Atlas Equifin Pvt Ltd vs Jackie Shroff & Ors

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI COMPANY APPEAL (AT) NO.46 OF 2023 (Arising out of judgement and order dated 10.02.2023 passed by National Company Law Tribunal, Mumbai Bench in Transfer Company Petition No.57/2014) In the matter of: Atlas Equifin Pvt Ltd, F-7, Laxmi Mills, Shakti Mills Lane Off Dr. E Moses, Road Mahalaxmi, Mumbai 400011 Appellant

Vs

Jackie Kakubhai Shroff and others Respondent For Appellant:Mr Navin Pahwa, Sr. Advocate with Mr. Yashwardhan, Ms Kritika Nagpal, Mr. Gyanendra Shukla and Mr. Premav Das, Advocates. For Respondent:Mr. Rahul Chitnis, Mr. Hersh Desai and Ms Shwetal Shepal, Advocates for R1. Mr. Vashu Gupta and Mr. Chiranjivi Sharma, Advocates for R2 and R7.

JUDGEMENT

JUSTICE YOGESH KHANNA, MEMBER (JUDICIAL)

The present appeal has been filed under Section 421 of the Companies

Act, 2013 against an impugned order dated 10.02.2023 passed by the

National Company Law Tribunal, Mumbai Bench in Transfer Company

Petition No.57/2014.

2. It is the submission of the learned counsel for the appellant that the

impugned order simply records the pleadings of the parties but gives no 2

finding on the issue of oppression and mismanagement, if any, caused. He

refers to the impugned order, more specifically to paras No. 30 and 31 as

under:-

"30. We have perused the records and heard the counsels in the matter at length. In the backdrop of the facts we are of the considered view that steps need to be taken to end the dispute so that a company will function smoothly.

31. In the interest of equity and justice we direct the company to purchase the shares of petitioner under Section 242(2)(b) of the Companies Act, 2013. Therefore, we appoint CA Sujal Shah, having office at 1st Floor, Arjun, Plot 6A, VP road, Andheri (W), Mumbai 400058, (Contact No.+919821167466) as a Valuer to determine value of shares upon which shares shall be purchased by the Company. The fees for this assignment will be Rs.3,50,000/- and other applicable taxes. The fees for valuer shall be paid by the Respondent No.1 company.

3. It is argued none of the acts complained of in the Company Petition

amounts to alleged acts of oppression and mismanagement but rather such

alleged acts give a flavour of commercial wisdom of the appellant. Various

judgements were cited to show there ought to be a finding of acts of oppression

and mismanagement prior to passing of an order under sub-section (2) of

Section 242 of the Companies Act, 2013.

4. The appellant relied upon Jaladhar Chakroborty and others Vs. Power

Tools and Appliances Co Ltd and other 1991 SCC OnLine Cal 300 wherein the

Court held:-

27. Regarding the first alleged act of oppression it is well established that non-declaration of dividend per se would riot be considered, oppression as such. In Lalita Rajya Lakshmi v.

Indian Motor Co. (Hazaribagh) Ltd., , it was held (at page 212) :

"It is then argued that the board of directors controlled by the managing agents has not been properly declaring dividends. In fact what is said in paragraph 21 of the 3

petition is that dividend which is much below the actual profit earned by the company has been declared. I fail to see how this is an act of oppression to any member or members within the meaning of Section 397 of the Companies Act. The board of directors has a discretion to declare dividend and the rate of such dividend. There is no company law that I know which obliges a board of directors to use up all its profits by declaring dividend. No company law lays down that all profits must be declared and exhausted in paying dividends. Surely, failure to do so could not be a ground for an application for oppression under Section 397 of the Companies Act. Besides, that will also not be a ground for winding up a company as indicated by Lord Blanesburgh in the observation quoted above in the Privy Council decision in Ripon Press and Sugar Mill Co. Ltd. v. Gopal Chetty [1932] 2 Comp Cas 70 (PC)."

