TMI Blog2023 (8) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... -1, 2 5. Mr. Sraghan Sabharwal Mr. Shashwat Pratyush, Advocate for R-3. Mr. Rajiv K. Nanda, Party in person for R-4. Mr. Shashank Agarwal, Advocate for R-6. JUDGMENT Justice Anant Bijay Singh ; The present Appeal under Section 421 of the Companies Act, 2013, has been filed by the Appellant being aggrieved and dissatisfied by the order dated 03.05.2021 passed by the National Company Law Tribunal, New Delhi, Bench-VI in Company Petition (IB) No.118/241-242/ND/2019 whereby the petition filed by the Petitioner (Appellant herein) under Sections 59, 241, 242 and/or other applicable Sections of the Companies Act, 2013 was dismissed and held this petition is not maintainable. 2. The brief facts giving rise to this Appeal are as follows : i) The Appellant herein, Mr. Sudhir Horo is the Promoter Director and Shareholder of the Respondent No. 1 Company, holding 4500 equity shares of Rs. 10/- each amounting to 45% of shareholding of the Respondent No.1 Company. The Appellant is a graphic designer and holds degree in communication design with specialization in Graphic Design from the prestigious National Institute of Design (NID), Ahmedabad. The Appellant has worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and the Respondent No. 2, with the profit sharing ratio being 45:55, respectively. Thereafter, the Respondent No. 2 and the Appellant decided to form a private limited company in form of a quasi-partnership and the Respondent No. 1 Company was incorporated on 24.06.2011. It is pertinent to note that the Appellant and Respondent No. 2 agreed to proceed with the understanding that stood/existed between them in respect of partnership firm. Meaning thereby, the Appellant was allotted 45% shareholding and the Respondent No. 2 was allotted 55% of the shareholding in the Respondent No. 1 Company. iv) As per the understanding between the Appellant and the Respondent No. 2, the Appellant was responsible for developing brand and communication strategies and creative as per the clients requirements etc. Whereas the Respondent No.2 was responsible for the day to day affairs of the Respondent No.1 Company such as matters relating to business development, finance i.e. payments, maintenance of the bank accounts as he was the sole signatory of the same, ledgers, passbooks, cheque books, bills, taxes and various other statutory records of the Respondent No.1 Company and the same remained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Annual Returns for the financial year ending 31.03.2018. viii) The Appellant being shocked and uncertain of the said revelation immediately on 26.01.2019 wrote an email to the Respondent No.2 and 3, asking them if the same was correct. The Appellant received an email from the Respondent No. 2 who clarified that it is true that on papers i.e. as per the official records the shareholding of the Appellant has been arbitrarily reduced to 0% whereas in reality the shareholding ratio of the Respondent No.1 Company was 52.5% (Respondent No.2) : 42.5% (Appellant) : 5% (Respondent No.3). The Relevant extracts of the email reproduced as hereunder: Horo The Simple Answer is ON PAPER (as per official records) YES The real answer is - NO (the real shareholding is Shyam-5%; You- 42.5; Me-52.5% ... The share distribution ON PAPER had changed to Shyam-5% and Me 95% ... our understanding had been that When our comeback after your Jharkhand tenure, the REAL shareholding will get formalised ON PAPER. (Emphasis supplied) ix) The Respondent No.2 about the illegal manner in which the shareholding of the Appellant was reduced to Zero, the Appellant immediate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of transfer and consideration is void in law. It is pertinent to note that after the feverous objections of the Appellant, the Respondent No. 2 in his email of 29.01.2019 agreed to the chain of events as mentioned above and offered to alter the shareholding pattern to the earlier understanding of 52.5% (Respondent No. 2): 42.5% (Appellant) : 5% (Respondent No. 3). It is submitted that the aforesaid email of the Respondent No. 2 clearly shows the admission of the unlawful act done by the Respondents behind the back of the Appellant in an illegal and fraudulent manner. Relevant extracts of the email dated 29.01.2019 of the Respondent No. 2 is reproduced herein below: Dear Horo ...Also, allow me to reassert that the switch from 5:95 to 5: 42.5 : 52.5 depends entirely on When you want it done... The change from 45:55 to 5:95 was done only to insulate you from any possible witch-hunt by detractors in Govt. of Jharkhand... (Emphasis supplied) xiii) Thereafter, on 20.02.2019 the Appellant received an email from the Respondent No. 3 containing therein share transfer forms to revise the shareholding in terms of the earlier understanding of 52.5% (Respondent No. 2): 42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essal of his grievances concerning the acts of oppression and mismanagement in the affairs of Respondent No. 1 Company. 