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TMI Blog2024 (8) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... ajority of shareholders which are pre-judicial to the minority members of the company. In the present case, it is already noted that both the Appellants and the Respondents are holding equal shareholding of 50:50 as such there is no majority shareholders. It is primarily the issue of control of the management of the Corporate Debtor. Whether such appointment or non appointment of the Director on BoD can be cause of oppression and mismanagement ? - HELD THAT:- It is already noted that the act of oppression and mismanagement should be pre-judicial to a member of the company and not against the director of the BoD. Technically and legally speaking the appointment and removal of directors cannot be treated as act of oppression and mismanagement . The principles of quasi-partnership is not foreign to the concept of the Companies Act, 2013. For the purpose of grant of relief, the principles of quasi- partnership had been applied even in a public limited company. It is held that the true character of the Company and other relevant factors should be considered to decide the true factor of quasi-partnership - the reasoning given by the Appellant No. 2 that he was getting old to run the affa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor/ Appellant No. 1) , Respondent No. 2 i.e., Lopa S. Thakkar (Shareholder of the Corporate Debtor/ Appellant No. 1) and Respondent No. 3 i.e., Yashesh A. Thakkar(Director of the Corporate Debtor). 3. Heard the Counsel for the Parties and perused the records made available including the cited judgements. 4. It has been brought out that the Corporate Debtor was incorporated on 21.06.1995 and is involved in the business of Chemical Solvents and Specialty chemicals products which are hazardous in nature and various licenses to deal with such hazardous substances like Solvents License and Explosive License were obtained by the Corporate Debtor to do such business. 5. It has also been submitted that the Appellant No. 2 (Mr. Atul M. Thakkar) is the father of Appellant No. 3 (Anand A Thakkar) and also elder brother of Respondent No. 1 (Sunil M. Thakkar). Similarly, Respondent No. 2 (Lopa S. Thakkar) is wife of Respondent No. 1 (Sunil M. Thakkar) and Respondent No. 3 (Yashesh A. Thakkar) is the son of the Respondent No. 1. Thus, the entire shareholding is held by the family of two brothers and the shareholding is divided in ratio of 50%-50% between two families. 6. It has also been submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. Thakkar) was not well being senior citizen of 60 years age and also wanted to develop a clear succession in the management of the company. 14. The Appellant No. 2 (Mr. Atul M. Thakkar) stated that Respondent No. 1 (Sunil M. Thakkar) was not co-operating and the company was heading towards deadlock and Appellant No. 2 (Mr. Atul M. Thakkar) has no other choice but to appoint third director and since the Appellant No. 3 (Mr. Anand A Thakkar) has been working as employee of the company for many years who was later elevated as Executive Director ( ED ), was well qualified to act as Director. It is the case of Appellant No. 2 (Mr. Atul M. Thakkar) that there is no oppression and mismanagement as alleged and there was no ulterior motive in doing so. 15. The Appellant No. 2 (Mr. Atul M. Thakkar) further alleged that Respondent No. 1 (Sunil M. Thakkar) adopted the attitude of complete non-cooperation and started opposing every move to harm the company and also refused to sign the cheques. It was pleaded that all these started impacting the Corporate Debtor adversely in the business and finances. 16. The Appellant No. 2 (Mr. Atul M. Thakkar) submitted that the attitude of Respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations of the Respondent No. 1 (Sunil M. Thakkar) that the Respondents were neither given representation nor remuneration nor of Appellant No. 2 (Mr. Atul M. Thakkar). 23. The Appellant No. 2 (Mr. Atul M. Thakkar) assailed the Impugned Order on points i.e., casting vote was taken away from the Chairman with further directions by the Adjudicating Authority that all cheques should be signed by one representative of Appellants and one representative of Respondents and further that equal representation in the BoD should be given of both the groups. 24. The Appellant No. 2 (Mr. Atul M. Thakkar) pleaded that this Impugned Order is perverse and illegal in so much so that the Tribunal do not have any power to give such directions. The Appellant No. 2 (Mr. Atul M. Thakkar) further argued that oppression and mismanagement has been misused and the Impugned Order rather than resolving the dead lock of the Corporate Debtor have created further mess in so much so that Respondent has not been signing any cheques. Hence, there have been instances of statutory defaults. 