R. Jeyapaal vs Arjuna Engineering Pvt. Ltd

(Arising out of the order dated 11.09.2017 passed by the Hon'ble NCLT, Chennai Bench at Chennai in TCP No. 127/2016 (No. 72 of 2013)

IN THE MATTER OF:

R. Jeyapaal ...Appellant S/o Ramadas Venkadasamy No. 36, Ragavendra Garden Behind Andavar College, Thirvanaikoil PO, Trichy- 620005

Vs

1. Arjuna Engineering Pvt. Ltd. ....Respondents 1st Floor, Door No., 66B, River View Enclave IPS Colony, Manapakkam, Chennai-600125

2. Shin Hyun Seong 1st Floor, Door No., 66B, River View Enclave IPS Colony, Manapakkam, Chennai-600125

3. Park Kyung Sun 1st Floor, Door No., 66B, River View Enclave IPS Colony, Manapakkam, Chennai-600125

Present: For Appellants: Mr. K. Parmeshwaran, Mr. S Sathya Narayanan and Mr. P.P. Vikram, Advocates. For Respondents: Mr. Robin R David, Mr. P. Arularasu, Mr. Febin M Varghese and Mr. Dhiraj Philip, Advocates.

JUDGEMENT

A.I.S. CHEEMA, J. :

The Appellant/Original Petitioner has filed this appeal against the orders

passed by the National Company Law Tribunal, Division Bench, Chennai

Company Appeal (AT) No. 372 of 2017 2

(NCLT in brief), in TCP No. 127/16 (72/13). Company Petition was filed by the

Appellant making grievance of Oppression and Mismanagement on the part of

Respondent Nos. 2 and 3 in Company Respondent No. 1 (Hereafter, also

referred as "Company"). By the Impugned Judgement/order the NCLT has

found that between the Appellant and Respondent Nos. 2 and 3 (hereafter, also

referred as "Respondents") there is a deadlock and thus directed that

Chartered Valuer should determine the value of the Company and Respondent

No. 2 Majority Shareholder will have a first option to buy the shareholding of

the Appellant and in case he fails to exercise the option the Appellant will have

the option to purchase the shares of Respondent No. 2. If both are not willing

to purchase the shares of each other the Company would require to be wound

up.

2. We have heard counsel for both sides in this appeal and gone through

the record. To avoid repetition, it would be appropriate to juxtapose the

pleadings of the parties, mainly, as were put up before the NCLT as we feel that

brief reference to the pleadings itself will narrow down the dispute and give

bird's eye view of the grievances of the Appellant regarding Oppression and

Management.

3. Copy of the Company Petition is Annexure P2 (Page No. 76). The counter

filed by Respondents in NCLT is at Annexure P3 (Page No. 86). The rejoinder

filed by the Appellant in NCLT is at Annexure P4(Page No. 98), and the sur-

rejoinder filed by the Respondents is at Annexure P5(Page No. 108).

Company Appeal (AT) No. 372 of 2017 3

4. The Appellant claimed in the petition that the Respondent No. 1

Company was incorporated on 22.07.2009 as Private Limited by shares. One of

the objects shown is to carry on business of electrical/ mechanical/ civil

engineering works. The Petition refers to the authorized share capital as well as

issued subscribed and paid up share capital. Appellant claims that he is the

Owner Director holding 20,000 equity shares which is 40 per cent of the paid

up capital. The Respondent No. 2 holds the remaining 60 per cent of the shares

and Respondent No. 2 is Managing Director. According to the Appellant the

subscribers to the memorandum of association of the Company were the

Appellant and his wife Kamla. Respondent No. 2 was subsequently appointed

Managing Director on 09.08.2009. Mrs. Kamla resigned from the post of

Director on 16.03.2010 and on same date present Respondent No. 3 came to be

appointed as Director. The Appellant and 2nd Respondent are the only

shareholders of the Company holding 40 per cent and 60 per cent share capital

respectively.

Regarding above facts, looking to the pleadings of parties it does not

appear that there is dispute.

5. Now reference needs to be made to the allegations of Oppression and

Mismanagement made by the Appellant in the pleadings and the defences

raised by Respondents in pleadings.

