K.J. Paul & Ors vs Seaqueen Builders Pvt. Ltd. & Ors

IN THE MATTER OF: Before NCLT Before NCLAT

1. K.J. Paul Kureekal House, Near thrikkakara Temple, University Post, Kochi-682021 2nd Respondent 1st Appellant

2. Bindu Paul W/o K.J. Paul Kureekal House, Near Thrikkakara Temple, University Post Kochi 682021 3rd Respondent 2nd Appellant

3. K.A. Mathai, Kochappilly House Chembumuku Kakkanad Ernakulam Kerela 682030 4th Respondent 3rd Appellant

Versus

1. Seaqueen Builders Pvt Ltd, 32/29 82B, Sahrudaya Building, Ponnurunni Vyttila P.O. Ernakulam Kerela 682019 1st respondent 1st respondent

2. P.M. Johny, Pittappillil House, Bandadka P.O. Kasarkode 1st Petitioner 2nd respondent

3. K.P. Augustine, VII/131, Sastri Nagar Kuzhikkattumyalil P.O. Nadathara, Trichur. 2nd Petitioner 3rd Respondent Company Appeal (AT) No.6/2018 2

For Appellant:- Mr. A.S. Chandhiok, Sr. Advocate, Mr. S.N. Mukherjee, Sr. Advocate with Shri K.R. Sasiprabhu, Mr. Sumesh Dhawan, Mr. Biju P Rama, Mr. Aditya Swarup, Ms Tanya Barnwal, Mr Vatsalya, Advocates.

For Respondents: - Mr. Arun Kathpalia, Senior Advocate with Mr. Jayant Mehta, Shri Anirudh Wadhwa, Shri Bhargav R. Thali, Shri Abhishek Iyer, Mr Samaksh Goyal and Shri Vipul Kumar, Advocates for Respondents.

JUDGEMENT

BALVINDER SINGH, MEMBER (TECHNICAL)

The appellants, original 2nd to 4th respondents, have filed this appeal,

under Section 421 of the Companies Act, 2013, being aggrieved by the

impugned order passed in TCP No.67/2016 filed in National Company Law

Tribunal, Division Bench, Chennai (NCLT in short) whereby the Company

Petition has been allowed vide impugned order dated 7th December, 2017.

2. The brief facts of the case are that the 2nd and 3rd respondent filed

Company Petition No.24/2011 before the Company Law Board, Chennai

Bench, Chennai under the provisions of Sections 307, 398, 402, 111,237,

220, 260, 291 and 292 and other relevant provisions of the Companies Act,

1956. After the establishment of the NCLT in 2016, the company petition

was transferred to NCLT and renumbered as TCP No.67/2016.

3. 1st respondent company was incorporated on 2.1.1995 with 1st

appellant, 2nd appellant, 3rd respondent and Susha Deny as promoters. Prior

to 2005, Susha Denny had transferred her shares to 3rd respondent who later

transferred 59000 shares to 2nd respondent on 21.2.2005. As per the Annual

Return as on 30.09.2005 the share holding pattern of the first respondent is

as under (Page 13)

Name No of shares Percentage Status in the appeal

Company Appeal (AT) No.6/2018 3

(Rs.10 each)

K.J. Paul 25000 26% 1st appellant

Bindu Paul 10000 11% 2nd appellant

P.M. Johny 59000 62% 2nd respondent

K.P.Augustine 1000 1% 3rd respondent

The above share holding pattern continued upto 31.03.2008 and constituted

the base shareholding. As per the above shareholding pattern, 1st and 2nd

appellant (who are husband and wife) hold 37% shareholding and 2nd and 3rd

respondents collectively hold 63% shareholding.

4. It was alleged that majority capital has been contributed by 2nd and 3rd

respondent but the majority of directors on the Board viz., 1st and 2nd

appellant resorted to various dubious ways and methods to keep away the 2nd

respondent, who was the single largest shareholder and 3rd respondent, who

was a director, from the affairs and management of the company despite their

having a collective shareholdings of 63% in the 1st respondent. It was further

alleged that the Minutes of the Meetings and records were concocted,

manipulated and falsified to favour the interest of appellants and in short the

appellants are alleged to have misused their positions as directors and are

trying to usurp the majority stake from the 2nd and 3rd respondent by making

illegal and fake share allotments in their names without knowledge of the 2nd

and 3rd respondents to gain control over the 1st respondent. The 1st and 2nd

appellant allotted a total of 5,05,000 shares (55000 shares on 25.4.2008 and

450000 shares on 11.8.2010) (Page 225) in their favour in the 1st respondent.

