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Judgment
Dr. Ashok Kumar Mishra, Technical Member
This Appeal has been filed pursuant to Section 421 of the Companies Act, 2013 read with Section 241-242 of the Companies Act, 2013 being aggrieved by the impugned order dated 03.09.2019 passed by the National Company Law Tribunal, New Delhi Bench in Company Petition No. 219/241-242/ND/2018.
The Brief Facts of the case as stated by the Ld. Counsel for the Appellant and also appearing in Appeal Paper Book, in a summarised manner, are as follows:
Respondent No.1/Company was incorporated on 17.10.2012. The shareholding pattern of the Company are as follows extracted from Memorandum of Association & Article of Association of R-1:
We, the several persons, whose names and addresses are subscribed are desirous of being formed into a Company, in pursuance of these Articles of Association and we respectively agree to take the number of shares in the capital of the Company set opposite to our respective names.
Names, Addresses, Descriptions and Occupation of Subscribers No. of Equity Shares taken by each subscriber Signature of Subscribers Names, Addresses, Descriptions and Occupation of Witnesses PIANKAR KUMAR S/O. SHRIJ-NARESH PRASAD B. 25/1, RAMBHAI LOKHY Govt. Sec. L.P. OCCUPATION - BUSINESS 1600 (One thousand six hundred only) (CHILADELPHIA TRUSTEES) S/o. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. ASHIKHRA KUMAR S/O. RAM SHAWAR DAYAL KESHRI "SHUGUAN", Off. INDIRA PALACE HINDY, RAUCKI - SCHOOL SHARMAHAR Occupation: Business 1300 (One thousand three hundred only) Rakesh Ranjan Shrivastava S/o. Lakshmi Lal Shrivastava 10/2, Nadi Das Red, Moradali, P.O. Barisalu, P.O. Gandhi University, S. K. Ranchi - 83400 (Shakhar) Occupation: Business 2700 (Two thousand seven hundred only) Bharkar Prasad S/O. H. Shum, Prasad 10, Vill. Marbikar P.S. - Palliangam - P.O. - North Ahi Lith. - Godda (Shakhar) Occupation: Business 4400 (Four thousand four hundred only) 10,000 (Ten thousand only) Dated: 17th Aug 2010
The business of one M/s Thermotech Synergy Pvt. Ltd. was transferred to Respondent No.1 Company. The transfer of the business is in fact admittedly on record. Mr. Bhupal Prasad Verma (Father of the Appellant) held 44% shares R-2 held 16% shares and R-3 held 13% shares in the said company.
The Appellant’s experience in the steel sector was the basis of the development of the Respondent No.1 Company business. R-2 and 3 were having no experience of the business model carried in R-1 Company. R.No. 2 and 3 were initially opted into the business of Thermotech Synergy Pvt. Ltd. and subsequently in R-1 Company also due to friendly relations and both of them were also aligned in other business ventures carried along with the Appellant.
The dispute erupted in the year 2016 due to taking over some other business by Respondent No.2.
The dispute arose on account of hijacking of one Ascent Infrabuild Ltd. carrying Crusher Business wherein all the parties are equal partner including Respondent No.2.
It is further pertinent to mention here that Respondent No.1 Company had attained a goodwill in its sector and therefore the Respondent No. 2 and Respondent No.3 had hand in hand gloves together with a predetermined objective to hijack the business and affairs of Respondent No.1/Company and to give effect to the said conspiracy. These Respondents have come together to oust the Appellant from the directorship of Respondent No. 1/Company by taking benefit of their collective shareholding against the letter and spirit of Corporate Democracy. It is further pertinent to mention here that the business evolved and growth attained in Respondent Company had accrued solely by the Appellant’s technical and business acumen.
Appellant was served an undated notice of Extra Ordinary General Meeting (“EGM”) schedule on 16.06.2018 issued by Respondent No.3 at the behest of Respondent No.2 pursuant to a requisition in accordance with the provisions of Section 100 of the Companies Act, 2013. One of the agenda proposed to be taken up was to remove the Appellant from the directorship of the Respondent No.1/Company.
The said undated notice calling “EGM” on dated: 16..06.2018 is issued by Respondent No.3 pursuant to a requisition dated: 03.05.2018 purportedly marked to the Board of Directors calling for convening of “EGM” and proposing for the removal of the Appellant canvassing allegation of financial mismanagement, fraud and other vague allegations.
