2024 (12) TMI 616 - Tri - Companies Law

Oppression and mismanagement - Respondent No. 1 company is a quasi-partnership or not - Family settlements - Alleged acquisition of shares by Respondent No. 2 and Late Trimbak Bedekar with a view to reduce the petitioners to minority - Non-payment of gratuity dues of Petitioner No. 1 - Entitlement of Petitioner No. 2 to be appointed as a director of the Respondent company - Petition barred by time limitation or not - Whether Respondent No. 1 company is a quasi-partnership? - HELD THAT - According to the petitioners, the company was incorporated in 1943 under the Companies Act, 1913. Prior to that, business was being run by the HUF of Bedekar family headed by late Vishwanath Parsharam Bedekar, the then Karta of the family. Subsequently, it was converted into a partnership business with the co-parceners (the sons of Vishwanath Parsharam Bedekar) and the current account balances of five partners of HUF (VP Bedekar and sons) were converted to the share capital of the company. It has also been claimed that from the very beginning, shareholding and the board control has been with the members of the Bedekar family only except one instance when initially Shri Chitale was inducted as a director. Admittedly, at the time of filing the petition, the petitioners jointly held only 7.5% of the shares and prior to that, it was 15% which stood reduced to 7.5% after the respondent company brought a rights issue in 1997, which was not subscribed to by the petitioners. Therefore, the facts remains that there has been unequal shareholding since 1997 as from then onwards, respondent no. 2 to 5 collectively hold 92.55% as against 7.45% of the petitioners. Thus, the fact remains that there has been no equality in shareholding since the year 1997. Therefore, this militates against the plea of the petitioners that the company is in fact quasi-partnership on account of the fact that equality in shareholding has been the primary feature of the company. The claim of the Petitioners that the shareholding was restricted to only male lineal descendants also does not seem to be correct in the light of the fact that admittedly Mukund Chitale held 50% of the shares at the time of the incorporation though he was inducted only to run the company in a professional manner. However, petitioner no.1 himself admittedly transferred shares to M/s Esquire Press which was not in any manner connected to the Bedekar family. In this regard, the plea of the Petitioners is that the shares were transferred to raise money for the company from M/s Esquire Press as otherwise as per the provision of the Companies Act, then in force, no money or loan could be availed from anybody except a member of the company. However, this plea raised by the petitioners has also not been substantiated as no worthwhile evidence led by the petitioners on record. It is the admitted case of the Petitioners that at the time of inception of business in the 1920s, it was being single handedly run by Vasudeo Bedekar. It is also not disputed by the Petitioners that after the death of Vasudeo Bedekar, managerial control was based only on majority shareholding and the minority shareholders were kept out of management and since 1986, not even a single member of the family of the petitioners has been on the Board or has held any managerial position in the company. Therefore, it has been wrongly claimed by the Petitioners that the company was a continuation of the erstwhile partnership firm, especially when there has been admittedly unequal shareholding for almost more than two decades prior to the filing of the petition. The plea of the respondent company being a quasi-partnership does not seem to have been established at all. Besides, the petitioners have also been able to make out a for winding up of the company which is sine qua non before a corporate body can be treated as quasi-partnership. Family settlement - Petitioners have alleged in the Petition itself that in the year 1986, an amicable settlement was arrived at in the Bedekar family that the property of the company would be divided not only between the existing management of five directors but also between all the branches of the Bedekar family in proportion to their shareholding which would be an equitable distribution of the assets of the company - HELD THAT - The Respondents have emphatically denied the execution of any such family agreement. In the event of the categoric denial of the alleged family settlement of 1986, it was incumbent upon the petitioners to prove the execution of the alleged family settlement. However, the Petitioners have not led any evidence of the purported agreement. No agreement has been placed on record. It is not even clear from the pleadings whether such agreement or family settlement was reduced to