Smt. Suman Dhir And Other vs M/S. Gyan Ganga Educational Institute ...

IN THE MATTER OF: Before NCLT Before NCLAT

1. Smt Suman Dhir, 1st Petitioner 1st Appellant W/o Shri B.K. Dhir, (Original Petitioner) MIG 19, Indrawati Colony, Raipur, Chhattisgarh.

2. Shri Sarvesh Dhir, 2nd Petitioner 2nd Appellant S/o Shri B.K. Dhir, (Original Petitioner) R/o MIG 19, Indrawati Colony, Raipur, Chhattisgarh.

Versus

1. M/s Gyan Ganga Educational Institute, School Campus, Administrative Block, 10th KM, Vidhan Sabha Road, Vill Nardaha PO GSI (Mandhar) Raipur 493111 1st Respondent 1st Respondent Chhattisgarh.

2. Shri Sachin Shandilya, S/o Late Shri Upendra Shandilya, M-25, Rajiv Nagar, Distt. Raipur Chhattish Garh. 2nd Respondent 2nd Respondent

3. Smt Manju Shandilya, W/o Late Shri Upendra Shandilya,

Company Appeal (AT) No.44 of 2018 2

M-25, Rajiv Nagar, Distt. Raipur Chhattish Garh. 3rd Respondent 3rd Respondent

4. Smt Munish Singh, W/o Shri R.P. Singh, R/o 4, Golden House, Khamardih Shanker Nagar, Thana Civil Lines, Distt.Raipur Chhattisgarh. 4th Respondent 4th Respondent

5. Shri Ravinder Pal Singh, Shri R.P. Singh, R/o 4, Golden House, Khamardih Shanker Nagar, Thana Civil Lines, Distt. Raipur, Chhattisgarh. 5th Respondent 5th Respondent

6. Registrar of Companies, Madhya Pradesh & Chhattishgarh, A Block, 3rd Floor, Sanjay Complex Jayendra Ganj, Lashkar, Gwalior. 7th Respondent 6th Respondent

7. Smt Rajkumari Kanda, W/o Shri Mohan Lal Kanda, R/o MIG 19, Indrawati Colony, Raipur, Chhattisgarh. 3rd Petitioner 7th Respondent (Original Petitioner)

For Appellant: Ms Sweta Bharti, Mr John Thomas, Ms Sluchi Sejwar, Advocates.

For Respondents: ME. Jeevesh Nagrath, Mr Amit Amist and Mr.Chandan Dutta, Advocates.

Company Appeal (AT) No.44 of 2018 3

JUDGMENT

(20thAugust, 2019)

MR. BALVINDER SINGH, MEMBER (TECHNICAL)

The present appeal under Section 421 of the Companies Act, 2013 has

been preferred by the Appellants (Original Petitioner No.1 and 2) against the

judgement dated 06.11.2017 passed by the National Company Law Tribunal,

Mumbai Bench, Mumbai vide which the Tribunal has dismissed the Company

Petition No.109/2013 filed by the petitioners with costs of Rs.1 lakh payable

by each of the original petitioners. The present appeal has not been filed by

the Original Petitioner No.3 (who is arrayed as Respondent No.7 in

appeal).

BACKGROUND

2. The brief facts of the case are that the original petitioners filed a petition

under Sections 397, 398, 399, 402, 403, 406, 235, 237 and 247 read with

Section 111 of the Companies Act, 1956 against the acts of oppression, mis-

management, fraud, manipulation and falsification of Statutory and other

records by and in active connivance of the Respondents before the Company

Law Board, Mumbai Bench, Mumbai.

a) On 7.9.1991 an agreement was executed between 1st appellant, 5th

Respondent, 7th Respondent and one Late Upendra Shandilya for

incorporation and promotion of 1st respondent and the 1st respondent

was incorporated on 20.11.1991. The main object of the company was

to establish, run and promote educational institutions. It was decided

Company Appeal (AT) No.44 of 2018 4

and agreed in the aforesaid agreement that the four signatories will

have equal shares in the company.

b) 1st appellant contributed Rs.2 lakhs during the period April, 1992 to

November, 1997 and 2nd appellant contributed Rs.4 lakhs during the

period November, 1992 to May, 1996 towards the share subscription,

but the persons in control of the affairs of the Company have not

allotted shares to the 1st and 2nd appellants and the amount paid by the

petitioners was shown as "unsecured loan" in the balance sheet of the

company. The petitioners were allotted only 1500 equity shares while

the persons in control had taken a major portion of the shareholding of

the company.

c) The authorised share capital of the company till the year 1996 has been

25000 shares of Rs.10/- each out of which the original petitioners held

500 shares each (as per Company Petition). The paid up capital of the

Company as per Annual Accounts for the year 1996 has been

Rs.1,08,000/- in respect of 10800 shares.

d) The original petitioners were never provided copies of Balance Sheets or

other documents since incorporation inspite of repeated requests.

