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Companies Law - Case Laws
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2023 (5) TMI 204
Prosecution proceedings against the Auditor of the company - High Court proceeded to hold that the petition filed by the Union of India under Section 140(5) of the Act, 2013 has been satisfied by the subsequent resignation of the auditor and therefore the petition under Section 140(5) of the Act, 2013 filed by the Union of India is no longer maintainable - Constitutional Validity of Section 140(5) of Companies Act, 2013 - direction under Section 212(14) assailed on the ground that issuance of the direction to prosecute within 30 hours of receipt of the IFIN SFIO Report demonstrates non-application of mind - assailed also on the ground that the IFIN SFIO Report was an incomplete report as investigation had not been completed and therefore Section 212(14) direction was incompetent
HELD THAT:- Section 140(5) of the Act, 2013 titled as “Removal, Resignation of Auditor and Giving of Special Notice” appears in Chapter X of the Act which is titled as “Audit and Auditors”. Therefore, Chapter X is a special provision under the new Act with respect of “Audit and Auditors”. It cannot be disputed that the auditor plays a very important role so far as the affairs of any company are concerned and therefore he should be independent and above board. Companies Act, 2013 is the result of the culmination of detailed study after taking into consideration the Parliamentary Standing Committee on Finance Report as well as the recommendations of the Standing Committee by introducing Companies Bill, 2009 and Companies Bill, 2011. When the earlier Companies Bill, 2009 was introduced, it was a culmination of the growing corporate economy and past experiences of corporate fiascos too and one of the suggestions were to provide for stricter accountability for auditors.
It is required to be noted that Section 143 of the Act deals with the powers and duties of the auditors. Sub-section (12) of Section 143 specifically provides that in the event that the auditor has reason to believe that an offence of fraud is being or has been committed in the company, the auditor shall report the matter to the Central Government. The detailed procedure is provided under the Rules issued in this regard. Therefore, a statutory duty is cast upon the auditor to report the matter to the Central Government about the offence of fraud being committed in a company. To see that the auditor is not holding any post in the company and he acts independently, Section 144 of the Act provides that the auditor cannot provide certain services including the management services - the prohibition and restriction created under Section 144 of the Act is primarily to protect the interest of the company in question and other stakeholders such as lenders and investors and the public at large. Keeping in mind the aforesaid provisions and the underlying public policy in the backdrop, Section 140(5) of the Act, 2013 is required to be interpreted and/or considered.
Section 140(1) of the Act provides for the procedure to remove an auditor by the company before the expiry of his term; section 140(2) and (3) of the Act deal with resignation of auditors and Section 140(4) of the Act deals with giving of special notice at an AGM for appointment of an auditor other than the retiring auditor and the process in that regard. However, Section 140(5) of the Act empowers the Tribunal (NCLT), either suo motu or on an application made to it by the Central Government or by any person concerned, to take action against the auditor who has acted in a fraudulent manner or is abetting or colluding in fraud with the management of a company - the powers under the first proviso to Section 140(5) can be said to be interim or pro tem measure to prevent an existing auditor from continuing and substitute him with an auditor based on a prima facie satisfaction that a fraud has been perpetrated and when circumstances warrant the substitution. Such an order can be said to be an interim order akin to a temporary suspension during the pendency of the detailed enquiry as provided in Section 140(5) of the Act and before any final order is passed by the Tribunal.
By the impugned judgment and order, though the High Court has upheld the vires of Section 140(5) of the Act, 2013, however, the High Court has held that once the auditor resigns as an auditor or is no more an auditor on his resignation, thereafter Section 140(5) proceedings are no longer maintainable as the petition filed by the Union of India under section 140(5) has been satisfied by the subsequent resignation of the auditor. The view taken by the High Court is absolutely erroneous and is unsustainable. Subsequent resignation of an auditor after the application is filed under section 140(5) by itself shall not terminate the proceedings under section 140(5). Resignation and/or removal of an auditor cannot be said to be an end of the proceedings under section 140(5).
The second proviso to section 140(5) of the Act, 2013 is a substantive provision, though it is by way of a proviso, and the same shall operate and/or depend upon the final order to be passed by the Tribunal in the first part of section 140(5). If the interpretation given by the High Court that on subsequent resignation and/or discontinuance of an auditor, proceedings under section 140(5) stand terminated and/or the petition under section 140(5) by the Central Government is no longer maintainable is accepted, in that case, second proviso to section 140(5) would become nugatory and in no case there shall be any action under the second proviso to section 140(5) - on true interpretation and scheme of Section 140(5) of the Act, 2013, once the enquiry/proceedings is/are initiated under first part of section 140(5) of the Act, either suo motu by the Tribunal or on an application made to it by the Central Government or by any person concerned, it must come to its logical end and irrespective of the fact whether during such enquiry/proceedings the auditor has resigned or not, there must be a final order to be passed by the Tribunal on whether such an auditor has, in fact, directly or indirectly, acted in a fraudulent manner or not. Direction to the company to change its auditor as provided in the first part of section 140(5) is only a consequence to the finding recorded by the Tribunal that the auditor has, directly or indirectly, acted in a fraudulent manner.
The High Court has materially erred in holding that on resignation of auditors – BSR & Deloitte and on appoint of new auditors, application under section 140(5) shall not be maintainable. Consequently, the High Court has erred in setting aside the order(s) passed by the NCLT/NCLAT by which the NCLT/NCLAT held that despite the resignation of the auditors, enquiry/proceedings under Section 140(5) shall be maintainable and/or continued.
Vires of Section 140(5) of the Act - HELD THAT:- Auditors play very important role in the affairs of the company and therefore they have to act in the larger public interest and all other stakeholders including investors etc. Chapter X of the Act specifically for the “Audit and Auditors” looking to the importance of the auditors. Therefore, section 140(5) cannot be said to be discriminatory and/or violative of Article 14 of the Constitution of India.
Section 140(5) of the Act has been enacted with the specific object and purpose as referred to hereinabove and the same has been enacted after due deliberations and taking into consideration the recommendations of the Standing Committee as well as the respective stakeholders. Therefore, taking into consideration the object and purpose for which section 140(5) of the Act is enacted, the same cannot be said to be arbitrary, excessive and violative of Article 14 of the Constitution of India and/or violative of fundamental rights guaranteed under Article 19(1)(g) of the Constitution of India, as alleged.
