Hamlin Trust And Ors vs Lsf10 Rose Investments S.Ã R.L. And Ors

having its address at 60, 2nd floor, Vasant Marg, Vasant Vihar, New Delhi-110057. ... Appellant No. 1

Anjali Nashier alias Anjali Rattan, Adult Indian Inhabitant, shareholder of Respondent No.2 and residing at 60, 2nd floor, Vasant Marg, Vasant Vihar, New Delhi-110057. ... Appellant No. 2

Rajiv Rattan, Adult Indian Inhabitant, Promoter and Chairman, Board of Directors and erstwhile Chief Executive Officer of Respondent No. 2 and residing 60, 2nd floor, Vasant Marg, Vasant Vihar, New Delhi-110057. ... Appellant No. 3

Versus

LSFIO Rose Investments S.a.r.I., a company Incorporated under the laws of Luxembourg, A Shareholder of respondent No. 2 and having its registered office at Atrium Business Park Vitrum, 33, Rue du Puits Romain, L-8070, Bertrange, Grand Duchy of Luxembourg. ...Respondent No. 1

Rattan India Finance Private Limited Non-banking financial company Incorporated under the provisions of the Companies Act, 1956 having its Registered office at Regus Vasant Square,

Company Appeal (AT) No. 77 of 2022

Page 1 of 31 Lelvel-3, Vasant Square Mall, Pocket V, sector B, Vasant Kunj, New Delhi-110070. ...Respondent No. 2

Ram Kumar, Adult Indian inhabitant, Director of Respondent No. 2 and Trustee of respondent No. 4 and Residing at B-4/221, Safdar Jang Enclave, New Delhi-110029. ...Respondent No. 3

Gaurav Toskhani, Adult Indian Inhabitant, Company Secretary of Respondent No. 2 and having his office at Regus Vasant Square, Lelvel-3, Vasant Square Mall, Pocket V, Sector B, Vasant Kunj, New Delhi-110070. ...Respondent No. 4

Manish Chitnis, Adult Indian Inhabitant, Chief Financial Officer (CFO) of Respondent No. 2 and having his office at Regus Vasant Square, Lelvel-3, Vasant Square Mall, Pocket V, Sector B, Vasant Kunj, New Delhi-110070. ...Respondent No. 5

Rattan India Power Limited, A company incorporated under the provisions of Companies Act, 1956, having its registered address at A-49, Ground Floor, road No.4, Mahipalpur, New Delhi - 110037. ...Respondent No. 6

IIC Limited, formerly known as India Bulls Infrastructure Company Limited, a company incorporated under the provisions of Companies Act, 1956, having its registered address at 90/A-207, Khasra No. 412, Ground Floor, Mahipalpur Extension, New Delhi-110037. ... Respondent No. 7

Caitlin Infrastructure Private Limited, A company incorporated under the provisions of Companies Act, 1956, Company Appeal (AT) No. 77 of 2022

Page 2 of 31 having its registered address at B-39, Shanti Kunj, Mall Road, Vasant Kunj, New Delhi-110070. ... Respondent No. 8

IIFL Wealth Finance Ltd., A NBFC incorporated under the provisions of Companies Act, 1956, having its registered address at 6TH Floor, IIFL Centre, Kamala city, Senapati Bapat Marg, Lower Parel, Mumbai-400012 IN ...Respondent No. 9

Bajaj Finance Ltd., A NBFC incorporated under the provisions of Companies Act, 1956, Having its registered address at Akurdi, Pune-411035. ...Respondent No. 10

Deutsche Investments India Pvt. Ltd., A private limited company incorporated under the provisions of Companies Act, 1956, having its registered address at Block B-1, Nirlon Knowledge Park, Western Express Highway, Goregaon (East), Mumbai-400063. ...Respondent No. 11

BNP Paribas Asset Management India Pvt. Ltd., A private limited company incorporated under the provisions of Companies Act, 1956, Having its registered address at BNP Paribas House, 1 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra-East, Mumbai-400051. ...Respondent No. 12

Sharma A & Co., a sole proprietorship firm through its sole proprietor Ashok Kumar Sharma, An Indian Inhabitant, having its address at A-21/22, New Panchvati, G.T. Road, Ghaziabad, Uttar Pradesh-201001. ...Respondent No. 13

Company Appeal (AT) No. 77 of 2022

Page 3 of 31 K. Kumra & Co., A proprietorship firm through its sole proprietor Karan Kumra, an Indian Inhabitant, having its address at A-7/7 Basement, Vasant Vihar, New Delhi - 110057. ... Respondent No. 14

Kumra Bhatia & Co., A partnership firm through its partners Hemant Kumra, Praveen Bhatia and Karan Kumra, having its address at 1st, 2nd & 3rd Floor, Flat No. 8, Vasant Enclave, New Delhi -110057.

