Careless Conduct By Directors Not Enough To Establish Oppression, Mismanagement: NCLT Mumbai

The National Company Law Tribunal at Mumbai has held that mere unwise, inadequate or careless conduct by company directors cannot constitute oppression and mismanagement under Sections 241-242 of the Companies Act, 2013.

A petitioner must establish conduct lacking probity or fairness that causes prejudice to his legal or proprietary rights as a shareholder.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar dismissed a petition filed by Parashram V. Kshatriya against Madhushree Paper Mills Pvt Ltd and its directors, holding that the allegations did not establish the statutory ingredients of oppression or mismanagement.

"Unwise, insufficient, or careless conduct of the Director cannot give rise to a claim under Section 241-242 of the Companies Act, 2013. What is required for filing the Company Petition under Section 241-242 of the Companies Act, 2013 is conduct that lacks probity, is unfair and causes prejudice to the Petitioner in respect of his Legal or proprietary right as a Shareholder.", the Tribunal observed.

The company was incorporated in 1987 by Kshatriya, his brother Balram V. Kshatriya and their father, who initially held 50 shares each. Following their father's death on December 21, 1997, the company's records reflected 160 shares each in the names of Parashram and Balram and 201 shares in the name of their brother Mahendra V. Kshatriya from FY 2000-01.

Parashram alleged unauthorised transmission of shares and non recognition of 170 additional shares allegedly allotted to him in 2007. He filed the company petition in 2022.

The Tribunal observed that Parashram had alleged misuse of his Digital Signature Certificate but failed to explain how it was used, who had used it or how the alleged unauthorised use occurred.

Since the statutory filings bore his digital signature, the presumption under Section 86(2) of the Bharatiya Sakshya Adhiniyam, 2023, remained unrebutted. The challenge to the share transmission after 22 years also lacked bona fides.

"Therefore, unless the contrary is proved by the Petitioner, the presumption that the Subscriber signed the documents digitally cannot be rebutted. Therefore, making a grievance of transmission of Shares in favour of the Respondent No. 3 after lapse of 22 Years lacks bona fides."

The Tribunal noted that Parashram had not satisfactorily explained why he failed to challenge the alleged non recording of the 170 shares earlier, despite remaining associated with the company and participating in its affairs for several years.

It further held that the proposed allotment contemplated shares for Parashram as well as the other respondents to equalise their shareholding. In the absence of documentary evidence establishing the 2007 transaction and actual prejudice to his rights, the allegation could not independently constitute oppression or mismanagement.

The petition was accordingly dismissed.

For the Petitioner: Advocates Shyam Kapadia, Ad. Shashwat Rai, Mrinali Dave, Aakruti Jayendran

For the Respondents: Advocates Shubham D. Jadhav, Prashant P.