These were provided to the original petitioners only in 2003-04 when

these were produced before the Court.

e) On seeing the Balance Sheet and Annual Reports in 2003-04, it came

to the knowledge of the original petitioners that the Balance Sheet for

the year 1997 showed an abrupt increase in authorized share capital

by Rs.7,20,000/-. In the Balance Sheet, unauthorized increase in the

Company Appeal (AT) No.44 of 2018 5

'paid-up' share capital of the company was shown from Rs.1,08,000/-

to Rs.3,16,000/-

f) The original petitioners were never served with any notice of meeting in

which the authorised share capital was increased and also

subsequently when the paid up share capital was raised. The original

petitioners were never offered any shares of the company whereas

Clause 4 of the Articles of Association of the Company mandates that

any fresh issue of shares has to be offered to existing shareholders in

the ratio of their shareholding on the date of issue of said shares.

g) The original petitioners relied on the shareholdings of the company as

per the Annual return for the year 1996 on which date the issued,

subscribed and paid up share capital of the company has been

Rs.1,08,000/-.

h) Initially there were two directors at the time of incorporation of the

company. Later on Original Petitioner No.1 and 3 were appointed as

directors of the company. Original Petitioner No.3 had resigned from

her post of directorship on 3.3.1995.

i) Sh Laxmi Narayan Shandilya (since deceased) was appointed as

Additional Director of the Company on 1.6.1996 and 2nd Respondent

was also appointed as Additional Director on 11.6.1996.

j) Later on Original Petitioner No.1 received a communication that she

has been removed from the directorship of the company in AGM on

25.9.1998.

k) The original petitioners filed company petition in July, 2013 before the

NCLT alleging forged minutes of Meetings dated 1.6.1996 and

Company Appeal (AT) No.44 of 2018 6

11.6.1996; withholding and non-payment of director's remuneration;

withholding and non-payment of interest on contribution to original

petitioners; fraudulent and wrongful increase of authorised capital and

issue of fresh shares; allotment of 3200 shares as per Annual Return

dated 28.10.1992; Minutes of Meetings and Accounts have not been

permitted to be inspected nor copy of Accounts and other details of the

affairs of the Company furnished to the Original Petitioners; alteration

in the manner of operation of Bank Account of the Company; False and

void Meetings of the company; staging the removal of the Original

Petitioner No.1 and 3 from directorship of the company ; affairs of

company in wrong hands and prayed for the following relief:

i) The of Board of Directors of the Respondent Company be

suspended and an Administrator and/or Special Officers be

appointed to take charge over the management and affairs of the

Company and of all books, papers, records and documents of the

company as well as its assets and properties; or in the

Alternative

A Committee be constituted by this Hon'ble Bench consisting of

the representatives of the Petitioners and of the Respondent Nos

2 to 5 in equal numbers alongwith an independent

representative/chairman as appointed by this Hon'ble Board to

manage and control of the affairs of the Company on such terms

and conditions as this Hon'ble Board may deem fit and proper.

ii) Frame a scheme for management, administration and control of

the affairs of the Company vesting the same with the Petitioners

Company Appeal (AT) No.44 of 2018 7

on such terms and conditions as this Hon'ble Board may deem

fit.

iii) An order for appointment of inspectors or any to her competent

person or persons as inspectors to investigate the affairs of the

company under Section 235 of the Companies Act, 1956 and to

report thereon;

iv) A Special Officer/administrator be appointed to take charge,

custody and control of all books, records, accounts and

documents as also assets and properties of the Company with a

direction to make an inventory of the same and with further

direction to initial all such books, records and documents.

v) Declaration that the meetings of the board of directors of the

company dated 1.6.1996 and 11.6.1996 as stated above and all

meeting thereafter are illegal, null and void.

vi) Declaration that all resolutions passed in the meetings with

respect to appointments of Lt. Laxmi Narayan Shandilya, and

respondents No.2,3 and 4 referred hereinabove, as directors of

the company are illegal, null and void;

vii) Appropriate reliefs be passed under and in accordance with

section 402 and 403 of the Companies Act, 1956;

viii) Declaration that the appointment and status of the Petitioner

No.3 as director on the board of directors of the company

continues to subsist as she had never tendered any resignation

from here post;

Company Appeal (AT) No.44 of 2018 8

ix) Declaration that the resolution of the Company dated 25.9.2008

with respect to removal of the Petitioner No.1 from directorship of

the Company as null and void, since the same was only a coercive

conduct on the part of the Respondents towards stopping the

Petitioner No.1 from claiming her rights as shareholder, director

and creditor of the Company.

x) Declaration that petitioners have proprietary interest in all the

properties (moveable and immovable purchased/created out of

the funds of the Respondent No.1 company as envisaged in

Clause 11(e) of the Agreement dated 7.9.1991.

xi) Injunction directing that one of the persons belonging to

Petitioners group be made a compulsory signatory with respect

to all the bank account operations of the Company.

xii) Injunction directing the Respondents to pay to the Petitioners

No.1 and 3 the amount of the remuneration due to them in their

capacity as directors of the Company with pro-rata increment as

compared to other directors, together with interest @ 18% with

effect from the period the same fall due till the date of payment.

xiii) Declare that the issuance and allotment of the equity shares of

the Respondent No.1 company after the period from 31.3.1996,

to be null and void and thereby direct that the position of the

shareholding as on 31.3.1996 be restored.