It is alleged that this was done by the 1st and 2nd appellant to gain majority

Company Appeal (AT) No.6/2018 4

stake and thereby fraudulently reducing the majority shareholders to a

minority. It is alleged that without giving any notice of meeting of 11.8.2010,

3rd respondent was removed from the directorship of 1st respondent. With the

further share allotment dated 25.4.2008 and 11.8.2010, the shareholding of

1st and 2nd appellants have arisen from 37% to 90% and that of 2nd and

respondent reduced from 63% to 10%and the shareholding pattern of

company was as under (Page 16):-

Name No of shares Percentage Status in the appeal K.J. Paul 470000 78.33% 1st appellant

Bindu Paul 70000 11.6% 2nd appellant

P.M. Johny 59000 9.83% 2nd respondent

K.P. Augustine 1000 0.17% 3rd respondent

5. It is further alleged that the Board of Directors appointed 3rd appellant

as director of 1st respondent on 22.1.2011. It is stated that the said

appointment is in violation of Article 28(i) which stipulates that except the

first directors, directors shall be generally appointed only at the AGM.

Therefore, due to these certain acts of the appellants, the 2nd and 3rd

respondent filed company petition. After hearing the parties the NCLT passed

the impugned order dated 7th December, 2017, relevant portion of which is as

under:-

"The allotments of shares i.e. 5,05,000 in favour of

Respondent Nos. 2 and 3 made on 25.04.2008 and

11.08.2010 are declared illegal, and the same stand set

aside.

Company Appeal (AT) No.6/2018 5

The Board Meetings purportedly held on 25.4.2008 and

11.8.2010 are not tenable in the eye of law, the same are

declared as illegal and all decisions taken there at are set

aside.

The EOGMs dated 22.01.2011 and rights offer dated

01.02.2011 are declared illegal, null and void and hence,

are set aside.

The continuance of Respondent No.3 and appointment of

Respondent No.4 are declared as illegal, null and void, and

hence, set aside.

The 1st Petitioner is appointed as Managing Director of 1st

respondent company and Mr. K.J. Paul is removed from the

position of Managing Director, but he shall perform the

duties as Director of the 1st respondent company.

Consequently, the said Board of Directors is directed to

rectify the Register of Members by restoring the

shareholding patter as on 30.09.2005 as shown under para

6(a) of the Petition.

Keeping in view the totality of circumstances and intention

of the parties, it is proposed to appoint an independent

Auditor within three weeks of passing this order, with the

consensus of the Board of Directors comprising of 1st

Petitioner and the 2nd Respondent, failing which, this Bench

on mention by any of the Directors, shall appoint the

independent Auditor out of the names, if suggested, by the

Company Appeal (AT) No.6/2018 6

parties, who (Independent Auditors) shall determine the true

and fair value of the shares of 1st Respondent Company by

taking into consideration three Financial Years w.e.f. 2011

onwards. Based on the said value, and keeping in view the

shareholding pattern as on 30.09.2005, the first

opportunity for purchase of shares of Respondents is given

to Petitioner, failing which the Respondents shall purchase

the shares of the Petitioner. This process shall commence

after the submission of the report of the independent

Auditor, who shall submit the same within four weeks from

the date of his appointment, and shall get completed within

the twelve weeks thereafter. Till this process is completed,

there shall not be any change in the composition of the

Board constituted by this Bench, and shareholding patter

shall remain the same as on 30.09.2005. The fee of the

Independent Auditor shall be paid by the 1st Respondent

company which shall be fixed as per mutually agreed terms.

According the interim order, if any, stands vacated. No

order as to costs."

6. Being aggrieved by the said impugned order the appellants have filed

the present appeal before this Appellant Tribunal.

7. The appellants has stated that the NCLT has no jurisdiction to grant

the reliefs as proceedings under Section 397 and 398 of Companies Act, 1956,

after transfer of proceedings to the NCLT, have to be decided in accordance

with Sections 241 and 242 of the Companies Act, 2013.

