2017 (5) TMI 1661 - Tri - Companies Law

Company Petition Upheld, Directors Re-appointed, Oppression Addressed, Board Restored

Mr D. Tej Kumar, D Chandana, Ms. D. Kavitha, Mrs. D. Lakshmi, Mr. Cheedi Latchayya And Ors. Versus Priyaranjani Fibres Limited, Mr. D. Srinivasa Rao, Mr. Kandula Sivananda Reddy, Kandula Uttam Reddy And Mr. Kora Siva Sudershan Reddy

The Tribunal found the Company Petition maintainable as the petitioners met the shareholding requirement and validly executed Powers of Attorney. The ... Oppression and mismanagement - HELD THAT:- It is not in dispute that in order to file a petition under sections 397/398 of Companies Act, 1956, one of prerequisites is that party is supposed to hold either not less than one hundred members of company or not less than one-tenth of total number of its members as prescribed under section 399. As stated it is settled position of law that one has to satisfy requirement(s) of statute at the time of filing petition/application. The contention that shares totalling 4,23,250 as held by Smt. D. Umavathi (16th petitioner) should not be counted for the purpose of constituting minimum percentage , due to her death, is not at all tenable. Moreover, her legal heirs are admittedly petitioners in the Company petition. As stated supra, the Company is a closely held Company, and no issue of shares to public had ever taken place. Respondent Nos. 3 to 5 are neither shareholders nor directors as held supra. The petitioners are admittedly holding sufficient number of shares as per documents filed, and it was also examined by CLB at the initial stage itself. We are satisfied that powers of Attorney in question have been duly executed in accordance with law and the petition is properly instituted and it is maintainable. Acts of oppression and mismanagement are not specifically defined in the Companies Act, and it should be inferred from facts of each case. In the instant case, the following acts constitute acts of oppression and mismanagement on the part of respondent Nos. 3 to 5 apart from others: a. Acts of respondent No. 3 by promising several things for beneficial interest of Company and thereby forcing the second respondent deceitfully to enter into agreement dated 9.10.2003 and then did not comply with those terms, which ultimately ended in its termination, even though second respondent has no authority to enter into such an agreement; b. Taking management of Company by Respondent No. 3 in an illegal manner by making nominal investments in it; c. Filing of several civil and criminal cases on false allegations and applying illegal methods to run the Company, contrary to directions CLB , BIFR and Civil Courts ; d. Taking so many decisions including increase of share capital of ₹ 11.30 crores basing on unenforceable agreement dated 09.10.2003, and fabricating fake balance sheets and allotment of shares out of such alleged increased share capital without receiving any consideration ; e. Acts of oppression and mismanagement still being continued even though respondent suffered two decrees as mentioned above and not willing to. leave the Company to the duly elected Board of Directors by shareholders of the Company; f. Several reports including report of Advocate commissioner appointed by this Tribunal, pointed out several illegal acts on the part of respondent No. 3 to 5. g. It is serious acts of oppression and mismanagement on the respondent Nos. 3 to 5 to continue the management and filing several petitions, raising frivolous contents/allegations especially after the respondent Nos 3 to 5 suffered two decrees as stated supra thereby depriving duly elected Board of Directors to manage the affairs of Company as per wishes of shareholders of Company on the pretext present Company petition is pending disposal. The Respondents No.3 to 5 by raising several frivolous litigations before various Courts/Authorities, have caused so much hardship to the Petitioners as well as to the Company. They are bent upon to abuse the process of law and thereby got so much financial advantage out of the running of the affairs of the Company. As explained above, the Respondents No.3 to 5 have not stopped in interfering with the affairs of the Company, even when, they have suffered two decree and also CLB Order dated 16.07.2008. They were also removed from the Board of Directors as per the EGM conducted on 02.01.2008 and the agreement dated 03.10.2003 was also terminated. Hence it is a fit case to award costs against Respondents No.3 to 5. The order dated 22.11.2011 passed by BIFR by directing '3(1) Reddy Group to continue to manage affairs of the Company and to submit fully tied up DRS to IDBI(OA) within six weeks on behalf of the Company and (ii) IDBI(OA) to examine the DRS and convene the joint meeting of all concerned, and submit fully tied up DRS, if emerges to the Board within next six weeks” was subsequently stayed by AAIFR vide order dated 09.02.2012/21.02.2012 and also granted stay of all further proceedings of BIFR till the main appeal was finally disposed of. It is to be mentioned herein that by virtue of promulgation of new Companies Act, 2013, all proceedings pending before BIFR/AAIFR stands abated. After suffering two decrees as stated above and also in view of interim order dated 16.7.2008, the respondent Nos. 3 to 5 do not have any locus standi to continues as MD/Directors and to interfere in the affairs of Company. And the alleged allotees out of shares of alleged increased share capital would not get any rights and when Respondent Nos. 3 to 5 themselves have no right to pass any resolution to increase the