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TMI Blog2021 (11) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, Sr. Advocate alongwith Mr. Dhruv Malik, Mr. Hafeez Patanwala, Ms. Sharmistha Ghosh, Ms. Jinal Shah, Ms. Juris & Ms. Mannat Sabharwal, Advocates for R-7 to R-9., Dr. Abhishek Manu Singhvi, Sr. Advocate alongwith Mr. Pranaya Goyal, Mr. Abhishek Sharma, Mr. Bindi Dave, Mr. Aman Raj Gandhi, Mr. Aayesh Gandhi, Mr. Chirag Kamdar & Mr. L. Nidhiram Sharam, for R-6 to R-16. JUDGEMENT [PER; SHREESHA MERLA, MEMBER (T)] 1. Aggrieved by the Common Impugned Order dated 11.06.2021, passed by the NCLT (National Company Law Tribunal, Mumbai Bench, Court No.-1) in C.A. Nos. 1008 of 2020 & 1064 of 2020 in C.P.(IB) No.- 428 of 2018, Company Appeal (AT) No. 76 of 2021 and Company Appeal (AT) No. 78 of 2021, have been preferred by the Appellants under Section 421 of the Companies Act, 2013 (hereinafter referred to as the 'Act'). Since, both these Appeals are arising out of a Common Impugned Order, they are being disposed of by this Common Order. 2. The Tribunal while dismissing the Application has observed as follows:- "...........q. In the above circumstances, the Petitioners/Applicants are seeking the following reliefs: a) Pending the hearing and final disposal of the petition, this Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure and/or towards acquisition of assets (movable and/or immovable) and additional dealerships and also the number of new businesses and/or outlets which were opened and/or closed by Respondent No. 1 in areas outside the State of Gujarat from the year 2015 onwards till date; c) Pending the hearing and final disposal of the petition, this Hon'ble Tribunal be pleased to restrain and prohibit Respondent Nos. 2 to 17, their servants and/or agents from in any manner (directly or indirectly): (i) dealing with, alienating, encumbering and/or parting with possession of Respondent No.1's assets and properties and/or otherwise taking any lending and/or financial obligations or encumbering the assets and properties of Respondent No. 1, other than in the ordinary course of business and for the purpose of funding the immediate fund requirement of the Gujarat Division; (ii) prejudicing, obstructing and/or interfering with Petitioner No. 1 and 2's control of Respondent No. 1's Gujarat Division and its business and operations and/or to in any manner do anything which will prejudice Respondent No. 1's Ashok Leyland dealership for the Gujarat Division or to make any communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of the Gujarat Division or that it resulted from the mishandling of the micro-management, can only be gone into after a thorough enquiry while hearing the Company Petition taking into consideration the rival pleadings of the parties. It is prima facie probable that the Board did not give adequate attention to the revival of the resuscitation of the Gujarat Division. We are of the view that nothing prevented the Board to formulate a revival plan for the Gujarat Division and give directions to the Gujarat Management to put things in order. The problem which we perceive is that the divisions were treated as companies within a company and while the Board took credit for profitable units, it blamed the local management for losses, without initiating proper remedial measures though empowered to do so. iii. Whether the company is a quasi-partnership or not, cannot be decided at the interim stage. The prayers made in CA No. 1008 of 2020 are based on facts relating to the averments made in the Company Petition alleging oppression and mismanagement. Therefore, at this interim stage entire gamut of the allegations and counter-allegations cannot be gone into nor would it be prudent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Company Petition is pending consideration. In the result, both the Applications do not merit any consideration and are dismissed on contest. The order of this Bench dated 06.04.2018 needs no intercession by this Bench with clarifications given supra. No costs." 3. At the outset, the shareholding pattern of the parties concerned is detailed below:- * Automotive Manufacturers Pvt. Ltd. (hereinafter referred to as the 'Respondent No. 1 Company') has three Divisions:- a. The Gujarat Division, operated and managed by Pradip R. Kamdar, Ratilal D. Kamdar. b. The Andhra Pradesh/Telangana Division operated and managed by Rajeev Sanghvi and Kokila M. Sanghvi, the Appellants in Company Appeal (AT) No. 76 of 2021. c. The Maharashtra Division operated and managed by namely Bharat M. Sanghvi, Sachin Sanghvi & Aditya Sanghvi, the Appellants in Company Appeal (AT) No. 78 of 2021. 4. Groups Shareholding at the time of filing of the Company Petition Current Shareholding Seat(s) on the Board Gujarat Group 17.50% 19.31% 2 Maharashtra Group 35.23% 37.70% 3 Andhra Group 29.73% 32.33% 1 Appellant No. 1's Aunt 5.51% 6.07% - Others 12.03% 4.59% - 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows of these Divisions. * The Learned Sr. Counsel strenuously contended that the conclusion by NCLT that 'we are of the view that nothing prevented the Board to formulate the revival plan for the Gujarat Division and give directions to the Gujarat Management to put things in order. The problem which we perceive is that the Divisions were treated as Company within the Company and while the Board to took credit for profitable units, it blames the legal manager for losses, without initiating proper measures though empowered to do so would seriously prejudice their rights in the main Company Petition', is erroneous. * It was further contended that between 2008 and 2020 the Gujarat Group suffered losses of about Rs. 73.52 Crores; was on the verge of default with ICICI Bank, IndusInd Bank and Hinduja Leyland Finance. The Learned Counsel concluded that NCLT vide Order dated 06.04.2018 by directing R-1 Company not to make any structural changes to the existing arrangement and subsequently declining to modify that Order has restrained the R-1 Company from taking any active steps in preventing the downfall of the Gujarat Division, which is contrary to what the Hon'ble Supreme Court has i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isting arrangement at least until this Company Petition is disposed of'. This Order was not challenged only because the Respondents had initiated settlement talks. Subsequently the settlement failed and the losses continued to mount, the GST, liabilities were not met, the employees were not paid and the Company had to invest > Rs. 60 Crores to keep the Gujarat Division floating. In this background, IA 1008 was filed. * The Learned Sr. Counsel contended that presently the Gujarat Division has no dealership and only has overhead expenses and therefore the Company should be allowed to restructure for the overall benefit of all the shareholders. The Learned Sr. Counsel also drew our attention to paras 10 (ii) and (iii) of the Impugned Order and submitted that these two paras need to be expunged as the observations made in both these paras would cause prejudice to their rights in their main Company Petition. 7. Submissions of the Learned Counsel appearing for the Respondents/Gujarat Group: * The Learned Sr. Counsel Mr. Ravi Kadam, at the outset vehemently contended that there were no reasons for the Appellants to have taken two years to challenge the Order dated 06.04.2018. * The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore no prejudice will be caused to the Appellants. * Learned Sr. Counsel further submitted that no case is made out for expunging the marks in the Impugned Order as they are only of a prima facie in nature and are tentative. They are issued with the intent to preserve the Status Quo till the matter is finally decided and NCLT has rightly observed that these issues form the crux of the disputes between the parties and it would be in the fitness of things to ensure that the Petition is heard expeditiously in a time bound manner. * The three divisions were micro managed by the respective Groups and the Board of Directors of the Respondent Company is in full and effective control of all the divisions, yet the Gujarat Division was not getting the required funds as the Board did not give proper attention to revive the Gujarat Division. Instead of providing funds to arrest the losses, the Appellants are constantly demanding payment of annual dividends and quarterly tax instalments which was also met by the Gujarat Division through external borrowings. It is strenuously argued by the Board is empowered to suggest a revival plan without disturbing the present management pattern a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Order on 11.06.2021. 10. Aggrieved by this Order, both the Maharashtra and Andhra Pradesh Groups preferred these Appeals Company Appeal (AT) No. 76 & 78 of 2021 before this Tribunal. The Appeals were admitted vide Order dated 20.07.2021 and posted to 27.08.2021 for completion of pleadings. While so, the Gujarat Group preferred CA 4588 of 2021 & 4542 of 2021 before the Hon'ble Supreme Court. For ready reference, the Order of the Hon'ble Supreme Court dated 19.08.2021 is reproduced as hereunder:- "1. The appeal before the NCLAT arises from interlocutory proceedings. Notice has been issued in the appeal. Hence, there is no reason for this court to intervene at this stage when proceedings are still pending before the NCLAT. 2. The submission which has been urged on behalf of the appellant is that the appeal before the NCLAT against an interlocutory order of the NCLT would interminably delay the final disposal of the proceedings before the NCLT. It has been submitted during the course of the hearing that one of the appellants is ninety-eight years old. 3. On the last date of hearing, an adjournment was sought since the learned counsel for the contesting parties stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by NCLT in para 10 (ii) 'that the performance of the Gujarat Division cannot be solely attributable to the Gujarat Group, as it was not receiving the required funds and had to go for high cost external borrowings' read with the observations 'that the Board did not give adequate attention to the revival of the Gujarat Division and that nothing prevented the Board to formulate the revival plan to put things in Order', may prejudice the rights of the Appellants in the main Company Petition. Keeping in view, that the NCLT has observed that the Board is empowered to take all decisions, the factual matrix of the matter together with the chequered history and also that significant time has lapsed as the main Company Petition No. 428 of 2018 was filed way back on 19.03.2018 alleging Oppression and Mismanagement of the affairs of R-1 Company and further that the main Company Petition is listed for hearing before NCLT in less than 4 weeks time from today, we are of the considered view that in the interest of justice, NCLT shall dispose of the matter as expeditiously as practicable beginning the hearing on 28.10.2021 uninfluenced by the observations made in para 10 (ii) and (iii) of the Impug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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