Ms. Vidhya Achu Roy vs M/S Suraj Mani Engineers Private ...

Ms. Vidhya Achu Roy, Wife of Suraj Mani, No.1163, 16th Floor, Casa Serenita, Sobha City, Hegde Nagar, Bangalore-560077. ... Appellant

Versus

1. M/s. Suraj Mani Engineers Private Limited, Registered office at Red Bro Arcade, Sy. No. 509/2, Opp. Essay Petroleum, Horamavu, Kalkere Main Road, Bangalore-560077. ... Respondent No. 1

2. Mr. Suraj Mani, Son of K Mani, No. 2503, Sattva Gold Summit, Kothanur, Hennur Begalur Main Road, Bangalore-560077. ... Respondent No. 2

3. Mr. Srivadas Sankarankutty Kannancherry, 73, SLS Spencers, Near Horamavu Lake, Hormavu Agra Road, Bangalore-560043. ... Respondent No. 3

4. M/s. Suraj Mani Eco-Air Private Limited, Registered office at Red Bro Arcade, Sy. No. 509/2, Opp. Essay Petroleum,

Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 1 of 19 Horamavu, Kalkere Main Road, Bangalore-560077. ... Respondent No. 4

5. Mr. Karunakaran Nambiar, No. 36, Saraswathi Nilayam, Naidu Layout, Kuvempunagar, Jalahalli East, Bangalore-560077. ... Respondent No. 5

Present

For Appellant: Ms. Prabha Swami, Mr. Nikhil Swami, Advocates.

For Respondent: Mr. Goutham Shivshankar and Mr. A. Murali Ms. Aishwarya, Advocates for R-1 to R-5.

Judgment (Date: 25.6.2021)

{Per: Dr. Alok Srivastava, Member (T)}

This appeal has been filed by Appellant Vidhya Achu Roy,

who is aggrieved by the order of the National Company Law

Tribunal Bengaluru dated 1stAugust 2019 in the petition filed

under Sections 241, 242 and 243 of the Companies Act, 2013.

2. The brief facts of the case are that Respondent No.

1CompanyM/s. Suraj Mani Engineers, was incorporated under the

provisions of Companies Act, 1956 on 13.12.2005. This company

carries on business in the field of heating, ventilation and air

conditioning. The Appellant holds 5000 equity shares of Rs.10 each

constituting 50% of the shares of the company. The rest 50% Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 2 of 19 shares of the company are owned by Suraj Mani (Respondent No.

2), who is married to the Appellant. Suraj Mani and his friends

were shareholders in a company called M/s Ambient Systems Pvt.

Ltd., which had its registered office in Kerala, and was engaged in

the business of taking work contracts for installation of air

conditioners. The Appellant and Respondent No. 2 were married in

the year 2000. As part of investment, Respondent No. 2 and other

shareholders of M/s. Ambient Systems Pvt. Ltd. invested Rs.

1,50,000 as working capital in that company. The Appellant claims

to have infused Rs.1,50,000 on behalf of Respondent No.2 in the

said company. Later, Respondent No. 2 took over the Bengaluru

branch of M/s Ambient Systems Pvt. Ltd. and the business of this

company was split. Out of this split Respondent No. 2 received

Rs.15 Lakhs towards his share.

3. Thereafter, Appellant and Respondent No. 2incorporated

Respondent No. 1company in Bangalore, each with 50%

shareholding, and became Directors of Respondent No. 1company.

The Appellant and Respondent No. 2worked towards development

of Respondent No. 1company, and it is claimed by the Appellant

that she used to receive a remuneration of Rs.63,500 per month

and Respondent No. 2receivedremuneration of Rs. 2 Lakhs per

month. Respondent No. 2 has claimed that he provided all the Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 3 of 19 technical expertise in this company.

4. Later some marital dispute arose between the Appellant and

RespondentNo. 2. Around the same time, Respondent No. 3, who is

an acquaintance of Respondent No. 2,was appointed as a Director

in Respondent No. 1Company. The Appellant claims to have been

involved in the day-to-day functioning of the company and

managing the affairs of the company, particularly during the

absence of Respondent No. 2 from the company's headquarters. It

is alleged by Appellant that after personal differences arose

between Appellant and the Respondent No. 2, he started dealing

with the company Suraj Mani Engineers as if it were his

proprietorship firm and failed to involve Appellant in various

decisions of the company even though she was a Director. It is also

alleged by Appellant that Respondent No. 2 started surreptitiously

planning to take over control of Respondent No. 1Company, and

Respondent No. 2 used the profits earned by the company for his

own personal gain and deprive the Appellant of her rights in the

company.

