Abhishek Jain vs Puerto Life Science Pvt Ltd & Ors

[Arising out of order dated 6th November, 2020 passed by National Company Law Tribunal, New Delhi Bench- VI, in CP No. 86/ND/2020]

IN THE MATTER OF: 1. Mr. Abhishek Jain, 137, Jagriti Enclave, Delhi- 110092 ...Appellant Vs 1. Mis Puerto Life Sciences Private Limited Shop No. 24, G/F C S C Saini Enclave, Delhi East Delhi- 110 092 Respondent No. 1

2. Mr. Pramod Kumar Sharma, Shop No. 24, G/F C S C Saini Enclave, Delhi East Delhi- 110 092 Respondent No. 2

3. Mr. Vardaan Sharma, Shop No. 24, G/F C S C Saini Enclave, Delhi East Delhi- 110 092 Respondent No. 3

4. Mr. Veerinder Pal Singh, Shop No. 24, G/F C S C Saini Enclave, Delhi East Delhi- 110 092 Respondent No. 4

5. Mrs. Anju Jolly, Shop No. 24, G/F C S C Saini Enclave, Delhi East Delhi- 110 092 Respondent No. 5

6. Mrs. Nisha Walia, Shop No. 24, G/F C S C Saini Enclave, Delhi East Delhi- 110 092 Respondent No. 6

Present: For Appellants: Mr. Virender Ganda, Sr. Advocate with Mr. Vishal Ganda, Mr. Anand Singh Sengar and Mr. Ayandeb Mitra, Advocates.

Company Appeal (AT) No. 242 of 2020 Page 1 of 15 For Respondents: Mr. Saurabh Kalia, Mr. Divendra Singh, Mr. Mohit Chaurasia, Mr. Gaurav Jaggi and Ms. C.S. Priyanka Aggarwal, Advocates for Respondent Nos. 1 to 6.

JUDGMENT

(26th March, 2021)

KANTHI NARAHARI, MEMBER (TECHNICAL)

Preamble:

The present appeal has been filed challenging the order passed

by learned National Company Law Tribunal, New Delhi- Bench-VI (in

short 'NCLT' whereby the learned NCLT vacated the stay granted by it

vide impugned order dated 06.11.2020. Aggrieved by the same, the

Appellant preferred the appeal.

2. Shri Virender Ganda, learned Senior Counsel appearing for the

Appellant submitted that the Appellant is a Director and shareholder

of the Respondent No. 1 Company. The Respondent No. 1 was

incorporated on 04.10.2018 and the Appellant was appointed as a

Director in July, 2019 and allotted 12 lakhs equity shares of the

Respondent No.1 Company which constitutes 30% of the total paid

share capital.

3. Learned Senior Counsel for the Appellant further submitted that

the Respondent Nos. 2,4,5 & 6 are directors and shareholders of the

Company. Father of the Appellant is having vast experience in

pharmaceutical industry and the 2nd Respondent approached the

father of the Appellant to overcome major hindrances. Before

Company Appeal (AT) No. 242 of 2020 Page 2 of 15 investment in the Respondent No. 1 Company Appellant and

Respondents entered an Memo of Understanding (in short MOU).

Basing on MOU, Appellant became a shareholder of the Respondent

No. 1 Company. In view of financial difficulty faced by the

Respondents, they approached the Appellant and requested for short

term loan, which they assured to be repaid within 30 days. In view of

the request made by the Respondents, father and mother of Appellant

granted an unsecured loan of Rs. 6 Crores 90 lakhs to the Respondent

No. 1 Company and the same was disbursed in trenches between

September to October, 2019.

4. While so, the Respondents secured an approval from the South

Indian Bank for a loan of Rs. 25 lakhs and in the sanctioned letter, the

total cost of the project was mentioned as 44 Crores 60 lakhs. However,

the project cost was escalated. The Respondents issued four cheques

to the parents of the Appellant for repayment of the loan. However, all

the cheques were returned as 'dishonoured'.

