CL 1. ARUNA OSWAL V. PANKAJ OSWAL & ORS [SC]

Provision Involved:

According to Section 72 of the Companies Act, 2013 every holder of securities has a right to nominate any person to whom his securities shall “vest” in the event of his death. Section 72(3) overrides anything contained in any other law in force or any disposition, whether testamentary or otherwise, where a nomination is validly made in the prescribed manner. It purports to confer on any person “the right to vest” the securities of the company, and all the rights in the security shall vest in the nominee, unless the nomination is varied or cancelled in the prescribed manner. Prima facie , once shares vest in a nominee, he becomes absolute owner of the securities on the strength of nomination and can participate in the company meetings.

Brief

Facts:

• The case is the outcome of a family tussle. Appellant is the mother while the respondent No.1 is the son, who was holding 39.88% shares in Oswal Agro Mills. Ltd. and 11.11% shares in M/s. Oswal Greentech Ltd.

• He filed a nomination in favour of the appellant, who was registered as a holder as against the shares held by her deceased husband.

• The respondent No.1, filed a partition suit claiming one fourth share in the shareholdings of his father in the above two companies. Further he filed a petition before the NCLT claiming oppression and suppression against his mother and others.

• The appellant challenged the maintainability of the petition, inter alia, under the ground that the respondent No.1 is not holding the required shares to file such petition.

• The NCLT dismissed the application. NCLT held respondent No.1 as legal heir was entitled to one-fourth share of the property/shares.

• Aggrieved thereby, appeals were filed before NCLAT, which have been dismissed vide the impugned judgment and order. Aggrieved thereby, the appellants are before this Court.

Decision:

SC set aside the orders of NCLT & NCLAT. (SC held that up till the civil court has not finalised the partition suit, NCLT/NCLAT can not presume the final holding of shares which the petitioner might get by the civil court)

Reason:

SC held that respondent No.1 has purchased the holding of 0.03% in M/s. Oswal Agro Mills Ltd. in June 2017 after filing civil suit and remaining 9.97% is in dispute, he is claiming on the strength of his being a legal representative. In M/s. Oswal Greentech Ltd., the shareholding of the deceased was 11.11%, out of which one fourth share is claimed by respondent No.1. Thus, we are satisfied that respondent no.1 does not hold the shares to the extent of eligibility threshold of 10% as stipulated under section 244 in order to maintain an application under sections 241 and 242.

Admittedly, in a civil suit for partition, he is also claiming a right in the shares held by the deceased to the extent of one-fourth. With regard to the dispute as to right, title, and interest in the securities, the finding of the civil Court is going to be final and conclusive and binding on parties. It would not be appropriate to treat the shareholding in the name of respondent No.1 by NCLT before ownership rights are finally decided in the civil suit.

Thus SC left all the questions to be decided in the pending civil suit. Impugned orders passed by the NCLT as well as NCLAT are set aside, and the appeals are allowed to the aforesaid extent and requested that the civil suit be decided as expeditiously as possible.

CL 2. MR. PANKAJ KUMAR MISHRA V.

REGISTRAR OF COMPANIES, MUMBAI & ORS. (NCLAT)

Provision Involved:

Section 252 (1) of the Companies Act,2013 provides that before passing any order under this Section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar of the Company and all the persons concerned.

Brief

Facts:

• The name of the Company was struck off by ROC Mumbai.

• The Principal Commissioner of Income Tax challenged the order of ROC before the NCLT.

• It is stated before the Tribunal that the Company has certain Financial transactions that have been entered into by the Company for the Assessment year 2011-12 and information regarding this were received from the office of ITO Income Tax Officer. However, no return of income has been filed. Therefore, notice under Section 148 of the IT Act, 1961 has been issued for Assessment year 2011-12 proposing to assess/reassess the income.

• The NCLT, Mumbai allowed the Appeal of CIT and directed to restore the name of the Company in the Register of Companies without giving any notice or opportunity of being heard to the Company.

