M/s. Bhagyanagar Boards & Chemicals P. Ltd. & Ors. vs Mr. Vijay Kumar Goyal & Ors.

[Per; Ms. Shreesha Merla, Member (Technical)]:

I.A. 1102/2022 in Comp. App. (AT) (CH) No. 128/2022 is filed by M/s. Bhagyanagar Boards & Chemicals Pvt. Ltd.’, seeking stay of the operation of the Impugned Order dated 19.10.2022 passed by the NCLT, Hyderabad Bench in T.P. No. 06/HDB/2016 (C.P. No.26/2005), whereby the Company Petition was allowed with the following directions:

I.A. Nos. 1101 & 1103/2022 in Comp. App. (AT) (CH) No. 128/2022 are filed seeking urgent hearing of the Appeal and stay of the EGM conducted on 28.12.2022. All the IAs are being disposed of by this Common Order.

Learned Counsel Mr. Y. Suryanarayana appearing for the Applicant submitted that consequent to the passing of the ‘Impugned Order’ dated 19.11.2022, the first Appellant Company received emails from M/s. Kotak Bank, M/s. HDFC Bank and M/s. Citi Union Bank on 05.11.2022, 07.11.2022 and 09.11.2022 that the accounts maintained by them in the ‘respective Banks’ are ‘frozen’ consequent to the ‘Impugned Order’. This is affecting the day to day operations of the Company and therefore it is imperative that the ‘Operation’ of the ‘Impugned Order’ is stayed.

The Learned Counsel explained the background of the filing of the Company Petition as follows:

He drew our attention to the chronology which has led to the institution of the ‘Company Petition’ before the NCLT:

24.08.1976 Pursuant to Agreement of Sale between the Andhra Pradesh State Financial Corporation (APSFC) and Shamla paper Board Industries, the land in question was sold to Shamala Paper Board Industries.

03.07.1979 A sum of Rs. 1,61,783.92 owed by Shamala paper board Industries to APSFC has been paid.

10.09.1979 The remaining amount has been transferred in the name of Respondent No.1/Company, on its incorporation.

06.07.1979 Shamala Paper Board Industries had become a defaulter and the unit was taken over by APSFC.

14.04.1980 Respondent No.1 requested APSFC to execute all the documents in favour of Respondent No.1/Company. However, the same could not be done as loan could not be cleared.

30.03.1991 Entire loan was cleared by Respondent No.1 and loan account with APSFC has been settled by respondent No.1.

19.11.1991 No Due Certificate has been issued by APSFC.

17.08.1993 APSFC has returned all the documents to Respondent No.1

26.03.2004 After various communications exchanged between APSFC and Respondent No.1, sale deed was executed in favour of Respondent No.1/Company.

Mr. Vijay Goyal, Mr. Bhushan Goyal & Mr. Vishal Goyal, the Respondents No.1, 2 &3 herein together hold 76 % of the paid up capital and the Respondents No. 4 & 5 who had died, held 24% of the paid up capital.

Mr. Y.Suryanarayana, Learned Counsel for the Applicant submitted that the Ice Cream business being run under the name of ‘Chanda Softy Ice Creams’ (Milky Way) (which was established in the year 1994), was doing extremely well and the Respondents were suppressing the cash income generated from out of this business and there were ‘simmering differences’ between the Appellants and the Respondents herein. It is submitted, that in order to resolve the differences there was a ‘Family Understanding’ whereby it was agreed by the Respondents that instead of holding 50% partnership, located in Chennai, it would be taken over by the Respondents Group based in Chennai and 100% of the shares of the 1^st Appellant Company, Hyderabad, would be owned by the Appellants Group based in Hyderabad. The first portion of the ‘Understanding’ was implemented by way of a ‘Deed of Dissolution’ executed between 3^rd Appellant and 2^nd Respondent on 31.10.2002, the second portion of the understanding was implemented on 31.12.2002 after the wedding of the 3^rd & 4^th Appellants which took place in Hyderabad on 12.12.2002. The Respondents group handed over the share certificates along with duly executed transfer forms to the 4^th Appellant who controlled the 1^st Appellant Company.

