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2020 (8) TMI 612 - AT - Companies LawPrinciples of natural justice - no service of SCN - contention of the Appellant is that before passing an order against the Company, no show cause notice has been served and the Tribunal had no jurisdiction to inflict any damages against the alien Company, while deciding the inter-se dispute between two directors of a TL Company - HELD THAT - It is seen that the MTS Company was Respondent No. 3 before the Tribunal. However, it choose not to file reply of the Petition. Therefore, it can t be said that before passing of the order against the MTS Company, no opportunity of hearing was given by the Tribunal. Whether the Tribunal had Jurisdiction to inflict damages against the MTS Company? - HELD THAT - It is admitted fact that Parvesh is a director in the MTS Company since 15.10.2012 and he is also a promotor director of TL Company since incorporation of the TL Company i.e. 01.05.2016. Parvesh being a director entered into a vehicle hiring agreement with MTS Company on 25th June, 2016. As per this Agreement all five trucks of TL Company were under the exclusive hiring contract with MTS Company and the same were run by them till their possession was taken over by the financier, ICICI Bank Ltd on 05.01.2017 - thus, it is clear that both the Companies have close business relations and Appellant Parvesh is a Director in both the Companies. Hence, it cannot be said that the Tribunal had no Jurisdiction to inflict any damages against the MTS Company. Therefore the Tribunal held that Parvesh and MTS Company are jointly and severally liable to pay compensation to Brijesh. It is proved that Parvesh has not account for the earnings of the trucks from 20.8.2016 to 5.1.2017. However, Learned Tribunal without considering the above referred circumstances ordered Parvesh and MTS Company to pay ₹ 20 Lakhs is not justifiable - Brijesh has not produced any voucher for the amount ₹ 3,71,5000/- and has not satisfied how the advance amount of ₹ 2 Lakhs received under agreement from MTS Company was adjusted. The capital of ₹ 5 Lakhs in four and half months would earn ₹ 2.25 Lakhs. Hence, Brijesh is entitled for capital ₹ 5 lakhs plus 2.25 lakhs total ₹ 7.25 lakhs which is just and proper compensation. It shall be paid by Parvesh and MTS Company jointly and severally within a month from today and in default, they have to pay interest on ₹ 7.25 Lakhs at the rate of 8% p.a from the date of the order of the NCLT till realization. Parvesh entered into an agreement with the consent of Brijesh therefore, he is not guilty u/s 188 of the Companies Act, 2013. Hence, the direction of the Tribunal for initiation of action against Parvesh is quashed - Appeal allowed.
Issues Involved:
1. Mismanagement and oppression in the affairs of TL Company. 2. Unauthorized use of TL Company’s trucks by MTS Company. 3. Financial misappropriation and non-payment of EMIs. 4. Jurisdiction of the Tribunal to inflict damages against MTS Company. 5. Calculation and justification of compensation awarded to Brijesh. Issue-wise Detailed Analysis: 1. Mismanagement and oppression in the affairs of TL Company: The Tribunal found that Parvesh mismanaged TL Company by not depositing business proceeds into the company's bank account, leading to defaults in EMI payments and financial losses. The Tribunal observed that Parvesh controlled TL Company’s operations and failed to provide a satisfactory explanation for the financial mismanagement, leading to the conclusion that Parvesh and MTS Company are jointly and severally liable to compensate Brijesh. 2. Unauthorized use of TL Company’s trucks by MTS Company: Parvesh entered into a Vehicle Hiring Agreement with MTS Company without a proper resolution from TL Company. The Tribunal noted that Parvesh admitted the trucks were used for MTS Company’s business, and the revenue generated was not remitted to TL Company. Despite Parvesh’s claim that Brijesh was aware and consented, the Tribunal found no formal authorization, leading to a conclusion of unauthorized use. 3. Financial misappropriation and non-payment of EMIs: Parvesh was accused of not accounting for the revenue generated from the trucks and unilaterally surrendering the trucks to ICICI Bank, resulting in financial losses. The Tribunal found that Parvesh failed to provide bank statements or evidence of proper financial management, supporting the claim of financial misappropriation. Parvesh’s counter-allegations against Brijesh were not substantiated with evidence, leading to a conclusion of financial mismanagement by Parvesh. 4. Jurisdiction of the Tribunal to inflict damages against MTS Company: The Tribunal held that it had jurisdiction to inflict damages against MTS Company due to the close business relationship between the companies and Parvesh’s directorship in both. The Tribunal found that MTS Company was a respondent in the case and had the opportunity to respond but chose not to, justifying the Tribunal’s authority to impose damages. 5. Calculation and justification of compensation awarded to Brijesh: The Tribunal initially awarded ?20 lakhs as compensation to Brijesh without sufficient evidence. Upon appeal, it was determined that the Tribunal did not consider several factors, such as the advance payment by MTS Company, Brijesh’s unaccounted withdrawals, and the feasibility of the claimed earnings. The Appellate Tribunal recalculated the compensation, considering a reasonable return on investment and other financial aspects, reducing the compensation to ?7.25 lakhs, to be paid jointly and severally by Parvesh and MTS Company. Conclusion: The appeals were allowed with modifications. The compensation was reduced to ?7.25 lakhs, and the direction for action against Parvesh under Section 188 of the Companies Act, 2013, was quashed. The judgment emphasized the need for proper financial management and accountability in company operations.
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