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TMI Blog2018 (4) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGEMENT A.I.S. Cheema, J : This appeal has been filed by the Appellant - Power Finance Corporation Limited (a Government of India Undertaking) against the impugned Judgment & Order dated 15th June, 2017 passed by the National Company Law Tribunal, Ahmedabad Bench, Ahmedabad (hereinafter referred to as 'NCLT') in C.P. No. 15/241-242/NCLT/AHM/2017. By the impugned judgement, the NCLT dismissed the Company Petition filed by the Appellant (hereinafter referred to as "Petitioner"), and accordingly disposed off IAs pending. Case of Petitioner 2. The Company Petition as filed before the NCLT and the case which was put up in short are as follows :- A. Respondent No. 1 Company (hereinafter referred to as "Company") was incorporated and was to deal in generating, developing etc. energy including electricity and other types of power like gas, coal etc. Its authorized Share capital is Rs. 2500 Crores and Paid-up capital is Rs. 565,379,0000/-. The Petitioner is a Government of India Enterprise under the Ministry of Power, New Delhi. It is holding 13,18,46,779 equity shares of Rs. 10/- each in the Respondent Company representing 23.32% of Issued and Paid-up Share Capital. Respondents N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Scenario - I Implementation by the present promoter 90 days' time allowed till 2nd August, 2015. Existing promoter will have to arrange additional equity of Rs. 600 crores as well as debt of Rs. 1100 crores at concessional rates to achieve the M.P. Power Management Company Limited stipulated tariff of Rs. 5.32 per unit. Scenario - II Government companies having majority equity project with management control project could be taken over by NHPC/NHDC and petitioner company would be amenable to infusing equity or additional debt as well as lowering of interest rate for existing debt and with commensurate support from lenders, tariff could be reduced to Rs. 5.32 per unit which is acceptable to M.P. Power Management Company Limited. Scenario - III Cancellation of PPA If the scenario I & II above do not fructify, the last option will be that M.P. Power Management Company Limited cancels the existing Power Purchase Agreement, Government of Madhya Pradesh and M.P. Power Management Company Limited would be burdened on account of Govt. MP counter guarantee deed of Rs. 400 crores issued to petitioner company. This is apart from Rs. 102.48 crore which has already been paid by M.P. Pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mismanagement. Project Insurance lapsed in 2014; in 2010-11, Respondent No. 8 refused to convert the Optionally Fully Convertible Debentures (OFCD) into equity shares; (v) There was persistent default in payment of principal and interest amount for debentures to the extent of Rs. 400 Crores issued by the Respondent Company to MPPMC in 2013 and 2014; (vi) Respondent No. 10 when he ceased to be Company Secretary failed to hand over statutory records; (vii) Respondents failed to deposit T.D.S. deducted to Income Tax Authorities; (viii) Respondents failed to infuse equity. F. In sanction letter dated 2nd March, 2005 issued by the Petitioner for revaluation of loan, it was proposed that there should be nominee Director of the Petitioner in the Company and Articles of Association of Respondent No. 1 Company need to be modified. The Respondent Company availed credit facilities for the Project without raising any objection and after amendment to Articles of Association, Mr. G.S. Patra, Nominee Director of the Petitioner and nominee directors of other lenders were taken on Board of the Respondent Company. Prayers in Company Petition G. In the Company Petition, the Petitioner m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Respondent No. 1 Company w.e.f. 01-06-2016; (K) Declare that the Petitioners along with other and/or in combination with each other are not Holding Company or Associate Company or Joint Venture Company or Co-promoters of the Respondent No. 1 Company prior to 01-06-2016; (L) Direct the authorities of Ministry of Corporate Affairs not to launch any prosecution either under the Companies Act, 1956/2013 or any other law against the petitioner, nor its nominee director on the Board of Respondent No. 1 and/or other lenders/equity shareholders who are public financial institutions;" 3. Thus, Prayers A, C, D, J and K related to declaration while Prayer B claimed restoration of funds. The Prayer F related to claim of Petitioner for restoration of the statutory records. Rest of the prayers were mainly for seeking protection from various authorities. Case of Respondent No. 1 4. In NCLT, Respondent No. 1 Company filed reply and claimed that one Mr. Nirbhay Goel had been appointed Company Secretary on 1st January, 2016. It was claimed that in the Board Meeting dated 1st January, 2016, the request of lenders was considered and approved invoking the pledge of shares due to which shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner is zero. The Petitioner supported by other Public Sector Companies has filed this petition to scuttle the investigation taken up by ROC in the wrongdoings of the Petitioner with respect to the affairs of the Respondent Company. These Respondents claimed