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TMI Blog2018 (1) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... ares out of additional allotment of 3,50,000 shares in 2011 and 4,00,000 shares in 2012 respectively at the rates at which these were transferred to some of the respondents. The transfer shall be made in favour of the petitioners proportionately as per shares held by P-2 to P-9, on these petitioners offering to subscribe to these shares at the rates allotted to some of the respondents within the time to be allotted by R-1 company in the said meeting and they shall deposit the required amount with R-1 company; and (iv) Failing the petitioners to send the offer for allotment of proportionate shares as were held by them on the date of allotment of additional shares or in making payment, the Board of Directors of R-1 company would be at liberty to decide against the said allotment of proportionate shares; and (v) Rest of the shares out of the additional allotment of 3,50,000 and 4,00,000 shares, will continue to be held by the respondents to whom the shares were allotted; and (vi) The petitioner No.1 is not to be offered any share in these additional shares on the basis of this order as P-1 company became the shareholder only on 19.05.2010. Rest of the prayers regarding mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oils i.e. Rice Bran Oil and Sun Flower Oil through expelling and Solvent Extraction processes, refining of crude vegetable oils and packing of the same. 4. It is stated that R-1 company is part of AP group of companies. This group originally comprised of five close friends viz petitioner No.2 (P-2), petitioner No.4 (P-4), petitioner No.5 (P-5), Bhim Sain, brother of petitioner No.3 (P-3) and respondent No.6 (R-6). They initially incorporated a company called as M/s A.P. Solvex Limited (APS) in the year 1992. It was stated that AP signifies the first letter of names of P-2 and P-5, who were subscribers to the Memorandum of Association of AP Solvex Limited (parent company) primarily engaged in business of solvent extraction, refining and supply of refined rice bran oil. 5. Later on P-1 company was acquired and R-1 company was incorporated for the manufacture and supply of crude rice bran oil to the parent company by way of backward integration. 6. It was further stated that P-2 was the prime mover and leader of the group. The Board of the parent company comprised of P-2, P-4 and R-6. The petitioner group has 91.32% shares of the total shareholding of the parent company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was primarily for solvent extraction purpose and to supply the crude oil to parent company. To set up the said project 48 kanals of land was purchased in the name of R-1 company for a consideration of ₹ 28,35,000/- vide registered sale deed dated 05.03.2008 on Nakodar-Jalandhar Road, Jagraon. The amount of ₹ 25,00,000/- was contributed by the parent company to R-1 company to purchase the said land vide cheque dated 05.03.2008 i.e. the date on which the title deed was executed. Copy of the bank statement in support of this contention is Annexure P-10. All the financial and technical support for the said project was provided by P-2 to P-5, who had also furnished personal guarantees for sanction of the financial assistance worth crores of rupees. P-1 company also gave corporate guarantee for sanction of the financial assistance and had furnished the equitable mortgage of the land, building and machinery of P-1 company, as is evident from the certificate of charge created by the Registrar of Companies (Annexure P-11). 10. P-1 company also created equitable mortgage over its assets on 23.11.2007 along with the corporate guarantee in favour of Punjab Sind Bank in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 57.14% 42.86% 30.09.2005 35.16% 64.84% 30.09.2006 35.16% 64.84% 30.09.2007 35.16% 64.84% 30.09.2008 13.68% 86.32% 30.09.2009 11.34% 88.66% 12. The petitioner group took up this issue with the respondent group and after due deliberation, the respondents agreed to restore the major shareholding/controlling interest of petitioner group through petitioner No.1 company in which the petitioners held majority shares. It was decided that P-1 company will acquire/purchase substantial shares of R-1 company by way of making a long term investment by purchasing shares from the existing shareholders so that the petitioner group could regain a predominant position in R-1 company. 13. For the aforesaid purpose, P-1 company passed a resolution dated 25.02.2010 authorising R-3 and R-4, who were on the Board of R-1 company to negotiate through M/s Neeleama Portfolio Pvt. Ltd. a share consultant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.06.2011 the respondent group made allotment of 3,50,000 equity shares in favour of R-7 company, which is in complete control of the respondents, their family members and affiliates. It was further revealed on inspection of the record of Registrar of Companies on 17.10.2012, that there was additional allotment of 4,00,000 shares by R-1 Company in favour of respondent group on the basis of alleged resolution dated 10.10.2012, which has been found uploaded with E-form 2 from MCA Portal. This allotment of 4,00,000 shares of ₹ 10/- each at a premium of ₹ 30/- each was made to R-2, R-3 and R-8 to R-10. Copy of this Form 2 is Annexure