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TMI Blog2024 (9) TMI 1611X X X X Extracts X X X X X X X X Extracts X X X X ..... 13, simple majority is enough. In respect of notice for removal of director and appointment of new director in place of removed director, special notice is required to be issued under section 169(2) of the Companies Act 2013. The Petitioners as per their own admission came to know about the said notice on 04.10.2022, which fulfills the requirements of law. Even otherwise, they were having knowledge of the EGM even prior to the said date and perusal of Annexure A-4 filed by the Petitioners reveals that the said notice was issued after complying with all the legal requirements. The stand of Petitioners that no such meeting was held on 11.10.2022 is without any basis as transpired from the record. The meeting was attended by five directors and this record was filed with the RoC. In the circumstances, there is no flaw in sending the notice of the meeting after complying all the requirements of law. The decision of 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 corporate democracy. It is emphasized that any inconvenience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BHARDWAJ, HON BLE MEMBER (J) AND SHRI. SANJAY PURI, - HON BLE MEMBER (T) For the Petitioner: Challa Gunaranjan, M. Sridhar, Deepak Chowdary For Respondent: B.V. Satish Kumar ORDER [Per: Rajeev Bhardwaj, Member (Judicial)] I. The Petitioners, Mr.Chekuri Sekhar and Mrs Chekuri Sujatha, (here in after referred as Petitioner No.1 and Petitioner No.2, respectively) who are Ex. Directors having 11.25% and 20% shares, respectively in M/s Kinnera Cold Storage Private Limited (here in after called as Company), by filing the present petition have sought the intervention of this Authority to prevent oppression and mismanagement of the Company at the behest of its Directors and majority Share Holders i.e., Respondent No. 2 to 7. II. Petitioner s Case: 1. The Company/Respondent No.1 was incorporated on 20.05.1998 with primary objects for carrying business of cold storage units for preserving agricultural produce etc. in 1999 in Khammam town. After its establishment, the Company has been offering its cold storage facility to various farmers and traders in that region. 2. The Petitioner No.1, younger son of Mr. Chekuri Satyam Babu, was inducted as a member and director of the Company around the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books. When the Petitioner No.1 brought to the notice of the Directors about such large-scale suppression of turnover and the consequent loss of revenue to the Company, the Respondent Nos. 2 to 3 and Satyam Babu (then a member) informed that such differences were usual practice of the Company and that they were entitled for the amounts taken by them as they have been managing the affairs for the past several years. 6. In spite of several requests by the Petitioners, the Respondents did not bother to streamline the operations of the Company and they are only interested in siphoning of Company's funds. Therefore, the Petitioner No. 1 was constrained to submit his resignation from the post of Managing Director on 24.12.2016. However, the Petitioner No.1 continued to remain as a Director of the Company. The Respondents did not respond to any of queries made by the Petitioners with regard to illegal siphoning of the Company's funds. So, the Petitioners threatened to initiate appropriate proceedings to protect the interests of the Company as well as the other members of the Company and the creditors. 7. Realizing this, the Respondent Nos. 2 3 started taking steps to strengthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.08.2018, the 6th Respondent, filed O.S.No.555 of 2018 on the file of the Principal Junior Civil Judge, Khammam, and obtained an ad- interim ex-parte injunction vide order dated 21.08.2018 in I.A. No. 1316 of 2018 restraining the Petitioners from interfering with the business of the Company. The Petitioners subsequently entered appearance and contested the matter and eventually injunction order was vacated on 03.11.2022. 