TaxTMI 
TaxTMI 
2024 (8) TMI 910
X X X X Extracts X X X X
X X X X Extracts X X X X
....mited ('Corporate Debtor'), Appellant No. 2 i.e., Atul M. Thakkar (Ex-Director of Venus Petrochemicals (Bombay), Private Limited) and Appellant No. 3 i.e., Anand A Thakkar (Director of Venus Petrochemicals (Bombay), Private Limited) under Section 421 of the Companies Act, 2013 against the Impugned Order dated 01.04.2022 passed by National Company Law Tribunal, Mumbai Bench, Mumbai ('Tribunal') passed under Section 241 and 242 of the Companies Act, 2013 in Company Petition No. 12/MB/2019. 2. There are three Respondents in the present appeal, Respondent No. 1 i.e., Sunil M. Thakkar (Shareholder of the Corporate Debtor/ Appellant No. 1) , Respondent No. 2 i.e., Lopa S. Thakkar (Shareholder of the Corporate Debtor/ Appellant No. 1) and Respondent No. 3 i.e., Yashesh A. Thakkar(Director of the Corporate Debtor). 3. Heard the Counsel for the Parties and perused the records made available including the cited judgements. 4. It has been brought out that the Corporate Debtor was incorporated on 21.06.1995 and is involved in the business of Chemical Solvents and Specialty chemicals products which are hazardous in nature and various licenses to deal with such hazardous substances like....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y and also started raising false objections against the company and Appellant No. 2 (Mr. Atul M. Thakkar) in BoD. 12. The Appellant No. 2 (Mr. Atul M. Thakkar) also alleged that Respondent No. 1 (Sunil M. Thakkar) was indulged in anti company activities and in such background, the three Respondents filed Company Petition No. 12/MB/2019 before the Tribunal for alleged acts of oppression and mismanagement committed by the Appellants herein without any substantial reasons. 13. The Appellant No. 2 (Mr. Atul M. Thakkar) defended the action taken in appointing Appellant No. 3 (Anand A Thakkar) as Director in the BoD since the Appellant No. 2 (Mr. Atul M. Thakkar) was not well being senior citizen of 60 years age and also wanted to develop a clear succession in the management of the company. 14. The Appellant No. 2 (Mr. Atul M. Thakkar) stated that Respondent No. 1 (Sunil M. Thakkar) was not co-operating and the company was heading towards deadlock and Appellant No. 2 (Mr. Atul M. Thakkar) has no other choice but to appoint third director and since the Appellant No. 3 (Mr. Anand A Thakkar) has been working as employee of the company for many years who was later elevated as Execut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n order to resolve the issues and take the company forward and no mala-fide intention can be attributed to such decisions taken by casting votes. 21. The Appellant No. 2 (Mr. Atul M. Thakkar) submitted that concept of quasi-partnership is not applicable in present appeal as there was a clear understanding and division of responsibilities between the Appellants and the Respondents and pleas of the Respondents based on quasi-partnership issue are not applicable in the present case. 22. The Appellant No. 2 (Mr. Atul M. Thakkar) also stated that there is no legal provisions that the equal representation in Board of Director should be given to shareholders and countered the allegations of the Respondent No. 1 (Sunil M. Thakkar) that the Respondents were neither given representation nor remuneration nor of Appellant No. 2 (Mr. Atul M. Thakkar). 23. The Appellant No. 2 (Mr. Atul M. Thakkar) assailed the Impugned Order on points i.e., casting vote was taken away from the Chairman with further directions by the Adjudicating Authority that all cheques should be signed by one representative of Appellants and one representative of Respondents and further that equal representation in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to distribute the dividend and rather to plough in the company. The Appellant argued that after all the valuation of the company is increased and which is really material for shareholders rather than small amount is being distributed as dividend. 30. The Appellant No. 2 (Mr. Atul M. Thakkar) stated that the Respondent No. 1 (Sunil M. Thakkar) and Respondent No. 2 (Lopa S. Thakkar) have been doing activities which are against the interest of the Corporate Debtor and also demonstrate conflict of interest and a violation of Section 166 (4) of the Companies Act, 2013. 31. The Appellant No. 2 (Mr. Atul M. Thakkar) stated that in terms of Tribunal order dated 19.10.2022, the retired Chief Justice of Rajasthan High Court was appointed as the Administrator for three months. However, the Administrator was discharged vide Tribunal's Order dated 23.01.2023 and subsequently order did not adequately clarified the reinstatement of the Board of Directors leading to misinterpretation by the Respondent and taking advantage of same the Respondent refused to sign the cheques and provide personal guarantees which led to financial instability for the corporate Debtor including unpaid debts and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....perks have been allowed for them. 41. The Respondents stated that the Appellant No. 2 (Mr. Atul M. Thakkar) was disqualified to work as Director in terms of Section 162 of the Companies Act, 2013, however, without any consultation with the Respondents, the Appellant No. 2 (Mr. Atul M. Thakkar) was appointed as Chief Operating Officer of the company vide letter dated 03.06.2022 which is a Key Managerial Personal (KMP). 42. The Respondents alleged that even after the Impugned Order dated 01.04.2022 passed, the Appellant family members are KMP, however, none of the family members of Respondent are treated as KMP.The Respondents also alleged that even the banking operations are being centralised by the Appellant. 43. The Respondents submitted that the company was found in 1995 and is akin to quasi-partnership with the Appellant No. 2 (Mr. Atul M. Thakkar) and Respondent No. 1 (Sunil M. Thakkar) being the shareholder and only directors of the Corporate Debtor since 1995 to 2015. The Respondent No. 1 (Sunil M. Thakkar) mentioned that the Appellant No. 2 (Mr. Atul M. Thakkar) looked after day to day business operations while Respondent No. 1 (Sunil M. Thakkar) looked after import....