1437R

IN THE

NATIONAL COMPANY LAW TRIBUNAL

PRINCIPAL BENCH

AT XYZ

COMPANY PETITION NO. XXXX OR 2019

(UNDER SECTION 241 OF THE COMPANIES ACT, 2013 R/W RULE 81 OF THE
NATIONAL COMPANY LAW TRIBUNAL, 2016)

IN THE MATTER OF

MR. HS-30 & ORS……………………………………………. PETITIONER

v.

DRL CO LTD ……………………………………………………….RESPONDENT

MEMORIAL ON BEHALF OF THE RESPONDET

 TABLE OF CONTENT

INDEX OF AUTHORITIES......................................................................................................2

STATEMENT OF FACTS..........................................................................................................3

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

ISSUES FOR CONSIDERATION.............................................................................................6

SUMMARY OF ARGUMENTS................................................................................................7

There are 3 sub arguments under this 1) this suit cannot be brought under s. 241. 2)

Removal of Mr. HS-30 as the CEO of the company was not in contravention to Companies

Act. 3) The appointment of interm CEO was lawful.............................................................7

1) REMOVAL OF MR. HS-30 WAS NOT IN VIOLATION OF COMPANIES ACT...........8

1(a). The suit cannot be brought under s. 241........................................................................8

1(b). Removal of Mr. HS-30 as the CEO of the company was not in contravention to

Companies Act.......................................................................................................................9

1(c). The appointment of interim CEO was lawful..............................................................10

2) THERE ISN’T ANY OPPRESSION OF THE MINORITY SHAREHOLDERS ON THE

PART OF THE MAJORITY SHAREHOLDERS?..................................................................10

PRAYER..................................................................................................................................13

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 INDEX OF AUTHORITIES

Cases

Ashwani Khurana v. Teesta Developers P. Ltd., (2007) 80 CLA 281 (CLB)...........................11

Chaturgun Ram Maurya v. U.P. Buildwares (P.) Ltd., 1985 Tax LR 20130 (All)....................12

Chhatterjee Petrochem P Limited v. Haldia Petrochemicals Limited, (2011) 105 CLA 27 :AIR

2012 SC 2753.......................................................................................................................12

Cyrus Investments Pvt. Ltd. & Anr. vs. Tata Sons Limited & Ors C .P. No. 82(MB)/2016......9

R. Khemka v. Deccan Industries P. Ltd., (1999) 1 Comp LJ 206............................................12

Section 2 (51) of Companies Act, 2013.....................................................................................9

Statutes

Desein (P) Ltd. V. Elektrim India Ltd., (2001) 3 Comp LJ 459...............................................10

Section 2 (18) of Companies Act, 2013.....................................................................................9

Section 203 (2) of Companies Act, 2013.................................................................................10

Section 203 (4) of the Companies Act, 2013...........................................................................11

Section 203 of the Companies Act, 2013 read with the Companies (Appointment and

Remuneration of Managerial Personnel) Rules, 2014..........................................................11

Section 241 of the Companies Act, 2013.................................................................................11

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 STATEMENT OF FACTS

DRL Co. Ltd. is an international service provider and contributors in the sectors of
Information Technology and Financial services. Mr. HS-30 was appointed as CEO of DRL
Co. Ltd. for four consecutive years. The Bhati family is the second largest stakeholder of the
DRL Co. Ltd. The appointment of Mr. HS-30 as the CEO was seen more as a generational
shift in the DRL Group.

Mr. HS-30, on 24th October, 2017 was sacked out by the DRL Co. Ltd. after meeting of
board of director and called for the approval through the general resolution. That was strange
to HS-30 and he sought a chance for his submission before the Board of Director. The
shareholders were known for handling their HR issues so humanly that they could not find a
better exit to their CEO under the Company Act, 2013. They discussed the procedure for the
appointment of new CEO and 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 DRL Co. Ltd. approved the removal of Mr. HS-30 from the post of CEO but he decided
to appeal before Board of Director and challenge his removal stating the reasons for sacking
were not specified by DRL Co. and negates the fiddling with the culture of 130 yr old
company and credential of the office and his reputation. He blame for tarnishing his image
before the shareholder by the chairman. It was alleged that Mr. HS-30 has started his own
business without approval of the Trust. He launched his 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.

