TaxTMI 
TaxTMI 
2020 (12) TMI 1176
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 2. The 'National Company Law Tribunal', Bengaluru Bench, Bengaluru while passing the impugned order dated 05.06.2020 at paragraph 10 and 11 had observed the following: - "10. It is not in dispute that the Applicant/Petitioner is still having 09% of the total share capital, after original shareholding was unjustifiable reduced from 45%, by virtue of rights issue, which is under challenge in the main Company Petition. While considering an Application filed seeking to waive the requisite conditions, U/s 244(1) of the Companies Act, 2013, the broad issues to be considered are whether the Petitioner has made out prima facie case in the main case or it is filed on mere baseless or frivolous grounds or on assumptions/presumptions, in order to abuse the judicial process. As stated supra, the main Company Petition is filed by the Petitioner by questioning various acts of oppression and mismanagement, which are found to be prima facie meritorious so as to consider those allegations at the time of final hearing of the Case, after waiving the requisite condition as sought for. A meritorious/disputed litigation cannot be thrown at threshold without looking into merits of litigatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Learned Counsel for the Appellants submits that the Tribunal had failed to appreciate that the First Respondent / Applicant / Petitioner had failed to make out a prima facie case for 'waiver' of statutory requirements as per Section 241 r/w Section 244 of the Companies Act, 2013. Appellants Submissions 4. The Learned Counsel for the Appellants contends that the resignation of the First Respondent / Applicant / Petitioner from her post as 'Director' was completely voluntary as held by the Civil Court and that the dilution of the First Respondent's shareholding in the Appellant Company was a consequence of her unequivocable refusal to avail of the rights offer made by the Appellant Company. Therefore, the impugned events are the result of First Respondent's own actions and hence, there is no allegation of oppression and mismanagement of the affairs of the Appellant Company made out by the First Respondent / Applicant / Petitioner in the petition. 5. The Learned Counsel for the Appellants comes out with a plea that the First Respondent / Petitioner had filed the application claiming 'waiver' on the very same grounds that form the basis of the long standing civil dispute be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting of the Directors dated 13.04.2016 and her shareholding was reduced illegally were raised before the Civil Court and in view of the findings rendered by it, in its judgement such allegations which are sought to be raised again are completely frivolous for the purposes of a fresh action alleging oppression and mismanagement. Under the garb of separate 'Cause of Action' the First Respondent is seeking to reagitate the same issues arising from the same transaction, same set of facts and grounds. 10. According to the Learned Counsel for the Appellants that the 'Doctrine of Issue of Estoppel' applies to the facts of the present case especially when a particular issue forming necessary ingredient in a 'Cause of Action' was litigated and determined and in subsequent proceedings between the same parties involving a different 'Cause of Action' to which the same issue is relevant one of the parties seeks to reopen the issue and the plea of 'Estoppel' bars such relitigation. 11. The Learned Counsel for the Appellants submits that the First Respondent in her 'Appeal Memorandum' before the Hon'ble High Court of Karnataka had assailed the Civil Court's order by specifically urging the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 241 merits consideration. 151. Normally, the following factors are required to be noticed by the Tribunal before forming its opinion as to whether the application merits 'waiver' of all or one or other requirement as specified in clauses (a) and (b) of sub-section (1) Section 244: - (i) Whether the applicants are member(s) of the company in question? If the answer is in negative i.e. the applicant(s) are not member(s), the application is to be rejected outright. Otherwise, the Tribunal will look into the next factor. (ii) Whether (proposed) application under Section 241 pertains to 'oppression and mismanagement'? If the Tribunal on perusal of proposed application under Section 241 forms opinion that the application does not relate to 'oppression and mismanagement' of the company or its members and/or is frivolous, it will reject the application for 'waiver'. Otherwise, the Tribunal will proceed to notice the other factors. (iii) Whether similar allegation of 'oppression and mismanagement', was earlier made by any other member and stand decided and concluded? 79 (iv) Whether there is an exceptional circumstance made out to grant 'waiver', so as to enable members to fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eks to reopen that issue." Here also the bar is complete to re-litigation but its operation can be thwarted under certain circumstances. The house then finally observed ....(All ER p.50 C-E). "But there is room for the view that the underlying principles upon which estoppel is based, public policy and justice have greater force in cause of action estoppel, the subject matter of the two proceedings being identical then they do in issue estoppel, where the subject matter is different. Once it is accepted that different considerations apply to issue estoppel, it is hard to perceive any logical distinction between a point which was previously raised and decided and one which might have been but was not. Given that the further material which would have put an entirely different complexion on the point was at the earlier stage unknown to the party and could not by reasonable diligence have been discovered by him, it is hard to see why there should be a different result according to whether he decided not to take the point, thinking it hopeless, or argue it faintly without any real hope of success". 