Vestal Educational Services Pvt. Ltd vs Shri Lanka Venkata Naga Murlidhar & Ors

[Arising out of Order dated 01.01.2018 passed by National Company Law Tribunal, Hyderabad Bench in C.P. No.08/59/HDB/2017]

IN THE MATTER OF:

M/s. Vestal Educational Services Pvt. Ltd. Door No.30-15-6/1, Mallela Sri Rama Murthy Street, Vijaya Building, S.R. Puram, Vijayawada - 520002 ...Appellant (Respondent No.1)

Versus

1. Shri Lanka Venkata Naga Muralidhar S/o. (Late) Lanka Viswanadham, Flat 164, 6th Floor, Srila Heights, East marredpalli, Secunderabad - 500026 Respondent No.1 (Original Petitioner)

2. Ms. K.V.V.L. Kumari W/o. Kadimcherla Seethayya, Director, Vestal Educational Services Private Limited, R/o. No.17, II Floor, Malviya Nagar, New Delhi - 110017 Respondent No.2 (Original Respondent No.2)

3. Mr. Koruprolu Veera Venkata Subba Rao, Director, Vestal Educational Services Private Limited, R/o. 6-3-562/14/4, Vijaya Apartments, Erramanzil, Hyderabad - 500008 Respondent No.3 (Original Respondent No.3) 2

4. Mr. Nitin Sharma, Director, Vestal Educational Services Private Limited, R/o. R-1/32, Vijay Vihar, Uttam Nagar, New Delhi - 110059 Respondent No.4 (Original Respondent No.4)

5. Mr. Dhirendra Kumar Asri, Director, Vestal Educational Services Private Limited, R/o. A-604, Gayatri Apartments, Plot No.9, Sector 9, Dwarka, New Delhi - 110045

Respondent No.5 (Original Respondent No.5)

For Appellant: Shri Tarun Johri and Shri Ankit Saini, Advocates

For Respondents: Shri Arun Kathpalia, Sr. Advocate with Shri J. Krishna Dev, Ms. Bani Brar and Shri Siddharth Nath, Advocates (Respondent No.1)

Shri Arun Khatri and Shri Gagan Deep Panwar, Advocates (Respondent Nos.2 and 3)

JUDGEMENT

(16th November, 2018)

A.I.S. Cheema, J. :

1. This Appeal has been filed against Impugned Order and

Judgement dated 1st January, 2018 passed under Section 59 and 62 of

the Companies Act, 2013 ('Act', in brief) by National Company Law

Tribunal, Hyderabad Bench ('NCLT', in short) in CP No.08/59/HDB/2017.

Company Appeal (AT) No.65 of 2018 3

2. The Company Petition was filed by present Respondent No.1 - LVN

Muralidhar - original Petitioner, Ex. Director of Respondent No.1 Company

(present Appellant) claiming that deposits made by him to the extent of

Rs.1.54 crores in the account of Respondent No.1 Company (hereafter

referred as 'Company') was in the nature of loan paid to save mortgaged

properties and not for allotment of shares as was done by the Company in

purported Resolutions dated 18.12.2014 and 31.03.2015. NCLT accepted

the claim of Petitioner and declared the allotment of shares null and void

and held that the amount deposited by the Petitioner was loan and

deserved to be repaid with interest.

3. Copy of the Petition filed by original Petitioner (Annexure - 14 Page

- 177) shows that the Petitioner filed the Petition under Sections 59 and

62 of the Act and referred to the objects of Appellant Company (hereafter

referred as - 'Company') which were to run and operate schools, colleges,

etc. and stated that he was one of the shareholders of the Company who

had previously acted as Director from December, 2006 to October, 2011.

