TaxTMI 
TaxTMI 
2025 (10) TMI 332
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....of NCLT Rules, 2016, seeking a waiver of the requirements of Section 244(b) in order to enable them to pursue Company Petition, under Section 241 read with Section 242 and 59 of the Company Act, 2013, seeking remedial measures against the acts of Oppression and Mismanagement, by the Company. 2. The facts of the case are that, one of the members of the Appellant Club i.e. Mr. M. Muthukaruppan, had filed a Company Petition, being CP / 31 / 2017, before the Ld. NCLT, Chennai, seeking a direction under Section 96 of the Companies Act, to convene and hold the Annual General Meeting pertaining to the Financial Year 2015-2016. The said Petition was contested and it came on record that, the AGM could not be held as scheduled within the time prescribed, on account of certain revelations of irregularities and discrepancies, which were identified in the membership database of the Appellant Club, which was required to be resolve first before the conduct of AGM and hence, the Appellant had appointed a firm namely M/s. Brahmayya & Co., Chartered Accountants, to conduct a special audit so as to determine the actual status of the membership of the Club and their eligibility to continue as membe....
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....be enrolled as a fellow member, which is decided in the process of election" (as per the terms of the AoA). The Report further observed that "mere long usage of the club cannot vest any adverse rights against the Club when the entry itself is void". 6. Based on the above observation made in the report of 15.11.2017 and the analysis made thereon, Hon'ble Judge (Retd.) concluded that, a total 635 members were identified to be non-compliant with the basic mandatory requirement for being even admitted as a member and that, out of it, a total of 285 members despite of being provided with an opportunity, did not provide any proof of payment of entrance fee for admission to the membership of the Club. 7. In addition to the list of persons covered in the report, the Appellant Club submitted before Ld. NCLT that, there were 21 other persons who were also in default in payment of the entrance fee for admission into the Club and in respect of whom there were no entries of payments, available in the Ledgers that were maintained by the Appellant Club. 8. Consequently, relying upon the report that was submitted by the Hon'ble Retired Judge, the Ld. NCLT proceeded to pass an order on 13.....
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....Hon'ble Justice Mr. K.P. Sivasubramaniam and the findings that were recorded by the Ld. NCLT, it came to a conclusion that "635 members have not paid the entrance fee" dismissed the Appeal, confirming the order of the Ld. NCLT with modification to the effect that "the AGM of 2018 - 2019, shall additionally consider, inter alia, the issue of paying the entrance fee with the interest at the State Bank of India Fixed Deposit, rate for the years of delay in payment. The relevant observation, that was made by the NCLAT in its Judgment as rendered on 29.05.2020 is extracted as under: "Hence, we agree with the order of NCLT Chennai with an amendment that let the AGM 2018-19 to additionally consider also inter alia the issue of paying entrance fees along with interest at State Bank of India fixed deposit rate for the years of delay in payment. In order to have a clarity that the AGM be held for the years 2015-16, 2016-17, 2017-18 & 2018-19 within a period of next two months from the date of this order based on the genuineness of the members as identified by Independent Auditors Report, following by the scrutiny done by Hon'ble Justice K.P. Siva Subramaniyan a retired Judge of the ....
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....Companies Act. 18. The logic behind it is that, the basic intention of Section 244 of the Companies Act, is to carve out an exception by way of an enabling provision, that, in an event, if a member of a Company, who does not satisfy the parameters laid down under Section 244 for initiation of proceedings under Section 241 & 242 of the Companies Act, and feels himself to be aggrieved by any act of Mismanagement or Oppression, can still exercise his rights by filing of an application under Section 244 of Companies Act, for the grant of waiver for the purposes of initiation of proceedings under Section 241 & 242 of Companies Act. That is why provision has been confined to be invoked by the member of the Company only and not by any outsider, in order to curtail abuse of the provisions of Section 241 & 242. 19. If the directions that were given therein in the order passed by the NCLAT are considered, it has given a leverage that, the AGM of 2018 - 2019 would additionally consider the issue of paying the entrance fee along with the interest. By this, it was just carving out an exception that, all those persons who have been determined to have been settled to have been found to be i....
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.... "Right to apply under Section 241. (1) The following members of a company shall have the right to apply under section 241, namely:-- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members: Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation.--For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (2) Where any members of a company are entitled to make an application under subsection (1), any one or more ....
