Shri Hem Raj Singh vs Naraingarh Distillery Limited

Shri Hem Raj Singh, S/o Shri Bhim Singh, R/o Naraingarh Sugar Mills Limited, Tehsil Naraingarh, Ambala, Haryana Presently at C-8/74, Yamuna Vihar New Delhi- 110 053 Appellant

Versus

1. Naraingarh Distillery Limited, Having its Registered Office at 39, Sector- 5-A Chandigarh

2. Shri Baldev Singh Kang, Son of Shri Resident of 39, Sector 5A, Chandigarh

3. Ms. Ravinder Kaur Kang Wife of Shri Baldev Singh Kang Resident of 39, Sector 5A, Chandigarh

4. Ms. Deep Kamal D/o Baldev Singh Kang R/o 39, Sector 5A Chandigarh

5(a) Smt. Renu Anand W/o Late Shri Onkar Anand R/o House No. 135, Sector-7, Panchkula- 134109 Haryana

Company Appeal (AT) No. 181 of 2017 2

5(b) Shri Rahul Anand Sb o Late Shri Onkar Anand R/o House No. 135, Sector-7, Panchkula- 134109 Haryana

5(c) Ms. Bhavna Anand D/o Late Shri Onkar Anand R/o House No. 135, Sector-7, Panchkula- 134109 Haryana

6. Smt. Renu Anand W/o of Late Shri Onkar Anand R/o House No. 135, Sector-7, Panchkula- 134109 Haryana

7. Shri Jitendra Anand S/o late Shri G.L. anand R/o F-143, NOIDA (U.P.)

8. Shri Rahul Anand Sf0 Late Shri Onkar Anand R/o House No. 135, Sector-7, Panchkula- 134109 Haryana

9. Ms. Bhavna Anand D/o Late Shri Onkar Anand R/o House No. 135, Sector-7, Panchkula- 134109 Haryana

10. The Registrar of Companies, NCT of Delhi & Haryana IFCI Tower, 5th Floor, Nehru Place, New Delhi - 110 019

11. The Regional Director, Ministry of Corporate Affairs, Northern Region, B-2 Wingh, 2nd Floor Paryavaran Bhawan, CGO Complex, New Delhi- 110 003 ...Respondents

Company Appeal (AT) No. 181 of 2017 3

Present:

For Appellant:

Shri Rakesh Kumar with Shri P.K. Sachdeva Advocates

For Respondent Nos. 2 to 4:

Shri Sudershan Goel and Shri Ankush Diwan, Advocates

For Respondent Nos. 1 & 5 to 9:

Ms. Anupama Kumar and Shri Hrishikesh Baruah, Advocates.

Judgement

(14th November, 2017)

A.I.S. Cheema, J:

The Appellant filed Company Petition No. 128/2007 against the

Respondents No. 2 to 4 (hereinafter referred to as 'Original Respondents')

under Sections 397, 398, 399 read with Section 402, 403 & 406 of the

Companies Act 1956 ('Old Act' in brief). The Company was arrayed as

Respondent No. 1. During the pendency of the petition due to developments

pending litigation, one Onkar Anand was added as Respondent no. 5 and

Respondents Nos. 6 to 9 were also added as party Respondents. On the

death of Onkar Anand, his Legal Representatives are on record (these

Respondent Nos. 5(a) to 5(c) and Respondent No. 6 to 9 are hereinafter

referred as 'added Respondents).

Company Appeal (AT) No. 181 of 2017 4

2. The petition was initially filed before the Company Law Board and

subsequently came to be transferred to National Company Law Tribunal,

Chandigarh Bench, (Chandigarh (hereinafter referred as 'NCLT'). The

Chandigarh Bench, after hearing the matter, dismissed the Company

Petition and disposed of pending Misc. Applications referred by it in the

impugned order dated 07.04.2017. Hence the present appeal.

3. In short the Appellant-Original Petitioner claims as follows:

The Respondent No. 1 -Company was engaged in distillery business

on a 45 acres of land. The Appellant was promoter/ director and became

Managing Director on 01.09.2004. The Appellant and Respondent No. 2

were jointly carrying on several other businesses also. The Appellant was

holding 9600 shares in the Company consisting of 19.2 percentage equity.

The Appellant and Respondent No. 2 were connected in running of the

company - "Naraingarh Sugar Mills Ltd." Some disputes arose in it and

Respondent no. 2 filed FIR against the Appellant because of which the

Appellant was put behind the bar. When the Appellant was behind the bar,

in the year 2006, Original Respondent Nos. 2 convened Extraordinary

General Meeting (in short 'EGM') on 3 1.05.2006 for the removal of the

Appellant from the post of Managing Director. Without notice to the

Appellant, who was behind bar and in his absence, the EGM (The document

in this regard at page 517-Vol. III mentions it as "Annual General Meeting")

was held and the Appellant was illegally removed as Managing Director.