Also at Flat No. 8, Vasant Enclave, New Delhi-110057. ... Respondent No. 15

Mr. Rahul Gochhwal, Adult Indian Inhabitant Employee of respondent No. 2 and having his office at 5th Floor, Tower B, Worldmark 1, Aerocity, New Delhi, South West Delhi-110037. ... Respondent No. 16

Present

For Appellant: Mr. Ravi Shankar Prasad, Sr. Advocate with Mr. Abhijeet Sinha, Mr. L.C.N. Shahdeo, Mr. Vijay Kumar Singh, Ms. Daizy Chawla, Ms. Vijaya Singh, Mr. Jatin Kapoor, Advocates

For Respondent: Mr. Kapil Sibal and Mr. Arun Kathpalia, Sr. Advocates with Mr. V.P. Singh, Mr. Aditya Jalan, Mr. Abhimanyu Chopra, Mr. Raghav Chadha, Ms. Ambareen Mujawar, Mr. Raghav Seth, Ms. Urvashi Misra, Mr. Anant Misra, Ms. Sadhvi Chhabra, Advocates

Company Appeal (AT) No. 77 of 2022

Page 4 of 31 Judgment

(Date: 07.09.2022)

1. This appeal is preferred against the order dated 29.03.2022

(hereinafter called 'Impugned Order') passed by the National

Company Law Tribunal, New Delhi in CA No. 19 of 2022 filed in CP

No. 76 of 2021, whereby the prayer relating to the appointment of

Chief Financial Officer (in short 'CFO') has been allowed alongwith

certain directions.

2. Briefly, the facts of the case as they relate to the disposal of

this appeal are that the Appellants are shareholders of

approximately 50% of the issued, subscribed and paid up share

capital of Respondent No. 2 Company (in short R-2 Company) in

which the Appellants are Joint Venture partners. Respondent No.

1 (in short 'R-1) has acquired 50% of the issued, subscribed and

paid-up capital of R-2 Company by making an investment therein,

and consequent to this investment, the Board of Directors of R-2

Company has been reorganized and comprises of four directors, Company Appeal (AT) No. 77 of 2022

Page 5 of 31 including nominee of R-1. It is claimed by the Appellants that due

to some dispute that arose between the Appellants and R-1, the

business operations of R-2 Company were affected, and as a result,

cross petitions under sections 241-242 of the Companies Act, 2013

(in short 'Act') were filed by rival parties before the NCLT, New Delhi,

which are pending adjudication. In addition, the Appellant has also

filed a petition before NCLT for winding up of R-2 Company.

3. The Appellants have further stated that several applications

were filed by R-1 subsequent to filing of the main petition CP No. 76

of 2021, and more specifically, CA No. 19 of 2022 was filed regarding

various reliefs, including that for appointment of CFO in R-2

Company, and NCLT passed the Impugned Order dated 29.3.2022

giving direction for appointment of Mr. Bipin Kabra as CFO of R-2

Company. According to the Appellants, while passing the Impugned

Order, the NCLT did not consider the various objections of the

Appellants, including those relating to the ineligibility of Mr. Bipin

Kabra for appointment as CFO. Subsequent to the passing of the

Impugned Order, Mr. Bipin Kabra has filed an affidavit pursuant to

direction given by the NCLT. The Appellants have filed this appeal

aggrieved by the said Impugned Order.

Company Appeal (AT) No. 77 of 2022

Page 6 of 31

4. We note that the main company petition bearing CP No.

76/2021 is presently pending adjudication before the NCLT, New

Delhi and this appeal is limited to assailing the order, and inter alia,

the directions contained in the Impugned Order relating to

appointment of CFO in R-2 Company. This judgment shall,

therefore, limit itself to the said Impugned Order without going into

the issues raised in main company petition, and this order shall not

have any bearing on the hearing on merits of the main company

petition.

5. We heard the arguments advanced by the Learned Senior

Counsels for the rival parties and also perused the record.

