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TMI Blog2017 (10) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... petus to Krishidhan brand. 3. Mr. Subhash Karwa passed away in an accident on 07.12.1995. In January, 1996 petitioner No. 3 who is son of late Mr. Subhash Karwa was inducted as partner in Rajendra Seeds. On 05.02.1996, partnership firm was dissolved and Krishidhan Seeds Limited was floated by petitioner No. 3, Petitioner No. 5 and respondents No. 2 to 5. Petitioner No. 3 and respondents No. 2 and 3 together and in consensus with each other were handling, managing and carrying on the affairs of Krishidhan Seeds Ltd. 4. Respondents No. 2 to 5 represent J.P. Karwa group, hereinafter referred to as 'JPK" group. Petitioners 1 to 7 represent S.P. Karwa group, hereinafter referred to as 'SPK" group. In Krishidhan Seeds Ltd. JPK group is having 60% share whereas SPK group is having 40% share. 5. It was mutually decided by both the groups i.e. JPK group and SPK group to float five other companies as 100% subsidiary of KSPL. They are ... (1) Rajendra Agri Products P. Ltd. hereinafter referred to as "RAPPL" (2) SFPL Crop Life Sciences Pvt. Ltd. hereinafter referred to as "SFPL" (3) Krishidhan Vegetable Seeds India Pvt. Ltd. hereinafter referred to as "KVSIPL" (4) Krishidhan Researc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MOU it is stated that on 24.11.2012 an understanding was reached between the parties and they intend to divide all the properties and liabilities including HUFs, flagship company Krishidhan Seeds Private Limited, and business interest held in various companies, firms etc. 11. Plea of the petitioners on the MOU dated 13.02.2013 is that it has not been acted upon and the validity and enforceability of the MOU is pending before District Court, Pune. Another plea of the petitioners on the MOU is that it is only transition agreement which has not been given final effect pursuant to the MOU dated 13.2.2013. Another plea of the petitions on the MOU is that in view of the facts, the disputes were referred to Arbitration Tribunal and arbitration award has been passed. It is also stated by the petitioners that Company Law Board vide order dated 03.03.2014 rejected the contention that MOU dated 13.02.2013 till it is acted upon, rights of the petitioners is available under Sections 397 and 398 of the Companies Act being shareholders/members of the company have not been taken away. 12. Plea of the respondents on the MOU dated 13.02.2013 is as follows: - As per the MOU respondents 2 to 5 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the communications and notices in respect of tranche payments made to respondent No. 12, but petitioner No. 3 kept the petitioners in dark. (m) Respondent No. 3 encumbered all the assets of the first respondent company. Despite raising Rs. 170.00 crores respondent No. 3 has not been able to repay Rs. 165.00 crores to respondent No. 12. Still an amount of Rs. 35.00 crores is due to respondent No. 12. (n) Respondent No. 3 started disposing of assets of KSPL at throw away price which are far below the market price. (o) Petitioner No. 3 vide email dated 09.01.2013 requested respondent No. 3 to share the details of the sale proceeds, the multiple loans availed and the buyback of the shares but respondent No. 3 did not respond to the email dated 09.01.2013. 14. According to respondent No. 3 the family arrangement/MOU dated 13.02.2013 was entered into resolve several disputes among both the groups and to divide the assets and liabilities of the family including KSPL and its subsidiaries and to divide the business assets and liabilities. 15. Main contention of respondents No. 2 to 5 is that main reason for Summit Partners to exit from KSPL is that the petitioner No. 1 floated a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s circulated to all the persons including petitioners No. 4 and 5 and all Directors of KSPL. Petitioners gave special power of attorney to respondent No. 3 and as per the Special Power of Attorney, Rs. 130.00 crores was paid to respondent No. 12 thereby reducing their share from 24.99% to 5.28%. Respondent No. 3, due to his efforts and management skills convinced Summit Partners to sell balance share of 5.28% for Rs. 2.40 crores as against Rs. 30.00 crores required to be paid for procuring 5.28% shares.' 19. It is the case of the respondents that petitioner No. 1 and others were aware of the affairs between Mariegold and KSPL. Personal guarantee of JPK group was given in the place of SPK group, especially in the case of State Bank of India. It is further stated that petitioners are naturally relying upon the affidavit of Summit Partners dated 24.02.2015 filed in CA No. 67 of 2015. 20. According to the respondents, the said allegations were made by Summit Partners only to get back their money from the first respondent company within the lock in period of share purchase agreement and Summit Partners have later on withdrawn all those allegations. It is stated by the respondents that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requested respondent No. 3 to provide copies of all the minutes of meetings. Petitioners issued public notice dated 31.10.2013 in two vernacular newspapers "Dainik Sakal Akola" and "Deshonnati Akola" informing the public at large that the properties mentioned in the said notice could not be alienated without consent of the petitioners. 