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TMI Blog2014 (7) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... o the then Directors to maintain status quo in respect of all immovable and movable assets of the company, yet they did not pay any heed to it. It is pertinent to note here that earlier directors knowing fully well that they are being removed from the Board of Directors constituted their own partnership firm and diverted the entire rights issue funds of the shareholders. It is, also undisputed fact that son of the one of the erstwhile Director is also a partner in the partnership firm which supports the case of the Petitioners that the diversion of the funds of the company has been solely for the personal gains of the erstwhile Directors. Answering Respondents have not even given any data to show that the company is getting the profits, if any, earned by the said partnership firm in which the investment has been made. It will not be out of place to mention here that the Ld. Counsel appearing for the Answering Respondents, upon a query raised by the Board, had answered that the total annual return on the said investment in the partnership firm is approx. 6% p.a which in my considered view, is absolutely inadequate. Therefore, in the absence of any material on record and in direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2012 or defer the rights issue for the time being. Adjourned to 1/08/12 at 2.30 p.m for arguments on the C.P. 3. Being aggrieved by the aforesaid order dated 21/05/2012, the Respondent Company preferred an Appeal being Appeal (L) No.26 of 2012 before the Hon'ble High Court of Bombay, It appears that in the said Appeal the parties agreed to passing of the Consent Order and accordingly the Hon'ble High Court passed an order on 30/05/2012. 1. Heard the Ld. Advocate appearing for the Appellants. Since the office of the Respondent is found closed the Advocate for the Appellant is unable to serve a copy of the appeal on the Advocate for the Respondents. 2. The order passed by the Company Law Board dated 21/05/2012 is stayed. However, the Respondents are at liberty to apply for vacating the stay order after giving 48 hours notice to the Advocate for the Appellant S.O to 11th June, 2012 2. Pursuant to the liberty granted in paragraph 2 of the above order, the Respondents have approached the Court. After hearing ld. Counsel for the Parties for some time, Ld. Counsel for the Parties agree that the following arrangement can be made til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsible for the acts of oppression and mismanagement of the company and the resignations shall not absolve them of legal liability. c. to pass an appropriate orders directing appropriate action in accordance with law against the then directors for the acts of which they are found guilty. d. to pass an appropriate orders including directing the company for getting refund of the capital contribution made in the firm from the firm's account to the company account. 6. In brief, the ground stated in the application is that the then Board of Directors acting prejudicial to the interest of the Company and its existing shareholders diverted/ siphoned off the funds of ₹ 1.45 crores collected under the rights issue to a newly constituted partnership firm M/s Genesis Financials in which the son of one of the erstwhile directors is the working partner. It is further stated that the incorporation of the Partnership firm has been done with the ulterior/ criminal motive to mislead the shareholders and to defeat the purpose of the rights issue and to siphon away the company funds collected under the rights issue and therefore, the said partnership firm is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way involved in M/s Genesis Financials so that they could be accused of benefitting from such an investment. It is however correct that the Respondent No. 2's son is involved as a working partner in the said M/s. Genesis Financials but he is working on terms and conditions mutually agreed upon between the Respondent Company and the other partners of M/s. Genesis Financials. 9.2 The Respondents have denied the allegations of the Petitioners that the decision to invest in M/s. Genesis Financials was taken with any ulterior motive by the Board of the Company. It has been submitted that the Company had entered into such partnerships in the past as they were considered profitable, in fact since the time the erstwhile Chairman of the Board of Directors of the Respondent Company, Late Vinay Kumar Podar, Mr. Abhishek Podar were the Chairman of the Petitioner Companies. It is only after taking note of the returns on such investment in the partnership firm, the Board of Directors took the decision for the Company to invest the funds-in-question in the partnership firm namely M/s. Genesis Financials. 9.3 It is further averred that any action sought against Partnership firm cannot f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants have justified their action by contending that the amounts have been invested in the partnership firm in the best interest of the company, as the partnership firm in question is a profit making firm. It was also the case of the appellants that in the past, other directors have floated the similar partnership firms. 4. By the impugned order dated 28th May, 2013, the Company Law Board held that the interest earned on the investment in the partnership firm is 6% and it is inadequate. The Company Law Board observed that had this amount been invested in a Fixed Deposit, the cumulative return would have been 10% per annum or even more. The Company Law Board, therefore, concluded that it cannot be said that the directors acted bona fide. The contention of the appellants that earlier the amounts that were invested through the partnership firms was not accepted. 5. I have heard the learned counsel for the appellants and the learned counsel for the respondents. A perusal of the impugned order shows that the basic premises on which the order is passed that the amount which is invested in the partnership firm gives only a return of 6% interest and if the same amount is inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion, the aforesaid objections raised advanced by the Ld. Counsel on behalf of the Petitioners are now not relevant at this stage for the reason that with the agreement of the Parties, the Hon'ble Bombay High Court passed an order on 30/05/2012 as set out in para 3 of this order. I, therefore, do not find any force in the said objections and the same are hereby rejected. 15. Now, I proceed to consider as to whether, the Company has invested the amount in question for bona fide purpose in the interest and benefit of the Company as contended by the Respondents. In this regard, inviting my attention to the application form for the rights issue (Annexure-I) filed alongwith the C.P. the Ld. Counsel for the Petitioners argued that the Company could have only paid the funds collected from the rights issue towards the discharge of debts and/or liabilities of the Company and to improve its net-worth. According to the Ld. Counsel, the funds raised by the rights issue has neither been paid for discharging the liabilities of the company nor to improve its net-worth. The Ld. Counsel submitted that the then Directors who were under the process of their removal had no moral or legal auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors to maintain status quo in respect of all immovable and movable assets of the company, yet they did not pay any heed to it. It is pertinent to note here that earlier directors knowing fully well that they are being removed from the Board of Directors constituted their own partnership firm and diverted the entire rights issue funds of the shareholders. It is, also undisputed fact that son of the one of the erstwhile Director is also a partner in the partnership firm which supports the case of the Petitioners that the diversion of the funds of the company has been solely for the personal gains of the erstwhile Directors. 20. I do not find any merits in the argument of the Ld. Counsel For the Answering Respondents that in the past Late Vinay Kumar Podar and Mr. Abheshik Podar had been investing the funds of the company by forming a partnership firm and since it was found to be a profitable proposition and hence the erstwhile Board of Directors decided to invest the funds in the same manner. I am, further, not inclined to accept the contention of the Ld. Counsel for the Respondents that the investment made by the company in a partnership firm in any way was/is in the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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