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2022 (5) TMI 1366 - AT - Insolvency and BankruptcySeeking to pass an order of Interim Stay of the impugned order - all the members are from Hindu Undivided Family - family management company dispute where certain Members / Shareholders are not seeing eye to eye - Company s Article of Associations (AoA) is more powerful than the MOU - overlapping provision between the Companies Act will prevail over the AOA - HELD THAT - This is a case of family management company dispute where certain Members / Shareholders are not seeing eye to eye and the Tribunal has observed certain irregularity in its functioning - It cannot be disputed that the Company s Article of Associations (AoA) is more powerful than the MOU and that too not signed MOU by all members of the Company/ family partition shareholding right. If, there is overlapping provision between the Companies Act will prevail over the AOA. Accordingly, AoA will prevail over MOU, unless the MOU is legally binding and are appropriately incorporated in the AoA through the Amendment as prescribed under the Companies Act for the amendment of AoA - Notification No. 464(E) of MCA dated 05.06.2016 provides for subject to certain exceptions, modifications and adaptation which are enumerated therein limited to non-application of second proviso to sub-section(1) of Section 188 which is a matter of examining a full case and thereafter, to consider whether the interest of the shareholders are protected or not. This is not a fit case to consider interim relief for grant of stay when the matter even travelled to the Hon ble High Court of Kerala upto its Division Bench and effect of stay of the impugned order dated 31.12.2021 will cause irreparable harm to the Company and accordingly the case is not a fit case for granting interim relief and accordingly we are not inclined to grant any interim relief and hence appeal is dismissed.
Issues Involved:
1. Failure to conduct Annual General Meetings (AGMs). 2. Management of the company and related party transactions. 3. Allegations of siphoning off funds. 4. Validity of related party transactions. 5. Validity and impact of the Memorandum of Understanding (MoU). 6. Interim relief and stay of the impugned order. Detailed Analysis: 1. Failure to Conduct Annual General Meetings (AGMs): The appellants were accused of failing to conduct AGMs for the years 2015-16, 2016-17, and 2017-18 as prescribed under the Articles of Association (AoA). The tribunal noted that the company had three directors and the percentage of shareholding was provided in the statements and reports to the Registrar of Companies (RoC). 2. Management of the Company and Related Party Transactions: The tribunal observed that the company is a family enterprise, and its management rests with the Board of Directors, not any individual, including the Managing Director. The respondents alleged that the financial documents filed before the RoC showed related party transactions in violation of Section 188 of the Companies Act, 2013. The tribunal found that these transactions were conducted without the consent of the Board of Directors, which is against the provisions of the Act. 3. Allegations of Siphoning Off Funds: The respondents alleged that the appellants siphoned off funds under the guise of remuneration for themselves and their spouses, violating the AoA and oppressing the majority shareholders. The tribunal noted that the appellants had not provided any quantification or findings to support these allegations. 4. Validity of Related Party Transactions: The tribunal declared the related party transactions invalid as they were conducted without the requisite consent of the Board of Directors and in breach of the AoA. The tribunal emphasized that such transactions require the consent of the company's Board and, if exceeding monetary thresholds, the approval of shareholders by an ordinary resolution. 5. Validity and Impact of the Memorandum of Understanding (MoU): The tribunal noted that the MoU was not signed by all members of the family/extended family and thus could not override the AoA. The tribunal stated that the AoA is more powerful than an unsigned MoU, and any amendments to the AoA must comply with the Companies Act. 6. Interim Relief and Stay of the Impugned Order: The appellants sought an interim stay of the impugned order dated 31.12.2021. The tribunal observed that granting interim relief could jeopardize the impact of the main appeal. The tribunal also noted that the related party transactions were declared invalid, and holding AGMs is a routine business activity that cannot be stayed. The tribunal concluded that the case was not fit for granting interim relief and dismissed the applications for interim stay. Conclusion: The tribunal dismissed the applications for interim stay, emphasizing that the related party transactions were invalid and that the AoA prevails over the unsigned MoU. The tribunal scheduled the main appeals for hearing on 17th June 2022.
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