He 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 DRL group. The performance of the DRL company during HS-30’s
regime acclaimed his sincerity of his decision in the welfare of the shareholder’s and
stakeholders and challenged the removal from the post of CEO on the basis of the privileges

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and immunities of the post. He argued that it is a clear violation of the directions of the
Company Law Board in its various decision and guideline. A Director cannot be sacked on
fictitious grounds. The deal of the DRL with the Pakistani-telecom giant, Jaish-e-
Mohammad; ended up DRL by paying $ 1.2 billion in arbitration award and it became a
reason of lose to exchequer of the Company. The Governing bodies of the DRL Co. have to
take the decision in a meeting of the board of director’s for final approval of sacking of Mr.
HS-30

Relentless allegations appeared from HS-30’s side for interfering in his decisions in company
decision making. He also accused DRL of ‘Oppression of Minority’ claiming that DRL was
trying to reduce the stake of Bhati’s family in the DRL Co. and reduce the voting rights of
shareholders. During all this, Mr. Holder emerged as a supporter (an independent director) at
four corner of the DRL Co. The board tried to sack him for saying that things were not in
general interest of the company. But apparently they could not do so, because the Board
meeting did not favour his sacking and removal.

Later Mr. Holder ended up filling a suit of manipulation of the power of the stakeholders in
DRL Co. Ltd. He urged Company Law Board to take action against the Chief Director of the
DRL Co. Ltd. for the violation of the Law and Procedure. He asserted that the interest of the
minority shareholder and stakeholder a cause of concern in the general meeting of the Board
of Directors.

Thus the suit.

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 STATEMENT OF JURISDICTION

The Respondent most humbly submits to the jurisdiction of this Court under Section 241 of
The Companies Act, 2013 R/W Rule 81 of the National Company Law Tribunal, 2016.

Rule 81 says that:

(1) An Application under clause (b) of sub-section (1) of section 241 ol the Act, shall be filed
in Form No. NCLT. 1 and shall be accompanied with such documents as are mentioned in
Annexure B.

(2) Where an application is presented under section 241 on behalf of any members of a
company entitled to apply under sub-section (1) of the said section, by any one or more of
them, the letter of consent signed by the rest of the members so entitled authorising the
applicant or the applicants to present the petition on their behalf, shall be annexed to the
application, and the names and addresses of all the members on whose behalf the application
is presented shall be set out in a schedule to the application, and where the company has a
share capital, the application shall state whether the applicants have paid all calls and other
sums due on their respective shares.

(3) A copy of every application made under this rule shall be served on the company, other
respondents and all such persons as the Tribunal may direct.

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 ISSUES FOR CONSIDERATION

There are 2 issues for consideration:

1) Whether the removal of Mr. HS-30 is in violation of Companies Act

2) Whether there exist any oppresion of minority shareholders

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 SUMMARY OF ARGUMENTS

1) Removal of Mr. HS-30 was not in violation of Companies Act

There are 3 sub arguments under this 1) this suit cannot be brought under s. 241. 2) Removal
of Mr. HS-30 as the CEO of the company was not in contravention to Companies Act. 3) The
appointment of interm CEO was lawful.

2) There isn’t any oppression of the Minority shareholders on the part of the majority

shareholders

There are mere allegations against DRL with regards to opression, and any one time incident

cannot be termed as oppresion as held by various cases.

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 1) REMOVAL OF MR. HS-30 WAS NOT IN VIOLATION OF COMPANIES ACT

Chief executive in relation to a company means as individual who object to the control and
directions of the directors, is entrusted with the whole or substantially the whole, of the
powers of the management of the affairs of the company and includes a director or any other
person occupying the position of a chief executive by whatever name called, and whether
under a contract of service or otherwise.

