Solar Industries India Limited vs Kailash Chandra Nuwal

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal(AT) No. 29 of 2021 IN THE MATTER OF: SOLAR INDUSTRIES INDIA LTD. A listed Company incorporated Under the Companies Act, 1956, Having its registered office at Solar House, 14, Kachimet, Amravati Road, Nagpur - 440 023 ...Appellant Versus

KAILASH' CHANDRA NUWAL Promoter Having his address at: C-14, Shastri Nagar, Bhilwara ...Respondent No. 1 INDRA KAILASHCHANDRA NUWAL Promoter and Wife of KC Nuwal Having her address at: C-14, Shastri Nagar, Bhilwara ...Respondent No. 2 RAHUL NUWAL Promoter and Son of KC Nuwal Having his address at: C-14, Shastri Nagar, Bhilwara ...Respondent No. 3 ECONOMIC EXPLOSIVES LIMITED An unlisted company incorporated Under the companies act, 1956, having Its registered office at Solar House, 14, Kachimet, Amravati Road, Nagpur 440 023 ...Respondent No. 4 SATYANARAYAN NANDLALJI NUWAL Promoter, Chairman and Executive Director Residing at Plot No. 37, Kachipura-Ramdaspeth Nagpur 440 010 ...Respondent No. 5

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MANISH SATYANARAYAN NUWAL Promoter, Son of SN Nuwal Managing Director, Residing at Plot No. 37, Kachipura-Ramdaspeth Nagpur 440 010 ...Respondent No. 6 SEEMA MANISH NUWAL Promoter, Wife of Manish Nuwal, Residing at Plot No. 37, Kachipura-Ramdaspeth Nagpur 440 010 ...Respondent No. 7 LEELA DEVI SATYANARAYAN NUWAL Wife of SN Nuwal, Promoter, Residing at Plot No. 37, Kachipura-Ramdaspeth Nagpur 440 010 ...Respondent No. 8 SURESH MENON Executive Director, Residing at Plot No. 11, Flat No. 603, Dutta Prayag Apartments Laxmi Nagar, Nagpur 440022 ...Respondent No. 9 ANIL KUMAR JAIN Executive Director Residing at Shantam 13, Income Tax Colony, Cement Road, Pratap Nagar, Nagpur 440022 ...Respondent No. 10 SUNIL SRIVASTAV Non-Executive Independent Director Residing at Flat No. 1903, Tower A- Raheja Ridgewood, Shree Ram Mandir Road, Goregaon East Mumbai 40063 ...Respondent No. 11 DILIP PATEL

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Non-Executor Director Residing at D-70, Fifth Floor Bina Apartments, Sir M.V Road, Andheri (east) Mumbai 400069 ...Respondent No. 12 AJAI NIGAM Non-Executive Independent Director Residing at Flat No. 2020, Nirmal Puja Apartments, 159, Shivaji Nagar, Nagpur 440010 ...Respondent No. 13 AMRENDRA VERMA Non-Executive Independent Director Residing at 314/315 Vision Galaxy Apartment, Ramjaipal Path, Aparanjitha Bank Colony, Rupaspur Patna 801503 ...Respondent No. 14 MADHU VIJ Former Non-Executive Independent Director Solar House, 14, Kachimet Amaravati Road, Nagpur 440 023 ...Respondent No. 15 KHUSHBOO PASARI Company Secretary, Solar House, 14, Kachimet Amaravati Road, Nagpur 440 023 ...Respondent No. 16 Present: For Appellant: Dr. Abhishek Manu Singhvi and Mr. S.N. Mookherjee, Sr. Advocate with Mr. Gopal Sawal and Ms. Anshula Laroiya Advocates For Respondent: Mr. Kapil Sibal, Sr. Adv. & Mr. Krishnan Venugopal, Sr. Adv. with Mr. Sunil Jain, Ms. Parul Shukla, Mr. Rahul Goel, Advocates for R-1. Mr. Krishnan Venugopal, Sr. Adv. with Mr. MP Srivignesh and Ms. Saudamini Sharma, Advocates for R-2. Mr. P Nagesh, Sr. Adv. with Mr. Nitish Sharma, Ms. Namrata Raj, Mr. Syed Firduaus Alvi, Advocates for R-3. Mr. Arun Kathpalia, Sr. Advocate with Mr. V.P. Singh, Mr. Aditya Jalan, Mr. Atul N., Ms. Simran

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Bhat, Mr. Arnab Ray, Mr. Anant Narayan Misra, Ms. Ninaee Deshmukh, Advocates for R 5 & 6.