5. Further, it is alleged by Appellant that Respondent No. 2

started another company (arrayed as Respondent No. 4) to basically

divert the business of Respondent No. 1Company to this new Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 4 of 19 company. According to the Appellant, the new company started by

Respondent No. 2 along with Respondent No. 3 and Respondent

No. 5 is called M/s Suraj Mani Eco-Air Pvt. Ltd. She has alleged

that this Company was started with the aim to divert business from

Respondent No. 1Companyand reduce its market share and value

of its shares, thereby causing harm to the value of shares of the

Appellant. She has also alleged that Respondent No. 2, Respondent

No. 3 and Respondent No. 5 have acted in secrecy and only after

she raised the issue of the starting of the new company

surreptitiously did they come out in the open about Respondent

No. 4 company.

6. According to the Appellant, Respondent No. 2 and

Respondent No. 3 would keep the affairs of management of

Respondent No. 1 company secret from her and never made

available to the Appellant the financial records of the Respondent

No. 1Company for review despite her requests. She has stated that

in the board meeting held on 29.3.2018 her objections made in the

meeting were not considered for inclusion in the minutes of this

meeting. According to her, it was decided in this meeting to give to

Respondent No. 2 an amount of Rs. 1.20 Crore and Respondent No.

3 an amount of Rs. 60 Lakhs as incentive. These actions, according

to her, are highly discriminatory and meant to harm her position in Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 5 of 19 Respondent No. 1 Company, which amounts to her oppression and

mismanagement of the company. She has also alleged that she was

not paid her due salary from March 2018 and therefore she had to

approach the National Company Law Tribunal, Bengaluru for

redressal of her grievances. This petition has been dismissed by

NCLT and hence she has come in appeal.

7. We have carefully gone through the appeal memo, the replies

of the respondents and the rejoinder of the Appellant thereon. We

have also considered the written submissions of all the parties and

heard and carefully considered detailed oral arguments of their Ld.

Counsels.

8. In the written submission and oral arguments advanced by

Ld. Counsel of the Appellant, it has been claimed that the

Appellant was a founder-director of Respondent No.

1Companyholding 50% shares in it. According to her, she has

invested her own funds in the company and has worked for

company's growth and worked during absence of Respondent No. 2

for the benefit of the company. After marital problems arose

between her and Respondent No. 2, which are being separately

contested, Appellant states that Respondent No. 2 started raising

problems to create difficulties for her and make her position in the Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 6 of 19 Respondent No. 1Company untenable.

9. The Ld. Counsel for Appellant has argued that a new

company Respondent No. 4 was started by Respondent No. 2 along

with Respondent No. 3 and Respondent No. 5 who were made

shareholders of the new company, in order to divert business from

Respondent No. 1 Company and make it a dummy company to the

detriment of the Appellant. The Learned Counsel for Appellant has

also claimed that Respondent No. 2 used to transfer funds from the

Respondent No. 1 company Suraj Mani Engineers into his private

account without any authorization, and he alongwith Respondent

No. 3, have been passing resolutions in the board meetings without

giving proper reasons or supporting documents to the Appellant or

reporting her valid objections in the minutes of Board meetings.

The Ld. Counsel for Appellant has further argued that she was

never given access to full accounts of the Respondent No. 1

Company and was only given selected documents so that she is

unable to know the correct picture, which is an evidence of

oppression by the Respondent No. 2 of the Appellant. She has

further claimed that variable pay was approved to Respondent No.1

company's employees in board meeting dated 19.3.2019 and when

Appellant asked for a list of employees and their variable salaries,

she was not given these records. The Appellant has clarified that Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 7 of 19 she had only opposed variable salary to Respondent No. 2 and

Respondent No. 3 and not to all the employees, and she was not

interested in interfering in day-to-day affairs of the company.

