National Company Law Appellate Tribunal
Rajiv Sanghvi & Anr vs Automotive Manufacturers Pvt. Ltd. & ... on 29 September, 2021
National Company Law Appellate Tribunal
Principal Bench, New Delhi
COMPANY APPEAL (AT) No. 76 of 2021
(Arising out of Order dated 11th June, 2021 passed by National Company Law
Tribunal, Mumbai Bench, Court No.-I, in C.A. No. 1008 of 2020 and CA No. 1064 of
2020 in C.P. No. 428/MB/2018.)
IN THE MATTER OF:
1. Rajiv Sanghvi,
108, Bazar Wardkurla, Mumbai,
Maharashtra - 400070.
2. Kokila M. Sanghvi,
c/o Lilam Villa, 3-6-239, Himayat Nagar,
Hyderabad - 500029. ...Appellants
Versus
1. Automotive Manufacturers Private Limited
108, Bazar Wardkurla, Mumbai,
Maharashtra - 400070. ...Respondent No. 1
2. Pradip R. Kamdar,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 2
3. Ratilal D. Kamdar,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 3
4. Anjna P. Kamdar,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 4
5. Purvi P. Kamdar,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 5
-2-
6. Anjana Investment Private Limited,
C/o Automotive Manufacturers Private Limited
Mizapur Road, Ahmedabad - 380001. ...Respondent No. 6
7. Bharat M. Sanghvi,
108, Bazar Wardkurla, Mumbai,
Maharashtra - 400070. ...Respondent No. 7
8. Sachin Sanghvi,
108, Bazar Wardkurla, Mumbai,
Maharashtra - 400070. ...Respondent No. 8
9. Aditya Sanghvi,
108, Bazar Wardkurla, Mumbai,
Maharashtra - 400070. ...Respondent No. 9
10. Meena B. Sanghvi,
C/o Kundan Villa, Junction of Ahimsa Marg &
Ramkrishan Mission Road, South Avenue,
Khar (West), Mumbai - 400052. ...Respondent No. 10
11. Ushma S. Sanghvi,
C/o Kundan Villa, Junction of Ahimsa Marg &
Ramkrishan Mission Road, South Avenue,
Khar (West), Mumbai - 400052. ...Respondent No. 11
12. M.P. Sanghvi Investments Private Limited,
C/o Automotive Manufacturers Private Limited
Mizapur Road, Ahmedabad - 380001. ...Respondent No. 12
13. Manhar Insurance Marketing and
Transport Services Private Limited,
C/o Automotive Manufacturers Private Limited
Mizapur Road, Ahmedabad - 380001. ...Respondent No. 13
14. Chandrika P. Sanghani,
C/o Kundan Villa, Junction of Ahimsa Marg &
Ramkrishan Mission Road, South Avenue,
Khar (West), Mumbai - 400052. ...Respondent No. 14
Company Appeal (AT) No. 76 of 2021
AND
Company Appeal (AT) No. 78 of 2021
-3-
15. Pravin Sanghani,
C/o Kundan Villa, Junction of Ahimsa Marg &
Ramkrishan Mission Road, South Avenue,
Khar (West), Mumbai - 400052. ...Respondent No. 15
16. Snehalata S. Sanghani,
C/o Kundan Villa, Junction of Ahimsa Marg &
Ramkrishan Mission Road, South Avenue,
Khar (West), Mumbai - 400052. ...Respondent No. 16
17. Alka Gautam Jhobalia,
C/o Kundan Villa, Junction of Ahimsa Marg &
Ramkrishan Mission Road, South Avenue,
Khar (West), Mumbai - 400052. ...Respondent No. 17
18. Rajesh D. Sanghvi,
c/o Lilam Villa, 3-6-239, Himayat Nagar,
Hyderabad - 500029. ...Respondent No. 18
19. Darshana Sandeep Turakhia,
c/o Lilam Villa, 3-6-239, Himayat Nagar,
Hyderabad - 500029. ...Respondent No. 19
20. Bharti P. Mehta,
c/o Lilam Villa, 3-6-239, Himayat Nagar,
Hyderabad - 500029. ...Respondent No. 20
21. Anuja P. Kamdar,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 21
22. Sudha R. Kamdar,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 22
23. Shobhna S. Kshatri,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 23
Company Appeal (AT) No. 76 of 2021
AND
Company Appeal (AT) No. 78 of 2021
-4-
24. Padmini R. Kamdar,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 24
25. Nirmala D. Kamdar,
"Saryu Villa", 434/4, Netai Road,
Near law College Garden,
Ellisbridge, Ahmedabad - 380006 ...Respondent No. 25
Appellants: Dr. Abhishek Manu Singhvi, Sr. Advocate alongwith
Mr. Abhishek Sharma, Mr. Bindi Dave, Mr. Pranaya
Goyal, Mr. Aman Raj Gandhi, Mr. Aayesh Gandhi,
Mr. Chirag Kamdar, Mr. KM Sanghvi & Mr. L.
