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2019 (9) TMI 534

..... issues’ arising in day to day management of the Company - Estoppel from denying the factum of seeking time by joint consensus with the Appellant to name the Independent Director - HELD THAT:- It appears that maintainability of the Company Petition in the context of eligibility of Respondent No. 2 (Petitioner) to file petition under Section 241-242 of the Act is not in controversy. The Appellant, however, has vociferously challenged finding as regards limitation at the very threshold stage. It is the settled position of law that limitation is a mixed question of law and fact. Any finding which is not informed of the reasons and does not rest upon appreciation of the relevant material/ evidence on record cannot be supported, more so, when it is neither expedient nor practicable to record such finding at the very threshold stage of proceedings on account of the issue of limitation being a mixed question of law and fact. Grant of interim relief - HELD THAT:- The stand taken by Appellant before the Tribunal qua allegations of oppression and mismanagement is that the same are merely “operational issues” which included procurement of newsprint. Serious exception has been .....

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..... and Ms. Drishti Harpalani, Advocates. For Respondents: Dr. U. K. Chaudhary, Sr. Advocate with Mr. Pavan S. Godiawala, Mr. Mahesh Agarwal, Mr. Rajeev Kumar, Mr. Sumit Malhotra, Ms. Natasha D. Shah, Advocates for R-2. Ms. Garima Bajaj, Advocate for R-3. JUDGMENT This batch of two appeals has been preferred by Smt. Smruti Shreyans Shah - Appellant [Respondent No. 2 in C. P. No. 16/241/NCLT /AHM/2017 pending disposal before National Company Law Tribunal, Ahmedabad Bench, Ahmedabad (hereinafter referred to as the Tribunal )] against order delivered by the Tribunal in the aforestated Company Petition on 13th October, 2017 by virtue whereof the Company Petition preferred by Respondent No. 2 herein - Shri Bahubali Shantilal Shah ( Petitioner in the Company Petition) under Section 241 of the Companies Act, 2013 (hereinafter referred to as the Act ) alleging certain acts of oppression and mismanagement came to be admitted with further directions passed in the Company Petition and I. A. No. 275 of 2017 to appoint an Independent Director on the Board of Directors of Respondent No. 1 - The Lok Prakashan Ltd. (hereinafter referred to as the Company ) to act as Chairman of the Board of Directors .....

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..... as decided the issue of limitation after referring to the respective contentions of the parties. 5. The Tribunal proceeded to admit the Company Petition by making the following observations:- 22. In view of the above findings, petitioner is eligible to file this petition and the petition is within time. In view of the findings as there are certain alleged acts of oppression and mismanagement, though denied by the respondents, the application deserves to be admitted. The correctness or otherwise of acts of oppression and mismanagement can only be decided after the full-fledged hearing. Without admitting the petition, this Tribunal cannot go into the merits of the case. There plea of delay and latches as such cannot be taken into consideration at this stage unless a full-fledged hearing takes place as it involves several questions of fact. 23. In view of the aforesaid discussion, the petition is admitted. 6. A bare look at para 24 of the impugned order would bring it to fore that at the hearing learned counsel for Respondent No. 2 herein restricted the prayer for interim relief to only one viz. appointment of Independent Directors on the Board of Directors of the Company pending fina .....

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..... ent Professional Directors. This was besides the fact that she proposed the name of Hon ble Justice Shri P. B. Majumdar (Retd.) to be Chairman to oversee the proceedings of the Board Meeting. The Tribunal relied upon Article 182 of the Articles of Association of the Company to find that an outsider cannot act as Chairman of the Board unless he is appointed as a Director. Thus, it ruled out such appointment, moreso as the same was not going to break the deadlock. Since in the view of the Tribunal, the Company had to comply with the statutory requirements, contractual obligations, compliances, operational issues and to attend the day to day business like purchase of news print and payment of salary etc., the Tribunal deemed it necessary to appoint Independent Director on the Board of the Company to act as Chairman of the meeting of Board of Directors with casting vote. The Tribunal accordingly admitted the petition and directed appointment of an Independent Director. The matter was adjourned to enable the parties to name the Independent Director and fixing his remuneration. 7. Before proceeding further to note the submissions made at the Bar, we deem it appropriate to refer to a deve .....