xiv) Injunction restraining the Respondents from altering or changing

in any manner the shareholding of and in the Company;

Company Appeal (AT) No.44 of 2018 9

xv) Injunction restraining the Respondent Nos 2,3,4 and 5 and each

of them from dealing with or disposing of, encumbering or

alienating and/or transferring the assets and properties of the

company in any manner.

xvi) Injunction restraining the Respondent from using the funds of

the Company for the purpose of the instant litigation in any

manner whatsoever;

xvii) Injunction restraining the Company from dealing with the assets

of the company in any manner whatsoever;

xviii) Cancel and set aside the audit since the year 1996-97 to till date

and direct to conduct special audit and re-audit of Respondent

No.1 company.

xix) Cost of and incidental to this petition be paid by the Respondents;

xx) Direct Respondents 2 to 6 to bring back/plough diverse amount

siphoned and/or caused loss to the Respondent Company.

xxi) Such further order or orders and/or direction or directions be

given as to this Hon'ble Board may deem fit and proper;

l) Respondents filed its reply and stated that the company petition is

miserably and hopelessly time barred. Respondent stated that the

company petition is based on an agreement executed in the year 1991

and the petition has been filed after 22 years. Respondents further

stated that the original petitioners have filed various civil suits, criminal

proceedings against the respondents in different permutations and

combinations seeking relief based on the so called agreement and the

Company Appeal (AT) No.44 of 2018 10

sole purpose of multi-litigation is to force the Respondents to yield to

their lust for a compensation at their dictated terms.

m) Original Petitioner No.2 filed civil suit on 8th May, 2000 which was

unconditionally withdrawn later on. On 29th March, 2001, original

petitioners filed another suit seeking declarations based on the said

agreement and the said suit was dismissed with costs on 24th

September, 2012.

n) Original petitioners serviced a Notice under Section 434 of the

Companies Act, 1956, without claiming a specific amunt and

demanding bonus, dividends, shares, remuneration and interest on the

said amount besides accepting as a Creditor of the Company and to call

her on every meeting. Original petitioners filed CP No.6/2003 before

the High Court of Chhatisgarh for winding up of 1st respondent on the

ground as stated in the notice and later on it was withdrawn with liberty

to approach Company Law Board, if permissible.

o) Respondents stated that a number of suits and complaints have been

filed by the original petitioners either jointly or severally. Since all the

pending suits are based on the same cause of action as prayed in the

petition, the petition deserved to be struck down and dismissed with

costs on the ground of res judicata.

p) Respondents prayed that the original petitioners are not entitled to

choose different legal forums on the same cause of action; original

petitioners have not come to court with clean hands; Original

petitioners are causing harm to the interest of the Respondent No.1

company and further abusing the process of the Court by indulging in

Company Appeal (AT) No.44 of 2018 11

judicial process through coercive correspondence with various

authorities. The agreement which is between two groups of persons,

which cannot be agitated in Company Law Board and prayed that the

Company petition be dismissed.

Issues Framed

3. After hearing the parties the NCLT framed the following issues:

a) Whether the petition is hopelessly time barred and whether the

Limitation Act is applicable to the present case?

b) Whether the acts complained of in the Petition are continuous in

nature and the provisions of Section 397 and 309 of the Companies Act,

1956 are applicable or whether the Petition is dressed up to suit the

requirements of Sections 397 and 398 of the Companies Act 1956?

c) Whether a private agreement dated 7th September, 1991, which is

purportedly entered between the parties before the incorporation of the

Respondent Company, binds the Respondent Company?

d) Whether the Company Petition is barred by the principle of res

judicata?

e) Whether the Petitioners approached the Company Law Board with

clean hands and whether there was forum shopping to somehow get the

desired relief?

Company Appeal (AT) No.44 of 2018 12

4. After hearing the parties the NCLT decided the above issues in favour

of the Respondents and passed the order dated 6th November, 2017. Relevant

portion of the impugned order is as under:

"18. Taking into consideration the above reasoning, we are of the considered view that the Company Petition No.109/397- 398/CLB/MB/MAH/2013 is not maintainable on any count.

19. Application questioning the maintainability of the Company Petition is allowed on all the aforementioned counts. The Company Petition No.109/397-309/CLB/MB/MAH/2013 is, therefore, dismissed with costs of Rs.1,00,000/- (Rupees One lakh only) payable by each of the Petitioners."

5. Being aggrieved by the said impugned order dated 6.11.2017 the

Original Petitioner No.1 and 2 have preferred the present appeal seeking the

relief of quashing of impugned order dated 6.11.2017 and all other reliefs

which were sought in the Company Petition.

Case of the Appellant

6. The appellant stated that the 1st respondent company had been

incorporated pursuant to the agreement dated 07.09.1991 in consonance

with the terms and conditions of the agreement executed between appellant

and respondents The appellant stated that the NCLT, Mumbai has wrongly

held that the petitioners cannot seek to enforce the terms and conditions of

the agreement against the company and the directors which is not permissible

in law and has wrongly decided the issue in favour of the Respondents.

7. The appellant stated that 1st appellant contributed Rs. 2 lakh and 2nd

appellant contributed Rs.4 lakhs towards share subscription whereas the

same has been shown as unsecured loan in the Balance Sheet.