Petitioner stated that to establish infrastructure for the educational

institution, the then Board of Directors (which included him) had decided

to avail loan of Rs.10 Crores from State Bank of India in 2009 and for the

purpose, Petitioner was one of the personal guarantors. The term loan

became NPA in 2013 (which would be after the Petitioner ceased to be

Director in October, 2011). The Petition claimed that the Company entered

into a one-time settlement with the Bank and the State Bank issued letter

Company Appeal (AT) No.65 of 2018 4

dated 5th August, 2014 settling at Rs.5,50,000,00/- out of the then total

liability of Rs.7,25,000,00/- which was to be paid in 5 instalments as

provided in the sanction letter. Petitioner claimed that the Respondent

Company could not arrange to meet the one-time settlement scheme also

in the time frame and the bank threaten to cancel OTS at which time the

Directors of the Company (other Respondents in the matter) approached

the Petitioner in November, 2014 and requested him to lend

Rs.1,54,000,00/-. He accepted and deposited the amount through various

remittances on different dates between December, 2014 to March, 2015 in

the account of the Appellant Company which was at the State Bank of

India.

4. Petitioner claimed that he sent reminders to the Company for

repayment of the amount and also sent legal Notices dated 3rd June, 2015

and 18th June, 2015 asking for payment of the amounts which he had

advanced. The Notice sent to the Company came back unserved but the

other Notice sent to Director - KVV Subba Rao (Respondent No.3) was

served. Meanwhile, the Company sent a courier letter to the Petitioner

showing latest shareholding as on 31st March, 2015 and on verification,

Petitioner found that the amount lent by him had been converted into

equity without his knowledge, intimation or authorization. He claimed that

he had never made any request to allot shares and the Company had

illegally with intention to defraud and to avoid to pay his money allotted

the shares. According to him, the action of the Respondent Company was

Company Appeal (AT) No.65 of 2018 5

afterthought. After he had issued the Notices, the Company recorded

PAS 3 with the Registrar of Companies on 3rd July, 2015, to show the

allotment of shares dated 18.12.2014 and 31.03.2015.

5. The Petitioner claimed in the Petition that he immediately filed

complaint with ROC on 12th August, 2015, copy of which he filed. Company

submitted letter to ROC on 6th January, 2016. Referring to the same and

provisions of Section 62(1)(a)(i) of the Act, Petitioner claimed that there was

neither any offer nor Notice by the Company and no postal

acknowledgement had been filed or proof given of sending offer letter dated

18th December, 2014. He also pleaded that there was no material to show

that he had accepted the letter of offer and claimed that the amount

deposited by him was to the operating account of the Company and not to

any special account opened to receive the amounts relating to purported

rights issue. On such basis, the original Petitioner sought to set aside the

shares allotted and to direct the Company to repay his amount with

interest.

6. The Appellant - original Respondent No.1 Company through the

Respondent No.2 - Director - Ms. KVVL Kumari filed counter in NCLT. The

Respondent Company claimed that the original Petitioner and one B.V.

Babu had established the Company which was closely held by their

relatives and friends. The Petitioner was controlling the affairs of the

Company since incorporation. It referred to the establishment of the Vizag

International School and accepted that the Company had availed term loan

Company Appeal (AT) No.65 of 2018 6

of Rs.10 Crores and that the founder promoter including Petitioner were

under obligation to provide personal guarantee and securities in the form

of immovable properties towards securities for repayment of the term loan.

The counter shows admission of the Company that personal properties,

guarantees and pledge of shares was there by the promoters including

Petitioner. Counter stated that the Petitioner held through one of his

Companies - M/s. Annapurna Gardens Private Limited (as detailed in the

counter) which was also given as security for repayment of loan in favour

of SBI. The counter then referred to particulars as to how the Company

managed to bring up building and its operations and as to why due to

agitation of bifurcation of State, the company landed in difficulties. The

counter claimed that the lending bank filed application before Debt

Recovery Tribunal at Hyderabad and the promoters including Petitioner

decided to compromise with the lending bank. According to the Company,

in order to avoid distress sale of immovable properties which had been

offered as securities, decision was taken to compromise with the lending

bank. The bank claimed that on 18.12.2014, the Board of Directors

decided to make equity call. Para 12, 13 and 14 of the counter are as

follows:-

12. It is further submitted that the Board of Directors of the First Respondent Company in its meeting held on 18th December, 2014 decided to make equity call to all the existing Shareholders for subscription of shares on Right issue basis to meet the Funds requirement of OTS payable to the Bank with a view to save the Educational Institution being developed by the First

Company Appeal (AT) No.65 of 2018 7

Respondent Company and to get rid of the Loan and offered 85,00,000 equity shares of nominal value of Rs.10 each at par on proportionate basis.

