National Company Law Appellate Tribunal
Meenachil Hotels & Resorts Pvt Ltd vs Abraham Reji & Ors on 5 December, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
CHENNAI BENCH
TA (AT) No. 19 of 2021
Company Appeal (AT) No. 124 of 2020
(I.A. No. 292/2022)
[Arising out of Order dated 21.04.2020 passed by the Tribunal/National
Company Law Tribunal, Kochi Bench, Kerala in TCP/44/KOB/2019
(CP/62/KOB/2017- Chennai Bench)]
IN THE MATTER OF:
1. M/s. Meenachil Hotels & Resorts Pvt. Ltd.
(CIN: U55101KL2009PTCO23823) rep. by
its Managing Director, having its
registered office at Room No. 1, Ground
Floor, Vypana Buildings, Petta Road, Pala-
686575, Kottayam District, Kerala, India.
[email protected] ...Appellant No. 1
2. Mr. K.T. Thomas,
S/o Thomas Kattiveetil Mathai, aged 61
years,
Managing Director, residing at 420,
Kuttiveetil, No. 8, Udayagiri Grama
Panchayat, Kannur-670571.
Kerala.
[email protected] ...Appellant No. 2
Versus
1. Abraham Reji, aged 58 years,
Residing at C-6, Alsa Palm Spring, R.C.
Road, Kozhikode- 673032
Kerala
[email protected] ...Respondent No.1
2. Susamma Reji, W/o Abraham Reji,
Residing at C-6, Alsa Palm Spring, R.C.
Road, Kozhikode- 673032
Kerala
[email protected] ...Respondent No. 2
3. Ms. Lilly Kutty Thomas,
W/o K.T. Thomas, 420, Kuttiveetil, No. 8
Udayagiri Grama Panchayat,
Kannur-670571.
Kerala
[email protected] ...Respondent No. 3
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4. Mr. Boban Abraham,
S/o K.A. Abraham, Parickappallil House,
Mundayamparamba
PO Kannur Dist- 670704
Kerala
[email protected] ...Respondent No. 4
5. Ms. Gimma George,
W/o Mr. Boban Abraham, Parickappallil
House,
Mundayamparambu PO,
Kannur Dist.- 670704
Kerala
[email protected] ...Respondent No. 5
6. Mr. Maneesh Sebastian,
S/o Sebastian M.J. Madakunnel House,
Koomanthode, Kannur-670704
Kerala
[email protected] ...Respondent No. 6
7. Mr. Joy Abraham,
S/o Abraham Abraham, 70E, Madhur
Amratt Apartments,
1A1 8, Silk Street, Kozhikode-673032
Kerala
[email protected] ...Respondent No. 7
8. Ms. Bindu Mony,
W/o Mr. Joy Abraham 70E, Madhur Amratt
Apartments,
1A1 8, Silk Street, Kozhikode-673032
Kerala
[email protected] ...Respondent No. 8
9. Mr. K.I. Abraham & Co.,
Chartered Accountants, rep. by Partners
Mr. K.I Abraham and Ms. Bina Iype,
Mar Thomas Buildings, S.C.S. Thiruvalla-
689101
Kerala
[email protected] ...Respondent No. 9
10 Mr. Jose Cyriac
S/o Puzhakkara Antony Kuriakose,
Puzhakkara Bhavan,
Edappady P.O., Bharananganam, Palai,
Kottayam-686578
T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022
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Kerala
[email protected] ...Respondent No. 10
11 Mr. Tom Cyriac
Puzhakkara Bhava, Edappady P.O.,
Bharananganam, Palai, Kottayam-686578
Kerala
[email protected] ...Respondent No. 11
12 Mr. Antony Cyriac,
Puzhakkara Vayali, Moonai, Pala,
Kottayam 686575
Kerala ...Respondent No. 12
13 Mr. Thomas Mathew
Advocate, P.K. Complex, Cherutti Road,
Calicut-673032
Kerala
[email protected] ...Respondent No. 13
14 Mr. Sebastian M.J.
Madakunnel House, Koomanthode,
Kannur 670704
Kerala
[email protected] ...Respondent No. 14
15 James Cyriac,
Puzhakkara Bhavan, Edappady P.O.,
Bharananganam, Palai, Kottayam-686578.
Kerala ...Respondent No. 15
Present:
For Appellants : Mr. Vinay Mathew, Advocate.
