TaxTMI 
TaxTMI 
2026 (9) TMI 1292
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....6 under Section 241 read with Section 242 of the Companies Act, 2013 (hereinafter referred to as the "Companies Act"), passed by the Ld. NCLT, Mumbai Bench - I, in C.P. No. 216/2025, filed by Mr. Hitesh Chunilal Shah, Respondent No. 2 in the present appeal. 2. Before proceeding further, it will be relevant to understand the status and role of parties to the present lis:- 2.1. The Appellant No. 1, Mr. Nayan Laxmi Chand Shah is the son-in-law of Respondent No. 3, Mr. Chunilal Meghji Shah. He is CEO of the Company (R-1) since 2002, though not a shareholder. 2.2. The Appellant No. 2, Ms. Jigna Nayan Shah, is the wife of Appellant No. 1 and Daughter of Respondent No. 3, Mr. Chunilal Meghji Shah. 2.3. Respondent No. 1 is the company Cheers Interactive (India) Private Ltd., which is the subject matter of the present lis. 2.4. Respondent No. 2, Mr. Hitesh Chunilal Shah is the son of Respondent No. 3, Mr. Chunilal Meghji Shah and was the original petitioner in C.P. No.216/2025. 2.5. Respondent No. 3 is Mr. Chunilal Meghji Shah, the Patriarch of the family being father of the Appellant No. 2 & Respondent No. 2 and father-in-law of Appellant No. 1. He was the Chairman of the....
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.... 4 on one hand and Respondent No. 2 & 3 on the other hand, we fee that either of group needs to exit from CIPL by providing exit to other in the interest of CIPL which is running company having potential to grow and generating employment as well. It is noted that the Petitioner and Respondent No. 4 are founders of CIPL, but Petitioner had consented to exit from CIRP in October, 2022, which failed as Respondent No. 2 made it conditional upon settlement of their difference(s) in relation to other properties owned by the family. However, it is noted that the Petitioner had expressed its willing to provide exit to Respondent No. 2 & 3 at much higher valuation at present. On the other hand, Respondent No. 2 & 3 are in control of affairs of CIPL and running the business. Since, CIPL is a family owned company and its business value is mainly derived from its client portfolio & relationship and human resources and both the groups understands it well, we consider it appropriate to allow both the groups to bid for the other group's shareholding to determine the value to be paid by the successful group to the other group for their exit in transparent manner. Accordingly, we appoint Mr. Chandr....
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....tted as under:- 4.1. The Appellant No. 1 has been involved in the business and operations of the company as its CEO and has played a prominent role in its growth and development. The company is engaged in the business of market research and consulting. 4.2. In March 2022, the Respondent No. 2 refused to provide personal guarantees to the bank towards the credit facilities showing that he was not interested in running the company nor in protecting the interests of the company. 4.3. With the intent to bring the disputes to an end, the global settlement was undertaken and informal document called the "Initial Meeting Notes" was signed which contemplated the execution of a future definitive settlement agreement whereby the Respondent No. 2 and Respondent No. 3 were to exit from the R-1 Company as shareholders and directors and would transfer the common family lands as agreed between the parties. The underlying settlement discussions stood terminated in May 2023. 4.4. The Respondent No. 2 took leave from the R-1 Company in October 2022 and ceased participating in the management of the R-1 Company and completely stopped attending all Board Meetings. 4.5. Respondent No. 2 a....
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....allenge by either party as ordered by the Ld. NCLT is against the Articles of the Company. Further since Respondent No. 2 and Respondent No. 3 have acted against the interest of the company they should not be given an opportunity to bid for the company. 4.16. The Hon'ble Supreme Court in 'M.S.D.C. Radharamanan' Vs. 'M.S.D. Chandrasekara Raja', [(2008) 6 SCC 750] has considered similar situation of irreconcilable differences but has directed the one who was in management to buy out the other. 4.17. The majority shareholders should not be forced to sell their shares to the minority shareholders, for which reliance is placed on 'Yashovardhan Saboo' Vs. 'Groz-Beckert Saboo Ltd.', [1992 SCC OnLine CLB 10] and 'G. Govindraj' Vs. 'Venture Graphics P Ltd.', [2004 SCC OnLine CLB 61]. 4.18. Any challenge raised by the contesting respondents qua removal as a Director is not maintainable in a petition under Section 241, being directorial dispute and not a shareholder dispute. 4.19. It was prayed that the order be set aside and the present appeal be allowed. It is submitted that the best course of action in the present case is to follow the exit mechanism provided for in the Article....
