2019 (5) TMI 1028 - Tri - Companies Law

Oppression and mismanagement - person who has failed to subscribe capital and failed to extend personal guarantee in accordance with an agreement entered into between the promoters, finally captured the Company with the help of banks and FIs - HELD THAT - While the petitioners would now argue that the acts are oppressive in nature and what was before the civil courts was not the oppressive nature of the acts but only the legality thereof, I am not inclined to accept this fine distinction that is now sought to be created. The erstwhile Company Law Board did enjoy the same powers in substance as the National Company Law Tribunal constituted in its place now does. However, not once did the petitioners approached the Company Law Board complaining of oppression and mismanagement in the said affairs. They have raised this issue for the first time in this petition in 2017 only. The R1 in its note on submissions with reference to Guarantee Commission has stated that after completion of trial in the suit, when the suit was coming up for final hearing, the petitioners have sought liberty to withdraw the suit pending in the civil court. The petition to withdraw the civil suit was filed before this Tribunal, when it ought to have been filed before the civil court. The R1 has stated that this is contrary to the procedure prescribed in Order 23 Rule 1 CPC. Further, no liberty was granted to the petitioners. As per section 424(1) of the 2013 Act, the Tribunal shall not, while disposing of any proceeding before it, be bound by the procedure laid down in the Code of Civil Procedure but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, shall have power to regulate their own procedure. Experience of other Tribunals and quasi-judicial bodies whose parent Acts carry similar provisions as section 424(1) of the 2013 Act, shows that while the provisions of CPC may not fully apply but parts of it apply in substance so long as it satisfies the contours of natural justice. Whether the P1 to P3 are entitled for guarantee commission as per the resolution passed by the Company? - Whether the act of the Company reversing the payment of guarantee commission and not making provisions for making payment of guarantee commission is in order or not? - HELD THAT - The resolution passed by the R1 Company for not making payment of guarantee commission and reversing the entries which stood in the financials of the company from 1994 to 2002, are made only to deprive the petitioners of their legitimate entitlement. The said act is nothing but act of oppression on minority by the majority - the issues are answered in favour of the petitioners and the R1 is directed to calculate the payment of guarantee commission from the date of extending the personal guarantee till the date of release of personal guarantee and make payment to the Petitioners within one month from the date of communication of copy of this order. Whether withholding the unsecured loan provided by the petitioners to the Company is in order and whether the reversal of making interest on the unsecured loan is in order or not? - HELD THAT - In the absence of any order from any court which may still be in force, withholding and reversing the entries with regard to making payment of unsecured loan is also an act of oppression against the minority shareholders by the majority shareholder - the R1 Company is directed to calculate and make payment of the outstanding unsecured loan with agreed percentage of interest within one month from the date of communication of copy of this order. Whether there is any ground for declaring the voting rights exercised by IDBI at the AGM and EOGM of 14.02.2005 based on pledged shares of the petitioners without invoking the pledge as contended by the petitioners? - HELD THAT - The petitioners are blowing hot and cold at the same time. While on page 19 of the written synopsis, the P1 to P3 have stated that the Petitioners are not seeking any relief in relation to the bidding but are brining on record to demonstrate how the petitioners have been oppressed, on page 21 of the written synopsis, the Petitioners have stated that dismissal of writ petition challenging bid of POAL and its approval by ARCIL or challenge to scheme of rearrangement under section 391 of 1956 Act cannot be construed that the issue of oppression and mismanagement was decided. Therefore, this argument cannot be accepted. Whether the petitioners have made out any cases for ordering investigation of the affairs of the Company under section 213 of the 2013 Act? - HELD THAT - I am not satisfied that there exist any circumstances that would justify making an order for investigation of the affairs of the R1 Company. Hence, there is no order for the investigation of the affairs of the R1 company. Petition disposed off.

Summary

Issues Involved:
1. Entitlement to guarantee commission.
2. Reversal of guarantee commission and non-provision for payment.
3. Withholding and reversal of unsecured loan and interest.
4. Validity of IDBI's voting rights at AGM and EOGM based on pledged shares.
5. Grounds for ordering investigation under Section 213 of the Companies Act, 2013.

Detailed Analysis:

1. Entitlement to Guarantee Commission:
The petitioners argued that they were entitled to guarantee commission as per the resolution passed in the 1st AGM held on 25.04.1994. They extended personal guarantees for loans, but the R2 group and NTPC did not fulfill their commitments. Despite the provision for guarantee commission being reflected in the financials from 1994 to 2002, the R2 group raised objections in the 52nd board meeting in 2002. The tribunal found that the petitioners were entitled to the guarantee commission and that the unilateral rescinding of the commission by the R1 company was oppressive. The tribunal directed the R1 company to calculate and pay the guarantee commission from the date of extending the personal guarantee until the release of the guarantee.

2. Reversal of Guarantee Commission and Non-Provision for Payment:
The tribunal noted that the provision for guarantee commission was in the financials until 2002 and was reversed only to prejudice the petitioners. The tribunal rejected the R1 company's defense that the issues were outside the purview of Sections 241/242 of the Companies Act, 2013. The tribunal found that the reversal of the guarantee commission was an act of oppression and directed the R1 company to make the payment as calculated.

3. Withholding and Reversal of Unsecured Loan and Interest:
The petitioners provided unsecured loans to the company, which were reflected in the balance sheet until 31.03.2005. The R1 company reversed the interest payable on the unsecured loan and withheld the loan amount, citing pending contempt proceedings. The tribunal found no order from any court justifying the withholding and reversal of entries regarding the unsecured loan. The tribunal directed the R1 company to calculate and pay the outstanding unsecured loan with agreed interest.

4. Validity of IDBI's Voting Rights at AGM and EOGM Based on Pledged Shares:
The tribunal noted that the bidding process by POAL and the scheme of arrangement underwent legal scrutiny and were upheld by various courts, including the Hon'ble Supreme Court. The tribunal found that the petitioners' challenge to the exercise of voting rights by IDBI as pledgee of the shares was already decided by the Division Bench of the Hon'ble Andhra Pradesh High Court. The tribunal concluded that it was impermissible to traverse the same issues and answered the issue against the petitioners.

5. Grounds for Ordering Investigation Under Section 213 of the Companies Act, 2013:
The tribunal found no extraordinary circumstances justifying an investigation into the affairs of the R1 company. Therefore, no order for investigation was made.

Conclusion:
The tribunal directed the R1 company to calculate and pay the guarantee commission and the outstanding unsecured loan with interest to the petitioners. The tribunal dismissed the petitioners' challenge to the exercise of voting rights by IDBI and found no grounds for ordering an investigation into the affairs of the R1 company. The petition was disposed of with no order as to costs.