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TMI Blog2018 (9) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... cised by the learned NCLT under Sections 241 and 242 of the Companies Act, 2013 read with Rule 11 of the National Company Law Tribunal Rules, 2016 as well as Rule 11 of National Company Law Appellate Tribunal Rules, 2016. At present, passing of Orders of winding up the Company would unfairly prejudice members, but otherwise the facts justify the making of a winding up order considering the acts committed by the Appellants. If in spite of the efforts as per Order we propose to pass don’t succeed, NCLT may consider directing steps for winding up. The ends of justice require this Appellate Tribunal to pass necessary orders although these orders are required to be passed against the Appellants who have come up in the appeal as we find that this is necessary in the interest of the Company which was established by late Shri M.A. Shanmugam. Order: - We maintain direction 1 issued by the learned NCLT in the Impugned Order that an Independent Auditor should be appointed to carry out audit as proposed by the learned NCLT. The fees of the Auditor to be appointed by NCLT shall be borne by the original Respondent No.1 Company. The other directions 2 to 6 of the Impugned Order are quashed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Petition. Case of Original Petitioners 3. The Company Petition (Annexure A - 33 Page 442 of the Appeal) shows the case of Petitioners in brief as under:- a) The Company Petition refers to the different shares held by the original Petitioners and refers to the Respondent No.1 - M/s. Hotel Mass Private Limited (hereinafter referred as the Company) stating that the same was incorporated in 1982. The object of the Company was to carry on business of restaurants and refreshment rooms. Original Respondent No.2 Dr. M.A.S. Subramanian (Appellant No.1) is son of Late Shri M.A. Shanmugam. The Company Petition gives details regarding other Respondents 3 to 6 which shows that they are relatives of the Respondent No.2. According to the Company Petition, the Company was incorporated in 1982 by Late Shri M.A. Shanmugam, his wife (Late) Mrs. S. Senganiammal and the second Petitioner (Thiagarajan). The petition states as to how subsequently the shares were allotted to other Petitioners and Respondents. As per the petition, vide Form No.2 dated 14.03.1983, 30,000 equity shares were allotted to the family members out of which 17820 were allotted as payable in cash and remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for information were being denied in spite of letters. Petitioners claimed that their enquiries in September, 2014 disclosed that the Respondents 2 to 6 had sold off the land standing in their name while the actual ownership was vesting with the Company, along with other lands of Respondent No.7 by sale deed dated 31.10.2011 which was registered as document No.1844 of 2013 in the office of District Registrar, Puducherry. Petitioner claimed that the Respondent No.2 with his family members had clandestinely sold their shares in the Company along with the assets of the Company. These facts were never informed to the Petitioners by the Respondents 2 to 7. The selling of shares by Respondent No.2 and his family along with assets of the Company was surreptitiously done with mala-fide intentions. The Petitioners had not received any Notice regarding such sale. The same deserves to be set aside. Respondent No.2 as MD sold the buildings, movables and fixtures of the Company for ₹ 3,93,80,706/- to Respondent No.7, which was much less than the book value of the building disclosed in balance sheet of Financial Year 2010 2011. The substratum of the Company had been completely lost. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to lease deed which appears to have been executed by original Respondent No.2 in favour of the Company and the fact that the same was not property stamped. 6. The Impugned Order till Page 34 keeps referring to the pleadings. From Page 34 of Impugned Order, there are reasons referring to pleadings and findings. It would be more appropriate to reproduce the same as it is:- The Respondents/petitioners have sought to set aside the sale of 3,15,860 equity share of ₹ 100/- each sold by the applicants/Respondents 2 to 6. In this connection, it is seen that the applicants/Respondents have not adduced any material evidence to prove that the issue of share capital was raised in the Board Meeting and the same was approved as being beneficial to the R1 Company. The applicants/Respondents have stated that there is no violation of Clause 15(3) of the Articles of Association but this has not been proved as could be seen from reading of the relevant provisions contained in the Articles of Association. Moreover, before selling the shares to R-7, the shares should have been offered to the other shareholders. On their refusal to exercise the right only the shares shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation was done for the properties of the R1 Company which were sold which due to non execution of the sale deed was held in trust by the R2. The Respondents have also not submitted a Special Resolution with the approval to sell the Company s properties by special resolution approved by AGM/EGM. In view of the fact, that it has been established that the property in