2019 (9) TMI 534 - AT - Companies Law

Oppression and mismanagement - maintainability of the Company Petition - grant of interim relief- It is urged that the alleged acts of oppression/mismanagement are nothing but operational issues arising in day to day management of the Company - Estoppel from denying the factum of seeking time by joint consensus with the Appellant to name the Independent Director - HELD THAT - It appears that maintainability of the Company Petition in the context of eligibility of Respondent No. 2 (Petitioner) to file petition under Section 241-242 of the Act is not in controversy. The Appellant however has vociferously challenged finding as regards limitation at the very threshold stage. It is the settled position of law that limitation is a mixed question of law and fact. Any finding which is not informed of the reasons and does not rest upon appreciation of the relevant material/ evidence on record cannot be supported more so when it is neither expedient nor practicable to record such finding at the very threshold stage of proceedings on account of the issue of limitation being a mixed question of law and fact. Grant of interim relief - HELD THAT - The stand taken by Appellant before the Tribunal qua allegations of oppression and mismanagement is that the same are merely operational issues which included procurement of newsprint. Serious exception has been taken to the conclusions drawn from the pleadings of Appellant in Company Petition proceedings by the Tribunal when it observed in the impugned order that there are certain operational issues and there was a deadlock in the management of the Company. Whether the appointment of any Independent Director was consented to by the Appellant? - HELD THAT - here being no love lost interse Respondents 4 and 5 on this material aspect the only inference available is that they are pliable. We refrain from making any further comment on the merits of their respective stand lest same causes prejudice to either of the parties during inquiry in the Company Petition. Whether there are any errors apparent from the face of the record which renders the impugned order unsustainable? - HELD THAT - The fact remains that in regard to convening of Board Meetings Annual General Meetings and filing of statutory compliances there is a deadlock. Appellant s contention that such deadlock is artificial and self-engineered by Respondent No. 2 cannot be decided at this stage of the proceedings and within the ambit of application seeking interim directions. The contentions raised on behalf of Appellant in this regard are accordingly repelled. Deadlock in the context of the Board of Directors being equally divided - HELD THAT - The deadlock not being limited to issue of numerical strength of the Directors would not get diluted on account of one or other Independent Director resigning voluntarily or otherwise. We do not wish to say anything more on this aspect at this stage lest the same prejudices the inquiry. Alleged incorrect concessions attributed to Appellant in impugned order - HELD THAT - Since we have come to an independent conclusion about existence of a prima facie case as regards deadlock and for existence of grounds justifying interim directions for regulating the affairs of the Company we do not want to enter the controversy as regards such concessions and errors pointed out on behalf of the Appellant as the same may embarrass the inquiry. Appeal disposed off.

Summary

Issues Involved:
1. Limitation and Maintainability of the Company Petition
2. Existence of Deadlock in the Management of the Company
3. Appointment of Independent Director and Interim Relief

Detailed Analysis:

1. Limitation and Maintainability of the Company Petition:
The Tribunal addressed the issue of limitation by stating, "most of the acts of oppression and mismanagement are continuing one." The Tribunal admitted the Company Petition, holding that the allegations were within the limitation period, and it was necessary to investigate the merits of the case after a full hearing. However, the Appellate Tribunal found that the Tribunal's conclusion on limitation lacked detailed reasoning and was premature, as limitation is a mixed question of law and fact requiring thorough examination during the inquiry. Therefore, the Tribunal's finding on limitation was set aside, but the admission of the Company Petition was upheld.

2. Existence of Deadlock in the Management of the Company:
The Tribunal observed that there was a deadlock in the management of the Company, as the Board of Directors was equally divided into two factions, each supporting their respective mentors. This deadlock was evidenced by the inability to hold proper Board Meetings and the failure to comply with statutory obligations. The Appellate Tribunal agreed with this observation, noting that the disputes over key operational issues, such as the procurement of newsprint, indicated a serious deadlock that could jeopardize the Company's operations. The Tribunal's conclusion that there was a deadlock in the management was supported by the evidence presented.

3. Appointment of Independent Director and Interim Relief:
The Tribunal directed the appointment of an Independent Director to act as Chairman with a casting vote to break the deadlock and ensure the smooth functioning of the Company. The Appellant contested this decision, arguing that the Tribunal had wrongly attributed consent for such an appointment and that it violated the Articles of Association. However, the Appellate Tribunal found that the Appellant had expressed no objection to increasing the Board's strength by inducting Independent Professional Directors. The Tribunal's decision to appoint an Independent Director was deemed necessary to address the deadlock and ensure statutory compliance.

The Appellate Tribunal modified the interim directions, substituting the appointment of an Independent Director with the appointment of a Retired Judge to oversee and supervise the Company's affairs. This Retired Judge, from a panel of three names submitted by each party, would constitute a single-member "Oversight & Supervision Committee" to ensure that the Company's affairs are conducted in accordance with the law. The Board of Directors would function under the supervision of this Retired Judge, and no decision would be taken without their approval.

Conclusion:
The Appellate Tribunal partially allowed the appeal, setting aside the Tribunal's finding on limitation but upholding the admission of the Company Petition. The Tribunal's conclusion on the existence of a deadlock was supported, and the interim relief was modified to appoint a Retired Judge to oversee the Company's affairs. The appeal was disposed of with these modifications, and any interim directions passed during the appeal were vacated.