Mr. Satya Prakash Bagla And Anr & Ors vs Mrs. Kanta Agarwala And Ors & Ors

(Arising out of Impugned Order dated 15.05.2024 passed by the National Company Law Tribunal, Court No.2, New Delhi in C.P No. 48/ND/2024)

IN THE MATTER OF: 1. Mr. Satya Prakash Bagla 7/17 L.G.F, Near Hauz Khas Metro Station, Sarvapriya Vihar, New Delhi 110 016. Email ID: satya@exclusivecapital.in Appellant No.1

2. Mr. Achal Kumar Jindal, 7/17 L.G.F, Near Hauz Khas Metro Station, Sarvapriya Vihar, New Delhi 110 016. Email ID: achal@exclusivecapital.in Appellant No.2

VERSUS

1. Mrs. Kanta Agarwala, 8a, Queen's Park, Ballygunge, Kolkata 700 019. Email Id: Kanta.Agarwala63@Gmail.Com Respondent No.1

2. Mr. Suresh Kumar Agarwala, 8a, Queen's Park, Ballygunge, Kolkata 700 019. Email Id: Suresh.Agarwala56@Gmail.Com Respondent No.2

3. Exclusive Capital Limited, No.7/17 L.G.F, Near Hauz Khas Sarvapriya Vihar, New Delhi 110016. Email Id: Achal@Exclusivecapital.In Respondent No.3

4. Mr. Johnson Kallarachal Abraham, Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

7/17 L.G.F, Near Hauz Khas Metro Station, Sarvapriya Vihar, New Delhi 110 016. Email Id: Johnsonka949@Gmail.Com Respondent No.4

5. Mr. Rajeev Uberoi E1 /62, Arera Colony, Bhopal-462 016. Email Id: Rajeevuberoi1957@Gmail.Com Respondent No.5

6. Mr. Krishnama Chary Mudumba, 3-7-32, Sree Nilayam, Plot No. 40, Road No. 2, Sri Sainagar Colony, Mansurabad, Hyderabad -500 068. Email Id: Mkchary999@Gmail.Com Respondent No.6

7. Mr. Om Prakash Sambharia, Rz B 25 3 Street No. 8, Gurudwara Road, Mahavir Enclave, Palam Village So, South West Delhi, Delhi - 110 045. Email Id: Sambhariaom@Yahoo.Com Respondent No.7

8. Mr. V.V Kale 16a/20, W.E.A, Main Ajmal Khan Road, Karol Bagh, New Delhi-110005. Email Id: Varad@Vvkale.Com Respondent No.8

9. Mr. Havinder Singh, B-80, Sharda Puri, Ramesh Nagar, New Delhi-110 045. Email Id: Singh.Harvinder1702@Gmail.Com Respondent No.9

Present: For Appellants Mr. Siddharth Yadav, Sr. Adv. alongwith Mr. Apoorv Agarwal, Mr. Manav Goyal, Ms. Ritika Gusain, Ms. Aastha & Ms. Amrita.

For Respondents Mr. Arijit Maitra, Ld. Observer.

Page 2 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Mr. Sidhant Kumar & Ms. Ekstha Kashyap, for R-1 & 2. With Comp. App. (AT) No. 162 of 2024 & I.A. No. 3718, 3719, 3720 of 2024

(Arising out of Impugned Order dated 15.05.2024 passed by the National Company Law Tribunal, Court No.2, New Delhi in C.P No. 48/ND/2024)

IN THE MATTER OF: Mr. Johnson Kallarachal Abraham C 12, Tower-6, Type 4, East Kidwai Nagar, New Delhi- 110023 Email Id: Johnsonka949@Gmail.Com Appellant No.1

VERSUS

1. Exclusive Capital Limited, No.7/17 L.G.F, Near Hauz Khas Sarvapriya Vihar, New Delhi 110016. Email Id: Achal@Exclusivecapital.In Respondent No.1

2. Mrs. Kanta Agarwala, 8a, Queen's Park, Ballygunge, Kolkata 700 019. Email Id: Kanta.Agarwala63@Gmail.Com Respondent No.2

3. Mr. Suresh Kumar Agarwala, 8a, Queen's Park, Ballygunge, Kolkata 700 019. Email Id: Suresh.Agarwala56@Gmail.Com Respondent No.3

4. Mr. Satya Prakash Bagla 7/17 L.G.F, Near Hauz Khas Metro Station, Sarvapriya Vihar, New Delhi 110 016. Email Id: Satya@Exclusivecapital.In Respondent No.4

5. Mr. Achal Kumar Jindal, 7/17 L.G.F, Near Hauz Khas Metro Page 3 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Station, Sarvapriya Vihar, New Delhi 110 016. Email Id: Achal@Exclusivecapital.In Respondent No.5

6. Mr. Rajeev Uberoi E1 /62, Arera Colony, Bhopal-462 016. Email Id: Rajeevuberoi1957@Gmail.Com Respondent No.6

7. Mr. Krishnama Chary Mudumba, 3-7-32, Sree Nilayam, Plot No. 40, Road No. 2, Sri Sainagar Colony, Mansurabad, Hyderabad -500 068. Email Id: Mkchary999@Gmail.Com Respondent No.7

8. Mr. Om Prakash Sambharia, Rz B 25 3 Street No. 8, Gurudwara Road, Mahavir Enclave, Palam Village So, South West Delhi, Delhi - 110 045. Email Id: Sambhariaom@Yahoo.Com Respondent No.8

9. Mr. V.V Kale 16a/20, W.E.A, Main Ajmal Khan Road, Karol Bagh, New Delhi-110005. Email Id: Varad@Vvkale.Com Respondent No.9

10.Mr. Havinder Singh, B-80, Sharda Puri, Ramesh Nagar, New Delhi-110 045. Email Id: Singh.Harvinder1702@Gmail.Com Respondent No.10

Present: For Appellant Mr. Siddharth Yadav, Sr. Adv. alongwith Mr. Apoorv Agarwal, Mr. Manav Goyal, Ms. Ritika Gusain, Ms. Aastha & Ms. Amrita.

For Respondents Mr. Arijit Maitra, Ld. Observer. Mr. Sidhant Kumar & Ms. Ekstha Kashyap, for R-1 & 2.

Page 4 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

JUDGEMENT

(25.08.2026)

NARESH SALECHA, MEMBER (TECHNICAL)

1. There are two appeals filed by the Appellants i.e., Company Appeal (AT)

No. 161 of 2024 and Company Appeal (AT) No. 162 of 2024 under Section

421(1) of the Companies Act, 2013 ("Companies Act 2013") arising out of

Impugned Order dated 15.05.2024 passed by the National Company Law

Tribunal, ("The Tribunal") Court No.2, New Delhi in C.P No. 48/ND/2024).

Company Appeal (AT) No. 161 of 2024

2. This appeal is filed by the Appellants i.e. Mr. Satya Prakash Bagla who is

the promoter, managing director and shareholder of the Exclusive Capital Ltd.

(Respondent No.3) since 08.09.2021 and Mr. Achal Kumar Jindal who is a

director and shareholder of the Exclusive Capital Ltd. (Respondent No.3) since

13.10.2021.

Mrs. Kanta Agarwala, who is the shareholder of the Exclusive Capital Ltd.,

is the Respondent No.1 herein.

Mr. Suresh Kumar Agarwala, who is the shareholder of the Exclusive

Capital Ltd., is the Respondent No.2 herein.

Exclusive Capital Limited, (Company) is a Non - Banking Financial

Company (NBFC) registered with the Reserve Bank of India (RBI), is the

Respondent No.3 herein.

Page 5 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Mr. Johnson Kallarachal Abraham, who is the director and shareholder

having 1 equity share in the Company, is the Respondent No.4 herein.

Mr. Rajeev Uberoi, who was an erstwhile Independent Director of the

Company, is the Respondent No. 5 herein.

Mr. Krishnama Chary Mudumba, who was an additional director of the

Company, is the Respondent No.6 herein.

Mr. Om Prakash Sambharia, who is an Erstwhile Business Head of the

Company, is the Respondent No.7 herein.

Mr. V.V Kale, erstwhile Auditor of the Company, is the Respondent No.8

herein.

Mr. Havinder Singh, who is the Erstwhile Company Secretary of the

Company, is the Respondent No.9 herein.

Company Appeal (AT) No. 162 of 2024

3. This appeal is filed by the Appellant i.e. Mr. Johnson Kallarachal Abraham,

the Director of the Company and also holding 1 equity share of the Company.

Exclusive Capital Limited, (company) is the Respondent No.1 herein.

Mrs. Kanta Agarwala, who is the shareholder of the Company, is the

Respondent No.2 herein.

Mr. Suresh Kumar Agarwala, who is the shareholder of the company, is the

Respondent No.3 herein.

Page 6 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Mr. Satya Prakash Bagla, who is the managing director and majority

shareholder of Company since 08.09.2021, is the Respondent No.4 herein.

Mr. Achal Kumar Jindal, is the director and holding 1 equity shareholder

of the Company. is the Respondent No.5 herein.

Mr. Rajeev Uberoi who, was former Independent Director of the company,

is the Respondent No. 6 herein.

Mr. Krishnama Chary Mudumba, who was a former Independent Director

of the Company, is the Respondent No.7 herein.

Mr. Om Prakash Sambharia, who was former Business Head of the

company, is the Respondent No.8 herein.

Mr. V.V Kale who is Erstwhile Auditor of the company, is the Respondent

No.9 herein.

Mr. Havinder Singh, who is the former Company Secretary of the

company, is the Respondent No.10 herein.

Common pleadings by the Appellants

4. The Appellants in both the appeals are aggrieved by the common Impugned

Order and have made common pleadings in conjoint manner by same counsel for

all Appellants before us. Hence, we will record their pleading hereinafter and

refer them collectively as the Appellants.

Page 7 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

5. The Appellants submitted that Appellant Satya Prakash Bagla, who was the

original Respondent No. 2 in Company Petition No. 48 of 2024 ("the Petition"),

holds 21,11,844 equity shares, constituting 90% of the total shareholding in the

Company. The Appellants stated that Appellant Mr. Johnson Kallarachal

Abraham and Mr. Achal Kumar Jindal are directors and shareholders of the

Company and holds 1 equity share each in the company.

6. The Appellants submitted that the Company, formerly known as UT

Leasing Limited, is a public limited NBFC incorporated on 08.04.1994 under the

Companies Act, 1956, having its registered office at New Delhi. It was stated that

the authorised share capital of the Company consists of 2,50,00,000 equity shares

of ₹10 each and that, at the time of filing of the Company Petition, the issued,

subscribed and paid-up capital comprised 23,46,500 equity shares. The

Appellants further contended that the shareholding pattern clearly reflected that

Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala together

held only 10% of the equity shares, whereas the Appellant Mr. Satya Prakash

Bagla held approximately 90% of the shareholding, while the Appellants Mr.

Achal Kumar Jindal and Mr. Johnson Abraham and certain other shareholders

each held only one equity share each.

7. The Appellants contended that the Company (formerly UT Leasing Ltd.,

incorporated on 08.04.1994) was taken over and RBI approved the change in

control in favour of Appellant Mr. Satya Prakash Bagla on 08.09.2021. Mr. Achal

Kumar Jindal and Respondent Mr. Rajeeb Uberoi were appointed as directors on Page 8 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

13.10.2021. The company was renamed "Exclusive Capital Ltd." on 16.12.2021,

with corresponding RBI approval. It was further submitted that on 16.12.2021,

the Ministry of Corporate Affairs approved the change of the Company's name to

Exclusive Capital Limited, and on the same date the Company was registered

with the RBI as a Non-Deposit Taking Non-Systemically Important Non-

Banking Financial Company (NBFC) engaged in providing debt financing

solutions to micro and small enterprises. The Appellants submitted that the

Company thereafter commenced its operations as NBFC in accordance with the

applicable regulatory framework.

8. The Appellants further submitted that owing to the goodwill, business

reputation and credibility of the Appellant Mr. Satya Prakash Bagla, an entity

named Teesta Retail Private Limited, invested an amount of Rs. 315 Crores in the

Company between October 2021 and March 2022, against Optionally

Convertible Debentures (OCDs) aggregating to Rs. 315 Crores issued by the

Company. The Appellants contended that the said investment substantially

strengthened the financial position and business prospects of the Company and

constituted one of the most significant capital infusions received by it.

9. The Appellants further submitted that after the infusion of Rs. 315 Crores

through OCDs, the Company became conscious that the transaction had the

potential to affect the leverage ratio prescribed under the Non Banking Financial

Company Non-Systematically Important Non Deposit Taking Company (Reserve

Bank) Directions 2016 (NBFC Directions) governing NBFCs. Accordingly, the Page 9 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Company sought an expert legal opinion to ensure regulatory compliance. The

Appellants contended that the expert opinion clarified that the existing OCDs

were inconsistent with the prudential norms prescribed by the RBI relating to

leverage ratio and Compulsorily Convertible Preference Shares (CCPS), which

would form part of the Company's owned funds and Tier-I Capital the proposed

conversion of CCDs to CCPSs required only the approval of the debenture holder

and shareholders and prior approval of the RBI was not required merely for

conversion of OCDs into CCPS. The Appellants stated that as per opinion of the

expert, RBI approval would have become necessary only if, at the stage of

conversion of CCPS into equity shares, the resulting shareholding exceeded the

threshold prescribed under Paragraph 61 of the NBFC Directions. The Appellants

submitted that the Company acted strictly in accordance with the said legal advice

for ensuring complete regulatory compliance.

10. The Appellants stated that Teesta Retail Private Limited, being the holder

of the OCDs, consented to such conversion by its letter dated 26.08.2022 based

on which the Company resolved through Circular Resolution No. 07/2022-23

dated 25.08.2022 to convert the OCDs amounting to Rs. 315 Crores into CCPS

of an equivalent value.

11. The Appellants stated that Respondents Mrs. Kanta Agarwala and Mr.

Suresh Kumar Agarwala acquired their shareholding on 05.09.2022, i.e., after the

aforesaid investment had already been made by Teesta Retail Private Limited. It

was submitted that before purchasing the shares, Respondents Mrs. Kanta Page 10 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Agarwala and Mr. Suresh Kumar Agarwala had exercised due diligence regarding

the affairs of the Company and were fully aware of the investment of Rs. 315

Crores as well as the financial structure of the Company. The Appellants therefore

contended that the minority shareholders entered the Company with complete

knowledge of the existing affairs and cannot subsequently challenge transactions

of which they had prior knowledge.

12. The Appellants further submitted that in the Board Meeting held on

27.09.2022, the Board formally approved the transfer of shares in favour of

Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala and

simultaneously ratified and approved the conversion of OCDs into CCPS

pursuant to Sections 55 and 62(3) of the Companies Act, 2013 read with Rule 9

of the Companies (Share Capital and Debentures) Rules, 2014.

13. The Appellants stated that during the same Board Meeting, the Board also

considered and approved an omnibus approval mechanism for related party

transactions in accordance with Rule 6A of the Companies (Meetings of Board

and its Powers) Rules, 2014. It was resolved that related party transactions up to

an aggregate value of Rs. 10 Crores for the financial year 2022-23 and thereafter

could be entered into after following the prescribed legal framework. The

Appellants submitted that all subsequent transactions were undertaken within the

scope of such approval.

14. The Appellants further submitted that the 28th Annual General Meeting of

the Company was held on 29.09.2022 with the written consent of Respondents Page 11 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala to convene the meeting

at shorter notice. During the said AGM, the shareholders approved the audited

financial statements for the financial year 2021-22. It was specifically recorded

in the balance sheet that the Company had proposed revision of the terms of the

OCDs and their conversion into CCPS and that the debenture holder had already

granted consent on 26.08.2022.

15. The Appellants submitted that Respondents Mrs. Kanta Agarwala and Mr.

Suresh Kumar Agarwala were, at all material times, fully aware of the investment

made by Teesta Retail Private Limited, the temporary issue relating to the

leverage ratio, the expert legal opinion obtained by the Company, the proposed

conversion of OCDs into CCPS, the approvals granted by the Board and

shareholders, and the disclosures contained in the financial statements. Despite

possessing complete knowledge of these transactions, Respondents Mrs. Kanta

Agarwala and Mr. Suresh Kumar Agarwala never raised any objection or

grievance until they instituted the Company Petition No. 48/ND/2024 in 2024.

