Starlite Spintech Ltd. & Ors vs Dijaya €“ Malind Properties (India) ...

[Arising out of Order dated 14.11.2017 passed by National Company Law Tribunal, Hyderabad Bench, Hyderabad in CP No.81/2011 (TP No.60/HDB/2016)]

IN THE MATTER OF: Before NCLT Before NCLAT

1. Starlite Spintech Limited Original Petitioner Appellant No.1 Plot No.14, Road No.2, Banjara Hills, L.V. Prasad Marg, Hyderabad - 500033

2. Mr. Sanjay Patwari, Original Respondent No.7 Appellant No.2 Plot No.151A, Old MLA Colony, Road No.12, Banjara Hills, Hyderabad - 500033

3. Mr. Ramgopal Patwari, Original Respondent No.8 Appellant No.3 Plot No.14, Road No.2, Banjara Hills, L.V. Prasad Marg, Hyderabad - 500033

Versus

1. Dijaya - Malind Original Respondent No.1 Respondent No.1 Properties (India) Pvt. Ltd. 1-11-220/A, Gurumurthy Lane, (Adjoining Lane to Reebok Store) Begumpet, Hyderabad - 500016, Andhra Pradesh

2. Dijaya - Malind J.V. Original Respondent No.2 Respondent No.2 2

(Mauritius) Limited Suite No.307, St. James Court, St. Denis Street, Port Lousis, Republic of Mauritius

3. Tan Seng Chye Original Respondent No.3 Respondent No.3 No.20, Jalan Damai Jaya, Batu 9, Cheras Selangor 43200 Malaysia

4. Dickson Tan Yong Loong Original Respondent No.4 Respondent No.4 No.8, Jalan TR 5/2 Tropicana Golf and Country Resort Petaling Jaya 47410, Malaysia

5. Tong Kein Onn Original Respondent No.5 Respondent No.5 No.8, Lorong Burung Sintar 3, TAMAN Bukit Maluri, Kepong Kuala Lumpur 52100 Malaysia

6. Murugayah Kanpathy Original Respondent No.6 Respondent No.6 No.86, Jalan Cincin, Section 11, 4000 Shah Alam, Selangor DE, 4000 Malaysia

7. Dijaya (Mauritius) Limited Original Respondent No.9 Respondent No.7 Suite No.307, St. James Court, St. Denis Street, Port Lousis, Republic of Mauritius

8. S.N.R.L. Investments Original Respondent No.10 Respondent No.8

Company Appeal (AT) No.15 of 2018 3

Limited C/o First Island Trust Company Ltd. Suite No.308, St. Denis Street, Port Lousis, Republic of Mauritius

9. Dijaya Corporation Original Respondent No.11 Respondent No.9 Behard C-06-02, 6th Floor, Block C Wisma TT No.1, Jatan PJS 8/15 Dataran Mentari, 461050 Petaling Jaya Selangor Darul Ehsan, Malaysia

For Appellant: Shri Kuljeet Rawal, Advocate

For Respondents: Shri Arun Kathpalia, Sr. Advocate with Shri Lzafeer Ahmad, Ms. Madhulika Murthy, Shri Utkarsh Srivastava, and Ms. Bani Brar, Advocates (Respondent Nos.1 to 5)

Mr. Koshy John, Advocate (Respondent No.7)

Shri Abhay Pratap, Shri Prithu and Shri Sidhharth, Advocates (Respondent No.9)

JUDGEMENT

(08th January, 2019)

A.I.S. Cheema, J. :

1. The Appellant No.1 - Original Petitioner (hereafter referred as

'Petitioner') filed CP No.81/2011 (TP No.60/HDB/2016) against the

Respondents complaining oppression and mismanagement of Respondent

No.1 (hereafter referred as 'Company'). In the Company Petition, present

Appellants 2 and 3 were arrayed as Respondents 7 and 8. The learned

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National Company Law Tribunal, Hyderabad Bench ('NCLT', in short)

dismissed the Company Petition on 14.11.2017. The present Appeal is filed

against the dismissal and original Respondents 7 and 8 have become

Appellants 2 and 3, arraying original Petitioner as Appellant No.1.

1.1 We will refer to the parties in the manner in which they were

arrayed in NCLT.

