National Company Law Appellate Tribunal
Lieutenant Colonel Sandeep Dewan vs Ootacamund Club on 21 November, 2024
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
(APPELLATE JURISDICTION)
Company Appeal (AT) (CH) No.38/2024
\
(IA Nos. 663 & 664 /2024)
In the matter of:
LIEUTENANT COLONEL SANDEEP DEWAN,
Cloud End Cottage, Door No.3/106C1 DFL Estate,
Near Lawrence School, Kundah Road, Lovedale,
Ootacamund, The Nilgiris, Tamil Nadu ...Appellant
V
OOTACAMUND CLUB
Represented By Its President
No. 179, Club Road, Ootacamund,
The Nilgiris, Tamil Nadu. ...Respondent No. 1
MR. M. M. VENKATACHALAM
10 Valliammai Achi Road, Kotturpuram,
Chennai-600085, Tamil Nadu ...Respondent No. 2
MR. M. N. BΟΡΑΝΑ
Craigmore Plantation (1) Pvt. Ltd,
Kullakamby, Coonoor - 643218,
The Nilgiris, Tamil Nadu ...Respondent No. 3
MR. T. JAYARAMAN
Havukal Estate, Kotagiri-643217,
The Nilgiris, Tamil Nadu ...Respondent No. 4
MR. S. NARAYANAN
'Sivakrupa', No: 24-1, 24-2, Kamarajar Road,
Coimbatore 641018, Tamil Nadu ...Respondent No. 5
MR. NAVZER R. MEHTA
186-B, Snowdon Road,
Behind Ladies Club, Ootacamund-643001,
The Nilgiris, Tamil Nadu. ...Respondent No. 6
Comp App (AT) (CH) No.38/2024 Page 1 of 30
MR. GURMEET SINGH RANDHAWA
35, Meg Officers Colony, Banaswadi Road,
Bangalore, Karnataka - 560033 ...Respondent No. 7
MR. K. ASHOK
28, Elk Hill Estate, Kotagiri Road,
Bandishola, Coonoor 643104,
The Nilgiris, Tamil Nadu ...Respondent No. 8
MR. E. B. SETHNA
'Kievcote', Club Road, Coonoor 643101,
The Nilgiris, Tamil Nadu ...Respondent No. 9
MR. V. B. DEY
Kuppamudi Estate, Kolagapara Post - 673591,
Wayanad District, Kerala ...Respondent No. 10
MR. E. RAY KURIAN
'Beaulien', Hatherly Road, Coonoor-643101
The Nilgiris, Tamil Nadu ...Respondent No. 11
DR. M. R. SRINIVASAN
'Sunningdale', Kotagiri Road, Ootacamund-643002,
The Nilgiris, Tamil Nadu ...Respondent No. 12
MR. ANIL DHARMAPALAN
Un'acre, Post Box No. 6, Lovedale-643003,
The Nilgiris, Tamil Nadu ...Respondent No. 13
MR. PREETHAM MATHEWS PHILIP
No. 36, Peytons Road, Firgrove Cottage,
Ootacamund-643001,
The Nilgiris, Tamil Nadu ...Respondent No. 14
Present :
For Appellants : Mr. Sandeep Dewan (Party in person)
For Respondents : Mr. P.H. Arvindh Pandian, Senior Advocate
For Mr. C.V. Shailendran, Advocate, For R1
Mr. R. Parthasarathy, Senior Advocate
For Mr. Suhrith Parthasarathy, Advocate for R2-R14
Comp App (AT) (CH) No.38/2024 Page 2 of 30
JUDGMENT
(Hybrid Mode) [Per: Justice Sharad Kumar Sharma, Member (Judicial)] The genesis, of the controversy at hand, that engages our consideration in the instant Company Appeal (AT) (CH) No.38/2024, Lieutenant Colonel Sandeep Dewan (Retd) Vs. Ootacamund Club & 13 Ors., is the Company Petition CP No.113(CHE)/2022 that stood instituted before the Ld. Adjudicating Authority, as the consequence of the registration of an application preferred under the proviso to Section 244 (1), seeking a waiver from Section 244(1)(b) of the Companies Act, 2013.
2. The appellant had instituted an application under proviso to Section 244 (1) on 08.08.2022, seeking an exemption from Section 244 (1) for initiating the proceedings under Sections 241 & 242 of the Companies Act, for the purposes of agitating the cause against an act of "oppression" and "mismanagement", as it was attempted to be leveled against the Respondent No. 1, the Ootacamund Club and its office bearers. In the application thus submitted by him, he had invoked the provisions contained under Section 244 (1) to be read with Rules 11, 14 & 83A of the National Company Law Tribunal Rules, 2016.
