TMI Blog2021 (5) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... He has stated that he holds the position of MD of R 1 Company from 2009 and he was further appointed as such for a further period of five years from 2013. When the term of Petitioner No. 1 2 was going to expire in the year 2020 by rotation, they have not opted for re-appointment. Accordingly, the Petitioner No. 1 2 along with Respondent Nos. 2 3, who have not opted for re-appointment deemed to have retired. The first Petitioner, being MD of Company, is admittedly a party to various transactions, as alleged to be acts of oppression and mismanagement in the instant Petition. While alleging that the Respondents have fiduciary duties as Directors, towards affairs of R1 Company, the Petitioner should also understand that he too has such responsibility to other stakeholders of R 1 Company and also public which take service from the Company. Even they cannot take shelters contending that they can file the instant Petition as shareholders of R 1 Company. It is also relevant to point out here that Petitioner Nos. 1 2, when they are going to retire by rotation, they can appear before AGM and press their case for re-appointment. Anyway that issue is not subject matter of the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless serious illegality taken place. The Petitioners have failed make out any case to interfere in the matter - Petition dismissed. - C.P. No. 82/BB/2019 - - - Dated:- 20-4-2021 - Rajeswara Rao Vittanala, Member (J) And Ashutosh Chandra, Member (T) For the Appellant : A. Murali and Jyothi Anumolu For the Respondents : Mahesh Chowdhary, Sowmya Sridhar, Manjula Devi and Sreeram T. Nayak ORDER Rajeswara Rao Vittanala, Member (J) 1. C.P. No. 82/BB/2019 is filed by Mr. A. Chalasani Venkateswara Rao and 2 others U/s. 241 242 of the Companies Act, 2013 against M/s. United Telecoms Limited and others, by inter-alia seeking to declare the actions of Respondents No. 2 to 5 have been in a manner oppressive to the Petitioners and prejudicial to the interests of the Petitioners and the Respondent No. 1 Company; declaring that all the resolutions passed by Respondents No. 2 to 5 for the period of March 2017 till April 2019 are void and that all the decisions to be considered afresh in a Board meeting to be held jointly etc. 2. Brief facts of the case, which are relevant to the issue in question, are as follows: (1) M/s. United Telecoms Limited, (herein aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assembly factory for PEL and the 1st Respondent Company as 80 to 90% of the PCB's were assembled here in this factory. (4) In 1989, the 1st Petitioner played a key role in constructing the building for PEL in Doddanekundi and in setting up the assembly lines for the manufacture of the PCB's which form part of the main components of the Digital Rural Automatic Exchanges (hereinafter referred to as 'RAXs'). The 1st Respondent Company has nearly 1200 employees across the country working on its pay rolls. There are nearly 100 vendors, who are dependent upon the regular business given by the 1st Respondent Company. Further the 1st Respondent Company has primarily been involved in government projects which are of national importance i.e., Digital India Project and Network for spectrum for Indian Army. The 2nd Respondent was the Managing Director of the 1st Respondent Company during the years 2000 - 2008. Due to non-generation of returns under the leadership of R 2, the Board and the Members of R1 company forced the 2nd Respondent to step down as the MD. Late Shri. C. Basavapurnaiah and the other Members of the company unanimously chose the 1st Petitioner to lead the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; registered as Doc. No. 2025/2010 before the SRO Madhurawada, Visakhapatnam. Subsequently, the 1st Respondent (Represented by the 2nd Respondent) without proper authorization has executed Sale Deeds in respect of purchasers. By virtue of the said Sale Deeds a total extent of 10 acres out of the 14 acres was sold. Between the period from the 1st December 2016 to 30th September 2018 an amount of 68.86 Crs. was realized from the sale proceeds by the 1st Respondent Company. Sale proceeds were illegally diverted to. ANL where the Respondent family has stakes in The above company funds have also been utilized by the Respondent family for repayment of their personal loans (approximately ₹ 10.2 crores). Further an additional sum of approximately ₹ 10,00,00,000 was invested in group companies i.e. M/s. United Sustainable Energy India Pvt. Ltd. and M/s. United Surya Energy Ltd. The second Respondent, not only succeeded in siphoning the company funds towards his personal gains but towards payments of unsecured loans, personal loans etc. and has acted in a manner which is burdensome, harsh and wrong, qua the shareholders who are the Petitioners herein. (8) The Respondents hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the 1st petitioner family and 4 on behalf on the 3rd Respondents family. Interestingly, the 2nd Respondent himself was disqualified from all directorship held by him with effect from 01.11.2016, owing to certain acts committed by him in a defaulting company where he was a Director. Subsequently, the 2nd Respondent managed to have his disqualification overturned on 09.02.2018. (11) Ms. Komali Cherukuri, who was appointed as an 'independent director' is not eligible for such appointment. She