Thus, challenge to the constitutional validity of section 140(5) of the Companies Act, 2013 fails and it is observed and held that section 140(5) is neither discriminatory, arbitrary and/or violative of Articles 14, 19(1)(g) of the Constitution of India, as alleged. The impugned judgment and order passed by the High Court quashing and setting aside the application/proceedings under section 140(5) on the ground that as the auditors have resigned and therefore thereafter the same is not maintainable is hereby quashed and set aside - the impugned judgment and order passed by the High Court quashing and setting aside the NCLT order holding that even after the resignation of the auditors, the proceedings under section 140(5) shall be maintainable is hereby quashed and set aside.
Appeal allowed.
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2023 (5) TMI 203
Offence under Companies Act, 2013 - Jurisdiction - cognizance was taken by the Special Court and summons were issued -Erroneous allegations of giving false evidence before National Company Law Tribunal, Indore Bench under Section 193, 196, 120-B/34 of IPC and under Section 449 of the Companies Act, 2013 - submission of false information before the National Company Law Tribunal, Indore Bench - HELD THAT:- From bare reading of Section 435 of the Companies Act, it is evident that for the purpose of providing speedy trial of the offences under the Companies Act, the Central Government by notification may establish or designate as many special Courts as necessary and in that context IX Additional District and Sessions Judge, Gwalior has been designated as Special Court under the Companies Act vide notification dated 18.05.2016 issued by Industry and Corporate Forum.
Section 436 of the Companies Act starts with a non obstante clause “Notwithstanding anything contained in the Code of Criminal Procedure” which gives an overrding effect over the provisions of Act mention in the non obstante clause. It is trite to say that accept of provisions or act mentioned in the non-obstante clause, the enactment following it will have its full operation or that the provisions embrazed in the non-obstante clause will not be an impediment for the operation of the enactment, thus, a non-obstante clause may be used as a legislative device to modify the ambit of the provision of law mentioned in the non-obstante clause or override it in specified circumstances. Therefore, when the enacting part of the Section is clear, its scope cannot be cut down or enlarged by resort of non-obstante clause. Thus, it could safely be held that the provisions of Section 436 of the Companies Act will have over riding effect over the provisons of Code of Criminal Procedure, whenever an offence specified under the Companies Act is to be tried by Special Court.
Admittedly, Section 449 which deals with punishment for giving false evidence is an offence under the Companies Act, it is to be tried by Special Courts established/notified by the Central Government as per Section 435 of the Companies Act.
Maintainability of the complaint at the behest of complainant/respondent - HELD THAT:- Section 439 (2) of the Companies Act is very much clear. Section 449(2) lays down about the exception for the Courts taking cognizance upon complaint in writing made by the Registrar, a share holder or a member of the Company or a person authorized by the Central Government in that behalf. Thus, it is clear that any of the person mention in the Section can maintain the complaint and the complainant/respondent being one of the Directors (shareholders/members) of the accused/petitioner company could maintain the complaint.
The petitioner is partly allowed and disposed of.
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2023 (5) TMI 202
Prosecution proceedings against the Director - Non-submission of financial statement within the stipulated time with registrar of companies - not having registered office capable of receiving and acknowledging the communication - AGM has not been held and its proceedings has not been forwarded to Registrar - non-submission of 3 copies of Balance Sheet and Profit and Loss A/c with the Registrar - non-submission of annual return and holding of annual general meeting in the relevant year.
HELD THAT:- This is a case where admittedly petitioners worked as Directors of the Company between the period 30th September, 1992 till 19.04.1995 and 05.05.1998 and then resigned. In 2015, under the mistaken belief, complaint was filed against present petitioners also for alleged non-compliance of Section 12 of Act, 2013 for which penalty is provided under Section 12 (8) of the Act, 2013 - Admittedly, alleged non-compliance is for the period 2014 where some defaults on the part of the Company are made. Admittedly, petitioners resigned w.e.f. 19.04.1995 and 05.05.1998. Much thereafter, alleged defaults have been committed.
Considering the submission and going through the documents appended thereto as well as the reply filed by the respondent, it appears that petitioners made out their case for interference. Once, they resigned in the years 1995 and 1998, then they cannot be fastened with any liability for a period of 2014.
Petition allowed.
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2023 (5) TMI 201
Seeking restoration of the name of the Company in the Register maintained by the Registrar of Companies (RoC), NCT of Delhi and Haryana - Company is not carrying on any business or operation for two immediately preceding financial years and has not made any application within such period for obtaining the status of Dormant Company under Section 455 of the Companies Act, 2013 - Section 252 of Companies Act - HELD THAT:- The Company has Commercial Property bearing Plot No. B-235, Sector 16, Noida which was allotted by New Okhla Industrial Development Authority (NOIDA) for the purpose of Auto Parts Shop Repair Workshop & Motor Garage and the Company was paying electricity bill regularly from July, 2017 to September, 2020. Further, the Respondent No. 1/Registrar of Companies in his reply before the NCLT has stated that it has no objection if the name of the Company is restored on proving by the Company that it was carrying on business or was in operation and the Company be also directed to file financial statements up to date with appropriate filing and additional fees.
The Appellant Company is having substantial movable as well as immovable assets, therefore, it cannot be said that the Appellant Company is not carrying on any business or operations. Hence, the order passed by the National Company Law Tribunal (New Delhi, Bench-II) as well as Registrar of Companies, NCT of Delhi & Haryana is not sustainable in law.
The name of the Company is directed to be restored to the Register of Companies subject to the compliances imposed - appeal allowed.
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2023 (5) TMI 144
Seeking grant of Regular Bail - Criminal conspiracy and cheating by diverting funds - siphoning off of funds - receiving money back into personal bank accounts from some 65 companies/entities through dubious transactions, which money he then showed as promoter contribution towards the CDR process - round-tripping funds - twin-conditions in section 212(6) of the 2013 Act, satisfied or not.
HELD THAT:- Since in the course of deciding a bail petition, this court is not required to render any ‘finding’ in relation to the allegations in the complaint and is required to decide the matter on ‘broad probabilities’, this court refrains from deliberating further upon the facts as propounded in the complaint.
