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TMI Blog2019 (5) TMI 1634X X X X Extracts X X X X X X X X Extracts X X X X ..... does not show that at the time of final arguments, the original Petitioners agreed to such offer. Para 159 of the Impugned Order shows the Respondents reiterating their offer. It does not show that the Petitioners accepted the same. NCLT picked up the offer made by the Respondents and ignoring what the Petitioners stated, proceeded to pass the final Orders as if the issue relating to first and second allotments required no consideration due to mutual agreement of the parties and gave what only Respondents wanted to give. When disputes had been raised and argued the same were required to be decided and no shortcut could be adopted without both sides categorically agreeing. NCLT could not have abrogated its responsibility to decide the legality or otherwise of first and second allotment. We are thus not in agreement with NCLT with the manner in which it dealt with the first and second allotment. There was no comparison in what was filed with ROC as true copy of Resolution and what surfaced during the litigation. It is being argued by the Appellants/Original Petitioners that these documents were prepared later to justify the allotments which had already been made. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr A.I.S. Cheema, Member (Judicial) And Mr Balvinder Singh, Member (Technical) For The Appellants : Mr. Salman Khurshid, Senior Advocate with Ms. Tushita Ghosh, Mr. Shashank Katyayen, Ms. Shubhi Sharma and Mr. Aniruddha Choudhury, Advocates and Mr. Gaurav Mehta, PCS, Mr. Krishnendu Datta, Mr. Arnav Kumar and Mr. Shivi Sanyam, Advocates For The Respondents : Mr. Krishnendu Datta, Mr. Arnav Kumar and Mr. Shivi Sanyam, Advocates, Mr. Salman Khurshid, Senior Advocate with Ms. Tushita Ghosh, Mr. Shashank Katyayen, Ms. Shubhi Sharma and Mr. Aniruddha Choudhury, Advocates and Mr. Gaurav Mehta, PCS JUDGEMENT A.I.S. Cheema, J. : 1. Both these Appeals arise out of same Impugned Judgement and Order. In Company Appeal 55/2018, there has been some delay beyond the period of 45 days provided for filing of Appeal. We have seen Application for condonation of delay IA No 204 of 2018. Although the Respondents of Company Appeal 55/2018 are opposing condonation of delay, we accept the reasons given by the Appellants of Company Appeal 55/2018 and condone the delay. 2. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Petitioner Group through P1 Aar Kay Company where the Petitioners held majority shares. It was decided that P1 Aar Kay will acquire/purchase substantial shares of R1 by making long term investment by purchasing shares from existing shareholders of R1 Company. Pursuant to such understanding between the two groups, in May 2010, 14,96,000 equity shares were purchased in the name of P1 Aar Kay by execution of transfer deeds and due payment of consideration in May, 2010 and the same were duly registered in the records of R1 AP Refinery on 19th May, 2010 (1st Transfer dated 19.05.2010) and such shares stood on that date in the name of P1 Aar Kay. Thus, the shareholding of the Petitioners was restored to 56.97% in A.P. Refinery, which was the original shareholding structure. Bone of Contention 4. Petitioners claim the subsequent facts as bone of contention leading to the filing of the Company Petition. The Petitioners claim that the Respondents taking disadvantage of their management control in R1 Company AP Refinery by series of oppressive acts, reduced the majority shareholding of the Petitioners in R1 from 56.97 to 9.25%. Petitioners a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atdev Jindal and Deepak Jindal to resolve the dispute between the parties. Copy of the agreement was attached as Annexure A-1. It was claimed that after due proceedings before the Arbitral Tribunal, a consent Order was passed on 12.07.2015 itself. The Impugned Judgement refers to details of what was recorded as consent award, which was tendered as Annexure A-2. The Respondents claimed that because of this, the Petitioners were bound to withdraw the Petition and could not challenge shareholding of R1 AP Refinery. 5.1 The NCLT appears to have taken Reply of the Petitioners 2 to 5, who opposed the prayers of Respondents and who claimed that the said Annexures A1 and A2 had nothing to do with the present Petition. NCLT in para 106 of the judgement took up CA 255/2015 which claimed that the Petition deserved to be dismissed on the ground of Arbitration Agreement and said Award and after discussing the matter and the provisions of Arbitration and Conciliation Act, 1996, found that the jurisdiction of the Tribunal was not barred and for reasons recorded, dismissed CA 255/2015 (para 144 of the Judgement). 6. NCLT from para 145 of the Judgement took u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g notice to the petitioners No.2 to 9 and if they are willing to purchase the shares at the value on which these shares were transferred to some of the respondents as described above. In case the petitioners do not offer for these shares, the allotment of the additional shares shall remain intact with the respondents. NCLT noted that the other disputes relating to falsification of accounts and siphoning of funds were not pressed in arguments. NCLT proceeded to pass the following Operative Order :- 161. From the discussion made above, it is found that the facts of the case would attract the provisions of Section 397 of the Companies Act, 1956, but winding up would unfairly prejudice the members. The instant petition is disposed of with the following directions:- i) CA No.255 of 2015 filed by the respondents is dismissed; ii) 14,96,000 shares now existing in the name of R-2 company be transferred back in the name of P-1 and its name be entered in the register of members of R-1 company. At the same time, the amount of ₹ 15,00,000/- shown in the account of P-1 company towards loan t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares of P1 Company were restored, which had to be w.e.f. the date when they were wrongly transferred on 24.05.2010, having stood in the name of Aar Kay since 19.05.2010. 