At Liberty Shoes, allegations and counter-allegations have been flying hot and fast between the former executive director (ED), and the company management and its Board.
While one side led by the former ED Adesh Kumar Gupta has claimed that he was being edged out after he brought to light diversion of funds and suspicions about insider-trading, the other side stated that Gupta bought a Mercedes with company funds and that he issued cheques from the company’s account to meet expenses of firms run by him, among other things.
According to Shriram Subramanian, corporate-governance expert and founder of proxy advisory InGovern Research Services, given all this, the independent directors on the Board should get a forensic audit done and put out a disclosure clarifying the concerns raised by both sides.
Subramanian added, “There seems to be a fight between two promoter factions.”
Also read: Liberty Shoes removes ED Adesh Kumar Gupta after NCLT verdict
What is the dispute?
All of this came to light when Gupta approached the National Company Law Tribunal (NCLT) seeking a waiver of requirements under Section 244 of the Companies Act. Section 244 defines who can bring legal action against a company.
Gupta and the petitioners were seeking to apply for relief from the tribunal--under Section 241 of Companies Act--after there was an attempt to remove him from his ED post. But to seek relief under sections 241, a substantial number of shareholders or shareholders with a substantial holding must apply.
Gupta and the other petitioners, who claimed they represented 5.83 percent of the shareholders, didn’t have these requisite numbers. Therefore, they sought a waiver of these requirements, which the tribunal can provide if there is sufficient cause.
What were Gupta's allegations?
It ranged from extremely serious ones—such as diversion of company funds and insider trading—to switching off Gupta’s microphone during an annual general meeting (AGM) to stop him from casting a vote. This was the meeting that was to vote on Gupta’s removal.
Gupta and the certain petitioners submitted that the company’s management and the Board members were guilty of various “acts of oppression and mismanagement” including insider trading, misappropriation of funds obtained from banks and of company funds for “wasteful expenditures” and to artificially inflate the share value for insider trading benefits”; siphoning off funds in related-party transactions and trying to remove Gupta from his post without following legal procedures, among other things.
Gupta accused the current Director and Head of Retail, Anupam Bansal, of “usurping the role” and of insider trading “in connivance with” the company’s management and the Board “to artificially inflate the share price for unlawful profits of his friends and family members”.
He added that shares “worth several crores” were bought by Bansal and his family and friends during a period when share prices almost tripled. Gupta claimed that he had “red-flagged” the issue of insider trading at the Board Meetings when he observed that share prices in a short span had reached Rs. 375 on October 14, 2022, from Rs. 162 on April 8, 2022. He also claimed that, to inflate the share price, the company gave dividends twice in a year.
What were the counter allegations?
The company’s management and the Board said that Gupta indulged in insider trading, started a perfume division “siphoning off” the investment of Rs 10 crore, paid an advance of Rs 1.85 crore to vendor who never delivered the goods and who has raised false invoices, and violated various resolutions including the one on jointly issuing cheques for Rs 5 lakh and above.
According to them, Gupta issued 16 cheques of Rs 5 lakh each and one cheque of Rs 4.71 lakh for buying a Mercedes for his personal use.
They also claimed that, under his watch, the company made payment on behalf of firms run by him along with others.
They said that they had suspended his executive powers in June 2023 for three months and this was ratified by the Board in August. A month later, on September 5, they also removed him from his position as the CEO.
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What did the tribunal decide?
The tribunal dismissed Gupta’s petition. It observed that him, being a “key person” at the helm of the company’s affairs till September 5, 2023, cannot pursue allegations of oppression and mismanagement. It added that if he was concerned about these, then he should have filed the petition before his removal as CEO and ED.
According to the NCLT, his removal does not amount to oppression and mismanagement, and added that his removal was approved by an overwhelming majority—83.14 percent—of shareholders.
The NCLT order stated that the petition has been filed “to grind their own axe” and that the removal of Gupta as CEO/Executive Director is prejudicial neither to the interests of the public shareholders nor to the affairs of the company.
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