R. Prasanth vs Ubc Engineers Pvt. Ltd. & Ors

For Appellant: Shri Shaijan C George, Advocate. For Respondents: Shri Krishnendu Datta, Ms Prachi Johri, Ms Prachi Wazalwar, Shri Anandh K, Ms Heeena Uichare, Ms Disha Shah and Ms Shruti Iyer, Advocates.

Company Appeal(AT) No.256 of 2017 2

JUDGEMENT

( 9th July, 2019)

Justice A.I.S. Cheema.

The appellant-original petitioner filed Company Petition

No.No.36/2014 on 15.5.2014 before the Company Law Board, now National

Company Law Tribunal (NCLT in short), Mumbai Bench, Mumbai, against

the respondents claiming oppression and mismanagement. During the

pendency of the company petition, the respondents filed Company Petition

No.1/2016 against the appellant (hereinafter referred to as 'Petitioner') and

both the company petitions came to be disposed of by NCLT by the impugned

order dated 6th February, 2017. NCLT found the Company Petition filed by

the appellant to be not sustainable and the allegations of oppression and

mismanagement made were found to be not proved. NCLT held the other

Company Petition No.1/2016 filed by the respondents to have become

redundant. The present appeal arises out of the dismissal of the Company

Petition No.36 of 2014.

2. Briefly stated the appeal is more reproduction of the Company Petition

and the reply filed by the respondents with arguments. The appellant claims

that the Respondent No.1 M/s UBC Engineers Pvt Ltd (the Company) was

incorporated on 20th April, 2005 and the registered office is situated at Plot

No.G-36, Sector 20, Belapur, Navi Mumbai-400614. (Case put up before

NCLT appears to be that Respondent No.2 was having proprietary concern

"United Building Company and Appellant and Respondent No.3 were

employees who joined respondent No.2 and Company was incorporated). In

was incorporated to carry on business of undertaking various civil

Company Appeal(AT) No.256 of 2017 3

construction contracts. The company is registered as a Government

Contractor with the Military Engineer Services (MES) and is undertaking

various projects of MES. The projects were being carried out at Kochi and

Colaba, Mumbai. It is stated that (and not disputed) that the appellant and

Respondent No.2, Mr. K.N. Pillai, and Respondent No.3, Mr. Kailash Barde

were the first Directors. Mr. K.N. Pillai was allotted 52000 shares, Mr.

Kailash Barde was allotted 24000 shares and the petitioner was allotted

24000 shares. Thus Mr. K.N. Pillai had 52% and the appellant and

Respondent No.3 each had 24% shares. These three persons and

Respondent No. 4 Mr. Parmod N. Pillai were the four directors. Mr. Parmod

N. Pillai is son of Respondent No.2 and was inducted as Director on 1.2.2009.

The petitioner claims that he was Director incharge of MES Project and was

taking care of the same and not concerned with day to day Management of

the company. Respondent No.5, Mohd. Salim is Accountant (thus

Respondent No.2 to 4 are only the contesting Respondents). According to

appellant-petitioner in March 2014 he had occasion to go through the

statutory record of the company and found discrepancies and he looked into

the record. He claims that there were serious lapses and instances of

mismanagement. In short he has made the following allegations in the appeal

(which were also made in the Company Petition):-

a) Firstly, that annual returns were submitted till March, 2011 with

various errors which were brought to notice of Respondent No.5 but

were not rectified;

b) Secondly annual returns for the financial year 2011-12 and 2012-13

were not filed;

Company Appeal(AT) No.256 of 2017 4

c) Thirdly registered office of the company was transferred by the

company to the personal name of Respondent No.2 in the financial year

2007-2008. According to appellant in that year Respondent No.2 asked

him to sign a document to replace/substitute office premises which was

given as security for the purpose of enlistment with MES. The office

premises was substituted by land of the company at Dighodea. The

appellant claims that he did not ealise that the office premises was being

transferred to Respondent No.2;

d) Fourthly, after fraudulently transferring the property of the company

Respondent No.2 started collecting rent from the company for the

premises on pretext that it was rented out to the company. There were

not Board Resolutions for such actions;

e) Fifthly, from the registered office of the company four partnership

firms namely (i) UBC Balaji Port Cane Works (ii) Omni Infrastructure

Services (iii) Unibuild Engineers and (iv) Hepta Enterprises are

functioning in which other than the appellant the other Directors have

interest and the company is bearing expenses of those firms by them

using the stationery, staff, salary etc;

f) Sixthly, Rs.1.50 crores were siphoned off from the company by

Respondent No.2 towards material and labour of construction of his

Bungalow at Plot No.144, Sector 21, Kharghar, Navi Mumbai;

g) Seventhly, Rs.15 lakhs was siphoned off by Respondent No.2 for

addition and alteration work of a Bungalow at Kochi owned by his wife.

