2021 (6) TMI 659 - Tri - Companies Law

Oppression and mismanagement - seeking extension of the term of appointment of P2 as Joint Managing Director and R2 as Managing Director of R1 for a period of three years - revival of one division - HELD THAT - The Company is managed by the Board of Directors and overall there is representation for all the groups for a quite long time. However, the three divisions were micro managed by the respective groups - two of the divisions were doing well and one division is not doing well. However, the overall management is under the control of Board of Directors only and the Board is also conscious of the profitability or otherwise of each division and the Board has taken conscious decision then and there in the interest of the company. As far as the Gujarat Division is concerned, since it is not performing well, it cannot be solely attributable to the group which is managing the Gujarat Division. We have noticed that the Board is in full and effective control of all the divisions. However, the management of the Gujarat Division is not getting the required funds and hence, they have to go for high cost external borrowings and that has consistently contributed to the business losses. Already the division has not been doing well and the high cost of borrowing aggravated the situation. It is evident that the Board has asked for revival plan of the Gujarat Division. Apparently, the plans submitted by the Gujarat Division (meaning Kamdars) did not find favour with the Board. Nothing prevented the Board to formulate a revival plan for the Gujarat Division and give directions to the Gujarat Management to put things in order. The problem which we perceive is that the divisions were treated as companies within a company and while the Board took credit for profitable units, it blamed the local management for losses, without initiating proper remedial measures though empowered to do so. Whether the company is a quasi-partnership or not, cannot be decided at the interim stage. The prayers made in CA No. 1008 of 2020 are based on facts relating to the averments made in the Company Petition alleging oppression and mismanagement. Therefore, at this interim stage entire gamut of the allegations and counter-allegations cannot be gone into nor would it be prudent to do so. It is settled that reliefs which can be granted in the main Petition/Suit cannot be granted at the interim stage - the Board is empowered to take all decisions for setting things right in the Gujarat Division but without disturbing the present management pattern/directorship/shareholding of R1, as observed in the order dated 06.04.2018. There are no merits for the reason the Board is competent to take all tactical business decisions for revival of the Gujarat Division - application dismissed.

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Financial distress and management of the Gujarat Division.
3. Quasi-partnership status of the company.
4. Requests for modification of previous tribunal orders.
5. Requests for appointment of an administrator and financial support.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The Petitioners filed a Company Petition alleging oppression and mismanagement in R1 Company by the Respondents. The Petitioners, holding 15.55% of the share capital, claimed that R1 is managed as a quasi-partnership between the Kamdar and Sanghvi groups. They argued that the Sanghvi Group, holding a majority of 64.95%, was attempting to alter the existing management structure, which had been in place for over 40 years. The Petitioners sought the extension of P2's term as Joint Managing Director and the continuation of the existing management structure until the disposal of the petition.

2. Financial Distress and Management of the Gujarat Division:
The Gujarat Division, managed by the Kamdar Group, faced significant financial difficulties. The Petitioners argued that the division was not receiving adequate funding from the Board, forcing it to rely on high-cost external borrowings. They claimed that the Board had not provided a concrete revival plan and had rejected several business proposals, exacerbating the division's financial woes. The Respondents, on the other hand, attributed the division's poor performance to the Petitioners' mismanagement and incompetence.

3. Quasi-Partnership Status of the Company:
The Petitioners asserted that R1 is a quasi-partnership, with the Kamdar and Sanghvi groups collectively holding 96% of the shareholding and 100% of the directorial positions. They provided evidence of the longstanding concentration of shareholding and directorial positions within the three family groups. The Tribunal noted that determining whether R1 is a quasi-partnership could not be decided at the interim stage and required a thorough examination during the final hearing of the Company Petition.

4. Requests for Modification of Previous Tribunal Orders:
The Applicants (R2, R3, and R4) sought modification of the Tribunal's order dated 06.04.2018, which maintained the existing management structure. They argued that the order prevented the Board from intervening in the Gujarat Division's operations, even in the face of existential threats. The Tribunal clarified that the order did not restrict the Board from taking necessary remedial measures but emphasized that the existing management pattern should not be disturbed.

5. Requests for Appointment of an Administrator and Financial Support:
The Petitioners filed CA No. 1064 of 2020, seeking the appointment of an administrator to oversee R1's operations and ensure equitable financial support for the Gujarat Division. They requested immediate disbursement of funds to address the division's financial liabilities and working capital requirements. The Tribunal dismissed the application, stating that the Board was competent to take tactical business decisions for the revival of the Gujarat Division without requiring separate directions.

Conclusion:
The Tribunal dismissed both CA No. 1008 of 2020 and CA No. 1064 of 2020, maintaining the existing management structure as per the order dated 06.04.2018. The Tribunal emphasized that the Board was empowered to take all necessary decisions for the Gujarat Division's revival without disturbing the current management pattern. The comprehensive appraisal of the allegations and counter-allegations would be addressed during the final hearing of the Company Petition.

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