Debenture Trustee) be declared illegal. The Tribunal noted that the Debenture Trustee was acting on instructions from FMO’s Nominee Directors, which was within their rights as per the Articles of Association and the agreements. Therefore, the Tribunal found no basis to declare these actions illegal.

7. Conversion of Optionally Partly Convertible Debentures (OPCDs) issued by Amazia and Rubix:
The Petitioners sought the conversion of OPCDs issued by Amazia and Rubix into equity shares. The Tribunal held that the conversion of OPCDs was a reserved matter requiring the affirmative vote of FMO’s Nominee Directors. The Tribunal found no grounds to compel the Nominee Directors to exercise their vote in favor of conversion.

8. Restraint on conversion of Compulsorily Convertible Debentures (CCDs) issued in favor of Vinca:
The Petitioners sought to restrain the conversion of CCDs issued in favor of Vinca into equity shares. The Tribunal found that the conversion of CCDs was a contractual right of FMO, and restraining this conversion would unfairly prejudice FMO’s rights.

9. Compensation to Vinca for loss due to failure of FMO and its Nominee Directors:
The Petitioners sought compensation for losses allegedly caused by FMO and its Nominee Directors. The Tribunal found no evidence to support this claim, noting that the Nominee Directors were acting within their rights and in accordance with the Articles of Association and the agreements.

10. Ad-interim and interim reliefs:
The Petitioners sought various ad-interim and interim reliefs, including restraining the Nominee Directors of FMO from acting as Directors and modifying the Articles of Association. The Tribunal found no merit in these requests, as they were based on the same arguments that had already been rejected.

11. Costs of the Petition:
The Tribunal dismissed the Company Petition in limine, finding it to be vexatious and frivolous. The Petitioners were directed to pay exemplary costs of ?50,000 to the NCLT, Mumbai.

Conclusion:
The Tribunal dismissed the Company Petition, finding no merit in the Petitioners' claims. The Tribunal emphasized that the Petitioners had voluntarily agreed to the contractual arrangements with FMO, including the Articles of Association and the Debenture Agreements. The Tribunal found that the actions of FMO and its Nominee Directors were in accordance with these agreements and could not be deemed oppressive. The Petitioners were directed to pay exemplary costs for filing a vexatious and frivolous petition.