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TMI Blog2020 (5) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also very clear that the petitioner has neither questioned whatever transactions done by the respondent in all these years nor the petitioner challenged the details given in the Balance Sheet filed by the respondent-company from time to time. The question arises why the petitioner remained silent without taking appropriate steps for recovery of security deposit within the period of limitation. The Memorandum of Understanding came to an end by 25-9-2015. The petitioner ought to have initiated action against the respondent-company on or before 25-9-2018. Whereas the present petition is filed by the petitioner on 18-2-2018. By the date when the petitioner moved the present petition, the claim of the petitioner against the respondent-company became time-barred. The petitioner cannot claim that it is the creditor of the respondent-company as on the date when it filed the present petition. The reason is the debt, if any, stands barred by limitation. The petitioner, therefore, lost the character of a creditor by the date when it filed the present petition against the respondent-company. The petitioner in order to prove its case has mainly relied on Memorandum of Understanding, Deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the respondent, if really the respondent-company committed any violation of the provisions of the Companies Act. There is no need to order an investigation on these grounds. The petitioner has not established any fraud in the course of business carried out by the respondent-company. Therefore, the petitioner has utterly failed to establish the prima facie case that the affairs of the respondent-company is being held in a fraudulent manner. There is absolutely no ground to order investigation into the affairs of the respondent-company - Petition dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... of Pledge (ANNEXURE P9), on the same day of execution of MoU, aggregating to ₹ 60,00,000 equity shares. (ii) Said promoters/Directors have individually executed, on the same day of execution of MoU, a Personal Guarantee (ANNEXURE P11) and agreed to furnish necessary guarantee to the petitioner towards repayment of Security Deposit of ₹ 2,00,00,000/-. (iii) In support of the Personal Guarantee offered, each of the promoters of the respondent have furnished their net worth certificate dated 17-8-2013 and 18-8-2013 (ANNEXURE P12). (iv) The promotors of the respondent have individually executed an Irrevocable Power of Attorney (ANNEXURE P13) and appointed the petitioner as the true and lawful attorney to all such acts with respect to the shares pledged. (v) The respondent vide its letter dated 27-9-2013 (ANNEXURE P14) confirmed that the shares are free from any encumbrance/pledge and there is no lien existing on share certificates. (vi) The respondent executed a Demand Promissory Note (ANNEXURE P15) promising to pay said amount of ₹ 2,00,00,000/- on demand. (vii) The respondent gave an undertaking vide letter dated 26-9-2013 (ANNEXURE P16) that no shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he security deposit of ₹ 2 crores made by the petitioner is not shown as a liability in the audited financial statements of the respondent. Such a suppression of fact amounts to fraud and non-compliance with the statutory requirements, it is alleged. 5.9 It is alleged in paras D(31) and D(32) of the petition that the respondent has been irregular in deposit of Provident Fund, Employees' State Insurance and has produced relevant pages from the Auditor's Report for the financial years 2013-14 to 2016-17 are at ANNEXURE P23 of the petition. Complete Audited Financial Statements for the financial years from 2014 to 2017 enclosed as ANNEXURES P24 to P27 of the petition. 5.10 Observations made in the Auditor's Report for the financial year ended on 31-3-2017 are stated to be as under: "It is observed that deposit of the Provident Fund, Employees' State Insurance fund to be irregular. There were no undisputed amounts payable in respect of such statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable for service tax ₹ 83,702,045/- and tax deducted at source ₹ 14,895,661/-. For more th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness activity is stated as 'charter services', on the other hand for the same year it is stated that (i) Airport constitutes 54.3% and (ii) services incidental to land, water and air transportation constitute 45.7%. By the above illustration it is suggested that financial statements are prepared in a reckless manner and hence not reliable. Therefore, an investigation into the Books of Account of the respondent is warranted. 