2018 (12) TMI 1547 - AT - Companies Law

Oppression and mismanagement - respondent has failed to act upon the conditions and assurances based on which they have invested in 1st Respondent and that the 2nd respondent s investment was only qua the residential portion of the project - Held that - When anyone purchases/subscribes to the share capital of a company, to say that such purchase/subscription relates only to a portion of the property/assets belonging to the company cannot be countenanced in law. It is the company which owns the assets and shareholders have shares in the company and not in specific assets or part of assets of the company. Therefore, we find the argument of 2nd respondent convincing. Respondent failed to execute a new SHA with them to demerge the commercial portion of the project and incorporate the same in the Article of Association of 1st respondent - We are in agreement with the Respondent that 1st respondent being a public company cannot normally refuse to register transfer of shares from the original promoters to the appellants. As regards the issue raised by the appellant that the commercial portion of the project will be demerged in appellants favour is concerned, no fresh SHA or fresh agreement entered on the subject have been put up to establish that appellants have such right to commercial property. Further we have noted that the appellants were not even parties to the earlier SHA signed between the original promoters and the 2nd respondent and the appellant has himself stated in its communication dated 28.2.2012 that the SHA has become defunct since it was not incorporated in the Articles of Association of 1st respondent. The communication is prior to the date of transfer of shares in the name of appellant. Therefore, the appellants cannot be permitted to approbate and reprobate on the validity of the SHA to suit their convenience from time to time. The nominee directors of 2nd respondent entered into a master collaboration agreement with 7th respondent for development of a school on the commercial area of the Project and that this is direct contravention of the appellants rights and amounts to oppression and mismanagement - We have gone through the arguments and perused the record and we are of the opinion that while 1st appellant was watching his family interest but the interests of 1st respondent should always remain paramount. Therefore, we are not convinced with the argument of 1st appellant. These are business decisions decided as per corporate procedure. We cannot substantiate our opinion in it when no arbitrariness is show. As argued argued that 1st appellant s allegation with regard to keeping of books of accounts of 1st respondent at the office of 2nd respondent and not at 1st respondent registered office, this is a gross distortion of facts, particularly when 2nd respondent does not have an office of its own in Hyderabad and the books are kept at 1st respondent registered office and are always available for inspection. As regards appointment of director after the final order has been passed in the company petition, there was no relief granted to the appellant, the company is to be managed/regulated with respect to the provisions of Companies Act/Article of Association of the company. The retirement of the director and re-election or not to re-elect the director is the normal routine in the company matters. If a person is not re-elected after he has retired in terms of the Companies Act/Article of Association of the Company, no grievance of his re-election can be raised by a person. As regards the other allegations regarding refusal to share information about 1st respondents litigation, acquisition of additional land for the Project, other affairs of 1st respondent, hindered the appellants access to company related information by illegally keeping books of account at 2nd respondent s office instead of 1st respondent registered office is concerned, these are the issues relating to operational maters for running a company and grievance raised are quite vague for us to give directions. Appellants are free to adopt procedures under the Act and Rules. Appeal dismissed.

Summary

Issues Involved:

1. Alleged failure to act upon conditions and assurances based on which the appellants invested.
2. Execution of a new Share Holding Agreement (SHA) and demerging the commercial portion of the project.
3. Allegations of oppression and mismanagement by nominee directors.
4. Removal of the appellant No.1 from directorship and access to company information.
5. Refusal to share information about litigation, acquisition of land, and other company affairs.

Detailed Analysis:

1. Alleged Failure to Act Upon Conditions and Assurances:

The appellants contended that the respondents failed to act upon the conditions and assurances based on which they invested in the 1st respondent, arguing that the 2nd respondent's investment was only for the residential portion of the project. The respondents countered that there was no agreement restricting the 2nd respondent's rights to the residential portion. The Tribunal held that shareholders have shares in the company and not in specific assets, thus dismissing the appellants' argument.

2. Execution of a New SHA and Demerging the Commercial Portion:

The appellants argued that the respondents failed to execute a new SHA to demerge the commercial portion of the project and incorporate it into the Articles of Association. The respondents argued that the SHA no longer subsisted after the transfer of shares from the original promoters to the appellants. The Tribunal agreed with the respondents, noting that the appellants were not parties to the original SHA and had themselves stated that the SHA had become defunct. Hence, the appellants' claim for demerging the commercial portion was dismissed.

3. Allegations of Oppression and Mismanagement by Nominee Directors:

The appellants alleged that the nominee directors of the 2nd respondent conducted the affairs of the 1st respondent in a manner oppressive and prejudicial to the minority shareholders. They highlighted the master collaboration agreement with the 7th respondent for developing a school on the commercial area of the project. The Tribunal found that business decisions, such as leasing the school building, were made following corporate procedures and did not constitute oppression or mismanagement.

4. Removal of Appellant No.1 from Directorship and Access to Company Information:

The appellants argued that appellant No.1 was removed from directorship and was denied access to company information. The respondents countered that appellant No.1 had access to all records and was invited to all board meetings. The Tribunal found that the removal of appellant No.1 was a routine matter following the Companies Act and Articles of Association. The Tribunal dismissed the allegations, stating that operational matters and vague grievances could not warrant directions.

5. Refusal to Share Information About Litigation, Acquisition of Land, and Other Company Affairs:

The appellants alleged that the respondents refused to share information about litigation, acquisition of additional land, and other affairs of the 1st respondent. The Tribunal found these issues to be operational matters and noted that the appellants were free to adopt procedures under the Companies Act and Rules. The allegations were deemed too vague to warrant any specific directions.

Conclusion:

The Tribunal dismissed the appeal, finding no merit in the appellants' claims. The Tribunal upheld the NCLT's decision, stating that the affairs of the 1st respondent were being conducted in accordance with the law and that the appellants were not entitled to any reliefs as they had failed to make a case in their favor. The appeal was dismissed with no orders as to costs.