3. Primarily, his case was that for preferring the petition under Section 241/242 of the Companies Act 2013, he should have granted exemption/waiver for initiation of the proceedings, in his favour for the reason being that, Respondent No. 1 is a company limited by guarantee and not limited by shares, Comp App (AT) (CH) No.38/2024 Page 3 of 30 and that it is not possible for the petitioner i.e., the appellant herein being an individual member to constitute 1/5th of the membership of the club and therefore he, having a strong case of oppression and mismanagement in the said club, is entitled to be granted waiver under proviso to Section 244(1)(b), to initiate the relief as sought for, under Section 241/242 of the Companies Act.
4. He has submitted that he, since being an active member of the club ever since 17.10.2016, had been actively participating in the activities of the club till he was wrongfully, suspended by the management of the club, which was initially for a period of one year, and that it was permitted to persist, even after the expiry of the period of one year by the club management, thus constituting an act of implied suspension of membership, by the management of the club. He contends that this act of suspension was unlawful, as there was no act which was established to have been conducted by him which was detrimental to the interest of the club or its members, and that he was suspended from its membership owing to the fact that he attempted to highlight certain acts of fraud and mismanagement at the hands of the office bearers of the Respondent No.1 and other club members, who had conspired together to usurp the coffers of the club, because of which he was constrained to institute the proceedings. He has submitted that, as there had been apparent acts of mismanagement which needed to be addressed, he deserved to be granted a waiver under the proviso to Section 244(1)(b) of the Companies Act to enable him to file appropriate application under Section 241 of the Comp App (AT) (CH) No.38/2024 Page 4 of 30 Companies Act. Accordingly, the relief which was sought for, in his application preferred by the appellant read as: -
"13. In light of the aforesaid, it is humbly prayed that this Hon'ble Tribunal may be pleased to:
i. Waive the requirement of Section 244(1)(b) of the Act in exercise of its powers under the proviso to Section 244(1) thereof so as to enable the Petitioner-Applicant to maintain the present Petition under Section 241 of the Act for the reliefs claimed therein; and ii. Pass such further and other reliefs as this Hon'ble Tribunal may deem fit in the facts and circumstances of the present case".
5. At this juncture, it would be pertinent to point out that, if the contents of the said application preferred under section 244(1), is taken into consideration in its totality, there have been no specific plea taken by the appellant, to bring any act of Respondent No. 1, within an ambit of Sections 241 and 242 of the Companies Act, which could have necessitated the initiation of proceedings under Section 241/242. He answers this point by stating that, for the purposes of grant of a waiver under Section 244(1), no specific pleading, which is required, to be made, because, as per his comprehension of said section, at the stage of considering a grant of waiver under the proviso to Sub- Section 1 of Section 244, simply a prima facie case needs to be made out, and not a detailed scrutiny or analysis, of the set of allegations to establish the claim of oppression and mismanagement. He further argues that, even if a critical analysis is required to Comp App (AT) (CH) No.38/2024 Page 5 of 30 be made to bring an act of the company, within the ambit of mismanagement and oppression, in that eventuality, the misconduct or mismanagement or any act of oppression as pleaded in the principal application under section 241/242, could also be taken into consideration. For the said purpose, he has placed reliance upon a judgment as rendered, in the matters of Cyrus Investments Pvt. Ltd., & Anr. Versus Tata Sons Ltd. & Ors., as reported in 2017 SCC Online NCLAT 261, particularly he has referred to Para 149, which reads as under: -
"149. The Tribunal is required to take into consideration the relevant facts and evidence, as pleaded in the application for waiver and (Proposed) application under Section 241 and required to record reasons reflecting its satisfaction".
6. He has submitted that, the Impugned Judgment, which has been passed by the Ld. Adjudicating Authority, denying a waiver to the applicant so as to enable him to initiate proceedings under Section 241, to be read with Section 242, is bad in law for the reason being that, the proviso has, to be, liberally construed, so as to enable a person to agitate his grievances, even when he does not fall to be within the ambit of the restrictions provided under Clause (b) of Section 244(1). For the aforesaid purpose, the appellant who appears in person had made reference to a judgment which has been rendered by NCLT in 2020 SCC Online NCLT 20290: (2020) 223 Comp Cas 487 in the matter of Anil Agarwal versus Omega Icehill Private Limited and Others, and particularly he has read the concluding part of the said judgment which has dealt with a Latin maxim which Comp App (AT) (CH) No.38/2024 Page 6 of 30 provides, as to how the legal provisions pertaining to agitating of a cause before a court of law are to be interpreted, in a manner so as to, not to deprive an individual from agitating his grievances before a court of law. For the said purpose and particularly in the context of the proviso to Section 244, he has referred to the following paragraph which is extracted here under.
"The proviso to section 244 has to be interpreted liberally so as to advance the cause of justice. For liberal interpretation of the said proviso, we get strength from a well-established maxim, ut res magis valeat quom-pereat. This Latin maxim of interpretation when translated into English means "that it is better for a thing to have effect than to be void". In other words, to avoid patent injustice, anomaly or absurdity or to avoid invalidation of a law, it would be justified in giving ordinary and natural meaning to the language used in the provision to give effect to the object and purpose of the enactment as envisaged by the Legislature. This has been laid down by the apex court in Girdhari Lal and Sons v. Balbir Nath Mathur, (1986) 2 SCC 237 AIR 1986 SC 1499".
