NCLAT Clarifies Only Existing Members Can Seek Relief for Oppression and Mismanagement under Companies Act

NCLAT Clarifies Only Existing Members Can Seek Relief for Oppression and Mismanagement under Companies Act

Introduction

The National Company Law Appellate Tribunal (NCLAT) at Chennai has ruled that only existing members of a company are entitled to seek relief for oppression and mismanagement under Section 244 of the Companies Act, 2013.

Factual Background

The dispute arose from a long-standing issue at the Madras Race Club, where 635 individuals were removed from the club's register after a special audit and judicial inquiry found they didn't meet eligibility norms. Two removed members, R D Ramasamy and M Magesh Kumar, later filed a petition alleging oppression and mismanagement, seeking a waiver under Section 244(1)(b).

Issues

1. Whether a person who is not a current member of a company can seek relief under Section 244 of the Companies Act, 2013?
2. Whether "exceptional circumstances" can be a ground for granting a waiver under Section 244(1)(b) to a non-member?

Contentions of the Parties

Appellant's Contentions: The Madras Race Club argued that only current members can invoke Section 244, and the petitioners were no longer members.

Respondents' Contentions: The removed members argued that they had enjoyed membership for over two decades and deserved to be heard on allegations of mismanagement.

Reasoning and Analysis

The bench of Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain held that membership is a legal prerequisite for seeking a waiver under Section 244(1)(b). The tribunal rejected the argument that "exceptional circumstances" could justify granting a waiver to non-members, warning that allowing non-members to file such applications would create procedural chaos.

Decision

The NCLAT set aside the NCLT's order granting the waiver and allowed the appeal filed by Madras Race Club. The tribunal ruled that the status of "existing member" is a strict prerequisite under Section 244 and that past membership does not grant a right to initiate proceedings.

Implications

The judgment clarifies that only current members of a company can seek relief under Section 244 of the Companies Act, 2013, and that past membership or exceptional circumstances do not confer this right on non-members.

In this case the appellant was represented by Ms. Preeti Mohan and Ms. M Nandita Krishnan, Advocates. Meanwhile the respondent was represented by Mr. D.Sreenivasan and Mr. V Jai Hari Sudhan (Advocates for R1) along with Mr. A Thiyagarajan and Mr. NR Rajagopalan, Sr Advocates.