Allowed

Shri Vinay Kumar Agarwalla and 2 Ors. v. M/S.Woodward Impex Pvt.Ltd. and 7 Ors.

Bombay HC12 Sept 2013COAPP/52/2013

Case brief

AI extract

What is this about?

A company appeal challenging a Company Law Board order that directed appellants to deposit rights issue funds in a fixed deposit due to alleged inadequate returns from a partnership firm. The High Court quashed the order, finding the Board sidestepped the issue of the partnership's legality and decision based purely on interest rate comparison. The matter is remanded for fresh hearing.

What did the court decide?

Impugned order dated 28.05.2013 quashed; Company Law Board to hear Company Application No. 263 of 2012 afresh within two weeks.

Shri Vinay Kumar Agarwalla and 2 Ors. Vs M/S.Woodward… — Company and Corporate | Bombay HC (2013)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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COMPANY APPEAL (L) NO. 53 OF 2013 IN CLB COMPANY APPLICATION NO. 263 OF 2012 IN CLB/COMPANY PETITION NO. 42 OF 2012

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In the matter of M/s. The Podar Mills Ltd.,

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Shri Vinay Kumar Agarwalla & Ors.

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... Appellants.

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V/s.

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M/s. Woodward Impex Pvt. Ltd. & Ors.

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... Respondents.

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Mr. Rohit Das a/with Mr. Soumik Das, Aayush Singhvi i/by Rohit Das & Associates for the Appellants.

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Mr. Arun Monga a/with Mr. A. Dasgupta i/by M/s. Jhangiani, Narula & Associates for the Respondent Nos. 1 to 6.

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CORAM : N. M. JAMDAR, J. DATE : 12^th SEPTEMBER, 2013

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P.C. :

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1 By this appeal, the appellants challenge the order passed by the Company Law Board, Mumbai Bench, Mumbai dated 28^th May, 2013. By the impugned order, the Company Law Board has directed the appellants to deposit the funds of the rights issue in a nationalized bank in a fixed deposit scheme in the name of the company, earning maximum rate of interest. In the event of the

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1/5

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Borey

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appellants' failure to do so, the respondents have been given liberty to take appropriate criminal and civil actions, as provided under the law. There have been litigations between the parties as regards rights issued in the past and this court on earlier occasion passed certain orders which have been referred to in the impugned order.

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2 The respondents had filed a Company Petition No. 42 of 2012 before the Company Law Board, Mumbai Bench, Mumbai. In the petition the respondents, interalia, prayed that the letter of offer for the rights issue in question be declared as null and void. The resolution dated 11^th April, 2012 was also sought to be set aside. In the company petition, the respondents took out a Company Application bearing No. 263 of 2012, wherein a declaration was sought that the rights issue is illegal and further directions as regards prosecution were sought. Appropriate orders were also sought for refund of the capital contribution made in a partnership firm from the company account to the Firm's account.

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3 Before the Company Law Board, it was the case of the respondents that a sum of Rs. 1.45 crores from the rights issue collected was siphoned of by the appellants, who were Ex-Directors of the company to a newly established partnership firm of which one

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2/5

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Borey

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of the directors is the son of the erstwhile directors. The appellants have justified their action by contending that the amounts have been invested in the partnership firm in the best interest of the company, as the partnership firm in question is a profit making firm. It was also the case of the appellants that in the past, other directors have floated the similar partnership firms.

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4 By the impugned order dated 28^th May, 2013, the Company Law Board held that the interest earned on the investment in the partnership firm is 6% and it is inadequate. The Company Law Board observed that had this amount been invested in a Fixed Deposit, the cumulative return would have been 10% per annum or even more. The Company Law Board, therefore, concluded that it cannot be said that the directors acted bonafide. The contention of the appellants that earlier the amounts that were invested through the partnership firms was not accepted.

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5 I have heard the learned counsel for the appellants and the learned counsel for the respondents. A perusal of the impugned order shows that the basic premises on which the order is passed that the amount which is invested in the partnership firm gives only a return of 6% interest and if the same amount is invested in a fixed

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3/5

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Borey

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deposit would fetch 10% interest or more. The main argument of the respondent nos. 1 to 5 was that the investment in the present partnership, in the manner it is done, itself is illegal. The learned counsel for the appellants submitted that there is no comparison between the amount invested by the partnership firm and the rate of interest being offered on a fixed deposit. The learned counsel submitted that even otherwise, the amount invested in a fixed deposit will not fetch more than 10% interest. The learned counsel for the appellants has also sought to urge that the appellants have acted bonafide while investing the amount in the partnership firm. Thus from the rival contentions, it appears that the Company Law Board has sidestepped the main issue between parties as to whether the act of investment of the amount in the present partnership firm by the appellants was bonafide or not. The contentions which have been referred to above have also not been considered. The conclusion regarding the rate of interest appears to have been recorded by the Board on its own, without there being any argument to that effect.

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6 In the circumstances, it will be appropriate if the impugned order dated 28^th May, 2013 is set aside and the Company Law Board is directed to hear the Company Application No. 263 of 2012 in the light of what is recorded above.

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4/5

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Borey

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7 Accordingly, the order passed on 28^th May, 2013 is quashed and set aside. The Company Law Board will hear the Company Application No. 263 of 2012 within a period of two weeks from the date of the receipt of this order by the company law board. The company law board will decide the application afresh on its own merits. All contentions are kept open.

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8 The appeal is accordingly disposed of.

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5/5

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Borey

Shri Vinay Kumar Agarwalla and 2 Ors. v. M/S.Woodward Impex Pvt.Ltd. and 7 Ors.

Case brief

What is this about?

What did the court decide?

Shri Vinay Kumar Agarwalla and 2 Ors. v. M/S.Woodward Impex Pvt.Ltd. and 7 Ors.

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

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