29. By letter dated 25th and 26th June, 2013 respondents No. 3 and 4 directed the Purchase Manager of KSPL to stop procurement of laboratory consumables required by petitioner Nos. 1 to 3 for projects. Respondent No. 3 issued office orders to the Administrative Department represented by respondent No. 10 and Human Resources Department represented by respondent No. 11 to stop processing any requisition received from the petitioners No. 1 to 3. 30. Respondent No. 3 started holding the salaries payable to biotechnology scientists working on the portfolio assigned to petitioners No. 1 to 3 under the guise that the scientists were not working on the KSPL's portfolio. 31. Respondent No. 3 transferred some scientists to locations where there were no biotechnology laboratory. 32. Respondent No. 3 transferred female employees to undignified location which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to recover its dues if any, from the assets of the respondent No. 1 company in accordance with law." 40. In the said order, in para 13, Hon'ble Company Law Board observed as follows:- "I have considered the rival submissions. Admittedly, the answering respondents themselves have filed a suit for specific performance in relation to the agreement entered into between the parties through the alleged family settlement. However, the petitioners are still shareholders and their names still exist in the Register of Members. I, am therefore of the view, that mere entering into a family settlement unless it is acted upon in terms thereof, the rights of the petitioners available to them under section 397/398 of the Act, being shareholders/members of the company cannot be permitted to be defeated. I, therefore, hold that this ground is also devoid of merits and liable to be dismissed. It is rejected accordingly. 41. As against the said order, original respondents filed Company Appeal No. 9 of 2014 before Hon'ble High Court of Bombay. The said appeal was disposed of by Hon'ble High Court of Bombay with observation that the respondents have filed this application for modification or vacat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est price, reasonable time may also be granted to the petitioners to match the offer and/or to bring a better buyer. However, on this ground, the petitioners will not be allowed to delay/derail the process of sale. c. The meetings for the purposes of sale of properties may be held at Aurangabad/ Jalana/Akola/Pune or any other place as the Hon'ble observer cum facilitator after consultation with the parties and the prospective purchaser(s) decides. d. Hon'ble Mr. Justice Lahoti will be entitled to Rs. 75,000/- per visit subject to maximum Rs. 1.5 lacs per month. In addition to, he shall also be entitled to travelling allowances to which he was entitled as a sitting judge of Hon'ble High Court. The expenses of the said learned observer cum facilitator shall be borne in equal proportions by the petitioners and the answering respondents and will be paid in advance before the scheduled meetings. In all such meetings the petitioner No. 3 may also remain present. e. Hon'ble Mr. justice Lahoti is hereby granted complete immunity from any kind of civil and criminal proceedings already launched or to be launched anywhere in the country or outside against the company and its directors f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not only supervise the sale but also disburse the sale proceeds to discharge the liabilities, after due forensic audit, in accordance with the award and to stay the sale of cotton portfolio and rights issue. 47. Original petitioners filed Company Application No. 226 of 2014 to modify the order dated 25.04.2014 and to appoint administrator and or special officer and or an independent committee of Management or such other body or person and to modify the order dated 25.04.2014 to the extent of permitting the sale of the properties after considering necessary audit and being satisfied of the necessity to sell the properties. 48. Respondents No. 2 to 5 filed Company Application No. 231 of 2014 challenging the maintainability of the Company Petition itself. Hon'ble Company Law Board passed a common order dated 05.09.2014in Company Applications No. 225 of 2014,226 of 2014 and 231 of 2014 wherein it is observed that the Hon'ble observer cum facilitator shall ensure that the sale proceeds received from the sale of the company's assets are appropriated towards discharge of genuine liabilities of the first respondent company. Hon'ble Company Law Board further observed that the prayers ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired. Hon'ble High Court of Madhya Pradesh dismissed Misc. Company Appeal No. 46 of 2014 with the aforesaid observation and further observing that liberty be given to the appellants to file fresh application before the Company Law Board. 51. Respondent No. 2 filed Company Application No. 67 of 2015 seeking appointment of independent valuer to ascertain the value of the shares of the first respondent company as on the date of filing of the petition and to pass order directing respondents No. 2 to 5 to buyout the shareholding of the petitioners at such a fair value decided by the independent valuer. 52. Company Law Board by its order dated 10.04.2015 passed in Company Petition No. 17 of 2014 directed the parties not to enter into any correspondences with the third parties or do any further acts which are prejudicial to the interest of the company with immediate effect. In the said order, Company Law Board directed the aggrieved party to mention the matter first to the observer cum facilitator, and, if they still feel aggrieved they may approach the Board. 