TMI Blog2020 (5) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner challenged the details given in the Balance Sheet filed by the respondent-company from time to time. The question arises why the petitioner remained silent without taking appropriate steps for recovery of security deposit within the period of limitation. The Memorandum of Understanding came to an end by 25-9-2015. The petitioner ought to have initiated action against the respondent-company on or before 25-9-2018. Whereas the present petition is filed by the petitioner on 18-2-2018. By the date when the petitioner moved the present petition, the claim of the petitioner against the respondent-company became time-barred. The petitioner cannot claim that it is the creditor of the respondent-company as on the date when it filed the present petition. The reason is the debt, if any, stands barred by limitation. The petitioner, therefore, lost the character of a creditor by the date when it filed the present petition against the respondent-company. The petitioner in order to prove its case has mainly relied on Memorandum of Understanding, Deed of Pledge, Original Share Certificate and Share Transfer forms. Actually, there is no dispute about the entering into the Memorandum of Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o order an investigation on these grounds. The petitioner has not established any fraud in the course of business carried out by the respondent-company. Therefore, the petitioner has utterly failed to establish the prima facie case that the affairs of the respondent-company is being held in a fraudulent manner. There is absolutely no ground to order investigation into the affairs of the respondent-company - Petition dismissed. - CP NO. 159/213-216/HDB/2019 - - - Dated:- 21-2-2020 - Ratakonda Murali, Judicial Member For the Appellant : K.S. Ravichandran, PCS, and Ms. S. Manjula Devi For the Respondent : Challa Gunaranjan and M. Sridhar ORDER 1. Petitioner, Messrs Bhadreshwar Vidyut Private Limited is incorporated under the Companies Act, 1956 on 26-4-2007, with identification No. U40101TN2007GAT063283). Its original name, when registered, was OPG Power Gujarat Private Limited, which name was subsequently changed to OPGS Power Gujarat Private Limited and thereafter it acquired the present name, with effect from 14-5-2018. The petitioner is engaged in the business of generation and sale of power and trading of coal. 2. Respondent, Messrs Turbo Aviation Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cution of MoU, aggregating to ₹ 60,00,000 equity shares. (ii) Said promoters/Directors have individually executed, on the same day of execution of MoU, a Personal Guarantee (ANNEXURE P11) and agreed to furnish necessary guarantee to the petitioner towards repayment of Security Deposit of ₹ 2,00,00,000/-. (iii) In support of the Personal Guarantee offered, each of the promoters of the respondent have furnished their net worth certificate dated 17-8-2013 and 18-8-2013 (ANNEXURE P12). (iv) The promotors of the respondent have individually executed an Irrevocable Power of Attorney (ANNEXURE P13) and appointed the petitioner as the true and lawful attorney to all such acts with respect to the shares pledged. (v) The respondent vide its letter dated 27-9-2013 (ANNEXURE P14) confirmed that the shares are free from any encumbrance/pledge and there is no lien existing on share certificates. (vi) The respondent executed a Demand Promissory Note (ANNEXURE P15) promising to pay said amount of ₹ 2,00,00,000/- on demand. (vii) The respondent gave an undertaking vide letter dated 26-9-2013 (ANNEXURE P16) that no shares will be issued by it without the consent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es made by the petitioner is not shown as a liability in the audited financial statements of the respondent. Such a suppression of fact amounts to fraud and non-compliance with the statutory requirements, it is alleged. 5.9 It is alleged in paras D(31) and D(32) of the petition that the respondent has been irregular in deposit of Provident Fund, Employees' State Insurance and has produced relevant pages from the Auditor's Report for the financial years 2013-14 to 2016-17 are at ANNEXURE P23 of the petition. Complete Audited Financial Statements for the financial years from 2014 to 2017 enclosed as ANNEXURES P24 to P27 of the petition. 5.10 Observations made in the Auditor's Report for the financial year ended on 31-3-2017 are stated to be as under: It is observed that deposit of the Provident Fund, Employees' State Insurance fund to be irregular. There were no undisputed amounts payable in respect of such statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable for service tax ₹ 83,702,045/- and tax deducted at source ₹ 14,895,661/-. For more than six months outstanding dues to Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) of the petition discrepancies in Form MGT 7 - Annual Return for the year ended on 31-3-2017 were pointed out, such as, on one hand 100% of the business activity is stated as 'charter services', on the other hand for the same year it is stated that (i) Airport constitutes 54.3% and (ii) services incidental to land, water and air transportation constitute 45.7%. By the above illustration it is suggested that financial statements are prepared in a reckless manner and hence not reliable. Therefore, an investigation into the Books of Account of the respondent is warranted. 