2016 (9) TMI 460 - Tri - Companies Law

Court Orders Interim Board to Resolve Deadlock in Company Management

The court addressed allegations of mismanagement and oppression, lack of a functional Board of Directors, disputes over director appointments, fabrication ... Oppression/mismanagement - Held that:- One thing which is evident from the pleadings is that as on today there is a deadlock and the interests of the company (respondent No. l) are at stake. It is also a fact that no Board of Directors is functioning. The other directors like Ms. Doris Chung Gim Lian and Ms. Kah Chuan Kenneth Ho or Mr. Ashish Mittal have been the additional directors and there is a dispute in respect of their continuation because one version is that they could not be confirmed in the Board Meeting which was required to be held in September 2015. According to Share Purchase agreement it is a part obligation of the petitioner and their sole responsibility to infuse fund in Respondent No. l-Company. The petitioner has pointed out that various Institutions of Engineering, MBA, BBA, designing course have been adversely affected on account of non-functioning of Respondent No. 1. Therefore in order to make respondent No. l-company functional a Board of directors is necessary. Therefore we deem it appropriate to pass the following interim orders by invoking the powers under section 241(g) & (h) read with section 242 of 2013 Act:- 'The petitioner shall nominate two directors on the Board of Directors of Respondent No. l-company but shall not name Ms. Doris Chung Gim Lian. Likewise Respondent Nos. 2 & 3 shall nominate one more director in addition to Mr. Shantanu Prakash-Respondent No. 4 but they shall not nominate Mr. Ashish Mittal-Respondent No. 10. Ms. Doris Chung Gim Lian (petitioner's nominee) and Mr. Ashish Mittal (Respondents' nominee) have been excluded because for the time being there is some controversy about both of them either raised in the petition or before the Ministry of Corporate affairs. Their temporary exclusion shall not construe to their prejudice because this court aims to achieve peaceful conduct of the affairs of Respondent No. 1-company. The needful shall be done within two weeks from today and thereafter the Board Meeting may be held, if necessary even in accordance with the provisions of section 173(2) of the 2013 Act read with Rule 3 of Companies (Meetings of Board and its Powers) Rule 2014 It is further directed that the Board meeting shall be chaired and initiated by the nominee of the petitioner as they have 58.18% shareholding and they have also undertaken complete responsibility of funding Respondent No. l-company as is clear from the Share Purchase Agreement. According to clause 3.1.2 the funding of the operations of Respondent No. l-company shall be exclusive responsibility of the purchaser i.e. petitioners. The aforesaid directions shall operate till the next date of hearing'. Issues:- Allegations of mismanagement and oppression by Respondent Nos. 2 & 3.- Lack of functional Board of Directors in the company.- Dispute regarding the appointment and confirmation of directors.- Allegations of fabrication and fudging of records by both parties.- Deadlock in the company's affairs affecting its interests.- Need for an interim order to resolve the deadlock and ensure the company's functionality.Analysis:1. Allegations of Mismanagement and Oppression: The petitioner alleged that Respondent Nos. 2 & 3 conducted the company's affairs oppressively and detrimentally. Mismanagement and conspiracy were claimed, with specific reference to the absence of a functional Board of Directors and the appointment of directors without proper confirmation.2. Lack of Functional Board of Directors: The petitioner highlighted the absence of a functional Board of Directors since October 2015, raising concerns about the company's governance and decision-making processes. The petitioner argued that the composition of the Board did not adhere to the Articles of Association, leading to further disputes.3. Dispute over Director Appointments: Disputes arose regarding the appointment and confirmation of directors, particularly the nomination of Ms. Doris Chung Gim Lian and Mr. Ashish Mittal. The petitioner and respondents disagreed on the validity of these appointments, leading to a deadlock in the company's governance.4. Allegations of Fabrication and Fudging of Records: Both parties accused each other of fabricating and fudging records to support their respective positions. The petitioner claimed that documents related to director resignations and appointments were antedated, while the respondents alleged fabrication by the petitioner and their nominee.5. Deadlock Impacting Company's Interests: The court recognized the deadlock in the company's affairs, emphasizing the critical need for a functional Board of Directors to safeguard the company's interests. The non-functioning of the Board was highlighted as detrimental to the company's operations and various educational institutions under its purview.6. Interim Order to Ensure Functionality: In light of the deadlock and the necessity for a functional Board, the court issued interim orders under section 241(g) & (h) read with section 242 of the 2013 Act. The order mandated the nomination of directors by both parties, excluding certain controversial nominees, to facilitate the functioning of the Board within a specified timeframe.7. Future Legal Proceedings: The court directed the filing of written statements by other respondents within four weeks, followed by rejoinders from all parties. This procedural step aimed to ensure a comprehensive exchange of arguments and evidence before the next hearing date, maintaining transparency and fairness in the legal process.