P-17. This was done simply to consolidate the position of respondent group in R-1 company. R-8 is the wife of R-4 and R-10 is the son-in-law of R-3. Respondent No.9 (R-9) is also a relative of the respondents group. The respondents No.3 to 6 being the Directors of R-1 company made all these illegal allotments to themselves, their close relatives and associates. The petitioner group, therefore, has been reduced from 56.97% to an abject minority of 9.25%. The tabulated information of percentage of the shareholding of the petitioners and the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Real Estate and was holding 1,40,000 equity shares of ₹ 10/- each in R-1 company. It is alleged that the shareholding of P-6 has been reduced from 4.27% to 3.17% by unlawful allotment of 3,50,000 equity shares with the fresh allotment by R-1 company in favour of R-7 on 29.06.2011 and allotment of 4,00,000 equity shares to R-2, R-3, R-8, R-9 and R-10. 20. P-7 M/s Rajasthan Plantation Company is also a public limited company and has authorised Pushap Raj Singla to file the instant petition vide resolution dated 15.11.2012, copy of which is annexed as Annexure P-7. P-7 company is in the business of farming and holds 2,00,000 equity shares in R-1 company. The shareholding and voting rights of P-7 company has been reduced from 6.10% to 4.96% with the aforesaid allotment. 21. P-8 Rita Singla holds 500 equity shares in R-1 company. She is the wife of P-3. Her shareholding has been reduced from 0.02% to 0.01% with these additional allotments. P-9 Dev Raj also holds 500 equity shares in R-1 company and his shareholding has been similarly reduced. 22. The above three instances are mainly the grounds of oppression and mis-management by the respondent group in the affairs of R- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .06.2012 Annexure P-21. HDFC Bank also informed that RTGS transfer in favour of A.P. Oils from P-1 company was not done at Khanna Branch of the Bank. But by its Jagraon Branch, where a unit of R-1 company is located. The Bank Branch of HDFC provided copies of the request letter dated 23.04.2011 and RTGS Transfer form dated 26.04.2011 furnished by R-3 and R-4 to the Bank. The request letter dated 23.04.2011 revealed the following facts :- (i) No printed regular/official letterhead was used for this purpose. Rather a computer generated letterhead was prepared and the same was used. (ii) In the request letter, which is signed both by respondent No.3, Mr. Ravi Nandan Goyal and respondent No.4 Mr. Shiv Kumar Goyal, it was pleaded that the cheque book of the HDFC Account of petitioner No.1 was finished and they had applied for a new cheque book. (iii) It was also pleaded that they need to make RTGS on urgent basis. (iv) The details in whose favour the RTGS was to be made are also mentioned in the request letter. (v) The impression of the stamp of petitioner No.1, M/s Aar Kay Chemicals Pvt. Ltd. also reveals that the regular stamp of the company was not used as it was in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oppression and mis-management, but the arguments were mainly confined to the aforesaid alleged transfer of 14,96,000 shares of P-1 company and issuance of additional shares only, but those allegations may be described in brief here-in-after. 31. It is stated that the capacity utilisation of R-1 company was just about 14.43% for the year ending 31.03.2011 thereby indicating that all the transactions of production, purchase and sale were not recorded in the books of account. The factory premises of R-1 company had also been raided by the Punjab Excise and Taxation Department from time to time which led to the seizure of incriminating documents revealing transactions, which were not accounted for in the books of account. The team of the Income Tax Department raided the premises on 17.05.2011 and 05.05.2012 and the penalty of evasion of tax was imposed. 32. The instant petition has been filed with the following prayers:- (i) that the affairs of R-1 company are being conducted in the manner, which has caused grave prejudice to the interest of the petitioners and of R-1 company; (ii) to declare the transfer of 14,96,000 equity shares of P-1 company in R-2 company as illegal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takes inputs from the company s management and the views presented in this report are those of the management of Ricela and AP Organic Pvt.Ltd. For the credit rating exercise, there is description of solvent extraction and refining capacity of the purported Ricela Group and the petitioners have included not only the Group Companies , but also any other plant associated with the petitioners, but they have not included R-1 company though R-1 company achieved turnover of ₹ 135 crores for the year ending 31.03.2012 and non-inclusion of R-1 company in the CRISIL report of the companies under the management and control of petitioners belies the claim of the petitioners that they are the majority shareholders of R-1 company. To the contrary R-1 company is a competitor to the companies under the control of the petitioners. 