2021 (5) TMI 430 - Tri - Companies Law

Seeking to declare the actions of Respondents No. 2 to 5 have been in a manner oppressive to the Petitioners and prejudicial to the interests of the Petitioners - seeking to declare that resolutions passed by Respondents No. 2 to 5 for the period of March 2017 till April 2019 are void - HELD THAT - The shares held by deceased parents cannot be claimed by either party. And the Parties herein can base their contentions only in respect of shares held by them. Unless the shares in dispute is settled, rights of Parties, as claimed in the instant Company Petition cannot be determined and the same is premature. Admittedly, transmission of shares in question belonging to parents of Petitioner was not effected so far by the Company. Admittedly, the Petitioners cannot question decisions taken during life time of Late Sri Basvapurnaiah and also during his holding position of Managing Director of R 1 Company. The first Petitioner himself claimed that he was at helm of Affairs of R1 Company for a period of 18 years. He has stated that he holds the position of MD of R 1 Company from 2009 and he was further appointed as such for a further period of five years from 2013. When the term of Petitioner No. 1 2 was going to expire in the year 2020 by rotation, they have not opted for re-appointment. Accordingly, the Petitioner No. 1 2 along with Respondent Nos. 2 3, who have not opted for re-appointment deemed to have retired. The first Petitioner, being MD of Company, is admittedly a party to various transactions, as alleged to be acts of oppression and mismanagement in the instant Petition. While alleging that the Respondents have fiduciary duties as Directors, towards affairs of R1 Company, the Petitioner should also understand that he too has such responsibility to other stakeholders of R 1 Company and also public which take service from the Company. Even they cannot take shelters contending that they can file the instant Petition as shareholders of R 1 Company. It is also relevant to point out here that Petitioner Nos. 1 2, when they are going to retire by rotation, they can appear before AGM and press their case for re-appointment. Anyway that issue is not subject matter of the instant case. Therefore, the Petitioner cannot file the Company Petition, and it is liable to be dismissed on these grounds alone without adverting to other contentions of the Petitioners. However, some of allegations made in the Petition are being dealt hereunder. Appointment of Independent Directors - HELD THAT - The Allegations made by the Petitioners in respect of Independent Directors are vague and general and they are not tenable. Only allegation made in the Petition is that post 03-07-2018, the 2nd Respondent in order to oust the Petitioners from making decisions in the Board, choose to nominate three independent Directors i.e. 7th, 9th Respondent herein and one late Mr. Satyam Yallapalli. The alleged 'independent directors' are not persons, whose antecedents or accomplishments have been disclosed to the Board of the Company. On the other hand, the Respondents have satisfactorily convinced the Tribunal that they are eligible persons possessing requisite qualification and are not relative to them. Various impugned Board proceedings - HELD THAT - Every act done by Respondents was done with the consent and authority provided by the Board. The Petitioner No. 1 who was appointed as MD by Board in 2009 and again in 2013 for 5 years has been signing and authenticating every financial transaction and annual balance sheets from 2013 till year end 31.03.2019. Registration of land pertaining to property - HELD THAT - The Board in its meeting held on 11th June, 2010, has duly authorised Dr. P.R. Mohana Rao, President CEO/Authorised signatory of Company to deal with the Property. And the allegations in this regard are unfounded and baseless. Issue of equal representation for petitioners and Respondents group - HELD THAT - Admittedly, even Wills in question are in dispute before the Hon'ble High Court of Karnataka and thus transmission of shares in question are not effected to determine shareholding of Parties. In such a scenario, question of equal representation do not arise now and it is premature. The Petitioners made general allegations on the affairs of Company rather than to establish prima facie case with to acts of oppression and Mismanagement. The Tribunal cannot enter into roving enquiry of mere allegations and Tribunal cannot find fault with and interfere with decisions taken by the Board in normal course of its business, unless serious illegality taken place. The Petitioners have failed make out any case to interfere in the matter - Petition dismissed.

Summary

Issues Involved:

1. Allegations of oppression and mismanagement under Sections 241 and 242 of the Companies Act, 2013.
2. Validity of board resolutions and appointments of independent directors.
3. Transmission and ownership of shares following the death of key family members.
4. Allegations of financial mismanagement and diversion of company funds.
5. Disqualification and reappointment of directors.
6. Legal standing and maintainability of the petition.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners alleged that the actions of Respondents No. 2 to 5 were oppressive and prejudicial to their interests and the interests of the company. They sought to declare all resolutions passed by these respondents from March 2017 to April 2019 as void. The petitioners claimed that the respondents had taken control of the company, excluded them from management, and diverted company funds for personal use. The tribunal noted that the petitioners failed to establish a prima facie case of oppression and mismanagement. The tribunal emphasized that the petitioners, being directors and shareholders, were part of the company's decision-making process and could not later contest the decisions they were party to.

2. Validity of Board Resolutions and Appointments of Independent Directors:
The petitioners challenged the appointment of independent directors, alleging that they were not qualified and were relatives of the respondents. The tribunal found that the respondents had satisfactorily demonstrated that the independent directors possessed the requisite qualifications and were not related to the respondents. The tribunal held that the board resolutions were passed in accordance with the law and were binding on the company and its stakeholders. The petitioners, being directors, were estopped from contesting these decisions.

3. Transmission and Ownership of Shares:
The petitioners sought the transmission of shares following the death of their parents, who were key shareholders. The tribunal noted that the wills of the deceased were contested and pending before the High Court of Karnataka, which had granted an interim stay directing the parties to maintain the status quo regarding the properties, including the shares. As a result, the shares held by the deceased could not be claimed by either party until the matter was resolved by the High Court. The tribunal held that the issue of share transmission was premature and could not be determined in the present petition.

4. Allegations of Financial Mismanagement and Diversion of Company Funds:
The petitioners alleged that the respondents had diverted company funds for personal use and to other group companies. The tribunal observed that the petitioners, particularly the first petitioner, were part of the company's management and were involved in the financial transactions in question. The tribunal found that the petitioners had not provided sufficient evidence to support their allegations of financial mismanagement and diversion of funds. The tribunal emphasized that decisions taken by the board with the consent and authority of its members could not be later contested by those same members.

5. Disqualification and Reappointment of Directors:
The petitioners contended that the respondents had manipulated the board and general meetings to remove them as directors. The tribunal noted that the petitioners had not opted for reappointment when their terms expired, and they were deemed to have retired. The tribunal held that the petitioners could not contest their removal as they had the opportunity to seek reappointment but chose not to do so. The tribunal also found that the appointment of independent directors was in compliance with the law and that the petitioners' allegations were unfounded.

6. Legal Standing and Maintainability of the Petition:
The tribunal addressed the maintainability of the petition, noting that the petitioners had filed it in their capacity as directors and shareholders. The tribunal emphasized that directors have fiduciary duties towards the company and its stakeholders and that directorial petitions are generally not maintainable. The tribunal found that the petitioners had failed to establish a case for oppression and mismanagement and that the petition was devoid of merit.

Conclusion:
The tribunal dismissed the petition, finding that the petitioners had not made out a case for interference. The tribunal held that the allegations of oppression and mismanagement were not substantiated and that the petitioners, being directors and shareholders, were part of the company's decision-making process and could not later contest those decisions. The tribunal also dismissed all pending interlocutory applications as infructuous and did not award any costs.