Arti Meenakshi Muthiah vs Mctm Global Investments Pvt. Ltd. &Ors

(Arising out of Order dated 04.09.2018 in TCP 163/2016 (CP/23/2015) passed by National Company Law Tribunal, Single Bench, Chennai)

IN THE MATTER OF: Before NCLT Before NCLAT

Mrs Arti Meenakshi Muthiah W/o Mr Tarun Ghai, 4th Floor, Saikripa Apartment, No.5, Sundaram Salai, Greenways Road, Chennai 600028 Petitioner Appellant

Vs

1. MCTM Global Investments Pvt Ltd No.761, Anna Salai, Chennai 600002 1st Respondent 1st Respondent

2. Mrs Kamala Muthiah, Bedford House, No.5, Raja Anna Salai, Purasawalkan Road, Chennai 600084 2nd Respondent 2nd Respondent

3. Mrs Nandini Valli Muthiah, Bedford House, No.5, Raja Anna Salai, Purasawalkan Road, Chennai 600084 3rd Respondent 3rd Respondent

4. Ms Gomathy Subramanian, No.48, Sathyadev Apartment, MRC Nagar, Chennai 600028 4th Respondent 4th Respondent

Mr.Nikhil Nayyar, Sr.Advocate, Ms Priyadarshini N, Mr. Divyanshu Rai, Advocates for appellant.

Mr. Santhanan Krishnan, Ms Namitha Mathews, Mr. Jayanth Vishwanathan, Mr. Pulkit Malhotra, Advocates for Respondent.

Company Appeal (AT) No.315/2018 2

JUDGEMENT

(11th June, 2020)

Mr. Balvinder Singh, Member (Technical)

The present appeal has been filed by the appellant under Section 421

of the Companies Act, 2013 for setting aside the impugned order dated 4th

September, 2018 passed by the National Company Law Tribunal (hereinafter

referred to as the 'Tribunal'), Chennai in TCP No.163/2016 (CP/23/2015)

seeking the following reliefs:

i) That the impugned order dated 4th September, 2018 passed by

the Hon'ble NCLT, Single Bench, Chennai in TCP 163/2016

(CP/23/2016).

ii) Any such other orders as this Hon'ble Tribunal may deem fit in

the interest of the facts and circumstances of the present case.

2. The brief facts of the case are that the 1st Respondent company is a

closely held family company. The company was incorporated by Mr. M.Ct.

Muthiah in 1988 and the shareholding was equally held by the Mr. M. Ct

Muthiah and his wife, 2nd Respondent. The authorised capital of the 1st

respondent company is Rs.50,00,000/- divided into 5,00,000 equity shares of

Rs.10/- each and the paid up share capital of the company is Rs.6,67,130/-

divided into 66713 shares of Rs.10/- each. Mr. M. Ct Muthiah died in

September, 2006 and his shareholding in 1st Respondent was equally divided

into his legal heirs. The details of the shareholding of the appellant, 2nd and

3rd Respondent in 1st Respondent Company, after the death of Mr. M. Ct.

Muthiah are asunder:

Company Appeal (AT) No.315/2018 3

Appellant 17% -11419 shares

2nd respondent 66% -43875 shares

3rd Respondent 17% -11419 shares

3. The appellant (original petitioner) had filed a Company Petition

No.23/2015 before the Company Law Board, Chennai against the

Respondents under Section 397 and 398 read with Section 402 of the

Companies Act 1956/2013 alleging oppression and mismanagement by the

Respondents and after establishment of NCLT the petition was transferred to

NCLT, Chennai. The original petitioner/appellant had sought the following

reliefs:

i) To declare that the purported board meeting of the Company

convened on 06.01.2015 is invalid, non est and illegal and to declare

the alleged minutes to be fabricated.

ii) To declare the appointment of the 4th respondent, Ms Gomathy

Subramaniam, as null and void.