6. The Learned Senior Counsel for Appellants has argued that

there is a dispute regarding operations and mismanagement of R-2

Company and cross petitions have been filed by the Appellants and

Respondents under sections 241-242 of the Companies Act, 2013.

He has argued that insofar as the Impugned Order dated 29.3.2022

is concerned, the parties were directed to strictly follow Article 140

of the Articles of Association of R-2 Company (in short 'AoA') in the

appointment of CFO which was being done in compliance of order

dated 10.6.2021 in CA No. 237 of 2021. He has elaborated that the

appointment of CFO is provided in Article 140 of the AoA, whereby Company Appeal (AT) No. 77 of 2022

Page 7 of 31 Rose Investments (R-1) have the right to nominate a person to the

position of CFO and in the event the JV partners (Appellants in the

present appeal) reject the appointment of such nomination, Rose

Investments shall have the right to nominate another person and in

the event JV partners reject the nomination of second such person

or 45 days have elapsed since the position of CFO was vacated

(whichever is earlier), Rose Investments shall have the right to

engage any person to the position of CFO and the JV partners shall

support the appointment of such person as CFO.

7. The Learned Senior Counsel for Appellants has claimed that

in pursuance of this clause in AoA, Rose Investments/R-1 first

suggested the name of Mr. Devendra Mehta, which was not

approved by the Appellants, whereafter the name of Mr.

Venkataraman Subramanian was suggested, which was also

rejected by the Appellants/JV partners. Expanding his arguments,

he has submitted that the candidature of Mr. Devendra Mehta was

not approved by the Appellants since he was to continue in his

parent company Alvarez and Marsal India Private Limited (in short

'A&M') and would have only rendered services to the R-2 Company

in accordance with his engagement agreement while continuing to

work with other personnel of A&M, his parent company. He has

further submitted that the documents filed before the Board of Company Appeal (AT) No. 77 of 2022

Page 8 of 31 Directors regarding appointment of Mr. Devendra Mehta mentioned

in clause 2, viz. 'Compensation' that A&M will be paid by the

company for the services of CFO and the company shall pay

remuneration/salary to Mr. Devendra Mehta.

8. The Learned Senior Counsel for Appellants has added that

insofar as the candidature of Mr. Venkataraman Subramanian is

concerned, he was also seconded for engagement as CFO by Deloitte

Touche Tohmatsu India LLP (in short 'DTT') on the basis of an

agreement and payment for the services were to be provided to DTT

considering Mr. Subramanian as an employee of DTT who would be

deployed with R-2 Company to work as CFO. He has contended that

thus the nominations of Mr. Devendra Mehta and Mr.

Venkataraman Subramanian suffer from basic ineligibility to work

as CFO, and therefore cannot be considered as valid nominations.

He has referred to section 203 of the Companies Act, which provides

for appointment of Key Managerial Personnel (in short 'KMP'), with

CFO being a KMP and that every whole-time key managerial

personnel shall not hold office in more than one company except in

its subsidiary company at the same time. As against this provision,

he has claimed that the agreements by which these two candidates'

services were offered make it clear that they would be employees of

their parent companies, namely A&M and DTT and hence, would Company Appeal (AT) No. 77 of 2022

Page 9 of 31 neither be whole -time employee of R-2 Company nor would be able

to provide services as CFO full-time and in an independent,

unbiased manner as they shall owe allegiance to their parent

companies, from whom their services are being provided as per

agreements of engagement.

9. The Learned Senior Counsel for Appellants has also argued

that the third candidate Mr. Bipin Kabra, whose name was

suggested for the post of CFO also held directorship in many

companies and was also Managing Director of Eunoia Financial

Services Private Limited in addition to holding directorship and

shareholdings in many companies, and he holds a key managerial

position in Eunoia Financial Services Pvt. Ltd. as managing director

and is, therefore, his nomination and future appointment would be

in contravention of sub-section 3 of section 203 of the Companies

Act. He has also pointed out that in the affidavit filed by Mr. Bipin

Kabra pursuant to the Impugned Order, Mr. Kabra has not explicitly

said that he would resign from the positions that may be in

contravention of section 203(3) and section 189(2) of the Act. He has

further argued that Mr. Kabra has to comply with the provisions of

section 203 of the Companies Act, 2013, and therefore resign from

the position of managing director of Eunoia Financial Services

Company Appeal (AT) No. 77 of 2022

Page 10 of 31 Private Limited before being appointed as CFO and in his affidavit,

he has not explicitly mentioned that he could do so.

