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2021 (2) TMI 92 - Tri - Companies LawValidity of convened Board Meeting - validity of proposed interim dividend - seeking restraint on Respondent No. 4 and 5 from entering into the premises of the company - eligibility of Respondents 4 and 5 to be appointed as Chief Executive Officer and Executive Director - restraint on Respondent Nos 2 and 3 not to remove the petitioner from the post of Managing Director - appointment of independent Chartered Accountant to conduct special audit on the affairs of the company - seeking direction to Respondent No. 4 to hand over the property of the company including documents and keys of bungalows with immediate effect. Whether the Board of Directors Meeting of the 1st Respondent company dated 14.10.2019 is validly held complying with the clauses of the Articles of Association and provisions of the Companies Act and whether the proceedings of the meeting and the resolutions passed therein are valid in the eyes of law? - HELD THAT - This Tribunal came to a conclusion that as per Section 241 and 242 of the Companies Act, every member who comes before the court must have a grievance, either that he has been oppressed or that the company is being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. This grievance must be a personal grievance of member who comes before the court. It cannot be a vicarious grievance, a grievance of his beneficiary. In the present case, it has not been proved that the appointment of R4 as CEO can be attributed as an act oppressive against the petitioner or prejudicial to public interest but for the flourishment of the Company and the same is to be equivalent with the objects that has been set out in the Memorandum of Association, which has been followed by the management of R4 for past three decades. Regarding the resolution passed in regard to the signatory powers to R4 over the company s bank accounts, dematerialized account and applicable mutual fund accounts as also the signatory power to R5 over the Company s Bank account, this Tribunal finds that as both R4 and R5 were ceased to be Directors of the Company, they are not eligible to be appointed as sole signatories of bank accounts/ demat accounts. It is found that thereafter, Respondent No.2 convened another Board of Directors Meeting on 18.10.2019 and passed another resolution to bypass the action taken by them. The legality of the Board Meeting held on 14.10.2019 can be decided - By concluding the first issue, this Tribunal is of the view that the meeting held on 14.10.2019 has been conducted with due notice, quorum and therefore, the said meeting is a valid meeting. Whether the Board of Directors Meetings of the R1 Company held on 18.10.2019, 01.11.2019, 04.02.2020, 21.08.2020 are valid? Whether the proceedings of that meetings and resolutions passed therein are aimed to oppress and abuse the other shareholders including the petitioner and consequently to effect a change in the control and management of Respondent No.1 Company? - HELD THAT - This Tribunal is of the view that the Respondent Nos. 2 3 have conducted an alleged meeting of the Board on 18.10.2019 under the guise of the request of the petitioner. It is evident from the email dated 11.10.2019 and 12.10.2019 that the meeting which was proposed by the petitioner on 18.10.2019 was advanced to 14.10.2019. That being the position, it is clear from admission of R2 R3 that the meeting was held without proper notice. Therefore, the alleged meeting held on 18.10.2019 by Respondent Nos. 2 3 is declared as illegal. Hence, the resolutions passed in the said meeting is not having any relevance and no legs to stand. This Tribunal is of the view that Directors present through video conferencing or other audio-visual means would suffice for the quorum requirement as their presence shall be counted for the purpose of quorum. Section 173 of the Companies Act, 2013 does not restrict a company from holding any meeting of its Board of Directors at some other place within or outside India. Further, as per Rule 3(6) of the Companies (Meetings of Board and its powers) Rules, 2014, with respect to meetings conducted through video conferencing or other audio-visual means - This Tribunal is of the view that in case the Chairman of the Meeting is participating through video conferencing, he/she should, while transacting any restricted items of business, vacate the Chair and entrust the conduct of the proceedings in respect of such items to any other Non-interested Director attending the Meeting physically and should not participate in the meeting in respect of such items and not for other matters. The meeting was conducted on 01.11.2019 and 04.02.2020 complying the basic provisions for conducting a meeting and the same is valid. But the resolutions passed in the said meetings are similar to that which were taken in the Board of Directors Meeting held on 14.10.2019. Therefore, the resolutions passed are considered to be invalid - With regard to the Board of Directors Meeting held on 21.08.2020, since no evidence has been produced to show that notice was given and, it is considered to be void ab initio and all the resolutions passed in that meeting are invalid. Whether the petitioner in CP/117/KOB/2019, who acted in his capacity as Director of the Company has failed to comply with the fiduciary duty towards the shareholders? - HELD THAT - It is a well settled principle that if the Directors exercise their powers for the purposes other than those for which they were conferred, it may be said that they have exceeded their authority. It is evident that the malafide intention of the petitioner to remove R4 and R5 from the Company has been done with undue haste for the purpose of grabbing power in the Respondent No.1 Company. This clearly depicts that petitioner s son was hand-in-glove and supporting the actions of the petitioner and gives credence to the allegations of the Respondents. Therefore, we are of the view that the petitioner is