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NCLT held that majorities decision is questionable if cannons of law are violated

NCLT ruling : V. Suresh Babu vs. Svakrm Laboratories Pvt.

NCLT Hyderabad Bench had dismissed V. Suresh Babu (Petitioner) petition as he had approached the Tribunal with unclean hand. Moreover, the Petitioner had also failed to show any acts of oppression and mismanagement on the part of the Svakrm Laboratories Pvt (Respondent company). NCLT held that majorities action can questionable if there is violation of cannons of law but filing petition/ application before NCLT for the decision taken in the normal circumstances by the majority for in the best interest of the company is not justifiable.

In the present case, V. Suresh Babu (Petitioner) had filed company petition u/s 111, 397 and 398 along with Sec. 402 and 403 of the Companies Act, 1956. Petitioner was the Director and signatory to the Memorandum of Association (MOA) of Svakrm Laboratories Pvt. (Respondent company). Petitioner at the time of filing the present petition held 25% of shares.

Petitioner alleged that Shri A.Mohan Krishna (‘ Respondent 2’) and Shri G. Venkateswara Rao (‘Respondent 3’) had illegally altered MOA and increased authorized capital based the EGM without serving notice to Petitioner. Petitioner further alleged that Respondents had mismanaged bank accounts of the company and allotted the shares to themselves with malafide intention. Petitioner further claimed that Respondent 2 had served the notice about the Board meeting which was attended by the Petitioner thereafter another notice was issued for calling for EGM along with a special notice u/s 284 (2) wherein it was proposed to increase the authorized capital and to remove petitioner from the office of Board of Directors with malafide intention in order to dilute the shareholding of the petitioner to a miniscule fraction (less than1%).

Petitioner alleged that u/s 284 his removal was unsustainable and contended that there was a justified reason to wound up the company u/s 433 however it would unfairly prejudice the interest of the Petitioner and Company in general hence Petitioner prayed to pass appropriate order to put end to the act of oppression and mismanagement.

NCLT held that Petition was maintainable as Petitioner held 25% of the share capital at the time of filing the Company petition and it was subsequently reduced to less than 1% due to non- accepting of the further shares offered by the Company. Hence, Petitioner had fulfilled all ingredients of Sec. 399 to file a Petition u/s 397/398 .

NCLT further observed various correspondence made between Petitioner and Respondent on the allegation of non- sending notices to the petitioner and held that all the communication especially about increasing of shares were sent to the Petitioner by the speed post. But, Petitioner had always raised one objection or other for the contributing shares. NCLT further highlighted that it was mentioned in the MOU that he was supposed to contribute funds to Company in proportionate to his shareholding. Moreover, as per the record Petitioner was given the opportunity to contribute additional shares, on par with other existing shareholders. Thus, NCLT held that Petitioner cannot question Company’s decision in allotting shares to other as he did not accept the offer made by the Company.

NCLT further noted that Petitioner had participated in the Board Meeting where the decision to enhance capital and Petitioner’s removal as the Director was decided. Hence NCLT held that,” as per the law, a director/ shareholder of a Company is entitled to prior notice but one cannot question, in normal circumstances, merits of such decision unless such decision taken violating all cannons of law”. 

NCLT observed that Petitioner had participated in the Respondent Company’s affair and was given reasonable opportunity. However, Petitioner had to invest in the Company along with others, as and when needed finance. NCLT held that Petitioner was not interested in the welfare of the Company and wanted to raise frivolous litigation raising one ground or other. NCLT further stated that Petitioner had not contributed anything to the Company after filing the present petition except filed various application on baseless and untenable grounds.

NCLT held that Petitioner had failed to substantiate the allegation of oppression and mismanagement and had challenged the decision of the majority, which was taken in the best interest of the Company. The Petitioner was entitled to reasonable opportunity and he could not dictate the terms to the company, especially in the case where major policy decisions like enhancement of capital, allotment of shares etc.

NCLT held that ” Petitioner came to the Tribunal not only with unclean hands and also failed to show any acts of oppression and mismanagement on the part of the respondent company. ”

Accordingly, NCLT dismissed Petitioners petition.


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