iii) To grant a consequent order of permanent injunction restraining the

Company, its agents, servants, employees from giving effect any of the

purported resolutions that were purportedly passed at the alleged

Board Meeting purported to be held on 06.01.2015.

iv) Surcharge the 2nd and 3rd Respondents in respect of the amounts of

Rs.1,49,1218 and Rs.5,08,782/- paid to Mr. C.T. Malayandi, without

Company Appeal (AT) No.315/2018 4

any authority whatsoever, alongwith the interest from the date of such

payment.

v) Surcharge the 3rd Respondent for the loss caused to the 1st

Respondent company due to the acts of 3rd respondent and direct the

3rd respondent to pay to the 1st respondent company an amount of

Rs.15,35,21,000/- being the cost of purchase of property located in

Alagappa Road being land and building situated at R.S.No.11/1(Part)

admeasuring 6000.024 Sq. ft in the name of the company and an

amount of Rs.2.47 crores taken from the company for the purchase of

the portion of property in Alagappa Road in her personal name

alongwith interest from the date of such withdrawal;

vi) To direct the appointment of an independent valuer for determining

the fair value of the shares of the 1st Respondent company and to direct

the 2nd and 3rd respondents to either buy the shares held by the

Petitioner or sell the shares held by the 2nd and 3rd Respondents in

favour of the Petitioners at the fair value to be determined by

independent valuer through such process as may be determined by this

Hon'ble Bench as fair and reasonable;

vii) To award costs relating to the present proceedings.

4. The original petitioner had also sought the following interim relief from

NCLT, Chennai:-

i)To direct the appointment of an independent Chartered Accountant

for verifying and auditing the accounts of the 1st Respondent company

Company Appeal (AT) No.315/2018 5

and direct the chartered accountant as may be appointed by this

Hon'ble Bench to submit a report before this Hon'ble Bench on the

financial statements of 1st respondent company for the year ended

31.03.2013 and 31.03.2014, pending disposal of the Company Petition;

and

ii) To grant an order of temporary injunction restraining the

Respondents from altering the shareholding pattern of the Company

and to maintain the shareholding as set out in para 3.7 hereinabove

without the leave of this Hon'ble Bench pending disposal of the

Company Petition.

iii)To grant an order of temporary injunction restraining not to give

effect to the Board Resolution allegedly passed on 06.01.2015 and

restraining the 4th Respondent, Ms Gomathy Subramaniam from acting

as Director.

iv)To grant an order of temporary injunction from altering the

composition of the Board of Directors, being the Petitioner, 2nd

Respondent and 3rd Respondent, or induct any other person as director,

without the leave of this Hon'ble Bench, pending disposal of the

Company Petition;

v) To direct that in respect of a quorum for any meeting of the Board of

Directors of the 1st Respondent Company or the meeting of the

Shareholders in respect of the 1st Respondent company, shall require

the presence of the Petitioner or her nominee, pending disposal of the

company petition.

Company Appeal (AT) No.315/2018 6

vi)To grant an order of temporary injunction restraining the

Respondents from alienating, disposing off or in any manner

encumbering the properties of the Company, pending disposal of the

company petition.

vii)To issue a direction that the operation of IOB accounts bearing

account no.010902000970402, account No.010902000970911 and

account no.01090200075561 be frozen pending disposal of the

company petition.

viii) To direct the appointment of an independent Observer (at the cost

of the 1st respondent company) to conduct the Board meeting and the

general meetings of the company in a fair and transparent manner in

accordance with law, pending disposal of the company petition.

ix) Pass such further or other order as this Hon'ble Bench may deem fit

and proper in the circumstances of the case and thus render justice.

