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TMI Blog2019 (9) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence on record cannot be supported, more so, when it is neither expedient nor practicable to record such finding at the very threshold stage of proceedings on account of the issue of limitation being a mixed question of law and fact. Grant of interim relief - HELD THAT:- The stand taken by Appellant before the Tribunal qua allegations of oppression and mismanagement is that the same are merely operational issues which included procurement of newsprint. Serious exception has been taken to the conclusions drawn from the pleadings of Appellant in Company Petition proceedings by the Tribunal when it observed in the impugned order that there are certain operational issues and there was a deadlock in the management of the Company. Whether the appointment of any Independent Director was consented to by the Appellant? - HELD THAT:- here being no love lost interse Respondents 4 and 5 on this material aspect, the only inference available is that they are pliable. We refrain from making any further comment on the merits of their respective stand lest same causes prejudice to either of the parties during inquiry in the Company Petition. Whether there are any errors apparent from the face of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 241 of the Companies Act, 2013 (hereinafter referred to as the 'Act') alleging certain acts of oppression and mismanagement came to be admitted with further directions passed in the Company Petition and I. A. No. 275 of 2017 to appoint an Independent Director on the Board of Directors of Respondent No. 1 - 'The Lok Prakashan Ltd.' (hereinafter referred to as the 'Company') to act as Chairman of the Board of Directors with casting vote. The Tribunal adjourned the matter for naming the Independent Director and fixing his remuneration after hearing both the parties. 2. It is abundantly clear that the Company Petition as also the I.A. have not been finally disposed off and are still pending consideration before the Tribunal. 3. Before adverting to the grounds of appeals arising out of common order impugned in both appeals between the same set of parties, a peep into the factual matrix germane to the controversy involved at the bottom of the subject matter of these appeals is inevitable. Respondent No. 2 herein holds 22.79% of equity shareholding in the 1st Respondent Company incorporated under Companies Act, 2013 and engaged in the business of publishing daily Gujarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his stage unless a full-fledged hearing takes place as it involves several questions of fact. 23. In view of the aforesaid discussion, the petition is admitted." 6. A bare look at para 24 of the impugned order would bring it to fore that at the hearing learned counsel for Respondent No. 2 herein restricted the prayer for interim relief to only one viz. appointment of Independent Directors on the Board of Directors of the Company pending final disposal of the Company Petition to ensure that statutory and contractual liabilities and day to day expenses are met with. It was contended before the Tribunal that there was a deadlock in the management of the Company in as much as the two Independent Directors, one appointed by the Respondent No. 2 herein and the other appointed by the Appellant were respectively supporting their mentors, thereby creating a split situation where both sides were equally divided. However, the Appellant appears to have disputed the factum of existence of a deadlock by projecting that the Company was an ongoing entity producing Newspaper Daily despite Respondent No. 2 herein having disputes with the Appellant and Respondent No. 3. The Tribunal observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int Independent Director on the Board of the Company to act as Chairman of the meeting of Board of Directors with casting vote. The Tribunal accordingly admitted the petition and directed appointment of an Independent Director. The matter was adjourned to enable the parties to name the Independent Director and fixing his remuneration. 7. Before proceeding further to note the submissions made at the Bar, we deem it appropriate to refer to a development that occurred after passing of the common impugned order. Appellant (Original Respondent No. 2) filed I.A. No.06 of 2018 in the Company Petition No.16 of 2017 pending consideration before the Tribunal seeking recall or suitable amendment of the impugned order by rectification of certain mistakes pointed out in the I.A. Same was dismissed by the Tribunal vide order dated 12th December, 2018 on the ground that the relevant order had already been assailed in appeal and the observations made therein were conscious observations based on pleadings of the parties and submissions put forth by their learned counsel. It was also observed in the order of dismissal that the statement of fact as regards what transpired at the hearing and recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of oppression/mismanagement are nothing but 'operational issues' arising in day to day management of the Company. It is further urged that the Company Petition is barred by limitation. It is also urged that the Tribunal has wrongly attributed