5.16 In paras D(45) and (46) of the petition it is alleged that diversion of funds of the respondent as on 31-3-2017 was about ₹ 34 crores, which is as under: (a) TDS deducted and service tax collected, but not remitted was ₹ 9,85,97,706/-. (b) Loans and advances was ₹ 23,29,95,119/-. (c) The Managing Director of the respondent draws remuneration of ₹ 1.2 crores in aggregate from the year ended on 31-03-2013 to the year ended on 31-3-2017. 5.17 Irregularities In Each Entity of The Respondent's Group of Companies: The petitioner has pointed out irregularities fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anes. Shri Vankayalapati Umesh and Ms. Devineni Radha Rani hold 13,67,500 + 4,42,500 shares respectively as on 31-3-2017, aggregating to 18,10,000 shares. Said promoters-cum-shareholders ought to have invested the proceeds of interest free loans received from the respondent. (ii) It is averred in sub-paras (c) and (d) [pages 20 and 21] of the petition that the Audited Financial Statements of TJEPL filed with Registrar of Companies for the year ended on 31-3-2017 (ANNEXURE P30), under the head related party transactions mentioned the figures of short term advances received by Turbo Aviation, V. Umesh and D. Radha Rani. Such short term advances received from the respondent/company are in effect a loan from the respondent/company as there has been no turnover reported in the Audited Financial Statements of TJEPL. As such there was no need for advances from the respondent. (iii) It is averred in sub-para (e) [pages 21 and 22] of the petition that Financial Statement of TJEPL for the year ended on 31-2-2017 under the head Long Term Borrowings , shows unsecured loans from related parties as under: As on 31-3-2016 .. ₹ 1,16,04,122/- As on 31-3-2017 .. ₹ 3,66,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vankayalapati Umesh and Ms. Devineni Radha Rani hold 10,00,000 + 10,00,000 shares respectively as on 31-3-2018, aggregating to 20,00,000 shares. Said promoters-cum-shareholders ought to have invested the proceeds of interest free loans received from the respondent. (ii) It is found from the related party transactions disclosed in the Audited Financial Statements of TIATPL for the year ended on 31-3-2017 (ANNEXURE P34), that the respondent gave an amount of ₹ 3,09,150/- as loans and advances to TIATPL, while an amount of ₹ 1,94,76,850/- is shown as loans and advances given to the respondent. 6. From the above averments the petitioner sought to make out a case against the respondent-company that the promoters of the respondent-company obtain loan from that company, invest the loan proceeds in other entities of the group promoted by them and the same money comes back to the respondent as loans and advances. Such transactions carried out without approval of the shareholders are barred by section 185 of the Companies Act, 2013 and as such an investigation into the affairs of the respondent-company under section 213 of the Companies Act, 2013 is warranted. 7. Interim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable ground to believe that the removal, transfer or disposal of funds, assets, properties of the company is likely to take place in a manner that is prejudicial to the interests of the company or its shareholders or creditors. However, in the present case there is no change in the 6,00,00,000 shares pledged to the petitioner worth ₹ 6 crores. The respondent describes the allegation of the petitioner made in para D(21) of the petition that allotment of 50,00,000 shares to an entity known as MEIL Holdings Limited is illegal, as a vague allegation. The respondent contends that the petitioner cannot invoke section 221 of the Companies Act, 2013, in the matter of contractual disputes. The petitioner, who is empowered by four security documents, viz. (i) pledge of shares, (ii) two personal guarantees, (iii) promissory note, need not apprehend any damage or harm being caused to it. 7.4 It is contended in para 7 of the Interim Counter that the petitioner has not averred that disposal of any particular fund, property or asset of the respondent is imminent or likely to happen. The interest of the petitioner, being a secured creditor having four security documents as stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmits the fact that the respondent has been regularly recording such pledge of shares in its Audited Financial Statements. However, the petitioner makes a vague averment that issue of shares to M/s. MEIL Holdings Ltd. is a fraud and a breach of trust. 8.4 It is averred in para 6 of the Counter, as averred in para 8 of the Interim Counter, that the petitioner has not claimed refund of security deposit of ₹ 2 crores from 2015 onwards. However, now the petitioner has resorted to inquiring into balance sheets and annual reports of the respondent and its group of companies based on unsubstantiated allegations levelled against the respondent and its director, group of companies and their auditors. 