Nidhiram Sharam, Advocates.
Respondents: Mr. Ravi Kadam & Mr. Sudipto Sarkar, Sr. Advocates
alongwith Mr. Rajendra Barot, Mr. Dhiraj Kumar
Totala, Ms. Sonali Jain, Ms. Liz Mathew, Mr. Ashish
Kamat, Mr. Shaym Kapadia, Ms. Trisha Sarakar,
Ms. Janhavi Patankar, Ms. Kirti Balasubramaniam,
Ms. Vasudha Jain & Mr. Biswadeep Chakravarty,
Advocates for R-2 & R-3.
Mr. Arun Kathpalia, 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.
AND
COMPANY APPEAL (AT) No. 78 of 2021
(Arising out of Order dated 11th June, 2021 passed by National Company Law
Tribunal, Mumbai Bench, Court No.-I, in C.A. No. 1008/MB/2020 in C.P. No.-
428/MB/2018)
IN THE MATTER OF:
1. Bharat M. Sanghvi,
An Indian inhabitant, aged 75 years,
Having his office address at:
Automotive Manufacturers Private Limited,
108, Bazar Ward Kurla,
Mumbai, Maharashtra - 400 070
Company Appeal (AT) No. 76 of 2021
AND
Company Appeal (AT) No. 78 of 2021
-5-
2. Sachin Sanghvi,
An Indian inhabitant, aged 41,
Having his office address at:
Automotive Manufacturers Private Limited,
108, Bazar Ward Kurla,
Mumbai, Maharashtra - 400 070
3. Aditya Sanghvi,
An Indian inhabitant, aged 38 years,
Having his office address at:
Automotive Manufacturers Private Limited,
108, Bazar Ward Kurla, ...Appellants
Mumbai, Maharashtra - 4000 070
Versus
1. Pradip R. Kamdar,
An Indian inhabitant, aged 66 years,
Residing at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Ellisbridge, Ahmedabad - 380 006 ...Respondent No. 1
2. Railal D. Kamdar
An Indian inhabitant, aged 97 years,
Residing at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Ellisbridge, Ahmedabad - 380 006 ...Respondent No. 2
3. Anjna P. Kamdar,
An Indian inhabitant, aged 63 years,
Residing at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Ellisbridge, Ahmedabad - 380 006 ...Respondent No. 3
4. Purvi P. Kamdar,
An Indian inhabitant, aged 40 years,
Residing at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Ellisbridge, Ahmedabad - 380 006 ...Respondent No. 4
5. Anjana Investment Private Limited,
A company incorporated under the
Companies Act, 1956,
Having its registered office at:
Company Appeal (AT) No. 76 of 2021
AND
Company Appeal (AT) No. 78 of 2021
-6-
C/o Automotive Manufacturers Private
Limited,
Mizapur Road, Ahmedabad - 380 001 ...Respondent No. 5
6. Rajiv Sanghvi
An Indian inhabitant, aged 48 years
Having its registered address at:
8571, Rashtrapathi Road,
Secunderabad - 500 003 ...Respondent No. 6
7. Automotive Manufacturers Private Limited,
A company incorporated under the Companies
Act, 1913
Having its registered office address at:
108, Bazar Ward Kurla, Mumbai,
Maharashtra - 400 070 ...Respondent No. 7
8. Meena B. Sanghvi,
Adult Indian Inhabitant, aged 62 years,
Shareholder of Respondent No. 1 and residing
at c/o Kundan Villa, Junction of Ahimsa Marg
& Ramakrishna Mission Road, South Avenue,
Khar (West),
Mumbai - 400 052 ...Respondent No. 8
9. Ushma S. Sanghvi
Adult Indian Inhabitant, aged 35 years,
Shareholder of Respondent No. 1 and residing
