TaxTMI 
TaxTMI 
2022 (5) TMI 928
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....nd 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 that on 14.02.2005, a Will was executed by (Late....
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.....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, Hyderabad being OS No. 184 of 2014, challenging the illegal transmission of shares of (Late) Dr. Vijay Kumar Datla in favour of appellant­Mahima Datla and to declare that the respondent No. 1 was the ....
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....r 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 111­A, 58 and 59 of 1956 Act and held that the petition would be treated as having been filed only under Sections 397/398, 402, 403, 404, and 406 of the 1956 Act. Further, CLB held that the respondent No. 1 could not have acted as a trustee of the two trusts i.....
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....ests 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 order, respondent No. 1 filed an appeal before the High Court being C.A. No. 14 of 2016. The High Court, by impugned order dated 17.11.2017, while allowing the appeal held as under: a. Acts of Respondent. Nos. 2 to 7 are oppressive; b. The meetings of the Board of Director....
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....ompanies 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 elaborate factual analysis in its order which is ex facie over and above the appellate purview of Section 10­F of 1956 Act. Instead of restricting its determination to the purported questions of law arising from the order of CLB, the High Court re­appreciated the entire evidence and other materials on record to give its own factual findings, which runs contrary to ....
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....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 exception to application of these principles, be it Duomatic Principle or Doctrine of Indoor Management. In this context, we may refer to observations in Bowthorpe Holdings Ltd. v. Hills, [2002] EWHC 2331 (Ch), wherein Sir Andrew Morritt V­C, observed as under: "... the transaction must be bona fide or honest. This, in my view, is demonstrated by the qualification of Viscount Hald....
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....he 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 only Director present at the meeting of 09.04.2013, and in absence of minimum coram of 2 as mandated in the articles of associations, it could not have held the meeting". It must be noted that the aforesaid meetings were ratified in the 60th AGM which was called on 18.12.2013. The High Court has again erred in not accepting the ratification in the AGM on the footing that G.V. Rao had resigned and could n....
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....h 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 director, whole­time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid. Part­I of Schedule V deals with Appointments ­ No person shall be eligible for appointment as a managing or whole­time director or a manager (hereinafter referred to as managerial person) of a company unless he satisfies the following conditions, namely:- (c) he has completed the age of twenty­one years and has no....
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....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 number of directors shall not include independent directors, whether appointed under this Act or any other law for the time being in force, on the Board of a company." Article 135 of the AoA: Two­thirds of the Directors liable to retire by rotation "135. Not less then two thirds of the total number of directors of the Company for the being shall be person whose period of office is liable to determination by retirement of directors by rotation." Article 136 of the AoA: Retirement and Rotation of Directors "136. At every annual general meeting of the Company one third of such of the dir....
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....d 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 civil court is not completely ousted by the provisions of the Companies Act, 1956. (See Dwarka Prasad Agarwal v. Ramesh Chander Agarwal [(2003) 6 SCC 220]) 144. A dispute as regards right of inheritance between the parties is eminently a civil dispute and cannot be said to be a dispute as regards oppression of minority shareholders by the majority shareholders and/ or mismanagement." A perusal of the same makes it clear that the High Court while dealing with the question under Sections 397 and 398 of 1956 Act ought not to have invoked principle under Hindu Succession Act to determine the shares of the respondent No. 1 which she claims to ....
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....rder 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 winding up order would unfairly prejudice the Petitioners. This Court has reiterated this principle time and again in various judgments and also in the judgment of this Court in Hanuman Prasad Bagri v. Bagress Cereals (P) Ltd., (2001) 4 SCC 420, the same principle has been reiterated in following words: (3) Section 397(2) of the Act provides that an order could be made on an application made under sub­section (1) if the court is of the opinion - (1) that the Company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; (2) that the facts would justify the making of a winding­-up order on the ground that it was just and equit....
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.... 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 litigation should conclude on an amicable note. Such harsh conclusions may not be advisable when we are concerned with a healthy Company manufacturing vaccines, which are the need of the hour in these days. 42. In view of the forgoing, the impugned order passed by the High Court on 17.11.2017 is hereby set aside being contrary to the provisions of the 1956 and 2013 Acts and the order of the CLB dated 30.05.2016 is restored with modifications and by adding the following conditions­ (1) Dr. Renuka Datla shall be appointed as Emeritus Consultant of the Company. (2) Dr. Renuka Datla will be paid a sum of Rs.65 lakhs per month w.e.f. 01.04.2022 regularly month by month on or before 7th of each month. The payment for current month (April, ....