Photon Infotech Pvt. Ltd vs Medici Holdings Ltd

(Arising out of order dated 17.10.2017 passed by the National Company Law Tribunal, Single Bench, Chennai in CA/90/2017).

IN THE MATTER OF: 1. Photon Infotech Pvt. Ltd. ...Appellant No. 1 No.7, 7th Cross Street, Shastri Nagar, (Original Respondent no.1) Adyar, Chennai- 600020

2. Srinivas Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, ...Appellant No. 2 Adyar, Chennai- 600020 (Original Respondent no.2)

3. Mukund Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, ...Appellant No. 3 Adyar, Chennai- 600020 (Original Respondent no.3)

4. Latha Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, ...Appellant No. 4 Adyar, Chennai- 600020 (Original Respondent no.4)

5. Photon Interactive Private Limited Block No.5, Floor No.2, DLF IT Park, ...Appellant No. 5 Shivaji Nagar, Adyar, Chennai- 600020. (Original Respondent no.5) Vs 1. Medici Holdings Ltd. ...Respondent No. 1 St. Louis Business Centre, CnrDesroche (Original Applicant) & St.Louis Streets, Port Louis, Mauritius

2. Photon BV, Previously North First Capital Schiphol Boulevard, 399, 1118BJ, Schiphol, PO Box 75789, 1118ZX ...Respondent No. 2 Schiphol, Netherlands (Original Respondent No.6)

3. Amistad Capital Cooperatief U.A. Schiphol Boulevard 399, 1118BJ Schiphol ...Respondent No. 3 Netherlands. (Original Respondent No.7

4. Amistad Capital Pte Ltd. Registered office at 1,North Bridge Road, ...Respondent No. 4 #19-04/05, High Street Centre (Original Respondent No.8) 2

5. Ram Charan No.7, 7th Cross Street, Shastri Nagar, ...Respondent No. 5 Adyar, Chennai- 600020 (Original Respondent No.9)

Present:

For Appellant: Mr. C. S. Vaidyanathan, Senior Advocate with Mr. R. Anand Padmanabhan, Mr. Goutham Shivahankar, Mr. Srinath Ra. Iyengar, Ms. Ananya Mukherjee, and Mr. Akshay Ravi, Advocates. For Respondent: Mr. Sankarnarayanan, Sr. Advocate with Mr. P. Rajkumar Jhabhak, Mr. Anandh K. Shruti Iyer, Mr.Shiv Mangal Sharma and Mr. Adhiraj, Advocates for Respondent No. 1.

With Company Appeal (AT) No. 395 of 2017 IN THE MATTER OF: Ram Charan S.R, Previously working as Chief Financial Officer of M/s. Photon Infotech Private Limited and Currently working as Chief Financial officer of M/s. Photon Interactive Private Limited. Having his office address at II Floor, block 5 DLF IT SEZ. 1/124 Mount Poonamallee Road, Manapakkam Chennai TN 600089 ...Appellants

Vs 1. Medici Holdings Ltd. having its registered office at St. Louis Business Centre, CnrDesroche & St.Louis Streets, Port Louis, Mauritius, Represented by its Authorized Representative And power of Attorney Holder Mr. Yashpal Kumar Having office at No. 101-B, Mittal Towers, Nariman Point Mumbai-400201 2. Photon Infotech Pvt. Ltd. No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020

Company Appeal (AT) No. 375, 395 & 396 of 2017 3

3. Srinivas Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020 4. Mukund Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020 5. Latha Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020

6. Photon Interactive Private Limited Block No.5, Floor No.2, DLF IT Park, Shivaji Nagar, Adyar, Chennai- 600020.

7. Photon NV, Previously North First Capital Schiphol Boulevard, 399, 1118BJ, Schiphol, PO Box 75789, 1118ZX Schiphol, Netherlands. Through its Director Srinivas Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020 8. Amistad Capital Cooperatief U.A. Schiphol Boulevard 399, 1118BJ Schiphol Netherlands. Srinivas Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020 9. Amistad Capital Pte Ltd. Registered office at 1, North Bridge Road, #19-04/05, High Street Centre Singapore-179094 Srinivas Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020 ....Respondents

Present: For Appellant: Mr. V. Mahesh, Company Secretary. For Respondent: Mr. Sankarnarayanan, Sr. Advocate with Mr. P. Rajkumar Jhabhak, Mr. Anandh K. Shruti Iyer, Mr. Shiv Mangal Sharma and Mr. Adhiraj, Advocates for Respondent No. 1.