5. Further in Maharani Lalita Rajya Lakshmi Vs Indian Motor Co

(Hazaribagh) Ltd & ors 1961 SCC OnLine Cal 179 the Court held:-

4. The main defect of this application is that the facts alleged are not proved. It is essential to remember that under section 397 of the Companies Act, the Court has to be satisfied that there ' is oppression. It has to be satisfied that the affairs of the company are being conducted in 3 manner oppresive to any member or members of the company. The acts of oppression, therefore, have not only to be alleged with sufficient particulars but they must be proved also to the satisfaction of the Court. It is also necessary to emphasise that the Court has to form an opinion on two essential points, that are set out in section 397(2) of the Act. These two points are first, the one that I have already stated, namely that the company's affairs are being conducted in a manner oppresive to any member or members of the company and, secondly, that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up. It is imperative that the Court's opinion on both these points must be formed in the affirmative before any order could be made under Section 397 of the Companies Act. If the Court is not satisfied on any one of these points and is of the opinion that either a company is not being conducted in a manner oppressive or that, the facts do not justify the making of a winding-up order, then no further question can arise under Section 397. It is also proper to emphasise that the power of the 4

Court to make such order, as it thinks fit, under Section 397(2) of the Act is expressly stamped with the purpose of "bringing to an end the matters complained of." Therefore, wide as the power of the Court is following from the word* of the expression "such order as it thinks fit," it is nevertheless controlled by the overall objective of this section which must be kept strictly in view that the order must be directed "to bringing to an end the matters complained of." The marginal note of Section 397 of the Companies Act shows also that the purpose of the order of the Court in this section is to give relief in cases of oppression."

6. Thus the crux of the argument of the appellant is before passing

impugned order an opinion ought to have been formed by the Court qua

alleged acts of oppression and mismanagement on the part of appellant. .

7. On the contrary, the learned counsel for the Respondent referred to

paras 21 and 23 of the impugned order as under:

21. Based, on the Company Petition, as it stands, the Petitioner submits that the Respondent Nos. 1, 3 and 9 (the majority shareholders) own 90% of the issued share capital of the Company and the Petitioner (the minority shareholder) owns the balance 10% of the issued share capital of the Company. Under Section 236(3) of the Companies Act, 2013, the minority shareholders can offer their shares to the majority shareholders to purchase the minority equity shareholding of the Company in accordance with such rules as may be prescribed. The Petitioner had already offered his shares to the majority shareholders at the market value of the shares computed on the basis of the net worth of the Company, with an increase of 10% per annum over the value of the shares, as on 31st March, 2021. However, neither have the majority shareholders accepted the offer made by the Petitioner.

22. The Petitioner submits that, under the provisions of Section 242(1) of the Companies Act, 2013, this Tribunal has the power to make such order as it thinks fit, to end the matters complained of in the Company Petition. Further, this Tribunal can direct the purchase of shares of the Petitioner by Respondent No. 3 (another member of the Company) under the provisions of Section 242(2) of the Companies Act, 2013.

5 8. The learned counsel for Respondent No. 1 further argued the

Respondent had made out a case under Section 242 of the Companies Act,

2013 ('the Act') viz. the Appellant's affairs were being conducted in a manner

prejudicial and oppressive to the minority shareholder and (b) to wind up the

Appellant would be unfairly prejudicial to the majority shareholders and

therefore the Tribunal has passed the Impugned order to bring to an end the

matters complained of. Further, the Appellant is a private limited company,

and Article 5 of the Articles of Association provides shares shall not be

transferred except to a person agreed to by all the Directors and at the price

fixed by the Directors (Page 146 of the Appeal).

9. Heard.

10. Under Section 242(2)(b) of the Act, the Tribunal has a power to direct

the purchase of shares of any member by the Company and per impugned

order the Tribunal has exercised such power.

11. Even assuming for the sake of argument the Respondent No. 1 has not

established the acts of 'oppression or mismanagement' yet the power exist

with the Tribunal to grant the relief as is complained of. In M.S.D.C.

Radharamanan vs. M.S.D. Chandrasekara Raja & Anr. [(2008) 6 SCC 750]

('Radharamanan's case'), the Court held as follows:

4. Respondent No.1 filed an application purported to be under Sections 397 and 398 of the Act alleging several acts of oppression on the part of appellant herein before the Company Law Board, Additional Principal Bench, Chennai. The said application was registered as C.P. No. 2 of 2004. By reason of an order dated 16th August, 2004, the Company Law Board while opining holding there was no act of mala fide or oppression on the part of the appellant, opined that there exists a deadlock 6

in the affairs of the company. It directed the appellant to purchase 2,84,000 shares held by the first respondent at a value to be determined by a chartered valuer.

5. An appeal was filed there against by the appellant before the High Court of Judicature at Madras under of Section 10F of the Act which was registered as C.M.A. No. 174 of 2004.

