2017 (12) TMI 1770 - AT - Companies Law

Appointment of original respondent No. 3 as director - allotment of shares - appellants criticised the impugned judgment of the National Company Law Tribunal and stated that the finding that resolution dated October 8, 2013 is invalid is wrong - HELD THAT - The notice had been issued to the petitioner regarding the meeting to be held on December 7, 2016 and he submitted detailed comments which the board of directors considered and discarded. There was then further meeting on December 26, 2016 the petitioner filed I.A. No. 38 of 2016 in the National Company Law Tribunal, but he did not participate in the meetings. The board of directors took decision considering the affairs of the company to tide over their financial difficulties and if that was done, the same could not have been set aside merely by observing that there was no justification for the acts of the respondents or that there was undue haste. The justification is borne out from the minutes of these meetings - When procedure is followed and steps taken, the acts could not have been questioned branding them as undue haste. Such considerations of the board cannot be found fault with being matters of company affairs. If the petitioner had difficulty, he should have participated in the meetings to say whatever he wanted. In the facts of present matter, we find ourselves unable to agree with the learned National Company Law Tribunal. When the National Company Law Tribunal could not record finding of oppression or mismanagement and there was material to show that the petitioner had not come with clean hands, it was not open for the learned National Company Law Tribunal to still go on to set aside the appointment of respondent No. 3 and set aside shares issued as per the resolution passed on December 26, 2016 or give direction that the respondents will purchase the shares of the petitioner. For the above reasons, the appeal is allowed. The impugned order of the National Company Law Tribunal is quashed and set aside - petition dismissed.

Summary

Issues Involved:
1. Validity of the appointment of respondent No. 3 as director.
2. Allegations of oppression and mismanagement.
3. Issuance of right shares and financial contributions.
4. Equitable relief and delay/laches on the part of the petitioner.

Detailed Analysis:

1. Validity of the Appointment of Respondent No. 3 as Director:
The National Company Law Tribunal (NCLT) found that the petitioner was not served with notice of the board meeting dated October 8, 2013, which appointed respondent No. 3 as director. However, the Appellate Tribunal noted that the petitioner had himself kept away from the company's affairs since 2012 and was changing his residence without informing the company. The petitioner also signed balance sheets for 2014 and 2015 without objecting to the appointment of respondent No. 3. The Appellate Tribunal concluded that the NCLT's decision to invalidate the appointment of respondent No. 3 was incorrect and deserved to be set aside.

2. Allegations of Oppression and Mismanagement:
The petitioner claimed that he was not informed about the company's activities and board meetings since 2012. He alleged suspicious activities, such as unauthorized appointments and financial decisions taken without his knowledge. The respondents argued that the petitioner had chosen not to participate in the company's management and had engaged in activities detrimental to the company, such as siphoning off funds and competing against the company. The NCLT did not find sufficient evidence of oppression and mismanagement but still proceeded to pass orders against the respondents. The Appellate Tribunal found that the petitioner had not come with clean hands and had failed to discharge his statutory duties, thus not deserving equitable relief.

3. Issuance of Right Shares and Financial Contributions:
The respondents called for a board meeting on December 7, 2016, resolving that the petitioner should contribute ?14.54 lakhs to address financial shortfalls, failing which right shares would be issued. The petitioner did not attend the meeting and sought adjournment due to ill-health. The NCLT found fault with the respondents' decision, stating there was undue haste and lack of justification. The Appellate Tribunal, however, noted that the petitioner was given notice and had the opportunity to participate but chose not to. The board's decision was based on financial considerations and internal company affairs, which the NCLT should not have interfered with.

4. Equitable Relief and Delay/Laches on the Part of the Petitioner:
The NCLT observed that the petitioner had kept away from the company's affairs for four years and did not inform about his change of address. The petitioner also floated two companies without informing the respondents and diverted funds to his personal account. The NCLT noted that the petitioner was not entitled to equitable relief due to delay and laches. The Appellate Tribunal agreed, emphasizing that the petitioner had not acted in good faith and had failed to fulfill his responsibilities as a director.

Conclusion:
The Appellate Tribunal allowed the appeal, quashing and setting aside the NCLT's order. The company petition filed by the petitioner was dismissed, and the petitioner was ordered to pay costs of ?1 lakh to the appellant company. The Tribunal found that the petitioner had not come with clean hands and had failed to participate in the company's management, thus not deserving any relief.