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2020 (10) TMI 740 - Tri - Companies LawOppression and Mismanagement - appointment of Managing Director - continuation of lease - appointment of Board of Directors of the Company - It is alleged by the Petitioners that on 19-09-2017, these added Directors without any authority and without serving notice to the Petitioners held Extra Ordinary General meeting of shareholders for enhancing shareholding by allotting those shares to the Respondent Nos. 5 to 37, illegally reducing the Petitioners as minority shareholders. Whether the Respondent Nos. 2 to 4 were appointed as the additional Directors and their appointments as Directors have been confirmed? - Whether the Petitioners were illegally removed from the posts of Directors/Managing Director by the Respondents? - HELD THAT - The law prescribes that if Article of Association of the Company allows the Board of Director to appoint any person as the Director, such appointment shall be as additional Directors and he shall be Director up to date of next AGM. In this case, the appointment letters produced at Annexure R-4, discloses that Respondent Nos. 2 to 4 were appointed as the Directors by the Board of Directors in meeting dated 27-03-2015. However, the official record reflects their appointment as the independent Directors and not as the additional Directors. Article of Association of Respondent No. 1 Company is on record at Annexure P-1(Page 101 of the Petition). It confers right of Board of Directors to appoint fit and proper person as the Director. Section 161 of the Companies Act, 2013 says that if a person appointed as the Director by the Board of Directors, his appointment shall be presumed to be appointment as the additional Directors till next AGM. In next AGM, his appointment as the additional Directors can be ratified. In this case, the appointment letters of Respondent Nos. 2 to 4 show that they were appointed as Directors. The public record show that they were appointed as the independent Directors and not additional Directors. On the basis of evidence in form of public record, the inference has to be drawn that appointment of Respondent Nos. 2 to 4 was made as the Directors - It is not in dispute that on 27-03-2015, the Petitioners were only shareholders as well as Directors of Respondent No. 1, Company. On 27-03-2015, the Petitioners as the Directors appears to have been issued appointment letters to Respondent Nos. 2 to 4 appointing them as the Directors. It can safely be inferred that on 27-03-2015, the Petitioners being only shareholders might have held AGM and appointed Respondent Nos. 2 to 4 as the Directors and issued the appointment letters in the capacity as the Directors. It is settled law that service of notices to all the Directors of the Board of Directors is essential for any resolution passed at the meeting and where admittedly no notice was given even to one of the Directors, the resolution passed at the meeting of the Board of Directors is invalid - In this case, the Respondents did not state anywhere as to when notice for EOGM dated 19-09-2017 was dispatched or sent to the Petitioners. They did not produce copies of such notices on record at all. There is absolutely no evidence on record to prove service of notices. It is for them to prove the fact by producing material evidence thereto. In our considered opinion, the Respondents failed to establish that before holding the meeting of Board of Directors and the EOGM dated 19-09-2017, the notices of those meetings were served on the Petitioners. Since the Petitioners were not served with the notices of those meetings, all resolutions passed or decisions taken by the other Directors (Respondent Nos. 2 to 4 herein) in such meetings, became void and are not binding the Petitioners at all. The Respondents state that they have allotted shares of the Company to Respondent Nos. 5 to 37. However, they did not produce any evidence to prove this point. The Respondent Nos. 5 to 37 did not appear in this case stating that they are shareholders of the Company. There is no record in evidence to show that the Respondent Nos. 5 to 37 had paid any amount towards purchase of the shares. Article 15 of the Articles of Association of the Respondent No. 1 Company, states the procedure in detail as to how the shares of the Company are to be allotted or to be transferred. That procedure has not been followed - Respondent Nos. 5 to 37 are not the shareholders of the Respondent No. 1, Company. Thus, the Petitioners are still the Directors of the Respondent No. 1, Company even today. What should be final order so that the affairs of the Respondent No. 1 Company can run smoothly? - HELD THAT - There is material on record indicating that the loan account of Respondent No. 1, Company was declared NPA by Punjab National Bank in the year 2017. It is seen from the evidence on record that during that time, only Respondent Nos. 2 to 4 were controlling the affairs of the Company. If it is so, it has to be held that they