It is further submitted that all the Promoters of the First Respondent Company including the Petitioner herein have brought their respective Amounts to save the Educational Institute and in that process, the Petitioner herein in order to save his Immovable Properties worth Crores of Rupees agreed to bring in the necessary Funds enabling the First Respondent Company to meet the payment to the Bank.

13. It is further submitted that in that process, several deliberations and discussions held among the existing Shareholders including the Petitioner and his associates of the First Respondent Company, wherein, it was categorically agreed that each of the Promoter shall bring in their proportion of the Amounts into the Company after the sale of their properties mortgage with the bank and in consideration thereto, the Company shall Issue further Share Capital to the existing Shareholders in terms of Section 62 of the Companies Act, 2013.

14. It is further submitted on that understanding only, the Petitioner herein in all invested a sum of Rs.1.54 Crores in First Respondent Company. It is further submitted that the Other Founder Promoters and Shareholders who were guarantors to the loan account and given securities in favour of SBI also brought their respective Amounts aggregating to Rs.6.88 Crores towards the subscription to right issue amounting to Rs.8.50 Crores and other allotments into the Company and accordingly paid the entire Amount towards Repayment of Loan to the Lending Bank. It is further submitted that since the existing Shareholders have agreed for Issuance of Additional Share Capital, for the Amounts brought in by the respective Shareholder, the procedure for Issuance of Additional Share Capital does not arise."

Company Appeal (AT) No.65 of 2018 8

7. The counter then referred to the shareholding as on 18 th

December, 2014 and the subsequent shareholding as on 31st March, 2015

to say that the shareholding of the original Petitioner has risen from 1.64%

to 12.14%. In para - 22 of the counter, Respondent Company (Appellant)

claimed that due to inadvertence, the Company could not file Return of

allotment in Form PAS 3 in respect of 46, 69, 222 and 37, 56 , 011 equity

shares with the Registrar of Companies and it was filed on 3rd July, 2015

with additional fees. Respondent Company claimed that deposit made by

the Petitioner could not be treated as debt and there was no kind of

arrangement or agreement to treat the same as debt. The Petitioner

through his Companies - M/s. Annapurna Gardens Private Limited and

M/s. Lastaki Management Consultants Pvt. Ltd. had filed winding up

petitions against the Appellant Company which were pending in the High

Court. With regard to Section 62, the counter claimed:-

"26. It is further submitted that as regards Issuance of Mandatory Notice as required under Section 62(2) of the Companies Act, 2013, it is submitted that pursuant to the collective decision taken at the Meeting of the Board of Directors of the First Respondent Company, the Petitioner herein has remitted the Amounts and as such, there is no need to obtain specific consent from the Petitioner herein. It is further submitted that remittance of Amounts by the Petitioner indicates the consent for Issuance of Additional Share Capital and thus, the entire Process of Allotment of Shares on 24th January, 2015 and also on 31st March, 2015 was in strict compliance with the Provisions of the Companies Act, 2013 and as such, the present Petition filed with malafide intention."

Company Appeal (AT) No.65 of 2018 9

8. The learned NCLT heard both sides and referred to the pleadings

of the parties in details and the admitted facts. The arguments and counter

arguments of the parties as made before the NCLT and which have been

repeated before us have been referred to by NCLT in its Impugned Order.

NCLT framed following issues:-

"(a) Whether the Company petition is maintainable under section 59 & 62 of the Companies Act 2013;

(b) Whether money Rs.1,54,000,00/- paid by the Petitioner is towards the share Application money or as a loan;

c) Whether the impugned shares are issued in accordance with law or not;

(d) If so, what is the relief, the petitioner is entitled for."

9. As the pleadings of parties would show and as noted by NCLT, the

fact that the original Petitioner was earlier Director and the fact that loan

of Rs.10 Crores was taken from State Bank of India is not in dispute. The

loan became NPA is also not in dispute as well as the fact that one-time

settlement was arrived at is also not in dispute. The fact that the original

Petitioner deposited Rs.1.54 Crores in the account of the Company held at

the State Bank of India is also not in dispute. The Petitioner acted as

Director from December, 2006 till October, 2011 is also undisputed. It

appears that after he ceased to be Director in October, 2011, he did not

take interest in the affairs of the Company.

