2017 (11) TMI 842 - AT - Companies Law

Oppression and mismanagement - in spite of the status quo orders Directors have changed and shareholding in the company has been considerably changed - transfer of shares - control of the Company itself has changed in the face of status quo orders - Held that - It is clear that the Respondents knew about the Status Quo Order and pending petition. Still they entered into the MoU and took steps under the same. Disputes inter say the two groups of Respondents later on arose because it appears that original Respondents received a sum of ₹ 15 lakhs as token money but as the balance was not paid, they have started denying the transfer of shares to added Respondents while the added Respondents appear to be in-charge of the affairs of the Company on the basis of their claim that the original Respondents did transfer their shares. It appears there has been enhancement in the shareholding also. The original Respondent Nos. 2 to 4 violated the status quo orders and transferred their shares to added Respondents and the added Respondents have continued to act in violation of Status Quo Orders and there is change of shareholding in spite of knowing that there was a Status Quo Order and the shares could not have been transferred to them. It is clear that original Respondents 2 to 4 acted in an oppressive manner by taking advantage of the Appellant being sent behind the bars at the instance of the Respondent No. 2 and brought about the EGM on 31.05.2006 and illegally removed the Appellant from the post of Managing Director and in violation of the status quo order transferred their shares to added Respondents and it has further transpired that the shareholding of the Company itself has increased manifold and such acts of the Respondents clearly show that there is a grave mismanagement with these Respondents not paying any respect to the status quo order, which were admittedly there. Para- 14.3.2.3 reproduced above from the impugned order, where reference has been made to the agreement between these respondents shows that in the MOU dated 01.04.2009, these Respondents were aware that they need to tide over the status quo and the contract was to be concluded when the status quo is vacated and the petition filed by the Appellant is finally decided. It is surprising, however, that the learned NCLT even after noticing such conduct of the Respondents did not hold that Respondent Nos. 2 to 4 had committed acts of oppression and mismanagement because of which now added Respondents are in control of the affairs of the Company. We find that the Company Petition was wrongly dismissed. Appeal is allowed. The impugned judgment and order passed by learned NCLT is quashed and set aside.

Summary

Issues Involved:
1. Illegal removal of the Appellant as Managing Director.
2. Violation of the status quo order regarding immovable property and shareholding.
3. Transfer and allotment of shares to added Respondents.
4. Alleged oppression and mismanagement by the Original Respondents.
5. Validity of the Extraordinary General Meeting (EGM) held on 31.05.2006.

Issue-wise Detailed Analysis:

1. Illegal Removal of the Appellant as Managing Director:
The Appellant claimed that he was removed from the position of Managing Director without being given a special notice or a chance to respond as required under Section 284 of the Companies Act, 1956. The Respondent No. 2 convened an EGM on 31.05.2006 while the Appellant was in jail, without proper notice, resulting in his illegal removal. The learned Counsel for the original Respondents could not show that the notice of the EGM was served on the Appellant, only stating that it was published in newspapers. However, the notices published related to "Naraingarh Sugar Mills Limited" and not "Naraingarh Distillery Ltd," thus failing to provide proper notice for the Appellant's removal.

2. Violation of the Status Quo Order:
The Company Law Board had passed a status quo order on 11.09.2007 regarding the immovable property and shareholding of the company. Despite this order, the Original Respondents transferred their shares to the added Respondents and allotted additional shares, diluting the Appellant's shareholding from 19.2% to 1.12%. The learned NCLT noticed these violations but did not hold that the Respondents' actions amounted to oppression and mismanagement.

3. Transfer and Allotment of Shares to Added Respondents:
The Appellant amended his petition to challenge the subsequent transfer and allotment of shares to the added Respondents. The Original Respondents had transferred their shares to the added Respondents in violation of the status quo order. The added Respondents claimed that the Appellant had settled disputes with the Original Respondents and thus could not pursue the current petition. However, the learned NCLT observed that the Respondents knew about the status quo order and still proceeded with the transfer and allotment of shares.

4. Alleged Oppression and Mismanagement by the Original Respondents:
The Appellant alleged that the Original Respondents acted oppressively by removing him as Managing Director and violating the status quo order. The learned NCLT found that the removal of the Appellant could not be considered an act of oppression under Sections 397 and 398 of the Companies Act, 1956. However, the Appellate Tribunal noted that the Original Respondents' actions, including the illegal removal and transfer of shares, constituted oppression and mismanagement.

5. Validity of the Extraordinary General Meeting (EGM) Held on 31.05.2006:
The EGM held on 31.05.2006, where the Appellant was removed as Managing Director, was found to be invalid due to the lack of proper notice. The learned NCLT observed that the notice was published in newspapers, but the notices related to a different company. The Appellate Tribunal concluded that the EGM was convened illegally, and the Appellant's removal was not in compliance with the required legal procedures.

Conclusion:
The Appellate Tribunal allowed the appeal, quashing and setting aside the impugned judgment and order passed by the learned NCLT. The transfer and allotment of shares to the added Respondents were quashed, and the appointment of Respondent Nos. 5 to 7 as Directors was set aside. The status quo regarding Directorship and shareholding pattern as on 11.09.2007 was restored. The appeal was disposed of with no orders as to costs.