It is submitted that the Respondents in their ‘Petition’ wrongly stated that they have never executed any ‘Transfer Deeds’ but in the ‘Rejoinder’ admitted to have executed these ‘Transfer Deeds’ in the month of February, 2002 to an alleged buyer in Hyderabad. The witness to the ‘Transfer Deed’ is an attesting witness, namely, Shri Shashi Bansal, who had sworn in an ‘Affidavit’ dated 17.05.2005 that the ‘Transfer Deed’ duly executed by Mr. Vijay Kumar Goyal and the other two Respondents in favour of the new Bride Ms. Shushma Gupta, as a ‘Gift’ were handed over in his presence to Mr. Vinod Lath, the father of the bride. The above witness was Suo Moto summoned by NCLT on 20.01.2017 where the witness has confirmed the contents of his ‘Affidavit’ dated 17.05.2005. It is submitted that the ‘Witness’ was also cross-examined by the Respondents and the same was also recorded by the ‘NCLT’ in their order dated 20.01.2017.

The Respondents, in their cross-examination, questioned Shri Shashi Bansal as to why he was selected as a ‘Witness’ out of all the people present and the ‘Witness’ had answered that it was because, both the brothers ‘had huge faith in him’.

Learned Counsel for the Applicant further relied on the letter dated 07.04.2005 of Shri Gajanandji Gupta, who is the father of the 1^st Respondent, in which letter Shri Gajanandji Gupta referred to the ‘Family Understanding’ and stated that Milkyway at Chennai was entirely taken over by the family and BBC was entirely given to Nirmal’s family. The 1^st Respondent in the letter dated 03.06.2005 admits that he had received the afore noted letter dated 07.04.2005 signed by Shri Gajanandji Gupta but NCLT has not given any finding regarding this letter. It is also the case of the Appellant that 130 Shares were allotted to the 3^rd Appellant on 08.12.2002 and no shares were allotted to the ‘Respondent Group’ as there was a ‘family understanding’. The Respondents have failed to give any reason for dissolving the ‘Partnership’ of the ‘Ice Cream Business’, saying the same was not due to any ‘Family Understanding’. The ‘Possession’ of ‘Share Certificate’ is a ‘prima facie’ evidence of shareholding and there is no reason given by the Respondents as to how the ‘Share Certificates’ related to the 760 shares are not in their possession. Admittedly, the ‘Land’ of the 1^st Appellant Company is the only major ‘Asset’ of the Company and the Company did not have a registered ‘Title’ over the said ‘Land’ at the time of ‘family understanding’ in the year 2002. It is submitted that if the Respondents had not transferred their entire shareholding pursuant to the ‘family understanding’ in the year 2002, their representatives, Shri Sat Narain Bansal, ought to have represented the 1^st Appellant Company in the ‘Sale Deed’ dated 26.03.2004 and not the 2^nd Appellant, as was done in this case.

The fact is that the total control over the Company was with the Appellant and not the Respondents, evidences that the Respondents had already transferred their shares in the Company pursuant to the ‘family understanding’. It has submitted that it is an ‘afterthought’ by the Respondents regarding issues of division of the property, winding up of the Company, development of the property and further the exploitation of the property of the Company.

It is the case of the Applicant/Appellant that no details, whatsoever, was provided by the Respondents regarding the alleged buyer, the name or identity, the price or even if there was any agreement entered into or any advance offered with respect to the alleged purchase of the property. If the ‘Transfer Deeds’ were executed for a third party, the witness column should have been filled in by a person, witnessing the signatures of the Respondents and further the witness proves the execution of ‘Transfer Deeds’ and the time period of such execution. The Respondents never had a consistent stand on how the ‘Transfer Deeds’ came into the possession of the Appellant group.

