Pankaj Rustagi And Ors vs Pee Aar Exim Pvt. Ltd

Abni Ranjan Kumar Sinha, J

During the pendency of the Company Petition No. 137/241-242/2019 of the Companies Act, 2013, interlocutory applications have been filed. One is, on behalf of the Respondent-2, under Section 45 of the Arbitration and Conciliation Act, 1996 and the other filed on behalf of the Petitioner under Rule 32 of the National Company Law Tribunal (NCLT), Rules, 2016.

By filing these two interlocutory applications, Respondent-2 made a prayer that since there is an arbitration clause in the Joint Venture Agreement ("JVA") dated 19th September, 2006, therefore, same will be referred to the Arbitrator, on the other hand, in another interlocutory petition which is moved by the petitioner, made a prayer to declare the notice of EGM dated 16th December 2019, invalid, cancel the proposed EGM and during the pendency, direct the Respondent to maintain the status quo in the shareholding of the Respondent-1. Since, these two prayers are related with each other, therefore, we would like to dispose off both these interlocutory applications by this common order.

Firstly, we shall take up the application filed on behalf of the Respondent-2 under Section 45 of Arbitration and Conciliation Act, 1996, the facts mentioned in the application, in short, is that the Petitioner have preferred the Company petition seeking the following reliefs:-

"In view of the facts mentioned hereinabove, it is most respectfully prayed that:-

a) during the pendency of this Petition and till final disposal. This Hon'ble Tribunal may be pleased to pass an order restraining the Respondents through themselves or through their officers, agents, servants, etc. from giving effect to the resolutions passed in the Board Meeting dated 08.08.2019, 10.07.2019 and 16.07.2019 and the two circular resolutions nos. 08/2019-20 allegedly passed on 01.08.2019;

b) during the pendency of this Petition and till final disposal, this Hon'ble Tribunal may be pleased to pass an order preventing the Respondents No. 3 to 5 from functioning their office;

c) during the pendency of this petition and till final disposal, this Hon'ble Tribunal may be pleased to pass an order to direct the Respondents from making any lawful threats to the Petitioners;

d) During the pendency of this Petition and till final disposal, this Hon'ble Tribunal may be pleased to pass an order allowing the Petitioner No. 1 to remain in the position of and act as the Managing Director of the Company to look after and manage the affairs of the Company and to avoid further mismanagement of the Company. Or in the alternative, the Respondents be directed not to interfere, obstruct or prevent the Petitioner No. 1 from acting as Managing Director of the Company till a lawful and valid Board Meeting held in accordance with the provisions of the Agreement, accepts the resignation of the Petitioner No. 1 as Managing Director of the Company and the Petitioner No. 1 is paid his dues by Respondent No. 2 as per clause 4 of the Modification Agreement dated 20.07.2011 and the Respondent No. 1 pays his dues as per the full and final settlement prepared by the Respondent No. 1 for the Petitioner No. 1.

e) During the pendency of this Petition and till final disposal, this Hon'ble Tribunal may be pleased to pass an order of injunction restraining the Respondent, through themselves, or their officers, agents, servants, etc. from misusing the funds of the Company."

No final relief has been sought in the Company Petition. Further, the facts mentioned in the petition reveal that the prayer of the Petitioner is based on the Joint Venture Agreement dated 19th September, 2006.

Further, the Petitioners, are specifically, aggrieved by the Board Meeting of the Respondent No. 1 company held on 16th July, 2019. In para 5(k), the Petitioners allege, "In any eventuality, under clause 4.9 ("Quorum for the Board Meetings") of the Agreement, no Board Meeting could have been held without the presence of at least one director of the Petitioners and Respondents respectively." The Petitioner go on to allege, "The Petitioner No. 1, therefore, immediately on July 09, 2019 responded to Respondent No. 4 and Respondent No. 5 communicating that their action demonstrates deliberate and intentional breach of the Agreement."

Further, the entire facts mentioned in the main petition are based on the agreement entering between the parties, therefore, in view of arbitration clause in the said agreement, the matter may be referred to the arbitration instead of hearing the main application filed on behalf of the Petitioner.

We have heard the Learned Counsels appearing for the Petitioner as well as Respondents. In course of his arguments, Senior Learned Counsel appearing for the Respondent submitted that since there is an arbitration clause which the Petitioner has enclosed at page 65 of the main application, therefore, in view of clause 17 of the Joint Venture Agreement dated 19th September, 2006, the matter may be referred to the Arbitration under Section 45 of the Arbitration and Conciliation Act, 1996.

