3 CADS Software India Pvt. Ltd. and Ors. vs. K.K. Jagadish & Ors. National Company Law Appellate Tribunal Company Appeal (AT) No. 320 of 2018 Date of order: 7th May, 2019
Removal of a Director due to loss of confidence not covered under provisions of the Companies Act, 2013 hence the Managing Director who was removed was eligible for compensation for loss of office
FACTS
KKJ was functioning as Managing Director of M/s CADS since its incorporation in 1996. He was not appointed for a fixed tenure and was removed from the company w.e.f. 7th August, 2015 at an EGM of M/s CADS held pursuant to section 169 of Companies Act, 2013 through a special notice.
Upon his removal, KKJ filed a petition before the NCLT, Chennai Bench for relief against oppression and mismanagement under sections 241 and 242 of the Companies Act, 2013 and that he was entitled to compensation for loss of office of Rs. 10 crores as per section 202 of the said Act.
CADS argued that KKJ was removed due to loss of confidence and that he was not legally entitled to any compensation for the loss of office as Managing Director. It further contended that KKJ was not entitled to claim any exemplary damages and his exit package would come to around Rs. 1 crore, including his terminal benefits on the basis of last salary drawn in the F.Y. 2013-14, which was Rs. 33.79 lakhs.
NCLT held that the action of removal of the KKJ from the post of MD by the majority shareholders cannot be questioned. Hence, his removal from the office would remain valid.
It was further held that with regard to the claim for damages, in terms of section 202(3) of the Companies Act, 2013 upon removal the MD would be entitled to receive remuneration which he would have earned if he had been in office for the remainder of his term or for three years, whichever is shorter. Accordingly, NCLT deemed it fit to order a compensation of Rs. 105 lakhs (calculated at the rate of Rs. 35 lakhs p.a. for three years) together with interest @ 10% from the date of removal of the petitioner, plus other benefits as already offered till the date of payment to him by M/s CADS.
Aggrieved by the order, M/s CADS preferred an appeal before NCLAT u/s 421 of the Companies Act, 2013, contending that KKJ was not legally entitled to any compensation for the loss of office since his appointment as MD was not for any fixed period.
HELD
NCLAT held that loss of confidence as argued by M/s CADS was not covered in the Companies Act, 2013 and accordingly NCLT had rightly given its findings and arrived at a compensation. NCLAT did not find any merit in the appeal and hence dismissed the same.
4 Sabse Technologies Private Limited vs. Registrar of Companies, Mumbai National Company Law Tribunal, Mumbai Bench-IV Compounding application CP No. 1740/441/NCLT/MB/MAH/2019 Date of order: 18th December, 2019
Where the compounding application was filed before NCLT, Mumbai Bench by the company for violating the provisions of section 96 of the Companies Act, 2013 as it was not able to conduct its Annual General Meeting within the permissible time, such compounding application was maintainable
FACTS
M/s STPL had appointed M/s B & Co., Chartered Accountants, as the statutory auditors to conduct statutory audit for the financial year ended 31st March, 2018. However, M/s. B & Co. resigned on 24th September, 2018, thereby causing a vacancy in the office of auditors of the company. M/s STPL then appointed M/s S & Associates, Chartered Accountants, at an EGM held on 24th October, 2018 to conduct the statutory audit for the financial year ended 31st March, 2018.
The said AGM for the F.Y. 2017-2018 was held on 3rd November, 2018 where no shareholders were present and therefore the meeting was adjourned to the following week at the same time and place, i.e., on 10th November, 2018. (The company should have conducted the AGM for the financial year ended 31st March, 2018 on or before 30th September, 2018.) Since the meeting was held on 10th November, 2018 after a delay of 41 days beyond the prescribed limit specified in the Act, there was a violation of the provisions of section 96 of the Companies Act, 2013.
The compounding application was filed before the NCLT, Mumbai Bench by M/s STPL for non-compliance with the provisions of section 96 of the Companies Act, 2013 as it had failed to conduct its AGM within the permissible time. It was averred in the compounding application that the default was not intentional and the circumstances were beyond the control of the management. It was further averred that M/s STPL had not deliberately conducted the said offence and had subsequently made good the committed default.
HELD
NCLT held that the company had violated the provisions of section 96 of the Companies Act, 2013 and that the said violation was punishable as per section 99 of the Act. The compounding fee of Rs. 25,000 by the company and Rs. 25,000 each by the two Directors was levied as a deterrent for not repeating the default in future. The offence stood compounded subject to the remittance of the compounding fee.
