TaxTMI 
TaxTMI 
2022 (5) TMI 928
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....e at Hyderabad for the State of Telangana and Andhra Pradesh in Company Appeal No.14 of 2016, whereby the appeal filed by respondent Nos. 1 to 3 against the order dated 30.5.2006 passed by Company Law Board (hereinafter to be referred to as 'C L B ') was allowed. 3. A brief narration of facts necessary for disposal of these appeals are that the dispute in question relates to a family feud between mother on one side and her three daughters on the other, concerning respondent No. 4 ­Company ((Biological E. Ltd.) (hereinafter to be referred to as "the Company") which was established by G.A. Narasimha (father of respondent No. 1) in 1953. Dr. Vijay Kumar Datla (father of the appellant­Mahima Datla) was inducted in the Company on 01.05.1972 and later appointed as the Chairman and Managing Director of the said Company. In the year 1998, the appellant­Mahima Datla joined the Company as a management trainee with her father with the intent to be groomed her as his successor. Through the years, she has acclimatized and grown with the aforesaid Company and in 2004, she was promoted as Senior Vice President (Biotechnology and Projects). 4. There is no gainsaying t....
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.... the Managing Director of the Company and 11 shares each were transferred by appellant­Mahima Datla in favour of Narendra Manthena and P. Sridhar Raju. The aforementioned Board Meetings dated 09.04.2013, 10.04.2013 and 11.04.2013 were not attended by respondent No. 1. 8. Thereafter, Annual General Meeting (AGM) of the Company was conducted on 18.12.2013 by GV Rao, Purnima and Indira wherein the appellant­Mahima Datla, Purnima and Indira were duly recognised as Managing Director and Directors respectively. 9. The respondent No. 1 has alleged that neither she received any notice nor any agenda of the aforesaid meetings. Respondent No. 1 contends that holding of board meetings was illegal as an attempt was made to increase the number of members in the Company only to ensure that she doesn't have sufficient shareholding to maintain a petition under Sections 397 and 398 of the Companies Act, 1956 (hereinafter to be referred to as '1956 Act'). Further she claims that she attended the Board Meetings, which were convened on 22.08.2013 and 25.09.2013, wherein her objections to the agenda were not duly recorded. 10. The respondent No. 1 filed a suit before City Civil Court, ....
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....sed in CP No. 36 of 2014, CLB in para 100 concluded as under: "100. As I already held that the petition is not maintainable and the same is dismissed. Even otherwise and in view of the foregoing reasons, the petitioner has not made out any case either on oppression or on mismanagement in the affairs of the Company: The Petition is miserably failed and liable to be dismissed. Accordingly, the C.P. No. 36/2014 is dismissed. In view of the dismissal of the CP, the undertaking recorded by this Bench in its Order dated 06.08.2014 will not bind on the respondents. Any other interim orders operating as on this date stand vacated. All the unnumbered applications pending as on this date stand disposed of. No order as to costs." 14. On issue No. (i), CLB observed that the respondent No. 1 had filed O.S. No. 184 of 2014 in the Civil Court to declare that she was the absolute owner of 4,00,961 shares belonging to (Late) Dr. Vijay Kumar Datla. The said suit was filed prior to filing the Company Petition and this Court vide order dated 06.10.2015 also directed to dispose of the civil suit pertaining to the disputed shares. Thereafter, CLB rejected the relief relating to Sections 111&....
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.... ratified in AGM, became final and is binding on the Company and its members. 18. With regard to issue No. (v), CLB observed that the Company was a profitable Company and it could not be said that its affairs were being conducted in a manner prejudicial to the interests of shareholders and public at large. It was held that no evidence was placed on record by the respondent No. 1 to show that the affairs of the Company were being conducted in a manner prejudicial to her interest as a shareholder. Insofar as the allegation pertaining to mismanagement by the officials of the Company was concerned, the CLB relied upon the balance sheets of the Company and held that there was no evidence of mismanagement. Finally, it was held that the situation did not warrant winding up of the Company and unless such a situation exists, no relief could be granted under Sections 397 and 398 of 1956 Act. 19. On the last issue No. (vi), the CLB held that no act of oppression and mismanagement was made out by the respondent No. 1. The acts complained by her were in the nature of directorial complaints, which did not make out a case for winding up of the Company. 20. Aggrieved by the aforesaid orde....
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....e V of the Companies Act, 2013 which prescribes maximum age of 70 years to be a director, shall not apply to appellant no. 1; d. The appellant no. 1 and the directors nominated by her to the Board shall hold the office for a period of 3 years from the date of their assuming charge notwithstanding anything contained in Section 152(6) of the Companies Act, 2013; e. It is open to appellant no. 1 to appoint a committee of advisors to advise the board for the future management of the Company; f. after the expiry of 3 years period referred to above, fresh Board of directors may be constituted as provided in the Act and Articles of Association of the Company. 22. Questioning the validity of the order of the High Court, present appeals have been filed. 23. We have heard learned senior counsels for the appellants and counsel appearing for the respondent No. 1 and have also perused the record. 24. At the outset, the High Court's approach in entertaining the Company Appeal under Section 10­F of 1956 Act and setting aside the order dated 30.05.2016 passed by CLB thereunder is contrary to the scope of the aforesaid Section. The High Court conducted an ela....