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..... urther affidavit has been filed by the Appellant in Company Appeal (AT) No. 32 of 2018. Respondents have filed rejoinder thereto. Before adverting to the same, if required, it would be appropriate to refer to the grounds of Company Appeal (AT) No. 25 of 2018 and Company Appeal (AT) No. 32 of 2018 on which common order dated 13th October, 2017 culminating in admission of Company Petition and appointment of an independent Director on the Board of Directors of the Company is impugned. 9. The impugned order is assailed on the ground that Respondent No. 2 herein (Petitioner in the Company Appeal) failed to make out a prima facie case establishing acts of oppression and mismanagement before the Tribunal. It is urged that the alleged acts of oppression/mismanagement are nothing but operational issues arising in day to day management of the Company. It is further urged that the Company Petition is barred by limitation. It is also urged that the Tribunal has wrongly attributed it to Appellant that she had no objection in increasing the strength of the Board by inducting Independent Professional Directors. It is urged that the Tribunal has failed to notice that the allegations in the Company .....

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..... ation of the Board of Directors of the Company. It is submitted that the Company Petition triggering the proceedings at the instance of Respondent No. 2 has been filed when the Appellant raised serious questions about his motive, conduct and financial prudence as the settlement was prejudicial to the Company. It is contended that Respondent No. 2 has self-engineered disputes and created artificial deadlock though it was his conduct which was prejudicial to the Company. Secondly, it is argued that incorrect concessions have been attributed to Appellant in impugned order. Reference is made to para 25 and 28 of the impugned order in this regard. It is contended that there is no basis for findings recorded in the aforesaid paras of the impugned order in the record before the Tribunal on 13th October, 2017 and none of the parties made any such submissions. It is submitted that the aforementioned findings are factually incorrect in as much as the Appellant in her letter dated 5th October, 2017 nowhere mentioned that she had no objection in increasing the strength of the Board by inducting Independent Professional Directors. It is submitted that the Appellant only stated that in view of t .....

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..... e the Tribunal. It is pointed out that no Independent Director could be appointed with a casting vote in contravention to Articles of Association. Sixthly, it is submitted that the impugned order does not deal with the issue of maintainability raised by the Appellant and the issue of limitation has been decided without any reference to the record. It is contended that the issues of limitation and maintainability being mixed questions of law and fact could not have been decided at an interim stage and that too without referring to pleadings and evidence. Seventhly, it is submitted that the alleged non-convening of Board Meetings and AGMs/ Deadlock are self-engineered by Respondent No. 2, who himself avoided attending the meeting called for by way of Appellants letter dated 5th October, 2017. It is submitted that even during the pendency of proceedings Respondent No. 2 rendered it difficult to call for meetings by making false allegations against anyone attempting to carryout compliances for the Company. It is pointed out that even in absence of Respondent No. 2 in Board Meeting dated 25th July, 2018 and 75th and 76th AGMs of the Company, no resolutions were passed to the prejudice o .....

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..... ding litigation and also to carry out the statutory compliances for the Company. 13. Per contra Dr. U. K. Chaudhary, learned senior counsel representing Respondent No. 2 (Original Petitioner) submits that the appeals preferred by the Appellant deserve to be dismissed as the Appellant expressly gave consent for appointment of Independent Director in her affidavit dated 8th October, 2017 filed in the Company Petition. It is further submitted that the appeals are not maintainable also on the ground that the Appellant herself on 5th October, 2017 issued Board Notice for statutory compliances and proposed convening a meeting of the Board on Saturday, 14th October, 2017 and proposed name of Hon ble Justice Shri P. B. Majumdar (Retd.) to be appointed as Chairman to oversee the proceedings of the meeting. Respondent No. 2 opposed appointment of outside person as Chairman. It is submitted that if there was no deadlock then why the Appellant herself proposed the name of an outside person. It is further submitted that the Tribunal directed appointment of outside Independent Director keeping in view facts and circumstances and conduct of Appellant and her allies and not on the basis of alleged .....

