Metmin Investments Holdings Ltd vs Rinac India Ltd. & Anr

[Arising out of Order dated 06.09.2018 passed by National Company Law Tribunal, Bengaluru Bench in IA No.242/2018 in CP No.74/BB/2017]

IN THE MATTER OF: Before NCLT Before NCLAT (In Company Petition)

Metmin Investments Original Petitioner Appellant Holdings Limited C/o AAA Global Services Ltd. 1st Floor, The Exchange, 18 Cybercity, Ebene, Mauritius

Versus

1. Rinac India Limited Original Respondent No.1 Respondent No.1 No.5, Saraswati Nivas, - Company (Applicant of Main Channel Road, IA 242/2018) Saraswathipuram, Ulsoor, Bengaluru - 560 008

2. Mr. Puthucode Original Respondents 2 to 6 Respondents Vaidyanathan 2 to 6 Balasubramanian No.46/4, 1st A Cross 'TRIDIPA' Cambridge Layour, Ulsoor, Bengaluru - 560 008

3. Mr. Parakkel Sukumaran, No.F155, Mayata Residency, Hebbal Outer Ring Road, Nagawara Bengaluru - 560 045 2

4. Mr. U. Haridas No.361, 'Shantam' MM Layout, Kaval Byrasandra, RT Nagar, Bengaluru 560 032

5. Mr. U. Balakrishnan 8163, Tower 8 Prestige Shanti Niketan Whitefield Main Road, Bengaluru 560 048

6. Modular Cold Rooms Private Limited No.29, 1st Cross, 2nd Main Cambridge Layout Extension Ulsoor, Bengaluru 560 008

For Appellant: Shri Arun Kathpalia, Senior Advocate with Shri Krishnendu Datta, Shri Parveen Kumar, Shri Sahil Narang and Ms. Riddhi Jad, Advocates

For Respondents: Shri Balaji Srinivasan, Advocate (Respondents 2 to 6)

Shri Siddhant Kohli, Advocate (Respondent No.1)

JUDGEMENT

(23rd January, 2019)

A.I.S. Cheema, J. :

1. The Appellant - original Petitioners - M/s. Metmin Investments

Holdings Limited (hereafter referred as - Metmin/Petitioner) has filed this

Appeal being aggrieved by the Impugned Order dated 6th September, 2018

Company Appeal (AT) No.348 of 2018 3

passed by the National Company Law Tribunal, Bengaluru Bench ('NCLT',

in short) in IA 242/2018 in CP 74/BB/2017.

1.1 By the Impugned Order, NCLT allowed the application of

Respondent No.1 Company - Rinac India Limited (hereafter referred as -

Company) vide which application, modification was sought in the Order

dated 16.08.2017 which had earlier been passed by NCLT in favour of

Petitioner directing the Company not to create encumbrance over the

assets of the Respondent Company till disposal of the Application filed

under Section 8 of the Arbitration and Conciliation Act, 1996 ('Arbitration

Act', in short) further giving option to the Respondent to approach the

Tribunal for any modification of the Order depending upon the situation

that may arise in future, before deciding the application filed under Section

8 of the Arbitration Act. NCLT allowed the IA 242/2018 filed by the

Company and permitted the Company to create a charge/encumbrance

over the assets of the Company so as to enable the Company to raise

loans/avail financial facilities from the banks/financial institutions, make

investments for the purpose of construction of its corporate office building

in Chickajala, Bangalore North Taluk and for other construction works and

to meet its pressing needs to execute the orders placed on it as detailed in

the application.

2. Being aggrieved by such modification of the earlier Order at the

instance of the Company, present Appeal is filed by the Appellant -

Metmin. In short, the case of the Appellant is, and it has been argued for

Company Appeal (AT) No.348 of 2018 4

the Appellant, that the Appellant - Metmin was established as Company

in Mauritius in 2001 and has minority shareholding in the Respondent

No.1 Company to the extent of 16.38% of the total shareholding. The

Appellant entered into Share Subscription-cum-Share Purchase

Agreement (SSA) with the Respondent Company on 5th June, 2007

whereby the Appellant - Metmin with Avigo Trustee Company Pvt. Ltd. and

Avigo Venture Investment Ltd. (in brief, 'Avigo') made investments in the

Company. It is stated that Metmin and Avigo entered into Shareholders'