2. The original Petitioner in the Company Petition referred to various

details as to how the original Petitioner became shareholder in the

Company (Respondent No.1) and further developments so as to make the

following prayers in the Company Petition:-

"a) The Board of Directors of the 1st Respondent be superseded by a Committee constituted by this Hon'ble Board consisting of a nomine of the Petitioner, a nominee of the Respondent, and an Administrator / Independent Director/ Special Officer appointed by this Hon'ble Board to take charge over the management and affairs of the Company in terms of a scheme of management framed by this Hon'ble Board which would be, in supersession of the Articles of Association of the 1st Respondent and in supersession of all Agreements which purport to vest parties with rights in affairs of the 1st Respondent, and of all books, papers, records and documents of the Company as well as its assets and properties.

b) All decisions, including but not limited to managerial, administrative, and legal decisions taken by the Board of Directors of the 1st Respondent at its Board Meetings held on 16th August 2010, and 2nd September 2010 be declared and set aside as null and void.

Company Appeal (AT) No.15 of 2018 5

c) Direct the 2nd, 9th, 10th and 11th Respondents and their affiliates/associates not to carry on any commercial activity in India directly in their own names or indirectly in any other name/s, other than through the 1st Respondent, which is similar to those objects of the 1st Respondent as stated in the Memorandum of Association of the 1st Respondent.

d) Appropriate reliefs be passed under and in accordance with sections 402 of the Companies Act, 1956;

e) Costs of and incidental to this Petition be paid by the Respondents;

f) Such further order or orders and/or direction or directions be given as to this Hon'ble Board may deem fit and proper;"

The original Respondents 1 to 6 and 9 to 11 had filed Reply in

NCLT and opposed the Company Petition. After letting the parties complete

the pleadings and after hearing the matter, the Petition came to be

dismissed. The present Appeal has been filed referring to various facts of

the matter and the relief sought is as under:-

"(a) Set aside the impugned order dated 14.11.2017 passed by the National Law Tribunal Hyderabad with its Bench at Hyderabad in CP No. 81/11 titled Starlite Spintech Limited Versus Dijaya - Malind Properties (India) Pvt. Ltd.;

(b) While setting aside order dated 14.11.2017, this Hon'ble Court be pleased to observe that observations made by the NCLT Hyderabad in para 24 and 28 or otherwise are bad in law uncalled for and extraneous to subject lis in view of arbitral proceedings pending before Arbitral Tribunal at Hyderabad.

Company Appeal (AT) No.15 of 2018 6

(c) Pass any other order as this Hon'ble Court deem fit and proper in view of facts and circumstances of the case. Such other directions as it deems fit and proper.

(d) Cost be awarded in favour of the Appellant."

3. Before referring to the paragraphs objected to from the Impugned

Order, it would be appropriate to refer to some of the facts to understand

the dispute.

4. It is stated by the Petitioner in the case put up in NCLT:-

a) That Original Respondent No.2 - Dijaya-Malind JV (Mauritius)

Limited is a subsidiary of original Respondent No.9 - Dijaya (Mauritius)

Limited.

b) Original Respondent No.9 is subsidiary of Respondent No.11 -

Dijaya Corporation Berhard, which Respondent No.11 is a listed Company

in Malaysia Stock Exchange.

c) Original Respondent No.10 - S.N.R.L. Investments Limited, a

company of Mauritius has 22% equity shares of original Respondent No.2

- Dijaya-Malind JV (Mauritius) Limited.

d) Respondent No.11 is ultimate holding Company of Respondent

No.1 Company - Dijaya-Malind Properties (India) Private Limited.

e) The original Petitioner is public limited company with 68

shareholders.

Company Appeal (AT) No.15 of 2018 7

f) Petitioner acquired interest in Respondent No.1 Company as per

Shareholders Agreement dated 09.04.2007. Petitioner has 26% of paid up

share capital of Respondent No.1 and Respondent No.2 has 74,000/-

ordinary shares, i.e. 74% of paid up capital of Respondent No.1 Company.

These Companies are the only shareholders of Respondent No.1 Company.

g) Respondents 3 to 5 were nominee Directors of Respondent No.2

on the Board of Respondent No.1.

Respondent No.6 is nominee Director of Respondent No.2 on the

Board of Respondent No.1. (Respondent No.6 has controlling interest of

22% in Respondent No.10)

Respondents 7 and 8 were nominee Directors of the original

Petitioner on the Board of Respondent No.1.

5. Reference now needs to be made to the following facts emerging

from record:-

a) It appears that one M/s. Telangana Spinning and Weaving Mills

Limited (later on name changed to M/s. Starlite Global Enterprises (India)

Ltd.) (hereafter referred as 'Telangana Spinning') had become sick

industrial company and was owner of a piece of land in RR District of

Andhra Pradesh and BIFR had sanctioned rehabilitation scheme. There

was need to raise funds to pay secured creditors. Original Petitioner

submitted bid dated 13th August, 2003 for purchase of the land which was

Company Appeal (AT) No.15 of 2018 8

accepted by Asset Sale Committee and approved by BIFR. The Petitioner

then authorized from time to time several persons for purpose of executing

sale agreements/sale deeds, in respect of portion of the said land in

discharge of its obligations under the said bid, BIFR approval and

agreement dated 22.03.2004.

