Vijaya Hospitality and Resorts Limited & Anr vs Tony P.A, s/o A.A. Paulose & ors
C.A. (AT) (CH) No. 18/2021
Facts:
1.Appeal is filed against the order dated 10/03/2021passed by the NCLT Kochi Bench in the CP/122/KOB/2019, by which Order NCLT has cancelled the allotment of 1,10,00,000 equity shares of the Respondent No. 1 Company to Appellant No. 2 in exercise of its jurisdiction under Section 59 of the Companies Act, 2013.
Issue: Whether the Order passed is correct in law?
Arguments:
Appellant:
1.Counsel submitted that CP/122/KOB/2019 was filed under Sections 59 and 62 of the Companies Act, 2013 and that Section 59 of the Act only applies to cases where a transfer of existing shares of existing shareholders is recorded in the Register of Members without sufficient Cause. NCLT had failed to take into account that Second Appellant was allowed fresh shares in pursuance of the directions given by NCLT vide Orders dated 12/01/2017 and 18/04/2017 and therefore, even if Section 59 was to be made applicable to the present case, the allotment of Shares to the 2nd Appellant was with sufficient cause, the Orders dated 12/01/2017 and 18/04/2017 attained finality, right up to the Hon’ble Supreme Court of India and the Respondents have failed to answer the issue of res judicata raised by the Appellants.
2.Counsel submitted that the inherent powers under Rule 11 of the NCLT Rules, 2016 also allows the Tribunal to make such Orders that may be necessary for meeting the ends of Justice. It is submitted that while passing an Order for allotment of Shares in its exercise of powers under the Act, NCLT is not bound to follow Section 62 of the Act which is applicable for when the Company voluntarily wants to allot shares.
3.Counsel further submitted that allotment was done not in furtherance of Section 62, but is a result of the Orders dated 12/01/2017 and 18/04/2017 under Section 242 of the Act and hence, the procedural requirements in respect of such allotment is dispensed with. The NCLT while passing an Order under Section 242 of the Act is guided solely by the objective, ‘bringing to an end the matters complied of’ and in the interest of Justice.
Respondents:
1.Counsel for the Respondents Nos. 1-4 submitted that Mr. K.C. Baboo had invested a sum of Rs. 11,00,00,000/- into the Company for clearing the arrears due to the Federal Bank and by virtue of the Order of NCLT, was entitled to have shares allotted on “preferential basis by way of private placement”. It is the case of the Respondents that without making a valuation of shares, the allotment was made to Mr. K.C. Baboo by virtue of which allotment, he became the largest shareholder with shareholding rising from 4 % to 52.86 %.
2.Counsel for the Respondents also submitted that the Order dated 12/01/2017 passed by NCLT, does not dispensed with the mandatory requirements of Section 62 (1) (c) of the Act and that the Company cannot be an Appellant as the Company is not an Aggrieved Party.
Decision: NCLAT dismissed the appeal
Rationale:
1.NCLAT noted that directions given by NCLT on 12/01/2017 in CA 1/2016 is with respect to ‘issuance of shares on preferential basis by way of private placement’ in favour of the Petitioners and their nominees in consideration of infusing the funds towards ‘Share Capital’ of first Appellant Company. A bare reading of these directions does not anywhere specify that provisions of Section 62 (1) (c) have to be dispensed with.
2.It held that Merely because the direction given by NCLT does not specifically mention the fulfilment of mandatory requirements of Section 62 (1) (c), it cannot be said that those Provisions need not be complied with as it has not been specifically mentioned in the ‘directions’ and the same has been confirmed by both NCLAT and the Hon’ble Apex Court.
3.It held that contention of the Appellants that Section 62 of the ‘Act’ need not be adhered to, does not hold good as it is a settled rule of interpretation of Statutes that when power is given under the Statute to do a certain thing in a certain way, the thing must be done in that way or not at all.
Order:
