2020 (12) TMI 1176 - AT - Companies Law

Tribunal Upholds NCLT Decision on Waiver for Oppression & Mismanagement Petition

The Tribunal upheld the NCLT's decision to grant a waiver under Section 244(1) of the Companies Act, 2013, allowing the First Respondent to file a ... Oppression and mismanagement - fraudulent reduction of the First Respondent shareholding in the First Appellant / Company - Waiver of compliance of Section 244(1) of the Companies Act - injury caused to an affected person by the concerned as visualised in section 241 of the Companies Act, 2013 - time limit - Jurisdiction of Civil Court - Further issue of share capital - Agents - principles of res judicata - HELD THAT:- The concept of ‘oppression’ is larger than the idea of ‘legal rights’ and indeed, the term ‘interests’ is wider than rights. As a matter of fact, the law does not define an ‘oppressive act’. Whether an act is oppressive one or not is fundamentally a question of fact. The law relating to ‘oppression’ is cemented on the principles of equity and fair play as against the strict compliance of law - A Company is merely an abstract of Law. It cannot be gainsaid that right to complain about ‘oppression and mismanagement’ lies with the members of a company. No wonder fairness and probity rather than legality are the key factors to be taken into consideration by a Tribunal in case of oppression. What kind of oppression or prejudice or unfairness is caused in a given case will depend on the injury caused to an affected person by the concerned as visualised in section 241 of the Companies Act, 2013? - HELD THAT:- Undoubtedly, the burden is on the petitioner to prove oppression or mismanagement and the ‘Tribunal’ is to consider the entire material on record and to arrive at a final conclusion. The ‘Rights Issue’ can be examined by the ‘Tribunal’ in a petition u/s 241 of the Companies Act, 2013. Also, that, in law the Tribunal is to ascertain when the right to sue / to file an application accrued to the petitioner. There is no impediment for the Tribunal to consider the preliminary objections raised by a party at a later stage of the main proceedings. If maintainability is a triable issue, the acceptance of a petition or rejection of the same has to be decided along with the issues raised, to be heard with the merits of the case in the considered opinion of this Tribunal. Time limit - HELD THAT:- Although for filing a petition no time limit is specified under Section 241 of the Companies Act relating to ‘oppression and mismanagement’, the residuary Article 113 of the Limitation Act, 1963 concerning ‘when the right to sue accrues’ is to be borne in mind. Jurisdiction of Civil Court - HELD THAT:- Section 9 of the Civil Procedure Code confers jurisdiction upon the civil courts to decide all disputes of civil nature unless the same is prohibited under a statute either expressly or by necessary implication. In short, one cannot infer the bar of civil courts’ jurisdiction and in this regard a strict interpretation is required in regard to a provision seeking to bar the jurisdiction of a civil code - this Tribunal worth recalls and recollects the decision of Hon’ble Supreme Court in DHULABHAI VERSUS STATE OF MADHYA PRADESH AND ANOTHER [1968 (4) TMI 64 - SUPREME COURT] wherein it is observed that where under the scheme of any particular Act, there is no express exclusion of jurisdiction it becomes necessary to examine the scheme of the Act to find out whether it is necessary to spell out intendment to exclude the jurisdiction of the Civil Court. Such exclusion is not readily to be inferred unless the conditions which are mentioned in the said judgement are satisfied. Further issue of share capital - HELD THAT:- Section 62 of the Companies Act, 2013 speaks of ‘Further issue of share capital’. In fact, the ‘Rights Issue’ is not defined under the Companies Act, 2013. The power to issue further shares ought to be exercised for the benefit of the Company, notwithstanding the fact that the ‘Increase of Capital’ is an internal administration matter of the Company. Continuing further, whether the decision of the Board of Directors to increase share capital by way of issuing rights is in the interest of the company or bonafide or otherwise can be ascertained from each and individual set of attendant facts of a given case. Agents - HELD THAT:- It is an axiomatic principle in law that the Directors of a Company are just ‘Agents’ of the Company and they are quite competent to decide the Agency at his / her own end. In fact, Section 168 of the Companies Act, 2013 pertains to ‘Resignation of director’. Res Judicata - HELD THAT:- The aspect of ‘Res Judicata’ is inhibition against the Court / Tribunal and it is certainly a mixed question of facts and law, to be specifically averred in one’s pleading before the competent fora. In fact, ‘Res Judicata’ precludes a person from pleading the same thing in successive litigation. The burden to establish the plea of ‘Res Judicata’ is on the person to raises such plea. No wonder, the doctrine of ‘Res Judicata’ is rested on the principles of equity, good conscience and justice applies to all judicial proceedings equally before the Tribunals - In a petition under Section 241 of the Companies Act, 2013, the petitioner is to furnish (i) relevant materials (ii) to furnish the figures (iii) the allegations are to be proved. The power of a Tribunal under Section 241 of the Companies Act, 2013 is to put an end to ‘oppression and mismanagement’ on the part of controlling shareholders to suppress mischief. An individual who approaches the Tribunal alleging ‘oppression’ must come before it with utmost clean hands and in a bonafide manner. Waiver of requirements to file a petition under section 241 of Companies Act - HELD THAT:- The interest of an applicant in a company whether it is substantial or significant, the issues raised in the petition u/s 241 of the Companies Act, 2013 is the appropriate / competent jurisdiction to deal with them by the Tribunal, and whether the cause / case projected in the petition is of primordial importance to an ‘applicant’ or to the ‘company’ or to ‘any class of members’ etc. are some of the pertinent factors to be taken note of for projecting an application for waiver of the requirements under section 244 of the Companies Act, 2013 - It cannot be forgotten that in genuine and hardship cases, the discretion to waive the conditions specified in Section 244(b) of the Companies Act can be pressed into service. The Tribunal, has exercised its discretion and opined that a meritorious litigation cannot be thrown at threshold without examining the merits of the case and further observed that the First Respondent / Petitioner had made out a prima facie case to entertain the main company petition for its final adjudication - Appeal dismissed. Issues Involved:1. Waiver of statutory requirements under Section 244(1) of the Companies Act, 2013.2. Prima facie case for oppression and mismanagement.3. Jurisdiction of Civil Court vs. National Company Law Tribunal (NCLT).4. Doctrine of Issue Estoppel and Res Judicata.5. Delay and Laches in filing the petition.6. Rights Issue and its legality.7. Allegation of forum shopping.Issue-wise Detailed Analysis:1. Waiver of Statutory Requirements under Section 244(1) of the Companies Act, 2013:The Appellants challenged the NCLT's decision to waive the conditions mentioned under Section 244(1) of the Companies Act, 2013, which allows a shareholder holding less than the requisite percentage of shares to file a petition for oppression and mismanagement. The Tribunal observed that the First Respondent, holding 9% of the total share capital after an alleged unjust reduction from 45%, had made out a prima facie case for waiver. The Tribunal emphasized that a meritorious litigation should not be dismissed at the threshold without examining its merits, thus allowing the waiver application.2. Prima Facie Case for Oppression and Mismanagement:The Tribunal noted that the main Company Petition filed by the First Respondent questioned various acts of oppression and mismanagement. The Tribunal found these allegations prima facie meritorious, warranting a detailed examination during the final hearing. The Tribunal underscored that the Civil Court had no jurisdiction over matters of oppression and mismanagement under the Companies Act, 2013, and that the issues raised by the First Respondent were not frivolous.3. Jurisdiction of Civil Court vs. National Company Law Tribunal (NCLT):The Appellants argued that the Civil Court had already decided the issues, making the present application and main Company Petition non-maintainable. However, the Tribunal clarified that the Civil Court's jurisdiction does not extend to matters of oppression and mismanagement under the Companies Act, 2013. The Tribunal cited Section 430 of the Companies Act, which bars Civil Courts from entertaining suits related to matters within the NCLT's purview.4. Doctrine of Issue Estoppel and Res Judicata:The Appellants contended that the First Respondent was barred from re-litigating the same issues previously decided by the Civil Court. The Tribunal acknowledged that the principles of Res Judicata and Issue Estoppel apply but noted that these doctrines are mixed questions of fact and law, requiring specific pleading and proof. The Tribunal emphasized that such defenses could be raised during the final hearing.5. Delay and Laches in Filing the Petition:The Appellants argued that the petition was filed nearly three years after the alleged acts of oppression, making it liable for dismissal due to delay and laches. The Tribunal, however, pointed out that no specific time limit is prescribed under Section 241 of the Companies Act for filing a petition related to oppression and mismanagement. The Tribunal suggested that the right to sue accrues when the petitioner becomes aware of the oppressive acts.6. Rights Issue and Its Legality:The Appellants claimed that the dilution of the First Respondent's shareholding resulted from her refusal to subscribe to the Rights Issue, which was legally convened. The Tribunal held that the legality of the Rights Issue could be examined under a petition filed under Section 241 of the Companies Act. The Tribunal noted that the Rights Issue's validity and its impact on the First Respondent's shareholding were matters requiring detailed examination.7. Allegation of Forum Shopping:The Appellants accused the First Respondent of forum shopping, having failed before the Civil Court. The Tribunal dismissed this argument, stating that the First Respondent's grievances related to oppression and mismanagement could only be addressed by the NCLT, as per the Companies Act, 2013.Disposition:The Tribunal concluded that the First Respondent had made out a prima facie case for waiver and that the main Company Petition raised substantive issues requiring a detailed hearing. The Tribunal dismissed the appeal, affirming the NCLT's decision to grant the waiver and proceed with the main Company Petition. The Tribunal emphasized that the Appellants could raise all factual and legal defenses during the final hearing of the main petition. The appeal was dismissed with no costs.