2020 (2) TMI 194 - AT - Companies Law

Oppression and mismanagement - diversion of funds - siphoning of funds - right to subscribe additional shares - HELD THAT - Through the various submissions made by both the parties and finally reached the conclusion that the minority shareholders are requiring exit from the Company but that cannot provide a ground for denying their right to subscribe additional shares in proportion to their share holding vis- -vis that of the total paid up capital of the Company as required under Section 81 of the Companies Act, 1956 (Part III). There are certain oppression and mismanagement. The relationship between the Majority Shareholders Minority Shareholders are strained. Hence, there is a need for valuation report to be done by Registered valuer and the majority shareholders are free to buy the shares of the minority shareholders or otherwise - the Balance Sheet from 2005 to 2008 reflects Reserve and Surplus is getting strengthened. However, parties have not submitted updated audited Balance Sheet, so that it can be commented upon. Appeal dismissed - decided against appellant.

Summary

Issues:
- Appeal against the impugned order of National Company Law Tribunal regarding share allotments and refund.
- Allegations of oppression and mismanagement by minority shareholders.
- Requirement for a valuation report and potential share buyout.

Analysis:
1. The appeal was filed against the National Company Law Tribunal's order regarding the set-aside of share allotments made in 2007 and 2010, directing a refund to concerned allottees. The Appellants contested the Tribunal's decision, arguing that the challenge to the allotments was time-barred and that minority shareholders cannot invalidate past transactions after a significant period of time has passed.

2. The Respondents, residents of Singapore and Malaysia, objected to the allotments, claiming they were not offered the right to issue or received notices for the Extraordinary General Meeting. They alleged oppression and mismanagement, including siphoning of funds, declining selling prices, high administrative expenses, and excessive inventory maintenance by the Appellant Company.

3. The Tribunal analyzed the pleadings and relevant provisions of the Companies Act, 2013/1956. It noted the strained relationship between majority and minority shareholders, acknowledging the need for a valuation report by a Registered Valuer. The Tribunal upheld the order, directing the Appellants to comply with the Tribunal's decision, dismissing the appeal and making no order as to costs.

4. The Tribunal found that while the Reserve and Surplus reflected strength in the Balance Sheets from 2005 to 2008, updated audited Balance Sheets were not submitted for further assessment. The judgment emphasized the requirement for a valuation report to address the minority shareholders' exit from the Company and the potential purchase of their shares by majority shareholders to resolve the strained relationship and allegations of oppression and mismanagement.

In conclusion, the judgment upheld the Tribunal's decision, emphasizing the need for a valuation report and potential share buyout to address the issues raised by the minority shareholders regarding share allotments and alleged oppression and mismanagement within the Company.