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....005 even Respondent No. 3's salary was stopped. 6.8. To maintain family peace, the Respondent No. 2 agreed to exit under the Settlement dated 13.10.2022 for Rs.60 crore to be paid by 27.012023 with a liberty to compete with the company. The amount of Rs. 1.01 crore was paid but no further payment followed. Respondent No. 2's access to the company record was denied, which led to filing of the C.P. No. 216/2025. 6.9. There is no error in the impugned order. The Ld. NCLT has held that appellants had oppressed the Respondent No. 2 and Respondent No. 3 and mismanaged the affairs of the Company and in light of the dispute and differences between the two shareholder factions has directed that the shares be subjected to an inter se bidding process through the Swiss Challenge mechanism under the supervision of the Court appointed observer. 6.10. The actions of the appellants may be considered in the background of settlement arrived at on 13.10.2022, a copy of which is placed at page No.330, Volume 2 of the appeal paper book which records that shareholding of Respondent No. 2 will be purchased for Rs.60 crore by 27.01.2023, that no other monetary or other new points will be brought ....
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....Board Meetings. The Minutes of the Meetings also do show the signature or presence of Respondent No. 2. 6.15. Respondent No. 2 despite his substantial shareholding was excluded from the affairs of the company and was denied access to company records. On specific written request, limited financial data was provided on 15.05.2025 and 31.05.2025. 6.16. On 17.07.2025, for the first time, Appellant No. 1 took a stand that Respondent No. 2 was no longer a whole-time director, as he was appointed only till 31.03.2025 vide resolution dated 12.03.2020. This letter nowhere mentions termination of directorship under Section 167 or otherwise. 6.17. Respondent No. 2 does not face any disqualification under Section 167 as notices for the Board Meetings were never issued, neither the Minutes of the Meetings were served upon him. 6.18. As far as contention that there is conflict of interest under Section 166 of the Companies Act, it is argued that the Settlement Agreement dated 13.10.2022 expressly provided that there will be no non-compete clause and since the Respondent No. 2 had agreed to exit from the company, he was entitled to establish his own business. 6.19. Respondent No. 2....
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....y and were entitled to share in profits of the company, which was earlier paid as remuneration. Remuneration has been stopped arbitrarily. Respondent No.2's remuneration was stopped in 2022-23 and Respondent No. 3's remuneration was stopped from January 2025. The company is presently being unilaterally controlled by the appellants. 6.28. The judgment of the Hon'ble Supreme Court in the case of 'Rajeev Kapur' (supra) has no application in this case, as in the Rajeev Kapur case, the parties have agreed that they will not do any competing business, which is not so in the present case. In the present case, the settlement specifically mentions that there will be no non-compete clause, that is, the respondent can set up competing business. 6.29. Both sides agreed that there is a breakdown of trust between the two groups. In this situation, competitive bidding is the only solution. The appellants had in any case failed to purchase the shares at the agreed price as per settlement dated 13.10.2022. 6.30. It is settled position of law that appropriate orders can be passed by the Ld. NCLT to give just and equitable relief as held in following cases: i. 'M.S.D.C. Radharamanan....
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....ringing her shareholding to 50%. However, R3 was continued to be paid remuneration/pay outs in lieu of his life interest in the Shares so gifted. 2005-2020 Further shares were transferred by R2 and R3 to the A2 changing shareholding of A2 to 53.67%, R2 to 40.19% and R3 to 0.44%. No shares of the Company are held by Appellant No.1 7.4. Despite the fact that the shareholding of appellants is by way of gifts from Respondent No. 3, the appellants have consistently acted contrary to the interest of the company and to the prejudice of Respondent No. 2 and Respondent No. 3. Appellants have unilaterally and arbitrarily completely stopped paying any remuneration to Respondent No. 3 from January 2025 onwards. 7.5. The appellants had repeatedly alleged that notices for Board Meetings were signed by Respondent No. 3 and hand delivered to Respondent No. 2 by Respondent No. 3, though in fact, Respondent No. 3 asserts that he himself had no notice of said meetings. The signatures were obtained in good faith, on the pretext of urgent financial requirements of the company as represented by Appellant No. 2, whom Respondent No. 3 trusted as his daughter. Accordingly, Respondent No.3 signe....
