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Judgment
H.V. Subba Rao, Member (Judicial)
The present Company Petition is filed by Mr. Ramnik Behl (hereinafter referred to as “Petitioner”) who is founder promoter and shareholder of the Novatic Coating Private Limited (hereinafter referred to as “ Respondent No. 1”) under Section 241 of the Companies Act, 2013 read with Rule 81 of the National Company Law Tribunal Rules, 2016 seeking following reliefs:
a. Pass an order declaring that the Respondents No. 2 to 4 have been guilty of diverse acts of oppression against the Petitioner and are also guilty of mismanagement of the Respondent No. 1.
b. Direct the suspension of the board of directors of the Respondent No. 1 Company and appoint an administrator/special officer to take charge of the management of Respondent No. 1 Company.
c. A Scheme be framed for future management and administration of the Respondent No. 1 Company including attempting a separation of interest and business between the Petitioner and Respondent No. 2 and 3 group.
d. Pass an order directing an administrator to seize the books of accounts and other relevant documents, records and other materials of the Respondent No. 1 Company;
e. Declare the Resolution alleged to have been passed at the Board of Directors meeting of Respondent No. 1 held on 24.10.2017 as illegal, invalid and null and void;
f. Declare the Resolution alleged to have been passed at the alleged EOGM of the Respondent no. 1 held on 24.10.2017 at 2:30 p.m. as illegal, invalid and null and void;
g. Declare that the alleged removal of the Petitioner as the CFO and Director and Chairman of Respondent no. 1 and the withdrawal of powers of management vested in Petitioner as CFO and Director and Chairman of the Company is non est at law and invalid being in violation of law ad of understanding recorded between the parties;
h. Restrain the Respondent Nos. 1 and 4 and each of them from dealing with or disposing of or alienating or encumbering or transferring any of the assets of the Respondents No. 1 Company in manner whatsoever;
i. Restrain the Respondent nos. 1 to 4 and each of them from dealing with or altering in any manner and to any extent the shareholding in Respondent No. 1 Company;
j. Pass such order or give directions as this Hon’ble Board may deem necessary and proper in the facts and circumstances of the present case.
A. Brief Submissions on Behalf of the Petitioner:
The Petitioner states that upon his retirement from CEO/Managing Director of NASF Coatings (India), he started a business in paints, chemicals and other allied products in partnership with Mr. Manmohan Palat (hereinafter referred to as “Respondent no 4”) under the name and style of Vinayak Polytech. The business of the Vinayak Polytech was an equal partnership business carried by the Petitioner and Respondent No. 4. In order to give a formal setup to the business, the Petitioner and Respondent No. 4 agreed to convert the partnership business into a Private Limited Company.
Accordingly, the Company “ M/s Novatic Coating Private Limited” (hereinafter referred to as the “Respondent no. 1”) was incorporated on 23.07.2014. The main objective of Respondent No 1 was to take over the business of M/s Vinayak Polytech as a going concern.
The Issued, Subscribed and Paid-Up Equity Share capital of the Company upon its incorporation was Rs. 1,00,000/- divided into 10,000/- Equity shares of Rs. 10/- each and thereafter on the Takeover of the business of “Vinayak Polytech” the partnership firm. the Equity Share capital of Rs. 25,00.000/- divided into 2,50,000 Equity Share of Rs. 10/- each was held by Petitioner and Respondent No. 4
The Petitioner further states that Mr. Dresdner Lackfabrik Novatic GmbH & Co. KG, the Company based in Germany was owning the brand “Novatic” and was also engaged in the similar line of business. Since the year 2013, the Respondent No. 1 Company was using the trademark “Novatic” under the license and permission of Dresdner Lackfabrik Novatic GmbH &Co. KG and was also acting as the Indian offshoot of the said Company. As one Respondent No 1 was dealing in the products under brand "Novatic", Dresdner Lackfabrik acting through Mr. Alexander Zill (hereinafter referred to as “Respondent no 2”) and Mr. Aldin Turudic (hereinafter referred to as “ Respondent no 3”) approached the Petitioner and Respondent No. 4 on or about May /June, 2015, evincing interest in participating in the business and management of the Company through investment in its equity shareholding.
After mutual discussion deliberation, an agreement for purchase of the shares dated 04.08.2015 was executed between the Petitioner and the Respondent No. 4 representing the Vendors, the Respondent No 1 (Company) and Dresdner Lackfabrik as the purchaser of equity shares.