JUDGMENT

Jarat Kumar Jain: J.

The Appeal is filed against the order dated 09.02.2021 passed by

National Company Law Tribunal, Mumbai (the Tribunal). Whereby the

Tribunal has allowed CA No. 1054/MB/2020 in CP No. 1069/MB/2020 filed

by R-1 to R-3 and issued an order of injunction against the Appellant and R-

4 to R-16 not to implement the notice dated 30.07.2020 and interfere the R-

1 (K C Nuwal) from acting as Director and Vice Chairman of the Appellant

Company.

2. Brief and relevant facts of this case are that Solar Industries India

Ltd. (SIIL) (Appellant) was co-founded by Late Mr. Nandlal Nuwal and his

two sons i.e. K C Nuwal and S N Nuwal on 24.02.1995 under the Companies

Act, 1956. Late Mr. Nandlal Nuwal and Mrs. Sohan Devi Nuwal (spouse of

Nandlal Nuwal) and Kailash Chandra Nuwal his wife Indra, Satyanarayan

and his son Manish were initial subscribers to the memorandum of

association of Company each family member holding 400 shares. Economic

Explosive Ltd. (EEL) (Respondent No. 4) was incorporated by the same co-

founders on 16.08.1995 under the Companies Act, 1956.

3. Indra Nuwal (Respondent No. 2) and Rahul Nuwal (Respondent No. 3)

are wife and son of K C Nuwal (Respondent No. 1). They are collectively part

of the K C Nuwal Group. Leela Devi (Respondent No. 8) (wife) Manish

(Respondent No. 6) son and Seema (Respondent No. 7) daughter in law of SN

Nuwal, their family group is known as SN Nuwal Group. The Appellant

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Company is a quasi-partnership between two families i.e. K.C. Nuwal Group

holds 29.28% and S.N. Nuwal Group holds 43.88% of shares of the

Appellant Company remaining 26.84% are owned by the general public. K C

Nuwal (Respondent No. 1) has been shareholder of the Appellant Company

since its incorporation and was formerly appointed as full time Director on

the board of the Appellant Company in October, 2005 and thereafter as Vice

Chairman of the board of Directors and served as whole time Director for

nearly 15 years.

4. There was a family settlement dated 28.03.2009 wherein all the assets

of the family including the shareholdings in the Group Companies were

settled in the following manner:-

(1) S N Nuwal and his wife Leela Devi were allotted 20% shares in the assets of the family.

(2) K C Nuwal and his wife and son together were allotted 40% shares in the assets of the family.

(3) Manish and Seema (son and daughter in law) of S N Nuwal were allotted 40% shares in the assets of the family.

5. According to K C Nuwal Group, the conduct of S N Nuwal Group in

administering the affairs of group Companies lacks in transparency and

probity which has resulted in violation of the proprietary right of the K C

Nuwal Group including the right to participate in the day to day

management of the group Companies. This has caused irreparable loss and

grave prejudice to the K C Nuwal Group, which cannot be compensated in

terms of money.

6. K C Nuwal Group seeks immediate attention and indulgence of the

Tribunal, as the majority shareholders of the group Companies are trying to

perpetuate serious acts of oppression and mismanagement and to prevent

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serious damage to corporate substance and financials of the group

Companies. The ouster of K CNuwal in the early hours of 31.07.2020, just

few hours before the board meeting of Appellant Company was to stop KC

Nuwal from raising substantial issues of mismanagement, unlawful and

unethical practices, non-compliance, frauds and action against the interest

of Appellant Company and its stakeholders. It is also stated that the efforts

are being made to dismantle the present trade division, of which K C Nuwal

is in charge, operating from Bhilwara, Rajasthan by raising frivolous

allegations. It is also stated that Khushboo Pasari who is the Company

Secretary has to ensure that the Company compiles with the applicable

secretarial standards and assist the board of Directors in adhering to

requisite standards of corporate governance. However, she completely

abdicated, at the behest and to the undue favour of S N Nuwal Group.

