Indus Motor Company Pvt. Ltd. & Ors. vs T.P. Anilkumar & Ors.

KANTHI NARAHARI, MEMBER (TECHNICAL)

The Present Appeal is filed being aggrieved by the order dated 18.06.2021 (Impugned order) passed by the NCLT, Kochi Bench in CA No. 44 of 2021 in CP No. 2 of 2020 whereby the NCLT makes the interim order dated 17.01.2020 absolute, making it clear that the Approvals/Resolutions etc. with respect to raising of any additional debt shall be kept in abeyance and the same will be subject to the outcome in the main Company Petition.

The Ld. Sr. Counsel for the Appellants submitted that the NCLT erred in passing the impugned order by overlooking the fact that there is no violation of the Status quo order dated 17.01.2020 by the Appellants. It is submitted that the Appellants herein are the Respondents and the Respondents herein are the Petitioners before the NCLT being CP No. 2 of 2020. The Appellant No. 1 Company has been the most successful dealership of Maruti Suzuki Vehicles in India both in terms of volumes and revenue. The Respondents 1 to 4 are the Shareholders of the Appellant No. 1 Company each owning 5% shares respectively.

While matter stood thus, the Appellant No. 2 and Respondent No. 2 along with other Respondents entered into a Memorandum of Understanding on 31.03.2007 and the said MoU is binding understanding between all the shareholders of the Company which stands as on today. While so the 2007 MoU contains an Arbitration Agreement under Clause 18 thereof and the parties had chosen and agreed to refer all disputes pertaining to matters covered therein to Arbitration including shareholding pattern, Capital raising and Share transfers, the composition of Board of Directors. In accordance with the said MoU the shareholders are entitled to nominate certain no. of Directors on the Board of the Company.

It is submitted that after filing the Company Petition by the Respondents herein, the NCLT on 17.01.2020 passed status quo order and later the Respondents have filed the Application bearing no. 44 of 2021 in the above Company Petition sought a direction to the Respondents therein (Appellants herein) to pass a direction to the Respondents therein to maintain status quo in all aspects while managing the affairs of the Company, and revoke all Approvals, Resolutions etc. with respect to raising of any additional debt.

It is submitted that the Appellants have not violated the status quo order passed on 17.01.2020 and submitted that as on the date of status quo order, the Cumulative Credit Sanction limit of the Appellant No. 1 Company was to the tune of Rs. 427.11 Crores and as of 02.02.2021 the Cumulative Credit Sanction limit of the Appellant No.1 Company was to the tune of Rs. 312 Crores. Further, ECLGS (Emergency Credit Line Guarantee Scheme) of Govt. of India was not an additional loan facility and was only a reorganising/ replanning of the structure of the existing loan. It is submitted that the status quo order was never intended to prevent the Appellant No.1 Company from carrying on its day-to-day affairs as a going concern. The Appellants have also filed an ECLGS Affidavit dated 03.03.2021 before the NCLT which contains detailed explanation and rationale behind the availing of the ECLGS by the Appellant No.1 Company.

It is submitted that the Hon’ble NCLT has completely ignored that the Appellants Bona fide intent and explanation contained in the Affidavit which was filed even prior to Respondents application being CA No. 44 of 2021.Further, it is submitted that the Hon’ble NCLT erred in passing the impugned order by overlooking the fact that the status quo order can only be in the context of reliefs sought in the Company Petition and cannot be an all encompassing order, preventing the Company from carrying out its regular activities on a day-to-day basis. Further, the Hon’ble NCLT erred in passing the impugned order failing to take notice of the intent of the Respondents which is to obstruct the smooth flow of funds, day-to-day management and affairs of the Appellant No.1 Company by misconstruing the status quo order. Further, the impugned order is vague and very wide and will cripple the functioning of the Appellant No.1 Company, on which livelihood of around 6000 employees depends upon.

On the question of Law the Ld. Sr. Counsel submitted that after passing of the status quo order on 17.01.2020 there have been various Board Meetings and Annual General Meeting where various aspects including availing/renewal of Credit facilities have been discussed and dealt with in the presence of Respondents 1 and 2 herein and they are estopped from raising a plea of violation of the status quo order.

