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Judgment
The Respondent Nos. 1 to 5 to the Company Petition have preferred this Application seeking permission to avail loans and credit facilities to carry on the business of the Applicant No. 1 Company.
The facts leading to the Application may be stated as under. One Sri Vishwanath Parsharm Bedekar of the Konkan Region came to Mumbai somewhere around 1905 and put up a grocery shop in Mumbai. His son Vasudeo Vishwanath Bedekar joined him around 1911. Despite their joint efforts and toil, the enterprise did not thrive. Vasudeo started manufacturing 'spices and pickles' about a decade later and was endowed with handsome returns. By 1925 the flourishing business came to handled by V. P. Bedekar and Sons, a HUF consisting of Vishwanath and his four sons namely Vasudeo, Govind, Vishnu and Gajanan. Subsequently, around 1940, the patriarch Vishwanath and his sons started a Partnership Firm which went by the name of V. P. Bedekar and Sons, a closely held family partnership firm. The Firm carried on the successful business of manufacturing 'pickles and spices'. On 27th February 1943 a Company limited by shares in the name of V. P. Bedekar and Sons Private Limited was formed. It took over the operations of the Partnership Firm V. P. Bedekar and Sons. The Company, incorporated under the Companies Act 1913 as a Private Limited Company is the present Applicant No. 1. The Company Petitioner No. 1 and Respondent No. 2 (Applicant No. 2 herein are Vasudeo's sons). Company Petitioner Nos. 2 and 3 are the sons of Petitioner No. 1. Respondent Nos. 3 and 4 (Applicant Nos. 3 and 4) are the sons of Applicant No.
Applicant No. 5, being the son of Trimbak Vasudeo Bedekar, is one of the grandsons of Vasudeo. Company Respondent Nos. 6 and 7 are the statutory auditor of the Company and Company Respondent Nos. 8 and 9 are the wholly owned subsidiaries of the Applicant No. 1.
As the business grew, the younger members of the family joined the Company and were allotted shares. There were various family settlements to quell the differences of opinion and dissention between the members. The Company Petitioner alleging oppression and mismanagement at the hands of the Respondents (majority shareholders with 92.5% of shareholding) came up with the Company Petition before the Company Law Board (CLB) seeking the following reliefs.
a. To appoint Petitioner No. 2 as a director of the Company to take part in management of the Company having equal roles, rights and responsibilities as the Respondent Nos. 2 to 5.
b. To direct the stake of the Petitioners in the Respondent No. 1 Company is one third, as per original distribution of shares in the family.
c. To direct valuation of the shares of the Company and to direct the Respondents to purchase the shares of the Petitioners at a fair value.
d. Such further and other reliefs as the nature and circumstances of the case may require as this Hon'ble Bench may consider fit.
The Company Petitioners moved Company Application No. 190 of 2015. The Company Law Board by order dated 15th February 2016 inter alia passed the following order:
"It is admitted case of the parties that this Company has been doing the business of making masala/pickles and there are already two properties which have been sold establishing a factory for the aforesaid purpose. There is neither any proposal to further sell any immovable property of the company not any immediate necessity. The interests of the Company must be protected particularly when already two prime properties stand sold. Therefore, in order to facilitate adjudication of the petition I deem it just and equitable to direct Respondent No. 1 Company to maintain status quo with regard to fixed assets with a rider that if any such necessity is felt to alienate, encumber or dispose of or create any third party rights and/or interests in any immovable property including plant and machinery, it may be done only after obtaining prior permission of this board."
Subsequently the Hon'ble High Court of Bombay by an order dated 13th October 2016 (clarified on 21st October 2016) recognizing the Company's need for external funds passed the following order:
a. If the Bank of Baroda disburses any funds under the Sanction Order the Applicant may use part of the disbursal for payment of Income Tax but only if the said bank in its discretion permits. The Bank of Baroda will be at liberty to remit such amount of tax directly to the revenue on behalf of the Appellant.
b. The Company Application is disposed of in the above terms.
c. In view of the disposal of the Company Application as above. Nothing survives in the Company Appeal. Accordingly, this Company Appeal is also disposed of as not pressed in view of the consent orders passed today.
d. The Appellant shall remove office objections within one week from today failing which this order will stand vacated.
e. In view of the fact that the Company Petition No. 26 of 2014 is still pending for final disposal before the National Company Law Tribunal and is scheduled to come up on 15th November 2016.
f. All contentions of the parties are kept open.
g. Nothing stated in this order shall be construed as an expression of opinion on any aspect of issues between the parties.
h. The parties will act on a copy of this order duly authenticated by the Associate of this Court.