Appellant got bail in July, 2006 and when he came to know that he had

Company Appeal (AT) No. 181 of 2017 5

been removed as Managing Director and his role in the affairs of the

Company had been limited, he filed a Company Petition claiming that

without following due procedures under Section 284 of the Old Act, he had

been illegally removed. There was no special notice given to him or a chance

to respond as required under Section 284 of the Old Act. The Original

Respondents had fraudulently appointed two other Directors to gain

strength in the Board of Directors.

4. The Appellant claims that when the Company Petition was filed, it

was taken up before the Company Law Board and the Company Law Board

passed order of 'status quo' on 11. 09.2007 regarding immovable property

and shareholding. When the petition came up for hearing in 2013, the

Appellant learned that in spite of the stay to maintain status quo regarding

immovable property and shareholding of the company, the Original

Respondents had changed the shareholding and the managing control had

been given to third parties i.e., added Respondents violating the status quo

order. Consequently, the Appellant brought on record the added

respondents. He amended the petition to challenge the subsequent transfer

of shareholding and further allotment of shares to the added Respondents.

The shareholding had been changed in a manner that 19.2 percent

shareholding of the Appellant got reduced to 1.12 percent shareholding.

5. The Appellant claims that subsequently in the Tribunal below the

Original Respondents started claiming that the added Respondents were

Company Appeal (AT) No. 181 of 2017 6

nobody as although understanding was arrived at between the Respondents

to give control of Respondent No. 1 in favour of the added Respondents

through MOU, but as added Respondents did not pay consideration and so

they could not be given any indulgence. When the petition came up before

the learned NCLT, the petition came to be dismissed.

6. The learned Counsel for the Appellant submitted that the Respondent

No. 1-Company was a sort of quasi-partnership between the Appellant and

Respondent Nos. 2 to 4. The Respondent No. 2 managed to send the

Appellant behind the bars by filing criminal cases and when the Appellant

was behind the bar, the Respondent No. 2 to 4 convened EGM of the

Company on 3 1.05.2006 in which meeting the Appellant was removed from

the post of Managing Director and one Shri Jagnu Kang and Shri Jai Inder

Singh came to be appointed as Directors. It is stated that the removal was

in complete contravention of Section 284 of the Old Act as no specific notice

was served upon the Appellant as per sub-clause 2 to 4 of Section 284 of

the Old Act. The Company Law Board had passed order Of status quo on

11.09.2009 and status quo order was relating to fixed assets and

shareholding of the company. This order, however, was violated by

Respondent Nos. 2 to 4 and they transferred their shareholding to

Respondents No. 5 to 9. Subsequently, 7,56,800 equity shares were allotted

in favour of the added Respondents diluting the shareholding of the

Appellant from 19.2 to 1.12 percent. The transfer of shareholding reflected

in the Annual Return of 2012 because of which original petition was

required to be amended. The added Respondents had, before the Company

Company Appeal (AT) No. 181 of 2017 Law Board, expressed readiness to buy undisputed shareholding of the 19.2

percent of the Appellant but the effort did not succeed. The Appellant

submitted that the Learned NCLT although it noticed that the Appellant

was illegally removed as Managing Director, still it went on to hold that

there was no case of oppression. The acts of the Respondents were clearly

in violation of the status quo order which has been passed and according

to the learned Counsel for the Appellant, oppression of Appellant and

mismanagement of the Company affairs was apparent on the record.

According to the learned Counsel for the Appellant, the acts of the

Respondents in contravention of the status quo order must be held to be

illegal and need to be quashed and set aside. The learned Counsel for the

Appellant stated that the main issues now are that illegal removal of the

Appellant as Managing Director and the act of violation of the status quo

order by the Respondents.

7. At the time of the argument, the learned Counsel for the original

Respondent Nos. 2 to 4 was unable to show that the notice of the EGM

dated 31.05.2006 was served on the Appellant. It was only stated that the

notice was published in newspapers. It was not disputed by the learned

Counsel that at the concerned time, the Appellant was in jail due to FIR

lodged by Respondent No. 2. In the argument, the learned Counsel for the

original Respondent No. 2 to 4 claimed that these Respondents had not

transferred their share to Respondent Nos. 5 to 9

Company Appeal (AT) No. 181 of 2017 8

8. Against this, the learned Counsel for the added Respondent No. 5(a)

to 5(c) and 6 to 9 submitted that contentions raised by the Appellants are

misplaced. It is stated that the Appellant alleged that he came to know

about the allotment of shares to the added Respondents in 2013 and he

had filed Contempt Petition before the Punjab & Haryana High Court.

