2018 (6) TMI 948 - AT - Companies Law

Application to Tribunal for relief in cases of oppression, etc. - Waiver under the proviso to Section 244(1) - Whether a person who is not a member is entitled to the waiver under Section 244(1) would also have to be determined - Whether NCLT is entitled to grant the said waiver under Section 244(1) even without determining whether a petitioner before it is a member or not? - Held that - We observe that the Respondent No.1 and 2 have attended the Annual General Meeting of Nasik Diocesan Trust Association held on 28th November, 2014 and their signatures are on the attendance Sheet at Sl.No.4 and 5 at Page 66. The appellant has stated that certain directors stood automatically vacated of the office of directors by operation of law on account of non-filing of annual accounts and annual returns and thereby failing to discharge their duties as directors. We are of the opinion that there is provision in the Companies Act that a director can be removed but members are not normally removed. As per the claim of the appellant that respondents are not members and counter claim by the respondents that they are members. There are also some conflicting documents as some documents are showing that they are members of the company at some point of time and some documents are showing that they are not members of the company. Even if there is a provision in the Articles of Association for removal of the members, it may conflict with the provisions of law and if not so, strict compliance with the requirement for removal need to be placed on record so as to deny the membership right to a person who has been a member at one point of time or the other. This issue could be an exceptional circumstances, which may merit waiver . Looking to the nature of the company, location of the properties and the charity purpose for which the Association has been formed for the districts of Nashik, Aurangabad, Ahmednagar the shifting of the office from Nashik to Mumbai may be ground for Members of the company to be concerned. This seems to us exceptional circumstances for which waiver could be allowed to Members who have moved the company petition.Tribunal has rightly exercised its discretion and allowed the application for waiver. The appeal is dismissed.

Issues Involved:
1. Applicability of the proviso to Section 244(1) of the Companies Act, 2013.
2. Entitlement of non-members to waiver under Section 244(1).
3. NCLT's authority to grant waiver without determining membership status.
4. Applicability of waiver under proviso to Section 244(1) to non-members.

Issue-wise Analysis:

1. Applicability of the proviso to Section 244(1) of the Companies Act, 2013:
The appellants challenged the order passed by the National Company Law Tribunal (NCLT) granting waiver under the proviso to Section 244(1) to Respondent Nos.1 and 2. The Tribunal allowed the waiver application filed by the respondents, enabling them to pursue their petition under Section 241 for oppression and mismanagement. The Tribunal noted that the respondents, being laymen, were unaware of the technicalities and provisions of Section 244 and that their earlier counsel did not properly brief them. The Tribunal's decision was based on the bona fide attempt by the respondents to streamline the social/charitable activities of the appellant company, which is a Section 8 company incorporated for religious and charitable objectives.

2. Entitlement of non-members to waiver under Section 244(1):
The appellants argued that the respondents were not members of the appellant company and, therefore, not entitled to move an application for waiver. The appellants contended that the respondents were automatically vacated from the office of directors due to non-filing of annual accounts and returns, failing to discharge their duties as directors. However, the respondents claimed that they were members of the company and had attended the Annual General Meeting held on 28th November 2014, as evidenced by their signatures on the attendance sheet. The Tribunal observed that there were conflicting documents regarding the membership status of the respondents, which could be an exceptional circumstance meriting waiver.

3. NCLT's authority to grant waiver without determining membership status:
The appellants contended that the Tribunal should not have granted the waiver without determining whether the respondents were members of the appellant company. The Tribunal, however, noted that the respondents had raised issues regarding the jurisdiction and functioning of the company, the removal of directors, and the shifting of the registered office from Nashik to Mumbai. These issues were considered exceptional circumstances justifying the grant of waiver.

4. Applicability of waiver under proviso to Section 244(1) to non-members:
The Tribunal referred to the Cyrus Mistry case, where it was established that a non-member cannot move an application. However, in the present case, the Tribunal observed that there were conflicting documents regarding the respondents' membership status. The Tribunal emphasized that strict compliance with the requirements for removal of members needed to be placed on record to deny membership rights. The Tribunal concluded that the exceptional circumstances in this case warranted the grant of waiver.

Conclusion:
The Tribunal rightly exercised its discretion in allowing the waiver application, considering the exceptional circumstances presented by the respondents. The appeal was dismissed, and the NCLT, Mumbai, was directed to dispose of the company petition as per Section 422 of the Companies Act, 2013.

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