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..... is in the interest of the Company s affairs needs to be implemented. 14. Heard learned counsel for the parties at length and perused the record. The two appeals preferred by the Appellant, who figured as Respondent No. 2 in the Company Petition pending consideration before the Tribunal, arise out of common order passed by the Tribunal on 13th October, 2017. The Appellant assails the impugned order on various grounds noticed in the pleadings of the parties and arguments addressed on their behalf. The issues raised in these appeals relate to maintainability of the Company Petition and grant of interim relief. It appears that maintainability of the Company Petition in the context of eligibility of Respondent No. 2 (Petitioner) to file petition under Section 241-242 of the Act is not in controversy. The Appellant, however, has vociferously challenged finding as regards limitation at the very threshold stage. It is the settled position of law that limitation is a mixed question of law and fact. Reference in this regard may profitably be made to the judgment of Hon ble Apex Court rendered on 11th July, 2006 in Civil Appeal No. 4766 of 2001 titled Ramesh B Desai & Ors. Vs. Bipin Vadil .....

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..... concluded one and if they are concluded, whether they are within the prescribed period of limitation. Still the Tribunal proceeded to return the finding on the issue of limitation in para 20 of the impugned order extracted hereinabove without referring to the relevant facts and evidence in support thereof to arrive at the finding that most of the acts of oppression and mismanagement were continuing one. As indicated hereinabove, if some acts of oppression or mismanagement do not form part of a series so as to give rise to a continuing cause of action, right to apply would accrue from the date when the first violation of right occurred or was discovered. The Tribunal appears to have given short shrift to the matter by making a general observation that most of the acts of oppression and mismanagement are continuing one. This observation is not based on consideration of material. Admittedly, it is also not based on any admission on the part of Appellant. Since the matter was still at the very threshold stage and the issue of limitation involving mixed questions of law and fact was required to be examined in the light of relevant material/ evidence let in by the parties during inquiry .....

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..... sive to any member(s) or prejudicial to public interest or in any manner prejudicial to the interests of the company and on just and equitable ground winding up order would be justified but such winding up would unfairly prejudice such member(s). Sub-section (2) of Section 242 deals with the nature of substantive relief that can be granted though same is only illustrative and not exhaustive. Section 242(4) of the Act provides for interim relief which the Tribunal may grant for regulating the conduct of the company s affairs. Such interim relief can be granted by virtue of an order passed on the application of any party to the proceeding and such order can be subjected to terms and conditions which appear to the Tribunal to be just and equitable. On a plain reading of these provisions, it is abundantly clear that pending consideration of application by a member or member(s) of a Company alleging oppression or mismanagement, the Tribunal is vested with wide discretion to make any interim order on the application of any party to the proceedings, which it thinks fit for regulating the conduct of company s affairs. Such interim order can be subjected to terms and conditions which appear .....

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..... that the Channel was a part of the Company. It was further alleged that the Company was prevented from raising invoices as regards advertisements issued by Respondent No. 6 published in Newspaper Gujarat Samachar of the Company. Respondent No. 2 herein also alleged in the Company Petition that the Respondent No. 3 has usurped the powers of Editor without declaration though he was only a publisher also being one of the signing authority. It was further alleged that the Appellant and Respondent No. 3 created impediments in conducting of Board Meetings/ Annual General Meetings. Besides, the Board Meeting on 10th June, 2016 was not allowed to do business as per agenda. Respondent No. 2 alleged harassment at the hands of Appellant, who wrote letter dated 3rd September, 2016 making some allegations targeting Respondent No. 2 herein and disrupting the affairs of management. It was further alleged that after the demise of Shri Shantilal Shah, Appellant and Respondent No. 3 created many impediments in smooth functioning of the Company, no legal appointment of Editor was made and one Mrs. Illa Parikh employee of Gujarat Samachar was being paid salary though her services were utilized by Resp .....

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..... the supplier without any authorization of or intimation to the Board of Directors of the Company. This is projected as the core issue triggering the proceedings and stated to have been ignored by the Tribunal. To ascertain whether the Company Petition was filed on account of such objection raised by the Appellant reference to record is inevitable. In this regard reliance is placed on email dated 13th December, 2016 from Respondent No. 2 to Respondent No. 3 (at page no. 305 of the Paper Book) requesting him to sign cheques and L/C papers regarding case matter of Fibro and HDFC Bank . Reply thereto (at page 359 of the Paper Book) indicates that Respondent No. 3 took serious exception to the consent terms agreed upon by Respondent No. 2 with the supplier terming the same as being extremely prejudicial to the Company as the consent terms enjoined upon the Company to place orders for additional 15,000 metric tons of New print in future with Fibro even when such material was available at more competitive prices from other suppliers. Respondent No. 3 also alleged that he as also the Appellant had been kept in dark about the settlement and the settlement was foisted on them exposing the in .....