For Respondents : Ms. Hema Srinivasan, Advocate for R1 and R2
Mr. P.K. Biju, Advocate for R9 / Auditor
No appearance for R3 to R8 and 10 to 15
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J U D G M E N T
(Virtual Mode) (05.12.2022) NARESH SALECHA, MEMBER (TECHNICAL) The present `Appeal' is filed against the 'impugned order' dated 21.04.2020 passed in TCP/44/KOB/2019 (CP/62/KOB/2017-Chennai Bench) by the 'Tribunal' (National Company Law Tribunal, Kochi Bench, Kerala), whereby, the ''Tribunal' dismissed the Petition filed under the 'Companies Act, 2013' Brief Facts:
2. The 1st Appellant is a private limited company engaged in operation and running of hotels and was incorporated in 2009. The company has 12 Shareholders as on 31.03.2015. The company had issued subscribed and paid up capital of Rs. 30,87,857/- divided into 3,87,857 equity shares of Rs.
10/- each against the authorised share capital of Rs. 3,20,00,000/- divided into 32,00,000 equity shares of Rs. 10/- each.
The 2nd Appellant - Mr. K.T. Thomas is the 'Managing Director' of the 1st Appellant company.
Mr. Abhraham Reji is the 1st Respondent and Mrs. Susamma Reji is the wife of Mr. Abhraham Reji is the 2nd Respondent who were two petitioners in the original Company Petition bearing No. TCP/44/KOB/2019.
T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 4 of 35 Remaining 13 Respondents from 3rd Respondent to 15th Respondents were also named as 'Respondents' in the original company petition before the 'Tribunal'.
3. The 1st Respondent company availed a term loan of Rs. 4,00,00,000/- from 'Kerala State Financial Corporate' ("KSFC") in 2011 and later was not in position to make payment on time. The loan was at stage of being declared as a NPA due to non payment and therefore the 1st Appellant company asked shareholders to contribute funds for repayment of loan proportionate to their shareholding. However, many shareholders were not in position to contribute their share of funds and hence they requested the 1st Respondent herein to contribute requisite amount. The 1st Respondent along with the 2nd Respondent collectively transferred Rs. 43,75,000 /- (approx.10% of total loan amount) to company account. An arrangement was made whereby the other shareholders agreed to transfer portion of the shares to the 'Respondents' apart from paying additional amount to transferors (other 'Respondents' ) as the consideration for the shares.
4. It has been alleged that other shareholders did not transfer the shares in favour of the 'Respondents' and dispute took place. Subsequently, a 'Settlement Agreement' was signed on 09.12.2017 (subsequent to filing the company petition on 20.10.2017) to settle the dispute between the 'Appellants' and the 'Respondents'. However, the 'Settlement Agreement' was not implemented and hence the company petition No. TCP/44/KOB/2019 was filed before the 'Tribunal' and the 'impugned order' was pronounced in favour of the 'Respondents' herein.
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5. Aggrieved by above, the Appeal has been filed before this 'Appellate Tribunal' under Section 241 of the 'Companies Act, 2013' against the 'impugned order' dated 21.04.2020 passed under Section 58, 59, 241, 242, 243 & 247 of the 'Companies Act, 2013'.
Appellants Submissions:
6. The Learned Counsel for the Appellants gave the overall background of the case including the circumstances which led to the present appeal. The Learned Counsel for the Appellants assailed the 'impugned order' being devoid of any merit(s).
7. The Learned Counsel for the Appellants brought out that the company was set up as a private limited company on 13.02.2009 and a three star hotel by name of 'Olive International' was being operated and for this purpose a term loan of Rs. 4 crores were taken from 'KSFC'.
8. The Learned Counsel for the Appellants mentioned that the 1st Respondent is holding 2,31,589 shares of Rs. 10/- each which is around 7.5% of the total subscribed and paid up capital of the Company and the 2nd Respondent is not even a shareholder of the company. The Learned Counsel for the Appellants further submitted that in view of less than 10% holding of the shares of the company, the 'Companies Act, 2013' is not applicable since it does not meet the threshold limit and therefore the 'Tribunal' erred in giving is verdict in the 'impugned order'.
9. The Learned Counsel for the Appellants further mentioned that the minimum share qualification of 10% as required under Section 244 of the T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 6 of 35 'Companies Act, 2013' was not available with the 'Respondents' and hence company petition could not have been entertained under Section 241, 243 & 247 of the 'Companies Act, 2013'.