Learned Counsel appearing for the Respondent submitted that Hon'ble Supreme Court, in a case reported in Civil Appeal No. 8299 of 2016 Sasan Power Ltd. vs. North American Coal Corpn. (India) (P) (Ltd.) (2016) 10 SCC 813 held that Section 45 of the Arbitration and Conciliation Act, 1996 Act makes it legally obligatory on the court to refer the parties to the arbitration once it finds that the agreement in question is neither null, void or inoperative nor incapable of being performed.

He further submitted that the Petitioner in their reply to CA 65 have admitted that the disputes/grievances raised by them in the CP are to be referred to arbitration. He further submitted that the disputes raised in the Company Petition and the reliefs sought are squarely covered by the terms of Joint Venture Agreement (JVA). He further submitted that prior to the filing of the CP, the Petitioner have served the notice dated 20th July 2019 under Clause 9.1 of the JVA alleging breaches of the JVA by Respondent-2 and further calling upon Respondent-2 to rectify such breaches and that notice is not enclosed by the Petitioner, rather, it has been suppressed. He further submitted that the Petitioners have also raised the objections that the disputes under Section 241 and 242 of the Companies Act, 2013 are not arbitrable, which is not a fact, rather the disputes raised by the Petitioner are covered by the terms of JVA. The Respondent also placed reliance upon the following decisions: -

i. Civil Appeal No. 2479 (N) of 1972 Nagindas Ramdas vs. Dalpatram Iccharam alias Brijram and Ors. (1974) 1 SCC 242

ii. CA 128/C-II/2014 in CP 64 (ND) 2014 in the matter of Sidharth Gupta and Ors. vs. Getit Infoservices Private Limited and Ors

iii. CP No. 14 of 1998 and CA. No. 98 of 1998 in the matter of Naveen Kedia and Ors. vs. Chennai Power Generation Limited and Ors., CLB, Principal Bench, New Delhi

iv. CP No. 47 of 2001 and CA No. 21 of 2002 in the matter of Pinaki Das Gupta vs. Maadhyam Advertising (P.) Ltd., CLB, Principal Bench, New Delhi

v. Civil Appeal No. 2086 of 2014 with No. 2087 of 2014 in the matter of Enercon (INDIA) Limited and Ors. vs. Enercon GMBH and Another, (2014) 5 SCC

vi. Glenaeagles Development Pte. Ltd. vs. Mrs. Thota Gurunath Reddy, (2017) SCC Online NCLT 1177

vii. Glencore International AG vs. Indian Potash Limited, (2019) SCC OnLine Del 9591

viii. Harmony Innovation Shipping Limited vs. Gupta Coal India Limited and Anr. (2015) 9 SCC 172

ix. Bharat Aluminium Company vs. Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552

x. Raffles Design International vs. Educomp Professional Education, 2016 SCC Online Del 5521

xi. Ravindra Kumar Verma vs. M/s. BFTP Ltd. & Anr. (2014) SCC Online Del 6602

xii. Demerara Distilleries (P.) Ltd. vs. Demerara Distillers Ltd. (2015) 13 SCC 610

xiii. TRL Krosaki Refractories Limited vs. Lindsay International Private Limited:

xiv. M/s. Rakesh Malhotra vs. Rajendra Kumar Malhotra (2014) SCC OnLine Bom 1146

xv. Grass Lands Agro Private Ltd. and. Ors. vs. R.S. Mohammed Saleem and Ors. (2017) SCC OnLine NCLT 954

xvi. Century Finance Corporation Ltd. vs. Union of India (UOI) and Ors., (2011) 161 CompCas 247 (Delhi)

xvii. Binod Kr. Bawri vs. Calcom Cement Ltd. and Ors. (2017) 136 CLA 227.