Company Appeal (AT) No. 375, 395 & 396 of 2017 4

With Company Appeal (AT) No. 396 of 2017

IN THE MATTER OF: 1. Photon NV, Previously North First Capital & Ors. Schiphol Boulevard, 399, 1118BJ, Schiphol, PO Box 75789, 1118ZX Schiphol, Netherlands. 2. Amistad Capital Cooperatief U.A. Schiphol Boulevard 399, 1118BJ Schiphol Netherlands. 3. Amistad Capital Pte Ltd. Registered office at 1, North Bridge Road, #19-04/05, High Street Centre Singapore-179094 ...Appellants

Vs 1. Medici Holdings Ltd. St. Louis Business Centre, CnrDesroche & St.Louis Streets, Port Louis, Mauritius

2. Photon Infotech Pvt. Ltd. No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020

3. Srinivas Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020

4. Mukund Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020

5. Latha Balasubramanian, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020

6. Photon Interactive Private Limited Block No.5, Floor No.2, DLF IT Park, Shivaji Nagar, Adyar, Chennai- 600020.

Company Appeal (AT) No. 375, 395 & 396 of 2017 5

7. Ram Charan S.R, No.7, 7th Cross Street, Shastri Nagar, Adyar, Chennai- 600020 ....Respondents

Present:

For Appellant: Mr. R. Anand Padmanabhan, Advocate.

For Respondent: Mr. Sankarnarayanan, Sr. Advocate with Mr. P. Rajkumar Jhabhak, Mr. Anandh K. Shruti Iyer, Mr. Shiv Mangal Sharma and Mr. Adhiraj, Advocates for Respondent No. 1.

JUDGEMENT

A.I.S. CHEEMA, J.:

These 3 appeals are arising out of same impugned order passed by the

National Company Law Tribunal single Bench Chennai (NCLT in short) in CA

90/ 2017 filed by original applicant "Medici holdings Limited & Ors.". By the

impugned order NCLT has found that the original applicant has made out a

case for waiver of clause (a) and (b) of section 244 to file petition under section

241 of the Companies Act, 2013 (new Act in short). Aggrieved by the impugned

order original respondents 1 to 5 have filed CA 375/ 2017, original respondent

nos. 6 to 8 have filed CA 396/2017 and original respondent no. 9 has filed CA

395/2017.

2. We have heard the appeals together. The impugned order is also same

and thus we are disposing these appeals by this common judgment and order.

We will be referring to documents and page numbers from the record of CA no.

375/2017.

Company Appeal (AT) No. 375, 395 & 396 of 2017 6

3. The impugned order shows that the learned NCLT considered the CA

(copy of which is at page 270 in the appeal). The learned NCLT painstakingly

summarized the averments made in the application for waiver, which we need

not reproduce. NCLT considered the arguments and counter arguments which

were made and referred to rulings cited and in Para 13 of the impugned order

considered the question whether the original applicant has made out case to

seek waiver of clause (a) and (b) of section 244 of the new Act. Discussing the

arguments made, the finding was arrived at that the Legislature has fixed a

minimum criteria u/s 244 for making application under section 241 of the new

Act but at the same time entrusted the Tribunal with the power to waive the

criteria of minimum requirement for doing substantial justice. The Tribunal

found that the power has to be used very carefully and on exceptional basis

and looking to the concerned matter it was of the opinion that this case is one

of the exceptional cases where such power should be used to grant waiver in

the interest of justice.

4. Briefly, the case put up by the Respondent no. 1(original applicant) in

the application for waiver is that the applicant had acquired 6.62 per cent of

paid up equity capital of the respondent company "Photon Interactive Private

Limited". The shares were acquired soon after the company had been

incorporated. Respondent no. 1 claimed in the application that it is an

investment holding company. It has 19,69,000 equity shares of Rs. 1 each

representing 6.62 per cent of the paid-up share capital of the first respondent

Company (appellant no.1). The application contains particulars regarding the

Company Appeal (AT) No. 375, 395 & 396 of 2017 7

authorized and paid up capital of the appellant no. 1(hereafter referred as

respondent company). It is shown that the original respondent no.2 is holding

46.43 per cent of the shares and is also director of original 5th respondent and

executive director of original 6th and 7th respondents and is also director in

original 8th respondent. It is stated that the original respondent no. 3 is

promoter and director of the respondent company having shareholding of 46.43

per cent of the shares. The original respondent no. 3 is also director in 5th

respondent and is also director in 8th respondent. As per the application for

waiver original respondent no. 4 has 0.03 per cent shares in the respondent

company and she is also director of 5th respondent company. The application

gives particulars relating to respondents 5 to 9 also and their connection with

the respondent company. The case put up is that it is on 24.11.2010 the

company came up with a proposal to allot substantial shares to respondent

nos. 2 and 3. The original applicant objected and the proposal was given up.

