NCLAT Chennai: Shareholders Cannot Take Decisions For The Company’s Business Or Hold Negotiations With Parties

The National Company Law Appellate Tribunal (‘NCLAT’), Chennai Bench comprising of Justice M. Venugopal (Judicial Member) and Shreesha Merla (Technical Member) has dismissed an appeal filed by Jitendra Virmani (Appellant) against Mro-Tek Realty Limited (‘Company’). The appeal was filed against the order 27.11.2019 passed by the National Company Law Tribunal (‘NCLT’) Bangalore. The Appellate Tribunal held that the Board of Directors has the onus to take decisions for the Company’s business or negotiations with the parties concerned and not the shareholders of the company. Facts: Proceedings were initiated by the Appellant who was the Chairman and Founder of the Embassy Group against Mro-Tek Realty Limited (‘Company’) on the grounds of oppression and mismanagement challenging a real estate development undertaken by the Company. Multiple proceedings were initiated by the Appellant before the Civil Courts in Bengaluru. The Appellant withdrew an oppression and mismanagement petition and initiated another proceeding for oppression and mismanagement against the Company, which was dismissed by the NCLT Bangalore. The said order of NCLT Bangalore dated 27.11.2019 was in appeal before the NCLAT Chennai. Contentions of the Parties: The Appellant argued that no material information was made available to the shareholders with respect to the Joint Venture and with whom the Joint Venture was proposed. It further alleged that no commercial or monetary terms were disclosed. The Company contended that the determinations in respect of commercial details proposed to be entered into by the Company including the details of the contracting party, essentially, relate to the Business of the Company and these are all matters of negotiations between the Board of Directors of the Company, and third parties, concerning sensitive information. NCLAT Verdict: The Appellate Tribunal observed the shareholders cannot take a call or any decision in the matter in respect of the Business of the Company and it is for the Board of Directors of the Company, to have talks/negotiations with parties concerned. Further, NCLAT pointed out that in any event, the ‘Postal Ballot Notice’ and the enclosed ‘Explanatory statement’, are fulfilling the requirements of Section 102 of the Companies Act, 2013 which provides for the ‘Statement to be annexed to Notice’ concerning each item of special business to be transacted at a general meeting. Moreover, the non-disclosure of the contents of the Postal Ballot Notice, cannot be termed as an irregularity or any legal infirmity. It also noted that 91.13% of the shareholders being present and voted for had realized the requirement for entering into development in regard to the Company’s property with a view to enabling the recurring cash flow, finally took an informed decision which culminated, in passing a Resolution benefiting the Company and all its ‘majority’ and ‘minority’ shareholders. Case Title: Jitendra Virmani vs. MRO – Tek Reality Limited Case No.: Company Appeal (AT) No.363/2019 Counsel for Appellant: Dr. U.K. Chaudhary, Senior Advocate Mr. Manisha Chaudhary, Advocate Mr. Mansumyer Singh, Advocate Mr. Manisha Sharma, Advocate Mr. Shravan Chandrashekhar, Advocate Counsel for Respondent: Mr. P.H. Arvindh Pandian, Senior Advocate For Mr. Pawan Jhabakh, Advocate, For R1, R11, R13 & R15 Ms. Parina Lalla, Advocate, For R2 to R8 & R14 Click Here To Read/Download Order

NCLAT Chennai: Shareholders Cannot Take Decisions For The Company’s Business Or Hold Negotiations With Parties

Sachika Vij

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