TaxTMI 
TaxTMI 
2021 (2) TMI 520
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....4 : Mr. Navroj Seervai, Sr. Counsel a/w AZB Partners represented by Mr. V. P. Singh, Mr. Aditya Jalan, Ms. Urvashi Misra, Mr. Atul Menon and Mr. Samarth Luthra, Advocates. For the Respondents 5 to 8 : None Present. For the Respondents 9 to 13 : Mr. Anand Jaiswal, Sr. Counsel with Ms. Radhika Jaiswal, Advocate. For the Respondent 14 : None Present. ORDER Per : V. Nallasenapathy, Member (Technical) 1. The Applicants filed this Application against the Respondents for the following reliefs: A) An order of injunction directing the Respondents to restore the board of the Directors of SIIL to its composition as it stood as on 7 November 2019 and more particularly in respect of Applicant No. 1 as a Director on the Board of Directors of SIIL; B) A temporary order of injunction restraining the respondents from any further alteration to the composition of the Board of Directors of SIIL; C) An order of injunction directing SIIL to send to Applicant No. 1, all notices and communications with respect to affairs of SIIL and its board of directors including but not limited to notices and agenda for all Board Meetings of SIIL; D) An order of injunction directing the respondents to res....
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....terfering and obstructing the Applicant No. 1 from acting as Director and Vice Chairman of R1 Company. 3. The Applicants filed petition under Section 241-242 of the Companies Act, 2013 (the Act) alleging oppression and mismanagement meted out to them by the Respondents. The Applicants/Petitioners raised several issues of mismanagement, misconduct, unlawful and unethical activities, fraud and financial mismanagement, conflict of interest, fabrication of corporate and secretarial records, forging of signatures, procurement of stamp papers of previous years and execution of agreement by back dating, covering up non-disclosure of related party transactions and obstructions in the smooth operations of the trade division headed by the Applicants' group. The said issues were scheduled to be discussed and deliberated by the Board of R1 on 31/07/2020 when at the stroke of midnight on 31/07/2020 (12.03 AM) the Applicant No. 1 was ousted as Vice Chairman and Executive Director in the most capricious manner, on the false pretext that A1 had purportedly vacated his office of Director on 07/09/2019 as he deliberately did not disclose that he was the Director and Shareholder in A.G. Technologies....
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....corporated on 24/02/1995 under the Companies Act, 1956. R2 was incorporated by the same co-founders on 16/08/1995 under the Companies Act, 1956. f) Solar Group was co-founded by late Mr. Nandlal Nuwal and his two sons i.e. A1 & R3, on the basis of personal relationship of trust and confidence, R1 was incorporated with the objective of manufacturing and supplying of explosives. A1, A2, R3, R4, late Mr. Nandlal Nuwal and Mrs. Sohandevi Nuwal (spouse of Nandlal Nuwal) were initial subscribers to the Memorandum of Association of R1, each family member holding 400 shares. 5. It is submitted that there was a family settlement dated 28/03/2009 wherein all the assets of the family including the shareholdings in the Group Companies were settled in the following manner: 1) R3 & R6 (Party No. 2 in the Settlement Agreement) together were allotted 20% shares in the assets of the family. 2) A1, A2 & A3 (Party No. 3 in the Settlement Agreement) were allotted 40% shares in the assets of the family. 3) R4 & R5 (Party No. 4 in the Settlement Agreement) were allotted 40% shares in the assets of the family. 6. Para 5 of the settlement deed provides that if any person decided to sell the shar....
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....anagement and acting in conflict of interest. 10. It is submitted that R7 & R8, the Executive Directors and R9 to R13, the Independent Directors of R1, entrusted with the fiduciary duty of exercising Independent Judgment, have objectively failed to discharge their duties. The Independent Directors acting in connivance with R3, R4 & R14 have intentionally not highlighted the illegalities, unlawful activities, oppression and mismanagement and fabrication of Corporate records of R1 & R2. 11. It is further alleged that the R7 to R13 were extremely opaque in their functioning and have acted fraudulently at the behest of the majority shareholders. R14 who is the Company Secretary has to ensure that the Company complies with the applicable secretarial standards and assist the Board of Directors in adhering to requisite standards of corporate governance - a duty that R14 completely abdicated, at the behest and to the undue favour of R3 & R4. 12. It is submitted that at the mid-night of 31/07/2020 A1 was ousted as the Vice Chairman and Whole Time Director of R1, a position which he held for 15 years, on the aftermath of his efforts in raising issues of oppression and mismanagement and co....