35. In fact the petitioners admitted that they were not the majority shareholders of R-1 company in August, 2010 through the letter of authorisation for arbitration attached as Annexure P-28 with the petition. P-2 to P-5 represented themselves to be the majority shareholders of APS and APO in this agreement. The scope of this agreement covers R-1 and P-1 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96,000 equity shares in R-1 company as none of the petitioners are affected party. The only entities being effected are the shareholders of P-1 company and R-2 company. It is stated that the petitioners being shareholders of R-1 company, cannot challenge the said transfer. If anybody had a right to challenge this transfer, it could be only the shareholders of P-1 company or R-2 company. It is stated further that the transfer was effected by R-3 and R-4 as Directors of P-1 company as well as being the Directors of R-2 company. 39. With regard to the allotment of 3,50,000 and 4,00,000 equity shares in June, 2011 and October, 2012, it is stated that R-1 company had been increasing the issued subscribed and paid up capital as per need. In the year 2006, the equity share capital was increased from ₹ 2,10,000/- to ₹ 9,10,000/- and the shareholding pattern was 32,000 shares belonging to petitioners group and 59,500 shares to the respondents and others. In this way, the percentage of the shareholdings of the petitioners was 35.16% and that of the respondents, it was 64.84%. 40. At the time of commencement of operation of R-1 company in the year 2008, there was fresh infus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was agreed that the shares would be allotted to P-2 to P-9 in such number so as to restore their respective percentage. How much shares and percentage which the petitioners would be holding, in case the allotment according to the entitlement is to be made, is given in a tabulated form. The offer is made by R-7 company and R-3, who were allotted the shares at the same price at which they purchased the shares in June, 2011 and October, 2012. In any case, the respondents have even made an offer to buy the shares of P-2 to P-9. 44. It is stated that the issued subscribed and paid up share capital of R-1 company is ₹ 4,03,10,000/- divided into 40,31,000 equity shares of ₹ 10/- each. All the allotments of shares were made in accordance with the Companies Act, 1956 for the business purposes and not for any extraneous consideration. It is stated that the petitioners cannot claim P-1 company to be part of the petitioner group as they had decided to withdraw from petitioner No.1 company in terms of their own letter authorising arbitration in the month of August, 2010 and that letter Annexure P-28 is attached with the petition, which is signed by P-2 to P-4 admittedly. 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscribe to the equity capital, whenever there was need for such capital. Ever since the first allotment after initial subscription, the management and control of R-1 company remained with the respondents. It is denied that AP Solvex Limited was treated as parent company of R-1 company. Rather AP Solvex was not a shareholder of R-1 company nor its Directors were the Directors of R-1 company. The decision of AP Solvex to lend money to R-1 company was the decision of its Board of Directors of the said company and not that of the petitioners in their personal capacity. At the relevant time, plant of P- 1 company was on lease with Ricela Healthcare Food Ltd. and charge and the corporate guarantee were repaid and charges registered with ROC stood vacated. 50. It is further denied that the petitioners financed the operations of R-1 company by giving, procuring and facilitating the fixed deposits of ₹ 4,84,44,000/-. The petitioners actually lent the loan of only ₹ 27.5 lacs which is equivalent to 5.7% of the claimed figure. The loan in fact was advanced by different concerns i.e. Kailash Oil Mills to the tune of ₹ 45 lacs under the control of R-3, Kaveri Shilpkala L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either as Directors or shareholders. The petitioners in fact were about to withdraw their shareholdings from P-1 company as reflected in the agreement Annexure P-28 for referring the matter to arbitration. The transfer of the shares of R-1 company to R-2 company was carried and registered by a duly signed deed and sufficiently stamped. The petitioners are thus said to have concocted the story of their ignorance of the transfer of 14,96,000 equity shares. 55. The respondents have further stated that at that time record of P-1 company was with the petitioners. The transfer of 14,96,000 equity shares was made with the consent of petitioner No.4, who was a Director of P-1 Company. Immediately after the transfer of shares, the dispute between the parties was referred to arbitration. The payment of the amount for transfer of these shares was delayed because R-2 company was to receive majority of the amount from PepsiCo India Holdings Limited in the month of November/December, 2010. That is why the payment was made in the name of P-1 company by issuing a post-dated cheque No.730964 by R-2. The petitioners with ulterior motive never encashed the cheque. This fact came to the notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner No.4 to the HDFC Bank seeking copy of the bank statement for the aforesaid period on the ground that they have not received the aforesaid statement before the said application. In view of the above, the petitioners were not having any means to know the transfer of funds from the account of P-1 company to AP Oil Mills and thus could not be aware of the transfer of shares of P-1 in R-1 company in favour of R-2. It is admitted that two cheques from 50 leaf cheque book was in custody of P-4 and the RTGS transfer was thus made by the respondents as the Accountant of P-1 company told them that the cheque book was consumed and there was no cheque available. This is with regard to the transfer of the amount by RTGS from the account of P-1 in favour of AP Oil Mills. 