Vijaya Hospitality & Resorts & Ors vs Sibi C. K. & Ors

IN THE MATTER OF: Before NCLT Before NCLAT

1. Vijaya Hospitality & Resorts Ltd, Kochi-682020 Represented by its Director, Mrs Shalini Vijayan, 37/991, First floor, Emmy Square, S.A. Road, Kadavanthra, Residing at Flat No.6A, Vijaya Glimpses, Jawahar Nagar, Kadavanthra, Kochi-682020. 1st Respondent 1st Appellant

2. C.K. Vijayan, S/o Krishnankutty, Director/Chairman, Vijaya Hospitality & Resorts Ltd, 37/991, First Floor, Emmy Square, S.A. Road, Kadavanthra, Kochi-682020 Represented by his POA, Mrs Shalini Vijayan, Residing at Flat No.6A, Vijaya Glimpses, Jawahar Nagar, Kadavanthra, Kochi-682020. 2nd Respondent 2nd Appellant

3. Mrs Shalini Vijayan, Director, Vijaya Hospitality and Resorts Ltd, Reg Office at 37/991, First Floor, Emmy Square, S.A. Road, Kadavanthra, Kochi 682020 Residing at Flat No.6A, Vijaya Glimpses, Jawahar Nagar, Kadavanthra, Kochi-682020. 3rd Respondent 3rd Appellant

4. Saira Thampi Krishna, W/o Late Thampi Krishna,

Company Appeal (AT) No.168/2017 2

Director, Vijaya Hospitality and Resorts Ltd, Regd Office at 37/991, First Floor, Emmy Square, S.A. Road, Kadavanthra, Kochi 682020 Residing at Flat No.7A, Vijaya Glimpses, Jawahar Nagar, Kadavanthra, Kochi-682020. 4th Respondent 4th Appellant

5. Akshay Vijayan, Son of Sh C.K. Vijayan, Director, Vijaya Hospitality and Resorts Ltd, Reg Office at 37/991, First Floor, Emmy Square, S.A. Road, Kadavanthra, Kochi 682020 Residing at Flat No.6A, Vijaya Glimpses, Jawahar Nagar, Kadavanthra, Kochi-682020. 6th Respondent 5th Appellant

Versus

01.Sibi C.K. S/o Sh C.K. Krishnankutty, Ex-Director Vijaya Hospitality & Resorts Ltd Reg Office at 37/991, First Floor, Emmy Square, S.A. Road, Kadavanthra, Kochi 682020 Residing at Chanjamattathil House, Flat No.7D, Vijaya Glimpses, Jawahar Nagar, Kadavanthra, Kochi-682020. 1st Petitioner 1st Respondent

02.Mr K.C. Baboo, s/o Krishnankutty, Ex-Director, Vijaya Hospitality & Resorts Ltd, 37/991, First Floor, Emmy Square, S.A. Road, Kadavanthra, Kochi-682020 Residing at Chanjamattathil House, Piravom, Ernakulam District, Kerala State 2nd Petitioner 2nd Respondent

Company Appeal (AT) No.168/2017 3

03.Somen C.K., s/o C.K. Krishnankutty, Chanjamattathil House, Piravom P.O., Pin-6886664, Muvatrtupuzha Taluk, Ernakulam Distt. Residing at Chanjamattathil House, Chottanikkara P.O., Pin 682312, Kerala. 3rd Petitioner 3rd Respondent

04.Salija Somen W/o Somen c.K., Chanjamattathil House Piravom P.O., Pin-6886664, Muvatrtupuzha Taluk, Ernakulam Distt. Residing at Chanjamattathil House, Chottanikkara P.O., Pin 682312, Kerala. 4th Petitioner 4th Respondent

05.Eva Sibi, W/o C.K. Sibi, Chanjamattathil House, Flat No.7D, Vijaya Glimpse, Jawahar Nagar, Kadavanthra Kochi 682020, Kerala. 5th Petitioner 5th Respondent

06.M.J. Suraj Prakash, S/o M.K. Jayaprakash, Residing at Prakash Bhavan, Kanimangalam P.O., Pin 680027, Thrissur Taluk, Thrissur District, Kerala. 6th Petitioner 6th Respondent