Agreement (SHA) (Page 304) also on the same date of 5th June, 2007 with

the Respondents. As per the terms of SHA, the Respondents were obliged

to provide the Appellant and Avigo with an exit on or before 30th June,

2010 in the manner set out in the SHA. Provision was made in the

Agreement that in the event, no exit is provided to the Appellant and Avigo,

then the Appellant and Avigo were entitled to sell the shares subject to

provisions as were set out in the Agreement. The Appellant claims that on

the assurance given by the Respondents 2 to 6 and the Company, The

Appellant invested a sum of Rs.19,00,00,140/- by way of subscription to,

as well as, purchase of shares. The appellant as well as Avigo were entitled

to receive 45% internal rate of return on the amounts invested by them.

2.1 It is the case of the Appellant that the Appellants entered into

Supplementary Agreement dated 28th January, 2008 (Page 347) and

second Supplementary Agreement dated 22nd September, 2010 (Page 356).

As per the settlement terms, Respondents 2 to 6 and the Respondent

Company Appeal (AT) No.348 of 2018 5

Company were required to provide exit to the Appellant and Avigo latest by

31st March, 2013. The Respondents could not provide the exit and the

Respondents had even diluted the earlier agreed internal rate of return on

the amounts invested. According to the Appellant, the parties then entered

into share purchase agreement (SPA) dated 16th December, 2016 (Page

397) and Respondents 2 to 6 agreed to purchase the shares of the

Appellant and Avigo within a maximum period of 40 days from 16th

December, 2016 (which is the date of execution of that SPA). It was agreed

that in the event, the sale and purchase of shares could not be

consummated within the period of 40 days as provided, then the SPA

would terminate. According to the Appellant, the Respondents did not act

as per the SPA dated 16.12.2016 and the SPA terminated which is clear

from e-mail dated 28th March, 2017 and 13th April, 2017 where the

Respondents asked the Appellant to extend the SPA. The Appellant claims

that due to failures of Respondents 2 to 6, the Appellant went ahead to

look for opportunities in the market to sell its shares and negotiated with

one Geosansar Mauritius Limited which gave offer letter dated 18.05.2017

to Appellant to purchase the shares of Respondent Company. It is the case

of Appellant that the Respondents 2 to 6 with intention to force the

Appellant to exit and frustrate efforts of the Appellant to sell its shares to

prospective buyer, filed Company Petition 17/2017 under Section 241 and

242 before NCLT. They failed to get an interim relief and initiated another

proceeding (Page 448) before Hon'ble High Court of Bombay by filing

Application under Section 9 of the Arbitration Act. In that Arbitration

Company Appeal (AT) No.348 of 2018 6

Petition, the Respondents 2 to 6 prayed that the Appellant and Avigo

should be restrained from, in any manner, directly or indirectly, selling,

pledging, transferring, disposing or alienating or, in any manner,

encumbering their shares in the Respondent Company to any third party.

This Petition before the High Court came to be disposed on 03.07.2017,

when the following Order (Page 487) was passed:-

"P.C.:-

1 Ms Vaidehi Naik appearing for the respondent no.2 states that they have settled with the petitioners.

2 So far as respondent no.3 is concerned, Mr. Subramanian states on instructions that respondent no.3 has had a rethink and have decided not to sell the shares at all. Mr. Subramanian states that as and when respondent no.3 takes a decision to sell the shares, they will give fresh notice to the petitioners.

3 Petition disposed."

Respondent No.2 in that matter was Avigo and present Appellant

was Respondent No.3.

2.2 Before the above Order was passed by the High Court, the

Respondents had withdrawn the CP 17/2017 filed by them, from NCLT on

29.06.2017 (Annexure A2 - Page 60). The Petition was withdrawn since the

Petitioners therein (i.e. present Respondents) had already moved the High

Court for similar relief. The Appellant wanted the conduct of the

Respondents to be recorded but in that Order, NCLT noted the request but

mentioned that there was no need to record any conduct. The present

Company Appeal (AT) No.348 of 2018 7

Respondents claimed in that Petition that as the Appellant had claimed

that under Section 8 of the Arbitration Act, the Tribunal had no

jurisdiction to entertain the petition, so they had moved the High Court.