Company Appeal (AT) No.6/2018 7

8. The appellants stated that 2nd and 3rd respondents ought not to have

been granted first option for purchase of shares as after Board Meeting of 17th

March, 2005, 3rd respondent has not participated in the management and

affairs of the company. It is further stated that prior to 17th March, 2005, till

12th January, 2011, 3rd respondent has not written a single letter to the 1st

respondent regarding, convening, conducting or holding of any Board

Meetings of 1st respondent. It is stated that 3rd respondent left India for

Australia without giving his address in Australia to 1st respondent. 3rd

respondent even did not intimate 1st respondent that he was going to

Australia. The appellants stated that 3rd respondent has never been in the

management of the company.

9. The appellant stated that 2nd respondent has not attended any AGM of

the company and nor has 2nd respondent made any enquiry with regard to

the convening, conducting and holding of any AGM. The appellant stated that

3rd respondent was aware of what was happening in the company till 2008

and in spite of the matter alleged, made no enquiries till January, 2011. The

appellant further stated that before filing of petition no complaint had been

made by 2nd and 3rd respondent about not receiving any notices for any

general meetings of the company or by 3rd respondent of not receiving any

board meeting of the company or not having knowledge of the same.

10. The appellant stated that the NCLT has not given reasons for giving first

option to 2nd and 3rd respondent. The appellant stated that there is no

evidence on record to show that the company would benefit if 2nd and 3rd

respondents are put in management. However, it is stated that it is an

admitted fact that under the management of appellant the company has

Company Appeal (AT) No.6/2018 8

prospered as even according to 2nd and 3rd respondent the asset size of the

company has increased manifold times. The appellant stated that there is no

finding of mismanagement against 1st to 3rd appellant vis a vis the affairs of

the company.

11. The appellant stated that 2nd respondent ought not to have been

appointed Managing Director vide impugned order as 2nd respondent had not

invested directly in the company, 2nd respondent does not have any experience

as a director of any company and no relief had been sought by 2nd or 3rd

respondent to appoint 2nd respondent as Managing Director of the company.

The appellant stated that without being appointed as director of the 1st

respondent, 2nd respondent could not have been appointed as Managing

Director.

12. The appellant stated that the NCLT's direction that the valuation of the

shares of 1st respondent be done by taking into consideration three financial

years figures w.e.f. from 2011 onwards. The appellant stated that this is

erroneous because the valuation has to be of such shares has to be as on a

particular date and 1st respondent being engaged in the business of real estate

the valuation of such shares would have had to be the date of passing of the

final order in the proceeding. The appellant further stated that the valuation

of shares could not be on the basis of shareholding as on 30th September,

2005. The appellant stated that the rights issue could not be set aside as a

rights issue cannot be an act of oppression as 2nd and 3rd respondent had

notice of rights issue but chose not to subscribe. The appellants further stated

that the Tribunal has not taken note of the subsequent investments made by

the 1st and 2nd appellant and its impact on the growth of 1st respondent.

Company Appeal (AT) No.6/2018 9

13. The appellants stated that 2nd and 3rd respondents were at all times

aware that shares were to be allotted in 2008. The appellant stated that 2nd

respondent became a shareholder on 21.2.2005 and on 29.4.2004 authorised

share capital of the company had been increased from Rs.12,00,000/- to

Rs.60,00,000/- and relevant forms had been filed before ROC(Page 13).

Therefore, 2nd and 3rd respondents were aware that the 1st respondent is in

need of funds and such funds would be brought by issue and allotment of

shares. The appellants stated that there is also no finding that 1st respondent

was not in need of funds when the issue of allotment of 25th April, 2008 was

made.

14. The appellant stated that mere lack of notice could not result in the

allotment made on 11.8.2010 being set aside. The appellants stated that the

1st respondent was in need of funds and such funds have been utilised by 1st

respondent. The appellants reiterated that there is no finding that 1st

respondent was not in need of funds when such issue and allotment was

made.

15. The appellant stated that the order requiring 2nd appellant not to

continue as a director of the 1st respondent cannot be sustained. The

appellant stated that if, however, the reasoning in the impugned order to the

effect that because 2nd appellant was not a director on 25th April, 2008 and

11th August, 2010 when shares were allotted would result in such allotment

being invalid then in that event, the transfers of shares from Susha Denny to

3rd respondent in 2001 and transfer of 59000 shares by 3rd respondent to 2nd

respondent on 21.2.2005 would also be struck down as 3rd respondent and

2nd appellant had been appointed directors on 2nd January, 1995 itself and

Company Appeal (AT) No.6/2018 10

thereafter had never faced the General Body of shareholders and were not

first directors. The appellant stated that there was no challenge to the 2nd

appellant continuation even in the meeting of the Board of Directors dated

17.3.2005.

