2025 (11) TMI 1357 - AT - Companies Law

Minority shareholder denied deemed Section 244 waiver; valuation report not substitute for explicit order in oppression claim

The Appellant, a minority shareholder holding 5.98% shares, sought a waiver under Section 244(1)(a) to maintain a petition under Sections 241 and 242 ... Maintainability of the Company Petition - Valuation Report - Seeking a waiver from the requirements specified in Section 244(1)(a) for the purposes of initiating proceedings u/s 241 and 242 of the Companies Act, on the ground that, she is a minority shareholder holding 5.98% of shares - HELD THAT:- In the instant case, the process so far adopted till the order of 05.03.2025 emanating out of consensus between the parties and also from the act of exercise of discretion by the Tribunal, in order to find a mutually acceptable solution to the controversy, cannot be interpreted as allowing of the application for waiver, as it has been attempted to be read by the Appellant, so as to press for adjudication of proceedings under Section 241 & 242 on its own merits without even a prior order being passed on application under Section 244(1) of the Companies Act. We are of the considered view that when the Tribunal had exercised its discretion, it was on the joint and unanimous request of the parties calling for a report, which is not a specific process contemplated under law before deciding Section 244 application. Hence, it will not create any statutory obstacle for the Tribunal to proceed to decide an Application under Section 244 for the purposes of deciding the proceedings under Section 241 & 242 of the Companies Act, 2013. The valuation report, which was called for by consent of parties and was later submitted, is only a document, which will facilitate the Tribunal to decide the controversy, if at all, it is legally mature to be considered and decided on merits. The valuation report thus submitted prior to passing of any order under Section 244 cannot be read as if no specific order on waiver was required to be passed under Section 244(1)(a). Had the valuation report been accepted by all, exit to the Appellant as sought for could have been provided leading to amicable settlement, without reference to application under Section 241 alleging oppression and mismanagement - the argument extended by the Learned Counsel for the Appellant that, the finality ought to have been given to the valuation report prior to recording the finding to decide the application of waiver under Section 244 of the Companies Act, is absolutely a misconception, for the reason being that at the stage when the valuation report was called it was with the consent of the parties and which was accepted on record by consent and that it was not an act or procedure that was contemplated under law, but rather, an exercise of a discretion or an equity by the Tribunal to find an amicable settlement. The proceeding under Section 244 of the Companies Act, at the behest of the Appellant cannot be clouded to avoid a specific decision to be taken, on an application under Section 244 of the Companies Act, under peculiar circumstances, which have emerged consideration due to the prior calling of the valuation report by the Tribunal, which has been accepted by consent of both the parties and which obviously could have been subjected to consideration only when the actual proceeding under Section 241 and 242 of the Companies Act, takes its legal birth only after the consideration of the Application under Section 244 under the Act and not otherwise. Owing to aforesaid, the Company Appeal lacks merit and the same accordingly deserves to be dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether consensual appointment of a valuer and receipt of a valuation report prior to adjudication of an application under the proviso to Section 244(1) of the Companies Act, 2013, operates as a de facto waiver permitting initiation and adjudication of proceedings under Sections 241 and 242. 2. Whether an order recording that parties 'are not in agreement with the valuation' (or its rectification to record agreement) is an interlocutory order immune from appeal under the appellate jurisdictional requirements, i.e., whether such order decides any lis/right so as to attract an appeal under Section 421. 3. Whether prior consensual interlocutory steps (calling for valuation/report by consent) can override the mandatory statutory procedure under the proviso to Section 244(1) that requires a tribunal order of waiver before a member lacking the threshold shareholding can maintain a Section 241/242 petition. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Effect of consensual valuation on maintainability under Section 244(1) Legal framework: Section 244(1)(a) prescribes threshold shareholding to apply under Section 241; its proviso empowers the Tribunal to waive those requirements on an application. The proviso thus operates as a pre-condition for maintainability where the statutory shareholding threshold is not met. Precedent Treatment: Prior authority addressing the effect of valuation directions was considered but distinguished on facts where the Section 244 application had already been decided before valuation disputes were litigated; that authority was not followed on the present facts. Interpretation and reasoning: The Court held that consensual steps (appointment of valuer; calling for a valuation report; accepting the report on record by consent) are procedural/ interlocutory and serve as aids to possible settlement, but they do not substitute for, or operate