25. The Appellant No. 2 (Mr. Atul M. Thakkar) reiterated that no representation for shareholder in the BoD cannot be a ground for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court was appointed as the Administrator for three months. However, the Administrator was discharged vide Tribunal s Order dated 23.01.2023 and subsequently order did not adequately clarified the reinstatement of the Board of Directors leading to misinterpretation by the Respondent and taking advantage of same the Respondent refused to sign the cheques and provide personal guarantees which led to financial instability for the corporate Debtor including unpaid debts and invoked Standby letters of creditor. 32. Concluding his arguments, the Appellant pleaded that the Impugned Order passed by the Tribunal is illegal and deserves to be set aside which will help the Corporate Debtor to come back on his own feet and survive. 33. Per contra, the Respondent Nos. 1, 2 3 (in short Respondents) of the Corporate Debtor have denied of the allegations of the Appellants labelling these as mischievous and misleading. 34. The Respondents submitted that the Adjudicating Authority have gone through all the facts and taken relevant laws into consideration before passing the Impugned Order which is just and fair and perfectly legal. 35. The Respondents alleged that the Appellant Nos. 2 3 have run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company was found in 1995 and is akin to quasi-partnership with the Appellant No. 2 (Mr. Atul M. Thakkar) and Respondent No. 1 (Sunil M. Thakkar) being the shareholder and only directors of the Corporate Debtor since 1995 to 2015. The Respondent No. 1 (Sunil M. Thakkar) mentioned that the Appellant No. 2 (Mr. Atul M. Thakkar) looked after day to day business operations while Respondent No. 1 (Sunil M. Thakkar) looked after important aspects like marketing, PR and was instrumental in procuring big contracts for the Corporate Debtor. 44. The Respondent No. 1 (Sunil M. Thakkar) mentioned that the Appellant No. 2 (Mr. Atul M. Thakkar) started misusing his casting vote from 2015 with the intention to take the control over the company in favour of his family and made his son Appellant No. 3 (Mr. Anand A Thakkar) as incharge of the company and resultantly and practically ousted the Respondents from the management of the company. 45. The Respondent No. 1 (Sunil M. Thakkar) pointed out that the Appellants has been indulging in oppression and mismanagement as shareholders as well as directors and in this direction, the Respondents submitted that on 29.12.2015 during BoD of the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent No. 1 (Sunil M. Thakkar) the same was passed due to illegal majority of the Appellants. 50. The Respondents explained that from 2016-2018, the Respondents sent several e-mails and communications to the Appellants expressing their grievances regarding oppression and mismanagement by the Appellant No. 2 3. However, no cognizance was given to their grievances and kept on passing the resolutions by way of circular resolutions despite opposition from Respondent No. 1 (Sunil M. Thakkar). 51. The Respondent No. 1 (Sunil M. Thakkar) stated that the Appellant No. 2 (Mr. Atul M. Thakkar) and Respondent No. 1 (Sunil M. Thakkar) were the directors in another family firm M/s Emerald Petrochemicals Pvt. Ltd. and Appellant No. 2 (Mr. Atul M. Thakkar) was the chairman of the said company, however, the Appellant No. 2 (Mr. Atul M. Thakkar) deliberately did not file the annual returns of the said company and refused to sign the balance sheet which resulted into disqualification of Respondent No. 1 (Sunil M. Thakkar) along with the Appellant No. 2 (Mr. Atul M. Thakkar) to act as director in any company including the Corporate Debtor. As a result of which despite having 50% share of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellants which has rightly been intervened by the Tribunal by way of the Impugned Order dated 01.04.2022 restoring the position on equal footing between the Appellant family and the Respondents family. 59. Concluding their arguments, the Respondents requested this Appellate Tribunal to dismiss the Appeal with an exemplary cost. Finding 60. We have already noted that the Corporate Debtor was formed in 1995 by the Respondent No. 1 (Sunil M. Thakkar) and the Appellant No. 2 (Mr. Atul M. Thakkar) for various petrochemicals products. It is undisputed fact that from 1995 to 2015 i.e., about 20 years the company was running successfully without any dispute. 61. We note that the dispute arose somewhere in 2015, where equal representation in the board based on 50:50 equity holding by Respondent No. 1 (Sunil M. Thakkar) and the Appellant No. 2 (Mr. Atul M. Thakkar) was allegedly sought to be changed by the Appellant No. 2 (Mr. Atul M. Thakkar) by way of inducting his son, Appellant No. 3 (Mr. Anand A Thakkar) in the BoD of the Corporate Debtor. 