The grievances raised are-

A. Company Petition in Para 6.4 makes grievance that after the

initial phase, Respondent Nos. 2 and 3 started inducting their close associates

Company Appeal (AT) No. 372 of 2017 4

as employees in Company without consulting the Appellant and that he was

kept away from the proceedings of the Company and notices of the meetings

were not sent to him.

Respondents in their counter denied this claiming that Appellant had full

knowledge about the appointments and the appointment of one Mr. Park Hyun

Seong was suggested by Appellant himself which is clear from letter sent to Mr.

Park due to which Mr. Park had got VISA. Respondents claim that the staff

appointed was as per recommendations of the Appellant. According to

Respondents the notice of every meeting was duly served on the Appellant.

B. The Appellant claimed in Para 6.5 of the Petition that Respondent

Nos. 2 and 3 were plundering and siphoning the funds of the Company and

transferred huge amount, approximately Rs. 88 lakhs to one M/s. Samana

Engineering & Construction Pvt. Ltd.(in short Samana Engineering), without

reasons from the Company's bank account in IDBI. The Petition gives a chart

giving details of the amounts transferred from the Bank Account to Samana

Engineering which shows transfers made between 18.10.2012 till 21.06.2013

totalling Rs. 88 lakhs.

In defence Respondents claimed in their counter Para 5 ( Page 88) that it

was not true that they were plundering and siphoning the funds of the

Company and had transferred huge amounts to Samana Engineering. It is

stated that transferring to Samana Engineering was true but plundering or

siphoning of funds is not true. According to them the transactions were done

by crossed cheques and RTGS and it was simple lending/borrowing between

Company Appeal (AT) No. 372 of 2017 5

two companies for financial requirements and then the same amount was paid

back later. Respondents accepted that the Appellant was removed from the

signatory of banking transactions. They claim that this was because he was

going against the interest of Company and the he also wanted to stay away

from the affairs. They claim that Samana Engineering had executed Promissory

Notes and all the amount had been returned back to the Respondent No. 1

Company through banking channels.

In reply in Appeal (Diary No. 3002) Para 9 Respondents state that Rs.

93,00,000/- " was advanced as simple loan" by Respondent No. 1 Company to

Samana Engineering and it has been returned by Samana Engineering.

C. In Para 6.6 of the Company Petition Appellant further claims that

Samana Engineering was incorporated with similar objects like Respondent

No.1 by close associates of the Respondents and this was clear from the

memorandum and articles of association of the said Company. In Para 6.7

Appellant claims that Respondent No. 3 had been appointed as Director of

Samana Engineering on 26.09.2012 but this was not disclosed to the

Respondent No. 1 Company. In Para 6.8 Appellant claimed that the

Respondents siphoned funds of Respondent No. 1 Company by incorporating

and running the business of companies floated by them and customer

database, etc. of Respondent No. 1 Company had been poached. He also

claimed that Company facilities of the Respondent No. 1 Company had been

used for the competing business, without authority.

Company Appeal (AT) No. 372 of 2017 6

In defence without specifically denying that Samana Engineering had

similar objects as that of Respondent No.1, Respondents claimed in the counter

that incorporation and functioning of Samana Engineering had nothing to do

with the Respondents and that the Directors of the said Company were not

related to Respondent No. 1 Company (Para 6 of counter/ page 88).

Respondents claimed (in Para 7) that Respondent No. 3 was not Director of

Samana Engineering and the Respondents are not connected with that

Company. It was also claimed (in Para 8) that Respondents never utilized or

siphoned the funds of Respondent No. 1 Company or used its database for the

said Samana Engineering.

The Appellant in his rejoinder in NCLT claimed that the Managing

Director of Samana Engineering is close relative of the 3rd Respondent, who is

the wife of 2nd Respondent. He claimed that a Company can give loans and

invest funds of the Company only by passing Resolution at the meeting of

Board of Directors. He however had no notice of any such decision being taken.

