National Company Law Appellate Tribunal
Kiran Reddy Pendri vs Escientia Advanced Sciences Pvt Ltd on 21 December, 2023
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NATIONAL COMPANY LAW APPELLATE TRIBUNAL, CHENNAI
BENCH
Comp App (AT) (CH) No. 106/2023
IN THE MATTER OF:
Kiran Reddy Pendri
....Appellant
Vs.
Escientia Advanced Sciences Pvt Ltd. & 10 Ors.
....Respondents
Present:
For Appellant: Mr. Akshay Bhan& Mr. Vivek Reddy, Senior Advocates
For Mr. Gyanendra Kumar, Mr. Soumya Dasgupta, Mr.
Dwijesh Kapila, Mr. Aviral Singhal and Mr. Sushant
Kareer, Advocates
For Respondents: Mr. Niranjan Reddy & Mr. P.H. Arvindh Pandian, Senior
Advocates For Mr. Amit Dhingra, Mr. Siddharth
Agrawal, Mr. Shivam K. Raheja & Ms. Kesang T. Doma,
Advocates, For R2, R3, R7, R8 & R9
ORDER
Per: Justice Rakesh Kumar Jain:
This appeal is directed against the order dated 28.11.2023, passed by the National Company Law Tribunal, Hyderabad Bench - 1 by which an application filed by the Appellant bearing I.A. No. 263 of 2023 for continuation of interim stay has been dismissed.
2. In brief, three petitioners, namely, Escientia Life Sciences (a limited liability company),Kiran Reddy Pendri & Ms. Swarnalatha Mannam filed a Petition under Section 241 & 242 of the Companies Act, 2013 (in short 'Act') seeking the following 'main reliefs' and 'interim reliefs' which are reproduced as under:-
"Main Reliefs 2 A. Declaring that Respondent Nos. 2 to 9 have acted in a manner prejudicial and oppressive to the interests of the Petitioner and Respondent No. 1 Company;
B. Quashing the proposal of Respondent No. 4 for appointment of a Chief Operating Officer and declare the same null and void, and restraining Respondent Nos. 2 to 4 from making any other appointment with similar powers;
C. Declaring that Article 69 of the Articles of Association of the Respondent No. 1 Company requires unanimous consent of all directors of the Respondent No. 1 Company for any resolution to be passed.
D. Directing that the Respondent No.2 Company shall not be entitled to appoint more than 1 (one) director on the board of Respondent No. 1 Company;
E. Appointing an independent director on the board of Respondent No. 1 Company;
F. Removing Respondent Nos. 4 to 6 from the Board of Directors of the Respondent No.1 Company and directing Respondent No. 2 Company to nominate 1 (one) person after providing and obtaining approvals of the credentials of such person from this Hon'ble Tribunal;
G. Restraining Respondent Nos. 2 to 9 from interfering with the day-to-day functioning and management of the affairs of the Respondent No. 1 Company;
H. Directing Respondent No. 2 to 9 ensure clear separation between the persons nominated on the board of the Respondent No. 1 Company or any other person having access to Respondent No. 1 Company and its information, from any competing business including that known as Primopus, I. Restraining Respondent Nos. 2 to 9, their principals/directors, their promoters, managers, assigns, successors-in-interest, licensees, franchisees, sister concerns, representatives, servants, distributors, agents, etc.and/or any person or entity acting for them from entering into any contract of supply/ services or otherwise with the Respondent No.1 Company; J. For costs of the Petition; and K. Such further orders as this Hon'ble Tribunal is empowered to pass under Section 242 of the Companies Act, 2013 and mould reliefs as it considers fit and proper in the circumstances of the case to bring an end to the matters complained of. Interim Reliefs A. Restraining any change in shareholding, capital structure, or constitution of the board of directors of Respondent No. 1 Company without the specific leave of this Hon'ble Tribunal; B. Restraining Respondent No. 1 Company and Respondent Nos. 2 to 9 from taking any coercive actions against the Petitioners and/or Dr. Yadagiri R. Pendri;
C. Restraining Respondent No. 1 Company from calling a meeting of the board of directors on 04.09.2023 or any other date 3 thereafter for inter alia the purposes of appointment of a Chief Operating Officer of the Respondent No. 1 Company or any other officer/ employee with similar powers;
D. Removing 1 (one) nominee director of Respondent No. 2 Company and replacing them with an independent director appointed by this Hon'ble Tribunal;
E. Directing that no resolution can be passed by the board of directors of the Respondent No. 1 Company without the unanimous consent of all directors of Respondent No. 1 Company;
F. Restraining Respondent Nos. 2 to 9 from interfering with the day-to-day management of the affairs of Respondent No. 1 Company;
G. Restraining Respondent Nos. 2 to 9 from taking any further action for and on behalf of the Respondent No.1 Company till such time as a shareholder agreement is not entered into between all the shareholders of Respondent No.1.
