NCLT Hyderabad Directs Emaar Group To Compensate Govt. Of Telangana In The Case Share Transfer To Emmar MGF Land Ltd

Background

The Petitioner, Telangana State Industrial Infrastructure Corporation (TSIIC), is a wholly owned company of Government of Telangana, formed with the objective of promoting industries in the State. TSIIC is the successor of Andhra Pradesh Industrial Corporation Ltd. ("APIIC").

In 2014 the State of Andhra Pradesh was sub divided and Telangana was formed by virtue of Andhra Pradesh Reorganization Act, 2014. In view of the division, TSIIC was formed to take over the activities of APIIC in so far it relates to State of Telangana, which meant that all assets including the land bank held by APIIC in Telangana automatically became the properties of TSIIC.

Section 53 of the Andhra Pradesh Reorganisation Act, 2014 states that assets and liabilities relating to any commercial or industrial undertaking of the existing State of Andhra Pradesh shall pass to the State of Telangana in so far the assets that are located in Telangana are concerned. The proviso to Section 53 further states that every Government asset that is situated in State of Telangana shall, by operation of law, become asset of the State of Telangana. Also, in Section 68 of the Act, 2014 the name of APIIC appears in the list of entities owned by erstwhile State of Andhra Pradesh. Therefore, TSIIC became the successor of APIIC by operation of law.

Brief Facts

Emaar Properties PJSC Dubai ("Respondent No.2") is a company incorporated in U.A.E., engaged in real estate development. Emaar Holdings ("Respondent No. 3") is incorporated in Mauritius and is a 100% subsidiary of Respondent No.2.

In early 2000s the Respondent No. 2 was awarded a tender by the Andhra Pradesh Government for construction of an integrated tourism project ("Project") in Manikonda Village, Andhra Pradesh and APIIC was the nodal agency to implement the Project. A Collaboration Agreement was entered between the Parties and Special Purpose Vehicles (SPVs) named Emaar Hills Township Pvt. Ltd. ("Respondent No. 1") was incorporated in which APIIC held 26% shares and Respondent No. 2 held 74% shares. During the life of the Project, Respondent No. 2 & 3 alleged to have connived and deceptively assigned the Project to Emaar MGF Land Ltd. ("Respondent No. 11") which was a third party, in violation of the Collaboration Agreement, thus making Respondent No. 1 a shell company.

This diversion of business caused huge losses to APIIC and the lands designated for the Project were also sold by the Respondents at an undervalued price.

Consequently, APIIC being a minority shareholder, had filed a petition under Section 397 and 398 of the Companies Act, 1956 before the Company Law Board, Chennai, bearing C.P. No. 108/2010, alleging oppression and mismanagement in Respondent No.1 and had prayed for an inquiry into the affairs of the same. While the Company Petition was pending adjudication, Andhra Pradesh was reorganized in 2014 and the Project Property situated in Manikonda Village formed part of Telangana and accordingly it passed from APIIC to TSIIC by operation of law.

The Company Petition was transferred to NCLT Hyderabad and an order was passed in 2017, granting liberty to Petitioner to file a petition on earlier cause of action with additional material facts. Therefore, the Petitioner filed Company Petition No. 36/2021 alleging oppression and mismanagement in the affairs of Respondent No.1 company, leading to loss of revenue of the Petitioner and adversely impacting public at large. Also, M.A. No. 21/2021 was also filed by the Petitioner before the NCLT Hyderabad against the Respondents, seeking the following amongst other interim reliefs:

1. To direct Respondent No. 2&3 to not to deal with, dispose off or encumber, alienate, transfer and /or create third party interest in the assets and properties of Respondent No. 1.
2. To direct Respondent Companies to compensate the financial losses incurred by Government of Telangana/TSIIC till date, with regard to equity dilution and such other consequences.

Contentions Of Respondent

Respondent No. 1 challenged the M.A. No. 21/2021 on the issue of maintainability while contending that the Petitioner had no locus standi to file the application. It was submitted that Respondent No. 1 had issued shares to APIIC and on formation of new entity TSIIC, if at all TSIIC claims any ownership on the said shares then the same will have to be transmitted on the name of TSIIC. The procedure required to be followed by TSIIC is that it shall tender the original share certificates with the Respondent for transmission of the shares on their name. Since the shares have not been transmitted, TSIIC has not become the owner the shares and therefore has no locus standi to pursue a petition alleging oppression and mismanagement against the Company.

Contentions Of The Petitioner

TSIIC submitted that by virtue of Section 53 of the Act, 2014, there was no requirement for transmission of shares as TSIIC has automatically, by operation of law, become the owner of shares held by APIIC.

Issue

Whether the transmission of shares from APIIC to TSIIC is required to be done in pursuance of the Companies Act or by virtue of Section 53 of the A.P. Reorganization Act, 2014 TSIIC would automatically become the owner of the shares by operation of law.

Decision Of The NCLT

Issue of locus standi

The Bench observed that APIIC was formed as a Government Company, which means a company wherein the entire holding of the shares is held by the concerned Government and the ownership of shares/property would be held by the Governor of the State. It was further observed that TSIIC was an instrumentality of State and hence covered under Article 12 of the Constitution of India.

The Bench opined that the Respondents had recognized and treated TSIIC as the successor of APIIC and hence also a shareholder of the Respondent No. 1. Therefore, the Respondents cannot question the locus standi of TSIIC to file the application as the argument is marred by wrongful intention on the part of Respondents and is an attempt to escape the probable enquiry into the affairs of Respondent Company. The Bench held that TSIIC had the locus standi to file the Company Petition No. 36/2021 as the successor of APIIC and directed the Respondent to file its reply to the same.

It was observed that the contentions raised in the writ petition were in public interest and it is the property of State that is being sold away or alienated in a deceptive manner by the Respondent through its agents. Accordingly, the interim orders were passed and Respondent 2-3 were restrained from dealing or disposing off or creating third party interest in assets and properties of Respondent No. 1. Further, the Respondents were directed to compensate the financial losses incurred by the Government of Telangana/TSIIC till date in regard to equity dilution and such other consequences.

Case Title: Telangana State Industrial Infrastructure Corporation v M/s Emaar Hills Township Pvt. Ltd. & Ors., C.P. No. 36/2021

Counsel for Petitioner: Mr. J. Ramachandra Rao (Additional Advocate General), Adv. A. Sanjeev, Adv. Divas Ravi Prasad, Adv. G. Sai Prasen.

Counsel for Respondents: Sr. Adv. Sajan Poovayya, Sr. Adv. P Venugopal, Sr. Adv. Mr. Dutta, Sr. Adv. Mr. Nayyar, Adv. P Ravi Charan, Adv.L Venkateswara Rao, Adv. Niharika Agarwal, Adv.Prag Maini, Adv. Abhimanyu Chopra, Adv. Raghav Chadha, Adv. Arman Sharma, Adv. Shaurya Vardhan, Adv. Shireen Sethna Baria, Adv. Rajvinder Singh Ahluwali, Adv. Kajal Kumar, Adv. T Anand Subramaniam, Adv. T.N. Haripriya, Mr. Sujan Kumar Reddy.

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