7. The controversy arose when Khushboo Pasari/CS (Respondent No. 16)

sent an email on 31.07.2020 to K C Nuwal enclosing a letter dated

30.07.2020 addressed to K C Nuwal stating that he has automatically

vacated the office w.e.f. 07.11.2019 as he failed to disclosed his interest in

AGT in proper format and at the board meeting of Appellant Company held

on 07.11.2019. Therefore, requested K C Nuwal not to function as Director

of Appellant Company or hold down to others that he continued to be a

Director of Appellant Company. It was also stated that the Appellant

Company shall not allow K C Nuwal to attend the future board meeting held

on 31.07.2020 and in the event K C Nuwal continued to act as Director of

Appellant Company it may result in appropriate consequences under the

Companies Act, 2013 (the Act) and Securities and Exchange Board of India

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(Listing Obligations and Discloser Requirements) Regulation, 2015.The said

letter is as below:

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8. Khushuboo Pasari on 30.07.2020 also sent letter to the Executive

Director (Listing Department) of Bombay Stock Exchange Limited and

National Stock Exchange of India Limited informing the cessation of office by

K C Nuwal as Executive Director and Vice Chairman of the Appellant

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Company. It was also stated that K C Nuwal vacated the office on account of

operation of law arising due to failure to make appropriate disclosure.

9. AG Technologies Pvt. Ltd. (AGT) was incorporated by K C Nuwal and

his two sons Rahul and Rahil. K C Nuwal acquired 31,76,751 shares of AG

Technologies Pvt. Ltd. on 02.05.2019and became a Director thereof. The

meeting of board of Director of Appellant Company held on 07.11.2019 took

a decision to hire on rent the premises owned by AGT for office of the

Appellant Company. It is admitted fact that in the board meeting dated

07.11.2019 K C Nuwal was not present.

10. K C Nuwal Group filed the Petition against the Appellant Company,

Economic Explosive Ltd. (EEL), S N Group and other Directors and

Company Secretary Khusboo Pasari under Section 241 and 242 of the Act.

11. Subsequently, K C Nuwal Group has filed Company Application No.

1054/(MB)/2020 for many interim reliefs. However, they have pressed two

following reliefs:-

"A1. That Respondents by themselves or through their servants officers and agents be restrained by an order of injunction from acting in furtherance of or implementation of or pursuant of the notice dated 30.07.2020 and intimation of vacation of office made by R1 to the BSE and NSE dated 30.07.2020.

A2. That Respondents by themselves and/or through their servants officers and agents be restrained from interfering and obstructing the Applicant No. 1 from acting as Director and Vice Chairman of R1 Company."

12. Ld. Tribunal after hearing Ld. Counsels for the parties allowed the

aforesaid prayer and remaining prayers are rejected as not pressed.

13. Being aggrieved with this order, the Appellant Company has filed this

Appeal.

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14. Ld. Sr. Counsel for the Appellant submitted that Ld. Tribunal has

granted interim relief which is sought in final reliefs, at the interim stage

final relief cannot be granted. The intention of the K C Nuwal Group behind

initiating the action under Section 241 and 242 of the Act is to restore K C

Nuwal's position as a director of the Appellant Company. The Tribunal failed

to appreciate that K C Nuwal Group has not made out a case of oppression

of minority shareholders by a majority shareholders in the management of

Company's affairs. The grievance raised by K C Nuwal Group as well as the

reliefs sought does not affect thier proprietary rights as shareholder of the

Appellant Company. Sections 241 and 242 of the Act do not specifically

confer the power of reinstatement such a power to reinstate cannot be

implied or inferred from any of the powers specifically conferred and that

even removal from Directorship can never be held to be an oppressive or

prejudicial conduct as held by Hon'ble Supreme court in the case of Tata

Consultancy Services Limited VS. Cyrus Investments Pvt. Ltd. & Ors. 2021

SCC Online SC 272.

15. Ld. Sr. Counsel for the Appellant further submitted that the Tribunal

while deferring the issue of quasi partnership concluded that K C Nuwal's

directorship is linked with the shareholding. In the absence of any

directorship right under the Article of Association or any inter se agreement,

the Tribunal could not have come to prima facie finding and passed the

impugned order without deciding that the Appellant is a quasi-partnership,

no relief could have been granted directing reinstatement of K C Nuwal as a

Director and Vice Chairman of the Company.

