TaxTMI 
TaxTMI 
2024 (8) TMI 910
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....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 Solvents License and Explosive License were obtai....
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....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 Executive Director ('ED'), was well qualified to act as Director. It is the ....
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....ion 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 the BoD should be given of both the groups. 24. The Appellant No. 2 (Mr. Atul M. Thakkar....
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....l 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 invoked Standby letters of creditor. 32. Concluding his arguments, the Appellant pleaded that the Impug....
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....ied 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 important aspects like marketing, PR and was instrumental in procuring big contracts for the Corporate Debtor. 44. The Respondent No.....
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....y 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 resolutions by way of circular resolutions despite opposition from Respondent No. 1 (Sunil M. Thakkar). 51. The Respondent No. 1 (Sunil M. Thakkar) ....
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....nt 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 noted that the Corporate Debtor was formed in 1995 by the Respondent No. 1 (Sunil M. Thakkar) and the Appellant No. 2 (Mr. Atul M. Thakkar) for various petrochemic....
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.... 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 Respondent No. 2 & 3 on the BoD of the Corporate Debtor, alleged wrongful infusion of money is subsidiary in Dubai, denying the opportunity in participating in the management of Corporate Debtor were the acts of "oppression and mismanagement". (ii) Whether, the....
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.... 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 consequent reduction of its share capital; (d) restrictions on the transfer or allotment of the shares of the company; (e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just....
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....er 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 articles so altered. (7) A certified copy of every order altering, or giving leave to alter, a company's memorandum or articles, shall within thirty days after the making thereof, be filed by the company with the Registrar who shall register the same. (8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the compan....
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....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 shareholders. It is primarily the issue of control of the management of the Corporate Debtor. 77. It will also important to note for such oppressive acts should not be one time act and rather should be of continuing nature which has got adverse impact on the members of the Corporate Debtor or against the interest of the company. 78. Logically the court can pass any suitable order under Section 241 & 242 of the Companies Act, 2013, once it is satisfied that the company affairs are being conducted in manner oppressive to any members ....
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....uch 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 vs. Westbourne Galleries Ltd and Others, (1972) 2 All ER 492(House of Lords), Lord Wilberforce listed three factors that might be present in a case of quasi-partnership. These are referred to as the core criteria for determining whether a quasi-partnership exists i.e., (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there ....
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....iling 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 standard, the underlying principle is that the court should be satisfied either that the partners cannot carry on together or that one of them cannot certainly carry on with the other [ The advantage that the English courts have is that irretrievable breakdown of relationship is recognised as a ground for separation both in a matrimonial relationship and in commercial relationship, while it is not so in India.] . ( Emphasis Supplied ) 89. The Respondents highlighted that their case are falls within the ambit of Tata Consultancy Services (Supra). The Respondents stated that the ....
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.... 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 was old of 60 years age, he wanted to induct Respondent No. 1 (Sunil M. Thakkar) as director in the board of director. However on wholistic reading of all facts and events, it transpires that this was not the true reason and intention was to induct his family at the cost of the Respondents who were also holding equal 50% of shares of the Corporate Debtor, which is clear sign of oppressive of one set of shareholder i.e., Appellants at the cost of another set of shareholders i.e., Respondents. 95. We also note that subsequent to disqualification of the Appellant No. 2 (Mr. Atul M. Thakkar) to be d....
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....mpany. 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 circular resolution which was put up to the board for ex-post facto as fait accompli. The Impugned Order also note that the board were held merely for procedural formalities and without following any corporate governance norms. 101. In this background we would like to revisit the directives given by the Tribunal contained in Para 20 which we have noted earlier. There were three clear directions. It was stipulated that both the Appellant No. 2 family and Respondent No. 1 family with their 50% shareholding should have equal representations in the BoD of the Corporate Debtor. The Impugned Order further held that looking to th....
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....se. 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 Appellant No. 3 (Anand A Thakkar) decisions were taken overruling dissent of Respondent No. 1 (Sunil M. Thakkar) on 24.07.2017, 18.07.2017, 19.09.2017, 06.12.2018 etc. 108. Finally, in EGOM held on 31.01.2019, Appellant No. 2 (Mr. Atul M. Thakkar) used casting vote to reject the appointment of sons of Respondent No. 1 (Sunil M. Thakkar) i.e., Rohan S. Thakkar and Hriday S. Thakkar as directors of the company. 109. Thus, it is clear that casting vote was always used by Appellant No. 2 (Mr. Atul M. Thakkar) for appointment of his sons as Director and opposing sons of Respondent No. 1 as directors. 110. We note that for no other purpose the ....