On the other hand, Learned Counsel appearing for the Petitioners submitted that in view of Section 45 of the Arbitration and Conciliation Act, 1996, if the arbitration agreement is null and void, inoperative or incapable of being performed then Section 45, it is not applicable. He further submitted that since clause 17 of the Arbitration clause of the Joint Venture Agreement is incapable of being enforced, therefore, the Petitioner has no option but to file the application before this Tribunal. He further submitted that since respondents have waved the arbitration clause by their way of conducting, therefore, the same is not applicable. He further submitted that the disputes under Section 241-242 are not covered under Section 45 of the Arbitration and Conciliation Act, 1996. He further submitted that the Hon'ble Bombay High Court in a case of Rakesh Malhotra & Ors. vs. Rajinder Kumar Malhotra & Ors., after placing reliance upon the Civil Appeal No. 1174 of 2002 Sukanya holding Pvt. Ltd. vs. Jayesh H. Pandya case reported in (2003) 5 SCC 531 held that if the nature of reliefs in rem and other data in personam, and it is not possible or permissible to severe one from the other, similarly no arbitration agreement can vest an arbitral Tribunal with the power to grant the kind of reliefs against the Oppression and Mismanagement. He further submitted that Hon'ble Apex Court in the case of Civil Miscellaneous Petition No. 7962 of 1977 Cosmosteels Private Ltd. Vs. Jairam Das Gupta & Ors., also held the same and has adopted a similar view. He further submitted that the Respondents have committed statutory offence, which are not arbitrable. He further submitted though the Joint Venture Agreement contained a provision and binding upon the parties but clauses which are invalid that can be excluded because there is a clause of severability in clause 15 of the JVA. 10. He also placed reliance upon the decision of CA No. 2303 of 1983 in CP No. 577 of 1983 Manavendra Chitnis and Anr. Vs. Leela Chitnis Studios Pvt. Ltd. in which the Hon'ble Supreme Court held that merely because there is an arbitration clause or an arbitration proceeding, the court's jurisdiction under Section 397 and 398 cannot stand fettered. He further submitted that the parties have a series of litigation before the various forums, Civil Suit No. 603/2019 and OMP(I)(COMM) 0254/2019 are pending between the parties. The Petitioner further placed reliance on the following cases:-

i. Ministry of Sound International Ltd. Vs. Indus Renaissance Partners Entertainment Pvt. Ltd. (2009) 156 DLT 406 (Delhi High Court).

ii. Ramasamy Athappan vs. The Secretariat of the Court (High court of Madras) A. No. 2670 of 2008, A. No. 1236 of 2008 and O.A. No. 277 of 2008 and A. No. 2671 of 2008 in C.S. No. 257 of 2008

iii. Civil Appeal No. 5440 of 2002 in the matter of Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. and Ors.

iv. CA No. 181/2002 and CP No. 39 of 2012 in the matter of Premier Automobiles Ltd. vs. Fiat India Private Ltd. and Ors.

Now in the light of the submissions raised on behalf of the parties, we shall consider the case in hand. Before making any comment on the submissions made on behalf of the parties and the decisions upon both the parties place reliance, we would like to refer Section 45 of the Arbitration and Conciliation Act, 1996 and the same is quoted below: -

"45. Power of judicial authority to refer parties to arbitration.--Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, 1 [unless it prima facie finds] that the said agreement is null and void, inoperative or incapable of being performed."

Merely, plain reading of the provisions shows that the word unless it is prima facie find is added by amendment dated 30.08.2019 in Section 45 of the Arbitration and Conciliation Act, 1996, which shows that if prima facie it is find that the agreement is null and void or inoperative or incapable of being performed then Section 45 of the Arbitration and Conciliation Act, 1996 is not applicable.

Therefore, in order to consider the submissions of respondents, we have to consider the averments made in the main CP 137/241-242/ND/2019 as well as reply and rejoinder filed to that Petition. Admittedly, the main application is pending for consideration and during the pendency of the main application, the present two interlocutory applications, which we have referred in the aforementioned para have been filed by the respective parties.

At this juncture, we would also like to refer the contention raised on behalf of the Learned Counsel appearing for the Petitioner, who in course of his arguments submitted that if an application under Section 241 and 242 of the Companies Act, 2013 for the Oppression and Mismanagement is filed, in that case, the Section 45 of the Arbitration and Conciliation Act, 1996 is not applicable because Section 241 and 242 of the Companies Act, 2013 are in respect of the Oppression and Mismanagement in the Company, which cannot be decided by the Arbitrator.

Now the question is whether there is Oppression and Mismanagement as alleged by the Petitioner and that cannot be decided unless we consider the averment made in the main Company Petition and that can only be done, if we give both the parties to place their case at the time of final hearing of main Application, therefore, in our considered view, the application filed by the Respondent-2 under Section 45 of the Arbitration and Conciliation Act, 1996 can only be considered at the time of final hearing of the Company petition and not at this stage, by formulating the preliminary questions, if there is an arbitration clause then the party will be governed by the Arbitration clause and not entitled to file an application under Section 241 and 242 of the Companies Act, 2016.

