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TMI Blog2021 (2) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... LTD. VERSUS NEEDLE INDUSTRIES NEWEY (INDIA) HOLDING LTD. [ 1981 (5) TMI 89 - SUPREME COURT] , wherein the court laid down the yardstick as to when an act of the majority can be considered as oppressive under the provisions of Section 397 of the Companies Act, 1956. This Tribunal came to the conclusion that averments made by the Petitioners regarding oppression and mismanagement against the Respondents is considered to be an isolated one and not a continuous one for which this Tribunal cannot hold that there is Oppression and Mismanagement in the Company. In the instant case, the petitioner failed to prove the continuing oppressive acts conclusively and we cannot rely upon an act of the Directors as an oppressive act. Hence, this Tribunal came to the conclusions that whatever done by the Respondents is in the best interest of the Company which cannot be stated to be unfair which would prejudice the Petitioner s interest in the Company or prejudicial to the public interest. Hence the Petitioners have no locus standi to approach this Tribunal under Section 241 praying the reliefs - this Tribunal is of the opinion that the petitioners could not make out a case for interference of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No.1 Company through increasing the period of repayment of the loan facilities availed. 4. The Respondent No.1 Company is the first Minor Port and Inland Container Depot [hereinafter referred to as ICD ] in the State of Kerala. The Government of Kerala in its 6th State Level Export Promotion Committee meeting held on 24.08.2005 under the Chairmanship of the Chief Secretary decided to assist the project ICD and dry Port with 49% of equity shares of ₹ 3,84,00,000/- [Rupees Three Crores Eighty-Four Lakhs] with 3% simple interest. Later as per the decision of Government, Kerala State Industrial Infrastructure Development Corporation [hereinafter referred to as KINFRA ] on 11.09.2006 entered into a Shareholders Agreement with the Promoters of the Company. Similarly, Assistance to State for Developing Export Infrastructure and Allied Activities [hereinafter referred to as ASIDE ] being a nodal agency for implementing the schemes promoted by Government of India extended on 25.01.2006 a soft loan of ₹ 552,00,000/- [Five Crores Fifty-Two Lakhs] for establishing the Respondent No.1 Company. 5. During the course of business, the stakeholders raised certain suggestions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilarly, petitioner No.3 also approached the Sub Court filing O.S. No. 75/2020 for recovering the amount advanced as loan to the Respondent No.1 Company. 8. The submissions of the Petitioners are that there is mismanagement and huge discrepancies in the Financial Statements submitted by the Respondent No.1 Company with the Registrar of Companies. It is also perceptible from the Notes on Accounts for the Financial Year ended on 31.03.2019 that the Company is not regular in filing its tax returns and paying applicable taxes. Similarly, it is clear there exist huge dues against the GST and custom cost recovery charges etc. Moreover, there are lots of mismatches in current and previous years figures provided in the Audited Profit and Loss Account for the heads revenue from operations , other income , total income and total expenses for the Financial years 2015-2016, 2016-2017, 2017-2018 and 2018-2019. The Respondents No.2 to 7 had flouted all prescribed accounting standards and statutory requirements in maintaining its the accounts and drawing the financial statements. The present CEO has not signed any financial statements after his appointment from 05.10.2015. 9. It is fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a regulation for the future conduct of affairs of the Company and its business for the benefit of its shareholders and general public vide implementing better governmental control by escalating the shareholding and Board seats of the Government/KINFRA. b. To pass appropriate orders increasing the share capital of the Company by capitalizing the debts due to the Government/KINFRA. c. To pass appropriate orders removing the Respondents 2 to 7 from Director Board and reconstituting the Board in the best interest of the investors and general public; d. To pass appropriate orders directing the Respondent No.1 Company to release all personal guarantees extended by the Petitioner No.1 with due acknowledgment from the financial institutions, e. issue orders under Section 213 of the Companies Act and appoint a competent inspector to investigate into the affairs of the Company in the matters including the mismanagement, misappropriations and related party contract entered by the Company from the year 2016 onwards; f. To terminate and set aside all the related party contracts made by the existing Board of Directors and to pass appropriate order for the recovery of undue gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, even after holding the post of Managing Director for over ten years and the liabilities of the Respondent No.1 Company has been increased, the Petitioner No.1 resigned from the post of Managing Director on 04.06.2015. The Board of Directors of the Respondent No.1 Company had on resignation of the Petitioner No.1 appointed Sri. Varghese K Cherian as Chief Executive Officer with effect from 05.10.2015 to manage the day to day affairs of the Respondent No.1 Company. Thereafter Petitioner No.1 was not regular in attending the meeting of the Board of Directors and accordingly due to failure on his part to attend the board meetings of the Respondent No.1 Company continuously from 12.12.2015 to 25.03.2017, his office of Director became vacant by virtue of Section 167 (1) (b) of the Companies Act, 2013. However, due to personal reasons citing health issues Chief Executive Officer Varghese K Cherian submitted a request to relieve him from the post of the Chief Executive Officer on 03.08.2018. The Respondent No.1 Company thereafter appointed Mr. Abraham Varghese, [Respondent No.2] as the Managing Director of the Company with effect from 10.10.2018. 