2016 (10) TMI 1100 - AT - Companies Law

Oppression and Mismanagement - maintainability of petition as shareholding of the petitioner is below 1/10th of the shareholding on the date of filing of the petition - Company Petition under Section 397 and 398 of the Companies Act 1956 - Held that - In the cases where an applicant alleges that his shareholding has been brought down by way of oppression and mismanagement below 1/10th of the total shareholding without notice and knowledge then it is the duty of the Tribunal to determine whether the applicant had 1/10th of the shareholding prior to the date of alleged oppression and mismanagement. Such petition cannot be dismissed on the ground that the applicants shareholding is below 1/10th of the total shareholding of the Company on the actual date of presentation of the Company Petition. In the present case, the Tribunal failed to apply the aforesaid principle and erred in holding that the Company Petition preferred by the appellants under Section 397 and 398 of the Companies Act 1956 was not maintainable on the date of presentation of the Company Petition. The question of oppression and mismanagement and maintainability in the present case is a mixed question of facts and law. As the petition was filed on the ground that the shareholding of the applicant(s) has been brought down below 1/10th of the total shareholding of a Company by oppression and mismanagement, Tribunal was required to decide the question of maintainability at the time Of final hearing of the Petition. Both the merit and question of maintainability were required to be decided together. On hearing the parties, in case the Tribunal forms opinion that there was no oppression and mismanagement on the date of cause of action as alleged by the applicant then in such case it was open to the Tribunal to dismiss the petition as not maintainable in view of Section 399 of the Companies Act 1956.

Summary

Issues Involved:
1. Maintainability of the Company Petition under Sections 397 and 398 of the Companies Act, 1956.
2. Allegations of oppression and mismanagement by the respondents.
3. Applicability of Section 399 of the Companies Act, 1956 regarding the shareholding requirement.
4. Consideration of delay, estoppel, and limitation in filing the Company Petition.

Issue-wise Detailed Analysis:

1. Maintainability of the Company Petition under Sections 397 and 398 of the Companies Act, 1956:
The appellants filed a Company Petition under Sections 397 and 398 alleging oppression and mismanagement by the respondents. The Tribunal dismissed the petition on the grounds that the appellants' shareholding was less than 10% at the time of filing the petition, as required by Section 399 of the Companies Act, 1956. The Tribunal referred to the Supreme Court decision in 'Bhagwati Developers Private Limited Vs. Peerless General Finance Investment Company Limited', which emphasized the need to satisfy the 10% shareholding requirement on the date of filing.

2. Allegations of Oppression and Mismanagement by the Respondents:
The appellants contended that their shareholding was reduced below 10% without their notice or consent through additional allotments to outsiders. They claimed that these actions were oppressive and amounted to mismanagement. The appellants also alleged that subsequent allotments were made based on oral agreements to redress their grievances, but these agreements were not honored.

3. Applicability of Section 399 of the Companies Act, 1956 Regarding the Shareholding Requirement:
The respondents argued that the appellants' shareholding was only 3% at the time of filing the petition, making it non-maintainable under Section 399. The Tribunal accepted this argument, noting that the appellants' shareholding was indeed below the required 10% threshold. However, the Appellate Tribunal highlighted that the crucial date for determining the shareholding requirement should be the date of the alleged oppression and mismanagement, not the date of filing the petition. The Tribunal must determine if the appellants had the requisite shareholding prior to the alleged oppressive acts.

4. Consideration of Delay, Estoppel, and Limitation in Filing the Company Petition:
The respondents argued that the appellants' claim was barred by delay and estoppel, as they had accepted subsequent shares without objection. The Appellate Tribunal rejected these arguments, noting that these grounds were not raised before the Tribunal and the Tribunal did not dismiss the petition on these grounds. The Tribunal also clarified that the Limitation Act, 1963 applies to proceedings before the Tribunal, and the petition was filed within the three-year limitation period from the date the right to sue accrued.

Conclusion:
The Appellate Tribunal set aside the Tribunal's order dismissing the Company Petition and remitted the case back to the Tribunal for determination of both the maintainability and merits of the petition. The Tribunal must consider whether the appellants' shareholding was reduced below 10% due to oppression and mismanagement and decide the maintainability and merits together. The appeal was allowed without any order as to costs.