By Pooja J. Punjabi
Chartered Accountant
Editor’s note: For a long time, the flavour of company
law has been missing from the journal. From this issue, we recommence digesting
decisions on Company Law. We hope readers will find these useful.
1. Esquire Electronics
vs. Netherlands India Communications Enterprises Limited
(2017) 1 CompLJ 131 (NCLT)
Date of Order: 6th October, 2016
Sections 241 And 242 of Companies Act, 2013 – Order passed
by NCLT is a decree – Proceedings under sections 241 and 242 are in the nature
of the suit – Petition can be filed under sections 241 and 242 only if the same
is not barred by period of limitation as is prescribed under Limitation Act.
FACTS
Petitioners along with a company (SCo) and 2 other companies
entered into a Joint Venture Agreement dated 29.12.1995 wherein they decided to
establish a company in the name and style of NCo. Subsequently, all the parties
to the JV Agreement agreed to subscribe to the shares of SCo in the same
proportion as was agreed in the JV Agreement and the idea of formation of NCo
was supposedly dropped.
Petitioner alleged that NCo was secretly established in the
year 1996 with the same name as was agreed to in the JV Agreement. It was
further stated by the Petitioners that existence of this company was not
disclosed to them. Amongst other things, the Petitioners alleged various
irregularities on part of NCo such as non-conduct of Annual General Meeting
(AGM) from 2002 to 2010, non-existence of any office of NCo (violating
provisions of sections 17, 18 and 19 of Companies Act, 1956), illegal holding
of AGM in the year 2012, oppression and mismanagement by few directors of NCo,
amongst others.
Petitioners, filed a petition under sections 241 and 242 of
Companies Act, 2013 (the Act) with the National Company Law Tribunal (NCLT or
the Tribunal) against 5 respondents being NCo and its 4 directors on 25th July,
2016. The petition claims that the directors of NCo should be removed from the
company and its board be reconstituted excluding the aforesaid directors. They
have further prayed that all resolutions passed by NCo allotting shares to
various shareholders between 2000 and 2012 be declared as null and void.
The Petitioners however, did not agitate any cause against
NCo prior to this petition.
HELD
The Tribunal observed that the last AGM of NCo was conducted
on 29.09.2012. Upon perusing the filings made to the Registrar of Companies,
the Tribunal noted that the Petitioners were neither shareholders nor directors
of NCo. The Tribunal dismissed the
petition filed on two counts:
The Tribunal observed that section 433 of the Act makes it
patent that the Limitation Act would apply to the proceedings or appeals before
the Tribunal or the Appellate Tribunal. Referring to sections 424 and 425 of
the Act it held that it has powers vested in a Civil Court under the Code of
Civil Procedure while trying a suit in respect of specified matters and that
the orders passed by it are executable as a decree of Court. Once it is
established that the order passed by it is a decree then it follows that the
proceedings under sections 241 and 242 of the Act are necessarily proceedings
in a suit. It has all trappings of a suit. Therefore, the period of limitation
provided for suits would, ipso facto, be applicable as the Limitation
Act has been specifically made applicable by section 433 of the Act.
The Tribunal observed that since the last AGM of NCo was
conducted on 29.09.2012, in terms of Article 113 of Limitation Act, the period
of limitation would be three years from the date the right to sue accrues. The
cause of action, if any, arose to the Petitioners on 30.09.2012 and the instant
petition having been filed on 25.07.2016 was clearly beyond the period of three
years provided by Article 113 of the Limitation Act.
Further, since the Petitioners were neither directors nor
shareholders of NCo at any point of time, there was no locus standi available
for them to file the aforesaid petition.
The Tribunal, therefore, dismissed the petition with cost of
Rs. 25,000.
2. West Hills Realty
Private Ltd. vs. Neelkamal Realtors Tower Pvt. Ltd.
[2017] 200 CompCas 179 (Bom)
Date of Order: 23rd December, 2016
Section 433(e) of Companies Act, 1956 read with Rule 5 of
Companies (Transfer of Pending Proceedings) Rules, 2016 – Winding up petitions
which are pending before the High Court would not be transferred to NCLT if the
notice has already been served on the Respondent irrespective of whether they
have been admitted by the High Court or not
FACTS
Two company petitions were filed before the Hon’ble Bombay
High Court u/s. 433(e) r.w. section 434 of Companies Act, 1956 in April 2016
seeking winding up of respondent companies on account of inability to pay its
debts. In terms of notification dated 07.12.2016, issued by the Central
Government, all petitions relating to winding up u/s. 433(e) pending before
High Courts, and which have not been served on the Respondent as required by
Rule 26 of the Companies (Court) Rules, 1959, stand transferred to the
appropriate Bench of the National Company Law Tribunal (NCLT) exercising
territorial jurisdiction over the mater.
