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2025 Supreme(Online)(NCLAT) 171
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Hon'ble Justice Rakesh Kumar Jain (Member(Judicial)) , Hon'ble Mr. Naresh Salecha (Member (Technical)) , Hon'ble Mr. Indevar Pandey (Member (Technical)) ,
Axis Nirman and Industries Limited & Anr – Appellant
Versus
M/s Hotel Birsa Pvt Ltd & Ors – Respondent
175/ND/2017 COMPANY APPEAL(AT)
Mr. C.S. Chauhan, Mr. Sunil, Mr. Amit Kumar Jha, Mr. Gaurav Mitra, Mr. Pranav, Mr. Ishan Roy Chowdhury, Mr. Vivek Sinha, Mr. Vivek Malik, Mr. Shubham Bharara
The court ruled that share allotments violated statutory provisions, constituting oppression and mismanagement under the Companies Act, leading to cancellation and refund of investment.
Headnote:
(A) Companies Act, 1956 - Sections 31, 81, 94(1), 397, 398 - Appeal against NCLT order allowing cancellation of shares and refund of investment - NCLT found share allotments invalid due to non-compliance with statutory provisions and lack of proper notice - Appellants claimed investments were lawful, but NCLT ruled actions constituted oppression and mismanagement. (Paras 1, 9, 44, 86)
Facts of the case:
The appellants challenged NCLT's decision to cancel their share allotments in Hotel Birsa Pvt. Ltd., alleging procedural compliance was ignored, and investments were made in good faith to revive the company. (Paras 3, 4)
Findings of Court:
NCLT concluded that the increase of authorized share capital and share allotments were not compliant with the Companies Act, leading to cancellation and a refund order. (Paras 9, 86)
Issues: The key issues included the legality of the share allotments, procedural compliance, and whether the appellants' actions constituted oppression and mismanagement. (Paras 50, 78)
Ratio Decidendi: The court held that the amendments and share issuances were invalid due to lack of necessary approvals and procedural violations, which amounted to oppression of minority shareholders. (Paras 79, 86)
Result: Appeal dismissed; Respondent No. 1 directed to refund Rs. 2.1 crore to appellants within 60 days. (Para 87)
JUDGMENT
(7th March, 2025)
INDEVAR PANDEY, MEMBER (T)
This appeal has been filed under Section 421 of the Companies Act, 2013, challenging the judgment and order dated April 7, 2017, passed by the National Company Law Tribunal (NCLT), Kolkata Bench, in Company Petition No. 370 of 2010. In its order, the NCLT allowed the petition filed by Respondent No. 2, Adbhut Vincom Pvt. Ltd., and directed the cancellation of 210,000 equity shares of Hotel Birsa Pvt. Ltd. (Respondent No. 1) allotted to the appellants, Axis Nirman and Industries Limited (Appellant No. 1) and Axis Overseas Limited (Appellant No. 2) Additionally, the NCLT ordered the refund of Rs.2,10,00,000/- paid by the appellants for these shares, on the ground that the resolutions to increase authorized share capital and the allotment of shares were not compliant with the Companies Act, 1956 (hereinafter referred to as ‘Act’).
2. The appellants here assert that the NCLT’s findings ignored material evidence, failed to recognize procedural compliance, and caused them undue financial and reputational harm. They contend that their investments were lawful, made in good faith based on representations by the company’s promoters, and utilized to revive the company’s stalled projects.
Brief facts of the Case
3. The facts of the case are as follows:
(i) Respondent No. 1/ Hotel Birsa (P) Ltd., is a private limited company incorporated under the Companies Act, 1956. It operates in the hospitality sector, managing hotels, restaurants, and related businesses.
(ii) The initial authorized share capital of the company was Rs.4,25,00,000/-, which was allegedly increased to Rs.10,00,00,000/- in February 2010, following an Extraordinary General Meeting (EOGM) on February 18, 2010. The issued and subscribed share capital was subsequently raised from Rs. 4,25,00,000/- to Rs. 6,35,00,000/-.
(iii)These changes in the capital structure were alleged to have been carried out without proper statutory compliance, forming the basis of the dispute raised in Company Petition No. 370 of 2010.
(iv) In early 2010, Shri Prem Rajesh Soy and Smt. Salini Soy/Respondent No. 3, identifying themselves as the promoters of Respondent No. 1, approached the appellants with an investment proposal. The respondents represented that the company required immediate funds to Repay HUDCO liabilities amounting to Rs.11 crore, which would prevent the company’s account from being classified as a Non-Performing Asset (NPA) and revive the stalled hotel project of Respondent No. 1, which had been delayed due to a lack of funds.
(v) The respondents assured the appellants that the resolutions to increase authorized share capital and other necessary procedural formalities had been duly passed and complied with under the Companies Act, 1956 (hereinafter referred to as the ‘Act’). The appellants were further promised that their investments would yield substantial returns as the company resumed its business operations.
(vi) Based on these assurances, the appellants agreed to invest substantial amounts in the company. Appellant No. 1 subscribed to 90,000 equity shares of Respondent No. 1 at a face value of Rs.100 per share, making a total investment of Rs.90,00,000 on 19.03.2010. These funds were acknowledged by the company and utilized to clear part of its HUDCO liabilities. Further, Appellant No. 2 subscribed to Rs.1,20,000 equity shares of Respondent No.1, at face value of Rs.100 per share, contributing Rs. 1,20,00,000 on 14.04.2010. These funds were again utilized for clearing debts and other operational requirements.
(vii) A total investment of Rs.2,10,00,000/- was made by the appellants, and share certificates for the same were duly issued to them. These shares were recorded in the company’s register, with the distinctive numbers 425001 to 515000 for Appellant No. 1 and 515001 to 635000 for Appellant No. 2.
4. Learning about the appellants’ investments and consequent dilution of its shareholding, Respondent No. 2, Adbhut Vincom Pvt. Ltd. which he