Here also, manpower and construction material at the cost of the

company was used;

Company Appeal(AT) No.256 of 2017 5

h) Eighthly, loan of Rs.24,10,000/- was given to M/s Unibuild

Engineers, a partnership firm in instalments in which Respondent No.2

to 4 are partners. Section 185 of the Companies Act, 2013 (Act in short)

was violated. Loan was given although the company itself was taking

various loans from Banks for its functions.

3. The appellant further claims that on 12th March, 2014 he wrote an e-

mail to Accountant, Respondent No.5, that his particulars had not been shown

in Form No.20B. The appellant met Respondent No.2 on 18th March, 2014

and questioned the irregularities. The Respondent No.2 made counter

allegations against the appellant claiming that he was neglecting the projects.

Then Respondent No.2 served letter dated 1.4.2018 withdrawing the benefits

of the appellant-petitioner. His remunerations were cancelled without giving

opportunity to explain. Then he was served notice of EOGM to be held on

29.4.2014. The agenda was to remove him from Board of Directors. It appears

that the appellant filed letter dated 22.4.2014 making various allegations as

are now being made and claimed that he did not get sufficient time. It appears

that due to the Companies Act, 2013 (Act-in short) coming into force the

Respondents issued fresh notice dated 3.5.2014. Board Meeting was held on

12.5.2014 and EOGM was held on 6.6.2014 removing the petitioner from

Board of Directors.

4. The appellant then goes on to refer to the pleadings made by the

respondent in NCLT adding arguments as to how the same were wrong and

the prayer of the appeal is to grant the prayer which were made in the company

petition like seeking disqualification of Respondent No.2 to 4 as Directors;

appointment of Receiver-Administrator; recovery of undue gains made by

Company Appeal(AT) No.256 of 2017 6

Respondent No.2 to 4; directing the Respondent No.1 Company to buy shares

of Respondent No.2 and 3 etc.

5. The Respondent filed reply in the NCLT and after the pleadings were

completed NCLT heard both the parties and after referring to the pleadings

and arguments the findings were recorded in para 5 to 6.4. NCLT heard both

the sides and dismissed the company petition of the appellant as mentioned

earlier.

