TMI Blog2021 (5) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders. It appears from the above that all the major decisions regarding sale of equity, introduction of new directors etc. were taken in the above EGMs, following the due procedure. Also, in the present case, the Petitioners having enjoyed power of management of the Company with mere 25% shareholding of the Company, for a considerable period of time, and after voluntarily quitting from the management of the Company, have started raising frivolous issues during various AGMs and also filed the present Petition by abusing process of law. It is relevant to point out here that the Petitioners, immediately after filing the instant petition, wanted to withdraw the instant petition with a liberty to file a fresh petition due to various material defects committed, however the same was dismissed by this Tribunal as stated supra. This shows as to how the petitioners are so casual and abusing the process of law. The instant petition is filed with unclean hands with an intention to abuse and misuse the process of law and the same is contrary to the settled principle of law. The Petitioners failed to make out any case so as to interfere in the affairs of Company, as the principles of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company. (3) The Respondent No. 2 (R2) is the Managing Director of the Company and continues to be the Managing Director as on date and is holding 14,25,000 equity shares of ₹ 10/- each constituting 19.63% of the issued and paid-up capital of the Company. The Respondent No. 3 4 (R3 and R4) are also a Directors of the Company and continue to be the Directors as on date. The Respondent Nos. 5 to 9 (R5 to R9) are appointed as Additional Directors of the Company by the Respondents 2 to 4 on 25/04/2016 without the knowledge of the Petitioners and they continue to be the Additional Directors as on date. The Respondent No. 10 (RIO) is the wife of Respondent No. 2. Respondent 15 is the wife of and Respondents No. 16 to 18 are the children of Respondent No. 4. The Respondent No. 15 holds 1,40,000, Respondent No. 16 holds 2,33,000, Respondent No. 17 holds 5,44,500 and Respondent No. 18 holds 20,000 equity shares of ₹ 10/- each in the Company. (4) The Company was incorporated by first Petitioner and R2 to 4, each subscribing 6000 equity shares of ₹ 10/- each. The Petitioner No. 1 always ensured that whenever shares are allotted, the same are allotted in the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r No. 1 by his innovation identified the correct production process by which the iron ore fines were not allowed to be melted but rather turned out as sponge iron. Therefore, the company was able to make profits before depreciation. (6) During Sept., 2010, all the three other Directors, Respondents Nos. 2, 3 and 4 mentioned that they wanted to run the Company. The Petitioner No. 1 requested them to wait until the end of the financial year 2010-11. However, the Petitioner No. 1, stepped down from the management of the Company from 05th Feb. 2011, due to the pressure exerted by the Respondent Nos. 2, 3 4. Thereafter, Respondent No. 3 was appointed as Managing Director with effect from 13.04.2011. Since then, the Petitioner No. 1, neither received any notice of Board Meeting nor was he informed of policy decisions. The Petitioner No. 1, requested the other Board Members to convene Board Meeting and apprise on the affairs of the company. Since, the Company was not convening any Board Meeting, the Petitioner No. 1, fearing liability on him due to the misdeeds committed by the Respondents 2 to 4, resigned from the office of Director on 16/03/2013. The Company also filed Form 32 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents have written off a sum of ₹ 61,09,707.09, ₹ 3,80,86,639/- and ₹ 29,72,862/- from the creditors payable for the financial years 2011-12, 2013-14 and 2014-15 without giving the details of Creditors written off. This clearly proves that the expenditures were inflated. Mr. Hariprasad @ Chitti, son of the Respondent No. 2 and Respondent No. 8 herein, on 06/06/2012 written to Singareni Collieries Limited to reduce the allotted quantity 72000 MTs for 2 kilns per year to the quantity of 36000 MTs for 1 kiln per year. During the year 2012-13, the Respondents purchased coals from outsiders such as Aastha Minmet and various other coal suppliers and the Criminal Complaint filed by the Astha Minmet evidences the same. Since the company has not bought the coal from Singareni collieries Limited, the said company deducted a sum of ₹ 37,87,505.00 from the deposit amount. The Respondents in order to further their fraudulent activities terminated the agreement and the said company has deducted some penalty for terminating the agreement. Thus, the Respondents caused loss to the company. (9) The Petitioners through various letters raised the acts of mismanagement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Act on the details of electricity consumed by the Company during 2015-16 and the said company vide letter dated 13/04/2016 replied that it consumed 22,35,144 units of electricity during the year 2015-16. Further, the opinion on power consumption from a consultant specialised in installation of sponge iron units was obtained by the petitioners, and according to the expert 75 to 80 KWHs (units) are sufficient to produce one tonne of sponge iron. The Respondents have also cheated the Central Excise and commercial taxes by siphoning off of the sales of the Company. (12) The Petitioners submit that the Respondents