Sudhir John Horo vs Ideaworks Design & Strategy Private ...

[Arising out of Order dated 3rd May, 2021 passed by the National Company Law Tribunal, New Delhi, Bench-VI in Company Petition No. 118/241-242/ND/2019]

IN THE MATTER OF: Mr. Sudhir John Horo 157 C, Road No. 4, Ashok Nagar, Ranchi Jharkhand - 834002 ...Appellant No.1

Versus

1. Ideaworks Design & Strategy Private Limited Registered office: 73, National Park, Lajpat Nagar - IV New Delhi - 110024 amit@theideaworks.in ...Respondent No.1

2. Mr. Amit Shahi D-209, Sushant Lok Phase 1, Gurgaon Haryana - 122002 amit@theideaworks.in ...Respondent No.2

3. Mr. Shyam Santhakumari Vasudevan J-1008, Wembley Estate, South City 2, Sector - 49, Gurgaon Haryana - 122018 shyam@theideaworks.in ...Respondent No.3

4. Mr. Rajiv Krishan Nanda 73, National Park, Lajpat Nagar - IV New Delhi - 110024 ...Respondent No.4

5. August Company Consulting Services D-209, Sushant Lok Phase 1, Gurgaon Haryana - 122002 amit@theideaworks.in ...Respondent No.5

6. Mr. Alok Kumar Agrawal CEO, ASC Group 73, National Park, Lajpat Nagar - IV New Delhi - 110024 alok@acsgroup.in ...Respondent No.6

Company Appeal (AT) No. 98 of 2021 1 of 44 Present: For Appellant : Mr. Karan Malhotra & Mr. Ayush Pratap Singh, Advocates.

For Respondents : Mr. Vimal Kirti Singh, Mr. Kunal Mimani & Ms. Nandita, Advocates for R-1, 2 & 5. Mr. Sraghan Sabharwal & Mr. Shashwat Pratyush, Advocate for R-3. Mr. Rajiv K. Nanda, Party in person for R-4. Mr. Shashank Agarwal, Advocate for R-6.

(28th August, 2023)

Justice Anant Bijay Singh;

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

been filed by the Appellant being aggrieved and dissatisfied by the order dated

03.05.2021 passed by the National Company Law Tribunal, New Delhi,

Bench-VI in Company Petition (IB) No.118/241-242/ND/2019 whereby the

petition filed by the Petitioner (Appellant herein) under Sections 59, 241, 242

and/or other applicable Sections of the Companies Act, 2013 was dismissed

and held this petition is not maintainable.

2. The brief facts giving rise to this Appeal are as follows:

i) The Appellant herein, Mr. Sudhir Horo is the Promoter Director and

Shareholder of the Respondent No. 1 Company, holding 4500 equity shares

of Rs. 10/- each amounting to 45% of shareholding of the Respondent No.1

Company. The Appellant is a graphic designer and holds degree in

communication design with specialization in Graphic Design from the

prestigious National Institute of Design (NID), Ahmedabad. The Appellant has

worked on projects for various multinational corporations and Governments

Company Appeal (AT) No. 98 of 2021 2 of 44 of many countries including but not limited to the Governments of India,

France, United Kingdom etc. The Appellant had a key role to play in the affairs

of the Respondent No. 1 Company as he was responsible for developing brand

and communication strategies and creatives as per the clients requirements

etc. That the Respondents in collusion with the each other have made illegal

attempts to dilute the shareholding of the Appellant and to unlawfully oust

the Appellant from the Respondent No. 1 Company. That the Respondents

and in particular, the Respondent No. 2 in collusion with each other have

forged documents and fraudulently filed false and fabricated returns with the

RoC, showing that the entire shareholding of the Appellant in the Respondent

No. 1 has been transferred in favour of the Respondent Nos. 2 and 3, whereas

admittedly the Appellant has not transferred his shares in favour of the said

Respondents.

ii) The Respondent No. 1 Company is a closely held Private Limited

Company in nature of a quasi-partnership, incorporated by the Appellant and

the Respondent No. 2, being subscribers to the Memorandum and Articles of

the Respondent No. 1 Company. The Respondent No. 1 Company was

incorporated in the name of Ideaworks Design & Strategy Private Limited

(herein after referred to as the "Respondent No. 1 Company" / "Ideaworks")

under the Act with the Registrar of Companies, New Delhi on 24.06.2011 with

Corporate Identity No. U74900DL2011PTC221425. The registered office of the

Respondent No. 1 Company is at 73, National Park, Lajpat Nagar - IV, New

Delhi - 110 024.

Company Appeal (AT) No. 98 of 2021 3 of 44

iii) The Respondent No. 1 Company is involved in the business of providing

communication design, brand strategy and public diplomacy services. The

Respondent No. 1 Company has been managing various external

communication for India's business brands including the campaign at Davos,

Switzerland every January since the year 2006. The Appellant and the

Respondent No. 2 are known to each other for many years. That the business

relationship between the Appellant and the Respondent No. 2 in nature of

partnership commenced in the year 2006 when the Appellant started working

for the sole proprietorship firm of the wife of the Respondent No. 2. Later on,

the sole proprietorship was converted into a partnership firm between the

Appellant and the Respondent No. 2, with the profit sharing ratio being 45:55,

respectively. Thereafter, the Respondent No. 2 and the Appellant decided to

form a private limited company in form of a quasi-partnership and the

Respondent No. 1 Company was incorporated on 24.06.2011. It is pertinent

to note that the Appellant and Respondent No. 2 agreed to proceed with the

understanding that stood/existed between them in respect of partnership

firm. Meaning thereby, the Appellant was allotted 45% shareholding and the

Respondent No. 2 was allotted 55% of the shareholding in the Respondent No.

1 Company.

iv) As per the understanding between the Appellant and the Respondent

No. 2, the Appellant was responsible for developing brand and communication

strategies and creative as per the clients requirements etc. Whereas the

Respondent No.2 was responsible for the day to day affairs of the Respondent

No.1 Company such as matters relating to business development, finance i.e.

Company Appeal (AT) No. 98 of 2021 4 of 44 payments, maintenance of the bank accounts as he was the sole signatory of

the same, ledgers, passbooks, cheque books, bills, taxes and various other

statutory records of the Respondent No.1 Company and the same remained

in exclusive control of the Respondent No.2.

v) The Appellant being the cofounder and director of Ideaworks, over the

years contributed in augmenting the business/operations of the Respondent

No. 1 Company and his astute professionalism and creativity witnessed the

Respondent No. 1 Company grow leaps and bounds. It is pertinent to mention

that in or about February, 2017 the Appellant being a person of repute in his

field received an invitation from the Information and Public Relations

Department (Ranchi), Government of Jharkhand ("IPRD") to join their services

as an Advisor at the rank of Special Secretary. The Appellant thereafter

immediately informed the Respondent No. 2 about the said offer, which was

warmly welcomed by the Respondent No. 2. After rounds of discussions with

IPRD, the Appellant consented to the offer of IPRD. It may be noted that in

order to avoid any conflict of interest, it was decided that the Appellant would

resign as a director from the Respondent No.1 Company and disassociate from

its business operations. However, the Appellant continued as a shareholder

of the Respondent No. 1 Company.