L. For ad interim reliefs in terms of all the prayers above; M. Such order and further relief(s) as this Hon'ble Tribunal may deem fit and proper in the circumstances of the case."
3. Although, no separate application for stay was filed as the interim reliefs were prayed for in the main petition itself, the Tribunal vide its order dated 04.09.2023 passed the following order:-
"1. The Petitioners herein, have filed the above Company Petition under Section241 R/w Section 242 of the Companies Act, 2013, seeking appropriateremedies alleging various acts of oppression and mismanagement byRespondents 2-9,which are narrated in the Company Petition.
2.By way of ad-interim relief, Petitioners have also prayed for an interim order restraining Respondents 2-9 from calling the meeting of the Board of Directors scheduled on 04.09.2023 at 5 pm or on any date thereafter, inter- alia, for the purpose of appointment of Shri M.S.M. Mujeebur Rahuman as Chief Operating Officer (COO) of the 1st Respondent Company or any otherofficer/employee with similar powers and from passing any resolution bythe Directors of the 1st Respondent Company.
3.Ld. Senior Counsels Shri D. V. Sita Ram Murthy and Shri S. Ravi for thePetitioners have invited our attention to the pleadings and various documentsfiled besides relied on the several rulings and contended that theRespondents 2-9 (also referred as "Deccan Group"）， through its nomineedirectors are all set to appoint a COO for the 1st Respondent Companycontrary to the provisions of the Companies Act, 2013, with an unheard ofand exorbitant remuneration, with a clear view and aim of usurping of 4 powers of the Board and the founder promoters bypassing the Boardprocedures, in the Board Meeting scheduled on 04.09.2023 (today) at 05:00pm, pursuant to the notice dated 24.08.2023 issued by 1st RespondentCompany.
4.Ld. Senior Counsels vehemently urged that when there are no allegations of mismanagement and the financial statements of the 1st Respondent Company clearly discloses that the 1st Respondent Company is a profitmaking going concern the overwhelming urgency shown by the Deccan Group in calling for a Board Meeting on 04.09.2023, inter-alia, to appoint COO Shri M.S.M. Mujeebur Rahuman for the Ist Respondent Company clearly reveals the 'ulterior motive' of the Deccan Group, to dislodge thePetitioners completely from the management and control of the affairs of the1st Respondent Company, as such it is a fit case to grant ad-interim reliefrestraining the Respondents 2-
9 from passing any resolution in the BoardMeeting, more so in respect of the item nos. 4, 5 & 6 of the Agenda of theBoard Meeting dated 04.09.2023.
5.Per contra, Shri S. Niranjan Reddy, Ld. Senior Counsel for the 2ndRespondent, while strongly opposing grant of ad-interim relief, at the outsetcontended that due to paucity of time, the 2nd Respondent is unable to file adetailed para-wise reply to the petition and hence filed a preliminary reply,reserving its right to answer each and every allegation raised in the petitionby way of a separate detailed counter.
6.According to the Ld. Senior Counsel, the Petitioners are seeking personalgain and pecuniary benefits at the expense of 1st Respondent Company andthe answering respondent, hence, this ground alone is sufficient to concludethat the petition is not maintainable.
7. Ld. Senior Counsel further submitted that the allegations as made in thePetition cannot be projected as something that would "trigger the just andequitable cause for winding up or to grant relief u/s 241-242 of theCompanies Act, 2013" and "no case is made out for winding up". Therefore,according to the Ld. Senior Counsel, the CP itself is liable to be dismissed.
8.Ld. Senior Counsel further stated that the proposed resolutions of today'sBoard Meeting are yet to be discussed and deliberated and may be passedwith or without modifications after the views of the Directors present andvoting are taken into consideration. Therefore, according to the Ld. SeniorCounsel, when the Directors at the meeting can freely express their viewsbefore the proposed resolutions are passed, it is premature to come to anyconclusion on the outcome of the proceedings and to pass restraint order.
9.Ld. Senior Counsel also submitted that mere summoning of the BoardMeeting by the 1st Respondent cannot be seen by the minority shareholdersas an "act of oppression" and therefore, granting interim relief at this stageis uncalled for and unwarranted.