The Appellants therefore contended that the allegations subsequently levelled by

the minority shareholders were wholly belated, devoid of bona fides, and

constituted an afterthought intended to challenge transactions that had long since

been validly approved and implemented.

16. The Appellants further submitted that the Tribunal failed to appreciate that

the OCDs had been issued against a genuine investment of ₹315 Crores made by

Teesta Retail Private Limited and that, upon obtaining expert legal advice Page 12 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

regarding the leverage ratio prescribed under the NBFC Directions, the Company

immediately initiated corrective measures by converting the OCDs into CCPS,

after obtaining the consent of the investor, approval of the shareholders and

approval of the Board of Directors, strictly in accordance with the Companies

Act, 2013. The Appellants stated that the Tribunal committed a manifest error in

treating the issuance of OCDs and their subsequent conversion into CCPS as

contrary to the NBFC Directions as, such conversion did not require prior

approval of the RBI.

17. The Appellants further submitted that the Tribunal erred in concluding that

the conversion of OCDs into CCPS diluted the shareholding of the minority

shareholders and thereby amounted to oppression. The Appellants contended that,

as on the date of the Impugned Order, the CCPS had not been converted into

equity shares and, consequently, there had been no dilution whatsoever of the

equity shareholding of Respondents Mrs Kanta Agarwala and Mr. Suresh Kumar

Agarwala It was argued that the apprehended reduction in shareholding was

merely speculative and incapable of constituting an act of oppression under

Sections 241 and 242 of the Companies Act, 2013.

18. The Appellants submitted that the Tribunal further erred in observing that

the liabilities of the Company exceeded several times its paid-up capital and that

such circumstance justified the formation of an opinion that it was just and

equitable to wind up the Company. The Appellant argued that the finding

regarding the Company's debt position was based on an incorrect factual premise Page 13 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

as the Tribunal failed to appreciate that, after conversion, CCPS no longer

represented a debt instrument but formed part of the Company's capital structure.

Consequently, neither an existing debt nor any future debt liability arose on

account of the CCPS. The Appellants contended that the Tribunal erroneously

proceeded on the assumption that the Company continued to carry an excessive

debt burden despite the complete transformation of the investment into a capital

instrument.

19. The Appellants contended that the Tribunal correctly noticed the settled

principle laid down in Mohanlal Ganpatram & Anr. v. Shri Sayaji Jubilee Cotton

and Jute Mills Co. Ltd. that acts already completed by the management ordinarily

cannot be undone in proceedings alleging oppression and mismanagement.

However, despite recognising the said legal position, the Tribunal proceeded to

direct cancellation of the CCPS and refund of ₹315 Crores to the investor.

According to the Appellants, such directions were directly contrary to the very

legal principle acknowledged in the Impugned Order particularly when the

investors itself had never questioned the conversion nor sought any refund. It was

contended that the Impugned Order effectively deprived the Company of

substantial working capital intended for its business operations, thereby causing

serious prejudice to the Company and its shareholders.

20. The Appellants further submitted that even assuming, without admitting,

that there had been any regulatory infraction between March 2022 and September

2022 in relation to the issuance of OCDs, the only consequence contemplated Page 14 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

under the Reserve Bank of India Act, 1934 (RBI Act) was the imposition of a

monetary penalty under Section 58G of the RBI Act. It was argued that the

Tribunal travelled far beyond the statutory consequences by characterising the

transaction as oppression and mismanagement and directing cancellation of the

capital infusion.

21. The Appellant further submitted that any alleged violation of Regulation 6

of the NBFC Directions, assuming without admitting such violation existed,

could be examined only by the RBI, being the statutory regulator of NBFCs. The

Appellants contended that the jurisdiction exercised by the Tribunal in

adjudicating alleged breaches of the NBFC Directions amounted to an

impermissible intrusion into the exclusive regulatory domain of the RBI.

22. The Appellants further submitted that the Board Resolution dated

27.09.2022 merely provided that the CCPS could be converted upon giving two

months' prior notice at any time within a period not exceeding twenty years from

the date of issuance. The Appellants contended that there was absolutely no

material to conclude that such conversion would necessarily occur beyond the

five-year regulatory period or that it would adversely affect the leverage ratio.

According to the Appellants, the Tribunal's conclusions in this regard were based

entirely upon speculation and conjecture rather than any evidence available on

record.

23. The Appellants contended that the Impugned Order incorrectly holds that

the existence of a larger liability than the paid-up capital is grounds for winding Page 15 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

up. Mere existence of larger liabilities, unless defaulted, does not amount to a

ground for winding up. In the present case, the "liability" was not even in the

nature of a debt repayable at the time of institution of the petition.

24. The Appellants submitted that the Tribunal has concluded that the

conversion of OCDs into CCPS itself triggers the need for prior permission under

Clause 61(b) of the NBFC Directions, which is entirely misconstrued as Clause

61 applies to progressive creeping acquisitions cumulatively reaching 26%, not

to future changes by conversion of CCPS.

25. The Appellants contended that the Tribunal proceeded on the basis that

conversion reduces the shareholding of Respondents Mrs. Kanta Agarwala and

Mr. Suresh Kumar Agarwala to minuscule levels without appreciating that non-

selective, non-discriminatory reduction in shareholding due to corporate

operations does not amount to oppression and mismanagement, especially when

it does not divest control or participative rights.

26. The Appellants refuted the other allegations regarding non implementation

of the alleged Expansion Agreement and submitted that the Tribunal failed to

appreciate the correct facts. The Appellants submitted that Respondent Mrs.

Kanta Agarwala had expressed her willingness to invest an amount of ₹5 Crores

in the Company. Since the process of obtaining approval from the RBI for any

prospective change in shareholding was time-consuming, the Company, as a

matter of abundant caution, submitted an application dated 28.12.2022 before the

RBI seeking approval for the proposed investment. The Appellants contended Page 16 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

that, at the relevant point of time, the commercial terms of the proposed

investment had not been finalised and, therefore, the application did not specify

the exact number of equity shares proposed to be allotted to Respondent Mrs.

Kanta Agarwala. It was further submitted that the RBI granted its approval on

30.05.2023, which remained valid for a period of six months. However, despite

obtaining the approval, Respondent Mrs. Kanta Agarwala never invested the

proposed amount of ₹5 Crores in the Company.

27. The Appellants further submitted that the allegation of the Respondents

Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala regarding an alleged

personal loan of ₹62.05 Crores advanced to the Appellant Mr. Satya Prakash

Bagla was entirely unsupported by documentary evidence. The Appellants

contended that even assuming, without admitting, that such a personal loan had

been advanced, the entire case sought to be built by the Complaining Petitioners

was legally untenable. It was submitted that an individual cannot discharge his

personal liability by causing allotment of shares of a company without the

company itself receiving the corresponding consideration. Such an arrangement

would be contrary to the Companies Act, 2013 and settled principles governing

issuance of share capital.

28. The Appellants further submitted that the Tribunal erred in accepting the

explanation furnished by the Complaining Petitioners that the proposed infusion

of ₹5 Crores into the Company was intended to be adjusted against the alleged

personal liability of the Appellant Mr. Satya Prakash Bagla. It was contended that Page 17 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

such reasoning was wholly speculative and unsupported by any contemporaneous

record. The Appellants stated that the application dated 28.12.2022 submitted by

the Company to the RBI itself clearly stated that the proposed investor intended

to infuse ₹5 Crores into the Company in one or more tranches. This, according to

the Appellants, conclusively established that the investment had not yet been

made and that no pre-existing adjustment or settlement as alleged in the rejoinder

had ever taken place.

29. The Appellants further submitted that the Tribunal committed another

serious error in appointing the Administrator and further directing the

Administrator to implement the RBI approval dated 30.05.2023 by issuing shares

to the Complaining Petitioners and appointing Respondent Mr. Om Prakash

Sambharia as Chief Executive Officer and Whole-Time Director. It was argued

that the RBI approval itself was expressly valid only for six months and had

admittedly expired in November 2023, consequently, no direction could legally

have been issued to implement an approval which had already lapsed.

30. The Appellants contended that the Tribunal also failed to appreciate that

the Company's application before the RBI merely sought approval in anticipation

of a possible change in shareholding beyond the statutory threshold. The

application never sought approval for allotment of 28,83,506 equity shares and it

was specifically stated therein that the number of shares proposed to be allotted

would depend upon the prevailing valuation of the Company at the time of

investment. Therefore, according to the Appellants, the direction compelling Page 18 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

allotment of a fixed number of shares had absolutely no basis either in the

application submitted before the RBI or in the approval granted by the RBI.

31. The Appellants further submitted that the Tribunal completely ignored the

fact that Mr. Om Prakash Sambharia himself had declined the proposed

appointment as Director by his communication dated 06.09.2023 on account of

his preoccupation with other professional assignments. Therefore, the Tribunal

could not have compelled implementation of an arrangement which had already

become incapable of performance.

32. The Appellants submitted that the Tribunal further failed to appreciate that

Respondents (Mr. Rajeev Uberoi, Mr. Krishnama Chary Mudumba, Mr. Om

Prakash Sambharia, Mr. V.V Kale, Mr. Havinder Singh) had themselves violated

Article 210 of the Articles of Association of the Company by disclosing

confidential and proprietary information relating to the affairs of the Company to

outsiders.

33. The Appellants further submitted that immediately after the Company's

management initiated scrutiny into the unauthorised Assignment Agreement and

the role of certain officers, Respondents Mrs. Kanta Agarwala and Mr. Suresh

Kumar Agarwala, acting in concert with Respondents (Mr. Rajeev Uberoi, Mr.

Krishnama Chary Mudumba, Mr. Om Prakash Sambharia, Mr. V.V Kale, Mr.

Havinder Singh) orchestrated a coordinated attempt to undermine the

management of the Company. It was contended that on 10.12.2023, within a span

of approximately forty-five minutes, certain other senior managerial personnel Page 19 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

and professionals including the Company's Company Secretary and Chartered

Accountant, simultaneously tendered their resignations. The Appellants

submitted that such resignations were neither isolated nor coincidental but formed

part of a premeditated conspiracy to destabilise the affairs of the Company.

34. The Appellants contended that Respondent Mr. Havinder Singh, who had

been appointed as the Company Secretary on 23.12.2022, acted completely

without authority and fraudulently executed an Assignment Agreement in favour

of Standard Capital Markets Limited, thereby assigning valuable rights relating

to the Company's loan portfolio without obtaining any approval from the Board

of Directors. It was submitted that immediately upon discovering the

unauthorised transaction, the Company persistently pursued the matter with

Standard Capital Markets Limited and ultimately executed a Cancellation

Agreement dated 07.11.2023, thereby nullifying the unauthorised Assignment

Agreement dated 04.10.2023. The Appellants further submitted that the Company

also lodged a police complaint against Respondent Mr. Havinder Singh, the

Company Secretary for his illegal and fraudulent acts and that the matter remains

under investigation by the competent authorities.

35. The Appellants submitted that the Tribunal failed to appreciate the settled

principle of corporate democracy, which mandates that the affairs of a company

are to be managed by its duly constituted Board of Directors, and judicial

interference is warranted only upon proof of persistent acts of oppression or

mismanagement. It was contended that the Impugned Order completely Page 20 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

disregarded this settled principle by virtually taking over the management of the

Company through the appointment of the Administrator.

36. The Appellants submitted that the Tribunal travelled beyond the pleadings

while granting several reliefs which had never been sought by the Complaining

Petitioners. It was contended that the appointment of the Administrator had been

prayed for only as an interim measure and not as a final relief. Nevertheless, the

Tribunal proceeded to appoint the Administrator for taking over the affairs of the

Company as a substantive final relief, thereby violating the settled principle that

no Court or Tribunal can grant relief beyond the pleadings of the parties.

37. The Appellants submitted that the allegation regarding the purchase of the

Bentley Mulsanne vehicle was wholly misconceived and deliberately projected

to create an impression of financial impropriety. The Appellants contended that

the Company purchased a Bentley Mulsanne vehicle from Luxus Retail Private

Limited for a consideration of Rs. 9,09,00,000/-. The Appellants further stated

that the transaction was undertaken strictly on an arm's length basis.

38. The Appellants submitted that the Tribunal also erred in treating the

purchase of the Bentley as an, overvalued and fraudulent transaction. It was

contended that the purchase had been undertaken after obtaining prior approval

of the Board in accordance with the omnibus approval mechanism framed under

Rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014. The

Board had authorised related party transactions up to Rs. 10 Crores, and the

purchase price of Rs. 9.09 Crores fell well within the approved limits. The Page 21 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Appellants further submitted that the Bentley vehicle was acquired exclusively

for official purposes and constituted a valuable corporate asset. It was argued that

the Company's business model primarily involved dealing with high-net-worth

individuals, institutional investors and leading business houses, for whom

maintenance of an appropriate corporate image formed an integral part of

business strategy. The purchase of the vehicle was therefore a legitimate

commercial decision taken in the best interests of the Company and could not be

characterised as either extravagant or prejudicial.

39. The Appellants submitted that the Tribunal also failed to appreciate that

the vehicle had been registered in Mumbai purely for legitimate commercial and

tax planning considerations so as to minimise registration charges. Such

registration, according to the Appellants, was entirely lawful and could not

constitute an act of oppression or mismanagement.

40. The Appellants further submitted that the conduct of the Complaining

Petitioners clearly demonstrated that they had no genuine concern for the welfare

or growth of the Company. Holding merely 10% of the shareholding, they sought

to paralyse the functioning of a profitable Company through speculative

allegations and unnecessary litigation with the sole object of causing prejudice to

the Appellants, and the Company itself.

41. The Appellants submitted that the Tribunal also failed to appreciate that

the real dispute between the parties was purely personal in nature and arose out

of an alleged financial transaction between the Complaining Petitioners and the Page 22 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Appellant Mr. Satya Prakash Bagla in his individual capacity. It was contended

that even assuming such personal dispute existed, it could never furnish a valid

cause of action for maintaining proceedings under Sections 241 and 242 of the

Companies Act, 2013.

42. The Appellants stated that, to expand business and commercial value it was

decided to purchase loan facilities of Asian Hotels North Limited (AHNL) from

IndusInd Bank and obtained an Inter Corporate Deposit (ICD) of Rs. 60 crores

from Clover Media Pvt. Ltd. on an unsecured basis, with repayment undertaking

within 12 months (extendable); an Assignment Agreement was executed with

IndusInd Bank on 28.12.2022. Subsequently, an unauthorized Assignment

Agreement was discovered, executed by Respondent Mr. Havinder Singh

(Company Secretary) with Standard Capital Markets Limited, assigning AHNL

loan rights without board authorization. This was cancelled on 07.11.2023 after

follow-ups.

43. The Appellants submitted that Respondents Mrs. Kanta Agarwala and Mr.

Suresh Kumar Agarwala, along with their son, being well aware that the

Appellants would vigorously oppose their nefarious acts to strip the Company of

its rights over the AHNL loan facilities, filed the Company Petition before the

Tribunal with a malevolent motive. The Petition was devoid of any merit and was

filed to obtain the stamp of the Tribunal for taking control of the Company.

Page 23 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

44. The Appellants contended that Appellant Mr. Suresh Kumar Bagla filed

I.A. No. 174 of 2024 offering to buy shares of Respondents Mrs. Kanta Agarwala

and Mr. Suresh Kumar Agarwala at full value plus interest to resolve issues and

ensure business continuity. Respondents Mrs. Kanta Agarwala and Mr. Suresh

Kumar Agarwala made a counter-proposal to buy shares at double the price.

These proposals were recorded in the order dated 24.04.2024 by the Tribunal, but

the application remains pending for adjudication by the Tribunal.

45. Concluding arguments, the Appellants requested this Appellate Tribunal to

set aside the impugned order and allow both the appeals.

Common pleadings by the Respondents

46. These common pleadings are submitted by Mrs. Kanta Agarwala and

Mr. Suresh Kumar Agarwala (Respondent Nos. 1 and 2 respectively in Company

Appeal (AT) No. 161 of 2024 and Respondent Nos. 2 and 3 respectively in

Company Appeal (AT) No. 162 of 2024) and have made common pleadings on

conjoint manner by same counsel for Respondents before us. Hence, we will

record their pleading hereinafter and refer them collectively as the Respondents.

47. Per contra, the Respondents denied all the averments made by the

Appellants as misleading and baseless.

