TMI Blog2019 (5) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... s matter of priority, but parties in management cannot be heard taking adamant stand in the name of interest of Company and expect Orders which prima facie do not appear to be in line with its Articles of Association. The case of the Petitioner is not merely based on the Agreements, but it is also based on the Articles of Association which binds both sides. Prima facie, we find that the Petitioner has made out a good case in its favour based on the Articles of Association. Admittedly, now on the Board, there is no nominee of the Investor. We find that, looking to the prima facie case as appearing in favour of the Petitioner, if the Respondents want to block out Petitioner, hiding behind the Arbitration clause, in equity, they cannot claim discretionary relief to create such a huge liability of ₹ 1250 Lakhs, riding on the back of NCLT Order which, prima facie, is against the Articles of Association. The Impugned Order is quashed and set aside. Earlier Order dated 16.08.2017 passed by NCLT is restored - appeal allowed. - Company Appeal (AT) No. 348 of 2018 - - - Dated:- 23-1-2019 - A. I. S. CHEEMA J. (Judicial Member) and BALVINDER SINGH Technical Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent Company on 5th June, 2007 whereby the Appellant Metmin with Avigo Trustee Company Pvt. Ltd. and Avigo Venture Investment Ltd. (in brief, Avigo ) made investments in the Company. It is stated that Metmin and Avigo entered into Shareholders Agreement (SHA) (Page 304) also on the same date of 5th June, 2007 with the Respondents. As per the terms of SHA, the Respondents were obliged to provide the Appellant and Avigo with an exit on or before 30th June, 2010 in the manner set out in the SHA. Provision was made in the Agreement that in the event, no exit is provided to the Appellant and Avigo, then the Appellant and Avigo were entitled to sell the shares subject to provisions as were set out in the Agreement. The Appellant claims that on the assurance given by the Respondents 2 to 6 and the Company, The Appellant invested a sum of ₹ 19,00,00,140/- by way of subscription to, as well as, purchase of shares. The appellant as well as Avigo were entitled to receive 45% internal rate of return on the amounts invested by them. 2.1 It is the case of the Appellant that the Appellants entered into Supplementary Agreement dated 28th January, 2008 (Page 347) and second S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt no.3 is concerned, Mr. Subramanian states on instructions that respondent no.3 has had a rethink and have decided not to sell the shares at all. Mr. Subramanian states that as and when respondent no.3 takes a decision to sell the shares, they will give fresh notice to the petitioners. 3 Petition disposed. Respondent No.2 in that matter was Avigo and present Appellant was Respondent No.3. 2.2 Before the above Order was passed by the High Court, the Respondents had withdrawn the CP 17/2017 filed by them, from NCLT on 29.06.2017 (Annexure A2 Page 60). The Petition was withdrawn since the Petitioners therein (i.e. present Respondents) had already moved the High Court for similar relief. The Appellant wanted the conduct of the Respondents to be recorded but in that Order, NCLT noted the request but mentioned that there was no need to record any conduct. The present Respondents claimed in that Petition that as the Appellant had claimed that under Section 8 of the Arbitration Act, the Tribunal had no jurisdiction to entertain the petition, so they had moved the High Court. The Petition thus was being withdrawn. 2.3 After the Hon ble High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. D Restrain Respondents No.1 to 6 from undertaking any restructuring of the business in any manner whatsoever. 2.4 It has been argued that when the Company Petition making such allegations of oppression and mismanagement came up on 16.08.2017, following Order was passed:- Counsel for petitioner is present. Shri K. Suman, Advocate filed vakalat for R-1 company. Counsel for R-2 to 6 is present. He has filed one application under Section 8 of the Arbitration and Reconciliation Act. Registry is directed to check and put up. Counsel for petitioner requested the Tribunal to pass an interim order prohibiting the petitioner company from creating any encumbrance on the 1st respondent company pending further hearing on the main petition. The counsel for petitioner would contend that the 1st respondent company is proposing to create encumbrance over the assets which would seriously affect the interest of the petitioner. Counsel for R-2 to 6 informed the Tribunal that there is no intention on the part of the respondents including the Company to create any encumbrance on the property of the company. Counsel would contend that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and when the same was objected by the Appellant, some documents were produced. The Appellant was thus forced to file multiple memos. 2.6 It is the case of the Appellant that the Respondents violated the Interim Orders dated 16th August, 2017 and created additional charge over the assets of the Respondent Company on 23.11.2017 in favour of Punjab National Bank for a sum of ₹ 34 Crores (Page 726 and Page 731) and the Appellant Petitioner had earlier filed Application for taking action of contempt vide IA 36/2018 (Page 642). The Respondents filed their statement of objections and the fact that additional charge had been created was not disputed. 2.7 According to the Appellant, it was noticed that the Respondents 2 to 6 have filed before the Hon ble Supreme Court, Arbitration Petition (C) 42/2017 (Annexure R-4 Page 50 Diary No.8135) seeking appointment of Arbitrator or Arbitrators in terms of Section 11(6) of the Arbitration Act. According to the Appellant, the Respondents did not file copy of such Petition filed in Supreme Court before the NCLT and ultimately on 27.07.2018, NCLT passed following Order:- 1 IA 104/2017 is filed by Shri Puthucode V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Association have articles protecting the investor. Orders violating the Articles of Association could not have been passed. The learned Counsel also referred to the definition of investor in the Articles of Association to submit that the Respondents cannot act unilaterally ignoring the investor and such liabilities in the face of provisions in the Articles of Association could not be allowed to be created without the consent of the investor. 