16. The appellant stated that the NCLT's order setting aside appointment

of 3rd appellant as director is erroneous. The appellant stated that Article 28

of the Articles of Association of 1st respondent does not say that every

appointment of a director has to be appointed at an Annual General Meeting.

The appellant further stated that there is no requirement that a director

appointed at a Board Meeting has to be described as an additional director in

the form filed with the ROC.

17. The appellant stated that the entire litigation has been instituted at the

instance of one C.J. Mathew (Para 4 Page 300 and Page 302). The appellant

stated that Mr. Mathew is a retired commissioner of income tax and he knows

particular of all transactions in all respects. The appellant stated that the

reply filed by the respondent has been affirmed by Mr. Arun Mathew who is

son of Mr. C.J. Mathew. The appellant stated that Mr. C.J. Mathew has been

involved in the past with litigation against 1st and 2nd appellant. The appellant

stated that the NCLT has not taken into consideration the order of

Disciplinary Committee of Institute of Chartered Accountants of India where

similar issues and complaints against Auditor of the company had been

dismissed.

18. Reply on behalf has been filed by 2nd and 3rd respondent. The

respondent stated that the Board Meetings dated 25.4.2008 and 11.8.2010

were never held. The proof adduced by appellants evidencing that notice for

Company Appeal (AT) No.6/2018 11

the said Meetings were sent to 3rd respondent are the two Certificates of

Posting dated 11.4.2008 and 31.7.2010 of the said notices. The respondents

further stated that the NCLT has correctly held by the NCLT that notices sent

by two Certificates of Posting are insufficient proof. The respondents stated

that the Certificates of Posting are forged one as both these certificates of

posting as well as those issued for notices of AGM dated 3.9.2007 (Annexures

R2 Page 39) and 2.9.2009 (Annexure R-11D, Page 104) were issued from the

Edapally Post Office which is far away from Registered Office of 1st respondent

and bears the same postal stamp of film-maker Satyajit Ray. The respondents

further stated that this fact in itself makes it evident that all these certificates

of posting were fabricated together as an afterthought only after the

appellants received the letters dated 1.1.2011 and 12.1.2011 from

respondents inquiring about non-receipt of financial statements and notices

regarding Board Meetings and AGM'S. The respondents further stated that

the postal stamp of filmmaker Satyajit Ray was only released by the Postal

Department on 1.3.2009, thus could not have been utilised on the certificate

of posting purported to be dated 11.4.2008 (Annexure R-1A and R-1B, Pages

37 to 38).

19. The respondents further stated that the Form 2 for the said share

allocation dated 25.4.2008 was filed before the ROC after 26 months on

25.6.2010 (Annexure R-7, Page 47) in violation of Section 75(1) of Companies

Act, 1956. The appellants illegally allotted shares to themselves and forged

Minutes of Board Meeting dated 25.4.2008 to legitimize this share allocation.

20. The respondents further submitted that the Board Meetings dated

25.4.2008 and 11.8.2010 were convened, for the sake of arguments, as the

Company Appeal (AT) No.6/2018 12

continuance of 2nd appellant as a director of 1st respondent. It is stated that

the said Board Meetings are invalid for lack of quorum as only 1st appellant

was validly present in the said Board Meeting. The respondents further stated

that Article 28(iii) of Articles of Association (Page 127 of Appeal) of 1st

respondent stipulates that Directors appointed at AGM shall retired at the

second AGM held after their appointment who may thereafter be reappointed.

It is stated that 2nd appellant was not a first director and was appointed in

AGM subsequent to which she was never re-appointed. Therefore,

continuation of 2nd appellant on the board was illegal for failure to get

reappointed in terms of said Article. The respondent stated that as per notices

of AGM 2006 (Annexure R-10A, Page 65) and 2008 (Annexure 10-B, Page 66)

2nd appellant did not take re-appointment.

21. The respondents stated that 3rd appellant was allegedly appointed as a

Director of 1st respondent at the purported Board Meeting dated 22.1.2011

(Annexure R32, Page 198). Form 32 filed with the ROC shows him to be

appointed as a Director. The respondents stated that this appointment is

invalid and illegal as in terms of Article 28(iii) of the Articles of Association

(Page 127 of the Appeal), a director can only be appointed at AGM and not by

the Board of Directors. The respondent further stated that the decision of the

said Board Meeting was also illegal for lack of quorum as stated above.

