Vijaya Sai Poultries Pvt. Ltd vs Vemulapalli Sai Pramella & Ors

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) No. 296 of 2019 IN THE MATTER OF: 1. VIJAY SAI POULTRIES PVT. LTD. H. No. 38, 1st Floor, NTR Municipal Kreeds Pranganam Brindavan Garden, Guntur, Andhra Pradesh ... Appellant Vs. 1. VEMULAPALLI SAI PRAMEELA Flat No. 403, White Rose Apartment 9th Lane, Vijayapuri Colony, Guntur, Andhra Pradesh State 522 007 ... Respondent No. 1 2. VEMULAPALLI HARI KISHORE Flat No. 403, White Rose Apartment 9th Lane, Vijayapuri Colony, Guntur, Andhra Pradesh State 522 007 ... Respondent No. 2 3. V. VASUNDRA Flat No. 403, White Rose Apartment 9th Lane, Vijayapuri Colony, Guntur, Andhra Pradesh State 522 007 ... Respondent No. 3 4. CH DHANALAXMI House No. 4684/18, SS Layout, B Block, 4th Main, 7th Cross, Davangere, Karnataka State 577004 ... Respondent No. 4 5. CH ANNAPURNAMMA House No. 4684/18, SS Layout, B Block,

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4th Main, 7th Cross, Davangere, Karnataka State 577004 ... Respondent No. 5 Present: For Appellant: Dr. UK Chaudhary, Sr. Advocate with Mr. Mansumyer Singh, Advocate. For Respondents: Mr. Chava Badri Nath Babu, Advocate.

JUDGMENT

Jarat Kumar Jain. J:

The Appellant 'Vijaya Sai Poultries Pvt. Ltd.' has filed this Appeal against

the order dated 16.09.2019 passed by National Company Law Tribunal, Amaravati

Bench, in I.A. No. 20 of 2018 in TCP No. 123/241/AMR/TP/2019 (CP No.

174/241/HDB/2017) whereby the Adjudicating Authority allowed the application

filed by Petitioners (Respondents herein) and directed that forensic audit be

conducted of the Appellant company since 31.03.2004.

2. Brief facts of this case are that Petitioners (Respondents herein) have filed

Petition against the 'Vijaya Sai Poultries Pvt. Ltd., Mr. Naveen Kishore, Naveen

Kishore HUF and Mrs. V. Roja Kishore under Sections 59, 241 and 242 of the

Companies Act, 2013 (in brief the Act) alleging oppression and mismanagement

by Mr. Naveen Kishore. In the petition, the Petitioners have filed an application

under Rule 131 of the NCLT Rules, 2016 alleging that Mr. Naveen Kishore,

Managing Director of the Company illegally transferred the shares of Respondents

in his name by forging signatures in the Financial Year 2013-2014 without any

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consideration. It is also alleged that Mr. Naveen Kishore started selling the

immovable and moveable properties of the Appellant company illegally and

misappropriated the sale proceeds. Mr. Naveen Kishore purchased 50 immovable

properties in his name and his wife's name by utilizing the working capital and

funds of the Appellant Company. Mr. Naveen Kishore has been operating the

finances of the Appellant Company in an arbitrary and whimsical manner and has

siphoned off Crores of Rupees belonging to the Appellant Company without

accounting for the same. The same was done with the active aid and connivance

of the auditors of the Company. Therefore, it was requested that an advocate-

Commissioner be appointed to conduct a forensic audit of the Appellant Company

by taking assistance of an Auditor for the check period 31.03.2004 till date.

3. The Application was resisted by Mr. Naveen Kishore on the ground that

there is no illegal transfer of shares as alleged and the same are false allegations

created for the purpose of denying the actual transactions done by Respondents.

The Respondent No. 1, being the signatory of the Balance Sheet cannot plead

ignorance of the share transfer, shareholding shown in the records. The

Respondents for the first time alleged the forgery and fabrication of documents

which was never raised earlier. There is a vague allegation that Mr. Naveen Kishore

started selling moveable and immovable properties of the company illegally,

however, in support of the said allegation, they have not filed any piece of evidence.

The Respondent No. 1 being a signatory to the Balance Sheet and accounts of the

company cannot seek appointment of another auditor to conduct a forensic audit.

Company Appeal (AT) No. 296 of 2019 4

In the application, it is not mentioned as to what were the sale proceeds which

were not deposited in the account of the Company and were misappropriated or

siphoned off by Mr. Naveen Kishore. Further, the Company Petition is filed with

the mala fide intention to cause irreparable loss and injury to the Appellant and

to also make unnecessary litigation against the Appellant Company as well as

personal properties of Mr. Naveen Kishore and his family. The Respondents ceased

to be the shareholders of the Appellant Company. The Application is devoid of

merits, abuse of process of law and with a mala fide intention. Therefore, liable to

be dismissed.

4. Ld. Tribunal allowed the application by passing the following Impugned

Order dated 16.09.2019, which reads as under: -

Order "The interim application be and the same is allowed on contest. The parties are directed to suggest the name of an auditor/a firm of auditor within two weeks for conducting forensic audit of the company. There is however, no need for appointment of an advocate commissioner."

5. Being aggrieved by the said order, the Appellant Company has filed this

Appeal.

6. Ld. Sr. Counsel for the Appellant submits that there is no prima facie finding

of oppression or mismanagement as required under Section 242 (4) and 241/242

of the Companies Act. The Impugned Order is without reasoning or finding of fact

and in fact, contains a one-line order directing that forensic audit be conducted.