6. We have heard counsel for both sides. At the time of arguments the

learned counsel for the appellant submitted that the appellant was director

since inception having 24% shareholding. It is argued that Respondent No.4,

Parmod, son of Respondent No.2 was inducted as director although he held

no share in the company. The counsel referred to compilation of documents

filed by the appellant after filing of the appeal. The compilation is Diary

No.8649. This was filed after it was realised at the time of arguments on

27.11.2018 that both the sides had not filed copies of document on which they

wanted to rely and which were part of the NCLT record. We may mention here

that although the appellant made various allegations, the appeal memo did

not link the allegations to any annexures so as to make the appeal clear. As

such the allegations made in the appeal are general leaving it for us to search

the details from various documents which have been later filed by the

appellant and also the respondent. Coming back to the Arguments, Diary

No.8649 compilation of documents was filed by the appellant and the Learned

counsel for the appellant referred Page 57 as the letter dated 1st April, 2014

sent by Respondent No.2, Managing Director, claiming the letter to be on

behalf of the Board of Directors. The arguments is that there was no authority

Company Appeal(AT) No.256 of 2017 7

given to Respondent No.2 to send such letter making allegations against the

appellant. Reference is then made to (Page 58) Notice dated 7th April, 2014

calling EOGM on 29.4.2014 with Explanatory Statement (Page 59). Although

the appellant claims that he did not get sufficient opportunity to respond to

the notice proposing to remove him as Director, his letter dated 22.4.20124

(Page 60) shows that he responded with great details including invoking the

provisions of the Companies Act making various allegations which are now

found in the Company Petition and the appeal. The learned counsel for the

appellant referred to Page 67 of his Compilation which was addressed to

Respondent No.5, the accountant, demanding inspection of documents

making allegations that he was avoiding on the pretext that he needs prior

permission of Respondent No.2. The Respondent No.5 appears to have replied

(Page 68) that he was only an employee and had nothing to do with the

disputes of the Board of Directors and that he had met the Managing Director

(Respondent No.2) and the MD has asked him to inform the appellant that he

may take inspection of the bills as referred, at any time. Respondent No.5

added the statement that the appellant has taken inspection of records on

various occasions and he was never obstructed.

7. Learned counsel for appellant referred to the convenience compilation

filed by Respondents Diary No.8679 (Pages 155 to 161) whereby the appellant

was given fresh notice and EOGM came to be fixed on 6.6.2014 and the

appellant came to be removed as Director for reasons recorded in the

Resolution of the company. Learned counsel referred to these documents to

submit that when such actions were taken/initiated against the appellant he

filed company petition. Learned counsel for the appellant referred to his

Company Appeal(AT) No.256 of 2017 8

compilation (Page 355) and submitted that on 9.6.2005 there was an

Agreement of Sale executed by Respondent No.2 who had jointly acquired land

alongwith one Mrs Hema A Chainani through tripartite agreement from City

Industrial Development Corporation of Maharashtra Ltd having Plot No.G-36

at Belapur, Navi Mumbai which building was constructed and shared with

Mrs Hema A Chainani. It is stated that by the Agreement Respondent No.2

decided to transfer, sell his share in the building to the company for

Rs.17,50,000/- and entered into the agreement. Referring to this document

it has been argued that actually it was sale and such property came into

possession of the company but later on Respondent No.2 himself executed

another Deed of Cancellation of agreement as MD of the company and the

agreement was cancelled. The document is at Page 361 (Diary No.8649). It is

argued that the respondents committed such acts on their own without

consent of the appellant. The argument is that the deed of cancellation shows

that there was passing of consideration when the agreement was entered into

and such consideration was then showed as returned in the Deed of

Cancellation. Both the Documents are signed by Respondent No.2 alone in

dual capacities. It is argued that after such cancellation of the agreement in

favour of the company, Respondent No.2 started taking rent from the

company for the use of the premises by the company. It is also argued that

the respondents were part of certain partnerships which were operating from

the premises of the company and for which the appellant had filed police

complaint.

8. Learned counsel for the appellant referred to his compilation (Page 218)

where there is a purchase order from the letterhead of the company to one

Company Appeal(AT) No.256 of 2017 9

Nirmal Agency asking for supply of various construction articles at the site of

the company with the address shown as 144, Sector 21, Kharghar, Navi

Mumbai. The argument is that at Kharghar the company did not have any

site and this address was of the house of Respondent No.2 and this document

shows articles being supplied at the site of house of Respondent No.2 and thus

there was siphoning of funds of the company. Learned counsel referred to

appeal Page 57 which is part of the copy of the company petition where the

allegations were made in sub para (g) that more than Rs.15 lakhs were

siphoned off by Respondent No.2 for addition and alteration work of the

Bungalow at Kochi which was owned by wife of Respondent No.2. According

to the counsel for the appellant, the respondent did not deny that amount

were spent on addition and alteration work of Bungalow at Kochi. It has also

been argued that the respondents gave loans of Rs.2410000/- to M/s Unibuild

Engineers and even this is not denied. Thus according to the learned counsel

for the appellant there was sufficient material against the respondents to have

fresh audit conducted against the respondents and the company petition

should have been allowed.

