C.A. No. 304 of 2014 in C.P. No. 75 of 2014. Case: Dunar Foods Limited and Ors. Vs IL & FS Trust Co. Ltd. and Ors.. Company Law Board
| Case Number | C.A. No. 304 of 2014 in C.P. No. 75 of 2014 |
| Counsel | For Appellant: Shyam Mehta, Sr. Advocate, M.H. Kane, Rahul Kadam and Niyati Jambaulikar, Advocates i/b W.S. Kane and Co. and For Respondents: Nilava Bandyopadhyay, Advocate i/b Singh and Associates |
| Judges | Ashok Kumar Tripathi, Member (J) |
| Issue | Arbitration And Conciliation Act, 1996 - Sections 11, 45, 8; Companies Act, 1956 - Sections 295, 397, 397, 398, 398, 402; Companies Act, 2013 - Sections 101, 210, 219; Negotiable Instruments Act, 1881 - Section 138 |
| Judgement Date | May 13, 2015 |
| Court | Company Law Board |
Order:
Ashok Kumar Tripathi, Member (J), (Mumbai Bench)
1. By this order, I propose to dispose off the Company Application, filed in Company Petition No. 75 of 2014 by the Respondent Nos. 1 to 4 and 6 to 16/Applicants herein, under Section 8 of the Indian Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Arbitration Act" in short) whereby the Respondents/Applicants have prayed to refer the parties for arbitration in terms of clause No. 9.04 of the Amended and Re-Stated Shareholders Agreement dated 1/03/2012 and Put Option Agreement dated 14/02/2012 inter alia executed between the Petitioner, the Respondent No. 1 and the Promoter family. It is further prayed that the C.P. may be dismissed being not maintainable for want of jurisdiction.
2. Before I enter into adjudication of the above noted Company Application, it seems useful to refer to few facts as set out therein. I would also like to clarify here that the Applicants and the Non-Applicants in the Applications will be addressed hereinafter in the same order as they are arrayed in the Original Company Petition to avoid any kind of confusion.
2.1 In or around 1956, Mr. Lala Duli Chand Aggarwal, the father of Mr. Surendra Gupta (Respondent No. 2) established a partnership firm namely "M/s. Dull Chand Narendra Kumar" at Karnal, Haryana. On or about 23rd September, 1997, the said partnership firm was Incorporated as a private limited company namely 'Dulichand Narendra Kumar Exports Private Limited'.
2.2 In the year 2000, the Respondent No. 2 was appointed as the Managing Director of the Respondent No. 1 Company. On or about 26/9/2011, Dulichand Narendra Kumar Exports Private Limited came to be converted to a public limited company and renamed as "Dunar Foods Limited", Respondent No. 1 Company (hereinafter referred to as the "Respondent Company").
2.3 The Petitioner understands that on or about 30/9/2011, the Promoter Family and the Respondent No. 5 entered into a Subscription Agreement, pursuant to which the Respondent No. 5 was allotted approximately 3,221,111 fully paid non-assessable equity shares of the Respondent Company. The parties also entered into a shareholders' agreement of even date to define their mutual rights and obligations with respect to their relationship as shareholders of the Respondent Company.
2.4 On or about 1/11/2011, by an Agreement for Assignment of Intellectual Property the mark "Dunar" was assigned by the Promoter Family to the Respondent Company.
2.5 On or about 14/2/2012, the Petitioner, Promoter Family and the Respondent Company entered into a Subscription Agreement pursuant to which the Petitioner was allotted approximately 2,493,393 fully paid non-assessable equity shares of the Respondent Company. On the same date, a Put Option Agreement also came to be executed between the Petitioner, Promoter Family and the Respondent Company whereby the Promoter Family granted to the Petitioner the option to sell its entire shareholding in the Respondent Company to the Promoter Family.
2.6 On or about 1/3/2012, an Amended and Re-stated Shareholders Agreement came to be executed between the Petitioner, the Respondent No. 5, Promoter Family and the Respondent Company inter alia to include the Petitioner as a party thereto and to define their respective mutual rights and obligations with respect to their relationship as shareholders of the Respondent Company. On the same day, i.e. 1/3/2012, an Escrow Agreement was entered into between the Petitioner, Promoter Family, the Respondent Company and HSBC whereby approximately 3,742,965 fully paid equity shares of the Respondent Company were maintained in an escrow arrangement with HSBC to be released in accordance with the terms of the said agreement.
2.7 Thereafter, on or about 10/5/2012, one Mr. S. Balasubramanian, being the representative of the Respondent No. 5, came to be appointed as the nominee director of the Respondent Company. Similarly, on or about 28/9/2012, Mr. Gopal Srinivasan, Chairman and Managing Director of TVS Capital Funds Limited, came to be appointed as the nominee director of the Respondent Company for and on behalf of the Petitioner.