He claimed that the Respondents diverted the funds of the Company to

Samana Engineering and it was clear misuse of the fiduciary position. The

Appellant referred in his rejoinder the Annexure-4 of the counter filed by

Respondents to claim that the bulk of the money diverted was returned only on

11.11.2013 and 03.12.2013. He claimed that Samana Engineering ought to

have paid interest at the rate of 12 %. Appellant pleaded in the rejoinder (Page

No. 104) that the passport copies which had been submitted in the counter and

MCA database (which he annexed) show unmistakable similarity in the father's

Company Appeal (AT) No. 372 of 2017 7

name and permanent address of both the 3rd Respondent and the Managing

Director of Samana Engineering. Thus he claimed that the Respondents could

not claim that there was no connection between them and Samana

Engineering.

Faced with such pleadings and documents pointed out by the Appellant,

the Respondents in sur-rejoinder, Para 6 (B) accepted:-

"b. The III Respondent and the Managing Director of the said

M/s Samana Engineering and Construction P Limited are

siblings but (added) they have their own independent right for

their economic activities as individuals. They have their

separate families and business."

D. According to the Appellant (CP-Para 6.9) although the Company

was doing well Respondent No. 2 being Managing Director proposed shrinking

of costs by reducing the salary/remuneration of the Directors and Employees.

He claimed that his salary was substantially reduced. It was done in bad faith.

In defence Respondents in counter claimed (Para 9) that there was

overall downturn of the economy and reduction in salary of Director was

unavoidable as there was dullness in the income of the Company and so the

Directors were asked to cut short their expenditures and reduce the salary.

They claimed that salaries of the employees however were not reduced and

there was no bad faith. They claimed that even their own salaries were cut

alongwith the Appellant to reduce financial burden and Appellant was informed

about this on 27.03.2013. In April, the salary of the Appellant was reduced

Company Appeal (AT) No. 372 of 2017 8

more compared to March, 2013 as he came to office for 5 days only. They

claimed that if there is no difference among Directors, it is not fair for the

Directors to serve the whole month.

In rejoinder the Appellant claimed referring to the Income Tax Returns he

annexed at Annexure 5 of the rejoinder that the Income Tax Returns of 2009-

10, 2010-11 and 2011-12 consistently showed profits as mentioned in the

rejoinder and thus the Company was going to such strong position and there

was in balance in the funds on March 27, 2013 as stated in the letter which

was sent to him (in Appeal copy of the letter is at page No. 73/ diary No. 4876).

E. The Appellant claimed (CP Para 6.10) that as per the policy of the

Company, the Company was to bear cost on residential accommodation of the

Directors. According to him although the Company paid rent of the residential

accommodation of the Respondents the rent of the residence occupied by the

Appellant was not paid for 8 months and he was put to agonizing situation

with the landlord giving warnings to vacate the house.

In defence the Respondents claimed (counter Para 10) that the house

occupied by the Appellant was vacated as per his intention and instruction,

even before notice of termination of Rental Agreement. They claimed that their

action had concurrence of the Appellant to terminate the Rental Agreement.

The contractual party to the Tenancy Agreement was the Company. Before

expiry of the term the Appellant and the landlord agreed to extend the contract

for two months and he paid the rent himself and vacated in mid August.

Company Appeal (AT) No. 372 of 2017 9

According to Respondents the Company did not receive full amount of security

deposit due to physical damage caused to the house.

F. The Appellant (in Para 6.11 of the CP) claimed that the

Respondent Company had number of vehicles purchased for business which

are registered in the name of the Appellant in accordance with the policy of

Financing Company. He filled details of those vehicles with the Petition.

According to him one of the vehicles was confiscated by the Tamil Nadu Police

for transporting contraband articles leading to FIR No. 334/13. According to

him he was afraid of the prosecution as the vehicles were registered in his

name and that there was an attempt to tarnish his image.

In defence Respondents claimed (counter Para 11) that some of the

vehicles had been purchased by the Company in the name of the Appellant as

he was having Indian citizenship, as per the policy of the Company. With

reference to FIR No. 334/13 Respondents admitted that the alleged vehicle

Toyota Innova is purchased by the Company which was the real owner but the

vehicle was purchased in the name of the Appellant. According to them it

would be the Company which would face criminal prosecution on behalf of the

Appellant. The counter then refers to some details before the Judicial

Magistrate relating to release of the vehicle. According to the Respondents

Appellant need not fear about his reputation as he can simply transfer the

ownership to the Company.

