TMI Blog2021 (4) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... of calls on such of shares or of other sums due on their shares. We have to look whether the applicants have made out an exceptional case for waiver of all or any of the requirements specified in Clause (a) of sub-section 1 of Section 242 of Companies Act, 2013? In this process, in our considered opinion, it is inevitable that the merits of the application field under Section 241 of the Companies Act, 2013 may have to be considered. Having said so, we, however, make it clear that this is to be done just to meet the object and criteria laid down in Section 244 of Companies Act, 2013 and views expressed on the merits for this purpose cannot be considered or treated as views expressed by this Authority which may amount to determination of the main dispute either against or in favour of either parties. Keeping this limitation or factor, in our mind, the facts relied on by the petitioners for getting the waiver, we state that these pertain to siphoning off funds through Shell Companies promoted by Respondent no. 2. On a query from this Bench whether any material or resolution exists in records or otherwise which defines such distribution of responsibilities between two Managing Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot hold minimum percentage of shareholding in the capital of the Respondent No. 1 on which is require to file a petition under the aforesaid section. Therefore, the present application has been filed under Section 244 of the Companies Act, 2013 whereby the applicants are seeking exemption from such qualification. 2. The respective parties have made their submissions which are reproduced as under: 2A. Submissions of Petitioners are as under: 1. The petitioners have preferred the application under Section 241 and 242 for oppression and mismanagement in order to obtain equitable relief from this Hon'ble Court in connection with oppressive acts by respondent No. 2 in capacity of Managing Director alongwith respondent Nos, 4 and 5 and consistent acts of mismanagement in affairs of Respondent No. 1 company and gross misuse and siphoning off of funds of respondent No. 1 company. 1.1 Eligibility under Section 244 of the Companies Act and Waiver of mandatory requirements of holding more than 10% of total shares in respondent No. 1 company. I. Section 244 of the Companies Act mandates requirement of holding 10% of issued share capital of the company to maintain an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the categorization by the company of equity share capital as capital and categorization of preference shares as liability in the balance sheet thereby quantifies of equity shares of the petitioners at 10.89% of the capital as they hold 13,18,100 shares of the company collectively. Therefore, without entering into the aforesaid dispute, the petitioners have filed application for waiver and, therefore also, if the Hon'ble Court comes to a conclusion that the petitioners are not holding 10%issued share capital then the waiver application be allowed and the matter be decided on merits. Moreover, the waiver application is required to be considered keeping in view the following: A. That the petitioner No. 3 Mukesh Bhandari is the founder Chairman and Director not liable to be retired by rotation and is also the part of promoter group. Therefore, the claims and submissions put forth by the petitioner No. 3 is of utmost importance in the interest of the respondent No. 1 company. B. Although the petitioner No. 3 could not be legally removed from the capacity of Managing Director of the company by the Board as the same would be in violation of the special resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o allow the waiver application as there is a clear case of oppression, gross mismanagement of the affairs of the company, activities undertaken by respondent No. 2 against the interest of the respondent No. 1 company, violation of rules and regulations under the Companies Act and company policy, therefore, the frivolous objections taken by the respondents to defeat the object and purpose of the statute are required to be out rightly rejected and the application of waiver is required to be allowed. II. The attachment of shares petitioner No. 3 in DRT proceedings has no bearing on the maintainability of the present petition. This is because it is settled law that shareholding as on date of the filing of the petition is relevant and not thereafter. Moreover, the order of attachment only has limited implication, namely, curtailing the right of the owner of the shares only to the extent of alienating the said shares and the said order passed by DRT has no bearing either on the ownership, title or for that matter enjoyment/other rights attached to the said shares. Therefore, it does not affect the membership of the petitioner No. 3 and the interest of the petitioner No. 3 in the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tam Vikramsingh Steiner and Ors. v. Jaswinder Singh and Ors. reported as MANU/DE/3449/2010 at paragraph 28 and 29. 1.3 The Respondents' assertions of Estoppel, Acquiescence and Limitations do not apply to the present petition: A. It is relevant to note that the cause of action for the filing of the present petition has arisen continuously since 2017 to date and, therefore, the argument of bar of limitation put forth by the respondents is clearly misleading and an attempt to divert the attention of the Hon'ble Tribunal from the merits of the subject matter of the present petition. The assertions of the respondents that certain transactions have attained finality and therefore, since they are 10 years old, they are inherently stale in nature and hence cannot be adjudicated by way of the present petition, is nothing but a hogwash and a dodgy attempt by the respondents to stall inquiry and adjudication of the wrongful loss caused to the interests of the respondent No. 1 company and illegal acts committed by respondent No. 2 continuously since a number of years including after filing of the present petition in the year 2019. Therefore, the argument put forth by the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, forging documents in connivance with other respondents, criminal breach of trust and other offences under the Indian Penal Code. Therefore, the conduct of the respondent No. 2 and 4 are in clear violation of mandate of law and are responsible for causing wrongful loss to the interest of the company, oppressive acts against the interest of the petitioners and gross mismanagement in the affairs of the company against the interest of the company. 