Regal Machine Tools Private Limited & ... vs Mrs Kaushy Lal & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL AT CHENNAI (APPELLATE JURISDICTION) TA No.55/2021 (Company Appeal (AT) No.128 of 2019) (Under Section 421 of the Companies Act, 2013) (Arising out of the `Order' dated 07.03.2019 in CP No.106 of 2022 (T.P. No.42/2016) passed by the National Company Law Tribunal, Bengaluru Bench)

In the matter of: 1. M/s. Regal Machine Tools Pvt. Ltd. Plot No.39, 5th Cross, Bommasandra Industrial Area, Bangalore - 560 099 ..... Appellant No. 1

2. Sri R.J.A. Vasan, Managing Director, D. NO. 3/10, New ASTC HUDCO, Hosur, Krishnagiri - 635109 ..... Appellant No. 2

3. Mr. Ishwar Das Mundhra, 403 F, 2nd Main 'B' Block, Vinayaka Nagar, Bangalore - 560 017. ..... Appellant No. 3

4. Mr. Edward., No. 8, H Block, Industrial KIADB Quarters, Bommasandra, Bangalore. ..... Appellant No.4

5. Mr. Jawahar Vasan No.3H, 10th Cross, Shanthiniketan, Near New ASTC HUDCO, Hosur - 635109. ..... Appellant No. 5 v.

1. Mrs. Kaushy Lal W/o. Late Sri S.M. Mohan Lal,

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 1 of 17 No. 36, 5th Cross, Near Water Tank, Nandi Durga Road Extension, Bangalore - 560 046 ..... Respondent No. 1

2. Ms. Vineeta Lal No. 36, 5th Cross, Near Water Tank, Nandi Durga Road Extension, Bangalore - 560 046 ..... Respondent No. 2

3. Ms. Chitra Mansulchani No. 36, 5th Cross, Near Water Tank, Nandi Durga Road Extension, Bangalore - 560 046 ..... Respondent No. 3

4. Ms. Anju Lal No. 36, 5th Cross, Near Water Tank, Nandi Durga Road Extension, Bangalore - 560 046 ..... Respondent No. 4

5. Karnataka Industrial Areas Development Board (KIADB) 14/3, 2nd Floor, R.P. Building, Bangalore - 560 002 Rep by its Chief Executive Officer (PERFORMA PARTY) ..... Respondent No. 5

6. Registrar of Companies Kendriya Sadan, Koramangala, Bangalore - 560 084 (PERFORMA PARTY) ..... Respondent No. 6

Present: For Appellants : Mr. Mani Bhushan Sinha, Advocate. For Respondent Nos. 1 to 4 : Mr. Naman Joshi, Advocate.

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 2 of 17 JUDGMENT

(Virtual Mode) [Per; Ms. Shreesha Merla, Member (Technical)]:

1. Aggrieved by the 'Impugned Order' dated 07.03.2019, passed by

the National Company Law Tribunal (NCLT, Bengaluru Bench) in

C.P.106/2022, TP No.42/2016, 'M/s. Regal Machine Tools Private

Limited & Ors.' preferred this Appeal. By the 'Impugned Order', the

NCLT has allowed the Company Petition No.106/2022 with the following

directions:

"17...

1. The Respondents are directed to allot shares equivalent to 51% in the Company to the Petitioners;

2. We hereby set aside the impugned EGM held on 23 rd February, 2012 and the resolution passed thereon for sale of property of the Company.

3. We hereby declared that Mrs. Vineeta Lal to be on of the Directors of the Company as per Sale Deed dated 27.07.2011 executed by KIADB;

4. We hereby direct the Respondents to convene the Board meeting of the M/s. Regal Machine Tools Private Limited, within a period of two months from the date of receipt of copy of this order to carry out directions above.

5. The other reliefs as sought for are hereby rejected as devoid of merit.

6. All pending I.As also stands disposed of."

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 3 of 17

2. Submissions of the Learned Counsel appearing on behalf of the

Appellants:

• On 02.11.1982, one acre of land bearing Plot No.39, Bommasandra

Industrial Area, Attibele, Hobli, Ankal Taluk, Bangalore

admeasuring 3948 Sq. Meters was allotted to M/s. Regal

Enterprises, a sole proprietorship concern owned by Mr. S.M.