5. The Respondent did not file the reply but only filed reply to the interim

prayers sought by the petitioner. The constraint on the part of the

Respondents was that the original petitioner is the daughter of the 2nd

respondent and sister of 3rd respondent and some of the allegations against

the original petitioner were of such nature, if highlighted in the reply, would

have embarrassed the family. Respondent averred that petitioner cannot

restrain any shareholders in transferring their shares and every shareholder

has a right to transfer his shares. Respondent stated that the appointment

of 4th respondent as director was properly done at the Board Meeting held on

Company Appeal (AT) No.315/2018 7

06.01.2015 and the same is legal and binding. Respondent stated that the

original petitioner/appellant is a minority shareholder and the decision of the

Board, approved by the majority cannot be questioned by the original

petitioner. Respondent stated that they will proceed as per the Companies Act

and rules made thereunder to take important decision for the benefit of 1st

respondent and the important decisions cannot wait for the presence of the

original petitioner when the original petitioner does not attend Board Meetings

and the General Meetings. Respondent stated that Act does not provide

nominees being appointed for individual directors. Respondent denied that

they are disposing the properties of the 1st respondent company and it would

be the Board's decision on any purchase or disposal of properties as per the

Act. Respondent stated that the accounts of 1st respondent cannot be frozen.

Respondent stated that the independent observer cannot be appointed in the

Board and the General Meetings. The Respondent prayed for disposal of the

petition.

6. The original petitioner filed its rejoinder and reiterated the contents of

petition.

7. Respondent filed sur-rejoinder and denied all the allegations levelled in

the rejoinder and has specifically stated that there is no intention to oust the

original petitioner from the Company.

8. The original petitioner/appellant filed C.A. No.3/2016 seeking the

following reliefs:

Company Appeal (AT) No.315/2018 8

i)To direct that the bank accounts of the 1st Respondent ought to be

jointly operated by the applicant and by either the 2nd or the 3rd

respondent.

ii)To direct that an administrator be appointed to take over and oversee

the affairs of 1st respondent, pending disposal of the company petitioner

iii)Such further order or orders and/or direction or directions as this

Hon'ble Tribunal may deem fit and proper in the facts and

circumstances of the case.

9. After hearing the parties the NCLT Chennai dismissed the petition and

passed the following order on 4.9.2018:-

"In the light of the facts and circumstances and the legal position

stated above, the petition stands dismissed, and all pending

connected Company Applications are also dismissed. The interim

orders passed in the Company Applications are vacated including

the order of status quo passed on 30.03.2015 which was extended

on 22.04.2015. However, there is no order as to costs."

10.9 Being aggrieved by the impugned order the appellant has filed the

present appeal. Counter Reply has been filed Respondent. Rejoinder has

been filed by the appellant.

11. We have heard the parties and perused the record.

12. Before we proceed further we observe that sufficient time was granted

to the parties to settle the matter by this Appellate Tribunal. The parties were

Company Appeal (AT) No.315/2018 9

also directed to file their un-affidavit proposal in sealed cover with the

Registrar of this Appellate Tribunal. Later on it was informed to this Appellate

Tribunal that 2nd respondent does not want to settle the dispute amicably at

Delhi. Thereafter, we heard the appeal on merits.

13. Learned counsel for the appellant argued that it is not disputed that

initially 50% shareholding each is held by Mr. M. Ct. Muthiah and 2nd

respondent. Learned counsel for the appellant further argued that it is not

disputed that after the sad demise of Mr. M. Ct. Muthiah in 2006, 66%

shareholding is held by 2nd respondent and 17% shareholding each is held by

appellant and 3rd respondent in 1st respondent. Learned counsel for the

appellant argued that the appellant discovered at the stage of appeal that 2nd

respondent has transferred her shareholding in 2013 to be jointly held by 2nd

and 3rd respondent. Learned counsel for the appellant argued that the

respondents have suppressed this crucial fact and the impugned order is

passed.

14. Learned counsel for the Respondents argued that the appellant cannot

restrain any shareholders in transferring their shares. Learned counsel for

the Respondents further argued that every shareholder has a right to transfer

its shares and the respondents cannot be restrained from dealing its shares.

Learned counsel for the Respondents further argued that the appellant has

no right to restrain or refrain the respondents from dealing with shares.

