2020 (11) TMI 440 - AT - Companies Law

Waiver of the requirements for filing Company Petition - Oppression and Mismanagement - Section 241 read with Section 244 of Companies Act - removal of the First Director form the management of the company - HELD THAT - It is undisputed that the Respondent was managing the affairs of the appellant No.1 as managing director as per Joint Venture Agreement dated 20.1.2020 and the same was not incorporated in the AoA of appellant No.1. The notice circulated on 6.5.2019 and resolution passed on 14.5.2019 also establishes that one of the Agenda items was to withdraw the rights, powers, privileges of Respondent as Managing Director. Therefore, it cannot be ignored that Respondent was Managing Director of the appellant No.1. It is not disputed that the Respondent is member of appellant No.1 and holding 0.04% shareholding. It is also not disputed that the consent affidavit of his family were filed with the Rejoinder before the Tribunal below (Page 403 of Appeal Paper Book). Thus the Respondent s wife and his daughters has given affidavits to the Respondent in order to protect their rights and interest in the company in which they own shares. It is on this basis the affidavits given by the wife of Respondent and his daughters who holds shares in the company is a valid consent within the meaning of Section 244(2) of the Act. The Respondent alongwith his family members hold 2.93% shareholding. His family has given the consent affidavits which were filed before the Tribunal. There are 19 shareholders as per shareholding pattern of Appellant No.1 as filed by the Appellant (Page 18 of the appeal). In the present case that the Respondent alongwith his family members are 4 in numbers but their shareholding is less than 10%. The arguments of the Respondent that his wife is shareholder of M/s Kurinji Metals Pvt Ltd which holds 30.42% shares in the appellant No.1 and she holds approximately 7% of the shareholding of appellant No.1 through M/s Kurniji Metals Pvt Ltd cannot be considered as the Resolution from M/s Kurniji Metals Pvt Ltd is required to give company s consent. The contention that she is a proportionate shareholder and her shareholding should be counted for making out the criterial is not accepted. This is one of the exceptional and compelling circumstances, which merit the application for waiver - Appeal dismissed.

Issues Involved:

1. Validity of the waiver granted by the Tribunal under Section 244 of the Companies Act, 2013.
2. Allegations of oppression and mismanagement by the appellants.
3. Compliance with the threshold of minimum 10% shareholding for filing a company petition.
4. Validity of the consent affidavits filed by the respondent’s family members.
5. The role and removal of the respondent as Managing Director.

Detailed Analysis:

1. Validity of the Waiver Granted by the Tribunal:
The appeal was filed under Section 421 of the Companies Act, 2013, challenging the order of the National Company Law Tribunal (NCLT) that allowed the respondent's application for a waiver under Section 244 of the Act. The Tribunal had waived the requirements for filing a company petition under Section 241 read with Section 244, stating, "it is a fit case where the requirements laid down under Section 244(1)(a) of the Act, 2013 need to be waived off." The Tribunal reasoned that the company petition could not be dismissed at the threshold, as it required a detailed inquiry into the matter complained of.

2. Allegations of Oppression and Mismanagement:
The respondent, holding 5000 shares (0.04% of the total issued share capital), alleged acts of oppression and mismanagement by the appellants, specifically his removal from the position of Managing Director without proper procedure. The respondent claimed that his removal violated the Articles of Association (AoA), particularly Article 52, which vested the power of appointment and removal of the Managing Director with the controlling shareholders, not the Board of Directors.

3. Compliance with the Threshold of Minimum 10% Shareholding:
The appellants argued that the respondent did not meet the threshold of minimum 10% shareholding required to maintain a company petition. The respondent contended that, along with his family members, he held 2.93% shares, and his wife held 25% of Kurinji Metals Pvt Ltd, which in turn held 30.42% of the shares in the appellant company. The Tribunal found that the consent affidavits of the respondent’s family members, filed with the rejoinder, were valid and within the meaning of Section 244(2) of the Act.

4. Validity of the Consent Affidavits:
The appellants challenged the timing and validity of the consent affidavits filed by the respondent’s family members. The Tribunal noted that these affidavits were filed with the rejoinder and accepted them as valid consent within the meaning of Section 244(2). The Tribunal emphasized that technical compliance issues should not detrimentally affect the respondent’s rights.

5. The Role and Removal of the Respondent as Managing Director:
The Tribunal acknowledged that the respondent was managing the affairs of the appellant company as the Managing Director, as per the Joint Venture Agreement, even though it was not incorporated in the AoA. The notice circulated on 6.5.2019 and the resolution passed on 14.5.2019 confirmed the removal of the respondent from his position. The Tribunal found that the removal process violated the Joint Venture Agreement and the AoA, constituting an act of oppression.

Conclusion:
The Tribunal concluded that the waiver granted under Section 244 was valid, considering the exceptional and compelling circumstances. The appeal was dismissed, and the Tribunal upheld the waiver, allowing the respondent to file the company petition under Section 241 read with Section 242 of the Companies Act, 2013. The Tribunal emphasized that the issues of oppression and mismanagement required a detailed inquiry and could not be dismissed at the threshold.

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