The understanding between the shareholders recorded the manner in which the affairs of the Company were to be conducted. The Petitioner stated that it was agreed between the parties as per the agreement that the day-to-day management of the Company shall be looked after by the Respondent No.4 as the Chief Operating Officer (COO) and Petitioner as the Chief Financial Officer (CFO). The Respondent No. 2 i.e., Mr. Alexander Zill shall also look after the business of the Company as Chief Executive Officer (CEO). The Respondent No. 3 i.e., Mr. Mag Aldin Turudic would be the CCO of the Company.
The Petitioner states that being the senior most amongst the Directors he was acting as the Chairman of the Company however had no power of any Casting Vote. All the resolutions as far as possible of the Board of Directors as well as the Shareholders shall be passed unanimously. However, the Parties hereto agree that the following transactions shall not be dealt with unless previous written consent has been obtained from both the parties:
a) Increase in authorised Share Capital of Company;
b) Further issue of Shares and /or Debentures of the Company inclusive of Bonus Shares;
c) Obtaining of Secured Loans or granting any Guarantees;
d) Obtaining of unsecured loans other than from the purchase;
e) Not to alter the Memorandum and Articles of Association of the Company other than as provided in this Agreement;
f) Utilization of proceeds/ any other receipts obtained in the course of carrying on the business of the Company or utilization of unsecured loans availed as may be permitted otherwise than for the following :
i. Repayment of the Vendors’ Loans;
ii. Funds required for the purpose of carrying on business of the Company; and
iii. Any change in nature and scope of business of the Company;
iv. Any merger with or acquisition of another Company of /by the Company;
v. Issue, repurchase, buy-back, redeem, alter, reorganize or retire shares and any rights attached to such share or otherwise permit any change in the equity structure of the Company except for as contemplated by this Agreement;
vi. The recommendation, declaration or making of any dividend or other distribution of profits, assets or reserves; and
vii. Any commitment or agreement to do any of the foregoing.
Thus, the Share Purchase Agreement to which the Respondent No. l Company was also a party provided the manner in which the affairs of the Company were to be administered post acquisition of shares by the foreign entity.
The Petitioner states that the in terms of the understanding between all the parties, the Directors on the Board were to be as under:
a) Mr. Ramnik Behl
b) Mr. Manmohan Palat
c) Mr. Alexander Zill
d) Mr. Mag Aldin Turudic
The Petitioner states that it was further agreed that the Director (s) shall not be liable to retire by rotation. However, Dresdner Lackfabrik could remove its Nominee Director and appoint any other person in their place. Further, the Petitioner states that he was nominated as a life time director who was not liable to retire by rotation. Further, the Petitioner was appointed as the Chief Financial officer of the company for an indefinite term under a specified agreement executed by the Company in his favor. The appointment could be terminated only by mutual consent with a notice of three months period and in the event of special reasons, the appointment could be terminated without notice.
The Petitioner in his role as CFO and Director of Board made all information available to each Director and to the shareholder of the Company at the regular intervals. Pertinently, the accounts of the Company for the year ending 2015-16 were again approved and adopted by the Board of Directors at the meeting and finalized for submission of Income tax return. The Petitioners states that at no stage did the Respondent Nos. 2 and 3 ever questioned any business decision taken by the Company or questioned the performance of the Petitioner as the CFO of the Company.
The Petitioner states that the Company in year 2017 was in a financial distress due to poor cash flow situation due to lower sales and collections losses and the Company lacked necessary funds to meet its statutory compliances towards the payment of statutory taxes. Further, it was resolved that the financial facility in the form of bank loan will be availed by the Company from a public sector bank under the CGTSME scheme.
Under the Medium and Small-Scale Enterprises Policy of the Government of Maharashtra, the Petitioner by reason of his vast business experience and his good relations maintained with several Government Departments, was entrusted by the Company with the task of facilitating and seeking approval of the said financial facility.
The Petitioner states that as records show that his own singular efforts, necessary approvals from the relevant Department / Organization at the various hierarchical levels were obtained for release of Rs. 1,25,00,000 (Cash Credit) and Rs. 25,00,000 Bank Guarantee extent of funds to the Respondent No. 1 Company. However, due to bureaucratic delay, funds were not released for considerable period. These facts were regularly informed by the Petitioner to the Respondent Nos. 2 and 3.
In the meantime, the Petitioner states that a Board Meeting was convened by the Respondent No.3 for 24.10.2017 and had requested the Board to prepare for the following topics:
a. Loan
b. Balance Sheet 201672017
c. Status on the change to the financial year from 01.01.2018 to 31.12.2018. What is going to happen in 9 months 1.4.2017 to 31.12.2017.
d. Business plan for 2018 — please get prepared
e. fix costing
f. information policy
g. Future strategy & shareholder structure .
