Rbg Enterprises Pvt. Ltd vs Sulochana Gupta

IN THE MATTER OF: RBG Trading Corporation Pvt. Ltd., & 2 Ors. ...Appellants

Vs.

Sulochana Gupta & 2 Ors. ... Respondents

With I.A No. 209 of 2022 in Company Appeal(AT) (CH) No. 19 of 2022

IN THE MATTER OF: RBG Enterprises Pvt. Ltd., & 2 Ors. ...Appellants

Vs.

Sulochana Gupta & 2 Ors. ... Respondents

With I.A No. 210 of 2022 in Company Appeal(AT) (CH) No. 20 of 2022 IN THE MATTER OF: RBG Retail Pvt. Ltd., & 2 Ors. ...Appellants

Vs.

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 1 of 19 Sulochana Gupta & 2 Ors. ...Respondents

Present: For Appellants : Mr. Mr. Jayant Mehta, Sr. Advocate, Mr. Arun C. Mohan, Sr. Advocate Mr. Aswin Gopakumar, Advocate

For Respondents : Mr. Sukumar Nainan Oommen, Advocate Caveator for R1 & R2 Mr. P.H.Arvindh Pandian, Sr. Advocate- R3 in all three appeals Mr. Ram Nivas Buri, Advocate

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The Appellant has filed an Application - I.A No. 208, 209 & 210 of 2022 in

Company Appeal (AT) No. 18, 19 & 20 of 2022 by inter alia seeking to pass

an order of 'Interim Stay' of the impugned order dated 31.12.2021 in

CP/114/KOB/2019, CP/119/KOB/2019 & CP/125/KOB/2019 passed

by the 'National Company Law Tribunal', Kochi Bench (for short 'the

Tribunal').

2. The Ld. Sr. Counsel for the Appellants have stated that the full facts have

been stated in the accompanying Company Appeal and seek to refer and

rely upon the same for the purposes of this application.

3. The three Company Appeals are being considered, are of M/s.RBG Group

Company which is an engaged in the business of commodity trading, Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 2 of 19 warehousing, logistics, commodity broking & real estate. The first

Appellant is the company and the 2nd Appellant is Rajkumar Gupta. The

Respondent No.1 are 2nd Appellant's mother & 2nd Appellant's youngest

sister-in-law who is the spouse of the 3rd Respondent, Mahesh Kumar

Gupta, the youngest brother. The 3rd Appellant is Vishnukant Gupta,

another brother of the 2nd Appellant.

4. It is not in dispute that all the parties in the present appeal were living

together as a 'Hindu Undivided Family' (HUF) long back. There is a family

understanding in writing on 15.09.2016 although not signed by all the

members of the Family/Extended Family and the same is called an

'Memorandum of Understanding' (MOU).

5. The Main Appeal has been filed under Section 421 R/w Section 241 & 242

of the Company Act, 2013 (for short 'Act') against the common order

passed by the Tribunal dated 31.12.2021 in CP/114/KoB/2019,

CP/119/KOB/2019 & CP/125/KOB/2019.

6. The Ld. Sr. Counsel for the Appellant has stated that the litigations raised

by the 1st and 2nd Respondents in this Company Petition before the

Tribunal are followings in a summarized manner;

a. The second Appellant herein is a 'Managing Director' of the 1st Appellant

Company has failed to conduct Annual General Meeting (AGM) of the

Company for the years 2015-16, 2016-17, 2017-18 of the 1st Appellant

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 3 of 19 company as prescribed under Article of Association (AoA). The

Company, at the time of filing petition before the Tribunal were having

three 'Directors' i.e. Mr. Raj Kumar Gupta, Mr. Vishnukant Gupta &

Mahesh Kumar Gupta. The percentage of shareholding as appearing in

the statements of Companies and reports to the Registrar of Companies

are as follows:

b. The Company is a family enterprises and the management of the

Company vest in the Board of Directors and not in any one individual

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 4 of 19 including the Managing Director of the Company in terms of Clause 34

of the AoA. It was also stated by the Ld. Sr. Counsel for the Appellant

that the 1st and 2nd Respondent herein have also stated before the

Tribunal that the Financial documents filed before the ROC show

related party transactions which are in violation in Section 188 of the

Act.

c. The 2nd and 3rd Appellant herein have siphoned off funds under the

guise of remuneration for themselves and their spouses and have been

consistently violating the AoA and oppressing the majority of

shareholders.

d. The AGM were conducted after giving due notice and the related party

transactions entered into by the 1st Appellant company where all

commercial transactions and Section 188 of the Act is not applicable to

the Company.

e. Remunerations are paid to all parties who are 'Directors' of the full time

employees of the Company and hence there is no siphoning off funds.