Company Appeal (AT) No.44 of 2018 13

8. The appellant stated that the NCLT has given a wrong finding that the

underlying the principles of res judicata is that a decision once rendered by a

competent authority on a matter in issue between the parties after a full

enquiry should not be permitted to be re-agitated. The appellant submitted

that the Civil Suit No.49A/1998 was dismissed on 21.12.2016 (Page543 of

the appeal). The appellant further stated that in the said order dated

21.12.2016 the Hon'ble Court had clearly held that the appellant had been

succeeded to prove that the appellant has been illegally removed from the

directorship of the 1st respondent company. The appellant further stated that

the Hon'ble Court rejected the claim only on the ground that Civil Court does

not have jurisdiction to try the present suit in view of Section 10 of the

Companies Act, 2013 (Page 539 of appeal). The appellant, therefore, stated

that the Civil Suit was decided on merit but was dismissed on the ground that

the jurisdiction of the Civil Court is barred by the provisions of the Companies

Act, 2013. Therefore, the appellant stated that it is a settled law that the

principles of res judicata are applicable only when a matter has been decided

by the competent court/tribunal on the basis of merits and not on any other

technical ground and stressed that in the present matter the decision of the

Civil Court was not based on merits.

9. The appellant stated that the appellant No.1 and Respondent No.7 had

been illegally removed from the directorship on 25.9.1998 and 3.3.1995 of 1st

Respondent respectively without any notice of the same to them. The

appellant further submitted that the Respondent have not shown any

Company Appeal (AT) No.44 of 2018 14

document pertaining to the resignation of 7th respondent and the respondent

only submitted that it was an oral resignation.

10. The appellant further stated that the Board Meetings dated 1.6.1996

and 11.6.1996 in which Late Sh Laxmi Narayan Shandilya was appointed as

Additional Director and 2nd respondent as the Managing Director of 1st

respondent are forged and fabricated documents and the same has been

confirmed in the forensic expert report wherein it has been recorded that the

said minutes of the Meeting were prepared after the alleged dates of Meetings.

11. The appellant stated that the increase in the authorized and paid up

share capital by the Respondents had been done without any knowledge or

consent of the 1st appellant and 7th respondent and was also in contravention

of Clause 4 of the Article of Association. The appellant further stated that

respondent had illegally allotted 22000 equity shares in the Board Meeting

dated 31.3.2010 which is again contrary to the Articles of Association of the

Company.

12. The appellant stated that the Chartered Accountant of 1st respondent

has reported that the appointment of 2nd respondent as Managing Director of

the 1st Respondent is not valid as no notices were received by the directors

regarding the Board Meeting. It is further stated that no documents were

produced by the Respondents showing the resignation of 7th respondent.

13. The appellant stated that the company petition cannot be dismissed on

the sole ground of delay and latches. The appellant stated that the delay

caused in filing of the company petition is not solely due to the fault of the

Company Appeal (AT) No.44 of 2018 15

appellants. It is further stated that it was the Respondent who had been time

and again filing several frivolous applications thereby delaying the matter. It

is stated that the 1st Class Judicial Magistrate, Raipur directed the

respondents to produce all the relevant record, however, the respondents did

not produce the same despite the order of the Court. The Respondents only

submitted the documents when the Hon'ble Supreme Court vide its order

dated 13.1.2014 directed the respondents to submit the record to Chartered

Accountant. It is stated by the appellant that in catena of judgements the

Courts has held that the delay is not an absolute bar for dismissing the

petition and the petition is not required to be dismissed when the delay has

been explained. At last the appellant stated that the appeal may be allowed

and the impugned order dated 6.11.2017 passed by the NCLT, Mumbai

Bench, Mumbai may be dismissed.

Reply of the Respondents

14. The Respondent No.1 to 3 stated that the said agreement dated

7.9.1991 has been never in their knowledge. The said Respondents further

stated that even if it is assumed though not admitted that the said agreement

existed, it being a private agreement between the individuals to which 1st

respondent was never a party to the said agreement. The said Respondents

further stated that none of the persons who were parties to the Agreement

were the founding Directors of the company (Minutes of Meeting dt.

25.11.1991-Page 8 of the application filed by Respondent for additional

documents). The said Respondents further stated that the said Agreement

dated 7.9.1991 is neither a part of the Article of Association of 1st respondent

Company Appeal (AT) No.44 of 2018 16

nor was it ratified or adopted at any time and the agreement is neither binding

for the operation and management of the affairs of the 1st respondent nor on

the shareholders or Directors of 1st respondent. The Respondents stated that

on the basis of the said agreement the 1st appellant and 7th respondent filed

criminal complaint alleging commission of offence of criminal breach of trust,

fraud and forgery against late Mr Laxmi Narayan Shandilya and 2nd, 3rd and

5th respondent. However, the Court discharged the 2nd and 3rd Respondent

from the alleged commission of the offence.

15. The Respondents stated that the appellants have categorically admitted

that the amount contributed by them was towards the unsecured loan. The

Respondent have further stated that the appellants have itself in para 7.3 of

the appeal (Page 12 of the appeal paper book) stated that it is the case of the

appellants that the amounts paid by them could be treated as unsecured loan.