48. The Respondents submitted that the Appellants had continuously acted in

violation of the statutory framework governing NBFCs by disregarding the

Page 24 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

mandatory provisions contained in the Non-Banking Financial Company Non-

Systemically Important Non-Deposit Taking Company (Reserve Bank)

Directions, 2016 as well as the Master Direction - Reserve Bank of India (Non-

Banking Financial Company - Scale Based Regulation) Directions, 2023. It was

contended that these violations were neither technical nor inadvertent but

constituted persistent breaches of mandatory regulatory provisions, thereby

rendering the management of the Company unfit to continue administering its

affairs.

49. The Respondents stated that the Tribunal had correctly taken note of the

fact that the Appellants had raised debt through the issuance of OCDs amounting

to approximately Rs. 315 Crores, despite the Company's net owned funds being

merely Rs. 2.34 Crores. It was submitted that this resulted, the Company

exceeding the permissible leverage ratio by more than one hundred and seventeen

times, thereby violating the RBI Directions which is an admitted and undisputed

matter. The Respondents contended that the Appellants themselves had admitted

before the Tribunal as well as in the present Appeal that they were conscious that

the issuance of OCDs to the extent of Rs. 315 Crores would breach the leverage

ratio prescribed under the NBFC Directions. The Respondents submitted that the

Appellants' own pleadings clearly establish that they were fully aware of the

statutory consequences before undertaking the transaction, thereby demonstrating

deliberate disregard of the applicable regulatory framework.

Page 25 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

50. The Respondents further submitted that the Appellants' subsequent attempt

to portray the conversion of OCDs into CCPS as a corrective measure is wholly

misconceived and legally untenable. It was contended that such conversion did

not rectify the statutory violation but instead resulted in an additional violation of

the NBFC Directions since the conversion substantially altered the shareholding

and control of the Company without obtaining the mandatory prior approval of

the Reserve Bank of India.

51. The Respondents further submitted that the Appellants had deliberately

overlooked the settled accounting and regulatory position that CCPS having a

tenure exceeding five years continue to be treated as liabilities under the

applicable Indian Accounting Standards (Ind AS) and the RBI Prudential Norms

applicable to NBFCs, since the CCPS issued by the Company were convertible

within a period extending up to twenty years, they continued to constitute outside

liabilities, with the result that the leverage ratio remained in violation even after

the purported conversion. It was therefore contended that the Company continues

to remain in breach of both the 2016 and 2023 RBI Directions for NBFCs.

52. The Respondents submitted that the RBI vide their letters dated 27.03.2026

held that the Company has been in violations and has penalised the company in

mandatory terms, in addition to keeping further regulatory actions under

contemplations as per rules. The Respondents emphasized that this proves beyond

any doubt that the company was definitely involved in mismanagement and thus

Impugned Order was correctly passed.

Page 26 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

53. The Respondents submitted that the Appellants had attempted to evade

responsibility by falsely alleging that the Respondents were aware of the issuance

of the OCDs and had impliedly consented to their subsequent conversion into

CCPS. The Respondents categorically denied these allegations and submitted that

no such knowledge or consent was ever provided. The Respondents stated that

the chronology of events clearly disproves the Appellants' assertions. It was

submitted that the Respondents became shareholders of the Company on 5

September 2022, whereas the audited financial statements and balance sheet for

the relevant financial year were finalised only on 27 September 2022,

immediately after the OCDs had been converted into CCPS. It was contended that

the Appellants intentionally delayed the finalisation of the financial statements in

order to conceal the earlier violation of the leverage ratio. The Respondents

further submitted that the minutes of the Board Meeting dated 27 September 2022

were entered into the minute books only on 20 October 2022 and signed on 22

October 2022, thereby further evidencing the concealment of material facts. The

Respondents further submitted that at no point of time had the Respondents

consented to the conversion of the OCDs into CCPS. It was specifically

contended that the mere absence of the Respondents from the Extraordinary

General Meeting could never amount to deemed consent for an otherwise illegal

transaction. The Respondents further stated that, and even assuming and not

admitting such consent had existed, the settled principle of law is that there can

be no estoppel against a statute. Accordingly, any purported consent of Page 27 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

shareholders cannot validate an act undertaken in violation of mandatory RBI

regulations.

54. The Respondents contended that the Tribunal had rightly held that the

admitted violations of the NBFC Directions constituted acts prejudicial to the

interests of both the Company and the public, particularly in view of the

Company's status as an NBFC dealing with public funds. It was submitted that

Sections 242(1) and 242(2)(m) of the Companies Act, 2013 confer wide equitable

powers upon the Tribunal to pass such orders as may be necessary to bring an end

to acts of oppression, mismanagement, and illegality.

55. The Respondents further relied upon the judgment of the Needle Industries

(India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [(1981) 3 SCC 333]

to contend that the Tribunal possesses ample jurisdiction to interfere with illegal

corporate actions, including illegal allotment of shares and violations of statutes

other than the Companies Act, 2013. It was submitted that the Hon'ble Supreme

Court has authoritatively recognised that the powers of the Company Law Board,

and consequently those of the Tribunal under Sections 241 and 242 of the

Companies Act 2013, extend to granting appropriate relief where corporate

actions violate other statutory provisions. The Respondents therefore contended

that the Tribunal rightly exercised its powers under Sections 242 and 420 of the

Companies Act,2013 in passing the Impugned Order.

56. The Respondents submitted that the violations committed by the

Appellants are extremely serious as they threaten the regulatory existence of the Page 28 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Company as an RBI-registered NBFC. It was contended that these violations have

already been admitted by the Appellants and have been duly considered by the

Tribunal while passing the Impugned Order. Accordingly, the Respondents

submitted that a strong prima facie case exists in favour of Respondents and that

no interference with the findings recorded by the Tribunal is warranted at the

interlocutory stage.

57. The Respondents submitted that apart from the admitted violations of the

NBFC Directions, the Appellants had systematically siphoned off the funds of

the Company by engaging in dubious and fraudulent related party transactions

for their personal benefit. It was contended that the true extent of such financial

irregularities has not yet been fully uncovered and can only be ascertained

through an independent forensic and transaction audit as directed by the Tribunal.

58. The Respondents stated that, at the time of filing the Company Petition

before the Tribunal, the Respondents had become aware of one such suspicious

transaction involving Luxus Retail Private Limited ("Luxus"), a company wholly

owned and controlled by the Appellants. Initially, the Respondents had

discovered an invoice dated 16 December 2022, evidencing the purported

purchase by the Company of a second-hand Bentley motor car from Luxus at an

exorbitant price. However, during the pendency of the proceedings, the former

Business Head of the Company, Mr. Om Prakash Sambharia, disclosed that the

said transaction formed part of a much larger scheme involving diversion of

funds, money laundering, and financial fraud.

Page 29 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

59. The Respondents further submitted that the Company had advanced a loan

of Rs. 14 Crores to Luxus in two tranches, namely Rs. 5 Crores and Rs. 9 Crores,

carrying an unusually low rate of interest of merely 7%. It was contended that no

loan agreement, security document, or deed of hypothecation was ever executed

in favour of the Company. The Respondents stated that while the first tranche of

Rs. 5 Crores was repaid, the remaining amount of Rs. 9 Crores was not repaid in

the ordinary course but was subsequently adjusted against the purported purchase

of the second-hand Bentley vehicle in December 2022. Consequently, money

which had originally left the Company under the guise of a loan never returned

to the Company as loan repayment, and no interest whatsoever was recovered on

the outstanding amount, thereby causing substantial financial loss to the

Company. The Respondents contended that the Appellants sought to justify the

purchase of the Bentley by asserting that the luxury vehicle was required to

impress high-net-worth individuals and that the transaction had allegedly been

approved through an omnibus approval. However, the Respondents submitted

that such justification is wholly untenable and contrary to the documentary

record. Keeping in view the paid up capital of the Company itself was of Rs. 2.34

crores. The Respondents stated that the alleged omnibus approval was passed

only through a Circular Resolution dated 21 September 2022, whereas the loan

of Rs. 14 Crores had already been advanced to Luxus during March and April

2022. Consequently, the purported omnibus approval could never retrospectively

validate or authorize the earlier loan transaction. The Respondents further Page 30 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

submitted that even a plain reading of the Circular Resolution demonstrates that

it merely laid down broad criteria for considering related party transactions and

did not grant approval for any specific transaction, much less the advancement of

Rs. 14 Crores to Luxus or the subsequent purchase of a luxury Bentley vehicle.

60. The Respondents further contended that, even assuming without admitting

that the purchase of a luxury vehicle was commercially justified, there existed

absolutely no necessity to purchase the vehicle from a related party owned and

controlled by the Appellants themselves. It was submitted that the vehicle could

easily have been purchased through an independent third-party dealer in an arm's

length transaction. The Respondents argued that the Company is an RBI-

regulated NBFC and not an entity engaged in public relations or luxury services,

and therefore the purchase of an expensive Bentley vehicle costing approximately

Rs. 9.09 Crores, when the Company's paid-up capital itself was only about Rs.

2.34 Crores, was wholly irrational, commercially imprudent, and manifestly

against the interests of the Company.

61. The Respondents further submitted that the Tribunal rightly took judicial

notice of this glaring irregularity and categorically observed that the purchase of

a luxury vehicle worth nearly three times the paid-up share capital of the

Company reflected complete absence of financial prudence and corporate

governance. It was contended that this finding further substantiated the

conclusion that the affairs of the Company were being conducted in a manner

prejudicial to its interests.

Page 31 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

62. The Respondents further submitted that the Bentley transaction was merely

one among several suspicious related party transactions undertaken by the

Appellants for their own benefit. The Respondents stated that the statutory auditor

had highlighted numerous transactions indicating systematic diversion of the

Company's funds to entities owned or controlled by the Appellants.

63. The Respondents stated that Rule 6A of the Companies (Meetings of Board

and its Powers) Rules, 2014 requires the Audit Committee, while granting

omnibus approval, to consider various statutory parameters including the

necessity of the transaction, the justification for granting omnibus approval, the

identity of the related party, the nature and value of the transaction, the duration

of the transaction, pricing methodology, and the maximum permissible amount.

It was submitted that none of these mandatory statutory requirements had been

complied with in respect of the impugned transactions.

64. The Respondents contended that several related party transactions had

admittedly taken place much prior to the passing of the alleged Circular

Resolution dated 21 September 2022. These included the loan of Rs. 14 Crores

granted to Luxus, the loan of Rs. 4.90 Crores granted to Appellant Mr. Satya

Prakash Bagla, and the loan of Rs. 12.89 Crores advanced to Sulojay Realty

Private Limited, another company owned and controlled by the Appellants.

Consequently, these transactions could never have been authorized by a Circular

Resolution passed several months later.

Page 32 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

65. The Respondents submitted that even those transactions which the

Appellants sought to justify under the Circular Resolution were themselves

contrary to the conditions prescribed therein. It was pointed out that the Circular

Resolution contemplated a monetary ceiling of Rs. 10 Crores for related party

transactions, whereas loans amounting to Rs. 14 Crores and Rs. 12.89 Crores had

been advanced to Luxus and Sulojay Realty respectively, far exceeding the

prescribed limit.

66. The Respondents further contended that the Circular Resolution also

stipulated that each tranche of payment should not exceed Rs. 5 Crores. However,

despite this express condition, Luxus was advanced a second tranche of Rs. 9

Crores, thereby violating even the internal criteria relied upon by the Appellants

themselves. The Respondents further submitted that Respondent Mr. Om Prakash

Sambharia, business head of the Company had brought several additional

suspicious loan transactions to the notice of the Tribunal, which collectively

established a consistent pattern of financial impropriety.

67. The Respondents stated that one such transaction involved Laxmipati

Management Services Private Limited, to whom a loan of Rs. 3 Crores was

sanctioned purportedly for the purchase of a luxury vehicle from Exclusive

Motors Private Limited (EMPL). However, the loan proceeds were directly

disbursed to EMPL, no vehicle was ever purchased, and no hypothecation or

security was created in favour of the Company. Nearly one and a half years later,

Page 33 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

EMPL repaid approximately Rs. 3.12 Crores, resulting in a substantial loss of

interest that the Company would ordinarily have earned on such a transaction.

68. The Respondents further submitted that another suspicious transaction

concerned Mr. Jayant Mirani, who was granted a loan of Rs. 2.05 Crores despite

the fact that he had already availed a separate loan of approximately Rs. 3 Crores

from the Bank of Baroda for purchase of the same vehicle, which already stood

mortgaged to the bank. It was submitted that despite this existing encumbrance,

the Company advanced another loan without obtaining any security or

hypothecation. Further, no interest was charged on a substantial portion of the

loan, the remaining amount remained unpaid, and no meaningful recovery

proceedings were initiated. It was also submitted that the outstanding amount

appeared to have been received by Appellant Mr. Achal Kumar Jindal through

cash or other undisclosed means, thereby giving rise to serious allegations of

financial fraud.

69. The Respondents further submitted that another suspicious transaction

involved the remittance of approximately Rs. 6.71 Crores by the Company to

Exclusive Motors Private Limited during July and August 2023 towards the

alleged purchase of another second-hand Bentley Bentayga vehicle. It was

contended that no Board approval or statutory approval was ever obtained for this

transaction, no supporting documentation existed in the Company's records, and

none of the former employees, including Respondents, had ever seen the vehicle

or could even confirm its existence. These circumstances, according to the Page 34 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Respondents, clearly established that the transaction was sham and designed

solely to siphon the Company's funds.

70. The Respondents emphatically contended that the Tribunal rightly

concluded that the Appellants could not be permitted to continue managing the

affairs of the Company pending investigation. It was submitted that apart from

the Appellants themselves, no person presently possesses complete knowledge

regarding the financial dealings and true financial position of the Company.

Therefore, the appointment of the independent Administrator, who is retired High

Court Judge of the Delhi High Court and the direction to conduct a

comprehensive transaction audit and forensic audit were absolutely necessary to

ascertain the true extent of financial diversion, identify the beneficiaries of such

transactions, recover the diverted assets wherever possible, restore statutory

compliance, and enable the Administrator to submit periodic reports before the

Tribunal.

71. The Respondents submitted that any interference with these directions at

the present stage would seriously prejudice the investigation, enable the

Appellants to tamper with the Company's financial records, and irreversibly

defeat the very purpose for which the Tribunal had appointed the independent

Administrator and directed a forensic examination of the Company's affairs.

72. The Respondents submitted that the conduct of the Appellants was not

confined merely to regulatory violations and diversion of funds, but also extended

to systematically dismantling the internal governance structure of the Company Page 35 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

in order to retain absolute and unchecked control over its affairs. It was contended

that the Appellants deliberately engineered the resignation of the Company's Key

Managerial Personnel, and attempted to suppress all evidence relating to their

illegal acts. These circumstances, according to the Respondents, clearly

established a continuing pattern of oppression, mismanagement, and abuse of

corporate powers, thereby fully justifying the intervention of the Tribunal.

73. The Respondents further submitted that the Appellants had also acted

maliciously by removing the Independent Directors of the Company during the

pendency of the proceedings before the Tribunal and despite the operation of

interim protective orders passed therein. It was contended that these removals

were orchestrated solely with the objective of eliminating independent oversight

over the affairs of the Company. The Respondents submitted that immediately

after service of the Company Petition upon the Appellants and the Company on

28 February 2024, Respondent (Mr. Krishnama Chary Mudumba) was removed

from the position of Independent Director without complying with the mandatory

provisions of the Companies Act, 2013. It was pointed out that the records

maintained by the Registrar of Companies reflected Respondent (Mr. Krishnama

Chary Mudumba) as continuing to hold office as an Independent Director as late

as 26 February 2024, thereby demonstrating that the subsequent removal was

undertaken in undue haste and contrary to law.

74. The Respondents further submitted that Respondent (Mr. Rajeev Uberoi)

was also purportedly removed through a Resolution dated 15 February 2024. The Page 36 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Respondents contended that the said Resolution was neither genuine nor

contemporaneous and was disclosed by the Appellants for the first time only

through their Reply filed before the Tribunal on 4 April 2024. The Respondents

vehemently argued that the alleged Resolution dated 15 February 2024 was

fabricated and antedated. The Respondents further submitted that despite the

Respondents specifically expressing before the Tribunal, during the hearings held

on 22 March 2024 and 2 April 2024, their apprehension that Respondent Mr.

Rajeev Uberoi might be removed from the Board, the Appellants deliberately

suppressed the existence of the alleged Resolution and failed to disclose the

purported removal. Such deliberate concealment, according to the Respondents,

further established the mala fide conduct of the Appellants and their lack of

candour before the judicial forum.