did not convene the Annual General Meeting for the year 2015 but received Annual Report for the year 2014-15 in Dec., 2015. The Petitioner No. 1 was shocked to learn from the annual reports that the Company purportedly held its AGM for the year 2015 on 29.09.2015. The Petitioner No. 1 vide his letter dated 20.01.2016 strongly conveyed that the Petitioners did not receive any notice of AGM. The Respondents did not reply to the said letter so far. The Respondents convened an Extra-ordinary General body meeting of the Company on 28/10/2015 and the said meeting was cancell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same exhibits the conduct of the Respondents 2 to 4. Addl. Directors are outnumbering the original Directors of the Company and it seems that the Respondents are divesting the control of the Company to the Respondents 5 to 9 by selling their shares to these Directors and for that purpose they have been inducted as additional Directors. Hence, the Petitioner No. 1 issued notices to the Respondents that he was willing to purchase the shares in terms of Article 29 by his letters dated 11.05.2016 and 12.05.2016. (15) The Petitioners are now in receipt of notice dated 13/09/2016 convening the 11th Annual General Meeting of the Company on 30/09/2016 appointing the Respondents 5 to 9 as regular Directors of the company are proposed to be transacted and conversion of unsecured loans of the Company into equity shares of the Company are proposed to be transacted. The Respondents 5 to 9 are not the shareholders and have not contributed anything to the company. The Respondents contemplate conversion of loans into equity and by conversion, the company would not get any additional funds. Per contra, the Respondents would be able to enhance their shareholding in the Company. (16) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the few companies which has weathered the storm and has good financial status with their bankers. (3) The Petitioner No. 1 cannot escape by just making a false statement about misdeeds and mismanagement without substantiating them. Further, the Petitioner No. 1 cannot make any statements regarding his personal liability because all his secured assets have been released by the bank. (4) The Petitioner No. 1 has to explain how much the erection of the second kiln had cost and how much has been from internal accruals and how much has been borrowed and who are all the persons who had given the loan to the company and how much is the internal accrual within one year of operation, and when the second kiln became operational. The Petitioner No. 1 stepped down from the Directorship on his own free will, as the tide had turned against the sponge iron plants and their functioning became tough because of the limited supply iron ore due to ban imposed on iron ore by the Apex Court and the introduction of auction process. The purchase of the coal from Aastha Minmet India Limited is purely a business proposition, because the consumption of coal is directly proportional to the availabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lting in a higher consumption of electricity as the motors required to turn the kiln are same irrespective of the raw material that has been used. A higher capacity conveyor belts and other connected equipment consume the same quantum of power whether they are run at full capacity or at half capacity. Thus the ills of the R1 Company are mainly due to the Petitioner No. 1 and attributable to the installation of the second kiln and the investment having borrowed, but the interest on the amount eating in to the profit of the company as 100 TPD unit it was ideal as the investment was manageable but due to the so called imagination of the Petitioner No. 1 who wanted to install a second kiln has made a big dent in the profits of the company for which the Petitioner No. 1 is solely responsible. (8) Further, regarding writing off of dues from Creditors, by the R1 Company, it is between the creditors and the R1 Company and the Petitioner No. 1 is also a beneficiary of this writing off by the creditors. The Petitioner No. 1 cannot find fault with this action which has benefited the company and other shareholders as otherwise the company would have been in red. It is true that the Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, 7 9 and Shri K, Dushyanth Kumar, Learned Counsel for the Impleading Applicant. We have carefully perused the pleadings of both the parties, the extant provisions of the Companies Act, 2013, the rules made thereunder and the law on the issue. 5. Shri K.V Dhananjay, learned Counsel for the Petitioners, after arguing the case, has also filed Written Arguments on 04.03.2021 by inter alia stating as follows: (1) The Petitioner No. 1, on assuming the office of De- Facto Managing Director of the Company, commissioned the first 100 TPD (Tonnes Per Day) plant and machinery on 26th February 2006. While he was the Managing Director, the Company made substantial cash profits and expanded its business in 2007 by acquiring Installing an ultra-modern second plant and machinery with a capacity of more than 100 TPD on 1 Relevant document is not on record due to oversight. Despite lacking authority, the Respondent No. 2, started involving in the operational, administration and financial affairs of the Company internally and externally with various vendors from early 2009. One such instance appears when Respondent No. 2, without any authority, consistently made statutory filings with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lustrates their flagrant disregard for the same. The records pertaining to the year 2019 and the year 2020 reveal an astounding sum of ₹ 16.35 Cr. in respect of the inter-business transactions. However, the Respondents have deliberately failed to give any explanation pertaining to such related party transactions. (5) The shares came to be transferred to rank outsiders, who had no nexus with the company whatsoever, despite petitioners offering their willingness to purchase the existing members' shares if they were willing to sell off their share. The Petitioner No. 1 had addressed a letter to the Respondents on 12-05-2016 and 17-06-2016 (including prospective buyers at that time) offering to purchase such shares. However, Mr. Ramalinga Raju Prabhu and his family (the Respondents No. 7 9) on 29-07-2017 acquired a brutal majority of the total subscribed share capital of the Company. The said Ramalinga Raju Prabhu had no nexus or connection with the formation of the Company. In a second instance, the transfer of shares had taken place on 16.10.2019 and 18.10.2019 to outsiders, who now hold interest in the Respondent No. 1 Company. Details of purchase of shares of Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2005, 31.03.2008 and 11.04.2011 and all the three allotments were in nature of Conversion of Unsecured loans into Equity as and when Bankers insisted for the same with respect to process of availing banking facilities and also for capital requirements of the Company. A copy memo along with the Letter dated 14.03.2018 issued by Andhra Bank filed before this Hon'ble Tribunal on 22.03.2018, clearly evidences that the fact that conversion of unsecured loan into equity was one of the pre-conditions for sanction/renewal of working capital Loan. (2) The Petitioner No. 1 had refused for conversion of loan into Equity Shares in the 12th Annual General Meeting held on 30th October, 2017. The allotment was made on 3rd January, 2018, owing to the special resolution passed by the shareholders in the 12th AGM. He had showed such a dissent along with his affiliate shareholders. The allotment is in accordance with the provisions of Section 62 of the Companies Act, 2013 and the Companies (Prospectus and Allotment of Shares) Rules, 2014 and there is no contravention of any provisions of the Companies Act, 2013 and rules made thereunder. The e-Form PAS-3 so filed thereof was duly approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Obul Reddy had also resorted to mining scams during his tenure. Not being a Director of the Company, he had been sharing the vital information of the Company regarding its business activity and other information related to production, factory related data to the Directors. In the year 2009, when he was the Managing Director of the Company, he also involved in scam and in the report of Lokayukta, the name of the Company had been brought in without the knowledge of other directors and shareholders. There is an allegation against him that he had committed siphoning off funds during his tenure and the matter is still persisting. (6) The Company is duly maintaining secretarial records and also is ensuring that all the applicable provisions of the Companies Act, 2013 including Annual Filings of the Company. In the year 2011, adding to the trouble already being faced by the Company, Govt. of Karnataka banned export of iron ores. This resulted in decline in the revenue from operation for the year 2012-13. This is when, the Petitioner was also a Director of the Company. Instead of taking the responsibility, the petitioner conveniently stepped down from the position of Managing Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the Company and its present management by dragging the Company to litigation: 4) Whether the Petitioners are justified to continually go on adding grievances, threaten to drag non concerned persons into litigation raised in the Petition even though they have suffered adverse order in the case, when they have filed IA No. 13 of 2016 seeking to withdraw the instant Company Petition with liberty to file fresh case. 8. The main allegations made by the Petitioners in support of their case and the reasoning of Tribunal on those issues are as follows: (1) With regard to the allegations that due to pressure exerted by the Respondent Nos. 2 to 4, the Petitioner No. 1 stepped down from the management of the Company from 05th Feb. 2011, the record shows that he has stepped down on his own volition. Reference on this issue is made to the letter dated 16.03.2013 of intimation of his resignation as Director, wherein it is clearly stated that he was resigning owing to his health and personal reasons and also requested the Board of Directors to purchase his group shares or to arrange to sell them. When the Respondents are ready to accept his request and also filed CP No. 16 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y consumption for the Company during financial years 2011-12, 2015-16 are concerned, it is to be mentioned here that the first Petitioner was himself at the helm of affairs till 2013 and he is raising untenable and baseless grounds in support of his allegations for that period as well. In any case, the issue cannot come under purview of jurisdiction of this Tribunal and it is purely consumption of materials in running the factory. Several other statutory authorities exist which look in to these aspects and no directions from this Tribunal are necessary to such authorities to examine and take action with regard to under reporting of production. Similarly, the allegations raised with regard to sales of sponge iron, various transactions with Singareni Collieries Limited, Aastha Minmet and various other coal suppliers and the Criminal Complaint filed etc are also not open to judicial review under the powers conferred on the Tribunal. (4) With regard to allegations that the Petitioner No. 1 received the Annual Reports for the financial years 2010-11, 2011-12 and 2013-14 on a single date etc are concerned, that the first Petitioner being at the helm of Affairs of the Company for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the first Petitioner was at the helm of affairs and some of allegations are not even part of contentions raised in the main Company petition. In any case we are of the view that most of the allegations relating to the conduct of business have been adequately replied by the respondents. These have to be viewed in the light of the setback suffered by the global steel market since 2008, ban on ore export by the Government of Karnataka etc., leading to a general loss of business and profits in this industry as a whole, compelling companies in this sector to run to banks for more credit facilities. We see that such actions, such as conversion of loans into equity have been taken under compulsion as per the directives of the Andhra Bank when seeking further credit, for which the respondents cannot be faulted. We also take note of the fact that the Respondent Company has been filing its Returns under various laws, and no proceedings are pending before any of them, including under the Companies Act. (9) Several questions have been raised by subsequent IAs, which in fact cannot be taken cognizance without amending the main company Petition. And they are separate and independent cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hariprasad was Director from 25.04.2016 to 16.09.2014 (resigned). The present Directors are Mr. Ramlingamraju Prabhu as Director with effect from 21.05.2016, Mr. Rameshraju Raju as Director with effect from 25.04.2016, Mr. Anand Kumar Agarwal, Director from 01.04.2019, Mr. Asish Kumar Agarwal Director from 01.04.2019, and his designation is changed from Director to Managing Director with effect from 01.04.2019 for a period of 5 years and Mr. Sharad Agarwal with effect from 01.04.2019. Therefore, the first Petitioner being MD and Director till 2013, was having fiduciary responsibility towards the Company and he cannot misuse that position by becoming a chronic litigant in the smooth functioning of the Affairs of the Company. (2) The present shareholding of all the Petitioners is less than 10% after further allotment of shares of the Company. The Petitioner No. 1 has himself resigned as Director of the Company vide letter dated 16.03.2013 addressed to Board of Directors of the Company by citing that it is done due to his health and personal reasons and also requested the Board of Directors to purchase his group shares or to sell them and also requested to make necessary arrange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured loans repayment, losses being suffered by the Company etc and the Petitioners group also have committed/accepted that they would withdraw the civil suit for recovery of the amount from the R1 Company, if the unsecured loans belonging to them was repaid. The Management in the meeting has explained in detail that they would take appropriate steps to pay unsecured loans. All these actions, the management expressed the delay in renewal process was due to various letters addressed to the Bank by the Petitioners. It was also re-emphasized that the conversion of unsecured loans into equity was approved by the special resolution in 12th AGM of the company held in October 2017 and the company has complied with all the provisions of the Companies Act, 2013. The resolution was duly accepted with the requisite majority. (6) The 14th AGM was held on 30.10.2019 at Hotel Nakshatra, Ballari wherein all the Petitioners attended in person/proxy. In the minutes, it is clearly mentioned that all the Members were present in the receipt of the AGM meeting along with agenda. The resolution proposed in this meeting as ordinary business were to receive, consider and adopt the audited financial st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition due to various material defects committed, however the same was dismissed by this Tribunal as stated supra. This shows as to how the petitioners are so casual and abusing the process of law. The Petitioners are maintaining the original Company petition without amending it but filing several miscellaneous Applications, one or after the other, expanding the scope of litigation, contrary to law. 11. As detailed supra, the Respondent No. 2 G. Ramu has filed C.P No. 16 of 2016 (T.P No. 86/2016) before then CLB, which was transferred to this Tribunal, by inter alia seeking to direct the Petitioners herein to sell their shares on the value determined by the Auditor etc. However, the Company petition was withdrawn by memo dated 06.02.2020 filed by Counsel for the Petitioner. Surprisingly, the Petitioners are seeking the same relief by offering to purchase shares of Respondents. This also shows the conduct and bonafides of the Petitioners. Since the Company petition is filed u/s. 241, 242 213 of the Companies Act 2013 alleging various acts of oppression and mismanagement of the Company, the Petitioner cannot add pleadings unless the main petition is amended. Therefore, the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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