Ashwani Khushaldas Banker & Anr vs Hitesh Chhagganalal Ambalia & Ors

(Arising out of the Order dated 13.11.2020 passed by the National Company Law Tribunal, Ahmedabad Bench, Court - I in C.P. No. 103/ 2019)

IN THE MATTER OF:

1. Ashwin Khushaldas Banker 5, Kirten Society, Mangupura Road, Radhaswami Road, Ranip, Ahemdabad, 382480. ...Appellant No. 1

2. Dhruv Ashwinkumar Banker 5, Kirten Society, Mangupura Road, Radhaswami Road, Ranip, Ahemdabad, 382480. ...Appellant No. 2

Versus

1. Hitesh Chagganalal Ambalia 2, Pushp Buglows, Ashok Vatika, Bodakdev, Ahemdabad, Gujarat, 380054. ...Respondent No. 1

2. Sandip Chagganalal Ambalia 2, Pushp Buglows, Ashok Vatika, Bodakdev, Ahemdabad, Gujarat, 380054. ...Respondent No. 2

3. Registrar of Companies, Gujarat, Dadra and Nagar Haveli, RoC Bhawan, Rupal Park, Naranpura, Ahmedabad, Gujarat. ...Respondent No. 3

4. M/s Om Sai Navigations Pvt. Ltd. 5, Kirten Society, Mangupura Road, Radhaswami Road, Ranip, Ahemdabad, 382480. ...Respondent No. 4

Present

For Appellants: Mr. Aniruddha Deshmukh, Advocate.

For Respondents: Mr. Abhijeet Sinha, Ms. Aastha Mehta, Mr. Saikat Sarkar, Advocates. -2- Comp. App. (AT) No. 233 of 2020

JUDGEMENT

(14.12.2023) NARESH SALECHA, MEMBER (TECHNICAL)

1. The present Appeal i.e., Company Appeal (AT) No. 233 of 2020 has

been preferred against the order of the National Company Law Tribunal,

Ahmedabad Bench, Ahmedabad (in short 'Tribunal') against the order dated

13.11.2020, whereby, the said order was passed in C.P No. 103/2019 in

favour of the Respondent No. 1 and 2, under Section 241-242 of the

Companies Act, 2013.

2. Aggrieved by the Impugned Order dated 13.11.2020, the Appellants

have preferred the present appeal.

3. Heard, Counsel for the Parties and perused the record made available

including cited the judgments.

4. It has been brought out that M/s Om Sai Navigations Pvt. Ltd. ( in

short 'Company') was incorporated on 06.04.2009 for running ferry and

other freight services using water routes and other incidental objects. The

Appellant No. 1 Ashwin Khushaldas Banker and Appellant No. 2 Dhruv

Ashwinkumar Banker are the original subscribers of the Memorandum of

Association (in short 'MoA') and the Article of Association (in short 'AoA') of

the company.

In 2015, the Gujarat Maritime Board (in short 'GMB') after a global

tender process, awarded the work of running Victor Port on Licence Basis to

the Company i.e., M/s Om Sai Navigations Pvt. Ltd. The Respondent No. 1 is

Mr. Hitesh Chagganalal Ambalia and Respondent No. 2 is Sandip -3- Comp. App. (AT) No. 233 of 2020

Chagganalal Ambalia (in short the 'Contesting Respondents') approached

the Appellants and sought to purchase stake in the Company and it was

decided that 45% shares would be allotted to the Contesting Respondents,

who, subject to valuation of the shares, agreed to infuse capital amount

equivalent to the valuation in the company for shares allotted to them. It

was also the understanding of the parties that the Contesting Respondents

would also bring business to the Company through their sources.

5. It is the case of the Appellants that the Contesting Respondents were

invited to the Board of Directors with limited rights whereas the Appellants

continued to perform overall main role of discharging functions of the

Company.

6. It is further the case of the Appellants that due to efforts of the

Appellants, GMB allocated the use of Victor Port to the Company for cargo

operations on licence basis and in pursuance of the same, the Appellants

called upon the Contesting Respondents to provide capital for the necessary

bank guarantees etc., so that the formal agreements could be entered into

with GMB. Since the bank guarantees of Federal Bank were availed, the

Appellants permitted the Contesting Respondents to operate the credit

facilities qua the Federal Bank Account only.

7. The Appellants submitted that from 2018 onwards, the Contesting

Respondents started raising frivolous disputes with the intention of avoiding

their obligations of providing capital. The Appellants stated that despite

knowing the fact that the Company was in dire need of funds, the -4- Comp. App. (AT) No. 233 of 2020

Contesting Respondents did not fulfil their obligations and refused to give

capital, creating hurdles in the functioning of the company..

8. It is also the case of the Appellants that the Contesting Respondents

started raising other disputes regarding joint accounts of the Company and

margin requirement etc. and to avoid conflicts and adverse effect on the

Company during the Board meeting on 20.01.2019, it was decided that one

of the parties should exit the Company.

9. The Appellants alleged that the Respondent No. 1, on his own, started

writing letters to the SBI raising issues regarding non KYC compliance by

the Company. The Respondent No. 1 also wrote false letter to the SBI stating

that if transactions with the Company, were not stopped, the bank would

become party to illegalities and fraud being committed by the Company and

SBI consequently stopped all transactions of the Company and demanded

many clarifications from the Company, which caused great stress and harm

to the company. The Appellants also assailed the Respondent No. 1 for

writing to the third parties informing them not to enter into transactions

with the Company and one such letter was written to M/s Swan Energy on

16.09.2019 raising all sorts of allegations and warning them not to enter

into transactions with the Company. The Appellants on 19.09.2019 called

for a Board Meeting to discuss issue regarding false letters written by the

Respondent No. 1, which caused immense harm to the Company. In the

Board Meeting, the Appellants requested the Contesting Respondents to

either infuse the funds or exit company.