22. The respondents stated that the appellants have wrongly alleged that

the 3rd respondent had vacated the directorship of the 1st respondent for

failure to attend Board Meetings dated 10.12.2009, 20.03.2010 and

Company Appeal (AT) No.6/2018 13

19.6.2010 (Annexure R-34, Page 194). The respondents stated that the Board

Meetings dated 10.12.2009 and 20.3.2010 were never held.

23. The respondent stated that the share application money of

Rs.7,00,000/- brought in by 3rd respondent vide Cheque No.999542 dated

30.6.2004 is duly reflected in the Bank Statement of 1st respondent (Annexure

A-31 Page 35 of Rejoinder). The respondents further stated that instead of

issuing shares to 3rd respondent, appellants produced a false affidavit of Mr.

Tom Jose (Annexure R22 Page 178) stating that he brought in the said amount

as flat advance.

24. The respondents stated that the appellants have fabricated the share

application ledgers. The respondents further stated that the appellants claim

that they allegedly brought in share application money to the tune of

Rs.3,78,77,551/- up till year 2011(Refer Para 11 Page 12 of Rejoinder).

However, the share application ledger of the appellants does not match with

the Bank statement of 1st respondent.

25. The respondents submitted that when they inquired about non-receipt

and non-filing of financial statements and Board Meetings Minutes, the

appellants have immediately unloaded several documents with ROC

(Annexure R-15, Page 150) including Annual Returns for FY ending 2006 to

2010 which show that all these documents were forged and filed together

belatedly.

26. We have heard the learned counsel for both the parties and perused the

record.

Company Appeal (AT) No.6/2018 14

27. The first issue argued by the Learned counsel for appellant is that the

respondents were not interested in running of the 1st respondent and only in

2011 with mala fide intentions to extort money from the appellants filed the

company petition before the Tribunal in 2011.

28. Learned counsel for the respondents argued that the respondents were

shocked and surprised when they observed after their letter dated 1.1.2011

and 12.1.2011 that 2 illegal share allotments had been purportedly shown to

have taken place on 25.4.2008 and 11.8.2010. The respondents further

argued that the appellants filed the annual accounts and annual returns for

the years ranging from 2005 to 2010 in January 2011 after enormous delay,

therefore, seeing the oppressive acts on the part of the appellants that the

Respondents No.2 and 3 were constrained to approach the LD. CLB.

29. We have seen the Annexure R-15 at Page 150 of the reply filed by the

2nd and 3rd respondents and find that the Balance Sheets, Annual Returns

and change in directors' forms for the years 2006 to 2010 have been filed by

the appellants during the month of January, 2011 and February, 2011. We

have also noted that has been done after Respondent made querries from the

appellant and they filed the necessary documents with the ROC after 26

months and that there is something amiss in the running of the company with

an intent to delay the knowledge of allotment to the respondents. We donot

appreciate the logic that this has been filed to extort the money. This could

only be possible if it could be presumed that the respondent are intending to

sell their shares and take unreasonable advantage in this matter. We have

Company Appeal (AT) No.6/2018 15

also noted that this logic falls flat in view of the Tribunal's orders of giving 1st

option to purchase by the respondents and not by appellants.

30. The next issue argued by the Learned counsel for the appellants is that

the NCLT wrongly held that the shares allotted vide Board Meetings dated

25.4.2008 and 11.8.2010 are not legal and valid. The learned counsel argued

that the 1st respondent was in need of funds and the NCLT has given no

finding that 1st respondent was not in need of funds when such issue and

allotment was made. The learned counsel for the appellants further argued

that mere lack of notice could not result in the allotment being set aside.

