2021 (2) TMI 453 - Tri - Companies Law

Mismanagement and oppression - submissions of the Petitioners are that there is mismanagement and huge discrepancies in the Financial Statements submitted by the Respondent No.1 Company with the Registrar of Companies - whether the acts of Respondents as alleged by the Petitioners would indeed constitute an act of oppression against the minority shareholders or mismanagement or misappropriation of the company will affect the public interest at large, which calls for the intervention of this Tribunal? - HELD THAT - It is profitable to refer the decision rendered by the Hon ble Supreme Court in NEEDLE INDUSTRIES (INDIA) LTD. VERSUS NEEDLE INDUSTRIES NEWEY (INDIA) HOLDING LTD. 1981 (5) TMI 89 - SUPREME COURT , wherein the court laid down the yardstick as to when an act of the majority can be considered as oppressive under the provisions of Section 397 of the Companies Act, 1956. This Tribunal came to the conclusion that averments made by the Petitioners regarding oppression and mismanagement against the Respondents is considered to be an isolated one and not a continuous one for which this Tribunal cannot hold that there is Oppression and Mismanagement in the Company. In the instant case, the petitioner failed to prove the continuing oppressive acts conclusively and we cannot rely upon an act of the Directors as an oppressive act. Hence, this Tribunal came to the conclusions that whatever done by the Respondents is in the best interest of the Company which cannot be stated to be unfair which would prejudice the Petitioner s interest in the Company or prejudicial to the public interest. Hence the Petitioners have no locus standi to approach this Tribunal under Section 241 praying the reliefs - this Tribunal is of the opinion that the petitioners could not make out a case for interference of this Tribunal invoking Section 241-242 of the Companies Act,2013. Petition dismissed.

Issues Involved:
1. Allegations of mismanagement and oppression.
2. Conduct of the company in relation to financial discrepancies.
3. Related party transactions and their legality.
4. Removal of a director and his personal guarantees.
5. Compliance with statutory requirements and tax obligations.
6. Role and responsibility of government agencies and their nominees.

Detailed Analysis:

1. Allegations of Mismanagement and Oppression:
The petitioners alleged that the affairs of the company were conducted with profound illegalities and irregularities, resulting in mismanagement and oppression prejudicial to the interests of the petitioners, other shareholders, and the public at large. They claimed that the respondents violated decisions agreed upon by the promoters and stakeholders, leading to related party contracts and hire purchase agreements that looted the company's assets. However, the tribunal found that the petitioner No.1 failed to attend board meetings for a period of twelve months, resulting in his office of Director becoming vacant by virtue of Section 167(1)(b) of the Companies Act, 2013. The tribunal concluded that this instance was not oppressive to the minority shareholders.

2. Conduct of the Company in Relation to Financial Discrepancies:
The petitioners highlighted discrepancies in the financial statements and alleged non-compliance with tax obligations. The tribunal noted that the financial statements were approved by the Board of Directors and signed in compliance with Section 134 of the Companies Act, 2013. The respondents stated that efforts were being made to regularize statutory compliances, including GST returns. The tribunal accepted the respondents' submission that they were trying to regularize all statutory compliances, considering these as time-taking procedures.

3. Related Party Transactions and Their Legality:
The petitioners alleged that the company entered into related party transactions that were detrimental to its interests. The respondents explained the necessity of hiring a forklift from relatives of certain directors due to financial constraints and lack of alternatives. The tribunal found no material evidence provided by the petitioners to prove that the transactions were improper or violated company law. The tribunal referred to the Independent Auditors Report, which stated that all transactions with related parties were in compliance with Sections 173 and 189 of the Companies Act, 2013, and disclosed in the financial statements as required by applicable accounting standards.

4. Removal of a Director and His Personal Guarantees:
Petitioner No.1 claimed that his personal guarantees for loans were not released after his resignation. The respondents stated their readiness to settle all amounts due to the petitioners. The tribunal noted that the company had agreed to settle the dues of the Managing Director in installments and to exempt him from personal guarantees given to financial institutions. However, the tribunal found that the petitioner failed to prove continuous oppressive acts, and therefore, his removal was not considered an act of oppression.

5. Compliance with Statutory Requirements and Tax Obligations:
The petitioners alleged non-compliance with tax obligations, including GST and custom recovery charges. The respondents admitted to inadvertent omissions but stated that steps were being taken to regularize the same. The tribunal accepted the respondents' efforts to regularize statutory compliances and noted that these procedures take time.

6. Role and Responsibility of Government Agencies and Their Nominees:
The petitioners sought increased governmental control over the company through the respondent No.8 (a government agency). The respondents argued that the agency was not involved in the day-to-day affairs of the company and that the majority of shares were held by private investors. The tribunal found no justification for the petitioners' demand for a change in the mode of interference by the government agency.

Conclusion:
The tribunal concluded that the petitioners failed to prove continuous oppressive acts and that the actions of the respondents were in the best interest of the company. The petitioners were not entitled to any reliefs under Section 241-242 of the Companies Act, 2013. The company petition was dismissed with no order as to costs.

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