2017 (3) TMI 825 - Tri - Companies Law

Oppression and mismanagement - increasing of the authorised share capital - misuse of borrowed funds - Held that - Examining the case on hand, we find no pleading made by the Petitioner to the effect that increasing of the authorised share capital was with a malafide view of reducing the petitioner to minority. Therefore, that circumstance, in our considered view, does not amount to oppression. Whether Change of name of the Company is without following the procedure? - Held that - Mere change of the name of the company does not ipso facto amount to oppression or mismanagement as such unless it is established by the Company Petitioner that thereby, the interest of the members or the Company has been prejudicially affected. Such prejudice is observably absent. The Petitioner did not explicate acceptably as to what is the loss or prejudice sustained by the petitioners or the Company. On the other hand, his own affidavit given to the Bank shows that in the best interests of the Company in order to get loan sanctioned to the company to complete the project, he has declared that there is no conspiracy in the difference in the name of the company appearing in the sale deed and the certificate of incorporation. At the instance of the petitioner, therefore, there is no evidence of prejudice caused to the members or to the company by the change of the name. Whether the change will be approved by the Government or not is not an issue before us. We therefore hold that change of the company s name does not amount to oppression or mismanagement. Whether the Respondent No. 2 has resorted to financial mismanagement prejudicial to the company? - Held that - what is appearing to us from the circumstances on record is that both the Directors who are at the helm of affairs of the company are not pulling the cart in one direction, losing mutual confidence in each other. Conceivably, for that reason only, the Petitioner in CP 54/16 instead of calling for a Board meeting to discuss the misusing of borrowed funds by the Respondent, rushed to make a complaint in utter haste to the Syndicate Bank that has resulted in adversely affecting the business of the company, besides damaging its goodwill in the records of the financing institution. This will also lead to leave distrust in the investors who wanted to book/purchase flats in the project as they will entertain a doubt whether the project will be completed in time or not. It will frustrate the very purpose of incorporation of the Company. As a whole, as discussed above, we find no financial mismanagement with malafide intention of siphoning off company s funds. But certainly, if examined cumulatively in the discordant environment created by Petitioner and Respondent, would amount to oppression and mismanagement for compelling the Tribunal ordering liquidation of the company which is the perquisite of sections 397 and 398 of the Act - instead of ordering liquidation, by virtue of powers vested in the Tribunal under Sec. 402 of the Companies Act, 1956 read with Sec. 242 of the Companies Act, 2013, we have to pass appropriate order for the future progression of the Company. Keeping the interest of stake holders, NCLT passed the order with specific direction to the company to resolve the issue in specified manner.

Summary

Issues Involved:
1. Increase of authorized share capital.
2. Change of company name.
3. Allegations of financial mismanagement.

Detailed Analysis:

1. Increase of Authorized Share Capital:
The main relief sought in CP 54/16 was to set aside Form SH-7 dated 5.3.2015, relating to the increase of authorized capital of the Company from ?11 lakhs to ?50 lakhs. It was contended that this increase was done without proper notice, information, or approval from the Board or the AGM/EGM. The tribunal found that the Respondent failed to provide evidence of proper notice or attendance at the Board meeting on 5.2.2015 and the EOGM on 5.3.2015. Consequently, it was held that the increase in authorized capital was not supported by a valid Board resolution or EOGM approval. However, the tribunal noted that mere increase in capital without diluting the petitioner’s shareholding did not amount to oppression under Section 397 of the Companies Act, 1956.

2. Change of Company Name:
The company’s name was changed from "Onkareshwar Colonisers Pvt Ltd" to "Omkaleshwar Colonisers Pvt Ltd" on 9.12.2015. The petitioner argued that this change was done without a special resolution or proper Board meeting notice, as required under Section 13(1) and Section 173 of the Companies Act. The tribunal noted that the petitioner had previously sworn an affidavit stating that both names referred to the same entity, which was used to secure a bank loan. The tribunal held that the change of name did not amount to oppression or mismanagement as there was no evidence of prejudice to the members or the company.

3. Allegations of Financial Mismanagement:
Several allegations were made against Respondent No. 2, including siphoning off ?30 lakhs, unauthorized borrowing, and using company funds improperly. The tribunal found no substantial evidence to support these claims. The bank supervising the project did not raise any issues regarding the misuse of funds, and the petitioner’s allegations were deemed unsubstantiated. The tribunal concluded that there was no financial mismanagement with malafide intention.

Overall Findings:
The tribunal observed that the mutual distrust and discord between the two directors led to a standstill in the company’s business, adversely affecting its operations and reputation. The tribunal emphasized the need for a resolution to avoid liquidation and protect the interests of the company and its stakeholders.

Orders:
1. The Syndicate Bank shall nominate an officer as an Additional Director to coordinate with the current directors and address key issues, including the appointment of an additional director, proper utilization of funds, project implementation, financial review, and independent audit.
2. Dr. Pawan Jaiswal, Practicing ICWA, is appointed as an observer to supervise the meetings and report to the tribunal.
3. The petitioner in CP 54/16 shall withdraw his objection to the Syndicate Bank regarding the loan disbursal within 15 days, failing which the objection will be deemed withdrawn.
4. The company shall report compliance to the Registrar of Companies, Kanpur.
5. Both petitions, CP 54/2016 and CP 75/2016, are disposed of, with each party bearing their respective costs.

The tribunal’s decision aimed at ensuring the smooth functioning and future progression of the company while addressing the issues of oppression and mismanagement.