Any member of a company can approaches to the NCLT if member has a ground that the affairs of the company are being conducted in a manner i.e. is prejudicial to the interest of the Company or oppressive to the interest of any member or his interest. Even if the member has a ground that the affairs of company are being conducted in the manner i.e. prejudicial to the interest of Public, such member can approach to the relevant with relevant prayer under section 241-244 of the Companies Act, 2013.
Even central government can also approach to the NCLT under this section if it has ground that affairs of the company are conducted in a manner which is prejudicial to the interest of Public.
So, any member or shareholder can approach to the NCLT for oppression or mismanagement of the Company?
Precisely, No. A member or members holding 1/10th of issued share capital or minimum 100 members or 1/10 of total number of members can approach to the tribunal with their relevant prayer. But National Company law Tribunal has vaster powers and it can waive the mandatory requirement of section 244 to approach the forum based upon the facts and circumstances. For instance; In many matters it has been seen that just before approaching the tribunal, member or members were holding equity shares which is over and above the minimum requirement (1/10 of shares) to approach the tribunal and since their cause to approach NCLT is that their shares holding has been reduced fraudulently or illegally without any notice and consent in such cases tribunal has allowed the petitions.
Another example is that if company’s majority control is with one family and minority shareholders have ground of complaint that the affairs are being conducted which shall result in financial loss to company and its members i.e. Majority shareholders are siphoning of funds indirectly for their personal purposes or obtaining loans against the interest of Company. Fundamental principle is balance of equilibrium and natural justice, wherein, tribunal analyze any petition with an exemption application before it based upon the circumstances and facts of the matter.
The Hon’ble NCLAT has in Anup Kumar Agarwal & Anr. v. Crystal Thermotech Ltd. & Ors. [Company Appeal (AT) No. 17 of 2016 passed on 24.1.2017 @ paras 27 and 28] held that in cases where the applicant alleges that his share has been brought down by way of oppression and mismanagement below 1/10th of the total shareholding then it is the duty of the Tribunal to determine whether the applicant had requisite shareholding prior to the date of filing the petition and such petition cannot be dismissed on ground of not fulfilling the eligibility criteria.
What relief NCLT Can provide under this section?
NCLT has massive power under the scope as defined under Section 242 of the Companies Act, 2013. Tribunal can cancel shares or may cancel any share transfer transaction or stay on any agreement or may cancel any nature of agreement done before that date or removal of the board or absolutely stay on the operations of company through existing board or members. It is one such powerful remedy under the Companies acts through which an NCLT can grant any relief which may even extend to the winding up of the Company. Now imagine being a tribunal with limited powers when compared with examination power of trial courts the forum under this section is entitled to recover undue gains obtained by any of the member.
The Hon’ble NCLAT in Archer Power System Pvt. Ltd. v. Cascade Energy Pvt. Ltd. & Ors. [Company Appeal (AT) No. 213 of 2017 @paras 39 to 41] has also held that the NCLT in exercise of its powers under Sections 242(4) of the Companies Act, 2013 r/w Rule 11 of NCLT Rules, 2016 is empowered to pass such interim orders as it deems fit including orders of status quo ante. The petitioners humbly state that since the petitioners have been wrongfully ousted from the Board of Directors of the Company and their shareholding has also been brought to nil illegally and wrongfully, therefore in order to prevent further acts of oppression and mismanagement this Hon’ble Tribunal ought to pass an order of status quo ante in order to prevent further prejudice to the petitioners and the Company
Interestingly, there are many cases when petitioners have prayed for an injunction to restrain the respondents from using the funds for litigation purposes and tribunal has imparted relevant relief time and again.
Note: There is a pending matter pending before the NCLT, KOLKATA Bench and one can follow this matter to under stand the scope and power of NCLT from wider perspective. Here is the relevant detailed order: https://nclt.gov.in/gen_pdf.php?filepath=/Efile_Document/ncltdoc/casedoc/1908134051992023/04/Order-Challenge/04_order-Challange_004_171033294020501079265f19c0cbb9ff.pdf
-Dixit Mehta, Partner, Ductus Legal
DUCTUS EDGE 