16 Bank of Baroda vs. Aban Offshore Limited National Company Law Appellate Tribunal Company Appeal (AT) No. 35 of 2019 Date of Order: 29th January, 2020
Preference shareholders have locus standi for filing class action suit u/s 245 and application u/s 55(3) of Companies Act, 2013 in relation to the redemption of preference shares
FACTS
• M/s BOB had subscribed to Cumulative Redeemable Non-Convertible Preference Shares of M/s AOL aggregating to Rs. 30,00,00,000 at a varying coupon rate of 8% and 9% p.a. and had consented for its extension/roll over for three years from the original redemption date.
• However, M/s AOL did not redeem any preference shares and instead, they paid a 180% dividend to equity shareholders in the F.Y. ended 31st March, 2015. M/s AOL had defaulted on the redemption and payment of dividends to preference shareholders for the F.Y. ended 31st March, 2016 onwards. The said defaults continued till the date of the petition filed before National Company Law Tribunal (“NCLT”), Chennai Bench.
• NCLT, in its order, stated that the procedure laid down u/s 55(3) of the Companies Act, 2013 clearly provides a mandate to the Company to file the petition with the consent of the shareholders having 3/4th in value in relation to the preference shares. NCLT further stated that section 245 deals with Class Action Suit for seeking different remedies against the Company and its Directors. The same is not dealing with preference shareholders; hence, the holder of the preference shares has no locus standi to file such application. Therefore, NCLT held that the application was not maintainable and dismissed it.
Being aggrieved by NCLT order, M/s BOB preferred an appeal against it before the National Company Law Appellant Tribunal (NCLAT).
HELD
• The NCLAT had examined the legislature’s intention while promulgating Section 55 of the Companies Act, 2013 which was to compulsorily provide for the redemption of preference shares by doing away with the issue of irredeemable preference shares. Therefore, even though there was no specific provision stipulated under the said Act through which relief can be sought by preference shareholders in case of non-redemption by the company or consequent to non-filing of the petition u/s 55, 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).
• NCLAT observed that alternatively, preference shareholders coming within the definition of ‘member(s)’ under Section 2(55) r.w.s. 88 of the Companies Act, 2013, may file a petition u/s 245 of the Act, as a Class Action Suit, being aggrieved by the conduct of affairs of the company.
• NCLAT held that the preference shareholders were not without a remedy and for the redemption of preference shares, they can file an application u/s 55(3), or alternatively they may also file an application u/s 245 as a Class Action Suit and the NCLT while exercising the inherent power namely Rule 11 of NCLT Rules, 2016 can pass appropriate order.
• Hence, the NCLAT observed that M/s. BOB being a preference shareholder has no locus standi to file an application of Class Action Suit for the redemption of preference shares does not hold good. Thus, NCLT’s order was set aside, and the matter was remitted back to NCLT, Chennai Bench.
17 Universal Heat Exchangers Limited vs. K. Ramakrishnan National Company Law Appellate Tribunal, New Delhi Company Appeal (AT) No. 343 of 2018 Date of Order: 8th January, 2020
In a case where the minority shareholders of the company had the intent to exit from the company, the same would not provide any ground to deny them their right to subscribe to additional shares in proportion to their shareholding
FACTS
• Mr. K. Ramakrishnan (Mr. KR) and Others were residents of Singapore and Malaysia and had invested Rs.1,40,00,000 in M/s UHEL in a single tranche. They were allotted 4,00,000 equity shares of Rs.10 each at a premium of Rs. 25.
• Subsequently, M/s UHEL had made two allotments on a right-issue basis to existing shareholders, excluding Mr. KR and Others, i.e. the first allotment was of 20 Lakhs shares on 9th April, 2007 (at Rs.10 per share) and the second allotment was of 5,55,555 shares on 27th September, 2010 (at Rs.18 per share, including a premium of Rs.8 per share). It resulted in the dilution of shareholding of Mr. KR and Others from existing 27% to 9.86%.
• Thereafter Mr. KR and Others had filed an application before National Company Law Tribunal, Chennai Bench (NCLT) against the said right issue allotments made by M/s UHEL.
The following was submitted by Mr. KR and Others before NCLT, Chennai Bench:
• That the two allotments made in the year 2007 and 2010, where M/s UHEL being closely held Company had made right issue to existing shareholders but Mr. KR and Others were not offered the right issue nor they have received notices for the EGM.
