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Judgment
JUSTICE YOGESH KHANNA, MEMBER (JUDICIAL)
The Company Appeal (AT) No.277/2024 has been filed by the appellants against the order dated 21.08.2024 and Company Appeal (AT) No.276/2024 has been filed by appellants against the order dated 07.06.2024; both passed by the Ld.National Company Law Tribunal, Chandigarh in CA No.147/2024 in CP No.24(CH)/2024 seeking to place on record the amended petition.
Company Petition No.CP/24/(CH)/2024 was filed by the Respondent No.1 under Section 241 and 242 of the Companies Act, 2013 alleging oppression and mismanagement in the affairs of the Appellant No.1 company. The impugned order was passed allowing the CA No.147/2024 filed by Respondent No.1 for taking on record the amended petition on the basis of an order dated 07.06.2024 which records “on the last occasion the petitioner has sought time for amending the petition and leave was granted for amending the petition.”
It is argued a bare perusal of the order dated 10.05.2024 would reveal no such time was sought and no such liberty was granted to Respondent No.1.
CA No.147/2024 was thus filed by Respondent No.1 seeking to directly place on record an amended petition on the basis of order dated 07.06.2024 without even filing any application seeking liberty to amend the petition, which appears to be in the teeth of a valid legal position pertaining to amendment of pleadings and principles of natural justice which require that for amending a petition detailing of the changes proposed to be made and the grounds on which such amendment has been necessitated, be known to the opposite party.
It is the case of the appellant the amended petition was filed by Respondent No.1 by completely redrafting the original petition with additional grounds and thus it was a fresh petition in the guise of an amendment.
It is argued the impugned order was passed contrary to principles of law relating to amendment of pleadings contained in Order VI Rule 17 of the CPC applicable to the proceedings before the Ld. NCLT.
It is argued that reliance of Ld. NCLT upon Section 424 of the Companies Act, 2013 and holding that the Ld. NCLT is not strictly bound by the CPC for amendment has failed to appreciate well accepted principle of amendment of pleadings.
It is argued the Ld. NCLT erred in holding that no prejudice would be caused to the appellant when admittedly no opportunity was granted to the appellant to respond to the amended petition. On our query the appellant had cited additional reliefs, new facts, new grounds taken in the amended petition which admittedly were not there in its original company petition. A comparative chart has been filed and served upon the Respondent. The Respondent admittedly has not filed any response to the said chart. The comparative chart on facts, grounds and relief in amended petition and the main petition is as below:-
SL
NATURE OF AMENDMENT
ORIGINAL PETITION
AMENDED PETITION
1.
Addition of new interim reliefs
N/A
“c) Mandating that all transactions exceeding Rs. 1 lakh shall require the joint approval of the Petitioner and Respondent No. 2, and appointing an independent chartered accountant to oversee the day-to- day financial operations of the Company and report to the Tribunal monthly.
d) Reinstating the Petitioner as a director of the Company with immediate effect, pending the final disposal of this petition;”
e) Restraining the Respondents from withdrawing any cash from the Company's accounts or retail counters exceeding Rs. 20,000 per day without proper documentation and approval;
f) Suspending any loan agreements entered into by the Company since November 10, 2019, pending review by an independent financial expert appointed by the Tribunal;
g) Restraining the Respondents from entering into any related party transactions without prior approval of the Tribunal;
h) Directing the Company to update and maintain all statutory registers and records as required by the Companies Act, 2013, under the supervision of an independent Company Secretary appointed by the
Tribunal;
k) Appointing an independent observer to attend all board meetings and general meetings of the Company and report compliance with corporate governance norms to the Tribunal”
[Para 68(1) of Amended Petition /Pg. 207, 208/Appeal]
2.
