Oppression and Mismanagement Petition Not Maintainable by Non-Member: Private MoU and Section 89 Non-Compliance Insufficient
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REEDLAW Legal News Network reports: In an important ruling on maintainability under company law, the Appellate Tribunal held that a person who has voluntarily transferred his shares and ceased to be a member of the company cannot invoke the jurisdiction relating to oppression and mismanagement. The Tribunal clarified that private arrangements executed after cessation of membership and mere non-compliance with statutory disclosure requirements under the Companies Act, 2013, do not, by themselves, give rise to a cause of action concerning the affairs of the company.
While adjudicating a company appeal, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), examined whether a former shareholder could maintain proceedings alleging oppression and mismanagement or seek rectification of the register on the basis of a subsequent private memorandum of understanding. It was held that, having voluntarily transferred his shares and ceased to be a member, such a person lacked locus to invoke remedies under the oppression and mismanagement framework. The Tribunal further held that non-compliance with Section 89 of the Companies Act, 2013, attracts statutory penal consequences alone and does not, in isolation, constitute oppression and mismanagement.
The Appellate Tribunal considered an appeal filed under Section 421 of the Companies Act, 2013, challenging the order by which the Company Petition had been dismissed at the threshold. The Appellant had claimed to be the beneficial owner of 5000 equity shares constituting 50% of the share capital of the Corporate Debtor and alleged that such shares had been wrongfully acquired by the Respondents, relying upon a Memorandum of Understanding executed subsequently. It was noted, however, that the Appellant had admittedly transferred the said shares in favour of one of the Respondents in the year 2017, and the transfer had stood duly reflected in the statutory records of the Corporate Debtor since then.
The Tribunal examined the Memorandum of Understanding dated 01.01.2022 and found that it recorded a purely private financial arrangement between the Appellant and the Respondents, whereby funds were advanced as a loan and certain properties and corporate rights, including shares and directorship, were treated as security, with an understanding that upon repayment of the quantified liability, such rights would be restored. The Memorandum also recorded continuing monetary obligations on the Appellant, including repayment of the loan with interest and payment of additional monthly amounts, none of which had been discharged. The Tribunal further noted that the real dispute between the parties pertained to a parcel of land owned by the Corporate Debtor, and that a civil suit instituted by the Appellant on the basis of the same Memorandum had already been dismissed under Order VII Rule 11 of the Code of Civil Procedure, with categorical findings that the property belonged to the company, that the company was not impleaded as a party, and that the Appellant had no subsisting status as either a shareholder or director. These findings had attained finality.
In this backdrop, the Tribunal held that the Company Petition was not maintainable, as the Appellant was neither a member nor a shareholder of the Corporate Debtor and the reliefs sought were not in relation to the affairs of the company but were, in substance, an attempt to enforce a private Memorandum of Understanding to which the company itself was not a party. It was further held that no interim relief could be granted to restrain dealings with the company’s property on the basis of such a private arrangement, particularly when the Appellant had failed to discharge his admitted financial liabilities.
The Tribunal also rejected the contention that non-compliance with Section 89 of the Companies Act, 2013, constituted oppression and mismanagement. It was held that Section 89 merely casts a statutory duty on the person holding or claiming beneficial interest in shares to make the requisite declaration, with specific penal consequences for default, and that such non-compliance by itself could not be elevated to an act of oppression and mismanagement. Noting further that the Appellant himself had sought a declaration of beneficial ownership and was equally bound by the statutory obligation, the Tribunal concurred with the reasoning of the Adjudicating Authority and found no infirmity in the impugned order. Consequently, the appeal was dismissed, and all pending applications were closed.
Mr. Abhijeet Sinha, Sr. Advocate, Mr. Gaurav Mitra, Mr Naresh Kumar Sejwani and Ms. Aishwarya Hodi, Advocates, represented the Appellant.
Mr. Krishanendu Datta, Sr Advocate, Mr. Tanuj Sud, Mr. Ajay Kumar, Ms Stuti Vatsa, Mr. Vijayant Goel and Mr. Govind, Advocates, appeared for the Respondent.
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