TMI Blog2019 (7) TMI 1673X X X X Extracts X X X X X X X X Extracts X X X X ..... is sufficient proof of the fact of his participation in the board meeting held on August 22, 2016, as claimed by the respondents. In the case on hand the resolution passed by the majority of the directors is only to regulate the procedure pertaining the signatories to the bank accounts of the first respondent-company, which in no way can said to be oppressive - this Tribunal is not inclined to interfere with the decision of the board by which any two of the directors have been authorised to operate the bank accounts of the first respondent-company. Accordingly, issue No. 1 is decided against the petitioners and in favour of the respondents. Whether in the facts and circumstances of the case, this Tribunal can interfere with the management of the first respondent-company by directing to give proportionate representation to the shareholders on the board of the directors? - HELD THAT:- It is noted that the respondents have not pleaded anything on the issue under reference. However, in case of a private company, the articles of association can prescribe the method to appoint any and all directors. In case the articles are silent, the directors must be appointed by the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd R. Ashok Kumar ORDER CH. MOHD SHARIEF TARIQ (JUDICIAL MEMBER). - 1. Company Petition No. 17 of 2017 has been filed under sections 241 and 242 and other applicable provisions of the Companies Act, 2013, there are two petitioners and eight respondents including the first respondent-company, viz., M/s. Magnum Spinning Mills India P. Ltd. The first respondent-company was incorporated on October 29, 2010, under the Companies Act, 1956 having its registered office at SF No. 355, Varuthampatti Chinna Goundanoor Sankari, Salem-637 303, Tamil Nadu. Respondents Nos. 2 to 6 are the first directors of the first respondent-company and respondents Nos. 7 and 8 are also the directors of the first respondent-company. 2. The authorised share capital of the first respondent-company is ₹ 15,00,00,000 (rupees fifteen crores only) consisting of 15,00,000 (fifteen lakhs only) equity shares of ₹ 100 each. Petitioner No. 1 is a founder promoter and one of the first directors of the company and holds 2,53,730 equity shares aggregating to 19.55 per cent. shares in the capital of the first respondent-company. Petitioner No. 2 is the wife of petitioner No. 1 and holds 30,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally stated that he was not a party to any resolution. He requested the bank not to honour any instruments and instructions until further notice. 7. The petitioners have submitted that by a letter dated September 9, 2016, the bank has replied to petitioner No. 1 refusing to accede to his request enclosing thereto a copy of what was purportedly a board resolution duly signed by respondents Nos. 2 to 7 and on the top of which paper it is mentioned Date : August 29, 2016 . There was no explanation to any of those pertinent queries. What had transpired between the bank and the respondents is a mystery. 8. The petitioners have submitted that it appears that the respondents had submitted the resolution dated August 22, 2016 to the bank only on August 29, 2016. It is also submitted by the petitioners that the respondents have fabricated the records as though on August 22, 2016 as if the mandate for operating the bank accounts of the company has been changed under the authority of the board. 9. It is further submitted by the petitioners that prior to the alleged board meeting, the power and authorisation to operate the bank accounts was with petitioner No. 1 along with any one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and a reflection of high handedness and arrogance on the part of the respondents. Further, such acts are also acts of mismanagement and continuing such acts will be prejudicial to the interest of the shareholders, creditors and other stakeholders of the company and will also deteriorate the finances' viability and solvencies' of the company in the long run. 14. The petitioners have submitted that in the light of the facts and being a company in the nature of the partnership, concomitant with the stake of the petitioners a proportional representation should be introduced in the composition of board of directors of the company. Presently with 77.5 per cent. stake the respondents have 6 directors, on an average representing 12.90 per cent. Therefore, there are not less than 3 directors who hold 10 per cent. or less and still enjoy a directorship. The petitioners have further submitted that in this situation a proportional representative is an appropriate remedy to operate as a check when the majority control showing tendencies to run the management of the affairs of the company according to their whims and fancies excluding the petitioners from the management though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners have submitted that every board meetings and annual general meeting allegedly held during the pendency of the company petition before this hon'ble Bench and every decisions allegedly taken on such BMs and annual general meetings are liable to be set aside and declared as invalid for the above stated reasons. The petitioners have submitted that the affairs of the company are being conducted not only in a manner oppressive to the petitioners but also prejudicial to the interests of the company and its shareholders. 21. Having stated as above, the petitioners have prayed as follows : (a) To declare that the respondents have acted in an oppressive manner and have mismanaged the affairs of the company. (b) To declare that the board meeting allegedly held on August 22, 2016 and resolutions passed threat as invalid, illegal and consequently set aside the proceedings thereof. (c) To declare the annual general meeting 2016 allegedly held on September 30, 2016 and resolutions passed thereat as invalid and illegal and consequently set aside the proceedings thereof. (d) To direct signature of petitioner No. 1 as mandatory to operate the bank account of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bank account, that too when any two directors including the petitioner have been authorized to operate the bank account, cannot be categorized as an act of oppression by any stretch of imagination. The grievance complained does not affect the petitioner's character as a member of the company or in other words is not qua shareholder. There is also apparently no lack of probity or fair play and the single isolated act cannot enable maintenance of a company petition. 24. The respondent has also submitted that it is settled law that court will not interfere in affairs relating to internal management of the company. What is impugned in the company petition is merely a change in mandate concerning operation of the bank account of the company. The other allegations are apparently contrived, superfluous, and without any substance. The respondent has further submitted that the hon'ble Tribunal cannot be expected to intervene on a grievance related to the said issue. Legitimate expectation of shareholder cannot be stretched even in the absence of any agreement to stake a claim that all bank account operations should pass only with his signature. A single shareholder cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... significant stake in the company and that the petitioner was not a majority shareholder. Consequently, the respondents had prepared a written representation seeking a change in such mandate to enable any two directors to operate the bank account. Such representation was prepared in the form of a letter dated August 11, 2016 addressed to the statutory auditor of the company, who was the common professional assisting the company in compliance related issues. 