2019 (1) TMI 926 - AT - Companies Law

Tribunal rules in favor of Appellant, finding Respondents guilty of oppression and unauthorized share transfer

Shri Surjeet Singh Versus Prowess International Pvt. Ltd., Mr. Prakash Kumar, Ms. Usha Rani Jha And Mr. Manoj Kumar Jha

The Tribunal found Respondents 2 to 4 guilty of oppression, directing the purchase of the Appellant's shares based on a valuation report. It set aside an ... Oppression and mismanagement - maintainability of transfer of shares from Respondent No.4 to Respondent No.3.- status of payment of remuneration to the Appellant - siphoned off the money in the name of salaries of Directors - Held that:- No doubt as per Sub-Section (9) of Section 309 of the old Act, the provisions regarding remuneration of Directors under the old Act was not applicable to private companies unless it was subsidiary of a public company. But then, it has been argued by the Counsel for Appellant that keeping the yardsticks as found in these provisions and capital of the Respondent Company in view, the remuneration which Respondents 2 and 3 took could not have been more than ₹ 1,25,000/- per month but each of them took more than ₹ 3 Lakhs per month. As argued that Respondents 2 and 3 in this manner siphoned off the money to themselves in the name of salaries of Directors by shutting out the Appellant from participating and then not declaring any dividends. We find that the submissions are not without basis. The Respondents have to act in trust and they cannot deprive the Appellant, one third shareholder in the Company by neither giving him participation nor remuneration nor dividends. Such diverting of profits to salary and not declaring dividends, in the facts of the matter, must be held to be oppressive of Appellant. Going through the reasonings recorded, we do not think that the learned NCLT appreciated the matter in proper perspective. The Petitioner who had himself fairly put up all the e-mails and copies of the Board Resolutions, which Respondents 2 and 3 brought about by way of majority, has been presumed to be in the wrong. The very fact which is admittedly on record and which shows that when the relations strained, the parties did sit down together and on 2nd January, 2014 (Appeal Page – 213). Board Resolution was passed to appoint Valuer of the Company including of tangible and intangible assets and liability and Vani Consultants Private Limited was assigned the job, shows admitted position between the parties that they did accept between themselves that they could no longer continue together and need to split. The Valuation Report is of July, 2014. According to the Appellant in spite of receiving the Valuation Report, the Respondents did not act upon the same and it was not placed before the Board. Respondents 2 and 3 did act oppressively with the Appellant before Company Petition was filed as well as during pendency of the Company Petition and for such acts of theirs there was tacit consent of Respondent No.4 and thus he is also guilty of oppression. We find that winding up of the Company would unfairly prejudice the members of the Company but otherwise the facts justify making a winding up order on the ground that it is just and equitable that the Company should be wound up. We set aside the transfer of shares from Respondent No.4 in favour of Respondent No.3. The Appellant is entitled to function as Director and is entitled to remuneration as Director equal to what has been paid to Respondent No.3 from August, 2014 till his shares are purchased by Respondent Nos.2 and 4 from the funds of the Company. We remit back the matter to NCLT, Kolkata Bench. NCLT will first give opportunity to the Respondent Nos.2 and 4 to purchase shares of the Appellant of Respondent No.1 company on the basis of Valuation Report (Annexure A-11) (filed in this Appeal with Diary No.2428) within time preferably of 3 months (or as may be specified by NCLT). If the Respondents 2 and 4 fail to purchase the shares of the Appellant in time as may be specified by NCLT, opportunity will be given to the Appellant to buy out, in time to be specified by NCLT, the shares of Respondents 2 and 4 in which contingency he would be entitled to purchase the shares of Respondent No.2 and 4 on a discount of 5% on the value as specified in the Valuation Report. NCLT may pass any and further suitable Orders deemed fit in the context, and matter. Parties to appear before NCLT, Kolkata on 19.11.2018.Respondents 2 and 3 each will pay costs of Appeal ₹ 1 Lakh each to Appellant from their own sources. Issues Involved:1. Allegations of oppression and mismanagement.2. Withdrawal of functional responsibilities and remuneration.3. Unauthorized transfer of shares.4. Allegations of diversion of business opportunities.5. Valuation and purchase of shares.Issue-wise Detailed Analysis:1. Allegations of Oppression and Mismanagement:The Appellant filed a Company Petition alleging oppression and mismanagement by Respondents 2 to 4 in the Company. The Appellant claimed that Respondents 2 and 3 systematically excluded him from the management, despite his significant contributions to the Company. The Tribunal found that Respondents 2 and 3 acted oppressively by withdrawing the Appellant’s functional responsibilities and stopping his remuneration without seeking modification of the status quo order from the Company Law Board (CLB). The Tribunal noted that the Respondents should have acted in trust and not deprived the Appellant of participation, remuneration, or dividends.2. Withdrawal of Functional Responsibilities and Remuneration:The Appellant argued that Respondents 2 and 3 withdrew his functional responsibilities and stopped his remuneration since August 2014, despite an interim order from the CLB directing the maintenance of the status quo regarding the shareholding pattern and the composition of the Board of Directors. The Tribunal found that the Respondents acted in an oppressive manner by converting the status quo order into a paper order, thereby justifying the Appellant’s claims.3. Unauthorized Transfer of Shares:The Appellant alleged that Respondents 2 and 3 violated the CLB’s order by transferring shares from Respondent No.4 to Respondent No.3. The Tribunal found that the share transfer form was stamped by the Registrar of Companies on 06.11.2014, but the transfer was dated 20.03.2014 and approved on 25.03.2014, which was suspicious and indicated a violation of the CLB order. The Tribunal set aside the transfer of 333200 shares from Respondent No.4 to Respondent No.3.4. Allegations of Diversion of Business Opportunities:Respondents 2 and 3 accused the Appellant of diverting business opportunities to another company, Enteco Engineers Pvt. Ltd. The Tribunal noted that the Appellant had resigned from Enteco on 15.03.2014 and found no substantial evidence to support the allegations. The Tribunal concluded that the allegations were based on suspicions and did not establish misconduct by the Appellant.5. Valuation and Purchase of Shares:Both parties agreed on a valuation report for the Company’s assets and liabilities, but the Respondents did not act on it, claiming financial difficulties. The Tribunal found that the Respondents’ failure to act on the valuation report was unjustified. The Tribunal directed Respondents 2 and 4 to purchase the Appellant’s shares based on the valuation report within a specified time. If they failed, the Appellant would be entitled to purchase the shares of Respondents 2 and 4 at a 5% discount.Conclusion:The Tribunal found Respondents 2 to 4 guilty of acts of oppression and directed the purchase of the Appellant’s shares based on the valuation report. The Tribunal also set aside the unauthorized transfer of shares and ordered the payment of costs to the Appellant. The matter was remitted back to the NCLT, Kolkata Bench, for further proceedings.