7. The aforesaid ruling lays down as to how the proviso to section 244, has to be rationally interpreted so as to avoid closing the doors of the court for redressal of grievance, has been derived from the ratio which has been settled by the Hon'ble Apex Court in its the judgment reported in AIR 1986 Supreme Court Page 1499. The subject matter of the said Judgment pertains to Rent Control matter arising from Delhi, which is a subject contained in List II of VII Schedule which is a different subject altogether as compared to Corporate Law contained in List I. Comp App (AT) (CH) No.38/2024 Page 7 of 30
8. The application thus preferred under Section 244 by the Appellant had been opposed by the respondent on the ground that, no relief could be granted to the appellant under Section 244(1) for the reason being that almost for the same cause of action, the appellant has already approached the Civil Court by instituting the suits being O.S. No. 65 of 2022, where the appellant has sought a declaration of his suspension from membership of the club as void and secondly, he has preferred a suit being O.S. No. 68 of 2022, wherein the appellant has sought a prayer, for seeking a decree in the nature of a declaration in his favour against show cause notice dated 26.04.2022. The respondent has submitted, that the instant company appeal ought not to be ventured into by this Appellate Tribunal in the exercise of its appellate powers under section 421 of the Companies Act, for the reason being that, in O.S. No. 65 of 2022, the appellant has sought an amendment to the effect that, the decree of declaration may be granted with regards to the EGM, which was held by the respondents on 30.06.2023, as to be null and void and furthermore, as a consequence, the resolution of the EGM calling for the "expulsion" of the appellant from the respondent's club may be declared as to be null and void. The relevant amendment which has been sought for, by the appellant, is extracted hereunder: -
"9A. Pass an order/decree of declaration declaring illegal, null and void and void ab initio the calling, convening/holding of the EGM held by the Respondents on 30.06.2023 and an order/declaration declaring the resolution passed in the said illegal EGM calling for the expulsion of the Petitioner from the Comp App (AT) (CH) No.38/2024 Page 8 of 30 Respondent company/club as null and void, illegal, sans jurisdiction and void ab initio.
9B. Pass an order declaring the calling notice as not called, the holding/convening of the illegal EGM as not held/convened and the illegal resolution passed as not passed and not binding on the Petitioner."
9. It is admitted by the parties, that the argument on the amendment being IA No. 4/2024 for the aforesaid relief has already been heard and concluded, but no final judgment has been rendered so far. The respondents have submitted, that no proceedings under section 241 or 242, can simultaneously be initiated for the same cause of action, as agitated by the appellant, for the reason being that, the subject matter, directly or indirectly, under consideration in the suit is akin to the subject matter of the instant application as preferred under Section 244(1), and that as they engage consideration of almost an identical set of facts and evidence, no permission/waiver as such could have been granted to the appellant under Section 244(1) to initiate the proceedings under Section 241/242 of Companies Act. The respondents have further argued that if the relief which was prayed for by the appellant in O.S. No. 68 of 2022, is taken into consideration, where a show cause notice as against the act of suspension dated 26.04.2022, has been put to challenge, the same, with the passage of time and owing to certain further developments have been rendered infructuous. But at this stage, we are not required to go into the aspect as to what implication the subsequent developments Comp App (AT) (CH) No.38/2024 Page 9 of 30 will have on the suit itself, because that is yet to be decided by the competent Civil Court on its own merit.
10. Elaborating their argument, the Respondents have submitted that because of the fact that, the appellant has already, by way of an amendment, put a challenge to his order of expulsion from membership of the club of Respondent No. 1, the foundation of the proceedings of Section 244 to be read with Section 241 and 242 of the Companies Act would not lie because he is no longer a member and the matter of expulsion still being a subject matter before the Learned Munsiff Court, no waiver under section 244 (1) is required to be granted. Further, if the entire development in the case are taken into consideration, particularly in the context of the relief sought by the Appellant in O.S. No. 65 of 2022, the said relief in form of a declaration against the suspension order, for all practical purposes owing to his ultimate expulsion from the club membership, has been rendered infructuous. But at this stage, we are not commenting upon the possible outcome of the O.S. No. 65 of 2022, owing to the fact that the judgment on the amendment in the relief sought has already been reserved by the Ld. Munsiff Court. The appellant-in-person has harped upon the fact that he would still be entitled for the grant of a waiver, under the proviso and for the aforesaid purpose, the grounds contained in his application preferred under section 241/242 of the Companies Act, have to be taken into consideration in which he had pleaded that, in the case of the respondent company, since being a company Comp App (AT) (CH) No.38/2024 Page 10 of 30 falling under Section 8 of the Companies Act of 2013, (and originally incorporated under Section 26 of the Indian Companies Act of 1882) and being a company not limited by shares, the embargo of Section 244(1)(b), will not come into play, because the respondents have deliberately been running, the affairs of the respondent company, though being the registered company, in violation of Section 105 of the Companies Act, they have been engaging themselves by appointment of the proxy votes in the election, held in violation of Section 105 of the Act, and there has been an apparent failure on part of respondents to maintain a statutory register of members, as prescribed under Section 88 of the Companies Act, 2013 to be read with Rule 3 of the Companies (Management and Administration) Rules, 2014.