2. The respondent No. 2 has committed oppressive acts against the interest of the petitioners: A. It is pertinent to note that the Articles of Association of Electrotherm India Ltd. i.e. respondent No. 1 company under Clause 109 stipulates that petitioner No. 3 Shri Mukesh Bhandari shall be a Director not liable to be retired by rotation . It reveals the status and importance of the petitioner No. 3 in the respondent No. 1 company as the petitioner No. 3 is the founder member, the brain behind product development, research and development of products of the company and therefore, the petitioner No. 3 holds considerable interest in the functioning and working of respondent No. 1 company. B. That, in the Board Meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision was taken by the respondent No. 2 along with the Independent Directors in absence of the petitioner No. 3 and without providing an opportunity of being heard and without recording reasons for the urgency in the matter to expeditiously change the designation of the petitioner No. 3 in violation of the mandate given by the members of the respondent No. 1 company by way of special resolution in clear violation of Section 179 of the Companies Act which places limitations on the power of the Board. In fact the change of designation makes a lot of difference describing as a Managing Director of a company. Therefore, it is clear that the interests of the petitioner No. 3 were being oppressed and the normal functioning of the Board was hijacked by the respondent No. 2 by illegal appointments of Independent Directors and passing of resolutions through exercise of voting through illegally acquired shares from the funds of the company by the respondent Nos. 2 and 4. C. That it is clear that special resolution under Section 114 of the Companies Act read with Section 179 ousts the power of the Board to rescind, amend any special resolution passed by the shareholders in the Annual Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts without the approval of the Board which is clear from various Board Meetings including Board Meeting dated 14.11.2018. Thereafter, due to the end of term of appointment of petitioner No. 1 in the respondent No. 1 company, the respondent No. 5, 10 and 11 voted against the reappointment resolution in the Annual General Meeting held on 30.09.2019, in connivance with and at the behest of respondent No. 2. Therefore, it is clear that the act of the respondent No. 2 in connivance with respondent No. 4, 5, 10 and 11 have been oppressive to the interest of the petitioners herein and the same has resulted in huge financial loss and damage to the interest of the respondent No. 1 company. 3. The Respondent No. 2 has committed several illegalities against the interest of Respondent No. 1 company and is involved in large scale siphoning off of funds of the company and hence respondent No. 2 has conducted the affairs of the company prejudicial to the interest of the company and hence is guilty of mismanagement. I. That, the affairs of the respondent No. 1 company have been conducted against the mandate of the Companies Act and against the interest of the company and therefore, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which revealed the active participation of respondent No. 2 in cash transactions and fake billing were recovered from a company vehicle along with liquor bottles of approximately ₹ 33 lakhs, stored illegally at the behest of the respondent No. 2. In view of the same FIR bearing no. 11216025210042, under Sections 65-A, 65 (e), 116-B, 81, 98(2) of the Gujarat Prohibition Act against the respondent No. 2. IV. Thereafter, search was also carried out in the residential premises of the security guard of the respondent No. 1 company and illegal liquor worth ₹ 81,404/- was recovered which was stored by the security guard at the instructions of the respondent No. 2 and FIR bearing No. 11216025210044, dated 04.02.2021, registered with Santej Police Station, Gandhinagar under the Gujarat Prohibition Act. V. Thereafter, search was also carried out in the residential premises of the respondent No. 2 and illegal liquor worth ₹ 44,750/- was recovered and FIR bearing No. 11216025210045, dated 04.02.2021, registered with Santej Police Station, Gandhinagar under the Gujarat Prohibition Act. Therefore the conduct of the respondent No. 2 is against the interest of the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Darwaja Branch, Ahmedabad are forged and without the consent of the complainant and therefore the accused have committed large scale fraud through submission of forged documents. M. Case No. 1/2019 pending investigation before the CID Crime and Railways, Gandhinagar under Sections 465, 467, 468, 471, 120B, 114 of the Indian Penal Code, where the allegations are against the Managing Director of the company, that in collusion with other accused have taken a loan using forged documents and misappropriated the funds of EIL to the tune of ₹ 480 Crores and at present the investigation VIII. Registration of offence bearing M. CASE. NO. 2/2019 Arising Out of Criminal Inquiry No; 1484/2019 filed before the Hon'ble Chief Metropolitan Magistrate, Ahmedabad. Complainant: Siddharth Mukesh Bhandari - Petitioner No. 1 herein. Offences Under: Sections 409, 120B and 114 of the Indian Penal Code. Accused: 1. Shailesh Bhandari 2. Ashok R. Bhandari 3. Kalyan Sundaram Maran 4. Officers of Ferryden International 5. Vivek Ashok Bhandari 6. Other Unknown Accused. Allegations in the complaint: The accused persons have entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tune of ₹ 73.50 crores and at present the investigation is pending. X. The respondent No. 2 being responsible for the conduct of financial affairs of the respondent No. 1 company committed gross Acts of mismanagement and was involved in large scale misuse of funds of the respondent No. 1 company. In view of the same, the Central Government through the Central Bureau of Investigation, conducted large scale investigation and filed charge sheet which has culminated into CBI Case No. 27/2015, which is pending before the Hon'ble CBI Court no. 3 at Ahmedabad under the Indian