K. Anantha Padmanabha Swamy, Member - (1.) Under consideration is an application filed under the provisions of sub-section 1 of Section 244 of the Companies Act, 2013 (in short, 'Act 2013') by M/s. Medici Holdings Limited, (hereinafter called as 'Applicant') alleging various acts of oppression & mismanagement against M/s. Photon Info tech Private Limited (hereinafter called as 'R1 company') and 8 others. While alleging various acts of oppression & mismanagement in the Application, the Applicant has prayed this Tribunal for granting waiver as per the provisions of clause (a) and (b) of section 241(1) of the Act, 2013.
(2.) Before proceeding with the matter, it is pertinent to give the brief details of the Applicant as well as Respondents. The Applicant is a body corporate and an investment holding Company registered under the law of Mauritius and a minority shareholder in the R1 Company holding 19,69,000 equity shares of Rs. 1/- each, representing 6.62% of the paid-up share capital of R1 Company. The Applicant is being represented by its duly authorised power of attorney holder, Mr. Yashpal Kumar. The R1 Company is a Private Limited Company incorporated under the Companies Act, 1956 and engaged in the business of software development and having its Authorized Capital of & Paid-up Capital of Rs. 4,00,00,000/- & Rs. 2,97,36,850/- respectively. The R2 and R3 are one of the Promoters & Directors of R1 Company holding 46.93% and 46.43% shares respectively of R1 Company. R4 is also one of the Directors in R1 Company holding 0.03% shares in R1 Company. M/s. Photon Interactive Private Limited is R5 Company incorporated under the Companies Act 1956 and having Authorised Capital of Rs. 5,00,000/- and it was increased to Rs. 3,10,00,000/- and Rs. 10,25,00,000/- in the month of October 2013 and November 2013 respectively. Photon BV is R6 Company incorporated under the laws of Netherlands and having paid up capital of EURO 18,000 and its entire shareholding is held by R7. R6 holds 99.52% of the R5's shares. Amistad Capital Cooperative U.A is R7 Company registered under the laws of Netherlands and having a total contribution of EURO 20,000 by its members i.e. R2 and R8. R2 is a Director of R7. Amistad Capital Pte Ltd. is R8 Company incorporated under the laws of Singapore and having paid up capital in SGD 83426 entirely held by R2 & R3, who are also its directors. Mr. Ram Charan is R9 who was previously working as CFO of R1 Company and currently working as CFO of R5 Company.
(3.) For ready-reference, the brief averments made in the application are reproduced below:- • R1 Company is a Private Limited Company incorporated under the provisions of the Companies Act, 1956 (Act, 1956) and the R2 to R4 are the directors and majority shareholders together holding 93.38% of the paid up capital of the R1 Company. The Company is engaged in software business which is the single and most profitable business of the Company. The percentage of turnover of the Software business during the year 2013 was 90.4 and it was gradually increased and during the year 2009, the percentage of turnover was 92.7%. The profit which was at Rs. 29.10 crores during the year 2009, increased to Rs. 920/- crores during the year 2009. • The Company issued a notice on 24.11.2010 to the applicant calling for an Extraordinary General Meeting (EOGM) to be held on 14.12.2010 to approve the issuance and allotment of 23,20,000 equity shares of Rs. 1/- each to the R2 & R3 on preferential basis. According to the explanatory statement, the proposal of allotment was made considering the expansion & growth plan of the Company. • The Company was having sufficient reserves and surplus according to the balance sheet as at 31.03.2010 and 31.03.2011. The profit before tax was Rs. 21,06,01,621/- and Rs. 21,83,98,293/- respectively during the financial years 2009-10 and 2010-11 and the said substantial reserves and surplus could have been used for the plans of expansion and growth whereas the proposal of preferential allotment was a scheme devised by the R2 to R4 to unjustly enrich themselves by diluting the shareholding of the applicant. • The applicant has raised serious objections to the said preferential allotment of shares and Respondents did not proceed with the said preferential allotment to the R2 & R3. • An offer letter dated 25.11.2010 was issued by the R1 Company to the applicant with a proposal to issue shares on right basis, however, the R9 requested the applicant not to subscribe for the said rights issue. The Company could not have provided the said offer letter to the applicant, without even obtaining the prior permission of the RBI as the applicant is an Overseas Corporate Body (OCB). Subsequently the Company has withdrawn the said Rights Issue vide its letter dated 15.12.2010. • After having cancelled the preferential allotment and rights offers, the Company vide