9. Against this, the original Respondents have come up with their own Appeal CA 55/2018. They have challenged the Impugned Order claiming that the Impugned Order wrongly held the Respondents guilty of oppression and mismanagement and that the NCLT wrongly held that 2nd transfer of 14,96,000 shares was illegal. They have also challenged the dismissal of CA 255/2015. They want the direction recorded in para 161(i) of the Impugned Order to be set aside . Their prayer is to uphold the 2nd transfer of 14,96,000 shares of Aar Kay Company, in the records of AP Refinery to R-2 Dhuri. The prayer is that the original Petitioners should be directed to exit from AP Refinery in terms of settlement agreement dated 12.07.2015. 10. The pleadings as raised by the parties and the developments when the matter was before NCLT, have been summarized in details by the learned NCLT in the Impugned Judgement and as such, we are not burdening this Judgement with those many details. To go by chronology, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not in dispute. Arguments of Appellants in CA 55/2018 Original Respondents 14. It has been argued by the leaned Counsel for original Respondents Appellants that the transfer deed dated 24.05.2010 was signed by one of the Directors of original Petitioner No.1 and so, the original Petitioner No.1 cannot challenge its own actions. It is alleged that the OR1 Company AP Refinery could not be said to have acted in oppressive manner because when the transfer form was submitted, it had only to register the transfer and registering the change could not be faulted with. It is argued that when R4 was Director of P1 Company, if he acted beyond authority, the shareholders of the OP1 Aar Kay would be the aggrieved persons and not the shareholders of OR1 AP Refinery. 15. It has also been argued that the NCLT wrongly dismissed CA 255/2015 which had been filed on the basis of Global Settlement Agreement dated 12.07.2015 (Page 634), but according to the Counsel, when the Company Petition was pending, the original Respondent No.3 and original Respondent No.6 as well as original Petitioners 2 to 5 had entered into the agreement on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioners. It is claimed that in one of the Company Petitions which has led to CA 2/2018, the original Petitioners have been found guilty of manipulating and forging statutory records of Aar Kay Company. The learned Counsel submitted that the NCLT wrongly doubted Resolution dated 24.05.2010 of OR1 AP Refinery only because the same was not filed when the Reply was filed in NCLT and was produced only at the time of inspection. According to the Counsel, NCLT wrongly held that as the Board Resolution dated 24.05.2010 does not find mention in compliance report of the AP Refinery Company, the same was doubtful. The learned Counsel for the Appellants Respondents submitted that NCLT wrongly doubted transfer deed dated 24.05.2010 as the document bore the stamp of Registrar of Companies dated 05.05.2010 and there was delayed payment of consideration. (It may be mentioned that in para 152 of Impugned Order, NCLT questioned rationale for transfer deeds bearing stamp of ROC dated 05.05.2010 when OP1 itself was not having 14,96,000 shares till 19.05.2010.) 17. It is further argued by the learned Counsel for the Appellants original Respondents that in 2010, the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has argued that it is an admitted fact that in CA 255 of 2015, which was filed in NCLT, the original Respondents had merely sought dismissal of the Company Petition on the basis of document, which was allegedly termed as Arbitration Award dated 12.07.2015 and thus, the Appellants cannot claim that the document should have been treated as settlement agreement, which document was not even signed by all the parties to the Petition and which it is claimed, did not cover the subject matter of the Company Petition. It is further argued that the original Petitioner No.1 Aar Kay Company as well as the original Petitioners 2 to 9, who are members of the OR1 Company AP Refinery, were aggrieved persons as the shares which stood in the name of Aar Kay on 19.05.2010 had been wrongly shown as transferred to Dhuri and they had right to seek rectification of the Register of members. It is argued that there was no sufficient cause for the OR1 Company AP Refinery to register the transfer for reasons which have been recorded by NCLT in the Impugned Order. Justification now being shown that the Auditors had shown the amount of cheque under the head Unsecured Loan is afterthought and no state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it was claimed that OP2 to 5 - Directors of Ricela Health Foods Ltd. and OR3 and 6 Directors of AP Refinery had entered into an agreement to refer their disputes to