failed to fulfil the basic criterion for independence specified under section 149(6)(b)(ii) of the Companies Act, 2013 as she is a relative of the Second and Third Respondents. Therefore, her appointment as an independent director is an utter sham. Therefore, all corporate actions undertaken by her are also invalid and detrimental to the interest of the 1st Respondent Company. It is pertinent to note that Ms. Komali Cherukuri was also disqualified (i.e., 01.01.2017 - 31.10.2022) as a director at the time of chairing/attended several meetings. (12) In order to protect the interests of the Company from the dubious ways of the Respondent family, the Petitioners issued a let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudiced the interests of shareholders and Members of the Company. The conduct of the affairs of the company would justify an order of winding up. However, the same would unfairly prejudice the rights of the Members of the Company. (14) The Petitioners have also filed statement of objections filed by the Respondents, by inter-alia denying various allegation and contentions made in their Reply. 3. The Respondent No. 1 has filed Statement of objections dated 2nd September, 2019 by inter alia contending as follows: (1) The allegation that Respondent No. 2 was not the Managing Director of Respondent No. 1 company from 2000-2008 lacks any credibility. When he was never had held that position, question of step down is false. (2) Smt. Sarojini Devi demised on 8.12.2013 and Late Basavapurnaiah along with Petitioner No. 1 manufactured a will dated 25.11.2013 and Late C Basavapurnaiah without bringing the same to Respondent No. 3 knowledge probated Smt. Sarojini Devi's Will vide Prob CP no. 14/2014 before the Hon'ble High Court of Karnataka. However, Respondent no. 3 has presently filed Probate CP no. 15/2017 seeking for revocation of the Probate granted in Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to invoke Personal Bank Guarantees. In addition, Respondent no. 1 Company filed an application under Section 11 for appointment of an Arbitrator and Hon'ble High Court vide judgment dated 25.04.2019 appointed Justice Jagannadha Rao, Former Judge, Supreme Court of India as Sole Arbitrator. This information is also within the knowledge of Petitioner No. 1, which has been actively suppressed. (4) The Petitioner No. 1 was made Managing Director, was not on merit but on pure affection by his father Late C Basavapurnaiah. Consequent to becoming the Managing Director, Petitioner no. 1 slowly and gradually ruined and annihilated the reputation by taking adverse decisions and mismanaging the affairs of company by taking unilateral decisions, misusing the chair of Managing Director. (5) B.S. Ballal was never the compliance officer or company secretary in Respondent No. 1 Company. All Company books, minutes books and all company documents were kept in custody and care of B.S Ballal office in Respondent No. 1 premises. Petitioner No. 1 broke the lock of B.S Ballal office in Respondent No. 1 premises and took away all company documents such as Board meetings, minute Books, Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company clearly demonstrates that Respondent No. 1 has either acquired interest in terms of complete or substantial shareholding in United Sustainable Energy India Pvt. Ltd. and M/s. United Surya Energy Ltd. by investing capital. The Petitioners in particular Petitioner no. 1 authorized these transactions allowing any investment in group companies. In addition Petitioner no. 1 has signed and certified all balance sheets as Managing Director and also provided a declaration, stating that transactions reflected in Balance Sheets are true and genuine. This being the case, Petitioners and in specific Petitioner No. 1 is estopped from taking a stance contrary to his undertaking/declaration. (8) The Petitioner, has misrepresented and misquoted Bank statements as Ledger statements. Annexure M as represented by them is not a notice declaring Respondent No. 1 company as willful defaulters, but an email detailing and clarifying accounts with Canara Bank. It is highly indignant that, Petitioners are trying to label Respondent No. 1 Company as willful defaulter when the company is not categorized by any Government Authority. Petitioner no. 1 has used his position as Managing Director pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alification list and Status of Director is Active. (11) M/s. IDBI bank had initially sanctioned a sum of ₹ 130 Crores, but it was reduced to 80 crores for various purposes and projects undertaken by Respondent No. 1. IDBI bank issued Letter of Credits only to a tune of ₹ 2.2 crores. Further, the total value of Ivory Coast project is 8,900,000 $ and as per norms prescribed 5% of the total value as Advance Payment Bank Guarantee and another 5% to be given as performance Bank Guarantee i.e. a total of 89000$. Respondent No. 1 approached IDBI bank to avail the facility of foreign Bank Guarantee, which was refused by IDBI bank. However, IDBI Bank agreed to provide Bank Guarantee upon showing equivalent cash deposit. Respondent No. 2 took the initiative and arranged for a sum of ₹ 6,00,84,000/- by requesting another company(M/s. United Telelinks Limited) not related to Respondent no. 1 Company, where Respondent no. 2 was a Director. This proposal was accepted by Board and signed by Petitioner No. 1. It is necessary to state that, Exchange