2024 (11) TMI 1083 - AT - Companies Law

Oppression and mismanagement under Sections 241 and 242 of Companies Act, 2013 - seeking a waiver for initiation of the proceedings under Section 244(1)(b) of the Companies Act, 2013 - HELD THAT - The intention of legislature by introducing the proviso to Section 244 of the Companies Act, to grant a waiver is by way of an exception to the general law. It is not a waiver by conduct or by way of a right. Waiver herein would mean that a person is granted an exemption, in special circumstances from satisfying the pre-established conditions for instituting a judicial proceeding. In that eventuality, the concept of waiver under the proviso to Section 244, has to be strictly and rigidly followed, as it is a waiver by implication of law, which is carving out an exception, to the general provision to litigate, for the reason being that, if the said waiver is not granted, it would amount to that, the apparent legal disabilities to initiate the proceedings, were declined to be granted, due to non-satisfaction of the mandatory pre-conditions contained under Section 244 for initiating proceedings under Section 241 and 242. In this eventuality in the instant case, where the appellant has sought a waiver, by placing his case under Section 244 of the Companies Act, there has had to be an incidental consideration of, as to what would be the elements which would be required to be satisfied to permit the appellant to initiate proceedings under Section 241 of the Companies Act, against the respondents. In the instant case, since the waiver is a concept, added by the proviso to Sub-Clause (b) of Sub-Section (1) of Section 244, the philosophy of waiver shall not be read in exception to the principle provision, but it should be read as to be in addition to qualifying the conditions of the principal provisions of law. At times, the concept of waiver is under either of the circumstances, that, waiver by conduct or waiver by prescription of law. It normally resembles as to be a form of election of a right, but that may not be the case at hand, it is rather not an election, but rather a grant of a right claimed by attracting the proviso, and once it overrides or attempts to or intends to override the principal provision, a very rigid attitude has to be adopted for granting a waiver and that too particularly, when in the instant case where a right to proceed under section 241 was being sought by only one member of the club, that is the appellant herein, which is nowhere near to the prescribed strength of 1/5th of the total number of members as contemplated under Sub-Clause (b) of Sub-Section (1) of Section 244. The Hon ble Apex Court, as back as in 1965 in a matter reported in S. P. Jain versus Kalinga Tubes Limited 1965 (1) TMI 17 - SUPREME COURT , had an occasion to deal with the precepts of oppression and in the said matter the Hon ble Apex Court was dealing with Section 153C in relation to The Indian Companies Act, 1913 and Section 397 in relation to the Companies Act of 1956. The Hon ble Apex Court had elaborately dealt with as to what would the term oppression would actually mean. The Tribunal has taken a view that, a waiver under the proviso could not be granted, because none of the other members have ever raised any grievances and since the proceedings under section 244 was sought by only one member in a company limited by guarantee the waiver under the proviso was denied. The proviso of Section 244 Sub-Section (1)(b) provides that provided that the Tribunal may on an application made to it in its behalf, waive all or any of the requirements specified in Clause (a) or Clause (b), so as to enable the member to apply under Section 241 . The use of word May is directory in nature. The waiver sought for, under the proviso is not an absolute waiver, which could be granted by the Tribunal as a matter of course because that would always depend upon the facts and circumstances of each case and grant of such waiver will be only when there is a strong case made out and not merely based on self-generated allegations. Further in the instant case the appellant has already instituted two Civil Suits, on the same subject matter, as it has been pleaded in his application under Section 244(1) and therefore the waiver has rightly been rejected. There are no merit in the appeal - appeal dismissed.

Summary

Issues Involved:

1. Waiver under Section 244(1)(b) of the Companies Act, 2013.
2. Allegations of oppression and mismanagement under Sections 241 and 242.
3. Concurrent civil proceedings and their impact on the waiver application.
4. Interpretation and application of legal principles regarding waiver.
5. Locus standi of the appellant post-expulsion from the club.

Detailed Analysis:

1. Waiver under Section 244(1)(b) of the Companies Act, 2013:

The appellant sought a waiver from the requirement under Section 244(1)(b) to initiate proceedings under Sections 241 and 242, arguing that the club is a company limited by guarantee and not by shares. The appellant contended that it was impossible for him, as an individual member, to constitute one-fifth of the membership required to file such proceedings. The Tribunal highlighted that the waiver is an exception to the general rule and must be strictly construed. The appellant's case did not meet the threshold of one-fifth of the total members, and no other members joined the grievance, leading to the denial of the waiver.

2. Allegations of Oppression and Mismanagement:

The appellant alleged unlawful suspension and acts of mismanagement by the club's management, such as improper elections and maintenance of member registers. He argued that these acts justified a waiver to pursue claims under Sections 241 and 242. However, the Tribunal found that these allegations were primarily personal grievances and did not constitute a prima facie case of oppression or mismanagement that would warrant a waiver under Section 244.

3. Concurrent Civil Proceedings:

The appellant had already initiated two civil suits addressing similar grievances, including the legality of his suspension and expulsion from the club. The Tribunal noted that the issues raised in the civil suits overlapped with those in the waiver application, and the civil court's pending decisions could impact the appellant's standing. The Tribunal emphasized avoiding multiplicity of proceedings and potential conflicts between judicial outcomes, thus supporting the decision to deny the waiver.

4. Interpretation and Application of Legal Principles Regarding Waiver:

The Tribunal referred to legal precedents and principles, including the need for a liberal yet cautious interpretation of the waiver provision. The appellant's reliance on legal maxims and past judgments was insufficient to override the statutory requirements of Section 244(1)(b). The Tribunal stressed that a waiver should not be granted merely on the appellant's assertions without satisfying the legal criteria, particularly when similar issues were already before a civil court.

5. Locus Standi of the Appellant Post-Expulsion:

The appellant's expulsion from the club raised questions about his legal standing to pursue the waiver and subsequent proceedings. The Tribunal noted that the appellant had challenged his expulsion in civil court, and until resolved, his right to initiate proceedings under Sections 241 and 242 was questionable. The Tribunal concluded that without a clear resolution on his membership status, the appellant lacked the necessary standing to proceed with the waiver application.

Conclusion:

The Tribunal dismissed the appeal, finding no merit in the appellant's arguments for a waiver under Section 244(1)(b). The decision was based on the failure to meet statutory requirements, the overlap with pending civil proceedings, and the unresolved issue of the appellant's membership status. The Tribunal emphasized the need for a strict interpretation of waiver provisions and the importance of avoiding duplicative legal actions.