10. The Ld. Counsel of Appellant has further argued that in the

board meeting dated 10.6.2019, the authorized share capital of

Respondent No. 1 company was raised from Rs. 1 lakh to Rs. 5

crore and 1 lakh, which was done to reduce the percentage of the

shareholding of Appellant so that it would then become

insignificant. She has also claimed that on 20.3.2020, Respondent

No. 2 and Respondent No. 3 received variable salary to the tune of

Rs.2.4 crores and there have been also some other payouts

amounting to Rs. 4 crores, which were approved by the board.

Such payouts show that there is no problem of liquidity in the

company and hence, there is no reason why the authorized share

capital of the Respondent No. 1 company should be raised for

taking care of its expanding business activities. She has contended

that the increase in authorized share capital is a ploy to reduce her

shareholding from 50% to less than 1% which amounts to her

oppression and mismanagement by Respondent No. 2.

11. The Ld. Counsel for Appellant has provided the following

citations in support of her case:

Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 8 of 19

(i) Dale and Carrington Invt. (P) Ltd. v. P.K. Prathapan

and Ors. [2005(1) SCC 212].

(ii) M.S.D.C. Radharamanan Vs. M.S.D. Chandrasekara

Raja and Anr [2008 (6) SCC 750].

(iii) Ms. Heena Dutt v. Chavi Designs Pvt. Ltd. &Anr, [2008

(141) Comp Cas 172 (CLB)].

12. What appears from Judgment of Hon'ble Supreme Court in

Dale and Carrington Invt. (P) Ltd. v. P.K. Prathapan and

Ors.(supra) is that acts of Directors of a company are required to be

tested on a much finer scale in order to rule out misuse of power

for personal gains or ulterior motives and proper legal procedures

should be followed in allotment of additional shares to Managing

Director. In the present case no shares were allotted to any

shareholder to the disadvantage of the Appellant and against the

company's interest. The proposal for increasing the authorized

share capital of the company was carried out in accordance with

the proper legal procedure, and that too after the pronouncement

of order by the Adjudicating Authority, and no particular

shareholder was treated unfairly in this process.

13. In M.S.D.C. Radharamanan Vs. M.S.D. Chandrasekara

Raja and Anr, Hon'ble Supreme Court held that the interest of all Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 9 of 19 the shareholders should be taken into consideration, and not that

of the applicant only. It was also held that if there are two

directors in the company and bitterness in personal relationship is

affecting the affairs of the company, even if no case of oppression is

made out, the court is not powerless to do justice to the parties. In

the present case, the NCLT has ordered for providing the appellant

with a residence, monthly salary, use of a car and certain other

perquisites in view of the position and benefits she used to enjoy in

the company. Hence NCLT's order follows the essence of Hon'ble

Apex Court's dictum in M.S.D.C. Radharamanan case.

14. The Appellant has also cited the case of Ms. Heena Dutt v.

Chavi Designs Pvt. Ltd. &Anr, wherein the Company Law Board

held that personal disharmony and acrimonious relationship

between the directors resulted in deadlock of the company, and

oppression of the applicant who was the moving force behind the

company Chavi Designs. As opposed to this, the situation in the

present case is that the appellant has not shown that she was the

moving force behind the company Suraj Mani Engineers and there

has been any deadlock in running the company. In fact, the

company has shown good results over a period of time and the

management of the company has not been adversely affected due to

strain of personal relations of Appellant and Respondent No. 2.

Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 10 of 19 This is evidenced by the variable salaries granted to 85 employees

of the company on account of its good performance.

15. The Appellant has at no place been able to show how various

commercial decisions taken in board meetings of the company

Respondent No.1 company were devoid of commercial wisdom and

detrimental to her position as a shareholder of the company

affecting the financial health of the company. All that she has been

able to show is her demand for certain earlier benefits which she

was seeking to preserve.

16. The Ld. Counsel representing Respondent No. 2 and other

Respondents has argued that Respondent No. 2 is the founder and

driving force behind the Respondent No. 1 Company Suraj Mani

Engineers Pvt. Ltd., which bears his name. Respondent No. 2,

Suraj Mani is a mechanical engineer with over two decades of

experience in the area of business of Respondent No. 1Company.

