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The petition was filed by M/s Sunwhite Infrastructure Pvt Ltd (hereinafter referred to as “the petitioners”) against Kindle Developers Pvt Ltd (hereinafter referred to as “the respondents”) Sec 241 and Sec 242 of the Companies Act, 2013 alleging acts of mismanagement and oppression prejudicial to the interests of the company as well as the stakeholders. The respondent company, engaged in the business of real estate development was incorporated in March 2011 with a paid up capital of Rs. 1 Lakh of which the petitioner acquired a 40% shareholding from respondent No. 3. The petitioners alleged that upon the representation of the respondents that they had been allotted a plot by Greater Noida Authority for development of a group housing project and were in need of financial assistance, the petitioners extended a loan of Rs. 6 Lakh to the respondents upon the following conditions:
- The loan was to be repaid within the period of one year.
- The respondent undertakes not to borrow any further money from third parties the petitioners consent.
However, due to the failure of the respondents to repay the loan within the time specified, the petitioners filed a suit for permanent and prohibitory injunction in Court of Civil Judge, Delhi to restrain the defendants from parting, selling or creating rights of third parties over the allotted land. An order of injunction was passed against the respondents by the said Judge. The present petition was filed subsequently against the acts of oppression and mismanagement by the respondents who failed to appear despite being served and were, thus, proceeded ex parte.
Contentions of the Petitioner
The petitioners in the present petition contend that:
- In complete disregard of the loan agreement entered into by the petitioners and the respondents, the respondents not only defaulted on the payment but also took further loans from various third parties.(Para 5)
- The defendants were defrauding investors by siphoning off the funds collected from prospective buyers engaging in any significant construction work. The petitioners also entered into record the audited balance sheet of the defendants for 2015-2016 reflecting advances of Rs. 157 crores collected for booking of flats against which very little construction was completed.(Para 5)
- The petitioners further alleged that statutory compliances were not carried out on time, no Annual General Body meeting had been conducted since Sept, 2014 and books and accounts of the defendant company were not available for inspection to the petitioners.(Para 6)
- It is also contended by the petitioner that in complete contempt of the order of Civil Judge, Delhi, which restrained them from altering the management of the company, respondent no. 4 & 5 were appointed as Additional Directors by the respondent company. Such appointment is otherwise illegal as well due to it not being ratified by the remaining management. (Para 6)
- Whether there has been oppression and mismanagement by the respondent company?
- Whether the appointment of additional directors is in violation of the order of civil judge, Delhi?
The NCLT held that there had been no oppression of the petitioners in their capacity as shareholders and that their grievance was misplaced as they were aggrieved in capacity of creditor whose entitlement under a loan agreement was violated for which the appropriate remedy would lie in a civil forum. It observed that, “The non-payment of a creditor could not be held as oppressive to the shareholder. The order of Civil Court Judge restraining the respondent from alienating the said property was enough to secure the interest of the creditor” (Para 9d).
It was held that allegations of siphoning off of funds by the respondents were largely uncorroborated and unsubstantiated and on the basis of the material placed on record, it was not possible for the Tribunal to conclude whether the advances justified the quantum of work done (Para 9a). On absence of any cogent material, the Bench was unable to accept allegations of siphoning off of funds, duping of prospective buyers or direct an investigation into the affairs of the company.
Secondly, with regard to non-availability of books & accounts of the respondent company, it was observed that there was nothing to show that the petitioners ever made any effort to inspect the same which they, as shareholders of the company, had a right to do. (Para 9b)
The NCLT held that insofar as the appointment of the Additional Directors was concerned, the appropriate form to deal with such appointment was the Court of Civil Judge, Delhi who has passed the impugned order restraining the respondents from doing so. (Para 9c)
Lastly, in response to the allegations that no AGM had been held since Sept, 2014, and that statutory compliances have not been complied with, the Bench held that as shareholders with 40% equity in the respondent company, the petitioners were well within their rights to requisition the management to convene a meeting to discuss any agenda or matter they thought fit. (Para 9e)
The NCLT gave the following directions:
- The Bench directed the respondents to hold AGM for defaulting years as well as the Financial Year ending on 31.03.2017 in exercise of provisions of Sec97 of the Companies Act, 2013, holding, the allegation of non-compliance with statutory requirements would, in absence of any defence by respondents, be tantamount to mismanagement. (Para 13)
- The respondents were also directed to lay before members, all Financial Statements, Annual Returns, Directors Report etc followed by filing them with the Registrar of Companies as statutorily required as well as paying all taxes required by Government. (Para 14)
- Lastly, though observing that courts should not ordinarily interfere with the management, with due regard to the fact and circumstances of the present case, the Bench directed the appointment of an independent Observer/ Administrator to oversee proper convening of the AGM and ensuring that all statutory requirements are complied with. The Bench also remarked that failure to comply with any of the directions would invite penal consequences under the Act. (Para 15 & 16)
 Sec 241, Companies Act, 2013 provides that any member may apply to the Tribunal who complains that the affairs of the company are being conducted in a manner prejudicial to public interest, interest of the company or is prejudicial/oppressive to him or any member of the company OR any material change has taken place in the management/ control of the company by reason of which it is likely that affairs of the company will be conducted in a manner prejudicial to interests of the company, any members or any class of member. The Central Government can also apply to the Tribunal for an order under this section.
 Sec 244, Companies Act, 2013 provides that an application may be made under Sec 241 by any member- (a) in case of a company having a share capital, not less than 100 members or not less than 1/10th of total members or any members(s) holding not less than 1/10th of issued share capital provided that have paid all calls/sums due on their share;(b) in case of company not having share capital, not less than 1/5th of total members. The Tribunal may, on an application, waive any of the requirements.
 Sec 97, Companies Act, 2013 provides that the Tribunal may, on the application of any member of the Company, call or direct calling of an AGM and give such ancillary/consequential directions as it thinks expedient, if any default is made in made in holding the AGM under Sec 96, provided that the directions may include a direction that one member of the company present in person or proxy shall be deemed to constitute a meeting. A general meeting held in pursuance of the above may be deemed to be an annual general meeting.