These recitals can be found in the document "Deed of

authorization & Declaration of 'No Interest'" dated 22.11.2006 (Diary

No.5224 Page 9 - documents filed by Respondents 1 and 2). By such deed,

original Petitioner unconditionally and irrevocably nominated and

authorized Telangana Spinning to enter into development agreement

which had been examined by the Petitioner with original Respondent No.2

- Dijaya-Malind JV (Mauritius) Limited for development of the said plot for

eventual sale as undivided shares.

b) Thereafter, the Articles of Association of Respondent No.1

Company (Diary No.3812 - Page 3) show that Respondent No.1 Company

came to be incorporated on 12th January, 2007.

c) Company Petition 22/2007 came to be filed by one Ishwarlal

Patwari and other 8 Petitioners against Telangana Spinning and 16 others

which included original Respondent No.7 - Sanjay Patwari and

Respondent No.8 - Ramgopal Patwari. In this Company Petition filed

against Telangana Spinning, CLB passed Orders on 6th March, 2007 (Diary

No.3812) inter alia directing that allotment of further shares in the matter

Company Appeal (AT) No.15 of 2018 9

of Telangana Spinning and dealing with the fixed assets of the Company

henceforth would be subject to outcome of the Company Petition.

d) After such Order dated 06.03.2007 had been passed, record shows

(Page - 35 Diary No.5224) that original Petitioner executed Shareholders

Agreement with Respondent No.2 - Dijaya-Malind JV (Mauritius) Ltd. so

as to have shares in Respondent No.1 Company - Dijaya-Malind Properties

(India) Pvt. Ltd. As per this agreement, Respondent No.2 would be having

74% of the paid up share capital and Petitioner was to have the remaining

26%. This was done is not in dispute. One of the recitals states that the

parties are desirous to become shareholders of Respondent No.1, who has

been or about to be appointed as Property Developer to undertake property

development on portion of land of M/s. Telangana Spinning, in the first

instance. The Petitioner joined Respondent No.1 Company.

e) On the same date of 9th April, 2007, Telangana Spinning (with

Respondent No.8 signing as MD) as land owner and Respondent No.2 -

Dijaya-Malind JV (Mauritius) Ltd. as Developer and Respondent No.1 -

Dijaya-Malind Properties (India) Pvt. Ltd. referred as subsidiary entered

into "Deed of Novation cum Joint Development Agreement cum General

Power of Attorney" (Page - 77 Diary No.5224) ("Deed of Novation", in short).

In this Deed of Novation, one of the recitals marked "E" read - "the plot is

currently free from all encumbrances" has become cause of dispute (which

we will refer later).

Company Appeal (AT) No.15 of 2018 10

f) Copy of CP 22/2007 (Diary No.5224 - Page 194) shows that

present Respondent No.8 - Ramgopal Patwari and Respondent No.7 -

Sanjay Patwari with other members of the family were Directors in

Telangana Spinning. Respondent - Ramgopal Patwari has been referred in

that Company Petition as Managing Director of Telangana Spinning.

6. In NCLT, original Petitioner, inter alia, raised one dispute relating

to issue of 8,00,000 11% convertible preference shares of first Respondent

to the second Respondent. Regarding this, no more dispute is raised in

Appeal or at the time of arguments and thus, we will not enter into details.

7. The original Petitioner claimed in NCLT that Respondent No.11,

the ultimate holding Company of Respondents 1 and 2 and its nominee

Directors without the knowledge of nominee Directors of the Petitioners,

unilaterally and illegally issued legal Notice dated 17.05.2010 on behalf of

Respondents 1 and 2 to M/s. Telangana Spinning asking Telangana

Spinning to rectify certain breaches in the Agreement dated 9th April, 2007.

Petitioner claimed that it had strongly opposed the allegations made in the

Notice and had given a Reply dated 22.06.2010 to Respondent No.2.

Original Respondents 7 and 8, the nominee Directors of original Petitioner

received Notice dated 30.07.2010 of Board Meeting proposed to be held on

16.08.2010 in Malaysia with Agenda which included subject of rectification

of Notice for rectifying breach in Notice dated 17.05.2010 and to approve

Notice of termination of the deed. Petitioner pleaded that original

Respondents 7 and 8 were issued letter dated 4th August, 2010 with

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modified Agenda which was to read as "To ratify the notice of Termination

of Deed" dated 3rd August, 2010. Petitioner claimed that it had addressed

letter dated 11.08.2010 to Respondent No.2 claiming that termination of

the Agreement dated 9th April, 2007 in Board Meeting convened on 16th

August, 2010 was an issue that could not be decided in Board Meeting and

it could be decided only at a General Meeting of shareholders as the

termination of the agreement would result in loss of substratum of the

Respondent No.1 Company. Petitioner claimed that it also objected to the

holding of meeting at Malaysia on short notice.