Some offer was made on 25.01.2011 and that was also given up. On

25.11.2010 according to the applicant a right offer was given to all the

shareholders but the offer made to the original applicant came to be

withdrawn. Similar process was adopted on 10.01.2011 and even that was

given up. According to the original applicant on 28.10.2011 8,50,000 shares of

face value of Rs. 1 were issued to original respondent no. 9 as Employee Stock

Option and on the very day in the same meeting the board of directors passed

another resolution approving buy-back of the very same shares from

respondent no. 9 by the respondent company at a price of Rs. 66 per share and

Company Appeal (AT) No. 375, 395 & 396 of 2017 8

respondent no.9 was enriched by a sum of Rs.1,08,37,500 as the differential

share price.

5. The application for waiver has contents making averments as to how

there was effort at demerger scheme and even that was abandoned when

objected and as to how the only business of the respondent company which

was of software has been sold off to original respondent no. 5, on slump sale

basis. According to the original applicant on 15.11.2011 several shareholders

were issued just 1 share each so as to ensure that the original applicant is not

able to resort to application under section 399 of the companies Act, 1956 (old

Act in brief) as then applicable. The applicant claimed in the NCLT, that it had

moved the Central Government for permission to file the petition which was

granted. The same was challenged by other side in writ petition on the basis

that the official who heard the matter had not passed the orders. Subsequently

another order was passed by the official concern but even that was challenged

in writ petition. According to the applicant Civil Suit no. 887/2013 was filed by

the applicant as derivative suit to declare the sale of software business as

illegal and for consequent reliefs. Some of the original respondents objected

and sought rejection of plaint and the matter is still pending in High Court.

After coming into force of the new Act, the applicant has been filed for waiver.

6. The original respondents 1 to 5 in CA 325/ 2017 have challenged the

impugned order and it has been argued by the appellants that before the NCLT

no special exceptional circumstances were made out for grant of waiver.

Company Appeal (AT) No. 375, 395 & 396 of 2017 9

According to the appellants (original respondents 1 to 5) as held in the matter

of Cyrus Investments Pvt. Ltd. & Ors. Vs. Tata Sons Ltd. & Ors.,

MANU/NL/0100/2017 waiver can be granted only after "special and

exceptional circumstances are made out". It has been argued that the NCLT

can only deliberate on the merits of a proposed application under section 241

while deciding the application and for granting waiver NCLT can only look into

"relevant facts" and record reasons reflecting satisfaction for grant of waiver.

The argument is that in paragraph 18 to 20 of the impugned judgment and

order of NCLT the NCLT has discussed the merits of the claim of oppression

and mismanagement before it and put it on the respondents that they had

failed to provide explanation as to why reserves/surplus is not used for

expansion; failure to explain subsequent proposals for share allotments when

previous allotments were withdrawn; failure to explain buy-back of ESOP

shares and that respondents failed to explain why decision of buy back of

shares issued and bought back on 28.10.2011 was taken in the same Board

meeting. Thus according to the appellants keeping in view the judgment in the

matter of Cyrus Investments these findings on merits were not relevant for

considering the waiver. According to the appellants no single "special and

exceptional circumstances" has been found by the NCLT. The original applicant

had in written submissions before the NCLT claimed that there was enough

merit in its application and prima facie case of oppression and mismanagement

had been made out.

Company Appeal (AT) No. 375, 395 & 396 of 2017 10

7. It has been argued by the appellants that original applicant filed civil suit

887/2013 before Madras High Court which is pending and the averments in

the suit are identical to the averments in the application for waiver. The only

new ground now made was that accounts of financial year 2013-14 and 2014-

15 had not been filed. According to the appellants the suit has not been

withdrawn and the remedy of derivative action civil suit and a claim of

oppression are inconsistent and original applicant must be precluded from

seeking relief before NCLT.