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16. It is further submitted that the Tribunal failed to appreciate that K C

Nuwal's vacation of his office as a director is attributable to his own failure

to disclose his interest in AGT and that such cessation of Directorship due

to operation of law cannot be said to prejudice the interest of any

shareholder. Such cessation of office was not on account of with any act or

omission of Appellant or other Respondents, but automatic by the operation

of Section 184 r/w Section 167 of the Act. K C Nuwal failed to comply with

his duty under Section 184 of the Act, to forthwith disclose his interest in

AGT. He was well aware of his obligation to disclose his interest in other

entities in the prescribed format as was duly informed at the board meeting

held on 26.05.2014.

17. Ld. Sr. Counsel for the Appellant submitted that K C Nuwal

approached the Tribunal seeking interim reliefs, whereas K C Nuwal had

already ceased to a Director of the Appellant Company. Further, after a

period of 5 months the Tribunal passed the impugned order wrongly

reinstating K C Nuwal as the Director of the Appellant during the pendency

of the proceedings. The impugned order has effected status quo ante and

not status quo i.e. reverted the factual matrix to a position 7 months prior to

the date of impugned order, when the Appellant informed K C Nuwal of the

automatic vacation of his office as director and 1 month prior to even filing

of the Company Petition. This tantamount to passing a mandatory

injunction at the interim stage. Such a relief can only be granted to restore

status quo and not establish a new set of things differing from the state,

which existed on the date of institution of the suit. Status quo ante without

even coming into a finding that K C Nuwal Group has made out a strong

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prima facie case of a higher standard than required for a prohibitory

injunction, balance of convenience is in their favour and interim order

necessary to prevent irreparable or serious injury which could not be

compensated in terms of money. In such circumstances, the impugned

order is in clear contradiction of the settled position of law and has been

passed without even arriving at a prima facie finding as regards the issue of

whether the Appellant is a quasi partnership and K C Nuwal's breach of

Section 184 of the Act, is liable to be set aside.

18. Per contra, Ld. Sr. Counsel for the Respondent No. 1 (K C Nuwal)

submitted that the Appellant has failed to challenge or rebut any of the

findings of the Ld. Tribunal that Respondent No. 16/Company Secretary

(CS) had informed about the shareholding of Respondent No. 1 (K C Nuwal)

in AGT. The Company Secretary was required to ensure due compliance

under Section 184 of the Act and for the purpose help and guide K C Nuwal

in filing the proper form. A prima facie case is made out by K C Nuwal

Group and balance of convenience rests in their favour. In the absence of

any challenge to these crucial findings of the Tribunal there is a deemed

admission of the same by the Appellant and Respondent No. 5 to

Respondent No. 16.

19. Ld. Sr. Counsel for the Respondent No. 1 further submitted that the

Appellant misled this Appellate Tribunal to obtain a stay on the impugned

order by stating that the Company Petition was filed after lapse of 9 months

and advanced notice of this Appeal has been served on the Respondents.

Actually, the Respondent No. 1 was ousted at the mid night intervening

between 30.07.2020 and 31.07.2020 with unilaterally retrospective effect

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from 07.11.2019 vide a letter from the Respondent No. 16/CS then the K C

Nuwal Group has filed Company Petition on 29.08.2020 i.e. within a month.

It is also submitted that the Appellant has misled the Tribunal that the K C

Nuwal is not the Executive Director of the Appellant Company since

07.11.2019 and has vacated the office. The Appellant made a false

statement before this Appellate Tribunal to suggest that Respondent No. 1

was properly served with copy of the Appeal while it was not so served. A

defective copy of the Appeal vide email dated 22.02.2021 at 05:47 PM was

served on the Respondents and before passing ex-parte order by this

Appellate Tribunal on 25.02.2021, the Appellant did not serve corrected

copy of the Appeal. Therefore, the Respondent No. 1 at the time of passing

interim order could not appear before this Appellate Tribunal.

20. Ld. Sr. Counsel for the Respondent No. 1 submitted that the Appellant

has approached this Appellate Tribunal with unclean hands as the

Appellant has concealed and suppressed material facts, key documents and

annexures which were integral part of the pleadings and submissions made

by the parties before the Tribunal. It is settled law that the parties

approaching a court must present before it entire record and must not

fraudulently present only those documents which favour their own cause.