writing or not. The terms and conditions of purported family settlement have also not been spelled out by the Petitioners. Thus, the Petitioners have failed to discharge the onus of proof with regard to the existence/execution of a family settlement of 1986 - the very existence of the alleged family settlement of 1986 is doubtful. Moreover, there is no explanation forthcoming as to why the Petitioners kept sleeping over a long period of time and did not take any steps to enforce these alleged family settlements of 1986. All these circumstances lead to the only irresistible conclusion that no such agreement/family settlement was ever executed between the parties nor is there any evidence of the existence/execution of such a settlement. Even otherwise, such an agreement, on the face of it, does not appear to be enforceable considering the fact that a shareholder by virtue of his shareholding cannot claim a share in the properties of the company, much less the partition of its assets. Alleged acquisition of shares by Respondent No. 2 and Late Trimbak Bedekar with a view to reduce the petitioners to minority - HELD THAT - Admittedly, the Respondent company brought a rights issue in February 1997. The Petitioners have claimed that the act of bringing the rights issue was an act of oppression as it reduced the Petitioners' shareholding from 15% to 7.5%. The Petitioners have not led any evidence that they challenged the rights issue at any point of time nor took any steps to get the alleged rights issue set aside, being illegal or oppressive in nature. The relief of cancellation of the rights issue was also not sought from any forum or court of law. The Petitioners also did not subscribe to the rights issue and it is not the case of the Petitioners that they were prevented in any manner from subscribing to the rights issue by the Respondents. Thus, having not voluntarily subscribed to the rights issue nor challenging the same before any court of law since 1997, at this belated stage, in our considered view, the Petitioners cannot be heard harping that the rights issue was illegal or prejudicial to the interest of the Petitioners in any manner. It has been repeatedly held by the Higher Courts the denial of the access of the books of the company or non-compliance of statutory formalities/compliances cannot be considered as acts of oppression and mismanagement of the affairs of the company. Non-payment of gratuity dues of Petitioner No. 1 - HELD THAT - The Respondents have pointed out that Petitioner No. 1 had a filed suit in the Civil City Court claiming his outstanding salary and other dues including gratuity and the said suit was dismissed by the Civil City Court, Greater Bombay by the Judgment dated 24.06.2013 which is annexed with the reply as Exhibit R- 6. Therefore, the Petitioner having already availed a remedy before the Civil Court cannot now be reagitate the same in the Petition under Sections 397-398 of the Companies Act 1956. Even otherwise, non-payment of gratuity cannot be an act which can be said to be an act of oppression and mismanagement. Entitlement of Petitioner No. 2 to be appointed as a director of the Respondent company - HELD THAT - It would be suffice to say that Article of Association do not confer any such right upon Petitioner No. 2 to be appointed as a director of company. Even otherwise, under Section 152 of the Companies Act, a director can be appointed only by the shareholders at a general meeting. Since Petitioner No. 2 does not have the requisite number of votes, he has not been legally appointed as director - reference can also be made to the law laid in G. Vijayalakshmi Alias Brinda Another v. Triupur Textiles Private Limited 2013 (10) TMI 31 - MADRAS HIGH COURT whereby it has been held that the principle of legitimate expectation cannot be extended in company law as it is mostly confined to the right of a fair hearing before a decision which results in negativing a promise or withdrawing of an undertaking. Petition barred by time limitation or not - HELD THAT - The alleged acts of oppression and mismanagement do not constitute a continuing cause of action, it is constrained to hold that the Petition is barred by time so far as the aforesaid alleged acts of oppression and mismanagement are concerned. The Petition is only partly allowed as against the Respondents No. 1 to 5 with an order that Respondents No. 1 to 5 shall buy out the shareholding of the Petitioners on a fair value to be determined by an independent registered valuer to be appointed on the basis of consensus between the parties within a period of one month from today. In case, no consensus is arrived at between the parties within a period of one month, they will be at liberty to seek intervention of this Tribunal for appointment of an independent valuer.

