2017 (11) TMI 1183 - HC - Companies Law

Oppression and mismanagement - application to the Company Law Board for appropriate relief qua oppression - Held that - removal of directors - The Company Law Board gave a specific finding bringing the case under Sections 397 and 398 of the Act, thus exercised the powers under Section 402 of the Act. There is no dispute on the memorandum of understanding entered into. It has been entered into by the second appellant on behalf of the first appellant. The fact that it has been given effect to is not in dispute through the shares allotted and as seen from the subsequent documents including the correspondence with the bank. Therefore, it is not open to the appellants to contend that it was purely an agreement between the second appellant and the first respondent. Similarly, the transaction is not a pure and simple money transaction. If that is the case, there was no need to remove the Directors and reduced the shares through the meetings conducted without respondents 1 and 2. All these aspects have been considered at length by the Company Law Board. This Court does not find any perversity in the decision arrived at. Having found that the appellants are still holding 51% of the shares and having the company run by the family members, the Company Law Board rightly granted the relief. The appellants could not produce any document to show that due procedure has been followed in conducting the meetings. In fact, as rightly found by the Company Law Board, there was no need for such a meeting at all. There was no consideration passed. Obviously, the attempt was to cripple and curtail the activities of respondents 1 and 2 qua the company. The findings have been rendered only on facts. When such is the position, as rightly submitted by the learned senior counsel for the respondents, appeal is liable to be dismissed for want of existence of a question of law. When once the appellants are unable to frame a question of law and convince the Court of its existence, the appeal becomes not maintainable. In other words, this Court can go into the appeals only on satisfying the existence of question of law and thereafter answers it. In such view of the matter, this Court does not find any question of law involved, warranting interference.

Issues Involved:
1. Scope and powers of the Company Law Board under Sections 397, 398, and 402 of the Companies Act, 1956.
2. Validity of the actions taken by the appellants, including the removal of directors and issuance of shares.
3. Allegations of oppression and mismanagement.
4. Applicability of Section 10F of the Companies Act for appeals.
5. Factual findings and the role of the High Court in reviewing these findings.

Issue-wise Detailed Analysis:

Scope and Powers of the Company Law Board:
The judgment discusses the extensive powers granted to the Company Law Board (CLB) under Sections 397, 398, and 402 of the Companies Act, 1956. Section 397 provides relief against oppression, while Section 398 addresses mismanagement. Section 402 outlines the orders the CLB can make when applications are filed under Sections 397 and 398, indicating that these powers are of wider import and can be exercised in the interest of justice. The judgment references several precedents, including Mohanlal Ganpatram Vs. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd., and V.S. Krishnan Vs. Westfort Hitech Hospital Ltd., highlighting that the CLB's powers are substantial and discretionary.

Validity of Actions Taken by the Appellants:
The appellants conducted an Annual General Meeting (AGM) and an Extraordinary General Meeting (EGM) without proper notice to the respondents, resulting in the removal of the respondents as directors and the issuance of 20 lakh shares to sister concerns without consideration. The CLB found these actions to be oppressive and lacking in probity and good faith. The judgment emphasizes that the meetings were conducted with a design to reduce the respondents' shareholding and remove them from directorships by backdoor methods.

Allegations of Oppression and Mismanagement:
Respondents 1 and 2 approached the CLB under Sections 397 and 398, alleging oppression and mismanagement. The CLB concluded that the appellants' actions constituted oppression, particularly the removal of the respondents as directors and the issuance of shares without consideration. The judgment underscores that the appellants' conduct was aimed at curtailing the respondents' involvement in the company, thus justifying the relief granted by the CLB.

Applicability of Section 10F of the Companies Act for Appeals:
Section 10F permits appeals against CLB decisions only on questions of law. The judgment clarifies that the High Court's role is limited to addressing legal questions arising from the CLB's order and does not extend to re-evaluating factual findings. The appellants' inability to frame a substantial question of law renders the appeals non-maintainable.

Factual Findings and Role of the High Court:
The High Court reviewed the factual matrix, including the financial crisis faced by the first appellant, the memorandum of understanding (MoU) between the parties, and the subsequent actions taken by the appellants. The judgment affirms the CLB's findings that the appellants' actions were oppressive and that the respondents were entitled to relief. The High Court found no perversity in the CLB's decision and emphasized that the appeals lacked a substantial question of law, thereby dismissing them.

Conclusion:
The High Court upheld the CLB's decision, which directed the appellants to repay ?2,48,17,620/- with 6% interest per annum to the respondents, finding the appellants' actions oppressive and lacking in good faith. The appeals were dismissed for want of a substantial question of law, and the judgment reinforces the discretionary and wide-ranging powers of the CLB under the Companies Act.

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