15. We have heard the parties and perused the record. Every shareholder

have a right to transfer his right after completing all the formalities, if

otherwise the same are in order. We have gone through the document at Page

Company Appeal (AT) No.315/2018 10

No.117 of IA No.686 of 2019 and noted that the shares are now jointly held

by 2nd and 3rd Respondent and the transfer of registration of shares was done

on 28.6.2013. We further note that the shares have been registered on

28.6.2013 much before filing of Company Petition by the appellant before

CLB/NCLT in 2015. We have also noted that the shares relating to the

appellant are untouched and she continues to be 17% shareholder of 1st

respondent. Learned counsel for the appellant has not informed the Tribunal

what harm has been caused to her if the shares are now jointly held. Further

the shares have not been transferred to an outsider. Learned counsel for the

appellant has also not shown if there is any illegality. Therefore, we find no

force in his arguments, therefore, it is rejected.

16. Learned counsel for the appellant argued that equitable distribution

was agreed and manner of distribution was being discussed for both the

parties to have as equal division of wealth as possible. Learned counsel for

the appellant argued that a demerger scheme was also prepared for

trifurcation of 1st respondent but the dispute started when 3rd respondent

derailing the settlement talks on one pretext or he other.

17. We have noted his argument and perused the record. On this issue

we have already observed in para 12 above that sufficient time was granted

to the parties to settle the matter. The parties were also directed to file their

un-affidavit proposal in sealed cover with the Registrar of this Appellate

Tribunal. Later on it was informed to this Appellate Tribunal that 2nd

respondent does not want to settle the dispute amicably at Delhi. Thereafter,

Company Appeal (AT) No.315/2018 11

this Appellate Tribunal intended to hear the appeal on merits. It is now too

late for the appellant to raise this issue now.

18. Learned counsel for the appellant argued that the appointment of 4th

Respondent as independent director or non-family member is illegal. No

agenda for appointment was in the notice or email. No such Meeting was held

as the appellant was present till 10.20 AM on 6.1.2015. Learned counsel for

the appellant further argued that the Minutes of Meeting shows that the

Meeting was held at 2 PM on 6.1.2015 whereas the extract states that the

Meeting was held at 10.30AM.

19. Learned counsel for the Respondent argued that there is no bar for the

appointment of additional director of any closely held company and the

appointment has been made after making the necessary compliances and

approved by the majority of the directors. Learned counsel for the Respondent

further argued that the appellant never came for any board meeting even on

6.1.2015. Learned counsel for the Respondent further argued that if she had

attended the Meeting she would have written on same date to inform that she

had come but meeting was conducted. Respondent argued that appellant

first brought the issue on 13.2.2015 via email as a clear afterthought and

taking advantage of typographical error in minutes of time of meeting.

20. We have heard the parties and perused the record. We note that the

Meeting was held on 6.1.2015 and the appellant was well aware that the

Meeting will be held, therefore, the appellant herself stated that she went at

the venue and was present till 10.20.AM. We observe that the intention of the

appellant was not to attend the Meeting otherwise she would have waited

Company Appeal (AT) No.315/2018 12

there at least some time after 10.30 AM and would have written that no

meeting was held. Further even if the appellant would have attended the

meeting the resolution would have been passed with majority of the directors.

As regards the appointment of 4th Respondent as independent director is

concerned, we find no illegality in appointment.

21. Learned counsel for the appellant argued that Alagappa Property was

purchased in company's name. There is no authorisation and No commercial

value. Architect has confirmed this fact (Page No.379 of Appeal Paper Book).

Learned counsel for the appellant argued that the only purpose to purchase

this property to get access/passage to 3rd Respondent's residential house.

Learned counsel for the appellant further argued that the property was

purchased in 3rd Respondent's name with unauthorised loan of Rs.2.47 crores

from the Company and allegedly repaid to the subsidiary of the Company by

2nd Respondent.

