2017 (7) TMI 223 - Tri - Companies Law

Oppression and mismanagement - removal from the Directorship - Held that - The collateral security given by the petitioner to the bank cannot be charged for such losses caused to 1st Respondent company. The acts of omission and commission of R2 and R3 have caused losses to 1st Respondent company which are against the legitimate expectations of the petitioner. The same may not be oppressive in nature, but constitutes mismanagement of 1st Respondent company. Issue No. l partly proved against R2 and R3. Since we have concluded that issue No. l is partly proved against R2 and R3, the petitioner is not liable for the losses that have been suffered by R1 company, due to the acts of omission and commission of R3, and R2 failed to initiate corrective measures. Therefore, it is held that R3 alone shall be liable to pay 1st Respondent company a sum of ₹ 16.48 crores with bank interest being the money overdrawn by him through current A/c No.2233 operated by R3 as sub-account. For the reasons stated above, R3 is hereby removed from the Directorship of the company and the petitioner is appointed as Director-cum-Managing Director of the company who shall perform his duties diligently to run the day to day affairs of the company smoothly along with R2 who is directed to render all assistance and support to the newly appointed Director-cum-Managing Director. Further, 1st Respondent company shall not allow third party to use the goodwill of the company for the benefit of third party. The petitioner is also forbidden to compete with 1st Respondent company in any manner, so that the company could grow in future. Accordingly, the petition is disposed of.

Summary

Issues Involved:
1. Whether the acts of omission and commission of R2 and R3 constitute acts of oppression and mismanagement of the affairs of R1 company.
2. Liability of R3 for the losses allegedly caused to R1 company by R2 and R3.
3. Reliefs.

Issue-Wise Detailed Analysis:

1. Acts of Omission and Commission as Oppression and Mismanagement:
The petitioner argued that the company had a mutual arrangement where each director (the petitioner, R2, and R3) managed their projects independently, functioning as individual cost and profit centers. The petitioner and R2 successfully completed their projects, while R3 failed to complete his projects, resulting in cancellations and significant financial losses. R3 overdrawn from his sub-account to the tune of ?16.48 crores as of 31.03.2012. The petitioner claimed he should not be liable for the losses caused by R3’s mismanagement. The tribunal found that the acts of omission and commission by R2 and R3 caused losses to the company, which, while not oppressive, constituted mismanagement. Thus, issue No. 1 was partly proved against R2 and R3.

2. Liability for Losses:
The tribunal concluded that the petitioner, having successfully completed his projects, should not be held liable for the losses incurred by the company due to R3’s mismanagement and overdrawn funds. R3 alone was held responsible for the losses suffered by the company. Consequently, R3 was directed to pay the company ?16.48 crores with bank interest, being the money overdrawn by him through current account No. 2233 operated by R3 as a sub-account.

3. Reliefs:
The tribunal ordered the removal of R3 from the directorship of the company and appointed the petitioner as Director-cum-Managing Director, with R2 directed to support the newly appointed Director-cum-Managing Director. Additionally, the company was instructed not to allow third parties to use its goodwill. The petitioner was also forbidden from competing with the company to ensure its future growth. The petition was disposed of without any order as to costs.