2019 (8) TMI 222 - Tri - Companies Law

Occupation of a person in the position as a director of the Company - investment in shares - reduction of capital of company - transfer of shareholding - entitlement to be paid from money of company - guilty of acts of misfeasance, fraud, cheating, breach of trust, misappropriation of funds or not - HELD THAT - We have carefully perused the reports of the Investigation Officer, and accepted the report with regard to finding given him in respect of Respondent No. 2. While holding that the Respondent No 2. is held responsible for mis-managing the affairs of Company and the Petitioner has contributed a lot in comparison with the Respondent No 2, as detailed supra, simultaneously holding the petitioner is also responsible for loss to the Company for an amount of ₹ 47, 12,500 on par with second Respondent for an amount of ₹ 1,42,84,389/- (Rupees One Crore Forty Two Lakhs Eighty Four Thousand Three Hundred and Eighty Nine only) is not reasonable and justifiable. And we have accepted the Investigator Report in toto except with regard to the findings given in respect of the Petitioner. The Tribunal is of the opinion that the affairs of the Company are being conducted pre-judicially to the interest of the Company as well as to the Petitioner and other stakeholders ,and thus it is a fit case to wind up the Company, which would unfairly prejudice to the interest of the Petitioner as well as the Company. Therefore, it is a fit case to invoke the powers conferred on the Tribunal U/ s 241(1)(a) of the Companies Act, 2013 so as to put an end to the affairs of Company by passing suitable directions. It is declared that the Respondent is liable to compensate of ₹ 1,42,84,389/- to the Company ,within a period of two months from the date of receipt of certified copy of this order - Both the Petitioner and the Respondent are permitted and directed that the petitioner should nominate two of his Directors whereas the Second Respondent can nominee of his Director to the Board of Directors of R 1 Company within a period of one month from the date of receipt Copy of this order.

Issues Involved:
1. Fitness of the 2nd Respondent to hold the position of director.
2. Cancellation of the 2nd Respondent's shares.
3. Reduction of the company's capital.
4. Petitioner's entitlement to transfer a portion of his shareholding.
5. Entitlement of the 2nd Respondent to be paid any money from the company.
6. Liability of the company to pay any amount to the 3rd Respondent.
7. Acts of misfeasance, fraud, cheating, breach of trust, and misappropriation by the 2nd Respondent.
8. Liability of the 2nd Respondent for monies received from Mandi Agents.
9. Liability of the 3rd Respondent for fraud and misappropriation.
10. Awarding costs of the proceedings.

Detailed Analysis:

1. Fitness of the 2nd Respondent to hold the position of director:
The tribunal found that the 2nd Respondent, being the Managing Director, mismanaged and misused his position, leading to significant financial losses for the company. The 2nd Respondent was held responsible for manipulating shareholding percentages, awarding contracts to his brother-in-law without disclosure, unauthorized withdrawals, and other fraudulent activities.

2. Cancellation of the 2nd Respondent's shares:
The tribunal noted that the 2nd Respondent did not invest any money towards his shareholding, and the entire incorporation expenses were borne by the Petitioner. However, the tribunal did not explicitly order the cancellation of the 2nd Respondent's shares but acknowledged the fraudulent nature of the share allocation.

3. Reduction of the company's capital:
The tribunal did not specifically address the reduction of the company's capital by ?2,75,000/- as requested by the Petitioner.

4. Petitioner's entitlement to transfer a portion of his shareholding:
The tribunal recognized the Petitioner's significant contributions to the company and allowed him to nominate two directors to the board, while the 2nd Respondent could nominate one director. This decision indirectly supports the Petitioner's control over his shareholding.

5. Entitlement of the 2nd Respondent to be paid any money from the company:
The tribunal declared that the 2nd Respondent is liable to compensate the company ?1,42,84,389/- for the losses caused by his mismanagement and fraudulent activities.

6. Liability of the company to pay any amount to the 3rd Respondent:
The tribunal did not find the company liable to pay any amount to the 3rd Respondent, who was involved in fraudulent transactions with the 2nd Respondent.

7. Acts of misfeasance, fraud, cheating, breach of trust, and misappropriation by the 2nd Respondent:
The tribunal confirmed that the 2nd Respondent committed various illegal acts, including manipulation of shareholding, unauthorized withdrawals, and fraudulent contracts. The Investigating Officer's report supported these findings, and the tribunal accepted the report's conclusions regarding the 2nd Respondent's liability.

8. Liability of the 2nd Respondent for monies received from Mandi Agents:
The tribunal found that the 2nd Respondent collected security deposits from Mandi Agents and did not account for them in the company's favor, further supporting the findings of misappropriation.

9. Liability of the 3rd Respondent for fraud and misappropriation:
The tribunal acknowledged the fraudulent activities involving the 3rd Respondent, who colluded with the 2nd Respondent to siphon funds from the company. However, the tribunal did not specify the exact amount of liability for the 3rd Respondent.

10. Awarding costs of the proceedings:
The tribunal did not explicitly award the costs of the proceedings to either party.

Conclusion:
The tribunal concluded that the affairs of the company were conducted prejudicially to its interests and those of the Petitioner. It invoked its powers under Section 241(1)(a) of the Companies Act, 2013, to put an end to the mismanagement. The tribunal directed the Petitioner and the 2nd Respondent to nominate directors to the board to oversee the company's affairs. The 2nd Respondent was ordered to compensate the company for the losses caused by his fraudulent activities. The tribunal emphasized the need for a fresh settlement to facilitate the 2nd Respondent's exit from the company.

← Previous Next →