11. Elaborating the grounds taken by the appellant under Section 241/242 of Companies Act, he has submitted that the election, which was conducted by the Committee of the Club in its 132nd Annual General Meeting held on 30.09.2021, was a tainted election, and was not in adherence to the provisions contained under Section 105 of Companies Act, 2013. Further, the club being a company limited by guarantee, the appointment of the proxies was in violation of the covenants of the Articles of Association of the club. Owing to the fact that, Article 53 of the Articles of Association, which allows the members of the club to appoint proxies, is required to comply with the provisions contained under Rule 19 of Management and Administration Rules 2014, which stipulates that a person can Comp App (AT) (CH) No.38/2024 Page 11 of 30 act as a proxy on behalf of members not exceeding 50 in case of Section 8 Companies.
12. He submits that the club and its office bearers have been functioning and managing the affairs of the club in a manner, prejudicial to the democratic setup of the company, that for the purposes of voting, elections and general meetings, only a mere formality has been adhered to by the respondents and there has been apparent non -compliance of the provisions of the act and the rules, which defeats the purpose of the act, and that this in itself will amount to be mismanagement and oppression and hence based on the aforesaid grounds he would be entitled for a waiver even if he agitates cause in an individual capacity.
13. In order to highlight the acts of mismanagement, the appellant has cited, the illegalities committed during the election dated 30.09.2021. He has stated that the illegality is apparent on the face of the record, which he has detailed in his communication dated 30.09.2021, addressed to the president of the club and in the declaration, which he has sought in relation to the 132nd AGM meeting, which was improperly conducted and in violation of the provisions contained under Section 105 of the Companies Act and this alone calls for invoking the provisions contained under section 244(1) to grant the liberty to the appellant to initiate proceeding of mismanagement and oppression under Section 241 and 242 of the Companies Act. The appellant has further submitted, that Respondent No. 1 has erred at law by improper maintenance of the register of members because Comp App (AT) (CH) No.38/2024 Page 12 of 30 the maintenance of the register of members is a statutory duty, cast upon the management of the club, which was violated and this is an another instance of mismanagement. Further, his nomination sent by email dated 05.09.2021, seeking to contest the election for the post of committee member of the club, which was supposed to be held at 132nd AGM 30.09.2021, was not accepted, which is again an act against the democratic set up of Respondent No. 1 and thus will constitute an act of oppression.
14. However, the application under Section 241, accompanied with an application under Section 244 for the purposes of seeking a waiver under the proviso, because the appellant was agitating a cause in its individual capacity stood rejected by the Ld. Adjudicating Authority, on the grounds as under:-
(i) A suit is pending in O.S. No. 68 of 2022 in the District Court seeking declaration against the show cause notice as to be void,
(ii) In CMA 2518 of 2022, filed by him before the Hon'ble High Court of Madras the appeal was against the order of refusal to grant an injunction was dismissed.
(iii) With regards to the O.S. No. 65 of 2022, seeking declaration against the suspension, the amendment has been sought and the same is pending consideration and the orders have been reserved.
15. The appellant in person has relied upon a judgment reported in 2017 as SCC online NCLAT 261, where the Principal Bench of NCLAT in Cyrus Comp App (AT) (CH) No.38/2024 Page 13 of 30 Investments Private Limited and Ors. versus Tata Sons and Limited and others, was dealing with an issue, with regards to the grant of waiver under section 244, for the purposes of continuing the proceedings of oppression and mismanagement. The factual backdrop of the said case has been, dealt with in Para 2 and 3, but the ultimate conclusion, on which the reliance has been placed by the appellant in person, is that, the a right to apply under Section 241 of the Act for an act of mismanagement and oppression, is an aspect which has been provided under section 244, which reads as under:-
"244. 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 of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them."Comp App (AT) (CH) No.38/2024 Page 14 of 30
16. The intention of legislature by introducing the proviso to Section 244 of the Companies Act, to grant a waiver is by way of an exception to the general law. It is not a waiver by conduct or by way of a right. Waiver herein would mean that a person is granted an exemption, in special circumstances from satisfying the pre-established conditions for instituting a judicial proceeding. In that eventuality, we are of the view that, the concept of waiver under the proviso to Section 244, has to be strictly and rigidly followed, as it is a waiver by implication of law, which is carving out an exception, to the general provision to litigate, for the reason being that, if the said waiver is not granted, it would amount to that, the apparent legal disabilities to initiate the proceedings, were declined to be granted, due to non-satisfaction of the mandatory pre-conditions contained under Section 244 for initiating proceedings under Section 241 and 242. Had it been a case of waiver by conduct, that will engage in itself an element of ignorance or an intentional giving away of a right which could be permitted to be revived upon grant of a latitude or an exemption by the court. But where waiver is by way of an exception to the general law, it cannot be claimed as a matter of right and furthermore it has had to be strictly considered because it is granting a right to litigate to a person or a class of persons who, otherwise under law, is found to be, under the procedural flaw, not competent to initiate the proceedings.