60. It is stated that the transfer of 14,96,000 shares was made on the basis of the transfer deed No.316498, dated 05.05.2010 certified by the Registrar of Companies, Punjab, HP and Chandigarh. 61. With regard to the right of the company to transfer the shares, it is stated that under clause 6 of the Articles of Association of R-1 company, the shares were under the control of the Board of Directors, who could allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are eight shareholders of R-1 company from P-2 to P-9, which number is sufficient for them to take recourse to the provisions of Sections 397 and 398 of the Act. 66. It is further averred that R-1 company set up a new refinery and solvent plant at Jagraon in 2008-09 and it started showing better results in terms of revenue in the year 2009-10. The revenue growth rate had been 50% during the year 2009-12. The company s new plant at Jagraon has by itself shown revenue growth of over 60% during the period from 2010-12, which is expected to continue for the next year. The total sales of R-1 company in the year 2009 was worth ₹ 3,962 lacs which rose to ₹ 20,000 lacs in the year 2013. With regard to the sales of plant at Jagraon, the amount of sale in the year 2009 was ₹ 121 lacs, which increased to ₹ 20,000 in the year 2013. There has been sharp increase in the net profit before tax. In the year 2009, it was ₹ 51.74 lacs and it increased to ₹ 178.29 lacs in the year 2012 due to the hard work and efforts of its active members R-3 to R-6. The value per share of the company, which was ₹ 10/- per share in the year 2007 has also increased to ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inder) in respect of P-1 company for the financial year 2010-11, there is no mention of any Board meeting of P-1 company held between 19.05.2010 to 31.10.2010, attached with the rejoinder. This certificate is issued by R.K. Loomba Associates, the Company Secretaries of P-1 company. 72. There is even no resolution of R-2 company in terms of Section 292 of the Act for investing the amount of ₹ 15,10,960/- for buying the shares of R-1 company or authorising its representative to sign and execute the transfer deed on its behalf. The compliance certificate of R-2 company for the financial year 2010-11, Annexure R-2 confirms that no Board meeting of R-2 company was held between 01.04.2010 to 31.08.2010. This certificate is issued by Anil Jindal and Associates Company Secretaries of R-2 company. It is reiterated that the respondents had not attached the transfer deed No.316498, dated 05.05.2010 along with the written reply, but only produced it under the orders dated 20.03.2013 of the Hon ble High Court of Punjab and Haryana. So, the transfer deed is stated to be an ante-dated document. 73. The respondents have not even attached the resolution of the Board of Directors of R-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of both the parties Annexure R-5 in terms of order dated 13.02.2013 of the Hon ble High Court. 78. R-1 being a company belonging to AP group of companies is a fact that was admitted in the loan applications dated 01.05.2007 and 15.07.2008 made to the Bank by R-1 company. Assurances are given in the applications that the company is to sell its entire production of oil to the APS group and, therefore, there is no marketing problem. The copy of loan application dated 15.07.2008 is signed by none other than Bhuwan Goyal, respondent No.5. Copy of that loan application is Annexure R-8 attached with the rejoinder. 79. The name of AP Solvex Limited has been changed to RICELA w.e.f 07.07.2010 to align with the brand name RICELA of the consumer product of the group company. It is further stated that in an invitation card dated 27.05.2011 of wedding of R-5 (son of R-3), M/s Ricela Health Foods has been shown among RSVPs along with R-1 company. Similar was the situation in the wedding card of daughter of R-6 dated 23.09.2012. In the recent invitation card dated 11.05.2013 relating to the marriage of daughter of R-3, M/s Ricela Health Foods Ltd. Dhuri is shown in the column of R.S.V.Ps. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posited a cheque No.0740782 on 22.04.2011 from the Jagraon Branch of the HDFC Bank in the account of P-1 company and this cheque bounced for the reason that the signatures of the drawer were incomplete as evident from the bank statement Annexure R-6. However, the respondents also made reference to the payment made on the basis of post-dated cheque bearing No.730964 on the ground that some payment was to come to respondent No.2 in the month of November, 2010 which allegation does not match with the Bank Statement showing dishonour of a different cheque. The respondents in fact did not make a reference to this cheque No.0740782 in their reply, which was presented on 22.04.2011 and bounced on 23.04.2011 as per the bank statement Annexure R-6. 