Learned Counsel drew our attention to page 1086 of the ‘Appeal Paper Book’ which states that one brother/4^th Respondent gets possession of certain blank signed transfer forms and also at para 6 in which it is stated that the “share transfer forms and certificates, which the Respondents had entrusted to Respondent No.3 to 5 (the 2^nd Appellant & 3 Appellant)…” shows that Shri Nirmal Kumar Gupta approached them and obtained the ‘Transfer Deeds’ from them. It is also argued that the Respondents have severely failed to explain why only the executed ‘Transfer Deeds’ were handed over (as stated by the Respondents in the ‘Rejoinder’) and not the ‘Share Certificates’, when there were intended for an alleged buyer in Hyderabad.

Learned Counsel drew our attention to the ‘Comparative Table’ of the evidence with respect to the ‘Execution of Transfer Deeds’ and handing over of the ‘Share Certificates’. It is also the case of the Appellants that the Notice dated 05.03.2005 for the ‘Board Meeting’ to be held on 07.03.2005 was sent by a ‘Telegram’ and the certified copy of the Telegram was filed along with the ‘Counter’ and the notice was signed by a ‘Director’ of the 1^st Appellant Company. The notice dated 05.03.2005 for the ‘Board Meeting’ clearly stated that the ‘Agenda’ will be served in the meeting and the same is evident from the ‘Minutes of the Meeting’, which clearly shows that there were six ‘Agenda items’ with respect to appointment of Mr.Girish Gupta as ‘Additional Director’, approval of Share transfers, shifting of the ‘Registered Office of the Company’ and confirmation of the ‘Minutes’ of the previous ‘Board Meeting’. Though Shri Sat Narain Bansal was sent the notice through telegram, he did not attend the meeting and it was only attended by the 2^nd Appellant and Shri Nirmal Kumar Gupta. The transfer of shares was transacted in the ‘Board Meeting’ after being mentioned as an ‘Item’ in the agenda. The Respondents have given a ‘concocted story’ that the records of the Company were maintained under the charge of Mr. Ghanshyam Bhati, however, subject to the overall control of Shri Sat Narain Bansal and that the 3^rd Appellant had taken away the records from Mr. Ghanshyam Bhati on the false promise of reference and informed that he would return the same soon. It is submitted that this statement has been made without any evidence as the Respondents in Company Application No. 54 of 2017 stated that they themselves entrusted the share certificates to the 2^nd Appellant. Mr. Ghanshyam Bhati addressed letters dated 18.12.2004 & 08.02.2005 to the 3^rd Appellant seeking return of the file containing documents related to ‘Registrar of Companies’, ‘share transfers form’ and ‘statutory registers’. The Respondents had colluded with Shri Sat Narian Bansal and preferred the petition with an ‘ulterior motive’. It is submitted that this is clear from the fact that the remuneration to the Advocate of Shri Sat Narain Bansal, was paid by the 1^st Respondent and Shri Sat Narian Bansal was a ‘nominee’ on behalf of the Respondents. In their letter dated 13.04.2005 issued to the ROC, it was stated that the Board comprises of only two persons while Mr. Sat Narian Bansal represents the interest of our group viz. VKG group and Smt. Sheela Gupta represents NKG Group. Certified copies were obtained by Sri Sat Narian Bansal and given to Respondents. Shri Sat Narian Bansal was a paid employee of ‘M/s. Tirupati Roller Flour Mills Pvt. Ltd’ which ‘managed’ and ‘controlled’ by the Respondents. The 3^rd Appellant filed IA No. 51 of 2021 before the NCLT highlighting this collusion between the Respondents and Sri Sat Narian Bansal and when the said IA came up for hearing on 12.07.2022, the NCLT stated that “in the light of the prayers sought for, this CA cannot be disposed of independently, especially when the Company Petition which is more than 17-year old, is ripe for final hearing. Hence, this IA will be heard along with the Company Petition”.

Learned Counsel concluded that the NCLT had erred in not considering the letter dated 09.04.2005 of Shri Nirmal Kumar Gupta and erred in also overlooking the contents of the reply dated 05.03.2005 of the 3^rd Appellant wherein it was clearly stated that Mr. Ghanshyam Bhati, the sender of the letters, was repeatedly informed that the file contained only the papers related to M/s. Tiruptai Roller Flour Mills Pvt. Ltd.

