2018 (7) TMI 55 - AT - Companies Law

Oppression and mismanagement - Increase in Share Capital - Held that - NCLT took note of the letter of the Bank of Baroda dated 24.11.2009 and the circumstances as to why it was necessary to increase the share capital. NCLT took note of the sequence of the events as to how the Original Respondent No.2 had approached Bank of Baroda for additional finance and the Bank of Baroda vide letter dated 24.11.2009 suggested increase in paid up share capital because of which the EOGM was required to be called. The NCLT thus found that the increase in the share capital was justified and the increase in the share capital was done after following due procedure. There is error in these conclusions drawn by the learned NCLT. Thus, on this count, we do not wish to interfere. Removal of Original Respondents 2 and 3 from posts of Directors - Held that - Sub-Section (6) of Section 169 of the old Act provided that if the Board does not, within 21 days from the date of deposit of a valid requisition in regard to any matters, proceed duly to call a meeting for the consideration of those matters on a day not later than 45 days from the date of the deposit of the requisition, the meeting may be called by the requisitionist themselves. Although the Petitioners were part of the Board of Directors, the requisition (Page 235) of special notice for removal of Directors was given by the Original Petitioners as shareholders. It is not that any Board Resolution as such had been passed. In such circumstances, looking to the reasoning recorded by the learned NCLT and considering the provisions of Section 169 as mentioned above, we do not find that the decision recorded by the learned NCLT that removal of Respondents 2 and 3 was not valid, could be found fault with. Thus we do not interfere on this count also. Parties continue to make allegations and counter allegations against each other with regard to the EOGM called by Respondents 2 and 3 on 27.01.2010 and the EOGM called by the Original Petitioners on 05.03.2010 and whether or not the allotment of shares after the increase in share capital was correct or not. The arguments of the Appellants (Original Respondent Nos.2 and 3) to rely on above documents dated 18.07.2010 and 14.01.2011 and on that basis to set aside the Impugned Order directing distribution of increased share capital, cannot be accepted as neither Company was party to them nor Company adopted them and question of oppression and mismanagement can be decided only by NCLT, which has much broader Jurisdiction to take decisions with regard to interest of Company. Looking to the submissions, we find substance in what the learned counsel for Original Petitioners is submitting. Thus, although the learned NCLT did not record in so many words as to why it was directing that the allotment in respect of increased share capital still needs to be made, there is no reason why we should interfere with the above direction of NCLT in para 92 (a) of the impugned order. One of the arguments raised by the learned counsel for the Appellants (Original Respondents 2 and 3) is that NCLT directed audit of accounts from 2009 2010 on the basis of allegations regarding siphoning but the Order shows that NCLT noted there were allegations of siphoning even for period earlier than 2009-2010. In this regard, Impugned Order shows NCLT considering the grievances of the parties in paragraphs 36 to 41 and in paragraphs 85 to 88. It considered the grievances and observed need of audit. Considering the grievances made by parties and observations of NCLT, audit of the accounts may be done since 2008 2009. The impugned Order needs to be modified only to that extent. Order In the impugned Order in directions Para 92(c), instead of words financial year 2009 2010 , we substitute the words financial year 2008 2009 . Rest of the directions given by NCLT in the impugned Order para 92 are maintained.

Summary

Issues Involved:
1. Whether dismissal of CA 39 of 2011 would have any effect on the reliefs prayed in CP 16 of 2012.
2. Whether filing of CP 16 of 2012 by VP Patel group without filing their reply in CP 86 of 2010 is valid or not.
3. Whether increase in paid-up share capital from rupees one crore to rupees two crores in the EOGM dated 27.01.2010 is an act of oppression or not.
4. Whether removal of respondents 2 and 3 as Directors of the company in Extra Ordinary General Meeting held on 05.03.2010 is valid or not.
5. What is the outcome of financial irregularities alleged by all the three groups of shareholders in both these petitions.

Detailed Analysis:

1. Effect of Dismissal of CA 39 of 2011 on Reliefs Prayed in CP 16 of 2012:
The NCLT found that the dismissal of CA 39/2011 by the Company Law Board was only an interim order and did not finally decide the dispute regarding the removal of Respondents 2 and 3. This finding was not disputed before the Appellate Tribunal.

2. Validity of Filing CP 16 of 2012 by VP Patel Group Without Filing Reply in CP 86 of 2010:
The NCLT concluded that the filing of CP 16/2012 by the VP Patel Group without filing their reply in CP 86/2010 was valid. This finding was also not disputed before the Appellate Tribunal, and no error was found on these counts.

3. Increase in Paid-Up Share Capital in EOGM Dated 27.01.2010:
The NCLT concluded that the increase in share capital and allotment of shares by itself were not acts of oppression. The NCLT found that the increase in share capital was justified and done after following due procedure, including the necessity highlighted by the Bank of Baroda's letter dated 24.11.2009. The Appellate Tribunal upheld this conclusion, finding no error in the NCLT's reasoning.

4. Removal of Respondents 2 and 3 as Directors in EOGM Held on 05.03.2010:
The NCLT found that the removal of Respondents 2 and 3 as Directors in the EOGM held on 05.03.2010 was not valid due to non-compliance with Section 169 of the Companies Act, 1956. The NCLT observed that the EOGM was called without a Board Meeting and without passing any Board Resolution, which was mandatory. The Appellate Tribunal upheld this finding, agreeing with the NCLT's reasoning.

5. Outcome of Financial Irregularities Alleged by All Three Groups:
The NCLT observed that there were no established acts of oppression and mismanagement but that the financial irregularities alleged required examination by Auditors. The NCLT directed an audit of accounts for the Financial Year 2009-2010 and appointed M/s. A.R. Sulakhe & Co. of Ahmedabad as Auditors. The Appellate Tribunal modified this direction, extending the audit to include the Financial Year 2008-2009, considering the grievances made by the parties.

Efforts at Compromise:
The Appellate Tribunal noted that the groups had made efforts to settle disputes through documents dated 18.07.2010 and 14.01.2011, but these documents did not involve the Company as a party and were not adopted by the Company. The Tribunal concluded that the question of oppression and mismanagement must be decided by the NCLT, which has broader jurisdiction to take decisions in the interest of the Company.

Allotment of Shares on Increase of Share Capital:
The NCLT directed that the allotment of shares in respect of increased share capital should be made to all existing shareholders as on 18.12.2009 in proportion to their shareholding. The Appellate Tribunal upheld this direction, finding that the proper and legal procedure for distribution of additional shares had not been followed by the Original Respondents 2 and 3.

Order:
The Appellate Tribunal modified the NCLT's order to extend the audit of accounts to include the Financial Year 2008-2009. All other directions given by the NCLT were maintained. Both appeals were disposed of accordingly, with no orders as to costs.