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TMI Blog2022 (7) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... of Companies Act - Increase of Share Capital - HELD THAT:- Section 62 of the Companies Act, 2013, relates to an increase of Share Capital, of course, within the Authorised Capital. In reality, it is aimed to include a matter, where the Directors determined to increase the Capital by issuing further Shares within the Authorised Limit, as per the decision of the Hon ble Supreme Court in Nanalal Zaver And Another vs Bombay Life Assurance Co. Ltd. and others [ 1950 (5) TMI 15 - SUPREME COURT]. Aim of Section 62 - HELD THAT:- The purpose of Section 62 of the Companies Act, 2013, is to increase the Capital for the needs of the Company, the proportionate allotment is coincidental to increase of Subscribed Capital. The Articles of Association of a Company generally / ordinarily specify in the Regulation about the aspect of Rights Issue. As a matter of fact, Section 62 of the Companies Act, 2013, embodies in Statutory Form the rudimentary notions as among the Shareholders inter se and governing them, with power to allot Shares - It is for the Directors to determine how may Shares and of what Value, they will issue the Shares. The enhancement of Capital is purely a matter of an inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. No. 98/CTB/2019 had restrained the Respondents therein, from going ahead with the present Rights Issue in progress or any further Rights Issue till the disposal of the Application and C.P. No. 98/CTB/2019, etc., being an interim order, this Tribunal, without expressing any opinion one way or the other on the merits of the matter in pending C.P. No. 98/CTB/2019, on the file of the Tribunal and also not delving deep into the same, exercising its prudent sound discretion in a subjective manner is not inclined to interfere with the impugned order dated 23.03.2022 in C.A. No. 45/CB/2021 in C.P. No. 98/CTB/2019. Appeal dismissed. - Company Appeal (AT) No. 50 of 2022 - - - Dated:- 4-7-2022 - [Justice M.Venugopal] Member (Judicial) And [Dr. Ashok Kumar Mishra] Member (Technical) For the Appellant : Mr. Abhijeet Sinha, Mr. Neeraj Kr. Gupta, and Ms. Saswat Acharya, Advocates For the Respondents : Dr. U. K. Chaudhary, Senior Advocate, No.1 to 3 Mr. Naveen Dahiya, Ms. Manisha Sharma, Mr. Rahul Sharma and Mr. Mansumyer Singh, Advocates For the Respondents Mr. Ramji Srinivasan, Senior Advocate, No. 5 to 15 Ms. Patita Paban Bishwal and Mr. Rishav Banerjee, Advocates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessity of two neck to neck Rights issues. 6. The Respondent side has objected that there is no relief sought in respect of the second Rights Issue in IA No. 45/CB/2021. However, this Tribunal is of firm view, after going through the prayers in this Application and also on the facts that when the matter regarding the first Rights issue is pending, the subsequent Rights issues during the pendency of this application comes very much within the ambit of this Application and for purview of this Tribunal for necessary Orders. 7. Therefore, in the present facts and circumstances of the matter this Tribunal hereby restrains the Respondents from going ahead with the present Rights issue in progress or any further rights issue till disposal of this Application and the main petition CP No. 98/CB/2019. Since, the present Rights issue has already opened for subscription, Respondents shall either refund the amounts collected so far to the subscribers or keep it in a separate account and ensure that these amounts are not utilized or spent for any purpose whatsoever or included in the share capital account of the Company or to effect any change in the existing holding of the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19, which was assailed by the 1st Respondent, before this `Tribunal in C.A. (AT) No. 283 of 2019, which was disposed of, by an order dated 04.12.2019, by recording an undertaking from the `Appellant that the `shareholding of the Respondent No.1 shall not be diluted and further, `issue of shares , shall be made only by adhering to Section 62 of the Companies Act. 8. It is the version of the Appellant that because of the various anti-company activities, including incorporation of competing company on 13.09.2019 (two months after filing of the Company Petition), writing to Lenders to stop funding the 200 bedded multi-speciality hospital project, including brutal physical assault on the then Managing Director of the Company, the 1st Respondent was removed from the Board of Directors of the Company. In fact, the 1st Respondent had filed I.A. No. 22/CTB/2020 to injunct such removal, which was neither entertained by the `Tribunal through its Order dated 17.01.2020, nor was it appealed before this `Tribunal . 9. The Learned Counsel for the `Appellant brings it to the notice of this Tribunal that the 1st Respondent had addressed an email dated 18.02.2020 to the company, asking fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As against the said order dated 09.11.2021, CA (AT) No. 149 of 2021 came to be filed before the `Appellate Tribunal and the same was dismissed on 06.12.2021. 