Before

THE HONOURABLE COMPANY LAW TRIBUNAL,

RAJASTHAN

COMPANY PETITION (CP) NO. 10 OF 2017

Under Section 397/398 and Article 331 of The Companies Act,

1956

IN THE MATTER OF:

MR. RAM...........................................................................….PETITIONER 1
MS. WADIA.....................................................................……PETITIONER 2

v.

KATA & CO. LTD..........................................................……...RESPONDENTS

 TABLE OF CONTENTS

TABLE OF ABBREVIATIONS..............................................................................................3
INDEX OF AUTHORITIES...................................................................................................4

STATEMENT OF JURISDICTION.................................................................................... ..5

STATEMENT OF FACTS................................................................................................... ..6

ISSUES RAISED......................................................................................................................8

SUMMARY OF ARGUMENTS............................................................................................9

ARGUMENTS ADVANCED..................................................................................................11

PRAYER...................................................................................................................................17
 LIST OF
ABBREVIATIONS

& And
AIR All India Reporter
Anr. Another
Art. Article
CA Company Act
CEO Chief Executive Officer
Co. Company
Corpn. Corporation
CLB Company Law Board
CCI Competition Commission of India
CIS Collective Investment Scheme
Ed. Edition
Govt. Government
Hon’ble Honourable
i.e. That is
Ltd. Limited
M.D. Managing Director
M.P. Madhya Pradesh
Mar. March
No. Number
Pvt. Private
ROC Registrar of Companies
SC Supreme Court
SCC Supreme Court Cases
SCWR Supreme Court Weekly Reporter
U/S Under section
U.S. United States of America
v. Versus
Vol. Volume
www World Wide Web
 INDEX OF
AUTHORITIES

CASES REFERRED AND CITED:

 Nagendra Sharma vs The Managing Director And Ceo, (2020).
172 Comp Case 562
 Chandubhai I Patel vs Chief Executive Officer, (2018)
C/SCA/12852/2018
 Major General Shanta Shamsher vs Kamani Brothers Private
Ltd., AIR 1959 Bom 201
 FICCI Multiplex Association of India v. United
Producers/Distributors Forum and Ors., (1 of 2009) decided
on 25th May 2011
 Global Automobiles Ltd. v. Pooja Expo India Private Ltd.,
(33 of 2011) decided on 3rd July 2012

 Karnataka Bank Ltd v A B Datar {1994} 79 Com Cas.417

{Kar}

 Khetan Industries {P} Ltd v Manju Ravindra Prasad Khetan

{1995} 16 CLA 169 { Bom}

 Tarlok Chand Khanna v Raj Kumar Kapoor , {1983} 54 Comp

Cas 12 Del

 LIC of India v. Escorts Ltd. – AIR 1986 SC 1370 (1986) 59

Comp Cas 548 (SC)

BOOKS REFERRED:
 Bhandari M.C., Guide to Company Law Procedures, (21st
ed., 2009), Lexis Nexis Butterworths Wadhwa, Nagpur.

 Dr. N.V Paranjape's Company Law

 Company Law by Avtar Singh

WEBSITES REFERRED:
 www.lexisnexis.com
 www.indiankanoon.org
 www.lawoctopus.com
 www.supremecourtofindia.nic.in
 www.westlawindia.com
 STATEMENT OF
JURISDICTION

THE PETITIONERS HAVE FILED THE CASE BEFORE

THE HON’BLE COMPANY LAW TRIBUNAL, IN THE
MATTER OF MR. RAM AND MS. WADIA.

THE DISMISSAL OF MR. RAM AS CEO HAS BEEN

DONE ACCORDING TO THE LAW AND PROCEDURE
CONSIDERING FOLLOWING FACTS:

i) UNDER-PERFORMANCE

ii) MISMANAGEMENT

iii) ILLEGAL BUSINESS UNDER SECTION 331 OF

COMPANIES ACT

THE PRESENT MEMORANDUM SETS FORTH THE

FACTS, CONTENTIONS AND ARGUMENTS.

Sec 331 - Where a company is being wound up and anything made, taken or done
after the commencement of this Act is invalid under section 328 as a fraudulent
preference of a person interested in property mortgaged or charged to secure the
company’s debt, then, without prejudice to any rights or liabilities arising, apart from
this provision, the person preferred shall be subject to the same liabilities, and shall
have the same rights, as if he had undertaken to be personally liable as a surety for
the debt, to the extent of the mortgage or charge on the property or the value of his
interest, whichever is less. If any matter that applies mutatis mutandis as reason for
the disqualification of Directors specified in Article 331 of the Companies Act then
it make CEO unsuitable.
 STATEMENT OF
FACTS

For the sake of brevity and convenience of the Hon’ble Court the
facts of the present case are summarized as follows:
1. Kata and Co. Ltd. is a national and international service
provider company. Mr. Ram was appointed CEO of Kata and
Sons Co. Ltd. after for four consecutive years.