Reference is made to C.O.C.P 902/2013, copy of which is placed at page

nos. 758 to 774 of Vol. III of the Paper Book. It is stated that after filing of

the Contempt Petition, the Appellant settled the dispute with the Original

Respondent Nos. 1 to 4 and entered into an agreement and on the basis of

the said compromise, the Contempt Petition came to be withdrawn and

various other proceedings were also quashed. It is stated that the Appellant

took benefit of the said settlement (copy of which is at pages 623-624 of Vol.

III of the Paper Book) and thus he cannot be permitted to take a contrary

position as far as this Company Petition is concerned. According to these

Respondents, the present petition was bound to be withdrawn by the

Petitioner/Appellant. When the petition was filed, the only grievance was

wrongful removal of Managing Director, which could not have been said to

be an act of oppression. Notice to the Appellant was issued before he was

removed as Managing Director. It is claimed that the Appellant only wanted

to exit but he did not want to exit on reasonable terms. It is alleged that the

original Respondent No. 2 to- 4 had colluded with the Appellant as can be

seen from Application which was filed as C.A. No. 16/2016 which came to

be rejected. The learned NCLT held that dispute inter se the Respondents

is not subject matter of the Company Petition and it will be adjudicated in

Company Appeal (AT) No. 181 of 2017 9

Civil Suit No. 1998/2015 before the Civil Judge, Chandigarh. These

Respondents support the impugned judgement passed and want Appeal to

be dismissed.

9. At the time of argument, the learned Counsel for the added

Respondents claimed that notice had been issued to the Appellant about

the meeting of 31.05.2006 and thus, Appellant could not make any

grievances. When the learned Counsel was asked to show service of the

notice, he referred to notice published in the newspapers. Learned Counsel

pointed out the copies of the newspaper at pages 570-571 (in Vol. III of the

Paper Book) to support his submission. When we perused these notices

published in the newspapers, it was seen that the copy at page No. 570

purporting to be cutting of "Indian Express" dated 17.05.2006 gave notice

of Annual General Meeting of "Naraingarh Sugar Mills Limited" called on

31.05.2006. Similar is the fate of notice published in vernacular "Din

Pratidin" dated 18.05.2006 at page no. 571 which also relates to

"Naraingarh Sugar Mills Limited". We are concerned with the removal of

Appellant from "Naraingarh Distillery Ltd" and not "Naraingarh Sugar Mills

Limited". Learned Counsel for added respondents could not show any other

Newspaper cutting. One copy of the notice dated 05.05.2006 has been filed

as Annexure-R16 (page no. 578 of Vol.-II of the Paper Book) issued by

Respondent No. 2 claiming that requisition from M/ s United .Vanaspati

Limited holding more than 1/20th of the total equity voting power in the

Company has been received. Even this notice relates to Naraingarh Sugar

Company Appeal (AT) No. 181 of 2017 10

Mills Limited. Respondents have not been able to show notice served on the

Appellant seeking his removal from the post of Managing Director in the

Respondent No: 1- Naraingarh Distillery Limited.

10. The impugned order in much details referred to the pleadings of the

parties and observed:

"14.4 The main issue before us is oppression and mismanagement as

alleged by the Petitioner. The main instance of oppression and

mismanagement cited by him in both the original and amended

petitions is his removal as Managing Director. Respectfully following

the Supreme Court's Judgement in the case of Hanuman Prasad

Bagri (supra), we hold that removal as Managing Director is not a

subject matter of oppression and mismanagement u/s 397 and 398 of

the Companies Act, 1956. The other instances cited in both the original

and amended petitions namely, not being given a notice of meeting

dated 8.4.2006 and AGM dated 31.5.2006 as well as filing of criminal

complaints against him by the original Respondents are not considered

as instances of O&M. We say so because of notices of meeting dated

8.4.2006 and AGM dated 31.5.2006 were published in the

newspapers as filed by the original Respondents in their written

submissions but, the Petitioner may not be aware of the same as he

was behind bars in the criminal complaints filed against him by R-2

and another. There appears to be some substance in these criminal

Company Appeal(AT) No. 181 of 2017 11

complaints as the Petitioner was behind bars for 3 months till bail was

granted in the complaint filed by another namely, A.K. Thakur. The

Petitioner was acquitted in these cases, as they were quashed after

the compromise/settlement agreement between R-2 and the

Petitioner."