2.8 On or about 28/9/2012, the Respondent No. 17, the statutory auditors of the Respondent Company, submitted their audit report for the year ending 31/3/2012 to the Board of Directors of the Respondent Company. Significantly, there were no qualifications in the said audit report with respect to either any unsecured loans granted by the Respondent Company to its sister concerns; primarily the Respondent No. 7 or the Respondent No. 9 or purchases made by the Respondent Company on the National Stock Exchange Limited ("NSEL") Exchange Platform without physical delivery of stock or trading loss suffered by the Respondent Company on account of trading on NSEL Exchange Platform.
2.9 It appears that in or around August, 2013, the Respondent No. 7 was declared as defaulter by the NSEL for a sum of approximately Rs. 678.50 crores with respect to the following pay-in obligations of PD Agro:
(a) Dulisons Cereals (i.e. Respondent No. 9) - Rs. 50.95 crores;
(b) Dulisons Foods - Rs. 576.05 crores;
(c) Dunar Food Ltd. (i.e. Respondent Company) - Rs. 51.50 crores.
2.10 In or around the same time, i.e. August, 2013, Mr. Gopal Srinivasan, the nominee director of the Petitioner, immediately sought an explanation from the Respondent No. 2 and the management of the Company regarding the involvement of the Respondent Company and its sister concerns in the NSEL payment crisis. Mr. Srinivasan also requested the Respondent No. 2 to immediately convene a Board meeting to discuss the NSEL payment crisis, relationship of the Respondent Company with the Respondent No. 7 and effect of the dealings between the Respondent No. 7 and the NSEL on the Respondent Company and sought a forensic audit of the affairs of the Respondent Company to investigate the said issues.
2.11 On or about 29/8/2013, a Board meeting of the Respondent Company was held at 5.30 pm at New Delhi. The Respondent No. 2 inter alia confirmed to the Board of directors of the Respondent Company at the said meeting that:
(a) there is no financial relationship between the Respondent Company and the Respondent No. 7;
(b) the Respondent Company has not given any guarantee on behalf of the Respondent No. 7;
(c) no stock of the Respondent Company is pledged with the NSEL or any other party not authorized by the Board (It may be noted that substantial stock of the Company (for the financial year 2012-13) has been pledged with a consortium of banks led by the State Sank of India ("SBI"));
(d) there were no transactions between the Respondent Company and PD Agro in the last six months; and
(e) the Respondent No. 2 is not involved in his personal capacity in PD Agro.
2.12 Upon detailed deliberations, it was agreed by the Board of Directors of the Respondent Company, including the Respondent No. 2, and a unanimous resolution was passed to appoint a forensic auditor of repute to investigate the issues pertaining to the NSEL payment crisis.
2.13 However, the next day, i.e. on or about 30/8/2013, the Respondent No. 2 by an e-mail unilaterally resiled from the decision on appointment of a forensic auditor and communicated that the Respondent Company will not be in a position to undertake a forensic audit under the pretext of non-availability of the concerned people.
2.14 Thereafter, in or about September 2013, the Petitioner came to know from media reports that the NSEL had commenced recovery proceedings against the declared defaulters by way of sale of commodities lying in the warehouses, sale of assets offered by the members or payments made by defaulting members through their own resources. It appears that the NSEL also initiated proceedings against the defaulters under Section 138 of the Negotiable Instrument Act, 1881 for bouncing of cheques for settlement and that one such member was the Respondent No. 7. The NSEL also initiated civil and criminal proceedings against defaulting members besides taking actions under the rules and bye-laws of the Exchange. Complaints were also filed by the investors against the defaulters with the Economic Offences Wing, Mumbai ("EOW").
2.15 On or about 3/9/2013, the minutes of the Board meeting held on 29/8/2013 came to be circulated to all the Board members of the Respondent Company vide an e-mail addressed by the representative of the Petitioner present at the said meeting. On the same day, i.e. 3/9/2013, Mr. S. Balasubramanian, nominee Director of the Respondent No. 5, vide an e-mail confirmed that the minutes of the Board meeting held on 29/8/2013 were in order. In response, on the said day, the Respondent No. 2 also addressed an e-mail to the representative of the Petitioner with a copy to the Board of directors of the Respondent Company that a few changes are required to be made in the said Board minutes and that he shall send the same on the next day.
2.16 Faced with a situation wherein, as per media reports, the Respondent Company was declared as defaulter by the NSEL and recovery proceedings were being initiated by it, and on the other hand, no information pertaining to the NSEL payment crisis was forthcoming from the Respondent Company. On or about 13/9/2013, Mr. Gopal Srlnivasan was left with no option but to resign from the Board of Directors of the Respondent Company. On or about 12/9/2013, Mr. S. Balasubramanian also resigned from the Board of directors of the Respondent Company.
2.17 Meanwhile, on or about 13/9/2013 and 14/9/2013, reminder e-mails were addressed by Mr. S. Balasubramanian and Mr. Gopal Srinivasan, respectively, to the Respondent No. 2 to provide a response to the minutes of the Board meeting of the Company held on 29/8/2013 as circulated by the representative of the Petitioners. Informing that he had resigned from the Board of Directors of the Respondent Company on or about 17/9/2013, Mr. Gopal Srinivasan requested the...
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