9. Against this the learned counsel for the Respondents submitted that respondents have filed copies of various documents as were filed in NCLT. It is argued that in NCLT the respondents had filed a convenience compilation also with index giving explanation to the various allegations and referring to the pages in the compilation. The copies of such convenience compilation has been filed before us with affidavit in Diary No.8679 and annexures as described in the convenience compilation. It would be appropriate to scan and paste the Explanation part of the convenience compilation which is as follows:

Company Appeal(AT) No.256 of 2017 10

Company Appeal(AT) No.256 of 2017 11

Company Appeal(AT) No.256 of 2017 12

Company Appeal(AT) No.256 of 2017 13

Company Appeal(AT) No.256 of 2017 14

Company Appeal(AT) No.256 of 2017 15

Company Appeal(AT) No.256 of 2017 16

Company Appeal(AT) No.256 of 2017 17

Company Appeal(AT) No.256 of 2017 18

Company Appeal(AT) No.256 of 2017 19

In the above chart on the extreme right by hand page numbers as before

NCLAT have been added as in appeal, Convenience Compilation. Learned

counsel for the respondents has made his submissions and arguments based

on the explanations as given above. The particulars given as Event are defence

and explanation of Respondents supported by Documents. According to the

learned counsel for the Respondents after the explanation to the allegations

as made by Appellant in NCLT, the list shows summary of the anti company

activities of the petitioner-appellant which were pointed out to the Learned

NCLT and cognisance of which was taken by the NCLT so as to reject the

claims being made by the appellant.

10. We have heard counsel for both sides and perused the record. It has

been argued by Learned Counsel for the appellant that the document dated

9th June, 2005 was actually a Sale Deed which was titled as Agreement to Sale

and the properties concerned were of the Company but subsequently the

Respondents executed Deed of Cancellation of Agreement dated 19th June,

2008 without Board Resolution and appellant was kept in the dark with regard

to such Cancellation of Agreement. At the time of argument although the

Learned Counsel for the appellant tried to say that there was a Sale Deed on

9th June, 2005, we had noticed that the contents were in the nature of

Agreement of Sale. Even regarding consideration the contents mentioned say

that the Builder agreed to sell and the purchasers agreed to purchase (para 3)

at total construction (should be consideration) of Rs.17,50,000/-. As parties,

this document had signatures only of the Respondent No.2 one in his

individual capacity and second as Managing Director of the Company. The

reverse document of Deed of Cancellation also has signatures only of the

Company Appeal(AT) No.256 of 2017 20

Respondent No.2 in two capacities. This time, of course, it was mentioned

that the purchaser had earlier paid Rs.17,50,000/- by way of full and final

payment in the Agreement for Sale dated 9th June, 2005 which were now being

returned as it is and the receipt was recorded for having received said refund

of advance payment made to the purchaser. Ordinarily if the Company has

received possession even under an Agreement, we would expect the Directors

to protect the possession. However, here it would be necessary to refer to the

facts of the matter to consider if we should interfere. Counsel for Respondents

referred to his convenience Compilation Page 22 to argue that the Company

was mainly having business from being contractor of MES and in May 2005

MES had written letter informing that the immovable property shown by the

Company was personal property of one of the Directors and could not be taken

as the property of the Company and so document showing the properties,

assets and liabilities of the firm should be submitted. The defence of the

respondents is that because of such requirement of MES, the property which

was of the Respondent No.2 was shown as property of the Company by

executing Agreement to Sale and subsequently the Company was able to

purchase property at Dighode and so reverse document was executed. A copy

of the document of purchase of property at Dighode has been pointed out by

the Respondents at Page 30 of their Compilation. We are not entering into

analysing the nature of Agreement to Sale and Deed of Cancellation any

further as the Respondents have shown that in 2009 itself, after the Deed of

Cancellation the Respondent Company had informed Chief Engineer, Navi

Mumbai regarding replacement of immovable property, copy of the letter is at

Page 37 of convenience compilation of respondents. This is dated 1st April,

Company Appeal(AT) No.256 of 2017 21

2009. It enclosed new affidavit incorporating the particulars of movable and

immovable property belonging to the Company. The affidavit dated 26th

March, 2009 which is also signed by the appellant shows that the appellant

and Respondent No.2 and 3 by this notarised affidavit stated details as to the

movable and immovable properties of the company. One list is of movable

properties. The other list is of immovable properties which now included only

reference to the property at Dighode. We find substance in the argument of

Learned Counsel for Respondents that these documents as well as Balance

Sheet for period ending 31st March, 2012, copies of which have been filed at

Page 38 to 42 with the convenience compilation and which also bear

signatures of the appellant did not show the property of G-36, Belapur, Navi

Mumbai as the property of the Company and the appellant was aware of it and

true purpose why the Agreement to Sale and Cancellation Deed were executed.

