2021 (4) TMI 1149 - Tri - Companies Law

Right to apply u/s 241 of Companies Act - petitioners do not hold minimum percentage of shareholding in the capital of the Respondent No. 1 on which is require to file a petition - whether this Tribunal can exercise its discretion which is vested with it in terms of the provisions of Section 244 of Companies Act, 2013? - HELD THAT - From the perusal of Section 241, it is noted that as per proviso to Section 244(1), the word may has been used as regard to waiver of all or any of the requirements specified in Clause (a) or Clause (b) so as to enable the members to apply under Section 241 of Companies Act, 2013. Clause (b) is not applicable as Respondent no. 1 is having a share capital. As far as the fact of the petitioners are not having requisite number shareholders or holding not less than one tenth of issued share capital are concerned, there is not dispute that the petitioners, in application filed under Section 241 of Companies Act, 2013, do not meet these criteria. Further, there is no dispute as regard to payment of amount of calls on such of shares or of other sums due on their shares. We have to look whether the applicants have made out an exceptional case for waiver of all or any of the requirements specified in Clause (a) of sub-section 1 of Section 242 of Companies Act, 2013? In this process, in our considered opinion, it is inevitable that the merits of the application field under Section 241 of the Companies Act, 2013 may have to be considered. Having said so, we, however, make it clear that this is to be done just to meet the object and criteria laid down in Section 244 of Companies Act, 2013 and views expressed on the merits for this purpose cannot be considered or treated as views expressed by this Authority which may amount to determination of the main dispute either against or in favour of either parties. Keeping this limitation or factor, in our mind, the facts relied on by the petitioners for getting the waiver, we state that these pertain to siphoning off funds through Shell Companies promoted by Respondent no. 2. On a query from this Bench whether any material or resolution exists in records or otherwise which defines such distribution of responsibilities between two Managing Directors in terms of provisions of Companies Act, 1956 or Companies Act, 2013. However, no material has been brought on record to this effect. It has also been claimed by the Respondent No. 1 and 2 that even the transactions made basis for filing an application under Section 241 of Companies Act, 2013 pertain to a period much prior to three years from the date of filing of that petition, hence, the petition filed under Section 241 of Companies Act, 2013 has as such barred by limitation. It is also noted that Respondent No. 1 company is a listed company and more than 6,000 (six thousand) shareholders are member of the company and none of them has joined the petitioners. The petitioner cannot be absolved from responsibilities of such alleged transactions of siphoning off or fraud, though, he may not be involved actively. Since, he was the Chairman and Managing Director and many of such transactions required the approval of the Board of Directors or otherwise also it cannot be said that the petitioner No. 3 did not have any knowledge thereof. It is also a settled judicial principle that one who is seeking some exemption or waiver means that he is invoking the principle of equity, therefore, the integrity of such person should be above board and atleast it should not be under cloud. Even otherwise, in case of allegations of nature involved in petition filed under Section 241 of Companies Act, 2013 cannot rule out of possibility of collective involvement of people at the helm of affairs. Thus, considering the submissions made by all the sides and material on record, we hold that the petitioner has not been able to establish a case which may pursued us to accede to his request of waiver of company as specified under Section 244(1)(a) of the Companies Act, 2013. Application dismissed.

Summary

Issues Involved:
1. Eligibility under Section 244 of the Companies Act and Waiver of mandatory requirements.
2. Allegations of oppression and mismanagement.
3. Validity of the affidavit and procedural objections.
4. Respondents' defense and counter-arguments.
5. Tribunal's discretion under Section 244 of the Companies Act.

Summary:

1. Eligibility under Section 244 of the Companies Act and Waiver of Mandatory Requirements:
The petitioners filed under Section 241 for oppression and mismanagement, seeking exemption from the 10% shareholding requirement under Section 244. They argued that they collectively hold 10.89% of the total paid-up share capital, excluding preference shares categorized as liabilities. They sought a waiver due to the oppressive acts by Respondent No. 2 and others, claiming gross misuse and siphoning of funds. They emphasized that strict compliance with the 10% rule would render Section 244 ineffective, as no single holder had more than 10% share capital. The respondents countered that the petitioners held only 5.61% of the issued share capital, including preference shares, and thus did not meet the eligibility criteria. They cited the Supreme Court's ruling in Bhagwati Developers, which mandates holding 1/10th of the issued share capital on the actual date of petition presentation.

2. Allegations of Oppression and Mismanagement:
The petitioners alleged that Respondent No. 2, in connivance with others, committed gross acts of oppression and mismanagement, including siphoning off funds, illegal appointments, and misuse of company resources. They claimed that Respondent No. 2's actions were prejudicial to the interests of the company and its shareholders. The respondents argued that the allegations were baseless, frivolous, and barred by limitation, as they pertained to transactions from 2007-2010. They also contended that the petitioners, particularly Petitioner No. 3, were involved in the company's management during the alleged period and were thus complicit in the decisions.

3. Validity of the Affidavit and Procedural Objections:
The petitioners' affidavit was challenged for not being authenticated in India, as required for documents notarized in foreign countries. The respondents argued that the affidavit was defective and not in compliance with Rule 20(5) of the National Company Law Tribunal Rules, 2016. They also noted that the affidavit was affirmed by a power of attorney holder without the power of attorney being on record.

4. Respondents' Defense and Counter-Arguments:
The respondents argued that the petitioners did not make out an exceptional case for waiver under Section 244. They highlighted that Petitioner No. 3 was the Executive Chairman/Managing Director during the period of alleged mismanagement and was thus responsible for the company's decisions. They also pointed out that the petition was filed due to a family dispute and that other shareholders, including financial institutions, did not support the petitioners' claims.

5. Tribunal's Discretion under Section 244 of the Companies Act:
The Tribunal considered whether the petitioners made out an exceptional case for waiver. It noted that the petitioners did not meet the 10% shareholding requirement and that Petitioner No. 3 was involved in the company's management during the alleged period. The Tribunal emphasized that the petitioners' integrity was under cloud due to their involvement in the company's decisions. It concluded that the petitioners failed to establish a case for waiver and dismissed the application, stating that other shareholders could still file a petition under Section 241 or 245 independently.

Conclusion:
The Tribunal dismissed the petitioners' application for waiver under Section 244, citing their failure to meet the eligibility criteria and establish an exceptional case. It emphasized that the petitioners' involvement in the company's management during the alleged period of mismanagement undermined their claims. The Tribunal clarified that its views on the waiver application should not be construed as a determination of the merits of the case.