10. The Learned Senior Counsel for Appellants has clarified that

the Appellants have never disputed or concealed inapplicability of

section 203 of the Companies Act, 2013 read with rule 8 of the

Companies (Appointment and Qualification of Director) Rules, 2014

and the same form part of the pleadings/written submissions filed

by the Appellants before the NCLAT and earlier before NCLT.

Elaborating, he has stated that this fact was mentioned by the

Appellants in the Written Submission dated 22.7.2022 filed by them

before NCLT, and also noticed in para 15 of the Impugned Order.

He has pointed out that the NCLT has accepted that section 203 of

the Companies Act, 2013 shall be applicable in the present case,

and has, therefore, ordered that Mr. Bipin Kabra shall file an

affidavit before the NCLT.

11. The Learned Senior Counsel for Appellants has submitted

that it is a well-settled law that merely the fact that complying with

a law may cause hardship, does not mean the law should not be

Company Appeal (AT) No. 77 of 2022

Page 11 of 31 followed as it would defeat its object. In support of his contention,

he has cited the following judgments: -

(i) Ahmedabad Municipal Corporation and Ors. Vs.

Ahmedabad Green Belt Khedut Mandal and Ors. (2014 7

SCC 357);

(ii) Rohitash Kumar and Ors. Vs. Om Prakash Sharma and

Ors (2013) 11 SCC 451);

(iii) Jagadesan vs. State of Tamil Nadu and Ors. (2015)

1MHN (Cri) 451.

12. The Learned Senior Counsel for Appellants has submitted

that the role and responsibilities of CFO should be such that they

allow the person to work independently, full-time in the company

and provide services in an unbiased manner as a whole - time KMP

and this is envisaged in rule 8 of the Companies (Appointment and

Remuneration of the Managerial Personnel) Rules, 2014 which shall

apply to a company which voluntarily appoints CFO, like the R-2

Company, since the CFO has to work as a KMP. He has contended

that the consent order dated 10.6.2021, while directing parties to

appoint a CFO in accordance with the Article 140 of AoA, did not

imply that R-1 had absolute and unfettered right to nominate an Company Appeal (AT) No. 77 of 2022

Page 12 of 31 ineligible and invalid candidate for appointment as CFO. Moreover,

he has submitted, the CFO being a Key Managerial Personnel (KMP)

as per section 2(51) of the Companies Act, 2013 and also as stated

in AoA of Respondent No. 2 Company, the R-2 Company must

comply with the requirements of section 203 of the Act. This need

for complying with sections 189 and 203 has also been accepted in

the Impugned Order which is not contested by the Respondents

which is also shown by the fact of Mr. Kabra filing an affidavit in

pursuance of the Impugned Order. He has also referred section 6

of the Companies Act, 2013 to claim that the AoA cannot override

the provisions of the Companies Act and claimed that since Article

140 of the AoA does not stipulate any procedure or eligibility

conditions for appointment of CFO, it is perfectly logical and rational

that reference be made to the Act and rules made therein to consider

the eligibility conditions for CFO. The Learned Senior Counsel for

Appellants has also submitted that the suggestion of ineligible and

disqualified persons for appointment as CFO as candidate nos. 1

and 2 is a ploy by R-1 to ensure that its chosen candidate, who is a

third suggested name, is by default appointed as CFO.

13. In reply, the Learned Senior Counsel for Respondents has

strongly argued that the contention of the Appellants that the first

two nominations made by the Rose Investments/R-1 are void ab Company Appeal (AT) No. 77 of 2022

Page 13 of 31 initio was not raised before the NCLT and the Appellants are,

therefore precluded from raising new arguments at the stage of

appeal. He has further submitted that Article 140 of AoA does not

contemplate that a person's nomination can be considered to be

valid or invalid for any particular reason and the Impugned Order

accepts this argument and notes in paragraph 23 that article 140

does not contemplate that 'a person's nomination can be considered

to valid or invalid for any particular reason'. He has cited the

judgment in the matter of Manohar Nathurao Samarth v.

Marotrao, (1979) 4 ACC 93 to buttress his claim that the

ineligibility criteria must flow from specific provision of law, and the

applicability of section 203 does not hold, and so the NCLT has

correctly rejected the Appellants' contention that the nomination of

first two candidates Mr. Devendra Mehta and Mr. Venkataraman

Subramanian are invalid. He has also contended that the

Appellants cannot decide unilaterally whether a candidate is

ineligible or disqualified for appointment as CFO, and in the event

the Appellants do not find a candidate as qualified or eligible they

can consider the second suggested name, but if he disagrees with

the second suggested name, he is bound to be accept the third name

suggested by Rose Investments/R-1.

