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TMI Blog2022 (5) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... gal and non-est in law. b) Declare the EGM held on 18.3.2021 illegal and any resolution made therein void. c) Declare that the DIR 12 and Form MGT-14 filed declaring the Petitioners removal as Directors of the 1st respondent company as illegal. d) Direct the 1st respondent company to reinstate the Petitioners as Directors of the 1st respondent company e) To declare that any alleged transfer of equity shares of the Petitioners to the 2nd and 3rd respondent is illegal being against the provisions of section 56 of the Companies Act of 2013. f) To declare that the alleged transfer of shares of the Petitioners without their knowledge and any consideration is void. g) Appropriate reliefs to be passed under and in accordance with sections 242 of the Companies Act, 2013 2. The brief facts of the case are as under: - 3. The Petitioners submitted that they are holding 51% of the shares of the 1st Respondent Company, being 44.33% and 5.75% fully paid-up equity shares with a face value of Rs. 10 per share. The 1st Petitioner is the Chairman and Director of the 1st Respondent Company and the 2nd Petitioner is a director of the company. The authorized share capital of 1st Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent Company stating clearly that they have not sent any letter of resignation to the company and that such a letter is fabricated. It is stated that on serving the legal notice on the respondents and their advisers, a notice dated 22.02.2021 signed by the 2nd respondent calling for an Extraordinary General Meeting of the company on 18.03.2021 was served on the Petitioners. This was based on a notice sent by the 2nd and 3rd Respondents to the company seeking resolution for removal of the Petitioners from the company under Section 169 of the Companies Act, 2013. The said notice proposed the removal of the 1st and 2nd petitioners from the directorship of the company, issued as a Special Business. It is stated that no such proposal was ever forwarded to the Board of the company before the company issued the notice on 22.02.2021. It is further stated that on perusal of the explanatory statement attached to the said notice, is seen that the 2nd respondent proposed to remove the Petitioners under Section 169(2) but no reason for the same is mentioned anywhere therein thus making the notice and resolution mentioned therein non-est in the eye of law. Further, no resolution was pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act, 2013 provides for the transfer of shares. The transfer of shares can be effected only as per the prescribed form. Article 15-23 of the Articles of Association, deal with the transfer of shares of the company. Till date, the petitioners have not received any communication whatsoever from the company regarding the transfer of shares. Being a member of Board the Petitioners should have received communication from the purchaser and seller regarding the transfer of shares which has not ever came to the notice of the Petitioners. None of the procedures prescribed under Section 56 of the Companies Act, 2013 and the Articles of Association of the 1st respondent company have been followed. A search of the shareholding pattern in the company still reflects the sharing pattern as stated by the Petitioners in the above particulars. The Petitioners are the major shareholders in the respondent company. Due procedure has not been followed in the present case in order to buy shares. It is further stated that for the transfer of shares there should have been a valuation done by a registered valuer and no valuation has been done till now to the knowledge of Petitioners. 11. It is stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 8,12,000/- (Rupees Eight Lakh Twelve Thousand Only) and Rs. 5,80,000/-(Rupees Five Lakh Eighty Thousand Only) have been registered as Motor Vehicle Hypothecation, in the name of the 1st Respondent company. 14. It is stated that the fact of operational losses and the mounting debt of the 1st Respondent Company led to a state of fear in the minds of the Petitioners. Thereafter Petitioners informed the Respondents of their intention not to continue with the loss-making company burdened with huge financial debts; and intended by the share transfer to be personally absolved of the losses and bank debt. In the meantime, the 2nd Respondent also found that the 1st Petitioner misappropriated the funds of 1st Respondent Company and this led to tension between them. Subsequently, both the Petitioners as well as 2nd and 3rd Respondents 'amicably' ended the ongoing business relationship by transferring the shares held by the 1st Petitioner in the name of 2nd Respondent and the shares held by the 2nd Petitioner in the name of 3rd Respondent. Hence, the burden of loan repayment, including satisfaction of charges, was shifted to the shoulders of the 2nd and 3rd Respondents. It is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming them about the Extraordinary General Meeting to be held on 18.03.2021 and the Special Notice received from the 2nd and 3rd Respondents to remove them from Directorship was attached along with the notice and informed the Petitioners regarding the opportunity available with them to make representations against the resolution for their removal, under the provisions of Sub Section (4) of Section 169 of Companies Act, 2013. 18. It is stated that the Postal Acknowledgement, bears the signature of the 2nd Petitioner, who is the wife of the 1st Petitioner. So, the EGM of the 1st Respondent Company was known to the Petitioners. It is also stated that the Extra Ordinary General Meeting was held on 18.03.2021 at the registered office of the 1st Respondent company. The Petitioners however elected not to attend the Extraordinary General Meeting and consequently, they were removed from Directorship by a Special Resolution in compliance with the provisions of Section 169 of the Companies Act, 2013. FINDINGS 19. We have heard Smt. Rema Smrithy V.K., the learned counsel for the Petitioners and Shri. Nebil Nizar the learned counsel for the Respondents 1 to 3 and perused the entire case recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meeting at which he is removed. (3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting. (4) Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,- (a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and (b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company's default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting: Provided that a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the removal of a Director was legally valid and/or justified or not. The question to be asked is whether such a removal is tantamount to a conduct oppressive or prejudicial to some members. Even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial. 16.29 There may be cases where the removal of a Director might have been carried out perfectly in accordance with law and yet may be part of a larger design to oppress or prejudice the interests of some members. It is only in such cases that the Tribunal can grant a relief under Section 242. The Company Tribunal is not a labour Court or an administrative Tribunal to focus entirely on the manner of removal of a person from Directorship. Therefore, the accolades received by CPM from the Nomination and Remuneration Committee or the Board of Directors on 29.6.2016, cannot advance his case. 16.31 As we have pointed out above, the validity of and justification for the removal of a person can never be the primary focus of a Tribunal under Section 242 unless th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (2) of Section 242. 17.19 The architecture of Sections 241 and 242 does not permit the Tribunal to read into the Sections, a power to make an order (for reinstatement) which is barred by law vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in 2018. Tribunal cannot make an order enforcing a contract which is dependent on personal qualifications such as those mentioned in Section 149(6) of the Companies Act, 2013. Moreover, it has been held in the case of Vaish Degree College (supra) that the general rule is that a contract of personal services is not specifically enforceable unless a person who is removed from service is (a) a public servant who has been dismissed from service in contravention of provisions of Article 311 of the Constitution of India; (b) dismissed under Industrial Law seeking reinstatement by Labour or Industrial Tribunal; and (c) terminated in breach of a mandatory obligation imposed by statute by a statutory body. The Court observed: " 17. On a consideration of the authorities mentioned above, it is, therefore, clear that a contract of personal service cannot ordinarily be specifically enforced and a court normally would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bar an appeal against an order which the court had no power to make. For the same reason, unless the statute expressly or by necessary implication provides otherwise an administrative decision does not take effect before it is communicated to the person concerned." 26. In the aforementioned judgement, the Hon'ble Supreme Court held that "under SubSection (1) of Section 242 of the Company Act, 2013, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit" cannot be interpreted as conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office and that even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial. 27. It is seen from the records that the removal of the Petitioner from the Directorship of the Respondent Company was done following all the mandatory requirements in accordance with law. We could not find any oppression and mismanagement in the Company, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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