Copy of the Notice of the Board meeting as received by the Petitioner via email has been placed on record.
The Petitioner states that during the meeting, the Respondent Nos. 2 and 3 became extremely aggressive and blamed the Petitioner for not being able to seek release of the funds to the Respondent No. 1 to enable it to meet its statutory liabilities. The Petitioner states that the release of finds was not in the hands of the Petitioner and was subject to the discretion of the Bank/Government authority. Further, to the Petitioner’s surprise, a gentleman named Mr. Gagan Kumar, who introduced himself as Tax /1egal Consultant was present during the meeting as a Special Invitee of the Respondent Nos. 2 and 3. It is further necessary to state that no advance information of such person being invited was informed to the Petitioner or to the Board of Directors in general. Further, the Petitioner heated exchange took place at the Board of Directors Meeting when the Petitioner protested at the manner in which Respondent Nos. 2 & 3 were addressing the Petitioner and were attempting to hold him liable for non-release of the loan funds and not meeting the financial needs of the Company. The meeting ended abruptly at about 2.00 PM in the afternoon when the Petitioner was told that he was relieved of his duties immediately.
Further, the Petitioner states that no decision had been taken or any resolution passed at the Board of Directors meeting on 24.10.2017, the Petitioner was completely unaware of the conspiracy hatched behind his back by the Respondents Nos. 2 and 3, which was abetted to by the Respondent No. 4.
Thereafter, the Petitioner states that a letter dated 31.10.2017 was received purportedly by Novatic Ltd. acting through its Board of Directors stating as under:
“With reference to the BOARD Meetings held on October 24” 1.00 psi and 2.30 pm at “novatic COATINGS PVT. LTD.” Pune in your absence, you are withdrawn from your position as CFO of the Company.
Herewith we would like to remind you that you are not allowed to act in the name of the Company from the date of the resolution to any institution or to any person of interest.
Your status as shareholder is untouched.
Herewith we would like to confirm, that we received your mails in the last days in regard to your “outstanding ” payments as well as the excel list without date and name with total outstanding amount of 9,832,082,00 Rupee.
In order to get a proper withdrawn from the position as well as shareholder, please be aware, that we are going to execute an external audit for the past 3 years of operation. The external audit will be executed by Krishnomics Legal, starting from end of Nov. 17, until further notice. Please be aware, that until completion of the external audit no payments will be done to any shareholding party.
As soon as the audit is completed, we will inform you about next steps. This doesn’t affect our right to premature payments, action or the possibility to take legal action.
From the abovementioned, the Petitioner states that the email restrains the Petitioner from representing the Company thus taking away the powers and duties of the Petitioner as a Director on Board of the Company. The decision to carry out an external audit is not the decision taken at any Board meeting much less on 24.10.2017. Furthermore, having approved the accounts for the year ending 31.03.2016, it is inconceivable that an external audit for the past years would be required. This was indeed to fabricate documents or conjure false evidence to deny legitimate rights of the Petitioner. The Petitioner further states that the said Respondents have informed the banks and clients of the Respondent No.1 Company that the Petitioner has been removed from his position as a life time director of the Respondent No .l Company. Also, no extra Ordinary General Meeting has been held on 24th October, 2017 at 2:30 p.m. and no notice of any such meeting has been issued by the Company and has been received by the Petitioner as a 25% shareholder of the Company. It is stated that no EOGM was convened for or held on 24th October, 2017 as alleged or at all. In fact, even the assertion made by the Respondents in their communication dated 31st October, 2017 was that 2 board meetings were held on 24th October, 2017 at 1 p.m. and at 2:30 p.m., which even as per the Respondents was not attended by the Petitioner. If as per the Respondents a second Board meeting was held at 2:30 p.m. on 24th October, 2017 (which assertion is also disputed and denied by the Petitioner as no information of any such board meeting was given to him by the Company), as has been communicated on 31st October, 2017, then the representation made to the banks of an EOGM held on 24th October, 2017 at 2:30 p.m. is on the face of it false and incorrect.
The Petitioner submitted a detailed response pointing out that the letter was full of false assertions and complete mis-representation of facts /proceedings that took place at the Board meeting on 24.10.2017. It was specifically stated as under: (insert only if required).
The Petitioner states that the for convening an EOGM for an alleged removal of a director requires compliance of law, and admittedly in the present case no such compliance has been given effect to. The Petitioner states that Company, acting through Respondent Nos. 2 and 3, has changed the mandate of operation of bank accounts of the Company by addressing a communication to the Company’s Bankers informing that the Petitioner is no longer a director in the Company.
