2023 (4) TMI 451 - HC - Companies Law

Impleadment to an oppression and mismanagement petition - allegation of misconduct against the Appellant - violation of principles of natural justice by not affording an opportunity of hearing to the Appellant - HELD THAT - Corporate governance can be a complex matter, especially when it comes to the appointment of directors. Disputes can arise when a nominee director s appointment is subsequently withdrawn by the nominating group. The issue at hand is whether a nominee director, who no longer has the support of the nominating group, should be allowed to join a petition seeking relief against oppression and mismanagement against other members/ shareholder groups of the company. DKJ group's interests hold precedence - HELD THAT - According to the AoA of Respondent No. 3, the DKJ Group is entitled to an equal number of directors on Respondent No. 3 s Board, as the SKG Group. The Appellant was a nominee of DKJ Group. Following Mr. D.K. Jain's demise, the Appellant began acting against the interests of her nominating group. Despite DKJ Group's request to SKG Group to not accept Appellant as their nominee director, she continued to act as a nominee director. Due to her lack of cooperation, the DKJ Group intimated CLB that her nomination had been withdrawn and in her place, a new director had been appointed - In such circumstances, when DKJ approached the CLB for interim directions, it was held that SKG Group was under obligation to uphold the interest of DKJ Group and thus, suspended Appellant s directorship. This was only to ensure that DKJ Group s interests are not jeopardised, pending final adjudication of the proceedings in the company petition. Appellant has contrary interests to DKJ Group and past association with the group is of no consequence - HELD THAT - The Court finds the Appellant s past relationship with DKJ Group to be irrelevant to the matter at hand. Her assertion that she continues to be a nominee director is misconceived as the AoA stipulates that a nominee director can continue to serve on the Board of Directors only if they have the support of the nominating group. The pleadings on record show that the Appellant no longer has the backing of the DKJ Group, which is essential for a nominee director's continuation. Appellant was to further the interests of DKJ group, but since she was not acting in their interests, she risked losing their support and being removed from the board. No sufficient cause u/s 405 of the Act - whether the presence of the Appellant is essential for adjudicating the issues arising in the company petition? - HELD THAT - In the instant case, since the Appellant no longer has the support of the DKJ Group, she has no right to participate in the proceedings. The Court agrees with the CLB's decision that Appellant has failed to show sufficient cause under Section 405 of the Act to join the proceedings. Appellant's shareholding stands conclusively transferred - HELD THAT - Since Appellant has transferred her entire shareholding in Respondent No. 3 to Ms. Usha Jain, her plea premised on the basis of shareholding is of no consequence. It is clear that the Appellant does not enjoy the support of DKJ Group. Appellant s shareholding in Respondent No. 3 stands transferred which underscores DKJ Group s right to make decisions which are in their best interests. There is no valid cause to implead the Appellant in a dispute that involves DKJ Group's pursuit to defend their representation rights in Respondent No. 3. Application dismissed.

Summary

Issues Involved:
1. Impleadment of the Appellant in the oppression and mismanagement petition.
2. Validity of Appellant's removal as nominee director.
3. Appellant's shareholding status in Respondent No. 3.

Summary:

(i) Impleadment of the Appellant in the oppression and mismanagement petition:

The present appeal under Section 10F of the Companies Act, 1956 is directed against the order dated 23rd September 2015, whereby the Appellant's application for impleadment in an oppression and mismanagement petition concerning Respondent No. 3-Eden Park Hotels Pvt. Ltd., was rejected by the Company Law Board (CLB). The Appellant, a former shareholder and nominee director of Respondent No. 3, sought to be impleaded to oppose the petition filed by the DKJ Group against the SKG Group.

(ii) Validity of Appellant's removal as nominee director:

The Appellant argued that her removal as a nominee director was unjustified and that she had always acted in the interests of the DKJ Group. However, the court noted that the Articles of Association (AoA) allowed the nominating group to withdraw their support for a nominee director at any time. The DKJ Group, upon noticing that the Appellant was acting against their interests, withdrew her nomination and appointed a new director. The court upheld the CLB's decision that the Appellant, having lost the support of the DKJ Group, could not claim to represent their interests and thus was not a necessary party to the proceedings.

(iii) Appellant's shareholding status in Respondent No. 3:

The Appellant's contention that her shareholding of 50,000 equity shares necessitated her impleadment was dismissed. The court noted that the Appellant had transferred her shares to Ms. Usha Jain, which was confirmed by an order dated 31st March 2016 in a separate company petition. Therefore, her shareholding status was no longer relevant to the current proceedings.

Conclusion:

The court concluded that the Appellant, having lost the support of the DKJ Group and transferred her shareholding, had no valid cause to be impleaded in the dispute. The appeal was dismissed, along with other pending applications.