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring board meeting of the company held on 14.01.2017, the Appellant No. 2 (Mr. Atul M. Thakkar) proposed to fund the loss making subsidiary i.e., Venus Petrochemicals Middle East DMCC which was objected by the Respondents, however, the Appellant No. 2 & 3 approved the resolution ignoring the will of 50% of shareholders which clearly demonstrate the wrongful intention of the Appellants and oppression of the 50% shareholders. 49. The Respondents submitted that yet another act of misuse of the power by the Appellant resulting into "oppression and mismanagement" of the Respondent appeared on 18.07.2017 were during the board meeting, the Appellant No. 2 (Mr. Atul M. Thakkar) passed a proposed agenda to appoint his another son also as additional director and despite the opposition of Respondent No. 1 (Sunil M. Thakkar) the same was passed due to illegal majority of the Appellants. 50. The Respondents explained that from 2016-2018, the Respondents sent several e-mails and communications to the Appellants expressing their grievances regarding "oppression and mismanagement" by the Appellant No. 2 & 3. However, no cognizance was given to their grievances and kept on passing the resolut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or created by the Appellants and the relevant directions were given in Para 20 of the Impugned order. 56. The Respondents also alleged that the Appellant No. 2 (Mr. Atul M. Thakkar) has not declared any dividend in the company and rather diverted the funds of the company in purchasing bunglow in the name of the company for the use of the Appellant No. 2 and his family. 57. The Respondents alleged that after the Impugned Order dated 01.04.2022 the Respondent No. 2 (Lopa S. Thakkar) and Rohan S. Thakkar were appointed as Additional Director, however, continued exploitation of the Respondents by not appointing them as a whole time directors but only appointing them as an Additional Directors. 58. The Respondents cited few judgements to buttress their point regarding "oppression and mismanagement" being done by the Appellants which has rightly been intervened by the Tribunal by way of the Impugned Order dated 01.04.2022 restoring the position on equal footing between the Appellant family and the Respondents family. 59. Concluding their arguments, the Respondents requested this Appellate Tribunal to dismiss the Appeal with an exemplary cost. Finding 60. We have already....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove, The Bench directs the following; i. The Petitioner's side and the Respondent's side in line with their about 50% of the shareholding to have equal number of representations in the board of Directors of the Respondent No.1 Company. ii. Keeping in view that the casting vote have been heavily misused by the Respondent's side, there will not be any casting vote available to either side and all decisions on the board will be taken only when representative of both side (petitioner and respondent) represented in equal number on the board, agree to the Resolution before the Board. iii. The bank accounts of the company will be operated under the joint signature of representative (one representative each) from the Petitioners and the Respondent's side. iv. The above decision of the Bench to be implemented within 15 days of the pronouncement of this order." ( Emphasis Supplied ) 68. Thus, the basic issues in the present appeal are following :- (i) Whether, the action taken by the Appellants by way of appointment of Appellant No. 3 (Mr. Anand A Thakkar) on BoD of the Corporate Debtor, denial of the appointment of Re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ht to apply under section 244, for an order under this Chapter.*** 242. Powers of Tribunal.- (1) If, on any application made under section 241, the Tribunal is of the opinion- (a) that the company's affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; 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 Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. (2) Without prejudice to the generality of the powers under sub-section (1), an order under that subsection may provide for- (a) the regulation of conduct of affairs of the company in future; (b) the purchase of shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any's affairs upon such terms and conditions as appear to it to be just and equitable. [(4-A) At the conclusion of hearing of the case in respect of sub-section(3)of section241, the Tribunal shall record its decision stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of the company.] (5) Where an order of the Tribunal under sub-section (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. (6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or arti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irector which is testing criteria. This tantamount that the inter-se disputes between the directors may not be sustainable justification for invoking Section 241 & 242 of the Companies Act, 2013. 74. Generally speaking, the various provisions of Companies Act requires to show and establish contravention of law as basis for seeking remedies under the act. In contrast to this, this required of contravention of law may not be applicable in case of "oppression" to amplify the action taken by the company which is legal and lawful may still be oppressive in nature. 75. The lack of probity or equity would be more relevant factors in the cases of "oppressions". This will further imply that intention behind of the action taken by the Corporate Debtor or person in charge of the company would also be relevant factor to look into such allegations of "oppression of mismanagement". 