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2016 (1) TMI 652 - COMPANY LAW BOARD KOLKATA

2016 (1) TMI 652 - COMPANY LAW BOARD KOLKATA - TMI - Oppression and mismanagement - Held that:- The Company Petition was filed by the Petitioners based on the allegations of acts of oppression and mismanagement on the part of the Respondents and this implies that the Petitioners were not having control over the affairs of the Company. This is further confirmed by the fact that in any annual return, the Petitioners were not shown as Promoters.

As admitted by the Applicant Advocate as .....

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the filing of the annual returns and financial statements by holding AGM to meet the statutory compliances.

On the contrary, the Applicant (Petitioner No.2) and Petitioner No. 1, without making some Company Application in the pending legal proceedings since 2010 before this Hon'ble Board seeking directions/reliefs as to filing of the financial statements and invocation of Sections 164 and 167 of the Companies Act, 2013, have claimed to be Promoters and new Directors have been appoin .....

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n view of this legal position, the erstwhile Directors continue to be validly and legally appointed directors and hence, the said Board of Directors is competent to appoint the Advocate by following the provisions of law. As such, in the interest of justice, the prayers made in the instant Company Application are hereby disallowed. - C.A. No.683/2015, C.P. No.859/2010 - Dated:- 2-11-2015 - Mr. Dhan Raj, J. For The Petitioner : Mr. P.K. Jhunjhunwala, Advocate, Mr. Sohail Haque, Advocate, Mrs. A .....

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s case, the Petitioners filed a Company Petition being C.P. No.859/2010 under Sections 397, 398, 399, 402, 403 & 406 of the Companies Act, 1956, alleging the acts of oppression and mismanagement in the affairs of the Respondent Company, which is pending for adjudication. In the meantime, the Advocate for the Respondent No. 1 Company (Applicant herein) moved an Company Application bearing C.A. No.683/2015 signed by Smt. Vandana Agrawal (the Petitioner No.2 herein), Director of the Respondent .....

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ted their offices in terms of Section 167(1) of the Companies Act, 2013 read with Section 164(2) of the said Act, due to the default committed by the erstwhile directors in filing the financial statements of the Respondent No. 1 Company and its subsidiary Companies for the years 2010-11, 2011-12 and 2012-13. Subsequently, on or about 06.02.2015, a Board Meeting of the Respondent No. 1 Company was held wherein it was recorded that the new Board has been constituted and the required number of Dire .....

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ition, in a supplementary Affidavit dated 08.06.2015, filed by the Respondent No. 1 Company/Applicant Advocate, it has been stated that the Petitioners filed a Writ Petition being W.P. No.3296/2015 before the Hon'ble Delhi High Court praying for direction upon the Ministry of Corporate Affairs (MCA) to take steps to upload the digital signature of the new Directors of the Respondent No. 1 Company, viz., Mr. Raj Shekhar Agrawal, Mrs. Vandana Agrawal and Mr. Yudhisther Kumar Gauba, on the Port .....

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ead out to the Hon'ble Court a letter dated 10.04.2015, addressed to the Respondent No. 1 Company in the said Writ Petition being the Ministry of Corporate Affairs, written on the letter head of the Respondent No. 1 Company herein and signed by the Respondent No.2 (Mr. Partha Ghosh), wherefrom it emerged that Mr. Partha Ghosh continues to represent himself as the Managing Director of the Respondent No. 1 Company and also, an admission on his part that "it is a matter of record that the .....

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and the said admission in juxtaposition with the provisions of Sections 164 and 167 of the Companies Act, 2013, would lead to an irresistible and immutable conclusion that the office of all the defaulting Directors stood vacated on coming into force of these provisions w.e.f. 01.04.2014. further, that reasons given by the Respondent No.2 in the said letter for not filing of annual accounts that the Junior Division of Ld. Alipore Court, Kolkata, vide Order dated 15.12.2010, injuncted the Responde .....