CEO is defined in the S. 2 (18)1 as; Chief Executive Officer means an officer of a company,
who has been designated as such by it. It also comes under the definition of Key Manageral
Personell. The definition of the term Key Managerial Personnel is contained in Section
2(51)2 of the Companies Act, 2013. The said Section states that “key managerial personnel”,
in relation to a company, means the Chief Executive Officer among other positions.

1(a). The suit cannot be brought under s. 241

Section 241 of the Companies Act talks about Application to Tribunal for relief in cases of
oppression, etc. It states that any member of a company who complains that the affairs of the
company have been or are being conducted in a manner prejudicial (damaging) to the
interests of the company, its members or the public at large may apply to the Tribunal for an
order under this Chapter.

In this case, the CEO of the company is an employee. Mr. HS-30 came to the company as an
employee, the position may be of CEO, but that is also employment. It is an Agreement of
employment for five years. This will not become a ground u/s 241 primarily for the reason
that it is not in relation to managing the affairs of the company, it is in relation to removal of a
man managing the affairs of the company on being appointed by the directors.

It has been time and again said, removal of an employee from the company by any stretch of
imagination could not become a ground u/s 241 because removal of a person appointed on
remuneration cannot be said as conducting the affairs of the company, it can at best be
employment dispute.3

1 Section 2 (18) of Companies Act, 2013

2 Section 2 (51) of Companies Act, 2013
3 Cyrus Investments Pvt. Ltd. & Anr. vs. Tata Sons Limited & Ors C .P. No. 82(MB)/2016

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1(b). Removal of Mr. HS-30 as the CEO of the company was not in contravention to
Companies Act

Each person in an executive position is under responsibility to protect company’s interests

from internal and external threats. This fiduciary duty says that all work that the person does
while being employed by the company is for company’s good and benefit. It the CEO of the
company has started its own bussiness without approval of the trust and also launched his
dream project without the approval of the Board of Directors then the CEO can be removed.
It cannot be called as grievance of the shareholders, or the company. His removal, who is
taken as employee, will not make any difference either to the shareholders or to the company.

The reasons for losing the confidence in the stewardship of Mr. HS-30 are detailed as below

(i) Launching his dream project without the approval of the Board of Directors.

As per Sub Section 2 of Section 2034, a key Manageral Personnel can be appointed as
Director in other Companies, but it requires permisssion of the Board of Directors of the
company.

Where a person was working as a Managing Director in one company and he was also
appointed Managing Director in another company by a circular resolution without the consent
of the other directors, it was held that there was non-compliance with the statutory provisions.
The Company Law Board directed the company to make a reference to the Central
Government.5

Mr. HS-30 didn’t ask for permission from Board of Directors. Thus removal of Mr. HS-30
from the post of CEO was not only just but necessary

(ii) Manipulating funds and unequal distribution of profits between the directors and
shareholders.

Shareholders are the owners of companies. They are the main stakeholders in the company.
The court in the case of Ashwani Khurana held that where preliminary objection like that no
grounds had been made out and the petitioner had not come with clean hands were found to
be tenable, the petition was held as liable to be dismissed at the threshold.6

4 Section 203 (2) of Companies Act, 2013

5 Desein (P) Ltd. V. Elektrim India Ltd., (2001) 3 Comp LJ 459
6 Ashwani Khurana v. Teesta Developers P. Ltd., (2007) 80 CLA 281 (CLB)

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Mr. HS-30 defrauded the shareholders by manuplating funds, and distributing profits between
directors and shareholders unequally.

1(c). The appointment of interim CEO was lawful

A CEO is the executive head of the company. He is handed the powers of the management of
the affairs of the company. Company Act mandates that the following class of Companies,
namely

a) Every listed company, and

b) Every other public company having paid up share capital of Rs. 10 Crores or more7

shall have the following whole-time key managerial personnel.

