M.K. Shrawat, Member - (1.) The Petition under consideration was submitted before the erstwhile CLB, Mumbai on 26.02.2015 and thereafter transferred to NCLT, Mumbai Bench. Through this Petition, the Petitioner has invoked the provisions of Sections 397, 398, 399 of the Companies Act, 1956. On completion of the pleadings, from both the sides, the matter was listed for hearing. The allegation of the Petitioner is that being in minority, his rights have been oppressed and the affairs Company (R-1) were mismanaged.
(2.) Facts AND BACKGROUND OF THE CONTROVERSY:-The Respondent No. 1 Company viz. M/s. Span Biotronics Private Limited (in short SBPL) was incorporated on 8th November, 2006. The Petitioner has claimed that he was appointed as a Vice President (Research and Development) in R-1 Company on 22nd January, 2007. He was also allotted 500 Equity Shares, having face value of Rs. 100/- each of the said Company on 10th of August, 2008. The said Company (R-1) was constituted by two Shareholders i.e. the Petitioner on one hand and Respondent No. 3 i.e. Span Diagnostic Limited, (in short SPAN) holding 95% Shares of R-1 Company, on the other hand. 2.1 The claim of the Petitioner is that, as a Vice President (Research and Development), the Petitioner was responsible for the entire administration and Research 8i development of the Company. The Petitioner was the first person appointed for the purpose of Research and Development in the Company, which grew the Research and Development business of the Company. In discharging his duties as the Vice President of Research and Development, the Petitioner was involved in the full spectrum of activities in the company from installing equipment and developing the entire team of the Company of developing patentable products and processes. 2.2 The entire revenue generation of R-l is from Royalty earnings. After the Research and Development carried out under the guidance of the Petitioner a license is granted to the Customers of the developed products. Royalty is earned by licensing the developed products. A Royalty Agreement was executed by R-1 with R-3 under which R-1 has granted R-3 the rights to possess, manufacture and sale of instruments developed by the R-1 Company for a consideration of a royalty. Claim of the Petitioner is that, in recognition of his contribution, he was given an entitlement of 10% of the gross royalty received by R-1 Company from licensing the technology developed by the Petitioner. The said entitlement was also written down in a Royalty Agreement dated 14th May, 2010 entered into between the R-1 Company and the Petitioner. 2.3 According to the Petitioner an important event took place on 24th January, 2014, which had adversely effected the legal rights of the Petitioner. A Conference of all the employees of R-3 Company was held in Surat. To utter shock to the Petitioner, R-3 Company had announced that the process of selling of the entire diagnostics business was in progress, which included the majority stake in R-1 Company. On 25th January a letter was addressed to the employees of R-3 Company that post-transaction between R-2 and R-3 Companies, all the employees would be retained in their existing positions. It was also affirmed that, all the business commitments should also be honoured. To demonstrate the intention, the Petitioner has annexed a letter (email) dated 27th January, 2014 wherein it was reiterated that the commitments made earlier would continue to be honoured. 2.4 The Petitioner stated in the Petition that, as a minority shareholder of the Company, it was expected that the Petitioner would receive due intimation and an opportunity to participate in discussions relating to any proposal for divestment of the Company by Respondent No. 3. The Petitioner states that it was incumbent upon Respondent No. 3 to consult or at least involve the Petitioner was incumbent upon Respondent No. 3 to consult or at least involve the Petitioner in the transaction to protect his minority interest in the Company. However, the Petitioner was not given any notice about the said deal, rather the entire deal was done with malice. It was made a secret in order to deprive him of his legitimate entitlements. The Petitioner states that both Respondent No. 2 and Respondent No. 3 acted through the Company (R-1) and connived to cause undue loss to the Petitioner by their actions. The Petitioner was denied participation or involvement in that deal, executed for the sale and transfer of the Company by Respondent No. 3 and as a result the Company (R-1) was sold through the transfer of its bulk shares by Respondent No. 3 along with its related business undertakings, priced on slump sale basis to Respondent No. 2 to the utter prejudice to the Petitioner. 