8. The Petitioner further claimed in NCLT that original Respondents

3 to 6 caused a legal Notice dated 3rd August, 2010 sent to Telangana

Spinning whereby the Agreement dated 9th April, 2007 was purportedly

terminated and demand was made of repayment of Rs.12,70,80,000/- and

damages as Rs.1,81,08,344/-. According to Petitioner, such Notice was

sent even before the proposed meeting dated 16th August, 2010 could be

held. Petitioner claimed that original Respondents 7 and 8 then received

Notice dated 12th August, 2010 informing that the Board Meeting of

Respondent No.1 which was to be held at Malaysia, will be held on

02.09.2010. Petitioner claimed that in the Board Meeting dated 2nd

September, 2010, the termination of Deed of Novation cum Joint

Agreement cum GPA was confirmed.

9. Petitioner further claimed in NCLT that in the Meeting dated 2nd

September, 2010 registered Office of the Company was also shifted without

Company Appeal (AT) No.15 of 2018 12

there being agenda for the subject. Petitioner further claimed in NCLT that

its nominee Directors received Notice dated 3rd December, 2010 for a Board

Meeting convened on 29th December, 2010 in Malaysia. It was objected to

by the Petitioner by communication dated 22nd December, 2010. Yet

another Notice dated 9th March, 2011 was received for Board Meeting at

Malaysia on 31.03.2011 and Petitioner objected vide communication dated

24th March, 2011 claiming that there was no need to call such Board

Meeting when commercial operations had yet not started. The Respondent

No.1 replied vide Notice dated 7th April 2011 denying the contentions

raised by the original Petitioner. Further contentions were raised regarding

other meeting similarly called for on 29th June, 2011 for which Notice dated

06.06.2011 had been received. Petitioner claimed that Respondents 3 to 6

- nominees of Respondent No.2 on the Board of Respondent No.1 were

acting against the interest of Respondent No.1. Petitioner further claimed

that Respondents 1 and 2 had commenced arbitration proceedings against

Telangana Spinning and had also initiated proceedings under Section 9 of

the Arbitration and Conciliation Act, 1996 ('Arbitration Act', in brief). It

claimed that Respondent No.1 was being used as a tool to further their

own agenda. Petition claimed that legal action against Telangana Spinning

was started with intention to defeat rights of the Petitioner.

10. Against this, contesting Respondents 1 to 6 and 9 to 11 after

referring to the documents, claimed that Notices of the Board Meetings

were duly sent to the nominee Directors of the Petitioner and which fact is

Company Appeal (AT) No.15 of 2018 13

not in dispute. According to them, Telangana Spinning entered into Deed

of Novation Agreement dated 9th April, 2007 in which huge investment was

made by Respondents. The Petitioner was aware of Interim Orders dated

16th March, 2007 passed by CLB but has entered into the Agreement

causing huge loss to the Respondents. The Managing Director of

Respondent No.1 was empowered to issue the Notice. The Notice was

discussed and was ratified in the Board Meeting. Notice of sufficient days

was given of the Board Meeting. The Company had right to terminate the

Agreement in order to protect the interest of the Company and the

Petitioner could not question merits of the decision of the Board.

11. NCLT in the Impugned Order (para 8) mentioned that the main

cause for filing of the Petition was termination of the deed of Novation cum

Joint Development Agreement dated 9th April 2007. It referred to the

various documents and discussed the averments which were made by the

parties. It would be appropriate to reproduce paragraphs 24 and 28 of the

Impugned Order regarding which grievance has been made in the prayer

of this Appeal. We are reproducing para - 27 also for reference. The same

reads as under:-

"24. It is also not in dispute that CP No.22 of 2007 was filed by Ishwarlal Patwari and others before the then CLB, Chennai under section 111A, 235, 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956, by inter-alia seeking to allow proportionately representation of the petitioners the Board of Directors of the Company; to declare Board meeting held on 11.02.2002 and consequently resolutions; to declare the annual returns dated 31.07.1997 and 22.09.1997 as null

Company Appeal (AT) No.15 of 2018 14

and void. The CLB passed interim order dated 16.03.2007, by inter-alia stating that any allotment further shares and dealing with the petitioner. So the contention of the petitioner that the land in question is free from all encumbrances is not borne out of record. And the contentions raised contrary by the petitioner are not tenable."

