NCLAT sets aside director removal order under Sections 241-242, remands matter following Tata Consultancy precedent on reinstatement

NCLAT set aside tribunal's order regarding director's removal under Sections 241-242 of Companies Act, 2013. The original order was passed in 2020 before SC's landmark Tata Consultancy judgment (2021) which clarified that tribunals cannot order reinstatement of directors as it violates Section 14 of Specific Relief Act, 1963 and involves personal qualifications under Section 149(6). NCLAT remanded the matter to tribunal for fresh consideration in light of Tata Consultancy precedent covering oppression, mismanagement, director removal, and quasi-partnership aspects.

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Issues Involved:
1. Alleged oppression and mismanagement under Section 241-242 of the Companies Act, 2013.
2. Validity of removal of a Director under Section 169 of the Companies Act, 2013.
3. Determination of reliefs to be granted.

Summary:

Issue 1: Alleged Oppression and Mismanagement under Section 241-242 of the Companies Act, 2013
The Appellants argued that the disputes between directors were inter-se disputes and did not fall under the scope of Section 241-242 of the Companies Act, 2013. They contended that the Tribunal wrongfully assumed jurisdiction and misinterpreted the facts, asserting that the company was not a quasi-partnership. The Tribunal, however, held that it had jurisdiction to decide inter-se disputes between directors or shareholders, which may or may not adversely affect the conduct of the company's affairs. The Tribunal also determined that the company was a quasi-partnership, thus justifying the application under Section 241-242.

Issue 2: Validity of Removal of a Director under Section 169 of the Companies Act, 2013
The Appellants removed Respondent No. 1 from the directorship, claiming it was necessary to protect the company's interests. The Tribunal found this removal to be invalid, declaring the EOGM held on 18.12.2019 and the resolution passed for the removal of Respondent No. 1 as illegal, null, and void. The Tribunal restored Respondent No. 1 to his position as Director. The Tribunal noted that the letters written by Respondent No. 1 fell within the domain of his duties as Director and did not consider it necessary to delve into other contentions raised by both parties.

Issue 3: Determination of Reliefs to be Granted
The Tribunal granted several reliefs, including the restoration of Respondent No. 1 to his directorship and the joint operation of the company's bank account by representatives from both sides. The Appellants challenged these reliefs, arguing that the Tribunal granted reliefs not asked for and failed to adhere to the principle of bringing an end to the matters complained of. The Appellants relied on the Tata Consultancy Services v. Cyrus Investments judgment, which clarified that removal and reinstatement are two different things and that Section 241-242 does not encompass the power to reinstate a removed Director.

Findings:
The Appellate Tribunal noted that the Tribunal's decision predated the landmark judgment in Tata Consultancy Services v. Cyrus Investments, which provided clear rulings on issues of oppression and mismanagement, removal and reinstatement of directors, and the quasi-partnership nature of companies. The Appellate Tribunal found that the Tribunal's interpretation of the facts and law was not in accordance with the Tata Consultancy judgment.

Conclusion:
The Appellate Tribunal set aside the Impugned Order and remanded the case back to the Tribunal for re-examination in light of the Tata Consultancy judgment. The parties were directed to appear before the Tribunal on 21st December, 2024. No costs were awarded.

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