14. Indeed, because of the `undersubscription , the company being cognizant of the fact that it has to bring in further infusion of `Equity to meet the terms of the `Bank s Sanction , carried out the `Valuation of the Shares, and later, on 26.02.2022, the State Bank of India wrote an email to infuse further funds by way of `Equity , to meet the `DCCO of 01.04.2022 or else it will mark the Company s Account as `Non Performing Assets . As such, the Company had floated the ₹ 2nd Rights Issue of 52,53,516 shares for a sum of Rs.11,03,23,836/- and the date of the opening of the same was 08.03.2022 to close on 25.03.2022. 15. The Learned Counsel for the `Appellant points out that the ₹ 1st Respondent filed C.A. No. 15/CB/2022 as per Section 420 (2) of the Companies Act with a prayer for `Rectification of earlier `Order dated 02.03.2022, in so far as it gave liberty to the Appellant to file its `Reply to C.A.No. 45/CB/2021. For the first time, mischievously the ₹ 1st Respondent had included documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive wisdom of the Board against the assertion of the Appellants . 20. The Learned Counsel for the `Appellant submits that there is a misplaced reliance on the decision of the Hon ble Supreme Court in S.P. Chengal Varaya Naidu Vs Jagannath, reported in 1994 (1) SCC at Page 1, wherein it is observed that A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party. In fact, according to the Appellant, the `Contesting Respondents hardly have any case on merit. 21. The Learned Counsel for the `Appellant comes out with a plea that the `extent and mode of Equity contribution is specifically mentioned in the `Sanctioned Letter and further that, the `non-payment of interest is applicable only for those persons, when the `Project is commissioned, `loan is utilized and `repayment begins . In the present case, it is an eventuality even prior to the `proper commissioning or `repayment is occasioned and `scheduled repayment is to begin from June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue as provided to shareholders (iii) Letter of Offer dated 04.03.2022 given to Shareholders for the 2nd Rights issue (iv) Application Form for allotment of Equity Shares as given to shareholders (v) Minutes/Extracts of the Board Meeting of the Appellant dated 04.03.2022, wherein the purported approval for the 2nd Rights Issue was accorded by the Board (vi) Annexures of CA No. 15 of 2022 filed by the Respondent No. 1 before the Hon ble NCLT, Cuttack Bench, deliberately removed from the Appeal, which had all relevant documents (vii) Protest email dated 21.03.2022 sent by the Respondent No. 1, which was never answered by the Appellant Group (viii) Form PAS 3 filed with Registrar of Companies after the 1st Rights Issue, which would have shown that the First Right is grossly undersubscribed (only 38.99%) (ix) Form No. CHG-1 filed with the Registrar of Companies on 07.03.2022 evincing sanction of additional loan amount of Rs.4.45 Crores by the State Bank to the Appellant Company (x) Form No. CHG-1 filed with the Registrar of Companies on 24.03.2022 evincing sanction of additional loan amount of Rs.3.50 Crores by the Punjab National Bank (PNB) to the Appellant Company (xi) Inauguration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 30. The Learned Counsel for the Respondents No. 1 to 3 advances an argument that in the new Hospital `Operations had commenced earlier, and that no `prejudice will be caused to the `Appellant/Company , if the `Appeal is dismissed by this `Appellate Tribunal . 31. The Learned Counsel for the Respondents No. 1 to 3 points out that in C.A. No. 45/CB/2021 in CP No.98/CTB/2019, the legality of the `Right Issues of Equity Shares is under examination, which is assailed on numerous grounds including a) `Flawed Valuation , b) `Inappropriate Valuation Methodology c) `Non-supply of Relevant Documents to Valuer d) `Valuation on the basis un-audited Balance Sheets when Audited Accounts were available , e) Necessity of the `Rights Issue , etc., and as such, the `Tribunal has exclusive jurisdiction to scrutinize the legality of the `Rights Issues . 32. In this connection, the Learned Counsel for the Respondents No. 1 to 3 seeks in aid of the decision in Punt V Symon (1903) 2 In Punt v Symons Co Ltd (1903) 2 Ch 506, wherein it is held that Directors abused their powers. The Directors issued new shares to give voting rights to additional shareholders in order to secure the pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uously in excess of the sanctioned limit/drawing power for 90 days. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days as on the date of balance sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as out of order. As per clause 4.1 under the heading asset classification , it has been provided that the banks are required to classify non performing assets into further three categories i.e. substandard assets, doubtful assets and loss assets. With effect from March 31, 2005, a substandard asset would be one which has remained NPA for a period less than or equal to 12 months. An asset would be 24 of 30 classified as doubtful if it has remained in the substandard category for a period of 12 months. A loss asset is one where loss has been identified by the Bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. Clause 4.2.1 provides that classification of assets into the above categories should be done taking into account the degree of well define ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be based on the record of recovery. An account which has some temporary deficiencies like non- availability of adequate disbursing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non- submission of stock statements and non-renewal of limits on the due date etc., should not be classified as NPA. Further, the Reserve Bank of India in its Master Circular dated 01.07.2015 in Clause 4.2.4 thereof enumerated various guidelines which the Bank must follow for the removal of the temporary deficiencies. Clause 4.2.5 of the said Master Circular mandates that where the arrears of interest and principal are cleared by the borrower in the case of loan accounts classified as NPAs, the accounts should not be any longer treated as non-performing and may be classified as 'Standard' account. Thus, in nutshell, it is concluded that where the borrower expresses willingness for regularizing the loan account by discharging the arrears of interest and principal, the Bank/financial institutions are obligated to accept the same as per mandate expressed in the Master Circular dated 01.07.2015 issued by the 26 of 30 Reserve Bank of India in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 021 was filed by the `Appellant and Respondents No. 5 to 15, before the `Tribunal till the conclusion of the final arguments by the Respondents No. 1 to 3 on 02.03.2022 and `Reply was filed belatedly on 11.03.2022 post the conclusion of final arguments, as seen from the `Order Sheet of the `Tribunal dated 16.03.2022. 37. The Learned Counsel for the Respondents No. 1 to 3 takes a stand that the `Rights Issue is nothing but a `pre-planned conspiracy of the `controlling majority to `dilute the shareholding of the Respondents No. 1 to 3 during the pendency of the Company Petition and that the `malafide intent of the `majority shareholders is evident from the undermentioned acts: (i) The reliance placed by the `Appellant on email dated 26.02.2022 from the State Bank of India, which prompted them for the ₹ 2nd Rights Issue of `Equity Shares , but the `Valuation Report annexed with the `Offer Letter is dated 15.02.2022, which is much earlier to the aforementioned email dated 26.02.2022. (ii) Likewise, for the ₹ 1st Rights Issue , reliance was placed upon email dated 21.09.2021 from the State Bank of India, but the `Valuation Report taken for the &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndents No. 1 to 3 points out that despite of emails by the `Shareholders dated 25.10.2021 and 21.03.2022 seeking answers on the Status of Disbursement, Rational behind the `Rights Issue , Shortfall, etc., the `Appellant has never responded to the same and in short, `no information was provided in respect of the status of disbursement by the Bank to the `Shareholders till date and further that the `majority shareholders have back to back come up with `two Rights Issue of `Equity Shares without providing any details to the `Shareholders justifying the `Rights Issue . 41. The Learned Counsel for the Respondents No. 1 to 3 relies on the decisions of the Hon ble Supreme Court of India in Dale Carington Invt. (P) Ltd. Another V P.K. Prathapan Ors., reported in 2005 (1) SCC at page 212, wherein it is observed as follows; 11(d). ..``the directors in a private limited company are expected to make a disclosure to the shareholders of such a company when further shares are being issued. This requirement flows their duty to act in good faith and make full disclosure to the shareholders regarding affairs of a company. The acts of directors in a private limited company are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc.? (vi) Why vital documents/annexures were withheld by the Appellant? 46. The Learned Counsel for the Respondents No. 1 to 3 contends that the `Tribunal has wide powers to pass orders as it deems fit and equitable as per Section 242 (4) of the Companies Act, 2013, in respect of C.A. No. 45/CB/2021 and in fact in C.A. No. 45/CB/2021 specific reliefs were sought for, as observed by the `Tribunal . Submissions of R5 to R15: 47. On behalf of Respondents No. 1 to 15, it is represented before this `Tribunal they support the company and further that `Order dated 04.12.2019, passed by the `NCLAT , New Delhi in Comp. App (AT) No. 283 of 2019 was not followed. 48. It is brought to the `Notice of this `Tribunal on 16.03.2022 in C.A.No. 15/CB/2022, the `NCLT , Cuttack Bench, had observed that the `Petitioner s side arguments were already heard and now on the Respondent side, on 10.03.2022, `Reply was filed on the `Petitioner s side strongly opposed to receive the `Reply , since it was filed after the completion of `Petitioner s side arguments. 