Mr. Bhawarlal Bhagrajji & Ors. vs M/s Jinduit Safe Vaults Private Limited & Ors.

[ORAL JUDGMENT: Justice Sharad Kumar Sharma, Member (Judicial)]

This company appeal is accompanied with a Condone Delay Application, being IA No. 134/2026, wherein the Appellant has sought a condonation of 28 days of delay in preferring the company appeal that, has been preferred by invoking the provisions contain under Section 421 of the Companies Act, 2013. Having heard the Ld. Counsel for the Appellant, as well as the Respondents, who are represented by Dr. Abhishek Murali, the practicing Chartered Accountant and having perused the grounds that, has been taken by the Appellant in para 3 of the application and upon Comp App (AT) (CH) No. 8 / 2026 Page 3 of 15 having been satisfied with the same coupled with the fact that, the number of days of delay that, have been sought to be condoned will be falling well within the condonable period, as contemplated under the proviso to Section 421 (3) of the Companies Act, the delay that has chanced in preferring the appeal would stand condoned. Accordingly, IA No. 134/2026 would stand closed.

The company appeal has been preferred by the Appellants who are shown in the cause title of the appeal to be five in number, who had filed the appeal, being aggrieved against the order dated 04.06.2026, that was rendered in CP/ 124(CHE)2022, being the proceeding that, was drawn before the Ld. NCLT Chennai Bench by invoking the provisions contained under Section 59, 241, 242, 244 and 246 of the Companies Act, 2013. The impugned order has been passed by Ld. Tribunal at the stage of considering the implications of the provisions contained under Section 242 (4) which was made to be read with Rule 11 and 32 of the NCLT Rules, 2016.

Heard Ld. Counsel for the parties at length. Before the argument could be proceeded on merits, the Appellant Nos. 1, 2 & 3, namely Mr. Bhawarlal Bhagrajji, Mr. Babulal K Jain & Mr. Ghewarchand B Jain, who were present in person before this Appellate Tribunal and who were duly identified by the Appellants counsel, have made a statement in todays proceedings of this Tribunal that they don’t intend to press upon the instant company appeal. The statement is being recorded and the Comp App (AT) (CH) No. 8 / 2026 Page 4 of 15 appeal will be deemed to have been not pressed by the Appellant Nos. 1 – 3 and is being pressed only by Appellant No. 4 & 5 herein.

For the purposes to deal with the very short controversy that, engages consideration in the instant company appeal, we have to incidentally deal with the controversy which is the subject matter in the proceedings before the Ld. NCLT. The facts, which could be borne out from the record are that the Appellants herein instituted petition on 20.04.2022, which was numbered as a CP/ 124(CHE)/2022 alleging an act of oppression and mismanagement as against the Respondents therein, qua the functioning of the Opposite Party No. 1 to the company petition, i.e., the company itself.

The reliefs that was modulated by the Appellant / Petitioners to the company petition were that the acts of the opposite parties to the company petition, i.e., Respondent No. 2-5 therein, in managing the affairs of the company be declared as acts of oppression and mismanagement and Respondents 2-5 be removed from the Board of Directors, that directions be issued for transmission of shares, which was said to be standing in the name of Late Mr. Jayantilal M Jain and late Mrs. Lalitha Bai, in favour of the legal heirs as per the law of succession, that a direction be issued to conduct an investigation into the conduct of Respondent No. 2-5 with regards to pertaining to the conduct of affairs of the 1^st Respondent company and, surcharge Comp App (AT) (CH) No. 8 / 2026 Page 5 of 15 Respondents 2-5 for the loss due to misapplication and diversion of funds and assets of Respondent No. 1 company, that the Managing Director of the board be replaced and that Respondent No. 6 be removed from the post of Auditor of Respondent No. 1 company.

During the pendency of the said company petition, an IA was filed by the Appellants, being IA(CA)/96(CHE)/2023, by invoking the provisions contained under Section 242 (4) of the Companies Act, to be read with Rule 32 and Rule 11 of the NCLT Rules, 2016, wherein the Appellants / Applicants, to the said application, while referring to contentions as it had been raised in the company petition, sought issue of appropriate direction from the Ld. Tribunal to Respondent Nos. 2, 3, 4, 5 & 6, to produce the bank statements of all the bank accounts held in the 1^st Respondent company for the past eight years and the associated individual ledger accounts, and such other orders as may be deemed fit and proper for the purposes of an effective adjudication of the reliefs sought in the proceeding CP/124(CHE)/2022 under Section 241 and 242 of the Companies Act.

