Removal As Director Did Not Bar Shareholder's Oppression Plea: NCLT Ahemedabad

The National Company Law Tribunal, Ahmedabad bench, held that a shareholder's right to seek relief under Section 241 of the Companies Act, 2013 for oppression and mismanagement was not extinguished by his removal as a director.

However, while holding the petition to be maintainable, the tribunal ultimately dismissed a plea filed by Hardeep Singh Gill against Glulam Technologies Pvt. Ltd., finding no case of oppression or mismanagement.

The bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma observed, “The cessation or removal of the Petitioner from the position of Director does not, in any manner, dilute or extinguish his rights as a shareholder, nor does it disentitle him from seeking relief under Sections 241 and 242, provided the requirements of Section 244 are fulfilled.”

Gill had moved the tribunal alleging acts of oppression and mismanagement by the company and its promoters. Glulam Technologies Pvt. Ltd., incorporated in May 2017, had a paid-up capital of Rs1 lakh divided into 10,000 equity shares. Gill was inducted as a whole-time director in June 2017 and allotted 2,700 shares, giving him a 27 percent stake in the company.

He claimed to have played a key role in setting up the company's manufacturing unit in Faridabad. According to Gill, disputes arose in early 2019 after he raised concerns over financial irregularities and lack of transparency. He alleged that the promoters initiated steps to remove him from management, culminating in an Extraordinary General Meeting on May 11, 2019, where he was removed as director.

Gill argued that his removal was unlawful and that he had effectively been shut out of the company's affairs. He said he was denied any meaningful role in management, even as the respondents continued to take decisions that, according to him, were prejudicial both to his interests and to the company.

The respondents took a sharply different view. They claimed Gill's own conduct had harmed the company, both financially and reputationally. They also questioned the very basis of the petition, pointing out that he was no longer a director when he approached the tribunal and therefore, in their view, lacked the standing to maintain the case.

The tribunal first dealt with this objection. It clarified that the right to move under Sections 241 and 242 flows from one's status as a member, not from holding a position on the board. Gill's shareholding of 27 percent, it noted, comfortably met the threshold requirement under Section 244. On that basis, the petition was held to be maintainable.

With that issue out of the way, the bench turned to the substance of the dispute. On examining the record, it found that Gill's removal had been carried out in line with the procedure laid down under the Companies Act, including due notice and an opportunity to participate.

At the same time, the tribunal observed that the relationship between the parties had clearly broken down, reflecting a loss of trust and confidence on both sides

The bench observed, “In such circumstances, the decision of the shareholders to remove the Petitioner cannot be lightly interfered with, unless it is demonstrated that the same is vitiated by illegality or is oppressive in nature.”

Subsequently, the tribunal observed that Gill failed to prove any oppression and mismanagement in the company. It also took note of pending civil proceedings concerning allegations of misconduct and financial losses, indicating that several disputes were already subject to adjudication elsewhere.

In view of these findings, the tribunal concluded that no equitable relief could be granted in the facts of the case and accordingly dismissed the petition.