Ram Prakash Gupta vs Radhey Shyam Sharma & Ors

[Arising out of order dated 20.12.2019 passed by the National Company Law Tribunal (New Delhi Bench) in CP-118 (ND)/2013]

IN THE MATTER OF: Ram Prakash Gupta 12, Raghu Vihar, Maharani Farm, Durgapura, Jaipur-302018, Rajasthan. ...... Appellant. Versus 1. Radhey Shyam Sharma R/o 379, Sachivalaya Nagar, Vatika Mod, Tok Road, Jaipur-302022, Rajasthan. ...... Respondent No. 1. 2. M/s Shreemat Mahavir Buildcom Pvt. Ltd. 12, Raghu Vihar, Maharani Farm, Durgapura, Jaipur-302018, Rajasthan, Rep. by Director. ...... Respondent No. 2. 3. Smt. Alka Gupta (Director) M/s Shreemat Mahavir Buildcom Pvt. Ltd. 12, Raghu Vihar, Maharani Farm, Durgapura, Jaipur-302018, Rajasthan, ...... Respondent No. 3. Present: For Appellant: Mr. Ranvir Singh, Mr. Saraswata Mohapatra, Mr. Hans Honey Khari, Mr. D. Chetan Khari, Advocates.

For Respondent:- Ms. Sonia Mathur, Sr. Advocate with Sushil Kumar Dubey, Mr. Nikhil Jaiswal, Mr. Divik Mathur, Mr. Simarjeet Singh Saluja, Ms. Pratiksha Mishra, Ms. Rubika T., Ms. Rupakshi Soni, Advocates for R- 1 & 2. 2

JUDGMENT

(23rd February, 2023) Justice Anant Bijay Singh;

The instant Appeal under Section 421 of the Companies Act, 2013

preferred by the Appellant being aggrieved and dissatisfied by the order dated

20.12.2019 passed by the National Company Law Tribunal (New Delhi Bench) in

CP-118(ND)/2013 filed before its predecessor Company Law Board under

Companies Act, 1956, wherein Respondent No. 1 herein filed petition for

mismanagement of the Respondent Nos. 2 and 3 herein company (hereinafter

referred as "Company") and oppression at the hands of Appellant and

Respondent No. 3 herein on various grounds, primarily being dilution of his

equity, illegal appointment of Appellant herein as the Director on the Board of

the Company, illegal sale of the Company's properties and other acts detrimental

to the interest of the Company as well as being oppressive to the Respondent No.

1 herein. By which the Tribunal set aside the appointment of Appellant as

Director and passed the following orders:

"8. As per the aforesaid facts we find that the act of respondents in diluting the share of the petitioner and including R3 as member of the Board of Director is oppressive to the petitioner. The respondents are liable to render accounts to the petitioner. All financial statements w.e.f. financial year 2012- 13, along with the books of accounts be placed before the petitioner for due inspection. Necessary legal steps to set aside sale transactions of immovable properties done by the illegally constituted Board be initiated through civil courts including

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suits for recovery and/or declaration for cancellation of the sale deeds carried out through an illegally constituted Board.

9. The appointment of respondent no. 3 is hereby set aside in the absence of any documentary proof of his valid appointment. The petitioner and respondent no. 2 would be only two directors of the respondent company. The increase in the Authorised and Paid up share capital stands reduced to its original state. Additional shares issued in favour of respondent no. 3 are directed to be cancelled. Fresh Annual Returns shall be filed with the RoC, Jaipur. The equity of petitioner and respondent no. 2 shall be restored to that of 50% each. With respect to alleged illegal sale and transaction of the immovable assets of the company is concerned, the same is outside the jurisdiction of this Tribunal. The parties have already invoked the jurisdiction of the civil courts for necessary action.

10. It would further be expedient to direct the parties to explore a buy in or buy out at valuation of the share of the respondent company as on 31.03.2013."

2. The facts giving rise to the instant Appeal are as follows:

i) The Respondent No. 1 incorporated the Respondent No. 2 Company M/s

Shrimat Mahavir Buildcon Pvt. Ltd. on 20.12.2004 with 50% ownership with

5000 shares with the other 50% ownership being with one Archana Bhansali

holding the remaining 5000 shares with authorized, issued and paid-up capital

being Rs. 1,00,000. The Respondent No. 2 company is into sale-purchase and

development of land parcels, among other things, as per the objects mentioned

in the MoA of the company.