Company Appeal (AT) No. 77 of 2022

Page 14 of 31

14. The Learned Senior Counsel for Respondents has submitted

that article 140 of AoA fully governs the appointment of CFO of R-2

Company and the provisions of Companies Act, 2013, particularly

section 203, are not applicable since the company is a private

limited company. He has argued that even if one were to accept the

applicability of section 203, R-1 has demonstrated that Mr. Bipin

Kabra fulfills the criteria set out in section 203 (3) of the Act, and

the Appellants cannot escape responsibility of accepting the

candidature of Mr. Bipin Kabra as the third nomination, as

stipulated in Article 140 of AoA.

15. He has further submitted that by the Impugned Order the

NCLT has directed that Mr. Kabra shall, after being appointed as

CFO, disclose all particulars about his concern or interest in any

other company or companies, specified in sub-section (1) of Section

184 of the Companies Act, 2013 and also take necessary steps for

relinquishment of his other interest in other companies in terms of

sub-section (3) of section 203 of the Act. He has contended that

thus the requirement of section 189(2), wherein every director or

KMP has to disclose to the company the particulars specified in sub-

section 1 of section 184 relating to his concern or interest in the

other association within a period of 30 days of his appointment is

satisfied. He has clarified that, therefore, the CFO appointed by the Company Appeal (AT) No. 77 of 2022

Page 15 of 31 company has to only disclose his interest in other companies, after

his appointment and he would be required to step down from other

offices after appointment in the event the Board of Directors of the

company does not consent to other directorships, disclosed by him

within 30 days from his appointment which Mr. Kabra is ready to

resign from such positions. He has further clarified that Mr. Kabra

would resign from managing directorship of Eunoia Financial

Services on appointment as CFO in R-2 Company.

16. The Learned Senior Counsel for Respondents has further

submitted that Mr. Kabra has filed an affidavit as required by the

Impugned Order, and has bound himself to complying with the

requirements of section 189(2) and section 203(3) of the Act.

Regarding the contention of the Learned Senior Counsel of

Appellants that Mr. Kabra should first resign from the position of

Managing Director of Eunoia Financial Services and directorship in

other companies he has argued that if Mr. Kabra were to resign from

the post of managing director and directorship of Eunoia Financial

Services and other companies respectively, he would be put to great

hardship as may be left completely high and dry, in case he were

not to be appointed as CFO of R-2 Company.

Company Appeal (AT) No. 77 of 2022

Page 16 of 31

17. The Learned Senior Counsel for Respondents has clarified

that the reliance placed by the Appellants upon the judgments of

Hon'ble Supreme Court in matters of Rohitash Kumar and Ors. vs.

Om Prakash Sharma and Ors. (supra) and Ahmedabad Municipal

Corporation and Ors. Ahmedabad Green Belt Khedut Mandal &

Ors. (supra) is misplaced, because the hardship faced by an

individual is relevant as CFO appointment as per article 140 of AoA

is a contractual act. He has strongly argued that the principles of

statutory interpretation should not to be used for interpreting

contractual terms, as AoA is a contract between the shareholders

and the company. In support, he has cited the judgment of Hon'ble

Supreme Court in the matter of Patel Engg. Ltd. v. Union of India,

(2012) 11 SCC 257. He has, thus, argued that if NCLT has accepted

the application of section 203 in the matter, it is only by way setting

a higher standard of norms in the appointment of CFO even though

it is not necessary.

18. The Learned Senior Counsel for Respondents has rebutted the

argument of the Appellants that NCLT has assumed the powers of

Board of Directors by appointing Mr. Bipin Kabra as CFO, by stating

that NCLT has only directed the company to "issue an appropriate

order appointing Mr. Bipin Kabra as CFO of the Company", although

NCLT does have the power to give direction to the Company under Company Appeal (AT) No. 77 of 2022

Page 17 of 31 section 242 of the Act, by way of providing interim relief to ensure

proper operation and management in the company

19 The two issues that arise for consideration in this appeal in

regard to appointment of CFO are: -

(i) Whether Article 140 of AoA is the only provision which

is applicable with regard to appointment of CFO in R-2

Company and no reference to and compliance of any

provision of the Companies Act, 2013, particularly

sections 203, 184 and 189 therein is necessary? and

(ii) If reference to section 203 is found to be necessary for

looking at eligibility of a suggested nomination, whether

R-1's suggestions of the names of Mr. Devendra Mehta

and Mr. Venkataraman Subramanian as first and

second nominations complies with the requirement of

article 140 of the AoA for appointment of CFO?

