2017 (12) TMI 453 - Tri - Companies Law

Oppression and mismanagement - whether there was due diligence on the part of the applicant petitioner? - Held that - According to the applicant petitioner, he has got knowledge of appointment of respondent No. 3 as Director only after he made part inspection of record on 29.07.2016. The facts appearing on record is glaringly different. Respondent No. 3 is Director of the first respondent company from 02.05.2015 and relevant forms have been filed with Registrar of Companies on 07.05.2015. Company Petition has been filed on 25.08.2015. When the petitioner inspected the records of the company he must have got knowledge that the third respondent is Director of the first respondent company. In the cause title of main petition itself respondent No. 3 is shown as Director/shareholder. Therefore, it is clear that applicant petitioner has got ample knowledge that respondent No. 3 is Director of the first respondent company by the date of filing this petition. Having knowledge of appointment of the third respondent as Director of first respondent company even before filing of this petition, applicant petitioner did not chose to make any such grievance or any comment on appointment of respondent No. 3 as Director of the first respondent company. Therefore, the amendment now sought to be made seeking removal of third respondent as director is nothing but an afterthought and omission of seeking such relief in the main petition is absence of due diligence. Coming to the amendment of siphoning of funds by respondents No. 2 and 3 together, there are some allegations in the main petition. Now the petitioner wants to bring on record subsequent acts of siphoning of funds on record. When the petitioner is alleging that the oppression and mismanagement is continuous act, petitioner is at liberty to bring on record subsequent oppression too by filing affidavit without amending the pleadings. Therefore, the amendment now sought to be made by the petitioner is not covered by proviso and it is lacking bona fides. Crucial point for allowing any amendment is that the amendment must be necessary for the purpose of determining the real question or issue involved in the proceedings. When the petitioner did not chose to question the appointment of respondent No. 3 in the petition although he has got knowledge, then, it cannot be said that the real question involved in this case is appointment of third respondent as Director. The real controversy involved in this case is whether there are acts of oppression and mismanagement qua the petitioner and the first respondent company. To decide such acts of oppression and mismanagement, appointment of third respondent as Director of the first respondent company, need not be taken up by way of amendment. In view of above discussion, application seeking amendment is not a bona fide application and deserves to be dismissed and accordingly dismissed

Summary

Issues Involved:
1. Amendments to the reliefs and body of the petition.
2. Challenge to the appointment of Respondent No. 3 as Director.
3. Allegations of mismanagement and oppressive behavior.
4. Siphoning of company funds by Respondent Nos. 2 and 3.
5. Compliance with procedural rules for amendments.

Detailed Analysis:

1. Amendments to the reliefs and body of the petition:
The petitioner sought several amendments, including the removal of Respondent No. 3 as Director, prevention of changes in directorship without minority shareholders' approval, and directions for the respondents to compensate for losses and statutory liabilities caused by their mismanagement and oppressive behavior. The petitioner also sought to restrain Respondent No. 3 from discharging functions as Director and receiving remuneration.

2. Challenge to the appointment of Respondent No. 3 as Director:
The petitioner argued that the appointment of Respondent No. 3 was illegal and done without his consent. The petitioner claimed no Board Meeting was convened for this appointment, and no resolution was passed. The petitioner also highlighted that Respondent No. 3 automatically vacated office on September 30, 2015, as no shareholders' resolution approved his appointment. The petitioner alleged that Respondent No. 2 used his authority to appoint his son (Respondent No. 3) to increase control over the company.

3. Allegations of mismanagement and oppressive behavior:
The petitioner alleged that Respondent Nos. 2 and 3 engaged in purchasing raw materials at higher prices from firms they were interested in and selling products at lower prices to those firms, causing financial losses to the company. The petitioner claimed these actions resulted in erosion of shareholders' net worth and statutory liabilities.

4. Siphoning of company funds by Respondent Nos. 2 and 3:
The petitioner accused Respondent Nos. 2 and 3 of siphoning off significant funds from the company's accounts to their personal accounts and other companies they were interested in. Evidence of these transactions was provided through bank statements.

5. Compliance with procedural rules for amendments:
The Tribunal referred to Rule 155 of NCLT Rules, Regulation 46 of Company Law Board Regulations, and Order VI, Rule 17 of the Civil Procedure Code, which allow amendments necessary for determining the real question in controversy. The Tribunal noted that the first amendment application was filed beyond the 30-day period from the completion of pleadings and after the commencement of the hearing, thus lacking due diligence.

The Tribunal emphasized that due diligence means careful and persistent application and effort. The petitioner had knowledge of Respondent No. 3's directorship before filing the petition but chose not to challenge it initially. The Tribunal found the amendment application to be an afterthought and lacking bona fides. The real controversy was whether there were acts of oppression and mismanagement, not the appointment of Respondent No. 3.

Conclusion:
The Tribunal dismissed the application for amendments, stating it was not bona fide and unnecessary for determining the real issues in the case. The Tribunal concluded that the petitioner could bring subsequent acts of oppression on record by filing an affidavit without amending the pleadings. No orders as to costs were made.