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Judgment
Abni Ranjan Kumar Sinha, J
CA/C-V/42/ND/2020
During the pendency of the Company Petition No. 185/241/242/ND/2019 of the Companies Act, 2013, an interlocutory application has been filed by Sh. Krishan Mohan Sharan/Respondent No. 5 of the main application.
The facts mentioned in the application are as follows: -
i. The shareholding of the Respondent No. 1 Company is split equally between two groups of shareholders - i.e. the Sharan Group and the Ahluwalia Group, i.e. 50:50. The equity of the Sharan Group is held by the Petitioner, Respondent No. 5 and their group concern, SDS Solar Pvt. Ltd., Respondent No. 6 in the main petition. On the contrary, the equity of the Ahluwalia Group is held by Respondent No. 2 and 3, who are also Directors of the Board of the Company. The Sharan Group also has two nominees on the Company's Board of Directors-Respondent No. 5 and Respondent No. 4.
ii. The Company is engaged in operating a solar power plant at Rohtak, Haryana and has entered into a long-term purchasing power agreement for the sale of the electricity so produced, with the Government of Haryana.
iii. Further, till 31-03-2019, the Respondent No. 1 company has obtained unsecured loans to the tune of Rs. 1,45,74,781/- of which nearly only Rs. 1,10,74,781/- are advances from related entities (Sharan Group, Rs. 94,60,000/- and Ahluwalia Group, Rs. 1614,781/-).
iv. Further, even after 31-03-2019 till date, Sharan Group have been put in Rs. 51,25,000/- as against only Rs. 2,00,000/- by Ahluwalia Group, by force of circumstances due to oppressive Respondent No. 2 and 3 not putting in their share of short fall of fund.
v. Further, as the Company is dependent on Solar Power for generation of revenue, the internal accruals resulting in the company from sale of electricity are erratic and on occasions insufficient to meet the monthly financial commitments. Further, a resolution was put forth to increase the authorized share capital of the Company and the same was duly passed subject to approval from the shareholders and notice for calling of Annual General Meeting of the shareholders of the Company was approved for on 28-06-2019.
vi. Further, the said general body meeting was held on 28.06.2019, however even after due intimation of the meeting and the agenda thereof, Respondent Nos. 2 and 3 remained absent on the scheduled date. In the said meeting, for the purpose of giving effect to the earlier resolution, the authorized share capital of the Company was increased to Rs. One crore ten lakhs only consisting of 11,00,000 shares of Rs. 10 each.
vii. Further, in pursuance of the decision of the Board in the earlier meetings, another meeting was scheduled and held on 31-07-2019, wherein proposal was made for right issue of shares to the existing shareholders of the Company thereby granting equal and fair opportunity to every shareholder to infuse funds in the Company. However, on 12-08-2019, Respondent No. 2 and 3 conducted another meeting to usurp the corporate agenda of the erstwhile meeting. It is also to be noted that Respondent No. 2 had a prior knowledge that Respondent No. 4 ( a nominee of the Sharan Group) would not be present at the Board meeting due to an urgent family situation for which the Respondent No. 4 was out of town since 11.08.2019. Further, even after repeated requests having been made by the said Respondent No. 4 to postpone the time of the Board meeting to 4:00 p.m. on the same day, such requests were rejected by Respondent No. 2 and 3 and so the meeting was convened in his absence.
viii. Further, vide the said meeting, Respondent No. 2 and 3 took benefit of the opportunity of absence of Respondent No. 4, cornered the Applicant and made several proposals that were not listed in the agenda. Therefore, such items were taken up without any prior intimation to other members of the board.
ix. Further, after successfully gaining control of the impugned meeting, Respondent No. 2 and 3, inter-alia, picked up the matter of right issue of shares, which had already stood concluded. Without any deliberation whatsoever, the said Respondents re-called the earlier Board decision, wherein the said right issue of shares was approved and came to an unfair and incorrect conclusion that the Company was not in financial need and no fresh equity infusion was required. Also, Respondent No. 2 and 3 took strong objection to the practice of introducing unsecured loans into the Company from Sharan Group Affiliate concerns and also stated that in the event that Company is need of funds, they as Shareholders/Directors will contribute monies.
x. Further, the afore-stated financial woes of the Company were sought to be addressed and discussed in the Board meeting held on 21.12.2019 at the Company's registered office. Further, Respondent No. 2 and 3 continued with their prejudicial and oppressive conduct and refused to have a fruitful discussion and in their wisdom have recorded separate minutes for the meeting conducted on the said date.
xi. Further, despite several admission of liability and the obligation to contribute funds into the company, the Respondent No. 2 & 3, have evaded to make the actual contribution till date. On account of their oppressive conduct, the Company has defaulted on its loan liability (exposing the company to criminal prosecution and interest obligation under the Income Tax Act).