-5- Comp. App. (AT) No. 233 of 2020

10. It is the case of the Appellants that deliberate obstacles continued to

be created by the Respondent No. 1 and the Appellants were forced to Issue

a notice under Section 169(1) of the Companies Act, 2013 calling upon the

Respondent No. 1 to provide an explanation as to why he should not be

removed from the post of the Director. The Respondent No. 1 immediately

moved CP 103/2019 to the Tribunal against the notice complaining of Acts

of oppression and mismanagement by the Appellants. The Respondent No.

1 also filed his representation dated 07.12.2019 justifying his actions and

stating that but the disputes were not simple disputes between the Directors

inter-se the disputes were more in nature of oppression and

mismanagement by the Appellants. The Tribunal issued notice to the

Appellants herein upon the aforesaid CP No. 103/2019 but declined to grant

any Interim relief to the Respondent No. 1, after observing that that outcome

of the Board Meeting would be subject to the final orders by the Tribunal.

Accordingly, on 18.12.2019 the Extra Ordinary General Meeting (in short

'EOGM') of the Company was convened and after due consideration of the

Reply of the Respondent No. 1, it was decided to remove the Respondent No.

1 from the post of Director under Section 169 of the Companies Act, 2013 to

protect the interest of the Company.

11. The Appellants stated that they filed their reply before the Tribunal

specifying that the disputes were merely in the nature of inter-se disputes

and not disputes that come under the scope of Section 241-242 of the

Companies Act, 2013.

-6- Comp. App. (AT) No. 233 of 2020

12. The Appellants stated that the Contesting Respondents raised

prejudicial arguments while filling the WP (PIL) No. 28/2019 before Hon'ble

High Court of Gujrat stating that environmental damage was being caused

at the Victor Port site by the Company. The Hon'ble high Court of Gujarat

admitted the Petition, however no stay was granted in favour of the

Contesting Respondents herein. The Appellants submitted that they

obtained all environment clearances during the period, which clearly

indicate the falsity of the allegations of the Contesting Respondents, which

were made just to harm the Appellants and in turn the Company.

13. It is the case of the Appellant that the Impugned order is erroneous as

the Tribunal, when discharging functions under the Companies Act, 2013

can only exercise powers over such areas which it has been authorised by

the Company Act itself and cannot by implication assume jurisdiction. It is

also the case of the Appellant that disputes between Directors were inter-se

dispute which were not adversely affecting the conduct of the affairs of the

Company and hence it was not within the jurisdiction of the Tribunal under

that the Companies Act, 2013.

14. It is the case of the Appellant case that while exercising the powers

under Section 169 of the Companies Act, 2013, the Respondent No. 4 i.e.,

the Company acting through the Appellants, removed the Respondent No. 1

as Director however, consciously the shareholding pattern of the

Respondent No. 1 was not disturbed. Similarly, shareholding of his brother,

the Respondent No. 2 herein was also not disturbed. It has been submitted

that the Respondent No. 1 was removed from the Directorship, of the Board -7- Comp. App. (AT) No. 233 of 2020

of Director as he was acting against the company causing great harm to the

interests of the Company, which could not have been allowed.

15. It is the case of the Appellants that Section 240 and 241 of the

Companies Act, 2013 was not applicable in the present case as there was no

instance of oppression & mismanagement. The Appellants alleged that the

Contesting Respondents, in order to avoid their commitment and liability to

infuse additional funds, twisted the case as if, disputes between the

Directors was case akin to oppression & mismanagement. The Appellants

stated that at best it could have been treated as disputes between directors

and could have been dealt legally by appropriate legal forum and the

Tribunal had no role to play in such case.

16. The Appellants assailed the Impugned Order because of the wrong

and illegal interpretation of the Heydon's Rule of Purposive Construction,

despite observing by the Tribunal itself that literal interpretation of the

statute is the first rule, and only in case of ambiguity, should other Rules of

Interpretation be resorted to. The Appellants submitted that the Impugned

Order is perverse and illegal.

17. It is the case of the Appellants that the Tribunal also erred by placing

sole reliance on the judgment of Kamal Kumar Dutta v. Ruby General

Hospital, and deciding that removal of the Director amounted to oppression

and hence a petition under Section 397/398 of the Companies Act, 1956

was maintainable, and that a similar position carried forward under the

Companies Act, 2013. The Appellants submitted that legally there was no

case of oppression & mismanagement and the Contesting Respondents were -8- Comp. App. (AT) No. 233 of 2020

not aggrieved by the same and simple dispute between the Directors could

not be dealt under Section 240 -241 of the Companies Act, 2013 treating

such cases as oppression & mismanagement.

18. The Appellants assailed the Adjudicating Authority for taking reliance

upon SREI Infrastructure Finance Limited Vs. Arcelor Mittal India

Private Limited in I.A. No .245 of 2020 vide order dated 10.11.2020 (in

short 'SREI'), because SREI was a judgment delivered under the Insolvency

and Bankruptcy Code, 2016 and dealt with the jurisdiction of the

"Adjudicating Authority" vis-à-vis the IBC. In fact, in SREI itself, it is

observed that "exercise of powers by NCLT as Adjudicating Authority are

more under the Provisions of the Code as compared to the Companies Act,

2013". Despite recording that, the Tribunal passed the Impugned Order

holding that it has jurisdiction to decide issues of "inter-se disputes" which

"may or may not adversely affect the conduct of the affairs of the Company"

and that "even matters related to title/ownership can be decided under the

Companies Act". The Appellants submitted that such wrong interpretation of

the power available to the Tribunal under the Companies Act, 2013 are not

tenable.

