TaxTMI 
TaxTMI 
2023 (12) TMI 788
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.... dated 13.11.2020, the Appellants have preferred the present appeal. 3. Heard, Counsel for the Parties and perused the record made available including cited the judgments. 4. It has been brought out that M/s Om Sai Navigations Pvt. Ltd. ( in short 'Company') was incorporated on 06.04.2009 for running ferry and other freight services using water routes and other incidental objects. The Appellant No. 1 Ashwin Khushaldas Banker and Appellant No. 2 Dhruv Ashwinkumar Banker are the original subscribers of the Memorandum of Association (in short 'MoA') and the Article of Association (in short 'AoA') of the company. In 2015, the Gujarat Maritime Board (in short 'GMB') after a global tender process, awarded the work of running Victor Port on Licence Basis to the Company i.e., M/s Om Sai Navigations Pvt. Ltd. The Respondent No. 1 is Mr. Hitesh Chagganalal Ambalia and Respondent No. 2 is Sandip Chagganalal Ambalia (in short the 'Contesting Respondents') approached the Appellants and sought to purchase stake in the Company and it was decided that 45% shares would be allotted to the Contesting Respondents, who, subject to valuation of the shares, agreed to infuse capital amount equiva....
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.... into transactions with the Company and one such letter was written to M/s Swan Energy on 16.09.2019 raising all sorts of allegations and warning them not to enter into transactions with the Company. The Appellants on 19.09.2019 called for a Board Meeting to discuss issue regarding false letters written by the Respondent No. 1, which caused immense harm to the Company. In the Board Meeting, the Appellants requested the Contesting Respondents to either infuse the funds or exit company. 10. It is the case of the Appellants that deliberate obstacles continued to be created by the Respondent No. 1 and the Appellants were forced to Issue a notice under Section 169(1) of the Companies Act, 2013 calling upon the Respondent No. 1 to provide an explanation as to why he should not be removed from the post of the Director. The Respondent No. 1 immediately moved CP 103/2019 to the Tribunal against the notice complaining of Acts of oppression and mismanagement by the Appellants. The Respondent No. 1 also filed his representation dated 07.12.2019 justifying his actions and stating that but the disputes were not simple disputes between the Directors inter-se the disputes were more in nature of....
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....d. Similarly, shareholding of his brother, the Respondent No. 2 herein was also not disturbed. It has been submitted that the Respondent No. 1 was removed from the Directorship, of the Board of Director as he was acting against the company causing great harm to the interests of the Company, which could not have been allowed. 15. It is the case of the Appellants that Section 240 and 241 of the Companies Act, 2013 was not applicable in the present case as there was no instance of oppression & mismanagement. The Appellants alleged that the Contesting Respondents, in order to avoid their commitment and liability to infuse additional funds, twisted the case as if, disputes between the Directors was case akin to oppression & mismanagement. The Appellants stated that at best it could have been treated as disputes between directors and could have been dealt legally by appropriate legal forum and the Tribunal had no role to play in such case. 16. The Appellants assailed the Impugned Order because of the wrong and illegal interpretation of the Heydon's Rule of Purposive Construction, despite observing by the Tribunal itself that literal interpretation of the statute is the first rule, ....
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....e working of the Company. It is the case of the Appellant that in Chatterjee Petrochemical v. Haldia Petrochemical [(2011) 10 SCC 466], in dealing with the Section 397/398 of the Companies Act, 1956, it was held that for relief, the Applicant is required to prove that the conduct complained of was unfair and lacked probity so as to cause prejudice to the applicant in exercising his legal and proprietary rights as a shareholder. The Supreme Court further cautions that the conduct cannot be one isolated case, but must be part of a concerted action to cause prejudice. 20. The Appellants submitted that the Company is not a quasi-partnership. The Appellants submitted that the features of the a quasi-partnership are (i) prior partnership (ii) equality in shareholding (iii) an expectation that the formation of the relationship for participation in the business based on some understanding (iv) restriction on transfer of shares. It is the case of the Appellants that the Company was incorporated in 2009 and the Respondents were inducted only in 2015 only to finance the company, and to use their network to bring business to the company. The Appellants assailed the Impugned Order dated 13.1....
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....he conduct of the meeting in the manner in which it was held and as such the Tribunal could not treat as case of the oppression & mismanagement. 25. The Appellant pleaded that all alleged acts by the Respondent No. 1 are inter-se disputes which are completely outside the scope of Section 241-242 of the Companies Act, 2013 and the illegal assumption of jurisdiction has caused serious prejudice to the Company and the Appellants 26. The Appellant submitted that no prayer for joint signatory authority was made by the Contesting Respondents and the Tribunal relied upon by the e-mail dated 22.12.2018 which stated that there was no "maker-checker and dual sign". The Appellants assailed the Tribunal who on one hand treated this letter as the truthful however ignored express understanding of the Contesting Respondents to infuse funds. The Appellants alleged that the Tribunal passed the Impugned Order which indicate the perversity on part of the Tribunal. 27. Concluding their arguments, the Appellants submitted that the Impugned Order is patently illegal and issued without any jurisdiction and therefore need to be set aside by the Appellate Tribunal. 28. Per contra, the Contestin....
