2021 (6) TMI 755 - AT - Companies Law

Appellate tribunal remands company petition, emphasizes thorough examination for justice.

The appellate tribunal set aside the NCLT's order and remanded the matter back to the NCLT with specific directions to deal with the company petition on ... Oppression and Mismanagement - Seeking reasonable exit from the Company firstly to the Appellants and thereafter to the Respondents group by appointing the Chartered Accountant to value the shares of the Company - whether the Learned NCLT has dealt with the Company Petition on its merits or not? HELD THAT:- The counter allegations have not been dealt by the Learned NCLT. It is also a fact that the R-1 Company is closely held family Company. However, the primary duty is to decide the allegations and come to a conclusion and thereafter the Tribunal ought to have considered passing of decisions as it deem fit in accordance with law and the precedents has held by the Hon’ble Supreme Court. The Learned Counsel for the Respondent submitted that as per the decisions of the Hon’ble Supreme Court even where a case of Oppression has not been made the Jurisdiction of Erstwhile Company Law Board to pass any other or further order in the interest of the Company, if it is of the opinion that the same would protect the interest of the Company, it would not be powerless. It is apt to refer to the provisions of Companies Act, 1956 and Section 397,398 of the Companies Act, 1956 which dealt with the Oppression and Mismanagement in the affairs of the Company and the Jurisdiction Vests with the then the Company Law Board. The Company Law Board had wide powers under Section 402 of 1956 Act to give directions in the interest of the company and its shareholders. The New Companies Act, 2013 Section 241 provides a provision to make an Application to NCLT for relief in the case of Oppression and Mismanagement - the Judgments of the Hon’ble Supreme Court with respect to Section 397,398 are squarely applicable to the provisions of Section 241 and 242 of the Companies Act, 2013 with respect to the Oppression and Mismanagement. Reliance placed in the case of upon the Judgment of the Hon’ble Supreme Court in “Needle Industry (India) Ltd. vs. Needle Industry Newey (India) Holding Ltd. [1981 (5) TMI 89 - SUPREME COURT] it was held that Even though the Company petition fails and the appeals succeed out on the finding that the Holding Company has failed to make out a case of Oppression, the court is not powerless to do substantial justice between the parties; and place them, as nearly as it may, in the same position in which they would have been, if the meeting of May 2 were held in accordance with law. Thus, there is no doubt that the then Company Law Board was not powerless to pass orders even though the case of oppression is not made out. We are bound by the above decisions of the Hon’ble Supreme Court which are leading Judgments in the matter of Oppression and Mismanagement. However, in the facts of the present case the Learned NCLT has not dealt the case on merits and without arriving at a finding on the basis of merits giving directions more particularly when parties have not come forward for exiting the Company, is in our view Unjustified. There is no doubt that the parties have made some offers but ultimately the parties should have come forward with a concrete proposal with regard to the exit either by the Petitioners or by the Respondents. The Learned NCLT erred in passing the said impugned order, since there is no consensus between the parties with regard to exit from the Company - Learned NCLT is requested to deal with the Company Petition on merits by considering the allegations made by the Appellants/Petitioners along with the documents relied upon by them - stay granted by this Tribunal dated 09.04.2019 shall continue to operate till disposal of the Company Petition No. 138 of 2018 on its merit - Appeal disposed off. Issues Involved:1. Acts of Oppression and Mismanagement2. Exit from the Company3. Handling of Interlocutory Applications (IAs)4. Consideration of Case LawsDetailed Analysis:1. Acts of Oppression and Mismanagement:The appellants alleged various acts of oppression and mismanagement by the respondents in the affairs of the R-1 Company. These included fraudulent filings, changes in the Board of Directors without proper meetings, illegal allotment of shares, siphoning off funds, and manipulation of company records. The appellants claimed that these actions were done without their knowledge or consent, violating the Companies Act, 2013. The respondents refuted these allegations, stating that the appellants were aware of all meetings and decisions, and that the company was run based on mutual understanding among family members.2. Exit from the Company:The NCLT ordered a reasonable exit for the appellants from the company by appointing a Chartered Accountant to value the shares and directing the respondents to purchase the appellants' shares within three months. If the respondents failed, the appellants were to purchase the respondents' shares. The appellants contested this order, arguing that they did not seek an exit and that the NCLT did not address the merits of their allegations. The respondents supported the NCLT's decision, citing the need to protect the company's interest and avoid prolonged litigation.3. Handling of Interlocutory Applications (IAs):The appellants argued that the NCLT failed to address the merits of several IAs they filed, which were crucial to their case. The NCLT acknowledged this in its order, stating that addressing each IA would lead to multiplicity of litigation. The appellate tribunal found this approach inappropriate, emphasizing that not deciding the IAs on their merits would cause injustice to the parties involved.4. Consideration of Case Laws:The NCLT did not discuss the case laws referred to by both parties, stating that its order was passed without going into the merits of the company petition. The appellate tribunal criticized this, highlighting that the NCLT should have considered the legal precedents and the specific allegations and counter-allegations made by the parties. The tribunal cited several Supreme Court judgments to underscore the importance of addressing the merits of the case and the legal principles involved.Conclusion:The appellate tribunal set aside the NCLT's order and remanded the matter back to the NCLT with specific directions:1. The NCLT should deal with the company petition on its merits, considering all allegations and counter-allegations along with the supporting documents.2. The NCLT should frame issues based on the allegations and counter-allegations and decide them accordingly.3. The NCLT should dispose of all IAs on their merits.4. The stay granted by the appellate tribunal will continue until the NCLT disposes of the company petition on its merits.The appellate tribunal emphasized the need for a thorough examination of the case to ensure justice and proper resolution of the disputes between the parties.