Pramod Chandra Rath vs Hotel Aristocrat Pvt. Ltd

[Arising out of order dated 4th September, 2017 passed by National Company Law Tribunal, Kolkata Bench in C.P. No.181 of 2013]

IN THE MATTER OF:

1. Pramod Chandra Rath, Kairapari, P.O. - Kotsahi, P.S. - Tangi, Dist. - Cuttack, Odisha - 754022 ...Appellant No.1 (Original Petitioner No.1)

2. Dr. Subas Chandra Rath, Kairapari, P.O. - Kotsahi, P.S. - Tangi, Dist. - Cuttack, Odisha - 754022 ...Appellant No.2 (Original Petitioner No.3)

3. Shri Pradeepta Chandra Rath, Kairapari, P.O. - Kotsahi, P.S. - Tangi, Dist. - Cuttack, Odisha - 754022 ...Appellant No.3 (Original Petitioner No.4)

4. Shri Prasanta Chandra Rath, Kairapari, P.O. - Kotsahi, P.S. - Tangi, Dist. - Cuttack, Odisha - 754022 ...Appellant No.4 (Original Petitioner No.5)

Versus

1. Hotel Aristocrat Pvt. Ltd. Badapadia, P.O./P.S. - Paradip, Dist. - Jagatsinghpur, Odisha - 754142

Company Appeal (AT) No.402 of 2017 2

2. Shri Bhagirathi Sahoo, Badapadia, P.O./P.S. - Paradip, Dist. - Jagatsinghpur, Odisha - 754142

3. M/s. N.C. Nayak and Co. Company Secretaries, HIG 14, 1st Floor, Dharamvihar, Khandagiri, Bhubanshwar, Dist. - Khundla, Odisha - 751037

...Respondent Nos.1 to 3 (Original Respondent Nos.1 to 3)

Present: Shri Amar Dave, Shri Anirudh Sanganeria, Ms. Shruti Agarwal, Shri Jayant Mehta and Shri Rahul Kukreja, Advocates for the Appellants

Shri Arunav Patnaik, Shri Karun Pahwa and Ms. Kanika Singh, Advocates for the Respondents

JUDGEMENT

A.I.S. Cheema, J. :

1. The Appellants were Petitioners 1, 3 to 5 before the National

Company Law Tribunal, Kolkata Bench, Kolkata ('NCLT' in short) in CP

181/2013. The Petitioner No.2 - Smt. Padmini Rath, wife of Appellant No.1

was Petitioner No.2. She expired when the matter was pending in National

Company Law Tribunal. The petition was filed against the present

Respondents under Section 397, 398 and 402 of the Companies Act, 1956

('old Act' in brief) claiming oppression and mismanagement on the part of

Respondents in the Company - Respondent No.1.

Company Appeal (AT) No.402 of 2017 3

2. The learned NCLT after hearing the matter dismissed the

Company Petition and hence, the present appeal by the original

Petitioners.

3. The Appellants claimed that the Respondent No.1 Company was

incorporated in 1980 with the object of running a hotel at Paradeep in

Odisha by founder Directors and shareholders - Shri Antarjyami Pattnaik,

Shri Shyam Charan Pattnaik and Smt. Reeta Mohanty. The Appellant No.1

took over the business of Respondent No.1 Company subsequently. He was

appointed Managing Director on 2nd July, 1997. The Appellants along with

deceased Smt. Padmini Rath were holding 647 equity shares comprising

77.29% of the total paid up share capital of the Company. The total paid

up share capital was of Rs.8,37,000/- divided into 837 equity shares of

Rs.1,000/- each. The Appellant No.1 was based in Cuttack and

Respondent No.2 was based in Paradeep. Respondent No.2 (main

contesting Respondent - hereafter referred as 'Respondent') was invited by

the Appellant No.1 (hereafter, also referred as 'Appellant') and was allotted

190 equity shares comprising 22.7% of issued, subscribed and paid up

share capital. The shares were allotted to Respondent as compensatory

remuneration to look after day-to-day affairs of the Company. According

to the Appellants, because of the Appellant, the Company flourished. The

Appellant had implicit faith in contesting Respondent. Because the

Appellant reposed faith and trust in the Respondent, he gave over the reins

Company Appeal (AT) No.402 of 2017 4

of the Company in the hands of the Respondent. At the behest of

Respondent, the Appellant from time to time used to put his signatures

over blank papers and blank letter pads to ensure smooth running of the

business affairs of the Company. This continued for about a decade and

with passage of time, the Appellant reposed further faith and confidence

in the Respondent.