6. The parties went before the learned NCLT with such pleadings. The

learned NCLT after hearing the parties did not find substance in the

Company Appeal (AT) No. 372 of 2017 10

contentions raised by the Appellant except making the observation that the

Appellant and Respondents have traded allegations and only fact which was

substantiated by the Appellant is that after the salary cut for the Directors, the

salary of R-2 and R-3 were restored to previous level, where as the salary of the

Appellant was not revised after the cut in salary. The NCLT then observed that

keeping in view the various allegations there was acrimony and to protect the

interest of the Company and stake holders it is necessary to resolve the

deadlock. It went on to pass the orders as mentioned earlier.

7. Before us the learned counsel for the Appellant submitted that the

pleadings make it clear that the Respondents lent huge amounts to Samana

Engineering, which were unsecured loans. According to the counsel in the

Company there are only 2 shareholders which is the Appellant and Respondent

No. 2 and there are only 3 Directors which is the Appellant and Respondents 2

and 3. According to the counsel although in pleadings Respondents initially

denied but later accepted that the Director of Samana Engineering was sibling

of Respondent No. 3. He submitted there is nothing to show that any

Resolution was passed for lending such huge amounts as unsecured loan that

too without interest. The learned NCLT did not discuss any of these factors and

without finding Oppression and Mismanagement directed determination of the

value of the shares and sale of the same. It has been argued that the NCLT did

not consider that although the salary of the Appellant as Director was cut on

the basis that there was downturn of the economy but still the Company went

on giving huge amounts as loan. It is argued that this was clearly siphoning of

Company Appeal (AT) No. 372 of 2017 11

funds to a Company in which Respondents 2 and 3 had interest. Respondents

2 and 3 are couple and the Director of Samana Engineering was brother of

Respondent No. 3. Thus according to the counsel NCLT should have held that

the Respondents were guilty of Oppression and Mismanagement. The counsel

submitted that although there were only 2 shareholders, the Appellant was

removed as Joint Signatory in the Bank Accounts to keep the Appellant away

from the transactions of the Bank although he is 40 per cent shareholder.

8. Against this the learned counsel for the Respondents submitted that the

reply filed by these Respondents in this appeal shows that the money had

started coming back from the Company Samana Engineering between July,

2013 to December, 2013 and the Company Petition was filed in September,

2013 and so it is not that because Company Petition was filed the money was

recovered back. The learned counsel supported the reasons recorded by the

NCLT in the Impugned Order. It is argued that for strategic purposes of

business connection with Samana Engineering the amount was given as loan

to Samana Engineering. It is argued that because of downturn in economy the

salary of Directors was required to be cut and in concerned month of March

the Appellant had worked only 5 days and thus the acts of Respondents were

justified.

9. We have heard counsel for both sides and perused the record. We will

take up the grievances made by the Appellant one by one. As regards grievance

made by the Appellant regarding inducting of close associates as employees,

Company Appeal (AT) No. 372 of 2017 12

referred in Para 5 A supra, we do not find that there is much substance. There

are no specific particulars. The grievance relates to internal working of a

Company and looking to the pleadings and reasons recorded by NCLT on this

count, we do not feel that we need to interfere.

10. As regards the allegations made (Para 5 A) supra by the Appellant that he

was not given notice of every meeting, the same is vague and without making

specific references, the point cannot be deliberated upon.

11. The next grievance made by the Appellant is serious and the pleadings

referred to by us in above Para 5 (B & C) makes it clear that in Samana

Engineering the Director "Chang Kyu Park" was brother of the Respondent

No.3. The Appellant has filed with Application I.A. 598/18 (Diary No. 4876)

copies of documents which were part of NCLT record. He referred to copies of

the MCA database relating to Respondent No.1 Company (Annexure A-56) and

the database of Samana Engineering at Pages 146 and 147 with Diary No.

