2019 (8) TMI 1000 - AT - Companies Law

Oppression and Mismanagement - time limitation - applicability of Limitation Act - applicability of provisions of Section 397 and 309 of the Companies Act, 1956 - principles of res-judicata - HELD THAT - It is natural that the notice for the Meeting is issued before the date of the Meeting and the Minutes of the Meeting are prepared either on the date of Meeting or on subsequent date and normally confirmed in the next Meeting. Even the Expert Forensic Report stated that the Minutes of the Meeting have been prepared after alleged dates (date of the Meeting). We do not see any fundamental flaw as they are normally prepared after Meeting is over. On going through the documents argued by the Learned counsel for Respondent, we noted that 1st appellant was very well aware that 2nd respondent has been appointed on the basis of the documents placed before us. We have also noted that the parties have been in litigation for a long period. It is also noted that a number of cases have been instituted by appellant group as well as the respondent group. The very fact that there have been a lot of litigation resulting in removal of directors of petitioners group (before CLB/NCLT), it will be detrimental to the interest of the company if litigation is continued on one pretext or other either by one group or the other. To save the company from litigating shareholders divided in groups and appellant group being too small in minority (holding 500 shares each), it would be desirable that an exit route is provided to the appellants. The allegations of the appellants are pertaining to and arising out of the Agreement dated 7.9.1991. Appellants under the garb of the petition before NCLT and appeal before Appellate Tribunal are seeking specific performance of the Agreement dated 7.9.1991. We also noted that the appellants have launched various litigations before the various forums and have not succeeded. Since the dispute is contractual in nature, Company Petition under Section 397 and 398 was not maintainable - It is admitted by the Respondent that the amount infused by the appellants is unsecure loan on which the Respondent were paying interest @ 15% p.a. and TDS was also being deducted. Further the documents placed before us by the Respondent establishes that the Respondent has discontinued payment of interest on the contractual rate to the appellants for which no reasons has been given by the Respondents. 1st Respondents will pay the appellants their balance of unsecured loan with interest at agreed rate which Respondents have discontinued providing since 1.4.1999 within one month of this order - The Respondent No.1 company will get the price of each share determined by registered valuer who will act as per Section 247 of the Companies Act, 2013. Respondent No. 1 Company will ensure compliance within one month of the date of this Judgement. After getting report of Registered Valuer, Board of Directors of 1st Respondent will offer shares of 1st and 2nd appellant to the existing shareholders adopting procedure akin to Section 62 of the Companies Act, 2013 within one month of the offer given by the company. In case none of the existing shareholders purchase the shares of 1st and 2nd appellant, in that event 1st respondent will purchase the shares of 1st and 2nd appellant within one month thereafter.

Summary

Issues Involved:

1. Whether the petition is time-barred and whether the Limitation Act is applicable.
2. Whether the acts complained of are continuous in nature and whether the provisions of Sections 397 and 398 of the Companies Act, 1956 are applicable.
3. Whether a private agreement dated 7th September 1991 binds the Respondent Company.
4. Whether the Company Petition is barred by the principle of res judicata.
5. Whether the Petitioners approached the Company Law Board with clean hands and whether there was forum shopping.

Issue-wise Detailed Analysis:

1. Time-barred Petition and Applicability of Limitation Act:
The NCLT concluded that the petition is hopelessly time-barred. The Respondents argued that the petition, based on a 1991 agreement, was filed after 22 years, making it time-barred. The Appellate Tribunal upheld this view, noting that the delay was not solely due to the fault of the appellants but also due to respondents' frivolous applications. However, it was emphasized that the delay alone should not dismiss a petition if explained adequately.

2. Continuous Nature of Acts and Applicability of Sections 397 and 398:
The NCLT found that the acts complained of were not continuous and that the petition was dressed up to fit the requirements of Sections 397 and 398. The Appellate Tribunal agreed, noting that the issues stemmed from a private agreement not incorporated into the Articles of Association, and thus, the petition under Sections 397 and 398 was not maintainable.

3. Binding Nature of the Private Agreement:
The NCLT ruled that the 1991 agreement, being a private agreement between individuals and not part of the Articles of Association, did not bind the Respondent Company. The Appellate Tribunal upheld this, stating that post-incorporation, a company is regulated by its Memorandum and Articles of Association, not by any prior agreements.

4. Principle of Res Judicata:
The NCLT held that the petition was barred by res judicata, as the issues had been previously litigated in various forums. The Appellate Tribunal agreed, noting that the civil suit was dismissed on jurisdictional grounds and not on merits. However, it emphasized that the principle of res judicata applies when a matter is decided on merits by a competent authority.

5. Clean Hands and Forum Shopping:
The NCLT found that the petitioners did not approach with clean hands and engaged in forum shopping. The Appellate Tribunal concurred, highlighting the multiple litigations initiated by the petitioners based on the same cause of action, which indicated an abuse of the judicial process.

Conclusion:
The Appellate Tribunal upheld the NCLT's order, dismissing the petition on all counts but provided specific directions for the appellants' exit from the company:

1. The Respondent Company will pay the appellants their balance of unsecured loan with interest at the agreed rate since 1.4.1999 within one month.
2. The Respondent Company will get the share price determined by a registered valuer as per Section 247 of the Companies Act, 2013, within one month.
3. The Board of Directors will offer the appellants' shares to existing shareholders as per Section 62 of the Companies Act, 2013. If no shareholders purchase the shares, the company will buy them within one month.
4. No order as to costs.

The judgment emphasizes the importance of adhering to statutory regulations and the Articles of Association over private agreements and the necessity of clean hands and proper forum selection in legal proceedings.