2018 (7) TMI 1985 - Tri - Companies Law

Oppression and Mis-management - Section 241 242 of the Companies Act, 2013 - whether the FCA is binding on the company and the other shareholders or not? - HELD THAT - The company could not have been made a party to the FCA as it is a pre-incorporation contract. Anyhow, the name of the company has been mentioned in the said FCA referring to the quorum in Sections 1 5. It is a fact that all the shareholders of the company are the signatories to the said FCA and the Section 111 deals with shares to be allotted in the company. It is a fact that the signatories to the FCA are the shareholders and the directors of the company and everyone is liable to take action to incorporate the FCA in the Articles of Association - Since the name of the company is mentioned in the FCA and all the signatories are shareholders and even the shareholding of the company is fixed in the FCA, it is in our considered view, the FCA is binding on the company. The first issue is answered in favour of the Petitioner. Whether the removal of the Petitioner from the post Of Managing Director and Director is valid or not? - HELD THAT - The removal of the Petitioner from the post of office of the Director has not been done in consonance with the provisions Of the Companies Act and, therefore, it is held that the removal of the Petitioner as a Director is not valid. Whether the Petitioner is entitled to get 25% of share in the company or not? - HELD THAT - As per the FCA also, as seen in the pattern of shareholding of the company, only 10% was fixed and decided to be allotted to the Petitioner. There is no evidence that the Petitioner is entitled to get 15% of the shares from R2. Therefore, the claim of the Petitioner for 25% of the shares in the company should fail and this issue is answered in negative to the petitioner. Whether the Petitioner besides his terminal benefits and salary is entitled for exemplary costs or not? - HELD THAT - In terms of Section 202(3) of the Companies Act, upon removal, the Managing Director of a company would be entitled to receive remuneration which he would have earned if had been in office for the remainder of his term or for three years, whichever is shorter. Accordingly, we deem it fit to order a compensation of ₹ 105 lakhs (calculated at the rate of ₹ 35 lakhs p.a. for three years) together with interest @ 10% from the date of removal of the petitioner from the Office of Managing Director, plus other benefits as already offered, till the date of payment to the Petitioner by the RI company/other respondents. Since the petitioner has expressed his intention to exit from the Company, which has been agreed to by the Respondents, the Respondents shall purchase the shares of the petitioner at mutually agreed rates by both the parties. Petition disposed off.

Summary

Issues Involved:
1. Binding nature of the Financial Collaboration Agreement (FCA) on the company and shareholders.
2. Validity of the removal of the Petitioner from the post of Managing Director and Director.
3. Entitlement of the Petitioner to 25% shareholding in the company.
4. Entitlement of the Petitioner to exemplary costs and terminal benefits.

Detailed Analysis:

Issue 1: Binding Nature of the FCA on the Company and Shareholders
The Tribunal examined whether the FCA, entered into before the incorporation of the company, is binding on the company and its shareholders. The petitioner contended that despite multiple requests, the FCA was not incorporated into the Articles of Association. The respondents argued that the company was not a party to the FCA, thus it is not binding. The Tribunal noted that the FCA mentioned the company's name and was signed by all shareholders, making it binding on the company. Therefore, the Tribunal ruled in favor of the Petitioner, stating that the FCA is indeed binding on the company.

Issue 2: Validity of the Removal of the Petitioner from the Post of Managing Director and Director
The Tribunal found that the removal of the Petitioner from the office of Director was not in accordance with the provisions of the Companies Act, hence it was invalid. The respondents admitted a typographical error in the notice and minutes of the EGM. The removal of the Petitioner from the post of Managing Director was deemed valid as the majority shareholders have the right to remove the Director under Section 169 of the Companies Act and the Articles of Association. The Tribunal concluded that the action of removing the Petitioner from the post of Managing Director by the majority shareholders cannot be questioned.

Issue 3: Entitlement of the Petitioner to 25% Shareholding in the Company
The Tribunal examined the claim of the Petitioner for 25% shareholding. The FCA indicated that only 10% was allotted to the Petitioner. There was no evidence supporting the Petitioner's entitlement to an additional 15% of shares from R2. Consequently, the Tribunal ruled against the Petitioner on this issue, stating that the claim for 25% shareholding should fail.

Issue 4: Entitlement of the Petitioner to Exemplary Costs and Terminal Benefits
The Tribunal considered the Petitioner's claim for exemplary damages amounting to ?10 Crores. The respondents argued that the Petitioner was entitled to an exit package of around ?1 Crore, including terminal benefits. The Tribunal noted that under Section 202(3) of the Companies Act, the Petitioner is entitled to remuneration for the remainder of his term or for three years, whichever is shorter. The Tribunal ordered a compensation of ?105 lakhs (calculated at ?35 lakhs per annum for three years) with interest at 10% from the date of removal, plus other benefits already offered, to be paid by the company and respondents.

Conclusion:
The Tribunal concluded that the FCA is binding on the company, the removal of the Petitioner from the post of Director was invalid, but his removal from the post of Managing Director was valid. The Petitioner's claim for 25% shareholding was rejected, and he was awarded compensation of ?105 lakhs with interest and other benefits. The respondents were directed to purchase the Petitioner's shares at mutually agreed rates. The petition was disposed of with no order as to costs.