75. The Respondents submitted that the Tribunal rightly took cognizance of

these circumstances and specifically observed in the Impugned Order that the

manner in which the Independent Directors had been removed did not inspire

confidence in the governance standards of an NBFC entrusted with large volumes

of public money. The Respondents contended that these findings were based upon

the documentary evidence available on record and therefore deserved complete

deference by this Appellate Tribunal.

76. The Respondents further contended that continuous and successive acts of

regulatory non-compliance, diversion of funds, suppression of financial

transactions, elimination of Key Managerial Personnel, illegal removal of Page 37 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Independent Directors, and violation of interim judicial orders clearly established

that the affairs of the Company were being conducted by the Appellants in a

manner wholly prejudicial to the interests of the Company and its stakeholders.

The Respondents submitted that the Tribunal, after appreciating the entire factual

matrix, correctly exercised its equitable jurisdiction by appointing an independent

Administrator for a limited period of 180 days to take charge of the management

of the Company. It was contended that the Administrator, being a retired Judge

of the High Court of Delhi, was appointed solely to preserve the assets of the

Company, restore statutory compliance, supervise its affairs independently, and

facilitate a comprehensive forensic and transaction audit into the conduct of the

erstwhile management.

77. The Respondents further submitted that the Administrator had also been

directed to evolve an appropriate scheme for the future management of the

Company, submit periodic reports before the Tribunal, and seek further directions

wherever necessary. Such directions, according to the Respondents, were

carefully crafted to protect the Company without causing any irreversible

prejudice to the Appellants.

78. The Respondents contended that it is now well settled that the jurisdiction

conferred upon the Tribunal under Sections 241 and 242 of the Companies Act,

2013 is of the widest amplitude and is intended to enable the Tribunal to mould

appropriate reliefs so as to bring an end to acts of oppression, mismanagement,

illegality, and prejudice affecting the affairs of a company. The Respondents Page 38 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

therefore submitted that the Impugned Order neither exceeded the jurisdiction of

the Tribunal nor suffered from any legal infirmity. On the contrary, the directions

issued therein constituted necessary and proportionate measures for safeguarding

the Company, protecting its stakeholders, restoring lawful corporate governance,

and ensuring that the true extent of the Appellants' financial misconduct is

independently investigated.

79. Concluding arguments, the Respondents requested this Appellate Tribunal

to dismiss both the appeals with exemplary costs.

Pleadings by the Observer

80. The counsel for the Observer Justice R. K. Gauba, brought to notice that

he has already submitted 5 detailed reports which indicate the conduct of the

Appellants have not been conducive to the welfare of the Company. The counsel

for the Observer also brought to our notice that he has not been paid by the

company despite judicial order and urged this Appellate Tribunal to get his

remunerations paid by the company.

Findings

81. Having heard the parties, perusal the record made available including the

Impugned Order, we find appropriate to capture the basic facts of the case at this

stage.

Page 39 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

A) Chronology of events relevant in present appeal.

For ease of reference, the material dates, are set out below:

08.04.1994- ECL (formerly UT Leasing Limited) incorporated.

08.09.2021- RBI approves change in control/management of the Company ECL

in favour of the Appellant Mr. Satya Prakash Bagla.

13.10.2021- Appellants Mr. Satya Prakash Bagla (on 08.09.2021) and Mr. Achal

Kumar Jindal (on 13.10.2021) inducted as Directors; ECL classified as an NBFC.

06.12.2021- Amended certificate of incorporation issued; RBI registration as

non-deposit taking NBFC.

Oct. 2021 - Mar. 2022- Teesta Retail Private Limited subscribes to OCDs

aggregating Rs. 315 crores in three tranches.

05.09.2022- Complaining Petitioners (the Respondents Mrs. Kanta Agarwala and

Mr. Suresh Kumar Agarwala herein) acquire 1,17,325 equity shares each from an

erstwhile Director and become shareholders of the company.

26.08.2022- Company Secretary's opinion recommending conversion of OCDs

into CCPS to address the leverage-ratio breach.

06.09.2022 & 17.09.2022- Extraordinary General Meetings approve conversion

of OCDs into CCPS on shorter notice.

27.09.2022- Board ratifies conversion; approves criteria for omnibus approval of

related-party transactions; audited financial statements for FY 2021-22

(disclosing the OCD/CCPS position for the first time) adopted.

29.09.2022- 28th AGM held; shareholders approve the FY 2021-22 balance sheet. Page 40 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

16.12.2022- Purchase of Bentley Mulsanne motor car for Rs. 9,09,00,000/- .

28.12.2022- The company applies to RBI for approval to allot shares to the

Complaining Petitioners (the Respondents Mrs. Kanta Agarwala and Mr. Suresh

Kumar Agarwala) and to appoint Mr. Sambharia as CEO/Whole-Time Director.

30.05.2023- RBI grants the approval sought, valid for six months.

30.11.2023 - Validity of the RBI approval dated 30.05.2023 lapses, allegedly

without implementation by the company.

10.12.2023- Five Key Managerial Personnel, including the Company Secretary

and Chartered Accountant/Statutory Auditor, resign within a short span.

Feb.-Mar. 2024- Independent Directors (Mr. Rajeev Uberoi and Mr. Krishnama

Chary Mudumba) removed from the Board; petition C.P. No. 48/ND/2024 filed

and served.

22.03.2024, 02.04.2024, 08.04.2024- The Tribunal passes interim protective

orders restraining board meetings/business of the Company; Contempt Petition

No. 9 of 2024 subsequently instituted alleging violation thereof.

15.05.2024- The Tribunal passes the Impugned Order allowing C.P. No.

48/ND/2024.

B) Financial facts of the Company (at the relevant time)

Following facts relevant to several of the findings of the Tribunal in Impugned

Order, are recorded below:

Paid-up equity share capital: Rs. 2,34,65,000/-

Page 41 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

OCDs issued to Teesta Retail Pvt. Ltd. (Oct. 2021 - Mar. 2022):

Rs. 3,15,00,00,000/-

Resultant leverage ratio (outside liabilities ÷ owned funds): ≈ 117.77 as

noted from RBI letter dated 29.03.2026 ( RBI's ceiling: 7)

OCDs converted to CCPS (27.09.2022): Rs. 3,15,00,00,000/- (convertible into

equity at any time within 20 years)

Shareholding of Complaining Petitioners (the Respondents Mrs. Kanta

Agarwala and Mr. Suresh Kumar Agarwala herein acquired 05.09.2022):

1,17,325 equity shares each (two individuals)

82. In order to give contextual reference, we note that the broad allegations

raised by the Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala

in the Company Petition No. 48/ND/2024 were:

(i) the Company failed to comply with the Expansion Agreement,

causing grave prejudice to Respondents Mrs. Kanta Agarwala and Mr.

Suresh Kumar Agarwala;

(ii) the Company illegally converted the OCDs to CCPS without requisite

RBI approval under the NBFC Directions;

(iii) The Appellants caused the resignation of key managerial personnel

by intimidation and harassment, and the Company withheld their salaries

without justification;

Page 42 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

(iv) Appellant Mr. Satya Prakash Bagla purchased a Bentley Mulsanne

EWB 20My luxury car for his personal use with the Company's funds at

an exorbitant price of Rs. 9,09,00,000/- from Luxus Retail Pvt. Ltd., a

company held and controlled by the Appellants; along with such more

transactions

(v) There was consistent failure by the Appellants to disclose material

information to the Board and independent directors regarding loan

defaults, quarterly financial statements, accounting of transactions, and

related party transactions;

(vi) Appellant Mr. Achal Kumar Jindal and Mr. Johnson Abraham

consistently worked to further the interests of other parties/companies

related to Appellant Mr Satya Prakash Bagla.

In light of the above allegations, Respondents Mrs. Kanta Agarwala and

Mr. Suresh Kumar Agarwala sought the reliefs, inter alia: Direction to the

Company to apply to RBI to extend the validity of the RBI approval and allot

28,83,506 shares to Respondent Mrs. Kanta Agarwala as per the Expansion Plan;

Removal of Appellant Mr. Satya Prakash Bagla as Managing Director, Removal

of the Appellant Mr. Achal Kumar Jindal and Mr. Johnson Abraham as Directors

of the company; Appointment of Respondent Mr. Om Prakash Sambharia as

Page 43 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

CEO/WTD or Managing Director in place of Appellant Mr. Achal Kumar Jindal,

setting aside the purchase of the luxury car from Luxus etc.

83. We note that the Appellants, have assailed the Impugned Order and

submitted the following parts for consideration:

(a) that the direction cancelling the CCPS and treating the underlying Rs.315

crore as an instantly repayable debt was never a relief sought by any party and

travels beyond the pleadings, effectively imposing a crippling, contrived debt

liability on the Company that amounts to a disguised winding-up, a jurisdiction

alien to Section 242 of the Companies Act, 2013;

(b) that Respondent Mr. Rajeev Uberoi, Mr. Krishnama Chary Mudumba, Mr.

Om Prakash Sambharia, Mr. V.V Kale, Mr. Havinder Singh, not being petitioners

and lacking the locus under Section 244 of the Companies Act, 2013 to maintain

a petition in their own right, could not be permitted to indirectly found a case of

oppression through unverified and uncorroborated allegations in their replies;

(c) that the conversion of OCDs into CCPS, even if in breach of the NBFC

Directions, was at worst, visited with the consequence prescribed in Section 58G

of the Reserve Bank of India Act, 1934 read with Section 58B (5) (aa) thereof,

namely, monetary penalty and not automatic characterisation as oppression, and

mismanagement;

(d) that the Luxury Car purchase was expressly found by the Tribunal (at

paragraph 67 of the Impugned Order) to fall within the Board's omnibus approval

Page 44 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

for related-party transactions dated 27.09.2022, and, that being so, could not

simultaneously be treated as an act of oppression without a finding that the

transaction was unfair, overpriced or not at arm's length;

(e) that the mass resignation of key managerial personnel was, on the

Tribunal's own findings (paragraph 62 of the Impugned Order), "a matter of

investigation" as to whether it was attributable to misconduct of the resigning

employees or of the Appellants and an unresolved factual controversy cannot

found a conclusive finding of mismanagement; and

(f) that the appointment of the Administrator and 180-day suspension of the

Board is a drastic, quasi-winding-up measure disproportionate to the findings

actually recorded, particularly when an unadjudicated offer by Appellant Mr.

Satya Prakash Bagla to buy out Respondents Mrs. Kanta Agarwala & Mr. Suresh

Kumar Agarwala at fair value remained pending consideration by the Tribunal

itself.

84. On the other hand, the Respondents supported the Impugned Order and

submitted:

(a) that the issuance of OCDs disregarding the leverage ratio ceiling, and their

subsequent conversion into CCPS without RBI's prior permission under Clause

61(b) of the NBFC Directions, despite the progressive acquisition of shareholding

it entailed, was a device to entrench the Appellants' control and to dilute the

minority to a vanishing shareholding, and was rightly found to be not bona fide.

Page 45 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

(b) that the unauthorised assignment of the Company's valuable rights over the

AHNL debt to VSJ, the coordinated resignation of the entire senior management

within 45 minutes, the removal of an Independent Director by a Board resolution

of doubtful provenance, and the admitted multiple related-party transactions (car

purchase, loan of Rs.5.07 crore to the Appellant Mr. Satya Prakash Bagla , loan

of Rs.12.89 crore to Sulojay Realty Pvt. Ltd.) etc collectively established a pattern

of the affairs of the Company, a NBFC, being conducted in a manner prejudicial

to the Company and to public interest within the meaning of Section 241(1)(a) of

the Companies Act, 2013.

(c) that, having regard to the fact that the Company is an NBFC, regulated by

RBI in the public interest, the appointment of the independent Administrator and

a forensic audit was a proportionate and appropriate exercise of the wide remedial

powers under Section 242(1) and 242(2), including clauses (e), (f), (k), (m) of the

Companies Act, 2013, to bring to an end the matters complained of.

85. Now we would like to take into consideration the board summary of the

Impugned Order and note specific directions contained therein which aggrieved

the Appellants.

A) THE IMPUGNED ORDER -- SUMMARY OF FINDINGS

a) The Tribunal, at paragraphs 50 to 61 of the Impugned Order, held that the

leverage ratio prescribed by Regulation 6 of the NBFC Directions was breached

manifold (the quotient being computed at 134.24 as against the ceiling of 7); that

the breach was not denied by the Company or its then management; that the Page 46 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

conversion of OCDs to CCPS was, on the material before it, "not a bona fide act"

but "a ruse to circumvent the provision of the [RBI] circular"; and that such

conduct fell within Section 241(1)(a) of the Companies Act 2013 as prejudicial

both to the interest of the Company and to public interest, given since the

Company is a RBI-regulated NBFC.

b) At paragraphs 62 to 72, the Tribunal dealt with the mass resignation of Key

Managerial Personnel, the removal of Independent Directors, the purchase of the

Bentley motor car, related-party loans, the non-implementation of the RBI

approval letter dated 30.05.2023, and the absence of a satisfactory explanation

for these matters, concluding that there was "improbity" in the conduct of the

Company's affairs warranting intervention under Section 242 of Companies Act

2013.

c) By its operative directions as contained in para 73 (A to N), the Tribunal

appointed the Administrator; suspended the Board for 180 days; directed

cancellation of the OCDs/CCPS with refund of Rs. 315 crores to the holder;

directed a transaction audit by an independent auditor; directed the Administrator

to secure compliance with the NBFC Directions and the RBI letter dated

30.05.2023; directed evolution, within 150 days, of a scheme for a new Board;

and reserved liberty to the Administrator to seek clarifications from the Tribunal.

The petition was disposed of with clarification that nothing in the order would

disqualify Respondent Nos. 2 and 3 therein and the Appellant Mr. Satya Prakash

Bagla and Mr. Achal Kumar Jindal herein, from holding directorships elsewhere. Page 47 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

B) We also take into consideration the specific direction as contained in the

Impugned Order which reads as under:

"73. In the aforementioned conspectus, we are convinced that the present case warrants appointment of Ld. Administrator to manage the function and affairs qua the Respondent No.1. In the wake, Hon'ble Mr. Justice R.K. Gauba, a former Judge Delhi High Court is appointed as Administrator qua the Respondent No.1.

A. The Ld. Administrator so appointed would cause to be prepared with respect to the company: -

(a) a complete inventory of

(i) all assets and liabilities of whatever nature;

(ii) all books of account, registers, maps, plans, records, documents of title and all other documents of whatever nature;

(b) a list of shareholders and a list of creditors showing separately in the list of creditors, the secured creditors and unsecured creditors; .......

(e) proforma accounts of the company, where no up-to-date audited accounts are available; and

(f) a list of workmen of the company and their dues referred to in subsection (3) of section 325.

Page 48 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

B. The Ld. Administrator would also take over all the functions of the board qua the Respondent No.1 and the power and function of the board would remain in abeyance for a period of 180 days.

C. The OCDs/CCPS issued by the Respondent No.1, in violation of the RBI regulations, shall stand cancelled and money, thereof, shall be returned to respective holders and necessary formalities in this regard would be completed.

D. The Ld. Administrator will take appropriate steps after consulting the CC PS holders with regard to the above, and for this purpose, he would be at liberty to deal with the assets of Respondent No.1 as he deems fit and as per applicable law.

E. For the purpose of verifying the allegations regarding dubious financial transactions, including those with related parties, for siphoning of funds from the respondent company, a transaction audit for the relevant period of such transactions be carried out. The Ld. Administrator will appoint a reputed Auditor/Audit Firm for the purpose.

F. The Ld. Administrator would appoint/engage Key Managerial Persons and skilled professionals to assist him in managing the affairs of the company (Respondent No.1) and to ensure that the provisions of Non Banking Financial Company-Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 as also the letter dated 30.05.2023 issued by RBI are complied with and no defiance thereof persist. G. For a period of 180 days, the Board of Directors would remain in suspended position.

Page 49 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Nevertheless, the Respondent Nos.2 to 4 would be paid the same pay and allowances as they are drawing as on date.

H. On expiry of the period of 150 days the Ld. Administrator would evolve a scheme regarding composition of fresh Board of Directors and running the affairs of the company. While doing so, the Ld. Administrator would consult all stakeholders. In the meantime, the Ld. Administrator will file a monthly report regarding the affairs of the Respondent No.1 before this Tribunal, by way of IAs.

