2022 (10) TMI 891 - AT - Companies Law

Oppression and mismanagement - misappropriation of funds - Section 421 of the Companies Act, 2013 read with Section 241-242 of the Companies Act, 2013 - HELD THAT - In special audit carried out by Vikas Dahiya and Company, Chartered Accountants, New Delhi vide its Special Audit Report dated 24th May, 2017 has observed multiple irregularities during the Financial Year 2013-14 to 2016-17. The auditor has also observed that huge payments were released in cash without supporting vouchers, receipts and payment amounting to Rs. 3.62 Crore has been made for which no satisfactory explanation was given by the Appellant. Illegal encashment of cheques, direct transaction of the funds, non-compliance of statutory duties of the Respondent No.1 Company etc came to the light and the same had happened under instruction of the Appellant. There are irregularities and misappropriation of funds including non-payment of statutory dues and the special audit has also recommended to carry an extensive forensic audit to find out the magnitude of misappropriation of funds. There was no case of Oppression Mismanagement as alleged out by the Appellant in present Appeal as well as in the Application filed before the Hon ble NCLT, New Delhi vide CP-219/241-242/ND/2018 and the Adjudicating Authority rightly passed the detailed order dated 03.09.2021 after going through the entire materials placed on records and as such no irregularities were found in convening an Extra-Ordinary General Meeting which was requisitioned at the instances of a shareholder and a Board Meeting is not a pre-requisite as settled principles under Companies Act, 2013 - the Board Meetings were convened and suggested appropriate actions including convening of Extraordinary General Meeting (EGM) based on requisition of shareholder to remove the Appellant from the Directorship of the company vide Special Notice dated 16.05.2018 and the Board has intimated vide letter dated 23.05.2018 to the concerned Director to defend the various allegations raised in the special notice but no cognizant explanation was offered against the discrepancies in the accounts of the Respondent No.1 company. There are no irregularity in the impugned order - appeal dismissed.

Summary

Issues Involved:
1. Allegations of Oppression and Mismanagement.
2. Validity of the Extra-Ordinary General Meeting (EGM) and the removal of the Appellant from directorship.
3. Financial irregularities and mismanagement in the Respondent No.1 Company.
4. Compliance with statutory provisions and procedural requirements under the Companies Act, 2013.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The Appellant alleged that Respondent No.2 and Respondent No.3 conspired to hijack the business and oust the Appellant from the directorship of Respondent No.1 Company. The Appellant claimed that the EGM notice was issued with a predetermined objective to remove him from the company, which constituted oppression and mismanagement. The Appellant argued that the removal was based on false and malicious allegations of financial mismanagement and fraud.

The Respondents countered that the NCLT dismissed the matter on the grounds that no case of oppression and mismanagement was made out. They argued that the allegations were vague, baseless, and concocted. The Tribunal found that the removal of the Appellant was justified based on the findings of financial irregularities and mismanagement.

2. Validity of the Extra-Ordinary General Meeting (EGM) and the Removal of the Appellant:
The Appellant contended that the notice calling the EGM was bad in law and should be declared null and void. He argued that the notice did not comply with the requirements of Section 115 and Section 102 of the Companies Act, 2013, which mandate the disclosure of specific grounds and material facts for the proposed removal of a director. The Appellant also claimed that he was not properly served with the notice.

The Tribunal observed that the EGM was requisitioned by a shareholder and did not require a prior resolution of the Board of Directors. The Appellant was served with the notice and given the opportunity to file his representation. The Tribunal found no irregularity in convening the EGM and stated that the removal of a director is within the purview of the company's shareholders.

3. Financial Irregularities and Mismanagement in the Respondent No.1 Company:
The Respondents submitted that a Special Audit Report dated 24.05.2017 revealed large-scale financial irregularities and mismanagement in the company. The audit found instances of cash payments without proper supporting documents, misappropriation of funds, non-compliance with statutory dues, and other financial discrepancies amounting to Rs. 3.62 Crore. The Appellant was alleged to have been involved in these irregularities.

The Tribunal noted that the Appellant did not provide any satisfactory explanation for the discrepancies highlighted in the audit report. The Tribunal concluded that the allegations of siphoning of funds and fraud were grave and justified the removal of the Appellant from the directorship.

4. Compliance with Statutory Provisions and Procedural Requirements:
The Appellant argued that the notice calling the EGM did not comply with the statutory requirements under the Companies Act, 2013. He claimed that the explanatory statement annexed to the notice did not provide all material information as mandated by Section 102 of the Act.

The Tribunal found that the notice and explanatory statement were in compliance with the statutory provisions. The Tribunal held that the EGM was validly convened, and the removal of the Appellant was procedurally correct. The Tribunal also noted that the Appellant was given ample opportunity to represent himself against the allegations.

Conclusion:
The Tribunal upheld the impugned order, dismissing the appeal with notional costs of Rs. 25,000/-. The Tribunal found no case of oppression and mismanagement and concluded that the removal of the Appellant from the directorship was justified based on the findings of financial irregularities and mismanagement. The Tribunal emphasized that the removal of a director is within the discretion of the company's shareholders and should not be interfered with by the courts.