TaxTMI 
TaxTMI 
2021 (5) TMI 430
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....ointly etc. 2. Brief facts of the case, which are relevant to the issue in question, are as follows: "(1) M/s. United Telecoms Limited, (herein after referred to as R 1 Company) was incorporated on 17.03.1984 under the provisions of the Companies Act, 1956 as a Private Limited Company. It was originally incorporated with the Registrar of Companies, Tamil Nadu. Subsequent thereto, in the year 1986, the Registered office of the 1st Respondent Company was shifted to the State of Karnataka at Bangalore. Its registered office is situated at 18A/19, Doddanekundi Industrial Area, Mahadevapura post, Whitefield, Bangalore- 560048. The 1st Respondent pioneers in providing technological solutions in the fields of telecommunications and e-governance. Its annual turnover for the Financial Year 2018 was Rs. 267 crores and its authorised share capital is Rs. 115,000,000/- and the Paid-up capital is Rs. 111,557,180/-. The Company originally belonged to the UB group of companies and in 1992, it was acquired by Late Shri Basavapurnaiah. (2) Late Shri. C. Basavapurnaiah had 3 children i.e., Mrs. Potluri Padmavati (3rd Respondent), Mr. Chalasani Venkateswara Rao (1st Petitioner) a....
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....d the 2nd Respondent to step down as the MD. Late Shri. C. Basavapurnaiah and the other Members of the company unanimously chose the 1st Petitioner to lead the affairs 1st Respondent Company based on his merit and proven track record. In the year 2010, after the demise (at the age of 21) of Late Sri., Chalasani Gautham Braihmiah, son of the 1st Petitioner, both Late Smt. C. Sarojini Devi, Late Shri. C. Basavapurnaiah and Smt. Potluri Padmavathi unanimously decided to divide the shares of the company equally amongst all the Members of the family (including the children of the 1st Petitioner and the 3rd Respondent). (5) Furthermore, upon demise of Late Smt. C. Sarojini Devi., wife of Late Shri. C. Basavapurnaiah and mother of the 1st Petitioner and 3rd Respondent in the year 2013, all the shares held by Late Smt. C. Sarojini Devi in the 1st Respondent Company devolved solely to her husband, Late Shri. Basavapurnaiah by virtue of her will dated 8.12.2013. On 20.07.2015, Late Shri. Basavapurnaiah passed away. In terms of his will dated 20.07.2015, the ownership of the Company devolved equally upon two of his three children and their family i.e., the 1st Petitioner and the 3rd ....
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....rsonal loans etc. and has acted in a manner which is burdensome, harsh and wrong, qua the shareholders who are the Petitioners herein. (8) The Respondents held several Board meetings. The petitioners received a notice dated 28/6/2017 informing the conducting of a board meeting on 03.07.2017, the 1st Petitioner vide letter dated 28.06.2017 replied to the 3rd respondent stating that since the notice convening the meeting was dubious on several counts and is lacking authority for convening of the meeting, the Petitioners would not be attending such board meeting. On 03.07.2017 when the respondents called for a board meeting, a resolution was passed relegating the role of the 1st Petitioner herein. Despite the 1st Petitioner having spent more than 18 years in conducting the affairs of the 1st Respondent Company, the 2nd and 3 Respondents redefined his role to only oversee the R&D and production unit of the 1st Respondent Company. Similarly, the 3rd Petitioner who was earlier an executive Director, is restricted to merely assisting the 1st Petitioner. (9) Further, in a Board meeting dated 30.11.2017, a Resolution was passed by the Board resolving, that two out of the t....
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....time of chairing/attended several meetings. (12) In order to protect the interests of the Company from the dubious ways of the Respondent family, the Petitioners issued a letter to the Company's banks on 01.07.2017 requesting the banks to not accept any unilateral Board resolution or request for change of authorized signatory, until and unless certified by all shareholders of the Company. The total amount of funds withdrawn by Respondent Nos. 2 and 3 from the years 2006-2017 approximately amounts to 29 crores. Furthermore, in another instance of grave mismanagement, the Respondent No. 2 misused the funds relating to the Respondent No. 1's project executed at Ivory Coast. The actions taken by Respondent family itself would prove that they are conducting the affairs of the company detrimental to the interest of the company as well as the other Members of the company. (13) Due to the willful inaction by the Respondent No. 2 and recurring mismanagement done by him in Respondent Company, a C.P (IB) 274 of 2018 was filed against the 1st Respondent Company before this Hon'ble Tribunal by M/s. Oriental Bank of Commerce (Financial Creditor). To save the company....