Mohan Lal (since deceased represented by Respondent No. 2 to 4

herein) upon payment of part consideration of Rs.9,856/-. The said

allotment was initially on 'lease basis' for tenure of 11 years and

thereafter a Sale Deed was to be executed subject to fulfillment of

other conditions. It is further noted that the Balance Payment was

to be made after 11 years. Thus, Respondent No. 1 has made the

Balance Payment as Sale Consideration to KIADB on 27.07.2011,

when the Sale Deed was executed in favor of the first Appellant.

• On 12.10.1998, Mr. S.M. Mohanlal requested KIADB to change

the constitution of the firm from sole 'Proprietorship Concern' to a

'Private Limited Company' under the name and style of 'M/s.

Regal Machine Tools Private Limited' which was acceded by

KIADB subject to the condition that Mr. S.M. Mohan Lal should

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 4 of 17 hold 51% 'Shares' of the Company till the expiry of lease period of

11 years.

• It is submitted that on 19.08.1994, the Appellants had requested

KIADB for execution of the Sale Deed and KIADB had

communicated that the Sale Deed shall be executed only if the

original Allottee, Mr. SM Mohanlal continues to hold 51% of the

Shareholding but there was no response to the request of the

Appellant. It is submitted that finding no recourse, the Appellant

approached the Hon'ble High Court of Karnataka vide Writ

Petition No.20762/2019 seeking direction for execution of Sale

Deed in respect of the said 'premises'. The said Writ Petition was

disposed of on 10.08.2019, whereby the Hon'ble High Court

directed the Board to execute the Sale Deed in accordance with

law. On 18.03.2011 and on 08.06.2011, KIADB informed the

Appellant Company that KIADB has withheld the execution of

Sale Deed until Resolution of disputes of both the parties through a

Court of Competent Jurisdiction. Thereafter, the Appellant filed a

Writ Petition No.6360/2010 and the matter was settled by a

Memorandum of Understanding ('MoU') dated 18.03.2011. As per

the said MoU, the Shareholding pattern is as under:

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 5 of 17 Sl. No. Shareholder No. of Shares 1. Mr. D. Jayaram 677 2. Mr. Jawahar Vasan 670 3. Mr. R.J. V. Vasan 488 4. Mr. Mundhra 488 5. Mr. Edward 220 6. Ms. Juliet Vasan 110 7. Mr. Promodh 8

8. Ms. Suganthi Rajendrum 50 9. Mr. Mohan Lal 365 10. Ms. Kaushy Lal 5 11. Ms. Vineeta Lal 209 Total 3290

• Subsequently, the Hon'ble High Court vide Order dated

08.06.2011, considered the MoU and directed KIADB to execute

the Sale Deed in favor of the first Appellant Company. It is

submitted that on 25.05.2011, the Appellant and the Respondent

moved a representation to KIADB referring the MoU dated

18.03.2011 for execution of a Sale Deed in favor of the first

Appellant Company.

• It is submitted that 'Chartered Accountants Certificate' of NN

Yuvraj & Associates dated 01.06.2011 stating that the Respondents

are holding 51% Shareholding is fabricated and cannot be relied

upon. It is also contended that the Respondents had failed to

produce the said Chartered Accountants Certificate for exemption

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 6 of 17 before the 'Special Economic Offences Court' at Bangalore.

Hence, this 'Certificate' cannot be relied upon.

• Learned Counsel for the Appellant argued that the proposal of

purchasing 2,243 'Equity Shares' for consideration of

Rs.53,83,200/- was made by the Respondents and the first

Appellant entered into an MoU on 01.07.2011 with Respondents 1

to 4 and the said consideration amount was handed over vide

Cheque No.582870 dated 31.08.2011, but it was never presented

and was returned to the Respondent. Therefore, no transaction for

purchasing 2,243 'Equity Shares' has ever been concluded.

