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TMI Blog2020 (11) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... jects of the AoA. The allegation of financial bungling by the Petitioners should not prima facie come in the way of availing the credit facilities. Since the credit facilities are essential for the survival of the Company, in our considered opinion the Petitioners have a prima facie case in their favour. The question of mismanagement and oppression as envisaged under Sections 241 and 242 of the Act would come within the exclusive domain of this Tribunal. While considering the same, if the decisions taken in the Board meeting are called in question the Tribunal would be within its competence to decide upon the validity or otherwise of the proceedings in the Board meeting. Therefore, in our considered opinion the decisions of the Tribunal would not be taken as conflicting to the decision of any other Court including the Hon ble High Court of Bombay. The decisions relied on by the Respondents would not be applicable to the present case. The conduct of the Respondents ex-facie could not be held in the best interests of the Company where they also have substantial stake. The balance of convenience accordingly leans in favour of the Petitioners. Allegations of financial irregularities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present prayers, it will be apposite to briefly allude to the facts averred in the Company Petition. The Respondent no. 1 (herein after referred to as the Company) registered under the Companies Act 1956 was engaged in the business of development and construction of real estate projects including construction and contracting activities. The Petitioners are the Promoter Directors of the Company holding about 60 per cent of the shareholding. Respondent nos. 2 and 3 respectively, a Trust incorporated in India and a Company incorporated under the laws of Mauritius (hereinafter referred to as the investors) sought to invest in the Company. Accordingly, a Share Subscription Agreement (SSA) and Share Holders Agreement (SHA) was executed on 23rd April 2008 between the Petitioners, Respondent no. 1 and the investors to subscribe to equity shares and preferential convertible shares of the Company aggregating to Rupees Two Hundred crores. Upon such investment Respondent no. 2 held two (2) per cent and Respondent no. 3 held twenty eight (28) per cent of the shareholding of the Company while Petitioners held seventy (70) per cent of the shareholding. 3. The SHA set out the rights and oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector 25th June 2015 8. Sambhaji Raje Chhatrapati Independent Director 29th June 2016 9. Yogesh Mehta Independent Director 14th June 2019 10. R. C. Singhvi Independent Director 04th July 2019 11. Penaz Masani Independent Women Director 18th December 2019 6. The Board in its meeting dated 26th March 2007 resolved to avail credit facilities from the Vijay Bank (now merged with Bank of Baroda). The Bank sanctioned credit facilities under the sanction letter dated 6th June 2007. The credit facilities were renewed and continued from time to time with the approval of the Board including the Investor Directors and the Alternate Directors. The Petitioners contend that the revival of the credit facility did not require an affirmative vote in terms of Article 165 of the AoA which inter alia has been a part of the SHA. Under their letter dated 29th June 2011 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.10.2019 received form Bank of Baroda for sanction/review of credit facilities. b) Availing Bank of Baroda Digi-Next Services. c) Availing Credit facility of ₹ 40 Crores under Vendor Supplier Bill Discounting. d) Closure of Banking A/c no. 404800301000444 held with Bank of Baroda (erstwhile Vijaya Bank), Public Garden Road Branch, Hyderabad. e) Opening of Current Bank A/c with Bank of Baroda, Madhapur Branch, Hyderabad for the District Project at Hyderabad. f) Availing Credit facilities form Axis Bank amounting to ₹ 3.5 Crores for purchase of Tower Crane. ix) To discuss any other matter with the permission of Chair. 8. The Audit Committee Meeting was also scheduled to be held on 18th December 2019. Respondent no. 4 one of the Investor Directors was present in the Board meeting and the quorum requirement was in place when the meeting commenced. A Woman Director was also required to be appointed to ensure statutory compliance under Section 149 of the Act. Certain representatives of the Investor Directors were also present and were asked to leave the room. The Investor Director then objected to the presence of Consultants and Executives o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, went ahead and vide letter dated 15th January 2020 intimated the Bank of Baroda that the credit facilities were approved without their consent and asked the Bank not to act on the Resolution dated 18th December 2019 till their approval was received. Despite being conscious of the adverse consequences it could entail, jeopardizing the existence of the Company unless the credit facilities were granted, the Respondent-Investors acted irresponsibly in writing letters to the Bank. The Bank in turn informed that unless the letter dated 15th January 2020 was withdrawn, it would not be in a position to extend credit facilities and would be constrained to take adverse action recalling the operations of overdraft account, withholding of Bank guarantee and the recalling of overdraft limit of Rupees One Hundred Fifty crores which could seriously impair the day to day operations of the Company. 