2019 (4) TMI 487 - AT - Companies Law

Oppression and mismanagement - allotment of 90000 shares and consequently appellant s shareholding has come down from 50% to 5% - scope of passing special resolution - HELD THAT - Special resolution can be passed only in the AGM or EOGM where all the shareholders will have a say. That is so, even if the shares have to be issued as Employees Stock Option in terms of Section 62(1)(b), a special resolution is envisaged under the law. Therefore, in case shares are not issued under Section 62(1)(a), the law envisaged that special resolution is must whenever the shares are to be issued under Section 62(1)(b) or 62(1)(c). No such material has been produced or pleaded before this Tribunal that the special resolution has been passed. Neither any material has been placed before the Tribunal that the fair price has been determined on the basis of the registered valuer. It is noted that the allotment has been done at the face value of ₹ 10/-. In the absence of fair value it cannot be determined that the ₹ 10/- is the fair value of the equity share. We are of the opinion that compliance of Section 62(1)(c) ensures that the allotment is done to any person at a price which is not prejudicial to the interest of other shareholder or to the interest of the company. Though enough has been pleaded to justify allotment of 90000 shares to 2nd respondent but not a single evidence has been pleaded or produced to show that the compliance of Section 62(1)(c) has been done. NCLT has not dealt with this issue and completely ignored the legal provision applicable on the date of issue of the shares. In view of the position, allotment of 90000 shares to 2nd respondent cannot be held to be validly done. We are of the opinion that the exercise carried out is not only illegal but oppressive to the appellant. As the company is ongoing it would not be in the interest of the company or in the interest of shareholder to be wound up. Petition allowed in part.

Issues Involved:

1. Alleged anti-company activities and mismanagement by the 2nd respondent.
2. Legality of the transfer of 500 shares from the 2nd respondent to the 3rd respondent.
3. Legality of the allotment of 90,000 shares to the 2nd respondent.
4. Compliance with statutory requirements for conducting the Annual General Meeting (AGM).

Issue-wise Detailed Analysis:

1. Alleged Anti-company Activities and Mismanagement by the 2nd Respondent:

The appellant accused the 2nd respondent of engaging in anti-company activities, including creating fake documents, tampering with public records, and failing to comply with mandatory statutory requirements of the Companies Act, 1956/2013. The appellant claimed that these actions led to mismanagement and oppression within the company. However, the NCLT concluded that since the appellant had resigned as a director on 18.11.2014 and remained only a shareholder, the allegations of oppression and mismanagement ceased to exist. The court emphasized that continuous acts of oppression and mismanagement must be present at the time of filing the petition and until the final hearing, which was not the case here.

2. Legality of the Transfer of 500 Shares from the 2nd Respondent to the 3rd Respondent:

The appellant contested the transfer of 500 shares from the 2nd respondent to the 3rd respondent, arguing that it violated Articles 17 to 22 of the Articles of Association and was done without Board approval. However, the NCLT found that the appellant was present at the Board Meeting on 25.08.2014, where the transfer was discussed and approved. The minutes of the meeting, signed by the Chairman and the appellant, indicated that the appellant consented to the transfer. The NCLT ruled that the transfer did not affect the appellant's shareholding and was not an act of oppression or mismanagement.

3. Legality of the Allotment of 90,000 Shares to the 2nd Respondent:

The appellant argued that the allotment of 90,000 shares to the 2nd respondent on 03.09.2014 was fraudulent and not part of the agenda. The NCLT noted that the appellant participated in the meeting where the allotment was discussed, and the minutes were duly signed by the Chairman and the appellant. However, the NCLT and the Appellate Tribunal found that the allotment did not comply with Section 62(1)(c) of the Companies Act, 2013, which requires a special resolution and a valuation report from a registered valuer. The absence of these requirements rendered the allotment illegal and oppressive. Consequently, the Appellate Tribunal set aside the allotment of 90,000 shares to the 2nd respondent.

4. Compliance with Statutory Requirements for Conducting the AGM:

The appellant claimed that the 2nd respondent failed to convene and conduct the mandatory AGM, violating the provisions of the Companies Act, 2013. The NCLT acknowledged that the appellant and the 2nd respondent were jointly responsible for conducting the AGM. The appellant's non-cooperation and resignation as a director contributed to the company's inability to hold the AGM. The NCLT concluded that the failure to hold the AGM did not constitute oppression or mismanagement.

Conclusion:

The NCLT dismissed the company petition, finding no continuous acts of oppression or mismanagement. However, the Appellate Tribunal partially allowed the appeal by setting aside the allotment of 90,000 shares to the 2nd respondent due to non-compliance with Section 62(1)(c) of the Companies Act, 2013. Other reliefs sought by the appellant were rejected, and no order as to costs was made.

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