arbitration and for the purpose, an agreement dated 12.07.2015 was entered into. The application referred to certain persons as the Arbitral Tribunal to resolve disputes of the aforesaid parties. It was further claimed that the Arbitral Tribunal passed consent award on the same date of 12.07.2015 and the application referred to what was stated to be the Award . The application annexed the agreement for appointment dated 12.07.2015 as Annexure A1 and the said Arbitral Award as Annexure A2. The application claimed that the appointment of the Arbitral Tribunal and Award were the subject matter of the Company Petition and the Award had come into force and acted as res judicata to the parties. The application claimed the right to enforce all directions in terms of the Award including execution of money decree granted in their favour by the Award. Inter alia, the application claimed that OR3 and 6 the Applicants were filing the said application on limited issue of seeking enforcement of the direction of the Arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute between the parties and how the terms of reference would be governed. It is to be noted that although in this Appeal by original Respondents, they have filed copy of the CA 255/2015 at Annexure W and copy of said Award, what is now being referred as settlement agreement at Annexure V, the document of Appointment of Arbitrators (Annexure A1), which is said to have been filed with the CA, has not been filed and not argued before us. Now the Appellants original Respondents have turned around to refer to the concerned document which was filed as Award (Annexure V) to be a Settlement Agreement . At the time of arguments, the document has been referred by the Counsel for original Respondents as Global Agreement but in NCLT, it was not the case of the Appellant. In any case, NCLT has already dealt with the provisions of Order 23 Rule 3 of CPC also. If during pendency of the Company Petition, outside, some of the parties enter into any such document as at Annexure V titling the same as Arbitration Award , that by itself is not sufficient to call upon the Court (NCLT here) to dispose the Petition in terms of the same, unless the concerned parties come before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Malerkotla and so they were not in a position to produce the Resolution on that count. Before NCLT, it was not disputed that OP1 Aar Kay is in control of other Petitioners. In any case, when the Company itself is a shareholder in another Company, the shares standing in the name of the Company is a matter of right for all the shareholders of that Company (Aar Kay here). The general right of Directors to handle shares of their own Company is different from their right to deal with shares held by the Company itself in another Company. Once the shares stood in the name of OP1 Aar Kay, in our view, it would require consent of the General Body which, as a whole, has interest in the shares held by their Company in another Company. Without their consent, even the Board of Aar Kay must be said to be incompetent to transfer what would be the property of the Company. This is apart from the fact that in the present matter, there is not even the Resolution of the Board of Directors of OP1 Aar Kay brought on record authorizing OR4 to execute any such document like Annexure H. Only because OR3 and 4 happen to be Directors who are common in the three companies, they cannot be presumed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate had recorded that the Board of Directors of the Company met six times on 01.04.2010, 31.08.2010, 30.09.2010, 20.12.2010, 28.02.2011 and 31.03.2011. Thus, between 01.04.2010 and 31.08.2010, there was no Board Meeting of R2- Dhuri. NCLT has already found fault with the Appellants original Respondents while referring to compliance certificates (copies at Annexure R9 and 10) relating to AP Refinery and Dhuri where the Company Secretaries referred to the minute book of those companies to record various dates when the Board of Directors met and NCLT had noted that for both these companies AP Refinery and Aar Kay, compliance certificate did not show that there was any meeting held on 24th May, 2010. Such Compliance Certificates are required to be kept in view of Section 383A(1) read with Rule 3(1) of the Companies (Compliance Certificate) Rules, 2001. The form prescribed requires examination of records. Certificate issued in ordinary course of business cannot be ignored. Thus, we look at, with suspicion, the alleged Board Resolution dated 1st April, 2010 (Page 733 of the Appeal), which has been now filed to claim that Respondent No.2 Dhuri had decided to purchase 14,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as at Annexure J dated 24th May, 2010 who were linked as Directors in these different companies, clearly had fiduciary responsibilities towards shareholders of respective companies. It appears to us that they failed to discharge their responsibilities as trustees of the shareholders of the respective companies. 