that the alleged acts of 'oppression and management' are in relation to the period when the Petitioner itself was in actual control of the affairs of the Respondent Company. The Petition has been filed belatedly and was not bonafide. These Respondents claimed that they had made complaints regarding illegal and wrongful manners in which the Petitioner was conducting the affairs of Respondent Company. According to them, in 2005, it is the Petitioner who took over control of the Respondent Company by appointing managing Committee of its own. They got the Articles of Association of the Respondent Company altered which amendments gave additional powers to the Petitioner. Because of this, Respondent Company was transformed from 'Promoter Managed Company' to 'Lenders' Managed Company'. The day-to-day affairs of the Company were taken over by the Petitioner. The Petitioner appointed on the Board of Respondent Company persons as Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests with Respondent Company but had zero accountability. They were responsible for diversion of Project funds from TRA Bank account which was under control of lenders. The ROC has already examined role played by this Shadow Board with regard to Respondent Company. 7. Respondent No. 4 further claimed before the NCLT that he was not involved with the affairs of the Respondent Company since 2005. Respondent No. 7 claimed that the Corporate Guarantee of Respondent No.7 as claimed by the Petitioner was not legal or subsisting. The High Court of Bombay had in Company Petition No. 511 of 2014, on 1st July, 2016 ordered winding-up of the Respondent Company but Respondent No.7 filed appeal against the said order and there is stay. Respondent No. 7 had on 5th April, 2007 asked the Petitioner to release Corporate Guarantee given by him to the lenders. Case of Respondent No. 10 8. It appears that Respondent No. 10, the Executive Director and Company Secretary had considering the approach of Petitioner resigned vide letter dated 26th August, 2015 and Board vide Meeting dated 17th December, 2015 accepted it w.e.f. 31st December, 2015. He claimed before the NCLT that 'Maheshwar Committee' cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 18th June, 2010, the Petitioner issued letter amending the terms of Subordinate Loan Agreement to the detriment of the Respondent Company and to advantage of the Petitioner. By such amendment, the Petitioner ensured that the Petitioner would have right to debit the outstanding dues against the subordinate loan. 10. Respondent No. 10 claimed that he had not been paid salary for 30 months and by letter dated 26th May, 2015, he had pointed out deficiencies in functioning of the Company. Seeing the approach of the Petitioner, he tendered resignation on 26th August, 2015. The Board on 29th September, 2015 asked him to continue till alternative arrangement is made. Later on, on 17th December, 2015, the Board accepted his resignation with effect from 31st December, 2015 without any reference to settlement of dues and without naming any official to whom the charge of the functions and records could be handed over. No officer was nominated to take charge. Respondent No. 10 filed form for cessation to ROC on 11th January, 2016 and stopped attending office. According to him, the Records were there where they had been for last 25 years. They were maintained in Mumbai Office and were in safe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pledge of shares and transfer of shares do not take place as per law. (2) Petitioner and his supporters are not entitled to agitate about the alleged acts of oppression and mismanagement that took place prior to 01-06-2016. (3) Effective control of management of the first respondent company was with PFC and other lenders. (4) This petition is barred by limitation and petitioner is disentitled for reliefs on grounds of delay and latches. (5) Failure to repay debts etc. and failure to infuse equity do not amount to acts of oppression and mismanagement. (6) Allegation of siphoning of funds is vague and there is no material to substantiate the same. (7) Parties are entitled for copies of ROC report from the office of ROC, Gwalior. (8) Petitioner is not entitled for reliefs C, D, E, F, G, H, I specifically. (9) Petition is not a Bona fide petition. (10) Row over records is raised as a pretext." 13. After recording such findings, learned NCLT considered as to what steps could be taken with regard to the Project and interest of lenders and promoters. Keeping in view Section 242 (2) of the New Act, the NCLT was of the view that workable solution would require consent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent No.1 in Board Meeting held on 2nd February, 2017. Respondent No. 3 was present in that meeting and voted in favour of the Resolution which approved availing of additional loan, along with stipulated conditions. According to the learned counsel, Respondent No. 3 had thus acquiesced to the Appellant acquiring shares of Respondent Company and thus now cannot raise objections. (c) Learned NCLT committed error because there was no requirement of endorsement on the "Memo of Transfer" in the Share Certificate No. 47 as it was "new share certificate" issued to the Appellant-Petitioner on allotment of shares, pursuant