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2017 (1) TMI 1666 - Tri - Companies LawOppression and MIsmanagment - Rectification of register of members of the Respondent No. 1 Company - cancellation of allotment of shares - permanent injunction against the Respondents from altering the share capital in any way and not to increase the share capital till further orders - HELD THAT - In the present case, admittedly, the Shares of Respondent No.l Company was allotted to the first Petitioner only on 21.03.2011 and the second was not a member at all. So the Second petitioner cannot join the resent Company petitioner as Second petitioner; but he can represent the first petitioner as a Chairman. Since the first petitioner is admittedly holding 20.79 % of shareholding in the Respondent No. 1 Company, the present petition is maintainable so far as the first petitioner is concerned with reference to the alleged acts of oppression and mismanagement stated to have occurred after becoming a member of Respondent No. 1 Company i.e., from 21.03.2011 - It is not in dispute that Respondent No. 1 Company is a subsidiary of Respondent No. 6 company and thus the affairs of subsidiary company is always subject to holding company and the will of holding company would naturally prevails in the management of affairs of the subsidiary company. S.2(71) also says a Company, which is a subsidiary of a Company, not being a private Company, is to be deemed a public Company for the purposes of act even where such subsidiary company continues to be a private Company in its Article. Whether the 1 st Petitioner can raise the alleged oppression and mismanagement, which have taken place prior to becoming member of RI Company i.e. with effect from 21.03.2011? - HELD THAT - A member of a Company can only raise oppression and mismanagement U/s 397/398. So cause of action arises only from that date. However, there are several allegations of oppression and mismanagement in the present company petition, which arise prior to the first petitioner ecoming a member of Respondent No. 1 Company. The only allegation of oppression/mismanagement, after becoming the member, is cancellation of land allotted by APIIC to Respondent No. 1 Company. It is also not in dispute that no shares of Respondent No. 1 Company were allotted during 2006-07 to 2009-10. All the shares allotted including the 1 st Petitioner shares were allotted during 2010-11. The 6th Respondent, though he invested huge money in the company (₹ 50.14 crores in Nov, 2006), he was also allotted shares only on 28.5.2010 and 23.09.2010 and likewise Respondent No. 8 to 10 also - So there is no discrimination in allotment of shares to the 1 st Petitioner vis-a-vis the 6th respondent. Hence, I find that there is no prejudice caused to 1 st Petitioner in allotting shares in November, 2011. The affairs of Respondent No. 1 Company are not being conducted in a manner oppression to any member or members and there is no case is made out by the petitioners for winding up Respondent No. 1 Company in terms of provisions Section 397/398 of Companies Act, 1956 so as to interfere in the case. However, since the second petitioner has worked as Director of Respondent No. I Company for a considerable period and gained experience in the Company apart from his own experience, and the first petitioner holds 20.79% of shareholding of Respondent No.1 Company, equity demands that at least some representation should be provided to such party in the affairs of Company and majority shareholders should not totally ignore minority shareholders and the same would not be in the interest of Respondent No. 1 Company. CLB/Tribunal is having very little power, once it holds that there is no oppression and mismanagement after considering facts of a case in question. However, by revoking general powers conferred on CLB/Tribunal under Section 402 especially provisions (a) (g) of Companies Act, 1956 R/w corresponding Section of 242 of Companies Act, 2013, it is just and equitable that the second petitioner can be considered for appointment of a Director of Respondent No. 1 Company. Application disposed off.
Issues Involved:
1. Validity of the Equity Term Sheet. 2. Eligibility of the second petitioner to join the petition. 3. Legality of not re-electing the second petitioner as a Director. 4. Validity of actions taken by the company prior to the first petitioner becoming a member. 5. Alleged acts of oppression and mismanagement after the first petitioner became a member. 6. Cancellation of land allotment by APIIC and subsequent refund. Detailed Analysis: 1. Validity of the Equity Term Sheet: The petitioners presented an Equity Term Sheet signed by relevant parties, which allegedly outlined the partnership terms. However, the tribunal noted that there was no reference to this term sheet in the Memorandum and Articles of Association of the respondent company. The tribunal found no nexus between the term sheet and the payment of ?13,12,50,000 for share allotment. Thus, the tribunal did not accept that the issues raised in the petition arose from the term sheet. 2. Eligibility of the Second Petitioner: The second petitioner was not a shareholder of the respondent company and thus could not join the petition in his individual capacity under Sections 397 and 398 of the Companies Act, 1956. However, he could represent the first petitioner as its Chairman. The tribunal held that the petition was maintainable only with respect to the first petitioner, who held 20.79% of the shares. 3. Legality of Not Re-electing the Second Petitioner as a Director: The tribunal found that the second petitioner was not re-elected as a Director during the AGM held on 24.06.2010, in accordance with Section 255 of the Companies Act, 1956. The tribunal concluded that the second petitioner's case for re-election was duly considered and rejected by the shareholders. Therefore, the legality of not re-electing him could not be questioned in this petition. 4. Validity of Actions Taken by the Company Prior to the First Petitioner Becoming a Member: The tribunal stated that a member could only raise issues of oppression and mismanagement occurring after becoming a member. Thus, the first petitioner, who became a member on 21.03.2011, could not question actions taken by the company prior to this date. 5. Alleged Acts of Oppression and Mismanagement After the First Petitioner Became a Member: The tribunal examined the alleged acts of oppression and mismanagement, including the cancellation of land by APIIC. The tribunal found no evidence of oppression or mismanagement after the first petitioner became a member. It was noted that the decision to surrender the land to APIIC was pragmatic and in the best interest of the company, as it prevented the forfeiture of ?51.7 crores. 6. Cancellation of Land Allotment by APIIC and Subsequent Refund: The tribunal concluded that the cancellation of land by APIIC and the subsequent refund of ?49.75 crores were bona fide actions in the best interest of the respondent company. The tribunal dismissed the allegations made by the petitioners regarding this transaction. Conclusion: The tribunal held that the affairs of the respondent company were not conducted in a manner oppressive to any member or members. The petition was dismissed, but the tribunal directed the respondent company to appoint the second petitioner as a Director within a reasonable time, recognizing his experience and the first petitioner's significant shareholding. The interim orders were vacated, and related applications were dismissed with no order as to costs.
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