I. An appropriate application for approval of the scheme/plan to be evolved by Ld. Administrator (as above) shall be filed before this Tribunal by way of an IA, before expiry of 180 days. Nevertheless, if circumstances warrant, an application for extension of time may be filed by the Ld. Administrator. During this period, the Ld. Administrator will file a report at the end of every month apprising this Bench of the development during the month.

J. The Ld. Administrator shall do all acts as necessary, keeping in view the complications involved in the present case.

K. All parties are directed to cooperate with the Ld. administrator and the management of Respondent no.1 are directed to make available all documents information requisition by the learned administration.

L. The Ld. Administrator would be entitled to same pay, allowances and facilities as are admissible to CEO/MD of the Respondent.

Page 50 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

M. The Ld. Administrator is at liberty to approach this Bench for any clarification/direction with regard to the issues before him.

N. Nothing observed/stated hereinabove would be perceived to have ramification to disqualify the Respondent Nos.2 to 3 from holding the position of Director qua any company. The Petition stands disposed of. No Cost."

(Emphasis supplied)

86. In order to assess the events after passing of the Impugned Order by the

Tribunal, we take into consideration the relevant portion of the relevant orders

passed by this appellate tribunal, subsequent to filing present appeals by the

Appellants, which reads as under:

NCLAT order passed in Company Appeal (AT) No. 161 & 162 of 2024

vide order dated 22.05.2024

"22.05.2024: We have heard Counsel for the Appellant at some length. The Tribunal has issued directions for the appointment of an Administrator and cancellation of OCD/CCPs and also for return of the amount to the stakeholders........................

Till the next date of hearing, there shall be status quo in respect of the impugned order as prayed."

(Emphasis supplied)

Page 51 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

NCLAT order passed in Company Appeal (AT) No. 161 & 162 of 2024

vide order dated 31.05.2024

"31.05.2024: This is an appeal filed against the impugned order dated 15.05.2024 passed by the Ld. National Company Law Tribunal, Court No.2, New Delhi in CP No.48/ND/2024 wherein an Administrator is appointed of Respondent No.3 with the powers given in para 73 of the impugned order..................

5. The appellants have substantially argued the matter and the Respondents shall be arguing on the next date. At this stage, we modify the interim relief of grant of status quo in respect of the impugned order vide our order dated 22.05.2024, to the extent that, we hereby direct let Hon'ble Justice Mr. R.K. Gauba to act as an Observor, and he shall preside over the Board of Directors' Meetings and no major policy decision be taken by the Board and let there be no alienation of assets of R3(Exclusive Capital Ltd) till the next date of hearing. The Ld. Observor in the meantime may prepare a complete inventory of all assets of R3 and also a list of shareholders and a list of secured and unsecured creditors. The Observer shall verify the allegation qua the financial transactions, including those of related party qua siphoning of funds. All the parties to cooperate with the Ld. Observer and to make available to him all documents/information as requisitioned by the Ld. Observer.

Page 52 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

6. Ld. Observer shall be entitled to pay and allowances and facilities as admissible to the CEO/Managing Director of Respondent No.2.

7. The Ld. Observer shall be at liberty to approach this Tribunal for any clarifications or directions.

8. List the appeal on 3rd and 5th July, 2024 for further hearing.

(Emphasis supplied)

NCLAT order passed in Company Appeal (AT) No. 161 & 162 of 2024

vide order dated 23.07.2024

"23.07.2024: Two applications are listed before us. IA No.4305/2024 for recall of the order dated 31.05.2024 as well as the contempt petition filed by the Respondents. It is the submission of the learned counsel for the Respondent the appellant has not complied with the order dated 31.05.2024 as much as has failed to supply the information as was required by the Ld. Observer.......................................................

4. We have gone through the order dated 31.05.2024. The Ld. counsel for the appellant is aggrieved of the fact the said order dated 31.05.2024 requires the Ld. Observer to verify all the allegations made in the pleadings including those related to siphoning of funds and related parties. We have perused the order dated 31.05.2024, we clarify such directions were to examine the financial transactions qua siphoning of funds and of related parties.

Page 53 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

5. In the circumstances let the requisite information as desired by the Ld. Observer in connection to above be supplied and compliance report be filed by the appellant within two weeks.

List on 9th August, 2024."

(Emphasis supplied)

NCLAT order passed in Company Appeal (AT) No. 161 & 162 of 2024

vide order dated 09.09.2024

"9. The Ld. Observer has furnished Report No. 1 dated 01.07.2024 and has furnished Observer Notes: No. 1 dated 07.06.2024, No. 2 dated 19.06.2024, No. 3 dated 08.08.2024, No. 4 dated 01.09.2024 and No. 5 dated 09.09.2024.

In all his reports and Notes, the Ld. Observer has repeatedly brought out that the Company ECL and the appellants are not cooperating and not providing information and documents necessary and vital for carrying out the mandate given by the Tribunal.

15. As a last resort we direct the Appellants and Respondent No.3(ECL) to supply the information/documents requisitioned by the Ld. Observer as enlisted in the chart dated 12.09.2024 on or before 10.10.2024. Noncompliance of these directions will constrain us to take the Contempt Case (AT) No. 17 of 2024 on the next date of hearing for appropriate order(s).

(Emphasis supplied)

Page 54 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

NCLAT order passed in Company Appeal (AT) No. 161 & 162 of 2024

vide order dated 16.12.2024

"16.12.2024: The learned counsel appearing on behalf of the Learned Observer has taken us to the part of the Learned Observer's Report-Note No.2 to submit there have been related party transactions etc. However, no further time is left as at 2 PM, another part heard matter- M/s Quantum Mutual Fund & Ors Vs ICICI Securities Ltd & Anr is pending for remaining argument, List the matter on 23.12.2024 for hearing.

An apprehension is raised by Mr. Rajeev Nayyar, Learned senior counsel on behalf of the Respondent the appellants are in the process of appointing a new director and also are continuously siphoning of money of the company. The Learned senior counsel appearing on behalf of the appellant fairly submits till the next date of hearing, there shall be no appointment of an independent director. It is also directed if an amount of more than Rs.10 lakhs is spent by the company, the directors viz the appellants, shall inform/bring it to the notice of the Ld. Observer and if the amount to be spent is more than Rs.25 lacs, the concurrence of the Ld. Ld. Observer be taken. Put up on 23.12.2024 for further hearing."

(Emphasis supplied)

87. We note that this Appellate Tribunal order dated 23.07.2024 (quoted earlier)

was challenged by the Appellants before the Hon'ble Supreme Court, who did not

Page 55 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

interfere with this Appellate Tribunal order dated 23.07.2024. The order dated

02.12.2024 of the Hon'ble Supreme court reads as under:

"CIVIL APPEAL (arising out of Diary No. 45598 of 2024) order dated 02.12.2024 passed by Supreme Court of India

"Delay condoned.

We do not find any good ground and reason to interfere with the impugned judgment and, hence, the present appeal(s) is dismissed.

Pending application(s), if any, shall stand disposed of."

(Emphasis supplied)

88. We also take into consideration the Hon'ble Supreme Court order dated

24.02.2025, which was passed in identical manner, albeit, in three different

matters namely:

A) Petition for Special Leave to Appeal (C) No. 4349/2025

[Arising out of impugned final judgment and order dated 12-02-2025 in LPA No.

1083/2024 passed by the High Court of Delhi at New Delhi]

ACHAL KUMAR JINDAL ....Petitioner(s)

VERSUS

EVAAN HOLDINGS PVT. LTD. & ORS. ...Respondent(s)

(IA No. 40785/2025 - Exemption from Filing C/C of the Impugned Judgment

and IA No. 41789/2025 - Permission to File Additional Documents /Facts

/Annexures) Page 56 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

B) Petition for Special Leave to Appeal (C) No. 4534/2025

[Arising out of impugned final judgment and order dated 12-02-2025 in LPA No.

1081/2024 passed by the High Court of Delhi at New Delhi]

SATYA PRAKASH BAGLA ...Petitioner(s)

VERSUS

EVAAN HOLDINGS PVT. LTD. & ORS. ... Respondent(s)

(IA No. 42520/2025 - Exemption from filing c/c of the impugned judgment, IA

No. 42523/2025 - permission to file additional documents/facts/annexures and

IA No. 42521/2025 - permission to file lengthy list of dates)

C) Petition for Special Leave to Appeal (C) No. 4540/2025

[Arising out of impugned final judgment and order dated 12-02-2025 in LPA No.

1080/2024 passed by the High Court of Delhi at New Delhi]

JOHNSON KA .....Petitioner(s)

VERSUS

EVAAN HOLDINGS PVT LTD & ORS. .....Respondent(s)

(IA No. 42641/2025 - exemption from filing c/c of the impugned judgment, IA

No. 42639/2025 - permission to file additional documents/facts/annexures and

IA No. 42640/2025 - permission to file lengthy list of dates)

Page 57 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

We note that the Operative part of the all above three orders of the Hon'ble

Supreme court is same, which reads as under:

"In this matter, several issues and questions have been raised for consideration. Notably, the scope and ambit of the order passed by the learned single Judge of the High Court of Delhi dated 26.10.2024 is under scrutiny, particularly in the light of the ongoing proceedings concerning oppression and mismanagement before the National Company Law Tribunal1/ National Company Law Appellate Tribunal2, which are currently seized of the matter. The primary prayer in the writ petition pertains to the alleged inaction or failure on the part of the Reserve Bank of India3 in fulfilling its obligations. However, it is pertinent to note that the interim directions issued by the learned Judge appear to address and adjudicate all issues and contentions inter se the parties, including those that are sub-judice before the NCLT/NCLAT and the RBI.

Issue notice, returnable in the week commencing 14.04.2025. Notice is accepted by Mr. Sahil Tagotra, learned counsel, who is present in Court on advance notice/caveat for respondent No. 1.

Hence, notice need be served on the said respondent. Respondent No. 2, RBI, is represented upon notice being issued to it by this Court, vide order dated 17.02.2025. Notice shall be served upon the unrepresented respondents by all modes, including dasti, upon steps being taken within ten days from today.

Page 58 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

As an interim measure, the following directions are issued: -

"(i) There shall be stay of operation of the directions issued in the order dated 23.10.2024 passed by the learned single Judge in W.P.(C) No. 9877/2024, which supersedes the Board of Directors of Exclusive Capital Limited and appoints an Interim Committee of Administrators4. For the time being and till the date of this order, the payments to be made to the ICA, as per the said order, shall be borne by the writ petitioner.

(ii) The orders passed by the NCLAT in relation to the appointment of the Observer, including the directions and powers given to such Observer, shall, however, continue to operate.

(iii) Till the next date of hearing in the present special leave petition, we find it appropriate to direct that Exclusive Capital Limited shall continue with its day-to-day business activities. However, it shall not enter into any financial transaction exceeding ₹10,00,000/- (Rupees Ten Lakhs only) without prior notice to the Observer. If the Observer deems it appropriate, he may bring the details of such transaction to the notice of the NCLT, where proceedings under Section 242 of the Companies Act, 2013, are pending. The NCLT may, thereupon, pass appropriate orders.

(iv) The proceedings before the RBI, pursuant to its show-

cause notice and in view of the liberty granted by this Court, vide order dated 17.02.2025, shall continue and appropriate orders shall be passed, preferably within a period of four weeks from today.

Page 59 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

(v) The observations recorded in the order passed by the learned single Judge and in the impugned judgment will not influence the RBI when it takes a decision. The RBI shall also not be influenced by this order, granting stay. It shall take an independent decision on the merits of the matter and proceed in accordance with law.

(vi) Liberty is granted to the writ petitioner and the shareholders, who have moved the NCLT, to move an application before the NCLT/NCLAT seeking appropriate directions. If any such application is filed, the same will be considered and decided in accordance with law, without being influenced by the impugned judgment, including the order of the learned single Judge and the present order, granting stay.

(vii) The proceedings before the NCLT/NCLAT may continue. It will be equally open to the petitioner before us, who is the respondent before the NCLT and the petitioner before the NCLAT, to contest/pursue the proceedings."

(Emphasis supplied)

89. From above, we note that this Appellate Tribunal vide order dated

22.05.2024 directed status quo of the impugned order and by order dated

31.05.2024, this Appellate Tribunal modified its previous order dated 22.05.2024

and changed the status of the Administrator to the Observer. This Appellate

Tribunal mandated Observer to enquire into siphoning of funds and preside over

the board meeting of the company and also restrained the company from

Page 60 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

alienating any of its assets and directed that no major decision to be taken by the

company in the meantime.

90. We also note that this Appellate Tribunal order dated 23.07.2024 (quoted

earlier) reaffirmed the mandate to the Observer. The same (this Appellate

Tribunal's order dated 23.07.2024) was confirmed by the Hon'ble Supreme Court

in its order dated 02.12.2024 (quoted earlier) passed in Civil Appeal bearing

Diary No. 45598 of 2024 and against order dated 24.02.2025 passed in SLP (C)

Nos. 4534, 4349 and 4540 of 2025, giving detailed interim reliefs.

91. We also take into consideration that this Appellate Tribunal vide order

dated 16.12.2024 (quoted earlier) had directed the company to inform the

Observer of any transaction exceeding of Rs. 25 Lakhs for which prior

concurrence of Observer was made necessary, which was slightly modified by the

Hon'ble Supreme Court of India vide order dated 24.02.2025 (quoted earlier)

restricting the management further from entering into any transaction exceeding

of Rs. 10 Lakhs without prior notice to the Observer as against Rs. 25 Lakh

allowed by this Appellate Tribunal earlier.

92. Thus, the orders of this Appellate Tribunal and the Hon'ble Supreme

Court were in nature and with intend to maintain general status quo in the

company before the judicial order is finally pronounced by the Tribunal regarding

the original CP No. 48/ND/2024 which is still pending for final adjudication of

the Tribunal.

Page 61 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

93. Having noted the broad allegations of the Respondents in the original

Petition No.48/ND/2024, the defence of the Appellants denying contentions in

the Impugned Order, proceedings at this Appellate Tribunal and at Hon'ble

Supreme Court after passing the Impugned Order (noted all orders above) we

now proceed to frame issues in order to decide the appeals before us. Accordingly,

we frame the following issues.

Issues

Issue I: (a) What is the scope of Oppression and Mismanagement under

Sections 241-242 of the Companies Act 2013?

(b) What is the scope of interference by this Appellate Tribunal, under

Section 421 of the Companies Act, 2013 in context of the detailed Impugned

order dated 15.05.2024 passed by the Tribunal under Section 242 of the

Companies Act, 2013?

Issue II: (a) Whether the case of oppression and mismanagement must be

made out from the petition alone, and, if so, whether the Impugned Order is

vitiated by reliance on the replies of Respondent Nos. 6 to 10, in petition no

48/ND/2024 none of whom are members of the Company?

(b) Whether the petition no.48/ND/2024 filed by the Respondents before the

Tribunal, met the criteria of section 241-242 of Companies Act, 2013 and

Page 62 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

further whether the prima facie case of oppression and mismanagement has

been made out by the Appellants?

Issue III: (a) Whether the breach of the leverage ratio prescribed by

Regulation 6 of the NBFC Directions, issued by the RBI and the subsequent

conversion of OCDs into CCPS, constitute conduct prejudicial to the

Company and to public interest under Section 241(1)(a) of the Companies

Act 2013, notwithstanding the contention that the same stood cured and has

no lingering effect?

(b) Whether the existence of a penal remedy under Section 58G of the RBI

Act, 1934 ousts, or renders disproportionate the exercise of, the Tribunal's

jurisdiction under Sections 241/242 of the Companies Act, 2013, in respect of

the very same regulatory breach?

(c) Whether prior approval of RBI, under Para 61 of the NBFC Regulation

was required for the conversion of OCDs into CCPS, and, if the Appellant's

narrower construction of Para 61 of NBFC Regulation is correct and

whether that affects the ultimate finding of oppression and mismanagement

by the Tribunal?

Issue IV: (a) Whether the purchase of the Bentley motor car and the related-

party loans (to Luxus, Laxmipati/Exclusive Motors, Mr. Jayant Mirani, and

Sulojay Realty) were validly sanctioned by the omnibus approval dated

Page 63 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

27.09.2022, and whether these transactions establish improbity in the

management of the Company's affairs?

(b) Whether the allegations of non implementation of the Expansion

Agreement has any substance?

Issue V: Whether the mass resignation of Key Managerial Personnel and the

removal of the Independent Directors during the pendency of the petition

constitute relevant and probative material for the purposes of Sections

241/242 of the Companies Act, 2013?

