2020 (9) TMI 749 - Tri - Companies Law

Seeking Convening and holding of AGMs - situation of deadlock on the Board of the company - It is the case of the Petitioner that Respondents No.2 and No.4 did not take active part in the day to day affairs of the Respondent No.1 Company, and that it was the Petitioner and Respondent No.3 who took efforts to promote the business of the Respondent No.1 - HELD THAT - The admitted position is that there is a default within the meaning of section 96 of the Companies Act, 2013 in conducting the AGM of the company, albeit with both sides blaming each other for the default. There was exchange of correspondence in so far as the financials were concerned. Given the indurate positions of both sides as revealed during the course of arguments, we do not see this being resolved to satisfaction at all. The internecine quarrel has already taken its toll on the Respondent No.1 Company, with visible scars that cannot be erased by ordering the AGMs to be conducted. The RoC has also issued notice asking the Respondent No.1 Company to show cause why the name of the company should not be struck off from the Register of Companies. The section confers on the Tribunal to order the AGM of the company to be conducted if there is a default. The Respondent No.4 has submitted on oath in the form of affidavit that there is no possibility of any business relationship between it and the Petitioner that could contribute to reviving the business of the Respondent No.1 Company. There is also the matter of the petition bearing CP No.2530/2018 filed under sections 271-272 of the Companies Act, 2013 for winding up of Respondent No.1 Company, which is pending before a coordinate bench of this Tribunal - The exercise of judicial discretion vested in us by virtue of section 97 ibid should be used with great circumspection, and carefully calibrated to do good to the Respondent No.1 company. In a milieu of paralysis caused by two sets of members holding equal shares and having coequal powers on the Board not willing to bury the hatchet and come to terms with each other, ordering the AGMs of the Respondent No.1 Company, while being legally sustainable in terms of section 97 of the Companies Act, 2013, would not be practically of any use except prolonging the agony and delaying the inevitable that stares us in the face. Petition dismissed.

Summary

Issues Involved:
1. Direction to call Annual General Meetings (AGMs) for multiple financial years.
2. Authorization for the petitioner to constitute quorum and complete annual compliances.
3. Deadlock in the management of the Respondent No.1 Company.
4. Pending litigation and winding-up petition against Respondent No.1 Company.

Issue-Wise Detailed Analysis:

1. Direction to Call Annual General Meetings (AGMs) for Multiple Financial Years:
The petitioner sought a direction under section 97 of the Companies Act, 2013, to call AGMs for the financial years 2013-14 to 2017-18. The Tribunal noted the default in holding AGMs as mandated by section 96 of the Companies Act, 2013, which necessitates annual general meetings to be held within specified timeframes. The Tribunal acknowledged the deadlock in the management, leading to the failure in conducting AGMs, but emphasized that merely ordering AGMs would not resolve the underlying issues due to the entrenched positions of both parties.

2. Authorization for the Petitioner to Constitute Quorum and Complete Annual Compliances:
The petitioner also requested authorization to constitute the quorum for AGMs and complete necessary filings with the Registrar of Companies (RoC). The Tribunal recognized the statutory provisions under section 97 which empower it to direct the calling of AGMs and provide ancillary directions, including quorum constitution. However, given the deadlock and the ongoing disputes, the Tribunal expressed skepticism about the practical utility of such orders in the present context.

3. Deadlock in the Management of the Respondent No.1 Company:
The Tribunal highlighted the deadlock situation caused by the equal representation of shareholders on the board, leading to a standstill in business decisions and statutory compliances. The deadlock was exacerbated by the lack of communication and cooperation between the parties, with Respondent No.4 starting a competing business and Respondent No.3 insisting on a Joint Venture Agreement with exclusive rights, which was unacceptable to Respondent No.4. The Tribunal noted that the deadlock had led to a notice from RoC for striking off the company’s name from the register.

4. Pending Litigation and Winding-Up Petition Against Respondent No.1 Company:
The Tribunal took cognizance of the pending litigation, including a winding-up petition filed by Respondent No.4 under sections 271-272 of the Companies Act, 2013, on just and equitable grounds. The Tribunal emphasized that any order to conduct AGMs would only serve a limited purpose and would not address the fundamental issues due to the ongoing disputes and the pending winding-up petition. The Tribunal decided to defer the decision on the present petition until the adjudication of the winding-up petition by a coordinate bench.

Order:
The Tribunal dismissed the present petition, granting liberty to the petitioner to approach the Tribunal again after the judgment in the winding-up petition (CP No.2530/2018) is pronounced. It also allowed the parties to conduct the pending AGMs if they come to terms, with the leave of the Tribunal. The petition CP 2183/97/MB.IV/2019 was accordingly dismissed, and the file was consigned to the record.