to the conversion of subordinate loan into equity. The argument is that NCLT took hyper-technical approach while determining title of the shares of the Petitioner although there was evidence that on the date of filing of the Petition, the Appellant was member and the acquisition of shares had been consented to and acquiesced and that the Respondents had not filed petition challenging the petitioner. (d) It is argued that the other lenders who also invoked conversion of the loan into equity are not parties and they could not be condemned unheard. (e) It has been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended Section uses the words 'have been' in addition to 'are being carried on' within the scope of oppression and mismanagement. (i) The Petitioner has submitted that there was deed of pledge dated 30th November, 2006 executed in favour of the Appellant and Respondent No.8 had pledged shares held by it in the Respondent Company for the benefit of lenders. Respondent No. 8 had deposited the original share certificates with the Appellant along with the share transfer forms duly filled by Respondent No. 8. It was transaction in the nature of mortgage of shares. Power of Attorney was executed by Respondent No. 8 to constitute, appoint and enable the Appellant as its attorney to execute and do all acts and to complete, when required, the transfer of pledged shares in its name. Petitioner was entitled to register shares in its name and the transfer of shares was procedural aspect. The Market value of the shares of Respondent was determined by SBI Capital Markets Limited at the time of notice of invocation dated 19th May, 2016 which was Nil. Token amount of Re.1/- was mentioned and it was not objected and shares were transferred. According to the learned counsel, the NCLT wrongly held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is not necessary as there was no provision in National Company Law Appellate Tribunal Rules, 2016 (hereinafter referred to as 'NCLAT Rules') which bars filing of new documents. It is claimed that Respondents had in sur-rejoinder in NCLT filed documents and further opportunity was not given to the Petitioner in the NCLT and so they could directly file documents here. Thus, according to the learned counsel for the Appellant-Petitioner, the impugned judgement & order cannot be upheld and it should be held that the Respondents mismanaged the Company and also the Petitioner was entitled to reliefs as sought in the Company Petition. Arguments of Respondents Nos. 2, 4, 6, 8 and 10 17. Against this, Respondents Nos. 2, 4, 6, 8 and 10 have argued that Annexures -A/2 to A/5, A/7 to A/18 and A/21 filed with the appeal did not form part of the record before NCLT and should be struck-off. It is stated that the Appellant-Petitioner did not state in the appeal that new documents are being produced by it nor the Appellant identified the new documents. The reasonings of the Appellant that NCLT did not give opportunity to produce these documents in response to sur-rejoinder filed by the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Respondent No. 3. The Respondent No. 1 Company was managed by the Petitioner through directions of the Maheshwar Committee consisting of senior officials of the Petitioner. The Directors appointed by the lenders were acting in the interest of the lenders and not the Company. Arguments of Respondent No. 3 18. For Respondent No. 3 also similar arguments have been made. According to this Respondent, the contention of the Appellant-Petitioner that the NCLT could not have gone into the question as to how the Appellant became shareholder has no substance because when the Respondents disputed the rights of the Petitioner, NCLT was bound to look into the question as to how the Petitioner claimed to be the Member or shareholder. It was not necessary for the Respondents to file separate petitions and they rightly raised dispute in the Company Petition and the same has been correctly decided by the NCLT. It is claimed that separate proceedings for rectification of Register have been filed before the NCLT to remove the name of the Petitioner from Register of shareholders. This Respondent has also claimed that the Petitioner did not produce necessary documents before the NCLT like (i) Pledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores were diverted to the other lenders which was completely against the interest of the Respondent Company. The High interest loan was used to pay-off, prior low interest loan. Thus, the Respondent wants the appeal to be dismissed. Arguments of Respondent No. 9 19. Respondent No. 9 also argued on the same lines as other Respondents. This Respondent has also referred to documents showing that the actual control was shifted from promoters to lenders since 2005. Counsel referred to amendments carried out in the Articles of Association which show as to how the control was diverted to the lenders. It is argued that Respondent No.2 had stepped down as Chairman on 10th February, 2005. One P.V. Narsimhan (Ex. CMD of Petitioner) was appointed as Chairman of Respondent No. 1 Company at the instructions of Petitioner. The Managing Director and Director (Finance) were also appointed by the Petitioner. On 2nd March, 2005, the Appellant had issued letter setting out terms and conditions for loan which included that these posts would be controlled by the lenders and that they would be doing periodic review of transactions and the fund will flow through "Trust and Retention Account" (TRA). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee for Optionally Fully Convertible Debentures ('OFCD') to achieve financial closure under terms and conditions already conveyed and subject to following additional terms and conditions. The Petitioner then proceeded to lay down terms and conditions of which Terms 10, 11 and 20 read as under :- "10. PFC, in consultation with other lenders, will approve appointment of Chairman, Managing Director and Director (Finance) on the Board of SMHPCL." "11. Lender's nominee Directors shall be allowed to exercise full management control for the smooth implementation of the project till the entire debt is repaid. Mechanism for such control will be finalized after discussion with other Lenders." "20. Lender's Auditors would be involved in periodic review of various commercial transactions including TRA transactions." Thus the Petitioner laid down the condition that the Petitioner and other lenders would be the persons who would appoint Chairman, Managing Director and Director (Finance) of Respondent Company and they should have full management control. C. Then, there is letter dated 18th April, 2005 (Reply Volume - 1 Page 160) where a reference was made to above letter dated 2nd March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "FURTHER RESOLVED THAT the Management Team be vested with all powers needed for managing the day to day affairs of the Company other than those that are specifically required to be discharged by the Board of Directors or Shareholders as per the provisions of Memorandum & Articles of Association and requirements of Companies Act, 1956". Thus the Board lead by Chairperson installed by it, let a "Management Team" be made as per dictates of Petitioner for managing the day to day affairs of the Company. It is stated that Respondent No. 3 was the Vice-Chairman. The Petitioner has been trying to show that Respondent No.3 was continued on the Board. The Minutes show, apart from Chairperson, Narsimhan and Respondent No. 3 others as "Mr. M.I. Gupta - Managing Director, Mr. S. Singhal - IFCI Nominee, Smt. Malini Bansal- IDBI, Nominee, Shri Ashok Gupta - PFC Nominee, Shri V.K. Jain - Invitee". It is apparent from the above as to how outnumbered Respondent No. 3 was with so many other Directors being representatives of the lenders. - This document shows that not only the Board of Directors was taken over but also the Management was taken over by Petitioner with other lenders, through what w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary documents with PFC * amend the Articles of Association by adopting suitable resolutions in the SMHPCL Board and EGM, to empower the Management Team of the lenders to exercise effective management control till the entire debt is serviced and repaid. b. Before any further disbursement by PFC, the Company shall, to the satisfaction of the major lenders: * submit the Construction Budget, duly approved by the LE and detailed time bound Action Plan for financial closure. * transfer the money available in the Special Trust Account of the TRA. * ensure that REC and HUDCO agree to disburse Rs. 20 crore each to be released pro-rata with PFC's disbursement (taking into account PFC's initial disbursement of Rs. 10 crore). * appoint merchant bankers for the bonds issue and equity issue. * take measures to strengthen the Project team. All the funds will flow into the TRA and release in (b) above will be made as per the construction budget to be approved by the LE and accepted by the major lenders." (Emphasis supplied) Thus, in spite of earlier agreement, dated 16.09.2005, the restart of the project was being held back by not releasing funds and pushing for Amendment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Chairman, MD and D(F) identified by FIs. The Promoter was also asked to amend the Articles of the Company to facilitate effective management control by the FIs. With the changes carried out in November, 2005, the Board has been fully re-structured as follows :- * Chairman, MD and D(F) nominated by the FIs. * 4 nominee Directors of Lenders. * 1 nominee Directors of GoMP. * 1 nominee Director of the Promoter * 3 Independent Directors." It is apparent that Promoters were "asked to amend" the Articles of Association to facilitate management control by the Financial Institutions. It is not that the Promoters "agreed". The language shows more a dictate on the part of Petitioner. I. Even the Joint Secretary to the Government of India, Ministry of Power stood updated with the developments and he wrote letter dated 10th August, 2006 to the Joint Secretary, Ministry of Finance (Reply - Page 164) mentioning : "I may also inform that the management control of the project has since been taken over by the lenders and appropriate changes to effect this have been made in the Memorandum and Articles of Association of SMHPCL. In the process, PFC has been assigned the role of lead F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the Petitioner and lenders on the Board and Chairman itself of the choice of Petitioner, opposition of Respondent No. 3 on