The NCLAT, Principal Bench, New Delhi expounded that ‘Oppression' may take different forms and need not necessarily be for obtaining pecuniary benefit. It may be due to a desire to obtain power and control, or be merely vindictive. In this background, the decision of the Tribunal cannot be faulted with.

Having said that, it was also held that act of “oppression and mismanagement” should be pre-judicial to a member of the company and not against the director of the board. Technically and legally speaking the appointment and removal of directors cannot be treated as act of “oppression and mismanagement”.

Brief Facts:

The present appeal has been filed against the order of the NCLT under Section 241 and 242 of the Companies Act, 2013.

Brief Background:

Corporate Debtor is involved in the business of Chemical Solvents and Specialty chemicals products which are hazardous in nature. The entire shareholding is held by the family of two brothers and the shareholding is divided in ratio of 50%-50% between two families.

It was alleged that Respondent No.1 was indulged in anti company activities and in such background, the three Respondents filed Company Petition before the Tribunal for alleged acts of oppression and mismanagement committed by the Appellants herein without any substantial reasons.

Contentions of the Appellants:

It was contended that pre-existing family disputes has been wrongly and falsely termed as “oppression of mismanagement”.

Further, there is no legal provisions that the equal representation in Board of Director should be given to shareholders.

It was argued that representation for shareholder in the BoD cannot be a ground for “oppression and mismanagement”.

Contentions of the Respondent:

It was argued that order of the Tribunal rightly restored the position on equal footing between the Appellant family and the Respondents family.

 Observations of the Tribunal:

The Tribunal observed that for oppression and mismanagement; the application can be made by the member of the company i.e., as a shareholder not as a director of the BOD. The affair of the company has been or are being conducted in a pre-judicial manner which are oppressive to such members of the company or against the interest of the company. Such oppression and mismanagement have not been defined exhaustively and it is for the Tribunal to look into the given facts.  It was ruled that the material changes being done by the Corporate Debtor against the interest or any member of the creditor or debenture holder or any class of shareholder by way of taking place in the management or control of the company including by way of alteration in the BoD or ownership of the company shareholders, etc., shall be deemed to be activities covered under “oppression and mismanagement”.

Regarding the definition of oppression, it was opined that inter-se disputes between the directors may not be sustainable justification for invoking Section 241 & 242 of the Companies Act, 2013.

In the present matter, the main issue was whether appointment or non appointment of the Director on board can be cause of “oppression and mismanagement”.

The Bench held that the act of “oppression and mismanagement” should be pre-judicial to a member of the company and not against the director of the board. Technically and legally speaking the appointment and removal of directors cannot be treated as act of “oppression and mismanagement”.

Regarding non-distribution of dividends, it was held that occasionally the company may choose not to give the dividends and to keep profits as retained earning which is being reflected as reserves and surplus. This non declaration of dividend were per-se cannot be a ground for to be an oppressive act.

Regarding quasi-partnership, the Tribunal noted that only being of family controlled companies cannot be a ground to treat these as quasi-partnership and the intent and understanding, whether explicit or implicit, or by acts or by deeds, of the concerned parties would be and should be the relevant factors.

However, certain acts of Appellant such as inducting his own family at the cost of the Respondents who are equal shareholders, were held to be clear signs of oppression.

Regarding, casting vote which was a creation of articles of association, it was noted that the chairman is not obligated to use his casting vote always and in all circumstances. The chairman is however expected to act in good faith while using his casting vote and the casting vote cannot be used to over come a decision taken by majority. In the present case, since there was no majority, being both the group holding 50:50 shareholders, as such it can be presumed that if the casting vote used by the chairman can tantamount if used not in good faith particularly if used only for creating imbalance in the board composition or enhancement of his own remuneration, which precisely happened in the present case.

The NCLT took decision to remove the casting vote as it created company imbalance.

The decision of the Tribunal:

Based on the findings above, the Tribunal’s order was upheld and accordingly, appeal was dismissed.

Case Title: Venus Petrochemicals (Bombay). Pvt. Ltd. & Ors. V. Sunil M. Thakkar & Ors.

Case No.: Comp. App. (AT) No. 65 of 2022

Coram: Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha, Mr. Indevar Pandey (Technical Members)

Advocates for Appellants: Advs. Mr. Bishwajit Dubey, Ms. Mallika Joshi & Mr. Shivam Wadhwa

Advocates for Respondent: Advs. Mr. Sanjeev Puri, Mr. Gaurav H Sethi, Mr. Deeptanshu Chandra & Mr. Rahul Pawar, Mr. Hemant Sethi, Mr. Gaurav H Sethi, Mr. Deeptanshu Chandra & Mr. Rahul Pawar

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