Shailesh P. Gonawala vs Shree Saisang Associates Pvt Ltd

1

NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI COMPANY APPEAL(AT) NO.13 OF 2018 (Arising out of order dated 23.11.2017 passed by the National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in CP No.68/241&242/NCLT/AHM/2017 with IA No.183 of 2017).

BEFORE BEFORE NCLT NCLAT IN THE MATTER OF: 1. Shailesh P. Gonawala, S/o Pranlal Gonawala, Residing at 3/1884, Chandi Bhavan Khangad Sheri, Salabatpura, Surat-395003 Petitioner Appellant No.1

2. Rameshchandra A. Morawala S/o Amaratlal Morawala, Residing at 8, Abhinav Park, Ghod Dod Road, Surat-395001 Petitioner Appellant No.2

Vs

1. Shree Saisang Associates Pvt Ltd 3/2169, Near Ram Mandir Salabatpura, Surat-395003. Respondent No.1 Respondent No.1

2. Shailesh U. Vakharia, 15, Narayan Bldg, B/H, Rajhans Talkies, Vesu, Surat-395007 Respondent No.2 Respondent No.2

3. Navinchandra P Indorwala, 22/23, Bhairav Nagar, PO Bhestan, Udhna, Surat-395023. Respondent No.3 Respondent No.3

4. Indrajit H. Mashruwala, 3/2020, Sidhi Sheri, Salabatpura, Surat-305003 Respondent No.4 Respondent No.4

5. Harishchandra C. Marvawala, 3/2321, Khangad Sheri, Salabatpura, Surat-395003. Respondent No.5 Respondent No.5

6. Kamlesh C. Gotawala, 3-1928, Sidhi Sheri, Company Appeal (AT) No.13 of 2018 2

Salabatpura, Surat-395003. Respondent No.6 Respondent No.6

7. Manoj Kumar H. Singapuri, 202/2nd Floor, Shradha Saburi Apt., Khanbhati Wadi, Rustampura, Surat-395002. Respondent No.7 Respondent No.7

8. Kiritkumar R. Vanawala, 3/2350, Khangad Sheri, Salabatpura, Surat 395003. Respondent No.8 Respondent No.8

9. Registrar of Companies, ROC Bhavan, Opp Rupal Park Society, Behind Ankur Bus Stop, Naranpura, Respondent No.9 Respondent No.9 Ahmedabad-380013.

10. The National Company Law Tribunal Anand House, Jalsa Plot, Sola Road, Ahmedabad. ----- Proforma Respondent

Present: For Appellant:-Mr Suryanarayanan and Ms Garima Bajaj, Advocates Mr. Swaminathan Iyer, CS.

For Respondents: - Mr. Dhiren R. Dave, PCS for Respondent No.1 to 8. Mr. Sanjib K. Mohanty, Sr. Panel Govt Counsel for Respondent No.9.

JUDGMENT

BALVINDER SINGH, MEMBER (TECHNICAL)

01.The present appeal has been preferred under Section 421 of the

Companies Act, 2013 by the appellants against the impugned order

dated 23.11.2017 passed by the National Company Law Tribunal,

Ahmedabad Bench, Ahmedabad (hereinafter referred to as the

'Tribunal').

02.The brief facts of the case are that the Respondent No.1 company was

incorporated on 30.05.2007 with appellant No.1 and Mr. Anil

Ghariwala as first directors. The main object of the company is to

Company Appeal (AT) No.13 of 2018 3

acquire land, divide it into plots and construction of independent

houses etc. In order to augment the financial resources of the

company, Respondent No.1 introduced various shareholders and

directors. Respondent No.1 bought 35,511 sq. mtrs of land at Surat

with a view to develop the said land and selling the plots as developed

plots or by constructing row houses and 179 plots were made and the

Respondent No.1 also constructed Sai Unity Row Houses on the said

plots. The Board of Director of the Company in its Meeting held on

15.12.2009 authorised Appellant No.1 to execute the conveyance deeds

in favour of third parties in respect of Sai Unity Row Houses for and on

behalf of Respondent No.1. The Appellant No.1 executed 51 conveyance

deeds in favour of various buyers of the row houses/plots till 19.7.2013.