• Further, they also submitted various oppression and mismanagement issues like:
a) In the year 2009-10, the Company had taken unsecured loans from Directors and Shareholders to the tune of Rs.8.96 Crores, but in the same year, the Company had granted loans to parties covered under Register maintained under Section 301 of the Act to the extent of Rs.4 Crores.
b) Similarly, in the year 2010-11, the Company had taken loans from interested parties to the tune of Rs.16.20 Crores and had diverted these funds. Mr. KR & Others alleged that the funds were siphoned by the Company and the Directors.
M/s UHEL submitted before NCLT, Chennai Bench that:
Mr. KR & Others were aware of the Extraordinary General Meeting (‘EGM’) and were also aware of valuation done by the M/s UHEL including Annual Returns filed in 2007 and 2010.
Further, the said application was filed before the Company Law Board, Chennai on 17th April, 2012 only, in spite of being aware of all the material facts. Mr. KR and Others had challenged the allotment made on 9th April, 2007.
NCLT after hearing:
• HELD that M/s UHEL had dispatched the notice but did not submit any proof that Mr. KR & Others have received such EGM notice. Hence, the notice in respect of the right issue needed to be annulled.
• Further, set aside the two allotments of shares made on 9th April, 2007 and 27th September, 2010 on right-basis and ordered to refund to the concerned allottees the amount received by M/s UHEL on account of the allotments that have been set aside and was further ordered to rectify the Register of Members after making refund of the amount received against the allotment.
M/s UHEL being aggrieved by NCLT order preferred an appeal before National Company Law Appellant Tribunal (NCLAT) u/s 421 of the Companies Act, 2013 against such impugned order passed by NCLT.
HELD
• NCLAT observed that the minority shareholders were requiring exit from the Company but that cannot provide a ground for denying their right to subscribe additional shares in proportion to their shareholding vis-à-vis that of the total paid-up capital of the Company as required under Section 81 of the Companies Act, 1956.
• NCLAT further observed that there were certain oppression and mismanagement and the relationship between the majority shareholders and minority shareholders were strained. Hence, there was a need for valuation report to be done by a Registered Valuer and the majority shareholders were free to buy the shares of the minority shareholders or otherwise.
• In view of the aforesaid findings, NCLAT upheld the impugned order dated 10th July, 2018 passed by the NCLT, Chennai Bench and M/s UHEL were directed to comply with the order of the NCLT as stated therein. Accordingly, the Appeal was dismissed.
18 Dheeraj Wadhawan vs. Administrator of DHFL & Ors. Company Appeal No. 785 of 2020 and 647 of 2021 NCLAT, Delhi Bench Date of Order: 27th January, 2022
Whether the Resolution plan can be given only to suspended directors and not superseded directors?
FACTS
The Appeal was filed by the erstwhile directors of the DHFL against the Administrator for not calling them to the Committee of Creditors (COC) meeting and providing the copy of resolution plan. The Corporate debtor was an NBFC and went under Insolvency of Financial Service Provider by an application made by RBI.
The company is a Housing Finance Company regulated by National Housing Bank Act,1987 and RBI Act, 1934. RBI superseded the company’s board on 20th November, 2019 in exercise of powers under Section 45-IE of the RBI Act by appointing Mr. R Subramniakumar as the Administrator. Further, RBI moved an application before the Adjudicating Authority (AA) and appointed the same Administrator under Financial Service Provider Rules, 2019.
The erstwhile directors wrote letters to the Administrator to invite them for COC meetings from time to time and also asked for a copy of the resolution plan. The request was not adhered to, and therefore the erstwhile directors moved an application before AA/NCLT, which came to be rejected. The reason which was given by Administrator and accepted by AA/NCLT was that RBI already superseded the directors and therefore they were not directors on the date of insolvency commencement. The rights of the suspended directors are recognized and not the superseded ones under law.
The issue came before NCLAT, wherein the appellants raised an important question of law that the superseded directors are akin to suspended directors. They emphasized that the law should be read as a whole and harmoniously. The appellants referred to Arcelor Mittal vs. Satish Gupta1 – interpretation of words should be based on the object, text, and context of the provision.
Further, it was also submitted that the RBI has only chosen to come under IBC and therefore the doctrine of election should be applied, and the words should be given logical meaning by allowing the appellants to participate and also get a copy of the resolution plan.
HELD
It was held that the superseded directors are not akin to suspended directors as the two are different. The superseded directors are those who are removed or deemed to be demitted office and who are not holding the office on the date of commencement of the Insolvency process. Therefore, the erstwhile directors are not entitled to documents/meetings which otherwise are available to suspended directors who are always on the board and continue to assist the IRP/RP. Further, it was clarified that once the plan is approved, it is not a confidential document and, therefore the same be provided to the appellants.
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1 (2019) 2 SCC 1