49. Furthermore, the `Tribunal on 16.03.2022 in C.A.No. 45/CB/2021 had proceeded to observe that the `Right to fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per decision R. Khemka V Deccan Enterprising (P) Ltd. 1998 16 SCL (A.P.) 55. Whether the decision, is in the interest of the company or `Bonafide or not can only be ascertained from each and individual, given set of facts, as opined by this `Tribunal . It cannot be forgotten that just an allegation of `Malafide or `absence of Bonafide will not suffice. It requires proof, more than a mere averment. 56. In terms of the ingredients of Section 62 of the Companies Act, 2013, the Directors have to offer further `Shares issued, to the `Shareholders who are on the `Register of Companies and not to anyone else, and in fact, the `Offer must be in the same proportion to all the `Shareholders . It is to be remembered that there shall be no discrimination among them. Foreign Decision: 57. It is pertinently pointed out by this `Tribunal that in Miles V Safe Deposit Trust Company, reported in (1921) 66 Law Ed at 923 at Spl. Pg: 926, the Hon ble Supreme Court of Unites States of America held that the right to subscribe new stock is not an organic product of the original stock like the `Young Animals or the `Fruit of Trees but a `right to take part in preference to stra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholder to `Minority is not `valid . 65. Also, this `Tribunal aptly points out that the decision in S Varadharajan V Udhayem Leasings Investments (P) Ltd., reported in (2005) 125 Comp Cas at Page 853, wherein it is observed that if any `Issue of Shares solely to gain control over the company is not permissible. 66. It is pointed out that if it is proposed to issue `Shares to the `Existing Members (as distinguished from `Shareholders ), it is desirable to pass a `Resolution having regard to the decision in Kedarnath Agarwal s case, reported in (1963) 33 Comp Cas 102. English Decisions: 67. It is relevant for this `Tribunal to cite the decision in Piery V S. Mills Co. Ltd., (1920) l Ch. 77, wherein it is observed as under: the basis of both cases is, as I understand, that Directors are not entitled to their powers of issuing shares merely for the purpose of maintaining their control or the control of themselves and their friends over the affairs of the company, for merely or the purpose of defeating the wishes of the existing majority of shareholders. 68. Further, in the decision in Hogg v. Cramphorn Ltd., (1967) l Ch. 254, Buckley, J. echoed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dated 17.03.2017 as alleged or at all. The `Rights Issue was done as per the terms of the Bank s Letter dated 21.09.2021, requiring the Respondent No. 1 company to raise `Capital by way of `Equity . The Respondent company had duly complied all the provisions regarding the `Rights Issue . The `Valuation Report was made by the `Independent Valuer and registered as `Registered Valuer with `IBBI . 74. The Respondents in their `Reply to C.A. NO. 45/CB/2021 had submitted that the `Rights Issue was carried out and 33,57,557 number of Shares was subscribed culminating in infusion of 6,71,51,140 by way of `Equity . That apart, the Respondents had averred in their `Reply that the perusal `Bank Statement relied upon by the purported Applicant No. 1 reveals that the `Loan is very much in the name of the `Company , and prayed for the dismissal of the `Application with `exemplary costs . `Natural Justice : 75. Undoubtedly, the Principles of Natural Justice are not the edicts of a Statute. An absence of ascribing reasons will give a person, a sense of `feeling of injustice whether it is before `an Administrative / Judicial / Quasi-Judicial Forum which passes it, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isposal of the main C.P. No. 98/CTB/2019 was slated for Final Hearing and Disposal on 21.04.2022 (and in reality, in the main C.P. No. 98/CTB/2019, the Petitioners had already completed their arguments both in the Company Petition and in C.A. No. 45/CB/2021) and that the pending main C.P. No. 98/CTB/2019 comes up before the `Tribunal on 14.07.2022. Viewed in that perspective, the instant `Appeal fails. 77. Before parting with the case, this `Appellate Tribunal , quite in the fitness of things, directs the `National Company Law Tribunal , Cuttack Bench, to complete the `Hearing of the main C.P. No. 98/CTB/2019 on its file, when it comes up for `Hearing on 14.07.2022 (in all respects) within three weeks from 14.07.2022 and to pass final orders in the main C.P. No. 98/CTB/2019 within a period of two weeks thereafter. Conclusion: In fine, the instant Company Appeal (AT) No. 50 of 2022 is dismissed. No costs. The connected I.A. No. 898 of 2022 (for Stay), IA No. 899 of 2022 (seeking exemption to file Certified Copy of the impugned order) and IA No. 900 of 2022 (seeking exemption from filing Translated Copies of the DIM, etc.) are Closed. - - TaxTMI - TMITax - C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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