Sub-clause (4)8 of the same section states that;

(4) If the office of any whole-time key managerial personnel is vacated, the resulting vacancy
shall be filled-up by the Board at a meeting of the Board within a period of six months from
the date of such vacancy.

Thus it was necessary for the proper functioning of the company to appoint an Interim CEO
untill they find a new permanent CEO as the executive head of the company.

2) THERE ISN’T ANY OPPRESSION OF THE MINORITY SHAREHOLDERS ON

THE PART OF THE MAJORITY SHAREHOLDERS?

241 of the Companies Act9 talks about relief in cases of oppression, etc. The law has not
defined as to what amounts to “oppressive” and it is for the courts to decide on the facts of
each case as to whether such oppression existes which would call for action under s. 397 of
the 1956 Act (Now s. 241 of the 2013 Act). Such alleged oppressive conduct of the majority
of shareholders to the minority must also be burdensome and operative and harsh, and should
be up to the date of the petition.10

7 Section 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014
8 Section 203 (4) of the Companies Act, 2013
9 Section 241 of the Companies Act, 2013
10 Chhatterjee Petrochem P Limited v. Haldia Petrochemicals Limited, (2011) 105 CLA 27 :AIR 2012 SC 2753

10
Minority shareholders are bound by the rule of majority. It is only when the elements of
sections 241-242 are met, at the most the minority shareholder may extricate itself from the
company through the exit route on fair valuation, but the minority shareholder will not get
any right to impose his rule upon the shareholders who have majority in the company. Where
a majority of members exercise their rights as shareholders in the conduct of the company’s
affairs, the fact that there is oppression, lapse or impropriety on the part of an officer not
pertaining to or unconnected with the exercise of voting rights by the majority of
shareholders, will not justify invocation of jurisdiction under s. 397 of the 1956 Act (now s.
241 of the 2013 Act).11

Mere allegations by Mr. HS-30 with regard to DRL’s intervention in decision making would
not amount to Opression of Minority. There is also no evidence rergarding the allegation that
DRL tried to reduce the stake of Bhati’s family in the DRL Co.

Even if we assume that DRL tried to intervene in decision making, then the court in this
regard has clarified that “Isolated acts of indiscipline or indifference or even deprivation
would not by themselves be taken to be of oppresive nature under s. 241. There must be some
continuity of acts of which it could be said that the affairs are being conducted in that
manner.”12

Mr. Holder has been arguing that removal of Mr. HS-30 by ordinary resolution can be said to
be Opression of Minority. The exercise of rights (including affirmative vote rights) under the
Articles by majority shareholder, which rights were agreed to by the petitioners being
minority shareholder, cannot be a grievance under section 241. Protecting the rights of the
majority in the Articles can neither become oppression against the minority shareholders, nor
be mismanagement of the affairs of the company.

A company comes into existence for the benefit of themembers of the company, to get that
benefit they devise their owngovernance within the four corners of the Companies Act,
whiledoing so the majority will have right to exercise their right withinthe parameters, the
only safeguard that is to the minorityshareholders u/s 241-242 is, if at all the actions of the
majority orthe management causing oppression or prejudice to the interest ofthe petitioners or
to the company, then they can invoke thisjurisdiction. It cannot become a bugbear in the

11 Chaturgun Ram Maurya v. U.P. Buildwares (P.) Ltd., 1985 Tax LR 20130 (All)
12 R. Khemka v. Deccan Industries P. Ltd., (1999) 1 Comp LJ 206

11
hands of theminority shareholders to stifle the freedom of functioning andfreedom of
management lying with majority.

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 PRAYER

Wherefore, in the light of facts stated, issues raised, arguments advanced and authorities
cited; it is most humbly and respectfully prayed before this Learned National Company Law
Tribunal that it may be pleased to:

1. Dismiss the Suit.

And/or pass any other order in the favour of the Respondent Office, which this Court may

deem fit in the ends of justice and good conscience.

All of which is most humbly and respectfully prayed

Date:29th March 2019 Ghulam Mohd Hayderi

(1437)

Place: XYZ Counsel for Respondent

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