03.After approval of accounts for the financial year 2011-12, disputes

started amongst the directors in respect of a piece of land bought at

Bamroli in which Respondents Nos 2, 5 and 7 directors insisted on the

payment of heavy amounts by way of compensation to the sellers of the

land but the Appellant No.1 resisted the same. This triggered a lot of

disputes amongst the directors and the directors were divided on this

issue and Respondent No.2 mustered the support of other respondents

directors to get elected the Chairman of the Board and Respondent

No.1. A Resolution dated 2.5.2013 was passed by the Board of

Directors of Respondent No.1, without notice to appellant No.1,

authorising Respondent No.2 to execute conveyance deeds on behalf of

company. The Appellant No.1 submitted that even after passing the

said alleged resolution dated 2.5.2013, copy of which was not served to

Company Appeal (AT) No.13 of 2018 4

appellant No.1, the appellant No.1 continued to execute the conveyance

deeds after 2.5.2013 till 19.7.2013. The appellant executed 12

conveyance deeds selling 1039.59 sq mtrs of land and deposited the

money with the Respondent No.1. The appellant No.1 purchased plots

from Respondent No.1 at the same price per square meter at which the

plots were sold to outsiders and the sale proceeds were duly credited in

the account of Respondent No.1. Later on the appellant No.1 received

copy of the minutes and resolution passed on 2.5.2013. Appellant No.1

also got a copy of the resolution passed on 2.5.2013 from the

Mamlatdar Office. Both the resolutions were different from each other

and no resolution revoked the authority granted to the appellant No.1

though Respondent No.2 was also authorised to execute conveyance

deeds from 2.5.2013 onwards and it was also not mentioned that the

Respondent No.2 was the Chairman of Respondent No.1. Resolution

received from the office of Mamlatdar Office mentions that the appellant

No.1 ceased to be the Chairman of Respondent No.1 and Respondent

No.2 became the Chairman of Respondent No.1 with effect from the

date of passing of the resolution. Since the tenor of the resolution was

different from each other, therefore, it was crystal clear that the

minutes of Respondent No.1 has been tampered with by the

Respondent directors. Respondent No.2 on behalf of Respondent No.1

lodged an FIR with PS Surat against the appellant No.1 stating that the

houses/row houses sold by appellant No.1 during the years 2012-13

and 2013-14 for Rs.134.44 lakhs was not credited to Respondent No.1.

The appellant No.1 was arrested and was in judicial custody from

Company Appeal (AT) No.13 of 2018 5

11.12.2014 to 2.1.2015. Later on the appellant No.1 was granted bail

subject to deposit of Rs.134.44 lakhs in the High Court of Gujarat

pending trial of criminal case.

04.The financial statement of Respondent No.1 for the years 2011-12 was

approved by the Board and certified by the auditors on 31.8.2012 but

the Respondent directors did not hold the annual general meeting of

Respondent.1. Though the appellant No.1 was the Chairman during

that period but he was not allowed to hold the meeting.

05.In July, 2010 the registered office of the Respondent No.1 was changed.

On 8.7.2010 Mr. Anil Ghariwala resigned from the directorship of the

company. On 9.8.2010, Respondent No.1 held EGM and passed

resolution for appointment of Respondents No.2, 5 to 8 as the directors

of company. On 18.9.2010 various directors resigned from the

Respondent No.1 and the same was accepted in the Board of Directors

Meeting held on 18.9.2010. Thus only the three directors remain on

18.9.2010 i.e. Appellant No.1, Respondent No.3 and 4. The new

Chairman violated all the provisions of company law wilfully. Being

aggrieved the appellant No.1 filed Company Petition before the National

Company Law Tribunal, Ahmedabad Bench, Ahmedabad alleging the

following acts of omission and commission that amounts to acts of

oppression/mismanagement in the affairs of Respondent No.1.

