NCLT allows one more opportunity to respondent-directors to protect interests of shareholders and to revive Co.

Case details: Union of India v. Megacity (Bangalore) Developers & Builders Ltd. - [2021] 129 taxmann.com 123 (NCLT-Beng.)

Judiciary and Counsel Details

• • Rajeswara Rao Vittanala, Judicial Member and Ashutosh Chandra, Technical Member
  • Kumar M.N., Perikal K. Arjun, A. Murali and Joseph Pookkatt for the Appering Parites.

Facts of the Case

The Petitioner-Central Government directed Serious Fraud Investigation Officer (SFIO) to investigate to affairs of respondent-real Estate Company. The SIFO conducted an investigation and submitted its report by pointing out various inconsistencies, frauds, illegality and stated that affairs of respondents were conducted adverse to the interest of its creditors, investors, and consumers and against the public interest.

As a result, the NCLT suspended the existing Board of Directors of the respondent as pleaded by SFIO and directed Central Government to appoint nominee directors. Consequently, the Central Government appointed three nominee directors.

The appointed Nominee directors were unable to run affairs of the respondent and expressed their difficulties to defend/prosecute cases filed by and against a respondent.

They thus filed an application to wind up the respondent. It was noted that passing of winding up order is civil death for a company and, therefore, in order to protect the interest of stakeholders of a company, Courts/Tribunals, before passing such order, have to examine all issues concerning the matter so as to see whether passing winding up order is only alternative or is there any possibility for revival of affairs of a company.

NCLT Held

In view of aforesaid one more opportunity was to be given to the respondent to set things right in the affairs of the respondent. Therefore, it would be just and proper to direct nominee directors to convene Extraordinary General Meeting (EGM) of shareholders of respondent so as to elect their proposed directors so that they could take all necessary actions to resolve all disputes, which lead to suspension of Board of Directors of the respondent.

List of Cases Referred to

• • Union of India v. Megacity Bangalore Developers & Builders Ltd. [2019] 104 taxmann.com 227 (NCLT-Bang.) (para 4)
  • Registrar of Companies v. Suraj Bachet Yojna (P.) Ltd. [1973] 43 Comp case 343 (Punj. – Har.) (para 10)
  • Registrar of Companies v. Apoorva Leasing Finance & Investment Co. Ltd. 2019 SCC Online NCLAT 1514 (para 10)
  • R. Khemka v. Deccan Enterprises (P.) Ltd. [1998] 16 SCL 1 (A.P.) (para 10)
  • Palghat Exports (P.) Ltd. v. T.V. Chandran [1994] 79 Comp case 213 (Ker.) (para 10).