10. The Learned Counsel for the Appellants emphasised that at best transfer of shares certificate from other shareholders to the 'Respondents' can be classified as a matter of dispute between the alleged transferors and transferees and the same is not within the power of the 'Tribunal' to adjudicate. The Learned Counsel for the Appellants brought to the notice of this 'Appellate Tribunal' that several attempts were made for mediation and settlement but the same could not be fructified as parties did not seek specific enforcement of the 'Settlement Agreement' entered into on 07.12.2017. The Learned Counsel for the Appellants stated that the right course of action for the 'Respondents' was to approach the Civil Court seeking enforcement of the 'Settlement Agreement' between the other contesting parties since the company is not the party.
11. The Learned Counsel for the Appellants assailed the conduct of the 2nd Respondent Mrs. Susamma Reji who relinquished her rights to get the shares transferred to her name even though under the company petition she had asked for transfer of 92,634 shares from K.T. Thomas 2nd Appellant and Lillykutty the 3rd Respondent. The Learned Counsel for the Appellants stated that the 'Tribunal' without applying its mind directed the transferors viz: K.T. Thomas and Lillykutty to transfer 92,634 shares in favour of the 2nd Respondent Mrs. Susamma Reji. Under the 'Settlement Agreement' dated 07.12.2017 there is a total change of the earlier transaction of transfer of T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 7 of 35 shares necessitating fresh execution of shares transfer deeds and therefore, the 2nd Respondent lost her locus standi.
12. The Learned Counsel for the Appellants submitted that there is no sale of shares as provided under Section 4 (2) & (3) of the 'Sale of Goods Act, 1930'. The Learned Counsel for the Appellants further submitted that in case the 'Respondents' were aggrieved, they should have filed a suit under Section 7 of the 'Specific Relief Act, 1963' for delivery of Share Certificates.
13. The Learned Counsel for the Appellants stated that company petition filed under Section 58(3) of the 'Companies Act, 2013' (Petition for Rectification of Share Register) was not maintainable as the alleged Share Certificate and stamp papers were never delivered or submitted to the 1st Appellant company as required under Section 56(1) of the 'Companies Act, 2013'. The Learned Counsel for the Appellants further submitted that the duly executed and stamped share certificates in original are required to be furnished to the company by either transferors or transferees.
The Learned Counsel for the Appellants also assailed the 'impugned order' against the 9th Respondent Mr. K.I. Abraham (Chartered Accountant) who did not has any role in the process.
14. The Learned Counsel for the Appellants faulted the 'impugned order' as the 'Tribunal' did not have any power to decide on issues regarding title of shares or inter se dispute among the parties.
15. The Learned Counsel for the Appellants also challenged the appointment of private agency namely, K. Venkitachalam Aiyer and T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 8 of 35 Company (Chartered Accountants) to investigate into the affair of the company under Section 213 of the 'Companies Act, 2013'.
The Learned Counsel for the Appellants further faulted the 'Tribunal' in giving directions to the Institute of Chartered Accountants of India to investigate conduct of the Chartered Accountants.
16. The Learned Counsel for the Appellants also challenged wrongful award of cost of Rs. 25,000/- each awarded to the 1st and 2nd Respondents from 2nd to 8th Respondents without any legal or effective basis and without any competency.
17. The Learned Counsel for the Appellants stated that contesting 'Respondents' have not produced any evidence to prove mismanagement or oppression and therefore Section 241 of the 'Companies Act, 2013' could not have been applied.
18. The Learned Counsel for the Appellants cited few judgements to supplement his arguments :-
➢ Mathrubhoomi Printing and Publishing Company Limited vs. Vardhanan Publishers Limited & Ors. (1992) 73 CC 80 Kerala. ➢ N. Ramji vs. Ashwath Narayan Ramji & Anr. (2017) 203 CC 574 (Madras).
➢ Claud-Lila Parulekar (Smt.) vs. Sakal Papers (P) Ltd. & Ors. (2005) 11 SCC 73 ➢ Prabodh Jenmadas Kothari vs. Vikram Janmadas Kothari & Ors.
2013 (1) Mh.L.J. 825.
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19. The Learned Counsel for the Appellants concluded his arguments with request to set aside the 'impugned order'. Respondents Submissions:-
20. The Learned Counsel for the Respondents summarised his case and stated that the 'impugned order' is perfectly legal and has been pronounced after taking into account all facts and provision of law into consideration. The Learned Counsel for the Respondents assailed the conduct of the 'Appellants' and non contesting 'Respondents' who are trying only to delay the process of transfer of the shares in favour of the 'Respondents'. The Learned Counsel for the Respondents stated that they have suffered huge financial losses since last several years due to conduct of the 'Appellants' and non contesting 'Respondents' for want of transfer of shares and resultant their position in the board and involvement in the management of the affairs of the company.
