TMI Blog2023 (2) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... if the Appellants are members of the company in question and have alleged oppression and mis-management, which is not a frivolous complaint, the Tribunal should examine whether similar allegation of oppression and mis-management was earlier made by any other member or there is exceptional circumstance made out to grant waiver. A perusal of the Impugned Order, wherein the issue of grant of waiver has been dealt by the NCLT shows that the NCLT has considered the matter of Casino Hotels, where the proposed action of the Executive Committee to amend clauses IV(1)(a) and (b) of Appendix-A of the AoA of FHRAI was under challenge, and in which the Eastern Region members had opposed the stand of Northern and Western Regions members. The NCLT has found that the issue which was raised in the Casino Hotels case has found reflection in the process of election of President of FHRAI for the year 2018-19 - Looking to the facts and circumstances pleaded by the Respondent HRAEI, the acts of oppression and mis-management have continued in one form or the other right from the filing of the Casino Hotels petition, and therefore, in the interest of corporate democracy and to ensure proper functionin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e post of President of FHRAI for the year 2018-19, in the instant case, there is a continuing story of oppression by some members of the Executive Committee against some other members of the Executive Committee who are both members of FHRAI - the judgment of Hon ble Supreme Court in the matter of Chatterjee Petrochem (India) Private Limited (supra) is distinguished from the issue in the instant case on the above basis. Whether the alleged acts of oppression and mis-management as claimed by the petitioners in original CP No. 473/241-242/2018 actually amount to oppression and mis-management as claimed by the petitioners in original company petition and as are required for a section 241-242 petition? - HELD THAT:- Article 52 of the AoA of FHRAI stipulates that the election to the post of President of FHRAI is carried out by the members of the Executive Committee region-wise by rotation for one term and theorder of rotation as stipulated is in the order of Eastern Region, Western Region, Northern Region and Southern Region. It is not disputed that it was the turn of Eastern Region to have its member elected as President of FHRAI for the term 2018-19 - Article 49 of the AoA, prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son has seconded the name of the candidate, but it that the nominated candidate is elected unopposed without going through the process of voting. Further, if such candidate is a sole candidate, she can obviously be elected unopposed, but the fact is that she will still be elected in accordance with the provisions of AoA and in the manner which is correct in the eyes of law. The waiver granted by the NCLT with regard to section 244 of the Companies Act, 2013 to the petitioners of CP No. 437/242-242/2018 was in order and was necessary to allow the petitioners to agitate their case about alleged oppression and mis-management under sections 241-242 of the Companies Act, 2013 - the acts of some members of the Executive Committee, who have formed a clique to give shape to their chosen but perverse design are clearly acts of oppression and mismanagement beginning from the attempts to amend clause IV(b) and (c) of Appendix A of the AoA, which had carried on till the time of election of President of FHRAI for the year 2018-19. The period starting from 30.10.2018 till the pronouncement of this judgment shall not be included while considering the term and eligibility of the Executiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Committee region-wise by rotation, for one term in the order of Eastern Region, Western Region, Southern Region and Northern Region, and in the year 2018-19 it was the turn of Hotel Restaurant Association of Eastern India (in short HRAEI ) to get its candidate elected as the President of FHRAI. The Appellants have further stated that the election of the President is carried out by members of the Executive Committee of FHRAI and the Executive Committee comprises of six members each from each of the four regional associations. They have stated that the regional associations elect six members each to represent them in the Executive Committee of FHRAI, and thus, 24 members who constitute the Executive Committee elect the President of FHRAI for a term of one year from the date of election of the President. 3. The Appellants have further stated that the election of President for the year 2018-19 was taken up in the EC meeting held on 30.10.2018, when the three candidates who were elected in three rounds of election, namely M/s Nitin Kothari, Ashoke Singh and Vijay Dewan each declined to accept the position of President, and thereafter the issue of election of the President became ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent HRAEI and perused the record of both the appeals. 