3. Against this, the Respondents have filed the statement of objections and it has been argued on behalf of the Respondents making reference to the various developments in the litigations as noted above, that when CP 17/2017 was filed, the Appellant and Avigo had both sought time claiming that under Section 8, the dispute concerned was arbitrable. Because of such stand taken by the Appellant, the Respondents withdrew the said CP 17/2017. In the commercial Arbitration Petition 362/2017, which came up before the High Court of Bombay, the Appellant made a statement that the Appellant did not wish to sell the shares. Avigo and Respondents amicably settled their disputes, inter se, and the Bombay High Court disposed of the Petition on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and vexatious petitions to stifle the business of the Company. The investment is undertaken to bolster the business of the Company and to construct its principal place of business at Bangalore. It is argued that the NCLT had given adequate opportunities to both the parties to present their cases. The Respondents are supporting the Impugned Order which had been passed. 4. We have heard both sides. Above narration of facts as appearing from the documents makes the dispute clear. The above narration makes it clear that in spite of the earlier application filed by Respondents 2 to 6 for modification of the Interim Order dated 16.08.2017 being pending, NCLT had on 27.07.2018, itself come to a conclusion that the Tribunal cannot decide the matter since the question of referring the matter to arbitration was pending in the Hon ble the Supreme Court of India. Once having said this, the same Tribunal entertained the subsequent IA 242/2018 filed by the Company for modification and went ahead to pass the Impugned Order to permit the Company to create huge loans and financial liabilities and encumbrance on the property of the Company. The fact that Avigo has transferred its shares to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted by the Board. (b) The Board of the Company shall have a maximum of 8 (Eight) Directors to be nominated and appointed as follows and which number of directors shall not be changed, except pursuant to an amendment to these presents with the consent of the Investors. The investors shall be jointly entitled to nominate fifty percent of the directors to the Board of the Company and the Promoters shall be entitled to nominate fifty percent of the directors to the Board of the Company. Any appointment of the Independent Directors to the Board shall be carried out with the consent of Investors and Promoters. Notwithstanding anything to the contrary contained elsewhere, in case, the equity shareholding of the Promoters or the Investors in the Company falls below 20% (Twenty Percent) of the total equity shareholding of the Company at any time, the entitlement of the Parties to nominate directors to the Board shall be in proportion to the inter se shareholding of the Parties in the Company. The Promoters undertake not to veto or otherwise obstruct the appointment of the Investors Directors and Independent Directors in accordance with this Article. (c) The Investors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Counsel for both sides heavily argued on the definition of investor/s as mentioned above to make rival claims. The Counsel for Appellant has tried to submit that when Avigo has left, the only investor remains is Metmin and Avigo has lost its identity in the promoter. According to the Counsel, looking to the various Articles of Association, participation of the investor and consent of the investor on various aspects is necessary and the Respondents cannot sit over the requests made by the Appellant to have its nominee Director on the Board and still proceed to seek reliefs as sought in the Impugned Order, which would violate the Article 20 of the Articles of Association as there is no consent of the nominee Director of the investor. According to the Counsel, the definition used the word investor with a slash and s is added for the plural, and this includes singular as well as plural. 6. Against this, the learned Counsel for the Respondents argued that after Avigo has parted with the shares of the Respondents looking to the definition of investor/s in the Articles of Association, the Appellant cannot be treated as having right to have nominee Director because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Corporate Office building in Chickajala, Bangalore North Taluk and for other construction works and to meet its pressing needs to execute the orders placed on it as detailed in the application. 7. The Company is directed to account for the loans raised by virtue of modification of this order. 8. Post the main CP No. 74/BB/2017 for final hearing on 04.10.2018. It can hardly be said that NCLT satisfied itself that there was, in the facts of the matter, prima facie, case made out by Respondents to seek the relief which they were seeking on interim stage, and that balance of convenience lay in their favour or that the Company would suffer irreparable injuries, if the relief as sought in IA 242/2018 was not granted. When the NCLT had itself said that the disputes being raised were arbitral and the matter was before Hon ble Supreme Court and refrained passing further Orders, in our view, it was inappropriate for the NCLT to have modified the Order dated 16th August, 2017. The Impugned Order did not consider the case, which was put up by the Appellant Petitioner, and how in the face of Articles of Association as they existed, Respondents could be allowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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