TMI Blog2017 (10) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent company following the provisions of the Companies Act, 2013 and Articles of Association of KSPL with the following agenda: - (a) Appointment of independent Chartered Accountant firm to assess the fair market value of the shares of the first respondent company as on the date of filing of Company Petition No. 17 of 2014 and to fix the remuneration of Chartered Accountants so appointed. (b) Appointment of Special Auditors team to audit accounts of the first respondent company for the financial years 2013-14 to 2016-17 and to fix remuneration of the Chartered Accountants. (iv) Agenda of all kinds of meeting of KSPL shall be approved by Interim Administrator before notice of meeting is given. (v) All meetings shall be conducted in accordance with interim orders in force and the directions given in this order, in the presence and as per the instructions of Interim Administrator. (vi) There shall not be any change in the shareholding pattern and Directors of the first respondent company until further orders except as provided in this order regarding appointment of Independent Directors. (vii) Sale of Akola properties of KSPL by the first respondent company sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expenditure incurred in respect of remuneration of Interim Administrator, Independent Auditor appointed for determination of fair market value of the shares of the first respondent company (KSPL) and Special Audit team appointed to audit the accounts of the first respondent company (KSPL) and remuneration of Independent Directors shall be borne by KSPL for the time being and it is subject to final order passed in TP No. 62 of 2016. (xix) Interim Administrator and Independent Directors appointed are given immunity from all Civil, Criminal and other regulatory actions under the laws applicable in the conduct of the affairs of KSPL. - TP No. 62/397-398/NCLT/AHM/2016 TP 62-A/2016 to 62-E/2016 with 4/2016 (New) CP No. 17/397-398/CLB/MB/2014 CA No. 67/2015, 77/2015, 195/2015, 1/2016, 54/2016 (Old) - - - Dated:- 12-9-2017 - MR. BIKKI RAVEENDRA BABU, J. For The Petitioner : Nandish Chudgar and Harmish Shah, Ld. Advs. For The Respondent : Rajkumar Adukia, Ld. FCA and Kunal Vaishnav, Ld. Adv. ORDER 1. Facts lead to forming of Krishidhan Seeds Private Limited/the first respondent company, hereinafter referred to as KSPL and other companies are as follows: - 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said agreement. To facilitate said investment, vide special resolution dated 22.11.2010, was passed at the Extraordinary General Meeting of Krishidhan Seeds Limited, it was resolved to change the status of Krishidhan Seeds Ltd. which is a public limited company into a private limited company under Section 31 (1) of the Act and name of the company Krishidhan Seeds Limited was changed to Krishidhan Seeds Private Limited (KSPL) i.e. respondent No. 1. 8. The events that lead to the filing of this petition by SPK group could be summarised in three parts for the sake of brevity, convenience and better understanding. Part-I Events that took place that lead to the family agreement dated 13.02.2013 Part II Events that took place after family arrangement (MOU dated 13.02.2013) till the date of filing this petition i.e. 18.02.2014. Part III Events that took place after filing of this petition. 9. In the aforesaid three heads, there are certain admitted facts and there are certain disputed facts. The case of SP Karwa group and the case of JP Karwa group in the context of aforesaid three phases, need to be narrated in brief to understand the of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Immediately on infusion of private equity funds, respondent No. 3 in collusion with respondent No. 2 and respondent Nos. 7 to 11 started systematically diverting funds invested by respondent No. 12 for the purpose of expansion of business. (2) Funds invested by respondent 2 for expansion of business were mis-utilised by respondent No. 3 to purchase various properties and furnish them in extravagant manner. (3) Siphoning of funds through Mariegold. (a) Respondent No. 3 transferred funds to Mariegold from KSPL without resolutions of KSPL and without showing in the balance sheet of KSPL. (b) Properties were brought in the name of Mariegold from the funds of KSPL. (c) Leasing out the properties purchased by Mariegold to KSPL at higher rates than the prevailing market rates. (d) Statutory non-compliance by respondent No. 3 i.e. failure to conduct Board Meetings. (e) Forgery committed and confessed by respondent No. 3 (f) Exit of Summit Partners (Respondent No. 12) from the first