[Emphasis supplied]

"27. It is also not in dispute that the quorum for conducing said board meeting is maintained and the Board is also fully empowered by Articles of Association of R1 Company and the same is also in consonance with provisions of the Companies Act, 1956/2013. As stated supra, the Respondent No.7 & 8 who are nominee directors of the Company, are given due notice for conducting of impugned board meeting. They have also expressed their inability to attend the board meeting due to their pre-occupation with activities in Hyderabad. It is settled position of law by various judgements rendered by various courts that Tribunal cannot interfere with wisdom of a Company to take decision(s) in the best interest of Company unless there is an arbitrary exercise of powers contrary to extant Articles of Association of a Company and taken contrary to principles of natural justice. Share holders and their Board of Directors of a Company are best judges to take decisions and run the affairs of a company.

Tribunal/Court cannot interfere in the policy matters of a Company, which are taken by duly constituted Board of Directors by following articles and memorandum of Association of a Company and principles of natural justice. In the instant case, it is not the case of petitioner that they are not associated with impugned action as their nominee Directors are still on Board and they are given due notice for the impugned meeting conducted by the Company. However, as stated supra, for the reasons best known to them, they have not availed the opportunity of it. It is an admitted fact that a proper notice is given for meeting, Board meeting in question was conducted strictly in accordance Memo and Articles of Association of R-1 Company and the Company Appeal (AT) No.15 of 2018 15

decisions taken are falls within competency of Board of Directors, as detailed supra. It is also relevant to point out here that minutes of Board meeting held on 2nd September, 2010 was duly communicated to the nominee Directors of the petitioners. And subsequent meetings, as detailed supra, were conducted duly giving proper notice to the nominee directors of the petitioner. As rightly contended by the learned senior counsel for respondent, the impugned action cannot come under the ambit of section 397/398 of the Act, 1956 as held in the case of Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co.

Ltd. [AIR 1965 Guj 96], where, the Hon'ble Gujarat High Court has categorically and in no uncertain terms observed as follows:

"A resolution may be passed by the board of directors which may in the passing contravene a provision of law, but it may be very much in the interest of the Company and of the shareholders. Such a resolution may be attacked as invalid in a suit or other appropriate proceeding, but not being oppressive to the minority shareholders or prejudicial to the interests of the Company, it cannot be challenged in a petition under section 397 or 398."

The above finding was upheld by the Hon'ble Supreme Court in the case of Sangram Singh Gaekwad v. Shantadevi P. Gaekwad (supra).

Thus, even assuming that the Board Resolution dated September 2, 2010 confirming the terminating the said Agreement is in contravention of Section 293 of the Companies Act (now Section 180 of Companies Act, 2013), the same cannot be deemed to be oppressive under Section 397 and 398 of the Companies Act (now Section 241 and 242 of the Companies Act, 2013).

28. As stated supra, there is an arbitration proceeding pending before City Civil Court. The Respondent is also stated to have appointed its arbitrator namely, Shri K. Gopinathan, and petitioner also appointed its nominee namely Justice Usha Mehta (Retd.) Judge of Delhi High Court. The contentions of the petitioner that they are not concerned with

Company Appeal (AT) No.15 of 2018 16

the Starlite Global Enterprises (India) Limited, it is not a party to arbitration proceedings are not all tenable and baseless. Admittedly, Starlite Global Enterprises Limited formerly known as TSWM and which is stated in the Company petition itself. And all the Agreements in question are interlinked with petitioner, TSWM, and respondents and the cause of action for the impugned action in the present petition and arbitration proceedings as mentioned supra, arise out of various agreement executing among the same parties. Moreover, the Respondent No.7 & 8 are nominee Directors in R-

1 Company and also Directors in Starlite Global Enterprises Limited. When the issue in question in the present company and in arbitration proceedings arise out of same cause of action, principles of natural justice demands that court/Tribunal should not entertain cases, which leads multiplicity of litigation. It is also not in dispute, as discussed supra, in all the agreements in question, there is an arbitration clause available."

11. Coming to the para - 24, it has been argued for the Appellants that

they are aggrieved by the portion of the Order where NCLT observed that

the contention of Petitioner that the land in question is free from all

encumbrance, is not borne out of record and should not have been

recorded as according to the learned Counsel, that was the matter which

was already pending before the Arbitrators. According to the Counsel, such

observation would affect the Appellants in the arbitration proceedings.

