TMI Blog2020 (9) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... his arguments submitted that if an application under Section 241 and 242 of the Companies Act, 2013 for the Oppression and Mismanagement is filed, in that case, the Section 45 of the Arbitration and Conciliation Act, 1996 is not applicable because Section 241 and 242 of the Companies Act, 2013 are in respect of the Oppression and Mismanagement in the Company, which cannot be decided by the Arbitrator. Whether there is Oppression and Mismanagement as alleged by the Petitioner and that cannot be decided unless we consider the averment made in the main Company Petition and that can only be done, if we give both the parties to place their case at the time of final hearing of main Application, therefore, in our considered view, the application filed by the Respondent-2 under Section 45 of the Arbitration and Conciliation Act, 1996 can only be considered at the time of final hearing of the Company petition and not at this stage, by formulating the preliminary questions, if there is an arbitration clause then the party will be governed by the Arbitration clause and not entitled to file an application under Section 241 and 242 of the Companies Act, 2016. This issue can only be decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 100 of the Companies Act, 2013 and any notice issued under Section 101 of the Companies Act, 2013 is not the valid notice - we have no option but to hold that notice issued by the Respondent-3 by which he informed the Petitioner that the extraordinary general meeting is going to be held on 13th January 2019 is not valid and on the basis of which no meeting can be held on that day. Whether the company can raise the fund or not? - HELD THAT:- Since company needs fund under such circumstances, we cannot restrain the company to raise the fund. Of course, it must be in accordance with the law and it must be placed before the duly constituted meeting of the Board of Directors and therefore, we are unable to accept the submissions of the Petitioners that the company be restrained from raising the fund, the decisions upon the Petitioner place reliance on this issue, we have gone through the decisions and in our considered view if there is need of fund for the smooth functioning of the company in that case, no restrain order can be passed, which stop the company from raising the fund. The prayer of the Petitioners to grant status quo in respect of shareholding of the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegedly passed on 01.08.2019; b) during the pendency of this Petition and till final disposal, this Hon'ble Tribunal may be pleased to pass an order preventing the Respondents No. 3 to 5 from functioning their office; c) during the pendency of this petition and till final disposal, this Hon'ble Tribunal may be pleased to pass an order to direct the Respondents from making any lawful threats to the Petitioners; d) During the pendency of this Petition and till final disposal, this Hon'ble Tribunal may be pleased to pass an order allowing the Petitioner No. 1 to remain in the position of and act as the Managing Director of the Company to look after and manage the affairs of the Company and to avoid further mismanagement of the Company. Or in the alternative, the Respondents be directed not to interfere, obstruct or prevent the Petitioner No. 1 from acting as Managing Director of the Company till a lawful and valid Board Meeting held in accordance with the provisions of the Agreement, accepts the resignation of the Petitioner No. 1 as Managing Director of the Company and the Petitioner No. 1 is paid his dues by Respondent No. 2 as per clause 4 of the Modifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act makes it legally obligatory on the court to refer the parties to the arbitration once it finds that the agreement in question is neither null, void or inoperative nor incapable of being performed. 8. He further submitted that the Petitioner in their reply to CA 65 have admitted that the disputes/grievances raised by them in the CP are to be referred to arbitration. He further submitted that the disputes raised in the Company Petition and the reliefs sought are squarely covered by the terms of Joint Venture Agreement (JVA). He further submitted that prior to the filing of the CP, the Petitioner have served the notice dated 20th July 2019 under Clause 9.1 of the JVA alleging breaches of the JVA by Respondent-2 and further calling upon Respondent-2 to rectify such breaches and that notice is not enclosed by the Petitioner, rather, it has been suppressed. He further submitted that the Petitioners have also raised the objections that the disputes under Section 241 and 242 of the Companies Act, 2013 are not arbitrable, which is not a fact, rather the disputes raised by the Petitioner are covered by the terms of JVA. The Respondent also placed reliance upon the following decisions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that since respondents have waved the arbitration clause by their way of conducting, therefore, the same is not applicable. He further submitted that the disputes under Section 241-242 are not covered under Section 45 of the Arbitration and Conciliation Act, 1996. He further submitted that the Hon'ble Bombay High Court in a case of Rakesh Malhotra Ors. vs. Rajinder