2015 (9) TMI 508 - HC - Companies Law

Mismanagement or oppression - CLB has found that, the case of oppression made out by the Mehras against EG is proved and as per provisions of Section 397, 402 and 403 of the Companies Act, 1956 (the Act), buyout by Mehras of the shareholding of EG is necessary. - CLB has directed EG to sell it s share holding to Mehras, laying down certain modalities as regarding appointment of facilitator and for valuation. - Held that - if one takes overall view of the decision, it clearly appears that the manner in which the learned member has proceeded to record conclusion and pass the operative order does not indicate that there was an application of mind and there is substance in the charge of extreme hurriedness and lack of fairness in decision making. Matter remanded back to tribunal for reconsideration.

Issues Involved:
1. Maintainability of the petitions filed by both parties.
2. Allegations of oppression and mismanagement by both parties.
3. Unauthorized alteration of Articles of Association.
4. Incorporation of new companies (Vaayu companies).
5. Board resolutions passed without notice.
6. Withdrawal of corporate guarantees.
7. Access to SAP server.
8. Stoppage and mismatch of supplies.
9. Appointment of observer and valuation process.
10. Procedural fairness and application of mind by the Company Law Board (CLB).

Detailed Analysis:

1. Maintainability of the Petitions:
The CLB dismissed the petition filed by the EG as "not maintainable" and "deserved to be thrown out at the threshold," despite observing that the petitions must be decided on merits as per the direction of the High Court. The High Court found this approach perverse, as the petition contained adequate particulars to constitute a cause of action under Sections 397 and 398 of the Companies Act, 1956.

2. Allegations of Oppression and Mismanagement:
- EG's Allegations Against Mehras:
EG alleged that Mehras engaged in various acts of oppression and mismanagement, including unauthorized alteration of Articles of Association, incorporation of Vaayu companies to siphon off funds, passing board resolutions without notice, and filing malicious criminal proceedings against EG's representatives.

- Mehra's Allegations Against EG:
Mehras accused EG of stopping supplies, withdrawing corporate guarantees, addressing malicious correspondence to third parties, and blocking access to the SAP server, which they claimed were acts of oppression and mismanagement.

The High Court noted that the CLB did not adequately address these allegations and failed to provide detailed reasoning for its conclusions.

3. Unauthorized Alteration of Articles of Association:
EG argued that Mehras unilaterally amended the Articles of Association without notice, which conferred substantial powers on Mehras and reduced EG's role in EIL. The High Court found that the CLB did not sufficiently scrutinize this issue.

4. Incorporation of New Companies (Vaayu Companies):
EG contended that Mehras incorporated Vaayu companies to siphon off funds and misuse proprietary technology. The CLB did not delve deeply into this issue, merely noting that Mehras offered to include Vaayu companies in the valuation exercise.

5. Board Resolutions Passed Without Notice:
EG alleged that board resolutions passed on 26 April 2007, without notice, conferred sweeping powers on Yogesh Mehra. The High Court found that the CLB failed to address this contention adequately.

6. Withdrawal of Corporate Guarantees:
EG withdrew corporate guarantees, which Mehras claimed was an act of oppression. The High Court noted that the CLB did not sufficiently scrutinize the obligations of both parties regarding financial support and the reasons for the withdrawal of guarantees.

7. Access to SAP Server:
Mehras claimed that blocking access to the SAP server impaired EIL's functioning. EG argued that it was a preventive measure against unauthorized access. The High Court found that the CLB did not adequately address this issue.

8. Stoppage and Mismatch of Supplies:
Mehras accused EG of stopping supplies and causing mismatches, which they claimed were acts of oppression. The High Court noted that the CLB made findings on the merits of these contractual disputes, which were outside its jurisdiction.

9. Appointment of Observer and Valuation Process:
The CLB appointed Mr. Hari Shankar Acharya as an observer with unfettered powers and immunity from civil and criminal liabilities. The High Court found this appointment questionable and noted that the CLB did not provide sufficient reasoning for the choice of valuation dates and the exclusion of certain companies from the valuation process.

10. Procedural Fairness and Application of Mind by the CLB:
The High Court observed that the CLB's decision lacked structure, detailed reasoning, and fairness. The judgment was rendered within 72 hours of filing written submissions, raising concerns about the thoroughness of the decision-making process. The High Court emphasized the importance of procedural justice and the need for the CLB to provide adequate reasons for its decisions.

Conclusion:
The High Court quashed the CLB's order and remanded the petitions back to the CLB for fresh consideration on merits. The CLB was directed to dispose of the proceedings within eight months, and the interim orders were continued until the disposal of the petitions. The High Court emphasized the need for the CLB to adhere to principles of fairness, transparency, and detailed reasoning in its decision-making process.

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