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2021 (2) TMI 520 - Tri - Companies LawSeeking an order of injunction directing the Respondents to restore the board of the Directors of SIIL to its composition as it stood as on 7 November 2019 and more particularly in respect of Applicant No. 1 as a Director on the Board of Directors of SIIL - temporary order of injunction restraining the respondents from any further alteration to the composition of the Board of Directors of SIIL - seeking an order of injunction directing SIIL to send to Applicant No. 1 all notices and communications with respect to affairs of SIIL and its board of directors including but not limited to notices and agenda for all Board Meetings of SIIL - seeking an order of injunction directing the respondents to restore the board of directors of EEL to its composition as it stood as on 30 July 2020 and more particularly in respect of Applicant No. 3 being reinstated as a Director on the board of directors at EEL - seeking temporary order of injunction restraining the respondents from any further alteration to the composition of the board of directors of EEL - seeking an order of injunction directing EEL by to send to Applicant No. 3 all notices and communications with respect of affairs of EEL and its board of directors including but not limited to notices and agenda for all Board meetings of EEL - seeking restraint on Respondents from interfering the in the day to day management of the trade division of SIIL and EEL and to maintain status quo in relation to the functions operations and present location of the trade division headed by the applicants - seeking Injunct on Respondent No. 3 to Respondent No. 6 from commencing any venture / partnership / management / agreement directly or indirectly competing with the business of SIIL and/or EEL; and/or using the brand name trade-name mark or any other intellectual property right relating to SOLAR - seeking Injunct on Respondents from acting through and/or constituting any committee (in any manner especially comprising of directors on the board) from investigating into the allegations as raised by Applicants with respect to SIIL and EEL. HELD THAT - Following observations are made i. In the case on hand R1 was founded jointly by father of A1 R3 wherein the family of the father family of R3 and family of A1 were made as members who were subscriber to the Memorandum of Association and were allotted 400 shares each at the time of incorporation of the Company. ii. We have noticed that there is family settlement entered into between the Applicants and R3 to R6. The family settlement envisages not only the way and manner in which the assets of the family had to be partitioned but there also is an agreement that even in future businesses to be started there shall be a discussion among the family members and the shareholding will be devised in a particular manner. Further the Family Settlement Agreement was signed by Mr. Nandlal Nuwal Mrs. Sohandevi Nandlalji Nuwal (as Party No. 1); R3 R6 (as Party No. 2); A1 A2 A3 (as Party No. 3); and R4 R5 (as Party No. 4). iii. We are of the view that it would not be proper at the interim application stage to decide anything on merit to find out whether R1 is a quasi partnership or not. This can only be considered while deciding the Company Petition. iv. Even though A1 has become Director of the Company after few years of incorporation it is to be noted that he was the Director in the Company for the past 15 years and also functioning as the Vice Chairman of R1. It cannot be said that he is the Director of the company because of some professional qualifications. He has been a Director of this Company only by virtue of shareholding like R3 and R4. So denying a directorship to K C Nuwal Group will definitely prejudice the interest of the Group and would amount to change in management of R1. v. It is to be noted that the Applicants Group hold 29% of R1 and the Respondents Group cannot muster support for a Special Resolution even if it is assumed that all the public shareholders may support the Respondents Group. vi. It is not the case of the Respondents that A1 has not disclosed his interest in AGT. The interest in AGT was informed to the Company Secretary in writing though A1 has not filed the required Form MBP 1 at the initial point of reporting. vii. It is not the case of the Respondents that A1 has participated in the Board Meeting wherein the agreement to be entered with AGT was discussed. Further the pleadings of the Respondents themselves are clear that there were informal discussions between A1 R3 with regard to the shifting of the Administrative Office of R1 in Mumbai. viii. The argument of the counsel for the Applicants that Section 184(1) of the Act requires disclosure of the Director s interest inter alia in a company or companies including shareholding in a prescribed format but it does not speak about any contract or arrangement in which a Director is directly or indirectly interested which is the subject matter of Section 167(1) (c) (d) and therefore Section 184(1) has no link at all to Section 167(1) (c) (d) cannot prima facie be brushed aside lightly. The matter would require deeper consideration during the hearing of the Company petition. ix. As far as Section 184(2) is concerned it requires a director to disclose the nature of his concern or interests at the Board Meeting in which the contract or arrangement is discussed and such director has to refrain from participating in such discussion. In this case A1 has not attended the Board Meeting where the contract with AGT was discussed and approved. Since A1 has not participated in the Board Meeting there is no question of A1 refraining from participation in such meeting. x. Section 167(1)(c) provides that the office of the