Shareholder With Less Than 10% Holding Can Pursue Oppression Petition With NCLT Exemption: NCLT Kochi

The National Company Law Tribunal (NCLT) at Kochi has clarified that a shareholder holding less than 10% of a company's share capital is not barred from filing an oppression and mismanagement petition, subject to obtaining the requisite exemption from the tribunal.

A coram of Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy made the observation while dismissing two applications challenging the maintainability of an oppression and mismanagement plea against Vettathu Nadu Rehabilitation Centre Private Limited.

The applicants contended that the dispute was essentially a directorial dispute concerning the appointment of additional directors and a proposed Extraordinary General Meeting for removal of the petitioners as directors. They argued that such grievances did not fall within the scope of Sections 241 and 242 of the Companies Act.

The petitioners, however, alleged a series of acts, including non-issuance of notices for meetings, denial of participation in corporate affairs, illegal and fraudulent induction of directors, fabrication of statutory and corporate records and filing of documents with the Registrar of Companies based on disputed resolutions.

The tribunal noted that the petitioners held 25.42% of the company's share capital, which was above the statutory threshold under Section 244(1) for maintaining a petition under Sections 241 and 242.

The bench also clarified that a person holding less than 10% is not barred from filing an oppression and mismanagement petition, but must seek exemption from the NCLT.

“The Companies Act,2013, put a barrier of threshold shareholding of 10% and a number of shareholders to keep a check on unwanted litigants, but still persons having less than the threshold share can file the petition under sections 241-242, subject to the approval and exemptions as provided under the Companies Act. So, even a person having less than 10% is not debarred from filing an application for oppression and mismanagement, but they have to seek exemption from NCLT.”, the tribunal ruled.

The tribunal further observed that there can be no straitjacketed formula for determining whether particular conduct amounts to oppression or mismanagement, as the two involve mixed questions of law and fact.

“If a person satisfies a condition of section 244 of the Companies Act, 2013, such a person cannot be thrown out in limine, and the petition cannot be dismissed on account of maintainability unless and until there is an element of suppression of material facts, concealment, forgery or fraud.” the tribunal ruled.

The bench further held that where the Companies Act provides a specific mechanism to deal with the maintainability of a petition under Sections 241 and 242, an application under Rule 11 of the NCLT Rules is not permissible unless there are extraordinary allegations of concealment of material facts, forgery, or fabrication or pursuing the company petition would pose a threat to public policy or the public at large.

The tribunal noted that some minutes placed on record raised questions about their genuineness, while an explanation had been given that they were subsequently written in the routine course of the company's work. It held that it would not be appropriate to give any finding on the merits of such allegations at the maintainability stage.

The bench also held that the applicants had failed to make out a case for exercise of the tribunal's inherent power under Rule 11.

The tribunal accordingly dismissed both applications and imposed a cost of Rs. 10,000 on each individual application, directing that the amount be deposited with the National Defence Fund.

For Applicants: Advocates Akhil Suresh, Amruth, Sherry Samuel Oommen and Sneha Maria James

For Respondents: Sreepriya Kalarikkal PCS