2. The appointment of Mr. Ram as the CEO was seen more as a

generational shift in the Kata Group.

3. On 24th October,2017, Mr. Ram, was sacked out by the Kata

and Sons Co. Ltd. after meeting of board of director and
called for the approval through the general resolution.

4. After taking consideration the procedure for removal from the

post of the Company under section under sections 149 along
with 163 and 242-245 and other relevant sections and judicial
observations, the Kata and Co. Ltd. approved the removal of
Mr. Ram from the post of CEO.

5. Mr. Ram appealed before Board of Director and challenge his

removal stating the reasons for sacking were not specified by
Kata and negates the s fiddling with the culture of 130 yr old
company and credential of the office and his reputation.

6. Mr. Ram has started his own business without approval of the
Trust. He launched its own dream project without the
approval of the board of director of the company. There was
unequal distribution of profits between the directors and other
shareholders. These charges and manipulation of funds under
gratification were raised by the Chairman and the matter
came to light through the media and digital media and
newspapers. Then the company started to think about the mis-
management and embezzlement or illegal business being
 carried under his supervision. Therefore, with immediate
effect he was dismissed and removed from the post.

7. Mr Ram claimed before the Company Law Board Tribunal

against the decision of the Board of Director on the basis of
his credentials of business and claiming that he was not
indulged in the illegal activities in the Kata group.

8. Mr Ram argued that it is a clear violation of the directions of

the Company Law Board in its various decision and
guideline. He further stated a Director cannot be sacked on
fictitious grounds.

9. Mr Ram has given many allegations for interfering in his

decision’s in company decision making. He also accused Kata
of ‘Operation of Minority’ claiming that Kata was trying to
reduce the stake of kapoor’s family in the Kata and Co. Ltd.
and reduce the voting rights of shareholders.

10. Also, Ms. Wadia filled a suit of manipulation of the power of

the stakeholders in Kata and Sons Ltd. . She further argued
there is violation of the Law and Procedure done by Chief
Director of the company. The interest of the minority share
holder and stakeholder a cause of concern in the general
meeting of the Board of Directors. The expansion of the
business carried out by the CEO is the violation of credential
of business of the company.

11. A committee was forced four months to decide the successor

“Mr. M Gopal Swamy” became the new CEO of the Kata Co.
Ltd. and remember for his well place in history and will be
remember warmly as his ancestor’s.
 ISSUES RAISED

The following questions are presented for adjudication in the

instant matter:

1. Whether the removal of Mr. Ram without notice is a

violation of the Natural Justice Principle and appointment
of the Interim Chairman by the Trustee is the basic
violation of this principle.

2. Whether the Lack of transparency and impartiality to right

of vote to the Minority shareholder and promoters and
stakeholders.

3. Whether the violation of the Minority shareholders on the

part of the majority shareholders.

4. Whether the liability highlighting the Corporate Social

liability of the reputed company.
 SUMMARY OF ARGUMENTS

1. The removal of Mr. Ram without notice is not a violation of

the Natural Justice Principle and appointment of the
Interim Chairman by the Trustee is not violation of this
principle.

Yes, Mr. Ram was removed without notice but there is not any
violation of the Natural Justice Principle. This is not a bias decision.
The decision was made by considering the mis-management that is
going in company under Mr. Ram. Also, he was involved in illegal
business. Also, the company was continuously in loss under his
supervision. The company’s credibility is considered to be damaged
and the smooth operation of businesses is affected due to the Mr.
Ram’s behavior. So there is no violation of the Natural Justice
Principle in removal of Mr. Ram.

The appointment of the Interim Chairman by the Trustee is the right

decision at that point of time and not the violation of the Natural
Justice Principle. The appointed chairman met all the core
requirements. This decision was made to save reputation of the
company. And also proper procedure is followed for appointment.

2. There is no Lack of transparency and impartiality to right

of vote to the Minority shareholder and promoters and
stakeholders.

Combination of Sections 397 and 398 of CA,1956; Provides

protection and remedies to minority shareholders against
oppression or mismanagement of majority shareholders proper
service of notice is illegal and may be held to be an oppressive
act. The jurisdiction of CLB u/s 397/398 is a statutory
jurisdiction which cannot be ousted by an arbitration
clause. Section 397/398 provides in itself a complete
code for redressal of any grievance in regard to
 oppression and mismanagement. A person, who is
entitled to allotment of shares against his application
money, can file a petition on equitable grounds.

