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TMI Blog2014 (10) TMI 1080X X X X Extracts X X X X X X X X Extracts X X X X ..... The Chairman is from the group of promoters. Managing Director is from the group of investors. The grievance of the petitioners is that the Managing Director is not consulting or taking the Chairman into confidence. The grievance of the CEO is that the Chairman is coming in the way of Managing and therefore, it is not possible to run the business in a peaceful manner. Though on the day the agreement was entered into there were 12 out lets. Subsequently another 12 outlet were added. Though there is no audit report by a statutory auditor as he could not be appointed because of difference of opinion between the petitioners and the respondents relating to audit report, yet according to him shows some of the out lets have been closed - in order to achieve the said object the order replacing the Board of Directors, is too harsh. After passing the said order liberty is given to the factions to appoint two members/groups in the committee of management. As a consequence equal opportunity is given to both the factions in the existing Board of Directors. There are no justification to appoint persons other than the persons who are already Directors in the interest of the two factions. In fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard. 3. M/s. Vasudeva Adigas Fast Food Pvt. Ltd. is a Private Company involving in the food and beverages business and has its registered office at No.36, 12th Main, 27th Cross, IV Block, Jayanagar, Bangalore. It is the first respondent before the Company Law Board. 4. The second respondent-NSR Gastronomy (Mauritius) LLC became a significant share holder of the first respondent-Company by purchasing about 18,017 ordinary equity shares from the petitioners before the Company Law Board. The petitioners and Smt. Vinoda Adiga, wife of the first petitioner subscribed to 51 Class A series equity shares representing 51% of the Class A series equity shares of the company, 1,50,000 series A Compulsorily Convertible Preference Shares (CCPS) representing 100% of the Series A CCPS and 39,619 Series B CCPS representing 100% of the Series B CCPS by and under the shares subscription cum Share Purchase Agreement dated 24.03.2012. The second respondent holds majority i.e. 51% of the voting rights in the first respondent-Company. The shareholding agreement provided for composition of the Board. The Board shall consist of up to 12 Directors. On second closing, the Board shall comprise of 5 Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighty Three Crores Seventy Five Lakhs) in accordance with Clause 5 towards: 2.1.2.1 subscription of 51 Class A Equity Shares with a par value of Rs. 10/- for an amount of Rs. 15,55,000/- ("Class A Equity Subscription Amount"); 2.1.2.2 subscription of 39,619 Series B CCPS for an amount of Rs. 39,61,91,000/- ("Tranche B Series B CCPS Subscription Amount") and 2.1.2.3 purchase of 14,427 Ordinary Equity Shares for an aggregate amount of Rs. 43,97,54,000/- from the Promoters ("Tranche B Share Purchase Amount"). 2.1.3 Tranche C Investment: The Investor will invest the third tranche investment of Rs. 13,25,00,000/- (Rupees Thirteen Crores Twenty Five Lakhs only) ("Tranche C Share Purchase Amount") towards purchase of 3590 Ordinary Equity Shares from the Promoters in accordance with Clause 6. 2.1.4 The Investor can invest the balance of the Total Investment Amount of Rs. 63,50,00,000/- (Rupees Sixty three Crores Fifty Lakhs only) ("Additional 9 Series B CCPS Subscription Amount") in the Company towards subscription of 63,500 Series B CCPS in various tranches as detailed in Clause 7.1 and 7.2 during the Investment Period at the same price at which Series B CCPS are subscribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw; and to declare that the appointment of respondent No.3 as the Managing Director of the Company vide circular / resolution dated 12.08.2013 as null and void and non-est in law; to declare that the resolution passed at the Extra Ordinary General Meeting of the company dated 24.1.2013 appointing BSR and Associates as the statutory auditor as ultra vires the Articles of Association of the Company and to appoint another statutory auditor in their place and for other consequential reliefs. Interim order was also sought for. One such interim order was to appoint an administrator to manage the affairs of the company on terms as may be deemed necessary by the Company Law Board. 9. This petition was filed on 13.1.2014. After service of notice on the respondents, on 23.1.2014 the interim order came to be passed restraining the respondent Nos.2 to 5 from utilizing the funds of the company for the purpose of litigation between the parties in a manner whatsoever, restraining the respondent Nos.3 and 5 from passing any resolution of the Board without the permission of the company and respondent No.2 was directed to provide the documents sought for in the petition. The said interim order was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued from time to time. On 7.10.2014 by consent of parties M/s. Maniam Suresh, Sundar, Vittal and Co., were appointed as auditors to audit the accounts of the company for the period 2012-2013 and 2013-2014 keeping open all contentions of both the parties. Today the matter is taken up for final hearing. 