8.5 It is averred in para 7 of the Counter, as averred in para 9 of the Interim Counter that the petition is barred by limitation. 8.6 It is averred in para 8 of the Counter that the present petition has been filed apparently under section 213(b)(i) of the Companies Act, 2013, which reads as under: Investigation into company's affairs in other cases. 213. The Tribunal may,- (a) .. .. (b) on an application made to it by any other person or otherwise, if it is sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ESI, non-deposit of TDS deducted by the respondent, loans given by the company to its directors/related parties, the statutory authorities would have initiated proceedings against the respondent. No such proceedings are initiated by any authority. However, there may be certain irregular payments resulting from the nationwide fiscal strain in aviation sector, but that could not be termed as an attempt by the respondent to defraud its creditors. Hence no case is made out to invoke section 213 of the Companies Act, 2013. 8.10 In para 13 of the Counter the respondent denounced the allegations of the petitioner that the respondent's trade payables are increasing. Respondent's legitimate liabilities cannot be labelled as defrauding creditors. 8.11 As regards the companies other than the respondent/company, the respondent, in para 14 of the Counter, relies on section 219 of the Companies Act, 2013 to drive home the point that it is the only an Inspector, who, if appointed under section 213 of the Companies Act, 2013 with prior permission of the Central Government, can file any application under section 219 of the Companies Act, 2013 to investigate any related party entitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner lost its right to recover the amount due, is misconceived. 9.2 In para 9(b) of the Rejoinder the petitioner lays emphasis on para 4 of the Counter as sufficient and tacit admission of the transaction between the parties. 9.3 In para 9(c) of the Rejoinder the petitioner asserts the illegality/fraud/breach of trust on the part of the respondent in issuing 10,00,000 equity shares and further issuance of 50,00,000 equity shares to an entity known as MEIL Holdings Limited. 9.4 In para 10(e) of the Rejoinder the petitioner contends that the petitioner has not lost it right of remedy and that the present petition is not a coercive action. 9.5 In para 10(g) of the Rejoinder the petitioner contends that the petitioner empowered with the entire shares of the company pledged to it, is entitled to ensure that the directors and officers of the company do not operate its affairs in a manner prejudicial to the interest of their company and its stakeholders. 9.6 In para 10(h) of the Rejoinder the petitioner emphasises the need of due diligence, careful scrutiny, capturing of flow of funds of material value in financial statements, which have not been carried out by the audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax deducted at source ₹ 131,704,824/- which is more than the net worth of the company ₹ 35,244,731/- as on 31-3-2018. GSTR-Goods and service tax, periodic returns, such as GSTR-3B, GSTR-1 not yet filed with GST authorities till our report date, the GST input claimed in the books ₹ 87,83,267/-. (emphasis supplied) (iv) Notwithstanding the above observations the Auditor opines that the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the company as at March 31, 2018. When outstanding statutory dues are far more than the net worth of the company affecting continuance of the company as a going concern, the opinion of the Auditor is wrong, it is alleged. (para f). (v) An amount of ₹ 11.64 crores has been shown as interest free amount received as Advances from Turbo Megha Airways Private Limited during the year 2017-18, which is shown as sundry debtors/liability. Further, an amount of ₹ 3.16 crores has been shown as amount received as Advances from Turbo Jet Engines Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.S. India Wind Energy (P.) Ltd (supra) 11 [2018] 97 taxmann.com 673/150 SCL 93 (NCLT, New Delhi) (para 47) Central Bank of India v. Surya Pharmaceutical Ltd. 12 [1966] Comp. Cas 512 High Court of Calcutta (para 17). New Central Jute Mills Co. Ltd. v. Deputy Secretary, Ministry of Finance 13 AIR 1996 SC 2005 Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. 14 MANU/MP/0065/1969 Jiyajeerao Cotton Mills Ltd. v. Company Law Boar 15 [2013] 36 taxmann.com 109 (Delhi) Shahi Exports (P.) Ltd. v. CMD Buildtech (P.) Ltd. 11. The learned counsel for the respondent also filed written submissions dated 11-2-2020 and relied on the following decisions:- Sl. No. Citation Title 1 AIR 1967 SC 295. Barium Chemicals Ltd. v. Company Law Board 2 2015 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities. Thus, the affairs of the Company are being held in a manner to defraud the creditors. Hence, investigation is sought. The learned counsel contended, any person can move under section 213 of the Companies Act, 2013 and not necessarily Applicant must be a creditor. The learned counsel contended, even if debt is barred by limitation, still petitioner has locus standi to file Petition under section 213 of the Companies Act, 2013 and there is no bar. The learned counsel contended any other person is entitled to file petition under section 213 of the Companies Act and therefore, objections raised by respondent cannot be given any credence. 