19. The Appellant cited judgement of the Hon'ble Supreme Court of India

in Tata Consultancy Services v. Cyrus Investments [(2021) 9 SCC 449]

which gave an exhaustive interpretation of Section 241-242 of the Act and

gave ratio that while granting final relief, the concerned court shall pass

orders with a view to bring to an end the matters complained of. The

Appellants submitted that in the present case, the impugned order instead -9- Comp. App. (AT) No. 233 of 2020

of bringing to an end the matters complained, has further complicated the

working of the Company. It is the case of the Appellant that in Chatterjee

Petrochemical v. Haldia Petrochemical [(2011) 10 SCC 466], in dealing

with the Section 397/398 of the Companies Act, 1956, it was held that for

relief, the Applicant is required to prove that the conduct complained of was

unfair and lacked probity so as to cause prejudice to the applicant in

exercising his legal and proprietary rights as a shareholder. The Supreme

Court further cautions that the conduct cannot be one isolated case, but

must be part of a concerted action to cause prejudice.

20. The Appellants submitted that the Company is not a quasi-

partnership. The Appellants submitted that the features of the a quasi-

partnership are (i) prior partnership (ii) equality in shareholding (iii) an

expectation that the formation of the relationship for participation in the

business based on some understanding (iv) restriction on transfer of shares.

It is the case of the Appellants that the Company was incorporated in 2009

and the Respondents were inducted only in 2015 only to finance the

company, and to use their network to bring business to the company. The

Appellants assailed the Impugned Order dated 13.11.2020 which by placing

sole reliance upon the email dated 22.12.2018, wherein the words "at the

time of entering into partnership" was used by the Appellants, the Tribunal

held that the company is a quasi-partnership. The Appellants submitted

that the such conclusions are contrary to the judgment of the Hon'ble

Supreme Court in Chatterjee Petrochemical (supra) where specifically it

was held that "while on the one had it would be easy to apply the said -10- Comp. App. (AT) No. 233 of 2020

concept to a closely held family company or a private limited company, in

cases of partnership converted into a company, such an assumption could not

be arrived at merely on the ground that the promoters of the company

described themselves as partners".

21. The Appellants submitted that undue reliance upon one stray letter

cannot be the basis to determine that the company is a quasi-partnership.

It is the case of the Appellants that what is necessary is the substance and

not the form. The Appellants elaborated that the parties did not know each

other prior to the entering into the present agreement and they had no

common business prior to coming to board in 2015 and therefore the

present company cannot be said to be a case of quasi partnership.

22. The Appellants submitted that in Hanuman Paras Bagri v. Bagress

Cereals, it has been held that the mere act of termination of Directorship,

does not trigger the just and equitable clause and further the Hon'ble

Supreme Court in Tata Consultancy Services (supra) has held in law even

the removal from Directorship cannot be held to be an oppressive or

prejudicial conduct.

23. The Appellants submitted that the plea of the Respondent No. 1 that

meetings were conducted when he was abroad cannot be treated as unfair

or oppressive and the Tribunal erred in finding that this was an instance of

non-compliance in meetings and hence there is oppression and

mismanagement.

24. The Appellants further submitted that the Contesting Respondents

have pleaded that the procedure in calling for the meeting was incorrect as -11- Comp. App. (AT) No. 233 of 2020

requisition was not received, however no proof of the same was given by the

Contesting Respondents and in any event the Tribunal declined to stay the

meeting, if indeed there was serious procedural flaw, the same would have

been stayed. It is the case of the Appellants that the Contesting

Respondents have not pleaded prejudice in any form or manner due to the

conduct of the meeting in the manner in which it was held and as such the

Tribunal could not treat as case of the oppression & mismanagement.

25. The Appellant pleaded that all alleged acts by the Respondent No. 1

are inter-se disputes which are completely outside the scope of Section 241- 242 of the Companies Act, 2013 and the illegal assumption of jurisdiction

has caused serious prejudice to the Company and the Appellants

26. The Appellant submitted that no prayer for joint signatory authority

was made by the Contesting Respondents and the Tribunal relied upon by

the e-mail dated 22.12.2018 which stated that there was no "maker-checker

and dual sign". The Appellants assailed the Tribunal who on one hand

treated this letter as the truthful however ignored express understanding of

the Contesting Respondents to infuse funds. The Appellants alleged that the

Tribunal passed the Impugned Order which indicate the perversity on part

of the Tribunal.

27. Concluding their arguments, the Appellants submitted that the

Impugned Order is patently illegal and issued without any jurisdiction and

therefore need to be set aside by the Appellate Tribunal.

28. Per contra, the Contesting Respondents i.e., Contesting Respondents

denied all averments of the Appellants, treating such averments as -12- Comp. App. (AT) No. 233 of 2020

misleading and without any basis. It is the case of the Respondents that the

frivolous appeal has been made only to harm the Contesting Respondents as

was being done earlier by the Appellants.

29. The Contesting Respondents assailed the conduct the Appellants who

lured them to invest huge money in the Company and did not allow the

Respondents to participate in the conduct of affairs of the Company. The

Respondents submitted that the Contesting Respondents are Ambalia

Group, who were in the business of construction and real estate, having

successfully concluded several projects and submitted that the Company

was in the nature of a quasi-partnership, since the Ambalia Group as the

Contesting Respondent and Banker Group as the Appellants herein were all

shareholders as well as Directors of the Company. It is submitted by the

Contesting Respondents that on account of higher financial and

technical/business expertise, the Contesting Respondents were invited to

join hands with the Appellants to execute various projects.

30. It is the case of the Contesting Respondents that the Contesting

Respondents have contributed immensely to the business of the Respondent

No. 4 company and made it a profitable venture. That owing to the present

Respondent's vast experience in various sectors, the Respondent No. 4

Company received many contracts and huge projects. Since the company

was not financial robust, the Appellants had approached the Contesting

Respondents for investing capital as well as to rope in different contracts

and projects. The same was executed successfully by the present

Respondents. An agreement dated 14.04.2016 was executed between GMB -13- Comp. App. (AT) No. 233 of 2020

with the Respondent No. 4 company (as licensee) for making the existing

port facilities operational at Victor Port, Amreli Gujarat and using it for

cargo operations on license basis. The said contract was brought to

Respondent No. 4 company by the efforts of the Contesting Respondents.