62. We will note that the shareholding of the Corporate Debtor, which is as under : - Shareholder Number of Shares % Shareholding Atul Thakkar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal are following :- (i) Whether, the action taken by the Appellants by way of appointment of Appellant No. 3 (Mr. Anand A Thakkar) on BoD of the Corporate Debtor, denial of the appointment of Respondent No. 2 3 on the BoD of the Corporate Debtor, alleged wrongful infusion of money is subsidiary in Dubai, denying the opportunity in participating in the management of Corporate Debtor were the acts of oppression and mismanagement . (ii) Whether, the Corporate Debtor along with other family owned business entities were in nature of quasi-partnership. (iii) Whether the 50:50 equity shareholding by both Respondent No. 1 (Sunil M. Thakkar) family and the Appellant No. 2 (Mr. Atul M. Thakkar) family, can become basis for equal representation in the BoD. (iv) Whether, the Adjudicating Authority had rights to impose the conditions contained in Para 20 of the Impugned Order (already noted above). (v) Whether the casting vote is privilege of the Chairman of the BoD or can be done away by the Adjudicating Authority as done in the Impugned Order. Since, all these points are interconnected, inter- dependent and inter-linked, these will be taken up and discussed in subsequent discussion in conj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shares by the company as aforesaid, the consequent reduction of its share capital; (d) restrictions on the transfer or allotment of the shares of the company; (e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case; (f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e): Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; (g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any of the directors of the company; (i) recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... memorandum or articles, shall within thirty days after the making thereof, be filed by the company with the Registrar who shall register the same. (8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable [***] with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees. ( Emphasis Supplied ) 70. From above, following emerges :- ➢ The application can be made by the member of the company i.e., as a shareholder not as a director of the BOD. ➢ The affair of the company has been or are being conducted in a pre-judicial manner which are oppressive to such members of the company or against the interest of the company. ➢ Such oppression and mismanagement have not been defined exhaustively and it is for the Tribunal to look into the given facts. While doing so, the material changes being done by the Corporate Debtor against the interest or any member of the creditor or debenture holder or any class of shareholder b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be of continuing nature which has got adverse impact on the members of the Corporate Debtor or against the interest of the company. 78. Logically the court can pass any suitable order under Section 241 242 of the Companies Act, 2013, once it is satisfied that the company affairs are being conducted in manner oppressive to any members and then can take suitable decisions based on in the given circumstances including order for winding up of the company. 79. In the present appeal, we have noted that both Respondent No. 1 (Sunil M. Thakkar) and the Appellant No. 2 (Mr. Atul M. Thakkar) were disqualified to continue to be director of any company under Section 166 (4) of the Companies Act, 2013 as they did not file financial returns within the time and subsequently both have ceased to be directors of the Corporate Debtor i.e., Venus Petrochemicals (Bombay), Private Limited and even on date, the present status continues. 80. We note that the Appellant No. 2 (Mr. Atul M. Thakkar) despite objections by the Respondent No. 1 (Sunil M. Thakkar) holding 50% of the shares appointed his son i.e., Appellant No. 3 as a BoD using his casting vote. 81. The moot question here is whether such appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether a quasi-partnership exists i.e., (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be sleeping members), of the shareholders, shall participate in the conduct of the business; (iii) restriction upon the transfer of the members interest in the company so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere. 86. Similarly, the Supreme Court of India has discussed the concept of quasi-partnership in case of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad, Kilpest Private Limited Vs. Shekar Mehra and MSDC Radharamanan Vs. M S D Chandrasekhara Raja Ors. 87. During pleadings before us, the Appellants have referred the decision of the Hon ble Supreme Court of India rendered in the case of Tata Consultancy Services Pvt. Ltd. vs. Cyrus Investments (P) Ltd. [(2021) 9 SCC 449] to emphasise that the Appellant Company was not a quasi-partnership as the company was not converted from an exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised as a ground for separation both in a matrimonial relationship and in commercial relationship, while it is not so in India.] . ( Emphasis Supplied ) 89. The Respondents highlighted that their case are falls within the ambit of Tata Consultancy Services (Supra). The Respondents stated that the present case is clearly within family members and even Appellants submissions are that, there has been dead lock in company and as such these specific situation tallies with ratio of Tata Consultancy Services (Supra). 