2018 (12) TMI 1373 - AT - Companies Law

Oppression and mismanagement - appellants argued that they have not made any claim that they are the shareholders of the first respondent and it is not their claim - Held that - We have given a thoughtful consideration on this issue and it would have to be examined whether the first respondent is a necessary party or not and if so the appellants (the original petitioners) would have been directed to make suitable amendments. In the light of it we do not find that the dismissal of the company petition at the preliminary stage on this would be justified and at best the first respondent could only be deleted from the arrays of the parties which also we have to reach a conclusion after some examination. The other issue on which the company petition was dismissed raised in this appeal that no board resolution authorising representation of the appellant-company was presented. On this issue learned counsel for the appellants argued that no board resolution is required to be shown by shareholders of a company claiming to act in the name of that company, on the principle of derivative rights to act for and/or on behalf of, and/or in the name of the company. Learned counsel further argued that at the highest appellants (the original petitioners) could have been directed that the company shall not be allowed to be represented until such time a board resolution was presented or it could have been directed to stand stripped from the array of the appellants. We are, therefore, of the opinion that the appellants (the original petitioners) should have been given time to produce the authority to represent the company or it could have been directed to stand stripped from the arrays of the appellants. Further the second to fourth appellants have also an independent right to move the application for oppression and mismanagement against their interest even if they are representing the company. Therefore, the dismissal of the petition that they do not have a board resolution, etc., would be a partial truth only which should not amount to denial of right of a shareholder to move an application for oppression and mismanagement. The other issue raised by the respondents was that the appellants are not shareholders of the appellant-company. On the other hand, the appellants have stated that they are the shareholders of the appellant-company on affidavit, therefore, the Tribunal would have directed the appellants to present the proof of their shareholding during the course of hearing and then should have come to the conclusion whether the appellants are shareholders of the appellant-company or not. In view of the above observations, we set aside the impugned order passed in Company Petition and direct the Tribunal to rehear the company petition in view of our above observations.

Summary

Issues Involved:
1. Locus standi of the appellants to file the petition under section 241/242 of the Companies Act, 2013.
2. Absence of a board resolution authorizing representation of the appellant-company.
3. Shareholding status of the appellants in the appellant-company.
4. Misjoinder of parties and abuse of the process of law.

Issue-wise Detailed Analysis:

1. Locus Standi of the Appellants:
The Tribunal dismissed the petition on the grounds that the appellants lacked locus standi to file under section 241/242 of the Companies Act, 2013, as they were not shareholders of the first respondent-company. The appellants argued that they never claimed to be shareholders of the first respondent but were contesting the misuse of the first respondent by other respondents to commit acts of oppression and mismanagement. The Tribunal should have considered removing the first respondent from the array of parties instead of dismissing the petition. The Appellate Tribunal agreed that the dismissal at the preliminary stage was unjustified and that the necessary amendments should have been directed.

2. Absence of a Board Resolution:
The Tribunal also dismissed the petition due to the absence of a board resolution authorizing the appellant-company’s representation. The appellants argued that shareholders could act on behalf of the company under derivative rights without a board resolution. The Appellate Tribunal opined that the appellants should have been given time to produce the authority or the company should have been removed from the array of appellants. The second to fourth appellants had an independent right to move the application for oppression and mismanagement.

3. Shareholding Status of the Appellants:
The respondents contended that the appellants were not shareholders of the appellant-company. The appellants provided affidavits claiming their shareholding. The Appellate Tribunal noted that the Tribunal should have directed the appellants to present proof of their shareholding during the hearing. The dismissal without such verification was deemed inappropriate.

4. Misjoinder of Parties and Abuse of Process:
The Tribunal observed that the allegations in the current petition were similar to those in a pending petition (C.P. No. 114 of 2007) and that multiple proceedings were initiated. It was noted that the inclusion of several other parties remotely connected to respondent No. 2 constituted a misjoinder of parties and an abuse of the process of law. The Appellate Tribunal, however, focused on the procedural fairness and the need for proper verification before dismissal.

Conclusion:
The Appellate Tribunal set aside the impugned order dated January 13, 2017, and directed the Tribunal to rehear the company petition, emphasizing the need for procedural fairness and proper verification of facts. The parties were directed to appear before the Tribunal on November 26, 2018.