That Clause 3.5 of the agreement stipulated as follows,

"The licensee confirms that it shall, at its cost, obtain all Applicable permits for the project: from the concerned Government Departments and authorities required under the Applicable Laws to put the Project in operation."

31. It is the case of the Contesting Respondents that the Letter of Intent

dated 09.04.2015 which predates the agreement also prescribes in Clause

2.4 and 2.5 that the Company is required to obtain all

permissions/approvals including Environment Clearance/CRZ Clearance

from government departments and then begin the work of

strengthening/renovating work of the existing jetty and construction of new

facilities. In the context of the said clauses, however the Appellants did not

obtain any Environmental Clearance and began operations at the jetty. This

was not only contrary to the Letter of the Intent and Agreement, but shows

the casual attitude of the Appellants in managing the contracts given to the

Company.

32. The Contesting Respondents submitted that owing to indiscriminate

operations without any thought of the environment, a PIL being W.P [PIL]

No. 28 of 2019 was filed by them before the Hon'ble High Court of Gujarat

against the Company which is still pending. The viability of entire project -14- Comp. App. (AT) No. 233 of 2020

was put into jeopardy due to non-compliance of environmental norms by

Appellants.

33. The Contesting Respondents submitted that both the Appellants and

the Respondents had come to written understanding on 20.01.2019 in

presence of two Chartered Accountants to sort out the differences. The

Contesting Respondents submitted that despite such an agreement, the

Appellants failed to adhere to the terms of agreement thereby virtually using

the excess investment of the Respondents. The Contesting Respondents

submitted by virtue of letter dated 01.04.2019, the Respondents brought it

to the notice that the excess payment of Rs. 43,13,778/- (including interest

@12% PA) which was to be paid in 10 days has not been paid. Out of the

excess paid amount, Rs. 27,21,000/- was paid much subsequently. The

interest @ 12% p.a. from the date of investment i.e., 2015 till the date of

payment has also not been paid.

34. The Contesting Respondents stated that even after the impugned

order, the Appellants are not allowing the in the Contesting Respondents to

participate in the management of the Respondent No. 4 company despite

their being no stay or any restriction granted/imposed by this Appellate

Tribunal.

35. The Contesting Respondents stated that the Appellants hold 55%

equity in the Company and therefore, they should raise the funds from the

financial institutions or banks by and the provide collateral security. The

Contesting Respondents stated that the collateral security cannot be asked

from the Contesting Respondents, and it is not the sole responsibility of the -15- Comp. App. (AT) No. 233 of 2020

Contesting Respondents to continue to infuse funds. The Contesting

Respondents reiterated that the Contesting Respondents had contributed

excess funds and an agreement on 20.01.2019 had been reached to refund

those funds.

36. The Respondents submitted that the Contesting Respondents are

Ambalia Group, who were in the business of construction and real estate,

having successfully concluded several projects and submitted that the

Company was in the nature of a quasi-partnership, since the Ambalia Group

as the Contesting Respondent and Banker Group as the Appellants herein

were all shareholders as well as Directors of the Company. It is submitted by

the Contesting Respondents that on account of higher financial and

technical/business expertise, the Contesting Respondents were invited to

join hands with the Appellants to execute various projects.

37. The Respondents submitted that as per the Clause 31 of the Article of

Association', Contesting Respondents and Appellants are named as

"permanent directors" and can be removed only when any one resigns, dies

or is disqualified as per the Companies Act.

38. The Contesting Respondents submitted that the Appellants, in order

to cover their acts of mismanagement of the Company, which were objected

to by the Contesting Respondents, decided to remove Mr. Hitesh Ambalia

the Respondent No. 1 herein as a director by way of EOGM held on

18.12.2019 and such action of illegal removal was challenged by Contesting

Respondents before the Tribunal under Section 241 and 242 of the

Companies Act 2013.

-16- Comp. App. (AT) No. 233 of 2020

39. The Contesting Respondents denied the submission of the Appellants

that the petition of the Respondent No. 1 was in the nature of directorial

complaint or inter-se disputes and hence beyond the jurisdiction of the

Tribunal. It is the case of the Contesting Respondents that the Tribunal

correctly held, after detailed analysis of the Companies Act 1956 and

Companies Act, 2013 that Tribunal has jurisdiction to decide the issues of

disputes between directors or shareholders which may or may not adversely

affect the conduct of affairs of the Company. The Respondents submitted

that Tribunal correctly held that removal of directors, who are collectively

responsible for the conduct of affairs of the company, cannot be termed as

merely an instance of personal disputes between shareholder's groups or

Directors Groups.

40. The Contesting Respondents stated that the Tribunal held that the

Company was in nature of quasi partnership and the joining of the

Contesting Respondents into the Company was in fact an instance of

pooling of resources for sharing profit of business which is essential element

of the quasi partnership and the Tribunal relied upon the landmark decision

of Sangramsinh P. Gaelwad & Ors. V. Shantadevi P. Gaekwad [(2005)

11 SCC 314] to establish that the Company was a quasi-partnership.

41. The Contesting Respondents stated that on the question whether the

act of removal was valid under Section 169 of the Companies Act 2013, it

was held by the Tribunal that removal of Mr. Hitesh Ambalia the

Respondent No. 1 herein was on account of personal prejudice, and the -17- Comp. App. (AT) No. 233 of 2020

letters admittedly written by the Contesting Respondents were in the

interest of the company.

42. The Contesting Respondents emphasised that the Company i.e.., Om

Sai Navigations Ltd. is a quasi-partnership and hence removal of the

Respondent No. 1 as a Director cannot be a "directorial complaint". Further

the Contesting Respondents submitted that Ambalia group and Banker

group i.e., Contesting Respondents and the Appellants herein consisting of

four persons, are shareholders and permanent directors of the Company. It

has been submitted by the Contesting Respondents that the Company is a

quasi-partnership, which has been accepted by Tribunal. It is submitted

that the concept of quasi-partnership was evolved originally in English law,

for courts to deal with companies which had resemblance of a partnership,

if not for their incorporation. It is submitted that in determining quasi-

partnership companies, equitable considerations are to be considered. The

Contesting Respondents submitted that the earliest judgment dealing with

quasi-partnership was Ebrahimi v. Westbourne Galleries Ltd. [1973] A.C

360, which has adopted in Indian context in Badrinath Galhotra v.

