2023 (12) TMI 788 - AT - Companies Law

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 ... Oppression & mismanagement - removal of Petitioner No. 1 from the directorship of the Respondent No. 1 Company - Section 241 & 242 of the Companies Act, 2013 - HELD THAT:- The Impugned Order was passed by the Tribunal on 13.10.2020, whereas later in 2021 the landmark Judgment on oppression & mismanagement covering several issues including quasi-partnership aspects was passed by the Hon’ble Supreme Court of India in case of Tata Consultancy [2021 (3) TMI 1181 - SUPREME COURT] and obviously the Tribunal did not have the benefit of clear rulings given in the Tata Consultancy. It was held in the said case that The architecture of Sections 241 and 242 does not permit the Tribunal to read into the sections, a power to make an order (for reinstatement) which is barred by law vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in 2018. Tribunal cannot make an order enforcing a contract which is dependent on personal qualifications such as those mentioned in Section 149(6) of the Companies Act, 2013 - Tata Consultancy Judgement has given clear rulings which are required to be followed by all the Courts/ Tribunals. It is already noted that the judgment of Tata Consultancy came after passing the Impugned Order by the Tribunal as such the Tribunal interpreted the facts and law in the original application without wisdom of Tata Consultancy judgment. The Tribunal will have to re-examine the original petition in light of the judgement of Hon’ble Supreme Court of India in case of Tata Consultancy as prima-facie, the Tribunal has taken stand not in accordance with the Tata Consultancy judgments which dealt with various issues as in present case like what are instance of oppression & mismanagement, removal and subsequent reinstatement of Director, quasi-partnership character of the Company etc. The Impugned Order is set aside and case remanded back to the Tribunal to have a fresh look on the merit after hearing both the Parties in view of the judgment of the Hon’ble Supreme Court of India given in Tata Consultancy - matter on remand. 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, 2013The 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, 2013The 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 GrantedThe 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.