2018 (5) TMI 2082 - AT - Insolvency and Bankruptcy

Oppression and Mismanagement - Seeking urgent staying of the extraordinary general meeting to remove the petitioners from their position of directors - seeking that resolutions to remove them as directors should not be given effect to - sections 241 to 242 of the Companies Act, 2013 - HELD THAT - The National Company Law Tribunal has at this initial stage of the litigation, exercised its powers which appear to be striking fair balance between the two groups. Learned counsel for the respondents (the original petitioners) in appeal have pointed out as to how the appellants are even acting upon these directions of the learned National Company Law Tribunal to proceed with the affairs of the company. The learned National Company Law Tribunal has exercised discretion judicially when ad interim order was sought from it to protect the interest of the company till the petition is decided. It is true that the National Company Law Tribunal accepted what the Deputy Registrar appeared in the court and said that at 11.00 p.m. on February 23, 2018 the interim orders and operative part of the order had been communicated to counsel for the petitioner. But then, there is material showing that even on February 24, 2018 by two e-mails, counsel for the original petitioners kept requesting the original respondents to postpone the extraordinary general meeting as the orders were yet not in their hands and that the matter was sub judice. At the time of arguments, we asked learned counsel for the appellants (original respondents) as to what would be the benefit to the original petitioners not to inform the stay to the extraordinary general meeting (which they were clamoring for) if they had really come to know about it. There was no clear answer from the learned counsel. Appeal dismissed.

Summary

Issues Involved:
1. Legitimacy of the Extraordinary General Meeting (EGM) held on February 24, 2018.
2. Validity of the interim orders passed by the National Company Law Tribunal (NCLT) on February 23, 2018, and February 26, 2018.
3. Allegations of mismanagement and misconduct by the original petitioners.
4. The appointment of a nominee director and the reconstitution of the management committee.
5. The procedural propriety of the NCLT's orders, including the authority of a single judge to modify an order passed by a Division Bench.

Detailed Analysis:

1. Legitimacy of the Extraordinary General Meeting (EGM) held on February 24, 2018:
The appellants argued that the EGM was convened legally to remove the original petitioners as directors due to their alleged mismanagement and siphoning off funds. They claimed that the shareholders passed resolutions on December 22, 2017, and January 27, 2018, to add authorized signatories and conduct audits, which the original petitioners obstructed. The notice for the EGM was issued on January 30, 2018, and despite the original petitioners' requests to postpone the meeting, the appellants proceeded with the EGM on February 24, 2018, and removed the original petitioners as directors.

2. Validity of the interim orders passed by the NCLT on February 23, 2018, and February 26, 2018:
The NCLT's order on February 23, 2018, stayed the EGM scheduled for February 24, 2018, and appointed a nominee director, Dr. Gajanan Ratnaparkhi. The order also appointed respondent No. 2 as the executive director with full powers, subject to decisions involving more than ?1 lakh being made by a committee of directors. On February 26, 2018, the NCLT maintained the status quo ante as existed prior to the EGM on February 24, 2018, and reiterated the formation of the management committee. The appellants contended that the second order was improper as it modified the earlier order without a formal application and was passed by a single judge instead of a Division Bench.

3. Allegations of mismanagement and misconduct by the original petitioners:
The respondents alleged that the original petitioners engaged in illegal activities, including writing off ?4,19,75,606 as bad debts and obstructing corporate governance practices. The NCLT noted that the explanatory statement for the EGM did not mention these acts of mismanagement, and the respondents' claims surfaced after issuing the notice. The NCLT emphasized the need to hear the matter fully to appreciate the veracity of these allegations.

4. The appointment of a nominee director and the reconstitution of the management committee:
The NCLT appointed Dr. Gajanan Ratnaparkhi, an independent shareholder, as the nominee director and reconstituted the management committee to include the petitioner, respondent No. 2, and the nominee director. This decision aimed to balance the interests of both the promoter and investor groups and ensure the company's smooth functioning.

5. The procedural propriety of the NCLT's orders, including the authority of a single judge to modify an order passed by a Division Bench:
The appellants argued that the single judge's order on February 26, 2018, improperly modified the Division Bench's order from February 23, 2018. However, the NCLT clarified that the second order did not modify the first but reinforced its implementation by maintaining the status quo ante and directing the parties to follow the initial order despite the EGM.

Conclusion:
The NCLT's interim orders aimed to protect the company's interests by appointing a nominee director and reconstituting the management committee. The Tribunal exercised its discretion judicially, considering the company's welfare and the ongoing disputes between the promoter and investor groups. The appellate tribunal found no substance in the appellants' arguments and dismissed the appeal, upholding the NCLT's orders.