The Petition thus was being withdrawn.

2.3 After the Hon'ble High Court of Bombay disposed the arbitration

proceeding on 03.07.2017, the Appellant filed the present Company

Petition 74/2017 on 09.08.2017 (Page - 63) on the grounds of oppression

and mismanagement. The Appellant claimed that the Appellant is entitled

to have a nominee Director on the Board of the Company and as on date,

there was no nominee Director appointed. As per the Articles of Association

of the Company, express consent of such nominee Director of the Appellant

is mandatory. The Respondents 2 to 6 were in the process of mortgaging

or creating third party interests on the assets of the Company, which

cannot be done without explicit consent of the nominee Director of the

Appellant. The Appellant claimed in the Company Petition that the

Respondents were going ahead with such process which violated the

Articles of Association and was against the interest of the Company and

the Appellant. The Appellant claimed that on three occasions, the

Appellant made written requests to the Respondents to appoint its

nominee but the same was not considered by the Respondents. The

Appellant claimed that such acts amounted to oppression and

mismanagement of the affairs of the Company. The Appellant expressed

apprehension that the Respondents 2 to 6 may transfer, sell or otherwise

Company Appeal (AT) No.348 of 2018 8

encumber their shares or other assets of their Company and cause loss to

the Appellant - Petitioner and this was well illustrated as mentioned in the

petition and thus, Petition required urgent relief. Inter alia, in the reliefs

sought in the Company Petition, following was claimed:-

"C. Direct Respondent 1 to 6 to appoint Mr. Singhi,

the Petitioner's nominee, as a Director on the Board

of Respondent No.1 Company."

..........

"E. Declare all the transactions done by the

Respondent No.2 to 6 on behalf of the Board of the

Respondent No.1 Company without the express

consent of the Petitioner and in the absence of the

Nominee Director of the Petitioner, as illegal and

order restoration."

In the interim relief, inter alia, relief sought was:-

"A. Appoint an independent observer on the board of the Respondent No.1 Company in order to ensure that the rights of the Petitioners are not trampled upon and to ensure that the affairs of the Respondent No.1 Company are not mismanaged.

B. Restrain Respondent No.1 to 6 from creating any encumbrance on the assets of the Company."

.........

Company Appeal (AT) No.348 of 2018 9

"D Restrain Respondents No.1 to 6 from undertaking any restructuring of the business in any manner whatsoever."

2.4 It has been argued that when the Company Petition making such

allegations of oppression and mismanagement came up on 16.08.2017,

following Order was passed:-

"Counsel for petitioner is present. Shri K. Suman, Advocate filed vakalat for R-1 company. Counsel for R-2 to 6 is present. He has filed one application under Section 8 of the Arbitration and Reconciliation Act.

Registry is directed to check and put up. Counsel for petitioner requested the Tribunal to pass an interim order prohibiting the petitioner company from creating any encumbrance on the 1st respondent company pending further hearing on the main petition. The counsel for petitioner would contend that the 1st respondent company is proposing to create encumbrance over the assets which would seriously affect the interest of the petitioner.

Counsel for R-2 to 6 informed the Tribunal that there is no intention on the part of the respondents including the Company to create any encumbrance on the property of the company. Counsel would contend that the petition itself is not maintainable and that any dispute, is to be settled by the Arbitrator and therefore a separate application was filed to refer the matter to the Arbitrator.

Considering the submissions made by the counsels on both sides, the Tribunal directs the respondent company not to create any encumbrance over the assets of the 1st respondent company till disposal of the application filed under Section 8 of the Arbitration and Reconciliation Act and it is also open to the respondents to approach the Tribunal for any modification of order of the Tribunal depending upon the situation that may arise in future before deciding

Company Appeal (AT) No.348 of 2018 10

the application filed under Section 8 of the Arbitration and Reconciliation Act.

List it on 07.09.2016. Counsel for petitioner to file their objections if any in application filed under Section 8 of the Arbitration and Reconciliation Act."

