2017 (6) TMI 188 - Tri - Companies Law

Oppression and mismanagement - Whether the Petitioner No. 1 remained absent in the meeting and ceased to continue as director as stated by the respondent? - Held that - On the one hand the petitioner submitted that in and around February 2010 (Para 2.3) he was suffering from unknown ailment and on the other hand in paragraph No. XII (page 23) submitted that he was suffering from typhoid and frozen shoulder and after partial recovery he joined the company on 25.10.2010.the petitioner nowhere annexed any medical documents in support of his contention when he was claiming to be suffered with typhoid and frozen shoulder and the Doctor advised him rest. Admittedly the petitioner joined the office on 25.10.2010 and on the other hand also alleged that he came to know about his removal from company website in the Month of January 2012. The own statements of the petitioner are self-contradictory and shaky. On perusal of the pleading it transpires that the total statements are self-contradictory and appears to be made with an intention to pressurise the Company for some collateral benefit and to interfere in the smooth running of the Company. Further on perusal of the minutes of the meeting dated 9-7-2011 wherein the issues of retiring Directors including the petitioner was discussed and the son of the petitioner namely Shri Divyendu Guha was present and the same is also admitted by the petitioner. Thus the very statement creates shadow of doubt and unbelievable story when admittedly the petitioner himself expressed his desire to leave/retire from the Company and for the said purpose negotiating with the Company. Under such situation it will be wrong to say that the petitioner has been wrongfully removed under Section 283(1)(g) of the Companies Act when admittedly the petitioner has not taken any leave even after receipt of letter from the respondent(s). It is needless to mention herein that the settled proposition of law is that in fiduciary capacity within which the Directors have to act enjoins upon them a duty to act on behalf of the company with outmost care and skill and due diligence and in the interest of the company. They have a duty to make full and honest disclosure to the Company. Whether it is a directorial complaint and no act of oppression and mismanagement is observed? - Held that - The interest of the company as a whole is of course paramount and the personal interest of the minority cannot overtake the interest of the company. Thus the conduct of the majority ought to be weighed up; so as the conduct of the minority would be relevant.The company normally runs on the trust that is present among the shareholders and among the Directors running the company. Trust that was initially present when the company was incorporated disappeared. In most of the cases it is seldom possible to reinforce the same trust with which the person came together at the time of incorporation of the company. In situation like this if at all warring parties were directed to run the company together the trust that was lost would not come again. Whereby the best part is taking part away so that at least one of them could run the company. Thus it is of opinion that these party(s) may have to part ways on fair valuation since the respondent(s) are still running the Company the respondent(s) shall provide honourable exit to petitioner(s) on fair valuation by giving effect to the minutes of the meeting dated 9-7-2011 marked as Annexure P6 of reply (page 77) and letter dated 18-06-2012 (page 85) of reply which document is relied upon by both sides wherein valuation of the petitioners share was shown to have settled amicably. Further the valuation of the property as done by Bank s approved valuer be given effect to so as to come to an end of the dispute for the interest of the Company. This order is hereby concluded directing the respondent(s) to give effect of the fair exit as said above within three months from the date of the pronouncement of this order.

Summary

Issues Involved:

1. Absence of the petitioner in board meetings and cessation as director.
2. Allegation of oppression and mismanagement.
3. Directorial complaint versus shareholder rights.
4. Settlement negotiations and valuation of shares.

Issue-wise Detailed Analysis:

1. Absence of the petitioner in board meetings and cessation as director:
The petitioner was removed as a director under Section 283(1)(g) of the Companies Act, 1956, due to his absence from three consecutive board meetings. The petitioner claimed he was unaware of his removal until he checked the ROC website in June 2012. However, it was admitted that the petitioner received letters dated 09.09.2010 and 29.09.2010 from the respondents inquiring about his health, to which he did not respond. The petitioner also failed to provide medical documentation supporting his illness claims. The tribunal found the petitioner's statements self-contradictory and aimed at pressurizing the company for collateral benefits.

2. Allegation of oppression and mismanagement:
The tribunal emphasized that for a claim of oppression, specific acts must be pleaded, including who committed them, how they were oppressive, and their impact on the company. The petitioner’s primary grievance was his removal from the board, which does not constitute oppression under Sections 397 and 398 of the Companies Act, 1956. The tribunal noted the lack of specific allegations of gross oppression and mismanagement.

3. Directorial complaint versus shareholder rights:
The tribunal highlighted that a directorial complaint cannot form the basis of a petition under Sections 397 and 398. The removal of a director does not equate to shareholder oppression. The petitioner failed to demonstrate any act that would justify relief under these sections. The tribunal reiterated that the interest of the company, rather than individual disputes, is paramount.

4. Settlement negotiations and valuation of shares:
The tribunal noted that the petitioner had expressed a desire to leave the company and engaged in settlement negotiations. Meetings were held to discuss the settlement, including the valuation of the petitioner’s shares and property. The tribunal found that the petitioner’s removal and subsequent negotiations were consistent with the company’s interests and did not constitute oppression. The tribunal directed the respondents to provide an honorable exit to the petitioner based on fair valuation, as discussed in the meetings and documented in the minutes and letters.

Conclusion:
The tribunal concluded that the petitioner’s removal was justified under Section 283(1)(g) due to his absence from board meetings and lack of response to inquiries. The petitioner’s claims of oppression were not substantiated, and his grievances were deemed directorial rather than shareholder-related. The tribunal directed the respondents to facilitate the petitioner’s exit from the company based on fair valuation within three months. The petition was disposed of without costs.