17. In this eventuality in the instant case, where the appellant has sought a waiver, by placing his case under Section 244 of the Companies Act, there has Comp App (AT) (CH) No.38/2024 Page 15 of 30 had to be an incidental consideration of, as to what would be the elements which would be required to be satisfied to permit the appellant to initiate proceedings under Section 241 of the Companies Act, against the respondents.
18. The term "waiver", normally will denote a voluntary relinquishment of a known legal right. But, the said interpretation would not be attracted in the instant case, for the reason being that, here it is a waiver of law which has to be eradicated by waiver in order to make a person eligible who is otherwise ineligible to agitate a cause. So, it is not a renouncement or an abandonment of a right, rather it is, by grant of waiver, a creation of a right to institute a proceedings. If a waiver carves an exception and confers a legal right which is otherwise barred by law, it has to be given a limited meaning, so that, the very purpose of the embargo created by the principal provisions may not be overridden. In the instant case, since the waiver is a concept, added by the proviso to Sub-Clause (b) of Sub-Section (1) of Section 244, the philosophy of waiver shall not be read in exception to the principle provision, but it should be read as to be in addition to qualifying the conditions of the principal provisions of law. At times, the concept of waiver is under either of the circumstances, that, waiver by conduct or waiver by prescription of law. It normally resembles as to be a form of election of a right, but that may not be the case at hand, it is rather not an election, but rather a grant of a right claimed by attracting the proviso, and once it overrides or attempts to or intends to override the principal provision, a very rigid attitude has to be Comp App (AT) (CH) No.38/2024 Page 16 of 30 adopted for granting a waiver and that too particularly, when in the instant case where a right to proceed under section 241 was being sought by only one member of the club, that is the appellant herein, which is nowhere near to the prescribed strength of 1/5th of the total number of members as contemplated under Sub- Clause (b) of Sub-Section (1) of Section 244.
19. Though we are not required to, go into it because we are not dealing with the case under Section 241 or 242, but still for the purposes of getting a constructive interpretation, as to, whether a "waiver" under the proviso to Section 244 could be granted for the purposes of drawing the proceedings under section 241, we would need to outline what act of mismanagement and oppression is. It would literally mean, that, for the purposes of concluding an act as an act of oppression, it would mean to be an act which is exercised in such a manner, which creates a burden, which is harsh, wrongful and contrary to law. All these basic elements for determining an act of oppression for the purposes of proviso to Section 244 have to be specifically satisfied not by way of an intrinsic analysis or on an appreciation of allegations by going into the evidence but only by way of a prima facie interpretation of the set of allegations as to whether at all, the act complained of, is an act of oppression.
20. Particularly in the light of the instant case, if we see the controversy in its entirety of allegations, at the backdrop, it appears as if it is a personal act of vengeance due to discord amongst few members of the club of which the Comp App (AT) (CH) No.38/2024 Page 17 of 30 appellant was a member and under the aforesaid backdrop there happens to be some rift with regards to the contest in elections. If at all, these set of allegations could be contended to prevail, to merit proceeding under Section 241, then it should have been an allegation by generality and not by virtue of an individual allegation and that is why the law has provided that for invoking Section 241, the strength of 1/5th of the members is required. And aforesaid principle was dealt by the NCLAT in the Judgment as reported in 2018 SCC Online page 632, particularly reference may be had to Para 12 which is extracted hereunder: -
"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 and mismanagement and so the Civil Suit was not maintainable and they had sought Comp App (AT) (CH) No.38/2024 Page 18 of 30 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."
