M/S Atlas Cycles (Haryana) Ltd. & Ors vs Mr. Vikram Kapur & Ors

Atlas Cycles (Haryana) Ltd. & Ors. ...Appellants

Vs

Vikram Kapur & Ors. ....Respondents

Present: For Appellants: Dr. Abhishek Manu Singhvi, Mr. Amrendera Sharan, Mr. Sudhir K. Makkar, Sr. Advocates with Ms. Saumya Gupta, Advocate. For Respondents: Mr. Salman Khurshid, Dr. U. K. Chaudhary, Sr. Advocates with Ms. Manisha Chaudhary, Advocate for R-1 & 2. Mr. Ravi Krishan Chandna, Advocate for R-3. Mr. Sudhir Chandra, Sr. Advocate with Ms. Meenakshi Singh, Advocate for R-9 to 13.

With

Company Appeal (AT) No. 261 of 2018 IN THE MATTER OF:

Atlas Cycles (Haryana) Ltd. & Ors. ...Appellants Vs

Vikram Kapur & Ors. ....Respondents

Present: For Appellants: Mr. Sudhir K. Makkar, Sr. Advocate with Ms. Saumya Gupta, Advocate. For Respondents: Mr. Salman Khurshid, Dr. U. K. Chaudhary, Sr. Advocate with Ms. Manisha Chaudhary, Advocates for R-1 & 2. Mr. Ravi Krishan Chandna, Advocate for R-3. Mr. Sudhir Chandra, Sr. Advocate with Ms. Meenakshi Singh, Advocate for R-9 to 13.

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 2

With

Company Appeal (AT) No. 262 of 2018 IN THE MATTER OF: Atlas Cycles (Haryana) Ltd. & Ors. ...Appellants Vs Vikram Kapur & Ors. ....Respondents Present: For Appellants: Mr. Sudhir K. Makkar, Sr. Advocate with Ms. Saumya Gupta, Advocate. For Respondents: Mr. Salman Khurshid, Dr. U. K. Chaudhary, Sr. Advocate with Ms. Manisha Chaudhary, Advocates for R-1 & 2. Mr. Ravi Krishan Chandna, Advocate for R- 3. Mr. Sudhir Chandra, Sr. Advocate with Ms. Meenakshi Singh, Advocate for R-9 to 13.

ORDER

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Respondents- Mr. Vikram Kapur & Ors. filed application under

Section 397 and 398 of the Companies Act, 1956 (now Sections 241 &

242 of the Companies Act, 2013) alleging the oppression and

mismanagement on the part of the Appellants. The National Company

Law Tribunal (hereinafter referred to as 'Tribunal"), Principal Bench, New

Delhi, by impugned order dated 2nd August, 2018 passed interim order,

as follows:

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 3

"14. As a sequel to the above discussion we dispose

of the application by issuing the following directions: -

1. The orders dated 24.08.2015 and 07.09.2015 are

in operation. Both orders would continue to operate.

The resolution dated 13.08.2015 shall remain

suspended till the final disposal of the company

petition. In other words, the financial powers of the

Sonepat Unit shall remain intact.

2. The resolution dated 14.12.2017 & 24.02.2018

shall be remain in abeyance and both the resolutions

shall not be followed or operated till the disposal of

the Company Petition namely 18(ND)/2015.

3. The Board of Director of Respondent No.1-

Company shall facilitate the Sonepat Unit in

production to achieve optimum level. If any sealing etc.

has been done, then the same be removed within next

three days.

4. We also direct the applicant/petitioner No. 1 along

with other petitioners to furnish all details sought by

the Board of Directors of respondent No.1-Company

relating to fund flow from the Government order and

utilization thereof. The petitioners shall also continue

furnishing any other details with regard to the

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 4

finances of the Sonepat Unit to the Board of Directors

of respondent No.1- Company.

5. The petitioner-applicant as well as the Managing

Committee of Sonepat Unit shall not sell any scrap

without prior approval of the Board of Directors which

shall not be unreasonably withheld.

The application stands disposed of in the above

terms."

2. Learned Senior Counsel appearing on behalf of the Appellants

submitted that the Company cannot be stopped from selling its products

(cycles and its parts) in the States which are operated covered by the

'Sonepat Unit'. The impugned interim order is against the interest of the

Company, which by resolution dated 14th December, 2018 and 24th

February, 2018 decided to operate itself in the States which are operated

by the 'Sonepat Unit'.