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..... n qua supply of newsprint was questioned by the Appellant. 20. Now we shall proceed to consider whether the appointment of any Independent Director was consented to by the Appellant. In this regard reference may be made to affidavit in reply of Appellant filed before the Tribunal which refers to Board of Directors Meeting dated 27th September, 2010. It emerges therefrom that a committee constituted in January, 2009 examined the operational problems faced by the management of the Company and submitted its report containing 26 recommendations which was placed before a meeting of the Board of Directors held on 27th September, 2010. One of the recommendations related to strengthening the Board for which eight names were suggested. Respondent No. 2 and Respondent No. 3 were jointly authorized to approach the said eight persons so as to obtain consent of any three to be appointed on the Board before 31st March, 2011. It appears that the various committees formed in terms of the resolutions passed by the Board of Directors could not function and all recommendations were not implemented. Recommendation to increase the strength of the Board and the resolution in that behalf also could not b .....

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..... December, 2016, the Company in its 75th AGM held on 29th August, 2018 reappointed Respondents No. 4 and 5 as Independent Directors for a term of three years. This development is a subsequent development. Queer enough is the statement in additional affidavit of Appellant dated 29th January, 2019 that Respondent No. 4 has filed an I.A. before the Tribunal that since his term was only for one year commencing from 30th December, 2015, he ceased to be Independent Director of the Company by operation of law and gave intimation thereof to Registrar of Companies, Gujarat, Ahmedabad. It would therefore, for the purposes of consideration of appeal on the aspect of grant of interim relief, be not out of place to observe that Respondents No. 4 and 5 have been taking stands as suits their mentors which compounds the deadlock. This conclusion is clearly deducible from the contradictory stands taken by Respondents 4 and 5 regarding their mode of appointment. This is apart from controversy interse the dominant characters (Appellant and Respondent No.3 (Couple) on one side and Respondent No.2 on the other side). There being no love lost interse Respondents 4 and 5 on this material aspect, the only .....

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..... s of justice are not defeated. It would be relevant to refer to letter dated 5th October, 2017 written by the Appellant to all Directors proposing a meeting of the Board on 14th October, 2017. She proposed appointment of Hon ble Justice Shri P. B. Majumdar (Retd.) as Chairman to oversee the proceedings of the meeting (Page 441 of the Paper Book). Though, Respondent No. 2 did not object to the convening of the meeting but maintained that it was not permissible to take an outside person as Chairman without being a member of the Board. This lends credence to the plea of Respondent No. 2 that the affairs of the Company were not being conducted smoothly and, in the least, outside intervention was required to oversee the proceedings of the Board of Directors for managing the affairs of the Company and also to ensure statutory compliances. The fact remains that in regard to convening of Board Meetings, Annual General Meetings and filing of statutory compliances there is a deadlock. Appellant s contention that such deadlock is artificial and self-engineered by Respondent No. 2 cannot be decided at this stage of the proceedings and within the ambit of application seeking interim directions. .....

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..... compliances and proposes appointment of Hon ble Justice Shri P. B. Majumdar (Retd.) as Chairman to oversee the proceedings of the meeting. This letter, ex-facie, does not speak of the two Independent Directors respectively supporting their mentors. However, since we have come to an independent conclusion about existence of a prima facie case as regards deadlock and for existence of grounds justifying interim directions for regulating the affairs of the Company, we do not want to enter the controversy as regards such concessions and errors pointed out on behalf of the Appellant as the same may embarrass the inquiry. So far as the interim orders dated 2nd November, 2017, 23rd November, 2017 and 18th December, 2017 are concerned, same can be interpreted only as attempts at seeking adjournment as a sequel to the impugned order. Interpreting the same as falling in line with the impugned order would not only be absurd but preposterous too. 25. For the foregoing reasons, we hold that the impugned order in so far as the same dealt with the issue of limitation suffers from legal infirmity and cannot be supported. The Tribunal would be required to arrive at a finding on the issue after inqui .....

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