2019 (9) TMI 1401 - Tri - Companies Law

Oppression and mismanagement - Section 241, 242 244 of the Companies Act, 2013 - main contention of the Petitioners is that Respondents 2 3 who are now managing the Company, who are the Directors of the Company are indulging in oppression and mismanagement - HELD THAT - The Petitioners were on the Board. Subsequently they resigned. Thereafter, Respondents 2 3 became Directors. The appointment of Respondents 2 3 to the Board is not denied. The resignations by Petitioners as Directors of the Company is also not in dispute. The contention of Petitioners that AGM was held for the years 2016-17 2017-18 without giving notice to the Petitioners. This matter to be looked into at the time of final hearing. The further case of Petitioners that Respondents indulged in acts of oppression and mismanagement such as not convening EGM though demanded by the Petitioners. This aspect will also be looked into at the time of final hearing on the main petition. There was correspondence between petitioners and Respondents with regard to allotment of shares to the Petitioners by converting the debt into equity. The contention of Respondents that it is Respondent No. 2 who gave money as unsecured loans. However. Petitioners got certain part of debt converted into equity and allotted the shares to themselves. This is the main allegation made by Respondents 2 3 against petitioners. This needs to be considered in the main petition at the time of final hearing. When Company is in urgent need of money, the only alternative with the Company is to go for rights issue. The other aspects raised by the Petitioners that there is no need to go for rights issue are all matters to be considered at the time of final hearing. At present, the offer is also made to the Petitioners and it is for the Petitioners either to subscribe or not to subscribe for the rights issue - At present there is no need to grant any interim reliefs. The main petition itself is ripe for hearing. Therefore, at present we do not consider any ground to grant any interim relief in favour of petitioners. Even if rights issue is allowed to continue and allotment is to be made as per issue, it is subject to the result of the main petition. So interest of the Petitioners if any is safeguarded with rights issue if allowed to be proceeded with. We make it clear, it is subject to the result of the main petition. Petition dismissed.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 241, 242, and 244 of the Companies Act, 2013.
2. Interim reliefs sought by the Petitioners pending disposal of the main petition.
3. Validity and necessity of the rights issue proposed by the Respondent Company.
4. Allegations of non-compliance with statutory requirements and mismanagement by Respondents.
5. Financial transactions and share allotments between Petitioners and Respondents.
6. Interim relief to prevent alienation of assets and status-quo maintenance.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The Petitioners filed a petition under Sections 241, 242, and 244 of the Companies Act, 2013, alleging oppression and mismanagement against Respondents 2 and 3. They claimed that Respondents 2 and 3, being NRIs, lured them into resigning as Directors with false promises of purchasing their shares, which was not honored. Petitioners, holding 56.971% equity shares, alleged they were not served notices for AGMs for the financial years 2016-17 and 2017-18, violating Section 101 of the Companies Act, 2013. They also claimed non-compliance with filing audited financial statements, leading to potential punishment under Section 136 of the Companies Act, 2013.

2. Interim Reliefs Sought:
The Petitioners sought multiple interim reliefs, including staying the rights issue, appointing an Advocate Commissioner and an independent Chartered Accountant, directing Respondents not to alienate assets or shareholding without Tribunal's leave, restraining the increase of authorized and paid-up capital, preventing further loans, and summoning company records.

3. Validity and Necessity of the Rights Issue:
The Tribunal initially allowed the rights issue process but kept the allotment on hold. Petitioners argued that the rights issue was unnecessary as the company had no business, and it was intended to dilute their shareholding. Respondents countered that the rights issue was essential to meet liabilities and that Petitioners were offered to subscribe proportionately. The Tribunal noted that the company needed funds to discharge debts and other liabilities, and the rights issue was a legitimate means to raise such funds.

4. Allegations of Non-Compliance and Mismanagement:
Petitioners alleged that Respondents failed to convene an EGM despite their request, violating Section 100 of the Companies Act, 2013. They also expressed concerns about potential misappropriation and manipulation of company records. Respondents contended that they had sent notices and annual reports to all shareholders, including Petitioners, and that the rights issue was conducted following proper procedures.

5. Financial Transactions and Share Allotments:
Respondents accused Petitioners of illegally allotting shares to themselves without bringing in the necessary funds, converting unsecured loans into equity. Petitioners denied these allegations, stating that Respondents had signed annual returns and balance sheets confirming their shares. The Tribunal decided that these financial discrepancies and allegations needed to be examined during the final hearing of the main petition.

6. Interim Relief to Prevent Alienation of Assets:
The Tribunal directed Respondents 2 and 3 not to alienate the assets of the 1st Respondent Company without the Tribunal's leave and to maintain the status-quo pending the disposal of the main petition. This interim relief was granted to protect the Petitioners' interests until the final resolution of the main petition.

Conclusion:
The Tribunal concluded that there was no immediate need to grant the interim reliefs sought by the Petitioners, except for the relief to prevent alienation of assets. The interim order passed on 10.05.2019 was vacated, allowing the rights issue to proceed, subject to the outcome of the main petition. The Tribunal emphasized that the rights issue and any resultant allotment would be subject to the final decision in the main petition, thereby safeguarding the interests of the Petitioners.