a) Falsification of minutes of Board Meetings and General Meetings

violating Section 118; Non-compilation of financial statements for

the financial years 2011-12, 2012-13, 2013-14 and 2014-15 as

Company Appeal (AT) No.13 of 2018 6

mandated under the provisions of Section 129 of the Companies Act,

2013.

b) Non holding of annual general meetings.

c) Denial of inspection of registers and records to the

shareholders/directors.

d) Acting as director without valid appointment.

e) Forging of the physical signature of the petitioner director and the

digital signature.

f) Harassment of individual director by other directors acting in

concert.

g) Holding of illegal extraordinary general meetings and trying to pass

resolution without the authority of law.

06.After hearing the parties, the Tribunal dismissed the company petition

and held as under:

"48. In view of the above discussion, this Tribunal holds

that petitioner No.1 fail to establish alleged acts of

oppression and mismanagement said to have been

committed by respondents in the conduct of the affairs of

the first respondent company.

49. Considering all these aspects, this Tribunal is of the

considered view that it is not a fit case even to exercise its

powers under Section 242(2) of the Companies Act, 2013.

50. In view of the above discussion, CP no.68 of 2017 is

dismissed. IA No.183 of 2017 is closed. No order as to cost."

Company Appeal (AT) No.13 of 2018 7

07.Learned counsel appearing on behalf of the appellants stated that the

company petition was dismissed only due to lodging of FIR against the

appellants. Learned counsel further submitted that the said FIR stands

stayed by the Hon'ble High Court of Gujarat and the company petition

was wrongly dismissed.

08.Learned counsel for the appellant submitted that the appellant No.1

was granted authority since 15.12.2009 to execute conveyance deeds

and the same was withdrawn by passing a fake board resolution on

2.5.2013 without following the procedure of law. Learned counsel for

the appellant No.1 further submitted that the copy of the

resolution/minutes produced by Respondent No.1 completely differed

from the copy of the resolution obtained by appellant No.1 from the

Mamlatdar Office (Revenue Office). Learned counsel for the appellant

No.1 submitted that the minutes have been tampered with. Learned

counsel for the appellant No.1 further argued that the notice/agenda

and speed post receipts placed by Respondents were neither addressed

to Appellant No.1 nor received by the appellant No.1.

09.Learned counsel for the appellants No.1 submitted that the accounts of

the Respondent No.1 for the Financial Year 2015-16 were approved on

20.9.2016 whereas the accounts for FY 2012-13, 2013-14 and 2014-

15 were under compilation. Learned counsel for the appellant No.1

stated that after filing the Company Petition on 22.5.2017, Respondent

No.1 company compiled the accounts and mentioned the dates of

approval which are manipulated and are completely fabricated and

even the reports were fully manipulated.

Company Appeal (AT) No.13 of 2018 8

10.Learned counsel for the appellant No.1 further argued that the AGM for

the years 2011-12, 2012-13, 2013-14 and 2014-15 were not held

within the stipulated time and inspection of books of accounts, bank

statements of all banks, all expenses and revenues earned by the

company beginning from the year 31st March, 2012 was denied to the

appellant by Respondent No.1 vide letter dated 17.3.2017 (Page No.355

of the Paper Book).

11.Learned counsel for the appellant No.1 further stated that Respondent

No.1, as per the FIR, accounted for a sale of Rs.37,92,300/- in the FY

2012-13 and showing the same as recoverable from appellant No.1.

Learned counsel for the appellant stated that an amount of

Rs.96,51,800/- mentioned in the same FIR was wilfully omitted to be

recorded both in sales as well as recoverable amount in the FY 2013-

14 by the Respondent No.1.

12.Learned counsel for the appellant No.1 stated that Respondent No.1

has not filed annual returns for the FY 2011-12, 2012-13, 2013-14 and

2014-15 within the time stipulated under the Companies Act, 2013.

13.Learned counsel for the appellant No.1 stated that EGM was held on

20.5.2017 without convening a Board Meeting for the same to consider

the alleged requisitions purportedly received from the shareholders for

the removal of Appellant No.1 from the directorship of Respondent No.1.

Learned counsel for the Appellant No.1 stated that no notice was issued

to Appellant No.1 and the Respondent No.1 did not consider the

submission of Appellant No.1.

Company Appeal (AT) No.13 of 2018 9

14.Learned counsel for the appellant No.1 submitted that Respondent No.1

does not maintain any registered office as alleged in the site at 3/2169,

Near Ram Mandir, Salabatpura, Surat-395003.

15.Learned counsel for the appellant No.1 stated that the respondents sold

plots of higher areas in the same location around the same time at a

lower price of Rs.6,96,600/- and only one plot of same size was sold for

Rs.12,00,000/-

16.Learned counsel for the appellant No.1 submitted that the above acts

and omissions merit investigation. However, the same has been denied

vide paras 35-44 of impugned order. Therefore, the appellant No.1 has

sought the following reliefs:

a) That the impugned order dated 23.11.2017 passed by the Tribunal

be set aside by holding that the alleged criminality of the appellant

No.1 in the year 2013 cannot preclude him to exercise his rights as

shareholders of R1 company and to uphold the various acts and

omissions mentioned in the Company Petition as acts of

oppression/mismanagement and to grant all the reliefs prayed for

under the Final Reliefs before the Hon'ble NCLT.

b) To order an investigation into the affairs of R1 company as there are

series of continuous and recurring financial mismanagement, illegal

sale of R-1's assets at rock bottom prices and serious irregularities

in the conduct of the affairs of R1 company.

c) To pass such other order as may be deemed necessary, fit and

proper in the facts and circumstances of the case to do complete

justice to the appellants.

Company Appeal (AT) No.13 of 2018 10

17.In rebuttal, Learned counsel for the respondents stated that the

appellant No.1 has approached this Appellate Tribunal with uncleaned

hands. Appellant No.1 was granted bail by the Hon'ble High Court

against cash security of Rs.1,33,44,000/-, the entire amount alleged to

be siphoned off by the appellant No.1. Relevant portion of the High

Court order dated 02.01.2015 is as under:

"4. Therefore, without adverting to the merits of the matter

on the ground that it appears that against the allegation of

misappropriation, now the accused is ready to deposit

alleged amount before the Sessions Court and also looking

to the totality of the facts and circumstances, it would be

appropriate to release the applicant on bail."

18.Learned counsel for the Respondents submitted that the appellant No.1

has not disclosed before this Appellate Tribunal that he has threatened,

by a public newspaper (Page 544 of the Paper Book), the statutory

auditor, company secretary and all the directors of the Respondent

No.1 for initiating criminal proceedings for raising fake resolution.

19.Learned counsel for the Respondent stated that the appellant No.1 run

away from the company after siphoning of huge funds of the company

in 2011 with all books of accounts and documents of the company.

20.Learned counsel for the Respondents stated that the appellant No.1

produced false and concocted unsigned copy of minutes of R1 company

which is at Page No.322-324 of the Appeal Paper Book. Further the

Company Appeal (AT) No.13 of 2018 11

appellant No.1 has transferred/sold plots of land in his own

favour/third parties and did not deposit the amount in the company's

account even after knowing fully well that his authority to execute sale

deed for and on behalf of the company has been withdrawn. The list of

such plots is given at Page No.329 of the Appeal Paper Book.

21.Learned counsel for the Respondents submitted that the appellant No.1

is making false statement that he never received Notice of Board

Meeting at which his Authority to execute sale deed for and on behalf

of the company is withdrawn. Learned counsel for the Respondents

submitted that notice of Board Meeting and proof of dispatch were

submitted by the respondent in their reply and the same are at Page

No.536 to 538 of Appeal Paper.

22.Learned counsel for the respondents further submitted that the notice

of Board Meeting dated 17.4.2017 was duly sent to the appellant No.1

and proof of service and proof of despatch are at Page No.546 to 548 of

appeal paper book.

23.Learned counsel for the respondents stated that the company has now

all years audited accounts approved and filed with the ROC till date.