In the present case, as well, minority

shareholder,promoters and stakeholders can
investigate under section 214 of Companies Act,2013.

3. There is no violation of the Minority shareholders on the

part of the majority shareholders.

Kata and Co. Ltd has always ensure any new shares that are being
issued must first be offered to the existing shareholders in such
proportions as to preserve their percentage shareholding in a
company. This is to ensure that their investment is not diluted
without first having the opportunity to invest further in a
company to maintain their current shareholding. There is always
review of the articles and shareholders’ agreement before a
shareholder invested to acquire a 10% stake.

4. The liability highlighting the Corporate Social liability of

the reputed company.

Corporate Social Responsibility (CSR) implies a concept, whereby

companies decide voluntarily to contribute to a better society and a
cleaner environment – a concept, whereby the companies integrate
social and other useful concerns in their business operations for the
betterment of their stakeholders and society in general in a
voluntary way.

The Companies Act, 2013, a successor to The Companies Act,

1956, made CSR a compulsory act. Under the notification dated
27.2.2014, under Section 135 of the new act, CSR is compulsory for
all companies- government or private or otherwise, provided they
meet any one or more of the following fiscal criterions[9]:
 The net worth of the company should be Rupees 500
crores or more
The annual turnover of the company should be Rupees
1000 crores or more
Annual net profits of the company should be at least
Rupees 5 crores.
If the company meets any one of the three fiscal conditions as stated
above, they are required to create a committee to enforce its CSR
mandate, with at least 3 directors, one of whom should be an
independent director.

Kata and Co. Ltd. Has a CSR committee. Company always followed
its environment, ethical, philanthropic and financial responsibility.
 ARGUMENTS ADVANCED

1. [ISSUE I] : The removal of Mr. Ram without notice is not a

violation of the Natural Justice Principle and appointment
of the Interim Chairman by the Trustee is not violation of
this principle.

It is humbly submitted before this Hon’ble Tribunal that the

removal of Ram from CEO is done as procedure and appointment
of the Interim Chairman by the trustee is also done according to
procedure.

A company may, by ordinary resolution, remove a director, not

being a director appointed by the Tribunal under section 242,
before the expiry of the period of his office after giving him a
reasonable opportunity of being heard.

Analysis This sub section {1} empowers a company to remove a

director before the expiry of the period of his office but only
through the decision of the members passed at any general
meeting, by way of an ORDINARY RESOLUTION. {Ref
section: 114 of the Companies Act 2013}. Resolution can be
passed at any general meeting. It was held in a case of LIC of
India v. Escorts Ltd. – AIR 1986 SC 1370 (1986) 59 Comp Cas
548 (SC)that a shareholder cannot be restrained from calling an
extra ordinary general meeting for removal of a director.

It is essential that by way of principle of natural justice, the

director concerned should be given a reasonable opportunity of
being heard to defend his case as to why he should not be
removed. Only after hearing his defence that the decision of
removal should be taken by the members. {Ref case: Queens
Kuries & Loans P Ltd. V Sheena Jose {1993} 76 Comp Cases
821 [Ker]}.
 It should be ensured that the director concerned should not have
been appointed by the Tribunal under section 242 which relates to
powers of the Tribunal for prevention of oppression and
mismanagement.

The law regarding removal is encompassing. Interestingly, it was

held in the case of Tarlok Chand Khanna v Raj Kumar Kapoor ,
{1983} 54 Comp Cas 12 Del, that any restriction upon the power of
removal would be void. Moreover, even a permanent director in
terms of the articles of association, who is not liable to retire by
rotation, can be removed. However, in the case of Khetan Industries
{P} Ltd v Manju Ravindra Prasad Khetan {1995} 16 CLA 169
{ Bom} it was held that civil courts cannot interfere with internal
management of companies like appointment and removal of
directors since the erstwhile Companies Act 1956 lays down
detailed procedure for dealing with such matters. In the case of
Karnataka Bank Ltd v A B Datar {1994} 79 Com Cas.417 {Kar} it
was held that none has the right to claim office of director.

FILLING OF VACANCY- POST REMOVAL

A vacancy created by the removal of a director under this section

may, if he had been appointed by the company in general meeting
or by the Board, be filled by the appointment of another director in
his place at the meeting at which he is removed, provided special
notice of the intended appointment has been given under sub-
section (2).

