9911796707
TMI Blog2016 (5) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... 2743/2014 and other suits as mentioned above. 2. The Union of India filed this CP under sections 397/398 r/w 388B, 388C, 401, 402, 403, 406 & 408 of the Companies Act, 1956, seeking inter alia removal of directors that is R2 to R28 from the board of directors of FTIL. For having R2 to R28 through FTIL perpetrated fraud in its wholly owned subsidiary company namely National Stock Exchange Ltd (in short "NSEL"-R29) in complete violation of the principles of corporate governance which has led to payment crisis of approx, Rs. 5,600 crores in NSEL. UoI says that R2 to R28 have deliberately and wilfully caused the said payment crisis due to defaults of the trading clients of NSEL affecting 13,000 investors of NSEL, 3. That the promoters of FTIL hold 45.63% of its shares, the main promoter shareholders are La-Fin Financial Services Pvt. Ltd. with 26.76%, Jignesh Shah (R2) with 18.08%, Devang Neralla (R3) with 0.13%. That FTIL has a stake of 99.99% in NSEL and stake of 26% in MCX. R2 is the ex-managing director of the company, who continued as MD of FTIL since 31.03.2012 to 20.11.2014. R3 was also whole time director of FTIL since 31.01.2012 to 20.11.2014. As to other respondents from R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter has to be adjourned sine die or staved until the aforesaid proceeding is heard and disposed of. 8. Basing on the above points as cause of action, the Respondents counsel has vehemently argued that UoI has specifically stated that this CP is actuated to frustrate the deliberate attempts of the parts of FTIL, its board and NSEL to take various steps to frustrate the ultimate object of the proposed merger to provide suitable compensation to the victims of default for which Rl to R28 are as much responsible as NSEL. The counsel submits that for having UoI already filed final order in compulsory merger on 12.2.2016, there need not be any separate action under section 388B or under 397/398 to proceed against the directors of FTIL. Moreover, the merger proceedings are prior in point of time to this proceeding, likewise, the civil suits dealing with the same subject matter being prior in point of time to this proceeding, to avoid conflict of decision, it is imperative to stay this proceeding because this subject matter is sub-judice before Hon'ble High Court of Bombay in the proceedings above mentioned. 9. The counsel appearing on UoI behalf has refuted these allegations stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his proceeding is to be stayed in the light of the submissions made by FTIL or not. 14. On reading Section 388B, it is understandable that it is a right conferred upon the State to ask for a relief authorising Central Government to remove the managerial personnel on the basis of CLB decision. It is a right conferred upon the state to monitor as to whether managerial personnel of a company have been discharging their fiduciary duties in managing the affairs of the company. If at all UoI notices circumstances suggesting that the persons concerned in the conduct and management of the affairs of a company indulged in fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or indulged in not managing the affairs in accordance with the sound business principle or prudent commercial practices or causing serious injury or damage to the interest of the trade industry or the business to which such company pertains or managing with intent to defraud its creditors, members or any other persons or in a manner prejudicial to the public interest, then Central Government will take action under section 388B and 397, 398 of the Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest is a generic term. It is an inclusive definition. There will be several actions to protect public interest. There in merger proceedings, as stated by Honourable High Court or Bombay, it is for merging two companies. Here it is for the removal of directors and other reliefs on the allegation that the directors defrauded the investors or traders who invested thousands of crores. Therefore, it can't be said since both the proceedings are for protecting public interest; they are overlapping against each other. It is needless to say that merger proceedings are for merging two companies, whereas, Section 388B proceedings and 397/398 proceedings are meant for taking action against the Acts committed by the managerial personnel. The petitioner might have mentioned that Rl Company in concert with other respondents trying to frustrate the proceedings of merger, it is only one of the pleadings of CP. Simply because the petitioner mentioned this pleading along with other pleadings of the CP; other pleadings cannot be invalidated assuming that the proceedings in this CP are collateral in nature. Both are independent proceedings holding separate fields with distinct purposes, hence, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities, there need not be any proof beyond reasonable doubt. Here, removal of directors is not a criminal action, therefore, when court is in a position to ascertain preponderance of probabilities it is always free to decide the same. Whether evidence is to be let in or not, it is up to the court to decide when it comes for hearing, not now. Till date, that stage has not come to decide as to whether evidence is to be let in or not. Moreover, in corporate governance umpteen documents will come into existence from time to time, therefore, it can't be said in every case that court cannot come to a conclusion until and unless evidence is taken in. 21. Therefore, I am of the opinion that the action under section 388B, 397 & 398, read with other sections supra is not at all overlapping with the relief of compulsory merger sought before Honourable High Court of Bombay, or reliefs sought in the civil suits. 22. In view of the aforesaid discussion, 1 hereby hold that the remedy under section 388B, 397, 398 is altogether different from the remedy, the investors sought in Civil Cases. Moreover, Section 10 says that the parties must be the same in the prior suit and the matter in issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