Penal Code and the Prevention of Corruption Act, where the allegations are that the respondent No. 2 and other accused has caused huge loss to the tune of ₹ 436.27 crores to Central Bank of India, Lal Darwaja Branch, Ahmedabad. It is relevant to note that even in the said loan documents, the respondent No. 2 has forged the signatures of the petitioner No. 3 to obtain the loan and in view of the illegalities committed by the respondent No. 2, the name of the petitioner No. 3 has also been arraigned as accused in the said proceedings. Moreover, prosecution has also been initiated under the Preventi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the tune of ₹ 79.39 Crores to one Victory Rich Trading Ltd. and Apple Commodities Ltd. Moreover, the respondent No. 9 and 10 are also featured in the dubious transaction of approximately ₹ 13.34 Crores done by the respondent No. 2 to siphon off of funds of respondent No. 1 company. Therefore, this clearly indicates that the affairs of the company have been conducted by the respondent No. 2 in a manner prejudicial to the interest of the company. The aforesaid facts and circumstances highlighted in submission paragraphs Nos. 2 and 3 clearly indicate that the affairs of the respondent No. 1 company have been conducted in a manner oppressive to the interest of the petitioners herein and that the affairs of the respondent No. 1 company have been grossly mismanaged and respondent No. 2 is responsible for the aforesaid acts of oppression and mismanagement alongwith other respondents and therefore, the petitioners pray that equitable relief under Section 241 and 242 be granted to the petitioners. 4. Objections to the reply filed by the respondents: The petitioners submit that the respondents have filed their reply. The reply is required to be filed as per Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners under Section 244 of the Companies Act, the petitioners have made a statement that the petitioners hold 13,87,100 shares which is 10.89% of the total paid up share capital in the company. This statement is made in consonance with reference to balance sheet of respondent No. 1 company as on 31.03.2018 and preference share capital has not been shown in capital and has been shown as short term borrowings in 32nd annual report which means that it did not remain capital and it became a borrowing for respondent No. 1 company. As Section 244 requires holding of 10% issued share capital of respondent No. 1 company, the requirement is fulfilled by the petitioners collectively, however, assuming that in spite of equity share capital being shown as liability in the balance sheet of the company as on 31.03.2018, it has to be counted in the issued share capital as envisaged under Section 244 of the Companies Act, the petitioners have preferred Interlocutory Application No. 499 of 2019 as a matter of abundant caution seeking waiver of mandatory requirement of Section 244(1)(a) of the Companies Act. The petitioners adopt the averments made therein. Furthermore, since the maintainability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 179 of the Companies Act and, therefore, the act of removal is not only in violation of the statute hut also is an act of oppression against petitioner No. 3 at the instance of respondent No. 2 to take illegal and unchecked control of the financial affairs and management of the company. Moreover, the rights of petitioner No. 1 have also been adversely affected by respondent No. 2 as the petitioner No. 1 has taken objection to the siphoning off the companies funds and confronted the respondent No. 2 in the Board meetings and in view of the same, the petitioner No. 1 was also removed from the Board of Directors through exercise of pervasive control over illegally acquired shares of respondent No. 1 company. C. It is pertinent to note that looking to the share capital of the company, there is no single holder of shares who is having more than 10% share capital of the respondent No. 1 company, therefore, if a strict interpretation is applied to Section 244 of the Companies Act then it would render the said provision nugatory as it would lead to a scenario that in the instance of any wrong being committed or rights being violated or affairs of the company is conducted again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under the Companies Act and Rules thereunder and the petitioners fulfil the requirements to obtain reliefs as prayed for in the petition: A. The petition has been filed by three petitioners and all the petitioners have verified the contents of the petition on affidavit duly endorsed by notary public in accordance with law. If the title of the affidavit is perused, it is clearly stated that it is a general affidavit verifying the petition and, that the petitioners have gone through the copy of the petition and the same has been drafted in accordance with their instructions and the same is duly affirmed by notary public by putting seal and serial number of registration and further the same is duly identified by the Advocate. Moreover, the petition is duly signed by the petitioner No. 3 on each and every page. Merely non-putting stamp of notary on every page of petition does not invalidate the petition and, there is no such mandatory rule framed under the Companies Act and, therefore, the objection regarding the aforesaid affidavit is not sustainable. Therefore, the objection taken about the affidavit is untenable, as no such rule is quoted whereby, it is necessary to put sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , misfeasance and unlawful acts such as forgery, criminal breach of trust and causing wrongful loss to the respondent No. 1 company. The Limitation Act under Section 17 deals with the effect of fraud and the present proceedings are covered under Section 17 of the Limitation Act and are within the period of limitation as it has come to the knowledge of the petitioners, prior to the filing of the petition. Hence, the proceedings are within the period of limitation. B. The argument put forth by the respondents that the petitioners are barred from claiming any relief under the principle of estoppel is wholly misconceived as estoppel does not apply when facts have been misrepresented and twisted at the instance of respondent No. 2 along with the other respondents responsible for causing wrongful loss to the interest of the company. C. The