3. According to him, the 'Sonepat Unit' is non-functional unit and not

producing any product such as cycles and its parts. On the other hand,

cheques are issued by the contesting Respondents/Petitioners from

'Sonepat Unit' which bounced. If such activity is allowed, it may result

into initiation of 'Corporate Insolvency Resolution Process' against the

Company under the Insolvency and Bankruptcy Code, 2016.

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 5

4. Learned Senior Counsel appearing on behalf of the contesting

Respondents/Petitioners submitted that on 8th January, 1999 all assets

and businesses of the company were divided into three equal part. The

Memorandum of Understanding (MoU) was signed and executed. Mr. I.D.

Chugh, the Whole Time Director. The Appellant No.5 is a witness to the

same. One Mr. K.N. Memani was appointed for valuation and division of

the assets and business into three equal subsidiaries. The final report

was submitted by him on 3rd January, 2003.

5. Further, according to contesting Respondents, the Board of

Directors by its resolution dated 28th May, 1999 resolved to incorporate

the aforesaid subsidiaries. The objective was to demerge the Company

into three separate company ('Corporate Debtor') namely-- 'Atlas Cycles

(Sonepat) Limited', 'Atlas Cycles (Malanpur) Limited' and 'Atlas Cycles

(Sahibabad) Limited' as per decision of all major shareholders of the

Company.

6. Another MoU dated 31st August, 2003 was signed and executed

between the parties relating to family controlled private companies,

family properties, trust, etc. The Board of Directors passed resolution

and assigned three units with full control to the following persons: -

i. Mr. B D Kapur - Sonepat

ii. Mr. Jaidev Kapur - Sahibabad

iii. Mr. Jagdish Kapur - Malanpur

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 6

7. According to contesting Respondents, the Board of Directors of the

Company is merely a representative Board comprising of friends, family

and employees of the Company and its members and were working at

their behest when all family members were together. Now because of the

change in the equation between the shareholders they are working on the

instructions of the company, which is controlled by shareholder of

'Sahibabad Unit', supported by shareholders who are in control of

'Malanpur Unit' which has already been closed because of inaction of the

Board of Directors of the Company. Hence, according to Respondents,

there is a division of all three 'independent and equal units' of the

Appellant Company and their assets and companies and firms in three

divisions.

8. With regard to the dishonour of some of cheques issued from

'Sonepat Unit', it was submitted that the management committee of the

'Sonepat Unit' had issued post-dated cheques in November, 2017 to the

vendors' and suppliers so as to receive raw materials for the production

of cycles so as to cater the order of the Gujarat and Rajasthan

Government. By Boards Resolution dated 14th December, 2017, the

Board of Directors created joint signatories, as a result of which the post-

dated cheques when produced by the suppliers in the banks were

dishonoured. The same has not been challenged by the Respondents as

the petition was listed for final hearing before the Tribunal on 20th

January, 2018 (Saturday) for its disposal.

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 7

9. It was further submitted that the Management Committee of the

'Sonepat Unit' used to send cheques to the Board of Directors, however,

Mr. I.D. Chugh without any reasons used to send back cheques as it has

been their calculative behaviour to strangulate and suffocate the 'Sonepat

Unit' for funds.

10. It was submitted that the Board by its resolution dated 24th

February, 2018, taken away the financial powers of 'Sonepat Unit' in

entirety and the Unit was shut down.

11. We have heard Dr. Abhishek Manu Singhvi, Mr. Amrendera

Sharan, Mr. Sudhir K. Makkar, learned Senior Advocates appearing on

behalf of the Appellants and Mr. Salman Khurshid and Dr. U. K.

Chaudhary, Learned Senior Advocates appearing on behalf of the

contesting Respondents/Petitioners on the question of grant of interim

relief and perused the record. The rest of the Respondents being formal

Respondents, were not heard.

12. The Tribunal is empowered to pass interim order in a petition

under Section 241 read with Section 242 of the Companies Act, 2013 in

terms of Section 242 (4) of the Companies Act, 2013, which is as follows:

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 8

"242. Powers of Tribunal.─

xxx xxx xxx

(4) The Tribunal may, on the application of any party

to the proceeding, make any interim order which it

thinks fit for regulating the conduct of the company's

affairs upon such terms and conditions as appear to it

to be just and equitable."

13. From the aforesaid provision, it is clear that the Tribunal is

empowered to pass any interim order in a petition under Section 241 read

with Section 242 for regulating the conduct of the company's affairs upon

such terms and conditions as appear to be just and equitable.