11. The Investors Directors conduct by making correspondence with the Bank and financial institutions of the Company and addressing the letter dated 15th January 2020 was in clear violation of the terms of the AoA. The Company issued the letter dated 21st January 2020 to the Bank of Baroda provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed and approved and that the same was not a unanimous vote matter. Unless the matter were sorted out the Company would not be in the position to honour its existing commitments in respect of projects inside the State and elsewhere. 13. The Investor s Advocates then addressed letters dated 5th 6th March 2020 to the Petitioners indicating that the letter dated 15th January 2020 was with the intent of enforcing the investors legitimate rights and that the matter of credit facility concerned affirmative vote rights of the investors and that they were not in a position to withdraw the letter dated 15th January 2020. By another letter dated 9th March 2020 the Investors Advocates also informed that they have no intention of hampering the day to day affairs of the Company. But their rights under the AoA could not be ignored. It also stated that once the requested information was provided, a fresh Board Meeting could be conducted and decision regarding the credit facility can be discussed. Thereafter the Investors would rethink regarding the letter dated 15th January 2020 to the Bank. 14. Notice for another Board meeting scheduled on 3rd March 2020 had been circulated on 17th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount which the Company was otherwise entitled to. 16. The investors by their email dated 13th April 2020 indicated that the interest of the Company was not being looked into. Rather the Petitioners interests were being furthered. It was also indicated that the Company had no idea about the number of labourers at the site and had no information regarding the labourers and employees affected by the pandemic. The Investor Directors in their email dated 20th February 2020 however, suggested to hold another Board Meeting. The Company by email dated 17th April 2020 issued notices for another Board meeting on 2nd May 2020 inter alia seeking approval of renewal of the credit facilities from the Bank and other related matters. No queries were raised however, on this notice. On 29th April 2020 the Respondent no. 2 issued a letter of the Bank of Baroda stating that the disbursement in pursuance to the credit facility would be unlawful. The Bank should refrain from taking any action in the matter. In another letter of the even date the investor s advocates suggested to postpone the Board Meeting dated 2nd May 2020 and to hold it after the lockdown was lifted. So that the physical meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the Bank of Baroda that no resolution in respect of the credit facility under letter dated 9th and 16th October 2019 have been passed and hence any disbursement in that regard should not be made. On 14th May 2020 investor addressed another letter to the Bank informing that the Investor Directors were not in favour of availing and renewing the credit facility and hence they did not approve the Resolution in relation to the same. The matter of affirmative vote was also indicated therein. The Bank of Baroda vide its letter dated 14th May 2020 sanctioned and standalone credit facility under the Baroda Covid Emergency Credit Line to the tune of Rupees Fifteen crores. It however imposed additional conditions and requirements not previously heard. Owing to the conduct of the investors not only the Bank and the directors became hostile, but the reputation of the Company was jeopardized. on 15th May 2020 in an email the Investor Directors informed the Bank commenting upon draft minutes of the Board Meeting dated 2nd May 2020 contrary to what transpired in the said meeting. In its reply dated 19th May 2020 the Bank indicated that it did not involve itself in the internal processes, requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffirming validity and effectiveness of the Board Resolution was provided or (ii) to provide an order from a competent authority confirming the validity and effectiveness of the resolution passed in the Board meeting dated 18th December 2019. Unless the Company furnished the documents by the 30th June 2020 it would be construed that the Company was not willing to avail the credit facility and it will take appropriate action against the Company. The Company responded thereto by letter dated 30th May 2020 imploring the Bank not to impose such arbitrary and unreasonable conditions, which would impair the Company s stability. The Petitioners then addressed a letter dated 6th June 2020 to the investors bringing in to focus the harsh, burdensome unfair conduct and their arbitrary action and that they would be responsible for the action taken by the Bank in recalling the credit facilities. The Respondents similarly jeopardized the term loan facility amounting to ₹ 3,43,96,056/- (Rupees Three crores forty-three lacs ninety six thousand and fifty six) by the Axis Bank approved in the Board Meeting dated 18th December 2019 and by its letter dated 17th September 2019 the Bank had objecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment including those related to Unanimous Vote requirements for specified resolutions of the Board will apply to circular resolutions as well. iv) That the quorum at all meetings of the board of directors of Respondent No. 1 is constituted by the presence of one-third of the total number of directors on the board of Respondent No. 1 in accordance with the Companies Act, 2013 and the quorum at all general meetings of Respondent No. 1 is constituted by the presence of 5 (five) members, present in person, or through their representative or proxy, in accordance with the Companies Act, 2013; v) That any decision taken at every meeting of the board of directors of Respondent No. 1 will be taken by a simple majority of the directors on the board of