vi) With the resignation of the Appellant from the Board of Directors the

Respondent No.1 Company on 18.03.2017, the Respondent No.3 was

appointed as a director of the Respondent No. 1 Company. It may be noted

that in order to facilitate the induction of Respondent No. 3 on the board of

Company Appeal (AT) No. 98 of 2021 5 of 44 the Respondent No. 1 Company, it was mutually agreed between the Appellant

and the Respondent No. 2 that they will transfer 250 shares (2.5%) each from

their respective shareholding in favour of the Respondent No.3. It is submitted

that on giving effect to the said understanding the shareholding pattern of the

Respondent No. 1 would have altered to 52.5% : 42.5% : 5% in favour of

Respondent No. 2, Appellant and Respondent No.3 respectively.

vii) However, it came to the knowledge of the Appellant that Respondent

No. 2 in connivance with the other Respondents has transferred the entire

shareholding of the Appellant in the favour of Respondent Nos. 2 and 3 by

fabricating and forging documents and statutory records of the Respondent

No. 1 Company. It may be noted that on 26.01.2019 the Appellant while

inspecting the records of the Respondent No. 1 Company on the MCA website

discovered that his shareholding in the Respondent No. 1 Company was

reduced to Zero as shown in the Annual Returns for the financial year ending

31.03.2018.

viii) The Appellant being shocked and uncertain of the said revelation

immediately on 26.01.2019 wrote an email to the Respondent No.2 and 3,

asking them if the same was correct. The Appellant received an email from

the Respondent No. 2 who clarified that it is true that 'on papers' i.e. as per

the official records the shareholding of the Appellant has been arbitrarily

reduced to 0% whereas in reality the shareholding ratio of the Respondent

No.1 Company was 52.5% (Respondent No.2) : 42.5% (Appellant) : 5%

Company Appeal (AT) No. 98 of 2021 6 of 44 (Respondent No.3). The Relevant extracts of the email reproduced as

hereunder:

"Horo The Simple Answer is ON PAPER (as per official records) YES The real answer is - NO (the real shareholding is Shyam-5%; You- 42.5; Me-52.5% ... The share distribution ON PAPER had changed to Shyam-5% and Me 95% ... our understanding had been that When our comeback after your Jharkhand tenure, the REAL shareholding will get formalised ON PAPER."

(Emphasis supplied)

ix) The Respondent No.2 about the illegal manner in which the

shareholding of the Appellant was reduced to Zero, the Appellant immediately

replied to the email of the Respondent No.2. The Appellant vehemently

objected to the unlawful and clandestine manner in which his shareholding

was diluted and sought clarification from the Respondent No. 2 that as to how

his shareholding was altered without his consent and moreover in absence of

any valid documentation. It may be noted that the Appellant has not signed

any document, share transfer form etc. for transfer of his shares in favour of

the Respondent Nos. 2 and 3. Feeling cheated and apprehending financial

fraud in the Respondent No. 1 Company the Appellant also requested for

copies of the accounts of the Respondent No. 1 Company since its

incorporation.

x) Thereafter, the Respondent evasively replied to the aforesaid email of

the Appellant and did not answer to the substantial objections of the

Appellant. The Appellant again replied to the email of the Respondent No. 2

Company Appeal (AT) No. 98 of 2021 7 of 44 laying down the entire procedure for transfer of shares and the necessary

documents required for the same, which were admittedly lacking in the

present case.

xi) On 28.01.2019 the Appellant was shocked to have received an email

from the Respondent No. 2 containing the share transfer documents of the

purported transfer of shares under challenge. After perusing the Form No.

SH-4 dated 24.04.2017 enclosed with the email, the Appellant was baffled to

find out that out of his 4500 shares of the Respondent No. 1 Company, 4000

shares have been shown to be transferred in favour of the Respondent No. 2

and 500 shares to the Respondent No. 3. It may be noted that the signatures

appearing on the Form SH-4 is not of the Appellant and the same has been

forged by the Respondents in order to completely oust the Appellant from the

Respondent No. 1 Company. It is submitted that the Appellant has not signed

any document for the transfer of aforesaid shares in favour of the Respondent

Nos. 2 and 3. The purported transfer of shares has been done in the most

clandestine manner and behind the back of the Appellant. The aforesaid

document containing the forged signatures of the Appellant was created by

the offices of Respondent No. 6, which can be clearly ascertained by the

contents of the said email itself.

xii) The Appellant has not received any monetary consideration as

mentioned in the fabricated Form SH-4. Moreover, it is a trite in law that any

transfer of share without proper instrument of transfer and consideration is

void in law. It is pertinent to note that after the feverous objections of the

Company Appeal (AT) No. 98 of 2021 8 of 44 Appellant, the Respondent No. 2 in his email of 29.01.2019 agreed to the

chain of events as mentioned above and offered to alter the shareholding

pattern to the earlier understanding of 52.5% (Respondent No. 2): 42.5%

(Appellant) : 5% (Respondent No. 3). It is submitted that the aforesaid email

of the Respondent No. 2 clearly shows the admission of the unlawful act done

by the Respondents behind the back of the Appellant in an illegal and

fraudulent manner. Relevant extracts of the email dated 29.01.2019 of the

Respondent No. 2 is reproduced herein below:

"Dear Horo ...Also, allow me to reassert that the switch from 5:95 to 5: 42.5 : 52.5 depends entirely on When you want it done... The change from 45:55 to 5:95 was done only to insulate you from any possible witch-hunt by detractors in Govt. of Jharkhand..."

(Emphasis supplied)

xiii) Thereafter, on 20.02.2019 the Appellant received an email from the

Respondent No. 3 containing therein share transfer forms to revise the

shareholding in terms of the earlier understanding of 52.5% (Respondent No.

2): 42.5% (Appellant) : 5% (Respondent No. 3). It may be noted instead of

nullifying the earlier transfer of shares, which was done in an illegal manner,

the Respondents requested the Appellant to sign on the share transfer forms

showing transfer of 4,250 shares from the Respondent No. 2. It is submitted

that by signing the said transfer forms, the Appellant would have been

indirectly forced to consent to the illegalities done by the Respondents and

moreover accepted the illegal shareholding pattern (by virtues of transfer of

shares) of the Respondent No. 1 Company. Therefore, the Appellant remained

vigilant and refused to sign the same. Moreover, since the Appellant had not

Company Appeal (AT) No. 98 of 2021 9 of 44 transferred 500 shares to the Respondent No. 3 the shareholding pattern of

the Respondent No. 1 Company would have remained illegal. Thus, the

Appellant refused to sign any document and asserted to revert the original

shareholding pattern i.e. Appellant having 4500 shares and Respondent No.2

having 5500 shares of the Respondent No. 1 Company.

xiv) The aforesaid illegal and surreptitious acts of the Respondents

irrefragably constitute an act of oppression and the same being blatantly

illegal is liable to be set aside. The aforesaid transfer of shares apart from

being effected illegally and clandestinely, are also part of a well thought out

scheme of the Respondent No. 2 to oust the Appellant from the Respondent

No. 1 Company. Further, based on the admission on the part of the

Respondents to their illegal acts and their willingness to revise the

shareholding and coupled with the fact that the purported transfer of shares

is blatantly illegal, the Appellant herein immediately approached the Hon'ble

NCLT, New Delhi by way of the captioned Company Petition inter alia praying

for setting aside the alleged transfer of shares and the Respondent No. 1

Company be accordingly directed to rectify the register of members in this

regard.

xv) The gross irregularities and illegalities with respect to affairs of the

Respondent No. 1 Company including fraudulent and illegal filing of returns

of the Respondent No. 1 Company with false and contents, illegal transfer of

shares, manipulation of records, siphoning of business etc. have drastically

surfaced during the recent times. Constrained by the increasing illegal and

Company Appeal (AT) No. 98 of 2021 10 of 44 mala fide acts of the Respondents, the Appellant had approached the Hon'ble

NCLT for redressal of his grievances concerning the acts of oppression and

mismanagement in the affairs of Respondent No. 1 Company.

