2022 (11) TMI 1011 - AT - Companies Law

Maintainability of appeal - Oppression and Mismanagement - Forum Shopping - cancellation of shares - restoration of shares in the register of members - nomination of directors - grievance of the Respondents / Petitioners is that the ₹ 1st Appellant / 2nd Respondent had kept the Respondents / Petitioners intentionally and deliberately in dark, without updating them, on the developments that were happening in the ₹ 4th Appellant / ₹ 1st Respondent / Company. Maintainability of appeal - It is the version of the Respondents / Petitioners that the instant Appeal, preferred by the ₹ 1st Appellant / 2nd Respondent and the ₹ 2nd Appellant / 3rd Respondent , is not maintainable in law, because of the fact that they have not disclosed that they are Disqualified as Directors of the Company, for the period from 01.11.2016 to October 2022 - HELD THAT - The ₹ 2nd Appellant / 3rd Respondent is described as a Director, of the ₹ 4th Appellant / 1st Respondent / Company, and not directly holding any Shares in the said Company. As a matter of fact, the ₹ 1st Appellant / 2nd Respondent along with his family members is described as promoted the ₹ 3rd Appellant / 4th Respondent / Company and further that the ₹ 1st Appellant / 2nd Respondent is described as the Managing Director of the ₹ 3rd Appellant / 4th Respondent / Company. Further, the entire Share Capital of Rs.1,00,000/- of the ₹ 3rd Appellant / 4th Respondent / Company is mentioned, to be held by the ₹ 1st Appellant / 2nd Respondent, together with his family members, etc. A mere glance of the Cause Title of CP/54/2012 (TCP/26/2018 filed by the Petitioners / Respondents in Appeal), indicates that the Respondents / Appellants, do figure as Appellants, in Comp. App (AT) No. 83 of 2020. Therefore, it is candidly clear that the Appellants in Comp. App (AT) No. 83 of 2020, on the file of this Tribunal, when they were arrayed as Respondents in CP/54/2012 (TCP/26/2018) by the Petitioners / Respondents in the Appeal, a Final Order was passed by the Tribunal in A. JAWAHAR PALANIAPPAN, A KOTHAI VERSUS KUMUDAM PUBLICATIONS PRIVATE LIMITED, P VARADARAJAN, DR. P SRINIVASAN, IMPRINT TECH INDIA PRIVATE LIMITED 2020 (12) TMI 419 - NATIONAL COMPANY LAW TRIBUNAL , CHENNAI BENCH inter se between the Parties, they are entitled to prefer an Appeal, having Locus Standi, before the Appellate Tribunal, as per the ingredients of Section 421 of the Companies Act, 2013, as Any Person aggrieved by an Order of the Tribunal. This Tribunal pertinently points out that the word Aggrieved means a substantial grievance, a denial of some personal, pecuniary or private rights / imposition upon a Party of a burden / obligation. Appeal against decision of Company Law Board - HELD THAT - Section 10F of the Companies Act, 1956, provided that an Appeal, shall lie against any Decision / Order of the Company Law Board, meaning that an Appeal, can be filed against any Order, passed by the said Board. However, the Companies Act, 2013, employs the words, an Order of Tribunal in sub-section 1 of Section 421, meaning that an Appeal, against any Order, passed by the Tribunal, shall be filed, even if the Order of the Tribunal, had not finally decided the Rights of Parties. In regard to the plea of the Respondents / Petitioners that no accounts were audited and no Annual Returns, filed by the 4th Appellant / 1st Respondent / Company and was in Default and therefore, the Appellant Nos. 1 and 2 were Disqualified as per Section 164 read with 167 of the Companies Act, 2013, the same cannot be countenanced because of the fact that the National Company Law Tribunal, Chennai, had passed an Order based on the consensus arrived between the parties and on the basis of Draft Terms, being filed inter alia stating that the Applicant / Respondent / Company has by an undertaking recorded by this Hon ble Tribunal, proposed that they would not hold AGMs, except to file IT Returns, which was not objected to by the Respondents / Petitioners and accepted by this Bench, etc., in the considered opinion of this Tribunal, in lieu of the fact that the restraint on holding of any of the AGM was because of the Order, passed by the Tribunal, at the behest of the Respondents / Petitioners. Hence, the plea of Disqualification of the Appellant Nos. 1 and 2 as Directors, put forward on the side of the Respondents / Petitioners is unworthy of acceptance by this Tribunal. Bar of Order II Rule 2 of Civil Procedure Code - the plea taken on behalf of the Appellants is that the Respondents / Petitioners after unconditionally withdrawing an earlier proceeding cannot be permitted to file a subsequent proceeding on similar facts - HELD THAT - The Learned Counsel for the Respondents proceeds to point out that the Company Law Board in its Order dated 26.05.2015 had not dealt with the issues raised in the Company Petition on merits, but ordered that Final Adjudication of the Company Petition, shall be deferred, until completion of two events (a) Adjudicating by the Enforcement Directorate on the validity of the acquisition of the 1st Respondent / 1st Petitioners in the Shareholding in the company and the Adjudication on the prayer for withdrawal of certain reliefs by the Respondents / Petitioners in CS No. 139 of 2012, before the Hon ble High Court of Madras (both of them) were completed before the Final Hearing of the main Company Petition. Plea of Bar - Order II Rule 2 of the Civil Procedure Code - HELD THAT - Order II Rule 2 of the Civil Procedure Code is based on the Rule of Law that no man shall be vexed twice for one and the same cause of action. In fact, Order II Rule 2 of the Civil Procedure Code, requires a Collection of all Claims, based on the same cause of action in one Suit. Cause of Action - HELD THAT - The requirement of Order II Rule 2 (3) of the Civil Procedure Code is that, this omission debars the Plaintiff, to sue for the Omitted Relief, in any further Suit or Proceedings, except