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10. Ld. Senior Counsel has also taken us through the Share Purchase Agreementand the correspondences and contended that the submissions of the Ld.Senior Counsel that the Board Meeting Scheduled on 04.09.2023 has beencalled hastily, only to dislodge the Petitioners from the Management andcontrol is unfounded and an afterthought.
11. Shri Y. Suryanarayana, Ld. Counsel for Respondent No.4 sailed with thesubmissions of R-2.
12.We have heard the Ld. Senior Counsels. Perused the record.
13. The Company Petition and documents run over 03 bulky volumes and theinterim counter contains 300 odd pages. Both sides have made lengthysubmissions and concluded only at 01.40 pm today, even while the BoardMeeting is scheduled at 5 pm today.
14.On a prima facie, examination of the records placed before us, we are of theview that in the absence of any specific allegation, that the due procedure incalling for today's Board Meeting is not followed, granting stay of today'sBoard Meeting is unwarranted. Therefore, we are not inclined to stay theBoard Meeting scheduled on 04.09.2023 (today at 5pm).
15. However, having regard to the fact that, the affairs of the 1st Respondent areprima facie, being conducted normally, we do not find any immediateurgency to empower the COO to be appointed in today's Board meeting withthe power to conduct the affairs of the 1st Respondent Company, as detailedin the Power of Attorney.
16. Therefore, if the Board of Directors of R-1 takes a decision to appoint Shri M.S.M. Mujeebur Rahuman as COO of 1st Respondent Company, the saiddecision shall be kept in abeyance till 12.09.2023.
17.Meanwhile the Petitioners to serve notice on the remaining respondents andRespondents who have entered appearance to file their counters by08.09.2023.
18. For continuation ofhearing, list the matter on 12.09.2023.
19. Since the order was under typing, we have directed the Registry around 4.45pm to inform the Ld. Counsels for both sides to defer today's Board Meeting till 5.30 p.m and we are informed that Ld. Counsels were accordinglyinformed.
20. This order is pronounced at 5.30 pm in the open court. Ld. Counsels forboth sides present physically and also through VC. Registry is directed toupload the order forthwith."
4. The Appellant filed the application bearing I.A. (CA) No. 263 of 2023 invoking Rule 11 of the NCLT Rules, 2016 (in short 'Rules') for the following two prayers:- "extending the directions passed vide order dated 04.09.2023; 6 and any other order(s) that this Hon'ble Tribunal may deem fit to pass in the facts and circumstances of the present case and in the interests of justice"
5. This application dated 17.10.2023 was contested by the Respondents on various grounds. The Tribunal framed following issues in the impugned order (1) whether the role of the Respondents is only passive and no involvement in the day to day management? (2) whether the word 'both directors' in Article 69 of the AoA, now means 'all directors' if so, the impugned board resolution passed only by the majority directors is sustainable? (3) whether the appointment of Dr. MSM Mujbur Rehuman, as COO, is mala fide, unwarranted, unsustainable and oppressive? (4) The Respondent No. 4 to 6 have actively involved themselves in the affairs of the 1st Respondent Company, to the extent that the nominee directors and their various appointees have proactively siphoned off the business of the 1st Respondent Company to Primopus?" and after considering the submissions of the parties in respect of the aforesaid questions, the Tribunal dismissed the application vide its order dated 28.11.2023.
6. However, it also recorded in Para 49 of the impugned order that "Before we part with, we wish to say that since we made it clear that our observation in this order are subject to the final outcome of the Company Petition, we direct both sides to get ready for final hearing on the next date of hearing without fail. The Petitioners are also at liberty to move this Tribunal, for expeditious hearing, if necessary."
7. Immediately, after pronouncement of the order, the Appellant made an oral request to keep the order in abeyance for at least one week enabling the 7 Petitioners to go through the orders and pursue their remedies under law. The said prayer was though contested/resisted by the Respondents but the Tribunal directed that the impugned order shall be kept in abeyance for a period of three days effective from 28.11.2023. The Order passed at the time of pronouncement is separately recorded and is as under:-
"Orders pronounced. In the result, this application is hereby dismissed. No costs. Immediately after pronouncement of orders in IA No 263/2023, Learned Senior Counsel Mr.Vivek Reddy, for the petitioners made an oral request to keep theabove order,in abeyance for at least one week, enabling the petitioners to gothrough the orders and pursue their remedies under law. However,Learned Senior Counsel Mr. Niranjan Reddy, for Respondent No.2opposed the same contending that there is no such precedent in so far asinterlocutory applications are concerned. Thus, prayed not to keep the order inabeyance. The order in IA No 263/2023 will be uploaded today itself. However,consideringthe submissions of both sides, and taking into consideration the fact that ordercopy will be made available by today evening, we hereby order that "todays orderin IA No 263/2023" be kept in "abeyance" for a period of three days effectivefrom 28.11.2023."