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.... Respondents that the Letter of Intent dated 09.04.2015 which predates the agreement also prescribes in Clause 2.4 and 2.5 that the Company is required to obtain all permissions/approvals including Environment Clearance/CRZ Clearance from government departments and then begin the work of strengthening/renovating work of the existing jetty and construction of new facilities. In the context of the said clauses, however the Appellants did not obtain any Environmental Clearance and began operations at the jetty. This was not only contrary to the Letter of the Intent and Agreement, but shows the casual attitude of the Appellants in managing the contracts given to the Company. 32. The Contesting Respondents submitted that owing to indiscriminate operations without any thought of the environment, a PIL being W.P [PIL] No. 28 of 2019 was filed by them before the Hon'ble High Court of Gujarat against the Company which is still pending. The viability of entire project was put into jeopardy due to non-compliance of environmental norms by Appellants. 33. The Contesting Respondents submitted that both the Appellants and the Respondents had come to written understanding on 20.01.2019 i....
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....ved only when any one resigns, dies or is disqualified as per the Companies Act. 38. The Contesting Respondents submitted that the Appellants, in order to cover their acts of mismanagement of the Company, which were objected to by the Contesting Respondents, decided to remove Mr. Hitesh Ambalia the Respondent No. 1 herein as a director by way of EOGM held on 18.12.2019 and such action of illegal removal was challenged by Contesting Respondents before the Tribunal under Section 241 and 242 of the Companies Act 2013. 39. The Contesting Respondents denied the submission of the Appellants that the petition of the Respondent No. 1 was in the nature of directorial complaint or inter-se disputes and hence beyond the jurisdiction of the Tribunal. It is the case of the Contesting Respondents that the Tribunal correctly held, after detailed analysis of the Companies Act 1956 and Companies Act, 2013 that Tribunal has jurisdiction to decide the issues of disputes between directors or shareholders which may or may not adversely affect the conduct of affairs of the Company. The Respondents submitted that Tribunal correctly held that removal of directors, who are collectively responsible fo....
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....) an association formed or continued on the basis of a personal relationship, involving mutual confidence ; (ii) an agreement, or understanding, that all, or some for there may be 'sleeping' members, of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere. 43. The Respondents submitted that the Appellants has admitted to the partnership vide email dated 22.12.2018. The said e-mail reads "At the time of entering into partnership, we have already discussed with you that majority shareholding and decision authorities will be in the hand of Banker Group (the Appellants herein) in good faith of company....". It is submitted that the said email is a clear admission on the part of the Appellants, showing the intent with which, the Appellants joined hands in Contesting Respondents in 2015. It is submitted that before induction of the Contesting Respondents, the company was a loss-making enterprise. In the year 2015, the Appellants approached the Cont....
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....esting Respondents requested this Appellate Tribunal to dismiss the appeal. Findings 50. From various averments of the Parties, we find that main issue is regarding alleged oppression & mismanagement, which has been dealt by the Tribunal under Section 241 & 242 of the Companies Act, 2013. 51. In original application before the Tribunal filed by the Contesting Respondents herein, in C.P. No. 103/ 2019, total 19 reliefs were sought in para 68 (v). The Tribunal in the Impugned Order discussed several issues and the details in general. The Tribunal subsequently framed three questions for its own decision to decide application in para 9 which reads as under : "9. We have considered the submissions made by both the sides as well as material on record. The questions which arise for our consideration in this application can be summarised as under :- a) Whether present petition is an instance of oppression and mismanagement within the meaning of provisions of Section 241 & 242 of Companies Act, 2013 and, therefore, we have jurisdiction ? b) Whether removal of Petitioner No. 1 from the directorship of the Respondent No. 1 Company under Section 169 is valid....
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.... for removal of the Petitioner No. 1 from Respondent No. 1 Company is also declared illegal, null and void. (2) The position of Director of the Petitioner No. 1 in Respondent No. 1 Company is restored from the date of his removal from such post. (3) The bank account of the Company will be jointly operated wherein one person from the Petitioners" side and one person from Respondent's No. 2 and 3 would be signatories. (4) Certified copies of this order b filed with the concerned Registrar of Companies within 30 days from the date of this order. (5) There is no order as to costs. (6) CP No.13 of 2019 stands allowed and disposed off in terms indicated above." 56. We note that the Appellants have broadly taken the following pleas in challenging the Impugned Order:- (i) Wrongful assumption of jurisdiction by the Tribunal and wrongful interpretation of Section 241 and 242 of the Companies Act, 2013. (ii) Wrongful interpretation of the facts. (iii) Wrongful finding by the Tribunal of quasi-judicial character of the Company. (iv) The inter-se disputes between the Director or other members could not be treate....