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1 Company and its subsidiaries, preventing them from holding the General Meeting by filling a Title Suit being T.S. No.3469/2010 by Mr. Arun Banerjee and another, before the Ld. Alipore Court, without making the other shareholders as parties to the said Suit and also, by taking no steps to pursue the appeal filed by Mr. Partha Ghosh as Managing Director of the Respondent No. 1 Company before the District Court against the injunction. It has been highlighted that the Respondent No. 1 Company had .....

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pported the Suit for such an injunction, thereby admitting to such collusion in procuring a Court Order by plying fraud on the Court. It is also a matter of record that despite the AGM of the Respondent No. 1 Company not being held, the Respondent No.2 had filed the financial statement for the year ended 31.03.2010, along with the Statement of facts and reasons, clearly acknowledging the Respondent No. 1 Company's responsibility to file the financial statement as required under Section 220(3 .....

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of the Respondent No. 1 Company cannot be countenanced under the law. 2. In the reply-affidavit, the Respondent Nos.2 & 3/Non-Applicants Advocate submitted that the instant Application is misconceived and contains false statements and/or averments which have been made without basis and purportedly based on an erroneous factual and legal matrix and also, an abuse of the process of law. Further, the contention of the Applicant that the Advocate-on-record and/or Counsel appearing on behalf of .....

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ies. In addition, it has been submitted that the purported allegation of the Applicant that the existing Board of Directors have vacated their offices as they have been disqualified under Section 167(1) read with Section 164(2) of the Companies Act, 2013 for non-filing of the Annual Returns and/or financial statements before the ROC for the financial years 2010-11, 2011-12 & 2012-13, is false and baseless. In fact, the existing Board of Directors has been unable to file the Annual Returns an .....

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n and from such averment, it is evident that upon their own admission, the Petitioners are not qualified to instruct Advocates or move the instant Company Application on behalf of the Respondent No. 1 Company. Also, such Writ Petition was moved without any notice or intimation to the Respondent Nos.1 to 3 and also, without impleading the Respondent Nos.2 & 3 or the Company being the Respondent No. 1 Company, as parties. The Petitioners had approached the Hon'ble High Court at Delhi in an .....

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ication for impleadment as party to the said Writ Petition. In any event, the present Application cannot be decided unless this Hon'ble Board upholds the appointment of the Petitioners in the main Company Petition as the Directors of the Respondent No. 1 Company, which is in itself a disputed question of fact and taw. 3. The Applicant Advocate filed the rejoinder-affidavit stating therein that the Respondent No. 1 Company/Applicant Advocate has pointed out that the affidavit affirmed by Mr. .....

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is office by virtue of Section 167(1) of the Companies Act, 2013. Further, reference in the said Affidavit to the Court Order preventing the Respondent No. 1 Company from holding the Annual General Meeting, is a spurious one since the said Order dated 15.12.2010 does not in any manner put a restriction on the filing of the financial statements. It has been contended that the operative portion of the said Order has been omitted from the Annexure attached to the said affidavit, which, inter alia, .....

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Respondent No.2 had filed a Statement of Facts and Reasons with the Registrar of Companies (ROC), West Bengal, wherefrom it is evident that despite there being an Order of Injunction dated 15.12.2010, on holding of the Annual General Meeting, the Respondent No.2 has made a specific reference to the need to file the Annual Accounts in accordance with Section 220(2) of the Companies Act, 1956. Therefore, such reference to the ROC clearly shows that the Respondent No.2 was aware of and has appropr .....

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ars 2010-11, 2011-12 and 2012-13 was not at all caused due to the presence of the said Court Order dated 15.12.2015, but was the sole consequence of an absolute intentional default. 4. The Respondent Nos. 2 & 3 Advocate argued that the Applicant has made the instant Application in pursuance of the authority conferred on the said Applicants by way of a Board Resolution dated 06.02.2015 which was passed in a purported Board Meeting of the Respondent No. l Company to derive the competence to fi .....

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of Promoter in Section 2(69) of the Companies Act, 2013 and as such, are not competent to reconstitute the Board of the Company and pass any resolution of the aforementioned agreement. Also, the Applicants are not identified as Promoters in any Prospectus nor are identified as such in the Annual Return of the Company. Besides, the Applicants do not have control over the affairs of the Company, either directly or indirectly, whether as a shareholder, Director or otherwise nor are persons in acco .....

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ever as defined under Section 2(27) of the Companies Act, 2013. Moreover, the Applicant admittedly, as per her own pleadings in C.P. No.859/2010, has asserted the lack of control over the affairs of the Company. Furthermore, the Petitioner No. 1 having resigned from the Board of Directors of the Company pursuant to an understanding arrived at on or about 20th/ 21st January, 2010 and having subsequently resigned vide his resignation dated 22.01.2010, cannot in any manner assert any modicum of con .....

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ny comes to a standstill and there can be no allegation of non-compliance of statutory filing requirements on account of complete standstill of the affairs of the Company. In any event, the provisions of erstwhile Section 220 of the Companies Act, 1956 providing for filing of unapproved balance sheet is of limited relevance inso far as in absence of suitable machinery to prepare financial documents, the question of even unapproved balance sheet and/or other financial documents does not and canno .....

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any in the AGM, were tendered for filing. 4.2 It has also been argued that the provision of Section 164 of the Act came into effect on 01.04.2014 and as such, disqualification, if any, have to accrue prospectively upon coming into effect of the said provision by failure to file financial statements of the Company for three consecutive financial years post coming into effect of the said provision. Further, the existence of a pari material provision Section 274 of the Companies Act, 1956 is of no .....

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ct. As such, the provision for vacation of the Board of Directors under Section 167 consequent upon attracting any of the disqualification under Section 164 is a new consequence, effective only upon coming into effect of the said provision on 01.04.2014. 4.3 Lastly, the Respondent Nos.2 & 3/Non-Appticants Advocate has submitted that the applicants instituted writ petition being W.P. (C) No. 3296/2015, wherein the applicants admitted that so long as their digital signatures are not uploaded o .....

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ir offices due to the default in filing the financial statements of the Respondent No. 1 Company and its subsidiary Companies for the financial years 2010-11, 2011-12 & 2012-13 in terms of Section 167(1) of the Act, no new Advocate-on-record or Counsel on behalf of the Respondent No. 1 Company could be appointed under the authorization or its erstwhile directors. Further, the Court Order dated 15.12.2010 only restrained the Respondent No. 1 Company by an ad-interim injunction on holding the .....

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are of the statutory compliance and has made a specific reference to the need of filing the Annual Account in accordance with Section 220(2) of the Act. Further, in the letter of the Respondent No.2, the given date is 19.01.2011 which was after the Order of Injunction dated 15.12.2010 on holding the Annual General Meeting, which clearly establishes the fact that the Respondent No.2 understood the gravity of the situation and was aware of the fact that the Court Order never restrained the filing .....

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.1 It has been further argued that in the Shareholders' Agreement, the Petitioners, viz., Mr. Raj Shekhar Agrawal and Mrs. Vandana Agrawal, are named as Promoters of the Respondent No. 1 Company and as such, have been given substantial authority and responsibility in terms of the said Shareholders' Agreement. It has been highlighted that on prognosis of the definition of both Control and Promoter as defined in Sections 2(27) and 2(59) of the Companies Act, 2013, it can be clearly interpr .....

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& 3 Advocate has made a submission at paragraph 1(iii)(c) at pages 10 & 11, which was never advanced by them in their reply to the instant Company Application nor at the time of hearing of the said Application on 17.09.2015. In any case, the Hon'ble High Court at Delhi has, by its Order, asked the Petitioners to seek direction upon the Registrar of Companies (ROC) from the Hon'ble Company Law Board, regarding the matter of digital signatures of directors which was the only issue .....