On the grounds the Ld. Sr. Counsel submitted that the Hon’ble NCLT failed to appreciate that in light of the status quo order i.e. parties to maintain status quo in all respects as on January, 17, 2020, the ultimate test was first to determine the context and secondly, if there is any violation of the status quo order are not in terms of the position of the Company as of 17.01.2020. 9. It is further submitted that it was the understanding of the parties that all along for over a year, the status quo order was never intended to prevent the Appellant No.1 Company from carrying on its day-to-day affairs as a going concern within the bounds of the order dated 17.01.2020 and the Appellant No. 1 Company has been conducting its affairs on the basis since 18.01.2020 onwards.

The Ld. Counsel submitted that as on 17.01.2020, the Cumulative Credit Sanction limit of the Appellant No.1 Company from various Banks and Financial institutions was to the tune of Rs. 427.11 Crores. As of 02.02.2021, the Cumulative Credit Sanction limit of various Banks and Financial institutions towards the Appellant No.1 Company was to the tune of Rs. 312 Crores and accordingly, availing of ECLGS Schemes would have no adverse impact on the overall Sanctioned Credit limit and thus, there is no violation of the status quo order. Further, it is submitted that the Appellant No.1 Company has not availed any additional debt and has availed only a beneficial, favourable and time bound ECLGS Schemes which is within the Credit Sanction Limit of the Appellant No. 1 Company prevailing as on 17.01.2020. It is submitted that the ECLGS is mainly for meeting working capital requirements, operational expenditure and to re-start the operations smoothly post the lockdown announced owing to Covid-19.

In support of the oral submissions made and the contentions as raised in the Appeal, the Ld. Sr. Counsel relied upon various decisions on the point of that status quo orders should not be vague and in cases of oppression and mismanagement, the interest of the Company is paramount.

In view of the facts and precedents as stated above, the Ld. Sr. Counsel prayed this Bench to allow the Appeal by setting aside the impugned order dated 18.06.2021 and prayed this Tribunal to restrict the operation of the status quo order only in relation to the Constitution of the Board and the status of the Respondents and expressly exempt from its ambit all operational and managerial day-to-day matters including all financial transactions being done in the course of business.

The Ld. Sr. Counsel appearing for the Respondents submitted the brief facts in opposing the pleas sought in the Appeal in its entirety.

It is submitted that the Hon’ble NCLT after duly considering the facts set out in the Company Application and the legal positions represented by both the parties was pleased to allow CA 44 of 2021 filed by the Respondents herein by making its earlier interim order of status quo dated 17.01.2020 absolute by clarifying that the said order of status quo shall apply to Approvals/Resolutions with respect to raising of additional debt. The Present Appeal is filed to escape the consequences of violating the order of status quo dated 17.01.2020 passed by the NCLT Kochi Bench and the present Appeal is not maintainable as there is no new interim order but is merely a clarification pertaining to an earlier interim order dated 17.01.2020 wherein the parties to the Company Petition were directed to maintain status quo until further orders.

The Ld. Sr. Counsel submitted that the Respondents have filed the Company Petition before the NCLT Kochi Bench alleging acts of Oppressions and Mismanagement including fraudulently diverted pecuniary benefits to the majority shareholders and various violations and glaring malpractices committed by the Appellants.

It is submitted that an Appeal is a continuation of the original proceedings and the scope of the original proceedings cannot be enlarged in the Appeal proceedings and the Appellants have made various averments and have claimed reliefs which were not dealt with by the Hon’ble NCLT in the first place. Further, the Appellants seek to set out a case for vacating the interim order of status quo or modifying the same. However, without going into the merits or veracity of the allegations pertaining to the nature of ECLGS Scheme and its effect on the first Appellant Company and without admitting to any averment contained therein, the question before the Hon’ble NCLT was whether the availing of credit facilities under the said scheme amounted to a violation of the status quo order dated 17.01.2020. Per contra the Appellants herein appeared to be setting up a case for the question as to whether the ECLGS Scheme is beneficial for the first Appellant or not, which question never arose before the Hon’ble NCLT while hearing CA 44 of 2021.

It is submitted that the Hon’ble Tribunal has correctly held that the order dated 17.01.2020 had directed the parties to maintain status quo on all aspects which included the debt structure of the first Appellant herein. The Appellants would have approached the Hon’ble NCLT for permission to avail additional Credit facilities instead of clandestinely filing an Affidavit about availing of the Credit facilities without seeking clarification/permission from the Hon’ble NCLT. Further, the Appellants should have approached the Hon’ble NCLT after the Respondents herein in the said 245^th Board Meeting raised a specific objection based on the order of status quo passed by the Hon’ble NCLT.