Analysis :

This sub section {5} provides for the legal position after the
removal of the director has been effected. Thus, where a vacancy
has been created by the removal, such vacancy may be filled by
appointment of another director in his place. This applies if the
removed director had been appointed in a general meeting or by the
Board of Directors.

This filling of vacancy is not obligatory. However, if another

individual is to be appointed, for this purpose special notice under
sub- section (2) should be given to all the members. Thus, provision
of special notice as laid down in section 115 of the Companies Act
2013 must be complied. Moreover, all the provisions for
appointment of a director will need to be fulfilled.

2. [ISSUE 2] : There is no Lack of transparency and

impartiality to right of vote to the Minority shareholder
and promoters and stakeholders.

Section 397/398 of the Companies Act, 1956 confers jurisdiction

on the CLB to hear cases of oppression and mismanagement in
the affairs of the company.

2.1 The CLB has exclusive jurisdiction to hear cases of

oppression and mismanagement. The CLB’s jurisdiction u/s
397/398 cannot stand fettered merely because there is an
arbitration clause or an arbitration proceeding or an award. The
scheme of Section 397, 398 and 402 appears to constitute a
complete code in itself and orders envisaged u/s 402 cannot be
given to party by an arbitrator.

The statutory jurisdiction of the CLB could not be ousted by an

arbitration clause. The statutory jurisdiction of the CLB and the
right of appeal against its orders could not be ousted even by the
consent of the parties.The provisions of section 397, 398 and 434
dealing with the jurisdiction to wind up a company or to regulate
 its management are exclusively the jurisdiction of the CLB and
cannot be referred to arbitration.

2.2 The petitioner has locus standi to approach the CLB.

Any member holding not less than one-tenth of the issued share
capital of the company has the right to apply u/s 397/398.7
However, a person entitled to allotment of shares against his
application money can file a petition. The CLB is a court of
equity and hence the matter has to be considered on equitable
grounds. Assuming that no shares were allotted to the petitioner,
yet, he was declared to be a shareholder for the purposes of the
petition as he was entitled to allotment of shares.8 Hence, the
petitioners in the present case, are entitled under the ESOP
agreement to 10.1% of shareholding which gives them the
standing before this CLB.

3. [ISSUE 3] : There is no violation of the Minority

shareholders on the part of the majority shareholders.

Balance to be struck between the rule of the majority and the

rights of the minority
1. The fundamental principle defining operation of shareholders
democracy is that the rule of majority shall prevail. However, it is
also necessary to ensure that this power of the majority is placed
within reasonable bounds and does not result in oppression of the
minority and mis-management of the company. The minority
interests, therefore, have to be given a voice to make their opinions
known at the decision making levels. The law should provide for
such a mechanism. If necessary, in cases where minority has been
unfairly treated in violation of the law, the avenue to approach an
appropriate body for protecting their interests and those of the
company should be provided for. The law must balance the need for
effective decision making on corporate matters on the basis of
consensus without permitting persons in control of the company, i.e.,
the majority, to stifle action for redressal arising out of their own
wrong doing.
Minority and ‘Minority Interest’ should be specified in the
substantive Law
2.1 At present, in case of a company having share capital, not less
than 100 members or not less than 1/10th of total number of
members, whichever is less or any member or members holding not
less than 1/10th of issued share capital have the right to apply to
CLB/NCLT in case of oppression and mismanagement. In case of
companies not having share capital, not less than 1/5th of total
number of members have the right to apply.

2.2 To reflect the interest of the “Minority”, a 10% criteria in case of

companies having share capital and a 20% criteria in the case of other
companies is provided for in the existing Act. In Section 395 of the
Act, the dissenting shareholders have been put at the limit of 10% of
shares. Thus Minority could be defined as holding not more than
10% shares for the limited purpose of agitating their rights before the
appropriate
forum.
2.3 Oppression is defined in section 397(2). It is defined as
conducting the company’s affairs in a manner prejudicial to public
interest or in a manner oppressive to any member or members. Mis-
management has been defined in section 398(1) of the Act, as
conducting the affairs of the company in a manner prejudicial to
public interest or in a manner prejudicial to the interests of the
company.

2.4 The Committee on examination of the existing provisions felt that

a reasonable framework could be enabled through specific provisions
to be brought in the new Act to define “Minority” (on the lines of
clause (2.2) above) and the “Minority Interest “ (on the lines of
clause (2.3) above).

