Appoint new CFO for RattanIndia Finance within 60 days, says NCLAT

Appellate tribunal NCLAT on Wednesday set aside an NCLT order and directed to appoint a CFO for non-banking finance company RattanIndia Finance within 60 days.

A three-member NCLAT bench said any suggested candidate by the JV partner LSF 10 Rose Investments, under section 140 of the articles of association (AoA) of the company, should be eligible under the provision of section 203 of the Companies Act, which provides for the appointment of Key Managerial Personnel (KMP).

The National Company Law Appellate Tribunal (NCLAT) also held that NCLT had "committed error" in inferring that provision in article 140 of the AoA does not contemplate that a person's nomination can be considered to be valid or invalid.

"The Impugned Order (of NCLT) is, therefore, set aside and the parties are directed to take necessary action for appointment of CFO of the R-2 company (Rattan India Finance) as per article 140 of the AoA, after making valid nominations, keeping in view section 203 of the Companies Act, 2013 and completing the appointment of CFO within a period of sixty days from the date of this order," the NCLAT said.

Earlier, on March 29 this year, the New Delhi-based bench of the National Company Law Tribunal (NCLT) had directed to appoint of Bipin Kabra as its chief financial officer (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 NCLAT, which set aside the previous order passed by the NCLT.

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.

However, in a 31-page-long order, the NCLAT observed 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 NCLAT 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.

"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," the NCLAT said.

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.

This matter is presently pending adjudication before the NCLT.

"We wish to clarify 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," the appellate tribunal said.