07.P.K. Ramanujam S/o Late Kittu, IX/661A, Perinkulangara House, Kannamkulangara P.O. Chiyyaram Village, Thrissur Taluk, Trissur District Kerala. 7th Petitioner 7th Respondent

08.V. Venugopalan, S/o :ate Ravimmo Maor. Sreerangam House,

Company Appeal (AT) No.168/2017 4

Puthur P.O. Pin 678001 Palakkad II Village, Palakkad District, Kerala. 8th Petitioner 8th Respondent

09.Radhika Venugopalan, W/o Venugopalan, Sreerangam House, Puthur P.O. Pin 678001 Palakkad II village, Palakkad District Kerala. 9th Petitioner 9th Respondent

10.Karthikeyan Menon, S/o Damodara Menon, XI/74, Kuttamkulam, Irinjalakuda P.O. Pin 680121 Mukundapuram Taluk, Thrissur Distt, Kerala. 10th Petitioner 10th Respondent

11.Varghese Chacko, S/o M.V. Varghese, Chithira, Vizhatt House, (Manjamattathil) Piravom P.O., Pin 686664 Ernakulam Distt. Kerala. 11th Petitioner 11th Respondent

12.V.P. Jose, S/o V.C. Porinju, Vadakut Vihar, Puthenpally P.O. Pin 680101 Thrissur Distt. Kerala. 12th Petitioner 12th Respondent

13.Subhash Vasudevan, S/o Vasudevan, Residing at Flat No.5D, Dukes, Skyline Imperial Garden, Kaloor, Ernakulam,

Company Appeal (AT) No.168/2017 5

Kochi 682018. 7th Respondent 13th Respondent

14.The Federal Bank Ltd, Ernakulam, Vyttila Branch, Thammanam Road, Vyttila Junction, Kochi-682019, Ernakulam District Kerala. 8th Respondent 14th Respondent

JUDGEMENT

BALVINDER SINGH, MEMBER (TECHNICAL)

The appellants have filed this appeal, under Section 421 of the

Companies Act, 2013, being aggrieved by the impugned order dated

18.4.2017 passed in TCP No.185/2016 (CP nO.68/2015) filed in National

Company Law Tribunal, Division Bench, Chennai (NCLT in short) whereby the

Company Petition has been decided vide impugned order dated 18th April,

2017.

2. This appeal was earlier heard by this Appellate Tribunal and the same

was dismissed vide order dated 24.5.2017. Being aggrieved by the order dated

24.5.2017 of the Appellate Tribunal the appellant filed Civil Appeal

No.9100/2017 before the Hon'ble Supreme Court of India. The Civil Appeal

was heard by the Hon'ble Supreme Court of India and vide order 21.7.2017

remanded the matter and permitted the parties to argue the matter on merits.

3. On receiving the orders dated 21.7.2017 of the Hon'ble Supreme Court

of India, the matter was listed, parties were given opportunity to argue and

submit their written synopsis and lastly the matter was reserved for

judgement.

Company Appeal (AT) No.168/2017 6

4. The brief facts of the case are that 1st appellant was incorporated on

3.11.1999 with the main object of carrying on business of travel and tourism,

hotels and resorts and it was converted into a public limited company on

4.8.2000. 2nd appellant, 1st respondent, 2nd respondent and Late Mr. Thampi

Krishna, all four brothers, were the first directors of 1st appellant. As per

Article 15(b) of the Articles of Association that all the first directors shall be

permanent directors, not liable to retired by rotation. 2nd appellant was

appointed the Chairman and Late Mr. Thampi Krishna was appointed the

Managing Director of 1st appellant. The primary business of 1st appellant is

running a resort by the name of Elephant Court in Thekkady, Kerala. During

the year 2005-06, 1st appellant borrowed money from financial institution for

its project. During the period 2000 to 2010 several group companies were

formed. Business of the group concerns grew considerably, with the result

two brothers busy with business ventures in UAE and 1st respondent in the

steel business of the family and this left the door open for 2nd appellant to

deliberately carry out all kinds of mismanagement in the respondent

company.

