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TMI Blog2024 (11) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Vs. Ootacamund Club & 13 Ors., is the Company Petition CP No.113(CHE)/2022 that stood instituted before the Ld. Adjudicating Authority, as the consequence of the registration of an application preferred under the proviso to Section 244(1), seeking a waiver from Section 244(1)(b) of the Companies Act, 2013. 2. The appellant had instituted an application under proviso to Section 244(1) on 08.08.2022, seeking an exemption from Section 244(1) for initiating the proceedings under Sections 241 & 242 of the Companies Act, for the purposes of agitating the cause against an act of "oppression" and "mismanagement", as it was attempted to be leveled against the Respondent No. 1, the Ootacamund Club and its office bearers. In the application thus submitted by him, he had invoked the provisions contained under Section 244(1) to be read with Rules 11, 14 & 83A of the National Company Law Tribunal Rules, 2016. 3. Primarily, his case was that for preferring the petition under Section 241/242 of the Companies Act 2013, he should have granted exemption/waiver for initiation of the proceedings, in his favour for the reason being that, Respondent No. 1 is a company limited by guarantee and not lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id application preferred under section 244(1), is taken into consideration in its totality, there have been no specific plea taken by the appellant, to bring any act of Respondent No. 1, within an ambit of Sections 241 and 242 of the Companies Act, which could have necessitated the initiation of proceedings under Section 241/242. He answers this point by stating that, for the purposes of grant of a waiver under Section 244(1), no specific pleading, which is required, to be made, because, as per his comprehension of said section, at the stage of considering a grant of waiver under the proviso to Sub- Section 1 of Section 244, simply a prima facie case needs to be made out, and not a detailed scrutiny or analysis, of the set of allegations to establish the claim of oppression and mismanagement. He further argues that, even if a critical analysis is required to be made to bring an act of the company, within the ambit of mismanagement and oppression, in that eventuality, the misconduct or mismanagement or any act of oppression as pleaded in the principal application under section 241/242, could also be taken into consideration. For the said purpose, he has placed reliance upon a judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and Sons v. Balbir Nath Mathur, (1986) 2 SCC 237 AIR 1986 SC 1499". 7. The aforesaid ruling lays down as to how the proviso to section 244, has to be rationally interpreted so as to avoid closing the doors of the court for redressal of grievance, has been derived from the ratio which has been settled by the Hon'ble Apex Court in its the judgment reported in AIR 1986 Supreme Court Page 1499. The subject matter of the said Judgment pertains to Rent Control matter arising from Delhi, which is a subject contained in List II of VII Schedule which is a different subject altogether as compared to Corporate Law contained in List I. 8. The application thus preferred under Section 244 by the Appellant had been opposed by the respondent on the ground that, no relief could be granted to the appellant under Section 244(1) for the reason being that almost for the same cause of action, the appellant has already approached the Civil Court by instituting the suits being O.S. No. 65 of 2022, where the appellant has sought a declaration of his suspension from membership of the club as void and secondly, he has preferred a suit being O.S. No. 68 of 2022, wherein the appellant has sought a prayer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a show cause notice as against the act of suspension dated 26.04.2022, has been put to challenge, the same, with the passage of time and owing to certain further developments have been rendered infructuous. But at this stage, we are not required to go into the aspect as to what implication the subsequent developments will have on the suit itself, because that is yet to be decided by the competent Civil Court on its own merit. 10. Elaborating their argument, the Respondents have submitted that because of the fact that, the appellant has already, by way of an amendment, put a challenge to his order of expulsion from membership of the club of Respondent No. 1, the foundation of the proceedings of Section 244 to be read with Section 241 and 242 of the Companies Act would not lie because he is no longer a member and the matter of expulsion still being a subject matter before the Learned Munsiff Court, no waiver under section 244 (1) is required to be granted. Further, if the entire development in the case are taken into consideration, particularly in the context of the relief sought by the Appellant in O.S. No. 65 of 2022, the said relief in form of a declaration against the suspensi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. He submits that the club and its office bearers have been functioning and managing the affairs of the club in a manner, prejudicial to the democratic setup of the company, that for the purposes of voting, elections and general meetings, only a mere formality has been adhered to by the respondents and there has been apparent non -compliance of the provisions of the act and the rules, which defeats the purpose of the act, and that this in itself will amount to be mismanagement and oppression and hence based on the aforesaid grounds he would be entitled for a waiver even if he agitates cause in an individual capacity. 13. In order to highlight the acts of mismanagement, the appellant has cited, the illegalities committed during the election dated 30.09.2021. He has stated that the illegality is apparent on the face of the record, which he has detailed in his communication dated 30.09.2021, addressed to the president of the club and in the declaration, which he has sought in relation to the 132nd AGM meeting, which was improperly conducted and in violation of the provisions contained under Section 105 of the Companies Act and this alone calls for invoking the provisions contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany shall have the right to apply under section 241, namely:- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one- tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members: Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation.-For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (2) Where any members of a company are entitled to make an application under subsection (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o institute a proceedings. If a waiver carves an exception and confers a legal right which is otherwise barred by law, it has to be given a limited meaning, so that, the very purpose of the embargo created by the principal provisions may not be overridden. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to the notice of NCLT and it has considered the same. According to the counsel it is admitted fact that capital and original applicant/respondent no. 1 is having 6.62 per cent of the paid up equity capital. According to the counsel the present appellants made various efforts to oppress the original applicant and even made efforts at demerger of the company and when the original applicant objected to such acts, they withdrew from those acts but by a subsequent act whole business of the company by an agreement dated 27.03.2013 has been handed over to the present appellant no. 5 on slump sale basis which was hugely undervalued and when the substratum of the Company which was the business itself has been transferred, it is an exceptional circumstance and case for grant of waiver. Referring to the judgment of NCLT, it has been argued by learned counsel for respondent no. 1 that NCLT took note of the shareholding position of original applicant and considered that it was a case of oppression and mismanagement and kept in view the judgment in the matter of Cyrus Investment and held exceptional circumstance was made out. The Civil Suit filed has been objected to by the appellants i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. And the same has been observed in Para 13, 14, and 17. The same are extracted here under: - "13. We shall first take up the case under Section 397 of the Act and proceed on the assumption that a case has been made out to wind-up the Company on just and equitable grounds. This is a new provision which came for the first time in the Indian Companies Act, 1913 as Section 153-C. That section was based on Section 210 of the English Companies Act, 1948, which was introduced therein for the first time. The purpose of introducing Section 210 in the English Companies Act was to give an alternative remedy to winding up in case of mismanagement or oppression. The law always provided for winding up, in case it was just and equitable to wind up a company. However, it was being felt for sometime that though it might be just and equitable in view of the manner in which the affairs of a company were conducted to wind it up, it was not fair that the company should always be wound up for that reason, particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of this section, and it is left to courts to decide on the facts of each case whether there is such oppression as calls for action under this section. 14. We may in this connection refer to four cases where the new Section 210 of the English Act came up for consideration, namely, (1) Elder v. Elder and Watson (2) George Meyer v. Scottish Cooperative Wholesale Society Ltd.2 (3) Scottish Cooperative Wholesale Society Ltd. v. Meyer which was an appeal from Meyer case and (4) Re. H.R. Harmer Limited. Among the important considerations which have to be kept in view in determining the scope of Section 210, the following matters were stressed in Elder case as summarised at p. 394 in Meyer case: "(1) The oppression of which a petitioner complains must relate to the manner in which the affairs of the company concerned are being conducted; and the conduct complained of must be such as to oppress a minority of the members (including the petitioners) qua shareholders. (2) It follows that the oppression complained of must be shown to be brought about by a majority of members exercising as shareholders a predominant voting power in the conduct of the company's affairs. (3) Alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely.... But, apart from this, the question of absence of mutual confidence per se between partners or between two sets of shareholders, however relevant to a winding up seems to have no direct relevance to the remedy granted by Section 210. It is oppression of some part of the shareholders by the manner in which the affairs of the company are being conducted that must be averred and proved. Mere loss of confidence or pure deadlock does not come within Section 210. It is not lack of confidence between shareholders per se that brings Section 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involves at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder." 23. As per Section 244 of Companies Act 2016, a right to apply under section 241/242, could be granted subject to, the stipulations and restrictions contained under Sub-Section 1. In relation to the instant company of Respondent No. 1, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is grievances but it should not be by way of vengeance or personal vendetta, thus to overcome the embargo of Section 244(1)(b), which can be permitted to be carried under the aforesaid Latin maxim. 25. The ratio which has been extracted to be applied was emanating from proceedings of a rent-control eviction matter, under consideration before the Hon'ble Apex Court in the matter of M/s. Girdhari Lal's (Supra), where the aspect of the interplay of rent eviction and subletting was subject matter of consideration. Principally the ratio extracted to be applied from the rent control law for the purposes of Section 244 may not be safe enough to grant liberty by way of a, waiver to initiate proceedings Section 241/242 and that is why the Learned Tribunal in the Impugned Judgment, while dealing with the aforesaid principle, has observed that at this stage, in order to avoid any contradiction over the issues which has been raised, which are intertwined with one another, they should not be permitted to be agitated under Section 241 and 242, until and unless the source of allegations as referred to by the appellant, which also engages consideration of the Ld. Trial Court are addressed by it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave used the word in that interpretation which least offends our sense of justice". (Simms v. Registrar of Probates [1900 AC 323 (PC)], AC p. 335.) If the grammatical construction leads to some absurdity or some repugnance or inconsistency with the rest of the instrument, it may be departed from so as to avoid that absurdity and inconsistency. (Grey v. Pearson [(1857) LR 6 HL Cas 61: (1843-60) All ER Rep 21), HLC p. 106.) Similarly, a construction giving rise to anomalies should be avoided........ xxx"." 26. That since Respondent No. 1, being a social club of 900 members, proceeding under Section 241/242 couldn't have been initiated until and unless the motion was carried by 1/5th members of the club. The attempt sought for by the appellant of the proviso for waiver will not apply because all the issues which have been sought to be attracted by the appellant to be read for application under Section 244(1)(b) are already subject matter under consideration before the Civil Court in the proceeding which has been initiated by him in a Civil Suit No. 65 of 2022 and 68 of 2022. 27. Owing to the above, we do not find any merit in the appeal for the following reasons: a. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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