The respondents further stated that in the agreement dated 7.9.1991, in

Clause 3 (Page 173 of paper book) it is mentioned that the amount paid could

be treated as an unsecured loan and on which interest shall be paid as

provided in Clause 10(e) (Page 175). The Respondents stated that the

appellants being aware of the same never challenged the same within the

period of limitation. The Respondents further stated that the Balance Sheet

and Annual Return are public documents and could have been obtained by

the appellants from the ROC. The Respondents stated that as there was no

grievance, therefore, the appellant never obtained the said documents. The

Respondents further stated that confirmation of accounts, ledger and balance

sheet of the 1st respondent are duly signed by the appellants acknowledging

Company Appeal (AT) No.44 of 2018 17

that the amounts paid by them is an unsecured loan as per the books of

account and on which they were receiving interest (Pages 26 to 29 of the

Application filed by Respondents for additional documents). The Respondents

further stated that the appellants had received interest @ 15% per annum on

unsecured loan. The Respondents stated that the 1st respondent was duly

deducting TDS on the interest paid on the unsecured loan given by the

appellants. The TDS was duly deposited with the Income Tax Department.

The Respondents has further stated that in the Suit No.49-A, it is stated by

the appellant that the appellants were to be given interest on deposits (Page

318, Para 18). The Respondent further stated that a sum of Rs.1 lac was

returned to 1st appellant vide Cheque No.173327 dated 17.4.1997 drawn on

Allahabad Bank (Page No.49 of Additional Documents) which was issued by

2nd Respondent as Managing Director.

16. The Respondents stated that the shares were allotted to outsiders and

Article 4 will not be binding. The Respondent further stated that 1st appellant

was personally present in the meeting dated 28.10.1992 in which it was

decided to allot shares of outsider and the 1st appellant never opposed the

same.

17. The Respondents stated that the notice was given to 1st appellant on

8.9.1998 to 1st appellant that she was going to be removed as a Director in

the AGM to be held on 25.9.1998. The resolution was also sent with the

notice. The Respondent stated that the 1st appellant was proposed to be

removed as Director due to her acts against the 1st respondent and making

defamatory and baseless allegations against 1st respondent. The Respondents

Company Appeal (AT) No.44 of 2018 18

further stated that the 1st appellant have himself mentioned in his Suit No.

49-A in para 16 and 19 (Page 318 and 319 of Appeal) that the appellant have

received notice that they were going to be removed as Directors in the AGM

on 25.9.1998. The Respondent stated that the suit was filed by the appellant

on 11.9.1998 (Page 481 of the appeal) against the notice dated 8.9.1998 for

removal of 1st appellant as director. The Respondent stated that the 1st

appellant was very well aware and receipt of the notice dated 8.9.1998. The

Respondent further stated that 1st appellant by her letter dated 15.9.1998

(Page 39 of Application filed by the Respondents for additional affidavit)

admitted that 1st appellant has received the notice dated 8.9.1998. The

Respondent stated that 1st respondent replied the letter of 1st appellant, vide

letter dated 23.9.1998 (Page 42 of application filed by the Respondent for

additional affidavit). The Respondent further stated that the decision of the

AGM was intimated to 1st appellant vide letter dated 30.9.1998 (Page 340 of

Appeal Paper Book).

18. The Respondent stated that 2nd respondent was appointed as Additional

Director in the Board Meeting dated 11.6.1996. The Respondent stated that

the Minutes of the Meeting dated 11.6.1996 were confirmed in the Meeting

held on 28.9.1996 (Page 45 of the Application filed by the Respondent for

additional documents) in which 1st appellant was present. The Respondent

further stated that in the notice dated 6.6.1998 (Page 50 of the Application

filed by the Respondents for additional documents) for convening the Meeting

of the 1st respondent on 13.6.1998, 1st appellant has signed as Director and

in the same very notice itself 2nd respondent name is also mentioned as a

Company Appeal (AT) No.44 of 2018 19

Director and 2nd respondent has also signed as Director. The Respondents

further stated that 2nd appellant filed a suit before the Court seeking inter alia

the relief of declaration that late Shri LN Shandiliya and 2nd respondent are

not validly appointed directors of the Company and 2nd appellant is entitled

to dividend and interest on the amount of shares. Respondent stated that 2nd

appellant filed an application to unconditionally withdraw the suit without

any liberty (Page 62 of the Application filed by the Respondents for additional

documents). The Respondents stated that by unconditionally withdrawing

the suit has abandoned all its claim and allegations against 2nd respondent

and 3rd respondent.