31. Learned counsel for the 2nd and 3rd respondent argued that no notice

was sent to the respondents. Learned counsel for the 2nd and 3rd Respondents

further argued that the appellants have filed only the extracts of Resolution

passed at the Meeting dated 25.4.2008. Learned counsel for the respondent

drawn our attention to Annexure R-1, Page 36 of the reply filed by them and

argued that only the Certificate of Posting dated 11.4.2008 and 31.7.2010 as

proof has been filed for which the NCLT has correctly held as insufficient

proof. Learned counsel for the respondents further argued that both these

certificate of postings as well those issued for notices of AGM dated 3.9.2007

(Annexure R2 Page 39) and dated 2.9.2009 (Annexure 11D Page 104) were

issued from the same Edapally Post Office which is far away from the

registered office of 1st respondent when regular, nearby Post Office was there

and bears the same postal stamp of filmmaker Satyajit Ray. Learned counsel

for the respondents further argued that the postal stamp of filmmaker Satyajit

Ray was only released by the Post Department on 1.3.2009, thus could not

Company Appeal (AT) No.6/2018 16

have been used on the certificate of posting purported to be dated 11.4.2008

(Annexure R-1A and AnnexureR-1B, Page 37 and 38). Learned counsel for

the respondents further argued that the Form 2 for the said share allocation

dated 25.4.2008 was filed with ROC after 26 months on 25.6.2010(Annexure

R-7 Pages 47 to 49).

32. We have seen the letter dated 7.11.2012 (Annexure R-1B, Page 38)

issued by the Department of Posts, India thereby intimating that

"Department of Post has released stamp on Satyajit Ray (Denomination

-300P as part of 10th Definitive series stamp release on 01.03.2009".

This establishes that the proof of certificate of posting filed by the appellants

is a fabricated one and cannot be accepted. It puts serious question mark on

the bona fides of the Appellants. We have also perused the Form 2 at Pages

47 to 49 of reply and are satisfied that the Form 2 was filed with ROC on

25.6.2010 belatedly in violation of Section 75(1) of the Companies Act, 1956

which requires that the filing to be done within 30 days of share allocation.

Therefore, we are in agreement with the orders passed by the NCLT on this

issue.

33. Learned counsel for the appellants argued that the impugned order

requiring 2nd appellant not to continue as a director of 1st respondent cannot

be sustained because such finding ignores Section 290 of the Companies Act,

1956. Learned counsel for the appellants further argued that if the reasoning

in the impugned order to the effect that because 2nd appellant was not a

director on 25.4.2008 when shares were allotted would result in such

allotment being invalid then in that event the transfers of shares from Susha

Company Appeal (AT) No.6/2018 17

Denny to 3rd respondent in 2001 and transfer of 59000 shares by 3rd

respondent to 2nd respondent would also be struck down as 3rd respondent

and 2nd appellant had been appointed directors on 2nd January 1995 itself

and thereafter had never faced the General Body of shareholders and were

not first directors.

34. Learned counsel for the 2nd and 3rd respondents argued that Articles

28(iii) of the 1st respondent stipulates that directors appointed at AGM shall

retire at the second AGM held after their appointment; who may thereafter be

reappointed. It is an admitted position of the Appellants that 2nd Appellant

was not a first director and was appointed in AGM subsequent to which she

was never re-appointed. Learned counsel for 2nd and 3rd respondent further

argued that 2nd appellant's continuation on the Board was illegal and failure

to get reappointed in terms of Article 28(iii) the Articles of Association.

Learned counsel for the 2nd and 3rd respondent further argued that as per

notices of AGM 2006 and AGM 2008, 2nd appellant did not seek re-

appointment.

35. We have heard both the parties on this issue. We have also perused

the impugned order passed by the NCLT on this issue. It is admitted that 2nd

appellant was initially appointed as Additional Director by the Board as on

2.1.1995. 2nd appellant was due to retire and seek re-appointment at the

AGM of 1996. As per Article 28(iii) of the Articles of Association she was to

retire at every 3rd AGM commencing from AGM 1996. As per notices of AGM

2006 and 2008 filed by 1st respondent, she has not retired by rotation and did

not seek re-appointment. Therefore, her continuance in office as Director is

Company Appeal (AT) No.6/2018 18

illegal and invalid. It is noted that the remedy of Section would be dealing

with the matter which are normally to be done by the Board on which no

application for oppression and mismanagement can be made. Hence the plea

of ignoring Section 290 of Act is devoid of any logic. We are in agreement with

the NCLT on this issue.

36. The other issue raised by the appellants that the orders setting aside

appointment of 3rd appellant (original 4th respondent) is erroneous. The

appellants argued that Article 28 of the Articles of Association of 1st

respondent does not say that every appointment of a director has to be

appointed at an Annual General Meeting. The appellants further argued that

there is no requirement that a director appointed at a Board Meeting has to

be described as an additional director in the form filed with the ROC.