5. Mr. Thampi Krishna passed away on 23.11.2011 and immediately

thereafter 2nd appellant appointed himself as the Managing Director of the

Company. 2nd appellant then backdated appointed 3rd appellant, his wife, and

13th respondent as director to a date prior to the demise of Mr. Thampi

Krishna. 2nd appellant forged the signatures of 1st and 2nd respondent and

filed the forged resignation letters before the ROC to illegally remove the

Respondents from management of the company. 2nd appellant then appointed

5th Respondent and 4th appellant as Directors. 2nd appellant later on

Company Appeal (AT) No.168/2017 7

appointed original 5th respondent in the company petition as director of 1st

appellant. Due mismanagement of the company under 2nd appellant the 1st

appellant's account with the Bank was declared as NPA and proceedings

under SARFEASI Act were initiated. There are other mismanagement done in

1st appellant. This compelled 1st to 5th respondent to file Company Petition

No. 68/2015 before the Company Law Board and coming into existence NCLT

and petition was transferred and was renumbered as TCP No.185/2016.

6. Reply to the company petition was filed and after hearing the parties

the Tribunal passed the order dated 18.4.2017. Relevant portion of the same

is as under:-

2. The allegations of the petitions are about the oppression

and mismanagement, transmission of shares of shares

including and illegal transfer of shares. The details of the

allegations with regard to transfer of shares of the 2nd

petitioner to the 2nd respondent is provided under Para XVIII

at Page 17 of the company petition. The same is not

mentioned in the annual returns filed by the 1st respondent

company. The table mentioned under the said para

indicates the shares purportedly held by the 2nd respondent

by fraudulent means as nothing reflects from the annual

returns as to how the shares of Respondent-2 have been

increased and the shares of Petitioner-2 have been

decreased. It is a closely held public limited company.

Nothing is reflected from the annual returns for the year

2011-12 filed by the 1st respondent company signed by 2nd

Company Appeal (AT) No.168/2017 8

Respondent (available at Page 199 to 210) Besides this, the

other allegations are with regard to illegal appointment of

Shalini Vijayan (R3) and Subhash Vasudevan (R7) as

Directors on 2.8.2011 which has not been regularised as per

Section 257 of the Companies Act, 1956. Hence they ceased

to be the Directors on 30.9.2011. Even R7 in his counter

filed on 16.11.2015 disputed his appointment as Director.

3. It has been alleged by the petitioners that Saira Thampi

(R4) has also been appointed illegally as Director on

27.3.2012 for which no Board resolution was passed. There

are allegations of forged resignation letters of C.K. Sibi (P1)

and Baboo C.K. (P2) who have illegally been removed from

the Board on 7.6.2012. It is further alleged in the company

petitions that there is illegal transmission of 3,452,825

shares on 29.3.2012, of late Thampi Krishna to his widow,

viz. Saira Thampi (R4) by ignoring the other legal heirs.

5. The petitioner also alleges illegal appointment of

Mannoor Raghavan Ajaykumar (R6) as Managing Director

and illegal change in designation of Mr.C.K. Vijayan (R2)

from Managing Director to Chairman on 19.2.2014. The

other allegation is with regard to the illegal appointment of

Akshaay Vijayan (R6) as Director on 28.6.2014, as shown in

the documents placed at Page 179 (Annexure 15) of the

petition.

6. xxx

Company Appeal (AT) No.168/2017 9

7. The counsel for petitioners has drawn our attention to

the Articles of Association wherein under Para 15(b) at Page

26 of the typeset it has been mentioned that the first

directors of the company are C.K. Vijayan, C.K. Thampi

Krishna, C.K. Sibi (P1) and C.K. Babu (P2). C.K. Thampi

Krishna expired while Petitioners 1 and 2 were removed

from the Directorship. Neither notice was given nor Board's

resolution was passed. However, R1 to R4 and R6 have not

properly controverted the allegations levelled in the

company petition and in the absence of reasonable

explanation, the illegal actions are not sustainable as there

is non-compliance with the provisions of the Companies Act.