5. The Respondent No. 1 Company in the Board Meeting held on

06.03.2020 passed several resolutions including increase of the

project cost from 52 Crores to 59 Crores and to bring in rights issue

and thereby increasing the equity share of the Company from Rs. 4

Crores to Rs. 16 Crores. The sole motive of the rights issue is simply

to dilute the shareholding of the Appellant in the Company and curtail

his rights. Further, the Board passed resolution not to repay the short

term unsecured loan of Rs. 6 Crores 90 lakhs. However, the

Company Appeal (AT) No. 242 of 2020 Page 3 of 15 Respondents forcing the Appellant to invest Rs. 10.70 Crores to secure

the sanction of loan from South India Bank.

6. The Company called an Extra Ordinary General Meeting (in

short EOGM) on 15.06.2020 to increase the authorised share capital

from 4 Crores to 16 Crores. Further, the Company issued the offer

letter dated 27.06.2020 for subscribing the rights issue and it is stated

that the rights issue offer was made in proportion to the shareholding

of the shareholders of the Company. If the Appellant failed to subscribe

to the rights issue, the Appellant's shareholding will be reduced.

7. Learned Senior Counsel for the Appellant submitted that they

have filed a petition before the NCLT under Section 241, 242 and 213

of the Companies Act, 2013 and sought various reliefs. The Appellant

also sought interim reliefs praying the Hon'ble Tribunal to stay the

process of effecting increase in the paid up share capital of the

Company by way of rights issue as has been initiated by the

Respondents vide Board Resolution dated 09.05.2020 carrying

forward vide offer letter dated 27.06.2020. The Appellant also sought

various other Interim Reliefs.

8. The Respondents filed Reply Affidavit to the Appeal and

submitted that the Appellant has made bald, vague and non-existent

allegations against the Respondents and the Appellant with a malafide

intention and to settle the personal score against the Respondents,

filed the Company Petition before the Hon'ble NCLT. He submitted that

Company Appeal (AT) No. 242 of 2020 Page 4 of 15 South India Bank sanctioned Term Loan and the bank insisted the

Directors to provide Bank Guarantee or else the collateral security.

However, the Appellant was not inclined to provide Bank Guarantee

nor collateral security, causing hindrances by writing letters to the

Bank thereby the Bank stopped further disbursal of loan. Therefore,

the Respondents had no option except to increase authorised share

capital. The Respondents have provided personal Guarantee and

collateral security as insisted by South India Bank for obtaining term

loan. The Bank also insisted for unsecured loan which was provided

by the Directors of the Company and could not be repaid. In view of

non-disbursal of loan from Bank, the Company faced financial crunch

and having no option, decided to increase the authorised share capital

and issue shares to the existing shareholders in proportion of their

shareholding. However, the Appellant refused to subscribe to the offer

made by the Company. The Respondents decided to provide an exit

opportunity to the Appellant by purchasing the entire shareholding of

the Appellant and repayment of unsecured loan to the parents of the

Appellant. However, the Appellant refused to exit from the company,

thereby the settlement of exit option could not fructify.

9. Learned Counsel for the Respondents submitted that the

Appellant has failed to establish oppression and mismanagement in

the affairs of the Company and thereby the Appellant could not

maintain the Company Petition even before the learned NCLT. The

Appeal is devoid of merits and the same may be dismissed.

Company Appeal (AT) No. 242 of 2020 Page 5 of 15

10. Heard learned Counsel for the respective parties. Perused the

pleadings, documents and citations relied upon by them.

11. Learned NCLT is of the view that-

...

"23. Therefore, it is no longer res-integra that the

right issue for genuine purpose and for the benefit of

the Company is not illegal until proved otherwise.