Subsequently by an order dated 21st October 2016, the Hon'ble High Court added sub-clause 1(a) to the order in the following words.
a. The Applicant is allowed to create security as contemplated in the sanction order dated 27th August 2016 Exhibit-C to the Company Application.
The Hon'ble High Court of Bombay on 22nd April 2016 while hearing the appeal impugning the order dated 15th February 2016. The Hon'ble High Court of Bombay passed the following order:
a. "The Applicants and Respondent Nos. 1 to 3 agree that the Company shall be at liberty to transfer any tenancy to any third party on the following terms:
i. The Company shall notify Respondent Nos. 1 to 3 in writing of any proposal for transfer of tenancy along with details of the terms of such transfer, including the name of the outgoing tenant and the proposed transferee and the consideration payable to the Company.
ii. Within 14 days of receipt of the Notice of Transfer, Respondent Nos. 1 to 3 shall have the right to propose in writing the name of any third-party transferee not related to Respondent Nos. 1 to 3, who would be willing to acquire the tenancy on the same terms and for consideration that is at least 5% higher that the consideration set out in the Notice of Transfer. Such proposal shall be accompanied by a written and unconditional offer from the proposed transferee to the Company ("Counter Offer").
iii. Upon receipt of any such proposal from Respondent Nos. 1 to 3, the Company shall be at liberty to accept or reject the Counter Offer. In the event that Company rejects the Counter Offer, it shall not transfer the same tenancy without issuing a fresh Notice of Transfer, following the procedure set out in (i) and (ii) above.
iv. In the event Respondent Nos. 1 to 3 fail to respond with a valid Counter Offer to the Notice of Transfer within 14 days from the receipt of the Notice of Transfer, the Company shjall be at liberty to transfer the tenancy to any unrelated third party of its choice on the terms and consideration set out in the Notice of Transfer.
b. The order of the Company Law Board dated 15th February 2016 shall stand modified to the extent indicated above. The Respondent shall be at liberty to inspect the books of accounts of the Company after giving two days' notice.
c. The above arrangement will operate until the next date of hearing of the Company Application and shall be without prejudice to the rights and contentions of the parties.
Meanwhile the matter got transferred to the Tribunal. It is contended by the Applicants that on account of outbreak of Covid-19 Pandemic and the resultant lockdown, there has been a complete shutdown of business activities. Closure of shops and allied establishments, transport services and distribution channels have also been severely impaired. These unprecedented circumstances brought the business of the Applicant No. 1 Company to a standstill and of late has hit its nadir. The Company's largest manufacturing unit in Valsad, Gujarat came to be shut down as it was declared as a containment zone. Due to various restrictions resulting from the pandemic, the Company has not been able to resume its operations. In spite of the fall in revenue the Company continues to incur expenses towards fixed costs, maintenance of its factory and facilities/establishments. The security charges, electricity and water charges are also a drain on its resources. As per the Government Advisory the Applicant Company has also been disbursing salaries and wages to the employees and workers during the period of lockdown. All this recurring expense accounts for almost a Crore of rupees (Rs. 1 crore) per month. Besides the Company is required to replace and maintain its machinery and purchase raw materials to resume its business operations. Because of the sudden fall in revenue the Applicant No. 1 Company has also not been able to service its dues/liability to its vendors and third parties. The Company as of 31st March 2020, owned an amount of Rupees 5.81 Crores towards sundry creditors. Unless these dues are paid to the Company's vendors, the service providers may cease their services to the Company which is already reeling under adverse market conditions. Thus, the Company is in urgent need of funds to continue its day to day operations and business. Without additional funding the Company would not be able to restart its operation post lockdown. The earlier order would indicate that the learned CLB and the Hon'ble High Court of Bombay have realized the need for outside funding and have accordingly passed the order indicate supra.
