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11 May 2025
NCLT-May-Waive-Eligibility-Criteria-244-Of-Companies-Act-When-Allegations-Of-Oppression-And-Mismanagement-Are-Not-Previously-Adjudicated
Case Summary: Mohd Malik Chauhan v. [Respondents]
| Aspect | Details |
|---|---|
| Court | National Company Law Appellate Tribunal (NCLAT) |
| Date of Judgment | 10 April 2025 |
| Appellant | Mohd Malik Chauhan |
| Respondents | [Respondents – not named in the summary; assumed to be company directors or majority shareholders] |
| Provision Involved | Section 244(1)(b) read with Section 241 of the Companies Act, 2013 |
| Key Issue | Whether the NCLT can waive the eligibility requirement under Section 244(1)(b) when allegations of oppression and mismanagement have not been previously decided. |
Legal Framework
| Section | Provision Summary |
|---|---|
| Section 241 | Allows members to apply to the NCLT for relief in case of oppression and mismanagement. |
| Section 244(1)(b) | Requires minimum 10% of share capital or 1/10th of total members for filing an application under Section 241. |
| Proviso to 244(1) | Gives the NCLT discretion to waive this requirement in appropriate cases. |
Factual Background
| Detail | Explanation |
|---|---|
| Shareholding | Mr. Chauhan held less than 10% of the company’s issued share capital. |
| Application Filed | Under Section 241 for oppression and mismanagement. |
| Relief Sought | Waiver of eligibility criteria under Section 244(1)(b). |
| NCLT’s Decision | Rejected the waiver application, stating Mr. Chauhan did not meet the eligibility and that allegations were vague. |
| Appeal to NCLAT | Mr. Chauhan challenged NCLT’s rejection before the NCLAT. |
NCLAT’s Analysis
| Factor Considered | Explanation by NCLAT |
|---|---|
| Nature of Allegations | Allegations were serious, detailed, and had not been previously adjudicated—prima facie case of oppression/mismanagement existed. |
| Past Adjudication | Since the issues had not been decided earlier by any forum, waiver under Section 244(1) was appropriate. |
| Minority Protection Principle | Emphasized that minority shareholders should not be barred from accessing justice due to rigid thresholds if they raise genuine concerns. |
| Judicial Discretion | The power to waive is discretionary, but must be exercised judiciously by assessing whether the applicant has a substantial stake and serious grievance. |
Precedent Considered
| Case Name | Relevance |
|---|---|
| Cyrus Mistry v. Tata Sons Ltd. | Waiver was granted for shareholders holding below 10% of share capital due to the merit of the allegations and the interest in the company’s affairs. |
| Kishore Kundanlal Sippy v. Samrat Shipping | Reinforced that the NCLT has discretionary power to waive eligibility requirements in bona fide and serious cases. |
Final Decision by NCLAT
| Order | Explanation |
|---|---|
| NCLT Order Set Aside | NCLAT found the NCLT’s refusal to waive eligibility improper and lacking in legal reasoning. |
| Waiver Granted | Waiver under Section 244(1)(b) granted in favor of Mr. Chauhan. |
| Petition Restored | Section 241 petition allowed to proceed before the NCLT on merits. |
Significance of the Judgment
| Implication | Impact |
|---|---|
| Broader Minority Protection | Strengthens rights of minority shareholders to seek remedy against corporate misgovernance. |
| Eases Procedural Rigor | Allows flexibility where rigid enforcement of thresholds would block genuine grievances. |
| Encourages Judicial Discretion | Affirms that Tribunals must evaluate the totality of circumstances, not just technical shareholding levels. |
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