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2024 (9) TMI 1426 - AT - Companies LawOppression and mismanagement - whether the Appellants are entitled to the waiver of requirements under Sections 244(1)(a) and (b) of the CO Act 2013 so that they can apply under Section 241 of the Act for a case of oppression and mismanagement? - HELD THAT - While dealing with an application for a waiver under Section 244, the NCLT is very much empowered to make a preliminary assessment to determine whether the Petition falls within the purview of Sections 241 and 244. While the NCLAT in the Cyrus Investments 2017 (9) TMI 1500 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI case did hold that the merits of the case should not be considered at the waiver stage, but this does not preclude the NCLT from determining whether the Petition falls within the ambit of Sections 241 and 244. In the instant case, the waiver was refused based on the finding that the Petitioner has no prima facie case as the primary complaint in the petition relates to the directorship of the Petitioner, and hence the complaint is directorial. The important question is whether such a removal tantamounts to an oppressive or prejudicial conduct. The Hon ble Supreme Court in Tata Consultancy Services 2021 (3) TMI 1181 - SUPREME COURT has made it clear that mere removal/termination of the Director cannot be projected as something that would trigger the just and equitable Clause (2) to grant relief under Sections 241 and 242 of the Act. It is noted that the removal of the CEO / Executive Director at the AGM was not a motion by the management of the Company, but by another shareholder of the Company i.e. Respondent No.21. In this case, it is noticed that there are ongoing complaints and counter-complaints between the Appellants and the Respondents even prior to the filing of the Company Petition. But the Company Petition was filed by the Appellants around the time when a proposal was in circulation for the removal of Appellant No.1 as Director / Executive Director along with a notice for AGM. Even the interim relief sought in IA No. 5855 of 2023 in this Appeal is for staying the decision taken in the Annual General Meeting (AGM) dated 30.09.2023 with respect to removal of the Appellant No.1 as an Executive Director of the Respondent No.1, apart from various other interim reliefs. Appellant relies upon the conclusion in Cyrus Investments Private Limited vs Tata Sons Limited and Ors. 2017 (9) TMI 1500 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI , that there is a situation in the instant case also, that until and unless the minority shareholders join together, shareholding will not come up to 10% of the issued share capital of the Company and the threshold for filing a Petition under Section 241 of the Companies Act, 2013 will not be met. The Appellants with a total shareholding of 5.83%, do not meet the requirement as per Section 244(1)(a) and 244(1)(b). The Appellant s argument that this case presents exceptional circumstances meriting the grant of a waiver is not convincing. Perusal of the materials on record and the circumstances of the petition and the Appeal do not indicate any exceptional circumstances. The threshold for granting a waiver under Section 244 is high and is intended to be an exception rather than the rule. The NCLT s decision indicates that the Appellant has not demonstrated such exceptional circumstances that would justify bypassing the statutory requirement of a minimum shareholding for the filing of a petition under Section 241. The Petition revolves significantly around the Appellant s removal as a Director and the related grievances. Section 241 is not intended to address such personal grievances, but is meant to protect the interests of the company and its shareholders against genuine acts of oppression and mismanagement. The NCLT was, therefore, correct in refusing the waiver based on its assessment that the Petition does not substantiate a case of oppression and mismanagement as envisaged under the Companies Act. It is concluded that the NCLT acted within its jurisdiction and in accordance with the principles of law while denying the waiver under Section 244 of the Companies Act, 2013 - there are no infirmity in the orders of the NCLT - appeal dismissed.
Issues Involved:
1. Entitlement to waiver under Sections 244(1)(a) and (b) of the Companies Act, 2013. 2. Allegations of oppression and mismanagement. 3. Justification of removal of the Appellant as Executive Director. 4. Validity of the AGM and procedural compliance. 5. Applicability of legal precedents, including Cyrus Investments Pvt. Ltd. vs Tata Sons Ltd. and Tata Consultancy Services Ltd. vs Cyrus Investments Pvt. Ltd. Detailed Analysis: 1. Entitlement to Waiver under Sections 244(1)(a) and (b) of the Companies Act, 2013: The Appellants sought a waiver of the requirements under Sections 244(1)(a) and (b) to file an application under Section 241 for oppression and mismanagement. The NCLT dismissed this request, stating that the primary complaint was directorial and not related to oppression and mismanagement. The NCLT's decision was based on the premise that the Appellant's grievances were predominantly about his removal as a Director, which does not constitute grounds for a waiver. 2. Allegations of Oppression and Mismanagement: The Appellants alleged various acts of oppression and mismanagement, including insider trading, misappropriation of funds, related party transactions, and defamatory communications. They claimed that these actions were intended to tarnish the Appellant's reputation and remove him from his position unjustly. However, the NCLT found that these allegations were not substantiated with credible evidence and were primarily driven by personal grievances rather than genuine concerns for the company. 3. Justification of Removal of the Appellant as Executive Director: The Appellant was removed as Executive Director by an overwhelming majority of shareholders during the AGM. The Respondents justified this removal by citing various instances of misconduct and mismanagement by the Appellant, including unauthorized financial transactions, insider trading, and refusal to sign audited financial statements. The NCLT concluded that the removal was justified and did not constitute oppression or mismanagement. 4. Validity of the AGM and Procedural Compliance: The Appellants claimed that the AGM conducted on 30.09.2023 was a sham, alleging that the Appellant was not given an opportunity to make his submissions and that the e-voting process was flawed. The NCLT found no merit in these claims, noting that the Appellant did not comply with the procedure for participating in the AGM through video conferencing as required by MCA guidelines. The NCLT concluded that the AGM and the removal of the Appellant as Executive Director were conducted in compliance with the law. 5. Applicability of Legal Precedents: The Appellants relied on the judgment in Cyrus Investments Pvt. Ltd. vs Tata Sons Ltd. to argue that the NCLT should not consider the merits of the case while deciding on the waiver. However, the NCLT, supported by the Supreme Court's judgment in Tata Consultancy Services Ltd. vs Cyrus Investments Pvt. Ltd., noted that mere removal from directorship does not constitute oppression or mismanagement. The NCLT emphasized that the Tribunal must form an opinion on whether the grievances genuinely pertain to oppression and mismanagement before granting a waiver. Conclusion: The NCLT's decision to deny the waiver under Section 244 was upheld, as the Appellant's complaints were primarily directorial and did not substantiate a case of oppression and mismanagement. The appeal was dismissed, and the impugned order dated 20.11.2023 was upheld. The NCLT acted within its jurisdiction and in accordance with the principles of law, ensuring that the provisions of the Companies Act were not misused for personal grievances.
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