2018 (6) TMI 732 - AT - Companies Law

Oppression and mismanagement - application filed for waiver - application for waiver subject to the question whether (proposed) application under Section 241 relates to oppression and mismanagement - Held that - Except for appellants 2 and 3 none of the other shareholders can maintain an application of oppression and mismanagement. As per the judgment of Cyrus 2017 (9) TMI 1500 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI other minority stake holders cannot be asked or directed to form a group of 10% of the members. This is an exceptional factor and we find substance in the arguments of the learned counsel for Respondent no.1 that the Respondent no.1 (original applicant) has 6.62 per cent shareholding and the appellants 2 to 4 have purposely left a minuscule 0.038 per cent in the hands of others and kept rest of the shares with themselves. The argument is that the number of Members has been increased by transferring 15 shares to employees so that Section 244 could not be satisfied. Going through the application which was filed for waiver by the Respondent no.1 we find that the application pertains to oppression and mismanagement . We keep in view the pleadings of alleged oppression and mismanagement. There is no dispute that the original applicant/ respondent no.1 is member of the company. It cannot be said that the application is frivolous. It is not a case that similar allegations of oppression and mismanagement were earlier made and stood decided or concluded - When any member of the company complaints of oppression and mismanagement in the company in view of the Companies Act the issue has to be decided by NCLT. Thus only because the Respondent no. 1 filed suit in the High Court would not be a Bar to present application as the question of oppression and mismanagement has to be decided by NCLT. No doubt in the impugned order NCLT reading the proviso below section 244 as it is discussed whether prima facie case is made out and observed that the respondents had not shown certain factors but we are ignoring those observations in view of judgment in the matter of Cyrus. However we on our analysis of the matter find that it is a fit case for grant of waiver. In reply to arguments of the Ld. Counsel for respondent no.1 (original appellant) it is argued by Appellants (see brief written submissions on behalf of the appellants filed on 19.03.2018) that appellant no.5 is not a shareholder of the 1st appellant company nor is it involved in its management; and that appellant no.5 is only the transferee under a Business Transfer Agreement signed by the 1st appellant company; and that It is a bona fide third party purchaser of the 1st appellant s assets at a fail value . We find that when it is shown that substratum itself of the company has been transferred it is an exception circumstance and waiver as sought should be granted.

Summary

Issues Involved
1. Waiver of clause (a) and (b) of section 244 to file a petition under section 241 of the Companies Act, 2013.
2. Allegations of oppression and mismanagement.
3. Validity of the application for waiver and whether exceptional circumstances exist.
4. Pending civil suit and its impact on the waiver application.
5. Role and involvement of appellant no. 5 in the company’s affairs.

Detailed Analysis

1. Waiver of Clause (a) and (b) of Section 244
The primary issue was whether the original applicant made out a case for waiver of clause (a) and (b) of section 244 to file a petition under section 241 of the Companies Act, 2013. The NCLT found that the Legislature has set a minimum criterion under section 244 for making an application under section 241, but the Tribunal has the power to waive this criterion to do substantial justice. The Tribunal concluded that the case was exceptional and warranted a waiver in the interest of justice.

2. Allegations of Oppression and Mismanagement
The original applicant, holding 6.62% of the paid-up equity capital, alleged several acts of oppression and mismanagement by the respondents. These included the unjustified issuance and buy-back of shares, efforts to demerge the company, and the sale of the company's software business on a slump sale basis. The applicant argued that these actions were designed to dilute its shareholding and prevent it from meeting the statutory requirements to file a petition for oppression and mismanagement.

3. Validity of the Application for Waiver and Exceptional Circumstances
The appellants argued that no special exceptional circumstances were made out for the grant of waiver. They cited the judgment in the matter of Cyrus Investments Pvt. Ltd. & Ors. Vs. Tata Sons Ltd. & Ors., which held that waiver could only be granted under "special and exceptional circumstances." The NCLT, however, found that the respondents had failed to provide explanations for several questionable actions, such as the buy-back of shares and the sale of the company's business. The Tribunal determined that the applicant had made out an exceptional case for waiver.

4. Pending Civil Suit and Its Impact on the Waiver Application
The appellants contended that the original applicant had filed a civil suit with identical averments, which was still pending. They argued that the remedy of a derivative action civil suit and a claim of oppression are inconsistent, and the applicant should be precluded from seeking relief before the NCLT. However, the Tribunal noted that the civil suit was objected to on the grounds that it was a case of oppression and mismanagement, which should be decided by the NCLT. Therefore, the pending civil suit did not bar the present application for waiver.

5. Role and Involvement of Appellant No. 5
Appellant no. 5 argued that it was not a shareholder or involved in the management of the company but was merely a bona fide third-party purchaser of the company's assets. The Tribunal found that when the substratum of the company has been transferred, it constitutes an exceptional circumstance justifying the grant of waiver.

Conclusion
The Tribunal dismissed all three appeals, finding that the original applicant had made out a case for waiver under section 244 of the Companies Act, 2013. The Tribunal emphasized that the issues raised by the appellants related to the merits of the case, which would be decided in due course. The waiver was granted to ensure that the applicant could seek relief for the alleged acts of oppression and mismanagement.