20. We note that the NCLT has held in para 23 of the Impugned

Order that the provision in under Article 140 of AoA does not

contemplate that a person's nomination can be considered to be

valid or invalid for any particular reason and hence rejects the

submission of the Appellants (Respondents before the NCLT) that

Company Appeal (AT) No. 77 of 2022

Page 18 of 31 the nomination of the first two candidates, namely Mr. Devendra

Mehta and Mr. Venkataraman Subramanian were invalid. It has

further held that in case, the Respondents before the NCLT do not

accept the petitioner's first and second nominations, the petitioner

could nominate a third candidate, which would have to be accepted

by the Respondents (Appellants in the present appeal). Further,

after holding the nomination of Mr. Bipin Kabra as a valid

nomination, the NCLT has, in the section titled 'Conclusion' in the

Impugned Order The NCLT, directed Mr. Bipin Kabra to file an

undertaking by way of affidavit for abiding by fulfilling the

requirements of sections 184, 189 and 203 of the Companies Act,

2013.

21. The relevant provision of the AoA which is relevant to this

appeal is reproduced hereunder:-

"140. CFO

(i) Rose Investments shall, from time to time, have the right to nominate a person to the position of chief financial officer of the Company ("CFO"). In the event that the JV Partners reject the appointment of such nominee to the position of CFO, rose Investments shall have he right to nominate another person to the position of CFO.

(ii) In the event the JV Partners reject the appointment of the second such person nominated by Rose Investments to the position of the CFO or at least (forty five) days have passed since the position of CFO was vacated Company Appeal (AT) No. 77 of 2022

Page 19 of 31 (whichever nis earlier), Rose Investments shall have the right to nominate any person to the position of CFO and the JV Partners shall support the appointment of such person as CFO. Provided that such person's appointment as CFO may be terminated by the JV Partners after at least 12 (twelve) months have lapsed from the date of appointment (unless terminated earlier by the Company for cause).

xxx xxxx xxxx xxxx

22. The relevant provisions in sections 184 (2), 189 (2) and 203

(1)(2) and (3) of the Companies Act, 2013 are also reproduced

hereunder for better appreciation: -

"184. Disclosure of interest by director.--

Xx xx xx xx

(2) Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into--

(a) with a body corporate in which such director or such director in association with any other director, holds more than two per cent.

shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or

(b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be, shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting:

Company Appeal (AT) No. 77 of 2022

Page 20 of 31 Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested.

Xx xx xx xx"

189. Register of contracts or arrangements in which directors are interested. --

Xx xx xx xx

(2) Every director or key managerial personnel shall, within a period of thirty days of his appointment, or relinquishment of his office, as the case may be, disclose to the company the particulars specified in sub-section (1) of section 184 relating to his concern or interest in the other associations which are required to be included in the register under that sub-section or such other information relating to himself as may be prescribed.

Xx xx xx xx

203. Appointment of key managerial personnel.-- (1) Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel,--

(i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;

(ii) company secretary; and

(iii) Chief Financial Officer :

Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the Company Appeal (AT) No. 77 of 2022

Page 21 of 31 managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,--

(a) the articles of such a company provide otherwise; or

(b) the company does not carry multiple businesses:

Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.

(2) Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.

(3) A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board:

Provided further those whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

Xx xx xx xx

23. A reading of the section on KMP in the AoA, under which

Article 140 is included, indicates that the CFO is considered a KMP,

Company Appeal (AT) No. 77 of 2022

Page 22 of 31 and Rose Investments (R-1) has the right to nominate a person for

the position of CFO, and in the event the JV Partners/Appellants

reject the appointment of such nominee to the position of CFO, Rose

Investments shall have the right to nominate another person, and if

nomination of the second person is also rejected or at least 45 days

has lapsed since the position of CFO is vacant (whichever is earlier),

Rose Investments shall have the right to nominate any person and

the JV Partners shall support the appointment of such person as

CFO.

24. We note that section 2(51) and section 6 of the Companies

Act, 2013 stipulates as follows:-

"2. Definitions.-- In this Act, unless the context otherwise requires,--

xx xx xx xx

(51) ―key managerial personnel, in relation to a company, means--

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed."