11. From the facts set out above it is clear that during the transition disputes have arisen between the parties. The grievance made out in the company petition is the action of the respondent Nos.3 to 5 were not in terms of the letter and spirit of the agreement, but also were detrimental to the petitioners and other shareholders of the company. Respondent Nos.3 to 5 have failed to convene the Board Meeting at regular intervals. The respondents have failed in appointing statutory auditor of the company in terms of the definitive agreement. The annual general body meeting was not convened. By such conduct of business, operational losses in the business has occurred. The Directors representing the promoters were totally side lined. They are not provided with information relating to the affairs of the company. The Companies profitability also declined leading to erosion of valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss and therefore, while ascertaining the value of the share of the petitioners as there is reduction in EBITDA the petitioners would suffer losses. He submits that the said apprehension has no basis. The prayer in the petition is that there is decline in the shareholding percentage on the basis of the forecasted EBITDA. If the petitioners ultimately succeeds in the petition, the losses sustained by them could not be made up. The Company Law Board committed a serious error in passing the order appointing the Committee displacing the existing Directors. Elaborating his contention he submitted that the material on record discloses that during the period from 9.4.2012 to 16.1.2013 the respondents have convened 7 board meetings. Petitioner No.1 - as Chairman participated in the meetings and has signed the resolutions. In addition to the Board meetings, 14 review meetings were convened. The particulars of the board meetings are found in paragraph Nos.20 and 21 of the appeal memo. Subsequently meeting was convened on 27.6.2013 and notice of the meeting was served on 14.6.2013, the 1st respondent sent a reply stating the said date is not convenient. Again one more meeting was convened on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase Agreement, Part A of Schedule 11 discloses that the post money equity - value of the company shall be determined after EBITDA from existing business and EBITDA from the proposed business is available and determined. The present pre-money equity value is determined at Rs. 184,54,42,106 Crores. Clause 2 which deals with the investment profits subject to the terms and conditions of the agreement and relying on the representation and warranties made by the promoters to the company the investors agreed to invest up to Rs. 165 crores. The manner of investment is clearly set out. 16. Accordingly for purchasing 14,427 ordinary equity shares from the promoters an amount of Rs. 43,97,54,000/- is paid to the petitioners. They have also paid a sum of Rs. 13,25,00,000/- towards purchase of 3,590 ordinary equity shares from the promoters. In all Rs. 57,22,54,000/- crores has been paid to the petitioners. The remaining amount has to be invested in the manner set out in the agreement. As against Rs. 165 crores a sum of Rs. 101 crores is already invested. In terms of the agreement the promoters are entitled to appoint two Directors whereas the Investors would appoint three Directors. Investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same time when the respondents under took to invest nearly Rs. 165 crores and they have already invested Rs. 101 crores probably to take complete control even before the investment of Rs. 165 crores, an attempt was made to appoint their Director. Now that is resisted. The business that is being carried on is the Hotel business. Petitioners' good will, trade name is the basis on which the business could be carried on. Now an attempt is made to exclude them though they have 49% shareholding. Still the entire amount agreed is not yet invested. In fact this Court has appointed a statutory auditor to look into the accounts. In fact a letter of the CEO which is extracted in the impugned order clearly demonstrates that the existing units are declining despite the price increase and therefore, the contention of the petitioners that the business is being run under loss and if the trend continues their shareholding will come down below 10% in which event they will loose complete control over the company, cannot be dismissed as without any basis. It is in this context the Company Law Board though not has carefully looked into the other documents produced, but taking into consideration th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. For the smooth functioning of the company learned Senior Counsel appearing for both the parties submitted a right to cast a vote may be conferred on the Administrator, in the event of any dead lock. 21. Under these circumstances, we do not see any justification to appoint Mr. M.R. Gopinath as the advisor. The order passed by the Board replacing the Board of Directors is hereby set aside. Learned administrator and the Directors, who are already on Board and who are running the administration could continue to run the business. Having regard to the nature of business itself between the parties, it is a fit case where the Company Law Board should take up the main matter out of turn and dispose of the petition itself expeditiously including the application filed invoking Section 8 of the Arbitration and Conciliation Act and pass appropriate orders at the earliest. 22. As the application under Section 8 of the Arbitration and Conciliation Act is already pending, it will be appropriate to decide the application as expeditiously as possible. If the application is to be allowed the entire petition would go out of jurisdiction of the Company Law Board. The said application is to be di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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