NCLAT Chennai: Threshold To Maintain Oppression Proceedings Not Limited To Holding Of Shares Alone But Extends To Manner Of Acquiring Of Shares

Background Facts:

Proceedings were initiated by Jitendra Virmani (Appellant) who is the Chairman and Founder of the Embassy Group against Mro-Tek Realty Limited (‘Company’) on the grounds of oppression and mismanagement challenging the real estate development undertaken by the Company.

Multiple proceedings were initiated by the Appellant before the Civil Courts in Bengaluru. The Appellant withdrew an oppression and mismanagement petition and initiated another proceeding for oppression and mismanagement against the Company, which was dismissed by the NCLT Bangalore. The said order of NCLT Bangalore dated 27.11.2019 was in appeal before the NCLAT Chennai.

Contentions of the Parties:

The Respondent company contended that the Appellant had acquired shares only to maintain the proceedings before the Tribunal, whereas, the Tribunal ought to test the qualitative shareholding of an aggrieved party.

Further apart from there being a threshold of shareholding as prescribed under Section 399 and Section 244 of the Companies Act 1956, while examining a case of oppression and mismanagement, the Tribunal ought to apply not only the quantitative test but also the qualitative test, wherein, a Petitioner had acquired shares only for the purposes to maintain the proceedings whereas such shareholding was not held during the time of the cause of action.

NCLAT Verdict:

The NCLAT held that the threshold to maintain oppression proceedings is not only limited to the holding of shares alone but also extends to the manner in which the shares were acquired.

The Appellate Tribunal observed that NCLT has exercised equitable power with wide powers and it cannot be said that the ‘qualitative’ aspect of a Member was not examined by it at the time of filing of the Petition.

The NCLAT pointed out that presently the Appellant had not fulfilled the qualitative criteria, to sustain the petition as he had not possessed, the requisites shares, at the particular point of time, when the purported cause of action arose.

The NCLAT highlighted that the ‘Appellant’, got in touch with the management of the Company to purchase the ‘Hebbal Property’. However, due to the low price offered by the Appellant and certain other considerations, the management of the Company had not sold its ‘Hebbal property’ and that apart, the ‘Appellant’ was not a shareholder in the Company at the time of offering to purchase the ‘Hebbal property’.

Later, when the Appellant’s offer to purchase property was turned down, he began to ‘acquire’ the shares of the Company, through open market transactions.

In conclusion, NCLAT observed that though the Appellant’s petition on the date of filing of the petition is, perfectly, ‘maintainable’, he is precluded, from adverting to the events, which took place before he possessed/acquired 10% shareholding in the Company.

Case Title: Jitendra Virmani vs. MRO – Tek Reality Limited

Case No.: Company Appeal (AT) No.363/2019

Counsel for Appellant: Dr. U.K. Chaudhary, Senior Advocate Mr. Manisha Chaudhary, Advocate Mr. Mansumyer Singh, Advocate Mr. Manisha Sharma, Advocate Mr. Shravan Chandrashekhar, Advocate

Counsel for Respondent: Mr. P.H. Arvindh Pandian, Senior Advocate For Mr. Pawan Jhabakh, Advocate, For R1, R11, R13 & R15 Ms. Parina Lalla, Advocate, For R2 to R8 & R14

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