2022 (5) TMI 537 - Tri - Companies Law

Maintainability of petition - legality of removal of the Petitioners from the Directorship - applicability of Section 241-242 of the Companies Act - Whether the Petitioners are eligible to maintain this Petition under Section 241-242? - HELD THAT - It is seen from the records that the 1st Petitioner was holding 44.33% fully paid-up share in the 1st Respondent Company and he has filed the affidavit on behalf of the 2nd Petitioner who was having 5.75% of fully paid-up shares in the 1st Respondent Company. Hence, the affidavit submitted by the 1st Petitioner holding 44.33% for filing a petition is sufficient and the same can be accepted in order to accept a petition under Sections 241-242 of the Companies Act, 2013. Given the facts, the Petitioners are eligible to file a Company Petition under Section 241-242 of the Companies Act, 2013. Whether the removal of the Petitioners from the Directorship is illegal? - Section 169 of the Companies Act, 2013 - HELD THAT - A reading of provision of Section 169 makes it clear that to remove a director from the Company, the Company has to comply with the procedure prescribed under Section 169 of the Companies Act, 2013. As per Section 169(2), a special notice is required to remove a Director or to appoint somebody in place of a Director so removed, at a meeting at which he is removed. The Company shall forthwith send a copy thereof to the Director concerned, and the Director shall be entitled to be heard on the resolution at the meeting - the act of the shareholders in the matter of appointing or removing the directors of the company from the Board cannot be a subject matter of judicial scrutiny, since the right to appoint or remove directors is supreme as a part of the corporate democracy. Whether the removal of the Petitioners from the Directorship is oppressive or prejudicial to attract Section 241-242 of the Companies Act? - HELD THAT - It is seen from the records that the removal of the Petitioner from the Directorship of the Respondent Company was done following all the mandatory requirements in accordance with law. There are no oppression and mismanagement in the Company, while doing so. Moreover, the contention of the petitioners regarding the share transfer cannot be accepted as they have affixed their signatures on the Share Transfer Deed (SH4) on 29.01.2021 at Trichur before the Statutory Auditor of the 1st Respondent Company which was not refuted by the Petitioners - even though the 2nd Petitioner is eligible to maintain the Company Petition on the basis of the affidavit sworn to by the 1st Petitioner, there are no reason to allow the Company Petition and grant any relief to the Petitioners as sought for. Petition dismissed.

Summary

Issues Involved:
1. Eligibility of the Petitioners to maintain the Petition under Section 241-242 of the Companies Act, 2013.
2. Legality of the removal of the Petitioners from Directorship.
3. Whether the removal of the Petitioners from Directorship is oppressive or prejudicial to attract Section 241-242 of the Companies Act, 2013.

Issue-wise Analysis:

Issue (i): Eligibility to Maintain Petition:
The Tribunal examined the affidavit submitted by the 1st Petitioner, who held 44.33% of the fully paid-up shares in the 1st Respondent Company. The 2nd Petitioner held 5.75% of the shares. Given that the 1st Petitioner’s shareholding met the threshold required under Section 244 of the Companies Act, 2013, the Tribunal found that the Petitioners were eligible to file the Company Petition under Sections 241-242 of the Companies Act, 2013.

Issue (ii): Legality of Removal from Directorship:
The Tribunal reviewed Section 169 of the Companies Act, 2013, which outlines the procedure for the removal of directors. It was noted that the 1st Respondent Company had complied with the mandatory requirements, including issuing a special notice for the removal of the Petitioners and providing them with an opportunity to be heard. The Tribunal examined the special notice and the acknowledgment card signed by the Petitioners, confirming their awareness of the Extraordinary General Meeting (EGM) held on 18.03.2021. The Tribunal concluded that the removal of the Petitioners from Directorship was conducted in accordance with the law and could not be subjected to judicial scrutiny as it was part of corporate democracy.

Issue (iii): Oppression or Prejudice:
The Tribunal referred to the Supreme Court's decision in TATA Consultancy Services Limited Vs. Cyrus Investments Pvt. Ltd., which clarified that the Tribunal cannot grant relief under Section 242 unless the removal of a Director was oppressive or prejudicial. The Tribunal found no evidence of oppression or mismanagement in the removal process. The Petitioners had signed the Share Transfer Deed (SH-4) on 29.01.2021 before the Statutory Auditor, and this was not refuted by the Petitioners. The Tribunal determined that the removal of the Petitioners was not an illegal act and did not constitute oppression or prejudice.

Conclusion:
The Tribunal concluded that the removal of the Petitioners from Directorship was legal and not oppressive. The Petitioners failed to prove any continuing oppressive acts by the Company or its management. Consequently, the Company Petition (C/Act) No. 30/KOB/2021 was dismissed without costs. The pending Interlocutory Application IA/(C/ACT)60/KOB/2021 was also disposed of.

Dated: 5th May, 2022.