22. Learned counsel for the Respondent argued that 1st Respondent passed

a Board Resolution dated 1.2.2013 (Annexure 3/Page150-151 of Counter

Affidavit) wherein the Board of Directors, including the appellant, authorised

2nd respondent to invest surplus funds of 1st respondent. Learned counsel

further argued that 2nd respondent invested the said surplus fund towards

purchase of property situated at Alagappa Road in the name of 1st Respondent

vide sale Deed dated 15.4.2013. Learned counsel for the Respondent refuted

the allegation that it was purchased for access to a property is false. Learned

counsel further argued that no company will purchase an access way which

is valued three times more than the property to which it is to provide access

Company Appeal (AT) No.315/2018 13

itself. Learned counsel for the Respondent further argued that 3red

respondent also purchased anotgher strip of land adjacent to land of 1st

respondent on same date vide another sale deed for total consideration of

Rs.15.25 crores out which of 1st respondent advanced a sum of Rs.2.47 crores

to 3rd respondent for stamp duty towards the property purchased. Learned

counsel for the Respondent further argued that the said advance was duly

repaid and settled in less than a month. Learned counsel for the Respondent

argued that 2nd respondent from liquidating some of her personal investments

(redemption of mutual funds and sale of shares) and raised a sum of Rs.2.30

crores which she paid to the company and settled the loan. Learned counsel

for the Respondent further argued that 3rd Respondent vide email dated

15.4.2013 had intimated the appellant about the purchase of property and

the amount paid by 1st Respondent (Page 266 of Appeal). Learned counsel for

the Respondent further argued that no objection was raised by appellant

about the purchase of properties but after over 19 months, the appellant got

an architect and sent email raising certain frivolous objection, without any

consultation with Respondent. Learned counsel for the Respondent argued

that the only purpose to raise objection was to file company petition before

the NCLT. Learned counsel for the Respondent argued that to purchase the

property was a commercial decision for the benefit of 1st respondent.

23. We have heard the parties and perused the record. It is not disputed

that vide Board Resolution dated 1.2.2013, 2nd respondent was authorised to

invest surplus fund of 1st respondent. Accordingly, 2nd respondent invested

the amount in property. It is also not disputed that 3rd respondent also

Company Appeal (AT) No.315/2018 14

purchased another property on the same date for which an advance of Rs.2.47

was given to 3rd respondent by 1st respondent. We note that the said advance

has been repaid by 2nd respondent by liquidating her personal investments.

Learned counsel for the appellant not disputed the same. We are convinced

that purchase of the property is a commercial decision which cannot be

question as the same may either result in profit or loss and the commercial

decision does not require any judicial interference. Further raising objections

after 19 months with support of architect is an afterthought to build a case

for filing before the NCLT.

24. Learned counsel for the appellant argued that the appellant had

established a Trust-"Learning Curve Foundation" to establish a residential

school and the same was done with full support and knowledge of 2nd

respondent. Learned counsel for the appellant argued that Rs.25 crores was

earmarked to the same and 2nd respondent gave a donation of Rs.1 crores.

Learned counsel for appellant argued that account was created in Indian

Overseas Bank and amount was transferred to it and the appellant was

authorised signatory. Appellant entered into multiple agreements with

consultants, architects. Learned counsel for the appellant argued that 3rd

respondent resigned from LCF Trust on 22.1.2014. Learned counsel for the

appellant argued that the appellant apprehended that funds allocated to her

would be blocked, therefore, the appellant took 3 pay orders for a total of

Rs.22 crores in Company's name to safeguard any amounts from being

siphoned for other purposes and the same amount was deposited in the

Company's account in HDFC Bank. Learned counsel for the appellant argued

Company Appeal (AT) No.315/2018 15

that 2nd respondent had given false affidavit to take out the money stating DD

was taken by Respondents and they had lost the same and tried to cancel the

DD. Appellant mailed the Bank for freezing account so it is not wrongly

removed. Learned counsel for appellant argued that now there is an attempt

by the Respondents to dissociate the Company from the Project.