argument put forth by the respondents that the petitioners are barred from claiming any relief under the principle of acquiescence is wholly misconceived as acquiescence does not apply in the present case as the financial affairs of the company were wholly handled by the respondent No. 2 and the petitioner No. 3 is the technical expert in product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s discussed at item No. 16 of the said meeting and the resolution was passed subject to the approval of members of the company in the General Meeting. Thereafter, the share-holders Annual General Meeting, 2016 by way of passing of Special Resolution by the shareholders, it was resolved that the petitioner No. 3 be continued as Managing Director from 01.02.2017 to 31.01.2020. Therefore, it is clear that the members of the respondent No. 1 company passed special resolution in Annual General Meeting, for appointment of the petitioner No. 3 in capacity of the Managing Director to be designated as Chairman. In view of the passing of the special resolution, no change or amendment could be brought about in the designation, terms of service or employment by the Board of respondent No. 1 company. Thereafter, due to the undue influence exerted by the respondent No. 2, certain illegal appointments of Independent Directors were made in the respondent No. 2 company against the interest of the company in violation of nomination and remuneration policy of the company and by misrepresenting facts to the petitioner No. 3 and without any due diligence. The said illegal appointments have been challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the Board unless a special resolution by a special majority is passed. Hence, petitioner No. 3 could be out of his office of Managing Director if and only if he resigns or is removed by shareholders in a General Meeting or if he is removed by Central Government or he is removed by NCLT or any other court of law having jurisdiction. Furthermore, the argument advanced by the respondents that there is no change in authority and only a change in designation is false and misleading as the powers of the petitioner No. 3 were substantially affected after the passing of the resolution which is confirmed by the respondent No. 2 himself in his numerous e-mails written to Accounts Department of the respondent No. 1 company to not allot/release any funds at the instance of the petitioner No. 3 without the prior approval of the respondent No. 2 as respondent No. 2 was the sole Managing Director of respondent No. 1 company as per the decision of the Board. I. It is relevant to note that the said removal or change in designation of petitioner No. 3 was brought up again in meeting dated 14.11.2018 by submitting a detailed note with regards to the illegal removal or change in designation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent No. 2 has not upheld the fiduciary duty owed to the respondent No. 1 company and its shareholders and has committed, various acts against the interest of the respondent No. 1 company and public at large. D. The respondent No. 2 in connivance with respondent No. 4 has illegally diverted the funds of the company to acquire shares in the name of respondent No. 5. The petitioners rely on the averments made in the memo of the main petition to substantiate the allegations. E. The respondent No. 2 in connivance with the respondent No. 9 has illegally diverted the funds of the company to acquire shares in the name of respondent Nos. 10 and 11. The petitioners rely on the averments made in the memo of the main petition to substantiate the allegations. F. The respondent No. 2 has managed the affairs of the company in a manner prejudicial to the interest of the company as the respondent No. 2 has been involved in large scale illegal activities and various offences have been registered against the respondent No. 2. The details of the offences registered against the respondent No. 2 and other respondents are as herein under: XVII. The respondent No. 2 had hatched a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . XXI. The respondent No. 2 actively connived with other accused and forged documents of short term loan from Indian Overseas Bank worth ₹ 100 Crores and another loan in form of cash credit facility worth ₹ 100 Crores from Indian Overseas Bank was sanctioned in the year 2010 and 2011 and the signatures of the petitioner No. 3 in the capacity of being Chairman of the respondent No. 1 company were forged inspite of the fact that the petitioner No. 3 was not present in Ahmedabad from 30.04.2011 to 19.05.2011 as the petitioner No. 3 was on international travel. Moreover, the said loan has not been repaid till date and the funds of the said loan had been utilized by the respondent No. 2 in connivance with other accused including respondent No. 4 through illegal diversion of funds from the respondent No. 1 company. Therefore, the FIR was also lodged with Santej Police Station and the respondent No. 2 was arrested by the Police and at present the respondent No. 2 is released on temporary bail and his regular bail application is pending before the Hon'ble District and Sessions Court, Kalol. Therefore, the affairs of the respondent No. 1 company have been mismanaged an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money of Electrotherm India Ltd. to foreign company namely Castle shine PTE Ltd. and acted against the interest of the company and its shareholders, M. Case No. 2/2019 pending investigation before the CID Crime and Railways, Gandhinagar under Sections 409 and 120B of the Indian Penal Code where the allegations against the present respondent No. 2 is that being a Managing Director of the company, in collusion with other accused, the respondent No. 2 has placed an order with Castle shine PTE ltd, a company based in Singapore to buy hot strip mill and without receiving any commodity, the accused has made the payment to the company and then written off the amount from the accounts of the EIL and caused huge loss to the Company to tune of ₹ 26 crores and at present the investigation is pending. XXIV. Registration of offence bearing M. Case No. 3/2019 Arising Out of Criminal Inquiry No: 1485/2019 filed before the Hon'ble Chief Metropolitan Magistrate, Ahmedabad. Complainant: Siddharth Mukesh Bhandari Offences Under: Sections 409, 120B and 114 of the Indian Penal Code. Accused: 10. Shailesh