question pertains to R1 Company, the sale consideration has not been shown by the Respondents 2 to 6 to have been debited to the books of accounts of R1 Company. In view of this, we make the order as follows:- ORDER In view of the facts discussed above, it is clear that the Respondents 2 to 6 have sold their entire shareholding to the R7 Company. They have also sold the properties shown in the last available balance sheet for the year 31.03.2001 of the 1st Respondent Company. All these points have been, at length, discussed above. Both the petitioners and the Respondents have not produced any documents or the accounts of the R1 Company for the subsequent years which could clearly indicate clear financial position of the R1 Company. To enable this Tribunal to arrive at a decision based on facts, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am, the LRs namely four daughters and the only son of Late M.A. Shanmugam executed lease deed on 11.06.1984 relinquishing all the rights, titles in the estate of M.A. Shanmugam in favour of wife of Shanmugam. Later on, wife of Shanmugam, on 04.07.1984 executed settlement deed in favour of the original Respondent No.2 (Appellant No.1) and the settlement deed includes the land on which the hotel stood. Mutation was carried out even in revenue records. Respondent No.2 executed lease deed of the land in favour of the hotel registered as document 5890/98. According to the Appellants, the original Petitioners were aware of these things. It has been argued that one of the daughters of Late M.A. Shanmugam had filed CS 352/1985 for partition of the assets, which included the land on which hotel stood. She challenged the lease deed and the settlement deed but the suit entered into compromise on 19.02.1987. Another daughter of Late M.A. Shanmugam filed application wanting to be transposed as plaintiff in the said suit and the suit was transferred to District Court, Pondicherry as OS 3/1986. Another modified Compromise Memo was filed on 03.03.1997 before the District Judge, Pondicherry. The Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1987 1988, copies of which have been filed (page 165 166). The argument is that the land belonged to the Company as well the structure on it, and the Respondents could not have transferred the land and disposed of their shares in favour of original Respondent No.7 M/s. Vee Pee Estate and Hotels Pvt. Ltd. without holding an EOGM or AGM with specific Resolution on this count. According to original Petitioners, the Articles of Association give rights to the other members and without offering the shares to them, the Respondents could not have transferred their shares to Respondent No.7 who was admittedly not a member of the Company. No Board of Directors approval or copy of meeting is shown. According to the original Petitioners, they were not served with any Notices regarding any such meetings. 9. In the arguments and in this matter, the main stress of the original Petitioner is on 3 aspects: 1) The Petitioners are minority shareholders and original Respondent No.2 (Appellant No.1) was looking after the affairs of the Company along with the other original Respondents 3 to 6 who are his immediate family members and although the land belonged to the Company, these Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent submits that proper notice was issued to the petitioners. The allegation that the sale was done suruptiously and with malafide intention is false. There is no necessity for the second respondent to harass the petitioners or oppress the minority share holders as claimed by the petitioners. But for the act of the respondents 2 to 6 in selling their movables and immoveables standing in their name and discharging the loan availed from various financial institutions and individual, the 1st respondent would have been liquidated by winding up or any other recovery proceedings initiated by the creditors. The respondents 2 to 6 submit that the sale made by them is legal, valid and binding and has been done in accordance with law. Special resolution dt: 25/6/11 was properly passed and the sale was executed by the respondent 2 to 6 .. 11. The Petitioners in the petition have pleaded in paragraphs 14, 15 and 16 of the Company Petition that the Original Respondents 2 to 6 had sold off their entire equity shares held by them to Respondent No.7 in contravention of the Articles of Association and the original Respondent No.2 had sold off the buildings, movables and fixtures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.5 through the original Respondent No.2 - M.A.S. Subramanian claiming to be duly authorized to sell and these original Respondents 2 to 4 along with their other properties appear to have sold off the land of the Company to original Respondent No.7 M/s. Vee Pee Estate and Hotels Pvt. Ltd. The sale deed is dated 31st October, 2011 but appears to have been recorded in the office of concerned Registrar on 7th October, 2014. The Company Petition was filed on 25th October, 2014. Thus, there is no substance in the claims of the Appellants regarding delay. 13. At the time of arguments, the learned counsel for the Appellants was confronted with this sale deed and when he was asked to show the Resolution to sell property of the Company, he merely stated that the land belonged to original Respondent No.2 while the factory building belonged to the Company. 