The Petitioner states that the Respondents Nos. 2 to 4 have clearly conspired with each other to usurp the management of the Company which the Petitioner had built with his efforts and business acumen and contacts. The Petitioner has been alleged to have been removed from the Company that he started from inception. The marginalization of the Petitioner as a founder promoter shareholder of the Respondent No.1 Company, is a subject matter of challenge in the present Petition. The allegations made by the Respondents in their reply alleging that they have been informed by Corporation Bank, Industrial Finance Branch that it has issued no letter of sanction is absolutely incorrect and a false assertion. the Petitioner states that the has not only made available a letter from Corporation Bank, Industrial Finance Branch but has also made available electronic updates received from SIDBI/MSME with regards to approval of the loan. In fact all loan documentations bear signatures of not only the Petitioner but also of Respondent No.4. The Respondent No.4 was fully and completely aware of all updates with regards to the status of approval of the loan from Corporation Bank/SIDBI/MSME.
The petitioner states that the approvals and sanctions of loan have no meaning unless and until there is an actual disbursement. Admittedly, no disbursement has taken place in the present case.
B. REPLY FILED ON BEHALF RESPONDENTS:
The Respondent has filed the Affidavit-In-Reply dated 09.04.2023, opposing all the contentions and averments made by the Petitioner in the present Company Petition. Further, the Respondents states that the present company petition is misconceived, malafide and not maintainable.
I. The Respondents submits that the true facts of the matter are as stated herein below:
i. The Respondents states that the Memorandum of Association and Articles of Association narrates the complete interpretation of the said company is the "PRIVATE LIMITED COMPANY", within the meaning of Section 2 (68) of the Companies Act, 2013. The Memorandum of Association and Articles of Association contains fundamental conditions and clauses upon which the company is allowed to operate. Further the Respondents submits that the company was incorporated on 23rd July, 2014 inter-alia with its main object to take over the running business of M/s. Vinayak Polytech as a going concern with its assets and liabilities pursuant to give a formal set-off to the business, the Respondents and the Petitioner entered and executed an agreement for purchase of shares dated 04.08.2015 with equal shareholding and were also responsible for the business of the company.
ii. The Respondents states and submit that without prejudice the Petitioner was appointed as Chief Finance Officer (CFO) with the responsibilities of purchase, finance and banking, administration, payment recovery from customers, and payment to vendors. For the same agreement/contract was executed and duly signed between the Respondent No. 1 and the Petitioner. The contract itself gives a clear definition about the position of the "Director Employee" where the director employee will work for the Company as Chief Financial Officer (CFO). The Respondents states that the from 01.07.2015, the Petitioner has defaulted and grossly failed to perform its duties and also submitted incorrect information to the Board of Directors. The Respondents further states that the Petitioner breached the contract and provided false information to the Board with respect to the loan from Corporation Bank and the Tax Payment, issued bogus cheques of Corporation bank, showed negligence towards payment of taxes and to file balance- sheet for the year 2016-2017, showed negligence of duty towards company and the employees, sale loss to the clients from May, 2017 to October 2017 etc.
iii. The Respondents states during the board meeting held on 31.05.2017 in Pune, the Petitioner stated that he was applying for Cash credit and Term Loan from Corporation Bank for Rs 1.5 crores and accordingly approval was given to the Petitioner. Thereafter, the Petitioner sent an email to the Board confirming that loan is sanctioned from Corporation Bank and the agreement is duly signed on 27.06.2017.
iv. Further, the Respondent states that the Petitioner via email dated 01.07.2017 stated to the board confirming that the balance sheet is prepared and taxes will be duly paid by 01.07.2017, which the Petitioner failed and defaulted. Further the Respondents submits that the Petitioner emailed to the board that he has applied for a leave from 14.07.2017 to 24.07.2017 and stated that the loan has been sanctioned and disbursed and all necessary obligations has been fulfilled, which the Petitioner clearly defaulted in doing so. On several occasions the Petitioner erroneously made false and inaccurate information to the board regarding status of the loan delayed by the bank.
v. The Respondents states that continuous reminders were sent from the German Directors i.e. Respondents 2 and Respondent 3 via email regarding loan account status which the Petitioner failed to reply and made absurd reasons. Further the Respondent submits that the Petitioner confirmed via email dated 19.09.2017 that the SIDBI Officials had visited the factory premises and paper work was completed and also the said loan is disbursed which is totally false.
