TMI Blog2019 (6) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the NCLT in exercise of its powers under Section 242 of the Act has rightly set aside the decision of the company to remove 1st respondent as director of the company. Financial Collaboration Agreement (FCA) - HELD THAT:- As per FCA, only 10% shares were fixed for 1st respondent and accordingly he has been allotted the requisites shares. There is no evidence brought on record that 1st respondent is to get additional 15% shares from 2nd respondent either through FCA or any other documents. Therefore, we are in agreement with the conclusion drawn by the NCLT on this count. The arguments advanced by the appellant that 1st respondent was removed due to loss of confidence. We observe that loss of confidence as argued by the appellant does not appear in the Companies Act. We observe that the NCLT has rightly given his findings and arrived at to give compensation of ₹ 105 lakhs (calculated at the rate of ₹ 35 lakhs p.a. for three years) together with interest @ 10% from the date of removal of the 1st Respondent as Managing Director plus other benefits as already offered, till the date of payment by the company/other respondents. Appeal dismissed. - COMPANY APP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein) 2nd and 7th respondent (6th respondent herein) with regard to the incorporation of the new company as proposed by them. d) That the R1 company (1st appellant herein) was incorporated in the year 1996 and 10%, 39% and 51% shares of the R1 company (1st appellant) are held by the petitioner (1st respondent herein) R2 and R7 (R6 herein) respectively. e) That the petitioner (1st respondent) is the Managing Director, R2 is the Executive Chairman of the company. f) That the petitioner (1st Respondent) was promised allotment of 25% of the shares of the company, but was allotted only 10% and that his request for allotment of 15% was never heeded to. g) That the Respondents used to visit to India once in a year that too at the time of AGM and the Petitioner (1st respondent) was managing the affairs of the company solely and Petitioner s (1st respondent) tireless contribution since 1996 was huge in making the company a successful enterprise. h) That the petitioner (1st respondent) during the year 2011 learnt that the company was violating the transfer pricing norms since incorporation and R2 accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 173 Clause 3 of the Act, 2013. But in the special notice issued by the shareholders of the company it is mentioned that an EGM would be convened on 7.8.2015 which indicates that the whole episode has been instigated by R2. Therefore, EGM convened on 7.8.2015 was without prior notice and the said EGM was illegal. o) That during the Board Meeting held on 15.5.2015, the Petitioner (1st respondent) had objected to consider the special notice dated 15.5.2015 as the original notice dated 8.5.2015 of the Board Meeting had a different Agenda. In the minutes of the Board Meeting dated 15.5.2015, Respondent 2 and Respondent 5 have falsely recorded that the Petitioner (1st respondent) has been sought to be removed from the office of the Managing Director. It is also mentioned in the notice dated 15.5.2015 issued for EGM to be convened on 7.8.2015 for removing the Petitioner (1st respondent) from the office of the Managing Director. The R2 also filed a Form MGT 14 on 17.8.2015 with ROC wherein at Column 1 mentioned that the Petitioner (1st respondent) was removed from the office of the Managing Director and not from the office of the Director. p) That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1 crore only. The demand for ₹ 10 crores was rejected by the Respondents. c) That the company is not a party to the FCA and it is not binding on the company and not obliged to amend its Articles of Association in accordance with the FCA and the said act cannot be termed as an act of oppression . The petitioner accepted the non-amendment of AOA and worked for 20 years and he is estopped from saying that it is an act of oppression. d) That the Audit Report shows that the petitioner (1st respondent) has not complied to the statutory provisions such as Income Tax, Wealth Tax, ESI, Gratuity Act, Bonus Act, Service Tax Act. e) The item 1 of the minutes of the Board Meeting held on 15.5.2015 relates to the Petitioner (1st respondent) position as Managing Director and his participation in the said meeting is recorded properly. The other directors exercised their right under Clause 108 of the AOA to revoke the petitioner s appointment as Managing Director. The removal of the petitioner from the office of the Director has to be decided in an EGM. There is nothing in the minutes of the meeting to show that it has been falsif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so equally liable for such cash withdrawals. The auditors appointed by R2 certified that the cash was used for legitimate business expenditure. Taking cars on lease is a business decision and involves monthly out flow spread over a longer period and the lease rent can be fully claimed an expenditure under the Income Tax Act. Therefore, the lease agreement cannot be termed as an act of mis-management. m) That Section 202(3) of the Act, 2013 provides for a cap of three years compensation. Therefore, the compensation can never be ₹ 10 crores. Further, the company is not a wholly owned subsidiary of R7 and R7 holds only 51% of the share capital. The R7 company is in existence for over 40 years long before the incorporation of the company. Therefore, it is false to state that the entire turnover of R7 is contributed by the activities of the company and the software business of R7 in India is insignificant to the sales of R7. 4. After hearing the parties the NCLT passed the impugned order. The relevant portion of the order is as under:- 8. In view of the above discussions relating to the first issue, the Board Meetings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares in the company should fail and this issue is answered in negative to the petitioner. 