Company Appeal (AT) No.65 of 2018 10

10. NCLT in its Impugned Order considered Section 59 as well as

Section 62 of the Act and observed in para - 12 of the Judgement as

follows:-

"The main issue in the instant case, as discussed supra, is not calling upon the shareholders to pay the unpaid share capital. As stated supra, it is the money in question paid by the Petitioner to the Company to re-pay loan to its Banker and its repayment to the petitioner. In fact, whether the Company has given proper notices or not, to petitioner about the impugned allotment of shares cannot be main issue and clubbing together both the issues are not proper. Even if it is accepted issue of notice offering impugned shares, admittedly, the petitioner has not given any consent for the alleged offer, and this is ultimately accepted by Company also by saying that the petitioner has conveyed his acceptance over phone. In fact, the Company has not produced any evidence with regard to issue of notice offering shares, and its acceptance of impugned shares by the petitioners. The contention of Company on 'phone acceptance" is not tenable in the light of strong denial by the petitioner, and it is hereby rejected. It is to be held that there is no offer and acceptance for the issue of impugned shares."

[Emphasis supplied by underline]

10.1 NCLT has then referred to the complaint filed by the Petitioner

with Registrar of Companies as well as the complaint he lodged on 17th

December, 2015 with the Institute of Company Secretaries against Mr.

Vikas Chandra, the Company Secretary of the Appellant Company who

filed PAS 3 without verifying necessary documents. NCLT noted the prima

facie opinion of the Company Secretary for initiating action against Mr.

Vikas Chandra and observed:-

Company Appeal (AT) No.65 of 2018 11

"the above facts and Circumstances clearly shows/establish that the petitioner has paid 1,50,00000/- (Sic - read - 1,54,00,000) to the Company and the Company has failed to return the money as agreed upon, and, on the contrary, it had tried to establish a counter case that the money in question was deposited with the Company for issue of impugned shares. As stated supra, the Company Secretary also failed to scrutiny the relevant documents while filing PAS-3. The Company cannot put the petitioner to test to prove that the money in question was given as loan, after having accepted it. As stated supra, it is the responsibility of Company to disprove that the money in question was not taken as loan by producing relevant evidence, as the receipt of money is not at all in question/dispute. Therefore, the impugned allotment of shares is liable to be declared as illegal and void."

10.2 For such and other reasons as recorded, the learned NCLT set

aside the allotments made by the Appellant Company and directed paying

back of the amount paid by the Petitioner. In the last para of the Impugned

Order, there appears to be error regarding the figure. There is no dispute

between both the parties that the amount deposited by the Appellant was

of Rs.1.54 Crores. However, in the last part of the Impugned Judgement,

the figure got referred as Rs.1,50,00,000/- (instead of Rs.1,54,00,000/-).

We are told by the Counsel for Respondent No.1 that he has moved

rectification application before NCLT on this count. Looking to admitted

fact regarding the figure, there should not be difficulty on this count.

11. Aggrieved, the present Appeal is raising grounds and it has been

argued for the Appellant Company that there was no documentary

evidence that Rs.1.54 Crores was given as a loan. According to the

Company Appeal (AT) No.65 of 2018 12

Appellant, NCLT should have considered the purport and intent behind

OTS proposal and objections which were to infuse funds towards equity

capital. According to the Appellant, it was error on the part of NCLT to hold

that the amount was to be treated as a loan. The sale of jointly held

mortgaged properties which were sold jointly and the sale proceeds which

were deposited into the bank towards equity infusion was a decision taken

by promoters which according to the Appellant, included the original

Petitioner. According to the Appellant, original Petitioner subscribed to the

fund in the Company having knowledge about the terms of the offer and

issuance of shares, its ultimate utilization and objective of the funds raised

which is to be treated as implied consent to the subscription of shares

under the rights issue and thus according to the Appellant, the original

Petitioner could not deny non-receipt of offer letter. It has been argued by

the learned Counsel for the Appellant that NCLT wrongly put burden on

the Company to show that the amount was not a loan.