6. The Learned Senior Counsel/Counsel for both Hotel and Restaurant Association of Northern India and Hotel and Restaurant Association of Western India ( Appellants ) have claimed in their arguments that the CP No. 437/241-242/2018 was filed by HRAEI and some other petitioners, but they do not satisfy the conditions stipulated in section 244 of the Companies Act to act as petitioners. The company petition has been filed by only 11 members (all from HRAEI) out of more than 3890 members of FHRAI which does not satisfy the requirement under section 244 (1) (b) and thus the waiver application is a clear proof that the petitioners, who are only eleven number, do not enjoy the support of the requisite number of members of their own region, as there is no letter of support from other members of the Eastern Region or any General Body resolution of the Eastern Region expressing support to the original petitioners or consent for filing the company petition. They have claimed that Shri Vijay Dewan, who is a member of the Executive Committee from the Eastern Region has not joined the petitioners in preferring Company Petition No. 437 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in question and whether similar allegation of oppression and mis-management was earlier made by any other member, which was decided and concluded and also whether there is any exceptional circumstance made out for grant of waiver. The Learned Senior Counsel has claimed that if the grant of waiver to the petitioners in original CA No. 473/241-242/2018 is seen from this lens, there is no case made out by the petitioners in their favour, and therefore, the appeal should be dismissed on account of non-maintainability at the threshold. 9. On the point of the HRAEI being an aggrieved person , the Learned Senior Counsel for Appellant HRANI has claimed that legal mandate, as held by Hon ble Supreme Court in the matter of Bar Council of Maharashtra v. M.V. Dabholkar (1975) 2 SCC 702 is that any one, who has been denied or deprived of something to which he is legally entitled and if a legal burden imposed on her, shall fall in the ambit of person aggrieved , whereas in the present case, HRAEI which has not been able to install its candidate as nominee President of FHRAI, cannot be labelled as aggrieved person since no legal right of HRAEI was infringed. The Learned Senior Counsel h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Garish Oberoi continued to chair the Executive Committee meeting held on 30.10.2018 when no President for year 2018-19 could be elected, as Article 52 of AoA stipulates that the term of President is one term which ends only when the successor is elected and in the present case, since the President could not be elected, Mr. Oberoi was correct to chair the meeting, though he chose to step down when important agenda items came up for deliberation and adjourned the meeting till election of the new incoming President. He has also refuted the argument that the appointment of Mr. Sudesh Kumar Poddar as President of FHRAI is a legitimate expectation of HRAEI by contending that any legitimate expectation cannot be contrary to the provision of AoA and that of corporate democracy. 13. The Learned Senior Counsel for Appellant HRANI has argued regarding the arguments of the Respondents that the past practice in the appointment of the President of FHRAI, when one candidate for the post of President was the chosen nominee of the six members of that particular regional association whose turn fell for appointment of the President, is correct, since the provision for election by the Exec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber, actually represent a large body of members of the Eastern Region and the six members, who represent the Eastern Region in the Executive Committee of FHRAI represent the legitimate interest of its members. The original company petition CP 437/241-242/2018 was filed by eleven petitioners including a majority of Executive Committee members from the Eastern Region and therefore, the petition under sections 241-242 is entitled for waiver under section 244 and is maintainable. He has expanded on his argument to point out that the members in the Executive Committee from the Eastern region are duly elected by the General Body of the Eastern Region and, therefore, they represent the interests and aspirations of the General Body of HRAEI. He has contended that, therefore, even though the stipulation of section 244 (1)(b) i.e. that one-fifth of the total number of members of FHRAI should prefer an application under section 241 is not strictly applicable in the present case and this is a fit case for providing waiver as per the requirements of clause (b) of section 244 (1) to enable its members to prefer a petition under section 241. He has claimed that even though HRAEI is a single memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Senior Counsel for Respondent-HRAEI has argued that in the AGM of FHRAI held on 30.10.2018 at 12.30 pm, Mr. Garish Oberoi, the President for the previous term and other Executive Committee members retired, and new members of Executive Committee were appointed for the next term. He has argued that in such a situation, it was illegal for Mr. Garish Oberoi to chair the meeting of the Executive Committee held on 30.10.2018 soon after the AGM wherein the controversy