It is further stated that the Appellant was also served through email dated 25.05.2018 a purported undated special notice from Respondent No.2 proposing removal of the Appellant as Director from Respondent No.1/Company. Further the said notice also draws attention to the Appellant towards the provisions of Section 169 (4) conferring right on the notice to make formal representation, if any, against such proposal. The notice states a deadline for tendering of representation on or before 13.06.2018.
It was also stated that the aforesaid notice calling EGM along with explanatory statement and the special notice was served to the Appellant vide email dated: 25.05.2018, it is further stated that these notices and documents were not served on to the Appellant by registered post, the Respondent No. 2 in its email though had made a statement that these notices were also served upon the Appellant by registered post. The Appellant controverts the said statement of Respondent No.2 and humbly submits this Hon’ble Bench to call upon the proof of service to corroborate the narration as made by Respondent No.3.
The Appellant also challenges the collusive act of Respondent No. 2 and 3 for conspiring, illegally acting in concert with a malign objective to throw out and deprive the Appellant from the affairs of Respondent No. 1 Company and also to jeopardise the vested commercial interest of the Appellant held in Respondent No.1/Company.
The notice calling EGM is bad in law and liable to be declared as null and void on the following grounds:
No notice of Board Meeting called and Convened for taking note of the requisition dated: 03.05.2018.
It is pertinent to mention here that special notice to be given under Section 115 of the Companies Act, 2013 must disclose the specific grounds with all supported information on which the director is proposed to be removed, as disclosure of the ground of removal is of substance and not of form because the director concerned is entitled to make a representation against the removal. This disclosure then only gives the Board of Directors a view and basic statement as provided under Section 102 of the Companies Act, 2013. That the constitution of Respondent Company by its nature is a quasi-partnership and therefore the proposal of exclusion of Appellant from the directorship of the Company will comprehensively prejudice the interest of the Appellant who undisputedly held 33% of the issued capital in Respondent Company. It is settled that if removal proposed is for the purpose of attaining malafide objective especially in a quasi-partnership Company, the action of majority constitutes an oppressive against the minority, being the test of fairness superseded the legality and the procedural compliances. That is also a settled law where removal of director of a private limited Company which is in a nature of partnership, such removal constitutes an oppressive act, if the shareholders instrumental in proposing a resolution for removal are found to have acted in a malafide manner.
That Section 102 of the Act, mandates to disclose in explanatory note that all material facts relating to the resolution before the general meeting to enable the shareholders to form a judgment on the business before them. Section 102 of the Companies Act, 2013 is reproduced hereunder for your ready reference:
“(1)A statement setting out the following material facts concerning each item of special business to be transacted at a general meeting, shall be annexed to the notice calling such meeting, namely:—
(a)the nature of concern or interest, financial or otherwise, if any, in respect of each items of—
(i)every director and the manager, if any;
(ii)every other key managerial personnel; and
(iii)relatives of the persons mentioned in sub-clauses (i) and (ii);
(b)any other information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon.
(2)For the purposes of sub-section (1),—
(a)in the case of an annual general meeting, all business to be transacted thereat shall be deemed special, other than—
(i)the consideration of financial statements and the reports of the Board of Directors and auditors;
(ii)the declaration of any dividend;
(iii)the appointment of directors in place of those retiring;
(iv)the appointment of, and the fixing of the remuneration of, the auditors; and
(b)in the case of any other meeting, all business shall be deemed to be special:
Provided that where any item of special business to be transacted at a meeting of the company relates to or affects any other company, the extent of shareholding interest in that other company of every promoter, director, manager, if any, and of every other key managerial personnel of the first mentioned company shall, if the extent of such shareholding is not less than two per cent of the paid-up share capital of that company, also be set out in the statement.
(3)Where any item of business refers to any document, which is to be considered at the meeting, the time and place where such document can be inspected shall be specified in the statement under sub-section (1).
(4)Where as a result of the non-disclosure or insufficient disclosure in any statement referred to in sub-section (1), being made by a promoter, director, manager, if any, or other key managerial personnel, any benefit which accrues to such promoter, director, manager or other key managerial personnel or their relatives, either directly or indirectly, the promoter, director, manager or other key managerial personnel, as the case may be, shall hold such benefit in trust for the company, and shall, without prejudice to any other action being taken against him under this Act or under any other law for the time being in force, be liable to compensate the company to the extent of the benefit received by him. (5) Without prejudice to the provisions of Sub-Section (4), if any default is made in complying with the provisions of this section, every promoter, director, manager or other key managerial personnel who is in default shall be punishable with fine which may extend to fifty thousand rupees or five times the amount of benefit accruing to the promoter, director, manager or other key managerial personnel or any of his relatives, whichever is more.” The explanatory notice as annexed do not provides for all material information as mandated in the said section, hence the notice as well as the explanatory statement annexed thereto are illegal and void.