mismanaged the affairs of the Company. Be that as it may, while considering the Petition under Section 241 and 242 of the Companies Act, 2013, it has to be endeavor of this Tribunal to see that the affairs of the Company are being conducted smoothly, in future at least - It is brought to our notice that Respondent No. 4, Mr. Shanker Ghosh has resigned as the Director on the ground of ill health. He has already been relieved from his post. Now, the Petitioner No. 1 and 2 and the Respondent No. 2 and 3 are the Directors of the Company. Accordingly, we decided that the Petitioners and the Respondent No. 2 and Respondent No. 3 are the Directors of Respondent No. 1, Company. In short, two persons from Petitioners group and two persons from the Respondents group are the Directors. We also hold that Respondent Nos. 5 to 37 are not shareholders of the Respondent No. 1, Company. To avoid future embezzlement of the Company's account, we direct that the account shall be operated under joint signature of the Petitioner No. 1, Mr. Ajay Sinha and Respondent No. 2, Mr. Jogendra Tiwari. This will avoid complications in future. It is declared that the Petitioners are the Directors of the Respondent No. 1, Company, M/s. Spencer Distilleries Private Limited and Petitioner No. 1 is the Managing Director of the Respondent No. 1, Company - It is declared that Respondent Nos. 2 and 3 are also the Directors for Respondent No. 1, Company, M/s. Spencer Distilleries Private Limited - Petitioner No. 1, Mr. Ajay Sinha and Respondent No. 2, Mr. Jogendra Tiwari, Director, are the authorized signatory of the Company who shall have power to operate the Bank account of the Respondent No. 1, Company, M/s. Spencer Distilleries Private Limited, under their joint signatures - Respondent Nos. 5 to 37 are not the shareholders of the Respondent No. 1, Company - petition allowed in part.
Issues Involved:
1. Appointment and confirmation of Respondent Nos. 2 to 4 as Directors. 2. Legality of the removal of Petitioners from the posts of Directors/Managing Director. 3. Final order to ensure smooth conduct of the affairs of Respondent No. 1 Company. Detailed Analysis: Issue 1: Appointment and Confirmation of Respondent Nos. 2 to 4 as Directors The Tribunal examined whether Respondent Nos. 2 to 4 were duly appointed and confirmed as Directors. The Petitioners argued that these Respondents were appointed as additional Directors and their appointments were never ratified in the subsequent AGM, as required under Section 161 of the Companies Act, 2013. Contrarily, the Respondents contended that they were appointed as independent Directors, not additional Directors, and provided evidence such as Form DIR-12 and Form MGT-7 to support their claim. The Tribunal concluded that the official records indicated the Respondents were appointed as independent Directors and not additional Directors, thus affirming their directorship. Issue 2: Legality of the Removal of Petitioners from the Posts of Directors/Managing Director The Petitioners challenged their removal, alleging that no proper notice was served for the meetings held on 19-09-2017 and 06-12-2017, and that the removal violated Article 26 of the Articles of Association, which designates Mr. Ajay Sinha as a permanent Director. The Tribunal found that there was no evidence of notice being served to the Petitioners for these meetings, rendering the resolutions passed therein invalid. Furthermore, Article 26 explicitly states that Mr. Ajay Sinha cannot be removed unless he resigns voluntarily. Consequently, the Tribunal declared the removal of the Petitioners as illegal and void ab initio. Issue 3: Final Order to Ensure Smooth Conduct of the Affairs of Respondent No. 1 Company The Tribunal noted that the company's loan account was declared NPA in 2017, during which time Respondent Nos. 2 to 4 were managing the company's affairs, indicating mismanagement. To ensure the smooth conduct of the company's affairs, the Tribunal reinstated the Petitioners as Directors and confirmed Respondent Nos. 2 and 3 as Directors. It also declared that Respondent Nos. 5 to 37 were not shareholders, as there was no evidence of proper share allotment procedures being followed. To prevent future embezzlement, the Tribunal ordered that the company's bank account be operated under the joint signatures of Petitioner No. 1 and Respondent No. 2. Final Order: 1. The Petitioners are reinstated as Directors of Respondent No. 1 Company, with Petitioner No. 1 as the Managing Director. 2. Respondent Nos. 2 and 3 are also declared as Directors of the company. 3. The bank account of the company shall be operated under the joint signatures of Petitioner No. 1 and Respondent No. 2. 4. Respondent Nos. 5 to 37 are not recognized as shareholders of the company. The Tribunal directed that the above orders be reflected in the ROC's records within one month, under the joint signatures of Petitioner No. 1 and Respondent No. 2, and disposed of the proceedings accordingly.
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