Representation of minority interests

3. While the Committee feels that the concept of independent
directors would provide an objective scrutiny of management,
operations and decision making, the Boards of the companies could
also incorporate the concept of representation of specific minority
shareholders group. It was observed that the existing Act provided an
option to company to adopt proportionate representation for the
appointment of directors but this option was rarely used. A view was
expressed that the applicability of the provisions of Section 265
(existing Act) could be made mandatory. The specific minority
appointed director/independent director could also play an important
role in investor protection. The Committee view was that the existing
option may be retained.

Right of share holders to be informed through correct disclosures

4. The risks of investors can be reduced / minimized through
adequate transparency and disclosures. The law should indicate in
clear terms the rights of members of the company to get all
information to which they are entitled in a timely manner. The
financial information and disclosures to be provided to shareholders
should not be in excessively technical format but should be simple to
understand. This will enhance the credibility of the company and will
help the shareholders to take an informed and conscious decision in
respect of their investments. Besides, statutory information, which
would be regulated through law, the information could also be made
available through other means like print, electronic media, company
website etc. A regime of stringent disclosure norms should be
provided for in case of companies accessing funds through public
offers. There should be adequate and deterrent penalties in law
against wrong disclosures.

Right of minority to be heard

5. Once the principle of protection of “Minority Interest” is
recognized in the Act, there would also be a need to put in place an
appropriate mechanism for ensuring that such provisions relating to
“Minority Interest” do not obstruct the Board or the management
from performing their functions genuinely in interests of the
company. The Board and the management should, therefore, be
protected from undue and unjustified interference from unscrupulous
shareholders acting in the guise of investors’ rights.

Rights of minority shareholders during meetings of the company

6. Sometimes, the meetings of the company are so organized so as to
deprive the minority of an effective hearing. The procedures to be
prescribed under the Act should safeguard against such behaviour by
the company. There should be extensive use of postal ballot including
electronic media to enable shareholders to participate in meetings.

Rights in case of Oppression and Mismanagement

7. There are adequate provisions in the existing Act to prevent
Oppression and Mismanagement. Minority, represented by specified
number of members or members holding requisite percentage of
equity capital are entitled to approach Courts/Tribunals for protection
of their interests. The quasi-judicial body is empowered to order a
number of remedial measures for regulation of the conduct of
company’s affairs. These measures, inter-alia, include purchase of
shares or interests of any members of company by other members;
termination, setting aside or modification of agreements relating to
managerial personnel; setting aside of transactions relating to
transfer, delivery of goods etc, or any other matter for which
Court/Tribunal feels that provisions should be made. The
Court/Tribunal is also empowered to appoint such number of persons
as necessary to effectively safeguard interest of the company.

Kata & Co. Ltd has always followed these principles.

4. [ISSUE 4] : The liability highlighting the Corporate Social

liability of the reputed company.

Corporate Social Responsibility (CSR) implies a concept, whereby

companies decide voluntarily to contribute to a better society and a
cleaner environment – a concept, whereby the companies integrate
social and other useful concerns in their business operations for the
betterment of their stakeholders and society in general in a
voluntary way.

The Companies Act, 2013, a successor to The Companies Act,

1956, made CSR a compulsory act. Under the notification dated
27.2.2014, under Section 135 of the new act, CSR is compulsory for
all companies- government or private or otherwise, provided they
meet any one or more of the following fiscal criterions[9]:
The net worth of the company should be Rupees 500
crores or more
The annual turnover of the company should be Rupees
1000 crores or more
Annual net profits of the company should be at least
Rupees 5 crores.
If the company meets any one of the three fiscal conditions as stated
above, they are required to create a committee to enforce its CSR
mandate, with at least 3 directors, one of whom should be an
independent director.

Kata and Co. Ltd. Has a CSR committee. Company always followed
its environment, ethical, philanthropic and financial responsibility.
 PRAYER

Wherefore, in the light of the facts presented, issues raised, argument advanced
and authorities cited, it is most humbly prayed before the Hon’ble
National Company Law Tribunal of Rajasthan that it may be pleased to
adjudge and declare:-

1.That, the removal of Mr. Ram without notice is not a violation of

the Natural Justice Principle and appointment of the Interim
Chairman by the Trustee is not violation of this principle.

2.That, there is no Lack of transparency and impartiality to right of

vote to the Minority shareholder and promoters and stakeholders.

3.That, there is no violation of the Minority shareholders on the part

of the majority shareholders.

4. That, the company followed liability highlighting the Corporate

Social liability of the reputed company.

The Hon’ble Tribunal may be pleased to pass any other order as it

deems fit in the interest ofJustice, Equity and Good Conscience.For
this act of Kindness, the Respondent shall duty bound forever pray.

Sd. /- (Counsel for the Respondents)