• Being aggrieved with this order, the Appellant Ex-Director and Majority Shareholder has filed this Appeal. Appellant submitted that Section 252 (1) of the Companies Act, 2013, provides that before passing any order for restoration, the Tribunal must give a reasonable opportunity of being heard to the Registrar, the Company and all the persons concerned.

Decision:

The NCLAT held that before making any order for restoration, opportunity of being heard has to be given, and since in the given case opportunity for being heard was not given, the order of NCLT is set aside.

Reason:

Tribunal must give a reasonable opportunity of making representations and of being heard before passing an order, to the Registrar, the Company and all the persons concerned under Section 252 (1) of the Companies Act, 2013.

Accordingly, NCLAT set aside the order of NCLT, and the matter is remitted back to NCLT.

CL 3. ALIBABA NABIBASHA V.

SMALL FARMERS AGRI-BUSINESS CONSORTIUM & ORS. (DELHI, HC)

Provision Involved:

Section 141 of NI Act state the offences by companies. It deals with dishonouring of cheques drawn by the company. This section extends the liability to every individual who when the offence was committed was responsible for the conduct of business which also extends towards the key managerial personnel like that of the Director.

To attract the provision contained in section 141 of NI Act the offence of Section 138 shall have been committed as the principal offence. But it is also provided that no individual or person shall be held liable if that individual is able to prove the fact that the offence was committed without his knowledege on his part and all the reasonable and necessary steps were taken by him that a prudent man would have taken to prevent the happening of the offence.

Section 168 of Companies Act 2013 provides the director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure. 

Brief

Facts:

• Mr. Alibaba (Petitioner) was a director of a company. The company has issued certain cheques to the Respondents, and the cheques have been dishonored and hence the respondent company has filed case against Mr. Alibaba.

• Mr. Alibaba (Petitioner) has filed this petition against the cases filed contended that he was not the Director when the underlying contract was executed, nor when the cheques were issued and when they were presented and that he has resigned 8 years prior to the issuance of cheques, and the resignation has been duly filed with ROC as well.

• According to the Respondent company, the Petitioner was involved in the discussion before an agreement was executed. Further, the Petitioner had participated in meetings and assisted the officials of the Respondent

• who had visited for verification of its financial and physical status.

Decision:

HC held that after resignation, Director cannot be held responsible for daily affairs of Company including Cheques issued and dishonored.

Reason:

Delhi High Court held that, in cases where the accused has resigned from the Company and it has also been filed with the Registrar of Companies then in such cases if the cheques are subsequently issued and dishonoured, it cannot be said that such an accused is in-charge of and responsible for the conduct of the day-to-day affairs of the Company, as contemplated in Section 141 of the NI Act.

Thus, Petitioner after his resignation cannot continue to be held responsible for the actions of the Company including the issuance of cheques and dishonour of the same. Hence, complaint cases filed under Section 138 of the NI Act, against the petitioner are quashed.

CL 4. DR. RAJESH KUMAR YADUVANSHI V.

SERIOUS FRAUD INVESTIGATION OFFICE (SFIO) & ANR. (DELHI, HC)

Brief

Facts:

• The petitioner (Dr. Rajesh Kumar Yaduvanshi) has filed the present petition inform as a summoning order dated August 16, 2019 issued by learned Additional Session Judge in “Serious Fraud Investigation Office (SFIO) V. Bhushan Steel Limited and Ors.”

• The learned Court had found that there was sufficient material placed on record against the petitioner to face prosecution in respect of offences under Sections 128, 129, 448 read with Section 447 of the Companies Act, 2013.

• The petitioner was Nominee Director of Punjab National Bank Limited on the Board of Bhushan Steel Limited (‘BSL’) at the material time .

• The petitioner submitted that:

• There is no specific allegation in the SFIO report that the petitioner was even remotely connected or aware of the same
• Further, merely mentioning the petitioner’s name as being one of the persons who is allegedly liable to prosecuted as above offence, without describing any specific role or pointing out any culpabale conduct would  not constitute sufficient material to persuade any Court to issue summons.