Aanaam PVt. Ltd', Sangramsinh P. Gaekwad v. Shanta Devi Gaekwad"

& Praful M Patel v. Wonderweld Electrodes Pvt. Ltd'. It is submitted that

Lord Wilberforce in Ebrahimi propounded three factors for considering if the

company is a "quasi-partnership" which are as follows:-

(i) an association formed or continued on the basis of a personal

relationship, involving mutual confidence ;

-18- Comp. App. (AT) No. 233 of 2020 (ii) an agreement, or understanding, that all, or some for there may be

'sleeping' members, of the shareholders shall participate in the

conduct of the business;

(iii) restriction upon the transfer of the members' interest in the

company - so that if confidence is lost, or one member is removed

from management, he cannot take out his stake and go elsewhere.

43. The Respondents submitted that the Appellants has admitted to the

partnership vide email dated 22.12.2018. The said e-mail reads "At the time

of entering into partnership, we have already discussed with you that

majority shareholding and decision authorities will be in the hand of Banker

Group (the Appellants herein) in good faith of company....". It is submitted

that the said email is a clear admission on the part of the Appellants,

showing the intent with which, the Appellants joined hands in Contesting

Respondents in 2015. It is submitted that before induction of the Contesting

Respondents, the company was a loss-making enterprise. In the year 2015,

the Appellants approached the Contesting Respondents for making

investment into the company. An understanding was reached between the

parties that the Contesting Respondents would bring in investment and

their business expertise and in exchange the company would provide the

"proportionate representation" in all the activity.

44. The Contesting Respondents submitted that the clauses of AoA make

it expressly clear that the Company is a quasi-partnership. Clause 13

contemplates restriction on transfer of shares who is not a member of the

company, Clause 31 names Contesting Respondents and Appellants as -19- Comp. App. (AT) No. 233 of 2020

"permanent directors", Clause 40 contemplates that the directors are not

liable to retire by rotation at every AGM of the meeting. It is submitted that

these clauses make it more than clear that the Company is a "quasi-

partnership".

45. It is submitted that removal of directors in a quasi-partnership has

been held to be an act of oppression. It is submitted that the decision of the

Appellants to remove the Contesting Respondents has been incited by

complete prejudice and malice. It is submitted that removal of a Director,

de-hors the Articles of Association and in violation of Section 169 of the

Companies Act, 2013 would be a gross act of oppression.

46. The Contesting Respondents submitted that the law is well-settled

that in a company, a person cannot claim that he has a right to remain as a

director of the company. However, such a proposition is dislodged in case of

a quasi-partnership, where a director has a legitimate expectation to act as

a director of the company. Therefore, the moment the Company takes the

form of quasi-partnership, the defense of "directorial complaint" is not

available, and removal of directors is considered as "oppression" under

section 397 of companies act 1956 as well as companies act 2013.

47. The Contesting Respondents emphasised clauses of the AoA are

binding in nature on the Company and the shareholders. Articles of

Association have contractual force which regulates the relationship of the

members of the Company and therefore any removal which is outside the

scope of AoA, is invalid and illegal.

-20- Comp. App. (AT) No. 233 of 2020

48. The Contesting Respondents denied all other averments of the

Appellants and also pointed out that cited judgments by the Appellants are

not in present facts of the case and thus not applicable in the present

appeal.

49. Concluding arguments, the Contesting Respondents requested this

Appellate Tribunal to dismiss the appeal.

Findings

50. From various averments of the Parties, we find that main issue is

regarding alleged oppression & mismanagement, which has been dealt by

the Tribunal under Section 241 & 242 of the Companies Act, 2013.

51. In original application before the Tribunal filed by the Contesting

Respondents herein, in C.P. No. 103/ 2019, total 19 reliefs were sought in

para 68 (v). The Tribunal in the Impugned Order discussed several issues

and the details in general. The Tribunal subsequently framed three

questions for its own decision to decide application in para 9 which reads as

under :

"9. We have considered the submissions made by both the sides as well as material on record. The questions which arise for our consideration in this application can be summarised as under :-

a) Whether present petition is an instance of oppression and mismanagement within the meaning of provisions of Section 241 & 242 of Companies Act, 2013 and, therefore, we have jurisdiction ?

-21- Comp. App. (AT) No. 233 of 2020 b) Whether removal of Petitioner No. 1 from the directorship of the Respondent No. 1 Company under Section 169 is valid in law?

c) What reliefs can be granted ?"

52. Thus, from above portion of the Impugned Order, it is clear that the

issues examined were relating to oppression & mismanagement under

Section 241 & 242 of the Companies Act, 2013 w.r.t. removal of Respondent

No. 1 herein, from Directorship of the Company i.e., Respondent No. 4

herein, under Section 169 of the Companies Act, 2013. The Tribunal also

decided to consider what reliefs can be granted.

53. We also note that in the analysis part, the Tribunal compared

Sections 397 & 398 Companies Act, 1956 vis-a-vis Section 241 & 242 of the

Companies Act, 2013. The Tribunal also referred to several judgments and

concluded that the Tribunal has the jurisdiction to decide inter-se dispute

between directors or shareholders which may or may not adversely affect the

conduct of affair of the Company. The Tribunal also commented on issue

regarding quasi-partnership of the company and held that removal of the

Respondent No. 1 herein from the Director of the Company as bad in law

and declared null and void. While dealing this aspect, the Tribunal recorded

that they do not consider to dwell in detailed manner on other aspects.

