2021 (8) TMI 396 - AT - Companies Law

Tribunal Upholds Order in Safeco Hygiene Case, Emphasizes Fair Representation for Shareholders

The Tribunal dismissed the appeals, upholding its order that there was no oppression and mismanagement in Safeco Hygiene Films Pvt. Ltd. The Tribunal ... Oppression and Mismanagement - challenge of impugned order on the ground that it has no jurisdiction and it has not considered the JV rights and rights of minority shareholders - exercise of jurisdiction under Section 241 & 242 of the Act - HELD THAT:- The Appellant group was not transparent in working of SHFP, so called JV company, where the Respondents are non-resident investors and after three / four years working when the Respondents generated a doubts on non-filing statutory returns under the Act and not getting proper accounts, they wish to interfere into the company which any investor will do, if they have invested the fund. From 2013-17, the Appellant group who was in the management of so-called JV Company failed to carry the JV Agreement in the ‘AoA’ and ‘MoA’ and thereby they lose the right to enforce the JV Agreement into the company’s formation documents i.e. ‘AoA’ and ‘MoA’. It is the general practice that first the JV agreement is finalised then within a reasonable period the same is appropriately incorporated in ‘AoA’ and ‘MoA’ - Non-resident investor believed the Appellant group and left the management of the Company to the Appellant Group for the 3 years plus period and at a later date in 2017/2018 when they generated the doubt and wish to put its representative as Board Member based upon their investments, the Appellant group started playing truant. As a result of which the Respondent approached the Tribunal with their grievance for convening EGM under the provisions of the Act and the same has been permitted by the Tribunal in its impugned order dated 26.07.2019 by keeping extra precautions of appointing ‘Observer’ and asking a permanent invitee to the meeting of the Board from the nationalised bank i.e. Union Bank of India which has sanctioned the credit facility to the Company. The impugned order is in conformity with terms of the provisions of the Act and the law laid down on the subject. There is also no jurisdictional error and violation of natural justice - Appeal dismissed. Issues Involved:1. Oppression and Mismanagement2. Jurisdiction of the Tribunal3. Rights arising out of the Joint Venture Agreement (JVA)4. Convening of Extra-ordinary General Meeting (EGM)5. Appointment of Nominee Directors6. Arbitration Clause in JVADetailed Analysis:1. Oppression and Mismanagement:The Tribunal held that there was no 'Oppression and Mismanagement' in the affairs of Safeco Hygiene Films Pvt. Ltd (SHFP). The Appellants, holding 34% shareholding, alleged that the Respondents, holding 66% share capital, were only investors and should be interested in receiving returns on investments. The Tribunal found that the Appellants had failed to comply with statutory requirements, withheld vital information, and did not file statutory returns for three years, indicating mismanagement by the minority shareholders over the majority.2. Jurisdiction of the Tribunal:The Appellants challenged the jurisdiction of the Tribunal, arguing that the JVA contained an arbitration clause and thus disputes should be resolved through arbitration. However, the Tribunal found that the arbitration clause did not bar its jurisdiction under the Companies Act, 2013, particularly under Sections 241-246, Section 98(1), and Section 100, which relate to oppression, mismanagement, and requisition of meetings.3. Rights Arising out of the Joint Venture Agreement (JVA):The Tribunal adjudicated on the rights arising from the JVA dated 22.03.2013 between Loganmoy Limited Matheson Trust Co. Ltd (LLMT) and SBPL Polymers LLP (SBPL). The Tribunal noted that the JVA was never incorporated into the Articles of Association (AoA) and Memorandum of Association (MoA) of SHFP, and thus, the management rights contingent on the JVA were not enforceable. The Tribunal observed that the Appellant group failed to bring in the required investment, leading to the Respondents infusing more funds and holding 66% shareholding.4. Convening of Extra-ordinary General Meeting (EGM):The Tribunal directed the Board of Directors of SHFP to call an EGM as per the requisition dated 20.12.2017 issued by LLMT. The Tribunal specified that the EGM should be convened within 30 days from the receipt of the order, with a minimum of 21 days' notice to all shareholders, and should not be delayed beyond 45 days without express permission. If the Board failed to call the EGM, LLMT was permitted to convene it themselves within another 45 days. An advocate was appointed as an 'Observer', and a nominee from Union Bank of India was to be a permanent invitee to the meetings.5. Appointment of Nominee Directors:The Tribunal directed the appointment of four nominee directors on the Board of SHFP as requested by LLMT. The Appellants argued that the right to appoint directors was contingent on equal shareholding as per the JVA. However, the Tribunal found that the Respondents, holding a majority share, were entitled to appoint directors. The Tribunal's order aimed to ensure fair representation and prevent oppression of minority shareholders.6. Arbitration Clause in JVA:The Appellants contended that the JVA's arbitration clause should preclude the Tribunal's jurisdiction. However, the Tribunal held that the existence of an arbitration clause does not bar its jurisdiction under the Companies Act. The Appellants had not approached the Arbitration and Conciliation Act, 1996 provisions before the Tribunal, thus failing to exercise their right to arbitration.Conclusion:The Tribunal's order was found to be in conformity with the provisions of the Companies Act and the law laid down on the subject. There was no jurisdictional error or violation of natural justice. The appeals were dismissed, and the interim orders vacated. The Tribunal's measures, including the appointment of an observer and a permanent invitee from Union Bank of India, were upheld to ensure transparency and prevent oppression.