2020 (9) TMI 224 - AT - Companies Law

Oppression and Mismanagement - Grant of interim relief - Illegal appointment of Directors in the AGM - Section 241 of Companies Act - HELD THAT - Section 241 provides for grant of relief by the Tribunal in cases of oppression etc. while Section 244 regulates the right of members to apply under Section 241. Powers of Tribunal to deal with an application under Section 241 are embodied in Section 242, Sub-section 4 whereof provides for passing of such interim directions by the Tribunal on the application of any party to proceedings which it thinks fit for regulating the conduct of the Company s affairs. This appeal has a limited scope as it has been preferred against an order passed under Section 242(4) of the Act declining to grant interim relief. Considerations for grant of interim relief are well settled. Existence of a prima facie case besides balance of convenience and irreparable injury being suffered by a Member of Company alleging acts of oppression and mismanagement prejudicial to its interest and those of the Company, if there is no judicial intervention to protect the interests of such Member or the Company from alleged acts of oppression and mismanagement pending probe into allegations of oppression and mismanagement in the affairs of the Company, are the relevant considerations at the stage of grant of interim relief and Section 242(4) of the Act vests ample powers in the Tribunal to pass such interim directions as may be necessary for regulating the affairs of the Company. In the instant case, it can be seen that the Appellant has made specific allegations of oppression and mismanagement against Respondents and made strenuous efforts to demonstrate that the affairs of the Company have been conducted in a manner which seriously jeopardize his interests. While it is not permissible to return findings of fact qua such allegations of oppression and mismanagement across the ambit of interlocutory application under Section 242(4) of the Act as also within the limited scope of instant appeal, the Appellant is required to make out a prima facie case warranting grant of interim relief. To demonstrate that the affairs of the Company were not being conducted in accordance with the provisions of law and the Articles of Association, the Appellant has raised the issue of not being served with notice of AGM dated 24th September, 2019 and EoGM dated 4th January, 2020 which were crucial in so far as his interests as a stakeholder in the Company were concerned. It is not in dispute that such meetings were purportedly held to induct Respondents No. 4 to 6 as Directors and remove the Appellant from the Directorship of the Company - The approach adopted by the Tribunal is fundamentally flawed as it could not solely rely upon documents Notices herein, service whereof to Appellant was seriously disputed. The Tribunal ought to have been more careful in drawing conclusion as regards existence of prima facie case from such questioned notices, as the consequences flowing from such notices had the deleterious effect of diluting the status and forcing ouster of Appellant from Directorship of the Company. Whether there was a fair question raised by Appellant in the Company Petition alleging oppression and mismanagement at the hands of Respondents be it seen that the Appellant is admittedly a minority shareholder whilst Respondent No. 2 and its associates are the majority shareholders? - HELD THAT - It is submitted on behalf of Appellant that since the Appellant did not attend any purported meeting on 24th September, 2019, the minimum required quorum of General Meeting not being present any resolutions said to have been passed on such date are required to be stayed. As regards the EoGM dated 4th January, 2020, it is pointed out on behalf of Appellant that the only ground for removal of Appellant as a Director from the Board of the Respondent No. 1 Company was in relation to the affairs of M/s Indocean Developers Pvt. Ltd. Incorporated in Sri Lanka which is a foreign company and the Act does not permit affairs of a foreign company to be taken into consideration for any such decision to be taken by the shareholders of the Company. Reference in this regard is made to Section 102 of the Act which does not envisage affairs of a foreign company to be taken into consideration for taking a decision in a General Meeting of the Shareholders - On the strength of these relevant facts, it is contended on behalf of Appellant that the ouster of Appellant as Director is entirely illegal. Since the foundation is bad, it is contended, the entire superstructure is bound to collapse. The Appellant has demonstrated all these circumstances to show that it has raised a fair question which requires probe in the Company Petition. The arguments raised on this score cannot be dismissed offhand. Given the status of Appellant, it can be safely stated that with existence of prima facie case in his favour, balance of convenience lies to the side of Appellant who is faced with the prospect of his interests and legal rights being seriously jeopardized in the wake of impugned order. The impugned order suffers from grave legal infirmity besides factual frailty. Same cannot be supported - Appointment of Respondents No. 4 to 6 as Directors of the Company and removal of Appellant as the Director of the Company is stayed till the decision of Company Petition by the Tribunal - Appeal allowed.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Validity of the Annual General Meeting (AGM) dated 24th September 2019.
3. Validity of the Extraordinary General Meeting (EoGM) dated 4th January 2020.
4. Grant of interim relief under Section 242(4) of the Companies Act, 2013.

Detailed Analysis:

Allegations of Oppression and Mismanagement:
The appellant, a minority shareholder holding 12.5% shares, alleged that the majority shareholders (holding 87.5%) were conducting the affairs of the company in a manner prejudicial to his interests. Specific instances include the alleged illegal appointment of new directors and the appellant's removal from the Board without proper notice. The appellant sought interim relief to prevent the majority shareholders from hijacking the company's affairs.

Validity of the AGM dated 24th September 2019:
The appellant contended that no AGM was held on 24th September 2019, and that no notices or agendas were served to him. He argued that the documents presented by the respondents were fabricated and did not meet statutory requirements under Section 118 of the Companies Act. The Tribunal noted the factual controversy regarding the serving of notices and observed prima facie evidence indicating that notices were given, but did not provide a detailed basis for this observation. The appellant pointed out that the AGM could not have been validly held as the required quorum was not present, and the alleged meeting was attended by an unauthorized person.

Validity of the EoGM dated 4th January 2020:
The appellant argued that the EoGM, which resulted in his removal from the Board, was based on issues related to a foreign company, which is not permissible under Section 102 of the Companies Act. He claimed that no proper notice was served for the EoGM, and the grounds for his removal were fraudulent. The respondents, however, maintained that all statutory compliances were met and that the removal was justified due to the appellant's actions against the company's interests.

Grant of Interim Relief under Section 242(4):
The Tribunal declined to grant interim relief, stating that allowing such relief would be tantamount to granting the main petition. However, the Appellate Tribunal found that the Tribunal's approach was flawed, as it relied solely on disputed documents without considering other substantive evidence. The Appellate Tribunal emphasized that the appellant had made out a prima facie case, showing that the company's affairs were not being conducted according to law and the Articles of Association. Given the serious consequences of the alleged meetings, the balance of convenience lay with the appellant.

Conclusion:
The Appellate Tribunal allowed the appeal, set aside the impugned order, and stayed the appointment of new directors and the removal of the appellant until the main petition is decided by the Tribunal. The Tribunal was instructed to arrive at its findings based on evidence without being influenced by observations made in this judgment.