83. The respondents filed sur-rejoinder dated 05.04.2014. It is stated that R-1 company registered the transfer of 14,96,000 shares by P-1 in favour of R-2 company on production of properly executed transfer deed. It is stated that resolution authorising transfer of shares from P-1 company to R-2 was duly passed. But truth about the board resolution can never be ascertained in the absence of record of P-1 company and that record is in complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year ending 31.03.2011. The total shareholding of R-1 company in the year 2008 was 32,31,000/- which rose to 32,81,000 in the next year i.e. fourteen times. 88. Rest of the details in the sur-rejoinder pertain to the allegations of mis-management in the working of R-1 company, but those issues need not be discussed in detail as the arguments were confined only with regard to the transfer of 14,96,000 shares and the issue of fresh equity shares. The other details mentioned in the sur-rejoinder are in the nature of arguments in support of the respondents case and that is why even the rejoinder filed by the petitioners is also quite lengthy. 89. After inspection of the record of R-1 company, the petitioners filed an application dated 16.03.2015 with the then Company Law Board on 17.03.2015 for placing on record the additional affidavit of petitioner Vijay Kumar Goyal Annexure P-1. This was taken up when the matter was listed on 19.03.2015. It was stated that on inspection of the record, the Board resolutions dated 19.05.2010, 24.5.2010, 16.07.2010, 01.08.2010 apart from other resolutions and various such resolutions were not mentioned in the compliance report filed with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Directors of R-1 company entered into an arbitration agreement dated 12.07.2015 with P-2 to P-5, the Directors of Ricela Health Foods for referring their disputes to arbitration, and appointing Arbitral Tribunal comprising of Ravi Kalra, Subhash Chand Singla, Meghraj Garg, Hemant Jindal, Satdev Jindal and Deepak Jindal to resolve the dispute between these parties. Copy of the agreement is Annexure A-1. After due proceedings before the Arbitral Tribunal, a consent award was passed on the same day i.e. 12.07.2015 providing as under: 1. That regarding the share of Mr. Arun Goyal Ravi Goyal in A.P. Solvex now known as Ricela Health Food share of Solvex in Bhawanigarh, Sunam and Malerkotla has been mutually decided by the arbitrators to give them ₹ 22.21 crore (Twenty two crore and twenty one lac only) to Arun Goyal and Ravi Goyal their associates. 2. That it has been resolved that Mr. Arun Goyal Ravi Goyal will pay ₹ 2 crore (Two crore) on a/c of A.P.Refinery Jagraon. 3. Now the total balance payment of ₹ 20.21 (Twenty crore Twenty One Lacs only) which will be given by Shri A.R.Sharma their associates (Dhuri Group). 4. Mode payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply oil in the ratio of 35% to 65% i.e. Jagraon Group will supply 35% approx. Dhuri Group will supply 65% approx. All other issues regarding the sale of Refind Oil will be discussed on common platform or with the consent of all six arbitrators. 15. If any other issue arises in future, the arbitrators will be approached. Copy of the arbitration award is Annexure A-2. This award is signed and acknowledged by both the groups i.e. the parties described above. 95. It is thus submitted that the arbitration award operates as res judicata between the parties and the petitioners are obliged to withdraw the present petition and cannot challenge the shareholding in respect of R-1 company. It is stated further that the applicants have right to enforce all other directions in terms of the award including execution of money decree granted in their favour under the award and move appropriate application in the appropriate forums. It is, therefore, prayed that the present proceedings in the company petition cannot continue, the matter having been settled on the basis of the consent award. The petitioners cannot continue with this petition without fulfilling the directions containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d declining the prayer for production of the original agreement on the ground that the signatures of the documents have not been denied. It is stated that the award Annexure A-2 is not on a stamp paper as required under the provisions of Indian Stamp Act. The document also does not mention the place where the proceedings took place. Moreover, none of the terms of the document have been acted upon by the parties so far. It is further stated that the principles of res judicata cannot apply as the documents Annexure A-1 and A-2 do not relate to the subject matter of the present company petition, for which the Company Law Board (Now Tribunal) has the exclusive jurisdiction. 98. Rather R-3 and R-6 have approached the police authorities at Sangrur District for enforcement and implementation of the document Annexure A-2 instead of approaching the persons named as the arbitrators. Copy of the letter written by R-3 and R-6 to the police authorities is at Annexure R-1 attached with the reply. In this complaint to the police, the respondents have alleged that P-2 started making excuses from the very next day of the passing of the award and not coming to terms. Therefore, request was made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorised signatory to file this petition for P-6 and P-7 companies are P-5 and the son of P-3 respectively. P-8 and P-9 are the wife and brother of P-3 and they held only 1000 shares in R-1 company. 