2025 (10) TMI 1198 - AT - Companies Law

Appeal dismissed: interim stay against July 1 EGM rendered redundant after meetings; no interim status quo maintained pending petition

Biju Scaria and Tessy Scaria Versus Media Team Solutions (I) Pvt Ltd., Binoy Govindhan, Abraham Mathew Ambattu, Shamini T.V. and Savitha Mani Ambattu, Ernakulam

NCLAT dismissed the company appeal, holding the interim relief sought to stay the 01.07.2025 EGM and restrain corporate actions was rendered redundant ... Oppression and mismanagement - Seeking for grant of an interim relief during the pendency of the Company Petition - stay of an Extraordinary General Meeting (EGM) and restraint on corporate actions - HELD THAT:- The Respondent Counsel has attempted to justify that the holding of the EGM of 01.07.2025, holding that it cannot be said to be contrary to law or owing to the conduct of Appellant No.2, which was in consonance to the special notice under Section 115 to be read with Section 169 of the Companies Act, 2013. At this stage it is refrained from making any remark upon the set of eleven allegations that has been levelled against the Appellant No.2, which obviously would be the subject matter of the Company Petition, to be decided for which liberty has been given by Learned NCLT as contained in para 16 of the impugned order. Owing to the above, the interim order does not suffer any procedural flaw or violation of the Companies Act. Further, because the EGM has already been held on 01.07.2025, the nature of the interim relief, as it was sought in IA(C/Act) No.115/KOB/2025 has been rendered redundant, with the efflux of time, owing to the proceedings held before the Learned NCLT on 30.07.2025 and 26.08.2025 and therefore, at present, there cannot be a status quo till the Company Petition itself is finally adjudicated. The Company Appeal lacks merit and the same is accordingly dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether interim relief in the form of stay of an Extraordinary General Meeting (EGM) and restraint on corporate actions pursuant thereto should be granted pending adjudication of a company petition alleging oppression and mismanagement. 2. Whether the exercise by shareholders of the statutory power to remove a director under Section 169 of the Companies Act, 2013 can be restrained by interlocutory relief absent illegality, mala fides or breach of natural justice. 3. Whether alleged settlement negotiations or interlocutory deliberations (including appointment of a valuer) before the Tribunal can create a status quo obligation preventing the company from proceeding with statutory meetings or actions. 4. Whether an interlocutory application for interim relief becomes redundant and incapable of effective relief where the challenged EGM has already been held and the contested corporate action has taken effect prior to final disposal of the IA. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Grant of interim relief to stay EGM and restrain corporate action pending company petition Legal framework: Interim relief is governed by principles of prima facie case, balance of convenience and irreparable harm; company law context requires respect for statutory procedures, and the Tribunal may grant interim measures under its powers while balancing protection of shareholders' rights and corporate autonomy. Precedent Treatment: No specific judicial precedents were relied upon or applied in the impugned order; the Tribunal's reasoning was based on statutory scheme and factual record. Interpretation and reasoning: The Tribunal found that the notice calling the EGM complied with statutory requirements and that the shareholders had been given opportunity to be heard; therefore, there was no procedural anomaly or illegality to justify extraordinary interlocutory interference. The Tribunal emphasized that interfering with routine corporate decision-making (calling/conduct of an EGM) would encroach upon day-to-day functioning unless statutory abuse or irregularity is shown. Ratio vs. Obiter: Ratio - Interim stay of an EGM will not be granted where the notice and conduct of the meeting are in compliance with statutory requirements and no illegality, mala fides or breach of natural justice is shown. Obiter - General observations on corporate democracy and balancing corporate autonomy with shareholder protection (contextual but supportive of ratio). Conclusions: The Tribunal correctly refused interim relief to stay the EGM and restrain corporate action where statutory compliance was demonstrated and no exceptional circumstances for judicial interference were established. Issue 2 - Scope of shareholder power under Section 169 and limits on judicial interference Legal framework: Section 169 (removal of directors) confers a statutory right on shareholders to remove directors; judicial interference with that right is permissible only in