acting against the interest of Respondent Company and other shareholders, for making material changes in the management of the Respondent company - During the pendency of the case before this Tribunal, it has been observed that unilateral action being taken by the petitioner, without reference to the Board as per the prevailing mandate. These matters as well clearly demonstrate that the Petitioner has not approached this Tribunal with clean hands and he has filed this petition to assume total control over R 1 Company trying to oust the other Respondents. Whether the issue of oppression and/ or mis-management on the part of the Respondents herein in running the affairs of the Company towards the Petitioners No. 1 had been proved or not? - HELD THAT - The record shows that the Petitioner in CP/117/KOB/2019 has diverted the funds of the company to his son and he has purchased motor-car in his personal name from the funds of the company for his own use, where General Body approval through special resolution is required to approve additional compensation to Director, and also done acts in breach of his fiduciary duty vice versa, the Respondents were also acting without complying the provisions of the Act or without applying the mind. Even if certain Board Meetings were conducted complying with the provisions of the Act, each of them depicts the same agenda mainly for ratification. Regarding the prayer of the petitioner to order and direct Respondent No 4 to hand over property of the Company including documents and keys of bungalows with immediate effect, the learned counsel for the respondents submitted that the Respondent No 2 is willing to return the property papers, even though advance notice was given to the petitioner. Two cars along with the keys and documents have already been handed over to the Respondent No 1 Company in November 2019. Thus, both the petitioners in CP/117/KOB/2019 and CP/19/KOB/2020 failed to prove oppression and mismanagement on the part of the respondents therein in carrying on the affairs of the company for the full satisfaction of the directors/ shareholders of the Company. Object and purpose of Sections 241 and 242 of the Act is two-fold. Firstly, to set right the wrongs and secondly, take remedial action to prevent the occurrence of wrongs in future. Since we found that there is no oppression or mismanagement for the reasons stated in the above paragraphs, it is not necessary for this Tribunal to consider any other points raised by the parties. Petition disposed off.
Issues Involved:
1. Validity of the Board Meetings and resolutions passed on 14.10.2019, 18.10.2019, 01.11.2019, 04.02.2020, and 21.08.2020. 2. Allegations of oppression and mismanagement. 3. Fiduciary duties and conduct of directors. 4. Appointment of key managerial personnel and independent directors. 5. Declaration of interim dividend and its legality. 6. Handling and return of company property. Detailed Analysis: 1. Validity of the Board Meetings and Resolutions Passed on 14.10.2019: The Tribunal found that the Board Meeting on 14.10.2019 was conducted with due notice and quorum, making it valid. However, specific resolutions passed in the meeting were scrutinized: - Interim Dividend Declaration: Declared invalid as it was contrary to law. - Appointment of R4 as CEO: Valid. - Appointment of R5 as Executive Director: Invalid due to non-compliance with the required procedures. - Sole Signatory Powers to R4 and R5: Invalid. 2. Validity of the Board Meetings on 18.10.2019, 01.11.2019, 04.02.2020, and 21.08.2020: - 18.10.2019: Declared illegal due to improper notice. - 01.11.2019 and 04.02.2020: Meetings were valid, but resolutions similar to those of 14.10.2019 were invalid. - 21.08.2020: Declared void ab initio due to lack of evidence of proper notice. 3. Allegations of Oppression and Mismanagement: The Tribunal noted that the petitioners failed to prove continuous acts of oppression and mismanagement. It emphasized that isolated acts do not constitute oppression unless they have lasting consequences. The Tribunal concluded that the conduct of the affairs of the company was not oppressive or mismanaged to the extent claimed by the petitioners. 4. Fiduciary Duties and Conduct of Directors: The Tribunal found that the petitioner in CP/117/KOB/2019 breached fiduciary duties by failing to disclose interests in other companies and by providing benefits to his son without Board sanction. The Tribunal emphasized that directors must act in good faith, with due care, and avoid conflicts of interest. 5. Appointment of Key Managerial Personnel and Independent Directors: - Appointment of Mrs. Meera Joseph and Mrs. Annu Kurien as Independent Directors: Declared invalid. - Appointment of Mr. Paulose Joseph as CEO: Valid. - Appointment of Mr. W. C. Thomas as Executive Director: Invalid. 6. Declaration of Interim Dividend and Its Legality: The declaration of interim dividend on 14.10.2019 was found to be contrary to law and thus invalid. The Tribunal highlighted that dividends should be declared in compliance with the Articles of Association and the Companies Act. 7. Handling and Return of Company Property: The Tribunal directed that all properties, including documents and keys of bungalows held by certain individuals, should be handed over to the registered office of the company. Conclusion: The Tribunal concluded that both petitions failed to prove oppression and mismanagement conclusively. The Tribunal issued several directions to ensure compliance with the Companies Act and proper governance, including: - Convening an EGM/AGM to appoint directors and auditors. - Conducting a Board Meeting to address specific issues, such as the appointment of key personnel and the handling of company property. - Ensuring proper disclosure of interests by directors. Order: The petitions CP/117/KOB/2019 and CP/19/KOB/2020, along with all connected interlocutory applications, were disposed of with the aforementioned directions.
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