The National Company Law Tribunal (NCLT) at Bengaluru has recently dismissed an application filed by Yulu Bikes Private Limited co-founder and former Chief Operating Officer Hemant Gupta seeking waiver of the eligibility requirements to pursue oppression and mismanagement proceedings against the company.
A coram of Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada observed:
“...we note that there do not appear to be any exceptional Circumstances warranting granting of Waiver.”
Gupta approached the tribunal alleging oppression and mismanagement in the company's affairs. He claimed that he had been excluded from the company's management, removed from his position as COO and from the promoter group, and denied a directorship despite being a co-founder.
He also alleged that successive funding rounds had altered the company's capital structure and diluted his shareholding. According to him, three extraordinary general meetings held on August 25, September 9 and September 14, 2022, at short notice, approved amendments to the Articles of Association and the issuance of preference shares to investors, including Magna International and Bajaj Auto.
Gupta initially claimed to hold 17.13% of the company's paid-up share capital, relying on its FY 2023-24 annual return. The respondents disputed this calculation. They contended that his shareholding, computed on the basis of the nominal value of the entire issued share capital, including equity and preference shares, was only around 1.51%.
After the respondents challenged the maintainability of his petition on the ground that he did not meet the statutory eligibility threshold under Section 244 of the Companies Act, Gupta filed an application seeking waiver of the requirements to pursue the proceedings.
The tribunal first examined when an application seeking waiver under Section 244 should be filed. It observed that a member should seek waiver when he apprehends that the statutory eligibility requirements may not be satisfied.
In this case, Gupta had instituted the company petition before seeking waiver. He filed the waiver application only after the respondents challenged its maintainability.
The tribunal observed, “We are of the Considered view that the Applicant cannot claim to become Wiser after the arguments are conducted and try to remove the deficiencies by moving applications.”
On the question of calculating shareholding, the tribunal examined Sections 43 and 2(55) of the Companies Act. These provisions deal with the kinds of share capital and the definition of a member, respectively.
It observed, “Hence while computing the Shareholding for the purposes of eligibility under section 244, the entire Share Capital including the Equity and Preference Capital needs to be considered.”
The tribunal further held that where a member alleges that his shareholding has been diluted through oppressive conduct, his shareholding must be examined as on the date of filing the application under Section 244. If it falls below the statutory threshold, a waiver would be required.
Examining Gupta's allegations, the tribunal held that his removal as COO was an employment dispute governed by his employment agreement dated June 1, 2018. It could not be treated as an act of oppression.
His non-appointment as a director pursuant to an alleged oral understanding also did not constitute oppression, the tribunal observed.
The tribunal treated his removal from public-facing materials and the company's hierarchical restructuring as managerial and operational decisions falling within the day-to-day domain of management.
On the allegation of dilution of shareholding, the tribunal noted that Gupta was a party to the 2019 Shareholders' Agreement, which provided for successive funding rounds. He had also benefited from the increase in the company's valuation across these rounds.
It further observed that all promoters had been proportionately diluted. Gupta had not been singled out.
The company had also issued him pre-emptive notices providing an opportunity to invest and maintain his shareholding. However, he had not availed himself of those offers.
Finding no exceptional circumstances warranting waiver, the tribunal dismissed the application. Consequently, the company petition was also dismissed.
For Petitioner: Senior Advocate Dhyan Chinnappa and Advocate Tanishq Kashyap
For Respondents: Advocates Rithika Ravikumar, Sharan Kukreja Prashasthi Bhat and Raghavendra Pai