3. Learned Counsel for the Appellant during the course of argument and

in his memo of Appeal along with written submissions submitted that the

crucial date for determination of requirement under Section 244 of the Act

will be date when the act of oppression and mismanagement in bringing down

the shareholding below 1/10th of the total shareholding of the company took

place. The shareholding of the petitioner is reduced below 10% because of the

act(s) of oppression and mismanagement and the said act(s) is the subject

matter of challenge in the company petition, the petition shall be maintainable

on the basis of the original undiluted shareholding. The Hon'ble NCLT while

overlooking the aforesaid settled principles of law erringly dismissed the

Company Petition No. 118/241/242/ND/2019 ("Company Petition") by way

of the impugned order dated 03.05.2021 while wrongly holding that the

Appellant has to first establish his right as a member of the Respondent No.1

Company, in complete disregard to the judgments of this Hon'ble Appellate

Tribunal.

4. It is further submitted that the Appellant is the promoter director and

shareholder of the Respondent No.1 Company, holding 4500 equity shares of

Rs.10/- each amounting to 45% of shareholding of the Respondent No.1

Company. The Appellant is the signatory to the MoA and AoA of the

Respondent No.1 Company which reflects the correct shareholding of the

Company Appeal (AT) No. 98 of 2021 11 of 44 Appellant. Admittedly, the shareholding pattern of the Respondent No.1

Company which existed prior to the illegal act of oppression and

mismanagement, reflecting the correct position and understanding between

the parties in the Annual Returns for the financial years ending 31.03.2016

and 31.03.2017 (Page Nos. Pg. 166 and 181 of the Appeal) is as under:

S. No. Name Number of Shares Percentage (Rs. 10/- each)

1. Mr. Sudhir John Horo 4500 45% (Appellant) 2. Mr. Amit Shahi 5500 55% (Respondent No. 2) Total 10,000 100%

5. It is also settled by this Hon'ble Appellate Tribunal that the reduction

of share capital is mixed question of facts and law and the same cannot be

decided at the preliminary stage. As such a petition filed under Section 241- 242 of the CA 2013, where shareholding of a member is reduced below the

threshold limit and the same is challenged as act of oppression, such petition

cannot be dismissed at the preliminary stage on the ground of

maintainability.

6. This Hon'ble Tribunal in the case of Anup Kumar Agarwal Vs. Crystal

Thermotech Ltd. and Ors. [2017] 204 CompCas 141 already settled this

principal as follows:

"31. The question of oppression and mismanagement and maintainability in the present case is a mixed question of facts and law. As the petition was filed on the ground that the shareholding of the applicant(s) has been brought down below 1/10th of the total shareholding of a Company by oppression

Company Appeal (AT) No. 98 of 2021 12 of 44 and mismanagement, Tribunal was required to decide the question of maintainability at the time of final hearing of the Petition. Both the merit and question of maintainability were required to be decided together..."

7. It is further submitted that the case of the Appellant is also supported

by the judgments of this Tribunal in the matters such as M/s. Therm Flow

Engineers Private vs Mr. Bhavesh Narumalani & Anr. [Company Appeal

(AT) Nos. 159 & 198 of 2017], Yamini Bipinchandra Shah & Ors. Vs.

Trimbak Estate Pvt. Ltd. & Ors. [Company Appeal (AT) No. 250 of 2018

and Montreaux Resorts (P) Ltd. and Ors. Vs Ascot Hotel & Resorts Ltd.

and Ors. [2018] 211 CompCas 205, wherein this Hon'ble NCLAT has relied

on principle laid down in the matter of Anup Kumar Agarwal and Ors.

(Supra).

8. It is further submitted that the Hon'ble NCLT has erroneously passed

the impugned order based on a judgment of the Hon'ble Gujrat High Court in

the matter of Gulabrai Kalidas Naik & Ors. vs Laxmidas Lallubhai Patel

& Ors. [(1977) 47 Comp Cas 51], which in the humbly submissions of the

Appellant are not applicable / distinguishable to the facts of the present case.

9. The impugned order is also liable to be set aside as the judgments of

this Hon'ble Appellate Tribunal which were placed before the Hon'ble NCLT

has been completely ignored / not dealt with by the Hon'ble NCLT.

10. The Appellant further submits that there is no requirement for seeking

waiver under Section 244 (1) of the CA, 2013 as the present shareholding of

Company Appeal (AT) No. 98 of 2021 13 of 44 the Appellant is not admitted and the oppressive act of reduction of the

shareholding of the Petitioner below 10% is a subject matter of challenge in

the present Appeal. Further, the present Appeal is a composite Appeal under

Section 59 and 241-242 of the CA, 2013 and therefore no application of waiver

is required.

Based on the aforesaid submissions the impugned order is fit to be set

aside and the appeal be allowed.

11. The aforesaid Appeal i.e. Company Appeal (AT) No.98 of 2021 was

preferred by the Appellant on 16.08.2021. Thereafter, on 02.09.2021, the

Learned Counsel for the Appellant appeared on behalf of Respondent No.1, 2

and 5 by filing caveat was discharged and they have directed to file reply

affidavit and further notices were issued to Respondent No. 3, 4 and 6. The

matter was directed to be listed on 09.11.2021 under the heading for

admission (after notice).

12. Further, on 09.11.2021 Learned Counsel for the Appellant was directed

to file hard copy of the Service Affidavit indicating the steps taken for issuance

of Notice on Respondent No. 3, 4 and 6, within one week. The matter was

directed to be listed on 14.12.2021. Further, from the perusal of the order

dated 30.08.2022, it appears that on that day, Counsel for the Appellant's,

Respondent Nos. 1, 2 & 5 and Respondent No. 4 were present. Further,

Learned Counsel for Respondent No. 4 submitted that he has not received the

copy of memo of Appeal. Learned Counsel for the respondent No.4 is directed

to serve his email address to the Counsel for the Appellant. Counsel for the

Company Appeal (AT) No. 98 of 2021 14 of 44 Appellant was directed to serve the soft copy of Memo of Appeal on the email

address of Respondent No. 4 and further learned Counsel for the Respondent

No. 4 was directed to file the hard copy of reply affidavit within three weeks.

13. Further, from the perusal of the order dated 15.11.2022, it appears that

Learned Counsel for the Respondent No.4 submitted that he does not propose

to file reply affidavit. Further, Learned Counsel for the Respondent No. 3 and

6 submitted that they also do not propose to file Reply Affidavit. Learned

Counsel for the Respondent No.2 and 5 have filed a Reply Affidavit. Thereafter,

the matter was directed to be listed on 24.01.2023 under the heading for

'Hearing'.

14. On 24.01.2023, Learned Counsels for both the parties were directed to

file hard copy of Written Submissions not exceeding three pages along with

relevant case laws within two weeks and the matter was directed to be listed

on 27.03.2023. Thereafter, the matter was adjourned to 17.05.2023 on that

day, the Counsel for Respondent No. 1, 2 and 5 was heard. Learned Counsel

for the Respondent Nos.3, 4 and 6 adopted the submissions made by

Respondent No.1, 2 and 5. Further the matter was heard on 28.07.2023.