17. It is further stated that under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that all decision related to the day to day business requirements are taken by sub-committee formed by the three members of the Board of Directors consisting of two Directors and the CEO. When the CEO floated tender for hiring fork lift, there was no response. Thereafter the Sub Committee comprising CEO negotiated with the owners of the Fork-lift for hire on a monthly basis. When the Petitioner No.1 had given a complaint about the said hire agreement before the Board of Directors, immediately the Respondent No.1 Company ceased making payment of rent as per agreement dated 01.09.2016. The said complaint was taken cognizance of and a committee was formed to relook the said agreement. The said committee addressed the complaint and directed the sub- committee to re-negotiate the terms of the lease. It was also noticed that the quotation submitted by other tenderers were very high and, therefore, it was decided to continue with the same tenderer on negotiated rates. Accordingly, the rates were negotiated and got approved by the Board. The objection raised by the Petitioner No.1 with regard to hiring of Fork-Lift has been addressed by the Board of Directors properly and ratified t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yet to be filed. No notice was served to the Respondent No.1 Company or to any of the accused and the decision of the Enquiry Commission and Special Judge (Vigilance) Kottayam was an ex-parte order, without giving an opportunity to the opposite party for being heard, for a detailed final report which has not been filed yet. Pendency of the second investigation alone will not give rise to any conclusion in the matter and will not justify the Petitioners to file the present petition on the said ground. The present management is confident that they will come out clean in the second report also since they have not done anything contrary to law or against the interests of the Company. It is also stated that the Respondent No.1 Company is ready to settle all the amounts due to the Petitioners. 24. It is further contended that the Petitioner No.1 left the office of Managing Director of the Respondent No.1 Company in a dilapidated state of affairs. The Judgment and Decree of the Hon ble Sub Court, Kottayam in O.S.NO.44 of 2017 has been challenged on various grounds under appeal before the Hon ble High Court of Kerala in RFA 87 of 2020, including suppression of facts, misrepresentation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xure A15. The loss for the year 2017-18 was 74 lakhs and that figure has dwindled to 53 lakhs in the year 2018-19. From a huge loss making Company in the hands of Petitioner No.1 Wilson Jacob as Managing Director till 2015, the Respondent No.1 Company is fast moving towards a profit making Company. Under the present management with a qualified and experienced Managing Director from the year 2018, sincere and result oriented efforts have already done and the Company is showing stability and consistency. The Respondent No.1 Company has filed the GST returns for the financial year 2019-2020. With regard to earlier dues, it was not paid due to inadvertent omission and steps are being taken to regularize the same. The Respondent No.1 Company has set apart the amount due to be paid as GST by the Respondent No.1 Company. 26. It is further stated that the mandatory requirements of governance and procedures of administration and annual general meeting are clearly and specifically followed and observed. Notice period as stipulated legally are always observed. All the required documents and other financial reports along with essential forms are provided as per the Act. The Respondents refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to bring together all the suitable resources available in the State and developing infrastructure to woo the industrial growth of the State. It is dedicated to catalyse industrial growth in Kerala by providing the best industry- specific-infrastructure. Assistance to States for Developing Export Infrastructure and other Allied Activities (ASIDE is a Central Government project for promoting exports. Under this Scheme, the State Government receives an annual fund from the Central Government for implementing the project which would increase exports from the State. This Respondent is the Nodal Agency for this fund for identifying and assisting projects and as per the guidelines of the Scheme, the State Level Export Promotion Committee under the Chairmanship of Chief Secretary scrutinizes and approves the projects coming under ASIDE Scheme. The 6th State Level Export Promotion Committee meeting held on 24.08.2005 has sanctioned an amount of 740 lakhs as ASIDE assistance to the Respondent No.1 Company ₹ 552 Lakhs as Soft Loan and ₹ 188 Lakhs as Equity Capital-to assist the project of setting up of an Inland Container Depot (ICD) and Dry Port with inland navigation service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, there is no justification for the Petitioners to demand a change in the mode of interference by this Respondent. SUBMISSIONS OF RESPONDENT NO. 9 32. The Registrar of Companies in their report submitted that the Central Government only authorized to sanction initiation of investigation against the Company and officers who is in default in terms of Section 210 (2) (3) of the Companies Act, 2013.In the Judgement reported in Company Appeal (AT) (Insolvency) No.964 of 2019 by NCLAT, New Delhi it was held that Adjudication Authority is not competent to straight away direct any investigation to be conducted by Serious Fraud Investigation Office (SFĪO). However the Adjudication Authority being competent to pass order under Section 213 of the Companies Act, 2013, they can give a notice with regard to the aforesaid charges to the promoters and others including the Union of India through SFIO and after following the procedure as laid down in Section 213 of Companies Act, 2013,and if a prima-facie case was made out, it could refer the matter to the Central Government for investigation by the inspector or inspectors and on such investigation, if any, actionable material is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised by the Petitioners. 