29. It is submitted by respondent No. 3 that a meeting was called on August 22, 2016 to consider the subject and an e-mail was also sent in this regard on August 19, 2016 and received by the petitioner(s). It is further submitted by the respondent that the first petitioner attended such meeting and decision was taken thereat to change the mandate. At such meeting, the mandate for operating the bank account of the company was changed to enable any two directors to operate the accounts, including the first petitioner. 30. The respondent has submitted that the first petitioner is also authorized to sign cheques, etc., and it is the first petitioner, who on his own accord is refusing to co-operate with the other promoters in jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of responsibility. Undue favouritism cannot be a legitimate expectation, nor can denial of such undue favouritism be categorized as oppression. 35. The respondent has further contended that the petitioner through his deliberate conduct of not executing documents for renewal of the credit limits, notwithstanding the sanction advice mandating execution by all directors, is attempting to strangulate the finances of the company. It is submitted by the respondent that the banker has advised the company that if the documents are not executed by the first petitioner, the bank would freeze the limits. A single shareholder, merely for the purpose of retaining absolute control over the company, notwithstanding his minority shareholding cannot bring about a freeze on the company's finances. It is submitted that owing to this unconscionable conduct, the petitioner is equitably not entitled to continue as a director of the company. In the circumstances the first petitioner has become an oppressor of the company. 36. During the pendency of petition, the petitioners have filed a memo along with affidavit stating therein that some significant event has taken place in the company. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts, while in the previous it was nil. The details as to the identity of the party being related party or otherwise is not disclosed. The petitioners have submitted that these serious irregularities and non-compliance with the provisions of law strengthens their prayers. 41. Respondent No. 3 has filed reply to the memo filed by the petitioner. The respondent has submitted that no such construction took place in the porampokku land as alleged. The respondent has further submitted that a portion of the compound wall alone was constructed even in the year 2012, when the petitioner was in active management, since there was huge undulation there and men and cattle were falling and suffering serious injuries. To safeguard against such an accident, the wall was constructed in such manner. 42. In respect of the contention concerning enumeration of subject relating to remuneration to directors under caption ordinary business, the respondent has submitted that it is only an error committed by oversight and is not an act of oppression or mismanagement. 43. The respondent has submitted that writing off the bad debts is only to reflect true view of affairs of the company in the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e articles of the association mandating that the first petitioner should remain a mandatory signatory to operate the bank accounts of the first respondent-company. It is further explained that on August 11, 2016 the respondents had prepared a written representation seeking a change in mandate to enable any two of the directors of the first respondent-company to operate the bank accounts, the draft of which was given to the statutory auditor of the company, who has given a copy to the first petitioner. Besides this, the petitioners were duly informed about the board meeting proposed to be held on August 22, 2016 through e-mail dated August 19, 2016 because as per the past practice, the company used to send the notice of the board meetings through e-mails. The first petitioner had attended the meeting and signed the incoming and outgoing register. However, he denied to have attended the board meeting, but did not deny the signatures put on the entry register. It is noted that the presence of the first petitioner at the registered office of the first respondent-company, where the board meeting was conducted is sufficient proof of the fact of his participation in the board meeting held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain of the board. In view of the facts and circumstances, this Tribunal is not inclined to interfere with the decision of the board by which any two of the directors have been authorised to operate the bank accounts of the first respondent-company. Accordingly, issue No. 1 is decided against the petitioners and in favour of the respondents. 47. In relation to issue No. (ii), the petitioners would contend that proportionate representation to the shareholders on the board of the directors is an appropriate remedy to operate as a check when the majority control showing tendencies to run the management of the affairs of the company according to their whims and fancies excluding the petitioners from the management. It is noted that the respondents have not pleaded anything on the issue under reference. However, in case of a private company, the articles of association can prescribe the method to appoint any and all directors. In case the articles are silent, the directors must be appointed by the shareholders. In the case on hand the articles of the first respondent-company provide that any person whether a member of the company or not, may be appointed as director of the company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t during the financial year 2017-18, an amount of ₹ 48,41,801 has been written off as bad debts, while in the previous it was nil and the details as to the identity of the party, whether a related party or otherwise is not disclosed. The respondents would contend that bad debt written off is in the normal course of business and the tractions are absolutely with unrelated parties and since the recovery was not forthcoming, to reflect a true and fair view in the accounts, these sums were written off. It is noted that the decision of the board of directors to write off the bad debt is a commercial decision, which does not warrant any judicial interference. In this connection reliance is placed on the judgment of the Company Law Board given in A. Ravishankar Prasad v. Prasad Productions P. Ltd. reported in [2007] 135 Comp Cas 416 (CLB). Further, in Rutherford, In re [1994] BCC 876, 879, it was held that commercial mismanagement will not amount to oppression. Moreover, a single act of financial mismanagement does not have the continuous effect, which is necessary for relief under these provisions, though, the same could cause a short-term diminution in share value. Accordingly, is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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