2018 (4) TMI 683 - AT - Companies Law

Oppression and Mismanagement - Petitioner-Appellant submitted that the affairs which have been or are being conducted in a prejudicial or oppressive manner both can be looked into and thus past affairs can also be considered - Held that - We find that have been relates to present perfect tense. It relates to action that began some time in the past and is still in progress. Wording are being relates to present continuous tense. There is a difference between have been and had been . Had been would be past perfect tense indicating acts which were committed in the past and which came to an end in the past. Apart from this, in view of our earlier finding that since 2005 itself the petitioner has had Board of Directors constituted of its own selected Chairpersons and also its own nominee and nominees of other lenders, except one promoter, as well as the management of the Company itself has had been with Petitioner and other lenders, such Petitioner can clearly not be heard putting blames on others. Thus, the petition would require to be dismissed even on this count. With R.O.C. after Petitioner and Promoters with enquiry under Section 206 of the New Act, the Appellant s object in filing Petition appears to be to stop and delay action being taken against the Petitioner, its employees and other lenders for the acts committed with regard to Respondent No. 1 Company which in turn had an impact on the Project which the Respondent No. 1 had taken up. No doubt, a person lending money may put conditions to protect its interest but there has to be a limit and it is unthinkable that the lenders took over the Company itself and committed acts attracting actions under the Companies Act and other Acts from which now protection was sought. The NCLT rightly held that the Petitioner had not approached the NCLT with bonafide intention. Looking to the facts of the present matter and above discussions, we order that the affairs of this Company ought to be investigated under Section 210 of the New Act in public interest. The Central Government should take steps accordingly. Whoever from the promoters, shareholders as well as the Petitioner-Appellant or other lenders, is found to be responsible for acting against Public Interest, needs to be made accountable. Central Government may also as part of investigation direct, at the cost of Company, forensic audit of the Company preferably under supervision of officials of Comptroller and Auditor General of India at least since 2005 if not earlier. In our view, the Government of Madhya Pradesh and Central Government both need to urgently consider the way forward in public interest to get project completed. We direct accordingly and decline to set aside the dismissal of the Company Petition. We however maintain the dismissal of the Company Petition but for the reasons discussed by us. The appeal is dismissed.

Summary

Issues Involved:
1. Validity of invocation of pledged shares.
2. Validity of conversion of sub-debt into equity.
3. Control over the management and affairs of the Respondent Company.
4. Allegations of oppression and mismanagement.
5. Limitation and delay in filing the petition.
6. Bona fides of the petition.
7. Access to statutory records and the report of ROC Gwalior.
8. Non-joinder of necessary parties.
9. Entitlement to reliefs sought in the petition.

Detailed Analysis:

1. Validity of Invocation of Pledged Shares:
The NCLT found that the invocation of pledged shares by the Petitioner was not valid. The Petitioner had not provided necessary documents such as the Pledge Deed and the notice invoking the pledge. The shares were transferred before the 30-day notice period expired, which was against the terms of the notice. The NCLT also held that under Section 176 of the Indian Contract Act, 1872, the pledgee could not acquire ownership of the pledged goods but could only sell them to recover dues.

2. Validity of Conversion of Sub-Debt into Equity:
The NCLT observed that the subordinate loan agreement was not filed, creating a cloud over the conversion of sub-debt into equity. The Petitioner relied on a resolution passed in an EGM held on 17th June 2010, but the NCLT found issues with its compliance. The conversion of sub-debt into equity was questioned for not adhering to Section 62 of the Companies Act, 2013, which requires prior approval by a special resolution before raising the loan.

3. Control Over Management and Affairs:
The NCLT found that since 2005, the effective control of the Respondent Company was with the Petitioner and other lenders. The Petitioner had appointed key positions and controlled the Board of Directors, sidelining the original promoters. The amendments in the Articles of Association facilitated this control, which was against the principles of corporate governance.

4. Allegations of Oppression and Mismanagement:
The NCLT held that the Petitioner could not complain about acts of oppression and mismanagement that occurred before it became a shareholder. The Petitioner was found to be in control of the company since 2005, and thus could not attribute mismanagement to the original promoters.

5. Limitation and Delay in Filing the Petition:
The NCLT found the petition to be barred by limitation and suffering from delay and laches. The grievances raised were related to a period when the Petitioner was already in control of the company, making the petition untimely.

6. Bona Fides of the Petition:
The NCLT concluded that the petition was not bona fide. The prayers in the petition sought protection from various authorities without making them parties to the case, indicating that the petition was filed to delay and block actions against the Petitioner and its nominee directors.

7. Access to Statutory Records and ROC Report:
The NCLT allowed parties to access the ROC report. The statutory records were claimed to be in possession of Respondent No. 10, but the NCLT found that there was no proper handover when Respondent No. 10 resigned, raising questions about the availability and control of these records.

8. Non-Joinder of Necessary Parties:
The NCLT noted the non-joinder of necessary parties, particularly the authorities against whom relief was sought, making the prayers in the petition untenable.

9. Entitlement to Reliefs Sought:
The NCLT dismissed the petition, finding that the Petitioner was not entitled to the reliefs sought. The petition was not filed in good faith and was aimed at obstructing regulatory actions.

Conclusion:
The appeal was dismissed, and the NCLT's findings were upheld. The NCLT's decision to dismiss the petition was based on the invalidity of the invocation of pledged shares and conversion of sub-debt into equity, control over the company by the Petitioner since 2005, delay and laches, lack of bona fides, and non-joinder of necessary parties. The NCLT also directed the Central Government to investigate the affairs of the company under Section 210 of the Companies Act, 2013, and to conduct a forensic audit.