Respondent No. 1 and any decision taken at every general meeting of Respondent No. 1 will be taken by a simple majority of the members of Respondent No. 1, present in person, or through their representative or proxy, with the exception of decisions requiring a special majority under applicable law; vi) Removing Respondent Nos. 4 to 6 as directors from the board of directors of Respondent No. 1; vii) Appointing any person(s) of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all meetings of the Board of directors of Respondent no. 1 is constituted by the presence of one-third of the total number of directors on the Board of Respondent no. 1 in accordance with the Companies Act 2013 and at all general meetings of Respondent no. 1 is constituted by the presence of 5 (five) members, present in person, or through their representative or proxy, in accordance with the Companies Act 2013. vii) Directing that any decision taken at every meeting of the Board of directors of Respondent no. 1 will be taken by a simple majority of the directors on the Board of Respondent no. 1 and any decision taken at every general meeting of Respondent no. 1 will be taken by a simple majority of the members of Respondent no. 1, present in person, or through their representative or proxy, with the exception of decisions requiring a special majority under applicable law. viii) Restraining Respondent nos. 4 to 6, from, directly and/or indirectly, acting or functioning or purporting to act or purporting to function as directors of Respondent No. 1, in any manner whatsoever. ix) Hon ble Tribunal appointing person(s) to act as nominees of Respondent nos. 2 and 3 on the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble act on the part of the Petitioners. The approval of the credit facilities was purportedly done by the Board meeting dated 18th December, 2019. Respondent nos. 2 and 3 promptly objected to the same by letter dated 24th December, 2019. That serious dispute existed between the parties is evident from the purported Resolution dated 18th December, 2019 itself. The minutes of the meeting dated 18th December, 2019 thus, could not be held to be legal or binding. Respondent no. 4 also raised objections and intimated the Company not to act upon such minutes. Substantial correspondence that ensued indicate that there were serious differences between the Respondent nos. 2 to 4 and the Petitioners over the minutes of the Board meeting dated 18th December, 2019. The disputes and the reservations over the minutes of the Board meeting dated 18th December, 2019 has been continuing between parties and that there is no element of urgency in the matter. The Company held a fresh Board meeting on 2nd May, 2020 inviting objections of Respondent nos. 2 and 3. The Respondents objected to the continuance of the credit facilities due to the lack of governance standards and mismanagement at the hands of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Company s outstanding dues and lack of growth in the operating profit margins have been consistently ignored. The Petitioners called upon the Respondent nos. 2 and 3 to withdraw their objections to the credit facility on the ground of extending support of the on-site labourers, vendors and other staff due to the Covid-19 Pandemic. Upon inquiries the Company failed to give any information and later revealed that there were no labourers on site. In view of the suspicious conduct of the Petitioners the Respondent nos. 2 and 3 under their letter dated 29th March, 2020 recorded that unless existing impasse was resolved, they would not be in a position to approve the credit facilities. The Petitioners also failed to respond to the queries raised by the Respondent nos. 2 and 3 in the email dated 1st May, 2020. The information supplied by the Petitioners by their email dated 2nd May, 2020, 15th May, 2020, 6th June, 2020 and 19th June, 2020 were incomplete to say the least. Since the Petitioners have misused and mismanaged the funds of the Company further in flow of funds into the Company by way of the credit facilities may similarly be dealt. Therefore forensic audit was imperative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and disputes between the parties. The Hon ble High Court of Bombay has not considered the issues pertinent to the Board Resolution dated 18th December, 2019 and 2nd May, 2020. Therefore, their refusal to grant any interim reliefs to the Respondent nos. 2 and 3 could not enure to the benefit of the Petitioners. The prayer in ad interim reliefs deserves to be rejected. The Respondent no. 1 went with the Petitioners and supported the prayer for ad interim reliefs. 20. The Respondent nos. 2 and 3 moved the Hon ble High Court of Bombay in Commercial Suit no. (L) 1093 of 2019 on 14th October, 2019 seeking inter alia the declaration that the Board meeting on 27th June, 2018, 19th September, 2018 and 3rd December, 2018 were illegal and void. They had filed Interim Application no. 1 of 2019 seeking ad interim reliefs inter alia to restrain Defendant nos. 1 to 4 (Petitioners herein) from acting in furtherance of the said Board meeting. The Hon ble Court by an order dated 17th December, 2019 refused to grant any ad interim reliefs with the following order. 23. Having considered all these aspects I am of the view that no case is made out for grant of ad-interim reliefs. The plaintif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a property . The Arbitration petition was filed only on 11th September, 2019. All along the plaintiff were aware that the suit property belonged to defendant no. 5 having been purchased in July, 2011. Notice of the Board meeting held on 27th June, 2018 was given to the plaintiff but the directors did not remain present. The minutes of the Board meeting dated 27th June, 2018 were thereafter circulated on 5th September, 2018 which sought approval of the audited accounts. 