2019 (10) TMI 287 - AT - Companies Law

Oppression and mismanagement - Non-fulfillment of eligibility criteria as fixed under Section 244 of the Companies Act, 2013 - HELD THAT - Admittedly, the pleadings were incomplete and the parties were yet to lay the relevant material and evidence before the Tribunal in support of the stands they would respectively take in their pleadings. In these circumstances, the Tribunal could not reach a finding in regard to the issues raised in the Company Petition. In so far as making out of a prima facie case for purposes of grant of interim relief in terms of provisions of Section 242(4) is concerned, the observations made by the Tribunal that the Respondents had been removed from the Board and their shareholding had been cancelled without due notice not in consonance with law are not based on application of mind. The proposition of law that there must be a prima facie case entitling the party seeking interim relief besides other considerations cannot be disputed. It is also indisputable that in appropriate cases, which can be stated to be rarest of the rare cases, the Tribunal may even grant interim relief having the attributes of a final order but the Applicant in such cases will have to establish a strong prima facie case in addition to other legal considerations like an imminent legal injury of irreparable nature and balance of convenience lying in favour of the Applicant. Shockingly, the Tribunal made some observations regarding the validity of notices qua holding of Board Meeting and EoGM without knowing the respective stands of the parties which could be ascertained only after the pleadings were completed. In the given circumstances, observations of Tribunal though short of finding in regard to existence of a Prima facie case, much less a strong prima facie case, are unwarranted. It cannot be said that the Respondents had been able to demonstrate that they had raised a fair question which required probe. In absence of pleadings being complete, when the version of adversary is yet to come before the Tribunal, it cannot be said that the issue raised constituted a fair question. Viewed in this perspective, the impugned orders cannot be supported. The inescapable conclusion deducible from the foregoing discussion is that the impugned orders being seriously flawed and suffering from legal infirmities have to be set aside - Appeal allowed.

Summary

Issues Involved:
1. Maintainability of the Company Petition under Section 244 of the Companies Act, 2013.
2. Grant of interim relief and status quo ante by the Tribunal.
3. Validity of Board Meeting and EGM notices.
4. Allegations of oppression and mismanagement.
5. Tribunal's jurisdiction and application of mind in passing interim orders.

Detailed Analysis:

1. Maintainability of the Company Petition under Section 244 of the Companies Act, 2013:
The Appellant Company raised a preliminary objection regarding the maintainability of the Company Petition, asserting that the Respondents did not fulfill the eligibility criteria under Section 244 of the Companies Act, 2013. The Tribunal, however, did not address this objection before passing the interim orders. The Appellate Tribunal noted that the eligibility issue required consideration after the completion of pleadings, which the Tribunal failed to do, thus rendering the interim orders legally infirm.

2. Grant of interim relief and status quo ante by the Tribunal:
The Tribunal passed an order on 9th August 2018, directing status quo ante in relation to the Directorship and shareholding of the Appellant Company as it existed prior to 30th July 2018. The Appellate Tribunal found that the Tribunal, while declining to go into the merits of the case due to incomplete pleadings, ventured into making observations on oppression and mismanagement based on disputed facts. The Appellate Tribunal emphasized that interim relief under Section 242(4) requires a prima facie case, which the Tribunal failed to establish, thus pre-empting the final decision of the Company Petition.

3. Validity of Board Meeting and EGM notices:
The Tribunal made observations regarding the validity of the Board Meeting notice dated 27th July 2018 and EGM notice dated 19th July 2018, despite the pleadings being incomplete. The Appellate Tribunal criticized this approach, stating that the Tribunal could not reach a finding on these issues without the parties laying relevant material and evidence before it. The Tribunal's observations on the validity of these notices were deemed premature and not based on a thorough application of mind.

4. Allegations of oppression and mismanagement:
The Respondents alleged that their shareholdings and representation in the Board of Directors were manipulated by the Appellant, leading to their removal from Directorship and cancellation of shares. The Tribunal, while acknowledging these allegations, failed to demonstrate the material considered for establishing a prima facie case. The Appellate Tribunal highlighted that the Tribunal's interim orders were based on inferences from disputed facts, without a clear indication of the material supporting the allegations of oppression and mismanagement.

5. Tribunal's jurisdiction and application of mind in passing interim orders:
The Appellate Tribunal found that the Tribunal exceeded its jurisdiction by passing interim orders without a proper application of mind. The Tribunal's order dated 29th August 2019, passed in an I.A. for preponing the hearing, included further interim directions beyond the scope of the I.A. The Appellate Tribunal emphasized that the Tribunal's wide discretionary powers to pass interim directions must be exercised judiciously and not arbitrarily or capriciously. The Tribunal's failure to establish a prima facie case and its premature observations on disputed facts led to the conclusion that the interim orders were seriously flawed and legally infirm.

Conclusion:
The appeals were allowed, and the impugned orders dated 9th August 2018 and 29th August 2019 were set aside. The Appellate Tribunal directed the Tribunal to expedite the final hearing of the Company Petition and decide it within three months, ensuring a thorough and fair adjudication of the issues involved.