2019 (5) TMI 1048 - Tri - Companies Law

Company facing oppression and mismanagement appoints independent Chairman; regulatory bodies investigating.

Shri Viney Kaushal, Shri Manjunatha Moodabagil And Shri Udaya Shankar Versus M/s. World Schools Private Limited, Venkatesh Koravadi, Shri Prakash Palimar And World School Foundation, Bangalore

The Tribunal found evidence of oppression and mismanagement in the company, appointing an independent Chairman to oversee operations pending ... Oppression and mismanagement - whether the actions of the contesting Respondents are oppressive in nature? - allotment of shares - rectification of Register of Members - validity of Board Meetings and General Meeting that are held without issuing notices to the Petitioner Directors - HELD THAT:- The affairs of the Company are not being conducted in accordance with law as the Petitioners are out of the Country and they are not permitted/given sufficient opportunity to be involved in the affairs of the Company. The contention of the Respondent that they were given due notices and they have participated in all the meetings is not born out of the record. It is true that the Petitioners were given notice for some of the meetings. However, the Respondent failed to substantiate their averments by producing substantial evidence except some emails, which has little evidentiary value. The 2nd Respondent has not given any suitable explanation as to why the Respondent No.2 was allotted shares at par without premium and allot shares to the Petitioners at premium except simply stating that it is a mistake and unintentional but no action was taken to rectify it so far. The Respondents are resorting to acts of oppression and mismanagement which are further to be investigated by the Registrar of Companies and Principal Director of Income Tax (Investigation) with whom the complaints are already pending submitted by the Petitioner. It would be just and proper to prevent the present management to perpetuate further acts of oppression and mismanagement and to prevent misuse of funds, by making an interim arrangement by appointing independent Chairman as to see the affairs of the Company should be conducted in accordance with law. Prof. (Dr.) O.V. Nandimath, Professor of Law & Registrar, National Law School of India University, Nagarbhavi, Bangalore-560242, are appointed as independent Chairman for M/s. World Schools Private Limited to look after the affairs of the Company, till the investigations are completed by the Statutory Authorities - Petitioners are hereby granted liberty to file a fresh Company Petition, if they are ultimately aggrieved by action taken by the Statutory Authorities viz. Registrar of Company (ROC), Principal Director of Income Tax (Inv.). Registrar of Companies (ROC), Principal Director of Income Tax (Inv.) are directed to expedite the investigations and take appropriate action in accordance with law. Issues Involved:1. Allegations of oppression and mismanagement.2. Validity of Board Meetings and General Meetings.3. Disparity in share allotment.4. Financial irregularities and audit findings.5. Constitution and management of the Trust.6. Continuous cause of action and limitation.7. Appointment of an independent Chairman and investigation by statutory authorities.Detailed Analysis:1. Allegations of Oppression and Mismanagement:The Petitioners alleged that the Respondents conducted the affairs of the company in a manner prejudicial to their interests and the interests of the company. They claimed that the Respondents made decisions unilaterally, without proper approval from other directors and shareholders, and engaged in acts of mismanagement and financial irregularities. The Petitioners sought various reliefs, including the return of misappropriated funds and the appointment of an independent auditor.2. Validity of Board Meetings and General Meetings:The Petitioners contended that several Board Meetings and General Meetings were held without proper notice to them, rendering such meetings and their decisions null and void. They argued that they were denied the opportunity to attend and raise their grievances. The Respondents, however, maintained that due notices were given, and the Petitioners' absence was due to their own negligence.3. Disparity in Share Allotment:The Petitioners challenged the allotment of shares to the 2nd Respondent without premium, while other investors, including the Petitioners, were allotted shares at a premium. They argued that this disparity was not discussed in any Board Meeting and was decided unilaterally by the 2nd Respondent, amounting to an act of oppression. The Respondents admitted the discrepancy but claimed it was unintentional and did not take steps to rectify it.4. Financial Irregularities and Audit Findings:An independent audit conducted by M/s. Vinay & Keshava, Chartered Accountants, revealed several financial irregularities, including unmatched accounts, unsupported entries, and lack of proper documentation. The audit report highlighted issues such as unauthorized cash transactions, discrepancies in expenditures, and questionable related party transactions. The Petitioners argued that these findings indicated mismanagement and required further investigation.5. Constitution and Management of the Trust:The Petitioners alleged that the Respondents appointed themselves as Trust Members without proper approval and misappropriated funds from the Trust. They argued that the affairs of the Trust were also being conducted prejudicially and sought the appointment of an interim committee to manage the Trust. The Respondents contended that disputes related to the Trust should be dealt with under the Indian Trusts Act, 1882, and not in a petition related to oppression and mismanagement.6. Continuous Cause of Action and Limitation:The Petitioners argued that the acts of oppression and mismanagement were continuous and within the period of limitation. They cited the latest act of oppression discovered on 30.09.2017, involving the merger of accounts for loan purposes, as evidence of ongoing issues. The Respondents, however, claimed that the petition was barred by laches and limitation, as the Petitioners were aware of the issues for several years.7. Appointment of an Independent Chairman and Investigation by Statutory Authorities:The Tribunal found prima facie evidence of oppression and mismanagement and deemed it necessary to prevent further misuse of funds. It appointed Prof. (Dr.) O.V. Nandimath as an independent Chairman to oversee the affairs of the company until the completion of investigations by the Registrar of Companies and the Principal Director of Income Tax (Investigation). The Tribunal directed the statutory authorities to expedite their investigations and take appropriate action in accordance with the law.Conclusion:The Tribunal disposed of the petition with specific directions, including the appointment of an independent Chairman, reimbursement of his fees from the company's funds, and liberty for the Petitioners to file a fresh petition if aggrieved by the actions of the statutory authorities. The Tribunal emphasized the need for investigations to ensure the affairs of the company were conducted in accordance with the law and to protect the interests of the shareholders and the general public.