NCLAT Dismisses Former Stone Age Director's Appeal Over Removal, Refuses New Arguments At Appellate Stage

The National Company Law Appellate Tribunal (NCLAT) in Delhi has dismissed an appeal by a former Stone Age Pvt Ltd director, holding that it cannot act as a court of first instance to decide her argument that her removal from directorship was illegal because the company's Articles of Association did not require a whole-time director to seek reappointment.

“Qua the argument the Article of Association of Respondent No.1 nor the provisions of Companies Act, 1956 contemplate any requirement for a director to offer herself or himself for reappointment and, therefore, the removal of the appellant from the directorship was illegal has been raised for the first time before us and was neither urged or argued before Ld. NCLT and this Tribunal in Appellate jurisdiction cannot sit as the Court of first instance to adjudicate the issues beyond the impugned order..”, the court observed.

The bench of Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra also upheld the finding that the former director's challenge to her 2012 removal from directorship and the 2013 dilution of her shareholding were barred by limitation.

The appeal arose from an order of the Jaipur bench of the National Company Law Tribunal, which had held that the challenge to her removal from directorship and the 2013 share dilution was filed too late, while separately granting relief against the 2017 dilution by restoring her shareholding to 17% and directing a valuation exercise for a buyout.

The appellant was appointed as a director in 1994 and became a full-time director in 2007. Over time, she came to hold a 31% stake in the company.

Following matrimonial disputes with her husband Sanjeev Agarwal, she alleged that she was removed from directorship in 2012 without notice and that her shareholding was diluted through allotments made in 2013 and 2017, reducing her stake to 9.92%.

In 2018, she approached the NCLT under Sections 241 and 242 of the Companies Act, alleging oppression and mismanagement and seeking restoration of her directorship and shareholding.

Before the appellate tribunal, she for the first time argued that Article 110 of the company's Articles of Association exempted whole-time directors from retirement by rotation, meaning there was no requirement for her to seek reappointment and her removal was unlawful.

She also argued that the share allotments were oppressive, lacked genuine business justification, and formed part of a continuing cause of action, meaning limitation should not apply.

She further challenged the valuation exercise and the exclusion of Orvi Design Studio from the valuation process.

The respondents argued that she had known about her removal since at least January 2013, relying on her own legal notice challenging the move, and contended that she had slept over her rights before filing the company petition in 2018.

They also argued that she had actively pursued matrimonial litigation since 2015 and could not claim ignorance of the company's affairs, alleging that the company proceedings were being used as a conduit to secure maximum alimony.

On valuation, the respondents argued that Orvi Design Studio was rightly excluded because it was acquired after the valuation date fixed by the NCLT.

The appellate tribunal agreed that the 2018 challenge to events from 2012 and 2013 was time-barred, noting that her own legal notice established that she was aware of the relevant events.

“In the present case the appellant was very well aware of the facts since the year 2013, as is demonstrated by his own legal notice dated 05.01.2013.”, it observed.

The tribunal also noted that she had been residing in the United Kingdom since 2005 and had remained absent from board meetings for years, attracting consequences under the Companies Act, 1956 relating to vacation of office by directors.

On valuation, the tribunal upheld the NCLT's direction appointing an independent registered valuer and held that Orvi Design Studio was correctly excluded because it was acquired later.

“Despite the Ld. NCLT granting, inter alia, the Appellant two opportunities to make submissions before the registered valuer and before the Ld. NCLT, she chose not to avail any opportunity and on the contrary, had challenged the valuation before this Tribunal. The appellant has not made any substantive ground for deserving a relief with respect to the issue of valuation and the grounds raised are generic in nature.”

The appeal was therefore dismissed.