54. As regard, question of validity of action under Section 169 of the

Companies Act, 2013 w.r.t. removal of Respondent No. 1 herein as Director

of the Company based on several ground which were contested and denied

by the Appellants herein, the Tribunal noted the differences between both -22- Comp. App. (AT) No. 233 of 2020

the parties as regard to functioning of the company especially regarding

control over finance and banking operations and after analysis came to

conclusion that letters written by the Respondent No. 1 herein appears to

fall in the domain of discharge of duties of Director and further recorded

that the Tribunal "do not consider it necessary to deal with other

contentions raised by both the parties as the same do not appear to be so

material".

55. The Tribunal also observed that it has requisites powers to grant

substantial relief, even if case of winding up is not made out. The Tribunal

also held that in their opinion, exit option to one group did not appear to be

only solution as settlement deed dated 20.01.2019 has not been acted upon

and gave the following final orders/ directions, while disposing the original

application :-

"(1)EOGM held on 18.12.2019 is declared illegal, Resolution passed for removal of the Petitioner No. 1 from Respondent No. 1 Company is also declared illegal, null and void.

(2) The position of Director of the Petitioner No. 1 in Respondent No. 1 Company is restored from the date of his removal from such post.

(3) The bank account of the Company will be jointly operated wherein one person from the Petitioners" side and one person from Respondent's No. 2 and 3 would be signatories.

(4) Certified copies of this order b filed with the concerned Registrar of Companies within 30 days from the date of this order.

-23- Comp. App. (AT) No. 233 of 2020

(5) There is no order as to costs.

(6) CP No.13 of 2019 stands allowed and disposed off in terms indicated above."

56. We note that the Appellants have broadly taken the following pleas in

challenging the Impugned Order:-

(i) Wrongful assumption of jurisdiction by the Tribunal and wrongful

interpretation of Section 241 and 242 of the Companies Act, 2013.

(ii) Wrongful interpretation of the facts.

(iii) Wrongful finding by the Tribunal of quasi-judicial character of the

Company.

(iv) The inter-se disputes between the Director or other members could

not be treated as case of oppression & mismanagement under

Section 241 and 242 of the Companies Act, 2013 and moreover,

such cases are required have to be continuing nature rather than

an isolated episode, which was not found in their case.

(v) Illegality and perversity in the Impugned Order for granting relief

not asked for "joint signatory authority" by the Contesting

Respondents herein and the Appellants in the original application

before the Tribunal.

(vi) The Tribunal failed to adhere to cardinal principle of bringing to an

end of matters complained off and rather made complicated for the

Company to function now.

-24- Comp. App. (AT) No. 233 of 2020

57. The Appellants relied on several case laws including following :-

(i) Tata Consultancy Servies Vs. Cyrus Investments Pvt. Ltd. & Ors.

[(2021) 9 SCC 449].

(ii) Chatterjee Petrochem (India) Pvt. Ltd. Vs. Haldia Petrochemicals

Limited & Ors. [(2011) 10 SCC 466].

(iii) Akkadian Housing and Infrastructure Pvt. Ltd. & Anr. Vs.

Pantheon Infra Pvt. Ltd. & Ors. [(2016) 197 Comp. Cas 316].

(iv) In Re : Modern Furnishers (Interior Designers) Pvt. Ltd. [(1985) 58

Comp. Cas 858].

(v) Laguna Holdings Pvt. Ltd. & Ors. Vs. Eden Park Hotels Pvt. Ltd.

[(2013) 176 Comp. Case 118].

58. The Appellants relied heavily on the Tata Consultancy (Supra) in

establishing and bringing out that removal and restatement are two different

things and according to Apex Court Section 241 and 242 of the Companies

Act, 2013 does not encompasses power to the Court/ Tribunal to reinstate

the removed Director.

59. On the other hand, the Contesting Respondents gave history of the

Company, their contribution and submitted that the Tribunal has given the

reasoned and correct judgments. The Contesting Respondents stated that

the Company is in character of quasi-partnership hence removal of the

Respondent No. 1 as Director could not be treated as "Directorial

complaint". The Contesting Respondents also stated that the act of removal

of Respondent No. 1 herein from Directorship was illegal and was done

without following due procedure of law. The Contesting Respondents also -25- Comp. App. (AT) No. 233 of 2020

highlighted the various other acts of oppression & mismanagement by the

Appellants herein.

60. In support the Contesting Respondents have cited the following

judgments. :-

(i) Sangramsinh P. Gaekwad & Ors. Vs. Shantadevi P. Gaekwad

[(2005) 11 SCC 314].

(ii) Badri Nath Galotra Vs. Aanaam (P) Ltd. [(2007) 76 SCL 241 (CLB)].

(iii) Praful M. Patel Vs. Wonderweld Electrodes Pvt. Ltd. [(2001) SCC

Online CLB 57].

(iv) Kamal Kumar Dutta & Ors. Vs. Ruby General Hospital Ltd. & Ors.

Civil appeal No. 3471 of 2006 (SLP (c) Nos. 11017-11018 of 2005).

(v) In re Westbourne Galleries Ltd. (Ch. D).

(vi) Ador- Samia Ltd. & Ors. vs. Indocan Engineering Systems Ltd. &

Ors[(2002) 100 Comp Cas 370 (CLB)].

(vii) V.B. Rangaraj Vs. V.B. Gopalakrishnan and Others [(1992)1 SCC

160].

61. The Contesting Respondents have not referred to Tata Consultancy

(Supra) as not being applicable in the given facts of the present case without

giving much details and without differentiating present case with Tata

Consultancy (Supra) w.r.t. facts and the law laid down.