Addition of new final reliefs
N/A
“2. Declare that the affairs of the Company have been and are being conducted in a manner oppressive to the Petitioner and prejudicial to the interests of the Company
Direct the rectification of the Company's registers, including the register of members, to reflect the true and correct shareholding as of November 10, 2019, nullifying any unauthorized transfers thereafter;
b) Appointing two independent directors as per Section 149 of the Companies Act, 2013;
c) Constituting proper Audit, Nomination and Remuneration, and other statutory committees as required by law
Order a comprehensive special audit of the Company's accounts from November 10, 2019, to date, by an independent auditor appointed by the Tribunal;
Direct the Respondents to repay to the Company any sums found to have been misappropriated or improperly withdrawn, with interest at 18% per annum
Declare null and void all major decisions, contracts, and transactions
entered into by the Company without proper board approval since November 10, 2019;
Direct the Company and / or Respondents to compensate the Petitioner for any loss of remuneration, benefits, or dividends suffered due to the oppressive acts
Order the restoration of proper corporate governance by:
a) Directing the holding of a proper Annual General Meeting within 45 days
b) Ordering the filing of all pending statutory returns and forms with the Registrar of Companies within 30 days
c) Appointing a retired High Court judge to oversee the Company's affairs for a period of one year to ensure compliance with all statutory and corporate governance norms;
In the alternative, if the Tribunal deems that the relationship between the parties has irretrievably broken down, direct Respondent No. 2 to purchase the Petitioner's shareholding at a fair value to be determined by an independent valuer appointed by the Tribunal;
Award costs of the proceedings to the Petitioner, to be paid by the Respondents
Direct the Company to file a comprehensive compliance report with the Tribunal every quarter for a period of two years, detailing adherence to all statutory requirements and corporate governance norms
Restrain the Respondents from taking any retaliatory action against the Petitioner or altering his position in the Company without prior approval of the Tribunal for a period of three years
In the event that the Tribunal finds the Company's affairs have been conducted in a manner prejudicial to the public interest or that the Company's purpose cannot be achieved, consider ordering the just and equitable winding up of the Company under Section 271(e) of the Companies Act, 2013”
[Para 68(2)-(14) of Amended Petition
/Pg. 209-211/Appeal]
3.
New party added
The Registrar of Companies, Chandigarh, was not a party in the Original Petition
Registrar of Companies, Chandigarh, added as Respondent No. 5 in the Amended Petition.
[Pg. 173/Appeal]
4.
New case as to Petitioner’s role and contribution in the company has been set up which was not pleaded earlier
No mention in the Original Petition.
“14. The Petitioner, Sunny Kochar, has been an integral part of the Company's success story. His contributions have been pivotal in the Company's growth trajectory:
a) As a member and director, the Petitioner has been involved in key strategic decisions that have shaped the Company's direction and success.
b) The Petitioner has played a crucial role in expanding the Company's market reach, undertaking extensive business trips both within India and abroad to secure new clients and partnerships.
c) Leveraging his expertise in design
and market trends, the Petitioner
has been instrumental in developing the 'Signature Blankets' brand, contributing significantly to product development and marketing strategies.
d) The Petitioner has also been handling a paramount duty of handling and managing the employees, labour and security personnels along with overseeing and managing minutely all the construction activity on the properties of the Company.
e) The Petitioner's efforts have directly contributed to the Company's financial growth, as evidenced by the increasing turnover and profitability during his active involvement in the Company's affairs.”
[Para 14 of Amended Petition /Pg. 179/Appeal]
5.
New fact in relation to filing of suit by the Petitioner added
● The filing of the suit pre-dates the original petition by the Petitioner
No mention in the Original Petition.
“The oppressive acts, particularly at the behest of Respondent No. 2, has extended not only to his rightful share in the company but also in the inherited share in the personal properties of the deceased father of the Petitioner. The Petitioner has been forced to file a suit seeking permanent injunction against the Respondents from dispossessing the Petitioner being a co- sharer in the property of his Late father”
[Para 34 of Amended Petition /Pg. 187/Appeal]
6.
New grounds / case on existing facts added without
Grounds not raised in the Original Petition.
“a) Failure to Appoint Independent Directors (Section 149(4)): Despite falling under the category of companies required to have at least two independent directors
explanation as to why the grounds were not raised earlier
(having a turnover exceeding Rs. 100 crore), the Company has failed to make these crucial appointments. This omission not only violates statutory requirements but also deprives the Company of independent oversight and balanced decision-making.”
[Para 50(a) & 55(a) of Amended Petition
/Pg. 193 & 197/Appeal]
“Non-Constitution of Audit Committee - The Company, meeting the criteria for mandatory constitution of an Audit Committee, has failed to establish this vital governance body. This violation deprives the Company of critical financial oversight, including the review of financial statements, scrutiny of inter-corporate loans, and evaluation of internal financial controls and risk management systems.”
[Para 50(b) & 55(b) of Amended Petition
/ Pg. 193 & 197/Appeal]
“Absence of Nomination and Remuneration Committee (Section 178): The Company has not constituted a Nomination and Remuneration Committee as required by law. This failure compromises the integrity of processes for appointing directors, evaluating board performance, and determining remuneration policies, Notably, this violation invalidates any attempts to remove directors, including the purported removal of the Petitioner, as such actions require the committee's recommendation.”
[Para 50(c) & 55(c), (o) of Amended Petition / Pg. 193 & 197/Appeal]
“Non-Compliance with Cost Audit Requirements (Section 148): Despite meeting the turnover threshold requiring a cost audit, the Company has failed to appoint a cost auditor or conduct the mandatory cost audit. This omission not only violates statutory requirements but also deprives the Company of valuable insights into cost efficiency and financial management.”
[Para 50(d) & 55(d) of Amended Petition
/ Pg. 194 & 198/Appeal]
“Failure to Appoint Internal Auditor (Section 138): The Company, having exceeded the turnover threshold of Rs. 200 crore, has neglected to appoint an internal auditor. This violation exposes the Company to increased risk of financial irregularities and weakens internal control mechanisms.”
[Para 50(e) & 55(e) of Amended Petition
/ Pg. 194 & 198/Appeal]
“Non-Filing of Critical Statutory Forms:
• MGT-14 for adoption of financial statements and directors' report not filed (Section 179(3)).
• BEN-2 forms for reporting significant beneficial ownership not filed for Mohinder Singh HUF and Pushpdeep
Singh Kochar HUF (Section 90(4)).
• DPT-3 (Deposit Return) forms for FY 2020, 2022 & 2023 not filed, violating Rules 16 and 16A of the Companies (Acceptance of Deposits) Rules, 2014.”
[Para 50(f) & 55(f), (g), (h), (p), (r), (s) of Amended Petition / Pg. 194 & 198- 201/Appeal]
“Discrepancies in Annual Returns (MGT- 7):
• EGM held on 22-04-2017 not reported in the annual return.
• Multiple board meetings (03-09-2018, 06/ 11/2021, 05/03/2022,
29/03/2022 & 31/03/2022) not mentioned in MGT-7, raising questions about the accuracy of statutory filings.”
[Para 50(g) & 55(i), (j) of Amended Petition / Pg. 194 & 199/Appeal]
“Non-Compliance with CSR Requirements (Section 135): The Company failed to spend the mandated amount on Corporate Social Responsibility activities, violating its statutory obligations and potentially harming its community relationships and public image.”
[Para 50(i) & 55(l) of Amended Petition
/Pg. 195 & 199/Appeal]
“Failure to Conduct Secretarial Audit (Section 204): Despite being required to conduct a secretarial audit for FY 2023, the Company neglected this obligation, further demonstrating its disregard for regulatory compliance and transparency.”
[Para 50(j) & 55(m) of Amended Petition
/Pg. 195 & 200/Appeal]
“Invalid Board Composition: The failure to appoint the required number of
independent directors renders the board's composition irregular as per Secretarial Standard 2. Consequently, any meetings called or convened by this improperly constituted board may be considered inconsistent, and resolutions passed therein could be deemed invalid.”
[Para 55(n) of Amended Petition /Pg. 200/Appeal]
“t. Inadequate Board Oversight: The absence of independent directors, coupled with the non-constitution of mandatory committees, has resulted in inadequate oversight of the Company's affairs. This lack of checks and balances creates an environment conducive to mismanagement and oppression of minority shareholders.”
[Para 55(t) of Amended Petition /Pg. 201/Appeal]
“u. Financial Reporting Irregularities: The failure to conduct various audits (cost, internal, secretarial) and file mandatory returns creates an environment of financial opacity. This lack of transparency raises serious concerns about the accuracy and reliability of the Company's financial reporting.”
[Para 55(u) of Amended Petition /Pg. 201/Appeal]
“v. Regulatory Exposure: The systematic failure to comply with multiple statutory requirements exposes the Company to significant regulatory risks, potential
penalties, and legal actions. This non-
compliance jeopardizes the Company’s legal standing and operational stability”
[Para 55(v) of Amended Petition /Pg. 201/Appeal]
“w. Compromised Corporate Governance: The cumulative effect of these violations demonstrates a severe breakdown in corporate governance structures. This systemic failure not only facilitates the
oppression of minority shareholders but also threatens the Company's long-term viability and stakeholder interests.”
[Para 55(w) of Amended Petition /Pg. 202/Appeal]
“x. Potential Invalidation of Corporate Actions: Given the irregular board composition and the absence of key committees, there is a risk that significant corporate actions, including the alleged removal of the Petitioner as a director, may be deemed invalid under scrutiny.”
[Para 55(x) of Amended Petition /Pg. 202/Appeal]
“y. Breach of Fiduciary Duties: The extent and persistence of these violations suggest a serious breach of fiduciary duties by the Company's management. The failure to ensure compliance with basic statutory requirements indicates a disregard for the Company's legal obligations and shareholder interests.”
[Para 55(y) of Amended Petition /Pg. 202/Appeal]
7.
New case set up for oppression and
mismanagement basis same facts
N/A
“51. The cumulative effect of these violations creates an environment ripe for oppression and mismanagement:
a) Invalid Board Constitution: As per Secretarial Standard 2, the failure to appoint the minimum number of directors (including independent directors) renders the board irregular. Consequently, all meetings convened and resolutions passed by this improperly constituted board are potentially invalid.
b) Compromised Decision-Making: The absence of key committees (Audit, Nomination and Remuneration) and independent directors has allowed unchecked decision-making by the controlling shareholders, facilitating the oppression of minority lnterests.
c) Financial Opacity: The failure to conduct required audits (cost, internal, secretarial) and file mandatory returns creates an environment of financial opacity, potentially concealing further acts of mismanagement or financial impropriety.
d) Regulatory Non-Compliance: The systematic failure to comply with multiple statutory requirements exposes the Company to significant regulatory risks, penalties, and potential legal actions.”
[Para 51 of Amended Petition /Pg. 195/Appeal]
“59. The actions of Respondent No. 2, in particular, constitute a severe breach of the
fiduciary duties owed to the Company and its shareholders:
a) The duty to act in good faith and in the best interests of the company, as codified in Section 166(2) of the Companies Act, 2013, has been flagrantly violated through actions that prioritize personal gain over the Company's welfare.
b) The duty to exercise due and reasonable care, skill, and diligence (Section 166(3)) has been neglected, as evidenced by the financial irregularities and non- compliance with statutory requirements.
c) The duty not to involve in a situation where there is a direct or indirect conflict of interest with the company (Section 166(4)) has been breached through actions such as booking personal expenses to the Company's account.”
[Para 59 of Amended Petition /Pg. 204/Appeal]
The above chart would reveal that the amendments were substantial in nature though the learned counsel for the Respondent alleges it to be mere explanatory. Admittedly new reliefs have been added in the amended petition as also a new party being impleaded. Further the additional acts of oppression have also been added for which, of course, an opportunity ought to have been granted to the appellant to rebut such a move.
We have perused the impugned order dated 21.08.2024 which refers to order dated 07.06.2024 wherein it is noted on the last occasion the Respondent had sought time for amending the petition and leave was granted for amending the petition. We have also perused the order dated 10.05.2024 i.e. prior to 07.06.2024 and we find on that day neither any time was sought for amending the petition nor any such leave was granted to amend it. The order prior to 07.06.2024 is of 10.05.2024 and the same is as under:-
“Head the submissions made by the learned counsel for the petitioner. Learned counsel for the respondents is also present. Petitioner’s counsel has prayed for grant of two weeks’ time in this matter. Time prayed for is granted. With the consent of both the counsels, let the matter now stands posted to 07.06.2024.”
In Aurosagar Estates Private Limited and Ors Vs M.C. Davar Holdings Private Ltd MANU/NL/0042/2017 this Tribunal held as follows:
“23. As the amendment petition related to a different cause of action as took place in October 2012, we are of the view that the Tribunal was not competent to allow the petition for amendment with regard to separate cause of action in respect of which no pleading was made nor any prayer made in the original application under Section 241.
…….
In the present case we have observed that the Tribunal otherwise is not empowered to amend any petition except to the extent as prescribed under the Act and the Rules; the Tribunal cannot allow substantial amendment to the petition/application/appeal, on merely asking for it, unrelated to the original cause of action or prayer, though it is open to the Tribunal to allow the party to file additional affidavit! reply affidavit bringing to the notice of the Tribunal the other relevant fact which are related to the original cause of action and the prayer as has already been made.
In any case the Tribunal cannot allow any petition for amendment with regard to a fresh cause of action other than the cause of action for which the petition under Section 241 of the Companies Act, 2013 has been preferred.
In the present case, as the amendment sought with regard to a fresh cause of action which has taken place more than three years back on 15th October, 2012, prayer made in amendment petition being barred by limitation, the Tribunal was not competent to allow the amendment.”
Further in IVRCL Ltd Vs M/s IOT Utkal Energey Services Ltd & Others, Company Appeal (AT) No.25 of 2017 this Tribunal held:-
“6. On the other hand, if the act of 'oppression and mismanagement' relates to earlier period, including both the Meeting dated 31° December, 2012, and the appellant had knowledge of the same directly or through its representative, the same cannot be allowed to be pleaded.
Similarly, if during the pendency of the company petition further acts of 'oppression and mismanagement' taken place and is connected with the allegations already made, such as consequential action taken by Respondent, the Tribunal should allow the appellant to bring development to the notice of the Tribunal.
On the other hand, if the subsequent acts of 'oppression and mismanagement' is a fresh cause of action, such plea cannot be raised in the pending company petition, though it is always open to the aggrieved party to move before the NCLT under Section 241 and 242 of the Companies Act, 2015 by filing a separate petition.”
In the circumstances and on perusal of the comparative chart, we are of considered opinion that for such substantial amendments, an application ought to have been moved with such proposed amendments and with a liberty to the appellants to rebut such proposed amendments and only thereafter, the amended petition ought to have been brought on record. The impugned order does not adhere to the principles of natural justice as it did not give an opportunity of being heard to the appellant. Thus we set aside orders dated 21.08.2024 and 07.06.2024 and hence we direct one more opportunity be given to the Respondent herein to move an application for amendment, inclusive of the proposed amendments with a liberty to the appellant to respond tto such application and thereafter the Ld. NCLT to decide it as per law.
Both the appeals are thus disposed of in terms of the above. Pending applications, if any, also stand disposed of.