TaxTMI 
TaxTMI 
TaxTMI 
2024 (9) TMI 1611
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....y Share Holders i.e., Respondent No. 2 to 7. II. Petitioner's Case: 1. The Company/Respondent No.1 was incorporated on 20.05.1998 with primary objects for carrying business of cold storage units for preserving agricultural produce etc. in 1999 in Khammam town. After its establishment, the Company has been offering its cold storage facility to various farmers and traders in that region. 2. The Petitioner No.1, younger son of Mr. Chekuri Satyam Babu, was inducted as a member and director of the Company around the year 2009. It is claimed that since then he had spent considerable time and effort in building up the business of the Company, which had earned a lot of good will and reputation among the farmers and traders for the quality of service rendered by it. The existing demand for cold storage units around Khammam town was leveraged by the Petitioner No.1 in order to grow the business of the Company. 3. The Petitioner No.1 was responsible for day-to-day management of the cold storage facility. So, he did not have much time for managing the accounts of the company. Consequently, the Petitioners reposed their faith on Respondent No.2 and Mr. Chekuri Satyam Babu who are the brothe....
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.... his resignation from the post of Managing Director on 24.12.2016. However, the Petitioner No.1 continued to remain as a Director of the Company. The Respondents did not respond to any of queries made by the Petitioners with regard to illegal siphoning of the Company's funds. So, the Petitioners threatened to initiate appropriate proceedings to protect the interests of the Company as well as the other members of the Company and the creditors. 7. Realizing this, the Respondent Nos. 2 & 3 started taking steps to strengthen their hold over the Company. Accordingly, the Respondent No. 2 inducted Respondent Nos. 4 and 5, who are in-laws of the Respondent No. 2, as Additional Directors of the Company with effect from 04.01.2017, and also appointed himself as the Managing Director of the Company without any notice of Board meeting. Further, there were purported share transfers from Mr. Chekuri Satyam Babu and Mrs. Chekuri Nagendra of their entire shareholding without any consideration by the Board of the Directors, which was in violation of Article 15 of the Articles of Association of the Company. 8. Further, the Respondent No. 2 filed a suit for perpetual injunction against the Pet....
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....Respondent No. 2 would manage M/s. New Ushasri Chit Funds Company at Gandhi Chowk and the Petitioner No.1 would manage the Company at Khammam agriculture market. Further, it was agreed that the Petitioner No.1 would hold the position of Managing Director of the Company, and the Petitioner No. 2 would be appointed as a Director of the Company. It was agreed that the Respondent No. 2 would only be a Director of the Company, while the Petitioners would manage the day-to-day affairs as well as the management of the Company and the Company was in the nature of a quasi-partnership between the Petitioners and the Respondent No. 2's group. All the parties had agreed not to interfere with the business and family affairs of each other. Based on the said agreement dated 22.09.2018, both the Petitioners and all the Respondents, including Respondent Nos. 2 to 7, filed a joint memo dated 29.08.2019 seeking withdrawal of C.P.No.303/241/HDB/2017 and the same allowed by this Tribunal on 29.08.2018. 12. After being appointed as the Managing Director and Director of the Company, the Petitioners herein fastidiously began to take care of the business of the Company. Again on 14.09.2022 at about 6:....
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....to 6. 15. The Notice of EGM to remove the Petitioners from the Board of Directors of the Company was not only a preplanned move by Respondent Nos.2 to 6, but also incomplete and patent violation of the provisions of the Companies Act. It clearly shows conspiracy of the Respondent Nos. 2 to 6. The very fact that neither the alleged requisition nor the special notice dated 22.10.2022 or the request for reply dated 23.10.2022 under section169 (4) of the Companies Act were duly served on the Petitioners, and that as a Board Meeting was never conducted to discuss the requisition alone is in gross violation of sections 100, 102, 169 and 173 of Companies Act, apart from being in violation of Rules 17 and 23 of the Companies (Management and Administration) Rules, 2014. Moreover, the Notice of EGM provided only 6 days clear notice which is in patent violation of section 101 of the Act and the Articles of Association of the Company. 16. It was clear that the Respondent Nos.2 to 6 were essentially writing to themselves and forming a paper trail as eyewash for the sake of compliance behind the backs of Petitioners. On 10.10.2022, the Petitioners addressed an e-mail to the Directors and Share....