The detailed allegations in the CP and the documents filed

in support thereof established that the answering

respondents have been running the company without

following the provisions of law and taken decisions to have

control over the 1st respondent company and sidelined the

petitioners. As they have not been allowed to participate in

the Board Meetings and no notice has been served on the

petitioners for holding the AGM. Therefore, as Directors and

shareholders, their rights were being violated continuously,

which constitutes oppression. The element of

mismanagement is also established against the respondents

because due to diversion of funds there is huge liability of

1st respondent company, for which R8 has already taken

Company Appeal (AT) No.168/2017 10

steps to recover the entire outstanding. However, this Bench

vide order dated 12.01.2017 has passed directions

permitting the petitioners to infuse funds in order to satisfy

the claim of R8, i.e. Federal Bank. The said order shall form

part of this order.

8. Therefore, in order to provide substantial justice to the

petitioners and to end the matter complained of, we are

inclined to grant further reliefs as follows:-

(a) We remove R3, R4, R5 and R6 from the post of Directors

by declaring their appoints as illegal and appoint

Petitioners 1 and 2 as Directors of R1 company and P1 shall

discharge the functions of the Chairman and Managing

Director of the 1st respondent company; We remove R2 from

the post of the Chairman of the company. However, he shall

perform the functions of the Director of 1st respondent

company;

(b) We also set aside the transmission of shares of late

Thampi Krishna to Mrs Saira Thambi (R4) and direct the

company to enter the names of all the legal heirs of the

deceased Thampi Krishna equally including Mrs Saira

Thampi .

(c) We also cancel the illegal transfer of shares from Baboo

K.C. (Petitioner-2) to C.K. Vijayan (Respondent-2) as being

totally forged and fabricated and direct the 1st respondent

company to rectify the register by restoring the name of

Company Appeal (AT) No.168/2017 11

Petitioner-2 and his shareholding pattern as was existing

on 30.09.2010.

Besides the above, the Petitioner-1/Petitioner-2 are directed

to file the copy of INC 28 which shall be registered by the

Registrar of Companies concerned within 30 days from the

date of passing this order. Accordingly, the Company

Petition TCP 185 of 2016 (CP 68/2015) is disposed of. The

file shall be consigned to record after due completion.

7. Being aggrieved by the said impugned order dated 18.4.2017 the

appellants have preferred the present appeal on the following grounds:

i) Illegal transfer of shares of 2nd respondent to 2nd appellant.

ii) Illegal appointment of number of directors.

iii) Illegal removal of 1st and 2nd respondent from the directorship

iv) Illegal transfer of shares of Thampi Krishna to his wife Smt Saira

Thampi.

v) Company petition is filed beyond the period of limitation

vi) Appointment of 2nd appellant to the post of Chairman is legal.

vii) 1st respondent cannot be made Chairman & Managing Director of

1st appellant.

viii) No oppression and mismanagement has taken place.

8. We have heard the learned counsel for the parties and perused the

record.

9. The 1st issue raised by the learned counsel for the appellant is that in

the year 2011-12 2nd respondent was holding 5.16% of shares and 1st

respondent was holding 3.6% shares and the remaining 10 persons of their

Company Appeal (AT) No.168/2017 12

group were holding around 7% shares collective. It is further stated that the

2nd appellant was holding 36.9% shares and Thampi Krishna was holding

31.7% of the total shares. Around 14% shares of the remaining were held by

the group of 2nd appellant. It is, therefore, admitted that the group led by 2nd

respondent and 1st respondent were holding around 15.6% whereas the

group of 2nd appellant was holding 84.4%. These facts clearly demonstrates

that even if miniscule shares have been transferred in the name of 2nd

appellant, the shareholding pattern remains the same and the group of 2nd

and 1st respondent remains in minority. It is further stated that it is not their

case at all that because of illegal transfers they have become a minority group.

It is reiterated that these shares were transferred as per the arrangement

arrived at between 2nd appellant and 2nd respondent. There is no illegality as

alleged. Learned counsel for appellant further stated that transfer of shares

took place in the year 2011 and the company petition has been filed in

September, 2015, much beyond the period of limitation.