Earner's Foreign Currency account was never opened either with M/s. IDBI Bank or M/s. Dhanalakshmi Bank. Thirdly, Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent No. 1 Company were supplied to the customers in time and without any delay. The Respondent No. 4 and 5 have been inducted into the company pursuant to their completion of their education qualification and have been extremely successful in operating and starting new companies. Respondent No. 4 specifically has been involved and is currently a part of group company M/s. Trigyn from reviving the company from its poor performance to profitable company year on and year. The Petitioner No. 1 was completely responsible for the mismanagement and financial stress in M/s. NSP Electronics, which had resulted in the company having to be bailed out by UTL by paying a sum of ₹ 35 crores (approx.) to financial institution. It is necessary to mention and annex the conduct of Petitioner No. 1 in M/s. NSP Electronics, who has reduced it from a profit-making entity to a loss-making entity. (3) The Respondent No. 1 Company has 75.84% of shareholding in the M/s. NSP Electronics and Respondent No. 3 herein is the Director of the M/s. NSP Electronics. Petitioners holding a meagre shareholding have managed the affairs of the Company. But at no point of time, have Petitioners even called f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that maximum damage is caused to Respondent No. 1 Company. The activities of Petitioners are as below: (i) Petitioners formed a company under the name and style of M/s. Gaxiom Network Solutions Private Limited (hereinafter referred to as Gaxiom). The promoters of the Gaxiom are Petitioner No. 3 and her husband (ii) A copy of the MOA along with illegal board resolution passed, shows that, Petitioners have started a company having objects similar to that of Respondent No. 1 Company and use Respondent No. 1 Company premises for its operations. In short, Petitioners have effectively used the Goodwill associated with Respondent No. 1 Company to start their business etc. (6) The Respondent No. 1 Company has 8 Directors, who were retiring by rotation and getting reappointed as Directors with consent. Accordingly, on 7th March 2020, Respondent No. 1 Company called for a Board meeting, whereby Petitioner No. 1 2 along with Respondent No. 2 and 3, who were due for retirement offered themselves for retirement and the same was duly accepted. Pursuant that, the AGM for the year 2018-19 was called for and was scheduled for 24th April 2020. However, the AGM called on April 24, 2020 coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case against the Company or the Respondents, notwithstanding the fact that, during the entire time of alleged mismanagement, Petitioner No. 1 was helm of affair and continued to signatory. The Petitioner No. 1 has conveniently suppressed facts, which are in his knowledge and where he has been arrayed as a party. Such intentional suppression of facts by Petitioner no. 1 would amount to perjury. 5. Heard Shri A. Murali along with Ms. Jyothi Anumolu learned Counsels for the Petitioner, Shri Mahesh Chowdhary, learned Counsel for the Respondent No. 1 8, Ms. Sowmya Sridhar, learned Counsel for the Respondent No. 2 to 5, Mr. Sreeram T Nayak, learned Counsel for the Respondent No. 6 and Ms. Manjula Devi, learned Counsel for the Respondent No. 10. We have carefully perused the pleadings of the Parties and also extant provisions of the Companies Act, 2013 and the Rules made there under and various judgements relied upon by the Parties. 6. Shri A. Murali learned Counsel for the Petitioner, after arguing the case, has filed written gist of arguments dated 14th April, 2021, by inter-alia stating as follows: (1) The 1st Respondent Company, which was originally formed by the UB G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. Basavapurnaiah on 20.07.2015, the balance suddenly shifted in as much as the petitioners were three in number on the Board and whereas the Respondents became a majority of four. The 2nd Respondent, who is the son-in-law of the family seized the opportunity and took steps to keep out the Petitioners from the management of the company. Using the majority on the board, the Respondents 2 to 5 inducted the other Respondents, who are acquainted to them but no way connected to the business of the company, nor immediate family of the Petitioners and the Respondents 2 to 5. The intention of packing the Board with their yes men was to reduce the Petitioners to a weak minority on the Board. (3) The Respondents, after getting majority in the Board, started misusing it and thus they have passed a series of resolutions whereby the day to day management of the company was cleverly taken away from the first petitioner, who was the Managing Director of the Respondent No. 1 Company. The effect of the resolution was that the petitioner was merely reduced to a Production Manager. The company is nothing but a family company and all the Members of the family have a right to participate in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the demise of Late. Sri. C. Basavapurnaiah the founder Chairman and resultant imbalance in the board and passing resolutions divesting the petitioner group from powers of management and preventing them from participating in the day to day affairs (All these are borne by the Board resolution produced). c) Ransacking of the office of the