Companies ActNCLATRulingsTribunal & Appellate

Family settlement has to be treated differently as compared to any other commercial settlement however interest & welfare of company is paramount, holds NCLT

Navneet Gupta vs. Bharat Tractors Pvt. Ltd.

NCLT passes an order formalising division arrived at the family settlements; says the welfare and interest of the company is paramount and required to be looked into rather than to that of the shareholders while exercising the just and equitable jurisdiction vested in this Tribunal and without any way detracting from the family settlements entered into between the parties

In the present matter, Navneet Gupta (Petitioner) has filed a petition under sections 241 and 242 read with section 59 of the Companies Act 2013 (the Act). Petitioner avers that he has the requisite consents from the shareholders of Bharat Tractors Pvt. Ltd. (1st respondent company) which satisfies the condition under section 244 of the Act for maintaining a petition under the relevant provisions of the Act. Petitioner makes the following allegations against the respondents – i) Diversion of business from 1st respondent to 10th respondent (Riddhi Authowheels Pvt. Ltd.) by way of MOU dated 31.05.2016. ii) Misappropriation and Siphoning of funds by the respondents. iii) Unlawful transfer of shares. Petitioner further alleges that the respondents are in control of all statutory records and aren’t extending cooperation to have the same inspected. 

NCLT states that the reliance of the petitioner in the matter of Reliance Natural Resources Ltd Vs. Reliance lndustries Ltd MANU/0341/2010 is inapplicable as it does not support the cause of the petitioner and on the other enunciates a principle that in the case of smaller undertakings, the Doctrine of identification can be applied to ascertain the arrangement as arrived at amongst or between the parties. 

NCLT further finds that the reliance of the petitioner on Dr S.S.Agarwal and others Vs. Rajasthan Hospitals Ltd and Ors MANU/CL/OO36|2O1O and G.L.Purohit Vs. Dr S.S,Agarwal and others in C.A.No.646 of 2008 in C.P.No.53(ND) of 2008 and distinguishes it from the present matter as from the two Family Settlements have been arrived at amongst the parties defining their mutual rights and obligations vis-i-vis the 1st  respondent company as recorded therein to which it is seen that the parties have also put their signatures in one or more of the Family Settlement thereby clearly indicating the division, namely Bharat Hyundai division to R5, of the R1 company and the remaining division to be managed by R2. 

NCLT considers the decisions of the Supreme Court rendered in the matters of Hari Shankar Singhania V Gaur Hari Singhania (2006) 4 SCC 658 and Hansa Industries (P) Ltd. And Ors. V Kidarsons Industries (P) Ltd. (2006) 8 SCC 531 that, “in relation to a family settlement/family arrangement where in effect the Hon’ble Supreme Court has advocated the principle despite a legal lacunae or a formal defect being noticed as sought to be portrayed by the petitioner and the other respondents save the fifth respondent, the family settlement are required to be treated with soft gloves by applying the special equity principle as it results in saving the family as a whole from inter-se disputes and acrimonious relations but on the other hand promotes peace and harmony in the family.

Further NCLT notes that the provisions under sections 241 and 242 the jurisdiction exercised by the NCLT is that of a “just and equitable” jurisdiction what with the whole of the provision being punctuated and permeated with it and which concept it is required to be noted is somewhat alien to civil courts bound by strict application of rules and procedures, barring a few exceptions, and even in relation to the same the Apex Court has laid down the application of special equity principle to be followed when confronted with family arrangement/settlement .

Thus, NCLT does not find any merit, taking into consideration the nature of the 1st respondent company, being a small undertaking owned by families having a common ancestor, in order to put an end to their festering and acrimonious disputes having entered into two family settlements, one in relation to the affairs of the 1st  respondent company and the other also involving inter alia in relation to the 1st respondent company and its affairs and recording it by way of memorandum, to which the signatures have also been affixed  by the heads of the respective family groups being shareholders in the 1st respondent company as well, or as the case may be and by all the directors of the 1st respondent company in the other, thereby identifying themselves, in the absence of a managing director to such a family settlement, thereby warranting the application of “Doctrine of Identification” and effectively binding in the process of the 1st respondent company of such family settlements dated 29.05.2016. 

NCLT states that, “the parties are to act and abide by the family arrangements and further observes that the family settlements have clearly described how the Bajaj Division and the Hyundai Division are to be dealt with and as to how the consideration are required to be paid after valuation. NCLT states that individual rancour arising out of non-compliance by some of the parties to the family settlement cannot lead the petitioner or for that matter the Consentees to approach the tribunal under the guise of a petition under section 241/242 of the 2013 Act on the grounds of Oppression and Mismanagement.”

NCLT further finds no merit in the allegation of the petitioner against one or more respondents other than the Hyundai division as it suffers from latches and acquiescence. 

NCLT observes that the conduct of the affairs of the 1st company are prejudiced as well as that of its shareholders due to internecine disputes and deadlock exists to consider the invocation of winding up on just and equitable grounds. NCLT observes from the annexed documents that the 1st respondent company is unable to operate the credit facilities which has been granted to the 1st respondent company, in view of the pending dispute before the tribunal as R5 was not inclined to extend cooperation for operating the bank account. 

NCLT relies on the SC decision in M.S.D.C Radharamanan V M.S.D Chandrasekara and Anr  (2008) 6 SCC 750 where SC outlined the approach of the Tribunal in relation to a closely held family consisting of only family members, namely in that case of a father and son whereunder even though a finding of fact had not been returned of a case of oppression and mismanagement which may not have been made out, still in the interest of the company it would not be powerless to protect the company’s interest taking into consideration the scheme of the provisions of the 1956 act and also revisiting the earlier judgement as passed by it as discussed in detail in the said judgement. NCLT finds that the situation envisaged in M.S.D.C Radharamanan is prevalent in the present matter and the parties have hit a dead end in giving effect to the family settlement as arrived between the family members which has led to an impasse resulting in a deadlock situation in relation to the affairs of the 1st respondent company. 

NCLT further relies the judgement of NCLAT in Amritsar Swadeshi Wollen Mills Pvt. Ltd VVinod Krishnan Khanna & Ors., Company Appeal (AT) No.256 of 2018 wherein the decision of NCLT, Delhi was upheld and it was observed that when a matter is before the NCLT or NCLAT arising under section 241 and 242 of the 2013 Act, read with Rule 11, irrespective of what the parties plead, say or do, the paramount consideration of the Tribunal is to keep in view as to what is in the interest of the company and that the interests of the parties are subservient to the interests of the Company. The interest of the parties is subservient to the interests of the company. It is necessary for the Tribunal to first consider the interest of the company. The health of the company reflects on the health of the economy and that is what matters. 

 NCLT finds the decision of the erstwhile CLB in K.N. Bhargava V Trackparts of India ltd. (2001) 104 Comp.Cas 611 (CLB) material to the present case, wherein it was observed that in a proceeding under section 397/398 of the 1956 Act, even if the allegations are not established, more so in a family company, it has always taken the view that to protect the interests of shareholders and the company, appropriate directions should be given especially when there are irreconcilable differences between major group of shareholders.  

NCLT passes an order formalising the divisions on the family settlements, taking into consideration the well established precedents of the SC and NCLAT in relation to family companies and the overall scheme of the provisions of sections 241and 242 of the companies Act, 2013 where the welfare and interest of the company is paramount and required to be looked into rather than to that of the shareholders while exercising the just and equitable jurisdiction vested in this Tribunal and without any way detracting from the family settlement entered into between the parties and which can be identified as such to be in the knowledge of all the family members.  


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