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d the Company Application, supplementary Affidavit, reply, rejoinder and the arguments [oral and written) of the Advocates of the rival parties, it is observed that the Petitioner No. 2, viz., Mrs. Vandana Agrawal has moved the present C.A. No.683/2015 on behalf of the Respondent No. 1 Company. The Applicant Advocate has contended that all the erstwhile directors of the Respondent No. 1 Company vacated their offices in terms of Section 167(1) read with Section 164(2) of the Companies Act, 2013 d .....

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refrom it emerged that Mr. Partha Ghosh continues to represent himself as the Managing Director of the Respondent No. 1 Company and also, an admission on his part that the Company has not filed the relevant annual returns and financial statements. However, on or about 06.02.2015, a Board Meeting of the Respondent No. 1 Company was held, wherein it was recorded that the new Board has been constituted and the required number of Directors were appointed in terms of Section 167(3) of the Companies A .....

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nd discharging its duties. Moreover, the existing Board of Directors has been unable to file the Annual Returns and/or financial statements owing to an Order of the Court preventing the Respondent No. 1 Company from holding the Annual General Meetings. However, the Applicant Advocate has given the plea that the Order dated 15.12.2010 does not in any manner put a restriction on the filing of the financial statements as the operative portion of the said Order, inter alia, states "Accordingly, .....

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Companies Act, 1956 and thus, the statutory requirement was appropriately complied with for the financial year 2009-10. As such, it has been vehemently argued that now the Respondent No.2 cannot take shelter of the Order of Injunction dated 15.12.2010 for the failure to file the Financial Statements for the financial years 2010-11, 2011-12 and 2012-13. 6.2 The Advocate for the Respondent Nos.2 & 3 has controverted that it is a settled proposition of law that upon being prevented from holdin .....

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and/or other financial documents does not and cannot arise. As regards the financial statement for the year 2009-10, it has been stated that the said accounts were already duly prepared and audited, but could not be tabled before the members in the AGM and hence, the same without adoption by members were filed. Moreover, disqualification under Section 274 does not result in vacation of the Board of Directors under Section 283 of the Companies Act, 1956. Even, the provisions of Section 164 of th .....

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and its subsidiary Companies for the financial years 2010-11, 2011-12 & 2012-13 in terms of Section 167(1) of the Companies Act 2013, no new Advocate-on-record or Counsel on behalf of the Respondent No. 1 Company could be appointed under the authorization of its erstwhile directors. In addition, it has been highlighted that in the Shareholders' Agreement, the Petitioners, viz., Mr. Raj Shekhar Agrawal and Mrs. Vandana Agrawal, are named as Promoters of the Respondent No. 1 Company, Besid .....

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n terms of Section 167(3) of the Companies Act, 2013. In this context, the Advocate for the Respondent Nos.2 & 3 has extended the argument that under the terms of Section 167(3) of the Companies Act, 2013, upon vacation of the office by the Board of Directors of a Company by reasons of incurring disqualification under Section 164 of the said Act, an interim Board of Directors can only be appointed either by the Promoter or the Central Government, whereas the Applicants are not the Promoters .....

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er, Director or otherwise nor are persons in accordance with whose advice/direction the Board of Directors of the Company is accustomed to act and therefore, the Applicants do not have any right to appoint majority of the Directors or to control the management and take decision in the affairs of the Company, either by virtue of their shareholding or management rights or shareholders agreement or voting agreements or in any manner whatsoever. Even, in the pleadings in C.P. No.859/2010, the Applic .....

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any reliefs to the Applicants. 6.4 Under the aforesaid facts and circumstances, it is crystal clear that the Company Petition being CP. No. 859/2010 was filed by the Petitioners based on the allegations of acts of oppression and mismanagement on the part of the Respondents and this implies that the Petitioners were not having control over the affairs of the Company. This is further confirmed by the fact that in any annual return, the Petitioners were not shown as Promoters. As admitted by the A .....

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