2016 (1) TMI 652 - Board - Companies Law

Oppression and mismanagement - Held that - The Company Petition was filed by the Petitioners based on the allegations of acts of oppression and mismanagement on the part of the Respondents and this implies that the Petitioners were not having control over the affairs of the Company. This is further confirmed by the fact that in any annual return, the Petitioners were not shown as Promoters. As admitted by the Applicant Advocate as well as the Advocate for the Respondent Nos.2 & 3, there has been restraint Order dated 15.12.2010, whereby interim injunction has been imposed from holding the general meetings of the Company. Consequently, the financial statements for the years 2010-11, 2011-12 & 2012-13 have not yet been filed. In this regard, there is nothing on record to show as to whether either of the rival parties has approached the Court seeking direction/modification of the aforesaid restraint Order so as to facilitate the filing of the annual returns and financial statements by holding AGM to meet the statutory compliances. On the contrary, the Applicant (Petitioner No.2) and Petitioner No. 1, without making some Company Application in the pending legal proceedings since 2010 before this Hon ble Board seeking directions/reliefs as to filing of the financial statements and invocation of Sections 164 and 167 of the Companies Act, 2013, have claimed to be Promoters and new Directors have been appointed. As a matter of fact, there are controversial arguments as to whether there is Promoter in the Company, especially due to the claims of both the rival parties of having control over the state of affairs of the Respondent No. 1 Company. In addition, the provisions of Sections 164 and 167 of the Companies Act, 2013 have been notified w.e.f. 01.04.2014 and hence, consequential action under Section 167(3) accrues on non-filing of financial statements for three years commencing from 01.04.2014. In view of this legal position, the erstwhile Directors continue to be validly and legally appointed directors and hence, the said Board of Directors is competent to appoint the Advocate by following the provisions of law. As such, in the interest of justice, the prayers made in the instant Company Application are hereby disallowed.

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 397, 398, 399, 402, 403, and 406 of the Companies Act, 1956.
2. Validity of the appointment of new Advocates-on-record and Counsels under the authorization of erstwhile Directors.
3. Compliance with statutory requirements for filing financial statements.
4. Validity of the reconstitution of the Board of Directors.
5. Interpretation and application of Sections 164 and 167 of the Companies Act, 2013.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The Petitioners filed a Company Petition alleging acts of oppression and mismanagement in the affairs of the Respondent Company. The allegations were made under Sections 397, 398, 399, 402, 403, and 406 of the Companies Act, 1956. The Petitioners claimed that the Respondent Company had failed to file financial statements for the years 2010-11, 2011-12, and 2012-13, leading to the disqualification of the erstwhile Directors under Sections 164(2) and 167(1) of the Companies Act, 2013.

2. Validity of Appointment of New Advocates-on-record and Counsels:
The Respondent No. 1 Company, through its Applicant Advocate, filed a Company Application seeking an injunction to restrain the appointment of any new Advocate-on-record or Counsels under the authorization of the erstwhile Directors. It was argued that the erstwhile Directors had vacated their offices due to non-filing of financial statements, rendering any such appointments unauthorized and illegal. The Respondent No. 2 (Mr. Partha Ghosh) continued to represent himself as the Managing Director despite the disqualification, which was contested by the Applicant Advocate.

3. Compliance with Statutory Requirements for Filing Financial Statements:
The Respondent No. 2 argued that the failure to file financial statements was due to an Order of the Junior Division of the Alipore Court, Kolkata, dated 15.12.2010, which restrained the Company from holding any General Meetings. The Applicant Advocate countered that the said Order did not prevent the filing of financial statements and that the Respondent No. 2 had acknowledged the need to file the Annual Accounts in accordance with Section 220(2) of the Companies Act, 1956, for the financial year 2009-10.

4. Validity of Reconstitution of the Board of Directors:
The Applicant Advocate contended that a new Board of Directors had been constituted on 06.02.2015, in terms of Section 167(3) of the Companies Act, 2013. The Respondent Nos. 2 & 3 argued that the purported appointment of the Petitioners as Directors was illegal and untenable as the existing management was still in power. They also contended that the provisions of Section 167(3) allowed for the appointment of an interim Board only by the Promoter or the Central Government, and the Applicants did not qualify as Promoters.

5. Interpretation and Application of Sections 164 and 167 of the Companies Act, 2013:
The Applicant Advocate argued that the erstwhile Directors had vacated their offices due to disqualification under Sections 164(2) and 167(1) of the Companies Act, 2013. The Respondent Nos. 2 & 3 contended that the provisions of Section 164 came into effect on 01.04.2014, and any disqualification would accrue prospectively. They also argued that the disqualification under Section 274 of the Companies Act, 1956, did not result in the vacation of office under Section 283, unlike the new provisions under Section 167 of the Companies Act, 2013.

Judgment:
The Company Law Board observed that the Petitioners were not shown as Promoters in any annual return and had admitted to not having control over the affairs of the Company. The Board noted that the provisions of Sections 164 and 167 of the Companies Act, 2013, came into effect on 01.04.2014, and consequential action under Section 167(3) would accrue on non-filing of financial statements for three years commencing from 01.04.2014. Therefore, the erstwhile Directors continued to be validly and legally appointed directors, and the Board of Directors was competent to appoint the Advocate by following the provisions of law. Consequently, the prayers made in the instant Company Application were disallowed.

Conclusion:
The Company Law Board dismissed the application for an injunction against the appointment of new Advocates-on-record and Counsels, holding that the erstwhile Directors remained validly appointed and competent to make such appointments. The Board emphasized the need for compliance with statutory requirements and the proper interpretation of the provisions of the Companies Act, 2013.

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