5 M/s K.C. Agro Private Limited vs. Registrar of Companies, Mumbai National Company Law Tribunal, Mumbai Bench-IV Compounding application CP No. 332/44 /NCLT/MB/MAH/2017 Date of order: 6th November, 2019
Where the compounding application was filed before NCLT, Mumbai Bench by the company for violating the provisions of section 137(1) of the Companies Act, 2013, since company was not able to file financial statements within the permissible time, such compounding application was maintainable
FACTS
During the F.Y. ended 31st March, 2014, a member of M/s KCPL had filed a petition with the Company Law Board (CLB), Mumbai Bench against its Directors and members. On 29th April, 2015, the CLB passed an order against M/s KCPL. Thereafter, the latter preferred an appeal before the Bombay High Court which stayed the judgment pronounced by the CLB.
M/s KCPL was continuously involved in the litigations pending before the High Court and the necessary compliances in respect of convening and holding the Annual General Meeting could not be observed.
Due to the deadlock, M/s KCPL held the Annual General Meeting and thereafter the financial statements were filed. The financial statements for the F.Y. ended 31st March, 2014 needed to be filed within 30 days of the AGM but the financial statements in e-Form 23AC and e-Form 23ACA were filed only on 1st April, 2017. Thus, the default period in respect of non-compliance of filing the financial statements was 885 days.
M/s KCPL had not deliberately committed the said offence and subsequently, after ascertaining the correct position, made good the committed default.
The compounding application was filed before the Registrar of Companies, Mumbai (hereinafter ‘ROC’) and the same was forwarded to the NCLT, Mumbai along with the ROC report. The application was filed because M/s KCPL had violated the provisions of section 137(1) of the Companies Act, 2013 and had failed to give an explanation for the non-filing of financial statements within the permissible time.
HELD
NCLT held that the company had violated the provisions of section 137(1) and the said violation was punishable u/s 137(3) of the Companies Act, 2013. A compounding fee of Rs. 10,000 by the company and Rs. 5,000 each by three Directors totalling Rs. 25,000 (Rupees twenty five thousand only) was levied as a deterrent for not repeating the default in future. NCLT further held that the offence stood compounded subject to the remittance of the compounding fee.
6. Pratap Technocrats (P) Ltd. & Ors. vs. Monitoring Committee of Reliance Infratel Limited & Anr. Civil Appellate Jurisdiction, Civil Appeal No. 676 of 2021 (SC)
FACTS
The CIRP was commenced against Reliance Infratel Limited (‘RIL’) vide order dated 15th May, 2018 by the NCLT.
Pursuant to such order, an Interim Resolution Professional (‘IRP’) was appointed and the CoC was formed on 24th May, 2019. The IRP was replaced with Mr. Anish Niranjan as the resolution professional (‘RP’). The process for inviting resolution plans ensued and subsequently four prospective resolution applicants submitted plans. After due deliberations between the CoC and the prospective resolution applicants, the plan submitted by Reliance Digital Platform and Project Services Limited (‘Successful Resolution Applicant / SRA’) was approved by the CoC with 100% vote on 2nd March, 2020, on the basis of its feasibility, viability and implementability’. An application u/s 30(6) of the IBC was submitted for approval of the resolution plan, which was approved by the NCLT vide order dated 3rd December, 2020.
QUESTION OF LAW
Whether once a resolution plan in respect of the corporate debtor is approved by 100% voting share of the Committee of Creditors (CoC), exclusion of certain financial debts and hence, exclusion of certain financial creditors from CoC, will be of no consequence; resolution plan continues to be approved with 100% majority even after their exclusion.
RULING IN CASE
Once the resolution plan is approved by 100% voting share of the CoC, exclusion of certain financial debts and hence exclusion of certain financial creditors from the CoC will be of no consequence; the resolution plan continues to be approved with 100% majority even after their exclusion.
HELD
In the present case, the resolution plan has been duly approved by a requisite majority of the CoC in conformity with section 30(4). Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100% voting share of the CoC. The jurisdiction of the Adjudicating Authority was confined by the provisions of section 31(1) to determining whether the requirements of section 30(2) have been fulfilled in the plan as approved by the CoC. As such, once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law.