8. The appellants have further submitted that the Central Government had

passed order dated 06.05.2015 permitting original applicant to file petition

under section 399(4) which was challenged in writ petition no. 17681 of 2015.

The High Court granted interim stay and the writ petition is pending.

Thereafter, Ministry of Corporate Affairs passed another order dated

03.07.2015 purportedly correcting a defect which was in the earlier order dated

06.05.2015 and granted permission to the original applicant to file original

petition under section 397 and 398 of the Act, 1956. Even this was challenged

by the appellants in writ petition 10779 of 2017 before Madras High Court. The

second order MCA dated 03.07.2015 has not been stayed by the High Court

but the writ petition is pending. As such, nothing prevented the original

applicant from filing company petition and only after the new act has come into

force present application is filed. Thus the application suffered from delay and

latches.

Company Appeal (AT) No. 375, 395 & 396 of 2017 11

9. According to the appellants the appellant no. 5 has nothing to do with

the affairs of the appellant no. 1 company. Appellant no. 5 is not a shareholder

nor involved in management. It is only transferee under a Business Transfer

Agreement signed by the first appellant company and is 3rd party purchaser of

first appellant's assets at a fair value. Thus, it is claimed that original appellant

was bona fide purchaser. Settlement offers were made but the original

applicant did not accept and is going on litigating.

10. The appellants of company 396/2017 are supporting the appellants of

CA 325/2017 and raising similar contentions. They claim that when the

original applicant moved Ministry of Corporate Affairs, they were not made

parties. According to them there is no cause of action against them and there is

no act of oppression and mismanagement made out against them. According to

them they are unnecessary party. There was no exceptional circumstance made

out for waiver.

11. The original respondent no. 9, appellant of CA 375/2017 is also

supporting the other Appellants. He claims that he is not shareholder nor

director of respondent company. He was former employee and resigned in

February, 2013. It is claimed that ESOP shares granted to him were based on

evaluation done by SEBI and when option was exercised by this appellant in

Compensation Committee held on 30.09.2011 the price was fixed at 54.25,

and, on 28.10.2011 the same shares were brought back at Rs. 66. This

Company Appeal (AT) No. 375, 395 & 396 of 2017 12

appellant is trying to show that the acts would not amount to oppression. He

also claims that there were no circumstances made out for granting of waiver.

12. Counsel for the original applicant/respondent no. 1 in appeal in his

argument referred to the various acts of oppression and mismanagement,

which original applicant made out in the application. According to the counsel

the judgment in the matter of Cyber Investment came after the arguments were

completed in the NCLT but still the same was brought to the notice of NCLT

and it has considered the same. According to the counsel it is admitted fact

that capital and original applicant/respondent no.1 is having 6.62 per cent of

the paid up equity capital. According to the counsel the present appellants

made various efforts to oppress the original applicant and even made efforts at

demerger of the company and when the original applicant objected to such

acts, they withdrew from those acts but by a subsequent act whole business of

the company by an agreement dated 27.03.2013 has been handed over to the

present appellant no. 5 on slump sale basis which was hugely undervalued and

when the substratum of the Company which was the business itself has been

transferred, it is an exceptional circumstance and case for grant of waiver.

Referring to the judgment of NCLT, it has been argued by learned counsel for

respondent no. 1 that NCLT took note of the shareholding position of original

applicant and considered that it was a case of oppression and mismanagement

and kept in view the judgment in the matter of Cyrus Investment and held

exceptional circumstance was made out. The Civil Suit filed has been objected

to by the appellants in the High Court claiming that it was a case of oppression

Company Appeal (AT) No. 375, 395 & 396 of 2017 13

and mismanagement and so the Civil Suit was not maintainable and they had

sought rejection of plaint. It is argued that the original applicant cannot be left

without remedy and earlier on two occasions Central Government granted

permission to file Company Petition but the appellants challenged the same in

writ petitions and it is settled legal position that in matters relating to members

of company for oppression and mismanagement proceeding to NCLT is the only

remedy. He submitted that on the principle of "Ibi Jus Ubi Remedium" the

applicant cannot be non-suited.