same. So the impugned increased share capital and subsequent allotment of those shares would not bestow any rights on those allottees. Hence, there is no necessity to implead those alleged allottees of shares and the Tribunal is fully empowered to interfere with this issue. It is relevant to point out general principle of law which says 'Nobody can convey a better title that what one has'. In the instant case, the Respondent Nos. 3 to 5 themselves have.lost all rights in the Company and thus they convey nothing to anybody else including so-called allotees out of alleged increased share capital. Moreover, as stated supra, in the plaint filed by respondents have clearly stated that capital of Company remains same without any enhancement as contended now. The acts respondent Nos. 3 to 5 are conducting affairs of the Company in illegal manner causing irreparable damage and loss in a manner prejudicial to shareholders of the Company and also against public law disobeying all orders of various judicial forms as stated supra. The facts and circumstances as mentioned above would indicate that ordering winding up of Company would be just and equitable but it would unfairly prejudice and burdensome to shareholders of the Company and it is also against public interest. Hence, it is necessary to put an end the illegal interference of Respondent Nos. 3 to 5 in the affairs of Company so as to see that its affairs are being conducted by legally constituted Board of Directors as stated. Therefore, it is a fit case for this Tribunal to exercise its jurisdiction and powers conferred on it, u/s 397, 398 and 402 and other applicable provisions of Companies Act, 1956, read with relevant comparable provisions under new Companies Act, 2013. Issues Involved:1. Maintainability of the Company Petition under Sections 397 and 398 of the Companies Act, 1956.2. Validity and binding nature of the agreement dated 09.10.2003.3. Legality of the re-appointments of certain directors.4. Shareholding and directorship status of Respondent Nos. 3 to 5.5. Reliefs entitled to the petitioners.Issue-Wise Detailed Analysis:1. Maintainability of the Company Petition:The respondents challenged the maintainability of the Company Petition on the grounds that the petitioners did not hold the requisite 10% shareholding as required under Section 399 of the Companies Act, 1956, and questioned the authorization through Powers of Attorney. The Tribunal found that the petitioners collectively held more than the requisite 10% shareholding and that the Powers of Attorney were duly executed. It was affirmed that the eligibility criteria should be satisfied at the time of filing the petition, and subsequent events, such as the death of a petitioner, did not affect the maintainability. The petition was deemed properly instituted and maintainable.2. Validity and Binding Nature of the Agreement Dated 09.10.2003:The agreement dated 09.10.2003, executed between the second respondent and the third respondent, was scrutinized. The Tribunal noted that the second respondent did not have the authority to enter into such an agreement on behalf of the company or its shareholders. The shares in question were pledged with IDBI and could not be transferred without its permission. The agreement was deemed not binding on the company or its shareholders as it lacked the necessary approvals from the Board of Directors and the shareholders. The Tribunal declared the agreement terminated and non-binding.3. Legality of the Re-Appointments of Certain Directors:The Tribunal examined the re-appointments of Respondent No. 2, 8, and 14 as Executive Vice Chairman and Directors. It was noted that Respondent Nos. 3 to 5 were removed from their positions in an Extraordinary General Meeting (EGM) held on 02.01.2008. The removal process was conducted in accordance with the law, and the respondents did not challenge it effectively. The Tribunal upheld the re-appointments of Respondent No. 2 and his associates as valid and legally constituted.4. Shareholding and Directorship Status of Respondent Nos. 3 to 5:The Tribunal found that Respondent Nos. 3 to 5 did not hold any shares in the company and were not legally appointed as directors. Their directorship was effectively terminated as per the EGM held on 02.01.2008, and subsequent court decrees confirmed their removal. The Tribunal declared that Respondent Nos. 3 to 5 ceased to be Managing Director/Directors from 02.01.2008 and restrained them from interfering in the company's affairs.5. Reliefs Entitled to the Petitioners:The Tribunal granted several reliefs to the petitioners, including:- Declaring the agreement dated 09.10.2003 terminated and non-binding.- Declaring the Board Meetings and resolutions passed by Respondent Nos. 3 to 5 on 30.04.2004 and 02.06.2004 as illegal and non-binding.- Declaring the issue and allotment of 1,13,00,000 equity shares as illegal and void.- Confirming that Respondent Nos. 3 to 5 ceased to be Managing Director/Directors from 02.01.2008 and had no shareholding in the company.- Restraining Respondent Nos. 3 to 5 from associating with the company and interfering in its affairs.- Ordering Respondent Nos. 3 to 5 to pay costs of Rs. 1,00,000 each to the petitioners.The Tribunal concluded that the conduct of Respondent Nos. 3 to 5 constituted acts of oppression and mismanagement, causing irreparable damage to the company and its shareholders. The Tribunal exercised its jurisdiction under Sections 397, 398, and 402 of the Companies Act, 1956, to restore the legally constituted Board of Directors and ensure the company's affairs were managed lawfully.