vi. The Respondent states that none of the bank officials visited the factory for the inspection and verification of records etc. After all such fraudulent act by the Petitioner, the Respondent issued a letter to Corporation Bank, Industrial Finance Branch enquiring about the loan update and sanctioned letter issued by them. However, it was found from the written communication on 14.12.2017 received by the Corporation Bank stating that no loan was sanctioned and no letter for Rs 1.5 crore was being issued from their branch and the letter submitted by the Petitioner were totally false and forged. The Respondent submits that the entire representation by the Petitioner right from the month of June 2017 till December 2017 is absolutely false and fabricated. Moreover, the Petitioner has not only breached the confidence reposed but also committed forgery in submitted documents of a Nationalized Bank.
vii. At the outset the Respondent states that the Petitioner issued requisite cheques to various suppliers for raw materials from the Corporation bank being current account no 050201601000201 which the account was opened for loan purpose at Industrial Finance Branch, Pune on the false pretext that there is money in the account. Further, it had come to knowledge of the Respondents that the Petitioner grossly failed and delayed paying taxes and to file the balance sheet for the year 2016-2017. After enquiring about the status of tax payment and balance sheet, being a CFO and holding a position of Directorship, the Petitioner had failed to respond to the email dated 21.06.2017. Since then the Respondents had an apprehension that there are some manipulative and suspicious practices being adopted by the Petitioner as the sending of emails by the clients as well as the Tax Consultant from May 2017 onwards with reference to tax payment remained unanswered after such enquiries.
viii. Since the Petitioner failed to perform his duty on tax payment and balance sheet, the Respondents submits that they incurred huge losses and damages for non-payment of tax and series of bounced cheques case and legal proceedings and consequences thereof which the Respondents had to pay out of their own pockets. Thereafter, the Respondents via email dated 08.10.2017 which was communicated to the Petitioner clearly shows that the Petitioner was intimated about the Board meeting being held on 14.10.2017 along with the details of the agenda of the Board which are as under:-
a) Loan
b) Balance Sheet for the year 2016-2017;
c) Status on the change to the financial year from 01/91/2-18 to 31/12/2018, and so on.
ix. The Respondents states that in the Board Meeting dated 24.10.2017 points a,b,c were discussed and when the Petitioner was being questioned about the status, the Petitioner abruptly left the office and had no answers to the queries in spite of holding such a high position. The whole proceedings were even witnessed by an Independent lawyer from Delhi. The Respondents states that the Board Meeting continued and thereafter the decision was taken to remove the Petitioner from the post of CFO as the Petitioner grossly failed to work in the interest of the Company but also committed statutory irregularities in payment of Tax and played a fraud with Bank Documents. The Respondent submits that the Petitioner is making contrary statements and trying to avoid the actual facts of the case.
x. The Respondents submits that the Petitioner wrote an email dated 29.10.2017 informing and admitted the board about having signed cheques books in spite of the fact that the Petitioner has been removed from the post of CFO after negligence created and failure to perform the duty timely. The Respondents further states that vide letter dated 31.10.2017 the Petitioner was very well informed that the Petitioner is being relieved from the position of "CFO" and not the position of "Directorship" which the Petitioner is falsely assuming that he is no longer in position of "Directorship".
xi. The Respondent submits that all the correspondences received by the Petitioner from the Corporation Bank emails were totally fraud and false. Petitioner was trying to mislead the Respondents and provided false information through the mean and medium of corporation bank email id. The Respondent states that even the salaries to managers were not paid for the period of July-September, 2017 and were paid after 20.10.2017 without explaining the reason for such delay. The Respondent states that the Corporation bank cheque bearing no 395930 dated 19/03/2017 submitted by the Petitioner to the Respondent No 2 towards pending salary for the paid by 16-2017 amounting to Rs 6,54,314/- was left bounced.
xii. Due to the Petitioner negligence of duty towards the company and its employees, the Respondents states that the Fire Insurance of the factory remained lapsed for 1 year back which was never renewed, inspite of many reminders and follow-ups with the petitioner had to be then renewed out of their own pockets by the Respondents. The Respondent states and submits that the Lease Agreement of the factory remained un-renewed from August, 2017 which the Respondents had to renewed later.
