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2019 (7) TMI 1673 - Tri - Companies LawOppression and Mismanagement - validity of Board Meeting - validity of AGM - Mandatory signature to operate the Bank Account - alteration of composition of Board of Directors. Whether the removal of the name of the first petitioner vide resolution passed in the board meeting held on August 22, 2016 who was sole signatory for operating the bank account of the first respondent-company, constitutes an act of oppression? - HELD THAT - The petitioners were duly informed about the board meeting proposed to be held on August 22, 2016 through e-mail dated August 19, 2016 because as per the past practice, the company used to send the notice of the board meetings through e-mails. The first petitioner had attended the meeting and signed the incoming and outgoing register. However, he denied to have attended the board meeting, but did not deny the signatures put on the entry register. It is noted that the presence of the first petitioner at the registered office of the first respondent-company, where the board meeting was conducted is sufficient proof of the fact of his participation in the board meeting held on August 22, 2016, as claimed by the respondents. In the case on hand the resolution passed by the majority of the directors is only to regulate the procedure pertaining the signatories to the bank accounts of the first respondent-company, which in no way can said to be oppressive - this Tribunal is not inclined to interfere with the decision of the board by which any two of the directors have been authorised to operate the bank accounts of the first respondent-company. Accordingly, issue No. 1 is decided against the petitioners and in favour of the respondents. Whether in the facts and circumstances of the case, this Tribunal can interfere with the management of the first respondent-company by directing to give proportionate representation to the shareholders on the board of the directors? - HELD THAT - It is noted that the respondents have not pleaded anything on the issue under reference. However, in case of a private company, the articles of association can prescribe the method to appoint any and all directors. In case the articles are silent, the directors must be appointed by the shareholders. In the case on hand the articles of the first respondent-company provide that any person whether a member of the company or not, may be appointed as director of the company and no qualification by way of shareholding shall be required from any director. Therefore, in the absence of any provision in the articles of association or shareholders ? agreement, the first respondent-company cannot be forced to have a proportionate representation of the shareholders or their nominees on the board - the issue stands decided against the petitioners and in favour of the respondents. Whether the alleged construction made on the Government land by the respondents without any approval of board and competent authorities constitutes an act of mismanagement? - The petitioners have not placed any evidence on record to prove the construction of buildings or superstructures as contended. Moreover, the act complain of is an isolated act, which need not be inquired into. Therefore, the issue stands decided against the petitioners and in favour of the respondents. Whether writing-off the bad debts of ₹ 48,41,801 during the financial year 2017-18, by the respondents constitutes an act of mismanagement? - HELD THAT - The petitioners would contend that during the financial year 2017-18, an amount of ₹ 48,41,801 has been written off as bad debts, while in the previous it was nil and the details as to the identity of the party, whether a related party or otherwise is not disclosed. The respondents would contend that bad debt written off is in the normal course of business and the tractions are absolutely with unrelated parties and since the recovery was not forthcoming, to reflect a true and fair view in the accounts, these sums were written off. It is noted that the decision of the board of directors to write off the bad debt is a commercial decision, which does not warrant any judicial interference - this issue also stands decided against the petitioners and in favour of the respondents. The acts complained of are neither falling within the purview of oppression nor mismanagement - Petition dismissed.
Issues Involved:
1. Whether the removal of the first petitioner as the sole signatory for operating the bank account constitutes an act of oppression. 2. Whether the Tribunal can interfere with the management by directing proportionate representation to shareholders on the board. 3. Whether the alleged unauthorized construction on government land constitutes an act of mismanagement. 4. Whether writing off bad debts during the financial year 2017-18 constitutes an act of mismanagement. Issue-wise Analysis: Issue (i): The first petitioner argued that the board meeting on August 22, 2016, which changed the mandate for operating the bank accounts to any two directors, was invalid as he did not receive notice of the meeting. The respondents contended that there was no contractual agreement requiring the petitioner to be a mandatory signatory and that the petitioner was informed about the meeting via email. The Tribunal found sufficient evidence that the petitioner attended the meeting and held that the decision to change the mandate was a commercial decision within the board's domain. The Tribunal referenced the judgment in *V. M. Rao v. Rajeswari Ramakrishnan* and *K. R. S. Mani v. Anugraha Jewellers Ltd.*, emphasizing that courts should not interfere with the day-to-day affairs of the company. Thus, the Tribunal decided against the petitioners, concluding that the resolution did not constitute oppression. Issue (ii): The petitioners sought proportionate representation on the board, arguing it would check majority control. The Tribunal noted that the articles of association of the first respondent-company allowed for the appointment of directors without requiring shareholding qualifications. Citing *Dr. Francis Cleetus v. Rashtra Deepika Ltd.*, the Tribunal concluded that without a provision in the articles or a shareholders' agreement, the company could not be forced to have proportionate representation. Therefore, the Tribunal decided against the petitioners on this issue. Issue (iii): The petitioners alleged that the respondents were constructing buildings on government land without board approval. The respondents denied these allegations, stating that only a portion of the compound wall was constructed for safety reasons. The Tribunal found no evidence to support the petitioners' claims of unauthorized construction and deemed the act as an isolated incident not warranting inquiry. Thus, the Tribunal decided in favor of the respondents. Issue (iv): The petitioners contended that writing off ?48,41,801 as bad debts during the financial year 2017-18 was an act of mismanagement. The respondents argued that the write-off was a commercial decision to reflect a true and fair view of the accounts. The Tribunal referenced *A. Ravishankar Prasad v. Prasad Productions P. Ltd.* and *Rutherford, In re*, noting that commercial mismanagement does not amount to oppression and a single act of financial mismanagement does not have the continuous effect required for relief. Therefore, the Tribunal decided against the petitioners on this issue. Conclusion: The Tribunal concluded that the acts complained of did not constitute oppression or mismanagement. Consequently, Company Petition No. 17 of 2017 was dismissed, and any interim orders were vacated. There was no order as to costs. The judgment was pronounced in open court.
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