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.... vide Prob CP no. 14/2014 before the Hon'ble High Court of Karnataka. However, Respondent no. 3 has presently filed Probate CP no. 15/2017 seeking for revocation of the Probate granted in Prob CP no. 14/2014. The same in pending before Hon'ble High Court of Karnataka. Hon'ble High Court of Karnataka has directed both Respondent No. 3 and Petitioner No. 1 to maintain status quo regarding the Wills called in question. (3) The Articles of Association, governs the operations and working of Respondent no. 1 Company through its Board. Articles of Association of Respondent No. 1 Company does not provide for appointment of nominee Directors for individuals and hence the averment that Respondent no. 4 and 5 along with Petitioner no. 3 are nominee Directors is false and a result of illusive imagination. It is true to an extent that BBNL tender was awarded to Respondent No. 1 and BBNL stopped payments to Respondent no. 1 Company, rest all averments are self-glorifying statements by the Petitioner No. 1 and is denied. It is necessary to state that, when BBNL floated the tender, Petitioner No. 1 bid to complete the project at 998 crores (approx.), while the nearest competit....
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....B.S Ballal office in Respondent No. 1 premises. Petitioner No. 1 broke the lock of B.S Ballal office in Respondent No. 1 premises and took away all company documents such as Board meetings, minute Books, Board resolutions etc. are illegally taken. Petitioner No. 1 is in complete custody of the documents and never returned to the board, in spite of requesting him to return the same. The Respondent No. 1 Company through its Board meeting held on 11th June, 2010 authorized Respondent no. 2 to deal with land bearing property patta no. 61, Old No. 108, in question. By virtue of this Board resolution, Respondent No. 2 was resolved to be President & CEO/Authorized Signatory to deal with Land in Vizag. It can be seen that, procurement of land in Vizag by way of an Agreement of Sale coupled with irrevocable Power of Attorney from the Vendor of land is not disputed by the Petitioners. Accordingly, Sale Deeds were executed by Respondent No. 2 on behalf of Respondent No. 1 Company. Hence it's false to state that Respondent No. 2 did not procure approval of Board. Petitioner no. 1 was the MD of Respondent No. 1 and having agreed to grant authorization to Respondent No. 2, who was not on Boa....
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....ant that, Petitioners are trying to label Respondent No. 1 Company as "willful defaulter" when the company is not categorized by any Government Authority. Petitioner no. 1 has used his position as Managing Director position to his advantage and has his relatives, who appear to have been running the company, without any authorization even on behalf of Petitioner No. 1. Petitioners have used the money/receipts received by the Respondent No. 1 Company to buy assets in other countries and even divert the amount to acquire shares in the Company in an illegal manner. (9) The Petitioners used to conduct their Board meetings without quorum as prescribed in Article 65 of Articles of Association and pass illegal resolutions. The Petitioner no. 1 has been Managing Director of the Respondent No. 1 since 2009, who was appointed by Board under the chairmanship of Late C Basavapurnaiah. In pursuant to gross mismanagement of affairs of Respondent no. 1 business by Petitioner No. 1 as MD coupled with losses being caused, Respondent No. 3 called the Board meeting dated 03.07.2017. The Board resolution where, Respondent no. 3 was given additional power especially regarding finance was out of....
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....accepted by Board and signed by Petitioner No. 1. It is necessary to state that, Exchange Earner's Foreign Currency account was never opened either with M/s. IDBI Bank or M/s. Dhanalakshmi Bank. Thirdly, Respondent no. 1 company received 30% as initial receipts from Ivory Coast Project and Respondent no. 1 Company paid a sum of Rs. 12.73 crores as on 31st March, 2017 to M/s. IDBI Bank. A further sum of Rs. 5 crores was paid to IDBI on 26.09.2018 and a sum of Rs. 2 crores on 30.04.2019. In total, Respondent No. 1 Company has paid a sum of Rs. 19.73 crores to IDBI bank regularly. (12) The Respondent no. 1 Company as on July 2017 had an outstanding dues of Rs. 90 crores to various banks and with year ending March, 2017 the dues have reduced to a sum of Rs. 45 crores. Based on the projected revenue of the Respondent no. 1 Company, the dues are expected to reduce further. The statutory liabilities has been consistently been reducing and the same is due to pro-active steps taken by Respondent No. 1 Company Board and not by any individual." 4. The Respondent No. 2 to 5 has filed Statement of objections dated 08th March, 2021, by inter alia contending as follows: "....