The Ld. Counsel has stated that in 2005, when Respondent No. 2

started Suraj Mani Engineers Pvt. Ltd., the Appellant was on a

"break" and had stopped working(Page 25 of Appeal). Therefore, she

was made a Director with 50% shareholding in the company. The

Learned Counsel for Respondents has also stated that the

Appellant's role in the company has been of a sleeping partner and Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 11 of 19 she has neither made any financial contribution nor put in any

managerial effort towards the growth of the company.

17. The Ld. Counsel for Respondents has further claimed that

the Respondent No. 1 Company has consistently performed quite

well, as is evident from the accolades received from its customers

(Annexure R-9, R-10 in the Counter Affidavit of Respondent No. 2)

and has seen an increase in its revenue and turnover over the

years. While no case was made out regarding oppression and

mismanagement against Respondent No. 2 before the NCLT

Bengaluru, the NCLT had, on compassionate ground, ordered that

Appellant be provided residence and basic emoluments for her

maintenance and living. In compliance the Respondent No.

1Company has provided her a 3BHK residence and monthly salary

of Rs.75,000, a car and other perquisites.

18. The Ld. Counsel for Respondents has further claimed that

the only intention of the Appellant, through this litigation, is to

ensure that the benefits that were available to her earlier are

preserved without her contributing in any manner to the

company's growth and development. As evidence of her conduct,

the Ld. Counsel for Respondents has shown that the applications

filed before NCLT, Bengaluru and representations made by the Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 12 of 19 Appellant including that for interim relief before NCLT, Bengaluru

were basically about the various benefits that she was getting, and

which she wanted to preserve, and has nothing to do with the

management of the company and its growth. Her aim, according to

the Respondents, has been to continue to occupy the flat that was

made available to the Managing Director of Respondent No.

1Company and ensure payment of credit card bills by the

Respondent No. 1 Company. It is stated that these benefits are of

personal nature and have nothing to do with the well-being of the

company.

19. Finally, the Ld. Counsel for Respondents has urged for

dismissing the appeal because the Appellant has not been able to

make out a case of oppression and mismanagement, and insofar as

some basic remuneration and the place for residence is concerned,

it has already been provided by the Respondent No. 1 Company on

the basis of the order of NCLT, Bengaluru.

20. The Appellant's allegation that Suraj Mani (Respondent No.

2) incorporated a new company (Respondent No. 4) and did not

disclose to her that Respondent No. 2, Respondent No. 3 and

Respondent No. 5 were shareholders in the new company, thereby

contributing to mismanagement of Respondent No. 1 Company Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 13 of 19 does not appear to be well founded. Her allegation, that this new

company was incorporated to divert the business of Respondent

No. 1 Company in order to reduce the profits of Respondent no. 1

Company and thereby decreasing the share of profits that would

accrue to the Appellant, is also not borne by facts. In fact, the

argument of Respondent No. 2's Ld. Counsel that while a new

company was incorporated, no new business was diverted from

Respondent No. 1 Company to Respondent No. 4 Company and

even now, Respondent No. 4 Company does not have any

significant business is plausible and strikes at the base of

Appellant's allegation. The Appellant's Learned Counsel has not

given any facts or evidence about diversion of any business from

Respondent No.1 Company to Respondent No. 4 Company.

Therefore, we are not convinced by the argument of the Appellant

that the new company (Respondent No. 4) was incorporated to

divert business from Respondent No. 1 Company which was a move

to oppress her.

21. Another instance of mismanagement and oppression cited by

the Ld. Counsel for Appellant that Respondent No. 2 relates to

transfer of money from Respondent No. 1 Company's account into

his private account (attached at pages no. 122 to 125 of the appeal

paper book). Respondent No. 2 has clarified that the credit of Rs.

Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 14 of 19 80 lakhs in his account is the bonus that was given to him which

he could not receive earlier due to some liquidity issue. The Ld.

Counsel for Respondents has claimed that the Appellant was aware

of the same and had therefore approved and signed the accounts

for the year 2016-17. Therefore, we do not find any substance in

the allegation of the Appellant that Respondent No. 2 used to

routinely transfer funds from the company's account to his private

account as no other instance of any unauthorized transfer of

money has been alleged.

