NCLAT directs RattanIndia to appoint new Chief Financial Officer

NCLAT directs RattanIndia to appoint new Chief Financial Officer

The National Company Law Appellate Tribunal (NCLAT) set aside an order passed by the National Company Law Tribunal (NCLT) and ordered the appointment of a Chief Financial Officer (CFO) for non-banking finance company RattanIndia Finance within 60 days.

The Appellate Tribunal stated that any suggested candidate by the Joint Venture partner LSF 10 Rose Investments, should be eligible under relevant provisions of the Companies Act, which provides for the appointment of Key Managerial Personnel (KMP).

It was observed that NCLT had "committed error in inferring that provision in article 140 of the Articles of Association (AoA) does not contemplate that a person's nomination can be considered to be valid or invalid".

On March 29, NCLT, Delhi bench had ordered appointment of Bipin Kabra as its CFO over the plea filed by RattanIndia Finance's JV partner -- LSF 10 Rose Investments.

LSF 10 Rose Investments, a subsidiary of US-based private equity firm Lone Star Funds (LSF), holds 50 per cent shareholding in Rattan India Finance.

The said order was challenged by Rajiv Rattan, Anjali Nashier and the Hamlin Trust before the appellate tribunal.

As per section 140 of AoA of RattanIndia Finance, LSF has the right to nominate a person as CFO and if the JV partner rejects the appointment of the first nominee, then LSF would nominate the second nominee. And if the JV partner rejects the appointment of the second nominee, then LSF 10 Rose Investments shall have the right to nominate any person as CFO and the JV partner would support it.

The Tribunal held that Section 203 of the Companies Act lays down that the CFO is a whole-time KMP and is prohibited from holding office in more than one company except in its subsidiary company at the same time.

The first two nominations for the position of CFO recommended by LSF 10 Rose Investments were "ineligible for appointment as CFO as they contravene sub-section (3) of section 203 of the Companies Act" as their proposals for deployment were in the nature of 'secondment'.

The Tribunal also questioned the provisions under AoA, where the company was bound to accept the third nomination even though he may also be unfit or unsuitable to hold office as CFO of the company.

Finding fault with the interpretation of NCLT, the Appellate Tribunal held "If we take the view that only article 140 of the AoA were to be relevant and applicable in the appointment of CFO, and there is no need to look at the ineligibility of the suggested names, we could have a situation where all the three suggested names are ineligible, or at least unsuitable, and not fit to carry out the duties of CFO properly and professionally, and the Appellant would be bound to accept the third nomination even though he may also be unfit or unsuitable to hold office as CFO of the Company"

The 31-page order further reads "Such a situation could only exacerbate the situation of mismanagement in the company that is already beset with issues of mismanagement of its operations. Such a situation could prove to be detrimental for the company's management and should not be allowed to happen,".

LSF 10 Rose Investments has already filed a petition before the NCLT, alleging mismanagement and oppression against the minority shareholders under sections 241 and 242 of the Companies Act, 2013.

The said matter is currently pending adjudication before the NCLT.

The Appellate Tribunal clarified that "any comment made or view taken in this judgment shall not have any bearing on the main company petition currently under consideration of the NCLT".