21. The Learned Counsel for the Respondents mentioned that the Appellants' have deliberately not brought out that they had entered into two 'Settlement Agreements' with the 'Respondent' one prior to company petition and one during pendency of company petition wherein the parties to the 'Settlement Agreements' consented on the issue of transfer of shares in favour of the 'Respondents'.
22. The Learned Counsel for the Respondents accused the 'Appellants' for making false statement regarding non submission of original shares certificates along with share transfer forms. The Learned Counsel for the T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 10 of 35 Respondents mentioned that the 1st Respondent along with the 2nd Appellant ('Managing Director' of the 1st Respondent company) and the 10th Respondent (Joint Managing Director of the company) handed over all these documents to the 9th Respondents (Chartered Accountants Firm). The Learned Counsel for the Respondents submitted that these facts are corroborated from various correspondence available and have also been taken note of by the 'Tribunal' while pronouncing the 'impugned order'.
23. The Learned Counsel for the Respondents refuted that there was inter se dispute between the 'Appellants' along with non contesting 'Respondents' with the 'Respondents'. The Learned Counsel for the Respondents submitted that meeting was held on 12.09.2015 for reconciliation of the issues whereby transfer of shares were agreed unanimously and this decision was ratified in the Board Meeting. The Learned Counsel for the Respondents maintained that Board approved decisions cannot be termed as inter se disputes hence, the 'Tribunal' was right in the 'impugned order'.
24. The Learned Counsel for the Respondents countered the arguments of the 'Appellants' regarding maintainability of the petition under Section 241 of the 'Companies Act, 2013' and stated that non-transfer of shares is an act of oppression of the minority shareholder and cannot be thrown out merely on the pretext of threshold issues. The Learned Counsel for the Respondents cited the case of SVT Spinning Mills Ltd. vs. M. Palanisami (2009) 6 MLJ
821. T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 11 of 35 The Learned Counsel for the Respondents further put the argument that but for illegal acts of the 2nd Appellant in withholding legitimate shares transfer to the 'Respondents', they would have hold 13.99% of the shareholding much more than required threshold and relied upon the judgment Suhas Fchakna vs. South Asia Human Rights Documentation Centre Pvt. Ltd. and Ors. [2017] 204 Comp. Case 638. The Learned Counsel for the Respondents cited judgment of yet another case of Vikram Jairath vs. Middleton Hotels Private Limited and Ors. MANU/WB/2568/ 2019 according to which it is his right as beneficial shareholder to protect beneficial interest in such shares even before the names are entered in the share registered.
25. The Learned Counsel for the Respondents emphasised that in any case the 'Tribunal' has got vide powers to meet the ends of the justice and can waive any conditions under Section 244 of the 'Companies Act, 2013'.
26. The Learned Counsel for the Respondents refuted that investigation order was wrongly given under Section 213 of the 'Companies Act, 2013' since the petition was not filed under Section 213 and the 'Tribunal' in exercise of its power under Section 242 of the 'Companies Act, 2013' ordered for investigation of the affair of the company. The Learned Counsel for the Respondents further submitted that in any case the 9th Respondent i.e. Chartered Accountant Firm is not an 'Appellant' herein and therefore, the other Appellants cannot raise issue regarding direction of the 'Tribunal' to the 'Institute of Chartered Accountant of India' for necessary action w.r.t. 9th Respondent.
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27. The Learned Counsel for the Respondents submitted that the four citations quoted by the 'Appellants' in their appeal are not relevant, which either relate to title of shares and non lodging of shares with the company which is not the subject matter of dispute here. The Learned Counsel for the Respondents further stated that the issue here is wrongful denial of transfer of shares by the 'Appellants' despite Board Approved Resolutions.
28. The Learned Counsel for the Respondents finally stated that the appeal has no merit and has been raised on frivolous grounds only to deny and delay transfer of shares in favour of the 'Respondents' and hence deserved to be dismissed with exemplarily cost.
Findings
29. Heard Learned Counsel for the Appellant and the Respondents and also perused record made available to us. Several issues have been raised in the Appeal which are required to be deliberated upon before coming to final conclusion.