the Board of Directors was clearly of no consequence. It is undisputed that the Respondents who had earlier taken up the Project and incorporated Respondent No. 1 Company were struggling with the Project and the finance was major issue. The main grievance against the Respondents is that they were not able to raise necessary equity required to complete and put into effect the Project. However, their effort to raise equity appears to have attracted Petitioner and other lenders. In the circumstances, looking to the above documents, it is seen that lenders led by the Petitioner while lending money to the Respondent Company slowly and gradually took over the actual management of the Company as well as the finances on the plea that they would get the Project completed and implemented. In this, we are not absolving Respondent Promoters of Respondent No.1 also, as they had a responsibility and a duty to perform. Promoter - Respondents appear to have simply surrendered to the demands of Petitioner and other lenders when it was their responsibility to manage the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Volume -V at Page 848). NCLT discussed that the Petitioner had claimed in the petition that with the notice invoking pledge reasonable notice of 30 days had been given before invoking the Share Pledge Deed. NCLT, however, found that before the period of 30 days could lapse, the Petitioner had got the shares transferred on 1st June, 2016. 25. The learned Tribunal referred to provisions of Section 176 of the Indian Contract Act, 1872 and discussed the law on the subject to observe that under Section 176 of the Indian Contract Act, notwithstanding anything contained in the contract or pledge, Section 176 will prevail and in case of default, the pledgee can sell the goods pledged and retain receivables as collateral security but could not acquire ownership of the goods pledged to itself. NCLT observed that although the Petitioner claimed acquisition of shares by invoking pledge, it had not placed on record the deed of pledge as well as the notice invoking pledge. NCLT also observed that when notice given was of 30 days, if the shares had been got transferred in 15 days itself, the invocation of the pledge was not valid. The NCLT found that (1) the invocation of pledge of shares had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal below. We regulate the procedure of Company Appeals under the Companies Acts, that are to come up before us directing that parties shall not be entitled to raise additional grounds which were not raised in the Tribunal below and/or produce additional evidence/documents without prior leave, by way of I.A. explaining why the same were not raised and/or brought or filed before the Tribunal below. Registry may seek directions of Hon'ble Chairperson, and if permitted, parties may be asked to file Declaration at the time of filing pleadings that no additional grounds which were not raised in the Tribunal below and/or no additional evidence/documents which were not part of record of NCLT/Tribunal below have been raised/filed. 27. Although we have recorded the above finding, in the present matter as both the sides have extensively argued even with regard to additional documents which were not before the NCLT, we are proceeding to consider these documents in the interest of justice as looking to the facts of this litigation, we find that it would not be in public interest to remand this matter. Remand would endlessly delay the matter and looking to the Project of dam which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igned Share Transfer Forms are annexed herewith. You are requested to call for the Board meeting for giving effect to this notice and depute an authorised officer for taking necessary steps to split the share certificates and transfer the shares in accordance with the number of shares mentioned in Annexure B to the respective lenders and issue fresh share certificates against the original share certifications, to be submitted to the said authorised officer as and when directed. We shall appreciate your earliest action in this regard." Thus, the Petitioner called upon the Pledgor to transfer pledged shares within 30 days as can be seen from portion emphasised. 29. Interestingly, Paragraph 22 records that this action was being taken without prejudice to the rights of the Petitioner and other lenders in relation to the amounts due and payable by the Company under the Loan Agreements. Then there is Board Meeting dated 1st June, 2016 (Volume-V Page 865). This meeting had two persons acting as 'Chairman' for different items and then there were Director (Finance) and nominee Directors of the investors. The Promoter Director, Mukul Kasliwal, was not present. The Minutes show that he had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the New Act was a matter of consideration. It was not a case of loss or that instrument of transfer had not been delivered within the prescribed period. Still, the Board of Directors continued to record that they were satisfied of the genuineness of transfer of shares which was sought in favour of the lenders. They went on to approve the proposal as detailed in the agenda. The Board appears to have approved share transfer in the name of transferees and enter their names in the Register of Members. Equity shares were also split and transferred in the name of various transferees. The Board appears to have taken decision to issue "New Share Certificates to the transferees after split and transfer" and another resolution was passed to get the fresh share certificates printed. 