2016 (12) TMI 1427 - Board - Companies Law

Invalid Director Appointment, Share Transfer; Oppressive Management; Remedial Actions Ordered

Dinesh Dhabhai Versus Dadhikar Hotels Pvt. Ltd. and ORS.

The Board found that the appointment of R3 as a director and the transfer of shares from R2 to R3 were invalid due to lack of Board approval and ... Reliefs seeked including declaring appointment of R3 as invalid and also resignation of R2 as director from R1-Company as null and void - Held that:- It is the petitioner who suffered in between these two brothers i.e. R2 &R3. Since R2 admitted in his affidavit that he was forced to sign on some papers, it is in between R2 & R3 to decide whether any transfer taken place or not. As long as such transfer in a private company governed by clause 7 of Articles of Association has not come before the Board for approval, the transfer in between them cannot be considered as valid. For there being a grave allegation against R3 that he has siphoned more than ₹ 85 lacs from the company by withdrawing from the Bank, A. Bafna &Co., Chartered Accountants. K-2, Keshav Path, Ahinsa Circle, C-Scheme, Keshav Path-302001, Jaipur, Rajasthan (Ph. : 01414003005) is hereby appointed to find out as to whether funds of the company have been swindled by R3. Since R3 is no body in the company, he has no right to operate bank account and conduct the affairs of the company; he is answerable to his acts in the company. To know as to whether R3 siphoned the funds of the company, the Chartered Accountant is directed to inspect the accounts and file his report within two months from hereof. As to remuneration. R1-company is directed to pay remuneration as agreeable to the Chartered Accountant. R3 has asked this Bench to investigate the whole affairs of the company, forgetting R3 is neither a shareholder nor a director in the company. For he being nobody in the company, he cannot seek any relief u/s 397 and 398 of the Act. Therefore, no investigation has been ordered in relation to the affairs of the company as asked by R3. For having R2 filed affidavit today, R3 has asked time to file reply to the affidavit. Since this Bench has not gone against R3 basing on the averments of the affidavit filed by R2, the reply by R3 to R2 reply will not make any difference to the findings made by this Bench because this case has been decided solely on the ground that the petitioner's consent was not there, either for appointment of R3 as director or for the alleged transfer of shareholding from R2 to R3. For these two reasons, the allegations inter se in between R2 and R3 do not have any bearing on the present adjudication. This petition is hereby disposed of directing R3 or through any other person, not to deal with the affairs of the company or its Hotel situated at Alwar from hereof. Issues Involved:1. Validity of the appointment of R3 as a director.2. Validity of the resignation of R2 as a director.3. Allegations of unauthorized operation of the company's account and siphoning of funds by R2 and R3.4. Allegations of misuse of digital signatures and conspiracy by R3.5. Compliance with the Articles of Association and the Companies Act.6. Allegations of oppression and mismanagement by R3.7. Request for investigation into the company's affairs by R3.Issue-wise Detailed Analysis:1. Validity of the appointment of R3 as a director:The petitioner contended that the appointment of R3 as a director was invalid as it was done without the approval and consent of the Board and without following the procedure laid down under the Companies Act and the Articles of Association of the company. The petitioner highlighted discrepancies in the filing of Form DIR-12, showing R3's appointment and R2's resignation. The Board found that there was no specific document showing the petitioner’s consent for R3’s appointment as a director, making the appointment invalid in the eyes of the law.2. Validity of the resignation of R2 as a director:The petitioner argued that R2's resignation was also invalid as it was not approved by the Board. R2 supported this by stating that he never tendered his resignation and that no Board meeting was convened to accept such resignation. The Board concluded that without a Board resolution, R2’s resignation could not be considered valid.3. Allegations of unauthorized operation of the company's account and siphoning of funds by R2 and R3:The petitioner alleged that R2 and R3 operated the company’s account unauthorizedly and siphoned off significant amounts of money. The Board appointed a Chartered Accountant to inspect the accounts and determine if funds were swindled by R3, as he had no right to operate the bank account or conduct the affairs of the company.4. Allegations of misuse of digital signatures and conspiracy by R3:R2 claimed that R3, in connivance with the company’s Chartered Accountant, misused his digital signatures to upload Form DIR-12 and an Investor Complaint form. R2 also alleged that R3 unilaterally changed the content of the company’s website and falsely claimed himself as the founder of the company’s hotel. The Board noted these allegations but focused on the lack of proper documentation for R3’s appointment and R2’s resignation.5. Compliance with the Articles of Association and the Companies Act:The petitioner emphasized that the appointment of R3 and the resignation of R2 were done without following the procedures outlined in the Companies Act and the Articles of Association. The Board concurred, stating that the approval of the Board was mandatory for such actions, which was not obtained.6. Allegations of oppression and mismanagement by R3:The petitioner accused R3 of mismanagement and fraud, claiming that R3’s unauthorized management of the company’s affairs amounted to oppression and mismanagement. The Board agreed, stating that R3’s actions without being a director or shareholder were detrimental to the interests of the shareholders and amounted to fraud.7. Request for investigation into the company's affairs by R3:R3 requested the Board to investigate the company’s affairs, alleging mismanagement and fraud by the petitioner. However, the Board noted that R3, not being a shareholder or director, had no standing to seek such relief under Sections 397 and 398 of the Companies Act. Therefore, no investigation was ordered.Conclusion:The Board concluded that R3’s appointment as a director and the purported transfer of shares from R2 to R3 were invalid due to the lack of Board approval and the petitioner’s consent. The Board also found that R3’s unilateral management of the company’s affairs amounted to oppression and mismanagement. Consequently, R3 was directed not to deal with the affairs of the company or its hotel. The petition was disposed of with these directions.