They have also stated that they have made false, dishonest, malicious, baseless, frivolous and concocted allegations against the Appellant.
The Appellant therefore submits that being the alleged complaints are pending trial before the appropriate court, unless the allegation are proved, the Appellant cannot be prejudiced from his legitimate entitlement in Respondent Company. The facts reflecting the malign objectives of Respondent No.2 by hand in gloves with Respondent No.3 and further initiating removal of the Appellant is purely a vexatious and a planned conspiracy against the Appellant. Hence the proposal of removal is not only bad but a coercive act against the interest of the Appellant in Respondent No.1 Company. Therefore in addition to the statutory ground as relied upon by the Appellant on the proposal of removal of the Appellant from the directorship of Respondent No. 1 Company deserves to be rejected at threshold on this count also.
It is also pertinent to mention here that considerable amount in crores are expected to be realised from the clients of the Respondent Company namely Bhushan Steel, Jindal Steel and Power, BSNL and therefore as a conspiracy Respondent No. 2 and 3 are initiating to remove the Appellant from Respondent Company and therefore to disentitle the Appellant right as director and shareholder on these funds. The said objectives can be easily achieved if the Appellant is removed from the board of directorship.
NCLT failed to took notice of the fact that an FIR No. 0049 of 2019 was registered not only against the Appellant but also against Respondent No. 3 at the instance of Respondent No. 2. The said FIR was registered consequent to the compliant of Respondent No. 2 alleging forgery and also complaint under SCST Act, 1989. The matter is still under investigation. The Hon’ble NCLT further failed to take notice that Respondent No. 2 reconciled with Respondent No. 3 and they together conspired and hand in gloves to oust the Appellant from the Respondent Company.
It is further a fact in issue that in case the proposed removal of the Appellant was prompted and had arisen on account of the said FIR, then for what reason Respondent No. 3 was exempted. In the present case both Respondent No. 2 and 3 are acting in concert against the interest of the Appellant in Respondent No. 1/Company.
The referred FIR No. 0049 of 2016 registered under SC/ST Act Investigation is going on since 2016. No charge sheet is filed yet. Respondents misled Hon’ble NCLT.
The Ld. Counsel for the Respondent submitted the followings:
It was submitted by the Ld. Counsel of the Respondent that NCLT dismissed the matter on the ground that there was no case of Oppression and Mismanagement as alleged out by the Appellant.
The Appellant falsely agitated allegations of Oppression & Mismanagement against the Respondents on event of removal of Appellant from the position of directorship in the Respondent no.1 Company vide an EOGM and such allegations are vague, baseless, concocted in fanciful manner and malafide without appreciating the true position of law, therefore the said Appeal is liable to be dismissed on this ground alone.
Respondent No.1 Company is engaged into the business of operation, maintenance and housekeeping of recovery coke over batteries of steel manufacturing companies and associated materials handling and by products at its four sites.
The Respondent No. 2 & 3 along with the Appellant were involved in Respondent No.1 Company incorporated on 2012 after diversion from previously known two firms M/s. Tech Synergy operating site at Wardha, Maharashtra and another namely M/s. Thermotech Synergy Pvt. Ltd. Operating management of Dhenkanal Odhisha site.
On or around FY 2016-2017, huge disparities and unaccountability in the income & expenses maintained at the active site of the Respondent No. 1 Company had came to the light and the Appellant being in the position of management refused to give information on the account of disputes in finance of the Respondent No.1 Company and also abused the Respondents during enquiry. That the Respondent No. 2 lodged complaint against the Appellant vide FIR 0049 of 2016 at PS Thakur Gangati, District Godda, Jharkhand.