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....4]. (ii) Badri Nath Galotra Vs. Aanaam (P) Ltd. [(2007) 76 SCL 241 (CLB)]. (iii) Praful M. Patel Vs. Wonderweld Electrodes Pvt. Ltd. [(2001) SCC Online CLB 57]. (iv) Kamal Kumar Dutta & Ors. Vs. Ruby General Hospital Ltd. & Ors. Civil appeal No. 3471 of 2006 (SLP (c) Nos. 11017-11018 of 2005). (v) In re Westbourne Galleries Ltd. (Ch. D). (vi) Ador- Samia Ltd. & Ors. vs. Indocan Engineering Systems Ltd. & Ors[(2002) 100 Comp Cas 370 (CLB)]. (vii) V.B. Rangaraj Vs. V.B. Gopalakrishnan and Others [(1992)1 SCC 160]. 61. The Contesting Respondents have not referred to Tata Consultancy (Supra) as not being applicable in the given facts of the present case without giving much details and without differentiating present case with Tata Consultancy (Supra) w.r.t. facts and the law laid down. 62. We observe that the Impugned Order was passed by the Tribunal on 13.10.2020, whereas later in 2021 the landmark Judgment on oppression & mismanagement covering several issues including quasi-partnership aspects was passed by the Hon'ble Supreme Court of India in case of Tata Consultancy (Supra) and obviously the Tribunal did not have the ben....
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.... fit, quite tactfully, not to press for the reinstatement of CPM is that the mere termination of Directorship cannot be projected as something that would trigger the just and equitable clause for winding up or to grant relief under Sections 241 and 242. A useful reference can be made in this regard to the decision of this Court in Hanuman Prasad Bagri v. Bagress Cereals (P) Ltd. [Hanuman Prasad Bagri v. Bagress Cereals (P) Ltd., (2001) 4 SCC 420]. 118. An important aspect to be noticed is that in a petition under Section 241, the Tribunal cannot ask the question whether the removal of a Director was legally valid and/or justified or not. The question to be asked is whether such a removal tantamounts to a conduct oppressive or prejudicial to some members. Even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial. 119. There may be cases where the removal of a Director might have been carried out perfectly in accordance with law and yet may be part of a larger design to oppress or prejudice th....
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....eld. A mere lack of confidence between the majority shareholders and minority shareholders would not be sufficient, as pointed out in Shanti Prasad Jain v. Kalinga Tubes Ltd. [Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535] 144. It was contended repeatedly that lack of probity in the conduct of the Directors is a sufficient cause to invoke just and equitable clause. Drawing our attention to the landmark decision in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333] , it was contended that even the profitability of the company has no bearing if just and equitable standard is fulfilled and that the test is not whether an act is lawful or not but whether it is oppressive or not. 145. But all these arguments lose sight of the nature of the company that Tata Sons is. As we have indicated elsewhere, Tata Sons is a principal investment holding company, of which the majority shareholding is with philanthropic trusts. The majority shareholders are not individuals or corporate entities having deep pockets into which the dividends find th....
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....cutive Chairman of Tata Sons, NCLAT directed [Cyrus Investments (P) Ltd. v. Tata Sons Ltd., 2019 SCC OnLine NCLAT 858] the restoration of CPM as Executive Chairman of Tata Sons and as Director of Tata Companies for the rest of the tenure. 161. NCLAT appears to have granted the relief of reinstatement gratis without any foundation in pleadings, without any prayer and without any basis in law. By doing so, NCLAT has forced upon the appellant an Executive Chairman, who now is unable to support his own reinstatement. 162. NCLAT has found the dismissal to be illegal and not a nullity. In law, a dismissal even if found to be wrongful and mala fide is an effective dismissal and may give rise to a claim in damages. In S. Dutt v. University of Delhi [S. Dutt v. University of Delhi, 1959 SCR 1236 : AIR 1958 SC 1050] this Court held: (AIR p. 1054, para 14) "14. ... The award held that the appellant had been dismissed wrongfully and mala fide. Now, it is not consequential to such a finding that the dismissal was of no effect, for a wrongful and mala fide dismissal is nonetheless an effective dismissal though it may give rise to a claim in damages. The award, no doubt....
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....dustrial Tribunal; and (c) terminated in breach of a mandatory obligation imposed by statute by a statutory body. 180. Therefore, despite the law relating to oppression and mismanagement undergoing several changes, the object that a Tribunal should keep in mind while passing an order in an application complaining of oppression and mismanagement, has remained the same for decades. This object is that the Tribunal, by its order, should bring to an end the matters complained of. 181. In other words the purpose of an order both under the English law and under the Indian law, irrespective of whether the regime is one of "oppressive conduct" or "unfairly prejudicial conduct" or a mere "prejudicial conduct", is to bring to an end the matters complained of by providing a solution. The object cannot be to provide a remedy worse than the disease. The object should be to put an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders. It is relevant to point out that once upon a time, the provisions for relief against oppression and mismanagement were construed as weapons in the armoury of the shareh....