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....mpany was not declaring any dividend and Appellants and Respondents were rewarded through payment of salary and other benefits. The initial shareholding of the company was such that Respondent No. 2 and Respondent No. 3 were in clear majority. The Respondent No. 3 (father) gifted a portion of his shareholding to Appellant No. 2 (daughter) bringing her shareholding to 50%. Apparently, the company was doing well and there were no disputes till 2020. Some further shares were gifted by Respondent No. 3 to Appellant No. 2 and the shareholding of Appellant No. 2 went up to 53.67% and the cumulative share of Respondent No. 2 and Respondent No. 3 went down to 40.63%. Appellant No. 1 does not hold any share in the said company. The balance 5.7% shares are held by employees or other relatives. 11. An attempt was made to reconcile the disputes between the Appellants and Respondents. A settlement was drawn up on 13.10.2022 which was signed by both the sides. Both the sides have owned up their signatures and have not challenged the authenticity of the said document. The said document regarding the settlement is scanned below: 12. As per the above agreement, Respondent No. 2 was to exit Re....
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....ellants against the Respondent No. 2 of dissociating from the company and starting competing business need to be seen in the background of the settlement agreement dated 13.10.2022. The exiting party cannot be held liable for dissociating from day to day working of the company or for starting competing business in light of the settlement. 15. The Appellants and Respondent No. 1 company stopped payment of remuneration to Respondent No. 2, and also to Respondent No. 3. It is alleged that Respondent No. 2 did not attend the board meetings but there is no evidence to show that notices of the board meetings were delivered to Respondent No. 2. We further note that the minutes of meetings were duly served on the Appellants No. 1 and 2, and Respondent No. 3 and their signatures were obtained. The minutes were not served on Respondent No. 2 and his signatures are not there even on the acknowledgement of receipt of minutes of meetings. The explanation of the Appellants that since Respondent No. 2 and Respondent No. 3 are staying together, service on Respondent No. 3 leads to knowledge of Respondent No. 2 does not hold good as we find that signatures of both Appellant No. 1 and Appellant N....
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....o. 2 had given his laptop to the company to erase all data, immediately after settlement agreement dated 13.10.2022 which is not denied by the Appellants. On the allegation of poaching of employees of the Respondent No. 1 company, we note that nearly 100 employees have left the company and only 18 have joined the company started by Respondent No. 2. The movement of employees from one company to the other company in private sector is more a norm than an exception, and no adverse inference can be drawn on this issue unless direct evidence of soliciting is shown, which is absent in this case. 17. We note that the petition under Section 241 read with 242 of the Companies Act, 2013 was filed before Ld. NCLT by Respondent No. 2, who is substantial shareholder of Respondent No. 1 company holding more than 40% of the shares alleging that he has been excluded from running of the company and remuneration payable to him has been stopped. If a substantial shareholder of a family-owned company in the nature of quasi-partnership is kept away from the management of the company, as also to the fruits of profit of the company, without due process and without any justification, the allegations of....
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....es had agreed that they will not establish any competing business and then had started competing business whereas in the present case the parties had agreed on 13.10.2022 that there will be no non-compete clause, that is the Respondents can set up competing business. The Appellant had also relied upon the judgment of the Hon'ble Supreme Court in 'M.S.D.C. Radharamanan' Vs. 'M.S.D. Chandrasekara Raja', [(2008) 6 SCC 750] 'Yashovardhan Saboo' Vs. 'Groz-Beckert Saboo Ltd.', [1992 SCC OnLine CLB 10] and 'G. Govindraj' Vs. 'Venture Graphics P Ltd.', [2004 SCC OnLine CLB 61] that in case of irreconcilable differences, it is the party who is the management, who should get the right to buyout the other. We note that these decisions are of no help to the Appellants in the peculiar circumstances of this case as an agreement for buyout of the Respondent minority shareholder was reached on 13.10.2022 which was not complied with. The Appellants had also relied upon the case of 'Yashovardhan Saboo' Vs. 'Groz-Beckert Saboo Ltd.', [1992 SCC OnLine CLB 10] and 'G. Govindraj' Vs. 'Venture Graphics P Ltd.', [2004 SCC OnLine CLB 61] stating majority shareholders should not be forced to sell their shar....