2024 (9) TMI 1256 - AT - Companies Law

Company ordered to purchase appellant's shares under Section 242(2)(b) in oppression case, appeal dismissed

Atlas Equifin Pvt Ltd Versus Jackie Kakubhai Shroff and others

NCLAT dismissed appeal challenging NCLT order directing company to purchase appellant's shares under Section 242(2)(b) of Companies Act, 2013 in ... Oppression and mismanagement - Tribunal's authority to order the purchase of shares under Section 242(2)(b) of the Companies Act, 2013 - Section 421 of the Companies Act, 2013 - HELD THAT:- Under Section 242(2)(b) of the Act, the Tribunal has a power to direct the purchase of shares of any member by the Company and per impugned order the Tribunal has exercised such power. In MSDC RADHARAMANAN VERSUS M. SD CHANDRASEKARA RAJA [2008 (3) TMI 471 - SUPREME COURT], the Hon’ble Supreme Court referred to Samgramsinh P. Gaekwad vs. Shantadevi P. Gaekwad [2005 (1) TMI 409 - SUPREME COURT], wherein the Hon’ble Supreme Court held in a given case the court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between parties. Though the appellant has contended the Impugned Judgement does not give reasons for passing the order but a perusal of the Impugned Judgement would reveal the submissions of both the parties and the case law(s) cited by them were considered by the Ld. NCLT and only thereafter the impugned order was passed under Section 242(2)(b) of the Act. Admittedly the respondent cannot sell his shares in open market, it being a private company and not a listed one, hence the path chosen by the Ld. NCLT to end controversy amongst directors/shareholders is not prejudicial to anyone and would rather be helpful for smooth running of the company. There are no illegality in the impugned order and accordingly appeal is dismissed. Issues Involved:1. Whether the impugned order adequately addressed the allegations of oppression and mismanagement.2. Whether the Tribunal had the authority to direct the purchase of shares under Section 242(2)(b) of the Companies Act, 2013 without establishing acts of oppression and mismanagement.3. Whether the Tribunal's decision to appoint a valuer and direct the purchase of shares was justified.Issue-wise Detailed Analysis:1. Whether the impugned order adequately addressed the allegations of oppression and mismanagement:The appellant argued that the impugned order merely recorded the pleadings without making any findings on the issue of oppression and mismanagement. The appellant cited various judgments, including 'Jaladhar Chakroborty and others Vs. Power Tools and Appliances Co Ltd' and 'Maharani Lalita Rajya Lakshmi Vs Indian Motor Co (Hazaribagh) Ltd & ors', to emphasize that a finding of oppression and mismanagement is necessary before passing an order under Section 242(2) of the Companies Act, 2013. The respondent countered by referring to paragraphs 21 and 23 of the impugned order, which discussed the majority and minority shareholders' positions and the Tribunal's powers under Section 242(1) and (2) to make orders to end the matters complained of. The Tribunal noted that despite the appellant's contention, the impugned judgment did consider the submissions and case laws cited by both parties before passing the order.2. Whether the Tribunal had the authority to direct the purchase of shares under Section 242(2)(b) of the Companies Act, 2013 without establishing acts of oppression and mismanagement:The Tribunal held that under Section 242(2)(b) of the Companies Act, it has the power to direct the purchase of shares of any member by the company. The Tribunal referenced the case 'M.S.D.C. Radharamanan vs. M.S.D. Chandrasekara Raja & Anr.' where it was held that the Tribunal could grant relief even if no acts of oppression were established, to do substantial justice between parties. Similarly, in 'Tata Consultancy Services Ltd. v Cyrus Investments Pvt. Ltd. and Ors.' and 'Vidhya Achu Roy v Suraj Mani Engineers Pvt. Ltd. and Ors.', the courts provided relief despite the absence of proven oppression and mismanagement. The Tribunal concluded that it had the requisite authority to pass the impugned order to end the deadlock and facilitate the smooth running of the company.3. Whether the Tribunal's decision to appoint a valuer and direct the purchase of shares was justified:The Tribunal justified its decision by noting the deadlock and animosity between the shareholders, which affected the company's functioning. The Tribunal appointed CA Sujal Shah as a valuer to determine the value of the shares, directing the company to purchase the shares of the petitioner under Section 242(2)(b). The Tribunal emphasized that this decision was in the interest of equity and justice to resolve the dispute and ensure the smooth functioning of the company. The Tribunal also referenced the precedent where erstwhile directors had sold their shares, indicating that the company had a history of resolving such disputes through share purchase agreements. The Tribunal found no illegality in the impugned order and dismissed the appeal, stating that the path chosen was not prejudicial to anyone and would help in the smooth running of the company.Conclusion:The Tribunal concluded that the impugned order was justified and within its authority under Section 242(2)(b) of the Companies Act, 2013. The appeal was dismissed, and the pending applications were also disposed of.