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Judgment
JUSTICE YOGESH KHANNA, MEMBER (JUDICIAL)
This appeal is filed by the appellant against the judgement dated 16.10.2023 passed by the Ld. NCLT New Delhi in CP-5/ND/2022.
In their petition before the Ld. NCLT the appellants made following allegations alleging various acts of oppression and mismanagement committed by the Respondents viz:-
The Petitioners have been deliberately kept away from the affairs of the Respondent No.1 company by not sharing any information and financials of the Company;
the Respondent No.2 to 4 have not held Annual General Meeting in the year ending 31.03.2021 till date nor have sought any extension in this regard. Further, the accounts of the Company have not been audited till date;
unjustified calling of Board Meeting to change the Bank Signatories of Respondent No.1 company and the affairs of the Respondent No.1 company are being conducted as a sole proprietorship/Partnership by Respondent No.2 and 4.
the Petitioner pointed out certain discrepancies in form, MGT-7 for the Annual General Meeting dated 10.08.2020 for the Financial Year 2019-2020, wherein the investments of the Petitioners towards capital were not reflected;
the appellant had also made several allegations about the illegitimate transfer of shareholding to the third parties by Respondent No. 2 to 4; misuse of goodwill and expertise of the Petitioners etc.
Though in their petition, the appellants raised allegations of oppression and mismanagement but the main grievance of the appellants is the Appellant No.1 was appointed as an Additional Director of the Company on 01.04.2020; was sought to be removed from the directorship of Respondent company. As per the Appellants, the Respondent No.1 company was declared Non Performing Asset (NPA) and, hence the Respondents approached the appellants to pull it out from being a defaulter.
It is alleged the appellants, therefore, infused capital to the tune of Rs.18 crores for revival of the company since the appellants were doing the same business and had an expertise. In view of the above, the appellant No.1 was given a seat on the Board; had signing authority; access to all data and accounts of Respondent No.1 company.
Further, appellant No.1 stood as a personal guarantor to the facility taken by the Respondent company from financial institution(s).
It is alleged the appellant No.1 was inducted on 01.04.2020 as an additional director alongwith Respondent No.4 upon buying shares of Respondent company and was also made an authorized signatory of Company’s Banks accounts and had access to all financial statements and was involved in day to day activities of Respondent No.1 company. The appellant No.1 stood as a guarantor to bank accounts for loan facility availed by Respondent No.1 to the tune of Rs.15 crores.
It is alleged by the Appellant No.1 had also invested Rs.1.05 crores in respondent No.1 company against the shareholding through M/s Mahendra Dairy Pvt Ltd in which Appellants 2 and 3 are directors during the year 2020-21.
It is contended the Appellant No.1 continued to be a director but suddenly in the midst of 2021 the Respondents stopped sharing any details qua working of the company. Subsequently notice was issued to hold an Extra-Ordinary General Meeting (EOGM) on 05.02.2022 wherein one of the agenda was to consider the removal of appellant No.1 from the Board of Directors. However, the said notice issued for holding the EOGM was later withdrawn by Respondents and thereafter respondents neither held any AGM nor sought for any extension for holding AGM.
However, the Respondents argue the Appellant was appointed as an Additional Director of the Respondent No.1 company on 01.04.2020 but his appointment was never regularized in the AGM held on 10.08.2020 and, therefore per provisions of Section 161 of Companies Act, 2013 the appellant No.1 had ceased to be a director from 10.08.2020.
It is the case of the Respondents the AGM of Respondent No.1 company was held on 10.08.2020 as per MGT-7 for the financial year 2019-2020, duly signed by the appellant No.1 himself. It was alleged there was no resolution put up for confirmation/regularization of the appellant No.1 as director of the company.
The Ld. NCLT vide its impugned order dated 16.10.2023 held as under:-
48.Besides hearing the Ld. counsel for the parties, we have also meticulously perused the material available on record. It is true that at the time of filing the present petition on 27.01.2022, the Respondent No.1 Company was in breach of conducting the Annual General Meeting of the Respondent No.1 Company for the year ending March, 2021 within the extended time period of conducting the Annual General Meeting. The Respondents in defence had submitted that the AGM of the Respondent No.1 Company could not be conducted in view of the disruptions caused due to the Covid-19 situation and non-cooperation by the statutory auditor of the Respondent No.1 Company
49.Be that as it may, it is pertinent to note that not conducting the AGM of a Company within the statutory time or extended time is not a cognizable offence but only a procedural irregularity which can be corrected by payment of fine of Rs. 1 Lakh and additional amount of further fine calculated on the basis of days of delay as envisaged in Section 99 of the Companies Act, 2013. Further, Section 441 of the Act also allows compounding of the said fine by the Regional Director or the Tribunal depending on their respective pecuniary jurisdiction. Furthermore, though at the time of filing the present petition on 27.01.2022, the Respondent No.1 Company was in breach of conducting the Annual General Meeting of the Respondent No.1 Company for the year ending March, 2021, at the time of final hearing of the present application, when we checked the master data of the Respondent No.1 Company i.e., M/s. Achintya Healthcare Private Limited as available on the MCA portal, we find that the MCA master data reflects that the Annual General Meeting of the Respondent No.1 Company is conducted till the financial year ended March 2022 which clearly indicates that the AGM of the Respondent Company No.1 for the financial year 2020-2021 must have been conducted with late fees/ fines within the given framework of law. We are of the considered view that the delay in conduct of the AGM may be taken as an example of inefficiency on the part of the Board, but it cannot be termed as an example of oppression or mismanagement.