8. The aforesaid order of keeping the impugned order in abeyance was operative for three daysw.e.f 28.11.2023, therefore, it had to come to an end on 30.11.2023.
9. The Respondent has urged that Dr. MSM Mujbur Rehuman was appointed as Chief Operating Officer (COO) on 01.12.2023 after the expiry of three days period counted from 28.11.2023 and no appeal was filed by that time by the Appellant before the Appellate Tribunal as according to them the appeal was efiled on 01.12.2023 itself. According to the Appellant, second and third December, 2023 was the Saturday and Sundayand the Court was closed and on Fourth and fifth December, 2023 the Chennai Bench did not function because of incessant rainfall and cyclonic storm and said days were 8 declared as holiday. It is submitted that on 06.12.2023 the appeal was mentioned which was immediately listed for hearing on 07.12.2023.
10. It is further submitted by the Respondents that the Tribunal gave the date for the main petition to be heard on 05.12.2023 and in terms of the para 49 of the impugned order, the parties were to argue the main petition without fail but at that time the Appellant made a statement that there is no urgency in the Company Petition because the Appellant has already filed an appeal against the order passed in I.A. No. 263 of 2023 but in case of any urgency the same would be mentionedbefore the Tribunal and in view thereof, the case was adjourned to 01.02.2024 on the request of Counsel for the Appellant. The order dated 05.12.2023 is also reproduced as under: -
"Learned Senior Counsel Mr. Vivek Reddy, for the petitioners and Learned SeniorCounsel Mr. S. Niranjan Reddy, for Respondent No.2 present through VideoConference. Learned Senior Counsel for the petitioner submits that as an Appealhas been preferred against the order of this Tribunal in IA No 263/2023. Hence,at this stage the company petitioner has no urgency in the company petitionhowever, in case of any urgency the same would be mentioned before thisTribunal for taking up the company petition. Hence, the company petition isadjourned to 01.02.2024."
11. In the adverting facts of the case, initially, there were two directors of the Company, namely, Kiran Reddy Pendri and Yadagiri R. Pendri. However, there was share purchase agreement entered into between five entities, namely, Deccan Fine Chemicals (India) Pvt. Ltd., Escientia Life Sciences, Escientia Advanced Sciences Pvt. Ltd., Flextronics Medical Sales and Marketing Pvt. and Pendri Futram Group, LLC on 03.08.2020 paving way to the appointment of three more directors, namely, R.S. Dwaraknath, Vivek Save and Chakradhar Danduto the board of directors of the Company. Some 9 of the articles of the AoA were amended on 26.10.2021. Article 68 which deals with the quorum for a meeting of the board also got amended.
12. Counsel for the Appellant has submitted that though article 68 of the AoA was amended but there was no amendment in article 69 of the AoA as per which the all decisions of the board, including in respect of a resolution by circulation is required to be taken only if both board of directors have voted in favour of it. Article 68 (old article), amended Article 68 and 69 are reproduced as under:-
"Old Article 68. The quorum for a meeting of the board shall consist of both directors present throughout the meeting. If within one hour from the time appointed for the holding of a meeting of the board, a quorum as set forth hereinabove is not present, the meeting of the board shall stand adjourned to the next working day thereafter at the same time and venue as the original meeting. If at such adjourned meeting a quorum, as set out herein, is not present within one hour from the time fixed for holding the adjourned meeting, the meeting shall stand adjourned to the same day in the next week, at the same time and venue. At no point in time shall a board meeting be quorate unless both directors are present throughout the meeting.
68. The quorum necessary for a meeting of the board of directors shall be 1/3rd of its strength (any fraction contained in that 1/3rd being rounded off as one) or two directors whichever is less and the provisions as stated in Section 174 of the Companies Act, 2013.
*Clause 68 has been altered by passing special resolution at the 8th Annual General Meeting held on 26.10.2021.