Respondents 2 to 6 then filed IA 104/2017 on 16.08.2017 (Page

510) under Section 8 of the Arbitration Act claiming that the Petition itself

mentioned that the Respondent had caused Avigo to sell its shares; that

issue of sale of shares was subject matter of Arbitration Agreement

traceable to share purchase agreement and consequently, the right of the

Petitioner to nominate the Director was also traceable to the Shareholders'

Agreement and it was an arbitral dispute.

2.5 Same Respondents 2 to 6, however, filed IA 189/2017 (Page 585)

seeking modification of the interim orders which had been passed on

16.08.2017 and prayed that the Respondent Company should be allowed

to create charge/encumbrance over the assets of the Company to the tune

of Rs.1250 Lakhs to enable the Company to make investments for the

purpose of construction of its corporate office building at Chickajala,

Bangalore North Taluk and other construction works as mentioned in the

application. The Appellant - Metmin filed objections (Page 598) to the

application, which was filed for modification. Pending applications were

combinedly heard on various dates, it is argued by Appellant. Later, on

20.08.2018, Respondent No.1 Company filed IA 242/2018 (Page 764)

referring to the IA 189/2017 which had been filed by Respondents 2 to 6

Company Appeal (AT) No.348 of 2018 11

and adding further grounds, sought similar relief. According to the

Appellant, the Respondents did not file any documents in support of the

Application for modification and when the same was objected by the

Appellant, some documents were produced. The Appellant was thus forced

to file multiple memos.

2.6 It is the case of the Appellant that the Respondents violated the

Interim Orders dated 16th August, 2017 and created additional charge over

the assets of the Respondent Company on 23.11.2017 in favour of Punjab

National Bank for a sum of Rs.34 Crores (Page 726 and Page 731) and the

Appellant - Petitioner had earlier filed Application for taking action of

contempt vide IA 36/2018 (Page 642). The Respondents filed their

statement of objections and the fact that additional charge had been

created was not disputed.

2.7 According to the Appellant, it was noticed that the Respondents 2

to 6 have filed before the Hon'ble Supreme Court, Arbitration Petition (C)

42/2017 (Annexure R-4 - Page 50 - Diary No.8135) seeking appointment

of Arbitrator or Arbitrators in terms of Section 11(6) of the Arbitration Act.

According to the Appellant, the Respondents did not file copy of such

Petition filed in Supreme Court before the NCLT and ultimately on

27.07.2018, NCLT passed following Order:-

"1 IA 104/2017 is filed by Shri Puthucode Vaidyanathan Balasubramanian (Respondents No. 2 to 6) u/s 8 Companies (Arbitration and

Company Appeal (AT) No.348 of 2018 12 Conciliation) Act, 1996, inter-alia seeking to refer the matter to arbitration.

2. Heard Shri Udayarkar Rangarajan and Shri Praveen Kumar, Learned Counsel for Respondents. After hearing the case for some time, the Tribunal noticed that the same Applicants have filed an Arbitration case (Civil) No.42/2017, before the Hon'ble Supreme Court, inter-alia seeking appointment of an Arbitrator in terms of Section 11(6) of the Arbitration and Conciliation Act, 1996, for resolution of disputes relating to Shareholders Agreement dated 05.06.2007, Share Subscription cum Share Purchase Agreement dated 05.06.2007 and Share Purchase Agreement dated 16.12.2016.