The petitioner began working as an officer of ESL from 01.11.2013 as Senior Vice President (Finance) and thereafter, became the CFO from 26.05.2014 to 24.02.2018. Though it is alleged that he was advising ESL in his professional capacity as a Chartered Accountant/financial consultant even before that, at that time the petitioner was clearly not an officer of the company and could not, therefore, have been a ‘key managerial personnel’ or an ‘officer in default’ - Even as Senior Vice President (Finance), the petitioner could not have been the final deciding authority in relation to the financial affairs of ESL. Out of the Rs.240 crores alleged to have been siphoned-off from ESL, Rs.235 crores were siphoned-off before 31.03.2015, between FY 2012-13 and FY 2014-15; but the petitioner became CFO only w.e.f. 26.05.2014.
The principal promoters and Whole-time Directors of ESL have never suffered any custody, since they were granted interim protective orders by a Co-ordinate Bench of this court. Other senior officers, such as the Procurement Head and others, have not even been named as accused. Only 02 out of the 55 accused persons were ever arrested – one, the petitioner; and the other, the CTO/Dr. Bindu Rana. Dr. Bindu Rana has been admitted to regular bail by a Co-ordinate Bench of this court on 20.01.2023. The bail has been granted not under the special dispensation for women contained in the proviso to section 212 (6) of the 2013 Act but on the merits of her case.
In the circumstances, for the limited purpose of the bail plea, this court is satisfied that there are reasonable grounds for believing that the petitioner is not guilty of the offence charged under the 2013 Act. Furthermore, considering that the investigation is complete and the prosecution complaint has been filed before the learned Special Judge, this court is also satisfied that the petitioner is not likely to commit any offence while on bail.
The petitioner is admitted to regular bail, subject to the conditions imposed - petition allowed.
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2023 (5) TMI 103
Seeking grant of Regular Bail - Corporate Structure repeatedly abused for various fraudulent purposes - books of accounts of BPSL were manipulated and various paper/shell companies were used for routing of funds in a deceptive manner - Siphoning of materials from BPSL Plant, Sambalpur, Orissa - Diversion of funds from BPSL in the form of bogus capital advances and routing the same as equity or unsecured loans in related entities of BPSL - Bogus advances to suppliers - Issue and negotiation of Inland Letters of Credit by Bhushan Power & Steel Limited - Diversion of BPSL funds for purchase of. Shares by Promoters & Family Members for Long-Term Capital Gains - Bogus purchase of capital goods - Purchase of property at Mumbai by Assurity Real Estate LLP.
HELD THAT:- In the present case the petitioner has sought to invoke the inherent jurisdiction of this Court under section 482Cr.P.C. This Court thus has to analyse if the order granting bail is perverse, without jurisdiction or based on irrelevant material on record. A perusal of the impugned order reflects that the order is neither unsubstantiated nor perverse. The order granting bail is a well-reasoned order and has been based on proper material on record taking into account several incidental aspects around the case. There is no infirmity with the order which so requires the interference of this Court.
The Ld. Special Court has after correctly appreciating the special benefit conferred on a woman and after considering the role of the Respondent and upon its satisfaction, has duly exercised its discretion in favour of the present Respondent thereby granting her bail. Moreover, it is not in dispute that SFIO complaint has been filed, cognizance taken and accused persons have been summoned. Thus in absence of any legal infirmity or perversity, this Court cannot interfere with the order of the Ld. ASJ granting regular bail to the respondent/accused. This Court does not sit as a court of appeal and cannot reappreciate evidence and substitute its view with that of the subordinate court merely because another plausible view was taken.
Further, in absence of any cogent, supervening circumstances necessitating cancellation of bail of the respondent/accused, this Court cannot merely cancel the bail so granted. There is nothing on record to show that the accused has misused her bail or has not adhered to the conditions so imposed.
Petition dismissed.
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2023 (5) TMI 19
Levy of penalty under section 43-A of Competition Act, 2002 - alleged failure to give notice under Sub-section 2 of Section 6 of the Act - Appellant submitted that once the CCI had found that there was no ‘appreciable adverse effect on competition’ in the relevant markets as a result of Transactions I and II, the jurisdiction did not lie with the CCI to open proceedings under Section 43A.
HELD THAT:- The clarificatory notification dated 27.3.2017 issued by the Ministry of Corporate Affairs makes it clear where a portion of an enterprise or division or business is being acquired, taken control of, merged or amalgamated with another enterprise, the value of assets of the said portion or division or business and are attributable to it, shall be the relevant assets and turnover to be taken into account for the purposes of calculating the threshold under section 5 of the Act. The Press Release issued on 30.3.2017 gives information to the public about the nature of this notification and mentions that this notification is to provide clarity on the calculation method for assets and turnover because such a matter was causing confusion among the business entities. The said notification, therefore, being clarificatory in nature, applies with retrospective effect.
It is noted that this Tribunal in the matter of Eli Lilly and Company [2020 (3) TMI 1446 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] considered that the De Minimis notification dated 4.3.2011, and Notification dated 4.3.2016, both issued by the Ministry of Corporate Affairs under Section 54 of the Act provide exemption to certain transactions due to their small size. Further, the Press Release dated 30.3.2017 states and informs that for combination that fall within the threshold limits, there would be no requirement for their filings to be notified before the CCI. After considering the De Minimis notification dated 4.3.2016 and the Press Release dated 30.3.2017, this Tribunal decided that for the purpose of calculation of assets and turnover, what is being acquired is relevant as the assets and turnover of what is left over with the seller after the acquisition will not have any role to play in the context of the business of the purchaser/acquirer after the acquisition. On this basis, this Tribunal set aside the order of CCI in the Eli Lilly case.
The clarificatory notification dated 27.3.2017 gives a purposive construction to the earlier De Minimis notifications dated 4.3.2011 and 4.3.2016 and therefore, the notification dated 4.3.2016 would have retrospective effect insofar as the jurisdictional threshold for Transactions I and II are concerned. In view of the fact that the total turnover of the acquisition i.e. acquired trademarks ‘Savlon’ and ‘Shower to Shower’ is only Rs.68.37 crores, it is opined that ITC would not be required to notify the Transactions I and II before the CCI as these transactions would be exempt in the light of the De Minimis notification. Thus, the penalty imposed by the CCI on ITC for the reason it did not notify the Transactions I and II under section 6(2) of the Act, should not have been imposed and to that extent we set aside the Impugned Order of the CCI.
No penalty was required to be imposed on the Appellant - The appeal is, therefore, allowed to the limited extent of the issue of penalty.