(Emphasis supplied)

It is apparent that the learned NCLT did notice that no specific notice

was served on the Appellant, who was apparently behind the bars at the

concerned time. The learned NCLT, without going through the contents of

the newspapers (as pointed out above) observed that the notice was

published in the newspapers and "Petitioner may not be aware of the same

as he was behind the bars in the criminal complaints filed against him by

R-2 and another." Had the learned NCLT read what was put in the

newspaper, (which we have mentioned above and which has been pointed

out to us as the notice published in the newspaper) the learned NCLT would

have known that these notices did not relate to the Respondent No. 1-

Company. The fact remains that the Respondent No. 2 filed criminal case

against the Appellant and when the Appellant was behind the bars, he

called a meeting and unceremoniously Appellant was removed. The record

also shows that original Respondent Nos. 2 to 4, in violation of the status

quo order, transferred their shares to the added Respondents and it also

appears that subsequent shareholding itself of the company was increased

and the Appellant with his 9600 shares was reduced to minority.

Company Appeal (AT) No. 181 of 2017 12

11. The impugned order has reproduced from the amended petition, what

reflected in the Annual Return of 2012, of the Respondent No. 1- Company

as under: -

Directors hip Pattern of the Respondent No. 1 Companti"

Si. No. Name of the Director Date of appointment 1. OnkarAnand 01.04.2009 2. Jitendra Anand 01.04.2009 3. Renu Anand 01.04.2009

Shareholdinq Pattern of the Respondent No. 1 Company

Si. No. Name Number of Shares held.

1. Hem Raj Singh 9600 2. Rakesh Yadav 100 3. Anurag Sharma 100 4. Lokesh Kumar Singh 100

5. OnkarAnand 746667

6. Renu Anand 12500

7. Jitendra Anand 11733

8. Rahui Anand 10000

9. Bhavna Anand 10000 Total 800800"

The Appellant also pointed out the Directorship and shareholding

pattern as was appearing in the Annual Return of R- 1 Company on

Company Appeal (AT) No. 181 of 2017 13

30.09.2 006 (which would be just after the subsequent order which has been

passed on 11.09.2007) as under (which also is reproduced in Impugned

Order):-

"DIRECTORSHIP PATTERN OF THE COMPANY AS ON 30.09.2006"

Si. Name Designation Date of Date of No. Appointment Ceasing 1. Baldev Singh Kang Director 15.04.2002 01.09.04 2. Hem Raj Singh Director 15.04.2002 31.05.06

Managing 01.09.2004 31.05.06 Director 3. Mrs. Ravinder Kaur Director 15.04.2002 Kang 4. Ms. Deep Kamal Director 26. 07.2004 31.05.06 5. Rajesh Bhardwaj Director 08.04.2006 6. Baldev Singh Kang Director 05.05.2006 7. Jugnu Kang Director 31.05.2006 8. Jai Inder Singh Chopra Director 31.05.2006

SHAREHOLDING PATTERN OF THE COMPANY AS ON 30.9.2006

Si. Name Type of No. of Amt. Per No. Share Share Share

1. Baldev Singh Kang 1 19700 10

2. Mrs. Ravinder Kaur Kang 1 20000 10

3. Hem Raj Singh 1 9600 10

4. Rakesh Yadav 1 100 10

5. Anurag Sharma 1 100 10

6. Jyoti Kumar Singh 1 100 10

7. Lokesh Kumar Singh 1 100 10

Company Appeal (AT) No. 181 of 2017 14

8. Ms. Jugnu Kang 1 100 10

9. Rajesh Bhardwaj 1 100 10

10. Jai Inder Singh Chopra 1 100 10"

12. It would be appropriate here to reproduce the status quo order which

was passed by Company Law Board on 11.09.2007. The relevant portion is

as under:-

"Petition mentioned and interim relief sought exparte.

In facts of this case, I direct the Company/Respondents to maintain

status quo as on date in regard to the immovable properties of the

Company as also shareholding in and of the company"

13. If the above charts, from the two different Annual Returns pointed

out by the Appellant are considered, it is obvious that in spite of the status

quo orders Directors have changed and shareholding in the company has

been considerably changed. Not only the Respondent Nos. 2 to 4 transferred

their shares to added Respondents but the shareholding in the company

was also increased. The charts show control of the Company itself has

changed in the face of status quo orders.

