NCLT, Hyderabad directs Emaar Group to compensate the financial losses incurred by the Government of Telangana

NCLT, Hyderabad directs Emaar Group to compensate the financial losses incurred by the Government of Telangana

The bench comprised of Shri Bhaskara Pantula Mohan (Judicial Member) and Dr. Binod Kumar Sinha (Technical Member).

The National Company Law Tribunal ("NCLT"), Hyderabad Bench has allowed a petition filed under Section 241-242 of the Companies Act, 2013 by Telangana State Industrial Infrastructure Corporation (TSIIC) against Emaar Hill Township Pvt. Ltd. The Bench, in its order passed on 25.07.22, directed Emaar Properties (Dubai) and Emaar Holdings (Mauritius) to not to deal with the assets of Emaar Hill Township and also compensate the Government of Telangana for the losses incurred.

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").

Emaar Properties PJSC Dubai ("Respondent No.2") is 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.

In pursuant to this, the parties entered into a Collaboration Agreement 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.

As a result, APIIC being a minority shareholder, 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. However, 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.

Consequently, the Company Petition was transferred to NCLT Hyderabad which granted liberty to the 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. The Petitioner sought 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.

The issue in question before the Court was 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.

In view of the evidence put on record and the submissions made by the Parties, it was observed that APIIC was formed as a Government Company, meaning a company whose entire holding of the shares are held by the Government and the ownership of shares/property are 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 Court was of the opinion that the contentions raised in the writ petition were in the public interest and therefore it is the property of the state that is being sold away or alienated in a deceptive manner by the Respondents

As a result, the Court passed the interim orders wherein the 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.

Footnote:

It is to be noted that 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.