2021 (5) TMI 187 - AT - Companies Law

NCLT Chennai to Hear Company Petition, Emphasizing Natural Justice

The Tribunal directed the NCLT, Division Bench-1, Chennai, to hear the main Company Petition No. 393/2019 along with pending applications, emphasizing ... Oppression and Mismanagement - Arbitral Award rendered during the pendency of the present ‘Appeal’ - whether the National Company Law Tribunal was justified in passing the impugned order dated 22.01.2021 leaving the valuable properties of the First Respondent/Company unprotected, despite manifest urgency and large scale under valued sales by the Respondents? - HELD THAT:- An order on Section 241 Petition under the Companies Act, 2013 seeks reliefs with a view to end the matters complained of in the petition. Section 242 of the Companies Act, 2013 vests in the ‘Tribunal’ very wide powers for granting a suitable relief to the concerned Petitioner(s). Section 242(1) of the Act gives the ‘Tribunal’ an unfettered power to make such Order as it thinks fit, with a view to bringing to an end the matters complained of. Section 242(2) of the Companies Act, 2013 showers certain specific powers. Section 242(4) of the Companies Act is similar to the ingredients of Section 403 of the Companies Act, 1956. It is to be pointed out that allegations of oppression and mismanagement concerning mixed question of law and fact could not be decided at the Interim Stage - The term ‘Oppression’ is any act exercised in a manner harsh, wrongful and burdensome manner. The ‘Phrase’ ‘Affairs of Company’ are being conducted ‘points out a continuous wrong’, the proceedings are meant to be in public interest of the Company or in the commercial interest of the company. The Tribunal can take preventive and a curative action for regulating the conduct of the Company’s affairs in future and to bring to an end the matters complained of. It is to be pointed out that unfair utilisation of powers and impairment of confidence in probity with which the company’s affairs have to be conducted, (in contra distinction) as distinguished from just resentment on the minority’s part are the vital facts that are to be kept in mind by the ‘Tribunal’. It cannot be gainsaid that applying the standards of ‘fairness’ the ‘Tribunal’, is to determine the main case on merits. While passing orders, the Company’s interest and other equitable considerations are to be taken into account by the ‘Tribunal’. Undoubtedly, the ‘Tribunal’ cannot interfere with the day to-day affairs of a Company and a wisdom of shareholders. Added further, one cannot ignore a prime fact that no ‘Arbitrator’ can give relief to a ‘Petition’ under Section 241 or 242 of the Companies Act, 2013 - It is relevantly pointed out that Section 11 of the Civil Procedure Code, bars ‘Subsequent suit’. Whereas Order 23 Rule 1(3) of the Civil Procedure Code bars ‘remedy’. It is to be remembered that Order 23 Rule 1 of the Civil Procedure Code bars ‘remedy’ but does not extinguish the right. Whether the second Petition is ‘void abinitio’ is to be seen by the ‘Tribunal’. Considering the fact, that the ‘Arbitral Award’ dated 18.03.2021 is contested by the ‘Respondents’ (in the present ‘Company Appeal’) before the Hon’ble High Court of Madras in O.P.No.310/311/312/313 of 2021, the same is pending for determination - In determining an Application/Petition under Section 241, 242 of the Companies Act, 2013, the ‘Tribunal’ is to keep in mind the principle of ‘particularity’ and ‘proof’. No doubt, the object of exercise of power under Section 241 of the Companies Act is either to prevent a ‘Winding up of Company’ or to remove the continuance of harm or reasonable probability of injury to the ‘interests of Company’ or to the wider injury of ‘public interests’. This ‘Tribunal’ keeping in mind of the ingredients of Section 241 and 242 of the Companies Act, 2013 comes to a resultant conclusion that to achieve the object(s) for which the aforesaid provisions are enacted, without expressing any opinion on the merits of the matter, also not delving deep because of the fact that allegations of ‘Oppression and Mismanagement’ concerning mixed question of Law and fact cannot be decided at the ‘interim’, stage by applying the yardstick of fairness directs the National Company Law Tribunal, Division Bench-1, Chennai to take up the main Company Petition No.393 of 2019 together with pending applications if any, ‘for Hearing’, (since the said Petition was filed on 14.03.2019) by requiring the Respondents’ concerned to file Counter(s) to the main Company Petition and to dispose of the same on merits (including dealing with the aspect of maintainability issue/point), of course, after providing