The court ruled that the conversion of optionally convertible debentures to compulsorily convertible preference shares without RBI approval violated regulatory norms, constituting oppression of minority shareholders.

As has been narrated in the synopsis filed along with the petition, preferred under Section 241 and 242 of the Companies Act read with Section 244 of the Companies Act, 2013 , Respondent No.1 formerly registered as UT Leasing Limited, is a public limited company incorporated in terms of the provisions of the Company Act, 1956. The identification No. assigned to the company is U74899DL 1994PLC058369. It has its registered office at 7/17 L.G.F. Near Hauz Khas Metro Station, Sarvapriya Vihar, New Delhi 110016. The company (Respondent No.1) is engaged in Non-Banking Financing Activities and is registered with the Reserve Bank of India (RBI) vide Certification of Registration (CoR) No. B.14.02703. The main objects for which the company (Respondent No.1) was incorporated are to carry on the business of leasing, hiring, letting on hire, leasing and to provide on lease or on deferred payment basis or on any other basis all types of plant, equipment, machinery, vehicles, and real estates and any other movable and immovable properties and assets whether in India or abroad – for industrial, commercial or other uses and to buy, purchase, import, deal, acquire, take on lease or otherwise acquire rights over the said movable and immovable properties, and assets for the aforesaid purpose. The Articles of Association (AoA) of Respondent No. 1 were adopted at the time of its incorporation. Copies of the Memorandum of Association and AoA of Respondent No.1 are enclosed with the petition as Annexure P-1.

2. The Petitioners have alleged the mismanagement qua the affairs of Respondent No.1 by Respondent Nos.2 to 4. The specific instances of mismanagement enumerated in para 2 (A) to 2 (E) of the synopsis reads thus:-

“A.

Illegal conversion of optionally convertible debentures to compulsorily convertible preference shares without approval from the RBI: Respondent No. 1 had with the expertise of its Independent Directors (that is, Respondent Nos. 5 and 6), raised funds from private investors in the form of Optionally Convertible Debentures (“OCDs”). Respondent No. 2, who is also the majority shareholder in Respondent No. 1, caused a toppling of the leverage ratio of Respondent No. 1 beyond 7% (seven percent). The toppling of the leverage ratio beyond 7% (seven percent) was a violation of the threshold mandated in the NBFC Directions, which requires the leverage ratio to be maintained at 7% (seven percent). The Petitioners have now learnt that in an attempt to feign compliance with the NBFC Directions, Respondent No. 2 unilaterally converted the OCDs to Compulsorily Convertible Preference Shares (“CCPs”). Such conversion has been done without the approval of the RBI under the NBFC Directions, and as such, has resulted in conferring indirect control over debenture holders inasmuch as holders of OCDs had now becomes holders of CCPS, with voting rights.

B.

Causing resignation of key managerial personnel by intimidation and harassment: The Petitioners have learnt that several key managerial personnel, including Respondent Nos. 7 – 9, had been vocal of their concerns surrounding the manner in which the affairs of Respondent No. 1 were being managed. In retaliation of this, Respondent No. 1 withheld salaries payable to them without any cause or justification. The salaries were withheld for over three (3) months, resulting in mass resignations of the key managerial personnel. The Petitioners state that it is incomprehensible that five (5) key managerial personnel, including the Chartered Accountant and Company Secretaries of Respondent No. 1 could have all been incompetent and in possession of “company property” at the same time. Further, given the recommendation for Mr. Sambharia to be appointed as the CEO and WTD and acceptance of the board of such a recommendation (as is evidenced in the board resolution of 23 December 2022 and the Approval Application), it is unbelievable that the salary of Mr. Sambharia was being withheld for reasons of “incompetence”.