It is submitted that the order under challenge is merely a consequence of the conduct of the Appellants herein who have clearly failed to follow a course of action warranted by respect for judicial orders in order to escape from the consequences of the same, the Appellants herein filed the instant Appeal indirectly.

The Ld. Sr. Counsel submitted that the Operational guidelines for the ECLGS Scheme dated 30.05.2021 itself provide that second Charge will be created on existing charged assets as security for the loan availed under the ECLGS Scheme. Thus, ex facie the loans availed under the scheme were not mere restricting but additional facilities requiring security as second ranking charge on existing hypothecations.

Further, it is submitted that the Appellants have made misreading statements and averments before this Tribunal that the loan facilities availed under the ECLGS Scheme despite the subsistence of interim order, were mere restructuring and reorganisation of earlier existing facilities. The such statement is belied by the documents filed by the Appellant company before the ROC with respect to charges created against the facilities availed under the ECLGS Scheme. These documents ex facie show that the facilities availed were in addition to the pre-existing facilities and new charge was created for each of said additional facility where mostly it was a second charge on existing hypothecations. The Appellants have not filed any of these documents before the NCLT and has made contradictory and incorrect statement before this Tribunal.

In support of the factual and legal arguments the Ld. Counsel relied upon the judgments. In view of the submissions as made the Ld. Sr. Counsel prayed this Bench to dismiss the Appeal being a devoid of any merit.

Heard the Ld. Sr. Counsel appeared for the respective parties perused the pleadings, documents and citations relied upon by them. After analysing the pleadings the point for consideration is Whether the order dated 18.06.2021 which is impugned in the Appeal is need any interference or not?

The Respondents 1 to 4 herein have filed the Company Petition bearing No. CP 02 of 2020 before the National Company Law Tribunal, Kochi Bench under various provisions of the Companies Act, 2013 including alleging oppression and mismanagement in the affairs of the Appellant No.1 Company and sought various main and interim reliefs in the CP. It is contended that relief viii of the interim reliefs in the main CP, inter alia the Respondents herein have sought a direction restraining the Appellants 2 to 8 herein from in any manner alienating, mortgaging, selling or encumbering any of the movable or immovable properties of the company.

After filing of the Company Petition, the NCLT Kochi Bench on 17.01.2020 after hearing the respective parties passed an interim order as at para 12 (ii) as under:

Subsequently, an application bearing no. CA 44 of 2021 in CP 02 of 2020 filed by the Respondents herein before the NCLT seeking a relief to pass a direction to the Appellants 2 to 8 herein to maintain status quo in all aspects while managing the affairs of the Company, and revoke all approvals/resolutions etc. with respect to raising any additional debt. The grievance of the Respondents herein is that the Appellants have completely disregarded the order dated 17.01.2020 and have grossly violated the status quo direction that was passed by the NCLT, by passing a Board Resolutions at the 245^th Board meeting of the Company to raise an additional debt of Rs. 62.67 Crores from various financial institutions, as mentioned here under:

On the other hand, the Ld. Sr. Counsel for the Appellant submitted that apart from filing the CA 44 of 2021 the Respondents herein have filed an application under Section 425 of the Companies Act, 2013 read with Section 10 and 12 of the contempt of Courts Act, 1971 seeking initiation of Contempt against the Appellants and submitted that the Appellants have not violated the interim order passed by the NCLT on 17.01.2020.

It is a fact that the 245^th Board meeting held on 10.02.2021, the Company proposed to avail ECLGS and the same was put up in the agenda along with the notice for the 245^th Board Meeting which was circulated by an email dated 02.02.2021, during the Board meeting held on 10.02.2021 the proposal was discussed the Respondents (being minority shareholders) also participated in the Board meeting. However, the Respondents 1 and 2 expressed their dissenting view, which was duly recorded and noted in the minutes of the meeting. However, the Appellant Company being a Board managed Company with no restraint on its functioning, the Board then passed appropriate Resolution to avail ECLGS in the best interest of the Appellant No. 1 Company. Further, in the Board meeting a loan of Rs. 70 Crores taken from State Bank of India where collateral was required was also considered by the Board and the same was repaid.

