2021 (6) TMI 950 - AT - Companies Law

Oppression and mismanagement - Sections 241, 242 and 243 of the Companies Act, 2013 - Appellant s allegation is that Suraj Mani (Respondent No. 2) incorporated a new company (Respondent No. 4) and did not disclose to her that Respondent No. 2, Respondent No. 3 and Respondent No. 5 were shareholders in the new company, thereby contributing to mismanagement of Respondent No. 1 Company - HELD THAT - Respondent No. 1 Company has performed consistently well and there has been an increase in revenue and turnover of the company over the years (as shown by table at page 5 of the Respondent No. 2 s counter affidavit. This point has been mentioned in NCLT s impugned order dated August 1, 2019 (page 67 of the appeal) and not disputed by the Appellant. The reference made by the Respondents to the applications filed and representations made by the Appellant including those for interim relief sought before NCLT, mainly requesting for a residence to be provided to the Appellant and also for payment of credit card bills of the Appellant go to show the personal nature of allegations calling the same oppression of the Appellant and mismanagement of company s affairs. In the circumstances of the case, the provision of residence and basic remuneration and perquisites, as ordered by the NCLT is a reasonable relief granted to the Appellant. The Respondents have cited the judgment of Hon ble Supreme Court in the case NEEDLE INDUSTRIES (INDIA) LTD. VERSUS NEEDLE INDUSTRIES NEWEY (INDIA) HOLDING LTD. 1981 (5) TMI 89 - SUPREME COURT wherein it was held that a conduct which lacks in probity, conduct which is unfair to and which causes prejudice to the petitioner in the exercise of legal or proprietary rights as a shareholder must be shown to exist. - In the instant case the Appellant has not been able to prove through her claims and allegations that her rights as a shareholder have been treated harshly or unfairly, and therefore her case of her oppression and mismanagement of the affairs of the company is unfounded. The Impugned Order has recorded the position of the Respondents as well as the Appellant on each of the cited issues in a very fair and clear manner. Despite a case of oppression and mismanagement not being successfully established by the Appellant, in an act to provide succor to the Appellant, the NCLT, Bengaluru s has provided her relief by passing an order giving her a monthly pay as well as benefit of a three BHK flat, a car, and certain other perquisites, which has been complied by the Respondents. The appeal being devoid of any substance is disallowed.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement by Respondent No. 2.
2. Incorporation of a new company (Respondent No. 4) by Respondent No. 2.
3. Transfer of funds from Respondent No. 1 Company to Respondent No. 2’s private account.
4. Approval of resolutions in board meetings without proper reasons and documents.
5. Increase in authorized share capital of Respondent No. 1 company.
6. Provision of residence and basic remuneration to the Appellant.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement by Respondent No. 2:
The Appellant alleged that Respondent No. 2 treated the company as his proprietorship, excluded her from decision-making, and used company profits for personal gain. However, the Tribunal found no substantial evidence supporting these claims. The Appellant failed to demonstrate how the commercial decisions were devoid of commercial wisdom or detrimental to her position as a shareholder.

2. Incorporation of a New Company (Respondent No. 4) by Respondent No. 2:
The Appellant claimed that Respondent No. 2, along with Respondents No. 3 and 5, incorporated a new company to divert business from Respondent No. 1, thereby reducing its market share and harming her share value. The Tribunal found no evidence of business diversion or significant operations by the new company. The Appellant's allegations were not substantiated with facts or evidence.

3. Transfer of Funds from Respondent No. 1 Company to Respondent No. 2’s Private Account:
The Appellant alleged unauthorized fund transfers by Respondent No. 2. The Tribunal noted that the only instance cited was a bonus payment of ?80 lakhs, which was approved and signed by the Appellant for the year 2016-17. No other unauthorized transfers were alleged, rendering this claim unsubstantial.

4. Approval of Resolutions in Board Meetings without Proper Reasons and Documents:
The Appellant contended that resolutions were passed without proper documentation and her objections were ignored. The Tribunal found that variable salaries to employees, including Respondents No. 2 and 3, were justified by the company's good performance. The Appellant's objections being overruled by majority did not constitute oppression or mismanagement.

5. Increase in Authorized Share Capital of Respondent No. 1 Company:
The Appellant argued that increasing the authorized share capital from ?1 lakh to ?5 crore aimed to reduce her shareholding percentage. The Tribunal found that the proposal followed proper legal procedures and was approved in an EGM after the impugned order. This act could not be branded as oppression.

6. Provision of Residence and Basic Remuneration to the Appellant:
The Tribunal noted that the NCLT, Bengaluru, had ordered the provision of a residence, monthly salary, car, and other perquisites to the Appellant on compassionate grounds. This order was in line with the essence of the Supreme Court's dictum in relevant cases, ensuring the Appellant's basic needs were met without affecting the company's management.

Conclusion:
The Tribunal found that the Appellant failed to prove her claims of oppression and mismanagement. The NCLT's order providing the Appellant with a residence, salary, and other perquisites was deemed reasonable. The appeal was dismissed, and the impugned order was upheld. There was no order as to costs.