7. The Ld. Sr. counsel for the Appellant has restricted his submissions for

the stay order of the impugned order only has stated in I.A No. 208, 209

& 210 of 2022 and, therefore dealing with prima facie case. It was also

stated by the Ld. Sr. Counsel for the Appellant that stay in all the three

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 5 of 19 appeals are related to the impugned order and the matter is relating to the

family members who are 'Shareholders' and 'Directors' of the company.

8. Ld. Sr. Counsel for the Appellant has also submitted that the Company

has not violated the AoA and have conducted the AGM and accordingly

have filed the reports and statements with the RoC and the same are in

public domain. The impugned order has not given any finding or

quantification for such siphoning off funds. The Ld. Sr. Counsel for the

Appellant further stated that the related party transactions were purely

commercial transactions and were at arm's length and hence Section 188

of the Act is not applicable and moreover there is a notification dated

05.06.2015 vide Notification No.464E of MCA, the private company has

got the exemption from complying with the provisions related to the related

party transactions by the private company. For brevity and clarity, the

same is depicted below:

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 6 of 19 Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 7 of 19

9. It was also stated by the Ld. Sr. Counsel for the Appellant that the

Tribunal has failed to consider the proviso to Section 167 of the Act,

wherein if an Appeal is preferred over an order of removal of 'Director' then

the 'Director' cannot be asked to vacate office until the appeal is decided.

It is also stated by the Appellant that the Tribunal has awarded reliefs

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 8 of 19 beyond the prayers of the Company Petition and hence its order is

misconstrued and over stated the idea of consequential reliefs.

10. The Ld. Sr. Counsel for the Appellant has stated that being a family

run concerns the essence and intent of the MoU is more relevant and is to

be considered by this Appellate Tribunal, the malice in the original petition

before the Tribunal is only to cease control of the 1st Appellant Company

from the 2nd & 3rd Appellants.

11. It has also stated by the Ld. Sr. Counsel for the Appellant that after

filing the present appeal on 25.02.2022, a Review Application was also

filed in this case by the same Appellant who were Petitioners in CP 114 of

2019 seeking certain reliefs including issue of direction to the Bankers to

cease to honor with immediate effect all financial transactions initiated by

the Mr. Raj Kumar Gupta- Appellant No.2, Mr. Vishnukant Gupta-

Appellant No.3 in this appeal and also to refund all amounts drawn

illegally through related party transactions disclosed in Financial

statements from 2015 onwards etc. The Tribunal vide its order dated

16.03.2022 has granted certain reliefs like removal of the Appellants No.2

& 3 from the Director of the Company and have appointed Ms. Sulochana

Gupta -Respondent No.1 herein and Mr. Radha Ballabh Gupta as

Directors of the 1st Respondent company with immediate effect including

refund of all amounts drawn illegal by them through related party

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 9 of 19 transactions and have changed signatory to the banks based on mandates

signed by Mrs. Sulochana Gupta and Mr. Radha Ballabh Gutpa etc.

Based on above submissions, the Appellant has prayed for passing an

interim stay in the impugned order dated 31.12.2021.

12. The Tribunal while passing the impugned order dated 31.12.2021

has observed at para 50 to 56 has depicted below:

"50 - We have also gone through the transactions

held in the Respondent Companies and financial

statements filed before the Registrar of Companies.

It is evident that there is loan given by

➢ M/s RBG Enterprises Pvt Ltd to M/s. Sri Rubber

Industries.

➢ M/s RBG Enterprises Pvt Ltd to M/s. RBG Trading

Corporation Pvt Ltd.

