NCLAT Sets Aside NCLT Order Cancelling 30,000-Share Allotment, 15,626-Share Sale In Peerless General Finance

The National Company Law Appellate Tribunal (NCLAT) at Delhi has recently set aside a Kolkata NCLT order that had cancelled the allotment of 30,000 shares made in 1987–88 and the sale of 15,626 shares in Peerless General Finance & Investment Co. Ltd. (PGFI). It held that no case of oppression or mismanagement was made out under Sections 397–398 of the Companies Act, 1956.

The appellate tribunal was hearing three connected appeals against a common order dated July 18, 2022 in a long-running dispute between rival shareholder groups in PGFI.

The petition, originally filed by the Chatterjee group, was later pursued by Bhagwati Developers Pvt. Ltd. and Parasmal Lodha against the Roy–Sen group over the impugned share allotment and related transactions.

The bench of Judicial Member Yogesh Khanna and Technical Member Ajai Das Mehrotra, allowing the appeals filed by The Peerless General Finance and Investment Co. Ltd., observed,

“Under Section 193(4)(b) of the Companies Act, 1956, if a director disagrees with a resolution he is required to record his dissent in the minutes. Silence amounts to assent. Admittedly the aforesaid resolution were passed unanimously and thereafter was placed before the shareholders. Since no such dissent was ever recorded, hence Respondent No. 1 – M/s BDPL is now estopped from alleging the facts contrary of the official minutes.”

The dispute dates back to October 30, 1987, when the board of PGFI passed a resolution to issue 30,000 equity shares at ₹100 each through private placement. A notice dated November 25, 1987 was issued for the annual general meeting held on December 30, 1987, where the resolution was approved with participation from Parasmal Lodha and Bhagwati Developers Pvt. Ltd.

On February 2, 1988, the Share Transfer Committee was authorised to allot the shares, which were eventually allotted on April 26, 1988 to three companies, Go Ahead Holdings Pvt. Ltd., Shikha Holdings Pvt. Ltd., and Bichitra Holdings Pvt. Ltd., which were alleged to be connected to the Roy–Sen group.

The record showed that Parasmal Lodha was present at the board meetings dated October 30, 1987 and February 2, 1988 and did not record any objection to the resolutions.

Soon thereafter, on March 13, 1988, Lodha resigned from the board, and on March 16, 1988, he along with Bhagwati Developers sold 15,626 shares to Debashree Investments and Services Pvt. Ltd., an entity associated with the Roy family.

In 1991, the Chatterjee group filed a petition under Sections 397–398 alleging oppression and mismanagement, contending that the allotment of shares had tilted control in favour of the Roy–Sen group and that they had no knowledge of the transactions.

It was also alleged that the company's funds had been routed through loans and advances to facilitate the purchase of its own shares, in violation of Section 77 of the Companies Act, 1956.

The proceedings thereafter saw multiple rounds of litigation, including withdrawal of the original petitioners and substitution of Bhagwati Developers in their place.

Before the appellate tribunal, PGFI argued that Parasmal Lodha and Bhagwati Developers had actively participated in the board and general meetings approving the allotment, had voted in favour of the resolutions, and had voluntarily sold their shares for consideration.

Bhagwati Developers and Lodha, on the other hand, contended that the private placement lacked proper disclosure, that shares were issued without valuation despite significantly higher intrinsic value, and that the transactions were structured to benefit entities allegedly connected to the Roy–Sen group. They also argued that the company had indirectly financed the purchase of its own shares, thereby violating Section 77 of the Companies Act, 1956, and that the transactions were contrary to securities law requirements.

The NCLAT rejected these contentions, holding that the allegation of violation of Section 77 had not been established. It observed, “In any event Section 77 is penal in nature and requires strict establishment of statutory ingredients, namely the financial assistance was given directly or indirectly by the company for the purpose of or in connection with the purchase of its own shares. The Respondent no.1 did not prove the same with definite evidence and sought to prove these facts only through presumptions.”

The tribunal further noted that the original petitioners had withdrawn their claims and that Bhagwati Developers, which was subsequently brought on record, had not filed fresh pleadings or affidavits to independently establish oppression.

It held, “A person accused in the very pleadings cannot take advantage of it, hence no case of oppression against Respondent No. 1 is said to be made out on the basis of petition filed by Chatterjee's.”

The bench also cautioned against unsettling transactions after more than three decades, observing, “Even otherwise, if such transactions are treated as void, it shall cause serious consequences to the company on the issues of resolutions of a general meeting for the past 33 years; dividends paid on shares and related taxes with dividend distribution etc. which shall ex-facie be inequitable and against the interest of M/s PGFI, the appellant herein.”

The NCLAT accordingly set aside the NCLT's order and allowed all three appeals.