15. On 28.07.203, Learned Counsel for the Appellant was heard at length.

Learned Counsel for the Respondent was also heard and both the parties were

directed to file Additional Written Submissions not exceeding three pages

along with the relevant case laws, within one week.

Company Appeal (AT) No. 98 of 2021 15 of 44

16. Learned Counsel for the Respondent No.2 and 5 have filed their Reply

affidavit and Written Submissions filed on behalf of the Respondent No.2 and

also during course of argument has submitted as follows:

i) The captioned Appeal has been filed by the Appellant challenging the

Order dated 03.05.2021 ("Impugned Order") passed by the Hon'ble National

Company Law Tribunal, Delhi ("Hon'ble NCLT") dismissing the Company

Petition No. 118/241/242/ND/2019 ("Company Petition") filed by the

Appellant under Sections 59, 241 and 242 of the Companies Act, 2013 ("Act").

Vide the Impugned Order, the Hon'ble NCLT allowed the application

challenging the maintainability of the Company Petition ("Application") filed

by the Answering Respondent and consequently dismissed the Company

Petition as being not maintainable.

ii) The Answering Respondent denies and disputes all allegations and

averments made in the Appeal as being false, devoid of merit and frivolous.

No part of the Appeal may be deemed to have been admitted by the Answering

Respondent for mere want of specific denial save what may be expressly

admitted herein.

iii) It is submitted that the Impugned Order is based on settled principles

of law and does not suffer from any infirmity. As such, the Impugned Order

does not warrant any interference from this Hon'ble Tribunal.

iv) In the Company Petition, the principal allegations raised by the

Appellant were as under: -

Company Appeal (AT) No. 98 of 2021 16 of 44 (a) The Appellant was the erstwhile holder of 4,500 shares of

Respondent No. 1 Company ("Company") constituting 45% of its share

capital; and that Respondent Nos. 2 and 3 have forged and fabricated

documents to give effect to transfer of these shares in their own favour,

thereby reducing Appellant's shareholding to zero; and

(b) Appellant then alleged that having thus ousted him from the

Company, Respondents mismanaged the affairs of the Company.

v) It is an admitted position that the Appellant neither held any shares of

the Company as on the date of the filing of the Company Petition i.e.

30.07.2019 nor holds any shares as on date. Appellant ceased to be a

shareholder of the Company with effect from 21.04.2017 by transferring his

entire shareholding in favour of Respondent Nos. 2 and 3. It is, therefore, an

undisputed fact that as on date of the filing of the Company Petition, the

Appellant did not hold any share in the Company. Under Section 244(1) of

the Act inter alia, only member(s) holding not less than one-tenth (10%) of the

issued share capital of a company can maintain a petition under Section 241.

Therefore, as correctly held by the Hon'ble NCLT, the Appellant was not

eligible to maintain a petition under Sections 241-242 of the Act.

vi) Further, even from a plain reading of the Company Petition, it was

evident that the transfer of shares of the Appellant was given effect to privately

between the Appellant and Respondent Nos. 2 and 3 without any engagement

or involvement of the Company. Thus, so far as transfer of shares is

concerned, the Company had no role and it was done privately.

Company Appeal (AT) No. 98 of 2021 17 of 44 vii) Section 241(1) of the Act, insofar as it is applicable to the present case,

is extracted below:

"241. (1) Any member of a company who complains that-

(a) The affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or

(b) .....

(c) may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter."

viii) On a plain reading of the above provision, it is evident that in order to

be able to invoke Section 241 of the Act, the Appellant must show that the

affairs of the Company have been or are being conducted in a manner unfairly

prejudicial to him or to public interest. In other words, the Company and

conduct of its affairs must be shown to be an instrument or means of

oppression. In the present case, as stated above, so far as the alleged

fraudulent transfer of shares is concerned, there was no involvement or

engagement of the Company. The transfer of shares which is now sought to

be disputed by the Appellant was done privately on the basis of documents

executed by the parties which, the Appellant now alleges, are forged and

fabricated. In these facts, since there was no engagement or involvement of

the Company in the transfer of shares impugned in the present Petition,

Appellant was not entitled to invoke Section 241 of the Act as has been rightly

held by the Hon'ble NCLT.

Company Appeal (AT) No. 98 of 2021 18 of 44 ix) It is settled law that dispute between shareholders with regard to

transfer of shares cannot be a subject matter of a petition against oppression

and mismanagement as also held by Hon'ble Supreme Court of India in its

decision in Chatterjee Petrochem (India) Pvt. Ltd. vs. Haldia

Petrochemicals Ltd., (2011) 10 SCC 466, which was followed by the Hon'ble

Bombay High Court in Nafan B.V. Vs. SAF Yeast Company Pvt. Ltd., (2016)

199 Comp Cas 644 holding that disputes regarding transfer of shares

between two shareholders was beyond the scope of jurisdiction of the Hon'ble

NCLT (earlier Company Law Board) under Sections 241 and 242 of the Act

(earlier Sections 397 and 398 of the Companies Act, 1956).

x) Therefore, it is submitted that the purported dispute raised by the

Appellant which purely concerns the private transfer of shares cannot be

made a subject matter of a petition under Section 241-242 of the Act.

xi) It is submitted that the allegations raised and reliefs claimed by the

Appellant qua the transfer of shares cannot be the subject matter of a petition

for rectification under Section 59 of the Act.

xii) In the Company Petition, the Appellant alleged that the Answering

Respondent transferred 4,000 equity shares of the Respondent No. 1

Company held by the Appellant to himself and 500 equity shares of the

Respondent No. 1 Company held by the Appellant to Respondent No. 3 by

forging and fabricating certain documents. On the basis of such allegation,

the Appellant sought a relief for declaration that the aforesaid transfer of

shares was null and void.

Company Appeal (AT) No. 98 of 2021 19 of 44

xiii) However, it is a settled position of law that the powers under Section

59 of the Act are summary in nature. It is submitted that while the Hon'ble

NCLT has powers to decide questions incidental and peripheral to the issue

of rectification, the Hon'ble NCLT has no power to decide complicated and

disputed questions of forgery and fabrication of documents or pass

declaratory reliefs of declaring private transfer of shares as null or void, which

issues are neither incidental nor peripheral to the issue of rectification.