5.16 In paras D(45) and (46) of the petition it is alleged that diversion of funds of the respondent as on 31-3-2017 was about ₹ 34 crores, which is as under: (a) TDS deducted and service tax collected, but not remitted was ₹ 9,85,97,706/-. (b) Loans and advances was ₹ 23,29,95,119/-. (c) The Managing Director of the respondent draws remuneration of ₹ 1.2 crores in aggregate from the year ended on 31-03-2013 to the year ended on 31-3-2017. 5.17 Irregularities In Each Entity of The Respondent's Group of Companies: The petitioner has pointed out irregularities found in each of the entity of the respondent's group of companies to make out a case for inspection of Books of Account of the said entities as the financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oters-cum-shareholders ought to have invested the proceeds of interest free loans received from the respondent. (ii) It is averred in sub-paras (c) and (d) [pages 20 and 21] of the petition that the Audited Financial Statements of TJEPL filed with Registrar of Companies for the year ended on 31-3-2017 (ANNEXURE P30), under the head "related party transactions" mentioned the figures of short term advances received by Turbo Aviation, V. Umesh and D. Radha Rani. Such short term advances received from the respondent/company are in effect a loan from the respondent/company as there has been no turnover reported in the Audited Financial Statements of TJEPL. As such there was no need for advances from the respondent. (iii) It is averred in sub-para (e) [pages 21 and 22] of the petition that Financial Statement of TJEPL for the year ended on 31-2-2017 under the head "Long Term Borrowings", shows unsecured loans from related parties as under: As on 31-3-2016 .. ₹ 1,16,04,122/- As on 31-3-2017 .. ₹ 3,66,64,648/- How such a huge amount of funds of ₹ 3.66 crores was raised by way of borrowings when there is no income reported for the years 2016-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -cum-shareholders ought to have invested the proceeds of interest free loans received from the respondent. (ii) It is found from the related party transactions disclosed in the Audited Financial Statements of TIATPL for the year ended on 31-3-2017 (ANNEXURE P34), that the respondent gave an amount of ₹ 3,09,150/- as loans and advances to TIATPL, while an amount of ₹ 1,94,76,850/- is shown as loans and advances given to the respondent. 6. From the above averments the petitioner sought to make out a case against the respondent-company that the promoters of the respondent-company obtain loan from that company, invest the loan proceeds in other entities of the group promoted by them and the same money comes back to the respondent as loans and advances. Such transactions carried out without approval of the shareholders are barred by section 185 of the Companies Act, 2013 and as such an investigation into the affairs of the respondent-company under section 213 of the Companies Act, 2013 is warranted. 7. Interim Counter Dated 27-6-2019 Filed By The Respondent: 7.1 Interim counter is filed by Shri Vankayalapati Umesh on behalf of the respondent in the capacity of its Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to the interests of the company or its shareholders or creditors. However, in the present case there is no change in the 6,00,00,000 shares pledged to the petitioner worth ₹ 6 crores. The respondent describes the allegation of the petitioner made in para D(21) of the petition that allotment of 50,00,000 shares to an entity known as "MEIL Holdings Limited" is illegal, as a vague allegation. The respondent contends that the petitioner cannot invoke section 221 of the Companies Act, 2013, in the matter of contractual disputes. The petitioner, who is empowered by four security documents, viz. (i) pledge of shares, (ii) two personal guarantees, (iii) promissory note, need not apprehend any damage or harm being caused to it. 7.4 It is contended in para 7 of the Interim Counter that the petitioner has not averred that disposal of any particular fund, property or asset of the respondent is imminent or likely to happen. The interest of the petitioner, being a secured creditor having four security documents as stated in the preceding para, cannot be prejudiced and said security is more than enough to satisfy the alleged debt. 7.5 It is contended in para 8 of the Interim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of shares to M/s. MEIL Holdings Ltd. is a fraud and a breach of trust. 8.4 It is averred in para 6 of the Counter, as averred in para 8 of the Interim Counter, that the petitioner has not claimed refund of security deposit of ₹ 2 crores from 2015 onwards. However, now the petitioner has resorted to inquiring into balance sheets and annual reports of the respondent and its group of companies based on unsubstantiated allegations levelled against the respondent and its director, group of companies and their auditors. 8.5 It is averred in para 7 of the Counter, as averred in para 9 of the Interim Counter that the petition is barred by limitation. 