Increasing Share Capital & Selling Co’s Land Without Informing Another Shareholder Fall Under Oppression & Mismanagement’s Ambit | NCLAT

Case Details: Rathna Textile Mills (P.) Ltd. v. V.R.A.R. Ramakrishnan - [2023] 153 taxmann.com 616 (NCLAT-Chennai)

Judiciary and Counsel Details

• • M. Venugopal, Judicial Member & Shreesha Merla, Technical Member
  • R. Vidhya Shankar, Advocate for the Appellant.
  • S.R. Rajagopal, Sr. Adv., Kartik Malhotra & S. Santanam Swaminadhan, Advs. for the Respondent.

Facts of the Case

In the instant case, the Respondent filed a petition under sections 397 and 398 of the Companies Act, 1956 challenging the allotment of 620 equity shares in favour of the appellant Nos. 2 to 6 and the appointment of appellant Nos. 2 and 6 as directors of a company.

It was alleged that the respondent and his late brother TSR held equal 400 shares each in the appellant company but the appellants without knowledge of the respondent increased share capital and allotted 620 shares to appellant Nos. 2 to 6, appointed them as directors of the company and also sold only asset of the company without special notice to respondent.

The Adjudicating Authority (NCLT) allowed the petition and set aside the impugned allotment of 620 shares made in favour of appellant Nos. 2 to 6 and also set aside proceedings of Board of Directors held on 18-3-1996 and subsequent declarations in Form No. 32 filed by the appellants on 1-12-2005.

NCLAT Held

The NCLAT held that the act of the appellants in selling the land of the company without informing the respondent; in ‘absence’ of a specific ‘Notice’ issued to the respondent, as per provisions of Law; and increasing ‘share capital’ in ‘board meeting’, in absence of petitioner/respondent who was only other Director; all fell within the ambit of ‘definition’ of ‘Oppression and Mismanagement’, as defined under sections 397 and 398 of Companies Act, 1956 and, therefore, there was no infirmity in the order of NCLT.

List of Cases Reviewed

• • Order of NCLT – Bengaluru in CP NO. 08/2008 (TP No. 10/2016) dated 11-10-2018. (para 29)

List of Cases Referred to

• • Ram Gopal Patwari v. Patwari Exports (P.) Ltd. [2010] 1 taxmann.com 127 (para 10)
  • Dr. Dileep Makhija v. Arun Mittal [2003] 47 SCL 241/[2004] 118 Comp Cas. 694 (Delhi) (para 10)
  • Shanti Prasad Jain v. Kalinga Tubes Ltd. AIR 1965 SC 1535 (para 11)
  • V.M. Rao v. Rajeswari Ramkrishnan [1987] 61 Comp. Cas 20 (Mad.) (para 11)
  • Union of India v. Cipla Ltd. [2017] 5 SCC 262 (para 13)
  • Ram Prakash Gupta v. Radhey Shyam Sharma [Manu/nn/0152/2023] (para 16)
  • Surinder Singh Bindra v. Hindustan Fasteners (P.) Ltd. AIR 1990 Delhi 32 (para 22).