14. It is argued by the learned Counsel for the added Respondents that

the Appellant and original Respondents had entered into agreement and in

view of that the Contempt Petition filed in the High Court came to be

disposed. We find that even if subsequently the Appellant and original

Respondents entered into agreement which lead to withdrawal of the

Company Appeal (AT) No. 181 of 2017 15

Contempt Petition filed in the High Court, by that itself the contempt does

not get purged and illegal act committed in violation of the status quo order

referred above, cannot be ignored. Looking to the disputes between the

parties, as raised before us, it is obvious that now even the original

Respondent Nos. 2 to 4 and added Respondents are quarrelling between

them and the Appellant has been struggling since the time of filing of the

Company Petition to get back his rights and there is a state of chaos. The

impugned order at para 14.3.2.3 shows that the learned NCLT observed as

under:-

nder:-

"14.3.2.3 The original Respondents have themselves filed a copy of

the MoU between R-2 and R-5 dated 01.4.2009 (reproduced at para

8.5 above) vide which it is stated that the 2nd Party (R-5) had offered to

purchase the shareholding of R-2 and R-3, immovable property, licence

and bottling plant of NDL at a cost of Rs. 28 crores. As per this

agreement, a sum of Rs. 15 lacs was accepted by R-2 as token money,

the balance amount was to be paid on fulfilment of certain conditions.

The condition of final conclusion of the contract is that "the contract

shall be concluded as soon as the order of status quo is vacated by the

Company Law Board, in the case filed by Hemraj or the case is finally

decided." It is seen that the original respondents did not file any suit

for specific performance of the alleged MoU dated 01.4.2009.

Subsequently, they have filed a suit in Civil Court at Chandigarh

against the new respondents."

Company Appeal (AT) No. 181 of 2017 16

(Emphasis supplied)

15. It is clear that the Respondents knew about the Status Quo Order

and pending petition. Still they entered into the MoU and took steps under

the same. Disputes inter say the two groups of Respondents later on arose

because it appears that original Respondents received a sum of Rs. 15 lakhs

as token money but as the balance was not paid, they have started denying

the transfer of shares to added Respondents while the added Respondents

appear to be in-charge of the affairs of the Company on the basis of their

claim that the original Respondents did transfer their shares. It appears

there has been enhancement in the shareholding also. The original

Respondent Nos. 2 to 4 violated the status quo orders and transferred their

shares to added Respondents and the added Respondents have continued

to act in violation of Status Quo Orders and there is change of shareholding

in spite of knowing that there was a Status Quo Order and the shares could

not have been transferred to them.

16. It is clear that original Respondents 2 to 4 acted in an oppressive

manner by taking advantage of the Appellant being sent behind the bars at

the instance of the Respondent No. 2 and brought about the EGM on

31.05.2006 and illegally removed the Appellant from the post of Managing

Director and in violation of the status quo order transferred their shares to

added Respondents and it has further transpired that the shareholding of

the Company itself has increased manifold and such acts of the

Respondents clearly show that there is a grave mismanagement with these

Company Appeal (AT) No. 181 of 2017 17

Respondents not paying any respect to the status quo order, which were

admittedly there. Para- 14.3.2.3 reproduced above from the impugned

order, where reference has been made to the agreement between these

respondents shows that in the MOU dated 01.04.2009, these Respondents

were aware that they need to tide over the status quo and the contract was

to be concluded when the status quo is vacated and the petition filed by the

Appellant is finally decided. It is surprising, however, that the learned NCLT

even after noticing such conduct of the Respondents did not hold that

Respondent Nos. 2 to 4 had committed acts of oppression and

mismanagement because of which now added Respondents are in control

of the affairs of the Company. We find that the Company Petition was

wrongly dismissed.

17. (A) For above reasons, the Appeal is allowed. The impugned

judgment and order passed by learned NCLT is quashed and set

aside.

(B) Transfer of shares to Respondent Nos. 5 to 9 by Respondent

Nos. 2 to 4 is quashed and set aside.

(C) Allotment of additional shares to Respondent Nos. 5 to 9 are

quashed and set aside. Consideration received by the Company for

allotment of shares, shall be refunded within 30 days without any

interest.

Company Appeal (AT) No. 181 of 2017 18

(D) The appointment of Respondent Nos. 5 to 7 as Directors of

Respondent No. 1- Company is quashed and set aside.

(E) Status quo as on 11.09.2007, when the order of status quo by

Company Law Board was passed, shall stand restored regarding

Directorship and shareholding pattern.

(F) Appeal is disposed accordingly. No orders as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

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

/ akc/

Company Appeal (AT) No. 181 of 2017