21. The aforesaid ratio has specifically postulated that, it would be only in exceptional circumstances, where the waiver could be granted under the proviso of Section 244. The principles of waiver was also considered by the Hon'ble Apex Court in the Judgment reported in 2020 (8) SCC 79, in the Matter of, Aruna Oswal versus Pankaj Oswal and others, in its Para 31, it has observed that where an act of mismanagement or oppression has a blend of a civil dispute, which in the instant case is apparent because Appellant himself is a plaintiff of the two pending civil suits, where he has modulated almost similar relief in declaration of his rights as a member of the club, the waiver under Section 244 ought not to be granted. Para 31 is extracted hereunder: -
"31. We refrain to decide the question finally in these proceedings concerning the effect of nomination, as it being a civil dispute, cannot be decided in these proceedings and the decision may jeopardise parties' rights and interest in the civil suit. With regard to the dispute as to right, title, and interest in the securities, the finding of the civil court is going to be final and conclusive and binding on parties. The decision of such a question has to be eschewed in instant proceedings. It would not be appropriate, in the facts and circumstances of the case, to grant a waiver to the respondent of the requirement under the proviso to Section 244 of the Act, as ordered by NCLAT."Comp App (AT) (CH) No.38/2024 Page 19 of 30
22. The Hon'ble Apex Court, as back as in 1965 in a matter reported in AIR 1965 Supreme Court Page 1535, S. P. Jain versus Kalinga Tubes Limited, had an occasion to deal with the precepts of "oppression" and in the said matter the Hon'ble Apex Court was dealing with Section 153C in relation to The Indian Companies Act, 1913 and Section 397 in relation to the Companies Act of 1956. The Hon'ble Apex Court had elaborately dealt with as to what would the term 'oppression' would actually mean. And the same has been observed in Para 13, 14, and 17. The same are extracted here under: -
"13. We shall first take up the case under Section 397 of the Act and proceed on the assumption that a case has been made out to wind-up the Company on just and equitable grounds. This is a new provision which came for the first time in the Indian Companies Act, 1913 as Section 153-C. That section was based on Section 210 of the English Companies Act, 1948, which was introduced therein for the first time. The purpose of introducing Section 210 in the English Companies Act was to give an alternative remedy to winding up in case of mismanagement or oppression. The law always provided for winding up, in case it was just and equitable to wind up a company. However, it was being felt for sometime that though it might be just and equitable in view of the manner in which the affairs of a company were conducted to wind it up, it was not fair that the company should always be wound up for that reason, particularly when it was otherwise solvent. That is why Section 210 was introduced in the English Act to provide an alternative remedy where it was felt that though a case had been made out on the ground of just and equitable cause to wind up a company, it was not in the interest of the shareholders that the company should be wound up and that it would be better if the company was allowed to Comp App (AT) (CH) No.38/2024 Page 20 of 30 continue under such directions as the court may consider proper to give. That is the genesis of the introduction of Section 153-C in the 1913-Act and Section 397 in the Act.
Section 397 reads thus:
"Application to court for relief in cases of oppression. -(1) Any members of a company who complain that the affairs of the company are being conducted in a manner oppressive to any member or members (including any one or more of themselves) may apply to the court for an order under this section, provided such members have a right so to apply in virtue of Section 399. (2) If, on any application under sub-section (1), the court is of opinion-
(a) that the company affairs are being conducted in a manner oppressive to any member or members; and
(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up;
the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit."
It gives a right to members of a company who comply with the conditions of Section 399 to apply to the court for relief under Section 402 of the Act or such other reliefs as may be suitable in the circumstances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. The court then has power to make such orders under Section 397 read with Section 402 as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that wind up the company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The law however has not Comp App (AT) (CH) No.38/2024 Page 21 of 30 defined what is oppression for purposes of this section, and it is left to courts to decide on the facts of each case whether there is such oppression as calls for action under this section.
14. We may in this connection refer to four cases where the new Section 210 of the English Act came up for consideration, namely, (1) Elder v. Elder and Watson (2) George Meyer v.
Scottish Cooperative Wholesale Society Ltd.2 (3) Scottish Cooperative Wholesale Society Ltd. v. Meyer which was an appeal from Meyer case and (4) Re. H.R. Harmer Limited.
Among the important considerations which have to be kept in view in determining the scope of Section 210, the following matters were stressed in Elder case as summarised at p. 394 in Meyer case:
"(1) The oppression of which a petitioner complains must relate to the manner in which the affairs of the company concerned are being conducted; and the conduct complained of must be such as to oppress a minority of the members (including the petitioners) qua shareholders.
(2) It follows that the oppression complained of must be shown to be brought about by a majority of members exercising as shareholders a predominant voting power in the conduct of the company's affairs.
(3) Although the facts relied on by the petitioner may appear to furnish grounds for the making of a winding up order under the 'just and equitable' rules, those facts must be relevant-to disclose also that the making of a winding up order would unfairly prejudice the minority members qua shareholders. (4) Although the word 'oppressive' is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are 'treating the company and its affairs as if they were their own property' to the prejudice of the minority shareholders and in which just and equitable grounds would exist for the making of a winding up order... but in which the 'alternative' remedy provided by Section 210 by way of an appropriate order might Comp App (AT) (CH) No.38/2024 Page 22 of 30 well be open to the minority shareholders with a view to bringing to an end the oppressive conduct of the majority. (5) The power conferred on the court to grant a remedy in an appropriate case appears to envisage a reasonably wide discretion vested in the court in relation to the order sought by a complainer as the appropriate equitable alternative to a winding-up order."