4876. Counsel for Respondents has not questioned the correctness of these

documents. It is argued that these documents show the residential address of

Respondent No. 3 and "Chang Kyu Park" the Director of Samana Engineering

to be same. The Respondents in initial pleading tried to avoid accepting but in

sur-rejoinder had to concede that the Director of Samana Engineering was

sibling of Respondent No. 3.

12. Now, after the document of MCA database as filed by the Appellant at

Annexure A-56 (Diary No. 4876) is perused, Chang Kyu Park became Director

Company Appeal (AT) No. 372 of 2017 13

of Samana Engineering and Construction Private Limited on 28.09.2012.

Keeping this in view, if the chart filed by the Appellant in Company Petition

Para 6.5 is seen, it can be appreciated that the Respondents started extending

loans to Samana Engineering from 18.10.2012. This is not mere a co-

incidence. The fact that amounts were lent between 18.10.2012 right up to

21.06.2013 is not in dispute. Thus soon after sibling of Respondent no. 3

became Director of Samana Engineering Respondents started giving huge loans

to that company. Reasons are obvious.

The counsel for Respondents argued that for business connections with

Samana Engineering for strategic purpose the amount was lent. He tried to

show that Arjuna Engineering (Respondent No. 1) is Electrical Company while

Samana Engineering is Civil Contractor. He was however unable to answer a

question we had asked at the time of arguments that- Did Samana Engineering

given any business to Arjuna Engineering? The counsel said that he will have

to check but he did not revert back. The learned counsel for the Appellant

rightly submitted that such diversion of huge funds of the Respondent No.1

Company by the Respondents 2 and 3 suppressing the fact that Director of

Samana Engineering was their relative amounts to failure of Fiduciary duty

and should have been treated as Oppression of the Appellant minority

shareholder and Mismanagement of the funds of the Company. The learned

counsel for the Appellant referred to Section 292 of the Companies Act 1956

(old Act in brief) and submitted that under the said Section as per sub Section

1(e) the power to make loans can be exercised by the Directors only by means

Company Appeal (AT) No. 372 of 2017 14

of Resolutions passed at meetings of the Board. Sub Section 4 of Section 292 of

the old Act reads as under:-

"(4) Every Resolution delegating the power referred to in clause (e)

of sub-section (1) shall specify the total amount up to which loans

may be made by the delegate, the purposes for which the loans may

be made, and the maximum amount of loans which may be made for

each such purpose in individual cases. "

In the present matter the Respondents have not shown us any

Resolution passed keeping Section 292 in view permitting making of loans of

huge amounts to Samana Engineering. It is surprising that such big amounts

to the extent of 88 lakhs (and more) were made without interest and without

any security being taken.

13. The Respondents with their reply (Diary No. 3002) filed Annexure R-5

letter dated 27.03.2013 informing the Appellant that the business had been

quiet poor since last year due to overall downturn of the economy and because

of very limited project incoming and outgoing of fund imbalance was severe for

last several months. Giving such reasons the letter shows that the Respondent

No. 2 informed the Appellant that he was considering pay cut of the Directors.

There is no dispute that after issue of such letter, the pay of the Appellant was

cut. Initially it appears pay of other Directors was also reduced. Reference is

being made to this letter dated 27.03.2013 as the record itself shows that

although the Respondent Nos. 2 and 3 took such stand, they continued to

Company Appeal (AT) No. 372 of 2017 15

transfer funds to Samana Engineering. The chart in Company Petition Para 6.5

shows that after above letter dated 27.03.2013, on 08.06.2013 Rs. 15 lakhs; on

15.06.2013 Re 10 lakhs and on 21.06.2013 Rs. 25 lakhs were transferred to

Samana Engineering by what is called a simple loan. If the Company was not

doing well; was not giving dividends; resorting to salary-cut, there was no

justification on the part of Respondents for transferring such huge amounts to

another Company which is having similar business and from which no

commercial benefit is shown and in which Company one of the Directors is

close relative to these Respondents 2 and 3. Only because subsequently the

amounts have been returned by Samana Engineering does not make the illegal

acts legal.