Issue VI: Submission of five reports by the Ld. Observer and issue of non

payment of remuneration to the observer.

Now we shall deal various issues framed by us, issue-by-issue.

Issue I: (a) What is the scope of Oppression and Mismanagement under

Sections 241-242 of the Companies Act 2013?

(b) What is the scope of interference by this Appellate Tribunal, under

Section 421 of the Companies Act, 2013 in context of detailed Impugned

order dated 15.05.2024 passed by the Tribunal under Section 242 of the

Companies Act, 2013?

94. Before applying the relevant laws to the facts, it is useful to set out, the

statutory scheme the statutory scheme under the Companies Act, 2013.

Page 64 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

i) a) Section 241(1)(a) permits any member complaining that the affairs

of the company are being, or have been, conducted "in a manner

prejudicial to public interest, or in a manner prejudicial or oppressive to

him or any other member or members or in a manner prejudicial to the

interests of the company", to apply to the Tribunal for relief.

b) Section 241(1)(b) additionally permits an application on the footing

that "the material change" in the management or control of the

company is likely to be conducted in a manner prejudicial to its

interests.

c) Section 242(1) empowers the Tribunal, on such an application, to

make such order as it thinks fit if it is of the opinion that the company's

affairs are being conducted in a manner prejudicial or oppressive to a

member or prejudicial to public interest or to the interests of the

company, and that the facts would justify the making of a winding-up

order on the just-and-equitable ground, but that winding up would

unfairly prejudice the applicant. Section 242(2) sets out an illustrative,

non-exhaustive menu of reliefs, including (at clause (m)) "any other

matter for which, in the opinion of the Tribunal, it is just and equitable

that provision should be made." Section 420 empowers the Tribunal to

pass such orders as it thinks fit after giving the parties a reasonable

opportunity of being heard.

ii) It is thus apparent from the text itself that:

Page 65 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

a) "public interest" is an independent and freestanding ground under

Section 241(1)(a), distinct from prejudice to the applicant-member

personally;

b) the just-and-equitable winding-up threshold under Section 242(1)(b)

is a standard to be assessed notionally, and does not require an actual

winding-up petition or proof that winding up is in fact the appropriate

course; and

c) the reliefs available under Section 242(2) are not confined to a closed

list, and clause (m) confers a wide equitable discretion on the Tribunal

to mould relief as the justice of the case requires.

95. At the first instance, we need to deep dive into the legal Framework

Oppression and Mismanagement under Sections 241-242 of the Companies Act

2013.

A) The Companies Act, 2013 does not define 'oppression'. Courts

and tribunals have developed the meaning through case law over

decades. The foundational formulation comes from Elder v. Elder &

Watson Ltd. (1952) (Scotland), later adopted in Indian jurisprudence:

and oppression involves conduct that is burdensome, harsh and

wrongful, not merely conduct that is technically legal but produces

unfair outcomes.

Page 66 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

In the Indian context, oppression typically may manifests through

conduct such as:

• Exclusion of a member from management in violation of the

understanding on which the company was formed

• Fraudulent allotment of shares to dilute a minority's

shareholding

• Withholding of dividends while majority members extract value

through inflated salaries

• Conversion of a public company to private without consent of

minority shareholders

• Conducting Board or general meetings in violation of the

Articles to pass resolutions injurious to minority interests

• Removal of a director in breach of a shareholders' agreement or

an understanding between the founding members

Above is only illustrative list and not exhaustive list and will further

depend on facts of each case.

We need to take into account one Critical Legal Principle that

Oppression is not a one-time act it must be a continuing course of

conduct. The Supreme Court in Shanti Prasad Jain vs. Kalinga Tubes

((1965) 2 SCR 720), held that there must be a continuous course of Page 67 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

conduct creating a burden on the shareholders which is harsh,

wrongful and causes them to suffer continuously. A single act of

injustice, however severe, may not constitute oppression.

B) Mismanagement refers to the conduct of the company's affairs

in a manner that is prejudicial to the interests of the company itself,

or prejudicial to public interest, or likely to result in the company's

affairs being conducted in such a manner on account of a material

change in management or control. Unlike oppression (which is about

harm to members), mismanagement encompasses harm to the

company as an entity.

Common instances of mismanagement may inter alia, include:

• Diversion of company funds to related parties without Board

approval

• Systematic non-disclosure of material information to minority

shareholders or the Board

• Unauthorised disposal of key company assets

• Failure to maintain proper accounts or hold statutory meetings

• Appointment of incompetent or conflicted persons to key

management positions

Page 68 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

• Removal of key managerial personnel enemas to compromise

corporate governance

• Actions that are ultra vires the Memorandum of Association

(MOA) /Article of Association (AOA)or the Companies Act, 2013

• Material change in the management or control of the company

prejudicial to company interests

• Breach of Regulatory Compliances

Again, above is only illustrative list and not exhaustive list and will

further depend on facts of each case.

96. We note that Section 241(1)(a) Section 241(1)(a) of the Companies Act,

2013 expressly contemplates a Tribunal's opinion being founded on conduct that

is prejudicial "to public interest" or "to the interests of the company", as distinct

from prejudice to a member can be ground for act to be oppression and

mismanagement. Where a company is a regulated entity (here, an NBFC

registered with the RBI and regulated by the RBI), a demonstrated departure from

binding prudential norms issued by the sectoral regulator RBI in the public

interest is capable, in principle, of satisfying this limb, particularly where such

departure is compounded by other indicia of mismanagement.

97. In this background, we again refer to the foundational decision, of Shanti

Prasad Jain vs. Kalinga Tubes Ltd., (Supra) the Hon'ble Supreme Court held that

Page 69 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

conduct amounts to oppression under Section 397 of the Companies Act, 1956

(the precursor to Section 241 of The Companies Act 2013) only where it is

"burdensome, harsh and wrongful" and involves "at least an element of lack

of probity or fair dealing" to a member in his capacity as a shareholder. Mere

loss of confidence between majority and minority, or a bona fide difference of

business judgment, does not suffice; and events complained of must be assessed

cumulatively, "not in isolation but as a part of a consecutive story", rather

than as a series of disconnected incidents each individually incapable of

sustaining relief. This consecutive story approach is of particular significance in

the present matter, where the Appellants have sought to compartmentalise the

leverage-ratio breach, the related-party transactions, the enmass KMP

resignations and the removal of Independent Directors as unconnected episodes,

each independently insufficient to found relief.

98. We will also take help of the decision in the case of Needle Industries

(India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333

is of particular relevance to two of the principal controversies in this appeal. The

ratio of the judgement establishes that the jurisdiction under Sections 397-398 of

the Companies Act 1956 (now 241-242 of the Companies Act 2013) is an

equitable jurisdiction exercised having regard to the totality of circumstances, and

that the Tribunal is not confined to a mechanical, transaction-by-transaction test

of legality; the question is whether, viewed as a whole, the conduct complained

of is oppressive, not merely whether each individual act was, taken alone, Page 70 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

unlawful. The Hon'ble Supreme Court emphasised that the power is one to be

exercised having regard to the totality of circumstances and the imperative of

doing substantial justice between the parties, and that a company court/tribunal

may grant relief that it considers just, even moulding it beyond the strict letter of

what is pleaded, once the broad substratum of prejudicial conduct is established.

99. Secondly, we also take that importantly, the Hon'ble Supreme Court in this

case rejected the argument that the existence of an independent statutory

enforcement mechanism under the Foreign Exchange Regulation Act, 1973

(which separately penalised the very shareholding irregularity complained of)

ousted the jurisdiction of the company court and found that the two remedies were

held to operate in different fields and to co-exist without either excluding the

other.

100. We also note that the Supreme Court in Dale and Carrington Investment

(P) Ltd. v. P.K. Prathapan, (2005) 1 SCC 212, held that an allotment of further

shares by a Board, made with the object of gaining control and reducing the

shareholding of an existing member to a minority, without notice to or

consultation with the affected shareholder, constitutes an act of oppression,

notwithstanding that the power to allot was otherwise available to the Board.

101. In view of facts noted earlier in greater details, we find that prima facie,

the case was built by the original Petitioners, the Respondents herein, of

reasonable apprehensions of Oppression and mismanagement against the

Page 71 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Company and the Appellants and the Tribunal was entitled to deal, decide and

pass suitable orders.

102. We also observe limited scope at our level to interfere with Impugned

Order, unless absolutely necessary, which we have done by way of our judicial

orders for stay, modification in earlier stay order, changing title of the

Administrator to the Observer, which was not interfered by Hon'ble Supreme

Court (all quoted earlier). We are in view of that this Appellate Tribunal ought not

to disturb such a finely balanced, fact-intensive exercise of discretion by the

Tribunal merely because another view is possible, unless the findings are shown

to be perverse, based on no evidence, arrived at in violation of settled legal

principle, or the discretion has been exercised capriciously or on a wrong

appreciation of the governing statutory framework.

103. Issue II: (a) Whether the case of oppression and mismanagement must

be made out from the petition alone, and, if so, whether the Impugned Order

is vitiated by reliance on the replies of Respondent Nos. 6 to 10, in petition

no 48/ND/2024 none of whom are members of the Company?

(b) Whether the petition no.48/ND/2024 filed by the Respondent before the

Tribunal, met the criteria of section 241-242 of the Companies Act, 2013 and

further whether the prima facie case of oppression and management has

been made out by the Appellants?

104. It is the case of the Appellants that a shareholder who acquires shares after

a transaction is completed, and with knowledge (actual or constructive, through Page 72 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

disclosure in audited accounts placed before a general meeting) of that

transaction, is thereby estopped from ever complaining of its continuing

consequences. On this point, we recall the principle as laid down by the Hon'ble

Supreme Court in the case of Needle Industries (supra) is that the test of

oppression is not whether the impugned act is legal or illegal, but whether it is

burdensome, harsh and wrongful, involving a visible departure from the standards

of fair dealing on which a shareholder is entitled to rely and conversely, and

equally important for the present case, an act may be technically in breach of a

regulatory direction and yet not be oppressive, if it does not involve any lack of

probity qua the complaining member's proprietary or membership rights or

Corporate Debtor.

105. On the facts in the present case, we note contentions of the Appellants that

that: (a) the OCDs were issued between October 2021 and March 2022, before

Respondents Mrs. Kanta Agarwala & Mr. Suresh Kumar Agarwala became

members (05.09.2022);

(b) the fact and quantum of the OCDs, and their conversion into CCPS pursuant

to the EGM resolutions of 06.09.2022 and 17.09.2022 at which Respondents Mrs.

Kanta Agarwala & Mr. Suresh Kumar Agarwala having consented to shortened

notice,were fully reflected in the audited financial statements for FY 2021-22

approved at the AGM dated 29.09.2022, which Respondents Mrs. Kanta

Agarwala & Mr. Suresh Kumar Agarwala did not attend despite notice; and

Page 73 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

(c) no grievance was raised by Respondents Mrs. Kanta Agarwala & Mr. Suresh

Kumar Agarwala in respect of the OCD/CCPS conversion until the filing of the

Company Petition.

These facts do not, by themselves, extinguish the substantive question whether

the transaction was in nature of oppression and mismanagement and whether the

transaction can be said to have been done without probity or as a device targeted

at the minority as opposed to a bona fide, disclosed, board- and shareholder-

approved corrective measure to a leverage-ratio breach that had already arisen

(the underlying debt) independent of any design against the minority. On the

material placed before us, we are prima facie of view that the conversion of CCD

to CCPS was against the norms stipulated by the RBI. We will discuss this aspect

greater in detail while discussing the Issue No. III later. We also find that the

company which is a regulated entity by RBI having only Rs. 2.34 Cr equity and

could have been raised 7 times of its funds, had taken funds from outside entity

of whopping Rs. 315 cr, much more beyond the permissible limit. This definitely

can't be treated as sign of good corporate governance. We observe that being

NBFC, the company assumes greater responsibilities. Such prima facie wrong

acts are liable to fall under preview of oppression and mismanagement under

section 241-242 of the Companies Act, 2013. RBI has also held company to be

in violation of all these and penalised the company vide order dated 27.03.2026.

We accordingly hold that the conversion of OCDs into CCPS, on this record,

Page 74 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

could prima facie be treated to be an act of oppression and mismanagement within

the meaning of Section 241 of the Companies Act, 2013.

106. The Appellant's propounded the proposition that a case of oppression must

be made out from the petition itself, and cannot be improved upon by reliance on

material introduced by strangers to the record, is well founded as a general

proposition of law. There is substance in the Appellant's grievance that the

Tribunal's own reasoning at paragraph 65 of the Impugned Order is, on its face,

difficult to reconcile, having itself observed that Respondent Nos. 6 to 9 were not

being members of the Company, The Tribunal nonetheless proceeded to treat the

very same replies as relevant to conclude that the affairs of the company were

being run clandestinely. This internal tension in the reasoning is a legitimate

criticism and this Appellate Tribunal take conscious note of it.

107. We have noted the ratio i.e. the case must be made out from the petition

from the case of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad, [(2005)

11 SCC 314]. This decision stipulates the proposition that relief under Sections

397-398 of the Companies Act 1956 (now 241-242 of the Companies Act 2013)

must be founded on the pleaded case of the petitioner, and that a petitioner cannot

make out a wholly different case at the stage of evidence or argument.

However, we are of opinion that the infirmity, does not, on examination, goes to

the root of the Impugned Order. For the purposes of the analysis, even discarding

reliance on the replies of Respondent Nos. 6 to 10, the core findings survive

independently on the pleadings of the Complaining Petitioners / the Respondents Page 75 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

herein themselves, read with the admissions of the Company and its then

management in their own replies before the Tribunal inter-alia: (i) the leverage

ratio breach and its magnitude; (ii) the timeline and circumstances of the OCD-

to-CCPS conversion (; (iii) the purchase of the Bentley motor car from Luxus;

(iv) the fact, if not the cause, of mass resignation of Key Managerial Personnel;

(v) the alleged non-implementation of the RBI letter dated 30.05.2023 and the

Company's own explanation therefor; and (vi) the removal of the Independent

Directors during the pendency of the petition independently substantiated by the

orders of the Tribunal. Since each of these findings is independently sustainable

without recourse to the replies of Respondent Nos. 6 to 10, the technical infirmity

identified above, while a fair criticism of the drafting of paragraph 65 of the

Impugned Order, does not vitiate the ultimate conclusion reached by the Tribunal

and therefore in our opinion the Impugned Order is capable of sustaining, itself

on its own merit.

108. Issue III: (a) Whether the breach of the leverage ratio prescribed by

Regulation 6 of the NBFC Directions issued by the RBI, and the subsequent

conversion of OCDs into CCPS, constitute conduct prejudicial to the

Company and to public interest under Section 241(1)(a) of the Companies

Act 2013, notwithstanding the contention that the same stood "cured" and

has no lingering effect?

Page 76 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

(b) Whether the existence of a penal remedy under Section 58G of the RBI

Act, 1934 ousts, or renders disproportionate the exercise of, the Tribunal's

jurisdiction under Sections 241/242 of the Companies Act, 2013, in respect of

the very same regulatory breach?

(c) Whether prior approval of RBI, under Para 61 of the NBFC Regulation

was required for the conversion of OCDs into CCPS, and, if the Appellant's

narrower construction of Para 61 of NBFC Regulation 2016 is correct and

whether that affects the ultimate finding of oppression and mismanagement

by the Tribunal?

109. These issues need to be examined with reference to extent RBI framework,

where the RBI stipulates norms on Leverage Ratio, Violation, and Penalty. The

leverage-ratio norm can be seen in Regulation 6, Chapter IV of the Non-Banking

Financial Company - Non-Systemically Important Non-Deposit taking Company

(Reserve Bank) Directions, 2016 ("NBFC Directions ") which stipulates: "6.

Leverage Ratio specify that the leverage ratio of an applicable NBFC (except

NBFC-MFIs and NBFC-IFCs) shall not be more than 7 at any point of time, with

effect from March 31, 2015."

110. It is observed that the "Leverage Ratio" may be defined as the quotient of

total outside liabilities divided by owned funds. On the Company's own

admission, the shareholding/owned-funds base of the Company was

Page 77 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

approximately Rs. 2.34 crore at the relevant time, while the OCDs of Rs. 315

crores were raised from Teesta Retail Private Limited between October 2021 and

March 2022. This yields a leverage ratio in far too excess of the prescribed ceiling

of 7, (we consciously note that the RBI in its letter dated 29.03.2026 in para 5.1.1

stated their ratio breach at 117.77 as on 31.03.2022) a fact that is not and could

not credibly be disputed by the Company or the Appellants.