• On 23.02.2012 an Extraordinary General Meeting ('EGM') was

called by the Appellant with an 'agenda' to sell the 'property' of

the Company and a Resolution was passed by 91% of voting. On

11.12.2012, Respondents 1 to 4 filed a Petition before the Company

Law Board ('CLB') Chennai Bench bearing C.P. No.106/2022

under Sections 111, 235, 237, 397, 398, 402, 406, 542 & 543, for

relief against Oppression and Mismanagement.

• On 28.12.2017, the third Respondent filed a Complaint CC

No.224/2014 before the 'Special Court for Economic Offences' at

Bangalore. It is submitted that the Appellants had agreed with 51%

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 7 of 17 of the 'Shares' to be allotted to the Complainant and her family

members and also submitted a Letter dated 01.06.2011 to KIADB

vide 'Certificate' issued by the Chartered Accountants by

confirming that the Respondents are holding 51% Shareholding

with the Company and therefore the second and the third Appellant,

being the Directors of the first Appellant Company, ought to have

issued the 'Share Certificates' in respect of 2,243 'Equity Shares'.

It was also contended that the Complainant had to be appointed as a

Director of the first Appellant Company. This Complaint filed by

the Respondents was disposed of by the 'Special Court for

Economic Offences' vide Order dated 28.12.2017, holding that

2,243 'Shares' were never allotted to Respondents 1 to 4.

• On 07.03.2019, NCLT Bangalore had allowed the 'Petition' filed

by the Respondents and erroneously directed the Appellants to allot

the 'Shares' equivalent to 51% in the first Appellant Company and

to set aside the EGM held on 23.03.2012. Learned Counsel

submitted that the NCLT had wrongly declined Ms. Vinita Lal to

be one of the Directors of the Company as per the Sale Deed dated

27.07.2011.

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 8 of 17 • It is submitted that the 'Certified Copy' of the 'Impugned Order'

was received on 26.03.2019 and the Appeal was filed on

09.05.2019 and therefore is within 'Limitation'.

3. Submissions of the Learned Counsel appearing on behalf of the

Respondents:

• It is submitted that late Shri SM Mohanlal had employed the

second Appellant as Manager to run the affairs of the Company in

the mandate of a 'Power of Attorney'.

• The second Appellant was in search of 'land' to expand his own

business of manufacturing of Hospital Equipment and late Shri SM

Mohanlal reposed faith in him. But the second Appellant misused

the scheduled 'Property' for manufacturing of Hospital Equipment

in contravention of Clause 2(n) of the possession Letter/Lease cum

'Sale Agreement' dated 23.04.1984, executed between late Shri SM

Mohanlal and the fifth Respondent. Clause 2(n) specifically states

that the scheduled 'Property' would have been used for the purpose

of manufacturing 'Machine Components' and 'Sheet Metalwork'.

It is submitted that the Appellants in their 'Counter' filed before the

CLB admitted that the 'property' was used for manufacture of

Hospital Equipment.

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 9 of 17 • It is submitted that the second Appellant had filed contradictory

documents with the fifth and sixth Respondents, whereunder it was

submitted that Respondents 1 to 4 owns 51% of the 'Shares' for the

first Appellant Company and the second Respondent is the Director

thereof.

• The NCLT had rightly held that the Appellants had removed the

Respondent a lifetime Director, in contravention of the Articles of

Association and has set aside the EGM.

• It is contended by the Learned Counsel for the Appellant that the

Appeal is 'barred by Limitation', and that the Appellants had

obtained successive 'Certified Copies' of the 'Impugned Order'

i.e., on 24.04.2019 & 30.04.2019 whereas the actual date of

receipts of 'Certified Copy' is stated as to 26.03.2019 and having

received the 'Certified Copy' way back on 26.03.2019, the

Appellants failed to approach this Tribunal on time and only to

cover the delay filed 'Certified Copies' which were obtained later

on.