Bhandari 11. Ashish Narendra Garg 12. Ankit Garg 13. Nischal J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt and, therefore, the filing of charge sheet by CBI against the respondent No. 2 in isolation is sufficient to reveal that the conduct of respondent No. 2 is against the interest of the respondent No. 1 company and there is gross mismanagement of affairs. XXVI. That, due to the gross mismanagement in the affairs of the respondent No. 1 company by the respondent No. 2, corporate insolvency resolution process has been initiated against the company by Central Bank of India for an amount of ₹ 1059.59 Crores under the Section 7 of Insolvency and Bankruptcy Code, 2016 before this Hon'ble Tribunal. XXVII. That, due to the gross mismanagement in the affairs of the company and persistent siphoning off of funds by the respondent No. 2, the total outstanding of the company has reached 2218.65 crores as of 07.01.2020 due to persistent default on payment of interest and repayment of principal amount of loans from banks and financial institutions. XXVIII. That, due to the gross mismanagement in the affairs of the company and persistent diversion of funds by the respondent No. 2, that the account of the company has been categorized as Wilful Defaulter by the State Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case the respondent No. 2 has not specifically denied the contents of the documents produced by the petitioner though a vague statement is made that the averments made in the petition are denied, therefore, since as per the aforesaid Rule 41(3) the documents are not specifically denied by the respondent No. 2 therefore, the documents produced by the petitioners are admitted and the Hon'ble Tribunal can consider the contents of the same and then it will be clear that there is mismanagement of funds by the respondent No. 2 in collusion with the other respondents in the respondent No. 1 company. Even in the reply filed by the respondent No. 2, there is no identification of the deponent as per Rule 129 of the said Rules. The respondent Nos. 6, 8, 9, 12 have not filed their reply and, therefore, qua those respondents the averments made by the petitioner in the pleadings are admitted and therefore also, the aforesaid fact is required to be considered by the Hon'ble Tribunal and those pleadings are deemed to be proved since there is no denial. 10. The petitioners are relying on subsequent developments after filing of the present petition to highlight the continuing illega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atus of promoter company of Respondent no. 1 company, under the lordship's authority of piercing the corporate veil to find fraudulent and/or benami share-owners in listed Respondent no. 1 Company whether directly or through Respondent no. 5. 8. Remove benami shareholders from the Register of Members of Respondent no. 1 Company on the basis of investigation report. 9. Repayment of all moneys back to Respondent no. 1 Company which has been diverted, fraudulently, taken away or siphoned off from Respondent no. 1 Company by Respondent no. 2 and other Respondents in connivance with one another with or without association or help of outsider entities/persons. 10. Presenting and furnishing of the Company records of all 17 companies which have been merged into Respondent 6 and/or other entities as the same are necessary legal entities for completing investigation in this matter and which are under legal obligations to preserved records for presentation when asked for. 3. The proposed petition filed u/s. 241-242 of the Act by the present applicants itself is not maintainable on the ground of non-fulfilment of eligibility criteria as contemplated under Sec. 244(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 913, which were analogous to the provisions of Section 397 of the 1956 Act, held that the issue of whether the petitioner had obtained consent of the members of the company in order to meet the requirements of holding 1/10th of the total shares is to be examined in light of whether such a number was in fact attained and maintained, on the actual date of presentation of the company petition in court, and in the event that a member later withdraws consent, the same would not affect either the right of the petitioner-applicant to proceed with the application, or the jurisdiction of the court to dispose of it on merits . In the present case, admittedly, the applicants hold only 5.61% of the issued share capital of the Company. The petition was filed on April, 2019 whereas the present application is filed on July, 2019. As such, on the date when the petition was filed, it was not maintainable. Filing of an application for Waiver at any subsequent stage is not maintainable. Considering the true intent and purport of the judgment of Hon'ble Supreme Court in the case of Bhagwati Developers (Supra), the present application is liable to be rejected. The main petition on the same grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Tribunal, Para 88 of the said judgment, reads as under:- 88. As admittedly, the Appellants have less than 1/10th of the Issued Share Capital of the Company (2.17%), we hold that the Appellants do not qualify under Section 244(1) to file a petition under Section 241 of the Companies Act, 2013 and the petition without waiver, at their instance is not maintainable. In the present case, as the applicants- Original Petitioners have not fulfilled the mandatory conditions of S. 241(1) of the Act, the main petition is not maintainable. 9. The contention of the applicants that as the Balance Sheet of the Respondent Company as at 31.03.2018 reflects the preference share capital under the head of short term borrowing , the preference share capital cannot be included as a part of Issued Share Capital is also liable to be rejected. 