76. Generally speaking, the oppressive actions are taken by the majority of shareholders which are pre-judicial to the minority members of the company. In the present case, we have already noted that both the Appellants and the Respondents are holding equal shareholding of 50:50 as such there is no majority s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....end were per-se cannot be a ground for to be an oppressive act. 83. However, we have already noted that the term "oppressive" is no where defined in the companies act and what is required to be looked into the intention of action taken by the majority of shareholder. It is reiterated that the equity shareholder was always 50:50 by the Appellants and the Respondents and even on date continues to be same, as such there is no concept of majority shareholders v/s minority shareholders in present appeal. 84. It is important to understand whether such Corporate Debtor are in nature of quasi-partnership or not. Again the definition of the term quasi-partnership has not been provided in the Companies Act, 2013 and the same is required to be determined by the court based on the facts of each case. If the present case there are few business entities i.e., M/s. Sunil Chemicals (a partnership firm), Puja Fab ChemPlast Private Limited and Emerald Petrochemicals Private Limited and there has been cross shareholding and cross directorship in these companies by the family members of Respondent No. 1 (Sunil M. Thakkar), the Appellant No. 2 (Mr. Atul M. Thakkar). 85. In the case of Ebrahimi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p. 4662, para 14) "that a just and equitable winding up may be ordered where the company's members have fallen out in two related but distinct situations, which may or may not overlap." The first of these is labelled as, "functional deadlock", where the inability of members to cooperate in the management of the company's affairs leads to an inability of the company to function at Board or shareholder level. The House of Lords pointed out that functional deadlock of a paralysing kind was first clearly recognised as a ground for just and equitable winding up in Sailing Ship Kentmere Co., In re [Sailing Ship Kentmere Co., In re, 1897 WN 58] . The second of these is where a company is a corporate quasi-partnership and an irretrievable breakdown in trust and confidence between the participating members has taken place. In the first type of these cases, where there is a complete functional deadlock, winding up may be ordered regardless whether the company is a quasi-partnership or not. But in the second type of cases, a breakdown of trust and confidence is enough even if there is not a complete functional deadlock. 141. Therefore, for invoking the just and equitable stan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hip. We consciously note that only being of family controlled companies cannot be a ground to treat these as quasi-partnership and the intent and understanding, whether explicit or implicit, or by acts or by deeds, of the concerned parties would be and should be the relevant factors. 92. Based on these parameters we find that it was always the understanding of the promoters of the Corporate Debtor i.e., the Appellant No. 2 (Mr. Atul M. Thakkar) and Respondent No. 1 (Sunil M. Thakkar) to be jointly owners and jointly controllers. 93. It is noted that there was a sacred thread of trust and confidence between Appellant No. 2 and Respondent No. 1 and that is the reason the company grew and continued as a profitable company since inception in 1995 till 2015. This was also based on equal representation and participation in the conduct of the affair of the company. However, around in 1995 and this balance of power was ought to be changed by Appellant No. 2 (Mr. Atul M. Thakkar) which was opposed by Respondent No. 1 (Sunil M. Thakkar). 94. In this connection, we note that the plea taken by the Appellant No. 2 (Mr. Atul M. Thakkar) in the concerned board meeting was that since he w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t No. 1 from 01.04.2016 and increased his own monthly remuneration in the company. The relevant pleadings noted in this regard are contained in Para 9 of the Impugned Order :- "9. The Petitioners further submit that as is evident from the correspondences referred and mentioned herein above, Respondent Nos. 2 abruptly stopped the monthly remuneration of the Petitioner No.1 from the Company from 1st April 2016, and instead increased his own monthly remuneration from the Company. Respondent No. 2 with the help of Respondent No.3 also extended tenure of his appointment as the whole-time director of the Company. The Petitioners therefore submit that they are neither getting return of their investment in the form of dividends nor in the form of monthly remuneration due to the oppressive acts of Respondent Nos. 2 to 4." ( Emphasis Supplied ) 99. We observe that after noting in details submission made by the Appellant and Respondent, the Tribunal came to conclusion that Appellant No. 2 was not conducting the board meeting in fair manner and misused his casting vote. 100. The Impugned Order also recorded that from 2016 by way of major decisions were taken through cir....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and against. 105. The chairman is not obligated to use his casting vote always and in all circumstances. The chairman is however expected to act in good faith while using his casting vote and the casting vote cannot be used to over come a decision taken by majority. In the present case, since there was no majority, being both the group holding 50:50 shareholders, as such it can be presumed that if the casting vote used by the chairman can tantamount if used not in good faith particularly if used only for creating imbalance in the board composition or enhancement of his own remuneration, which precisely happened in the present case. 106. From submission made before us, we note that only on three occasions casting vote was used by the Appellant No. 2 (Mr. Atul M. Thakkar). For the first time on 29.12.2015, casting vote was used by Appellant No. 2 (Mr. Atul M. Thakkar) for appointment of Appellant No. 3 (Anand A Thakkar) as Additional Director. Again on 29.09.2016 the Appellant No. 2 (Mr. Atul M. Thakkar) used casting vote to make Appellant No. 3 (Anand A Thakkar) as regular Director. 107. Subsequently, by majority of two i.e., Appellant No. 2 (Mr. Atul M. Thakkar) and Appel....