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2018 (10) TMI 340 - Tri - Companies LawOppression and mismanagement - Invoking jurisdiction prescribed under Section 241(2) of the Companies Act, 2013 - Held that - This Bench is of the considered view that it is judicious to invoke the jurisdiction prescribed under Section 241(2) of the Companies Act, 2013 and the Tribunal is of the opinion that as per Section 242 (1) of the Companies Act, 2013, the affairs of the IL&FS were being conducted in a manner prejudicial to public interest. The interim prayer of suspending the present Board of Directors and reconstitution of the new Board of Directors is hereby allowed. At present, by an additional affidavit only 6 names (supra) of the Board members have been proposed by the Union of India. As Further directed that the present Board of Directors be suspended with immediate effect. The six Directors as reproduced supra shall take over the R1 company immediately. Newly constituted Board shall hold a meeting on or before 8th October, 2018 and conduct business as per the Memorandum and Articles of Association of the company and the provisions of the Companies Act, 2013. Liberty is granted to the Board of Directors to select a Chairman among themselves. Thereafter, report the roadmap to NCLT, Mumbai Bench at the earliest possible not later than the next date of hearing. The suspended directors henceforth shall not represent the R1 company as a Director and shall also not exercise any powers as a Director in any manner before any authority as well. As a consequence of Admission of the Petition, issue notice to intimate next date of hearing. The Petitioner is to serve copy of this order along with Petition to all the Respondents. The Respondents in turn may file their reply by 15th October, 2018, only after serving copy to the Petitioner. The Petitioner can file rejoinder, if deem fit, by 30th October, 2018.
Issues:
1. Suspension of existing Board of Directors and appointment of new directors under Section 242(2)(k) of the Companies Act, 2013. 2. Allegations of mismanagement, financial irregularities, and breach of fiduciary duties by the current Board of Directors. 3. Jurisdiction of the National Company Law Tribunal (NCLT) over the matter. 4. Appointment of new directors proposed by the Union of India. 5. Directions given by the Tribunal regarding the suspension of directors and reconstitution of the Board. Analysis: 1. The Union of India filed a petition seeking the suspension of the existing Board of Directors of a company and the appointment of new directors under Section 242(2)(k) of the Companies Act, 2013. The Tribunal found that the affairs of the company were being conducted in a manner prejudicial to public interest, leading to the decision to suspend the current Board and appoint new directors. 2. The allegations against the current Board included negligence, incompetence, and the projection of misleading financial statements. The mismanagement involved indiscriminate borrowing, misgovernance, and a severe mismatch between cash flows and payment obligations. The statutory auditor raised concerns about the company's ability to continue as a going concern, indicating a precarious financial position. 3. The Respondent company, a systemically important Non-Banking Finance Company, fell under the territorial jurisdiction of the NCLT, Mumbai. The Central Government, through its authorized officer, presented the case before the Tribunal, highlighting the need for intervention due to the gravity of the situation. 4. The Union of India proposed the names of six new directors to take over the company, including prominent individuals from the banking and regulatory sectors. These proposed directors were tasked with reconstituting the Board, restoring financial solvency, and ensuring the company's stability and governance. 5. The Tribunal, after considering the facts and arguments presented, allowed the interim prayer to suspend the current Board of Directors and reconstitute a new Board. It directed the immediate suspension of the existing directors and the takeover by the newly proposed directors. The new Board was instructed to conduct business in accordance with legal provisions and report back to the Tribunal. The Tribunal set specific deadlines for filings and scheduled the next hearing to monitor the progress of the case.
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