at c/o Kundan Villa, Junction of Ahimsa Marg
& Ramakrishna Mission Road, South Avenue,
Khar (West),
Mumbai - 400 052 ...Respondent No. 9
10. M.P. Sanghvi Investments Private Limited
A company incorporated under the
Companies Act, 1956,
Having its registered office at:
C/o Automotive Manufacturers Private
Limited,
Mizapur Road, Ahmedabad - 380 001 ...Respondent No. 10
Company Appeal (AT) No. 76 of 2021
AND
Company Appeal (AT) No. 78 of 2021
-7-
11. Manhar Insurance Marketing and
Transport Services Private Limited,
A company incorporated under the
Companies Act, 1956,
Having its registered office at:
C/o Automotive Manufacturers Private
Limited,
Mizapur Road, Ahmedabad - 380 001 ...Respondent No. 11
12. Chandrika P. Sanghvani,
Adult Indian Inhabitant, aged 78 years,
Shareholder of Respondent No. 1 and residing
at c/o Kundan Villa, Junction of Ahimsa Marg
& Ramakrishna Mission Road, South Avenue,
Khar (West),
Mumbai - 400 052 ...Respondent No. 12
13. Pravin Sanghani,
Adult Indian Inhabitant, aged 80 years,
Shareholder of Respondent No. 1 and residing
at c/o Kundan Villa, Junction of Ahimsa Marg
& Ramakrishna Mission Road, South Avenue,
Khar (West),
Mumbai - 400 052 ...Respondent No. 13
14. Snehalata S. Sanghvi,
Adult Indian Inhabitant, aged 74 years,
Shareholder of Respondent No. 1 and residing
at c/o Kundan Villa, Junction of Ahimsa Marg
& Ramakrishna Mission Road, South Avenue,
Khar (West),
Mumbai - 400 052 ...Respondent No. 14
15. Alka Gautam Jhobalia,
Adult Indian Inhabitant, aged 62 years,
Shareholder of Respondent No. 1 and residing
at c/o Kundan Villa, Junction of Ahimsa Marg
& Ramakrishna Mission Road, South Avenue,
Khar (West),
Mumbai - 400 052 ...Respondent No. 15
Company Appeal (AT) No. 76 of 2021
AND
Company Appeal (AT) No. 78 of 2021
-8-
16. Kokila M. Sanghvi,
Adult Indian Inhabitant, aged 74 years,
Shareholder of Respondent No. 1 and residing
at c/o Lilam Villa, 3-6-239, Himayat Nagar,
Hyderabad - 500 029 ...Respondent No. 16
17. Rajesh D. Sanghvi,
Adult Indian Inhabitant, aged 46 years,
Shareholder of Respondent No. 1 and residing
at c/o Lilam Villa, 3-6-239, Himayat Nagar,
Hyderabad - 500 029 ...Respondent No. 17
18. Darshana Sandeep Turakhia,
Adult Indian Inhabitant, aged 47 years,
Shareholder of Respondent No. 1 and residing
at c/o Lilam Villa, 3-6-239, Himayat Nagar,
Hyderabad - 500 029 ...Respondent No. 18
19. Bharti P. Mehta,
Adult Indian Inhabitant, aged 70 years,
Shareholder of Respondent No. 1 and residing
at c/o Lilam Villa, 3-6-239, Himayat Nagar,
Hyderabad - 500 029 ...Respondent No. 19
20. Anuja P. Kamdar,
Adult Indian inhabitant, aged 31 years,
Shareholder of Respondent No. 1 and Residing
at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Ellisbridge, Admedabad - 380 006 ...Respondent No. 20
21. Sudha R. Kamdar,
Adult Indian inhabitant, aged 72 years,
Shareholder of Respondent No. 1 and Residing
at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Ellisbridge, Ahmedabad - 380 006 ...Respondent No. 21