13.1 Even regarding this claim of the Appellants, at the time of arguments before us, we had noticed as pointed out by the learned counsel for the original Petitioners, Form 2 (Page 112 and 113 of the Appeal) which recorded and which was signed by the Managing Director that there were 12180 shares allotted for a consideration othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal Respondent No.2). Thus, the Appellant No.1 who were managing the affairs of the Company had the fiduciary duty to protect such land which was in possession of the Company by way of partperformance of the contract. This Appellant No.1 on 16.09.1998 preferred to get a lease deed recorded (Appeal Page 189) of the land of the Company. It is an interesting document. The lessor is the Appellant No.1 holding himself out as Managing Director and the lessee is M/s. Hotel Mass Private Limited (the present Company) represented by the same Appellant No.1 again describing himself as Managing Director of the Company to be the lessee. Thus, the lease deed was created by Appellant No.1 in two capacities and he acted for the lessor and lessee both and created the document to be a lease for 27 years, fully loaded in his favour in individual capacity putting the liability on the Company to pay 32 lakhs as rental interest free deposit with other conditions like the company may make a fresh construction and when the lease expires, the structure will have to be left at the time of expiry of the lease. He even brought into existence another rectification deed (Page - 218) on 2nd March, 1999. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or otherwise dispose the same to such person or persons and for such consideration upon such terms and conditions and at such time as Directors may in their absolute discretion think fit. The argument is that this gave discretion to the Directors to transfer all the shares as per their will and wish. We find that Article 4 is part of Articles 3 to 7 under the heading of Share Capital. These Articles cannot be read in isolation and are required to be read along with Articles 15 to 27 of the Articles of Association, which Articles are under the heading of Transfer on Shares (should be Transfer of Shares). Admittedly, this was not a new allotment or transfer of shares at the time of incorporation. The Appellants (original contesting Respondents) admittedly transferred the shares which had come to them after the incorporation of the Company and on death of late Shri M.A. Shanmugam and then his wife. Reading Article 4 with Articles 15 to 27 makes it clear that the shares cannot be transferred to any person who is not a member of the Company so long as any other member is willing to purchase the same at fair value. Articles 15 to 27 have detailed procedure in this regard. There is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 14.03.1983 was there in support. NCLT noticed the early death of M.A. Shanmugam before execution of the sale deed and that the property had been shown in the assets of the Company even as on 31.03.2011. NCLT found that the Respondents did not show any proof that valuation was done on the properties which were being sold. NCLT found that it was established that the property in question pertained to Respondent No.1 Company. According to us, when the learned NCLT noticed and even found that the property in question was pertaining to Respondent No.1 Company and when it was finding that the burden on the Respondents had not been discharged by them, the NCLT was duty bound to set aside the sale deed transferring the land which was in possession of the Company. Looking to the pleadings, it was necessary that NCLT should have also directed setting aside of the shares which had been transferred without following any procedure. 16. We reject the averments made by the Appellants that the land belonged to them. The land was in possession of the Company under an agreement which can be seen from the records that against the transfer of shares the original owner of the land had agreed to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to be appointed to verify if the procedure had been followed. We had asked the learned counsel if he still wants to continue with the arguments of the appeal. The learned counsel preferred to argue the appeal and thus we have heard the whole appeal on merits and now we have come to this conclusion that the transfer of assets and business of the Company as well as transfer of shares is not liable to be upheld. Although the Respondents original Petitioners did not file the appeal and appear to have gone along with the Impugned Order which is more in the nature of Interim Orders, we find that looking to the provisions of the Companies Act, 2013, when there is sufficient material to record a finding that the acts of the Appellants original Respondents were oppressive to the other members of the Company, it is necessary to safeguard the interest of the Company. The admitted facts of the present matter show not only oppression on the part of original Respondents 2 to 6 but also mismanagement as in the name of clearing loans, the whole Company itself has been transferred without letting the other shareholders know. The present appeal being continuation of the original Company Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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