27. We find substance in the arguments of the learned Counsel for the original Petitioners that it could not be said that there was compliance of Section 108 of the old Act if along with the share transfer forms, Board Resolutions of the transferor company and transferee company duly authorizing the OR3 and 4 to sign the transfer deeds on behalf of the OP1 and OR2 were not accompanying. It has also been rightly argued that there was no material to show that when such transfer was recorded, the relevant share certificates were also presented as required by Section 108 of the old Act. 28. It is argued by the learned Counsel for the Appellants original Respondents that NCLT should have seen a link between first transfer and second transfer. It is argued that in order to secure and consolidate shareholding of Respondent group in AP Refinery a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment Companies transferred the 1496000 shares and thus according to him, the new case being put up by the original Respondents deserves to be discarded. We find that in the absence of document to show that the companies pre-decided to go into the exercise of First and Second Transfer, bare arguments of contesting Respondents cannot be accepted. 29. It has been then argued by the learned Counsel for the Appellants original Respondents that the shares of OP1 Aar Kay had been transferred, the shareholders of OP1 would be the affected parties and the other original Petitioners could not have filed the Company Petition. 29.1 This has been countered by the learned Counsel for the original Petitioners submitting that it is already on record that the original Petitioners were in control of Aar Kay Chemicals and looking to the manner in which these group of Companies came into existence, original Petitioners have right to safeguard interest of the Company Aar Kay Chemicals and that the original Petitioners are entitled to maintain the Petition. 29.2 It is claimed by the learned Counsel for the original Petitioners that original Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kay Chemicals had consolidated the position of the original Petitioners and the second transfer was done by Respondent promoter group to dilute the shareholding of the original Petitioners. The original Petitioners have referred to their Company Petition where in details, they specified as to how they were holding shares in OR1 AP Refinery and how due to transfer of shares by the first and second allotment mentioned above, the concerned Respondents benefited while the shareholding of the original Petitioners got reduced. The Appeal makes grievances that the learned NCLT proceeded on wrong basis to observe that detailed discussion of the first and second allotment was not necessary as the original Respondents had made an offer that original Petitioners would be issued shares in proportion to their shareholding in AP Refinery, from shares issued to them. 32. Learned Counsel for the Appellant referred to observations of NCLT in para 80 and para 159 (which we have reproduced in this Judgement earlier). The Appellants are making grievances that it was necessary for NCLT to consider their submissions on merits. According to the Counsel for Appellants original Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellants original Petitioners, the shares were not issued for any proper purpose and they were issued to improve the shareholding of the Respondents at the cost of the original Petitioners. Although Section 81 of old Companies Act did not apply, as laid down in the matter of Dale and Carrington Invt. P. Ltd. vs. P.K. Prathapan and Others reported in 2005 1 SCC 212, the Respondent promoter group had fiduciary responsibility to issue shares for proper purpose and it was obligatory on their part to first offer the shares to the existing shareholders of the Company. As this was not done, the issue of first and second allotment of shares cannot be upheld, it is argued. 33. Against this, the learned Counsel for the original Respondents has submitted that the first and second allotments were done to improve debt equity ratio of the Company, at the instance of credit agencies and financial institutions. According to him, in 2009, there were allotments in which the original Petitioners had also participated and had been issued shares. It is stated that at that time, share application money to the tune of ₹ 1,75,00,000/- and ₹ 75,00,000/- were received fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Page 261 of Reply) and had agreed to exit the OR1 and so it was not necessary to offer shares being issued to them. It is also argued that in earlier years from 2003 to 2009, the Company had never allotted shares on pro rata basis and at those times, the original Petitioners did not challenge the allotments. With regard to the funds, it is argued that when the first allotment was made, the Company returned money of Home Land City Project Ltd. and fresh share application money was received from OR7 of ₹ 1,75,00,000/- regarding which, bank statement has been filed. As regards second allotment, it is claimed that temporary loans lying in the books of OR1 AP Refinery were converted into permanent share capital. It is argued that the unsecured loans were converted into share subscription money. Thus, the Respondents are defending the first and second allotment. 