8.6 It is averred in para 8 of the Counter that the present petition has been filed apparently under section 213(b)(i) of the Companies Act, 2013, which reads as under: "Investigation into company's affairs in other cases. 213. The Tribunal may,- (a) .. .. (b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings against the respondent. No such proceedings are initiated by any authority. However, there may be certain irregular payments resulting from the nationwide fiscal strain in aviation sector, but that could not be termed as an attempt by the respondent to defraud its creditors. Hence no case is made out to invoke section 213 of the Companies Act, 2013. 8.10 In para 13 of the Counter the respondent denounced the allegations of the petitioner that the respondent's trade payables are increasing. Respondent's legitimate liabilities cannot be labelled as defrauding creditors. 8.11 As regards the companies other than the respondent/company, the respondent, in para 14 of the Counter, relies on section 219 of the Companies Act, 2013 to drive home the point that it is the only an Inspector, who, if appointed under section 213 of the Companies Act, 2013 with prior permission of the Central Government, can file any application under section 219 of the Companies Act, 2013 to investigate any related party entities. Section 219 of the Companies Act, 2013 reads as under: "219. Power of inspector to conduct investigation into affairs of related companies, etc. - If an inspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it admission of the transaction between the parties. 9.3 In para 9(c) of the Rejoinder the petitioner asserts the illegality/fraud/breach of trust on the part of the respondent in issuing 10,00,000 equity shares and further issuance of 50,00,000 equity shares to an entity known as MEIL Holdings Limited. 9.4 In para 10(e) of the Rejoinder the petitioner contends that the petitioner has not lost it right of remedy and that the present petition is not a coercive action. 9.5 In para 10(g) of the Rejoinder the petitioner contends that the petitioner empowered with the entire shares of the company pledged to it, is entitled to ensure that the directors and officers of the company do not operate its affairs in a manner prejudicial to the interest of their company and its stakeholders. 9.6 In para 10(h) of the Rejoinder the petitioner emphasises the need of due diligence, careful scrutiny, capturing of flow of funds of material value in financial statements, which have not been carried out by the auditors. The petitioner dismisses its characterisation as 'rank outsider' given to it by the respondent and denies the allegation that the petitioner lacks knowledge of the activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GSTR-1 not yet filed with GST authorities till our report date, the GST input claimed in the books ₹ 87,83,267/-." (emphasis supplied) (iv) Notwithstanding the above observations the Auditor opines that the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the company as at March 31, 2018. When outstanding statutory dues are far more than the net worth of the company affecting continuance of the company as a going concern, the opinion of the Auditor is wrong, it is alleged. (para f). (v) An amount of ₹ 11.64 crores has been shown as interest free amount received as Advances from Turbo Megha Airways Private Limited during the year 2017-18, which is shown as sundry debtors/liability. Further, an amount of ₹ 3.16 crores has been shown as amount received as Advances from Turbo Jet Engines Private Limited. It is alleged that said transactions are misdeeds of the Directors. (vi) It is alleged that there are contradictory disclosures in the Audited Financial Statement (ANNEXURE P37) of Turbo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arium Chemicals Ltd. v. Company Law Board 2 2015 SCC Online CLB 143. Cavendish Shipping Ltd. v. Portfore Financial Consultants (P.) Ltd. 3 [Co. A. (SB) 39 of 2013, dated 2-6-2016] Amaan Sachdev v. Fahed Abdulrahman Ali Alkhamiri. 4 [2010] 153 Comp. Cas 184 (CLB). Binod Kumar Kasera v. Nandlall and Sons Tea Industries (P.) Ltd. 5 Jiyajeerao Cotton Mills Ltd. (supra) 6 [1975] 45 Comp Cas 33 S.L. Verma v. Delhi Flour Mills Company Ltd. 12. The points urged in the written submissions will be dealt in the course of the order. 