2017 (4) TMI 1253 - Tri - Companies Law

Oppression and mismanagement - Held that - When the respondents requisitioned the EOGM of R-1 company to consider and approved the removal of the petitioner he approached the Hon ble CLB and had obtained an ad-interim order by which they were allowed to continue as a director of the board of R-1 company. The petitioner contended that the R-1 company is really in the nature of the partnership firm in the guise of a private limited company and hence all the legal rights of the shareholders are subject to equitable consideration. The petitioner had earlier contended that there is a situation of deadlock and unless the Hon ble Board intervenes the R-1 company will suffer a tremendous loss and have also stated that normal functioning of the R-1 company is no longer possible by reason of the deteriorating relationship between the shareholders. The petitioner had proposed that fair valuation of the R-1 company may be made and had agreed with members of the board of directors of the R-1 company and it was resolved to appoint M/s. Vani Consultants Pvt. Ltd. as valuer of the assets and liabilities of the R-1 company and directors had agreed to show respect and agree with the valuation report of the consultant as per the unanimously signed resolution dated 02/01/2014. Hence it is apparent that the petitioner himself proposed to exit the company and as he himself proposed the name of the valuer for valuing the properties of entire companies of the Prowess Groups. However the valuation report has not been accepted by the board of directors and hence recommendation therein were not acted upon. From the instances mentioned above it is clear that the petitioner is not cooperating in the management of the R-1 company and the petition has been made without mentioning all the relevant facts. The petitioner seeking equity should come out with clean hands. On careful consideration of the pleadings and arguments it is felt that it is just and equitable to dismiss the Petition to protect the interest of the R-1 Company and its stakeholders.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Disputes regarding the functional areas and decision-making in the company.
3. Allegations of financial impropriety and siphoning of funds.
4. Dispute over the valuation of shares and assets.
5. Allegations of conflict of interest and diversion of business opportunities.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioner alleged acts of oppression and mismanagement by the respondents, claiming that decisions were taken without his consent and that his objections were ignored. The Tribunal noted that the mere overruling of the petitioner’s decisions by the majority of directors does not constitute oppression or mismanagement. The petitioner’s claims about being excluded from decision-making were countered by the respondents, who stated that decisions were initially taken collectively.

2. Disputes Regarding Functional Areas and Decision-Making:
The petitioner argued that the respondents colluded to take decisions without his involvement, particularly in changing bank signatories. The Tribunal found that the petitioner’s presence in board meetings and the overruling of his suggestions did not amount to oppression. The petitioner’s objections to the investment in a company named ELINA by R-2 and R-3 were dismissed as he had no stake in ELINA, and thus, their investment could not be termed as oppression.

3. Allegations of Financial Impropriety and Siphoning of Funds:
The petitioner expressed concerns about financial impropriety and siphoning of funds by R-2 and R-3. However, the Tribunal found that no specific instances were provided to substantiate these claims. The respondents countered that they had also offered properties as collateral for bank loans, and the allegations of siphoning off funds were vague and unsubstantiated.

4. Dispute Over the Valuation of Shares and Assets:
The petitioner sought the appointment of an independent valuer for the shares of the company and alleged that the valuation process was not properly conducted. The Tribunal noted that the petitioner himself had proposed the name of the valuer and had initially agreed to the valuation process. However, the valuation report was not accepted by the board, and the petitioner’s subsequent prayers for fair valuation were noted but not deemed sufficient to establish a case of oppression.

5. Allegations of Conflict of Interest and Diversion of Business Opportunities:
The petitioner was accused of diverting business opportunities to another company, M/s. Enteco Engineers Private Limited, where he was a director. The Tribunal found that the petitioner’s actions constituted a failure of his fiduciary duties to the R-1 company. The respondents provided instances of the petitioner competing with the R-1 company, which was seen as a clear conflict of interest. The Tribunal referenced the case of Shri Kishore Kundan Sippy vs. Samrat Shipping Co. P. Ltd., where similar actions were deemed oppressive and mismanagement.

Conclusion:
The Tribunal concluded that the petitioner did not come to court with clean hands and had not provided substantive proof to support his allegations of oppression and mismanagement. The petitioner’s actions, including his involvement with a competing company, were seen as detrimental to the interests of the R-1 company. The petition was dismissed, and the interim order was vacated to protect the interests of the R-1 company and its stakeholders.