2023 (2) TMI 1047 - AT - Companies Law

Oppression and Mismanagement - allegation of dilution of his equity, illegal appointment of Appellant herein as the Director on the Board of the Company, illegal sale of the Company's properties and other acts detrimental to the interest of the Company - HELD THAT - The Section 286 of the Act provides that notices for Board meetings should be given to every director in writing. The requirements of Section 286 of the Act, being mandatory, notice to all the directors of meeting is essential for the validity of resolution passed at the Board meeting. Any Board meeting or general meeting held without quorum is illegal. We are fully in agreement with the reasons returned by the NCLT whereby the appointment of Respondent No. 3, the Appellant herein was set aside in the absence of any documentary proof of his valid appointment. Further, the NCLT held that the Respondent Nos. 1 and 3 only be two directors of the Respondent company. The increase in the Authorised and Paid-up share capital was reduced to its original state. Additional shares issued in favour of Appellant herein / Respondent No. 3 before NCLT was directed to be cancelled and Fresh Annual Returns was directed to be filed with the RoC, Jaipur. The equity of Respondent No. 1 herein / Petitioner and Respondent No. 3 herein / Respondent No. 2 before NCLT was also directed to be restored to that of 50% each. With respect to alleged illegal sale and transaction of the immovable assets of the company was concerned, the same was outside the jurisdiction of the Tribunal. The parties have already invoked the jurisdiction of the civil courts for necessary action. There are no merit in the Appeal to interfere with the order impugned passed by the NCLT. The impugned order dated 20.12.2019 passed by the National Company Law Tribunal (New Delhi Bench) in CP-118(ND)/2013 is hereby affirmed - appeal dismissed.

Summary

Issues Involved:

1. Mismanagement and oppression allegations.
2. Dilution of equity and illegal appointment of the appellant as Director.
3. Illegal sale of company properties.
4. Validity of Board meetings and resolutions.
5. Limitation period for filing the petition.
6. Appointment of an independent administrator or investigation under Section 213 of the Companies Act, 2013.

Detailed Analysis:

1. Mismanagement and Oppression Allegations:

The Respondent No. 1 filed a petition alleging mismanagement and oppression by the Appellant and Respondent No. 3, including dilution of equity, illegal appointment of the Appellant as Director, and illegal sale of company properties. The National Company Law Tribunal (NCLT) set aside the appointment of the Appellant as Director and ordered the restoration of the equity of Respondent No. 1 and Respondent No. 3 to 50% each. The Tribunal also directed the parties to explore a buy-in or buy-out at the valuation of the shares as of 31.03.2013.

2. Dilution of Equity and Illegal Appointment of the Appellant as Director:

The Respondent No. 1 argued that the appointment of the Appellant as Director and the subsequent increase in authorized share capital were done without proper authorization and were oppressive. The NCLT found the appointment of the Appellant as Director invalid due to the absence of documentary proof of his valid appointment. The Tribunal also reduced the increased authorized and paid-up share capital to its original state and canceled the additional shares issued to the Appellant.

3. Illegal Sale of Company Properties:

The Respondent No. 1 alleged that the Appellant and Respondent No. 3 were involved in the illegal sale of company properties. The Tribunal, however, noted that the issue of illegal sale and transaction of immovable assets was outside its jurisdiction and that the parties had already invoked the jurisdiction of civil courts for necessary action.

4. Validity of Board Meetings and Resolutions:

The Appellant argued that all decisions of the board were made by the requisite quorum as required by the articles of association of the Company. However, the Respondent No. 1 contended that the appointment of the Appellant as Director and other actions were taken without proper notice and authorization. The Tribunal found that the Appellant's appointment was invalid due to the lack of documentary proof and proper notice.

5. Limitation Period for Filing the Petition:

The Appellant argued that the petition was barred by limitation as it was filed beyond three years from the Appellant's appointment as Director in 2008. However, the Respondent No. 1 contended that the acts of oppression and mismanagement had a continuous effect, and therefore, the question of the petition being time-barred did not arise. The Tribunal did not find merit in the Appellant's argument and proceeded with the case.

6. Appointment of an Independent Administrator or Investigation under Section 213 of the Companies Act, 2013:

The Appellant sought the appointment of an independent administrator or an investigation under Section 213 of the Companies Act, 2013, due to mutual mistrust between the promoters and pending cross-cases. The Tribunal, however, did not find it necessary to appoint an administrator or order an investigation and instead chose to partly allow the petition based on the available evidence.

Conclusion:

The Appellate Tribunal affirmed the NCLT's order, setting aside the appointment of the Appellant as Director, reducing the authorized and paid-up share capital to its original state, and restoring the equity of Respondent No. 1 and Respondent No. 3 to 50% each. The Tribunal dismissed the appeal, finding no merit in the Appellant's arguments and upheld the NCLT's decision. The judgment emphasized the importance of proper authorization and documentation in company management and the continuous nature of acts of oppression and mismanagement.