2017 (6) TMI 693 - Tri - Companies Law

Act of oppression - appointment of directorship of the Respondent No.3 - Held that - Considering the equities between the parties and while exercising the equitable jurisdiction, as find that the equity is in favour of the respondent and it would be highly unjust to grant the relief as sought for by the petitioner. Rather, it is the conduct of the petitioner as detailed above which has been prejudicial to the interest of the functioning of the Company and the shareholders. The appointment of Respondent No.3, it was done in the interest of the Company, i.e. for the operational convenience. As the Company is not doing any business and the only asset is a Flat situated at New Alipore and the same has also been admitted by the petitioner. The further allegation that the appointment was done without issuing of notice to the Director is also not tenable in as much as, as per Articles of Association, Clause 10(b), speaks that any omission to give notice to or the non-receipt of notice by any member or other person whom it should be given, shall not invalidate the proceeding at the meeting as mentioned in page 50 of the CP. The Memorandum of Association and the Articles of Association are the mandate of the shareholders in the Company having the nature of quasi-partnership. They are supposed to abide by their own Memorandum of Association and the Articles of Association. As also when the Respondent No.4 having not actively participated in the affair of the Company and the Company since then could not carry on any active business due to dysfunctional Board of Directors, the appointment of Respondent No.3 was justified in the best interest of the Company, as also the shareholders of the Company. There is no act of oppression against the petitioner or that there is any lack of probity on the part of the Respondents. Thus, there is no scope to declare the appointment of the Respondent No.3 as invalid and/or to declare any Board meeting and the Annual General Meeting as illegal and void on the ground that it was an act of oppression.

Summary

Issues Involved:
1. Legality of the appointment of Respondent No. 3 as Director.
2. Alleged wrongful letting out of the Company’s flat.
3. Allegations of oppression and mismanagement by the Respondents.

Detailed Analysis:

Issue 1: Legality of the Appointment of Respondent No. 3 as Director
The petitioner alleged that Respondent No. 3 was wrongly appointed as Director without proper quorum and notice. The Tribunal examined the Articles of Association, specifically Clause 10(b), which states that the omission to give notice or non-receipt of notice by any member does not invalidate the proceedings. The Tribunal found that the Company had not been conducting any business and had a practice of obtaining telephonic consent for meetings, which the petitioner had not challenged for previous meetings. The Tribunal concluded that the appointment of Respondent No. 3 was justified in the interest of the Company, especially since the petitioner and Respondent No. 4 were based in Chennai and not actively participating in the Company’s affairs. The Tribunal held that the appointment was not illegal.

Issue 2: Alleged Wrongful Letting Out of the Company’s Flat
The petitioner claimed that the flat was purchased for his residential use and was wrongfully let out by the Company. The Tribunal noted that the flat was purchased in the name of the Company before the petitioner and Respondent No. 4 were inducted. The flat had been let out since its purchase, and the rental income was used to repay the loan taken for its purchase. The Tribunal found no evidence supporting the petitioner’s claim that the flat was intended for his personal use. The Tribunal held that the letting out of the flat was not wrongful.

Issue 3: Allegations of Oppression and Mismanagement
The petitioner alleged various acts of oppression and mismanagement, including the illegal appointment of Respondent No. 3 and the wrongful letting out of the flat. The Tribunal referred to several legal precedents to define oppression as conduct that is burdensome, harsh, and wrongful. The Tribunal found that the petitioner had not participated in the Company’s affairs for several years and had not challenged previous meetings or decisions, indicating acquiescence. The Tribunal also noted that the petitioner had not provided evidence of any material prejudice or detriment caused by the respondents’ actions. The Tribunal concluded that the petitioner had not established a case of oppression or mismanagement.

Conclusion:
The Tribunal dismissed the petition, stating that the petitioner had not come with clean hands and had failed to establish the allegations against the respondents. The Tribunal observed that the appointment of Respondent No. 3, although irregular, was in the interest of the Company and its shareholders and did not cause any prejudice to the petitioner. The Tribunal emphasized that not every illegal act is oppressive, and no evidence was found that the respondents’ conduct was harsh, burdensome, or wrongful. The relief sought by the petitioner was declined, and the petition was dismissed without cost.