Nachiketa Textiles Limited - Mr Dave Case Study - Business Assignment Help

Assignment Task:

Nachiketa Textiles Limited (“NTL”) is a public listed company incorporated in Gurgaon, Haryana whose securities are listed on the Bombay Stock Exchange (“BSE”) and National Stock Exchange (“NSE”). NTL’s equity shareholding is divided primarily between two groups: the Norohna family which jointly holds about 65 percent shares in NTL and Ranveer Dave and his family who hold about 30 percent shares. The remaining 4 percent shares are listed on BSE and NSE. The primary business of NTL was in manufacturing wholesale textile materials and woolen materials for sale to retail businesses. From the time of its incorporation, there was an agreement between the Nachiketa family and the Dave family such that the capital would be provided by the former, however, they would not be taking managerial decisions for NTL, which would be vested with the Dave family, with Mr. Ranveer Dave as the Managing Director (“MD”) of NTL. NTL had 12 directors on its Board of Directors, 4 of whom were independent directors. Of the remaining 8, 3 directors belonged to the Nachiketa group and other than Mr. Dave, 4 more directors were from the Dave family.

In 2016, Mr. Dave, as the MD proposed branching out into the retail business to the Board, and since the Nachiketa group was content to let Mr. Dave make the decisions for NTL, the resolution was passed by the Board and subsequently an Extraordinary General Meeting (“EGM”) was held to alter the objects of NTL in the Memorandum of Association (“MoA”) so that the retail business could be started. At the EGM, the Nachiketa group did not attend, and Mr. Dave and his group all attended the EGM and unanimously voted in favour of the resolution and the special resolution was therefore passed. Accordingly, in 2016, NTL launched a number of retail stores across Delhi NCR region under the brand ‘Nachiketa Fast Fashion’ (“NFF”). Unfortunately, right from the inception of NFF stores, they were not successful and much of the profits which NTL had sustained from 2014 got used up in keeping the stores running and despite this fact, profit margins remained slim to none and by January 2019, most of the NFF stores had gone into losses and NTL had lost many of its retail customers who were resentful that NTL was competing with them through its new business.

Mr. Dave and his wife were in the habit of going for an annual ‘meditation retreat’ during the spring months, and they had gone for this retreat from 25th February to 15th April 2019 in Maldives, where one of the rules of the meditation retreat was that phones and computers were not allowed on the resort property. On 29th March 2019, one of the nominee directors of the Nachiketa group, Ms. Damini Nachiketa, sent a notice stating that ‘urgent business’ needed to be discussed and called for a Board meeting on 3rd April. The notice for this meeting was sent by email to all the directors and the notice was also sent by post to the registered addresses of all directors. At this Board meeting, the three Nachiketa group directors and 1 independent director, Dr. Khan, were present, and as acting Chairperson, Ms. Nachiketa proposed a resolution that new shares should be offered to all existing shareholders to the amount of INR 25 lakh to inject funds into NTL and revive it from its losses. Tis resolution was passed unanimously by all the directors present and voting. It was decided at the Board meeting that a letter

inviting all existing shareholders to buy shares would be sent out on 5th April 2019, giving them time until 25th April 2019 to purchase the shares that were being issued by NTL.

When Mr. Dave and his wife returned from their retreat on 15th April 2019, they found that the Board meeting had been held and a letter offering them new shares in NTL was also waiting for them. Since the Dave group of shareholders were primarily managers of NTL and had initially also not made a significant financial contribution, they were unable to purchase any of the newly issued shares. The Nachiketas on the other hand renounced the shares offered to them to two new persons who were interested in investing in NTL, Mrs. and Mr. Iqbal. Further, since Mr. Dave and his group were unable to purchase any of the shares offered to them, those shares were taken up by the Nachiketa group after the expiry of the notice period and all the new shares were allocated on 29th April. The result was that the shareholding pattern of NTL had changed significantly, such that the Nachiketa group had 55 percent shares, the new investors had about 32.5 percent shares, the Dave group had about 7.5 percent shares, and the remaining 5 percent shares were listed on the stock exchanges.

On 1st July 2019, Mrs. and Mr. Iqbal requisitioned an EGM to be held for NTL, to remove Mr. Dave as the MD and to remove the other 4 Dave family directors as well. On 25th July, on receiving no word from the Board of Directors, Mrs. and Mr. Iqbal themselves sent a notice stating that an EGM would be held on 20th August 2019. The agenda for this meeting included proposals for ordinary resolutions to remove the Dave group directors and a special resolution for the removal of Mr. Dave as the MD and the appointment of Ms. Damini Nachiketa as the new MD for NTL.

When the EGM was held, Mr. Dave gave the defense that all the shareholders had been in favour of the retail business and it was a decision taken in good faith which should not be a reason to remove him as MD. Similar defenses were offered by the other Dave group directors. However, the Nachiketa group and the Iqbal’ were in favour of his removal and therefore he was removed. Similarly, they were also in favour of removing the other 4 directors. Once the directors of the Dave group had been removed, a resolution was proposed for the appointment of Ms. Nachiketa as the new MD and was approved by the shareholders of the Nachiketa group and the Iqbal’ and she was appointed as MD.

On the basis of the above facts, answer any 3 of the following 4 questions. The word limit for each question is 1000 words:

1. Ranveer Dave approached the Principal Bench of the National Company Law Tribunal (“NCLT”) claiming that the majority shareholders (Nachiketa and Iqbal families) have acted in collusion to oppress the Dave family. Explain with the use of facts and legal principles whether there has been any oppression on part of the majority shareholders.

2. Has the proper procedure been followed for the calling of the Board Meeting on 3rd April 2019 as well as the later decision for issuance of new shares to existing shareholders? Determine on the basis of relevant sections of the statute and case law.

3. Has the proper procedure been followed for the EGM on 20th August 2019 including removal of directors? Determine on the basis of relevant sections of the statute and case law.

4. As a counter-claim, the Nachiketa and Iqbal family have claimed that the actions of the Dave family were illegal, improper and amount to oppression and mismanagement. Based on the facts and legal principles, explain whether the actions of the Dave family are improper or illegal, or if they amount to oppression and mismanagement.

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