Summary

Issues Involved:

1. Whether the Respondent Company is a quasi-partnership.
2. Allegations of oppression and mismanagement by the Respondents.
3. Alleged family settlement of 1986 and its breach.
4. Alleged illegal acquisition of shares by Respondents.
5. Rights issue of 1997 and its impact on Petitioners' shareholding.
6. Denial of inspection of registers and improper maintenance of accounts.
7. Denial of Petitioners' right to participate in management.
8. Allegations of siphoning off funds and mismanagement.
9. Petitioners' request for exit from the company on fair valuation.
10. Applicability of Limitation Act to the Petition.

Detailed Analysis:

1. Quasi-Partnership:

The Petitioners claimed that the Respondent Company is a quasi-partnership, as it was originally a family business run by the Bedekar family, later converted into a partnership and then into a private company. They argued that the company was formed on the basis of personal relationships and mutual confidence, with restrictions on share transfers to outsiders, thus qualifying as a quasi-partnership. However, the Tribunal found that there was no equality in shareholding since 1997, and the shareholding pattern was not consistent with a quasi-partnership. The Tribunal also noted that the Articles of Association did not restrict share transfers to male lineal descendants only, and there was no evidence of a basic understanding to manage the company on partnership principles.

2. Allegations of Oppression and Mismanagement:

The Petitioners alleged various acts of oppression and mismanagement, including denial of inspection of registers, improper maintenance of accounts, and non-compliance with statutory formalities. They also claimed that the Respondents siphoned off funds through related companies. The Tribunal found that these allegations did not constitute acts of oppression or mismanagement, as the Petitioners did not suffer material harm or prejudice. The Tribunal referred to precedents where mere non-compliance with statutory formalities was not considered oppression.

3. Alleged Family Settlement of 1986:

The Petitioners alleged a family settlement in 1986 for equitable distribution of the company's assets, which was breached by the Respondents. The Tribunal found no evidence of such a settlement, as the Petitioners failed to provide any document or terms of the agreement. The Tribunal noted that the Petitioners did not take any steps to enforce the alleged settlement for a long time, making its existence doubtful.

4. Alleged Illegal Acquisition of Shares:

The Petitioners claimed that the Respondents acquired shares illegally by transferring company assets, reducing the Petitioners to a minority. The Tribunal noted that the Petitioners never challenged these acquisitions under relevant sections of the Companies Act. There was no evidence that the Respondents transferred company assets to acquire shares, and the Petitioners' allegations were unsubstantiated.

5. Rights Issue of 1997:

The Petitioners argued that the rights issue was oppressive, reducing their shareholding from 15% to 7.5%. The Tribunal found that the Petitioners did not challenge the rights issue or subscribe to it, and there was no evidence that they were prevented from doing so. The Tribunal held that the Petitioners could not dispute the legality of the rights issue after such a long period.

6. Denial of Inspection and Improper Maintenance of Accounts:

The Petitioners alleged denial of inspection of registers and improper maintenance of accounts. The Tribunal found that these allegations did not amount to oppression or mismanagement, as the Petitioners did not suffer any material harm. The Tribunal referred to precedents where such acts were not considered oppression.

7. Denial of Participation in Management:

The Petitioners claimed that they were denied participation in management. The Tribunal noted that the Articles of Association did not confer any right on the Petitioners to be appointed as directors, and the Petitioners did not have the requisite votes for such appointment. The Tribunal held that the Petitioners' demand for directorship was without basis.

8. Allegations of Siphoning Off Funds:

The Petitioners alleged that the Respondents siphoned off funds through related companies. The Tribunal found no evidence to support these allegations and noted that the Petitioners' claims were unsubstantiated.

9. Petitioners' Request for Exit on Fair Valuation:

The Petitioners sought exit from the company on fair valuation. The Tribunal, while not finding oppression or mismanagement, considered the family nature of the company and the long-standing disputes. The Tribunal allowed the Petitioners to exit the company on fair valuation, to be determined by an independent valuer.

10. Applicability of Limitation Act:

The Tribunal held that the Petition was barred by limitation for specific acts of alleged oppression and mismanagement, as the cause of action arose long before the filing of the Petition. The Tribunal noted that the Limitation Act applies to such petitions, and the Petitioners' claims were time-barred.