NCLT Kochi Dismisses ₹2.5 Crore Preference Shares Redemption Plea Against Jatayupara Tourism

The National Company Law Tribunal (NCLT) at Kochi has refused a Rs. 2.5 crore payout sought by an investor in the Jatayupara Tourism project, holding that preference shares cannot be redeemed outside the limits prescribed under the Companies Act.

Under Section 55 of the Companies Act, preference shares can be redeemed only out of a company's profits or from proceeds of a fresh issue of shares.

A coram of Judicial Member Vinay Goel was considering an application filed by Haridas Krishnan Kutty in proceedings under Sections 241–242 of the Companies Act, seeking directions against Jatayupara Tourism Private Limited for redemption of his preference shares and release of funds from a tribunal-controlled escrow account.

Haridas, a preferred shareholder and director of the company, sought redemption of his matured 12% cumulative redeemable preference shares worth Rs. 2.5 crore along with the accrued dividend. He also sought permission to effect payment from funds lying in the escrow account.

He had invested the amount in 2018 and was allotted 25 lakh preference shares carrying a 12% cumulative dividend, with a redemption date of October 1, 2025. Upon maturity, the company failed to redeem the shares despite repeated representations.

Haridas contended that the company is a going concern with over ₹27 crore available in a common pool escrow account, and that failure to redeem the matured investment was arbitrary and contrary to statutory obligations.

The company opposed the plea, arguing that it had incurred continuous losses and had no distributable profits, making redemption impermissible under Section 55. It also submitted that the company is under investigation and functioning under a Tribunal-appointed Administrator, and that permitting redemption would interfere with ongoing proceedings.

The Tribunal noted that the company had not generated profits in recent years and that the funds lying in the escrow account formed part of a common pool created for the entire Jatayupara Tourism Project.

“Once it is a common pool account, any funds lying therein cannot be regarded as profits of Respondent No. 1, nor can such funds be utilized to discharge the liabilities of a single respondent,” the tribunal said.

It further held that while it has wide powers under Section 242 of the Companies Act and inherent powers under Rule 11 of the NCLT Rules, such powers cannot be exercised to bypass the specific statutory mechanism governing redemption of preference shares.

“The Companies Act, 2013 provides a specific statutory mechanism for the redemption of preference shares, and this Tribunal cannot assume or exercise such powers by invoking the provisions of Sections 241 and 242 of the Act or under Rule 11 of NCLT Rules 2016, to bypass its mechanism enshrined under said provision of Section 55 of Companies Act,” it observed.

The Tribunal emphasised that its powers cannot be used to compel a company to act in violation of the law.

“While the powers under Section 242 of the Act are undoubtedly wide, they cannot be exercised in a manner that contravenes express statutory provisions. This Tribunal cannot compel the company to act in violation of the mandate prescribed under Section 55 of the Companies Act,” it said.

Noting that the company is under investigation and under the supervision of a tribunal-appointed Administrator, the tribunal said entertaining individual monetary claims at this stage would disrupt the regulatory framework and prejudice stakeholders.

Accordingly, the Tribunal dismissed the application.

For Applicant: Advocate Akhil Suresh

For Respondents: Advocates Sankar P Panicker, N.P Vijayakumar, M.R Bhatt, Bijoy Pulipra and Shawn Jeff Christopher, CA