The basis of the said application had been that, the Respondent Nos. 2, 3, 4, 5 & 6, to the company petition, had been actively participating in day to day affairs of 1^st Respondent company and had been the signatories of various bank transactions and in that process, have transferred funds of the company accounts to the various Comp App (AT) (CH) No. 8 / 2026 Page 6 of 15 individual accounts under the disguise of expenses & other heads without any knowledge and consent of the board, that they have never rendered the accounts of the same to the Appellants and that they have failed to file the said bank statements along with the counter filed by them in the proceedings of the company petition even while claiming that there has been no oppression and mismanagement, that the Respondents ought to have failed the necessary bank statement bank statements to prove their bonafide and since they have failed to do so, Ld. NCLT should direct to Respondent Nos. 2, 3, 4, 5 & 6, to produce the bank statement of all the bank accounts held in the 1^st Respondent company's name for the past over eight years and also the individual ledger accounts, in order to enable the evidence to be brought on record for the purposes of effectively deciding the proceedings of the company petition.

It is this application preferred on 19.05.2023, which came up for consideration before the Ld. Tribunal, and which has been adjudicated upon along with the company petition by virtue of the impugned order, which is under challenge before this Appellate Tribunal, which is now, being pressed by only Appellant Nos. 4 and 5.

The Ld. Tribunal, while passing the impugned order, had observed that so far as the Applicants to the company petition and the application (Appellant herein) are concerned they claim to be directly holding 33.56% of the total shares of Respondent No. 1 company and about 58.29% of the total shares if shareholding of their family Comp App (AT) (CH) No. 8 / 2026 Page 7 of 15 members including Late Jayantilal M. Jain and Late Mrs. Lalita Bai are taken into account. Accordingly Ld. NCLT drew the inference that since the Appellants along with their family members had 58.29% of shares and, as the Respondents would be holding only 41.7% of the shareholding, the Appellants are well within their rights to remove the existing management, take over the management and carry out the investigation as they deem fit by exercising their right as shareholder and to conduct the affairs of the Respondent No. 1 company in the manner they feel appropriate.

Further, Ld. Tribunal, after considering the rival contentions, observed that, the evidence that, has been brought on record, by the Appellants is not strong enough to draw an inference with regards to the commission of an act of oppression and mismanagement within the ambit of Section 241 and 242 of the Companies Act and to merit issue of directions for investigation and even for that matter, for production of books of accounts of the company.

We note that, the Appellants who are the Petitioners in the company petition, instead of discharging their responsibility of substantiating their stand in the company petition, by production of appropriate evidence had rather on the contrary filed the instant IA for issue of a direction to the Respondents to produce the books of accounts and ledgers including the individual ledger accounts which they claim would have proved their pleadings of there being dubious transactions entered into by the management to benefit themselves and to cause loss to the company. Comp App (AT) (CH) No. 8 / 2026 Page 8 of 15 Moreover, in their pleadings before this Appellate Tribunal, the Appellants have not been able to controvert the findings of Ld. NCLT of there being insufficient evidence and have not been able to present any irrefutable evidence apart from vague assertions that impugned order ignores statutory requirement of investigations under Section 242 & that Ld. NCLT did not analyze extensive material presented before it and did not adjudicate on the issue of fund diversion and procedural abuse without presenting any tangible evidence to support their claim.

Ld. Tribunal has also concluded that Appellants in the status of their configuration of holding more than 50% of the shares, and being in the position of majority shareholders, would have the right to take over the management and to carry out the appropriate investigation, as would be necessary under law, and to effectively conduct the day-to-day affairs of the company, in the manner they deem fit by exercising their rights as a shareholder therefore having not found any merit in the application, it declined to interfere in the affairs of the company, justifying issue of the necessary directions for production of bank statements of all the bank accounts held in Respondent No. 1 company. The Appellants have pleaded in their appeal that Ld. NCLT held erroneously that the majority must self-remedy without judicial scrutiny of past misconduct of the management. However, the Appellants, neither in their pleadings before Ld. NCLT nor in their grounds of appeal before this Appellate Tribunal have not put a case that they are unable to control the management of the company and have been rendered powerless against the oppressing shareholders. In such a situation, the conclusion drawn by Ld. NCLT does not appear to be suffering from any error.

Equally important to note at this juncture is that faced with non-submission of sufficient evidence by the Appellants and the attempt by the Appellants to collect such evidence by filing the IA(CA)/96(CHE)/2023 so as to sustain their company petition, Ld. Tribunal rightly drew an opinion that, such particulars could not be called for because the the Appellants/Petitioners to the company petition will have to stand on their own legs to substantiate the proceedings to be continued and sustained on its merits and that, in the absence of there, being pleading supported with the documents which could have been read in the shape of an evidence, there is no case for interference. Accordingly, the Ld. Tribunal observed as under: -

