NCLT orders Tea Post to revert sale proceeds to parent company Tea Station

Ahmedabad: In a dispute over corporate governance and income sharing in one of the fastest-growing tea cafe chains, Tea Post, the National Company Law Tribunal (NCLT) has directed the company to credit the income from the sale of shares to its parent company, Tea Station Pvt Ltd.The NCLT has directed Tea Post Pvt Ltd to revert the amount gained from the allotment of shares to a third company to Tea Station and to ensure that the amount is distributed among all shareholders of Tea Station within three months. It also held that Tea Station continues to hold interest in Tea Post as a subsidiary or special purpose vehicle, with a fresh agreement to govern future sharing of profits and losses.The tribunal was moved in 2018 by some of the minority shareholders of Tea Station, who submitted that by 2015, Tea Post had expanded to more than 80 outlets across the country and had become a highly popular and rapidly growing brand.

Tea Station was the original source and operating company of the Tea Post business. They submitted that after discussions with investors and obtaining business valuations, the directors formed a new company named Tea Post Pvt Ltd and transferred the business to it.

They alleged that although the actual valuation of the business at the time was far higher, the transfer was carried out for only Rs 35 lakh. To substantiate this claim, they argued that shortly after this transfer, India Nivesh Fund purchased a 9.52% stake in the new company for approximately Rs 1.49 crore, indicating that the business value was substantially higher than Rs 35 lakh.

The directors of the company opposed the demand and argued that the applicant-shareholders had consented to the transfer at an extraordinary general meeting held on Feb 4, 2016, and had also executed the business transfer agreement dated Feb 25, 2016. They maintained that the transaction was lawful, properly disclosed and supported by shareholder approval.After examining the record, the tribunal raised concerns over 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, “By way of nullifying the profits that could have come to R 9 (Tea Station) by transferring the business on slump basis and immediately issuing shares to certain other LLPs which are related party, there seems to be injustice cause to the applicant, and to R 9 as an entity. This act is not backed by any proper board resolution of R 9 and a new entity created as SPV cannot sell its shares at high premium. Hence the amount of such realisation ought to be reverted back to R 9 as they are not profits out of business but on account of interchange of brand value and franchise at a cost of Rs 35 lakhs but not properly explained through appropriate valuation.

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