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2019 (6) TMI 331 - AT - Companies LawOppression and mismanagement - order under Section 242 of the Companies Act, 2013 - position of Mr. K.K. Jagadish as Managing Director of the Company on 15.5.2015 - HELD THAT - We have also seen the copy of Special Notice dated 15.5.2015 (Page 198) by which it is proposed that a Meeting will be held on 7th August, 2015 to removed 1st respondent as Managing Director. We have also seen the minutes of the meeting of the Board of Directors held on 15.5.2015 (Page 201 to 203) in which it was resolved that 1st respondent be and is hereby removed from the Directorship and Office of Managing Director of the company with effect from the date of approval of this resolution by the shareholders. We have already observed that in the notice there was an agenda for removal of 1st respondent as Managing Director and not director. Therefore, the NCLT in exercise of its powers under Section 242 of the Act has rightly set aside the decision of the company to remove 1st respondent as director of the company. Financial Collaboration Agreement (FCA) - HELD THAT - As per FCA, only 10% shares were fixed for 1st respondent and accordingly he has been allotted the requisites shares. There is no evidence brought on record that 1st respondent is to get additional 15% shares from 2nd respondent either through FCA or any other documents. Therefore, we are in agreement with the conclusion drawn by the NCLT on this count. The arguments advanced by the appellant that 1st respondent was removed due to loss of confidence. We observe that loss of confidence as argued by the appellant does not appear in the Companies Act. We observe that the NCLT has rightly given his findings and arrived at to give compensation of ₹ 105 lakhs (calculated at the rate of ₹ 35 lakhs p.a. for three years) together with interest @ 10% from the date of removal of the 1st Respondent as Managing Director plus other benefits as already offered, till the date of payment by the company/other respondents. Appeal dismissed.
Issues Involved:
1. Validity of the removal of the 1st respondent as Director. 2. Validity of the removal of the 1st respondent as Managing Director. 3. Entitlement of the 1st respondent to compensation for loss of office. 4. Binding nature of the Financial Collaboration Agreement (FCA) on the company. 5. Allegations of oppression and mismanagement. Issue-wise Detailed Analysis: 1. Validity of the Removal of the 1st Respondent as Director: The NCLT found that the removal of the 1st respondent from the post of Director was not in consonance with the provisions of the Companies Act. The Board Meetings and shareholders' meetings were not held without quorum, and there was a typographical error in the notice and minutes of the EGM. The agenda did not disclose the intention to remove the 1st respondent as Director. Thus, the removal was deemed invalid. 2. Validity of the Removal of the 1st Respondent as Managing Director: The NCLT held that the removal of the 1st respondent from the office of Managing Director was valid. The respondents cited "loss of confidence" as the reason for removal, which was accepted. The Articles of Association allowed the Board to revoke such appointments, and the lack of confidence was a valid contingency for removal. The NCLT concluded that the action of removal by the majority shareholders could not be questioned. 3. Entitlement of the 1st Respondent to Compensation for Loss of Office: The NCLT awarded compensation to the 1st respondent under Section 202 of the Companies Act, 2013. The 1st respondent was entitled to receive remuneration for the remainder of his term or for three years, whichever is shorter. The compensation was calculated at ?35 lakhs per annum for three years, totaling ?105 lakhs, with interest at 10% from the date of removal. The NCLT also directed the respondents to purchase the shares of the 1st respondent at mutually agreed rates. 4. Binding Nature of the Financial Collaboration Agreement (FCA) on the Company: The NCLT found that the FCA was entered into after the incorporation of the company and was not binding on the company as it was not a party to it. The Articles of Association had not been amended to incorporate the terms of the FCA. The NCLT concluded that the claim for 25% of the shares by the 1st respondent should fail, as there was no evidence supporting entitlement to additional shares. 5. Allegations of Oppression and Mismanagement: The NCLT did not find substantial evidence of oppression and mismanagement. The 1st respondent's claims of oppression and mismanagement were rebutted by the respondents. The respondents argued that the 1st respondent did not comply with statutory provisions and that the removal was due to gross mismanagement. The NCLT did not find merit in the allegations and focused on the procedural aspects of the removal and compensation. Conclusion: The NCLT's judgment was comprehensive, addressing the procedural irregularities in the removal of the 1st respondent as Director, validating the removal as Managing Director due to loss of confidence, and awarding compensation for the loss of office. The FCA was not binding on the company, and the allegations of oppression and mismanagement were not substantiated. The appeal was dismissed, and the NCLT's order was upheld.
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