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.... of the Act, A1 has automatically vacated the office of Director from 07/11/2019. It is submitted that R14 on 30/07/2020 sent letter to the Executive Director (Listing Department) of Bombay Stock Exchange Limited and National Stock Exchange of India Limited informing the cessation of office of A1 as Executive Director and Vice Chairman of R1. It was also stated that A1 vacated the office on account of operation of law arising due to failure to make appropriate disclosure. The said letter is extracted below: "July 30, 2020 To, The Executive Director Listing Department BSE Limited Floor No. 25, PJ Towers, Dalal Street Mumbai - 400 001. Scrip Code: 532725 To, The Executive Director Listing Department National Stock Exchange of India Limited, Exchange Plaza, Bandra Kurla Complex, Bandra (E), Mumbai - 400 001. Trading Symbol: "SOLARINDS" Re: Cessation of office of Mr. Kailash Chandra Nuwal (Din:00374378) as Executive Director and Vice Chairman of Solar Industries India Limited. Mr. Kailash Chandra Nuwal's (Din: 00374378) Executive Director and Vice Chairman of Solar Industries India Limited has vacated office of Director with effect from Novem....
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....egulations, 2015 and any other applicable Regulation thereof. This is your information and record. Kindly acknowledge the receipt of same. Yours Truly, For Solar Industries India Limited." 14. It is submitted that on 28/07/2020 just 3 days before the scheduled Board Meeting on 31/07/2020, A1 sent an email to R3 referring to the agenda item No. 91 to the notice dt. 21/07/2020 of the impending Board Meeting to be held on 31/07/2020 wherein, A3 requested R3 to circulate the attached letter to the board of directors so that the board members can read the same for deliberation on the said agenda item wherein certain important issues were sought to be raised. They are: 1) Solapur rent issue- a. Procuring stamp paper and direction to sign rent agreement - all back dated. b. It appears that different transit/parameters/laws are being followed with respect to business transaction at Bhilwara and Nagpur. 2) Issue regarding serious discrepancies and non-adherence to the provisions of the Act in circular Resolution (under Section 175 of the Act) sent by R14, earlier for signatures; 3) Circular Resolution dated 11/06/2020 wherein, A1 raised certain issues regarding R14 who kep....
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....ubmits that Section 184(2) requires a Director to disclose: i. The nature of his concern or his interest. ii. At the meeting of the board. iii. In which the contract or arrangement is discussed. iv. Such Director refraining from participation in such discussion. 20. It is further submitted that the purpose of disclosure under Section 184(2) is to: a. Prevent conflict between Directors duty to the Company and his personal interest in the entity that is entering into a contract or arrangement with the company. b. Prevent the interested Director, from influencing other disinterested Directors, by virtue of his personal interest, and thereby precluding an objective and independent oppression of the contract or arrangement. 21. It is submitted that A1 was not even present at the Board Meeting on 07/11/2019. The decision to approve the contract was taken by Respondents without A1's presence. Since A1 was not present, there was no question of making disclosure at the meeting or influencing his colleagues in the decision and preventing them from exercising their independent judgment. It is further submitted that nothing prevented R3, R4 & R14 who were present at the meeting o....
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.... in any particular format. R1 is closely held company wherein seven shareholders comprising A1-A3 holding 29.28% and R3- R6 holding 43.88%, together hold 73%. The majority shareholders i.e., S. N. Nuwal Group (R3-R6) are very much in a position to oppress the minority, act prejudicial to the interest of public, despite the company making profit in operation. 27. It is submitted that in case where the circumstances affirm that it is just and equitable to wound up the company, mere surplus in operation of company will not come in the way. Especially where the majority shareholders group are looking to achieve an ulterior objective removing a co-founder minority shareholder from the Company. 28. It is submitted that it is well settled in law declared by the courts that quasi partnership principles can be discerned in listed companies with closely held Promoters shareholding and with public trading. The Applicants side relied on the Judgment of the Hon'ble Madras High Court in the case of Ethiraj and Others...V/s...Sheetala Credit Holdings Private Limited and Others (MANU/TN/1978/2017). It is submitted that according to the Respondents' contention, the Applicants' grievances are: a) ....