13. We have gone through the application which was filed by the Respondent

no. 1 before NCLT, the orders passed by NCLT and the rival claims which are

being put up by these parties. The question is whether the Respondent no. 1-

original applicant deserves to be granted waiver from the requirements

specified in clause (a) and (b) of section 244(1) to enable the respondent no.1 to

apply under section 241 of the new Act.

14. This Tribunal has in the matter of "Cyber Investments Private Limited"

(referred supra) (to which one of us was member) dealt with the question of

waiver in some details. It would be appropriate to refer to some of the

observations and findings.

14.1 Before discussing the judgment in the matter of Cyrus Investments,

it would be appropriate to reproduce Section 244 of the new Act which reads as

under:

Company Appeal (AT) No. 375, 395 & 396 of 2017 14

"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

of 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 sub-section (1) any one or more of them having

Company Appeal (AT) No. 375, 395 & 396 of 2017 15

obtained the consent in writing of the rest, may make the application

on behalf and for the benefit of all of them."

14.2 in the matter of Cyrus Investments, after referring to the provisions

of section 241 to 243 it was observed:-

"135. From plain reading of sub-section (1) of Section 244, the

following facts emerges.

In the case of a company having a share capital, the following

member(s) have right to apply under section 241:

(i) 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; and (ii) 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.

136. Apart from two categories of members who have right to apply

under Section 241, under proviso to sub-Section (1) of Section 244,

the Tribunal on an application made to it in this behalf by any

member, i.e. those who are otherwise not eligible, may waive all or

any of the requirements specified in clause (a) or clause (b) so as to

enable the member to apply under Section 241.

Company Appeal (AT) No. 375, 395 & 396 of 2017 16

137. From the proviso to sub-section (1) of section 244, it is clear that

till the Tribunal waive all or any of the requirements specified in

clause (a) or clause (b) of sub-section (1), so as to enable the member

(s) to apply under Section 241, no application under Section 241 can

be entertained.

138. Therefore, before grant of waiver, the question of forming

opinion by Tribunal on an application made under Section 241 and

to pass any order as it thinks fit does not arise. If the Tribunal

intends to decide the application under section 241 on merit, it is

required to waive the requirement as prescribed under sub-section

(1) of section 244.

139. For the reasons aforesaid, we hold that the Tribunal cannot

deliberate on the merit of a (proposed) application under Section

241, while deciding an application for 'waiver' under proviso to sub-

section (1) of Section 244.

Then the judgment considered factors dependent on merit and in Para 140 it

was observed as follows:-

"140. For the aforesaid reasons we hold that the Tribunal while

deciding an application for 'waiver' under proviso to sub-section (1)

of Section 244 to enable the members to apply under section 241

cannot decide the following issues:-

Company Appeal (AT) No. 375, 395 & 396 of 2017 17

(i) Merit of the case

(ii) Issues dependent on merit based on claim and counter claim,

such as:

a. Whether a prima facie case has been made or not

b. Whether the petition is barred by limitation,

c. Whether it is a case of arbitration,

d. Whether allegation relates to/pertains to another company

(Third Party).

e. Whether the allegations are in the nature of directorial

complaint.

f. Whether the applicants' conduct disentitled them from seeking

relief.

g. Whether the proposed application under Section 241 is barred

by acquiescence or waiver or estoppels."

14.3. Then reference was made to the old provisions of Section 397, 398

and 399 under the old Act where the Central Government could, if it was of the

opinion that "circumstances exist which make it just an equitable so to do,"

authorize any Member or members of the company to apply to the Company

Law Board under section 397 or 398. It was observed in Para 143 as under :-

Company Appeal (AT) No. 375, 395 & 396 of 2017 18

"143. Under proviso to sub-section (1) of Section 244 now the

Tribunal is required to decide the question whether application

merits 'waiver' of all or any of the requirements as specified in

clauses (a) and (b) of sub-section (1) of Section 244 to enable such

member(s) to file application under Section 241. Such order of

'waiver' being judicial in nature, cannot be passed by Tribunal, in a

capricious or arbitrary manner and can be passed only by a

speaking and reasoned order after notice to the (proposed)

respondent(s). The basic principle of justice delivery system is that a

court or a Tribunal while passing an order is not only required to

give good reason based on record/evidence but also required to

show that after being satisfied itself the Court/Tribunal has passed

such order. To form an opinion as to whether the application merits

waiver, the Tribunal is not only required to form its opinion

objectively, but also required to satisfy itself on the basis of

pleadings/evidence on record as to whether the proposed

application under Section 241 merits consideration."