21. Ld. Sr. Counsel for the Respondent No. 1 submitted that K C Nuwal

(R1) acquired interest in AGT after seeking due

approval/clearance/permission from SN Nuwal Group (R5 and R6) they

categorically offered to grant monies to Respondent No. 1/ K C Nuwal

Group to acquire stake in the IT Company/AGT. The Respondent No. 1 on

several occasions informed/updated the Appellant and its official, Khushboo

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Pasari (R16) and all directors including S N Nuwal Group about his interest

in AGT. In support of the argument he drew our attention towards the

correspondence exchanged between the parties regarding K C Nuwal interest

in AGT.

22. It is further submitted that disclosure was made even before K C

Nuwal acquired interest in AGT. For this, referred email dated 17.01.2019

wherein K C Nuwal informed S N Nuwal and Manish Nuwal regarding his

intention to acquire IT Company and they offered to provide funds from the

family account itself. It is also submitted that on 22.06.2020, S N Nuwal

wrote to K C Nuwal acknowledging that in May, 2019 K C Nuwal Group

acquired AGT, in which K C Nuwal Group are majority shareholders and on

the same day S N Nuwal wrote to all directors of the Appellant that in May,

2019 K C Nuwal Group acquired AGT. It clearly establishes the concealment

of the fact in respect of knowledge of K C Nuwal's interest in AGT. The

Appellant and the R-5 to R-16 have not refuted to being aware of K C

Nuwal's disclosure prior to 29.07.2020 in their rejoinder arguments or

refuting existence of email dated 22.06.2020. Ld. Sr. Counsel for the

Respondent No. 1 cited the Judgment of Delhi High Court in the case of Ravi

Raj Gupta & Ors. Vs. Hans Raj Gupta & Co. Pvt. Ltd. & Ors. (2009) SCC

Online Del 381 Para 6, 8 and Suryakant Gupta Vs. Raja Ram Com Products

(Punjab) Ltd. (2001) SCC Online CLB 5 Para 23. In these Judgments it is

held that if the directors who also holds majority shareholding are aware of

the interest of each other, the question of further disclosure does not arise.

23. K C Nuwal duly informed Khushboo Pasari/CS about his interest in

AGT on 03.05.2019 and requested her to inform the RoC and others. On

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28.06.2019 the shareholding structure in AGT was communicated to

Khushboo Pasari/CS in writing. Khushboo Pasari/CS vide email dated

10.04.2020, 22.04.2020, 28.04.2020 and 14.05.2020 categorically stated

that AGT is owned and controlled by K C Nuwal Group. It is also to be noted

that Khushboo Pasari vide email dated 10.04.2020 sent a draft letter and

MBP-1 to K C Nuwal for signatures, categorically mentioning the name of

AGT. No affidavit has been filed by Khushboo Pasari/CS denying any of the

above events. It is also to be noted that the findings in para 63 of the

impugned order are not challenged by Khushboo Pasari. She has been

grossly remiss in her duties and has in fact ignored several requests made

by K C Nuwal to make the disclosure of his interest in AGT to relevant

authorities.

24. It is submitted that it is not a case of the Appellant that K C Nuwal

has not disclosed his interest in AGT. But admittedly, Appellant's case is

that the disclosure is not made in the prescribed format. It is categorically

stated that the non-disclosure by the K C Nuwal of his shareholding and

directorship in AGT was not in requisite form. Emails exchanges between

the parties clearly established disclosure of interest in AGT.

25. Ld. Sr. Counsel for the Respondent No. 1 submitted that Section 184

(1) requires disclosure of a director's interest in a prescribed format at the

first meeting of the board after the acquisition of interest in another entity

by a director. In the present case, AGT was acquired on 02.05.2019, an

intimation with respect to the same was sent to Khushboo Pasari/CS on

03.05.2019 with a request to intimate RoC and others. On 06.05.2019,

Khusbhoo Pasari/CS was reminded about the same over a phone call.

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Without prejudice the above, even if the discloser of

shareholding/directorship in Form MBP 1 is not provided, it may only result

in violation of Section 184(1) and not Section 184(2) of the Act. Section

184(2) mandates disclosure of interest by a director in the board meeting

where an agreement is being entered into with an entity in which the

director has an interest. The disclosure can be oral and/or in writing. The

word prescribed has not been included in Section 184 (2) of the Act.

Accordingly, the Section 184(2) to stands substantially complied with.