To ascertain the financial irregularities the Directors/shareholder of the Respondent No. 1 Company passed Resolution dated 02.02.2017 to appoint a CA (Chartered Accountant) to conduct Special Audit of the finances of the Company for the consecutive period starting from FY 2014-15 to FY 2016-17. Copy of Letter of appointment of Chartered Accountant (CA) are scanned and produced herein below for ease of conveniences: (Annexure R-5 Pg. 190, Vol –I)
TECHNOTECH SYNERGY PRIVATE LIMITED
THE NORTHERN UNITED STATES GOVERNMENT OF AMERICA'S COMMUNITY CENTER, DELHI - 110002 TELEPHONE: 0214-32-2000 FAX: 0214-32-2001
Date: 02/02/2017
To, M/s VIKAS DAHYA & CO Chartered Accountants New Delhi
Sub: Appointment as the auditors for conducting special audit of the Company for period FY 2013-14 to FY 2016-17
Dear Sir,
We are pleased to inform you that the Board of directors of the company at their Board meeting held on 02nd February, 2017 at C/o Sujit Gangityal 1st Floor Subhadrapur chandikhol raipur-755042, Odisha has appointed your firm as the Special Auditors of the company to conduct special audit for the period FY 2013-14 to FY 2016-17.
You are requested to confirm your acceptance for our further needful.
Thanking you, Yours faithfully, For Technotach Synergy Bvt. Ltd.
DIRECTOR (DIN: 03078215) Encl.: Certified copy of the Resolution dated 02/02/2017
Special Audit Report dated 24.05.2017 evidently proved a large scale of irregularities in the management of Company. Some of which are enumerated herein below:
Special Audit Observations & Findings
(I)Several expenses were booked and payments released in cash without maintaining proper supporting bills payment, receipts. For example,
- Worker Fooding & Refreshment
- Guest House Exp
- Conveyance
- House Keeping Exp.
- Mess Exp.
- Safety and Tools
- Business Promotion
- Manpower Mobilization expenses (Bhatia, JSW)
- Site expenses (Bhatia)
(II)Payments amounting to Rs. 362.28 lacs were made in respect of which no satisfactory explanation were provided by the accounts keeping staff and onsite staff responsible for releasing payments after verification of bills and approval of Mgt. Such payments were clubbed under Suspense Head.
(III)There were instances of serious breach of Section 40 A(3) of the Income Tax Act, 1961 whereby to check the misutilisation of cash and to ensure that the payments are made to genuine persons, all payments exceeding Rs. 20,000 are to be made only through a crossed cheque or a crossed bank draft. Further, there was no system in place of obtaining payment receipt/acknowledgment from the vendor/suppliers to whom such self-cheques issued. Onsite staff responsible for disbursements & handling of cash expenses had custody of blank signed cheques.
(IV)Due to misappropriation of funds, the company is facing cash crunch situation and not able to pay on time its statutory liabilities like TDS, ESI & PF, Service Tax etc. Non-payment of statutory dues and filing of return will results in hefty interest and penalties on the company which in turn adversely impact the core existence of the Company’s business.
(V)Service tax: no service tax liability paid and no return filed for FY 2016-17.
A copy of the Notice and Agenda notes of the Board Meeting called to be held on 7th March, 2018 and 21st March, 2018 to consider the following business:
Agenda for 07.03.2018
Item No. 1: Grant Leave of Absence to Directors:
To consider the grant of leave of absence to Directors who have requested for the same.
Item No. 2: To take not on the statutory compliances till the quarter ended 31st December 2017:
To consider the pending statutory dues payable to Govt. Authorities in respect of Service Tax, GST, TDS, EPF and ESI and filing of return thereof till the quarter ended 31st December 2017.
Item No.3: To take on record of financial irregularities reported by Special Auditors.
The Special Audit Report containing observations and findings of the Special Auditor regarding financial irregularities in the books of accounts and misappropriation of funds of the Company.
The Board will consider the Special Audit Report conducted and individually discussed in 2017 and take rectification measures.
Item No. 4: To take note on the ongoing banking operation practices adopted by the staff.
The Board has observed serious irregularities in current banking operations conducted by the staff and persons in charge as reported in Special Audit Report. The Board observes that the situation demands a strict course of action to refrain the misappropriation of Company funds.
Item No. 5: To take note on the books of accounts till the quarter ended 31st December.
To consider the books of accounts drafted by the management till the quarter ended 31st December 2017.
Item No. 6: To discuss and finalise the financials for filing of ITR of the Company.
Due to the financial irregularities reported in the special forensic report and the irregularities reported therein there has been an inordinate delay in filing of statutory documents of the company. This has been further delayed as the documents are being perused by the Hon’ble High Court of Jharkhand. However, with a change in law that delayed returns cannot be filed after 31st March 2018, it is imperative to take a call as to what needs to be done.