31. It is clear that the notice issued by the Petitioner, which claimed the fair market value of the shares to be 'Nil' and proposed to offer towards total consideration for shares to be transferred Re. 1/- and called upon Pledgor to transfer the Pledged Shares within a period of 30 days did not even wait for the period given in the notice to be over and got the shares issued to itself and other lenders. 32. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 176 of the Indian Contract Act is matter of consideration as it lays down procedure required to be followed by the Pawnee where Pawnor makes default. This Section is not qualified by any wording like "subject to contract to the contrary". Acts of Petitioner are lacking in fairness and in the present set of facts Petitioner cannot rely on such acts to maintain petition to get relief under Section 241 - 242 of New act. CONVERSION OF SUB-DEBT INTO EQUITY 34. The NCLT discussed dispute on this count to observe that the subordinate loan agreement in which the sub-debt was created had not been filed. In the absence of the document, it discussed the letter of the Petitioner to Respondent No. 10 that prior to disbursement of subordinate loan, the first Respondent Company shall conduct EGM. NCLT observed that there was no discussion about conversion clauses in the EGM dated 17th June, 2010 and thus was not happy with the letter dated 18th June, 2010. It observed that there was cloud on the conversion of subordinate loan into equity. Learned counsel for the Appellant-Petitioner submitted that the observation of NCLT that Clause 1.4 was subsequently introduced in the subordinate l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in part or in full of the outstanding dues under the sub-ordinate loan into fully paid equity shares at par. By exercising its rights, PFC has called upon the company to convert Rs. 66.10 Crore, which is a part of the total subordinate loan of Rs. 375 Crore, into fully paid up 6,61,00,000 equity shares of Rs. 10 each of the company. The said notices and the Sub-Ordinate Loan Agreement were made available in the meeting. Further, in this regard, the Board noted that the shareholders of SMHPCL had also passed a special resolution in the EGM held on 17th June, 2010, which was annexed to the agenda." They then permitted partial conversion of sub-debt amounting to Rs. 66.10 Crores into 6,61,00,000 equity shares of Rs. 10/- each at par and to allot the same to the Petitioner. As on 01-06-2016 Section 62 of the new Act would be required to be complied for further issue of share capital. Admittedly, the further issue of shares is not claimed to be in compliance of Sub-Section 1 of Section 62. Sub-Section 3 is in the nature of exception. The same reads as under: "(3) Nothing in this section shall apply to the increase of the subscribed capital of a company caused by the exercise of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fairness in action would also be required to be shown. 38. Looking to over-all facts of this matter for reasons mentioned, we find that the invoking of the pledge and the invoking of the conversion of debt relied on by the Petitioner to claim that it has shareholding in the Respondent No. 1 Company, which could be relied on to maintain the petition, is seriously under cloud and when legality of such actions is questionable, right to maintain petition under Section 241 of the New Act is not there and the Petitioner could not have filed the petition on the basis of such tainted rights. 39. For a moment, even if it is accepted that the Petitioner has a right to maintain the petition, the question is whether it can make grievances of 'oppression and mismanagement' as have been made in the petition. Learned NCLT referred to the alleged oppressive acts referred to by the Petitioner. In Paragraph 100 of the impugned order, the same were enlisted. NCLT observed that on the dates when alleged acts of oppression took place, the Petitioner was admittedly not a shareholder and thus could not maintain petition under Section 241 of the New Act. 40. Lot of arguments have been made by the couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion copy of which is filed by the Appellant (Volume VIII at Page 1270. Another copy is in Volume VI - Page 1047). We have already referred as to how the definition was inserted in Article 2 with reference to interpretation of "Pledged Shares of S. Kumars". The effect was that on the shares pledged, the voting right in any meeting of Shareholders itself of the pledgor was taken away. Nothing is shown that by Agreement or Amendment in Articles of Association such right can be taken away. Relevant portion of Section 106 of the new Act reads as under: "(1) Notwithstanding anything contained in this Act, the articles of a company may provide that no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid, or in regard to which the company has exercised any right of lien. (2) A company shall not, except on the grounds specified in sub-section (1), prohibit any member from exercising his voting right on any other ground." Thus except for contingency provided in Sub-Section 1 voting right cannot be denied on any other ground. Even after coming into force of the new Act, how such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic company, shall, in default of and subject to any regulations in the articles of the company, also be appointed by the company in general meeting." 