as, a statutory waiver under the proviso to Section 244(1). The proviso contemplates a judicial adjudication on the waiver application; only such adjudication can remove the statutory bar on initiating Section 241/242 proceedings by a member who does not satisfy the threshold. A valuation report obtained by consent cannot be treated as establishing maintainability or as dispensing with the mandatory statutory process. Ratio vs. Obiter: Ratio - consensual valuation steps do not effect waiver under Section 244(1) and cannot render a Section 241/242 petition legally matured in the absence of an express judicial order granting waiver. Obiter - observations distinguishing factual permutations of prior cases on valuation timing where Section 244 had been decided earlier. Conclusion: The valuation process by consent did not obviate the requirement of a specific adjudicatory order under the proviso to Section 244(1); until the waiver is granted, the petition under Sections 241/242 is not maintainable. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Appealability of the impugned order recording disagreement/rectification Legal framework: The appellate jurisdiction contemplates appeals against 'orders' that determine rights or lis; interlocutory or procedural rulings which do not decide rights generally do not attract immediate appeal. Precedent Treatment: The Court considered and distinguished authority relied upon by appellant where the tribunal had directed a valuer to act with an express pathway for objections and further adjudication; in that case the context made the valuation process integrally linked to substantive relief. That precedent was not treated as applicable here because no waiver had been adjudicated at the time valuation was pursued. Interpretation and reasoning: The impugned order (recording disagreement with valuation and directing Section 244 application to be taken up on merits) was characterized as interlocutory/procedural: it did not adjudicate the substantive rights or decide the controversy under Section 241/242. The subsequent rectification (to record that respondent agreed with valuation) was found to be a clerical correction consistent with the record and averments, not a substantive adjudication. Because neither order determined a lis or crystallized rights, they were not appealable on merits under the appellate provision. Ratio vs. Obiter: Ratio - interlocutory directions concerning valuation and subsequent clerical rectification are not appealable where they do not decide substantive rights; appeal must await adjudication on the Section 244 application and/or final determination on Sections 241/242. Obiter - remarks on the scope and limits of tribunal discretion in seeking amicable settlement through valuation by consent. Conclusion: The impugned order(s) did not decide a right or lis and therefore the appeals challenging those interlocutory/rectificatory orders were not maintainable and were to be dismissed. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Relationship between consensual settlement efforts and statutory mandatory procedure Legal framework: Statutory prerequisites (Section 244 proviso) are mandatory and must be satisfied before a member lacking statutory threshold can be treated as having standing to prosecute Section 241/242 remedies; tribunal discretion to explore settlement does not enlarge statutory standing. Precedent Treatment: The Court treated earlier decisions that enforced valuation outcomes as context-specific and not establishing a general proposition that consensual valuation equates to waiver; those decisions apply where the waiver or maintainability issue was already resolved. Interpretation and reasoning: The Court emphasized the distinction between procedural/equitable exercises (inviting valuation by consent to facilitate exit/settlement) and the statutory adjudicatory function required to waive threshold conditions. A consensual valuation route is an adjunct to settlement; it cannot be a legal substitute for a judicial order of waiver. The Tribunal retained power to call for and rely on valuation materials in deciding the Section 244 application, but until the waiver order is passed the underlying petition does not legally 'come into existence.' Ratio vs. Obiter: Ratio - consensual interlocutory settlement mechanisms cannot override mandatory statutory preconditions; the tribunal can use valuation as an aid but must still adjudicate the waiver application on merits. Obiter - comments on the utility of valuation in facilitating settlements and the consequence of parties' non-acceptance of the valuation. Conclusion: Consensual valuation cannot cure lack of statutory standing; the mandatory mechanism under the proviso to Section 244(1) must be exhausted before Section 241/242 proceedings are treated as validly initiated. OVERALL CONCLUSION The Court concluded that (a) the consensual appointment of a valuer and related interlocutory steps do not amount to judicial waiver under the proviso to Section 244(1) and therefore do not render the Section 241/242 petition maintainable; (b) the impugned orders recording disagreement with valuation (and a subsequent clerical rectification) were interlocutory/rectificatory and did not decide any lis or right so as to attract a standalone appeal; and (c) the appeals challenging those orders lacked merit and were dismissed. The Court distinguished authorities cited by the appellant on the ground that those cases involved different factual matrices where the Section 244 issue had been otherwise addressed.