10. It is submitted that reflection of any amount in the Balance Sheet does not determine its character. Preference Share Capital is a kind of capital under section 43 of the Companies Act, 2013. Further In view of Rule 4(iii) of the Companies (Indian Accounting Standards) Rules, 2015, which came into effect from 16.02.2015, the Indian Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod envisaged while issuing redeemable preference shares. If Company has gone into losses, can it be possible to preference shareholder to ask for recovery on par with creditors? So this limited argument of the Petitioners highlighting the practice in Accounting Standards will not make any case to obfuscate the mandate of the Statute, Therefore, we have not found any merit in the argument of the Petitioners' Counsel saying that the phrase 'issued share capital' used, in Section 244 of the new Act is contrary to the purpose of legislation. It has been again and again reiterated by the Hon'ble Supreme Court, the purposive interpretation is to find out the purpose of legislation, but not to invent a purpose for the gain of any individual. The purpose of legislation is to initiate proceedings u/s. 241 of the new Act only when the criteria of fulfilling one-tenth in number or not less than one-tenth of shareholding, i.e., 10% economic interest in the Company. Voting rights of the equity shareholders in the Company is only limited to the management of the Company. In fact, there is every possibility by virtue of this voting right to cause economic loss to the preference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital and capital held by depositories in dematerialized form. In the present case, none of the preference shares of the respondent Company are listed with Bombay Stock Exchange or National Stock Exchange or held by any depositories in dematerialized form and hence there is no requirement to consider preference shares as a part of Issued Capital in the report under Regulation 55A of the SEBI (Depositories and Participants) Regulation, 1996. Further all the details in the Reconciliation of Share Capital Audit Report for the quarter ending on 31.03.2018 are related to the equity shares only. Thus the reliance placed by the applicants on the communication dated 12.04.2018 is completely misconceived and illegal. 13. The present application is also liable to be rejected. It is submitted that without prejudice to the contention that the application for waiver is required to be filed before filing the petition and since in the present case this application is filed much after filing of the petition, the application is liable to be rejected, the applicants even otherwise have not shown any exceptional circumstance for grant of waiver. It is submitted that grant of waiver is not a rule. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. It is pertinent to mention that the applicant no. 3 has been the Executive Chairman/Managing Director of the Respondent Company since 1995 until 31st January, 2020. The applicant No. 3 therefore is a key managerial person as defined u/s. 2(51) of the Act and had substantial powers in the management of the Company. For the ready reference of the Hon'ble Tribunal Sec. 2(51) of the Act is reproduced herein below:- Sec. 2(51) key managerial personnel , in relation to a company, means- (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; and (v) such other officer as may be prescribed. vi. The applicant no. 3 was the Executive Chairman/Managing Director the relevant time. Therefore, the alleged transactions, which are referred as grounds in the present application, were done at the behest of applicant no. 3 and were well within his knowledge. The applicant no. 1 himself was also a Whole Time Director of the Respondent Company from 26.04.2017 to 30.09.2019. The applicants herein were not only members of the Company, but were als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tments (P.) Ltd. (supra) are reproduced herein below:- 160. From the aforesaid summary of shareholding we find that except Mr. Ratan Naval Tata (at serial no. 22) having issued shareholding of 31.43% and Mr. Narotam S. Sekhsaria (at serial no. 44), having 17.01% shareholding capital of the company, none of the 49 member(s) are eligible to file an application under Section 241, individually having less than 10% of the shareholding. 161. That means in the context of present case, except that the minority shareholders join together, i.e. either six in numbers or such numbers of members whose joint shareholding will come up to 10% of the issued share capital of the Company, which will be also not less than 3 to 4 members, none of the 49 shareholders can file an application under Section 241 alleging 'oppression and mismanagement'. It will remain only in the hands of major shareholders, namely Mr. Ratan Naval Tata or Mr. Narotam S. Sekhsaria, who only have right and their prerogative to file such application. 162. One or the other minority shareholder cannot be asked or directed to form a group of 10% of the member(s) that means six person(s) in the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as some of them relate to 'oppression and mismanagement', qua. 1st respondent company and its member(s), we are of the view that the appellants have made out a case for 'waiver' to enable them to apply under Section 241. Whereas in the present case, the transactions in disputes are of the year 2007, 2008, 2009 and 2010 and the applicants have moved the Tribunal only in the year 2019. Even the transactions in question which are claimed as grounds in the present application for seeking waiver, were in fact executed by the applicant no. 3 himself and he was party and signatory to all such transactions. Therefore, the grounds raised in the application are false, frivolous and baseless. 18. Without prejudice to the above, the present application is also liable to be rejected since 8,09,500 equity shares held by the applicant no. 3 herein are attached by the Recovery Officer, Debts Recovery Tribunal for recovery of debts under the provisions of Sec. 25 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. If 8,09,500 shares are deducted from 13,87,100 shares held by applicants, then the total shareholding of the applicants falls further down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Company Petition is not maintainable. As such, the present Company Application is hereby allowed and consequently, the Company Petition is dismissed with the liberty to the Petitioner to file the Petition afresh either on obtaining necessary approval of the Central Government u/s. 399(4) of the Companies Act, 1956 or on getting suitable directions from the Hon'ble Supreme Court of India in respect to 3,000 shares or from Department of Income Tax relating to 3,260 shares. 