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TMI Blog2022 (9) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... e section on KMP in the AoA, under which Article 140 is included, indicates that the CFO is considered a KMP, and Rose Investments (R-1) has the right to nominate a person for the position of CFO, and in the event the JV Partners/Appellants reject the appointment of such nominee to the position of CFO, Rose Investments shall have the right to nominate another person, and if nomination of the second person is also rejected or at least 45 days has lapsed since the position of CFO is vacant (whichever is earlier), Rose Investments shall have the right to nominate any person and the JV Partners shall support the appointment of such person as CFO. The position of CFO is included as a KMP in sub-section 51 of section 2 of the Act. Section 6 of the Companies Act provides that the provisions of this Act shall override anything to the contrary contained in the memorandum or articles of association of the company - the provisions under sections 184, 169 and 203 of the Act provide rational and reasonable norms and standards regarding eligibility of a KMP (CFO in the present case) and which are quite relevant and useful in conducting the affairs of the company in a transparent, independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asad, Sr. Advocate with Mr. Abhijeet Sinha, Mr. L.C.N. Shahdeo, Mr. Vijay Kumar Singh, Ms. Daizy Chawla, Ms. Vijaya Singh, Mr. Jatin Kapoor, Advocates For the Respondent : Mr. Kapil Sibal and Mr. Arun Kathpalia, Sr. Advocates with Mr. V.P. Singh, Mr. Aditya Jalan, Mr. Abhimanyu Chopra, Mr. Raghav Chadha, Ms. Ambareen Mujawar, Mr. Raghav Seth, Ms. Urvashi Misra, Mr. Anant Misra, Ms. Sadhvi Chhabra, Advocates JUDGMENT 1. This appeal is preferred against the order dated 29.03.2022 (hereinafter called Impugned Order ) passed by the National Company Law Tribunal, New Delhi in CA No. 19 of 2022 filed in CP No. 76 of 2021, whereby the prayer relating to the appointment of Chief Financial Officer (in short CFO ) has been allowed alongwith certain directions. 2. Briefly, the facts of the case as they relate to the disposal of this appeal are that the Appellants are shareholders of approximately 50% of the issued, subscribed and paid up share capital of Respondent No. 2 Company (in short R-2 Company) in which the Appellants are Joint Venture partners. Respondent No. 1 (in short R-1) has acquired 50% of the issued, subscribed and paid-up capital of R-2 Company by making an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2022 is concerned, the parties were directed to strictly follow Article 140 of the Articles of Association of R-2 Company (in short AoA ) in the appointment of CFO which was being done in compliance of order dated 10.6.2021 in CA No. 237 of 2021. He has elaborated that the appointment of CFO is provided in Article 140 of the AoA, whereby Rose Investments (R-1) have the right to nominate a person to the position of CFO and in the event the JV partners (Appellants in the present appeal) reject the appointment of such nomination, Rose Investments shall have the right to nominate another person and in the event JV partners reject the nomination of second such person or 45 days have elapsed since the position of CFO was vacated (whichever is earlier), Rose Investments shall have the right to engage any person to the position of CFO and the JV partners shall support the appointment of such person as CFO. 7. The Learned Senior Counsel for Appellants has claimed that in pursuance of this clause in AoA, Rose Investments/R-1 first suggested the name of Mr. Devendra Mehta, which was not approved by the Appellants, whereafter the name of Mr. Venkataraman Subramanian was suggested, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Services Private Limited in addition to holding directorship and shareholdings in many companies, and he holds a key managerial position in Eunoia Financial Services Pvt. Ltd. as managing director and is, therefore, his nomination and future appointment would be in contravention of sub-section 3 of section 203 of the Companies Act. He has also pointed out that in the affidavit filed by Mr. Bipin Kabra pursuant to the Impugned Order, Mr. Kabra has not explicitly said that he would resign from the positions that may be in contravention of section 203(3) and section 189(2) of the Act. He has further argued that Mr. Kabra has to comply with the provisions of section 203 of the Companies Act, 2013, and therefore resign from the position of managing director of Eunoia Financial Services Private Limited before being appointed as CFO and in his affidavit, he has not explicitly mentioned that he could do so. 10. The Learned Senior Counsel for Appellants has clarified that the Appellants have never disputed or concealed inapplicability of section 203 of the Companies Act, 2013 read with rule 8 of the Companies (Appointment and Qualification of Director) Rules, 2014 and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d section 6 of the Companies Act, 2013 to claim that the AoA cannot override the provisions of the Companies Act and claimed that since Article 140 of the AoA does not stipulate any procedure or eligibility conditions for appointment of CFO, it is perfectly logical and rational that reference be made to the Act and rules made therein to consider the eligibility conditions for CFO. The Learned Senior Counsel for Appellants has also submitted that the suggestion of ineligible and disqualified persons for appointment as CFO as candidate nos. 1 and 2 is a ploy by R-1 to ensure that its chosen candidate, who is a third suggested name, is by default appointed as CFO. 13. In reply, the Learned Senior Counsel for Respondents has strongly argued that the contention of the Appellants that the first two nominations made by the Rose Investments/R-1 are void ab initio was not raised before the NCLT and the Appellants are, therefore precluded from raising new arguments at the stage of appeal. He has further submitted that Article 140 of AoA does not contemplate that a person s nomination can be considered to be valid or invalid for any particular reason and the Impugned Order accepts this arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has to only disclose his interest in other companies, after his appointment and he would be required to step down from other offices after appointment in the event the Board of Directors of the company does not consent to other directorships, disclosed by him within 30 days from his appointment which Mr. Kabra is ready to resign from such positions. He has further clarified that Mr. Kabra would resign from managing directorship of Eunoia Financial Services on appointment as CFO in R-2 Company. 