103. The respondents have categorically denied that the police complaint Annexure R-1 attached with the reply was filed by them. The same is stated to have been created. Looking into the document Annexure R-1 addressed to Senior Superintendent of Police, Sangrur, the same does not show the signatures of any person and, therefore, this document has to be ignored out of consideration at the outset. 104. With regard to the complaint dated 21.09.2015 made by R-3 to R-6 under the subject complaint for registration of criminal case against P-2 to P-5 and three others dated 21.09.2015, it is stated that the same was submitted in an ongoing investigation being conducted by the District Police. Since the petitioners got false FIR registered against R-3 and R-4, this document was filed with the police in the pending investigation. The perusal of this complaint, however, shows that serious allegation of forgery have been made against certain persons as accused including P-2 to P-5. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration proceedings. No value can be attached to these affidavits, but this would of course bring an admission of signatures of P-2 to P-5 and R-3 and R-6 over these documents. 110. The question, however, would be whether such a procedure is permissible in the eyes of law. In the facts and circumstances of the case such a document can at best be considered as a compromise in writing signed by a few of the parties but not at least an arbitration agreement or award. 111. For recognising a compromise in a pending case the principles as laid down in Order 23 Rule 3 of the Code of Civil Procedure should be followed. It requires that the compromise has to be in writing and signed by all the parties and has to be recorded by the Court. Rule 3 of Order 23 CPC says that where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit, the Court shall order such agreement, compromise or satisfaction to be recorded and shall pass a decree in accordance therew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reference to the Arbitration can be made in terms of Section 8 of the Arbitration and Conciliation Act, 1996 even during the pendency of appeal before the Hon ble Supreme Court. 116. Section 8 of the Arbitration and Conciliation Act, 1996 reads as under:- Power to refer parties to arbitration where there is an arbitration agreement. (1) A judicial authority, before which an action is brought in a matter which is subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to arbitration unless it finds that prima-facie no valid arbitration agreement exists. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof: Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Hon ble Supreme Court referred the disputes to arbitration in terms of Section 8 of the Arbitration Act, 1996 and disposed of the appeal, as nothing else remained to be decided. 120. That situation does not arise in this case because the principle as emanates from the aforesaid judgment is where all the parties apply to the Court where the lis is pending, for reference of the dispute to arbitration even after the statement of defence has been filed, because the other party does not object to it and is also party to the agreement. 121. So, this judgment will not be helpful to the case of the petitioners. The document Annexure A-1 said to be an arbitration agreement, which says that there are some differences between the first and second parties and by naming six persons as the Arbitrators, it is stated that the findings of the arbitration proceedings would be binding upon the parties. What were the terms of reference was however, not mentioned and whether it would have been feasible before the Company Law Board, where the matter was pending to refer the matter for some differences to the arbitration without highlighting the nature of the differences. 122. From the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with by the Dealer. The Hon ble Supreme Court held that under Section 16 of the Act, 1996, any objection as to applicability of the arbitration clause to the facts of the case could be raised before the Arbitral Tribunal concerned. The Court could not dwell into this question, but should have left it to be decided by the Arbitral Tribunal. It was further held that the existence of dual procedure one under the criminal law and the other under the contractual law is well acceptable legal phenomenon in the Indian jurisprudence. Therefore, the application filed by the appellant under Sections 8 and 5 of the Arbitration Act was allowed and the trial court was directed to refer the dispute to arbitration. So, this judgment also is on different facts, as firstly it arose out of a civil suit and secondly that the matter was considered in view of Section 8 of the Arbitration Act, 1996 for referring the dispute to arbitration. 