respondent company before lock-in period of 36 months prematurely on 02.08.2012 i.e. almost eight months prior to agreed exit plan. (g) Respondent No. 3 by his unilateral decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 had placed huge orders for cotton and other crop seeds to Akshay Seeds Tech Company and Axis Seeds Crop Technology. Those two companies are the companies of Mr. Natubhai Makadia, the associate of his close friend Dr. Manish Patel. Dr. Manish Patel and Mr. Natubhai Makadia were appointed by petitioner No. 1 as organiser in the production and procedure in Research and Development Department and as a result quality of the seeds became sub-standard. Petitioner No. 1 not only siphoned the money of the first respondent company by buying goods from Akshay Seeds Tech Company and Axis Seeds Crop Technology, but KSPL has to recover ₹ 8.00 crores from the said companies. 17. After infusion of funds by Summit Partners, petitioner No. 1 became over ambitious and being the in-charge of SCM Department, started taking arbitrary and hasty decisions on his own with ulterior motives without the knowledge, consent and approval of other Directors. Petitioner No. 1 directed a huge and excessive order for production of Bt Cotton seeds which was beyond the demand and the selling capacity of the first respondent company. 18. Petitioner No. 1 directed to produce about 50 lac packets of Bt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is the case of the respondents that MOU dated 13.02.2013 is required to be strictly adhered to. After filing Company Petition, petitioners accepted for arbitration. According to the respondents No. 2 to 5, respondent No. 3 is having very good reputation in business circle. Part II 23. On 06.04.2013 respondent No. 3 denied to provide/share any information regarding the remittance documents pertaining to repayment of respondent No. 12 inspite of telephonic request made by the petitioner, Company Secretary of respondent No. 3. 24. Petitioners No. 1 to 9 revoked the power of attorney by giving legal notice dated 07.10.2013 and public notice dated 16.10.2013. 25. By search of documents with Sub-Registrar, Akola in September, 2013, petitioners learned that respondents Nos. 2 to 4 disposed of properties belonging to KSPL situated at Akola surreptitiously by keeping the petitioners in dark and without passing any valid and legal Board Resolution. Respondent No. 3 in collusion with respondent Nos. 2 to 5 and 7 to 9 passed fake Board Resolution without conducting actual Board Meetings. Petitioner No. 1 being Director never received notice of alleged Board Meetings held f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 was attempting to create turmoil in the office of the first respondent company and completely denied access to the office. 35. In June, 2013, respondent No. 3 instructed accounts department to stop paying any salary to petitioners No. 1, 2, 4, 6 and 7. By email dated 19.11.2013, petitioner Nos. 1 and 2 inquired the reasons for non-payment of salary which remained unanswered. 36. Respondents No. 2 and 3 stopped informing petitioner No. 1 about any Board Meetings of KSPL. 37. According to petitioner No. 1 management and affairs of KSPL is with respondent Nos. 2 and 3 and it would result in further acts of oppression and mismanagement and it would not be in the interest of KSPL and its Directors and the public. 38. According to petitioner No. 1 KSPL is subjected to gross mismanagement by respondent No. 2 to 5. Petitioners have made out a case for just and equitable winding up of KSPL but winding up KSPL would prejudicially affect the interest of the petitioners as shareholders. Part III 39. Hon ble Company Law Board by its order dated 03.03.2014 in Company Petition No. 17 of 2014 passed the following order: - Having found a prima facie case, balance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 filed Company Application No. 102 of 2014 praying to therein to vacate or modify the order passed on 03.03.2014 by the Hon ble Company Law Board. Both the aforesaid applications were disposed of by the Hon ble Company Law Board by its order dated 25.04.2014 wherein it observed as follows:- I, therefore, in order to avoid further controversies and to balance the equities between the parties while modifying the order dated 03.03.2014 thereby permitting the Answering respondents to sell property(ies) of the company i.e. Akola Oil Industry and Akul Plaza to meet out the urgent liabilities of the Company, impose certain terms and conditions described hereinafter. The directions are thus: - a. To meet the urgent liabilities of the Company, the answering respondents are permitted to sell