As in the affidavit of 26th March, 2009 itself the property G-36, Belapur, Navi

Mumbai was not included and the appellant never raised objections till

respondents initiated action against him, such stale claims made by the

appellant in Company Petition filed on 15th May, 2014 may have to be ignored.

Thus we reject the allegations made by the appellant with regard to transfer

of registered office of the company; his grievance regarding substitution of the

same with MES as well as the allegations regarding agreement to sale and the

deed of cancellation. We will not look into such stale claim in the face of

conduct of the appellant himself. The appellant earlier never had difficulty

when such documents were executed and belated grievances made are

rejected. There is no substance in the excuse that he was looking after

projects only and did not know what was happening in the Company affairs.

Company Appeal(AT) No.256 of 2017 22

11. It is the grievance of appellant that after Deed of Cancellation,

respondent No.2 started taking rent for the premises of G-36, Belapur, Navi

Mumbai from where the company was functioning. Learned counsel for the

Respondents referred to this grievance as Allegation No.5 in the Convenience

Compilation and referred to copies of documents filed at Page 59-62 and

submitted that the records of the company in the shaper of Balance Sheet as

on 31st March, 2012 which shoed the appellant also to be one of the signatories

as Director did show room rent being paid to the Respondent No.2 and thus

the appellant had knowledge of the affairs and did not raise disputes till 2014

when Respondents started taking action against the appellant. Considering

the submissions and records pointed out by the Respondents, we discard the

allegations made on this count by the appellant and will not interfere in the

internal management of the Company.

12. The appellant has made allegation that from the property of the

company at G-36 Belapur there were other partnership firms belonging to the

respondents conducting business for which the stationery and staff of the

company was being used. We have seen the Company Petition, it does not

give any particulars in details regarding the portions of the building in G-36,

Belapur which were in possession of the company. The Agreement to Sale

which is on record, if that was to be considered it shows that there was a

building with various floors and some parts of it were subject matter in the

Agreement to Sale. In a situation where it appears from record that the

building had various floors and portions, without Appellant clearly spelling

out which portions, floors of the building were in possession of the company,

it appears difficult to consider this allegation of the appellant. The

Company Appeal(AT) No.256 of 2017 23

respondents in their compilation while dealing with the Explanation of

Allegation No.6 in NCLT, on this count brought on record Service Tax,

registrations of the four companies and added that the Respondent No.1

company was operating from 2nd floor of G-36, Belapur and the four

partnerships referred were in other portions. It appears to us that the

appellant failed to clearly bring on record the details to show that unconnected

partnerships were operating from the premises in possession of the company.

There have to be documents more than, service tax registration to show that

other partnership firms were actually operating from premises of the company.

Referring to merely "G-36" by the appellant cannot be said to be sufficient.

13. The other allegation of the appellant is that the Respondent No.2 had

personal bungalow at Kharghar and for that bungalow material and labour at

the cost of Respondent No.1 company was used. We have referred supra to a

document at Page 218 of the Compilation filed by the Appellant, pointed out

on this count by the Learned Counsel for the appellant. Learned counsel for

the respondents referred to this allegation of the appellant as Allegation

No.7(A) which was made before NCLT and regarding which explanation is given

in the Convenience Compilation read with pleadings and documents. Learned

counsel pointed out the pleadings of respondents in this regard submitted in

NCLT (Convenience Compilation Page 84) and submitted that Respondent

No.2 had not siphoned any money for the construction of his Bungalow at Plot

No.144, Sector 21, Kharghar. According to the Respondents there was audit

of the accounts of the company in 2011-12 and 2012-13 and no objections on

this count were raised. Referring to the invoices being relied on by the

appellant the defence is that in 2012 a Company by name Terex Noell, a US

Company Appeal(AT) No.256 of 2017 24

based company, proposed respondent company for grant of distributorship

and representative agreement. It is stated that negotiations took place in 2012

and 2013 and one of the condition put by the US based company was that the

respondent company should have a godown and distributorship office

somewhere near JLNP and upcoming Navi Mumbai airport. Respondent

company was locating premises and the premises at Shop No.23, Plot No.28,

Sector 4, Kharghar, Navi Mumbai was located which was approved by the US

based company and a Memorandum of Understanding with respect to the said

office at Kharghar was entered into by the respondent company with the owner

for the purpose of renovating the same as per requisite conditions of the US

based company. Respondents claim that for this purpose some expenses were

incurred. The invoices pointed out have no connection with Respondent No.2.