The petition/minority shareholders have to prove the

malafide of the majority in order to get relief against

the Rights issue. In the case in hand petitioner

himself attended the meeting, submitted his

objections against the Rights issue. The petitioner

has a chance to purchase/invest more in the

company. There is no single instance of oppression

or mismanagement by way of further issue of Rights

by the directors of the company.

24. In that view of the matter there is no prima

facie ground to stay the further issue of rights.

Hence the stay on the further issue of Rights has

now been vacated subject to the final outcome of the

present petition.

..

12. From the perusal of the impugned order, the learned NCLT

observed that there is no prima facie ground to stay further issue of

Company Appeal (AT) No. 242 of 2020 Page 6 of 15 rights. Hence vacating the stay, subject to the final outcome of the

present petition.

13. It is an admitted fact that the Appellant is a shareholder and

Director of the Respondent No. 1 Company holding 12 lakhs equity

shares constituting 30% of the paid up share capital of the Company.

14. Learned Senior Counsel for the Appellant apart from the rights

issue, raised various grounds in the appeal. However, we are

concerned with the order passed by the learned NCLT which is

impugned in this appeal whereby the learned NCLT vacated the stay

thereby the Company is free to proceed with the rights issue. The

apprehension of the Appellant that if the Appellant would not

subscribe to the rights issue, then his shareholdings would get diluted.

15. Learned Senior Counsel for the Appellant vehemently contended

that upon rights issue, money has credited to the Company's account

and the shareholder's/the Respondents have withdrawn the same.

Therefore, the learned Senior Counsel for the Appellant vehemently

opposed the rights issue. The Appellant filed Interlocutory Application

being I.A. No. 237 of 2021 before this Tribunal in the Appeal praying

this Bench to stay the EOGM of the Respondent No. 1 Company and

to take on record the pleadings from this Application and stay on the

operation of the impugned order passed by learned NCLT and set aside

the allotment of shares to the Respondent pursuant to the rights issue.

Company Appeal (AT) No. 242 of 2020 Page 7 of 15

16. Before dealing with the contents as made in the Application and

the Bank Statement filed along with this Application, we intend to give

factual matrix of the case.

17. The Respondents along with their Reply Affidavit filed

Memorandum of Understanding (in short MOU) on 22.07.2019 entered

between the Respondent No. 1 and the Appellant. Since the MOU is

not legible, we are not able go through the same. However, there is no

denial of the Appellant with regard to the MOU and the clauses therein.

It is an admitted fact that South India Bank sanctioned term loan of

Rs. 25 Crores for setting up a manufacturing unit for production of

pharmaceutical products and at an estimated cost was shown as Rs.

44.60 Crores. At page-65 of the sanction letter, the guarantors are

Respondent Nos 2,3,5 & 6. However, the Appellant, who is a Director

and shareholder, is not shown as Guarantor. At page 69 of the letter

of Bank it is clearly mentioned at Clause 3(c) that the unsecured loans

and advances received from close friends, relatives will be retained in

the business during the subsistence of the credit facilities.

18. Learned Counsel for the Respondents submitted that in view of

the above, they could not repay the unsecured loan to the Appellant.

19. In the Board Meeting held on 06.03.2020, the Board discussed

and deliberated upon financial obligation to be fulfilled by the

Appellant. It is also discussed that the Appellant did not become party

to obtain Bank credit facilities and also not provided his personal

Company Appeal (AT) No. 242 of 2020 Page 8 of 15 guarantee in respect of the current sanctioned bank facilities.

However, the Board without taking any decision on this aspect decided

to take the matter in the next Board Meeting.

20. From the records it is apparent that the Appellant has not

provided any guarantee for the credit facilities to avail from the South

India Bank.