12. According to the Appellant by letter dated 18.12.2014 (Page 151 -

Annexure A-9), offer was made regarding issue of 85,00,000 equity shares

at par on Right issue basis to existing shareholders and the original

Petitioner was shown as entitled/offered 1,39,541 shares. It is argued that

Annexure A-10 (Page - 158) shows the deposits made by the original

Petitioner in the account held in State Bank of India. Reference is made to

another Board Meeting dated 31st March, 2015 (Annexure 12 - Page 165)

vide which 14,00,459 shares were allotted to the original Petitioner.

Company Appeal (AT) No.65 of 2018 13

According to the Appellant, there was implied consent towards

subscription of shares under the Rights issue and in the facts of the

matter, the petition should have been dismissed by NCLT.

13. Against this, the learned Counsel for Respondent No.1 - original

Petitioner has supported the Judgement of the NCLT and submitted that

because the original Petitioner was caught in a situation where his

personal guarantees were there and as his properties were involved in the

security given to the bank, the original Petitioner wanted to come out of

the situation to save his properties and his assets. According to the

Counsel, the liability payable to the State Bank of India was of the

Appellant Company and to help out the Company in the situation and to

save his own interest, the original Petitioner had deposited the money so

that the one-time settlement does not fail. According to him, the Appellant

sent legal Notices on 10.06.2015 and 18.06.2015 (Reply - Diary No.3916

Page - 61 and 65) and only after such Notices were issued by the original

Petitioner claiming back the money, the Appellant Company disclosed that

it had done allotment of shares on 18.12.2014 and 31.03.2015. According

to the Counsel, this was an afterthought and documents were created

subsequent to the Notices issued by the Appellant which is clear from the

fact that the PAS 3 was submitted only on 03.07.2015. The Counsel

referred to the cognizance taken by the Institute of Company Secretaries

to initiate action against Company Secretary who had filed the PAS without

verifying any documents. According to the Counsel, the letter of offer dated

Company Appeal (AT) No.65 of 2018 14

18.12.2014 (Page - 151) was also a document subsequently created for

which there is no proof of offer having been sent to the original Petitioner

or any other shareholders and even if it was to be said that such offer was

sent, the same could not be accepted in the absence of any document to

show acceptance by the Petitioner of such offer. The Counsel submitted

that for the subsequent allotment said to have made on 31st March, 2015,

even this procedure was not tried to be shown and simply allotments of

shares were recorded. The shares are to be allotted in proportion of the

existing shareholding and not on the basis of the money deposited by the

Petitioner, which according to the Counsel was towards discharging

liability of the Company towards the Bank and thus could have been

treated only as loan. According to the Counsel, the deposit was not in any

special account opened for deposit of monies towards preferential offer

made. The learned Counsel for Respondent No.1 - original Petitioner

referred to the counter filed (Diary No.3916) to submit that the original

Petitioner had resigned not only from the Board of Directors of Appellant

Company on 25.10.2011 but also resigned from the other Company -

Vestal group including Vestal Schools Private Limited and was not taking

any interest into the affairs of those Companies. It has been argued that if

the allotments of shares shown on the basis of the two decisions dated

18.12.2014 and 31.03.2015 are cross-checked with the amounts

deposited by the original Petitioner, there is mismatch and it cannot be

said that there was any link between what amount was being deposited in

the Bank with what was stated to be allotment of shares against the

Company Appeal (AT) No.65 of 2018 15

deposits. The learned Counsel referred to the prima facie opinion recorded

by the Director (Discipline) under the Company Secretaries Act, copy of

which has been filed at Page - 95 with the counter (Diary No.3916) to

submit that the Director had, prima facie, found that the Company

Secretary had failed to verify the documents and records to show the share

application form of the complainant was there or that he had submitted

any letter of acceptance or that specific amounts as per letter of offer were

deposited. According to the Counsel, the disciplinary proceeding against

the Company Secretary - Mr. Vikas Chandra had been completed and he

has been found guilty during pendency of the present litigation. It has been

further argued by the learned Counsel for Respondent no.1 - original

Petitioner that Annexure - R-11 filed with the counter (Page - 107) shows

that when on September 4, 2015, the original Petitioner had sent e-mail to

K. Seethayya who has 76% shareholding in the holding Company of the

Appellant, sending draft of "Facility Agreement" with regard to the amounts

being deposited, K. Seethayya never responded that already shares had