Section 184 (1) has no link with Section 167 (1) (c) and (d), as the disclosure

of terms of any contract or arrangement is only stipulated under Section

184 (2). Section 184 (1) is general obligation on the directors to disclose their

interest in the prescribed format annually. Therefore, a non disclosure of

interest under Section 184(1) in the prescribed format would not lead to the

automatic vacation enshrined under Section 167.

26. Ld. Sr. Counsel for the Respondent No. 1 submitted that the

Respondent No. 1 raised several issues of operation and mismanagement,

illegalities fraud non-compliance with the board of directors and the

majority shareholders of the Appellant. Therefore, it is not a directorial

dispute. Thus, there is no substance in this Appeal. Therefore, the Appeal be

dismissed.

27. Ld. Sr. Counsel appearing on behalf of the Respondent No. 2 & 3

supports the argument advanced by the Ld. Sr. Counsel for the Respondent

No. 1.

28. Ld. Sr. Counsel for the Appellant submitted in rejoinder argument

that K C Nuwal though was not physically present at the board meeting

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dated 07.11.2019. However, he constructively participated in the same as he

was aware that there was an agenda item to discuss on hiring the AGT

premises for the Appellant Company. The courts have recognized that a

director should not act in a manner so as to put his personal interest in

conflict with his fiduciary duty to act in the interest of the Company.

29. After hearing Ld. Sr. Counsels for the parties, we have minutely

examined the documents on record.

30. Following issues arose for our consideration: -

(i) Whether K C Nuwal contravened the provision of Section 184(1) of the

Act, if yes consequences?

(ii) Whether K C Nuwal contravened the provisions of Section 184(2) of the

Act, if yes consequences?

(iii) Whether the Tribunal ordered for reinstatement of K C Nuwal as director

under Section 242 (4) of the Act?

(iv) Whether without deciding the issue of quasi partnership, such interim

relief cannot be granted?

Issue No. (i)

Whether K C Nuwal contravened the provision of Section 184(1) of the Act, if

yes consequences?

31. In this matter the whole controversy arises when Khushboo Pasari/CS

sent a letter through email on 31.07.2020 which is in Para 7 of this

Judgment.

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32. In the aforesaid letter, it is mentioned that the R-1/ K C Nuwal was

under an obligation to make a disclosure of shareholding in AGT,

immediately after acquiring the shareholding in or about 02.05.2019 and he

made no disclosure about the shareholding in AGT to Appellant till July 29,

2020 and his disclosure of directorship in AGT dated May, 03, 2019 was not

in requisite form MBP 1 under the Companies Act, 2013. To rebut this

contention, the Respondent No. 1 has filed the exchange of emails.

Dated Particulars Pg. No. 17.01.2019 Email was sent to S N Nuwal (R-5) and Manish 418 Nuwal (R6) for setting up a separate company for Rahil Nuwal younger son of K C Nuwal and for the same K C Nuwal offered to sale shares of SIIL (Appellant Company). 23.02.2019 Manish Nuwal (R6) offered 40 Crores to K C 419-420 Nuwal from the family funds to buy IT Company for Rahil Nuwal. 26.03.2019 Email exchanges with the accounts department of 421-423 to the Appellant regarding requirement of Rs. 5 16.04.2019 Crores in K C Nuwal bank accounts for IT Company deal 03.05.2019 K C Bhadada (Representative of R-1) sent an 424-425 email to the Respondent No. 16/CS informing "Respected Sir/Madam, Shri K C Ji Nuwal and Rahul Ji Nuwal is Director in AGT. From 02nd May, 2019. Which please note. Informed to RoC and Ors if required" 06.05.2019 The R-16/CS informed about acquisition of AGT 426

the annual maintenance service contact between AGT and the Appellant Company was terminated by the Appellant.

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28.06.2019 On the request of R-16/CS a letter sent to CS with 428-429 details of Respondent No. 1/ K C Nuwal shareholding in AGT.

10.05.2019, To the Appellant intimating purchase of shares of 06.06.2019, AGT by R-1/K C Nuwal and his family.

09.07.2019 and 06.08.2019 09.04.2020 Monish Agarwal, Finance Controller of the Appellant to R-3 /Rahul Nuwal to R- 6/ Manish Nuwal, MD of the Appellant admitted that AGT is a related party of the Appellant and therefore, rent paid must be refunded.