it to Appellant that she had no objection in increasing the strength of the Board by inducting Independent Professional Directors. It is urged that the Tribunal has failed to notice that the allegations in the Company Petition merely related to operational issues and the Tribunal has drawn an erroneous conclusion in regard to existence of deadlock from such allegations. It is also urged that the Tribunal failed to notice that the Appellant had made attempts to convene a Board Meeting to ensure statutory compliances and in this regard sought consent of Respondent No. 2 to accord consent to the appointment of Hon'ble Justice Shri P. B. Majumdar (Retd.) to be Chairman to oversee the proceeding of the Board Meeting. However, the same was opposed by Respondent No. 2. It is further urged that the Tribunal has wrongly attributed consent to appointment of Independent Director to Appellant. It is further urged that the Tribunal was not justified in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras of the impugned order in the record before the Tribunal on 13th October, 2017 and none of the parties made any such submissions. It is submitted that the aforementioned findings are factually incorrect in as much as the Appellant in her letter dated 5th October, 2017 nowhere mentioned that she had no objection in increasing the strength of the Board by inducting Independent Professional Directors. It is submitted that the Appellant only stated that in view of the pending proceedings before the Tribunal, a Chairman was proposed for overseeing the proceedings of the proposed Board Meeting. However, there was no concession on part of the Appellant for appointment of an Independent Director. Thirdly, it is contended that the pleadings of Appellant have been read/ misread out of context in the impugned order. It is submitted that references made to a 2010 Board Resolution containing recommendations for strengthening of the Board by approaching expert/reputed professionals for their consent to be inducted into the Board of Directors cannot be read to attribute any concession on the part of the Appellant and cannot be taken as consent for appointment of an Independent Director to act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the meeting called for by way of Appellants letter dated 5th October, 2017. It is submitted that even during the pendency of proceedings Respondent No. 2 rendered it difficult to call for meetings by making false allegations against anyone attempting to carryout compliances for the Company. It is pointed out that even in absence of Respondent No. 2 in Board Meeting dated 25th July, 2018 and 75th and 76th AGMs of the Company, no resolutions were passed to the prejudice of Respondent No. 2, who has challenged the same only to create an artificial deadlock. It is further pointed out that Respondent No. 2 himself being the Managing Director has not taken any steps for calling any meeting and has not attended meetings despite notice. Eighthly, it is submitted that the net profits of the Company for the years 2014-15 to 2017-18 have doubled as indicated in the chart handed over during the course of arguments and there are no reasons for interfering with the operations of the Company. Merely because the impugned order does not create prejudice is no ground to uphold the same. Ninthly, it is submitted that the very substratum of the impugned order doesn't exist today in view of subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Majumdar (Retd.) to be appointed as Chairman to oversee the proceedings of the meeting. Respondent No. 2 opposed appointment of outside person as Chairman. It is submitted that if there was no deadlock then why the Appellant herself proposed the name of an outside person. It is further submitted that the Tribunal directed appointment of outside Independent Director keeping in view facts and circumstances and conduct of Appellant and her allies and not on the basis of alleged concession as claimed. It is further submitted that the Appellant herself made statement before the Tribunal seeking adjournment with consensus for naming Independent Director as borne out by the order dated 18th December, 2017 which followed the impugned order. It is submitted that the Appellant consciously made submission subsequently about naming an Independent Director and for implementing the order but withheld such orders while filing the appeals. It is submitted that the rectification application was an afterthought. It is submitted that Respondent No. 2 had specifically alleged in the Company Petition that the Board Meetings of 2016 were disrupted and allegations were made against one Practicing Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (Petitioner) to file petition under Section 241-242 of the Act is not in controversy. The Appellant, however, has vociferously challenged finding as regards limitation at the very threshold stage. It is the settled position of law that limitation is a mixed question of law and fact. Reference in this regard may profitably be made to the judgment of Hon'ble Apex Court rendered on 11th July, 2006 in Civil Appeal No. 4766 of 2001 titled 'Ramesh B Desai & Ors. Vs. Bipin Vadilal Mehta & Ors.' reported in (2006) 5 SCC 638 (para 19). It is not in dispute that in regard to matters