44. With such amendments brought about by the Petitioner and other lenders in the Articles of Association of Respondent No. 1 Company, extensive rather exclusive control of the Company went to the Petitioner. The Petitioner and other lenders appear to have asserted and Promoter Respondents and shareholders of the Company conceded to the Amendments most of which appear to be in conflict and not in consonance with the letter as well as spirit of the Old and New Companies Act. Against the principles of 'corporate governance' requiring that the companies shall be brought into existence by the promoters and managed by the promoters and shareholders, here is a rare case where the lenders have taken over the company since long and now taking benefit of their position in the Board of Directors and the management of the company, it is claimed that the pledge has been redeemed and new shares have been issued converting loan into equity. With such restrictive articles which will not let even fresh equity flow, there appears hardly any scope f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent No. 8 in the Respondent No. 1 Company is claimed to have been reduced from 58.4% to 12.29% as the Petitioner and other lenders enforced the Pledge Agreement and also converted loan into shares on the basis of subordinate loan agreement. 47. The learned counsel for the Petitioner-Appellant has argued that Scenario-I which was to be implemented by the Promoter failed and the 90 days' period provided in this report was already over and thus, according to him, Scenario - II is now in motion. However, Para 14 of the report which we have reproduced above, was part of Scenario-II and the Petitioner himself appears to have violated the requirements in Scenario - II. 48. The learned NCLT in the impugned order, inter-alia, found that the petition suffers from delay and laches. As discussed, in the present matter, the Appellant and other lenders took over the control of the company since 2005. The grievances being raised in 2017 suffer from delay and laches. The NCLT further found that the petition was not bonafide. This finding is correct as the prayers made in the company petition itself show that attributing 'oppression and mismanagement' to the Respondents, what was being trie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have been producing documents and resolutions and letters etc. as suits the either side to score legal points in the litigation. When it comes to accounting for actions, there appear excuses why records are not available. The approach of the parties is "hide and show". They are showing only what suits them. This really needs to be investigated, as statutory records which would be required to fix responsibilities cannot be allowed to be suppressed on such excuses. In investigation suitable action needs to be taken against whoever is found suppressing or holding back statutory records from authorities. 50. Parties have made allegations of siphoning and diversion of funds. Specific details have not come forward. How the huge loans taken were utilized is matter of consideration. One claim is that in 2010 three turbines could have been commissioned but it did not happen as funds were diverted to lenders. Looking to facts, it appears necessary in public interest (as even Banks have put in huge amounts) and Petitioner is also Government of India Enterprise, that forensic audit of accounts should be done. Hundreds of Crores of Rupees are involved and the Project is still incomplete even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Volume - IV at Page 711 but we are not going into the said report as the NCLT did not discuss it although it had the report and Central Government has to still consider it. At least, nothing is brought to our attention that Central Government has taken decision on the Report. 52. Looking to the facts of the present matter and above discussions, we order that the affairs of this Company ought to be investigated under Section 210 of the New Act in public interest. The Central Government should take steps accordingly. Whoever from the promoters, shareholders as well as the Petitioner-Appellant or other lenders, is found to be responsible for acting against Public Interest, needs to be made accountable. Central Government may also as part of investigation direct, at the cost of Company, forensic audit of the Company preferably under supervision of officials of Comptroller and Auditor General of India at least since 2005 if not earlier. In our view, the Government of Madhya Pradesh and Central Government both need to urgently consider the way forward in public interest to get project completed. 53. We direct accordingly and decline to set aside the dismissal of the Company Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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