4. The Appellants claimed that the Appellant (Appellant No.1)

received telephone call from one Shri Ramesh Chandra Pratap, F.C.A.

Partner of M/s. Pratap & Co. who were Auditors of the Company seeking

confirmation of changes in shareholding of the Company for the year

ending 2012. The Appellant denied this and the Respondent No.2 assured

the Appellant No.1 that the irregularities would be corrected at the earliest.

Respondent No.2 intimated the Appellant No.1 that the audit of the

accounts had not been completed because of such irregularities and

urgent steps are being taken. However, audited Balance Sheets for the year

ending 2012 had not been filed. According to the Appellants, the Appellant

No.1 then started making enquiries and sometime in March, 2013 came to

know that due to the faith reposed in Respondent No.2, the Respondent

No.2 had diluted the shareholding of Appellant No.1 in the Company by

forging signatures of the Appellant No.1 and siphoning of funds. In March,

2013, Appellants came to know that Respondent No.2 had filed Form 20B

with Registrar of Companies showing massive change in shareholding.

Form No.5 had been filed by Respondent No.2 as well as Form No.32 had

Company Appeal (AT) No.402 of 2017 5

been filed recording resignation of Appellant No.1 from the post of

Managing Director and appointing Respondent No.2 in the same capacity.

According to the Appellants, Respondent No.2 forged and/or caused

signature of Appellant No.1 to be forged in purported Resolution passed in

Board Meeting dated 6th March, 2012. Respondents proceeded to raise the

authorized share capital of the Company from Rs.12 lakhs to Rs.62 lakhs

in EOGM called within 6 days of Notice dated 6th March, 2012, on 12th

March, 2012. On 27.03.2012, Respondent No.2 filed Form 5 with Registrar

of Companies with altered Memorandum of Association. From the

increased share capital, Respondent No.2 allotted 1862 shares to the

Appellant No.1 and 2422 shares to himself. According to the Appellant

there was no need to increase the authorised share capital. There was no

need for the Appellant No.1 to resign as Managing Director. It is claimed

that Notices of alleged Board Meetings were not given to Appellant No.1

and Notice of EOGM was also not given to the members and Respondent

No.2 along with Respondent No.3 who is associated with Respondent No.2

acted in oppressive manner and have mismanaged the Company.

5. It is case of the Appellants that the learned NCLT did not properly

appreciated the facts of the matter and wrongly dismissed the Company

Petition.

6. We have perused the Appeal and its annexures including counter

affidavit filed by the Respondents 1 and 2. We have heard counsel for both

sides.

Company Appeal (AT) No.402 of 2017 6

7. The learned counsel for the Appellants referred to the defence of

the Respondent No.2 that there was oral agreement way back in 1997 that

it was the Petitioner No.1 who had approached Respondent No.2 to help

change over the management of the Company with oral agreement that

51% of the shareholding will be given to Respondent No.2. According to the

learned counsel, there was no such oral agreement and the same could

not be relied on to claim changes in 2012. It is argued that although the

share capital was increased from Rs.12 lakhs to Rs.62 lakhs, there was

nothing to show that the Company received consideration towards such

share subscription. The Explanatory Statement (Annexure A/8 - Page 174)

claims that diversification of the activities was the reason for increasing

the capital of the Company. However, there was no material to show that

the money came in and was used for diversification of the activities of the

Company. The reasons given in Explanatory Statement were not supported

by any documents. There was no valid and just requirement for issue of

additional capital. It has been argued that the Respondent No.2 got the

share capital increased to allot additional shares to himself and to become

majority shareholder. The argument is that the Board Resolution dated

06.03.2012 did not show that the Appellants were present. The EOGM

dated 12.03.2012 was contrary to Article 36 of the Articles of Association

which requires minimum 7 days of Notice to call General Meeting. There

was no proof that the Notice of EOGM dated 12.03.2012 was served on the

Company Appeal (AT) No.402 of 2017 7

Appellants. The Appellants did not attend the EOGM. The Resolution

adopted in EOGM dated 12.03.2012 was stated to have been confirmed in

AGM dated 29.09.2012. However, there was no proof that Notice of that

AGM dated 29.09.2012 was given to the Appellants. The Appellants claim

that the resignation dated 26.10.2012 alleged to have been given by

Appellant No.1 was forged and fabricated.

