Oppression Petition Not Maintainable Where The Principal Relief Sought Is Winding Up: NCLT Amaravati

The National Company Law Tribunal at Amaravati recently held that a petition alleging oppression and mismanagement cannot be used as a substitute for winding-up proceedings, and that maintainability must be tested on the basis of the pleadings as originally filed. The Tribunal reiterated that a petition inherently defective at inception cannot be cured by subsequently abandoning a substantive prayer.

On 11 February, a Bench comprising Judicial Member Kishore Vemulapalli and Technical Member Umesh Kumar Shukla dismissed a company petition filed by minority shareholders of Sunray Green Space Pvt Ltd under Sections 241 and 242 of the Companies Act, 2013 on the ground of maintainability.

The Tribunal observed:

“Jurisdiction and maintainability must be tested on the basis of the pleadings as originally filed. Subsequent abandonment of a substantive prayer cannot retrospectively validate a petition that was inherently defective at inception.”

The petitioners had accused the Managing Director and other members of the Board of Sunray Green Space of financial irregularities, unauthorised related-party transactions, and diversion of company funds. Alleging oppression and mismanagement, they sought multiple reliefs, including declarations regarding alleged misconduct and a substantive prayer for winding up of the company on just and equitable grounds.

The respondent-company raised a preliminary objection that the petition was not maintainable as winding up had been sought as a principal or substantive relief, rather than as a factual foundation for seeking alternative reliefs under Section 242.

The Tribunal noted that Section 242(1)(b) is intended to provide relief in substitution of winding up in cases where such winding up would unfairly prejudice members, and that proceedings under Sections 241 and 242 cannot be converted into a surrogate for winding-up jurisdiction.

During the hearings, the petitioners sought to not press the winding-up prayer in an attempt to proceed with the remaining reliefs. The respondents opposed the move, contending that such withdrawal would deprive them of a valid defence on maintainability.

Examining the issue, the Tribunal held that the prayer for winding up was not incidental but a core and substantive relief forming the basis of the petition as originally instituted. It observed that “accepting such a course would defeat the statutory discipline underlying Sections 241 and 242 and would enable parties to overcome objections on maintainability by tactical withdrawals during the course of proceedings.”

Accordingly, the Tribunal held that parties cannot retrospectively validate petitions that were inherently defective at inception and dismissed the petition solely on the ground of maintainability. It clarified that it was not expressing any opinion on the merits of the allegations of fraud or mismanagement.

For Petitioners: Senior Advocate P. Vikram Poosarla with Advocates B. Nitish, Praneetha, Sneha

For Respondents: Senior Advocate S. Sriram with Advocates Amir Bavani, Rishika Kumar, S. Sriram, Naresh Kumar Sangam, G. Bhupesh