Reliance is placed on the decision of the Hon'ble Supreme Court of India in

Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers

Pvt. Ltd. & Ors., (1998) 7 SCC 105.

xiv) It is submitted that jurisdiction of the Hon'ble NCLT is exclusive if the

matter truly relates to rectification. However, in the present case the

allegations and issues of forgery and fabrication of documents raised by the

Appellant are alien to rectification and are not within the exclusive

jurisdiction of the Hon'ble NCLT under Section 59 or any other provision of

the Act (Refer Jai Mahal Hotels Pvt. Ltd. v. Devraj Singh and Ors., (2016)

1 SCC 423). Further, the Hon'ble NCLT, Hyderabad in Tondapi Srinivasa

Rao & Anr. v. Abhaya Cements Pvt. Ltd., 2018 SCC Online NCLT 24280

has held that issues of fraud and forgery are beyond the jurisdiction of the

Hon'ble NCLT. It is humbly submitted that the Hon'ble NCLT has no power to

decide on the issues of forgery and fabrication of documents or declare private

transfer of shares as null or void.

xv) The Hon'ble NCLT has rightly followed the settled position of law as also

laid down by the Hon'ble High Court of Gujarat in Gulabrai Kalidas Naik

Company Appeal (AT) No. 98 of 2021 20 of 44 & Ors. v. Laxmidas Lallubhai Patel & Ors., (1977) 47 Comp Cas 151

that if the petitioner's title to membership is in dispute, and he has to seek a

relief of the rectification for getting his name placed on the register of

members to clothe himself with the rights of a member, it would be improper,

till that dispute is decided, to permit such a person to maintain a petition for

oppression and mismanagement because the Appellant is not a member. Reliance is also placed on the decision of the Hon'ble NCLAT in Nisha

Rajsakha v. BND Fashions Pvt. Ltd. & Ors., 2017 SCC Online NCLAT

243.

xvi) In any view of the matter, even assuming that a composite petition

under Sections 59, 241 and 242 of the Act as filed by the Appellant is held to

be maintainable, the allegations of forgery, fraud and fabrication of

documents raised by the Appellant in the Petition cannot be a subject matter

of a petition under Section 59 of the Act.

xvii) In these facts, it is quite clear that the remedy for the Appellant is to

first establish his rights as a member of the Company in accordance with law

before a Court of competent jurisdiction, and thereafter, provided he

succeeds, seek his remedy against the alleged mismanagement and

oppression through a petition under Sections 241 & 242 of the Act.

xviii) Without prejudice to the above, it is submitted that in cases involving

composite petitions such as the present case, where title to shares, which

entitles a person to maintain a petition under Section 241 of the Act is in

dispute, the same should be adjudicated first without considering the matters

Company Appeal (AT) No. 98 of 2021 21 of 44 under Section 241 (Refer Turner Morrison Ltd. & Ors. v. Jenson and

Nicholson (India) Ltd., (1998) 93 CompCas 347 (CLB)).

xix) Appreciating the above submissions urged on behalf of the Answering

Respondent, the Hon'ble NCLT correctly passed the Impugned Order holding

the Company Petition to be not maintainable. The Impugned Order is based

on the correct application of the provisions of the Act and settled principles

of law. As such, the present Appeal is devoid of merits and liable to be

dismissed with costs.

xx) Apart from the above, it is further submitted that the Appellant is guilty

of suppression of material facts and making false statements in the Company

Petition. The story set up by the Appellant in the Company Petition as well as

the captioned Appeal is fabricated and twisted to suit his convenience. In this

regard, the Answering Respondent craves leave to refer to and reply upon the

Reply filed by the Answering Respondent to the Company Petition before the

Hon'ble NCLT.

xxi) It is submitted that the Hon'ble NCLT has dismissed the Company

Petition on the ground of the same not being maintainable without

adjudicating on the merits of the Company Petition. However, since the

Petitioners has made several false and baseless allegations in the Appeal, it

is important to briefly set out the true and correct facts leading up to the filing

of the Company Petition: -

Re: Details of incorporation of the Company and its affairs prior to

2017

Company Appeal (AT) No. 98 of 2021 22 of 44

a) In 2004, the Appellant was introduced to the Answering

Respondent by a common acquaintance as a freelance graphic

designer. During this time, the Answering Respondent was heading

the Delhi branch of Ambience Public is Advertising Pvt. Ltd, a reputed

company in advertising. The Answering Respondent was impressed

with Appellant's work and he, therefore, decided to give him

opportunity to enhance his career profile. Accordingly, Answering

Respondent started engaging him as Creative Consultant on multiple

prestigious projects up to 2006. This was an important break for the

Appellant to showcase his talent.

b) In 2006, the Answering Respondent quit his job at Ambience

Public is Advertising Pvt. Ltd. and started his business under the

Ideaworks (a proprietary concern of Answering Respondent's wife). In

this new venture too, Answering Respondent continued his

association with the Appellant. The Appellant was thus engaged by

the Answering Respondent as a Creative Consultant for different

projects and he was compensated as mutually agreed on project

basis.

c) Pertinently, in its initial days, the proprietorship firm underwent

financial problems on a few occasions. The Answering Respondent

infused funds or managed to procure funds for the firm on each of

the occasions to ensure its continuity and sustainability. For

instance, in January 2011, the firm faced a huge financial crisis.

Company Appeal (AT) No. 98 of 2021 23 of 44 Answering Respondent arranged for an unsecured loan of INR 1.4

Crore from a close relative to keep the business of the firm afloat.

d) Owing to the business acumen and professional network of the

Answering Respondent, business and reputation of the firm grew and

many important assignments were obtained and executed by the firm.

e) In late-2010, a Swiss firm evinced interest in investing in the

Ideaworks. After deliberations with the potential investors, it was

decided to set up a private limited company to facilitate the proposed

investment. Accordingly, Ideaworks Design & Strategy Pvt. Ltd. i.e.

the Company was incorporated in June 2011.

f) At the time of incorporation of the Company, the shareholding of

the Appellant was 45% and the shareholding of the Answering

Respondent was 55%. Appellant and Answering Respondent were the

two directors of the Company. Contrary to the Appellant's allegation,

there was never a partnership firm or like arrangement with a 45:55

profit sharing arrangement between the Appellant and the Answering

Respondent.

g) During this period, the Appellant and the Answering Respondent

enjoyed mutual trust, respect and affection. As is usual in small

businesses, the day-to-day operations of the Company was conducted

in an informal manner with the knowledge, consent and cooperation

of all employees of the Company including the Appellant and the

Company Appeal (AT) No. 98 of 2021 24 of 44 Answering Respondent. Throughout this period, the Appellant did not

raise any grievance or any complaint with regard to conduct of

business operations of the Company at any point of time. In fact, the

Appellant himself was a Director of the Company till 18.04.2017. He

was a joint signatory to all operational bank accounts, party to all

decisions of the Company / Board of Directors of the Company and

signed all Financial Statements and Directors' Reports of the

Company till the Financial Year 2015 - 16.

h) There is, therefore, no question of Appellant raising any dispute

or controversy with regard to the conduct of business operations of

the Company during this period. The allegation of mismanagement of

affairs of the Company for this period, if any, must therefore be

outrightly rejected. Appellant cannot be permitted to raise any

controversy in that regard after a lapse of over two years and after

enjoying the benefit of employment with the Company without any

demur or protest until his resignation as the Director as discussed

below.

