2020 (9) TMI 749 - Tri - Companies Law

Petition Dismissed with Liberty to Reapply

The Tribunal dismissed the petition, granting the petitioner liberty to reapply after the judgment in the winding-up petition is delivered. Parties were ... Power of Tribunal under section 97 to call annual general meeting - Default in holding annual general meeting under section 96 - Exercise of judicial discretion in presence of board deadlock - Concurrent winding up proceedings as a factor in discretionary reliefDefault in holding annual general meeting under section 96 - Existence of a default in holding the annual general meeting of the company for the relevant years - HELD THAT: - The Tribunal recorded that there is an admitted default within the meaning of section 96 of the Companies Act, 2013 in conducting the AGM of the company, with both sides blaming each other for the default. The pleadings and correspondence regarding financials were noted, and the Registrar of Companies had issued a show-cause notice regarding striking off the company, demonstrating failure to complete statutory compliances. The Tribunal therefore accepted that the condition precedent for invocation of section 97 - existence of a default in holding the AGM - is satisfied. [Paras 7]There is a default in holding the annual general meeting as contemplated by section 96.Power of Tribunal under section 97 to call annual general meeting - Exercise of judicial discretion in presence of board deadlock - Concurrent winding up proceedings as a factor in discretionary relief - Whether the Tribunal should exercise its discretionary power under section 97 to call the AGMs despite the management deadlock and pending winding-up proceedings - HELD THAT: - Although section 97 empowers the Tribunal to call an AGM where default exists, the exercise of that power is discretionary and must be used with circumspection. The Tribunal noted an entrenched management deadlock between equal shareholders and directors, the absence of any realistic prospect of reviving the company's business as averred on affidavit by the opposing shareholder, and the pendency of a separate petition for winding up the company under sections 271-272 before a coordinate bench. In that factual and procedural matrix, the Tribunal concluded that directing AGMs would serve only a limited purpose, potentially prolonging the company's paralysis and delaying the inevitable. Consequently, the Tribunal declined to exercise its section 97 powers at this stage and stayed action pending the outcome of the winding-up proceedings, while preserving liberty to approach again. [Paras 7, 8]The petition under section 97 is not allowed at this stage; the Tribunal declines to order the AGMs and dismisses the petition with liberty to apply again after the coordinate bench pronounces judgment in the winding-up proceedings.Final Conclusion: The Tribunal found an admitted default in holding AGMs but in the exercise of its discretion under section 97 declined to order the AGMs in view of a persistent board deadlock and pending winding-up proceedings; the petition is dismissed with liberty to reapply after the coordinate bench issues its decision, and the parties remain free to hold AGMs by mutual agreement. Issues Involved:1. Direction to call Annual General Meetings (AGMs) for multiple financial years.2. Authorization for the petitioner to constitute quorum and complete annual compliances.3. Deadlock in the management of the Respondent No.1 Company.4. Pending litigation and winding-up petition against Respondent No.1 Company.Issue-Wise Detailed Analysis:1. Direction to Call Annual General Meetings (AGMs) for Multiple Financial Years:The petitioner sought a direction under section 97 of the Companies Act, 2013, to call AGMs for the financial years 2013-14 to 2017-18. The Tribunal noted the default in holding AGMs as mandated by section 96 of the Companies Act, 2013, which necessitates annual general meetings to be held within specified timeframes. The Tribunal acknowledged the deadlock in the management, leading to the failure in conducting AGMs, but emphasized that merely ordering AGMs would not resolve the underlying issues due to the entrenched positions of both parties.2. Authorization for the Petitioner to Constitute Quorum and Complete Annual Compliances:The petitioner also requested authorization to constitute the quorum for AGMs and complete necessary filings with the Registrar of Companies (RoC). The Tribunal recognized the statutory provisions under section 97 which empower it to direct the calling of AGMs and provide ancillary directions, including quorum constitution. However, given the deadlock and the ongoing disputes, the Tribunal expressed skepticism about the practical utility of such orders in the present context.3. Deadlock in the Management of the Respondent No.1 Company:The Tribunal highlighted the deadlock situation caused by the equal representation of shareholders on the board, leading to a standstill in business decisions and statutory compliances. The deadlock was exacerbated by the lack of communication and cooperation between the parties, with Respondent No.4 starting a competing business and Respondent No.3 insisting on a Joint Venture Agreement with exclusive rights, which was unacceptable to Respondent No.4. The Tribunal noted that the deadlock had led to a notice from RoC for striking off the company’s name from the register.4. Pending Litigation and Winding-Up Petition Against Respondent No.1 Company:The Tribunal took cognizance of the pending litigation, including a winding-up petition filed by Respondent No.4 under sections 271-272 of the Companies Act, 2013, on just and equitable grounds. The Tribunal emphasized that any order to conduct AGMs would only serve a limited purpose and would not address the fundamental issues due to the ongoing disputes and the pending winding-up petition. The Tribunal decided to defer the decision on the present petition until the adjudication of the winding-up petition by a coordinate bench.Order:The Tribunal dismissed the present petition, granting liberty to the petitioner to approach the Tribunal again after the judgment in the winding-up petition (CP No.2530/2018) is pronounced. It also allowed the parties to conduct the pending AGMs if they come to terms, with the leave of the Tribunal. The petition CP 2183/97/MB.IV/2019 was accordingly dismissed, and the file was consigned to the record.