xiii. Taking a serious view of the same, the Respondents states that due to the delay on the part of the Petitioner there was a huge amount of sales loss suffered by the Respondents clients from May-2017 till October- 2017. About 5 Purchase Orders worth Rs 1, 27, 37,600/-received from the German based company "Dresdner Lackfabrik Novatic Gmbh & Co. KG." between the dates 15/05/2017 to 26/06/2017 could not be delivered because of want of raw materials. The suppliers refused to give materials as the Petitioner provided them with bounced cheques and loss of credit worthiness. The sale loss faced to the clients on preliminary verification is quantified to Rs 1, 27, 37,600/-. In order to maintain good will in the market and to ensure that the deterrent measure takes effect, the respondents German clients had to buy raw material from the third-party suppliers on a higher price at the last moment which eventually incurred additional transport cost, air freight on emergency supplies to the customers. Excess cost paid on material of Rs 32, 30,000/- Extra cost incurred on Transportation of Rs 8, 81,600/-.
xiv. At the outset the Respondents submits that the Petitioner not only played such fraudulent acts, but also provided wrong and incorrect information to the other Indian Directors. The Petitioner on the pretext of securing loan from the bank instructed the Respondent No. 4 to arrange for a sum of Rs 10,00,000/- as unsecured loan towards insurance purpose and Rs 20,00,000/-towards keeping fixed deposit as "Collateral Security". On this note the Respondent No. 4 had to arrange the total amount of Rs 30, 00,000 from a third party i.e. M/s. Tuff Bond on personal guarantee and 20 lacs was remitted to the Petitioner's account and Rs 10 lacs remitted directly to respondent No. 4.
C. REJOINDER FILED ON BEHALF OF THE PETITIONER:
The Petitioner has filed the Rejoinder dated in May 2018 denying and opposing all the contentions raised in the Affidavit in Reply by the Respondents.
The Petitioner states that the as a Chief Financial Officer (CFO) the role was limited and restricted to managing the available resources of the company. Further the Petitioner stated that the with respect to matter related to dealing with customers and other operations relating to the marketing, sale and purchase, debtors and creditors were not assigned to CFO’s and Mr. Palat i.e., Respondent no. 4 was alone responsible.
With respect to the External Commercial Borrowing; the foreign directors were not in favour of an ECB Loan account of the stringent RBI/FEMA Regulations which place restrictions in the manner in which the repayment could be affected.
The Petitioner stated that on the lower negligible profitability of the company, the Banks were reluctant to advance any further loan to the Company without an adequate Collateral Security. On the basis of the MSME , a representation was made in the middle of 2017 of the Corporation Bank and the entire documentation was signed by the Petitioner as well as Mr. Palat Manmohan. All the information and the entire progress of the processing of the loan was informed to the Company, its Board of Directors and the German investors.
The Petitioner states that the he has not drawn up or fabricated any letters of Corporation Bank as has been alleged or at all. With respect to the tax payments the Petitioner states that the Company was facing severe financial crunch and was unable to meet the immediate financial liabilities, as a CFO the Petitioner stated that from the sale collection received an appropriate collection maybe kept aside for the statutory payments. However, the other directors stated that the vendor payment should be met first to ensure the smooth running of the business. Consequent to the severe liquidity crisis, the company had no funds avaible to make any payments of tax or any statutory liabilities and also the salaries of the employees in the company were delayed on certain occasions and salaries of Directors were delayed.
The Petitioner further states that he has not received since April 2017 onwards and the finalization the Balance Sheet for the year ending 31.03.2017 was kept owing to the decision to be taken by the Board regarding the provisions for statutory debts and tax payments. The Petitioner states that the documents attached to reply from pages 96 to 103 is not a document on which has been created by the Petitioner as is correctly and falsely alleged by the Respondents. It is specifically stated that these documents furnished by the petitioner to the respondent only indicated a preliminary approval to the plan application subject to certain condition and admittedly the loan and was not finally sanctioned by the Bank. The Petitioner states that the Respondents have not placed a single email , letter, document on record, which suggests that such documents were fabricated by the Petitioner. To the contrary, the letter which has been placed at page 95 is stated to be letter from the Corporation Bank dated 14.07.2017 does not even disclose the name of the person, who has sanctioned the letter which is contrary to the established practice of transparency and protocol that is followed by each Bank. The Petitioner bona fidely by the Respondents by using their contact from the Bank. Even with without prejudice it is submitted that even if these documents are presumed to be correct(though not admitted by the Petitioner) these at the highest suggests that a loan was sanctioned by the Corporation Bank. it is nobody’s case that the loan was sanctioned, and/or the amount disbursed, which has been dealt with inappropriately by any party. i5t is admittedly that no loan has been sanctioned by the Corporation Bank and therefore no pecuniary advantage is derived by the Petitioner nor can any assertion being made as is being fully unfairly attempted by the Respondents.