16. The Learned Senior Counsel for Respondents has further submitted that Mr. Kabra has filed an affidavit as required by the Impugned Order, and has bound himself to complying with the requirements of section 189(2) and section 203(3) of the Act. Regarding the contention of the Learned Senior Counsel of Appellants that Mr. Kabra should first resign from the position of Managing Director of Eunoia Financial Services and directorship in other companies he has argued that if Mr. Kabra were to resign from the post of managing director and directorship of Eunoia Financial Services and other companies respectively, he would be put to great hardship as may be left completely high and dry, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person s nomination can be considered to be valid or invalid for any particular reason and hence rejects the submission of the Appellants (Respondents before the NCLT) that the nomination of the first two candidates, namely Mr. Devendra Mehta and Mr. Venkataraman Subramanian were invalid. It has further held that in case, the Respondents before the NCLT do not accept the petitioner s first and second nominations, the petitioner could nominate a third candidate, which would have to be accepted by the Respondents (Appellants in the present appeal). Further, after holding the nomination of Mr. Bipin Kabra as a valid nomination, the NCLT has, in the section titled Conclusion in the Impugned Order The NCLT, directed Mr. Bipin Kabra to file an undertaking by way of affidavit for abiding by fulfilling the requirements of sections 184, 189 and 203 of the Companies Act, 2013. 21. The relevant provision of the AoA which is relevant to this appeal is reproduced hereunder:- 140. CFO (i) Rose Investments shall, from time to time, have the right to nominate a person to the position of chief financial officer of the Company ( CFO ). In the event that the JV Partners reject the appo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or relinquishment of his office, as the case may be, disclose to the company the particulars specified in sub-section (1) of section 184 relating to his concern or interest in the other associations which are required to be included in the register under that sub-section or such other information relating to himself as may be prescribed. Xx xx xx xx 203. Appointment of key managerial personnel.- (1) Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel,- (i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; (ii) company secretary; and (iii) Chief Financial Officer : Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,- (a) the articles of such a company provide otherwise; or (b) the company does not carry multiple businesses: Provided further that nothing contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and (b) any provision contained in the memorandum, articles, agreement or resolution shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be. 25. Thus, the position of CFO is included as a KMP in sub-section 51 of section 2 of the Act. Section 6 of the Companies Act provides that the provisions of this Act shall override anything to the contrary contained in the memorandum or articles of association of the company. We also note that the Impugned Order accepts the applicability of sections 184, 189 and 203 of the Companies Act, 2013 in that it directs Mr. Bipin Kabra to file an affidavit undertaking to abide by the requirements of these provisions. These provisions under sections 184, 169 and 203 of the Act provide rational and reasonable norms and standards re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M and while rendering services to R-2 Company he will continue to work with other personnel of A M in connection with other unrelated matters. Furthermore, clause 2 of the engagement agreement by which the services of Mr. Devendra Mehta are to be provided to R-2 Company for working as CFO, which relates to Compensation , the R-2 Company is required to pay to A M for the services of CFO and the A M shall, in turn, pay salary to the CFO. There is no mention in the agreement to the effect that Mr Mehta will sever his connection with A M so it is reasonable to assume that he will continue to be in the employment of A M. 29. Insofar as nomination of Mr. Venkataraman Subramanian, who is the second suggested candidate is concerned, the note and proposed engagement agreement (attached at pp.1936-1949 of Convenience Compilation, filed vide Dy. No. 35560 dated 2.5.2022), shows that the R-2 Company shall engage DTT to provide the services of CFO, and the suggested candidate Mr. Subramanian shall continue to be in the employment of DTT and be paid by it, from payment received by DTT from R-2 Company. Furthermore, the CFO is to be appointed on the basis of the term and period of engagement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en. 34. Thus the Impugned Order fails to interpret the import of Article 140 of the AoA in its true letter and spirit and takes the first two suggested names as being valid nominations which were rejected by the Appellants, and in the result directs that the third suggested candidate namely Mr. Bipin Kabra should be appointed as CFO of R-2 Company. 35. We have looked into the citations submitted by the rival parties in support of their respective contentions. Insofar as the judgments cited in the matters of Rohitash Kumar and Ors. vs. Om Prakash Sharma and Ors. (supra) and Ahmedabad Municipal Corporation and Ors. Ahmedabad Green Belt Khedut Mandal Ors. (supra) are concerned we find that the sections 184 and 189 of the Act give the opportunity to the newly-appointed CFO to bring the information relating to his interests in other companies to the knowledge of the company within 30 days (under section 189) and relinquish position as a KMP in any other company within six months of taking over as CFO. Thus there does not appear to be a strict requirement to resign from all positions held in other companies before being appointed as CFO. 36. The decision in the matter of Patel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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