The view expressed by the Ld. Tribunal, owing to the above extract, is a clear expression that Ld. Tribunal is not venturing to decide the company petition on its own merits, but rather it is only ensuring that, the Appellants who are the Petitioners in the company petition and as per their own claim and the majority shareholders follow the due process as permissible under law, by exercising the rights of the majority shareholders, before agitating their grievances under Section 241 of the Companies Act. Sub-Section (1) of Section 241 of the Companies Act requires certain parameters to be satisfied prior to drawing the proceedings for prevention of an act of oppression and mismanagement and therefore, there has to be sufficient material based on which the Ld. Tribunal could draw opinion for the purposes to justify the initiation of proceedings under Section 241 of the Companies Act. That is why the Ld. Tribunal in the impugned order had observed that, the very filing of an IA(CA)/96(CHE)/2023, itself showed that the Appellants didn't have material to satisfy the parameters required to be contained under Section 241 so as to sustain the proceedings of the company petition, and being the majority shareholders, they by exercising their majority rights could have obtained the necessary documents for which no direction under Section 242(4) of Companies Act will be required. Accordingly, Ld. NCLT observed that the petition is not being decided on its own merits and rather it was only ensuring that the due process by exercise of the rights by the majority shareholders may be done before proceedings under Section 241, 242 are invoked for that reason too, liberty was also given to both sides to approach the Ld. Tribunal later, if need be.

In other words, Ld. NCLT indicated that if the minority shareholders who do not have access to companies account and hence they file application under Section 242(4) for directions of documents and on the Appellants are majority shareholders they have to collect such evidence by exercising their majority rights, failing which they may approach Ld. NCLT. Accordingly. Ld. NCLT held that the method adopted by the Appellants for collecting evidence may not be the process which is permissible and contemplated under law and thereafter proceeded to close the proceedings leaving the rights open for the parties to resort to the initiations of fresh proceedings at an appropriate stage, in case these are any unresolved issues.

We are of the view that, at this stage no prejudice is being caused to the Appellant, or either of the parties to the proceedings of the company petition, as all the issues are still left open to be decided, after drawing of an appropriate proceedings because of the fact that the Ld. Tribunal at this stage has not taken a step to decide the controversy on its own merit, thus there is no immediate prejudice.

During the course of argument, the Ld. Counsel for the Appellants had argued that the Ld. Tribunal had not considered the entire controversy based upon the pleading, raised by them before the Ld. Tribunal, that the documents presented contain sufficient material to order for investigation, that in the profit & loss statement alone there have been sudden spurts of expenditure which has not been explained by the management, that loan of Rs. 40 Lakhs has been obtained from the one ex-Director without Board Resolution, that assets have been unilaterally purchased, that shares of deceased members are not being transferred to their legal heirs that, Cost of finance has also increased multi-fold which indicates foul play that most of the board meetings and AGMs are being conducted with quorum and following due procedure and that those particulars in respect of profit and loss accounts are taken into consideration, particularly those as contained under the head of IV expenses and particularly in itself would be a sufficient material to attract and establish an act of oppression and mismanagement in order to sustain the proceedings under Section 241 of the Companies Act. Accordingly, he submits that despite of the aforesaid material being on record, the same has not been considered by the Ld. Tribunal while closing the company petition and leaving the rights open to agitate the company petition at a later stage upon the acquisition of sufficient material.

On the contrary, the argument extended by the Ld. Practicing Chartered Accountant appearing for the Respondent are that all the points raised by Appellants have been fully controverted by the counter filed by the Respondents before Ld. NCLT, that the Appellants are majority shareholders and also some of them were directors of the company, all transactions have taken place with concurrence of the Appellants, that all the allegations are conjectural and presumptive, and that the board meetings and AGMs have been held as per law, and that Ld. NCLT is fully correct in observing that there is insufficient evidence, to start an investigation.

The order, if it is scrutinized, we could see that the inability expressed by the Ld. Tribunal, was because to the inability of the Appellant to lead evidence on its own to maintain the company petition. Closure of a petition because of the inability of the Appellant to satisfy the conditions as required under Section 241 and 242 of the Companies Act, justifies the passing of the impugned order as the Appellant has failed to stand on his own leg in the judicial proceedings drawn by him. Filing of an IA for directions to produce evidence, to support the proceedings under Section 241 of the Companies Act, is not a concept, which is prevalent in the eyes of law, where majority shareholders are concerned and therefore, the Ld. Tribunal has rightly reserved the rights of the parties to agitate the proceedings at an appropriate stage as and when the Appellants exhausts their option of collecting necessary information by exercising majority rights, to maintain a proceeding under Section 241 of the Companies Act.

Thus, the impugned order doesn't reflect the crystallization of any rights of the parties to the proceedings of the company petition. Further denial of passing of an order on the IA was to curb the efforts of the Appellant to collect the necessary evidence through a direction of Ld. NCLT, rather than using their majority rights to sustain a company petition. All issues have been left open for the Appellants to approach Ld. NCLT in case there are any unresolved issues. Because of the aforesaid reasons, the impugned order doesn't call for any interference, and the company appeal is accordingly dismissed.