With regards to the false cheques of the Corporation Bank , the Petitioner states that he never supported the practice of issuing post-dated cheques to customers. however, his objection on said trade practice was overruled by Mr. Palat as these matters fell in his area of responsibility alone. The petitioner states that on specific instructions of Mr. Palat suppliers were convinced to deliver raw material against PDCs which on various occasions due to cyclic liquidity crisis were dishonoured on presentation. Some of these payments were subsequently honored by the company. The cheques issued by the company that were dishonoured on various occasions which bore the signature as the case may be. The Petitioner also stated that the practice of issuing of post-dated cheques was at the insistence of Respondent no 4 alone
With respect to the alleged sales loss, The Petitioner states Respondent no. 4 exclusively supervised the placing of orders and delivery thereof. The Petitioner states that no agenda item for the Board Meeting held on 24.10.2017 was not disclosed to the petitioner and no independent lawyer was present at the meeting instead a lawyer who had been invited by the foreign directors was present during the board meeting in contraventions of al the procedures known to law and without or prior information to the Board of Directors. Further the Petitioner states that the no Extra Ordinary General Meeting was held on 24.10.2017.
With regard to the fire insurance and lease of the factory were taken over by Mr. Manmohan Palat from the Petitioner by informing that the insurance was negotiated with Mr. Bapadit Roy. The Petitioner further states that the personal loan of Rs. 20 lakhs has been routed through the Petitioners bank account and has always been shown to be an unsecured loan made available by the Petitioner to the Company in the Books of Accounts of the Company. These transactions are known to all directors and none of the directors have questioned this transaction till date. the Petitioner also states that the unsecured loan has been reflected in the Books of account of the company since 2013-2014 and it is strange that only today such assertion has been made.
The Petitioner states that the assertion made in the main Company Petition remained unrebutted and have not been disputed and denied explicitly and specifically by traversing each of the facts averred.
FINDINGS AND OBSERVATIONS
Heard Mr. Atharva Dandekar Counsel appearing for the Petitioner and Mr. Aseem Naphade Counsel appearing for the Respondent at great length and perused the documents available on record. The present Company Petition is filed under Section 241 and 242 of Companies Act seeking relief mainly on the ground to declare the termination of the Petitioner from the position of CFO and Director during the board meeting dated 24.10.2017 held by Respondent no 2 to 3 as illegal, null and void.
Before dealing with the issue, the Bench would like to briefly touch upon the chronology of the events as we feel it would help in tracing genesis of the issues involved. The Respondent no. 2 and 3 approached the Petitioner and Respondent No. 4 by evincing interest in participating in the business and management of Novatic Coating Private Limited (Respondent no. 1) through investment in its equity shareholding. After mutual discussion and deliberation, an agreement for purchase of the shares dated 04.08.2015 was entered between the parties. As a consequence to the agreement, the Petitioner holds 25 % of shareholding and also holds the position of CFO and Director in the Respondent 1 Company. However, during a Board Meeting dated 24.10.2017 held by the Respondents, the Petitioner was removed from the position of CFO. Pursuant to which, the Petitioner has raised the contention that such removal is illegal and not carried as per due process of law. Advancing this argument, the Petitioner raised the contention that he is a life time partner of Respondent Company No. 1 and cannot be removed from the position by placing its reliance on Paras 1.2,1.3, 1.8 and 1.9 of the Petition.
Countering the above contention of the Petitioner, the Respondents have placed his arguments in two-fold. Firstly, the Respondents argued that the termination of the Petitioner from the position of CFO and Director is rightfully conducted in the Board Meeting dated 24.10.2017 on the basis of fraudulent conduct and submission of fabricated loan documents for a loan amount of Rs. 1.5 crore by the Petitioner to the Respondents. To support this contention, the Counsel for the Respondents have invited the attention of the Bench to the documents submitted by the Petitioner showing sanctioned loan amount of Rs.1.5 crores by Corporation Bank annexed at Pages 97 to 103 of Affidavit -In- Reply. Thereafter, the Respondents vide letter 25.11.2017 annexed at page 94 of the Reply, raised an inquiry to the Corporation Bank about the sanctioned loan of Rs. 1.5 crores as informed by Petitioner to the Board of Directors. Further, the Respondent have invited the attention of the Bench to the letter dated 14.12.2017 annexed at page 95 issued by Corporation Bank which clearly states that there was no sanctioning of a loan of Rs. 1.5 crores. Further, the record reveals that the Petitioner submitted a Letter issued by the Corporation Bank dated 09.08.2017 to the Respondents which is extracted below for ready reference:
Therefore, it is observed from the above-mentioned letter and correspondence exchanged between the Petitioner and the Respondent from May 2017 to December 2017 clearly demonstrates that the Petitioner had misled the Respondents by showing fabricated loan sanction letter of Corporation Bank which is very serious in nature and disentitle the Petitioner from holding any post in the Company more so the very important and crucial post of CFO.
