2018 (8) TMI 258 - AT - Companies Law

Oppression and mismanagement - Held that - When major part of property of the Company has been shown as sold off by Respondent No.2 who had tendered resignation as Director but went ahead to execute the sale deed, there was oppression and mismanagement on the part of Respondents 2 to 4. Respondent No.7 was mother-in-law of Respondent No.3 who is brother of the Respondent No.2. Looking to such relationship of these parties and the fact that it is Private Limited Company, keeping in view the contradictory pleadings claiming exchange viz-a-viz the sale deed claiming that money had been paid, the transaction in favour of Respondent No.7 was apparently suspicious and transfer without authority. Respondent No.2 could not have passed title to Respondent No.7. If Respondent No.7 did not have legal title, she could not pass it to Respondent No.8. Respondent No.8 failed to verify if his vendor had duly acquired title and thus failed to act reasonably to show bona fides. The learned NCLT rightly set aside both the sale deeds dated 3rd November, 2015 and 4th November, 2016. The arguments on behalf of Respondents 3, 4 and 7 depending action of Respondent No.2 executing sale deed relying on Section 176 of the Companies Act, 2013 cannot be accepted. Section 176 provides that no act done by a person as Director shall be deemed to be invalid, notwithstanding that it is subsequently noticed that the appointment was invalid for reasons stated in the Section. In the present set of facts where it is shown that the Respondent No.2 had incurred disqualification and had also resigned, the act of such Respondent in subsequently going ahead and holding himself out as Director to execute sale deed cannot be protected. Such acts attract criminal liability. Although other allegations were made in the Company Petition but NCLT did not find any merits in the other contentions raised. Even before us, no sufficient material has been pointed out to examine the other averments of oppression and mismanagement made in the Company Petition and thus we do not find any reason to interfere in that part of the finding of NCLT where it rejected other reliefs sought by the Original Petitioner.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Allegations of oppression and mismanagement.
3. Validity of sale deeds dated 03.11.2015 and 04.11.2016.
4. Bona fide purchaser claims by Respondent No.8.
5. Jurisdiction of NCLT to decide on the matter.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The tribunal addressed the issue of delay in filing the appeal by examining the reasons presented in the IA. It concluded that the delay in the presentation of the appeal was justified and thus condoned it.

2. Allegations of Oppression and Mismanagement:
The Original Petitioner, a shareholder holding 9.33% of the share capital, alleged that Respondent No.2, despite being disqualified and having resigned, continued to act as a Director and executed a sale deed without informing other shareholders or passing a resolution. The NCLT found that there was indeed oppression and mismanagement by Respondents 2 to 4. It was highlighted that Respondent No.2 had misappropriated company funds and that the entire Katta family had indulged in fraudulent activities.

3. Validity of Sale Deeds Dated 03.11.2015 and 04.11.2016:
The NCLT set aside the sale deeds executed by Respondent No.2 in favor of Respondent No.7 and subsequently by Respondent No.7 to Respondent No.8. The tribunal noted that Respondent No.2 was not a Director at the time of executing the sale deed and had been disqualified due to a criminal conviction. The sale was conducted without proper authorization, violating the Articles of Association and the Companies Act, 2013.

4. Bona Fide Purchaser Claims by Respondent No.8:
Respondent No.8 claimed to be a bona fide purchaser who had exercised due diligence. However, the tribunal found that the documents presented to support this claim were obtained after the sale deed was executed and were not part of the records before the NCLT. The tribunal concluded that Respondent No.8 failed to verify the vendor's title adequately and thus could not be considered a bona fide purchaser.

5. Jurisdiction of NCLT to Decide on the Matter:
Respondent No.8 argued that the issue should be decided by a Civil Court under the Specific Relief Act and not by the NCLT. However, the NCLT found that it had the jurisdiction to decide on the matter as it involved allegations of oppression and mismanagement under the Companies Act, 2013.

Conclusion:
The tribunal dismissed both appeals, upholding the NCLT's decision to set aside the sale deeds and rejecting other reliefs sought by the Original Petitioner due to lack of sufficient material. The tribunal also clarified that the actions of Respondent No.2, who had resigned and was disqualified, could not be protected under Section 176 of the Companies Act, 2013, and attracted criminal liability.