20. In view of what is stated hereinabove, the present application is liable to be dismissed with costs, 2C. Submissions of Respondent No. 2 are as under: 1. Share capital of the Respondent No. 1 Company as on 31st August 2019 is as under: 2. It is submitted that the main petition is filed under Section 241 and 242 of the Companies Act, 2013 by the applicants on the pretext that they are holding 13,87,100 shares in aggregate which is 10.89% of the total paid up equity share capital of the respondent no. 1 company. Accordingly, it is claimed that applicants are eligible under Section 244 of the Companies Act, 2013. 3. However, the applicants have completely neglected the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the hat of creditors. The Petitioners have been arguing redeemable preference shares as debt, if so, any right has been conceived to the preference shareholders at least to make a demand for recovery of their investment before the period envisaged while issuing redeemable preference shares. If Company has gone into losses, can it be possible to preference shareholder to ask for recovery on par with creditors? So this limited argument of the Petitioners highlighting the practice in Accounting Standards will not make any case to obfuscate the mandate of the Statute... 58. If we see the objective of such Accounting Standards, they have come into existence to provide a standard set of accounting policies, valuation norms, disclosure requirements on the basis of which financial statements should be prepared to make financial statements more meaningful and comparable, to harmonise the diverse accounting policies and practices in order to ensure standardisation in the preparation of financial statements and to enable the comparability of financial statements and thereby improve reliability and usefulness of financial statements. 59. By reading these objectives, it is ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be accepted, as it would be unjust, and unfair to interpret Section 244 in any other manner than the literal rule of interpretation, as otherwise it would be nullity. .... .... From the aforesaid discussion, while we hold that the expression Issued Share Capital as mentioned in Section 244(1) of the Companies Act, 2013 only refer to both 'Equity Share' and Preferential Share Capital of the company and similar finding having given by the Tribunal, we uphold the order dated 16th March 2017. As admittedly, the Appellants have less than 1/10th of the Issued, Share Capital of the company (2.17%), we hold that the Appellants do not qualify under Section 244(1) to file a petition under Section 241 of the Companies Act, 2013 and the petition without waiver, at their instance is not maintainable. 8. Likewise, Hon'ble Supreme Court of India in case of J.P. Srivastava and Sons Pvt. Ltd. vs. Gwalior Sugar Co. Ltd., (2004) 4 Comp LJ 467 (SC) has also taken a view that share capital includes both equity and preference shares. 9. Hence, applicants herein cannot maintain a petition under Section 241-242 of Companies Act, 2013 on the strength of 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber and stand decided and concluded? (iv) Whether there is an exceptional circumstance made out to grant 'waiver', so as to enable members to file application under Section 241 etc.? 13. For the purpose of asserting waiver and to claim that they qualify under point no. (ii) and (iv) as mentioned herein above, the applicants have limited their contentions to following three points: a. Applicant no. 3 i.e. Mr. Mukesh Bhandari was removed from the post of Managing Director b. Secondly, it is alleged that there is siphoning of ₹ 87.14 crores from R1 Company for which FIR being FIR No. RC 7(E)/2014 is lodged with Central Bureau of Investigation, Bank Securities and Fraud Cell, Mumbai by Central Bank of India. c. Lastly, it is contended that Respondent No. 2 has created more than 85 shell companies and siphoned away funds to the tune of ₹ 58 Crores and utilized funds to directly or indirectly acquire shares of Respondent No. 1 Company. 14. It is pertinent to mark that except for these three circumstances, applicants have not relied upon any of other circumstance to claim that there is an exceptional circumstance made out to grant waiver a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... removal of a person can never be the primary focus of a Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost of repetition it should be pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. .... 16.42 In any event the removal of a person from the post of Executive Chairman cannot be termed as oppressive or prejudicial. The original cause of action for the complainant companies to approach NCLT was the removal of CPM from the post of Executive Chairman. Though the complainant companies padded up their actual grievance with various historical facts to make a deceptive appearance, the causa proxima for the complaint was the removal of CPM from the office of Executive Chairman. His removal from Directorship happened subsequent to the filing of the original complaint and that too for valid and justifiable reasons and hence NCLAT could not have laboured so much on the remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zanian Customer. Thereafter, the said coal lying at Indonesian port was sold to Victory Rich Trading Limited (VRTL). The Company has given deliveries of coal to VRTL and raised Invoice dated 05.09.2011 to VRTL for the amount of USD 15,485,000. Due to default in payment of invoice dated 25.08.2011, Apple Commodities Limited has invoked the Letter of Credit of USD 15,000,000 through their Bankers - Bank of Baroda, Hong Kong. The Company has vide letter dated 17.09.2011 informed to the Central Bank of India about the entire transaction and requested them to make the payment to bankers of Apple Commodities Limited and adjust the amount from sale proceeds of coal to VRTL. The Central Bank of India has on 14.11.2011 made payment of USD 15,000,000 (₹ 75.39 crores) to Apple Commodities Limited. The Company has executed a Power of Attorney dated 03.11.2011 in favour of Central Bank of India authorizing the bank to recover the amount of Invoice dated 05.09.2011 from VRTL. VRTL has paid USD 5,00,000 (₹ 2.57 Crores) to Central Bank of India directly on 11.04.2012. Central Bank of India vide letter dated 13.04.2012 acknowledged the receipt of the said amount. However, the remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 1 Company has suffered operational losses from June, 2011 quarter onwards and the