51.- It is evident from the records that there are

various transactions between Ritu Gupta (wife of

Respondent No. 2) and Anika Gupta (wife of

Respondent No. 3). This was done without the

consent of the Board of Directors of the Respondent

Company.

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 10 of 19

52. A company typically enters into various

transactions with different parties, including related

parties. Any contract or arrangement with the related

party(ies) falls within the ambit of Section 188 of the

Act, if it relates to, inter alia, the sale, purchase or

supply of goods or materials; selling, buying or

leasing property of any kind; and availing or

rendering any services beyond the ordinary course of

business or as an arm's length transaction.

53. When a company enters into a related party

transaction, covered under Section 188 of the act,

this requires the consent of the company's Board of

directors. Also, if such a transaction exceeds the

monetary thresholds prescribed under Rule 15(3) of

the Companies (Meeting of Board and its Powers)

Rules, 2014, approval of the shareholders will also

be required by way of an ordinary resolution. Such

consent can be obtained prior to, or within three

months after, entering into the transaction. However,

in these matters such an action has not done by the

Respondents 2 & 3.

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 11 of 19

54. The related party contracts are to be disclosed in

the Board of Directors' Report and in a register of

such contracts is to be maintained. It is also seen

from the records that the respondent companies have

not obtained permission from the Board of Directors

to enter into these related party transactions. Hence,

the contention of the Respondents that these are not

Related Party Transactions and that it is Simple

Commercial Transactions cannot be accepted.

55. After analyzing the issue framed, we are of the

opinion that the Related Party Transactions done by

the Respondents are contrary to the provisions of law

and in breach of the Articles of Association of the

Respondent Company and, therefore, the said

Related Party Transactions are hereby declared as

invalid and all the proceedings which have been

done in violation of the Articles of Associations are

also hereby declared as invalid. The other reliefs in

these petitions are consequential reliefs. Since we

have declared that the action of the Respondents are

illegal, we are not ordering any investigation into the

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 12 of 19 Respondent Companies affairs and imposing any

penalty on the Respondents for non-compliance of

the rules/ articles of the Company.

56. The Company Petition No. 114/KOB/2019,

Company Petition No. 119/KOB/2019 and Company

Petition No. 125/KOB/2019 stands disposed of with

the aforesaid orders."

13. The Ld. Sr. Counsel for the Respondents have stated that the 1st and

2nd Respondent herein are the majority shareholders in the three

companies under aforesaid appeals - RBG trading Corporation Pvt. Ltd,

RBG Enterprises Pvt Ltd and RBG Retail Pvt. Ltd owning 51.75%, 51.68%

& 51.68% of the equity respectively alongwith other shareholders viz. Mr.

Radha Ballabh Gupta, Radha Ballabh Gupta (HUF), Mahesh Kumar Gupta

(HUF) & 3rd Respondent. They have also stated that the 1st & 2nd

Respondent herein who were the Appellants at the Tribunal have alleged

Oppression and Mismanagement by the 2nd & 3rd Appellant herein on

multiple grounds including non-holding of AGM for Financial year 2015-

16 onwards and indulging in related party transactions, all these are

disclosed in Financial statements and are not normal business

transactions and through this means they were enriching themselves

instead of serving the interest of the Company. They have also stated that

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 13 of 19 the Tribunal has concluded that the petition was maintainable, allowed

holding of AGM for the said three years and established related party

transactions in violation of the Act and accordingly have granted relief in

accordance with the provisions of Section 242 of the Act.