falling within the purview of Section 241-242 of the Companies Act, 2013, the Limitation Act does not specifically provide for a period of limitation. In terms of Article 137, which is applicable to matters for which no period of limitation is specifically provided, the period of limitation is three years from the date when the right to apply accrues. Unless there is a continuing cause of action, the right to apply will have to be construed as having accrued when the first violation of right occurs or is discovered. Successive violation of right will not give rise to a fresh cause of action. This being the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter by making a general observation that most of the acts of oppression and mismanagement are continuing one. This observation is not based on consideration of material. Admittedly, it is also not based on any admission on the part of Appellant. Since the matter was still at the very threshold stage and the issue of limitation involving mixed questions of law and fact was required to be examined in the light of relevant material/ evidence let in by the parties during inquiry of the Company Petition, the Tribunal ought not to have indulged in this exercise at the very initial stage. The observation in para 20 of the impugned order does not have the trappings of a judicial finding and cannot be supported. The Tribunal would have done well by not going through this exercise at the very initial stage by treating the issue of limitation as a preliminary issue. The course adopted was neither desirable nor called for. However, this legal infirmity would not affect the admission of the Company Petition when the eligibility of Respondent No. 2 to file the Company Petition under Section 241-242 of the Act was neither disputed before the Tribunal nor assailed before this Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal to be just and equitable. On a plain reading of these provisions, it is abundantly clear that pending consideration of application by a member or member(s) of a Company alleging oppression or mismanagement, the Tribunal is vested with wide discretion to make any interim order on the application of any party to the proceedings, which it thinks fit for regulating the conduct of company's affairs. Such interim order can be subjected to terms and conditions which appear to the Tribunal to be just and equitable. The nature of interim order would depend upon the nature of complaint alleging oppression or mismanagement and the relief claimed therein. A member alleging that the affairs of the company have been or are being conducted in a manner prejudicial or oppressive to him or any other member or prejudicial to the interests of the company must come up with specific allegations of oppression and mismanagement and demonstrate that the affairs of the company have been or are being run in a manner which jeopardizes his interests or interests of other members or the interests of the company. Passing of interim order necessarily correlates to regulating the conduct of company's a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the hands of Appellant, who wrote letter dated 3rd September, 2016 making some allegations targeting Respondent No. 2 herein and disrupting the affairs of management. It was further alleged that after the demise of Shri Shantilal Shah, Appellant and Respondent No. 3 created many impediments in smooth functioning of the Company, no legal appointment of Editor was made and one Mrs. Illa Parikh employee of 'Gujarat Samachar' was being paid salary though her services were utilized by Respondent No. 6. It was further alleged that Respondent No. 3 was reluctant to sign the cheques and letter of credit. It was alleged that the Appellant had addressed letter dated 13th January, 2017 to Respondent No. 2 herein in order to defame him and to hide the irregularities committed by her. It was further alleged that the Appellant and Respondent No. 3 deposited demonetized old currency notes of the value of ₹ 6 Lakhs received from Vadodara in HDFC Bank, Ahmedabad without knowledge of Respondent No. 2 herein though he was the Managing Director of the Company. Further attempts at deposit of demonetized Currency Notes worth ₹ 32 Lakhs with Rajkot Branch of HDFC Bank did not materialize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent terms agreed upon by Respondent No. 2 with the supplier terming the same as being extremely prejudicial to the Company as the consent terms enjoined upon the Company to place orders for additional 15,000 metric tons of New print in future with 'Fibro' even when such material was available at more competitive prices from other suppliers. Respondent No. 3 also alleged that he as also the Appellant had been kept in dark about the settlement and the settlement was foisted on them exposing the interests of Company to peril. Appellant, in her letter dated 13th January, 2017 (page 287 of the Paper Book) also responded to email dated 13th December, 2016 emanating from Respondent No. 2 in the same tone and tenor reiterating the stand taken by Respondent No. 3. What transpires from this communication between the parties is that there was lack of confidence between Respondent No. 2 herein on one hand and the Appellant and Respondent No. 3 (the couple) on