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ii) The said Archna Bhnansali resigned from the directorship of the

Respondent No. 2 company on 15.07.2005 and transferred her 50% ownership

to Respondent No. 3 who was appointed a director of the company on the even

date with one Suresh Saharan also being appointed as the other new director of

the company on said date at the instance of the Respondent No. 1 since said Mr.

Saharan was an acquaintance of the Respondent No. 1. The appointment of said

Suresh Saharan was concealed by the Respondent No. 1 in his petition possibly

to make out a false case of board decisions being allegedly made by Respondent

No. 2 company without a quorum while in reality all decisions of the board were

made by the requisite quorum as required by the articles of association of the

Company.

iii) In the year 2008, the company appointed appellant as a non-executive

director in the category of promoter w.e.f. 15.06.2008 and Form-32 to that effect

was filed with the RoC. In this regard, notice dated 13.05.2008 calling for said

meeting with agenda to appoint Appellant as a Director was issued. The company

then increased its authorized share capital from Rs. 1,00,000 to Rs. 2,00,000

and the increased capital was allotted to the Appellant vide issuance of 1000

additional shares therein raising his holding in the company to 50% while the

Respondent No. 3 and the Respondent No. 1 held 25% each in Respondent No.2.

iv) The Respondent No. 1, apparently with the motive to profiteer, got into

various agreements to sell with some land-holders of Tehsil Sanganer, District-

Jaipur, Rajasthan in his personal capacity and also became their GPA holder

Company Appeal (AT) No. 183 of 2020 5

permitted to sell their land, among other things, to the company. It now appears

and seems clear that the motive of the Respondent No. 1 was to profit from both

ends i.e. by selling said land at high rates to the company and keeping the

surplus profits with him of the money paid by the company for the said land

after making payments to the farmers and then selling it at a higher price to a

third party as representative of company and benefit from being a shareholder

of the company.

v) The Company in the year 2009 twelve registered sale deeds with the above-

mentioned landowners, with their consent, and entered into mutually agreed

transactions of sale to purchase said land parcels from them after paying

valuable consideration. In the meanwhile, the other Director of the Appellant

company, Suresh Saharn, behind the back of the other three directors, sold the

land owned by company without any authority/authorization of company in that

regard. The matter was taken up by the board at its meeting dated 28.04.2010

wherein it took cognizance of the same and decided to initiate legal action against

said Saharan and in that regard, authorized the Respondent No. 1 to initiate

both civil and criminal actions against said Saharan. The next EGM dated

21.06.2010, it was noted that inspite of it being resolved to appoint the

Respondent No. 1 to initiate civil and criminal actions against Suresh Saharan,

no such action was initiated and in view of the same authorized the Appellant to

initiate both civil and criminal actions against said Saharan. It was clear to the

Appellant and the other director Respondent no. 3 that the Respondent No. 1 is

not keen to act against Saharan and hence he was replaced with the Appellant.

Company Appeal (AT) No. 183 of 2020 6

Thereafter, the company, acting through Appellant and filed a civil suit being

Civil Suit No. 02/2010 in the Court of Ld. Civil Judge, Jaipur seeking a

declaration that said sale be declared null and void and thus the sale deed be

set aside.

vi) Further case is that the Respondent No. 1 sought impleadment in above

said suit of company filed against Saharan as a defendant in the year 2011 and

though opposing conduct of Saharan, which was clearly against the interests of

the company, on the face of it, he filed a counter claim in said suit of the

Appellant company only in the year 2013 thereby opposing the company and

alleged for the first time about the improper appointment of Appellant as a

director on the board of the company, almost five years after his appointment

which he had throughout been not only aware of but also acquiesced with at all

times as mentioned in the preceding paragraphs while the registered office of

Respondent No. 2 which is residence of the Appellant and his wife the

Respondent No. 3, thus they were managing the affairs of the company all along

much to the knowledge, consent and acquiescence of the Respondent No. 1. The

petition being CP-118(ND)/2013 clearly seems an after-thought to build a case

for the company petition which was filed 2-3 months after said counter-claim in

the suit lest it becomes hit by bar of limitation if directly raised for the first time

in the company petition.