11. On 22.09.2018, the Petitioner No.1, Respondent No.2 and their father Mr. Chekuri Satyam Babu entered into an Agreement wherein it was agreed that Mr. Chekuri Satyam Babu would manage M/s. Ushasri Cotton Ginning Mill at Mudigonda, the Respondent No. 2 would manage M/s. New Ushasri Chit Funds Company at Gandhi Chowk and the Petitioner No.1 would manage the Company at Khammam agriculture market. Further, it was agreed that the Petitioner No.1 would hold the position of Managing Director of the Company, and the Petitioner No. 2 would be appointed as a Director of the Company. It was agreed that the Respondent No. 2 would only be a Director of the Company, while the Petitioners would manage the day-to-day affairs as well as the management of the Company and the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Petitioners were sent by the Respondent No. 4. The Petitioners immediately wrote vide email dated 30.09.2022 to the Respondent No.4 stating that no such notices were received by them. On 04.10.2022, the Petitioners received a notice dated 01.10.2022 regarding the convening of an Extraordinary General Meeting ( EGM ) on 11.10.2022 for the removal of the Petitioners as Directors of the Company. The Notice of EGM, though dated 01.10.2022, was dispatched only on 03.10.2022, and was received by the Petitioners on 04.10.2022. The postal envelope also contained pre- dated requisitions and Special Notice dated 22.09.2022 signed by the Respondents Nos. 2 to 6. 15. The Notice of EGM to remove the Petitioners from the Board of Directors of the Company was not only a preplanned move by Respondent Nos.2 to 6, but also incomplete and patent violation of the provisions of the Companies Act. It clearly shows conspiracy of the Respondent Nos. 2 to 6. The very fact that neither the alleged requisition nor the special notice dated 22.10.2022 or the request for reply dated 23.10.2022 under section169 (4) of the Companies Act were duly served on the Petitioners, and that as a Board Meeting was ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which there was no response from any of the Respondents. Further on 16.11.2022, the Petitioners received an e-mail with the subject DIR-12 dated 03/11/2022 filed by Kinnera Cold Storage Private Limited vide SRN F39450481 by the Registrar of Companies, which was apparently marked as sent for resubmission with certain remarks. The said Form DIR-12 was filed by the other directors unauthorizedly using the digital signatures of the Petitioner No.1, without any notice or intimation. Immediately, on 17.11.2022, the Petitioners submitted letters to the Regional Director, South East Region and the Registrar of Companies, Telangana highlighting the past incidents and requested them not to take the Form No. DIR-12 filed vide F39450481 on record, as no EGM to remove the Petitioners from the Board of Directors ever took place on 11.10.2022, and to mark the Company as being under management dispute. 19. The apprehensions of the Petitioners herein were confirmed when later in the day on 17.11.2022, the Petitioners counsel in O.S.No.555 of 2018 before the Principal Junior Civil Judge, Khammam informed the Petitioners those certain resolutions had been served on him by the counsel for Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 9 to initiate criminal prosecution against Respondent No., 2-7 under 447 and 448 of the Companies Act, 2013 for perpetrating and committing fraud against the Company and the Petitioner; and d. Direct the removal of Respondent No. 2,4 and 6 as the Directors of the Company; and, e. Pass appropriate orders in terms of S. 140(5) against the 8th Respondent; and, f. Declare that costs of costs of and/or incidental to this application be borne by the Respondent No. 2-7; and, g. Pass such consequential reliefs as may be necessary and proper and in the interest of the Respondent No.1 Company and its shareholders, including the Petitioners herein. III. Case of Respondent No 2 22. The petition is not maintainable and is liable to be rejected at the very threshold for the reasons that the Respondent No 1 and the Respondent No 8 are not properly made parties to the petition and no representation is made by the said two respondents. 23. The Respondents are the sufferers at the instance of the Petitioners for their highhanded and unilateral acts in managing the affairs of the company oppressing the rights and interest of the respondents. It is submitted that the Petitioners are conspicuous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.6 is valid and in accordance with the rules and duly recognized by the Registrar of Companies, which has become final. The alleged diversion of funds and embezzlement of funds in the Company is false and baseless. 32. The Respondent No.2 is in no way related to the acts done by the Respondent No.6 or any other respondent, as the same were their individual decision. It is true that this Respondent No 2 and his father and Petitioners entered into an agreement for settlement of their dispute, but the same is not fully performed till date. It is claimed that the Petitioners have been importing the family disputes into the present petition to gain sympathy in spite of their irrelevancy. 