2021 (10) TMI 596 - AT - Companies Law

Oppression and Mismanagement - Direction to Special Officer who had been earlier appointed in the petition to appoint valuer by taking names from the petitioners as well as the respondents of their choice - HELD THAT - The learned National Company Law Tribunal is agreed upon that it is a situation of deadlock where in view of article 53 of the articles of association of company with original petitioners being on one side and the other three brothers being on the other quorum of two-third of the directors could not be achieved except with the attendance of one of the original petitioners and considering the various litigations between the parties, the learned National Company Law Tribunal was right in observation that there was a deadlock. When the record shows that the learned National Company Law Tribunal had earlier given directions to call for valuation report of the shares, the natural corollary would be that on receipt of the report, if objections are not filed, the parties can be asked to buy out or sell out. Given the facts of the matter, what appellants of these appeals are, in the name of principles of natural justice seeking is that they should have been allowed to take their own time before National Company Law Tribunal acted upon the valuers report that had been received. The appellants are critical of the Special Officer appointed by the learned National Company Law Tribunal (who was appointed to ensure smooth holding of board meetings) and took opportunity to file even against such Special Officer a contempt application. The impugned order shows that when the original respondents did not co-operate in naming a valuer the Special Officer selected a name and got the valuation done. The respondents have been agitating over this claiming that the Special Officer could not have on his own gone ahead to appoint a valuer and should have moved the National Company Law Tribunal for modification. The learned National Company Law Tribunal does not appear to have found fault with such procedure adopted by the Special Officer. The impugned order as has been passed should not be interfered with. In the facts of the matter, it appears to be appropriate course and it is open to the parties to quote higher price for buy out/sell out as has been ordered by the learned National Company Law Tribunal. Appeal dismissed.

Summary

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Appointment and actions of the Special Officer.
3. Valuation and buyout/sellout of shares.
4. Compliance with principles of natural justice.
5. Deadlock in company management.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The original petitioners alleged that the respondents engaged in acts of oppression and mismanagement, including exclusion from board meetings and settling balance sheets without notice. The petition claimed that the company, originally a family business, was facing internal disputes among the brothers, leading to multiple litigations. The respondents denied these allegations, stating that the company operated on verbal notices due to its family nature.

2. Appointment and Actions of the Special Officer:
The National Company Law Tribunal (NCLT) appointed a Special Officer to preside over board meetings due to the deadlock among the brothers. The Special Officer was directed to appoint a valuer for the company's shares. The respondents argued that the Special Officer violated tribunal orders by appointing the valuer without their input. However, the NCLT found that the Special Officer had made multiple attempts to involve the respondents, who failed to cooperate.

3. Valuation and Buyout/Sellout of Shares:
The NCLT directed the Special Officer to appoint a valuer to assess the shares' value. The valuation report set the reserve price at ?277 per share. The tribunal ordered that both petitioners and respondents could submit buyout/sellout bids higher than the reserve price. The respondents challenged the valuation process, but the NCLT noted that no substantial objections to the valuation report were filed. The tribunal emphasized that the valuation was a necessary step to resolve the deadlock and facilitate a buyout/sellout process.

4. Compliance with Principles of Natural Justice:
The respondents claimed that the NCLT violated principles of natural justice by not allowing them to file replies to the unnumbered interim application (I.A.). The NCLT countered that the urgency of the matter, exacerbated by the COVID-19 pandemic, justified expedited proceedings. The tribunal noted that the respondents had multiple opportunities to participate in the valuation process and file objections, which they did not utilize effectively.

5. Deadlock in Company Management:
The NCLT identified a deadlock in the company's management due to strained relations among the brothers. Article 53 of the company's articles of association required a two-thirds quorum for board meetings, which was unattainable without the participation of the petitioners. The tribunal concluded that the deadlock justified the valuation and buyout/sellout process to resolve the disputes and ensure the company's smooth operation.

Conclusion:
The NCLT's judgment addressed the complex family dispute within the company by emphasizing the need to resolve the deadlock through a fair valuation and buyout/sellout process. The tribunal dismissed the appeals, affirming the valuation and the procedure for resolving the ownership dispute. The judgment aimed to balance the interests of all parties and ensure the company's future stability.

Final Orders:
1. Company Appeal (AT) No. 141 of 2020 is dismissed.
2. Company Appeal (AT) No. 132 of 2020 is dismissed.
3. Company Appeal (AT) No. 123 of 2020 is dismissed.
4. No order as to costs in each of the appeals.