2019 (2) TMI 1183 - AT - Companies Law

NCLT upholds termination of agreement in oppression case, affirms Board's authority

The National Company Law Tribunal (NCLT) dismissed a Company Petition alleging oppression and mismanagement by the Respondents. The termination of the ... Oppression and mismanagement - Holding BOD meetings outside India - Company incurred heavy expenses for shifting the Office - HELD THAT:- Nothing is shown that there is any restriction on the place where Board of Directors should hold their meetings. Respondents has rightly pointed out even earlier meetings which were being held in Malaysia and which were held without any grievances. The disputes now being raised regarding travelling and other allowances, we find, are only for the purpose of raising grievances. The point, which is pinching the original Petitioner, is the termination of the agreement and rest of the disputes, it appears to us, are being raised to drag the matter to the NCLT. Even regarding the meetings dated 29.12.2010 and 31.03.2011, we have already referred to Notices being sent to the representatives of the original Petitioner. The pleadings of the original Petitioner itself showed receipt of Notices and added that the Petitioner had informed its inability to attend the meeting on 29.12.2010 and had sent its comments/submissions. Even regarding the Meetings of 31.03.2011, the Petitioner had informed by communication dated 24.03.2011 claiming that there was no need to hold the meeting. As regards the letter of protest dated 14.06.2011, original Respondent No.7 accepted receipt of letter dated 06.06.2011 proposing to hold meeting on 29.06.2011 in Malaysia. This Respondent claimed that he was travelling abroad and could not attend the Meeting at Malaysia and sought leave of absence. He noted that he could participate by teleconferencing and wanted to know the procedure. He wanted the Company to inform the policy regarding payment of to and fro air fare, hotel and other dues, etc. Alternately, he suggested holding of the Meeting at Hyderabad. With regard to the Agenda which had been proposed, he offered his comments Agenda-wise. With regard to the Agenda No.5, he mentioned that he was interested as Managing Director of “Starlite Global Enterprises (India) Ltd.” He stated that he should not comment with regard to the portion of material events and commitment in the Directors Report. Thus, he had sought leave of absence with so many other queries being raised. Going through the material, we do not find that there was anything procedural which could be termed as illegal or in the facts of the matter of such a nature which could be called oppressive. No oppression and mismanagement is proved. We do not find any substance in the arguments raised by the Counsel for the Appellants in this Appeal. Issues Involved:1. Allegations of oppression and mismanagement.2. Validity of the termination of the Deed of Novation cum Joint Development Agreement.3. Procedural propriety of Board Meetings and their decisions.4. Jurisdiction of NCLT in light of pending arbitration proceedings.Detailed Analysis:1. Allegations of Oppression and Mismanagement:The Petitioner filed a Company Petition alleging oppression and mismanagement by the Respondents in the management of the Company. The Petition was dismissed by the National Company Law Tribunal (NCLT), Hyderabad Bench, leading to the present Appeal. The Petitioner alleged that the Respondents, particularly the nominee Directors of the ultimate holding company, acted unilaterally and without the knowledge of the Petitioner’s nominee Directors, leading to decisions that harmed the Company's interests.2. Validity of the Termination of the Deed of Novation cum Joint Development Agreement:The Petitioner contested the termination of the Deed of Novation cum Joint Development Agreement dated 9th April 2007. The termination notice was issued on 3rd August 2010, and the termination was ratified in a Board Meeting held on 2nd September 2010. The Petitioner argued that the termination should have been decided in a General Meeting of shareholders as it would result in the loss of the Company’s substratum. The Respondents contended that the termination was within the Board's powers and was necessary to protect the Company's interests.3. Procedural Propriety of Board Meetings and Their Decisions:The Petitioner raised concerns about the procedural propriety of several Board Meetings, including those held on 2nd September 2010, 29th December 2010, 31st March 2011, and 29th June 2011. The Petitioner objected to the meetings being held in Malaysia and argued that the termination of the Development Agreement should have been discussed in a General Meeting. The Respondents countered that the meetings were properly convened, notices were duly sent, and the decisions were within the Board's powers. NCLT found that the meetings were conducted in accordance with the Articles of Association and the Companies Act, and the decisions did not constitute oppression or mismanagement.4. Jurisdiction of NCLT in Light of Pending Arbitration Proceedings:The Petitioner argued that certain observations made by NCLT in paragraphs 24 and 28 of the Impugned Order were erroneous and could affect the arbitration proceedings pending before the Arbitral Tribunal. NCLT observed that the agreements in question were interlinked with the Petitioner, Telangana Spinning, and the Respondents, and the cause of action arose from the same agreements. The Tribunal emphasized that its observations were made in the context of deciding the allegations of oppression and mismanagement and should not influence the arbitration proceedings.Conclusion:NCLT concluded that no case of oppression and mismanagement was made out. The procedural propriety of the Board Meetings was upheld, and the decisions taken were found to be within the Board’s powers. The Tribunal also clarified that its observations regarding the agreements should not affect the pending arbitration proceedings. The Appeal was dismissed with no orders as to costs.