Only Existing Members Of Company Can Seek Relief Against Oppression & Mismanagement: NCLAT Chennai

The National Company Law Appellate Tribunal (NCLAT) at Chennai has recently ruled that only existing members of a company are entitled to seek relief for oppression and mismanagement under Section 244 of the Companies Act, 2013, even in so-called "exceptional circumstances."The tribunal set aside an order of the National Company Law Tribunal (NCLT), Chennai which had allowed two former members of the Madras Race Club to pursue such a claim.A coram of Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain held that membership is a legal prerequisite for seeking a waiver under Section 244(1)(b). They said:"What becomes relevant is that, under law even for the purposes of seeking waiver under Section 244, a person who is applying to be granted with the waiver, has had to necessarily establish that he happens to be the member of the Company even though, he may not be holding the prescribed Share Capital or, constituting not less than one-tenth or one-fifth of the total number of members as the case may be.”It warned that allowing non -members to file such applications would create procedural chaos. "Because, if field of filing of applications under Section 244 of Companies Act, is left open even to non-members, it would create procedural chaos, enabling all and sundry who are not even a member of the Company, to raise allegations of oppression and mismanagement," they added.The dispute stemmed from a long-standing dispute at the Madras Race Club. After a special audit and judicial inquiry in 2017 uncovered that 635 individuals had been admitted as members without fulfilling basic eligibility norms, the NCLT ordered their removal from the club's register. This decision, upheld by the NCLAT in 2020, led two of the removed individuals R D Ramasamy and M Magesh Kumar, to later file a fresh petition alleging oppression and mismanagement. Since they were no longer members, they also sought a waiver under Section 244(1)(b), which the NCLT granted on grounds of “exceptional circumstances.”Challenging the waiver before the NCLAT, the Club argued that only current members could invoke Section 244 and that the petitioners had been removed. The respondents-erstwhile members countered that they had enjoyed membership for over two decades, and despite their removal, deserved to be heard on allegations of mismanagement. The NCLAT rejected this reasoning, holding that the status of "existing member" is a strict prerequisite under Section 244. It ruled that the fact that they enjoyed the facilities of the club for two decades or the inherent social nature of the club cannot be a ground to entertain their petitions. It said:“..in no way, any previous right which Respondents enjoyed being the member of the Appellant Company in the past prior to their removal, will grant them a right to initiate a proceedings under Section 244 of the Companies Act, merely because of the fact that, they had been a member and enjoyed the status for the last 20 years, for the reason being that immediately after their removal, their rights ceased to exist.”Accordingly, the NCLAT quashed the NCLT's order dated January 9, 2024, which had granted the waiver, and allowed the appeal filed by Madras Race Club.Case Name: Madras Race Club v R.D. Ramasamy and Anr.Case No.: Company Appeal (AT) (CH) No. 17 / 2024Date of Decision: 17/09/25For Appellant : Advocates Preeti Mohan and M Nandita KrishnanFor Respondents : D.Sreenivasan and V Jai Hari Sudhan (Advocates for R1) Senior Advocate A Thiyagarajan and Advocate NR RajagopalanClick Here To Read/Download Order

Only Existing Members Of Company Can Seek Relief Against Oppression & Mismanagement: NCLAT Chennai

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Only Existing Members Of Company Can Seek Relief Against Oppression & Mismanagement: NCLAT Chennai

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