111. We note that under the RBI Act, 1934 Sections 45JA, 58B and 58G of the

Reserve Bank of India Act, 1934 constitute the relevant penalty architecture for

NBFCs. Section 45JA empowers the RBI, where satisfied that it is necessary in

the public interest, or to regulate the financial system, or to prevent the affairs of

an NBFC being conducted in a manner prejudicial to the interest of the NBFC, to

determine policy and issue directions relating to (inter alia) capital adequacy, and

every NBFC is bound to comply. Section 58B(aa) makes it an offence, punishable

with imprisonment up to three years and fine, for a company to fail to comply

with any direction given by the Bank under Chapter IIIB (which includes

directions on capital adequacy/leverage issued under Section 45JA). Section 58G

provides that, notwithstanding Section 58B, where the contravention is

committed by a NBFC, the RBI may after a show-cause notice and opportunity

of hearing impose a monetary penalty on the NBFC in lieu of prosecution;

112. The Appellant's argument that a leverage-ratio breach is actionable only by

way of penalty under Section 58G and is therefore outside the Tribunal's remit

under Sections 241-242 of the Companies Act, 2013, proves too much and must Page 78 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

be rejected for reasons. We note that Section 58G is a compounding/penalty

mechanism operating between the regulator and the regulated entity and it does

not purport to and cannot oust the distinct statutory jurisdiction of the Tribunal

under Section 241(1)(a) of the Companies Act, 2013, which is triggered

independently whenever the affairs of a company are conducted in a manner

prejudicial to the interests of the company, its members, or the public, a

jurisdiction Parliament conferred on the Tribunal, not on the RBI. We further

note that the RBI's penalty jurisdiction and the Tribunal's

oppression/mismanagement jurisdiction address different mischiefs and different

complainants: the former vindicates the regulator's supervisory interest; the latter

vindicates the minority shareholders' and the company's interest in proper

governance. There is no principle of implied exclusion between the two; as both

may operate on the same facts.

113. We also observe that the leverage-ratio breach was not relied upon by the

Tribunal in isolation rather it was one strand in a wider fact-pattern (the disputed

specific performance claim, the mass KMP resignations, the unauthorised

Assignment Agreement, and unexplained related-party transactions) that,

applying the Needle Industries approach, is properly assessed as a course of

conduct rather than a single remediable regulatory lapse. It follows that while a

minor leverage-ratio breach, standing alone and promptly and completely cured,

might have been arguably addressed through the RBI's own supervisory and

Page 79 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

penalty mechanism than through a finding of oppression, the Tribunal did not, on

the record, treat it as standing alone.

114. We find that the Appellant's characterisation of this as a temporary skew,

and immediately cured, also does not prima facie withstand scrutiny of the

timeline. The OCDs were issued between October 2021 and March 2022. The

Expert (one other Company Secretary's) opinion recommending conversion is

dated 26.08.2022, five months later. The audited financial statements for FY

2021-22, which for the first time disclosed the proposed conversion, were adopted

only on 27.09.2022, i.e., nearly eighteen months after the Company's certificate

of registration as an NBFC and about a year after the OCDs were first issued. On

this chronology, the finding of the Tribunal that the violation persisted,

unremedied and undisclosed, is a finding of fact amply supported by the record

and calls for no interference.

115. We are also of opinion that the Appellants are not correct in arguing that

conversion into CCPS extinguished the alleged mischief for all purposes. We

need to take into consideration the vital fact that, the CCPS were made convertible

into equity at any time within twenty years, far in excess of the five-year threshold

ordinarily applied for reckoning whether such an instrument continues to be

treated as a liability (rather than as owned funds) for capital-adequacy purposes;

in addition to the fact that the Board Resolution dated 27.09.2022 itself

contemplated conversion "at any time" up to twenty years. The contention that

the leverage-ratio mischief was definitively and finally cured by the conversion Page 80 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

is, at the least, not established on the record as an unqualified proposition, and the

Tribunal's scepticism on this score cannot be said to be without foundation.

116. On the specific attack by the Appellants on paragraphs 54-55 of the

Impugned Order stating that reliance on the "liability being more than hundred

times of paid-up capital" as a factor relevant to the "just and equitable" ground

under Section 242(1)(b) of the Companies Act 2013 was speculative. In this

connection, we need to appreciate that Section 242(1)(b) Companies Act 2013

does not require an actual winding-up petition or a conclusive finding that

winding up is warranted; it merely requires that the facts, cumulatively, would

justify the making of a winding-up order on just-and-equitable grounds, such that

relief short of winding up becomes appropriate. The figure of over 100 times was,

on the admitted arithmetic, correct as of the relevant date, and was used by the

Tribunal as one of several corroborative circumstances, not as the sole or

determinative basis, for invoking its jurisdiction, discloses no error of law on the

part of the Tribunal in the Impugned Order.

117. The Respondents, also, refuted the arguments of the Appellants regarding

issue of conversion of OCD to CCPS and submitted that seeking to remedy its

violations after the fact, the company filed an application with the RBI on 16

September 2024 for post-facto approval of the OCD issuance and the OCD-to-

CCPS conversion. The Respondents further submitted that by an email dated 7

February 2025, RBI categorically rejected the company's application for post

facto approval for conversion of OCDs to CCPS in view of supervisory concerns. Page 81 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

On the same date, RBI instead issued a show-cause notice to the company inter

alia called upon it to show cause as to why its NBFC registration should not be

cancelled for noncompliance of the RBI Regulations. The Respondents further

conceded that during the SCN proceedings, the RBI expressly reserved its right

to take further action. The Respondents also submitted that the RBI has since

exercised that right and by order dated 27 March 2026, the RBI imposed a

monetary penalty of INR 10.03 Lakhs on the Company for the very violations of

the company Management. The RBI Order therefore operates as a formal

adjudication by the regulator confirming the very violations that form the

substratum of the Petition of the Respondents before this Tribunal and

pertinently, the RBI Order is expressly without prejudice to such other action as

the RBI may consider necessary, subsequently the door to further regulatory

action still remains open wide and therefore in the circumstances, the Appellants'

plea of clean chit is incorrect.

118. We have also taken into account the RBI letter dated 27.03.2026 and find

that the Appellants' submission that RBI has exonerated the Company is directly

contradicted by the RBI's own speaking order dated 27 March 2026, which finds

that the company: (i) breached the leverage ratio prescribed in the NBFC

Directions; (ii) failed to submit mandated supervisory returns within the

prescribed timeline with delays ranging from 9 days to 2.5 years; and also (iii)

failed to submit its balance sheet to the RBI within the prescribed timeline.

Page 82 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

119. On the issue regarding allegation of the violation of leverage ratio due to

conversion of OCD to CCPS without the RBI's approval, the Appellants

reiterated with the RBI being a regulator is the exclusive Apex regulator for the

NBFC's and is only entity entitled to look into the matter of NBFC like the

company herein and therefore, the Tribunal has no jurisdiction to look into these

matters. We reiterate that the Tribunal was within the rights to examine the aspect

of oppression and mismanagement and one of the aspects was alleged violation

of leverage ratio which affects the core foundation of the company. Therefore,

we are not persuaded by submission of the Appellants in this regard, after taking

into account the RBI's order passed on 27.03.2026 as well as RBI's affidavit

dated 29.05.2026 before the Hon'ble Supreme Court dated 29.05.2026 and also

keeping in view the ratio of Needle Industries (supra) regarding non conflicting

jurisdictional issue already discussed earlier.

120. We also take into account relevant portion of Affidavit filed by the RBI

before Hon'ble Supreme Court in Civil Appeal No. 15207 of 2025 on 29.05.2026,

which reads as under:

Page 83 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

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

9. It is submitted that thereafter, on 01.08.2024, the Reserve Bank of India attempted to conduct an onsite scrutiny and examination of affairs of Exclusive Capital Ltd., however, the scrutiny could not be completed as the accounts were not finalized and the documents were not available at that time.

Furthermore, despite various follow-ups, the Exclusive Capital Ltd. failed to finalize its accounts and submit the statutory auditors report to the Reserve Bank of India. Thus, the Reserve Bank examined the available data and information on Exclusive Capital Ltd., and upon examination it was revealed that there are certain irregularities and non-compliances concerning (i) breach of leverage ratio, (ii) change in control without approval,

(iii) non-filing of returns and (iv) non-finalization of balance sheet. In view of such irregularities and violations, the Reserve Bank of India issued a Show Cause Notice dated 07.02.2025 to the Exclusive Capital Ltd. thereby outlining the aforesaid violations and thus calling upon it to show cause, in writing, as to why its Certificate of Registration should not

Page 84 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

be cancelled by the Reserve Bank of India in terms of sub- Section (6)(iv) of Section 45-IA of the Reserve Bank of India Act, 1934...........

12.It is submitted that since the violations concerning breach of leverage ratio, non-finalization of balance sheet and non- filing of returns were rectified as well as the violation pertaining to the failure to obtain prior approval before issuance of Compulsorily Convertible Preference Shares (CCPS) was also clarified, the Reserve Bank of India vide letter dated 21.03.2025 communicated its decision not to cancel the certificate of registration while reserving the right to take such other action which may be considered necessary by the Reserve Bank in accordance with law more so after examining the finalized accounts and the statutory auditors' reports submitted by the Exclusive Capital Ltd. on 17.03.2025. A true copy of the letter dated 21.03.2025 is annexed herewith as ANNEXURE R-1.

13.It is submitted that though the answering Respondent deemed it appropriate to not cancel the certificate of registration as NBFC of the Exclusive Capital Ltd., however, vide Order dated 27.03.2026 the answering Respondent in exercise of its powers under Section 58G(1)(b) read with Section 58B(5)(aa) of Reserve Bank of India Act,1934 for the abovesaid violations i.e., (i) for breaching the permissible limit of leverage ratio; (ii) for failing to submit certain supervisory returns to RBI as per prescribed frequency and within the stipulated timelines and

(iii) for failing to furnish its balance sheet to RBI within the stipulated period; has imposed a monetary penalty of Rs. Page 85 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

10.30 Lakhs (rupees Ten Lakh Thirty Thousand only) on Exclusive Capital Ltd. A true copy of the Order dated 27.03.2026 is annexed herewith as ANNEXURE R-2.

14.It is submitted that with the above imposition of penalty, the answering Respondent has concluded its enforcement action against the Exclusive Capital Ltd apropos the abovesaid violations, without prejudice to any other action that may be initiated by RBI against the company.

15. It is also submitted that subsequent to the closing of the proceedings initiated vide first Show cause Notice dated February 07, 2025, based on the documents/information called for and obtained from Exclusive Capital Ltd. and limited scrutiny conducted by the answering Respondent during May 2025, certain supervisory concerns have been prima facie observed, which are under examination. Any contravention of guidelines/directions issued by RBI would be dealt with as per the provisions of Reserve Bank of India Act, 1934 and the supervisory framework................

(Emphasis supplied)

121. Similarly, we also take into account relevant portion of RBI's order dated

29.03.2026, imposing penalty on the company, and the relevant portion reads as

under:

Page 86 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

5.1 Charge: Breach of leverage ratio 5.1.1 Charge in the SCN "The company had failed to comply with the Bank's directions, as the issuance of Optionally Convertible Debentures (OCDs) amounting to ₹315 Crores during the period from October 2021 to March 2022, led to a surge in the leverage ratio to 117.77 as on March 31, 2022, against the permissible limit of 7. The company was in breach of leverage ratio from October 2021 to September 2022.".........

5.1.5 Conclusion

5.1.5.1 While the extant directions issued by the Bank required the company to not exceed its leverage ratio beyond applicable limit of seven at any point of time, the company failed to do so as its leverage ratio had exceeded the permissible limit to approximately 19 in October 2021, and to 117.77 as on March 31, 2022 (referred to in paragraphs 5.1.4.1 and 5.1.4.2). Without controverting the charge, the

Page 87 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

company has admitted that the leverage ratio was breached on issuance of OCDs..........

5.1.5.4 The Committee observes that the new management acquired the NBFC in September 2021, started raising funds from October 2021 which in tum led to the breach of leverage ratio in October 2021 itself. The Committee notes that by March 31, 2022, the company's leverage ratio of 117.77 was significantly in excess of the permitted level of seven. This reflects a weak compliance culture.

5.1.5.5 Based on the above and the findings at paragraph 5.1.4, the Committee concludes that the company breached the leverage ratio significantly beyond the permissible limit of seven, and therefore, did not comply with the Bank's directions contained in paragraph 6 of the Master Directions, 2016 and now reiterated in paragraph 17 under Chapter II read with paragraph 4(7) under Chapter I of Reserve Bank of India (Non-Banking Financial Companies -

Prudential Norms on Capital Adequacy) Directions, 2025 dated November 28, 2025 (Updated as on March 10, 2026), which warrants imposition of monetary penalty...........

8. Accordingly, in exercise of the powers conferred under section 58G(1)(b) read with clause (aa) of section 58B (5) of the Reserve Bank of India Act, 1934, an aggregate monetary penalty of ₹10.30 lakh (Rupees Ten Lakh Thirty Thousand only), is hereby imposed on Exclusive Capital Limited and the company is directed to pay the said penalty of ₹10.30 lakh (Rupees Ten Lakh Thirty Thousand only), within thirty (30) days from the date of receipt of this Order.

Page 88 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

9. A copy of this order be served on the Managing Director of the company for due compliance. The imposition of penalty is without prejudice to such other action as the Bank may consider necessary.

(Emphasis supplied)

122. Above affidavit dated 29.05.2026 and order dated 29.03.2026 by the RBI

clearly establish that the company breached the compliances. We note that the

RBI has still kept further proceedings under exemptions and RBI has reserved its

rights to deal such violations appropriately at later stage. Para15 of the Affidavit

of RBI dated 29.05.2026, is reiterated:

15. It is also submitted that subsequent to the closing of the proceedings initiated vide first Show cause Notice dated February 07, 2025, based on the documents/information called for and obtained from Exclusive Capital Ltd. and limited scrutiny conducted by the answering Respondent during May 2025, certain supervisory concerns have been prima facie observed, which are under examination. Any contravention of guidelines/directions issued by RBI would be dealt with as per the provisions of Reserve Bank of India Act, 1934 and the supervisory framework.

(Emphasis supplied) This clearly support the Impugned Order passed by the Impugned Order in

its own way.

123. It is also relevant to record the regulatory philosophy underlying the

leverage-ratio prescription, since the Appellant's submissions proceed on the

Page 89 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

premise that the breach was, in substance, a private or internal matter of capital

structuring having no true public dimension. In this connection, we would also

like to refer to the preamble to RBI's successor Master NBFC Direction the 2023

i.e. Scale Board Regulations (SBR) which records that such directions are issued

"in the public interest" and to "prevent the affairs of any NBFC from being

conducted in a manner detrimental to the interest of investors and depositors or

in any manner prejudicial to the interest of such NBFCs", in exercise of RBI's

powers under Sections 45JA, 45K, 45L and 45M of the RBI Act 1934. The NBFC

Directions, which governed the Company, at the relevant time, were issued in

materially identical exercise of the same statutory powers and for the same

protective, systemic purpose. A leverage ceiling of 7 times owned funds is not an

arbitrary figure; it is calibrated to ensure that an NBFC's liabilities remain

proportionate to its capital base, so that a shock to its asset quality does not

immediately imperil its ability to meet its obligations to creditors, counterparties

and, ultimately, the wider financial system in which it participates. A breach of

the order of 117.77 times, several times the ceiling, by a company whose core

business is the deployment of borrowed capital is, on any view, a matter of

genuine prudential and public concern, and not a mere technical or accounting

irregularity confined to the internal affairs of the Company. The Tribunal's

characterisation of the breach as one affecting "public interest" within Section

241(1)(a) of the Companies Act 2013 is, in this Appellate Tribunal's assessment,

well founded on this independent basis as well.

Page 90 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

124. The Appellant's argument that CCPS, not being "equity share capital"

within the meaning of Section 43 of the Companies Act 2013, until conversion,

does not by itself attract the 26 per cent threshold, is not without force as a matter

of statutory construction, and this Appellate Tribunal does not reject it outright.

