2020 (1) TMI 1407 - Tri - Companies Law

Oppression of Minority - whether the acts of Respondents as alleged by the Petitioners would indeed constitute an act of oppression against the minority shareholders which calls for the intervention of this Tribunal? Sree Visakh Theatre - HELD THAT - Sree Visakh Theatre was constructed during the period 1976-1978 by Respondent Nos.2 and 4. The Petitioners became shareholders of the Respondent No.1 Company in the year 2009, long after Sree Visakh Theatre was constructed. From the Records before us it is observed that Sree Visakh theatre run by R2 and R4 as a partnership firm approved by the Board of Directors of the R1 Company and ratified by the AGM. The Petitioners alleged that the revenues of Sree Visakh theatre are not being recorded in the Respondent No.1 Company, and R2 and R4 are enjoying the fruits of the revenues, without providing any material evidence to support their allegation. From the records before us, we have not come across any such allegation of this nature from any other shareholder or director in the last 40 years of existence of Sree Visakh theatre - It was only due to some miscommunication that these were not made available to auditors for verification at that point of time. We have considered both the averments of the counsels in depth. We came to the conclusion that in the absence of credible evidence offered by the petitioners to support their allegation, the petitioners have failed to prove that the Respondent No.2 and 4 have illegally constructed Sree Visakh theatre and enjoying the property at the cost of the Respondent No.1 Company. Merry Land Studio - HELD THAT - The counsel for the Respondents have clearly mentioned in their counter that the revolutionary technological changes in the mode of film production, eroded its revenue generation prospects. In the absence of credible evidence offered by the petitioner we have no other option except to go with the statement offered by Respondents that they are making payments whenever they are using Merry Land Studio facilities. Further the records before us have not showed any such allegation by any of the shareholder/director on the affairs of Merry Land Studios after 2012. As such we are not willing to accept the contention of the petitioners on this issue. SreeKumar Theatre - HELD THAT - The Counsel for the Respondents stated that the allegation is completely false and that the R8 to R10 are not using the Sree Kumar theatre facilities for their personal businesses. Further, the counsel for the respondents also stated that Saran Creations is a serial production house and its shooting and other activities are held in different locations. Respondent No.9 is not connected to Visakh Outdoors, which is actually owned by Respondent No.2. Respondent No.10 is not in occupation of any part of Sree Kumar theatre. In this issue also, we have not come across any allegation on this count from any quarter in the Respondent No1 Company - the three issues allegations raised by the petitioners are not supported by any documentary evidence. Under such circumstances, we cannot decide that there is oppression and mismanagement in the Respondent Company against minority shareholders, as alleged. Therefore, the allegations are dismissed. Loan to director - HELD THAT - Respondent No.1 Company being a Private Limited company enjoy certain flexibilities as regard to loan to Director under Section 185 of Companies Act 2013. As such, the said Loan to Director (₹12,00,000/-) which appeared in the Financial Statement (2015-2016) of the Respondent No.1 Company and approved by the Board of Directors, is not in violation of corporate governance as alleged by the Petitioner. Therefore, we are not in agreement with the stand taken by the Petitioners in this matter also. Remuneration to Directors - HELD THAT - The profit of the Respondent No.1 Company have gone-up substantially from ₹ 42,15,993/- (2012-2013) to ₹ 2,73,37,343/- (2016-2017), the dividend declared also recorded a substantial jump from 160% in 2012-2013 to 200% 2016-2017. When compared with the profit generated under the direction and supervision of the Board of Directors, the remuneration increased is minimal. As such we are of the view that the petitioners are levelling such allegations without taking into account the factual financial performance of the Respondent No.1 Company. Share Transfer - HELD THAT - The AOA clearly shown that personal representative of a member or beneficiary under the will of a member are entitled for transfer of shares from the company. In the instant case late Subramoniam Shakthidar passed away intestate and his 650 shares transmitted to the legal heirs of the deceased member as per Law of Succession. As the transfer of shares is distinct from the Transmission, in the instant case the company has rightly followed the transmission of shares of the deceased member to the legal heirs - As regards transfer of shares to L. Priyadarsini, we firmly believe that it is the personal and independent decision of Respondent No.7 approved by the Board of Directors as laid down in the AoA. In this issue also, we have no reason to interfere in the matter, as Respondent No. 7 has firmly affirmed in her counter that it is her personal choice to whom the shares are to be transferred. In this case Respondent No.1 company has rightfully transferred the shares as requested by Respondent No.7. Therefore, Respondent No.1 Company cannot be held for the personal choice of the mother of the Petitioners. The petitioners become shareholders in the year 2009 by virtue of transfer of shares, by way of gift from their mother. The petitioners are raising allegations digging issues from the year 1978 onwards after attaining the current status as shareholders in the company. It may be noted that the Respondent No.7 who is the mother of the petitioners, had also supported the present Board of Directors of the Respondent No.1 Company; but not supported the stand taken by the petitioners. This amply proves that the petitioners have filed this petition with their personal agenda of trying to get a berth in the Board of Directors and to fullfil their wish to be part of the management of the Respondent No.1 Company - the petitioners are dragging this Tribunal into their personal family disputes forgetting the fact that this is not the forum to settle such matters. Thus, there is no merit whatsoever in the averments made by the petitioners in regard to the acts of oppression and mismanagement in the Respondent No.1 Company and, therefore, doesn t warrant any intervention by way of an order under Section 242 of the Companies Act, 2013 as prayed for - petition dismissed.