52.As regards the contention of the Petitioners that the conduct of the Board Meeting dated 12.01.2022 for the change of signatory of the Respondent No.1 Company is unjustified, this Tribunal is of the view that the decision as to appointing or removing the signatory of the Respondent No.1‟s Bank Account is a matter of internal management and wisdom of the Directors of the Respondent No.1 Company. Effecting a change in the signatory of the Respondent No.1 Company‟s Bank Account by conducting the Board Meeting and following the due procedure of law cannot be deemed to constitute either as mismanagement of the Company or as oppression of the petitioners herein.
53.As to the contention of the Petitioners that there is a discrepancy in filing of EForm MGT-7 for Financial Year 2019-2020 as the investment of Petitioners in the capital is not reflected, the Respondents had stated that the impugned E Form MGT-7 is filed by Petitioner himself with his DSC affixed on the same. This fact is not controverted by the Petitioners. This Tribunal on the perusal of the Respondent No.1 Company‟s MCA Master data find that the paid up share capital of the Respondent No.1 Company is reflected as Rs.8,00,00,000/- which includes the Petitioners collective shareholding of 2,00,000 equity shares in the Respondent No.1 Company. Therefore, this contention also does not hold any water.
54.It appears to us that the Petitioners herein have referred to minor irregularities committed by the Respondents as alleged acts of oppression and mismanagement , following the Petitioner No.1's removal from directorship, which has happened due to operation of law. It is pertinent to note that minor acts of irregularities or mismanagement are not to be regarded as oppression and as far as possible, shareholders should try to resolve their differences by mutual readjustment.
55.The guiding principle governing the conduct of majority shareholders is equity and fair play, without prejudicially affecting the rights of the minority shareholders. Any act of the majority shareholders which prejudicially affects the rights of the minority shareholders of a company must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to the minority shareholders.
58.With regard to the other alleged acts of oppression and mismanagement such as (i) misuse of goodwill and expertise of petitioner (ii) transfer of shareholding to third parties, the petitioner had not placed on record any document before this Tribunal to corroborate the instance of the alleged mismanagement. Accordingly, this Tribunal is not inclined to adjudicate the allegations on mere averments of the Petitioner.
59.In the circumstances as illustrated above, this Tribunal is of the considered view that the present alleged acts of oppression and mismanagement as enumerated in clause VII of the present petition filed under section 241 & 242 of Companies Act 2013 are not sustainable.
Before us the main grievance of the appellant is though the Respondents allege the Appellant No.1 was removed as an Additional Director as on 10.08.2020 by virtue of Section 161(1) of the Companies Act, 2013 as his appointment was allegedly not confirmed in the AGM dated 10.08.2023 but in fact Appellant No.1 had continued to act as a Director even after 10.08.2020. In this context the Ld. Counsel for appellants referred to Notice for the Board Meeting to be held on 12.01.2022 and in such notice, the appellant No.1 was shown as a Director of the company. The agenda of the said Meeting of dated 12.01.2022 was to convene an EOGM. The Minutes of Meeting dated 12.01.2022 of the Board of Directors also reveal the appellant No.1 had signed such minutes as a Director.
It was also argued there existed a proposal for removal of Appellant No.1 as an Additional Director from the Board of Directors per Section 169 of Companies Act, 2013 and a notice of EOGM for dated 05.02.2022, contained an item in its agenda to remove appellant No.1 from the Board of Directors and hence the appellants filed the present Company Petition. During the pendency of this Company Petition, the said notice for the Board’s Meeting dated 05.02.2022 was withdrawn and the Respondents rather alleged the Appellant No.1 was already removed as a Director on 10.08.2020 per Section 161(1) of the Companies Act, 2013.
Section 161(1) of the Companies Act, 2013 reads as follows:-
“(1)The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.”