vii) The Respondent No. 1 then approached the Ld. CLB, Delhi vide company

petition under Section 397 and 398 of the Companies Act, 1956 being CP-

Company Appeal (AT) No. 183 of 2020 7

118(ND)/2013 and concealed the above mentioned facts from the Ld. Tribunal

and the Tribunal, instead of appreciating the factum of the petitioner being

complicit in the so-called and alleged 'mismanagement' and having acquiesced

with the appointment and functioning of the Appellant as a Director for a period

of almost five years from 2008, overlooked the said aspects and countenanced

the indiscretions and delay and laches on the part of the Respondent No. 1 herein

and refused to use its ample discretionary powers as provided in Sections 397

and 398 to life the corporate veil and investigate into the real affairs of the

company vide appointment of an administrator or ordering any other

independent investigation and instead chose to simpliciter partly allow the said

petition on hyper-technical considerations and even cancelled the sale deeds

entered into by the Respondent No. 2 company when the said purchasers of

those lands were not even made parties before the Tribunal. Hence this Appeal.

3. The Ld. Counsel for the Appellant during the course of argument and in

his memo of appeal along with written submissions submitted that the impugned

order dated 20th December, 2019 merely on account of purported claims of

oppression and mismanagement made by the Respondent No. l herein against

the appellant while the former was throughout in acquiescence with other

directors in the management of the company and thus had approached the

tribunal with unclean hands in abuse of the process of law to sub-serve his

individual and nefarious interests. The said petition before NCLT was barred by

limitation as it was filed well beyond three years from 2008, the year of

appointment of the appellant as director, as the Respondent No.1 was not only

Company Appeal (AT) No. 183 of 2020 8

aware of the appointment throughout but also acquiesced with it at all times, as

detailed in the appeal, as further evident from the factum that the registered

office of Respondent No.2 company was 12, Raghu Vihar, Maharani Farm,

Durgapura, Jaipur-302018, Rajasthan which is the residence of the Appellant

and his wife the Respondent No.3. Thus, they were managing the affairs of the

company together all along much to the know/edge, consent and acquiescence

of the Respondent No. l. The petition being CP-118 (ND)/2013 clearly seems an

after-thought relying on mere technicalities without any substance as such and

ought to have been dismissed on grounds of limitation itself.

4. It is further submitted that the Tribunal overlooked the conduct of the

Respondent No. l herein that he did not approach it with clean hands and allowed

the petition by following a hyper-technical approach and without any application

of mind to the contumacious behaviour of the Respondent No. l. The Tribunal,

in a way, allowed him to benefit from his own wrong(s) and thus countenanced

his abuse of the process of the court for his nefarious and self-serving means of

running the company for his own benefit and did not 'pierce the corporate veil' to

understand the real conduct of the Respondent No. l in the background as was

required in a case of this nature especially when the same were brought before

it by the Appellant vide his pleadings. Further, the Tribunal, instead of

appreciating the factum of the petitioner being complicit in the so-called and

alleged 'mismanagement' and having acquiesced with the appointment and

functioning of the Appellant as a Director for a period of almost five years from

2008, overlooked the said aspects and countenanced the indiscretions and delay

Company Appeal (AT) No. 183 of 2020 9

and laches on the part of the Respondent No. l herein and refused to use its

ample discretionary powers as provided in the act to lift the corporate veil and

investigate into the real affairs of the company vide appointment of an

administrator or order any other independent investigation, but instead it chose

to simpliciter partly allow the said petition on hyper-technical considerations. In

doing so, it fell in error in allowing technicalities to prevail over substantial

justice.

5. It is further submitted that the Appellant in view of the mutual mis-trust

between the two sets of promoters as evident from the pleadings in the petition

as well as the pending cross-cases (both civil and criminal) filed by them against

each other and in the interests of the company in particular and public in

general, seeks appointment of an independent administrator to manage the

affairs of the company or initiate investigation under Section 213, Companies

Act, 2013 while maintaining status quo in the share-holding of the company as

existed prior to the impugned order. Further, the NCLT erred in law in

entertaining the petition and partly allowing the same as the Respondent No. 2

company, whose mis-management was alleged in the said petition, did not exist

in law on said date of adjudication as it stood removed from the register of

companies in view of company being in violation of provisions of Section 248of

the Act. Thus, the petition was void and deserved to be dismissed as an abuse

of the process of court.

