NCLAT Upholds ERP Access for Minority Directors, Cites Right to Information

NCLAT Upholds ERP Access for Minority Directors, Cites Right to Information

Introduction

The National Company Law Appellate Tribunal (NCLAT) has upheld a direction granting Enterprise Resource Planning (ERP) access to a minority shareholder and director group of an iron and steel company.

Factual Background

The dispute arises from a long-running conflict between the shareholders of Arya Iron & Steel Co. Pvt. Ltd. (Arya Iron), specifically between the Pawan Arya Group and Ravi Arya Group, each holding 25.5% of shares. The Ravi Arya Group had filed a petition before the Mumbai Bench of the National Company Law Tribunal (NCLT) alleging oppression and mismanagement.

Procedural Background

The NCLT directed Arya Iron to provide ERP access to the directors of Ravi Arya if similar access was available to others. Arya Iron appealed against this direction before the NCLAT.

Contentions of the Parties

Arya Iron: Opposed the direction to grant ERP access, arguing that the rival group had links with a competing company that had poached key employees and misused confidential information of Arya Iron.

Ravi Arya Group: Claimed entitlement to ERP access as directors of the company.

Reasoning and Analysis

The Bench of Justice Yogesh Khanna (Judicial Member) and Ajai Das Mehrotra (Technical Member) noted that Section 128(3) of the Companies Act, 2013 grants every director the right to inspect the company's books of accounts. The Tribunal held that such access could not be denied merely on suspicion of misuse unless there was tangible evidence that the director had acted to the detriment of the company.

Decision

The NCLAT upheld the NCLT's direction, requiring Arya Iron to either grant remote ERP access to all directors, including those from the Ravi Arya Group, or to revoke it for everyone equally.

Implications

The decision highlights the importance of balancing the rights of directors with concerns about confidentiality and highlights that access to company information cannot be denied without tangible evidence of misuse.

In this case Arya Iron was represented by Mr. Arun Kathpalia, Advocate.