Further the Bench observes that the Petitioner throughout in correspondence has asserted that the loan will be disbursed by 30.05.2017, 01.07.2017, 11.08.2017. Further, the Petitioner asserted on 18.08.2017 that the money was already in the account and subsequently again stated that the loan will be disbursed by 22.09.2017 and 24.09.2017. It is noteworthy to mention that the Petitioner in Para 9 of his Rejoinder has taken a complete stand and stated:
“It is nobody’s case that the loan was sanctioned and/or the amount disbursed, which has been dealt with inappropriately by any party. It is an admitted fact that the loan has not been sanctioned by the Corporation Bank.”
The Respondent further has drawn the attention of the Bench to Agreement dated 10.06.2015 [Pg. 103] wherein Clause 12 [Pg. 107] clearly provides that the contract can be terminated without notice for “serious reasons”. However, the Respondent stated that the Petitioner was duly intimated vide letter dated 31.10.2017 at page 114 regarding the board meeting held on 24.10.2017 which resolved to remove Petitioner as the CFO. Further, Respondent vide email dated 22.02.2018 [Pg. 216 of Reply] intimated to Petitioner about the board meeting proposed on 05.03.2018 where one of the agenda was to remove Petitioner as a Director of the Respondent No. 1 Company. The Bench further notes that the Petitioner vide email dated 01.03.2018 [Pg. 215 of Reply] acknowledged receipt of the email dated 22.02.2018 and refused to attend the board meeting. Considering the facts and circumstances, the Bench is of the opinion that in the present case, the Petitioner have fraudulently misrepresented about the sanctioning of loan and fabricated documents of the bank which clearly amounts to serious reasons and therefore his termination from the position CFO and Director is justified.
The Respondent has raised its second contention on the maintainability of the present Petition stating that grievance on the basis of mere termination from a certain position in a company cannot form a case to be adjudicated on a matter pertaining to oppression and mismanagement under Section 241 of the Companies Act, 2013. Being a Tribunal vested with equitable jurisdiction under Sections 241—242 of the Companies Act 2013, the Adjudicating Authority has to examine the subject matter of the contention raised by the Applicant in order to determine the applicability of the present case under Section 241 and 242 of Companies Act. In order to buttress the above contention the Counsel for the Respondent has placed reliance in the ruling of Tata Consultancy Services Ltd V/s. Cyrus Investments Pvt Ltd wherein the Supreme Court has held the following:
a. The Company Tribunal is not a Labour Court or an Administrative Tribunal to focus entirely on the manner of removal of person from directorship. [Para 119]
b. The validity or justification for the removal of a person can never be the primary focus of the Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. [Para 121]
The Respondent also placed reliance on V.M. Rao V/s. Rajeswari Ramakrishnan, wherein the Madras High Court has held that oppression must complained of must affect a person in his capacity or character as a member of the company; unfair treatment in any other capacity e.g. director/creditor etc., is outside purview of Section 397 of the Companies Act, 1956.
It is worthwhile to mention that the Companies Act , 2013 bestows power on the Tribunal to grant relief to the shareholders wherein the affairs of the company are being running in a prejudicial manner or oppressive to them. Though the Companies Act provides relief to shareholder under section 241 however, the shareholder has to establish that the oppression and mismanagement are being constructed in a manner prejudicial or oppressive to him/her. In the present case, upon the perusal of the documents placed on record, it is observed that the Petitioner has acted in a fraudulent manner and have failed to fulfill his fiduciary duties as a CFO or as Director. Therefore, given Petitioner’s conduct, performance and fraudulent misrepresentation his removal as CFO and director is rightfully justified. Additionally, there is no case made out by Petitioner under Sections 241 or 242 of the Companies Act, 2013.
Therefore, from the above law laid down by the Supreme Court, the Bench is of the view that Petitioners case is entirely confined to his removal as a CFO and Director and has not made out any case of mismanagement or oppression on the minority shareholders. Hence, the case as it stands cannot be considered by the Tribunal in its jurisdiction under Sections 241 and 242 of the Companies Act, 2013. Applying the above analogy to the present case on hand, this Tribunal after hearing the submissions and upon perusing the material available on record, has no hesitation in holding that there is no merit in the above Company Petition and the same is liable to be dismissed.
Accordingly, the above Company Petition is dismissed without costs.