Respondent urged that the petitions were covered in the
mandate of the notification and stand transferred thereunder, whilst the
Petitioners submitted that the petitions having been served on the Respondent
as required by Rule 26, the transfer notification does not apply to them and
accordingly, the High Court retains its jurisdiction over them.
Since the issue would arise in several cases pending before
the Court, any interested party whose petition was pending before the Court
were allowed to appear and file submissions in this regard.
HELD
The crucial question before the Court was whether or not the
petition has been served on the Respondent “as required under Rule 26 of the Companies (Court) Rules, 1959”.
Counsel for the Respondents urged that service of petition
contemplated by Rule 26 was a post-admission service. It was submitted that the
service of a petition under Rule 26 contemplates a simultaneous service of the
notice of the petition, which, as Rule 27 provides, must be in Form No. 6 given
under the Rules. That form was to be served after the petition was admitted by
the court. It was further contended that there was no rule under the Companies
(Court) Rules, 1959, which required a pre-admission notice of the petition to
the Respondent.
Petitioner on the other hand urged that requirement under
Rule 26 was without any reference to the admission of the petition. It was
stated that service of the petition under Rule 26 and notice of the petition
under Rule 27 are two entirely different matters.
For ease of reference the said rules have been reproduced as
under:
“26. Service of petition – Every petition shall be
served on the respondent, if any, named in the petition and on such other
persons as the Act or these rules may require or as the Judge or the Registrar
may direct. Unless otherwise ordered, a copy of the petition shall be served
along with the notice of the petition.
27. Notice of petition and time of service – Notice of every
petition required to be served upon any person shall be in Form No. 6, and
shall, unless otherwise ordered by Court or provided by these Rules, be served
not less than 14 days before the date of hearing.”
The Court observed that
(i) service of petition implied service on the
respondent or other person, as the case may be, of a copy of the petition,
whereas notice of the petition connoted notice of the hearing of the petition
before the court. Rule 26 provides for service of petition, whilst Rule 27
provides for notice of petition.
(ii) if a respondent was named in the petition, the
requirement of service of the petition on such respondent is the requirement of
Rule 26 itself. One does not have to go to the other provisions of the Act or
the Rules or the orders of the Judge or the Registrar for such requirement.
Rule 26 has no reference to the order of admission of the petition.
Those petitions, which are pending admission and which have
been served on the respondent as required under Rule 26, shall continue to
remain in the High Court pending their admission, whilst the petitions pending
admission, which have not been served on the Respondent as required under Rule
26, shall be transferred to, and considered for admission by NCLT.
As the notice of the petitions had already been served upon
the Respondents, it held that the same were to be dealt with by the Court only.
3. (2017) 77 taxmann.com
210 (NCLT – New Delhi)
JVA Trading (P.) Ltd., In re
Date of Order: 13th January, 2017
Sections 230, 231 and 232 of the
Companies Act, 2013 and Rules 3 and 5 of Companies (Compromise, Arrangement and
Amalgamation, Rules, 2016) – Compromise and arrangement – Tribunal does not
have the power to dispense the conduct of meeting of members / shareholders
FACTS
JCo (being a transferor) is engaged in business of trading in
electric and electronic goods whereas CS Co (being a transferee) is engaged in
the business of manufacturing the same. The Board of Directors of both the
companies had passed a resolution approving of the merger.
JCo and CS Co filed an application to the Tribunal under
sections 230 to 232 of the Act read with the Companies (Compromises,
Arrangements and Amalgamation) Rules, 2014 in relation to a scheme of
amalgamation proposed between JCo and CS Co
requesting it to dispense the requirement to convene meeting of equity
shareholders of JCo and issue necessary orders / directions for conducting
meetings of creditors of JCO, equity shareholders and creditors of CS Co
amongst others. A scheme of Amalgamation was also filed with the Tribunal.
The companies also filed with the Tribunal their combined
capital structure; list of equity shareholders, secured and unsecured creditors
of both the companies; respective Memorandum and Articles of Association,
Certificate of Incorporation, provisional financial statements up to a cut off
date.
HELD
The Tribunal upon perusing the necessary facts held that it
did not have the power to dispense with the requirement of convening the
meeting of shareholders / members under the provisions of the Companies Act,
2013.
It did proceed to give directions in respect of conduct of
meetings in respect of both the companies, appointment of Chairperson for the
aforesaid meetings, manner in which the notices would be sent, manner of
voting, amongst others.