"6. Act to override memorandum, articles, etc.-- Save as otherwise expressly provided in this Act--

(a) the provisions of this Act shall have effect notwithstanding anything to the contrary

Company Appeal (AT) No. 77 of 2022

Page 23 of 31 contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and

(b) any provision contained in the memorandum, articles, agreement or resolution shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be."

25. Thus, the position of CFO is included as a KMP in sub-section

51 of section 2 of the Act. Section 6 of the Companies Act provides

that the provisions of this Act shall override anything to the contrary

contained in the memorandum or articles of association of the

company. We also note that the Impugned Order accepts the

applicability of sections 184, 189 and 203 of the Companies Act,

2013 in that it directs Mr. Bipin Kabra to file an affidavit

undertaking to abide by the requirements of these provisions. These

provisions under sections 184, 169 and 203 of the Act provide

rational and reasonable norms and standards regarding eligibility of

a KMP (CFO in the present case) and which are quite relevant and

useful in conducting the affairs of the company in a transparent,

independent and unbiased manner keeping the interest of the

company foremost.

Company Appeal (AT) No. 77 of 2022

Page 24 of 31

26. Section 203 of the Act lays down that the CFO is a whole-time

KMP and is prohibited from holding office in more than one company

except in its subsidiary company at the same time. There are other

elements of conduct that are provided in the Act as being relevant

to the functioning of a KMP. A perusal of Article 140 of AoA makes

it clear that in case JV Partners/appellants reject appointment of

two suggested candidates, it has to accept the nomination of the

third candidate. While the right of Rose Investments has been made

primary the text of this article does not imply that any person, even

if ineligible by the normal standard of eligibility given in section 203

of the Companies Act and the requirement of the CFO to be a whole-

time KMP, can be considered a valid candidate for the position of

CFO.

27. In the absence of any specific mention regarding eligibility and

the method of selection of the CFO in the AoA, it would be logical to

take recourse to section 203 of the Companies Act, 2013 in the

selection and appointment of CFO, and also keep in view sections

184 and 189 in adjudging the eligibility of the KMP. We also note

that the Appellants have, as Respondents before the NCLT in IA

19/2022, argued through their Written Submissions dated

16.3.2022 that even though the R-2 Company is a private limited

company, and the provisions of the Companies Act, 2013 do not Company Appeal (AT) No. 77 of 2022

Page 25 of 31 apply thereto, the principles governing the appointment and

qualification of the KMP under section 203 can be taken for

guidance de hors Article 140 of the AoA of R-2 company. Thus, we

are of the view that the Appellants are not precluded from arguing

the applicability of section 203 at the stage of appeal.

28. Let us now look at the names suggested by Rose Investments

as first two nominations for the position of CFO in the R-2 Company.

A perusal of the note proposing the nomination of Mr. Devendra

Mehta (at pp. 1924-1935 in Convenience Compilation, filed vide Dy.

No. 35560 dated 2.5.2022) makes it clear that A&M shall make

available to R-2 company the services of Mr. Devendra Mehta for

deployment as CFO of R-2 company, who will continue to be

employed by A&M and while rendering services to R-2 Company he

will continue to work with other personnel of A&M in connection

with other unrelated matters. Furthermore, clause 2 of the

engagement agreement by which the services of Mr. Devendra Mehta

are to be provided to R-2 Company for working as CFO, which

relates to 'Compensation', the R-2 Company is required to pay to

A&M for the services of CFO and the A&M shall, in turn, pay salary

to the CFO. There is no mention in the agreement to the effect that

Mr Mehta will sever his connection with A&M so it is reasonable to

assume that he will continue to be in the employment of A&M. Company Appeal (AT) No. 77 of 2022

Page 26 of 31

29. Insofar as nomination of Mr. Venkataraman Subramanian,

who is the second suggested candidate is concerned, the note and

proposed engagement agreement (attached at pp.1936-1949 of

Convenience Compilation, filed vide Dy. No. 35560 dated 2.5.2022),

shows that the R-2 Company shall engage DTT to provide the

services of CFO, and the suggested candidate Mr. Subramanian

shall continue to be in the employment of DTT and be paid by it,

from payment received by DTT from R-2 Company. Furthermore,

the CFO is to be appointed on the basis of the term and period of

engagement between DTT and R-2 Company.

