Companies ActNCLATRulingsTribunal & Appellate

NCLAT states that agreement executed prior to incorporation of Company is not enforceable but company is regulated by its MOA & AOA

Smt Suman Dhir vs. Gyan Ganga Educational Institute

NCLAT upholds the order of NCLT; says agreement executed prior to incorporation of company cannot be enforced; orders Respondents to pay interest to the Appellants for the unsecured laon advanced by the Appellants.

The present appeal under Section 421 of the Companies Act, 2013 has been preferred by the Appellants (Original Petitioner No.1 and 2)- Smt Suman Dhir and Shri Sarvesh Dhir against the judgement dated 06.11.2017 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai vide which the Tribunal has dismissed the Company Petition No.109/2013 filed by the petitioners with costs of Rs.1 lakh payable by each of the original petitioners. The original petitioners filed a petition under Sections 397, 398, 399, 402, 403, 406, 235, 237 and 247 read with Section 111 of the Companies Act, 1956 against the acts of oppression, mismanagement, fraud, manipulation and falsification of Statutory and other records by and in active connivance of the Respondents before the Company Law Board, Mumbai Bench, Mumbai. On 7.9.1991, an agreement was executed between 1st appellant, 5th Respondent, 7th Respondent and one Late Upendra Shandilya for incorporation and promotion of 1st respondent and the 1st respondent –  M/s Gyan Ganga Educational Institute was incorporated on 20.11.1991.The appellant stated that the NCLT, Mumbai has wrongly held that the petitioners cannot seek to enforce the terms and conditions of the agreement against the company and the directors which is not permissible in law and has wrongly decided the issue in favour of the Respondents. Appellant further argued that NCLT has wrongly held that the appellants cannot seek to enforce the terms and conditions of the agreement against the company and the directors which is not permissible in law and has wrongly decided the issue in favour of the Respondents. 

Appellants argued that 1st appellant contributed Rs. 2 lakh and 2nd appellant contributed Rs.4 lakhs towards share subscription whereas the same has been shown as unsecured loan in the Balance Sheet. Learned counsel for the appellant argued that the Learned NCLT has given a wrong finding that the underlying the principles of res judicata is that a decision once rendered by a competent authority on a matter in issue between the parties after a full enquiry should not be permitted to be re-agitated.  The appellant argued that the Civil Suit No.49A/1998 was dismissed on 21.12.2016 and the Learned Court had held that the appellant had succeeded to prove that the appellant has been illegally removed from the directorship of the 1st respondent company, however, rejected the claim only on the ground that Civil Court does not have jurisdiction to try the present suit in view of the Companies Act, 2013. Respondents argued that Agreement is neither a part of the Article of Association of 1st respondent nor was it ratified or adopted at any time and the agreement is neither binding for the operation and management of the affairs of the 1st respondent nor on the shareholders or Directors of 1st respondent.

NCLAT observes the facts and submissions of the matter and observes that the company was incorporated after the execution of the agreement. NCLAT states that after incorporation is regulated by the Memorandum of Association and Articles of Association of the Company and not by any agreement prior to its incorporation and it was for the interested parties to see that what is their previous agreement and if it is suitably incorporated in the Articles of the Association of the Company.  

NCLAT further observes that the terms and conditions of the agreement are not part of the Articles of Association and therefore, the reliance on the agreement not being a part of the Articles of Association is not permissible under the law. NCLAT states that appellants are seeking to enforce the terms and conditions of the Agreement against 1st respondent and Directors and such is impermissible under Law. With regards the amounts contributed by the appellants, NCLAT observes that that the amount invested by the appellants is shown as unsecured loan and the confirmation of accounts are duly signed by 1st appellant and the appellants’ accounts with 1st respondent are showing provision of interest on the amount invested and the 1st respondent is deducting TDS on the said interest as per IT Act and the confirmation of accounts are also signed by 2nd appellant. NCLAT states that provision of interest has been discontinued solely on the ground that the appellant is a shareholder of the company and has raised a number of issues with the company.

NCLAT further observes that it cannot be said that 1st appellant has been removed from directorship without a due notice.  NCLAT states that Appellants under the garb of the petition before NCLT and appeal before Appellate Tribunal are seeking specific performance of the Agreement dated 7.9.1991. NCLAT states that since the dispute is contractual in nature, Company Petition under Section 397 and 398 was not maintainable. NCLAT holds that the appellants are entitled for interest on their investment made as unsecured loan to 1st respondent. Further NCLAT observes that litigation is going on between the parties since long which is not in the interest of the 1st respondent company and it affects the economy which hurts public interest and that an exit route may be provided to the 1st and 2nd appellant. NCLAT upholds the impugned order and directs that 1st Respondents will pay the appellants their balance of unsecured loan with interest at an agreed rate which Respondents have discontinued providing since 1.4.1999 within one month from the order.

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