25. In Gulabchand Chhotalal Parikh v. State of Bombay (AIR 1965....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of fraud and collusion. (See C. (A minor) v. Hackney London Borough Council (1996) ALL er 973). (See The Doctrine of Res Judicata, 2nd Edn. By Spencer Bower and Turner, p.149). 28. In this view of the matter, the High Court, in our opinion, had no jurisdiction to go into the aforementioned question." 17. The Learned Counsel for the Appellants points out the decision of the Hon'ble Supreme Court in 'Hope Plantations Ltd.' v. 'Taluk Lan Board Peermade and Anr.' reported in (1999) 5 SCC p. 590 at spl. p. 607, 608 and 611 wherein at paragraph 26 and 31 it is observed as under:- "26. The principles of estoppel and res judicata are based on public policy and justice. Doctrine of res judicata is often treated as a branch of the law of estoppel though these two doctrines differ in some essential particulars. Rule of res judicata prevents the parties to a judicial determination from litigating the same question over again even though the determination may even demonstratedly wrong. When the proceedings have attained finality, parties are bound by the judgement and are stopped from questioning it. They cannot litigate again on the same cause of action nor c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it challenging the removal as a Director from the First Appellant / Company and was, therefore, purportedly barred from seeking relief from oppression and mismanagement, interalia on the ground of fraudulent reduction of the First Respondent shareholding in the First Appellant / Company and accordingly framed specific issues to consider that objection. Moreover, the Tribunal in the impugned order mentioned the reasoning for allowing the application of the First Respondent/Petitioner by noting that she had 45% shareholding in the First Appellant / Company for several years and that one of the acts of the oppression and mismanagement that the First Respondent / Petitioner was seeking relief was the fraudulent reduction of her shareholding to 09%. 19. It is represented on behalf of the First Respondent that the Tribunal, in the impugned order had proceeded to observe that the Civil Courts have no jurisdiction over matters of oppression and mismanagement and that the First Respondent's civil suit in OS No. 3554 of 2016 was restricted only to the issue of challenging her removal from the Board of Directors of the First Appellant / Company. 20. Added further, it is the plea of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng members...shall have the right to apply section 241, namely." Viewed in this light, there is perfect reciprocal harmony between section 241 and section 244 of the 2013 Act. 169. In so far as (proposed) petition under section 241 is concerned, the plain reading of the same will show that the allegations relate to 'oppression and mismanagement'; it cannot be stated to be a frivolous application. We find that some of the allegations as made by the appellants and highlighted by the learned counsel for the 11th respondent as noticed in the preceding paragraphs, are of recent year, 2016. We are not expressing any opinion with regard to merit of such allegation, but have only notice the allegations. 170. Taking into consideration the aforesaid facts and exceptional circumstances of the case as apparent from the plain reading of the (proposed) application and as some of them relate to 'oppression and mismanagement', qua 1st respondent company and its member(s), we are of the view that the appellants have made out a case for 'Waiver' to enable them to apply under section 241." 22. The Learned Counsel for the First Respondent refers to the decision in 'Photon Infotech....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... / Company and that she resigned as a Director of the company on 05.04.2016, citing health reasons and extensive travel plans and as per section 168(2) of the Companies Act, 2013 ceased to be a director of the first Appellant / Company with immediate effect. Later, the first Appellant / Company held a meeting of the Board of Directors of the Company on 13.04.2016 and passed a 'Resolution' formally accepting the resignation of the First Respondent / Petitioner/plaintiff. 24. It is projected on the side of the Appellants that the First Appellant / Company in accordance with Section 168 of the Companies Act, 2013 and Rule 15 of the Companies (Appointment and Qualification of Directors) Rules, 2014 filed the requisite DIR-12 Form, intimating the 'Registrar of Companies' of the resignation of the first Respondent on 13.04.2016 after the board meeting. Later, the first Respondent and the first Appellant / Company exchanged several mails, where the first Respondent expressed without demur that her resignation was without coercion and was out of her own free will. 25. It is the version of the Appellants that to expand business, the second Appellant and other Directors of the first Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... commercial property measuring 4340 sq. ft. at White Field and that they contributed equally from their personal funds for the purchase of the said property. 