The National Company Law Tribunal (NCLT) has intervened in a corporate governance dispute involving Tea Post, one of India's fastest-growing tea cafe chains. The tribunal has directed Tea Post Pvt Ltd to credit the income from the sale of shares to its parent company, Tea Station Pvt Ltd, and ensure the amount is distributed among all shareholders of Tea Station within three months.
Background of the Dispute
The case was brought before the NCLT in 2018 by minority shareholders of Tea Station. They argued that by 2015, Tea Post had expanded to over 80 outlets across the country, becoming a highly popular brand. Tea Station was the original operating company of the Tea Post business. According to the petitioners, after discussions with investors and business valuations, the directors formed a new company, Tea Post Pvt Ltd, and transferred the business to it for only Rs 35 lakh, despite the actual valuation being far higher.
To support their claim, the shareholders pointed out that shortly after the transfer, India Nivesh Fund purchased a 9.52% stake in Tea Post for approximately Rs 1.49 crore, indicating a substantially higher business value. The directors of Tea Station opposed the demand, arguing that the shareholders had consented to the transfer at an extraordinary general meeting on February 4, 2016, and had executed a business transfer agreement on February 25, 2016. They maintained the transaction was lawful, properly disclosed, and supported by shareholder approval.
NCLT's Observations and Order
After examining the records, the NCLT raised concerns about the absence of proper valuation material and the subsequent allotment or sale of shares in Tea Post at a high premium within two months of the slump sale. The tribunal stated that nullifying the profits that could have come to Tea Station by transferring the business on a slump basis and immediately issuing shares to related party LLPs caused injustice to the applicants and to Tea Station as an entity.
The NCLT further noted that this act was not backed by any proper board resolution of Tea Station, and a new entity created as a special purpose vehicle (SPV) cannot sell its shares at a high premium. Therefore, the amount realized from such share sales must be reverted to Tea Station, as these were not profits from business operations but resulted from an interchange of brand value and franchise at a cost of Rs 35 lakh, without proper valuation.
Key Directives
- Tea Post Pvt Ltd must revert the amount gained from share allotment to Tea Station Pvt Ltd.
- The amount must be distributed among all shareholders of Tea Station within three months.
- Tea Station continues to hold interest in Tea Post as a subsidiary or SPV, with a fresh agreement to govern future profit and loss sharing.