22. Shobhna S. Kshatri,
Adult Indian inhabitant, aged 65 years,
Shareholder of Respondent No. 1 and Residing
at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Company Appeal (AT) No. 76 of 2021
AND
Company Appeal (AT) No. 78 of 2021
-9-
Ellisbridge, Ahmedabad - 380 006 ...Respondent No. 22
23. Padmini R. Kamdar,
Adult Indian inhabitant, aged 61 years,
Shareholder of Respondent No. 1 and Residing
at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Ellisbridge, Ahmedabad - 380 006 ...Respondent No. 23
24. Nirmala D. Kamdar,
Adult Indian inhabitant, aged 92 years,
Shareholder of Respondent No. 1 and Residing
at "Saryu Villa", 434/4,
Netai Raod, Near law College Garden,
Ellisbridge, Ahmedabad - 380 006 ...Respondent No. 24
Appellants: Mr. Arun Kathpalia, Sr. Advocate alongwith
Mr. Shubhabrata Chakraborti, Mr. Dhruv Malik,
Mr. Hafeez Patanwala, Ms. Sharmistha Ghosh,
Ms. Jinal Shah, Ms. Juris & Ms. Mannat Sabharwal,
Advocates.
Respondents: Mr. Ravi Kadam & Mr. Sudipto Sarkar, Sr. Advocates
alongwith Mr. Rajendra Barot, Mr. Dhiraj Kumar
Totala, Ms. Sonali Jain, Ms. Liz Mathew, Mr. Ashish
Kamat, Mr. Shaym Kapadia, Ms. Trisha Sarkar,
Ms. Janhavi Patankar, Ms. Kirti Balasubramaniam,
Ms. Vasudha Jain & Mr. Biswadeep Chakravarty for
R-1 & R-2.
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 Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -10- 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 Tribunal be pleased to supersede the Board of Directors of Respondent No. 1 and appoint a fit and proper person as administrator of Respondent No. 1 to take charge of its records, assets, properties, accounts and/or all movables, immovable and tangible and intangible properties of Respondent No. 1 and with directions, including for:
(i) governing and administration of Respondent No. 1, which includes its Maharashtra, Andhra and Gujarat Divisions;
(ii) supervise the functioning of the nominee directors of the Sanghvi Group and the Kamdar Group, in their capacity as managers of the respective Maharashtra, Andhra and Gujarat Divisions of Respondent No. 1;
(iii) provide adequate financial and/or funding support to the said respective Maharashtra, Andhra and Gujarat Divisions and to take regular account of the business and operations of the Maharashtra, Andhra and Gujarat Divisions of Respondent No. 1 from the respective directors (since superseded) and generally oversee their conduct of business of the respective divisions;
Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -11-
(iv) permit Maharashtra, Andhra and Gujarat Divisions of Respondent No. 1 to operate under the day to day management and administration of the Sanghvi Group and the Kamdar Group respectively and to oversee their respective administration and management thereof; and
(v) inventorize all the assets and properties (movable, immovable, tangible, intangible) of Respondent No. 1 and then to have the same valued through an independent firm of Chartered Accountants.