By reason of the impugned judgment dated 11th October, 2006 a Division Bench of the High Court dismissed the same opining that the Company Law Board could very well look into the justifiability of the situation and was, thus, right in arriving at its conclusion that there existed a deadlock situation. It was opined that in such a situation it would be impossible for both of them to pull on together as there was incompatibility between them. The High Court noticed that the appellant herein even intended to file a criminal complaint against his father, the first respondent for alleged mis- appropriation of a sum of Rs.8,15,000/-. A suit for partition, it was furthermore noticed, was pending. It was directed:

"77. However, if there is any dispute regarding the method of valuation of the shares and the ultimate valuation arrived at by the valuer, it is open for either parties to approach the Company Law Board for getting the valuation finalised. Thereupon, at the first instance, the second respondent shall purchase the shares of the petitioners, within six months from the date of finalisation of such valuation and on his failure to do so, the petitioner in C.P., shall purchase the shares of the second respondent, within six months thereafter. In the event of both the alternatives failing, the purchase of shares of either the petitioner or the second respondent could be transferred to third parties depending upon the exigency. The Company Law Board is at liberty to pass such further orders under Section 402 of the Companies Act, in commensurate with the views expressed by this court, for the smooth running of the company.

78. In view of the reasons given for deciding the aforesaid point this civil miscellaneous appeal is partly allowed by modifying the order passed by the Company Law Board. The submission made by learned Counsel for the petitioner is recorded as aforesaid."

6. Mr. C.A. Sundaram, learned Senior counsel appearing on behalf of the appellant, in support of the appeal, submitted : 7

1. The Company Law Board was not justified in issuing the impugned direction in purported exercise of its jurisdiction under Section 402 of the Act directing him to purchase the shares of the respondent despite arriving at a finding of fact that no act of oppression has been committed by the appellant.

2. The condition precedent for exercise of such power being oppression on the part of a Director of a company being not satisfied, the impugned judgment is wholly unsustainable.

3. The High Court committed a manifest error in passing the impugned judgment in reversing the findings of fact arrived at by the Company Law Board; although no appeal therefrom had been preferred by the first respondent so as to hold that the acts of omission and commission on the part of the appellant constituted such an oppression.

4. Both the High Court as also the Company Law Board committed a serious error in granting the relief in favour of the first respondent without taking into consideration that the grant of relief shall not only be in the interest of the company but also must have a direct nexus with the affairs of the company and conduct of its business.

5. In any view of the matter, having regard to the prayers made by the first respondent in his application before the Company Law Board, appointment of an Additional Director would have served the purpose.

6. As the appellant does not have the necessary fund to purchase the shares of the first respondent, he could not be forced to sell his shares.

7. Mr. K. Parasaran, learned Senior counsel, appearing for the respondents, on the other hand, would contend :-

1. Appellant did not raise any ground in the special leave petition that he is not in a position to purchase the shares of the Respondent No.1.

2. The company being a private limited company, which is in the nature of a quasi partnership concern, the Court should take a holistic view of the matter and so viewed the judgments of the Company Law Board as also the High Court are unassailable.

3. Appellant having not acceded to the proposal of respondent No.1 in regard to the appointment of the 8

Additional Director, it does not lie in the month to say that appointment of the Additional Director would serve the purpose.

4. The Company Law Board, in exercise of its jurisdiction under Sections 397 and 398 read with Section 402 of the Companies Act has the requisite jurisdiction to direct a share holder to sell his shares to the other, although no case for winding up of the company has been made out or no actual oppression on the part of the Director has been proved.

8. A shareholder of a company or a Director has several remedies under the Act. Section 433 of the Act envisages filing of an application for winding up thereof, inter alia, in a case where the Company Law Board may form an opinion that it is just and equitable that the company should be wound up.

12. Section 398 of the Act provides for filing of an application for the reliefs in cases of mismanagement.

Section 402 provides for the powers of the Company Law Board on an application made under Section 397 or 398 of the Act which includes the power to pass any order providing for the purchase of the shares or interests of any member of the company by other member (s) thereof or by the company.

15. When there are two Directors, non-cooperation by one of them would result in a stalemate and in that view of the mater the Company Law Board and the High Court have rightly exercised their jurisdiction.

22. In a case of this nature, where there are two shareholders and two Directors, any animosity between them not only would have come in the way of proper functioning of the company but it would also affect the smooth management of the affairs of the company. The parties admittedly are at logger heads. A suit is pending regarding title of the shares of the Company. A contention had been raised by the appellant before the Company Law Board that the 1st respondent having filed a wealth-tax return as Karta of Hindu Undivided Family, he not only has 50 % shares in the Company but also 50% shares in the H.U.F.; whereas the contention of the 1st respondent in that behalf is that the appellant had already taken his half share in the joint family property and the H.U.F. mentioned in the Wealth Tax Return pertains to the smaller H.U.F. which consists of himself and his daughters.