when he omits to sue for the Relief with Leave or Permission of Court. In order to attract the ingredients of Order II Rule 2 (3) of the Civil Procedure Code, it must be shown that the second Suit is based on identical cause of action, the criterion for judging so, is whether the same evidence would maintain both actions. In the instant case, it cannot be lost sight of when the four prayers were deleted as per the Order of the Hon ble High Court of Madras, the Hon ble High Court at paragraph 20 had in a crystalline manner had observed that the 1st Respondent /1st Petitioner (Plaintiff) had not sought for Liberty to file a fresh Suit, it is like giving up his Claim and further that once the Plaintiff filed an Application to Withdraw the Suit in Full or Part, that is the end of Litigation and there can no objection - It is pointed out that National Company Law Tribunal and the National Company Law Appellate Tribunal are creatures of Statute / Law and while disposing of any proceeding, before it or an Appeal, shall not be bound by the Procedure, prescribed in the Civil Procedure Code. But, they are to adhere to the principles of natural justice, Equity and can regulate their own procedure. Moreover, the Fetter of Civil Procedure Code, is not binding on the Tribunal and the Appellate Tribunal, as opined by this Tribunal. Suit under Civil Procedure Code - HELD THAT - When a Civil Suit, is filed before the Competent Court of Law, then, all the ingredients of Civil Procedure Code, will apply, to the conduct of proceedings, before the said Forum - Where matters are to be determined pertain to the exercise of jurisdiction of Tribunal or an Appellate Tribunal, those matters cannot be determined by a Civil Court, although, the Tribunal or the Appellate Tribunal in discharging its functions is to exercise certain powers vested in Civil Court. One cannot remain in oblivion to the fact that a Civil Court, does not Grant Leave, to file another Suit/ Given Proceeding. If the Law permits, the Plaintiff, may file another Suit, but not on the basis of observations made by a Superior Court. This Tribunal without any haziness, comes to a cocksure conclusion that either the ingredients of Order II Rule 2 of the Civil Procedure Code or Order II Rule 3 of the Civil Procedure Code are inapplicable, based on the facts and circumstances of the instant case, which float on the surface and answered accordingly. In the instant case on hand, the Allotment of Shares, to the 1st Respondent / 1st Petitioner (Foreigner) is not a legally valid one, as opined by this Tribunal, because of the fact that the Acquisition and holding of Shares by the ₹ 1st Respondent / 1st Petitioner in the ₹ 4th Appellant / 1st Respondent / Company (M/s. Kumudam Publications Pvt. Ltd.), in the Year 2001-2002, is in violation of Regulation 4 and 7 of Foreign Exchange Management (Transfer or Issue of Security by a Person, resident outside India) Regulations (FEMA Regulations), which clearly prohibits the issuance of shares of a Print Media company to a person resident outside India, Regulations 2000 - It cannot be forgotten that the Regulation 7 of FEM (Transfer or Issue of Security by a Person, resident outside India) Regulations 2000, does not differentiate between the Acquisition of Shares of the Amalgamated company by way of Foreign Direct Investment or in any other manner, in the considered opinion of this Tribunal. The Doctrine of Public Policy or the Policy of Law is an Unruly Horse and the Doctrine is extended to a Harmful Case and Harmful Tendencies. No wonder, the Doctrine of Public Policy, is only a Branch of Common Law. In the instant case on hand, there being no permission being obtained from the Reserve Bank of India / Central Government in respect of the Allotment of Shares in favour of the 1st Respondent / 1st Petitioner (a Foreign Citizen), the said Allotment of Shares is not a Valid and Proper one. Also that, not obtaining the necessary / due permission from the Reserve Bank of India / Central Government, does not change the Scheme sanctioned by the Hon ble High Court, as held by this Tribunal - this Tribunal, at this stage, relevantly points out that without obtaining permission from the Reserve Bank of India, for Acquiring/ Holding / Allotment of Shares, a Person holding the Shares is not recognised as a valid person, to enter his name in the Register of Members of the Company. To put it pinpointedly, the Board of Directors of a company, has every right / duty, to decline the registration of such shares, until the time of the permission of Reserve Bank of India is obtained. Reduction of share capital - HELD THAT - The company and the Board of Directors, do have an option, to cancel the Shares which was originally allotted and later found to be an illegal allotment, allotted in violation of the prevailing Law of the Land - In as much as the Allotment of Shares, to and in favour of the 1st Respondent / 1st Petitioner, made by the 4th Appellant / 1st Respondent / Company (M/s. Kumudam) is not in accordance with the prevailing law of the land (i.e., FEMA 1999 and its Regulations), the said Allotment, has no sanction in the eye of Law, as held by this Tribunal, and further that the said Cancellation of Shares, by the 4th Appellant / 1st Respondent Company, is a valid one, in the eye of Law and therefore, the aspect of Restoration of Cancelled Shares, does not arise on any score. On a consideration of respective contentions, this Tribunal, ongoing through the impugned order dated 27.05.2020 (delivered on 01.06.2020) in CP/54/2012 (TCP/26/2018), passed by the Tribunal (National Company Law Tribunal, Chennai Bench), in the teeth of attendant facts and circumstances of the case, in an integral, holistic and conspectus fashion, comes to an inescapable, inevitable, and an irresistible conclusion that the said Order, is an Invalid, Untenable and Unsustainable one, bristling with Legal Infirmities. Appeal allowed.