b) Pending the hearing and final disposal of the petition, this Hon'ble Tribunal be pleased to order and direct the Board of Directors of Respondent No. 1 to:-
(i) forthwith disburse from Respondent No. 1's funds, accounts and/or monies an amount of Rs. 113.51 (subject to reconciliation, if any, with the bank) crores (as per the Statement annexed at Exhibit GG hereto), being the amount required by the Gujarat Division of Respondent No. 1 so as to pay off and discharge its financial creditors and lenders and trade creditors and as necessary for its working capital requirements;
(ii) order and direct the Board of Directors of Respondent No. 1 (more particularly, the Sanghvi directors, viz. Respondent Nos. 2 to 5 to forthwith disclose on oath the amounts invested and/or made available by Respondent No. 1 to its Andhra and Maharashtra Divisions for the purposes of working capital, 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):
Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -12-
(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 or correspondence with Ashok Leyland concerning the Gujarat Division save and except with the prior written consent of the Petitioner. (iii) indulge in any communication, propaganda and/or correspondence, including, before Respondent No. 1's principal Ashok Leyland and/or its employees and/or agents which is in any manner defamatory and/or prejudicial to Respondent No.1's Ashok Leyland dealership for the Gujarat Division or the Petitioners.
10. We have heard the learned counsels appearing for the parties at length and have carefully gone through the pleadings and the relevant documents. The following are the observations of this Bench:
i. The Company is managed by the Board of Directors and overall there is representation for all the groups for a quite long time. However, the three divisions were micro managed by the respective groups.
ii. We observed that two of the divisions were doing well and one division is not doing well. However, the overall management is under the control of Board of Directors only and the Board is also conscious of the profitability or otherwise of each division and the Board has taken conscious decision then and there in the interest Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -13- of the company. As far as the Gujarat Division is concerned, since it is not performing well, it cannot be solely attributable to the group which is managing the Gujarat Division. We have noticed that the Board is in full and effective control of all the divisions. However, the management of the Gujarat Division is not getting the required funds and hence, they have to go for high cost external borrowings and that has consistently contributed to the business losses. Already the division has not been doing well and the high cost of borrowing aggravated the situation. It is evident that the Board has asked for revival plan of the Gujarat Division. Apparently, the plans submitted by the Gujarat Division (meaning Kamdars) did not find favour with the Board. The Board was conscious that the division was in financial straits and was badly in need of revival. Downward spiral of one limb of the company is bound to affect the health of the company as a whole. The other limbs thus could not escape the effect. Therefore, it was incumbent upon the company to find ways and means to manage the downslide. Whether or not the company did take remedial measures or otherwise contributed to the dismal financial position 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 Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -14- 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 do so. It is settled that reliefs which can be granted in the main Petition/Suit cannot be granted at the interim stage. This can be decided only after the final hearing of the Company Petition as observed by this Bench vide order dated 06.04.2018. The Applicants in CA No. 1008 of 2020/original Respondents Nos. 2 to 4 are practically seeking review of the order passed by this Bench on 06.04.2018 which is not permissible. It is to be noted that it is very difficult to get finance for a loss making division.
iv. The contention of the Applicants in CA No. 1008 of 2020 that Order dt. 06.04.2018 "gives an impression that prior permission of this Tribunal is necessary before the Board of Directors of R1 Company could intervene in the operations of the Gujarat Division even in order to stave off or prevent the existential threat to R1" is not correct.
v. The reliance of the Applicants in CA No. 1008 of 2020 on the email of 22.06.2020 where a suggestion has come from Ashok Leyland suggesting that Mr. Sachin Sanghvi & Mr. Rajiv Sanghvi must intervene in matter and shall take over control of AMPL Gujarat cannot be a ground for giving relief to these Applicants. A third party like the AL does not have any right to comment on the management in the R1 Company and suggest replacement of persons in management of Gujarat Division. Besides such comment would hardly have any influence on the order the Tribunal would make.
vi. The only allegation is persons in charge of Gujarat Division are incompetent to run the business as a profitable venture. Assuming without admitting this contention, when the proposal for taking agencies of KIA, Hyundai, Maruti and Morris Garages etc. had not been fully analysed by the Board and was simply rejected, the allegation that the Petitioners have not come with the proper revival plan cannot be accepted.
Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -15- vii. We are making it clear that the Board is empowered to take all decisions for setting things right in the Gujarat Division but without disturbing the present management pattern/directorship/shareholding of R1, as observed in the order dated 06.04.2018.
viii. We don't find any merit in CA No. 1064 of 2020 for the reason the Board is competent to take all tactical business decisions for revival of the Gujarat Division. No separate directions are necessary, more so, when a comprehensive appraisal of the contentions of both the sides in 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.
Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -16-
4.
Groups Shareholding Current Seat(s) on the
at the time of Shareholding Board
filing of the
Company
Petition
Gujarat Group 17.50% 19.31% 2
Maharashtra 35.23% 37.70% 3
Group
Andhra Group 29.73% 32.33% 1
Appellant No. 1's 5.51% 6.07% -
Aunt
Others 12.03% 4.59% -
5. Submissions of Learned Counsel appearing for the Appellant in Company Appeal (AT) No. 76 of 2021:
The Learned Sr. Counsel Dr. Abhishek Manu Singhvi vehemently contended that the Impugned Order is contrary to the settled principles of corporate governance; that instead of modifying the Order dated 06.04.2018 as prayed for in CA No. 1008 of 2020, and clarifying that the first Respondent Company should take necessary steps to avert the downfall of the Gujarat Division, NCLT has wrongly observed that the Board was empowered to take all decisions for setting things right in the Gujarat Division, without disturbing the present management pattern and shareholding. The Learned Counsel further contended this direction had prevented the Board from taking decisions to avert the damage caused by the Gujarat Group; that the Order dated 11.06.2021 prevents the Board from making any structural changes that unless the Board was allowed to intervene in its affairs, the losses suffered by the Gujarat Division cannot be arrested; and that the Gujarat Division has suffered a loss of Rs. 13 Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -17- Crores and is not in a position today to pay salaries or GST. The Counsel drew our attention to the correspondence addressed by M/s.
Ashok Leyland and submitted that the Gujarat Division has lost a 72 year old dealership of Ashok Leyland on 25.05.2021, despite Ashok Leyland having given the said Division several opportunities to rectify the situation.
The Learned Sr. Counsel brought to our notice that the Gujarat Division resigned from the dealership of Kobelco Construction Equipment Limited and Mahindra & Mahindra. Further, Bajaj Auto also terminated their dealership only due to the gross mismanagement of the affairs of the Gujarat Group. The Appellant division has extended help to the Gujarat Division by infusing large amounts of money i.e. Rs. 56 Crores paid by R-1 on 01.09.2020 towards outstanding loan of ICICI Bank, Canara Bank and IndusInd Bank availed by the Gujarat Division; this sum was partly paid from the cashflows of Maharashtra and Andhra Pradesh Divisions by selling the listed investments of R-1 Company; a sum of Rs. 1.5 Crore was paid on 05.12.2020 towards employees' salary from the cashflows of Maharashtra and the Andhra Pradesh Divisions; the provident fund contribution and the gratuity fund of the employees of the Gujarat Division was also being met from the cashflows 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 Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -18- 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 inter alia observed in 'Chatterjee Petrochem (I) Pvt. Ltd.' Vs. 'Haldia Petrochemicals Ltd. & Ors. reported in AIR 2012 SC 2753 (Para 150, 151), and argued that there was no case of oppression in the instant case. The Learned Counsel placed reliance on the Judgement of the Hon'ble Supreme Court in 'Deoraj' Vs. 'State of Maharashtra' reported in (2004) 4 SCC 697 (Paras 11, 12), wherein it was held that withholding of interim relief would tantamount to dismissal of the main Petition itself and in the instant case despite there being sufficient material on record, the conscious effort made by the Gujarat Group to run the business to the ground, NCLT has passed scathing remarks against the Board of the R-1 Company and has virtually Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -19- decided the dispute against the Appellants in the interim stage itself, by rejecting the prayers in CA No. 1008 of 2020. The Learned Counsel drew our attention to paras 10 (ii) and (iii) of the Impugned Order and submitted that the observations made in the said paras would perpetuate injustice and prejudice their rights during the final adjudication of the Company Petition.