It is the submission of the learned counsel for the appellants the removal of Appellant No.1 was though alleged to be under section 161(1) of the Companies Act, 2013 but by conduct of respondents wherein the appellant was allowed to continue as a director even after 10.08.2020, hence now cannot be said appellant No.1 was removed on 10.08.2020. In support of her arguments the Ld. Counsel for appellant referred to M/s Mahima Datla Vs Dr Renuka Datla and Ors, Civil Appeal No.2776 of 2022 wherein the Hon’ble Supreme Court held as follows:-
“The thrust of the Duomatic Principle is that strict adherence to a statutory requirement may be dispensed with if it is demonstrated otherwise on facts, if the same is consented by all members. In this case at hand, there is overwhelming evidence to show that respondent No.1 had accepted Mr. GV Rao back into the Board and her conduct clearly shows that the resignation dated 06.04.2013 was clearly not accepted.”
We have heard the arguments advanced by the learned counsel for the Appellant. At the outset we may say the judgement cited by the learned counsel for the appellant is not applicable on facts as it relates to a case relating to acceptance of resignation of a director but whereas the facts of the present case are altogether different
Rather we would refer to Krishnaprasad Jwaladutt Pilani Vs Golaba Land and Mills Co, AIR 1960 Bom 312 wherein the Hon’ble High Court held as follows
“The conclusion reached by the Court was that a director who was bound to retire by rotation as well as a director who was an additional director being co-opted by the other directors should be treated as having vacated their office on the last day on which the annual general meeting of the company could have been held. Incidentally, we may observe that the editiors of leading Text Books on the subject in England have referred to the English decisions as laying down the law on the subject. We are in respectful agreement with the decision of the Madras High Court.”
Same proposition of law was propounded in Dushyant D Anjaria Vs M/s Wall Street Finance Ltd and Anr (2001 (1) Mh L.J.); A. Ananthalakshmi Ammal and Anr Vs the Indian Trades and Investments Ltd and Anr (OSA Nos 120 of 1951 and 15 of 1952); Janak Dhawan & Anr Vs JD Word Wide Exports Pvt Ltd & Ors (2011 (122) DRJ 476; Surendra Kumar Singhi Vs Registrar of Companies and Anr (2023) SCC OnLine Cal 129) and P. Natarajan V Central Government (2003 SCC OnLine Mad 878.
Considering the law above, we see no illegality in the impugned order so far as it relates to the removal of the appellant No.1 as an Additional Director. Secondly we are also of the opinion that shareholder cannot seek relief of his appointment as a director on a doctorine of legitimate expectation. In VS Krishnan and Ors V. Westford Hi-Tech Hospital Ltd and Ors (2008) 3 SCC 363)the Hon’ble Supreme Court held as under:-
19)The issue of re-appointment of retired directors on the theory of 'legitimate expectation' was considered by the High Court in detail. It is the stand of the second respondent (Chairman of the Company), that there was no specific promise that these petitioners would be given directorship permanently. The materials placed and discussed before the CLB show that there was full disclosure of retirement of one- third directors and election to that place are in accordance with the Act and Articles of Association and theory of 'legitimate expectation' has no application.
20.It was also highlighted before the CLB as well as the High Court that out of eight directors elected, six were not related to Chairman. It was asserted that Chairman and his family stood personal guarantee to Rs.21.99 crores whereas NRI directors have not stood personal guarantee for any loan. Though CLB has observed that the principle of 'legitimate expectation' is applicable in the case of the petitioners, in the light of the materials placed and the stand taken by the contesting respondents, we are of the view that the claim 'legitimate expectation' cannot be extended to and there is no specific promise that the petitioners would be given directorship permanently. Even otherwise, the same cannot be accepted in view of the mandate of the statute that 1/3rd of the directors have to retire in a year by rotation. Accordingly, we accept the conclusion arrived at by the High Court and reject the decision of the CLB on this aspect.
Further it is settled law that complaints of termination of directorship cannot be entertained in an Oppression and Mismanagement petition as has been held in Tata Consultancy Services Ltd Vs Cyrus Investment Pvt Ltd (2021) 9 SCC 449 wherein the court held:-
“111.In fact the real reason why the complainant companies thought fit, quite tactfully, not to press for the reinstatement of CPM is that the mere termination of Directorship cannot be projected as something that would trigger the just and equitable clause for winding up or to grant relief under Sections 241 and 242.
So far as other allegations are concerned, we are of the view that the Ld. NCLT has aptly dealt with the same in its judgement as noted by us above.
Thus we find there is no force in the appeal and accordingly the appeal is dismissed.
Pending applications, if any, are also closed.