2017 (7) TMI 666 - Tri - Companies Law

Oppression and mismanagement - maintainability of petition - Held that - Contention of the Respondent challenging the maintainability of the present Petition does not stand as the Petitioner being the daughter and the successor-in-interest to the estate of the Late NCG represents a part of the deceased s property as a representative and therefore can be deemed to be a shareholder of 11.6% shareholding in the company through the Late NCG. The Petition is therefore maintainable Respondents were guilty of mismanaging the affairs of the Company so much so that it led to the Company s name being struck off the list of active companies. In addition to it the appointments of the various directors in the Company were done contrary to the statutory provisions and Articles of Association of the Company. For these reasons, it can be concluded that the public company is being run in a manner prejudicial to the interests of the stakeholders of the Company. Moreover, the Company as per a special resolution passed on 26th October, 1990, the Company became public under Section 44 of the Companies Act, 1956 and the word Private was deleted from the name of the company. However, the Articles of Association of the Company continue to reflect the present company being a private company. The Articles of Association of the Company needs to be amended to that effect. Petition is partly allowed. The Respondents are hereby directed to fulfil all the statutory compliances for a public limited Company as has been mandated under the Companies Act, 1956 with respect to the appointment of the directors to the Board. It is directed hereby that the Petitioner be given the right to partake in the management and the affairs of the Company to the extent of the shareholding she is entitled to. The Respondents are directed to amend the Articles of Association of the Company to reflect that the Company is a public limited company and not a private limited company. Preliminary decree is being passed for the appointment of a special auditor and conducting a special audit for auditing and for verification of the accounts of the Company. The expenditure of the special auditor and the audit to be conducted will be borne by the Respondents. Moreover, the shareholding in the Company that the Petitioner is claiming to be entitled to, is a part of the inheritance dispute that is pending at the Civil Court. Since the Tribunal herein is concerned with the issue of oppression and mismanagement, any finding by the Tribunal or the order passed herein shall have no effect on the aforementioned Civil Partition proceedings pending between the parties in any Civil Court

Summary

Issues Involved:
1. Maintainability of the Petition.
2. Validity of Appointments to the Board of Directors.
3. Allegations of Oppression and Mismanagement.

Detailed Analysis:

1. Maintainability of the Petition:
The primary issue was whether the Petitioner, as a legal heir and successor-in-interest of a deceased shareholder (NCG), could maintain a petition under sections 397 and 398 of the Companies Act, 1956. The Tribunal referenced the case of *World Wide Agencies (P.) Ltd. v. Mrs. Margaret T Desor*, which established that legal heirs of a deceased shareholder could be regarded as members of the Company for such purposes. It was concluded that the Petitioner, representing 11.6% shareholding through NCG, was eligible to bring forth the petition. Consequently, the Petition was deemed maintainable.

2. Validity of Appointments to the Board of Directors:
The Petitioner challenged the appointments of R2, R3, and R5 to the Board of Directors, alleging non-compliance with statutory provisions. The Tribunal found:
- R2's Appointment: The board meeting on 31st July 2007 lacked quorum as it was only signed by MKG and R2, not by NCG or R6, making R2's appointment invalid.
- R3's Appointment: Conducted on 24th September 2008, the same day MKG passed away, was signed only by R2, whose own appointment was contested, thus invalidating R3's appointment.
- R5's Appointment: No evidence of board meetings or resolutions for R5's appointment was provided, rendering it invalid.

The Tribunal concluded that the appointments of R2, R3, and R5 were illegal and non-compliant with the Companies Act, 1956.

3. Allegations of Oppression and Mismanagement:
The Petitioner contended that the Company's affairs were conducted in a manner prejudicial to her interests and those of the Company. Specific allegations included:
- Denial of access to books and records.
- Illegal appointments to the Board.
- Non-compliance with statutory requirements leading to the Company being struck off and later restored by the High Court.

The Tribunal found evidence of mismanagement, including the Company's name being struck off due to non-filing of statutory documents. The Tribunal also noted that the Articles of Association needed amendment to reflect the Company's status as a public limited company, per a special resolution passed on 26th October 1990.

Order:
The Tribunal partly allowed the Petition, directing the Respondents to:
- Fulfill all statutory compliances for a public limited company.
- Allow the Petitioner to partake in the management and affairs of the Company to the extent of her shareholding.
- Amend the Articles of Association to reflect the Company's public status.

A preliminary decree was passed for the appointment of a special auditor to conduct a special audit, with costs borne by the Respondents. The Tribunal clarified that its findings would not affect the pending civil partition proceedings regarding inheritance disputes.

The Company Petition No. 399/2012 was disposed of, with parties bearing their own costs.