53. In the said Civil Suit filed by the original respondents before Civil Court vide Special Civil Suit No. 328 of 2014, appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular resolution dated 01.02.2016 is null and void, to restrain respondent Nos. 2 and 3 from passing any resolution in terms of section 113 of Companies Act, 2013, to restrain respondent Nos. 2 to 5 directly or indirectly subjudice matters in the agenda of any Board meeting of the first respondent company, to expand the role of observer cum facilitator by appointing him as independent Director, to restrain respondents from creating encumbrances on the assets of the first respondent company and to stay the resolution dated 01.02.2016. (6) IA No. 4 of 2016 This application is filed by original petitioners to declare resolution dated 01.04.2016 null and void, to order forensic audit carried out by independent Chartered Accountants, expand the role of observer cum facilitator by appointing him as interim administrator, to restrain the respondents from creating any further encumbrance on the assets of the first respondent company and to stay implementation of resolutions passed in the Board Meeting dated 01.04.2016 etc. 56. Board Resolutions dated 26.03.2016 and 01.04.2016 are in challenge in CAs No. 195/15, IP No. 62 C of 2016, CA No. 64 of 2016, TP No. 62 E of 2016, IA No. 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... award was questioned on the ground that it is opposed to law and public policy, it is one sided and on the ground that it also encompasses power to execute the award and the award is against public interest etc. etc. 59. It is pertinent to refer here regarding the order of Hon'ble High Court of Madhya Pradesh in Company Appeal No. 49 of 2014 in the order dated 14.01.2015 held as follows: - "13. Under Section 397-398 of the Companies Act, the Tribunal/CLB has power to grant relief in case of oppression and mismanagement of the affairs of the company. The distribution of assets in terms of the award has not taken place, therefore, in the facts of the present case the jurisdiction of the Company Law Board will not cease on the passing of the award. 14. The Bombay High Court in the matter of Rakesh Malhotra vs. Rajinder Kumar Malhotra by order dated 20.08.2014 in Company Appeal Nos. 10-19 of 2013, has held that the dispute in a petition properly brought under Sections 397 and 398 read with Section 402 of the Companies Act, cannot be referred to arbitration except in the cases of mala fide, factitious and oppressive petition. The Gujarat High Court by order dated 14.08.2014 in Spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement of the affairs of the first respondent company because distribution of assets in terms of award has not taken place. Hon'ble MP High Court observed that CLB/Tribunal has to consider the ratio in the judgments in Rakesh Malhotra v. Rajinder Kumar Malhotra and the order of Gujarat High Court in Sadbhav Infrastructure Project Limited viz. Company Law Board, while considering the effect of the Arbitral Award at the time of final disposal of the matter. Hon'ble High Court of MP also observed that the judgment in the matter of Sukanya Holdings (P.) Ltd. (supra) does not relate to the Arbitration pending the application. 61. Hon'ble Company Law Board considering the judgment of the Hon'ble Supreme Court in P. Anand Gajapathi Raju v. P.V.G. Raju AIR [2000] SC page 1886 and having applied the conditions laid down in the said judgment rejected the application of the respondents that the Company Petition is not maintainable. As against the said order Company Appeal No. 49 of 2014 was filed and the appeal was also dismissed by Hon'ble Madhya Pradesh High Court with the aforesaid observations. 62. Therefore, it is necessary for this Tribunal at the final hearing stage to decide the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C online Guj 9159 it is held that judgment of Sukanya Holdings Pvt. Ltd. is not applicable to the facts of this case. In the judgment it is also held that in that case there is a mother agreement and there are other ancillary agreements to the mother agreement and it is a case of composite transaction between the same parties or the parties claiming through or under them falling under Section 45 of the Act the dictum stated in para 13 of the Sukanya Holdings P. Ltd. judgment is not applicable. In the judgment in Sukanya Holdings P. Ltd. a suit has been filed for disolution of partnership firm and rendition of accounts and challenging the conveyance deed executed by the partnership firm in favour of one of the parties to the suit. In the judgment the party who filed the suit also filed a petition under Section 8 of the Arbitration and Conciliation Act. The Hon'ble High Court rejected the petition under Section 8 of the Act in view of the suit in which the rendition of accounts was also asked. In that decision, Hon'ble Supreme Court held that bifurcation of the suits in two parts one has to be decided by Arbitral Tribunal and other to be decided by the Court will undoubtedly delay th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the petitioner in its order dated 25.04.2014 and those orders became final. This Tribunal is having jurisdiction to entertain the issues relating to the oppression and mismanagement inspite of MOU, inspite pendency of civil suit, till the arbitral award reached finality and implemented. Therefore, this Tribunal is of the considered view that this Tribunal is having jurisdiction to decide the issues of oppression and mismanagement qua the petitioners and the first respondent company. 