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....espondent No. 3 herein is the Director of the M/s. NSP Electronics. Petitioners holding a meagre shareholding have managed the affairs of the Company. But at no point of time, have Petitioners even called for a board meeting or followed any secretarial practices during the course of management of M/s. NSP Electronics. The Respondent No. 1 submitted a requisition under Section 100(2)(a) of Companies Act, 2013 dated 25.01.2020 addressed to Board of M/s. NSP Electronics for convening Extraordinary General Meeting of the shareholders which detailed 9 items which placed as agenda for the meeting. Again, a notice dated 23rd March 2020 for convening Extra ordinary General Meeting and informed Petitioners by way of email dated 24th March 2020 that the said Extra ordinary General Meeting would be held on 16th April 2020. Further, on 15th April 2020 due to issues surrounding COVID-19, M/s. United Telecom Limited issued another notice for conducting Extra ordinary General Meeting on 24th April 2020 and the same was informed to Petitioners by way of an email. Accordingly, Extraordinary General Meeting was convened as per the provisions of the Companies Act 2013 and Secretarial Standards well w....
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....irement offered themselves for retirement and the same was duly accepted. Pursuant that, the AGM for the year 2018-19 was called for and was scheduled for 24th April 2020. However, the AGM called on April 24, 2020 could not be held as the there was no sufficient quorum as per the articles of association of the Respondent No. 1 Company and therefore, AGM was adjourned in terms of Section 102 of Companies Act, 2013. On 30th April 2020, in terms of Section 102 of Companies Act, 2013, Respondent No. 1 Company issued a notice for conducting adjourned AGM on 6th May 2020. The Petitioners who are shareholders of the Company failed to appear for the AGM and when the agenda regarding reappointment was placed before Shareholders, Petitioner No. 1 and 2 were not reappointed. Thereby by act of law, Petitioner No. 1 and 2 ceased to be the Directors of the Respondent No. 1 Company. (7) In order to make out a case for oppression under Section 421(1)(a), it is to be seen whether the affairs of the Company have been carried out/conducted in a manner which is prejudicial or oppressive to any shareholder or is prejudicial to public interest. As defined in the Black's Law Dictionary '....
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....ed Counsel for the Petitioner, after arguing the case, has filed written gist of arguments dated 14th April, 2021, by inter-alia stating as follows: "(1) The 1st Respondent Company, which was originally formed by the UB Group was acquired by the family of the petitioners and the Respondent Nos. 2 & 3 and mainly by Late. Sri. C. Basavapurnaiah, the father of Petitioner No. 1 and Respondent No. 3. The entire shareholding of the first respondent company has all along been held by family members of Late. Basavapurnaiah. The 1st Petitioner, who is an Electronics Engineer has been actively involved in the management of the day to day affairs of the First Respondent Company and the company has shown consistent growth under his stewardship. The shareholding pattern of the company during the lifetime of Late. Basavapurnaiah was arranged in such a way that he held about 30.97% and the petitioner group and the respondent group held about 25.56% and 28.97% respectively. The 1st Petitioners' mother Smt. C. Sarojini Devi also held shares which was bequeathed to Late. Sri. Basavapurnaiah and those shares along with the shares held by Sri. Basavapurnaiah were bequeathed by Late. Sri B....
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.... Respondent No. 1 Company. The effect of the resolution was that the petitioner was merely reduced to a Production Manager. The company is nothing but a family company and all the Members of the family have a right to participate in the management of the day to day affairs of the company. Reliance is placed on the decision in Vijay Krishna Jaidka v. Jaidka Motor Co. Ltd. [1996] 23 CLA 289 (CLB); V Natarajan v. Nilesh Industrial Products P Ltd., (2002) 51 CLA 149 (CLB) wherein courts have consistently held that where the company is in the nature of a partnership or a family company, every member or a branch is entitled to participation in the management of the Company. (4) All the actions, particularly the Board resolution passed against the interests of R 1 company, were being repeatedly questioned by the petitioner group. The 2nd Respondent took complete control over the affairs of the Company by throwing out the petitioners and even physically preventing the petitioners from entering the premises of the company. While matters stood thus, the 2nd Respondent convened a Board meeting to be held on 07.04.2020 to purportedly convene the annual general meeting of the company. ....