the property(ies) of the company i.e. Akola Oil Industry and Akul Plaza. To supervise the same, I hereby appoint Hon ble Justice Mr. K.K. Lahoti, Former Judge, High Court of M.P. having address at B-23, Sector 14, NOIDA 201 301, (Mob. No. 09425152000 e-mail-j.kklahoti@gmail.com) as observer cum facilitator. The parties are directed to render all the assistance and co-operation to the said obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondents to inform the dates of holding of such meetings well in time to the petitioner No. 3 and the Hon ble observer cum facilitator. Along with him, the petitioner No. 3 shall also be entitled to participate in such meeting(s). In case, the Hon ble observer cum facilitator is not available on such date(s) due to some personal difficulty/pre- occupation, the Hon ble observer cum facilitator may nominate someone to attend and supervise such meetings on his behalf. It is also directed that in case, the petitioner No. 3 tenders any objection in writing in respect of any resolution(s) to be considered and passed, the same shall be examined by the Board of Directors of the company and shall be decided forthwith and such decision will be recorded in the minutes of the meeting(s) which shall be communicated to the petitioners within 3 days of such meeting(s). g. The Hon ble observer cum facilitator will submit his reported periodically. h. The order dated 03.03.2014 is modified to the extent above. It is clarified that in so far as the order of status quo in respect of the other immovable properties of the company is concerned, the same shall continue. However, after completio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay take such pleas in this regard in their reply as they deem fit and proper in the fact and circumstances of the case. 49. It is further observed in this order that the original respondents/applicants in C.A. No. 231 of 2014 have themselves challenged the Award by way of filing a petition under Section 34 of the Arbitration Act before the Civil Judge, Sr. Division, Pune. In such a situation, the original respondents are estopped from relying upon a part of the award which stipulates that the first respondent company have been given in their share in the distribution of assets by the learned Arbitrators in the said Arbitration Proceedings and Hon ble Company Law Board held that Section 8 of the Arbitration Act is not applicable. Hon ble Company Law Board dismissed Company Application 231 of 2014 filed by the original respondent. The common order dated 05.09.2014 was carried an appeal to Hon ble High Court of Madhya Pradesh in MCA No. 49 of 2014. Madhya Pradesh High Court disposed of MCOMA on 14.01.2015 by observing that the ratio in Rakesh Malhotra v/s Rajinder Kumar Malhotra case by the Hon ble Mumbai High Court is to be considered by the Hon ble Company Law Board while consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 25.04.2014 showing petitioner No. 3 in place petitioner No. 1 as Director who is entitled to attend the meeting and such typographical mistakes cannot be construed by any of the parties. With those observations Company Appeal No. 53 of 2016 was disposed of. Company Law Board disposed of CA No. 54 of 2016 holding that the circular resolution dated 01.02.2016 is not in accordance with order of Company Law Board dated 25.04.2014. 55. Following are the applications filed and pending for disposal along with the main petition. (1) CA No. 67 of 2015 renumbered as TP 62-A/2016 This application is filed by original respondents No. 2 to 5 requesting to appoint independent valuer to ascertain value of the shares of the first respondent company and to direct respondents 2 to 5 to buyout shares of the first respondent company. (2) CA No. 77 of 2015 renumbered as TP 62-B of 2016 This application is filed by original respondents No. 2 to 5 to modify/clarify the order dated 10.04.2015 and to restrain original petitioners from competing with the business of the company. (3) CA No. 195 of 2016 renumbered as TP 62 C OF 2016 This application is filed by original petitioners to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.07.2015 which is under challenge before Civil Court under Section 34 of the Arbitration and Conciliation Act, this Tribunal has jurisdiction to deal with the case of oppression and mismanagement and grant appropriate reliefs by invoking the powers under Sections 397 and 398 read with 402 and 403 of the Companies Act, 1956. 