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2023 (2) TMI 1099 - AT - Companies LawOppression and mismanagement - petitioners in the original petition were entitled to maintain the said Company Petition under sections 241-242 of the Companies Act or not - waiver granted under section 244 to prefer such a petition is correct, or not - AoA regarding election of President of FHRAI have been followed properly in letter and spirit in the election of President of FHRAI for the year 2018-19, or not? Whether petitioners in the original petition were entitled to maintain the said Company Petition under sections 241-242 of the Companies Act and whether the waiver granted to them under section 244 to prefer such a petition is correct? - HELD THAT - Tribunal in its judgment in the matter of Cyrus Investments Pvt. Ltd. 2017 (9) TMI 1500 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI has held therein that if the Appellants are members of the company in question and have alleged oppression and mis-management, which is not a frivolous complaint, the Tribunal should examine whether similar allegation of oppression and mis-management was earlier made by any other member or there is exceptional circumstance made out to grant waiver. A perusal of the Impugned Order, wherein the issue of grant of waiver has been dealt by the NCLT shows that the NCLT has considered the matter of Casino Hotels, where the proposed action of the Executive Committee to amend clauses IV(1)(a) and (b) of Appendix-A of the AoA of FHRAI was under challenge, and in which the Eastern Region members had opposed the stand of Northern and Western Regions members. The NCLT has found that the issue which was raised in the Casino Hotels case has found reflection in the process of election of President of FHRAI for the year 2018-19 - Looking to the facts and circumstances pleaded by the Respondent HRAEI, the acts of oppression and mis-management have continued in one form or the other right from the filing of the Casino Hotels petition, and therefore, in the interest of corporate democracy and to ensure proper functioning of FHRAI in accordance with the AoA and to examine the alleged ats of oppression and mismanagement, we are of the view that it is a case whether exceptional circumstances demand grant of waiver under section 244 of the Companies Act to enable the petitioners of CP 473/241-242/2018 to raise their grievances which could then be adjudicated upon. Whether the actions of the sitting President Mr. Garish Oberoi and other Executive Committee members, mainly from the Western and Northern Regions, can be labelled as acts of oppression and mis-management? - HELD THAT - The procedure being adopted in the election of the President of FHRAI for the year 2018-19 as interpreted by the siting President Mr. Garish Oberoi is clearly an act of oppression and mismanagement, which if not checked at nascent stage right in the beginning, can result in further oppression of FHRAI s members and mismanagement of the affairs of the company to the detriment of the functioning of the company FHRAI and against the legitimate interests of its members. The intent of sections 241-242 is to protect the company s members from acts of oppression and mis-management and to also protect and preserve the interest of the company, and in that light we are of the clear view that in the present case, the acts as stated in CP 473/241-242/PB/218, clearly constitute acts of oppression and mismanagement . Reliance placed upon judgment of Hon ble Supreme Court in the matter of Chatterjee Petrochem (India) Private Limited 2011 (9) TMI 842 - SUPREME COURT , by the appellants - What follows from the above judgment of the Hon ble Supreme Court is that the conduct of the majority shareholders should be considered not in isolation, but as part of consecutive story in order to maintain a case of oppression of the minority member. In the present case it is seen that from the time certain members of the Executive Committee initiated attempt to amend clause IV (b) and (c) of Appendix A of AoA, which was resolutely opposed by some other members of the Executive Committee which section was challenged in the CASINO HOTELS UNIT OF CGH EARTH PVT. LTD. VERSUS THE FEDERATION OF HOTELS RESTAURANTS ASSOCIATION OF INDIA ORS. 2018 (4) TMI 1943 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI PRINCIPAL BENCH and the later actions of members of the Executive Committee to subvert the proper election process for the post of President of FHRAI for the year 2018-19, in the instant case, there is a continuing story of oppression by some members of the Executive Committee against some other members of the Executive Committee who are both members of FHRAI - the judgment of Hon ble Supreme Court in the matter of Chatterjee Petrochem (India) Private Limited (supra) is distinguished from the issue in the instant case on the above basis. Whether the alleged acts of oppression and mis-management as claimed by the petitioners in original CP No. 473/241-242/2018 actually amount to oppression and mis-management as claimed by the petitioners in original company petition and as are required for a section 241-242 petition? - HELD THAT - Article 52 of the AoA of FHRAI stipulates that the election to the post of President of FHRAI is carried out by the members of the Executive Committee region-wise by rotation for one term and theorder of rotation as stipulated is in the order of Eastern Region, Western Region, Northern Region and Southern Region. It is not disputed that it was the turn of Eastern Region to have its member elected as President of FHRAI for the term 2018-19 - Article 49 of the AoA, provides that question before the Executive Committee shall be decided by a majority of members present. Further, clause (g) of Article 40 of the AoA stipulates that the Executive Committee could devise its own procedure in so far as such procedure is not inconsistent with the Companies Act or the AoA. Whether the AoA regarding election of President of FHRAI have been followed properly in letter and spirit in the election of President of FHRAI for the year 2018-19, as was required by law? - HELD THAT - Once the new Executive Committee members were elected in the Annual General Meeting held on 30.10.2018, they were to have taken office. Also, the other office bearers which would certainly include the President also continued to hold office until the new office bearers