3. Therefore, the Tribunal cannot decide the matter, since the matter is sub-judice in the Hon'ble Supreme Court.

4. Registry is directed to return the original documents filed by the Respondents, after taking certified copies.

5. Post the case on 20.08.2018."

Thus according to the Counsel for Appellant - Petitioner, the NCLT

itself recorded that the Tribunal cannot decide the matter since the matter

was sub-judice in the Hon'ble Supreme Court. According to the learned

Counsel, the Application under Section 8 filed by the Respondents was

thus kept in abeyance after such Order dated 27.07.2018. The IA

242/2018 mentioned earlier, thereafter came to be filed on 20.08.2018 on

behalf of the Company seeking modification of the Interim Order dated

16.08.2017. It is the case of the Appellant that after such fresh application

was filed at the behest of the Company, the above Impugned Order came

to be passed on 06.09.2018 without giving opportunity to file objections to

Company Appeal (AT) No.348 of 2018 13

the same and the NCLT passed the Impugned Order allowing the Company

to raise loans/avail financial benefits. It is argued for the Appellant that

looking to the Articles of Association, without consent of the nominee

Director of the Appellant, who is referred as investor in the Company, and

even considering the Articles of Association, no such liabilities can be

created without consent of the Investor and the Impugned Order is

unreasoned Order which did not take note of the facts of the matter as well

as provisions of the Articles of Association. No Board Meetings can be held

without nominee Director of the Appellant and Articles of Association have

articles protecting the investor. Orders violating the Articles of Association

could not have been passed. The learned Counsel also referred to the

definition of "investor" in the Articles of Association to submit that the

Respondents cannot act unilaterally ignoring the investor and such

liabilities in the face of provisions in the Articles of Association could not

be allowed to be created without the consent of the investor.

3. Against this, the Respondents have filed the statement of

objections and it has been argued on behalf of the Respondents making

reference to the various developments in the litigations as noted above,

that when CP 17/2017 was filed, the Appellant and Avigo had both sought

time claiming that under Section 8, the dispute concerned was arbitrable.

Because of such stand taken by the Appellant, the Respondents withdrew

the said CP 17/2017. In the commercial Arbitration Petition 362/2017,

which came up before the High Court of Bombay, the Appellant made a

Company Appeal (AT) No.348 of 2018 14

statement that the Appellant did not wish to sell the shares. Avigo and

Respondents amicably settled their disputes, inter se, and the Bombay

High Court disposed of the Petition on the statement of the Appellant.

Thus, according to the Respondents, the Appellant was taking multiple

stand to prejudice the business of the Company. The Appellant then filed

CP 74/2017. The Respondents referred to Clause 11 of Shareholders'

Agreement to claim that it provides that all disputes, controversies and

difference of opinion in connection with Agreement or breach thereof shall

be settled by arbitration. As the Appellant did not appoint Arbitrator, the

Respondent approached the Hon'ble Supreme Court in Arbitration Petition

42/2017 to appoint Arbitrator. According to the Respondents, the

Appellant knew about the Petition, but have avoided service to delay the

proceedings. When the Respondents filed Application under Section 8 in

CP 74/2017, the Appellant backtracked from its earlier stand that the

dispute was arbitrable. According to the Respondents, the Tribunal

erroneously disposed application - IA 104/2017 and against such Order of

NCLT dated 27.07.2018, SLP 28260/2018 (Annexure R-5 - Page 350 -

Diary No.8135) has been filed. It is claimed by the Respondents that they

had sought modification of the Interim Order dated 16.08.2017 as there

are bona fide business requirements of the Respondents. The Company

and its Directors, who are majority shareholders, want to establish its

corporate office having all infrastructural facilities which land at Bangalore

is owned by the Company. They want to raise funds for civil construction

to construct approach road to the Murbad Factory. They furnished details

Company Appeal (AT) No.348 of 2018 15

to the Tribunal. The current premises of the company are rented premises

and the lessors had written to the Company to vacate the premises by letter

dated 06.11.2017. According to the Respondents, the Appellant indulged

in vexatious and acrimonious business practices and that Avigo had

issued Right of First Refusal Notice on 19.05.2017 and when Respondent

No.6 sent an acceptance notice, Appellant sent letters to disturb funding

arrangements. The Respondents have submitted that they did not commit

any contempt, no new charge was created and it was merely a renewal of

charge with Punjab National Bank which had been continuing since 2013.

According to the Respondents, the second investor - Avigo had already sold

its shares and thus, now cannot coerce or arm twist the Company into loss

making ventures. According to the Respondents, Appellant is filing

frivolous and vexatious petitions to stifle the business of the Company. The

investment is undertaken to bolster the business of the Company and to

construct its principal place of business at Bangalore. It is argued that the

NCLT had given adequate opportunities to both the parties to present their

cases. The Respondents are supporting the Impugned Order which had

been passed.

