2017 (8) TMI 200 - Tri - Companies Law

Oppression and mismanagement - petition under Sections 397, 398, 402, 403 and 405 of the Companies Act, 1956 - Held that - We find that the acts of respondents were neither burdensome nor harsh. Even suppose that there were lack of confidence between the Petitioner (Minority) and the Respondents (Majority), but the said lack of confidence did not spring from oppression by the respondents against the petitioner. Moreover, it was the petitioner who left the company at his own will. The respondents have not flouted the provisions of the Companies Act, 1956/2013 and they have been able to refute appropriately the allegations levelled by the petitioner pertaining to sale of the web portal of the 1st Respondent Company. It is well settled that a single act of financial mismanagement does not have the continuous effect which is necessary for granting relief under the provision of Sections 397 and 398 of the Companies Act, 1956. Moreover, the commercial mismanagement does not amount to oppression, therefore, the same does not require judicial interference.herefore, it would not be just and equitable to declare that the acts of the Respondents are oppressive and constitutes mismanagement. In connection with the allegations of shifting of Registered office of the 1st Respondent company, the Respondents have given a plausible explanation i.e. Office was housed on the basis of lease and licence agreement that expired in October, 2014, and further to curtail the cost, the office was relocated for cheaper accommodation and the same was intimated to the concerned Registrar of companies. Therefore, a bona fide shifting of the registered office of a company causing no loss to the company does not amount to mismanagement

Issues Involved:
1. Allegations of oppression and mismanagement.
2. Rejection of Fast Track Exit (FTE) application.
3. Declaration of acts as oppressive and constituting mismanagement.
4. Reconstitution of the Board of Directors.
5. Declaration of unfitness of certain directors.
6. Restraining certain respondents from interfering in company affairs.
7. Injunction against dealing with company assets/customers.
8. Handover of company records by certain respondents.
9. Prosecution for mismanagement and fraudulent acts.
10. Declaration of certain transactions as void ab initio.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioner alleged various acts of oppression and mismanagement by the company's directors under Sections 397, 398, 402, 403, and 405 of the Companies Act, 1956. The petitioner, a founder director, claimed unethical practices and inefficiency by the other directors, leading to his resignation. The tribunal found that the petitioner, who resigned voluntarily, could not substantiate his claims of oppression and mismanagement. The tribunal referenced *Shanti Prasad Jain v. Kalinga Tubes Ltd.*, noting that the conduct must be "burdensome, harsh and wrongful" to constitute oppression, which was not proven in this case.

2. Rejection of Fast Track Exit (FTE) Application:
The petitioner sought to reject the FTE application made by the directors. The respondents argued that due to financial struggles and accumulating losses, they decided to close operations through the FTE scheme. The tribunal found no evidence of bad faith or improper conduct in this decision, noting that commercial mismanagement does not equate to oppression.

3. Declaration of Acts as Oppressive and Constituting Mismanagement:
The petitioner contended that the directors' actions were oppressive and constituted mismanagement, including non-disclosure of related party transactions and improper handling of AGMs. The tribunal concluded that the respondents provided plausible explanations for their actions, including financial difficulties and legitimate business decisions. The tribunal emphasized that a single act of financial mismanagement does not suffice for relief under Sections 397 and 398, referencing *A. Ravishankar Prasad v. Prasad Productions (P.) Ltd.* and *Rutherford, In re*.

4. Reconstitution of the Board of Directors:
The petitioner sought to reconstitute the board, arguing that the current directors were unfit. The tribunal found no compelling evidence to support this claim, noting that the petitioner himself had resigned and that the company's financial struggles were not solely attributable to the current directors.

5. Declaration of Unfitness of Certain Directors:
The petitioner requested a declaration that certain directors were unfit to serve. The tribunal found no basis for this request, as the petitioner failed to prove that the directors' conduct was detrimental to the company's interests.

6. Restraining Certain Respondents from Interfering in Company Affairs:
The petitioner sought to restrain certain respondents from interfering in the company's affairs. The tribunal found no justification for such an order, as the respondents' actions were not proven to be oppressive or constituting mismanagement.

7. Injunction Against Dealing with Company Assets/Customers:
The petitioner requested an injunction against certain respondents dealing with the company's assets and customers. The tribunal found no evidence of improper conduct that would warrant such an injunction.

8. Handover of Company Records by Certain Respondents:
The petitioner sought an order directing certain respondents to hand over company records. The tribunal found no basis for this request, as the petitioner did not provide sufficient evidence of wrongful withholding of records.

9. Prosecution for Mismanagement and Fraudulent Acts:
The petitioner sought prosecution of certain respondents for mismanagement and fraudulent acts. The tribunal found no grounds for such prosecution, as the allegations were not substantiated by evidence.

10. Declaration of Certain Transactions as Void Ab Initio:
The petitioner sought to declare certain transactions between the respondent companies as void ab initio. The tribunal found that the transactions were legitimate business decisions, and there was no evidence of fraud or improper conduct.

Conclusion:
The tribunal concluded that the petitioner failed to make out a case for oppression and mismanagement. The respondents provided plausible explanations for their actions, and the petitioner's allegations were not substantiated by evidence. Therefore, the company petition was dismissed with no order as to costs.

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