25. Learned counsel for the Respondent argued that on the request of

appellant, 2nd respondent provided financial assistance to appellant for

constructing the school at gifted a sum of Rs.6 crores to appellant (Page 29,

para 7(j) of the appeal paper book). Learned counsel for the Respondent

argued that it later came to the knowledge of Respondent that the sole

purpose of the appellant and her husband was to grab monies and exclude

any involvement of the 2nd Respondent, which fact was further substantiated

by inducting the parents of Mr. Tarun Ghai (husband of appellant) as

Trustees. Learned counsel for the Respondent argued that appellant and her

husband repeatedly sought donations from 2nd respondent under the guise of

LCF Trust and later even "other trusts", however, admittedly the expenses

sought for were for the personal expenses of the appellant and her husband

(Pages 300, 358 and 359 of appeal paper book). Learned counsel for the

Respondent argued that no Board Resolution was passed for the said

expenses (Page 472 of appeal paper book). Learned counsel for the

Respondent argued that 1st Respondent never agreed to fund any school

project of LCF Trust (Para 15, Page 17 and 18 of counter affidavit). Learned

counsel for the Respondent argued that the 2nd respondent resigned from the

Trust. Learned counsel for the Respondent further argued that it is true that

Company Appeal (AT) No.315/2018 16

in terms of Board Resolution an amount of Rs.25 crores was deposit3ed in

the said account of IOB on 10.1.2014. Learned counsel for the Respondent

argued that shockingly appellant and her husband started to transfer and

siphon off monies and drew DDs of Rs.22 crores in favour of 1st Respondent

and deposited the DD in another HDFC Bank account of 1st respondent and

got another demand draft made in name of 1st respondent. 2nd respondent

immediately issued letter to Bank (Page 345 of appeal) to cancel the earlier

mandate. Learned counsel for the Respondent argued that merely adding an

additional signatory to a bank account cannot be claimed to be an act of

oppression. Learned counsel for the Respondent argued that the money in

IOB of 1st respondent was only for 1st respondent use and no authorisation

and/or approval was given to allow appellant to use money for any other

purposes. Learned counsel for the Respondent argued that LCF Trust has no

connection with 1st respondent and this cannot be claimed to be an act of

oppression and mismanagement.

26. We have heard the parties and perused the record. We note that the

Trust has no connection with 1st respondent. It is true that the 2nd

Respondent has gifted the amount to appellant. From the statement we find

that the appellant has utilised the amount for their personal expenses. We

fail to understand when the account was opened with Indian Overseas Bank

then why it was shifted to HDFC Bank and huge amounts withdraw. We find

no illegally in freezing the account by 2nd respondent. It is true that merely

adding an additional signatory to a bank account cannot be claimed to be an

act of oppression especially when she continues to be one of the signatories.

Company Appeal (AT) No.315/2018 17

27. After we reserved the judgement, learned counsel for the appellant filed

an IA No.605/2020 praying for an order of interim injunction restraining the

Respondents from conducting the Board Meeting on 10.2.2020 and passing

any resolution on the business mentioned in the notice dated 27.1.2020

pending disposal of the appeal. After hearing the parties, this Appellant

Tribunal on 6.02.2020 ordered that the Meeting may not be convened till

further orders.

28. To conclude the issues raised in the appeal is re-agitation of all the

points which were raised before NCLT. NCLT also discussed all the issues

and disallowed the petition. In view of the discussions above, we have also

reached a conclusion that no prima facie case is made out to interfere in the

impugned order

29. In view of the aforegoing discussions and observations we find no merit

in the appeal. The appeal is dismissed. No order as to cost. Interim order

passed on 6.2.2020 is hereby vacated.

(Justice Jarat Kumar Jain) Member (Judicial)

(Mr. Balvinder Singh) Member Technical New Delhi

Bm

Company Appeal (AT) No.315/2018