14.4 It has been then observed in the matter of Cyrus Investments that,

the Tribunal is required "to take into consideration the relevant facts and

evidence, as pleaded in the application" and " to record reasons reflecting its

satisfaction". In Para 145 of the judgment it has been held that the Tribunal is

not required to decide merit of the application under section 241 but "required

to record grounds to suggest that the applicants have made out some

Company Appeal (AT) No. 375, 395 & 396 of 2017 19

exceptional case for waiver of all or any of the requirements specified in clauses

(a) and (b) of sub-section (1) of Section 244". Para 146 of the judgment reads as

under:-

"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 frivolous, it will reject the

application for 'waiver'. Otherwise, the Tribunal will proceed to

notice the other factors.

(iii) Whether similar allegation of 'oppression and mismanagement',

was earlier made by any other member and stand decided and

concluded?

Company Appeal (AT) No. 375, 395 & 396 of 2017 20

(iv)Whether there is an exceptional circumstance made out to grant

'waiver', so as to enable members to file application under Section

241 etc.?"

14.5 It has been held that aforesaid factors are not exhaustive. In

the said judgment of Cyrus Investments this Tribunal then looked into the

shareholding of the parties in that matter and it was observed in Para 155 to

158 as under:-

"155. From the aforesaid summary of shareholding we find that

except Mr. Ratan Naval Tata (at serial No. 22) having issued

shareholding of 31.43% and Mr. Narotam S. Sekhsaria (at serial No.

44), having 17.01% shareholding capital of the company, none of the

49 member(s) are eligible to file an application under Section 241,

individually having less than 10% of the shareholding.

156. That means in the context of present case, except that the

minority shareholders join together, i.e. either six in numbers or such

numbers of members whose joint shareholding will come up to 10%

of the issued share capital of the Company, which will be also not

less than 3 to 4 members, none of the 49 shareholders can file an

application under Section 241 alleging 'oppression and

mismanagement'. It will remain only in the hands of major

shareholders, namely Mr. Ratan Naval Tata or Mr. Narotam S.

Company Appeal (AT) No. 375, 395 & 396 of 2017 21

Sekhsaria, who only have right and their prerogative to file such

application.

157. One or the other minority shareholder cannot be asked or

directed to form a group of 10% of the member(s) that means six

person(s) in the present case, as it will be dependent on the

prerogative of the other member(s).

158. We are of the view that this is one of the exceptional and

compelling circumstances, which merit the application for 'waiver'

subject to the question whether (proposed) application under Section

241 relates to 'oppression and mismanagement'."

The judgment then noted the interest of the appellants in the overall

value of the company and for further reasons recorded the waiver was granted.

15. Coming back to the present matter. Annexure A.13 (page 270) is copy of

the application for waiver. Para 1 of the same shows original applicant

(respondent no.1 in appeal) is minority shareholder holding 19,69,000 equity

shares of Rs. 1 each representing 6.62 per cent of paid up share capital of

appellant no. 1 company. Paras 3, 4 and 5 show appellants 2 to 4 (original

respondent nos. 2 to 4) hold 46.93%, 46.43% and 0.03% shares respectively. It

would be appropriate to reproduce one paragraph from the application for

waiver which was moved. Para 19 reads as follows:-

Company Appeal (AT) No. 375, 395 & 396 of 2017 22

"On or around 15th November, 2011, the 4th Respondent transferred

15 shares each of 1st Respondent to 1st Respondent's employees.

Pertinently, this transfer of shares to the 1st Respondent's

employees was only to increase the number of members of the 1st

Respondent, so as to ensure that the Applicant is not able to meet

the statutory requirement of 1/10th of the total number of the

members of the company to maintain an action for oppression/

mismanagement under the old Act. The Applicant had always been

one of the four shareholders of the 1st Respondent holding 6.62 per

cent shareholding in the 1st Respondent; but through this stratagem,

the Respondents nos. 2 to 4 attempted to prevent the Applicant from

having the capacity (under Section 399 of the Old Act) to initiate

proceedings under Section 397-398 of the Old Act against the 1st

Respondent and/or Respondent Nos. 2 to 4."