been allotted and so question of entering into such documents did not

arise. On such basis, the argument is that the document relating to alleged

Board Meeting dated 18.12.2014 and 31.03.2015 as well as the alleged

offer letter dated 18.12.2014 have been created subsequently just to avoid

returning money of the original Petitioner.

14. We have gone through the record and the Impugned Order as well

as heard the learned Counsel for respective parties. Admittedly, earlier the

Company Appeal (AT) No.65 of 2018 16

original Petitioner was Director of the Company when loan was taken from

State Bank of India and the properties of the Director including Petitioner,

were mortgaged and there were personal guarantees given to which the

original Petitioner was party. Since 25.10.2011, the original Petitioner was

no more Director in the Company. The record shows that the Petitioner

was keen that the properties should not go in distress sale in proceedings

initiated by the State Bank and agreed to the one-time settlement. While

the Petitioner claimed that the amount deposited by him for settlement of

the liability of the Company, the Appellant Company and other

Respondents of this Appeal claim that in the process to pay back the

amounts due to the bank, the Respondents to the Company Petition had

resolved that against the amounts to be paid to the Bank, shares would be

issued. Looking to such claims made by the rival parties, naturally the

burden is on the Respondents to show when the payments made by the

original Petitioner, he had agreed that against the said amount, shares be

issued to him. Apart from this, it would be necessary for the Appellant

Company and the other Respondents to show that the necessary

procedures under the Companies Act, especially Section 62 of the Act were

complied. The Appeal claims that on 05.12.2013, the founder promoters

and Respondent No.1 (i.e. original Petitioner) agreed with Directors for

exploring OTS proposal and utilize sale proceeds as equity enabling the

Appellant company to make payment under OTS. For this, the Appellant

wants to rely on OTS proposal sent to the Bank on 05.12.2013 filed with

the rejoinder in this Appeal. This document is part of the additional

Company Appeal (AT) No.65 of 2018 17

documents slipped in the record of this Appeal by tagging the application

with rejoinder and not disclosing on the face cover of the file that the

application with additional documents was being filed. With regard to such

rejoinder relying on such additional document, which was not part of NCLT

record and which have been squeezed in along with the rejoinder, we had

passed the following order on 10th August, 2018:-

"O R D E R

10.08.2018 - Heard counsel for both sides. It appears that at Diary No.6282 Rejoinder has been filed by Appellant referring to and relying on additional documents which were not before NCLT and for which a separate application at Page 31 has been filed vide Diary No.6282. It was improper for the appellant not to have first applied and sought orders for admitting and relying on additional documents and to directly refer and rely on additional documents in the Rejoinder.

The learned counsel for appellant now states that they wanted to file additional documents with application but Registrar did not accept stating that the order of the Court would be necessary and so with the rejoinder the same have been filed. We find this to be still more inappropriate method of putting on record documents without permission of the Court.

For the above reasons, at the moment we will treat the Rejoinder as not on record as well as the application and documents tendered with it. At the time of final hearing in the course of arguments if it appears to us necessary in the interest of justice, we will consider the Rejoinder and application to file additional documents. Otherwise, the Rejoinder and application and documents filed with Diary No.6282, shall remain as not on record.

List the appeal for hearing on 27th August, 2018."

Company Appeal (AT) No.65 of 2018 18

The learned Counsel for the original Petitioner has questioned

these documents which were not filed in NCLT and now tendered in the

Appeal righty submitting that no reasons have been given as to why the

documents could not earlier be filed in NCLT. The learned Counsel for

Respondent No.1 - original Petitioner has argued that the additional

documents tendered also have documents which according to the original

Petitioner are fabricated and doctored documents. We will deal with the

application for additional documents and rejoinder separately but here we

may observe that even if the document at Annexure - C filed with the

Rejoinder (at Page - 65) was to be looked into, there is nothing to show

that the Petitioner agreed to the writing of such letter by the Company to

the Bank for one-time settlement. While making offer to the Bank, the

Company may show 10 various sources as to how it would raise money in

order to lure the Bank to settle the dispute but that does not mean that

the Petitioner agreed to writing such letter or that he agreed that the money

he will pay may be converted into equity/shares.

