Sudama Chemtech Pvt Ltd & Anr vs Girish Jetly & Anr

(Arising out of impugned order dated 26th April, 2019 passed by National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in IA No.209/2018 in CP No.116/NCLT/AHM/2013)

1. Sudama Chemtech Pvt Ltd. Basement 4, Anand Apartment, Opposite Rajshree Cinemas, Sayaji Gunj, Vadodara 390005

2. Donald Austin Lyall, S/o Mr. Emmanuel George Lyall 2, Krishna Dham Bungalow, Kalali Road, Vadodara 390012 Appellants

Vs

1. Girish Jetly, 6-B, Greenland Society, Gotri Road, Vadodara 390021

2. Vivek Girish Jetly, 6-B Greenland Society, Gotri Road, Vadodara 390021 Respondents

Ms Anannya Ghos, Advocate for Appellant. Mr Ketur J Shah, PCS for Respondent

JUDGEMENT

(16th December, 2019)

JUSTICE JARAT KUMAR JAIN, MEMBER (JUDICIAL)

This appeal is preferred by Sudama Chemtech Pvt Ltd and its director,

Donald Austin Lyall, against the order of NCLT Ahmedabad Bench thereby

Company Appeal (AT) No.152 of 2019 2

allowing I.A. No.209/2018 filed in CP No.116/NCLT/AHM/2013 on 26th April,

2019.

2. Mr Girish Jetly, Respondent No.1 herein (Petitioner No.1 in CP) is one

of the promoter/director and shareholder of the appellant company holding

10687 equity shares of Rs.100/- each constituting 48% total issued capital.

Mr. Vivek Jatley, Respondent No.2 (Petitioner No.2 in CP) filed Company

Petition No.116/2013 before erstwhile Company Law Board under Section

397, 398 and 402 of the Companies Act, 1956 alleging siphoning of funds by

Appellant No2 (Respondent No.2 in CP), illegal allotment of shares and illegal

appointment of directors on the Board and illegal removal of Mr. Vivek Jetly

from the Board of Directors. The original petition sought relief to allow MR.

Vivek Jetly to act as whole time Director inter alia with other reliefs.

3. In the petition, Respondent No.1 and 2 filed IA No.209/2018 making a

prayer that appellant be instructed to pay the remuneration of Rs.30000/-

per month to Respondent No.1 from November, 2013 and Rs.20,000/- per

month to Respondent No.2 from September, 2013 with interest and to

continue making the payment of remuneration.

4. The application was opposed by the appellant on the ground that

Respondent No.1 was not attending the Board Meetings due to his ill health

and Respondent No.2 was removed by the shareholders of the company. The

Respondents are non-functional directors. Therefore, as per Board of

Director's meeting decision 16.10.2013 such directors are not entitled for any

remuneration. The application was opposed on the ground that under the

Income Tax the salary/remuneration of a non-functional director of the

company is not allowed to be debited from company's funds nor it can be

Company Appeal (AT) No.152 of 2019 3

shown as business expenses. As per the Board Resolution the company has

filed relevant documents with the ROC for making the change in the

designation of Respondents from Executive to Non-Executive Directors within

stipulated time. The Respondents were aware of such change but remained

silent for all these years, but abruptly filed the present application in the year

2018. Hence, even otherwise, such application is an after thought and barred

by limitation.

5. NCLT held "that the present application can be disposed on this short

ground, without going into details of other controversy involved in the present

Company Petition, by directing to the respondent to restore back the position

of petitioner in the directorship of the company with all attended benefits

including the remuneration, which was being paid to them on 31.10.2013 and

further not to make any change in their remuneration or other attending

benefits or terms and condition of their directorship until further order. We

further made clear that our aforesaid direction/order is subject to the final

outcome of the main Company Petition and we have not conclusively decided

the eligibility of salary/remuneration to a non-executive non-functional

director. The issue of the illegal/unauthorized removal of petitioner from the

directorship of the company alongwith these issue shall be dealt along with

in accordance with the law, while hearing and disposing of the main Company

Petition."

6. Being aggrieved with the order appellants have filed this appeal.

7. Learned counsel for the appellant submits that the Respondents are

guilty of gross suppression of facts as much as they have failed to disclose

that they had been designated as non-executive directors of the Appellant

Company Appeal (AT) No.152 of 2019 4

No.1 vide Board Resolution dated 4.9.2013 hence they are re-designated. The

Respondents have been well aware of this position and accepted the same. It

is further submitted that the impugned order proceeds on an incorrect

premise to the effect that it was incumbent upon the appellants to maintain

status quo with regard to the status of directorship of the Respondents herein

alongwith attended benefits to them whereby the erstwhile Company Law

Board had directed that the Resolution to the extent removing the

Respondents as director will not be implemented to the next date. The

Respondents have suppressed the material fact that while deciding the

application IA No.334/2013 in CP No.116/2013 Company Law Board vide

order dated 27.5.2014 rejected the prayer for granting remuneration to the

Respondents. It is also submitted that as per Income Tax Act remuneration

paid to non-functional director of the company is not allowable to be debited

from Company's funds. Thus the impugned order is not sustainable in law.

It be set aside.

8. On the other hand Learned counsel for the Respondents supports the

impugned order and submitted that the Respondent NO.1 is the founder

director of the company. Respondent No.2 is his sone who has been illegally

removed from the Board of Directors because they have filed the petition for

oppression and mismanagement against the appellants. NCLT has rightly

held that the Respondents are entitled for remuneration as directors.

9. Having heard learned counsel for the parties we have gone through the

records.