Kumar Malhotra Ors., after placing reliance upon the Civil Appeal No. 1174 of 2002 Sukanya holding Pvt. Ltd. vs. Jayesh H. Pandya case reported in (2003) 5 SCC 531 held that if the nature of reliefs in rem and other data in personam, and it is not possible or permissible to severe one from the other, similarly no arbitration agreement can vest an arbitral Tribunal with the power to grant the kind of reliefs against the Oppression and Mismanagement. He further submitted that Hon'ble Apex Court in the case of Civil Miscellaneous Petition No. 7962 of 1977 Cosmosteels Private Ltd. Vs. Jairam Das Gupta Ors., also held the same and has adopted a similar view. He further submitted that the Respondents have committed statutory offence, which are not arbitrable. He further submitted though the Joint Venture Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 45 of the Arbitration and Conciliation Act, 1996, which shows that if prima facie it is find that the agreement is null and void or inoperative or incapable of being performed then Section 45 of the Arbitration and Conciliation Act, 1996 is not applicable. 12. Therefore, in order to consider the submissions of respondents, we have to consider the averments made in the main CP 137/241-242/ND/2019 as well as reply and rejoinder filed to that Petition. Admittedly, the main application is pending for consideration and during the pendency of the main application, the present two interlocutory applications, which we have referred in the aforementioned para have been filed by the respective parties. 13. At this juncture, we would also like to refer the contention raised on behalf of the Learned Counsel appearing for the Petitioner, who in course of his arguments submitted that if an application under Section 241 and 242 of the Companies Act, 2013 for the Oppression and Mismanagement is filed, in that case, the Section 45 of the Arbitration and Conciliation Act, 1996 is not applicable because Section 241 and 242 of the Companies Act, 2013 are in respect of the Oppression a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal relief, no relief can be granted. 18. Further, the Petitioners have preferred an application seeking amendment on the Company petition by including the final prayers. The same is not considered as yet. Further, the present application is pre-matured so the same may be liable to be dismissed. 19. Further, the Extraordinary General Meeting scheduled to be held on 13th January, 2020 is related to two proposals: - (i) Increasing of the authorized share capital of the Company from ₹ 1,50,00,000 divided into 15,00,000 equity shares of ₹ 10 each to ₹ 26,50,00,000 divided into 2,65,00,000 equity shares of ₹ 10 each by creation of additional 2,50,00,000 equity shares of ₹ 10 each ranking pari passu in all respect with the existing equity share of the Company; and (ii) Alteration of the capital clause in the Memorandum of Association of the Company. 20. Further, the Petitioner cannot challenge the increase in authorized share capital of the Respondent-1 company in view of their conduct prior to the Petitioner-1 resigning from the position of Director and Managing Director from the Respondent-1 Company. 21. Further, the Petitioner admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be utilized to pay all overdue commercial debts, finance forecasted losses for year 2019-20, finance working capital needs for the year 2019-2020 and 2020-2021 and pay for necessary short-term investments related to safety and IT. 26. Further, the proposed capital increase is necessary for the continuation of the business. The fund is also required to make immediate investment to improve the development of safety system, electrical safeguarding, personal protection equipment, chemical storage and transportation and other things to improve the IT system, total of necessary investments and expenditures for the above amount to a total of ₹ 2,85,18,000/- 27. Further, even prior to the resignation of Petitioner-1 as the Board of Directors and Managing Directors of the Respondent-1, the Board of Directors expressed serious concern regarding the financial health of Respondent-1 Company and the need for expansion of the business. Further, almost in every meeting of the Board of Directors, the poor financial conditions of the Respondent-1 were raised and the petitioner was also agreed on this issue. Further, the financial difficulties and debt of the company also find mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther submitted that the composition of the Board of Respondent-1 was also constituted in accordance with the JVA. Therefore, the respondents are estopped by their conduct from taking a different position for their convenience and he placed reliance upon the doctrine of estoppel and in support of that, he placed reliance upon the decision reported in 1965 AIR 1812. He further submitted that since the decisions of Boards are not in terms of the JVA, therefore, its unlawful and invalid and in this regards, he placed reliance upon the decision reported in Moorthy, M.V. Drivers and Conductors Bus Service Private Ltd. [1991 71 Comp. Cas 136 Mad]. He further submitted that unlawful and invalidly constituted board cannot hold meeting in the absence of quorum and any decision taken by that board shall not be taken into considerations. He further submitted