126. In Kvaerner Cementation India Ltd. v. Bajranglal Agarwal [2012] 5 SCC, 214, the matter arose out of the civil suit for declaration that there does not exist any arbitral clause and as such, the arbitral proceedings were without jurisdiction. The Hon ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion filed under Sections 397, 398, 402, 403 of the Companies Act, 1956. The Hon ble High Court held as under: 58. We are also of the opinion that the unanimous opinion in the High Courts dealing directly with the issue raised appears to be that no arbitration in cases such as the present one is permissible. In O.P. Gupta v. Shiv General Finance (P.) Ltd.47, Company Cases 279, O.P. Gupta s case (supra), while dealing with an identical situation, a Single Bench of the Delhi High court observed as under: I fully agree that no arbitrator can possibly give relief to the petitioner under Sections 397 and 398 and will be unable to pass any order under Section 402 or 403 of the Companies Act. An order of stay in these proceedings will be tantamount to dismissing the petition. and again I must also refer to Section 9 (b) of the Companies Act, 1956 which states that any provision in any memorandum, article or agreement to the extent that it is repugnant to the Act will be void. In view of the fact that the learned counsel for the applicant relies on article of the company, which is in consistent with the provisions of Sections 397 and 398. I would hold that the articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 (Bom.), it was further held by the Hon ble Bombay High Court that the scope of two enquiries, namely; that of the petition for setting aside the award and the petition under Sections 397 and 398 of the Companies Act are wholly different. In view of this, Section 10 of the Code of Civil Procedure read with Section 141 can have no application whatsoever nor can the question of exercising powers under Section 151 of the Code of Civil Procedure arise. 132. The case law on the subject has been discussed in detail by the Hon ble Principal Bench of the Company Law Board in Mr.Christian Muller and Ors. V. M/s A C Braid and rope Company Private Limited , CA No.170/C.1/2014 in CP No.109 ( ND)/2014, decided on 05.10.2015. . It was held that bare perusal of provisions of Sections 397, 398, 402 and 403 of the Companies Act, 1956 reveals as under: 14. A bare perusal of aforesaid provision would reveal that Company Law Board enjoys wide powers to adopt correctional mechanism where the affairs of the company are being conducted in a manner prejudicial to interest of the General Public or in a manner oppressive to any Member(s) and/or shareholders of the company. A close scrutiny of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitration Act, 1996 was dismissed. It was contended that the Articles of Association of the company clearly provide that all the disputes pertaining to the affairs of the company are to be referred to the arbitration. The Hon ble Delhi High Court held as under: However, this Court is of the view that here petitioner is invoking a statutory remedy which is in addition to the contractual remedy. Moreover under Section 397 (2) (b) of the Companies Act, 1956, Company Law Board has to come to a conclusion that a case for winding up is made out, prior to granting any relief. In Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. (1999) 5 SCC 688, the Supreme Court has held that arbitration clause is not attracted to winding up proceedings. 134. One of the allegations of mis-management and oppression in this case is with regard to the transfer of the shares of P-1 company in favour of R-2. The learned counsel for petitioners vehemently contended and rightly so that P-1 company is a separate entity and was not a party to the arbitration agreement. The fact that P-1 company has filed this petition through P-4 as the authorised person on the basis of a resolution passed by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the document of Appointment of Arbitrators Annexure A-1. The document of appointment of arbitrators refers to the names of P-2 to P-5, the Directors of Ricela Health Foods Ltd. as the first party and R-3 and R-6, the Directors of R-1 company, as the second party. It is mentioned that there are some disputes between the parties and six persons named in the document were appointed as the Arbitrators. The agreement does not at all relate to what is the dispute between the parties and how the terms of reference would be governed. 139. The entire procedure laid down in the Arbitration Act, 1996 has been given a complete go-bye. Section 23 of the Arbitration Act says as under:- Statement of claim and defence.- (1) Within the period of time agreed upon by the parties or determined by the arbitral tribunal, the claimant shall state the facts supporting his claim, the points at issue and the relief or remedy sought, and the respondent shall state his defence in respect of these particulars, unless the parties have otherwise agreed as to the required elements of those statements. (2) The parties may submit with their statements all documents they consider to be relevant or may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an arbitrator. 