2020 (11) TMI 58 - Tri - Companies Law

Oppression and mismanagement - siphoning of funds - Section 242 of the Companies Act, 2013 - It is alleged that Respondents 2 to 4 have done gross violation of laws and fabricated various documents with the forged signature of Petitioner as well as other directors of the company from time to time with the sole motive to grab the control of the company and to siphon off the funds of the company, which lead the company into various litigations - HELD THAT - Without giving any opportunity to the Respondents to submit their explanation or to submit rebuttal/confronting document as per the principle of natural justice. Hence, the issue in involve in the Present Company Petition needs to deal with as per material available on record and on its merit. It is also matter of record the petitioner has made some short of vague allegation but has not established the actual damage quantify the amount of loss by giving cogent reasons and material proof of liability of such alleged loss, which caused alone by present Respondents and no one else. Thus, it may be seen that the Petitioner made allegation stating that Respondents were in illegal possession of the R-1 Company's Bio Medical Waste Treatment Plant at Jaipur and Swami Madhopur, they spoiled the plant, practically ruined the conditions of the plant and as there were series of complaint against their working, Nagar Nigam Jaipur cancelled the lease in 2016 and they run away from the plant in the fear of Police arrest. It is also matter of record that the petitioner has enclosed a copy of the pending criminal case (Annexure-C page 39) which were filed by the petitioner against the respondents or some other complaint against the respondent including R-1 Company. The chart goes to show that there were twelve cases filed against the present respondents. It is pertinent to note here that such cases were filed against the present respondent Mr. Ganesh Singh under Section 420, 406 and other offences under the IPC. This bench in exercise of the power conferred it to under Section 242 of the companies act to do the justice with the parties with a view to the bringing to an end the matter complained and to ensure smooth function of the Company as going concern - respondent company is directed to convene its AGM/EGM as the case may be to consider the report of the independent Chartered Accountant submitted before the CLB as per its direction and the shareholders/members of the company can discussed acceptability otherwise and take appropriate decision in accordance with law or its merits. Requisite measure and opportunity to take legal action in accordance law before appropriate forum. Further the company is granted liberty to make suitable amendments/corrections in its statutory returns. Petition disposed off.

Issues Involved:

1. Allegations of undue gain and siphoning of funds by respondents.
2. Allegations of statutory return manipulation and misrepresentation of paid-up capital.
3. Allegations of forgery and illegal removal of directors.
4. Allegations of business mismanagement and resultant financial losses.
5. Allegations of illegal possession and mismanagement of company assets.
6. Allegations of multiple litigations and criminal cases against respondents.
7. Request for issuance of directions under Section 242 of the Companies Act, 2013.

Issue-wise Detailed Analysis:

1. Allegations of undue gain and siphoning of funds by respondents:
The petitioner sought recovery of undue gains and siphoned funds from the respondents. The petitioner alleged that respondents 2 to 4 fabricated documents and forged signatures to gain control of the company and siphon off funds. However, the Tribunal noted that the petitioner failed to provide conclusive evidence and material proof of the alleged loss caused solely by the respondents. The Tribunal emphasized the need for formal acceptance and verification of the independent Chartered Accountant's report before it could be considered conclusive evidence.

2. Allegations of statutory return manipulation and misrepresentation of paid-up capital:
The petitioner claimed that the respondents filed concocted documents with the MCA, falsely reflecting a paid-up capital of ?15,00,000/- and 22 shareholders instead of the actual 7 shareholders and ?7,000/- paid-up capital. The Tribunal found the petitioner's allegations vague and lacking substantiation with cogent evidence. The Tribunal directed the company to make suitable amendments/corrections in its statutory returns as necessary.

3. Allegations of forgery and illegal removal of directors:
The petitioner alleged that respondents 2 and 3 were legally removed from directorship in September 2012 due to their misdeeds and forgery. The Tribunal acknowledged the pending litigation (TP No. 44 of 2016) where an independent Chartered Accountant's report indicated siphoning of funds. However, the Tribunal did not rely on this report as conclusive evidence without formal acceptance and verification. The Tribunal directed the company to consider the report in its AGM/EGM and take appropriate legal actions.

4. Allegations of business mismanagement and resultant financial losses:
The petitioner claimed that the respondents' actions led to the company's business loss of around ?100 crores and damaged its reputation. The Tribunal noted that the petitioner failed to quantify the actual damage or provide material proof of liability solely caused by the respondents. The Tribunal emphasized the need for a forensic audit of the company's accounts for the last five years and directed the company to appoint a Forensic Auditor.

5. Allegations of illegal possession and mismanagement of company assets:
The petitioner alleged that respondents were in illegal possession of the company's Bio Medical Waste Treatment Plant at Jaipur and Sawai Madhopur, leading to the plant's ruin and lease cancellation by Nagar Nigam Jaipur. The Tribunal found the petitioner's allegations vague and lacking substantiation with cogent evidence. The Tribunal directed the company to convene its AGM/EGM to discuss the independent Chartered Accountant's report and take appropriate decisions.

6. Allegations of multiple litigations and criminal cases against respondents:
The petitioner provided a summary of twelve criminal cases filed against the respondents, including charges under Section 420, 406, and other IPC offenses. The Tribunal noted that the petitioner failed to inform the current status and final outcome of these cases. The Tribunal emphasized that such issues fall within the domain of competent Civil/Criminal Courts and cannot be conclusively decided in this petition.

7. Request for issuance of directions under Section 242 of the Companies Act, 2013:
The petitioner sought various reliefs under Section 242 of the Companies Act, 2013, including recovery of undue gains, re-audit of accounts, and bearing litigation costs. The Tribunal examined the reasonableness and necessity of issuing such directions. The Tribunal directed the company to convene its AGM/EGM to consider the independent Chartered Accountant's report, make suitable amendments/corrections in statutory returns, and appoint a Forensic Auditor. The Tribunal appointed Mr. Kiran Shah as Facilitator and Mr. Anuj Trivedi as Observer to ensure compliance with the directions.

Conclusion:
The Tribunal disposed of the petition with specific directions to the respondent company to convene its AGM/EGM, consider the independent Chartered Accountant's report, make necessary statutory amendments, and appoint a Forensic Auditor. The Tribunal emphasized the need for formal acceptance and verification of evidence before making conclusive findings. The Tribunal directed the petitioner and the Registry to communicate the order to relevant parties and authorities. No order as to costs was made.

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