Removal Of Promoter-Director In Quasi-Partnership Company Can Amount To Oppression: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal (NCLT) on 11 September held that removal of a promoter-director from a company having the character of a quasi-partnership can amount to oppression where it defeats the promoter's legitimate expectation of continued representation on the Board.

A Bench comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar allowed a petition originally filed by late Ronny George against Professional Couriers Private Limited and its promoters, challenging his removal from the Board. It observed:

“…Ordinarily, the directorial disputes do not constitute act of oppression, however, it is held that these disputes may merit consideration in case the company is in nature of a quasi-partnership entity...”

George was one of the original promoters of the company and had remained on its Board since its incorporation in 1987 until his removal in 2017. During the pendency of the proceedings, George died, following which his legal heirs filed a restoration petition.

The legal heirs contended that the company was founded on the understanding that each of the original promoters would participate in its management and have representation on the Board.

The Tribunal relied on the Supreme Court's decision in Hind Overseas v. Raghunath Prasad Jhunjhunwala [(1976) 3 SCC 259] and examined an agreement entered into between the parties in 1999. It found that the company had the character of a quasi-partnership.

It also found that the extraordinary general meeting convened to remove George as director was invalid for want of a proper explanatory statement under Section 102 of the Companies Act, 2013.

Further, the Bench held that George's removal deprived him of his legitimate expectation of representation and participation in the management of the company.

It also took note of the fact that the son of another promoter had been inducted as a director following that promoter's death. The 1999 agreement contemplated succession in relation to the businesses operated by the promoters.

Accordingly, the NCLT directed that a representative of George's faction be appointed as a director of the company.