2022 (1) TMI 1434 - AT - Companies Law

NCLAT upholds NCLT discretionary powers, dismisses Section 244 eligibility waiver petition after MD removal for oppression

Electrotherm (India) Limited Versus Mr. Mukesh B. Bhandari, Mr. Siddharth Bhandari, Mr. Rakesh Bhandari, Mr. Shailesh B Bhandari, Mr. Jagdishkumar Amrutal Akhani, Mr. Nagesh Bhandari, Western India Specialty Hospitals Ltd., Kirtan Corporation Services Pvt. Ltd., Indus Elec Trans Pvt. Ltd., Logix Infosoft Pvt. Ltd., Ashok R. Bhandari, Castleshine Pte Limited, Leadheaven Pte Limited, Fagesh Kumar Soni, E – Motion Power Pvt. Ltd., Jayshree Petro – Yarn Pvt. Ltd., Registrar of Companies, Securities and Exchange Board of India, Mr. Dinesh Mukati, Mr. Pratap Mohan, Nivedita Sarda & Ors.

NCLAT dismissed a petition seeking waiver of eligibility criteria under Section 244 following removal of Managing Director for oppression, mismanagement, ... Oppression and Mismanagement - Illegal transactions and siphoning of funds - removal of Mr. Mukesh Bhandari from the post of Managing Director of the Appellant Company - seeking waiver of the eligibility criteria laid down under Section 244 of the Act was dismissed by NCLT - HELD THAT:- The Hon’ble Apex Court in Muncipal Corporation of the City of Ahmedabad’ Vs. ‘Ben Manilal [1983 (4) TMI 291 - SUPREME COURT] held that wrong reference to the power under which an action was taken by the Government would not per se vitiate the action, if the same could be justified under some other power whereby the Government could lawfully do that act. Section 420(1) of the Companies Act, 2013 provides for ‘the Tribunal may, after giving the parties to any proceeding before it, a reasonable opportunity of being heard, pass such orders thereon as it thinks fit.’ - Even in the absence of Rule 11 this Appellate Tribunal, being essentially a judicial forum determining and deciding rights of parties concerned and granting appropriate relief, can, in exercise of its powers to meet ends of justice, or prevent abuse of its process, pass any such Interim Directions. Such Powers being inherent in the constitution of the Appellate Tribunal, Rule 11 can merely be said to be declaring the same to avoid ambiguity. As long as the power is present, non-quoting or misquoting of the Section is not fatal. A harmonious construction thus requires that the direction should cover two different situations. If a particular action is valid under one Section, it cannot be rendered invalid, or that the Tribunal is not empowered to pass such a direction, if the wrong Section is quoted. The statute empowers the Tribunal from passing any Interim Order, it deems fit and in such a situation, keeping the affairs of the Company in mind, the Tribunal has rightly moulded the reliefs. Cases are known in which Courts have moulded the reliefs to meet a situation such as this. Quoting a wrong Section/sub-Section does not estop a Court from taking note of events, circumstances which happen during that time frame. Hence, the intent of the law maker and the nature and scope of the Legislation is to be kept in mind, as any departure from the same could result in fatal consequences. Both the Company Petitions 93 & 94 of 2018 be decided by NCLT as expeditiously as practicable, but not later than three months from the date of receipt of a copy of this Order - Appeal disposed off. Issues Involved:1. Jurisdiction of NCLT to grant interim reliefs.2. Validity of the interim relief granted by NCLT.3. Maintainability of Company Petitions under Sections 149, 150, 152, 159, 176, 241, and 242 of the Companies Act, 2013.4. Allegations of oppression and mismanagement.5. Appointment and removal of directors and signatories.Issue-wise Analysis:1. Jurisdiction of NCLT to Grant Interim Reliefs:The core issue is whether the NCLT had the jurisdiction to pass interim orders under Section 242(4) of the Companies Act, 2013, in proceedings initiated under Sections 149, 150, 152, 159, and 176. The Tribunal noted that Section 242(4) allows it to make any interim order it deems fit for regulating the conduct of the company’s affairs. The NCLT’s inherent powers under Rule 11 of the NCLT Rules, 2016, were also considered, enabling it to pass necessary orders to meet the ends of justice or prevent abuse of its process. The Tribunal concluded that NCLT is empowered to grant interim directions in the interest of justice, even if the application was filed under incorrect sections.2. Validity of the Interim Relief Granted by NCLT:The interim relief granted by NCLT included appointing Mr. Siddarth Bhandari as a joint signatory of all bank accounts of the company and allowing him to be a special invitee to all board meetings. The Tribunal observed that these directions were given to ensure that the company’s functioning was not adversely affected during the pendency of the main petitions. The Tribunal upheld the interim relief, emphasizing that the balance of equities and the factual matrix justified such directions.3. Maintainability of Company Petitions:The maintainability of the petitions under Sections 149, 150, 152, 159, 176, 241, and 242 was challenged. It was argued that the petitions filed under Sections 149, 150, 152, 159, and 176 could not seek relief under Section 242(4). The Tribunal noted that while the petitions under Sections 149, 150, 152, 159, and 176 had limited scope, the NCLT’s interim order was justified under its inherent powers and Section 242(4). The Tribunal also addressed the dismissal of I.A. 499 of 2019, which sought a waiver of the eligibility criteria under Section 244, and noted that the main petition under Section 241/242 was declared non-maintainable.4. Allegations of Oppression and Mismanagement:The respondents alleged that Mr. Shailesh Bhandari had acted oppressively by removing Mr. Mukesh Bhandari as the Managing Director and preventing him from accessing the company’s premises. The Tribunal noted the family dispute and multiple applications filed, emphasizing that the interim order aimed to ensure no prejudice to the company during the pendency of the main petitions. The Tribunal did not delve into the merits of the oppression and mismanagement allegations, as the main petitions were still pending adjudication.5. Appointment and Removal of Directors and Signatories:The dispute included the removal of Mr. Mukesh Bhandari as an authorized signatory and the appointment of independent directors. The Tribunal upheld the interim order directing the appointment of Mr. Siddarth Bhandari as a joint signatory, noting that such directions were necessary to protect the company’s interests. The Tribunal emphasized that the interim reliefs did not amount to granting the main reliefs sought in the petitions and were aimed at maintaining the status quo until the final adjudication.Conclusion:The Tribunal upheld the interim order passed by NCLT, emphasizing its inherent powers and the necessity to ensure the company’s smooth functioning during the pendency of the main petitions. The appeals and interim applications were disposed of with directions for NCLT to adjudicate the main petitions expeditiously within three months. The Tribunal directed the Registry to upload the judgment and send a copy to NCLT, Ahmedabad.