8. The learned counsel for the Appellant, at the time of arguments

submitted that the Appellants accept that the resignation bears signature

of the Appellant No.1 but the contents are denied as according to the

Appellants, the Appellant No.1 had in good faith signed blank papers for

business purposes which have been misused by the Respondent No.2. At

the time of arguments, counsel for both sides accepted that there was no

dispute relating to the Annual Returns till AGM of 30.09.2011 but there

were disputes relating to EOGM dated 12.03.2012. Learned counsel for the

Appellants claimed that the Respondent No.2 had shown the allotment of

shares to Appellant No.1 only to give colour of legality to the increased

share capital.

9. The learned counsel for Respondent Nos.1 and 2 submitted that

on record there is copy of Board Meeting Resolution dated 6th March, 2012

(Annexure A-7 Page - 173) which authorizes Respondent No.2, to issue

Notice for EOGM in order to increase the authorized share capital. At that

time, the Appellant No.1 was the Managing Director of the Company. It is

claimed that the Form No.2 is relating to allocation of shares after increase

Company Appeal (AT) No.402 of 2017 8

of the share capital. The list of allottees bears the signatures of the

Appellant No.1 as well as Respondent No.2. The counsel referred to the

document at Page - 210 of the Appeal for the list. It has been further

argued by the learned counsel for the Respondents 1 and 2 that the

Balance Sheets of the Company for the Financial Year 2011 - 2012 were

also signed by the Appellant No.1 as Managing Director and R.C. Pratap

for Pratap & Co. Auditors had also signed the Balance Sheet which showed

the change in share capital between the figures at the end of previous

reporting period and the current reporting period. It is argued that the

balance sheets of the earlier years from 2005 - 2006 till 2010 - 2011 had

shown application money pending and after the EOGM on allocation of the

shares, this positon had changed in the balance sheet as on 31st March,

2012. According to the learned counsel for Respondents 1 and 2 till

26.10.2012, the Appellant No.1 was the Managing Director and only on

that date after his resignation, the Respondent No.2 became the Managing

Director and thus the Appellants cannot claim oppression and

mismanagement by Respondents till that date when Appellant No.1

himself was M.D. It has been argued by the learned counsel for

Respondents 1 and 2 that although the Appellants claim that the

signatures of the Appellant No.1 had been forged and fabricated in

documents relied on by the Respondents, still in spite of various

opportunities given by the learned NCLT, the Appellants had not taken

steps to get the alleged forged signatures and fabricated documents

examined by Hand Writing Expert. According to the learned counsel for

Company Appeal (AT) No.402 of 2017 9

Respondents 1 and 2, Rule 43(3) of the National Company Law Tribunal

Rules, 2016 was available to the Appellants and the Appellants did not

take the benefit and by merely saying that the documents are forged or

fabricated would not help. It has been argued that the Appellants cannot

back out of their own documents which are part of record to claim that the

Respondents have committed oppression and mismanagement.

10. The first dispute relates to EOGM dated 12.03.2012 when it is

stated that there was increase in authorized share capital from Rs.12 lakhs

to Rs.62 lakhs. Annexure A-5 of the Appeal is Form 20B of the Company

along with Annual Returns up to 30th September, 2011 (Page - 157 to 171)

showing the share capital and shareholding of the parties. Till this point

of time, there was no dispute. The Annual Returns bear signatures of the

Appellant No.1 and Respondent No.2. A sample can be seen as at Page -

171. The signature of the Appellant No.1 on the resignation (Annexure A-

14 Page 227) is also available in record. The signature is of Appellant No.1

is not disputed. What is disputed is contents in the resignation as the

Appellants claim that the Appellant No.1 had signed blank papers. The

original of the said resignation was seen by us at the time of arguments

and returned to the Respondent No.2. Annexure A/14 is thus bearing an

undisputed signature of Appellant No.1 though the contents are disputed.