16. The learned counsel contended that there are decisions rendered by the Hon'ble Appellate Tribunal that any person is entitled to file Application under section 213 of the Companies Act, 2013. The learned counsel contended, even the debt is also not barred by limitation since respondent has acknowledged the pledge of shares in the financial statement ending 31-3-2017. So the disclosure in the audited financial statements about the pledge could establish that the security deposit claim is not barred by limitation. The disclosure wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r also obtained personal guarantee of the two Directors Mr. Vankayalapati Umesh and Ms. Devineni Radha Rani, besides obtaining promissory note also for ₹ 2 crores. Thus, the petitioner has taken sufficient security from the Directors for the security advance given to the respondent and there was issuance of bonus shares of ₹ 10 lakhs to the existing shareholders. 19. The learned counsel contended that the value of ₹ 60 lakh shares on the face value of ₹ 10/- is ₹ 6 crores and pledge is given for the shares, besides bonus shares are also issued. There was no irregularity in issuing the bonus shares as well as shares to M/s. MEIL Holdings Limited. The main contention of the learned counsel that the Memorandum of Understanding stands expired by 25-9-2015 and petitioner has not taken steps for recovery of security deposit within 3 years from the expiry of MoU. He has moved this petition after four (04) years from the date of expiry of Memorandum of Understanding and sought investigation by making un-substantiated allegations against respondent Company and also against its group Companies. The learned counsel would contend that claim of the Petitioner is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioner is contending that it can maintain the petition under section 213 of the Act against the respondent-company being creditor of the respondent-company. The next contention raised on behalf of the petitioner is that even if the petitioner is not a creditor, still the petitioner can maintain the present petition, who will fall under the category 'any other person'. 23. On the other hand the contention of the respondent is that the debt said to be due from the respondent to the petitioner is barred by limitation. Therefore, the petitioner is no longer a creditor of the respondent-company. Thus, the petitioner has no locus standi to file the petition against the respondent-company. The contention of the learned counsel for the respondent-company is that the petitioner cannot maintain the petition even under clause 'any other person', because 'any other person' means a person must be an aggrieved person. The learned counsel contended that the petitioner is neither a creditor nor a shareholder nor in any way connected to the respondent-company. The petitioner is not an aggrieved person and as such the present petition is not maintainable at the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er moved the present petition, the claim of the petitioner against the respondent-company became time-barred. The petitioner cannot claim that it is the creditor of the respondent-company as on the date when it filed the present petition. The reason is the debt, if any, stands barred by limitation. The petitioner, therefore, lost the character of a creditor by the date when it filed the present petition against the respondent-company. 26. The contention of the PCS for the petitioner is that the petitioner is a pledgee of the shares. The contention of the petitioner is that there is a pledge of shares as a security for the amount given to the respondent-company. It is true that there is no dispute that 60,00,000 shares of promoters/shareholders with face value of ₹ 10 each were given as a pledge. Necessary documents were also executed in favour of the petitioner by the shareholders. The value of the shares is ₹ 6 crores. The contention of the learned counsel is that since there is a pledge of shares and the same is being disclosed in the Balance Sheets, the claim of the petitioner against the respondent-company is not barred. On the other hand the contention of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company was formed for any fraudulent and unlawful purpose. Similarly, PCS for the petitioner also relied on a decision of the Hon'ble NCLAT rendered in the case of R.S. India Wind Energy Private Ltd. (supra) and contended that the Tribunal can entertain an application under section 213 of the Companies Act, 2013 made by 'any other person', which includes creditor. Thus, the PCS for the petitioner contended that any other person is competent to initiate action under section 213 of the Companies Act, 2013 for investigation, where the affairs of the company are being held in a fraudulent manner with intent to defraud or otherwise for a fraudulent or unlawful purpose or in a manner oppressive of any of its members. 