Company Appeal (AT) No. 296 of 2019 5

It is settled law that there must be a recording of reasons in the order in support

of conclusion arrived at. The giving of reasons in support of their conclusions by

the judicial or quasi-judicial authority is essential to prevent unfairness or

arbitrariness in reaching the conclusions. For this proposition, he relied on the

judgments rendered by the Hon'ble Supreme Court in the matters of Karanti

Associates Pvt. Ltd. & Ors. Vs. Masood Ahmad Khan & Ors. (2010) 9 SCC 496 and

Woolcombers of India Ltd. Vs. Woolcombers Workers Union & Ors. (1974) 3 SCC

318. It is also submitted that the faith of the people in Tribunals can be sustained

only if the Tribunals act fairly and dispose of the matters before them by passing

well-considered orders as held by Hon'ble Supreme Court in the case of M/s

Bombay Oil Industries Pvt. Ltd. Vs. UOI & Ors. (1984) 1 SCC 141.

7. Ld. Sr. Counsel for the Appellant further submits that the affidavit filed in

support of the application is not sufficiently stamped hence, cannot be relied

upon. For this purpose, he placed reliance on the Judgment of Hon'ble Supreme

Court in the case of Jupudi Kesava Rao Vs. Pulavarthi Venkata Subbarao & Ors.

(1971) 1 SCC 545.

8. It was further submitted that the application has been filed under Rule 131

of NCLT Rules 2016 which relates to production of documents and form of

summons. An order of directing that a forensic audit to be conducted could not

have been passed in such an application. The Respondents have also filed an

Application with the prayer to examine the signature of Respondent Nos. 2 to 5

and the letter of resignation for verification of signature. The said application has

Company Appeal (AT) No. 296 of 2019 6

been rejected by the Tribunal and the order has been affirmed by this Appellate

Tribunal. Therefore, there is no evidence that the Mr. Naveen Kishore has forged

the signature on share transfer deed and resignation letter.

9. Learned Senior Counsel for the Appellant also submits that the Respondent

No. 2 filed an FIR against Naveen Kishore alleging forgery, cheating and criminal

breach of trust. However, after investigation, the investigating agency found the

said allegations to be false. Therefore, a closer report was filed. The Respondent

No. 2 has also filed a pre-litigation case before the District Legal Services

Authority, Guntur for the aforesaid allegations against Mr. Naveen Kishore,

however, Respondent No. 2 himself prayed before the Authority to close the case.

In such circumstances, there is no ground to allow the application for forensic

audit. The impugned order is cryptic and non-speaking, therefore, liable to be set

aside.

10. Per Contra, Ld. Counsel for the Respondents supports the impugned order

and submits that Mr. Naveen Kishore is a Managing Director of the Appellant

Company and has taken advantage of his position by indulging in oppression and

suppression and has illegally transferred the shares of Respondents No. 2 to 5 on

the basis of fabricated share transfer deeds and the resignation letter dated

31.03.2014 of Respondent No. 2. Mr. Naveen Kishore has illegally alienated/sold

out the immovable properties of the Appellant Company and siphoned/diverted

the funds for purchasing about 50 immovable properties in his individual name

and in the name of his family members. Further, Mr. Naveen Kishore manipulated

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the financial statements with ulterior motives and failed to conduct board meeting

from time to time. Ld. Tribunal having considered the matter from all angles is

justified in passing the Impugned Order directing that forensic audit be conducted

of the accounts of the Appellant Company. There is no merit in this Appeal and is

hence, liable to be dismissed.

11. After hearing the Ld. Counsel for the parties, we have considered their rival

submissions and examined the record.

12. In the application, there is a vague allegation of fabricating, share transfer

deeds and the resignation letter. In the application, it is not mentioned that in

what manner Mr. Naveen Kishore siphoned off the money from the Appellant

Company and when has he purchased 50 properties in the name of his family

members out of the funds of the Company. Even in the application it is not

mentioned as to how and when the Respondents got the knowledge that Mr.

Naveen Kishore has indulged in fraudulent sale transactions. Further, in support

of said allegations the Respondents have not place any document on record.

13. The Hon'ble Supreme Court in the Case of Kranti Associates (Supra) after

considering many earlier judgments summarized the principles on the recording

of reasons which are reproduced below:-

"a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons in support of its conclusions. c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

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e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations. f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.

g. Reasons facilitate the process of judicial review by superior Courts. h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice.

i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system.

j. Insistence on reason is a requirement for both judicial accountability and transparency.

k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber-stamp reasons' is not to be equated with a valid decision making process.

m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737).

n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See Ruiz Torija Vs. Spain (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions".

o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "Due Process".

14. In light of the principles laid down by the Hon'ble Supreme Court, we have

examined the Impugned Order which is reproduced in Para- 4 of this order.

15. There is nothing in the order to justify the directions for conducting forensic

audit of accounts of the Company that too for more than 15 years. The

Adjudicating Authority must record reasons in support of conclusions. However,

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in the Impugned Order no reasons are mentioned for the said directions. The order

is cryptic and non-speaking; therefore, it cannot be sustained.

16. With the aforesaid discussions, we have no option but to set aside the

Impugned Order.

The Appeal is allowed, however, no order as to costs.

[Justice Jarat Kumar Jain] Member (Judicial)

[Kanthi Narahari] Member (Technical)

New Delhi 27th May, 2021 SC

Company Appeal (AT) No. 296 of 2019