•   Hence, there was no allegation in the complaint that the petitioner has connived with the Promoters or any other person to falsify the accounts and therefore the order given above is wholly erroneous.

• The Respondent (SFIO) submitted that the petitioner was a Nominee Director appointed by PNB on the Board of BSL and was expected to be independent, vigilant and cautious against any fraudlent acts committed by BSL. He was also required to raise red flags and inform PNB of any fraudlent activity.

Decision:

Person as a Nominee Director of the Company cannot be summoned for offences in respect of Sections 128, 129, 448 read with Section 447 of the Companies Act, 2013, without any specific allegations against him in Investigation report.

Reason:

• Delhi High Court observed that there is no allegation that the petitioner was involved in the affairs of BSL except in his capacity as a Nominee Director of PNB. In such capacity, he was not assigned any executive work of BSL but was merely required to attend and participate in the Board Meetings of BSL.

• Even, SFIO investigation report does not contain any specific allegations against the Petitioner of being complicit or having acted in bad faith.

• There is a material difference between the allegation that a Nominee Director has been negligent and an allegation that he is complicit (involved) in approving financial statements, which he knows to be false or conceal material information.

• Since, there is nothing against the nominee director in the investigation report he can be held liable for negligence but can be prosecuted for fraud, Accordingly the summons are set aside.

CL 5. ECONOMY HOTELS INDIA SERVICES PRIVATE LIMITED V.

REGISTRAR OF COMPANIES & ANR. (NCLAT)

Provision Involved:

Section 66 of Companies Act, 2013 states a company limited by shares or limited by guarantee and having a share capital may, reduce the share capital by passing a special resolution, subject to the confirmation by the Tribunal (NCLT) and alter its memorandum by reducing the amount of its share capital and of its shares accordingly. The Tribunal has the absolute power to confirm or reject the scheme of reduction

Brief

Facts:

• The Appellant Company had filed a petition under Section 66 of the Companies Act praying for confirming the reduction of share capital.

• In the extract of the minutes submitted to NCLT, it was written that the ‘unanimous ordinary resolution’ required for reduction has been obtained.

• The NCLT rejected the application for reduction.

• Hence the company has filed and appeal with NCLAT pleading that it was a mere typographical error in the minutes characterising the ‘special resolution’ as ‘unanimous ordinary resolution’ and the Appellant had filed the special resolution with ROC and fulfilled all the statutory requirements prescribed in the Companies Act, 2013, hence the order of the Tribunal is liable to set aside.

Decision:

Merely a ‘typographical error’ in the extract of ‘Minutes’, characterising the ‘special resolution’ as ‘unanimous ordinary resolution’ will not render a special resolution as invalid. The special resolution passed is very well valid. NCLAT has allowed the reduction.

Reason:

• NCLAT observed that ‘Reduction of Capital’ under Section 66 of the Companies Act, 2013 is a ‘Domestic Affair’ of a particular Company in which, ordinarily, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails.

• As the Appellant has admitted its typographical error in the extract of the Minutes of the Meeting characterizing the ‘special resolution’ as ‘unanimous ordinary resolution’ and also taking into consideration of the fact that the Appellant had filed the special resolution with ROC, which satisfies the requirement of Section 66 of the Companies Act, 2013.

• NCLAT allowed the Appeal, thereby confirming the reduction of share capital of the Appellant Company.

CL 6. K.V. BRAHMAJI RAO V.

UNION OF INDIA (NCLAT)

Provision Involved:

Section 337 of the Companies Act, 2013 refers to penalty for frauds by an officer of the company in which mismanagement has taken place. Section 339 pertains to any business of the company which has been carried on with intent to defraud creditors of that company.

Brief

Facts:

• In the huge financial scam in PNB, Union of India has initiated investigation against 107 companies and 7 LLPs of Nirav Modi Group and Gitanjali Group of Companies.