62. We observe that the Impugned Order was passed by the Tribunal on

13.10.2020, whereas later in 2021 the landmark Judgment on oppression &

mismanagement covering several issues including quasi-partnership aspects

was passed by the Hon'ble Supreme Court of India in case of Tata -26- Comp. App. (AT) No. 233 of 2020

Consultancy (Supra) and obviously the Tribunal did not have the benefit of

clear rulings given in the Tata Consultancy (Supra)

63. We will like to refer to Tata Consultancy (Supra) judgment which

has direct bearing on the Impugned Order dated 13.10.2020 passed by the

Tribunal which is under challenge in the present appeal before us, therefore,

we would like to take into consideration the following relevant paras of the

said judgement.

"57. Therefore, from the rival contentions, the questions of law that arise are formulated as follows:

57.1. (i) Whether the formation of opinion by the Appellate Tribunal that the company's affairs have been or are being conducted in a manner prejudicial and oppressive to some members and that the facts otherwise justify the winding up of the company on just and equitable ground, is in tune with the well-settled principles and parameters, especially in the light of the fact that the findings of NCLT on facts were not individually and specifically overturned by the Appellate Tribunal?

*** 57.2. (ii) Whether the reliefs granted and the directions issued by the Appellate Tribunal, including the reinstatement of CPM into the Board of Tata Sons and other Tata companies, are in consonance with the pleadings made, the reliefs sought and the powers available under sub-section (2) of Section 242? ***

90. But despite the huge shift in England, there appears to be a common thread running in all the enactments, both in India and England. In all the three Indian enactments, -27- Comp. App. (AT) No. 233 of 2020

namely, the 1913 Act, the 1956 Act and the 2013 Act, the court is ordained, generally to pass such orders "with a view to bringing to an end the matters complained of". This sentence is found in Section 153-C(4) of the 1913 Act. It is found in Section 397(2) as well as Section 398(2) of the 1956 Act and it is also found in Section 242(1) of the 2013 Act. This is also the common thread that runs through the statutory prescriptions contained in the English Acts of 1948, 1985 and 2006. Therefore, at the stage of granting relief in an application under these provisions, the final question that the court should ask itself is as to whether the order to be passed will bring to an end the matters complained of. Having thus seen the development of law, let us now take up the questions of law one after another.

111. In fact the real reason why the complainant companies thought fit, quite tactfully, not to press for the reinstatement of CPM is that the mere termination of Directorship cannot be projected as something that would trigger the just and equitable clause for winding up or to grant relief under Sections 241 and 242. A useful reference can be made in this regard to the decision of this Court in Hanuman Prasad Bagri v. Bagress Cereals (P) Ltd. [Hanuman Prasad Bagri v. Bagress Cereals (P) Ltd., (2001) 4 SCC 420].

118. An important aspect to be noticed is that in a petition under Section 241, the Tribunal cannot ask the question whether the removal of a Director was legally valid and/or justified or not. The question to be asked is whether such a removal tantamounts to a conduct oppressive or prejudicial to some members. Even in cases where the Tribunal finds -28- Comp. App. (AT) No. 233 of 2020

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.

119. 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.

121. 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 the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost of repetition it should be pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the company petition was filed.

132. In any event the removal of a person from the post of Executive Chairman cannot be termed as oppressive or prejudicial. The original cause of action for the complainant -29- Comp. App. (AT) No. 233 of 2020

companies to approach NCLT was the removal of CPM from the post of Executive Chairman. Though the complainant companies padded up their actual grievance with various historical facts to make a deceptive appearance, the causa proxima for the complaint was the removal of CPM from the office of Executive Chairman. His removal from Directorship happened subsequent to the filing of the original complaint and that too for valid and justifiable reasons and hence NCLAT could not have laboured so much on the removal of CPM, for granting relief under Sections 241 and 242.

142. In the case in hand there was never and there could never have been a relationship in the nature of quasi- partnership between the Tata Group and SP Group. SP Group boarded the train half-way through the journey of Tata Sons. Functional deadlock is not even pleaded nor proved.

143. Coming to the Indian cases, this Court held in Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageshwara Rao [Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageshwara Rao, (1955) 2 SCR 1066 : AIR 1956 SC 213] that for the invocation of just and equitable clause, there must be a justifiable lack of confidence on the conduct of the Directors, as held. A mere lack of confidence between the majority shareholders and minority shareholders would not be sufficient, as pointed out in Shanti Prasad Jain v. Kalinga Tubes Ltd. [Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535] -30- Comp. App. (AT) No. 233 of 2020

144. It was contended repeatedly that lack of probity in the conduct of the Directors is a sufficient cause to invoke just and equitable clause. Drawing our attention to the landmark decision in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333] , it was contended that even the profitability of the company has no bearing if just and equitable standard is fulfilled and that the test is not whether an act is lawful or not but whether it is oppressive or not.

145. But all these arguments lose sight of the nature of the company that Tata Sons is. As we have indicated elsewhere, Tata Sons is a principal investment holding company, of which the majority shareholding is with philanthropic trusts. The majority shareholders are not individuals or corporate entities having deep pockets into which the dividends find their way if the Company does well and declares dividends. The dividends that the Trusts get are to find their way eventually to the fulfilment of charitable purposes. Therefore, NCLAT should have raised the most fundamental question whether it would be equitable to wind up the Company and thereby starve to death those charitable Trusts, especially on the basis of uncharitable allegations of oppressive and prejudicial conduct. Therefore, the finding of NCLAT [Cyrus Investments (P) Ltd. v. Tata Sons Ltd., 2019 SCC OnLine NCLAT 858] that the facts otherwise justify the winding up of the Company under the just and equitable clause, is completely flawed.

-31- Comp. App. (AT) No. 233 of 2020

146. The second question of law arising for consideration is as to whether the reliefs granted and directions issued [Cyrus Investments (P) Ltd. v. Tata Sons Ltd., 2019 SCC OnLine NCLAT 858] by NCLAT including the reinstatement of CPM into the Board of Tata Sons and other Tata companies are in consonance with:

(i) the pleadings made,

(ii) the reliefs sought, and

(iii) the powers available under sub-section (2) of Section 242.