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....that the Judgment of the Hon'ble Supreme Court in Hanuman Prasad Bagree...V/s...Bagress Cereals (2001) 4 SCC 420, an appeal against the Judgment of the Hon'ble Calcutta High Court in Bagri, is distinguishable as in that case:- (a) the issue before the Hon'ble Supreme Court was limited to whether facts justified a winding up order as no case for oppression was made out, (b) the minority shareholder in that held less than 20% and the majority shareholders were in a position to pass a special resolution unlike in the present case where Applicants own nearly 30% of the voting rights in SIIL; and (c) In fact, the case also proceeded on the footing that there was no quasi- partnership relationship, which is not the case here. 30. It is submitted that A1's ouster was mala fide and deliberate on the eve of Board Meeting of R1 wherein A1 scheduled to discuss matters on the prejudicial conduct of the affairs by R3, R4 and R7 to R14. It is submitted that the issues complained were serious enough and the board of R1 constituted a committee of independent directors including the very director who is conflicted due to active participation in oppression and mismanagement of R1. R1 also appointed....
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.... major investment for office at Mumbai will be for IT Company. 2. KCN raised the need of raising funds in 2019 & 2020 by diluting some stakes: a. The market sentiments at this stage are not appropriate for equity dilution. This could be explored at an appropriate time, somewhere in the period from June 19 to December 19. b. Regarding further equity dilution by Dec 2020, it will be appropriate to dilute stake at the time of right market conditions. c. MSN will make best efforts for equity dilution properly in the best interest of company and family. 3. KCN was suggested to have a counsellor like KST to resolve issues in trade marketing: a. MSN was in general agreement to have a person like KST as a counsellor, who is accepted by SNN/MSN/KCN to settle any issue whenever there is difference of opinion. However, if any issue is not settled at this level then top management /Board could take up the matter for resolution 4. IT projects for trade: a. Trade B2B project: the project to enhance / improve the trade marketing is a project which is principally accepted. It is also accepted that we can take the services of a company like KPMG or any other leading agencies or impl....
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....hat R14 came to know A1's interest in AGT after browsing through AGT's website at an unknown date. Despite being a party to these proceedings R14 chose not to file any reply. 38. Applicants further submit that A1 had not even attended the Board Meeting on 07/11/2019, at which, contract with AGT, in which A1 is interested, was discussed and approved. Persons who were aware of A1's interest in AGT including R3, R4 & R14 were present in the Board Meeting of R1, which was not attended by A1. R3 & R4 have not denied that they were aware of A1's interest in AGT, their only contention is that disclosure was not made in proper format and allegedly no disclosure to the board. 39. It is submitted that R14 has been Company Secretary of R1 since 2007 and her role includes assisting all Directors in discharging compliance with applicable law. R14 was aware of A1's acquisitions of interest in AGT. She did not disclose the same at the Board Meeting held on 07/11/2019 and until 10/04/2020, nor did she raise any objection with A1 asking him to make disclosure in specific format, after 03/05/2019, on which date she was informed about it. 40. Ld. Sr. Counsel appearing on behalf of the Respondents ....
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....rticles of Association (AoA) of R1 does not provide any right of directorship to the members of R1 and there is no shareholders agreement providing such right to the Applicants. 44. It is submitted that even if a director is illegally terminated, he could not bring his grievances of termination to such a pass that the Company itself would be wound up for that an isolated act even if it were doing good business and even if the director could obtain adequate relief in suit court. On this proposition, the principle laid down in Bagree Cereals (P) Ltd...V/s...Hanuman Prasad Bagri, (2001) 105 Comp Cases 465, Para 79, 84, 86; and Hanuman Prasad Bagri...V/s...Bagress Cereals (P) Ltd., (2001) 4 SCC 420, Para11, 12] were relied on. Since R1 is performing extremely well making profit and declaring dividend, no case can be made out that R1 should be wound up or that any case can be made for the same much less a strong case sufficient to grant an interim relief. 45. It is submitted that the Applicants have attempted to draw a distinction between Section 397 of the Companies Act, 1956 and Section 241 of the Act to demonstrate that the Act entitles a member to agitate the grievance of any cond....
