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Judgment
NARESH SALECHA, MEMBER (TECHNICAL)
The present appeal has been filed under Section 421 of the Companies Act, 2013 against the ‘impugned order’ dated 20.02.2019 in CA/390/ND/2018 in CP-220/PB/2018 by the ‘Tribunal’ (National Company Law Tribunal, Division Bench, Delhi Bench- III), whereby the ‘Tribunal’ allowed the Application of the Respondent for inspection of records on dates, time and venue to be decided by the Appellants under intimation to the Respondent within a week of pronouncement of said ‘impugned order’ dated 20.02.2019.
Heard the Counsel for the Parties and perused the records made available including cited judgments.
It is the case of the ‘Appellants’ that Appellant No. 1 Company was incorporated on 03.05.1989 by late Shri Shivlan Chawla along with other family member who were the first directors and the promoters and involved in business of coil winding machines. The ‘Respondent’ was appointed as Director in Appellant No. 1 Company on 13.01.1990.
The ‘Appellants’ alleged that Respondent never took any interest in managing Appellant No. 1 Company and was made Director and Shareholder only because he was related by blood. The ‘Appellants’ further alleged that in March 2017, the Respondent with wrong intentions for making personal gains got in touch with its competitor M/s Synthesis and the cost of Appellant No. 1 Company, started virtually acting as trading agent of M/s Synthesis and its sister concern M/s Samyukta from April, 2017. It is a further case of the Appellant that due to detrimental activities of the ‘Respondent’, the Appellant No. 1 Company had to close down its business in Kundli Unit.
The ‘Appellants’ submitted that in view of above developments, Appellant No. 3- Mrs. Neha Chawla in capacity of shareholder of Appellant No. 1 Company, to the extent of 30.30% of the paid up equity share capital, requisitioned for an ‘Extraordinary General Meeting’ (in short ‘EGM’) by sending special notice dated 06.04.2018 to the Appellant No. 1 Company in terms of Section 169 of the Companies Act, 2013. The ‘Appellants’ further submitted that the Appellant No. 1 Company did not call for EGM as per request of Appellant No. 3 but issued a notice on 26.05.2018 for EGM in terms of Section 100(4) of the Companies Act, 2013 r/w Rule 17 of the Companies (Management & Administration) Rules 2014. The said meeting was scheduled to be held on 23.04.2018 with agenda to remove the ‘Respondent’ from the Directorship of the Appellant No. 1 Company.
The ‘Appellants’ stated that on 19.06.2018, against the said notice of the 1st Respondent Company, the Respondent filed the Petition No. CA/390/ND/2018 in CP-220/PB/2018 before the ‘Tribunal’ making false and vague allegations of “Oppression and Mismanagement”, suppressing the relevant facts and mislead the ‘Tribunal’ arguing that no explanatory notes had been annexed with the agenda as required under Rule 17(5) of the Companies (Management & Administration) Rules 2014. The ‘Appellants’ submitted that an ex-parte order was issued by the ‘Tribunal’ dated 20.06.2018 staying the removal of the ‘Respondent’ as Director and directed the ‘Appellants’ to maintain the status-quo with regard to Board composition and Shareholding till next date of hearing.
The ‘Appellants’ submitted that while the main company petition bearing CA/390/ND/2018 in CP-220/PB/2018 was pending adjudication before the ‘Tribunal’, in the meantime, the ‘impugned order’ dated 20.02.2019 was delivered, directing the ‘Appellants’ herein to permit the ‘Respondent’ to inspect the original statutory records as prayed in the application and directed the ‘Appellants’ to fix dates, time and venue for such inspection under intimation to the ‘Respondent’ within a week of the ‘impugned order’. The ‘Appellants’ clarified that in compliance of the said order dated 20.02.2019, the ‘Appellants’ vide e-mail dated 28.02.2020 intimated the ‘Respondent’ dates, time and venue for inspection on 26.03.2020 for seven working days during business hours, however, the Respondent vide e-mail dated 29.02.2020 requested for early date.
The ‘Appellants’ assailed the conduct of the Respondent who is involved in siphoning of money and taking action against the interest of Appellant No. 1 Company including breach of trust and therefore the ‘Respondent’ is not entitled for such inspections of the record which will be used by the ‘Respondent’ to collide with its competitor M/s Synthesis to cause harm to the ‘Appellant’.