6. Submissions of the Learned Counsel appearing on behalf of the Appellants in Company Appeal (AT) No. 78 of 2021:
The Learned Sr. Counsel Mr. Arun Kathpalia appearing for the Appellants in this Appeal strenuously argued that in 2018, the second Respondent Mr. Ratilal D. Kamdar was 95 years old and the Joint Managing Director and since the Gujarat Division was notching losses each year for more than one decade, the Board wanted to induce fresh and young blood to stop the bleed, but the second Respondent filed the Company Petition seeking to continue as the Joint Managing Director. The Learned Counsel drew our attention to the Annexure A-
28 wherein the losses incurred by the Gujarat Division is enumerated alongwith the year wise interest amounts. He contended that the Respondent Company should not be stopped to prevent the bleeding by appointing young professionals to run it as the shareholders do have a remedial right to take positive actions and hence proposed restructuring. M.A. 229 of 2018 was filed by the Petitioners/Gujarat Group seeking extension of the term of the Joint Managing director who was already 95 years old, which was dismissed by NCLT as misconceived but observed that the 'R-1 Company is not accepted to Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -20- make any structural changes to the existing 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 Learned Sr. Counsel drew our attention to the NCLT Order dated 11.06.2021 in C.P. No. 420/(ND)/2018 in which Petition, Applications bearing CA Nos. 1008 of 2020 and 1064 of 2020 were dismissed and both sides were directed to get ready for hearing. On an Appeal preferred, the Hon'ble Supreme Court and directed that the main Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -21- matter also be heard expeditiously. When the Appellants did not challenge the Order dated 26.04.2018 for two years, there are no substantial grounds to state that there is an urgency today. The Gujarat Group was being managed by the Respondent 1 Company since 1975 and drew our attention to Annexure B-6 dated 21.07.1975 in support of his submissions.
The Learned Sr. Counsel contended that the Second Respondent is 98 years old, the main Petition is listed for hearing on 28.10.2021, this fact was also considered by the Hon'ble Supreme Court while directing expeditious hearing of an earlier Interlocutory Application and also the Appeal as is evident from the Orders dated 07.12.2020 and 19.08.2021; any modification in the Interim Order will require a hearing of all the substantial disputed issues in the Petitions; the Petition itself is ripe for final hearing and listed for the said purpose; that the crux of the present dispute is the Kamdar Group's resistance to the Appellant's scheme to buy out their stake at an unreasonable valuation or force demerger of the Gujarat Division at a depressed value; the Impugned Order cannot be faulted for preserving the Status Quo so as not to give any party any undue advantage; that the Gujarat Division has been left to rely entirely on high cost external financing; R-1 is presently valued at Rs. 501 Crores; the seventh Respondent has a net positive working capital of Rs. 237 Crores; Gujarat Division has a negative working capital of Rs. 43.33 Crores; Maharashtra and Andhra Divisions enjoy a positive working capital of Rs. 280 Crores; the accounts for the last 15 years show that Respondent 7 incurred Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -22- material expenditure of Rs. 455 Crores, of which, less than 4% has been invested in the Gujarat Division and therefore NCLT has rightly observed that 'the management of the Gujarat Division is not getting the required funds and hence, they have to go for - cost external borrowings and that has consistently contributed to the business losses' and these issues can be gone into at the stage of final hearing and 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 and shareholding of R-1 Company. Learned Counsel submitted that no prejudice would be Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -23- caused to the Appellants as there is neither an ongoing settlement discussion nor is there any valid or enforceable settlement Agreement in existence and the main Petition would be heard on 28.10.2021. Assessment:
8. Initially, MA 229 of 2018 in C.P. No. 428/(ND)/2018 was filed under Sections 241, 242 and 244 of the Companies Act 2013 by the Kamdar Group essentially seeking extension of the term of Mr. Ratilal D. Kamdar as the Joint Managing Director, Mr. Pradip R. Kamdar as Managing Director of R-1 Company for a period of three years apart from other issues. In paras 11 and 16 of the Order dated 06.04.2018, NCLT has made the following observations:-
"11. However, this Bench prima facie having noticed this company has been running for the last several years as three separate units, one at Gujarat, one at Maharashtra and another at Telangana exclusively managed by respective groups, R1 company is not expected to make any structural changes to the existing arrangement at least until this Company Petition is disposed of."