10. Learned counsel for the respondents drawn our attention to Page 54 of

the Appeal which is showing the shareholding pattern of 2nd appellant and 2nd

respondent as on 30.9.2011 and 29.9.2012 which is as under:

Name of Shareholder As per AR of 2012 As per AR of 2011

As on 29.9.2012 As on 30.09.2011

C.K. Vijayan (R-2) now 4280486 4014600

2nd appellant

Company Appeal (AT) No.168/2017 13

Baboo K.C. (P-2) now 445664 561550

2nd respondent

Hari Thekkethill - 125000

Sudha Hari - 25000

Learned counsel for the respondent submitted that the shareholding pattern

of 2nd respondent has been decreased by 115886 shares from 30.9.2011 to

29.9.2012 whereas the shareholding pattern of 2nd appellant has increased

from by 265886 shares from 30.9.2011 to 29.9.2012. Learned counsel for

the respondents explained that the break up of 265886 shares is that the

2nd appellant got transferred 150000 shares of Hari Thekkethill and Sudha

Hari and the remaining 115886 shares has been added. Learned counsel

for respondents further stated that the shareholding of 2nd respondent has

been decreased by 115886 shares from 30.9.2011 and the shareholding of

2nd appellant has been increased by 115886 shares from 30.9.2011.

11. We have heard the learned counsel for both the parties. We are not

satisfied with the version of learned counsel for the appellant that these

shares were transferred as per arranged arrived at between 2nd appellant and

2nd respondent. No proof for such arrangement has been produced before

this Tribunal. Further 2nd appellant has not produced the transfer forms by

which these shares were transferred and further the appellants have stated

in their reply before the NCLT that the shares were purchased as

contemplated under law. Further there is no averment or documentary

evidence to show that any consideration was paid by 2nd appellant for the

Company Appeal (AT) No.168/2017 14

shares in question. Therefore, we see no illegality in the impugned order

passed by the NCLT on this issue.

12. The other issue raised by the appellant is that the shares of Mr. Thampi

Krishna were legally transferred to Ms Saira Thampi. Learned counsel for the

appellant submitted that at the time of death, Mr.Thampi Krishna was holding

31.7% shares. Learned counsel for appellant further submitted that at the

time of death, his wife was survived by two minor daughters, therefore, the

entire shares were transferred in her name. Learned counsel further stated

that the mother of Thampi Krishna was alive at the time when his shares were

transmitted in favour of 4th appellant but ultimately her shares also dwelled

back to 4th appellant as per the local law. Therefore, there was no illegality in

transfer of shares and no prejudice has been caused to 1st to 12th respondents

and neither their share holding pattern was changed.

13. Learned counsel for the respondents submitted that Mr. Thampi

Krishna was director of 1st appellant and husband of 4th appellant died

intestate and pursuant to Hindu Succession Act, his shares should have been

transmitted to all Class I heirs and not only to 4th appellant. Learned counsel

for the respondents submitted that as per the Annual Return of 2011-12, the

shares of Mr. Thampi Krishna were directly transferred to 4th Appellant

without submitting any heir certificate. Further the appellants have also

failed to produce any Board Resolution or documents effecting this transfer.

Learned counsel for the respondent submitted that they are not making any

claim but they want that proper procedure be followed for transmission of

shares of Late Mr. Thampi Krishna.

Company Appeal (AT) No.168/2017 15

14. We have heard the learned counsel for the both the parties. We also

observe that the shares have been directly transmitted in the name of 4th

appellant without adopting proper procedure. We are in agreement with the

directions given by NCLT on this issue to enter the names of all the legal heirs

of the deceased Thampi Krishna equally including 4th appellant.

15. The other issue raised by the appellants is that the NCLT has wrongly

appointed 1st and 2nd respondent as director and also wrongly removed 3rd to

5th appellant and 5th original respondent from the directorship of the

company. The appellants submitted that 3rd appellant was appointed as a

director on 2.8.2011 in the presence of 1st respondent. The appellant

submitted that 4th appellant was legally appointed as a Director on 27.3.2012

which was in public domain and known to public at large. The appellant

further submitted that 5th original respondent was a very highly qualified

person and known figure in the hospitality industry. 5th original respondent

was appointed as a director but later on he resigned during the pendency of

the company petition and he is not party to the present appeal. The appellants

further submitted that 5th appellant was legally appointed as a Director as per

the Memorandum of Association.