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2023 (4) TMI 1298
Condonation of delay of 33 days in filing appeal - sufficient reason for delay or not - HELD THAT:- It is evident that no plausible reason has been assigned for delay in filing the appeal. Under provision contained in Section 421 an appeal is to be filed within 45 days, however if further after expiry of 45 days appeal is not filed, then thereafter this tribunal is not competent to entertain the appeal. However, if during extended within 45 days, a party in a position to satisfy the court regarding the reasonable ground for delay, this court may entertain such petition. Considering the statement made in the condonation petition, it is not satisfying that any plausible explanation has been given for delay in filing the appeal. Normally, in condonation of delay application, it is required on the part of the party to explain day to day delay, however, in the present application no such explanation has been given and as such there are no ground to condone the delay.
The appeal stands dismissed on the ground of limitation itself.
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2023 (4) TMI 1297
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of dues or not - Debenture Trust Agreement - Financial debt or not - HELD THAT:- In view of the facts that the 'financial debt' which is proved by the Financial Creditor and the 'default' committed by the Corporate Debtor, this Tribunal is left with no other option than to proceed with the present case and initiate the Corporate Insolvency Resolution Process in relation to the Corporate Debtor. This Application is accordingly admitted in terms of Section 7 of the code.
As a consequence of the Application being admitted in terms of Section 7 of the Code, moratorium as envisaged under provisions of Section 14(1) is declared - application allowed.
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2023 (4) TMI 1202
Inspection of records on dates, time and venue to be decided by the Appellants under intimation to the Respondent within a week of pronouncement of said impugned order - Section 421 of the Companies Act, 2013 - Original petition pending adjudication before the Tribunal under Section 241 & 242 of the Companies Act, 2013 - Whether there was any error in the impugned order which allowed the Respondent to examine the statutory records of the Appellant No. 1 Company taking help of the Chartered Accountant/ Company Sectary, if so desired, and also directing the Appellants herein to provide conducive environment? - HELD THAT:- Since, the main petition is yet to be finally decided on merits, this Appellant Tribunal is not required to look into the various other issues raised by the Appellant herein.
It is found that the Respondent has legal rights for inspections of documents as ordered by the Tribunal.
This Appellate Tribunal do not find any error or infirmity in the impugned order dated 20.02.2019 - Appeal dismissed.
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2023 (4) TMI 1201
Seeking issuance of contempt proceedings against the Respondents (the Appellants herein) for continuous noncompliance and wilful disobedience of the order - Section 425 of the Companies Act, 2013 read with the provisions of the Contempt of Courts Act, 1971 - HELD THAT:- The Appellant-M/s. Morepen Laboratories Ltd. as well as Union of India are aggrieved with the order of the Company Law Board dated 01.07.2005, filed separate company appeals before the Hon’ble High Court of Himachal Pradesh at Shimla. The Hon’ble High Court vide its common order dated 17.05.2007 dismissed both the appeals. Thereafter, the Appellant-M/s Morepen Laboratories Ltd. as well as Union of India again challenged the order of the Hon’ble High Court before the Hon’ble Supreme Court of India by filing two separate Special Leave Petitions and the Hon’ble Supreme Court of India directed to maintain status quo by orders dated 16.07.2007 and 07.09.2007 respectively and the said status quo order continued till the disposal of the said SLPs.
The NCLT has rightly considered the facts and circumstances of the case that the order in CP No. 4 of 2005 dated 01.07.2005 was upheld upto the Hon’ble Supreme Court of India and hence the NCLT cannot modify or cancel the same. The observation of the Hon’ble Supreme Court of India while dismissing the civil appeals to the extent that “it would be open for the appellant to agitate the subsequent events before the concerned forum” cannot empower to the Tribunal to modify the order which was upheld by the Hon’ble Supreme Court of India. On the other hand, the observation “let the proceedings be concluded as far as possible within one year” amounts to a direction for proper compliance of the order dated 01.07.2005 passed in CP No. 4 of 2005.
There are no merit in both these Appeals to interfere with the common order impugned dated 06.10.2021 passed by the National Company Law Tribunal, Chandigarh Bench, Chandigarh - impugned order is hereby affirmed - appeal dismissed.
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2023 (4) TMI 1148
Seeking modification in the scheme of Amalgamation - attempt for creation of trust for benefits of debenture holders (mere an attempt to cheat debenture holders by gaining more time) - HELD THAT:- There are assets about Rs.171.64 crores and after the liabilities, about a sum of Rs.157 crores are available. If they had realized those advances and loan, easily the company would have paid the amount to the debenture holders but it appears that no steps have been taken on their part and no report was filed with regard to the collection of those advances and loans - Further, the total amount outstanding to the debenture holders is about Rs.125 crores along with interest. If really the VIL and its sponsors had any intention to implement the scheme, they could have very well implemented the same with the realization of the current assets alone. When the scheme was approved, they have highlighted the above financial position and obtain the approval of this Court as well as the approval of the debenture holders. However, when the present modification has been filed, nothing has been mentioned about the recoveries made by VIL against the advances and loans mentioned in financial position as on 30.09.2013.
This Court is of the view that allowing the modification only affect the interest of the debenture holders and further it would be more beneficial for the promoters to safeguard them from all the criminal proceedings and other liabilities and thereby, they will absolve from all the responsibilities. Therefore, this Court cannot be wittingly or unwittingly be a party for all those misdeeds of the applicant as well as Mr.R.Subramanian, party-in-person and other Directors of VIL - this Court is not inclined to entertain this application and the same is liable to be dismissed.
While dismissing the application, this Court is of the considered view that this application came to be filed only to cheat debenture holders by gaining more time. Therefore, for wasting the Court time and making an attempt to defraud the creditors and the debenture holders, this Court is inclined to dismiss this application with the cost of a sum of Rs.2,00,000/- to the Official Liquidator and the said amount shall be utilised by the learned Official Liquidator to defray his expenses with regard to the taking over of assets and realization of assets of VIL.
Application dismissed.
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2023 (4) TMI 1144
Oppression and mismanagement - setting aside of the allotment of shares and removal of the applicant/Respondent No.1 herein from the Board of Directors - HELD THAT:- It is true that in the present proceeding after reply filed by the Respondent the appellant have also filed rejoinder but facts remains that in compliance with the impugned order subsequent development had already been taken place which has been elaborated in the reply filed by Respondent No.1. It is further evident that in the present case impugned order which was passed by the Learned NCLT exercising jurisdiction under Section 424(3) of the Act was exercised only with a view to implement the order passed in CP No.30/2014. Moreover, repeatedly it has been asserted in the Memo of Appeal as well as during argument also that the impugned order was passed ex-parte but facts remains that after filing of the Misc A. No.1065/KB/2018 the appellants participated in the proceeding. They filed reply and thereafter abstained in participation on the date of final arguments.
