2017 (11) TMI 1237 - AT - Companies Law

Oppression and mismanagement - Tribunal directed the Appellant company to sell its shares to the 3rd party Libra - Held that - Tribunal has no jurisdiction to direct sale of shares to an outsider particularly while there are other shareholders, who may agree to purchase the same, a wrong doer also cannot get any relief. For the reason aforesaid, we set aside the last para of the order dated 7th April 2017 and as quoted at paragraph 3 above and affirm the rest part of the finding, whereby oppression and mismanagement as alleged by the Appellant has been upheld.

Summary

Issues Involved:
- Allegations of oppression and mismanagement under Sections 397, 398, 399, 111A, 402, and 406 of the Companies Act, 1956.
- Jurisdiction of the tribunal to direct the sale of shares to a third party.
- Applicability of legal principles regarding relief in cases of oppression and mismanagement.

Detailed Analysis:

Allegations of Oppression and Mismanagement:
The appeal was filed against an order by the National Company Law Tribunal (Kolkata Bench) allowing a Company Petition alleging oppression and mismanagement. The tribunal found that the failure to give notice of meetings constituted oppression and mismanagement. It was held that meetings were not properly notified to the petitioner, leading to statutory violations. The tribunal concluded that there was a clear case of oppression against the petitioner due to the lack of proper notice and passing of resolutions in their absence.

Direction to Sell Shares to a Third Party:
While the tribunal upheld the petition in favor of the appellant, it directed the company to sell its shares to a third party named 'Libra.' The appellant objected to this direction, arguing that the tribunal lacked jurisdiction to order the sale of shares to a third party under the Companies Act, 1956 or the Companies Act, 2013. The appellant contended that once oppression and mismanagement were established against certain respondents, no direction could be given to sell shares to a third party who was not a shareholder of the company.

Applicability of Legal Principles:
Legal principles from previous cases were cited, emphasizing that a majority shareholder should not typically be directed to sell shares to a minority group of shareholders, especially if the majority can rectify the situation. The tribunal acknowledged that it had no jurisdiction to direct the sale of shares to an outsider, particularly when other shareholders might be willing to purchase them. It was emphasized that a wrongdoer should not receive any relief, and the tribunal set aside the order directing the sale of shares to 'Libra' while upholding the findings of oppression and mismanagement.

In conclusion, the appeal was allowed to the extent that the direction to sell shares to 'Libra' was set aside, affirming the findings of oppression and mismanagement. No costs were awarded in the circumstances of the case.