16. Learned counsel for the respondent drew our attention to Article of

Association of the company at Page 59 of counter affidavit in which it is

mentioned that the present directors are (i) C. K. Vijayan, (ii) MR. C.K. Thampi

(iii) Mr. C.K. Sibi and Mr. C.K. Babu and all the first directors shall be

permanent directors, not liable to retire by rotation. Learned counsel for the

respondents submitted that all the four brothers who were permanent

director were alive when 3rd appellant was appointed as director on 2.8.2011

Company Appeal (AT) No.168/2017 16

illegally. Learned counsel for the respondent submitted that no Board

Meeting had taken place on that date i.e. 2.8.2011 as on that date all the four

brothers were alive. However, to cover up their illegality and as an

afterthought the Forms were filed with the ROC in December, 2011. The

Respondent further submitted that the appointment of 4th appellant is

completely illegal as no Board Meeting was held on 27.3.2012 and no notice

of any such meeting was given to 1st and 2nd Respondent.

17. We have heard the learned counsel for both the parties. We have

observed that no notice or Board Minutes were filed/produced by the

appellants before the Learned NCLT. We have also observed the affidavit filed

by 3rd appellant and also the Form No.32 filed with the Registrar of

Companies. 3rd appellant at page No.7 of her affidavit stated "True Copy of

Form 32 dated 02.08.2011 is being filed herewith and marked as

Annexure A/4". We have also perused the Form No.32 filed by the 3rd

appellant. In the said form No.32 there is no date of filing the Form No.32

with the ROC. Therefore, we are satisfied that the said Form No.32 was filed

with the ROC in December, 2011 as argued by the Respondent. Further no

notice of conducting Board Meeting on 27.3.2012 in which 4th appellant was

appointed director was produced. As regards appointment of 5th appellant as

director is concerned, we are satisfied that 5th appellant was inducted as

director being the son of 2nd appellant. Further, as regards removal of 5th

original respondent as director is concerned the said original respondent has

not filed any appeal and we presume that he has accepted the impugned

order.

Company Appeal (AT) No.168/2017 17

18. Learned counsel for the appellant stated that the Clause 15 of

Memorandum of Association clearly states that the 2nd appellant will remain

the Chairman of the company as 2nd appellant hold more than 36.9% of the

total shares of the company and if the shareholding of the other 43 members

is taken into consideration then he holds and represents 84.4% of the entire

share of the company. Therefore, the 2nd appellant has been legally elected

as Chairman of the company and is entitled to remain so.

19. Learned counsel for the respondent stated that 2nd appellant was

illegally appointed as Chairman & Managing Director of Company on

25.11.2011. No Board Meeting could have taken place as the bereaved family

was performing the last rites of Mr. Thampi Krishna on this date. Learned

counsel for the Respondent further stated that pursuant to Schedule XIII of

Companies Act, 1956 the appointment and remuneration payable to the

Managing Director shall be subject to the approval of the shareholders in the

General Meeting. No notice was served to the Respondent or any other

shareholders. Further the appellants have not placed the Notice or the

Minutes of such a Meeting thereby confirming that no General Meeting took

place. Learned counsel further stated that Form 32 filed by the Company does

not have any Board Resolution, but merely the consent of 2nd appellant to act

as the Managing Director. Further the Board Resolution filed with Form 23

was signed by 2nd appellant himself, thereby violating the provisions of

Section 300 of Act,1956 which prohibits an interested director from

participating or voting in a meeting in which he is interested.

20. We have heard the parties on this issue. We observe that No notice was

issued to Respondent and shareholders for General Meeting for approval of

Company Appeal (AT) No.168/2017 18

2nd appellant as Chairman. Further no minutes have been placed of such a

meeting. Therefore, there is no illegality on this issue in the impugned order.

21. In view of the aforegoing discussions and observations the appeal is set

aside. Interim order passed, if any, is vacated. The impugned order dated

18.4.2017 is upheld. No orders as to cost.

(Justice S.J. Mukhopadhaya) (Mr. Balvinder Singh) Chairperson` Member (Technical)

New Delhi

Dated: 14-12-2018.

Company Appeal (AT) No.168/2017