regarding the election and appointment of the President of FHRAI for the term 2018-19 erupted. He has also argued that Mr. Garish Oberoi along with members of the Executive Committee decided to overpower the members of EC, who objected to his chairing the Executive Committee meeting and thereafter, in a blatantly high-handed manner along with some other members, resorted to randomly proposing the names of persons from the Eastern Region other than Respondent No. 1 Mr. Sudesh Kumar Poddar, even though such random persons had neither given consent nor were interested in contesting the elections for the post of President. Such actions of Mr. Garish Oberoi and other members are clearly oppressional in nature and further by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the Executive Committee for appointment as President, whereas some other members stated in the Executive Committee meeting that since only one name of Mr. Sudesh Kumar Poddar was proposed from Eastern Region for the post of President he should be appointed as President of FHRAI. He has argued that the Chairman did not accede to the legitimate request of the members of Executive Committee from the Eastern Region, and the election of the President from the Eastern region was not given effect to and as a result Shri Garish Oberoi continued to chair the meeting of the Executive Committee and some agenda items were decided under his chairmanship in the meeting which was not lawful. 21. The Learned Senior Counsel for HRAEI has further argued that in the Executive Committee meeting, after refusing accept the sole candidature of Mr. Sudesh Kumar Poddar, the Chairman Shri Garish Oberoi continued to request the Eastern Region members to propose another name for President that is acceptable to Executive Committee, but such a request was not in keeping with the principles of corporate democracy and also not in the interest of Eastern Region members, and despite the insistence of Easter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndidate of Eastern Region and would be elected unopposed if a proper election in accordance with provisions of AoA were to take place. He has claimed that the members of Executive Committee from the Western and Northern Regions ae not abiding by the AoA, which is a clear act of oppression and mis-management of the affairs of FHRAI by the sitting President and Executive Committee members from Western and Northern Regions. 22. The Learned Senior Counsel for Respondent HRAEI has pointed out that even if there is one candidate in the fray, she is still termed as elected, even though she is elected unopposed, and such an election is a perfectly valid election. In this connection, he has referred to judgment of Hon ble Madras High Court in the matter of T. Ekambara Nicker and Anr. vs. Commissioner of the Madras Corporation (1926 SCC Online Mad 437: AIR 1927 Mad 22) wherein it is held that on the date of the notification there was only one valid nomination of a candidate for election and therefore, the lone candidate was elected unopposed. 23. The Learned Senior Counsel for HRAEI has also cited the judgment in the case of Vilas Dadarao Chavan vs. Kiran Ashok Patil Dongaonkar [2008 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members: Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation. For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member. 27. We note that the original CP No. 473/241-242/2018 was preferred by eleven petitioners, with HRAEI being petitioner No. 1 and petitioners Nos. 2 to 11 are members of FHRAI. The company petition specifically notes that HRAEI, which is petitioner No. 1, has around 450 hotel members, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to examine the alleged ats of oppression and mismanagement, we are of the view that it is a case whether exceptional circumstances demand grant of waiver under section 244 of the Companies Act to enable the petitioners of CP 473/241-242/2018 to raise their grievances which could then be adjudicated upon. We thus hold that the Impugned Order is correct on this account. 29. On the issue whether the actions of the sitting President Mr. Garish Oberoi and other Executive Committee members, mainly from the Western and Northern Regions, can be labelled as acts of oppression and mis-management, we note the relevant provision of section 241 of the Companies Act, which is as hereunder:- 241. Application to Tribunal for relief in cases of oppression, etc.- (1) Any member of a company who complains that (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mittee from Northern and Western Regions are insistent on accepting any other member as President except Mr. Sudesh Kumar Poddar, which is a stand that does not have any legal or rational basis. 