38. In the present case in hand, according to the Articles of Association [hereinafter referred to as AoA ] under the head DIRECTORS it is stated that the First Directors shall be: - 1. Wilson Jacob 2. M C Alex 3. Shajan Kurian 4. Baiju S 5. Shaji Joseph 6. George Joseph Fenn 7. Sujatha Abraham The First Directors herein above mentioned shall hold office for life and they shall be entitled to nominate 2/3 of the strength of the board. 39. Here the 1st petitioner who is the first Director of the Company resigned from the Company on 04.06.2015. The Respondents have further stated that the Petitioner No.1 failed to attend the board meetings of the Respondent No.1 Company continuously for a period of twelve-months from 12.12.2015 to 25.03.2017, thus his office of Director became vacant by virtue of Section 167 (1) (b) of the Companies Act, 2013. It is profitable to quote Section 167(1) (b) as under: - 167. Vacation of office of Director (1) The office of a Director shall become vacant in case- (a) he incurs any of the disqualifications specified in section 164; (b) he absents himself from all the meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the fund for the expansion scheme of the Company with technical knowhow and professional approach. 42. On a perusal of resolution of the aforementioned Board Meeting, it is clearly evident that the Board decided to appoint a Managing Director who would be capable for mobilisation of fund for the expansion Scheme of the Company with technical know-how and professional approach. The Petitioner No.1 failed to prove that his resignation was based on the suggestion of the stakeholders. Thereafter upon the recommendations of the Board subcommittee of the Respondent No.1 Company, Mr. Varghese K Cherian was appointed as the Chief Executive Officer. 43. According to the Petitioner during his tenure as Chief Executive Officer, Financial Statements were not signed by him. In reply to this the Respondents have stated that financial statement of the Company has been approved by the Board of Directors and signed on behalf of the Board of Directors by the Managing Director and a Director in compliance with Section 134 of the Companies Act, 2013. The Chief Executive Officer was not a Director of the Respondent No.1 Company and therefore he was not permitted to sign the Financial Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Seventy-Two Thousand Three Hundred and Seven Only) to the Managing Director, Shri. Wilson Jacob. These payments are made by the Managing Director to the company account, time to time, on various contingent situations. This was made for meeting the day to day affairs of the company including monthly salary for the staff and payment of customs cost recovery charges in the initial stages. In short, the amount was spent for the sustenance of the company. The details payments made to company by the Managing Director a) Cash advance towards cost recovery charges-₹ 5,53,586 b) Cash advance made to KPACT- ₹ 8,47,863 c) TA DA-₹ 90,858 d) Allowance due (₹ 20,000/month)- ₹ 11,80, 000 Total- ₹ 26,72,307 (Rupees Twenty-Six Lakhs Seventy-Two Thousand Three Hundred and Seven Only) Decision The board discussed the matter in detail and resolved that i) Dues of managing Director in respect of loan given by him to the company at various occasions from its incorporation be repaid by the company within a period of 3 years in instalments. ii) In respect of arrears of salary of Sri. Wilson Jacob Managing Director, the board resolved to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically equipped with clamps to handle news print reels. When a need of a Fork Lift to handle newsprints, arrived for Mathrubhoomi Publications, a temporary arrangement was made with Malayala Manorama Publications and a Fork-Lift was made available. Later, Malayala Manorama Publications refused to make the forklift available for handling material of other parties and there was no alternate fork lift available for further handling of newsprints. The Respondent No.1 Company was not in a financial position to buy a new Fork lift and approached many bankers who turned away, informing their inability to extend financial support to the Respondent No.1 Company. In these circumstances, the Board of Directors resolved in the meeting held on 27.8.2016 to arrange for a forklift on hire and authorized the CEO of the Company to go ahead with the proposal. Hence, in the year 2017 a forklift was hired from the relatives of 2nd, 4th, 5th, and 6th Respondents in compliance with all the provisions of the Companies Act, 2013. There is no material evidence provided by the petitioners to prove that the said transaction was done in an improper manner violating the Company Law. 51. In this conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a continuous one for which this Tribunal cannot hold that there is Oppression and Mismanagement in the Company. 55. In this respect the judgement of Needle Industries (India) Ltd vs. Needle Industries Newey (India) Holding Ltd (Supra) and Shanti Prasad Jain vs. Kalinga Tubes Ltd (Supra) which inter alia reads that it has been held that the person complaining of oppression must show that they have been constrained to submit a conduct which lacks probity, conduct which is unfair to them and which cause prejudice to them in exercise of their legal and proprietary rights as shareholders. It was further held oppression should be a continuous act continuing till the date of filing the petition. 56.. In Needle Industries (supra)it is further held that: - It is clear from these various decisions that on a true construction of section 397, an unwise, inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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