14. By the impugned order, the Tribunal has kept certain resolution in

abeyance and directed to continue with the operation of the two orders

dated 24th August, 2015 and 7th September, 2015. Two of the resolutions

of the Board of Directors dated 14th December, 2017 and 24th February,

2018 have been kept in abeyance and the Board of Directors has been

directed to facilitate the 'Sonepat Unit' in production to achieve the

optimum level. The Applicant/Petitioner No.1 (Respondent herein) has

also been directed to furnish all details sought by the Board of Directors

of the Company relating to fund flow from the Government order and

utilization thereof.

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 9

15. Learned Senior Cousnel appearing on behalf of the Appellants

submits that if the Respondents are allowed to sign the cheques, many

of the cheques will be bounced, as already bounced and it may result into

initiation of 'Corporate Insolvency Resolution Process' against the

Company.

16. Further, according to him, till the 'Sonepat Unit' starts with its

production to achieve optimum level, the Company should be allowed to

supply the products such as cycles and its parts from other units, which

are producing in excess to their demand.

17. Though, the contesting Respondents have taken plea that the

Company has been divided into three Companies but it is not in dispute

that even now the Company (1st Appellant) is only one. However, we find

that the Company has three units namely-- 'Sonepat Limited', 'Malanpur

Limited' and 'Sahibabad Limited', which are under the administrative

control of one or other group of the same family, and have their respective

jurisdiction to sale products and they are keeping separate accounts, unit

wise.

18. The Memorandum of Understanding of the years 1999 or 2003 has

not been given full effect for last fifteen to eighteen years for dividing the

Company into three different Companies except the administrative

control, separation of jurisdiction for sale of product and to keep separate

accounts. For the said reasons, no specific weightage can be given to one

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 10

or other unit except the interest of the Company for passing order under

Section 242(4). The impugned order dated 2nd August, 2018 being in the

interest of the Company, no interference is called for. However, in view of

the submission made by the parties and in the interest of the Company,

we pass the following order in addition to the impugned order passed by

the Tribunal.

i. The Board of Directors of the Company while facilitating the

'Sonepat Unit' in production to achieve optimum level may

infuse funds for 'Sonepat Unit' to the extent it may require to

achieve the production to optimum level. If the Company

infuse any fund, it will be entitled to get the amount back

from the 'Sonepat Unit' which is under the control of the

contesting Respondents. In such case, the contesting

Respondents will ensure that the amount infused by the

Company in the 'Sonepat Unit' is returned as per terms and

conditions, if any.

ii. The cheques on behalf of 'Sonepat Unit' of the Company shall

be signed by the Authorised person/Director of the 'Sonepat

Unit' along with one of the authorised representative of the

Company. For the purpose of such signature, the Company

may either authorise any of its representative already posted

in the 'Sonepat Unit' or may post any of its representative to

ensure joint signatures on the cheque for payment in favour

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 11

of workmen, employees, suppliers or raw materials, other

creditors, electricity charges, water charges, tax etc.

iii. Till 'Sonepat Unit' achieve optimum level of production, it will

be open to the Board of Directors of the Company to make

available the products, such as cycles and other parts to

'Sonepat Unit' from other units for meeting the demand and

supply in the market which is under the control of 'Sonepat

Unit'. 'Sonepat Unit', in its turn, will keep an account of the

products, such as cycles and other parts received from other

units and after sale of such products will report the same to

the Company as also the unit(s) from which the products

such as cycles and its parts are supplied. The 'Sonepat Unit'

will not sell any product such as cycles and its parts supplied

by other units on credit. The 'Sonepat Unit' will transfer the

amount generated from sale of product of other units to the

unit concerned within 30 days of sale failing which, in default

the present order passed by this Appellate Tribunal and

order passed by the National Company Law Tribunal shall

stand vacated.

iv. Appropriate adjustment in the books of accounts should be

maintained by the 'Sonepat Unit' with regard to products

received from other units and it will communicate the month

wise sale to the Company and unit concerned.

Company Appeal (AT) Nos. 260, 261 & 262 of 2018 12

v. The 'Sonepat Unit' and the contesting Respondents who are

in control of 'Sonepat Unit' will furnish all details as may be

sought for by the Board of Directors of the Company relating

to fund flow from the Government order and utilization

thereof as has been ordered by the Tribunal.

vi. It is needless to say that the rest part of the order passed by

the Tribunal relating to continuity to the operation of the

orders dated 24th August, 2015 and 7th September, 2015 and

suspension of resolution dated 13th August, 2015 and the

order of abeyance relating to resolution dated 14th December,

2017 and 24th February, 2018 shall continue till the final

disposal of the Company Petition.

The appeals stand disposed of with aforesaid observations and

directions.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI 28th August, 2018

AR

Company Appeal (AT) Nos. 260, 261 & 262 of 2018