NCLAT Rules, NCLT May Waive Eligibility Criteria U/S 244(1)(b) Of Companies Act When Allegations Of Oppression & Mismanagement Are Not Previously Adjudicated
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that the National Company Law Tribunal (NCLT) is empowered to waive the eligibility criteria under Section 244(1)(b) of the Companies Act, 2013 where allegations of oppression and mismanagement have been raised by members and such allegations have neither been adjudicated previously nor found to be frivolous. The bench comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) passed the order in Company Appeal (AT) No. 56 of 2024 arising out of an order passed by the NCLT Kolkata Bench on 17.01.2024 in IA(CA) No. 183/KB/2023 filed in Company Petition No. 287/KB/2023.
Background
Respondents No. 16 to 19, who were members of the general committee of the Calcutta Cricket & Football Club—a Section 8 company without share capital—filed a petition before the NCLT under Sections 241 and 242 of the Companies Act, 2013, alleging acts of oppression and mismanagement in the affairs of the club. Since they did not satisfy the threshold of not less than one-fifth of total members (approximately 1850), as mandated under Section 244(1)(b), they also filed an interlocutory application seeking waiver of this requirement.
The NCLT, after considering the facts, allowed the waiver application and permitted the petitioners to pursue their complaint under Sections 241 and 242 of the Act. This led to the filing of the present appeal by Somangsu Biswas, also a general committee member of the club.
Appellant's Arguments
The Appellant primarily argued that the petitioners comprised only four individuals, which is far below the statutory requirement of 20% membership. It was contended that the NCLT’s decision to allow waiver was arbitrary and unsupported by adequate reasoning. The appellant further submitted that the order was passed without giving notice to all respondents and that the allegations in the petition did not prima facie justify the grant of a waiver.
The appellant relied on the precedent laid down in Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd. to argue that waiver can only be granted after the tribunal is satisfied that the allegations relate to oppression and mismanagement and have not been adjudicated earlier.
Respondents’ Submissions
On the other hand, the contesting respondents argued that proper service was effected and that no objections were raised about the lack of notice at the time of hearing. They maintained that the allegations raised in the petition were not frivolous and had not been adjudicated before.
They pointed out that the allegations included wrongful removal of general committee members, illegal convening of the AGM, financial misappropriation, and concealment of related-party transactions. Additionally, a group of 90 members of the club had written a letter dated 22.08.2023 to the management echoing the same concerns raised in the petition.
It was also submitted that since the club enjoys a rich heritage and plays a significant role in promoting sports, the matter carried broader public interest, further justifying the grant of waiver under the proviso to Section 244(1)(b).
Observations by the Tribunal
The National Company Law Appellate Tribunal (NCLAT) closely examined whether the National Company Law Tribunal (NCLT) rightly exercised its discretion under the proviso to Section 244(1)(b) of the Companies Act, 2013, to grant waiver to the petitioners for initiating proceedings under Sections 241 and 242 alleging oppression and mismanagement. Applying the test laid down in Cyrus Investments Pvt. Ltd. & Anr. v. Tata Sons Ltd. & Ors., the NCLAT reiterated that the Tribunal must consider four key factors before deciding on waiver applications:
Whether the applicants are members of the company;
Whether the proposed petition pertains to oppression and mismanagement;
Whether similar allegations have already been adjudicated;
Whether exceptional circumstances exist that justify granting the waiver.
In this case, the Tribunal noted that the petitioners were indeed members of the Calcutta Cricket & Football Club (the Respondent Company), which is a Section 8 company with no share capital and around 1,850 members. The petition was filed by four of its members.
The NCLAT highlighted that the NCLT had taken note of substantial allegations in the main petition, including the challenge to the validity of an Annual General Meeting held on 11th September 2023, the wrongful contention that the petitioners ceased to be committee members, and allegations of embezzlement and violation of High Court orders.
Further, the NCLT acknowledged that internal disputes had surfaced within the club, and emphasized the public interest owing to the club’s longstanding reputation and its role in promoting sports. This made it imperative to allow the petition to proceed. The Tribunal found no evidence that similar allegations were adjudicated earlier, and thus the conditions of sub-clauses (i), (ii), and (iii) of the test in Cyrus Investments were fulfilled. Additionally, the NCLT had before it a letter dated 22.08.2023 signed by 90 other members raising concerns of mismanagement, lending further weight to the existence of exceptional circumstances justifying the waiver.
Importantly, the NCLAT emphasized that the decision to grant waiver is a discretionary power rooted in the Tribunal’s ability to determine whether a prima facie case of oppression and mismanagement exists and whether public interest is involved. It underscored that the merits of the case are not to be evaluated at the waiver stage; rather, the existence of a serious cause requiring adjudication is sufficient. The NCLAT also dismissed the appellant's argument that the NCLT's order lacked sufficient reasoning. The Appellate Tribunal concluded that the NCLT had clearly recorded its satisfaction regarding the allegations and exercised its discretion judiciously.
In view of these detailed observations and in the absence of any adjudicated prior claims, the NCLAT held that the NCLT rightly exercised its discretion to grant waiver under Section 244(1)(b) of the Companies Act, 2013.
Verdict
The NCLAT concluded that the NCLT was right in granting the waiver under Section 244 of the Companies Act, 2013, as all relevant factors, including public interest, internal disputes, and the credibility of the allegations, were duly considered. The Tribunal found no perversity or arbitrariness in the discretion exercised by the NCLT and held that this was not a case where interference was warranted. Accordingly, the appeal was dismissed. All pending connected applications were closed with no order as to costs.
Appearance
For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Mr. Gaurav Mitra, Ms. Sonia Dube, Ms. Kanchan Yadav, Ms. Saumya Sharma, Ms. Heena Kochar, Advocates.
For Respondents: Mr. Ratnanko Banerji, Sr. Advocate with Mr. Rishav Banerji, Ms. Srishti Barman Roy, Mr. Ankur S. Kulkarni and Ms. Rishika Goyal, Ms. Priya S. Bhalerao, Advocates for R-1.
Mr. Shaunak Mitra, Mr. Abhishek Singh, Mr. Anmol Agarwal, Advocates for R- 13.
Cause Title: Somangsu Biswas V. The Calcutta Cricket & Football Club and Ors.
Case No: Company Appeal (AT) No. 56 Of 2024
Coram: Justice Yogesh Khanna [Member (Judicial)], Mr. Ajai Das Mehrotra [Member (Technical)]
[Read/Download order]
