2023 (6) TMI 104 - AT - Companies Law

Oppression and Mismanagement - Transfer of Shares - allotment of shares - Forum Shopping - Removal of Appellants No. 2 and 6 from the Directors of the Company and to declare them as unfit to be appointed as Directors in any Company - whether the Company Petition was barred by Limitation? - HELD THAT - Keeping in view that the Form 32 for removal of the Respondent as Director was filed only on 01/12/2005 and the Petition was filed in April 2008 apart from the fact that the removal is interlinked with the subsequent development and form a continuous act this Tribunal is of the considered view that the Petition is not barred by limitation. As regards the merits of the matter and the issues raised in this Appeal this Tribunal address to whether the Resolution dated 05/02/1996 allotting 420 shares to Mr. T.S. Rathnasabapathy by himself was in accordance with Law. There is no documentary evidence on record to establish that the Notice of the Meeting stated to be sent to the Respondent are known to have been received. Even if the Notice of the Meeting was indeed dispatched and served it is seen from the record that the requisite quorum as maintained under Law and as per the Articles of Association was not available for conduct of the 05/02/1996 Board Meeting as the Petitioner/Respondent is holding 50% of the shares and is one of the two Directors. Annexure R-2 is the Notice issued by the Registrar of Companies to the 1st Appellant Company on 09/12/1998 which is reproduced as hereunder for better understanding of the case. It is clear that even as on 1998 there was no business conducted by the Company and hence there was no need to infuse any additional Capital by allotting Shares specifically in the absence of any offer to the Petitioner/Respondent to subscribe to any Rights issue as no Rights issue was ever offered. Keeping in view these aforenoted reasons this Tribunal is of the considered view that the Resolution dated 05/02/1996 is null and void. It is not in dispute that the only asset of the Company is the immovable Property that is the subject land in question which the Appellant contends has been sold legally with the knowledge of the Petitioner/Respondent. The documentary evidence on record does not substantiate that the subject land was sold involving the Petitioner/Respondent. Admittedly disputes were raised before the Hon ble High Court of Karnataka in the Civil Court and in Company Law Board and when the Company Petition is pending the act of the Appellants No. 2 to 5 in selling the Land without Notice to the Petitioner/Respondent is held to be a unilateral sale constituting an act of Oppression and Mismanagement meaning thereby that the affairs of the Company were mismanaged by the Appellants as the only asset of the Company was this Land - the subsequent act of the Appellants herein in selling the subject land without informing the Respondent; in the absence of a specific Notice issued to the Petitioner/Respondent herein as per the Provisions of Law; and increasing the Share Capital in the Board Meeting once again in the absence of the Petitioner/Respondent who is the only other Director; all fall within the ambit of the definition of Oppression and Mismanagement as defined under Sections 395 and 396 of the Companies Act 1956. This Tribunal is of the earnest view that there is no illegality or infirmity in the Impugned Order dated 11/10/2018 and hence this Company Appeal fails and is accordingly dismissed.

Summary

Issues Involved:
1. Limitation and Forum Shopping
2. Validity of Share Allotment and Board Meetings
3. Acts of Oppression and Mismanagement

Summary:

1. Limitation and Forum Shopping:
The Tribunal addressed whether the Company Petition was barred by limitation. The Appellant argued that the Respondent did not take steps despite having knowledge in 1995-96 until 2005. The Tribunal found that the Petition filed before CLB in 2008 was not barred by limitation, as the Company did not conduct business, and the Balance Sheets evidenced no commencement of business. The Petition was filed within the limitation period, considering the continuous nature of the alleged acts of oppression and mismanagement. The Tribunal also ruled out forum shopping, as the reliefs sought in different proceedings were distinct and between different parties.

2. Validity of Share Allotment and Board Meetings:
The Tribunal examined the validity of the Resolution dated 05/02/1996, which allotted 420 shares to Mr. T.S. Rathnasabapathy. It found no documentary evidence proving that the meeting notices were served to the Respondent. The requisite quorum was not available for the Board Meeting as the Petitioner/Respondent held 50% of the shares and was one of the two Directors. The Tribunal declared the Resolution null and void. Additionally, the Tribunal found that the Board Meetings held in 1995 were invalid due to the lack of evidence that notices were served to the Respondent.

3. Acts of Oppression and Mismanagement:
The Tribunal addressed the sale of the Company's only asset, an immovable property, which was sold without the knowledge of the Petitioner/Respondent. The sale was deemed unilateral and constituted an act of oppression and mismanagement. The Tribunal noted that Late Shri. T.S. Rathnasabapathy had intended that the land be divided between the Petitioner and the 2nd Respondent, not sold. The increase in share capital and the conduct of Board Meetings without proper notice to the Respondent were also considered acts of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.

Conclusion:
The Tribunal upheld the NCLT's order dated 11/10/2018, finding no illegality or infirmity. The Company Appeal (AT) No. 403/2018 was dismissed with no order as to costs.