Issue : (I) (a) Whether the 'Respondents' possessed minimum 10% shares in order to invoke petition filed under Section 241 of the 'Companies Act, 2013'.
(b) Whether the 'Tribunal' could have entertained such petition under Section 241, 242 r/w Section 247 of the 'Companies Act, 2013'?
(c) Whether the 'Tribunal' erred in directing the 'Appellants' to effect registration of shares by means of transfer in favour of the 'Respondents' under Section 58(5) of the 'Companies Act, 2013' ? T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 13 of 35
(d) Whether the 'Tribunal' has power to order for cost to be paid to the 'Respondents' ?
Issue: (II) (a) Whether the 'Tribunal' had the power to cause investigation into the affair of the company under the 'Companies Act, 2013'.
(b) Whether the 'Tribunal' is empowered to recommend to Institute of Chartered Accountant to take suitable disciplinary action on 9th Respondent (Chartered Accountant Firm on alleged collusion with the 'Appellants' to falsify the record of the company ?
30. Issue : (I) (a) Whether the 'Respondents' possessed minimum 10% shares in order to invoke petition filed under Section 241 of the 'Companies Act, 2013'.
(b) Whether the 'Tribunal' could have entertained such petition under Section 241, 242 r/w Section 247 of the 'Companies Act, 2013'?
(c) Whether the 'Tribunal' erred in directing the 'Appellants' to effect registration of shares by means of transfer in favour of the 'Respondents' under Section 58(5) of the 'Companies Act, 2013' ?
(d) Whether the 'Tribunal' has power to order for cost to be paid to the 'Respondents' ?
• This 'Appellate Tribunal' observes that all these issues are generally interlinked hence, all above issues are being discussed in the following paragraphs.
T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 14 of 35 • Before examining the merit of the issues, it should be necessary to look into the relevant provisions of the 'Companies Act, 2013'.
"58. Refusal of registration and appeal against refusal - (1) If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member in the company, it shall within a period of thirty days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal.
(2) Without prejudice to sub-section (1), the securities or other interest of any member in a public company shall be freely transferable:
Provided that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.
(3) The transferee may appeal to the Tribunal against the refusal within a period of thirty days from the date of receipt of the notice or in case no notice has been sent by the company, within a period of sixty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, was delivered to the company.
T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 15 of 35 (4) If a public company without sufficient cause refuses to register the transfer of securities within a period of thirty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to the company, the transferee may, within a period of sixty days of such refusal or where no intimation has been received from the company, within ninety days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal.
(5) The Tribunal, while dealing with an appeal made under sub-section (3) or subsection (4), may, after hearing the parties, either dismiss the appeal, or by order--
(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within a period of ten days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.
(6) If a person contravenes the order of the Tribunal under this section, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
[emphasis supplied] T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 16 of 35
59. Rectification of register of members - (1) If the name of any person is, without sufficient cause, entered in the register of members of a company, or after having been entered in the register, is, without sufficient cause, omitted therefrom, or if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register. (2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved.
(3) The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal. (4) Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 or this Act or any other law T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 17 of 35 for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned.
[emphasis supplied] CHAPTER XVI PREVENTION OF OPPRESSION AND MISMANAGEMENT "241. Application to Tribunal for relief in cases of oppression, etc.-- (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) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 18 of 35 may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter.
(2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter. [Provided that the applications under this sub-section, in respect of such company or class of companies, as may be prescribed, shall be made before the Principal Bench of the Tribunal which shall be dealt with by such Bench.] [(3) Where in the opinion of the Central Government there exist circumstances suggesting that -
(a) any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust;
(b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices;
(c) a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or
(d) the business of a company, is or has been conducted and managed by such person with intent to defraud its creditors, members or any other person or T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 19 of 35 otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest, the Central Government may initiate a case against such person and refer the same to the Tribunal with a request that the Tribunal may inquire into the case and record a decision as to whether or not such person is a fit and proper person to whole the office of director or any other office connected with the conduct and management of any company.
(4) The person against whom a case is referred to the Tribunal under sub-section (3), shall be joined as a respondent to the application.
