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NCLAT clarifies that Director functions cannot be considered as individual’s cost & profit centre, set aside NCLT order

Giju Mathai vs. Rojer Mathew P

NCLAT clarifies that Director functions cannot be considered as an individual cost and profit centre.  Directors actions are the matters that comes within the domain of the company’s management and cannot be a subject to oppression and mismanagement.

In Giju Mathai vs. Rojer Mathew P (Company Appeal (AT) No.276 of 2017), Mr. Giju Mathai had (Appellant) filed an appeal against the order passed by NCLT Chennai in which Appellant was removed from the Directorship of the P.T. Mathai Construction Company Private Ltd. (2nd Respondent Company) thereafter appointed Mr. Rojer Mathew P (1st Respondent) as Director-cum-Managing Director. Further NCLT directed appellant to pay Rs.16.48 Crores with Bank interest. In the present case, 1st respondent had prayed before NCLT for supersession of the Board of Directors of 2nd respondent Company and for appointment of an Administrator/Receiver to conduct and manage the affairs and also to protect the assets and properties of the respondent company and any action of the Bank. In addition, Respondent 1 mentioned that Respondent Company had availed overdraft facilities and for this purpose the security of Directors’ immovable properties were provided to Bank. The accounts with the Bank were operated by the different directors and any deposits or withdrawals from the said accounts were duly accounted in the books of account of respondent company.

After observing that there was no deadlock situation in the affairs in the respondent company NCLT directed 1st respondent to work together.Meanwhile, 1st Respondent floated a new company namely Roger Mathew & Co and started bidding against the interest of 2nd respondent company. Hence, NCLAT agreed with NCLT’s order held that,

“ NCLAT would not be comfortable with 1st  respondent looking after the affairs of the respondent company while also looking after the affairs of his own company  which is in a competing business. NCLAT is unable to think about any mechanism by which it would ensure that 1st respondent who has now been appointed as Managing Director that he will not take care of his own company in the competing business unless he closes his business. Therefore, NCLAT is unable to uphold the NCLT’s order in appointing as Managing Director (he was already director and continues to be).”

In reference where NCLT had directed appellant to pay Rs.16.48 Crores with Bank interest, NCLAT held that NCLT wrongly concluded that each Director functions as an individual cost and profit centre.  In addition, held that Director functions are within the domain of the Management of the company and cannot be normally considered as a subject matter of oppression and mismanagement mentioned by NCLT.

NCLAT further observed that Respondent company had earned immense profit till March 31, 2014 and the profit was put in the company account. Hence, if any loss has been occurred due to non-completion of any projects it should be also borne by the company and not an individual.  The company should have made a thorough investigation that the loss has been occurred due to inactiveness/negligence of the appellant.  Thereafter the company should have also convened a Board Meeting to analysis the difficulty in non-completion of projects. Hence one person cannot be held responsible for the same.  The company is liable to the Bank.  The Board of Directors of the company should have investigated and have settled the matter internally.  Hence, NCLAT held that the interference in the matter by the NCLT is unwarranted and not justified.

Accordingly, NCLAT set aside NCLT order and allows the appeal.

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