"16......, this application is hereby dismissed giving liberty to the Petitioner to come before this Bench, if at all the Petitioners are deprived of running their business in Gujarat or their rights are in anyway infringed by the Respondents".
9. On 31.08.2020, when the matter was listed for arguments, there was a suggestion that some efforts be made to explore a possible settlement between the parties. The matter was adjourned to 10.09.2020 to allow the parties to explore any possible settlement. As the settlement did not fructify, the matter was scheduled to be listed on 25.09.2020. While so, the Gujarat Group preferred an Appeal before this Tribunal namely Company Appeal (AT) Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -24- No. 165 of 2020, which was taken up for hearing on 20.09.2020 and this Tribunal dismissed the Appeal on 28.10.2020 granting liberty to both parties to make their submissions before NCLT while not interfering with the said Order. Thereafter the Gujarat Group approached the Hon'ble Supreme Court in Civil Appeal no. 3799 of 2020, in which the Hon'ble Supreme Court vide Order dated 07.12.2020 directed NCLT to dispose of the Petitions and the Interim Applications preferably within a period of 8 weeks. NCLT heard the parties between 08.12.2020 and 04.02.2021 and then passed the Impugned 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 the parties would make an earnest Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -25- effort to resolve the dispute amicably. As of date no settlement has been arrived at. Hence, it is unnecessary for this Court to adjourn these proceedings any further.
4. We have heard Mr. Ashish Kamath, learned counsel for the appellants, Dr Abhishek Manu Singhvi and Mr Arun Kathpalia, learned senior counsel for the respondents.
5. Dr Singhvi, has during the course of his submissions stated that the NCLAT has fixed the hearing of the appeal against the interlocutory order on 27 August 2021, while the proceedings before the NCLT are listed for final hearing on 28 October 2021. Hence, counsel urged that the apprehension of the appellant stands answered.
6. All that needs to be observed is that the NCLAT should dispose of the appeal against the interlocutory proceedings before the date which has been fixed for the hearing of the main proceedings before the NCLT.
7. The appeals are accordingly disposed of.
8. Pending applications, if any, stand disposed of."
11. It is strenuously contended by both the Maharashtra and Telangana/Andhra Pradesh Group Counsels that NCLT while passing the Status Quo Order directing the Company not to make any structural changes to the existing arrangement till the disposal of the Company Petition has virtually tied their hands in taking any remedial steps for setting things right in the Gujarat Division. In the Impugned Order, NCLAT has observed in para 10 (vii) as follows:-
"vii. We are making it clear that the Board is empowered to take all decisions for setting things right in the Gujarat Division but without disturbing the present management pattern /directorship /shareholding of R1, as observed in the order dated 06.04.2018."
Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -26-
12. It is vehemently contended by both the Appellant Groups that without disturbing the management pattern and shareholding i.e. without any restructuring, it would not be possible to take any positive remedial steps to control the losses incurred by the Gujarat Division.
13. Though both sides have filed several Judgements in support of their submissions, for the sake of brevity and keeping in view the facts and circumstances of the attendant case and also that the main matter is posted shortly on 28.10.2021, we refrain from discussing the same at length.
14. We find force in the contention of the Learned Counsel for the Appellants that the observations made 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 Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021 -27- observations made in para 10 (ii) and (iii) of the Impugned Order dated 11.06.2021. We have not made any observation regarding the merits of the matter as the matter is scheduled to be heard finally on 28.10.2021 by NCLT.
15. With these observations, both these Appeals namely Company Appeal (AT) No. 76 of 2021 and Company Appeal (AT) No. 78 of 2021 are disposed of by this Common Order.
[Justice Anant Bijay Singh] Member (Judicial) [Ms. Shreesha Merla] Member (Technical) NEW DELHI 29th September, 2021 ha Company Appeal (AT) No. 76 of 2021 AND Company Appeal (AT) No. 78 of 2021