21. In the Board Meeting held on 09.05.2020 wherein the father of

the Appellant was present, the Board took various decisions including

the financial status of the project of the Respondent No. 1 Company

and fund requirements. It was also discussed that the Company is

losing approximately 60 lakhs to 70 lakhs every month due to shortage

of working capital fund. It is seen from the minutes of the meeting that

the Appellant denied to infuse any further fund into the Company. The

Company also took decision to further collecting fund to the tune of

Rs. 12 Crores by way of subscription from the shareholders. In view of

the requirement, the Company resolved to increase authorised share

capital of the Company from existing 4 crores divided into 40 lakhs

equity shares of Rs. 10/- each to 16 Crores divided by 1 Crore 60 lakhs

equity shares of Rs. 10 each by creating additional 1 Crore 20 lakhs

equity shares of Rs. 10/- each ranking Pari Passu in all respect with

the existing equity shareholder of the Company. However, the

Appellant dissented the said resolution vide note dated 13.05.2020.

However, the Board passed the resolution offering 1 Cr. 20 lakhs equity

Company Appeal (AT) No. 242 of 2020 Page 9 of 15 shares to the existing shareholders in proportion of their existing

shareholding as on the date.

22. The Respondents have issued an Offer Letter by way of mail

dated 27.06.2020 annexed at page 332 of Vol. 2 of the Appeal Paper

Book. The said e-mail reads as under:

"You are hereby informed that the Board of Director

of Puerto Life Sciences Limited (Company) in their

meeting held on 09.05.2020 granted approval for

right issue aggregating to Rs. 1 Cr. 20 lakhs equity

shares of Rs. 10/- each at par of the existing

shareholders of the Company.

Based on the above decision of the Board, this Offer

is made to issue 36,00,000 equity shares to you,

under the right issue being as an existing equity

shareholder of the Company on June 15,

2020(Record date) on proportionate basis and

conditions as laid down, interalia in the letter of

offer. Application form and the terms and conditions

of the said right issue are enclosed in the letter of

offer for your kind perusal."

23. At page 333 of Vol. 2, the letter of offer clearly mentions that the

Appellant was offered 36 lakhs equity shares of Rs. 10/- each which

comes to Rs. 3 Crores 60 lakhs. At clause 7 of the offer letter it is stated

Company Appeal (AT) No. 242 of 2020 Page 10 of 15 that the Appellant may apply for the equity share offered to him wholly

or in part by filing application form and submitting the same along

with the Application money to the Company between 27.06.2020 to

14.07.2020.

24. Learned Senior Counsel for the Appellant filed an Interlocutory

Application being I.A. NO. 237 of 2021. At pages 6 & 7 given in a

tabular form regarding utilisation of rights issue and unsecured loan

as per Tally Data. Learned Senior Counsel for the Appellant submitted

that the amount raised through rights issue were in fact did not

utilised for the project of the Respondent No. 1 Company however the

same were used to clear the loan advances provided by the

Respondents to the Respondent No. 1 Company.

25. Learned Senior Counsel further contended that the tabular

depiction at page-6 of the Application demonstrated that the loan of all

the stakeholders of the Respondent No. 1 Company, except the

Appellant, has been reduced. At page-7 tabular depiction has been

given with regard to unsecured loans as Tally data.

26. Learned Senior Counsel for the Appellant submitted that the

tabular depictions make it abundantly clear as to how the funds raised

qua the rights issue were being utilised by the Respondent No. 1

Company and the fact that the said rights issue was never given for

the benefit or interest of the Respondent No. 1 Company but were in

fact a method of fund rotation. Further in the Application at page -89

Company Appeal (AT) No. 242 of 2020 Page 11 of 15 a Bank Statement of ICICI Bank of the Respondent No. 1 Company

from 01.06.2020 to 30.06.2020 has been filed. Further at page -90,

the Bank Statement of ICICI Bank of the Respondent No. 1 Company

from 01.07.2020 to 31.07.2020 is given. Learned Senior Counsel for

the Appellant submitted that from the statement of the Bank, the

amounts have been credited into the account of Respondent No. 1

Company. However, the same was received by the same

Director/shareholder from the Company, thereby he submitted that

the amounts have come and gone. Learned Senior Counsel for the

Appellant submitted that the Respondents failed to demonstrate the

benefits of rights issue in favour of the Respondent No. 1 Company

rather it is a clear intention of reducing the Appellants' shareholding

to below 10%. In support of his contention, the Learned Senior Counsel

relied upon judgment of the Hon'ble Supreme Court.