Company Appeal (AT) No. 183 of 2020 10

6. It is further submitted that the impugned order needs to be set aside in

view of the contumacious conduct of the Respondent No.1 wherein he played

fraud on the court and inspite of being throughout complicit in the management

of the company and the entire purpose of the company being frustrated resulting

in its removal from the register maintained by MCA, abused the process for the

court for his own nefarious purpose by alleging purported oppression and mis-

management of affairs merely on the ground of improper appointment of the

Appellant as a Director, a factum very well known to him since the time of

appointment but challenged only in 2013 on legal advice in view of his tensions

with fellow directors. This Hon'ble Appellate Tribunal should not condone the

conduct of Respondent No.1 in benefiting from his own wrong and order

investigation under Section 213 of the Companies Act, 2013 into the affairs of

the company or appoint an independent administrator to look in to the workings

of the company. It is submitted that once the investigation commences or a third

party looks into the affairs of the company, the real truth of the company being

run by the Respondent No.1 as a sham, more of a shell entity, shall come out.

7. The Ld. Sr. Counsel for the Respondent Nos. 1 and 2 during the course of

argument and in his Reply along with Written Submissions submitted that the

Appellant and Respondent No. 3 have indulged into several illegal functions

without any authorisation, board resolution and against the interest of the

company which are interalia summarised as below:

• Illegal appointment of Appellant as Director in the company.

Company Appeal (AT) No. 183 of 2020 11

• Increase of Authorised Share Capital of company from Rs. 1 Lakh to Rs.

2 lakhs and allotment of entire increased share capital to appellant

thereby reducing the Share Capital of the Respondent No. 1 to minority.

• Appointment of Divya Aggarwal as C.A. of company without any board

resolution and further authorising him to submit and file any documents,

Form/s with the ROC on behalf of company.

• Opening of Additional/New Account in the name of company to siphon off

the money.

• Fraudulent sale and purchase of immovable properties in the name of

company.

• Appellant and the Respondent No. 3 vide Extra Ordinary General Meeting

dated 05.11.2016 passed resolution thereby removing Respondent No. 1

from the Directorship of the Respondent No. 2/Company. Removal from

Directorship during the pendency of proceedings before NCLT clearly

shows the arbitrary act of mismanagement of affairs of the company.

8. It is further submitted that the Appellant and Respondent No. 3 herein

have not placed on record any document such as notice, Board Resolution,

Minutes of Meeting in the order to justify appointment of the Appellant as

Director. No intimation/notice has been given to its other existing Directors.

Form 32 has been filed with Registrar of Companies by forging digital signature

of Respondent No. 1 with the help and in collusion with Divya Aggarwal against

whom Respondent No. 1 has already filed a criminal case. The Appellant in his

testimony in Civil Suit No. 02/2010 filed against Sh. Suresh Saharan for

Company Appeal (AT) No. 183 of 2020 12

unauthorizedly and fraudulently selling the immovable properties of the

Company/Respondent No. 2, pending before the Ld. Additional Session Judge,

Jaipur has admitted the fact that there was no meeting of Board of Directors

held in presence of Respondent No. 1 and Suresh Saharan, passing the

resolution appointing him as Director of the company. Resolution appointing

Appellant as Director was solely passed by Respondent No. 3/his wife. It is also

stated by Appellant that no documents were attached along with FORM 32 which

was submitted before Registrar of Companies.

9. It is further submitted that the acts of oppression and mismanagement as

alleged against Appellant and Respondent no. 3 are having continuous effect and

therefore, the question of the petition before NCLT being time barred does not

arise. In this regard, relied on judgment of "Harish Kumar Berry Vs. S. Berry's

Automotive Udyog P. Ltd. (2005) 64 CLA 274 (CLB)". Further, in the case of

"Dankha Devi Agarwal V. Tara Properties (P) Ltd. : AIR 2006 SC 3068", It has been

held by the Hon'ble Supreme Court that a decision taken in a meeting without

due notice of such meeting for removal or induction would be instance of

oppression and mismanagement.