32. Thus, this act of the Western and Northern Region members in EC is definitely an act of oppression and mis-management and when seen in conjunction with the earlier incident where members of Western and Northern Region were bent upon amending the AoA to increase the number of terms of membership in the Executive committee, it is clear that those members, who either stood to benefit from such an amendment or who were supporting it would be peeved or unhappy with the stand taken by Mr. Sudesh Kumar Poddar. We, therefore, are of the view that the procedure being adopted in the election of the President of FHRAI for the year 2018-19 as interpreted by the siting President Mr. Garish Oberoi is clearly an act of oppression and mismanagement, which if not checked at nascent stage right in the beginning, can result in further oppression of FHRAI s members and mismanagement of the affairs of the company to the detriment of the functioning of the company FHRAI and against the legitimate interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 397 suggests that the oppressive manner in which the Company's affairs were being conducted could not be confined to one isolated incident, but that such acts would have to be continuous as to be part of a concerted action to cause prejudice to the minority shareholders whose interests are prejudiced thereby. In the aforesaid context, what do the facts reveal in the instant case and do they bring the acts of oppression complained of within the purview of Section 397 for grant of relief under section 402 of the Companies Act? 34. What follows from the above judgment of the Hon ble Supreme Court is that the conduct of the majority shareholders should be considered not in isolation, but as part of consecutive story in order to maintain a case of oppression of the minority member. In the present case it is seen that from the time certain members of the Executive Committee initiated attempt to amend clause IV (b) and (c) of Appendix A of AoA, which was resolutely opposed by some other members of the Executive Committee which section was challenged in the Casino Hotels case(supra) and the later actions of members of the Executive Committee to subvert the proper election proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered necessary for conducting the day-to-day business. However, in the event of any contradiction, the decision taken and instruction issued by the Executive Committee shall be final and shall prevail. 36. We also note section 53 of The Representation of the People Act, 1951, wherein the procedure in contested and uncontested elections has been provided, which is as hereunder:- 53. Procedure in contested and uncontested elections. (1) If the number of contesting candidates is more than the number of seats to be filled, a poll shall be taken. (2) If the number of such candidates is equal to the number of seats to be filled, the returning officer shall forthwith declare all such candidates to be duly elected to fill those seats. 37. Article 52 of the AoA of FHRAI stipulates that the election to the post of President of FHRAI is carried out by the members of the Executive Committee region-wise by rotation for one term and theorder of rotation as stipulated is in the order of Eastern Region, Western Region, Northern Region and Southern Region. It is not disputed that it was the turn of Eastern Region to have its member elected as President of FHRAI f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the name of Mr. Ashoke Singh from Eastern Region as the President of FHRAI and Mr. Jaiswal seconded it. The Chairman then announced that Mr Ashoke Singh was elected as President by a majority vote. However. Mr. Ashoke Singh declined due to personal reasons as he stated that he would be travelling out of India more often this year. Mr. Ashoke Singh further Informed Mr. Sudesh Kumar Poddar has been nominated by the Eastern Region for the post or President of FHRAI for the year 2018-19. Mr Ashoke Singh proposed the name of Mr Sudesh Poddar as President. Mr P.S. Ghai then proposed the name of Mr. Vijay Dewan as the President. The Chairman highlighted that usually voting does not take place in FHRAI for the post of the President, but since two names have been proposed by members i.e. Mr. Sudesh Poddar and Mr. Vijay Dewan for the President s position of FHRAI, he requested the members to give their opinion vote on this. Thirteen members gave their assent for Mr Dewan as the President and five members in favour of Mr Poddar. Thus, Mr Dewan was elected as President by a majority vote. Mr. Dewan was contacted over telephone by Mr. Sudesh Poddar and informed him about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted proceedings of the Executive Committee meeting held on 30.10.2018, the names of Mr. Nitin Kothari and after he declined that of Mr. Ashoke Singh and after he refused to take up the post of President due to personal reasons that of Mr. Vijay Dewan were proposed by members from other regions. The minutes do not make clear that while their names proposed and seconded by members of Northern and Western regions, their consents were sought before proposing their names, but the fact that they declined to take up the President s post immediately after being elected is a clear pointer to the fact that they were not consulted or their consent was obtained prior to the proposal of their names. It is also clear from the proceedings recorded in Item No. 7 that Mr. Garish Oberoi, the outgoing Chairman continued to request the Eastern Region members to propose the name for the President that is acceptable to the Executive Committee, but the members insisted on the name of Mr. Sudesh Kumar Poddar. It is also seen from the proceedings that Mr. Poddar and Mr. Tejinder Singh Walia wanted to know the reasons for not accepting Mr. Poddar s name, but no reason was communicated by the Chairman. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the FHRAI which was not being allowed to elect a President for the term 2018-19 and would affect the smooth management of FHRAI s affairs. Thus, these acts would also constitute acts leading to mismanagement of the affairs of the company, which would be covered under sections 241-242 and which are not merely directorial complaints . 42. We also consider the argument put forth by the Learned Senior Counsel for the Appellants that Article 52 of the AoA lays down that there should be election for the post of President, whereas in the present case, the Executive Committee members from Eastern Region were insisting on their chosen/nominated person Mr. Sudesh Kumar Poddar to be appointed as President. We refer to section 53 of The Representation of the People Act, 1951, which clearly lays down that even when a single member is in fray in an election, she is elected unopposed, but the fact is that it would still be called an election. We also refer to the judgment cited by the Learned Senior Counsel for Respondent HRAEI in the matter of T. Ekambara Nicket and another (supra). The relevant portion of the judgment is as follows:- 21. Though I have thus come to the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Committee, Loharu, inter alia, shall be filled up from amongst the members belonging to Scheduled Caste category . Xx xx xx xx 5. xx xx xx xx On a combined reading of Article 243-T of the Constitution of India, Sections 10(5) and 18 of the Act and sub-rule (4) of Rule 70 of Election Rules, it becomes clear that Parliament as well as the legislature have enacted these provisions in order to provide for reservation of office of the President for members of Scheduled Castes, Scheduled Tribes, Backward Classes and women in rotation. A bare reading of Section 10(5) and Rule 70(4) shows that the offices of the Presidents are to be filled from amongst members belonging to different categories by rotation and by lots. It is not disputed that the post of President of Loharu Municipal Committee at the relevant time was reserved for Scheduled Caste women. So far as the appellant is concerned, she has been elected from Ward No. 5 on a seat reserved for Scheduled Caste women. Therefore, in that category she is the sole candidate. .The very concept of rotation presupposes that for the contest of Presidentship once by rotation a reservation is made for members elected f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for his removal, but till the time removal of Mr. Sudesh Kumar Poddar in such basis and manner does not happen, he is entitled and eligible to contest as President of FHRAI and no disqualification attaches to his candidature. 48. From perusal of the above stated judgments and the provision cited above from The Representation of the People Act, 1951, it is lucidly clear that, even when there is a single candidate in fray, she will be elected unopposed provided she is eligible to contest, and such election is proper and legitimate election in the eyes of law. Thus, the act of the Appellants not to let Mr. Sudesh Kumar Poddar s name be proposed as a nominated candidate of the Eastern Region when no other candidate opposing him was in the fray, was certainly not in accordance with the principle of corporate democracy and corporate governance and also not in consonance with the requirement of Article 52 of the AoA of FHRAI. While holding this view we are conscious of the fact that even for the years 2014-15, 2015-16, 2016-17 and 2017-18, there was a single candidate every year, who was elected unopposed as President of the FHRAI in the respective years and at that time nobody ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 2013. We further find that the acts of some members of the Executive Committee, who have formed a clique to give shape to their chosen but perverse design are clearly acts of oppression and mismanagement beginning from the attempts to amend clause IV(b) and (c) of Appendix A of the AoA, which had carried on till the time of election of President of FHRAI for the year 2018-19. We also find that even if there is a sole candidate, whose name is put forth as the preferred candidate of a particular region, his election would be unopposed, but that election would still qualify as a election under article 52 of the AoA provided the proposed name is of a person who is eligible to contest. We therefore hold that the Impugned Order is correct and needs no intervention. 51. We direct that election for the post of President of FHRAI for the year 2018-19 shall be completed within 30 days of this judgment/order to enable the company FHRAI to carry on its functions in accordance with law and for the benefit of the Company and its members. 52. It is clear from the date of the Executive Committee meeting dated 30.10.2018 that the parties in this case have been continuously ..... X X X X Extracts X X X X X X X X Extracts X X X X
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