22. The allegation of Appellant regarding approval of certain

resolutions in board meetings without providing proper reasons

and documents to the Appellant has also been examined by us. The

Appellant has in support cited that she had requested for

information regarding the variable salary given to 85 employees,

which was an issue discussed in the board meeting dated

19.03.2019. We find that the minutes of the board meeting very

clearly state that the variable salary given to the employees is on

account of the good work being done by them. In the same way, we

find that variable salary was granted to Respondent No. 2 and

Respondent No. 3 for their contribution to the growth of company's

business and in accordance with the Articles of Association a

through proper resolutions taken in the board meeting. Merely Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 15 of 19 objecting to such a resolution in the board meeting and the

objection being overruled by majority does not amount to any

oppression or mismanagement as the variable salary was given to

the employees and Respondents No. 2 and 3 on account of their

contribution to the business of the company. Furthermore, the

allegation that Respondents No. 2 and 3 gave themselves variable

salary pay through a resolution in the board meeting dated

20.3.2020 is not sustainable as this action was taken much after

the impugned order was passed and was not a subject matter of

the original petition. Still we have looked into the same and do not

find substance in it.

23. The Appellant has alleged that in board meeting on

10.06.2019, it was resolved to increase the authorized share capital

of Respondent No. 1 company from Rs. 1,00,000 to Rs.

5,01,00,000. In reply, the Respondents have said that this was

merely a proposal. The impugned order was passed on

1.8.2019and this proposal was approved in the EGM of Respondent

No. 1 Company on 3.8.2019 i.e. two days after the Impugned Order

was pronounced. Mainly because Authorized Share Capital after

following procedure is increased, the act cannot be branded as

oppression.

Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 16 of 19

24. We have noted that Respondent No. 1 Company has

performed consistently well and there has been an increase in

revenue and turnover of the company over the years (as shown by

table at page 5 of the Respondent No. 2's counter affidavit. This

point has been mentioned in NCLT's impugned order dated August

1, 2019 (page 67 of the appeal) and not disputed by the Appellant.

The reference made by the Respondents to the applications filed

and representations made by the Appellant including those for

interim relief sought before NCLT, mainly requesting for a residence

to be provided to the Appellant and also for payment of credit card

bills of the Appellant go to show the personal nature of allegations

calling the same oppression of the Appellant and mismanagement

of company's affairs. In the circumstances of the case, we are of

the opinion that the provision of residence and basic remuneration

and perquisites, as ordered by the NCLT is a reasonable relief

granted to the Appellant.

25. The Respondents have cited the judgment of Hon'ble

Supreme Court in the case Needle Industries India Limited

versus Needle industries, Lewey (India) Holding Limited [AIR

1981 SC 1298] wherein it was held that "a conduct which lacks in

probity, conduct which is unfair to and which causes prejudice to the

petitioner in the exercise of legal or proprietary rights as a Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 17 of 19 shareholder must be shown to exist." The Learned Counsel of the

Respondents has also cited the case law in Rao (VM) Vs Rajeswari

Ramkrishnan [1987, 61, COMPCAS 20 (at page 66)] wherein it

was held that "the oppression complained must affect a person in

his capacity as a member of the company; harsh or unfair treatment

in any other capacity, example as director or creditor is outside the

purview of this section." The judgments in both these casesmean

that the conduct of respondent should be prejudicial to the

petitioner in the exercise of her legal and proprietary rights as a

shareholder. In the instant case the Appellant has not been able to

prove through her claims and allegations that her rights as a

shareholder have been treated harshly or unfairly, and therefore

her case of her oppression and mismanagement of the affairs of the

company is unfounded.

26. We find that the matters and issues shown by the Appellant

as instances of oppression and mismanagement have been suitably

and cogently replied to and clarified by the Respondents. The

Impugned Order has recorded the position of the Respondents as

well as the Appellant on each of the cited issues in a very fair and

clear manner. 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 Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 18 of 19 provided her relief by passing an order giving her a monthly pay as

well as benefit of a three BHK flat, a car, and certain other

perquisites, which has been complied by the Respondents.

27. We, therefore, do not find any ground for interfering with the

impugned order of NCLT Bengaluru. The appeal being devoid of

any substance is disallowed. Interim Application, if any, stands

disposed off.

28. There is no order as to costs.

(Justice A I S Cheema) The Officiating Chairperson

(Dr. Alok Srivastava) Member(Technical) New Delhi 25th June, 2021

/aks/

Company Appeal (AT) No. 272 of 2019 & I.A. NO. 1715 of 2020

Page 19 of 19