Re: Transfer of shares held by the Appellant in the Company and

resignation from directorship in April, 2017:

i) In the year 2015, the Company along with another associate

agency had begun working on communication and advertising for the

Information and Public Relations Department (Ranchi), Government

Company Appeal (AT) No. 98 of 2021 25 of 44 of Jharkhand, owing to the Answering Respondent's professional

connections and reputation.

j) During this time, Appellant expressed his desire to return to

Ranchi, his native town, for personal reasons. As mentioned above,

the parties still shared mutual respect and affection, and the

Answering Respondent was therefore keen to help the Appellant in

any way he could.

k) In March - April 2016, the Government of Jharkhand had taken

out a tender inviting bid for managing the business of Jharkhand

State Brand. Though the Company submitted its bid, it was

unsuccessful in its bid because of high cost of services.

l) Around this time, through a friend of the Answering Respondent

in Government of Jharkhand, an opportunity arose for the Appellant

to work as an advisor to the IPRD, Government of Jharkhand. As soon

as this opportunity arose, since the Answering Respondent wanted to

help and support the Appellant in moving to Ranchi as he had

desired, he facilitated his appointment in the above position. The

process of appointment finally concluded with an offer of appointment

in February- March 2017.

m) One of the pre-conditions for this appointment was that the

Appellant must not have any other professional or commercial

interests. The relevant provision of the Contract dated 17.04.2017,

Company Appeal (AT) No. 98 of 2021 26 of 44 which the Appellant subsequently entered into with the Government

of Jharkhand, incorporating the condition is as follows:

"10. Non-compete

a) You represent end warrant to the Department that you are under no contractual, fiduciary, professional, or other obligation or commitment that prevents you from entering into this employment, or is otherwise inconsistent with your obligations under this contract. if you were previously employed with another organization, you represent and warrant to us that you have returned all property and confidential information belonging to any prior employer and do not have any outstanding issues/unfulfilled employment obligation pending with your previous legal ramifications I consequences for you or for us.

b) During your employment with the Department, you will devote your whole time, attention and skill to your ability for its services and you shall not, except with the written permission of the Department, engage directly or indirectly in any other business, profession, occupation or other commercial activity, whether as a principal, agent, contractor, consultant or otherwise, whether full-time or part-time.

c) In recognition of the Confidential Information or Intellectual Property to the Department, you hereby agree not to directly or indirectly compete with the business of the Department and/or its successors and signs during the term of the contract and for a period of 12 months following the expiration or termination of this contract and notwithstanding the cause of reason or termination......."

Company Appeal (AT) No. 98 of 2021 27 of 44 n) Further, the Company had continued to provide service to the

Government of Jharkhand. Company was also expecting award of a

very big project which was under consideration of the Government of

Jharkhand.

o) Therefore, if the Appellant were to hold any stake or interest in

the Company after his appointment by the Government if Jharkhand,

it would have given rise to a serious conflict of interest rendering the

Appellant liable to prosecution.

p) In the above circumstances, Appellant resigned as a Director of

the Company vide his resignation letter dated 15.04.2017. The.

documentation for transfer of shares held by him was completed in

these circumstances to enable him to accept the aforesaid

appointment without having any risk of liability on account of conflict

of interest.

q) The shareholding of the Company before and after transfer of

shares at par value is set out below:

Shareholder Shareholding Shareholding before the after the transfer transfer

Appellant 45% - Respondent No.2 55% 95% Respondent No.3 - 5%

Company Appeal (AT) No. 98 of 2021 28 of 44 r) In a subsequent email dated 29.01.2019, the Appellant now

alleged that he did not remember signing the Securities Transfer

Forms.

s) In an email dated 21.05.2019, the Appellant stated that he very

clearly recalled that he had transferred 2,500 shares to Respondent

No. 3 on the same day that he had signed his resignation letter from

the Company.

t) In a subsequent email dated 06.06.2019, the Appellant now

alleged that he only transferred 500 shares to Respondent No. 3.

u) However, in the Company Petition, the Appellant now alleged

that he did not sign any document, share transfer form etc. for

transfer of his shares in favour of Respondent Nos. 2 and 3.

v) Therefore, it is evident that the Appellant has been taking

contradictory stands at different instances. The story set up by the

Appellant and his allegations in the Petition are completely false,

unreliable and merit no consideration from this Hon'ble Tribunal.

w) As stated above, the Appellant had also resigned from the Board

of Directors of the Company vide his letter dated 15.04.2017. Form

DIR-11 was also filed with the Registrar of Companies under Section

168(1) of the Act read with Rule 16 of the Companies (Appointment

and Qualification of Directors) Rules, 2014 pursuant to such

resignation. Appellant has not disputed this letter or his signature on

Company Appeal (AT) No. 98 of 2021 29 of 44 this letter. The signature of the Appellant on his resignation letter is

the same as appearing on the Securities Transfer Form. Therefore,

the Appellant's allegation that the signatures on the Securities

Transfer Forms are not his is baseless.

x) The Appellant has further alleged that the Answering

Respondent transferred the shares of Appellant in his own name to

gain undue pecuniary benefits. However, this allegation is also false.

This is evident from the fact that the Company did not declare any

dividends for the FY 2017-18 even though it made significant profits

during this year while the Answering Respondent held 95% shares.

y) It is submitted that suppression of such material fact by the

Appellant amounts to playing fraud on the Hon'ble NCLT as well as

this Hon'ble Tribunal. Such conduct of the Appellant disqualifies him

from grant of any equitable relief rendering the Company Petition and

the present Appeal liable for an immediate dismissal. The Appellant

has come to Court with unclean hands disentitling him from any relief

from the Hon'ble NCLT or this Hon'ble Tribunal.

xxii) Apart from the above, the Appellant has also made a few other baseless

allegations against the Answering Respondent in the Company Petition.

However, it is submitted that the Appellant has no locus to raise these

objections since he has ceased to be a member of the Company. Without

prejudice to the above, it is submitted that the Appellant has made these

false allegations solely to create prejudice against the Answering Respondent.

Company Appeal (AT) No. 98 of 2021 30 of 44 The Answering Respondent craves leave to refer to and rely upon its Reply to

the Company Petition in this regard if the need so arises.

xxiii) Therefore, it is respectfully submitted that the captioned Appeal is

liable to be dismissed in limine with exemplary costs.

xxiv) Without prejudice to the aforesaid, a para-wise response to the Appeal

is as under. All submissions made hereinabove may be read as part of the

para-wise responses to the Appeal which are not being repeated again for the

sake of brevity.

a) Contents of paragraphs 1 to 6 of the Appeal merit no response.

b) All allegations and averments in paragraph 7(1) of the Appeal are

denied for the reasons stated hereinabove save what may be expressly

admitted hereinafter. It is denied that the Appellant is a shareholder

of the Company holding 4,500 equity shares of Rs. 10/- each

amounting to 45% of shareholding of the Respondent No.1 Company.

As stated above, the Appellant has transferred his entire shareholding

in favour of Respondent Nos. 2 and 3. Appellant is put to strict proof

qua the averments about his qualifications. It is denied that the

Respondents in collusion with each other have made any illegal

attempts to dilute the shareholding of the Appellant or to unlawfully

oust the Appellant from the Respondent No. 1 Company. It is denied

that the Respondents in collusion with each other have forged any

documents or fraudulently filed false and fabricated returns with the

RoC.

Company Appeal (AT) No. 98 of 2021 31 of 44 c) With respect to the contents of paragraph 7(2) of the Appeal, it is

denied that the Company is in the nature of a quasi-partnership. Rest

of the contents of the paragraph do not merit a response.

d) With respect to the contents of paragraph 7(3) of the Appeal, it is

denied that the business relationship between the Appellant and the

Respondent No. 2 was ever in nature of a partnership. It is denied that

the Appellant started working for the sole proprietorship firm of the

wife of Appellant in 2006. As set out in detail above, the Appellant and

the Answering Respondent started working in the proprietorship firm

of the Answering Respondent's wife in 2006. It is denied that the sole

proprietorship was ever converted into a partnership firm between the

Appellant and the Answering Respondent, with the profit sharing ratio

of 45:55 as alleged. It is submitted that the Company was incorporated

in the year 2011. At the time of incorporation, the Appellant held 45%

shares and Answering Respondent held 55% shares in the Company.