Item No. 7: To discuss and decide the appointment of Forensic Auditor. In view of the financial irregularities reported in the Special Audit Report and on consideration of irregularities in current banking operations, the Board observes that the situation demands that an exhaustive forensic audit and investigation should be carried out by an independent agency. The resolution to be passed at the ensuing Board meeting for appointment of a Forensic Investigator.
Item No. 8: To consider and take call on the present and future projects of the company.
To find the best way to take the company forward so that there in unhindered growth of the company and to eliminate any possible threats for the future development of the company.
Item No. 9: To consider and discuss any item, if any, with the permission of the chair.
Agenda for 21.03.2018
Item No. 1: Grant Leave of Absence to Directors:
To consider the grant of leave of absence to Directors who have requested for the same.
Item No. 2: To approve minutes of meeting held on 07.03.2018.
Item No. 3: To take note on the statutory compliances till the quarter ended 31st December 2017: To consider the pending statutory dues payable to Govt. authorities in respect of Service tax, GST, TDS, EPF and ESI and filing of return thereof till the quarter ended 31st December 2017 and records to be submitted by the staff/site personnel.
Item No. 4: To take note on the books of accounts till the quarter ended 31st December.
To consider the books of accounts drafted by the management till the quarter ended 31st December 2017.
Item No. 5: To discuss and finalise the financials for filing of ITR of the Company.
Due to the financial irregularities reported in the special audit report and the irregularities reported therein there has been an inordinate delay in filing of statutory documents of the company. This has been further delayed as the documents are being perused by the Hon’ble High Court of Jharkhand. However, with a change in law that delayed returns cannot be field after 31st March, 2018, it is imperative to take a call as to what needs to be done.
Item No. 6: To consider and discuss any item, if any, with the permission of the chair.
Ld. Counsel of the Respondents also further submitted as follows: A Special Notice dated 16.05.2018 was issued by the Respondents specifying the Appellant, the reasons for removal and also served with requisition dated 03.05.2018 along with explanatory statement and Notice of EGM dated 16.06.2018 vide an email dated 25.05.2018.
The requisition of the EGM dated 16.06.2018 were approved for removal of the Appellant from the position from the Respondent No. 1 Company for financial mismanagement, fraud revealed from Special Audit Report.
The mismanagement in Company’s account unlike siphoning of the funds more than of Rs. 3 Crore with no satisfactory explanation were addressed in clause (2) of Special Audit Report dated 24.05.2017.
The Appellant defrauded the Respondent No. 2 & 3 and took advantage of his positions in the company, siphoned and transferred funds from the company’s account to his own account for the purchase of personal property & assets for personal use.
The Appellant had not only defrauded the company but has in abuse of his fiduciary position, diverted valuable business of the company into his own firm by the name of M/s. TSPL Coke and Energy and the Respondents were unknown about the new commencement of firm owned by the Appellant which is as identical as Respondent No.1 Company.
On or around April 2018, the Appellant has successfully diverted the business of the Company by undertaking work order from eminent client like Jindal Saw Ltd. & Bhatia Coke & Energy Ltd. and employing same deceptive tactics to his firm M/s. TSPL Coke and Energy.
The Appellant upon receipt of the Special Notice dated 16.05.2018 neither bother to send his representation against the EGM Notice to the Board nor came forward to repudiate the disputes against discrepancies in accounts of the Respondent No. 1 Company. Nevertheless, the Appellant approached before the NCLT on grounds of Oppression and Mismanagement against the Respondents.
The Adjudicating Authority has observed in its order dated 03.09.2019 as follows:
“6.After hearing the arguments advances by the Ld. Counsels, this Bench is of the opinion that the EGM, having been requisitioned at the instance of a shareholder, does not require a prior resolution of the Board of Directors to convene one. The petitioner acknowledges being served through email dated 25.02.2018, granting him the opportunity to file his representation on or before 13.06.2018. The said special notice was accompanied by the explanatory note. Since an FIR had already been instituted against him for criminal misappropriation of funds, it cannot be said that the petitioner was totally unaware of the allegations against him. The petitioner was granted opportunity to repudiate the allegations and explain the discrepancies in the accounts of the respondent company which were clearly pointed out and brought to his notice upon the Forensic Audit Report being received and is a subject matter of criminal prosecution under the FIR lodged against him. No cogent explanation was offered to the allegation of siphoning off the funds. It is further submitted that the petitioner has guilty of forging signatures of the other Directors on the cheques for withdrawing amounts from the bank to which he was one of the joint signatories, which is primarily the subject matter of criminal investigation.