Then there is Annexure A-6 (Page 172 of the Appeal Paper Book) which is

extract of the Board Resolution dated 6th March, 2012, which shows

Resolution relating to increase in authorized share capital subject to

Company Appeal (AT) No.402 of 2017 10

approval by the General Meeting and authorizing Respondent No.2 to issue

Notice for calling EOGM. According to the Respondents, this document is

signed by the Appellant No.1. The Notice of EOGM (Annexure A-7 - Page

173) (It may be noted that the Index has errors compared with the actual

documents in the Appeal Paper Book as in the Index, the Notice is shown

as at Annexure A-8) was signed by Respondent No.2 along with

Explanatory Statement as can be seen at Page - 174. The extract of

Resolution taken in EOGM is at Page - 175 marked as A-9. Counsel for the

Respondents referred to Annexure A-12 Form 20B and stated that if the

signature below the Annual Return which is at Page - 206 of Appeal is

seen, it is clear that the Appellant No.1 was aware and party to the increase

in share capital and distribution of the shares on increase. Although the

counsel for Appellants disputed the signature of Appellant No.1 below this

document (which is at Page - 226 of the Appeal), the learned counsel for

the Respondents submitted that if the admitted signature of the

resignation is compared, there is no space for doubt that this document

was signed by the Appellant No.1. The counsel for Respondents pointed

out the Balance Sheets of the Financial Years 2005 - 2006 till 2009 - 2010

(from pages 37 at 40 to 74 filed with counter affidavit of Respondents [Diary

No.2830]) to submit that those balance sheets showed share application

money pending and once the share capital was increased, depending on

the share application money received from the Applicant No.1 and the

Respondent No.2, the shares were issued. In the Balance Sheet issued

thereafter on 31st March, 2012 ([Annexure R-1] with counter affidavit of

Company Appeal (AT) No.402 of 2017 11

Respondents - Diary No. 2830) the column against share application

money was then shown as NIL.

11. Looking to the admitted signatures of the Appellant No.1, when

these documents pointed out by the counsel for Respondents 1 and 2 are

seen, it does appear that they bear signatures of the Appellant No.1.

Annexure -R1 (Diary No.2830) not only bears signature of Appellant No.1

in the Balance Sheet ending 31st March, 2012, (i.e. just after the EOGM

dated 12.03.2012) but it also bears signature of the Chartered Accountant

R.C. Pradeep. This is the same Chartered Accountant on whom Appellant

appears to have reposed faith if the appeal is perused as the Appellants

claim that this Chartered Accountant had cross checked with the

Appellants regarding increase in share capital and facts came to light. (See

synopsis Page - 3.) Till this point of time, the Appellant No.1 was the

Managing Director and Annexure - R1 referred above has been signed by

him in that capacity.

12. As regards the resignation letter dated 26.10.2012, there is extract

of Board Meeting Resolution at Annexure - A15 (Page - 228 of Appeal)

accepting the resignation of the Appellant No.1. As per this document, the

original Petitioner No.2 - Smt. Padmini Rath proposed the name of

Respondent No.2 and resignation of Appellant No.1 was accepted and

Respondent No.2 was appointed MD. This extract (Annexure A-15) appears

to have been signed by Appellant No.1. It is the case of Respondents that

Company Appeal (AT) No.402 of 2017 12

till 26.10.2012, Appellant No.1 was managing affairs of the Company, as

Managing Director.

13. Sub-Rule (3) of Rule 43 of the National Company Law Tribunal

Rules, 2016 reads as under:

"(3) Where any party preferring or contesting a

petition of oppression and mismanagement raises the issue

of forgery or fabrication of any statutory records, then it

shall be at liberty to move an appropriate application for

forensic examination and the Bench hearing the matter

may, for reasons to be recorded, either allow the application

and send the disputed records for opinion of Central

Forensic Science Laboratory at the cost of the party alleging

fabrication of records, or dismiss such application."