The ‘Appellants’ further submitted that the ‘Tribunal’ has heard in the ‘impugned order’ ignoring conflict of rights of the director and his obligation towards the company and further the ‘Tribunal’ overlooked documentary evidence placed by the ‘Appellants’. The ‘Appellants’ further assailed the ‘impugned order’ 20.02.2019 which did not take into account the mala-fide intent and the conduct of the ‘Respondent’ requesting for inspection who is working in tandem with its competitor M/s Synthesis to divert the business and clints to M/s Synthesis. The ‘Appellants’ also cited the law laid down by Hon’ble High Court of Delhi in case of ‘D. Ross Porter vs. Pioneer Seed Co. Ltd.’ [(1990) 68 Camp Cas 145 ] , whereby the Hon’ble High Court of Delhi held that the right for inspection etc. which petitioner want to enforce is a discretionary relief and Court has to keep all facts and circumstances into consideration. The ‘Appellants’ similarly relied in another Judgment of Hon’ble High Court of Delhi ‘Rajeev Saumitra vs. Neetu Singh’ [(2016) 198 Comp Cas 359], to buttress his point.
The ‘Appellants’ submitted that they are aggrieved by the ‘impugned order’ and requested this ‘Appellate Tribunal’ to set aside the ‘impugned order’ dated 20.02.2019 and further prayed for direction to the ‘Tribunal’ for early hearing and disposal of the main Petition No. CA/390/ND/2018 in CP-220/PB/2018.
Per-contra, the ‘Respondent’ denied all averments made by the ‘Appellants’ to be false and mischievous with sole intention to continue in acts of “Oppressions & Mismanagement” of the ‘Respondent’. The Respondent submitted that he is a senior citizen and related by blood to the other Directors being real uncle of the Appellant No. 2 and has been involved with the company since last 32 years without any interruption holding 20.30% shares of the Appellant No. 1 Company. It is the case of the ‘Respondent’ that it is the ‘Respondent’ himself who introduced the Appellant No. 2- Mr. Achal Chawla to the business and requested him to join the Board, whereas the Appellant No. 3- Mrs. Neha Chawla is the wife of Appellant No. 2 and Appellant No. 4 is the mother of the Appellant No. 2 and Appellant No. 3 & 4 being homemakers, without any business experience, are only Directors without contributing to the business.
It is further the case of the ‘Respondent’ that Appellant Nos. 2 to 4 have been involved in several acts of “Oppression and Mismanagement” including misappropriation and siphoning of funds, manipulation of accounts, under invoicing, denial of access to the Respondent of books of accounts etc.
The Respondent also assailed the conduct of the Appellants who called an illegal ‘EGM’ and the ‘Tribunal’ vide order dated 20.06.2018 stayed the convening of alleged ‘EGM’ scheduled on 23.06.2018 as well as maintaining status-quo regarding board composition and shareholding pattern.
It is the case of the Respondent that as Shareholder Director, he has right to inspect the record of the company which is allowed in terms of Section 94, 119 and 128 of the Companies Act, 2013 and the Shareholder and Director cannot be denied the right of the shareholder/ director of inspection of the document.
Before going into specific examinations of the issues raised by the ‘Appellants’ herein, it would be necessary to refer to the relevant law in Companies Act, 2013 and Rules thereunder as referred to by the parties during averments, which reads as under :-
“94. Place of keeping and inspection of registers,
returns, etc. - (1) The registers required to be kept and maintained by a company under section 88 and copies of the annual return filed under section 92 shall be kept at the registered office of the company:
Provided that such registers or copies of return may also be kept at any other place in India in which more than one-tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company. [***]
Provided further that the period for which the registers, returns and records are required to be kept shall be such as may be prescribed.
(2)The registers and their indices, except when they are closed under the provisions of this Act, and the copies of all the returns shall be open for inspection by any member, debenture-holder, other security holder or beneficial owner, during business hours without payment of any fees and by any other person on payment of such fees as may be prescribed.
(3)Any such member, debenture-holder, other security holder or beneficial owner or any other person may—
(a)take extracts from any register, or index or return without payment of any fee; or
(b)require a copy of any such register or entries therein or return on payment of such fees as may be prescribed.