15. In the Appeal, para 7 - xxiv. reads as under:-

"xxiv. That in line with agreed intent among the promoters on 05.12.2013 and in line with commitment made in the OTS proposal to the Bank on 06.02.2014 to infuse sale proceed in the appellant company by the promoters, the board of the appellant company and the shareholders in its meeting held on 18.12.2014 respectively approved increase of the authorized share capital of the appellant company from Rs.5.00 Cr to Rs.15 Cr and authorized Board of the appellant company to offer, issue and allot necessary share capital to

Company Appeal (AT) No.65 of 2018 19

the promoters against the already infused funds as equity in the company and likely to be infused by them in order to meet OTS payment to the lending bank."

Thus what this paragraph of the Appeal is trying to say now is that

there was also shareholders meeting held on 18.12.2014. The counter in

NCLT of which paragraphs - 12 to 14 we have reproduced above, did not

claim that there was any shareholders meeting which would be either AGM

or EOGM on 18.12.2014. Whatever may be, the fact remains that neither

the Board Meeting Resolution dated 18.12.2014 has been filed nor any

material has been brought to show holding of EOGM on 18.12.2014.

Counsel for the original Petitioner (Respondent No.1) has submitted that if

there was EOGM, the original Petitioner did not have any Notice of any

such meeting. The Company and original Respondents have not proved

any such holding of EOGM or that due procedures were followed or that

Notice was served on Petitioner.

16. With regard to the letter of offer made on 18.12.2014 (Appeal

Annexure A-9 - Page - 151), there is no material to show that any such

letter of offer was issued to all the shareholders of the Company. As

required by Sub-Section (2) of Section 62 of the Act, there is no material to

show that such letter of offer was sent to the original Petitioner by

registered post or speed post or through electronic mode. There is no

document to show that the original Petitioner consented to such letter of

offer. As per Section 62(1)(a)(iii) of the Act, where such offer is made, after

Company Appeal (AT) No.65 of 2018 20

the expiry of time specified in the Notice or on receipt of earlier intimation

of declining to accept the shares offered, the Board of Directors may

dispose of the shares in such manner which is not disadvantageous to the

shareholders and the company. In the present matter, there is nothing to

show that the Petitioner accepted the offer. If he had not accepted the offer,

after the expiry of the time specified in the letter dated 18.12.2014 where

closing date was specified as 17.01.2015, there is nothing to show that the

Company acted in terms of the above Clause (iii). Rather what appears and

what is the case of the Appellant Company is that on 31.03.2015, as per

Board Meeting Resolution (Annexure -12 - Page 165), the Company simply

went on to allot further shares to the Petitioner.

17. Learned Counsel for the original Petitioner argued that according

to the Appellant Company, on 18.12.2014, the original Petitioner was

offered 1,39,541 shares which would be of the value of Rs.13,95,410/-.

The learned Counsel stated that if (Annexure A-10 Page - 158) the ledger

maintained by the Appellant Company was to be considered, till

14.01.2015, what the original Petitioner had deposited was Rs.67,50,000/-

and it is surprising to see that till 24.01.2015, the Appellant Company

claimed to have allotted shares worth Rs.13,95,410/- to the original

Petitioner. It is rightly argued by the learned Counsel that there is no

match between the amounts deposited by the original Petitioner with the

shares alleged to have been allotted.

Company Appeal (AT) No.65 of 2018 21

18. It has been argued on behalf of the Appellant Company that the

original Petitioner had knowledge about the offer letter dated 18.12.2014.

According to the Appellant, the original Petitioner was actively involved in

the affairs of the Appellant Company as well as holding Company - M/s.