According to the learned Counsel, this observation of NCLT was wrong

because the Deed of authorization & Declaration of 'No Interest', which was

executed, was dated 22.11.2006 in favour of Telangana Spinning and such

document was executed before the CLB Order dated 16th March, 2007 and

thus, the Development Agreement was prior to the passing of CLB Order

Company Appeal (AT) No.15 of 2018 17

and so the observation of NCLT highlighted in above para - 24, was

erroneous. The learned Counsel also referred to the pleadings of the parties

to assert the point. It is argued that the Development Agreement dated

22.11.2006 may be read with Deed of Novation dated 9th April, 2007 for

subject matter pending before Arbitration of 3 Hon'ble Members headed by

retired Judges of the Hon'ble the Supreme Court of India.

12. Against this, the learned Counsel for Respondents submitted that

the original Petitioner had filed the Company Petition on behalf of its sister

concern Telangana Spinning/Starlite Global to set aside the decision taken

by Respondent No.1 Company in its meeting dated 2nd September, 2010

ratifying the termination of the Deed of Novation. It has been argued that

the Petition was rightly dismissed by NCLT as Sections 397 and 398 of the

Companies Act, 1956 ('old Act', in brief) could not be invoked so as to

encompass dispute relating to contractual matters. The termination of that

Agreement in no way affected the rights of the original Petitioner as a

shareholder of Respondent No.1 Company and thus, the Company Petition

was misconceived and rightly dismissed. It has also been argued by the

learned Counsel for the Respondents that the Company Petition was filed

as a counter blast to the arbitration proceedings which had been invoked

by original Respondents 1 and 2 against Telangana Spinning/Starlite

Global. The Petition was filed to set aside the decisions taken on 2 nd

September, 2010. Telangana Spinning/Starlite Global had already filed

Counter claim in the arbitration proceedings and for the same cause of

Company Appeal (AT) No.15 of 2018 18

action, the Company Petition was sought to be maintained. The

Respondents have defended the termination of the agreement. According

to the learned Counsel for Respondents, the Appellant No.1 and

Respondent No.2 are the only shareholders and it would not make any

difference whether the decision relating to termination is taken or ratified

by the Board Meeting or the General Body Meeting. Counsel for

Respondents defended the decision taken by learned NCLT.

13. Having gone through the matter and the various disputes raised

by the Petitioner themselves relating to the termination of the Agreement

of Deed of Novation with Telangana Spinning, the reference had been laid

by the Petitioner itself and in that context, the learned NCLT was bound to

discuss the material placed before it in order to consider whether

oppression and mismanagement was made out. Thus, the disputed

observation in para - 24 appears to be there. If the Board Resolution dated

2nd September, 2010 is seen, and is read with Notice for rectification dated

17th May, 2010 and Notice of termination of Agreement (Page - 137 - Diary

No.5224), the grievance was founded on Deed of Novation entered on 9 th

April, 2007, which was subsequent to the CLB Order dated 6th March,

2007. Keeping in view such documents available on record, we are not

interfering so as to delete the disputed sentence from para - 24 of the

Impugned Order, which reading the Order as a whole, was in the context

of deciding the allegations of oppression and mismanagement.

Company Appeal (AT) No.15 of 2018 19

14. Coming to para - 28 of the Impugned Order which we have

reproduced above, the learned Counsel for the Appellants submitted that

observation of NCLT was wrong when it mentioned that all the agreements

in question were interlinked with the Petitioner, Telangana Spinning and

Respondents and cause of action for the Impugned action in the present

petition and arbitration proceedings were arising out of various

agreements which had been executed "among the same parties". The

objection of the Counsel was that the various agreements were not between

the same parties. We do not find that this makes any material difference

to the Petitioner. The agreements are matter of dispute before the Hon'ble

Arbitrators and merely because of such use of word "same parties" by

NCLT, will not change the documents. The purport and context of the

sentence is material. The NCLT rightly refrained from interfering on the

basis of such documents and reiterated that the agreements included

Arbitration Clause. When the original Petitioner was asserting before NCLT

that by issuing Termination Notice, substratum of Respondent No.1 would

be lost, the Petitioner itself invited NCLT to enter into the contents of the

documents. When NCLT did this, the Petitioner cannot turn around and

say that this or that observation in paragraphs - 24 and 28 of the

Impugned Order should not have been made. The only observation which

we find necessary to make with reference to the objections raised with

regard to paragraphs - 24 and 28 of the Impugned Order, is that the

observations and comments of the learned NCLT in the Impugned Order

and our observations and comments, in this present Judgement with

Company Appeal (AT) No.15 of 2018 20

regard to the Agreements, which are matter of dispute before the Hon'ble

Arbitrators, will not weigh for the purpose of decision of the Arbitration

proceedings. NCLT and this Appellate Tribunal have looked into this

matter basically, to consider and decide whether case of oppression and

mismanagement has been made out.

