NCLT May Waive Eligibility Criteria U/S 244(1)(b) Of Companies Act When Allegations Of Oppression & Mismanagement Are Not Previously Adjudicated: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) has held that when there are internal differences among the members of a company and repeated allegations of oppression and mismanagement have been raised by some members, which have not been previously adjudicated, the eligibility criteria prescribed under Section 244(b) of the Companies Act, 2013 (Companies Act) required for filing such an application, may be waived by the National Company Law Tribunal (NCLT) by exercising its discretionary power under the proviso to Section 244(b) of the Act. Brief Facts: Respondents No. 16 to 19 filed Company Petition No. 287/KB/2023 under Sections 241 and 242 of the Companies Act before the NCLT, Kolkata in which allegations of oppression and mismanagement were made in the affairs of Calcutta Cricket & Football Club (Respondent No. 1). As they did not meet the eligibility under Section 244(1)(b) of the Companies Act for filing an application under sections 241 and 242 of the Companies Act, they filed I.A. No. 183/KB/2023 seeking waiver of the requirement under the proviso to Section 244(1)(b) by invoking the power of the Tribunal under this proviso. Contentions: The Appellant submitted that Respondent No. 1 Company does not have any share capital and the requirement under Section 244(1)(b) in the case of Company not having share capital is that the petition be filed by not less then 1/5th of the total number of members, which otherwise means that petition can be filed by at least 20% of the members. It was further submitted that the NCLT has not formed any opinion as to whether the said petition related to “oppression and mismanagement” or was frivolous. It was also argued that the impugned order is devoid of any reasons why the grant of waiver was expedient and necessary, and the only argument given in the impugned order is that the Respondent Club is one of the oldest sports club having very rich heritage and it is in public interest that waiver be granted. Per contra, the Respondents submitted that it is incorrect to say impugned order was passed ex parte. Admittedly, advance notice was issued to all the Respondents and affidavit of service was filed before the Ld. NCLT demonstrating service upon all the Respondents. It was further submitted that the NCLT had also noted that there are differences between members of the Respondent club and that the principal objective of the club is to promote and encourage various sports and that it is oldest sports club in Asia having immense reputation and a very rich heritage and that Ld. NCLT kept in mind the public interest at large while granting waiver to the petitioners under Section 244 of the Act. Observations: The Tribunal noted that the Supreme Court in Cyrus Investments Pvt. Ltd. & Anr. v. Tata Sons Ltd. & Ors.,2017 held that Normally, before forming an opinion on whether to grant a waiver under Section 244(1) of the Companies Act, the Tribunal considers several factors. The Apex Court further held that first, it examines whether the applicants are members of the company in question. If they are not, the application is rejected outright. If they are, the Tribunal then considers whether the proposed application under Section 241 of the Companies Act relates to allegations of oppression and mismanagement. If the application appears unrelated to such issues or seems frivolous, the Tribunal may reject the request for waiver. The Supreme Court concluded that the Tribunal finally looks into whether similar allegations have previously been raised by any other member and have already been decided. Lastly, the presence of exceptional circumstances that may warrant the grant of a waiver is also taken into account.. Based on the above, the Tribunal held that the NCLT noted internal differences within the Respondent Club which was established to promote sports and hold a good reputation, making it a matter of public interest to resolve them. As the allegations were not previously raised or decided, the conditions in sub-clauses (i), (ii), and (iii) of Cyrus Investments Pvt. Ltd. (supra) are fulfilled. The only question is whether the NCLT was satisfied that exceptional circumstances justified granting the waiver. The Tribunal further noted that in addition to the company petition by four members, 90 other members raised mismanagement concerns in a letter dated 22.08.2023. The NCLT noted these allegations before exercising its discretion to grant a waiver, holding that a decision on their merits was premature and would be addressed under Sections 241 and 242 of the Companies Act, 2013. The Tribunal concluded that in the present case, where a petition under Sections 241 and 242 of the Companies Act was filed by four members of a Section 8 company alleging oppression...

NCLT May Waive Eligibility Criteria U/S 244(1)(b) Of Companies Act When Allegations Of Oppression & Mismanagement Are Not Previously Adjudicated: NCLAT

Mohd Malik Chauhan

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