17. In Harmer case4 it was held that "the word 'oppressive' meant burdensome, harsh and wrongful". It was also held that "the section does not purport to apply to every case in which the facts would justify the making of a winding up order under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression". It was also held that "the result of applications under Section 210 in different cases must depend on the particular facts of each case, the circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision". The circumstances must be such as to warrant the inference that there had been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy". The phrase "oppressive to some part of the members" suggests that the conduct complained of "should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely.... But, apart from this, the question of absence of mutual confidence per se between partners or between two sets of shareholders, however relevant to a winding up seems to have no direct relevance to the remedy granted by Section 210. It is oppression of some part of the shareholders by the manner in which the affairs of the company are being conducted that must be averred and proved. Mere loss of confidence or pure deadlock does not come within Section 210. It is not lack of confidence between shareholders Comp App (AT) (CH) No.38/2024 Page 23 of 30 per se that brings Section 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involves at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder."
23. As per Section 244 of Companies Act 2016, a right to apply under section 241/242, could be granted subject to, the stipulations and restrictions contained under Sub-Section 1. In relation to the instant company of Respondent No. 1, which is not a company limited by shares, but one limited by guarantee, it has provided, that it would be not less than 1/5th of the total number of members who would have the right to apply under Section 241/242 of Companies Act. As far as, the membership of the Respondent No. 1 is concerned there are 900 members and this has been taken as to be a major ground by the Ld. Adjudicating Authority, that since out of 900 members no other member, except for appellant has raised any grievances as against the act of mismanagement and oppression, the restriction of Section 244(1)(b) will come into play. because the condition, of "not less than one fifth of the total number of members" (herein that figure would be approximately have a 180 members) has not been satisfied. In fact, the Tribunal has taken a view that, a waiver under the proviso could not be granted, because none of the other members have ever raised any grievances and since the proceedings under section 244 was sought by only one member in a company limited by guarantee the waiver under the proviso was denied. The proviso of Section 244 Sub-Section (1)(b) provides that "provided that the Tribunal 'may' Comp App (AT) (CH) No.38/2024 Page 24 of 30 on an application made to it in its behalf, 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". The use of word 'May' is directory in nature. The laxity for grant of relaxation by way of a waiver to initiate Section 241 proceedings, which the appellant has argued that it has to be liberally construed owes its justification to the maxim "ut res magis valeat quam-pereat", the implications of the said maxim, as it has been relied by the appellant, was considered in the matters of Anil Agarwal (supra) as reported in 2020 SCC Online NCLT 20290. The said implication was derived from the judgment of the Hon'ble Apex Court in the matters of M/s. Girdhari Lal & Sons Versus Balbir Nath Mathur & Others. The relaxation thus granted therein was on the principle that it is better for a thing to have an effect than to be a void.
24. Contextually, grant of such waiver will mean that, an injustice should be prohibited to be committed where a person is being deprived of his rights to litigate for enforcement of his apparent justifiable rights or from bringing up the issue of mismanagement or oppression, even if there is only one person agitating his grievances but it should not be by way of vengeance or personal vendetta, thus to overcome the embargo of Section 244(1)(b), which can be permitted to be carried under the aforesaid Latin maxim.
25. The ratio which has been extracted to be applied was emanating from proceedings of a rent-control eviction matter, under consideration before the Comp App (AT) (CH) No.38/2024 Page 25 of 30 Hon'ble Apex Court in the matter of M/s. Girdhari Lal's (Supra), where the aspect of the interplay of rent eviction and subletting was subject matter of consideration. Principally the ratio extracted to be applied from the rent control law for the purposes of Section 244 may not be safe enough to grant liberty by way of a, waiver to initiate proceedings Section 241/242 and that is why the Learned Tribunal in the Impugned Judgment, while dealing with the aforesaid principle, has observed that at this stage, in order to avoid any contradiction over the issues which has been raised, which are intertwined with one another, they should not be permitted to be agitated under Section 241 and 242, until and unless the source of allegations as referred to by the appellant, which also engages consideration of the Ld. Trial Court are addressed by it. The relevant finding in relation to the aforesaid aspect has been dealt with in Para 34 of the impugned judgment, as to what would be the parameters which will be required to be considered for the purposes of granting a relaxation by way of a waiver, to initiate a proceeding under Section 241/242, when his grievances are already the subject matter under consideration in the two civil suits preferred by him. The Ld. Tribunal while recording its specific finding about the effect of the Cyrus Mistry Judgment (Supra) has observed in Para 32, which is extracted hereunder.
"32. For the purpose of interpretation of the intention of the legislature, reliance was placed on decision of Hon'ble Supreme Court in "Indian Performing Rights Society Limited v. Sanjay Dalia, (2015) 10 SCC 161". In the said case, for the purpose of interpretation of statute, the Hon'ble Supreme Court referred to Comp App (AT) (CH) No.38/2024 Page 26 of 30 Justice G.P. Singh's "Principles of Statutory Interpretation" 12th Edition, wherein it is observed that regard be had to the subject and object of the Act, the court's effort is to harmonize the words of the statute with the subject of enactment and object the legislature has in view. When two interpretations are feasible, the Court will prefer the one which advances the remedy and suppress the mischief, inconvenience, injustice, absurdity or anomaly. The Hon'ble Supreme Court referred to the Principle of Interpretation:-
"34. The learned author Justice G.P. Singh in Interpretation of Statutes, 12th Edn. has also observed that it is the court's duty to avoid hardship, inconvenience, injustice, absurdity and anomaly while selecting out of different interpretations. The doctrine must be applied with great care and in case absurd inconvenience is to be caused that interpretation has to be avoided. Cases of individual hardship or injustice have no bearing for enacting the natural construction. The relevant discussion at pp. 132-33 and 140-42 is extracted hereunder:
"(a) Hardship, inconvenience, injustice, absurdity and anomaly to be avoided In selecting out of different interpretations 'the court will adopt that which is just, reasonable and sensible rather than that which is none of those things" (Holmes v.