Meanwhile Janata Sahkari Bank Limited, Pune has agreed to grant a credit facility of Rupees 6.90 Crores to the Company. The Applicant No. 1 accordingly, filed MA No. 4114 of 2019 seeking permission of this Tribunal to avail the credit facility. The matter was scheduled for hearing on 24th March 2020. It could not be heard due to the lockdown. The Application is pending.
The security cover requested under the new facility from the Janata Sahkari Bank would be less than the existing security cover under which credit facility has been availed. The new facility has potential for the Company and would help the Company to gain liquidity. That should also take care of the expenses the Company in presently incurring. It is likely to unencumber some properties of the Company held as the security under the old facility. Unless the Company is permitted to raise outside funding from the Bank named above, its operations and business may have to be discontinued. The Company is likely to face a potential shutdown and insolvency. Such a situation would adversely affect all shareholders including the Company Petitioners and its stakeholders. The Applicants accordingly, seek the following reliefs:
a. This Hon'ble Tribunal be pleased to pass an order permitting the Applicant No. 1 Company to avail secured and unsecured loans for the purposes of its business as per borrowing limits and security approved by the majority of the board of directors of the Applicant Company.
b. This Hon'ble Tribunal be pleased to pass an order permitting the Applicant No. 1 Company to avail the credit facilities offered by Janata Sahakari Bank Ltd., Pune by offering the bank such security as is referred to in the Sanction Letter dated 4th December 2019.
c. For interim/ad-interim reliefs in terms of prayers (a) and (b).
d. For the costs of this Application.
e. Such other and further reliefs as this Hon'ble Tribunal deems fit and proper in the facts and circumstances of the case.
Respondents (the Company Petitioners) filed reply to the Application objecting to the prayers sought. It is contended that the present Application is a ruse to camouflage the fiscal mismanagement perpetuated by the Applicants. The mismanagement and squandering away of properties of the Company by the Applicants necessitated the filing of the Company Petition. The Respondents (the Company Petitioners) had agreed to the creation of the additional security keeping in view the interest of the Company. The present Application when allowed, essentially would amount to review/modification of the order of the CLB (predecessor of this Tribunal) and the Hon'ble High Court of Bombay. The same could not be permitted. MA No. 4114 of 2019 was filed with the same prayers. The matter had been heard and the Bench deemed it appropriate to hear the Application along with the Company Petition. However, due to the reconstitution of the Bench and the pandemic the matter could not be heard. Therefore, the present Application should not be allowed. The Application deserves to be dismissed in limine.
We have heard the Counsel for the parties at length. It is common knowledge that the whole world is still reeling under the adverse effects of the pandemic for over a year. The pandemic undeniably has had adverse effect on all walks of life including trade, commerce and business operations. It would accordingly not be unusual to assume that the impact thereof has also been felt by the Company. As can be discerned from the earlier orders of the CLB as well as of the Hon'ble High Court of Bombay, the interest of the Company has to be of paramount consideration and needs to be protected. The CLB as well as the Hon'ble High Court have at different times have felt the need for infusion of funds into the Company, so that the operations of the Company can be carried out. Therefore, in our considered opinion the Company can incur fresh indebtedness/loans for the purpose of carrying on its business operations and avail the credit facility offered by the Janata Sahakari Bank. It is understood that the pickles and condiments offered by the Company have substantial market share and are sought after by customers. Thus, we are confident that once the Company resumes its operations it can take care of its liabilities and service its debts. Hence ordered.
ORDER
The Application be and the same is allowed on context. The Applicant No. 1 Company is permitted to avail secured and unsecured loans to further its business interests as per the borrowing limits and security approved by the majority of its Board. Such loans may include the credit facilities offered by the Janata Sahakari Bank Ltd., Pune in terms of their sanction letter dated 4th December 2019. No costs.