Non-Filing Of Reply Alone Cannot Justify Interim Relief In Oppression, Mismanagement Proceedings: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has recently ruled that mere non-filing of a reply to an interim application cannot, by itself, justify granting interim relief, particularly when the relief affects the rights of the parties and no effective opportunity has been given to respond.

“Even if it is presumed that the Appellant has not filed Reply to the proceedings, either of the Company Petition or even to the application, I.A. No. 19/2021, even then the Ld. Tribunal was required to record its reasoning and the basis on which the Tribunal thought it apt to grant an interim relief. Non-consideration of the reasons or non-assigning of the reasons to justify for the grant of the interim relief, particularly if it is read in the context of the nature of vital interim reliefs, those were sought, will have an adverse bearing on the merits of the matter. In that eventuality, mere non-filing of reply to IA, still required determination on merits, because that cannot be an exclusive ground to grant an interim relief without adopting a rational view of calling for a Reply from the Appellant and then only to consider and to pass an appropriate order on I.A. No. 19/2021. Having not done so, that would vitiate the order in itself.”, the tribunal ruled.

The bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Indevar Pandey passed the ruling on an appeal filed by ET Infra Developers Pvt. Ltd. against an interim order passed by the NCLT, New Delhi Bench, on December 7, 2022, in proceedings involving Electrotherm (India) Ltd.

The underlying company proceedings were initiated under Sections 241, 242 and 244 of the Companies Act, 2013. Sections 241 and 242 deal with complaints of oppression and mismanagement in a company's affairs, while Section 244 sets out the eligibility requirements for pursuing such proceedings.

Electrotherm had sought several interim measures, including inspection of the company's registers and financial records, participation in shareholder meetings, restrictions on the sale or transfer of assets, and a restraint on changes to the company's capital structure.

ET Infra argued that Electrotherm's own application showed that it held zero shares and had not sought a waiver under Section 244. The NCLAT noted that the shareholding table in the application showed Electrotherm with zero shares. It held that, in those circumstances, the company petition was not maintainable at its behest, particularly in the absence of a waiver application.

The NCLAT, however, separately examined the basis on which the NCLT had granted the interim relief. It found that the NCLT had proceeded on the basis that ET Infra had not filed a reply, without giving it an effective opportunity to respond to the interim application or recording reasons for granting the reliefs.

The appellate tribunal also observed that ET Infra's earlier failure to file a reply could not be exclusively relied upon to grant interim relief. Even if no reply had been filed, the NCLT was required to give reasons for its order.

The NCLAT therefore quashed the December 7, 2022, order and remitted the interim application to the NCLT, Delhi Bench, for fresh consideration after giving ET Infra an effective opportunity of hearing.

If ET Infra furnishes a copy of the NCLAT order to the NCLT within two weeks of its uploading, the interim application is expected to be decided on its own merits within two weeks thereafter.