151. Thus, NCLAT granted [Cyrus Investments (P) Ltd. v. Tata Sons Ltd., 2019 SCC OnLine NCLAT 858] to the complainant companies (and indirectly to CPM) four reliefs, namely:

(i) reinstatement of CPM;

***

152. We shall now see whether NCLAT could have granted any of these reliefs.

Reinstatement of CPM

153. Removal and reinstatement are two different things. We have dealt with the issue of removal of CPM, while answering Question of Law No. 1, in the context of whether it was part of a scheme of oppressive and prejudicial conduct. Now we shall deal with the issue of reinstatement in the context of the contours of Section 242(2) and the nature of the orders that could be passed. -32- Comp. App. (AT) No. 233 of 2020

155. In this background, it was repeatedly argued both before NCLAT and before this Court that the objective of the litigation was not to have CPM reinstated, but only to set things right in the State of Denmark (of which CPM himself was the Premier for 4 years). But interestingly, NCLAT understood what the complainant companies and CPM actually wanted, though they attempted to camouflage their intentions with legal niceties. Therefore, despite there being no prayer for reinstatement of CPM either as a Director or as an Executive Chairman of Tata Sons, NCLAT directed [Cyrus Investments (P) Ltd. v. Tata Sons Ltd., 2019 SCC OnLine NCLAT 858] the restoration of CPM as Executive Chairman of Tata Sons and as Director of Tata Companies for the rest of the tenure.

161.NCLAT appears to have granted the relief of reinstatement gratis without any foundation in pleadings, without any prayer and without any basis in law. By doing so, NCLAT has forced upon the appellant an Executive Chairman, who now is unable to support his own reinstatement.

162.NCLAT has found the dismissal to be illegal and not a nullity. In law, a dismissal even if found to be wrongful and mala fide is an effective dismissal and may give rise to a claim in damages. In S. Dutt v. University of Delhi [S. Dutt v. University of Delhi, 1959 SCR 1236 : AIR 1958 SC 1050] this Court held: (AIR p. 1054, para 14)

"14. ... The award held that the appellant had been dismissed wrongfully and mala fide. Now, it is not consequential to such a finding that the -33- Comp. App. (AT) No. 233 of 2020

dismissal was of no effect, for a wrongful and mala fide dismissal is nonetheless an effective dismissal though it may give rise to a claim in damages. The award, no doubt, also said that the dismissal of the appellant was ultra vires but as will be seen later, it did not thereby hold the act of dismissal to be a nullity and, therefore, of no effect."

163. It is significant that Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement, nor we would add that there is any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred.

164. The following words at the end of sub-section (1) of Section 242 "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. These words can only be interpreted to mean as conferring the power to make such order as the Tribunal thinks fit, where the power to make such an order is not specifically conferred but is found necessary to remove any doubts and give effect to an order for which the power is specifically conferred. For instance, sub-section (2) of Section 242 confers the power to make an order directing several actions. The words by which sub-section (1) of Section 242 ends, supra can be held to mean the power to make such orders to bring an end, -34- Comp. App. (AT) No. 233 of 2020

matters for which directions are given under sub-section (2) of Section 242.

165. 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 Vaish Degree College [Vaish Degree College v. Lakshmi Narain, (1976) 2 SCC 58 : 1976 SCC (L&S) 176] 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.

180. Therefore, despite the law relating to oppression and mismanagement undergoing several changes, the object that a Tribunal should keep in mind while passing an order in an application complaining of oppression and mismanagement, has remained the same for decades. This object is that the Tribunal, by its order, should bring to an end the matters complained of.

-35- Comp. App. (AT) No. 233 of 2020

181. In other words the purpose of an order both under the English law and under the Indian law, irrespective of whether the regime is one of "oppressive conduct" or "unfairly prejudicial conduct" or a mere "prejudicial conduct", is to bring to an end the matters complained of by providing a solution. The object cannot be to provide a remedy worse than the disease. The object should be to put an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders. It is relevant to point out that once upon a time, the provisions for relief against oppression and mismanagement were construed as weapons in the armoury of the shareholders, which when brandished in terrorem, were more potent than when actually used to strike with. While such a position is certainly not desirable, they cannot today be taken to the other extreme where the tail can wag the dog.

182. The Tribunal should always keep in mind the purpose for which remedies are made available under these provisions, before granting relief or issuing directions. It is on the touchstone of the objective behind these provisions that the correctness of the four reliefs granted by the Tribunal should be tested. If so done, it will be clear that NCLAT could not have granted the reliefs of:

182.1. Reinstatement of CPM.

(Emphasis Supplied) -36- Comp. App. (AT) No. 233 of 2020

64. At the outset, we find that the Tata Consultancy (Supra) Judgement

has given clear rulings which are required to be followed by all the Courts/

Tribunals.

65. We have already noted that the judgment of Tata Consultancy

(Supra) came after passing the Impugned Order by the Tribunal as such the

Tribunal interpreted the facts and law in the original application without

wisdom of Tata Consultancy (Supra) judgment.

66. In this background, we feel that the Tribunal will have to re-examine

the original petition CP No. 103/ 2019 in light of the judgement of Hon'ble

Supreme Court of India in case of Tata Consultancy (Supra) as prima-

facie, the Tribunal has taken stand not in accordance with the Tata

Consultancy (Supra) judgments which dealt with various issues as in

present case like what are instance of oppression & mismanagement,

removal and subsequent reinstatement of Director, quasi-partnership

character of the Company etc.

67. We are not expressing any opinion on several issues raised in the

present appeal, since we are inclined to send back the case to the Tribunal.

68. In view of above, the Impugned Order is set aside and remanded back

to the Tribunal to have a fresh look on the merit after hearing both the

Parties in view of the judgment of the Hon'ble Supreme Court of India given

in Tata Consultancy (Supra).

-37- Comp. App. (AT) No. 233 of 2020

69. Interlocutory Application(s), if any, are Closed. Parties are directed to

appear before the Tribunal on 21st December, 2024. No. Costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim