2023 (2) TMI 17 - AT - Insolvency and Bankruptcy

Non-shareholder director's appeal dismissed for lack of standing under Companies Act.

The Tribunal dismissed the appeal, ruling that the Appellant, a non-shareholder director, lacked standing to file a petition under Sections 241 and 242 of ... Locus standi of a member under Section 241 and 244 of the Companies Act, 2013 - eligibility of a director who is not a shareholder to maintain a petition for oppression and mismanagement - waiver of the statutory threshold under Section 244 - conversion of a petition into a proceeding under Section 213(2) - maintainability of remedies across multiple foraLocus standi of a member under Section 241 and 244 of the Companies Act, 2013 - eligibility of a director who is not a shareholder to maintain a petition for oppression and mismanagement - Whether the appellant, not being a registered member/shareholder, was entitled to invoke Sections 241 and 242 by obtaining waiver of Section 244 requirements. - HELD THAT: - The Tribunal held that the Companies Act recognises a 'member' for the purposes of Section 241 as a person whose name appears in the Register of Members and who satisfies the conditions for membership; mere directorship does not confer membership rights where the name is not entered on the Register. The court emphasised that eligibility under Section 244 is a fundamental criterion and that a directorial complaint cannot stand in lieu of member status for a petition under Sections 241/242. Consequently, where the appellant admitted that he was not a shareholder, he lacked locus to seek relief under Sections 241/242 or to obtain waiver of the threshold conditions in Section 244. The determinative legal reasoning is that the right to prefer an oppression/mismanagement petition is predicated on membership as defined by the Act and register entry, and this prerequisite cannot be bypassed by equating the trappings of directorship with membership in the absence of statutory recognition. [Paras 31, 34, 63, 64, 66]The appellant, not being a registered member/shareholder, had no locus to invoke Sections 241/242 and to seek waiver under Section 244; the waiver application was unsustainable.Waiver of the statutory threshold under Section 244 - maintainability of remedies across multiple fora - Whether the National Company Law Tribunal was in error in dismissing the application seeking waiver of the numerical/threshold requirements of Section 244. - HELD THAT: - The Tribunal applied established criteria for considering waiver applications under Section 244, including the petitioner's interest in the company, whether Section 241 is the appropriate forum for the grievances, and whether the cause is of primordial importance to the petitioner, a class of members, the company or public interest. It found that because the appellant was not a member and similar reliefs were simultaneously pursued in other fora (labour authorities and civil court), the waiver could not be granted. The appellate forum concluded there was no legal infirmity in the NCLT's dismissal of the waiver IA, observing that eligibility and the pendency of parallel proceedings negatived the case for excusing statutory qualifications. [Paras 32, 33, 58, 65, 67]The NCLT's dismissal of the waiver application under Section 244 was free from legal error and is upheld.Conversion of a petition into a proceeding under Section 213(2) - Whether the appellant's petition under Sections 241/242 could be converted into a petition under Section 213(2) to avoid membership qualification. - HELD THAT: - The Tribunal considered the appellant's plea for conversion to a Section 213 proceeding but noted that the reliefs pleaded in the main petition predominantly related to oppression and mismanagement under Sections 241/242. Section 213 operates on a different footing and is not a substitute to bypass the member-qualification for oppression/mismanagement reliefs. Given the nature of the reliefs sought and the appellant's admitted non-membership, the Tribunal declined to accede to conversion, finding the request untenable in law. [Paras 37, 42, 65]The request to convert the petition into a proceeding under Section 213(2) is not acceded to.Maintainability of remedies across multiple fora - Whether pursuing substantially similar reliefs concurrently before labour authorities, civil court and the NCLT affected the appellant's case for relief before the Tribunal. - HELD THAT: - The Tribunal observed that the appellant had sought substantially similar reliefs in three different forums-labour proceedings, civil suit and the company petition-indicating the remedies were being pursued simultaneously. This multiplicity of proceedings undermined the appellant's claim to exceptional treatment by the Tribunal and formed part of the reasoning for denying waiver and for upholding non-maintainability. The Tribunal treated the concurrent proceedings as relevant to the assessment of bona fides and the appropriateness of exercising discretionary reliefs. [Paras 58, 59, 61, 65]The existence of substantially similar proceedings in other fora weighed against granting the waiver or entertaining the petition in the NCLT.Final Conclusion: The appeal is dismissed. The National Company Law Tribunal's order refusing the waiver under Section 244 and dismissing IA No.644/2020 in CP/289/2020 is free from legal error: a non shareholder director lacks locus to seek oppression/mismanagement relief under Sections 241/242 or to obtain waiver of the statutory membership threshold, and the petition could not be converted into a Section 213(2) proceeding. Issues Involved:1. Eligibility of the Appellant to file a petition under Sections 241 and 242 of the Companies Act, 2013.2. The alleged acts of oppression and mismanagement by the 1st Respondent Company.3. The Appellant's standing as a non-shareholder director to seek relief under the Companies Act.4. The Tribunal's decision to dismiss the waiver application filed by the Appellant.Detailed Analysis:1. Eligibility of the Appellant to file a petition under Sections 241 and 242 of the Companies Act, 2013:The Appellant was not a shareholder of the 1st Respondent Company but was a director. The Appellant's contention was based on the precedent set by the Madras High Court in Chiranjeevi Rathnam v. Ramesh, which allowed non-member directors to approach the National Company Law Tribunal (NCLT) under Section 242 of the Companies Act, 2013. However, the Tribunal emphasized that according to Section 2(55) of the Companies Act, 2013, a petition under Section 241 can only be maintained by members listed in the Register of Members. The Tribunal concluded that the Appellant, not being a member, lacked the eligibility to file such a petition.2. The alleged acts of oppression and mismanagement by the 1st Respondent Company:The Appellant alleged that the 1st Respondent Company engaged in suspicious transactions, tax evasion, and other illegal activities. Specific instances included contracts with M/s. Positive Moves (India) Consulting Pvt. Ltd. and M/s. InTandem Advisors LLP, and the 'Project ASLAN' involving Citibank N.A. The Appellant claimed that these activities were prejudicial to the public interest and sought an independent forensic investigation, access to company books, and notices to revenue authorities and the Registrar of Companies for further investigation.3. The Appellant's standing as a non-shareholder director to seek relief under the Companies Act:The Tribunal noted that the Appellant, despite being a director, did not qualify as a member under Section 2(55) of the Companies Act, 2013. The Tribunal highlighted that a directorial complaint cannot form the basis for a petition under Sections 241 and 242, which are meant for members. The Appellant's attempt to convert the petition into one under Section 213(2), which does not require membership qualifications, was rejected by the Tribunal. The Tribunal emphasized that the reliefs sought by the Appellant pertained to oppression and mismanagement, which require the petitioner to be a member.4. The Tribunal's decision to dismiss the waiver application filed by the Appellant:The Appellant's application for waiver of the requirements under Section 244 was dismissed by the Tribunal. The Tribunal reasoned that the Appellant's lack of membership in the company disqualified him from seeking such a waiver. The Tribunal also pointed out that the Appellant had already sought similar reliefs in other forums, including the Labour Commissioner and the City Civil Court, Chennai. The Tribunal found no legal errors in the NCLT's decision to dismiss the waiver application, thus affirming the dismissal.Conclusion:The Tribunal dismissed the appeal, concluding that the Appellant, not being a member of the 1st Respondent Company, lacked the legal standing to file a petition under Sections 241 and 242 of the Companies Act, 2013. The Tribunal upheld the NCLT's decision to dismiss the waiver application, finding it free from legal errors. Consequently, the appeal was dismissed with no costs.