petitioner, who is the Managing Director, removal of the records and personal belongings of the petitioner. d) Illegally showing petitioners 1 and 2 as having ceased to be Directors of the company by holding board meetings and annual general meeting with undue haste and no apparent reason during the lock down with the aid and abetment of an illegally constituted board of directors. e) Totally preventing the petitioners entering into the company premises and depriving their right to participate in the management of its affairs although it is purely a family company. (6) They have cited the following are alleged acts of Mis-management: a) So much amount of money belong to the R 1 Company was diverted either to the personal account of the respondents or group companies where they have interests. Monies to the extent of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal has wide powers to put an end to the illegal and oppressive conduct of the Respondents and it is prayed that this Hon'ble Tribunal may grant relief to the petitioners by exercising its wide powers under Section 242 of the Companies Act, 2013, also keeping in mind the best interests of the company. 7. On the other hand, Shri Mahesh Chowdhary, learned Counsel for the Respondent No. 1 and Ms. Sowmya Sridhar, learned Counsel for the Respondent No. 2 to 5, have once again reiterated their stand made in their pleadings placed on the file of the Tribunal, as briefly stated supra. They have prayed to dismiss the Petition with exemplary costs. 8. Earlier, the Tribunal by an order dated 18th October, 2019, passed in IA No. 317 of 2019 filed by Dr. P. Raja Mohana Rao, dismissed the main Company petition as not maintainable. Aggrieved by this order, the Petitioners herein have approached the Hon'ble NCLAT vide Company Appeal (AT) No. 345 of 2019. And the Appeal was allowed by setting aside the impugned order and the case is remanded back to the Tribunal for disposal of the Petition as per law and on merits, by an order dated 04th November, 2020. Hence, the Present Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged to be acts of oppression and mismanagement in the instant Petition. It is also relevant to point out here that the Petitioners themselves have declared in the Petition under Coolum of details of Petition by saying the first Petitioner is a Director and MD of Company by holding 29,15,782 Equity shares amounting to 26.14 % of its paid share Capital and similarly, Petitioner No. 2 3 also declared as Directors of the Company by holding shares in the Company. 11. Since the Petitioners have filed the instant Petition as Directors-cum-shareholders, it is necessary to advert extant provisions of Companies Act, 2013(Act) and Rules made thereunder with respect to qualification of Directors, Independent Directors and duties of Directors. Section 164 of the Act, deals with qualification of Director and Section 166 deals with duties, which reads as under: Disqualifications for Appointment of Director 164.(1) A Person shall not be eligible for appointment as a director of a Company, if (a) he is of unsound mind and stands so declared by a competent court; (b) he is an undischarged insolvent; (c) he has applied to be adjudicated as an insolvent and his applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company. (6) A Director of a company shall not assign his office and any assignment so made shall be void. (7) If a Director of the company contravenes the provisions of this section such Director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. 12. Rule 5 6 of Companies (Appointment and Qualification of Directors) Rules, 2014 deal with Qualification of Independent Director, And Rule 5 (1) deals with qualifications of an Independent Director, which say an Independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marking, administration, research, corporate governance, technical operations or other disciplines related to the company's business. [(2) None of the relatives of an independent director, for the purposes of sub-clauses (ii) and (iii) of clause (d) of sub-section (6) of section 149,- (i) is indebted to the Company, its holding, subsidiary or associate Company or their promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s)Rules, 2014, they are required to possess appropriate skills, experience and knowledge in one or more field of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the Company's business. The Allegations made by the Petitioners in respect of Independent Directors are vague and general and they are not tenable. Only allegation made in the Petition is that post 03-07-2018, the 2nd Respondent in order to oust the Petitioners from making decisions in the Board, choose to nominate three independent Directors i.e. 7th, 9th Respondent herein and one late Mr. Satyam Yallapalli. The alleged 'independent directors' are not persons, whose antecedents or accomplishments have been disclosed to the Board of the Company. On the other hand, the Respondents have satisfactorily convinced the Tribunal that they are eligible persons possessing requisite qualification and are not relative to them. 15. So far as various impugned Board proceedings are concerned, the Petitioners being Directors and shareholders, are entitled for notice and decisions in Board will be taken as per majority as per law ..... X X X X Extracts X X X X X X X X Extracts X X X X
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