Summary

Issues Involved:
1. Validity of the Board Meeting and Resolutions dated 20.09.2011.
2. Legality of the cancellation of shares held by the 1st Petitioner.
3. Validity of the alteration to the Articles of Association.
4. Legality of the cessation of the Petitioners as Directors.
5. Appointment of additional Directors and a Chairman.

Detailed Analysis:

1. Validity of the Board Meeting and Resolutions dated 20.09.2011:
The Board Meeting held on 20.09.2011 was deemed valid despite the absence of the Petitioners. The Tribunal found that the resolutions passed, including the cancellation of shares held by the 1st Petitioner, were conducted without the presence of the Petitioners, rendering the resolutions invalid. However, the Appellate Tribunal concluded that the Board of Directors had the authority to cancel shares that were found to be illegally allotted, and thus the resolutions were valid.

2. Legality of the cancellation of shares held by the 1st Petitioner:
The Tribunal initially held that the cancellation of 3,32,400 shares of Rs.100 each held by the 1st Petitioner was illegal, invalid, and non-est in law. The Appellate Tribunal, however, found that the allotment of shares to the 1st Petitioner, a foreign citizen, was in violation of FEMA regulations and thus void. Consequently, the cancellation of these shares by the Board was deemed valid and lawful.

3. Validity of the alteration to the Articles of Association:
The Tribunal ordered the deletion of Clauses 31(a), 32, and 39(b) of the Articles of Association, considering them harsh and oppressive. The Appellate Tribunal noted that these amendments were made with unanimous consent, including from the Petitioners, and thus could not be contested later. The alterations were found to be valid and binding.

4. Legality of the cessation of the Petitioners as Directors:
The Tribunal declared the cessation of the Petitioners as Directors, as intimated by the filing of Form 32, to be illegal and non-est in law. The Appellate Tribunal, however, upheld the cessation, noting that the Petitioners had failed to attend three consecutive Board Meetings, thereby vacating their office by operation of law under Section 283(1)(g) of the Companies Act, 1956.

5. Appointment of additional Directors and a Chairman:
The Tribunal permitted the nomination of two more Directors, bringing the total to six, and appointed a Chairman for six months to implement its orders. The Appellate Tribunal found this direction to be beyond the Articles of Association, which limited the number of Directors to four. Additionally, the appointment of a Chairman was deemed unnecessary as the Petitioners failed to establish a case of oppression or mismanagement.

Conclusion:
The Appellate Tribunal set aside the Tribunal's order, validating the cancellation of shares and the cessation of the Petitioners as Directors. The alterations to the Articles of Association were upheld, and the directions for appointing additional Directors and a Chairman were nullified. The Company Petition filed by the Respondents was dismissed.