2020 (9) TMI 602 - AT - Insolvency and Bankruptcy

NCLT Kolkata dismisses appeals on shareholding and Board decisions, finding no irregularities.

The National Company Law Tribunal (NCLT), Kolkata, dismissed the appeals seeking interim reliefs and declarations regarding the shareholding and Board ... Removal of director under Section 169 of the Companies Act, 2013 - Entitlement of a director to be heard on a resolution to remove under Section 169(3) - Validity of convening and notice for Extra Ordinary General Meeting - Interim injunctive relief in proceedings under Sections 241, 242 and 244 - Principle of quasi partnership/closely held company and protection against removal of nominee directorRemoval of director under Section 169 of the Companies Act, 2013 - Entitlement of a director to be heard on a resolution to remove under Section 169(3) - Validity of convening and notice for Extra Ordinary General Meeting - Validity of the process by which original Petitioner No.4 was removed as director of respondent No.1 - HELD THAT: - The Tribunal examined whether the notice and procedure for convening the EGM to consider removal of the director complied with the statutory entitlement under Section 169(3). The record shows that a Special Notice dated 21.5.2020 and the intimation dated 26.5.2020 convening the meeting were served on the director concerned and the meeting was ultimately held (adjourned to 7.7.2020). The director received the notice but did not make any representation at the meeting. The EGM passed the resolution for removal by majority. The Appellate Tribunal found no illegality in service of notice, in convening the meeting or in the conduct of the EGM, and noted that the director was afforded the statutory opportunity to be heard but did not avail it. Having considered the contentions about harassment, alleged improper agenda circulation and complaints as pleaded by the appellants, the Tribunal held that those matters did not establish procedural illegality in the removal under the statutory mechanism. Consequently the impugned order dismissing the appellants' interim application was not interfered with on this ground.The removal of original Petitioner No.4 was held to have been effected in accordance with the statutory notice and meeting procedure; no illegality was found and the impugned order in respect of that relief is upheld.Interim injunctive relief in proceedings under Sections 241, 242 and 244 - Principle of quasi partnership/closely held company and protection against removal of nominee director - Whether the Appellate Tribunal should decide the merits of the pending Company Petition under Sections 241, 242 and 244 or grant interim relief restraining actions of the majority shareholders - HELD THAT: - The Tribunal noted that the main Company Petition under Sections 241, 242 and 244 remains pending before the NCLT and declined to express any definitive view on the merits of that petition. While the appellants urged invocation of quasi partnership principles to protect nominee directors, the Tribunal observed that the Resolution Plan and related documents did not confer specific ongoing management rights on either party and that the facts did not demonstrate a family style quasi partnership bringing the dispute within that doctrine. The Appellate Tribunal therefore confined itself to deciding only the limited question of the removal process and did not adjudicate the substantive company petition; the petition and its attendant issues were left to be decided by the NCLT.The Tribunal refrained from deciding the pending company petition or granting the interim measures sought; those matters remain for determination by the NCLT and the appeal does not warrant interference with the dismissal of the interim application.Final Conclusion: The appeals are dismissed. The impugned order dismissing the interim application is upheld; no illegality was found in the notice and EGM procedure removing the director. The substantive company petition under Sections 241, 242 and 244 remains pending and is to be decided by the NCLT; any interim orders, if any, stand vacated. Issues Involved:1. Interim reliefs for maintaining status quo and declaring Board decisions void.2. Validity of Board meeting and resolutions.3. Removal of nominee director.4. Allegations of oppression and mismanagement.5. Quasi-partnership and rights of shareholders.6. Procedural propriety of Extraordinary General Meeting (EGM).Detailed Analysis:1. Interim Reliefs for Maintaining Status Quo and Declaring Board Decisions Void:The appellants sought interim reliefs to maintain the status quo regarding the shareholding and Board constitution of the 1st respondent company. They also sought declarations that the Board meetings and resolutions passed on February 8, 2020, and June 2, 2020, were illegal and void. The National Company Law Tribunal (NCLT), Kolkata, dismissed the application, stating it was not a fit case for interim relief.2. Validity of Board Meeting and Resolutions:The appellants argued that the Board meetings held on February 8, 2020, and June 2, 2020, were conducted without proper agenda circulation and aimed at removing the nominee director of the appellants. The respondents countered that the meetings were validly convened and the resolutions passed were in accordance with the law. The Tribunal found no irregularity in the convening and conduct of the meetings.3. Removal of Nominee Director:The appellants contended that the removal of their nominee director was an act of oppression and was done without giving her a fair opportunity to represent herself. The respondents argued that the removal was done following the legal provisions under Section 169 of the Companies Act, 2013. The Tribunal noted that proper notice was issued, and the EGM voted for the removal with a majority, finding no illegality in the process.4. Allegations of Oppression and Mismanagement:The appellants alleged that the 2nd respondent was trying to oust them from the business and had harassed their nominee director. The respondents denied these allegations, stating that the appellants had embezzled funds and engaged in related party transactions. The Tribunal did not delve into these allegations in detail, noting that the main company petition under Sections 241, 242, and 244 of the Companies Act, 2013, was still pending.5. Quasi-Partnership and Rights of Shareholders:The appellants claimed that the 1st respondent company was a quasi-partnership, and their nominee director could not be removed without reason. The respondents argued that the company was not a quasi-partnership and that the appellants had no significant stake in the company. The Tribunal observed that the resolution plan did not specify any involvement rights for either party in the company's management.6. Procedural Propriety of Extraordinary General Meeting (EGM):The appellants argued that the EGM held on July 7, 2020, was procedurally improper and aimed at removing their nominee director without due process. The respondents maintained that all legal procedures were followed, and the appellants did not attend the EGM despite receiving notice. The Tribunal found that the EGM was properly convened, and the removal of the nominee director was lawful.Conclusion:The Tribunal dismissed the appeals, finding no merit to interfere with the impugned order. It observed that the appellants had not demonstrated any procedural irregularities or illegalities in the removal of their nominee director. The main company petition would continue to be decided by the NCLT, Kolkata. The appeals were dismissed with no order as to costs, and any interim orders stood vacated.