For the reasons discussed above, we are of the considered view that this issue can only be decided at the time to final hearing of the application and not at this stage. Therefore, instead of passing any order on the merit of the application filed on behalf of the Respondent-2 under Section 45 of the Arbitration and Conciliation Act, 1996, we think it is proper to give liberty to the Respondent-2 to raise this issue during the course of final hearing and order shall be passed on merit after considering the submissions of both the parties at the time of final hearing on the point, whether Section 45 of the Arbitration and Conciliation Act, 1996 can be invoked or not?

Now coming to the other application filed on behalf of the Petitioners under Rule 32 of the NCLT, Rules, 2016, we have heard the Learned Counsel appearing for the Petitioners and Respondents on this application also. Learned Counsel appeared for the Petitioners in course of his arguments submitted that Respondents 2 and 4 filed reply to the Petition and the facts stated in the reply in short is that the Adjudication on the present application is required to be postponed until the final application of the C.A. 65/C-V/ND/2020 filed by the Respondent-2 under Section 45 of the Arbitration and Conciliation Act, 1996 is decided at first.

Further the hearing on this petition is also required to be postponed as the Petitioners have not prayed for any final relief in the Company Petition and it is the settled law that in the absence of final relief, no relief can be granted.

Further, the Petitioners have preferred an application seeking amendment on the Company petition by including the final prayers.

The same is not considered as yet. Further, the present application is pre-matured so the same may be liable to be dismissed.

Further, the Extraordinary General Meeting scheduled to be held on 13th January, 2020 is related to two proposals: -

(i) Increasing of the authorized share capital of the Company from Rs. 1,50,00,000 divided into 15,00,000 equity shares of Rs. 10 each to Rs. 26,50,00,000 divided into 2,65,00,000 equity shares of Rs. 10 each by creation of additional 2,50,00,000 equity shares of Rs. 10 each ranking pari passu in all respect with the existing equity share of the Company; and

(ii) Alteration of the capital clause in the Memorandum of Association of the Company.

Further, the Petitioner cannot challenge the increase in authorized share capital of the Respondent-1 company in view of their conduct prior to the Petitioner-1 resigning from the position of Director and Managing Director from the Respondent-1 Company.

Further, the Petitioner admitted this fact that the Respondent-1 is in need of additional funds and once having agreed to right issue they cannot challenge the proposed increase in the share capital of Respondent-1.

Further, raising the additional funds was earlier discussed in the Board meeting on several occasions that is on 15th January 2019 and 15th March 2019 and no protest was raised on behalf of the Petitioner. Although, the Board of Directors meeting dated 15th March 2019 was chaired by the Petitioner in which it was unanimously decided to take an ECB loan from the Respondent-2 in the sum of Euro 250,000 to close the overdraft facility availed from the Karnataka Bank.

Further, the Respondent-2 Company vide its email dated 28th March 2019 requested the Petitioner-1 who was at that time, the Managing Director of the Respondent-1 to consider providing security for the ECB loan. Then, Respondent-2 requested the Petitioner-1 to suggest alternative proposals for funding the Company and in response thereto, the Petitioners suggested that the Company should raise capital by way of rights issues in the ratio of current shareholding of Petitioners and the Respondent-2 in the company. The Respondent-2 agreed to consider the proposal of the Petitioner No. 1.

Further, in the Board meeting dated 4th April, 2019, the Directors unanimously decided that Respondent-1 would avail an unsecured loan of Euros 250,000 @ 50 basis points above six months and no protest was raised on behalf of the Petitioner-1 and in pursuant of that, Respondent-2 signed loan agreement and submitted the same to Respondent-1 for necessary compliances before the Reserve Bank of India but Petitioner refused to execute the loan agreement and the Petitioner in the meeting dated 13th June 2019 stated that he was reconsidering the relationship with the Respondent-2 and he would discuss with Mr. Alessandro Spaggiari, Chairman of the Respondent No. -2. Since the Petitioner did not agree to grant loan to the Respondent-1, therefore, Respondent-2 was compelled to withdraw the decision to provide credit to Respondent-1. Further, from the facts stated above, it is cleared that Respondent-1 is in need of additional funds, which is also admitted by the Petitioners and increase of share capital of Respondent-1 is justified and is in the interest of Company.