4. We have heard both sides. Above narration of facts as appearing

from the documents makes the dispute clear. The above narration makes

it clear that in spite of the earlier application filed by Respondents 2 to 6

for modification of the Interim Order dated 16.08.2017 being pending,

NCLT had on 27.07.2018, itself come to a conclusion that the Tribunal

Company Appeal (AT) No.348 of 2018 16

cannot decide the matter since the question of referring the matter to

arbitration was pending in the Hon'ble the Supreme Court of India. Once

having said this, the same Tribunal entertained the subsequent IA

242/2018 filed by the Company for modification and went ahead to pass

the Impugned Order to permit the Company to create huge loans and

financial liabilities and encumbrance on the property of the Company. The

fact that Avigo has transferred its shares to Respondent No.6 is no more

disputed before us. The document by which such transfer was made, was

not produced before NCLT and it was not produced before us also. We have

gone through the Company Petition and also the Articles of Association.

This is not a matter where merely there is Shareholders' Agreement

between the shareholders. In the present matter, the various Agreements

appear to be with the Company as well as with the Respondents 2 to 6 and

the Agreements were not only entered into, the Appellant and Avigo had

ensured protection of their interests by ensuring that the Articles of

Association included the rights which had been created in their favour by

the documents. It would be appropriate to reproduce some of the Articles.

(Copy of Articles of Association is at page - 95 of the Appeal.) In Article - 2

dealing with definitions, Clause (x) relates to investor/s. Same reads as

under:-

(x) "Investor/s shall mean Avigo and Metmin collectively, which term shall unless repugnant to the context and meaning thereof be deemed to mean and include their successors in interest and permitted assigns."

Company Appeal (AT) No.348 of 2018 17 Article 10 is as follows:-

"10. The financing requirements including working capital requirements of the Company and its Subsidiaries shall be met in the first instance by internal accruals and any external financing will be availed of only in accordance with the Business Plan and the Annual Budget approved by the Investors. In the event of any future borrowings, the Investors shall not be required - to provide any guarantees/collaterals, etc. The Investors and its nominees shall not be required to pledge their Shares or provide any other support to any third party, including without limitation the lenders of the Company. The Promoters shall provide guarantees and such other security as may be required for any such loans required by the Company."

Clauses A to C of Article 13, which deals with appointment of

Directors, reads as follows:-

13. (a) The Directors of the Company will be nominated by the Shareholders in the manner set out below and shall be appointed in the manner prescribed under the Act. Subject to sub-article (b) below, the Board may also appoint additional Directors from time to time, who will hold office until the next annual general meeting of the Company. The Business of the Company shall be managed and conducted by the Board.

(b) The Board of the Company shall have a maximum of 8 (Eight) Directors to be nominated and appointed as follows and which number of directors shall not be changed, except pursuant to an amendment to these presents with the consent of the Investors. The investors shall be jointly entitled to nominate fifty percent of the directors to the Board of the Company and the Promoters shall be entitled to nominate fifty percent of the directors to the Board of the Company. Any appointment of the Independent

Company Appeal (AT) No.348 of 2018 18

Directors to the Board shall be carried out with the consent of Investors and Promoters.

Notwithstanding anything to the contrary contained elsewhere, in case, the equity shareholding of the Promoters or the Investors in the Company falls below 20% (Twenty Percent) of the total equity shareholding of the Company at any time, the entitlement of the Parties to nominate directors to the Board shall be in proportion to the inter se shareholding of the Parties in the Company. The Promoters undertake not to veto or otherwise obstruct the appointment of the Investors Directors and Independent Directors in accordance with this Article.

(c) The Investors shall have the right to nominate 1 (One) director to the Board as long as they hold more than 5% equity share holding in the Company. The removal, appointment and re-appointment of any investors Director and Independent Director shall be subject to the prior written consent of the Investors."

Article 14 of the Articles of Association lays down the quorum at

the time of commencement of the meeting and passing of any Resolution

at a Meeting of the Board shall require the presence of at least three

Directors, provided that at least one investor Director shall be present in

person or by an alternate Director at and throughout each meeting of the

Board. Thus, the quorum also requires presence of investor Director.

Relevant portion of Article 20 are as follows:-

"20. (a) Subject to sub-article (b) below, resolutions of the Board shall be passed by a simple majority of votes of the Persons entitled to vote thereon (being not less in number than a quorum for meetings of the Board).