69. Each director shall have one vote on the board and all decisions of the board including in respect of a resolution by circulation shall be taken only if both directors have voted in favour of it"10
13. It is submitted that the Tribunal has committed an error in not referring to Article 69 of the AoA while recording a finding to the effect that "therefore in the light of our discussion, supra, we are of the view that, at this stage of the proceedings, we should not embark upon an exercise of what the word 'both directors, in Article 69 of the AAO, now means? Instead accept the submissions of the Petitioners that Article 69 does not exist in its present form, for the purpose of this interlocutory application". It is also submitted on behalf of the Appellant that the Tribunal has committed an error in holding that "prima facie, the Petitioners have failed in establishing violation of any article or provision in Companies Act, 2013 in appointing Dr. Mujbur Rehuman as COO. In this regard, he has referred to a decision of the Hon'ble Supreme Court reported as 2013 4 SCC 301 to contend that prima facie case would mean as to whether it would reach to a plausible conclusion in this regard Para 48 read as under:-
"A prima facie case, does not mean a case proved to the hilt, but a case which can be said to be established, if the evidence which is led in support of the case were to be believed. While determining whether a prima facie case had been made out or not, the relevant consideration is whether on the evidence led, it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence". (Vide: Martin Burn Ltd. v. R.N. Banerjee, AIR 1958 SC
79) (See also: The Management of the Bangalore Woollen Cotton and Silk Mills Co. Ltd. v. B. Dasappa, M.T. represented by the Binny Mills Labour Association, AIR 1960 SC 1352; State (Delhi Admn.) v. V.C. Shukla & Anr., AIR 1980 SC 1382; Dalpat Kumar & Anr. v. Prahlad Singh &Ors., AIR 1993 SC 276; and Cholan Roadways Ltd. v. G. Thirugnanasambandam, AIR 2005 SC 570).
14. It is further submitted that once the right has been given in AoA in terms of Article 69, the majority rule cannot apply. 11
15. On the other hand, Counsel for the Respondents have submitted that the Court has noticed in the impugned order that the present Appellants had no objection regarding the appointment of any person as COO but they had the objection regarding the appointment of Dr. Mujbur Rehuman who was appointed by the majority rule. It is rather submitted that the prayer made in the application was only for extension of the order dated 04.09.2023 by which COO was appointed and when the application was dismissed by the impugned order, by a separate order passed at the time of pronouncement of the order, the Appellant was granted, on their request, three days' time to keep the impugned order in abeyance which was naturally asked for by the Appellant to challenge the impugned order but the appeal was filed after the expiry of that period. It is also submitted that while parting with the impugned order, the Court itself had observed that it would hear the main petition on the next date of hearing i.e. 05.12.2023 but instead of arguing the main petition, they pursue this appeal against the dismissal of the application for stay and got the matter adjourned for 01.02.2024. It is further submitted that the Tribunal has rightly not made any observation on the interpretation of the AoA at the interim stage and the matter was fixed for final argument of the main petition.
16. We have heard Counsel for the parties and perused the record.
17. It is needless to mention that the main petition filed under Section 241 and 242 of the Act is pending for hearing on 01.02.2024. It is also borne out from the record that initially when stay was granted on 04.09.2023 it was observed that if the board of directors takes a decision to appoint Shri 12 MSM Mujeebur Rahuman as COO, the said decision shall be kept in abeyance till 12.09.2023 and then the Appellant chose to file the application bearing I.A. No. 263 of 2023 in which the only prayer made is for extension of the order dated 04.09.2023. It is pertinent to mention that this order was extended by the Tribunal up to 28.11.2023 but by that time the appeal was filed not only the order became inoperative but also the Respondents appointed Dr. MSM Mujeebur Rahuman as COO who is working as such and no application has been filed until now about his act and conduct. It is also a matter of fact that the Tribunal fixed the case for hearing on 05.12.2023 i.e one after the order dated 28.11.2023 was passed for the purposes of hearing the main petition in terms of the observation made in para 49 which is mentioned hereinabove, however, instead of arguing the case on merit itself on 05.12.2023 the Appellant got the main petition adjourned for 01.02.2024 on the pretext that the appeal has been filed which was only against an interim order.
18. In such a situation, where the court has to thoroughly scan voluminous record and also interpret various articles of the AoA, it would be just and expedient if the main petition itself is heard and decided, as proposed by the Tribunal who has rightly not made any observation about the interpretation of Article 69 which is the main plank of the argument of the Appellant in the interim application and the main petition, therefore, we dispose of this appeal with liberty to the Appellant to file an appropriate application before the Tribunal for preponement of the hearing from 01.02.2024 to an early date by making reference to Para 49 of the impugned 13 order and in case any such application is filed, the Tribunal shall consider the said request and prepone the date of hearing and decide the main petition filed by the Appellant as early as possible.
[Justice Rakesh Kumar Jain] Member (Judicial) [Ms. ShreeshaMerla] Member (Technical) 21st December, 2023 Sheetal