14. Last para of the impugned order reads as follows:

"That apart, vide order passed in the instant case on

January 04th, 2017, February 06th, 2017 and March 03rd,

2017 the petitioner was given three consecutive

opportunities to file an application to testify the genuineness

of the signature of petition no.1 so that the documents

pertaining to admitted signature and disputed one be sent

to the Central Forensic Science Laboratory but the

petitioner didn't file any application in this regard despite

Company Appeal (AT) No.402 of 2017 13

the plea taken in his pleading. Thus, it shows the lackluster

approach of the petitioner and why petitioner is reluctant to

testify the genuineness of the signature of petitioner No.1,

the reason best known to him. The extract of the aforesaid

orders is usefully quoted as under:

04-01-2017 - "the petitioner submitted that he desires to

file the evidence on affidavit and also submitted that he is

apprehending that the respondent has forged some

documents, hence, they wanted to send those documents to

Central Forensic Science Laboratory for expert opinion with

regard to the genuinity of the documents and to that effect

they intend to file one application and accordingly prayer

allowed."

06-02-2017 - "the petitioner was allowed sufficient time to

file his evidence, on his prayer on the last date and he also

prayed to file one application for sending alleged forged

documents to the Central Forensic Science Laboratory for

expert opinion with regard to the genuineness of those

documents but even after lapse of one month he has failed

to file his evidence as well as to file the application for

sending the documents to the Central Forensic Science

Laboratory.

Company Appeal (AT) No.402 of 2017 14

03-03-2017 - "sufficient time is allowed to file evidence on

affidavit. Not only this matter is pending from 2013 and no

endeavour has been taken to dispose of the case. Under

such situation prayer for further time cannot be allowed. In

view of the above facts, the case cannot be adjourned every

day as sufficient time had already been granted to petitioner

despite pleadings were completed long back, however, for

the end of justice as a last chance the case is adjourned with

a cost of Rs.25,000 upon the petitioner."

Thus, the petitioner has failed to substantiate the

allegations of oppression and mismanagement under

section 397 and 398 of the Companies Act, 1956 against the

Respondent No.2. With this observation the Company

Petition No.181/2013 stands dismissed and interim order

passed, if any, stands vacated as well as applications

pending, if any, also stands dismissed without any cost."

15. It is apparent that the Appellants were given sufficient

opportunities by the learned NCLT to substantiate their claims if they were

claiming that the Respondents had fabricated or forged documents but the

Appellants did not take advantage. We are keeping in view Section 73 of

the Indian Evidence Act, 1872 and having seen the admitted signature of

the Appellant No.1 on the resignation, copy of which is available on record

and comparing the same with other documents which are being disputed

Company Appeal (AT) No.402 of 2017 15

by the Appellants, we find that the oral submissions and claims of the

Appellants trying to deny the documents, which appear to have come into

existence in ordinary course of events, cannot be accepted. There is

material to show that the Appellant No.1, who was taking great care of the

interest of the Appellants, was MD of the Company till 26.10.2012 and was

party to the increase in authorized share capital as well as documents

show that list of allottees also was bearing his signature. He appears to

have subsequently resigned from the post of MD and continued as

Director. The Appellants cannot be heard denying their own documents.

Merely denying documents bearing signatures of Appellant No.1 is not

enough. Burden of proving an averment is on the party making the

averment. Appellants have failed to prove documents adverse to their

claims to be false or forged. Appellants through Appellant No.1 were in

control of the affairs till 06.03.2012 cannot simply disown documents

bearing signatures of Appellant No.1 by merely saying that they trusted

Respondent No.2 and had signed blank papers and that the same have

been misused. Fraud and forgery when alleged require details and

circumstances to be proved to spell out possibilities and actual fraud and

forgery. Calling for forensic evidence is supportive evidence in this regard

and even that was not resorted to. The Appellants thus failed to prove

oppression and mismanagement on the part of Respondents.

Company Appeal (AT) No.402 of 2017 16

16. We do not find any error in the impugned Judgement and Order

passed by the learned NCLT dismissing the Company Petition of the

Appellants. We do not interfere with the impugned Judgement.

17. The Appeal is dismissed.

There shall be no Orders as to costs.

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

[Balvinder Singh] Member (Technical)

New Delhi 09th July, 2018

/rs/nn

Company Appeal (AT) No.402 of 2017