2023 (10) TMI 241 - AT - Companies Law

Appeal dismissed, NCLT upholds validity of Postal Ballot Notice & Special Resolution

The appeal challenging the legality of the impugned order passed by the National Company Law Tribunal (NCLT), Bengaluru Bench was dismissed. The Tribunal ... Oppression and mismanagement - Determination of minimum shareholding for filing complain / petition against the company - NCLT rejected the petition - the impugned order, was passed by Hon’ble Member (Judicial) of the ‘Tribunal’, sitting singly, in the absence of the Hon’ble Member (Technical). Failure to possess requisite Shareholding necessary to maintain the underlying petition - appellant possessed 19.83% shareholding in the 1st Respondent / Company, at the time of filing the present petition - conduct in breach of the fiduciary duties of Directors owed towards 1st Respondent / Company as per Section 166 of the Companies Act, 2013. Appellant contends that the Tribunal had committed an error, in coming to the conclusion that the shareholding at the time of accruing of cause of action, would be determinative, of the maintainability of the petition and in sequel, had also held, that the Appellant at the relevant point of time, due to less than 10% shareholding at such time, could not have maintained the petition and eventually determine the said point, as well as the underlying petition against the Appellant herein. HELD THAT:- Section 419(3) of the Companies Act, 2013, enjoins that the ‘powers, of Tribunal’, shall be exercisable by ‘Benches’ consisting of two Members, out of whom, one shall be a ‘Judicial Member’ and other shall be a ‘Technical Member’. As a matter of fact, the proviso to sub-section 3 of Section 419 of the Companies Act, 2013 points out that it shall be competent for the ‘Members of the Tribunal’ authorised in this behalf to function as a Bench comprising of a single ‘Judicial Member’ and exercise the powers of ‘Tribunal’, in respect of such class of cases or such matters relating to ‘such class’ of cases as the President, may, by general or special order specify. Also, in the second proviso it is mentioned that if at any stage of ‘hearing’ of any such case or matter, it appears to the Member’, that the case or matter is of such nature / character, that it should be Heard, by a Bench consisting of two members, the case or matter may be transferred by the President, or as the case may be, referred to him for transfer to such Bench, as ‘President’, may deem fit. Hence, considering the importance of issues / controversies / disputes involved in a case, a ‘single member’, of the Tribunal, may ‘transfer’ or refer the matter to the President, for hearing by a Bench consisting of two Members or to such Bench as the President may deem fit. It cannot be gainsaid that the ‘Principal Bench’ of Tribunal, shall be at New Delhi, whose powers, shall be exercised by ‘Two Members’ it shall be competent for the Members, authorised in this behalf to function as Bench consisting of a single Judicial Member, in respect of such class of cases, as ‘President’, may by ‘general’ or ‘special order’ specify. This ‘Tribunal’ holds that the ‘impugned order’ dated 27.11.2019, in Company Petition No. 20/2016 (TP No. 248/2017) passed by the Hon’ble Member (Judicial) of NCLT, Bengaluru Bench, sitting singly, cannot be found fault, with because of the fact that Section 419(3) of the Companies Act, 2013 empowers, the ‘Judicial Member’, of the ‘Tribunal’ to ‘Hear the case’, based on the order dated 22.10.2019 of the NCLT, New Delhi, which had the ‘Approval’, of ‘President of NCLT’, New Delhi and hence, the impugned order dated 27.11.2019, passed by the ‘Tribunal’ is not a ‘nonest’, ‘illegal’ and ‘void ab initio’ one and the point, is so answered. The primary plea of the Appellant, is that the Learned Single Member of the Bench of the ‘Tribunal’, had effectively over ruled the said order passed by the Division Bench and upheld by this Tribunal. In effect, the said point according to the Appellant, vitiates the impugned order of the Tribunal, and hence, the ‘impugned order’ of the Tribunal, is liable to be set aside. Possession of shareholding - HELD THAT:- This Tribunal, is of the ‘cocksure’ considered opinion, that although, the ‘Appellant’, held 10% as on date of filing of the CP No.486/2018, on 06.09.2018, but in respect of the events, that took place, before the ‘Appellant’, held 10% shareholding, then, it is held by this Tribunal, that he had not fulfilled the qualitative ‘criteria’, to sustain the ‘Company Petition’, in as much as, he had not possessed, the ‘requisites shares’, at the particular point of time, when the ‘purported’ ‘cause of action’ arose. As such, it is, ‘safely’ and ‘securdly’ concluded by this Tribunal, that the Appellant’s / Petitioner’s petition, in CP No. 486/2018, on the file of National Company Law Tribunal, Bengaluru Bench, on the date of filing of