Further, the proceeds of further issue of capital will be utilized to pay all overdue commercial debts, finance forecasted losses for year 2019-20, finance working capital needs for the year 2019-2020 and 2020-2021 and pay for necessary short-term investments related to safety and IT.

Further, the proposed capital increase is necessary for the continuation of the business. The fund is also required to make immediate investment to improve the development of safety system, electrical safeguarding, personal protection equipment, chemical storage and transportation and other things to improve the IT system, total of necessary investments and expenditures for the above amount to a total of Rs. 2,85,18,000/-

Further, even prior to the resignation of Petitioner-1 as the Board of Directors and Managing Directors of the Respondent-1, the Board of Directors expressed serious concern regarding the financial health of Respondent-1 Company and the need for expansion of the business. Further, almost in every meeting of the Board of Directors, the poor financial conditions of the Respondent-1 were raised and the petitioner was also agreed on this issue. Further, the financial difficulties and debt of the company also find mentioned in the annual financial statement of the Respondent-1, which have been approved by the shareholder in the general meeting dated 15th November 2019. Further, JVA is not binding on the Respondent-1 as it has not been incorporated in the Article of Association of the Company, in any event the JVA has been terminated by the Petitioner-1. Mere taking note of the JVA by the Board of Directors will not amount to incorporation of the JVA in the Articles of Association of the Company, for which there is a specific procedure in the Companies Act, 2013. Further in the Company Petition, the Petitioners have only challenged the Board meeting dated 8th July 2019, 10th July 2019, 16th July 2019 and 01st August 2019 and he has not challenged the meeting of the Board of Directors held on August 2019. If the Petitioners are aggrieved by the decision taken by Board of Directors post 1st August 2019, then they should have filed proper application for amendment of the Company Petition. In support of the contention, the Respondents have also enclosed the decision as well as documents.

We have heard the Learned Counsel appearing for the Petitioner and the Respondent and perused the averment made in the application as well as reply and rejoinder filed on behalf of the respective parties.

Learned Counsel appearing for the Petitioner, in course of his argument, submitted that Respondent-1 is bound by the provision of JVA because Respondent-1 in the Board meeting dated 16th October 2006 duly ratified and approved the JVA. He further submitted that they have appointed the Petitioner as the Managing Director of the Respondent-1 Company in pursuance of the JVA and in support of this contention, the Petitioner placed reliance upon-the minutes dated 16th October, 2006 and the relevant portion of those minutes is at page 23 of the application.

He further submitted that the Board further delegated power to Petitioner-1 as per the JVA which is at Page 24 of the application. He further submitted that subsequently the petitioner was also working as per the JVA and similarly Respondent have also acted in pursuance of the JVA. The minutes of the meeting of the Board of Directors held on 18th January 2019 of Respondent-1 in item 12 summarized the review of the Board for new shareholder agreement in place of existing JVA which was done on the information of Respondent-5. He further submitted that the composition of the Board of Respondent-1 was also constituted in accordance with the JVA. Therefore, the respondents are estopped by their conduct from taking a different position for their convenience and he placed reliance upon the doctrine of estoppel and in support of that, he placed reliance upon the decision reported in 1965 AIR 1812. He further submitted that since the decisions of Boards are not in terms of the JVA, therefore, its unlawful and invalid and in this regards, he placed reliance upon the decision reported in Moorthy, M.V. Drivers and Conductors Bus Service Private Ltd. [1991 71 Comp. Cas 136 Mad]. He further submitted that unlawful and invalidly constituted board cannot hold meeting in the absence of quorum and any decision taken by that board shall not be taken into considerations. He further submitted that in view of Clause 4.9 of JVA to constitute the quorum for a board meeting of Respondent-1 representative of both Respondent-2 and Petitioner were required to be present and since the notice dated 16.12.2019 was issued by the Board, which was not legally constituted, therefore, said notice is illegal. He further submitted that Section 100(1) of the Companies Act, 2013 mandate only the Boards of Directors to call the EGM. He further submitted that Section 118(10) of the Companies Act, 2013 stipulates that the secretarial standards are to be observed by every company with respect to general meetings and board meeting. He further submitted that since the notice dated 16.12.2019 was issued by the Respondent-3 who has usurped the office of Managing Director unlawfully, therefore, it is not a valid notice. Since the notice is invalid, the minutes of the Board cannot be held. He further submitted that the proposed increase in the authorize capital is mala-fide with the intent to oust the Petitioners. The Petitioner hold 30% of Rs. 58,49,410/- and balance 70% is held by the Respondents. Therefore, proposing an increase of authorize capital from Rs. 1.5 Crores to Rs. 26.50 Crores, which has the potential of increase in paid up capital to Rs. 26.50 Crores will result in ousting of the Petitioners by the Respondents taking undue advantage of their resources and in this regard, he placed reliance upon the decision reported in Shri Dinesh Sharma and Smt. Bina Sharma vs. Vardaan Agrotech Pvt. Ltd. and Ors. [2007 135 CompCas 133 CLS].