2.5 The Petitioner has also narrated one more event to establish that his rights were oppressed. In the process of Transfer of Undertaking by R-3 in favour of R-2 (Arkray Health Care Private Limited) shares of R-1 Company were valued by a Chartered Accountant. As per the Valuation shares were valued at Rs. 2064.74/- per share. The Petitioner was not taken into confidence or consulted. The Petitioner was deprived of receiving the said value of his holding of 500 Shares, alleged in the Petition. 2.6 On 10th September, 2014 the Ministry of Finance granted approval of FIPB to R-2 Company for acquiring IVD Business of R-3 Company. The said approval also included the acquisition by R-2 of the entire Shareholding (95%) of R-3 in R-1 Company. It was also approved that, the said acquisition of the Undertaking was along with the employees and an assurance was given that the employees of the R-3 Company would continue even after acquisition. 2.7 After the completion of acquisition the R-2 Company began the act of oppression of the Petitioner and pressurized to increase the speed of work, as is evidenced vide email dated 24th January, 2015. 2.8 On 5th March 2015 the Business Transfer Agreement between R-2 and R-3 was closed, as a result of which the R-1 Company had become a subsidiary of R-2 Company. Later on Chairman of R-2 informed the Petitioner in person that R-2 had decided to wind up the operations and Notices would be served. When the Petitioner was harassed and hostile conditions were created, he had offered vide email dated 3rd April, 2015 to exit as a Shareholder from the R-1 Company. However, on 28th May 2015 the Petitioner was served Notice with a short letter intimating his termination from the employment of R-1 Company. It was communicated that the Company R-1 had taken a decision to discontinue the business activity, hence the employment of the Petitioner would come to an end w.e.f. 27th June 2015. On 27th June 2015 one more letter was issued at the instance of R-2 purportedly relieving the Petitioner. 2.9 On 6th July 2015 the Petitioner addressed a letter to the Company and R-2 raising his grievance over the fact that the entire transaction between R-2 and R-3 was carried out without involving the Petitioner. On 24th September, 2015 the Advocate of the Petitioner sent a reminder Notice and pointed out to the Respondents that since there was no reply to the Notice dated 18th August, 2015 hence it will be presumed that they have no defence to counter the contentions raised in the said notice. Thereafter R-3 had replied denying the contentions raised. 2.10 The Petitioner has highlighted that around 5th March, 2015 the Business Transfer Agreement between R-2 and R-3 was closed, as a result, R-1 Company had become a subsidiary of R-2. It is reiterated by the Petitioner that within 4 weeks thereafter on 31st March, 2015 the Chairman of R-2 informed the Petitioner in person that it was decided to wind up the operations of the R-2 Company, also referred email dated 31st March, 2015 issued by Chairman of R-2, addressed to the management of R-1 Company informing winding up of the Company. The Petitioner vide email dated 3rd April 2015 objected and sought clarification. The Petitioner has informed that due to hostile conditions created by R-2 he had surrendered and offered to exit from the R-1 Company. Informed that the termination of employment and subsequent winding up of the Company is prejudicial to the interest of the Company. The Petitioner addressed a letter dated 6th July, 2015 to the Company and Respondent No. 2. In the said letter dated 6th July, 2015, the Petitioner lay emphasis on his vital role in setting up and in the development of the Company. The Petitioner also raised his grievance over the fact that the entire transaction between Respondent No. 2 and Respondent No. 3 was carried out without involving the Petitioner despite he being a minority shareholder of the Company, a fact which was sidelined and ignored by the Respondent No. 2. In the said letter it was stated that the Petitioner was being victimised and oppressed and that acts prejudicial to the interest of the Company were being undertaken by the Respondent No. 2. The Petitioner claimed compensation for his wrongful termination, payment towards royalty under the Royalty Agreement dated 14th May, 2010 and the value of his 500 Shares. 2.11 The Petitioner has thus sought relief in the Petition as follows, reproduced below only relevant portions:- "(a) That the Hon'ble Board be pleased to issue appropriate orders, directions and reliefs under Sections 397, 398, 399, 402, 403 and 406 to the Companies Act, 1956 to bring to an end the aforesaid acts of oppression and mismanagement being perpetrated by the Respondent Nos. 2 and 3, including the necessary orders, directions and reliefs as prayed for herein; (b)............ (c)........... (d).......... (e).......... (f) Direct the Company to pay compensation to the Petitioner for the accrued and potential royalty to the Petitioner quantified to Rs. 5,00,000/-. (g) To direct the Company to pay compensation to the Petitioner for the severance pay to the Petitioner according to the norms in his appointment letter amounting to Rs. 26,75,000/- for the wrongful termination of employment caused for achieving unlawful stoppage of operations of the Company immediately after acquisition against the principles set in the FIPB Order;
