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2022 (5) TMI 318 - Tri - Companies LawMaintainability of petition u/s 241-242 of Companies Act - legality of removal of the Petitioner from the Directorship - Right of the shareholders/Petitioners - Permission to Petitioner and six other Petitioners/Directors/shareholders, who have been elected as Directors of the Company at 24th AGM, 25th AGM, and 26th AGM, to continue in their office as Directors for the terms for which they have been duly elected - removal of the Petitioner from the Directorship will be oppressive or prejudicial to attract Section 241-242 of the Companies Act or not. Whether the Petitioner is eligible to maintain this Petition under Section 241-242? - HELD THAT - The Petitioner obtained the consent of 56 shareholders constituting 13.21% of the total number of shareholders of the Company holding about 20% of the paid-up capital to file this company petition under Section 241-242 of the Companies Act, 2013. The consenters are aware that their consent is for the purpose of filing a petition before this Tribunal questioning the action taken by the Respondents. Hence, the consent provided by the shareholders to the Petitioner for filing a petition is sufficient and the same can be accepted. In view of the above facts, the Petitioner is eligible to file a Company Petition under Section 241-242 of the Companies Act, 2013. Whether the removal of the Petitioner from the Directorship is illegal? - HELD THAT - On reading of Section 169 of the Companies Act, 2013, which deals with the removal of Directors, shows that to remove a director from the Company, the Company has to comply with the procedure under Section 169 of the Companies Act, 2013. As per Section 169(2) a special notice is required to remove a Director under this Section or to appoint somebody in place of a Director so removed, at a meeting at which he is removed. The Company shall forthwith send a copy thereof to the Director concerned, and the Director shall be entitled to be heard on the resolution at the meeting. In the instant case such an Extraordinary General Meeting was convened by the Requisitionists Shareholders on 3rd March 2020. The Extraordinary General Meeting was called by the Requisitionists shareholders mainly for the purpose of removing seven out of twelve existing directors of the Respondent Company. The act of the shareholders in the matter of appointing or removing the directors of the company from the Board cannot be a subject matter of judicial scrutiny since the right to appoint or remove directors is supreme as a part of the corporate democracy. Whether the removal of the Petitioner from the Directorship will be oppressive or prejudicial to attract Section 241-242 of the Companies Act? - HELD THAT - It is seen from the records that the removal of the Petitioner from the Directorship of the Respondent Company was done following all the mandatory requirements in accordance with law. We could not find any oppression and mismanagement in the Company, while doing so - one of the crucial rights which Companies Act, 2013 gives to the shareholders is the right to remove the Directors of the Company, if they are not acting in consonance with the Articles of Association of the Company, but only utilizing their powers for their benefits. Therefore, the said removal of the Petitioner from the Directorship is not an illegal act done against the Petitioner and the Petitioner failed to prove any continuing oppressive acts on the part of the Company or its management. Hence this Tribunal cannot hold that the removal of the Petitioner is an oppressive act. Hon'ble Supreme Court in TATA CONSULTANCY SERVICES LIMITED VERSUS CYRUS INVESTMENTS PVT. LTD. AND ORS. 2021 (3) TMI 1181 - SUPREME COURT held that under Sub-Section (1) of Section 242 of the Company Act, 2013 the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit cannot be interpreted as conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office and that even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial. Petition dismissed.
Issues Involved:
1. Eligibility of the Petitioner to maintain the Petition under Section 241-242. 2. Legality of the removal of the Petitioner from Directorship. 3. Whether the removal of the Petitioner from Directorship is oppressive or prejudicial under Section 241-242 of the Companies Act. Issue-wise Detailed Analysis: 1. Eligibility of the Petitioner to Maintain the Petition under Section 241-242: The Petitioner obtained the consent of 56 shareholders constituting 13.21% of the total number of shareholders of the Company, holding about 20% of the paid-up capital, to file this company petition under Section 241-242 of the Companies Act, 2013. The consenters were aware that their consent was for the purpose of filing a petition before the Tribunal questioning the actions taken by the Respondents. Hence, the consent provided by the shareholders to the Petitioner for filing a petition is sufficient and the same can be accepted. Therefore, the Petitioner is eligible to file a Company Petition under Section 241-242 of the Companies Act, 2013. 2. Legality of the Removal of the Petitioner from Directorship: Section 169 of the Companies Act, 2013, allows a company to remove a director by ordinary resolution before the expiry of the period of his office after giving him a reasonable opportunity of being heard. The Requisitionists Shareholders convened an Extraordinary General Meeting (EGM) on 3rd March 2020 to remove seven out of twelve existing directors of the Respondent Company. The act of the shareholders in appointing or removing directors from the Board cannot be a subject matter of judicial scrutiny since the right to appoint or remove directors is supreme as a part of corporate democracy. The Tribunal found that the removal of the Petitioner from the Directorship of the Respondent Company was done following all the mandatory requirements in accordance with law. 3. Whether the Removal of the Petitioner from Directorship is Oppressive or Prejudicial: The Tribunal referred to the decision of the Hon'ble Supreme Court in TATA Consultancy Services Limited Vs. Cyrus Investments Pvt. Ltd. and Ors., which states that the Tribunal cannot grant relief under Section 242 unless the removal was oppressive or prejudicial. Even if the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant relief under Section 242 unless the removal was oppressive or prejudicial. The Tribunal found no evidence of oppression or mismanagement in the Company while removing the Petitioner. Therefore, the removal of the Petitioner from the Directorship is not an illegal act and the Petitioner failed to prove any continuing oppressive acts on the part of the Company or its management. Conclusion: The Tribunal concluded that the removal of the Petitioner from the Directorship is not an illegal act and does not constitute oppression or mismanagement. The Company Petition No. 16/KOB/2020 is dismissed without costs. Consequently, the Interlocutory Applications IA/91/KOB/2020, IA/126/KOB/2020, IA/127/KOB/2020, IA/128/KOB/2020, and Contempt Petition/06/KOB/2020 pending stand disposed of.
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