30. Thus, we find that proposals for deployment of Mr. Devendra

Mehta and Mr. Venkataraman Subramanian in R-2 Company are in

the nature of 'secondment'. We thus find that the first two suggested

names, viz. Mr. Devendra Mehta and Mr. Venkataraman

Subramanian, are clearly ineligible for appointment as CFO as they

contravene sub-section (3) of section 203 of the Companies Act.

31. The import of article 140 of the AoA is certainly not that the

first two suggestions could be of ineligible candidates so that the

Appellants have to then accept the name of the third candidate as

Hobson's choice. Thus the effect of first two suggestions being of

ineligible candidates could also mean that the Appellants would be Company Appeal (AT) No. 77 of 2022

Page 27 of 31 forced to accept the name of the third candidate who may be, for

some reason, not acceptable to them.

32. We are, therefore, of the view that all the suggested candidates

should satisfy the basic conditions of eligibility as required under

section 203 of the Companies Act, 2013 so that the Appellants can

exercise their right of selecting the most appropriate and suitable

candidate in the true letter and spirit of the article 140 of the AoA.

We, therefore, conclude that the NCLT has committed error in

inferring that provision in article 140 of the AoA 'does not

contemplate that a person's nomination can be considered to be

valid or invalid for any particular reason'. On this basis the NCLT

has held that in case the Appellants did not accept the first two

nominations, they will have to accept the third nomination of Mr.

Bipin Kabra for appointment as CFO.

33. If we take the view that only article 140 of the AoA were to be

relevant and applicable in the appointment of CFO, and there is no

need to look at the ineligibility of the suggested names, we could

have a situation where all the three suggested names are ineligible,

or at least unsuitable, and not fit to carry out the duties of CFO

properly and professionally, and the Appellant would be bound to

accept the third nomination even though he may also be unfit or Company Appeal (AT) No. 77 of 2022

Page 28 of 31 unsuitable to hold office as CFO of the Company. Such a situation

could only exacerbate the situation of mismanagement in the

company that is already beset with issues of mismanagement of its

operations. Such a situation could prove to be detrimental for the

company's management and should not be allowed to happen.

34. Thus the Impugned Order fails to interpret the import of

Article 140 of the AoA in its true letter and spirit and takes the first

two suggested names as being valid nominations which were

rejected by the Appellants, and in the result directs that the third

suggested candidate namely Mr. Bipin Kabra should be appointed

as CFO of R-2 Company.

35. We have looked into the citations submitted by the rival

parties in support of their respective contentions. Insofar as the

judgments cited in the matters of Rohitash Kumar and Ors. vs.

Om Prakash Sharma and Ors. (supra) and Ahmedabad Municipal

Corporation and Ors. Ahmedabad Green Belt Khedut Mandal &

Ors. (supra) are concerned we find that the sections 184 and 189 of

the Act give the opportunity to the newly-appointed CFO to bring

the information relating to his interests in other companies to the

knowledge of the company within 30 days (under section 189) and

relinquish position as a KMP in any other company within six Company Appeal (AT) No. 77 of 2022

Page 29 of 31 months of taking over as CFO. Thus there does not appear to be a

strict requirement to resign from all positions held in other

companies before being appointed as CFO.

36. The decision in the matter of Patel Engg. Ltd. v. Union of

India (supra) cited by the Learned Senior Counsel of Respondents

also does not apply strictly in the present case as there are specific

provisions for KMP which are enshrined in the Act, and since the

AoA is silent on any specific condition of eligibility a logical recourse

has to be taken to the relevant provisions in the Act.

37. We hold the view that the suggested candidates should be

eligible as per the provision of section 203 of the Companies Act,

while applying article 140 of the AoA. The Impugned Order is,

therefore, set aside and the parties are directed to take necessary

action for appointment of CFO of the R-2 company as per article 140

of the AoA, after making valid nominations keeping in view section

203 of the Companies Act, 2013 and completing the appointment of

CFO within a period of sixty days from the date of this order.

38. We wish to clarify that any comment made or view taken in

this judgment shall not have any bearing on the main company

petition currently under consideration of the NCLT.

Company Appeal (AT) No. 77 of 2022

Page 30 of 31

39. There is no order regarding costs.

(Justice Anant Bijay Singh) Member (Judicial)

(Dr. Alok Srivastava) Member (Technical)

(Mr. Barun Mitra) Member (Technical) New Delhi

7th September, 2022.

/aks/

Company Appeal (AT) No. 77 of 2022

Page 31 of 31