2020 (4) TMI 386 - AT - Companies Law

Redemption of preference shares - failure of the company to redeem or to pay dividend - NCLT has dismissed the application of Appellant solely on the ground that the Appellant being preferential shareholders has no locus standi to file application for redemption of shares under Section 55(3) of the Companies Act, 2013 or even under Section 245 of the Companies Act, 2013 - HELD THAT - Section 55(3) of the Companies Act, 2013 clearly states that the Company, when not in a position of redeem its preference shares, may with the consent of 3/4th in value of such preference shares and the approval of the Tribunal ( on a petition filed in this behalf), issue further redeemable preference shares equal to the amount due (including dividend, if any) in respect of such unredeemed shares. However, there is a proviso - In ordering such further issue, the Tribunal shall forthwith order redemption of preference shares held by such persons who do not consent to such further issue. The Section stipulates that the Company only with the requisite consent of preference shareholders and filing a petition in this behalf before the Tribunal and its consequent approval can issue further redeemable preference shares with regard to the unredeemed preference shares. The Section though requires prior consent of the shareholders, does not provide for any action that can be taken by the concerned preference shareholders prior to filing of such petition by the Company. Thus, remedies available to such preference shareholders are only by way of either consenting or dissenting with such further issue - However, intention of the legislature while promulgating Section 55 of the Companies Act, 2013 was clearly to compulsorily provide for redemption of preference shares by doing away with the issue of irredeemable preference shares. Therefore, even there being no specific provision stipulated under the Act 2013 through which relief can be sought by preference shareholders in case of non-redemption by the Company or consequent non-filing of petition under Section 55 of the Act, the intention of the legislature being clear and absolute, Tribunal s inherent power can be invoked to get an appropriate relief by an aggrieved preference shareholder(s). The preference shareholders are not remediless and for redemption of preference share can file application under Section 55(3) of the Companies Act, 2013. They may also file application under Section 245 of the Companies Act, 2013 as a class action suit and the NCLT while exercising the inherent power viz. Rule 11 of NCLT Rules, 2016 can pass appropriate order - The matter is remitted back to NCLT, Chennai Bench to decide the application as per law.

Summary

Issues Involved:
1. Locus Standi of Preference Shareholders to file for redemption under Section 55(3) of the Companies Act, 2013.
2. Applicability of Section 245 of the Companies Act, 2013 for class action by preference shareholders.
3. Tribunal's inherent power to provide relief to preference shareholders.

Detailed Analysis:

1. Locus Standi of Preference Shareholders to file for redemption under Section 55(3) of the Companies Act, 2013:
The Tribunal initially dismissed the application of the Appellant on the grounds that preference shareholders have no locus standi to file for redemption under Section 55(3). Section 55(3) mandates that the company, with the consent of 3/4th in value of such preference shares and Tribunal approval, may issue further redeemable preference shares if unable to redeem the existing ones. The Tribunal interpreted that only the company can file such a petition, not the shareholders. However, the Appellate Tribunal clarified that the intention of the legislature was to ensure the redemption of preference shares, thereby implying that preference shareholders should not be left without remedy. The Tribunal's inherent power can be invoked by aggrieved preference shareholders to seek appropriate relief.

2. Applicability of Section 245 of the Companies Act, 2013 for class action by preference shareholders:
The Appellant argued that they should be allowed to file under Section 245, which deals with class action for seeking remedies against the company and its directors. The Respondent countered that Section 245 requires a minimum requisite number of members or depositors to file an application, which was not met by the Appellant alone. The Appellate Tribunal noted that preference shareholders fall within the definition of 'members' under Section 2(55) read with Section 88 of the Companies Act, 2013, and hence, they can file a petition under Section 245 as a class action suit if aggrieved by the conduct of the company's affairs.

3. Tribunal's inherent power to provide relief to preference shareholders:
The Appellate Tribunal emphasized that the inherent powers of the Tribunal under Rule 11 of NCLT Rules, 2016, can be exercised to provide appropriate relief to preference shareholders. The legislative intent behind Section 55 was to ensure the redemption of preference shares and avoid irredeemable preference shares. Thus, even in the absence of explicit provisions for preference shareholders to seek relief, the Tribunal can use its inherent powers to address their grievances.

Conclusion:
The Appellate Tribunal set aside the NCLT's order, holding that preference shareholders are not remediless and can file applications under Section 55(3) and Section 245 of the Companies Act, 2013. The matter was remitted back to the NCLT, Chennai Bench, for reconsideration as per the law. No order as to costs was made.