It is also not in dispute that the order dated 3rd August, 2017 had attained its finality since it is admitted fact that against the said order no appeal was filed which is reflected from the record itself. Once in a proceeding initiated on an allegation of oppression and mismanagement of a company a final order is passed, it is the duty on the part of the NCLT/Appellate Authority to see implementation of the said order if request is made by the judgement holder. The Respondent No.1 being judgement holder and noticing the fact that even after expiry of the period of limitation the order was not being implemented, he was constrained to file an application under Section 424(3) of the Companies Act which was numbered as Misc A. No.1065/KB/2018.
Appeal dismissed.
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2023 (4) TMI 1143
Oppression and Mismanagement - seeking declaration of Board meetings dated 6.9.2014 and 20.9.2014 to be invalid in law and all resolutions passed therein to be null and void - seeking direction for investigation to be carried out in the affairs of the Company including misconduct by Shri Venkata Rami Reddy - seeking declaration of appointment of R-5 as Additional Director to be made null and void - HELD THAT:- The order for appointment of Independent Auditor to look into the accounts of R-1 Company and furnish draft audit report to the petitioners and Respondents was given with consent of the rival parties and it was also directed that the Final Audit Report, after taking into account the comments of both the parties, shall be submitted to the Bench within a period of thirty days, and furthermore, there was direction to the Company to pay the remuneration and other incidental expenses to the Independent Auditor as claimed by him.
In the instant case allegations had been made about wrongdoings and mismanagement in the affairs of the Company and the CLB directed for preparation of the Independent Auditor’s Report which was to be submitted to it by the Independent Auditor. The NCLT (as the successor tribunal of CLB) ought to have taken note of, and examined and considered the contents of the report and provided adjudication. To have kept the Auditor’s Report in sealed cover on the ground that Auditor’s fees was not paid does not appear to be the correct course of action, as there was no necessity to link the two issues, moreso when the CLB had itself ordered for conduct of independent audit and submission of the final report to the CLB.
As is noted in the pleadings in the original company petition and also in this appeal, the reason for undertaking investigation in the company was spelt out and a prayer was made for such investigation. Once the prayer was accepted by the CLB, and an investigation was carried out by the Independent Auditor, and the CLB had fixed the case for further consideration, the NCLT (to whom the Audit Report had been submitted) ought to have looked at the report and passed necessary and appropriate orders. Since the NCLT did not do so, the prayer on the appeal for quashing of the Impugned Order implies that the Appellants are aggrieved by the Impugned Order and remand of the case remains an option that is available to this tribunal - the plea for remand in the arguments before us is sufficient in the facts of this case.
The NCLT did not carry the judicial process to its logical conclusion when it continued to keep the Final Audit Report submitted by M/s. Brahmayya and Company on 13.11.2017 in a sealed cover and did not open it for due consideration, but the matter was in a confusing manner entangled with the issue of payment of the Independent Auditor’s fees. The issue of payment of Auditor’s fees was also finally set to rest by the order dated 29.10.2018 of NCLAT in CA No. 77 of 2018 which settled to the amount of the fees to be paid to the Independent Auditor by holding that since fees is on the basis of ICAI norms, it is not proper to interfere in the quantum of fees.
Once the Final Audit Report was submitted to NCLT by the Independent Auditor and the quantum of their fees was not interfered by NCLT, it was incumbent on NCLT to open the Final Audit Report from the sealed cover and consider its findings, as the consideration of the investigation into the affairs of the Company would have given justice to the parties in a fair manner - the interest of the parties and requirement of justice would be met, if the matter is remanded to NCLT with the direction that the Final Audit Report submitted by M/s. Brahmayya and Company, Chartered Accountant be made available to the parties by NCLT and after due consideration of the Final Audit Report, which should include opportunity to the parties to be heard, necessary appropriate orders should be passed.
NCLT should ensure that the requisite payments by the parties as has been decided earlier, be made to the Independent Auditor.
Appeal disposed off.
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2023 (4) TMI 1142
Declaration of the allotment of shares of R-1 Company in favor of R-3 and R-4 and their continued holding them as illegal - Seeking declaration that resolutions of the board of directors dated 2.12.2011 and 1.2.2012 by which the allotment of shares took place as invalid and illegal - restraining R-3 and R-4 from misusing any right or privilege as shareholders of R-1 Company - time limitation - principles of res-judicata and estoppel.
Whether the Appellant’s knowledge of the allotment of shares having been made to R-3 and R-4 in the year 2011 and her maintaining silence from 2011 to 2016 regarding the allotment, and also that she, inter alia, acknowledged the fact of the shares’ allotment to R-3 and R-4 provide res judicata and estoppel to her raising this issue later in CP No.09/2016? - HELD THAT:- The Appellant, even though she was a co-petitioner in CP No. 59/2014, was not a director of R-1 Company nor involved into day-to-day management and affairs of the Company, and therefore, even if she participated in the AGM, wherein the new shareholding of R-3 and R-4 were presented in the Annual Report of the company and Profit and Loss Account for the year 2012-13, she did not have any specific knowledge of the change in her own proportionate shareholding as a result of fresh allotment of shares to R-3 and R-4.
The Appellant’s petition CP 09/2016 is not affected by res judicata and estoppel in that the Appellant did not lose the entitlement to file the company petition.
Whether the petition CP No. 09/2016 is beset with delay and laches and is hit by the issue of limitation? - HELD THAT:- When there exists a continuum in the act of oppression and mismanagement which continues up to the date of filing of the petition, any delay and laches cannot take away the right of the petitioner even if the origin of such acts occurred much prior to the institution of the company petition - In the matter of Praveen Shankaralayam v Elan Professional appliances Pvt. Ltd. [2017 (1) TMI 61 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI], which has been cited by the Learned Senior Counsel for R-3 and R-4, the NCLT, New Delhi has held that the instant petition is hopelessly barred by limitation as per the provisions of Limitation Act. It has already been pointed out that for action like the one complained of by the petitioner, the period of limitation provided by the Limitation Act is three years. The petitioner as has acquired knowledge of all the facts as per his own showing by his reply sent to the Assistant Registrar of Companies on 23.2.2011.
