2020 (10) TMI 498 - Tri - Companies Law

Oppression and Mismanagement - transfer of shares - Section 241-242 of the Companies Act, 2013 - principles of quasi partnership - HELD THAT - Admittedly, it is closely held private limited company of two persons in the form of quasi partnership and on perusal of the record it is found that there is a dispute with regard to the agreement(s) dated 11.08.2017 whereby the Petitioner as well as the Respondent No. 2 have arrived at an understanding to settle and part with on certain terms and conditions. However, dispute arose with regard to non-compliance or deficiency in compliance of the conditions of the said agreement by Respondent No 2. There are no documents on record so as to show that the shares of the Petitioner in question have been transferred to the Respondent No. 2 or any other person(s) after following the due procedure relating to the transfer of shares as claimed by Respondent No 2. There are no concrete evidence or proof filed to show that the payments have actually been made to the Petitioner in the form of cash receipt or bank statement or such other document against the transfer of the shares in favour of the Respondents. Thereby, it is established that the Petitioner still holding 50% of the share capital of the Respondent No. 1 Company and is entitled for his rights as the shareholder of the company. On perusal of the record, it is found that Petitioner annexed Annexure-C i.e. list of shareholders as on 31.03.2018 at page No. 58 of the petition which shows that Petitioner is holding 18,35,500 Nos. of shares and the Petitioner is eligible to file the present petition. For an application under sections 241-242, the act which is contrary to law may not necessarily and by itself support the inference that the law is/was violated with mala fide intention or that such violation was burdensome, harsh and wrongful. There must be continuous act on the part of the members or majority shareholders, continuing upto the date of petition, showing that the affairs of the Company were being conducted in a manner oppressive to some of the members. The conduct must be burdensome, harsh and wrongful. In the instant case, it is found that there is a lack of trust and confidence between the members/shareholders which would not be enough unless the lack of confidence springs from oppression by members in the management of the Company's affairs. Such oppression must involve an element of lack of probity or fair dealing to the members in the matter of his propriety as a shareholder. There are several irregularities in the procedures adopted by the Respondent (s) in compliance of the provisions of the Companies Act, 2013. The Petitioner has established a case of oppression and mismanagement in the affairs of the Respondent No. 1 Company and therefore, the present petition has merit and deserves to be allowed. The Respondent No. 1 Company is brought back to the original position as it was prior to the date of execution of agreement i.e. 11.08.2017 - The resolution (s) dated 30.06.2017, if any, is declared as void and shall not have any effect relating to the appointment of the Respondents No. 3 and 5 as the directors of the Respondent No. 1 Company - appointment of Respondents No. 3, 4 and 5 are declared as illegal and set aside. The Tribunal/Bench hereby orders removal of the said Respondents as the directors of the Respondent No. 1 Company. Petition allowed in part.

Summary

Issues involved:
1. Validity of the notice dated 14.03.2019 for convening the board meeting on 25.03.2019.
2. Validity of resolutions passed in the board meeting dated 25.03.2019.
3. Change in bank account operations without Tribunal's permission.
4. Payment of ?15,84,97,938/- by Respondent No. 2 to the Petitioner.
5. Legitimacy of Respondent No. 5 as a director.
6. Removal of Respondent Nos. 2 to 5 as directors.
7. Appointment of an independent auditor for special audit for FY 2016-17, 2017-18, and 2018-19.
8. Borrowings/facilities without Tribunal's permission.
9. Creation of third-party rights/charge/encumbrance on company's properties without Tribunal's permission.
10. Interim reliefs pending the final disposal of the company petition.

Detailed analysis:

1. Validity of the notice dated 14.03.2019 for convening the board meeting on 25.03.2019:
The Tribunal found that the notice dated 14.03.2019 calling for a board meeting on 25.03.2019 was issued without proper compliance with the agreement dated 11.08.2017. The Petitioner alleged that the Respondent No. 2 had not performed his obligations under the agreement, which included clearing dues and making alternate arrangements for collateral securities. The Tribunal noted that the Petitioner still held 50% of the shares and was entitled to his rights as a shareholder.

2. Validity of resolutions passed in the board meeting dated 25.03.2019:
The Tribunal declared the resolutions passed in the board meeting dated 25.03.2019 as void. It was found that the appointments of Respondents No. 3, 4, and 5 as directors were irregular and not in compliance with the Companies Act, 2013. The resolutions were not backed by proper documentation and were contradictory.

3. Change in bank account operations without Tribunal's permission:
The Tribunal directed that the Respondents shall not change the bank account operations of any of the bank accounts of the Respondent No. 1 Company until an independent director is appointed. This was to ensure compliance with the laws and the agreement between the parties.

4. Payment of ?15,84,97,938/- by Respondent No. 2 to the Petitioner:
The Tribunal did not specifically address this issue in the final order. However, it was noted that the Petitioner had used his personal accruals to clear the CC outstanding and was awaiting reimbursement from Respondent No. 2, who had not complied with the agreement.

5. Legitimacy of Respondent No. 5 as a director:
The Tribunal found that the appointment of Respondent No. 5 as a director was irregular and set it aside. The documents on record showed inconsistencies in the dates and resolutions regarding his appointment.

6. Removal of Respondent Nos. 2 to 5 as directors:
The Tribunal ordered the removal of Respondents No. 3, 4, and 5 as directors of the Respondent No. 1 Company due to irregularities in their appointments. Respondent No. 2 was not removed but was directed to comply with the agreement and cooperate with the independent director.

7. Appointment of an independent auditor for special audit for FY 2016-17, 2017-18, and 2018-19:
The Tribunal did not specifically order the appointment of an independent auditor for a special audit. However, it directed that the financial statements from FY 2016-17 onwards be considered and approved in accordance with the law, with the possibility of revision if necessary.

8. Borrowings/facilities without Tribunal's permission:
The Tribunal directed that the Respondents shall not take any borrowings/facilities without the prior permission of the Tribunal until an independent director is appointed.

9. Creation of third-party rights/charge/encumbrance on company's properties without Tribunal's permission:
The Tribunal directed that the Respondents shall not create any third-party rights, charge, or encumbrance on the properties of the Respondent No. 1 Company until an independent director is appointed.

10. Interim reliefs pending the final disposal of the company petition:
The Tribunal allowed the petition partially and provided interim reliefs by restoring the company to its original position prior to the agreement dated 11.08.2017, declaring certain resolutions and appointments as void, and appointing an independent director to oversee compliance with the laws and the agreement.

Conclusion:
The Tribunal found several irregularities in the procedures adopted by the Respondents and established a case of oppression and mismanagement in the affairs of the Respondent No. 1 Company. The petition was partially allowed, with specific directions to restore the company's original position, remove certain directors, and appoint an independent director to ensure compliance with the laws and the agreement between the parties.