It is submitted that out of sanctioned Credit Limit of Rs. 427.11 Crores of the Appellant No.1 Company, the loan availed was Company Appeal (AT) (CH) No. 25 of 2021 to the tune of Rs. 242 Crores and the unutilised Credit Sanction limit was Rs. 185.11 Crores. Accordingly, there was negligible difference in the indebtedness of the Appellant No.1 Company. It is submitted that the Appellant No. 6 had filed an Affidavit before the NCLT Kochi Bench dated 03.03.2021 even prior to Respondents application no. 44 of 2021, apprising the Hon’ble NCLT of the developments by way of an abundant caution and explained the aspect of raising of debt of Rs. 62.67 Crores by the Appellant No.1 Company by availing ECLGS. It is seen that the Appellants have also explained the rationale behind the availing of ECLGS, the necessity for the same, it not being in contravention of order dated 17.01.2020 and being in the best interest of the Appellant No.1 Company. The Ld. Counsel for the Appellant submitted that the objections of the Respondents herein with respect to availing of Credit facilities under ECLGS Scheme by the Appellant No.1 Company herein raised during the 245^th Board meeting, in which it was duly considered by the Appellants herein and the objections of the Respondents was not with respect to the merits of the ECLGS but on other considerations as mentioned below:

The contention of the Respondents herein that the NCLT Kochi Bench passed an interim order of status quo in all aspects as on 17.01.2020 until further orders, however, the Appellants convened and held 245^th Board meeting on 10.02.2021 by taking certain decisions more particularly raising of debt of Rs. 62.67 Crores by the Appellant No.1 Company availing of ECLGS which is in contravention of status quo order dated 17.01.2021 which is still subsisting. It is also contended that the Appellants have not sought modification of the interim order dated 17.01.2021, however, filed an affidavit dated 03.03.2021 which is in violation of the status quo order.

The NCLT in the order under challenge at para 10 and 11 observed as under:

From the above order, it is seen that the NCLT made absolute the status quo order dated 17.01.2020, further by making it clear that the approvals/resolutions with respect to raising of any additional debt shall be kept in abeyance and the same will be subject to the outcome in the main Company Petition.

This Tribunal is of the view that the NCLT while passing the interim order of status quo on 17.01.2020 simply stated that the parties are directed to maintain status quo in all aspects as on today until further orders, has not specifically made out whether status quo to be maintained with respect to management, shareholding and immovable assets of the Company. This Tribunal is of the view that the status quo order is in wider amplitude. It is an admitted fact that the Appellant No.1 Company is into the business of automobile sector and there are 6000 workers in the Company. As per the MOA, the main objects are to carry on the business of motor dealers of cars, motor vehicles etc. and the company has to perform its functions as per its objectives. The NCLT ought to have specified the status quo order with regard to its either shareholding, management and immovable properties etc. Though the Respondents herein have alleged the acts of oppression and mismanagement in the affairs of the company and sought various reliefs i.e. main and interim reliefs and the Company Petition is still pending for Adjudication. While so it is not out of place to mention that the Petitioners expresses their apprehension that the assets of the Company are being sold or the Petitioners/Applicants proposed to remove from the Board of Directors of the Company, in such cases to prevent such acts the Tribunals keeping in view of the interest of the Applicants grants interim order. Any orders either interim or final should invariably in the paramount interest of the Company.

In the present case the Respondents herein have alleged that the Appellants have violated the orders of the status quo dated 17.01.2020 by availing ECLGS i.e. Emergency Credit Line Guarantee Scheme offered by the Govt. of India and the Appellant Company in it 245^th Board meeting dated 10.02.2021 taken a decision by majority of Board of Directors to avail ECLGS during subsistence of status quo order dated 17.01.2020. Taking such a decision in the Board meeting is in the interest of the Company or not is a moot question to be considered by this Tribunal. The Ld. Counsel for the Appellant contended that they have filed an affidavit dated 03.03.2021 bringing to the notice of the NCLT with regard to its decision to avail ECLGS. Further, the Appellants contended that the debt to the tune of Rs. 62.67 Crores from various Banks was not an additional debt and only re-organising of the existing Credit Sanction limit as on the date of the status quo order.