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....espondents relying on the Judgment of the Hon'ble NCLAT in Upper India Steel Manufacturing & Engineering Co. Ltd. & Ors... V/s...Gurlal Singh Grewal & Ors., 2017 SCC Online NCLAT 339 submitted that when the Applicants fail to make out a case of oppression and mismanagement, the Tribunal has no jurisdiction to pass any Order under sub Section 1 or 2 of Section 242 of the Act. The Respondent emphatically denied that R1 is a quasi partnership and submitted that: R1 has been a listed public company for more than 14 years; Public shareholding in R1 is 27% comprising of 14,800 shareholders, held through various public financial institutions, approximately five Independent Directors were in the Board of R1; A1 was not Director in R1 since 1997 and he became Director only in the year 2000, A1 was not in the management of R1 for eight years out of the initial ten years upon its incorporation, A1 was not part of the management of R1 throughout; A1 was not in the active participation of management of R1, even after becoming a director, which is evident from the fact that he has not attended any meeting of Board of Directors of R1 since May 2019; and neither the AoA nor any other agreement pro....
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....sclose his interest in AGT even though he had acquired the same only a week prior to the meeting. 53. It is submitted that the contention of A1 that at the meeting on 09/05/2019, A1 allegedly met R14 in person and informed her about the acquisition of interest by K C Nuwal Group in AGT and that it was the duty and responsibility of R14 to place this before the Board of Directors cannot be taken as disclosure under Section 184 of the Act. 54. It is submitted that the Applicants have also alleged that on 28/06/2019 the full particulars of the shareholding of the K C Nuwal Group in AGT were sent by courier to R14. From a bare perusal of the courier receipt, it is evident that the said courier was sent by Solar Synthetics and not by any of the Applicants. There is also no cover letter provided with the shareholding list. The said document is neither addressed to the Board of Directors nor signed by the A1. In any event, as is clear from the shareholding list, the same is not in the prescribed Form MBP 1. The Board of Directors or the Compliance Officer of R1 have not received any courier from the A1 providing the disclosure as alleged or otherwise. 55. Further the emails sent betwee....
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.... All. ELR 667, Para 5, Pg. 24-25. 59. It is submitted that in the AoA of R1, A1 has no right of directorship as a consequence of being a shareholder. Further there is no agreement between the shareholders of R1 providing a right of directorship to A1. The Applicants failed to show any underlying right as shareholder to seek reinstatement of A1 as Director of R1. Hence, A1 is not entitled to any relief relating to his position as Director of R1 let alone reliefs sought under revised prayers A1 & A2. Even though the Applicants have attempted to draw a distinction between Section 397 of the Companies Act, 1956 and Section 241 of the Act, to allege that under Section 241, the Applicant as member, is entitled to raise any concern that are prejudicial to his interest, it is pertinent to highlight that a plain reading of Section 241 makes it abundantly clear that all such complaints have to be for acts which are prejudicial to him in the capacity of member of the Company and not in his capacity as director. The said provision cannot be misused to raise directorial disputes in the guise of oppression and mismanagement. Applicant cannot sustain a case for a flourishing company to be wound ....
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....n among the family members and the shareholding will be devised in a particular manner. Further, the Family Settlement Agreement was signed by Mr. Nandlal Nuwal & Mrs. Sohandevi Nandlalji Nuwal (as Party No. 1); R3 & R6 (as Party No. 2); A1, A2 & A3 (as Party No. 3); and R4 & R5 (as Party No. 4). iii. We are of the view that it would not be proper at the interim application stage to decide anything on merit to find out whether R1 is a quasi partnership or not. This can only be considered while deciding the Company Petition. iv. Even though A1 has become Director of the Company after few years of incorporation it is to be noted that he was the Director in the Company for the past 15 years and also functioning as the Vice Chairman of R1. It cannot be said that he is the Director of the company because of some professional qualifications. He has been a Director of this Company only by virtue of shareholding like R3 and R4. So, denying a directorship to K C Nuwal Group will definitely prejudice the interest of the Group and would amount to change in management of R1. v. It is to be noted that the Applicants' Group hold 29% of R1 and the Respondents' Group cannot muster support fo....