7.In view of the submission made, this Bench does not find any irregularity in convening an EGM for removal of a Director. The same can be requisitioned by a shareholder and a Board meeting is not a prerequisite. The removal of a Director is best left to the respondent company and its shareholder. Directorial complaints should not be entertained by courts and therefore interference of the tribunal in such like matters is totally unwarranted.
8.Before parting with the case, we take note that CA -822/2019 has been filed after the matter was reserved for orders. A prayer has been made for issuance of directions to the RoC not to take any prejudicial steps for suspension of DINs and to attribute the non-filing of the Statutory Returns due to “Management Dispute”. In taking any action the RoC may take note of the period of legal disability of the Respondent Company on account of the Interim stay order of this Bench restraining the respondents from holding any meeting vide its order dated 14.06.2018. As the said orders have been vacated today, the respondents are granted time to carry out upto date statutory compliances within 6 weeks.
9.We do not find that a case of Oppression & Mismanagement has been made out as alleged by the petitioner. The petition is dismissed with the notional costs of Rs. 25,000/-. Interim order restraining the removal of the petitioner as a Director is hereby vacated”.
We have carefully gone through the pleadings of the parties and extant provisions of the Act including their written submissions and we are having the following observations:
It is not in dispute that the Appellant was the Director of the Company and he is son of one of the promoters of the R-1/Company.
It is also not in dispute that the Appellant has not been removed from the Company.
It is also not in dispute that this is a case of friendly relations while coming into the company, has become now an unworkable condition because of several allegations against the Appellant.
In special audit carried out by Vikas Dahiya and Company, Chartered Accountants, New Delhi vide its Special Audit Report dated 24th May, 2017 has observed multiple irregularities during the Financial Year 2013-14 to 2016-17. The auditor has also observed that huge payments were released in cash without supporting vouchers, receipts and payment amounting to Rs. 3.62 Crore has been made for which no satisfactory explanation was given by the Appellant. Illegal encashment of cheques, direct transaction of the funds, non-compliance of statutory duties of the Respondent No.1 Company etc came to the light and the same had happened under instruction of the Appellant. There are irregularities and misappropriation of funds including non-payment of statutory dues and the special audit has also recommended to carry an extensive forensic audit to find out the magnitude of misappropriation of funds.
All this reveal that there was no case of Oppression & Mismanagement as alleged out by the Appellant in present Appeal as well as in the Application filed before the Hon’ble NCLT, New Delhi vide CP-219/241-242/ND/2018 and the Adjudicating Authority rightly passed the detailed order dated 03.09.2021 after going through the entire materials placed on records and as such no irregularities were found in convening an Extra-Ordinary General Meeting which was requisitioned at the instances of a shareholder and a Board Meeting is not a pre-requisite as settled principles under Companies Act, 2013. This Tribunal ought to appreciate the fact that the allegations of siphoning of funds and fraud purported against the Appellant as per the Special Audit Report are grave and the Appellant were given ample opportunities to represent himself after issuance of Special Notice to repudiate the allegations but no cogent explanation was offered against the discrepancies in the accounts of the Respondent No. 1 Company.
The contention of Appellant that collection of funds by R-2 and 3 on behalf of R-1 Company will disentitle the right of Appellant as director and shareholder on these funds is not correct as per Companies Act, 2013 and related Regulations. The Company distributes dividend out of its profit after tax after complying with specific conditions laid down under law. The fund collected from Debtors/clients are not distributed amongst directors and shareholders.
Keeping these in mind, the Board Meetings were convened and suggested appropriate actions including convening of ‘Extraordinary General Meeting’ (EGM) based on requisition of shareholder to remove the Appellant from the Directorship of the company vide Special Notice dated 16.05.2018 and the Board has intimated vide letter dated 23.05.2018 to the concerned Director to defend the various allegations raised in the special notice but no cognizant explanation was offered against the discrepancies in the accounts of the Respondent No.1 company.
On further scrutiny, it is also observed that there have not been any irregularities in convening of EGM for removal of the Appellant. The removal of the Director is in the hands of the Shareholders depending upon the eventuality.
Hence, we do not find any irregularity in the impugned order. We, therefore, constrained to uphold the impugned order. The Appeal, therefore, deserves to be dismissed and is dismissed. No order as to costs.