Company Appeal (AT) No.348 of 2018 19

(b) Notwithstanding anything contained in sub-

article (a) above, the Shareholders shall procure that no action shall be taken or resolution be passed by the board except with the affirmative vote of all the Investors Directors present at the meeting, in respect of the following matters, unless written consent in respect of specific items has been given in writing by the Investors prior to the meeting or such consent is specifically waived in writing by the Investors hereto. The term "Company" is expanded to include the Company and all its Subsidiaries for the purpose of this Article:

......... ......... .......

(v) Finalise, approve and adopt the Business Plan of the Company and the Annual Budget and any change or deviation thereto;"

......... ......... .........

(x) Any significant change in the liability structure i.e. greater than Rs.25,00,000/- (Rupees Twenty Five Lakhs) (including but not limited to secured and unsecured debt but excluding working capital related items as specified in the approved Annual Budget) of the Company including off-

balance sheet items, such as leasing, and any Encumbrances;

......... ......... ........."

5. Respondent No.6 - Modular Cold Rooms Private Limited is one of

the promoter as per Annexure - A of Articles of Association. This promoter

Company Appeal (AT) No.348 of 2018 20

has now admittedly bought the shareholding which was held by Avigo

earlier. The Counsel for both sides heavily argued on the definition of

"investor/s" as mentioned above to make rival claims. The Counsel for

Appellant has tried to submit that when Avigo has left, the only investor

remains is Metmin and Avigo has lost its identity in the promoter.

According to the Counsel, looking to the various Articles of Association,

participation of the investor and consent of the investor on various aspects

is necessary and the Respondents cannot sit over the requests made by

the Appellant to have its nominee Director on the Board and still proceed

to seek reliefs as sought in the Impugned Order, which would violate the

Article - 20 of the Articles of Association as there is no consent of the

nominee Director of the investor. According to the Counsel, the definition

used the word "investor" with a slash and 's' is added for the plural, and

this includes singular as well as plural.

6. Against this, the learned Counsel for the Respondents argued that

after Avigo has parted with the shares of the Respondents looking to the

definition of "investor/s" in the Articles of Association, the Appellant

cannot be treated as having right to have nominee Director because the

definition of investor/s in the Articles of Association would be enforceable

only when Avigo and Metmin act collectively. It is argued that Metmin now

remaining single cannot claim to have Nominee Director of Investor.

7. The Company Petition has been filed claiming right to be on the

Board and also to restrain the Respondents from entering into transactions

Company Appeal (AT) No.348 of 2018 21

without express consent of the Investor's Nominee Director, violating

Articles of Association. The fear of the original Petitioner that the

Respondents are trying to create liabilities, is well founded from the fact

that the Respondents after Order dated 16.08.2017, came up with IA

189/2017 and IA 242/2018 seeking to create charge/encumbrance on the

assets of the Company. Respondents, against whom Appellant filed

Contempt Application for creating further charge to the tune of Rs.34

Crores with the Punjab National Bank and which Application is still

pending, claimed the relief as above. Respondents who have filed the

Application (Annexure A-5) in NCLT under Section 8 of the Act trying to

claim that the right of Appellant - Petitioner to appoint nominee Director

is also liable to be referred to Arbitration, have not shown as to how the

various other provisions of Articles of Association would permit them to go

on with the affairs covered in the Articles in the absence of nominee

Director of investor/s when the Articles of Association which was accepted

by the Respondents as binding on them provide otherwise. The Articles of

Association do not appear to say that if one of the two Investors exits, the

other would lose identity of Investor. It does not appear that NCLT took

response of the Appellant - Petitioner to IA 242/2018 which was filed after

NCLT declined to proceed with IA 104/2017. In the Impugned Order, there

is reference made to the submissions made and the only portion of

reasoning is in para - 6, which reads as under:-

"6. In view of the above facts and circumstances, IA 242/2018 in CP No. 74/BB/2017 is allowed by

Company Appeal (AT) No.348 of 2018 22

modifying the order dated 16.08.2017 passed by this Hon'ble Tribunal in CP No.74/2017 and permit the Applicant Company to create a charge/encumbrance over the assets of the 1st Respondent Company so as to enable the Applicant Company to raise loans/avail financial facilities from Banks/Financial Institutions, make investments for the purpose of construction of its Corporate Office building in Chickajala, Bangalore North Taluk and for other construction works and to meet its pressing needs to execute the orders placed on it as detailed in the application.