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.... (6) They have cited the following are alleged acts of Mis-management: a) So much amount of money belong to the R 1 Company was diverted either to the personal account of the respondents or group companies where they have interests. Monies to the extent of Rs. 13.00 crores from the company's bank accounts have been diverted to Andhra Networks Limited, which is a group company controlled by the respondents. On the other hand, the first petitioner had taken steps to settle the dues of the bank. The respondent Nos. 2 and 3 acting together have diverted funds of the company, resulting in the dues towards company's bankers viz., Canara Bank, Oriental Bank of Commerce and IDBI Bank Limited mounting and the said banks declaring the company's accounts with them as Non-Performing Assets (NPA). The banks have all initiated recovery proceedings before Debts Recovery Tribunal (DRT). Although the petitioner during his tenure as Managing Director has grown the company and has developed a market for this products, the respondents after seizing control over the same after the demise of Sri. Basavapurnaiah are running down the company so much so, that all three Banks of the co....
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....9;ble NCLAT vide Company Appeal (AT) No. 345 of 2019. And the Appeal was allowed by setting aside the impugned order and the case is remanded back to the Tribunal for disposal of the Petition as per law and on merits, by an order dated 04th November, 2020. Hence, the Present Company Petition is being decided as per merits of the case. 9. It is not in dispute that R-1 Company is primarily family run Company and it runs smoothly till Late Shri. C. Basavapurnaiah, passed away on 20.07.2015 and his wife Smt. C. Sarojini predeceased him in the year 2013. By virtue of will, all properties including shares of the Company standing in her name, devolved solely to her husband by virtue of her will dated 8.12.2013 Subsequently, Shri. Basavapurnaiah stated to have executed his will in question, devolving the ownership of the Company equally upon two of his three children and their family i.e., the 1st Petitioner and the 3rd Respondent. However, the Wills executed by the Parents of Petitioner are questioned and pending. Therefore, the issue of devolving shares of Late Sri Basavapurnaiah and his wife, totalling to 30.96 % is pending on the file of Hon'ble High Court of Karnataka. High cou....
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....ctor 164.(1) A Person shall not be eligible for appointment as a director of a Company, if (a) he is of unsound mind and stands so declared by a competent court; (b) he is an undischarged insolvent; (c) he has applied to be adjudicated as an insolvent and his application is pending; (d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence. Providing that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to appointed as a director in any company; (e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and he order is in force; (f) he has not paid any calls in respect of any shares of the Company held by him, whether alone or jointly with other and six months have elapsed from the last day fixed for the payment of the call; (g) he has been convicted of th....
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....esearch, corporate governance, technical operations or other disciplines related to the company's business. [(2) None of the relatives of an independent director, for the purposes of sub-clauses (ii) and (iii) of clause (d) of sub-section (6) of section 149,- "(i) is indebted to the Company, its holding, subsidiary or associate Company or their promoters, or directors; or. (ii) has given a guarantee or provided any security in connection with the indebtedness or any third person to the Company, its holding, subsidiary or associate company or their promoters, or directors of such holding Company, for an amount of fifty lakhs rupees, at any time during the two immediately preceding financial years or during the current financial year." 13. Articles 59 to 73 of Articles of Association of R 1 Company enumerate Power and duties of Directors. In terms of the above provisions of the Act also, the Petitioners as Directors of R 1 Company have to achieve the objects as mentioned supra. However, contrary to their statutory duties rather than discharging their duties, the Petitioners themselves have become litigants raising so many baseless and untenable alleg....
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....n the other hand, the Respondents have satisfactorily convinced the Tribunal that they are eligible persons possessing requisite qualification and are not relative to them. 15. So far as various impugned Board proceedings are concerned, the Petitioners being Directors and shareholders, are entitled for notice and decisions in Board will be taken as per majority as per law. It is not the case of Petitioners that they are not given notice but they have opposed the decisions taken during Board Meetings. Once impugned decisions are taken by the Board in accordance with law, it is binding on the Company and its stake holders and the Petitioners being Directors cannot plead contrary and they are estopped from raising un-tenable grounds. As stated supra, every act done by Respondents was done with the consent and authority provided by the Board. The Petitioner No. 1 who was appointed as MD by Board in 2009 and again in 2013 for 5 years has been signing and authenticating every financial transaction and annual balance sheets from 2013 till year end 31.03.2019. 16. So far as dispute with regard to registration of land pertaining to property bearing Patta No. 61, Visakhapatnam, in ques....