10.04.2020 Email sent by R-16/CS stating that draft disclosure of directorships and confirmation

status for non-disqualification to act as director in terms of section 165 () of the Companies Act, 2013 of Shri K C Nuwal and Shri Rahul Nuwal Ji for Solar Industrial India Limited and Economic Explosive Limited.

22.04.2020 Email From R-16/CS Stating That AGT And Solar 501 Holdings Are Owned And Controlled By K C Nuwal Group.

28.04.2020 Email from R-16/CS to K C Nuwal stating that the 504-505 K C Nuwal Group is holding a investment in AGT are owned and controlled by K C Nuwal Group and at the same time they are also directors in SIIL (Appellant Company) and its subsidiaries.

This email was sent a reference non-disclosure of the appointment of Mr. Mukherjee as the Managing Director of AGT and as an Executive Director of Solar Holding and Investment Pvt. Ltd.

Company Appeal (AT) No. 29 of 2021 Page 20 of 25

22.6.2020 Email from Respondent No. 5 to Respondent No. 1 260-265 as well as board of directors of the Appellant stating that in May, 2019 K C Nuwal acquired AGT and incorporated Solar Investment India, they are majority shareholders.

23.06.2020 Replied email sent by Respondent No. 1 and R5 506 that Respondent No. 5 and 6 fully aware about setting up IT Company in Mumbai. Respondent No. 1 further stated that neither R5/R6 nor the Appellant were kept in dark about setting up AGT.

33. Aforesaid correspondence is not denied by Khusbhoo Pasari and any

of the directors of the Appellant Company. On 03.05.2019 email was sent to

Khushboo Pasari that K C Nuwal and Rahul Nuwal became director in AGT

from 02.05.2019 and requested to inform RoC and others if required. This

fact is admitted by Khushboo Pasari in email dated 30.07.2020 it means it

is admitted fact. The only defect is pointed out that such disclosure was not

in requisite form i.e. Form MBP 1.

34. Thereafter, on 28.06.2019 the shareholding of K C Nuwal, Rahul

Nuwal and Rahil Nuwal was also informed to Khushboo Pasari and also

requested to inform RoC and others if required. When she received

aforesaid emails, being a Company Secretary she should have immediately

assist K C Nuwal and sent him prescribed format. Thus, it is amply proved

that K C Nuwal has immediately informed the Appellant Company that he is

shareholder and director in AGT w.e.f. 02.05.2019.

35. K C Nuwal on 17.01.2019 sent an email to S N Nuwal (R-5) and

Manish Nuwal (R-6) informing that he intends to sell the 3% shares of the

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Appellant, and to utilise such amount for setting up a new business for his

son Rahil. On 23.02.2019 Manish Nuwal (R-6) sent an email to one Mr.

Chandra Shekhar Rathi, that K C Nuwal required fund for starting IT

Company and to purchase office space at Mumbai. Therefore, Manish Nuwal

directed Rathi to transfer 40 Crores in two tranche to K C Nuwal's account.

It means from very inception aforesaid facts were in the knowledge of S N

Nuwal Chairman of Appellant and Manish Nuwal MD of Appellant, not only

this, they have arranged funds also for the same.

36. In Para 63 of the impugned order, the Ld. Tribunal gave following

findings which are not challenged. Otherwise, also proved from the aforesaid

correspondence.

"63.................

(vi) It is not the case of the Respondents that A1 has not disclosed his interest in AGT. The interest in AGT was informed to the Company Secretary in writing, though A1 has not filed the required Form MBP 1 at the initial point of reporting.

............

............

(xiv) R14, the Company Secretary of R1 has received the information as to the shareholding of the Applicants in AGT and in view of this as a professional, R14, was expected to guide and advise the Director in filing proper form in consonance with the Rules and Regulations."

37. Now, we have considered whether K C Nuwal has contravened the

provisions of Section 184(1) of the Act. Section 184(1) of the Act is

reproduced as under:-

"Section 184(1): Disclosure of interest by director.-- (1) Every director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or

Company Appeal (AT) No. 29 of 2021 Page 22 of 25

other association of individuals which shall include the shareholding, in such manner as may be prescribed."

38. Pursuant to the provisions of Section 184(1) of the Act, Rule 9 (1) of

the Companies (meeting of board and its powers) Rules, 2014 for disclosure

form MBP-1 is prescribed.