presence of illegality, mala fides, or violation of natural justice, and not merely on equitable grounds. Precedent Treatment: The impugned order applied statutory interpretation rather than citing binding precedents; the Tribunal treated Section 169 as prioritizing corporate democracy that must prevail unless abused. Interpretation and reasoning: The Tribunal held that the right of shareholders to remove a director is 'absolute' within the statutory scheme, subject to misuse. The Appellant failed to demonstrate that the process of calling the EGM or the removal motion involved abuse of statutory process, malafide intent, or denial of natural justice. The EGM included transparency measures (service of notice, opportunity to represent, independent scrutinizer, minutes), negating grounds for equitable interference. Ratio vs. Obiter: Ratio - Judicial restraint is required in matters of shareholder removal under Section 169 absent demonstrated illegality, mala fides or procedural unfairness. Obiter - Emphasis on protecting corporate democracy as a policy consideration. Conclusions: The Tribunal's conclusion that the removal under Section 169 could not be interdicted on equity grounds alone was upheld as sound; interlocutory relief to displace a properly convened exercise of shareholder power was declined. Issue 3 - Effect of settlement talks and appointment of valuer on status quo and interim relief Legal framework: Interim orders or status quo obligations can be predicated upon specific judicial directions or consensual undertakings; mere negotiations or discussion of appointing a valuer do not by themselves create an injunction-quality status quo without express orders. Precedent Treatment: No authority was cited; the Tribunal assessed the content of hearings and the absence of any recorded commitment to freeze corporate actions. Interpretation and reasoning: The Tribunal observed that prior hearings recorded consideration of appointing a valuer but did not record any commitment as to share transfer, valuation date, or any order of status quo. There was no consensus on those issues, and no interim order was passed preventing the company from proceeding with its business or holding meetings. Consequently, the Appellant could not rely on those deliberations to claim an implied stay. Ratio vs. Obiter: Ratio - Pre-litigation or interlocutory settlement talks, and discussions regarding appointment of experts, do not operate as status quo or restraining orders absent explicit direction. Obiter - Observations about the insufficiency of mere negotiation to override statutory rights. Conclusions: The Tribunal correctly rejected the contention that settlement talks or valuer appointment discussions created a status quo preventing the EGM or corporate actions. Issue 4 - Redundancy of interlocutory relief where EGM and removal have already occurred Legal framework: An interlocutory application seeking prospective relief becomes moot or redundant if the challenged event has already occurred and the relief sought can no longer provide practical or effective relief. Precedent Treatment: The impugned order applied the doctrine of redundancy/mootness to the facts without reliance on external authorities. Interpretation and reasoning: By the time the IA was finally decided, the EGM had been held and the director removal had taken effect. The Tribunal therefore found the primary relief (stay of EGM) to be rendered redundant, and consequential reliefs flowing from that primary prayer to be infructuous. The Tribunal also noted savings in paragraph 16 permitting adjudication of the substantive petition, preserving rights to raise substantive issues later. Ratio vs. Obiter: Ratio - An interlocutory application seeking to restrain a meeting or action is rendered redundant if the meeting/action has already occurred and the relief cannot be meaningfully granted; the Tribunal may dismiss such an IA on that basis. Obiter - Practical comments on preservation of substantive adjudication. Conclusions: The Tribunal lawfully dismissed the IA as redundant insofar as the primary interim relief had become incapable of effective grant, and there was no basis to maintain status quo in perpetuity until final disposal of the company petition. Overall Conclusion and Appellate Disposition Collectively, the Tribunal found no procedural irregularity, illegality, mala fide intent or breach of natural justice in the convening and conduct of the EGM; the shareholders' exercise of Section 169 powers fell within the statutory scheme; settlement talks did not create any binding status quo; and the interlocutory relief became redundant after the EGM was held. On these bases, the denial of interim relief was correctly sustained and the appeal was dismissed as lacking merit (with substantive remedies preserved in the pending company petition as per the Tribunal's saving).