2026 (1) TMI 663 - AT - Companies Law

Minority trust beneficiaries' waiver to initiate ss.241-242 company oppression proceedings despite insufficient shareholding upheld, appeal dismissed

Dominant issue: whether the adjudicating authority correctly granted a waiver under s.244(1)(a) to permit initiation of proceedings under ss.241-242 ... Oppression and mismanagement - initiation of proceedings under Sections 241 & 242 of the Companies Act - non-application of mind by the Learned NCLT - failure to consider that Respondent Nos. 2 & 3, who filed the Company Petition, did so in their capacity as beneficiaries of a trust - HELD THAT:- On the facts of the case, Applicant Nos. 2 & 3 to the Application are sons of Respondent No. 2 and beneficiaries of Applicant No. 1 Trust. Their mother is the trustee of Applicant No.1 Trust, and intra-family disputes over trust management by Respondent No.2 (Father) and over management of the company were pleaded. The Tribunal found that the basic spirit for granting a waiver under Section 244 was satisfied - For the limited purpose of testing propriety of the impugned order, the Tribunal had to ascertain whether exceptional circumstances existed to grant the waiver. The Tribunal found that although the applicants’ shareholdings fell short of statutory thresholds, the admitted configuration of shares and the potential for prejudice justified prima facie consideration of waiver; and held that deep scrutiny of maintainability was unnecessary at this stage. The logic which has been assigned by the Tribunal while passing of the Impugned Order does not seem to be contrary of the records, so far as it relates to the holding of shares by the Applicants to the Application under Section 244 of the Companies Act, 2013. The arguments extended that the order impugned is without rational and without application of mind is contrary to the records, which was otherwise established. Even otherwise, the pendency of the civil suits or its ultimate decision which will be taken thereof, do not create any restriction as such for granting of a waiver under Section 244 of the Companies Act, for the purposes of initiation of the proceedings under Sections 241 & 242 of the Companies Act, 2013. Since, there was a prima facie case made out by the Applicants/Respondents herein, owing to the shareholding, which they already possessed, the grant of a waiver would fall to be within an exceptional circumstance for the purposes of initiation of Section 241 & 242 of the Companies Act, 2013, so that the lis relating to the alleged act of oppression and mismanagement may be decided on its merit and thus, the exception granted cannot be said to be suffering from any derogation of law, which would be creating a restriction in considering the application for the grant of a waiver. Hence, the logic which has been assigned by the Learned Adjudicating Authority in the observations that has been recorded in para 12,13 & 14 of the Impugned Order and allowing of the application under Section 244(1)(a) of the Companies Act, 2013, is not bad in the eyes of law, which could call for any interference by this Appellate Tribunal. The Company Appeal lacks merit, and the same is accordingly dismissed. Issues: Whether the NCLT was justified in granting a waiver under the proviso to Section 244(1) of the Companies Act, 2013 to permit initiation of proceedings under Sections 241 & 242 despite applicants not meeting the statutory shareholding thresholds and despite their status as beneficiaries of trusts.Analysis: The statutory proviso to Section 244(1) vests the Tribunal with discretion to waive the numerical membership and shareholding thresholds when exceptional circumstances prima facie justify enabling a person to proceed under Section 241. The inquiry at the waiver stage is confined to a threshold, prima facie satisfaction of exceptional circumstances and must avoid detailed adjudication of the merits of alleged oppression and mismanagement. The status of persons as beneficiaries of a trust does not ipso facto render a Section 244 application non-maintainable; factual matters such as admitted shareholding, alleged diminution of shareholding due to alleged oppression, and potential for prejudice are relevant to the prima facie assessment. Res judicata does not automatically apply where facts and circumstances differ and pending civil suits concerning trust matters do not bar the Tribunal from granting a waiver to enable a company-law remedy. The Tribunal must take precautions to prevent frivolous or multiplicative litigation, but may exercise its discretion where basic legal thresholds of genuineness and exceptional circumstances are prima facie satisfied.Conclusion: The NCLT's grant of waiver under the proviso to Section 244(1) was proper on the facts before it; the appellate challenge is without merit and the appeal is dismissed.