Arguments of the parties:

19. We have heard the parties and perused the record.

20. Learned counsel appearing on behalf of the appellant argued that 1st

respondent company had been incorporated pursuant to the agreement dated

07.09.1991 in consonance with the terms and conditions of the agreement

executed between appellant and respondents. Learned counsel further argued

that the Learned NCLT, Mumbai has wrongly held that the appellants cannot

seek to enforce the terms and conditions of the agreement against the

company and the directors which is not permissible in law and has wrongly

decided the issue in favour of the Respondents. Learned counsel for the

appellants argued that 1st appellant contributed Rs. 2 lakh and 2nd appellant

contributed Rs.4 lakhs towards share subscription whereas the same has

been shown as unsecured loan in the Balance Sheet. Learned counsel for the

appellant argued that the Learned NCLT has given a wrong finding that the

Company Appeal (AT) No.44 of 2018 20

underlying the principles of res judicata is that a decision once rendered by a

competent authority on a matter in issue between the parties after a full

enquiry should not be permitted to be re-agitated. The appellant argued that

the Civil Suit No.49A/1998 was dismissed on 21.12.2016 and the Learned

Court had held that the appellant had succeeded to prove that the appellant

has been illegally removed from the directorship of the 1st respondent

company, however, rejected the claim only on the ground that Civil Court does

not have jurisdiction to try the present suit in view of the Companies Act,

2013. The appellant, therefore, argued that the Civil Suit was decided on merit

but was dismissed on the ground that the jurisdiction of the Civil Court is

barred by the provisions of the Companies Act, 2013. Therefore, the appellant

argued that it is a settled law that the principles of res judicata are applicable

only when a matter has been decided by the competent court/tribunal on the

basis of merits and not on any other technical ground and stressed that in

the present matter the decision of the Civil Court was not based on merits.

21. Learned counsel appearing on behalf 1st to 3rd Respondent argued that

the said agreement dated 7.9.1991 has never been in their knowledge.

Respondents further argued that even if it is assumed though not admitted

that the said agreement existed, it being a private agreement between the

individuals to which 1st respondent was never a party to the said agreement.

Respondents further argued that none of the persons who were parties to the

Agreement were the founding Directors of the company (Minutes of Meeting

dt. 25.11.1991-Page 8 of the application filed by Respondent for additional

documents). Respondents further argued that Agreement is neither a part of

Company Appeal (AT) No.44 of 2018 21

the Article of Association of 1st respondent nor was it ratified or adopted at

any time and the agreement is neither binding for the operation and

management of the affairs of the 1st respondent nor on the shareholders or

Directors of 1st respondent. Respondents argued that on the basis of the said

agreement the 1st appellant and 7th respondent filed criminal complaint

alleging commission of offence of criminal breach of trust, fraud and forgery

against late Mr Laxmi Narayan Shandilya and 2nd, 3rd and 5th respondent.

However, the Court was not satisfied and discharged the 2nd and 3rd

Respondents from the alleged commission of the offence.

22. Respondents further argued that the appellants have categorically

admitted that the amount contributed by them was towards the unsecured

loan. Respondent argued that the appellants have itself in para 7.3 of the

appeal (Page 12 of the appeal paper book) stated that it is the case of the

appellants that the amounts paid by them could be treated as unsecured loan.

The respondents further stated that in the agreement dated 7.9.1991, in

Clause 3 (Page 173 of paper book) it is mentioned that the amount paid could

be treated as an unsecured loan and on which interest shall be paid as

provided in Clause 10(e) (Page 175). Respondents argued that the appellants

being aware of the same never challenged the same within the period of

limitation. Respondents further argued that the Balance Sheet and Annual

Return are public documents and could have been obtained by the appellants

from the ROC. Respondents argued that as there was no grievance, therefore,

the appellant never obtained the said documents. Respondents further argued

that confirmation of accounts, ledger and balance sheet of the 1st respondent

Company Appeal (AT) No.44 of 2018 22

are duly signed by the appellants acknowledging that the amounts paid by

them is an unsecured loan as per the books of account and on which they

were receiving interest (Pages 26 to 29 of the Application filed by Respondents

for additional documents). Respondents further argued that the appellants

had received interest @ 15% per annum on unsecured loan. The Respondents

stated that the 1st respondent was duly deducting TDS on the interest paid

on the unsecured loan given by the appellants. The TDS was duly deposited

with the Income Tax Department. The Respondents has further stated that

in the Suit No.49-A, it is stated by the appellant that the appellants were to

be given interest on deposits (Page 318, Para 18). The Respondent further

stated that a sum of Rs.1 lac was returned to 1st appellant vide Cheque

No.173327 dated 17.4.1997 drawn on Allahabad Bank (Page No.49 of

Additional Documents) which was issued by 2nd Respondent as Managing

Director.

23. We have heard the parties on these issues and we have also gone

through the Agreement dated 7th September, 1991 (Page No.173 to 176) and

noted that 1st to 3rd Respondent are not party to the agreement and it is a

private agreement between the four individual in which 1st appellant, 5th

Respondent, 7th Respondent and one Late Mr. Upendra Shandilya are

signatories. We noted that the Agreement has been executed on 7.9.1991

and the 1st respondent was incorporated subsequently on 28.11.1991. We

further noted that 7th respondent, who was one of the signatories to the

Agreement and was also one of original petitioners before Ld. NCLT in the

Company Petition, has not challenged the impugned order and we assume

Company Appeal (AT) No.44 of 2018 23

that she has no grievance with the impugned order. The company after

incorporation is regulated by the Memorandum of Association and Articles of

Association of the Company and not by any agreement prior to its

incorporation. It was for the interested parties to see that what is their

previous agreement and if it is suitably incorporated in the Articles of the

Association of the Company. Admittedly the terms and conditions of the

agreement are not part of the Articles of Association. Therefore, the reliance

on the agreement not being a part of the Articles of Association is not

permissible under the law. The appellants are seeking to enforce the

agreement for which this Appellate Tribunal cannot help them. The

appellants are seeking to enforce the terms and conditions of the Agreement

against 1st respondent and Directors, which is impermissible under Law.