• At the relevant time the Appellant was Executive Director, PNB, Head Office, New Delhi. NCLT, Mumbai bench, passed the order for freezing Assets of the Appellant and prohibited him from disposing movable and immoveable Properties/Assets.

• The Appellant submits that the order has been passed in violation of Principle of Natural Justice since the Appellant was not served with advance copy of the said Application and without giving opportunity of hearing order has been passed.

• Important legal issue is whether any person assets (who is head of some other organizations) be attached in exercising the powers under Sections 337 & 339 of the Companies Act, 2013?.

Decision:

Any person assets (who is head of some other organizations) cannot be attached in exercising the powers under Sections 337 & 339 of the Companies Act, 2013.

Reason:

• The NCLAT observed that the person who may be the head of some other organizations cannot be roped and his or her Assets cannot be attached in exercising the powers under Sections 337 & 339 of the Companies Act, 2013. Admittedly, the Appellant was the Executive Director of PNB, Head Office, New Delhi i.e. employee of other organization. Therefore, he cannot be impleaded as Respondent in the case against the Nirav Modi Group and Gitanjali Group of Companies.

• Thus, the order of NCLT, Mumbai bench is set aside, and the Appeal is allowed.

CL 7. S. P. VELUMANI & ANR. V. MAGNUM SPINNING

MILLS INDIA PVT. LTD. & ORS. (NCLAT)

Brief

Facts:

• The Appellant filed a case contending that bogus transactions and siphoning of funds is taking place in the company and filled a company petition in NCLT, Chennai for oppression and mismanagement.

• After having heard the parties the NCLT, Chennai Bench dismissed the case stating that the acts complained of are not falling within the purview of Oppression and mismanagement.

• Being aggrieved by the said order of the NCLT the appellant has filed the present appeal to NCLAT.

• The contention of the Appellant that during the financial year 2017-18, an amount of Rs. 48,41,801/- has been written off as bad debts, and the details as to identity of the party, whether related party or otherwise is not disclosed.

Decision:

The NCLAT upheld the decision of the NCLT, Chennai bench that decision of the Board of Directors to write off the bad debt is a commercial decision, which does not warrant any judicial interference.

Reason:

• NCLT has rightly put its reliance on Judgement of NCLAT in Upper India Steel Manufacturing and Engineering Co. Ltd. & Ors. Vs. Gurlal Singh Grewal & Ors. where it was held that cheque signing power is solely a business decision and cannot be interfered.

• Similarly, decision of the Board of Directors to write off the bad debt is a commercial decision, which does not warrant any judicial interference.

CL 8. BANK OF BARODA V.

ABAN OFFSHORE LIMITED (NCLAT)

Provision Involved:

Section 55 of the Companies Act, 2013 was to compulsorily provide for redemption of preference shares by doing away with the issue of irredeemable preference shares.

Brief

Facts:

• The appellants being preference shareholders have filed an application to NCLT for redemption of preference shares under section 55(3) or section 245.

• NCLT, Chennai Bench (Tribunal) has dismissed the application of Appellant solely on the ground that the Appellant being preferential shareholders has no locus standi to file application for redemption of shares under Section 55(3) of the Companies Act, 2013 or even under Section 245 of the Companies Act, 2013.

• Aggrieved by the order of NCLT, The appellants have filed an appeal to NCLAT.

•The legal question involved is, whether there is any remedy under law available to preference shareholders for filing application for redemption of preference shares?

Decision:

NCLAT held that Preference shareholders are not remediless for redemption of preference shares, they can file an application under Section 55(3) of the Companies Act, 2013 or alternatively they may also file application under Section 245 of the Companies Act, 2013 as a class action suit.

Reason:

• The intention of the legislature while promulgating Section 55 of the Companies Act, 2013 was to compulsorily provide for redemption of preference shares by doing away with the issue of irredeemable preference shares. Therefore, even though there is no specific provision stipulated under the Companies Act, 2013 through which relief can be sought by preference shareholders in case of non-redemption, as the intention of the legislature being clear and absolute, Tribunal’s inherent power can be invoked to get an appropriate relief by an aggrieved preference shareholder(s).