It is submitted that the Respondents Company being the ‘Transferors’ of all their shares cannot be an aggrieved party as is held in Prafulla Kumar Rout. Vs. Orient Engineering Works Pvt. Ltd. and Ors.^{11.(1986) 060 C-C0065 ORI-} The shares were registered with due compliance of ‘Article of Association’. It is also submitted that the ‘registration of shares’ is a matter acted upon by the ‘Directors’ in a ‘Board Meeting’ and a shareholder not being a ‘Director’ cannot be question the proceedings of the ‘Board Meeting’. The Respondents are only shareholders and not Directors of the 1^st Appellant Company. Since there were only two partners in the firm ‘Chanda Softy Ice Creams (Milky Way)’, only these two partners executed the ‘Deed of Dissolution’ to fulfil the legal formalities and it was not necessary for all the members of the family to sign the same.

By the ‘family understanding’, the differences were resolved and as a consequence all the events took place in a short span of within 45 days i.e. the ‘Partnership Firm’ was dissolved on 31.10.2002; 130 shares of the 1^st Appellant Company were allotted on 08.12.2002 to the 3^rd Appellant; 760 shares of 1^st Appellant Company were transferred on 13.12.2002 by the Respondents. It has also submitted that the NCLT had erred in observing that the value of the property holding of the Respondents of the 1^st Appellant Company at the time of ‘Dissolution of the firm’ was about Rs.2 crores. The Respondents miserably failed to prove their case and there were continuous contrary claims by both Sri Sat Narain Bansal and the Respondents herein. The Respondents, not being the Directors of the 1^st Appellant Company, cannot dispute any ‘Board Meeting’ as per Section 195 of the Companies Act, 1956.

Learned Counsel lastly submitted that the ‘Impugned Order’ does not mention an ‘Affidavit’ dated 17.05.2005 of the ‘Witness to Transfer Deeds’; or the ‘Deposition of the Witness’ before the NCLT on 20.01.2017; Cross Examination of the Witness; or the Letter dated 24.05.2005 of M/s. Tirupati Roller Flour Mills Pvt. Ltd and also not given ‘any finding’ with respect to CA 51of 2021 or Letter dated 13.09.2010 of Sri Sat Narain bansal to his Advocate and also letters dated 16.09.1020 & 25.03.2011 of Sri Sat Narain bansal to the erstwhile ‘Company Law Board’. It is vehemently contended that the NCLT has not given any observation with regarding to the allotment of 130 shares of the 1^st Appellant Company only to the 3rd Appellant; the ‘Dissolution of the Partnership firms’; Full control of the Appellant on the first Appellant Company; the collusion of the Respondents with Sri Sat Narain Bansal and also the evidence regarding the AGM notice. In view of all these submissions made, Learned Counsel vehemently argued that the ‘Operation’ of the ‘Impugned Order’ dated 19.10.2022, be stayed.

It is vehemently argued by the Learned Counsel for the Applicant that NCLT has not dealt with or considered the main evidences in favor of these Applicant/Appellants and has also misunderstood the facts of the case. After reconstitution of the Board in terms of the NCLT Order dated 19.10.2022, the composition of the Board is as under:

It is submitted that the Respondents have purportedly called an EGM without fallowing due process of law and without giving any requisition to call the EGM to the Board of Directors of the Company. As per Section 100 of the Companies Act, 2013, (hereinafter referred to as ‘The Act’), it is necessary to give requisition to the Board of Directors of the Company for calling EGM. Further, as per Section 100(4) of the Act if the Board does not within 21 days from the date of receipt of a valid requisition in regard to any matter, proceed to call a Meeting for the consideration of that matter on a day not later on 45 days from the date of receipt of such requisition, the Meeting may be called and held by the requisitions themselves within a period of three months from the date of requisition. In violation of these provisions the Respondents called an EGM without giving any requisition to the Board of Directors of the Company and have directly called for the purported EGM themselves. Hence in the interest of justice, the Applicant in I.A.1102/2022 seeks stay of the ‘Operation’ of the ‘Impugned Order’ dated 19.10.2022.

