2017 (10) TMI 1132 - Tri - Companies Law

Winding up petition - Company Petition under Sections 397 and 398 of the Companies Act, 1956 - scope of default - Held that - It is clear that the R1 Company is a family concern which has been run on informal basis and for the benefit of the shareholders (who are all family members and relatives). The petitioners has stated that the R2 has misused the power of attorney available with him to deprive the R1 Company and the petitioners have stated that the purchase consideration was not credited to the bank account of the R1 Company. However, except for the Profit and Loss account and balance sheet for the financial year 2005-2006 no other statements containing facts like statement of bank accounts, Board Resolutions, Annual Returns for the subsequent periods etc. have been produced neither by the petitioners nor by the respondents. As against the issues raised by the petitioners against R2 a series of allegations against P1 have been made by the R2. The petitioners undoubtedly are the majority shareholders and also have representation in the Board. They could have taken up the issue in the Board Meeting or could have even removed R2 as a Director of the Company. For reasons best known to the petitioners, R2 has continued to be a Director in the Board till date. On these grounds alone the company Petition is liable to be dismissed. The Petitioners have challenged single/isolated past concluded transaction, that took place on 2nd July, 2004, of which he had the knowledge, as it is admitted fact that during 2009, the Petitioner sold properties in the same building in 10th Floor, so was aware of structure on the terrace, and have filed the Petition after the lapse of around 7 years from the date of the transaction in question. Therefore, a single/isolated past concluded transaction cannot be a base for seeking relief under Sections 397 and 398 of the Companies Act, 1956.

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 397/398 of the Companies Act, 1956.
2. Validity and implications of a past concluded transaction involving the sale of undivided share of land and terrace rights.
3. Fiduciary duties of directors and alleged misappropriation of company assets.
4. Jurisdiction of the National Company Law Tribunal (NCLT) to adjudicate the matter.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners filed the petition under Sections 397/398 read with Sections 402 and 403 of the Companies Act, 1956, alleging oppressive, burdensome, harsh, and wrongful conduct by Respondent No.2. They claimed that Respondent No.2 acted in contravention of the Articles of Association and the Act, engaging in mismanagement for personal gain. The petitioners, holding approximately 70% of the company's share capital, argued that Respondent No.2 misused a Power of Attorney to unlawfully transfer terrace rights and an undivided share of land to a trust controlled by his family, without proper authorization from the Board of Directors. They sought reliefs including a declaration that Respondent No.2 breached his fiduciary duties, removal of Respondent No.2 as a director, an investigation into misappropriated revenues, and restoration of misappropriated funds to the company.

2. Validity and Implications of Past Concluded Transaction:
Respondent No.2 countered that the petitioners had full knowledge of the sale of the undivided share of land and the transfer of terrace rights to Respondent No.3, a trust controlled by his family, since 2004. He argued that the transaction was a past concluded matter and could not be challenged under Sections 397 and 398. The tribunal supported this view, citing precedents such as *Shanti Prasad Jain v. Kalinga Tubes Ltd.* and *Raghunath Swarup Mathur v. Har Swarup Mathur*, which held that isolated past transactions cannot form the basis for relief under these sections. The tribunal noted that the petitioners, despite being majority shareholders and directors, did not challenge the transaction at the relevant time and continued to allow Respondent No.2 to remain on the board.

3. Fiduciary Duties and Misappropriation:
The petitioners accused Respondent No.2 of breaching his fiduciary duties by misappropriating company assets and diverting revenues from the terrace rights to his personal benefit. They alleged that Respondent No.2 executed unauthorized agreements with mobile phone operators and other entities, collecting lease rentals and license fees for personal gain. Respondent No.2 refuted these claims, stating that the sale of the undivided share of land was duly accounted for in the company's books and that the transaction was conducted at a proportional rate. He also alleged that the petitioners themselves engaged in activities detrimental to the company, such as diverting projects and funds to other companies they controlled.

4. Jurisdiction of NCLT:
Respondent No.2 argued that the NCLT lacked jurisdiction to adjudicate the matter, suggesting that the appropriate forum was the civil courts. He contended that the petitioners' claims did not involve ongoing oppression or mismanagement but rather a past concluded transaction. The tribunal agreed, referencing *Anupamarani Satpal Sharma v. Anand Steel Works (P.) Ltd.*, which held that if alternative remedies such as convening an Extraordinary General Meeting (EOGM) or Board Meetings are available and not availed, a petition under Sections 397 and 398 cannot be entertained. The tribunal concluded that the petitioners did not come to court with clean hands and had not made out a case for winding up the company on just and equitable grounds, as required for relief under these sections.

Conclusion:
The tribunal dismissed the petition, citing the petitioners' failure to challenge the transaction in a timely manner, the availability of alternative remedies, and the lack of a case for winding up the company on just and equitable grounds. The tribunal emphasized that both parties had not disclosed all relevant information, and the petitioners were not entitled to relief under Sections 397 and 398 of the Companies Act, 1956.

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