(5) Every application under sub-section (3)-
(a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purposes of the inquiry; and
(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908 (5 of 1908), for the signature and verification of a plaint in a suit by the Central Government.] [emphasis supplied]
242. Powers of Tribunal.-- (1) If, on any application made under section 241, the Tribunal is of the opinion--
(a) that the company's affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 20 of 35
(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. (2) Without prejudice to the generality of the powers under sub-section (1), an order under that sub-section may provide for--
(a) the regulation of conduct of affairs of the company in future;
(b) the purchase of shares or interests of any members of the company by other members thereof or by the company;
(c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;
(d) restrictions on the transfer or allotment of the shares of the company;
(e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case;
(f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e):
Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022
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(g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;
(h) removal of the managing director, manager or any of the directors of the company;
(i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims;
(j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h);
(k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct;
(l) imposition of costs as may be deemed fit by the Tribunal;
(m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made.
(3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 22 of 35 Registrar within thirty days of the order of the Tribunal.
(4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company's affairs upon such terms and conditions as appear to it to be just and equitable.
[(4-A) At the conclusion of the hearing of the case in respect of sub- section (3) of section 241, the Tribunal shall record its decision stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.] (5) Where an order of the Tribunal under sub-section (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles.
(6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered.
(7) A certified copy of every order altering, or giving leave to alter, a company's memorandum or articles, shall within thirty days after the making thereof, be T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 23 of 35 filed by the company with the Registrar who shall register the same.
(8) If a company contravenes the provisions of sub- section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both."
[emphasis supplied] • The 1st Respondent i.e. the company as on 31.03.2015, had issued, subscribed and paid up capital of Rs. 30,87,857/- divided into 3,87,857 equity shares of Rs. 10/- each against the authorised share capital of Rs. 3,20,00,000/- divided into 32,00,000 equity shares of Rs. 10/- each.
• It is the case of the 'Appellants' that the 1st Respondent is holding 2,31,589 shares of Rs. 10/- each which is only 7.5% of the total subscribed and paid up capital and the 2nd Respondent is not even a shareholder of the company and in view of the 'Respondents' holding less than 10% of the shares of the company, Section 241 of the 'Companies Act, 2013' is not applicable since it does not meet the minimum threshold limit and therefore the 'Tribunal' erred in giving is verdict in the 'impugned order'.
T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 24 of 35 • On the other hand, it is the plea of the 'Respondents' that it is only due to illegitimate action of the 'Appellants' in withholding shares transfer to the 'Respondents', which resulted in their shareholding to be less than 10%. If the transfer of shares would have been done on time as per the 'Board Approved Resolution', the 'Respondents' would have held 13.99% of the shareholding more than the required threshold. The 'Respondents' relied upon the two judgments which has already been noted during in the Section of 'Respondents Submissions' in previous paragraphs, and according to which it is 'Respondents' herein right as beneficial shareholder to protect beneficial interest in such shares even before the names are entered in the share registered. • The 1st Appellant i.e M/s Meenachill Hotels & resorts had taken a term loan of Rs 4.00,00,000 from Kerala finance corporation in year 2011 for construction of hotel. The company to avoid any default in payments of its interest on loan started to contribute amounts proportionate to their shareholding. As the other shareholders did not want to contribute amounts to repay for the outstanding amount of the company, an arrangement was entered into between the 'Respondents' and other shareholders whereby the other shareholder agreed to transfer portion of their shares in favour of the 'Respondents' herein. It was also aggrieved that the 'Respondents' shall make additional payment towards acquisition of shares to the transferor. This 'Appellate Tribunal' notes that from the records made available and averments made by the parties, the 'Respondents' made desired T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 25 of 35 payment to the company's bank account to repay the due interest to 'KSFC' and also paid money to other shareholders. • This 'Appellate Tribunal' also observes that the other shareholder did not transfer their shares as earlier agreed upon and therefore a conciliatory meeting was held on 12.09.2015, whereby the other shareholder had agreed to transfer their shares. The minutes of meeting has recorded the transfer of shares from the other shareholders to the 'Respondents'.
