2017 (12) TMI 827 - AT - Companies Law

Oppression of mismanagement - Allotment of equity shares disproportionate - Held that - Appellant approached the Tribunal and put its grievances under sections 59, 241, 242, 244 of the Companies Act with prayers of transfer of shares, allotment of shares and meetings deciding allotment to be declared null and void. Tribunal except deciding on the issue of removal of the appellant/petitioner, has not dealt with any other grievances/prayer of the Appellant and disposed of the petition without dealing with the merits. Allotment of equity shares disproportionate to the holding of the existing shareholders is act of oppression of R-2 and R-3 was one of the main issues put for consideration before the Tribunal. The shareholding of the appellant reduced to almost 14% from 49.99. Yet the Tribunal without going into the merits of the case had disposed of the Company Petition. Section 62 clearly specifies the manner in which the shares of a company are, to be offered and it is only when the party to whom it has been offered declines or is deemed to have declined, that the shares are to be distributed among the other shareholders of the company. The appellant further argued that the increased of paid up capital of the 1st Respondent is in violation of Section 62 of the Companies Act, 2013 which brought the combined shareholding of 2nd and 3rd Respondent at more than 50% of the total shareholding of the 1st Respondent & reduced the shareholding of the appellant to 14.29% on 26th November, 2016 prejudicial to the interest of the appellant with the sole view to oppress her. We have seen the facts of the case and to our mind the approach of NCLT, Hyderabad to pick and choose the issues is not appropriate on not giving any findings on the oppression committed against the appellant, if any. The Tribunal has, not given any findings on the issues relating to share capital and oppression committed against the appellant and have dealt with the matter relating to removal of the appellant from the directorship. We, therefore, remand back the matter to the Tribunal to deal with the issues raised in the petition on merit. However, in the meantime National Company Law Tribunal, Hyderabad may pass an order that if any Board Resolution is passed for removal of the appellant from the post of Director, the same shall not be given effect till the disposal of the case by it. We expect that the National Company Law Tribunal (NCLT), Hyderabad will decide the matter expeditiously in terms of Section 422 of the Companies Act, 2013.

Summary

Issues Involved:
1. Validity of the removal of the appellant as Director.
2. Validity of the transfer and allotment of shares.
3. Validity of Board and General Meetings.
4. Compliance with Section 62 of the Companies Act, 2013.
5. Allegations of oppression and mismanagement.

Issue-wise Detailed Analysis:

1. Validity of the removal of the appellant as Director:

The Tribunal noted that the notice for the removal of the appellant as Director did not contain reasons for the proposal, making it impossible for the appellant to provide a reply. The Tribunal directed that any Board Resolution passed for the removal of the appellant from the post of Director shall not be given effect until further orders.

2. Validity of the transfer and allotment of shares:

The appellant challenged the transfer of shares from the 5th Respondent to the 3rd Respondent and the subsequent allotment of shares, alleging violations of Section 56 and Section 62 of the Companies Act, 2013. The appellant contended that the allotment of shares was done without proper notice and was aimed at reducing her shareholding to a minority. The respondents countered that the share allotments were made with due notice and consent of all directors, including the appellant.

3. Validity of Board and General Meetings:

The appellant sought to declare several Board and General Meetings as null and void, alleging procedural irregularities and violations of the Companies Act. The Tribunal did not provide findings on these allegations and focused primarily on the issue of the appellant's removal as Director.

4. Compliance with Section 62 of the Companies Act, 2013:

The Tribunal discussed the mandatory requirements of Section 62, which include offering further shares to existing equity shareholders in proportion to their holdings, providing time to accept or reject the offer, and the option to renounce shares in favor of others. The appellant argued that the increase in share capital and the allotment of shares were done in violation of Section 62, aimed at oppressing her. The Tribunal noted the need to examine whether the company complied with the notification G.S.R. 241(E) issued by the Ministry of Corporate Affairs.

5. Allegations of oppression and mismanagement:

The appellant alleged that the increase in authorized share capital and the subsequent allotment of shares were acts of oppression intended to reduce her shareholding. The Tribunal acknowledged that the appellant's shareholding was reduced from 49.99% to 14.29% and that the issues of oppression and mismanagement were not adequately addressed in the impugned order. The Tribunal directed the National Company Law Tribunal, Hyderabad, to re-examine these issues on merit and provide findings on the allegations of oppression and mismanagement.

Conclusion:

The Tribunal remanded the matter back to the National Company Law Tribunal, Hyderabad, to deal with the issues raised in the petition on merit, emphasizing the need for expeditious disposal in terms of Section 422 of the Companies Act, 2013. The Tribunal also directed that any Board Resolution for the removal of the appellant from the post of Director shall not be given effect until the case is disposed of.