2015 (12) TMI 175 - HC - Companies Law

Non-compliance of the provisions of Section 160 of the Companies Act, 2013 - appellant did not consider the notice issued by the second respondent under Section 257 of the companies Act, 1956 for considering the appointment of its nominees - Held that - As per Section 160 of the companies Act, 2013, notice has to be issued 14 days prior to the meeting for the appointment of Director together with the deposit of ₹ 1 Lakh for the purpose of considering the proposal at the meeting. In the instant case, admittedly, the nomination letter dated 26.9.2014 along with the requisite sum of ₹ 1 Lakh deposit were handed over only at the meeting on 27.9.2014. Also, it transpires that on 26.9.2014, the Company Law Board had not dispensed with the mandatory requirement of 14 days notice of the appointment and the deposit of ₹ 1 Lakh per Director Inspite of specific pleading by the second respondent to dispense with the mandatory requirement of issuing 14 days notice, the Company Law Board has not exercised its discretion and such order passed by the Company Law Board without dispensing with the notice, will not hold good. It is also not the reasoning of the Company Law Board that the appellant raised any dispute over its discretion to dispense with the notice. It is manifestly clear that the Company Law Board had adopted a callous attitude and chose not to go into the issue in detail. In any view of the matter, since the learned Company Law Board did not assess the merits of the case and did not answer the relief sought with regard to dispensation of the mandatory notice, making an endeavor to do the same in this appeal, in my considered view, is not appropriate since original Court viz., the Company Law Board here, has virtually made no effort in that regard. Therefore, there is no other go except to remit the matter for fresh consideration by the Company Law Board, Southern Region Bench, Chennai. For the foregoing reasons, the common order impugned in these appeals is set aside and the matter is remitted to the Company Law Board to pass orders on the petitions in accordance with the statutory provisions.

Issues Involved:

1. Termination of the Foreign Collaboration Agreement.
2. Appointment of Directors by the second respondent.
3. Compliance with Section 160 of the Companies Act, 2013.
4. Conduct of the second respondent as a major shareholder.
5. Maintainability of the Company Petition.

Issue-Wise Detailed Analysis:

1. Termination of the Foreign Collaboration Agreement:

The petitioners alleged that the termination of the Foreign Collaboration Agreement (FCA) by the second respondent was mala fide and detrimental to the interests of the company and its minority shareholders. The court noted that the second respondent, Wynn's Belgium, terminated the FCA unilaterally on 07.02.2008 after the first respondent company refused to agree to the termination and to delete the "Wynn's" name from its name. The court found that the termination was wrongful and vindictive, especially since there was a prohibition clause in the FCA preventing the second respondent from carrying on the same business in India.

2. Appointment of Directors by the Second Respondent:

The second respondent sought to appoint its nominees as directors of the company. The court observed that the second respondent had withdrawn its nominees from the board in February 2007 and later attempted to appoint new nominees without proper notice. The court held that this action was mala fide and vindictive, as it would result in a conflict of interest and was not in the best interest of the company.

3. Compliance with Section 160 of the Companies Act, 2013:

The court emphasized the importance of compliance with Section 160 of the Companies Act, 2013, which requires a 14-day notice and a deposit of Rs. 1 Lakh for the appointment of directors. In this case, the nomination letter and the deposit were handed over only at the meeting on 27.09.2014, which was a clear non-compliance with the statutory requirement. The court noted that the Company Law Board had not dispensed with the mandatory requirement of the 14-day notice, making the appointment of the nominees invalid.

4. Conduct of the Second Respondent as a Major Shareholder:

The court addressed the conduct of the second respondent, Wynn's Belgium, as a major shareholder holding more than 51% shares. It was noted that the second respondent acted in a manner detrimental to the interests of the company by terminating the FCA and attempting to appoint its nominees without proper notice. The court found these actions to be mala fide and vindictive, aimed at taking over the business in India under the Wynn's brand.

5. Maintainability of the Company Petition:

The second respondent argued that the Company Petition was not maintainable, citing that Clause 7.6 of the FCA had not been incorporated into the Articles of Association of Wynn's Mekuba, making it unenforceable. However, the court did not find this argument sufficient to dismiss the petition, focusing instead on the wrongful conduct and non-compliance with statutory provisions by the second respondent.

Conclusion:

The court set aside the common order impugned in the appeals and remitted the matter to the Company Law Board, Southern Region Bench, Chennai, for fresh consideration in accordance with statutory provisions. The court emphasized the need for the Company Law Board to address the issues in detail, particularly the compliance with Section 160 of the Companies Act, 2013, and the mala fide actions of the second respondent.

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