Bradfield Rural District Council [(1949) 2 KB 1: (1949) 1 All ER 381 (DC)], All ER p. 384) as it may be presumed 'that the legislature should have used the word in that interpretation which least offends our sense of justice". (Simms v. Registrar of Probates [1900 AC 323 (PC)], AC p. 335.) If the grammatical construction leads to some absurdity or some repugnance or inconsistency with the rest of the instrument, it may be departed from so as to avoid that absurdity and inconsistency. (Grey v. Pearson [(1857) LR 6 HL Cas 61: (1843-60) All ER Rep 21), HLC p. 106.) Similarly, a construction giving rise to anomalies should be avoided........ xxx"."
Comp App (AT) (CH) No.38/2024 Page 27 of 30
26. That since Respondent No. 1, being a social club of 900 members, proceeding under Section 241/242 couldn't have been initiated until and unless the motion was carried by 1/5th members of the club. The attempt sought for by the appellant of the proviso for waiver will not apply because all the issues which have been sought to be attracted by the appellant to be read for application under Section 244(1)(b) are already subject matter under consideration before the Civil Court in the proceeding which has been initiated by him in a Civil Suit No. 65 of 2022 and 68 of 2022.
27. Owing to the above, we do not find any merit in the appeal for the following reasons:
a. Section 244 (1)(b) creates a strict restriction that, liberty to move application of mismanagement and oppression under Section 241/242 ought not to be granted in respect of a company, which is limited by guarantee, until and unless the motion is carried by one fifth of the members, that is, in the instant case, by at least 180 members out of total
900. Since the above condition was not satisfied, the waiver was rightly rejected.
b. The waiver sought for, under the proviso is not an absolute waiver, which could be granted by the Tribunal as a matter of course because that would always depend upon the facts and circumstances of each case and grant of such waiver will be only when there is a strong case made out and not Comp App (AT) (CH) No.38/2024 Page 28 of 30 merely based on self-generated allegations. Further in the instant case the appellant has already instituted two Civil Suits, on the same subject matter, as it has been pleaded in his application under Section 244(1) and therefore the waiver has rightly been rejected.
c. All his grievances, qua illegalities of Respondent No. 1 which has been complained of by him are still a subject matter of the suit in which he has already amended his relief and which is yet to be considered on merits hence, at this stage rejection of a waiver under Section 244 (1) had been rightly resorted to by Ld. NCLT in order to avoid a multiplicity of proceedings based upon the almost same set of facts and grounds. d. Even if the allegation of Section 241 as argued by Appellant-in-Person too is to be taken into consideration for the purposes of considering the grant of waiver under the proviso to Section 244, we are of the view that, since the same itself has been agitated by the appellant in the Civil Proceedings, the waiver under Section 244 ought not to be granted to the appellant merely on his asking or on the principles of the ratio which he has relied upon by him based upon the guiding factor laid down on the Latin maxim as dealt in M/s. Girdhari Lal and Sons (supra), where the issue in question was entirely different than the one which is involved in the case at hand. e. Owing to the fact, that after the suspension of the appellant, now he has been expelled from the membership of the club, the question here would Comp App (AT) (CH) No.38/2024 Page 29 of 30 be whether at all he has the Locus, at all to continue with the proceedings under Section 241. Since, he has sought to put a challenge to the order of expulsion, by way of an amendment in the suit, the orders on which are reserved, until and unless that is answered by the Ld. Civil Court, there would be no right as such for the appellant to initiate a proceeding under Section 244, 241 & 242, until and unless he continues to be the member of the, club that is the Respondent herein.
f. Since, the proceedings under Section 244, 241 & 242, were instituted subsequently after the filing of the two civil suits which stood instituted on 18.05.2022 & 24.06.2022 and the filing of Section 244 application was on 08.08.2022 was done after failing to get an injunction in two suits, it creates cloud over the bonafides of the appellant.
28. Owing to the aforesaid reasons, the appeal is devoid of merits, and the same is accordingly 'dismissed'. All the 'connected Interlocutory Application' stands 'disposed of'.
[Justice Sharad Kumar Sharma] Member (Judicial) [Jatindranath Swain] Member (Technical) 21.11.2024 SN/TM/MS Comp App (AT) (CH) No.38/2024 Page 30 of 30