the other side and the same related to the affairs of the Company. While it is true that mere lack of confidence would not amount to oppression of a member, acts of omission or commission bearing nexus with such lack of confidence may ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard for which eight names were suggested. Respondent No. 2 and Respondent No. 3 were jointly authorized to approach the said eight persons so as to obtain consent of any three to be appointed on the Board before 31st March, 2011. It appears that the various committees formed in terms of the resolutions passed by the Board of Directors could not function and all recommendations were not implemented. Recommendation to increase the strength of the Board and the resolution in that behalf also could not be enforced. The Appellant further stated in her reply affidavit before the Tribunal that she had no objection to increasing the strength of the Board by inducting Independent Professional Directors (page 459 of the Paper Book). This being the pleadings of Appellant before the Tribunal in specific and unambiguous terms expressing her willingness to increasing the strength of the Board by inducting Independent Professional Directors, it is futile to contend that the same, read in conjunction with the Board resolution cannot amount to consent for appointment of Independent Director. The objection raised and arguments advanced on this score are overruled. So far as objection regarding appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot out of place to observe that Respondents No. 4 and 5 have been taking stands as suits their mentors which compounds the deadlock. This conclusion is clearly deducible from the contradictory stands taken by Respondents 4 and 5 regarding their mode of appointment. This is apart from controversy interse the dominant characters (Appellant and Respondent No.3 (Couple) on one side and Respondent No.2 on the other side). There being no love lost interse Respondents 4 and 5 on this material aspect, the only inference available is that they are pliable. We refrain from making any further comment on the merits of their respective stand lest same causes prejudice to either of the parties during inquiry in the Company Petition. 22. Now we proceed to examine whether there are any errors apparent from the face of the record which renders the impugned order unsustainable. The stand taken by the Appellant that the disputes raised in the Company Petition by Respondent No. 2 are self-engineered and do not constitute oppression or mismanagement would necessitate a probe into such allegations and recording of finding on the basis of material produced and evidence adduced during the inquiry of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion was required to oversee the proceedings of the Board of Directors for managing the affairs of the Company and also to ensure statutory compliances. The fact remains that in regard to convening of Board Meetings, Annual General Meetings and filing of statutory compliances there is a deadlock. Appellant's contention that such deadlock is artificial and self-engineered by Respondent No. 2 cannot be decided at this stage of the proceedings and within the ambit of application seeking interim directions. The contentions raised on behalf of Appellant in this regard are accordingly repelled. 23. Now coming to the aspect of deadlock in the context of the Board of Directors being equally divided, be it seen that the Company being left with only three Directors pursuant to resignation of Respondent No. 4 retrospectively w.e.f. 30th December, 2016 as contended by learned counsel for Appellants and the same having been rebutted by Respondent No. 2 by disputing the legality of the AGM granting extension to the Independent Directors, constitutes an issue requiring finding at the inquiry in Company Petition. Same cannot be addressed within the ambit of this appeal, which has a limited scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 2017 and 18th December, 2017 are concerned, same can be interpreted only as attempts at seeking adjournment as a sequel to the impugned order. Interpreting the same as falling in line with the impugned order would not only be absurd but preposterous too. 25. For the foregoing reasons, we hold that the impugned order in so far as the same dealt with the issue of limitation suffers from legal infirmity and cannot be supported. The Tribunal would be required to arrive at a finding on the issue after inquiry in the Company Petition, the same being a mixed question of law and fact. The impugned order to that extent has to be set aside and appeal partly allowed. However, we have found that the Company Petition was fit for admission and come to an independent conclusion as regards existence of a prima facie case in respect of deadlock entailing consequences like non-holding of AGMs, Board Meetings, General Meetings and non-filing of statutory compliances, warranting passing of appropriate directions in terms of Section 242(4) of the Act for regulating the conduct of the Company's affairs. In the given circumstances, while we do not support induction of an Independent Director for bei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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