37. Learned counsel appearing on before of 2nd and 3rd respondent argued

that 3rd appellant was appointed as a Director of 1st respondent at the Board

Meeting dated 22.1.2011. Learned counsel further argued that Form 32 filed

with the ROC shows 3rd appellant to be appointed as a Director. Learned

counsel argued that this appointment is invalid and illegal as in terms of

Article 28(iii) of Articles of Association of 1st respondent, a director can only

be appointed at an AGM and not by Board of Directors. Learned counsel also

argued that the decision of the said Board Meeting was also illegal for lack of

quorum.

38. We have heard both the parties on this issue. We have also perused the

impugned order dated 7th December, 2017 and noted that no new arguments

or facts have been brought to our notice which have not been dealt with by

Company Appeal (AT) No.6/2018 19

the NCLT. As per Article 23 of the Articles of the Association of the Company,

Board of Directors has the power to appoint Additional Director in accordance

with Section 260 of the Companies Act, 1956 and the director so appointed

shall hold office only upto the date of the next Annual General Meeting

following such appointment. The appointment of Directors is regulated under

Article 28 of the Articles of Association of the Company. Learned NCLT has

discussed this issue in its para 33 of the impugned order. NCLT has made

observations on the basis of these articles and the law quoted therein.

Therefore, we do not have any alternative but to endorse the observations

made by the NCLT on this issue.

39. The other issue argued by the counsel for the appellants is that the first

option given to 2nd and 3rd respondent to purchase shares is contrary to law

and despite it being undisputed that it is the appellants who have been in

management of the 1st respondent since its inception. In support of this the

appellants have relied upon the judgement pronounced by this Appellate

Tribunal in Company Appeal (AT) No.150 of 2017-Upper India Steel

Manufacturing and Engineering Co Ltd & Others vs Gurlal Singh

Grewal alongwith Company Appeal (AT) No.189/2017 decided on

14.11.2017. In the cited case the Tribunal has held that oppression and

mismanagement has not been proved. But in the present case NCLT has

come to a definite conclusion that the case has been proved against the

appellant for oppression and mismanagement. Therefore, the judgement cited

above is not applicable to the case in hand.

Company Appeal (AT) No.6/2018 20

40. On this issue learned counsel appearing on behalf of the Respondents

placed reliance on the judgement pronounced by Hon'ble Supreme Court of

India in the case of MSDC Radharamanan Vs MSD Chandrasekara Raja

and another (2008) 6 Supreme Court Cases 750 which held as under:

"xxxx But, the jurisdiction of the CLB to pass any other or further order in the interest of the company, if it is of the opinion that the same would protect the interest of the company, must be held to be existing and the CLB is not powerless in this regard."

41. On the question of relief, reliefs depend on a particular facts of the case.

Such an order should not amount to rewarding the wrong doers and penalise

the oppressed party. NCLT, seeing the totality of circumstances, interest of

the company and the intention of the parties, has rightly given first

opportunity for purchase of shares of appellants to 2nd and 3rd respondent

failing which the appellant shall purchase the shares of the respondents. We

are of the considered opinion that where the option to purchase the shares is

given to the existing management to avoid prejudice to the interest of the

respondent (original petitioners) for various reasons such as diversion of

funds/siphoning of funds etc then valuation is done on the date of filing of

the company petition. On the other hand, where the first option to purchase

the shares is given to who were not in management and who have been

oppressed to avoid prejudice to either of the parties the date of valuation

should be the date of decision of the company petition. Even the appellant

has asked that the valuation should be the date of decision of the company

petition. In this case the appellants have been in the management of the

company who have been found by the Tribunal to have oppressed the

Company Appeal (AT) No.6/2018 21

respondent (petitioners), therefore, valuation of shares to be done on the date

of decision of the company petition.

42. In view of the above observations and discussions we direct that:-

In last un-numbered paragraph of the operative order in para 34 of the

impugned order dated 7.12.2017 for words:-

"shall determine true and fair value of the shares of 1st

respondent company by taking into consideration three financial

years w.e.f. 2011 onwards"

shall be deleted and in their place the following words are

substituted:-

"shall determine the true and fair value of the shares of 1st

respondent company, as on the date of this decision, i.e.

7.12.2017".

Except for modifications as above in the impugned order, the impugned

order is maintained. The appeal is disposed accordingly. Interim order

passed, if any, shall stand vacated. No order as to costs.

(Justice A.I.S. Cheema) (Balvinder Singh) Member (Judicial) Member (Technical)

New Delhi Dated: 13-12-2018

BM

Company Appeal (AT) No.6/2018