If the above factor is kept in view and the grounds recorded in the judgment of

Cyrus Investments which we have been reproduced above are seen, it is

apparent that except for appellants 2 and 3 none of the other shareholders can

maintain an application of oppression and mismanagement. As per the

judgment of Cyrus other minority stake holders cannot be asked or directed to

form a group of 10% of the members. This is an exceptional factor and we find

substance in the arguments of the learned counsel for Respondent no.1 that

the Respondent no.1 (original applicant) has 6.62 per cent shareholding and

the appellants 2 to 4 have purposely left a minuscule 0.038 per cent in the

Company Appeal (AT) No. 375, 395 & 396 of 2017 23

hands of others and kept rest of the shares with themselves. The argument is

that the number of Members has been increased by transferring 15 shares to

employees so that Section 244 could not be satisfied.

16. Going through the application which was filed for waiver by the

Respondent no.1 we find that the application pertains to 'oppression and

mismanagement'. We keep in view the pleadings of alleged oppression and

mismanagement. There is no dispute that the original applicant/ respondent

no.1 is member of the company. It cannot be said that the application is

frivolous. It is not a case that similar allegations of 'oppression and

mismanagement' were earlier made and stood decided or concluded (please see

Para 146 of the judgment in the matter of Cyrus Investments). It has already

been held in Para 150 of the judgment in the matter of Cyrus Investments that

Civil Court has no jurisdiction to entertain any suit or proceeding in respect of

alleged acts of 'oppression and mismanagement' if it is preferred by any

member of the company. When any member of the company complaints of

'oppression and mismanagement' in the company, in view of the Companies

Act, the issue has to be decided by NCLT. Thus only because the Respondent

no. 1 filed suit in the High Court would not be a Bar to present application as

the question of oppression and mismanagement has to be decided by NCLT.

17. In the present matter Respondent no.1 earlier moved the Central

Government and the permission was granted by orders dated 06.05.2015 (page

no. 208) which appear to have been challenged in writ petition. It has been

Company Appeal (AT) No. 375, 395 & 396 of 2017 24

argued that writ petition was filed on the basis that the officer who heard the

parties did not pass the concerned orders. It appears that subsequently the

concerned officer passed another order on 03.07.2015 (page no. 232) whereby

the necessary permission was granted to file petition before Company Law

Board under section 397 and 398. No doubt it is stated that even the second

order has been challenged in writ petition. We are making reference to these

orders for the limited purpose that the Respondent no. 1 is not running from

pillar to post without having a substantial matter. It did have an order in its

favour under section 399(4) of the Old Act where the Central Government could

permit if there were circumstances making it "just an equitable so to do" to

authorize a Member to file the application to CLB. In fact the present proviso

under section 244 (1) is not even circumscribed by any conditions like "just an

equitable" like in section 399(4) and rather it is open ended giving wide

discretion to NCLT. Of course all judicial powers and discretions are to be so

exercised that it should not be arbitrary or whimsical. Interest of justice has

always been the guiding factor.

18. No doubt in the impugned order NCLT, reading the proviso below section

244 as it is, discussed whether prima facie case is made out and observed that

the respondents had not shown certain factors, but we are ignoring those

observations in view of judgment in the matter of Cyrus. However we on our

analysis of the matter find that it is a fit case for grant of waiver.

Company Appeal (AT) No. 375, 395 & 396 of 2017 25

19. In reply to arguments of the Ld. Counsel for respondent no.1 (original

appellant) it is argued by Appellants (see brief written submissions on behalf of

the appellants filed on 19.03.2018) that appellant no.5 is not a shareholder of

the 1st appellant company, nor is it involved in its management; and that

appellant no.5 is only the transferee under a Business Transfer Agreement

signed by the 1st appellant company; and that " It is a bona fide third party

purchaser of the 1st appellant's assets at a fail value". We find that when it is

shown that substratum itself of the company has been transferred, it is an

exception circumstance, and waiver as sought should be granted.

20. The contentions raised by the appellants in CA 396/2017 and CA

395/2017 that they are not necessary party, relates to factors dependent on

the merits of the matter and need not to be decided at the stage of grant of

waiver.

21. For above reasons, we do not find any substance in these appeals. All the

three appeals are dismissed. No orders as to cost.

(Justice A.I.S. Cheema) Member (Judicial)

(Balvinder Singh) Member (Technical) New Delhi 24th April, 2018

sh/nn

Company Appeal (AT) No. 375, 395 & 396 of 2017