70. Before exercising such jurisdiction, it has to be borne in mind that KSPL and its management has been allotted to JPK group in the MOU as well as in the Arbitral Award. It is a fact that, Arbitral Award has not reached finality. Arbitration and Conciliation Act, 1996 do not contemplate the award to become the Rule of Law. Section 34 of Arbitration and Conciliation Act, 1996 lays down certain grounds on which Arbitral Award can be set aside. Petitioner has stated that. Arbitral Award is under challenge before learned District Judge. Till the Arbitral Award is set aside it cannot be treated as a waste paper which is emerged out of the agreement between the parties, during the pendency of this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mere waste paper but has some legal effect. It is final and binding on the parties and it cannot be said that it is a waste paper unless it is made a rule of the Court. The conferment of exclusive jurisdiction on a Court under the Act does not make an award any the less binding than it was under the provisions of the Second Schedule of the Code of civil procedure. The award is, in fact a final adjudication of a Court of the parties' own choice, and until impeached upon sufficient grounds in an appropriate proceeding, an award, which is on the face of it regular, is conclusive upon the merits of the controversy submitted. As between the parties and their privies, an award is entitled to that respect which is due to judgment of a court of last resort." 75. In the Arbitration Act of 1996 there is no need to make the Arbitral Award' Rule of Law. Therefore, the only way to avoid Arbitration Award is to set aside the same under Section 34 of the Arbitration and Conciliation Act, 1996. The Arbitration Award is binding on both the parties. 76. In case if this Tribunal came to a conclusion that there are acts of oppression and mismanagement in the conduct of affairs of the first respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... award this Tribunal is of the view that pending finalisation of the Arbitral Award there is no need to give a conclusive finding on the alleged acts of oppression and mismanagement and grant final reliefs. 79. However, considering long standing disputes between the petitioners and respondents No. 2 to 5, considering the non- implementation of MOU, considering the challenge made to the Arbitral award passed by the Arbitrator, considering the manner in which the proceedings in the Board Meetings have been taken place, and taking into consideration the interest of KSPL and subsidiary companies, there need to be certain directions in the conduct of the affairs of the first respondent company. In this regard it is necessary to state out certain facts. Respondent got circular resolutions passed which are not contemplated in the order of Company Law Board dated 25.04.2014. Certain financial irregularities were alleged by the petitioners, even after the appointment of Observer cum Facilitator. There is also averment to the effect that salaries are also stopped. Moreover, respondents have filed an application to buyout the shareholding of the petitioners. Respondents have also alleged that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kinds of meeting of KSPL shall be approved by Interim Administrator before notice of meeting is given. (v) All meetings shall be conducted in accordance with interim orders in force and the directions given in this order, in the presence and as per the instructions of Interim Administrator. (vi) There shall not be any change in the shareholding pattern and Directors of the first respondent company until further orders except as provided in this order regarding appointment of Independent Directors. (vii) Sale of Akola properties of KSPL by the first respondent company shall be according to the order of the Company Law Board dated 25.04.2014 and under the supervision of Interim Administrator and as per the resolutions of the Board of Directors of KSPL. (viii) The resolutions that had already been passed which are sub-judice in the Company Petition shall not be taken up in the Board Meetings of KSPL. (ix) There shall not be any resolution which goes against the resolutions passed on 26.03.2016 and 01.04.2016 and the resolutions passed on the basis of which Akola properties were sold, since they are sub-judice in Company Petition No. (17 of 2014) (TP No. 62 of 2016) and this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L. (xx) In view of the above directions all the pending applications i.e. TP 62 A/16, TP 62 B/16, TP 62 C/16, TP 62 D/16 & TP 62 E/16 corresponding to CA Nos. 67 of 2015, 77 of 2015, 195 of 2015, 1 of 2016, 54 of 2016 and IA 4 of 2016 shall stand disposed of. However, both the parties are entitled to make use of the pleadings and documents filed in the applications for final disposal of TP No. 62 of 2016. (xxi) In case the Arbitral Award is confirmed and implemented, this Tribunal is of the view that there is no need to give findings on alleged acts of oppression and mismanagement in the conduct of the affairs of the first respondent company. (xxii) TP No. 62 of 2016 is kept pending till Arbitral Award reach finality for the purpose of passing orders on the aspects of alleged acts of oppression and mismanagement taking into consideration the special audit report and the share valuation report of KSPL. (xxiii) List TP No. 62 of 2016 on 26.10.2017 for approval of names of Independent Directors proposed by the Interim Administrator. (xxiv) Order regarding costs will be passed at the time of final disposal of TP No. 62 of 2016. (xxv) Communicate copy of this order to Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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