2022 (4) TMI 434 - Tri - Companies Law

Seeking Winding up of Company - Oppression and Mismanagement - allegation is that majority shareholders have acted in a manner oppressive to the minority shareholders of the company - Section 272 of the Companies Act, 2013 - HELD THAT - From a reading of the observations of the Independent Auditor in his report, it is seen that there is increase in liability but the assets are not increasing. Therefore, the operation of the company is becoming detrimental to the interest of its stakeholders. There is a likelihood of the happening of the event of insolvency. In the result, by exercising powers conferred on this Tribunal under Section 273 of the Companies Act, 2013 and other extant provisions of Companies Act, 2013, it is opined that it is a fit case for winding up of the company as the Auditors Report is very clear on that count. The Provisional Liquidator is permitted to initiate appropriate action in accordance with extant provisions of Companies Act, to take custody or control of all the properties, effects and actionable claims to which Company is or appears to be entitled to and take such steps and measures, as may be necessary, to protect and preserve the properties of the Respondent No. 1 Company and to avoid misuse of its property. List the petition for further orders when the final report received from the Provisional Liquidator - Registry is directed to send a copy of this order to the Petitioner and Respondents as also to the Provisional Liquidator immediately.

Issues Involved:
1. Mismanagement of the company.
2. Oppression of minority shareholders.
3. Removal of the petitioner from the office of director.
4. Winding up of the company.
5. Appointment of an administrator or special officer.
6. Borrowing and encumbering of company assets.
7. Independent audit of company affairs.
8. Conduct of majority shareholders.
9. Compliance with the Memorandum and Articles of Association.
10. Accounting of petitioner’s investments.

Detailed Analysis:

1. Mismanagement of the Company:
The petitioner alleged that the management mismanaged the company's affairs, leading to continuous losses since its incorporation. The company failed to issue shares for the petitioner’s ?10 lakh investment and did not account for the amount in the books. Despite collecting significant sums from the petitioner, the majority shareholders did not account for these funds properly, raising concerns of siphoning off funds.

2. Oppression of Minority Shareholders:
The petitioner, a minority shareholder, claimed oppression by the majority shareholders (Respondents 2 to 4) who controlled 70% of the equity share capital. The petitioner alleged that the majority shareholders did not retire by rotation at Annual General Meetings, violating the company’s articles. Additionally, the petitioner was issued only 1000 shares despite investing ?14 lakh.

3. Removal of the Petitioner from the Office of Director:
The petitioner contended that the majority shareholders convened an Extra-Ordinary General Meeting (EGM) with the sole agenda of removing him from the office of director without valid reasons. The process of convening the EGM was claimed to be illegal and aimed at silencing the minority shareholders. The petitioner argued that his removal was against the initial understanding that he would remain a director until his investment was repaid.

4. Winding Up of the Company:
The petitioner sought the winding up of the company on just and equitable grounds. The Independent Auditor’s report highlighted significant financial mismanagement, including improper maintenance of books of accounts, statutory registers, and fixed asset registers. The company’s liabilities were increasing without a corresponding increase in assets, indicating potential insolvency.

5. Appointment of an Administrator or Special Officer:
The petitioner requested the appointment of an administrator or special officer to manage the company’s affairs and assets. Alternatively, the petitioner sought the constitution of a committee to function as an administrator.

6. Borrowing and Encumbering of Company Assets:
The petitioner sought to restrain the company and respondents from making further borrowings or encumbering the company’s assets. The petitioner alleged that the majority shareholders intended to raise finance and encumber assets for personal gain.

7. Independent Audit of Company Affairs:
The petitioner requested an independent audit of the company’s affairs from the financial year 2012 onwards. The Independent Auditor’s report confirmed several irregularities, including the misuse of funds and improper accounting practices.

8. Conduct of Majority Shareholders:
The petitioner alleged that the majority shareholders siphoned off funds and acted against the company’s interests. The Independent Auditor’s report supported these allegations, indicating that the funds received from the petitioner were not utilized for their intended purpose.

9. Compliance with the Memorandum and Articles of Association:
The petitioner sought a direction for the respondents to comply strictly with the company’s Memorandum and Articles of Association. The majority shareholders were accused of violating these provisions by not retiring by rotation and by attempting to remove the petitioner without valid reasons.

10. Accounting of Petitioner’s Investments:
The petitioner requested the respondents to account for his entire investment in the company’s books. The Independent Auditor’s report revealed discrepancies in the accounting of the petitioner’s investments and loans.

Findings:
The Tribunal, after reviewing the Independent Auditor’s report, concluded that the company’s operations were detrimental to the stakeholders' interests and likely to lead to insolvency. The Tribunal decided to wind up the company and appointed Mr. Najeeb T.P. as the Provisional Liquidator to carry out the winding-up process.

Order:
The Tribunal ordered:
1. Appointment of Mr. Najeeb T.P. as the Provisional Liquidator.
2. The Provisional Liquidator to file a declaration of independence.
3. The existing management to cooperate with the Provisional Liquidator.
4. The Provisional Liquidator to take control of the company’s properties and protect them.
5. Submission of periodical reports by the Provisional Liquidator.
6. Submission of the final report within two months for the Tribunal to issue the final winding-up order.

The case was listed for further orders upon receipt of the final report from the Provisional Liquidator. The Tribunal directed the registry to send a copy of the order to the petitioner, respondents, and the Provisional Liquidator.

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