9911796707
TMI Blog2020 (11) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... der to appreciate the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hanced the cash credit limit to Rupees Two Hundred crores, Bank Guarantee to Rupees Two Hundred crores and a term loan of Rupees Fifty crores. The facilities were again reviewed by the Bank under letter dated 24th December 2012 and it was approved by the Board meeting dated 25th March 2013. Subsequently the Bank vide its letter dated 11th July 2017 sanctioned the enhancement limit of Rupees Two Hundred Fifty crores. In the Board meeting dated 19th September 2018 the Directors of the Board were informed that the Bank had allowed the renewal of working capital credit facility in addition to the loan of Rupees Fifty Crores and the Board approved such renewal. 7. The erstwhile Vijaya Bank merged with the Bank of Baroda with effect of 1st April 2019 in terms of Government of India Gazette no. GSR no. 2E dated 2nd January 2019. Accordingly, the credit facility relating to the Company stood transferred to the Bank of Baroda. The Bank continued the ongoing credit limits under its letter dated 16th October 2019 and also permitted the vendor discounting facility in its letter dated 9th October 2019. The Board meeting was scheduled to be held on 11th December 2019 at 11:30 AM at the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they could be present to assist the proceedings in accordance with established secretarial standards. The Investor Director, however, abruptly walked out of the meeting despite of having taken part in the proceedings and its approval. It is contended in the Petition that the rash and incoherent conduct by the Investor Directors to leave the Board meeting indicated their utter lack of respect for the Board in violation of their duties towards the Company. On 19th December 2019 the Minutes of the Meeting were circulated for comments. Respondent no. 4 sent two Emails on 19th December 2019 challenging the propriety of the meeting dated 18th December 2019 and that the same was inquorate. It was contended that since they left the meeting no further business could have been conducted. He also objected to the appointment of the Woman Director. The Emails were followed by another letter dated 24th December 2019 by the advocates of the Investors reiterating the objections mentioned in the Email dated 19th December 2019. The Petitioners replied to the Email dated 19th December 2019 above by a detailed Email dated 27th December 2019 vindicating the decision and resolution passed in the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it not to take any adverse decision detrimental to the Company's interest which in turn would affect the day to day functioning of the Company. It also be reiterated that the Board meeting dated 18th December 2019 was validly convened and resolution passed therein was in accordance with law and requested cooperation. It is also requested the Respondent no.2 to withdraw the letter dated 15th January 2020 written to the Bank. The Bank by its letter dated 28th January 2020 intimated that the credit facilities were not a new sanction and have been continuing since 2007. It asked Respondent no. 2 to withdraw the letter dated 15th January 2020 or provide fresh Resolution with respect to the credit facilities. It emphasized that failure to withdraw the letter dated 15th January 2020 may lead to adverse steps being taken by the Bank. The Respondent no. 2 then issued the letter dated 13th February 2020 to the Bank requesting it to refrain from taking any steps in the matter as the issue remained unresolved. Such action from Respondent no. 2 clearly indicated that the investors had no objection to the continuance of the credit facilities but were intentionally obstructing the Resolution to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16th March which the Investor Director(s) attended. The investors expressed their willingness in respect of the credit facility renewal from the Bank of Baroda and Axis Bank. The Investor Director(s) also indicated that they would intimate the matter regarding letter dated 15th January 2020. They however raised concern over the absence of Statutory Auditor for the Audit Committee Meeting dated 16th March 2020. The Investor Director(s) by an Email dated 18th March 2020 indicated that they refuse to approve the minutes of the Board Meeting dated 18th December 2019 the same being sub judice before the Hon'ble High Court of Bombay. 15. It was also indicated that the financial statement of the 31st December 2019 has been approved subject to providing satisfactory response by the Company to their queries. The acts of the investors were detrimental to the functioning of the Company and threatened its very existence. The Company vide email dated 19th March 2020 addressed to the investors appealed to them to withdraw the letter dated 15th January 2020 to the Bank, so that the Bank would release required monetary limits for the existing and upcoming projects of the Company. In the email da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the Petitioners have already withdrawn fund-based loan of Rupees One Hundred Forty-Seven crores in the violation of the rights of the investors. The loan thus could not be attributed to the Company. The Petitioners must bring back the amounts. They also requested to include it as an additional agenda for discussion and to conduct audit of book and records of the Company by Ernst and Young. The conditional approval of the unaudited financial statement in the Board Meeting dated 16th March 2020 has been nullified. Because of indifference of the Petitioners and the Company in responding to their queries the credit facilities would not be approved until issues of the investors had been resolved and till then Petitioners and the Company were called upon not to seek any credit facility from the Bank of Baroda or other financial institutions. 