14. The Ld. Sr. Counsel for the Respondent has stated that the

Directors have ipso jure vacated their office w.e.f. 31.12.2021 under

Section 167(1)(c) of the Act and are accordingly disqualified to be the

Directors in any company. They have also stated that the Review

Application of 16.03.2022 was in continuation in the earlier impugned

order. It is a settled law that no party should be allowed to approbate and

reprobate in a matter. (Premlata alia Sunita Vs. Naseeb Bee & Ors. 2022

SCC Online SC 351. They have also stated that the 2nd & 3rd Appellant are

guilty of suppressing important event that have occurred after 31.12.2021

in the Appeal. It is also stated by Ld. Counsel for the Respondent that the

same 2nd and 3rd Appellant challenged the Review Application before the

Hon'ble Kerala High Court in WP(C) 9819 of 2022, the Ld. Single Judge

vide an ex parte order stayed the said orders for a period of30 days. The

Judgment of the Ld. Single Judge was set aside by the Hon'ble Division

Bench in WA 420/2022 on 30.03.2022 and accordingly in the changes in

the Board of the Company were incorporated in Master Data of Ministry of

Corporate Affairs on 07.04.2022. It was also stated by the Respondents

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 14 of 19 that the said MOU as stated by the Appellant has not been signed or

approved by the shareholder namely Radha Ballabh Gupta (HuF), Mahesh

Kumar Gupta (HuF), Rajkumar Gupta (HuF), Vishnukant Gupta (HUF),

Ritu Gupta, Anika Gupta and 1st &2nd Respondents. Their rights are to be

protected, among others, under Section 47(1) of the Act. The rights of the

shareholders cannot be abridged by the MoU unless its terms are

incorporated through an amendment of the AoA in accordance with

Section 5. They have cited the Judgment of V.B.Rangaraj Vs.

V.B.Gopalakrishnan AIR 1992 SC 453. The MoU is under the Judicial

scrutiny of the Munsiff Court, Kochi in O.S 310 of 2019.

15. We have carefully perused the pleadings of all the parties and extant

provisions of the Companies Act, 2013 and Rules made there under and

we are having the following observations: -

a) This is a case of family management company dispute where certain

Members / Shareholders are not seeing eye to eye and the Tribunal

has observed certain irregularity in its functioning.

b) It cannot be disputed that the Company's Article of Associations

(AoA) is more powerful than the MOU and that too not signed MOU

by all members of the Company/ family partition shareholding right.

c) If, there is overlapping provision between the Companies Act will

prevail over the AOA. Accordingly, AoA will prevail over MOU, unless

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 15 of 19 the MOU is legally binding and are appropriately incorporated in the

AoA through the Amendment as prescribed under the Companies

Act for the amendment of AoA.

d) By granting interim relief at the very inception, it may jeopardize the

impact of the main appeal.

e) Interim relief has been sought for stay in impugned order of

31.12.2021 so at this stage we do not find from the record that any

relief has been claimed for stay of review order dated 16.03.2022. As

far as the order of 31.12.2021 is concerned, the Tribunal have

declared these transactions as invalid and hence consequential

action is to follow. Similarly, on holding 'Annual General Meeting'

cannot be stayed by this Appellate Tribunal as it is a routine

business activity.

f) At this juncture, we are not in a position to recast the AoA of the 1st

Appellant Company in line with the MOU which has not been signed

by all the required signatory to the MOU who are members of the

Company. The Notification No. 464(E) of MCA dated 05.06.2016 is

extracted below for brevity and clarity:

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 16 of 19 Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 17 of 19

g) This notification provides for subject to certain exceptions,

modifications and adaptation which are enumerated therein limited

to non-application of second proviso to sub-section(1) of Section 188

which is a matter of examining a full case and thereafter, to consider

whether the interest of the shareholders are protected or not.

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 18 of 19

h) All the above suggests that it is not a fit case to consider interim

relief for grant of stay when the matter even travelled to the Hon'ble

High Court of Kerala upto its Division Bench and effect of stay of the

impugned order dated 31.12.2021 will cause irreparable harm to the

Company and accordingly we are of the view that the case is not a

fit case for granting interim relief and accordingly we are not inclined

to grant any interim relief and hence I.A Nos. 208, 209 & 210 of

2022 in Company Appeal (AT) No. 18, 19 & 20 of 2022 is dismissed.

No order as to costs.

i) Post the three 'Main Appeals' on 17th June, 2022 for hearing.

[Justice M.Venugopal] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical) 25th May, 2022

New Delhi

Raushan.K

Company Appeal (AT)(CH) No. 18, 19 & 20 of 2022 in I.A No 208, 209 & 210 of 2022 Page 19 of 19