• It has been brought out that the 'Joint Managing Director', 'Managing Director' along with the 2nd Respondent handed over all the documents including 'Original Share Certificates' along with 'Share Transfer Forms' to the 9th Respondent (Chartered Accountants Firm of the company). However, no action was taken despite reminders being sent by the 'Respondents' to the 'Appellants'. It is noted that upon receiving a letter dated 26.04.2017 from the 'Respondents', the 9th Respondent i.e. 'Chartered Accountants Firm' conveyed that the 'Managing Director' of the company had collected back necessary documents from their office to take required action for transfer of shares. • To settle the disputes after reconciliating meting among the shareholders, a 'Settlement Agreement' was entered between the parties on 09.12.2017, wherein it was mentioned that the 'Appellants' would transfer 4.5% shares of the company to the 'Respondents'. The 'Settlement Agreement' was recognized and approved by the board in its meeting on 12.12.2017. However, no such transfer was made. T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 26 of 35 • The 'Appellant has claimed that the 'Respondents' are not qualified to file a petition under Section 241 and 242 of the 'Companies Act, 2013' as they lack the minimum threshold of 10% shareholding. However, looking at the conciliatory meeting document and the settlement agreement, it can be assumed that the 'Respondents' were supposed to have shareholding i.e. 13.99% above the required minimum threshold of 10% and they enjoyed the beneficial interest in the shares of the company and hence had the right to file the petition against the oppression and mismanagement. In any case, as evident from the proviso to Section 242 (1)(b) of the 'Companies Act, 2013' that the 'Tribunal' could waive all or any of the requirements specified in Clause
(a) or Clause (b) to enable the member to apply under Section 241 of the 'Companies Act, 2013'.
• The contention of the 'Appellants' regarding non submission of share certificates in original duly stamped does not seems to be convincing as the 'Respondents' have brought out that all 'Original Share Certificates' along with 'Share Transfer Forms' were indeed handed over to the 'Appellants' and it was for the 'Appellants' to take necessary action to affect the transfer of shares.
• Further, the 'Respondents' would have held 13.99 % of the shares which is higher than the threshold percentage required by Section 241 of the 'Companies Act, 2013', if it weren't for the 2nd Appellant's actions in withholding the duly completed share transfer forms and original T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 27 of 35 share certificates. This is a relevant factor to be taken into account under Section 241 of the 'Companies Act, 2013'. • The fact that the 'Appellants' had usurped the share transfer forms from the 'Respondents' has been brought out from the letters dated 01.09.2016, 08.04.2017, 26.04.2017 and 02.06.2017 which have been noted by the 'Tribunal' also.
• It is the case of the 'Appellants' that non transfer of shares should be treated as inter se dispute and the 'Respondents' herein should have approached appropriate Civil Court to enforce transfer of shares under 'Specific Relief Act, 1963'. In this regard, this 'Appellate Tribunal' observes that since the transfer of the shares were agreed upon between the parties which was approved in Board Resolution of the company and therefore the 'Tribunal' had suitable power under Section 242 of the 'Companies Act, 2013' r/w Rule 11 of the National Company Law Tribunal, Rules 2016.
• As regard, oppression of the 'Respondents', this 'Appellate Tribunal' considered non transfer of shares in favour of the 'Respondents' herein tantamount to the oppressions of the 'Respondents' as per Section 242 r/w Section 58 of the 'Companies Act, 2013'. • As regard, the costs awarded in favour of the 'Respondents' herein, it is noted that the 'Tribunal' has power under Section 242(2)(l) of the 'Companies Act, 2013' for imposition of cost as may be deemed fit by the 'Tribunal'. This 'Appellate Tribunal' looking to the over all series T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 28 of 35 of events do not want to interfere on this finding and order of the 'Tribunal'.
31. Issue: (II) (a) Whether the 'Tribunal' had the power to cause investigation into the affair of the company under the 'Companies Act, 2013'.
(b) Whether the 'Tribunal' is empowered to recommend to Institute of Chartered Accountant to take suitable disciplinary action on 9th Respondent (Chartered Accountant Firm on alleged collusion with the 'Appellants' to falsify the record of the company ?
• The question on whether the 'Tribunal' has power to order investigation into affairs of the Company, contrary to the power granted to the Central Government and also whether the Tribunal could ask 'Institute of Chartered Accounts of India' to take disciplinary action against the company's Chartered Account i.e. 9th Respondent herein need to be examined w.r.t provisions available in the Companies Act, 2013. The relevant Section of the Companies Act, 2013 which reads as under.
"213. Investigation into company's affairs in other cases - The Tribunal may,--
(a) on an application made by--
(i) not less than one hundred members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital; or T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 29 of 35
(ii) not less than one-fifth of the persons on the company's register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the company; or
(b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that--
(i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose;
(ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or
(iii) the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company, order, after giving a reasonable opportunity of being heard to the parties concerned, that the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 30 of 35 and where such an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct:
Provided that if after investigation it is proved that--
(i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or
(ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447".