10. It is further submitted that time and again it has observed that where a

shareholder complains of lack of service of notice of an EGM, the burden of proof

lies on the majority to prove that service of notice was affected in accordance

with law, in the absence of which the minority shareholders are entitled to obtain

relief from oppression under Section 397 of the Act. In this regard relied on

Company Appeal (AT) No. 183 of 2020 13

judgment of "Palak Kumar Mondal Vs. Satyabrata Jana, (2003) 115 Comp. Case

481".

11. It is further submitted that it is settled law that while issuing further

shares, the Board of Directors discharge their fiduciary responsibilities. If the

shares are issued with the sole object of creating a new majority or with the view

to convert a majority into a minority, then the action of the Board is not only in

breach of the fiduciary responsibilities but also a grave act of oppression against

the existing majority. Reliance placed on "Mrs. Uma Pathak and Shri Rajat Pathak

Vs. Eurasian Choice International Pvt. Ltd. : (2004) 122 Comp. Case 922 (CLB) and

Puneet Goel Vs. Khelgaon Resorts Ltd., C.P. No. 6/1999 decided on 17.04.2000

(Principal Bench New Delhi).

In view of the facts and circumstances stated as above and documents

placed on record, the instant Appeal may be dismissed.

12. The Section 286 of the Act provides that notices for Board meetings should

be given to every director in writing. The requirements of Section 286 of the Act,

being mandatory, notice to all the directors of meeting is essential for the validity

of resolution passed at the Board meeting. Any Board meeting or general meeting

held without quorum is illegal. In this regard the judgments of "D.K. Chatterjee

Vs. Rapti Supertronics (P) Ltd. : (2003) 114 Comp. Case 265; Rohit Churamani Vs.

Disha Research & Marketing Services (P) Ltd. : (2005) 123 Comp. Case 467".

13. The Ld. Counsel for the Respondent No. 3 in his Reply along with Written

Submissions submitted that Respondent No.1 incorporated Respondent No. 2

Company Appeal (AT) No. 183 of 2020 14

Company on 20.12.2004 with 50% ownership with 5000 shares while the other

50% being owned by one Ms. Arachana Bhansali holding the remaining 5000

shares with authorized, issued and paid-up capital being Rs. 1,00,000.

Registered office of Respondent No. 2 company is 12, Raghu Vihar, Maharani

Farm, Durgapura Jaipur-302018, Rajasthan. The place is also the residence of

Respondent No.3 and the Appellant. Respondent No.2 is into the sale, purchase

and development of land apart from other things as mentioned in MOA of

Respondent No. 2 company. The MOA and AOA of Respondent No.2 Company

are already annexed by Respondent No.3 in the reply filed.

14. It is further submitted that Ms. Archana Bhansali resigned from the post

of director of Respondent No.2 company in 15.7.2005 and her 50% share was

then transferred to Respondent No.3 who was appointed as director along with

Mr. Suresh Sharan. Mr. Suresh Sharan was appointed on the instance of

Respondent No.1. The copy of Form No. 32 filed by Respondent No. 2 company

vide which Respondent No.3 was appointed as Director is already annexed by

Respondent No.3 in the reply filed. In 2008 Respondent No.2 company then

appointed Appellant as a Non-Executive Director from 15.06.2008 onwards and

Form-32 was filed therein to that effect. The said Form No. 32 along with related

