UMESH KUMAR BAVEJA Vs. IL&FS TRANSPORTATION NETWORK LTD

JUDGEMENT

(1.) This is an appeal filed under Section 10F of the Companies Act, 1956 (hereinafter referred to as "Act") impugning the orders dated 10.04.2013 and 10.05.2013 passed by the Company Law Board in Company Petition No.133(ND)/2012. The appellants are: Umesh Kumar Baveja (A-1), Regional Airport Holdings International Ltd. (A-2) and RAHI Aviation Holdings Pvt. Ltd. (A-3). The respondents in the appeal are IL&FS Transportation Network Ltd. (R-1), Gulbarga Airport Developers Pvt. Ltd. (R-2) and Shimoga Airport Developers Pvt. Ltd. (R-3).

(2.) The relevant facts, in brief, giving rise to the present appeal are these. The government of Karnataka entered into project development agreements with R-2 & R-3 for setting up of Green Fields Airports both at Gulbarga and Shimoga in the state of Karnataka. Umesh Kumar Baveja (A-1) did not have sufficient funds and, therefore, requested R-1 to make the required investment. A-3 and R-1, therefore, incorporated A-2 as a "special purpose vehicle" (SPV) for making investments in R-2 and R-3, which may be referred to as "the airport companies". An agreement styled as "Subscription-cum-shareholders Agreement" (SSA) was entered into on 12.03.2010 between the SPV, A-3 (which is hereinafter also known as RAHI) and R-1 (hereinafter also referred to as ITNL). In terms of the SSA, RAHI was to make an investment of Rs. 30 crores in the SPV and acquire 60% stake in it and ITNL would invest Rs. 20 crores in the SPV to acquire 40% stake. RAHI invested the sum of Rs. 30 crores as per the agreement. ITNL too invested the amount of Rs. 20 crores as required by the SSA and the said amount was shown in the accounts of the SPV as "share application money pending allotment". These shares were never allotted to ITNL. Umesh Kumar Baveja (A-1) was a director in RAHI as well as the SPV. Mukund Sapre was the person who controlled ITNL and invested Rs. 20 crores in the SPV through ITNL. Since no shares for Rs. 20 crores invested by ITNL were allotted to it by the SPV, problems arose between the two groups, one headed by Umesh Kumar Baveja and the other by Mukund Sapre. Mukund Sapre also entertained doubts about the utilisation of the amounts invested by ITNL in the SPV. ITNL had also given bank guarantees through United Bank of India in favour of the Government of Karnataka for '9.69 crores for the Gulbarga Airport project and a bank guarantee through Axis Bank Ltd. for Rs. 12.37 crores in respect of the Shimoga project. It would also appear that there was little progress in the development of the airports and the Government of Karnataka wrote a letter to the SPV on 30.07.2012 expressing its concerns. In this letter, the Government of Karnataka also sought an explanation for the delay in completion of the Gulbarga Airport project and asked the airport company to show-cause why liquidated damages should not be imposed for the delay. There was a series of correspondence between both the groups containing allegations and counter-allegations with regard to the working of SPV. In the meantime, Mukund Sapre sought information from Baveja with regard to certain agreements entered into by the SPV with several entities including details of payment of Rs. 12 crores to Comet Advisory which is now known as RAHI. In his capacity as Chairman of the SPV, Mukund Sapre also sought explanation from Baveja on several items of expenditure and appointed a firm of Chartered Accountants to carry out an internal audit of the airport companies as well as the SPV. Baveja, in response, convened meetings but according to Mukund Sapre these board meetings were not backed by any background material provided to him to enable him to meaningfully contribute to the proceedings. Mukund Sapre also questioned the appointment of Baveja as a whole-time director of the SPV and the disproportionate remuneration proposed to be paid to him. These disputes, together with the exchange of e-mails containing allegations and counter allegations had muddled the relationship between Baveja and Mukund Sapre and consequently between the companies controlled by them as well as affairs of the SPV.

(3.) In the above background ITNL filed a petition before the Company Law Board under Sections 111A, 397, 398, 402 and 403 of the Act on the ground that Umesh Kumar Baveja, through RAHI, which was at the helm of affairs of the SPV being a majority shareholder, was acting in a manner prejudicial to the interest of ITNL which had invested Rs. 20 crores to acquire 40% shareholding in the SPV; it was also alleged that Baveja had committed violations of the articles of association and had siphoned off the funds of the SPV by entering into transactions with the related parties. It was further alleged in the petition that Baveja was prevaricating or evading the issue of shares to ITNL. An interim prayer was made in the petition to the effect that the respondents in the company petition failed to appoint Mukund Sapre as another nominee-director of ITNL and that ITNL was not informed about the affairs of the SPV even though it had invested substantial amount of money in the SPV and an audit should be carried out by an independent and impartial auditor which was not done despite request. There were also charges of misappropriation of the funds of the SPV by Baveja.