NCLT Mumbai Partly Allows Oppression Plea Against Hotmail Founder, Orders Rectification & Compensation

On 2 July, the Mumbai Bench of the National Company Law Tribunal (NCLT) partly allowed an oppression and mismanagement petition against Hotmail founder Sabeer Bhatia and other respondents in relation to Arzoo.com (India) Pvt Ltd, holding that their acts amounted to oppression in the company's shareholding and financial mismanagement through diversion of company funds.

Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar granted relief on certain oppression and financial mismanagement claims while rejecting the remaining allegations relating to the proposed share issue, valuation report and NMS Mauritius shareholding. The Bench held:

"This clearly reflects that the Respondent No. 2 to 6 have committed an act of oppression prejudicing the rights of the Respondent No. 7 directly and of the Petitioner indirectly on account of he being the son of Respondent No. 7. Further, these shares are consistently being held in the name of Respondent No. 2 in the Respondent Company's records accordingly, the said act is the continuing act of oppression. In view thereof, we direct the Respondent Company to rectify the register of member so as to record the said shares in the name of Respondent No. 7 and issue share certificate in this relation."

Yogesh Patel filed the petition on 23 August 2019 against Sabeer Bhatia, the company's directors and others, alleging oppression and mismanagement in the affairs of Arzoo.com (India). On 1 May 2024, the Tribunal directed a special purpose audit. The audit report dated 15 March 2025 recorded discrepancies and noted non-cooperation by the respondents in furnishing documents required for the audit.

The Tribunal found that the respondents committed a continuing act of oppression by recording 68,015 shares belonging to Bhogilal Patel in Sabeer Bhatia's name and directed rectification of the register of members along with issuance of the corresponding share certificate in Bhogilal Patel's favour.

It rejected the claim that the proposed share issue and valuation treatment of certain advances as doubtful debts amounted to oppression, holding that the valuation was only an expert opinion and the proposed issuance never materialised. It noted:

"Hence, we do not find that the proposal for issuance of shares, which never came to be issued, and consideration of certain advances as 'doubtful debt' by the valuer in its valuation report constitute acts of oppression qua such proposal or cause any prejudice to the Respondent Company or its members."

On financial mismanagement, the Bench held that advances made to Mahalaxmi Vacations Pvt Ltd were not supported by evidence of airline ticket purchases. It rejected the explanation that the payments were for tickets and found that repeated advances without corresponding services indicated diversion of funds. It stated:

"In view of this, we are of our considered view that the said advance of money constitutes an act of mismanagement on part of Respondent No. 2 to 6. Accordingly, the advance of said sums to Mahalaxmi can not held to be in ordinary course of business, and the Respondent No. 2 to 6 should compensate the Respondent Company for this money."

Accordingly, the NCLT partly allowed the petition, directed rectification of the share register, and ordered compensation for the mismanaged funds.

For the Applicants: Adv. Nausher Kohli, Mr. Jimish Shah, a/w Adv. A. Pradhan i/b Divya Shah Associates, Ms. Niyati Dasondi

For the Respondents: Mr. Areez Gazdar