• It is submitted that this Appeal is also preferred on behalf of

Appellants 2 to 5, but the same is not supported by any 'Affidavit'

or signature on the 'Vakalatnama' and that second Appellant is

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 10 of 17 disqualified from being a Director under Section 164 of the

Companies Act, 2013, (hereinafter referred to as 'The Act') by the

Hon'ble High Court of Karnataka in Writ Petition No.28554/2018.

The Appeal was also filed originally without any grounds and that

this Appeal is ought to be dismissed, both on 'Limitation' and 'on

merits'.

Assessment:

4. It is seen from the record that a 'Certified Copy' of the 'Impugned

Order' dated 17.03.2019 was received by the Appellant on 26.03.2019

and therefore this Appeal is not 'barred by Limitation' as the Appeal was

filed on 09.05.2019. However, the Appellant had subsequently applied for

'Certified Copies' again. However, it is the first date of receipt of

'Certified Copy' is what is relevant for counting the 'period of

Limitation' and it is seen that the present Appeal is filed within 45 days

from the date of receipt of 'Certified Copy' of the 'Order'.

5. It is the case of the Appellant that as per 'MoU' dated 01.07.2011,

the first Respondent had issued a 'Cheque' of Rs.53,83,200/- dated

31.08.2011 to the first Appellant and it was explicitly agreed that the

'Cheque' was not to be presented without consent from the first

Respondent. The first Respondent had not instructed the first Appellant

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 11 of 17 Company to deposit the 'Cheque' and as such no 'Shares' were allotted to

the Respondent.

6. It is a case of the Respondents that the 'Supplementary Agreement'

placed on record by the Appellant was never signed by the 5 th

Respondent. It is significant to mention that the 5th Respondent has stated

so in their reply before the 'Hon'ble High Court of Karnataka' in 'Regal

Machine Tools Pvt. Ltd. and Anr. V. KIADB & Ors.,' W.P. No.

6360/2010 (GM-KIADB) that no 'Supplement Agreement' was ever

entered into. It is also pertinent to mention that the 'Schedule Property'

was allotted for establishing and running an industrial unit for a period of

11 years, failing which the 'Sale Deed' could not be executed in their

favour. This is a matter of record. It is the case of the Respondents that

Late Shri S.M.Mohan Lal and the 1st Respondent were removed as

'Directors' when Late Shri S.M.Mohan Lal had fallen ill and had to be

taken to New Delhi for an angiogram.

7. A perusal of the material on record establishes that there is no

'documentary evidence' inasmuch as the relevant 'Minutes of the Board

Meeting' or any other significant documents establishing that any

'allotment' or 'transfer of shares' were made with the consent of the 1st

Respondent or the legal heirs of Late Shri S.M. Mohan Lal. There is no

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 12 of 17 'Balance Sheet' which has been filed by the 1 st Appellant Company with

the ROC and neither is there any record produced for having called any

'Annual General Meeting' after issuance of notice to the Respondents

about the 'purported sale'.

8. As per the 'Articles of Association' of the Company, no person can

become a shareholder in the 1st Appellant Company without the consent

of the existing shareholders.

9. It is also seen from the record that the 'Writ Petition No.

20762/2009' filed by the Appellants against the 5th Respondent without

arraying the other Respondents as parties for seeking execution of the sale

deed, was disposed of with a direction to consider the request of the 1st

Appellant Company in accordance with law and upon fulfilment of the

other necessary conditions relating to execution of sale deed. The 5th

Respondent had communicated to the Company that without the family

members of Late Shri S.M. Mohan Lal holding 51 % shares and one of

their family members being on the 'Board', the request for execution of

any absolute sale deed, cannot be considered. This 'Tribunal' is also

conscious of the fact that as on the date of filing of Writ Petition No.

20762/2009, the name of the 1st Appellant Company was struck off by the

ROC for not having filed their Returns for the period 1994 to 2007 and

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 13 of 17 the said Returns for 13 years were filed by the Appellants without calling

for any AGM and without the knowledge of the Respondents.