(3.) Arguments FROM THE SIDE OF THE PETITIONER:-From the side of the Petitioner Learned Mr. Abhinav Chandrachud along with Advocate Mr. Dyaneshwar Jadhav, appeared and vehemently pleaded that this is a case where the Petitioner was systematically deprived of his right of salary and royalty. He has pleaded that in addition to the above, he has also been deprived of the value of the shareholding in R-1 Company. The Company was incorporated in the year 2006 and immediately thereafter the Petitioner was appointed as a Vice President. According to Learned Counsel the Petitioner was involved since inception hence worked hard to establish the company. However, when the Company was established, the Petitioner was illegally removed. The Company was established for Research and Development of Diagnostic Pathological Instruments, the field in which the Petitioner is highly qualified. The Company had taken the advantage of his qualifications. Learned A.R. has drawn attention on the Letter of Appointment dated 22nd January, 2007 according to which the Designation granted was "Vice President Research and Development" with the promise of basic salary amount of Rs. 7,20,000/- and with allowances Rs. 14,00,000/-. Thereafter an Agreement was executed on 14th May, 2010 between R-1 Company and the Petitioner, according to which, it was agreed upon to share 10% of the Commercial Receivable i.e. Gross Royalty. Royalty was earned for licensing the Technology to others. The grievance of the Petitioner is that without his knowledge an Agreement was executed between R-1 Company and R-3 Company, according to which, R-3 had agreed to pay R-1 an Annual Royalty on Nett Sales at the rate of 5% upto 5 years from the date of Commercial Launch. R-1 Company had granted R-3 an exclusive right to possess, manufacture, use and sale the instruments. When the work of the Company was flourishing due to the hard work of the Petitioner it was connived between R-1 and R-3 to take over the Research Work of the Petitioner. R-3 Company had sold 95% Shareholding in favour of another Company R-2 viz. Arkray Health Care Private Limited on 24th January, 2014. On 27th January, 2014 the Petitioner was informed about the said transaction through email from R-3. Without his information a Valuation was also procured on 1st February, 2014 and the value was determined of Rs. 2064.74/- per share. All this was happening at the back of the Petitioner. The requisite approval from the Ministry of Finance called as FIBP was also obtained through intimation dated 10th September, 2014 granting foreign collaboration of Singapore Company to invest in R-3 (SPAN). The approval sought was as under: "The approval is to M/s. Arkray Healthcare Private Limited, Mumbai for the following:- (a) To bring in share application money aggregating Rs. 1,00,10,34,930/- from M/s. Arkray & Partners Pvt. Ltd. Singapore and its existing shareholder M/s. Arkray Flobal Business Ic. Japan, and (b) To require/purchase the business undertaking of M/s. Span Diagnostics Limited, Gujarat (SPAN) (i) SPAN'S entire IVD Business, consisting of the corresponding assets, liabilities (secured and unsecured) employees, etc. on going concern basis and (ii) SPAN'S shareholding in its subsidiary company, M/s. Span Biotroics Private Limited, an entity registered under the Companies Act, which renders research and development services primarily to SPAN". 3.1 The Respondents were adamant to remove the Petitioner to enjoy the maximum advantage of the profits. The Petitioner has developed a device for sample collection which was objected on some pretext or the other. The Petitioner, highly qualified professional, was humiliated. The Petitioner was working in bona fide manner to protect the interest of the Company, hence written letter for SSI Registration and ITES Registration on 10th March 2015 which was not acknowledged. His research and technique of PCS was also not appreciated vide email of 27th March 2015 and finally through a letter dated 28th May, 2015 services were discontinued w.e.f. 27th June, 2015. On 6th July, 2015 Petitioner had written a letter demanding his legitimate dues i.e. Royalty of Rs. 5,00,000/- and severance pay for wrongful termination of Rs. 26,75,000/-. The Respondents have not paid the said amounts, therefore a Notice was also served but nothing had happened, hence this Petition. 3.2 To buttress the allegation of Mismanagement and Oppression Learned A.R. has placed reliance on the decision of S.P. Jain Vs. Kalinga Tubes, 1965 AIR(SC) 1535.;