said operational losses was mainly suffered on account of ban on mining of iron ore by Karnataka Government, which hampered the production cycle of the Company. This led to short supply of key raw material across the country and during this period, the steel industry in general has faced server operational difficulties due to non-availability of Iron Ore, the key raw material for the steel industry. In view of this, the Company has faced severe liquidity crunch and because of such unprecedented situation beyond the control of management, the company was not able to honor the commitments towards repayment of loans and other operational creditors. On 19.09.2011, due to non-payment towards supply of Equipment, Castleshine Pte Ltd., which is a sister concern of QMC and which had originally procured machine, has invoked the Letter of Credit and Central Bank of India made payment of Euro 2,050,000 to Castleshine Pte Ltd. Said Equipment was required to be transported from AG Shepherd (Machinery) Ltd., Denain (France) via Antwerp port (Belgium) to Dar Es Salaam (Tanzania). The equipment reached t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that abovementioned transaction was a genuine transaction and Respondent No. 1 Company has made all the efforts to recover the debt. It is further submitted that FIR No. RC 7(E)/2014 was investigated and the charge sheet has been filed before the CBI Court, Ahmedabad and Respondents herein have provided sufficient explanation to the investigation authorities. ALLEGATION 3 25. Apropos allegation that Respondent No. 2 has created more than 85 shell companies and siphoned away funds to the tune of ₹ 58 Crores and utilized funds to directly or indirectly acquire shares of Respondent No. 1 Company it is submitted that It is vehemently denied that 85 companies are created for the purpose of owning and controlling Respondent No. 1 and Respondent No. 5 companies and for the purpose of siphoning funds. I say and submit that out of the 85 companies alleged by the petitioner, 28 companies are already shown as Enterprises owned or significantly influenced by Key Management Personnel in the annual reports of Respondent No. 1 company. Thus, there is sufficient disclosure with respect to above mentioned company on behalf of the Respondent No. 1 Company. It is further submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is thus liable to be rejected since applicants have neither pleaded nor proved any exceptional circumstances to make out a case for waiver. TECHNICAL OBJECTIONS APPLICATION IS NOT FILED IN ACCORDANCE WITH RULE 20(5) OF NATIONAL COMPANY LAW TRIBUNAL RULES 30. The present application is liable to be rejected at the threshold inter alia on the ground that it is not filed in prescribed format. 31. It is submitted that applicant herein have approached this Hon'ble Tribunal in most casual and reckless manner. It is submitted that present application is neither in the format prescribed in National Company Law Tribunal Rules, 2016 nor does it contain detail of parties arraigned as respondent in the present proceedings. It is submitted that according to Rule 20(5), the applicant herein is under an obligation to give full name, parentage, age, description of each party and address. However, from the bare perusal of cause title it transpires that the applicant has failed to mention full name, parentage, age, description of each party and address. Furthermore, application for waiver filed under proviso to Section 244(1) of the Companies Act, 2013 cannot be termed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany shall have the right to apply under section 241, namely:- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members: Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation.-For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (2) Where any members of a company are entitled to make an application under sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forming its opinion as to whether the application merits 'waiver' of all or one or other requirement as specified in clauses (a) and (b) of sub-section (1) Section 244:- (i) Whether the applicants are member(s) of the company in question? If the answer is in negative i.e. the applicant(s) are not member(s), the application is to be rejected outright. Otherwise, the Tribunal will look into the next factor. (ii) Whether (proposed) application under Section 241 pertains to 'oppression and, mismanagement'? If the Tribunal on perusal of proposed application under Section 241 forms opinion that the application does not relate to 'oppression and mismanagement' of the company or its members and/or is frivolous, it will reject the application for 'waiver'. Otherwise, the Tribunal will proceed to notice the other factors. (iii) Whether similar allegation of 'oppression and mismanagement', was earlier made by any other member and stand decided and concluded? (iv) Whether there is an exceptional circumstance made out to grant 'waiver', so as to enable members to file application under Section 241 etc. 7. In the back groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the acts was so alleged, cannot be ignored. It is also claimed that other Petitioners are relative of main Petitioner i.e. Petitioner No. 3. It has also been claimed that this application has been filed after the fall out between two brothers in 2018. In this background, it was also pleaded that not only the Respondent No. 2 who was accused by CBI in a case relating to fraud/syphoning off funds etc. but petitioner No. 1 was also a co-accused. This fact is not controverted by the petitioner but a plea has been taken that the petitioner No. 3 was a technical person and all financial decisions were taken by Respondent No. 2. However, on a query from this Bench whether any material or resolution exists in records or otherwise which defines such distribution of responsibilities between two Managing Directors in terms of provisions of Companies Act, 1956 or Companies Act, 2013. However, no material has been brought on record to this effect. It has also been claimed by the Respondent No. 1 and 2 that even the transactions made basis for filing an application under Section 241 of Companies Act, 2013 pertain to a period much prior to three years from the date of filing of that petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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