its letter dated 10.01.2011 again proposed to issue shares on rights basis to the applicant. Out of the proposed rights issue of 24,78,070 equity shares of Rs. 1/- each, the applicant was entitled to subscribe to 1,64,083 equity shares. The duration of the rights issue was from 11.01.2011 to 27.11.2011. The Company has not obtained necessary permission from RBI to allot shares to the applicant and it is evident from the email dated 10.01.2011 sent by the 9th Respondent to the applicant. The 9th Respondent vide his email dated 19.01.2011 has also confirmed that the price of shares held by the promoters as of that date was expected to be in the range of Rs. 200/- to Rs. 250/- per share. The applicant has submitted an application along with the Demand Draft subscribing to the shares, however, on the said date, Company did not possess the permission of RBI. Subsequently the said rights issue was also cancelled by the Company vide its letter 18.07.2011. The proposal of rights issue is nothing but a tactic by the promoters to increase their shareholding by paying a meagre amount to the Company. • While the offer dated 10.01.2011 for rights issue was in force, the Company issued another letter dated 25.11.2011 calling for an EoGM on 04.02.2011 and the purpose of the said EOGM was inter-alia approving the issuance and allotment on a preferential basis upto 50,00,000 equity shares of face value of Rs. 1/- each for cash at a price of Rs. 1/- per share to the R3 & R4 (25,00,000 shares each). In November 2010, the Company issued notice of proposal to allot 23,20,000 shares to the R2 & R3 on Rights issue basis, whereas by the EOGM dated 04.02.2011 as preferential allotment, it was proposed to increase and to issue 50,00,000 shares to the R3 & R4. • The said preferential allotment was also made against the interest of the applicant and it was done at the behest of R2 to R4 Respondents who conspired against the minority shareholders to enrich themselves wrongfully. As per email sent by R9, the value per share of the Company was Rs. 200/- whereas the proposal of preferential allotment was aimed at Rs. 1/- each, the face value of the share. The applicant vide its letter dated 02.02.2011 objected to the proposed resolution and also by the members at the EoGM, therefore, the proposal was dropped. • The R4 transferred 15 shares to the employees of the Company in and around 15.11.2011 for the purpose of increasing the number of members of the Company. The applicant was always been one of the four shareholders of the Company and the transfer of shares by R4 to the employees was done only to prevent the applicant from initiating proceedings under section 397 & 398 of the Act, 1956 against the Respondents. • The 9th Respondent was allotted 8,50,000 shares of face value of Rs. 1/- each @ Rs. 53.25/- per share on 28.10.2011 under an alleged Employee Stock Option Scheme and on the same day the Board of Directors has passed another resolution approving buy-back of these very same shares @ Rs. 66/- per share. Both the allotment and buy-back occurred on the same day and at the same board meeting held on 28.10.2011. By way of this allotment and buy-back, the R9 was enriched of Rs. 1,08,37,500/- under the said dubious scheme. • The repeated action of majority shareholders allotting additional shares to the R2 to R4, transferring shares to the employees and allotting and buying back the shares are done at the behest of the R2 to R4 which are aimed at diluting the shareholding of the applicant and further, to deprive the applicant filing petition under section 397 and 398 of the Act, 1956 and also enrich themselves including the R9. All said acts are nothing but oppressive in nature. • The Company scheduled an EoGM on 23.11.2012 for approving a proposed Scheme of Arrangement (Demerger) wherein the software business would be demerged with R5. The said scheme was against the interest of the applicant and applicant has opposed the said Demerger on 01.03.2013 before the Hon'ble High Court, Madras. • It was envisaged in the scheme to demerge the software business of the Company into the 5th Respondent for a miniscule consideration. Under the scheme, it was proposed that the equity shareholders of the Company would be issued and allotted Cumulative Redeemable Preference Shares (CRPS) at par in R5 in the ratio of 105 CRPS of face value of Rs. 1/- each fully paid up for every 10 equity shares of Rs. 1/- each fully paid up in the R1 Company. Resultantly, post-merger, the applicant would hold 2,07,67,789 CRPS of the face value of Rs. 1/- each in the R5. The value of the applicant's shares even as of November, 2011 was not less than Rs. 12.99 crores and in October, 2012, this value could have been increased. However, by way of the scheme, the applicant was offered, that too CRPS, in R5 which was a Shell Company. The idea was that at any point of time