18. It is contended in the Petition that it was thus clear that Investor Directors were acting upon the instructions of the investors in a manner prejudicial to the interest of the Company. The investors and the investor's shareholders could not comment on the credit facilities even before the meeting was convened. Their actions essentially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders concerning the day to day operation and management of the Company. It also reiterated that the credit facility available to the Company was not a new sanction. That has been in favour of the Company since 2007, renewed from time to time. The credit facilities were within the limits approved by the shareholders in the AGM dated 24 September 2019. The investors were equally responsible and obliged and obligated to ensure the credit facilities as well as its timely repayment. It called upon investors to withdraw the letter dated 14th May 2020 and refrain from taking any steps that may potentially affect the Bank which in turn may affect the status and continuity of the credit facilities. The Petitioners' advocate by letter dated 21st May 2020 responded that the Resolution passed at the Board meeting dated 18th December 2019 was in accordance with AoA and that the Resolution did not require an affirmative vote. The Resolution passed on 18th December 2019 was discussed and approved by the Board including the independent directors. The investors' advocate by letter dated 21st May 2020 informed that since the matter concerning the resolution of the Board meeting dated 18th De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the purported approval did not conform to terms and conditions of the SHA and the AoA. In view of the circumstances emanating from the atrocious acts of the investors amounting to oppression under Section 244 of the Act and inter alia alleging other acts of oppression and mismanagement, breach of their fiduciary duty to the Company and lack of bona fides on the part of the investors, the Petitioners came up with the Company Petition seeking the following reliefs. A. This Hon'ble Tribunal may be pleased to declare that: i) Respondent nos. 2 to 6 have acted in a manner prejudicial and oppressive to the interest of the Petitioners and interest and affairs of Respondent no. 1. ii) Articles 8(b) (Nomination by Shareholders), 165 (Affirmative Vote Items), and 167 (Quorum at Board meetings) have been used as instruments of oppression and prejudice by Respondent nos. 2 to 6. iii) The resolutions passed at all the Board, committees and general meetings of Respondent no. 1, which are objected by Respondent nos. 2 to 6, are in the interest of Respondent no. 1 and as such are valid, binding and subsisting. B. This Tribunal be pleased to pass orders and directions: i) Striking off A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of directors of Respondent No. 1 in accordance with the Articles of Association of Respondent No. 1 to discharge their fiduciary duties towards Respondent No. 1; Pending hearing and final disposal of the Petition, the Petitioners sought the following interim directions: C. This Hon'ble Tribunal be pleased to pass orders and directions: i) Restraining Respondent nos. 2 to 6 directly or indirectly, from communicating with any third parties with respect to the matters which are sub judice in this Petition. ii) Restraining Respondent nos. 2 to 6, by themselves, their agents, representatives, officers and/or any other person(s) acting on their behalf, from, directly and/or indirectly, preventing and interfering, in any manner whatsoever with the: (i) ongoing credit facilities from Bank of Baroda and renewal thereof including under the letter dated 16th October 2019 (ii) credit facilities from Bank of Baroda under the letter dated 9th October 2019 (iii) credit facilities from Axis Bank, on the basis of any alleged illegality in the meetings of the Board of Respondent no. 1 held on 18th December 2019 and 02nd May 2020. iii) Permitting Respondent no. 1 to take all and any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 17. Respondent nos. 2 and 3 have filed their Counters to the praecipe requiring urgent hearing and ad interim reliefs. The respondent nos. 4 to 6 have not filed any Counter. However, they have furnished a written submission objecting to the ad interim reliefs. 