The National Company Law Tribunal at Chennai has held that it can approve a settlement under Section 242(2) of the Companies Act, 2013, providing for a company's purchase and cancellation of a petitioner's shares and consequential reduction of share capital, without a separate application under the provisions governing capital reduction.

The Tribunal approved a settlement between C. Janarthanan and Notion Press Media Private Limited in an oppression and mismanagement petition, under which Janarthanan agreed to surrender his 3,999 equity shares in the company in exchange for ₹3.75 crore.

A coram of Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramanian was considering a petition filed by Janarthanan, a second generation book publisher, alleging oppression and mismanagement in the affairs of Notion Press Media Private Limited.

Janarthanan and his school friend Naveen Valsakumar established Notion Press as a partnership firm in 2012, later converting it into a company in 2013 with Bhargava Adepalley joining the venture. All three initially held equal stakes. In 2016, the company raised investments through compulsorily convertible preference shares (CCPS).

Janarthanan alleged that the other directors sought to transfer 9% of his shareholding to two directors without compensation. He challenged board resolutions dated March 28 and April 15, 2024, alleging that the conversion of investors' CCPS into equity shares reduced his stake from 33.33% to 21% without the requisite shareholder consent. He also alleged account manipulation and siphoning of company funds.

He filed a petition under Sections 213, 241 and 242 of the Companies Act, 2013, seeking to set aside the resolutions and recover the allegedly siphoned funds. The respondents challenged maintainability of the petition for failure to meet the shareholding threshold, and sought reference of the dispute to arbitration.

During the proceedings, the parties reached a settlement. Janarthanan agreed to surrender his 3,999 equity shares for ₹3.75 crore, with the company cancelling the shares and reducing its paid-up share capital. The company sought approval under Section 242(2), stating that all shareholders had agreed to the settlement and payment would be made from its own resources.

The Bench observed that Section 242(2) of the Companies Act empowers the Tribunal to direct the purchase of a member's shares by the company or other members, order a consequential reduction in share capital, and grant any other relief it considers just and equitable.

It noted that the investors and shareholders had agreed that, instead of transferring Janarthanan's shares to another shareholder, the company would cancel them and compensate him from its own resources. It observed that the arrangement was a consensual settlement of the disputes underlying the petition.

The Court also noted that although the company had not filed a separate application for reduction of share capital, Section 242(2)(b) empowered the Tribunal to direct the purchase of a member's shares while deciding an oppression and mismanagement petition under Section 241.

“This provision is independent and different from Section 66 and 68 of the Companies Act which provide for reduction of share capital. Section 242(2)(c) contemplates the consequential reduction of share capital where such purchase is effected. Section 242(2)(m) empowers the Tribunal to make provision for any other order which in its opinion is just and equitable in the circumstances of the case.” it held

Relying on the Supreme Court's decision in Cosmo Steels Private Limited v. Jairam Das Gupta, the Bench observed that the Court had upheld the power to direct a company to purchase a member's shares and consequentially reduce its share capital in oppression proceedings, recognising that such proceedings confer distinct powers to grant appropriate relief, distinct from the ordinary procedure for capital reduction.

Accordingly, it approved the Memorandum of Compromise under Section 242(2) of the Companies Act and directed Janarthanan to surrender his 3,999 equity shares. The company was directed to cancel the shares, reduce its paid-up equity share capital accordingly, and pay him ₹3.75 crore within seven days.

For Petitioners: Senior Advocate P.H Arvindh Pandian, Advocates C.V Shailandhran and K.M Ashif

For Respondents: Senior Advocate R. Venkatavaradhan, Advocate Vijith and Varshini

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Case Title :  C Janarthanan v. Notion Press Media Private Limited and OrsCase Number :  CP(CA)43(CHE)2024CITATION :  2026 LLBiz NCLT (CHE) 1017
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