2017 (4) TMI 477 - AT - Companies Law

Oppression and Mismanagement by Directors - change in shareholding pattern - maintainability of appeal - Held that - A shareholder/member or group of shareholder/members without and notice or information cannot visualize or presume that his/their share(s) will be brought down to their disadvantage, which amounts to oppression and mismanagement. On such anticipation or presumption no petition under Sections 397 or 398 of the Companies Act, 1956 can be filed. Such aggrieved shareholder(s)/member(s) can file the petition under Sections 397 & 398 of the Companies Act, 1956 only after cause of action has taken place. If that be so, the day on which a petition under Sections 397 and 398 is filed by a shareholder/member, whose shareholding has been brought down below the requirement of having an aggregate of 10% out of the total shareholding, will be deprived to avail remedy under Section 397 and Section 398, without their fault. For the reasons recorded above, we hold that in the cases where an applicant alleges that his shareholding has been brought down by way of oppression and mismanagement below 1/10th of the total shareholding without notice and knowledge then it is the duty of the Tribunal to determine whether the applicant had 1/10th of the shareholding prior to the date of alleged oppression and mismanagement. Such petition cannot be dismissed on the ground that the applicants shareholding is below 1/10th of the total shareholding of the Company on the actual date of presentation of the Company Petition. It is a different question whether the shareholding was actually brought down by oppression and mismanagement which is to be decided by the Tribunal on the basis of evidence on record. In the present case, the Tribunal failed to apply the aforesaid principle and erred in holding that the Company Petition preferred by the appellants under Sections 397 and 398 of the Companies Act, 1956 was not maintainable on the date of presentation of the Company Petition. The question of oppression and mismanagement and maintainability in the present case is a mixed question of facts and law. As the petition was filed on the ground that the shareholding of the applicant(s) has been brought down below 1/10th of the total shareholding of a Company by oppression and mismanagement, Tribunal was required to decide the question of maintainability at the time of final hearing of the Petition. Both the merit and question of maintainability were required to be decided together. On hearing the parties, in case the Tribunal forms opinion that there was no oppression and mismanagement on the date of cause of action as alleged by the applicant then in such case it was open to the Tribunal to dismiss the petition as not maintainable in view of Section 399 of the Companies Act, 1956. We set aside the impugned order and judgement passed by the National Company Law Tribunal, Kolkata and remit the case to the Tribunal for determination of question of maintainability and merit.

Summary

Issues Involved:
1. Maintainability of Company Petition under Sections 397 and 398 of the Companies Act, 1956.
2. Allegations of oppression and mismanagement by reducing shareholding below 10%.
3. Application of the Limitation Act, 1963.
4. Relevance of Supreme Court decisions in similar cases.

Detailed Analysis:

1. Maintainability of Company Petition under Sections 397 and 398 of the Companies Act, 1956:
The appeal was filed against the order of the National Company Law Tribunal (NCLT), Kolkata Bench, which dismissed the Company Petition under Sections 397 and 398 as not maintainable. The Tribunal held that the appellants' shareholding was less than 10% of the total shareholding on the date of filing the petition, referencing Section 399(1) of the Companies Act, 1956, and the Supreme Court decision in "Bhagwati Developers Private Limited Vs. Peerless General Finance Investment Company Limited" (2013) 5 SCC 455. The Tribunal observed that the appellants held only 3% of the total shareholding, thus failing to meet the statutory requirement.

2. Allegations of Oppression and Mismanagement:
The appellants alleged that their shareholding was reduced below 10% through additional allotments made without notice or consent, which they claimed constituted oppression and mismanagement. They asserted that the first cause of action occurred on 11th February 2014, when shares were allotted to M/s Jupiter Goods Private Limited, discovered by the appellants on 30th April 2014. Subsequent allotments in 2014 and 2015 further reduced their shareholding. The respondents convened a Board Meeting and an Extraordinary General Meeting (EOGM) without proper notice, leading to the removal of the 1st appellant as Director.

3. Application of the Limitation Act, 1963:
The Tribunal did not dismiss the petition on grounds of delay or estoppel. The right to sue accrued on 11th February 2014, and the petition filed in April 2016 was within the three-year limitation period prescribed by the Limitation Act, 1963, as per Section 433 of the Companies Act, 2013.

4. Relevance of Supreme Court Decisions:
The Supreme Court decision in "Bhagwati Developers Private Limited" was cited to argue that the crucial date for determining the 10% shareholding requirement is the date of filing the petition. However, the Appellate Tribunal noted that this case dealt with winding-up petitions and did not address situations where shareholding is reduced through alleged oppression and mismanagement. The Tribunal emphasized that a shareholder cannot anticipate such reductions and should be allowed to file a petition after the cause of action arises.

Conclusion:
The Appellate Tribunal held that the Tribunal erred in dismissing the petition solely on the ground of non-maintainability due to reduced shareholding. It was necessary to determine whether the reduction was due to oppression and mismanagement. The case was remitted to the Tribunal to decide the question of maintainability and merit together, considering the evidence and principles discussed. The appeal was allowed, and the impugned order was set aside. No costs were awarded.