18. The Respondent no. 2 in its Counter, to the praecipe seeking ad-interim reliefs, contended that the Company Petition as framed is not maintainable in law. Besides this Tribunal lacks jurisdiction in view of the terms agreed upon between the parties and enshrined in the SHA as well as the AoA. The Petitioners are guilty of suppression of material documents namely documents on record relating the Commercial Suit (L) No. 1093 of 2019 and the related Interim Application No. 1 of 2020 filed by Respondent nos. 2 and 3 before the Hon'ble High Court of Bombay. The material papers in that suit would indicate that prayers in the present Company Petition have substantially been covered in the suit. Judicial discipline accordingly demands that it would not be appropriate to bifurcate the issues between two fora which may potentially result in avoidable conflicting decisions. The act of the Petitioners in moving this Tribunal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e credit facilities lacked the mandatory affirmative vote of the Respondent nos. 2 and 3 (as required under Article 165 of the Articles of Association), the Bank couldn't have acted upon it. The Petitioners were informed by the Bank on 26th May, 2020 requiring fulfilment of certain conditions. But only approached the Tribunal on 16th June, 2020 after a gap of three weeks. No case is made out for grant of emergent relief. Besides the Petitioners having not come before this Tribunal with clean hands would not be entitled to them. The ad interim reliefs sought essentially are the main reliefs prayed in the Company Petition and are in violation of the terms of the AoA. The Petitioner would accordingly not be entitled to the reliefs which would in effect rewrite the AoA, which is a commercial contract governing the inter se rights and liability of the shareholders. The Respondent nos. 2 and 3 have invested substantially in equity in the Company to the tune of Rupees Two Hundred Crores. In lieu thereof were accorded certain protections and rights including affirmative rights. Those rights could not be ignored nor taken away which would essentially imperil their status quo the Company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exit of the Respondent nos. 2 and 3 from the Company, which could involve potential loss to the Company. The Petitioners also violated Article 167 of the AoA concerning quorum requirements for a valid Board meeting. In the absence of the Directors appointed by the Respondent nos. 2 and 3 the meeting had to be adjourned. Which in the present case had not been done. The Resolution required affirmative vote of the nominee Directors of Respondent nos. 2 and 3 and without the same resolutions could not be adopted nor could be relied upon. The credit facilities from the Bank of Baroda and Axis Bank being in excess of Rupees One Crore required the affirmative vote of the Respondent nos. 2 and 3. It is accordingly contended that the Petitioners have failed to make out a prima facie case in their favour. The balance of convenience leans in favour of the Respondents. Substantial injury and prejudice have already been caused to the Respondents. Interim relief if granted would further aggravate the position. Ad interim prayers accordingly cannot be granted. 19. Respondent no. 3 in its reply submitted that it adopts and supports the reply filed by Respondent no. 2. Respondent nos. 4 to 6 did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs with defendant no. 5. The prayers sought at this ad-interim stage would bring to a grinding halt the development activity of the suit property under the JDA and under which defendant no. 6 has acquired valuable rights and have paid large amounts of money which have been utilized for the benefit of defendant no. 1. Prima Facie the plaintiffs have no right to stall the operation of the JDA. Perusal of Exhibit HHH reveals that the draft version of the JDA was shared with the plaintiff on 29th August, 2019. Email dated 27th August, 2019 reveals that the plaintiffs were already fully conscious of the understanding between the plaintiff and defendant no. 1. The email refers to decisions and addressee of the email had with the first plaintiff's Managing Director and it was open to the plaintiff to take appropriate preventive action. If they so desire, at the material time. 24. Even when the arbitration petition was filed, the plaintiffs were fully aware that rights had been created in favour of defendant no. 6 in respect of the suit property. Protection was then sought in relation to shareholding as between the plaintiff and defendant nos. 1 to 4 and defendant no. 6 could not have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to defendant no. 5 clearly. I may observe here that the suit property was purchased by defendant no. 5 under an Indenture of Conveyance dated 7th July, 2011. Defendant no. 5 is a separate legal entity. Plaintiffs and defendant no. 1 are not owners of the suit property. Furthermore, the plaintiffs do not dispute that defendant nos. 5 and 6 entered into a Term Sheet for developing that suit property on 10th May, 2018. Defendant no. 6 is believed to have paid a sum of Rs. 135 crores to defendant no. 5 on 14th May, 2018, the date on which the JDA was signed. A further a sum of Rs. 15 Crores was paid on 6th October, 2018. A ground breaking ceremony was held at the suit property on 18th March, 2019 and project was announced as "Prestige Jasdan Classic" on that date. Thus defendant no. 6 will directly affected by result of the present suit and Interim Application. An order of status quo will therefore entail that development whatever be the stage is halted. 