Respondents claim that Respondent No.2 has a bungalow at Kharghar and

the argument is that some articles were stored at the premises of Respondent

No.2 at Kharghar for such purpose. According to the counsel for Respondent

the invoices shown are of hardly Rs.1 lakh. The plan of distributorship at

JNLPT did not work out and the American Company instead gave the project

to respondent company at Pipava. It is claimed that Respondent company got

business of more than Rs.1 crore from the said American Company. Learned

counsel pointed out to the email and other documents in this context which

are referred with the Explanation of Allegation No.7(A) of the Convenience

Compilation. It is argued that regarding the bungalow of Respondent No.2 at

Kharghar it was already completed in 2013 and there is also occupation

certificate. The Learned Counsel for the Respondents took us through the

documents and pleadings in this regard with the Explanation of Allegation

Company Appeal(AT) No.256 of 2017 25

No.7 (A) referred in the compilation of the respondents which was filed before

NCLT.

14. Even regarding Allegation of Company resources being used for

renovation of property at Kochi belonging to Ms Anita Pillai, wife of Respondent

No.2, the Respondents have shown documents with the Explanation of

Allegation 7(B) which indicate that the company was using that premises for

use of the company. It appears that part of the property was converted into

office of the company for holding meetings. The address of the bungalow was

recorded in Vat Registration form and MES authorities also made

correspondence on that address.

15. Then there is allegation of the appellant that the Respondent Company

which had itself taken loans from the Banks gave loan of Rs.24 lakhs to Uni

Build Engineers which was related company of the Respondent No.2. The

Learned Counsel for the Respondents referred to the documents in this

connection given with Explanation of Allegation No.8 in NCLT, to demonstrate

that if the loan was given, it was returned with interest within three weeks.

This also happened before the Company Petition was filed. It would not be

appropriate for us to given undue weightage to this instance. We do not find

substance in the various allegations made by the Appellant to be such so as

to treat the same as oppression or mismanagement.

16. Record shows that the Respondents initiated action against the

appellant to remove him as Director. The respondents have given various

instances of misconduct to claim that the appellant indulged in anti-company

activities. When the appellant stood on technicalities regarding time the

respondents appear to have sent fresh notice dated 3.5.2014 and EOGM came

Company Appeal(AT) No.256 of 2017 26

to be held on 6.6.2014. Before this the appellant had filed the Company

Petition on 15.5.2014. The NCLT looked into this aspect and did not find fault

with the removal of the appellant from the post of Director. We do not find

any reason to disagree with the NCLT. In fact, we have gone through the other

finding also which have been recorded by the NCLT with regard to the various

allegations made by the appellant and those allegations did not find favour

with the NCLT. We agree with the NCLT regarding its findings regarding the

various allegations. In fact, it is interesting to see that the appellant even

pushed through a Criminal Complaint in the Court of Judicial Magistrate, 1st

Class at Belapur in Regular Criminal Case No.766/2014 making some

allegations as in this Company Petition and the Judicial Magistrate 1st Class

considered the matter under Section 403, 406, 420, 506(2) read with Section

120(b) of the IPC and after analysing evidence of the various witnesses found

the Respondent No.2 to 5 not guilty. Reference may be made to para 26 of

that judgement where referring to the witnesses, the Magistrate recorded that

none of the employees deposed that they were working for those other

companies. Clearly, the allegation of misuse of staff for other partnerships

did not find favour with the JMFC. Copy of the judgement has been filed with

Diary No.7511.

17. For the above reasons, we do not find any substance in this appeal so

as to interfere with the impugned judgement and order passed by the NCLT.

Company Appeal(AT) No.256 of 2017 27

18. The appeal is rejected. The appellant shall pay each of the five

respondents cost of this appeal which shall be Rs.50,000/- each (Total

Rs.2,50,000/-).

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

(Mr. Balvinder Singh) Member (Technical) New Delhi Bm

Company Appeal(AT) No.256 of 2017