14. The Respondents have with reply filed in Appeal (Diary No. 3002) filed

copy of minute (at Page 48) dated 15th June, 2013 to show that the Board of

Directors had decided that in Banking transaction the Appellant needs to be

replaced with Respondent No. 3. The Resolution shows that the Appellant had

opposed but the Respondents (a couple) did not agree with the Appellant and

the power of Appellant as Joint Signatory was taken away. The Appellant has

filed at Annexure A-32 and 33 with Application Diary No. 4876 the

communication which the Respondents sent to the Bank regarding change in

authorized signatory. The copy of the Resolution (Annexure A-32/Page

90/Diary No. 4876) shows that Respondents 2 and 3 were authorized to sign

cheques "severally". This makes it clear as to how the Respondents were earlier

able to transfer huge amounts to Samana Engineering from 18.10.2012

Company Appeal (AT) No. 372 of 2017 16

without letting Appellate know although his authority as a signatory in

Banking transaction was taken away on 15th June, 2013. In any case it is not

the defence of the Respondents that the Appellant was party to the

transactions of transferring money to Samana Engineering.

15. Thus we hold that the Respondents are guilty of Oppression of the

Appellant in removing the Appellant as signatory to the banking transactions

and diverting huge amounts of Respondent No. 1 Company to a Company in

which Respondents 2 and 3 were interested and the Respondents are guilty of

Mismanagement of the funds of the Company. The Respondents are also

responsible for the loss of interest on the amounts which were transferred to

Samana Engineering. There is no dispute regarding the fact that the Company

has not been paying dividends to the shareholders who are only two, that is,

the Appellant and the Respondent No. 2.

16. Coming to the other grievance of the Appellant as seen in above Para 5

D regarding reduction in salary, we have already discussed the letter which

was sent by the Respondent No. 2 that due to down turn in economy he was

effecting pay cut for the Directors from the month of March. We have already

discussed that although the Company was lending huge amounts, this excuse

was given of down turn of economy to cut salary of the Directors. At the time of

arguments there was no dispute regarding the fact that after some time the

salary of the Respondents 2 and 3 was restored but the same was not done as

regards the Appellant. Firstly we find that the excuse given in the letter dated

Company Appeal (AT) No. 372 of 2017 17

27.03.2013, on the basis of record is not true and secondly if the salary of

other Directors were being restored, there was no justification of not restoring

the same for the Appellant. There would have to be a Resolution to impose

such pay cut or to give deferential treatment to different Directors. Nothing to

this effect is brought to our attention. The learned NCLT although found that

the salary of the Respondents 2 and 3 was restored to previous level but that of

the Appellant was not revised, gave no relief to the Appellant. The Appellant

has with Application Diary No. 4876 filed copies of Income Tax Returns of the

Company for the years 2010-11, 2011-12 and 2012-13. It has also been

pleaded by the Appellant that the Income Tax Returns showed that the

Company was doing well. Looking to this and the reasons discussed earlier, it

is appearing from record that the Respondents resorted to reasons which were

false in order to impose the salary cut on the Appellant and which was not

justified and which act amounted to Oppression of minority shareholder

Director. It is necessary that the salary cut imposed by the Respondents on the

Appellant on 27.03.2013 is set aside and due and drawn should be worked out

and he should be paid all his dues as if there was no salary cut.

17. As regards the other grievance made by the Appellant that although the

Company was to pay the rent of the residential accommodation of all the

Directors but the rent of his accommodation was not paid and he was put in

agonizing situation. The defence of the Respondents in pleadings does show

that even on this count there is substance in what the Appellant is stating. The

Application of the Appellant (Diary No. 4876) shows Annexure A-26 (Page 84)

Company Appeal (AT) No. 372 of 2017 18

where the Respondent Company itself appears to have informed the landlord of

the Appellant that they were terminating the agreement of tenancy and that

they would vacate the Premises by 30.06.2013. The counter of Respondents

itself shows that the Appellant and landlord extended the contract by 2 months

and he paid the rent himself and vacated in mid August. Such conduct of the

Respondents, even if it was not to be calculated as Oppression by itself, it gains

weight due to the other conduct of the Respondents in their treatment to the

Appellant. Apart from this, there is other incident where FIR was registered

relating to contraband liquor having transported in one of the Company vehicle

which was admittedly registered in the name of Appellant. This can be seen

from the pleadings as referred in Para 5 F supra. Respondents cannot take

comfort by simply saying that the Appellant need not fear his reputation and

he can transfer his ownership of the vehicle to the Company because the

offence when it was registered, the vehicle stood on the name of the Appellant

and naturally he is concerned.