25. On 19th September, 2018 the plaintiffs representative was present although the director did not remain present. Plaintiffs were well aware of the business transacted and defendant no. 5 had received a sum of ₹ 135 Crores from defendant no. 6. Notice and agenda for meeting held on 5th September, 2018 was duly served but the plaintiff director did not remain present. The plaintiffs representative was said to be present throughout the meeting. Even after the meeting no objection seems to have been recorded. Between 19th September, 2019 and 11th October, 2018 when copy of the executed JDA was provided to the plaintiffs, the plaintiffs sought an exit from the transaction and has also sought preparation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by defendant no. 5 form defendant no. 6. 28. On 11th October, 2018 defendant no. 1 had provided plaintiff with executed copy of the JDA and on 31st October, 2018 the plaintiff vide email of that dated sought payment of sale proceeds of 1,30,000 sq.ft. from the suit property along with upfront payment of ₹ 40 Crores in order to enable that plaintiff to exit defendant no. 1 Company. They also sought a draft agreement in that respect. The plaintiffs were thus made aware that the transaction had been concluded between defendant no. 5 and defendant no. 6 and ₹ 150 Crores had been received. Thus while seeking exit the plaintiffs clearly relied upon the JDA and had no objection thereto. The minutes of the meeting dated June and September, 2018 were sought to be questioned only on 20th November 2018 when an email was addressed by the plaintiff to defendant no. 1. Even as of 20th November, 2018 the plaintiffs had not objection to the minutes of meeting held in June and September, 2018. On the other hand plaintiffs were seeking an exit and relied upon the JDA and sought repayment of outstanding loan by defendant no. 5 to defendant no. 1. Defendant no. 1 thereafter inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive vote is misconceived. The Ernst and Young report has never been shared with the Petitioners or with the Board. It only surfaced on 21st June, 2020 on the penultimate day of the hearing. Besides the Ernst and Young report dated 19th October, 2019 does not find mention in the Commercial Suit filed before the Hon ble High Court of Bombay. The Respondents have approved the Financial statements of the Company from 1st April, 2016 to 31st March, 2019 in the Board meeting dated 1st August, 2019 and AGM dated 24th September, 2019. Therefore, the post facto allegation that there has been misappropriation of Company s funds is prima facie ill motivated. The issues raised before the Hon ble High Court and the present Petition are not identical. This Tribunal being competent to adjudicate upon the allegations under Sections 241 and 242 of the Act, the statutory remedy available to the Petitioners, would not be hindered by the pendency of the Commercial Suit before the Hon ble High Court. The reliefs claimed in Company Petition are not arbitrable and this Tribunal would not lack jurisdiction to pass any interim orders. The provision for resolution of a deadlock provided under the AoA would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious differences of opinion between the Petitioners and the Investor Directors over various issues including certain Board resolutions of the year 2018. The nitty gritty thereof would require a detailed and comprehensive hearing. The present ad interim prayers refer to the continuance of the credit facilities from the Banks. It is not controverted that the credit facilities have been continuing since 2007-08 and has been approved as recently as in September, 2018. The borrowing and lending limits have been approved in the Board meeting dated 1st August, 2019 and AGM dated 24th September, 2019. It is also not disputed that the borrowing limits are essential to carry forward the Company s activities and objects of the AoA. The allegation of financial bungling by the Petitioners should not prima facie come in the way of availing the credit facilities. Since the credit facilities are essential for the survival of the Company, in our considered opinion the Petitioners have a prima facie case in their favour. It is clear from the observations of the Hon ble High Court quoted supra that the Respondents have not been diligent in taking constructive part in various Board meeting. Similar co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are continued and availed by the Company. There is no material on record that the Company has been in default in servicing the credit facilities. The Bank has been ready and willing to extend the credit facility but for the non-cooperation of the Respondents. Article 165 (n) of the Articles of Association indicates an affirmative vote items which inter alia includes, incurring any Financial indebtedness in excess of ₹ 1,00,00,000 (Rupees One Crore) unless otherwise permitted in the business plan. the same is extracted below. 165. Subject to applicable Law and provisions of the Memorandum and Articles, the Board will have full power to direct and manage the activities of the Company. All major decisions in relation to the Company shall be taken by the Board (and whenever required by the applicable Law by the shareholders) through resolutions. Without limiting the powers of the Board in any manner, it is hereby clarified that the Board shall have the powers to decide the following matters (one or more of which shall be referred by the Board to the Shareholders, if a Shareholder resolution is required by Applicable Law in relation to such matter(s)), and any resolution in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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