National Company Law Appellate Tribunal
Ms. Vidhya Achu Roy vs M/S Suraj Mani Engineers Private ... on 25 June, 2021
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI
Company Appeal (AT) No. 272 of 2019
&
I.A. No. 1715 of 2020
(Arising out of Impugned Order dated 01.08.2019 passed by the
Adjudicating Authority/National Company Law Tribunal,
Bengaluru Bench, Bengaluru in CP(IB) No. 290/BB/2018)
IN THE MATTER OF:
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