The Company was never formed as a quasi-partnership as alleged.

There was never a partnership firm between the Appellant and

Answering Respondent and no such arrangement/understanding

existed between the Appellant and Answering Respondent qua the

Company.

e) With respect to the contents of paragraph 7(4) of the Appeal, it is

denied that the Answering Respondent was in exclusive control of the

day-to-day affairs of the Company such as matters related to business

Company Appeal (AT) No. 98 of 2021 32 of 44 development, finance i.e. payments, maintenance of bank accounts

etc. It is denied that the Answering Respondent was the sole signatory

of bank accounts, ledgers, passbooks, cheque books, bills, taxes or

other statutory records of the Company. It is submitted that the

Appellant was a joint signatory of the bank accounts/cheque books

etc. of all bank accounts of the Company except one at State Bank of

Patiala (which has not been operated since 2012).

Appellant regularly signed cheques and bank documents on

behalf of the Company till April, 2017. He also signed the financial

statements and Directors' Report of the Company from its inception

till the financial year ending 31.03.2016. Appellant was fully involved

in the business and commercial decision-making process of the

Company till his association with the Company. Pertinently, the

Answering Respondent does not have the sole authority to sign any

cheques on behalf of the Company in respect of any of its accounts.

f) With respect to the contents of paragraphs 7(5) & 7(6) of the Appeal: -

i) It submitted that the Company flourished on account of

the network, reputation and hard-work of the Answering

Respondent and the entire team of the Company. The self-

serving statements of the Appellant to suggest that he was the

one responsible for the growth of the Company are

misconceived.

Company Appeal (AT) No. 98 of 2021 33 of 44 ii) It is further clarified that the Appellant received the

opportunity to work for the Government of Jharkhand on

account of the professional network of the Answering

Respondent. It was the Answering Respondent who facilitated

such opportunity for the Appellant as indicated hereinabove.

iii) As detailed hereinabove, since the Appellant's contract

with the Government of Jharkhand barred him from having any

other professional or commercial interests, the Appellant

resigned as a director of the Company vide his resignation letter

dated 15.04.2017, and Respondent No. 3 was appointed as the

other Director on the Board of Directors. The documentation for

transfer of shares held by the Appellant was completed in these

circumstances to enable him to accept the aforesaid

appointment without having any risk of liability on account of

conflict of interest. All allegations to the contrary are denied.

g) With respect to the contents of paragraph 7(7) of the Appeal, it is

denied that the Answering Respondent in connivance with the other

Respondents transferred the entire shareholding of the Appellant in

favour of the Answering Respondent and Respondent No. 3 by

fabricating or forging any documents or statutory records of the

Company. It is denied that the Appellant became aware on 26.01.2019

that his shareholding in the Company was reduced to zero from the

Annual Returns for the financial year ending 31.03.2018. Appellant

Company Appeal (AT) No. 98 of 2021 34 of 44 had voluntarily transferred his shares in favour of Respondent Nos. 2

and 3 and was well aware of revised shareholding pattern of the

Company all along.

h) With respect to the contents of paragraph 7(10) of the Appeal, it

is denied that the Answering Respondent gave any evasive responses

to the emails of the Appellant. The requisite documents pertaining to

the transfer of shares and resignation of the Appellant as a director of

the Company were duly provided to the Appellant on 28.01.2019.

i) With respect to the contents of paragraph 7(11) of the Appeal, it

is submitted that: -

a) the Answering Respondent also apprehends that the

Appellant would attempt to mislead this Hon'ble Tribunal by

alleging that the signatures on the Securities Transfer Form were

not his and are different from the signatures appearing on the

MoA and AoA of the Company. However, it would be pertinent to

note that there was a repeated issue faced by the Company since

the Appellant's signatures on cheques and bank documents

frequently mismatched. As such, a communication dated

31.07.2013 was also addressed to Axis Bank, Sector 46, Gurgaon

intimating them about the issue and furnishing the revised

signature of the Appellant. This communication was signed by

the Appellant along with an application rev1smg his signature

which was also signed by him.

Company Appeal (AT) No. 98 of 2021 35 of 44 xxv) With respect to the contents of paragraph 7(14) of the Appeal, it is

denied that the transfer of shares by the Appellant to Respondent Nos. 2 and

3 was illegal and surreptitious, or constituted an act of oppression. It is

denied that aforesaid transfer of shares was effected illegally or clandestinely,

or is a part of any scheme of the Answering Respondent to oust the Appellant

from the Company. It is denied that the Answering Respondent has admitted

to any illegal act as none has been committed. It is denied that the transfer

of shares was liable to be set aside. It is denied that the any rectification of

register of the Company was warranted in the present case. The Company

Petition filed by the Appellant was not only not maintainable in law but was

also misconceived on facts.

xxvi) With respect to the contents of paragraph 7(15) of the Appeal, it is

denied that any illegal or irregular acts have been committed qua the affairs

of the Company as alleged or at all. The Company Petition and the allegations

contained therein were completely devoid of merits as set out hereinabove

and in the Reply to the Company Petition filed by the Answering Respondent.

xxvii) The contents of paragraphs 7(16) and 7(17) of the Appeal do not merit

any response insofar as they concern matters of record. However, it is

reiterated that the Company Petition was not maintainable for the reasons

set out hereinabove as also in the Impugned Order. Further, the Answering

Respondent had also filed a rejoinder in response to the reply filed by the

Appellant to the Application filed by the Answering Respondent.

Company Appeal (AT) No. 98 of 2021 36 of 44 xxviii) With respect to the contents of paragraph 7(18) of the Appeal, the

principle of law urged by the Appellant is completely inapplicable in the

present case. As stated above, the transfer of shares in the present case was

part of a private arrangement between the Appellant and Respondent Nos. 2

and 3 without any involvement of the Company. The Company had no role to

play in such transfer. As such, the transfer of shares, even if assumed to be

irregular, did not constitute oppression and mismanagement in the affairs of

the Company within the meaning of Sections 241 and 242 of the Act. The

Answering Respondent craves to further deal with such submission/s of the

Appellant at the time of hearing.

xxix) With respect to the contents of paragraphs 7(19) and 7(20) of the

Appeal, it is denied that the Impugned Order is in derogation or disregard to

the precedents set by this Hon'ble Tribunal. It is denied that the Impugned

Order was passed without application of mind or in a mechanical manner. It

is submitted that the Hon'ble NCLT correctly held that the title of the

Appellant to the shares of the Company was in dispute and that the Appellant

is not a member of the Company. It is denied that the Impugned Order is non-

speaking, cryptic or unreasonable and is, in fact, based on the settled

principles of law after recording the detailed submissions made by the parties.

xxx) With respect to the contents of paragraphs 8(1)(A) and 8(1)(B) of the

Appeal, it is denied that the Hon'ble NCLT erred in recording that the title of

the Appellant is in dispute. It is reiterated that the Appellant had voluntarily

Company Appeal (AT) No. 98 of 2021 37 of 44 transferred his shareholding in the Company in favour of Respondent Nos. 2

and 3 as detailed hereinabove.

xxxi) The purported Questions of Law raised in paragraph 8(2) of the Appeal

would be dealt with by the Answering Respondent in response to the Grounds

urged by the Appellant in the Appeal.

xxxii) With respect to the contents of Grounds 9(A) to 9(E) of the Appeal, it is

submitted that the transfer of shares in the present case was carried out

privately by the parties without involvement of the Company. Without

prejudice to the fact that the transfer of shares was legal and valid, such

private transfer of shares even if assumed to be invalid did not constitute an

act of oppression or mismanagement within the meaning of Section 241 or

242 of the Act. It is submitted that the Company had no role to play in the

transfer. In other words, the Company was not used an instrumentality in

the alleged act of oppression or mismanagement complained of in the present

case. Therefore, the principles cited by the Appellant have no application in

the present case. It is submitted that the contention of the Appellant that the

issue of maintainability ought to have been decided by the Hon'ble NCLT at

the time of final hearings is completely misconceived. It is submitted that the

issue of preliminary objection qua the maintainability ought to be decided at

the first available opportunity. In any case, the procedure adopted by the

Hon'ble NCLT was based on a sound exercise of its discretionary powers

which does call for any interference from this Hon'ble Tribunal.