[Provided that such particulars of the register or index or return as may be prescribed shall not be available for inspection under sub-section (2) or for taking extracts or copies under this sub-section]
(4)If any inspection or the making of any extract or copy required under this section is refused, the company and every officer of the company who is in default shall be liable, for each such default, to a penalty of one thousand rupees for every day subject to a maximum of one lakh rupees during which the refusal or default continues.
(5)The Central Government may also, by order, direct an immediate inspection of the document, or direct that the extract required shall forthwith be allowed to be taken by the person requiring it.
100. Calling of extraordinary general meeting-
(4)If the Board does not, within twenty-one 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 than forty-five days from the date of receipt of such requisition, the meeting may be called and held by the requisitonists themselves within a period of three months from the date of the requisition.”
119. Inspection of minute- books of general meeting - (1)
The books containing the minutes of the proceedings of any general meeting of a company or of a resolution passed by postal ballot, shall—
(a)be kept at the registered office of the company; and
(b)be open, during business hours, to the inspection by any member without charge, subject to such reasonable restrictions as the company may, by its articles or in general meeting, impose, so, however, that not less than two hours in each business day are allowed for inspection.
(2)Any member shall be entitled to be furnished, within seven working days after he has made a request in that behalf to the company, and on payment of such fees as may be prescribed, with a copy of any minutes referred to in sub-section (1).
(3)If any inspection under sub-section (1) is refused, or if any copy required under sub-section (2) is not furnished within the time specified therein, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees for each such refusal or default, as the case may be.
(4)In the case of any such refusal or default, the Tribunal may, without prejudice to any action being taken under sub-section (3), by order, direct an immediate inspection of the minute-books or direct that the copy required shall forthwith be sent to the person requiring it.
128. Books of account, etc., to be kept by company -
(1)Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting.
Provided that all or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the Registrar a notice in writing giving the full address of that other place.
Provided further that the company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed.
(2)Where a company has a branch office in India or outside India, it shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarised returns periodically are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).
(3)The books of account and other books and papers maintained by the company within India shall be open for inspection at the registered office of the company or at such other place in India by any director during business hours, and in the case of financial information, if any, maintained outside the country, copies of such financial information shall be maintained and produced for inspection by any director subject to such conditions as may be prescribed:
Provided that the inspection in respect of any subsidiary of the company shall be done only by the person authorised in this behalf by a resolution of the Board of Directors.
(4)Where an inspection is made under sub-section (3), the officers and other employees of the company shall give to the person making such inspection all assistance in connection with the inspection which the company may reasonably be expected to give.
(5)The books of account of every company relating to a period of not less than eight financial years immediately preceding a financial year, or where the company had been in existence for a period less than eight years, in respect of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in good order:
Provided that where an investigation has been ordered in respect of the company under Chapter XIV, the Central Government may direct that the books of account may be kept for such longer period as it may deem fit.
(6)If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person of a company charged by the Board with the duty of complying with the provisions of this section, contravenes such provisions, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall be punishable [***] with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees [***].
169.Removal of directors. - (1) A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard:
[Provided that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard:]
[Provided further that ] nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two thirds of the total number of directors according to the principle of proportional representation.
(2)A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
(3)On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.
(4)Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,—
(a)in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(b)send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting
Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
(5)A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).
(6)A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.
(7)If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act:
Provided that the director who was removed from office shall not be re-appointed as a director by the Board of Directors.
(8)Nothing in this section shall be taken—
(a)as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or
(b)as derogating from any power to remove a director under other provisions of this Act”.
(emphasis supplied)
Rule 17 of the Companies (Management & Administration) Rules 2014 is herein under:-
“17. Calling of Extraordinary general meeting by
requistionists. - (1) The members may requisition convening of an extraordinary general meeting in accordance with sub-section (4) of section 100, by providing such requisition in writing or through electronic mode at least clear twenty-one days prior to the proposed date of such extraordinary general meeting.
(2)The notice shall specify the place, date, day and hour of the meeting and shall contain the business to be transacted at the meeting.