the CRPS allotted to the applicant would be bought out and it would be denuded of equity ownership. • The Company has informed the Hon'ble High Court that by a resolution passed by the board of directors of R1 Company and the R5, the scheme has been withdrawn and the Hon'ble High Court disposed of the scheme petitions as withdrawn. • The applicant came to know during the month of December, 2013 that the Company and the 5th Respondent had executed a Business Transfer Agreement (BTA) dated 27.03.2013 whereby the Company had sold the sole profitable software business to the R5 on slump sale basis. The BTA was entered into just few days after the scheme petitions were withdrawn by the R1 Company and R5. The BTA was entered into in lieu of the Scheme which was withdrawn. The R2 to R4 controlled R5 to R8 directly or indirectly, either through shareholding or through directorship. The sole profitable business of the Company was vested with the R5 and still continuous to vest with the R5 and therefore, there is continuing act of oppression and mismanagement. • R1 Company issued a notice dated 28.11.2013 for the 14th AGM to be held on 31.12.2013 whereby the Company inter-alia sought to amend the "Object" clause in its MoA and said amendment seemed to be to alter the object clause so as enable the Company to commence new business pursuance to the business transfer. The proposal of amendment was nothing but collateral part of commercial fraud perpetrated by the R2 to R4. If the object clause is amended, the Company would start making investments in securities or other companies so as to siphon off and or divert the funds of the Company and benefit the promoters/directors of the Company. • In result, the applicant was constrained to file a Derivative Action Suit in Civil Suit No. 887/2013, in view of the BTA and the notice dated 28.11.2013 for the 14th AGM. The Hon'ble High Court passed interim orders to the effect to continue with the AGM, however, it was directed that the result of the AGM shall not be given effect till 20.01.2014. The interim order was extended from time to time and made absolute subsequently. • The Respondents failed to get the approval of audited accounts from the members for the financial years 2013-14, 2014-15 and 2015-16. In the notice dated 03.09.2014 for the 15th AGM and notice dated 31.10.2015 issued for the 16th AGM, it was mentioned that adoption of accounts and appointment of Auditors could not be taken up in view of the Hon'ble High Court order dated 30.12.2013 in Civil Suit No. 887 of 2013. The Respondents deliberately misinterpreted the said order of the Hon'ble High Court for non-filing of statutory documents and thereby committed non-compliance with the provisions of the Companies Act 1956/2013. However, R1 Company, taking a contrary stand taken by the Respondents with regards to the order of the Hon'ble High Court, vide notice dated 05.09.2016 issued for the 17th AGM, the Respondents sought to propose and consider passing of financial statement for the financial year 2013-14, 2014-15 and 2015-16. • In view of the continuing acts of oppression and mismanagement, the applicant has approached the Central Government on 25.04.2014 seeking the permission under section 399(4) of the Act, 1956 to file petition under section 397 and 398 of the Act, 1956. After hearing the applicant and the Company, the Central Government granted permission dated 06.05.2015 to the applicant to file a petition under section 397 and 398 of the Act, 1956 before the erstwhile Company Law Board (CLB). • The Respondents filed a writ petition No. 17681 of 2015 before the Hon'ble High Court challenging the order dated 06.05.2015 of the Central Government and the Hon'ble High Court vide its order dated 22.06.2015 granted interim stay of the said order which continues till date. • Subsequently the Central Government has withdrawn the earlier order dated 06.05.2015 vide its communication dated 07.07.2015 and issued a new order (second order) dated 03.07.2015 and the said new order was also challenged by the Respondents in Writ Petition No. 10779 of 2017. The new writ petition was filed by the Company alone after the applicant filed this present application before this Hon'ble Tribunal. • The Central Government issued a Notification No. A-45011/14/2016 dated 01.06.2016 whereby the provisions of section 241, 242, 243 etc. of the Act, 2013 have been brought into force w.e.f. 01.06.2016. While the applicant being entitled to rely upon the permission granted by the Central Government to file the petition for the acts of oppression and mismanagement in the affairs of the Company, this present application is filed seeking waiver of the requirements of clause (a) and (b) of section 244(1) of the Act, 2013 in view of the further acts of oppression and mismanagement being perpetrated by the Respondents in the affairs of the Company.;