Merits Of Oppression Plea Not To Be Examined While Deciding Waiver Application: NCLT Mumbai

The Mumbai National Company Law Tribunal (NCLT) has held that while considering an application seeking waiver of eligibility requirements under the proviso to Section 244(1) of the Companies Act, 2013 (which prescribes the minimum shareholding threshold to file oppression and mismanagement petitions), the Tribunal need not examine the merits of the proposed petition.

A Bench comprising Technical Member Prabhat Kumar and Judicial Member Sushil Mahadeorao Kochey was hearing an application filed by Devaunshi Mehta, a shareholder holding approximately 4.65% of the paid-up share capital of Bhishma Realty Ltd., seeking waiver of the requirement to maintain a petition under Sections 241 and 242 of the Companies Act, 2013 (provisions dealing with oppression and mismanagement of a company's affairs). It observed:

“Respondent No. 2 holds majority shareholding in Respondent No. 1 company, both directly and indirectly, and exceptional circumstances exist for exercise of discretion under the proviso to Section 244(1) of the Companies Act, 2013 for grant of waiver.”

The Applicant alleged that Respondent No. 2 had fraudulently implemented a family Memorandum of Understanding dated 16 January 2020 by using funds belonging to Bhishma Realty Ltd. to acquire shares in group companies while securing a substantial block of the company's shares exclusively for himself. She further alleged that Respondent No. 2 diverted company funds to acquire luxury residential properties and other assets for personal benefit, causing oppression of minority shareholders and mismanagement of the company's affairs.

The Respondents opposed the application and argued that the dispute arose from rights under the family settlement and not from the Applicant's position as a shareholder. They also submitted that the Applicant had already initiated proceedings under Section 59 of the Companies Act, 2013 (which allows rectification of the register of members) and that no exceptional circumstances existed to waive the statutory threshold.

Relying on the decision of the National Company Law Appellate Tribunal in Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd., the Bench held that the Tribunal, while considering a waiver application, does not have to decide the merits of the allegations. It observed that it only has to examine whether the applicant is a shareholder, whether the proposed petition raises allegations of oppression and mismanagement, and whether exceptional circumstances justify waiver of the requirements under Section 244(1).

It also noted that Respondent No. 2 and Capri Realty Private Limited were the only shareholders holding more than 10% of the company's share capital. It observed that the Applicant held 4.65% shareholding, while most other shareholders had negligible holdings.

Further, the Bench held that a minority shareholder cannot be required to secure support from other shareholders merely to satisfy the statutory threshold, as obtaining such support depends on the willingness of other shareholders. It found that the Applicant had raised allegations of oppression and mismanagement and that exceptional circumstances existed.

Accordingly, the NCLT exercised its discretion under the proviso to Section 244(1) of the Companies Act, 2013 and granted waiver of the eligibility requirements.