Thus, answer to the second question is that the company petition CP No. 09/2016 does not suffer from delay and laches.
Whether the allotment of shares to R-3 and R-4 violates the provisions of the Articles of Association of R-1 Company and if so, whether the allotment of shares is null and void on account of contravention of Articles of Association and non-payment of premium? - HELD THAT:- The Memorandum and Articles of Association of a Company are sacrosanct and they represent a binding contract between the members and the company also the members inter se and further, the directors in a company are in a fiduciary position and they must exercise their powers with utmost care and faith for the benefit as well as in the interest of the company and the shareholders are entitled to know the details when new shares are being issued. When we examine the allotment of shares to R-3 and R-4 by the R-1 Company, it is clear that the then directors of R-1 Company, who were father and brothers of the Appellant, did not exercise necessary care and caution in the allotment of the fresh shares, which quite clearly should have been done in accordance with the Articles of Association of the Company. Our answer to the question of violation of Articles of Association in the allotment of shares to R-3 and R-4 is in the positive.
Payment of premium - HELD THAT:- It is noted that 1,77,800 equity shares were allotted to Jansi Reddy and R. Yathin Reddy, by a resolution of the Board of Directors dated 2.12.2011 and the approval was given for allotment of these shares @ Rs. 10 per share and therefore, there is no document or record to show that any premium was required to be paid by the allottees for allotment of shares but since the allotment of shares to R-3 and R-4 has been found to be null and void, hence the question of payment of premium pales into insignificance.
Thus, even if the Appellant had knowledge of the allotment of shares to R-3 and R-4 which was clearly in contravention of the Articles of Association, she was eligible and entitled to raise the issue of contravention of Articles of Association in allotment of these shares as she was not a person directly responsible for making such an allotment - The Articles of Association are binding on the company and its members and also on Board of Directors and if laid down procedure and principles have not been followed in allotment of shares to R-3 and R-4, the allotment cannot be held as valid.
The NCLT committed an error in approving the share transfer to R-3 and R-4 as being in accordance with law and thereafter dismissed CP No. 09/2016. Since it is concluded that the allotment of a total of 1,88,800 shares to R-3 and R-4 is bad in law, the Impugned Order is set aside and the Appeal, is allowed and further it is held that allotment of these shares to R-3 and R-4 by virtue of the Resolution dated 2.12.2011 of the Board of Directors as null and void.
Appeal disposed off.
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2023 (4) TMI 1141
Oppression and Mismanagement - Order for the Exercise of Valuation - infringement of Rights and Liabilities of the Appellant or not - relevance on the Issue of Valuation, between the Parties - It is the version of the Appellant, that the 1st Respondent, had entered into unilateral discussions, with the Valuer, without the Appellant’s knowledge.
HELD THAT:- It transpires that the Appellant/Petitioner Company/2nd Respondent company, had preferred an IA No. 1169 of 2020 in CP No.285/241/HDB/2020 (under Rule 11 of NCLT Rules, 2016) against the 1st Respondent / Petitioner (in CP No.285/241/HDB/2020), mentioning that the 1st Respondent / Petitioner, had filed main Company Petition and that he has 10% of Shareholding, in the 2nd Respondent/Company (M/s Hyde Engineering and Consulting India Pvt Limited, Telangana and one of the reliefs, is for Valuation of Shares, of the 2nd Respondent company / 1st Respondent company - In fact, being a Majority Shareholder, the Applicant company/2nd Respondent company, intends to buy the Shares of the 1st Respondent / Petitioner (in Main Petition), who is having 10% of the total Shareholding in the 2nd Respondent company / 1st Respondent company.
The 1st Respondent, had in para 6 of the counter to IA No.1169 of 2020 in CP No.285/241/HDB/2020, had proceeded to significantly point out that, he would be glad to settle the matter amicably if he is paid his rightful valuation for his 10% Shareholding in the Respondent No.2 / Respondent No.1 Company, along with accrued interest and legal costs incurred by him. - The First Respondent / Petitioner, had pointed out that the Application under Rule 11 of NCLT Rules, 2016, may be admitted by the Tribunal, and appoint a Registered Valuer, to fix a Fair Value, for the Equity Shares of the 1st Respondent / Petitioner, based on the audited financial 1st Respondent / Company for the fiscal year – financial year 2017-18.
Besides the above, the 1st Respondent / Petitioner, had stated in its Reply, that the Tribunal, may grant the prayer of Applicant Company / 2nd Respondent, to buy out the Equity Shareholding of the 1st Respondent / Petitioner at a fair and proper value of the company, in respect of the Financial year 2017-18, along with the accrued interest and legal costs, incurred by the 1st Respondent / Petitioner and on payment of the same, within a time bound manner - In the instant case, this Tribunal, pertinently points out in the Counter Affidavit filed by the 1st Respondent / Petitioner (vide page 65 in Diary No.791 dt. 23.8.2022 in CA (AT) CH No.76 of 2022) to IA No.1169 of 2020 in main CP No.285/241/HDB/2020, wherein at paragraph 6, the 1st Respondent / Petitioner, had stated that, he would be glad to settle the matter amicably, if he is paid his rightful valuation for his 10% Shareholding in the Respondent No.2 / Respondent No.1 Company along with the accrued interest and legal costs, incurred by him.
It is an axiomatic Principle in Law that, an Admission is the best piece of evidence, against the Maker and it conclusively binds the Party. Looking at from that perspective, the averments of the 1st Respondent / Petitioner at paragraph 6 and 8 of the Counter to the IA No. 1169 of 2020 in main CP No.285/241/HDB/2020, are tacit Admissions and that the 1st Respondent/Petitioner, is bound by the same in true Letter and Spirit, without any deviation, whatsoever, as opined by this Tribunal.
