2020 (8) TMI 648 - AT - Companies Law

Oppression and mismanagement - Illegal allotment of shares - It is argued that the allotment of 20 lakh shares made in pursuance of the scheme of 2002 is liable to be set aside in view of the fact that it violates the provision of section 18(3) of SICA - appellant sought relief of Status quo ante on the shareholding pattern of the Respondent No.1 company as prior to the allotment of 25 lakhs shares to Respondent No.2 in 2005 - HELD THAT - It is not in dispute that the unsecured loan was given to Respondent No.1 company by the 2nd Respondent. It is also not in dispute that the Respondent No.1 company was in financial stress and a reference was made and the company was referred to BIFR who approved rehabilitated scheme and directed that the unsecured loan to the tune of ₹ 2,50,00,000/-granted by 2nd Respondent be converted into equity shares and accordingly these were converted into shares. It is also noted that during the arguments the appellant is agitating that the allotment of 25 lakh shares is illegal but have never come forward to argue that the appellant is ready to infuse the fund and the shares may be allotted to him. In the absence of any such offer and in the light of the Scheme approved by the BIFR directing the conversion of unsecured loan to equity shares what other alternatives could be operated in the circumstances - It is but natural that who has granted unsecured loan to the company, will be allotted shares as per the scheme approved by BIFR and upheld by AAFIR. The Hon ble High Court has dismissed the appeal filed by the appellant challenging the orders of BIFR and AAIFR - impugned order upheld. Oppression and mismanagement - allotment of shares - Allegation that the Respondent No.2 beached his trust and abused the position of power to usurp control on the company and resort to illegal enrichment at the cost of appellant - HELD THAT - It is not in dispute that the unsecured loan was given to Respondent No.1 company by the 2nd Respondent. It is also not in dispute that the Respondent No.1 company was in financial stress and a reference was made and the company was referred to BIFR who sanctioned the Scheme and directed that the unsecured loan to the tune of ₹ 2,00,00,000/-granted by 2nd Respondent be converted into equity shares and accordingly these were converted into shares. We also note that during the arguments the appellant is agitating that the allotment of 20 lakh shares is illegal but have never come forward to argue that the appellant is ready to infuse the fund and the shares may be allotted to him. On the other hand when he was offered shares he refused the offer. It is but natural that who has granted unsecured loan to the company, will be allotted shares as per the scheme sanctioned by BIFR. The Hon ble High Court has dismissed the appeal filed by the appellant challenging the orders of BIFR and AAIFR in another matter - Impugned order upheld. Both the appeals dismissed.

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Legality of the allotment of equity shares.
3. Compliance with statutory provisions under the Companies Act and SICA.
4. Res judicata, issue estoppel, and cause of action estoppel.
5. Period of limitation for filing the company petition.
6. Imposition of costs by NCLT.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The appellant alleged that Respondent No. 2 breached trust and usurped control of the company, engaging in illegal enrichment at the appellant's expense. The appellant claimed that the NCLT failed to consider acts of oppression and mismanagement by Respondent No. 2, which were intended to defraud and defeat the appellant's interests. The appellant argued that these acts were ongoing and, therefore, the petition should not be barred by limitation.

2. Legality of the Allotment of Equity Shares:
The appellant challenged the allotment of 25 lakh shares worth ?2.5 crores to Respondent No. 2 during the subsistence of an AAIFR stay order, arguing it was void ab initio. The appellant also contested the allotment of 20 lakh shares, claiming it violated Section 18(3) of SICA, as there was no publication in international newspapers to inform the appellant, an NRI. The appellant argued that the allotment was made behind his back and disturbed the equity structure to his detriment.

3. Compliance with Statutory Provisions:
The appellant contended that the allotment of equity shares violated various statutory provisions under the Companies Act, specifically the requirement for approval through special resolutions under Section 81(1A) for increasing authorized capital and amending the memorandum and articles of association. The appellant argued that the allotment was null and void due to non-compliance with these provisions.

4. Res Judicata, Issue Estoppel, and Cause of Action Estoppel:
The respondents argued that the issue of allotment of 25 lakh shares had attained finality in prior proceedings and was barred by res judicata, issue estoppel, and cause of action estoppel. They contended that the appellant's petition suffered from delays and latches and that the conversion of unsecured loans into equity shares was upheld by BIFR, AAIFR, and the High Court.

5. Period of Limitation:
The respondents claimed that the appeal was barred by limitation as it was filed beyond the prescribed period. They argued that the appellant did not offer any explanation for the delay in filing the appeal and that the petition was filed after significant delays and latches.

6. Imposition of Costs by NCLT:
The appellant argued that the NCLT erred in imposing a cost of ?5 lakhs while dismissing the company petition. The appellant sought to waive the cost and requested the relief sought in Company Petition No. 42/2015.

Judgment Analysis:

Company Appeal (AT) No. 214/2018:
The tribunal found that the BIFR had approved the conversion of ?2.5 crores of unsecured loans into equity shares, which was upheld by AAIFR and the High Court. The appellant did not challenge the High Court's dismissal of the writ petition. The tribunal noted that the appellant never offered to infuse funds and that the shares were allotted as per the scheme approved by BIFR. The tribunal upheld the NCLT's order, finding it well-reasoned and based on res judicata and delay/latches.

Company Appeal (AT) No. 344/2018:
The tribunal found that the BIFR sanctioned the scheme under SICA, which stipulated the allotment of 20 lakh shares against unsecured loans brought in by the promoter. The appellant was offered shares but declined the offer. The High Court had dismissed the appellant's writ petition challenging the AAIFR order, and the appellant did not challenge this dismissal. The tribunal upheld the NCLT's order, finding no merit to interfere and dismissing the appeals.

Conclusion:
The tribunal dismissed both appeals, upholding the NCLT's orders. The tribunal found that the allotment of shares was in accordance with the BIFR-approved scheme and that the appellant's petitions were barred by res judicata, issue estoppel, cause of action estoppel, and delays/latches. The tribunal also upheld the imposition of costs by the NCLT.

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