He further submitted that the Respondent-1 has as per the Directors Report dated 21st October 2019 raised adequate funds by borrowings and the proposed increase in authorized capital is mala-fide. He further submitted that the authorized capital cannot be increased without the consent of the Petitioner-1 as per the Clause 2.2 of the JVA. He further stated that the Petitioner has set out a series of incidents constituting oppression of minorities in CP No. 137/241-242/ND/2019. He further submitted that increase in share capital with ulterior motive cannot be permitted and, in this regard, he placed reliance upon the decision of Hon'ble Company Law Board, Principal Bench, New Delhi in the matter of PIK Securities (P) Ltd. vs. United Western Bank Ltd., Company Law Board, Principal Bench, New Delhi.

He further submitted that the Hon'ble Supreme Court in the matter of Vodafone International Holdings vs. Union of India [ (2012) 6 SCC 613] and in the matter of Premier Hockey Development Private Ltd. vs. Indian Hockey Federation [O.M.P. 92 OF 2011 & O.M.P. 52 of 2011] decided by the Delhi High Court and as also in Modi Rubber Ltd. vs. Guardian International Corporation, Delhi High Court held the provision of JVA could be binding even if not provided within the Articles of Association. He further placed reliance on the following decisions:-

i. Firestone Tyre and Rubber vs. Synthetics and Chemicals Ltd. 8B Ors. [1971 41 Comp Cas 377 Bom]

ii. R.S. Madanappa And Ors. vs. Chandramma and Ors. [1965 AIR 1812]

iii. Ultrafilter GMBH vs. Ultrafilter (India) P. Ltd. and Ors. [2002 112 CompCas 93 CLB]

iv. V.B. Rangaraj vs. V.B. Gopalakrishnan and Ors. [ (1992) 1 SCC 160]

On the other hand, Learned Counsel appearing for the Respondent-1 in course of his arguments submitted that the application filed by the Petitioner is pre-matured because Board of Directors of the Respondent-1 company have not decided to the manner in which further capital is to be raised. The subscribed capital can only be increased in accordance with the Section 62 of the Companies Act, 2013 and at present the Board of Directors of the Respondent-1 has not taken any decision under Section 62 of Companies Act, 2013. Therefore, in the EGM only the authorized capital is sought to be increased and not the subscribed and paid up capital.

He further submitted that the Petitioner could not challenge the increase in authorized share capital of the Company in view of their conduct prior to the Petitioner-1 resigning from the position of Director and Managing Director from the Respondent-1 Company and it is an admitted position of the Petitioners that the Respondent-1 is in need of additional funds and once having agreed to rights issue, they cannot challenge the proposed increase in the share capital of Respondent-1 Company.

He further submitted that in the meeting of the Board of Directors of the Company held on 18th January 2019, the Directors discussed repayment of the high cost bank loan availed by the Company from Karnataka Bank and also raised additional funding through economical resources including EGB from Respondent-2 but the Petitioner-1 did not register any protest with regard to the proposal of raising further capital. He further submitted that during the discussion on New Joint Venture Agreement in January 2019, the petitioners were even agreed to reduction in its shareholding to 20% on account of capital infusion of Euro 1 million by Respondent 2 for funding the expansion plan of the Company.