that in view of Clause 4.9 of JVA to constitute the quorum for a board meeting of Respondent-1 representative of both Respondent-2 and Petitioner were required to be present and since the notice dated 16.12.2019 was issued by the Board, which was not legally constituted, therefore, said notice is illegal. He further submitted that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n International Corporation, Delhi High Court held the provision of JVA could be binding even if not provided within the Articles of Association. He further placed reliance on the following decisions:- i. Firestone Tyre and Rubber vs. Synthetics and Chemicals Ltd. 8B Ors. [1971 41 Comp Cas 377 Bom] ii. R.S. Madanappa And Ors. vs. Chandramma and Ors. [1965 AIR 1812] iii. Ultrafilter GMBH vs. Ultrafilter (India) P. Ltd. and Ors. [2002 112 CompCas 93 CLB] iv. V.B. Rangaraj vs. V.B. Gopalakrishnan and Ors. [: (1992) 1 SCC 160] 33. On the other hand, Learned Counsel appearing for the Respondent-1 in course of his arguments submitted that the application filed by the Petitioner is pre-matured because Board of Directors of the Respondent-1 company have not decided to the manner in which further capital is to be raised. The subscribed capital can only be increased in accordance with the Section 62 of the Companies Act, 2013 and at present the Board of Directors of the Respondent-1 has not taken any decision under Section 62 of Companies Act, 2013. Therefore, in the EGM only the authorized capital is sought to be increased and not the subscribed and paid up capital. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice of the EGM dated 16.12.2019 is invalid, illegal and on the basis of that the proposed EGM can be cancelled or not. 38. At this juncture, we would like to refer Section 100 of the Companies Act, 2013 and Section 101 of the Companies Act, 2013. Under Section 100 of the Companies Act, 2013, the Board may, whenever it deems fit, call an extraordinary general meeting of the Company and it can be called by giving not less than clear twenty-one days' notice either in writing or through electronic mode as required under Section 101 of the Companies Act, 2013. 39. At this juncture, we would also like to consider the argument advanced on behalf of the Learned Lawyer appearing for the Petitioner who challenged the constitution of Board in terms of Joint Venture Agreement, therefore, at this juncture, we would like to refer Clause 4.9 of the JVA which relates to the quorum for a meeting of the board of Company shall be one-third of the total strength of the respective board for the time being or two directors whichever is more and there shall be no such quorum present unless one director nominated by PR an one director nominated by SPAL or their alternate director(s), if an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 19th September 2006 is ratified and approved by the Board of Directors by Respondent Company on 16th October 2006, therefore, it is binding upon the parties. 44. Now coming to this point whether quorum of the Board meeting was completed in the absence of non-participation of the Petitioner in that Board meeting then in view of Clause 4.9 of the Joint Venture Agreement, we have no option but to hold that presence of the Petitioner in the board meeting is necessary in order to constitute the quorum for the board meeting, if the Petitioner has not participated or absent in the board meeting then the board has no other option but to adjourn the meeting in view of clause 4.9 of the Joint Venture Agreement. 45. Therefore, we find, no force in the contention raised on behalf of the Learned Counsel appearing for the Respondent that Joint Venture Agreement is not binding upon the company. So far, the resignation of the Petitioner from the Board of Directors is concerned, unless it is duly accepted by the board, the Petitioner shall continue to be the part of board of director and as per the Clause 4.9 of the JVA his presence is required in order to take any decision. 46. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42-43 of the reply to CA and accordingly, Respondent-5 agreed to consider proposals of the Petitioner-1 and in the Board meeting dated 04th April 2019 which is at page 48-50 of the reply to CA agreed to consider the proposals of the Board meeting dated 04th April 2019. The Petitioner gave a proposal which was approved by the Board and Petitioner was authorized to take all steps for that purpose with the Karnataka Bank and Overseas Bank. He further referred the loan agreement signed by the Respondent-2 which is at page 58 of the reply of CA but the said rule was not signed and executed by the Petitioner. 51. In the light of the aforesaid submissions, when we have gone through the documents referred by the Learned Counsel appeared for the Respondent then we find that the financial condition of the company was discussed in the aforesaid meeting and there were various correspondences through emails between Petitioner and Respondent. Even, the financial condition of the Respondent-1 company was discussed in the meeting, which was presided by the Petitioner. 52. Therefore, we are of the considered view that since company needs fund under such circumstances, we cannot restrain the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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