[emphasis supplied] ➢ This 'Appellate Tribunal' has also taken into account the judgment pronounced in its earlier two orders i.e in Company Appeal (AT) (Insolvency) No. 949 of 2019 titled as Vijay Pal Garg & Ors. vs. Pooja Bahry (Liquidator in the matter of Gee Ispat Private Limited). The relevant paragraph of the above cited judgment is being reproduce as under:
T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022
31 of 35 "44. Be that as it may, this Tribunal on a careful consideration of respective contentions and also keeping in mind a prime fact that the Tribunal/ Adjudicating Authority is guided by the Principles of Natural justice and is to follow the procedure prescribed u/s 213(b) of the Companies Act comes to an 'irresistible' and inescapable conclusion that the Adjudicating Authority (Tribunal) in Law is not empowered to order an investigation directly, to be carried out by the Central Government. An Adjudicating Authority (Tribunal) as a competent/ Appropriate authority in terms of Section 213 of the Companies Act has an option to issue notice in regard to the charges/ allegations levelled against the promoters and others (including the Appellants) of course after following the due procedure enshrined u/s 213 of the Companies Act, 2013. In case an exfacie/ prima facie case is made out, then, the Tribunal is empowered to refer the matter to the Central Government for an investigation by the Inspectors and upon such investigation, if any action is required to be taken and if the Central Government subjectively opines that the subject matter in issue needs an investigation, through the Serious Fraud Investigation Office, it mention that the Tribunal/ Adjudicating Authority on receipt of an application/ complaint of breach of the relevant provisions of the IBC, 2016 and the Companies Act and after satisfying itself that there are attendant circumstances pointing out fraudulent/ T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 32 of 35 wrongful trading etc. was/ which has been committed then, it is well within jurisdiction to refer the matter to Central Government for an investigation by Inspector(s) to be appointed by the Central Government....."
[emphasis supplied] ➢ In Company Appeal (AT) (Insolvency) No. 964 of 2019 titled as Union of India, Through Serious Fraud Investigation Office (SFIO) vs. Maharashtra Tourism Development Corporation & Anr. The relevant paragraph of the above cited judgment is being reproduce as under:
"42. In view of the aforesaid position of law, we are of the view that the Adjudicating Authority was not competent to straight away direct any investigation to the conducted by the 'Serious Fraud Investigation Office'. However, the Adjudicating Authority (Tribunal) being competent to pass order under Section 213 of the Companies Act, 2013, it was always open to the Adjudicating Authority/ Tribunal to give a notice with regard to the aforesaid charges to the Promoters and others, including the Appellants herein and after following the procedure as laid down in Section 213, if prima facie case was made out, it could refer the matter to the Central Government for investigation by the Inspector or Inspector and on such investigation, if any,......"
[emphasis supplied] T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 33 of 35 ➢ From the above discussions, it is very clear that there is no power with the 'Tribunal' to directly order, an investigation of the Company's Affairs by an independent Person / Firm (Mr. K. Venkitachalam Aiyer & Company as Chartered Accountants).
Similarly, no power exist with the 'Tribunal', to ask an `Autonomous Professional Body' (herein the 'Institute of Chartered Accountant of India') to take disciplinary action against its `Member'.
➢ The 'Tribunal' ought to have taken into account the provision as contained in Section 213 of the 'Companies Act, 2013' and after following due process after hearing the company herein, the 'Tribunal', could have asked the 'Central Government', to appoint the 'Inspector', to investigate and take further action as per process laid down in the 'Companies Act, 2013'. ➢ This 'Appellate Tribunal', therefore comes to the conclusion that the 'Tribunal' erred on the aforesaid accounts of investigation and asking `Autonomous Body' for taking disciplinary action against the 'Chartered Accounts Firm'.
32. In fine, this 'Appellate Tribunal', is of the considered opinion that there is no error, in the 'impugned order' dated 21.04.2020, passed by the 'Tribunal', w.r.t its order contained in Para- 29 (i), (ii) & (v).
T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 34 of 35
33. However, as already discussed and decided earlier, this 'Appellate Tribunal' do not agree to the 'Tribunal's order contained in Para- 29(iii) & (iv) and set aside the same.
The `Appeal', stands disposed of with the aforesaid observations. No costs. The connected pending `Interlocutory Applications', if any, are Closed.
[Justice M. Venugopal] Member (Judicial) [Naresh Salecha] Member (Technical) Simran T.A. No. 19/ 2021 (Company Appeal (AT) No. 124 of 2020/TR) I.A. No. 292/2022 35 of 35