4. Sanjay Sadanand Varrier
vs. Power Horse India (P.) Limited [2017] 80 taxmann.com 47 (Bombay) Date of
Order: 22.03.2017
Section 433, read with sections
434 and 439 of the Companies Act, 1956 – An unpaid employee being a creditor of
the company can file a petition for winding up of the company – A winding-up
petition at instance of trade union for recovery of dues payable to its members
was maintainable
FACTS:
Petitioner (S), an employee of the Respondent Company (PCo)
was initially appointed as a Regional Sales Manager and thereafter as the
Manager, Key-Accounts and Trade Marketing. S alleged that since October 2009
till he resigned in March 2012, his entire salary was outstanding. S therefore
issued a statutory notice to PCo u/s. 434 of the Companies Act, 1956 for payment
of his dues, failing which he would initiate winding up proceedings. Since PCo
did not make the said payment, S filed a winding up petition before the High
Court. PCo relying on decision of Mumbai Labour Union vs. Indo French Time
Industries Ltd. [2002] 38 SCL 924 (Bom.) contended that S was not a
creditor of the company and therefore, petition u/s. 439 cannot be
maintained.
The decision rendered in the case of Mumbai Labour Union was
overruled in the case of Khandelwal Tube Mill Kamgar Sangh vs. Government of
Maharashtra [2006] 1 CLR 51 wherein it was held that workman or an
individual employee, being a creditor within the meaning of the relevant
statutory provisions of the Companies Act, can institute or file a Petition for
winding up of a Company.
The only surviving issue before the Court was whether a Trade
Union could file a Petition so as to espouse the cause of workmen who are members of such a Trade Union.
HELD:
Court examined the provisions of the Companies Act, 1956 as
well as Trade Unions Act, 1926. It was noticed that Registered Trade Unions can
prosecute or defend any legal proceeding to which the Trade Union or member
thereof is a party. The Court held that a Trade Union, though having a
legitimate claim, cannot be shut out from approaching the appropriate forum for
winding up the Company on the ground that its members have not been paid their
wages and/or salaries.
It was therefore held that an employee can maintain a
petition for winding up of a company u/s. 439 r/w sections 433(e) and 434 of
the Companies Act, 1956 as a creditor based on the claim of the recovery of his
unpaid salary and wages. Further, a winding up petition at the instance of a
Trade Union and for the dues that are payable to its members is maintainable as
it clearly fell within section 439 of the Companies Act, 1956.
5. Shabbir Ahmed vs.
Safedabad Cold Storage and Allied Industries (P.) Ltd.
[2017] 80 taxmann.com 46 (NCLT – Kolkata) Date of Order: 1st March,
2017
Section 13, read with sections 12 and 241, of the Companies
Act, 2013 – company having its registered officer in West Bengal had shifted
its registered office from West Bengal to state of Uttar Pradesh without
issuing any notice to a shareholder – Company had acted in a manner prejudicial
to the interest of shareholders – The shifting of office was illegal – Prayer
to shift the petition to Uttar Pradesh was not allowed
FACTS:
Directors of Respondent Company (SCo) convened an Extra
ordinary general meeting (EOGM) for shifting its registered office from the
State of West Bengal to the State of Uttar Pradesh and in the said meeting, a
special resolution was passed by the members. Petitioner (S) holding 21.76%
shares in SCo alleged that due process was not followed in convening the
meeting and that they were not served any notice of the meeting.
SCo however did not produce any proof of service of notice
upon S. S accordingly pleaded that such resolution passed should be declared as
null and void and also filed Company Petition for mismanagement and oppression
challenging the shifting of registered office amongst other things.
HELD:
SCo failed to show or prove the service of notice upon the S
or upon any other members/shareholders as was required under Rule 30 of the
Companies (Incorporation) Rules, 2014. SCo relied only on the order of Regional
Director who allowed the application for change in its registered office from
state of West Bengal to state of Uttar Pradesh.
The Tribunal also observed that office of the company was
shifted locally within Kolkata and the same was reflected in the Master data
obtained from the MCA portal. However, SCo did not produce any document to show
that due procedures were complied, in regard to the shifting of the registered
office locally within the State.
The Tribunal found that the equity was in favour of S. It
held that the conduct of the SCo and its directors was prejudicial to the
interest of the S and it would be highly unjust to allow the prayers sought by
the director of company to transfer the Company Petition to Safedabad in Uttar
Pradesh.
The Tribunal, rejecting the grant of relief stated that
relief if allowed would be highly oppressive to S as SCo had acted in the
manner not only prejudicial to the interest of the S but also acted in
violation of the established principles/procedures of law while shifting the
registered office of the company.