15. Although the prayers in the Appeal raised grievances regarding

para - 24 and 28 of the Impugned Order, at the time of arguments, learned

Counsel for the Appellants raised further contentions and submitted that

the Company Petitioner had raised grievances making allegations

regarding 4 Board Meetings, i.e. Board Meetings dated 02.09.2010,

29.12.2010, 31.03.2011 and 29.06.2011, but NCLT dealt with only the

meeting dated 02.09.2010. It has been argued that NCLT did not consider

the grievances raised by the Petitioner in its letter dated 11th August, 2010

(Diary No.3521 - Page 3) objecting to holding meetings at Malaysia; NCLT

did not also consider that the matter concerned deserved to be taken up

in General Body Meeting as termination of Development Agreement would

destroy the substratum of the Company; holding Meeting at Malaysia

could be exception but it had become routine; the Petitioner had sent even

letter dated 14.06.2011 (Diary No.3521 - Page 19) raising protest to the

Meeting called on 29.06.2011; in the Meeting dated 2nd September, 2010,

the registered office of the company was shifted without there being

Agenda.

Company Appeal (AT) No.15 of 2018 21

16. Against this, according to the learned Counsel for the

Respondents, the termination of the Agreement was done in Board Meeting

which was validly called after giving sufficient Notice. The Agreement did

not tantamount to undertaking under Section under Section 273 of the old

Act and termination of such agreement did not require holding of

shareholders Meeting. Even otherwise, the shareholders being only

Appellant No.1 and Respondent No.2, it would not make any difference. It

has been argued that the Companies Act, 2013 or the old Act did not

provide for any restriction on Board of Directors to hold Meetings outside

India. The Counsel further pointed out that the Appellants 1 and 2 had

without any objections attended and participated in several Board

Meetings of the Respondent Company, which were held in Malaysia.

Counsel referred to Minutes of the Board Meetings dated 23rd March, 2007,

31st January, 2008, 27th June, 2008, 14th April, 2009 and 26th March,

2010, copies of which, it is submitted, have been field with documents filed

by the Respondents which show that for various such meetings, the

representative Directors of the Appellants were attending Meetings at

Malaysia and earlier never objected or complained of inconvenience. The

argument is that the Appellants 2 and 3 should be stopped from raising

such grievances which are afterthought. The Counsel submitted that the

Appellant No.2 has attended Board Meeting even vide video conferencing

which is permitted under the Articles of Association of this Company. It

has been further argued that it has been wrongly claimed by the Appellants

that the registered office was shifted to Malaysia. In the meeting dated 2nd

Company Appeal (AT) No.15 of 2018 22

September, 2010, the office was merely shifted to another place in the

same city of Hyderabad. The argument is that it has already been held in

various Judgements that this by itself does not constitute oppression in

the absence of material to show that the Company incurred heavy

expenses for shifting the Office. It has been argued by the learned Counsel

for the Respondents that Notices of all Board Meetings were duly sent to

the representatives of the Appellant - Petitioner and if the Board did not

find the grievances raised in the letters dated 11.08.2010 and 14.06.2011

to hold substance, the decision of the Board cannot be questioned on the

judicial side. It has been argued by the learned Counsel for Respondents

that the Petitioner is holding brief for its sister concerns - Telangana

Spinning/Starlite Global against which the Respondents 1 and 2 have

initiated arbitration proceedings and only because the Petitioner has some

shares in Respondent No.1 Company, it is trying to create difficulties inside

the working of the Company. It is argued that the Respondents 1 and 2

had taken steps for protection of the interest of Respondent No.1 Company.

17. With regard to meeting dated 02.09.2010, the learned NCLT

observed in para - 20 and 21 as under:-

"20. The Petitioner has got issued a reply dated 11.08.2010 (Page 165) and 18.06.2010 (page 149 to 153) by denying all the contentions raised by respondents. Subsequently, the R-1 Company issued a notice dated 12.08.2010 to Board of Directors proposing to conduct Board meeting on 02.09.2010, by inter alia notifying agenda to ratify the notice for rectifying breach notice dated 17.05.2010, to rectify the notice of termination of

Company Appeal (AT) No.15 of 2018 23

the deed dated 03.08.2010, among other agenda mentioned therein. In pursuant to the above notice R.G. Patwari (R-8) & Sanjay Patwari (R-7) the nominee Directors of petitioner, have addressed a joint letter dated 27.08.2010 to the Chairman of R-1 Company by expressing their inability to attend the proposed Board Meeting to be held on 02.09.2010 in Malaysia, due to their pre-occupation at Hyderabad, India and request the Chairman to grant leave to absence (page 182). The R-1 & R-2 dated 19.08.2010 (Page 179 to 181) by informing them that impugned action is being taken strictly in accordance with law and that too in the better interest of R-1 Company and it can be done the Board Directors Meeting and not in the General Body Meeting of the shareholders as contended. They have denied that the impugned termination would lead to destruction of substratum of the Company.

