2017 (4) TMI 780 - Tri - Companies Law

Oppression and mismanagement - striking off the name of company - Held that - It is quite clear that Civil Court has no jurisdiction to decide the allegation of oppression and mismanagement. The question of oppression and mismanagement of a company can only be decided by this Tribunal and the alleged allegations of oppression and mismanagement against the company K. C. Ghosh & Sons Pvt. Ltd, is not an issue in a Civil Suit, which is pending in Court. Therefore, the respondent s objection in this respect has no force. The respondent s objections are relating to the existence of the company. The respondents claim that the name of the respondent No. 1 company is struck off from the list of the Registrar of Companies maintained by the order of Registrar of Company. Therefore, the petition is not maintainable. Admittedly, this company petition has been filed on 27th July, 2012 and the name of the company has been struck off from the register of the companies by Registrar of Companies in the year 2012, after filing of the petition. Therefore, it will have no effect on the present petition because on the date of the filing of the petition, company was in existence and it is also pertinent to mention that in the I A, the petitioner has claimed interim relief for rendering the accounts in respect of dealings with the funds and properties of the respondent No. 1 company, from the date of filing of the company petition till striking off. Therefore, the petitioner has not asked any account after the striking off the company. It is also pertinent to mention that directors are also individually responsible. Therefore, the petition is maintainable against directors. It is also necessary to mention that on the date of the filing of the petition, companies name was not struck off and it has been struck off only during the pendency of the petition. The petitioner claims that it is also a proof of alleged act of oppression and mismanagement that companies name has been struck off when the company was under effective management and control of respondent Nos. 2, 3, 4 and 5. In view of the above, it appears that interim application deserves to be allowed. I.A. is hereby allowed and respondent directors are directed to render the accounts in respect of dealings with the funds and properties of the respondent No. 1 company from the date of filing of the company petition till striking off and it is also being directed to investigate to make a report in respect of dealings of the transactions of the respondent Nos. 2,3,4,5 and 8 in connection with management and affairs of the company by any independent auditor. Parties are directed to give three names of independent auditors within 15 days from today from the date of order. If the parties fail to give names of the independent auditors within 15 days, then the Tribunal itself will appoint the independent Auditor for investigating into the dealings and transactions of the respondent Nos. 2, 3, 4, 5 and 8 in connection with the management and affairs of the company. This is purely an interim order to ensure that the assets of the Company are properly accounted for and protected.

Issues Involved:
1. Maintainability of the company petition.
2. Petitioner's locus standi and share qualification under section 399 of the Companies Act.
3. Allegations of oppression and mismanagement.
4. Striking off the company's name by the Registrar of Companies.
5. Interim relief and appointment of an independent auditor.

Detailed Analysis:

1. Maintainability of the Company Petition:
The respondents argued that the company petition is not maintainable on the grounds that the petitioner is not a shareholder of the respondent No. 1 company and that there is a pending partition suit regarding the estate of the petitioner's deceased father. The petitioner countered by asserting entitlement to 2576 equity shares (16.36% of the paid-up share capital) as the successor-in-interest of her late father, who held 10,304 equity shares. The petitioner relied on the Supreme Court case of World Wide Agencies Pvt. Ltd. vs. Margarat T. Desor, which established that legal representatives of deceased members listed in the register of members can petition under sections 397 and 398 of the Companies Act. The Tribunal found the petition maintainable, noting that the issue of maintainability had been previously addressed in an order dated 21.11.2014, which had not been appealed.

2. Petitioner's Locus Standi and Share Qualification:
The respondents contended that the petitioner did not have the requisite share qualification under section 399 of the Companies Act, as she did not hold any shares in her name. The petitioner argued that her entitlement to shares as a legal representative of her deceased father met the requirements of section 399, supported by the Supreme Court's ruling in World Wide Agencies Pvt. Ltd. The Tribunal agreed with the petitioner, recognizing her as having the necessary share qualification based on her entitlement to her father's shares.

3. Allegations of Oppression and Mismanagement:
The petitioner alleged that the respondents failed to fulfill their duties under the Companies Act, including filing necessary financial documents, leading to the striking off of the company's name. The petitioner claimed that the respondents acted collusively to siphon off company assets and sought an investigation into these allegations. The Tribunal acknowledged the seriousness of these allegations and the need for an independent auditor to investigate the management and affairs of the company.

4. Striking Off the Company's Name by the Registrar of Companies:
The respondents argued that the petition was not maintainable because the company's name had been struck off. The Tribunal noted that the petition was filed before the company's name was struck off and that the striking off was indicative of the alleged mismanagement. The Tribunal held that the petition remained valid as it was filed when the company was still in existence and that directors could still be held individually responsible.

5. Interim Relief and Appointment of an Independent Auditor:
The petitioner sought interim relief, including the appointment of an independent auditor to investigate the dealings and transactions of the respondent directors. The Tribunal allowed the interim application, directing the respondent directors to render accounts from the date of filing the company petition until the striking off of the company. The Tribunal also ordered the appointment of an independent auditor to investigate the management and affairs of the company, with both parties required to submit three names of independent auditors within 15 days. If the parties failed to do so, the Tribunal would appoint an auditor itself.

Order:
The Tribunal allowed I.A. No. 33/2016, directing the respondent directors to render accounts and appointing an independent auditor to investigate the management and affairs of the company. This interim order was made to ensure proper accounting and protection of the company's assets and would not affect the main company petition or any pending civil suits. Each party was to bear its own costs.

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