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....ast incidents and requested them not to take the Form No. DIR-12 filed vide F39450481 on record, as no EGM to remove the Petitioners from the Board of Directors ever took place on 11.10.2022, and to mark the Company as being under management dispute. 19. The apprehensions of the Petitioners herein were confirmed when later in the day on 17.11.2022, the Petitioners' counsel in O.S.No.555 of 2018 before the Principal Junior Civil Judge, Khammam informed the Petitioners those certain resolutions had been served on him by the counsel for Respondent No.6, i.e., the plaintiff in O.S.No.555 of 2018. The Petitioners were shocked to see that fabricated and false resolutions removing the Petitioners from the Board of Directors of the Company were passed as if the EGM was actually held on 11.10.2022. The extracts of the resolutions were signed by the Respondent No.4, and the attendance register was signed by Respondent Nos.2 to 7. Surprisingly, the same was even attested by the Respondent No.8, being the statutory auditor of the Company. As such, the Respondent No.8 has wilfully acted in a fraudulent manner and has colluded in the fraud perpetrated by the Respondent Nos.2 to 7 and the action....
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....etitioners herein. III. Case of Respondent No 2 22. The petition is not maintainable and is liable to be rejected at the very threshold for the reasons that the Respondent No 1 and the Respondent No 8 are not properly made parties to the petition and no representation is made by the said two respondents. 23. The Respondents are the sufferers at the instance of the Petitioners for their highhanded and unilateral acts in managing the affairs of the company oppressing the rights and interest of the respondents. It is submitted that the Petitioners are conspicuously silent about the sources of funds for the acquisition of immovable property for the Company. 24. The Respondent No 2 was never the Managing Director of the company prior to his first appointment in April, 2017 and prior to him one Mr. Satyam Babu were the Managing Director of the Company. 25. Mr.Satyam Babu, the father of the Petitioner No.1 and Respondent No 2 contributed all their energies, good will and time for the establishment and growth of the company. It is unbecoming on the part of the Petitioners to describe the company to be quasi partnership and grouping system in the company. 26. The then Managing Directo....
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....nto the present petition to gain sympathy in spite of their irrelevancy. 33. It is the Petitioners who acted in detrimental to the interest of the Company and shareholders in breach of the fiduciary relationship between them and the Company. The alleged calls to the police and all further acts in sequence thereof by the Petitioners are only to cover up their illegal and high handed acts. All the allegations in this regard are vindictive, purposeful besides being baseless. The Petitioners are well aware of the unrest and dissatisfaction expressed by the other shareholders and the family members and their continuous demand for streamlining the operations of the company, without allowing the family disputes in to the affairs of the company. 34. Therefore, EGM was convened in accordance with law and finally removed the Petitioner No.1 from the office of the Managing Director. The Petitioner No.1 having knowledge about all the sequence of events, deliberately denying the same while conspicuously silent about the illegal activities committed by him. The alleged contravention of the by-laws of the Company and conducting of the EGM and all further proceedings are false and baseless. 35.....
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....sequent withdrawal of the CP No. 303/241/HDB/2017 under section 241 of the Companies Act have forced the Petitioners, at least not to vociferously alleged oppression etc. before this date and that is why they have alleged following subsequent acts amounting to oppression: a) Issuing notice of EGM dated 01.10.2022 for the meeting to be held on 11.10.2022. b) Removal of Petitioners as Directors and further of Petitioner No. 1 as Managing Director. 43. The Company Law 2013 does not provide a clear definition of the term "oppression." In simple words, oppression involves conduct that deviates from fair dealing standards and violates the conditions that require fairness, particularly concerning the shareholders' rights. Similarly, mismanagement is not explicitly defined in the Act, but it can be described as conducting company affairs dishonestly, ineptly, or prejudicially. 44. An oppressed member may file an application under section 241 to complain about the affairs of the company being prejudicial to such members, whereas section 242 allows the tribunal to pass an order on application under section 241 only if certain requirements are met. The language of section 241 "Any m....
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....t in Life Insurance Corporation of India versus Escorts Ltd. & Ors 1986 AIR 1370 has held that: - "Thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the provisions of the Companies Act. He cannot be restrained from calling-a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under Section 173(2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein, of every director, the managing agent if any, the secretaries and treasurers, if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. ....
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..... It has been recently held by the Hon'ble Supreme Court in Tata Consultancy Services Limited versus Cyrus Investments Pvt. Ltd. and Ors. (2021) 9 SCC 449 that even in cases where 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. Further, it was observed that the Company Tribunal is not a Labour Court or an Administrative Tribunal to focus entirely on the manner of removal of a person from directorship. It was held by the Hon'ble Supreme Court: "under Subsection (1) of Section 242 of the Company Act, 2013 the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit" cannot be interpreted as conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office duly following the procedure and that 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 oppres....