• Alternatively, preference shareholders coming within the definition of ‘member(s)’ under Section 2(55) read with Section 88 of the Companies Act, 2013, may file a petition under Section 245 of the said Act, as a class action suit, being aggrieved by the conduct of affairs of the company.

• Hence, the order of the NCLT is set aside. The matter is remitted back to NCLT, Chennai Bench to decide the application as per law.

CL 9. JOINT COMMISSIONER OF INCOME TAX, MUMBAI V.

RELIANCE JIO INFOCOMM LTD. & ORS. (NCLAT)

Brief

Facts:

• Reliance Jio Infocomm Limited’ (Petitioner Co. 1)  , ‘Jio Digital Fibre Private Limited’ (Petitioner Co. 2) and ‘Reliance Jio Infratel Private Limited’ (Petitioner Co. 3) moved joint petition under Sections 230-232 of the Companies Act, 2013, seeking sanction of the Composite Scheme of Arrangement among the Petitioner Co. 1 , 2 and 3 and their respective shareholder and creditor

• The scheme was approved by NCLT.

• The appellants have made an appeal against the scheme to NCLAT.

• According to the Appellants, by way of the composite scheme, there is an indirect release of assets by the demerged company to its shareholders which is used to avoid dividend distribution tax which would have otherwise been attracted to tax liability.

• As per the law, Dividend arising out of preference shares can only be paid by the company out of its accumulated profits. However when preference shares are converted into loan, the shareholders turn into creditors of the company. There are two consequences of such conversion of preference shares into loan-

• Firstly, the shareholders who are now creditors can seek payment of the loan irrespective of whether they are accumulated profits or not.
• Secondly, the company would be liable to pay interest on the loan to its creditors, which it otherwise would not have had to do to its shareholders. Payment of Interest on such huge amounts of loan would lead to reducing the total income of the company in an artificial manner which is not permissible in law.

Decision:

NCLAT held that mere fact that a Scheme of Compromise or Arrangement may result in reduction of tax liability does not furnish a basis for challenging the validity of the same.

Thus, NCLAT upheld the decision of NCLT, Ahmedabad bench and in view of the liberty given to the Income Tax Department decided not to interfere with the Scheme of Arrangement as approved by the Tribunal and dismissed the appeals filed.

Reason:

The NCLAT held that without providing any evidence before the Tribunal, the Income Tax Department was not open to hold that the overall scheme of arrangement between the petitioner companies and their respective shareholders and creditors was giving undue advantage to the shareholders of the company. And overall planning of the system results in tax avoidance.

CL 10. CYRUS INVESTMENTS PVT. LTD. & ANR. V. TATA SONS LTD. & ORS.

Brief

Facts:

• 2012- Mr. Ratan Tata resigned from Tata Sons, and Mr. Mistry was appointed as chairman.

• 24^th October 2016- Cyrus Mistry was removed from the position of chairman by Mr. Ratan Tata.

•  25^th October 2016- Tata Sons filed caveats to prevent exparte order.

• December 2016- Cyrus Mistry filed a case for Oppression and Mismanagement.

• February 2017- Tata Sons conduct EGM, Shareholder passed the resolution to remove Cyrus Mistry as Chairman .

• 21^st February 2017- N. Chandra Shekhar was appointed as chairman.

• 2017- NCLT Dismissed the case by Cyrus Mistry, Cyrus Mistry appealed to NCLAT, NCLAT accepted the application for oppression and mismanagement, and ordered NCLT to proceed with the case. During the case Tata Sons applied for conversion of Tata Sons Public Company to Private Company. In NCLT, application of Oppression and Mismanagement was rejected and approves the conversion from public company to private company. Now, Cyrus Mistry appealed to NCLAT

• 18^th December 2019- NCLAT reinstated Cyrus Mistry as chairman within  4 weeks

• Jan 2020- Tata Sons appeal to SC and impose a stay on the NCLAT order

• 2021- SC ordered in favour of Tata Sons

Highlights of Supreme Court Judgment

• The removal of Mr. Cyrus Mistry does not amount to oppression and mismanagement.