29. On the other hand the learned counsel for the respondent-company is contending that 'any other person' being the aggrieved person. In this connection learned counsel for the respondent-company has relied on the decision of the Company Law Board, Mumbai in the matter of Cavendish Shipping Ltd. (supra) wherein the Tribunal held that 'any other person' means a party aggrieved and not a stranger. 30. In this connection learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent persons as inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct: Provided that if after investigation it is proved that- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447 31. Therefore, the person to fall under the category of 'any other person' nevertheless a person, who must be an aggrieved party, but not a stranger. In the present case, the petitioner made a security deposit of ₹ 2 crores to the respondent in terms of MoU. The petitioner's grievance is that the security deposit is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the petitioner has relied on a decision in the matter of Kasturi and Sons Ltd. (supra) wherein it is held that persistent irregularities and contraventions are sufficient to form a prima facie opinion in terms of section 237(b)(i) of the Act. Similarly PCS for the petitioner relied on the decision of the Company Law Board, Chennai in the matter of Hemant Babubhai Desai (supra) wherein it is held that, Where the facts and materials reasonably suggest and/or sufficient to form a prima facie opinion in terms of section 237(b)(i) of the Act that the company's day to day management is being conducted in a manner oppressive of the minority shareholder which warrants the timely intervention of the Company Law Board. Similarly, PCS for the petitioner relied on the decision of the Hon'ble High Court of Andhra Pradesh in the matter of A.P. Civil Supplies Corporation Ltd. (supra) wherein it was held that, If the material on record prima facie shows that fraud has been played and committed to cause loss to the company in question, investigation could be ordered. The PCS also relied on other decisions on the same proposition. 35. On the other hand the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2013. Making certain allegations as if some irregularities are committed in the affairs of group companies, which in no way connected to the relief sought against the respondent-company. The Tribunal has to consider the allegations levelled against the respondent-company and to see whether investigation to be ordered or not. 38. The petitioner has to prima facie establish that the circumstances exist for ordering an investigation. I have discussed in detail various allegations made against the respondent. The petitioner in order to prove its case has mainly relied on Memorandum of Understanding, Deed of Pledge, Original Share Certificate and Share Transfer forms. Actually, there is no dispute about the entering into the Memorandum of Understanding and also security taken by the petitioner for security deposit. The petitioner has obtained Personal Guarantee as well as Promissory Note. The petitioner has taken sufficient security. However, the petitioner did not initiate any action either against the company or against the Personal Guarantee when security amount became due. On the other hand the petitioner is now seeking investigation on the ground that there was a default b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not formed for carrying out any unlawful business. It is running air taxi services. It cannot be said that the affairs of the company are being conducted for unlawful purpose. The question is whether the business of the respondent-company is being conducted in any fraudulent manner. The petitioner has simply alleged that taxes were not paid to the Government authorities and there is violation of certain provisions of the Companies Act. The authorities concerned can initiate appropriate action against the respondent, if really the respondent-company committed any violation of the provisions of the Companies Act. There is no need to order an investigation on these grounds. The petitioner has not established any fraud in the course of business carried out by the respondent-company. Therefore, the petitioner has utterly failed to establish the prima facie case that the affairs of the respondent-company is being held in a fraudulent manner. In light of the documents filed and in light of the above discussion there is absolutely no ground to order investigation into the affairs of the respondent-company. 40. In the result the petition is dismissed. - - TaxTMI - TMITax - Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X
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