10. The appellants for first time raised the objection in this appeal that

Company Law Board while deciding the Interim Application No.334/2013 vide

Company Appeal (AT) No.152 of 2019 5

order dated 27.5.2014 rejected the prayer for remuneration of the

respondents. We have examined this objections.

11. Respondents have filed the application before Company Law Board CA

No.334/2013 for following relief:-

i) Right to file reply by the respondents be closed as they have failed to

submit the reply within time limit stated in the order.

ii) Copies of all documents stated in Para 6 above and all other statutory

records be sent to the petitioner forthwith.

iii) Petitioners be allowed to act as director and use their rights as

directors by respondents.

iv) Directors' remuneration be paid to petitioners until outcome of the

petition.

v) R-5, R-6 and R-7 are be ordered to disclose their indebtedness to the

company and amount received in addition to the professional

assignments.

12. Company Law Board decided as many as four IA applications vide order

dated 27.5.2014. The order in regard to CA 334/2013 is as under:-

"6. Heard. The application is disposed off with the direction that the

Respondent No.1 and 2 will allow the inspection to the Petitioners or their

authorised representative of the statutory records of the Company to

which they are entitled to under law in the capacity of the shareholders

and Directors of the Company.

7. In case, the Respondents find that the Petitioners are not entitled to

inspect the documents sought for inspection as per law, they will file an

Company Appeal (AT) No.152 of 2019 6

Affidavit pointing the details of such documents. The same will be

considered by the CLB, on the next date of hearing.

8. The remaining prayers made in the application have already been

considered earlier and were not found in favour of the Petitioners.

Therefore, they are rejected."

13. It is true that if we read relief (iv) "Directors' remuneration be paid to

petitioners until outcome of the petition" with this order "the remaining

prayers made in the application have already been considered earlier and were

found in favour of the petitioners. Therefore, they are rejected." Then it seems

that the Company Law Board has earlier rejected the prayer for directors'

remuneration to be paid by the Company. However, the appellants have not

placed on record any such order to show that earlier such prayer was

considered and rejected. It seems that inadvertently Company Law Board

while deciding the application with other reliefs have made this observation.

14. We have also noted that the appellants in the reply of present

application before NCLT have not raised this ground. It means that they are

well aware that earlier Company Law Board or NCLT has not considered and

rejected the prayer of respondents for directors' remuneration.

15. NCLT has elaborately discussed the orders of Company Law Board

dated 31.10.2013 and 20.03.2014 which is as under:-

"6. As per material available on record, it is undisputed position in the

matter that the respondent company had passed a Board Resolution to

remove the petitioner from the Directorship of the company, which has

been done subsequent to filing of the present Company Petition before the

Company Appeal (AT) No.152 of 2019 7

Court, i.e. erstwhile Company Law Board, wherein the Company Law

Board, vide its order dated 31.10.2013, has pleased to issue following

directions to the Respondents:

a) The EOGM scheduled on 2.11.2013 may be held as per

schedule. However, the resolution to the extent removing the

Petitioner as director will not be implemented until the next date

fixed.

b) Respondent will provide Inspection of the documentsalongwith

the consulting company secretary to the Petitioner, for which

petitioner will serve an advance notice of 7 days indicating the

details of documents sought to be inspected.

c) No Board Meeting/EOGM/AGM shall be held without service of

proper and valid notice upon the Petitioner atleast 7 days in

advance.

7. A plain reading of the above stated direction, goes to show that the

Board Resolution, pertaining to the removal of the petitioner from the

Directorship cannot be given effect without informing to and prior

permission of the Court, i.e. The Company Law Board. In such a peculiar

circumstance of the present case, it was incumbent upon the respondents

to maintain status quo with regard to the status of the directorship of the

present petitioner along with attended benefits to them. However, it is

alleged that despite the above stated direction, the respondents have

stopped making payment of remuneration of directorship to the

petitioners, who claims themselves to be full time director and executive

Company Appeal (AT) No.152 of 2019 8

chairman of the company, which is the main issue involved in the present

petition for consideration of this Tribunal, even though, this being

disputed by the respondent.

8. IT is a matter of record that the then Company Law Board, further in

its subsequent order dated 20.03.2014 read with order dated

31.10.2013 had observed that the Board Meeting of the company may

take place, but resolution, if passed, with respect to withdrawal of the

car given to the petitioner will not be implemented till the next date of

hearing that gives such impression that the then Company Law Board

was pleased and conscious enough to maintain equilibrium in the affair

of the company as well as to maintain status quo with regard to alleged

proposal for removal of petitioner from the directorship or to withdraw

their attended benefits or to make material change in existing terms and

conditions. Despite this it is a matter of record that the Board of Directors

of the respondent company went to take deliberate decision without

informing to the Company Law Board or this Court in respect of stopping

payment of remuneration which was being paid to the petitioner No.1, as

being the executive chairman of the company an Executive Chairman is

presumed as full time Director. Further they stopped making payment of

remuneration to the petitioner No.2 allegedly on such ground that its

shareholding stood transferred, as he was no longer shareholder of the

company. However, such being a dispute question of facts is now sub

judice before this Court, for consideration in accordance with law."

Company Appeal (AT) No.152 of 2019 9

16. We are convinced with the reasoning of NCLT and appellants are unable

to convince us to take another view.

17. With the above discussions we are of the view that we find no ground

to interfere in the interim order passed by NCLT. Thus the appeal is

dismissed. No order as to cost.

(Justice Jarat Kumar Jain) Member (Judicial)

(Mr. Balvinder Singh) Member (Technical)

(Dr. Ashok Kumar Mishra) Member (Technical) New Delhi

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Company Appeal (AT) No.152 of 2019