• Considering various factors like the philanthropy nature of Tata trusts, majority rule, no malafide intentions from their part and various other factors, order was made in the favor of Tata.

• Now, Mistry had offered to sell their shares to Tata and exit from the company for 1.25 L. crores, whereas Tatas are offering 80,000 crores (aprox), SC suggested to reach a settlement on the price outside court or can also take the judicial route if no settlement is arrived.

CL 11. ARUN KUMAR JAGATRAMKA V. JINDAL STEEL AND POWER LTD AND ANR (SC)

Brief

Facts:

•  By its Judgment dated 24^th October 2019, the NCLAT held that a person who is ineligible under section 29A of the Insolvency and Bankruptcy Code, 2016 to submit a resolution plan, is also barred from proposing a scheme of compromise and arrangement under section 230 of the Companies Act, 2013.  

•  The same principle came in question in this case

Decision:

Person ineligible to submit a resolution plan under section 29A of the Insolvency and Bankruptcy Code, 2016 cannot submit a scheme of compromise and arrangement under Section 230 of the Companies Act, 2013.

Legal Observations

Made:

• SC held that the purpose of the ineligibility under Section 29A is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution. Section 29A , it must be noted, encompasses not only conduct in relation to the corporate debtor but in relation to other company as well.

• That the consequence of the approval of the scheme of revival or compromise, and its sanction thereafter by the Tribunal under subsection (6), is that the scheme attains a binding character upon stakeholder including the liquidator who has been appointed under IBC.

• That a harmonious construction between the two statutes would ensure that while on the one hand a scheme of compromise or arrangement under section 230 is being pursued, this takes place in a manner which is consistent with the underlying principles of the IBC because the scheme is proposed in respect of an entity which is undergoing liquidation under chapter III of the IBC.

• The company has to be protected from its management and a corporate death. It would lead to a manifest absurdity if the very persons who are ineligible for submitting a resolution plan, participating in the sale of assets of the company in liquidation or participating in the sale of the corporate debtor as a ‘going concern’, are somehow permitted to propose a compromise or arrangement under Section 230 of the Act of 2013.

Conclusion

The Court held that the prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the IBC must also attach itself to a scheme of compromise or arrangement under section 230 of the Companies Act, 2013.

CL 12. BRILLIO TECHNOLOGIES PVT. LTD. V. REGISTRAR OF COMPANIES & ANR (NCLAT)

Brief

Facts:

• The Board of Directors of the Company resolved to reduce the equity share capital, by reducing 89,52,637/- equity shares of Re. 1/- each from non-promoter equity shareholders for a consideration of Rs. 5,61,33,034/.

• An EGM was held, special resolution duly passed in accordance Section 66 (1) read with Section 114, 100% members voted in favour of the resolution for reduction of capital.

• No objections were received from creditors, consent affidavits were also not received.

• It resulted in selective reduction in equity share capital to a particular group involving non-promoter shareholders and bringing the company as a wholly owned subsidiary of its current holding company.

• NCLT held that this is an arrangement between the company and shareholders or a class of them and hence, it is not covered under Section 66 of the Act and may be covered under Sections 230-232 of the Act.

Decision:

NCLAT held that selective reduction of capital is very well allowed.

Reason:

NCLAT addressed all the grounds:

Ground (i): No proper genuine reason has been given for reduction of share capital.

Ans: The non-promoter shareholders requested the company to provide them an opportunity to dispose of their shareholding in the petitioner company. There is no law that a Company can reduce its capital only to reduce any kind of accumulated loss. With the aforesaid it cannot be said that the Appellant Company has not given any genuine reason for reduction of share capital.

