2024 (8) TMI 910 - AT - Insolvency and Bankruptcy

Oppression and mismanagement - wrongful infusion of money - Corporate Debtor along with other family owned business entities were in nature of quasi-partnership or not - equal representation in the BoD - casting vote is privilege of the Chairman of the BoD or can be done away by the Adjudicating Authority as done in the Impugned Order. HELD THAT - The lack of probity or equity would be more relevant factors in the cases of oppressions . This will further imply that intention behind of the action taken by the Corporate Debtor or person in charge of the company would also be relevant factor to look into such allegations of oppression of mismanagement - the oppressive actions are taken by the majority of shareholders which are pre-judicial to the minority members of the company. In the present case, it is already noted that both the Appellants and the Respondents are holding equal shareholding of 50 50 as such there is no majority shareholders. It is primarily the issue of control of the management of the Corporate Debtor. Whether such appointment or non appointment of the Director on BoD can be cause of oppression and mismanagement ? - HELD THAT - It is already noted that the act of oppression and mismanagement should be pre-judicial to a member of the company and not against the director of the BoD. Technically and legally speaking the appointment and removal of directors cannot be treated as act of oppression and mismanagement . The principles of quasi-partnership is not foreign to the concept of the Companies Act, 2013. For the purpose of grant of relief, the principles of quasi- partnership had been applied even in a public limited company. It is held that the true character of the Company and other relevant factors should be considered to decide the true factor of quasi-partnership - the reasoning given by the Appellant No. 2 that he was getting old to run the affairs of the company are contradicted by himself after assuming the charge of Chief Operating Officer of the company. It clearly reflects that the intent was to oust (Respondent No. 1) and his family from the management and to have full control of the company by his family members. The casting vote were invoked only 2015 onwards when dispute arose between the parties and subsequently majority of such casting votes were used for benefits of the Appellants rather than for the company. It is appreciated that the disqualification of both the directors of company i.e., Appellant No. 2 and Respondent No. 1 would have rendered company without any director which is not permissible - the Adjudicating Authority took decision to remove the casting vote in these extraordinary circumstances which created company imbalance by one set of 50% shareholders taking all decisions for their own benefits and denying any right to other 50% shareholders. Based on the strength of the shareholding one can legitimately expect to have representation and say in the BoD of the company if otherwise eligible under Companies Act, 2013. Appeal dismissed.

Issues Involved:
1. Acts of oppression and mismanagement.
2. Nature of the corporate debtor as a quasi-partnership.
3. Basis for equal representation in the Board of Directors (BoD).
4. Authority of the Adjudicating Authority to impose conditions.
5. Validity of the casting vote as a privilege of the Chairman.

Detailed Analysis:

1. Acts of Oppression and Mismanagement:
The appellants argued that the acts alleged by the respondents, such as the appointment of Appellant No. 3 (Anand A Thakkar) to the BoD, denial of the appointment of Respondent No. 2 (Lopa S. Thakkar) and Respondent No. 3 (Yashesh A. Thakkar), and the infusion of money into a loss-making subsidiary in Dubai, did not constitute oppression and mismanagement. They contended that these actions were within their rights and were necessary for the company's management and succession planning. However, the respondents countered that these actions were taken to exclude them from the management and were prejudicial to their interests. The Tribunal found that the appellants' actions were indeed oppressive and mismanaged the affairs of the company, especially by using the casting vote to favor their own family members and exclude the respondents.

2. Nature of the Corporate Debtor as a Quasi-Partnership:
The Tribunal examined whether the corporate debtor, Venus Petrochemicals (Bombay) Private Limited, functioned as a quasi-partnership. The appellants argued that the company was not a quasi-partnership since it was not converted from an existing partnership and lacked any incorporation documents suggesting such an arrangement. Conversely, the respondents highlighted the history of the company being run by family members with mutual trust and confidence, akin to a quasi-partnership. The Tribunal agreed with the respondents, noting the family-controlled nature and the mutual understanding between the parties, thereby affirming the quasi-partnership character.

3. Basis for Equal Representation in the BoD:
The Tribunal analyzed the equal shareholding (50:50) between the two family groups and the historical equal representation in the BoD. The appellants contended that equal representation was not a legal requirement, while the respondents argued that it was necessary for maintaining the balance of power and trust. The Tribunal concluded that equal representation was essential to prevent oppression and ensure fair participation in the company's management.

4. Authority of the Adjudicating Authority to Impose Conditions:
The appellants challenged the Tribunal's authority to impose conditions such as equal representation in the BoD, removal of the casting vote, and joint operation of bank accounts. They argued that these directives were beyond the Tribunal's jurisdiction. The Tribunal, however, justified its directives under Sections 241 and 242 of the Companies Act, 2013, which empower it to make orders to end oppressive practices and mismanagement. The Tribunal emphasized that these conditions were necessary to restore balance and prevent further oppression.

5. Validity of the Casting Vote as a Privilege of the Chairman:
The appellants argued that the casting vote was a privilege provided by the Articles of Association and could not be removed by the Tribunal. The Tribunal examined the use of the casting vote by Appellant No. 2 (Mr. Atul M. Thakkar), noting that it was primarily used to favor his family members and exclude the respondents, thus creating an imbalance. The Tribunal held that the misuse of the casting vote justified its removal in the extraordinary circumstances to prevent further oppression and ensure fair management.

Conclusion:
The Tribunal upheld the Impugned Order, finding that the appellants' actions constituted oppression and mismanagement. It affirmed the quasi-partnership nature of the corporate debtor, justified the equal representation in the BoD, validated the authority of the Tribunal to impose necessary conditions, and supported the removal of the casting vote. The appeal was dismissed as devoid of merit.

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