Coming to the plea taken on behalf of the Appellant in the Memorandum of the instant Appeal, to the effect, that there was No such Consent, between the Parties, regarding the Appointment of the Valuer, and further, there was no occasion or basis or material to allow, the prayer for Appointment of an Valuer, and the same was done only in the garb of allowing the Appellant’s IA 1169 of 2020 in main CP No.285/241/HDB/2020, this Tribunal, keeping in mind of the Hon’ble Supreme Court decision in Central Bank of India v. Vrajlal Kapurchand Gandhi and Anr. [2003 (7) TMI 708 - SUPREME COURT], is of the earnest opinion that, it is for the Appellant, to take necessary steps, in contradicting the Statements of Fact, during the hearing recorded in the impugned order of the Tribunal, (which are conclusive of facts so mentioned / recorded, as a matter of judicial record), stating that the order was not correctly reflecting the happenings, before the Tribunal.
On a careful consideration of divergent contentions advanced on either side, on going through the Impugned Order, dt.29.7.2022 in IA 1169 of 2020 in main CP. No.285/241/HDB/2020, on the file of NCLT, Hyderabad, Bench - I, and also taking into account the surrounding facts and circumstances of the present case in a holistic manner, without any simmering doubt, comes to a resultant conclusion that the Order, assailed by the Appellant, does not in any manner affect his Rights and Liabilities, and in any event, no prejudice is caused to him, by the issuance of direction, by the Tribunal, to the Valuer, to submit a Valuation Report, to be considered after submission of a Report, by the Valuer, of course by the NCLT, Hyderabad, Bench - I.
This ‘Tribunal’, pertinently points out, that the Impugned Order of the NCLT, Hyderabad, Bench – I, dt. 29.07.2022 in IA 1169 of 2020 in main CP. No.285/241/HDB/2020, does not in any way infringe the Rights and Liabilities of the Appellant and hence, the instant Company Appeal is not per se maintainable. Viewed, in that perspective, the instant Appeal, sans merits and it fails.
Appeal dismissed.
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2023 (4) TMI 1083
Seeking grant of anticipatory bail - fraudulent transfer of shares - forged and alleged share certificates and share transfer forms are fabricated documents - forged signatures - HELD THAT:- Parameters for grant of anticipatory bail in a serious offence are required to be satisfied and further while granting such relief, the court must record the reasons therefor. Anticipatory bail can be granted only in exceptional circumstances where the court is prima facie of the view that the applicant has falsely been enrobed in the crime and would not misuse his liberty.
The applicant no. 1 as per Status Reports did not provide the requisite original Share certificates and also gave evasive replies during investigation. It is also appearing as surfaced during investigation that the applicant no. 1 who is managing director of the accused no. 1 could not produce any proof regarding request of the applicant no. 2 made to the accused no. 1 for payment of Rs. 6,25,000/- to the complainant on her behalf and said amount was actually credited in the loan account of the complainant. The applicant no. 1 also could not produce Jumbo share certificates which were stated to be issued on 29.1.2018 in lieu of 62,500 shares of the complainant and stated to be bearing the signature of Gulshan Jhurani as Director of the accused no. 1. Gulshan Jhurani in his statement dated 30.07.2022 also stated that he did not sign the share certificate/Jumbo share certificate after 2012. It also came into investigation that original share transfer deed between the complainant and Roohi Reshi for transfer of share certificate no. 31269 for 300 shares was executed on 12.12.2017 whereas new certificate no. 31269 was issued on 13.12.2017.
The respondent/State prayed for custodial interrogation of the applicants on grounds that they have not provided requisite documents and gave evasive replies during investigation. It is also alleged that there are contradictions in replies given by the applicants as mentioned in Status Reports and also argued by the Additional Public Prosecutor and the learned Senior Counsel for the complainant. The issue which needs judicial assessment and consideration is that whether the applicants can be subjected to custodial interrogation merely the applicants as per investigating agency did not produce documents as sought by the investigating officer and gave evasive and contradictory replies during investigation. It was also surfaced during investigation that the complainant is having financial transactions with the accused no. 1 for the last 15-20 years.
The bail applications filed by the applicants were dismissed by the court of Additional Sessions Judge-02, Patiala House Courts, New Delhi, vide order dated 28.05.2022 wherein it was observed that none including the complainant has appeared before the court with truth and conduct of the applicants is also shrouded in suspicion and appears to be much more tainted and stained as compared to the complainant - It appears that the concerned court minutely examined material collected during investigation in manner as deciding case on merits after conclusion of trial which was not warranted at time of consideration of bail applications.
The Supreme Court in relation to power to grant anticipatory bail and power of investigating agency to investigate in P. Chidambaram also observed that the judicial discretion to be properly exercised after application of mind as to the nature and gravity of the accusation; possibility of applicant fleeing justice and other factors to decide whether it is a fit case for grant of anticipatory bail. The custodial interrogation of the applicants is not warranted under given facts and circumstances of the present case and after evaluation of the available material against the applicants and particularly only to recover certain documents pertaining to the share transfer and contradictions in the replies given by the applicants during investigation. There is no direct and apparent apprehension that the applicants may flee or avoid further investigation. The applicants cannot be remanded to custodial interrogation in the absence of convincing material which warrants that certain documents and evidence pertaining to present FIR cannot be recovered without custodial interrogation of the applicants.
After considering all facts, the bail applications bearing no. 1696/2022 and 1697/2022 filed by the applicants Naresh Garg and Nirmala Aggarwal respectively are allowed, subject to conditions imposed.
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2023 (4) TMI 1082
Opportunity to be heard to ICA Lenders not provided - requirement of hearing of ‘person concerned’ as is laid down in section 71(10) of the Companies Act, 2013 - Whether the ICA Lenders led by Bank of Baroda were entitled to be intervenor and be heard in the company petition filed by the Debenture Trustee and if they had a right to be heard, then whether the Impugned Order turning down the Intervention Application correct in law, and further Impugned Order-I which was passed without hearing the ICA Lenders liable to be set aside?
HELD THAT:- Section 71(10) of the Companies Act, 2013 uses the word ‘may’ in the context when the Tribunal has to pass order on the application of any or all of the debenture holders or debenture trustee. Further, sub-section 10 of section 71 also lays down that the Tribunal may pass orders ‘after hearing the parties concerned’ - the question of proceedings to be ‘in personam’ or ‘in rem’ is also made clear by the fact that in the Company that is facing financial stress and for which a resolution plan is under consideration, 23 debenture holders who are among those represented by the Debenture Trustee are also part of ICA Lenders, though a majority of the retail debenture holders are not signatories to the ICA.