Ground (ii): Consent affidavit from creditors has not been obtained.

Ans: Admittedly, after service of notice, no representation has been received from the creditors within three months. Therefore, as per proviso to Section 66(2) of the Act, it shall be presumed that they have no objection to the reduction.

Ground (iii): Security Premium Account cannot be utilized for making payment to the non-promoter shareholders.

Ans: The entire Section 78 has to be read as a whole so as to give a meaningful interpretation and so it can certainly be utilised.

Ground (iv): Selective reduction of shareholders is not permissible.

Ans: It is clear, that majority shareholders have decided to reduce the share capital. Normally, decision of the majority is to prevail. It is also their right to decide the manner in which the shareholding is to be reduced and, in the process, they can decide to target a particular group (which is not with mala fide and unfair motive). In the light of aforesaid proposition of law, it can be safely held that selective reduction is permissible if the non-promoter shareholders are being paid fair value of their shares. In the present case, none of the non-promoter shareholders of the Company have raised objection about the valuation of their shares and the proposed reduction is for whole non-promoter shareholders of the company. Accordingly NCLAT held that the reduction is very well valid.

CL 13. VIJAYA SAI POULTRIES PVT. LTD. V. VEMULAPALLI SAI PRAMELLA & ORS (NCLAT)

Brief

Facts:

• 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 consideration.

•He also started selling the immovable and moveable properties of the Vijaya Sai illegally and misappropriated the sale proceeds and purchased 50 immovable properties in his name and his wife’s name by utilizing the working capital and funds of the Vijay Sai.

• He has been operating the finances of the Vijay Sai in an arbitrary and whimsical manner and has siphoned off Crores of Rupees belonging to the Company without accounting for the same. The same was done with the active aid and connivance of the auditors of the Company

• NCLT, Amaravati Bench, passed an order whereby the Adjudicating Authority allowed the application filed by the Vemulapalli Sai Pramella and directed that forensic audit be conducted of the Vijay  since 31.03.2004.

• NCLT ordered forensic audit without giving any reasons or grounds.

• So the appellants have filed this appeal against the order of NCLT

Decision:

Forensic audit of the accounts ordered by NCLT without recording suitable reasons is not tenable.

Reason:

NCLT held that in the application, there is an allegation of fabricating share transfer deeds and the resignation letter. It is not mentioned in the application 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.

The Hon’ble Supreme Court in the case of Karanti Associates Pvt. Ltd. & Ors. Vs. Masood Ahmad Khan & Ors. (2010) after considering many earlier judgments summarized the principles on the recording of reasons which is crucial part of the order.

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, which are not mentioned for the said directions. Hence, the Impugned Order is set aside.

CL 14. THE REGISTRAR OF COMPANIES, WEST BENGAL V. KARAN KISHORE SAMTANI (NCLAT)

Provision Involved:

Section 165(6) of Companies act, 2013 states (before the amendment) If a person accepts an appointment as a director in contravention of sub-section (1), he shall be punishable with fine which shall not be less than five thousand rupees but which may extend to twenty-five thousand rupees for every day after the first during which the contravention continues

Brief

Facts:

• The Respondent was the Director, for more than 20 Companies till 31.03.2015.

• On 27.01.2016 the Registrar of Companies, West Bengal sent show cause notice on the ground that he was the Director of more than 20 Companies at once.

• The Respondent admitted the guilty and sent representation to the Registrar with a request to compound the offence under Section 441(1) of the Companies Act, 2013.

• ROC forwarded the representation along with his report to the Tribunal.

• After hearing the parties the NCLT Kolkata Bench (Tribunal) allowed the compounding application subject to payment of compounding fees of Rs. 50,000/-.

• Being aggrieved with this order ROC has filed this Appeal saying that the minimum fine prescribed for the offence is more than 50,000, Hence the compounding fees of 50,000 is not appropriate.

• The issue for consideration is, whether Tribunal can impose the compounding fees, less than minimum fine prescribed for the offence under the Act.