Learned Counsel for the Respondents raised all the facts mentioned in the reply and placed reliance upon the following decisions:-

i. Cotton Corporation of India vs. United Industrial Bank [ (1983) 4 SCC 625]

ii. Milen Sen vs. Guardian Plasticode Ltd. SCC OnLine Cal 153

iii. Hanuman Prasad Bagri & Ors. vs. Bagress Cereals Pvt. Limited & Ors. SCC OnLine Cal 90

iv. M/s. Free Wheel (India) Ltd. New Delhi-1 vs. Dr. Veda Mitra & Another AIR (1969) Delhi 28

v. Jetu Jacques Taru Lalvani and another vs. J.B.A Printing Inks Limited and Others 1995 SCC OnLine BOM 261

vi. V S Krishnan and Ors. vs. Westfort Hi-tech Hospital Ltd. (2008) 3 SCC 363

vii. Krishna Murari Goenka and Ors. vs. Schreiber Dynamix Dairies Private Limited:

viii. Kunduru Anki Reddy and Ors. vs. Bindu Pharmaceuticals Private Limited and Ors MANU/NS/6716/2019.

ix. V B Rangraj vs. V B Gopalkrishnan (1992) 1 SCC 160

x. World Phone India vs. WPI Group - 2013 SCC online Del 1098

xi. Akshay Ispat Udyog vs. Ishwardas-2014 SCC Online CLB 8.

Now in the light of submission raised on behalf of the parties, we shall consider this fact whether the notice of the EGM dated 16.12.2019 is invalid, illegal and on the basis of that the proposed EGM can be cancelled or not.

At this juncture, we would like to refer Section 100 of the Companies Act, 2013 and Section 101 of the Companies Act, 2013. Under Section 100 of the Companies Act, 2013, the Board may, whenever it deems fit, call an extraordinary general meeting of the Company and it can be called by giving not less than clear twenty-one days' notice either in writing or through electronic mode as required under Section 101 of the Companies Act, 2013.

At this juncture, we would also like to consider the argument advanced on behalf of the Learned Lawyer appearing for the Petitioner who challenged the constitution of Board in terms of Joint Venture Agreement, therefore, at this juncture, we would like to refer Clause 4.9 of the JVA which relates to "the quorum for a meeting of the board of Company shall be one-third of the total strength of the respective board for the time being or two directors whichever is more and there shall be no such quorum present unless one director nominated by PR an one director nominated by SPAL or their alternate director(s), if any, are present (unless such requirement is waived in writing by the Parties in respect of its respective nominee(s) for the specific Board Meeting). Resolutions at any meeting of the Board shall be adopted by majority consent of all the members of the Board present are voting. Provided that if within half an hour from the time appointed for the meeting quorum is not present the meeting shall stand adjourned to the same day in the next week at the same time and place and the directors present at such meeting shall constitute the quorum, where such numbers present are not less than two."

Clause 4.10 and 4.11 deals with the provision for convenience of the board meeting and notice regarding the board meeting. The contention of the Petitioner is that on 17.12.2019, he received an email from Respondent-3 by which he received a notice of extraordinary general meeting of the members of Respondent-1 Company, which is proposed to be held on 13th January 2019 along with the explanatory statement which is at page 15 of the Application filed under Rule 32 of the NCLT, Rules. The further contention of the Petitioner is the notice can only be issued by the approval of the Board as required under Section 100 of the Companies Act, 2013. As we have already referred the clause 4.9 of the Joint Venture Agreement which shows that the quorum is not said to be completed unless one Director nominated by PR and one Director by SPAL. Admittedly, the Petitioner was not participating in that meeting.

At this juncture, we would like to refer the arguments advanced on behalf of the Ld. Counsel appearing for the Respondent-1 that the JVA is not applicable and since the Petitioner has tendered his resignation, therefore, he has not participated in the meeting. He was not party to the meeting.

Now, we shall consider these submissions of the Respondents whether the JVA is applicable or not? At this juncture, we would like to refer the resolution dated 16th October 2006 then we find by the resolution dated 16 October 2006, the Board of Directors ratified and approved the Joint Venture Agreement executed on 19 September 2006 in between Pankaj Rustagi & Anr. and SPAL.

Therefore, in our considered view, that contention of the Respondents that JVA is not binding upon the respondent is not liable to be accepted, rather we are of the considered view that since the JVA dated 19th September 2006 is ratified and approved by the Board of Directors by Respondent Company on 16th October 2006, therefore, it is binding upon the parties.

Now coming to this point whether quorum of the Board meeting was completed in the absence of non-participation of the Petitioner in that Board meeting then in view of Clause 4.9 of the Joint Venture Agreement, we have no option but to hold that presence of the Petitioner in the board meeting is necessary in order to constitute the quorum for the board meeting, if the Petitioner has not participated or absent in the board meeting then the board has no other option but to adjourn the meeting in view of clause 4.9 of the Joint Venture Agreement.