33. It is the Petitioners who acted in detrimental to the interest of the Company and shareholders in breach of the fiduciary relationship between them and the Company. The alleged calls to the police and all further acts in sequence thereof by the Petitioners are only to cover up their illegal and high handed acts. All the allegations in this regard are vindictive, purposeful besides being baseless. The Petitioners are well aware of the unrest and dissatisfaction expressed by the other shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the Company. 40. Finally, the warring family members settled the matter by entering into agreement on 22.09.2018 which paved the way for the restoring the position of Petitioner No.2 as director and further appointment of Petitioner No.1 as Managing Director of the Company. This also led to the withdrawal of the CP No. 303/241/HDB/2017. 41. After having status quo for almost 4 years, Petitioners were removed as directors and further Petitioner No. 1 as Managing Director in the alleged Extraordinary General Meeting (EGM) on 11.10.2022. 42. Settlement between both family members on 22.09.2018 and subsequent withdrawal of the CP No. 303/241/HDB/2017 under section 241 of the Companies Act have forced the Petitioners, at least not to vociferously alleged oppression etc. before this date and that is why they have alleged following subsequent acts amounting to oppression: a) Issuing notice of EGM dated 01.10.2022 for the meeting to be held on 11.10.2022. b) Removal of Petitioners as Directors and further of Petitioner No. 1 as Managing Director. 43. The Company Law 2013 does not provide a clear definition of the term oppression. In simple words, oppression involves conduct that dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aryana High Court in Suresh Chandra Marwaha versus Lauls Private Ltd. And Ors. ((1973) 75 PLR 558), wherein it was held as follows: 14. In the present case, the appellant was a director and was removed by a resolution of the company as provided in Section 284 of the Companies Act and it has not been shown how the resolution removing him from directorship was illegal. It is only improper or illegal removal from directorship that may affect the right of a shareholder but not the removal in accordance with the provisions of the Act. 50. Further, the Hon ble Supreme Court in its judgment in Life Insurance Corporation of India versus Escorts Ltd. Ors 1986 AIR 1370 has held that: - Thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the provisions of the Companies Act. He cannot be restrained from calling-a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under Section 173(2) of the Companies Act, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t matter of judicial scrutiny since the right to appoint or remove directors is supreme as a part of corporate democracy. It is emphasized that any inconvenience caused to the opposing party during the legal process will not negate the validity of the legal actions taken. Consequently, although the removal of the Petitioners from their directorial positions may be discomforting for them, the decision of the majority will prevail. From this standpoint, the removal of the Petitioners from the directorial posts does not amount to an act of oppression or prejudice against them. It has been recently held by the Hon ble Supreme Court in Tata Consultancy Services Limited versus Cyrus Investments Pvt. Ltd. and Ors. (2021) 9 SCC 449 that even in cases where the removal of a director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under section 242 unless the removal was oppressive or prejudicial. Further, it was observed that the Company Tribunal is not a Labour Court or an Administrative Tribunal to focus entirely on the manner of removal of a person from directorship. It was held by the Hon ble Supreme Court: under Subsection (1) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. 55. As far as the act of mismanagement by Respondents, if any, in removing Petitioners from the position of directors of the Company is to be considered in light of Section 241(1)(b) as there is a change in the management of the Company resulting from such removal of Petitioners as Directors. 56. The phrase affairs of the company are being conducted in section 241 indicates a continuous wrong. It means that because of the change in the management of company, there is a likelihood that the affairs of the company will be conducted in a manner prejudicial to the interests of the company or members. Petitioners failed to show any act done by the management or the apprehension that the affairs of the Company in future are likely to be conducted in a prejudicial manner as a result of the removal of Petitioners from the position as directors. 57. Thus, in the absence of proof of oppression or mismanagement as alleged by Petitioners, this Tribunal finds no merit in the Petition to grant the reliefs as prayed for and hence, the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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