Summary

Issues Involved:
1. Alleged oppression and mismanagement by the Respondents.
2. Alleged improper transfer of shares.
3. Alleged misuse of company assets by the Respondents.
4. Alleged financial irregularities, including loans to directors and increased remuneration.
5. Alleged lack of transparency and non-compliance with statutory requirements.

Detailed Analysis:

1. Alleged Oppression and Mismanagement:
The petitioners claimed that the affairs of the Respondent No.1 Company were conducted in utmost secrecy and managed like a sole proprietorship by Respondent No.2, with a lack of transparency and alleged siphoning of funds. However, the Tribunal found no credible evidence to support these allegations. The petitioners' claims were dismissed due to the absence of material evidence and the fact that no other shareholder had raised similar concerns in the past 40 years.

2. Alleged Improper Transfer of Shares:
The petitioners contended that the transfer of 650 shares of late Subramoniam Shakthidar to his legal heirs and the transfer of 600 shares from Respondent No.7 to L. Priyadarshini were in violation of the Articles of Association (AoA). The Tribunal concluded that the transmission of shares to legal heirs was proper under the law of succession and that the transfer to L. Priyadarshini was a personal decision of Respondent No.7, duly approved by the Board of Directors. Therefore, the Tribunal found no violation of the AoA.

3. Alleged Misuse of Company Assets:
The petitioners alleged that Sree Visakh Theatre, Merry Land Studio, and Sree Kumar Theatre were being misused by the Respondents for personal gain without proper accounting or contractual agreements. The Tribunal found no evidence to support these claims. The records indicated that Sree Visakh Theatre was constructed by Respondent Nos.2 and 4 with their own funds and operated as a partnership firm. Similarly, the allegations regarding Merry Land Studio and Sree Kumar Theatre were not substantiated by any documentary evidence.

4. Alleged Financial Irregularities:
The petitioners argued that a loan of ?12,00,000/- given to a director was not declared as a related party transaction and that the directors' remuneration was unilaterally increased, reducing dividends to shareholders. The Tribunal noted that as a private limited company, Respondent No.1 Company enjoyed certain flexibilities under Section 185 of the Companies Act, 2013, and the loan was not in violation of corporate governance. The increase in directors' remuneration was justified by the substantial increase in the company's profits and dividends over the years.

5. Alleged Lack of Transparency and Non-Compliance:
The petitioners claimed that the company failed to deliver notices for Annual General Meetings (AGMs) and did not provide access to statutory records. The Tribunal found that notices were sent to the petitioners' addresses as provided to the registered office, and the petitioners had attended AGMs either in person or by proxy. The Tribunal also noted that the company provided the necessary information to shareholders as required by law.

Conclusion:
The Tribunal concluded that the petitioners failed to prove their allegations of oppression and mismanagement. The petitioners' claims were found to be without merit, and the petition was dismissed. The Tribunal emphasized that corporate democracy dictates that the majority shareholders decide who should run the affairs of the company, and the petitioners' attempts to involve the Tribunal in personal family disputes were inappropriate. The petition was dismissed with no order as to costs.