Pranav B Prem

The National Company Law Tribunal (NCLT), New Delhi Bench, has cancelled 9.84 lakh equity shares of Neel Padam Builders Pvt. Ltd. after holding that the company had used its own funds to falsely project a fresh share subscription, thereby illegally diluting the promoters’ shareholding. The Tribunal ordered restoration of the company’s shareholding and capital structure to its position prior to November 2009, effectively reinstating promoter control.

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The order was passed by a coram comprising Judicial Member Ashok Kumar Bhardwaj and Technical Member Reena Sinha Puri in a long-pending oppression and mismanagement petition filed by promoter-family members Neelamber Agrawal and Meenakshi Agrawal. The petitioners had contended that they, along with other consenting shareholders, held 82.9% of the company’s equity prior to two disputed share allotments made in 2009. These allotments, they argued, were carried out without notice to the majority shareholders and reduced them to a minority, enabling Ashok Kumar Agrawal and his associates to unlawfully assume control over the company.

According to the petitioners, Ashok Kumar Agrawal’s directorship had automatically ceased due to non-attendance at board meetings. Despite this, he continued to act as a director, reconstituted the board, increased the authorised share capital and allotted shares to himself and others without following due process under company law.

The respondents denied the allegations and claimed that the petitioners had voluntarily resigned after committing financial irregularities, including unauthorised withdrawals exceeding ₹3 crore. They asserted that the impugned share allotments were approved through valid board and shareholder resolutions and that the subscription money had been duly paid.

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After examining the bank statements and documentary evidence, the Tribunal rejected the respondents’ defence. It found that Neel Padam Builders had withdrawn ₹45 lakh from its own bank account on November 26 and 27, 2009, and redeposited the same amount on December 9, 2009—the very date on which the second share allotment was shown as having been paid for.

The Tribunal held that this pattern of withdrawal and redeposit demonstrated that there was no genuine infusion of capital and that the company’s own funds were recycled to create an artificial trail of share subscription. It observed: “The said statement reflects a recurring pattern of withdrawal and immediate redeposit, which prima facie indicates the absence of genuine consideration, the recycling of the Company’s own funds, and the creation of an artificial trail intended to lend legitimacy to a premeditated and pre-planned allotment.” Holding that the transaction did not reflect any real investment, the Tribunal concluded that the share allotment was a sham and liable to be set aside.

The NCLT also found serious irregularities in the reconstitution of the company’s board. It held that Narendra Singh, who had filed statutory forms with the Registrar of Companies, was never validly appointed as a director. Despite this, he filed Form 32 showing his own appointment and that of others. The Tribunal ruled that a person who is not lawfully appointed as a director cannot assume authority to file statutory forms or alter the board structure of a company.

In view of these findings, the Tribunal declared that all sale deeds, lease deeds and agreements to sell executed after September 17, 2009 were non-est in law, as they were signed by an unauthorised board. It ordered reversal of such transactions.

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To ascertain the full extent of the financial irregularities, the Tribunal appointed a forensic auditor to examine all transactions carried out during the disputed period. It empowered the restored board to either recover the land and refund purchasers with 12% interest or to revalidate transactions where buyers were found to be bona fide purchasers who had paid fair market value. Accordingly, the NCLT set aside both disputed allotments aggregating to 9.84 lakh equity shares, restored the shareholding pattern and management to its pre-November 2009 position, and allowed the petition, holding that the acts complained of amounted to oppression and mismanagement under company law.

Appearance

For Applicant: Advocates Abhishek Anand, Pawan Sharma, and Anuja Shah

Cause Title: Shri Neelamber Agrawal and Anr. v. Neel Padam Builders Pvt. Ltd. and Ors.

Case No: Company Petition No. 120/(ND)/2009

Coram: Judicial Member Ashok Kumar Bhardwaj, Technical Member Reena Sinha Puri