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.... it.^1 This Principle was derived from the decision In Re: Duomatic Ltd., [1969] 2 C h. 365, wherein Buck ley, J . held as under: "where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be." 27. The enunciation of the aforesaid principle, in the abovementioned case can be traced back to the decision of Lord Devey in Salmon v. Salmon Co. Ltd., [1897] AC 22, (hereinafter referred as "Salmon's case") wherein it was held that "a company is bound in a matter intra vires by the unanimous agreement of its members". 28. The aforesaid Principle emanating from Salmon' Case (supra) has found its utility across various aspects of company law such as Duomatic Principle, Doctrine of Indoor Management, etc. This Principle having its origin in common law, is applicable even in the Indian context. 29. It is, in this context, we must note that application of Duomatic Principle is only applicable in those cases wherein bona fide transactions are involved. Fraud is a clear ....
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....sion, which, in our view, is a patent illegality committed by the High Court without taking into considerations aforesaid principles. We, therefore, hold that G.V. Rao never seized to be a Director of the Company in view of the acquiescence by respondent No. 1, and he had withdrawn his resignation prior to its acceptance. 33. The second aspect which we are called upon to answer is the validity of the Board Meetings dated 09.04.2013, 10.04.2013, and 11.04.2013. The High Court has dealt with the aforesaid question in two ways. The first reasoning is that G.V. Rao, who had resigned as Director with effect from 06.04.2014, had no authority in law to convene aforesaid meetings. In view of the same, the said meetings were not called as per the terms of law. The aforesaid reasoning cannot stand the scrutiny of this Court as this Court has already noted that G.V. Rao continued to be a Director and his resignation cannot be considered as elucidated in the earlier discussion. 34. The second line of reasoning taken by the High Court is that "assuming for the sake of argument without conceding that he continued as Director and that his resignation was validly withdrawn, still being the o....
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.... payment to his creditors or makes, or has at any time made, a composition with them; or (d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months. (4) Subject to the provisions of section 197 and Schedule V, a managing director, whole­time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions specified in that Schedule: Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any: Provided further that a return in the prescribed form shall be filed within sixty days of such appointment with the Registrar. (5) Subject to the provisions of this Act, where an appointment of a managing direct....
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.... in default of, and subject to any regulations in the articles of the company, also be appointed by the company in general meeting. (c) At the first annual general meeting of a public company held next after the date of the general meeting at which the first directors are appointed in accordance with clauses (a) and (b) and at every subsequent annual general meeting, one­third of such of the directors for the time being as are liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one­third, shall retire from office. (d) The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot. (e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto. Explanation.-For the purposes of this sub­section, ―total....
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.... Hyderabad by contending that she has inherited the same vide Will dated 14.12.1987 executed by Dr. Vijay Kumar Datla. In given scenario, the High Court should not have dwelled into the issue of inheritance and granted ¼ of 4,00,96 shares in favour of respondent No. 1. In the case of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad, (2005) 11 SCC 314 this Court emphasized upon the same issue in following words: "143. It is also not in dispute that the matter relating to her claim to succeed FRG as his Class I heir is pending adjudication in Civil Suit No. 725 of 1991 in the Baroda Civil Court. She claimed title in respect of 8000 shares by inheritance in terms of the Hindu Succession Act. Indisputably, in terms of Section 15 of the said Act she is a Class I heir but the appellants herein contend that the said provision has no application having regard to Section 5(2) thereof as inheritance in the family is governed by the rule of primogeniture. A pure question of title is alien to an application under Section 397 of the Companies Act wherefor the lack of probity is the only test. Furthermore, it is now well settled that the jurisdiction of the ci....
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....rovided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub­ section (1), the Company Law Board] is of opinion­ (a) that the company' s affairs are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding­ up order on the ground that it was just and equitable that the company should be wound up; the Company Law Board] may with a view to bringing to an end the matters complained of, make such order as it thinks fit." As per the aforesaid provision, an order could be made on application made under sub­section (1), if the Court is of the opinion that (i) the Company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members, and; (ii) the facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up, and; (iii) the wi....
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....d to register her protest in any of the meetings which flies in the face of her letter dated 15.04.2013, addressed to the employees of the Company, welcoming the appointment of appellant­Mahima Datla as its Managing Director and other appointments. The High Court has erred by ignoring the impact of letter dated 15.04.2013 signifying consent of respondent No. 1 to the appointments made to the Board of the Company. 41. During the course of hearing, the counsel representing the respondent No. 1, though contested the case, but on the other hand, the three daughters present in the Court also shown gesture to maintain the respondent No. 1, aged about 75 years by offering to pay her the salary more than that of the Managing Director along with all emoluments. They have also offered to pay a lump sum amount with a view that the Company, which was started by late father of their mother and flourished by the hard labour of their father, should not go into losses, as being daughters they owe duty to run the Company with full of skill and to achieve more heights. It is in this context that we do not propose to take the above discussion to its logical conclusion. Rather we feel that this....