2017 (4) TMI 193 - Tri - Companies Law

Director of a company removed from the Board of Directors before expiry of his term - Held that - Unfortunately, there is nothing on record to show that any of the provisions so incorporated in Section 169 of the Companies Act, 2013 was followed before removing the petitioners from the Board of Directors of the Company which clearly shows that the petitioners were removed from the Board of Directors on 19.09.2014 in total violation of dictum, contained in Section 169 of the Companies Act, 2013. Therefore, there cannot be any escape from the conclusion that petitioner Nos.l & 2 were removed from the post of directorship of the company violating the requirement of law. It may be stated here that the removal of the Director in violation of mandatory provisions of Section 169 of the Companies Act, 2013 has repeatedly been held to be an act of mismanagement and, therefore, petitioners are entitled to reliefs, claimed on this count. The petitioners have clearly made out the claim that petitioner Nos.l & 2 were removed from the Board of Directors of the company quite illegally and such illegal removal has repeatedly been held to be an act of mismanagement and, therefore, the petitioners are entitled to statutory relief. Resultantly, the resolution dated 19.09.2014 is set aside and consequently, the petitioner Nos.l & 2 stand restored as Directors of the respondent No.1 company. Since the Board Meeting held on 19.09.2014 under which the petitioners stood removed from the Board of Directors is already held to be illegal, therefore, all subsequent Board Meetings and action(s), if any, taken thereunder, save and except, the allotment of equity shares to the respondent Nos. 4 & 5 made on 26.09.2014, in pursuance to the resolution dated 13.09.2014, are also held to be void and illegal and are accordingly quashed.

Issues Involved:
1. Validity of the agreement dated 30.08.2014 between Prayag Infotech Hi Rise Ltd and ASOMI Industries Private Limited.
2. Legality of the appointment of respondent Nos. 2 and 3 as directors of Sashi Kumar Tea Company Private Limited.
3. Validity of the board meeting dated 19.09.2014 and subsequent actions taken therein.
4. Legality of the issuance of shares to respondent Nos. 4 and 5.
5. Allegations of mismanagement and oppression by respondent Nos. 2 and 3.

Detailed Analysis:

1. Validity of the Agreement Dated 30.08.2014
The petitioners contended that the agreement dated 30.08.2014 is void due to violations of Section 10 of the Contract Act, 1872, and Sections 13 and 16 of the Securities Contract (Regulation) Act, 1956. The respondents argued that the agreement is not void as the provisions of the Regulation Act, 1956 are applicable only to listed companies, and the company in question is a private company. The Tribunal found that the provisions of Sections 13 and 16 of the Regulation Act, 1956, do not apply to private companies, thus rejecting the petitioners' claim.

2. Legality of the Appointment of Respondent Nos. 2 and 3 as Directors
The petitioners claimed that the appointment of respondent Nos. 2 and 3 as directors was illegal. However, the Tribunal found that the petitioners themselves had inducted respondent Nos. 2 and 3 as directors during an Extraordinary General Meeting (EOGM) held on 13.09.2014. The Tribunal concluded that the appointment was legal and valid.

3. Validity of the Board Meeting Dated 19.09.2014 and Subsequent Actions
The petitioners alleged that the board meeting held on 19.09.2014, during which they were removed from the Board of Directors, was illegal as it violated Section 169 of the Companies Act, 2013. The Tribunal found that no special notice was served to the petitioners before their removal, violating the mandatory provisions of Section 169. Consequently, the Tribunal declared the removal of the petitioners from the Board of Directors as illegal and restored them to their positions.

4. Legality of the Issuance of Shares to Respondent Nos. 4 and 5
The petitioners claimed that the issuance of shares to respondent Nos. 4 and 5 was in violation of Sections 42 and 62 of the Companies Act, 2013. The Tribunal examined the records and found that a special resolution was adopted during the EOGM on 13.09.2014, authorizing the issuance of shares through private placement. The Tribunal concluded that the issuance of shares was in accordance with the law and rejected the petitioners' claim.

5. Allegations of Mismanagement and Oppression
The petitioners alleged that respondent Nos. 2 and 3 engaged in acts of mismanagement and oppression, including the illegal removal of the petitioners from the Board of Directors and the fraudulent issuance of shares. The Tribunal found that the illegal removal of the petitioners constituted an act of mismanagement. However, the Tribunal did not find sufficient evidence to support the allegations of fraud and mismanagement beyond the illegal removal.

Conclusion:
The Tribunal partially allowed the petition. It declared the removal of the petitioners from the Board of Directors as illegal and restored them to their positions. The Tribunal also quashed all subsequent board meetings and actions taken therein, except for the issuance of shares to respondent Nos. 4 and 5. The Tribunal left other allegations to be tried by a civil court of appropriate jurisdiction.

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