13. The PCS for the petitioner would contend that the respondent is engaged in providing Air Taxi Services. A Memorandum of Understanding (MoU) was entered between the petitioner and the respondent dated 26-9-2013 wherein respondent undertook to provide Air Taxi Services to the petitioner who gave ₹ 2 crores to the respondent by way of refundable security deposit. The PCS contended, as per clause 16.1 of the Memorandum of Understanding the security deposit is liable to be refunded to the Petitioner on expiry of two years from the date of MoU. Thus, the period of 2 years ended on 25-9-2018 and amount became due to be payable to the Petitioner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble NCLAT. Thus, the learned counsel contended the claim of the petitioner over the Security deposit as on the date of filing the present petition is not barred by limitation. The learned counsel contended, the respondent had gone for allotting 50,00,000 shares to a third party Company "MEIL Holding Limited". This was done with a view to play fraud on the Creditors. Even respondent is indulging in irregular payments of statutory dues. 17. The learned counsel contended the financial statements disclosed that respondent Company indulged in advancing loans to the Directors which is prohibited. It is also in contravention of provisions of Companies Act, 2013. The learned counsel contended, the loan and advances are much higher than the net worth of the respondent Company which is in violation of section 186 of the Companies Act, 2013. The learned counsel contended fraud has been played by the respondent which is very much apparent from the financial statements filed by the Company. The details to be gathered only during investigation. The learned counsel has relied on the definition given for "fraud" under section 447 of the Companies Act, 2013 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner is at most a creditor of the shareholders and not that of the Company. As far as pledge of shares is concerned, the learned counsel contended that Petitioner is not an aggrieved party because Petitioner is not a creditor as claim of Petitioner stands barred by limitation. The respondent is in the Aviation Industry and the aviation sector in general is facing many problems and the same is affecting the business of the respondent. The financial condition of the respondent is not in a good shape, which by itself is not a ground to order an investigation as most of the Companies in the aviation industry are not doing well. In this connection, the learned counsel has relied on the various decisions. The learned counsel contended that the present petition is filed just to harass the respondent, as petitioner cannot take steps for recovery of the security deposit as it is barred by limitation. The learned counsel contended that petitioner made certain allegations against the Group Companies of respondent, which is not permissible as group companies are not parties to the Petition. So, there is absolutely no grounds to order investigation since petitioner has no locus standi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the petitioner. In other words, the respondent has agreed to provide air taxi services to the petitioner in terms of Memorandum of Understanding dated 26-9-2013. The Memorandum of Understanding dated 26-9-2013 is shown as Exhibit P7 at pages 72-81 of the Paper Booklet filed by the petitioner. The name of the petitioner-company, at the first instance, was OPGS Power Gujarat Private Limited. Later, the name of the petitioner-company is changed as Bhadreshwar Vidyut Private Limited. The Memorandum of Understanding was executed on 26-9-2013. The respondent and the petitioner entered into Memorandum of Understanding along with conforming parties, namely, Shri Vankayalapati Umesh and Smt. Devineni Radha Rani representing the respondent. In terms of the Memorandum of Understanding an amount of ₹ 2 crores was paid to the respondent as security deposit by the petitioner. The same shall be refunded without interest to the petitioner on expiry of the term of the said Memorandum of Understanding or earlier termination of MoU. Therefore, it is a security deposit lying with the respondent to be refunded at the end of the period of Memorandum of Understanding or at the time of terminati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y comes to an end and the pledge does not survive. The petitioner has not invoked the pledge of shares. The pledge does not survive when the debt to which the pledge is given as a security gets barred by limitation. 27. The contention of the learned counsel for the respondent-company is that the security deposit was adjusted against the invoices raised by the respondent-company against the petitioner and as such no amount was payable to the petitioner. The learned counsel for the respondent-company filed additional documents along with Written Submissions dated 11-2-2020. The invoices are shown at pages 131 to 145 of the running Index Booklet filed along with the Written Submissions on behalf of the respondent-company. I have seen the invoices. Thus, some dispute is raised with regard to liability, apart from contending that the debt is barred by limitation and also the pledge does not survive. Therefore, in light of various contentions raised on behalf of the respondent and in light of the fact that no action was taken by the petitioner for refund of the security deposit and three-year period was also expired, which starts from 26-9-2015, the petitioner cannot be held to be the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing no manner of interest or concern in the company as a shareholder, creditor or otherwise, has no locus standi to prefer an application under section 237(a)(ii) of the Companies Act, 1956 for ordering investigation into the affairs of the company by an Inspector. It was observed by the Hon'ble Court that the Court will not entertain action on behalf of private persons to enforce the observance of public rights and duties unless they have a personal interest in the matter and unless their rights and interests are in the same way affected. The learned counsel contended that the petitioner is not an aggrieved person because the petitioner is no longer a shareholder and if there is any due outstanding in its favour the same stands barred by limitation, much less the petitioner is not an aggrieved person. As such the present petition cannot be maintained by the petitioner. Section 213(b) of the Companies Act is as follows: "213. The Tribunal may,- (a) .. .. (b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that- (i) the business of the company is being conducted with intent to defraud its cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is against the terms of MoU. At the best it is a contractual dispute. The petitioner has to initiate appropriate action for deciding the contractual dispute of the nature alleged. The petitioner cannot seek a direction for investigation into the affairs of the respondent-company merely on the ground that the respondent has violated the terms of Memorandum of Understanding or the respondent has committed default of refund of security deposit. 32. The contention of the petitioner is that investigation is required into the affairs of respondent-company because the respondent-company has violated various provisions of the Companies Act, 2013, especially sections 180, 185, 186 and 188 of the Companies Act, 2013. The next contention of the petitioner is that the respondent has not shown the debt due to the petitioner in the Balance Sheets filed by the respondent-company for every financial year. The contention of the PCS for the petitioner is that it amounts to fraud on the creditor and hence investigation is required. The next contention of the petitioner is that the respondent-company has committed default in paying taxes due to various Government Departments. The contention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany are conducted in a fraudulent and unlawful manner to defraud the creditors. Mere allegation is not sufficient. The object of section 235(2) of the Companies Act, 1956 is to discover something which is not apparently visible to the naked eye. If the petition discloses mere facts from the Balance Sheet of the company, then an investigation will not be ordered. 36. The learned counsel for the respondent-company contended that the entire allegations in the petition are based on the information gathered from the Balance Sheet of the respondent-company and nothing apart from the Balance Sheet is explained in the petition. The learned counsel for the respondent-company contended that there is no allegation that the respondent-company has concealed any information or any transaction. No investigation can be ordered basing on the information gathered from the Balance Sheet. The learned counsel for the respondent-company contended that even if default is committed in respect of payment of statutory taxes, yet it is for the authorities to take appropriate action and this cannot be treated as a ground for ordering an investigation. The learned counsel for the respondent-company contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent-company filed with the Registrar of Companies for the years ending on 31-3-2015, 31-3-2016 and 31-3-2017. The petitioner also filed Audited Financial Statement of the respondent filed with Registrar of Companies for the financial years 2013-14, 2014-15, 2015-16 and 2016-17. The petitioner has also filed Audited Financial Statement with Registrar of Companies for the years ending on 31-3-2014, 31-3-2015, 31-3-2016 and 31-3-2017. The petitioner has also filed Audited Financial Statement of group companies. The petitioner has not filed any document other than the financial statements. All these documents are uploaded. The petitioner is alleging that the respondent-company is indulging in fraudulent activities, which are said to have been gathered from the financial statements. Thus, the documents are not sufficient to come to any conclusion that the company is indulging in fraudulent activities and as such investigation is required to be ordered under section 213 of the Companies Act, 2013. Therefore, it is not at all a fit case to order investigation basing on the financial statements. If any irregularity is found in the financial statements it is for the authority concerned to i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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