21. As proposed, the meeting of the Board Directors of R-1 Company was held on 02.09.2010 at Board Room (Page 185). The minutes of the Board Meeting are filed at (Page 185 to 193). During this meeting 4 Directors have attended with leave of Ramgopal Patwari and Sanjay Patwari, who are nominee Directors of petitioner. The issue of ratification issuance of notice for rectifying the breach dated 17.05.2010 and the notice of termination of agreement dated 03.08.2010 was taken up during the meeting. After discussing the entire issue as per the above notices and the dissent note made by the nominee Directors of the R1 Company, the Board ratified and confirmed the notices as required under Article 38 of Articles of Association of the Company and also authorized the Managing Director to take consequential action to implement the decisions."

Original Respondent No.8 appears to have sent letter dated 11th

August, 2010 to original Respondent No.2 accepting receipt of Notice dated

30th July, 2010 and subsequent Notice of Amendment to the Agenda. He

stated that he had objection to the meeting being held at Kuala Lumpur at

Company Appeal (AT) No.15 of 2018 24

such short Notice. The objection goes away as the Meeting initially

proposed on 16th August, 2010 was postponed to 2nd September, 2010. The

original Petitioner has not pointed out as to how termination of this

business venture of the Company was required under any of the provisions

to be placed before the General Body. We recall the Shareholders

Agreement (Page 35 - Diary No.5224) where the recital mentioned that the

Respondent No.1 has been or is about to be appointed as Property

Developer with reference to Telangana Spinning "in the first instance". In

such circumstance, to call the said agreement entered and its termination

to be substratum would not be appropriate in our view. Nothing is shown

that there is any restriction on the place where Board of Directors should

hold their meetings. Learned Counsel for the Respondents has rightly

pointed out even earlier meetings which were being held in Malaysia and

which were held without any grievances. The disputes now being raised

regarding travelling and other allowances, we find, are only for the purpose

of raising grievances. The point, which is pinching the original Petitioner,

is the termination of the agreement and rest of the disputes, it appears to

us, are being raised to drag the matter to the NCLT. Even regarding the

meetings dated 29.12.2010 and 31.03.2011, we have already referred to

Notices being sent to the representatives of the original Petitioner. The

pleadings of the original Petitioner itself showed receipt of Notices and

added that the Petitioner had informed its inability to attend the meeting

on 29.12.2010 and had sent its comments/submissions. Even regarding

the Meetings of 31.03.2011, the Petitioner had informed by communication

Company Appeal (AT) No.15 of 2018 25

dated 24.03.2011 claiming that there was no need to hold the meeting. As

regards the letter of protest dated 14.06.2011, original Respondent No.7

accepted receipt of letter dated 06.06.2011 proposing to hold meeting on

29.06.2011 in Malaysia. This Respondent claimed that he was travelling

abroad and could not attend the Meeting at Malaysia and sought leave of

absence. He noted that he could participate by teleconferencing and

wanted to know the procedure. He wanted the Company to inform the

policy regarding payment of to and fro air fare, hotel and other dues, etc.

Alternately, he suggested holding of the Meeting at Hyderabad. With regard

to the Agenda which had been proposed, he offered his comments Agenda-

wise. With regard to the Agenda No.5, he mentioned that he was interested

as Managing Director of "Starlite Global Enterprises (India) Ltd." He stated

that he should not comment with regard to the portion of material events

and commitment in the Directors Report. Thus, he had sought leave of

absence with so many other queries being raised. Going through the

material, we do not find that there was anything procedural which could

be termed as illegal or in the facts of the matter of such a nature which

could be called oppressive.

18. No oppression and mismanagement is proved. We do not find any

substance in the arguments raised by the Counsel for the Appellants in

this Appeal.

19. We dismiss the Appeal with observation that observations and

comments of the NCLT and us in this Judgement with regard to the

Company Appeal (AT) No.15 of 2018 26

Agreements in dispute, which are pending for decision before the Hon'ble

Arbitrators, are for the purpose of deciding present matter if oppression or

mismanagement is proved and will not weigh for the purpose of decision

of the arbitration proceedings.

No Orders as to costs.

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

[Balvinder Singh] Member (Technical) /rs/nn

Company Appeal (AT) No.15 of 2018