58. Dealing with the alleged acts of oppression and mismanagement narrated by the petitioners against respondents No. 2 to 5 it is necessary to decide certain threshold aspects. The first and foremost such question is Arbitration Award dated 31.07.2014. Admittedly, in the Board Meeting of KSPL held on 07.07.2014 in the presence of Justice K.K. Lahoti, Hon ble Observer cum Facilitator appointed by the Company Law Board, Mumbai it was agreed by SPK group and JPK group to go for arbitration. Admittedly, the minutes of the said meeting was considered as read and confirmed unanimously on 07.07.2014. In the said meeting S/Shri Hiralal Malu, Vinaykumar Maliwal and Nandkishor Baheti were the persons agreed to act as Arbitrators. To this effect, an agreement was also entered into representing both the families in hundred rupee stamp paper. The said Arbitrators pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitration agreement. The ratio of these judgemnts is yet to be considered by the CLB while considering effect of the arbitral award at the time of final disposal of the matter. 15. So far as the judgment in the matter of Sukanya Holdings Pvt. Ltd. vs. Jayesh H. Pandya and another reported in AIR 2003 SC 2252 relied upon by counsel for the parties is concerned, the said judgment does not relate to the arbitration pending the application under Section 397-398 of the Companies Act. 16. So far as the reasons which have been assigned by the Company Law Board in the impugned order are concerned, the question formulated by this Court is about the sustainability of those reasons and not the perversity of any finding recorded by the CLB while assigning those reasons. If there is no commonality of parties and if respondent No. 1 company is not a party to the agreement, then the arbitration agreement would not have any effect on the pending proceedings under Section 397-398 in respect of the affairs of the respondent No. 1 company. If the said conclusion on fact about commonality of parties is incorrect, then it would be open to the appellants to address the CLB on this aspect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver cum facilitator in the Board Meeting held on 07.07.2014 it was resolved by representatives of both the families i.e. SPK group and JPK group to refer all the disputes to the Arbitrators and accordingly all the disputes were referred to the Arbitrators and Arbitrators passed the award. After passing of the award, respondents No. 2 to 5 filed Company Appeal No. 231 of 2013 questioning the maintainability of the petition on the ground that Arbitral Award has been passed. The same respondents filed petition before District Judge to set aside the award under Section 34 of the Arbitration and Conciliation Act, 1996. 64. In this scenario it is necessary to refer to the Arbitration Agreement. Hon ble Apex Court in SN Prasad Ltd. v. Monnet Finance Ltd. [2011] 1 SCC 320 held that reference to Arbitration is valid only if there is an Arbitration Agreement between the parties. In the case on hand there was an agreement between representatives of both the parties to have an Arbitration, in the Board Meeting held on 07.07.2014 right in the presence of Hon ble Observer cum Facilitator and an agreement was also entered into that effect. Therefore, it cannot be said that there is no valid Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014. In fact, Madhya Pradesh High Court in the order in CA 49 of 2016 held that the judgment in Sukanya Holdings Pvt. Ltd. does not relate to Arbitration pending the application. 68. In the case on hand during the pendency of the Company Petition both the families entered into Arbitration Agreement and accordingly disputes were referred to Arbitrator. Arbitral Award was passed but the award has not reached finality. Respondents No. 2 to 5 already filed petition to stay the Arbitration. The issues raised in this petition relate to alleged acts of oppression and mismanagement. A perusal of the submissions in the petition and the averments in the reply clingingly show that this petition is not a dressed up one to overcome the arbitration. In fact, there was no Arbitration Agreement prior to filing of this petition. Therefore, issues relating to the acts of oppression and mismanagement are not at all referable to Arbitrator and it is the exclusive domain of this Tribunal to decide one way or the other basing on the material available on record, since the Arbitral Award is yet to reach finality and yet to be implemented. 69. A suit for specific performance was filed by the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1970 SC page 833. In the judgment of Hari Shankar Singhania (supra) in paras 42 and 43 it is held about the family arrangement as follows: - 42. Another fact that assumed importance at this stage is that, a family settlement is treated differently from any other formal commercial settlement in the eye of the law ensures peace and goodwill among the family members. Such family settlements generally meet with approval of the courts. Such settlements are governed by a special equity principle where the terms are fair and bona fide, taking into account the well- being of a family. 