Company Appeal (AT) No. 98 of 2021 38 of 44 xxxiii) With respect to the contents of Ground 9(I) of the Appeal, it is denied

that the Impugned Order is unreasonable or unsustainable. It is denied that

the Hon'ble NCLT has not appreciated the settled position of law.

xxxiv) With respect to the contents of Ground 9(J) of the Appeal, it is

respectfully submitted that the decision of this Hon'ble Tribunal in Anup

Kumar Agarwal & Ors. v. Crystal Thermotech & Ors., (2017) 204 Comp

Cas 141 is inapplicable to the facts of the present case. It is submitted that

this decision dealt with a case where the shareholding of the petitioner had

been reduced below the threshold limit on account of further allotment of

shares by the majority shareholders. Such further allotment of shares was

alleged to be an act of oppression. The facts in this case show that the

shareholding of the petitioner therein was reduced through the conduct of the

affairs of the company rather than through private action or transaction;

company was the instrumentality of oppression by majority. In these facts,

this Hon'ble Tribunal was justified in upholding the maintainability of the

petition. In contrast in the present case, so far as the transfer of shares is

concerned, there was no involvement or engagement of the Company.

xxxv) With respect to the contents of Grounds 9(K) and 9(L) of the Appeal, it

is denied that the Impugned Order is unreasonable or unsustainable. It is

submitted that the Impugned Order duly records and deals with the

arguments and submissions of the parties.

xxxvi) With respect to the contents of Grounds 9(M) and 9(N) of the Appeal,

it is denied that the Hon'ble NCLT committed any miscarriage of justice or

Company Appeal (AT) No. 98 of 2021 39 of 44 failed to apply its judicial mind. It is submitted that the judicial

pronouncements relied upon by the Appellant were completely inapplicable

in the present case. It is denied that Hon'ble NCLT violated any precedents of

this Hon'ble Tribunal.

xxxvii) With respect to the contents of Grounds 9(0) to 9(U) of the Appeal,

all allegations and averments of the Appellant are denied. It is denied that the

Hon'ble NCLT committed any error or committed any oversight. It is denied

that the Impugned Order is perverse or against the principles of justice, equity

or good conscience. It is submitted that the Impugned Order does not suffer

from any infirmity as alleged by the Appellant and does not warrant any

interference from this Hon'ble Tribunal.

xxxviii) The contents of paragraphs 10 to 20 of the Appeal do not merit

any response.

xxxix) With respect to the contents of paragraph 21 of the Appeal, it is

submitted that the prayers sought therein are misconceived and liable to be

rejected for the reasons set out above.

Based on the aforesaid submissions, there is no merit in the appeal, the

Appeal may be dismissed.

17. After hearing the parties and going through the pleadings made on

behalf of the parties, we observe that the order passed by the National

Company Law Tribunal, New Delhi, Bench-VI in Company Petition (IB)

No.118/241-242/ND/2019 dated 03.05.2021 and keeping in view the

Company Appeal (AT) No. 98 of 2021 40 of 44 provisions of Section 244 of the Companies Act, 2013, which reads as

hereunder:

"244. Right to apply under section 241: (1) The following members of a company shall have the right to apply under section 241, namely: --

(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares;

(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members:

Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241.

Explanation. --For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member.

(2) Where any members of a company are entitled to make an application under sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them."

And the substantial submission of the Appellant which is as under:

Company Appeal (AT) No. 98 of 2021 41 of 44 "The applicant has challenged the maintainability of the present petition on the account that the Petitioner does not hold requisite shareholding as prescribed under Section 244 of the Companies Act, 2013 ("Act"). In present case, the Petitioner's shareholding has been reduced below 10% (nil) on account of illegal transfer of shares. The petition under Section 244 would be maintainable as the shareholding of the petitioner has been reduced below 10% due to allegedly illegal transfer of shares, which has been challenged in the petition being one of the cause of action and therefore, the petition cannot be dismissed at the threshold, It may be noted that if the date of presentation of the petition should be looked into in a technical way, it could defeat the very purpose of the legislative enactment of Section 241 of the Act, as the overbearing majority shareholders can simply by high-handed action or even for other purpose and by oppressive methods, dismember minority shareholders and leave them with no remedies, as the dismembered minority shareholders technically will not thereafter qualify for maintaining a petition under Section 244 of the Act, being not member at all. As the minority shareholders will be complaining only after the acts occurred and when they have been removed from the membership of the company, the understanding and interpretation to be given to Section 244 is only so as to Author the object of relief to be given in a situation governed by Sections 241 of the Act and not to foreclose the options to an aggrieved person and to deny the very relief sought to be extended to a complaining minority shareholder/s envisaged under Sections 244 of the Act."

The Adjudicating Authority has rightly considered the submission of

the Appellant and has observed as under:

Company Appeal (AT) No. 98 of 2021 42 of 44 "We have heard the arguments put forth by both the counsels and perused the various documents submitted by them. This Tribunal is of the view that the petitioner has to first establish his right as a member of the respondent company before going into the issues concerning oppression and mismanagement of the company. As has been held by the Hon'ble High Court of Gujarat in Gulabrai Kalidas Naik & Others vs. Laxmidas Lallubhai Patel & Others case that if the petitioner's title to membership is in dispute and he has to seek a relief of the rectification for getting his name placed on the register of members to clothe himself with the rights of a member, it would be improper, till the dispute is decided, to permit such a person to maintain a petition for oppression and mismanagement because the petitioner is not a member. This observation holds good in this case and as a consequence this petition is not maintainable.

In view of the above, the petition is disposed of as non- maintainable"

18. We are of the considered view that the NCLT has rightly held that the

petitioner (Appellant herein) has to first establish his right as a member of the

Respondent Company before going into the issues concerning oppression and

mismanagement of the Company.

19. Keeping in view the aforenoted facts, we do not find any merit in the

instant Appeal to interfere with the order impugned passed by the NCLT. The

impugned order dated 03.05.2021 passed by the National Company Law

Tribunal, New Delhi Bench, Bench-VI in Company Petition (IB) No.118/241-

Company Appeal (AT) No. 98 of 2021 43 of 44 242/ND/2019 is hereby affirmed. The instant Appeal is hereby dismissed. No

order as to costs.

20. Registry to upload the Judgment on the website of this Appellate

Tribunal and send the copy of this Judgment to the National Company Law

Tribunal (New Delhi Bench, Court-VI), forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical) New Delhi 28th August, 2023

pks

Company Appeal (AT) No. 98 of 2021 44 of 44