39. In Section 184(1) deals the occasions when the director is required to

disclose his concern or interest in any company or companies or bodies

corporate, firms or other associations of individuals. In the present case, K

C Nuwal was required to disclose his interest in AGT Company when he

acquired the shares i.e. on 02.05.2019 in a prescribed form MBP-1.

Undisputedly, K C Nuwal vide email dated 03.05.2019 informed Khushboo

Pasari that he became the director in AGT from 02.05.2019 and requested to

inform RoC and others. Thereafter, vide email dated 28.06.2019 informed

Khusbhoo Pasari that he has acquired 31,76,751 shares in AGT. It is true

that K C Nuwal has not furnished information in prescribed form i.e. MBP-1.

We are of the view that K C Nuwal has substantially complied with the

requirement of Section 184 (1) of the Act.

40. We are in agreement with the Ld. Sr. Counsel for the Respondent No.

1 that non-compliance of Section 184(1) has no link with Section 167 of the

Act. Section 184(4) of the Act provides that if a director of the company

contravenes the provisions of sub-section (1) or sub-section (2), such

director shall be punishable with imprisonment for a term which may

extend to one year or fine which may extend to one lakh rupees, or with

both. Thus, non-compliance of Section 184(1) would not lead to automatic

vacation of the office as director of the Company.

Company Appeal (AT) No. 29 of 2021 Page 23 of 25

Issue No. (ii)

Whether K C Nuwal contravened the provisions of Section 184(2) of the Act,

if yes consequences?

41. Section 184(2) reads as under:-

"Section 184(2): Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into--

(a) with a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or

(b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be, shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting:

Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested."

42. It is an admitted fact that on 07.11.2019 in the board meeting after

discussion it was resolved to take the premises of AGT on rent for the

Appellant Company. Admittedly in this board meeting K C Nuwal was not

present. According to Ld. Sr. Counsel for the Appellant in the agenda of the

board meeting one of the item for discussion was to take the AGT premises

on rent and the agenda was served on K C Nuwal. Therefore, even if, he was

not present in the meeting, it be presumed that constructively he was

present in the meeting. We are not convinced with this argument. In the

meeting, dated 07.11.2019 director S N Nuwal and Manish Nuwal (R-5 and

R-6) and Company Secretary Khushboo Pasari were present and they were

Company Appeal (AT) No. 29 of 2021 Page 24 of 25

well informed that K C Nuwal is a director in AGT but they have not raised

any objection. Therefore, we are of the view that K C Nuwal has not

contravened the provisions of Section 184(2) of the Act. Therefore, he is not

liable for the consequences as provided under Section 167 (1) (c) and (d) of

the Act.

Issue No. (iii)

Whether the Tribunal ordered for reinstatement of K C Nuwal as director

under Section 242 (4) of the Act?

43. As we have noted that K C Nuwal has not vacated office as director

w.e.f. 07.11.2019. The Tribunal by the impugned order issued an injunction

from implementation of notice dated 30.07.2020. The Tribunal has not

passed any order of reinstatement of K C Nuwal as director. The Tribunal

while exercising the powers under Section 242 (4) of the Act, on the

Application of any party to the proceedings, make any interim order which

he thinks fit for regulating the conduct of the company affairs upon such

terms and condition as appear it to be just and equitable. In the facts of the

present case the interim order is just and equitable.

Issue No. (iv)

Whether without deciding the issue of quasi partnership, such interim relief

cannot be granted?

44. It is argued on behalf of the Appellant that Ld. Tribunal without giving

finding that the Appellant Company is a quasi partnership could not grant

interim relief, as prayed by K C Nuwal.

Company Appeal (AT) No. 29 of 2021 Page 25 of 25

45. We are unable to convince with this argument, while granting the

interim relief Ld. Tribunal has only examined the legality of the letter (notice)

dated 30.07.2020 and granted the relief in reference to this letter.

46. We make it clear that Tribunal shall examine the Company Petition

independently without influenced by any of the observations made in this

order.

47. The Tribunal has rightly granted the interim relief, we find no ground

to interfere in the impugned order. Thus, the Appeal is dismissed. However,

no order as to costs. Interim order passed by this Appellate Tribunal stands

vacated.

[Justice Jarat Kumar Jain] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member(Technical)

New Delhi 14th December, 2021.

SC

Company Appeal (AT) No. 29 of 2021