Decision:

The compounding fees has to be more than or equal to the minimum fine prescribed under the Act.

Reason:

• The Respondent has contravened the provisions of 165(1) of the Companies Act, 2013 which is punishable under Section 165 of the Companies Act, 2013.

• the NCLAT held that the NCLT, Kolkata Bench has failed to notice the minimum fine prescribed under Section 165 of the Companies Act, 2013 which was applicable at relevant time.

• Accordingly, NCLAT imposed minimum fine at the rate of 5000 rupees for every day for the period 01.04.2015 to 21.02.2016 i.e. 272 days, which came to 13,60,000.

CL 15. LATE MONA AGGARWAL THROUGH HER LEGAL HEIR MR. VIJAY KUMAR AGGARWAL & ANR. V. GHAZIABAD ENGG. COMPANY LTD. & ORS. (NCLAT)

Provision Involved:

While interpreting sub-section (8) of Section 248, it is clear that Section 248 in no manner will affect the powers of the Tribunal to wind up the company, the name of which has been struck off from the register of companies.

Brief

Facts:

• The question for consideration is that during the pendency of winding up petition the name of the company has been struck off under Section 248 of the Companies Act 2013. In such circumstances whether the NCLT can proceed with winding up petition or not?

• NCLT rejected the petition for winding up with liberty to the petitioner to file a fresh petition for winding up as and when the Respondent company is revived.

• Being aggrieved with this order the Appellants have filed this appeal.

Decision:

NCLAT held that even after removal of the name of the company from the register of companies the NCLT can proceed with the petition for winding up under Companies Act, 2013.

Reason:

• The NCLAT observed that from sub-section (8) of Section 248, it is clear that Section 248 in no manner will affect the powers of the Tribunal to wind up the company, the name of which has been struck off from the register of companies.

• Therefore, even after removal of the name of the company from the register of companies the NCLT can proceed with the petition for winding up under Section 271 of the Companies Act, 2013.

• Hence, order of NCLT is not sustainable in law and is hereby set aside and the matter is remitted back to NCLT, New Delhi for deciding the winding up petition on merit as per law.

CL 16. SHIKHA SHARMA BAGGA V. UNION OF INDIA (DELHI HC)

Provision Involved:

Section 7(1)(b) of Companies Act, 2013 read with rule 14 of the Companies (Incorporation) Rules, 2014 state that a declaration in the Form No. INC-8 by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company, and by a person named in the articles as a director, manager or secretary of the company, that all the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.

Brief

Facts:

• A petition was filed before the Delhi High Court challenging the non-providing of a field for Advocates to register companies and LLPs on the current Ministry of Corporate Affairs (‘MCA’) portal.

•The petitioner case was that the MCA portal permitted Chartered Accountants, Company Secretaries and Cost & Work Accountants to register as practising professionals and undertake incorporation of companies and LLPs for their clients.

• An amendment took place in the Companies Act, 2013 in 2014 by which even Advocates were permitted to file documents for incorporation of companies. For the said purpose, an Advocate would have to first register himself/herself as a practicing professional.

• However, the said amendment was not implemented in the tool Kit used by MCA

• As a result, Advocates could not register companies/LLPs on behalf of their clients.

• Hence, the Petitioner prays that consequential amendment be carried out in the MCA tool kit permitting Advocates who are enrolled with the Bar Council to register as professionals in the MCA portal.

Decision:

Delhi High Court held that advocates can file documents for incorporation of a company/ LLPs and ordered MCA tool kit had to be amended, which are enrolled with advocates. The Bar Council will register as professionals in the MCA portal

Reason:

Section 7(1)(b) of the Companies Act, 2013, clearly shows that advocates can file documents for incorporation of a company/LLPs.Though the portal of MCA has stated that no provision has been made for Member/Advocates of Bar Councils and Bar Councils has not been provided as an option in the list of Councils. If this is the case, the same discriminatory qualification would be Advocates will need to reform.