adequate opportunities to respective sides by adhering to the ‘Principles of Natural Justice’ in accordance with Law and in the manner known to Law at an early date. Liberty is granted to the respective parties to raise all factual and legal issues before the ‘Tribunal’ in the main Company Petition. Appeal disposed off. Issues Involved:1. Justification of the National Company Law Tribunal's (NCLT) impugned order dated 22.01.2021.2. Allegations of oppression and mismanagement by the Respondents.3. Validity and implications of the mediation proceedings.4. Role and conduct of the Observer appointed by the Tribunal.5. Impact of the Arbitral Award dated 18.03.2021 on the present case.6. Maintainability of the main Company Petition No. 393/2019.7. Application of legal precedents and statutory provisions.Detailed Analysis:1. Justification of the NCLT's Impugned Order:The appellants contended that the NCLT's order dated 22.01.2021 left the valuable properties of the First Respondent/Company unprotected, despite manifest urgency and large-scale undervalued sales by the Respondents. They argued that the Tribunal failed to pass any protective orders and did not urgently hear the Company Petition, causing a miscarriage of justice. The appellants sought an interim stay on the disposal of the properties.2. Allegations of Oppression and Mismanagement:The appellants alleged continuous acts of oppression and mismanagement by the Respondents, who, by their majority on the board, were selling the Company's land parcels at undervalued rates and pocketing illegal gains. They highlighted that the Respondents were conducting Committee Meetings without proper notice and unilaterally fixing rates for land sites, thereby oppressing the minority shareholders.3. Validity and Implications of the Mediation Proceedings:The mediation proceedings, suggested by the Tribunal and agreed upon by both parties, were delayed due to the Covid-19 pandemic. The Tribunal directed the Mediator to re-commence the mediation proceedings virtually and complete the process by March 15, 2021. The appellants argued that the mediation proceedings should be expedited to protect the interests of the First Respondent/Company.4. Role and Conduct of the Observer:The appellants criticized the Observer appointed by the Tribunal, describing him as a passive observer who failed to instill transparency or fairness in the sale process. They cited specific Committee Meetings where the Observer merely agreed to the decisions of the majority without due diligence or independent verification of the transactions. The respondents countered that the Observer acted within the mandate given by the Tribunal and that the appellants were provided with sufficient opportunities to participate in the meetings.5. Impact of the Arbitral Award:The appellants referred to an Arbitral Award dated 18.03.2021, which found that the Respondents could not be trusted with the management of the properties. They argued that the Tribunal should take this award into account. However, the respondents contended that the Arbitral Award was unrelated to the Companies and was being contested before the Hon’ble High Court of Madras.6. Maintainability of the Main Company Petition:The respondents raised serious issues concerning the maintainability of the main Company Petition No. 393/2019, arguing that it was barred by principles analogous to Order XXIII Rule 1(3) of the Civil Procedure Code. They pointed out that the earlier CP No. 32/2016 was withdrawn without liberty to file fresh proceedings. The Tribunal was directed to scrutinize and decide the maintainability of the petition.7. Application of Legal Precedents and Statutory Provisions:The appellants cited several legal precedents to support their case, including decisions from the Hon’ble Supreme Court on oppression and mismanagement, the fiduciary duties of directors, and the principles of Order 2 Rule 2 of the Civil Procedure Code. The Tribunal was reminded to consider the principles of fairness and the best interests of the Company while adjudicating the matter.Disposition:The Tribunal directed the NCLT, Division Bench-1, Chennai, to take up the main Company Petition No. 393/2019 together with pending applications for hearing. The Tribunal emphasized the need to provide adequate opportunities to both sides, adhere to the principles of natural justice, and dispose of the case on merits, including the aspect of maintainability. If the current Observer failed to resolve differences among the members, the NCLT was instructed to fix the ERP rates as per the market value for future sales.The appeal was disposed of with no costs, and I.A. No. 08/2021 was closed.