2020 (8) TMI 582 - AT - Companies Law

Oppression and mismanagement - doctrine of indoor management - maintainability of proceedings under Section 241/242 of the Companies Act, 2013 - Section 8 company - HELD THAT - Various irregularities have been committed by the appellant in a charitable company. The appellant is expected to maintain a higher standard of fair play and probity while managing the affairs of a charitable company and any irregularity committed by him shall be taken to be far seriously than if it is committed in a non-charitable company. It would be highly inappropriate for the appellant to raise the issue that it is a charitable company and the petition cannot be filed under Section 241/242 of the Act. Seeing the various irregularities committed by the appellants, this Tribunal cannot shut their eyes to let appellant go scot free undermining the spirit of charity - there are no force in the arguments of the appellants and the same are rejected. Administrator on behalf of 7th respondent submitted his report vide Diary No.21484 dated 10.5.2019. Learned Administrator submitted that this Tribunal vide order dated 9.4.2019 directed the appellants to hand over all documents of the company to Administrator but in wilful and rank disobedience to the orders of this Tribunal the appellants did not either product the documents before the Administrator or communicated the reasons, if any for not producing the same. Administrator submitted that he has filed a contempt application against the appellants with a prayer to direct the City Police Commission to apprehend the appellants and seize the records of the company from him. Administrator also submitted that the appellant is not handing over the documents as requires and the only presumption can be drawn is that he is purposefully withholding the documents, since if produced it would be unfavourable to him - despite specific direction the relevant documents were not provided by the appellants to Administrator, therefore, this Tribunal directed appellant No.1 to remain present in person on 8th August, 2019. The appellant did not appear on 8th August, 2019 and the hearing was deferred to 6th September, 2019 for personal appearance of appellant No.1. The appellant did not appear on 6.9.2019 also and the Tribunal has to stated that the appellant is playing hide and seek and not cooperating. The conduct of the appellant is not upto the mark. Appeal dismissed.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Amendments to the Articles of Association (AOA) without proper approval.
3. Unauthorized sale of company properties.
4. Expulsion of members without due process.
5. Jurisdiction and maintainability of the petition under Section 241/242 of the Companies Act, 2013.
6. Compliance with court orders and principles of natural justice.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The original petitioners alleged that the Managing Director usurped the goodwill and assets of the company for personal gain, expelled opposing members, and conducted affairs in a non-transparent manner. The NCLT found that the appellants had gravely misused their positions, committed acts of oppression, and mismanaged the company by violating the Articles of Association and court orders. The NCLT directed the appointment of an interim Administrator to investigate the fraud and misappropriation committed by the appellants.

2. Amendments to the Articles of Association (AOA) Without Proper Approval:
The appellants amended Clauses 31 and 41 of the AOA without the prior consent of the Central Government, which was declared illegal by the Registrar of Companies. The NCLT held that these amendments were void and of no effect. The matter of amendment of AOA was also sub judice before the High Court of Kerala.

3. Unauthorized Sale of Company Properties:
The appellants sold prime land to certain respondents without any resolution in the AGM of the company. The NCLT declared these sale agreements illegal, null, and void, as they were against the order of the Hon’ble High Court of Travancore-Cochin and the Munsif Court. The appellants argued that the Board had the power to sell properties, but the NCLT found that the decision was not taken by the required number of Trustees and was a policy decision needing General Body approval.

4. Expulsion of Members Without Due Process:
The appellants expelled members without issuing show cause notices and without adhering to the principles of natural justice. The NCLT stayed the expulsion orders, noting that the powers to expel were vested with the General Body and not the Board. The appellants' claim that no members were expelled was contradicted by their own documents, which were not filed before the NCLT.

5. Jurisdiction and Maintainability of the Petition Under Section 241/242 of the Companies Act, 2013:
The appellants contended that the petition under Section 241/242 was not maintainable as the company was a Section 8 charitable company. However, the NCLT, referencing the Supreme Court's decision in M.S.D.C Radharamanan v. M.S.D Chandrasekara Raja, held that it had the widest power to grant relief to protect the interests of the company, especially given the glaring illegalities and irregularities committed by the appellants.

6. Compliance with Court Orders and Principles of Natural Justice:
The NCLT found that the appellants had acted in contravention of court orders and principles of natural justice, particularly in the expulsion of members and unauthorized sale of properties. The appellants' non-cooperation with the Administrator and failure to provide required documents further demonstrated their disregard for legal processes.

Conclusion:
The appeals were dismissed, and the NCLT's order was upheld. The appellant in Company Appeal (AT) No.338/2018 was imposed a cost of ?10 lakh for showing disrespect to the court of law, to be deposited within 30 days, failing which action would be taken as per law.