This Tribunal is of the view that the Appellants have not violated the orders of the Tribunal dated 17.01.2020 by making it clear that the Company has to function through the Board of Directors and there is no stay with regard convening and holding of the Board meetings to take a timely decision on the basis of the business of the Company. It is made clear that the interest of the Company is paramount. It is also made clear that the Appellant No.1 Company is a Board managed Company and the Company in variably takes its decisions in the Board and General Meetings which is to take business decisions and also to comply with the applicable provisions of the Companies Act, 2013.

It is an admitted fact that the Appellant No.6 filed an affidavit dated 03.03.2021 before the NCLT Kochi Bench after the Board meeting held on 10.02.2021. However, the Respondents herein have filed CA 44 of 2021 subsequent to filing of Affidavit. The NCLT ought not to have interfered with its business decisions which is in the interest of the company. Further, the NCLT ought to have clarified the status quo order dated 17.01.2020 more specifically, however in absence of clarification, the passing/granting of status quo in all respects leads to ambiguity. Even the Appellants have not questioned the status quo however, aggrieved by further imposing restrictions with regard to raising of additional debt, which according to the Appellants is a interference in the day-to-day affairs of the Company.

This tribunal also makes it clear that the business and its operations of the Company cannot be put to a grinding halt.

The Ld. Counsel for the Respondents herein had submitted that the no relief can be granted to the Appellants for the reason that the Appellants have not come before this Tribunal with clean hands and relied upon the judgments of the Hon’ble Supreme Court in “S.P. Chengalvaya Naidu vs. Jagannath” (1994) 1 SCC 1 wherein the Hon’ble Supreme Court held that a litigant coming before the court with unclean hands can be thrown out at any stage of litigation” as held at para 5 & 6. Further, the Ld. Counsel relied upon the Judgment of the Hon’ble Supreme Court in “Oswal Fats & Oils ltd. vs. Additional Commissioner” (2010) 4 SCC 728. The Hon’ble Supreme Court held that “it is the duty of the court not to grant any relief to a person who has withheld material facts (para 15)”.

This Tribunal considered the above Judgements however we are of the view that the Appellants have made out a prima facie case hence, it cannot be said that the Appellants have come before this Tribunal with unclean hands.

On the other hand, the Ld. Counsel for the Appellants submitted that by way of this impugned order the Appellant No.1 Company cannot carry on its day-to-day affairs independently by taking its decisions apt to the requirements of the Company. However, by way of the impugned order it amounts to interference with day-to-day running of the Company as going concern. The Ld. Counsels for the Appellants also relied upon the following judgments on the aspects of status quo order should not be vague. 1987 (supplement) SCC 394 in the matter of “Bharat Coking Coal ltd vs. State of Bihar & Ors.” para 5. Further, the Hon’ble High Court of Karnataka in the matter of “N Ramaiah vs. Nagaraj S & Anr.” reported in 2001 SCC online Kar 191 para 21 & 22. Para 22 reads as under:

The Ld. Counsel also relied upon the Judgment of this Tribunal reported in 2019 SCC online NCLAT 166 in the matter of “Amritsar Swadeshi Woollen Mills Pvt. Ltd. vs Vinod Krishan Khanna & Ors.” para 59.

This Tribunal comes to a resultant conclusion that while passing of status quo order it should be specific with respect to subject matters more particularly in the matters of Oppression and mismanagement, on the basis of the facts of each case and if such status quo is warranted to protect the interest of the Applicants/ Petitioners therein. In such circumstances the Tribunals while passing of status quo order, should be more specific as held by the Hon’ble High Court of Karnataka in the matter of “N Ramaiah vs Nagaraj” supra. However, by way of impugned order dated 18.06.2021 the NCLT while making interim order dated 17.01.2020 as absolute, however, with respect to passing of order viz; “raising of any additional debt shall be kept in abeyance”, is in our considered view is interfering with the day-to-day affairs of the Company. Therefore, this Tribunal find that the impugned order dated 18.06.2021 para 11 third sentence onwards namely “making it clear that the approvals/resolutions etc. with respect to raising of any additional debt shall be kept in abeyance and the same will be subject to the outcome in the main Company Petition.” is hereby quashed and set aside. Accordingly, the issue is answered.

With the above directions the Company Appeal No. 25 of 2021 is allowed to the extent above. No order as to costs. Applications if any pending stands closed.