the petition, (on 06.09.2018), is, perfectly, ‘maintainable’, but he is precluded, from adverting, to the ‘events’, which took place, ‘before he possessed / acquired, 10% shareholding in the Company’. The ‘onus’, to establish ‘Membership’ is on the Petitioner, and it is up to him to prove, that he is a Member, of a Company, ‘on the day’ of filing of petition. When he is not a Member of Company, he cannot allege ‘Oppression’, to invoke, Section 241 of the Companies Act, 2013, against the Company, as opined, by this ‘Tribunal’ - There is ‘no straight jacket cast iron formula’, specified, to define the ‘term’, ‘oppression’ and ‘mismanagement’. A ‘single act’ may not be enough for the grant of relief of ‘oppression’, and ‘continuous course, of oppressive code of conduct’, on the part of the ‘Majority Shareholder’, is very much necessary. The ‘onus of proof’, in proving the ‘affairs of the Company’, were / are being, ‘conducted in a manner prejudicial or oppressive to ‘any Members’, or against the ‘public interest’ / or in any way, ‘prejudicial’, to the interest of the Company etc. and this Tribunal, ongoing through the impugned order dated 27.11.2019 passed by the NCLT, Bengaluru Bench in CP No. 486/BB/2018, comes to a consequent conclusion, that the Appellant / Petitioner has not established to the subjective satisfaction of this ‘Tribunal’, that ‘affairs of the Company’, are conducted, in ‘any manner prejudicial’ or ‘oppressive’ either to the Appellant, or other ‘shareholders’ / stakeholders. The ‘ultimate conclusion’, arrived at by the NCLT, Bengaluru Bench, in dismissing the CP No. 486/BB/2018 through its order dated 27.11.2019, without costs is free from any legal flaws - Appeal dismissed. Issues Involved:1. Legality of the impugned order dated 27.11.2019 passed by the National Company Law Tribunal (NCLT), Bengaluru Bench.2. Validity of the Postal Ballot Notice dated 10.11.2015 and the Special Resolution dated 22.12.2015.3. Allegations of oppression and mismanagement by the Respondents, including the transfer of shares.4. Compliance with statutory requirements and fiduciary duties by the Board of Directors.Summary:Issue 1: Legality of the Impugned Order Dated 27.11.2019The Appellant challenged the legality of the impugned order passed by a single Judicial Member of the NCLT, Bengaluru Bench, arguing it was void ab initio as it was not passed by a Bench comprising both a Judicial and Technical Member. However, the Tribunal held that the order dated 22.10.2019 from the Principal Bench of NCLT, New Delhi, reconstituted the Bengaluru Bench with a single Judicial Member in terms of Section 419(3) of the Companies Act, 2013. The Appellant had participated in the proceedings without objection, thus acquiescing to the single-member Bench's jurisdiction. Consequently, the impugned order was deemed valid.Issue 2: Validity of the Postal Ballot Notice and Special ResolutionThe Appellant contended that the Postal Ballot Notice dated 10.11.2015 and the Special Resolution dated 22.12.2015 were void due to non-compliance with statutory requirements and insufficient disclosure. The Tribunal found that the Board of Directors had approved the issuance of the Postal Ballot Notice in its meeting on 04.11.2015, and the Explanatory Statement complied with Section 102 of the Companies Act, 2013. The majority of shareholders (91.13%) had voted in favor of the resolution, indicating informed consent. Thus, the Postal Ballot Notice and the Special Resolution were held valid.Issue 3: Allegations of Oppression and MismanagementThe Appellant alleged various acts of oppression and mismanagement, including the transfer of shares by Respondents 2 to 10 to Respondents 12 and 13, constituting 39.66% of the shareholding. The Tribunal noted that the Appellant acquired shares after the purported acts of oppression and mismanagement and had not met the qualitative criteria to sustain the petition. The Tribunal also found that the share transfer complied with SEBI regulations and was not an act of oppression or mismanagement.Issue 4: Compliance with Statutory Requirements and Fiduciary DutiesThe Appellant argued that the Board's decision to enter into a Joint Venture Agreement and the subsequent Joint Development Agreement dated 01.01.2016 violated the Memorandum of Association and fiduciary duties. The Tribunal found that the Board had followed a transparent process, including inviting proposals from leading developers and obtaining shareholder approval through a Postal Ballot. The Joint Development Agreement was executed with Umiya Builders and Developers, who were selected through a fair process. The Tribunal held that the actions of the Board were in compliance with statutory requirements and fiduciary duties.Disposition:The Tribunal dismissed the appeal, finding no legal flaws in the NCLT Bengaluru Bench's order dated 27.11.2019. The connected pending IAs were also closed.