Learned Counsel for the Applicant sought for Status Quo ‘ante-restoring’/maintaining the composition of Board of Directors as it existed on 18.02.2022, prior to the passing of the ‘Impugned Order’ and pass an ‘Order’ not to implement the Resolutions passed in the EGM dated 28.12.2022 till the disposal of the main Company Petition and pass an Order to freeze the ‘Fixed Deposits’ of the first Applicant/Appellant Company allowing with various Banks till the disposal of the main Appeal.

Mr. P.H. Arvindh, Learned Senior Counsel submitted that the Applicants have not demonstrated any case to stay the ‘Operation’ of ‘Impugned Order’; there were no disputes in 2002 between the two groups to necessitate the purported family settlement; FIR No. 659/2006 evidences that the Appellant group and the Respondents did not have any disputes till march 2005; the 3^rd Appellant transferred his 260 shares to 1^st Respondent on 15.10.2002 and the Respondents did not object to fresh allotment of 150 shares to the 3^rd Appellant in December, 2002, which actions are against the normal course of conduct, if indeed there were disputes between the parties. It is vehemently argued that there was no evidence at all to prove any ‘oral family settlement’.

It is also the case of the Respondents that ‘Deed of Dissolution’ dated 31.10.2002 is silent on any ‘Family Settlement’. Clause 8 of the ‘Deed of Dissolution’ states that the ‘Deed’ was in ‘full’ and ‘final’ settlement of claims between the parties, which agreements has not been dealt with by the Respondents. It is argued by the Learned Senior Counsel that only ‘Annual Returns’ filed by Appellant Group as also the IT Returns filed by the Respondents indicate the shareholding in the name of the Respondents. The IT Returns of the 4^th Appellant (obtained under RTI) does not include the 760 shares in her name. It is contended that if there indeed were disputes between the parties, the Appellants would have ensured that the transfers were registered immediately but only reason given by the Appellants for the unnatural delay in registration of transfer of shares from 13.12.2002 to 07.03.2005 is due to ‘genuine oversight’, which is also ‘flawed’ because the ‘Annual Returns’ for 2002-03 till 2004-05 signed by the ‘Appellant Group’ continuously reflect the Respondents shareholding of 760 shares. Other transfers that were made in the same period i.e. allotment of 130 shares to 3^rd Appellant on 08.12.2002 and transfer of 260 shares from 3^rd Appellant to Respondent No.1 on 15.10.2002 were recorded immediately as can be seen in the ‘Annual Returns’.

It is the case of the Respondent that it was only to circumvent the requirements under ‘Article 11’ of the ‘Article of Association’ of the Company, which required the prior permission of 3/4^th of the Directors that the record of AGM dated 30.09.2004 was fabricated. It is contended by Learned Senior Counsel for the Respondents that Sri Sat Narain Bansal did not receive notice of Board meeting dated 05.03.2005; No agenda was served with the so-called notice; that the said board meeting was convened only to discuss an urgent matter; the alleged Board Meeting did not have any quorum because it was purportedly attended by Mr. Nirmal Kumar Gupta and 2^nd Appellant only. The Transfer of shares is procedurally invalid as the forms were not properly revalidated, no undue hardship has been established to justify such revalidation and further ‘Article 11’ ‘has not been complied with inasmuch as there was no permission in writing, there was no application for transfer from the ‘Transferor’ and no record of the meeting of the ‘Directors’.

As regarding the affidavit of the witness and his disposition, not being considered, the witness had admitted that he was a close friend of Mr. Nirmal Kumar Gupta and, therefore, the evidence does not possess ‘high probative value’. The witness deposition is also ‘suspect’ as he does not remember when the share certificates were handed over and also other specific details. As regarding the letter dated 07.04.2005 of Sri Gajanandji Gupta, it is submitted by the Learned Senior Counsel that the alleged signature of Sri Gajanandji Gupta was ‘dramatically’ different from his other purported signature. This letter was never received by the Respondents as is evident from the letter dated 03.06.2005.