xii. Further, this Tribunal vide order dated 10.01.2020 protected the interest of the Company and had directed the Respondents No. 2 & 3 not to unreasonably withhold or refuse signature on cheques and in furtherance of this order, the applicant has deposited monies into the Company consummate with his own share and also share of the Ahluwalia'a for the month of January, 2020- determined at Rs. 4,35,000/- by the Company's accountant.
xiii. Further, on the basis of the afore-mentioned, it is most humbly submitted that the Applicant has demonstrated a prima facie case. It is an indisputable position that the Company is facing a liquidity crisis and is in need of urgent funds. The applicant and the petitioner are ready and willing to make financial contributions into the company equivalent to their shareholding. Therefore, it is being prayed that the Respondent No. 2 and 3 be directed to undertake the same. It is submitted that this contribution can be made by both the parties, i.e. the Sharan Group and Ahluwalia Group, as an unsecured loan to the Company at the terms prescribed by this Hon'ble court as consideration for further equity, as determined by the Hon'ble Court. Further, if the Company defaults on its financial obligations, the personal assets of the Sharan Group will be made subject to coercive action of the financial institutions and the balance of convenience also lies in favour of the Applicant.
In response to the above said application, the Respondent has not filed any reply.
We have heard the Ld. Counsel for petitioner/Respondent No. 5 of this CA/C-V/42/ND/2020 as well as petitioner and Respondent No. 2 & 3 of main application and perused the averments made in the application and written submissions filed on behalf of both the parties. Ld. Counsel appearing for applicant in course of argument raised all the facts mentioned in the application as well as written submission and on the basis of that claim that prayer of the applicant may be allowed.
Whereas, Ld. Counsel appearing for Respondent No. 2 and 3 of main application raised all the facts mentioned in the written submission and submitted that: -
i. The prayer (a) of the Application or any prayer therein cannot be granted as an interim relief. The Application with regards to Prayer (a) is liable to be rejected on inter-alia the following grounds:
Conduct of the Applicants being grossly illegal, ethically incorrect and condemnatory;
Factually incorrect and deliberately false statements made in the Application and;
Failure to meet the triple test for grant of interim relief.
He further submitted that no contractual understanding or obligation which requires the Answering Respondents to fund the alleged financial shortfall shown in the Respondent No. 1 Company. The agreement dated 10-10-2010 ("Agreement") between the Sharan group and the Ahluwalia group (refer page 54-56 of the petition) nowhere stipulated that the Ahluwalia group would bridge the financial shortfall. Attention is invited towards clauses 3 and 9 of the said agreement. It is clear from the said Agreement that:
Sharan group acquired shareholding in the Respondent No. 1 Company at a nominal price in exchange of their commitment to be the party responsible for all financial obligation of the Respondent No. 1 Company including by way of bringing in collaterals from the banks concerning loans as also funding the Respondent No. 1 Company. In fact, failure to bridge the financial shortfall is a breach of the agreement by Respondent No. 5.
The Ahluwalia Group had already executed the power purchase agreement dated 20-08-2010, ("PPA") Prior to the agreement with Sharan Group (refer Para 3.3.1. of the Petition)
Therefore, the respective contribution of the parties of the agreement towards Respondent No. 1 Company was:
For Sharan Group- the finances, collaterals for loans, working capital and shortfalls.
For Ahluwalia Group- The Respondent No. 1 Company in good standing with an existing PPA and therefore assured business and source of revenue thereby.
He further submitted that the said Agreement was not translated into the articles of association ("AoA")of Respondent No. 1 Company (refer page 55-53 of the petition) and therefore the Answering Respondents have no responsibility in terms of AoA or the Companies Act, 2013 ("Act") to bridge any financial shortfall and With the above said ulterior motive, the Applicants agreed to transfer their shares to one Mr.Devender Gupta for an improper payment of INR 2,00,00,000/- in cash, admitted by Respondent No. 5 to Respondent No. 2 and also recorded by Respondent No. 2 in its email dated 14-01-2020 (refer to page 10-11 of the affidavit dated 06-01-2020 filed by Respondent No. 2 ("Affidavit"). Pursuant thereof, the Respondent No. 5 also forced the appointment of Mr.Devender Gupta on the board of directors of Respondent No. 1 Company (refer to page 8 of the Affidavit) at the board meeting of 18-03-2019 wherein the directors represented only by Sharan group were present (refer page 59 & 60 of the petition).
He further submitted that attempted transfer of the shares to Mr. Devender Gupta is in gross violation of the AoA of the Respondent No. 1 Company as the right of first refusal available thereto to the Answering Respondents also amounts to breach of the Agreement which in the version of the Petitioner himself is a partnership between the Ahluwalia group and the Sharan group (refer Para 3.3.4 of the petition).
