Case Overview

This Company Petition (CP No. 21/(MB)/2024) was filed under Sections 241-242 of the Companies Act, 2013, by Shashi Tanna and Nikhil Sayta (Petitioners) in a representative capacity on behalf of the legal heirs of the late Mrs. Tarla Tanna against Devkaran & Co. Pvt. Ltd. (Respondent No. 1) and its directors, Dilip Tanna, Amal Dilip Tanna, and Aksha Amal Tanna (Respondent Nos. 2-4).

The principal allegation was that the Respondents had committed acts of oppression and mismanagement by fraudulently and illegally allotting 9,000 additional shares in March 2014 to Respondent Nos. 2 and 3. This allotment drastically diluted the shareholding of the late Mrs. Tarla Tanna from 66.7% (667 shares) to a minority stake of 6.67%, effectively transferring control of the company to Respondent Nos. 2-4. The Petitioners alleged this was done without offering the shares to the estate of Mrs. Tarla Tanna, in breach of fiduciary duties and statutory requirements.

Other allegations included obstructing the transmission of the 667 shares to the legal heirs, falsification of documents and books of accounts filed with the Registrar of Companies (ROC), money laundering, creating unauthorized company liabilities/loans, misappropriation of loans standing to the credit of Mr. Girish Tanna and Mrs. Tarla Tanna, and causing an increase in losses and long-term borrowings, thereby eroding the company's net worth.

The Respondents conceded that the 667 shares always belonged to the late Mrs. Tarla Tanna and any reflection otherwise in ROC filings was an error by the company's Chartered Accountant, subject to rectification. Their primary defense was that the petition was a mala fide counterblast to separate suits (Suit No. 1075 of 2019 & Testamentary Petition No. 2683 of 2023) filed by Respondent No. 2, challenging consent terms related to Mrs. Tarla Tanna's will. They contended the petition was ex facie barred by limitation, as the impugned allotment and ROC filings occurred in 2014, and the petitioners, who were aware of their claims since at least 2014-2017, failed to exercise due diligence. They justified the share issuance as a bona fide act necessary to infuse funds (₹9,00,000) into the financially struggling company, which had mounting losses and litigation expenses, particularly concerning a property in Marol.

The Tribunal's reasoning focused extensively on the limitation argument. It held that the cause of action arose in 2014 when the allotment was made and filings were put in the public domain on the ROC portal, constituting deemed knowledge. The petitioners' claim that they discovered the fraud only in March 2019 was rejected for lack of a satisfactory explanation for the delay and failure to exercise the due diligence expected of parties claiming a legacy interest. Even calculating from the dates of the consent terms (26.04.2017 or 04.05.2017), the petition filed on 12.02.2024 was held to be beyond the three-year limitation period, even after accounting for the COVID-19 exclusion period directed by the Supreme Court.

On merits, the Tribunal found that the issuance of shares was for the bona fide purpose of funding the company, which was in financial distress, and not for an improper motive like usurping control. The Respondents had acted within the powers granted by the company's Articles of Association, and given that no legal heirs had come forward to claim the shares between Mrs. Tarla Tanna's death in 2012 and the allotment in 2014, the act could not be deemed oppressive. The other allegations of mismanagement were found to be unsubstantiated.

Final Outcome

The NCLT dismissed the company petition, holding it was barred by limitation and, alternatively, lacked merit. No reliefs were granted to the Petitioners. There was no order as to costs.

Topics: Shareholding Dilution, Limitation Law, Oppression & Mismanagement