2017 (4) TMI 1579 - Tri - Insolvency and Bankruptcy

Oppression and mismanagement - implementation with the terms and conditions of MOU or not - fixation of fair market value of the shares of the first respondent company - Whether affairs of the first respondent company have been conducted in a manner prejudicial to public interest or prejudicial to the petitioner group members or in a manner prejudicial to the interest of the company? - Whether any material change which is not in the interest of the company or creditors or shareholders or debenture holders have taken place in the management or in the control of the company which is likely that affairs of the company could be conducted in a manner prejudicial to the interest of the company or its members or classified members? - Whether it is just equitable to wind up the company or not with a view to end the controversies agitated and if so instead of passing winding up order this Tribunal under section 402 of the Companies Act, 1956 pass any other equitable order? HELD THAT - Even as per the MOU, petitioner has agreed to sell his shares to respondents 2 and 6. Value fixed in the MOU is face value of shares. It is not the case of the parties to the MOU that it has been completely acted upon. On the ground that respondent 6 and Mrs. Monika Ruchandani transfer or agree to transfer their shares it cannot be said the petitioner has to follow the same course of action - Finding of the Tribunal is that there are acts of oppression and mismanagement by the respondents 2 to 5 on the petitioner's group who are minority shareholders of the first respondent company and on the petitioner who is director of the company. Section 402 gives power to this Tribunal to pass such orders or directions. In the case on hand, there is finding of oppression and mismanagement. Petitioner himself came forward to sell out his shares for a value determined by the independent valuer. Petitioner's group and respondents are members of the same family and it is their family owned Company. There exists dispute between petitioner's group and respondents' group since death of Bhagwandas Ruchandani and at one point of time it was sought to be resolved by entering into MOU which was not implemented. Therefore, function of the Company Law Tribunal is first to see interest of the company vis- -vis shareholders are saved. The Company Law Tribunal must find out whether any remedy is available other than winding up. The Tribunal may not shut out its powers only on sheer technicality. The petitioner and respondents belong to same family, instead of straight away appointing an independent valuer to assess the value of shares, it is just and expedient to direct the petitioner and respondents 2 to 5 to come to an understanding regarding fair value of the shares of the first respondent company as on the date of filing of petition at which the same can be sold. Petitioner and his group persons, if they are willing, they can sell their shares to respondents as per the value fixed by mutual agreement - In case no mutual agreement on the fair value of the shares of the first respondent company is arrived and the sale of shares did not complete within a period of 90 days from the date of this order, petitioner, if he is willing to sell his shares, he is at liberty to file an application before this Tribunal to appoint an independent valuer to fix fair value of shares of the first respondent company as on the date of filing the petition and, in such application this Tribunal shall pass necessary orders regarding appointment of independent valuer and regarding the manner and mode of sale of shares of petitioner group to respondents 2 to 5 and transfer of such shares. Petition disposed off.

Summary

Issues Involved:
1. Conduct of the company's affairs in a prejudicial manner.
2. Material changes in management or control not in the company's interest.
3. Just and equitable grounds for winding up the company.

Detailed Analysis:

1. Conduct of the Company's Affairs in a Prejudicial Manner:

The petitioner claimed that the respondents engaged in acts of oppression and mismanagement, including filing records for multiple years together, denying access to statutory records, and conducting Board meetings without proper notice. The Tribunal found that the respondents filed records for 2005-06 to 2010-11 together in 2011, which was justified due to disputes among shareholders. However, the respondents failed to provide evidence that notice for Board meetings on 13.12.2011, 07.01.2012, and 15.03.2012 was served to the petitioner, making these meetings acts of oppression. Additionally, the special meeting of majority shareholders on 13.12.2011 was held without proper notice to all shareholders, constituting an act of oppression and mismanagement.

2. Material Changes in Management or Control Not in the Company's Interest:

The petitioner alleged that the appointment of respondents 3 and 4 as directors was without proper agenda and notice, constituting mismanagement. The Tribunal found that the appointment was taken up without specific agenda and without the consent of the petitioner and respondent 6, making it an act of mismanagement. The respondents' claim that the petitioner siphoned funds was not satisfactorily explained, and the petitioner continued to have a financial interest in the company despite the MOU not being fully implemented.

3. Just and Equitable Grounds for Winding Up the Company:

The Tribunal found that the acts of oppression and mismanagement by the respondents justified winding up the company but noted that it was not in the interest of the shareholders and the company. The main relief sought by the petitioner was to fix the fair market value of the shares and allow either party to buy or sell their shares. The Tribunal directed the petitioner and respondents 2 to 5 to mutually agree on the fair value of the shares within 90 days. If no agreement is reached, the petitioner can apply for an independent valuer to fix the fair value of the shares, and the Tribunal will pass necessary orders for the sale and transfer of shares.

Conclusion:

The Tribunal concluded that the respondents' actions amounted to oppression and mismanagement. It directed the parties to mutually agree on the fair value of shares or appoint an independent valuer if no agreement is reached. The petition was disposed of with no order as to costs.