2019 (9) TMI 1672 - Tri - Companies Law

Oppression Mismanagement - legality to declare the undated notice for calling EGM - legality to declare calling of EGM dated 16.06.2018 - grievance of the petitioner is that his proposed removal as a Director was contrary to the steps required to be taken under the statute - HELD THAT - 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. 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 shareholders. Directorial complaints should not be entertained by courts and therefore interference of the tribunal in such like matters is totally unwarranted. There are no case of Oppression Mismanagement has been made out as alleged by the petitioner - petition is dismissed with the notional costs of Rs. 25, 000/-.

Summary

Issues: Allegations of Oppression & Mismanagement, Removal of Director through EGM, Financial Irregularities, Legal Compliance, Oppression & Mismanagement Case Dismissal

Allegations of Oppression & Mismanagement:
The petitioner filed a petition alleging oppression and mismanagement by respondents 2 & 3, claiming they hijacked the business of the company and attempted to remove him as a Director illegally. The petitioner contended that the respondents' actions were malicious and baseless, including falsely initiating criminal proceedings against him. The petitioner sought various reliefs, including declaring the notice for EGM as illegal and void ab-initio.

Removal of Director through EGM:
The petitioner argued that his proposed removal as a Director was contrary to statutory requirements under the Companies Act. The petitioner's counsel contended that the notice for the EGM was in violation of Section 169 of the Act, as it lacked specific allegations justifying his removal. In response, the respondents refuted these claims, stating that no prior Board resolution was required for convening an EGM requisitioned by a shareholder.

Financial Irregularities:
The respondents presented a Special Audit Report highlighting financial irregularities allegedly committed by the petitioner, leading to an FIR and pending criminal prosecution. The report accused the petitioner of forging cheques and siphoning off funds. The tribunal noted that the petitioner failed to provide a satisfactory explanation for these allegations, including discrepancies in the company's accounts.

Legal Compliance:
After considering arguments from both sides, the tribunal concluded that convening an EGM for a Director's removal, requisitioned by a shareholder, did not necessitate a prior Board resolution. The tribunal found no irregularity in the process and emphasized that Directorial complaints should be resolved within the company and not by external interference, dismissing the petitioner's claims of oppression and mismanagement.

Oppression & Mismanagement Case Dismissal:
The tribunal dismissed the petitioner's case of oppression and mismanagement, stating that the petitioner failed to substantiate the allegations against the respondents. The tribunal imposed notional costs on the petitioner and vacated the interim order restraining his removal as a Director. Additionally, the tribunal granted time for the company to ensure statutory compliance within six weeks, considering the legal disability period due to the previous interim stay order.