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....ers of the Company in respect of which the proceedings under 241 and 242 are being sought to be drawn. 26. The fact that, they were not the existing members of the Company, was a fact which stood established by the reports of the Auditor and the Hon'ble Retired Judge of the Madras High Court. Hence, the finding qua the Respondents not being the member of the Company, was a finding which stood affirmed upto the stage of the proceedings of the NCLT, which stood concluded by the Order dated 24.09.2019, as it was rendered in a leading Company Petition i.e. CP No. 31 / 2017. 27. More importantly, in fact, there was already a judicial determination made, that the Respondents are not the members of the 'Appellant Company' / 'Club', but the observation which has been made in Para 11 of the Judgment dated 29.05.2020 in Company Appeal (AT) No. 332 / 2019 only, was by way of a gratuitous direction issued to "additionally consider", meaning thereby, that the Respondents were found not being a member was a fact which stood established and undisturbed by the Judgment of the NCLAT dated 29.05.2020. The exception that was carved out therein in fact, was not creating a right, but, it was rath....
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....that, there was a conflicting document with regards to the aspect of determination of membership meaning thereby, the factum of membership by the said time was not even established and it was yet a disputed fact, that was under judicial scrutiny. 33. As far as we are concerned, we are of the view that since Section 244 of the Companies Act, enables only a member to invoke Section 244 of the Companies Act, for the grant of waiver to overcome the restrictions imposed by Section 244 of Companies Act, the pre-condition is, that the Respondents should have established themselves to be members of the Club before invoking Section 244 of Companies Act, for grant of waiver, in which they have failed. Thus, there cannot be any presumption or gratuitous treatment under law to treat them to be members for the purposes of Section 244 of Companies Act. 34. Having not done so and having admitted the fact that they are not the members of the Appellant / Club, and there having been established and admitted fact due to the two unrebutted reports that, they are not the members of the Appellant Club who have been validly inducted in the light of the provisions contained under the relevant Articl....
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....ction 244. Such opinion required to be formed on the basis of the (proposed) application under Section 241 and to form opinion whether allegation pertains to "oppression and mismanagement" of the company or its members. The merit cannot be decided till the Tribunal waives the requirement and enable the members to file application under Section 241. 146. Normally, the following factors are required to be noticed by the Tribunal before forming its opinion as to whether the application merits "waiver" of all or one or other requirement as specified in clauses (a) and (b) of sub-section (1) Section 244: (i) Whether the applicants are member(s) of the company in question? If the answer is in negative i.e. the applicant(s) are not member(s), the application is to be rejected outright. Otherwise, the Tribunal will look into the next factor. (ii) Whether (proposed) application under Section 241 pertains to "oppression and mismanagement"? If the Tribunal on perusal of proposed application under Section 241 forms opinion that the application does not relate to "oppression and mismanagement" of the company or its members and/or is frivo....
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....nder the proviso to Section 244 would be dehors to the provisions of law. 40. What is relevant is that, the Ld. Counsel for the Respondent, while addressing upon the present Company Appeal, had not answered the fact with regards to the finding, which has been recorded in Para 21 of the Impugned Order, where a finding has been recorded that, the Respondents "had been the members of the Company / Club and they had enjoyed the facilities for more than 20 years". It is an expression in past tense and not in present tense, which establishes that Respondents were not the members of Appellant Club at the time of filing application under Section 244 of the Companies Act. 41. Since the status of the Respondents being non-members of the Club, stands established by the reports submitted by the Auditor, as well as by the Hon'ble Justice Mr. K.P. Sivasubramaniam (Retd.), the status of the Respondents remains unaltered, and hence, merely because of the fact that they had earlier continued to be as a member since 1998 does not grant them any indefeasible right to press their rights as members for all times to come, even when there is admittedly non-revival of their status of being the membe....
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....y Daniel Khare where it has been settled that, a member of a Company who is now not a member at the relevant point of time is not entitled to move any application for waiver, relevant observations made therein are extracted as hereunder:- "28. As per Cyrus Mistry case it is admitted position that if applicant is not member he cannot move an application. In the present case, we also noted that there are 46 members in the company meeting on November 28, 2014 at Nasik and the appellant is stating that there are only 8 members. Therefore, there has to be some linkage how 46 members have become 8 members. Further the appellant has stated that certain directors stood automatically vacated of the office of directors by operation of law on account of non-filing of annual accounts and annual returns and thereby failing to discharge their duties as directors. However, we are of the opinion that there is provision in the Companies Act that a director can be removed but members are not normally removed. On the other hand, as per the claim of the appellant that respondents are not members and counter claim by the respondents that they are members. There are also some conflicting docume....