Explanation.-For the purposes of this sub-rule, it is here by clarified that requistionists should convene meeting at Registered office or in the same city or town where Registered office is situated and such meeting should he convened '[on any day except national holiday].
(3)If the resolution is to be proposed as a special resolution, the notice shall be given as required by sub-section (2) of section 114.
(4)The notice shall be signed by all the requistionists or by a requistionists duly authorised in writing by all other requistionists on their behalf or by sending an electronic request attaching therewith a scanned copy of such duly signed requisition.
(5)No explanatory statement as required under section 102 need be annexed to the notice of an extraordinary general meeting convened by the requistionists and the requistionists may disclose the reasons for the resolution(s) which they propose to move at the meeting.
(6)The notice of the meeting shall be given to those members whose names appear in the register of members of the company within three days on which the requistionists deposit with the Company a valid requisition or calling an extraordinary general meeting.
(7)Where the meeting is not convened, the requistionists shall have a right to receive list of members together with their registered address and number of shares held and the company concerned is bound to give a list of members together with their registered address made as on twenty first a from the date of receipt of valid requisition together with such changes, if any, before the expiry of the forty-five days from the date of receipt of a valid requisition.
(8)The notice of the meeting shall be given by speed post or registered post or through electronic mode. Any accidental omission to give notice to, or the non-receipt of such notice by, any member shall not invalidate the proceedings of the meeting.”
(emphasis supplied)
It is a fact that the ‘Tribunal’ has stayed convening the ‘EGM’ of the Appellant No. 1 Company and has also ordered for the status-quo to be maintained both regarding directorship of the ‘Respondent’ as well as the shareholding pattern and therefore the Respondent -Mr. Gulshan Kumar Chawla continue to be both Shareholder and Director.
It is also a fact that the Companies Act, 2013 provide for specific rights to the Shareholders and the Directors for inspection.
The original petition no. CA/390/ND/2018 in CP-220/PB/2018 is still pending adjudication before the ‘Tribunal’ under Section 241 & 242 of the Companies Act, 2013, whereby both the parties have used allegation and counter allegation against each other.
Since, the main petition is yet to be finally decided on merits, this ‘Appellant Tribunal’ is not required to look into the various other issues raised by the Appellant herein. The only issue which requires to be examined is whether there was any error in the ‘impugned order’ dated 20.02.2019 which allowed the ‘Respondent’ to examin the statutory records of the Appellant No. 1 Company taking help of the Chartered Accountant/ Company Sectary, if so desired, and also directing the ‘Appellants’ herein to provide conducive environment. The relevant paragraph of the ‘impugned order’ dated 20.02.2019 is reproduced as under:-
“15.On perusal of the provisions mentioned above, it is established that a shareholder or director has right to inspect the documents, which are maintained by the company. The same is a statutory right, which cannot be denied by the company and its directors to its Shareholders/ Directors. In view of it, the Petitioner/Applicant being shareholder/ director cannot be denied the right of inspection of the documents as prayed for. Therefore, the first Respondent Company and other Respondents are directed to permit the Applicant/ Petitioner to inspect the original statutory records as prayed in the application. The respondents shall fix dates, time, place for such inspection under intimation to the Applicant/ Petitioner within a week's time from the date of the pronouncement of this Order. The Applicant/ Petitioner shall be at liberty to inspect the record during a full week. The applicant/petitioner may take the help of a Company Secretary and Chartered Accountants. The payment of their fee will be the responsibility of Applicant/ Petitioner. The Respondents shall provide orderly atmosphere for such inspection to be done by the Applicant/ Petitioner. In case there will any resistance from the Respondents, the Applicant/Petitioner will be at liberty to approach the local police with the copy of this order to seek protection during the inspection. The police shall provide the required protection to the Applicant/ Petitioner.”
We have also perused the relevant provision of Company Law as observed in preceding para and find these as crystal clear holding, that the ‘Respondent’ has legal rights for inspections of documents as ordered by the ‘Tribunal’. The cited judgment by the ‘Appellants’ are not directly connected to the issue herein.
In view of all above, this ‘Appellate Tribunal’ do not find any error or infirmity in the ‘impugned order’ dated 20.02.2019. The ‘Appeal’, devoid of any merit stands dismissed. No costs. Interlocutory Applications, if any, are closed.