35. We have gone through the material pointed out by the learned Counsel for both sides and heard their submissions. Firstly, we will refer to the observations of the learned NCLT in not dealing with these allotments on merits. At Annexure A9 of CA 394/2017, there is copy of the Reply which was file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in its name and proportionate allotment of shares is made to all Petitioners including Petitioner No.1 Company. Thus, the original Petitioners claimed that the offer made by Respondents would not put an end to series of acts of oppression and mismanagement and they expressly denied the same. They reiterated that the allotment of shares was without following due procedure and was liable to be struck down. The sub-paragraph also made a conditional statement. The Impugned Order does not show that at the time of final arguments, the original Petitioners agreed to such offer. Para 159 of the Impugned Order (which we have reproduced earlier) shows the Respondents reiterating their offer. It does not show that the Petitioners accepted the same. Again, if the NCLT wanted to rely on the offer made by Respondents and the Rejoinder which we have referred, it could not have picked up something in part from one place and something in part from the other and given something in part. Para 8.3 of the Reply of Respondents did not make any offer to OP1 and the original Petitioners did not want to do anything unless OP1 was also being considered on the basis of 14,96,000 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solutions: Resolved that 350000 equity shares of ₹ 10/- at a Premium of ₹ 40/- per equity shares totalling to ₹ 1,75,00,000.00 (One Crore Seventy Five Lacs only) payment of which has been received in full be and is hereby allotted to M/s Anu Buildwell Private Limited of Delhi. RESOLVED further that share certificate for the share allotted as aforesaid be issued to the allottees under the signature of Directors of the company and a common seal be affixed on these shares certificates in the presence of witnesses. RESOLVED FURTHER that Sh. Shiv Kumar Goyal, Director of the Company be and is hereby authorized to sign. execute return of allotment on Form No.2 and to do all acts, deeds, things etc. which she may deem necessary or expedient to give effect the above resolution. The learned Counsel for the Appellant then referred to Annexure A4 (Page 240) Form 2 with regard to the second allotment done on 10.10.2012 and the document at Page 244 where again the true copy of the Resolution showed it to be Resolution of just one sentence RESOLVED that the Company M/s. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation. It is being argued by the Appellants/Original Petitioners that these documents were prepared later to justify the allotments which had already been made. 37. The learned Counsel for the original Petitioners referred to Judgement in the matter of Dale and Carrington (supra) in which in Para 11(d), the Hon ble Supreme Court observed as under:- The fiduciary capacity within which the Directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company. It follows that in the matter of issue of additional shares, the directors owe a fiduciary duty to issue shares for a proper purpose. This duty is owed by them to the shareholders of the company. Therefore, even though Section 81 of the Companies Act, 1956 which contains certain requirements in the matter of issue of further share capital by a company does not apply to private limited companies, the directors in a private limited company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and later Respondents 5 and 6. Reply claimed that the Company was in dire need of infusion of new equity and there was need to maintain debt equity ratio. It was then mentioned:- e: Hence, in the best interests of the Company, and after following due procedure, an allotment of 3,50,000 shares was made in June 2011 to Respondent No.7 company, and a further allotment of 4,00,000 shares was made in October 2012 to Respondents No.2, 3, 8, 9 and 10. 38. Thus, such stand was taken in NCLT at the time of filing of Reply but now in the Reply filed in this Appeal and in the arguments being made (see Reply to Appeal - para 6-d) relating to allotments 1 and 2, various defences are being raised to claim that there was money lying from Home Land City Project Ltd., which was returned for reasons stated, and Respondent No.7 came forward to acquire fresh shares and was thus issued shares. This does not match with the Resolution (Page 262) dated 29.06.2011 also where it was claimed that there is list of persons from whom share application money was received and whose applications were complete were being put up. Then it was resolved that shares were bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were part of the group of original Respondent promoters. We are not impressed by the arguments for Respondents that temporary loans were lying of those Respondents and the same were converted into share subscription money and in support they referring to Annexure R13 (Page 265 Diary No.2886). The learned Counsel for the Appellant rightly countered that if such document was to be relied on even OP1 had money lying with OR1 AP Refinery, but was not treated similarly. We find, original Respondents cannot be allowed to tide over the illegality by claiming to offer to select original Petitioners 2 to 9 from, what was issued under these allotments to select Respondents. 40. We pass the following Order:- ( A) We do not disturb directions in para marked 163 of the Impugned Order. We agree with the learned NCLT as regards operative direction i in para 161 of the Impugned Order that CA 255 of 2015 filed by the Respondents deserved to be dismissed. However, for reasons discussed above, we set aside rest of the operative Order as recorded in para 161 of the Impugned Order and reasons recorded by NCLT in support of the same. Any steps ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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