10. At this juncture, we find it relevant to reproduce Clause 3.3 of the

'Mediation Settlement Agreement', which Agreement was in pursuance

to the Writ petition No. 6360 of 2010:

"Notwithstanding the undertaking in clause 3.2 the shareholders, for no additional consideration apart from the agreed consideration under the Agreement, agree and undertake to co-operate to fulfil any condition that may be imposed by the KIADB for the completion of the transfer of the schedule Property in favour of the Company. Such co-operation may or may not include payments to be made by the shareholders. To that extent the shareholders undertake to provide approval for all or any resolution to be passed by the Board of Directors and/or the Company"

11. It is also a matter of record that the 5th Respondent had executed the

'Sale Deed' based on the 'Joint Declaration' given by the Appellants and

the Respondents vide their letter dated 25.05.2011, which inter alia states

as follows:

"The Company and the heirs of Shri Mohan Lal, namely Mrs. Kaushy lal wife of late Mohan Lal and Ms. Vineeta lal Ms. Chitra Mansukhani and Mr. Anju Singh, all daughters of Late Mohan Lal, being the Legal Heirs of the deceased Mohan Lal, jointly own 51% equity shares

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 14 of 17 in the Company. The parties agreed that it is essential that execution of an absolute deed of sale by the Board in favour of the Company be executed so as to render the absolute ownership of the Schedule Property and in the overall interests of the Company, have settled all their disputes by the Settlement Agreements in WP No. 6360/2010. The Copy of the Agreement is enclosed along with this representation."

12. In the aforenoted letter, it is clearly mentioned that 51%

shareholding of the 1st Appellant Company was with the legal heirs of

Late Shri S.M.Mohan Lal and the same is also certified by the Company's

Chartered Accountant. It is vehemently denied by the Respondents that

the Cheque was given by the Respondent and was never presented and

taken back.

13. It was only pursuant to the disposal of the said 'Writ Petition' that

the Company had addressed a letter dated 25.05.2011 to KIADB and

certificate dated 01.06.2011 was issued by Shri NN Yuvaraj and

Associates, Chartered Accountants which reads as under:

"This is to certify that Mrs. Kaushy Mohall al wife of Mohan Lal S.M, aged about 67 years residing at No. 36, 5th Cross, Nandidurga extension, Bangalore acquired 2243 equity shares of Regal machine Tools Company No. 39, 5th Cross, Bommasandra Industrial area, Bangalore on 05.05.2011. Further in addition to these her family members were holding 579 equity shares. Hence as on 31.05.2011 she and her family members

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 15 of 17 were holding 579 equity shares. Hence, as on 31.05.2011 she and her family members put together holds 2822 equity shares being 51%. This certificate is issued after verification of required documents produced before me. Kindly, accept this certificate and do the needful."

14. It is reiterated that the main objective of the `Memorandum of

Understanding', was for `Allotment of Land', in the name of the

`Company', by `KIADB' and Cheque No.582870 dated 31.08.2011 for

Rs. 53,83,200/-, was for consideration for the `Shares' to be issued, but

the same was 'conditional'. A perusal of the 'documentary evidence' on

record establishes that the `Respondents' are entitled for `51%

Shareholding', in the Company and the Memorandum of Understanding's

in question, specifies that the above percentage, is to be maintained and

the initial lease period of 11 years in question will not have any bearing.

This `51% Shareholding', has to be maintained and without the `Consent'

of the `Respondent', who are holding `51% Shareholding', no

`Transaction', can be entered into by the `Company', which would

effectively dilute the `Shareholding' of the `Respondents'. At the cost of

repetition, this `Tribunal', is of the earnest view that the `Appellants', had

acted in `Violation' of the 'Articles of Association' of the 'Company'

and have not approached the 'Tribunal' with clean hands. This `Tribunal',

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 16 of 17 does not find any 'illegality' or 'infirmity', in the well reasoned order of

the `Tribunal' (`National Company Law Tribunal'), and hence, TA

No.55/2021 (Comp. App (AT) No.128 of 2019), is accordingly

`dismissed'. No order as to costs.

[Justice M. Venugopal] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

13/02/2023 HIMANSHU / TM

TA No. 55/2021 (Comp. App. (AT) No. 128/2019) Page 17 of 17