43. The concept of family arrangement or settlement and the present one in hand, in our opinion, should be treated differently. Technicalities of limitation etc. should not be put at risk of the implementation of a settlement drawn by a family, which is essential for maintaining peace and harmony in a family. Also it can be seen from decided cases of this Court that, any such arrangement would be upheld if family settlements were entered into to allay disputes existing or apprehended and even any dispute or difference apart, of it was entered into bona fide to maintain peace or to bring about ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first respondent company would be directly and sometimes impliedly take away the rights conferred on the SPK group by virtue of the award. It may be said that respondents 2 to 5 themselves asked for setting aside the award. Both the parties are bound by the award till it is set aside and it is not material who asked for setting aside the Arbitral Award. It is strange that respondents No. 2 to 5 who challenged the award is pleading before the Court that in view of the Arbitral award this Company Petition is not maintainable. Such type of diametrically opposite inconsistent pleas taken in different forums show that JPK group is somehow trying to manage the KSPL as they wish as long as possible. 77. The Company Law Board considering the disputes between the parties in the management of the affairs of the first respondent company appointed Hon ble Mr. Justice K.K. Lahoti as Observer cum facilitator. Company Law Board considering the need for sale of certain properties also permitted the respondents to sell the properties by virtue of order dated 25.04.2014. Company Law Board also ordered that Hon ble Mr. Justice K.K. Lahoti to attend and supervise the Board Meetings. A perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and contacted dealers etc. of KSPL. 80. In this context it is necessary to consider the prayers made by the petitioners and respondents in various applications filed by them which are mentioned in para 55 of this order. This Tribunal has gone through the pleadings in all the pending applications filed by the petitioners and respondents and in brief they have already been narrated in the order. 81. In the interest of the shareholders of KSPL, in the interest of SPK group, JPK group and taking into consideration the Arbitral Award has not reached finality and not yet implemented, the following order is passed by this Tribunal. (i) Hon ble Justice Mr. K.K. Lahoti who is functioning as Observer cum Facilitator is appointed as Interim Administrator of the first respondent company without superseding the existing Board of Directors of KSPL. (ii) Interim Administrator Hon ble Justice Mr. K.K. Lahoti is empowered to propose names of two Independent Directors in the Board of Directors of the first respondent company within three weeks for approval of this Tribunal. Independent Directors must be having experience in management of company affairs with special knowledge in seeds b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by video and audio and send the same to this Tribunal. (xiii) Interim Administrator Hon ble Justice Mr. K.K. Lahoti shall file a report in respect of each meeting conducted separately before this Tribunal. (xiv) Interim Administrator Hon ble Justice Mr. K.K. Lahoti shall see that all the statutory obligations that are required to be carried out as per the provisions of the Companies Act and other acts and Articles of Association, shall be carried out within the period prescribed under the relevant Acts and Articles of Association. (xv) Interim Administrator Hon ble Justice Mr. K.K. Lahoti is at liberty to seek further instruction(s) in case of any controversy in respect of which he feels the order of the Tribunal is necessary. (xvi) Interim Administrator Hon ble Justice Mr. K.K. Lahoti is entitled for a remuneration of ₹ 1.00 lac (Rupees one lac only) for each meeting subject to maximum of ₹ 3.00 lacs (Rupees three lacs only) per month besides all facilities to which he is entitled as Judge of High Court in respect of transport, accommodation and ministerial assistance as and when meetings of KSPL are called for/ or conducted. Interim Administrator Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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