documents are already annexed by Respondent No.3 in the reply filed. The

Respondent No.2 company then went on to increase its authorized share capital

from Rs. 1,00,000 to Rs. 2,00,000. The Respondent No.3 held 25% share in the

new share capital of Respondent No.2 company. That Respondent No.1 had

entered into many different agreements to sell in Tehsil Sanganer, Jaipur,

Company Appeal (AT) No. 183 of 2020 15

Rajasthan in his own personal capacity and vide General Power of Attorney

holder sold the lands to Respondent No.2 Company. In the year 2009

Respondent No.2 Company executed twelve registered sale deeds with certain

landowners and entered into mutually agreed transactions of sale to purchase

land from them. Sh. Suresh Sharan then without the consent of Respondent

No.3 sold the land owned by Respondent No.2 company without any consent or

authorization. The issue was then taken up on 28.4.2010 by the board of

Respondent No.2 company and through cognizance of the matter legal action

was initiated in this regard. The Respondent No.1 was to initiate civil and

criminal legal actions against Sh. Suresh Sharan. The resolution passed in the

Extraordinary General Meeting for the same dated 28.4.2010 authorising

Respondent No.1 for action against Sh. Suresh Sharan is already annexed by

Respondent No.3 in the reply filed. The Respondent No.1 then sought an

emergency of the board of directors of Respondent No.2 company vide notice

dated 14.6.2010 to discuss the annual report of the last two years Respondent

No.2 company regarding management of its affairs.

15. It is further submitted that at the Extra Ordinary Meeting dated 21.6.2010

it was noted that Respondent No.1 failed to initiate any legal-civil or criminal

action against Sh. Suresh Sharan. The appellant was then authorized to initiate

action against Sh. Suresh Sharan at the said Extra Ordinary Meeting dated

21.6.2010. The resolution passed at the Extra Ordinary Meeting dated 21.6.2010

with regard to the above said context. The Respondent No.2 company then filed

a civil suit being No. 02/2010 before the Court of Ld. Civil Judge, Jaipur seeking

Company Appeal (AT) No. 183 of 2020 16

a declaration of the sale deeds as null and void & thus to be set aside. The

conduct of Respondent No.1 in making himself a party as a defendant in the

aforementioned civil suit. With this act Respondent No.1 was supporting the

actions of Sh. Suresh Sharan against interests of Respondent No.2 company. In

fact, a counterclaim was also filed by Respondent No.1 company in the aforesaid

suit. The Respondent No. 1 then approached the erstwhile Company Law Board

under Sections 397 and 398 of the Companies Act, 1956 vide CP118 (ND)/2013.

The Ld. NCLT Tribunal had cancelled the aforesaid sale deeds and allowed the

petition of Respondent No.1 without appreciating the merits of the case or

without even investigating into the facts of the case. The Respondent No.1 who

had opposed Respondent No.2 company before the Tribunal and the Tribunal is

being represented herein along with Respondent No.2 by the same set of counsel.

The Respondent No.3 is opposing the same. The onus of proof is on Respondent

No.1 to show as to under which authority Respondent No.1 and Respondent No.2

company are being represented together.

16. After hearing the parties and going through the pleadings made on behalf

of the parties, we are fully in agreement with the reasons returned by the NCLT

whereby the appointment of Respondent No. 3, the Appellant herein was set

aside in the absence of any documentary proof of his valid appointment. Further,

the NCLT held that the Respondent Nos. 1 and 3 only be two directors of the

Respondent company. The increase in the Authorised and Paid-up share capital

was reduced to its original state. Additional shares issued in favour of Appellant

herein / Respondent No. 3 before NCLT was directed to be cancelled and Fresh

Company Appeal (AT) No. 183 of 2020 17

Annual Returns was directed to be filed with the RoC, Jaipur. The equity of

Respondent No. 1 herein / Petitioner and Respondent No. 3 herein / Respondent

No. 2 before NCLT was also directed to be restored to that of 50% each. With

respect to alleged illegal sale and transaction of the immovable assets of the

company was concerned, the same was outside the jurisdiction of the Tribunal.

The parties have already invoked the jurisdiction of the civil courts for necessary

action. Keeping in view of the aforenoted facts, we do not find any merit in the

Appeal to interfere with the order impugned passed by the NCLT. The impugned

order dated 20.12.2019 passed by the National Company Law Tribunal (New

Delhi Bench) in CP-118(ND)/2013 is hereby affirmed. The instant Appeal is

hereby dismissed. No order as to costs.

17. Registry to upload the Judgment on the website of this Appellate Tribunal

and send the copy of this Judgment to the National Company Law Tribunal (New

Delhi Bench), forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Mr. Shreesha Merla] Member (Technical)

New Delhi 23rd February, 2023 R. Nath.

Company Appeal (AT) No. 183 of 2020