26. Knowledge of the aforesaid JDA transactions is attributed to the plaintiffs, since they were aware of the JDA and benefited by the JDA upon repayment of the loan. It was contended that Bank of Baroda, Axis Bank and State Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently on 27th December, 2018 as mentioned in paragraph 54 of the plaint read with Exhibit W the plaintiff were clearly seeking confirmation as to when funds would be remitted towards partial exit by which time the plaintiff had also had copy of the JDA. The plaintiffs aware that even their exit, if any, may depend on exploitation of the development of the suit property under the JDA. It is defendant no. 1 who requested the plaintiff not to pressurize them for an exit. The plaintiffs continued to abstain from Board meetings but even at the ground breaking ceremony, no objections were raised. The plaintiff had caused a demand notice to be sent on 20th March, 2019 to the defendant nos. 1 to 4 promoters of defendant no. 1 alleging non compliance with terms of the SHA and Articles of Association but they had highlighted the issue of non-compliance with quorum requirements. The Board meeting of 29th March, 2019 was attended by the plaintiff director yet no objection were raised to the prior Board meetings. The plaintiffs were seeking to benefit from the transaction between defendant nos. 5 to 6. For all the aforesaid reasons no ad-interim relief can be granted. 30. Ad-interim relief is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect in resolving the deadlock, if any. 22. It is contended on behalf of the Respondents that the Petitioners being majority shareholders have been acting as if the Company was their fiefdom. They have been systematically demolishing any constructive criticisms by the Respondents which have been in the interest of the Company in which the Respondents also have a substantial stake. The renewal or continuance of the credit facility unequivocally required the affirmative vote, which is a prerogative of the Investor Directors. Without the affirmative vote the resolution for continuance of the credit facility could not be taken forward. Therefore, without the validity of the resolution dated 18th December, 2019 being decided, no interim reliefs in the present petition could be granted. Besides before the jurisdictional issues could be decided this Tribunal would not be justified in granting the ad interim reliefs. While the matter of the validity of the resolution dated 18th December, 2019 is being considered by the Hon'ble High Court of Bombay it will only be appropriate that the Tribunal stays its hands to prevent conflicting decisions. In this connection reference is made to M/s Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondence between parties. The Petitioners have sought cooperation from the Respondents for approving the credit facilities. The Respondents without taking constructive part in the Board meeting and ensuring getting their objections and concerns recorded in the proceedings abandoned the Board meeting, raising concerns subsequently that prima facie does not appear to be sound corporate governance. 24. As the correspondence would indicate another Board meeting was sought to be a convened on 2nd May, 2020 for approval of the credit facilities. The Bank of Baroda in its letter dated 26th May, 2020 declined to advance the credit facility unless certain conditions were met. The Petitioners then came up with the present petition on 16th June, 2020. Considering the events following 18th December, 2019 it cannot be said that there was inordinate delay in approaching the Tribunal. The Commercial Suit before the Hon'ble High Court of Bombay filed in October 2019 was in respect of Board meetings held in the year 2018. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 10,000,000 (Rupees One Crore) unless otherwise permitted in the Business Plan;" 25. In our considered opinion continuance of an existing credit facility would not come within the purview of financial indebtedness indicated supra. A dispute resolution mechanism between the parties under a contract would not foreclose the party's prerogative of approaching a statutory authority for redressal of its grievances. Therefore, the provision of deadlock under Article 247 of the AoA cannot prevent the Petitioners from seeking reliefs before this Tribunal. Besides the time spent on resorting to the mechanism under Article 247 might have an adverse impact on the ultimatum given in the letter dated 26th May, 2020 of the Bank of Baroda. Prima facie therefore, the Petitioners could not be faulted in approaching this Tribunal. Whether or not the matter needs to be referred to arbitration cannot be decided at this preliminary stage. The prayers made are essentially prohibitory in nature and does not call for any mandatory direction. Therefore, there would not be any impediment in granting the ad interim reliefs at this stage. Taking all the aspects in the consideration we are of the opinion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
