Companies ActNCLATRulingsTribunal & Appellate

NCLAT holds that cancellation of shares of minority shareholders without following provisions of the Companies Act amounts to oppression & mismanagement

Mr. S. Gopakumar Nair vs. OBO Bettermann India Private Limited

NCLAT sets aside the impugned order of the NCLT and finds acts of cancelling the shares of Petitioners amounts to oppression and mismanagement by the Respondents; holds that Company Petition is maintainable under Sections 241, 242 of the Act.

In the present matter, Mr. S. Gopakumar Nair (Original Petitioner 1/Appellant 1) and Smt. Asha Devi (Original Petitioner 2/Appellant 2) has appealed against impugned order of the NCLT. The Appellants filed Company Petition before the National Company Law Tribunal at Chennai (NCLT) under Sections 241 to 244 read with 246, 337 to 341 of the Companies Act, 2013 against the Respondents – Respondent No.1 – OBO Bettermann India Private Limited (OBO India) the “Company” and Respondent No.2 – OBO Bettermann Holding – GMBH(OBO Germany). Appellants aver that Respondent no.2 along with the Appellants are shareholders in the Respondent No.1 Company. Respondent No.2 made attempts to buy out the equity shares of the Petitioners pursuant to Put and Call Option Agreement and when the Appellants did not respond, the Respondent No.2 who was in control of Respondent No.1, issued Notices under the provisions of Section 236 of The Companies Act, 2013 (“Act” in short) and went ahead to buy the shares of the Appellants in spite of their resistance. Consequently, the Appellants as Petitioners filed the Company Petition raising various grievances with regard to the documents executed and curtailing their shares. In the impugned order, NCLT held that the Respondent No.2 had acquired the shareholding of the minority shareholders, i.e. the Petitioners and thus, the Petitioners did not hold any shares in Respondent No.1 Company and were not eligible to maintain Application under Section 241 of the Act.   

As regards the issue of maintainability of the Company Petition, NCLAT examines the Company Petition and the documents on record and observes that it cannot agree with the findings of the NCLT. NCLAT observes from the Company Petition that the fact that there were three shareholders viz. Respondent no.1 company and the original petitioners stands undisputed. NCLAT observes that Section 244(1)(a) of the Act makes it clear that for Right to apply under Section 241 amongst the criterion, one of the criteria is that the Members of the company not less than one-tenth of the total number of its members should file the application under Section 241 making grievances of oppression and mismanagement.  When there were only three members and two of them (petitioners) filed the Company Petition claiming that they have been wrongly and oppressively deprived of their shares, and were subjected to other oppressive acts as stated, they had the number of Members required and it was a dispute to be decided whether or not they have lost whole of their shareholding and NCLT could not have simply accepted whatever the respondents claimed (and which was disputed by the petitioner) that they have duly complied and enforced Section 236 of the Act. NCLAT sets aside the findings of NCLT that the appellants-original petitioners did not hold any shareholding and hence they were not eligible and holds that Appellants/Original Petitioners were and are eligible to maintain the Company Petition on the basis of number of Members.

With regards Section 236 of the Act-Applicability or otherwise , NCLAT finds that the question is whether the present set of facts can be said to be covered by Section 236  of the Act so as to throw out the appellant-petitioners without following up on the agreement and resorting to the law as appearing in Section 236. NCLAT observes that Section 236 deals with the residuary in the event of all assenting shareholders and amalgamation or share exchange or conversion of securities taking place need may arise to those who have become 90% majority or are holding 90% to acquire the remaining minority shareholding. NCLAT observes that the present set of facts of this matter as do not fall in any of such or similar contingency so as to be covered by the words “for any other reason”. NCLAT finds that Section 236 was not available to the Respondents. NCLAT observes that Sub-Section (1) of Section 236 for its applicability would require occurring of “the event” of any person or group of persons becoming 90% of majority or holding 90% of the issued share capital of a company and that event too must be, by virtue of amalgamation, share exchange, conversion of securities or for any other reasons but no such “event” has taken place in the present set of facts and there is a gradual entry of Respondent No.2 in Respondent No.1 and there are a set of agreements to which even the Respondent No.1 is a party and which were to be honoured and in the event of dispute the affected had the option to move arbitration.  There could not be a one sided takeover by Respondent No.2 who had by way of agreements got 99% shares in Respondent No.1 and thus was akin to Respondent No.1. NCLAT concludes that Section 236 of the Act was inapplicable to the facts of the matter. Further, with regards Invoking of Section 236, NCLAT observed that the provision of Section 236 has drastic nature of forcibly transferring the shares and when this is so the Section 236 has to be strictly construed and applied. In the present matter apart from the fact that Section 236 could not have been invoked in the set of facts, NCLAT finds that even if it could have been resorted to, in the absence of valuation by registered valuer, shares could not have been deemed to be cancelled under Section 236(6). NCLAT states that only because the Central Government, till the relevant time when Respondent No.2 sent notice had not appointed registered valuer or framed rules for basis of valuation, can be no reason to enforce Section 236 which has the potential to forcibly taking away the property of original petitioners, i.e. their shares. NCLAT further observes that Section 236 (2) requires that there should be “valuation by a registered valuer in accordance with such rules as may be prescribed”. If Section 236 of the Act has to survive, it has to be insisted upon that the valuation must necessarily be by registered valuer and that too in accordance with the rules prescribed.  

The Legislature has made a special Chapter XVII relating to Registered Valuer and upon perusal of Section 247, NCLAT observes that Legislature has taken precautions to ensure that there should be valuers who shall be impartial, exercise due diligence and make valuation in accordance with the rules as may be prescribedNCLAT states that there can be no comparison between such valuers and the said “reputed Chartered Accountant” being relied on by the respondents. 

NCLAT states that it cannot uphold the findings of NCLT which has not at all either dealt with applicability of Section 236 or the manner in which respondents have tried to enforce the same and simply accepted whatever was claimed by the respondents in their application that they have already taken over the shares of original petitioners and so the petitioners are not shareholders and so they cannot maintain the petition.  Conversely, NCLT finds that the petition was maintainable at the behest of original petitioners who were inter alia challenging the manner of take over of their shares and who constituted 2/3rd of the members of the company and were perfectly competent to maintain the company petition. NCLAT holds that the notices given by the respondents under Section 236 and their subsequent act of cancelling the shares of the original petitioners were illegal and stands set aside and such acts of Respondent constituted oppression of minority shareholders-the petitioner. NCLAT thus, sets aside the impugned order and holds that Appellants could maintain the Company Petition under Section 241, 242 of the Act.  NCLAT further hold that in the facts of the matter, respondents could not have invoked Section 236 of the Companies Act, 2013 as it did not apply, and holds that even if the section could be invoked, the notices issued by the respondents under Section 236 of the Act and the communication cancelling the shares of the original petitioners, are illegal and sets aside the same. Such acts amounts to oppression of the Appellants/Petitioners. 

Consequently, NCLAT holds that the shareholding of the original petitioners shall stand restored and Register of Members of Respondent No.1 will be corrected, and benefits will be granted to Appellants ignoring these acts under Section 236 of the respondents.


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