143. The Hon ble Supreme Court held in Narayan Prasad Lohia v. Nikunj Kumar Lohia [2002] 38 SCL 625 (SC), that the composition of the arbitral tribunal cannot be challenged in application under Section 34 of the Arbitration Act, if a party chooses not to object. The Hon ble Supreme Court further held in that case that it is no longer open to contend that under Section 16 of the Arbitration Act, a party cannot challenge the composition of arbitral tribunal before the arbitral tribunal itself, but such a challenge must be taken under Section 16 (2) of the Act not later than submission of statement of defence. It was further held that a conjoint reading of Section 10 and 16 of the Act shows that the objection to the composition of the arbitral tribunal is a matter, which is derogable. It is derogable because a party is free not to object within the time prescribed in Section 16 (2) of the Act. If party choose not to object, there will be a deemed waiver under Section 4. Therefore, learned counsel for the respondents contended that this being a consent award, there was no scope of any objection being filed by the petitioners to the jurisdictional powers before submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n over. But there should have been at least the Board resolution of R-1 company dated 24.05.2010 accepting such transfer from P-1 in favour of R-2 company. The respondents did not set up any plea about passing of the resolution dated 24.05.2010 in written reply, but on inspection of the record, the copy of resolution dated 24.05.2010 was produced, which was a loose sheet. It is pertinent to note that R-1 company itself prepared the compliance certificate dated 30.08.2011 Annexure R-3 attached with the rejoinder, issued by M/s Sushma Gupta Associates, Company Secretaries of R-1 company on examination of the record i.e. the account books and papers of R-1 company required to be maintained under the Companies Act, 1956 and Rules thereunder. In paragraph 4 of this certificate, it is stated that R-1 company held only seven meetings during the financial year 2010-11 and there is no reference to the meeting dated 24.05.2010 in the said resolution. If respondents have ultimately shown the copy of a resolution dated 24.05.2010 during the course of inspection, which is otherwise contrary to the compliance certificate, it would be highly doubtful, if the said resolution produced for inspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02.2011 and 31.03.2011 and there is no reference to any resolution around 24.05.2010. 150. It was rather contended by learned counsel for petitioners that there is a significant mis-match between the number of Board meetings as per the record produced before the Company Law Board and the dates of Board meetings reported in the compliance certificate for the relevant period. The contention on behalf of the respondents that non-mentioning of the dates of certain Board resolution in the compliance certificate filed with the Ministry of Corporate Affairs is only a clerical error cannot withstand the test of scrutiny. 151. Section 108 of the Companies Act, 1956 says that a company shall not register transfer of shares in, or debentures of the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate relating to the shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures. In this case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of P-1 company from the list of the shareholders. Learned counsel for respondents contended that it was because of the tax planning that such a procedure was adopted. I am, however, of the view that such a plea could be believed only on the basis of some authentic record of the companies. 155. Another contention of learned petitioners counsel is that it is well settled principle of law that the transfer of shares has to be for a valuable consideration, which was not paid, when the transfer was recorded on 24.05.2010. Admittedly the amount was transferred for showing the payment of consideration of this transfer by way of RTGS transfer on 26.04.2011 i.e. almost after about one year of the transaction, as evident from the bank statement of R-1 company Annexure R-6 attached with the reply. Learned counsel for petitioners referred to an entry dated 22.04.2011 of the deposit of ₹ 15,10,926/- by way of cheque No.0740782, but reverse entry was made on 23.04.2011 as the cheque was dishonoured with the remarks drawer s signatures are incomplete . 156. Learned counsel for respondent, however, submitted that delayed payment of consideration would not make the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the compliance certificate of R-1 company. It is, therefore, held that the transfer of 14,96,000 shares by P-1 company in favour of R-2 is not legal and thus liable to be set aside with a further direction that these shares be transferred back in favour of P-1 company by deleting the name of R-2 company from the register of R-1 company with a further direction to write off the loan of ₹ 1,50,00,000/- shown in the account of R-2 company. 159. With regard to the challenge to the allotment of 3,50,000 additional shares in the meeting held on 29.06.2011 in favour of R-7 and 4,00,000 shares on 10.10.2012 in favour of R-2, R-3, R-8, R-9, it was contended that there is violation of clause 6 of the Articles of Association of the company. Clause 6 of the Articles of Association Annexure P-2 says that the subject to the restriction imposed upon the general meeting, the shares shall be in the control of the Board of Directors who may allot or may otherwise dispose of the same on such terms and conditions as it thinks fit. However, no detailed discussion on this issue is required as the respondents have made an offer which was re-iterated during the course of arguments that the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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