are elected by the incoming Executive Committee. By not completing the process of election of President for the year 2018-19, and presiding over the Executive Committee as sitting President and also electing the office bearers including the .Vice Presidents and others, Mr. Garish Oberoi not only exhibited a blatant and high-handed oppressive behaviour nefariously assisted by some other members who were acting like a clique , he also disregarded provisions of the AoA and acted in an oppressive manner. The Representation of the People Act, 1951, it is lucidly clear that, even when there is a single candidate in fray, she will be elected unopposed provided she is eligible to contest, and such election is proper and legitimate election in the eyes of law. Thus, the act of the Appellants not to let Mr. Sudesh Kumar Poddar s name be proposed as a nominated candidate of the Eastern Region when no other candidate opposing him was in the fray, was certainly not in accordance with the principle of corporate democracy and corporate governance and also not in consonance with the requirement of Article 52 of the AoA of FHRAI - the word nomination when used in a reference to putting forward the name of Mr. Sudesh Kumar Poddar may give an impression that he is not a contesting candidate, but practically in the eyes of law he is merely a candidate, whose name would be duly proposed by any Executive Committee member, and be considered a valid nomination/candidate as is understood, under The Representation of the People Act, 1951, where nomination merely means that someone has proposed and some other person has seconded the name of the candidate, but it that the nominated candidate is elected unopposed without going through the process of voting. Further, if such candidate is a sole candidate, she can obviously be elected unopposed, but the fact is that she will still be elected in accordance with the provisions of AoA and in the manner which is correct in the eyes of law. The waiver granted by the NCLT with regard to section 244 of the Companies Act, 2013 to the petitioners of CP No. 437/242-242/2018 was in order and was necessary to allow the petitioners to agitate their case about alleged oppression and mis-management under sections 241-242 of the Companies Act, 2013 - the acts of some members of the Executive Committee, who have formed a clique to give shape to their chosen but perverse design are clearly acts of oppression and mismanagement beginning from the attempts to amend clause IV(b) and (c) of Appendix A of the AoA, which had carried on till the time of election of President of FHRAI for the year 2018-19. The period starting from 30.10.2018 till the pronouncement of this judgment shall not be included while considering the term and eligibility of the Executive Committee members as provided in the A0A in the election of President, Executive Committee members and other office bearers of FHRAI - the judgment of NCLT and Impugned Order dated 30.8.2022 of NCLT is correct. Appeal disposed off.
Issues Involved:
1. Maintainability of the company petition under sections 241-242 of the Companies Act and the correctness of the waiver granted under section 244. 2. Determination of whether the alleged acts constitute oppression and mismanagement. 3. Compliance with the Articles of Association (AoA) regarding the election of the President of FHRAI for the year 2018-19. Issue-wise Detailed Analysis: 1. Maintainability and Waiver under Section 244: The original company petition CP No. 473/241-242/2018 was filed by eleven petitioners, including the Hotel and Restaurant Association of Eastern India (HRAEI). As per section 244(1)(b) of the Companies Act, not less than 1/5th of the total members of FHRAI are required to maintain a petition under sections 241-242. The NCLT granted a waiver to the petitioners, enabling them to file the petition despite not meeting the numerical requirement. The Tribunal found that the acts of oppression and mismanagement were continuous, starting from the Casino Hotels case, and thus exceptional circumstances justified the waiver. The waiver was deemed necessary for corporate democracy and proper functioning of FHRAI. 2. Alleged Acts of Oppression and Mismanagement: The petitioners alleged that the actions of the sitting President Mr. Garish Oberoi and other Executive Committee members, mainly from the Western and Northern Regions, constituted oppression and mismanagement. The Tribunal noted that the issue began with attempts to amend clauses IV(b) and (c) of Appendix A of the AoA, opposed by Eastern Region members. The Tribunal found that the refusal to elect Mr. Sudesh Kumar Poddar as President, despite him being the preferred candidate of the Eastern Region, was an act of oppression. This refusal was seen as part of a continuing series of oppressive acts, beginning with the Casino Hotels case and extending to the election process for the President of FHRAI for 2018-19. 3. Compliance with AoA in Election of President: The AoA of FHRAI stipulates that the President shall be elected by the Executive Committee members region-wise by rotation. The Tribunal found that the election process for 2018-19 was not conducted in accordance with these provisions. The minutes of the Executive Committee meeting on 30.10.2018 revealed that the names of Mr. Nitin Kothari, Mr. Ashoke Singh, and Mr. Vijay Dewan were proposed without their prior consent, and they declined the position. The Tribunal held that the refusal to elect Mr. Sudesh Kumar Poddar, despite him being the sole candidate from the Eastern Region, was against the principles of corporate democracy and the AoA. The Tribunal emphasized that even a sole candidate can be elected unopposed, as per the precedent of past elections and the principles of The Representation of the People Act, 1951. Conclusion: The Tribunal upheld the NCLT's order, finding that the waiver granted under section 244 was justified, the acts in question constituted oppression and mismanagement, and the election process for the President of FHRAI for 2018-19 was not conducted in compliance with the AoA. The Tribunal directed that the election for the post of President for 2018-19 be completed within 30 days and that the Executive Committee members as of 30.10.2018 continue to hold office until a fresh AGM is held. The appeals were dismissed, and the NCLT's order was affirmed.
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