28. Continuing further, the First Respondent / plaintiff at paragraph 12 of the plaint in the above suit had mentioned that in 2013 the First Defendant (the First Appellant Company) required a working capital for the business and hence, availed a term loan of Rs. 1.85 crore from 'Karur Vysya Bank', Jayanagar, Bengaluru, that the loan was sanctioned to the First Defendant (the First Appellant Company) and that the First Respondent / plaintiff and the Second Respondent / Second Defendant had pledged their aforesaid White Field Property as collateral security against the repayment of the said loan. 29. As a matter of fact, the First Respondent / plaintiff at paragraph 16 of the plaint in the aforesaid suit had proceeded to mention that she was seriously hurt by the scathing remarks and use of inappropriate language by the Second Respondent / Second Defendant against her and in a fit of anger, and as a knee jerk reaction, she wrote a letter of resignation in her hand, resigning from the post of Director of the First Appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t challenge the Board of Directors meeting dated 13.4.2016." and finally held that as on date of the suit, the First Respondent / plaintiff was no more Director of the Company and claiming as Director of the Defendant Company (First Appellant). She had no right / locus standi to file the suit and dismissed the suit without costs. 33. After the dismissal of the suit in OS No. 3554 of 2016 by the trial Court the First Respondent / plaintiff as an Appellant had filed RFA No. 394 of 2019 on the file of 'Hon'ble High Court of Karnataka' and the same is pending. 34. The First Respondent / plaintiff filed C.P. No.110/BB/2019 before the National Company Law Tribunal, Bengaluru Bench, Bengaluru against the First Appellant / Company and four others (u/s 241 of the Companies Act, 2013 and sought the reliefs of Declarations:- (i) that the affairs of the First Respondent / Company are being conducted by the Respondent Nos. 2,3 and 5 in a manner prejudicial to her and to the interests of the Respondent No. 1 Company itself; (ii) that the issuance of rights shares during 2016-17 by the First Respondent Company was illegal, set it aside and cancel the further shares so i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atter of fact, the law does not define an 'oppressive act'. Whether an act is oppressive one or not is fundamentally a question of fact. The law relating to 'oppression' is cemented on the principles of equity and fair play as against the strict compliance of law. 37. A Company is merely an abstract of Law. It cannot be gainsaid that right to complain about 'oppression and mismanagement' lies with the members of a company. No wonder fairness and probity rather than legality are the key factors to be taken into consideration by a Tribunal in case of oppression. What kind of oppression or prejudice or unfairness is caused in a given case will depend on the injury caused to an affected person by the concerned as visualised in section 241 of the Companies Act, 2013? 38. Undoubtedly, the burden is on the petitioner to prove oppression or mismanagement and the 'Tribunal' is to consider the entire material on record and to arrive at a final conclusion. The 'Rights Issue' can be examined by the 'Tribunal' in a petition u/s 241 of the Companies Act, 2013. Also, that, in law the Tribunal is to ascertain when the right to sue / to file an application accrued to the petitioner. There is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion and that the Hon'ble High Court of Andhra Pradesh observed that the civil court has jurisdiction to entertain the 'Suit' and the section 10 only specifies the court competent to deal with the matter arising under the Act and does not invest the company court with jurisdiction over every matter arising under the Act. Further Issue of Share Capital 44. Section 62 of the Companies Act, 2013 speaks of 'Further issue of share capital'. In fact, the 'Rights Issue' is not defined under the Companies Act, 2013. The power to issue further shares ought to be exercised for the benefit of the Company, notwithstanding the fact that the 'Increase of Capital' is an internal administration matter of the Company. Continuing further, whether the decision of the Board of Directors to increase share capital by way of issuing rights is in the interest of the company or bonafide or otherwise can be ascertained from each and individual set of attendant facts of a given case. Agents 45. It is an axiomatic principle in law that the Directors of a Company are just 'Agents' of the Company and they are quite competent to decide the Agency at his / her own end. In fact, Section 168 of the Comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es Act can be pressed into service. 52. It is to be remembered that when no case is made out by the petitioner relating to the 'oppression and mismanagement' of the affairs of the company that the concerned Tribunal has the requisite power not to grant any relief in a given case. 53. Even though the Tribunal in the impugned order in IA No. 170 of 2020 in C.P. No.110/BB/2019 dated 05.06.2020 had observed among other things that the contention of the Respondent that Civil Court has already decided the issues and thus the present application and main company petition are not maintainable, are baseless on facts and law etc.; these are in the considered opinion of this Tribunal only rendered at an interlocutory stage, the same cannot preclude the Appellants to raise all factual and legal pleas like the locus standi of the petitioner(First Respondent) to file petition under section 241 of the Companies Act, 2013 Issue of Estoppel, Res Judicata, Delay / Latches in its Reply/Response/Counter and to advance arguments on merits at the time of final hearing of main petition before the Tribunal and that the Tribunal is to pass orders on merits in a fair, just and dispassionate manner uni....