90. We find merit in the contentions of the Respondents. Although, Tata Consultancy Services (Supra) stand on its own facts, some of which are relevant and few other may not be applicable, but on wholistic application ratio of Tata Consultancy Services (Supra) by and large and visibly found in the present case looking to family history, close connection and cross directorship of Respondent No. 1 (Sunil M. Thakkar) and Appellant No. 2 (Mr. Atul M. Thakkar) in group private limited companies. We find that the principle of quasi-partnership will be applicable in the present appeal. 91. From the above judgments, it is noted that principles of quasi-partnership is not foreign to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g equal 50% of shares of the Corporate Debtor, which is clear sign of oppressive of one set of shareholder i.e., Appellants at the cost of another set of shareholders i.e., Respondents. 95. We also note that subsequent to disqualification of the Appellant No. 2 (Mr. Atul M. Thakkar) to be director of any company, the Appellant No. 2 was appointed as Chief Operating Officer of the company on the similar salaries and perks treating him to be invaluable assets required for the company. Thus, the reasoning given by the Appellant No. 2 that he was getting old to run the affairs of the company are contradicted by himself after assuming the charge of Chief Operating Officer of the company. It clearly reflects that the intent was to oust (Respondent No. 1) and his family from the management and to have full control of the company by his family members. 96. We also note that the shareholders invest their money for several reasons including anticipation of the dividends or enhancement of the value of shares or by way of participating control and management in the conduct of the affairs of the Corporate Debtor. Undoubtedly, in the present case the Corporate Debtor is a private limited company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted earlier. There were three clear directions. It was stipulated that both the Appellant No. 2 family and Respondent No. 1 family with their 50% shareholding should have equal representations in the BoD of the Corporate Debtor. The Impugned Order further held that looking to the chequered history in the affairs of the Corporate Debtor the casting vote of the Chairman, which has been held to be heavily misused by the Appellant No. 2, will not be available to either side and the decision of the BoD will be taken on unanimous basis. The last directives by the Tribunal is that bank account will be operated under joint signature i.e., one representative each from both the sides. 102. The Appellant alleged that the Tribunal could not have given these directives as these were not within the mandate with the Tribunal. The Appellant is especially aggrieved by the fact that his casting vote, which is a creation of Article of Association of the company, has been taken away. It was further allegation of the Appellant during pleadings that subsequent to the Impugned Order the Respondents have not been signing any cheques and causing corporate governance issues. On a pointed query by this bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hakkar as directors of the company. 109. Thus, it is clear that casting vote was always used by Appellant No. 2 (Mr. Atul M. Thakkar) for appointment of his sons as Director and opposing sons of Respondent No. 1 as directors. 110. We note that for no other purpose the casting vote was used. Thus, the contention of Appellant No. 2 (Mr. Atul M. Thakkar) regarding importance of casting vote for company is not found true and stand rejected. 111. These circumstances certainly cannot be treated as the circumstances requiring to use the casting vote by the chairman, in the given circumstances of the present case. If the chairman use the casting vote not in the interest of the company, perhaps the members of the company can challenge the same which has been done in the present case by the Respondents. 112. We have already noted that the casting vote were invoked only 2015 onwards when dispute arose between the parties and subsequently majority of such casting votes were used for benefits of the Appellants rather than for the company. It is appreciated that the disqualification of both the directors of company i.e., Appellant No. 2 and Respondent No. 1 would have rendered company without an ..... 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