2020 (11) TMI 1000 - Tri - Companies Law

Oppression and mismanagement - Rights Issue - transfer of shares between family members - Section 241 of the Companies Act, 2013 - HELD THAT - It can be seen that the petitioner has not raised any specific objection against the Rights issue. The petitioner has not pointed out any negative impact on the rights of the petitioner by issuance of further shares - It is well settled principle that for a case of oppression and mismanagement, there needs to be a conduct amounting to misconduct by the majority towards the minority. Further, where a majority of members exercise their rights as shareholders in the conduct of the company s affairs, the fact that there is oppression, lapse or impropriety on the part of an officer not pertaining to or unconnected with the exercise of voting rights by a majority of shareholders, will not justify invocation of Section 241 of the 2013 Act. It was held in the case of Lammertz Industrienadel GmbH v. Altek Lammertz Needles Limited, 2008 (5) TMI 736 - COMPANY LAW BOARD, CHENNAI that further increase of capital followed by allotment of shares with a view of saving the Company from its state of crises. There was no diversion of the company s business to any other company. Hence, there is no oppression made out. Therefore, it is no longer res-integra that the right issue for genuine purpose and for the benefit of the company is not illegal until proved otherwise. The petitioner/minority shareholders have to prove the mala fide of the majority in order to get relief against the Righst issue. In the case in hand petitioner himself attended the meeting, submitted his objections against the Rights issue. The petitioner has a chance to purchase/invest more in the company. There is no single instance of oppression or mismanagement by way of further issue of Rights by the directors of the company. Let the matter be listed on 04.12.2020 for further consideration.

Summary

Issues:
Petition under Section 241 of the Companies Act, 2013 against existing directors and shareholders for interim relief regarding the issue of rights approved in a meeting. Allegations of mismanagement, invalid transfer of shares, and oppression by majority shareholders.

Analysis:
The petitioner, holding 30% shareholding in the company, filed a petition under Section 241 of the Companies Act, 2013 against the existing directors and shareholders, alleging mismanagement and oppression. The petitioner objected to the transfer of shares between family members and subsequent appointments, claiming it was detrimental to their interests. The respondents, however, defended the transfer as compliant with statutory provisions and MOU requirements. The petitioner further contested decisions made in a meeting, including the appointment of a new chairman and the increase in equity share capital, alleging mismanagement and lack of transparency.

The respondents justified their actions, particularly the rights issue, as necessary for the company's financial stability and compliance with lender bank mandates. They accused the petitioner of disrupting the loan disbursement process by raising concerns with the bank, leading to financial losses and the need for the rights issue. The respondents argued that the petitioner had not shown any interest in the company's business, failed to attend crucial meetings, and refused to provide guarantees or investments like other shareholders. They emphasized the importance of the rights issue for the company's survival and growth, defending their decisions as in the company's best interest.

The Tribunal considered the arguments presented by both parties and examined precedents related to oppression and mismanagement cases. Referring to previous judgments, the Tribunal highlighted that a rights issue for genuine purposes and company benefit is not illegal unless proven otherwise. The Tribunal noted that the petitioner had the opportunity to invest more in the company but failed to do so, and no evidence of oppression or mismanagement related to the rights issue was presented. Consequently, the Tribunal vacated the stay on the further issue of rights, pending the final outcome of the petition, directing the respondents to file their reply within a specified timeline for further consideration.