2017 (11) TMI 1773 - AT - Companies Law

Oppression and Mismanagement - HELD THAT - Tribunal has come to a definite conclusion that the Petitioners have failed to make out a case of Oppression and Mismanagement . Having given such findings, we are of the view that the Tribunal had no jurisdiction to pass, any order in terms of sub-section (1) or (2) of Section 242 of the Companies Act, 2013. The Respondents has rightly contended that the Tribunal has failed to notice that the 10th Respondent Petitioner continued to be on the Board as its non-executive Director, and the Petitioners group along with other shareholders have received dividend till 2011. In this regard, the finding of Tribunal being not based on record; it was not, open to the Tribunal to pass any direction under Section 242. The Respondents have also rightly pointed out that in absence of any prayer made by the Petitioners and in absence of any provisions for compound interest the Tribunal having held that no case of Oppression and Mismanagement have been made out, it was not open to the Tribunal to pass order regarding interest, which is also against the provisions of the Interest Act, 1978. Even if it is accepted that the parties have agreed to sell out their shares, in absence of any power vested with Tribunal, after its specific finding there was no Oppression and Mismanagement , the Tribunal had no jurisdiction to direct any party to sell or buyout any share. Further finding about, the date of valuation/ buyout as the date closest to the filing of the petition i.e. 31st March, 2007 being perverse and contrary to the offer made by parties in the year 2008, and the order dated 25th February 2009, passed by Tribunal such order cannot be upheld. While we uphold the findings of the Tribunal in so far as it relates to failure of petitioners to prove Oppression and Mismanagement , the last part of the order and direction to the extent of sale of shares, date of valuation/ buyout and the order regarding payment of interest and the findings that the minority group have systematically whittled due to non-payment of dividend, and reduction in the number of directors being perverse, such portion of the impugned order are set aside.

Issues Involved:
1. Allegations of Oppression and Mismanagement under Sections 397 and 398 of the Companies Act, 1956.
2. Refund of excess payments under Section 314.
3. Valuation of shares and payment of interest.
4. Appointment and roles of directors.
5. Business decisions and their adjudication.
6. Jurisdiction and powers of the Tribunal under the Companies Act, 2013.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The Tribunal concluded that the Petitioners failed to establish a case of 'Oppression and Mismanagement'. The allegations that two whole-time directors received salaries without discharging duties were deemed insufficient to prove detriment to the company or its members. The non-appointment of a director, despite being a significant shareholder, was found to be within the shareholders' rights and did not constitute oppression or mismanagement.

2. Refund of Excess Payments under Section 314:
The Tribunal ordered certain respondents to refund amounts paid in excess of permissible limits under Section 314, along with interest. This decision was based on the finding that these payments exceeded the statutory limits.

3. Valuation of Shares and Payment of Interest:
The Tribunal appointed an independent valuer to determine the fair value of the shares as of March 31, 2007, and ordered the payment of compound interest at a rate 2% above the bank rate. The Tribunal's decision to award interest and the methodology for share valuation were challenged on grounds that there was no provision or special reason for such interest, and that the valuation date should not precede the order enabling the buyout.

4. Appointment and Roles of Directors:
The Tribunal found no illegality in the appointment of certain directors and dismissed allegations against them due to lack of evidence. The rejection of the appointment of a significant shareholder as a director was upheld as a legitimate decision by the majority shareholders.

5. Business Decisions and Their Adjudication:
The Tribunal held that business decisions, such as the purchase of a rolling mill and cheque signing powers, were within the management's purview and could not be adjudicated in the proceedings for oppression and mismanagement.

6. Jurisdiction and Powers of the Tribunal:
The Tribunal's jurisdiction under the Companies Act, 2013, was emphasized. The Tribunal was required to decide the case in accordance with Sections 241 and 242 of the Companies Act, 2013. Since the Tribunal concluded that there was no oppression or mismanagement, it lacked the jurisdiction to order the sale or buyout of shares or to award interest. The Tribunal's directions regarding the sale of shares and the valuation date were found to be perverse and contrary to previous offers and orders.

Conclusion:
The appeal challenging the Tribunal's findings on oppression and mismanagement was dismissed, while the appeal against the Tribunal's orders on share valuation, interest payment, and the sale of shares was allowed. The Tribunal's findings on the lack of oppression and mismanagement were upheld, but its directions on the valuation date, interest, and share buyout were set aside. No order as to costs was made.

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