27. Per Contra, learned Counsel for the Respondent submitted that

the rights issue was made in the interest of the Company. He

submitted that the Appellant has not raised a single plea that there is

any infirmity legally in the rights issue. He submitted that the increase

of authorised capital and allotment of shares is in the interest of the

Company for the reason that South India Bank did not disburse the

full term loan to the Respondent No. 1 Company for the reason that

the Appellant created hindrances. The Appellant refused to contribute

in the Company. Further, the Appellant started writing e-mail to lender

bank portraying that there is management dispute. However, the

Company Appeal (AT) No. 242 of 2020 Page 12 of 15 Respondent Company clarified many times to the Bank that the except

Appellant's non-cooperation there is no management dispute on the

part of Respondents. As stated supra, the Bank stopped further

disbursement w.e.f. 21.03.2020 till date causing serious liquidity crisis

in the project and required personal guarantee of the Appellant.

FINDINGS:

28. It is a fact that the Appellant has not filed any document

regarding Tally Data and the statement etc. before the learned NCLT.

In view of non-providing the documents before the learned NCLT, the

learned NCLT had no opportunity to look into the documents and deal

with the aspects. It appears that the Appellant for the first time filed

these documents along with I.A. No. 237 of 2021 before the Tribunal.

Since the Appellant alleging that the amounts have been credited into

the Respondent No. 1 Company and later on withdrawn by the

Respondents. Sitting in the Appellate Jurisdiction, we cannot decide

the merits since the matter is sub judice and seized of by the learned

NCLT. We are also of the view that the petition was filed under Sections

241 & 242 of the Companies Act, 2013 alleging certain acts of

oppression and mismanagement into the affairs of the Company.

29. Though prima facie we are not inclined to deal with any of the

issues on merits. Further, following the Principle of Natural Justice,

we would afford an opportunity a liberty to the Appellant to address

the issues before the learned NCLT with regard to the bank statement

Company Appeal (AT) No. 242 of 2020 Page 13 of 15 of the Respondent No. 1 Company for the reasons that the Appellant

disputed the payments made by the other Directors. The Appellant

may file these documents by way of Additional Documents before the

learned NCLT after serving a copy of the same upon the Respondent

well in advance. The Respondents may file their rebuttal/Reply, if any

to the pleadings or additional pleadings.

CONCLUSION:

30. In view of the aforesaid reasons, we remand the matter back to

the learned NCLT who will decide the Company Petition on merits

along with Additional Documents as may be filed by the Appellants. If

the Appellant failed to file these documents before the leaned NCLT,

learned NCLT may proceed with the records available with it.

31. We direct the Respondents that the shares offered to the

Appellant by way of rights issue may not be renounced and may not

be allotted if already not renounced and not allotted to other

shareholders as on today. The said direction will be in operation till

the disposal of the Company Petition.

32. Interest of the Company is utmost. This Tribunal, vide order

dated 20.01.2021 deferred the AGM scheduled to be held on

23.01.2021. In view of the statutory requirement to be complied with,

we vacate the order passed on 20.01.2021. The Company is at liberty

to convene and conduct AGM in accordance with law. We request the

Company Appeal (AT) No. 242 of 2020 Page 14 of 15 learned NCLT to dispose of the Company Petition and Application, if

any, as expeditiously as possible.

[

33. With the above directions, the Appeal is disposed. No Orders as

to cost.

[Justice Jarat Kumar Jain] Member (Judicial)

(Kanthi Narahari) Member(Technical) Akc

Company Appeal (AT) No. 242 of 2020 Page 15 of 15