There are no remarks about siphoning of funds by the respondent but

there are remarks about siphoning of funds by the appellant. Learned

counsel for the respondent further submitted that the appellant has

unwontedly dragged the company in to as many as 39 litigations

causing harm to the reputation of the company.

24.Learned counsel for the respondents has argued that the Tribunal has

passed a well reasoned and speaking order and may be upheld.

Company Appeal (AT) No.13 of 2018 12

25.We have heard the parties and perused the entire record including the

impugned.

26.The first point raised by the appellant No.1 that the Tribunal erred in

concluding that the board meeting dated 2.5.2013 was validly held and

the authority granted to appellant No.1 was validly withdrawn. On this

point we have observed from the appeal filed by the appellant No.1 at

para 7.5 as under:

"xxxxxxxx This triggered a lot of disputes amongst the

directors and the directors were divided on this issue.

Taking advantage of the situation, R2, Shri Shailesh U.

Vakharia, mustered the support of the other Respondent

directors to get elected as Chairman of the Board and R1

company."

On a careful reading of the above lines, seeing the Minutes of the

Meeting of Board of Directors held on 2nd May, 2013 and the copy of

company petition, we find that notice of the Board Meeting to be held

on 2.5.2013 was sent to the appellant No.1 as the respondents has also

annexed postal receipt dated 25.4.2013 of the Indian Postal

Department. Therefore, the appellant No.1 has wrongly stated that he

has not been given notice of Board Meeting to be held on 2.5.2013. It

clearly goes to show that the appellant No.1 chose to remain absent as

he was very well aware that one of the agenda was to withdraw the

authority given to him earlier. When the appellant cleverly chose to

remain absent it was his duty to obtain the copy of the minutes and the

Company Appeal (AT) No.13 of 2018 13

resolution passed in the Board Meeting from the company. When he

was informed about the Meeting, the appellant No.1 cleverly chose to

remain absent and the required quorum was present in the Meeting,

Respondent No.2 was elected Chairman of the Board, R1 company and

to give/change authority relating to execution of sale deed was validly

given to Respondent No.2. Therefore, the appellant No.1 has no right

to question about the resolution passed in the said Meeting. However,

the appellant No.1 knowing fully well that his authority has been validly

withdrawn still he continued to execute the sale deed. We observe from

the record that the appellant No.1 has executed 12 sale deeds

subsequent to Meeting dated 2.5.2013 and out of these 12 sale deed,

he executed 7 sale deeds in his own name (Page 329 of the Appeal Paper

Book). Even if he has the authority to execute the sale deed and for

executing sale in his own name/favour, he can only do after prior

disclosure to all other Directors/Board of Directors as per Section 297

of the Companies Act, 2013. In this case his authority has been validly

withdrawn by passing a valid resolution and he is continuing to execute

sale deed, therefore, the conduct and behaviour of the person is a

relevant factor.

27. The next point raised by the appellant is that the company petition was

dismissed only due to FIR and the said FIR stands stayed by High Court

in 2015. The point raised by the appellant is not acceptable. On going

through the impugned order which runs into 34 pages approximately,

we observe that the company petition has dismissed on various points.

Company Appeal (AT) No.13 of 2018 14

The Tribunal has given his findings on each of the points raised by the

appellants in the company petition.

28.The other point raised by the appellant No.1 is that the appellant No.1

was granted authority since 15.12.2009 for execution of conveyance

deeds and the said authority was withdrawn by a fake resolution

passed on 2.5.2013 without following the procedures of law and

tampering with the minutes of Respondent No.1 company. We observe

from the record that proper notice was given to the directors for holding

of Board Meeting on 2.5.2013 and the proof of despatch of the said

notice has been placed at Page No.538 of the Appeal Paper Book. It

appears that the appellant No.1 chose to remain absent in the Board

Meeting held on 2.5.2013 as he was aware that proper procedure of law

has been complied with and there is no tampering with the minutes of

Respondent No.1 company.

29.The next point raised by the appellant No.1 is that the company

approved the accounts for the FY 2015-16 on 20.9.2016 whereas the

accounts for 2012-13, 2013-14 and 2014-15 were said to be under

compilation. After the filing of the company petition on 22.5.2017, the

company compiled the accounts and dates of approval were

manipulated. On going through the impugned judgement, the Tribunal

has observed on this point as under:

"30. It is pertinent to mention here that petition continued

to be Director of the first respondent company till he was

removed in the EOGM on 20.05.2017 but petitioner No.1

being a Director of the first respondent company did not

Company Appeal (AT) No.13 of 2018 15

raise his little finger for non-finalisation of accounts from

the year 2011-12 to 2014-15. Even after criminal case was

filed against petitioner No.1 he did not chose to raise the

issue of non-finalisation of accounts. The fact remains that

SB Vaidya & co resigned as statutory auditor of the first

respondent company on 21.3.2016 and it was accepted in

the EOGM held on 19.4.2016. Form No.ADT-3 filed by M/s

S.B. Vaidya & co clearly disclose that the company did nto

communicate with the auditors since 2013. In the EOGM

held on 19.4.2016 itself M/s T.R. Mody & associates were

appointed as statutory auditors. The statutory auditors in

the first instance prepared accounts for the year 2015-16

and, thereafter finalised the accounts for the years 2011-

12 to 2014-15. No doubt, such practice of finalising the

accounts for the year 2015-16 without finalising accounts

for previous years is against the established practice but in

the given facts and circumstances when there are disputes

between Directors and when there was non-cooperation from

the management and the Directors, non-finalisation of

accounts cannot be treated as a ground of mismanagement

and more so it cannot be alleged by a Director of the

company. Petitioner No.1 being Director of the first

respondent company is equally responsible for non-

finalisation of accounts of the first respondent company

from 2011-12 to 2014-15. This point is answered

Company Appeal (AT) No.13 of 2018 16

accordingly. Non-filing of accounts within time is

punishable under the Companies Act and it is for the

regulating authority to take action against the company.

Therefore, it cannot be treated as a ground of

mismanagement in the facts and circumstances of this

case."

On this issue we uphold the views of the Tribunal as mentioned above.

30.The other points raised by the appellant No.1 is that he was denied

inspection, holding of an EGM on 20.5.2017 without convening a Board

Meeting etc. We observe that all the record of the company are available

online and the appellant can take the copies from there. As regard the

holding of EGM on 20.5.2017 without convening a Board Meeting is

concerned, the Tribunal has held as under:

"25.A perusal of the material placed on record disclose the

following facts. Some of the shareholders gave requisition

for removal of petitioner No.1 as Director. Board of

Directors meeting was held on 17.4.2017 in which meeting

it was decided to call for the EOGM on 20.5.2017 for the

purpose of considering the removal of petitioner No.1 as

Director.

26.xxxxxxxxxxxx Therefore, it is not a case where the

petitioner No.1 has no knowledge about the Board of

Directors Meeting held on 17.4.2017 or EOGM dated

20.5.2017. It is the case of the petitioner that he reached

Company Appeal (AT) No.13 of 2018 17

the place of EOGM on 20.5.2017 and gave letter but he left.

Therefore, from the facts, it can only be concluded that

petitioner No.1 has knowledge about the meeting of the

Board of Directors and EOGM and also he has submitted his

representation. xxxx"

From the above it is clear that the appellant No.1 was very well aware

of the Board Meeting held on 17.4.2017 and when he went to EOGM

but left he got the opportunity but did not avail it before General Body.

31.In view of above discussions, we are of the considered view that it is not

a fit case to interfere in the impugned order dated 23rd November, 2017

passed by the National Company Law Tribunal, Ahmedabad Bench,

Ahmedabad. Accordingly, the appeal is dismissed. No order as to costs.

(Justice A.I.S. Cheema) (Mr. Balvinder Singh) Member (Judicial) Member (Technical)

New Delhi

Dated:23-05-2018

bm

Company Appeal (AT) No.13 of 2018