2019 (8) TMI 79 - AT - Companies Law

Maintainability of petition - dispute regarding oppression and management of Producer company - Fraud, misfeasance and misconduct against management towards the Company and its affairs - Producer Company - distinct entity - recovery of misappropriated funds of the Company which comprised of the hard earned money of the innocent agriculturist members - HELD THAT - The provisions of Sections 241-242 of the Companies Act, 2013 cannot be invoked for settlement of disputes regarding oppression and mismanagement of a Producer Company . Such disputes would continue to be resolved through conciliation or arbitration. The Tribunal appears to have narrowed down the definition of dispute for purpose of Section 581ZO by misinterpreting the explanation which only seeks to include certain types of disputes within the ambit of dispute as defined in the aforesaid provision. The explanation cannot be read in a manner so as to restrict the meaning of dispute as contemplated under the Section in the context of objects of the Producer Company and its being treated as a class apart. Also taking notice of the fact that the Tribunal has proceeded to return a finding that the dispute alleged in the Company Petition does not fall under the explanation of dispute thereby usurping the jurisdiction vested in the Arbitrator under Section 581ZO (2) of the Act, the impugned order cannot be sustained and is liable to be set aside. The impugned order suffers from legal infirmity and is unsustainable - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Maintainability of the Company Petition under Section 241 and 242 of the Companies Act, 2013 for a Producer Company.
2. Applicability of Part IX-A of the Companies Act, 1956 to Producer Companies post-repeal of the Act.
3. Jurisdiction of the Tribunal versus Arbitration for disputes related to Producer Companies.
4. Interpretation of the term "dispute" under Section 581ZO of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Maintainability of the Company Petition under Section 241 and 242 of the Companies Act, 2013 for a Producer Company:
The Appellants challenged the maintainability of the Company Petition filed by the Respondents under Sections 241 and 242 of the Companies Act, 2013, arguing that the Appellant No. 1, being a Producer Company, is governed exclusively by Part IX-A of the Companies Act, 1956, and not by the Companies Act, 2013. The Tribunal had initially held the petition maintainable, but the Appellate Tribunal found this to be incorrect. It concluded that matters of oppression and mismanagement within Producer Companies are to be resolved through conciliation or arbitration as per Part IX-A, not under the Companies Act, 2013.

2. Applicability of Part IX-A of the Companies Act, 1956 to Producer Companies post-repeal of the Act:
The judgment emphasized that Part IX-A of the Companies Act, 1956, which governs Producer Companies, has been saved from repeal by Section 465 of the Companies Act, 2013. It was noted that until a special act is enacted for Producer Companies, they continue to be governed by Part IX-A as if the Companies Act, 1956 had not been repealed. The Tribunal underscored that Producer Companies are treated as a distinct class and are not subject to the general provisions of the Companies Act, 2013.

3. Jurisdiction of the Tribunal versus Arbitration for disputes related to Producer Companies:
The judgment highlighted that disputes related to the formation, management, or business of a Producer Company are to be settled by conciliation or arbitration under the Arbitration and Conciliation Act, 1996, as specified in Section 581ZO of the Companies Act, 1956. The Tribunal's decision to entertain the Company Petition was found to be a misinterpretation, as the jurisdiction to decide such disputes lies with an arbitrator, whose decision is final.

4. Interpretation of the term "dispute" under Section 581ZO of the Companies Act, 1956:
The judgment clarified that the term "dispute" under Section 581ZO is inclusive and not restrictive. It includes any dispute related to the formation, management, or business of a Producer Company, even if not explicitly mentioned in the explanation provided in the section. The Tribunal's narrow interpretation of "dispute" was deemed incorrect. The judgment stated that issues of oppression and mismanagement are inherently connected to the management and business of the company and thus fall within the ambit of disputes under Section 581ZO.

Conclusion:
The Appellate Tribunal concluded that the Company Petition was not maintainable under Sections 241 and 242 of the Companies Act, 2013, for a Producer Company. It held that such disputes should be resolved through arbitration as per Part IX-A of the Companies Act, 1956. The Tribunal's order was set aside, and the Company Petition was dismissed. The judgment reinforced the exclusive governance of Producer Companies by Part IX-A until a special act is enacted.