Director shall become vacant in case he acts in contravention of provision of Section 184 relating to entering into contract or arrangement in which he is directly or indirectly interested. xi. Section 167(1)(d) provides that the office of the Director shall become vacant in case he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested in contravention of provisions of Section 184. xii. Whether there is contravention of provision of Section 184 can be decided only after the final hearing of the Petition. xiii. Even though the Respondents submitted that A1 is not in the active management of R1 and he was not attending the Board Meetings for the past one year their own statement reveals that even for change of the administrative office of the Company there was an informal discussion between A1 R3 which means that A1 is participating in the management decision making process of R1. Not only this this stand of the Respondents leads to an irrefutable conclusion that the company s decision was essentially taken not only in the Board Meeting but also in the informal discussion between A1 R3. xiv. R14 the Company Secretary of R1 has received the information as to the shareholding of the Applicants in AGT and in view of this as a professional R14 was expected to guide and advise the Director in filing proper form in consonance with the Rules and Regulations. xv. In the above said circumstances we are of the view that there is prima facie case made out by the Applicants and the balance of convenience is also in their favour and if the interim prayers are not granted they would suffer irreparable loss. xvi. Accordingly the amended prayers at para 2 (a) (b) above are allowed on contest. The remaining prayers are rejected as not pressed. Their rejection however shall not come in the way of agitating them afresh in accordance with law. There would however be no order as to costs.
Issues Involved:
1. Injunctions to restore the board of directors of SIIL and EEL. 2. Restraining further alteration to the board composition. 3. Sending notices and communications to the applicants. 4. Restraining interference in the management of trade divisions. 5. Injunction against respondents from competing ventures. 6. Investigation into allegations raised by the applicants. 7. Allegations of oppression and mismanagement. 8. Compliance with Section 184 and Section 167 of the Companies Act, 2013. 9. Validity of the ouster of Applicant No. 1 as a director. Detailed Analysis: Injunctions to Restore the Board of Directors: The applicants sought an order to restore the board of directors of SIIL and EEL to their previous compositions. The Tribunal noted that the applicants' group holds 29% of SIIL and emphasized that denying them directorship would prejudice their interests and amount to a change in management. Restraining Further Alteration to the Board Composition: The Tribunal granted an interim injunction restraining the respondents from altering the board composition of SIIL and EEL. The Tribunal found that there was a prima facie case and that the balance of convenience was in favor of the applicants. Sending Notices and Communications: The applicants requested that SIIL and EEL send all notices and communications regarding board meetings to the applicants. The Tribunal did not specifically address this issue in the interim order but implied that proper communication should be maintained. Restraining Interference in the Management of Trade Divisions: The applicants sought to restrain the respondents from interfering with the management of the trade divisions of SIIL and EEL. The Tribunal did not grant specific relief on this point in the interim order. Injunction Against Competing Ventures: The applicants requested an injunction to prevent the respondents from engaging in competing ventures. The Tribunal did not grant this relief in the interim order. Investigation into Allegations: The applicants sought to restrain the respondents from constituting any committee to investigate the allegations raised by the applicants. The Tribunal did not grant this relief in the interim order. Allegations of Oppression and Mismanagement: The applicants filed a petition under Section 241-242 of the Companies Act, 2013, alleging oppression and mismanagement. They claimed unlawful activities, fraud, financial mismanagement, and lack of transparency. The Tribunal noted that these issues would require deeper consideration during the final hearing of the petition. Compliance with Section 184 and Section 167: The Tribunal analyzed the compliance with Section 184 and Section 167 of the Companies Act, 2013. The applicants argued that the disclosure of interest in AGT was made to the Company Secretary, though not in the prescribed form. The Tribunal noted that the applicants had made a prima facie case and that the matter required deeper consideration. Validity of the Ouster of Applicant No. 1: The applicants challenged the ouster of Applicant No. 1 as a director, arguing it was done to prevent him from raising issues of mismanagement. The Tribunal found that the ouster was not justified at this stage and granted interim relief to restrain the respondents from obstructing Applicant No. 1 from acting as a director and vice-chairman. Conclusion: The Tribunal granted interim relief to the applicants, restraining the respondents from altering the board composition of SIIL and EEL and from obstructing Applicant No. 1 from acting as a director and vice-chairman. The remaining prayers were rejected but could be agitated afresh in accordance with the law. The Tribunal emphasized that the issues of compliance with Sections 184 and 167 and the allegations of oppression and mismanagement would require deeper consideration during the final hearing.
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