He further submitted that the Application also suffers from grave illegalities and contains false statements with respect to:
a. Removal of Respondent No. 5 as chairman and appointment of Respondent No. 2 as the chairman of the Respondent No. 1 Company by the impugned meeting of 12-08-2019. Both these statements are blatantly false as Respondent No. 5 was never appointed as chairman of Respondent No. 1 Company in perpetuity or an indefinite term and the practice of the Respondent No. 1 Company has always been for the present directors and shareholders to elect the chairpersons among themselves for the meetings.
b. The Applicants have also attempted to mislead this the Tribunal that Respondent No. 2 had consented to bridge the alleged financial shortfall.
He further submitted that none of the requirements of the triple test for getting an interim relief has been satisfied in the present Application. The Applicants have not been able to make out a prima facie case as they failed to show any stipulation by which the Answering Respondents are legally liable to bridge the alleged financial shortfall. In fact, failure to bridge the financial shortfall is a breach of the Agreement by Respondent No. 5. The balance of convenience definitely doesn't lie in the favour of Applicants who are guilty of intentional false statements and equity also doesn't lie by any scale of measurement in the favour of the Applicants. No irreparable loss can be said to be caused to the Applicants if the interim directions sought for are not granted as the Applicants themselves submitted that the Sharan group has provided disproportionately high unsecured loans to the Respondent No. 1 Company at all times (refer para 6.2 & 6.3 of the Application).
Before considering the submissions made on behalf of parties, we have gone through the relief sought in the main application filed by the petitioner as well as relief sought by the petitioner/Respondent No. 5 in CA/C-V/42/ND/2020 and we find that prayer D i.e. restore the offer of rights issue made by the Respondent No. 1 and similar relief is also sought in the main application, which is still pending for hearing, therefore, without considering the merits of the main application, it would not be proper to give any finding on prayer D of the petitioner/Respondent No. 5 in CA-42/2020.
So far relief C of the petitioner/Respondent No. 5 is concerned the prayer of petitioner/respondent No. 5 is to direct the unsecured loans made by the applicant/respondent No. 5 to be treated as equity in the company, mere plain reading of the relief show that no where, it is mentioned in relief C to whom this relief is sought because in other reliefs i.e. Prayer A, B, D & E, it is specifically mentioned the persons against whom relief is sought, therefore, since no specific name of the person is mentioned in respect of relief C, hence it is desirable to consider this relief at the time of final hearing of the main application.
So far relief of prayer E is concerned i.e. award costs of the petition in favour of petitioners and against respondent No. 2 & 3, holding them jointly and severally liable, we have again gone through the averments made in the main application and we find that similar facts and grievances is also made in the main application by the petitioner, therefore, we think it proper to consider this relief also at the time of final hearing of main application.
So far relief of prayer A & B is concerned i.e. (a) Direct the respondent No. 2 & 3 to make financial contributions into the company to meet the impending shortfall of funds, (b) Direct the Respondents No. 2 & 3 to refrain from unreasonably withholding signature on cheques being presented for meeting financial liabilities of the company, we have gone through the averments made in the application and we find in course of hearing of the petition, an order was passed on 10.01.2020 by which authorized signatories were directed to issue the cheque to meet immediate financial obligation of the company, and we further find that petitioner/Respondent No. 5 at page 7 Para 6.10 & page 8 Para 6.11 specifically mentioned these facts that the company are facing financial difficulties and company is facing an impending default on its long term facility of Rs. 10,70,00,000/-against collateral security of personal assets of the petitioner and respondent No. 5 and the sanctioned letter issued by the financial institution shows that each instalment is due on 5th of every calendar month and petitioner/respondent No. 5 has enclosed the sanctioned letter, which is annexed at page 37 as Annexure-R5/8 of CA/C-V/42/ND/2020 and we have gone through Annexure-R5/8 and we find that a loan amount was sanctioned on 05.03.2019 and company is required to pay the instalment on 5th of every calendar month, therefore, we are of the considered view that if the instalment is not paid on time then company will be put into a great loss, which cannot be compensate in terms of money, under such circumstances, we think it proper to direct both the parties to contribute equally in order to pay the instalment and other dues including the salary of the employees and other liabilities of the company during the pendency of the present application No. CP No. 185/241-242/2019.
Accordingly, both the parties are directed to contribute equally in order to pay the instalment and other dues including the salary of the employees and other liabilities of the company and authorized signatories are directed to issues the cheques regularly on time without any default failing which the person who is responsible for that shall be liable for contempt.
With this order, the present CA/C-V/42/ND/2020 stands disposed off.