2020 (11) TMI 62 - Tri - Companies Law

Revival of Credit facility - Oppression and mismanagement - sections 241, 242 244 of the Companies Act - HELD THAT - There have been serious differences of opinion between the Petitioners and the Investor Directors over various issues including certain Board resolutions of the year 2018. The nitty gritty thereof would require a detailed and comprehensive hearing. The present ad interim prayers refer to the continuance of the credit facilities from the Banks. It is not controverted that the credit facilities have been continuing since 2007-08 and has been approved as recently as in September, 2018. The borrowing and lending limits have been approved in the Board meeting dated 1st August, 2019 and AGM dated 24th September, 2019. It is also not disputed that the borrowing limits are essential to carry forward the Company s activities and objects of the AoA. The allegation of financial bungling by the Petitioners should not prima facie come in the way of availing the credit facilities. Since the credit facilities are essential for the survival of the Company, in our considered opinion the Petitioners have a prima facie case in their favour. The question of mismanagement and oppression as envisaged under Sections 241 and 242 of the Act would come within the exclusive domain of this Tribunal. While considering the same, if the decisions taken in the Board meeting are called in question the Tribunal would be within its competence to decide upon the validity or otherwise of the proceedings in the Board meeting. Therefore, in our considered opinion the decisions of the Tribunal would not be taken as conflicting to the decision of any other Court including the Hon ble High Court of Bombay. The decisions relied on by the Respondents would not be applicable to the present case. The conduct of the Respondents ex-facie could not be held in the best interests of the Company where they also have substantial stake. The balance of convenience accordingly leans in favour of the Petitioners. Allegations of financial irregularities and mismanagement of Company s funds require incisive inquiry and elaborate legal appraisal. But the so called alleged irregularities or impropriety in dealing with funds when established can be compensated in monetary terms. Therefore, no irreparable injury would be caused in case the credit facilities are continued and availed by the Company. There is no material on record that the Company has been in default in servicing the credit facilities. The Bank has been ready and willing to extend the credit facility but for the non-cooperation of the Respondents. Continuance of an existing credit facility would not come within the purview of financial indebtedness indicated supra. A dispute resolution mechanism between the parties under a contract would not foreclose the party s prerogative of approaching a statutory authority for redressal of its grievances. Therefore, the provision of deadlock under Article 247 of the AoA cannot prevent the Petitioners from seeking reliefs before this Tribunal. Besides the time spent on resorting to the mechanism under Article 247 might have an adverse impact on the ultimatum given in the letter dated 26th May, 2020 of the Bank of Baroda - Respondent nos. 2 to 6 are injuncted form corresponding with others relating to matters covered in the present Company Petition. They are injuncted from preventing or inferring in the ongoing credit facility form Bank of Baroda and renewal thereof and credit facility form the Axis Bank, notwithstanding their objections in the Board meeting dated 18th December, 2019 and 2nd May, 2020. Appeal allowed in part.

Issues Involved:
1. Alleged oppression and mismanagement under Sections 241, 242, and 244 of the Companies Act.
2. Validity and impact of Board resolutions, especially those dated 18th December 2019 and 2nd May 2020.
3. Rights and obligations under the Share Subscription Agreement (SSA) and Shareholders Agreement (SHA).
4. Jurisdiction of the Tribunal and applicability of arbitration.
5. Interim reliefs sought by the Petitioners.

Detailed Analysis:

1. Alleged Oppression and Mismanagement:
The Petitioners, who are Promoter Directors holding 60% of the shareholding in the Company, alleged that the Investor Directors (Respondents) acted in a manner prejudicial and oppressive to their interests and the interests of the Company. The Petitioners contended that the Investor Directors obstructed the renewal of essential credit facilities, thereby jeopardizing the Company's operations. The Tribunal noted that the Investor Directors' actions, such as writing to the Bank of Baroda to halt credit facilities, were in violation of the Articles of Association (AoA) and detrimental to the Company's interests.

2. Validity and Impact of Board Resolutions:
The Petitioners argued that the resolutions passed in the Board meetings dated 18th December 2019 and 2nd May 2020, which approved the renewal of credit facilities, were valid and binding. The Investor Directors, however, contended that these resolutions required their affirmative vote as per Article 165 of the AoA. The Tribunal observed that the credit facilities had been ongoing since 2007 and had been renewed with the Board's approval, including the Investor Directors, as recently as September 2018. The Tribunal found that the Investor Directors' objections were not in the best interest of the Company and that the Petitioners had a prima facie case for the continuance of the credit facilities.

3. Rights and Obligations under SSA and SHA:
The Share Subscription Agreement (SSA) and Shareholders Agreement (SHA) outlined the rights and obligations of the parties, including the requirement for affirmative votes on certain matters. The Petitioners sought to strike off certain Articles of the AoA that they claimed were being used as instruments of oppression by the Investor Directors. The Tribunal noted that the existing credit facilities did not constitute new financial indebtedness and thus did not require an affirmative vote under Article 165(n) of the AoA.

4. Jurisdiction of the Tribunal and Applicability of Arbitration:
The Respondents argued that the Tribunal lacked jurisdiction due to the arbitration clause in the SHA and the ongoing Commercial Suit before the Hon'ble High Court of Bombay. The Tribunal held that the issues of oppression and mismanagement under Sections 241 and 242 of the Companies Act fell within its exclusive domain. The Tribunal also noted that the reliefs sought in the Company Petition were not arbitrable and that the statutory remedy available to the Petitioners would not be hindered by the pendency of the Commercial Suit.

5. Interim Reliefs Sought by the Petitioners:
The Petitioners sought interim reliefs to restrain the Respondents from interfering with the ongoing credit facilities and to allow the Company to act on the resolutions passed in the Board meetings. The Tribunal granted ad interim reliefs in part, injuncting the Respondents from corresponding with third parties on matters covered in the Petition and from preventing or interfering with the ongoing credit facilities. The Tribunal kept other prayers pending to be decided in the main petition.

Conclusion:
The Tribunal found that the Petitioners had a prima facie case and that the balance of convenience leaned in their favor. The Tribunal granted partial interim reliefs to ensure the continuance of essential credit facilities, which were crucial for the Company's survival. The Tribunal also emphasized that the allegations of financial irregularities required detailed examination and could be compensated monetarily if proven. The main issues regarding the validity of the resolutions and the alleged oppression would be addressed in the main petition.

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