It is also submitted that mere possession of the share certificate is not indicative of a valid transfer; that there is no question of any full control by any one group as there were no disputes between the parties till 2005; there is no proof of handing over these transfer form and the reason for doing the same. The letter dated 13.09.2010 was submitted, after the matter has heard and reserved for orders, twice and the issue regarding the collusions of Respondents with Mr. Sat Narain Bansal has been considered in detail by the `Tribunal’. The `NCLT’, appreciates the ‘expert evidence’ which indicates that the notice submitted by Mr. Sat Narain Bansal was indeed signed by the 2^nd Appellant. While considering this with other piece of evidence, the `Tribunal’ (`NCLT’) concluded that the Appellants have not furnished proper notice. The Appellants have been inconsistent in their stand, firstly by stating that the transfer of 76% of the shareholding was part of a non-existent family settlement; secondly it was consideration for handing over the 3^rd Appellant share in Chanda Softy Ice Creams; and thirdly that the same was a Stridhan to 4th Appellant. The Appellants are themselves confused if the 760 shares is the family property of Nirmal Kumar Gupta, or a property of the 3^rd Appellant by way of transfer as consideration, or the property of the 4^th Appellant by way of a ‘Gift’. Despite the order of NCLT, directing that the appointment of Mr. Nirmal Kumar Gupta as also the 3^rd Appellant is set aside and the ‘Board of Directors’ be reconstituted, the Appellants are attempting to portray themselves as ‘Directors’ before various banks where the Company maintains its accounts, with a motive of siphoning off the funds and given the unlawful conduct of the Appellants, Learned Senior Counsel vehemently opposed for granting of any interim directions.

As regarding the I.A. seeking stay of the EGM held on 28.12.2022, admittedly the Meeting has already been convened. Prima facie there is no evidence on record to establish that the ‘Special Notice’ and ‘EGM Notice’ dated 23.11.2022 were issued against any provisions of the Act. Consequent to the observations made in the Impugned Order, there is no valid Board existing and therefore any violation of Sections 100 & 100(4) of the Act cannot be inferred, at this juncture.

It is seen from the record that the ‘Impugned Order’ is dated 19.10.2022 and subsequent to the directions given by the NCLT, the Respondents has called for an EGM on 28.12.2022 and the Board has been duly reconstituted. Since, this is an event subsequent to the passing of the ‘Impugned Order’, unless the ‘Impugned Order’ is decided ‘on merits’, this `Tribunal’, does not see any substantial grounds to Stay the ‘Operation’ of the ‘Impugned Order’, passed by the `Tribunal’.

As the Learned Counsel for the Applicant/Appellant has raised grounds regarding evidences not addressed to by the `NCLT’, it is imperative that the main Appeal be heard at length on merits and at this juncture, any consequent developments, subsequent to the ‘Impugned Order’, cannot be stayed, in the light of the fact that no substantial reasons have been found by this `Tribunal’, to order any `Status Quo’.

Having regard to the fact that the apprehension of the Learned Counsel for the Respondents, keeping in view the ‘Balance Sheets’ uploaded with the RoC that the Appellants has siphoned off a sum of Rs.42 Lakhs/- and their strong opposition to granting the stay of the ‘Impugned Order’, we are of the considered view that the main Company Petition is to be decided at the outset ‘on merits’. It is pertinent to mention that the Applicants in their ‘Rejoinder’ in I.A.1102/2022, have stated in para 15 that they have no objection to freezing of the FDs. As the Bank Accounts are already frozen, no specific, separate directions with respect to freezing of FDs be given. Additionally, the Prayer seeking permission to operate the Bank Accounts for executing day to day operation is denied keeping in view that the findings in the ‘Impugned Order’ have a bearing on these consequent developments and unless the main matter is decided ‘on merits’, and further specifically keeping in view the ‘Chequered History’ and ‘Factual Matrix’ and ‘Rival Contentions’, this `Tribunal’, does not find any `Justiciable’ reason(s), to grant any `Interim Stay’, as prayed for, by the `Petitioner / Appellant’.

For the aforesaid reasons and foregoings, the `Interlocutory Applications’, are dismissed. No costs.