Continuous Assessment

Name – Disha Karamchandani

Sem- VI

Subject – Company Law

Roll no- 1777

Question 1-

According to sub clause (a) of Section 241 (1) and an application can be made to tribunal whenever the affairs
of a company have been or are being conducted in a manner prejudicial to public interest or in a manner
oppressive to any member or members. Alternatively, an application can be made under sub-clause (b) on the
grounds that material change has taken place in the management or control of the company which is not in the
interest of any creditors, debenture holders or class of shareholders of the company. The change may be due to
an alteration in the Board of Directors, or manager, or in the ownership of the company’s shares, or if it has no
share capital, in its membership, or in any other manner whatsoever.

The application under clause (a) or (b) is required to be made in Form NCLT-1 and accompanied with
documents as mentioned in the National Company Law Tribunal Rules, 2016. A copy of the application is
required to be served on the company, other respondents and all such persons as the Tribunal may direct (Rule
81).

Section 244 of Companies Act states who can file an application against Oppression and Mismanagement. The
right is broadly divided between the company and entitlement to one member, to file on behalf of the other
members. In a company, the right may further be differentiated based upon the companies having a share capital
and companies not having a share capital. The share capital of the member complaining, may be calculated
based upon share capital’s number or its value. When it comes to number, it should be 100 or 1/10 of the total
members and when it comes to the value, it must be the members holding 1/10th of the share capital value. In
companies not having a share capital, 1/5th of the total members may apply. However, the Tribunal has been
vested with a discretionary power to waive all or any of the afore-mentioned requirements so as to enable the
members to apply. However, it is pertinent to note that a member whose calls or other sums due on their shares
have not been paid or a mere share warrant holder does not qualify to file an application on grounds of
oppression and mismanagement.

In Hindusthan Co-Operative vs Unknown, where a life insurance business of a company was acquired by Life
Insurance Corporation in 1956, the directors of the company, who had majority voting powers, refused to
distribute this amount among shareholders and passed a special resolution changing the objects of the company
and use compensation money for new objects, therefore the majority forced the minority shareholders to invest
money in different kind of business against their will. The Calcutta High Court held the act to be oppressive in
nature and against the best interest of the company and the minority shareholders.

Question -2
Section 149(6) of the Companies Act, 2013 defines independent director as under: An independent director in
relation to a company,means a director other than a managing director or a whole-time director or a nominee
director.

Section 149(4) requires every listed public company to have at one-third of the least total number of directors as
independent directors and Central Governmentmay prescribe the minimum number of independent directors in
case of any class or classes of public companies

Accordingly Section 149(6) (b) (ii) states that the person to be appointed as an independent director should not
be related to promoters or directors in the company, its holding, subsidiary or associate company.

Further Section 149 (6) (d) states that the person to be appointed as an independent director should not have
relatives or any pecuniary relationship or transaction with the company, its holding, subsidiary or associate
company, or their promoters, or directors, amounting to two per cent or more of its gross turnover or total
income of fifty lakh rupees or such higher amount, as may be prescribed, whichever is lower, during the two
immediately preceding financial years or during the current financial year.

Section 149 (6) (e) (i) states that the Independent director or any of his relatives hold a key managerial position
in the company or his holdings, subsidiaries or associate company, the ID is barred from the appointment.

Clause 7 of the proviso says that even after the appointment of the ID, if there is a material change in the
circumstances, the ID has to give a notice to the BoD that all the conditions of Clause 6 are satisfied stating that
his appointment holds good.

The case of Pooja RavinderDevidasani vs. State of Maharashtra highlights as to how the Independent director is
a custodian of Corporate Governance. So in this regard it is very important that the appointment of the
independent director be done in the most impartial and virtual manner as possible. Thus in the light of the above
mentioned facts and the said principle, we will go about analysing the position of Mr. Williams as an
independent director.

In the present case, when Mr. William was appointed as an ID of Ewing Oil, he or none of his related parties
had any relationship with Ewing and his appointment was bonafide. However, his step mother was the sole
shareholder in the Fellicitti Owens Pvt. Ltd. owned by Astapore Limited and which was held by Wayne
enterprises limited.

Thus, after the merger between Ewing and Wayne, Mr. Williiam’s step mother held a key managerial position
in Ewing. The step mother exited from the company in 2019 and Williams was appointed in 2017. They form a
part of the same group.
Thus he is not eligible to be appointed as an ID.

Question – 2

The role of an Independent Director [“ID”] assumes significance because it serves as a tool of corporate
governance by exercising objectivity, impartiality and ensuring shareholder protection in their functioning.

I. Relevant Provisions

- Section 2 (60) of the Companies Act imposes a general liability on an “officer in default” who is liable
to pay a penalty or be punished. An “officer in default” is defined as a director who participates in any of the
board proceedings and has an active knowledge of the default thereby providing his consent or connivance.

- The scope of liability under Section 2 (60) is narrowed down by Section 149(12) of the Act which states
that liability can be extended to an ID only to the extent of “such acts of omission or commission by a company
which had occurred with his knowledge, attributable through Board processes, and with his consent or
connivance or where he had not acted diligently.” In this regard, it can be understood that an ID can be held
liable only in case of an active knowledge of the default attributable through the decision-making process of the
board.

Section 149 (12) of the Act further highlights that apart from the board process, two crucial factors that ought to
be assessed before imposing liability on an ID are:

1. Consent or connivance: The liability of a director is rooted in the conduct of the director in knowingly
permitting an omission or commission to take place.

2. Due diligence: The standard of diligence expected from an ID is that he must be aware of the actions of
the board and take active measures to correct the same. Irrespective of whether an ID is not a part of the day-to-
day management of the company, the onus lies on them to remain diligent and take concrete corrective
measures with regards to the violation committed by the board.

II. Judicial Pronouncements:

- In Atul B. Munim v. Registrar of Companies &Ors, the court interpreted the meaning of an 'officer in
default', and held that the process of determining the liability cannot be done mechanically without applying
mind to the facts of the case and the provision of the law.

- In Official Liquidator v. P.A. Tendolkar, the Apex Court held that a director cannot shut his eyes to what
must be obvious to everyone who examines the affairs of the Company even superficially”. This lays emphasis
on the constructive knowledge of an ID on the affairs of the company, as well as the active efforts he makes to
resolve potential defaults.

- In Pooja RavinderDevidasani v. State of Maharashtra, the Supreme Court held that if it is proven that an
ID “was at the helm of affairs of the company at the specific time when the decision was taken, he may be made
liable.” Such an expansionist reading of the liability of board of director highlights the primacy on the conduct
and function of an ID.

IV. Fact Application

Presently, in order to assess the liability of Mr. Saunder Williams, it is imperative to see the following facts:

Firstly, Ewing failed to furnish its Annual Financial Statement without any reasonable justification for
consecutively two years. Secondly, the sting operation conducted by the Metropolitan Herald, found out that
Mr. Williams had refused to sign the audit papers on account of certain discord with respect to remuneration
amount.

Thirdly, when Mr. Williams was asked about the same, he simply denied responsibility and stated discrepancies
in the CSR and the Audit report, as the reason for which he had refused to sign the requisite documents. In light
of these facts, it is essential to understand that Mr. Williams failed to fulfil his duties as an ID.

Thus, it can be said that Mr. Williams is liable