2017 (1) TMI 1343 - Tri - Companies Law

Oppression and mis-management - Whether giving a notice for holding EGM for removal of Sanjay is oppressive or not? - Whether a proposal for removal of P1 in a family Company in the given facts of the case be treated as an oppressive act or not? - Held that - General fulfilment to meet u/s 397 accordingly his cheque signing authority in both the accounts is hereby revoked. As to casting vote given to the mother in the order dated 22.4.2015 in the Board Meetings it will continue and without her sign no cheque shall be passed. The Company shall provide financial statements on fortnightly basis to P1 so as to keep him informed about the business happening in the Company. However R1 Company shall give notice and allow P1 to attend Board Meetings as and when they are called. For the company already passed a resolution for appointment of R3 s wife Bavana as director the same could be hereafter given effect to. The reason for considering Bavana s appointment is one - the company already approved the resolution making her as director; two - for P1 and his wife being directors to balance the same it is just and equitable to have two directors from R3 side as well. Since R2 is natural mother to P1 and R3 as well her continuation in the Board as director cannot be looked as weighing to the side of one son or the other.

Summary

Issues Involved:
1. Whether giving a notice for holding EGM for removal of Sanjay is oppressive or not.
2. Whether non-payment of statutory dues by the Company be treated as an act done by the Respondents causing oppression to the Petitioners or to the Company.
3. Whether a proposal for removal of P1 in a family Company in the given facts of the case be treated as an oppressive act or not.

Issue-wise Detailed Analysis:

1. Whether giving a notice for holding EGM for removal of Sanjay is oppressive or not:

The mother issued a requisition notice for the removal of Sanjay as director. Sanjay and his wife approached the Company Law Board (CLB) before the meeting, obtaining an adjournment without objecting to the mother's appointment as director. The CLB allowed the EGM to proceed, with certain agenda items adjourned. The Hon'ble High Court of Bombay passed orders allowing EGMs to be held, subject to the final outcome of the petition. The court emphasized that the democratic rights of shareholders should not be interfered with lightly. The petitioners had the opportunity to raise grievances in the EGMs and before the CLB, thus the meetings held cannot be invalidated for procedural non-compliance. The court reiterated that in cases under sections 397 and 398, equities of the case prevail over procedural compliance. The petitioners' reliance on certain case laws was found inapplicable due to differing facts, and the petitioners' minimal shareholding (less than 2%) was noted. Therefore, the notice for holding EGM was not considered oppressive.

2. Whether non-payment of statutory dues by the Company be treated as an act done by the Respondents causing oppression to the Petitioners or to the Company:

The petitioners were in the majority on the Board and had control over the SBI account. Despite allegations of non-cooperation from the respondents, the petitioners had the capacity to clear statutory dues themselves. No direct evidence was presented showing that Rajiv refused to sign cheques for statutory dues. The court found the petitioners' allegations to be unsubstantiated and aimed at dressing up the petition. The respondents presented material suggesting Sanjay's misconduct, but third-party statements were not taken as evidence. The court concluded that the petitioners failed to prove that the respondents caused hindrance in clearing statutory dues, deciding this issue against the petitioners.

3. Whether a proposal for removal of P1 in a family Company in the given facts of the case be treated as an oppressive act or not:

The court noted that the company was set up by the father and the mother held 98% of the shareholding. The petitioners had less than 2% shareholding and had already initiated civil proceedings for specific performance over a Partition Deed. The court emphasized that quasi-partnership principles apply when shareholders equally invest and participate in the company. The petitioners failed to prove that the respondents' conduct was oppressive or prejudicial. The court highlighted that directorial complaints do not fall within sections 397 and 398 unless it is a family company or company on partnership lines. Sanjay's conduct was found dubious, and the mother, holding the majority share, was deemed fit to continue managing the company. The court directed that Sanjay be allowed to continue as director for salary purposes but not interfere in company affairs. The mother's casting vote and Bavana's appointment as director were upheld.

Conclusion:

The court found no merit in the petitioners' claims of oppression and mismanagement. The petitioners' allegations were unsubstantiated, and the respondents' actions were not deemed oppressive. The court directed the company to allow Sanjay to continue as director for salary purposes but not interfere in company operations, maintaining the mother's casting vote and Bavana's appointment as director. The petition was disposed of with no order as to costs.