However, that argument of the Appellants, even if accepted, is not determinative

of whether the transaction, viewed as a whole, discloses conduct that is

burdensome, harsh or wrongful, or lacking in probity and fair dealing, which

remains the touchstone for oppression laid down in Shanti Prasad Jain v. Kalinga

Tubes Ltd. (supra). Viewed in this light, whether or not Para 61 of NBFC

Directions was, in the strictest technical sense, triggered at the moment of the

OCD-to-CCPS conversion is not decisive; what matters for the purposes of

Section 241 of the Companies Act 2013 is that the exercise, taken as a whole and

assessed not in isolation but as a part of a consecutive story theory (Shanti Prasad

Jain, supra), evidences a lack of probity and fair dealing. This Appellate Tribunal

accordingly upholds the Tribunal's ultimate conclusion on this aspect.

125. Issue IV: (a) Whether the purchase of the Bentley motor car and the

related-party loans (to Luxus, Laxmipati/Exclusive Motors, Mr. Jayant

Mirani, and Sulojay Realty) were validly sanctioned by the omnibus

approval dated 27.09.2022, and whether these transactions establish

improbity in the management of the Company's affairs?

(b) Whether the allegations of non-implementation of the Expansion

Agreement have any substance?

Page 91 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

126. It is noted that the purchase of a second-hand Bentley motor car for Rs.

9,09,00,000/, a sum exceeding three times the entire paid-up share capital of ECL

(Rs. 2,34,65,000/-) from Luxus, a company allegedly beneficially

owned/controlled by the Appellant Satya Prakash Bagla and has been bone of

contention between parties. The defence of the Appellants is that the transaction

was covered by an omnibus approval dated 27.09.2022 and was at "arm's length".

This defence does not prima facie withstand scrutiny for several reasons. We note

from the submissions during our hearings that several of the impugned loans to

Luxus (disbursed in tranches on 10.03.2022 and 19.04.2022), to the Appellant

(June 2022), and to Sulojay Realty (2022), pre-date the Circular Resolution of

27.09.2022 said to confer omnibus approval, and cannot, as an ordinarily rule, be

retrospectively validated by a resolution passed after the event. Even taking the

Circular Resolution at its highest, the loan of Rs. 14 crores to Luxus, disbursed in

tranches of Rs. 5 crores and Rs. 9 crores, breaches the very tranche-wise ceiling

(a maximum of Rs. 5 crores per tranche) said to have been stipulated in that

Resolution.

We need to further note that independent of the omnibus-approval controversy,

the absence of any loan documentation, security or hypothecation, and the

charging of interest, where charged at all, at rates allegedly below prevailing

commercial rates, on loans of this magnitude extended by a RBI-regulated

lending NBFC to entities controlled by its own promoters/directors, itself is

indicative prima facie of a related-party arrangement inconsistent with the Page 92 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

fiduciary standard expected of directors dealing with the capital of the company

they manage. The explanation of the Appellants that the purchase price of the

Bentley was ultimately reconciled against the Rs. 9 crore tranches of the Luxus

loan, rather than being recovered in cash with interest, only reinforces the

inference of circularity and self-dealing rather than dispelling it.

127. This Appellate Tribunal accordingly finds no infirmity in the Tribunal's

conclusion, at paragraph 67 of the Impugned Order, that the purchase of the

Bentley, in the context of the Company's modest paid-up capital and the related-

party character of the counterparty, discloses improbity in the conduct of the

company's affairs.

128. For completeness, the material related-party transactions placed on record

and as brought out to our notice during pleading (over and above the Bentley

purchase) are tabulated below, without going into detail and correctness of same

and leaving it on the Tribunal to look into these in details.

Counterparty -- Amount -- Salient Features

i. Luxus Retail Pvt. Ltd. -- Rs. 14 crores (Rs. 5 cr. + Rs. 9 cr., disbursed

10.03.2022 & 19.04.2022). Interest at 7% p.a.; no loan documentation or

hypothecation; Rs. 5 cr. tranche repaid; Rs. 9 cr. tranche adjusted in Dec.

2022 against the Bentley purchase price rather than repaid in cash.

ii. Laxmipati Management Services Pvt. Ltd. / Exclusive Motors Pvt. Ltd. --

Rs. 3 crores (07.01.2022). Stated purpose of car purchase; no car shown to

Page 93 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

have been purchased or hypothecated; settled after 1.5 years at a shortfall

of over Rs. 50 lakhs against market interest.

iii. Mr. Jayant Mirani -- Rs. 2.05 crores. Car already mortgaged to a bank

under a prior loan; no security taken; interest waived on part of the sum;

balance said to remain unpaid/unrecovered.

iv. Sulojay Realty Pvt. Ltd. -- Rs. 12.89 crores. Company stated to be

owned/controlled by related parties; terms not shown to conform to arm's

length dealing.

v. Exclusive Motors Pvt. Ltd. (second motor vehicle) -- Rs. 6.71 crores

(July-Aug. 2023). No supporting documentation on record; existence of

the vehicle not verified.

129. It has been brought to our notice by the Respondents that none of these

alleged related party transactions is shown to have been recovered in the ordinary

course, with interest, in fact; each was either adjusted against a further related-

party transaction, allowed to lapse without recovery, or left undocumented. This

pattern of circularity, taken cumulatively with the Bentley purchase and other

related party transaction reinforces rather than dispels the inference of related-

party favouritism at the expense of the Company and its minority shareholders.

130. Now we will look into another issue raised by the both parties which is

w.r.t. Expansion agreement. The Appellants denied the allegations of the

Respondents regarding non implementation of expansion agreement and

submitted that it is the Respondent Mrs. Kanta Agarwala who has not paid. Page 94 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Therefore, there was no occasion for the company to implement the expansion

agreement. Conceding the fact that the company had indeed approach the RBI

for approval and RBI approved the same, the Appellants however, stated that the

expansion agreement was never placed on record by the Respondents and the

Appellants have always denied the existence of such expansion agreement or

binding the obligation of the same. The Appellants justified their action in

sending the application to the RBI for approval stating that this was only

enabling clearance and did not tantamount to automatic and compulsory

allotment of shares without consideration. The Appellants further submitted that

the Respondent have not taken up the issue of alleged violation of expansion

agreement or non implementation of the same before any authority including

filing suit for specific performance.

131. On the other hand, the Respondents have brought to our notice that RBI

issued its approval to the Expansion Agreement to the company on 30.05.2023,

which was granted subject to satisfaction of preconditions by the company inter-

alia included:

(1) Prior Public Notice to be issued by the company about change in control/

management.

(2) Original public notice to be submitted by the company with RBI within 7

days.

(3) Objections received, if any, to be furnished to RBI. If no objections received,

a confirmation to this effect be sent to RBI after 30 days of publication. Page 95 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

The Respondents submitted that the RBI's Approval was valid for a period of 6

months, that is from 30 May 2023 to 30 November 2023. During the validity, the

Appellants failed to give effect to the Expansion Agreement or meet the pre-

conditions set out in the RBI Approval. No public notice was issued by the

company.

132. Having noted the rival contention for the non implementation of the

expansion agreement, we observe that, it is a fact that the company had indeed

obtained the written clearance of the RBI for allotting additional shares to the

Respondent Mrs. Kanta Agarwala which would have made the Respondents, as

majority shareholders of the to the Company. We also take into account the

allegation of the Respondents that money was to be adjusted on account of the

financial loan submitted to the Appellant Satya Prakash Bagla and the expansion

agreement was done with such clear understanding. We also take into

consideration that a public notice was to be issued by the company in this regard,

which was never issued by the company ECL where the appellants were in

management.

133. We are conscious of the fact that the dispute as to whether Respondent Mrs.

Kanta Agarwala was liable to infuse Rs.5,00,00,000/- pursuant to the RBI

approval dated 30.05.2023, or whether that obligation stood discharged/set off

against a disputed personal loan of Rs.62.05 crore alleged to have been advanced

by Respondents Mrs. Kanta Agarwala and Mr. Suresh Kumar Agarwala to

Appellant Mr. Satya Prakash Bagla in their individual, personal capacities, Page 96 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

although may be a dispute inter se between the Appellants and the Respondents,

directly concerns the affairs of the Company qua its members. A Section 241/242

proceeding is concerned with the affairs of the company and the rights of

members qua the company; disputed financial dealings between the Appellants

and the Respondents, being virtually 100% shareholders of the shares in the

company, resting assertions can be the legitimate basis for the finding by the

Tribunal that the Company's affairs were mismanaged.

134. In this connection to look into this aspect further, we had put a direct query

to the Appellants during hearing before us whether the Company issued any

demand letter to the Respondent Mrs. Kanta Agarwala calling upon her to pay

Rs. 5 Crores, even if no public notice was issued, the Appellants could not link

any such demand letters. We do not intent to go further into such allegations by

the rival litigants on this issue and leave it to the Tribunal to look into the matter

in details, while finally adjudicating the company petition No. 48/ND/2024.

135. Issue V: Whether the mass resignation of Key Managerial Personnel

and the removal of the Independent Directors during the pendency of the

petition constitute relevant and probative material for the purposes of

Sections 241/242 of the Companies Act, 2013?

136. It is an admitted fact that five prominent Managerial Personnel, including

the Company Secretary, the Chartered Accountant/Statutory Auditor and the

business head, resigned within a short span of time as the same day, and that two

Page 97 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Independent Directors were removed from the Board during the pendency of the

petition.

137. We find that the Tribunal correctly declined to conduct what would, in

effect, have been a "roving inquiry" into the truth of each individual's allegations

of incompetence or misconduct, and confined itself to the objective fact of a mass,

near-simultaneous exodus of the very personnel responsible for legal, financial

and business compliance of a RBI-regulated NBFC, coupled with the allegedly

removal of both Independent Directors. This approach of the Tribunal is found to

be consistent with the standard laid down in Shanti Prasad Jain (supra), namely,

that events are to be assessed "not in isolation but as a part of a consecutive story".

138. The significance of the removal of Independent Directors, in particular,

merits separate emphasis. Sections 149 and 150 of the Companies Act 2013, read

with Schedule IV (the Code for Independent Directors), reflect Parliament's

considered emphasis that Independent Directors perform a distinct and important

governance function i.e. bringing an objective, external perspective to the Board's

deliberations and acting as a check on the concentration of unaccountable power

in the hands of promoter-directors. This function is of particular importance in a

RBI-regulated NBFC entrusted with the deployment of investor capital.

Therefore removal of the independent directors , in short order, in the course of a

pending oppression petition, in circumstances where one such removal is alleged

to have been backdated so as to pre-empt the effect of the Tribunal's interim

protective orders, is not a matter to be this treated as incidental or peripheral to Page 98 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

the oppression inquiry as it goes to the very heart of whether the Company's

governance safeguards were being deliberately dismantled during the pendency

of proceedings designed to test the propriety of the very same management's

conduct.

139. We have taken defence of the Appellants into consideration that all such

employee who resigned, do not find in the definition of KMP as stipulated in

Section 2(51), 2013 of the Companies Act 2013 including the Business Head and

therefore the Appellants submitted that the allegations are legally not tenable.

The Appellants further mentioned that these resignations were rather orchestrated

and manipulated by the main contesting Respondents along with their son, in

order to de-fame the company, and further such disgruntled employees were

engaged in passing the confidential information to the Respondents, violating the

Company's commercial interest.

140. On issue of mass resignation, although we have taken note of the pleadings

of the Appellant regarding reference to Section 2(51) of the Companies Act, 2013

however the fact remains whether such employees fit in the definition of Section

2(51) of the Companies Act, 2013, or not, nevertheless in sprit, the very fact that

many top executives of the company including the business had CFO Auditor,

Company Secretary and resigned enmass, do not augur well for the company. It

certainly reflects on the corporate governance issue in the company, which are to

be legitimately examined and adjudicated finally upon by the Tribunal under

Page 99 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Section 241 and 242 of the Companies Act, 2013 in the pending

C.P./48/ND/2024.

ISSUE VI: Submission of five reports of the Observer and the issue of non-

payment of remuneration to the observer?

141. Now we will deal issue regarding observer's five reports submitted by

Justice R. K. Gauba. We note that the observer has filed five reports including

Report No. 2 dated 02.12.2024, giving findings of siphoning of fund and various

other such reports which were outside the scope of company petition. The

Appellants submitted that the observer report No.2 was based on conjectures and

surmises creating wrong impression about the company. The Appellants also

stated that the Observer Report No. 5, alleging that both improperly appointed a

new CFO and Independent Directors in the breach of the judicial orders of this

Appellate Tribunal dated 16.12.2024 and the Hon'ble Supreme Court order dated

24.02.2025, is not correct as the Appellants were obligated for making such

appointment which were made to ensure legal compliances.

142. During pleadings, the Counsel for the Observer brought out several

discrepancies in the conduct of affairs of the company. The Counsel for

Observer also brought that despite his chairing meeting he was not provided a

copy of the minutes for approval and minutes were unilaterally issued without

even sending copy to him. On this particular issue, we put a pointed query to

the Appellants who fairly conceded that they did not take confirmation from the

Observer. Minutes of meeting held on 20.06.2024 were sent by e-mail to Page 100 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

Observer only on 03.03.2025, after lapse of nine months for which no

satisfactory answer could not be given by the Appellants. We do not appreciate

such conduct. This action and the conduct of the Appellants is not appreciable in

light of background of this case especially keeping in view of Hon'ble Supreme

Court as well as this Appellate Tribunal's various orders (quoted earlier)

regarding role of the Observer.

143. Having noted that the Observer has since put up five such reports,

however, the same could not be discussed or taken into greater consideration

during pleading before us, we request the Observer to place all these reports to

the Tribunal and request the Tribunal to look into these reports in accordance

with law, giving opportunity to all the parties to clarifying their position, before

finally adjudicating the main petition no.48/ND/2024.

144. During pleadings the Counsel for the Observer also specifically brought

to our notice that he has filed an IA wherein he has brought out that he has not

been paid for last couple of months in accordance to settled terms for his

appointment. The observer stated that he was to be paid at par with MD/CEO of

the company. On this issue, the Appellants tried to differentiate to pay scale of

the MD and the CEO, however, the fact remains that the Observer has not been

paid despite his Appointment was made by the Tribunal modified by this

Appellate Tribunal from the Administrator to Observer and the same was not

interfered by the Hon'ble Supreme Court. We leave it to the Tribunal to look

into this matter of non payment to observer and sort out at the earliest, so that Page 101 of 103 Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

the observer appointed under judicial orders is paid strictly in accordance with

terms and condition of his appointment. The company shall ensure payment as

per direction of the tribunal.

Conclusions

145. Based on above detailed analysis and considering various allegations like

the leverage-ratio breach, alleged related-party transactions inconsistent with

fiduciary norms, alleged non-implementation of the RBI-sanctioned arrangement

described internally as "Expansion Agreement", mass exodus of compliance

personnel, and removal of both Independent Directors in alleged defiance of the

Tribunal's interim orders, discloses precisely the sort of "consecutive story" that

satisfies the Shanti Prasad Jain standard. This Appellate Tribunal finds no error

in the Tribunal's reliance on this material as corroborative of the finding of

oppression and mismanagement.

146. In view of all circumstances discussed above , we hold that the appointment

of the independent Administrator and suspension of the Board for a defined, finite

period of 180 days as per the Impugned order pursues the legitimate aim of

preventing further prejudice pending a fuller inquiry, is suitable to that aim, and

given the admitted regulatory breach, the alleged unexplained related-party

dealings, and the mass exodus of compliance personnel , no materially less

intrusive alternative was shown to be adequate; this Appellate Tribunal finds no

disproportionality in that directions.

Page 102 of 103

Comp. App. (AT) No. 161 of 2024 & Comp. App. (AT) No. 162 of 2024

147. In view of detailed consideration above, we don't find merit in either of the

appeals. Both the appeals fail and stand rejected.

148. No order as to costs. IA, if any, stand closed. We also record that the

Tribunal shall decide pending matter including all IAs in accordance with law,

without being influenced by any of our observations, which we gave based on

pleadings and facts as made available before us.

149. The appeal stand disposed of in the above terms. It is reiterated that nothing

in this judgment shall be construed as an expression of opinion on any issue

specifically dealt with herein above and the Tribunal shall proceed independently

in accordance with law.

150. The case is remanded back to the Tribunal to decide the main petition no.

48/ND/2024 and other pending IAs and issues, in accordance with law. Parties

are directed to appear before the Tribunal on 10.09.2026.

[Justice Mohammad Faiz Alam Khan] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical) Sim

Page 103 of 103