Vestal Schools Private Limited. It is claimed that Vestal Schools Private

Limited had applied for equity shares for aggregate investment of Rs.3.93

Crores in the Appellant Company. For this purpose, the other Respondents

rely on the alleged letter dated 02.01.2015 sent by Vestal Schools Private

Limited filed as Annexure - 1 with the Reply of Respondent No.2 - Ms.

KVVL Kumari. The Appellant Company or the other Respondents have not

shown that such document was filed in NCLT. Apart from that, such

documents are brought forth after the counter filed by the original

Petitioner in this Appeal as Respondent No.1 vide Diary No.3916 filed on

19th March, 2018 where the original Petitioner has stated (para 4 - D Page

3) that he had chosen to resign from the Board of Directors of the Appellant

Company w.e.f. 25.10.2011 and not only did he resign from the Appellant

Company but also simultaneously, resigned from the affairs of the entire

Vestal group (including Vestal Schools Private Limited) and how

subsequently his shareholding in these Companies got diluted. The

Resolution of Board of Directors of Vestal Schools Private Limited dated

26th December, 2014, copy of which is at Page - 24 with the Reply of

Respondent No.2 (Diary No.5703) shows the present Respondent No.2

KVVL Kumari signing the certified copy as a Director and nothing is shown

that to any such Resolution the Appellant was party or had knowledge. We

Company Appeal (AT) No.65 of 2018 22

would not give weightage to such Resolution of Vestal Schools Private

Limited to attribute knowledge to the original Petitioner. This is apart from

the fact that the Company would still require to show that the original

Petitioner consented to any such conversion.

19. The same Resolution dated 26th December, 2014 has been made

part of the documents tendered by the Appellant with the Rejoinder. As

regards the application filed with the Rejoinder for filing additional

documents, we find that there are no reasons given as to why these

documents were not filed in NCLT. Alternatively, we find that even if we

look into such documents like the Board Resolution dated 26th December,

2014 of Vestal Schools Private Limited and that letter like alleged Board

Resolution dated 6th December, 2014 sent with letter dated 6th December,

2013 to the said Bank (Page - 55 of rejoinder), we are unable to convince

ourselves that the Petitioner was present or party to taking of any such

Resolution or agreed to the money he deposited (to rid himself of the

mortgaged liability and personal guarantees) to be converted into shares.

In the absence of any good reasons for the Appellant Company not to have

filed, such documents in NCLT and in the circumstances of the matter,

which creates doubts regarding genuineness of such documents, the

application for permission to file additional documents is rejected.

Alternatively, even if such documents are considered, they do not help the

Appellant to persuade us to take any other view of the matter as has been

taken by NCLT.

Company Appeal (AT) No.65 of 2018 23

20. The counter filed by the Appellant Company in NCLT (para - 14)

which we have already reproduced itself shows that the Appellant

Company conveniently brushed aside requirements to be followed of

Section 62 of the Act with spacious and vague pleading that existing

shareholders had agreed to issuance of additional share capital for the

amount brought in by respective shareholders and thus the requirement

to follow procedure for issuance of additional share capital did not arise.

21. We find that the Impugned Judgement and Order passed by NCLT,

Hyderabad is correct in the facts of the matter and there is no substance

in this Appeal. We proceed to dismiss the Appeal.

22. There is typing error in Operative Order (Para - 17) in direction -

3 which is apparent on the face of record. Although we are proceeding to

dismiss the Appeal and also propose to saddle the Appellant with costs, we

are also correcting direction - 3 of the operative Order regarding the typing

error in operative order of para - 17 of the Impugned Order under Rule 11

of the National Company Law Appellate Tribunal Rules, 2016 to meet the

ends of Justice.

23. We pass the following order:-

A) In the Impugned Order para - 17(3) at both places

where it is mentioned "Rs.1,50,00,000/-" read

"Rs.1,54,00,000/-". The Impugned Order is

approved with this correction of typing error.

Company Appeal (AT) No.65 of 2018 24

B) The Appeal is dismissed with costs. The Appellant

will pay Rs.1,50,000/- as costs to Respondent

No.1 - LVN Muralidhar. Other Respondents to

bear their own costs.

Disposed accordingly.

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

[Balvinder Singh] Member (Technical)

/rs/nn

Company Appeal (AT) No.65 of 2018