2014 (4) TMI 1198 - HC - Companies Law

Validity of removal of the second respondent from the post of managing director of the first respondent company and from the directorship of the company - Scheme of Demerger - Held that - In view of the records available, we find that the appellant has not shown sufficient cause or reason for this court to interfere with the impugned order passed by the learned single Judge, dated 24.10.2013. The learned single Judge had given sufficient reasons, while arriving at his conclusion that the removal of the second respondent from the post of managing director and the directorship of the first respondent company should not be given effect to till the allotment of the shares are effected within the time limit specified by the court. The learned single Judge had also relied on the findings of the chartered accountants appointed by the court to arrive at the conclusion that the second respondent had fulfilled his part of the obligations, as per the sanctioned Scheme of Demerger, substantially. Therefore, we find it appropriate to dismiss the present Original Side Appeal, as it is devoid of merits.

Summary

Issues:
1. Maintainability of the application and reliefs sought
2. Compliance with the Scheme of Demerger
3. Entitlement to the allotment of shares as per the Scheme of Demerger

Issue 1: Maintainability of the application and reliefs sought
The appeal was filed against the order of the single Judge in Company Application No.258 of 2012, in C.P.No.153 of 2010. The main issues raised were whether the respondent could seek a direction to account for all transactions after withdrawing a similar application, whether the second applicant had discharged all liabilities as per the Scheme, and whether the second applicant was entitled to share allotment without fulfilling obligations. The single Judge found that the respondent's defense was not valid, and the applicants deserved to succeed. The removal of the second respondent was highlighted, stating that the objections to the audit report could not be sustained. The application was allowed, granting a time limit for share allotment and payment to the Chartered Accountants.

Issue 2: Compliance with the Scheme of Demerger
The appellant argued that the Scheme of Demerger was beyond the scope of the Companies Act and the application filed by the respondents. They contended that the issue of the second respondent's removal was pending before the Company Law Board and should not have been decided in the application. The appellant claimed to have fulfilled substantial liabilities, disputed the findings of the chartered accountants, and stated that the second respondent had not fulfilled obligations. They argued against being compelled to allot shares without fulfilling conditions.

Issue 3: Entitlement to the allotment of shares as per the Scheme of Demerger
The respondents argued that they had complied with the Scheme to the extent possible, but the appellant was acting against it. They claimed the second respondent needed to continue in his roles to fulfill obligations fully. The appellant was accused of delaying tactics with mala fide motives to hinder the Scheme's implementation. The Court found no sufficient cause to interfere with the single Judge's order, stating that the second respondent had substantially fulfilled obligations. The Original Side Appeal was dismissed, leaving the resolution's validity for the Company Law Board to decide in separate cases.

In conclusion, the judgment addressed the maintainability of the application, compliance with the Scheme of Demerger, and entitlement to share allotment. The Court dismissed the appeal, upholding the single Judge's decision and leaving the resolution's validity for further determination by the Company Law Board.