11. As regards claim for damages, it is the respondent s contention that the Petitioner it not entitled to claim any exemplary damages and his exit package would come around ₹ 1 crore including his terminal benefits. The Respondents have quantified that the petitioner s salary for the year 2013-14 was ₹ 33.79 lacs. The contention of the Petitioner is that he is entitled to get a package fo ₹ 10 crores, besides the value of the shares in the company. The Petitioner has worked as a Managing Director right from the incorporation i.e. 1996 and continued till 2015 without any break. The Respondents at one stage felt that it is proper to fix ₹ 1 crore towards the exit package. There is no denial by the Respondents in relation to the submission of the Petitioner about the growth of the company and its income from his tenure as a Managing Director and a documentary proof is also filed by the Petitioner in this regard. In terms of Section 202(3) of the Companies Act, upon removal, the Managing Director of a company would be entitled to receive remuner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esented by any of the Respondents No.2,3,4 and 5 as the allegations were against these respondents and these respondents cannot afford to remain as proforma respondents and for this reason alone the appeal is liable to be dismissed. 11. 1st respondent stated that the appellants have not challenged the findings of the NCLT Chennai as recorded in para 11 of the impugned order dated 19.7.2018. The said findings are as under: There is no denial by the Respondents in relation to the submission of the Petitioner about the growth of the company and its income from his tenure as a Managing Director and a documentary proof is also filed by the Petitioner in this regard. 12. 1st respondent stated that the appellants in para 7(3) of the appeal stated that 2nd respondent gifted the consideration for shares to the 1st respondent which is a modification of the counters filed by the appellants and Respondent No.2 to 6. 1st respondent further stated that before NCLT Chennai, the appellant stated that 2nd respondent gifted the shares to 1st respondent. The appellant stated that it is the contradictory statement. 13. 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection V of FCA. 1st respondent stated that the appellant and other respondent were bent upon removing the 1st respondent from the office of managing director by foisting false charges on him and for that purpose appointed M/s KPMG an audit firm to find out lapses on the part of 1st respondent. 1st respondent further stated that the appellant and other respondents have produced only draft report of the KPMG and not fair and final report of KPMG before the NCLT Chennai. 18. 1st respondent stated that he has filed the petition to address the injustice caused to him. 1st respondent further stated that it has only 10% of the paid up capital, therefore, there was no other way than to ask the damages of ₹ 10 crores against the illegal and oppressive removal of the 1st respondent from the office of managing director. 19. 1st respondent prayed that the appeal filed by the appellants may be dismissed. 20. We have heard the learned counsel for the parties and perused the record. 21. Learned counsel for the appellant argued that petition was filed by 1st respondent on the issue of oppression and mismanagement. NCLT has give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act has rightly set aside the decision of the company to remove 1st respondent as director of the company. 24. Learned counsel for the appellant argued that the NCLT committed an error of fact in holding that the FCA was pre-incorporation and binding on the 1st appellant even though it was entered eight months after the incorporation and 1st appellant was neither a party nor signatory to it. Learned counsel further argued that the Articles of Association had not been amended as required under Section 5(3) of the Act. Learned counsel stressed that it is settled law that an external contract to which the company is not a party cannot be binding on the company without the same being incorporated into its Articles of Association. Learned counsel has cited the judgement of Chatterjee Petroleum (India) Pvt Ltd Vs Haldia Petrochemicals Ltd Ors. Reported in ( 2011) 10 SCC 466 and VB Rangaraj Vs VB Gopalakrishnan Ors reported in (1992) I SCC 160 and S.P. Jain Vs Kalinga Tubes Ltd reported in AIR 1965 SC 1535. 25. Learned counsel for the 1st respondent argued that the Financial Collaboration Agreement (FCA) was entered between 1st Respondent, 2n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of managing or whole-time director or manager.- (1) A company may make payment to a managing or whole-time director or manager, but not to any other director, by way of compensation for loss of office, or as consideration for retirement from office or in connection with such loss or retirement. ( 2) No payment shall be made under sub-section (1) in the following cases, namely:- ( a) where the director resigns from his office as a result of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing or whole-time director, manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation; ( b) where the director resigns from his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid; ( c) where the office of the director is vacated under sub-section (1) of section 167; ( d) where the company is being wound up, whether by an order of the Tribunal or voluntarily, provided the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act provides that any payment made to a managing director shall not exceed the remuneration which he would have earned if he had been in office for the remainder of his term or for three years whichever is shorter, calculated on the basis of the average remuneration actually earned by him during a period of three years immediately preceding the date on which he ceased to hold office, or where he held the office for a lesser period than three years, during such period. On critical analysis of Section 202 of the Act we observe that the appellant company may make payment of compensation to 1st respondent for loss of office of managing director. We have also observed the Minutes of the Meeting of Board of Directors of 1st appellant held on 15th May, 2015 (Page 203) in which it was resolved to remove 1st respondent from the directorship and Office of Managing Director of the of the Company with effect from the date of approval of this resolution by the shareholders. We observe that in the said Meeting no discussion on payment to 1st respondent was discussed. We also observe Notice dated 15.5.2015 (Page 205) for conducting EGM of 1st appellant on 7.8.2015. We also observe that Minute ..... X X X X Extracts X X X X X X X X Extracts X X X X
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