18. The acts of lending huge amounts and act of salary cutting on the basis

of false excuses, as discussed above independently constitute individual acts of

Oppression and Mismanagement. Other acts complained which are having

substance, (as discussed above) collectively with other acts also constitute acts

of Oppression of Appellant.

19. From the above, we find that the Respondents 2 and 3 are guilty of

Oppression of Appellant and Mismanagement of the Company. Winding up of

Company Appeal (AT) No. 372 of 2017 19

the Company would unfairly prejudice the Appellant as it appears that the

Company is doing well. It appears that Respondents 2 and 3 who happen to be

a couple (with Respondent 2 having 60 per cent shares) are joining together to

Oppress the Appellant who is the only other shareholder holding 40 per cent

shares in the Company. The Appellant although he is having minority

shareholding, still he is holding 40 per cent shares and is also Director of the

Company and when he is the only other shareholder, there is no reason why he

should not have legitimate expectation that in the financial matters he should

be kept involved. Respondents 2 and 3 only because of their 60 per cent

shareholding cannot debar the other shareholder from financial matters when

he is founder Director also. This is necessary also because the record shows

misuse of funds by the Respondents.

20. We pass the following order:-

Order

i. The appeal is allowed. The Impugned Order and Judgement

of the NCLT Chennai is quashed and set aside. For reasons

discussed above we hold the Respondents 2 and 3 guilty of

Oppression of Appellant and Mismanagement of the Company.

Respondents 2 and 3 are directed to desist from indulging in such

conduct.

ii. The NCLT is directed to appoint Chartered Accountant to

audit the accounts of the Company since 2010-11 till date and

Company Appeal (AT) No. 372 of 2017 20

interalia report regarding the loss of interest to the Respondent No.

1 Company due to Respondents advancing huge amounts to

Samana Engineering and Construction Private Limited. The

Chartered Accountant will fix responsibility for the loss and NCLT

may give further directions regarding the recovery of the loss from

Director/s found responsible from their personal accounts. NCLT

will also decide regarding fees of auditor which shall be paid from

Accounts of Respondent No. 1 Company.

iii. The pay cut imposed by the Respondents on the Appellant

vide letter dated 27.03.2013 is quashed and set aside. The

Appellant is entitled to the salary as was being paid, without such

cut. The difference shall be worked out by the Chartered

Accountant and Appellant would be entitled to the amounts from

Respondent No. 1 Company.

iv. NCLT is directed to nominate an independent Director to the

Company on remuneration/salary similar to other Directors.

Considering the Oppression and Mismanagement on the part of

Respondents 2 and 3 it is directed that in the Bank Accounts of

the Respondent No.1 Company, the Respondent No. 2 and

Appellant shall be Joint Signatories and the accounts shall be

liable to be operated jointly with immediate effect. In case of

deadlock in any transaction if Respondent No.2 or Appellant do not

Company Appeal (AT) No. 372 of 2017 21

agree on a transaction, independent Director will have a casting

vote and Joint Signatories shall be bound to act accordingly. The

independent Director will ensure that company follows provisions

of the Companies Act and Rules.

The above Appointment of independent Director will be

initially for a period of 2 years and thereafter NCLT may

consider need or otherwise of the continuation of the

independent Director.

v. The appeal is disposed accordingly. Respondents 2 and 3 shall

each pay costs of Rs. 50,000 from their personal accounts to the

Appellant as costs of this appeal.

vi. Parties to appear before NCLT Chennai on 13th August, 2018.

NCLT Chennai may pass any further and incidental directions/orders

necessary in the matter.

(Justice A.I.S. Cheema) Member (Judicial)

(Balvinder Singh) Member (Technical)

New Delhi 24th July, 2018

Sh/nn

Company Appeal (AT) No. 372 of 2017