24. We have noted that the appellants have contributed Rs.2 lakhs and

Rs.4 lakhs. We have gone through the para 7.3 of Appeal Paper Book (Page

12 of the Appeal) in which the appellants have stated "that necessary funds

for the above said objective had to be brought in by said four executants which

was to be shown in the accounts of the said Pvt Ltd company either as "capital

or as unsecured loan". We have further noted that in Clause (3) of the

Agreement dated 7.9.1991 (Page 173 of the Appeal Paper Book) it is also

written "funds so brought may be shown as capital of the aforesaid private

limited company and/or unsecured loans in the names of aforesaid person(s)"

and on which 15% interest shall be paid as provided in Clause10(e) of the

Agreement. We also noted that in the Suit No.49-A filed by the appellants

(Page No.312 at Para 7 and Page No.318 at Para No.18) the appellants have

Company Appeal (AT) No.44 of 2018 24

also demanded interest on deposit @ 18% p.a. We have seen the Balance

Sheet and Confirmation of Accounts (Pages 13 to 29 of additional documents

filed by Respondent). We have also seen Annexure F Page 49 of additional

documents filed by Respondent, which is a cheque No.173327 dated

17.4.1997 of Rs.100000/- favouring Original Petitioner No.1 Ms Suman Dhir.

On the basis of these documents we are of the view that the amount invested

by the appellants is shown as unsecured loan and the confirmation of

accounts are duly signed by 1st appellant and the appellants' accounts with

1st respondent are showing provision of interest on the amount invested and

the 1st respondent is deducting TDS on the said interest as per IT Act.

Similarly the confirmation of accounts are also signed by 2nd appellant. We

also noted that in para 2.b at Page 6 of Reply to Application the appellants

have themselves admitted that have also contributed unsecured loan to the

1st respondent company. We have also seen the copy of the cheque at Page 49

of Additional documents filed by Respondent which is in the name of 1st

appellant and noted that the said amount was returned to 1st appellant by

the Managing Director of 1st respondent. We further noted from Copy of

Accounts of Smt Suman Dhir filed by the Respondent (PageNo.23 and 24 of

Application on behalf of the Respondent No.1) and Copy of Accounts of Sh

Sarvesh Kumar filed by respondent (Page 31 and 32 of Application on behalf

of Respondent No.1) that a noting has been given on the bottom of these pages

which states that "The company has been discontinue the payment of

interest w.e.f. 1.4.1999." Respondents have not argued why they have

discontinued provision of interest on the unsecured loans of the appellants.

No reasons for non-payment/non-provision of interest on unsecured loan has

Company Appeal (AT) No.44 of 2018 25

been put forth. If any person provides an unsecured loan to the party it is

the bounden duty of the borrower not only to make a provision for the interest

but also make the actual payment for the same as well. Here in this case the

provision of interest has been made only for few years but have been

discontinued with effect from 1.4.1999. We also note that the appellant is

shareholder and has also invested handsome amount in the company. It has

not been brought on record that the company has been declaring dividend so

as to give return on the money invested. We have also noted that for the

amount invested neither he has been given any shares against its money nor

interest has been provided but it has been stopped and no payment of interest

has been provided. The appellants are litigating since long in the situation

where there is no reward for a person who has invested the money. On the

face of it, it looks to us that provision of interest has been discontinued solely

on the ground that the appellant is a shareholder of the company and has

raised a number of issues with the company.

25. Learned counsel appearing on behalf of the appellants argued that 1st

appellant and 7th respondent had been illegally removed from the directorship

of 1st respondent without any notice to them. Learned counsel further argued

that the Respondent have not shown any document pertaining to the

resignation of 7th respondent and the respondents only submitted that it was

an oral resignation.

26. Learned counsel appearing on behalf of the Respondent argued that the

Notice was given to 1st appellant on 8.9.1998 (Page 176 of short Reply) that

she was going to be removed as Director in the AGM to be held on 25.9.1998

Company Appeal (AT) No.44 of 2018 26

(Page 171 of short reply). The Members resolution was also sent with the

Notice.

27. We have heard the parties and have gone through the record. We found

that the notice dated 8.9.1998 (Page 176 and 177) was duly served to 1st

appellant as the postal acknowledgement is also there. Further we also noted

from para 16 and 19 of Suit No.49-A filed by the appellant (Page No.318 and

319 of the Appeal) in which 1st appellant has admitted that appellant have

received notice that they were going to be removed as Directors in the AGM

on 25.9.1998. In the face of the evidence available on record it cannot be said

that 1st appellant has been removed without a due notice and hence her

contention that she has been illegally removed has no merit. As regards the

removal of 7th respondent is concerned, the said 7th respondent has not

challenged the impugned order and we presume that 7th respondent is

satisfied with the impugned order.