7. The Company is directed to account for the loans raised by virtue of modification of this order.

8. Post the main CP No. 74/BB/2017 for final hearing on 04.10.2018."

It can hardly be said that NCLT satisfied itself that there was, in

the facts of the matter, prima facie, case made out by Respondents to seek

the relief which they were seeking on interim stage, and that balance of

convenience lay in their favour or that the Company would suffer

irreparable injuries, if the relief as sought in IA 242/2018 was not granted.

When the NCLT had itself said that the disputes being raised were arbitral

and the matter was before Hon'ble Supreme Court and refrained passing

further Orders, in our view, it was inappropriate for the NCLT to have

modified the Order dated 16th August, 2017. The Impugned Order did not

consider the case, which was put up by the Appellant - Petitioner, and how

in the face of Articles of Association as they existed, Respondents could be

allowed to unilaterally proceed creating huge liabilities without a shred of

Company Appeal (AT) No.348 of 2018 23

protection to the cause of Appellant - Petitioner who had brought in

substantial amounts. We are aware that interest of Company is matter of

priority, but parties in management cannot be heard taking adamant

stand in the name of interest of Company and expect Orders which prima

facie do not appear to be in line with its Articles of Association. The case

of the Petitioner is not merely based on the Agreements, but it is also based

on the Articles of Association which binds both sides. Prima facie, we find

that the Petitioner has made out a good case in its favour based on the

Articles of Association as discussed above. Prima facie, purposive

interpretation of the definition of "Investor/s" in Articles of Association,

(reading the Articles as a whole) shows that Respondents cannot wish away

the Appellant only because the promoters have bought Avigo, the effect of

which is that only one investor is left with the other having merged into

one of the Promoters - a bigger entity. We find substance in the arguments

made by learned Counsel for Appellant and find that the interim Order

dated 16.08.2017 should not have been disturbed. Respondents claim that

in Board Meeting dated 02.09.2016, when initially resolution was taken

regarding upgradation of infrastructure, Nominee Director of Investors was

present. But then, that resolution itself recorded that detailed expenditure

will be tabled before the Board on receipt of final drawing from the

Architect. Admittedly, now on the Board, there is no nominee of the

Investor. We find that, looking to the prima facie case as appearing in

favour of the Petitioner, if the Respondents want to block out Petitioner,

Company Appeal (AT) No.348 of 2018 24

hiding behind the Arbitration clause, in equity, they cannot claim

discretionary relief to create such a huge liability of Rs.1250 Lakhs, riding

on the back of NCLT Order which, prima facie, is against the Articles of

Association. We find, the initial Order dated 16.08.2017 was wrongly

disturbed by NCLT. Considering the disputes, balance of convenience lay

in not disturbing the Order dated 16.08.2017, which when passed, the

Respondents 2 to 6 had stated that there was no intention to create

encumbrances on the property. Respondents made out no prima facie case

for change of stand soon thereafter. Alleged Notice (Page 786) to vacate

from landlord is stated to be from wife of Respondent No.2 which, it is

argued by Appellant, is merely effort to create urgency. Appellant -

Petitioner will suffer irreparable injury if in spite of Articles of Association

of the Company prima facie protecting it, gets ignored by NCLT giving go

ahead to Respondents which may render the Company Petition fruitless, if

to-morrow Appellant was to succeed. In the facts of the matter, it appears

to us that the Impugned Order passed is not legally sustainable and

deserves to be set aside. We pass the following Order:-

ORDER

The Appeal is allowed. The Impugned Order is

quashed and set aside. Earlier Order

dated 16.08.2017 passed by NCLT is restored.

Our observations in this Judgement will not weigh

Company Appeal (AT) No.348 of 2018 25

with NCLT at the time of deciding the Company

Petition finally on merits. Parties to bear their own

costs of the Appeal.

[Justice A.I.S. Cheema] Member (Judicial)

[Balvinder Singh] Member (Technical) /rs/nn

Company Appeal (AT) No.348 of 2018