Therefore, we find, no force in the contention raised on behalf of the Learned Counsel appearing for the Respondent that Joint Venture Agreement is not binding upon the company. So far, the resignation of the Petitioner from the Board of Directors is concerned, unless it is duly accepted by the board, the Petitioner shall continue to be the part of board of director and as per the Clause 4.9 of the JVA his presence is required in order to take any decision.

For the reasons discussed above, when we shall consider the case in hand in pursuance of Section 100 and Section 101 of the Companies Act, 2013 then we are of the considered view that it is only the board constituted as per the clause of JVA, is empowered to call the extraordinary general meeting and when it is approved by the Board, only in that case a notice can be issued under Section 101 of the Companies Act. Since in the case in hand, the Petitioner was not the part of that meeting of Board of Directors in which it was decided to call the extraordinary general meeting, therefore, in our considered view that decision is against the provision contained under Section 100 of the Companies Act, 2013 and any notice issued under Section 101 of the Companies Act, 2013 is not the valid notice.

Therefore, we have no option but to hold that notice issued by the Respondent-3 by which he informed the Petitioner that the extraordinary general meeting is going to be held on 13th January 2019 is not valid and on the basis of which no meeting can be held on that day.

Accordingly, we hereby quash the notice dated 13th January 2019 issued by the Board in which the Petitioner was not party.

Now coming to the other point whether the company can raise the fund or not?

In course of his arguments, Learned Counsel appeared for the Respondent referred the meetings dated 18th January 2019 in which the Petitioner-1 was also present and presided the meeting and the meeting dated 15th March, 2019 presided by the Petitioner and in both the meeting the financial condition of the Respondent company was discussed and it was decided to raise the fund by taking the loan and that was not opposed by the Petitioner which shows that financial condition of the company is not good and company needs fund and that is the reason when the matter was placed before Board of Directors, chaired by the petitioner in that meeting. Petitioner had not raised any objection. He further referred the email dated 28th March 2019 which is at page 44 of the reply to CA, email dated 31st March 2019 at page 43-44 of the reply to CA and submitted that the Petitioner, himself, suggested that the company should raise capital by way of right issues in the ratio of current shareholding of the Petitioner and the Respondent-2 in the Company. He also referred the email dated 01st April 2019 at page 42-43 of the reply to CA and accordingly, Respondent-5 agreed to consider proposals of the Petitioner-1 and in the Board meeting dated 04th April 2019 which is at page 48-50 of the reply to CA agreed to consider the proposals of the Board meeting dated 04th April 2019. The Petitioner gave a proposal which was approved by the Board and Petitioner was authorized to take all steps for that purpose with the Karnataka Bank and Overseas Bank. He further referred the loan agreement signed by the Respondent-2 which is at page 58 of the reply of CA but the said rule was not signed and executed by the Petitioner.

In the light of the aforesaid submissions, when we have gone through the documents referred by the Learned Counsel appeared for the Respondent then we find that the financial condition of the company was discussed in the aforesaid meeting and there were various correspondences through emails between Petitioner and Respondent. Even, the financial condition of the Respondent-1 company was discussed in the meeting, which was presided by the Petitioner.

Therefore, we are of the considered view that since company needs fund under such circumstances, we cannot restrain the company to raise the fund. Of course, it must be in accordance with the law and it must be placed before the duly constituted meeting of the Board of Directors and therefore, we are unable to accept the submissions of the Petitioners that the company be restrained from raising the fund, the decisions upon the Petitioner place reliance on this issue, we have gone through the decisions and in our considered view if there is need of fund for the smooth functioning of the company in that case, no restrain order can be passed, which stop the company from raising the fund.

Hence decisions upon which the Petitioner placed reliance in the facts and circumstances in the case in hand is not applicable. However, the Petitioner is at liberty to raise the issue at the time of final hearing of the main Petition 137/241-242/ND/2019.

Accordingly, we hereby reject the prayer of the Petitioners to grant status quo in respect of shareholding of the Respondent-1, rather, we made it clear if the raising of fund is duly approved by the Board constituted as per the JVA and then the Company is at liberty to raise the fund in any manner which will be approved by the Board of Directors duly constituted under JVA.