The contention of the Respondent Debenture Trustee is that the requirement of sub-section 10 of Section 71 of the Companies Act, 2013 is that the Tribunal should pass an order only keeping in view its satisfaction and what is necessary to safeguard interest of the company or debenture holders. He has contended that the issue of public interest and financial condition of the company are not necessary factors to be look into by the Tribunal while passing the order - While considering the above argument of the Learned Counsel for the Respondent-Debenture Trustee, we note that the provision under section 71 (3) and section 71(10) of the Companies Act, 2013 stipulates that NCLT shall, before making any order, give a reasonable opportunity of being heard to the Company and ‘person concerned’ in the matter.
Rule 73(3) and Rule 73(4) of the NCLT Rules, 2016 which are applicable for an application under section 71(10) of the Companies, 2013 provide that Tribunal shall, before making any order under this rule, give an reasonable opportunity of being heard to Company or ‘any other person interested, in the matter. It is quite clear from a reading of sub-rule (3) and sub-rule (4) of Rule 73 that the company is an ‘important party’ because the company has to redeem the debentures and pay the interest on the principal amount. The Company’s financial condition and health would, therefore, also become relevant factors while hearing an application under section 71(10). The ICA Lenders, who have all signed the Inter Creditor Agreement, have also taken steps for financial rejuvenation and revitalization of the Company through a resolution plan - the ICA Lenders are also important parties insofar as financial resolution of the Company is concerned, and therefore they should be afforded an opportunity to be heard in the company petition as the redemption of NCDs shall have an impact on the financial condition of the Company and would deeply affect the implementation of the resolution plan, which is for resolution of the Company.
Thus, the NCLT has denied an opportunity to be heard to ICA Lenders on the ground that insofar as section 71(10) of the Companies Act, 2013 is concerned, they do not have a right to be heard - this is an incorrect reading of the requirement of hearing of ‘person concerned’ as is laid down in section 71(10) of the Companies Act, 2013 and ‘any other person interested in the matter’ as required in Rule 73(3) and 73(4) of the NCLT Rules, 2016 - in view of public interest as is stipulated in Rule 74(4) and the involvement of public money in the Company, though the public sector banks, public interest also demands that ICA Lenders be given opportunity of hearing - the Impugned Order-II dated 27.5.2021 is incorrect and is set aside.
The Impugned Order-I dated 21.6.2021 which was passed by the NCLT suffers from the infirmity that ICA Lenders were not afforded an opportunity to be heard while passing Impugned Order-I - the matter is remanded to the NCLT, Mumbai - Appeal allowed by way of remand.
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2023 (4) TMI 1030
Seeking grant of Regular Bail - Money Laundering - creation of fictitious proprietorship firm in the name of Kewal International by using the documents of the applicant - twin conditions and bar under Section 212(6) of Companies Act - HELD THAT:- As per Section 212(7), the limitation or bar to grant of bail under Section 212(6) is in addition to the limitations under the Code of Criminal Procedure, 1973 or any other law for grant of bail. The aforesaid principles were held to be mandatory in nature by the Hon’ble Apex Court in SERIOUS FRAUD INVESTIGATION OFFICE VERSUS NITTIN JOHARI & ANOTHER [2019 (9) TMI 570 - SUPREME COURT].
The issue at hand was also considered by a Co-ordinate Bench of this Court in Rana Kapoor v. Directorate of Enforcement [2022 (11) TMI 1232 - DELHI HIGH COURT], where under similar circumstances, the accused therein was never arrested during the period of investigation and at a later stage, after the concerned Court took cognizance, he was taken into custody in a case under Prevention of Money Laundering Act, 2002.
As held by the Hon’ble Apex Court in Satender Kumar Antil [2022 (8) TMI 152 - SUPREME COURT], when an accused, who has not been arrested during investigation, and investigating agency does not require his/her custody, and the accused appears pursuant to summoning order before Trial Court, there is no need to file any bail application since there is no need to arrest the said accused. It has also been clarified by the Hon’ble Apex Court that if the Court taking cognizance is of the opinion that remand of accused is necessary, an opportunity to be heard has to be given to the accused.
It is an admitted position, that even at the stage when the applicant appeared before the learned Trial Court upon being summoned, the Investigating Officer never sought his remand to judicial custody. It is not the case of prosecution that applicant did not join or did not co-operate in the investigation. The Director of accused company Komal Chadha has already been granted bail by this Court, and present applicant is allegedly an employee of accused company. There is no allegation that applicant can either intimidate any witnesses or tamper with the evidence - A perusal of complaint also shows that accused no. 2 i.e. Suman Chadha had created several entities in the name of his employees, including the present applicant. In fact, the driver of the said accused is named as proprietor in one such entity namely S.K. Enterprises.
Considering the fact that petitioner is in judicial custody since 25.05.2022, this Court is inclined to grant bail to accused/applicant on furnishing a personal bond in the sum of Rs.50,000/- with one surety of like amount to the satisfaction of Trial Court/ Successor Court/ Link M.M/ Duty M.M concerned on the terms and conditions imposed - bail application disposed off.
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2023 (4) TMI 1029
Seeking restoration of (struck off) name of company in the Register of Companies - section 252 of Companies Act - HELD THAT:- So far as striking off name of the company in question under the provisions of Section 248 of the Companies Act is concerned the appellant has not raised any dispute that procedure under the said provisions was not followed. In the written submission of the ROC also detail has been mentioned regarding following the procedure prescribed under Section 248 of the Companies Act which has not been disputed by the appellant otherwise the appellant would have preferred the appeal under Section 252(1) of the Companies Act. The appellant has filed application/appeal under Section 252(3) of the Companies Act which empowers the NCLT to pass an order of restoration of a striking off company if the NCLT is satisfied on the basis of plausible material that struck off company was carrying on business or in operation or even otherwise it was just that the company may be restored.
Considering the fact that the company was having two directors with 50% shareholding which has not been disputed and one of the director who is Respondent No.3 has come forward with a stand that the company in question was not either doing business or operating, in such situation there is no reason in passing an order for restoring the appellant company.
Another reason for not interfering with the impugned order is that out of two directors one director has taken a stand that the company is completely inoperative doing no business whereas the appellant who is also a director is taking the plea on the strength of balance sheet prepared by the CA that too without approval of the Board of Directors that company was in operation. If for the time being any direction is issued for restoration, certainly it will amount to generating further dispute/litigation.
The appellant was not in a position to satisfy the NCLT that the company in question was doing business or was operational during the period for which the name of the company was struck off - Appeal dismissed.
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