Focus Energy Ltd vs Reebok India Ltd. & Ors

Focus Energy Limited ....Appellant

Vs.

Reebok India Limited & Ors. ....Respondents

Present:

For Appellant: Ms. Vibha Dutta, Senior Advocate with Mr. Praveen Gaur, Aditya Mishra, Ms. Priyanshi, Mr. Ujjal Banerjee, Mr. Swapnil Gupta and Mr. Akash, Advocates.

For Respondents: Mr. Sanjeev Puri, Senior Advocate.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

'Focus Energy Limited' (Appellant) filed petition under Sections

237, 247, 397, 398 read with Sections 402, 403 and 406 of the

Companies Act, 1956 (now Sections 241-242 of the Companies Act,

2013 and other provisions) before the Company Law Board being

Company Petition No. 126(ND)2015.

2. The matter was subsequently transferred before the National

Company Law Tribunal ("Tribunal" for short), New Delhi Bench, New

Delhi in terms of Section 434 of the Companies Act, 2013. 2

3. A Company Application No. 97 of 2016 was filed by the

Appellant/ Petitioner praying for amendment of the original petition. As

per averments, the Appellant/ Petitioner wishes to elucidate certain

facts which have already been averred in the main petition against the

Statutory Auditors of the Respondent Company ('Reebok India Limited')

and also to take steps to amend the name of Respondent No.11- 'BSR

and Co.' and implead proposed Respondent No.12.

4. The Tribunal by detailed impugned order dated 22nd October,

2019 refused to amend the name of Respondent No.11 from 'BSR and

Co.' to 'BSR and Co. LLP' and to implead proposed Respondent No.12-

'BSR and Company'.

5. The petition was filed for oppression and mismanagement alleging

serious acts of financial irregularities and fraud by the Directors and

Management of the Respondent Company. Respondent No.1 Company

is a joint venture Company with 'Reebok (Mauritius) Ltd.' and is

engaged in the business of selling apparels and footwear under the

brand name 'Reebok'. The Appellant (Petitioner), whose original equity

in the Respondent Company was 20%, was brought down to 6.85% in

the year 2003. The dilution of their stake in the company was effected

through issuance of Compulsory Convertible Debentures (CCD).

6. As per allegations, the Respondents are in complete control of

Respondent No.1 Company and are conducting its affairs in a manner

Company Appeal (AT) No. 356 of 2019 3

which is highly prejudicial to its interest and to those of its major

stakeholders. The Appellant (Petitioner) wishes to amend its petition

based on the reply filed by Respondent No.11 and the role of the

proposed Respondent No.12. It also seeks to elucidate its submissions

and allegations made in the petition against them as Auditor for

covering up financial irregularities by conniving with the Directors while

auditing the financial statement for the years 2007-15.

7. The basic allegation being made by the Appellant (Petitioner)

while praying for amendment is that there have been various holes in

the Auditing System which has given rise to a massive and systematic

fraud of at least Rs.1500 crores, if not Rs.8700 crores, in the form of

siphoning off the funds based on fraudulent transactions, which could

not have gone unnoticed by the auditors. The Appellant (Petitioner) has

submitted that pursuant to the report of the SFIO, which indicts the

auditors in preparing the profit and loss statements, their connivance

with the Directors of the respondent company has clearly emerged.

Though the Appellant (Petitioner) has impleaded the Auditors in the

present petition, the amendment sought pertains to defining their

explicit role in the alleged fraud. Mr. P. Nagesh, Ld. Counsel for the

Appellant (Petitioner) submits that upon the reply being filed, they have

been informed that 'BSR & Co.' is now 'BSR & Co. LLP' and during the

relevant period i.e. between 2007 to 2015, 'BSR and Co. LLP' was the

Competent Auditor and its Statutory Auditor for the Financial Years

Company Appeal (AT) No. 356 of 2019 4

2014 & 15. It is further submitted that 'BSR and Company', a separate

entity was the respondent's Auditor for the financial years ending

March 2014 and 2015. It is for the reason that having been informed

about the change of name that they wish to amend the name of

Respondent No.11 from 'BSR and Company' to 'BSR & Co. LLP', and

array 'BSR and Company' as the proposed Respondent No.12. In the

light of the above submission, the Appellant wishes to incorporate Para

3.8 in the main petition as under:

"Respondent No.11 BSR and Co. LLP (earlier known

as BSR and Co.) and their affiliates who are liable

for professional mis-conduct were inducted in

serious acts which are highly unbecoming of a

professional. BSR and Co. LLP (earlier known as

BSR and Co.) was engaged as Statutory Auditor for

Financial years ending March, 2014 and March,

2015 and as component auditor for the period from

2007 to 2015, the period during which siphoning of

funds in Respondent No.1 company took place with

the help and assistance from Respondent No.11. The

elaborated details of the same are mentioned in the

petition."

8. Learned counsel for the Appellant submitted that material on

record shows that the commission of fraud and siphoning of funds and

Company Appeal (AT) No. 356 of 2019 5

role of Auditors highlighted by SFIO clearly bringing out the active role

of the auditors in perpetuating fraud and wide scale mismanagement

and diversion of funds of the company. It is submitted that the

amendment sought of elucidating the grounds had already been taken

in the petition.

9. SFIO investigation report relates to F.Y. 2011 to 2012. Diversion

of business and illegal repatriation of company money etc. is still

continuing for which the Appellant Company has specifically prayed

relief of appointment of independent auditor since the year 2010 to

2015, calling for an investigation into the affairs of the Respondent No.1

Company under Section 237 of the Companies Act, 1956.

10. Respondent Nos. 1 to 3 and 7 to 9 have opposed the prayer. It

was submitted that the Appellant was in full knowledge of the fact that

the Respondent No.1 Company had issued the Compulsorily Convertible

Debentures on 1st February, 2013 and 2nd August, 2013 respectively,

details in respect of which had been duly enumerated by the

Respondent No.1 Company in the Balance Sheets filed for the F.Y. 202-

13 and 2013-14 respectively.

11. According to the Respondents, the amendment application was

filed by the Appellant with the sole intention of causing further delay in

the present proceedings in light of the fact that the Compulsorily

Company Appeal (AT) No. 356 of 2019 6

Convertible Debentures had to be converted into equity shares of the

Respondent No.1 Company in February, 2018.

12. It was further submitted that the acts of oppression and

mismanagement cannot be averred against the Statutory Auditor of the

Company.

13. Learned counsel for the Respondents relied on the decision of this

Appellate Tribunal in "Shanta Prasad Chakravarty v. M/s.

Bochapathar Tea Estate Private Limited− 2017 SCC OnLine NCLAT

335". In the said petition under Sections 241-242 of the Companies

Act, 2013, the Statutory Auditors were impleaded as Respondent Nos. 5

& 6. The said Auditors have filed Interlocutory Application to delete

them from the array of parties claiming themselves to be only Statutory

Auditors and that they have already resigned and they are not

necessary parties in the petition. The Tribunal has, after hearing the

parties, deleted the original Respondent Nos. 5 & 6 from the array of

parties. The appeal was filed against the said decision by the Petitioner-

'Shanta Prasad Chakravarty', which was dismissed by this Appellate

Tribunal. The Hon'ble Supreme Court also refused to interfere with the

impugned order passed by this Appellate Tribunal by its order dated

16th July, 2018 passed in Civil Appeal No. 675 of 2018- "Shanta

Prasad Chakravarty & Ors. v. M/s. Bochapathar Tea Estate

Private Limited & Ors."

Company Appeal (AT) No. 356 of 2019 7

14. In the present case, the Appellant having failed to show the

ground to implead the other Auditor as party Respondent No.12 and the

reasons to amend the name of Respondent No.11, they having

knowledge of all the facts, Company Petition filed in the year 2015

merely because SFIO is investigating into the matter under Section 212

of the Companies Act, 2013, cannot be a ground to amend the name of

the Auditor as Respondent No.11 nor can be a ground to implead

another Auditor as Respondent No.12.

We find no merit in this appeal. It is accordingly, dismissed. No

costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

[Justice Venugopal M.] Member (Judicial)

NEW DELHI 12th March, 2020

AR

Company Appeal (AT) No. 356 of 2019