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1st respondent is about 80 years old. Because of his old age, he is not in a position to look after the affairs of the company. Even in the grounds of appeal before us, a contention has been raised that it was the 1st respondent, who is the oppressor. We have noticed hereinbefore that, rightly or wrongly, appellant also intended to file a criminal case against the 1st respondent alleging that he had misappropriated a huge amount as a Director of the company.

23. Before the Company Law Board, several grounds to establish a case of oppression had been made out :-

1) Non co-opting of a third Director on the Board ;

2) Non clearance of accumulated stocks ;

3) Surrender of the surplus power in favour of TNEB ;

4) Non issue of duplicate share certificates ;

5) Non redemption of preference shares ;

6) Non sanctioning of increment to the staff members ;

7) Dead lock in the affairs of the company.

24. In regard to the first ground, admittedly, A. Jayakumar, son- in-law of the 1st respondent being the brother-in-law of the appellant was nominated as a Director of the company. Appellant indisputably did not agree in that behalf. However, the first respondent left it to the discretion of the Company Law Board to appoint a third Director, but we are informed at the bar that even the same was objected to by the appellant.

12. In Radharamanan's case (paragraph 42), the Hon'ble Supreme Court

referred to Samgramsinh P. Gaekwad vs. Shantadevi P. Gaekwad [(2005) 11

SCC 314], wherein the Hon'ble Supreme Court held in a given case the court

despite holding that no case of oppression has been made out may grant such

relief so as to do substantial justice between parties.

13. Further in Tata Consultancy Services Ltd. v Cyrus Investments Pvt. Ltd.

and Ors. [2021 (9) SCC 449] ('Mistry's Case'), the Court observed in para 291 10

that as we have pointed out elsewhere a divorce without acrimony is what is

encouraged both in England and in India under the statutory regime.

14. Further in Vidhya Achu Roy v Suraj Mani Engineers Pvt. Ltd. and Ors.

[2021 SCC Online NCLAT 793], para 26 records despite a case of oppression

and mismanagement not being successfully established by the Appellant, in an

act to provide succor to the Appellant, the NCLT, Bengaluru's has provided her

relief..."

15. Though the appellant has contended the Impugned Judgement does

not give reasons for passing the order but a perusal of the Impugned

Judgement would reveal the submissions of both the parties and the case

law(s) cited by them were considered by the Ld. NCLT and only thereafter the

impugned order was passed under Section 242(2)(b) of the Act.

16. Though in order to press argument that prior establishment of

oppression and mismanagement needs to be made, the appellant had relied

upon (i) Upper India Steel Manufacturing & Engineering Co. Ltd. & Ors. v.

Gurlal Singh Grewal & Ors. [2017 SCC Online NCLAT 339], (ii) BSE Ltd. v.

M/s Ricoh Company Ltd. & Ors. [2017 SCC Online NCLAT 12] and (iii)

Jaladhar Chakraborty & Ors. v Power Tools & Appliances Co. Ltd. [(1994)

Comp Cas 505], however, none of the judgments relied upon by the Appellant,

apply to the facts of the present case as (i) does not consider Radharamanan's

Case. Also, that in case (i) this Tribunal has recorded that no case of

'Oppression and Mismanagement' was made out whereas no such finding is

recorded by the Tribunal in the present case. In Case (ii) the judgment was

passed at an interim stage, whereas the Impugned Judgment is a final 11

judgment. In Case (iii) is a judgment passed by the Hon'ble Calcutta High

Court before the law was laid down by the Hon'ble Supreme Court in

Radharamanan's Case and Mistry's Case.

17. Moreso admittedly at prior occasion too the erstwhile directors have

sold their shares and hence the company has a precedent. Equally so when

the Respondent No.1 does not wish to remain in the company and bear

grievances which has led to filing of this company petition then in such a

situation, to reject his prayer would only cause damage to the company and

thus to avoid bitterness` amongst the directors, the Ld. NCLT had decided to

end the deadlock by giving directions appealed against. Admittedly the

respondent cannot sell his shares in open market, it being a private company

and not a listed one, hence the path chosen by the Ld. NCLT to end

controversy amongst directors/shareholders is not prejudicial to anyone and

would rather be helpful for smooth running of the company.

18. Thus we find no illegality in the impugned order and accordingly appeal

is dismissed.

19. Pending applications, if any, are also disposed of.

(Justice Yogesh Khanna) Member (Judicial)

(Mr. Ajai Das Mehrotra) Memkber (Technical) Dated:19-9-2024.

BM