3. Learned Counsel for the Appellant during the course of argument and in his memo of Appeal along with written submissions submitted that the crucial date for determination of requirement under Section 244 of the Act will be date when the act of oppression and mismanagement in bringing down the shareholding below 1/10th of the total shareholding of the company took place. The shareholding of the petitioner is reduced below 10% because of the act(s) of oppression and mismanagement and the said act(s) is the subject matter of challenge in the company petition, the petition shall be maintainable on the basis of the original undiluted shareholding. The Hon ble NCLT while overlooking the aforesaid settled principles of law erringly dismissed the Company Petition No. 118/241/242/ND/2019 ( Company Petition ) by way of the impugned order dated 03.05.2021 while wrongly holding that the Appellant has to first establish his right as a member of the Respondent No.1 Company, in complete disregard to the judgments of this Hon ble Appellate Tribunal. 4. It is further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments of this Tribunal in the matters such as M/s. Therm Flow Engineers Private vs Mr. Bhavesh Narumalani Anr. [Company Appeal (AT) Nos. 159 198 of 2017], Yamini Bipinchandra Shah Ors. Vs. Trimbak Estate Pvt. Ltd. Ors. [Company Appeal (AT) No. 250 of 2018 and Montreaux Resorts (P) Ltd. and Ors. Vs Ascot Hotel Resorts Ltd. and Ors. [2018] 211 CompCas 205, wherein this Hon ble NCLAT has relied on principle laid down in the matter of Anup Kumar Agarwal and Ors. (Supra). 8. It is further submitted that the Hon ble NCLT has erroneously passed the impugned order based on a judgment of the Hon ble Gujrat High Court in the matter of Gulabrai Kalidas Naik Ors. vs Laxmidas Lallubhai Patel Ors. [(1977) 47 Comp Cas 51], which in the humbly submissions of the Appellant are not applicable / distinguishable to the facts of the present case. 9. The impugned order is also liable to be set aside as the judgments of this Hon ble Appellate Tribunal which were placed before the Hon ble NCLT has been completely ignored / not dealt with by the Hon ble NCLT. 10. The Appellant further submits that there is no requirement for seeking waiver under Section 244 (1) of the CA, 2013 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Written Submissions not exceeding three pages along with relevant case laws within two weeks and the matter was directed to be listed on 27.03.2023. Thereafter, the matter was adjourned to 17.05.2023 on that day, the Counsel for Respondent No. 1, 2 and 5 was heard. Learned Counsel for the Respondent Nos.3, 4 and 6 adopted the submissions made by Respondent No.1, 2 and 5. Further the matter was heard on 28.07.2023. 15. On 28.07.203, Learned Counsel for the Appellant was heard at length. Learned Counsel for the Respondent was also heard and both the parties were directed to file Additional Written Submissions not exceeding three pages along with the relevant case laws, within one week. 16. Learned Counsel for the Respondent No.2 and 5 have filed their Reply affidavit and Written Submissions filed on behalf of the Respondent No.2 and also during course of argument has submitted as follows: i) The captioned Appeal has been filed by the Appellant challenging the Order dated 03.05.2021 ( Impugned Order ) passed by the Hon ble National Company Law Tribunal, Delhi ( Hon ble NCLT ) dismissing the Company Petition No. 118/241/242/ND/2019 ( Company Petition ) filed by the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Respondent Nos. 2 and 3 without any engagement or involvement of the Company. Thus, so far as transfer of shares is concerned, the Company had no role and it was done privately. vii) Section 241(1) of the Act, insofar as it is applicable to the present case, is extracted below: 241. (1) Any member of a company who complains that- (a) The affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) .. (c) may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter. viii) On a plain reading of the above provision, it is evident that in order to be able to invoke Section 241 of the Act, the Appellant must show that the affairs of the Company have been or are being conducted in a manner unfairly prejudicial to him or to public interest. In other words, the Company and conduct of its affairs must be shown to be an instrument or means of oppression. In the present case, as stated above, so far as the alleged fraudul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o power to decide complicated and disputed questions of forgery and fabrication of documents or pass declaratory reliefs of declaring private transfer of shares as null or void, which issues are neither incidental nor peripheral to the issue of rectification. Reliance is placed on the decision of the Hon'ble Supreme Court of India in Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd. Ors., (1998) 7 SCC 105. xiv) It is submitted that jurisdiction of the Hon ble NCLT is exclusive if the matter truly relates to rectification. However, in the present case the allegations and issues of forgery and fabrication of documents raised by the Appellant are alien to rectification and are not within the exclusive jurisdiction of the Hon ble NCLT under Section 59 or any other provision of the Act (Refer Jai Mahal Hotels Pvt. Ltd. v. Devraj Singh and Ors., (2016) 1 SCC 423). Further, the Hon ble NCLT, Hyderabad in Tondapi Srinivasa Rao Anr. v. Abhaya Cements Pvt. Ltd., 2018 SCC Online NCLT 24280 has held that issues of fraud and forgery are beyond the jurisdiction of the Hon ble NCLT. It is humbly submitted that the Hon ble NCLT has no power to decide on the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, it is further submitted that the Appellant is guilty of suppression of material facts and making false statements in the Company Petition. The story set up by the Appellant in the Company Petition as well as the captioned Appeal is fabricated and twisted to suit his convenience. In this regard, the Answering Respondent craves leave to refer to and reply upon the Reply filed by the Answering Respondent to the Company Petition before the Hon ble NCLT. xxi) It is submitted that the Hon ble NCLT has dismissed the Company Petition on the ground of the same not being maintainable without adjudicating on the merits of the Company Petition. However, since the Petitioners has made several false and baseless allegations in the Appeal, it is important to briefly set out the true and correct facts leading up to the filing of the Company Petition: - Re: Details of incorporation of the Company and its affairs prior to 2017 a) In 2004, the Appellant was introduced to the Answering Respondent by a common acquaintance as a freelance graphic designer. During this time, the Answering Respondent was heading the Delhi branch of Ambience Public is Advertising Pvt. Ltd, a reputed company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny was conducted in an informal manner with the knowledge, consent and cooperation of all employees of the Company including the Appellant and the Answering Respondent. Throughout this period, the Appellant did not raise any grievance or any complaint with regard to conduct of business operations of the Company at any point of time. In fact, the Appellant himself was a Director of the Company till 18.04.2017. He was a joint signatory to all operational bank accounts, party to all decisions of the Company / Board of Directors of the Company and signed all Financial Statements and Directors' Reports of the Company till the Financial Year 2015 - 16. h) There is, therefore, no question of Appellant raising any dispute or controversy with regard to the conduct of business operations of the Company during this period. The allegation of mismanagement of affairs of the Company for this period, if any, must therefore be outrightly rejected. Appellant cannot be permitted to raise any controversy in that regard after a lapse of over two years and after enjoying the benefit of employment with the Company without any demur or protest until his resignation as the Director as discussed bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... your employment with the Department, you will devote your whole time, attention and skill to your ability for its services and you shall not, except with the written permission of the Department, engage directly or indirectly in any other business, profession, occupation or other commercial activity, whether as a principal, agent, contractor, consultant or otherwise, whether full-time or part-time. c) In recognition of the Confidential Information or Intellectual Property to the Department, you hereby agree not to directly or indirectly compete with the business of the Department and/or its successors and signs during the term of the contract and for a period of 12 months following the expiration or termination of this contract and notwithstanding the cause of reason or termination . n) Further, the Company had continued to provide service to the Government of Jharkhand. Company was also expecting award of a very big project which was under consideration of the Government of Jharkhand. o) Therefore, if the Appellant were to hold any stake or interest in the Company after his appointment by the Government if Jharkhand, it would have given rise to a serious conflict of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation that the signatures on the Securities Transfer Forms are not his is baseless. x) The Appellant has further alleged that the Answering Respondent transferred the shares of Appellant in his own name to gain undue pecuniary benefits. However, this allegation is also false. This is evident from the fact that the Company did not declare any dividends for the FY 2017-18 even though it made significant profits during this year while the Answering Respondent held 95% shares. y) It is submitted that suppression of such material fact by the Appellant amounts to playing fraud on the Hon ble NCLT as well as this Hon ble Tribunal. Such conduct of the Appellant disqualifies him from grant of any equitable relief rendering the Company Petition and the present Appeal liable for an immediate dismissal. The Appellant has come to Court with unclean hands disentitling him from any relief from the Hon ble NCLT or this Hon ble Tribunal. xxii) Apart from the above, the Appellant has also made a few other baseless allegations against the Answering Respondent in the Company Petition. However, it is submitted that the Appellant has no locus to raise these objections since he has ceased to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a partnership firm between the Appellant and the Answering Respondent, with the profit sharing ratio of 45:55 as alleged. It is submitted that the Company was incorporated in the year 2011. At the time of incorporation, the Appellant held 45% shares and Answering Respondent held 55% shares in the Company. The Company was never formed as a quasi-partnership as alleged. There was never a partnership firm between the Appellant and Answering Respondent and no such arrangement/understanding existed between the Appellant and Answering Respondent qua the Company. e) With respect to the contents of paragraph 7(4) of the Appeal, it is denied that the Answering Respondent was in exclusive control of the day-to-day affairs of the Company such as matters related to business development, finance i.e. payments, maintenance of bank accounts etc. It is denied that the Answering Respondent was the sole signatory of bank accounts, ledgers, passbooks, cheque books, bills, taxes or other statutory records of the Company. It is submitted that the Appellant was a joint signatory of the bank accounts/cheque books etc. of all bank accounts of the Company except one at State Bank of Patiala (which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily transferred his shares in favour of Respondent Nos. 2 and 3 and was well aware of revised shareholding pattern of the Company all along. h) With respect to the contents of paragraph 7(10) of the Appeal, it is denied that the Answering Respondent gave any evasive responses to the emails of the Appellant. The requisite documents pertaining to the transfer of shares and resignation of the Appellant as a director of the Company were duly provided to the Appellant on 28.01.2019. i) With respect to the contents of paragraph 7(11) of the Appeal, it is submitted that: - a) the Answering Respondent also apprehends that the Appellant would attempt to mislead this Hon ble Tribunal by alleging that the signatures on the Securities Transfer Form were not his and are different from the signatures appearing on the MoA and AoA of the Company. However, it would be pertinent to note that there was a repeated issue faced by the Company since the Appellant's signatures on cheques and bank documents frequently mismatched. As such, a communication dated 31.07.2013 was also addressed to Axis Bank, Sector 46, Gurgaon intimating them about the issue and furnishing the revised signature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er deal with such submission/s of the Appellant at the time of hearing. xxix) With respect to the contents of paragraphs 7(19) and 7(20) of the Appeal, it is denied that the Impugned Order is in derogation or disregard to the precedents set by this Hon ble Tribunal. It is denied that the Impugned Order was passed without application of mind or in a mechanical manner. It is submitted that the Hon ble NCLT correctly held that the title of the Appellant to the shares of the Company was in dispute and that the Appellant is not a member of the Company. It is denied that the Impugned Order is non-speaking, cryptic or unreasonable and is, in fact, based on the settled principles of law after recording the detailed submissions made by the parties. xxx) With respect to the contents of paragraphs 8(1)(A) and 8(1)(B) of the Appeal, it is denied that the Hon ble NCLT erred in recording that the title of the Appellant is in dispute. It is reiterated that the Appellant had voluntarily transferred his shareholding in the Company in favour of Respondent Nos. 2 and 3 as detailed hereinabove. xxxi) The purported Questions of Law raised in paragraph 8(2) of the Appeal would be dealt with by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In these facts, this Hon ble Tribunal was justified in upholding the maintainability of the petition. In contrast in the present case, so far as the transfer of shares is concerned, there was no involvement or engagement of the Company. xxxv) With respect to the contents of Grounds 9(K) and 9(L) of the Appeal, it is denied that the Impugned Order is unreasonable or unsustainable. It is submitted that the Impugned Order duly records and deals with the arguments and submissions of the parties. xxxvi) With respect to the contents of Grounds 9(M) and 9(N) of the Appeal, it is denied that the Hon ble NCLT committed any miscarriage of justice or failed to apply its judicial mind. It is submitted that the judicial pronouncements relied upon by the Appellant were completely inapplicable in the present case. It is denied that Hon ble NCLT violated any precedents of this Hon ble Tribunal. xxxvii) With respect to the contents of Grounds 9(0) to 9(U) of the Appeal, all allegations and averments of the Appellant are denied. It is denied that the Hon ble NCLT committed any error or committed any oversight. It is denied that the Impugned Order is perverse or against the principles of jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the account that the Petitioner does not hold requisite shareholding as prescribed under Section 244 of the Companies Act, 2013 ( Act ). In present case, the Petitioner s shareholding has been reduced below 10% (nil) on account of illegal transfer of shares. The petition under Section 244 would be maintainable as the shareholding of the petitioner has been reduced below 10% due to allegedly illegal transfer of shares, which has been challenged in the petition being one of the cause of action and therefore, the petition cannot be dismissed at the threshold, It may be noted that if the date of presentation of the petition should be looked into in a technical way, it could defeat the very purpose of the legislative enactment of Section 241 of the Act, as the overbearing majority shareholders can simply by high-handed action or even for other purpose and by oppressive methods, dismember minority shareholders and leave them with no remedies, as the dismembered minority shareholders technically will not thereafter qualify for maintaining a petition under Section 244 of the Act, being not member at all. As the minority shareholders will be complaining only after the acts occurred and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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