28. Learned counsel appearing on behalf of appellant argued that Board

Meetings dated 1.6.1996 and 11.6.1996 in which Late Sh Laxmi Narayan

Shandilya was appointed as Additional Director and 2nd respondent as the

Managing Director are forged and fabricated documents and the same has

been confirmed in the forensic expert report wherein it has been recorded that

the said minutes of the Meeting were prepared after the alleged dates.

29. Learned counsel appearing on behalf of the Respondents argued that

the minutes of the Meeting dated 11.6.1996 were confirmed in the Meeting

held on 28.9.1996. Learned counsel further argued that 1st appellant was

present in the Meeting held on 28.9.1996. To prov`e this learned counsel for

Company Appeal (AT) No.44 of 2018 27

the Respondent has drawn the attention of the Appellate Tribunal to Page

No.45 (Annexure E of the Respondents' additional documents). Learned

Counsel for the Respondent further argued that in the notice dated 6.6.1998

for convening Meeting on 13.6.1998, 1st appellant has signed as Director and

on the same notice 2nd Respondent has also signed as Director and the notice

has been signed by Mr. L.N. Shandilya as Chairman.

30. We have heard the parties on this issue and perused the record. It is

natural that the notice for the Meeting is issued before the date of the Meeting

and the Minutes of the Meeting are prepared either on the date of Meeting or

on subsequent date and normally confirmed in the next Meeting. Even the

Expert Forensic Report stated that the Minutes of the Meeting have been

prepared after alleged dates (date of the Meeting). We do not see any

fundamental flaw as they are normally prepared after Meeting is over. On

going through the documents argued by the Learned counsel for Respondent,

we noted that 1st appellant was very well aware that 2nd respondent has been

appointed on the basis of the documents placed before us.

31. We have also noted that the parties have been in litigation for a long

period. It is also noted that a number of cases have been instituted by

appellant group as well as the respondent group. The very fact that there

have been a lot of litigation resulting in removal of directors of petitioners

group (before CLB/NCLT), it will be detrimental to the interest of the company

if litigation is continued on one pretext or other either by one group or the

other. To save the company from litigating shareholders divided in groups

Company Appeal (AT) No.44 of 2018 28

and appellant group being too small in minority (holding 500 shares each), it

would be desirable that an exit route is provided to the appellants.

CONCLUSION

32. From the above we noted that the allegations of the appellants are

pertaining to and arising out of the Agreement dated 7.9.1991. Appellants

under the garb of the petition before NCLT and appeal before Appellate

Tribunal are seeking specific performance of the Agreement dated 7.9.1991.

We also noted that the appellants have launched various litigations before the

various forums and have not succeeded. Since the dispute is contractual in

nature, Company Petition under Section 397 and 398 was not maintainable.

However, we noted that the original petitioners are holding 500 shares each

and 1st and 2nd appellant have infused Rs. 2 lakhs and Rs.4 lakhs respectively.

We noted that Rs.1 lakh has been returned to 1st appellant vide cheque

No.173327 dated 17.4.1997 drawn on Allahabad Bank favouring Ms Suman

Dhir. We have noted that it is a fact that when the shares were allotted after

1992, the money invested by the 1st and 2nd appellants were lying in the books

of the 1st respondent. That the issue whether the allotment should have been

done or so as per the appellant contention is too old to be adjudicated now.

It is admitted by the Respondent that the amount infused by the

appellants is unsecure loan on which the Respondent were paying interest @

15% p.a. and TDS was also being deducted. Further the documents placed

before us by the Respondent establishes that the Respondent has

discontinued payment of interest on the contractual rate to the appellants for

which no reasons has been given by the Respondents. On the face of it, it

Company Appeal (AT) No.44 of 2018 29

looks to us that the provision of interest has been discontinued solely on the

ground that the appellant is a shareholder of the company and has raised

number of issues to the company. In these circumstances the appellants are

entitled for interest on their investment made as unsecured loan to 1st

respondent. Further we observe that litigation is going on between the parties

since long which is not in the interest of the 1st respondent company and it

affects economy which hurts public interest. We deem it appropriate that an

exit route may be provided to the 1st and 2nd appellant.

ORDER

33. For above reasons and observations, the impugned order dated

6.11.2017 is upheld with the following directions:-

i) 1st Respondents will pay the appellants their balance of unsecured loan with

interest at agreed rate which Respondents have discontinued providing since

1.4.1999 within one month of this order.

ii) The Respondent No.1 company will get the price of each share determined

by registered valuer who will act as per Section 247 of the Companies Act,

2013. Respondent No. 1 Company will ensure compliance within one month

of the date of this Judgement.

iii) After getting report of Registered Valuer, Board of Directors of 1st

Respondent will offer shares of 1st and 2nd appellant to the existing

shareholders adopting procedure akin to Section 62 of the Companies Act,

2013 within one month of the offer given by the company. In case none of the

existing shareholders purchase the shares of 1st and 2nd appellant, in that

Company Appeal (AT) No.44 of 2018 30

event 1st respondent will purchase the shares of 1st and 2nd appellant within

one month thereafter.

iv) There shall be no order as to costs.

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

New Delhi

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Company Appeal (AT) No.44 of 2018